-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UQtsjBoacmUKcxw/qNOVW/tvyMop5bb7ciQpQhfiMtRio3sngtTNHSP4ZlgC3Koe BOVRUkjY43cXDi833DNrZg== 0000898430-01-504115.txt : 20020413 0000898430-01-504115.hdr.sgml : 20020413 ACCESSION NUMBER: 0000898430-01-504115 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011031 FILED AS OF DATE: 20011228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUSSELL FRANK INVESTMENT CO CENTRAL INDEX KEY: 0000351601 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 911151059 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03153 FILM NUMBER: 1825774 BUSINESS ADDRESS: STREET 1: 909 A ST 6TH FL CITY: TACOMA STATE: WA ZIP: 98402 BUSINESS PHONE: 2066277001 MAIL ADDRESS: STREET 1: 909 A ST STREET 2: 11TH FLOOR CITY: TACOMA STATE: WA ZIP: 98402 N-30D 1 dn30d.txt RUSSELL FUNDS 2001 ANNUAL REPORT RUSSELL FUNDS FRANK RUSSELL INVESTMENT COMPANY 2001 ANNUAL REPORT CLASS C, E, AND S SHARES DIVERSIFIED EQUITY FUND SPECIAL GROWTH FUND EQUITY INCOME FUND QUANTITATIVE EQUITY FUND INTERNATIONAL SECURITIES FUND EMERGING MARKETS FUND REAL ESTATE SECURITIES FUND SHORT TERM BOND FUND DIVERSIFIED BOND FUND MULTISTRATEGY BOND FUND TAX EXEMPT BOND FUND TAX-MANAGED LARGE CAP FUND TAX-MANAGED SMALL CAP FUND CLASS C, E, I, AND S SHARES SELECT GROWTH FUND SELECT VALUE FUND OCTOBER 31, 2001 [LOGO] RUSSELL FUNDS 2001 ANNUAL REPORT FRANK RUSSELL INVESTMENT COMPANY FRANK RUSSELL INVESTMENT COMPANY Frank Russell Investment Company is a "series mutual fund" with 31 different investment portfolios. These financial statements report on fifteen Funds, each of which has distinct investment objectives and strategies. FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY Responsible for overall management and administration of the Funds. FRANK RUSSELL COMPANY Consultant to Frank Russell Investment Management Company. FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS ANNUAL REPORT OCTOBER 31, 2001 TABLE OF CONTENTS Page Letter to Our Clients ....................................... 3 Diversified Equity Fund ..................................... 4 Special Growth Fund ......................................... 20 Equity Income Fund .......................................... 40 Quantitative Equity Fund .................................... 54 International Securities Fund ............................... 68 Emerging Markets Fund ....................................... 88 Real Estate Securities Fund ................................. 106 Short Term Bond Fund ........................................ 116 Diversified Bond Fund ....................................... 132 Multistrategy Bond Fund ..................................... 154 Tax Exempt Bond Fund ........................................ 180 Tax-Managed Large Cap Fund .................................. 198 Tax-Managed Small Cap Fund .................................. 210 Select Growth Fund .......................................... 228 Select Value Fund ........................................... 242 Notes to Financial Statements ............................... 255 Report of Independent Accounts .............................. 273 Tax Information ............................................. 274 Manager, Money Managers and Service Providers ............... 275 FRANK RUSSELL INVESTMENT COMPANY - RUSSELL FUNDS Copyright (C) Frank Russell Company 2001. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Frank Russell Company. It is delivered on an "as is" basis without warranty. The Russell logo is a trademark and service mark of Frank Russell Company. Frank Russell Company and Standard & Poor's Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. This material must be accompanied or preceded by a current Frank Russell Investment Company Prospectus containing complete information concerning the investment objectives and operations of the Company, charges, and expenses. The Prospectus should be read carefully before an investment is made. The performance quoted represents past performance and the investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Investments in securities of non-US issuers and foreign currencies involve investment risks different than those of US issuers; the Prospectus contains further information and details regarding these risks. Russell Fund Distributors, Inc., is the distributor of Frank Russell Investment Company. TO OUR CLIENTS We are pleased to present the Frank Russell Investment Company 2001 Annual Report. This report covers information on fifteen of the Funds and represents our twentieth year in operation. We remain committed to providing our clients with superior investment solutions through the benefits of multi-manager, multi-style diversification used in structuring our Funds. The commitment proved worthwhile in 2001, as our Funds, in general, provided solid returns as compared to their respective benchmarks and attracted many new investors. Frank Russell Investment Management Company (FRIMCo) continuously evaluates the Funds we offer our clients. Each of these Funds is carefully monitored by Russell investment professionals to ensure that the most appropriate investment advisors and strategies are utilized within each Fund. The advisors are monitored by FRIMCo using the expertise and advice of the Investment Policy and Research group of Frank Russell Company. Since the close of 2000 we have implemented changes in our Funds' structure which we believe will benefit current and potential investors. The Select Growth and Select Value Funds were opened for investment in January 2001, providing diversified investment approaches to equity markets that compliment the existing families of Russell and Institutional Funds. Thank you for your continued confidence and investment with Frank Russell Investment Company. We look forward to 2002 and continuing to earn your support. Sincerely, /s/ LYNN L. ANDERSON Lynn L. Anderson Chairman of the Board Frank Russell Investment Company DIVERSIFIED EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide income and capital growth by investing principally in equity securities. INVESTS IN: Primarily US equity securities. STRATEGY: The Fund uses a multi-sytle, multi-manager strategy intended to achieve higher returns with moderate risk. The Fund employed the investment management services of eleven managers with three separate and distinct investment styles. GROWTH OF A $10,000 INVESTMENT Dates Diversified Equity - Class S Russell 1000(R)** - ----- ---------------------------- ----------------- Inception* $10,000 $10,000 1992 $10,901 $11,075 1993 $12,703 $12,823 1994 $13,144 $13,221 1995 $16,325 $16,791 1996 $20,053 $20,640 1997 $26,730 $27,211 1998 $30,984 $32,576 1999 $38,173 $40,909 2000 $39,512 $44,615 2001 $28,683 $32,997 YEARLY PERIODS ENDED OCTOBER 31 DIVERSIFIED EQUITY FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------- ----------- ----------- 1 Year $ 7,259 (27.41)% 5 Years $14,304 7.42%(S) 10 Years $28,683 11.10%(S) DIVERSIFIED EQUITY FUND - CLASS E++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------- ----------- ----------- 1 Year $ 7,241 (27.59)% 5 Years $14,082 7.08%(S) 10 Years $28,239 10.93%(S) DIVERSIFIED EQUITY FUND - CLASS C++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------- ----------- ----------- 1 Year $ 7,186 (28.14)% 5 Years $13,805 6.66%(S) 10 Years $27,682 10.71%(S) RUSSELL 1000(R) INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------- ----------- ----------- 1 Year $ 7,396 (26.04)% 5 Years $15,987 9.84%(S) 10 Years $32,997 12.68%(S) DIVERSIFIED EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the year ended October 31, 2001, the Diversified Equity Fund Class S, Class E and Class C shares lost 27.41%, 27.59% and 28.14%, respectively. This compared to a loss of 26.04% for the Russell 1000(R) Index. The Fund's performance was in line with its benchmark index in a market environment marked by unusually difficult events. These included terrorist attacks on September 11, 2001 that caused investor confidence to plummet. The attacks came after a heavy slate of sluggish economic news and declining corporate earnings announcements. This fiscal year also witnessed a reversal in monetary policy. At the beginning of the period, financial markets were still feeling the negative effects of the multiple interest rate hikes made by the Federal Reserve Board (Fed) during early 2000. By the end of the period, market participants were anxiously waiting for the numerous rate cuts during fiscal 2001 to gain traction, and help revive the struggling economy. PORTFOLIO HIGHLIGHTS Major shifts in political leadership, monetary policy, economic standing and national security resulted in high levels of sector and market volatility that impacted the Fund's performance. The Fund's fully invested posture cost some excess returns as expected in a declining market. The Fund's solid manager lineup, which was put in place in spring of 2000, generally seized opportunities to reinforce positions expected to outperform should the economy and markets recover, rather than playing the psychologically-based sector rotations of the down market. The reporting period began with Fund's managers reducing the weight of their holdings in the embattled technology sector to about a 4% underweight relative to the Russell 1000(R) Index weight. While an underweight at the aggregate fund level was maintained during the year, it was reduced towards fiscal year-end to approximately a 1 1/2% underweight relative to the benchmark as managers took advantage of attractive valuations resulting from market downturns. Peachtree differed in its approach by returning to the technology sector by calendar year-end 2000. While market preference alternated between sectors, growth and value investment styles, and capitalization tiers, defensive segments of the market generally won over aggressive sectors. Therefore, the Fund managers' predominant underweight in utilities and consumer staples dampened returns. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 Citigroup, Inc. 3.0% General Electric Co. 2.5 Pfizer, Inc. 2.4 Exxon Mobil Corp. 2.0 Johnson & Johnson 1.8 Wal-Mart Stores, Inc. 1.8 American International Group, Inc. 1.4 Microsoft Corp. 1.4 Procter & Gamble Co. 1.4 International Business Machines Corp. 1.3 PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 21.5x Portfolio Price/Book Ratio 3.15x Market Capitalization - $-Weighted Average 80.70 Bil Number of Holdings 635 MONEY MANAGERS STYLES Alliance Capital Management, LP Growth Alliance Capital Management, LP - Bernstein Investment Research & Management Unit Value Barclays Global Fund Advisors Value Jacobs Levy Equity Management, Inc. Market-Oriented MFS Institutional Advisors, Inc. Value Marsico Capital Management, LLC Growth Peachtree Asset Management Market-Oriented Strong Capital Management, Inc. Growth Suffolk Capital Management, Inc. Market-Oriented Turner Investment Partners, Inc. Growth Westpeak Global Advisors, LP Market-Oriented * Diversified Equity Fund Class S assumes initial investment on November 1, 1991. ** Russell 1000(R) Index includes the 1,000 largest companies in the Russell 3000(R) Index, the smallest of which is valued at about $1.4 billion. The Russell 1000(R) Index represents the universe of stocks from which most active money managers typically select. The Russell 1000(R) Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates. ++ Diversified Equity Fund Class S performance has been linked with Class E to provide historical perspective. For the period May 27, 1997 (commencement of sale) to May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Diversified Equity Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Diversified Equity Fund 5 DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------- ------- COMMON STOCKS - 93.6% AUTO AND TRANSPORTATION - 2.3% Airborne, Inc. 4,820 48 AMR Corp. (a) 5,620 102 ArvinMeritor, Inc. 3,985 60 Atlantic Coast Airlines, Inc. (a) 3,000 56 Autoliv, Inc. 35,300 566 Burlington Northern Santa Fe Corp. 53,450 1,436 Canadian National Railway Co. 19,700 780 Continental Airlines, Inc. Class B (a) 53,540 936 Dana Corp. 10,000 108 Delphi Automotive Systems Corp. 91,700 1,065 Delta Air Lines, Inc. 25,130 574 Expeditors International of Washington, Inc. 2,820 127 FedEx Corp. (a) 13,520 555 Ford Motor Co. 120,195 1,929 General Motors Corp. 59,112 2,444 Genuine Parts Co. 9,910 322 Goodyear Tire & Rubber Co. 40,600 756 Harley-Davidson, Inc. 68,700 3,110 Hunt (JB) Transportation Services, Inc. (a) 970 13 Kansas City Southern Industries, Inc. (a) 1,850 23 Lear Corp. (a) 53,600 1,646 Norfolk Southern Corp. 106,000 1,776 Northwest Airlines Corp. Class A (a) 72,800 935 Overseas Shipholding Group, Inc. 1,700 42 PACCAR, Inc. 24,000 1,268 Skywest, Inc. 30,786 563 Southwest Airlines Co. 162,857 2,590 Tidewater, Inc. 360 11 TRW, Inc. 9,900 335 UAL Corp. 75,100 955 Union Pacific Corp. 27,924 1,452 Visteon Corp. 12,100 144 -------- 26,727 -------- CONSUMER DISCRETIONARY - 12.5% 99 Cents Only Stores (a) 3,100 110 Alberto-Culver Co. Class B 6,000 254 Amazon.com, Inc. (a) 10,210 71 AOL Time Warner, Inc. (a) 468,830 14,631 Apollo Group, Inc. Class A (a) 2,570 104 Argosy Gaming Co. (a) 3,700 107 AutoNation, Inc. (a) 74,890 771 AutoZone, Inc. (a) 14,500 849 Avon Products, Inc. 9,100 426 Banta Corp. 3,500 102 Bed Bath & Beyond, Inc. (a) 32,200 807 Best Buy Co. (a) 94,140 5,168 BJ's Wholesale Club, Inc. (a) 10,400 528 Black & Decker Corp. 35,200 1,165 Brinker International, Inc. (a) 13,680 347 Career Education Corp. (a) 5,000 130 Carnival Corp. 8,210 179 CBRL Group, Inc. 12,100 304 CDW Computer Centers, Inc. (a) 7,100 327 Cendant Corp. (a) 30,300 393 Chicos FAS, Inc. (a) 1,800 47 Circuit City Stores - Circuit City Group 11,680 160 Clear Channel Communications, Inc. (a) 36,016 1,373 Copart, Inc. (a) 2,100 62 Costco Wholesale Corp. (a) 114,270 4,323 Darden Restaurants, Inc. 33,580 1,075 Disney (Walt) Co. 326,942 6,078 Donnelley (R.R.) & Sons Co. 31,280 798 EarthLink, Inc. (a) 73,131 1,071 Eastman Kodak Co. 7,390 189 eBay, Inc. (a) 23,600 1,239 Electronic Arts, Inc. (a) 17,700 911 Fastenal Co. 12,300 726 Federated Department Stores, Inc. (a) 131,050 4,192 Four Seasons Hotels, Inc. 50,601 1,935 Gannett Co., Inc. 43,090 2,723 Gillette Co. (The) 77,000 2,394 GTECH Holdings Corp. (a) 20,780 829 Harrah's Entertainment, Inc. (a) 5,640 164 Hilton Hotels Corp. 36,200 310 Home Depot, Inc. (The) 317,317 12,131 Insight Communications Co., Inc. Class A (a) 960 20 International Game Technology (a) 14,100 720 JC Penney & Co., Inc. 24,140 524 Jones Apparel Group, Inc. (a) 620 17 Kimberly-Clark Corp. 19,140 1,062 KMart Corp. (a) 24,800 152 Kohl's Corp. (a) 168,200 9,354 Lamar Advertising Co. Class A (a) 4,000 126 Leggett & Platt, Inc. 4,400 95 Liberty Media Corp. (a) 269,430 3,150 Limited, Inc. (The) 11,980 134 Liz Claiborne, Inc. 5,700 259 Lowe's Companies, Inc. 149,200 5,088 Mattel, Inc. (a) 20,210 383 May Department Stores Co. 47,940 1,508 McDonald's Corp. 29,980 782 MGM Grand, Inc. (a) 3,590 80 Monsanto Co. 7,780 244 New York Times Co. Class A 8,520 351 Newell Rubbermaid, Inc. 17,510 484 NIKE, Inc. Class B 3,700 183 Office Depot, Inc. (a) 26,500 360 6 Diversified Equity Fund DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- Omnicom Group, Inc. 40,956 3,145 Park Place Entertainment Corp. (a) 18,290 131 Payless ShoeSource, Inc. (a) 3,130 165 Reebok International, Ltd. (a) 7,700 160 Republic Services, Inc. (a) 6,320 104 Ruby Tuesday, Inc. 4,600 79 Saks, Inc. (a) 8,430 57 Sears Roebuck & Co. 89,650 3,476 Stanley Works, (The) 5,400 207 Starwood Hotels & Resorts Worldwide, Inc. Class B 14,870 328 Target Corp. 95,630 2,979 Tech Data Corp. (a) 3,700 158 THQ, Inc. (a) 500 25 Ticketmaster Class B (a) 1,170 16 Tiffany & Co. 108,562 2,539 TJX Cos., Inc. 12,400 419 Toys "R" Us, Inc. (a) 4,800 91 Tribune Co. 22,960 693 Tricon Global Restaurants, Inc. (a) 22,900 1,159 USA Networks, Inc. (a) 110,140 2,031 V.F. Corp. 20,430 679 Venator Group, Inc. (a) 5,040 73 Viacom, Inc. Class A (a) 280 10 Viacom, Inc. Class B (a) 223,228 8,150 Viad Corp. 760 15 Wal-Mart Stores, Inc. 410,327 21,090 Wallace Computer Services, Inc. 6,860 106 Waste Management, Inc. 51,430 1,260 Wendy's International, Inc. 20,500 539 West Corp. (a) 740 17 Westwood One, Inc. (a) 3,060 73 Whirlpool Corp. 10,120 597 -------- 145,150 -------- CONSUMER STAPLES - 6.3% Albertson's, Inc. 11,000 351 Anheuser-Busch Cos., Inc. 104,573 4,357 Campbell Soup Co. 15,040 425 Clorox Co. (The) 10,480 374 Coca-Cola Co. (The) 32,080 1,536 Colgate-Palmolive Co. 20,749 1,193 ConAgra, Inc. 5,200 119 Coors (Adolph) Co. Class B 310 15 Diageo PLC - ADR 16,100 658 Dial Corp. 78,700 1,313 Dole Food Co., Inc. 840 17 General Mills, Inc. 24,800 1,139 Heinz (H.J.) Co. 5,770 245 Hershey Foods Corp. 3,500 223 Hormel Foods Corp. 21,950 527 Interstate Bakeries Corp. 7,990 188 J.M. Smucker Co., (The) 53,700 1,796 Kellogg Co. 49,510 1,510 Kraft Foods, Inc. 45,160 1,524 Kroger Co. (a) 20,200 494 Pepsi Bottling Group, Inc. (The) 3,900 181 PepsiCo, Inc. 306,011 14,906 Performance Food Group Co. (a) 3,000 88 Philip Morris Cos., Inc. 197,930 9,263 Procter & Gamble Co. 218,920 16,152 R.J. Reynolds Tobacco Holdings, Inc. 18,300 1,026 Ralston-Purina Group 4,840 159 Safeway, Inc. (a) 41,900 1,745 Sara Lee Corp. 31,150 694 SuperValu, Inc. 71,540 1,527 SYSCO Corp. 53,350 1,286 Tyson Foods, Inc. Class A 37,145 364 Unilever NV 8,348 434 UST, Inc. 27,444 922 Walgreen Co. 181,550 5,879 Winn-Dixie Stores, Inc. 14,500 160 Wrigley (Wm.), Jr. Co. 3,900 195 -------- 72,985 -------- FINANCIAL SERVICES - 19.0% Aetna, Inc. (a) 25,300 699 Affiliated Computer Services, Inc. Class A (a) 16,000 1,409 AFLAC, Inc. 14,960 366 Allied Capital Corp. 2,290 52 Allmerica Financial Corp. (a) 490 19 Allstate Corp. 102,830 3,227 AMBAC Financial Group, Inc. 7,330 352 American Express Co. 85,430 2,514 American Financial Group, Inc. 3,930 87 American International Group, Inc. 211,696 16,639 AmeriCredit Corp. (a) 2,020 31 AmSouth Bancorp 57,580 996 AON Corp. 3,400 129 Apartment Investment & Management Co. Class A (e) 10,900 457 Associated Banc-Corp. 2,120 73 BancWest Corp. 990 35 Bank of America Corp. 234,218 13,817 Bank One Corp. 75,320 2,500 BB&T Corp. 22,000 706 BISYS Group, Inc. (a) 20,100 1,046 Block (H&R), Inc. 6,940 237 Capital One Financial Corp. 15,570 643 Charter One Financial, Inc. 16,401 447 Chubb Corp. (The) 15,470 1,057 Diversified Equity Fund 7 DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- CIGNA Corp. 9,820 716 Cincinnati Financial Corp. 5,260 196 Citigroup, Inc. 754,930 34,364 CNA Financial Corp. (a) 4,020 101 Colonial BancGroup, Inc. 2,140 27 Comerica, Inc. 9,710 448 Commerce Bancshares, Inc. 605 22 Compass Bancshares, Inc. 3,310 83 Concord EFS, Inc. (a) 83,780 2,293 Conseco, Inc. (a) 45,800 137 Countrywide Credit Industries, Inc. 26,080 1,041 Crescent Real Estate Equities, Co. (e) 3,820 67 Deluxe Corp. 2,490 87 Dime Bancorp, Inc. 1,170 40 DST Systems, Inc. (a) 4,560 187 Duke-Weeks Realty Corp. (e) 20,540 473 Eaton Vance Corp. 3,200 90 Edwards (A.G.), Inc. 5,000 198 Equity Office Properties Trust (e) 60,112 1,713 Equity Residential Properties Trust (e) 58,320 1,513 Federal Home Loan Mortgage Corp. 177,760 12,056 Federal National Mortgage Association 162,868 13,186 Federated Investors, Inc. Class B 10,680 279 FelCor Lodging Trust, Inc. (e) 6,450 90 Fidelity National Financial, Inc. 710 16 Fifth Third Bancorp 10,562 596 First American Financial Corp. 6,700 112 First Data Corp. 44,880 3,033 First Tennessee National Corp. 3,090 107 FirstMerit Corp. 720 17 Fiserv, Inc. (a) 27,630 1,028 FleetBoston Financial Corp. 222,824 7,322 Franklin Resources, Inc. 61,300 1,968 Fulton Financial Corp. 3,371 74 Gallagher (Arthur J.) & Co. 4,000 146 Golden State Bancorp, Inc. 5,530 140 Golden West Financial Corp. 21,980 1,068 Goldman Sachs Group, Inc. 65,700 5,135 Greenpoint Financial Corp. 5,850 187 Hartford Financial Services Group, Inc. (The) 34,690 1,873 Hibernia Corp. Class A 8,850 135 Household International, Inc. 34,680 1,814 Huntington Bancshares, Inc. 42,680 659 Investment Technology Group (a) 270 17 J.P. Morgan Chase & Co. 201,405 7,122 Jefferson-Pilot Corp. 47,705 1,973 John Hancock Financial Services, Inc. 12,890 439 KeyCorp 44,090 937 Lehman Brothers Holdings, Inc. 127,874 7,987 Lincoln National Corp. 21,020 890 Loews Corp. 13,070 664 Marsh & McLennan Cos., Inc. 2,340 226 Marshall & Ilsley Corp. 910 53 MBIA, Inc. 8,545 394 MBNA Corp. 215,060 5,938 Mellon Financial Corp. 87,000 2,923 Merrill Lynch & Co., Inc. 117,880 5,153 MetLife, Inc. 16,270 438 MGIC Investment Corp. 7,450 385 MONY Group, Inc. (The) 900 27 Moody's Corp. 6,100 212 Morgan Stanley Dean Witter & Co. 132,210 6,468 National City Corp. 45,950 1,213 National Commerce Financial Corp. 4,160 95 New Dun & Bradstreet Corp. (The) (a) 1,480 46 New York Community Bancorp, Inc. 9,500 238 Old National Bancorp 730 18 Old Republic International Corp. 38,950 988 PMI Group, Inc. (The) 2,110 117 PNC Bank Corp. 47,330 2,598 Popular, Inc. 1,570 46 Principal Financial Group, Inc. (The)(a) 31,910 718 Progressive Corp. 4,010 556 Protective Life Corp. 2,480 68 Radian Group, Inc. 1,950 66 Regions Financial Corp. 31,160 839 Reinsurance Group of America 660 21 SAFECO Corp. 44,800 1,382 Schwab (Charles) Corp. 127,320 1,640 SEI Investments Co. 9,190 283 Simon Property Group, Inc. (e) 18,040 496 SouthTrust Corp. 117,650 2,666 St. Paul Cos., Inc. 13,400 615 Stilwell Financial, Inc. 7,370 148 SunGard Data Systems (a) 13,100 330 SunTrust Banks, Inc. 12,200 730 T. Rowe Price Group, Inc. 7,150 198 TCF Financial Corp. 3,320 139 TD Waterhouse Group, Inc. (a) 5,790 55 Torchmark Corp. 10,560 391 U.S. Bancorp 139,715 2,484 Union Planters Corp. 8,490 344 UnionBanCal Corp. 21,990 734 UnumProvident Corp. 25,810 579 USA Education, Inc. 66,166 5,396 Wachovia Corp. (a) 91,810 2,626 Washington Federal, Inc. 2,140 48 Washington Mutual, Inc. 151,786 4,582 Wells Fargo & Co. 76,772 3,032 -------- 221,146 -------- 8 Diversified Equity Fund DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- HEALTH CARE - 14.9% Abbott Laboratories 206,050 10,917 Allergan, Inc. 8,700 625 American Home Products Corp. 80,000 4,466 AmerisourceBergen Corp. (a) 3,663 233 Amgen, Inc. (a) 84,820 4,819 Apria Healthcare Group, Inc. (a) 10,620 244 Bard (C.R.), Inc. 900 49 Baxter International, Inc. 175,300 8,479 Becton, Dickinson & Co. 68,820 2,464 Biomet, Inc. 54,950 1,676 Biovail Corp. (a) 9,000 425 Boston Scientific Corp. (a) 48,700 1,107 Bristol-Myers Squibb Co. 116,110 6,206 Cardinal Health, Inc. 66,850 4,486 Caremark Rx, Inc. (a) 11,200 150 Cephalon, Inc. (a) 36,000 2,270 Cerner Corp. (a) 3,200 172 Charles River Laboratories International, Inc. (a) 3,700 124 Chiron Corp. (a) 23,260 1,252 DaVita, Inc. (a) 11,850 216 DENTSPLY International, Inc. 5,430 244 Elan Corp. PLC - ADR (a) 23,500 1,073 First Health Group Corp. (a) 12,230 330 Forest Labs, Inc. (a) 57,440 4,272 Genentech, Inc. (a) 55,770 2,914 Genzyme Corp. (a) 27,700 1,494 Guidant Corp. (a) 84,200 3,503 HCA-The Healthcare Co. 61,200 2,427 Health Net, Inc. (a) 21,220 466 HEALTHSOUTH Corp. (a) 16,200 211 Humana, Inc. (a) 8,570 99 ICOS Corp. (a) 2,440 141 IDEC Pharmaceuticals Corp. (a) 24,580 1,474 IMS Health, Inc. 38,490 823 InterMune, Inc. (a) 4,600 201 IVAX Corp. (a) 104,849 2,155 Johnson & Johnson 368,360 21,333 King Pharmaceuticals, Inc. (a) 64,020 2,496 Laboratory Corp. of America Holdings (a) 21,100 1,819 Lilly (Eli) & Co. 57,110 4,369 McKesson HBOC, Inc. 21,500 795 MedImmune, Inc. (a) 44,231 1,736 Medtronic, Inc. 42,000 1,693 Merck & Co., Inc. 110,020 7,020 Novartis AG - ADR 34,800 1,310 Oxford Health Plans, Inc. (a) 23,700 558 Perrigo Co. (a) 9,720 144 Pfizer, Inc. 659,757 27,645 Pharmaceutical Product Development, Inc. (a) 3,640 97 Pharmacia Corp. 38,721 1,569 Quest Diagnostics, Inc. (a) 38,356 2,508 Schering-Plough Corp. 79,300 2,948 St. Jude Medical, Inc. (a) 14,600 1,037 Steris Corp. (a) 11,140 250 Stryker Corp. 8,000 450 Tenet Healthcare Corp. (a) 137,885 7,931 Trigon Healthcare, Inc. (a) 6,600 405 UnitedHealth Group, Inc. 184,562 12,135 Universal Health Services, Inc. Class B (a) 7,800 315 Varian Medical Systems, Inc. (a) 1,030 69 VISX, Inc. (a) 5,990 70 WebMD Corp. (a) 7,500 34 Wellpoint Health Networks, Inc. (a) 5,330 595 -------- 173,538 -------- INTEGRATED OILS - 4.1% Amerada Hess Corp. 16,110 946 ChevronTexaco Corp. (a) 74,707 6,616 Conoco, Inc. (a) 136,865 3,517 Exxon Mobil Corp. 582,090 22,964 Kerr-McGee Corp. 23,710 1,366 Murphy Oil Corp. 7,100 564 Occidental Petroleum Corp. 108,100 2,737 Phillips Petroleum Co. 45,106 2,454 Royal Dutch Petroleum Co. 12,200 616 Unocal Corp. 48,300 1,555 USX-Marathon Group 151,530 4,181 -------- 47,516 -------- MATERIALS AND PROCESSING - 4.2% Air Products & Chemicals, Inc. 97,080 3,887 Airgas, Inc. (a) 8,890 120 AKZO Nobel - ADR 39,100 1,606 Albemarle Corp. 6,610 132 Alcoa, Inc. 173,062 5,584 American Standard Cos., Inc. (a) 46,140 2,672 Archer-Daniels-Midland Co. 219,245 3,054 Ashland, Inc. 18,660 751 Barrick Gold Corp. 2,420 38 Bemis Co., Inc. 1,660 72 Boise Cascade Corp. 6,630 189 Catellus Development Corp. (a) 27,640 475 Crown Cork & Seal Co., Inc. 11,070 20 Dow Chemical Co. 30,566 1,016 Dycom Industries, Inc. (a) 1,130 14 E.I. du Pont de Nemours & Co. 42,055 1,682 Eastman Chemical Co. 18,270 627 Energizer Holdings, Inc. (a) 7,793 129 Diversified Equity Fund 9 DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- Engelhard Corp. 8,700 228 Freeport-McMoRan Copper & Gold, Inc. Class B (a) 3,660 41 Fuller (H.B.) Co. 400 21 Harsco Corp. 3,010 96 Hercules, Inc. (a) 46,500 352 International Paper Co. 46,900 1,679 Lafarge Corp. 4,720 167 LNR Property Corp. 1,400 39 Longview Fibre Co. 2,400 26 Lubrizol Corp. 3,600 101 Masco Corp. 53,210 1,055 Nucor Corp. 15,100 624 Owens-Illinois, Inc. (a) 3,040 19 Packaging Corp. of America (a) 5,610 99 Placer Dome, Inc. 2,360 27 PPG Industries, Inc. 55,380 2,704 Praxair, Inc. 89,670 4,230 Precision Castparts Corp. 7,100 161 Rayonier, Inc. 2,990 128 Rohm & Haas Co. 22,200 721 Sherwin-Williams Co. 55,040 1,341 Smurfit-Stone Container Corp. (a) 42,800 634 Sonoco Products Co. 8,870 208 Syngenta AG - ADR (a) 117,200 1,205 Temple-Inland, Inc. 3,800 190 Tyco International, Ltd. 195,442 9,603 Vulcan Materials Co. 5,830 242 Westvaco Corp. 26,510 651 Weyerhaeuser Co. 7,550 377 Willamette Industries, Inc. 6,650 312 Worthington Industries, Inc. 3,720 48 -------- 49,397 -------- MISCELLANEOUS - 3.5% Brunswick Corp. 4,540 81 Crane Co. 6,170 126 Eaton Corp. 2,380 156 Fortune Brands, Inc. 15,400 567 General Electric Co. 801,371 29,179 Georgia-Pacific Group 36,630 1,017 Honeywell International, Inc. 36,732 1,085 Illinois Tool Works, Inc. 14,200 812 ITT Industries, Inc. 8,090 389 Johnson Controls, Inc. 12,470 902 Lancaster Colony Corp. 1,080 34 Minnesota Mining & Manufacturing Co. 55,260 5,768 Textron, Inc. 18,900 598 -------- 40,714 -------- OTHER ENERGY - 2.0% Anadarko Petroleum Corp. 26,500 1,512 Apache Corp. 34,170 1,763 Baker Hughes, Inc. 9,400 337 BJ Services Co. (a) 3,130 80 Calpine Corp. (a) 121,200 3,000 Devon Energy Corp. 39,114 1,498 El Paso Corp. 38,600 1,894 Enron Corp. 174,880 2,431 EOG Resources, Inc. 34,300 1,213 Forest Oil Corp. (a) 1,480 41 Global Marine, Inc. (a) 31,000 499 Helmerich & Payne, Inc. 1,350 41 Louis Dreyfus Natural Gas Corp. (a) 790 31 Massey Energy Co. 1,240 25 Mitchell Energy & Development Corp. Class A 2,400 128 Nabors Industries, Inc. (a) 15,400 473 Patterson-UTI Energy, Inc. (a) 5,050 91 Schlumberger, Ltd. 40,500 1,961 Smith International, Inc. (a) 38,443 1,818 Sunoco, Inc. 15,280 572 Transocean Sedco Forex, Inc. 16,300 491 Ultramar Diamond Shamrock Corp. 15,790 790 Valero Energy Corp. 13,500 508 Williams Cos. (The) 59,460 1,717 -------- 22,914 -------- PRODUCER DURABLES - 3.5% Agilent Technologies, Inc. (a) 19,610 437 Alliant Techsystems, Inc. (a) 4,950 432 Alstom - ADR 26,400 405 Andrew Corp. (a) 9,380 170 Applied Materials, Inc. (a) 101,940 3,477 B.F. Goodrich Co. 27,870 595 Boeing Co. (The) 42,940 1,397 Caterpillar, Inc. 63,530 2,841 Celestica, Inc. (a) 111,480 3,826 Centex Corp. 8,400 321 Cooper Industries, Inc. 3,050 118 Cummins Engine Co., Inc. 6,200 194 D.R. Horton, Inc. 10,768 241 Danaher Corp. 25,400 1,416 Deere & Co. 106,200 3,928 Diebold, Inc. 3,010 109 Dover Corp. 9,480 312 Emerson Electric Co. 15,550 762 FEI Co. (a) 930 25 Grainger (W.W.), Inc. 12,000 520 Hubbell, Inc. Class B 4,700 128 10 Diversified Equity Fund DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- Ingersoll-Rand Co. 3,550 132 KB HOME 9,340 276 Kennametal, Inc. 6,800 239 KLA Tencor Corporation (a) 16,300 666 Lennar Corp. 8,150 296 Lockheed Martin Corp. 156,256 7,621 M.D.C. Holdings, Inc. 3,700 99 Northrop Grumman Corp. 3,420 342 Novellus Systems, Inc. (a) 15,400 509 NVR, Inc. (a) 900 142 Pall Corp. 1,710 35 Pentair, Inc. 6,590 209 Pitney Bowes, Inc. 40,620 1,489 Polycom, Inc. (a) 72,500 2,174 Pulte Corp. 6,430 209 RF Micro Devices, Inc. (a) 17,800 364 Rockwell Collins 11,230 152 Ryland Group, Inc. (The) 4,100 219 Stewart & Stevenson Services, Inc. 650 10 Tecumseh Products Co. Class A 400 18 Tektronix, Inc. (a) 50,980 1,004 Toll Brothers, Inc. (a) 9,100 284 United Technologies Corp. 34,710 1,871 Xerox Corp. 64,480 451 ------- 40,465 ------- TECHNOLOGY - 12.7% 3Com Corp. (a) 5,370 22 Accenture, Ltd. (a) 5,620 99 Activision, Inc. (a) 2,100 76 Advanced Micro Devices, Inc. (a) 64,200 632 Analog Devices, Inc. (a) 59,310 2,254 Apple Computer, Inc. (a) 68,640 1,205 Applied Micro Circuits Corp. (a) 27,000 298 Ariba, Inc. (a) 14,000 46 Arrow Electronics, Inc. (a) 7,200 176 Atmel Corp. (a) 133,286 1,060 Autodesk, Inc. 43,000 1,428 Automatic Data Processing, Inc. 20,400 1,054 Avaya, Inc. (a) 2,440 22 Avnet, Inc. 15,260 315 AVX Corp. 7,410 137 BEA Systems, Inc. (a) 30,700 373 BMC Software, Inc. (a) 59,240 893 Broadcom Corp. Class A (a) 68,430 2,355 Brocade Communications Systems, Inc. (a) 57,920 1,422 Cirrus Logic, Inc. (a) 30,000 334 Cisco Systems, Inc. (a) 737,260 12,473 Commerce One, Inc. (a) 55,000 138 CommScope, Inc. (a) 860 17 COMPAQ Computer Corp. 109,830 961 Computer Associates International, Inc. 31,670 979 Computer Sciences Corp. (a) 3,920 141 Compuware Corp. (a) 13,520 139 Corning, Inc. 41,050 331 Dell Computer Corp. (a) 211,630 5,075 Electronic Data Systems Corp. 97,600 6,283 Electronics for Imaging, Inc. (a) 1,403 28 EMC Corp. (a) 91,800 1,131 Flextronics International, Ltd. (a) 89,110 1,773 General Dynamics Corp. 59,938 4,891 General Motors Corp. Class H (a) 4,891 67 Harris Corp. 56,100 1,923 Hewlett-Packard Co. 69,110 1,163 Imation Corp. (a) 1,320 28 Ingram Micro, Inc. Class A (a) 6,390 82 Intel Corp. 536,090 13,091 International Business Machines Corp. 142,391 15,387 International Rectifier Corp. (a) 36,400 1,278 Intuit, Inc. (a) 40,000 1,609 JDS Uniphase Corp. (a) 237,220 1,895 Juniper Networks, Inc. (a) 120,440 2,685 Keane, Inc. (a) 4,730 67 KEMET Corp. (a) 13,820 247 L-3 Communications Holdings, Inc. (a) 11,290 981 Linear Technology Corp. 42,990 1,668 LSI Logic Corp. (a) 8,060 137 Lucent Technologies, Inc. 99,040 664 Maxim Integrated Products, Inc. (a) 10,655 487 Microchip Technology, Inc. (a) 17,900 559 Micron Technology, Inc. (a) 137,610 3,132 Microsoft Corp. (a) 279,290 16,240 Motorola, Inc. 43,730 716 Motorola, Inc. (units)(a) 26,800 1,320 National Semiconductor Corp. (a) 13,500 351 NVIDIA Corp. (a) 51,400 2,203 Oracle Corp. (a) 399,960 5,423 PanAmSat Corp. (a) 1,080 23 PerkinElmer, Inc. 6,400 172 QUALCOMM, Inc. (a) 138,205 6,788 Raytheon Co. 87,620 2,826 Rockwell International Corp. 75,840 1,045 Sabre Holdings Corp. (a) 5,700 150 Sanmina Corp. (a) 42,000 636 Scientific-Atlanta, Inc. 17,500 365 Siebel Systems, Inc. (a) 62,200 1,016 Storage Technology Corp. (a) 11,270 212 Sun Microsystems, Inc. (a) 255,600 2,594 Sybase, Inc. (a) 4,670 64 Texas Instruments, Inc. 170,530 4,773 Unisys Corp. (a) 59,500 531 UTStarcom, Inc. (a) 7,490 176 Diversified Equity Fund 11 DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------- --------- VeriSign, Inc. (a) 54,830 2,122 Veritas Software Corp. (a) 37,500 1,064 Vitesse Semiconductor Corp. (a) 27,000 255 Xilinx, Inc. (a) 35,500 1,080 --------- 147,856 --------- UTILITIES - 8.6% AGL Resources, Inc. 39,000 805 Allegheny Energy, Inc. 16,980 621 Alliant Energy Corp. 5,900 173 Alltel Corp. 9,960 569 Amdocs, Ltd. (a) 33,055 863 Ameren Corp. 12,470 500 American Electric Power Co., Inc. 36,330 1,522 AT&T Corp. 364,916 5,564 AT&T Wireless Services, Inc. (a) 496,889 7,174 BellSouth Corp. 97,210 3,597 Cablevision NY Group Class A (a) 35,500 1,216 Cablevision Systems Corp. (Rainbow Media Group) (a) 880 19 Centennial Cellular Corp. Class A (a) 1,330 12 CenturyTel, Inc. 1,950 62 Cinergy Corp. 16,020 483 CMS Energy Corp. 24,500 527 Comcast Corp. Special Class A (a) 156,967 5,625 Consolidated Edison, Inc. 16,530 653 Constellation Energy Group 66,290 1,483 Cox Communications, Inc. Class A (a) 39,630 1,518 Dominion Resources, Inc. 23,240 1,420 DPL, Inc. 8,600 198 DTE Energy Co. 5,751 240 Duke Energy Corp. 25,220 969 Edison International (a) 9,630 137 Entergy Corp. 15,970 620 Exelon Corp. 45,135 1,899 FirstEnergy Corp. 54,690 1,885 FPL Group, Inc. 24,610 1,307 KeySpan Corp. 9,000 299 Level 3 Communications, Inc. (a) 10,660 37 MDU Resources Group, Inc. 620 15 Mirant Corp. New (a) 12,822 333 National Fuel Gas Co. 74,800 1,751 NICOR, Inc. 29,700 1,155 NiSource, Inc. 47,600 1,131 Nokia Corp. - ADR 134,600 2,761 Northeast Utilities 11,700 207 NSTAR 39,680 1,632 PG&E Corp. 27,980 505 Pinnacle West Capital Corp. 49,890 2,103 Potomac Electric Power Co. 12,410 266 PPL Corp. 21,860 747 Progress Energy, Inc. 4,730 199 Progress Energy, Inc. - CVO (a) 5,500 2 Public Service Co. of New Mexico 3,960 97 Public Service Enterprise Group, Inc. 17,930 706 Questar Corp. 2,200 48 Qwest Communications International, Inc. 59,145 766 Reliant Energy, Inc. 29,540 826 SBC Communications, Inc. 220,486 8,403 Sempra Energy 43,190 1,011 Sprint Corp. (Fon Group) 205,700 4,114 Sprint Corp. (PCS Group) (a) 209,694 4,676 TeleCorp PCS, Inc. Class A (a) 5,360 72 Telephone & Data Systems, Inc. 2,680 236 TXU Corp. 43,420 1,990 UtiliCorp United, Inc. 6,630 196 Verizon Communications, Inc. 289,062 14,397 Vodafone Group PLC - ADR 74,642 1,726 Western Resources, Inc. 34,930 572 WGL Holdings, Inc. 37,900 1,026 Wisconsin Energy Corp. 18,600 413 WorldCom, Inc. - WorldCom Group (a) 161,500 2,172 Xcel Energy, Inc. 76,965 2,177 --------- 100,428 --------- TOTAL COMMON STOCKS (cost $1,111,396) 1,088,836 --------- PREFERRED STOCKS - 0.1% Embraer Aircraft Corp. - ADR 37,024 635 --------- TOTAL PREFERRED STOCKS (cost $1,377) 635 --------- See accompanying notes which are an integral part of the financial statements. 12 Diversified Equity Fund DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- --------- SHORT-TERM INVESTMENTS - 5.7% Frank Russell Investment Company Money Market Fund (b) 57,338 57,338 United States Treasury Bills (c)(d)(f) 2.070% due 12/20/01 6,900 6,880 2.200% due 12/20/01 2,000 1,994 --------- TOTAL SHORT-TERM INVESTMENTS (cost $66,212) 66,212 --------- TOTAL INVESTMENTS - 99.4% (identified cost $1,178,985) 1,155,683 --------- OTHER ASSETS AND LIABILITIES, NET - 0.6% 7,245 --------- NET ASSETS - 100.0% 1,162,928 ========= NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) FUTURES CONTRACTS $ (000) ----------- -------------- S&P 500 Index expiration date 12/01 63,112 $ (2,894) S&P Midcap 400 Index expiration date 12/01 12,186 (794) --------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ (3,688) ========= (a) Nonincome-producing security. (b) At net asset value. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) Rate noted is yield-to-maturity from date of acquisition. (e) Real Estate Investment Trust (REIT). (f) At amortized cost, which approximates market. Abbreviations: ADR - American Depositary Receipt See accompanying notes which are an integral part of the financial statements. Diversified Equity Fund 13 DIVERSIFIED EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (including securities on loan of $47,305), (identified cost $1,178,985) ....... $ 1,155,683 Receivables: Dividends ......................................................................................... 1,106 Investments sold .................................................................................. 19,691 Fund shares sold .................................................................................. 3,863 From Advisor ...................................................................................... 16 Daily variation margin on futures contracts ....................................................... 213 Short-term investments held as collateral for securities loaned, at market .......................... 49,432 ----------- Total assets .................................................................................... 1,230,004 LIABILITIES Payables: Investments purchased ............................................................... $ 15,386 Fund shares redeemed ................................................................ 1,006 Accrued fees to affiliates .......................................................... 1,037 Other accrued expenses .............................................................. 215 Payable upon return of securities loaned .............................................. 49,432 ----------- Total liabilities ............................................................................... 67,076 ----------- NET ASSETS .......................................................................................... $ 1,162,928 =========== NET ASSETS CONSIST OF: Undistributed net investment income ................................................................. $ 70 Accumulated net realized gain (loss) ................................................................ (69,947) Unrealized appreciation (depreciation) on: Investments ....................................................................................... (23,302) Futures contracts ................................................................................. (3,688) Shares of beneficial interest ....................................................................... 320 Additional paid-in capital .......................................................................... 1,259,475 ----------- NET ASSETS .......................................................................................... $ 1,162,928 =========== NET ASSET VALUE, offering and redemption price per share: Class C ($20,221,524 divided by 564,304 shares of $.01 par value shares of beneficial interest outstanding) ....................................................... $ 35.83 =========== Class E ($23,586,407 divided by 648,789 shares of $.01 par value shares of beneficial interest outstanding) ....................................................... $ 36.35 =========== Class S ($1,119,119,815 divided by 30,787,724 shares of $.01 par value shares of beneficial interest outstanding) ....................................................... $ 36.35 ===========
See accompanying notes which are an integral part of the financial statements. 14 Diversified Equity Fund DIVERSIFIED EQUITY FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Dividends ............................................................... $ 15,889 Dividends from Money Market Fund ........................................ 3,077 Securities Lending Income ............................................... 74 ---------- Total investment income ............................................... 19,040 EXPENSES Advisory fees ............................................ $ 9,753 Administrative fees ...................................... 784 Custodian fees ........................................... 745 Distribution fees - Class C .............................. 156 Transfer agent fees ...................................... 1,616 Professional fees ........................................ 98 Registration fees ........................................ 173 Shareholder servicing fees - Class C ..................... 52 Shareholder servicing fees - Class E ..................... 54 Trustees' fees ........................................... 23 Miscellaneous ............................................ 186 ---------- Expenses before reductions ............................... 13,640 Expense reductions ....................................... (14) ---------- Expenses, net ......................................................... 13,626 ---------- Net investment income ..................................................... 5,414 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments .............................................. (152,340) Futures contracts ........................................ (27,153) Foreign currency-related transactions .................... 1 $ (179,492) ---------- Net change in unrealized appreciation (depreciation) on: Investments .............................................. (257,449) Futures contracts ........................................ (1,683) (259,132) ---------- ---------- Net realized and unrealized gain (loss) ................................... (438,624) ---------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ..................... $ (433,210) ==========
See accompanying notes which are an integral part of the financial statements. Diversified Equity Fund 15 DIVERSIFIED EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ------------------- ------------------- ------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income .......................................... $ 5,414 $ 5,735 $ 7,419 Net realized gain (loss) ....................................... (179,492) 26,047 257,824 Net change in unrealized appreciation (depreciation) ........... (259,132) (99,507) (14,918) ------------------ ----------------- ------------------ Net increase (decrease) in net assets from operations ........ (433,210) (67,725) 250,325 ------------------ ----------------- ------------------ DISTRIBUTIONS From net investment income Class C ...................................................... -- -- (1) Class E ...................................................... (38) (47) (23) Class S ...................................................... (5,374) (5,444) (8,208) From net realized gain Class C ...................................................... (110) (375) (1,313) Class E ...................................................... (111) (303) (1,234) Class S ...................................................... (6,876) (35,620) (152,916) ------------------ ----------------- ------------------ Net decrease in net assets from distributions .............. (12,509) (41,789) (163,695) ------------------ ----------------- ------------------ SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions .. 51,007 69,489 135,012 ------------------ ----------------- ------------------ TOTAL NET INCREASE (DECREASE) IN NET ASSETS ...................... (394,712) (40,025) 221,642 NET ASSETS Beginning of period ............................................ 1,557,640 1,597,665 1,376,023 ------------------ ----------------- ------------------ End of period (including undistributed net investment income of $70 at October 31, 2001) ...................................... $ 1,162,928 $ 1,557,640 $ 1,597,665 ================== ================= ==================
See accompanying notes which are an integral part of the financial statements. 16 Diversified Equity Fund DIVERSIFIED EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD .............................. $ 50.12 $ 54.13 $ 52.04 ------- ------- ------- INCOME FROM OPERATIONS Net investment income (a) ....................................... (.24) (.24) (.20) Net realized and unrealized gain (loss) ......................... (13.82) (2.55) 8.14 ------- ------- ------- Total income from operations .................................. (14.06) (2.79) 7.94 ------- ------- ------- DISTRIBUTIONS From net investment income ...................................... -- -- (.03) From net realized gain .......................................... (.23) (1.22) (5.82) ------- ------- ------- Total distributions ........................................... (.23) (1.22) (5.85) ------- ------- ------- NET ASSET VALUE, END OF PERIOD .................................... $ 35.83 $ 50.12 $ 54.13 ======= ======= ======= TOTAL RETURN (%)(b) ............................................... (28.14) (5.07) 15.83 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ........................ 20,222 21,526 14,787 Ratios to average net assets (%)(c): Operating expenses ............................................ 1.99 1.94 1.94 Net investment income ......................................... (.58) (.56) (.41) Portfolio turnover rate (%) ..................................... 146.81 141.75 110.36
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period January 27, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Diversified Equity Fund 17 DIVERSIFIED EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ------------------------------------- 2001* 2000** 1999 1998 1997*** --------- --------- --------- --------- --------- NET ASSET VALUE, BEGINNING OF PERIOD........................... $ 50.55 $ 54.43 $ 51.40 $ 43.64 $ 45.55 --------- --------- --------- --------- --------- INCOME FROM OPERATIONS Net investment income (a).................................... .07 .08 .13 .10 .06 Net realized and unrealized gain (loss)...................... (13.96) (2.57) 8.81 10.34 7.97 --------- --------- --------- --------- --------- Total income from operations............................... (13.89) (2.49) 8.94 10.44 8.03 --------- --------- --------- --------- --------- DISTRIBUTIONS From net investment income................................... (.08) (.17) (.09) (.08) (.07) From net realized gain....................................... (.23) (1.22) (5.82) (2.60) (9.87) --------- --------- --------- --------- --------- Total distributions........................................ (.31) (1.39) (5.91) (2.68) (9.94) --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD ................................ $ 36.35 $ 50.55 $ 54.43 $ 51.40 $ 43.64 ========= ========= ========= ========= ========= TOTAL RETURN (%)(b)............................................ (27.59) (4.49) 17.95 24.59 15.99 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)..................... 23,586 19,666 12,958 9,007 2,839 Ratios to average net assets (%)(c): Operating expenses......................................... 1.24 1.19 1.19 1.33 1.63 Net investment income...................................... .17 .19 .23 .21 .10 Portfolio turnover rate (%).................................. 146.81 141.75 110.36 100.31 114.11
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period May 27, 1997 (commencement of sale) to December 31, 1997. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 18 Diversified Equity Fund DIVERSIFIED EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 2001* 2000** 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD ............ $ 50.55 $ 54.33 $ 51.39 $ 43.64 $ 41.45 $ 38.62 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS Net investment income (a) .................... .18 .19 .28 .30 .37 .48 Net realized and unrealized gain (loss) ....... (13.97) (2.57) 8.79 10.34 12.06 8.15 ---------- ---------- ---------- ---------- ---------- ---------- Total income from operations ................ (13.79) (2.38) 9.07 10.64 12.43 8.63 ---------- ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS From net investment income .................... (.18) (.18) (.31) (.29) (.37) (.48) From net realized gain ........................ (.23) (1.22) (5.82) (2.60) (9.87) (5.32) ---------- ---------- ---------- ---------- ---------- ---------- Total distributions ......................... (.41) (1.40) (6.13) (2.89) (10.24) (5.80) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD................... $ 36.35 $ 50.55 $ 54.33 $ 51.39 $ 43.64 $ 41.45 ========== ========== ========== ========== ========== ========== TOTAL RETURN (%)(b) ............................. (27.41) (4.28) 18.21 25.11 31.32 23.29 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ...... 1,119,120 1,516,448 1,569,920 1,367,016 1,042,620 699,691 Ratios to average net assets (%)(c): Operating expenses .......................... .99 .94 .93 .91 .92 .94 Net investment income ....................... .42 .45 .51 .62 .80 1.18 Portfolio turnover rate (%) .................. 146.81 141.75 110.36 100.31 114.11 99.90
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Diversified Equity Fund 19 SPECIAL GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To maximize total return primarily through capital appreciation and by assuming a higher level of volatility than the Diversified Equity Fund. INVESTS IN: Primarily small capitalization and "emerging growth-type" US equity securities. STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to achieve higher returns with moderate risk. The Fund employed the investment management services of nine small capitalization stock fund managers with three separate and distinct investment styles. GROWTH OF A $10,000 INVESTMENT Dates Special Growth - Class S Russell 2500(TM)** - ----- ------------------------ ------------------ Inception* $10,000 $10,000 1992 $10,683 $11,111 1993 $13,648 $14,201 1994 $13,700 $14,461 1995 $16,117 $17,551 1996 $19,489 $20,848 1997 $25,613 $26,919 1998 $23,351 $24,847 1999 $27,594 $29,319 2000 $34,878 $36,142 2001 $29,629 $31,747 YEARLY PERIODS ENDED OCTOBER 31 SPECIAL GROWTH FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ------------------- ----------- ----------- 1 Year $ 8,495 (15.05)% 5 Years $ 15,293 8.73%(S) 10 Years $ 29,629 11.46%(S) SPECIAL GROWTH FUND - CLASS E++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ------------------- ------------ ----------- 1 Year $ 8,471 (15.29)% 5 Years $ 14,924 8.33%(S) 10 Years $ 29,086 11.26%(S) SPECIAL GROWTH FUND - CLASS C++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------------- ----------- ------------ 1 Year $ 8,407 (15.93)% 5 Years $ 14,623 7.89%(S) 10 Years $ 28,498 11.03%(S) RUSSELL 2500(TM) INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------------- ----------- ------------ 1 Year $ 8,784 (12.16)% 5 Years $ 15,228 8.77%(S) 10 Years $ 31,747 12.25%(S) 20 Special Growth Fund SPECIAL GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the year ended October 31, 2001, the Special Growth Fund Class S, Class E and Class C shares declined 15.05%, 15.29%, and 15.93%, respectively. This compared with the Russell 2500(TM) Index, which lost 12.16% for the same period. The Fund's performance was lower than that of its benchmark index in a market environment marked by unusually difficult events. These included terrorist attacks on September 11, 2001 that caused investor confidence to plummet. The attacks came after a heavy slate of sluggish economic news and declining corporate earnings announcements. This fiscal year also witnessed a reversal in monetary policy. At the beginning of the period, financial markets were still feeling the negative effects of the multiple interest rate hikes made by the Federal Reserve Board (Fed) during early 2000. By the end of the period, market participants were anxiously waiting for the numerous rate cuts during fiscal 2001 to gain traction, and help revive the struggling economy. In this volatile environment, the Fund's managers continued to favor small- and medium-capitalized companies with positive earnings estimate revisions at lower prices relative to their peers. PORTFOLIO HIGHLIGHTS Major shifts in political leadership, monetary policy, economic standing and national security resulted in high levels of sector and market volatility that impacted the Fund's performance. The Fund's fully invested posture cost some excess returns as expected in a declining market. Value stocks outperformed growth for most of the period, with one exception during the second calendar quarter 2001. That brief period was cut short in the third calendar quarter with the September 11 terrorist attacks. Generally, the market did not reward stocks with positive earnings revisions, earnings surprises, or attractive valuations. Rather, winning stocks tended to be those with poor earnings surprises, lower quality fundamentals and deep cyclicality. Market performance was driven by a broader number of securities during the fiscal year, brightening prospects for the Fund to outperform through stock selection across economic sectors. David J. Greene, who was funded in September and October 2000, was one of the top performing managers in the final months of the year 2000 and again during the second quarter of 2001. This manager, who pursues a relatively concentrated stock-picking strategy, suffered losses in the month following the September 11 attacks. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 UTStarcom, Inc. 0.6% Medicis Pharmaceutical Corp. Class A. 0.6 D.R. Horton, Inc. 0.5 Affiliated Managers Group, Inc. 0.4 Toll Brothers, Inc. 0.4 Ryder System, Inc. 0.4 Sovereign Bancorp, Inc. 0.4 AmerisourceBergen Corp. 0.4 Charles River Laboratories International, 0.4 Inc. Sunoco, Inc. 0.4 PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 16.0x Portfolio Price/Book Ratio 1.97x Market Capitalization - $-Weighted Average 1.97 Bil Number of Holdings 971 MONEY MANAGERS STYLES CapitalWorks Investment Partners, LLC Growth David J. Greene & Company, LLC Value Delphi Management, Inc. Value GlobeFlex Capital, LP Market-Oriented Jacobs Levy Equity Management, Inc. Value Sirach Capital Management, Inc. Value Suffolk Capital Management, Inc. Growth TimesSquare Capital Management, Inc. Growth * Special Growth Fund Class S assumes initial investment on November 1, 1991. ** Russell 2500(TM) Index is composed of the bottom 500 stocks in the Russell 1000(R) Index and all the stocks in the Russell 2000(R) Index. The largest security in this index has a market capitalization of about $3.8 billion. The Russell 2500(TM) Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates. ++ Special Growth Fund Class S performance has been linked with Class E to provide historical perspective. For the period November 4, 1996 (commencement of sale) to May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Special Growth Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Special Growth Fund 21 SPECIAL GROWTH FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- COMMON STOCKS - 93.3% AUTO AND TRANSPORTATION - 3.6% Airborne, Inc. 95,100 950 American Axle & Manufacturing Holdings, Inc. (a) 35,200 595 Arkansas Best Corp. (a) 4,500 106 ArvinMeritor, Inc. 50,900 765 Autoliv, Inc. 5,900 95 Aviall, Inc. (a) 8,200 40 Borg-Warner Automotive, Inc. 46,912 2,004 Circuit City Stores, Inc. - CarMax Group (a) 62,900 1,151 CNF Transportation, Inc. 13,600 300 Cooper Tire & Rubber Co. 47,000 621 Covenant Transport, Inc. Class A (a) 7,200 97 Dana Corp. 76,900 827 Dura Automotive Systems, Inc. (a) 18,100 138 FedEx Corp. (a) 36,000 1,479 Fleetwood Enterprises, Inc. 29,400 295 Gentex Corp. (a) 19,000 452 Heartland Express, Inc. (a) 11,900 280 Kirby Corp. (a) 6,600 170 Landstar Systems, Inc. (a) 5,600 401 Lear Corp. (a) 29,300 900 Mesa Airlines, Inc. (a) 19,900 106 Navistar International Corp. 43,900 1,317 Offshore Logistics, Inc. (a) 94,900 1,893 Oshkosh Truck Corp. Class B 8,200 314 Overseas Shipholding Group, Inc. 14,700 366 Polaris Industries, Inc. 12,900 580 RailAmerica, Inc. (a) 10,762 125 Roadway Express, Inc. 26,563 724 Skywest, Inc. 38,000 695 Stoneridge, Inc. (a) 9,300 60 TBC Corp. (a) 1,100 12 Tidewater, Inc. 26,500 801 Tower Automotive, Inc. (a) 11,700 72 Visteon Corp. 90,900 1,082 Wabtec Corp. 76,000 927 Werner Enterprises, Inc. 35,900 777 Winnebago Industries, Inc. 16,400 398 Yellow Corp. (a) 26,945 592 ------ 22,507 ------ CONSUMER DISCRETIONARY - 17.5% Aaron Rents, Inc. 9,100 159 Abercrombie & Fitch Co. Class A (a) 34,718 653 Ackerley Communications, Inc. (a) 13,300 179 Action Performance Companies, Inc. (a) 23,800 624 Advo Systems, Inc. (a) 5,200 188 Alberto-Culver Co. Class B 31,989 1,352 American Eagle Outfitters, Inc. (a) 42,751 1,171 Apollo Group, Inc. Class A (a) 12,100 492 Applebee's International, Inc. 41,450 1,248 Applica, Inc. (a) 45,500 337 Argosy Gaming Co. (a) 78,500 2,279 AutoZone, Inc. (a) 32,700 1,914 Aztar Corp. (a) 30,600 439 Bally Total Fitness Holding Corp. (a) 18,300 338 Banta Corp. 51,000 1,482 Barnes & Noble, Inc. (a) 2,600 96 Bebe Stores, Inc. (a) 9,500 158 BJ's Wholesale Club, Inc. (a) 21,200 1,076 Blockbuster Entertainment Corp. 13,300 334 Bob Evans Farms, Inc. 1,200 23 Borders Group, Inc. (a) 5,400 84 Boyd Gaming Corp. (a) 16,300 70 Brinker International, Inc. (a) 7,850 199 Brown Shoe Co., Inc. 34,600 381 Burlington Coat Factory Warehouse Corp. 14,100 211 Career Education Corp. (a) 14,100 368 Catalina Marketing Corp. (a) 29,500 816 CBRL Group, Inc. 34,600 869 Charter Communications Holdings, Inc. Class A (a) 80,000 1,131 Chemed Corp. 9,000 255 Chicos FAS, Inc. (a) 21,950 571 Children's Place Retail Stores, Inc. (The) (a) 33,931 806 Choice Hotels International, Inc. (a) 7,800 137 ChoicePoint, Inc. (a) 34,700 1,484 Christopher & Banks Corp. (a) 22,100 728 CKE Restaurants, Inc. (a) 74,400 536 Claire's Stores, Inc. 75,800 916 Coach, Inc. New (a) 28,657 800 Coinstar, Inc. (a) 2,700 50 Copart, Inc. (a) 14,300 420 Corinthian Colleges, Inc. (a) 10,300 376 Corporate Executive Board Co., (The) (a) 52,100 1,593 Cox Radio, Inc. Class A (a) 33,226 721 Daisytek International Corp. (a) 8,000 112 Darden Restaurants, Inc. 22,700 727 DeVry, Inc. (a) 9,200 248 DiamondCluster International, Inc. Class A (a) 21,300 219 DigitalThink, Inc. (a) 8,600 71 Discount Auto Parts, Inc. (a) 6,500 109 Dollar Thrifty Automotive Group, Inc. (a) 11,100 130 Dollar Tree Stores, Inc. (a) 35,100 789 Dress Barn, Inc. (a) 6,900 156 EarthLink, Inc. (a) 144,022 2,110 Edison Schools, Inc. (a) 44,800 844 22 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- Education Management Corp. (a) 15,100 521 Emmis Communications Corp. Class A (a) 36,572 496 Ethan Allen Interiors, Inc. 27,200 871 Extended Stay America, Inc. (a) 56,600 764 F.Y.I., Inc. (a) 16,100 579 Federated Department Stores, Inc. (a) 41,900 1,340 Fisher Scientific International, Inc. (a) 3,600 108 Footstar, Inc. (a) 29,000 969 Fred's, Inc. Class A 9,825 322 Freemarkets, Inc. (a) 10,600 142 Genesco, Inc. (a) 16,100 294 Getty Images, Inc. (a) 93,700 1,461 Grey Global Group, Inc. 2,859 1,635 Group 1 Automotive, Inc. (a) 22,500 603 Guitar Center, Inc. (a) 5,700 79 Harman International Industries, Inc. 10,900 360 Harte Hanks Communications 54,500 1,270 Hasbro, Inc. 39,300 651 Hearst-Argyle Television, Inc. (a) 53,000 986 Herbalife International, Inc. Class A 11,200 125 Hollinger International, Inc. Class A 24,200 250 Hot Topic, Inc. (a) 23,500 594 IHOP Corp. (a) 5,100 130 Ikon Office Solutions, Inc. 12,100 117 Insight Communications Co., Inc. Class A (a) 5,700 117 Interpublic Group Cos., Inc. (The) 54,800 1,230 JAKKS Pacific, Inc. (a) 3,900 74 Jones Apparel Group, Inc. (a) 32,900 908 Lamar Advertising Co. Class A (a) 46,200 1,451 Land's End, Inc. (a) 18,200 583 Landry's Seafood Restaurants, Inc. 25,200 442 Lee Enterprises, Inc. 44,200 1,523 Liberty Corp. 9,800 394 Lightbridge, Inc. (a) 5,100 47 Lithia Motors, Inc., Class A (a) 5,900 99 Lone Star Steakhouse & Saloon 14,200 184 Mandalay Resort Group (a) 8,000 132 MAXIMUS, Inc. (a) 9,600 395 May Department Stores Co. 36,000 1,132 McClatchy Co. (The) Class A 39,875 1,659 McGraw-Hill, Inc. 25,600 1,346 MemberWorks, Inc. (a) 2,400 22 Men's Wearhouse, Inc. (The) (a) 48,100 956 Meredith Corp. 17,500 578 Michaels Stores, Inc. (a) 16,900 868 Mobile Mini, Inc. (a) 12,200 380 Modis Professional Services, Inc. (a) 107,300 562 Mohawk Industries, Inc. (a) 14,400 622 Movado Group, Inc. 3,700 60 Movie Gallery, Inc. (a) 4,700 129 Neiman Marcus Group, Inc. (The) Class A (a) 25,900 690 O'Reilly Automotive, Inc. (a) 3,100 88 Office Depot, Inc. (a) 141,600 1,926 OfficeMax, Inc. (a) 7,200 21 Papa Johns International, Inc. (a) 41,200 1,148 Park Place Entertainment Corp. (a) 131,500 942 Payless ShoeSource, Inc. (a) 20,400 1,078 Penton Media, Inc. 100,717 700 Pep Boys - Manny, Moe & Jack 81,500 958 Phillips-Van Heusen Corp. 19,100 163 Pier 1 Imports, Inc. 83,233 916 Pittston Brink's Group 53,900 1,038 Playtex Products, Inc. (a) 87,900 861 Polo Ralph Lauren Corp. Class A (a) 45,600 1,004 Pre-paid Legal Services, Inc. (a) 41,100 627 Prime Hospitality Corp. (a) 23,900 219 PRIMEDIA, Inc. (a) 202,900 432 Private Media Group, Inc. (a) 7,400 67 ProQuest Co. (a) 10,800 369 Quicksilver, Inc. (a) 36,633 482 R.H. Donnelley Corp. (a) 54,400 1,436 Radio One, Inc. (a) 19,800 229 Reebok International, Ltd. (a) 13,300 276 Regis Corp. 23,300 495 Rent-A-Center, Inc. (a) 13,400 365 Resources Connection, Inc. New (a) 16,100 359 Revlon, Inc. Class A (a) 8,800 58 Ross Stores, Inc. 57,600 1,803 Royal Caribbean Cruises, Ltd. 61,301 674 Ryan's Family Steak Houses, Inc. (a) 104,800 1,886 Saga Communications Class A (a) 3,300 66 Saks, Inc. (a) 60,400 411 Salem Communications Corp. Class A (a) 3,500 68 Salton, Inc. (a) 66,850 698 Scholastic Corp. (a) 27,700 1,238 School Specialty, Inc. (a) 27,900 864 SCP Pool Corp. (a) 48,850 1,135 Service Corp. International (a) 84,700 540 Six Flags, Inc. (a) 27,900 329 Sonic Automotive, Inc. (a) 49,100 816 Sonic Corp. (a) 2,100 70 Stanley Works, (The) 5,700 218 Steiner Leisure, Ltd. (a) 48,231 906 Stride Rite Corp. 9,800 61 Sylvan Learning Systems, Inc. (a) 48,400 1,084 Talbots, Inc. 16,000 456 Tech Data Corp. (a) 28,000 1,195 TETRA Technologies, Inc. (a) 19,100 325 Tetra Technologies, Inc. (a) 36,500 945 Special Growth Fund 23 SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- The Boyds Collection, Ltd. (a) 10,800 83 THQ, Inc. (a) 25,200 1,255 Tiffany & Co. 15,100 353 Too, Inc. (a) 20,000 532 Toro Co. 11,000 472 United Auto Group, Inc. (a) 10,600 170 United Stationers, Inc. (a) 16,499 463 Urban Outfitters, Inc. (a) 8,600 112 Valassis Communications, Inc. (a) 18,400 574 Valuevision International, Inc. Class A (a) 46,800 638 Vans, Inc. (a) 20,200 290 Venator Group, Inc. (a) 128,400 1,862 Viad Corp. 16,800 328 Washington Post Co (The), Class B 3,500 1,787 Waste Connections, Inc. (a) 7,700 225 Wendy's International, Inc. 16,400 431 West Corp. (a) 34,100 793 Wet Seal, Inc. Class A (The) (a) 14,300 291 Williams-Sonoma, Inc. (a) 29,700 768 WMS Industries, Inc. (a) 22,300 399 XM Satellite Radio, Inc. Class A (a) 20,000 142 Yahoo!, Inc. (a) 82,300 894 Zale Corp. (a) 27,800 795 ------- 110,531 ------- CONSUMER STAPLES - 3.9% 7-Eleven, Inc. (a) 13,100 132 American Italian Pasta Co. Class A (a) 6,000 244 Church and Dwight Co., Inc. 15,000 390 Coca-Cola Bottling Co. Consolidated 32,200 1,232 Constellation Brands, Inc. Class A (a) 37,400 1,535 Coors (Adolph) Co. Class B 24,200 1,204 D & K Healthcare Resources, Inc. 7,500 420 Del Monte Foods Co. (a) 8,700 72 Dial Corp. 131,500 2,193 Dimon, Inc. 23,100 144 Dole Food Co., Inc. 17,000 346 Duane Reade, Inc. (a) 12,400 371 Flowers Foods, Inc. (a) 11,800 490 Fresh Brands, Inc. 81,500 1,196 Great Atlantic & Pacific Tea Co., Inc. (a) 24,800 461 Hain Celestial Group, Inc. (a) 11,600 229 Hormel Foods Corp. 34,400 826 Ingles Markets, Inc. 13,300 153 Longs Drug Stores, Inc. 13,500 307 McCormick & Co., Inc. 2,000 88 NBTY, Inc. (a) 12,000 102 Pathmark Stores, Inc. (a) 28,500 672 Pepsi Bottling Group, Inc. (The) 30,800 1,432 PepsiAmericas, Inc. 147,000 1,917 Performance Food Group Co. (a) 39,500 1,161 Ralcorp Holdings, Inc. (a) 15,000 293 Rite Aid Corp. (a) 25,400 140 Robert Mondavi Corp. Class A (a) 4,100 126 Sanderson Farms, Inc. 3,700 50 Schweitzer-Mauduit International, Inc. 11,700 280 Smithfield Foods, Inc. (a) 60,400 1,271 Spartan Stores, Inc. (a) 4,000 52 Standard Commercial Corp. 2,000 37 Suiza Foods Corp. (a) 14,500 855 SuperValu, Inc. 82,400 1,758 Tootsie Roll Industries, Inc. 25,450 933 United Natural Foods, Inc. (a) 12,300 255 Universal Corp. 24,300 786 Whole Foods Market, Inc. (a) 5,400 188 Winn-Dixie Stores, Inc. 16,200 178 ------- 24,519 ------- FINANCIAL SERVICES - 18.2% Advanta Corp. Class A 8,300 68 Advent Software, Inc. (a) 11,900 459 Affiliated Computer Services, Inc. Class A (a) 23,500 2,069 Affiliated Managers Group, Inc. (a) 43,300 2,672 Alexandria Real Estate Equities, Inc. (e) 6,700 269 American Capital Strategies, Ltd. 39,000 966 American Financial Group, Inc. 13,100 290 American National Insurance Co. 6,800 558 AmeriCredit Corp. (a) 39,835 617 Annaly Mortgage Management, Inc. 22,700 312 Anthracite Capital, Inc. 16,600 165 Arrow Financial Corp. 2,520 71 Associated Banc-Corp. 22,680 781 Astoria Financial Corp. 27,600 1,438 BankAtlantic Bancorp, Inc. Class A 49,600 402 Banknorth Group, Inc. 94,680 2,076 BankUnited Financial Corp. (a) 15,700 229 BARRA, Inc. (a) 8,100 375 Bear Stearns Cos., Inc. (The) 37,734 2,038 Bedford Property Investors, Inc. (e) 12,600 258 BISYS Group, Inc. (a) 32,300 1,680 BKF Capital Group, Inc. (a) 3,000 78 BOK Financial Corp. (a) 5,400 167 Boykin Lodging Co. (e) 29,329 233 Brandywine Realty Trust (e) 19,100 377 Brookline Bancorp, Inc. 5,000 76 Camden Property Trust (e) 15,400 536 Capital Automotive (e) 20,200 391 Capstead Mortgage Corp. 2,550 72 CBL & Associates Properties, Inc. (e) 28,700 836 Certegy, Inc. New (a) 16,200 462 24 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- Charter Municipal Mortgage Acceptance Co. 8,400 133 CheckFree Corp. (a) 5,200 73 Chelsea Property Group, Inc. 9,600 430 City National Corp. 13,600 558 Clark/Bardes Holdings, Inc. (a) 3,400 75 Coastal Bancorp, Inc. 2,000 60 Colonial BancGroup, Inc. 114,500 1,443 Comdisco, Inc. 89,500 46 Commerce Bancorp, Inc. 17,735 1,295 Commerce Bancshares, Inc. 4,410 160 Commerce Group, Inc. 34,400 1,254 Commercial Federal Corp. 6,500 162 Commercial Net Lease Realty (e) 10,000 130 CORUS Bankshares, Inc. 4,800 201 Countrywide Credit Industries, Inc. 8,500 339 Crescent Real Estate Equities, Co. (e) 12,688 223 Cullen Frost Bankers, Inc. 14,100 380 Deluxe Corp. 8,100 284 Dime Bancorp, Inc. 17,900 606 Dime Bancorp, Inc. 2001 Litigation Tracking Warrants (a) 169,500 36 Dime Community Bancorp, Inc. 9,950 241 Doral Financial Corp. 9,700 338 Dow Jones & Co., Inc. 27,500 1,238 Downey Financial Corp. 13,855 487 DST Systems, Inc. (a) 17,100 700 Duke-Weeks Realty Corp. (e) 20,400 470 East West Bancorp, Inc. 4,300 97 EastGroup Properties, Inc. 6,200 130 Edwards (A.G.), Inc. 28,800 1,139 Entertainment Properties Trust (e) 52,700 880 Equity Inns, Inc. 24,400 194 Equity Office Properties Trust (e) 48,500 1,382 Equity One, Inc. (e) 2,900 35 Fair, Isaac and Co., Inc. 12,550 597 Farmers Capital Bank Corp. 900 32 Fidelity National Financial, Inc. 32,439 746 FINOVA Group, Inc. (a) 55,000 54 First American Financial Corp. 103,800 1,728 First Bancorp. 6,800 187 First Citizens BancShares, Inc. 2,100 197 First Commonwealth Financial Corp. 5,200 58 First Community Bancshares, Inc. 1,300 38 First Federal Capital Corp. 5,700 84 First Financial Bankshares, Inc. 1,300 39 First Financial Holdings, Inc. 3,100 77 First Indiana Corp. 3,700 90 First Industrial Realty Trust, Inc. (e) 40,400 1,111 First Niagara Financial Group, Inc. 5,600 93 First Place Financial Corp. 4,100 64 First Republic Bank (a) 6,400 129 First Tennessee National Corp. 11,600 401 FirstFed Financial Corp. (a) 16,600 369 Flagstar Bancorp, Inc. 8,400 210 GATX Corp. 24,800 656 Glenborough Realty Trust, Inc. (e) 49,500 861 Global Payments, Inc. 32,200 964 Golden State Bancorp, Inc. 33,400 847 Great Lakes, Inc. 2,900 46 Great Southern Bancorp, Inc. 1,300 39 Greenpoint Financial Corp. 15,300 490 Harbor Florida Bancshares, Inc. 8,200 137 Harland (John H.) Co. 18,700 362 Harleysville Group, Inc. 6,000 144 Harleysville National Corp. 3,000 64 Health Care, Inc. 12,000 311 Healthcare Realty Trust, Inc. (e) 2,200 59 Hibernia Corp. Class A 73,400 1,116 HomeStore.com, Inc. (a) 12,300 63 Hospitality Properties Trust (e) 26,500 657 Host Marriott Corp. (e) 72,600 490 HRPT Properties Trust 114,900 936 Independence Community Bank Corp. 24,900 606 Independent Bank Corp. 4,000 78 IndyMac Bancorp, Inc. (a) 65,000 1,669 Innkeepers USA Trust 33,511 232 Investment Technology Group (a) 24,200 1,559 Investors Financial Services Corp. 34,600 1,830 Investors Real Estate Trust 4,325 39 IPC Holdings, Ltd. 66,900 1,813 IRT Property Co. 20,700 221 Irwin Financial Corp. 16,900 262 iStar Financial, Inc. 47,900 1,116 J.P. Realty, Inc. (e) 3,300 69 Jack Henry & Associates, Inc. 32,600 804 JDN Realty Corp. (e) 18,900 201 Jefferies Group, Inc. 38,100 1,264 Keystone Property Trust 38,100 472 Koger Equity, Inc. 16,100 269 Kramont Realty Trust 4,100 51 Kronos, Inc. (a) 2,900 166 Lakeland Bancorp, Inc. 1,470 22 LandAmerica Financial Group, Inc. 38,200 1,000 LaSalle Hotel Properties (e) 4,900 40 Legg Mason, Inc. 41,300 1,739 Lexington Corporate Properties Trust 4,000 56 Macerich Co. (The) (e) 1,000 24 MAF Bancorp, Inc. 51,800 1,450 Markel Corp. (a) 7,700 1,509 MB Financial, Inc. (a) 3,300 85 Metris Companies, Inc. 30,200 490 Special Growth Fund 25 SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- MicroFinancial, Inc. 7,200 71 Mid-America Apartment Communities, Inc. (e) 31,300 769 Mid-Atlantic Realty Trust 5,300 74 Mississippi Valley Bancshares, Inc. 1,800 68 MONY Group, Inc. (The) 27,700 836 Moody's Corp. 22,200 771 National Data Corp. 10,000 352 National Golf Properties, Inc. 5,200 78 National Health Investors, Inc. (a) 44,300 620 Neuberger Berman, Inc. 19,950 696 New Dun & Bradstreet Corp. (The) (a) 16,200 506 New Plan Excel Realty Trust 46,300 823 New York Community Bancorp, Inc. 48,150 1,207 North Fork Bancorp, Inc. 48,000 1,339 Northwest Bancorp, Inc. 3,900 38 OceanFirst Financial Corp. 2,800 68 Ocwen Financial Corp. (a) 10,300 89 Ohio Casualty Corp. 26,800 409 Old Republic International Corp. 58,000 1,471 Old Second Bancorp, Inc. 900 31 Pacific Century Financial Corp. 59,400 1,384 Pacific Northwest Bancorp 2,100 42 Pan Pacific Retail Properties, Inc. (e) 8,400 233 Parkway Properties, Inc. 800 25 People's Bank 3,000 65 PFF Bancorp, Inc. 13,100 328 Plum Creek Timber Co., Inc. 50,488 1,395 Popular, Inc. 12,700 373 Prentiss Properties Trust (e) 22,000 559 Presidential Life Corp. 2,600 45 Prosperity Bancshares, Inc. 2,000 55 Protective Life Corp. 39,900 1,099 Provident Bankshares Corp. 7,276 160 PS Business Parks, Inc. (e) 3,200 90 Public Storage, Inc. (e) 3,100 102 R&G Financial Corp. 16,800 311 Radian Group, Inc. 34,912 1,182 Raymond James Financial, Inc. 72,983 2,133 Reckson Associates Realty Corp. (e) 18,000 414 RenaissanceRe Holdings, Ltd. 24,200 2,335 Republic Bancorp, Inc. 2,600 32 Republic Bancorp, Inc. 6,171 91 RFS Hotel Investors, Inc. (e) 23,700 219 RLI Corp. 2,100 85 Roslyn Bancorp, Inc. 48,150 874 Ryder System, Inc. 134,700 2,519 SAFECO Corp. 40,300 1,243 Sandy Spring Bancorp, Inc. 3,400 137 Seacoast Banking Corp. of Florida 1,500 63 Second Bancorp, Inc. 2,400 52 Senior Housing Properties Trust 37,900 481 SL Green Realty Corp. (e) 12,000 358 Southwest Bancorporation of Texas, Inc. (a) 15,000 430 Southwest Securities Group, Inc. 21,680 379 Sovereign Bancorp, Inc. 250,300 2,478 Sovran Self Storage, Inc. 47,500 1,348 St. Joe Co. (The) (e) 59,400 1,529 Stancorp Financial Group, Inc. 20,600 915 Staten Island Bancorp, Inc. 17,600 509 Sterling Bancorp 3,600 96 Sterling Bancshares, Inc. 19,500 232 Stewart Information Services Corp. (a) 3,900 74 SunGard Data Systems (a) 15,100 381 Tanger Factory Outlet Centers, Inc. (e) 800 16 TCF Financial Corp. 26,500 1,113 Texas Regional Bancshares, Inc. Class A 6,010 201 Thornburg Mortgage Asset Corp. 5,300 94 Triad Guaranty, Inc. (a) 8,600 283 Trust Company of New Jersey 4,200 103 UICI (a) 3,300 50 UMB Financial Corp. 1,760 74 UNB Corp. 4,400 75 Union Planters Corp. 31,475 1,275 Unitrin, Inc. 5,500 213 Universal American Financial Corp. (a) 14,200 91 Watson Wyatt & Co. Holdings (a) 42,300 747 Webster Financial Corp. 47,800 1,452 Weingarten Realty Investors 7,400 371 World Acceptance Corp. (a) 4,900 40 WSFS Financial Corp. 6,200 112 XL Capital, Ltd. Class A 20,600 1,790 ------- 115,193 ------- HEALTH CARE - 12.0% Abgenix, Inc. (a) 35,500 1,058 Accredo Health, Inc. (a) 31,000 1,058 AdvancePCS (a) 10,400 632 Affymetrix, Inc. (a) 15,200 457 Albany Molecular Research, Inc. (a) 3,900 108 Alkermes, Inc. (a) 45,800 1,175 Alpharma, Inc. Class A 18,000 499 AmerisourceBergen Corp. (a) 38,731 2,462 AmSurg Corp. (a) 9,100 222 Applera Corp. - Celera Genomics Group (a) 55,300 1,300 Apria Healthcare Group, Inc. (a) 3,500 81 Barr Laboratories, Inc. (a) 11,700 852 Bausch & Lomb, Inc. 41,900 1,364 Beckman Coulter, Inc. 8,600 365 Bio-Rad Laboratories, Inc. Class A (a) 2,300 143 26 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ ----- Bio-Technology General Corp. (a) 6,000 43 Bruker Daltonics, Inc. New (a) 15,300 352 Caremark Rx, Inc. (a) 69,600 933 Celgene Corp. (a) 45,000 1,481 Cell Genesys, Inc. (a) 6,300 113 Cerner Corp. (a) 44,300 2,381 Charles River Laboratories International, Inc. (a) 72,400 2,433 Conmed Corp. (a) 7,200 121 Cooper Companies, Inc. 15,400 739 Cor Therapeutics, Inc. (a) 6,100 137 CorVel Corp. (a) 2,800 84 Covance, Inc. (a) 14,000 257 CV Therapeutics, Inc. (a) 9,600 379 Cytyc Corp. (a) 17,367 455 Datascope Corp. 5,600 188 DaVita, Inc. (a) 47,800 870 DENTSPLY International, Inc. 17,700 796 Diagnostic Products Corp. 11,800 520 DIANON Systems, Inc. (a) 10,900 502 DVI, Inc. (a) 8,100 128 Edwards Lifesciences Corp. (a) 47,800 1,214 Endo Pharmaceuticals Holdings, Inc. (a) 5,700 56 Endocare, Inc. (a) 49,525 1,099 Enzo Biochem, Inc. (a) 19,100 392 Enzon, Inc. (a) 15,400 952 Express Scripts, Inc. Class A (a) 15,000 614 First Health Group Corp. (a) 68,400 1,847 Genencor International, Inc. (a) 12,000 150 Genome Therapeutics Corp. (a) 31,874 224 Health Net, Inc. (a) 66,400 1,457 HEALTHSOUTH Corp. (a) 100,800 1,312 Henry Schein, Inc. (a) 32,100 1,083 Humana, Inc. (a) 155,400 1,795 ICON plc - ADR (a) 18,000 497 ICOS Corp. (a) 16,100 930 IDEXX Laboratories, Inc. (a) 4,200 106 InforMax, Inc. (a) 33,200 88 Inhale Therapeutic Systems, Inc. (a) 27,600 483 Integra LifeSciences Holdings (a) 20,300 597 Invacare Corp. 16,100 539 Invitrogen Corp. (a) 18,900 1,159 K-V Pharmaceutical Co. Class A (a) 17,100 432 Laboratory Corp. of America Holdings (a) 5,800 500 Landauer, Inc. 2,100 64 Lexicon Genetics, Inc. (a) 12,300 121 LifePoint Hospitals, Inc. (a) 17,500 546 Lincare Holdings, Inc. (a) 56,400 1,449 Manor Care, Inc. (a) 27,300 638 Medarex, Inc. (a) 11,000 227 Medicis Pharmaceutical Corp. Class A. (a) 60,200 3,473 Mid Atlantic Medical Services, Inc. (a) 19,400 360 Myriad Genetics, Inc. (a) 1,900 87 Neurogen Corp. (a) 2,800 54 Novoste Corp. (a) 15,900 184 Ocular Sciences, Inc. (a) 7,400 171 Omnicare, Inc. 88,000 1,749 Orchid Biosciences, Inc. (a) 12,300 49 OSI Pharmaceuticals, Inc. (a) 13,800 630 Owens & Minor, Inc., Holding Co. 20,800 366 Oxford Health Plans, Inc. (a) 10,100 238 PacifiCare Health Systems, Inc. (a) 10,600 176 Parexel International Corp. (a) 22,600 337 Patterson Dental Co. (a) 3,700 141 Pediatrix Medical Group (a) 14,200 412 Perrigo Co. (a) 6,400 95 Pharmaceutical Product Development, Inc. (a) 44,613 1,190 Pharmaceutical Resources, Inc. (a) 12,600 432 Pharmacopeia, Inc. (a) 17,000 269 Priority Healthcare Corp. Class B (a) 15,600 451 Progenics Pharmaceuticals, Inc. (a) 3,900 63 Province Healthcare Co. (a) 21,800 601 PSS World Medical, Inc. (a) 33,100 299 Quest Diagnostics, Inc. (a) 6,400 418 Quintiles Transnational Corp. (a) 34,474 547 Renal Care Group, Inc. (a) 71,000 2,229 ResMed, Inc. (a) 7,500 419 Respironics, Inc. (a) 33,600 1,132 Rightchoice Managed Care, Inc. (a) 2,600 174 SangStat Medical Corp. (a) 77,000 1,743 Serologicals Corp. (a) 5,400 95 SICOR, Inc. (a) 29,921 561 Sola International, Inc. (a) 10,000 160 SpaceLabs, Inc. (a) 56,900 629 Stericycle, Inc. (a) 21,200 1,018 Sunrise Assisted Living, Inc. (a) 15,800 472 Sybron Dental Specialties, Inc. (a) 13,366 274 Syncor International Corp. (a) 8,000 232 Taro Pharmaceutical Industries, Ltd. (a) 9,700 408 Tenet Healthcare Corp. (a) 8,100 466 Teva Pharmaceutical Industries, Ltd. - ADR 3,700 229 Thoratec Laboratories Corp. (a) 53,600 1,045 Triad Hospitals, Inc. (a) 80,400 2,163 Trigon Healthcare, Inc. (a) 31,900 1,958 Universal Health Services, Inc. Class B (a) 5,400 218 Varian Medical Systems, Inc. (a) 14,100 946 Special Growth Fund 27 SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- Vertex Pharmaceuticals, Inc. (a) 9,500 233 VISX, Inc. (a) 32,500 382 WebMD Corp. (a) 118,400 543 West Pharmaceutical Services, Inc. 2,300 55 ------ 75,835 ------ INTEGRATED OILS - 0.5% Great Plains Energy, Inc. (a) 36,000 859 Holly Corp. 3,800 70 Tesoro Petroleum Corp. (a) 75,500 998 Unocal Corp. 41,000 1,320 ------ 3,247 ------ MATERIALS AND PROCESSING - 6.2% Airgas, Inc. (a) 31,200 420 AK Steel Holding Corp. 119,400 1,087 Albemarle Corp. 13,200 263 AMCOL International Corp. 5,000 28 Apogee Enterprises, Inc. 11,900 166 Applied Films Corp. (a) 44,588 917 AptarGroup, Inc. 37,800 1,138 Ashland, Inc. 29,900 1,204 Barnes Group, Inc. 6,500 131 Brady Corp. Class A 1,500 47 Cabot Corp. 14,200 476 Cabot Microelectronics Corp. (a) 1,400 93 Calgon Carbon Corp. 145,300 1,343 Cambrex Corp. 18,400 681 Carpenter Technology Corp. 6,400 139 ChemFirst, Inc. 3,000 61 Chesapeake Corp. 5,400 153 Cleveland-Cliffs, Inc. 6,100 99 Commercial Metals Co. 3,700 112 CoorsTek, Inc. (a) 74,600 1,977 Crestline Capital Corp. (a) 1,600 46 Crown Cork & Seal Co., Inc. 110,500 201 Cytec Industries, Inc. (a) 24,700 591 Dal-Tile International, Inc. (a) 33,500 543 Dycom Industries, Inc. (a) 21,300 255 EMCOR Group, Inc. (a) 30,300 1,185 Energy Conversion Devices, Inc. (a) 4,200 77 Engelhard Corp. 22,600 592 Finish Line (The), Inc. Class A (a) 7,500 76 Freeport-McMoRan Copper & Gold, Inc. Class B (a) 45,400 504 Georgia Gulf Corp. 5,200 92 Greif Bros. Corp. Class A 10,000 248 Hexcel Corp. (a) 3,000 10 Hughes Supply, Inc. 33,500 791 IMC Global, Inc. 29,100 313 Integrated Electrical Services, Inc. (a) 13,100 48 International Specialty Products, Inc. (a) 10,300 83 Ivex Packaging Corp. (a) 45,100 823 Lennox International, Inc. 7,300 65 LNR Property Corp. 63,100 1,738 Longview Fibre Co. 4,400 48 Louisiana Pacific Corp. 129,900 935 Lubrizol Corp. 48,300 1,359 Martin Marietta Materials, Inc. 6,900 275 Mead Corp. 55,400 1,487 NL Industries, Inc. 14,600 188 Nucor Corp. 26,800 1,107 OM Group 8,300 503 P.H. Glatfelter Co. 11,700 176 Pactiv Corp. (a) 92,000 1,490 PolyOne Corp. 19,500 167 Potlatch Corp. 16,600 416 Precision Castparts Corp. 49,900 1,135 RTI International Metals (a) 4,600 45 Ryerson Tull, Inc. 42,800 492 Sealed Air Corp. (a) 21,400 857 Security Capital Group, Inc. Class B (a) 58,200 1,088 Shaw Group, Inc. (The) (a) 5,400 149 SIFCO Industries (a) 145,400 785 Sigma Aldrich Corp. 4,400 165 Silgan Holdings, Inc. (a) 10,800 218 Simpson Manufacturing Co., Inc. (a) 2,600 134 Smurfit-Stone Container Corp. (a) 7,000 104 SPS Technologies, Inc. (a) 39,100 1,169 Temple-Inland, Inc. 36,200 1,810 Texas Industries, Inc. 34,000 1,023 Universal Forest Products, Inc. 11,000 187 USEC, Inc. 16,600 109 USX-U.S. Steel Group 83,100 1,196 Valmont Industries, Inc. 3,400 53 Watsco, Inc. 6,200 81 Wausau-Mosinee Paper Corp. 10,100 105 Westvaco Corp. 5,600 137 Wolverine Tube, Inc. (a) 9,800 123 York International Corp. 26,200 803 ------ 38,935 ------ MISCELLANEOUS - 0.8% GenCorp, Inc. 56,600 674 Hillenbrand Industries, Inc. 5,000 265 ITT Industries, Inc. 9,400 452 Johnson Controls, Inc. 18,600 1,345 Kaman Corp. Class A 4,700 64 SPX Corp. (a) 5,700 568 Teleflex, Inc. 8,000 320 Textron, Inc. 30,600 968 US Industries, Inc. 85,500 175 ------ 4,831 ------ 28 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- OTHER ENERGY - 4.7% Arch Coal, Inc. 28,700 633 Berry Petroleum Co. Class A 4,000 70 BJ Services Co. (a) 42,900 1,098 CARBO Ceramics, Inc. 3,000 109 CONSOL Energy, Inc. 9,400 259 Cooper Cameron Corp. (a) 30,900 1,205 Devon Energy Corp. 24,800 950 EOG Resources, Inc. 35,200 1,245 Equitable Resources, Inc. 6,200 204 Evergreen Resources, Inc. (a) 8,800 351 FuelCell Energy, Inc. (a) 32,800 513 Global Marine, Inc. (a) 65,000 1,047 GulfMark Offshore, Inc. (a) 2,100 59 Hanover Compressor Co. (a) 56,200 1,550 Input/Output, Inc. (a) 11,900 96 Key Energy Group, Inc. (a) 112,682 980 Key Production, Inc. (a) 9,200 144 Lufkin Industries, Inc. 1,700 46 Massey Energy Co. 36,300 744 Nabors Industries, Inc. (a) 33,700 1,036 National-Oilwell, Inc. (a) 12,100 224 NRG Energy, Inc. (a) 17,000 300 Oceaneering International, Inc. (a) 4,700 92 Parker Drilling Co. (a) 75,400 245 Patina Oil & Gas Corp. 3,600 97 Patterson-UTI Energy, Inc. (a) 59,100 1,065 Penn Virginia Corp. 3,300 127 Pure Resources, Inc. (a) 6,600 117 Rowan Cos., Inc. (a) 67,300 1,137 Santa Fe International Corp. 66,000 1,606 Seacor Holdings, Inc. (a) 1,100 44 Seitel, Inc. (a) 11,100 151 Smith International, Inc. (a) 24,700 1,168 Sunoco, Inc. 64,100 2,399 Talisman Energy, Inc. 35,985 1,263 Unit Corp. (a) 19,300 211 Universal Compression Holdings, Inc. New (a) 5,000 140 Valero Energy Corp. 62,500 2,350 Varco International, Inc. (a) 26,600 399 Vintage Petroleum, Inc. 127,151 2,224 XTO Energy, Inc. 126,925 2,285 ------ 29,983 ------ PRODUCER DURABLES - 8.1% Advanced Energy Industries, Inc. (a) 44,124 886 AGCO Corp. 45,000 520 Allen Telecom, Inc. (a) 66,100 496 Alliant Techsystems, Inc. (a) 25,150 2,195 AMETEK, Inc. 27,200 734 Axcelis Technologies, Inc. (a) 37,800 496 B.F. Goodrich Co. 10,200 218 Beazer Homes USA, Inc. (a) 17,100 781 Briggs & Stratton Corp. 2,200 83 Brooks Automation, Inc. (a) 44,002 1,420 Centex Corp. 3,200 122 CIRCOR International, Inc. 4,700 83 CNH Global N.V. 44,000 234 Cohu, Inc. 66,700 1,164 Crossmann Communities, Inc. 300 8 Cymer, Inc. (a) 41,498 867 D.R. Horton, Inc. 133,423 2,982 Donaldson Co., Inc. 16,200 511 Dover Corp. 31,100 1,025 Electro Scientific Industries, Inc. (a) 10,200 240 Encore Wire Corp. (a) 5,300 61 Engineered Support Systems, Inc. 17,000 846 Esterline Corp. (a) 15,000 203 FEI Co. (a) 47,290 1,276 FSI International, Inc. (a) 6,000 49 General Cable Corp. 19,600 221 Genlyte Group, Inc. (The) (a) 9,100 244 Hovnanian Enterprises, Inc. Class A (a) 16,600 194 Hubbell, Inc. Class B 11,200 306 InterDigital Communications Corp. (a) 10,300 83 Itron, Inc. (a) 21,100 592 KB HOME 57,900 1,711 Kennametal, Inc. 15,000 528 Kulicke & Soffa Industries, Inc. (a) 66,700 1,012 Lam Research Corp. (a) 47,000 891 Lennar Corp. 64,900 2,353 M.D.C. Holdings, Inc. 45,710 1,219 Mettler-Toledo International, Inc. (a) 14,400 661 Millipore Corp. 14,300 748 MKS Instruments, Inc. (a) 35,483 766 Moog, Inc. (a) 8,850 192 MTS Systems Corp. 10,000 117 NVR, Inc. (a) 2,300 364 Orbital Sciences Corp. Class A (a) 96,600 171 Pemstar, Inc. New (a) 91,805 1,148 Photon Dynamics, Inc. (a) 45,626 1,209 Photronics, Inc. (a) 43,800 1,087 Plantronics, Inc. (a) 15,600 324 PRI Automation, Inc. (a) 10,000 164 Pulte Corp. 33,000 1,073 RF Micro Devices, Inc. (a) 36,851 753 Robbins & Myers, Inc. 21,200 581 Roper Industries, Inc. 24,500 1,039 Rudolph Technologies, Inc. (a) 33,500 848 Ryland Group, Inc. (The) 36,800 1,969 SBA Communications Corp. (a) 22,600 185 Special Growth Fund 29 SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- Somera Communications, Inc. New (a) 15,000 75 Spectralink Corp. (a) 76,455 862 Standard Pacific Corp. 43,500 794 Starrett (L.S.) Co. Class A 30,100 599 Steelcase, Inc. Class A 17,600 230 Stewart & Stevenson Services, Inc. 9,600 142 Symmetricom, Inc. (a) 22,600 127 Teledyne Technologies, Inc. (a) 66,800 1,013 Tellium, Inc. (a) 49,700 331 Teradyne, Inc. (a) 43,364 1,000 Therma-Wave, Inc. (a) 99,287 1,208 Toll Brothers, Inc. (a) 85,500 2,664 Ultratech Stepper, Inc. (a) 13,500 182 Varian Semiconductor Equipment Associates, Inc. (a) 29,100 874 Veeco Instruments, Inc. (a) 35,228 897 Woodward Governor Co. 1,700 80 ------ 51,331 ------ TECHNOLOGY - 13.4% 3Com Corp. (a) 227,900 944 Actuate Corp. (a) 68,100 283 Acxiom Corp. (a) 67,500 796 Adaptec, Inc. (a) 14,500 175 Advanced Digital Information (a) 92,401 1,380 Aeroflex, Inc. (a) 74,350 1,091 Alliance Data Systems Corp. New (a) 49,000 784 Alpha Industries, Inc. (a) 66,088 1,539 Anaren Microwave, Inc. (a) 52,000 795 Anixter International, Inc. (a) 7,100 176 Applied Innovation, Inc. (a) 10,500 83 Arbitron, Inc. (a) 22,600 610 Arris Group, Inc. (a) 59,200 349 Arrow Electronics, Inc. (a) 70,300 1,719 Asiainfo Holdings Inc. Co (a) 8,600 115 ASM International NV (a) 33,200 528 Aspen Technology, Inc. (a) 48,979 649 ATI Technologies, Inc. (a) 32,200 267 Autodesk, Inc. 36,500 1,213 Avant! Corp. (a) 23,100 234 Avnet, Inc. 102,600 2,117 AVX Corp. 65,500 1,212 AXT, Inc. (a) 12,800 140 Bell Microproducts, Inc. (a) 12,700 114 Borland Software Corp. (a) 82,200 920 Boston Communications Group, Inc. (a) 14,700 136 Brocade Communications Systems, Inc. (a) 49,900 1,225 Business Objects SA - ADR (a) 9,800 269 CACI International, Inc. Class A (a) 32,500 2,022 Caliper Technologies Corp. (a) 22,700 274 Checkpoint Systems, Inc. (a) 7,400 77 Cirrus Logic, Inc. (a) 16,200 180 Coherent, Inc. (a) 30,200 800 Computer Network Technology Corp. (a) 55,200 806 Concurrent Computer Corp. (a) 109,839 1,290 Cree, Inc. (a) 42,153 757 CSG Systems International, Inc. (a) 17,900 560 Digex, Inc. (a) 72,700 122 Documentum, Inc. (a) 46,600 688 DRS Technologies, Inc. (a) 21,700 876 E.piphany, Inc. (a) 24,000 142 Electronics for Imaging, Inc. (a) 10,400 205 Entegris, Inc. New (a) 13,000 100 ESCO Technologies, Inc. (a) 4,100 114 Exar Corp. (a) 41,500 935 Excel Technology, Inc. (a) 41,400 643 Fairchild Semiconductor Corp. Class A (a) 35,800 761 Finisar Corp. (a) 68,625 537 General Dynamics Corp. 21,500 1,754 Genesis Microchip, Inc. (a) 51,200 2,366 Genuity, Inc. (a) 446,300 678 Gerber Scientific, Inc. 9,400 103 Harmonic Lightwaves, Inc. (a) 23,100 186 Harris Corp. 52,800 1,810 hi/fn, inc. (a) 4,425 64 HNC Software, Inc. (a) 16,000 277 Hyperion Solutions Corp. (a) 30,400 456 i2 Technologies, Inc. (a) 202,800 925 II-VI, Inc. (a) 59,900 914 Imation Corp. (a) 5,600 117 InFocus Corp. (a) 6,000 116 Informatica Corp. (a) 73,500 681 Ingram Micro, Inc. Class A (a) 12,100 155 Inktomi Corp. (a) 31,200 133 Integrated Circuit Systems, Inc. New (a) 15,200 259 Inter-Tel, Inc. 38,000 577 Interactive Intelligence, Inc. (a) 6,900 30 International Rectifier Corp. (a) 10,500 369 Intersil Holding Corp. (a) 21,300 698 InterVoice, Inc. (a) 4,900 61 Iomega Corp. (a) 2,000 14 JDA Software Group, Inc. (a) 30,400 477 Keithley Instruments, Inc. 4,100 68 KEMET Corp. (a) 66,400 1,187 Keynote Systems, Inc. (a) 30,300 231 L-3 Communications Holdings, Inc. (a) 19,100 1,659 Lantronix, Inc. New (a) 17,900 115 LeCroy Corp. (a) 3,400 54 Liberate Technologies, Inc. (a) 34,600 342 Loral Space & Communications, Ltd. (a) 192,200 248 30 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- LSI Logic Corp. (a) 64,300 1,090 Maxtor Corp. (a) 145,000 711 McAfee.com Corp. (a) 15,900 350 McDATA Corp. (a) 12,400 194 Mentor Graphics Corp. (a) 40,500 768 Mercury Computer Systems, Inc. (a) 2,400 113 Mercury Interactive Corp. (a) 12,600 300 Micro General Corp. (a) 5,000 53 Microchip Technology, Inc. (a) 28,053 876 Microsemi Corp. (a) 26,896 941 N2H2, Inc. (a) 2,500 1 National Instruments Corp. (a) 25,800 743 Netegrity, Inc. (a) 24,300 285 NetIQ Corp. (a) 12,900 363 Network Associates, Inc. (a) 42,900 824 Numerical Technologies, Inc. (a) 24,200 597 Optimal Robotics Corp. (a) 28,100 828 Park Electrochemical Corp. 2,900 65 PerkinElmer, Inc. 19,800 533 Perot Systems Corp. Class A (a) 56,900 964 Pioneer-Standard Electronics, Inc. 23,200 206 Pixelworks, Inc. New (a) 60,900 615 Planar Systems, Inc. (a) 16,400 238 PLATO Learning, Inc. (a) 41,067 583 PLX Technology, Inc. (a) 11,200 87 Power Integrations, Inc. (a) 62,200 1,431 Precise Software Solutions, Ltd. (a) 42,000 803 Progress Software Corp. (a) 30,400 450 Quantum Corp. - DLT & Storage Systems (a) 123,800 1,044 Register.com, Inc. (a) 95,800 814 Retek, Inc. (a) 7,600 154 Riverstone Networks, Inc. New (a) 66,000 840 SBS Technologies, Inc. (a) 9,100 140 ScanSource, Inc. (a) 16,500 709 Secure Computing Corp. (a) 56,314 921 Semtech Corp. (a) 43,664 1,648 Silicon Graphics, Inc. (a) 38,700 67 Silicon Laboratories, Inc. (a) 12,800 312 SmartForce PLC - ADR (a) 56,900 937 SonicWALL, Inc. (a) 26,058 370 Standard Microsystems Corp. (a) 19,600 196 Stellent, Inc. (a) 29,602 607 Storage Technology Corp. (a) 86,900 1,631 Sybase, Inc. (a) 16,400 223 Sykes Enterprises, Inc. (a) 13,200 127 Synopsys, Inc. (a) 29,400 1,382 TriQuint Semiconductor, Inc. (a) 42,929 759 Unisys Corp. (a) 71,000 634 UNOVA, Inc. (a) 110,400 351 UTStarcom, Inc. (a) 152,440 3,579 ViaSat, Inc. (a) 28,000 415 Virata Corp. (a) 79,200 948 Vishay Intertechnology, Inc. (a) 61,100 1,152 Xicor, Inc. (a) 6,800 66 Zoran Corp. (a) 29,599 748 ------ 84,662 ------ UTILITIES - 4.4% AGL Resources, Inc. 29,200 603 AirGate PCS, Inc. (a) 10,500 540 Alliant Energy Corp. 23,000 676 American States Water Co. 1,600 53 Avista Corp. 55,400 664 Black Hills Corp. 15,800 434 BroadWing, Inc. (a) 20,600 191 Cablevision Systems Corp. (Rainbow Media Group) (a) 3,800 81 Cascade Natural Gas Corp. 3,500 71 Centennial Cellular Corp. Class A (a) 6,200 56 Central Vermont Public Service Corp. 2,900 50 CH Energy Group, Inc. 21,000 839 Cleco Corp. 11,200 225 Comcast Corp. Special Class A (a) 44,700 1,602 Commonwealth Telephone Enterprises, Inc. (a) 6,800 291 Connecticut Water Service, Inc. 2,200 59 Dobson Communications Corp. (a) 23,700 234 DQE, Inc. 17,300 324 El Paso Electric Co. (a) 52,400 713 General Communication, Inc. Class A (a) 22,300 259 Hawaiian Electric Industries, Inc. 25,100 934 Hickory Tech Corp. 3,500 53 Idacorp, Inc. 32,600 1,239 IDT Corp. (a) 10,500 116 Illuminet Holdings, Inc. (a) 38,500 1,377 Madison Gas & Electric Co. 3,500 85 MDU Resources Group, Inc. 24,100 586 Mediacom Communications Corp. Class A (a) 51,900 696 Metro One Telecommunications, Inc. (a) 4,200 127 Middlesex Water Co. 1,400 47 New Jersey Resources Corp. 6,100 275 Nextel Communications, Inc. Class A (a) 83,600 665 Nextel Partners, Inc. (a) 9,700 52 NICOR, Inc. 26,000 1,011 North Pittsburgh Systems, Inc. 6,700 100 Northwestern Corp. 9,000 173 NSTAR 3,000 123 ONEOK, Inc. 30,200 520 Peoples Energy Corp. 28,500 1,091 PPL Corp. 7,200 246 Special Growth Fund 31 SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- Public Service Co. of New Mexico 90,700 2,222 SCANA Corp. 6,400 165 Sierra Pacific Resources 24,300 353 SJW Corp. 600 49 South Jersey Industries, Inc. 23,000 760 Telephone & Data Systems, Inc. 8,200 721 Time Warner Telecom, Inc. Class A (a) 9,100 100 UGI Corp. 25,600 740 UniSource Energy Corp. 17,860 281 United States Cellular Corp. (a) 25,000 1,116 US Unwired, Inc. New (a) 82,600 998 UtiliCorp United, Inc. 21,500 637 Western Resources, Inc. 78,200 1,281 Wisconsin Energy Corp. 27,300 606 WPS Resources Corp. 10,900 371 -------- ------- 27,881 ------- TOTAL COMMON STOCKS (cost $573,175) 589,455 ------- PREFERRED STOCKS - 0.2% News Corp., Ltd. - ADR 44,143 1,051 ------- TOTAL PREFERRED STOCKS (cost $1,057) 1,051 ------- PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ -------- ------- SHORT-TERM INVESTMENTS - 6.1% Frank Russell Investment Company Money Market Fund (b) 32,425 32,425 United States Treasury Bills (c)(d)(f) 2.070% due 12/20/01 5,500 5,485 2.200% due 12/20/01 1,000 997 ------- TOTAL SHORT-TERM INVESTMENTS (cost $38,907) 38,907 ------- TOTAL INVESTMENTS - 99.6% (identified cost $613,139) 629,413 OTHER ASSETS AND LIABILITIES, NET - 0.4% 2,221 ------- NET ASSETS - 100.0% 631,634 ======= (a) Nonincome-producing security. (b) At net asset value. (c) Rate noted is yield-to-maturity from date of acquisition. (d) Held as collateral in connection with futures contracts purchased by the Fund. (e) Real Estate Investment Trust (REIT). (f) At amortized cost, which approximates market. Abbreviations: ADR - American Depositary Receipt NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) FUTURES CONTRACTS $ (000) -------- -------------- Nasdaq 100 Index expiration date 12/01 5,887 $ (151) Russell 2000(TM) Index expiration date 12/01 20,575 232 S&P Midcap 400 Index expiration date 12/01 8,350 159 S&P 500 Index expiration date 12/01 10,077 34 -------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ 274 ============== See accompanying notes which are an integral part of the financial statements 32 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (including securities on loan of $56,519), (identified cost $613,139) ................ $ 629,413 Receivables: Dividends and interest ................................................................................... 434 Investments sold ......................................................................................... 3,650 Fund shares sold ......................................................................................... 4,336 Daily variation margin on futures contracts .............................................................. 585 Investment of securities lending collateral in money market funds, at cost and market value ................ 59,695 ---------- Total assets ........................................................................................... 698,113 LIABILITIES Payables: Investments purchased .......................................................................... $ 5,150 Fund shares redeemed ........................................................................... 767 Accrued fees to affiliates ..................................................................... 735 Other accrued expenses ......................................................................... 132 Payable upon return of securities loaned ......................................................... 59,695 -------- Total liabilities ...................................................................................... 66,479 ---------- NET ASSETS ................................................................................................. $ 631,634 ========== NET ASSETS CONSIST OF: Undistributed net investment income ........................................................................ $ 17 Accumulated net realized gain (loss) ....................................................................... (5,021) Unrealized appreciation (depreciation) on: Investments .............................................................................................. 16,274 Futures contracts ........................................................................................ 274 Shares of beneficial interest .............................................................................. 162 Additional paid-in capital ................................................................................. 619,928 ---------- NET ASSETS ................................................................................................. $ 631,634 ========== NET ASSET VALUE, offering and redemption price per share: Class C ($11,661,998 divided by 311,635 shares of $.01 par value shares of beneficial interest outstanding) ............................................................. $ 37.42 . ========== Class E ($11,050,795 divided by 288,741 shares of $.01 par value shares of beneficial interest outstanding) .............................................................. $ 38.27 ========== Class S ($608,921,609 divided by 15,610,087 shares of $.01 par value shares of beneficial interest outstanding) .............................................................. $ 39.01 ==========
See accompanying notes which are an integral part of the financial statements. Special Growth Fund 33 SPECIAL GROWTH FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Dividends ........................................................... $ 7,504 Dividends from Money Market Fund .................................... 1,777 Securities Lending Income ........................................... 388 Interest ............................................................ 210 --------- Total investment income ........................................... 9,879 EXPENSES Advisory fees ........................................... $ 6,378 Administrative fees ..................................... 399 Custodian fees .......................................... 508 Distribution fees - Class C ............................. 84 Transfer agent fees ..................................... 1,527 Professional fees ....................................... 57 Registration fees ....................................... 108 Shareholder servicing fees - Class C .................... 28 Shareholder servicing fees - Class E .................... 26 Trustees' fees .......................................... 16 Miscellaneous ........................................... 84 --------- Expenses before reductions .............................. 9,215 Expense reductions ...................................... (9) --------- Expenses, net ..................................................... 9,206 --------- Net investment income ................................................. 673 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments ............................................ (614) Futures contracts ...................................... (13,885) (14,499) --------- Net change in unrealized appreciation (depreciation) on: Investments ............................................ (101,708) Futures contracts ...................................... 1,881 (99,827) --------- --------- Net realized and unrealized gain (loss) ............................... (114,326) --------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ................. $(113,653) =========
See accompanying notes which are an integral part of the financial statements. 34 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ----------------- ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income ................................................ $ 673 $ 447 $ (680) Net realized gain (loss) ............................................. (14,499) 96,937 68,666 Net change in unrealized appreciation (depreciation) ................. (99,827) (27,929) 59,917 ---------- ---------- ----------- Net increase (decrease) in net assets from operations .............. (113,653) 69,455 127,903 ---------- ---------- ----------- DISTRIBUTIONS From net investment income Class E ............................................................ (6) -- -- Class S ............................................................ (899) (267) (78) From net realized gain Class C ............................................................ (1,327) (189) (357) Class E ............................................................ (1,202) (165) (323) Class S ............................................................ (87,135) (19,077) (42,975) ---------- ---------- ----------- Net decrease in net assets from distributions ...................... (90,569) (19,698) (43,733) ---------- ---------- ----------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions ........ 55,981 21,506 22,442 ---------- ---------- ----------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS ............................ (148,241) 71,263 106,612 NET ASSETS Beginning of period .................................................. 779,875 708,612 602,000 ---------- ---------- ----------- End of period (including undistributed net investment income of $17 October at 31, 2001 and $180 at October 31, 2000) ............... $ 631,634 $ 779,875 $ 708,612 ========== ========== ===========
See accompanying notes which are an integral part of the financial statements. Special Growth Fund 35 SPECIAL GROWTH FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** ------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 51.05 $ 48.22 $ 42.17 ------- ------- ------- INCOME FROM OPERATIONS Net investment income (loss)(a) ........... (.38) (.38) (.45) Net realized and unrealized gain (loss) (7.12) 4.56 9.72 ------- ------- ------- Total income from operations ............ (7.50) 4.18 9.27 ------- ------- ------- DISTRIBUTIONS From net realized gain ..................... (6.13) (1.35) (3.22) ------- ------- ------- NET ASSET VALUE, END OF PERIOD .............. $ 37.42 $ 51.05 $ 48.22 ======= ======= ======= TOTAL RETURN (%)(b) ......................... (15.93) 8.83 22.53 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)... 11,662 10,762 5,990 Ratios to average net assets (%)(c): Operating expenses, net ................. 2.27 2.21 2.23 Operating expenses, gross ............... 2.27 2.22 2.23 Net investment income (loss) ............ (.89) (.91) (1.10) Portfolio turnover rate (%) ............... 126.83 136.00 111.98
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period January 27, 1999 (commencement of sale) to December 31, 2000. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 36 Special Growth Fund SPECIAL GROWTH FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ---------------------------------------- 2001* 2000** 1999 1998 1997 1996*** ------- ------- ------- ------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 51.74 $ 48.55 $ 42.91 $ 45.42 $ 40.75 $ 43.48 ------- ------- ------- ------- ------- ------- INCOME FROM OPERATIONS Net investment income (loss)(a) ........... (.06) (.07) (.16) (.17) (.13) (.02) Net realized and unrealized gain (loss).... (7.25) 4.61 9.02 .09 11.05 1.63 ------- ------- ------- ------- ------- ------- Total income from operations ............ (7.31) 4.54 8.86 (.08) 10.92 1.61 ------- ------- ------- ------- ------- ------- DISTRIBUTIONS From net investment income ................ (.03) -- -- -- -- -- From net realized gain .................... (6.13) (1.35) (3.22) (2.43) (6.25) (4.34) ------- ------- ------- ------- ------- ------- Total distributions ..................... (6.16) (1.35) (3.22) (2.43) (6.25) (4.34) ------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD .............. $ 38.27 $ 51.74 $ 48.55 $ 42.91 $ 45.42 $ 40.75 ======= ======= ======= ======= ======= ======= TOTAL RETURN (%)(b) ......................... (15.29) 9.53 21.19 .04 27.90 4.04 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)... 11,051 9,678 5,411 6,139 3,153 910 Ratios to average net assets (%)(c): Operating expenses, net ................. 1.52 1.46 1.49 1.58 1.83 1.89 Operating expenses, gross ............... 1.52 1.47 1.49 1.58 1.83 1.89 Net investment income (loss) ............ (.14) (.16) (.36) (.39) (.51) (.38) Portfolio turnover rate (%) ............... 126.83 136.00 111.98 129.19 97.19 118.13
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Special Growth Fund 37 SPECIAL GROWTH FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ----------------------------------------- 2001* 2000** 1999 1998 1997 1996 -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ................... $ 52.52 $ 49.18 $ 43.34 $ 45.72 $ 40.79 $ 39.17 -------- -------- -------- -------- -------- -------- INCOME FROM OPERATIONS Net investment income (loss)(a) ...................... .05 .04 (.05) .01 .08 .12 Net realized and unrealized gain (loss) .............. (7.37) 4.67 9.12 .08 11.18 6.87 -------- -------- -------- -------- -------- -------- Total income from operations ...................... (7.32) 4.71 9.07 .09 11.26 6.99 -------- -------- -------- -------- -------- -------- DISTRIBUTIONS From net investment income ........................... (.06) (.02) (.01) (.04) (.08) (.12) From net realized gain ............................... (6.13) (1.35) (3.22) (2.43) (6.25) (5.25) -------- -------- -------- -------- -------- -------- Total distributions ............................... (6.19) (1.37) (3.23) (2.47) (6.33) (5.37) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD ......................... $ 39.01 $ 52.52 $ 49.18 $ 43.34 $ 45.72 $ 40.79 ======== ======== ======== ======== ======== ======== TOTAL RETURN (%)(b) .................................... (15.05) 9.76 21.45 .42 28.77 18.65 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ............. 608,921 759,435 697,211 595,862 572,635 393,048 Ratios to average net assets (%)(c): Operating expenses, net ........................... 1.27 1.21 1.24 1.15 1.15 1.19 Operating expenses, gross ......................... 1.27 1.22 1.24 1.15 1.15 1.19 Net investment income (loss) ...................... .11 .08 (.10) .03 .18 .28 Portfolio turnover rate (%) ......................... 126.83 136.00 111.98 129.19 97.19 118.13
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 38 Special Growth Fund EQUITY INCOME FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To achieve a high level of current income while maintaining the potential for capital appreciation. INVESTS IN: Primarily income-producing US equity securities. STRATEGY: The Fund uses a multi-manager strategy intended to achieve a high level of current income and the potential for capital appreciation with moderate risk. The Fund employed the investment management services of three managers with three separate approaches to value-oriented investment. GROWTH OF A $10,000 INVESTMENT Dates Equity Income - Class S Russell 1000(R) Value** - ----- ----------------------- ----------------------- Inception* $10,000 $10,000 1992 $10,962 $11,067 1993 $13,057 $13,851 1994 $13,613 $13,957 1995 $16,667 $17,402 1996 $20,315 $21,533 1997 $27,231 $28,678 1998 $30,438 $32,930 1999 $32,885 $38,372 2000 $32,906 $40,489 2001 $28,310 $35,686 YEARLY PERIODS ENDED OCTOBER 31 EQUITY INCOME FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ---------- ------------- 1 Year $ 8,603 (13.97)% 5 Years $ 13,935 6.86%(S) 10 Years $ 28,310 10.96%(S) EQUITY INCOME FUND - CLASS E++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ---------- ------------- 1 Year $ 8,578 (14.22)% 5 Years $ 13,656 6.43%(S) 10 Years $ 27,742 10.73%(S) EQUITY INCOME FUND - CLASS C++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ------------ ------------- 1 Year $ 8,516 (14.84)% 5 Years $ 13,385 6.00%(S) 10 Years $ 27,191 10.51%(S) RUSSELL 1000(R) VALUE INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ------------ ------------- 1 Year $ 8,814 (11.86)% 5 Years $ 16,573 10.63%(S) 10 Years $ 35,686 13.57%(S) 40 Equity Income Fund EQUITY INCOME FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the year ended October 31, 2001, the Equity Income Fund Class S, Class E and Class C shares lost 13.97%, 14.22% and 14.84%, respectively, as compared to the Russell 1000(R) Value Index, which declined 11.86%. The Fund's performance was lower than that of its benchmark index in a market environment marked by unusually difficult events. These included terrorist attacks on September 11, 2001 that caused investor confidence to plummet. The attacks came after a heavy slate of sluggish economic news and declining corporate earnings announcements. This fiscal year also witnessed a reversal in monetary policy. At the beginning of the period, financial markets were still feeling the negative effects of the multiple interest rate hikes made by the Federal Reserve Board (Fed) during early 2000. By the end of the period, market participants were anxiously waiting for the numerous rate cuts during fiscal 2001 to gain traction, and help revive the struggling economy. These events caused value issues to outperform their growth counterparts. Yet due to the high level of cross-sectional volatility among the value economic sectors, active managers had difficulty outperforming the benchmarks. PORTFOLIO HIGHLIGHTS Major shifts in political leadership, monetary policy, economic standing and national security during the fiscal period impacted the Fund's performance. This environment, characterized by a flight to perceived quality and defensive issues, favored value investing. In February 2001, Iridian Asset Management replaced Equinox Capital Management. Iridian has a higher confidence rating and will seek to add greater diversification to the Fund. Demonstrating the benefits of a multi-manager approach, Westpeak contributed the best returns relative to the other managers and to the benchmark in the fourth calendar quarter of 2000, while Barclays took the lead for the next two quarters. In the third calendar quarter of 2001, as investors reacted fearfully to the terrorist attacks, Iridian led against the other managers and outperformed the Russell 1000(R) Value Index. During the fiscal year, the managers reassessed the factors they used in determining stock selection. Barclays, for example, adjusted its risk forecasts at the stock level and scrutinized all recent earnings estimate revisions to highlight earnings sustainability. Westpeak further decreased the importance of earnings relative to price in its model. Iridian ended the period favoring insurance holdings and underweighting utilities. The Fund, in aggregate, favored companies with slightly discounted price-to-earnings ratios and above average expected earnings growth. The capitalization bias indicated a 2% underweight to the largest capitalization tier of value stocks. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 Citigroup, Inc. 3.8% Exxon Mobil Corp. 3.4 Bank of America Corp. 2.7 Verizon Communications, Inc. 2.3 Procter & Gamble Co. 1.9 SBC Communications, Inc. 1.6 Federal National Mortgage Association 1.6 ChevronTexaco Corp. 1.5 American International Group, Inc. 1.4 AT&T Corp. 1.4 PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 17.5x Portfolio Price/Book Ratio 2.43x Market Capitalization - $-Weighted Average 58.63 Bil Number of Holdings 433 MONEY MANAGERS STYLE Barclays Global Fund Advisors Value Iridian Asset Management, LLC Value Westpeak Global Advisors, LP Value * Equity Income Fund Class S assumes initial investment on November 1, 1991. ** Russell 1000(R) Value Index includes stocks from the Russell 1000(R) Index with a less than average growth orientation. The Index represents the universe of stocks from which most price-driven managers typically select. The Russell 1000(R) Value Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates. ++ Equity Income Fund Class S performance has been linked with Class E to provide historical perspective. For the period November 4, 1996 (commencement of sale) to May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Equity Income Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Equity Income Fund 41 EQUITY INCOME FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ ------ COMMON STOCKS - 95.7% AUTO AND TRANSPORTATION - 1.8% Airborne, Inc. 1,120 11 AMR Corp. (a) 1,370 25 ArvinMeritor, Inc. 895 13 Burlington Northern Santa Fe Corp. 7,560 203 Continental Airlines, Inc. Class B (a) 260 5 Delta Air Lines, Inc. 1,510 35 Expeditors International of Washington, Inc. 630 28 FedEx Corp. (a) 2,410 99 Ford Motor Co. 22,826 366 General Motors Corp. 12,278 507 Hunt (JB) Transportation Services, Inc. (a) 100 1 Norfolk Southern Corp. 25,300 424 Southwest Airlines Co. 4,935 78 Tidewater, Inc. 50 2 TRW, Inc. 380 13 Union Pacific Corp. 2,050 107 ----- 1,917 ----- CONSUMER DISCRETIONARY - 7.0% Amazon.com, Inc. (a) 2,400 17 AOL Time Warner, Inc. (a) 5,620 175 Apollo Group, Inc. Class A (a) 550 22 AutoNation, Inc. (a) 4,800 49 AutoZone, Inc. (a) 3,320 194 Banta Corp. 850 25 Best Buy Co. (a) 1,130 62 Brinker International, Inc. (a) 4,955 126 Carnival Corp. 1,860 41 Cendant Corp. (a) 34,700 450 Charter Communications Holdings, Inc. Class A (a) 3,800 54 Circuit City Stores - Circuit City Group 6,140 84 Clear Channel Communications, Inc. (a) 1,516 58 Costco Wholesale Corp. (a) 13,500 511 Darden Restaurants, Inc. 18,640 597 Disney (Walt) Co. 20,650 384 Donnelley (R.R.) & Sons Co. 5,130 131 EarthLink, Inc. (a) 10,078 148 Eastman Kodak Co. 1,740 44 Federated Department Stores, Inc. (a) 8,230 263 Gannett Co., Inc. 2,360 149 GTECH Holdings Corp. (a) 2,150 86 Harrah's Entertainment, Inc. (a) 1,150 34 Insight Communications Co., Inc. Class A (a) 240 5 JC Penney & Co., Inc. 3,260 71 Jones Apparel Group, Inc. (a) 140 4 Kimberly-Clark Corp. 15,770 875 Liberty Media Corp. (a) 61,060 714 Limited, Inc. (The) 2,810 31 Mattel, Inc. (a) 23,590 447 May Department Stores Co. 5,720 180 McDonald's Corp. 3,690 96 MGM Grand, Inc. (a) 520 12 Monsanto Co. New 1,830 57 New York Times Co. Class A 360 15 Newell Rubbermaid, Inc. 4,120 114 Park Place Entertainment Corp. (a) 4,070 29 Payless ShoeSource, Inc. (a) 760 40 Republic Services, Inc. (a) 1,490 24 Saks, Inc. (a) 1,970 13 Sears Roebuck & Co. 70 3 Starwood Hotels & Resorts Worldwide, Inc. Class B 1,800 40 Target Corp. 960 30 Ticketmaster Class B (a) 280 4 Tribune Co. 980 30 USA Networks, Inc. (a) 2,470 46 V.F. Corp. 1,650 55 Venator Group, Inc. (a) 1,190 17 Viacom, Inc. Class A (a) 30 1 Viacom, Inc. Class B (a) 4,504 164 Wallace Computer Services, Inc. 1,630 25 Waste Management, Inc. 20,350 499 Wendy's International, Inc. 7,250 191 West Corp. (a) 190 4 Westwood One, Inc. (a) 770 18 Whirlpool Corp. 2,300 136 ----- 7,694 ----- CONSUMER STAPLES - 6.9% Albertson's, Inc. 7,300 233 Anheuser-Busch Cos., Inc. 15,750 656 Campbell Soup Co. 3,340 94 Clorox Co. (The) 17,000 607 Coca-Cola Co. (The) 220 11 Colgate-Palmolive Co. 4,740 273 Coors (Adolph) Co. Class B 70 3 Dole Food Co., Inc. 200 4 Hormel Foods Corp. 5,010 120 Interstate Bakeries Corp. 1,940 46 Kellogg Co. 960 29 Kroger Co. (a) 12,900 316 Pepsi Bottling Group, Inc. (The) 1,400 65 PepsiCo, Inc. 26,209 1,277 Philip Morris Cos., Inc. 15,100 707 Procter & Gamble Co. 28,330 2,090 Ralston-Purina Group 1,060 35 Sara Lee Corp. 3,030 68 42 Equity Income Fund EQUITY INCOME FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ ------ SuperValu, Inc. 10,430 223 SYSCO Corp. 12,250 295 Tyson Foods, Inc. Class A 21,100 207 UST, Inc. 4,461 150 Winn-Dixie Stores, Inc. 3,400 38 ----- 7,547 ----- FINANCIAL SERVICES - 31.1% AFLAC, Inc. 2,220 54 Allied Capital Corp. 540 12 Allmerica Financial Corp. (a) 120 5 Allstate Corp. 6,150 193 AMBAC Financial Group, Inc. 900 43 American Express Co. 6,440 190 American Financial Group, Inc. 970 21 American International Group, Inc. 20,237 1,591 AmeriCredit Corp. (a) 460 7 AmSouth Bancorp 4,850 84 AON Corp. 23,600 898 Apartment Investment & Management Co. Class A (b) 2,530 106 Associated Banc-Corp. 360 12 BancWest Corp. 190 7 Bank of America Corp. 51,110 3,015 Bank One Corp. 8,170 271 BB&T Corp. 4,260 137 Block (H&R), Inc. 630 21 Capital One Financial Corp. 380 16 Charter One Financial, Inc. 25,095 684 Chubb Corp. (The) 12,040 822 CIGNA Corp. 13,520 986 Cincinnati Financial Corp. 1,270 47 Citigroup, Inc. 91,353 4,158 CNA Financial Corp. (a) 950 24 Colonial BancGroup, Inc. 770 10 Comerica, Inc. 2,290 106 Commerce Bancshares, Inc. 200 7 Compass Bancshares, Inc. 860 22 Countrywide Credit Industries, Inc. 4,830 193 Crescent Real Estate Equities, Co. (b) 930 16 Deluxe Corp. 6,230 218 Dime Bancorp, Inc. 290 10 DST Systems, Inc. (a) 980 40 Duke-Weeks Realty Corp. (b) 4,690 108 Edwards (A.G.), Inc. 1,150 45 Equity Office Properties Trust (b) 4,519 129 Equity Residential Properties Trust (b) 580 15 Federal Home Loan Mortgage Corp. 16,100 1,092 Federal National Mortgage Association 21,250 1,720 Federated Investors, Inc. Class B 1,240 32 FelCor Lodging Trust, Inc. (b) 1,560 22 Fidelity National Financial, Inc. 5,860 135 Fifth Third Bancorp 4,927 278 First Data Corp. 360 24 First Tennessee National Corp. 7,580 262 FirstMerit Corp. 170 4 Fiserv, Inc. (a) 1,420 53 FleetBoston Financial Corp. 8,780 289 Franklin Resources, Inc. 13,250 425 Fulton Financial Corp. 836 18 Golden State Bancorp, Inc. 1,360 34 Golden West Financial Corp. 1,260 61 Goldman Sachs Group, Inc. 1,410 110 Greenpoint Financial Corp. 1,380 44 Hartford Financial Services Group, Inc. (The) 19,910 1,075 Hibernia Corp. Class A 2,140 33 Household International, Inc. 14,860 777 Huntington Bancshares, Inc. 1,090 17 Investment Technology Group (a) 80 5 J.P. Morgan Chase & Co. 18,075 639 Jefferson-Pilot Corp. 2,480 103 John Hancock Financial Services, Inc. 820 28 KeyCorp 6,630 141 Lehman Brothers Holdings, Inc. 4,330 270 Lincoln National Corp. 21,180 897 Loews Corp. 2,990 152 M&T Bank Corp. 8,200 537 Marsh & McLennan Cos., Inc. 8,450 818 Marshall & Ilsley Corp. 220 13 MBIA, Inc. 400 18 MBNA Corp. 2,370 65 Mellon Financial Corp. 22,000 739 Merrill Lynch & Co., Inc. 6,040 264 MetLife, Inc. 1,380 37 MGIC Investment Corp. 1,060 55 Morgan Stanley Dean Witter & Co. 20,560 1,006 National City Corp. 6,940 183 National Commerce Financial Corp. 980 22 New Dun & Bradstreet Corp. (The) (a) 320 10 North Fork Bancorp, Inc. 8,600 240 Old National Bancorp 170 4 Old Republic International Corp. 12,870 327 PMI Group, Inc. (The) 500 28 PNC Bank Corp. 14,300 785 Popular, Inc. 3,280 96 Progressive Corp. 100 14 Protective Life Corp. 10,360 285 Public Storage, Inc. (b) 9,000 296 Radian Group, Inc. 430 15 Regions Financial Corp. 1,900 51 Reinsurance Group Of America 190 6 Equity Income Fund 43 EQUITY INCOME FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------- ------ SEI Investments Co. 310 10 Simon Property Group, Inc. (b) 4,090 112 SouthTrust Corp. 10,400 236 St. Paul Cos., Inc. 11,300 519 Stilwell Financial, Inc. 1,620 33 SunTrust Banks, Inc. 1,740 104 Synovus Financial Corp. 4,000 92 T. Rowe Price Group, Inc. 2,690 75 TCF Financial Corp. 15,060 633 TD Waterhouse Group, Inc. (a) 1,430 14 Torchmark Corp. 790 29 U.S. Bancorp 18,159 323 Union Planters Corp. 1,200 49 UnionBanCal Corp. 2,250 75 UnumProvident Corp. 2,600 58 USA Education, Inc. 9,500 775 Wachovia Corp. (a) 18,410 527 Washington Federal, Inc. 540 12 Washington Mutual, Inc. 24,730 747 Wells Fargo & Co. 12,251 484 Zions Bancorp 2,500 120 ------- 34,004 ------- HEALTH CARE - 8.3% Abbott Laboratories 1,060 56 Apria Healthcare Group, Inc. (a) 2,380 55 Bard (C.R.), Inc. 190 10 Baxter International, Inc. 2,600 126 Becton, Dickinson & Co. 1,790 64 Biogen, Inc. (a) 15,200 836 Boston Scientific Corp. (a) 48,205 1,096 Bristol-Myers Squibb Co. 4,050 216 DaVita, Inc. (a) 2,550 46 DENTSPLY International, Inc. 280 13 First Health Group Corp. (a) 2,940 79 HCA-The Healthcare Co. 18,400 730 Health Net, Inc. (a) 2,730 60 HEALTHSOUTH Corp. (a) 16,650 217 ICOS Corp. (a) 600 35 IMS Health, Inc. 4,570 98 Johnson & Johnson 18,744 1,085 King Pharmaceuticals, Inc. (a) 2,480 97 Lilly (Eli) & Co. 1,950 149 Merck & Co., Inc. 19,190 1,223 Mylan Laboratories, Inc. 1,400 52 Oxford Health Plans, Inc. (a) 5,430 128 Perrigo Co. (a) 960 14 Pfizer, Inc. 5,120 215 Pharmaceutical Product Development, Inc. (a) 820 22 Pharmacia Corp. 1,967 80 Quintiles Transnational Corp. (a) 25,500 404 Schering-Plough Corp. 17,800 662 Steris Corp. (a) 2,480 56 Tenet Healthcare Corp. (a) 12,800 736 UnitedHealth Group, Inc. 5,640 371 Varian Medical Systems, Inc. (a) 180 12 VISX, Inc. (a) 1,410 17 WebMD Corp. (a) 1,830 8 Wellpoint Health Networks, Inc. (a) 140 16 ------- 9,084 ------- INTEGRATED OILS - 7.9% Amerada Hess Corp. 5,690 334 ChevronTexaco Corp. (a) 19,153 1,696 Conoco, Inc. (a) 6,460 166 Exxon Mobil Corp. 93,760 3,699 Kerr-McGee Corp. 3,390 195 Occidental Petroleum Corp. 40,300 1,020 Phillips Petroleum Co. 23,494 1,278 USX-Marathon Group 9,740 269 ------- 8,657 ------- MATERIALS AND PROCESSING - 4.4% Air Products & Chemicals, Inc. 2,370 95 Airgas, Inc. (a) 2,070 28 Albemarle Corp. 1,540 31 Alcoa, Inc. 8,630 278 American Standard Cos., Inc. (a) 1,330 77 Archer-Daniels-Midland Co. 4,598 64 Ashland, Inc. 8,500 342 Barrick Gold Corp. 290 5 Bemis Co., Inc. 340 15 Boise Cascade Corp. 1,510 43 Catellus Development Corp. (a) 6,310 109 Crown Cork & Seal Co., Inc. 2,730 5 Dow Chemical Co. 13,879 461 Dycom Industries, Inc. (a) 300 4 E.I. du Pont de Nemours & Co. 4,600 184 Eastman Chemical Co. 2,270 78 Energizer Holdings, Inc. (a) 1,893 31 Freeport-McMoRan Copper & Gold, Inc. Class B (a) 920 10 Fuller (H.B.) Co. 100 5 Harsco Corp. 750 24 International Paper Co. 3,500 125 Lafarge Corp. 1,070 38 Longview Fibre Co. 580 6 Lubrizol Corp. 9,130 257 Masco Corp. 180 4 Nucor Corp. 1,470 61 Owens-Illinois, Inc. (a) 840 5 44 Equity Income Fund EQUITY INCOME FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ ------- Packaging Corp. of America (a) 1,320 23 Placer Dome, Inc. 600 7 PPG Industries, Inc. 540 26 Praxair, Inc. 2,710 128 Rayonier, Inc. 620 27 Shaw Group, Inc. (The) (a) 1,900 52 Sherwin-Williams Co. 8,440 206 Smurfit-Stone Container Corp. (a) 11,200 166 Sonoco Products Co. 2,090 49 Tyco International, Ltd. 19,687 966 Vulcan Materials Co. 1,260 52 Westvaco Corp. 1,940 48 Weyerhaeuser Co. 12,380 618 Willamette Industries, Inc. 1,600 75 Worthington Industries, Inc. 830 11 -------- 4,839 -------- MISCELLANEOUS - 1.8% Brunswick Corp. 1,070 19 Crane Co. 1,340 27 Eaton Corp. 540 35 General Electric Co. 3,910 142 Georgia-Pacific Group 22,830 634 Honeywell International, Inc. 18,530 548 ITT Industries, Inc. 1,900 91 Johnson Controls, Inc. 1,720 124 Lancaster Colony Corp. 290 9 Minnesota Mining & Manufacturing Co. 3,230 337 -------- 1,966 -------- OTHER ENERGY - 3.2% Apache Corp. 2,200 114 BJ Services Co. (a) 750 19 Dynegy, Inc. Class A 15,800 567 El Paso Corp. 16,200 795 Enron Corp. 11,100 154 Forest Oil Corp. (a) 370 10 Helmerich & Payne, Inc. 320 10 Louis Dreyfus Natural Gas Corp. (a) 180 7 Massey Energy Co. 310 6 Mitchell Energy & Development Corp. Class A 490 26 Patterson-UTI Energy, Inc. (a) 1,190 21 Schlumberger, Ltd. 9,600 465 Sunoco, Inc. 250 9 Ultramar Diamond Shamrock Corp. 1,770 89 Weatherford International, Inc. (a) 9,100 311 Williams Cos. (The) 32,110 927 -------- 3,530 -------- PRODUCER DURABLES - 3.6% Agilent Technologies, Inc. (a) 4,620 103 Andrew Corp. (a) 2,370 43 B.F. Goodrich Co. 790 17 Boeing Co. (The) 20,220 659 Caterpillar, Inc. 4,030 180 Cooper Industries, Inc. 720 28 Deere & Co. 7,200 266 Diebold, Inc. 680 25 Dover Corp. 2,230 73 Emerson Electric Co. 1,670 82 FEI Co. (a) 200 5 Grainger (W.W.), Inc. 2,730 118 Kennametal, Inc. 1,550 55 Lennar Corp. 130 5 Lockheed Martin Corp. 9,750 476 Northrop Grumman Corp. 480 48 Pall Corp. 500 10 Pentair, Inc. 1,490 47 Pitney Bowes, Inc. 27,070 992 Rockwell Collins 2,840 38 Stewart & Stevenson Services, Inc. 160 2 Tecumseh Products Co. Class A 110 5 Tektronix, Inc. (a) 230 5 United Technologies Corp. 11,200 604 Xerox Corp. 6,020 42 -------- 3,928 -------- TECHNOLOGY - 6.8% 3Com Corp. (a) 1,250 5 Analog Devices, Inc. (a) 2,080 79 Apple Computer, Inc. (a) 30 1 Atmel Corp. (a) 2,050 16 Avaya, Inc. (a) 610 5 Avnet, Inc. 570 12 AVX Corp. 1,560 29 BMC Software, Inc. (a) 490 7 CommScope, Inc. (a) 200 4 COMPAQ Computer Corp. 13,640 119 Computer Associates International, Inc. 32,990 1,020 Computer Sciences Corp. (a) 900 32 Compuware Corp. (a) 10,580 109 Corning, Inc. 4,040 33 Dell Computer Corp. (a) 2,380 57 Electronic Data Systems Corp. 23,300 1,500 Electronics for Imaging, Inc. (a) 360 7 General Dynamics Corp. 9,990 815 General Motors Corp. Class H (a) 1,180 16 Hewlett-Packard Co. 4,800 81 Imation Corp. (a) 330 7 Ingram Micro, Inc. Class A (a) 1,450 19 Equity Income Fund 45 EQUITY INCOME FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ ------ Intel Corp. 410 10 International Business Machines Corp. 9,260 1,001 JDS Uniphase Corp. (a) 2,590 21 Keane, Inc. (a) 1,120 16 KEMET Corp. (a) 3,150 56 Linear Technology Corp. 1,130 44 LSI Logic Corp. (a) 8,600 146 Lucent Technologies, Inc. 15,940 107 Maxim Integrated Products, Inc. (a) 2,387 109 Motorola, Inc. 8,150 133 Oracle Corp. (a) 13,780 187 PanAmSat Corp. (a) 290 6 PeopleSoft, Inc. (a) 3,500 104 Raytheon Co. 1,040 34 Rockwell International Corp. 7,190 99 Storage Technology Corp. (a) 27,470 516 Sybase, Inc. (a) 1,170 16 Unisys Corp. (a) 2,490 22 UTStarcom, Inc. (a) 37,700 885 ------- 7,485 ------- UTILITIES - 12.9% Alamosa Holdings, Inc. (a) 15,600 220 Allegheny Energy, Inc. 1,480 54 Alltel Corp. 9,360 535 American Electric Power Co., Inc. 10,840 454 AT&T Corp. 104,047 1,587 BellSouth Corp. 14,940 553 BroadWing, Inc. (a) 48,200 446 Cablevision Systems Corp. (Rainbow Media Group) (a) 220 5 Centennial Cellular Corp. Class A (a) 380 3 CenturyTel, Inc. 480 15 Comcast Corp. Special Class A (a) 28,260 1,013 Consolidated Edison, Inc. 730 29 Constellation Energy Group 1,060 24 Cox Communications, Inc. Class A (a) 1,240 47 Dominion Resources, Inc. 2,210 135 DTE Energy Co. 1,317 55 Duke Energy Corp. 15,050 578 Edison International (a) 2,360 34 Entergy Corp. 2,050 80 Exelon Corp. 2,387 100 FirstEnergy Corp. 7,940 274 FPL Group, Inc. 2,240 119 KeySpan Corp. 2,120 70 Level 3 Communications, Inc. (a) 2,280 8 MDU Resources Group, Inc. 150 4 Mirant Corp. New (a) 1,964 51 NSTAR 410 17 PG&E Corp. 2,860 52 Pinnacle West Capital Corp. 3,770 159 Potomac Electric Power Co. 2,790 60 PPL Corp. 3,730 127 Progress Energy, Inc. 260 11 Public Service Co. of New Mexico 930 23 Public Service Enterprise Group, Inc. 4,080 161 Questar Corp. 660 15 Qwest Communications International, Inc. 37,117 481 Reliant Energy, Inc. 3,210 90 SBC Communications, Inc. 47,360 1,803 Sempra Energy 5,920 139 Sprint Corp. (Fon Group) 16,630 333 TeleCorp PCS, Inc. Class A (a) 25,260 339 Telephone & Data Systems, Inc. 620 54 TXU Corp. 7,870 361 Verizon Communications, Inc. 49,576 2,467 Vodafone Group PLC - ADR 20,800 481 Western Resources, Inc. 770 13 WorldCom, Inc. - WorldCom Group (a) 26,630 358 Xcel Energy, Inc. 1,455 41 ------- 14,078 ------- TOTAL COMMON STOCKS (cost $103,846) 104,729 ------- 46 Equity Income Fund EQUITY INCOME FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- --------- SHORT-TERM INVESTMENTS - 4.6% Frank Russell Investment Company Money Market Fund (c) 4,008 4,008 United States Treasury Bills (d)(e)(f) Zero Coupon due 12/20/01 1,000 997 --------- TOTAL SHORT-TERM INVESTMENTS (cost $5,005) 5,005 --------- TOTAL INVESTMENTS - 100.3% (identified cost $108,851) 109,734 OTHER ASSETS AND LIABILITIES, NET - (0.3%) (340) --------- NET ASSETS - 100.0% 109,394 ========= NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) FUTURES CONTRACTS $ (000) -------- -------------- S&P Barra Value Index expiration date 12/01 1,539 $ 16 S&P 500 Index expiration date 12/01 3,447 (28) -------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ (12) ============== (a) Nonincome-producing security. (b) Real Estate Investment Trust (REIT). (c) At net asset value. (d) Held as collateral in connection with futures contracts purchased by the Fund. (e) Rate noted is yield-to-maturity from date of acquisition. (f) At amortized cost, which approximates market. Abbreviations: ADR - American Depositary Receipt See accompanying notes which are an integral part of the financial statements. Equity Income Fund 47 EQUITY INCOME FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (including securities on loan of $315), (identified cost $108,851) ......... $ 109,734 Receivables: Dividends and interest ......................................................................... 149 Fund shares sold ............................................................................... 297 Daily variation margin on futures contracts .................................................... 3 Investment of securities lending collateral in money market funds, at cost and market value ...... 331 ---------- Total assets ................................................................................. 110,514 LIABILITIES Payables: Investments purchased ................................................................ $ 115 Fund shares redeemed ................................................................. 457 Accrued fees to affiliates ........................................................... 144 Other accrued expenses ............................................................... 73 Payable upon return of securities loaned ............................................... 331 -------- Total liabilities ............................................................................ 1,120 ---------- NET ASSETS ....................................................................................... $ 109,394 ========== NET ASSETS CONSIST OF: Undistributed net investment income .............................................................. $ 15 Accumulated net realized gain (loss).............................................................. (5,054) Unrealized appreciation (depreciation) on: Investments .................................................................................... 883 Futures contracts .............................................................................. (12) Shares of beneficial interest .................................................................... 35 Additional paid-in capital ....................................................................... 113,527 ---------- NET ASSETS ...................................................................................... $ 109,394 ========== NET ASSET VALUE, offering and redemption price per share: Class C ($1,070,029 divided by 34,218 shares of $.01 par value shares of beneficial interest outstanding) .................................................... $ 31.27 ========== Class E ($942,997 divided by 29,888 shares of $.01 par value shares of beneficial interest outstanding) .................................................... $ 31.55 ========== Class S ($107,380,787 divided by 3,422,440 shares of $.01 par value shares of beneficial interest outstanding) .................................................... $ 31.38 ==========
See accompanying notes which are an integral part of the financial statements. 48 Equity Income Fund EQUITY INCOME FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Dividends ........................................................ $ 2,311 Dividends from Money Market Fund ................................. 268 Interest ......................................................... 42 Securities Lending Income ........................................ 1 -------- Total investment income ........................................ 2,622 EXPENSES Advisory fees ........................................ $ 1,013 Administrative fees .................................. 68 Custodian fees ....................................... 213 Distribution fees - Class C .......................... 8 Transfer agent fees .................................. 419 Professional fees .................................... 39 Registration fees .................................... 41 Shareholder servicing fees - Class C ................. 3 Shareholder servicing fees - Class E ................. 3 Trustees' fees ....................................... 13 Miscellaneous ........................................ 48 ---------- Expenses before reductions ......................... 1,868 Expense reductions ................................. (1) ---------- Expenses, net ................................................ 1,867 -------- Net investment income .............................................. 755 -------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments .......................................... 3,420 Futures contracts .................................... (2,069) 1,351 ---------- Net change in unrealized appreciation (depreciation) on: Investments .......................................... (21,505) Futures contracts .................................... (119) (21,624) --------- -------- Net realized and unrealized gain (loss) ............................ (20,273) -------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .............. $(19,518) ======== See accompanying notes which are an integral part of the financial statements. Equity Income Fund 49 EQUITY INCOME FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ----------------- ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income .......................................... $ 755 $ 1,024 $ 2,312 Net realized gain (loss) ....................................... 1,351 (9,535) 18,000 Net change in unrealized appreciation (depreciation) ........... (21,624) 7,032 (20,152) ----------------- ---------------- ----------------- Net increase (decrease) in net assets from operations ........ (19,518) (1,479) 160 ----------------- ---------------- ----------------- DISTRIBUTIONS From net investment income Class C ...................................................... -- -- (2) Class E ...................................................... (3) (6) (7) Class S ...................................................... (737) (1,029) (2,290) From net realized gain Class C ...................................................... -- (5) (68) Class E ...................................................... -- (5) (101) Class S ...................................................... -- (896) (20,115) Tax return of capital Class C ...................................................... -- (1) -- Class E ...................................................... -- (1) -- Class S ...................................................... -- (94) -- ----------------- ---------------- ----------------- Net decrease in net assets from distributions .............. (740) (2,037) (22,583) ----------------- ---------------- ----------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions .. (22,535) (33,336) (39,774) ----------------- ---------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS ...................... (42,793) (36,852) (62,197) NET ASSETS Beginning of period ............................................ 152,187 189,039 251,236 End of period (including undistributed net investment income of ----------------- ---------------- ----------------- $15 at October 31, 2001 and $51 at December 31, 1999) ......... $ 109,394 $ 152,187 $ 189,039 ================= ================ =================
See accompanying notes which are an integral part of the financial statements. 50 Equity Income Fund EQUITY INCOME FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** -------- -------- --------- NET ASSET VALUE, BEGINNING OF PERIOD ............................... $ 36.72 $ 37.02 $ 40.38 ------- -------- --------- INCOME FROM OPERATIONS Net investment income (loss)(a) .................................. (.15) (.06) .04 Net realized and unrealized gain (loss) .......................... (5.30) (.03) .66 ------- -------- --------- Total income from operations ................................... (5.45) (.09) .70 ------- -------- --------- DISTRIBUTIONS From net investment income ....................................... -- -- (.17) From net realized gain ........................................... -- (.19) (3.89) Tax return of capital ............................................ -- (.02) -- ------- -------- --------- Total distributions ............................................ -- (.21) (4.06) ------- -------- --------- NET ASSET VALUE, END OF PERIOD ..................................... $ 31.27 $ 36.72 $ 37.02 ======= ======== ========= TOTAL RETURN (%)(b) ................................................ (14.84) (.17) 2.03 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ......................... 1,070 1,035 995 Ratios to average net assets (%)(c): Operating expenses ............................................. 2.36 2.31 2.10 Net investment income (loss) ................................... (.44) (.22) .10 Portfolio turnover rate (%) ...................................... 119.47 99.20 137.94
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period January 27, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Equity Income Fund 51 EQUITY INCOME FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ------------------------------------------ 2001* 2000** 1999 1998 1997 1996*** ------- ------- ------- ------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD .................... $ 36.89 $ 37.20 $ 41.45 $ 41.43 $ 40.22 $ 41.86 ------- ------- ------- ------- -------- -------- INCOME FROM OPERATIONS Net investment income (a) ............................. .11 .15 .33 .37 .32 .10 Net realized and unrealized gain (loss) ............... (5.35) (.02) (.44) 4.49 12.20 2.39 ------- ------- ------- ------- -------- -------- Total income from operations ........................ (5.24) .13 (.11) 4.86 12.52 2.49 ------- ------- ------- ------- -------- -------- DISTRIBUTIONS From net investment income ............................ (.10) (.23) (.25) (.51) (.07) (.18) From net realized gain ................................ -- (.19) (3.89) (4.33) (11.24) (3.95) Tax return of capital ................................. -- (.02) -- -- -- -- ------- ------- ------- ------- -------- -------- Total distributions ................................. (.10) (.44) (4.14) (4.84) (11.31) (4.13) ------- ------- ------- ------- -------- -------- NET ASSET VALUE, END OF PERIOD .......................... $ 31.55 $ 36.89 $ 37.20 $ 41.45 $ 41.43 $ 40.22 ======= ======= ======= ======= ======== ======== TOTAL RETURN (%)(b) ..................................... (14.22) .46 .04 12.41 32.68 6.23 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) .............. 943 1,095 1,061 745 338 122 Ratios to average net assets (%)(c): Operating expenses .................................. 1.61 1.56 1.35 1.42 1.74 1.77 Net investment income ............................... .30 .53 .80 .90 .77 1.50 Portfolio turnover rate (%) ........................... 119.47 99.20 137.94 149.63 139.33 106.40
* For the fiscal year ended October 31, 2001 ** For the ten months ended October 31, 2000. *** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 52 Equity Income Fund EQUITY INCOME FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ------------------------------------------ 2001* 2000** 1999 1998 1997 1996 --------- --------- --------- --------- --------- --------- NET ASSET VALUE, BEGINNING OF PERIOD .................... $ 36.68 $ 36.92 $ 41.26 $ 41.08 $ 40.22 $ 38.43 --------- --------- --------- --------- --------- --------- INCOME FROM OPERATIONS Net investment income (a) ............................. .20 .23 .41 .55 .69 .82 Net realized and unrealized gain (loss) ............... (5.31) (.03) (.44) 4.49 12.11 7.03 --------- --------- --------- --------- --------- --------- Total income from operations ........................ (5.11) .20 (.03) 5.04 12.80 7.85 --------- --------- --------- --------- --------- --------- DISTRIBUTIONS From net investment income ............................ (.19) (.23) (.42) (.53) (.70) (.83) From net realized gain ................................ -- (.19) (3.89) (4.33) (11.24) (5.23) Tax return of capital ................................. -- (.02) -- -- -- -- --------- --------- --------- --------- --------- --------- Total distributions ................................. (.19) (.44) (4.31) (4.86) (11.94) (6.06) --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD .......................... $ 31.38 $ 36.68 $ 36.92 $ 41.26 $ 41.08 $ 40.22 ========= ========= ========= ========= ========= ========= TOTAL RETURN (%)(b) ..................................... (13.97) .66 .25 12.99 33.59 21.45 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) .............. 107,381 150,057 186,983 250,491 226,952 195,132 Ratios to average net assets (%)(c): Operating expenses .................................. 1.37 1.31 1.11 1.01 1.04 1.07 Net investment income ............................... .57 .79 1.03 1.30 1.51 2.03 Portfolio turnover rate (%) ........................... 119.47 99.20 137.94 149.63 139.33 106.40
* For the fiscal year ended October 31, 2001 ** For the ten months ended October 31, 2000. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Equity Income Fund 53 QUANTITATIVE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide total return greater than the total return of the US stock market (as measured by the Russell 1000(R) Index over a market cycle of four to six years), while maintaining volatility and diversification similar to the Index. INVESTS IN: Primarily US equity securities. STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher returns through security selection with sector diversification similar to the Russell 1000(R) Index. The Fund employed the investment management services of four managers using four distinctive quantitative approaches to investment. GROWTH OF A $10,000 INVESTMENT Dates Quantitative Equity - Class S Russell 1000(R)** - ----- ----------------------------- ----------------- Inception* $10,000 $10,000 1992 $10,865 $11,075 1993 $12,958 $12,823 1994 $13,345 $13,221 1995 $16,950 $16,791 1996 $20,806 $20,640 1997 $27,586 $27,211 1998 $32,284 $32,576 1999 $40,808 $40,909 2000 $44,508 $44,615 2001 $33,778 $32,997 YEARLY PERIODS ENDED OCTOBER 31 QUANTITATIVE EQUITY FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ---------- -------------- 1 Year $ 7,589 (24.11)% 5 Years $16,235 10.17%(S) 10 Years $33,778 12.93%(S) QUANTITATIVE EQUITY FUND - CLASS E++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ---------- -------------- 1 Year $ 7,570 (24.30)% 5 Years $15,900 9.71%(S) 10 Years $33,082 12.70%(S) QUANTITATIVE EQUITY FUND - CLASS ++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ------------ -------------- 1 Year $ 7,513 (24.87)% 5 Years $15,637 9.35%(S) 10 Years $32,534 12.51%(S) RUSSELL 1000(R) INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ------------ -------------- 1 Year $ 7,396 (26.04)% 5 Years $15,987 9.84%(S) 10 Years $32,997 12.68%(S) 54 Quantitative Equity Fund QUANTITATIVE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the year ended October 31, 2001, the Quantitative Equity Fund Class S, Class E and Class C shares lost 24.11%, 24.30% and 24.87%, respectively, as compared to the Russell 1000(R) Index, which declined 26.04%. The Fund's performance was in line with its benchmark index in a market environment marked by unusually difficult events. These included terrorist attacks on September 11, 2001 that caused investor confidence to plummet. The attacks came after a heavy slate of sluggish economic news and declining corporate earnings announcements. This fiscal year also witnessed a reversal in monetary policy. At the beginning of the period, financial markets were still feeling the negative effects of the multiple interest rate hikes made by the Federal Reserve Board (Fed) during early 2000. By the end of the period, market participants were anxiously waiting for the numerous rate cuts during fiscal 2001 to gain traction, and help revive the struggling economy. The managers' sector constrained mandates aided returns in this volatile environment. PORTFOLIO HIGHLIGHTS Major shifts in political leadership, monetary policy, economic standing, and national security during fiscal 2001 resulted in high levels of sector and market volatility, creating an environment in which a sector constrained fund should outperform funds with wider tracking errors. J.P. Morgan began the fiscal year outperforming the other managers and the Russell 1000(R) Index, only to be exceeded by Barclays and Franklin as the year progressed. Jacobs Levy ended the fiscal year as the leader in benchmark relative returns. The four market-oriented managers fulfilled the Fund's aim of diversification as the market rotated between investment approaches favoring valuation criteria, earnings momentum and other catalysts such as insider buying. The Fund began the fiscal year with a modest overweight to the largest capitalization tier of the market. This was addressed by adjusting the Fund managers' target weightings and cash flow allocation. At the end of the period, the Fund had a 2% underweight to large cap stocks resulting from the managers' tactical decisions. During the fiscal year, Chase acquired J.P. Morgan with no perceived negative effect on J.P. Morgan's ability to fulfill its mandate in the Fund. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 General Electric Co. 3.7% Pfizer, Inc. 3.5 Citigroup, Inc. 3.1 Microsoft Corp. 2.4 Johnson & Johnson 2.2 Exxon Mobil Corp. 2.2 American International Group, Inc. 2.0 AOL Time Warner, Inc. 1.9 Verizon Communications, Inc. 1.7 Intel Corp. 1.7 PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 20.0x Portfolio Price/Book Ratio 3.28x Market Capitalization - $-Weighted Average 93.00 Bil Number of Holdings 479 MONEY MANAGERS STYLE Barclays Global Advisors Market-Oriented Franklin Portfolio Associates, LLC Market-Oriented J.P. Morgan Investment Management, Inc. Market-Oriented Jacobs Levy Equity Management, Inc. Market-Oriented * Quantitative Equity Fund Class S assumes initial investment on November 1, 1991. ** Russell 1000(R) Index includes the 1,000 largest companies in the Russell 3000(R) Index, the smallest of which is valued at about $1.4 billion. The Russell 1000(R) Index represents the universe of stocks from which most active money managers typically select. The Russell 1000(R) Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates. ++ Quantitative Equity Fund Class S performance has been linked with Class E to provide historical perspective. For the period November 4, 1996 (commencement of sale) to May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Quantitative Equity Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Quantitative Equity Fund 55 QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ ------ COMMON STOCKS - 95.6% AUTO AND TRANSPORTATION - 1.3% Airborne, Inc. 18,410 184 Atlantic Coast Airlines, Inc. (a) 10,600 199 Burlington Northern Santa Fe Corp. 98,230 2,639 C.H. Robinson Worldwide, Inc. 9,700 260 Continental Airlines, Inc. Class B (a) 2,140 37 Delphi Automotive Systems Corp. 22,900 266 Delta Air Lines, Inc. 21,000 480 Expeditors International of Washington, Inc. 6,750 305 Ford Motor Co. 214,869 3,449 General Motors Corp. 89,270 3,689 Genuine Parts Co. 16,000 520 Goodyear Tire & Rubber Co. 50,500 941 Harley-Davidson, Inc. 2,900 131 Kansas City Southern Industries, Inc. (a) 13,950 174 Overseas Shipholding Group, Inc. 5,700 142 Skywest, Inc. 14,900 273 Southwest Airlines Co. 29,500 469 Tidewater, Inc. 13,550 409 TRW, Inc. 31,700 1,071 ------ 15,638 ------ CONSUMER DISCRETIONARY - 12.4% 99 Cents Only Stores (a) 13,900 494 Abercrombie & Fitch Co. Class A (a) 40,700 766 Amazon.com, Inc. (a) 105,990 740 American Eagle Outfitters, Inc. (a) 1,630 45 AOL Time Warner, Inc. (a) 738,924 23,062 Apollo Group, Inc. Class A (a) 49,035 1,993 Argosy Gaming Co. (a) 11,800 343 AutoNation, Inc. (a) 296,440 3,050 AutoZone, Inc. (a) 84,660 4,955 Banta Corp. 11,800 343 Bed Bath & Beyond, Inc. (a) 44,700 1,120 Best Buy Co. (a) 46,470 2,551 BJ's Wholesale Club, Inc. (a) 38,900 1,975 Career Education Corp. (a) 18,400 480 Carnival Corp. 5,950 130 Cendant Corp. (a) 210,100 2,723 Charter Communications Holdings, Inc. Class A (a) 13,400 189 Chicos FAS, Inc. (a) 14,700 382 Circuit City Stores - Circuit City Group 126,870 1,741 Clear Channel Communications, Inc. (a) 39,900 1,521 Copart, Inc. (a) 13,100 384 Costco Wholesale Corp. (a) 600 23 Darden Restaurants, Inc. 107,410 3,439 Disney (Walt) Co. 303,400 5,640 Donnelley (R.R.) & Sons Co. 51,490 1,313 EarthLink, Inc. (a) 2,400 35 Eastman Kodak Co. 22,900 586 eBay, Inc. (a) 13,000 682 Education Management Corp. (a) 6,900 238 Estee Lauder Cos., Inc. Class A 11,900 384 Extended Stay America, Inc. (a) 12,400 167 Family Dollar Stores, Inc. 45,000 1,299 Federated Department Stores, Inc. (a) 187,750 6,006 Gannett Co., Inc. 13,970 883 Gemstar-TV Guide International, Inc. (a) 53,900 1,093 GTECH Holdings Corp. (a) 15,270 609 Hasbro, Inc. 26,600 441 Home Depot, Inc. (The) 359,451 13,742 JC Penney & Co., Inc. 85,130 1,849 Jones Apparel Group, Inc. (a) 50,900 1,405 Kimberly-Clark Corp. 38,600 2,143 KMart Corp. (a) 51,100 313 Kohl's Corp. (a) 139,500 7,758 Lamar Advertising Co. Class A (a) 7,600 239 Liberty Media Corp. (a) 408,880 4,780 Lowe's Companies., Inc. 113,300 3,864 Marriott International, Inc. Class A 14,700 461 Mattel, Inc. (a) 112,050 2,121 May Department Stores Co. 136,540 4,294 McDonald's Corp. 37,100 967 Monsanto Co. New 10,830 339 NIKE, Inc. Class B 12,800 632 Omnicom Group, Inc. 22,200 1,705 Payless ShoeSource, Inc. (a) 21,970 1,161 Ruby Tuesday, Inc. 11,000 190 Sears Roebuck & Co. 67,010 2,598 Starbucks Corp. (a) 10,000 171 Starwood Hotels & Resorts Worldwide, Inc. Class B 53,000 1,168 Target Corp. 132,000 4,112 Tech Data Corp. (a) 54,200 2,314 THQ, Inc. (a) 3,500 174 Ticketmaster Class B (a) 17,510 239 TJX Cos., Inc. 57,400 1,940 TMP Worldwide, Inc. (a) 10,560 315 Venator Group, Inc. (a) 12,500 181 Viacom, Inc. Class B (a) 157,795 5,761 Viad Corp. 7,190 140 Wal-Mart Stores, Inc. 218,276 11,219 Wallace Computer Services, Inc. 5,620 87 Waste Management, Inc. 92,300 2,260 Whirlpool Corp. 26,140 1,542 ------- 154,009 ------- 56 Quantitative Equity Fund QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- CONSUMER STAPLES - 6.9% Albertson's, Inc. 22,800 728 Anheuser-Busch Cos., Inc. 37,210 1,550 Coca-Cola Co. (The) 81,000 3,878 Colgate-Palmolive Co. 54,230 3,119 ConAgra, Inc. 82,393 1,887 CVS Corp. 19,300 461 Dial Corp. 18,000 300 General Mills, Inc. 52,200 2,397 Heinz (H.J.) Co. 12,500 531 Hormel Foods Corp. 7,270 174 Interstate Bakeries Corp. 27,670 652 Kraft Foods, Inc. 31,000 1,046 Kroger Co. (a) 86,200 2,108 McCormick & Co., Inc. 21,600 945 Pepsi Bottling Group, Inc. (The) 31,800 1,478 PepsiCo, Inc. 304,134 14,814 Performance Food Group Co. (a) 9,000 265 Philip Morris Cos., Inc. 319,030 14,931 Procter & Gamble Co. 209,090 15,427 R.J. Reynolds Tobacco Holdings, Inc. 11,900 667 Ralston-Purina Group 2,420 79 Ruddick Corp. 2,320 35 Safeway, Inc. (a) 80,100 3,336 SuperValu, Inc. 208,690 4,453 SYSCO Corp. 202,410 4,880 Unilever NV 36,190 1,882 UST, Inc. 88,730 2,983 Walgreen Co. 41,600 1,348 ------ 86,354 ------ FINANCIAL SERVICES - 18.2% Affiliated Computer Services, Inc. Class A (a) 15,900 1,400 Affiliated Managers Group, Inc. (a) 13,200 814 AFLAC, Inc. 63,460 1,552 Allied Capital Corp. 3,150 71 Allstate Corp. 50,380 1,581 AMBAC Financial Group, Inc. 25,600 1,229 American Express Co. 1,100 32 American International Group, Inc. 313,552 24,645 AmeriCredit Corp. (a) 41,680 646 AmSouth Bancorp 57,685 997 Apartment Investment & Management Co. Class A (e) 27,750 1,165 Bank of America Corp. 314,908 18,576 Bank One Corp. 63,400 2,104 Banknorth Group, Inc. 7,800 171 BB&T Corp. 15,350 493 Bear Stearns Cos., Inc. (The) 31,385 1,695 Block (H&R), Inc. 32,900 1,121 Capital One Financial Corp. 52,970 2,188 Chelsea Property Group, Inc. 3,800 170 CIGNA Corp. 49,250 3,590 Cincinnati Financial Corp. 2,200 82 Citigroup, Inc. 849,991 38,692 CNA Financial Corp. (a) 10,700 269 Comerica, Inc. 11,400 525 Conseco, Inc. (a) 98,300 294 Countrywide Credit Industries, Inc. 136,430 5,448 Deluxe Corp. 4,100 144 DST Systems, Inc. (a) 26,210 1,073 Duke-Weeks Realty Corp. (e) 3,450 80 E*TRADE Group, Inc. (a) 64,000 418 Eaton Vance Corp. 9,600 270 Equity Office Properties Trust (e) 10,600 302 Federal Home Loan Mortgage Corp. 187,472 12,714 Federal National Mortgage Association 160,090 12,961 Federated Investors, Inc. Class B 17,700 462 Fidelity National Financial, Inc. 5,940 137 First Data Corp. 84,260 5,693 First Tennessee National Corp. 17,200 594 Fiserv, Inc. (a) 63,550 2,363 FleetBoston Financial Corp. 114,916 3,776 Golden State Bancorp, Inc. 13,800 350 Golden West Financial Corp. 25,100 1,220 Goldman Sachs Group, Inc. 36,100 2,822 Greenpoint Financial Corp. 23,260 745 Hartford Financial Services Group, Inc. (The) 12,300 664 Hibernia Corp. Class A 13,800 210 Household International, Inc. 16,590 868 IndyMac Bancorp, Inc. (a) 6,400 164 Instinet Group Inc. (a) 10,700 103 J.P. Morgan Chase & Co. 139,204 4,922 Jefferson-Pilot Corp. 17,100 707 John Hancock Financial Services, Inc. 5,500 187 KeyCorp 25,700 546 Lehman Brothers Holdings, Inc. 37,690 2,354 Lincoln National Corp. 9,100 385 Loews Corp. 12,200 620 Marshall & Ilsley Corp. 400 23 MBIA, Inc. 23,200 1,069 MBNA Corp. 104,168 2,876 Merrill Lynch & Co., Inc. 38,800 1,696 Metris Companies, Inc. 20,600 334 Moody's Corp. 22,100 767 Morgan Stanley Dean Witter & Co. 171,386 8,384 National City Corp. 53,740 1,419 New York Community Bancorp, Inc. 27,200 682 Old Republic International Corp. 27,750 704 Paychex, Inc. 9,250 297 Quantitative Equity Fund 57 QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- PMI Group, Inc. (The) 19,550 1,084 PNC Bank Corp. 48,075 2,639 Progressive Corp. 11,000 1,526 Protective Life Corp. 43,100 1,187 Radian Group, Inc. 1,030 35 Schwab (Charles) Corp. 167,000 2,151 SEI Investments Co. 1,660 51 Simon Property Group, Inc. (e) 1,280 35 SouthTrust Corp. 166,960 3,783 Stilwell Financial, Inc. 36,100 726 SunGard Data Systems (a) 25,360 639 SunTrust Banks, Inc. 57,190 3,423 TD Waterhouse Group, Inc. (a) 49,660 470 Torchmark Corp. 20,900 774 U.S. Bancorp 562,832 10,007 Union Planters Corp. 5,660 229 UnionBanCal Corp. 16,913 565 UnumProvident Corp. 38,168 857 Wachovia Corp. (a) 69,760 1,996 Washington Mutual, Inc. 279,435 8,437 Wells Fargo & Co. 850 35 Wilmington Trust Corp. 2,800 160 ------- 226,464 ------- HEALTH CARE - 17.5% Abbott Laboratories 142,900 7,571 Allergan, Inc. 27,900 2,003 American Home Products Corp. 83,800 4,679 AmerisourceBergen Corp. (a) 10,249 651 Amgen, Inc. (a) 67,900 3,858 Apria Healthcare Group, Inc. (a) 10,550 243 Barr Laboratories, Inc. (a) 10,000 728 Baxter International, Inc. 79,000 3,821 Becton, Dickinson & Co. 77,500 2,775 Biogen, Inc. (a) 3,920 216 Biomet, Inc. 40,700 1,241 Boston Scientific Corp. (a) 288,300 6,556 Bristol-Myers Squibb Co. 198,460 10,608 Cardinal Health, Inc. 84,914 5,699 Caremark Rx, Inc. (a) 26,900 360 Cerner Corp. (a) 16,600 892 Charles River Laboratories International, Inc. (a) 11,500 386 DaVita, Inc. (a) 14,840 270 Express Scripts, Inc. Class A (a) 16,800 688 First Health Group Corp. (a) 71,730 1,937 Forest Labs, Inc. (a) 71,000 5,281 Genzyme Corp. (a) 7,700 415 Guidant Corp. (a) 53,200 2,208 HCA-The Healthcare Co. 10,900 432 Health Net, Inc. (a) 21,400 470 Human Genome Sciences, Inc. (a) 42,300 1,803 Humana, Inc. (a) 20,100 232 ICOS Corp. (a) 73,619 4,251 IDEC Pharmaceuticals Corp. (a) 12,800 768 IMS Health, Inc. 224,400 4,795 IVAX Corp. (a) 30,199 621 Johnson & Johnson 476,030 27,567 King Pharmaceuticals, Inc. (a) 62,153 2,423 Laboratory Corp. of America Holdings (a) 6,200 534 Lilly (Eli) & Co. 99,870 7,640 McKesson HBOC, Inc. 16,400 607 MedImmune, Inc. (a) 40,190 1,577 Medtronic, Inc. 48,800 1,967 Merck & Co., Inc. 256,760 16,384 Millennium Pharmaceuticals, Inc. (a) 6,930 176 Oxford Health Plans, Inc. (a) 105,510 2,486 Perrigo Co. (a) 88,230 1,305 Pfizer, Inc. 1,047,430 43,887 Pharmaceutical Product Development, Inc. (a) 36,870 983 Pharmacia Corp. 161,935 6,562 Schering-Plough Corp. 229,100 8,518 SICOR, Inc. (a) 15,800 296 St. Jude Medical, Inc. (a) 27,300 1,938 Steris Corp. (a) 30,300 679 Stryker Corp. 31,400 1,766 Tenet Healthcare Corp. (a) 87,500 5,033 UnitedHealth Group, Inc. 109,148 7,176 Universal Health Services, Inc. Class B (a) 18,800 759 Varian Medical Systems, Inc. (a) 7,100 476 Vertex Pharmaceuticals, Inc. (a) 14,300 351 VISX, Inc. (a) 5,000 60 ------- 217,608 ------- INTEGRATED OILS - 5.1% Amerada Hess Corp. 12,310 723 ChevronTexaco Corp. (a) 77,673 6,878 Conoco, Inc. (a) 111,399 2,863 Exxon Mobil Corp. 691,520 27,280 Kerr-McGee Corp. 72,660 4,185 Occidental Petroleum Corp. 362,460 9,177 Phillips Petroleum Co. 35,500 1,932 Royal Dutch Petroleum Co. 46,320 2,340 USX-Marathon Group 280,608 7,742 ------- 63,120 ------- MATERIALS AND PROCESSING - 2.7% Air Products & Chemicals, Inc. 1,030 41 Airgas, Inc. (a) 3,160 43 Albemarle Corp. 2,050 41 58 Quantitative Equity Fund QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- Alcan Aluminum, Ltd. 24,800 758 Alcoa, Inc. 121,300 3,914 Archer-Daniels-Midland Co. 156,551 2,181 Ashland, Inc. 8,800 354 Boise Cascade Corp. 1,310 37 Catellus Development Corp. (a) 41,470 713 Crown Cork & Seal Co., Inc. 21,750 40 Dow Chemical Co. 25,000 831 Dycom Industries, Inc. (a) 3,490 42 Eastman Chemical Co. 18,270 627 Ecolab, Inc. 25,100 883 LNR Property Corp. 5,200 143 Lubrizol Corp. 10,340 291 Masco Corp. 4,800 95 Nucor Corp. 24,010 992 Packaging Corp. of America (a) 10,640 188 PPG Industries, Inc. 23,400 1,143 Praxair, Inc. 35,880 1,693 Precision Castparts Corp. 16,600 377 Rayonier, Inc. 13,160 563 Sherwin-Williams Co. 48,200 1,174 Sonoco Products Co. 16,980 399 Temple-Inland, Inc. 42,300 2,115 Tyco International, Ltd. 263,511 12,949 Weyerhaeuser Co. 20,315 1,014 Willamette Industries, Inc. 4,000 187 ------ 33,828 ------ MISCELLANEOUS - 4.3% Eaton Corp. 13,720 898 General Electric Co. 1,245,860 45,362 Georgia-Pacific Group 76,920 2,135 Honeywell International, Inc. 50,460 1,491 Johnson Controls, Inc. 30,020 2,171 Minnesota Mining & Manufacturing Co. 15,040 1,570 ------ 53,627 ------ OTHER ENERGY - 1.4% Apache Corp. 1,270 66 Baker Hughes, Inc. 5,700 204 BJ Services Co. (a) 31,640 810 Cooper Cameron Corp. (a) 16,800 655 Diamond Offshore Drilling, Inc. 2,000 55 Dynegy, Inc. Class A 93,100 3,342 El Paso Corp. 56,700 2,782 Enron Corp. 2,780 39 Global Marine, Inc. (a) 56,100 903 Halliburton Co. 10,800 267 Massey Energy Co. 25,030 513 Nabors Industries, Inc. (a) 8,300 255 Noble Drilling Corp. (a) 36,550 1,117 Patterson-UTI Energy, Inc. (a) 2,560 46 Rowan Cos., Inc. (a) 15,100 255 Sunoco, Inc. 20,800 779 Ultramar Diamond Shamrock Corp. 64,170 3,212 Valero Energy Corp. 47,500 1,785 ------ 17,085 ------ PRODUCER DURABLES - 3.5% Agilent Technologies, Inc. (a) 63,360 1,411 Alliant Techsystems, Inc. (a) 16,350 1,427 American Tower Corp. Class A (a) 30,200 333 Andrew Corp. (a) 16,800 305 Applied Materials, Inc. (a) 109,800 3,745 Axcelis Technologies, Inc. (a) 57,300 751 B.F. Goodrich Co. 20,200 431 Boeing Co. (The) 182,840 5,961 Caterpillar, Inc. 42,310 1,892 Centex Corp. 22,300 853 Cooper Industries, Inc. 8,630 334 D.R. Horton, Inc. 53,947 1,206 Danaher Corp. 7,800 435 Diebold, Inc. 26,450 960 Dover Corp. 5,060 167 Emerson Electric Co. 9,000 441 FEI Co. (a) 27,510 742 Grainger (W.W.), Inc. 59,610 2,581 Ingersoll-Rand Co. 7,200 269 KB HOME 34,900 1,031 Kennametal, Inc. 4,280 151 KLA Tencor Corporation (a) 85,190 3,481 Lam Research Corp. (a) 35,000 664 Lennar Corp. 26,800 972 Lockheed Martin Corp. 12,900 629 M.D.C. Holdings, Inc. 11,200 299 Northrop Grumman Corp. 3,220 322 NVR, Inc. (a) 3,000 475 Pitney Bowes, Inc. 97,300 3,567 Pulte Corp. 14,100 458 Rockwell Collins 28,700 387 Ryland Group, Inc. (The) 14,600 781 Teradyne, Inc. (a) 12,980 299 Toll Brothers, Inc. (a) 30,900 963 United Technologies Corp. 70,170 3,781 Xerox Corp. 108,300 758 ------ 43,262 ------ TECHNOLOGY - 14.1% 3Com Corp. (a) 18,230 75 Activision, Inc. (a) 8,200 296 Advanced Micro Devices, Inc. (a) 121,000 1,191 Altera Corp. (a) 38,300 774 Quantitative Equity Fund 59 QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- Analog Devices, Inc. (a) 79,620 3,026 Applera Corp. - Applied Biosystems Group 9,500 277 Arrow Electronics, Inc. (a) 49,500 1,210 Atmel Corp. (a) 75,690 602 Autodesk, Inc. 15,540 516 Automatic Data Processing, Inc. 49,700 2,568 Avaya, Inc. (a) 41,890 374 Avnet, Inc. 70,100 1,446 AVX Corp. 4,900 91 BEA Systems, Inc. (a) 57,400 697 BMC Software, Inc. (a) 78,660 1,185 CIENA Corp. (a) 29,800 485 Cisco Systems, Inc. (a) 503,124 8,513 Citrix Systems, Inc. (a) 3,900 91 CommScope, Inc. (a) 8,700 170 COMPAQ Computer Corp. 308,620 2,700 Computer Associates International, Inc. 120,960 3,740 Computer Sciences Corp. (a) 9,250 332 Compuware Corp. (a) 76,550 787 Comverse Technology, Inc. (a) 20,900 393 Corning, Inc. 219,260 1,767 Dell Computer Corp. (a) 331,360 7,946 Electronic Data Systems Corp. 75,951 4,889 EMC Corp. (a) 73,166 901 Fairchild Semiconductor Corp. Class A (a) 50,500 1,073 General Dynamics Corp. 793 65 General Motors Corp. Class H (a) 62,500 859 Hewlett-Packard Co. 34,800 586 Imation Corp. (a) 3,360 70 Ingram Micro, Inc. Class A (a) 65,150 834 Intel Corp. 840,010 20,513 International Business Machines Corp. 163,803 17,702 International Rectifier Corp. (a) 15,700 551 Keane, Inc. (a) 2,750 39 KEMET Corp. (a) 116,540 2,084 Lattice Semiconductor Corp. (a) 7,300 128 Linear Technology Corp. 130,380 5,059 Lucent Technologies, Inc. 349,100 2,339 Maxim Integrated Products, Inc. (a) 103,190 4,721 Mercury Computer Systems, Inc. (a) 1,300 61 Micromuse, Inc. (a) 9,150 85 Micron Technology, Inc. (a) 25,400 578 Microsoft Corp. (a) 521,371 30,318 Motorola, Inc. 180,845 2,960 NCR Corp. (a) 46,100 1,634 NVIDIA Corp. (a) 10,000 429 Oracle Corp. (a) 858,030 11,635 PeopleSoft, Inc. (a) 21,700 646 Peregrine Systems, Inc. (a) 34,700 501 QUALCOMM, Inc. (a) 29,200 1,434 Quantum Corp. - DLT & Storage Systems (a) 134,000 1,130 Raytheon Co. 43,100 1,390 Rockwell International Corp. 102,680 1,415 RSA Security, Inc. (a) 66,050 795 Sabre Holdings Corp. (a) 46,860 1,232 Sanmina Corp. (a) 33,000 500 Scientific-Atlanta, Inc. 18,350 383 Siebel Systems, Inc. (a) 22,700 371 Silicon Storage Technology, Inc. (a) 71,000 635 Solectron Corp. (a) 65,420 805 Storage Technology Corp. (a) 85,250 1,600 Sun Microsystems, Inc. (a) 213,800 2,170 Sybase, Inc. (a) 71,530 973 Sykes Enterprises, Inc. (a) 8,740 84 Texas Instruments, Inc. 46,100 1,290 Unisys Corp. (a) 18,980 169 UTStarcom, Inc. (a) 145,900 3,426 VeriSign, Inc. (a) 22,700 879 Veritas Software Corp. (a) 24,971 709 Vishay Intertechnology, Inc. (a) 52,600 993 Xilinx, Inc. (a) 30,000 913 -------- 175,808 -------- UTILITIES - 8.2% Adelphia Communications Corp. Class A (a) 17,000 376 Allegheny Energy, Inc. 7,110 260 Alltel Corp. 49,524 2,830 AT&T Corp. 55,000 839 AT&T Wireless Services, Inc. (a) 335,711 4,848 BellSouth Corp. 80,586 2,982 Cinergy Corp. 20,300 613 CMS Energy Corp. 36,500 785 Comcast Corp. Special Class A (a) 76,250 2,733 Consolidated Edison, Inc. 24,500 968 Cox Communications, Inc. Class A (a) 84,410 3,233 Dominion Resources, Inc. 14,740 901 DTE Energy Co. 25,700 1,071 Duke Energy Corp. 25,800 991 Edison International (a) 72,300 1,027 Entergy Corp. 99,600 3,869 Exelon Corp. 5,760 242 FirstEnergy Corp. 146,330 5,043 FPL Group, Inc. 1,820 97 KeySpan Corp. 1,600 53 Level 3 Communications, Inc. (a) 21,390 74 Mirant Corp. New (a) 39,680 1,032 Nextel Communications, Inc. Class A (a) 71,500 568 PG&E Corp. 90,250 1,630 Pinnacle West Capital Corp. 40,760 1,718 60 Quantitative Equity Fund QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- --------- PPL Corp. 27,780 949 Progress Energy, Inc. 31,300 1,320 Public Service Co. of New Mexico 18,180 445 Public Service Enterprise Group, Inc. 70,160 2,761 Qwest Communications International, Inc. 244,300 3,164 SBC Communications, Inc. 257,231 9,803 Sempra Energy 97,350 2,278 Sprint Corp. (Fon Group) 344,000 6,880 Sprint Corp. (PCS Group) (a) 108,800 2,426 TECO Energy, Inc. 36,000 927 Telephone & Data Systems, Inc. 410 36 TXU Corp. 84,570 3,877 United States Cellular Corp. (a) 780 35 UtiliCorp United, Inc. 14,400 427 Verizon Communications, Inc. 421,991 1,019 Wisconsin Energy Corp. 13,800 306 WorldCom, Inc. - MCI Group 39,900 473 WorldCom, Inc. - WorldCom Group (a) 498,450 6,703 --------- 102,612 --------- TOTAL COMMON STOCKS (cost $1,134,725) 1,189,415 --------- PRINCIPAL AMOUNT (000) $ --------- SHORT-TERM INVESTMENTS - 4.0% Frank Russell Investment Company Money Market Fund (b) 43,630 43,630 United States Treasury Bills (c)(d)(f) 2.070% due 12/20/01 4,000 3,989 2.200% due 12/20/01 2,000 1,994 --------- TOTAL SHORT-TERM INVESTMENTS (cost $49,613) 49,613 --------- TOTAL INVESTMENTS - 99.6% (identified cost $1,184,338) 1,239,028 OTHER ASSETS AND LIABILITIES, NET - 0.4% 5,449 --------- NET ASSETS - 100.0% 1,244,477 ========= NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) $ (000) -------- -------------- FUTURES CONTRACTS S&P 400 Midcap Index expiration date 12/01 24,373 $ (1,012) S&P 500 Index expiration date 12/01 31,821 (1,208) -------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ (2,220) ============== (a) Nonincome-producing security. (b) At net asset value. (c) Rate noted is yield-to-maturity from date of acquisition. (d) Held as collateral in connection with futures contracts purchased by the Fund. (e) Real Estate Investment Trust (REIT). (f) At amortized cost, which approximates market. See accompanying notes which are an integral part of the financial statements. Quantitative Equity Fund 61 QUANTITATIVE EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (including securities on loan of $36,855), (identified cost $1,184,338) .......... $ 1,239,028 Receivables: Dividends ............................................................................................ 1,055 Investments sold ..................................................................................... 13,725 Fund shares sold ..................................................................................... 7,179 Daily variation margin on futures contracts .......................................................... 287 Investment of securities lending collateral in money market funds, at cost and market value ............ 38,453 ------------ Total assets ....................................................................................... 1,299,727 LIABILITIES Payables: Investments purchased ..................................................................... $ 14,394 Fund shares redeemed ...................................................................... 1,135 Accrued fees to affiliates ................................................................ 1,095 Other accrued expenses .................................................................... 173 Payable upon return of securities loaned .................................................... 38,453 --------- Total liabilities ................................................................................. 55,250 ------------ NET ASSETS ............................................................................................ $ 1,244,477 ============ NET ASSETS CONSIST OF: Undistributed net investment income ................................................................... $ 2,055 Accumulated net realized gain (loss) .................................................................. (31,082) Unrealized appreciation (depreciation) on: Investments ......................................................................................... 54,690 Futures contracts ................................................................................... (2,220) Shares of beneficial interest ......................................................................... 385 Additional paid-in capital ............................................................................ 1,220,649 ------------ NET ASSETS ............................................................................................ $ 1,244,477 ============ NET ASSET VALUE, offering and redemption price per share: Class C ($20,529,736 divided by 643,971 shares of $.01 par value shares of beneficial interest outstanding) ......................................................... $ 31.88 ============ Class E ($23,699,998 divided by 734,140 shares of $.01 par value shares of beneficial interest outstanding) ......................................................... $ 32.28 ============ Class S ($1,200,247,426 divided by 37,088,246 shares of $.01 par value shares of beneficial interest outstanding) ......................................................... $ 32.36 ============
See accompanying notes which are an integral part of the financial statements. 62 Quantitative Equity Fund QUANTITIVE EQUITY FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Dividends ......................................................................................... $ 17,473 Dividends from Money Market Fund .................................................................. 1,984 Interest .......................................................................................... 180 Securities Lending Income ......................................................................... 79 ---------- Total investment income ......................................................................... 19,716 EXPENSES Advisory fees ...................................................................... $ 10,167 Administrative fees ................................................................ 813 Custodian fees ..................................................................... 643 Distribution fees - Class C ........................................................ 152 Transfer agent fees ................................................................ 1,640 Professional fees .................................................................. 90 Registration fees .................................................................. 187 Shareholder servicing fees - Class C ............................................... 51 Shareholder servicing fees - Class E ............................................... 49 Trustees' fees ..................................................................... 24 Miscellaneous ...................................................................... 97 ---------- Expenses before reductions ......................................................... 13,913 Expense reductions ................................................................. (4) ---------- Expenses, net ................................................................................... 13,909 ---------- Net investment income ............................................................................... 5,807 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments ........................................................................ (112,977) Futures contracts .................................................................. (14,729) (127,706) ---------- Net change in unrealized appreciation (depreciation) on: Investments ........................................................................ (264,885) Futures contracts .................................................................. (523) (265,408) ---------- ---------- Net realized and unrealized gain (loss) ............................................................. (393,114) ---------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ............................................... $ (387,307) ==========
See accompanying notes which are an integral part of the financial statements. Quantitative Equity Fund 63 QUANTITATIVE EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ----------------- ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income ......................................... $ 5,807 $ 5,293 $ 7,449 Net realized gain (loss)....................................... (127,706) 77,616 255,494 Net change in unrealized appreciation (depreciation) .......... (265,408) (74,342) 17,750 ----------------- ---------------- ----------------- Net increase (decrease) in net assets from operations ....... (387,307) 8,567 280,693 ----------------- ---------------- ----------------- DISTRIBUTIONS From net investment income Class C ..................................................... -- -- (5) Class E ..................................................... (36) (21) (19) Class S ..................................................... (5,720) (5,016) (7,550) From net realized gain Class C ..................................................... (655) (307) (1,371) Class E ..................................................... (495) (170) (927) Class S ..................................................... (46,194) (31,384) (179,302) ----------------- ---------------- ----------------- Net decrease in net assets from distributions ............. (53,100) (36,898) (189,174) ----------------- ---------------- ----------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions.. 92,101 54,493 151,572 ----------------- ---------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS...................... (348,306) 26,162 243,091 NET ASSETS Beginning of period ........................................... 1,592,783 1,566,621 1,323,530 ----------------- ---------------- ----------------- End of period (including undistributed net investment income of $2,055 at October 31, 2001 and $1,369 at October 31, 2000) .. $ 1,244,477 $ 1,592,783 $ 1,566,621 ================= ================ =================
See accompanying notes which are an integral part of the financial statements. 64 Quantitative Equity Fund QUANTITATIVE EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** --------- ------- --------- NET ASSET VALUE, BEGINNING OF PERIOD ........................................ $ 43.88 $ 44.94 $ 43.02 --------- ------- --------- INCOME FROM OPERATIONS Net investment income (loss)(a) ........................................... (.21) (.22) (.20) Net realized and unrealized gain (loss) ................................... (10.47) .07 8.00 --------- ------- --------- Total income from operations ............................................ (10.68) (.15) 7.80 --------- ------- --------- DISTRIBUTIONS From net investment income ................................................ -- -- (.04) From net realized gain .................................................... (1.32) (.91) (5.84) --------- ------- --------- Total distributions ..................................................... (1.32) (.91) (5.88) --------- ------- --------- NET ASSET VALUE, END OF PERIOD .............................................. $ 31.88 $ 43.88 $ 44.94 ========= ======= ========= TOTAL RETURN (%)(b) ......................................................... (24.87) (.16) 18.89 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) .................................. 20,530 20,935 13,613 Ratios to average net assets (%)(c): Operating expenses ...................................................... 1.98 1.92 1.93 Net investment income (loss) ............................................ (.57) (.60) (.47) Portfolio turnover rate (%) ............................................... 85.00 59.25 89.52
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period January 27, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Quantitative Equity Fund 65 QUANTITATIVE EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ------------------------------------------- 2001* 2000** 1999 1998 1997 1996*** -------- ------- ------- ------- ------- -------- NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 44.17 $ 45.19 $ 42.50 $ 36.80 $ 33.05 $ 33.81 -------- ------- ------- ------- ------- -------- INCOME FROM OPERATIONS Net investment income (a) ....................... .07 .06 .13 12 .14 .05 Net realized and unrealized gain (loss) ......... (10.57) (.08) 8.50 8.54 9.95 1.87 -------- ------- ------- ------- ------- -------- Total income from operations .................. (10.50) (.02) 8.63 8.66 10.09 1.92 -------- ------- ------- ------- ------- -------- DISTRIBUTIONS From net investment income ...................... (.07) (.09) (.10) (.16) (.07) (.08) From net realized gain .......................... (1.32) (.91) (5.84) (2.80) (6.27) (2.60) -------- ------- ------- ------- ------- -------- Total distributions ........................... (1.39) (1.00) (5.94) (2.96) (6.34) (2.68) -------- ------- ------- ------- ------- -------- NET ASSET VALUE, END OF PERIOD .................... $ 32.28 $ 44.17 $ 45.19 $ 42.50 $ 36.80 $ 33.05 ======== ======= ======= ======= ======= ======== TOTAL RETURN (%)(b) ............................... (24.30) .11 21.1 24.34 31.70 5.91 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ........ 23,700 15,314 7,987 7,479 2,344 322 Ratios to average net assets (%)(c): Operating expenses ............................ 1.22 1.17 1.18 1.31 1.59 1.65 Net investment income ......................... .18 .15 .28 .30 .33 .81 Portfolio turnover rate (%)...................... 85.00 59.25 89.52 77.23 87.67 74.33
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) For periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 66 Quantitative Equity Fund QUANTITATIVE EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ------------------------------------------------- 2001* 2000** 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD ............... $ 44.27 $ 45.19 $ 42.53 $ 36.78 $ 33.05 $ 30.76 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS Net investment income (a) ....................... .16 .15 .24 .27 .38 .51 Net realized and unrealized gain (loss) .......... (10.59) (.02) 8.50 8.55 10.00 6.24 ---------- ---------- ---------- ---------- ---------- ---------- Total income from operations ................... (10.43) .13 8.74 8.82 10.38 6.75 ---------- ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS From net investment income ....................... (.16) (.14) (.24) (.27) (.38) (.51) From net realized gain ........................... (1.32) (.91) (5.84) (2.80) (6.27) (3.95) ---------- ---------- ---------- ---------- ---------- ---------- Total distributions ............................ (1.48) (1.05) (6.08) (3.07) (6.65) (4.46) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD...................... $ 32.36 $ 44.27 $ 45.19 $ 42.53 $ 36.78 $ 33.05 ========== ========== ========== ========== ========== ========== TOTAL RETURN (%)(b) ................................ (24.11) .47 21.37 24.82 32.70 23.08 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ......... 1,200,247 1,556,534 1,545,021 1,316,051 996,880 663,925 Ratios to average net assets (%)(c): Operating expenses ............................. .98 .92 .93 .91 .91 .93 Net investment income .......................... .43 .42 .53 .69 1.04 1.59 Portfolio turnover rate (%) ..................... 85.00 59.25 89.52 77.23 87.67 74.33
* For the fiscal year ended October 31, 2001 ** For the ten months ended October 31, 2000. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Quantitative Equity Fund 67 INTERNATIONAL SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide favorable total return and additional diversification for US investors. INVESTS IN: Primarily the equity securities of non-US companies in developed foreign markets. STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher returns than its benchmark index with moderate risk by employing the investment management services of ten managers with separate and distinct investment approaches. The Fund's investments span most of the developed nations of the world (particularly Europe and the Far East) to maintain a high degree of diversification among countries and currencies. GROWTH OF A $10,000 INVESTMENT Dates International Securities - Class S MSCI EAFE** - ----- ---------------------------------- ----------- Inception* $10,000 $10,000 1992 $ 9,214 $ 8,710 1993 $12,234 $12,009 1994 $13,839 $13,256 1995 $13,690 $13,247 1996 $15,125 $14,677 1997 $15,833 $15,399 1998 $16,401 $16,932 1999 $19,929 $20,889 2000 $20,204 $20,332 2001 $15,252 $15,315 YEARLY PERIODS ENDED OCTOBER 31 INTERNATIONAL SECURITIES FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------- ---------- -------------- 1 Year $ 7,549 (24.51)% 5 Years $ 10,083 0.17%(S) 10 Years $ 15,252 4.31%(S) INTERNATIONAL SECURITIES FUND - CLASS E++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ---------- -------------- 1 Year $ 7,530 (24.70)% 5 Years $ 9,903 (0.19)%(S) 10 Years $ 14,979 4.12%(S) INTERNATIONAL SECURITIES FUND - CLASS C++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ---------- -------------- 1 Year $ 7,471 (25.29)% 5 Years $ 9,700 (0.61)%(S) 10 Years $ 14,671 3.90%(S) MSCI EAFE INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ----------- -------------- 1 Year $ 7,532 (24.68)% 5 Years $ 10,434 0.85%(S) 10 Years $ 15,315 4.36%(S) SALOMON SMITH BARNEY BROAD MARKET INDEX (BMI) ex-US + PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ----------- -------------- 1 Year $ 7,613 (23.87)% 5 Years $ 10,689 1.34%(S) 10 Years $ 15,610 4.55%(S) 68 International Securities Fund INTERNATIONAL SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the year ended October 31, 2001, the International Securities Fund Class S, Class E and Class C shares lost 24.51%, 24.70%, and 25.29%, respectively. This compared to the Salomon Smith Barney BMI World ex-US, which lost 23.87%, and the MSCI EAFE Index, which lost 24.68% during the same period. The Fund's mixed performance was the result of the broad sector rotation experienced during period. This was similar to the US markets' behavior during the year, as both growth managers and value managers enjoyed periods during which their style was favored. PORTFOLIO HIGHLIGHTS Over the period, the US dollar was up sharply against the Japanese yen, while declining against both the euro and the British pound. Sweden and Finland were both down sharply over the year, due in large part to the weakness of the telecommunications sector. Japan also trailed over the period as a result of the country's continuing problems related to the implementation of economic reforms. Although only accounting for a small fraction of the developed market indices, Australia and New Zealand turned in the strongest performance over the year. The UK was the most resilient of the major international marketplaces. Similar to their counterparts in the US markets, international technology and telecommunications sectors continued the declines that began in 2000. Business services was also a trailing sector, as capital expenditures made by businesses remained weak during the period. Energy, consumer non-durables, and retail were among the leading sectors in the defensive market. During the second quarter, the Fund's manager lineup was modified, as market-oriented growth manager Capital International replaced Montgomery Asset Management. This addition brings a broader, more diversified core growth manager to the Fund. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 GlaxoSmithKline PLC (United Kingdom) 1.5% Vodafone Group PLC (United Kingdom) 1.5 TotalFinaElf SA Class B (France) 1.3 Rhone-Poulenc SA Class A - ADR (France) 1.0 Canon, Inc. (Japan) 1.0 Novartis AG (Reqd) (Switzerland) 0.9 ENI SPA (Italy) 0.9 BAE Systems PLC (United Kingdom) 0.8 Sanofi-Synthelabo SA (France) 0.8 E.On AG (Germany) 0.8 PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 14.1x Portfolio Price/Book Ratio 1.86x Market Capitalization - $-Weighted Average 31.10 Bil Number of Holdings 733 MONEY MANAGERS STYLES Alliance Capital Management, LP - Bernstein Value Investment Research & Management Unit Value Capital International, Inc. Growth Delaware International Advisers, Ltd. Value Driehaus Capital Management, Inc. Growth Fidelity Management & Research Co. Growth J.P. Morgan Investment Management, Inc. Value Marvin & Palmer Associates, Inc. Growth Mastholm Asset Management, LLC Growth Oechsle International Advisors, LLC Growth The Boston Company Asset Management, LLC Value * International Securities Fund Class S assumes initial investment on November 1, 1991. ** Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index is an index composed of an arithmetic, market value-weighted average of the performance of approximately 1,600 securities listed on the stock exchange of the countries of Europe, Australia, and the Far East. The index is calculated on a total-return basis, which includes reinvestment of gross dividends before deduction of withholding taxes. ++ International Securities Fund Class S performance has been linked with Class E to provide historical perspective. For the period November 4, 1996 (commencement of sale) to May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ International Securities Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. + Salomon Smith Barney BMI Index ex-US is a comprehensive float-weighted equity index consisting of every company with an investable market capitalization of over $100 million in 22 countries. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Investments in securities of non-US issuers and foreign currencies involve investment risks different from those of US issuers. The Prospectus contains further information and details regarding these risks. International Securities Fund 69 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------ COMMON STOCKS - 91.2% AUSTRALIA - 3.1% Amcor, Ltd. 540,695 1,792 AMP, Ltd. 46,446 422 Austereo Group, Ltd. 12,264 13 Australia & New Zealand Bank Group, Ltd. 157,600 1,414 Australian Gas & Light Co. 12,223 55 Australian Stock Exchange, Ltd. 2,600 15 Billabong International, Ltd. 9,000 36 Brambles Industries, Ltd. 21,551 118 Broken Hill Proprietary Co. 761,521 3,420 Coca Cola Amatil, Ltd. 30,127 76 Cochlear, Ltd. 7,325 186 Coles Myer, Ltd. 59,430 227 Commonwealth Bank of Australia 41,625 624 CSR, Ltd. 409,010 1,298 Fairfax (John) Holdings, Ltd. 11,600 20 Foster's Brewing Group, Ltd. 1,277,092 3,109 Goodman Fielder Wattie 626,959 445 Harvey Norman Holdings, Ltd. 18,110 30 Leighton Holdings, Ltd. Class A 11,300 56 Lend Lease Corp. 3,700 21 Lion Nathan, Ltd. 129,021 280 M.I.M. Holdings, Ltd. 300,000 148 Mayne Nickless, Ltd. 189,985 712 National Australia Bank, Ltd. 355,521 5,466 National Foods, Ltd. 9,100 12 News Corp., Ltd. 80,352 553 News Corp., Ltd. - ADR 5,600 154 Oil Search, Ltd. (Australia Regd) (a) 8,900 5 Orica, Ltd. 174,924 406 Paperlinx, Ltd. 142,198 300 Publishing Broadcasting, Ltd. 5,300 24 Qantas Airways, Ltd. 47,400 94 QBE Insurance Group, Ltd. Rights (a) 9,171 7 QBE Insurance Group, Ltd. 149,052 519 Rio Tinto, Ltd. 5,400 87 Santos, Ltd. 424,400 1,357 Southcorp Holdings, Ltd. 89,300 327 Suncorp-Metway, Ltd. 6,240 42 Tabcorp. Holdings, Ltd. 38,000 191 Telstra Corp., Ltd. 166,403 416 Wesfarmers, Ltd. 6,500 97 Westfield Holdings, Ltd. 8,700 74 Westpac Banking Corp. 27,800 207 WMC, Ltd. 95,284 446 Woolworths, Ltd. 208,660 1,189 ------ 26,490 ------ AUSTRIA - 0.1% Erste Bank der Oesterreichischen Sparkassen AG 4,200 185 OMV AG 1,500 113 Voest-Alpine Stahl AG 11,000 292 ------ 590 ------ BELGIUM - 0.6% Delhaize Le Lion SA 11,712 643 Dexia (a) 120,270 1,854 Dexia Strip VVPR (a) 81,850 1 Electrabel 5,400 1,128 Interbrew 25,748 668 UCB SA 13,400 510 ------ 4,804 ------ BERMUDA - 0.3% Accenture, Ltd. New (a) 32,500 571 PartnerRe, Ltd. 8,900 414 RenaissanceRe Holdings, Ltd. 10,100 974 XL Capital, Ltd. Class A 7,300 634 ------ 2,593 ------ CANADA - 3.2% Abitibi-Consolidated, Inc. 42,900 262 Alberta Energy Co., Ltd. 7,170 282 Alcan Aluminum, Ltd. 12,500 384 ATI Technologies, Inc. (a) 117,508 973 Bank of Montreal 104,877 2,238 Bank of Nova Scotia 13,980 386 Barrick Gold Corp. 8,780 137 BCE, Inc. 31,470 694 Biovail Corp. (a) 16,915 799 Bombardier, Inc. Class B 87,992 571 Brascan Corp. 2,430 36 Canadian Imperial Bank of Commerce 5,730 176 Canadian National Railway Co. 27,000 1,082 Canadian Natural Resources, Ltd. 3,706 157 Canadian Tire Corp. Class A 1,800 26 Celestica, Inc. (a) 8,930 309 CGI Group, Inc. Class A (a) 13,400 86 Cott Corp. (a) 20,669 289 CP Railway, Ltd. (a) 5,750 97 CP Ships, Ltd. (a) 2,125 21 Dofasco, Inc. 27,601 391 Enbridge, Inc. 3,270 91 Fairmont Hotels & Resorts, Inc. (a) 3,345 60 Fording, Inc. (a) 1,411 22 Geac Computer Corp., Ltd. (a) 17,060 51 70 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------ Genesis Microchip, Inc. (a) 21,015 971 George Weston, Ltd. 6,490 401 Imperial Oil, Ltd. 16,750 465 Leitch Technology Corp. (a) 35,400 187 Loblaw Cos., Ltd. 1,490 46 Magna International, Inc. Class A 18,520 980 Manulife Financial Corp. 7,710 191 Molson Cos., Ltd. Class A 8,750 135 Nexen, Inc. 2,340 48 Nortel Networks Corp. 284,372 1,657 Optimal Robotics Corp. (a) 16,460 485 PanCanadian Energy Corp. (a) 7,714 215 Petro-Canada 25,170 648 Placer Dome, Inc. 9,070 105 Power Corp. of Canada 3,950 85 Power Financial Corp. 7,580 157 Precision Drilling Corp. (a) 58,830 1,493 QLT PhotoTherapeutics, Inc. (a) 24,230 556 Quebecor World, Inc. 28,600 554 Rio Alto Exploration, Ltd. (a) 3,430 54 Rogers Communications, Inc. Class B (a) 2,830 38 Royal Bank of Canada 40,730 1,201 SNC-Lavalin Group, Inc. 2,130 32 Sun Life Financial Services, Inc. 6,630 138 Suncor, Inc. 28,851 880 Talisman Energy, Inc. 108,180 3,808 TD Waterhouse Group, Inc. (a) 7,980 75 Thomson Corp. (The) 40,140 1,121 Toronto Dominion Bank (The) 2,500 57 TransAlta Corp. 22,300 320 TransCanada Pipelines, Ltd. 10,530 136 Trizec Hahn Corp. Sub Voting 5,090 81 Westcoast Energy, Inc. 3,365 89 ------ 27,029 ------ CAYMAN ISLANDS - 0.1% 02Micro International, Ltd. (a) 33,628 484 ------ CHINA - 0.1% Huaneng Power International, Inc. Class H 492,000 303 PetroChina Co., Ltd. Class H 1,438,000 271 ------ 574 ------ DENMARK - 0.3% Danske Bank AS 14,053 208 ISS AS (a) 15,212 717 Novo Nordisk AS Series B (a) 35,152 1,423 Tele Danmark AS 5,000 172 ------ 2,520 ------ FINLAND - 1.7% America Group Class A 4,500 111 Kesko Oyj 76,352 635 Nokia Corp. - ADR 35,800 734 Nokia Oyj 280,078 5,852 Sampo Insurance Co., Ltd. Series A 209,843 1,887 Sonera Group Oyj 34,600 197 Stora Enso Oyj Series R 80,963 983 UPM-Kymmene Oyj 113,321 3,681 ------ 14,080 ------ FRANCE - 10.3% Accor SA 6,300 198 Alcatel SA 97,305 1,468 Alstom 131,925 2,015 Assurances Generales de France 39,904 1,841 Atos Origin (a) 4,359 318 AXA (a) 59,653 1,304 Banque Nationale Paris 68,840 5,721 Bouygues SA 33,100 1,012 Cap Gemini Sogeti 6,000 337 Carrefour SA 78,574 4,018 Castorama Dubois Investissement SA (a) 5,203 248 Compagnie de Saint Gobain 27,874 3,874 Credit Lyonnais 12,232 428 European Aeronautic Defence and Space Co. 133,099 1,544 France Telecom SA 15,400 574 France Telecom SA - ADR 5,800 217 Groupe Air France 53,046 611 Groupe Danone 6,062 701 Havas Advertising SA 26,000 193 L'Air Liquide SA 4,361 588 L'Oreal SA 14,378 992 Lafarge SA 13,891 1,233 Lagardere SCA 4,392 155 LVMH Louis Vuitton Moet Hennessy 9,000 317 Michelin (Cie Gen) Class B 53,439 1,650 Orange SA (a) 304,942 2,469 Pechiney International Class A 3,311 152 Pernod-Ricard 8,563 599 Pinault-Printemps-Redoute SA 1,519 175 PSA Peugeot Citroen (a) 45,211 1,836 Remy Cointreau SA 4,300 91 Renault (Regie Nationale) 9,537 290 Rhone-Poulenc SA Class A - ADR 117,090 8,610 Sanofi-Synthelabo SA 101,240 6,670 Schneider Electric SA 35,725 1,429 Scor SA 9,000 301 Societe BIC SA 5,700 175 International Securities Fund 71 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------ Societe Generale Series A 86,258 4,310 Societe Television Francaise 1 35,750 803 STMicroelectronics 46,400 1,310 Suez SA (a) 155,216 4,877 Thomson Multimedia (a) 33,000 787 TotalFinaElf SA - ADR 33,036 2,304 TotalFinaElf SA Class B 74,526 10,456 Usinor SA 122,739 1,291 Valeo SA 27,225 931 Vivendi Environment 23,619 907 Vivendi Universal SA 87,108 4,065 ------ 86,395 ------ GERMANY - 6.0% Adidas-Salomon AG 7,750 437 Aixtron AG 10,600 199 Allianz AG (Regd) 19,164 4,513 Altana AG 12,905 604 AMB - Aachener & Muenchener Beteiligungs AG 1,900 204 BASF AG 51,115 1,729 Bayer AG 150,456 4,466 Bayerische Hypo - und Vereinsbank AG 91,506 2,821 Bayerische Motoren Werke AG 8,700 259 Beiersdorf AG 955 107 Commerzbank AG 96,967 1,609 Continental AG 33,300 339 DaimlerChrysler AG 51,326 1,789 Deutsche Bank AG 21,755 1,209 Deutsche Lufthansa AG 62,114 654 Deutsche Pfandbrief & Hypothekenbank AG 7,000 406 Deutsche Post AG New 114,891 1,649 Deutsche Telekom AG 35,696 552 E.On AG 126,443 6,585 Epcos AG 3,900 168 Fraport AG (a) 8,300 157 Fresenius Medical Care AG 2,415 150 Hannover Rueckversicherungs AG 6,100 342 Infineon Technologies AG 105,168 1,584 Jenoptik AG 4,906 79 Karstadt AG 23,100 742 Mannheimer Aktiengesellschaft 3,700 178 Marschollek, Lautenschlaeger and Partner AG 1,600 107 Medion AG 8,800 308 Metallgesellschaft AG 70,093 535 Metro AG 17,200 565 Muenchener Rueckversicherungs- Gesellschaft AG 14,786 3,903 RWE AG 75,050 2,963 SAP AG 9,468 979 Schering AG 59,304 3,059 Siemens AG 44,666 2,162 Software AG 3,093 123 Stada Arzneimittel AG 8,300 230 Volkswagen AG 53,157 2,036 ------ 50,501 ------ GREECE - 0.3% Hellenic Telecommunication Organization SA - ADR 200,578 1,649 Hellenic Telecommunication Organization SA - GDR 36,510 591 Titan Cement Co. SA 12,015 393 ------ 2,633 ------ HONG KONG - 2.1% Asia Satellite Telecommunications Holdings, Ltd. 10,000 13 Cathay Pacific Airways 22,000 22 Cheung Kong Holdings, Ltd. 131,800 1,115 China Everbright - IHD Pacific Ltd. 444,000 307 China Mobile (Hong Kong), Ltd. (a) 187,000 567 Citic Pacific, Ltd. 8,000 16 CLP Holdings, Ltd. 76,880 290 CNOOC, Ltd. 1,306,000 1,281 Dairy Farm International Holdings, Ltd. (a) 37,800 23 Esprit Holdings, Ltd. 36,000 38 Guoco Group, Ltd. 4,000 27 Hang Seng Bank 61,900 621 Henderson Land Development Co., Ltd. 15,000 48 Hong Kong & China Gas Co., Ltd. 72,000 90 Hong Kong Electric Holding, Ltd. 720,000 2,732 Hong Kong Exchanges & Clearing Ltd. 742,000 999 Hong Kong Land Holdings, Ltd. - ADR (a) 100,000 161 Hutchison Whampoa, Ltd. 248,330 2,006 Jardine Matheson Holdings, Ltd. - ADR (a) 214,100 1,199 JCG Holdings, Ltd. 60,400 34 Johnson Electric Holdings, Ltd. 157,000 137 Kerry Properties, Ltd. 350,000 274 Li & Fung, Ltd. 276,600 264 MTR Corporation, Ltd. 145,000 190 Pacific Century CyberWorks, Ltd. (a) 125,646 33 Shangri-La Asia, Ltd. 183,000 106 Sun Hung Kai Properties, Ltd. 362,600 2,231 Swire Pacific, Ltd. Class A 331,800 1,382 Television Broadcast 22,000 65 Wharf Holdings 840,862 1,553 Wing Hang Bank, Ltd. 13,200 40 ------ 17,864 ------ 72 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------ IRELAND - 0.8% Allied Irish Banks 80,500 780 Bank of Ireland (a) 414,570 3,699 CRH PLC 96,015 1,487 Irish Life & Permanent PLC 27,000 285 Ryanair Holdings PLC (a) 40,440 371 Ryanair Holdings PLC - ADR (a) 11,137 521 ------ 7,143 ------ ISRAEL - 0.2% Lumenis, Ltd. (a) 27,319 544 Taro Pharmaceutical Industries, Ltd. (a) 17,585 740 Teva Pharmaceutical Industries, Ltd. - ADR 8,628 533 ------ 1,817 ------ ITALY - 3.5% Assicurazioni Generali SPA 38,300 1,049 Autostrade SPA 60,127 377 Banca Nazionale del Lavoro 903,983 1,992 Banca Popolare di Bergamo CV 70,621 1,080 Bauca Intesa SPA 850,800 1,990 Benetton Group SPA (a) 11,730 115 Bulgari SPA 40,952 313 ENI SPA (a) 590,439 7,392 Fiat SPA di Risp 17,930 185 Fiat SPA 99,570 1,621 Finmeccanica SPA (a) 2,071,110 1,643 Italgas SPA 35,664 302 Luxottica Group SPA 19,295 307 Mediaset SPA 275,491 1,796 Mediolanum SPA 45,468 352 Parmalat Finanziaria SPA (a) 539,760 1,442 San Paolo - IMI SPA 158,650 1,665 Telecom Italia Mobile SPA 347,004 1,889 Telecom Italia SPA 61,388 512 Telecom Italia SPA di Risp 562,613 2,724 Unicredito Italiano SPA 204,507 754 ------ 29,500 ------ JAPAN - 17.8% 77th Bank, Ltd. (The) 213,000 1,111 Acom Co., Ltd. 15,400 1,284 ADERANS Co., Ltd. 2,200 79 Advantest Corp. 13,600 699 Aiful Corp. 24,200 1,896 Aioi Insurance Co., Ltd. 91,000 293 Aisin Seiki Co., Ltd. 10,000 124 Alps Electric Co. 11,000 70 Aoyama Trading Co. 7,500 90 Asahi Breweries, Ltd. 69,000 720 Asahi Chemical Industrial 42,000 138 Bank of Yokohama, Ltd. 2,000 7 Bridgestone Tire Corp. 283,000 2,665 Canon, Inc. 293,000 8,512 Capcom Co. 2,600 71 Central Glass Co., Ltd. 26,000 141 Chubu Electric Power Co., Inc. 8,000 172 Chugai Pharmaceutical Co., Ltd. 49,000 715 Citizen Watch Co., Ltd. 12,000 63 Credit Saison Co. 120,550 2,882 CSK Corp., Ltd. 10,700 272 Dai Ichi Pharmaceutical Co. 73,000 1,713 Dainippon Pharmaceutical Co., Ltd. 7,000 81 Daito Trust Construction Co., Ltd. 31,250 534 Daiwa House Industries Co. 191,000 1,287 Daiwa Securities Group, Inc. 122,000 796 DDI Corp. 275 725 Dowa Mining Co. 34,000 128 East Japan Railway Co. 56 326 Eisai Co., Ltd. 70,000 1,788 Fanuc Co. 6,400 266 Fuji Heavy Industries, Ltd. 192,000 938 Fuji Machine Manufacturing Co. 41,200 535 Fuji Photo Film Co. 36,000 1,187 Fuji Television Network, Inc. 45 196 Fujisawa Pharmaceutical Co., Ltd. 4,000 96 Fujitsu, Ltd. 40,000 296 Funai Electric Co., Ltd. 2,600 145 Furukawa Electric Co. 10,000 58 Futaba Corp. 15,700 376 Gunze, Ltd. 36,000 121 Heiwa Corp. 7,000 134 Hino Motors, Ltd. (a) 45,000 163 Hirose Electric Co., Ltd. 3,300 242 Hitachi Chemical Co., Ltd. 18,700 152 Hitachi Maxell, Ltd. 24,000 316 Hitachi, Ltd. 412,000 2,807 Honda Motor Co., Ltd. 154,300 5,528 Hosiden Electronics 6,000 98 Hoya Corp. 8,300 495 Ines Corp. 7,900 72 Intelligent Wave, Inc. 16 366 Ishikawajima-Harima Heavy Industries Co., Ltd. 60,000 111 Ito Yokado Co., Ltd. 23,000 1,014 Itochu Corp. 162,000 475 JAFCO Co., Ltd. 1,400 90 Japan Air Lines Co. 60,000 147 Japan Real Estate Investment Corp. New (a)(e) 18 80 International Securities Fund 73 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------ Japan Synthetic Rubber 20,000 122 Japan Telecom Co., Ltd. 20 63 JGC Corp. 21,000 149 Jusco Co. 27,000 578 Kao Corp. 142,000 3,360 Kawasaki Steel Corp. 245,000 246 Keyence Corp. 1,600 244 Kobayashi Pharmaceutical Co., Ltd. 1,800 73 Konami Co., Ltd. 35,200 1,094 Konica Corp. 20,000 103 Kubota Corp. 50,000 158 Kuraray Co., Ltd. 17,000 106 Kyocera Corp. 19,600 1,332 Kyushu Electric Power Co. 25,500 462 Lawson, Inc. (144A) 58,900 2,072 Mabuchi Motor Co., Ltd. 23,400 1,929 MACNICA, Inc. 3,200 105 Marubeni Corp. (a) 939,000 1,042 Marui Co., Ltd. 12,000 162 Matsumotokiyoshi Co., Ltd. 42,900 1,792 Matsushita Communication 4,700 132 Matsushita Electric Industrial Co., Ltd. 316,000 3,739 Minebea Co., Ltd. 213,000 1,105 Mitsubishi Chemical 172,000 368 Mitsubishi Corp. 79,000 605 Mitsubishi Electric Corp. 208,000 747 Mitsubishi Estate Co., Ltd. 122,000 1,192 Mitsubishi Heavy Industries 161,000 541 Mitsubishi Tokyo Financial Group, Inc. (a) 99 735 Mitsui & Co., Ltd. 42,000 247 Mitsui Fudosan Co., Ltd. 145,000 1,471 Mitsui Marine & Fire Insurance Co., Ltd. 123,670 686 Mitsui Mining & Smelting Co., Ltd. 41,000 123 Mitsui O.S.K. Lines, Ltd. 570,000 1,372 Mitsui Petrochemical Industry 24,000 78 Mitsui Soko Co. 17,000 43 Mitsumi Electric Co., Ltd. 8,900 108 Mizuho Holdings, Inc. 219 661 Murata Manufacturing Co., Ltd. 63,400 3,973 Namco, Ltd. (a) 6,400 117 NEC Corp. 142,000 1,286 NGK Insulators, Ltd. 13,000 105 Nichicon Corp. 27,900 300 Nichido Fire & Marine Insurance Co., Ltd. (The) 172,000 964 Nichirei Corp. 133,000 396 NIDEC Corp. 2,200 86 Nikko Securities Co., Ltd. 195,000 1,052 Nikon Corp. 37,000 284 Nintendo Co., Ltd. 17,900 2,758 Nippon Comsys Corp. 2,000 16 Nippon Express Co., Ltd. 455,000 1,645 Nippon Foundry, Inc. (a) 16 97 Nippon Meat Packers, Inc. 25,000 227 Nippon Telegraph & Telephone Corp. 249 1,024 Nippon Unipac Holding 30 149 Nippon Yusen Kabushiki Kaisha 73,000 249 Nishimatsu Construction Co., Ltd. 126,400 488 Nissan Chemical Industries, Ltd. 30,000 174 Nissan Motor Co., Ltd. 981,000 4,323 Nitto Denko Corp. 6,900 117 NOK Corp. 15,000 71 Nomura Securities Co., Ltd. 224,000 2,943 NTT Mobile Communication Network, Inc. 349 4,728 Office Building Fund of Japan, Inc. (a)(e) 16 75 Oji Paper Co., Ltd. 152,000 742 Oki Electric Industries 24,000 85 Olympus Optical Co. 37,000 549 Omron Corp. 11,000 140 Oriental Land Co., Ltd. 3,200 236 Orix Corp. 7,700 673 Promise Co., Ltd. 6,900 446 Ricoh Co., Ltd. 37,000 616 Rinnai Corp. 82,000 1,623 Rohm Co. 25,540 2,716 Sanix, Inc. 3,500 154 Sankyo Co., Ltd. 29,000 563 Sankyo Co., Ltd. GUNMA 3,900 129 Secom Co. 2,000 104 Sega Enterprises (a) 32,400 631 Seino Transportation Co., Ltd. 15,000 74 Sekisui House, Ltd. 42,000 338 Seven-Eleven Japan Co., Ltd. 2,000 87 Sharp Corp. 163,000 1,684 Shimachu Co., Ltd. 7,900 117 Shin-Etsu Chemical Co., Ltd. 93,850 3,086 Shohkoh Fund & Co., Ltd. 11,270 1,383 Skylark Co. 4,000 101 SMC Corp. 1,900 164 Snow Brand Milk Products Co., Ltd. (a) 15,000 35 Sony Corp. 45,900 1,734 Sony Corp. - ADR 700 27 Stanley Electric Co., Ltd. 21,000 164 Starbucks Coffee Japan, Ltd. New (a) 130 76 Sumisho Lease Co., Ltd. 7,000 106 Sumitomo Bakelite Co., Ltd. 144,000 908 Sumitomo Mitsui Banking Corp. 177,000 1,093 Sumitomo Realty & Development Co., Ltd. 45,000 306 Sumitomo Trust & Banking Co., Ltd. 110,000 612 74 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------- Suruga Bank, Ltd. 19,000 132 Suzuki Motor Corp. 40,000 410 Taiyo Yuden Co., Ltd. 8,000 108 Takashimaya Co. 18,000 126 Takeda Chemical Industries, Ltd. 71,000 3,436 Takefuji Corp. 39,100 3,242 Tanabe Seiyaku Co. 11,000 118 TDK Corp. 22,200 985 Teijin, Ltd. 17,000 67 Terumo Corp. 9,600 159 THK Co., Ltd. 25,900 346 Toda Corp. 36,000 122 Toho Bank, Ltd. 7,000 21 Tohoku Electric Power 66,400 1,168 Tokio Marine & Fire Insurance Co. 39,000 319 Tokuyama Corp. 3,000 9 Tokyo Electric Power 73,000 1,811 Tokyo Electron, Ltd. 52,500 2,155 Tokyo Gas Co. 462,000 1,436 Tokyo Seimitsu Co., Ltd. 7,100 171 Tokyu Corp. 78,500 354 Toppan Printing Co., Ltd. 14,000 130 Toray Industries, Inc. 94,000 259 Tostem Corp. 22,000 305 Toyoda Gosei Co., Ltd. 9,300 121 Toyota Motor Corp. 76,600 1,856 Toyota Tsusho Corp. 18,000 85 UBE Industries, Ltd. 88,000 139 UFJ Holdings, Inc. (a) 169 753 Uni-Charm Corp. 16,700 431 Ushio, Inc. 18,000 224 Wacoal Corp. 7,000 70 West Japan Railway Co. 293 1,605 World Co., Ltd. 3,600 120 Yakult Honsha Co., Ltd. 18,000 175 Yamaha Corp. 50,000 396 Yamaha Motor Co. 93,000 579 Yamanouchi Pharmaceutical Co., Ltd. 37,000 1,097 Yamato Transport Co., Ltd. 6,000 112 Yokogawa Electric Co. 23,000 170 Yokohama Rubber Co., Ltd. (a) 24,000 53 Yoshitomi Pharmaceutical Ind., Ltd. 6,000 71 ------- 149,626 ------- LUXEMBOURG - 0.1% Thiel Logistik AG New 27,900 523 ------- MALAYSIA - 0.0% Perusahaan Otomobil Nasional Berhad 19,195 28 ------- MEXICO - 0.7% America Movil SA de CV - ADR 100,555 1,508 Cemex SA de CV 73,500 337 Telefonos de Mexico SA Series L - ADR 67,100 2,285 Wal-Mart de Mexico SA de CV Series V 632,405 1,508 ------- 5,638 ------- NETHERLANDS - 6.4% ABN Amro Holding 150,951 2,303 Aegon 72,496 1,819 AKZO Nobel 36,885 1,511 ASM Lithography Holding (a) 68,900 992 Bols Wessanen CVA 67,200 617 Buhrmann 85,677 540 Draka Holding 6,329 245 DSM 61,400 1,996 Elsevier 154,000 1,788 Euronext New (a) 29,839 498 Fortis (NL) 98,012 2,319 Getronics 34,547 92 Hagemeyer 14,300 205 Heineken 57,050 2,096 Heineken Holding NV Class A 6,156 163 Hunter Douglas 43,741 993 IHC Caland 3,762 188 ING Groep 214,666 5,348 ING Groep - ADR 2,900 72 Koninklijke (Royal) Philips Electronics NV 234,722 5,320 Koninklijke Ahold 193,199 5,432 Koninklijke KPN (a) 234,995 909 Koninklijke Numico 27,427 715 Koninklijke Vopak NV 5,052 78 Nutreco Holding 13,222 482 Royal Dutch Petroleum Co. 107,713 5,474 Stork 79,821 646 TNT Post Group 13,041 255 Unilever 62,531 3,273 Vedior 98,656 905 Vendex 43,900 330 Verenigde Nederlandse Uitgeversbedrijven VNU 108,455 3,161 Wolters Kluwer 141,456 2,967 ------- 53,732 ------- NEW ZEALAND - 0.3% Carter Holt Harvey 710,381 419 Telecom Corp. of New Zealand, Ltd. 1,251,763 2,390 Warehouse Group, Ltd. (The) 8,700 23 ------- 2,832 ------- International Securities Fund 75 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------ NORWAY - 0.5% Den Norske Creditbank ASA 103,908 392 Norsk Hydro AS 34,970 1,332 Norske Skogindustrier ASA Class A 10,000 156 Orkla ASA Class A 4,285 71 Sparebanken NOR 8,000 224 Statoil ASA (a) 194,530 1,345 Tandberg ASA (a) 39,100 701 Telenor AS 32,246 124 Tomra Systems ASA 22,082 220 ------ 4,565 ------ PORTUGAL - 0.3% Electricidade de Portugal SA 464,090 1,115 Portugal Telecom SA (a) 193,461 1,530 Telecel - Comunicacoes Pessoais SA (a) 16,188 114 ------ 2,759 ------ RUSSIA - 0.1% Lukoil Oil Co. - ADR 16,065 710 ------ SINGAPORE - 0.9% Capitaland, Ltd. 19,000 14 Chartered Semiconductor Manufacturing, Ltd. (a) 57,000 109 City Developments 45,400 103 Creative Technology, Ltd. 76,300 469 Datacraft Asia, Ltd. (a) 18,576 60 DBS Group Holdings, Ltd. 528,885 3,018 Great Eastern Holdings, Ltd. 5,000 25 Keppel Corp. 110,000 191 Oversea-Chinese Banking Corp., Ltd. 217,120 1,251 Overseas Union Bank 25,000 132 Singapore Airlines, Ltd. (Alien Market) 67,800 314 Singapore Press Holdings, Ltd. 18,100 157 Singapore Technologies Engineering, Ltd. 76,800 87 Singapore Telecommunications, Ltd. 1,072,000 1,018 Singapore Telecommunications, Ltd. (a) 12,080 11 United Overseas Bank, Ltd. 166,293 930 ------ 7,889 ------ SOUTH KOREA - 0.7% Hana Bank 108,440 844 Hyundai Motor Co., Ltd. 16,500 266 Kookmin Bank 57,490 891 Korea Telecom Corp. - ADR 36,000 750 Samsung Electronics Co., Ltd. 3,250 437 Samsung Electronics Co., Ltd. - GDR (a) 11,120 838 SK Telecom Co., Ltd. - ADR 67,000 1,412 Woongjin.com Co., Ltd. 42,590 199 ------ 5,637 ------ SPAIN - 2.9% Acerinox SA 7,450 233 Altadis SA 76,100 1,249 Amadeus Global Travel Distribution SA Class A 32,846 178 Arceralia Corporacion Siderurgica SA 32,800 380 Banco Bilbao Vizcaya SA 144,629 1,617 Banco Popular Espanol SA 16,117 541 Banco Santander Central Hispano SA 375,458 2,887 Centros Commerciales Pryca SA 31,982 392 Endesa SA 167,165 2,556 Fomento de Construcciones y Contratas SA 26,555 572 Grupo Dragados SA 27,800 337 Iberdrola SA 235,426 3,233 Industria de Diseno Textil SA (a) 60,695 1,130 Promotora de Informaciones SA (Prisa) 39,900 334 Recoletos Compania Editorial SA 49,800 176 Repsol SA - ADR 145,516 2,111 Repsol YPF SA 104,730 1,518 Telefonica SA (a) 441,723 5,301 ------ 24,745 ------ SWEDEN - 0.9% Assa Abloy AB Series B 86,667 987 Autoliv, Inc. 64,797 1,024 Electrolux AB Series B 53,000 636 Eniro AB 25,768 180 Foreningssparbanken AB Series A 40,000 401 Getinge Industrier AB Class B 11,000 152 Hennes & Mauritz AB 37,515 656 Investor AB Class B 59,540 581 Mo och Domsjo AB Series B 6,500 140 Nordic Baltic Holding AB 135,100 597 Securitas AB Series B 16,000 266 Skandia Forsakrings AB 764 5 Stora Enso Oyj Series R 12,659 152 Svenska Handelsbanken AB Series A 45,651 563 Swedish Match Co. 59,925 308 Tele2 AB Series B (a) 13,645 420 Telefonaktiebolaget LM Ericsson AB Series B 163,485 707 ------ 7,775 ------ SWITZERLAND - 4.9% Adecco SA (a) 1,493 66 Baloise Holdings, Ltd. (a) 11,200 918 Barry Callebaut AG (Regd) 10,850 1,068 Card Guard Scientific Survival Ltd. (a) 2,400 92 Clariant AG (a) 76,930 1,249 Credit Suisse Group (a) 68,724 2,509 76 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- Givaudan AG (Regd) 2,552 780 Holcim, Ltd. (a) 8,533 339 Holcim, Ltd. Series B (a) 1,000 192 Kuoni Reisen AG Series B 506 95 Nestle SA (a) 21,069 4,368 Novartis AG (a) 205,352 7,679 Richemont Series A 630 1,252 Roche Holding AG (a) 61,159 4,235 Serono SA Series B 564 445 Swiss Reinsurance (a) 57,232 5,880 Swisscom AG 4,009 1,112 Syngenta AG (a) 1,818 93 UBS AG (a) 128,055 5,947 Zurich Financial Services AG 11,526 2,636 -------- 40,955 -------- TAIWAN - 0.2% Taiwan Semiconductor Manufacturing Co., Ltd. - ADR (a) 102,772 1,327 -------- THAILAND - 0.0% National Finance & Securities (Alien Market) (a) 492,655 96 -------- UNITED KINGDOM - 21.8% 3i Group PLC 110,080 1,187 Airtours PLC 105,900 291 Alliance UniChem PLC 139,000 1,075 Allied Domecq PLC 341,202 1,735 Anglo American PLC 31,900 408 Arcadia Group PLC (a) 154,700 563 ARM Holdings PLC (a) 36,900 187 AstraZeneca PLC 85,359 3,833 AWG PLC (a) 163,227 1,363 BAA PLC 38,000 303 BAE Systems PLC 1,382,568 6,708 Barclays PLC 196,466 5,908 Bass PLC 275,943 2,505 BBA Group PLC 109,530 349 BG Group PLC 784,404 2,966 Billiton PLC 45,000 191 BOC Group PLC 147,435 2,003 Boots Co. PLC 327,201 2,876 BP Amoco PLC 691,076 5,572 Brambles Industries PLC (a) 274,600 1,377 British Airways PLC 546,367 1,183 British American Tobacco PLC 331,027 2,885 British Sky Broadcasting Group PLC (a) 126,513 1,415 British Telecommunications PLC 546,948 2,765 Bunzl PLC 354,630 2,215 Cable & Wireless PLC 232,200 1,049 Cadbury Schweppes PLC 147,815 919 Canary Wharf Finance Group PLC (a) 35,700 230 Centrica PLC 296,000 942 CGNU PLC 242,887 2,911 COLT Telecom Group PLC (a) 62,247 106 Compass Group PLC 205,496 1,497 Corus Group PLC (a) 89,600 72 Debenhams PLC 239,000 1,250 Diageo PLC 433,822 4,326 Dixons Group PLC 60,112 184 Elan Corp. PLC - ADR (a) 70,800 3,232 Elementis PLC (a) 200,000 101 EMI Group PLC 93,900 380 Enterprise Oil PLC 231,649 1,679 Gallaher Group PLC 21,496 145 GKN PLC 274,600 1,060 GlaxoSmithKline PLC 473,368 12,722 Granada Compass PLC 532,605 1,008 Great Universal Stores PLC 292,509 2,069 Hanson PLC 50,457 345 HBOS PLC 519,234 5,846 HSBC Holdings PLC 506,771 5,539 International Power PLC (a) 45,983 148 Johnson Matthey PLC 11,015 145 Lattice Group PLC 430,000 967 Legal & General Group PLC 212,618 466 Lloyds TSB Group PLC 564,813 5,694 Logica PLC 57,300 619 Man Group PLC 35,580 573 Marks & Spencer PLC 1,023,579 4,268 Matalan PLC 90,565 476 Morgan Crucible Co. PLC 559,892 1,383 National Grid Group PLC 140,741 998 Next PLC 83,020 1,048 Northern Rock PLC 21,140 177 Nycomed Amersham PLC 142,372 1,255 Pearson PLC 37,000 442 PowerGen PLC 240,100 2,600 Prudential PLC 167,870 1,756 Railtrack Group PLC (f) 195,904 0 Rank Group PLC 100,000 273 Reckitt Benckiser PLC 71,801 1,001 Reed International PLC 530,373 4,338 Reuters Group PLC 98,052 927 Rexam PLC 552,219 2,944 Rio Tinto Corp. PLC (Regd) 194,538 3,154 Royal & Sun Alliance Insurance Group PLC 885,260 4,810 Royal Bank of Scotland Group PLC 209,494 5,006 Safeway PLC 566,731 2,882 Sage Group PLC (The) 29,659 91 International Securities Fund 77 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- --------- Scottish & Southern Energy PLC 186,258 1,786 ScottishPower PLC 50,732 291 Severn Trent PLC 37,667 390 Shell Transport & Trading Co. PLC 759,383 5,681 Shire Pharmaceuticals Group PLC (a) 17,000 247 Smith & Nephew PLC 165,660 931 Smith (David S.) Holdings PLC 14,600 30 Smiths Industries PLC 73,896 732 Somerfield PLC (a) 242,785 363 Taylor Woodrow PLC 171,697 364 Tesco Store Holdings PLC 175,200 617 Thistle Hotels PLC 136,666 174 Trinity PLC 6,907 39 Unilever PLC 585,497 4,249 United Business Media PLC 35,540 226 Vodafone Group PLC 5,268,301 12,169 Willis Group Holdings, Ltd. New (a) 32,177 749 Wimpey (George), Ltd. PLC 160,000 435 Wolseley PLC 241,912 1,574 Zeneca Group PLC 93,116 4,194 --------- 183,157 --------- TOTAL COMMON STOCKS (cost $851,715) 767,011 --------- PREFERRED STOCKS - 0.3% AUSTRALIA - 0.1% News Corp., Ltd. 85,957 509 --------- GERMANY - 0.2% Fresenius AG 2,700 217 Hugo Boss AG 22,203 409 ProSiebenSat.1 Media AG 21,025 112 Volkswagen AG 21,200 542 Wella AG 9,767 448 --------- 1,728 --------- JAPAN - 0.0% Sanwa International Financial Bermuda Trust (conv.) 6,000,000 38 --------- TOTAL PREFERRED STOCKS (cost $2,610) 2,275 --------- PRINCIPAL AMOUNT (000) $ --------- LONG-TERM INVESTMENTS - 0.0% LUXEMBOURG - 0.0% Hellenic Exchangeable Finance SCA (conv.) 2.00% due 08/02/05 EUR 76,000 75 --------- TOTAL LONG-TERM INVESTMENTS (cost $74) 75 --------- SHORT-TERM INVESTMENTS - 6.8% UNITED STATES - 6.8% Frank Russell Investment Company Money Market Fund (b) 51,160 51,160 United States Treasury Bills (c)(d)(g) 2.20% due 12/20/01 6,000 5,982 --------- TOTAL SHORT-TERM INVESTMENTS (cost $57,142) 57,142 --------- TOTAL INVESTMENTS - 98.3% (identified cost $911,541) 826,503 OTHER ASSETS AND LIABILITIES, NET - 1.7% 14,721 --------- NET ASSETS - 100.0% 841,224 ========= (a) Nonincome-producing security. (b) At net asset value. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) Rate noted is yield-to-maturity from date of acquisition. (e) Real Estate Investment Trust (REIT). (f) This security has been valued by the Security Valuation Committee, delegated by the Board of Trustees. It is possible that the estimated value may differ significantly from the amount that might ultimately be realized. (g) At amortized cost, which approximates market. Abbreviations: ADR - American Depositary Receipt GDR - Global Depositary Receipt 144A - Represents private placement security for qualified buyers according to rule 144A of the Securities Act of 1933. See accompanying notes which are an integral part of the financial statements. 78 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) FUTURES CONTRACTS $ (000) -------- -------------- CAC-40 Index Futures Contracts (France) expiration date 12/01 4,677 $ 453 DAX Index Futures Contracts (Germany) expiration date 12/01 4,536 (172) EUR STOXX 50 Index Futures Contracts (EMU) expiration date 12/01 15,395 152 FTSE-100 Index Futures Contracts (UK) expiration date 12/01 15,304 (229) Hang Seng Index Futures Contracts (Hong Kong) expiration date 11/01 1,672 (85) SPI 200 Index Futures Contracts (Australia) expiration date 12/01 2,003 134 TOPIX Index Futures Contracts (Japan) expiration date 12/01 13,119 281 TSE - 60 Index Futures Contracts (Canada) expiration date 12/01 3,310 (83) -------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ 451 ============== Foreign Currency Abbreviations: AUD - Australian dollar CAD - Canadian dollar CHF - Swiss franc DKK - Danish krone EUR - Euro dollar GBP - British pound HKD - Hong Kong dollar JPY - Japanese yen MYR - Malaysian ringgit NOK - Norwegian krone SEK - Swedish krona USD - United States dollar See accompanying notes which are an integral part of the financial statements. International Securities Fund 79 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET % OF VALUE NET (000) INDUSTRY DIVERSIFICATION ASSETS $ -------- ------- Auto &Transportation 5.5% 46,145 Consumer Discretionary 11.2 3,871 Consumer Staples 6.6 55,846 Energy 8.0 67,303 Financial Services 20.9 175,591 Health Care 8.1 68,267 Materials & Processing 9.3 78,004 Miscellaneous 0.8 6,555 Producer Durables 5.6 46,990 Technology 4.1 34,944 Utilities 11.4 95,770 Short-Term Investments 6.8 57,142 Long-Term Investments 0.0 75 -------- ------- Total Investments 98.3 826,503 Other Assets and Liabilities, net 1.7 14,721 -------- ------- NET ASSETS 100.0% 841,224 ======== ======= MARKET % OF VALUE NET (000) GEOGRAPHIC DIVERSIFICATION ASSETS $ -------- ------- Europe 39.8% 334,948 Japan 17.8 149,664 Latin America 0.7 5,638 Middle East 0.2 1,817 Pac Basin 7.4 62,672 United Kingdom 21.8 183,157 Other 3.8 31,390 Short-Term Investments 6.8 57,142 Long-Term Investments 0.0 75 -------- ------- Total Investments 98.3 826,503 Other Assets and Liabilities, net 1.7 14,721 -------- ------- NET ASSETS 100.0% 841,224 ======== ======= FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - -------------- ------------- ------------ ---------------- USD 1,353 AUD 2,700 12/12/01 $ 2 USD 501 AUD 1,000 12/12/01 1 USD 507 AUD 1,000 12/12/01 (5) USD 2,863 CAD 4,500 12/12/01 (28) USD 639 CAD 1,000 12/12/01 (9) USD 317 CAD 500 12/12/01 (2) USD 20,873 EUR 22,600 12/12/01 (578) USD 1,827 EUR 2,000 12/12/01 (31) USD 1,821 EUR 2,000 12/12/01 (24) USD 1,286 EUR 1,400 12/12/01 (29) USD 904 EUR 1,000 12/12/01 (6) USD 901 EUR 1,000 12/12/01 (4) USD 461 EUR 500 12/12/01 (12) USD 8,693 GBP 5,950 12/12/01 (69) USD 1,469 GBP 1,000 12/12/01 (19) USD 2,356 GBP 1,600 12/12/01 (37) USD 722 GBP 500 12/12/01 3 USD 4,380 GBP 3,000 12/12/01 (32) USD 8,137 JPY 950,000 12/12/01 (364) USD 837 JPY 100,000 12/12/01 (19) USD 1,663 JPY 200,000 12/12/01 (27) USD 838 JPY 100,000 12/12/01 (19) USD 1,649 JPY 200,000 12/12/01 (13) USD 4,288 JPY 500,000 12/12/01 (197) AUD 700 USD 352 12/12/01 1 CHF 500 USD 303 12/20/01 (3) CHF 490 USD 296 12/20/01 (4) DKK 610 USD 74 12/20/01 -- DKK 630 USD 75 12/20/01 (1) EUR 2,000 USD 1,797 12/12/01 1 EUR 1,380 USD 1,240 12/20/01 1 EUR 1,370 USD 1,219 12/20/01 (11) GBP 1,000 USD 1,440 12/12/01 (9) GBP 1,500 USD 2,204 12/12/01 29 GBP 630 USD 905 12/20/01 (8) GBP 700 USD 995 12/20/01 (19) JPY 100,000 USD 865 12/12/01 47 JPY 50,000 USD 414 12/12/01 5 JPY 428,431 USD 3,577 12/14/01 71 JPY 238,132 USD 1,988 12/14/01 39 JPY 177,970 USD 1,473 12/20/01 17 JPY 94,290 USD 770 12/20/01 (2) JPY 53,286 USD 453 02/28/02 15 NOK 490 USD 55 12/20/01 -- SEK 420 USD 40 12/20/01 -- SEK 430 USD 40 12/20/01 -- --------------- $ (1,349) =============== See accompanying notes which are an integral part of the financial statements. 80 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) ----------------- ------------------ ---------- ---------------- USD 50 AUD 98 11/01/01 $ (1) USD 23 CHF 37 11/02/01 -- USD 58 EUR 64 11/01/01 (1) USD 104 EUR 116 11/01/01 -- USD 97 EUR 107 11/02/01 (1) USD 30 GBP 20 11/01/01 -- USD 72 GBP 50 11/01/01 -- USD 15 GBP 10 11/01/01 -- USD 123 GBP 84 11/02/01 (1) USD 49 GBP 33 11/02/01 -- USD 37 JPY 4,570 11/01/01 -- USD 36 JPY 4,427 11/01/01 (1) USD 80 JPY 9,795 11/02/01 -- USD 50 JPY 6,115 11/02/01 (1) USD 41 JPY 5,000 11/02/01 -- USD 94 JPY 11,584 11/02/01 -- USD 22 JPY 2,732 11/05/01 -- USD 96 JPY 11,805 11/05/01 -- USD 23 SEK 247 11/02/01 -- AUD 135 USD 68 11/01/01 -- AUD 11 USD 6 11/01/01 -- CAD 25 USD 16 11/01/01 -- CAD 14 USD 9 11/01/01 -- CAD 27 USD 17 11/01/01 -- CAD 10 USD 6 11/01/01 -- CAD 5 USD 3 11/01/01 -- CAD 164 USD 103 11/02/01 -- CAD 17 USD 11 11/02/01 -- CAD 95 USD 60 11/02/01 -- CHF 253 USD 155 11/01/01 1 CHF 162 USD 99 11/02/01 -- EUR 149 USD 135 11/01/01 1 EUR 167 USD 151 11/01/01 1 EUR 143 USD 129 11/02/01 1 EUR 199 USD 180 11/02/01 1 EUR 278 USD 252 11/02/01 2 EUR 52 USD 47 11/02/01 -- EUR 190 USD 171 11/02/01 -- EUR 97 USD 87 11/02/01 -- EUR 97 USD 87 11/02/01 -- EUR 143 USD 128 11/02/01 -- EUR 108 USD 97 11/02/01 -- EUR 115 USD 103 11/05/01 -- EUR 338 USD 305 11/05/01 1 GBP 9 USD 14 11/01/01 -- GBP 29 USD 42 11/01/01 -- GBP 12 USD 17 11/01/01 -- GBP 2 USD 3 11/01/01 -- GBP 39 USD 56 11/02/01 -- GBP 111 USD 161 11/02/01 -- GBP 12 USD 18 11/02/01 -- HKD 1,348 USD 173 11/01/01 -- HKD 2,648 USD 340 11/01/01 -- HKD 487 USD 62 11/02/01 -- HKD 2 USD -- 11/01/01 -- JPY 8,623 USD 71 11/01/01 -- JPY 10,660 USD 87 11/01/01 -- JPY 13,031 USD 107 11/02/01 1 JPY 6,513 USD 53 11/02/01 -- JPY 15,215 USD 124 11/02/01 -- JPY 22,117 USD 180 11/02/01 -- JPY 7,729 USD 63 11/02/01 -- MYR 80 USD 21 11/01/01 -- MYR 9 USD 2 11/01/01 (1) MYR 77 USD 20 11/02/01 (1) NOK 1,053 USD 119 11/02/01 1 SEK 1,902 USD 178 11/02/01 -- ---------------- $ 2 ================ See accompanying notes which are an integral part of the financial statements. International Securities Fund 81 INTERNATIONAL SECURITIES FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001
ASSETS Investments at market (identified cost $911,541) ......................................... $ 826,503 Foreign currency holdings (identified cost $9,113) ....................................... 9,031 Unrealized appreciation on forward foreign currency exchange contracts ................... 232 Unrealized appreciation on foreign currency exchange spot contracts ...................... 10 Receivables: Dividends and interest ................................................................. 1,256 Investments sold ....................................................................... 8,655 Fund shares sold ....................................................................... 2,116 Foreign taxes recoverable .............................................................. 982 From Advisor ........................................................................... 23 Daily variation margin on futures contracts ............................................ 312 --------- Total assets ......................................................................... 849,120 LIABILITIES Payables: Investments purchased ........................................................ $ 4,227 Fund shares redeemed ......................................................... 706 Accrued fees to affiliates ................................................... 932 Other accrued expenses ....................................................... 442 Unrealized depreciation on forward foreign currency exchange contracts ......... 1,581 Unrealized depreciation on foreign currency exchange spot contracts ............ 8 --------- Total liabilities .................................................................... 7,896 ---------- NET ASSETS ............................................................................... $ 841,224 ========== NET ASSETS CONSIST OF: Accumulated distributions in excess of net investment income ............................. $ (4,029) Accumulated distributions in excess of net realized gain ................................. (80,273) Unrealized appreciation (depreciation) on: Investments ............................................................................ (85,038) Futures contracts ...................................................................... 451 Foreign currency-related transactions .................................................. (1,458) Shares of beneficial interest ............................................................ 184 Additional paid-in capital ............................................................... 1,011,387 ---------- NET ASSETS ............................................................................... $ 841,224 ========== NET ASSET VALUE, offering and redemption price per share: Class C ($12,470,342 divided by 280,038 shares of $.01 par value shares of beneficial interest outstanding) ............................................ $ 44.53 ========== Class E ($15,896,939 divided by 349,619 shares of $.01 par value shares of beneficial interest outstanding) ............................................ $ 45.47 ========== Class S ($812,856,912 divided by 17,755,230 shares of $.01 par value shares of beneficial interest outstanding) ............................................ $ 45.78 ==========
See accompanying notes which are an integral part of the financial statements. 82 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Dividends ........................................................ $ 19,115 Dividends from Money Market Fund ................................. 2,512 Interest ......................................................... 435 Less foreign taxes withheld ...................................... (2,124) --------- Total investment income ........................................ 19,938 EXPENSES Advisory fees ........................................ $ 8,764 Administrative fees .................................. 582 Custodian fees ....................................... 2,500 Distribution fees - Class C .......................... 93 Transfer agent fees .................................. 1,551 Professional fees .................................... 135 Registration fees .................................... 156 Shareholder servicing fees - Class C ................. 31 Shareholder servicing fees - Class E ................. 32 Trustees' fees ....................................... 23 Miscellaneous ........................................ 158 ----------- Expenses before reductions ........................... 14,025 Expense reductions ................................... (12) ----------- Expenses, net .................................................. 14,013 --------- Net investment income .............................................. 5,925 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments .......................................... (121,944) Futures contracts .................................... (21,316) Foreign currency-related transactions ................ (1,314) (144,574) ----------- Net change in unrealized appreciation (depreciation) on: Investments .......................................... (132,935) Futures contracts .................................... 2,534 Foreign currency-related transactions ................ (1,210) (131,611) ----------- --------- Net realized and unrealized gain (loss) ............................ (276,185) --------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .............. $(270,260) ========= See accompanying notes which are an integral part of the financial statements. International Securities Fund 83 INTERNATIONAL SECURITIES FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ----------------- ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income ............................................. $ 5,925 $ 12,287 $ 7,863 Net realized gain (loss)........................................... 44,574) 50,858 128,701 Net change in unrealized appreciation (depreciation)............... (131,611) (212,284) 140,699 ---------- ---------- ---------- Net increase (decrease) in net assets from operations........... (270,260) (149,139) 277,263 ---------- ---------- ---------- DISTRIBUTIONS From net investment income Class C ......................................................... -- -- (12) Class E ......................................................... -- -- (19) Class S ......................................................... (161) -- (7,238) From net realized gain Class C.......................................................... (552) (299) (335) Class E.......................................................... (485) (200) (248) Class S.......................................................... (46,040) (38,617) (51,360) ---------- ---------- ---------- Net decrease in net assets from distributions.................. (47,238) (39,116) (59,212) ---------- ---------- ---------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions...... 75,738 124,670 (16,692) ---------- ---------- ---------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS.......................... (241,760) (63,585) 201,359 NET ASSETS Beginning of period................................................ 1,082,984 1,146,569 945,210 ---------- ---------- ---------- End of period (including accumulated distributions in excess of net investment income of $4,029, $2,959 and $3,812, respectively)....................................... $ 841,224 $1,082,984 $1,146,569 ========== ========== ==========
See accompanying notes which are an integral part of the financial statements. 84 International Securities Fund INTERNATIONAL SECURITIES FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** -------- --------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD ..................... $ 62.46 $ 74.51 $ 60.66 -------- --------- ---------- INCOME FROM OPERATIONS Net investment income (loss)(a) ........................ (.19) .17 (.32) Net realized and unrealized gain (loss) ................ 14.94) (9.68) 17.92 -------- --------- ---------- Total income from operations.......................... (15.13) (9.51) 17.60 -------- --------- ---------- DISTRIBUTIONS From net investment income ............................. -- -- (.17) From net realized gain ................................. (2.80) (2.54) (3.58) -------- --------- ---------- Total distributions .................................. (2.80) (2.54) (3.75) -------- --------- ---------- NET ASSET VALUE, END OF PERIOD ........................... $ 44.53 $ 62.46 $ 74.51 ======== ========= ========== TOTAL RETURN (%)(b) ...................................... (25.29) (13.13) 29.39 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ............... 12,470 11,849 7,522 Ratios to average net assets (%)(c): Operating expenses, net .............................. 2.41 2.29 2.30 Operating expenses, gross............................. 2.41 2.30 2.30 Net investment income (loss) ......................... (.36) .30 (.51) Portfolio turnover rate (%)............................. 104.65 101.84 120.52
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period January 27, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. International Securities Fund 85 INTERNATIONAL SECURITIES FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ------------------------------------------ 2001* 2000** 1999 1998 1997 1996*** -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 63.24 $ 74.95 $ 60.68 $ 54.64 $ 58.47 $ 58.56 -------- -------- -------- -------- -------- -------- INCOME FROM OPERATIONS Net investment income (loss)(a)................. .21 .57 .40 .28 .35 (.03) Net realized and unrealized gain (loss)......... (15.18) (9.74) 17.72 6.53 (.64) 1.68 -------- -------- -------- -------- -------- -------- Total income from operations.................. (14.97) (9.17) 18.12 6.81 (.29) 1.65 -------- -------- -------- -------- -------- -------- DISTRIBUTIONS From net investment income...................... -- -- (.27) (.57) (.29) (.43) From net realized gain.......................... (2.80) (2.54) (3.58) (.20) (3.25) (1.31) -------- -------- -------- -------- -------- -------- Total distributions........................... (2.80) (2.54) (3.85) (.77) (3.54) (1.74) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD.................... $ 45.47 $ 63.24 $ 74.95 $ 60.68 $ 54.64 $ 58.47 ======== ======== ======== ======== ======== ======== TOTAL RETURN (%)(b)............................... (24.70) (12.58) 30.21 12.53 (.41) 2.86 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)........ 15,897 9,964 5,552 4,431 1,271 623 Ratios to average net assets (%)(c): Operating expenses, net....................... 1.66 1.54 1.55 1.64 1.96 2.00 Operating expenses, gross..................... 1.66 1.55 1.55 1.64 1.96 2.00 Net investment income (loss).................. .41 1.00 .61 .49 .19 (.61) Portfolio turnover rate (%)..................... 104.65 101.84 120.52 68.46 73.54 42.43
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 86 International Securities Fund INTERNATIONAL SECURITIES FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, -------------------------------------------- 2001* 2000** 1999 1998 1997 1996 --------- ---------- ---------- --------- -------- --------- NET ASSET VALUE, BEGINNING OF PERIOD ..................... $ 63.51 $ 75.11 $ 60.86 $ 54.69 $ 58.48 $ 56.61 --------- ---------- ---------- --------- -------- --------- INCOME FROM OPERATIONS Net investment income (a) .............................. .34 .76 .51 .69 .56 .53 Net realized and unrealized gain (loss) ................ (15.26) (9.82) 17.82 6.32 (.46) 3.72 --------- ---------- ---------- --------- -------- --------- Total income from operations ......................... (14.92) (9.06) 18.33 7.01 .10 4.25 --------- ---------- ---------- --------- -------- --------- DISTRIBUTIONS From net investment income ............................. (.01) -- (.50) (.64) (.64) (.48) From net realized gain ................................. (2.80) (2.54) (3.58) (.20) (3.25) (1.90) --------- ---------- ---------- --------- -------- --------- Total distributions .................................. (2.81) (2.54) (4.08) (.84) (3.89) (2.38) --------- ---------- ---------- --------- -------- --------- NET ASSET VALUE, END OF PERIOD ........................... $ 45.78 $ 63.51 $ 75.11 $ 60.86 $ 54.69 $ 58.48 ========= ========== ========== ========= ======== ========= TOTAL RETURN (%)(b) ...................................... (24.51) (12.40) 30.52 12.90 .26 7.63 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ............... 812,857 1,061,171 1,133,495 940,779 839,767 743,615 Ratios to average net assets (%)(c): Operating expenses, net .............................. 1.42 1.29 1.30 1.22 1.26 1.30 Operating expenses, gross ............................ 1.42 1.30 1.30 1.22 1.26 1.31 Net investment income ................................ .62 1.31 .79 1.15 .91 .91 Portfolio turnover rate (%) ............................ 104.65 101.84 120.52 68.46 73.54 42.43
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. International Securities Fund 87 EMERGING MARKETS FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide maximum total return, primarily through capital appreciation and by assuming a higher level of volatility than is ordinarily expected from developed market international portfolios, by investing principally in equity securities. INVESTS IN: Primarily emerging market equity securities. STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher returns with moderate risk when compared to either single country or region emerging markets investments. The Fund employed the investment management services of five managers with four separate approaches to global emerging markets investment. GROWTH OF A $10,000 INVESTMENT Dates Emerging Markets - Class S++ IFC Investable Composite** - ----- ---------------------------- -------------------------- Inception* $10,000 $10,000 1993 $12,150 $14,489 1994 $14,884 $18,464 1995 $12,176 $14,120 1996 $13,492 $15,602 1997 $13,448 $14,035 1998 $9,450 $9,984 1999 $11,371 $14,297 2000 $10,645 $12,855 2001 $8,102 $10,131 YEARLY PERIODS ENDED OCTOBER 31 EMERGING MARKETS FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN --------------- -------------- ------------- 1 Year $ 7,611 (23.89)% 5 Years $ 6,005 (9.69)%(S) Inception $ 8,102 (2.37)%(S) EMERGING MARKETS FUND - CLASS E (S)(S) PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ---------------- -------------- ------------- 1 Year $ 7,587 (24.13)% 5 Years $ 5,961 (9.83)%(S) Inception $ 8,043 (2.46)%(S) EMERGING MARKETS FUND - CLASS C (S)(S)(S) PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- -------------- ------------ 1 Year $ 7,530 (24.70)% 5 Years $ 5,836 (10.21)%(S) Inception $ 7,874 (2.69)%)S) IFC INVESTABLE COMPOSITE INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- -------------- ------------- 1 Year $ 7,889 (21.11)% 5 Years $ 6,494 (8.25)%(S) Inception $ 10,131 0.16%(S) 88 Emerging Markets Fund EMERGING MARKETS FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the twelve months ended October 31, 2001, the Emerging Markets Fund Class S, Class E, and Class C shares declined by 23.89%, 24.13%, and 24.70%, respectively, as compared to a 21.11% loss for the IFC Investable Composite Index. The technology sector was the weakest component within emerging markets during the past twelve months, followed closely by both business services and consumer services companies. While none of the economic sectors were in positive territory over the year, health care and capital goods were the strongest relative performers, declining significantly less than the broad index. PORTFOLIO HIGHLIGHTS Turkey and Argentina were the laggards during the fiscal period, due primarily to continuing concerns over the economic and fiscal stability of the markets. Turkey was off sharply beginning in November 2000, although an emergency loan package from the International Monetary Fund (IMF) helped to stabilize the market. Argentina trailed due to investors' fears over the country's high debt levels and consequent potential for default. China was the strongest emerging markets performer during the period, benefiting from the improving outlook for its large conglomerates. Russia was also one of the strongest markets over the year, resulting from the resiliency of natural resource prices and ongoing marketplace reforms. During a difficult environment for emerging markets investors, the Fund trailed its benchmark in large part due to its selection of technology and telecommunications companies during the second calendar quarter of 2001. The Fund was unable to make up the performance shortfall during the balance of the fiscal year. During the past twelve months, the global economic climate helped illustrate the benefits of style diversification. While the Fund's growth and value managers alternated leads during the year, the value managers turned in the strongest absolute performance over the twelve-month period. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 Telefonos de Mexico SA Series L - ADR (Mexico) 3.0% Samsung Electronics (South Korea) 2.2 Taiwan Semiconductor Manufacturing Co., Ltd. - ADR (Taiwan) 1.8 China Telecom (Hong Kong), Ltd. (Hong Kong) 1.7 America Movil SA de CV - ADR (Mexico) 1.5 Sasol, Ltd. (South Africa) 1.4 SK Telecom Co., Ltd. (South Korea) 1.3 Kookmin Bank (South Korea) 1.3 Genesis India Investment Co. (India) 1.1 Cemex SA de CV - ADR (Mexico) 0.9 PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 9.0x Portfolio Price/Book Ratio 1.25x Market Capitalization - $-Weighted Average 6.50 Bil Number of Holdings 430 MONEY MANAGERS STYLES Alliance Capital Management, LP Bernstein Investment Research & Management Unit Value Foreign & Colonial Emerging Markets, Ltd. Market-Oriented Genesis Asset Managers, Ltd. Market-Oriented Nicholas Applegate Capital Management Growth Schroders Investment Mangement North America, Ltd. Market-Oriented * Emerging Markets Fund Class S assumes initial investment on January 29, 1993. IFC Index assumes initial investment on February 1, 1993. ** International Finance Corporation (IFC) Investable Composite Index is a market capitalization-weighted index of the performance of securities listed on the stock exchange(s) of the countries included in the index, calculated on a total-return basis. The investable index reflects the accessibility of markets and individual stocks to foreign investors. ++ Prior to April 1, 1995, Fund performance results are reported gross of investment management fees. For the period following April 1, 1995, Fund performance results are reported net of investment management fees but gross of any investment services fees. Information concerning these fees can be obtained from the Fund's Advisor upon request. (S) Annualized. (SS) Emerging Markets Fund Class S performance has been linked with Class E to provide historical perspective. For the period September 22, 1998 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. (SSS) Emerging Markets Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Investments in emerging market countries involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected to have less stability than those of more developed countries. Securities may be less liquid and more volatile than US or longer established international markets. Please see the Prospectus for further details. Emerging Markets Fund 89 EMERGING MARKETS FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ---------- ------ COMMON STOCKS - 83.9% ARGENTINA - 0.8% BBVA Banco Frances SA - ADR 21,600 184 Central Costanera SA Class B (a) 437,100 175 Inversiones y Representaciones SA Class B (a) 381,802 286 PC Holdings SA Class B 509,000 555 Quilmes Industrial (Regd) (a) 571,000 331 Siderca SAIC Class A 350,000 420 Telecom Argentina SA Class B - ADR 35,000 219 ------ 2,170 ------ AUSTRALIA - 0.1% Orogen Minerals, Ltd. 545,000 349 ------ BRAZIL - 1.5% Brasil Telecom Participacoes SA - ADR 25,100 703 Centrais Eletricas Brasileiras SA 7,799,997 101 Centrais Eletricas Brasileiras SA Class B - ADR 7,000 43 Companhia Siderurgica Nacional 11,009,000 114 Companhia Siderurgica Nacional - ADR 4,500 46 Companhia Vale do Rio Doce 37,500 735 Copel Parana Energ 67,000,000 459 Embraer - Empresa Brasileira de Aeronautica SA 40,300 146 Embratel Participacoes SA 15,196,000 47 Petroleo Brasileiro SA Petrobras - ADR 19,310 386 Souza Cruz 85,000 390 Tele Centro Sul Participacoes SA 20,469,000 112 Tele Norte Leste Participacoes SA 52,775,264 488 Ultrapar Participacoes SA - ADR 9,900 57 Votorantim Celulose e Papel SA - ADR 24,600 357 ------ 4,184 ------ CHILE - 1.9% Antofagasta Holdings PLC 215,636 1,347 Banco de A. Edwards Series A - ADR 7,244 109 Banco Santander Chile Series A - ADR 2,800 45 Banco Santiago - ADR 6,000 126 BBV Banco BHIF - ADR 33,600 427 Compania de Telecomunicaciones de Chile SA - ADR (a) 81,769 842 Distribucion y Servicio D&S SA - ADR 66,000 716 Embotelladora Andina SA Series A - ADR 29,700 264 Embotelladora Andina SA Series B - ADR 58,000 422 Embotelladora Arica SA - ADR (a) 79,300 400 Enersis SA - ADR 10,583 130 Quinenco SA (a) 95,700 579 ------ 5,407 ------ CHINA - 2.8% Beijing Datang Power Generation Co., Ltd. Class H 816,000 298 Beijing Yanhua Petrochemical Co., Ltd. Class H 4,450,000 445 China Merchants Holdings International Co., Ltd. 242,000 154 China Resources Enterprise, Ltd. 481,000 484 China Shipping Development Co., Ltd. Class H 798,000 127 China Unicom, Ltd. - ADR (a) 21,100 193 Guangdong Kelon Electrical Holdings Co., Ltd. Class H (a) 1,360,000 317 Huaneng Power International, Inc. Class H 652,000 401 Jiangsu Expressway Co., Ltd. Class H 4,395,000 958 New World China Land, Ltd. (a) 843,800 233 PetroChina Co., Ltd. Class H 4,272,000 805 Quingling Motors Co. Class H 1,206,000 212 Shanghai Petrochemical Co., Ltd. Class H 5,430,000 557 Shenzhen Expressway Co., Ltd. Class H 4,800,000 1,040 Yanzhou Coal Mining Co., Ltd. Series H 3,488,000 1,084 Yizheng Chemical Fibre Class H 1,278,000 157 Zhejiang Expressway Co., Ltd. Series H 1,700,000 397 ------ 7,862 ------ CROATIA - 0.3% Pliva D.D. - GDR 112,000 935 ------ CZECH REPUBLIC - 0.7% Ceska Sporitelna AS (a) 30,788 241 Ceske Energeticke Zavody AS 329,800 671 Cesky Telecom AS 48,027 374 Komercni Banka AS (a) 3,000 78 Phillip Morris CR AS 3,500 637 ------ 2,001 ------ ECUADOR - 0.2% La Cemento Nacional - GDR (144A) 700 91 La Cemento National - GDR (a) 4,800 624 ------ 715 ------ EGYPT - 0.4% Al-Ahram Beverages Co. SAE - GDR (a) 39,600 287 Commercial International Bank 6,550 50 Commercial International Bank (Regd) - GDR 8,300 62 Egyptian Mobile Phone Network (a) 29,818 259 Orascom Construction Industries 64,980 518 ------ 1,176 ------ 90 Emerging Markets Fund EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ---------- ------ GHANA - 0.2% Ashanti Goldfields, Ltd. - ADR (a) 133,178 485 ------ GREECE - 0.6% Aluminum Co. of Greece SA 6,100 178 Attica Enterprises Holdings SA (a) 123,600 489 Credit Bank (Regd) 10,300 186 Hellenic Telecommunication Organization SA - ADR 16,000 132 Hellenic Telecommunication Organization SA - GDR 35,824 580 ------ 1,565 ------ HONG KONG - 3.3% China Mobile (Hong Kong), Ltd. (a) 1,608,300 4,876 China Mobile, Ltd. - ADR (a) 18,200 277 China Overseas Land & Investment 4,209,000 480 China Petroleum and Chemical Corp. 9,795,200 1,520 China Southern Airlines (a) 1,154,000 291 China Unicom, Ltd. (a) 388,000 363 Citic Pacific, Ltd. 142,000 291 CNOOC, Ltd. 297,000 291 Legend Holdings, Ltd. 991,000 416 New World Infrastructure, Ltd. 688,600 234 TCL International Holdings Ltd. 1,674,000 219 ------ 9,258 ------ HUNGARY - 1.9% Egis Gyogyszergyar 1,300 52 Gedeon Richter Rt. 5,100 277 Gedeon Richter, Ltd. - GDR 14,996 811 Magyar Tavkozlesi Rt - ADR 88,982 1,384 Magyar Tavkozlesi Rt. (Regd) 380,700 1,188 Mol Magyar Olaj-Es Gazipari Rt. - GDR 70,746 1,143 OTP Bank Rt. 9,634 506 ------ 5,361 ------ INDIA - 3.5% Bajaj Auto, Ltd. - GDR 71,000 504 BSES, Ltd. - GDR (144A) 27,000 324 Dr. Reddy's Laboratories, Ltd. - ADR (a) 14,000 349 Foreign & Colonial Emerging Markets Indian Investment Co. (a) 276,089 828 Genesis India Investment Co. (a) 471,800 3,109 HDFC Bank, Ltd. - ADR (a) 16,000 244 Hindalco Industries, Ltd. - GDR 40,000 476 Hindustan Lever, Ltd. 2002 Warrants (a) 27,000 121 Housing Development Finance Corp., Ltd. 2002 Warrants (a) 5,000 73 ICICI Bank, Ltd. - ADR (a) 32,000 223 ICICI Bank, Ltd. - ADR 13,000 63 Indo Gulf Fertilisers & Chemicals - GDR 70,000 39 Indo Gulf Fertilizers & Chemicals - GDR (a) 349,000 192 Infosys Technologies, Ltd. - ADR 16,700 788 Infosys Technologies, Ltd. 2002 Warrants (a) 3,130 262 ITC, Ltd. - GDR 12,400 183 Mahanagar Telephone Nigam, Ltd. - ADR (a) 23,200 133 Perusahaan Persero Telekom - ADR 32,616 170 Ranbaxy Laboratories, Ltd. - GDR 16,000 260 Reliance Industries, Ltd. - GDR 81,000 940 State Bank of India - GDR 34,100 275 Videsh Sanchar Nigam, Ltd. - ADR 49,601 480 ------ 10,036 ------ INDONESIA - 1.9% Gulf Indonesia Resources, Ltd. (a) 62,300 523 PT Bank Central Asia Tbk (a) 11,190,000 1,362 PT Gudang Garam Tbk 366,000 315 PT Hanjaya Mandala Sampoerna Tbk (a) 982,500 281 PT Indofood Sukses Makmur Tbk 1,234,500 80 PT Matahari Putra Prima Tbk 11,000,000 525 PT Ramayana Lestari Sentosa Tbk 2,418,000 606 PT Telekomunikasi Indonesia 4,147,000 1,118 Semen Gresik 642,000 435 ------ 5,245 ------ ISRAEL - 3.2% Bank Hapoalim, Ltd. 278,570 541 Bank Leumi Le-Israel 642,451 1,147 Bezeq Israeli Telecommunication Corp., Ltd. 371,821 393 Check Point Software Technologies, Ltd. (a) 15,300 452 Elbit Systems, Ltd. 17,000 323 Israel Chemicals, Ltd. 1,285,000 1,165 Leumi Insurance Holdings 134,899 130 Lumenis, Ltd. (a) 11,000 219 Nice Systems, Ltd. - ADR (a) 2,790 42 Orbotech, Ltd. (a) 36,365 784 Scitex Corp., Ltd. (a) 99,000 326 Supersol, Ltd. 305,583 1,155 Taro Pharmaceutical Industries, Ltd. (a) 17,050 718 Teva Pharmaceutical Industries, Ltd. - ADR 26,838 1,659 ------ 9,054 ------ JORDAN - 0.3% Arab Bank Group 2,710 792 ------ Emerging Markets Fund 91 EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ---------- ------ LUXEMBOURG - 0.2% Millicom International Cellular SA (a) 25,500 282 Quilmes Industrial SA - ADR 31,050 310 UBS AG 2002 Warrants (a) 72,000 68 ------ 660 ------ MALAYSIA - 3.6% Genting Berhad 205,000 502 Golden Hope Plantation 519,000 448 IJM Corp. Berhad 570,000 627 Lam Soon Huat Development 196,000 239 Malakoff Berhad 251,000 621 Malayan Banking Berhad 853,800 1,596 Oriental Holdings Berhad 148,200 116 Perusahaan Otomobil Nasional Berhad 146,000 211 Petronas Gas Berhad 39,000 57 Public Bank Berhad 1,141,400 682 Public Bank Berhad (Alien Market) 1,071,000 741 Resorts World Berhad 208,000 285 Road Builder (Malaysia) Holdings Berhad 440,000 509 Rothmans of Pall Mall (Malaysia) Berhad 95,700 863 S P Setia Berhad Group 316,000 183 Sime Darby Berhad 142,000 163 Tan Chong Motor Holdings 800,000 265 Tanjong PLC 30,000 66 Telekom Malaysia Berhad 420,044 967 Tenaga Nasional Berhad 318,000 724 UMW Holdings Berhad 215,000 365 YTL Corp. Berhad 91,000 98 ------ 10,328 ------ MEXICO - 12.1% Alfa SA de CV Class A 39,000 35 America Movil SA de CV - ADR 276,074 4,140 Apasco SA de CV 27,400 118 Carso Global Telecom Series A1 (a) 379,809 711 Cemex SA de CV 302,232 1,385 Cemex SA de CV - ADR 112,761 2,594 Cemex SA de CV - ADR 2002 Warrants (a) 20,000 5 Cifra SA de CV 568,600 1,228 Coca-Cola Femsa SA - ADR 60,750 1,220 Compania Cervecerias Unidas SA - ADR 43,800 693 Consorico ARA SA de CV (a) 219,400 298 Controladora Comercial Mexicana SA de CV Units 1,000,000 593 Corporacion Interamericana de Entretenimiento SA Series B (a) 348,000 551 Cydsa SA Series A (a) 277,000 105 Empresa Nacional de Electricidad SA - ADR 30,643 267 Fomento Economico Mexicano SA de CV 93,800 293 Fomento Economico Mexicano SA de CV Series B - ADR 52,150 1,617 Grupo Aeroportuario del Sureste SA de CV - ADR (a) 15,700 193 Grupo Elektra SA 125,000 61 Grupo Financiero Banorte SA de CV (a) 632,500 1,020 Grupo Financiero BBVA Bancomer SA de CV Series O (a) 1,963,800 1,487 Grupo Financiero Inbursa SA de CV Class O (a) 57,200 142 Grupo Industrial Durango SA - ADR (a) 17,250 92 Grupo Iusacell SA de CV - ADR (a) 79,444 207 Grupo Modelo SA de CV Series C 258,800 595 Grupo Television SA de CV - GDR (a) 50,645 1,542 Hylsamex, SA de CV Class B (a) 230,000 72 Kimberly-Clark, Mexico Class A 272,600 741 Nuevo Grupo Mexico SA Series B 225,100 267 Organizacion Soriana SA de CV Series B (a) 187,150 408 Panamerican Beverages, Inc. Class A 73,650 1,167 Pepsi-Gemex SA - GDR (a) 52,200 267 Telefonos de Mexico SA Series L - ADR 244,174 8,317 Tubos de Acero de Mexico SA - ADR 29,500 277 TV Azteca SA de CV - ADR 29,100 140 Wal-Mart de Mexico SA de CV Series V 588,000 1,402 ------ 34,250 ------ NETHERLANDS ANTILLES - 0.2% Merrill Lynch LEP Warrants TSMC 2002 Rights (a) 270,603 478 ------ PANAMA - 0.3% Banco Latinoamericano de Exportaciones SA Class E 24,600 718 ------ PERU - 0.5% Compania de Minas Buenaventura SA Series B 21,800 219 Compania de Minas Buenaventura Series B - ADR 46,050 933 Credicorp, Ltd. 12,150 98 Southern Peru Copper Corp. 2,550 22 Volcan Compania Minera SA Series B 306,400 27 ------ 1,299 ------ 92 Emerging Markets Fund EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------ PHILIPPINES - 1.0% Ayala Corp. 160,800 14 Ayala Land, Inc. 3,100,000 263 Equitable PCI Bank 620,200 215 Manila Electric Co. Class B (a) 1,632,040 1,037 Metropolitan Bank & Trust Co. (a) 133,870 425 Philippine Long Distance Telephone Co. 16,000 117 Philippine Long Distance Telephone Co. - ADR 16,000 115 SM Prime Holdings 3,000,000 323 Universal Robina Corp. 3,534,300 279 ------ 2,788 ------ POLAND - 2.0% Bank Polska Kasa Opieki Grupa Pekao SA (a) 68,554 1,266 Bank Polska Kasa Opieki SA - GDR (a) 9,600 175 Bank Zachodni WBK SA (a) 18,730 194 BRE Bank SA 3,770 99 Elektrim Spolka Akcyjna SA (a) 60,614 305 KGHM Polska Miedz SA - GDR 14,504 81 Polski Koncern Naftowy Orlen SA 100,000 456 Polski Koncern Naftowy SA - GDR 109,081 992 Powszechny Bank Kredytowy - GDR 15,080 347 Telekomunikacja Polska SA (a) 120,000 447 Telekomunikacja Polska SA Class S - GDR (a) 325,608 1,188 ------ 5,550 ------ RUSSIA - 3.2% JSC Mining and Smelting Co. Norilsk Nickel - ADR (a) 23,650 278 Lukoil Oil Co. - ADR 30,816 1,362 Mobile Telesystems - ADR (a) 50,536 1,431 Mosenergo - ADR 65,400 209 OAO Gazprom - ADR (a) 23,100 199 Surgutneftegaz SP - ADR 191,866 2,433 Unified Energy Systems - ADR 36,687 360 Unified Energy Systems - GDR 43,738 429 Vimpel-Communications - ADR (a) 55,766 1,104 YUKOS - ADR 23,900 1,336 ------ 9,141 ------ SINGAPORE - 0.0% Golden Agri-Resources, Ltd. (a) 814,300 36 ------ SOUTH AFRICA - 8.3% AECI, Ltd. 544,300 825 African Bank Investments, Ltd. 631,500 586 Amalgamated Banks of South Africa 397,367 1,398 Anglo American Platinum Corp., Ltd. 42,930 1,402 Anglo American PLC 12,000 155 AngloGold, Ltd. 6,610 223 Anglovaal Industries, Ltd. 110,000 141 Barlow, Ltd. 87,037 459 Billiton PLC 56,500 242 BOE, Ltd. 416,900 163 Driefontein Consolidated 103,000 462 FirstRand, Ltd. 1,982,810 1,609 Forbes Group, Ltd. 489,368 739 Gencor, Ltd. 37,900 116 Harmony Gold Mining Co., Ltd. 66,699 391 Impala Platinum Holdings, Ltd. 27,950 994 Imperial Holdings, Ltd. 43,941 266 Investec Group, Ltd. 12,400 210 Iscor, Ltd. (a) 74,960 245 JD Group, Ltd. 59,400 207 Liberty Life Association of Africa 18,021 102 M-Cell, Ltd. 136,200 216 Metro Cash & Carry, Ltd. 558,762 110 Murray & Roberts Holdings, Ltd. (a) 150,900 121 Nasionale Pers Beperk Class N 53,000 102 Nedcor, Ltd. 14,127 201 PepsiCo International, Inc. (a) 1,190 5 Primedia, Ltd. 555,000 223 Profurn, Ltd. (a) 754,290 42 Rembrandt Group, Ltd. (a) 38,900 72 Remgro, Ltd. 104,900 713 Sanlam, Ltd. 1,822,200 1,699 Sappi, Ltd. 221,600 2,065 Sasol, Ltd. 459,243 4,005 South African Breweries PLC 157,600 975 Standard Bank Investment Corp., Ltd. 294,563 968 Steinhoff International Holdings, Ltd. 447,200 372 Super Group, Ltd. 111,700 108 Tongaat-Hulett Group, Ltd. 103,000 475 ------ 23,407 ------ SOUTH KOREA - 15.3% Daeduck Electronics Co., Ltd. 60,400 449 Daelim Industrial Co. 150,000 1,290 Good Morning Securities Co. (a) 263,540 725 Hana Bank 30,400 237 Hanil Cement Manufacturing Co., Ltd. 54,500 815 Hankuk Glass Industries, Inc. 60,750 769 Hanwha Chemical Corp. (a) 107,000 221 Hite Brewery Co., Ltd. 8,210 299 Hyundai Industrial Development & Construction 106,500 522 Hyundai Mobis 13,000 146 Hyundai Motor Co., Ltd. 67,208 1,083 Hyundai Securities Co. (a) 106,200 601 Emerging Markets Fund 93 EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------ Kookmin Bank 226,188 3,504 Kookmin Credit Card Co., Ltd. 26,996 724 Korea Electric Power Corp. 133,968 2,117 Korea Electric Power Corp. - ADR 13,148 115 Korea Telecom Corp. 24,050 894 Korea Telecom Corp. - ADR 111,479 2,323 Korea Telecom Freetel (a) 57,000 1,545 Korea Tobacco & Ginseng Corp. 40,600 579 Korea Tobacco & Ginseng Corp. 2002 Warrants (a) 16,000 223 LG Cable & Machinery, Ltd. 46,960 480 LG Chemical, Ltd. (a) 43,352 537 LG Electronics, Inc. 63,920 666 LG Household & Health Care, Ltd. (a) 11,180 243 Lotte Confectionery Co. 5,200 1,071 Lucky Development Co. 19,200 171 Pohang Iron & Steel Co., Ltd. 34,841 2,402 Pohang Iron & Steel Co., Ltd. - ADR 19,000 326 S-Oil Corp. 37,430 1,176 S1 Corp. 55,181 697 Samsung Display Devices Co. 7,062 284 Samsung Electro-Mechanics Co. 40,170 902 Samsung Electronics Co., Ltd. 45,020 6,050 Samsung Electronics Co., Ltd. - GDR (a) 34,419 983 Samsung Electronics Co., Ltd. - GDR (a) 6,900 520 Samsung Fire & Marine Insurance 21,790 684 Samsung Securities Co., Ltd. (a) 42,498 1,104 Seoul City Gas Co., Ltd. 17,000 209 Shinhan Financial Group Co., Ltd. (a) 157,860 1,363 SK Telecom Co., Ltd. 19,400 3,688 SK Telecom Co., Ltd. - ADR 23,900 504 Tae Young Corp. 11,439 230 ------ 43,471 ------ SRI LANKA - 0.1% Development Finance Corp. of Ceylon 116,665 121 John Keells Holdings, Ltd. 195,906 114 ------ 235 ------ SWITZERLAND - 0.0% UBS AG 2001 Warrants (a) 39,480 97 ------ TAIWAN - 8.6% Acer Communications & Multimedia, Inc. 541,000 452 Acer, Inc. - GDR 315,494 480 Ambit Microsystems Corp. 202,400 813 ASE Test, Ltd. (a) 17,800 146 Asia Cement Corp. - GDR 189,639 465 Asustek Computer, Inc. 111,000 380 Asustek Computer, Inc. - GDR (Regd) 165,075 570 Bank Sinopac 450,000 181 Cathay Life Insurance 1,093,235 1,261 China Development Industrial Bank 1,470,016 771 China Steel Corp. 1,308,000 510 China Steel Corp. - GDS (a) 84,587 664 Chinatrust Commercial Bank 739,766 375 Chung Hwa Pulp Corp. 749,000 132 Chunghwa Telecom Co., Ltd. 150,000 204 Compal Electronics, Inc. - GDR 99,860 409 Compeq Manufacturing Co., Ltd. (a) 81,000 81 Far Eastern Textile Co., Ltd. 1,800,000 522 Far Eastern Textile, Ltd. - GDR 3,469 10 Faraday Technology Corp. 122,500 479 First Commercial Bank 253,000 128 Foreign & Colonial Emerging Markets Taiwan Investment Co. (a) 191,200 1,321 Formosa Plastics Corp. 274,000 222 Hon Hai Precision Industry Co. 112,000 416 Hon Hai Precision Industry Co., Ltd. - GDR 69,200 543 Macronix International Co., Ltd. 174,000 104 MediaTek, Inc. 62,600 539 Nan Ya Plastic Corp. 400,000 214 Phoenixtec Power Co., Ltd. 491,532 258 Quanta Computer, Inc. 214,500 460 Realtek Semiconductor Corp. 70,000 206 Ritek Corp. - GDR 109,133 207 Salomon Smith Barney (a) 237,000 731 Sunplus Technology Co., Ltd. 359,100 697 Sunplus Technology Co., Ltd. - GDR 10,549 40 Taiwan Semiconductor Manufacturing Co., Ltd. (a) 2,811,900 4,971 Topco Scientific Co., Ltd. (a) 44,000 136 United Microelectronics Corp. (a) 2,062,600 1,698 United Microelectronics Corp. - ADR (a) 285,890 1,630 Via Technologies, Inc. 88,000 219 Winbond Electronics Corp. - GDR 87,147 288 Yageo Corp. (a) 580,000 338 Yuanta Core Pacific Securities Co. 458,000 202 ------ 24,473 ------ THAILAND - 1.2% Advanced Info Service PLC (a) 508,000 472 Advanced Info Service PLC - Receipt (a) 62,000 57 Bangkok Expressway PLC (Alien Market) 225,000 44 BEC World Public Co., Ltd. (Alien Market) 158,800 675 Electricity Generating Public Co., Ltd. (Alien Market) 54,000 43 National Petrochemical PLC (Alien Market) 594,000 379 94 Emerging Markets Fund EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ---------- ------- PTT Exploration and Production Public Co., Ltd. 314,600 693 Siam Cement Public Co., Ltd. (Alien Market) (a) 8,900 96 Siam City Cement Public Co., Ltd. (Alien Market) 145,000 441 Siam Makro Public Co., Ltd. (Alien Market) 3,000 3 TelecomAsia Public Co., Ltd. (Alien Market) (a) 353,000 69 Thai Farmers Bank (Alien Market) (a) 949,300 356 Thai Union Frozen Products PLC 22,500 35 ------- 3,363 ------- TURKEY - 2.5% Akbank TAS 84,946,080 168 Anadolu Efes Biracilik ve Malt Sanayii AS 48,696,520 962 Arcelik AS 21,987,570 145 Brisa Bridgestone Sabanci Lastik San. Ve Tic AS 12,650,000 206 Dogan Sirketler Grubu Holding AS 23,086,500 17 ENKA Holding 3,993,000 269 Ford Otomotiv Sanayi AS 38,742,750 267 Haci Omer Sabanci Holding AS (a) 83,655,928 267 Haci Omer Sabanci Holding AS - ADR 181,855 164 Koc Holding AS 19,140,772 342 Migros Turk TAS 13,599,666 844 Sasa Suni ve Sentetik Elyaf Sanayii Anonim Sirketi 5,000,000 38 Tofas Turk Otomobil Fabrikasi AS (a) 56,000,000 344 Tupras - Turkiye Petrol Rafinerileri AS 120,866,660 796 Turkcell Iletisim Hizmetleri AS (a) 84,061,601 416 Turkcell Iletisim Hizmetleri AS - ADR (a) 11,056 139 Turkiye Garanti Bankasi AS (a) 82,956,056 83 Turkiye Is Bankasi 88,905,978 318 Vestel Elektronik Sanayi ve Ticaret AS 101,679,000 175 Yapi ve Kredi Bankasi AS (a) 571,006,360 1,038 ------- 6,998 ------- UNITED KINGDOM - 0.8% Billiton PLC 57,600 245 Dimension Data Holdings PLC (a) 274,105 299 Genesis Smaller Companies Fund (a) 144,535 1,698 Merrill Lynch & Co. 2002 Warrants (a) 52,000 92 ------- 2,334 ------- VENEZUELA - 0.2% Companhia Anonima Nacional Telefonos de Venezuela - ADR 21,200 480 Siderurgica Venezolana "Sivensa" SACA Class A (a) 1,290,366 3 ------- 483 ------- ZIMBABWE - 0.2% Delta Corp. 1,010,343 492 OK Zimbabwe (a) 3,361,654 64 ------- 556 ------- TOTAL COMMON STOCKS (cost $292,915) 237,260 ------- NOTIONAL AMOUNT (000) $ ---------- OPTIONS PURCHASED - 0.3% (a) Bovespa Index Futures (Brazil) Dec 11,670.00 Call -- 40 Dec 11,118.00 Call -- 22 ------- 62 ------- All Share Index Futures (South Africa) Mar 8,780.72 Call 1 41 Mar 8,486.00 Call 1 28 Mar 8,999.66 Call -- 12 Mar 8,190.00 Call 1 29 Mar 8,317.60 Call 1 26 ------- 136 ------- Kospi 200 Index Futures (South Korea) Dec 57.2475 Call 36,000 561 Dec 56.10 Call 10,000 155 ------- 716 ------- TOTAL OPTIONS PURCHASED (cost $911) 914 ------- NUMBER OF SHARES ---------- PREFERRED STOCKS - 7.5% BRAZIL - 6.2% Aracruz Celulose SA - ADR 26,350 461 Banco Bradesco SA 262,243,856 995 Banco Itau SA 17,840,880 1,132 Brasil Telecom SA 18,663,884 71 Centrais Electricas Brasilieras SA 19,000,000 234 CIA Energetica De Minas Gerais (a) 25,367,000 251 Emerging Markets Fund 95 EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ----------- ------- Companhia Brasileira de Distribuicao Grupo Pao de Acucar - ADR 57,520 873 Companhia de Bebidas das Americas 6,313,710 1,027 Companhia de Bebidas das Americas - ADR 48,800 793 Companhia Paranaense de Energia - Copel Class B 73,014,000 362 Companhia Paranaense de Energia - Copel Class B - ADR 11,150 54 Companhia Vale Do Rio Doce Series A 87,100 1,815 Coteminas (Cia Tec) 5,069,518 263 Duratex SA 5,401,680 78 Eletropaulo Metropolitana- Electricidade de Sao Paulo SA 12,723,000 306 Embraer Aircraft Corp. - ADR 11,860 204 Embratel Participacoes SA 15,852,500 45 Embratel Participacoes SA - ADR 26,000 70 Gerdau SA 26,855,000 188 Itausa Investimentos Itau SA 1,128,781 794 Petroleo Brasileiro Petrobras SA - ADR 90,775 1,752 Petroleo Brasileiro SA 93,920 1,804 Tele Celular Sul Participacoes SA 69,313,296 74 Tele Centro Oeste Celular Participacoes SA 50,953,000 87 Tele Centro Sul Participacoes SA 29,353,200 162 Tele Norte Leste Participacoes SA 36,010,753 363 Tele Norte Leste Participacoes SA - ADR 102,296 1,039 Telecomunicacoes Brasileiras SA - ADR 9,200 238 Telemig Celular Participacoes SA 92,041,000 111 Telesp Celular Participacoes SA 131,868,180 267 Telesp Celular Participacoes SA - ADR 10,600 54 Uniao de Bancos Brasileiros SA (Units) 5,807,000 182 Usinas Siderurgicas de Minas Gerais SA 216,200 316 Votorantim Celulose e Papel SA - ADR 35,390,000 1,058 ------- 17,523 ------- RUSSIA - 0.3% Lukoil Holding Oil Co. - ADR 34,560 691 ------- SOUTH KOREA - 0.5% Daishin Securities 85,300 388 Samsung Electronic, Ltd. 18,990 1,084 ------- 1,472 ------- THAILAND - 0.5% Siam Commercial Bank Public Co., Ltd. (a) 4,421,100 1,459 ------- TOTAL PREFERRED STOCKS (cost $26,810) 21,145 ------- PRINCIPAL AMOUNT (000) $ --------- LONG-TERM INVESTMENTS - 0.0% Taiwan - 0.0% Far Eastern Textile, Ltd. (conv.)(a) Zero Coupon due 01/26/05 65 62 ------- TOTAL LONG-TERM INVESTMENTS (cost $65) 62 ------- SHORT-TERM INVESTMENTS - 7.1% UNITED STATES - 7.1% Frank Russell Investment Company Money Market Fund (b) 17,731 17,731 United States Treasury Bills (c)(d)(e) Zero Coupon due 12/20/01 2,400 2,392 ------- TOTAL SHORT-TERM INVESTMENTS (cost $20,123) 20,123 ------- TOTAL INVESTMENTS - 98.8% (identified cost $340,824) 279,504 OTHER ASSETS AND LIABILITIES, NET - 1.2% 3,318 ------- NET ASSETS - 100.0% 282,822 ======= (a) Nonincome-producing security. (b) At net asset value. (c) At amortized cost, which approximates market. (d) Held as collateral in connection with futures contracts purchased by the Fund. (e) Rate noted is yield-to-maturity from date of acquisition. Abbreviations: ADR - American Depositary Receipt GDR - Global Depositary Receipt GDS - Global Depositary Share 144A - Represents private placement security for qualified buyers according to rule 144A of the Securities Act of 1933. See accompanying notes which are an integral part of the financial statements. 96 Emerging Markets Fund EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) FUTURES CONTRACTS $ (000) -------- ------------ SIMEX Index Futures Contracts (Taiwan) expiration date 11/01 1,908 $ (98) DAX Index Futures Contracts (Germany) expiration date 12/01 1,237 (35) Hang Seng Index Futures Contracts (Hong Kong) expiration date 11/01 1,672 (56) ----------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ (189) =========== NOTIONAL MARKET AMOUNT VALUE (000) (000) OPTIONS WRITTEN $ $ -------- ------- Bovespa Index Futures (Brazil) Dec 11,670.00 Put -- 66 Dec 11,118.33 Put -- 10 Kospi 200 Index Futures (South Korea) Dec 57.2475 Put 36 333 Dec 56.10 Put 10 82 All Share Index Futures (South Africa) Mar 8,780.72 Put 1 81 Mar 8,486.00 Put 1 41 Mar 8,999.66 Put -- 28 Mar 8,190.00 Put 1 27 Mar 8,317.60 Put 1 31 ------- Total Liability for Options Written (premiums received $551) 699 ======= MARKET % OF VALUE NET (000) INDUSTRY DIVERSIFICATION ASSETS $ ------- ------- Auto &Transportation 2.1% 5,919 Consumer Discretionary 5.3 14,891 Consumer Staples 7.0 19,920 Energy 8.7 24,778 Financial Services 19.2 54,171 Health Care 1.9 5,279 Materials & Processing 11.8 33,239 Miscellaneous 0.6 1,759 Producer Durables 5.7 16,052 Technology 7.9 22,270 Utilities 21.2 60,127 Options Purchased 0.3 914 Short-Term Investments 7.1 20,123 Long-Term Investments 0.0 62 ------- ------- Total Investments 98.8 279,504 Other Assets and Liabilities, net 1.2 3,318 ------- ------- NET ASSETS 100.0% 282,822 ======= ======= MARKET % OF VALUE NET (000) GEOGRAPHIC DIVERSIFICATION ASSETS $ ------- ------- Europe 6.6% 18,502 Latin America 23.6 66,751 Pacific Basin 38.9 110,103 Middle East 9.6 27,115 Africa 9.1 25,623 Other 3.6 10,311 Options Purchased 0.3 914 Short-Term Investments 7.1 20,123 Long-Term Investments 0.0 62 ------- ------- Total Investments 98.8 279,504 Other Assets and Liabilities, net 1.2 3,318 ------- ------- NET ASSETS 100.0% 282,822 ======= ======= See accompanying notes which are an integral part of the financial statements. Emerging Markets Fund 97 EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - ------------ -------------- ---------- ------------ USD 463 BRL 1,300 12/12/01 $ 5 USD 1,682 BRL 4,700 12/12/01 8 USD 269 EUR 300 12/12/01 -- USD 459 EUR 500 12/12/01 (10) USD 1,199 EUR 1,300 12/12/01 (32) USD 307 KRW 400,000 12/12/01 2 USD 1,538 KRW 2,000,000 12/12/01 7 EUR 600 USD 551 12/12/01 13 USD 211 ZAR 2,000 12/12/01 1 USD 535 ZAR 5,000 12/12/01 (6) USD 1,826 ZAR 16,000 12/12/01 (132) ----------- $ (144) =========== FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - ------------ -------------- ---------- ------------ USD 65 BRL 172 11/05/01 $ (1) USD 65 BRL 177 11/01/01 -- USD 25 CZK 957 11/01/01 -- USD 93 CZK 3,447 11/02/01 (1) USD 148 CZK 5,581 11/01/01 1 USD 39 GBP 26 11/01/01 -- USD 14 HKD 109 11/01/01 -- USD 21 HKD 164 11/01/01 -- USD 40 HKD 314 11/01/01 -- USD 57 HKD 443 11/01/01 -- USD 108 HKD 846 11/01/01 -- USD 115 HKD 895 11/01/01 -- USD 159 HKD 1,242 11/01/01 -- USD 171 HKD 1,335 11/01/01 -- USD 217 HKD 1,690 11/01/01 -- USD 216 HUF 61,075 11/05/01 -- USD 257 HUF 71,978 11/06/01 (4) USD 16 THB 709 11/01/01 -- USD 117 TRL116,718,799 11/01/01 -- BRL 19 USD 7 11/01/01 -- BRL 32 USD 12 11/05/01 -- BRL 115 USD 43 11/01/01 -- BRL 176 USD 64 11/05/01 (1) HKD 5 USD 1 11/01/01 -- HUF 6,362 USD 22 11/05/01 -- HUF 11,133 USD 39 11/07/01 -- HUF 15,904 USD 57 11/05/01 1 HUF 69,517 USD 245 11/08/01 -- KRW 99,900 USD 77 11/01/01 -- MXN 17 USD 2 11/01/01 -- MXN 118 USD 13 11/01/01 -- MXN 252 USD 27 11/01/01 -- MXN 310 USD 33 11/01/01 -- MXN 1,353 USD 146 11/01/01 -- MYR 3 USD 1 11/01/01 -- MYR 87 USD 23 11/05/01 -- ZAR 4 USD -- 11/06/01 -- ZAR 9 USD 1 11/01/01 -- ZAR 37 USD 4 11/05/01 -- ZAR 130 USD 14 11/06/01 -- ZAR 168 USD 18 11/02/01 -- ZAR 268 USD 28 11/01/01 -- ZAR 577 USD 61 11/06/01 -- ZAR 581 USD 61 11/06/01 -- ZAR 636 USD 67 11/05/01 -- ZAR 1,021 USD 110 11/02/01 2 ZAR 1,067 USD 113 11/05/01 -- USD 5 ZAR 43 11/02/01 -- See accompanying notes which are an integral part of the financial statements. 98 Emerging Markets Fund EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - ------------ -------------- ---------- ------------ USD 5 ZAR 44 11/05/01 $ -- USD 6 ZAR 55 11/06/01 -- USD 35 ZAR 325 11/01/01 -- ------------ $ (3) ============ See accompanying notes which are an integral part of the financial statements. Emerging Markets Fund 99 EMERGING MARKETS FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001
ASSETS Investments at market (identified cost $340,824) ..................................... $ 279,504 Cash ................................................................................. 1,690 Foreign currency holdings (identified cost $3,728) ................................... 3,949 Unrealized appreciation on forward foreign currency exchange contracts ............... 36 Unrealized appreciation on foreign currency exchange spot contracts .................. 4 Receivables: Dividends and interest ............................................................. 337 Investments sold ................................................................... 3,932 Fund shares sold ................................................................... 746 ------------ Total assets ..................................................................... 290,198 LIABILITIES Payables: Investments purchased .................................................. $ 5,365 Fund shares redeemed ................................................... 344 Accrued fees to affiliates ............................................. 533 Other accrued expenses ................................................. 244 Daily variation margin on futures contracts ............................ 4 Unrealized depreciation on forward foreign currency exchange contracts ... 180 Unrealized depreciation on foreign currency exchange spot contracts ...... 7 Options written, at market value (premiums received $551) ................ 699 -------- Total liabilities ................................................................ 7,376 ------------ NET ASSETS ........................................................................... $ 282,822 ============ NET ASSETS CONSIST OF: Accumulated distributions in excess of net investment income ......................... $ (1,269) Accumulated net realized gain (loss) ................................................. (132,339) Unrealized appreciation (depreciation) on: Investments ........................................................................ (61,320) Futures contracts .................................................................. (189) Options written .................................................................... (148) Foreign currency-related transactions .............................................. 23 Shares of beneficial interest ........................................................ 401 Additional paid-in capital ........................................................... 477,663 ------------ NET ASSETS ........................................................................... $ 282,822 ============ NET ASSET VALUE, offering and redemption price per share: Class C ($2,377,457 divided by 344,821 shares of $.01 par value shares of beneficial interest outstanding)......................................... $ 6.89 ============ Class E ($6,958,637 divided by 992,108 shares of $.01 par value shares of beneficial interest outstanding)......................................... $ 7.01 ============ Class S ($273,486,308 divided by 38,811,326 shares of $.01 par value shares of beneficial interest outstanding)......................................... $ 7.05 ============
See accompanying notes which are an integral part of the financial statements. 100 Emerging Markets Fund EMERGING MARKETS FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Dividends...................................................................... $ 8,262 Dividends from Money Market Fund............................................... 773 Less foreign taxes withheld.................................................... (743) ---------------- Total investment income...................................................... 8,292 EXPENSES Advisory fees................................................ $ 3,767 Administrative fees.......................................... 188 Custodian fees............................................... 1,124 Distribution fees - Class C.................................. 18 Transfer agent fees.......................................... 1,497 Professional fees............................................ 98 Registration fees............................................ 67 Shareholder servicing fees - Class C......................... 6 Shareholder servicing fees - Class E......................... 18 Trustees' fees............................................... 15 Miscellaneous................................................ 104 ------------ Expenses before reductions................................... 6,902 Expense reductions........................................... (12) ------------ Expenses, net................................................................ 6,890 ---------------- Net investment income............................................................ 1,402 ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments.................................................. (62,819) Futures contracts............................................ (758) Options written.............................................. (212) Foreign currency-related transactions........................ (1,898) (65,687) ------------ Net change in unrealized appreciation (depreciation) on: Investments.................................................. (23,295) Futures contracts............................................ (189) Options written.............................................. (148) Foreign currency-related transactions........................ 87 (23,545) ------------ ---------------- Net realized and unrealized gain (loss).......................................... (89,232) ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............................ $ (87,830) ================
See accompanying notes which are an integral part of the financial statements. Emerging Markets Fund 101 EMERGING MARKETS FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ----------------- ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income ......................................... $ 1,402 $ 91 $ 879 Net realized gain (loss) ...................................... (65,687) 6,888 (4,225) Net change in unrealized appreciation (depreciation)........... (23,545) (130,418) 153,335 ----------------- ---------------- ----------------- Net increase (decrease) in net assets from operations........ (87,830) (123,439) 149,989 ----------------- ---------------- ----------------- DISTRIBUTIONS From net investment income Class C...................................................... -- (3) -- Class E...................................................... -- (22) (16) Class S...................................................... -- (2,029) (3,161) ----------------- ---------------- ----------------- Net decrease in net assets from distributions............. -- (2,054) (3,177) ----------------- ---------------- ----------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions.. 2,835 54,571 (2,461) ----------------- ---------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS...................... (84,995) (70,922) 144,351 NET ASSETS Beginning of period ........................................... 367,817 438,739 294,388 ----------------- ---------------- ----------------- End of period (including accumulated distributions in excess of net investment income of $1,269, $1,218 and $2,814, respectively)..................................... $ 282,822 $ 367,817 $ 438,739 ================= ================ =================
See accompanying notes which are an integral part of the financial statements. 102 Emerging Markets Fund EMERGING MARKETS FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** --------- ---------- --------- NET ASSET VALUE, BEGINNING OF PERIOD .................................... $ 9.15 $ 12.47 $ 8.07 --------- ---------- --------- INCOME FROM OPERATIONS Net investment income (a) ............................................. (.04) (.10) (.12) Net realized and unrealized gain (loss) ............................... (2.22) (3.20) 4.57 --------- ---------- --------- Total income from operations ........................................ (2.26) (3.30) 4.45 --------- ---------- --------- DISTRIBUTIONS From net investment income ............................................ -- (.02) (.05) --------- --------- --------- NET ASSET VALUE, END OF PERIOD .......................................... $ 6.89 $ 9.15 $ 12.47 ========= ========= ========= TOTAL RETURN (%)(b) ..................................................... (24.70) (26.51) 55.43 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) .............................. 2,377 2,228 1,631 Ratios to average net assets (%)(c): Operating expenses, net ............................................. 3.08 2.91 2.91 Operating expenses, gross ........................................... 3.09 2.92 2.91 Net investment income ............................................... (.55) (1.02) (1.23) Portfolio turnover rate (%) ........................................... 83.74 73.11 94.85
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period January 27, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Emerging Markets Fund 103 EMERGING MARKETS FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ------------------------ 2001* 2000** 1999 1998*** ------- --------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD ........................................... $ 9.24 $ 12.51 $ 8.48 $ 7.37 ------- --------- ---------- ---------- INCOME FROM OPERATIONS Net investment income (a) .................................................... .02 (.03) (.04) (.02) Net realized and unrealized gain (loss) ...................................... (2.25) (3.20) 4.14 1.13 ------- --------- ---------- ---------- Total income from operations ............................................... (2.23) (3.23) 4.10 1.11 ------- --------- ---------- ---------- DISTRIBUTIONS From net investment income ................................................... -- (.04) (.07) -- ------- --------- ---------- ---------- NET ASSET VALUE, END OF PERIOD ................................................. $ 7.01 $ 9.24 $ 12.51 $ 8.48 ======= ========= ========== ========== TOTAL RETURN (%)(b) ............................................................ (24.13) (25.90) 48.71 15.06 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ..................................... 6,959 6,388 6,314 39 Ratios to average net assets (%)(c)(d): Operating expenses, net .................................................... 2.33 2.16 2.17 -- Operating expenses, gross .................................................. 2.33 2.17 2.17 -- Net investment income ...................................................... .21 (.30) (.40) -- Portfolio turnover rate (%) .................................................. 83.74 73.11 94.85 59.35
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period September 22, 1998 (commencement of sale) to December 31, 1998. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. (d) The ratios for the period ended December 31, 1998 are not meaningful due the Class's short period of operation. 104 Emerging Markets Fund EMERGING MARKETS FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, --------------------------------------------- 2001* 2000** 1999 1998 1997 1996 -------- --------- ---------- --------- ---------- -------- NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 9.25 $ 12.52 $ 8.48 $ 11.79 $ 12.35 $ 11.16 -------- --------- ---------- --------- ---------- -------- INCOME FROM OPERATIONS Net investment income (a)***..................... .04 -- .03 .12 .14 .10 Net realized and unrealized gain (loss) ......... (2.24) (3.21) 4.10 (3.35) (.56) 1.26 -------- --------- ---------- --------- ---------- -------- Total income from operations................... (2.20) (3.21) 4.13 (3.23) (.42) 1.36 -------- --------- ---------- --------- ---------- -------- DISTRIBUTIONS From net investment income ...................... -- (.06) (.09) (.08) (.14) (.17) -------- --------- ---------- --------- ---------- -------- NET ASSET VALUE, END OF PERIOD .................... $ 7.05 $ 9.25 $ 12.52 $ 8.48 $ 11.79 $ 12.35 ======== ========= ========== ========= ========== ======== TOTAL RETURN (%)(b) ............................... (23.89) (25.79) 49.03 (27.57) (3.45) 12.26 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ........ 273,486 359,201 430,794 294,349 333,052 271,490 Ratios to average net assets (%)(c): Operating expenses, net ....................... 2.09 1.91 1.91 1.75 1.64 1.71 Operating expenses, gross...................... 2.09 1.92 1.91 1.75 1.64 1.72 Net investment income ......................... .44 (.02) .26 1.20 .87 .77 Portfolio turnover rate (%)...................... 83.74 73.11 94.85 59.35 50.60 34.62
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** Less than $.01 per share for the period ended October 31, 2000. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Emerging Markets Fund 105 REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To generate a high level of total return through above-average current income, while maintaining the potential for capital appreciation. INVESTS IN: Equity securities of companies in the real estate industry. STRATEGY: The Fund uses a multi-manager strategy intended to achieve higher returns with moderate risk. The fund empoyed the investment management services of three managers with distinct aproaches to investing inreal estate equity securities. GROWTH OF A $10,000 INVESTMENT Dates Real Estate Securities - Class S NAREIT Equity REIT** - ----- -------------------------------- -------------------- Inception* $10,000 $10,000 1992 $12,042 $11,738 1993 $15,756 $15,466 1994 $14,877 $14,541 1995 $16,575 $16,316 1996 $20,744 $20,348 1997 $27,313 $27,017 1998 $24,112 $23,561 1999 $23,051 $21,902 2000 $28,815 $25,906 2001 $31,545 $29,608 YEARLY PERIODS ENDED OCTOBER 31 REAL ESTATE SECURITIES FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ------------------ ------------ ----------- 1 Year $ 10,948 9.48% 5 Years $ 15,207 8.74%(S) 10 Years $ 31,545 12.16%(S) REAL ESTATE SECURITIES FUND - CLASS E++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ------------------ ------------ ----------- 1 Year $ 10,923 9.23% 5 Years $ 14,918 8.32%(S) 10 Years $ 30,946 11.95%(S) REAL ESTATE SECURITIES FUND - CLASS C++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ------------------ ------------ ----------- 1 Year $ 10,841 8.41% 5 Years $ 14,619 7.89%(S) 10 Years $ 30,325 11.72%(S) NAREIT EQUITY REIT INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ------------------ ------------ ----------- 1 Year $ 11,429 14.29% 5 Years $ 14,551 7.79%(S) 10 Years $ 29,608 11.47%(S) 106 Real Estate Securities Fund REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the year ended October 31, 2001, the Real Estate Securities Fund Class S, Class E and Class C shares gained 9.48%, 9.23%, and 8.41%, respectively. The Fund's benchmark, the NAREIT Equity REIT Index, returned 14.29% for the same period. The Fund's performance during the period reinforced the reasons for including real estate in a diversified portfolio. As the equities market continued to face increasing challenges over the past year, particularly from the technology sector, real estate showed improving strength as investors looked for an asset class to hedge against the volatility in the stock market. PORTFOLIO HIGHLIGHTS For most of the fiscal year, the best performing REIT stocks were last year's laggards. During the past fiscal year, the performance spread between sectors was extreme. The health care, self storage, and retail sectors of the REIT market have all performed exceptionally well, while the lodging and resorts sector was especially hard hit, with the majority of losses occurring in the wake of the September 11 terrorist attacks. During much of the past twelve months, the market maintained a cautious view, and rewarded those REITs with higher yields, lower valuations, and higher interest rate sensitivities. The consensus among the Fund's three managers was that the most attractive longer-term opportunities within the REIT market were in the office and industrial properties sector. Each of the Fund's managers was focused on identifying high quality properties that, in their views, had the best prospects for future dividend growth. As a result of the market's emphasis on near term caution, this strategy was not rewarded in 2001. Each of the Fund's three managers continued to have confidence in their methodologies, and continued to emphasize high earnings quality, income growth potential, and quality of cash flow generated. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 Equity Office Properties Trust 7.4% Avalonbay Communities, Inc. 5.4 Boston Properties, Inc. 4.5 Simon Property Group, Inc. 4.3 Equity Residential Properties Trust 4.2 Vornado Realty Trust 4.0 Apartment Investment & Management Co. Class A 3.9 Archstone-Smith Trust 3.8 Arden Realty Group, Inc. 3.5 Public Storage, Inc. 2.8 PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 15.9x Portfolio Price/Book Ratio 1.51x Market Capitalization - $-Weighted Average 3.22 Bil Number of Holdings 54 MONEY MANAGERS AEW Management & Advisors, LP Cohen & Steers Capital Management, Inc. Security Capital Global Capital Management Group, Inc. * Real Estate Securities Fund Class S assumes initial investment on November 1, 1991. ** NAREIT Equity REIT Index is an index composed of all the data based on the last closing price of the month for all tax-qualified REITs listed on the New York Stock Exchange, American Stock Exchange, and the NASDAQ National Market System. The data is market value-weighted. The total-return calculation is based upon whether it is 1-month, 3-months or 12-months. Only those REITs listed for the entire period are used in the total return calculation. ++ Real Estate Securities Fund Class S performance has been linked with Class E to provide historical perspective. For the period, November 4, 1996 (commencement of sale) through May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Real Estate Securities Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Real Estate Securities Fund 107 REAL ESTATE SECURITIES FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------- COMMON STOCKS (b) - 91.7% APARTMENT - 26.1% Amli Residential Properties Trust 138,100 3,222 Apartment Investment & Management Co. Class A 576,615 24,201 Archstone-Smith Trust (a) 983,124 23,792 Avalonbay Communities, Inc. 737,800 33,496 Camden Property Trust 155,429 5,409 Chateau Communities, Inc. 138,100 4,350 Equity Residential Properties Trust 1,022,976 26,546 Essex Property Trust, Inc. 272,800 12,781 Post Properties, Inc. 288,746 9,806 Smith (Charles E.) Residential Realty, Inc. 255,050 12,102 Summit Properties, Inc. 122,500 2,774 Sun Communities, Inc. 111,000 4,162 -------- 162,641 -------- HEALTH CARE - 2.6% Health Care Property Investors, Inc. 225,300 8,386 Nationwide Health Properties, Inc. 400,100 7,882 -------- 16,268 -------- HOTELS/LEISURE - 0.9% Hospitality Properties Trust 169,500 4,205 Starwood Hotels & Resorts Worldwide, Inc. Class B 70,400 1,552 -------- 5,757 -------- OFFICE/INDUSTRIAL - 37.9% AMB Property Corp. 671,600 16,327 Arden Realty Group, Inc. 883,750 21,767 Boston Properties, Inc. 794,850 28,098 Brandywine Realty Trust 333,900 6,591 Brookfield Properties Corp. 547,400 8,786 Cabot Industrial Trust 73,700 1,756 CarrAmerica Realty Corp. 234,000 6,625 Crescent Real Estate Equities, Co. 135,500 2,386 Duke-Weeks Realty Corp. 166,019 3,827 Equity Office Properties Trust 1,620,121 46,173 Highwoods Properties, Inc. 114,700 2,707 Kilroy Realty Corp. 358,300 8,388 Liberty Property Trust 545,100 14,609 Mack-Cali Realty Corp. 407,500 12,633 Plum Creek Timber Co., Inc. 95,700 2,644 Prentiss Properties Trust 558,000 14,173 ProLogis Trust 798,118 15,906 PS Business Parks, Inc. 43,700 1,227 Reckson Associates Realty Corp. 514,200 11,827 SL Green Realty Corp. 213,900 6,377 Trizec Hahn Corp. 249,000 3,981 -------- 236,808 -------- OUTLET CENTERS - 1.0% Chelsea Property Group, Inc. 142,000 6,362 -------- REGIONAL MALLS - 10.2% CBL & Associates Properties, Inc. 105,300 3,066 General Growth Properties, Inc. 384,800 14,091 Macerich Co. (The) 84,100 2,035 Rouse Co. (The) 277,900 7,300 Simon Property Group, Inc. 982,700 27,024 Taubman Centers, Inc. 736,000 9,907 -------- 63,423 -------- SELF STORAGE - 3.1% Public Storage, Inc. 528,856 17,394 Shurgard Storage Centers, Inc. Class A 75,100 2,258 -------- 19,652 -------- SHOPPING CENTER - 9.9% Capital Automotive 46,400 898 Developers Diversified Realty Corp. 182,400 3,320 Federal Realty Investment Trust 550,200 12,005 Kimco Realty Corp. 114,600 5,603 Pan Pacific Retail Properties, Inc. 448,700 12,451 Philips International Realty Corp. 92,700 273 Regency Centers Corp. 84,800 2,099 Vornado Realty Trust 645,400 25,300 -------- 61,949 -------- TOTAL COMMON STOCKS (cost $496,232) 572,860 -------- 108 Real Estate Securities Fund REAL ESTATE SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------- SHORT-TERM INVESTMENTS - 8.5% Frank Russell Investment Company Money Market Fund (c) 53,125 53,125 ------- TOTAL SHORT-TERM INVESTMENTS (cost $53,125) 53,125 ------- TOTAL INVESTMENTS - 100.2% (identified cost $549,357) 625,985 OTHER ASSETS AND LIABILITIES, NET - (0.2%) (1,572) ------- NET ASSETS - 100.0% 624,413 ======= (a) Nonincome-producing security. (b) All common stocks held are Real Estate Investment Trusts (REIT) with the exception of the following: Archstone-Smith Trust Brookfield Properties Corp. Chateau Communities, Inc. Chelsea Property Group, Inc. Plum Creek Timber Co., Inc. Starwood Hotels & Resorts Worldwide, Inc. Class B Trizek Hahn Corp. (c) At net asset value. See accompanying notes which are an integral part of the financial statements. Real Estate Securities Fund 109 REAL ESTATE SECURITIES FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (identified cost $549,357) ...................... $ 625,985 Receivables: Dividends ........................................................... 1,296 Investments sold .................................................... 17,680 Fund shares sold .................................................... 1,525 --------- Total assets ...................................................... 646,486 LIABILITIES Payables: Investments purchased ................................ $ 20,180 Fund shares redeemed ................................. 1,038 Accrued fees to affiliates ........................... 748 Other accrued expenses ............................... 107 --------- Total liabilities ................................................. 22,073 --------- NET ASSETS ............................................................ $ 624,413 ========= NET ASSETS CONSIST OF: Undistributed net investment income ................................... $ 1,254 Accumulated net realized gain (loss) .................................. (8,276) Unrealized appreciation (depreciation) on investments ................. 76,628 Shares of beneficial interest ......................................... 229 Additional paid-in capital ............................................ 554,578 --------- NET ASSETS ............................................................ $ 624,413 ========= NET ASSET VALUE, offering and redemption price per share: Class C ($5,717,972 divided by 212,045 shares of $.01 par value shares of beneficial interest outstanding) ......................... $ 26.97 ========= Class E ($11,415,238 divided by 420,671 shares of $.01 par value shares of beneficial interest outstanding) ......................... $ 27.14 ========= Class S ($607,279,522 divided by 22,238,481 shares of $.01 par value shares of beneficial interest outstanding) ......................... $ 27.31 =========
See accompanying notes which are an integral part of the financial statements. 110 Real Estate Securities Fund REAL ESTATE SECURITIES FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Dividends ............................................................... $ 41,674 Dividends from Money Market Fund ........................................ 1,363 -------- Total investment income ............................................... 43,037 EXPENSES Advisory fees ................................................. $ 5,384 Administrative fees ........................................... 367 Custodian fees ................................................ 287 Distribution fees - Class C ................................... 34 Transfer agent fees ........................................... 1,661 Professional fees ............................................. 60 Registration fees ............................................. 90 Shareholder servicing fees - Class C .......................... 12 Shareholder servicing fees - Class E .......................... 26 Trustees' fees ................................................ 16 Miscellaneous ................................................. 81 -------- Expenses before reductions .................................... 8,018 Expense reductions ............................................ (6) -------- Expenses, net ......................................................... 8,012 -------- Net investment income ..................................................... 35,025 -------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments ................................................... 24,629 Foreign currency-related transactions ......................... 2 24,631 -------- Net change in unrealized appreciation (depreciation) on investments ....... 4,162 -------- Net realized and unrealized gain (loss) ................................... 28,793 -------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ..................... $ 63,818 ========
See accompanying notes which are an integral part of the financial statements. Real Estate Securities Fund 111 REAL ESTATE SECURITIES FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ------------------ ----------------- ------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income ............................................. $ 35,025 $ 27,581 $ 33,298 Net realized gain (loss) .......................................... 24,631 (9,932) (22,242) Net change in unrealized appreciation (depreciation) .............. 4,162 94,886 (10,653) ---------------- ----------------- ------------------ Net increase (decrease) in net assets from operations ........... 63,818 112,535 403 ---------------- ----------------- ------------------ DISTRIBUTIONS From net investment income Class C ......................................................... (195) (78) (67) Class E ......................................................... (503) (266) (358) Class S ......................................................... (32,506) (21,539) (42,467) ---------------- ----------------- ------------------ Net decrease in net assets from distributions ................. (33,204) (21,883) (42,892) ---------------- ----------------- ------------------ SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions .... (88,217) (6,841) 63,525 ---------------- ----------------- ------------------ TOTAL NET INCREASE (DECREASE) IN NET ASSETS ......................... (57,603) 83,811 21,036 NET ASSETS Beginning of period ............................................... 682,016 598,205 577,169 ---------------- ----------------- ------------------ End of period (including undistributed net investment income of $1,254 and accumulated distributions in excess of net investment income of $570 and $6,282, respectively) .............. $ 624,413 $ 682,016 $ 598,205 ================ ================= ==================
See accompanying notes which are an integral part of the financial statements. 112 Real Estate Securities Fund REAL ESTATE SECURITIES FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** --------- --------- --------- NET ASSET VALUE, BEGINNING OF PERIOD................................... $ 25.93 $ 22.69 $ 24.13 --------- --------- --------- INCOME FROM OPERATIONS Net investment income (a)............................................ 1.16 .84 1.08 Net realized and unrealized gain (loss).............................. 1.02 3.11 (1.06) --------- --------- --------- Total income from operations....................................... 2.18 3.95 .02 --------- --------- --------- DISTRIBUTIONS From net investment income........................................... (1.14) (.71) (1.46) --------- --------- --------- NET ASSET VALUE, END OF PERIOD......................................... $ 26.97 $ 25.93 $ 22.69 ========= ========= ========= TOTAL RETURN (%)(b).................................................... 8.41 17.54 .19 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)............................. 5,718 3,393 1,771 Ratios to average net assets (%)(c): Operating expenses................................................. 2.17 2.16 2.14 Net investment income.............................................. 4.20 4.06 5.12 Portfolio turnover rate (%).......................................... 44.50 53.30 42.69
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period January 27, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Real Estate Securities Fund 113 REAL ESTATE SECURITIES FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, -------------------------------------------- 2001* 2000** 1999 1998 1997 1996*** -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ...................... $ 26.07 $ 22.76 $ 24.27 $ 31.02 $ 29.18 $ 26.67 -------- -------- -------- -------- -------- -------- INCOME FROM OPERATIONS Net investment income (a) ............................... 1.38 .98 1.28 1.26 1.14 .24 Net realized and unrealized gain (loss) ................. 1.03 3.14 (1.24) (6.12) 3.95 3.85 -------- -------- -------- -------- -------- -------- Total income from operations .......................... 2.41 4.12 .04 (4.86) 5.09 4.09 -------- -------- -------- -------- -------- -------- DISTRIBUTIONS From net investment income .............................. (1.34) (.81) (1.55) (1.43) (1.04) (.32) From net realized gain .................................. -- -- -- (.46) (2.21) (1.26) -------- -------- -------- -------- -------- -------- Total distributions ................................... (1.34) (.81) (1.55) (1.89) (3.25) (1.58) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD ............................ $ 27.14 $ 26.07 $ 22.76 $ 24.27 $ 31.02 $ 29.18 ======== ======== ======== ======== ======== ======== TOTAL RETURN (%)(b) ....................................... 9.23 18.24 .30 (16.25) 18.20 15.75 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ................ 11,415 9,094 7,134 843 388 101 Ratios to average net assets (%)(c): Operating expenses .................................... 1.42 1.41 1.39 1.47 1.71 1.77 Net investment income ................................. 4.96 4.78 5.42 4.90 3.94 5.31 Portfolio turnover rate (%) ............................. 44.50 53.30 42.69 42.58 49.40 51.75
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 114 Real Estate Securities Fund REAL ESTATE SECURITIES FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, -------------------------------------------- 2001* 2000** 1999 1998 1997 1996 -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ...................... $ 26.22 $ 22.86 $ 24.44 $ 30.86 $ 29.19 $ 23.51 -------- -------- -------- -------- -------- -------- INCOME FROM OPERATIONS Net investment income (a) ............................... 1.46 1.04 1.30 1.34 1.36 1.39 Net realized and unrealized gain (loss) ................. 1.03 3.15 (1.20) (6.13) 3.93 6.89 -------- -------- -------- -------- -------- -------- Total income from operations .......................... 2.49 4.19 .10 (4.79) 5.29 8.28 -------- -------- -------- -------- -------- -------- DISTRIBUTIONS From net investment income .............................. (1.40) (.83) (1.68) (1.17) (1.41) (1.34) From net realized gain .................................. -- -- -- (.46) (2.21) (1.26) -------- -------- -------- -------- -------- -------- Total distributions ................................... (1.40) (.83) (1.68) (1.63) (3.62) (2.60) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD ............................ $ 27.31 $ 26.22 $ 22.86 $ 24.44 $ 30.86 $ 29.19 ======== ======== ======== ======== ======== ======== TOTAL RETURN (%)(b) ....................................... 9.48 18.53 .55 (15.94) 18.99 36.81 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ................ 607,280 669,529 589,300 576,326 615,483 445,619 Ratios to average net assets (%)(c): Operating expenses, net ............................... 1.17 1.16 1.14 1.05 1.02 1.04 Operating expenses, gross ............................. 1.18 1.16 1.14 1.05 1.02 1.04 Net investment income ................................. 5.19 5.00 5.41 4.93 4.57 5.64 Portfolio turnover rate (%) ............................. 44.50 53.30 42.69 42.58 49.40 51.75
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Real Estate Securities Fund 115 SHORT-TERM BOND FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: The preservation of capital and the generation of current income consistent with the preservation of capital by investing primarily in fixed-income securities with low-volatility characteristics. INVESTS IN: Fixed-income securities with low-volatility characteristics. STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to achieve higher returns with moderate risk relative to other short-term bond investments. The Fund employed the investment management services of four managers using two approaches to investment in short-term fixed-income securities. GROWTH OF A $10,000 INVESTMENT Dates Short Term Bond - Class S++ ML 1-2.99** - ----- --------------------------- ----------- Inception* $10,000 $10,000 1992 $10,591 $10,819 1993 $11,250 $11,449 1994 $11,368 $11,585 1995 $12,327 $12,622 1996 $13,019 $13,368 1997 $13,811 $14,234 1998 $14,720 $15,331 1999 $15,140 $15,790 2000 $16,060 $16,749 2001 $17,788 $18,563 YEARLY PERIODS ENDED OCTOBER 31 SHORT TERM BOND FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------- ----------- ----------- 1 Year $11,076 10.76% 5 Years $13,663 6.44%(S) 10 Years $17,788 5.92%(S) SHORT TERM BOND FUND - CLASS E++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------- ----------- ----------- 1 Year $11,054 10.54% 5 Years $13,572 6.30%(S) 10 Years $17,669 5.85%(S) SHORT TERM BOND FUND - CLASS C++++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------- ----------- ----------- 1 Year $10,977 9.77% 5 Years $13,309 5.88%(S) 10 Years $17,327 5.65%(S) MERRILL LYNCH 1-2.99 YEARS TREASURY INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - -------------- ----------- ----------- 1 Year $11,083 10.83% 5 Years $13,887 6.79%(S) 10 Years $18,563 6.38%(S) 116 Short-Term Bond Fund SHORT-TERM BOND FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the twelve months ended October 31, 2001, the Short-Term Bond Fund Class S, Class E, and Class C shares reflected total returns of 10.76%, 10.54%, and 9.77%, respectively. This compared to a 10.83% return for the Merrill Lynch 1-2.99 Years Treasury Index. The Fund's excess returns within the asset backed and agency sectors were largely offset by its mortgage and high yield holdings. Accordingly, the Fund produced returns very near its benchmark over the period. PORTFOLIO HIGHLIGHTS As a result of the continued slowing of the US economy during the latter part of 2000, investors waited in anticipation for the Federal Reserve Board (Fed) to cut interest rates. As 2001 began, the Fed wasted little time, as it slashed 50 basis points off the federal funds rate on the first trading day of the new year. After that initial action, the Fed made an unprecedented eight additional cuts during the fiscal period, dropping the key interest rate by 400 basis points in 10 months. Although the impact of the consecutive rate cuts was much more significant in the short end of the market, the US Treasury's October 2001 announcement that it would cease issuance of the 30-year bond dramatically lowered yields on the long end, and, to a lesser extent, within the intermediate range of the yield curve. During the period, asset backed securities and government agency issues were among the strongest sectors of the fixed-income market. The Fund was rewarded for its overweight holdings of asset backed issues. During the past twelve months, as concerns of an impending economic slowdown and other threats to US interests caused investors to bid up the price of US Treasury issues, the Fund's performance was dampened, as it maintained an underweight allocation to the sector. Additionally, the Fund's positions within the more aggressive sectors of the market, such as high yield and emerging markets, also negatively impacted returns, as these sectors trailed due to concerns about the strength of the US economy. TOP TEN ISSUERS (as a percent of Total Investments) October 31, 2001 Government National Mortgage Association 14.0% Federal National Mortgage Association 7.2 United States Treasury 5.1 Federal Home Loan Mortgage Corp. 3.7 General Motors Acceptance Corp. 2.6 Ford Motor Credit Co. 2.1 Peoplefirst.com Automobile Receivables Owner Trust 2.0 National Westminster Bank 1.9 Household Finance Corp. 1.7 CIT Group, Inc. 1.6 PORTFOLIO CHARACTERISTICS October 31, 2001 Weighted Average Quality Diversification AA Weighted Average Years-to-Maturity 3.6 Years Weighted Average Duration 1.6 Years Current Yield (SEC 30-day standardized) Class S 4.6% Class E 4.4% Class C 3.6% Number of Issues 292 Number of Issuers 222 MONEY MANAGERS STYLES BlackRock Financial Management, Inc. Mortgage/Asset Backed Merganser Capital Management, LP Sector Rotation Pacific Investment Management Company, LLC Sector Rotation STW Fixed Income Management, Ltd. Sector Rotation * Short-Term Bond Fund Class S assumes initial investment on November 1, 1990. ** Merrill Lynch 1-2.99 Years Treasury Index is an index composed of approximately 160 issues in the form of publicly placed, coupon-bearing US Treasury debt. Issues must carry a term to maturity of at least one year, and par amounts outstanding must be no less than $10 million at the start and at the close of the performance measurement periods. ++ Prior to April 1, 1995, Fund performance results are reported gross of investment management fees. For the period following April 1, 1995, Fund performance results are reported net of investment management fees but gross of any investment services fees. Information concerning these fees can be obtained from the Fund's Advisor upon request. ++++ Short-Term Bond Fund Class S performance has been linked with Class E to provide historical perspective. From February 18, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++ Short-Term Bond Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From March 3, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Short-Term Bond Fund 117 SHORT TERM BOND FUND STATEMENT OF NET ASSETS October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ ----------- ----------- LONG-TERM INVESTMENTS - 96.1% ASSET-BACKED SECURITIES - 21.8% American Express Credit Account Master Trust Series 1997-1, Class A 6.400% due 04/15/05 4,000 4,125 Arcadia Automobile Receivables Trust Series 1998-E Class A3 5.750% due 10/15/06 2,500 2,582 Boston Edison Co. Series 1999-1 Class A2 6.450% due 09/15/05 3,241 3,366 California Infrastructure SCE-1 Series 1997-1 Class A4 6.220% due 03/25/04 2,479 2,499 California Infrastructure SDG&E-1 Series 1997-1 Class A5 6.190% due 09/25/05 2,850 2,959 Chase Manhattan Automobile Owner Trust Series 1998-B Class A4 5.800% due 02/17/03 740 749 Series 2000-A Class A3 6.210% due 12/15/04 3,700 3,838 Series 2000-A Class A4 6.260% due 06/15/07 600 637 Chevy Chase Automobile Receivables Trust Series 1997-3, Class A 6.200% due 03/20/04 98 98 Series 2000-1 Class A4 7.470% due 07/15/05 1,370 1,489 Chevy Chase Home Loan Trust Series 1996-1 Class A 7.150% due 05/15/15 776 810 Citibank Credit Card Master Trust I Series 1998-3 Class A 5.800% due 02/07/05 1,500 1,555 CNH Equipment Trust Series 2000-B Class A3 6.880% due 03/15/05 2,000 2,070 Conseco Finance Securitizations Corp. Series 2000-2 Class A3 8.070% due 12/01/30 1,150 1,232 Contimortgage Home Equity Loan Trust Series 1998-2 Class A7 6.570% due 03/15/23 1,000 1,049 Copelco Capital Funding Corp. Series 1999-A Class A5 5.950% due 06/15/04 1,250 1,300 DaimlerChrysler Auto Trust Series 2000-A Class A3 7.090% due 12/06/03 3,300 3,374 Series 2000-B Class A4 7.630% due 06/08/05 600 647 Series 2000-D Class A3 6.660% due 01/08/05 1,300 1,358 Series 2000-E Class A3 6.110% due 11/08/04 600 628 Dealer Automobile Receivables Trust Series 2000-1 Class A3 7.070% due 05/17/04 3,000 3,099 Discover Card Master Trust I Series 1998-7 Class A 5.600% due 05/16/06 1,500 1,562 Series 1999-1 Class B 5.550% due 08/15/04 650 658 Series 2001-5 Class A 5.300% due 11/15/06 1,025 1,071 Fleetwood Credit Corp. Grantor Trust Series 1997-B Class A 6.400% due 05/15/13 2,000 2,084 Ford Credit Automobile Owner Trust Series 2001-D Class A3 4.310% due 06/15/05 1,250 1,280 Ford Credit Automobile Owner Trust Series 2000-E Class A5 6.770% due 10/15/04 2,000 2,126 Series 2001-B Class A5 5.360% due 06/15/05 1,075 1,120 Series 2001-C Class A4 4.830% due 02/15/05 1,300 1,340 Green Tree Financial Corp. Series 1995-9 Class A5 6.800% due 12/15/25 797 825 Series 1997-3 Class A5 7.140% due 07/15/28 990 1,046 Series 1999-3 Class A4 5.950% due 02/01/31 1,000 1,034 Honda Automobile Lease Trust Series 1999-A Class A4 6.450% due 09/16/02 352 353 IMC Home Equity Loan Trust Series 1998-1 Class A3 6.410% due 04/20/18 146 147 J.C. Penney Master Credit Card Trust Series E Class A 6.000% due 06/15/07 (a) 3,000 3,115 MBNA Master Credit Card Trust Series F Class A 6.600% due 11/15/04 2,000 2,048 118 Short Term Bond Fund SHORT TERM BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ ----------- ----------- Mellon Automobile Grantor Trust Series 2000-1 Class A 7.180% due 10/15/06 877 919 Series 2000-2 Class A 6.390% due 07/15/07 2,276 2,386 Newcourt Equipment Trust Securities Series 1998-1 Class A3 5.240% due 12/20/02 42 42 Series 1998-2 Class A3 5.450% due 10/15/02 17 17 Nissan Automobile Receivables Owner Trust Series 2000-C Class A3 6.720% due 08/16/04 1,000 1,038 Series 2001-B Class A4 5.350% due 10/15/06 925 964 Series 2001-C Class A3 4.310% due 05/16/05 900 922 Series 2001-C Class A4 4.800% due 02/15/07 1,275 1,317 Onyx Acceptance Automobile Trust Series 2000-D Class A4 6.850% due 08/15/07 3,500 3,747 Peco Energy Transition Trust Series 1999-A Class A4 5.800% due 03/01/07 2,000 2,112 Peoplefirst.com Automobile Receivables Owner Trust Series 2000-1 Class A4 7.405% due 12/15/06 8,500 9,082 Premier Automobile Trust Series 1999-3 Class A4 6.430% due 03/08/04 1,600 1,655 Railcar Trust Series 1992-1 Class A 7.750% due 06/01/04 2,114 2,228 Ryder Vehicle Lease Trust Series 1999-A Class A3 6.680% due 04/15/04 857 872 Standard Credit Card Master Trust Series 1995-1 Class A 8.250% due 01/07/07 1,125 1,272 The Money Store Home Equity Trust Series 1995-B Class A6 7.500% due 01/15/26 921 954 The Money Store Small Business Administration Loan Trust Series 1996-2 Class A 6.000% due 04/15/24 (a) 477 481 Series 1997-1 Class A 5.000% due 01/15/25 (a) 708 716 Series 1997-1 Class B 5.000% due 01/15/25 (a) 472 466 USAA Automobile Loan Grantor Trust Series 1999-1 Class A 6.100% due 02/15/06 705 724 Wilshire Funding Corp. Series 1998-WFC2 Class A3 7.000% due 12/28/37 331 338 -------- 91,525 -------- CORPORATE BONDS AND NOTES - 29.3% ABN - Amro Bank 7.250% due 05/31/05 1,000 1,095 Amerada Hess Corp. 5.300% due 08/15/04 510 521 Associates Corp. of North America Series G 8.440% due 10/27/04 3,000 3,379 AT&T Corp. 6.750% due 04/01/04 3,500 3,695 Avalon Properties, Inc. 7.375% due 09/15/02 500 515 Avalonbay Communities, Inc. 6.250% due 01/15/03 500 514 Bank of America Corp. Series H 4.000% due 08/26/05 (a) 100 100 Bank One Corp. 6.400% due 08/01/02 2,725 2,794 5.625% due 02/17/04 1,000 1,042 7.625% due 08/01/05 1,000 1,108 Bear Stearns Companies, Inc. (The) 6.125% due 02/01/03 1,500 1,556 British Telecommunications PLC 4.000% due 12/15/03 (a) 200 202 Chrysler Financial Corp. Series R 3.000% due 06/18/03 (a) 400 398 CIT Group, Inc. 5.625% due 10/15/03 3,800 3,945 7.500% due 11/14/03 3,000 3,224 Citigroup, Inc. 5.700% due 02/06/04 4,000 4,194 CSX Corp. Series C 5.850% due 12/01/03 1,000 1,040 DaimlerChrysler North America Holding Corp. 4.000% due 08/23/02 (a) 2,250 2,247 4.000% due 12/16/02 (a) 300 298 Dominion Resources, Inc. 6.000% due 01/31/03 625 645 DTE Energy Co. 6.000% due 06/01/04 250 262 Short Term Bond Fund 119 SHORT TERM BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- --------- Duke Energy Corp. 7.125% due 09/03/02 1,750 1,806 Enron Corp. 7.875% due 06/15/03 1,000 841 EOP Operating, LP 6.375% due 02/15/03 1,500 1,557 7.375% due 11/15/03 625 664 ERP Operating, LP 6.650% due 11/15/03 1,000 1,055 First Union Corp. 6.950% due 11/01/04 4,500 4,869 Firstar Corp. 6.500% due 07/15/02 1,600 1,639 Ford Motor Credit Co. 3.000% due 06/23/03 (a) 500 493 6.700% due 07/16/04 5,600 5,799 5.750% due 02/23/04 2,000 2,035 6.875% due 02/01/06 885 906 General Electric Capital Corp. 8.850% due 04/01/05 1,000 1,161 8.500% due 07/24/08 1,000 1,216 Series A 5.880% due 05/19/03 4,000 4,199 General Electric Capital Corp. Step Up Bond Series A 8.125% due 04/01/08 500 596 General Motors Acceptance Corp. 7.500% due 06/06/02 1,000 1,025 8.500% due 01/01/03 1,500 1,574 5.800% due 03/12/03 6,100 6,223 4.000% due 08/04/03 (a) 1,200 1,182 5.750% due 11/10/03 750 766 3.000% due 07/21/04 (a) 300 291 6.750% due 01/15/06 450 459 Household Finance Corp. 6.000% due 07/15/02 1,000 1,018 8.000% due 05/09/05 6,000 6,620 HRPT Properties Trust 6.875% due 08/26/02 500 513 Series CL-A 6.750% due 12/18/02 500 513 Ingersoll-Rand Co. 5.750% due 02/14/03 1,500 1,553 International Lease Finance Corp. 5.625% due 05/01/02 1,000 1,013 Series G 8.260% due 02/15/05 1,875 2,064 John Deere Capital Corp. Series D 5.520% due 04/30/04 2,000 2,081 KeyCorp 7.300% due 02/03/03 440 463 Lehman Brothers Holdings, Inc. 7.750% due 01/15/05 2,000 2,162 MCI WorldCom, Inc. 7.550% due 04/01/04 500 529 National Westminster Bank 9.375% due 11/15/03 7,500 8,352 NationsBank Corp. 8.125% due 06/15/02 2,750 2,833 Nisource Finance Corp. 5.750% due 04/15/03 1,000 1,032 Sears Roebuck Acceptance Corp. Series 4 6.720% due 09/17/03 2,550 2,664 Series III 7.010% due 09/19/02 1,000 1,030 6.560% due 11/20/03 1,000 1,042 Southern California Edison Co. 7.200% due 11/03/03 4,000 3,880 Spieker Properties, LP 6.950% due 12/15/02 1,000 1,036 Starwood Hotels & Resorts 6.750% due 11/15/03 1,500 1,519 Summit Bancorp 8.625% due 12/10/02 600 634 SuperValu, Inc. 7.800% due 11/15/02 2,000 2,042 Swiss Bank Corp. New York 7.250% due 09/01/06 1,500 1,662 UpJohn Co. - Employee Stock Ownership Trust Series A 9.790% due 02/01/04 563 598 Viacom, Inc. 6.875% due 09/01/03 400 424 Waste Management, Inc. 7.100% due 08/01/26 1,175 1,228 WorldCom, Inc. 7.875% due 05/15/03 1,500 1,583 -------- 123,218 -------- EURODOLLAR BONDS - 3.6% AIG SunAmerica Funding Series E 6.250% due 06/02/04 4,000 4,262 British Telecommunications PLC 7.625% due 12/15/05 1,100 1,202 Deutsche Telekom International Finance BV 8.000% due 06/15/05 1,050 1,133 120 Short Term Bond Fund SHORT TERM BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ ----------- -------- European Investment Bank 5.625% due 01/24/06 575 611 Series E 5.625% due 02/03/05 1,300 1,372 Goldman Sachs Group LP 3.000% due 04/08/05 (a) 1,200 1,179 International Bank for Reconstruction & Development 6.015% due 06/21/04 375 402 John Hancock Global Funding 7.500% due 01/31/05 1,000 1,101 Ontario, Province of 7.375% due 01/27/03 1,000 1,062 Telefonica Europe BV 7.350% due 09/15/05 2,500 2,684 -------- 15,008 -------- MORTGAGE-BACKED SECURITIES - 29.5% Asset Securitization Corp. Series 1997-D4 Class A1C 7.420% due 04/14/29 2,000 2,182 Bank One Mortgage-backed Pass-Thru Series 2000-2 Class 4A 6.612% due 03/15/30 720 735 Bear Stearns Adjustable Rate Mortgage Trust Series 2000-1 Class A1 7.000% due 12/25/30 (a) 2,003 2,035 Bear Stearns Commercial Mortgage Securities, Inc. Series 2001-TOP4 Class A1 5.060% due 12/15/10 500 501 Chase Commercial Mortgage Securities Corp. Series 1997-2 Class A1 6.450% due 12/19/04 821 865 Series 1999-2 Class A1 7.032% due 10/15/08 327 353 Federal Home Loan Mortgage Corp. 7.000% due 2027 (a) 25 25 Federal Home Loan Mortgage Corp. Participation Certificate 9.000% due 2005 41 43 6.250% due 2007 14 14 5.500% due 2008 884 910 6.500% due 2008 1,203 1,253 5.500% due 2009 1,688 1,738 6.000% due 2009 484 504 6.000% due 2010 1,127 1,174 8.000% due 2010 589 618 6.000% due 2011 3,360 3,485 7.000% due 2011 863 910 6.000% due 2014 1,151 1,189 7.000% due 2022 (a) 30 31 6.000% due 2029 (a) 1,642 1,669 Series 1645 Class PD 4.500% due 09/15/08 818 832 Federal National Mortgage Association 7.000% due 2004 207 212 8.750% due 2004 7 7 6.500% due 2008 1,036 1,088 5.500% due 2009 9,980 10,280 7.000% due 2009 972 1,027 8.000% due 2009 312 330 6.000% due 2010 1,303 1,356 6.000% due 2013 562 582 5.500% due 2014 881 896 7.000% due 2014 (a) 432 456 7.500% due 2014 824 871 7.000% due 2018 (a) 866 888 8.000% due 2022 (a) 594 608 8.000% due 2024 (a) 1,361 1,392 6.000% due 2029 (a) 1,257 1,282 6.000% due 2030 (a) 69 70 7.500% due 2030 1,300 1,361 Series 1996-M6 Class B 7.412% due 09/17/08 428 455 First Republic Mortgage Loan Trust Series 2000-FRB1 Class A2 7.695% due 06/25/30 591 598 Government National Mortgage Association 6.500% 30 Year TBA (c) 13,000 13,427 7.500% 30 Year TBA (c) 21,000 22,070 7.250% due 2006 663 680 7.000% due 2007 40 42 6.000% due 2008 571 592 7.000% due 2008 560 593 7.000% due 2009 1,313 1,392 8.250% due 2009 419 448 7.000% due 2011 292 309 7.000% due 2012 288 305 7.500% due 2013 730 773 9.500% due 2017 3 4 8.000% due 2022 (a) 884 915 6.000% due 2024 (a) 419 431 8.000% due 2027 171 177 7.500% due 2029 11,458 12,055 8.000% due 2030 7,391 7,818 7.000% due 2031 1,000 1,044 Long Beach Mortgage Loan Trust Series 2000-1 Class AV1 4.000% due 01/01/31 (a) 2,400 2,402 Short Term Bond Fund 121 SHORT TERM BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------ Morgan Stanley Capital I, Inc. Series 1998-WF2 Class A1 6.340% due 11/15/07 755 800 Residential Accredit Loans, Inc. Series 2000-QS12 Class A1 7.750% due 10/25/30 791 827 Residential Funding Mortgage Securities I Series 2000-S13 Class A1 7.750% due 10/25/30 760 773 Series 2000-S14 Class A1 7.500% due 11/25/30 41 42 Residential Funding Mortgage Securities II Series 2000-HI4 Class AI3 7.490% due 10/25/13 3,000 3,179 Resolution Trust Corp. Mortgage Pass-Thru Certificate Series 1995-2, Class C1 7.450% due 05/25/29 242 247 Structured Asset Mortgage Investments, Inc. Series 1998-9 Class 2A2 6.125% due 11/25/13 1,011 1,046 Union Planters Mortgage Finance Corp. Series 1998-A, Class A1 6.350% due 01/25/28 17 17 Series 1999-1 Class A1 6.250% due 04/01/29 329 336 United Mortgage Securities Corp. Collateral Interest Only Strip Series 1993-1 Class AA 7.000% due 09/25/33 (a) 510 527 Series 1994-1 Class A2 7.000% due 06/25/32 (a) 1,592 1,581 Vendee Mortgage Trust Series 1994-1 Class 2E 6.500% due 01/15/17 1,297 1,322 Series 2000-1 Class 2B 7.250% due 12/15/20 1,000 1,042 Washington Mutual Mortgage Securities Corp. Series 2001-9 Class 1A1 7.000% due 04/25/28 (a) 807 819 Washington Mutual Step Up Bond Series 2000-1 Class A1 6.000% due 06/25/24 (a) 1,155 1,155 Washington Mutual, Inc. Collateral Interest Only Strip Series 2001-1 Class A 6.020% due 01/25/41 (a) 238 240 Wilshire Funding Corp. Series 1997-WFC1, Class AI 7.250% due 08/25/27 4 3 ------- 124,258 ------- MUNICIPAL BONDS - 0.1% Missouri Higher Education Loan Authority Series 97 Class P 4.000% due 07/25/08 (a) 585 582 ------- UNITED STATES GOVERNMENT AGENCIES - 1.9% Federal Home Loan Mortgage Corp. 7.000% due 07/15/05 2,000 2,233 Federal National Mortgage Association 5.250% due 01/15/03 1,000 1,037 5.125% due 02/13/04 3,275 3,435 5.500% due 02/15/06 150 160 United States Department Veteran Affairs (REMIC) Series 2001-E Class J 6.500% due 11/15/31 1,000 1,051 ------- 7,916 ------- UNITED STATES GOVERNMENT TREASURIES - 5.5% United States Inflation-Indexed Treasury Notes 3.500% due 01/15/11 102 106 United States Treasury Notes 5.875% due 11/15/04 13,405 14,526 5.750% due 11/15/05 2,855 3,107 3.375% due 01/15/07 4,145 4,286 3.625% due 01/15/08 659 689 3.875% due 01/15/09 216 230 ------- 22,944 ------- YANKEE BONDS - 4.4% African Development Bank 9.750% due 12/15/03 1,720 1,939 Edperbrascan Corp. 7.375% due 10/01/02 2,000 2,055 Hydro-Quebec Series B 6.520% due 02/26/06 1,000 1,100 Landesbank Baden-Wuerttemberg 7.875% due 04/15/04 2,500 2,748 Manitoba, Province of Series CZ 6.750% due 03/01/03 3,000 3,178 Quebec, Province of 6.500% due 01/17/06 1,000 1,098 Tyco International, Ltd. 6.500% due 11/01/01 3,000 3,000 Vodafone Group PLC 7.625% due 02/15/05 3,000 3,266 ------- 18,384 ------- 122 Short Term Bond Fund SHORT TERM BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------- TOTAL LONG-TERM INVESTMENTS (cost $392,657) 403,835 ------- SHORT-TERM INVESTMENTS - 10.9% BP Amoco Capital PLC 2.640% due 11/01/01 4,500 4,500 Federal National Mortgage Association Discount Note 2.480% due 11/01/01 (d) 4,500 4,500 Frank Russell Investment Company Money Market Fund (b) 33,428 33,428 Heller Financial, Inc. Series J 3.000% due 01/22/02 (a) 3,000 3,000 HRPT Properties Trust 6.875% due 08/26/02 520 534 ------- TOTAL SHORT-TERM INVESTMENTS (cost $45,428) 45,962 ------- TOTAL INVESTMENTS - 107.0% (identified cost $438,085) 449,797 OTHER ASSETS AND LIABILITIES, NET - (7.0%) (29,266) ------- NET ASSETS - 100.0% 420,531 ======= FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - ------------- ------------- ------------- ------------- USD 21 JPY 2,568 11/05/01 $ -- USD 25 JPY 3,053 12/05/01 (1) ------------- $ (1) ============= (a) Adjustable or floating rate security. (b) At net asset value. (c) Forward commitment. (d) The rate noted is yield-to-maturity from date of acquisition. Abbreviations: LIBOR - London Interbank Offered Rate REMIC - Real Estate Mortgage Investment Conduit TBA - To Be Announced Security Foreign Currency Abbreviations: GBP - British pound JPY - Japanese yen USD - United States dollar See accompanying notes which are an integral part of the financial statements. Short Term Bond Fund 123 SHORT TERM BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 INTEREST RATE SWAPS
UNREALIZE NOTIONAL APPRECIATION AMOUNT TERMINATION (DEPRECIATION) (000) FUND RECEIVES FUND PAYS DATE (000) - -------------- --------------- ---------------- ------------ -------------- GBP 6,000 5.500% Six Month LIBOR 03/02/04 $ 156 GBP 500 5.500% Six Month LIBOR 03/15/04 12 GBP 1,800 5.500% Six Month LIBOR 03/15/04 43 JPY 60,000 Six Month LIBOR 1.810% 01/11/11 (17) ------------ $ 194 ============
See accompanying notes which are an integral part of the financial statements. 124 Short Term Bond Fund SHORT TERM BOND FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (identified cost $438,085).................... $ 449,797 Cash................................................................ 310 Receivables: Dividends and interest............................................ 4,818 Fund shares sold.................................................. 2,697 From Advisor...................................................... 169 Receivable for interest rate swaps.................................. 211 ---------- Total assets.................................................... 458,002 LIABILITIES Payables: Investments purchased (regular settlement)............... $ 401 Investments purchased (delayed settlement)............... 35,650 Fund shares redeemed..................................... 1,095 Accrued fees to affiliates............................... 194 Other accrued expenses................................... 113 Unrealized depreciation on forward foreign currency exchange contracts........................................ 1 Liability for interest rate swaps.......................... 17 -------- Total liabilities............................................... 37,471 ---------- NET ASSETS.......................................................... $ 420,531 ========== NET ASSETS CONSIST OF: Undistributed net investment income................................. $ 2,021 Accumulated net realized gain (loss)................................ (16,438) Unrealized appreciation (depreciation) on: Investments....................................................... 11,712 Interest rate swaps............................................... 194 Shares of beneficial interest....................................... 221 Additional paid-in capital.......................................... 422,821 ---------- NET ASSETS.......................................................... $ 420,531 ========== NET ASSET VALUE, offering and redemption price per share: Class C ($1,709,034 divided by 89,900 shares of $.01 par value shares of beneficial interest outstanding)....................... $ 19.01 ========== Class E ($17,685,629 divided by 929,777 shares of $.01 par value shares of beneficial interest outstanding)....................... $ 19.02 ========== Class S ($401,136,814 divided by 21,118,688 shares of $.01 par value shares of beneficial interest outstanding)................. $ 18.99 ========== See accompanying notes which are an integral part of the financial statements. Short Term Bond Fund 125 SHORT TERM BOND FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Interest.......................................................... $ 24,517 Dividends from Money Market Fund ................................. 1,291 ---------- Total investment income ........................................ 25,808 EXPENSES Advisory fees ........................................... $ 1,822 Administrative fees...................................... 190 Custodian fees........................................... 260 Distribution fees - Class C.............................. 7 Transfer agent fees...................................... 242 Professional fees........................................ 61 Registration fees........................................ 76 Shareholder servicing fees - Class C..................... 2 Shareholder servicing fees - Class E..................... 32 Trustees' fees........................................... 20 Miscellaneous............................................ 67 -------- Expenses before reductions............................... 2,779 Expense reductions....................................... (600) -------- Expenses, net................................................... 2,179 ---------- Net investment income............................................... 23,629 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments.............................................. 4,498 Foreign currency-related transactions.................... (1) 4,497 -------- Net change in unrealized appreciation (depreciation) on: Investments.............................................. 13,948 Interest rate swaps...................................... 194 14,142 -------- ---------- Net realized and unrealized gain (loss)............................. 18,639 ---------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............... $ 42,268 ========== See accompanying notes which are an integral part of the financial statements. 126 Short Term Bond Fund SHORT TERM BOND FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ------------------- ------------------ ------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income .......................................... $ 23,629 $ 22,844 $ 23,916 Net realized gain (loss) ....................................... 4,497 (2,847) (2,426) Net change in unrealized appreciation (depreciation) ........... 14,142 4,814 (7,220) ------------------- ------------------ ------------------- Net increase (decrease) in net assets from operations ........ 42,268 24,811 14,270 ------------------- ------------------ ------------------- DISTRIBUTIONS From net investment income Class C ...................................................... (53) (33) (24) Class E ...................................................... (771) (425) (303) Class S ...................................................... (23,892) (19,499) (24,023) ------------------- ------------------ ------------------- Net decrease in net assets from distributions .............. (24,716) (19,957) (24,350) ------------------- ------------------ ------------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions .. (30,475) (28,484) 206,625 ------------------- ------------------ ------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS ...................... (12,923) 23,630) 196,545 NET ASSETS Beginning of period ............................................ 433,454 457,084 260,539 ------------------- ------------------ ------------------- End of period (including undistributed net investment income of $2,021 and $3,055 and $168, respectively) ..................... $ 420,531 $ 433,454 $ 457,084 =================== ================== ===================
See accompanying notes which are an integral part of the financial statements. Short Term Bond Fund 127 SHORT TERM BOND FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** -------- -------- --------- NET ASSET VALUE, BEGINNING OF PERIOD ........................................... $ 18.23 $ 18.13 $ 18.36 ------- -------- --------- INCOME FROM OPERATIONS Net investment income (a) .................................................... .85 .79 .68 Net realized and unrealized gain (loss) ...................................... .89 .04 (.31) ------- -------- --------- Total income from operations ............................................... 1.74 .83 .37 ------- -------- --------- DISTRIBUTIONS From net investment income ................................................... (.96) (.73) (.60) ------- -------- --------- NET ASSET VALUE, END OF PERIOD ................................................. $ 19.01 $ 18.23 $ 18.13 ======= ======== ========= TOTAL RETURN (%)(b) ............................................................ 9.77 4.67 2.02 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ..................................... 1,709 672 801 Ratios to average net assets (%)(c): Operating expenses, net .................................................... 1.52 1.64 1.72 Operating expenses, gross .................................................. 1.66 1.66 1.72 Net investment income ...................................................... 4.72 5.01 4.41 Portfolio turnover rate (%) .................................................. 260.94 92.31 177.08
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period March 3, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 128 Short Term Bond Fund SHORT TERM BOND FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** ------- -------- --------- NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 18.24 $ 18.08 $ 18.51 ------- -------- --------- INCOME FROM OPERATIONS Net investment income (a) ................................ 1.02 .88 .80 Net realized and unrealized gain (loss) .................. .85 .07 (.34) ------- -------- --------- Total income from operations ........................... 1.87 .95 .46 ------- -------- --------- DISTRIBUTIONS From net investment income ............................... (1.09) (.79) (.89) ------- -------- --------- NET ASSET VALUE, END OF PERIOD ............................. $ 19.02 $ 18.24 $ 18.08 ======= ======== ========= TOTAL RETURN (%)(b) ........................................ 10.54 5.36 2.53 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ................. 17,685 9,898 8,693 Ratios to average net assets (%)(c): Operating expenses, net ............................... .77 .89 .97 Operating expenses, gross ............................. .91 .91 .97 Net investment income ................................. 5.48 5.77 5.05 Portfolio turnover rate (%) ............................. 260.94 92.31 177.08
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period February 18, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Short Term Bond Fund 129 SHORT TERM BOND FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ------------------------------------------ 2001* 2000** 1999 1998 1997 1996 -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 18.22 $ 18.03 $ 18.46 $ 18.35 $ 18.36 $ 18.55 -------- -------- -------- -------- -------- -------- INCOME FROM OPERATIONS Net investment income (a)....................... 1.07 .91 .90 .99 1.08 1.04 Net realized and unrealized gain (loss)......... .83 .09 (.36) .11 -- (.19) -------- -------- -------- -------- -------- -------- Total income from operations.................. 1.90 1.00 .54 1.10 1.08 .85 -------- -------- -------- -------- -------- -------- DISTRIBUTIONS From net investment income...................... (1.13) (.81) (.97) (.99) (1.09) (1.04) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD.................... $ 18.99 $ 18.22 $ 18.03 $ 18.46 $ 18.35 $ 18.36 ======== ======== ======== ======== ======== ======== TOTAL RETURN (%)(b)............................... 10.76 5.64 3.03 6.09 6.02 4.76 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)........ 401,137 422,884 447,590 260,539 229,470 222,983 Ratios to average net assets (%)(c): Operating expenses, net....................... .52 .64 .74 .66 .66 .70 Operating expenses, gross..................... .67 .66 .74 .66 .66 .70 Net investment incom)......................... 5.76 6.00 5.22 5.37 5.70 5.70 Portfolio turnover rate (%)..................... 260.94 92.31 177.08 129.85 213.14 264.40
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 130 Short Term Bond Fund DIVERSIFIED BOND FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide effective diversification against equities and a stable level of cash flow by investing in fixed-income securities. INVESTS IN: Fixed-income securities. STRATEGY: The Fund uses a multi-style, multi-manager strategy and employed three managers with distinct approaches to managing portfolios of intermediate-maturity, investment-grade fixed-income securities. GROWTH OF A $10,000 INVESTMENT Dates Diversified Bond - Class S LB Aggregate** - ----- -------------------------- -------------- Inception* $10,000 $10,000 1992 $10,961 $10,983 1993 $12,262 $12,287 1994 $11,771 $11,836 1995 $13,541 $13,688 1996 $14,295 $14,489 1997 $15,506 $15,777 1998 $16,837 $17,250 1999 $16,835 $17,342 2000 $18,014 $18,608 2001 $20,556 $21,317 YEARLY PERIODS ENDED OCTOBER 31 DIVERSIFIED BOND FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN ------------- ---------- ---------- 1 Year $11,411 14.11% 5 Years $14,380 7.53%(S) 10 Years $20,556 7.47%(S) DIVERSIFIED BOND FUND - CLASS E++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN ------------- ---------- ---------- 1 Year $11,387 13.87% 5 Years $14,121 7.14%(S) 10 Years $20,186 7.27%(S) DIVERSIFIED BOND FUND - CLASS C++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN ------------- ---------- ---------- 1 Year $11,302 13.02% 5 Years $13,820 6.68%(S) 10 Years $19,756 7.04%(S) LEHMAN BROTHERS AGGREGATE BOND INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN ------------- ---------- ---------- 1 Year $11,456 14.56% 5 Years $14,713 8.03%(S) 10 Years $21,317 7.86%(S) 132 Diversified Bond Fund DIVERSIFIED BOND FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the twelve months ended October 31, 2001, the Diversified Bond Fund Class S, Class E and Class C shares reflected total returns of 14.11%, 13.87%, and 13.02%, respectively. This compared to a 14.56% return for the Lehman Brothers Aggregate Bond Index. The Fund's performance reflects the diversification of its managers' views on the most attractive areas of the fixed-income market. While some managers perceived corporate issues as the most attractive sector, others saw more value in asset backed or mortgage backed securities. Regardless of their differing views as to the most appealing sector, all managers focused on the highest quality issues within each segment of the market. A common theme among the Fund's managers, particularly early in the fiscal year, was to substitute mortgage securities for the government agency sector, which detracted slightly from performance over this period. PORTFOLIO HIGHLIGHTS As a result of the continued slowing of the US economy during the latter part of 2000, investors waited in anticipation for the Federal Reserve Board (Fed) to cut interest rates. As 2001 began, the Fed wasted little time, as it slashed 50 basis points off the federal funds rate on the first trading day of the new year. After that initial action, the Fed made an unprecedented eight additional cuts during the fiscal period, dropping the key interest rate by 400 basis points in 10 months. Although the impact of the consecutive rate cuts was much more significant in the short end of the market, the US Treasury's October 2001 announcement that it would cease issuance of the 30-year bond dramatically lowered yields on the long end, and to a lesser extent, within the intermediate range of the yield curve. During the period, asset backed securities and government agency issues were among the strongest sectors of the fixed-income market. The Fund was rewarded for its overweight holdings of asset backed issues, but penalized for a slight underweight to the government agency sector and a slight overweight to the mortgage sector. During the past twelve months, as concerns of an impending economic slowdown and other threats to US interests caused investors to bid up the price of US Treasury issues, the Fund's performance was dampened, as it maintained an underweight allocation to the sector. TOP TEN ISSUERS (as a percent of Total Investments) October 31, 2001 Federal National Mortgage Association 17.2% United States Treasury 12.5 Federal Home Loan Mortgage Corp. 10.6 Government National Mortgage Association 8.9 Mellon Residential Funding Corp. 1.2 Small Business Investment Cos. 1.0 General Motors Acceptance Corp. 1.0 Ford Motor Credit Co. 0.8 Americredit Automobile Receivables Trust 0.7 Germany, Federal Republic of 0.7 PORTFOLIO CHARACTERISTICS October 31, 2001 Weighted Average Quality Diversification AAA Weighted Average Years-to-Maturity 4.5 Years Weighted Average Duration 4.0 Years Current Yield (SEC 30-day standardized) Class S 4.8% Class E 4.6% Class C 3.8% Number of Issues 913 Number of Issuers 612 MONEY MANAGERS STYLES Lincoln Capital Management Company Enhanced Core Pacific Investment Management Company, LLC Sector Rotation Standish Mellon Asset Management Company, LLC Sector Rotation * Diversified Bond Fund Class S assumes initial investment on November 1, 1991. ** Lehman Brothers Aggregate Bond Index is composed of securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Indexes are rebalanced monthly by market capitalization. ++ Diversified Bond Fund Class S performance has been linked with Class E to provide historical perspective. For the period November 4, 1996 (commencement of sale) to May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Diversified Bond Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Diversified Bond Fund 133 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ ---------- ------- LONG-TERM INVESTMENTS - 107.7% ASSET-BACKED SECURITIES - 12.1% Advanta Mortgage Loan Trust Series 2000-2 Class A3 7.760% due 05/25/18 1,150 1,236 Advanta Mortgage Loan Trust Step Up Bond Series 2000-1 Class A4 8.610% due 03/25/28 480 536 American Express Credit Account Master Trust Series 1998-1 Class A 2.620% due 01/17/06 (c) 1,300 1,300 Series 2000-1 Class B 7.400% due 09/17/07 900 983 American Express Master Trust Series 2001-1 Class A 2.310% due 10/15/05 (c) 1,555 1,555 Americredit Automobile Receivables Trust Series 2000-B Class A3 2.730% due 09/05/04 (c) 360 360 Series 2000-B Class A4 2.790% due 04/05/07 (c) 985 987 Series 2001-B Class A2 2.690% due 06/13/05 (c) 1,110 1,110 Series 2001-B Class A4 5.370% due 06/12/08 2,530 2,654 Series 2001-C Class A4 5.010% due 07/14/08 1,075 1,107 Series 2001-D Class A4 4.410% due 11/12/08 850 855 BMW Vehicle Lease Trust Series 2000-A Class A4 6.670% due 10/25/03 100 106 Bombardier Capital Mortgage Securitization Corp. Series 1999-B Class A3 7.180% due 12/15/15 1,050 1,127 Series 2000-A Class A2 7.575% due 06/15/30 920 991 Capital Auto Receivables Asset Trust Series 2001-1 Class A5 2.610% due 07/15/06 (c) 735 735 Capital One Master Trust Series 2001-7A Class A 3.850% due 08/15/07 3,990 4,021 Series 2001-8A Class A 4.600% due 08/17/09 1,620 1,641 Carco Auto Loan Master Trust Series 2000-B Class A1 2.610% due 10/17/05 (c) 1,305 1,305 Case Equipment Loan Trust Series 1999-B Class A4 6.900% due 06/15/06 1,000 1,041 Charter Financial, Inc. Series 1999-1 Class A4 7.070% due 01/25/06 1,890 1,969 Chase Credit Card Master Trust Series 1997-4 Class A 2.680% due 08/15/05 (c) 1,575 1,576 Series 2000-2 Class A 2.630% due 07/15/05 (c) 445 445 Chase Funding Loan Acquisition Trust Series 2001-C2 Class IA1 2.660% due 08/25/14 (c) 165 165 Chase Funding Mortgage Loan Series 2000-2 Class IA3 7.794% due 05/25/15 195 206 Chase Funding Mortgage Loan Asset-Backed Certificates Series 2001-3 Class 1A1 2.580% due 08/25/16 (c) 2,883 2,882 Chase Manhattan Automobile Owner Trust Series 2001-B Class A4 3.800% due 05/15/08 600 600 CIT Marine Trust Series 1999-A Class A4 6.250% due 11/15/19 250 263 Citibank Credit Card Issuance Trust Series 2000-C1 Class C1 7.450% due 09/15/07 400 432 Series 2001-A6 Class A6 5.650% due 06/15/08 1,050 1,107 Citibank Credit Card Master Trust I Series 1997-6 Class A Zero Coupon due 08/15/06 900 811 CNH Equipment Trust Series 2001-A Class A3 2.695% due 11/15/05 (c) 2,100 2,103 Conseco Finance Securitizations Corp. Series 2001-1 Class A1A 3.000% due 07/01/32 932 932 Series 2001-3 Class A1 2.770% due 05/01/33 (c) 743 742 Countrywide Asset-Backed Certificates Series 2000-1 Class AF3 7.830% due 07/25/25 1,300 1,369 134 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ ---------- ------- DaimlerChrysler Auto Trust Series 2001-C Class A3 4.210% due 07/06/05 1,575 1,609 Series 2001-D Class A4 3.780% due 02/06/07 850 850 Discover Card Master Trust I Series 2001-5 Class A 5.300% due 11/15/06 550 575 DVI Receivables Corp. Series 2000-1 Class A4 7.780% due 06/14/08 755 817 Federal Home Loan Mortgage Corp. Structured Pass-Thru Securities, Step Up Bond Series T-34 Class A1V 2.781% due 07/25/31 (c) 1,942 1,934 Series T-35 Class A 2.560% due 09/25/31 (c) 1,511 1,506 First Deposit Master Trust Series 1996-1 Class A 2.690% due 08/15/07 (c) 2,600 2,605 Fleet Credit Card Master Trust II Series 2001-B Class A 5.600% due 12/15/08 650 682 Series 2001-C Class A 3.860% due 03/15/07 2,925 2,953 Ford Credit Auto Owner Trust Series 2000-A Class A5 7.190% due 03/15/04 635 674 Series 2001-A Class B 5.960% due 07/15/05 1,075 1,128 Series 2001-D Class B 5.010% due 03/15/06 525 541 Series 2001-E Class A3 2.660% due 03/15/05 (c) 2,075 2,077 Series 2001-E Class A4 4.010% due 03/15/06 1,025 1,034 Ford Credit Floorplan Master Owner Trust Series 2001-1 Class A 2.620% due 07/17/06 (c) 865 865 GMAC Mortgage Corp. Loan Trust Series 2001-HE2 Class IIA6 2.540% due 09/25/31 (c) 215 215 Series 2001-HE4 Class A4 4.530% due 04/25/27 340 340 Gracechurch Card Funding PLC Series 1 Class A 2.700% due 11/15/04 (c) 3,000 3,003 Green Tree Financial Corp. Series 1997-5 Class A5 6.620% due 05/15/29 850 892 Greyhound Funding LLC Series 2001-1 Class A1 2.680% due 09/07/06 (c) 560 560 Household Automotive Trust Series 2001-2 Class A4 5.390% due 08/17/08 2,660 2,770 Series 2001-3 Class A-4 4.370% due 12/17/08 1,000 1,009 Household Home Equity Loan Trust Series 2001-1 Class A 2.753% due 01/20/31 (c) 3,012 3,016 IndyMac Home Equity Loan Trust Step Up Bond Series 2000-A Class AF2 7.820% due 05/25/26 (c) 645 674 Isuzu Auto Owner Trust Series 2001-1 Class A3 4.880% due 11/22/04 160 165 MBNA Credit Card Master Note Trust Series 2001 Class C3 6.550% due 12/15/08 1,325 1,388 MBNA Master Credit Card Trust Series 1998-D Class A 5.800% due 12/15/05 600 626 MMCA Automobile Trust Series 2001-1 Class A3 2.705% due 05/15/05 (c) 1,395 1,397 Series 2001-2 Class A3 3.000% due 09/15/05 (c) 135 135 Nissan Automobile Receivables Owner Trust Series 2001-C Class A4 4.800% due 02/15/07 800 826 Onyx Acceptance Auto Trust Series 2001-C Class A4 5.230% due 05/15/08 1,340 1,389 Pacificamerica Home Equity Loan Step Up Bond Series 1998-2 Class AF 6.590% due 06/26/28 (c) 598 631 Residential Asset Mortgage Products, Inc. Series 2000-RZ2 Class A3 7.300% due 04/25/23 872 879 Series 2001-RS2 Class AI1 2.550% due 04/25/16 (c) 377 377 Diversified Bond Fund 135 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------- Residential Asset Securities Corp. Series 1999-RS1 Class AI2 6.570% due 10/25/29 800 835 Series 2000-KS5 ClassAI3 7.040% due 05/25/26 525 555 Series 2001-KS2 Class AI1 2.530% due 04/25/18 (c) 287 287 Residential Funding Mortgage Securities II Series 2001-HI3 Class AI1 2.781% due 05/25/09 (c) 649 649 Series 2001-HS3 Class AI1 2.600% due 09/25/12 (c) 2,583 2,580 Ryder Vehicle Lease Trust Series 2001-A Class A3 5.520% due 05/16/05 300 308 Student Loan Marketing Association Series 1996-3 Class A1 3.503% due 10/25/04 (c) 324 324 Superior Wholesale Inventory Financing Trust Series 2001-A7 Class A 2.620% due 03/15/06 (c) 3,190 3,191 Toyota Auto Receivables Owner Trust Series 2001-A Class A4 2.630% due 09/17/07 (c) 1,000 1,000 United Airlines Series 2000-1 Class A-2 7.730% due 07/01/10 1,135 1,118 USAA Automobile Owner Trust Series 2001-1 Class A3 4.690% due 02/15/05 1,600 1,645 Vanderbilt Mortgage & Finance, Inc. Series 1998-B Class 1A6 6.780% due 07/07/28 150 152 Series 1998-C Class 1A6 6.750% due 10/07/28 (c) 200 203 Series 2000-B Class IA2 8.045% due 07/07/12 620 658 World Financial Network Credit Card Master Trust Series 2001-A Class A 2.770% due 06/16/08 (c) 505 507 World Omni Auto Receivables Trust Series 2001-A Class A4 5.510% due 07/20/07 600 629 ------ 94,035 ====== BANKERS ACCEPTANCE NOTES - 0.0% Signet Bank 7.800% due 09/15/06 255 286 ------ CORPORATE BONDS AND NOTES - 22.8% Abbott Laboratories 5.125% due 07/01/04 1,010 1,056 Ahold Finance USA, Inc. 6.250% due 05/01/09 1,160 1,159 Alabama Power Co. Series N 4.875% due 09/01/04 540 557 Albertson's, Inc. 8.000% due 05/01/31 375 418 Allegiance Corp. 7.000% due 10/15/26 130 139 Amerada Hess Corp. 6.650% due 08/15/11 515 528 7.300% due 08/15/31 265 268 America West Airlines Series A 6.850% due 07/02/09 439 436 American Express Co. 6.875% due 11/01/05 525 564 American General Corp. 7.125% due 02/15/04 340 366 American Home Products Corp. 7.900% due 02/15/05 1,310 1,461 AOL Time Warner, Inc. 6.750% due 04/15/11 575 599 7.625% due 04/15/31 590 630 Archer Daniels Midland Co. 8.375% due 04/15/17 665 779 7.000% due 02/01/31 575 598 Associates Corp. of North America 6.500% due 10/15/02 450 466 5.750% due 11/01/03 3,000 3,148 5.500% due 02/15/04 875 912 Series H 7.090% due 04/11/03 400 422 AT&T Corp. 6.500% due 03/15/29 1,015 889 8.625% due 12/01/31 220 229 Avalonbay Communities, Inc. 7.500% due 12/15/10 500 539 6.625% due 09/15/11 250 254 Avco Financial Services, Inc. 6.000% due 08/15/02 800 819 AXA Financial, Inc. 7.750% due 08/01/10 835 941 Baltimore Gas & Electric Co. 6.125% due 07/01/03 910 948 Bank of America Corp. 6.850% due 03/01/03 425 447 136 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- --------- Bank of New York Co., Inc. 6.500% due 12/01/03 195 208 Bank One Corp. 3.689% due 11/14/01 (c) 3,000 3,001 6.875% due 08/01/06 800 864 BankAmerica Corp. 6.875% due 06/01/03 260 275 Series H 5.750% due 03/01/04 400 421 Barnett Bank, Inc. 6.900% due 09/01/05 405 440 BB&T Corp. 6.500% due 08/01/11 500 521 Bear Stearns Co., Inc. 2.950% due 03/28/03 (c) 2,000 2,000 Series B 3.885% due 05/16/03 (c) 500 499 Bell Telephone Co. of Pennsylvania 8.350% due 12/15/30 355 427 Bellsouth Capital Funding Corp. 7.750% due 02/15/10 750 863 BellSouth Telecommunications, Inc. 7.000% due 12/01/95 385 380 Beneficial Corp. 8.400% due 05/15/08 1,235 1,433 Boeing Co. 8.750% due 08/15/21 550 682 Bristol-Myers Squibb Co. 5.750% due 10/01/11 2,730 2,839 British Telecommunications PLC 8.625% due 12/15/30 500 590 Burlington Northern Santa Fe Co. 7.082% due 05/13/29 1,200 1,228 Burlington Resources, Inc. 6.680% due 02/15/11 760 788 Campbell Soup Co. 8.875% due 05/01/21 420 519 Carolina Power & Light Co. 6.875% due 08/15/23 410 409 Caterpillar Financial Services Corp. 9.500% due 02/06/07 420 483 Central Fidelity Banks, Inc. 8.150% due 11/15/02 170 178 Central Power & Light Co. Series FF 6.875% due 02/01/03 600 623 Champion International Corp. 6.400% due 02/15/26 460 481 Chase Manhattan Corp. Series C 6.750% due 12/01/04 700 755 Chesapeake & Potomac Telephone Co. 8.375% due 10/01/29 230 281 Citicorp 9.500% due 02/01/02 120 122 7.125% due 06/01/03 390 415 Citigroup, Inc. 6.875% due 02/15/98 790 806 5.625% due 05/17/04 1,015 1,054 City National Bank 6.375% due 01/15/08 350 358 Clorox Co. 6.125% due 02/01/11 555 573 Coastal Corp. 6.375% due 02/01/09 275 274 Coca Cola Enterprises, Inc. 6.125% due 08/15/11 300 312 7.000% due 10/01/26 675 742 6.750% due 01/15/38 250 256 Comcast Cable Communications 8.375% due 05/01/07 850 968 Commercial Credit Group, Inc. 7.875% due 07/15/04 805 890 6.500% due 06/01/05 540 581 8.700% due 06/15/10 380 453 Conagra Foods, Inc. 7.875% due 09/15/10 500 572 Conagra, Inc. 8.100% due 05/20/02 300 309 Conoco Funding Co. 5.450% due 10/15/06 275 278 6.350% due 10/15/11 1,185 1,203 Consolidated Edison, Inc. 8.125% due 05/01/10 395 457 Series 98-A 6.250% due 02/01/08 795 824 Consolidated Natural Gas Co. Series B 5.375% due 11/01/06 225 228 Countrywide Home Loan Series H 6.250% due 04/15/09 500 513 Series J 5.250% due 06/15/04 500 516 Cox Communications, Inc. 6.500% due 11/15/02 550 568 6.400% due 08/01/08 425 434 7.750% due 11/01/10 300 330 Cox Radio, Inc. 6.625% due 02/15/06 150 156 Credit Suisse First Boston USA, Inc. 5.875% due 08/01/06 720 747 Diversified Bond Fund 137 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- -------- CSX Corp. 7.250% due 05/01/04 225 241 6.250% due 10/15/08 175 179 6.750% due 03/15/11 915 960 CVS Corp. 5.625% due 03/15/06 770 794 DaimlerChrysler North America Holding Corp. 6.400% due 05/15/06 1,960 1,970 7.750% due 01/18/11 1,000 1,035 Deere & Co. 8.100% due 05/15/30 800 926 Dominion Resources, Inc. Series C 7.600% due 07/15/03 450 479 DTE Energy Co. 6.450% due 06/01/06 400 422 Duke Capital Corp. 7.250% due 10/01/04 900 976 Duke Energy Corp. 7.000% due 07/01/33 395 389 Duke Energy Field Services LLC 7.500% due 08/16/05 500 540 Duke Weeks Realty, LP 7.750% due 11/15/09 635 691 6.950% due 03/15/11 225 236 El Paso Corp. 7.000% due 05/15/11 1,250 1,286 EOP Operating, LP 6.500% due 01/15/04 685 722 8.100% due 08/01/10 100 112 7.000% due 07/15/11 500 523 7.875% due 07/15/31 325 347 ERP Operating, LP 6.950% due 03/02/11 200 209 Exelon Corp. 6.750% due 05/01/11 500 524 Federal Express Corp. 6.875% due 02/15/06 305 313 Fifth Third Capital Trust I Series A 8.136% due 03/15/27 315 342 First Bank Systems, Inc. 8.000% due 07/02/04 700 762 First Union Corp. 7.500% due 07/15/06 175 196 6.550% due 10/15/35 275 296 First Union Institutional Capital Trust I 8.040% due 12/01/26 225 238 First Union National Bank 7.125% due 10/15/06 500 551 5.800% due 12/01/08 225 227 Firstar Bank North America 7.125% due 12/01/09 950 1,033 Fleet Financial Group, Inc. 6.875% due 03/01/03 390 410 8.125% due 07/01/04 595 657 Florida Power & Light Co. 6.875% due 12/01/05 3,000 3,253 Ford Motor Co. 7.450% due 07/16/31 1,550 1,455 8.900% due 01/15/32 475 522 Ford Motor Credit Co. 6.700% due 07/16/04 2,000 2,071 6.750% due 05/15/05 350 361 7.600% due 08/01/05 1,000 1,045 6.875% due 02/01/06 2,330 2,386 7.375% due 10/28/09 1,635 1,660 Fort James Corp. 6.625% due 09/15/04 395 399 Fortune Brands, Inc. 7.875% due 01/15/23 380 412 FPL Group Capital, Inc. 6.125% due 05/15/07 510 536 GE Global Insurance Holding Corp. 6.450% due 03/01/19 650 657 General Electric Capital Corp. 8.300% due 09/20/09 235 278 Series A 6.650% due 09/03/02 795 821 General Motors Acceptance Corp. 2.820% due 07/20/04 (c) 3,300 3,214 2.680% due 07/30/04 (c) 800 771 6.125% due 09/15/06 775 772 7.250% due 03/02/11 1,830 1,850 8.000% due 11/01/31 2,730 2,736 Georgia Power Co. Series G 6.200% due 02/01/06 275 290 Goldman Sachs Group, Inc. 6.875% due 01/15/11 1,075 1,138 Series B 7.350% due 10/01/09 725 787 Grand Metropolitan Investment Corp. 7.450% due 04/15/35 300 344 GTE California, Inc. 6.750% due 05/15/27 550 565 Harrahs Operating Co., Inc. 7.500% due 01/15/09 515 520 138 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- --------- Heller Financial, Inc. 6.400% due 01/15/03 255 266 Hertz Corp. 7.625% due 08/01/02 550 565 9.000% due 11/01/09 230 256 Household Finance Corp. 7.200% due 07/15/06 370 406 HSBC USA, Inc. 6.625% due 03/01/09 540 570 Indiana Michigan Power Co. Series B 4.088% due 09/03/02 (c) 500 501 ING Capital Funding Trust III 8.439% due 09/30/49 (c)(g) 850 964 International Business Machines Corp. 6.220% due 08/01/27 250 266 International Paper Co. 6.750% due 09/01/11 150 154 ITT Financial Corp. 7.400% due 11/15/25 955 961 JP Morgan Chase & Co. 6.500% due 08/01/05 300 320 JPM Capital Trust I 7.540% due 01/15/27 225 233 Kellogg Co. Series B 5.500% due 04/01/03 760 784 7.450% due 04/01/31 275 304 KeyCorp 8.000% due 07/01/04 150 164 7.500% due 06/15/06 750 828 Kinder Morgan Energy Partners LP 6.750% due 03/15/11 505 533 Knight-Ridder, Inc. 6.875% due 03/15/29 900 856 Kohls Corp. 6.300% due 03/01/11 505 529 Legg Mason, Inc. 6.750% due 07/02/08 505 531 Lehman Brothers Holdings, Inc. 7.750% due 01/15/05 1,300 1,405 Liberty Property, LP 8.500% due 08/01/10 425 476 Lincoln National Corp. 7.250% due 05/15/05 450 488 6.500% due 03/15/08 200 207 7.000% due 03/15/18 450 459 Loral Corp. 7.000% due 09/15/23 675 685 Lowes Cos., Inc. 6.875% due 02/15/28 680 679 Manufacturers & Traders Trust Co. 7.000% due 07/01/05 435 464 Masco Corp. 6.750% due 03/15/06 590 622 MCI WorldCom, Inc. 6.400% due 08/15/05 (c) 850 875 Mercantile Bancorp. 7.050% due 06/15/04 825 892 Merck & Co., Inc. Series B 5.760% due 05/03/37 1,200 1,274 Morgan (J.P.) & Co., Inc. 5.750% due 02/25/04 200 210 Morgan Stanley Dean Witter 6.100% due 04/15/06 1,265 1,329 Nabisco, Inc. 6.375% due 02/01/35 850 887 National City Corp. 6.875% due 05/15/19 575 582 Nationsbank Corp. 7.750% due 08/15/04 450 494 New England Telephone & Telegraph Co. 7.875% due 11/15/29 235 274 News America Holdings, Inc. 8.500% due 02/15/05 275 300 7.750% due 01/20/24 450 452 8.150% due 10/17/36 360 377 News America, Inc. 6.750% due 01/09/38 425 428 Norfolk Southern Corp. 6.200% due 04/15/09 900 907 7.050% due 05/01/37 1,055 1,123 Northwestern Bell Telephone Co. 7.750% due 05/01/30 630 617 Norwest Financial, Inc. 6.000% due 02/01/04 600 630 6.750% due 06/01/05 200 216 NYNEX Capital Funding Co. Series B 8.750% due 12/01/04 450 508 NYNEX Corp. 9.550% due 05/01/10 264 304 Ocean Energy, Inc. 7.625% due 07/01/05 355 375 Park Place Entertainment Corp. 8.500% due 11/15/06 700 704 Philip Morris Cos., Inc. 6.950% due 06/01/06 295 321 7.200% due 02/01/07 1,000 1,099 7.650% due 07/01/08 310 347 Diversified Bond Fund 139 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- --------- PNC Funding Corp. 6.125% due 09/01/03 500 526 7.500% due 11/01/09 620 686 Praxair, Inc. 6.850% due 06/15/05 700 755 Procter & Gamble Co. Series A 9.360% due 01/01/21 90 119 Progress Energy, Inc. 6.750% due 03/01/06 385 412 7.750% due 03/01/31 250 282 Provident Cos., Inc. 6.375% due 07/15/05 500 514 Qwest Communications International, Inc. Series B 7.500% due 11/01/08 825 856 Qwest Corp. 7.625% due 06/09/03 800 841 Raytheon Co. 6.300% due 03/15/05 880 918 Regions Financial Corp. 7.000% due 03/01/11 500 536 Republic Services, Inc. 6.750% due 08/15/11 610 636 Resolution Funding Corp. Series A 8.875% due 07/15/20 1,855 2,619 8.625% due 01/15/21 715 979 8.625% due 01/15/30 390 574 Safeco Corporation 7.875% due 03/15/03 605 629 Safeway, Inc. 6.150% due 03/01/06 765 809 7.250% due 02/01/31 275 295 SBC Communications, Inc. 6.250% due 03/15/11 1,010 1,056 Sears Roebuck Acceptance Corp. 7.000% due 06/15/07 245 257 6.750% due 01/15/28 500 442 Security Capital Group, Inc. 6.950% due 06/15/05 600 625 Small Business Administration-SBIC Series 10B 7.449% due 08/01/10 298 335 Sprint Capital Corp. 7.125% due 01/30/06 775 823 6.125% due 11/15/08 1,150 1,139 Suntrust Banks, Inc. 7.375% due 07/01/02 700 719 6.250% due 06/01/08 150 158 7.750% due 05/01/10 525 603 TCI Communications, Inc. 7.875% due 02/15/26 175 181 Tele-Communications, Inc. 7.125% due 02/15/28 300 285 Texaco Capital, Inc. 9.750% due 03/15/20 440 606 8.875% due 09/01/21 220 290 Texas Utilities Electric Co. 8.250% due 04/01/04 425 464 Time Warner, Inc. 7.975% due 08/15/04 (f) 300 329 6.875% due 06/15/18 950 939 Times Mirror Co. 7.450% due 10/15/09 350 379 Transamerica Finance Corp. 7.250% due 08/15/02 1,000 1,031 Transocean Sedco Forex, Inc. 7.500% due 04/15/31 1,110 1,119 TRW, Inc. 7.125% due 06/01/09 1,200 1,193 TXU Corp. 6.375% due 06/15/06 510 531 Tyco Intl. Group SA 6.125% due 11/01/08 125 128 UBS PFD Funding Trust I 8.622% due 10/29/49 (c)(g) 505 589 Union Carbide Corp. 7.875% due 04/01/23 590 669 Union Oil Co. 9.400% due 02/15/11 470 578 Union Pacific Corp. 7.600% due 05/01/05 570 626 Union Pacific Railroad Trust Pass-Thru Certificate Series 1996-A2 7.060% due 05/15/03 500 525 United Technologies Corp. 8.750% due 03/01/21 380 480 US Bank National Association Minnesota 2.628% due 12/19/01 (c) 2,000 2,000 5.625% due 11/30/05 500 517 US West Communications, Inc. 7.200% due 11/10/26 500 460 Verizon Global Funding Corp. 7.750% due 12/01/30 600 677 Viacom, Inc. 7.700% due 07/30/10 710 795 Wachovia Corp. 6.800% due 06/01/05 305 326 140 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ ---------- ---------- Wal-Mart Stores, Inc. 7.500% due 05/15/04 300 331 Series 1994-B3 8.800% due 12/30/14 315 390 Washington Mutual Finance Corp. 6.875% due 05/15/11 1,010 1,075 Wells Fargo Co. 6.250% due 11/01/02 525 543 6.375% due 11/15/03 575 609 6.875% due 04/01/06 500 550 Series H 6.750% due 06/15/07 300 328 Westdeutsche Landesbank NY 6.050% due 01/15/09 100 104 Westvaco Corp. 9.750% due 06/15/20 115 137 7.950% due 02/15/31 275 280 Willamette Industries, Inc. 7.850% due 07/01/26 520 561 Williams Cos., Inc. 7.625% due 07/15/19 500 509 WorldCom, Inc. 8.000% due 05/15/06 800 870 7.500% due 05/15/11 1,150 1,176 8.250% due 05/15/31 555 568 ---------- 177,020 ---------- EURODOLLAR BONDS - 1.1% Asian Development Bank 6.250% due 10/24/05 315 343 AXA Financial, Inc. 8.600% due 12/15/30 1,000 1,154 Bank of America Corp. 3.300% due 06/17/02 (c) 3,000 3,003 British Telecommunications PLC 7.625% due 12/15/05 700 765 Deutsche Telekom International Finance BV 8.000% due 06/15/05 1,000 1,079 Deutsche Telekom International Finance BV Step Up Bond 8.250% due 06/15/30 (c) 780 859 Italy, Republic of 6.875% due 09/27/23 150 172 Korea Development Bank 7.375% due 09/17/04 500 540 Stora Enso OYJ 7.375% due 05/15/11 325 353 Telefonica Europe BV 8.250% due 09/15/30 505 566 ---------- 8,834 ---------- MORTGAGE-BACKED SECURITIES - 43.6% Advanta Mortgage Loan Trust Series 97-4 Class M1 7.040% due 01/25/29 186 194 Bank of America Mortgage Securities Series 2001-1 Class A22 7.250% due 02/25/31 4,400 4,594 Bear Stearns Mortgage Securities, Inc. Series 1998-2 Class B 6.750% due 04/30/30 98 103 Chase Commercial Mortgage Securities Corp. Series 1997-1 Class D 7.370% due 06/19/29 300 323 Series 1997-1 Class E 7.370% due 12/19/07 475 507 Series 1997-2 Class D 6.600% due 12/19/07 475 493 CMC Securities Corp. III Series 1994-A Class B1 6.750% due 02/25/24 96 100 Collateralized Mortgage Obligation Trust Series 56 Class B CMO 9.985% due 12/01/18 80 83 Commercial Mortgage Acceptance Corp. Series 1998-C1 Class A1 6.230% due 12/15/07 1,175 1,240 Credit Suisse First Boston Mortgage Securities Corp. Series 2001-CF2 Class A2 5.935% due 02/15/34 3,000 3,149 Series 2001-CK3 Class A3 6.400% due 06/15/34 1,485 1,577 Federal Home Loan Mortgage Corp. 6.000% 15 Year TBA (b) 6,100 6,277 6.000% 30 Year TBA Gold (b) 5,095 5,144 6.500% 30 Year TBA Gold (b) 17,825 18,348 7.000% 30 Year TBA Gold (b) 13,200 13,768 Series 1053 Class G (f) 7.000% due 03/15/21 457 477 Series 1997-81 Class PC 5.000% due 04/18/27 1,000 1,012 Series 2006 Class B 6.500% due 08/15/23 1,823 1,841 Federal Home Loan Mortgage Corp. Participation Certificate 7.000% due 2002 (f) 10 10 6.500% due 2003 22 22 7.000% due 2003 5 5 7.000% due 2003 (f) 74 76 6.750% due 2007 (f) 110 114 Diversified Bond Fund 141 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------ 7.500% due 2007 234 247 7.000% due 2008 217 230 8.000% due 2008 (f) 34 35 8.500% due 2008 (f) 38 41 6.500% due 2009 817 854 7.500% due 2009 722 766 7.500% due 2009 (c) 46 48 8.000% due 2009 81 85 6.500% due 2010 55 58 7.000% due 2010 138 145 7.500% due 2010 17 18 8.000% due 2010 11 12 5.500% due 2011 800 837 6.000% due 2011 2,382 2,472 7.000% due 2011 51 53 7.500% due 2011 92 98 8.000% due 2011 150 158 6.000% due 2012 56 58 7.500% due 2012 257 272 8.000% due 2012 91 96 7.000% due 2014 532 558 7.500% due 2014 126 133 12.000% due 2014 50 57 7.000% due 2015 857 900 7.500% due 2015 355 374 12.000% due 2015 (f) 34 40 9.000% due 2016 241 260 12.500% due 2016 25 29 8.000% due 2017 179 189 9.000% due 2017 2 2 9.000% due 2018 468 507 9.000% due 2020 239 258 9.000% due 2022 71 77 9.000% due 2024 338 362 6.500% due 2025 390 403 8.500% due 2025 229 246 9.000% due 2025 101 109 9.000% due 2026 5 5 8.500% due 2027 969 1,034 6.500% due 2028 1,053 1,086 6.500% due 2030 234 241 7.500% due 2030 957 1,003 7.813% due 2030 257 272 Federal National Mortgage Association (b) 5.500% 15 Year TBA 580 583 6.000% 15 Year TBA 7,295 7,498 6.500% 15 Year TBA 5,770 5,995 6.500% 30 Year TBA 16,875 17,350 7.000% 30 Year TBA 18,690 19,423 7.500% 30 Year TBA 8,990 9,414 8.000% 30 Year TBA 1,870 1,977 Federal National Mortgage Association Pools 8.000% due 2002 25 25 9.500% due 2002 4 4 6.000% due 2003 154 157 7.000% due 2003 137 140 7.500% due 2003 144 148 8.000% due 2003 28 29 9.500% due 2003 29 30 6.500% due 2004 10 10 8.000% due 2004 20 20 6.000% due 2005 3,050 3,307 9.500% due 2005 34 36 9.500% due 2006 33 35 7.000% due 2007 46 49 7.200% due 2007 955 1,066 7.000% due 2008 163 173 7.000% due 2009 244 258 8.000% due 2010 17 18 10.500% due 2010 10 11 6.500% due 2011 956 998 7.000% due 2011 113 119 8.000% due 2011 28 30 6.500% due 2012 238 248 7.000% due 2012 73 77 5.500% due 2013 192 195 6.500% due 2013 50 52 6.500% due 2015 2,975 3,096 7.000% due 2015 141 148 6.500% due 2016 500 519 9.000% due 2016 12 13 8.000% due 2017 282 302 8.500% due 2017 31 33 9.000% due 2017 244 265 8.000% due 2020 17 18 7.500% due 2022 546 577 7.000% due 2023 1,142 1,196 7.500% due 2023 15 16 6.500% due 2024 117 121 7.500% due 2024 438 462 8.000% due 2024 1,032 1,104 7.000% due 2025 210 219 7.500% due 2025 146 154 8.500% due 2025 110 118 7.000% due 2026 53 56 9.000% due 2026 145 157 7.500% due 2027 142 149 6.000% due 2028 7,013 7,127 6.500% due 2028 2,348 2,419 7.500% due 2028 339 357 6.000% due 2029 2,895 2,941 6.500% due 2029 12,071 12,436 142 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ ----------- -------- 7.000% due 2029 937 977 7.000% due 2029 (f) 1,372 1,430 7.500% due 2029 729 764 6.000% due 2031 9,486 9,599 6.500% due 2031 8,936 9,179 Federal National Mortgage Association Series 1993-134 Class H 6.500% due 08/25/08 1,385 1,475 Federal National Mortgage Association (REMIC) Series 1992-10 Class ZD 8.000% due 11/25/21 2,213 2,423 Federal National Mortgage Association ACES Series 1998-M1 Class A 6.250% due 01/25/08 1,250 1,320 Series 1998-M4 Class B 6.424% due 12/25/23 1,125 1,193 Series 1999-M4 Class A 7.354% due 12/25/09 1,268 1,342 Federal National Mortgage Association Grantor Trust Series 2001-T6 Class B 6.088% due 05/25/11 1,530 1,621 Federal National Mortgage Association Interest Only Inverse Floater Series 1993-208 Class SA 0.450% due 02/25/23 (c) 13,627 78 First Union-Lehman Brothers Commercial Mortgage Trust Series 1007-C2 Class A3 6.650% due 12/18/07 455 491 First Union National Bank Commercial Mortgage Series 2001-C2 Class A1 6.204% due 01/12/43 295 311 First Union National Bank Commercial Mortgage Trust Series 2000-C2 Class A1 6.940% due 04/15/10 2,915 3,156 Series 2001-C3 Class A3 6.423% due 08/15/23 1,900 2,021 GMAC Commercial Mortgage Securities, Inc. Series 1996-C1 Class A2A 6.790% due 09/15/03 43 43 Series 1997-C1 Class D 6.997% due 07/15/29 375 401 Series 1997-C1 Class E 7.085% due 11/15/10 625 650 Series 1999-C2 Class A1 6.570% due 09/15/33 1,178 1,253 Series 2001-C2 Class A2 6.700% due 04/15/34 1,600 1,724 Government National Mortgage Association 6.000% 30 Year TBA (b) 1,000 1,017 6.500% 30 Year TBA (b) 22,500 23,237 7.000% 30 Year TBA (b) 1,415 1,477 8.000% due 2007 2 2 6.500% due 2008 85 89 6.500% due 2009 784 824 7.000% due 2011 10 11 8.000% due 2016 3 3 9.500% due 2016 25 28 8.000% due 2017 77 83 10.500% due 2020 99 113 8.000% due 2022 226 242 8.500% due 2022 107 116 7.000% due 2023 (f) 1,348 1,384 7.625% due 2023 (c)(f) 2,282 2,358 6.000% due 2024 (f) 716 733 7.500% due 2025 175 185 8.000% due 2025 630 670 9.000% due 2025 1,932 2,103 6.500% due 2026 171 177 7.500% due 2027 2,091 2,202 8.000% due 2027 15 16 6.500% due 2028 1,455 1,503 6.000% due 2029 1,134 1,154 7.500% due 2029 (c) 1,111 1,168 7.500% due 2029 276 290 8.500% due 2029 126 134 7.500% due 2030 800 841 8.000% due 2030 10,379 10,979 8.500% due 2030 982 1,045 6.500% due 2031 2,838 2,931 7.500% due 2031 5,451 5,729 8.000% due 2031 2,043 2,161 Government National Mortgage Association Series 2001-44 Class A 5.204% due 10/16/14 2,285 2,341 Government National Mortgage Association II 6.500% 30 Year TBA (b) 7,465 7,675 7.500% 30 Year TBA (b) 3,965 4,156 Diversified Bond Fund 143 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- -------- Government National Mortgage Association REMIC Series 1998-23 Class ZA 6.500% due 09/20/28 6,106 6,242 GS Mortgage Securities Corp. II Series 1997-GL Class A2A 6.940% due 07/13/30 372 385 GS Mortgage Securities Corp. II Collateral Strip Interest Series 1997-GL Class A2D 6.940% due 07/13/30 1,085 1,163 Housing Securities, Inc. Series 1994-2 Class A1 6.500% due 07/25/09 418 435 HSBC Mortgage Loan Trust Series 2000-HSB1 Class A3 7.110% due 12/16/30 2,200 2,210 Long Beach Mortgage Loan Trust Series 2000-1 Class AV1 3.045% due 01/21/31 (c) 2,485 2,488 Mellon Residential Funding Corp. Series 1999-TBC2 Class A3 6.580% due 07/25/29 300 311 Series 2000-TBC1 Class A2B 6.922% due 03/25/30 2,230 2,306 Series 2000-TBC3 Class A1 2.550% due 12/15/30 (c) 9,233 8,622 Mellon Residential Funding Corp. Step Up Series 2000-TBC2 Class A1 2.770% due 06/15/30 (c) 705 703 Merrill Lynch Mortgage Invstors, Inc. Series 1996-C2 Class D 6.960% due 11/21/28 350 355 Morgan Stanley Dean Witter Capital I Series 2000-Prin Class A3 7.360% due 05/23/09 1,595 1,762 Series 2001-IQA Class A1 4.570% due 12/18/32 525 526 Morgan Stanley Dean Witter Capital I, Inc. Series 2001-PPM Class A2 6.400% due 02/01/31 315 333 Mortgage Capital Funding, Inc. Series 1998-MC1 Class A1 6.417% due 06/18/07 150 159 Nationslink Funding Corp. Series 1999-SL Class A4 6.654% due 02/10/06 500 534 PNC Mortgage Securities Corp. Series 2000-9 Class A3 7.190% due 09/25/05 1,610 1,654 Residential Funding Mortgage Securities II Series 1997-HS5 Class M1 7.010% due 05/25/27 400 402 Small Business Investment Cos. Series 1999-P10B Class 1 7.540% due 08/10/09 3,866 4,363 Series 2000-10B Class 1 7.452% due 09/01/10 4,863 5,452 Washington Mutual Mortgage Securities Corp. Series 2001-2 Class A1V 2.975% due 01/25/31 (c) 114 114 Series 2001-6 Class IA1 2.630% due 02/25/31 (c) 564 566 ----------- 339,376 ----------- MUNICIPAL BONDS - 0.3% New Jersey, State of, Transportation Trust Fund Authority Revenue, Series A 4.500% due 06/15/19 2,000 1,929 ----------- NON-US BONDS - 0.9% Germany, Federal Republic of 4.500% due 07/04/09 EUR 1,900 1,739 5.375% due 01/04/10 EUR 900 869 5.250% due 07/04/10 EUR 4,220 4,043 5.625% due 01/04/28 EUR 210 204 6.250% due 01/04/30 EUR 100 106 ----------- 6,961 ----------- UNITED STATES GOVERNMENT AGENCIES - 8.5% Federal Home Loan Bank Series TV09 5.790% due 04/27/09 2,580 2,747 Federal Home Loan Mortgage Corp. 7.375% due 05/15/03 21,800 23,418 6.375% due 11/15/03 4,555 4,880 5.250% due 01/15/06 (f) 1,025 1,081 7.000% due 03/15/10 560 645 6.875% due 09/15/10 4,200 4,812 Federal National Mortgage Association 6.250% due 11/15/02 900 938 4.625% due 05/15/03 1,225 1,266 4.750% due 03/15/04 3,200 3,332 5.625% due 05/14/04 1,490 1,584 7.000% due 07/15/05 5,200 5,807 5.250% due 06/15/06 1,880 1,982 144 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------ 6.500% due 04/29/09 4,930 5,029 6.000% due 05/15/10 3,610 3,912 6.210% due 08/06/38 320 344 Government Backed Trust Certificates Series T-3 10.000% due 05/15/02 (f) 38 38 Tennessee Valley Authority Series A 6.375% due 06/15/05 20 22 Series E 6.250% due 12/15/17 3,865 4,163 ---------- 66,000 ---------- UNITED STATES GOVERNMENT TREASURIES - 15.5% United States Inflation-Indexed Treasury Notes 3.500% due 01/15/11 102 106 3.375% due 04/15/32 1,050 1,093 United States Treasury Bond Principal Strip Zero Coupon due 11/15/21 12,540 4,337 United States Treasury Bonds 12.000% due 08/15/13 6,065 8,879 13.250% due 05/15/14 680 1,076 12.500% due 08/15/14 1,235 1,906 8.875% due 08/15/17 3,160 4,527 8.875% due 02/15/19 4,160 6,036 6.375% due 08/15/27 12,045 14,295 3.625% due 04/15/28 329 353 5.500% due 08/15/28 1,400 1,486 5.250% due 11/15/28 4,690 4,806 3.875% due 04/15/29 2,051 2,300 6.250% due 05/15/30 (f) 7,045 8,387 5.375% due 02/15/31 1,325 1,424 United States Treasury Notes 5.125% due 12/31/02 3,345 3,462 4.000% due 04/30/03 9,705 9,960 5.875% due 11/15/04 655 710 5.750% due 11/15/05 8,750 9,521 5.875% due 11/15/05 145 159 4.625% due 05/15/06 3,530 3,688 7.000% due 07/15/06 85 97 6.500% due 10/15/06 9,435 10,643 3.375% due 01/15/07 3,473 3,591 6.250% due 02/15/07 290 325 6.125% due 08/15/07 4,420 4,946 3.625% due 01/15/08 2,527 2,640 8.750% due 11/15/08 1,730 1,937 3.875% due 01/15/09 108 115 5.500% due 05/15/09 30 33 6.000% due 08/15/09 1,000 1,123 6.500% due 02/15/10 1,100 1,276 5.750% due 08/15/10 4,950 5,495 ---------- 120,732 ---------- YANKEE BONDS - 2.9% Abbey National PLC 6.700% due 06/29/49 (c)(g) 2,000 2,035 African Development Bank 9.750% due 12/15/03 325 366 6.750% due 10/01/04 300 323 6.875% due 10/15/15 1,245 1,371 8.800% due 09/01/19 295 374 Alcan, Inc. 6.450% due 03/15/11 505 527 Canadian National Railway Co. 6.800% due 07/15/18 450 448 Carter Holt Harvey, Ltd. 8.875% due 12/01/04 350 390 Commonwealth Bank of Australia Series A 8.500% due 06/01/10 555 658 Diageo Capital PLC 6.125% due 08/15/05 600 629 Hydro-Quebec Series GH 8.250% due 04/15/26 505 639 International American Development Bank 6.950% due 08/01/26 155 178 Manitoba, Province of Series CB 8.800% due 01/15/20 200 273 Series CD 9.250% due 04/01/20 200 284 National Australia Bank, Ltd. Series A 8.600% due 05/19/10 435 516 National Westminster Bank PLC 7.375% due 10/01/09 550 609 8.000% due 04/29/49 (g) 800 877 New Brunswick, Province of 7.125% due 10/01/02 400 418 9.750% due 05/15/20 190 274 Newfoundland, Province of 10.000% due 12/01/20 90 130 Noranda Forest, Inc. 6.875% due 11/15/05 250 254 Nortel Networks, Ltd. 6.125% due 02/15/06 640 489 Nova Scotia, Province of 9.125% due 05/01/21 690 927 Diversified Bond Fund 145 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- -------- Pemex Finance, Ltd. 6.125% due 11/15/03 1,800 1,845 Quebec, Province of Series NN 7.125% due 02/09/24 985 1,094 Saskatchewan, Province of 8.000% due 07/15/04 1,045 1,174 7.375% due 07/15/13 500 589 Skandinaviska Enskilda Banken 6.875% due 02/15/09 320 340 Telus Corp. 7.500% due 06/01/07 550 596 Trans-Canada Pipelines, Ltd. 7.150% due 06/15/06 800 863 Tyco International Group SA 6.375% due 06/15/05 700 736 6.375% due 10/15/11 500 514 7.000% due 06/15/28 600 603 Vodafone Group PLC 7.750% due 02/15/10 1,285 1,424 -------- 22,767 -------- TOTAL LONG-TERM INVESTMENTS (cost $805,086) 837,940 -------- NOTIONAL AMOUNT (000) $ --------- OPTIONS PURCHASED - 0.1% Twelve Month LIBOR (e) Sep 4.07% Call 4,350 37 Three Month LIBOR May 4.00% Call (e) 10,900 255 United States Treasury Notes (e) Jan 99.44 Call 2,175 97 Dec 104.23 Call 4,000 10 -------- TOTAL OPTIONS PURCHASED (cost $98) 399 -------- PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- -------- SHORT-TERM INVESTMENTS - 16.2% Federal Home Loan Mortgage Discount Notes Zero Coupon due 11/14/01 2,475 2,473 Federal National Mortgage Association Discount Notes Zero Coupon due 11/14/01 2,300 2,298 Zero Coupon due 12/13/01 4,725 4,713 Frank Russell Investment Company Money Market Fund (a) 112,345 112,345 UBS Finance, Inc. 6.610% due 01/18/01 4,600 4,600 -------- TOTAL SHORT-TERM INVESTMENTS (cost $126,433) 126,429 -------- TOTAL INVESTMENTS - 124.0% (identified cost $931,617) 964,768 OTHER ASSETS AND LIABILITIES, NET - (24.0%) (186,958) -------- NET ASSETS - 100.0% 777,810 ======== (a) At net asset value. (b) Forward commitment. (c) Adjustable or floating rate security. (d) Represents notional amounts. (e) Nonincome-producing security. (f) Held as collateral in connection with options written purchased by the Fund. (g) Perpetual floating rate note. Abbreviations: CMO - Collateralized Mortgage Obligation LIBOR - London Interbank Offered Rate REMIC - Real Estate Mortgage Investment Conduit TBA - To Be Announced Security Foreign Currency Abbreviations: EUR - Euro dollar USD - United States dollar See accompanying notes which are an integral part of the financial statements. 146 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 NOTIONAL MARKET AMOUNT VALUE (000) (000) OPTIONS WRITTEN $ $ -------- ------ Federal National Mortgage Association Dec 102.17 Call 4,350 10 Twelve Month LIBOR Sep 2.82 Call 4,350 10 Sep 4.57 Put 4,350 4 United States Treasury Notes Jan 102.91 Call 2,175 47 Jan 95.97 Put 2,175 2 ------- Total Liability for Options Written (premiums received $60) 73 ======= FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - ------------- -------------- ---------- -------------- EUR 42 USD 38 11/29/01 $ 1 EUR 125 USD 113 11/29/01 1 USD 93 EUR 104 11/29/01 -- ---------- $ 2 ========== See accompanying notes which are an integral part of the financial statements. Diversified Bond Fund 147 DIVERSIFIED BOND FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (including securities on loan of $76,398), (identified cost $931,617) ......... $ 964,768 Cash ................................................................................................ 1,977 Unrealized appreciation on forward foreign currency exchange contracts .............................. 2 Receivables: Dividends and interest ............................................................................ 7,914 Investments sold (regular settlement) ............................................................. 9,835 Investments sold (delayed settlement) ............................................................. 22,645 Fund shares sold .................................................................................. 1,788 Investment of securities lending collateral in money market funds, at cost and market value ......... 77,714 ------------ Total assets .................................................................................. 1,086,643 LIABILITIES Payables: Investments purchased (regular settlement) ........................................... $ 64,667 Investments purchased (delayed settlement) ............................................ 164,474 Fund shares redeemed .................................................................. 1,372 Accrued fees to affiliates ............................................................ 419 Other accrued expenses ................................................................ 114 Options written, at market value (premiums received $60) ................................ 73 Payable upon return of securities loaned, at market ..................................... 77,714 ---------- Total liabilities ............................................................................. 308,833 ------------ NET ASSETS .......................................................................................... $ 777,810 ============ NET ASSETS CONSIST OF: Undistributed net investment income ................................................................. $ 4,087 Accumulated distributions in excess of net realized gain ............................................ (15,059) Unrealized appreciation (depreciation) on: Investments ....................................................................................... 33,151 Options written ................................................................................... (13) Foreign currency-related transactions ............................................................. 43 Shares of beneficial interest ....................................................................... 323 Additional paid-in capital .......................................................................... 755,278 ------------ NET ASSETS .......................................................................................... $ 777,810 ============ NET ASSET VALUE, offering and redemption price per share: Class C ($15,026,431 divided by 613,614 shares of $.01 par value shares of beneficial interest outstanding)...................................................... $ 24.49 ============ Class E ($17,763,198 divided by 723,931 shares of $.01 par value shares of beneficial interest outstanding) ..................................................... $ 24.54 ============ Class S ($745,020,361 divided by 31,000,518 shares of $.01 par value shares of beneficial interest outstanding) ..................................................... $ 24.03 ============
See accompanying notes which are an integral part of the financial statements. 148 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Interest ................................................................... $ 43,706 Dividends from Money Market Fund ........................................... 2,681 Securities Lending Income .................................................. 67 Dividends .................................................................. 18 ---------- Total investment income ................................................. 46,472 EXPENSES Advisory fees ................................................. $ 2,924 Administrative fees ........................................... 434 Custodian fees ................................................ 581 Distribution fees - Class C ................................... 80 Transfer agent fees ........................................... 589 Professional fees ............................................. 80 Registration fees ............................................. 112 Shareholder servicing fees - Class C .......................... 27 Shareholder servicing fees - Class E .......................... 25 Trustees' fees ................................................ 20 Miscellaneous ................................................. 67 ---------- Expenses before reductions .................................... 4,939 Expense reductions ............................................ (37) ---------- Expenses, net .......................................................... 4,902 ---------- Net investment income ........................................................ 41,570 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments .................................................. 20,216 Options written .............................................. (21) Foreign currency-related transactions ........................ 535 20,730 ---------- Net change in unrealized appreciation (depreciation) on: Investments .................................................. 36,544 Options written .............................................. (4) Foreign currency-related transactions ........................ (136) 36,404 ---------- ---------- Net realized and unrealized gain (loss) ...................................... 57,134 ---------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ........................ $ 98,704 ==========
See accompanying notes which are an integral part of the financial statements. Diversified Bond Fund 149 DIVERSIFIED BOND FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ----------------- ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income ............................................ $ 41,570 $ 39,798 $ 48,367 Net realized gain (loss) ......................................... 20,730 (6,958) (17,842) Net change in unrealized appreciation (depreciation) ............. 36,404 20,560 (41,278) ------------ ------------ ------------ Net increase (decrease) in net assets from operations ......... 98,704 53,400 (10,753) ------------ ------------ ------------ DISTRIBUTIONS From net investment income Class C ....................................................... (476) (229) (122) Class E ....................................................... (503) (190) (255) Class S ....................................................... (41,596) (34,810) (48,247) From net realized gain Class C ....................................................... -- -- (2) Class E ....................................................... -- -- (29) Class S ....................................................... -- -- (4,549) Tax return of capital Class S ....................................................... -- -- (880) ------------ ------------ ------------ Net decrease in net assets from distributions .............. (42,575) (35,229) (54,084) ------------ ------------ ------------ SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions..... (5,279) (65,176) 25,338 ------------ ------------ ------------ TOTAL NET INCREASE (DECREASE) IN NET ASSETS ........................ 50,850 (47,005) (39,499) NET ASSETS Beginning of period .............................................. 726,960 773,965 813,464 ------------ ------------ ------------ End of period (including undistributed net investment income of $4,087 at October 31, 2001 and $4,755 at October 31, 2000) ....... $ 777,810 $ 726,960 $ 773,965 ============ ============ ============
See accompanying notes which are an integral part of the financial statements. 150 Diversified Bond Fund DIVERSIFIED BOND FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* 2000** 1999*** -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ........ $ 22.71 $ 22.24 $ 24.00 -------- -------- -------- INCOME FROM OPERATIONS Net investment income (a) ................ 1.06 .99 1.03 Net realized and unrealized gain (loss) .. 1.81 .41 (1.61) -------- -------- -------- Total income from operations ........... 2.87 1.40 (.58) -------- -------- -------- DISTRIBUTIONS From net investment income ............... (1.09) (.93) (1.05) From net realized gain ................... -- -- (.13) -------- -------- -------- Total distributions .................... (1.09) (.93) (1.18) -------- -------- -------- NET ASSET VALUE, END OF PERIOD .............. $ 24.49 $ 22.71 $ 22.24 ======== ======== ======== TOTAL RETURN (%)(b) ......................... 13.02 6.44 (2.47) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands).. 15,027 7,315 4,652 Ratios to average net assets (%)(c): Operating expenses, net ................ 1.64 1.62 1.62 Operating expenses, gross .............. 1.64 1.63 1.62 Net investment income .................. 4.53 5.37 4.88 Portfolio turnover rate (%) .............. 155.87 128.88 152.23 * For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period January 27, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Diversified Bond Fund 151 DIVERSIFIED BOND FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ----------------------------------------- 2001* 2000** 1999 1998 1997 1996*** -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 22.75 $ 22.23 $ 23.92 $ 24.06 $ 22.98 $ 23.16 -------- -------- -------- -------- -------- -------- INCOME FROM OPERATIONS Net investment income (a) ...................... 1.22 1.13 1.30 1.32 1.22 .25 Net realized and unrealized gain (loss) ........ 1.84 .44 (1.65) .45 .66 (.09) -------- -------- -------- -------- -------- -------- Total income from operations ................. 3.06 1.57 (.35) 1.77 1.88 .16 -------- -------- -------- -------- -------- -------- DISTRIBUTIONS From net investment income ..................... (1.27) (1.05) (1.21) (1.56) (.72) (.34) From net realized gain ......................... -- -- (.13) (.35) (.08) -- -------- -------- -------- -------- -------- -------- Total distributions .......................... (1.27) (1.05) (1.34) (1.91) (.80) (.34) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD ................... $ 24.54 $ 22.75 $ 22.23 $ 23.92 $ 24.06 $ 22.98 ======== ======== ======== ======== ======== ======== TOTAL RETURN (%)(b) .............................. 13.87 7.25 (1.51) 7.63 8.35 .67 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ....... 17,763 5,492 3,639 4,703 2,469 962 Ratios to average net assets (%)(c): Operating expenses, net ...................... .89 .87 .87 .98 1.29 1.31 Operating expenses, gross .................... .89 .88 .87 .98 1.29 1.31 Net investment income ........................ 5.22 6.13 5.49 5.42 5.64 5.75 Portfolio turnover rate (%) .................... 155.87 128.88 152.23 216.88 172.43 138.98
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 152 Diversified Bond Fund DIVERSIFIED BOND FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ---------------------------------------------- 2001* 2000** 1999 1998 1997 1996 --------- --------- --------- ---------- --------- --------- NET ASSET VALUE, BEGINNING OF PERIOD .................. $ 22.31 $ 21.77 $ 23.53 $ 23.43 $ 22.97 $ 23.69 --------- --------- --------- ---------- --------- --------- INCOME FROM OPERATIONS Net investment income (a) ......................... 1.29 1.16 1.31 1.38 1.45 1.47 Net realized and unrealized gain (loss) ............ 1.75 .41 (1.60) .47 .56 (.71) --------- --------- --------- ---------- --------- --------- Total income from operations ..................... 3.04 1.57 (.29) 1.85 2.01 .76 --------- --------- --------- ---------- --------- --------- DISTRIBUTIONS From net investment income ......................... (1.32) (1.03) (1.32) (1.40) (1.47) (1.48) From net realized gain ............................. -- -- (.13) (.35) (.08) -- Tax return of capital .............................. -- -- (.02) -- -- -- --------- --------- --------- ---------- --------- --------- Total distributions .............................. (1.32) (1.03) (1.47) (1.75) (1.55) (1.48) --------- --------- --------- ---------- --------- --------- NET ASSET VALUE, END OF PERIOD ........................ $ 24.03 $ 22.31 $ 21.77 $ 23.53 $ 23.43 $ 22.97 ========= ========= ========= ========== ========= ========= TOTAL RETURN (%)(b) ................................... 14.11 7.40 (1.26) 8.09 9.09 3.43 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ........... 745,020 714,153 765,674 808,761 687,331 554,804 Ratios to average net assets (%)(c): Operating expenses, net .......................... .64 .62 .61 .57 .60 .61 Operating expenses, gross ........................ .65 .63 .61 .57 .60 .61 Net investment income ............................ 5.60 6.35 5.78 5.83 6.35 6.46 Portfolio turnover rate (%) ....................... 155.87 128.88 152.23 216.88 172.43 138.98
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Diversified Bond Fund 153 MULTISTRATEGY BOND FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide maximum total return, primarily through capital appreciation and by assuming a higher level of volatility than is ordinarily expected from broad fixed-income market portfolios. INVESTS IN: Fixed-income securities. STRATEGY: The Fund uses a multi-style, multi-manager strategy intended to achieve higher returns by assuming the additional risk of investment in non-investment grade US fixed-income securities, and foreign bonds including emerging markets debt in addition to US investment grade fixed-income instruments. The Fund employed the investment management services of four managers, each employing a distinct approach to the broad market-sector rotation style. GROWTH OF A $10,000 INVESTMENT Dates Multistrategy Bond - Class S LB Aggregate** - ----- ---------------------------- -------------- Inception* $10,000 $10,000 1993 $10,893 $10,802 1994 $10,414 $10,406 1995 $11,886 $12,034 1996 $12,731 $12,738 1997 $13,891 $13,870 1998 $14,806 $15,165 1999 $15,004 $15,246 2000 $15,914 $16,359 2001 $17,931 $18,741 YEARLY PERIODS ENDED OCTOBER 31 MULTISTRATEGY BOND FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ---------- -------------- 1 Year $11,267 12.68% 5 Years $14,085 7.09%(S) Inception* $17,931 6.89%(S) MULTISTRATEGY BOND FUND - CLASS E++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ---------- -------------- 1 Year $11,240 12.40% 5 Years $13,927 6.91%(S) Inception* $17,787 6.80%(S) MULTISTRATEGY BOND FUND - CLASS C ++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ------------ -------------- 1 Year $11,157 11.58% 5 Years $13,691 6.48%(S) Inception* $17,430 6.55%(S) LEHMAN BROTHERS AGGREGATE BOND INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - --------------- ------------ -------------- 1 Year $11,456 14.56% 5 Years $14,713 8.03%(S) Inception* $18,741 7.44%(S) 154 Multistrategy Bond Fund MULTISTRATEGY BOND FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the year ended October 31, 2001, the Multistrategy Bond Fund Class S, Class E and Class C shares reflected total returns of 12.68%, 12.40%, and 11.58%, respectively. This compared to a 14.56% return for the Lehman Brothers Aggregate Bond Index. Holdings of non-Treasury instruments, most notably an allocation to high yield issues, and to a lesser extent, positions within emerging market debt, caused the Fund to trail its benchmark, the Lehman Brothers Aggregate Bond Index, over the past twelve months. PORTFOLIO HIGHLIGHTS As a result of the continued slowing of the US economy during the latter part of 2000, investors waited in anticipation for the Federal Reserve Board (Fed) to cut interest rates. As 2001 began, the Fed wasted little time, as it slashed 50 basis points off the federal funds rate on the first trading day of the new year. After that initial action, the Fed made an unprecedented eight additional cuts during the fiscal period, dropping the key interest rate by 400 basis points in 10 months. Although the impact of the consecutive rate cuts was much more significant in the short end of the market, the US Treasury's October 2001 announcement that it would cease issuance of the 30-year bond dramatically lowered yields on the long end, and to a lesser extent, within the intermediate range of the yield curve. During the period, asset backed securities and government agency issues were among the strongest sectors of the fixed-income market. While the Fund had a slight overweight to asset-backed securities, its managers typically substituted high quality government agency issues for other securities that did not perform as well over this period. During the past twelve months, as concerns of an impending economic slowdown and other threats to US interests caused investors to bid up the price of US Treasury issues, the Fund's performance was dampened, as it maintained an underweight allocation to the sector. Additionally, the Fund's positions within the more aggressive sectors of the market, such as high yield and emerging markets, also negatively impacted returns, as these sectors trailed due to concerns about the strength of the US economy. TOP TEN ISSUERS (as a percent of Total Investments) October 31, 2001 Federal National Mortgage Association 21.8% Government National Mortgage Association 13.3 United States Treasury 7.9 Federal Home Loan Mortgage Corp. 7.3 Ford Motor Credit Co. 1.7 BP Amoco Capital PLC 1.3 Federal Home Loan Bank 1.1 Sprint Capital Corp. 1.0 DaimlerChrysler North America Holding Corp. 1.0 TRW, Inc. 0.9 PORTFOLIO CHARACTERISTICS October 31, 2001 Weighted Average Quality Diversification AA Weighted Average Years-to-Maturity 4.9 Years Weighted Average Duration 4.1 Years Current Yield (SEC 30-day standardized) Class S 4.6% Class E 4.5% Class C 3.5% Number of Issues 851 Number of Issuers 569 MONEY MANAGERS STYLE Lazard Asset Management Sector Rotation Morgan Stanley Investments, LP Sector Rotation Pacific Investment Management Company, LLC Sector Rotation Standish Mellon Asset Management Company, LLC Sector Rotation * Multistrategy Bond Fund Class S assumes initial investment on January 29, 1993. Lehman Brothers Index comparison for the initial investment began February 1, 1993. ** Lehman Brothers Aggregate Bond Index is composed of securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Indexes are rebalanced monthly by market capitalization. ++ Multistrategy Bond Fund S performance has been linked with Class E to provide historical perspective. For the period September 11, 1998 (commencement of sale) through the current period, Class E paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Multistrategy Bond Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Multistrategy Bond Fund 155 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------- Long-Term Investments - 95.3% Asset-Backed Securities - 4.6% ACLC Franchise Loan Receivables Series 1997-B Class A1 6.728% due 04/15/14 812 811 Americredit Automobile Receivables Trust Series 2001-D Class A4 4.410% due 11/12/08 1,550 1,559 Arcadia Automobile Receivables Trust Series 1997-D Class A3 6.200% due 05/15/03 45 45 Associates Automobile Receivables Trust Series 2000-1 Class M 7.510% due 05/15/05 645 688 BMW Vehicle Lease Trust Series 2000-A Class A2 6.650% due 02/25/03 402 406 Capital One Master Trust Series 2001-7A Class A 3.850% due 08/15/07 1,850 1,865 Centex Home Equity Loan Trust Series 2001-B Class A1 4.930% due 11/25/16 562 568 Chase Manhattan Automobile Owner Trust Series 2001-B Class A4 3.800% due 05/15/08 1,025 1,025 Citibank Credit Card Issuance Trust Series 2000-C1 Class C1 7.450% due 09/15/07 1,055 1,139 Series 2001-A6 Class A6 5.650% due 06/15/08 1,775 1,872 Connecticut RRB Special Purpose Trust Series 2001-1 Class A5 6.000% due 12/30/11 550 596 Conseco Finance Corp. Securitizations Series 2000-B Class AF1 6.940% due 11/15/14 31 31 Series 2000-1 Class A1 3.000% due 12/15/29 (b) 2,883 2,893 Series 2000-C Class A 6.840% due 05/01/31 36 36 DaimlerChrysler Auto Trust Series 2000-E Class A2 6.210% due 12/08/03 408 415 Series 2001-C Class A2 3.710% due 07/06/04 800 809 Series 2001-D Class A4 3.780% due 02/06/07 1,300 1,300 Detroit Edison Securitization Funding, LLC Series 2001-1 Class A3 5.875% due 03/01/10 330 350 Series 2001-1 Class A5 6.420% due 03/01/15 385 416 EQCC Home Equity Loan Trust Series 1999-3 Class A1F 6.548% due 04/25/10 8 8 Federal Housing Authority 7.430% due 07/01/22 1,533 1,564 Fleet Credit Card Master Trust II Series 2001-C Class A 3.860% due 03/15/07 1,400 1,413 Ford Credit Auto Owner Trust Series 2001-A Class A3 5.350% due 07/15/03 459 464 Series 2001-E Class B 4.480% due 06/15/06 2,000 2,009 Greenpoint Manufactured Housing Series 1999-5 Class A1 6.750% due 04/15/11 38 38 Harley-Davidson Eaglemark Motorcycle Trust Series 1999-3 Class A1 6.220% due 02/15/04 56 56 Household Home Equity Loan Trust Series 1999-1 Class A1 6.830% due 12/20/16 27 27 Lehman ABS Manufactured Housing Contract Series 2001-B Class A1 3.010% due 03/15/10 550 550 MBNA Master Credit Card Trust Series 1999-J Class B 7.400% due 02/15/12 1,500 1,665 Series 2000-E Class A 7.800% due 10/15/12 600 701 Nissan Automobile Receivables Grantor Trust Series 1998-A Class A 5.450% due 04/15/04 100 101 Nissan Automobile Receivables Owner Trust Series 2000-C Class A2 6.710% due 03/17/03 353 357 Peco Energy Transition Trust Series 2000-A Class A3 7.625% due 03/01/10 575 664 Series 2001-A Class A1 6.520% due 12/31/10 425 466 156 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------- PSE&G Transition Funding, LLC Series 2001-1 Class A6 6.610% due 06/15/15 330 362 Residential Asset Securities Corp. Series 2000-KS5 Class AI1 7.205% due 09/25/16 255 258 Student Loan Marketing Association Series 1996-4 Class A1 3.000% due 07/25/04 (b) 503 501 Series 1997-3 Class A1 3.000% due 04/25/06 (b) 829 828 Toyota Auto Receivables Owner Trust Series 2001-A Class A2 5.300% due 12/15/03 232 234 Series 2001-C Class A2 3.770% due 07/15/04 800 810 ------- 29,900 ------- CORPORATE BONDS AND NOTES - 29.0% Adelphia Communications Corp. 9.250% due 10/01/02 225 225 8.375% due 02/01/08 30 27 7.875% due 05/01/09 65 55 9.375% due 11/15/09 360 324 10.875% due 10/01/10 815 782 AES Corp. 8.875% due 02/15/11 800 728 Aetna, Inc. 7.875% due 03/01/11 385 401 Agrilink Foods, Inc. 11.875% due 11/01/08 35 31 Ahold Finance USA, Inc. 6.250% due 05/01/09 500 499 8.250% due 07/15/10 90 102 6.875% due 05/01/29 715 692 Alamosa Delaware, Inc. 12.500% due 02/01/11 35 34 Albertson's, Inc. 7.500% due 02/15/11 1,235 1,358 8.000% due 05/01/31 300 334 Allied Waste North America, Inc. Series B 7.375% due 01/01/04 900 891 10.000% due 08/01/09 220 222 Amerada Hess Corp. 5.900% due 08/15/06 925 947 American Airlines, Inc. 9.710% due 01/02/07 261 247 Series 1990-H 9.800% due 01/02/08 1,190 1,227 American Cellular Corp. 9.500% due 10/15/09 120 121 American General Corp. 7.500% due 07/15/25 110 124 American Home Products Corp. 6.700% due 03/15/11 440 474 Ameristar Casinos, Inc. 10.750% due 02/15/09 460 481 Amresco, Inc. Series 98-A 9.875% due 03/15/05 520 191 Anchor Gaming 9.875% due 10/15/08 500 540 AOL Time Warner, Inc. 7.625% due 04/15/31 450 480 Aramark Corp. 6.750% due 08/01/04 950 960 Argosy Gaming Co. 10.750% due 06/01/09 75 82 AT&T Capital Corp. Series F 6.600% due 05/15/05 750 803 AT&T Corp. 6.500% due 03/15/29 130 114 AT&T Corp. - Liberty Media Corp. 8.250% due 02/01/30 760 710 AT&T Wireless Services, Inc. 8.750% due 03/01/31 300 342 Atrium Companies, Inc. Series B 10.500% due 05/01/09 75 62 Avalon Bay Communities, Inc. (h) 6.500% due 07/15/03 450 469 6.625% due 01/15/05 450 471 6.625% due 09/15/11 275 279 Avon Products Inc. 7.150% due 11/15/09 810 870 AXA Financial, Inc. 6.500% due 04/01/08 180 190 7.000% due 04/01/28 420 431 Baker Hughes, Inc. 6.875% due 01/15/29 800 813 Banc One Corp. 7.625% due 10/15/26 305 336 Banesto Delaware, Inc. 8.250% due 07/28/02 500 518 Bank of America Corp. 3.000% due 10/22/04 (b) 925 924 Bank One Corp. 6.000% due 08/01/08 1,100 1,129 Series A 6.000% due 02/17/09 175 177 BankAmerica Corp. 5.875% due 02/15/09 800 813 Multistrategy Bond Fund 157 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ -------- -------- Beckman Coulter, Inc. 7.100% due 03/04/03 875 907 7.450% due 03/04/08 175 187 BellSouth Telecommunications, Inc. 6.375% due 06/01/28 685 660 Belo Corp. 8.000% due 11/01/08 60 59 Beneficial Corp. 3.000% due 04/02/02 (b) 2,000 2,002 Bristol-Myers Squibb Co. 5.750% due 10/01/11 830 863 British Telecommunications PLC 4.000% due 12/15/03 (b) 3,400 3,432 8.125% due 12/15/10 875 992 8.625% due 12/15/30 370 437 Buckeye Technologies, Inc. 9.250% due 09/15/08 135 126 Building Materials Corp. Series B 7.750% due 07/15/05 30 24 Building One Services Corp. 10.500% due 05/01/09 85 64 Calpine Corp. 8.500% due 02/15/11 420 429 Caraustar Industries, Inc. 9.875% due 04/01/11 35 36 Centex Corp. 7.875% due 02/01/11 220 230 Charter Communications Holdings, LLC 8.250% due 04/01/07 750 705 8.625% due 04/01/09 145 138 11.750% due 01/15/10 (b) 260 178 13.500% due 01/15/11 190 121 Chase Manhattan Corp. 7.000% due 11/15/09 250 269 Chrysler Financial Corp., LLC Series R 3.000% due 03/10/03 (b) 1,000 997 Cigna Corp. 6.375% due 10/15/11 275 281 Cincinnati Financial Corp. 6.900% due 05/15/28 1,000 995 Citicorp 6.375% due 11/15/08 1,046 1,109 Citigroup, Inc. 7.250% due 10/01/10 520 576 6.500% due 01/18/11 3,000 3,196 Clear Channel Communications 7.650% due 09/15/10 195 209 Cleveland Electric Illumination Co. 7.430% due 11/01/09 750 811 Cleveland Electric/Toledo Edison Series B 7.670% due 07/01/04 225 243 CMS Energy Corp. 8.125% due 05/15/02 375 378 7.500% due 01/15/09 225 219 Coastal Corp. 7.750% due 06/15/10 1,100 1,189 Coca-Cola Enterprises, Inc. 8.500% due 02/01/22 900 1,102 Columbia/HCA Healthcare Corp. 8.850% due 01/01/07 225 244 7.500% due 12/15/23 590 549 Comcast Cable Communications 6.750% due 01/30/11 65 67 Comcast Corp. 7.625% due 02/15/08 100 107 Commercial Federal Corp. 7.950% due 12/01/06 100 99 Computer Sciences Corp. 7.375% due 06/15/11 1,030 1,096 Comstock Resources, Inc. 11.250% due 05/01/07 80 80 Conagra Foods, Inc. 6.750% due 09/15/11 1,250 1,330 Conmed Corp. 9.000% due 03/15/08 300 302 Conoco, Inc. 6.950% due 04/15/29 610 604 Consolidated Natural Gas Co. Series C 6.250% due 11/01/11 120 123 Continental Airlines, Inc. Series 974A 6.900% due 01/02/18 336 312 Cox Communications, Inc. 7.750% due 11/01/10 585 643 Cox Radio, Inc. 6.625% due 02/15/06 650 676 Credit Suisse First Boston USA, Inc. 5.875% due 08/01/06 560 581 Crescent Real Estate Equities 7.000% due 09/15/02 (h) 925 931 Crompton Corp. 8.500% due 03/15/05 50 53 Crown Castle International Corp. 10.750% due 08/01/11 145 138 CSC Holdings, Inc. 7.875% due 12/15/07 75 79 7.250% due 07/15/08 395 392 7.625% due 07/15/18 55 51 158 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------ Series B 7.625% due 04/01/11 650 654 8.125% due 08/15/09 225 234 CSX Corp. 6.750% due 03/15/11 560 588 6.800% due 12/01/28 825 799 DaimlerChrysler North America Holding Corp. 6.590% due 06/18/02 100 101 4.000% due 12/16/02 (b) 2,500 2,485 7.400% due 01/20/05 1,325 1,370 8.000% due 06/15/10 200 210 8.500% due 01/18/31 220 230 Series C 4.000% due 08/21/03 (b) 3,000 2,933 Davita, Inc. 7.000% due 05/15/09 300 280 Series B 9.250% due 04/15/11 50 52 Del Webb Corp. 9.750% due 01/15/08 475 485 Delphi Automotive Systems Corp. 7.125% due 05/01/29 110 101 Delta Air Lines, Inc. 7.700% due 12/15/05 550 501 8.300% due 12/15/29 525 420 Detroit Edison Co. 6.125% due 10/01/10 55 56 Devon Energy Corp. 4.950% due 08/15/08 225 230 Dial Corp. 7.000% due 08/15/06 300 306 Dime Bancorp, Inc. 9.000% due 12/19/02 550 582 Dominion Resources, Inc. Series A 8.125% due 06/15/10 500 573 DTE Energy Co. 7.050% due 06/01/11 880 950 Duke-Weeks Realty, LP (h) 6.875% due 03/15/05 125 131 6.950% due 03/15/11 775 812 Dura Operating Corp. Series D 9.000% due 05/01/09 140 119 Dynegy, Inc. 7.450% due 07/15/06 519 562 Echostar Broadband Corp. 10.375% due 10/01/07 110 113 El Paso Corp. 7.000% due 05/15/11 1,230 1,265 El Paso Energy Corp. 8.050% due 10/15/30 500 529 Emmis Communications Step Up Bond 12.500% due 03/15/11 (b) 120 67 Enron Corp. 7.875% due 06/15/03 900 757 7.375% due 05/15/19 1,100 794 EOP Operating, LP 6.500% due 01/15/04 1,100 1,160 7.500% due 04/19/29 510 510 ERP Operating, LP 6.950% due 03/02/11 425 444 Federated Department Stores, Inc. 7.000% due 02/15/28 325 290 6.900% due 04/01/29 150 132 Finova Group, Inc. 7.500% due 11/15/09 600 222 First Security Corp. 5.875% due 11/01/03 3,000 3,136 First Union Corp. 7.550% due 08/18/05 875 968 Fleet Boston Corp. 7.375% due 12/01/09 500 549 Fleet Boston Financial Corp. 7.250% due 09/15/05 875 960 Ford Motor Co. 6.625% due 10/01/28 200 170 7.450% due 07/16/31 470 441 Ford Motor Credit Co. 8.200% due 02/15/02 2,755 2,785 3.000% due 06/23/03 (b) 2,175 2,143 6.700% due 07/16/04 1,400 1,450 7.600% due 08/01/05 5,100 5,331 5.800% due 01/12/09 500 465 7.375% due 10/28/09 920 934 Fred Meyer, Inc. 7.450% due 03/01/08 450 485 General Electric Capital Corp. Series A 7.375% due 01/19/10 370 429 General Motors Acceptance Corp. 4.599% due 11/07/03 (b) 1,200 1,178 3.000% due 04/05/04 (b) 2,000 1,978 3.000% due 07/20/04 (b) 1,600 1,558 4.000% due 07/30/04 (b) 2,200 2,120 7.500% due 07/15/05 900 939 6.125% due 09/15/06 715 712 6.875% due 09/15/11 340 334 8.000% due 11/01/31 110 110 General Motors Acceptance Corp. of Canada, Ltd. 4.000% due 08/18/03 (b) 1,900 1,865 Multistrategy Bond Fund 159 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ -------- -------- GEO Specialty Chemicals, Inc. 10.125% due 08/01/08 50 43 Global Crossing Holdings, Ltd. 8.700% due 08/01/07 280 41 9.625% due 05/15/08 50 8 Golden State Holdings 7.125% due 08/01/05 1,625 1,673 Goldman Sachs Group, Inc. 6.875% due 01/15/11 535 567 Goodyear Tire & Rubber Co. 7.857% due 08/15/11 165 160 GS Escrow Corp. 7.000% due 08/01/03 125 128 GTE Corp. 6.940% due 04/15/28 310 319 GTE North, Inc. 6.900% due 11/01/08 195 212 Harrahs Operating Co., Inc. 8.000% due 02/01/11 265 274 Hartford Financial Services Group 7.900% due 06/15/10 80 91 Hartford Life, Inc. 7.650% due 06/15/27 220 244 7.375% due 03/01/31 110 119 HCA - The Healthcare Co. 8.750% due 09/01/10 175 197 7.875% due 02/01/11 325 347 Health Net, Inc. 8.375% due 04/15/11 200 214 Healthcare Realty Trust 8.125% due 05/01/11 900 943 Healthsouth Corp. 10.750% due 10/01/08 70 78 Heller Financial, Inc. Series J 3.000% due 10/03/02 (b) 1,700 1,708 HMH Properties, Inc. Series A 7.875% due 08/01/05 80 70 Honeywell International, Inc. 6.125% due 11/01/11 350 360 Horseshoe Gaming Holding Corp. 8.625% due 05/15/09 475 480 Household Finance Corp. 7.875% due 03/01/07 504 569 5.875% due 02/01/09 560 560 8.000% due 07/15/10 280 319 Huntsman ICI Holdings LLC Zero Coupon due 12/31/09 500 123 Inter-American Development Bank 5.375% due 01/18/06 2,100 2,205 Intermedia Communications, Inc. Series B 8.500% due 01/15/08 115 116 International Paper Co. 8.000% due 07/08/03 600 641 6.750% due 09/01/11 275 281 Interpool Capital Trust Series B 9.875% due 02/15/27 350 238 Interpool, Inc. 6.625% due 03/01/03 140 139 Isle of Capri Casinos, Inc. 8.750% due 04/15/09 475 428 IT Group, Inc. Series B 11.250% due 04/01/09 100 90 John Q. Hammons Hotels 8.875% due 02/15/04 100 88 JP Morgan Chase & Co. 6.750% due 02/01/11 175 185 Kellogg Co. Series B 7.450% due 04/01/31 205 226 Keyspan Corp. 7.250% due 11/15/05 175 191 7.625% due 11/15/10 1,385 1,562 KMart Funding Corp. Series F 8.800% due 07/01/10 304 277 Kroger Co. 7.250% due 06/01/09 405 444 8.000% due 09/15/29 475 552 7.500% due 04/01/31 65 71 La Quinta Properties, Inc. 7.250% due 03/15/04 80 76 7.400% due 09/15/05 65 60 Lear Corp. Series B 7.960% due 05/15/05 475 480 Lehman Brothers Holdings, Inc. 6.625% due 04/01/04 375 400 8.250% due 06/15/07 475 544 Lodgenet Entertainment Corp. 10.250% due 12/15/06 155 143 Lowes Cos., Inc. 6.875% due 02/15/28 535 534 Mandalay Resort Group Series B 10.250% due 08/01/07 95 90 May Department Stores Co. 6.700% due 09/15/28 165 157 160 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ -------- -------- MBNA America Bank NA 6.500% due 06/20/06 175 179 Series BKNT 6.750% due 03/15/08 600 590 MCI WorldCom, Inc. 6.950% due 08/15/28 1,435 1,257 MGM Grand, Inc. 9.750% due 06/01/07 15 15 Mohegan Tribal Gaming Authority 8.125% due 01/01/06 300 308 8.750% due 01/01/09 350 366 Morgan Stanley Dean Witter & Co. 5.625% due 01/20/04 900 940 8.000% due 06/15/10 800 917 National City Corp. 6.875% due 05/15/19 500 506 National Equipment Services, Inc. Series B 10.000% due 11/30/04 50 40 National Rural Utilities 6.125% due 05/15/05 1,080 1,132 News America Holdings 8.875% due 04/26/23 300 336 News America, Inc. 6.625% due 01/09/08 550 566 7.300% due 04/30/28 250 234 Nextel Communications 9.375% due 11/15/09 65 45 Nextel Communications Step Up Bond 10.650% due 09/15/07 (b) 855 564 Nextel International, Inc. 12.750% due 08/01/10 35 3 Niagara Mohawk Power Corp. 6.875% due 04/01/03 375 389 Series F 7.625% due 10/01/05 510 548 Nisource Finance Corp. 7.875% due 11/15/10 1,270 1,437 Norfolk Southern Corp. 6.750% due 02/15/11 500 532 7.800% due 05/15/27 400 446 Nortek, Inc. Series B 9.125% due 09/01/07 180 170 Northrop Grumman Corp. 7.750% due 02/15/31 900 1,002 Noveon, Inc. Series B 11.000% due 02/28/11 30 30 Orion Power Holdings, Inc. 12.000% due 05/01/10 50 61 Panamsat Corp. 6.125% due 01/15/05 925 856 Penhall International Corp. 12.000% due 08/01/06 125 121 Pharmacia Corp. 6.600% due 12/01/28 275 288 Phoenix Color Corp. 10.375% due 02/01/09 70 50 Plains Resources, Inc. Series B 10.250% due 03/15/06 5 5 Series F 10.250% due 03/15/06 40 40 Progress Energy, Inc. 7.100% due 03/01/11 820 888 PSEG Energy Holdings, Inc. 9.125% due 02/10/04 225 241 Pulte Corp. 7.000% due 12/15/03 125 129 7.625% due 10/15/17 200 183 PX Escrow Corp. Step Up Bond 9.675% due 02/01/06 650 241 Quest Diagnostic, Inc. 6.750% due 07/12/06 350 367 Qwest Capital Funding 7.250% due 02/15/11 1,785 1,803 7.750% due 02/15/31 115 113 Railamerica Transportation Corp. 12.875% due 08/15/10 70 71 Raytheon Co. 7.900% due 03/01/03 100 105 8.200% due 03/01/06 545 605 8.300% due 03/01/10 220 253 Reed ElSevier Capital, Inc. 6.750% due 08/01/11 60 63 Rent-A-Center, Inc. 11.000% due 08/15/08 135 131 Republic Services, Inc. 7.125% due 05/15/09 175 185 6.750% due 08/15/11 1,200 1,250 Resolution Funding Corp. Principal Strip Zero Coupon due 10/15/20 400 138 Rose Hills Corp. 9.500% due 11/15/04 70 60 Royal Caribbean Cruises, Ltd. 8.750% due 02/02/11 500 340 Safeway, Inc. 7.250% due 02/01/31 255 273 Scotts Co. 8.625% due 01/15/09 225 230 Sears Roebuck Acceptance Corp. 6.250% due 05/01/09 780 770 Multistrategy Bond Fund 161 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- --------- Service Corp. International 6.875% due 10/01/07 165 150 Silgan Holdings, Inc. 9.000% due 06/01/09 140 139 Simon Property Group LP 6.375% due 11/15/07 1,035 1,047 Sinclair Broadcast Group, Inc. 10.000% due 09/30/05 90 92 8.750% due 12/15/07 25 24 Six Flags, Inc. 9.750% due 06/15/07 275 279 Small Business Administration-SBIC Series 10B 7.449% due 08/01/10 597 670 Sola International, Inc. 6.875% due 03/15/08 65 45 Southern California Edison Co. 6.650% due 04/01/29 710 540 Southland Corp. 5.000% due 12/15/03 400 385 Spieker Properties, LP 6.950% due 12/15/02 500 518 Sprint Capital Corp. 4.000% due 06/10/02 6,800 6,815 6.875% due 11/15/28 1,144 1,044 Station Casinos, Inc. 9.750% due 04/15/07 75 72 8.375% due 02/15/08 120 119 9.875% due 07/01/10 25 24 Sun Microsystems, Inc. 7.650% due 08/15/09 270 286 Suntrust Bank 6.375% due 04/01/11 475 497 Target Corp. 7.500% due 08/15/10 125 141 6.350% due 01/15/11 100 106 TCI Communications, Inc. 8.650% due 09/15/04 275 304 9.800% due 02/01/12 650 796 7.875% due 02/15/26 90 93 Tenet Healthcare Corp. 6.000% due 12/01/05 725 660 Time Warner, Inc. 7.975% due 08/15/04 225 247 8.110% due 08/15/06 450 510 7.570% due 02/01/24 110 115 6.625% due 05/15/29 80 76 Times Mirror Co. 7.450% due 10/15/09 500 541 Toledo Edison Co. 8.700% due 09/01/02 500 518 Travelcenters of America, Inc. 12.750% due 05/01/09 30 31 Trenwick Capital Trust I 8.820% due 02/01/37 425 327 Tricon Global Restaurants, Inc. 8.875% due 04/15/11 450 477 TRW, Inc. 6.625% due 06/01/04 6,750 6,977 7.625% due 03/15/06 285 303 U.S. Bancorp Series J 6.875% due 12/01/04 850 919 Ubquitel Operating Co. Step Up Bond 14.000% due 04/15/10 (b) 98 46 Unilever Capital Corp. 7.125% due 11/01/10 770 862 Union Planters Corp. 7.750% due 03/01/11 450 495 United Rentals, Inc. Series B 8.800% due 08/15/08 10 9 9.250% due 01/15/09 185 167 United States Can Corp. Series B 12.375% due 10/01/10 135 115 URS Corp. Series B 12.250% due 05/01/09 170 174 US Airways, Inc. Pass-Thru Certificate Series 2000-1 8.110% due 02/20/17 189 201 7.076% due 03/20/21 55 55 US West Capital Funding, Inc. 6.875% due 07/15/28 750 665 USX Corp. 6.850% due 03/01/08 800 860 Venture Holdings Trust Series B 9.500% due 07/01/05 90 62 Verizon New England, Inc. 6.500% due 09/15/11 70 73 Viacom, Inc. 7.700% due 07/30/10 1,050 1,176 Wachovia Corp. 4.950% due 11/01/06 1,000 1,005 Wal-Mart Stores, Inc. 7.550% due 02/15/30 300 354 Washington Mutual, Inc. 7.500% due 08/15/06 478 531 8.250% due 04/01/10 155 178 162 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- --------- Waste Management, Inc. 7.375% due 08/01/10 400 427 7.100% due 08/01/26 1,175 1,229 7.000% due 07/15/28 460 442 Wells Fargo & Co. 6.625% due 07/15/04 175 188 Wells Fargo Bank NA 7.550% due 06/21/10 250 283 6.450% due 02/01/11 500 524 Wellsford Residential Property Trust (h) 9.375% due 02/01/02 475 481 Westdeutsche Landesbank NY 6.050% due 01/15/09 600 622 Williams Cos, Inc. Series A 7.500% due 01/15/31 240 241 Williams Cos., Inc. 7.750% due 06/15/31 55 56 Williams Scotsman, Inc. 9.875% due 06/01/07 75 71 WorldCom, Inc. 7.500% due 05/15/11 950 971 8.250% due 05/15/31 1,070 1,095 ---------- 188,760 ---------- EURODOLLAR BONDS - 2.5% AES Corp. 8.375% due 03/01/11 5 6 British Telecommunications PLC 7.625% due 12/15/05 350 383 Bulgaria, National Republic of Series A 5.000% due 07/28/12 (b) 225 182 Calpine Canada Energy Finance 8.500% due 05/01/08 700 712 Colombia, Republic of 11.750% due 02/25/20 285 277 Deutsche Telekom International Finance BV Step Up Bond 8.250% due 06/15/30 (b) 410 452 Fresenius Medical Care Capital Trust V 7.375% due 06/15/11 55 50 Goldman Sachs Group LP 3.000% due 04/08/05 (b) 2,600 2,555 Household Bank Nevada NA 3.000% due 10/22/03 (b) 4,000 3,990 Huntsman International 10.125% due 07/01/09 20 14 Kamps AG 8.000% due 09/26/05 45 41 Koninklijke KPN NV 7.500% due 10/01/05 320 271 KPNQwest BV 8.125% due 06/01/09 (a) 310 192 Manitowoc Co., Inc. 10.375% due 05/15/11 25 22 Mexico (United Mexican States) Zero Coupon due 12/31/19 615 3 Morgan Stanley Dean Witter Series T 4.000% due 03/11/03 (b) 1,700 1,701 Panama, Republic of 9.625% due 02/08/11 150 152 5.000% due 07/17/16 (b) 101 77 Peru, Republic of 5.000% due 03/07/17 (b) 265 191 Poland, Republic of, Step Up Bond Series RSTA 5.000% due 10/27/24 (b) 750 600 Royal Bank of Scotland Group PLC Series 1 9.118% due 03/31/49 (e) 2,650 3,121 Russian Federation 8.250% due 03/31/10 200 157 Russian Federation, Ministry of Finance 12.750% due 06/24/28 150 151 Sola International, Inc. 11.000% due 03/15/08 15 14 Tembec Industries, Inc. 8.500% due 02/01/11 260 270 United Mexican States 9.875% due 01/15/07 110 122 8.125% due 12/30/19 225 213 8.300% due 08/15/31 200 190 ---------- 16,109 ---------- MORTGAGE-BACKED SECURITIES - 43.7% Banc of America Commercial Mortgage, Inc. Series 2002-2 Class A2 7.197% due 05/15/10 625 691 Bear Stearns Commercial Mortgage Securities, Inc. Series 1999-WF2 Class A2 7.080% due 06/15/09 600 659 Chase Commercial Mortgage Securities Corp. Series 1997-2 Class D 6.600% due 12/19/07 1,500 1,556 Series 1999-2 Class A2 7.198% due 11/15/09 725 801 Chase Mortgage Finance Corp. Series 1994-C Class A6 6.250% due 02/25/10 347 359 Multistrategy Bond Fund 163 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ -------- -------- Countrywide Home Loans Series 2000-2 Class A2 7.750% due 04/25/30 110 112 Credit Suisse First Boston Mortgage Securities Corp. Series 2001-S18 Class A2 3.000% due 08/25/31 (b) 4,164 4,177 DLJ Mortgage Acceptance Corp. Series 1996-Q5 Class A1 3.000% due 06/25/26 (b) 335 336 Federal Home Loan Mortgage Corp. 7.000% due 04/15/25 1,311 59 6.000% 15 Year TBA 1,643 1,691 7.500% 15 Year TBA 1,636 1,724 7.000% 15 Year TBA Gold (d) 2,668 2,801 6.000% 30 Year TBA Gold (d) 3,542 3,589 6.500% 30 Year TBA Gold (d) 5,920 6,094 7.000% 30 Year TBA Gold (d) 3,500 3,651 7.500% 30 Year TBA Gold (d) 5,418 5,677 8.000% 30 Year TBA Gold (d) 3,499 3,702 Series 1037 Class Z 9.000% due 02/15/21 443 473 Series 2006 Class B 6.500% due 08/15/23 (g) 1,823 1,841 Series 2130 Class SA 6.957% due 06/15/28 (b) 269 286 Series 2266 Class F 3.000% due 11/15/30 (b) 3,279 3,288 Federal Home Loan Mortgage Corp. Interest Only Strip Series 207 Class IO 7.000% due 04/01/30 1,041 131 Series 2247 Class SC 5.000% due 08/15/30 (b) 1,553 69 Federal Home Loan Mortgage Corp. Participation Certificate 11.000% due 2020 395 453 8.500% due 2025 382 410 8.500% due 2027 1,941 2,073 7.813% due 2030 463 489 8.000% due 2030 81 86 8.000% due 2031 775 820 Federal Home Loan Mortgage Corp. Participation Certificate Interest Only Strip Series 191 Class IO 8.000% due 01/01/28 422 74 Series 215 Class IO 8.000% due 06/01/31 1,415 161 Federal Home Loan Mortgage Corp. Structured Pass-Thru Securities Series T-31 Class A1 5.938% due 06/25/15 207 208 Federal Home Loan Mortgage Participation Certificate Step Up Bond Series 1707 Class S 6.240% due 03/15/24 (b) 1,056 127 Federal National Mortgage Association 6.000% 15 Year TBA (d) 2,000 2,043 6.500% 15 Year TBA (d) 2,344 2,436 6.000% 30 Year TBA (d) 8,550 8,634 6.500% 30 Year TBA (d) 15,978 16,421 7.000% 30 Year TBA (d) 11,584 12,038 7.500% 30 Year TBA (d) 1,800 1,885 8.000% 30 Year TBA (d) 6,900 7,290 6.000% due 2003 86 88 6.000% due 2005 1,500 1,626 10.000% due 2005 43 45 6.500% due 2015 3,393 3,531 6.500% due 2016 (b) 707 734 6.500% due 2016 4,015 4,172 11.000% due 2016 425 487 8.000% due 2023 (b) 240 242 7.718% due 2026 1,633 1,699 9.000% due 2026 365 398 7.000% due 2029 (g) 2,850 2,970 7.500% due 2029 3,214 3,367 7.500% due 2030 1,421 1,488 8.000% due 2030 1,495 1,581 8.500% due 2030 5,320 5,661 9.500% due 2030 764 836 6.000% due 2031 10,250 10,372 6.500% due 2031 1,873 1,926 7.000% due 2031 524 546 8.000% due 2031 5,004 5,292 8.500% due 2031 6,074 6,463 7.000% due 2040 (b) 4,600 4,662 Series 1997-77 Class G 6.500% due 05/18/23 760 811 Series 1997-68 Class SC 6.000% due 05/18/27 (b) 1,436 126 Federal National Mortgage Association (REMIC) Series 1992-10 Class ZD 8.000% due 11/25/21 2,176 2,382 Series 2001-24 Class FA 3.000% due 10/25/24 (b) 86 86 Federal National Mortgage Association Interest Only Strip Series 281 Class 2 9.000% due 11/01/26 403 53 164 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------ Series 306 Class IO 8.000% due 05/01/30 1,321 179 Federal National Mortgage Association REMIC Interest Only Strip Series 2001-4 Class SA 5.000% due 02/17/31 (b) 1,533 136 First Nationwide Trust Series 2001-4 Class 3A5 4.000% due 09/25/31 (b) 4,262 4,261 First Union National Bank-Chase Manhattan Bank Commercial Mortgage Trust Series 1999-C2 Class A2 6.645% due 04/15/09 525 566 GE Capital Commercial Mortgage Corp. Series 2001-1 Class A1 6.079% due 10/15/10 318 333 GMAC Commercial Mortgage Securities, Inc. Series 1997-C1 Class A2 6.850% due 09/15/06 230 246 Series 1998-C1 Class A2 6.700% due 03/15/08 3,000 3,202 Series 1998-C2 Class A2 6.420% due 08/15/08 650 693 Government National Mortgage Association 6.000% 30 Year TBA (d) 5,000 5,072 6.500% 30 Year TBA (d) 1,000 1,014 6.500% 30 Year TBA (d) 20,000 20,654 7.000% 30 Year TBA (d) 10,600 11,064 10.000% due 2022 378 426 6.000% due 2023 (b) 631 648 8.000% due 2023 (b) 468 484 7.000% due 2024 1,203 1,246 8.000% due 2024 (b) 1,280 1,325 6.000% due 2025 (b) 249 256 6.375% due 2025 1,035 1,063 6.750% due 2025 89 92 8.000% due 2025 140 145 10.000% due 2025 541 609 7.000% due 2026 756 782 8.500% due 2026 733 783 6.000% due 2027 (b) 925 950 6.750% due 2027 533 552 7.750% due 2027 1,008 1,065 8.000% due 2027 (b) 340 352 6.500% due 2028 2,153 2,224 6.000% due 2029 18,572 18,859 7.000% due 2029 (b) 6,017 6,186 7.500% due 2029 (b) 954 1,004 8.000% due 2029 953 1,009 7.500% due 2030 1,166 1,225 8.000% due 2030 15,190 16,068 6.000% due 2031 359 365 6.500% due 2031 430 444 7.000% due 2031 2,509 2,619 7.500% due 2031 2,113 2,221 Series 1999-27 Class SE 6.000% due 08/16/29 (b) 1,217 110 Series 2000-9 Class SH 6.000% due 02/16/30 (b) 2,682 296 Government National Mortgage Association I 8.000% due 2030 297 315 Government National Mortgage Association Pass-Thru Certificate Series 1999-44 Class SA 6.000% due 12/16/29 (b) 1,543 155 JP Morgan Chase Commercial Mortgage Securities Corp. Series 2001-CIB2 Class A3 6.429% due 04/15/35 350 370 LB-UBS Commercial Mortgage Trust Series 2000-C3 Class A1 7.950% due 07/15/09 290 324 Series 2000-C4 Class A2 7.370% due 06/15/10 500 557 Morgan Stanley Dean Witter Capital I Series 2001-IQA Class A1 4.570% due 12/18/32 875 877 Series 2001-TOP1 Class A4 6.660% due 02/15/33 325 350 Series 2000-LIF2 Class A2 7.200% due 10/15/33 650 719 Nationslink Funding Corp. Series 1999-SL Class A4 6.654% due 02/10/06 500 534 PNC Mortgage Acceptance Corp. Series 2000-C2 Class A2 7.300% due 09/12/10 550 609 PNC Mortgage Securities Corp. Series 2000-4 Class CB2 6.820% due 06/25/30 521 521 Series 2000-4 Class CB3 6.820% due 06/25/30 290 277 Residential Funding Mortgage Securities I Series 1993-S20 Class A8 6.980% due 06/25/08 664 675 Series 1997-S6 Class A5 7.000% due 05/25/12 896 928 Multistrategy Bond Fund 165 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ -------- -------- Resolution Trust Corp. Series 1994 - C2 Class G 8.000% due 04/25/25 526 526 Series 1994-1 Class M-2 7.750% due 09/25/29 288 287 Salomon Brothers Mortgage Series 1994-16 Class A 8.000% due 11/25/24 (b) 161 164 Series 1999-NC3 Class A 3.000% due 07/25/29 (b) 1,099 1,101 Series 1999-NC4 Class A 2.000% due 09/25/29 (b) 2,177 2,185 Series 2000-C3 Class A2 6.592% due 10/18/10 600 643 Series 2001-C1 Class A3 6.428% due 12/18/35 550 583 Vendee Mortgage Trust Series 2000-1 Class 2G 7.250% due 06/15/09 330 354 ------- 284,941 ------- NON-US BONDS - 0.9% Callahan Nordrhein Westfalen 14.125% due 07/15/11 EUR 70 36 Colt Telecom Group PLC Series DBC 7.625% due 07/31/08 EUR 120 39 Coral Group Holdings PLC Series B 13.500% due 09/30/09 GBP 12 18 Diamond Holdings PLC 10.000% due 02/01/08 GBP 15 16 Energis PLC 9.500% due 06/15/09 GBP 70 78 Germany, Federal Republic of Series 136 5.000% due 08/19/05 EUR 3,000 2,830 Series 137 5.000% due 02/17/06 EUR 100 94 HMV Media Group PLC Series B 10.875% due 05/15/08 GBP 20 22 Hungary, Government of 9.500% due 01/12/02 HUF 24,500 86 Series 02/K 9.500% due 06/12/02 HUF 40,800 143 Series 02/I 12.500% due 09/24/02 HUF 37,750 136 Series 02/L 9.000% due 11/24/02 HUF167,050 585 Jones Lang LaSalle Finance 9.000% due 06/15/07 EUR 10 9 Kappa Beheer BV 10.625% due 07/15/09 EUR 45 43 Series WW 12.500% due 07/15/09 EUR 70 66 Kappa Beheer BV Step Up Bond 13.000% due 07/15/09 (b) EUR 5 4 Koninklijke KPN NV Series E 7.250% due 04/12/06 EUR 25 21 KPNQWest BV 8.875% due 02/01/08 EUR 80 47 Lesotho Highlands Water 12.000% due 12/01/05 ZAR 1,740 197 13.000% due 09/15/10 EUR 1,000 119 Marconi Corp. PLC 5.625% due 03/30/05 EUR 35 12 Ono Finance PLC 14.000% due 02/15/11 EUR 95 58 Philippines, Republic of 10.625% due 03/16/25 EUR 200 171 Poland, Government of Series 1202 Zero Coupon due 12/21/02 PLN 357 77 Zero Coupon due 04/21/03 PLN 383 80 Series 0803 Zero Coupon due 08/21/03 PLN 1,720 348 Premier International Foods PLC Series L 12.250% due 09/01/09 EUR 20 30 PTC International Finance 11.250% due 12/01/09 EUR 85 74 Regional Independent Media Step Up Bond Zero Coupon due 07/01/08 (b) GBP 50 57 Sogerim SA Series E 7.000% due 04/20/11 EUR 25 23 South Africa, Republic of Series 184 12.500% due 12/21/06 ZAR 1,299 150 Telewest Communications PLC Step Up Bond Zero Coupon due 04/15/09 (b) GBP 30 19 Series GBP 9.875% due 02/01/10 EUR 70 74 TM Group Holdings 11.000% due 05/15/08 EUR 25 26 United Pan-Europe Communications 11.250% due 02/01/10 EUR 65 9 Vantico Group SA Series EUR 12.000% due 08/01/10 EUR 20 11 ------- 5,808 ------- 166 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------ UNITED STATES GOVERNMENT AGENCIES - 2.9% Federal National Mortgage Association 5.125% due 02/13/04 7,100 7,448 7.125% due 01/15/30 945 1,141 7.250% due 05/15/30 850 1,042 Federal National Mortgage Association Zero Coupon due 06/01/17 6,400 2,600 Federal National Mortgage Corp. 6.750% due 09/15/29 1,525 1,760 Small Business Administration Series 97-D 7.500% due 04/01/17 4,323 4,746 ------ 18,737 ------ UNITED STATES GOVERNMENT TREASURIES - 9.3% United States Inflation-Indexed Treasury Notes 3.500% due 01/15/11 306 318 3.375% due 04/15/32 1,775 1,848 United States Treasury Bonds 6.125% due 11/15/27 4,500 5,188 3.625% due 04/15/28 658 706 3.875% due 04/15/29 6,910 7,748 6.250% due 05/15/30 13,860 16,499 United States Treasury Notes 6.625% due 04/30/02 2,075 2,123 3.625% due 07/15/02 (g) 1,330 1,354 5.750% due 04/30/03 600 631 6.750% due 05/15/05 1,230 1,375 4.625% due 05/15/06 7,000 7,322 3.375% due 01/15/07 3,137 3,244 3.625% due 01/15/08 2,747 2,870 3.875% due 01/15/09 1,407 1,493 5.750% due 08/15/10 (g) 2,860 3,175 5.000% due 02/15/11 4,250 4,484 ------ 60,378 ------ YANKEE BONDS - 2.4% Abbey National PLC 7.000% due 06/29/49 (b)(e) 775 789 Abitibi-Consolidated, Inc. 8.850% due 08/01/30 865 852 Alberta Energy Co., Ltd. 8.125% due 09/15/30 440 487 Amvescap PLC 6.600% due 05/15/05 925 976 Avecia Group PLC 11.000% due 07/01/09 15 14 British Sky Broadcasting Group PLC 6.875% due 02/23/09 150 144 8.200% due 07/15/09 750 770 Carnival Corp. 6.150% due 10/01/03 315 321 6.150% due 04/15/08 325 307 Colt Telecom Group PLC Step Up Bond 12.000% due 12/15/06 (b) 275 223 Domtar, Inc. 8.750% due 08/01/06 400 437 7.875% due 10/15/11 400 415 9.500% due 08/01/16 300 349 Dynacare, Inc. 10.750% due 01/15/06 70 73 Edperbrascan Corp. 7.125% due 12/16/03 925 959 Glencore Nickel Party, Ltd. 9.000% due 12/01/14 305 192 Global Crossing Holdings, Ltd. 9.125% due 11/15/06 310 50 Grupo Iusacell SA de CV 10.000% due 07/15/04 750 743 GT Group Telecom, Inc. Step Up Bond 13.000% due 02/01/10 (b) 640 118 Koninklijke KPN NV 8.000% due 10/01/10 350 298 8.375% due 10/01/30 600 474 National Westminster Bank PLC 8.000% due 04/29/49 (e) 600 658 Nortel Networks, Ltd. 6.125% due 02/15/06 475 363 NTL Communications Corp. 12.375% due 02/01/08 70 40 Quebec, Province of 7.500% due 07/15/23 800 930 Regional Independent Media 10.500% due 07/01/08 70 70 Royal Caribbean Cruises, Ltd. 7.000% due 10/15/07 900 639 7.500% due 10/15/27 125 71 Royal Caribbean Cruises, Ltd. Zero Coupon due 05/18/21 100 26 Stagecoach Holdings PLC 8.625% due 11/15/09 375 364 Telus Corp. 8.000% due 06/01/11 605 659 TM Group Holdings 11.000% due 05/15/08 15 15 Multistrategy Bond Fund 167 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ ----------- ----------- Tyco International Group SA 6.000% due 06/15/03 (b) 1,525 1,584 6.375% due 06/15/05 300 315 6.750% due 02/15/11 300 320 6.375% due 10/15/11 95 98 7.000% due 06/15/28 40 40 Vodafone Group PLC 7.750% due 02/15/10 110 122 Series B 7.875% due 02/15/30 240 273 ----------- 15,578 ----------- TOTAL LONG-TERM INVESTMENTS (cost $602,569) 620,211 ----------- NOTIONAL AMOUNT (000) $ ----------- OPTIONS PURCHASED - 0.1% Eurodollar Futures (c) Dec 92.50 Put 600 3 Dec 93.50 Put 145 1 Dec 95.00 Put 750 2 Dec 95.25 Put 1,158 3 Jun 93.75 Put 968 2 Jun 94.75 Put 2,250 6 Jun 95.00 Put 88 1 Eurodollar One Year Midcurve Futures (c) Dec 92.50 Put 1,623 8 Jun 93.50 Put 100 1 Three Month LIBOR (c) May 4.00% Call 18,250 427 Twelve Month LIBOR (c) Sep 4.07% Call 14,800 124 United States Treasury Notes (c) Dec 104.23 Call 1,615 4 Jan 99.44 Call 3,475 156 Mar 103.24 Call 4,000 34 ----------- TOTAL OPTIONS PURCHASED (cost $288) 772 ----------- MARKET NUMBER VALUE OF (000) SHARES $ ----------- ----------- PREFERRED STOCKS - 0.4% California Federal Preferred Capital Corp. 39 978 Equity Office Properties Trust (h) 18 805 Paxson Communications Corp. 1 456 Six Flags, Inc. (conv.) 10 188 ----------- TOTAL PREFERRED STOCKS (cost $2,508) 2,427 ----------- PRINCIPAL AMOUNT (000) $ ----------- SHORT-TERM INVESTMENTS - 22.0% BP Amoco Capital PLC 2.640% due 11/01/01 10,000 9,998 Notional Federal Farm Credit Bank Discount Notes (f) 5.410% due 11/02/01 250 250 2.140% due 11/27/01 300 300 3.280% due 12/05/01 100 100 Federal Home Loan Bank Discount Notes (f) 3.430% due 11/02/01 270 270 2.300% due 11/07/01 300 300 3.390% due 11/09/01 390 390 3.320% due 11/14/01 125 125 2.250% due 11/23/01 165 165 2.080% due 12/17/01 200 199 2.100% due 01/22/02 270 268 3.340% due 02/08/02 200 197 3.320% due 02/13/02 157 155 3.980% due 04/18/02 159 155 Federal Home Loan Bank Discount Notes (f) 5.430% due 12/10/01 240 239 2.290% due 11/19/01 5,860 5,853 5.317% due 12/21/01 110 110 Federal Home Loan Mortgage Corp. Discount Notes (f) 5.470% due 12/11/01 100 100 2.370% due 11/05/01 445 445 3.330% due 11/09/01 210 210 2.330% due 11/14/01 3,625 3,622 3.340% due 11/15/01 141 141 3.540% due 11/16/01 10,000 9,985 1.970% due 04/25/02 100 99 168 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ ----------- ----------- Federal National Mortgage Association Discount Notes (f) 5.570% due 12/05/01 100 100 2.480% due 11/01/01 3,800 3,800 3.290% due 11/05/01 150 150 2.400% due 11/06/01 310 310 2.350% due 11/09/01 435 435 2.330% due 11/14/01 22,751 22,731 3.320% due 11/21/01 200 200 2.270% due 11/23/01 720 719 2.240% due 11/27/01 519 518 3.200% due 11/29/01 300 299 2.290% due 12/03/01 270 269 2.270% due 12/10/01 385 384 2.080% due 12/13/01 11,450 11,427 2.250% due 12/17/01 200 199 3.310% due 07/26/02 110 107 2.350% due 09/20/02 100 98 Series BB 3.610% due 12/06/01 100 100 Frank Russell Investment Company Money Market Fund (a) 57,748 57,748 General Electric Capital Corp. Commercial Paper 6.570% due 11/19/01 (f) 2,800 2,798 Italy, Republic of 3.500% due 11/01/01 ITL 2,700 2,429 Sears Roebuck Acceptance Corp. 2.540% due 11/05/01 2,200 2,198 United States Treasury Bills (f)(g)(i) 3.640% due 11/15/01 250 249 2.240% due 02/07/02 125 124 Walt Disney Co. 2.960% due 11/01/01 2,200 2,180 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $143,179) 143,248 ----------- NUMBER OF SHARES ----------- WARRANTS - 0.0% (C) GT Group Telecom, Inc. 2010 Warrants 1,326 17 United Mexican States 2003 Warrants 615,000 3 ----------- TOTAL WARRANTS (cost $67) 20 ----------- TOTAL INVESTMENTS - 117.8% (identified cost $748,611) 766,678 OTHER ASSETS AND LIABILITIES, INCLUDING OPTIONS WRITTEN NET - (17.8%) (115,560) ----------- NET ASSETS - 100.0% 651,118 =========== (a) At net asset value. (b) Adjustable or floating rate security. (c) Nonincome-producing security. (d) Forward commitment. (e) Perpetual floating rate. (f) Rate noted is yield-to-maturity from date of acquisition. (g) Held as collateral in connection with options written and futures contracts purchased (sold) by the Fund. (h) Real Estate Investment Trust (REIT). (i) At amortized cost, which approximates market. Abbreviations: LIBOR - London Interbank Offered Rate REMIC - Real Estate Mortgage Investment Conduit TBA - To Be Announced Security Foreign Currency Abbreviations: ARS - Argentine peso BRL - Brazilian real CLP - Chilean peso CNY - Chinese renminbi yuan COP - Colombian peso CRC - Costa Rica colon CZK - Czech koruna EGP - Egyptian pound EUR - Euro dollar GBP - British pound sterling HUF - Hungarian forint ILS - Israeli shekel INR - Indian rupee ITL - Italian lira JPY - Japanese yen KES - Kenyan shilling Shares KRW - South Korean won MXN - Mexican peso PEN - Peruvian nouveau sol PHP - Philippine peso PLN - Polish zloty RUB - Russian ruble SKK - Slovakian koruna TRL - Turkish lira USD - United States dollar VEB - Venezuelan bolivar ZAR - South African rand See accompanying notes which are an integral part of the financial statements. Multistrategy Bond Fund 169 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) FUTURES CONTRACTS $ (000) -------- -------------- LONG POSITIONS Eurodollar expiration date 03/04 $ 238 $ 3 Germany, Federal Republic 5 Year Bonds expiration date 12/01 17,449 361 10 Year Bonds expiration date 12/01 11,424 279 LIBOR expiration date 06/02 599 14 expiration date 03/02 1,080 24 expiration date 09/02 8,727 143 expiration date 12/02 1,072 18 United States Treasury Bonds expiration date 12/01 38,874 2,046 United States Treasury 10 Year Notes expiration date 12/01 10,036 470 SHORT POSITIONS United States Treasury Bonds expiration date 12/01 6,074 (290) United States Treasury 5 Year Notes expiration date 12/01 29,662 (683) United States Treasury 10 Year Notes expiration date 12/01 21,746 (894) ------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts $ 1,491 ======= NOTIONAL MARKET AMOUNT VALUE (000) (000) OPTIONS WRITTEN $ $ -------- ------- Eurodollar Futures Jun 97.00 Call 73 49 Dec 95.00 Put 55 -- Jun 95.75 Put 1,863 28 Dec 95.50 Put 223 1 Jun 95.50 Put 5,878 59 Dec 96.00 Put 63 -- Jun 96.00 Put 463 12 Federal National Mortgage Association Dec 102.17 Call 1,750 4 Twelve Month LIBOR Sept 4.57 Put 14,800 15 Swap Option Three Month LIBOR Oct 6.00 Call 1,200 61 Oct 6.00 Put 1,200 45 United States Treasury Notes Jan 102.91 Call 3,475 74 Mar 105.87 Call 4,000 9 Jan 95.97 Put 3,475 3 Mar 100.62 Put 4,000 12 United States Treasury Notes 10 Year Futures Feb 112.00 Call 24 32 Nov 108.00 Put 5 -- ------- Total Liability for Options Written (premiums received $2,429) 404 ======= See accompanying notes which are an integral part of the financial statements. 170 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - ------------- ------------- ---------- -------------- BRL 52 USD 18 12/26/01 $ (1) BRL 146 USD 57 12/26/01 4 BRL 322 USD 125 12/06/01 7 BRL 426 USD 175 02/08/02 24 CLP 31,420 USD 47 12/13/01 3 CLP 35,414 USD 57 12/12/01 8 CLP 41,644 USD 67 12/13/01 9 CLP 116,913 USD 170 02/27/02 9 EGP 118 USD 27 11/13/01 -- EGP 249 USD 58 11/13/01 -- EUR 4 USD 4 01/31/02 -- EUR 5 USD 4 01/31/02 -- EUR 7 USD 6 01/31/02 -- EUR 11 USD 9 01/31/02 -- EUR 11 USD 10 01/31/02 -- EUR 12 SKK 523 11/23/01 -- EUR 12 SKK 523 11/23/01 -- EUR 14 USD 12 01/31/02 -- EUR 15 USD 13 01/31/02 -- EUR 18 SKK 790 11/23/01 -- EUR 18 SKK 790 11/23/01 -- EUR 21 SKK 916 11/27/01 (1) EUR 21 SKK 916 11/27/01 1 EUR 28 SKK 1,218 02/13/02 -- EUR 28 SKK 1,218 02/13/02 -- EUR 62 CZK 2,101 11/13/01 (1) EUR 62 CZK 2,101 11/13/01 1 EUR 62 USD 56 12/21/01 -- EUR 68 SKK 3,032 04/30/02 (2) EUR 68 SKK 3,032 04/30/02 2 EUR 71 CZK 2,395 12/10/01 -- EUR 71 CZK 2,395 12/10/01 -- EUR 95 USD 87 12/27/01 2 EUR 120 SKK 5,251 12/17/01 (2) EUR 120 SKK 5,251 12/17/01 2 EUR 121 CZK 4,076 11/13/01 (2) EUR 121 CZK 4,076 11/13/01 2 EUR 125 USD 112 12/18/01 -- EUR 130 CZK 4,362 12/17/01 (2) EUR 130 CZK 4,362 12/17/01 2 EUR 142 CZK 4,801 11/09/01 (2) EUR 142 CZK 4,801 11/09/01 2 EUR 144 SKK 6,288 02/15/02 (4) EUR 144 SKK 6,288 02/15/02 3 EUR 225 SKK 9,826 11/09/01 (5) EUR 225 SKK 9,826 11/09/01 5 EUR 225 SKK 9,860 12/10/01 (6) EUR 225 SKK 9,860 12/10/01 6 EUR 240 USD 213 01/31/02 (2) EUR 264 CZK 9,040 12/10/01 -- EUR 264 CZK 9,040 12/10/01 5 EUR 338 CZK 11,537 02/13/02 -- EUR 338 CZK 11,537 02/13/02 3 EUR 725 USD 645 01/31/02 (5) EUR 2,432 USD 2,164 01/31/02 (17) GBP 8 USD 12 01/31/02 -- GBP 8 USD 12 01/31/02 -- GBP 21 USD 30 01/31/02 (1) GBP 93 USD 132 01/31/02 (3) GBP 143 USD 203 01/31/02 (4) ILS 193 USD 45 01/22/02 -- JPY 750 USD 6 01/31/02 -- JPY 8,827 USD 73 01/31/02 -- JPY 21,593 USD 177 01/31/02 -- JPY 41,356 USD 340 01/31/02 -- MXN 562 USD 58 04/18/02 -- MXN 593 USD 60 06/11/02 -- MXN 1,202 USD 129 11/16/01 -- MXN 1,230 USD 132 11/30/01 -- PHP 6,382 USD 123 11/05/01 -- PLN 223 USD 53 11/16/01 (1) PLN 1,185 USD 285 11/16/01 (3) PLN 1,265 USD 297 12/07/01 (9) USD -- CLP 172 12/12/01 -- USD 8 BRL 23 02/08/02 -- USD 11 EUR 12 01/31/02 -- USD 11 MXN 113 06/11/02 -- USD 15 EGP 65 11/26/01 -- USD 19 KRW 24,586 11/13/01 -- USD 20 EGP 85 11/05/01 -- USD 20 ILS 86 01/23/02 -- USD 21 CNY 174 12/04/01 -- USD 27 EGP 117 11/08/01 -- USD 27 ILS 119 01/22/02 -- USD 27 KES 2,140 11/26/01 -- USD 29 PEN 103 11/07/01 1 USD 30 EUR 34 01/31/02 -- USD 30 HUF 8,522 12/11/01 -- USD 31 KRW 40,719 11/13/01 1 USD 36 BRL 102 12/06/01 2 USD 36 CRC 12,281 12/17/01 -- USD 39 ZAR 363 11/20/01 -- USD 39 EGP 169 11/19/01 -- USD 40 VEB 30,580 12/24/01 -- USD 42 INR 2,049 12/18/01 1 USD 45 MXN 477 10/10/02 2 USD 51 MXN 549 03/12/02 6 USD 52 COP 120,744 11/28/01 -- See accompanying notes which are an integral part of the financial statements. Multistrategy Bond Fund 171 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - -------------- --------------- ---------- -------------- USD 52 EGP 225 11/13/01 $ -- USD 53 COP 124,656 11/09/01 1 USD 53 RUB 1,576 11/14/01 -- USD 54 KES 4,288 11/15/01 -- USD 55 PLN 243 11/20/01 5 USD 55 BRL 149 02/08/02 (2) USD 56 SKK 2,783 12/21/01 1 USD 56 CNY 464 12/10/01 -- USD 58 PLN 272 09/30/02 3 USD 59 CLP 35,243 12/12/01 (10) USD 60 PHP 3,180 12/03/01 1 USD 65 COP 151,320 11/30/01 -- USD 67 INR 3,272 12/18/01 1 USD 67 PEN 233 12/17/01 1 USD 67 PHP 3,538 12/11/01 -- USD 69 BRL 199 12/26/01 3 USD 70 CRC 23,856 12/11/01 -- USD 73 COP 169,433 11/19/01 -- USD 75 RUB 2,230 11/05/01 -- USD 76 RUB 2,320 01/23/02 1 USD 82 INR 3,971 11/05/01 1 USD 84 BRL 220 12/06/01 (3) USD 85 KRW 111,699 11/13/01 2 USD 87 SKK 4,270 12/27/01 1 USD 87 RUB 2,592 11/27/01 -- USD 92 VEB 69,368 11/19/01 -- USD 94 INR 4,625 12/10/01 2 USD 95 COP 224,105 12/07/01 1 USD 95 BRL 255 02/08/02 (5) USD 99 COP 230,769 11/30/01 -- USD 103 PHP 5,404 12/05/01 -- USD 110 MXN 1,106 08/05/02 1 USD 111 PHP 5,819 11/13/01 1 USD 112 SKK 5,558 12/18/01 2 USD 115 RUB 3,420 11/20/01 (1) USD 118 RUB 3,540 12/17/01 -- USD 122 EGP 524 11/13/01 -- USD 124 PHP 6,382 11/05/01 (1) USD 124 MXN 1,202 11/16/01 5 USD 125 COP 291,875 11/14/01 1 USD 126 PHP 6,611 11/14/01 1 USD 132 MXN 1,230 11/30/01 -- USD 133 MXN 1,238 11/27/01 -- USD 135 CNY 1,118 11/30/01 -- USD 137 MXN 1,363 06/11/02 2 USD 141 INR 6,734 11/20/01 (1) USD 141 RUB 4,194 11/19/01 (1) USD 142 CLP 84,604 12/13/01 (24) USD 144 ILS 614 01/22/02 (2) USD 150 COP 350,850 11/13/01 2 USD 155 CNY 1,283 11/15/01 -- USD 165 MXN 1,531 11/23/01 (1) USD 166 PEN 575 12/19/01 -- USD 171 INR 8,186 11/06/01 -- USD 172 CRC 58,375 11/23/01 -- USD 186 PLN 812 12/04/01 10 USD 188 KRW 247,258 11/13/01 4 USD 192 VEB 145,248 12/14/01 (1) USD 199 CLP 116,913 02/27/02 (38) USD 205 PLN 884 12/03/01 9 USD 209 PEN 743 11/09/01 7 USD 218 MXN 2,263 12/19/01 24 USD 239 COP 561,650 11/02/01 4 USD 240 ZAR 2,230 12/18/01 (3) USD 243 COP 564,975 12/03/01 -- USD 244 ZAR 2,028 12/07/01 (30) USD 255 PLN 1,265 12/07/01 51 USD 259 MXN 2,680 04/18/02 19 USD 274 PLN 1,407 11/16/01 68 USD 278 TRL 459,978,800 11/07/01 182 USD 282 VEB 211,923 11/26/01 -- USD 310 RUB 9,205 11/06/01 (1) USD 328 CNY 2,715 11/23/01 -- USD 335 KRW 436,103 11/23/01 3 USD 344 VEB 260,924 11/06/01 6 USD 432 EUR 486 01/31/02 4 USD 2,444 EUR 2,700 11/29/01 (17) USD 3,242 EUR 3,536 01/11/02 (70) USD 3,242 EUR 3,536 01/11/02 (70) USD 3,243 EUR 3,538 01/11/02 (69) ZAR 2,028 USD 241 12/07/01 24 -------------- $ 144 ============== FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - -------------- --------------- ---------- -------------- EUR 2,700 USD 2,447 11/01/01 $ 18 USD 10 EUR 11 11/02/01 -- USD 10 EUR 11 11/01/01 -- -------------- $ 18 ============== See accompanying notes which are an integral part of the financial statements. 172 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 INTEREST RATE SWAPS
UNREALIZED NOTIONAL APPRECIATION AMOUNT FUND RECEIVES FUND PAYS TERMINATION (DEPRECIATION) (000) FIXED RATE FLOATING RATE DATE (000) - ------------- ------------- ------------------------ ----------- -------------- USD 29,000 6.000% Three Month LIBOR 12/17/06 $ 2,237 GBP 710 5.500% Six Month LIBOR 06/15/06 13 MXN 1,516 12.750% Mexican Interbank 28-day 08/27/03 -- MXN 1,226 13.450% Mexican Interbank 28-day 07/07/03 (2) -------------- $ 2,248 ==============
See accompanying notes which are an integral part of the financial statements. Multistrategy Bond Fund 173 MULTISTRATEGY BOND FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (identified cost $748,611).................................. $ 766,678 Cash.............................................................................. 508 Foreign currency holdings (identified cost $2,052)................................ 2,052 Unrealized appreciation on forward foreign currency exchange contracts............ 569 Unrealized appreciation on foreign currency exchange spot contracts............... 18 Receivables: Dividends and interest.......................................................... 6,465 Investments sold (regular settlement)........................................... 13,833 Investments sold (delayed settlement)........................................... 29,269 Fund shares sold................................................................ 1,365 Daily variation margin on futures contracts..................................... 394 Receivable for interest rate swaps................................................ 2,250 ---------- Total assets.................................................................. 823,401 LIABILITIES Payables: Investments purchased (regular settlement)............................. $ 18,201 Investments purchased (delayed settlement)............................. 151,201 Fund shares redeemed................................................... 1,431 Accrued fees to affiliates............................................. 485 Other accrued expenses................................................. 134 Unrealized depreciation on forward foreign currency exchange contracts... 425 Options written, at market value (premiums received $2,429).............. 404 Liability for interest rate swaps........................................ 2 -------- Total liabilities............................................................. 172,283 ---------- NET ASSETS........................................................................ $ 651,118 ========== NET ASSETS CONSIST OF: Undistributed net investment income............................................... $ 9,221 Accumulated net realized gain (loss).............................................. (23,785) Unrealized appreciation (depreciation) on: Investments..................................................................... 18,067 Futures contracts............................................................... 1,491 Options written................................................................. 2,026 Interest rate swaps............................................................. 2,248 Foreign currency-related transactions........................................... 196 Shares of beneficial interest..................................................... 637 Additional paid-in capital........................................................ 641,017 ---------- NET ASSETS........................................................................ $ 651,118 ========== NET ASSET VALUE, offering and redemption price per share: Class C ($15,925,561 divided by 1,560,781 shares of $.01 par value shares of beneficial interest outstanding)..................................... $ 10.20 ========== Class E ($12,675,130 divided by 1,241,282 shares of $.01 par value shares of beneficial interest outstanding)..................................... $ 10.21 ========== Class S ($622,517,526 divided by 60,932,007 shares of $.01 par value shares of beneficial interest outstanding)..................................... $ 10.22 ==========
See accompanying notes which are an integral part of the financial statements. 174 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Interest.......................................................... $ 38,305 Dividends from Money Market Fund.................................. 2,625 Dividends......................................................... 280 -------- Total investment income......................................... 41,210 EXPENSES Advisory fees........................................... $ 3,724 Administrative fees..................................... 381 Custodian fees.......................................... 557 Distribution fees - Class C............................. 96 Transfer agent fees..................................... 746 Professional fees....................................... 60 Registration fees....................................... 86 Shareholder servicing fees - Class C.................... 32 Shareholder servicing fees - Class E.................... 24 Trustees' fees.......................................... 17 Miscellaneous........................................... 56 -------- Expenses before reductions.............................. 5,779 Expense reductions...................................... (35) -------- Expenses, net................................................... 5,744 --------- Net investment income............................................... 35,466 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments............................................. 12,463 Futures contracts....................................... (1,066) Options written......................................... (8) Foreign currency-related transactions................... 317 11,706 Net change in unrealized appreciation (depreciation) on: Investments............................................. 22,040 Futures contracts....................................... 1,696 Options written......................................... 1,963 Interest rate swaps..................................... 2,247 Foreign currency-related transactions................... 182 28,128 -------- --------- Net realized and unrealized gain (loss)............................. 39,834 --------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............... $ 75,300 ========= See accompanying notes which are an integral part of the financial statements. Multistrategy Bond Fund 175 MULTISTRATEGY BOND FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ------------------- ------------------ ------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income........................................... $ 35,466 $ 32,279 $ 33,289 Net realized gain (loss)........................................ 11,706 (3,553) (24,202) Net change in unrealized appreciation (depreciation)............ 28,128 9,615 (13,680) ------------------- ------------------ ------------------- Net increase (decrease) in net assets from operations......... 75,300 38,341 (4,593) ------------------- ------------------ ------------------- DISTRIBUTIONS From net investment income...................................... Class C....................................................... (610) (362) (148) Class E....................................................... (508) (188) (173) Class S....................................................... (35,473) (27,820) (32,695) From net realized gain.......................................... Class E....................................................... -- -- (2) Class S....................................................... -- -- (430) ------------------- ------------------ ------------------- Net decrease in net assets from distributions............... (36,591) (28,370) (33,448) ------------------- ------------------ ------------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions... 2,328 33,493 54,301 ------------------- ------------------ ------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS....................... 41,037 43,464 16,260 NET ASSETS........................................................ Beginning of period............................................. 610,081 566,617 550,357 ------------------- ------------------ ------------------- End of period (including undistributed net investment income of $9,221, $4,186 and $58, respectively)....................... $ 651,118 $ 610,081 $ 566,617 =================== ================== ===================
See accompanying notes which are an integral part of the financial statements. 176 Multistrategy Bond Fund MULTISTRATEGY BOND FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** -------- -------- --------- NET ASSET VALUE, BEGINNING OF PERIOD ................................................ $ 9.60 $ 9.47 $ 10.14 -------- -------- --------- Income From Operations Net investment income (a) ......................................................... .46 .44 .42 Net realized and unrealized gain (loss) ........................................... .62 .09 (.63) -------- -------- --------- Total income from operations .................................................... 1.08 .53 (.21) -------- -------- --------- DISTRIBUTIONS From net investment income ........................................................ (.48) (.40) (.45) From net realized gain ............................................................ -- -- (.01) -------- -------- --------- Total distributions ............................................................. (.48) (.40) (.46) -------- -------- --------- NET ASSET VALUE, END OF PERIOD ...................................................... $ 10.20 $ 9.60 $ 9.47 ======== ======== ========= TOTAL RETURN (%)(b) ................................................................. 11.58 5.77 (2.10) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) .......................................... 15,926 10,879 6,666 Ratios to average net assets (%)(c): Operating expenses, net ......................................................... 1.89 1.86 1.80 Operating expenses, gross ....................................................... 1.89 1.90 1.84 Net investment income ........................................................... 4.63 5.56 4.80 Portfolio turnover rate (%) ....................................................... 176.44 105.03 134.11
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period January 27, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Multistrategy Bond Fund 177 MULTISTRATEGY BOND FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ------------------------ 2001* 2000** 1999 1998*** -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 9.61 $ 9.47 $ 10.10 $ 10.30 -------- -------- -------- -------- INCOME FROM OPERATIONS Net investment income (a) .......................... .53 .49 .56 .16 Net realized and unrealized gain (loss) ............ .62 .11 (.66) .07 -------- -------- -------- -------- Total income from operations ..................... 1.15 .60 (.10) .23 DISTRIBUTIONS From net investment income ......................... (.55) (.46) (.52) (.20) From net realized gain ............................. -- -- (.01) (.23) -------- -------- -------- -------- Total distributions .............................. (.55) (.46) (.53) (.43) -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD ....................... $ 10.21 $ 9.61 $ 9.47 $ 10.10 ======== ======== ======== ======== TOTAL RETURN (%)(b) .................................. 12.40 6.46 (1.08) 1.89 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)............ 12,675 6,182 3,248 2,610 Ratios to average net assets (%)(c): Operating expenses, net .......................... 1.14 1.11 1.05 .00 Operating expenses, gross ........................ 1.14 1.15 1.11 .00 Net investment income ............................ 5.33 6.31 5.54 .00 Portfolio turnover rate (%) ...................... 176.44 105.03 134.11 334.86
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period September 11, 1998 (commencement of sale) to December 31, 1998. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 178 Multistrategy Bond Fund MULTISTRATEGY BOND FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ------------------------------------------------- 2001* 2000** 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD ............... $ 9.61 $ 9.46 $ 10.11 $ 10.26 $ 10.11 $ 10.25 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS Net investment income (a)......................... .56 .52 .57 .60 .60 .61 Net realized and unrealized gain (loss)........... .63 .08 (.65) .08 .33 (.12) ---------- ---------- ---------- ---------- ---------- ---------- Total income from operations.................... 1.19 .60 (.08) .68 .93 .49 ---------- ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS From net investment income........................ (.58) (.45) (.56) (.60) (.61) (.62) From net realized gain............................ -- -- (.01) (.23) (.17) (.01) ---------- ---------- ---------- ---------- ---------- ---------- Total distributions............................. (.58) (.45) (.57) (.83) (.78) (.63) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD...................... $ 10.22 $ 9.61 $ 9.46 $ 10.11 $ 10.26 $ 10.11 ========== ========== ========== ========== ========== ========== TOTAL RETURN (%)(b)................................. 12.68 6.56 (.81) 6.79 9.50 4.97 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands).......... 622,518 593,020 556,703 547,747 437,312 305,428 Ratios to average net assets (%)(c): Operating expenses, net......................... .89 .86 .80 .80 .80 .81 Operating expenses, gross....................... .89 .90 .86 .81 .83 .88 Net investment income........................... 5.66 6.54 5.79 5.76 5.93 6.19 Portfolio turnover rate (%)....................... 176.44 105.03 134.11 334.86 263.75 145.38
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Multistrategy Bond Fund 179 TAX EXEMPT BOND FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide a high level of federal tax-exempt current income by investing primarily in a diversified portfolio of investment grade municipal securities. INVESTS IN: Investment grade municipal obligations with an average duration typically ranging within 10% of the duration of the Fund's benchmark index. STRATEGY: The Fund concentrates on investment opportunities in the tax-free, investment grade municipal debt securities market. GROWTH OF A $10,000 INVESTMENT Dates Tax Exempt Bond - Class S SSB 3-Month T-Bill** - ----- ------------------------- -------------------- Inception* $10,000 $10,000 1992 $10,648 $10,387 1993 $11,427 $10,707 1994 $11,491 $11,118 1995 $12,209 $11,753 1996 $12,646 $12,376 1997 $13,245 $13,025 1998 $13,957 $13,698 1999 $13,896 $14,334 2000 $14,692 $15,157 2001 $16,027 $15,879 YEARLY PERIODS ENDED OCTOBER 31 TAX EXEMPT BOND FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN --------------- ------------ -------------- 1 Year $ 10,909 9.09% 5 Years $ 12,673 4.85%(S) 10 Years $ 16,027 4.83%(S) TAX EXEMPT BOND FUND - CLASS E++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN --------------- ------------- -------------- 1 Year $ 10,877 8.77% 5 Years $ 12,595 4.72%(S) 10 Years $ 15,927 4.76%(S) TAX EXEMPT BOND FUND - CLASS C++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN --------------- ------------ -------------- 1 Year $ 10,795 7.95% 5 Years $ 12,352 4.31%(S) 10 Years $ 15,620 4.56%(S) SALOMON SMITH BARNEY 3-MONTH TREASURY BILL INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN --------------- ------------ -------------- 1 Year $ 10,476 4.76% 5 Years $ 12,830 5.11%(S) 10 Years $ 15,879 4.73%(S) 180 Tax Exempt Bond Fund TAX EXEMPT BOND FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the year ended October 31, 2001, the Tax Exempt Bond Fund Class S, Class E, and Class C shares reflected total returns of 9.09%, 8.77%, and 7.95%, respectively. This compared to a 9.29% return for the Lehman Brothers Municipal 1-10 Year Index. The Fund maintained a slightly long duration compared to its benchmark, which positively contributed to the Fund's performance as rates declined. Slight overexposure to lower rated issues detracted from the Fund's performance. PORTFOLIO HIGHLIGHTS As a result of the continued slowing of the US economy during the latter part of 2000, investors waited in anticipation the Federal Reserve Board (Fed) would cut interest rates. As 2001 rolled around, the Fed wasted little time, as it slashed 50 basis points off the federal funds rate on the first trading day of the new year. After that initial action, the Fed made an unprecedented eight additional cuts during the fiscal period, dropping the key interest rate by 400 basis points in 10 months. Although the impact of the consecutive rate cuts was much more significant in the short end of the market, the US Treasury's October 2001 announcement that it would cease issuance of the 30-year bond dramatically lowered yields on the long end, and to a lesser extent, within the intermediate range of the yield curve. During the fiscal year, yields declined by 438, 150, and 91 basis points over the short, intermediate, and long ends of the curve respectively. The combination of rate cuts and the US Treasury's actions were the primary drivers of the strong relative performance of the fixed-income market. In accordance with its views that interest rate timing is, over a longer period, an un-rewarded source of residual risk, over the past year the Fund maintained an average duration very close to that of its benchmark, the Lehman Brothers Municipal 1-10 Year Index. Similar to the environment in the broad fixed-income market, municipal investors shunned those offerings perceived to carry a higher risk, and as a result, bid up prices on higher quality issues. As a result of this flight to quality, returns during the period were generally stronger within the high-grade municipal segment. TOP TEN ISSUING STATES (as a percent of Total Investments) October 31, 2001 Texas 8.4% New York 8.1 Illinois 6.0 Michigan 5.3 Indiana 5.0 Florida 4.9 Arizona 4.1 Washington 3.8 Ohio 3.6 Georgia 3.4 PORTFOLIO CHARACTERISTICS October 31, 2001 Weighted Average Quality Diversification AA2 Weighted Average Years-to-Maturity 3.5 Years Weighted Average Duration 5.0 Years Current Yield (SEC 30-day standardized) Class S 3.2% Class E 3.0% Class C 2.2% Number of Issues 219 Number of Issuers 183 MONEY MANAGERS MFS Institutional Advisors, Inc. Standish Mellon Asset Management Company, LLC * Tax Exempt Bond Fund Class S assumes initial investment on November 1, 1991. ** Salomon Smith Barney 3-Month Treasury Bill Index consists of equal dollar amounts of three-month Treasury bills purchased at the beginning of each of three consecutive months. As each bill matures, all proceeds are rolled over or reinvested in a new three-month bill. The income used to calculate the monthly return is derived by subtracting the original amount invested from the maturity value. ++ Tax Exempt Bond Fund Class S performance has been linked with Class E to provide historical perspective. From May 14, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Tax Exempt Bond Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From March 29, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. Lehman Brothers Municipal 1-10 Year is an index, with income reinvested, representative of municipal bonds with maturities ranging from 1-10 years. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Tax Exempt Bond Fund 181 TAX EXEMPT BOND FUND STATEMENT OF NET ASSETS October 31, 2001
PRINCIPAL AMOUNT DATE VALUE (000) RATE OF (000) $ % MATURITY $ --------- ------ -------- ----- MUNICIPAL BONDS - 98.0% ALABAMA - 0.6% Jefferson County, Alabama General Obligation, Series A (a) 500 5.000 04/01/10 538 Mobile County, Alabama School Board Commission General Obligation, Series A (a) 375 5.000 03/01/12 400 ----- 938 ----- ALASKA - 0.8% Alaska State Housing Finance Corp. Revenue, Series A-1 (a) 620 4.550 12/01/02 633 Anchorage, Alaska General Obligation, Series A (a) 500 5.750 12/01/16 549 ----- 1,182 ----- ARIZONA - 4.1% Arizona State Transportation Board Excise Tax Revenue, Series A (a) 500 5.750 07/01/04 540 Arizona State Transportation Board Grant Anticipation Notes (a) 1,000 5.000 01/01/08 1,075 Maricopa County, Arizona Pollution Control Corp. Revenue, Series B (b) 300 3.300 05/01/29 300 Phoenix, Arizona Civic Improvement Corporate Business Acquisition Special Revenue (a) 250 5.500 07/01/07 275 Phoenix, Arizona Civic Plaza Building Corporate Excise Tax Revenue 1,000 5.900 07/01/10 1,098 Salt River, Arizona Agricultural Improvement & Power District Electric System Revenue, Series A 500 5.500 01/01/05 539 Salt River, Arizona Agricultural Improvement & Power District Electric System Revenue, Series A 2,000 6.000 01/01/08 2,255 ----- 6,082 ----- CALIFORNIA - 3.2% ABAG Finance Authority For Nonprofit Corporations California Insured Revenue Certificate Participation 600 5.700 08/15/14 646 California State General Obligation 1,000 6.600 02/01/10 1,179 California State General Obligation (a) 750 5.750 10/01/10 864 California Statewide Communities Development Authority Multi-Family Revenue, Series C 1,000 5.200 12/01/29 1,032 San Diego County, California Regional Transportation Community Sales Tax Revenue 1,000 7.000 04/01/06 1,065 ----- 4,786 ----- COLORADO - 2.0% Colorado State Department of Transportation Revenue Anticipation Notes (a) 265 6.000 06/15/08 302 Colorado State Housing Finance Authority Revenue, Series A-3 525 7.250 04/01/10 603 Colorado State Housing Finance Authority Revenue, Series A-3 265 6.300 08/01/12 295 Colorado State Housing Finance Authority Revenue, Series B-3 240 6.700 10/01/16 273 Colorado State Housing Finance Authority Revenue, Series C-2 318 4.500 11/01/05 322 Colorado State Housing Finance Authority Revenue, Series C-3 (b) 150 5.000 08/01/16 164 Denver, Colorado Health & Hospital Revenue, Series A 1,000 5.000 12/01/04 1,029 ----- 2,988 ----- DELAWARE - 0.9% Delaware State Economic Development Authority Revenue, Series A 1,000 6.500 01/01/08 1,120 Delaware State Economic Development Authority Revenue, Series C (a)(b) 250 5.000 05/01/26 263 ----- 1,383 -----
182 Tax Exempt Bond Fund TAX EXEMPT BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001
PRINCIPAL AMOUNT DATE VALUE (000) RATE OF (000) $ % MATURITY $ --------- ------ -------- ------- DISTRICT OF COLUMBIA - 1.5% District of Columbia General Obligation, Series A (pre-refunded 06/01/06)(e)...... 800 6.375 06/01/16 924 District of Columbia General Obligation, Series B................................. 930 5.500 06/01/09 1,027 District of Columbia General Obligation, Series B (pre-refunded to maturity)(e)... 70 5.500 06/01/09 78 District of Columbia Tobacco Settlement Finance Corp.............................. 200 5.200 05/15/08 208 ------- 2,237 ------- FLORIDA - 4.9% First Florida Governmental Financing Commission Revenue, Series B (a)............. 500 5.000 07/01/12 539 Florida State Board of Education Capital Outlay General Obligation, Series B...... 1,000 6.500 06/01/07 1,156 Florida State Capital Projects Finance Authority Revenue, Series I (a)............ 250 4.250 06/01/05 259 Florida State Division of Bond Finance Revenue, Series 2000-B (a)................. 500 5.750 07/01/06 556 Florida State General Obligation.................................................. 500 5.800 07/01/18 555 Florida State Water Pollution Control Financing Corp. Revenue..................... 500 5.500 01/15/12 557 Hillsborough County, Florida Educational Facilities Authority Revenue............. 1,405 5.750 04/01/18 1,526 Hillsborough County, Florida Utility Reform Revenue............................... 170 6.200 12/01/08 187 Orlando, Florida Utilities Community Water & Electricity Revenue.................. 1,225 5.900 10/01/08 1,394 Tallahassee, Florida Energy Systems Revenue (a)................................... 500 5.000 10/01/11 542 ------- 7,271 ------- GEORGIA - 3.3% Columbia County, Georgia Water & Sewer Revenue (a)................................ 750 6.000 06/01/20 870 Dalton, Georgia Utilities Revenue................................................. 500 5.750 01/01/09 562 Fulton County, Georgia Development Authority Revenue, Series A.................... 500 5.750 11/01/11 567 Georgia State Municipal Electricity Authority Revenue, Series B (a)............... 850 6.250 01/01/17 1,000 Georgia State Private Colleges & Universities Student Housing Authority Revenue, Series A......................................................................... 55 6.000 06/01/04 58 Georgia State Private Colleges & Universities Student Housing Authority Revenue, Series A......................................................................... 70 6.000 06/01/05 74 Georgia, State of, General Obligation, Series B................................... 1,000 5.750 08/01/08 1,128 Georgia, State of, General Obligation, Series F................................... 600 6.500 12/01/09 716 ------- 4,975 ------- HAWAII - 2.2% Hawaii State General Obligation, Series CA (a).................................... 1,000 5.750 01/01/10 1,128 Hawaii State General Obligation, Series CP (a).................................... 600 5.000 10/01/02 616 Honolulu, Hawaii City & County General Obligation, Series A (a)................... 430 5.000 11/01/02 442 Honolulu, Hawaii City & County General Obligation, Series A....................... 220 5.000 11/01/02 226 Kauai County, Hawaii General Obligation, Series A (a)............................. 375 6.250 08/01/19 443 Maui County, Hawaii General Obligation, Series B (a).............................. 500 3.750 03/01/03 509 ------- 3,364 ------- IDAHO - 0.8% Ada & Canyon Counties, Idaho Meridian Joint School District Number 2 General Obligation............................................................... 1,100 6.000 07/30/06 1,237 ------- ILLINOIS - 6.0% Chicago, Illinois General Obligation (a).......................................... 750 6.000 01/01/11 861 Chicago, Illinois Public Building Commercial Building Revenue, Series B (a)....... 500 5.250 12/01/18 527 Chicago, Illinois Tax Increment Revenue, Series A, Zero Coupon (a)................ 700 0.010 12/01/07 557
Tax Exempt Bond Fund 183 TAX EXEMPT BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001
PRINCIPAL AMOUNT DATE VALUE (000) RATE OF (000) $ % MATURITY $ --------- ------ -------- ------- Cook County, Illinois Community Consolidated School District Number 015 General Obligation, Zero Coupon (a) .............................................. 2,235 12/01/13 1,282 Cook County, Illinois Palatine Community Consolidated School District Number 015 General Obligation, Zero Coupon (a) .............................................. 1,000 0.000 12/01/11 644 Grundy, Kendall & Will Counties, Illinois Community High School District Number 11 General Obligation ..................................................... 265 5.500 01/01/11 265 Illinois Health Facilities Authority Revenue (a) .................................. 500 5.000 08/01/03 522 Illinois State Development Finance Authority Revenue, Zero Coupon ................. 400 01/01/10 285 Illinois State Health Facilities Authority Revenue ................................ 1,000 5.250 09/01/04 1,040 Illinois State Health Facilities Authority Revenue ................................ 440 4.000 10/01/04 447 Illinois State Health Facilities Authority Revenue, Series A (a) .................. 1,420 5.500 08/15/05 1,540 Lake County, Illinois, Round Lake Community Unit School District Number 116 General Obligation ............................................................... 400 7.600 02/01/14 530 Macon County & Decatur Illinois Certificate Participation (a) ..................... 425 6.500 01/01/05 469 ------- 8,969 ------- INDIANA - 4.9% Allen County Indiana Jail Building Corporate Revenue .............................. 300 5.750 10/01/09 337 Franklin Township, Indiana School Building Corporate Revenue ...................... 500 5.750 07/15/06 557 Indiana State Health Facilities Financing Authority Hospital Revenue .............. 325 4.500 02/15/05 330 Indiana State Health Facilities Financing Authority Hospital Revenue .............. 500 5.000 09/15/05 527 Indiana State Health Facilities Financing Authority Hospital Revenue, Series A (a) ..................................................................... 495 5.000 11/01/02 508 Indiana State Health Facilities Financing Authority Hospital Revenue, Series A (a) ..................................................................... 5 5.000 11/01/02 5 Indiana State Health Facilities Financing Authority Hospital Revenue, Series A (a) ..................................................................... 1,250 5.000 12/01/03 1,315 Indiana State Health Facilities Financing Authority Hospital Revenue, Series D (b) ..................................................................... 1,385 5.000 11/01/26 1,470 Indiana State Housing Finance Authority Mortgage Revenue, Series A ................ 725 6.600 07/01/05 754 Indiana University Revenue, Series M .............................................. 500 5.750 08/01/10 562 Indianapolis, Indiana Thermal Energy System Revenue, Series A (a) ................. 450 5.000 10/01/06 484 Monroe County, Indiana Hospital Authority Revenue (a) ............................. 500 4.500 05/01/03 515 ------- 7,364 ------- IOWA - 0.2% Iowa State Financing Authority Health Care Facilities Revenue ..................... 290 6.000 07/01/10 323 ------- KANSAS - 2.4% Butler & Sedgwick Counties, Kansas University School District Number 385 Andover General Obligation ....................................................... 500 5.000 09/01/09 542 Kansas State Department of Transportation Highway Revenue ......................... 300 7.250 03/01/04 331 Kansas State Department of Transportation Highway Revenue ......................... 600 7.250 03/01/05 682 Kansas State Development Finance Authority Revenue ................................ 1,000 5.500 11/01/11 1,112 La Cygne, Kansas Environmental Impact Revenue (a) ................................. 1,000 3.900 03/01/15 1,011 ------- 3,678 ------- LOUISIANA - 2.1% De Soto Parish, Louisiana Pollution Control Revenue, Series A ..................... 650 5.050 12/01/02 660 Jefferson Parish, Louisiana Hospital Service District Number 2 Hospital Revenue (a) ............................................................. 1,000 5.250 12/01/15 1,075 Louisiana State Energy & Power Authority Project Revenue .......................... 200 5.500 01/01/08 220 Plaquemines, Louisiana Port, Harbor & Terminal District Marine Terminal Facilities Revenue ............................................................... 235 5.000 09/01/07 244 Shreveport, Louisiana General Obligation, Zero Coupon (a) ......................... 1,000 0.000 01/01/05 903 ------- 3,102 -------
184 Tax Exempt Bond Fund Tax Exempt Bond Fund Statement of Net Assets, continued
October 31, 2001 PRINCIPAL AMOUNT DATE VALUE (000) RATE OF (000) $ % MATURITY $ ----------- --------- ---------- -------- MARYLAND - 0.1% Frederick County, Maryland Educational Facilities Revenue, Series A 210 4.800 09/01/09 217 -------- MASSACHUSETTS - 3.0% Massachusetts Bay Transportation Authority Revenue, Series C 500 6.000 03/01/06 556 Massachusetts State Development Finance Agency Revenue 235 5.125 12/01/11 244 Massachusetts State Development Finance Agency Revenue, Series B 125 5.400 07/01/02 127 Massachusetts State Development Finance Agency Revenue, Series C (a) 360 5.750 08/01/05 388 Massachusetts State General Obligation, Series A 430 6.000 02/01/11 498 Massachusetts State Health & Educational Facilities Authority Revenue, Series B (a)(b) 370 4.549 01/01/21 373 Massachusetts State Industrial Finance Agency Resource Recovery Revenue, Series A 500 4.850 12/01/05 516 Massachusetts State Port Authority Revenue, Series A 200 6.000 07/01/06 218 Massachusetts State Port Authority Revenue, Series A 125 5.250 07/01/07 133 Massachusetts State Port Authority Revenue, Series A 150 5.750 07/01/10 164 Massachusetts State Turnpike Authority Revenue, Series A 1,100 5.000 01/01/13 1,188 -------- 4,405 -------- MICHIGAN - 5.3% Bishop International Airport Authority, Michigan Airport Revenue, Series B 1,000 5.000 12/01/10 1,041 Bishop International Airport Authority, Michigan Airport Revenue, Series B 985 5.250 12/01/11 1,037 Jackson County, Michigan Hospital Finance Authority Revenue, Series A (a) 300 4.375 06/01/02 304 Kent, Michigan Hospital Finance Authority Revenue, Series A 250 5.250 01/15/07 266 Manistee, Michigan Area Public Schools General Obligation (a) 235 6.000 05/01/08 266 Michigan State Building Authority Revenue, Series I 375 5.400 10/01/03 394 Michigan State Hospital Finance Authority Revenue, Series A (a) 500 5.000 07/01/02 509 Michigan State Hospital Finance Authority Revenue, Series A 1,000 5.500 10/01/04 1,080 Michigan State Hospital Finance Authority Revenue, Series A (a) 250 5.000 05/15/07 268 Michigan State Hospital Finance Authority Revenue, Series B 1,000 5.200 11/15/33 1,043 Michigan State Municipal Bond Authority Revenue 500 5.750 10/01/11 574 Michigan State Trunk Line, Series A 1,000 5.500 11/01/11 1,111 -------- 7,893 -------- MINNESOTA - 1.3% Minnesota State General Obligation 500 6.000 08/01/05 555 Minnesota State Housing Finance Agency, Series H 920 6.700 01/01/18 960 St. Cloud, Minnesota Health Care Revenue, Series A 340 5.500 05/01/06 372 -------- 1,887 -------- MISSISSIPPI - 0.7% Mississippi State Capital Improvements General Obligation, Series A 1,000 6.000 07/01/05 1,107 -------- MISSOURI - 0.4% Missouri State Housing Development Commission, Series II 265 4.350 12/01/07 271 Southeast Missouri State University System Facilities Revenue (a) 250 5.625 04/01/10 281 -------- 552 -------- NEBRASKA - 0.8% Nebraska State Public Power District Revenue 1,160 6.000 01/01/08 1,233 --------
Tax Exempt Bond Fund 185 TAX EXEMPT BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001
PRINCIPAL AMOUNT DATE VALUE (000) RATE OF (000) $ % MATURITY $ --------- ----- -------- ------ NEVADA - 1.5% Clark County, Nevada School District General Obligation 1,000 5.250 06/15/10 1,086 Henderson, Nevada General Obligation, Series A (a) 475 6.000 06/01/06 529 Truckee Meadows, Nevada Water Authority Revenue, Series A 500 5.500 07/01/11 555 ------ 2,170 ------ NEW HAMPSHIRE - 0.8% New Hampshire State Health & Education Facilities Authority Revenue 275 6.500 07/01/10 297 New Hampshire State Higher Educational & Health Facilities Authority Revenue (Pre-refunded 03/01/03)(e) 745 9.000 03/01/23 827 ------ 1,124 ------ NEW JERSEY - 2.9% New Jersey State Educational Facilities Authority Revenue, Series B 1,000 5.750 09/01/10 1,143 New Jersey State Housing & Mortgage Finance Agency Revenue, Series 1 488 6.000 11/01/02 495 New Jersey State Transportation Corporation, Series A (a) 500 5.000 02/01/03 503 New Jersey State Transportation Trust Fund Authority Revenue, Series B 1,000 6.000 06/15/06 1,122 New Jersey State Transportation Trust Fund Authority Revenue, Series B 500 6.000 06/15/07 565 New Jersey State Turnpike Authority Revenue, Series A (a) 500 5.500 01/01/09 556 ------ 4,384 ------ NEW MEXICO - 1.6% New Mexico State Highway Commission Tax Revenue 1,000 5.750 06/15/09 1,129 New Mexico State Highway Commission Tax Revenue, Series A 570 5.500 06/15/06 626 Rio Rancho, New Mexico Water & Wastewater System Revenue, Series A 500 8.000 05/15/04 565 ------ 2,320 ------ NEW YORK - 8.1% Long Island, New York Power Authority Electric System Revenue, Series A (a) 500 6.000 12/01/07 569 Metropolitan Transportation Authority, New York Service Contract Commuter Facilities, Series 7 500 5.300 07/01/05 541 Metropolitan Transportation Authority, New York Transit Facilities Revenue, Series R (d) 650 5.000 07/01/03 680 Municipal Assistance Corp., New York, New York Revenue, Series E 1,000 4.700 07/01/02 1,018 Nassau County, New York Tobacco Settlement Corporation Revenue, Series A (b) 595 5.400 07/15/12 644 New York State Dormitory Authority Revenue (a) 1,900 7.000 07/01/09 2,206 New York State Dormitory Authority Revenue, Series 1 500 5.000 07/01/03 520 New York State Dormitory Authority Revenue, Series A 375 6.000 02/15/03 391 New York State Dormitory Authority Revenue, Series A 375 6.000 08/15/04 406 New York State Dormitory Authority Revenue, Series E 1,000 5.500 02/15/03 1,038 New York, New York General Obligation, Series A 235 5.250 11/01/12 252 New York, New York General Obligation, Series E 500 5.300 08/01/03 523 New York, New York General Obligation, Series F 500 5.300 08/01/03 523 New York, New York General Obligation, Series H 750 5.250 08/01/03 784 Niagara County, New York Industrial Development Agency Solid Waste Disposal Revenue 350 5.550 11/15/24 363 Suffolk County, New York Judicial Facilities Agency Service Agreement Revenue 500 5.500 04/15/09 555 (a) TSASC Inc., New York Revenue, Series 1 1,000 5.500 07/15/13 1,078 ------ 12,091 ------
186 Tax Exempt Bond Fund TAX EXEMPT BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001
PRINCIPAL AMOUNT DATE VALUE (000) RATE OF (000) $ % MATURITY $ --------- ----- -------- ----- NORTH CAROLINA - 1.2% North Carolina State Municipal Power Agency Number 1, Catawba Electric Revenue (a) 1,500 6.000 01/01/12 1,728 ----- OHIO - 3.6% Cincinnati, Ohio Water System Revenue 1,780 5.500 12/01/08 1,983 Hamilton County, Ohio Sewer System Revenue, Series A (a) 250 6.000 12/01/05 279 Jackson, Ohio Local School District Stark & Summit Counties, General Obligation, Zero Coupon 500 0.000 12/01/07 399 Ohio State Building Authority Adult Correctional Facilities Revenue, Series A 575 5.750 04/01/08 644 Ohio State Building Authority Revenue, Series A (a) 500 6.000 04/01/06 557 Ohio State Turnpike Commission Revenue, Series B 500 5.000 02/15/07 535 Richland County, Ohio Hospital Facilities Revenue, Series A 300 5.400 11/15/03 312 Steubenville, Ohio Hospital Revenue 280 5.700 10/01/10 303 University of Cincinnati, Ohio General Receipts, Series A (a) 300 5.500 06/01/08 331 ----- 5,343 ----- OKLAHOMA - 0.3% Oklahoma State Housing Finance Agency Single Family Revenue 390 7.600 09/01/15 449 ----- OREGON - 0.3% Clackamas County, Oregon School District Number 62C General Obligation 435 6.000 06/15/11 503 ----- PENNSYLVANIA - 2.4% Allegheny County, Pennsylvania Port Authority Transit Revenue (a) 250 5.500 03/01/17 268 Norwin, Pennsylvania School District General Obligation (a) 250 6.000 04/01/20 289 Philadelphia, Pennsylvania Gas Works Revenue, Series A 500 5.500 07/01/07 551 Philadelphia, Pennsylvania Water & Wastewater Revenue (a) 500 6.750 08/01/05 565 Scranton-Lackawanna, Pennsylvania Health & Welfare Authority Revenue, Series A 700 7.375 07/15/08 740 Swarthmore Boro, Pennsylvania College Revenue 1,000 5.500 09/15/11 1,116 ----- 3,529 ----- RHODE ISLAND - 0.6% Rhode Island State Health & Educational Building Corporation Revenue (a) 785 5.500 04/01/17 861 ----- SOUTH CAROLINA - 2.0% Medical University South Carolina Hospital Facilities Revenue 680 5.500 07/01/03 711 Richland Lexington, South Carolina District Airport Revenue, Series A 250 5.000 01/01/06 266 Richland Lexington, South Carolina District Airport Revenue, Series A 500 5.000 01/01/09 536 Richland Lexington, South Carolina District Airport Revenue, Series A 440 5.000 01/01/10 472 South Carolina State Public Services Authority Revenue, Series A (a) 375 5.500 01/01/11 418 Spartanburg County, South Carolina Health Services District Hospital Revenue, Series B (a) 500 6.000 04/15/07 559 ----- 2,962 ----- SOUTH DAKOTA - 0.9% Sioux Falls, South Dakota Sales Tax Revenue, Series A (a) 250 5.500 11/15/10 280 South Dakota State Housing Development Authority Revenue, Series A 1,000 5.200 05/01/02 1,013 ----- 1,293 -----
Tax Exempt Bond Fund 187 TAX EXEMPT BOND FUND STATEMENT OF NET ASSETS, CONTINUED
October 31, 2001 PRINCIPAL AMOUNT DATE VALUE (000) RATE OF (000) $ % MATURITY $ --------- ----- -------- ------- TENNESSEE - 2.2% Metropolitan Government, Nashville & Davidson Counties, Tennessee Health & Educational Facilities Board Revenue, Series A 920 5.000 11/01/06 998 Shelby County, Tennessee General Obligation, Series A 1,000 6.750 04/01/05 1,123 White House Utility District, Tennessee, Robertson & Sumner Counties Waterworks Revenue, Zero Coupon, Series B (a) 650 0.000 01/01/05 587 Williamson County, Tennessee General Obligation 500 6.000 03/01/06 555 ------ 3,263 ------ TEXAS - 8.4% Alvin Texas Independent School District General Obligation 515 6.750 08/15/09 613 Alvin Texas Independent School District General Obligation 545 6.750 08/15/10 655 Bell County, Texas Health Facilities Development Corp. Revenue 1,010 5.000 11/15/03 1,042 Brazos River Authority, Texas Revenue, Series B 1,500 5.200 12/01/18 1,529 Houston, Texas General Obligation, Series C 720 5.900 03/01/03 728 Houston, Texas General Obligation, Series C (pre-refunded 03/01/02)(e) 280 5.900 03/01/03 284 Houston, Texas Hotel Occupancy Revenue 500 6.000 07/01/04 543 Houston, Texas Hotel Occupancy Tax & Special Revenue, Series B 2,400 09/01/16 1,171 Matagorda County, Texas Navigation District Number 1 Pollution Control Revenue, Series A (b) 1,240 3.750 05/01/30 1,240 North Central, Texas Health Facilities Development Corp. Revenue 1,050 5.500 04/01/05 1,136 Nueces County, Texas Corpus Christi Port Authority General Revenue 85 5.350 11/01/10 86 Round Rock, Texas Independent School District General Obligation 1,000 6.500 08/01/10 1,185 Round Rock, Texas Independent School District General Obligation 750 6.500 08/01/11 891 Texas A&M University Permanent University Funding Revenue 1,000 5.000 07/01/08 1,077 Waco,Texas Health Facilities Development Corp. Revenue, Series A 250 5.200 11/15/06 270 ------ 12,450 ------ UTAH - 2.0% Intermountain Power Agency, Utah Power Supply Revenue, Series C 1,000 4.700 07/01/02 1,016 Salt Lake City, Utah General Obligation 1,250 5.500 06/15/07 1,384 Utah State Board of Regents Revenue, Series A (a) 565 5.750 04/01/03 592 ------ 2,992 ------ VIRGINIA - 1.7% Fairfax County, Virginia Certificates of Participation 200 5.750 04/15/13 221 Prince William County, Virginia Water & Sewer Service System Authority Revenue (a) 555 5.500 07/01/05 605 Virginia State Housing Development Authority Revenue, Series D 1,000 6.050 07/01/10 1,074 Virginia State Public Building Authority Revenue, Series A 500 5.750 08/01/07 561 ------ 2,461 ------ WASHINGTON - 3.8% CDP King County III, Washington Lease Revenue (a) 500 4.600 06/01/03 517 Clallam County, Washington Public Utility District Number 001 Electricity 385 5.000 01/01/08 411 Revenue King County, Washington Issaquah School District Number 411 General Obligation 1,000 5.500 12/01/05 1,091 Kitsap County, Washington General Obligation (a) 775 5.750 07/01/14 856 Washington State General Obligation, Series A 500 6.500 07/01/04 548 Washington State Public Power Supply System Nuclear Project Number 1 Revenue, Series A 1,000 7.000 07/01/08 1,176 Washington State Public Power Supply System Nuclear Project Number 3 Revenue, Series A 1,000 5.000 07/01/04 1,055 ------ 5,654 ------
188 Tax Exempt Bond Fund TAX EXEMPT BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001
PRINCIPAL AMOUNT DATE VALUE (000) RATE OF (000) $ % MATURITY $ ----------- ---------- ---------- ---------- WEST VIRGINIA - 0.6% South Charleston, West Virginia Pollution Control Revenue 700 7.625 08/01/05 783 West Virginia State Hospital Finance Authority Revenue 150 6.500 09/01/05 165 --------- 948 --------- WISCONSIN - 1.6% Oconto Falls, Wisconsin Public School District General Obligation, Series A 750 5.750 03/01/13 839 Wisconsin State General Obligation, Series 2 625 5.125 11/01/11 685 Wisconsin State Health & Educational Facilities Authority Revenue 70 5.000 07/01/06 72 Wisconsin State Housing & Economic Development Authority Revenue, Series A 700 6.850 11/01/12 717 --------- 2,313 --------- TOTAL MUNICIPAL BONDS (cost $139,570) 146,011 --------- SHORT-TERM INVESTMENTS - 1.6% Frank Russell Investment Company Tax Free Money Market Fund (c) 2,445 2,445 --------- TOTAL SHORT-TERM INVESTMENTS (cost $2,445) 2,445 --------- TOTAL INVESTMENTS - 99.6% (identified cost $142,015) 148,456 OTHER ASSETS AND LIABILITIES, NET - 0.4% 541 --------- NET ASSETS - 100.0% 148,997 =========
(a) Bond is insured by AMBAC, FGIC, or MBIA. (b) Adjustable or floating rate security. (c) At net asset value. (d) Forward commitment. (e) Pre-refunded: These bonds are collateralized by US Treasury securities, which are held in escrow by a trustee and used to pay principal and interest in the tax-exempt issue and to retire the bonds in full at the earliest refunding date. The rate noted is for descriptive purposes; effective yield may vary. Abbreviations: AMBAC - AMBAC Indemnity Corporation FGIC - Financial Guaranty Insurance Corporation MBIA - Municipal Bond See accompanying notes which are an integral part of the financial statements. Tax Exempt Bond Fund 189 TAX EXEMPT BOND FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 QUALITY RATINGS AS A % OF VALUE (Unaudited) AAA 51% AA 25 A 17 BBB 7 ------- 100% ======= ECONOMIC SECTOR EMPHASIS AS A % OF VALUE (Unaudited) General Obligation 25% Other 16 Healthcare Revenue 16 Utility Revenue 15 State & Community Lease 8 Universities 7 Housing Revenue 6 Pollution Control Revenue 3 Refunded & Special Obligation 2 Cash Equivalents 2 ------- 100% ======= See accompanying notes which are an integral part of the financial statements. 190 Tax Exempt Bond Fund TAX EXEMPT BOND FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (identified cost $142,015).................... $ 148,456 Cash ............................................................... 500 Receivables: Dividends and interest ........................................... 2,218 Investments sold ................................................. 310 Fund shares sold ................................................. 164 ---------- Total assets ................................................... 151,648 LIABILITIES Payables: Investments purchased (regular settlement) ............ $ 1,691 Investments purchased (delayed settlement) ............ 780 Fund shares redeemed .................................. 62 Accrued fees to affiliates ........................... 69 Other accrued expenses ............................... 49 ---------- Total liabilities .............................................. 2,651 ---------- NET ASSETS ......................................................... $148,997 ========== NET ASSETS CONSIST OF: Undistributed net investment income ................................ $ 349 Accumulated realized gain (loss) .................................. (2,465) Unrealized appreciation (depreciation) on investments .............. 6,441 Shares of beneficial interest ...................................... 68 Additional paid-in capital ......................................... 144,604 ---------- NET ASSETS ......................................................... $ 148,997 ========== NET ASSET VALUE, offering and redemption price per share: Class C ($2,247,746 divided by 103,288 shares of $.01 par value shares of beneficial interest outstanding) ...................... $ 21.76 ========== Class E ($6,397,825 divided by 293,360 shares of $.01 par value shares of beneficial interest outstanding) ...................... $ 21.81 ========== Class S ($140,351,829 divided by 6,442,580 shares of $.01 par value shares of beneficial interest outstanding) ................ $ 21.79 ========== See accompanying notes which are an integral part of the financial statements. Tax Exempt Bond Fund 191 TAX EXEMPT BOND FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Interest ........................................................ $ 6,483 Dividends from Tax Free Money Market Fund ...................... 102 Dividends ....................................................... 8 ---------- Total investment income ....................................... 6,593 EXPENSES Advisory fees ....................................... $ 414 Administrative fees ................................. 70 Custodian fees ...................................... 103 Distribution fees - Class C ......................... 11 Transfer agent fees ................................. 32 Professional fees ................................... 31 Registration fees ................................... 48 Shareholder servicing fees - Class C ................ 4 Shareholder servicing fees - Class E ................ 13 Trustees' fees ...................................... 13 Miscellaneous ....................................... 33 ---------- Expenses before reductions .......................... 772 Expense reductions .................................. (4) ---------- Expenses, net ................................................. 768 ---------- Net investment income ............................................. 5,825 NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on investments ........................... 392 Net change in unrealized appreciation (depreciation) on investments ................................................... 5,771 ---------- Net realized and unrealized gain (loss) ........................... 6,163 ---------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ............. $ 11,988 ========== See accompanying notes which are an integral part of the financial statements. 192 Tax Exempt Bond Fund TAX EXEMPT BOND FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ----------------- ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income ............................................. $ 5,825 $ 5,059 $ 5,693 Net realized gain (loss) .......................................... 392 (747) (1,498) Net change in unrealized appreciation (depreciation) .............. 5,771 3,182 (5,063) ----------------- ---------------- ----------------- Net increase (decrease) in net assets from operations ........... 11,988 7,494 (868) DISTRIBUTIONS From net investment income Class C ......................................................... (47) (16) (7) Class E ......................................................... (202) (113) (77) Class S ......................................................... (5,636) (4,377) (5,753) ----------------- ---------------- ----------------- Net decrease in net assets from distributions ................. (5,885) (4,506) (5,837) ----------------- ---------------- ----------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions ..... 9,585 3,033 5,034 ----------------- ---------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS ......................... 15,688 6,021 (1,671) NET ASSETS Beginning of period ............................................... 133,309 127,288 128,959 ----------------- ---------------- ----------------- End of period (including undistributed net investment income of $349, $409and $144, respectively) ................................ $ 148,997 $ 133,309 $ 127,288 ================= ================ =================
See accompanying notes which are an integral part of the financial statements. Tax Exempt Bond Fund 193 TAX EXEMPT BOND FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* 2000** 1999*** ------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD................ $ 20.83 $ 20.45 $ 21.38 ------- ------- ------- INCOME FROM OPERATIONS Net investment income (a)......................... .68 .59 .45 Net realized and unrealized gain (loss)........... .95 .32 (.84) ------- ------- ------- Total income from operations.................... 1.63 .91 (.39) ------- ------- ------- DISTRIBUTIONS From net investment income........................ (.70) (.53) (.54) ------- ------- ------- NET ASSET VALUE, END OF PERIOD...................... $ 21.76 $ 20.83 $ 20.45 ======= ======= ======= TOTAL RETURN (%) (b)................................ 7.95 4.53 (1.82) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands).......... 2,248 780 474 Ratios to average net assets (%) (c): Operating expenses.............................. 1.53 1.64 1.57 Net investment income........................... 3.18 3.48 3.12 Portfolio turnover rate (%)....................... 31.16 38.16 119.34 * For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period March 29, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 194 Tax Exempt Bond Fund TAX EXEMPT BOND FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** ------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD ................................... $ 20.87 $ 20.47 $ 21.19 ------- ------- ------- INCOME FROM OPERATIONS Net investment income (a) ........................................... .84 .71 .50 Net realized and unrealized gain (loss) .............................. .95 .33 (.71) ------- ------- ------- Total income from operations ....................................... 1.79 1.04 (.21) ------- ------- ------- DISTRIBUTIONS From net investment income ........................................... (.85) (.64) (.51) ------- ------- ------- NET ASSET VALUE, END OF PERIOD ......................................... $ 21.81 $ 20.87 $ 20.47 ======= ======= ======= TOTAL RETURN (%)(b) .................................................... 8.77 5.17 (.99) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ............................. 6,398 3,445 2,854 Ratios to average net assets (%)(c): Operating expenses ................................................. .78 .89 .82 Net investment income .............................................. 3.93 4.08 3.76 Portfolio turnover rate (%) ........................................ 31.16 38.16 119.34
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period May 14, 1999 (commencement of sale) to December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. Tax Exempt Bond Fund 195 TAX EXEMPT BOND FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, ---------------------------------- 2001* 2000** 1999 1998 1997 1996 ------- ------- ------- ------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 20.84 $ 20.42 $ 21.39 $ 21.19 $ 21.02 $ 21.24 ------- ------- ------- ------- ------- ------- INCOME FROM OPERATIONS Net investment income (a)........................... .89 .75 .84 .81 .84 .85 Net realized and unrealized gain (loss)............. .96 .33 (.95) .19 .18 (.21) ------- ------- ------- ------- ------- ------- Total income from operations...................... 1.85 1.08 (.11) 1.00 1.02 .64 ------- ------- ------- ------- ------- ------- DISTRIBUTIONS From net investment income.......................... (.90) (.66) (.86) (.80) (.85) (.86) ------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD........................ $ 21.79 $ 20.84 $ 20.42 $ 21.39 $ 21.19 $ 21.02 ======= ======= ======= ======= ======= ======= TOTAL RETURN (%)(b)................................... 9.09 5.37 (.52) 4.82 4.92 3.07 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)............ 140,352 129,084 123,960 128,959 83,076 66,344 Ratios to average net assets (%)(c): Operating expenses................................ .53 .64 .57 .72 .71 .75 Net investment income............................. 4.21 4.32 3.99 3.80 3.99 4.02 Portfolio turnover rate (%)......................... 31.16 38.16 119.34 74.42 40.79 74.34
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. (a) For the periods subsequent to December 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 196 Tax Exempt Bond Fund TAX-MANAGED LARGE CAP FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide capital growth on an after tax basis by investing principally in equity securities. INVESTS IN: US equity securities. STRATEGY: The Fund seeks to achieve superior stock in a risk-controlled portfolio while minimizing the impact of taxes by explicitly integrating the tax implications of portfolio activities on after-tax returns. GROWTH OF A $10,000 INVESTMENT Dates Tax-Managed Large Cap - Class S S&P 500(R)** - ----- ------------------------------- ------------ Inception* $10,000 $10,000 1996 $10,030 $10,279 1997 $13,260 $13,602 1998 $16,239 $16,597 1999 $20,271 $20,876 2000 $21,284 $22,140 2001 $16,207 $16,623 YEARLY PERIODS ENDED OCTOBER 31 TAX-MANAGED LARGE CAP FUND - CLASS S PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ----------------- ------------ ------------- 1 Year $ 7,614 (23.86)% 5 Years $ 16,158 10.07%(S) Inception $ 16,207 10.00%(S) TAX-MANAGED LARGE CAP FUND - CLASS C++++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ----------------- ------------ ------------- 1 Year $ 7,544 (24.57)% 5 Years $ 15,853 9.65%(S) Inception $ 15,900 9.58%(S) TAX-MANAGED LARGE CAP FUND - CLASS E++ PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ----------------- ------------ ------------ 1 Year $ 7,599 (21.10)% 5 Years $ 16,125 10.02%(S) Inception $ 16,173 9.95%(S) STANDARD & POORS(R)500 COMPOSITE STOCK PRICE INDEX PERIODS ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ----------------- ------------ ------------ 1 Year $ 7,508 (24.92)% 5 Years $ 16,172 10.09%(S) Inception $ 16,623 10.52%(S) 198 Tax-Managed Large Cap Fund TAX-MANAGED LARGE CAP FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the year ended October 31, 2001, the Tax-Managed Large Cap Fund Class S, Class E and Class C shares lost 23.86%, 21.10% and 24.57%, respectively. This compared to a loss of 24.92% for the S&P 500(R) Index during the same period. The Fund's performance as a tax efficient investment vehicle, given its sector neutral approach, was solid in a market environment marked by unusually difficult events. These included terrorist attacks on September 11, 2001 that caused investor confidence to plummet. The attacks came after a heavy slate of sluggish economic news and declining corporate earnings announcements. This fiscal year also witnessed a reversal in monetary policy. At the beginning of the period, financial markets were still feeling the negative effects of the multiple interest rate hikes made by the Federal Reserve Board (Fed) during early 2000. By the end of the period, market participants were anxiously waiting for the numerous rate cuts during fiscal 2001 to gain traction, and help revive the struggling economy. J.P. Morgan, the Fund's manager, was able to harvest losses during market excesses in order to upgrade overall portfolio quality. PORTFOLIO HIGHLIGHTS Major shifts in political leadership, monetary policy, economic standing and national security resulted in a high level of sector and market volatility, which impacted the Fund's performance. Value stocks outperformed growth issues for most of the period. As expected in a declining market, the Fund's fully invested posture cost some excess returns, however this was offset by the Fund's slight valuation bias. Towards the end of calendar 2000, the Fund benefited from its slight overweight positions in the integrated oil, materials and processing, and transportation sectors and an underweight in technology. By early September 2001, the Fund began to favor securities more sensitive to market volatility (higher beta stocks). After the terrorist attacks on September 11, J.P. Morgan reduced its emphasis on higher beta stocks as specific stock risk levels rose dramatically. The manager also tightened risk controls. The Fund favored companies with slightly discounted price-to-earnings ratios and above average expected earnings growth. The capitalization bias resulted in a 4% underweight to the largest capitalization tier relative to its benchmark, yet all sector weightings remained within 1% of benchmark weightings. The annual turnover rate remained at its customary level of approximately 50%. During the period, Chase acquired J.P. Morgan with no perceived negative effect on J.P. Morgan's ability to fulfill its mandate in the Fund. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 General Electric Co. 4.2% Microsoft Corp. 3.4 Citigroup, Inc. 3.4 Pfizer, Inc. 3.1 Exxon Mobil Corp. 2.9 International Business Machines Corp. 2.4 Philip Morris Cos., Inc. 2.4 ChevronTexaco Corp. 2.4 Tyco International, Ltd. 2.3 Wal-Mart Stores, Inc. 2.0 PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 20.8x Portfolio Price/Book Ratio 3.42x Market Capitalization - $-Weighted Average 105.93 Bil Number of Holdings 168 MONEY MANAGER STYLE J.P. Morgan Investment Management, Inc. Market-Oriented * The Fund commenced operations on October 7, 1996. Index comparison began October 1, 1996. ** The Standard & Poor's(R) 500 Composite Stock Price Index is composed of 500 common stocks which are chosen by Standard & Poor's Corporation to best capture the price performance of a large cross-section of the US publicly traded stock market. The Index is structured to approximate the general distribution of industries in the US economy. ++ Tax-Managed Small Cap Fund Class S performance has been linked with Class E to provide historical perspective. For the period December 8, 2000 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Tax-Managed Large Cap Fund Class S performance has been linked with Class C to provide historical perspective. For the period December 6, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. (s) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Tax-Managed Large Cap Fund 199 TAX-MANAGED LARGE CAP FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------ COMMON STOCKS - 97.8% AUTO AND TRANSPORTATION - 1.1% Burlington Northern Santa Fe Corp. 65,000 1,747 C.H. Robinson Worldwide, Inc. 78,700 2,106 Delphi Automotive Systems Corp. 11,100 129 Delta Air Lines, Inc. 3,900 89 General Motors Corp. 29,300 1,211 ------ 5,282 ------ CONSUMER DISCRETIONARY - 12.9% Abercrombie & Fitch Co. Class A (a) 11,700 220 AOL Time Warner, Inc. (a) 237,075 7,398 Bed Bath & Beyond, Inc. (a) 26,300 659 Cendant Corp. (a) 112,100 1,453 Eastman Kodak Co. 12,900 330 eBay, Inc. (a) 5,500 289 Estee Lauder Cos., Class A 2,000 65 Federated Department Stores, Inc. (a) 62,700 2,006 Gannett Co., Inc. 29,700 1,877 Gemstar-TV Guide International, Inc. (a) 86,600 1,755 Gillette Co. (The) 34,900 1,085 Hasbro, Inc. 62,800 1,041 Home Depot, Inc. (The) 156,900 5,998 Jones Apparel Group, Inc. (a) 72,400 1,998 Kimberly-Clark Corp. 43,600 2,420 Kohl's Corp. (a) 15,500 862 Liberty Media Corp. (a) 128,700 1,505 Marriott International, Inc. Class A 8,600 269 Mattel, Inc. (a) 202,800 3,839 May Department Stores Co. 8,100 255 McDonald's Corp. 49,100 1,280 Starwood Hotels & Resorts Worldwide, Inc. Class B 27,400 604 Target Corp. 94,400 2,941 TJX Cos., Inc. 104,000 3,515 Viacom, Inc. Class B (a) 134,900 4,925 Wal-Mart Stores, Inc. 175,700 9,031 Waste Management, Inc. 58,900 1,443 ------ 59,063 ------ CONSUMER STAPLES - 7.8% Coca-Cola Co. (The) 104,500 5,004 Colgate-Palmolive Co. 7,600 437 Heinz (H.J.) Co. 18,600 789 Kraft Foods, Inc. 4,200 142 Kroger Co. (a) 15,000 367 PepsiCo, Inc. 67,170 3,272 Philip Morris Cos., Inc. 236,300 11,059 Procter & Gamble Co. 94,900 7,002 Safeway, Inc. (a) 130,500 5,435 SYSCO Corp. 4,600 111 Unilever NV 43,525 2,262 ------ 35,880 ------ FINANCIAL SERVICES - 17.6% AFLAC, Inc. 37,900 927 AMBAC Financial Group, Inc. 80,050 3,842 American International Group, Inc. 95,208 7,483 Bank of America Corp. 18,400 1,085 Bank One Corp. 155,400 5,158 Capital One Financial Corp. 62,400 2,578 CIGNA Corp. 79,800 5,817 Citigroup, Inc. 345,534 15,729 Countrywide Credit Industries, Inc. 64,100 2,560 E*TRADE Group, Inc. (a) 164,600 1,075 Federal Home Loan Mortgage Corp. 28,400 1,926 Federal National Mortgage Association 57,900 4,688 Golden State Bancorp, Inc. 78,000 1,978 Goldman Sachs Group, Inc. 29,000 2,267 Greenpoint Financial Corp. 129,700 4,157 Instinet Group Inc. (a) 37,600 361 MBIA, Inc. 51,400 2,367 Merrill Lynch & Co., Inc. 15,800 691 PNC Bank Corp. 31,000 1,702 Schwab (Charles) Corp. 127,800 1,646 Stilwell Financial, Inc. 47,800 961 TD Waterhouse Group, Inc. (a) 82,300 779 Torchmark Corp. 25,900 959 U.S. Bancorp 168,671 2,999 UnumProvident Corp. 3,500 79 Wachovia Corp. (a) 156,100 4,464 Washington Mutual, Inc. 7,072 214 Wilmington Trust Corp. 39,900 2,266 ------ 80,758 ------ HEALTH CARE - 14.7% Abbott Laboratories 51,500 2,728 American Home Products Corp. 80,500 4,494 Amgen, Inc. (a) 69,100 3,926 Bard (C.R.), Inc. 15,900 873 Baxter International, Inc. 53,200 2,573 Becton, Dickinson & Co. 77,700 2,782 Bristol-Myers Squibb Co. 17,500 935 Cardinal Health, Inc. 19,100 1,282 Forest Labs, Inc. (a) 26,700 1,986 Guidant Corp. (a) 11,600 482 HCA-The Healthcare Co. 42,600 1,690 Human Genome Sciences, Inc. (a) 47,300 2,016 Johnson & Johnson 110,206 6,382 Lilly (Eli) & Co. 67,200 5,141 200 Tax-Managed Large Cap Fund TAX-MANAGED LARGE CAP FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ --------- ------ Merck & Co., Inc. 86,500 5,520 Pfizer, Inc. 342,300 14,343 Pharmacia Corp. 58,900 2,387 Schering-Plough Corp. 124,300 4,621 Tenet Healthcare Corp. (a) 44,200 2,542 Vertex Pharmaceuticals, Inc. (a) 29,200 715 ------ 67,418 ------ INTEGRATED OILS - 6.3% ChevronTexaco Corp. (a) 124,361 11,012 Conoco, Inc. (a) 79,800 2,051 Exxon Mobil Corp. 337,004 13,294 Royal Dutch Petroleum Co. 52,200 2,637 ------ 28,994 ------ MATERIALS AND PROCESSING - 4.8% Alcan Aluminum, Ltd. 49,100 1,500 Alcoa, Inc. 99,256 3,203 Dow Chemical Co. 72,836 2,422 Masco Corp. 2,800 56 PPG Industries, Inc. 58,700 2,866 Praxair, Inc. 24,300 1,146 Rohm & Haas Co. 12,300 399 Tyco International, Ltd. 217,418 10,684 ------ 22,276 ------ MISCELLANEOUS - 5.2% Eaton Corp. 5,000 327 General Electric Co. 523,200 19,050 Georgia-Pacific Group 5,800 161 Johnson Controls, Inc. 60,600 4,383 ------ 23,921 ------ OTHER ENERGY - 1.2% Anadarko Petroleum Corp. 11,900 679 Cooper Cameron Corp. (a) 8,200 320 Dynegy, Inc. Class A 37,900 1,361 El Paso Corp. 45,400 2,227 Global Marine, Inc. (a) 49,200 792 Rowan Cos., Inc. (a) 11,100 187 ------ 5,566 ------ PRODUCER DURABLES - 1.5% American Tower Corp. Class A (a) 27,800 306 Applied Materials, Inc. (a) 69,700 2,378 B.F. Goodrich Co. 28,900 617 Grainger (W.W.), Inc. 15,300 662 United Technologies Corp. 50,900 2,743 ------ 6,706 ------ TECHNOLOGY - 16.2% Akamai Technologies, Inc. (a) 22,300 70 Altera Corp. (a) 36,900 745 Applera Corp. - Applied Biosystems Group 12,700 371 Automatic Data Processing, Inc. 30,400 1,570 CIENA Corp. (a) 44,000 715 Cisco Systems, Inc. (a) 421,300 7,128 Citrix Systems, Inc. (a) 2,600 61 COMPAQ Computer Corp. 77,000 674 Computer Associates International, Inc. 9,300 288 Corning, Inc. 23,300 188 Dell Computer Corp. (a) 81,400 1,952 Electronic Data Systems Corp. 21,900 1,410 EMC Corp. (a) 58,800 724 Hewlett-Packard Co. 70,600 1,188 Intel Corp. 341,900 8,349 International Business Machines Corp. 103,200 11,154 Linear Technology Corp. 28,000 1,086 Lucent Technologies, Inc. 130,000 871 Maxim Integrated Products, Inc. (a) 4,200 192 Micron Technology, Inc. (a) 31,800 724 Microsoft Corp. (a) 271,900 15,812 Motorola, Inc. 202,200 3,310 NCR Corp. (a) 117,500 4,165 Oracle Corp. (a) 199,300 2,703 Peregrine Systems, Inc. (a) 29,400 425 QUALCOMM, Inc. (a) 40,600 1,994 Siebel Systems, Inc. (a) 15,500 253 Sun Microsystems, Inc. (a) 214,700 2,179 Texas Instruments, Inc. 67,000 1,875 Veritas Software Corp. (a) 28,822 818 Xilinx, Inc. (a) 43,400 1,320 ------ 74,314 ------ UTILITIES - 8.5% AT&T Corp. 73,519 1,121 AT&T Wireless Services, Inc. (a) 78,036 1,127 BellSouth Corp. 42,000 1,554 Cinergy Corp. 65,800 1,986 CMS Energy Corp. 107,400 2,310 Comcast Corp. Special Class A (a) 34,500 1,236 DTE Energy Co. 34,000 1,417 Edison International (a) 85,200 1,211 Entergy Corp. 33,800 1,313 Nextel Communications, Inc. Class A (a) 90,900 723 PG&E Corp. 108,200 1,954 Pinnacle West Capital Corp. 44,800 1,888 Qwest Communications International, Inc. 129,888 1,682 SBC Communications, Inc. 129,666 4,942 Tax-Managed Large Cap Fund 201 TAX-MANAGED LARGE CAP FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ---------- ------- Sprint Corp. (PCS Group) (a) 121,700 2,715 Verizon Communications, Inc. 160,094 7,975 Wisconsin Energy Corp. 51,100 1,135 WorldCom, Inc. - MCI Group 54,003 640 WorldCom, Inc. - WorldCom Group (a) 147,585 1,985 ------- 38,914 ------- TOTAL COMMON STOCKS (cost $426,650) 449,092 ------- PRINCIPAL AMOUNT (000) $ --------- SHORT-TERM INVESTMENTS - 2.0% Frank Russell Investment Company Money Market Fund (b) 7,990 7,990 United States Treasury Bills (c)(d)(e) 2.070% due 12/20/01 1,400 1,396 ------- TOTAL SHORT-TERM INVESTMENTS (cost $9,386) 9,386 ------- TOTAL INVESTMENTS - 99.8% (identified cost $436,036) 458,478 OTHER ASSETS AND LIABILITIES, NET - 0.2% 1,049 ------- NET ASSETS - 100.0% 459,527 ======= NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) FUTURES CONTRACTS $ (000) --------- -------------- S&P 500 Index expiration date 12/01 10,872 $ (227) -------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ (227) ============== (a) Nonincome-producing security. (b) At net asset value. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) Rate noted as yield-to-maturity from date of acquisition. (e) At amortized cost, which approximates market. See accompanying notes which are an integral part of the financial statements. 202 Tax-Managed Large Cap Fund TAX-MANAGED LARGE CAP FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (identified cost $436,036).................... $ 458,478 Receivables: Dividends......................................................... 362 Investments sold.................................................. 1,717 Fund shares sold.................................................. 2,304 From Advisor...................................................... 97 Daily variation margin on futures contracts....................... 34 ---------- Total assets.................................................... 462,992 LIABILITIES Payables: Investments purchased..................................... $ 2,553 Fund shares redeemed...................................... 429 Accrued fees to affiliates................................ 375 Other accrued expenses.................................... 108 ------- Total liabilities............................................... 3,465 ---------- NET ASSETS.......................................................... $ 459,527 ========== NET ASSETS CONSIST OF: Undistributed net investment income................................. $ 1,739 Accumulated net realized gain (loss)................................ (56,693) Unrealized appreciation (depreciation) on: Investments....................................................... 22,442 Futures contracts................................................. (227) Shares of beneficial interest....................................... 291 Additional paid-in capital.......................................... 491,975 ---------- NET ASSETS.......................................................... $ 459,527 ========== NET ASSET VALUE, offering and redemption price per share: Class C ($7,610,897 divided by 487,943 shares of $.01 par value shares of beneficial interest outstanding)....................... $ 15.60 ========== Class E ($3,358,986 divided by 212,856 shares of $.01 par value shares of beneficial interest outstanding)....................... $ 15.78 ========== Class S ($448,556,643 divided by 28,371,040 shares of $.01 par value shares of beneficial interest outstanding)................. $ 15.81 ========== See accompanying notes which are an integral part of the financial statements. Tax-Managed Large Cap Fund 203 TAX-MANAGED LARGE CAP FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Dividends ...................................................... $ 7,141 Dividends from Money Market Fund ............................... 330 Interest........................................................ 50 ------------- Total investment income....................................... 7,521 EXPENSES Advisory fees ....................................... $ 3,966 Administrative fees ................................. 273 Custodian fees ...................................... 233 Distribution fees - Class C ......................... 56 Transfer agent fees ................................. 287 Professional fees ................................... 41 Registration fees ................................... 90 Shareholder servicing fees - Class C ................ 19 Shareholder servicing fees - Class E ................ 6 Trustees' fees ...................................... 16 Amortization of deferred organization expenses ...... 4 Miscellaneous ....................................... 82 --------- Expenses before reductions .......................... 5,073 Expense reductions .................................. (1) Expenses, net ................................................ 5,072 ------------ Net investment income ............................................ 2,449 NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments ......................................... (37,794) Futures contracts ................................... (1,676) (39,470) --------- Net change in unrealized appreciation (depreciation) on: Investments ......................................... (119,506) Futures contracts ................................... (257) (119,763) --------- ------------ Net realized and unrealized gain (loss) .......................... (159,233) ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ............ $ (156,784) ============ See accompanying notes which are an integral part of the financial statements. 204 Tax-Managed Large Cap Fund TAX-MANAGED LARGE CAP FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income ......................................... $ 2,449 $ 2,403 $ 3,029 Net realized gain (loss) ...................................... (39,470) (13,894) (2,561) Net change in unrealized appreciation (depreciation) .......... (119,763) 4,078 65,555 ----------------- ----------------- ----------------- Net increase (decrease) in net assets from operations ....... (156,784) (7,413) 66,023 ----------------- ----------------- ----------------- DISTRIBUTIONS From net investment income Class C ..................................................... -- -- (2) Class E ..................................................... (4) -- -- Class S ..................................................... (3,110) (141) (2,888) ----------------- ----------------- ----------------- Net decrease in net assets from distributions ............. (3,114) (141) (2,890) ----------------- ----------------- ----------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions.. (61,631) 122,301 197,724 ----------------- ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS ..................... (221,529) 114,747 260,857 NET ASSETS Beginning of period ........................................... 681,056 566,309 305,452 ----------------- ----------------- ----------------- End of period (including undistributed net investment income of $1,739, $2,402 and $140, respectively) ....................... $ 459,527 $ 681,056 $ 566,309 ================= ================= =================
See accompanying notes which are an integral part of the financial statements. Tax-Managed Large Cap Fund 205 TAX-MANAGED LARGE CAP FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD .................... $ 20.68 $ 21.17 $ 20.92 -------- -------- -------- INCOME FROM OPERATIONS Net investment income (loss)(a)**** .................... (.10) (.10) -- Net realized and unrealized gain (loss) ................ (4.98) (.39) .35 -------- -------- -------- Total income from operations .......................... (5.08) (.49) .35 -------- -------- -------- DISTRIBUTIONS From net investment income ............................. -- -- (.10) -------- -------- -------- NET ASSET VALUE, END OF PERIOD .......................... $ 15.60 $ 20.68 $ 21.17 ======== ======== ======== TOTAL RETURN (%)(b) ..................................... (24.57) (2.30) 2.24 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ............... 7,611 6,596 308 Ratios to average net assets (%)(c): Operating expenses .................................... 1.88 1.86 1.57 Net investment income (loss) .......................... (.56) (.58) (.28) Portfolio turnover rate (%) ............................ 52.57 43.48 48.35
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period December 1, 1999 (commencement of sale) to December 31, 1999. **** Less than $.01 per share for the period ended December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 206 Tax-Managed Large Cap Fund TAX-MANAGED LARGE CAP FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* -------- NET ASSET VALUE, BEGINNING OF PERIOD ........................................... $ 20.10 -------- INCOME FROM OPERATIONS Net investment income (a) .................................................... .03 Net realized and unrealized gain (loss) ...................................... (4.25) -------- Total income from operations ............................................... (4.22) -------- DISTRIBUTIONS From net investment income ................................................... (.10) -------- NET ASSET VALUE, END OF PERIOD ................................................. $ 15.78 ======== TOTAL RETURN (%)(b) ............................................................ (21.10) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ..................................... 3,359 Ratios to average net assets (%)(c): Operating expenses ......................................................... 1.15 Net investment income ...................................................... .16 Portfolio turnover rate (%) .................................................. 52.57
* For the period December 8, 2000 (commencement of sale) to October 31, 2001. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) Annualized. Tax-Managed Large Cap Fund 207 TAX-MANAGED LARGE CAP FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
YEARS ENDED DECEMBER 31, -------------------------------------------- 2001* 2000** 1999 1998 1997 1996*** -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ........................ $ 20.87 $ 21.17 $ 18.26 $ 13.90 $ 10.61 $ 10.00 -------- -------- -------- -------- -------- -------- INCOME FROM OPERATIONS Net investment income (a) ................................. .08 .08 .14 .10 .08 .03 Net realized and unrealized gain (loss) ................... (5.04) (.37) 2.88 4.35 3.28 .61 -------- -------- -------- -------- -------- -------- Total income from operations ............................ (4.96) (.29) 3.02 4.45 3.36 .64 -------- -------- -------- -------- -------- -------- DISTRIBUTIONS From net investment income ................................ (.10) (.01) (.11) (.08) (.07) (.03) From net realized gain .................................... -- -- (.01) -- -- -- -------- -------- -------- -------- -------- -------- Total distributions ..................................... (.10) (.01) (.11) (.09) (.07) (.03) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD .............................. $ 15.81 $ 20.87 $ 21.17 $ 18.26 $ 13.90 $ 10.61 ======== ======== ======== ======== ======== ======== TOTAL RETURN (%)(b) ......................................... (23.86) (1.39) 16.57 32.08 31.73 6.10 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) .................. 448,557 674,460 566,001 305,452 109,735 19,931 Ratios to average net assets (%)(c): Operating expenses, net ................................. .88 .86 .85 .99 1.00 1.00 Operating expenses, gross ............................... .88 .86 .85 .99 1.08 2.83 Net investment income ................................... .45 .46 .71 .61 .92 1.62 Portfolio turnover rate (%) ............................... 52.57 43.48 48.35 50.59 39.23 8.86
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period October 7, 1996 (commencement of operations) to December 31, 1996. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 208 Tax-Managed Large Cap Fund TAX-MANAGED SMALL CAP FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide capital growth on an after-tax basis by investing principally in equity securities of small capitalization companies. INVESTS IN: US equity securities. STRATEGY: The Fund seeks to achieve superior stock selection in a risk- controlled portfolio while minimizing the impact of taxes by explicitly integrating the tax implications of portfolio activities on after-tax returns. GROWTH OF A $10,000 INVESTMENT Russell Small Cap Dates Tax Managed Small Cap - Class S Completeness(TM) Index** - ----- ------------------------------- ------------------------ Inception* $10,000 $10,000 2000 $11,168 $11,526 2001 $ 8,026 $ 8,118 YEARLY PERIODS ENDED OCTOBER 31 TAX-MANAGED SMALL CAP FUND - CLASS S PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN --------------- ---------- -------------- 1 Year $ 7,186 (28.14)% Inception $ 8,026 (10.83)%(S) TAX-MANAGED SMALL CAP FUND - CLASS E++ PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN --------------- ---------- -------------- 1 Year $ 7,168 (28.32)% Inception $ 8,006 (10.94)%(S) TAX-MANAGED SMALL CAP FUND - CLASS C++++ PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN --------------- ---------- -------------- 1 Year $ 7,112 (28.88)% Inception $ 7,885 (11.64)%(S) RUSSELL SMALL CAP COMPLETENESS(TM) INDEX PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN --------------- ---------- -------------- 1 Year $ 7,043 (29.57)% Inception $ 8,118 (10.31)%(S) 210 Tax-Managed Small Cap Fund TAX-MANAGED SMALL CAP FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW For the year ended October 31, 2001, the Tax-Managed Small Cap Fund Class S, Class E and Class C shares declined 28.14%, 24.67%, and 28.88% respectively. This compared to a loss of 29.57% for the Russell Small Cap Completeness(TM) Index. The Fund outperformed its benchmark in a market environment marked by unusually difficult events. These included terrorist attacks on September 11, 2001 that caused investor confidence to plummet. The attacks came after a heavy slate of sluggish economic news and declining corporate earnings announcements. This fiscal year also witnessed a reversal in monetary policy. At the beginning of the period, financial markets were still feeling the negative effects of the multiple interest rate hikes made by the Federal Reserve Board (Fed) during early 2000. By the end of the period, market participants were anxiously waiting for the numerous rate cuts during fiscal 2001 to gain traction, and help revive the struggling economy. PORTFOLIO HIGHLIGHTS Major shifts in political leadership, monetary policy, economic standing and national security resulted in high levels of sector and market volatility that impacted the Fund's performance. Value stocks outperformed growth for most of the period, with the exception being the second calendar quarter 2001. That brief period was cut short in the third calendar quarter with the September 11 terrorist attacks. Generally, the market did not reward stocks with positive earnings revisions, earnings surprises, or attractive valuations. Rather, winning stocks tended to be those with poor earnings surprises, lower quality fundamentals and deep cyclicality. Market performance was driven by a broader number of securities during the fiscal year, brightening prospects for the Fund to outperform through stock selection across economic sectors. In November 2000, the Fund's overweight position in technology issues dampened returns, as did its underweight in health care. Aside from these sectors, the Fund was generally aided in the latter part of 2000 by its emphasis on companies with solid fundamentals and avoidance of companies with no visible earnings. The market shifted its preference towards lower quality companies in the first calendar quarter of 2001, thus negatively impacting Fund performance for the period. The Fund made a comeback by outperforming its benchmark for the next two calendar quarters of 2001. In the second quarter, Geewax's growth segment was by far the largest outperformer, while in the third quarter the value segment took the lead. The Fund's growing focus on the health care sector dampened early returns before boosting them by the end of the period. As the market's growth versus value preference shifted again in October 2001 the Fund suffered a reversal of fortune. The Fund remained true to its preference for higher quality stocks with visible earnings while the market shifted its preference to issues with high levels of risk. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 Liberty Media Corp. 2.2% Goldman Sachs Group, Inc. 1.3 General Motors Corp. Class H 1.2 Genentech, Inc. 1.2 Genzyme Corp. 1.0 Equity Office Properties Trust 0.9 Mylan Laboratories, Inc. 0.8 eBay, Inc. 0.8 SunGard Data Systems 0.7 Health Management Associates Class A 0.6 PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 18.0x Portfolio Price/Book Ratio 2.24x Market Capitalization - $-Weighted Average 4.14 Bil Number of Holdings 790 MONEY MANAGER STYLES Geewax, Terker & Co. Growth Geewax, Terker & Co. Value * The Fund commenced operations on November 30, 1999. Index comparison began December 1, 1999. ** The Russell Small Cap Completeness(TM) Index measures the performance of the companies in the Russell 3000(R) Index excluding the companies in the Standard & Poor's(R) 500 Index. ++ Tax-Managed Small Cap Fund Class S performance has been linked with Class E to provide historical perspective. For the period December 8, 2000 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Tax-Managed Small Cap Fund Class S performance has been linked with Class C to provide historical perspective. For the period December 2, 1999 (commencement of sale) through the current period, Class C paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. (S) Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Tax-Managed Small Cap Fund 211 TAX-MANAGED SMALL CAP FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------- ------- COMMON STOCKS - 97.2% AUTO AND TRANSPORTATION - 1.9% AAR Corp. 2,200 17 ArvinMeritor, Inc. 8,300 125 Atlantic Coast Airlines, Inc. (a) 3,500 66 BE Aerospace, Inc. (a) 10,600 86 Borg-Warner Automotive, Inc. 2,100 90 C.H. Robinson Worldwide, Inc. 5,600 150 CNF Transportation, Inc. 6,300 139 EGL, Inc. (a) 1,100 13 Expeditors International of Washington, Inc. 5,000 225 Frontier Airlines, Inc. (a) 1,600 18 Heartland Express, Inc. (a) 625 15 Kansas City Southern Industries, Inc. (a) 6,500 81 Kirby Corp. (a) 2,300 59 Knight Transportation, Inc. (a) 1,050 26 Lear Corp. (a) 5,200 160 Oshkosh Truck Corp. Class B 600 23 Overseas Shipholding Group, Inc. 2,500 62 Polaris Industries, Inc. 1,000 45 Swift Transportation Co., Inc. (a) 5,760 98 Tidewater, Inc. 5,300 160 UAL Corp. 6,400 81 Werner Enterprises, Inc. 2,400 52 ------- 1,791 ------- CONSUMER DISCRETIONARY - 15.8% Abercrombie & Fitch Co. Class A (a) 5,300 100 ABM Industries, Inc. 1,200 33 Action Performance Companies, Inc. (a) 7,000 183 Adminstaff, Inc. (a) 1,600 36 Advanced Marketing Services, Inc. 1,200 19 Advo Systems, Inc. (a) 1,800 65 American Eagle Outfitters, Inc. (a) 2,000 55 Anchor Gaming (a) 1,200 61 Apollo Group, Inc. Class A (a) 10,100 411 Applebee's International, Inc. 2,850 86 AutoNation, Inc. (a) 37,900 390 Banta Corp. 2,800 81 Barnes & Noble, Inc. (a) 4,600 169 Bebe Stores, Inc. (a) 500 8 BJ's Wholesale Club, Inc. (a) 5,500 279 Blockbuster Entertainment Corp. 2,100 53 Blyth Industries, Inc. 4,600 90 Bob Evans Farms, Inc. 4,000 75 Borders Group, Inc. (a) 8,500 133 Brinker International, Inc. (a) 7,300 185 Buckle, Inc. (The) (a) 600 11 Burlington Coat Factory Warehouse Corp. 1,300 19 Callaway Golf Co. 7,100 101 Catalina Marketing Corp. (a) 4,600 127 CBRL Group, Inc. 6,600 166 Championship Auto Racing Teams, Inc. (a) 900 12 Charming Shoppes, Inc. (a) 10,800 51 Cheesecake Factory, Inc. (The) (a) 4,350 123 Chemed Corp. 600 17 Chicos FAS, Inc. (a) 1,800 47 Choice Hotels International, Inc. (a) 5,500 96 Christopher & Banks Corp. (a) 5,700 188 Claire's Stores, Inc. 3,100 37 Coach, Inc. New (a) 3,400 95 Coinstar, Inc. (a) 1,500 28 Columbia Sportswear Co. (a) 750 21 Corporate Executive Board Co., (The) (a) 3,100 95 Cost Plus, Inc. (a) 1,800 35 Dendrite International, Inc. (a) 2,700 27 DeVry, Inc. (a) 5,800 156 eBay, Inc. (a) 13,700 718 Emmis Communications Corp. Class A (a) 2,400 33 Entercom Communications Corp. (a) 3,000 101 Estee Lauder Cos., Class A 9,100 293 Ethan Allen Interiors, Inc. 3,000 96 Extended Stay America, Inc. (a) 8,000 108 Exult Inc. (a) New 6,400 90 F.Y.I., Inc. (a) 900 32 Factory 2-U Stores, Inc. (a) 1,000 14 Footstar, Inc. (a) 400 13 Fossil, Inc. (a) 1,100 20 Fox Entertainment Group, Inc. Class A (a) 8,600 189 FTI Consulting, Inc. (a) 4,600 136 Furniture Brands International, Inc. (a) 4,400 106 G & K Services, Inc. Class A 1,900 52 Genesco, Inc. (a) 1,800 33 GTECH Holdings Corp. (a) 2,800 112 Handleman Co. (a) 1,900 23 Harman International Industries, Inc. 700 23 Harte Hanks Communications 5,200 121 Hearst-Argyle Television, Inc. (a) 1,400 26 Heidrick & Struggles International, Inc. (a) 2,100 32 Hibbett Sporting Goods, Inc. (a) 1,500 41 HON Industries, Inc. 3,100 75 Hot Topic, Inc. (a) 1,600 40 IHOP Corp. (a) 1,500 38 International Speedway Corp. Class A 2,100 78 ITT Educational Services, Inc. (a) 1,100 42 Jack in the Box, Inc. (a) 3,900 96 Jones Apparel Group, Inc. (a) 9,900 273 212 Tax-Managed Small Cap Fund TAX-MANAGED SMALL CAP FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- Kenneth Cole Productions, Inc. Class A (a) 800 9 La-Z-Boy Inc. 6,900 123 Lamar Advertising Co. Class A (a) 5,400 170 Landry's Seafood Restaurants, Inc. 1,500 26 Learning Tree International, Inc. (a) 900 19 Libbey, Inc. 500 16 Liberty Media Corp. (a) 170,600 1,993 Mandalay Resort Group (a) 7,300 120 Martha Stewart Living Omnimedia, Inc. Class A New (a) 900 15 Mathews International Corp. Class A 2,200 51 MAXIMUS, Inc. (a) 1,000 41 McClatchy Co. (The) Class A 2,100 87 Media General, Inc. Class A 2,200 92 Men's Wearhouse, Inc. (The) (a) 2,400 48 MGM Grand, Inc. (a) 6,800 152 MSC Industrial Direct Co., Inc. Class A (a) 3,600 59 Neiman Marcus Group, Inc. (The) Class A (a) 4,400 117 O'Reilly Automotive, Inc. (a) 4,500 127 Oakley, Inc. (a) 1,500 16 On Assignment, Inc. (a) 2,700 44 Outback Steakhouse, Inc. (a) 7,700 222 P.F. Chang's China Bistro, Inc. (a) 600 24 Pacific Sunwear of California, Inc. (a) 3,400 47 Panera Bread Co. (a) 2,900 119 Papa Johns International, Inc. (a) 1,200 33 Park Place Entertainment Corp. (a) 31,300 224 Payless ShoeSource, Inc. (a) 2,700 143 Phillips-Van Heusen Corp. 1,600 14 Pier 1 Imports, Inc. 10,600 117 Pixar, Inc. (a) 1,300 48 Polo Ralph Lauren Corp. Class A (a) 5,800 128 Pre-paid Legal Services, Inc. (a) 1,500 23 Prime Hospitality Corp. (a) 3,400 31 ProBusiness Services, Inc. (a) 1,800 31 Quanta Services, Inc. (a) 3,200 49 Quicksilver, Inc. (a) 900 12 RARE Hospitality International, Inc. (a) 2,300 42 Regis Corp. 1,500 32 Renaissance Learning, Inc. (a) 700 23 Rent-A-Center, Inc. (a) 800 22 Republic Services, Inc. (a) 11,200 183 Right Management Consultants, Inc. (a) 1,800 63 Ross Stores, Inc. 10,800 338 Ruby Tuesday, Inc. 5,200 90 Ryan's Family Steak Houses, Inc. (a) 3,000 54 Scholastic Corp. (a) 2,700 121 School Specialty, Inc. (a) 800 25 SCP Pool Corp. (a) 1,950 45 Scripps (E.W.) Co. Class A 3,200 197 Six Flags, Inc. (a) 7,500 89 Sonic Corp. (a) 2,600 87 Steak n Shake Co. (The) (a) 1,700 18 Sturm, Ruger & Co., Inc. 1,500 18 Tech Data Corp. (a) 5,600 239 TeleTech Holdings, Inc. (a) 2,200 18 TETRA Technologies, Inc. (a) 3,500 60 Topps Co., Inc. (a) 3,100 32 USA Networks, Inc. (a) 4,100 76 Vail Resorts, Inc. (a) 1,600 26 Valassis Communications, Inc. (a) 4,800 150 Valuevision International, Inc. Class A (a) 3,200 44 Venator Group, Inc. (a) 11,300 163 Viad Corp. 9,600 187 Wackenhut Corrections Corp. (a) 2,200 33 Wallace Computer Services, Inc. 4,400 68 Waste Connections, Inc. (a) 2,500 73 West Corp. (a) 600 14 Westwood One, Inc. (a) 7,000 167 Wiley (John) & Sons, Inc. Class A 4,500 91 Williams-Sonoma, Inc. (a) 2,700 70 Wolverine World Wide, Inc. 4,800 71 Yankee Candle Co., Inc. (The) (a) 1,200 22 Young Broadcasting Corp. Class A (a) 1,000 15 -------- 14,674 -------- CONSUMER STAPLES - 3.2% Casey's General Stores, Inc. 5,100 63 Church and Dwight Co., Inc. 4,100 107 Constellation Brands, Inc. Class A (a) 2,400 98 Dial Corp. 7,000 117 Dole Food Co., Inc. 5,800 118 Dreyers Grand Ice Cream, Inc. 1,200 39 Duane Reade, Inc. (a) 1,300 39 Flowers Foods, Inc. (a) 2,640 110 Great Atlantic & Pacific Tea Co., Inc. (a) 1,300 24 Hormel Foods Corp. 10,400 250 International Multifoods Corp. 1,300 28 Interstate Bakeries Corp. 2,400 57 Lance, Inc. 2,100 28 McCormick & Co., Inc. 9,900 433 PepsiAmericas, Inc. 22,600 294 Performance Food Group Co. (a) 3,200 94 Pilgrim's Pride Corp. 1,200 15 Ralcorp Holdings, Inc. (a) 2,100 41 Ruddick Corp. 2,500 38 Schweitzer-Mauduit International, Inc. 1,100 26 Sensient Technologies Corp. 6,400 104 Tax-Managed Small Cap Fund 213 TAX-MANAGED SMALL CAP FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- Smithfield Foods, Inc. (a) 11,000 232 Suiza Foods Corp. (a) 3,400 200 Tyson Foods, Inc. Class A 16,200 159 Universal Corp. 2,400 78 Whole Foods Market, Inc. (a) 5,400 188 -------- 2,980 -------- FINANCIAL SERVICES - 24.9% 1st Source Corp. 840 18 Actrade Financial Technologies, Ltd. (a) 3,500 88 Advent Software, Inc. (a) 2,900 112 Affiliated Computer Services, Inc. Class A (a) 3,900 343 Affiliated Managers Group, Inc. (a) 1,900 117 Alleghany Corp. (a) 200 38 Allied Capital Corp. 10,600 239 American Capital Strategies, Ltd. 2,400 59 American Financial Group, Inc. 6,200 137 American Financial Holdings, Inc. 2,700 69 AmeriCredit Corp. (a) 9,100 141 Andover Bancorp, Inc. 500 25 Area Bancshares Corp. 800 14 Astoria Financial Corp. 4,900 255 Avalonbay Communities, Inc. (e) 6,700 304 BancorpSouth, Inc. 7,600 116 BancWest Corp. 11,600 405 Bank of Granite Corp. 700 15 BARRA, Inc. (a) 1,400 65 Bay View Capital Corp. (a) 1,900 13 Berkley (W.R.) Corp. 1,800 96 BISYS Group, Inc. (a) 4,400 229 BOK Financial Corp. (a) 824 26 Boston Private Financial Holdings, Inc. 4,900 100 Brown & Brown, Inc. 2,500 144 Cabot Industrial Trust (e) 4,000 95 Camden Property Trust (e) 3,200 111 CenterPoint Properties Corp. (e) 2,200 102 Certegy, Inc. New (a) 5,600 160 CheckFree Corp. (a) 4,800 68 Chemical Financial Corp. 800 22 Chittenden Corp. 2,875 71 CNA Financial Corp. (a) 2,700 68 Colonial BancGroup, Inc. 11,600 146 Commerce Bancorp, Inc. 1,300 95 Commerce Bancshares, Inc. 8,200 297 Commerce Group, Inc. 2,100 77 Commercial Federal Corp. 4,700 117 Commercial Net Lease Realty (e) 2,300 30 Community First Bankshares, Inc. 4,800 115 Compass Bancshares, Inc. 16,300 408 Cullen Frost Bankers, Inc. 4,700 127 Delphi Financial Group, Inc. 1,000 30 Digital Insight Corp. New (a) 1,800 30 Dime Bancorp, Inc. 9,000 305 Dime Bancorp, Inc. 2001 Litigation Tracking Warrants (a) 9,000 2 Dime Community Bancorp, Inc. 1,350 33 DST Systems, Inc. (a) 5,400 221 E*TRADE Group, Inc. (a) 24,100 157 Eaton Vance Corp. 5,200 146 Edwards (A.G.), Inc. 5,000 198 Equity Office Properties Trust (e) 28,900 824 Equity Residential Properties Trust (e) 21,200 550 Erie Indemnity Co. Class A 8,200 318 F.N.B. Corp. 1,575 38 FactSet Research Systems, Inc. 2,300 57 Federal Realty Investment Trust (e) 800 17 FelCor Lodging Trust, Inc. (e) 1,600 22 Fidelity National Financial, Inc. 7,040 162 Financial Federal Corp. (a) 600 15 First American Financial Corp. 5,800 97 First Bancorp 1,000 27 First Busey Corp. 800 15 First Federal Capital Corp. 1,100 16 First Financial Bancorp 1,995 31 First Financial Holdings, Inc. 1,000 25 First Indiana Corp. 600 15 First Industrial Realty Trust, Inc. (e) 4,000 110 First Merchants Corp. 735 17 First Midwest Bancorp, Inc. 3,300 110 First Sentinel Bancorp, Inc. 2,400 29 First Tennessee National Corp. 10,800 373 Fulton Financial Corp. 7,500 164 Gallagher (Arthur J.) & Co. 7,100 259 Global Payments, Inc. 3,800 114 Goldman Sachs Group, Inc. 15,500 1,211 Greater Bay Bancorp 3,900 89 Greenpoint Financial Corp. 10,600 340 Hancock Holding Co. 700 27 HCC Insurance Holdings, Inc. 4,800 132 Health Care, Inc. 2,600 67 Healthcare Realty Trust, Inc. (e) 4,500 122 Hibernia Corp. Class A 20,900 318 Highwoods Properties, Inc. (e) 4,900 116 HomeStore.com, Inc. (a) 4,500 23 Horace Mann Educators Corp. 4,900 93 Hudson United Bancorp 6,100 159 Independence Community Bank Corp. 5,400 131 IndyMac Bancorp, Inc. (a) 7,300 187 Integra Bank, Corp. 1,200 26 Interpool, Inc. 900 11 Investment Technology Group (a) 2,400 155 214 Tax-Managed Small Cap Fund TAX-MANAGED SMALL CAP FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- Investors Financial Services Corp. 2,600 138 iStar Financial, Inc. 11,300 263 Jack Henry & Associates, Inc. 6,000 148 John Nuveen & Co., Inc. Class A 900 42 Knight Trading Group, Inc. (a) 3,400 33 Kronos, Inc. (a) 1,000 57 LaBranche & Co., Inc. (a) 3,900 113 LandAmerica Financial Group, Inc. 700 18 Leucadia National Corp. 4,000 116 M&T Bank Corp. 7,500 491 Macerich Co. (The) (e) 3,400 82 Marshall & Ilsley Corp. 6,800 399 Mercury General Corp. 3,100 135 Metris Companies, Inc. 5,800 94 Mission West Properties, Inc. 3,300 40 MONY Group, Inc. (The) 5,800 175 National Commerce Financial Corp. 15,700 357 National Data Corp. 3,800 134 National Penn Bancshares, Inc. 1,000 23 Nationwide Health Properties, Inc. (e) 4,600 91 NCO Group, Inc. (a) 1,800 29 Neuberger Berman, Inc. 3,100 108 New Dun & Bradstreet Corp. (The) (a) 7,200 225 New York Community Bancorp, Inc. 1,350 34 NextCard, Inc. (a) 1,500 1 North Fork Bancorp, Inc. 13,700 382 Ohio Casualty Corp. 6,800 104 Old Republic International Corp. 12,600 320 Pacific Capital Bancorp 2,300 61 Pacific Century Financial Corp. 8,600 200 Pacific Northwest Bancorp 900 18 Park National Corp. 1,000 92 Philadelphia Consolidated Holding Corp. (a) 400 16 PMA Capital Corp. Class A 1,200 20 PMI Group, Inc. (The) 4,200 233 Popular, Inc. 11,000 323 ProAssurance Corp. (a) 1,100 15 Protective Life Corp. 6,900 190 Provident Bankshares Corp. 3,255 72 Public Storage, Inc. (e) 9,900 326 Radian Group, Inc. 11,680 396 Regency Centers Corp. (e) 1,800 45 Reinsurance Group Of America 1,800 57 Republic Bancorp, Inc. 5,600 83 Riggs National Corp. 1,400 20 RLI Corp. 500 20 Roslyn Bancorp, Inc. 8,300 151 S&T Bancorp, Inc. 1,800 42 S1 Corporation (a) 1,800 19 Sandy Spring Bancorp, Inc. 600 24 Selective Insurance Group, Inc. 2,700 58 Simon Property Group, Inc. (e) 11,500 316 Sky Financial Group, Inc. 10,000 199 SL Green Realty Corp. (e) 2,100 63 Sotheby's Holdings Co., Inc. Class A (a) 1,900 25 Southwest Bancorporation of Texas, Inc. (a) 900 26 Sovereign Bancorp, Inc. 30,000 296 Stancorp Financial Group, Inc. 2,800 124 State Auto Financial Corp. 1,000 14 Staten Island Bancorp, Inc. 2,900 84 Sterling Bancshares, Inc. 1,950 23 Summit Properties, Inc. (e) 2,200 50 SunGard Data Systems (a) 25,100 632 Susquehanna Bancshares, Inc. 4,500 95 Texas Regional Bancshares, Inc. Class A 1,100 37 Total Systems Services, Inc. 4,000 81 Transatlantic Holdings, Inc. 1,500 126 Triad Guaranty, Inc. (a) 1,400 46 TrustCo Bank Corp. NY 7,360 88 Trustmark Corp. 6,700 161 UICI (a) 2,600 39 UnionBanCal Corp. 7,200 240 United Bankshares, Inc. 3,600 98 United Dominion Realty Trust, Inc. (e) 9,200 131 United National Bancorp 1,800 44 Vornado Realty Trust (e) 6,900 270 Webster Financial Corp. 4,500 137 WesBanco, Inc. 1,300 25 Westamerica Bancorporation 3,300 121 WFS Financial, Inc. (a) 855 17 Wintrust Financial Corp. 1,500 43 -------- 23,295 -------- HEALTH CARE - 14.8% Accredo Health, Inc. (a) 2,000 68 AdvancePCS (a) 3,100 188 Albany Molecular Research, Inc. (a) 2,200 61 Alexion Pharmaceuticals, Inc. (a) 1,800 31 Alkermes, Inc. (a) 5,800 149 American Medical Systems Holdings, Inc. New (a) 3,500 67 AmerisourceBergen Corp. (a) 7,694 489 Andrx Group (a) 5,500 357 Apria Healthcare Group, Inc. (a) 3,100 71 Arrow International, Inc. 800 30 Avigen, Inc. (a) 1,200 11 Beckman Coulter, Inc. 4,000 170 Beverly Enterprises, Inc. (a) 15,600 117 Bio-Technology General Corp. (a) 6,200 44 BioMarin Pharmaceutical, Inc. (a) 1,600 18 Tax-Managed Small Cap Fund 215 TAX-MANAGED SMALL CAP FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- Bruker Daltonics, Inc. New (a) 4,100 94 Caremark Rx, Inc. (a) 29,200 391 Cell Genesys, Inc. (a) 3,700 66 Cephalon, Inc. (a) 3,000 189 Cerner Corp. (a) 1,900 102 CIMA Labs, Inc. (a) 5,700 308 Closure Medical Corp. (a) 700 12 Community Health Care New (a) 3,000 75 Conmed Corp. (a) 2,250 38 Cooper Companies, Inc. 1,400 67 Cor Therapeutics, Inc. (a) 5,100 115 CorVel Corp. (a) 1,050 32 Covance, Inc. (a) 7,700 141 Coventry Health Care, Inc. (a) 4,700 101 Cytyc Corp. (a) 11,400 299 Datascope Corp. 1,300 44 DaVita, Inc. (a) 9,900 180 DENTSPLY International, Inc. 1,400 63 Diagnostic Products Corp. 1,200 53 DVI, Inc. (a) 700 11 Eclipsys Corp. (a) 3,300 41 Emisphere Technologies, Inc. (a) 1,300 31 Endo Pharmaceuticals Holdings, Inc. (a) 6,600 65 Enzo Biochem, Inc. (a) 1,995 41 Express Scripts, Inc. Class A (a) 12,400 508 First Health Group Corp. (a) 12,200 329 Gene Logic, Inc. (a) 2,100 28 Genencor International, Inc. (a) 4,400 55 Genentech, Inc. (a) 20,700 1,082 Genzyme Corp. (a) 17,200 928 Health Management Associates Class A (a) 28,800 561 Henry Schein, Inc. (a) 3,300 111 ICOS Corp. (a) 4,700 271 Impath, Inc. (a) 1,200 44 Inhale Therapeutic Systems, Inc. (a) 3,400 60 Invacare Corp. 3,600 121 Inverness Medical Technology, Inc. (a) 11,700 448 Invitrogen Corp. (a) 4,800 294 Isis Pharmaceuticals (a) 3,900 81 IVAX Corp. (a) 15,375 316 Kendle International, Inc. (a) 700 14 Kos Pharmaceuticals, Inc. (a) 800 22 Ligand Pharmaceuticals, Inc. Class B (a) 5,300 71 Lincare Holdings, Inc. (a) 9,800 252 Martek Biosciences Corp. (a) 2,000 41 Medquist, Inc. (a) 1,600 39 Mid Atlantic Medical Services, Inc. (a) 3,200 59 Mylan Laboratories, Inc. 20,700 763 Neose Technologies, Inc. (a) 900 26 Noven Pharmaceuticals, Inc. (a) 1,800 39 Novoste Corp. (a) 1,500 17 Ocular Sciences, Inc. (a) 2,400 55 Omnicare, Inc. 12,600 251 Orthodontic Centers of America, Inc. (a) 4,900 124 Oxford Health Plans, Inc. (a) 8,900 210 PacifiCare Health Systems, Inc. (a) 1,000 17 Parexel International Corp. (a) 1,600 24 Patterson Dental Co. (a) 3,700 141 Pediatrix Medical Group (a) 800 23 Perrigo Co. (a) 8,900 132 Pharmacopeia, Inc. (a) 1,700 27 PolyMedica Corp. (a) 1,100 18 Protein Design Labs, Inc. (a) 8,600 285 Province Healthcare Co. (a) 2,400 66 Renal Care Group, Inc. (a) 5,300 166 Respironics, Inc. (a) 2,700 91 SICOR, Inc. (a) 5,000 94 Specialty Laboratories, Inc. New (a) 3,000 86 Stericycle, Inc. (a) 1,300 62 Sunrise Assisted Living, Inc. (a) 1,700 51 SuperGen, Inc. New (a) 2,200 23 Techne Corp. (a) 3,200 96 Thoratec Laboratories Corp. (a) 1,169 23 Titan Pharmaceuticals, Inc. (a) 2,100 15 Triad Hospitals, Inc. (a) 4,475 120 Trimeris, Inc. (a) 1,700 67 Universal Health Services, Inc. Class B (a) .. 2,000 81 Varian Medical Systems, Inc. (a) 3,400 229 Varian, Inc. (a) 3,900 99 Vertex Pharmaceuticals, Inc. (a) 5,754 141 Zoll Medical Corp. (a) 1,000 34 -------- 13,861 -------- INTEGRATED OILS - 0.4% Kerr-McGee Corp. 463 27 Murphy Oil Corp. 3,800 301 Tesoro Petroleum Corp. (a) 4,200 56 -------- 384 -------- MATERIALS AND PROCESSING - 4.6% Airgas, Inc. (a) 5,900 79 Albany International Corp. Class A (a) 1,300 25 AptarGroup, Inc. 4,100 123 Armor Holdings, Inc. (a) 1,000 24 Barnes Group, Inc. 1,200 24 Brady Corp. Class A 1,700 54 Brush Engineered Materials, Inc. 1,300 13 Buckeye Technologies, Inc. (a) 1,400 12 Cabot Corp. 8,500 284 Cabot Microelectronics Corp. (a) 1,800 119 Calgon Carbon Corp. 2,600 24 216 Tax-Managed Small Cap Fund TAX-MANAGED SMALL CAP FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ ----- Cambrex Corp. 1,300 48 Carpenter Technology Corp. 2,100 46 Catellus Development Corp. (a) 13,500 231 ChemFirst, Inc. 1,200 25 Chesapeake Corp. 1,100 31 Cytec Industries, Inc. (a) 3,600 86 Dal-Tile International, Inc. (a) 3,900 63 Dycom Industries, Inc. (a) 2,000 24 Forest City Enterprises, Inc. Class A 900 44 Fuller (H.B.) Co. 1,400 72 Georgia Gulf Corp. 900 16 Griffon Corp. (a) 2,420 28 Harsco Corp. 4,900 157 Jacob's Engineering Group, Inc. (a) 2,700 177 Kaydon Corp. 3,700 70 Lennox International, Inc. 3,200 29 Lone Star Technologies, Inc. (a) 1,800 30 Lubrizol Corp. 4,100 115 Lyondell Petrochemical Co. 7,000 93 MacDermid, Inc. 1,800 25 Martin Marietta Materials, Inc. 6,000 239 Mueller Industries, Inc. (a) 4,800 139 NCI Building Systems, Inc. (a) 1,400 19 Nortek, Inc. (a) 700 14 OM Group 2,500 151 P.H. Glatfelter Co. 2,000 30 Paxar Corp. (a) 2,900 32 Penn Engineering & Manufacturing Corp. 1,200 21 Precision Castparts Corp. 4,300 98 Rayonier, Inc. 2,400 103 Reliance Steel & Aluminum Co. 1,300 30 Rogers Corp. (a) 1,200 40 RPM, Inc. 8,200 100 Ryerson Tull, Inc. 1,700 20 Scotts Co. (The) Class A (a) 1,200 48 Shaw Group, Inc. (The) (a) 3,700 102 Smurfit-Stone Container Corp. (a) 17,100 253 Sonoco Products Co. 12,900 303 SPS Technologies, Inc. (a) 1,400 42 Texas Industries, Inc. 2,000 60 Trammell Crow Co. (a) 1,900 19 UCAR International, Inc. (a) 3,700 27 Unifi, Inc. (a) 4,200 32 Universal Forest Products, Inc. 1,000 17 URS Corp. (a) 900 20 Valmont Industries, Inc. 2,200 35 Watsco, Inc. 1,300 17 Wausau-Mosinee Paper Corp. 7,300 76 WD-40 Co. 900 20 Wellman, Inc. 2,600 33 ----- 4,331 ----- MISCELLANEOUS - 0.6% Federal Signal Corp. 5,500 112 GenCorp, Inc. 2,500 30 Lancaster Colony Corp. 3,500 109 Quixote Corp. 1,500 33 St. Joe Co. (The) (e) 2,600 67 Teleflex, Inc. 2,800 112 Trinity Industries, Inc. 4,200 104 Walter Industries, Inc. 2,300 24 ----- 591 ----- OTHER ENERGY - 4.6% Atwood Oceanics, Inc. (a) 1,100 34 Berry Petroleum Co. Class A 1,700 30 Cabot Oil & Gas Corp. 900 22 Chesapeake Energy Corp. (a) 11,400 83 Diamond Offshore Drilling, Inc. 10,200 282 Equitable Resources, Inc. 5,700 188 Evergreen Resources, Inc. (a) 1,500 60 Forest Oil Corp. (a) 1,000 27 Frontier Oil Corp. 2,200 42 Global Marine, Inc. (a) 22,900 369 GulfMark Offshore, Inc. (a) 1,300 37 Hanover Compressor Co. (a) 6,300 174 Helmerich & Payne, Inc. 4,200 127 Houston Exploration Co. (The) (a) 800 25 Hydril Co. New (a) 1,500 30 Key Energy Group, Inc. (a) 10,200 89 Louis Dreyfus Natural Gas Corp. (a) 2,200 87 Mitchell Energy & Development Corp. Class A 2,300 122 Newfield Exploration Co. (a) 4,000 139 Newpark Resources, Inc. (a) 6,900 42 Ocean Energy, Inc. 4,100 75 Penn Virginia Corp. 600 23 Pioneer Natural Resources Co. (a) 8,100 138 Plains Resources, Inc. (a) 1,500 41 Pride International, Inc. (a) 7,900 102 Seacor Holdings, Inc. (a) 1,500 59 Smith International, Inc. (a) 5,100 241 Spinnaker Exploration Co. New (a) 1,800 79 St. Mary Land & Exploration Co. 4,900 100 Stone Energy Corp. (a) 2,100 83 Superior Energy Services, Inc. (a) 4,700 37 Swift Energy Co. (a) 2,400 57 Ultramar Diamond Shamrock Corp. 8,900 444 Unit Corp. (a) 1,900 21 Veritas DGC, Inc. (a) 2,700 41 Vintage Petroleum, Inc. 1,800 31 Weatherford International, Inc. (a) 11,800 404 Williams Cos. (The) 4,299 124 XTO Energy, Inc. 11,700 211 ----- 4,320 ----- Tax-Managed Small Cap Fund 217 TAX-MANAGED SMALL CAP FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ ------ PRODUCER DURABLES - 5.5% Alliant Techsystems, Inc. (a) 1,050 92 American Tower Corp. Class A (a) 15,100 166 AMETEK, Inc. 3,500 95 Artesyn Technologies, Inc. (a) 2,100 15 Asyst Technologies, Inc. (a) 2,200 20 Axcelis Technologies, Inc. (a) 7,300 96 Brooks Automation, Inc. (a) 1,000 32 C&D Technologies, Inc. 2,800 58 Cable Design Technologies Corp. (a) 3,700 47 Catalytica Energy Systems, Inc. New (a) 313 2 Clayton Homes, Inc. 12,000 168 Cognex Corp. (a) 3,400 65 Credence Systems Corp. (a) 3,800 52 Crossmann Communities, Inc. 500 14 CUNO, Inc. (a) 1,000 26 D.R. Horton, Inc. 8,021 179 Diebold, Inc. 9,400 340 Dionex Corp. (a) 2,400 58 Donaldson Co., Inc. 4,000 126 DuPont Photomasks, Inc. (a) 500 18 FEI Co. (a) 1,300 35 FLIR Systems, Inc. (a) 800 37 Flowserve Corp. (a) 4,700 110 Graco, Inc. 2,300 75 Helix Technology Corp. 1,600 31 Herman Miller, Inc. 7,500 159 Intermagnetics General Corp. (a) 7,650 221 Ionics, Inc. (a) 1,000 24 Itron, Inc. (a) 3,700 104 Kennametal, Inc. 3,500 123 Kulicke & Soffa Industries, Inc. (a) 2,500 38 Lennar Corp. 6,300 227 Lincoln Electric Holdings, Inc. 4,300 91 Manitowoc Co., Inc. 2,100 58 Measurement Specialties, Inc. (a) 1,700 15 Mettler-Toledo International, Inc. (a) 2,400 110 MICROS Systems, Inc. (a) 1,400 30 Moog, Inc. (a) 900 20 Newport News Shipbuilding, Inc. 1,200 83 Nordson Corp. 2,100 47 NVR, Inc. (a) 500 79 Palm Harbor Homes, Inc. (a) 1,500 33 Pentair, Inc. 5,800 184 Plantronics, Inc. (a) 4,800 100 Polycom, Inc. (a) 5,200 156 Powerwave Technologies, Inc. (a) 4,300 66 Presstek, Inc. (a) 2,200 14 PRI Automation, Inc. (a) 1,500 25 RF Micro Devices, Inc. (a) 10,500 214 Roper Industries, Inc. 3,300 140 Steelcase, Inc. Class A 9,400 123 Technitrol, Inc. 2,300 57 Toll Brothers, Inc. (a) 2,400 75 TRC Companies, Inc. (a) 1,200 50 Triumph Group, Inc. (a) 2,500 64 Ultratech Stepper, Inc. (a) 1,100 15 Vicor Corp. (a) 1,800 28 Waters Corp. (a) 11,600 412 Watts Industries, Inc. Class A 1,300 18 ----- 5,160 ----- TECHNOLOGY - 13.3% Actuate Corp. (a) 6,100 25 Acxiom Corp. (a) 1,100 13 Agile Software Corp. (a) 2,700 26 American Management Systems, Inc. (a) 3,700 49 Amphenol Corp. Class A (a) 3,800 169 ANADIGICS, Inc. (a) 2,000 30 Anixter International, Inc. (a) 1,300 32 Apogent Technologies, Inc. (a) 13,000 304 Applied Innovation, Inc. (a) 4,100 33 Arrow Electronics, Inc. (a) 13,100 320 Aspen Technology, Inc. (a) 3,200 42 Atmel Corp. (a) 37,300 297 Avant! Corp. (a) 3,100 31 Avnet, Inc. 11,900 245 AVX Corp. 4,300 80 BEA Systems, Inc. (a) 28,300 344 Black Box Corp. (a) 2,300 104 Brocade Communications Systems, Inc. (a) 19,700 484 CACI International, Inc. Class A (a) 700 44 Cadence Design Systems, Inc. (a) 23,000 485 Catapult Communications Corp. (a) 2,300 52 Ceridian Corp. (a) 11,400 188 Checkpoint Systems, Inc. (a) 2,700 28 Cirrus Logic, Inc. (a) 5,400 60 Clarent Corp. (a) 1,600 9 Cognizant Technology Solutions Corp. (a) 700 20 Coherent, Inc. (a) 3,800 101 CommScope, Inc. (a) 600 12 Covansys Corp. (a) 2,000 15 Cree, Inc. (a) 5,800 104 Documentum, Inc. (a) 3,500 52 DRS Technologies, Inc. (a) 2,500 101 EDO Corp. 4,100 110 Electronics for Imaging, Inc. (a) 3,400 67 Emulex Corp. (a) 6,600 156 EPIQ Systems, Inc. (a) 2,600 78 Excel Technology, Inc. (a) 1,000 16 Extreme Networks, Inc. (a) 7,600 89 218 Tax-Managed Small Cap Fund TAX-MANAGED SMALL CAP FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ ------- Forrester Research, Inc. (a) 1,000 16 Foundry Networks, Inc. (a) 6,900 67 General Motors Corp. Class H (a) 79,800 1,097 HNC Software, Inc. (a) 3,500 61 Hutchinson Technology, Inc. (a) 1,300 24 Hyperion Solutions Corp. (a) 2,600 39 i2 Technologies, Inc. (a) 18,500 84 Informatica Corp. (a) 6,000 56 Ingram Micro, Inc. Class A (a) 7,800 100 Inter-Tel, Inc. 1,500 23 International Rectifier Corp. (a) 5,200 183 Internet Security Systems, Inc. (a) 1,400 37 Intersil Holding Corp. (a) 7,400 242 Interwoven, Inc. (a) 7,400 54 J.D. Edwards & Co. (a) 5,000 35 JDA Software Group, Inc. (a) 1,100 17 Juniper Networks, Inc. (a) 16,700 372 Keane, Inc. (a) 3,200 45 Kopin Corp. (a) 6,100 77 L-3 Communications Holdings, Inc. (a) 1,700 148 Lattice Semiconductor Corp. (a) 8,200 144 Legato Systems, Inc. (a) 6,700 56 Macromedia, Inc. (a) 5,200 78 Manugistics Group, Inc. (a) 4,900 38 MetaSolv, Inc. (a) 2,700 19 Methode Electronics, Inc. Class A 2,800 20 Microchip Technology, Inc. (a) 12,300 384 Micromuse, Inc. (a) 4,300 40 Microsemi Corp. (a) 1,800 63 MSC. Software Corp. (a) 5,000 63 National Instruments Corp. (a) 2,800 81 NetIQ Corp. (a) 3,624 102 Newport Corp. 4,600 72 ONI Systems Corp. New (a) 5,000 24 Openwave Systems, Inc. (a) 5,000 39 Overture Services, Inc. (a) 2,000 53 Peregrine Systems, Inc. (a) 1,632 24 Performance Technologies, Inc. (a) 4,000 47 Perot Systems Corp. Class A (a) 5,400 92 Phoenix Technologies, Ltd. (a) 2,000 18 Pioneer-Standard Electronics, Inc. 2,600 23 PLATO Learning, Inc. (a) 3,733 53 Power Integrations, Inc. (a) 1,900 44 Quantum Corp. - DLT & Storage Systems (a) 13,600 115 Quest Software, Inc. (a) 1,800 27 Rational Software Corp. (a) 15,800 207 RealNetworks, Inc. (a) 7,500 43 REMEC, Inc. (a) 2,500 22 Retek, Inc. (a) 5,500 112 Reynolds & Reynolds Co. Class A 9,900 235 RSA Security, Inc. (a) 6,150 74 Sandisk Corp. (a) 5,200 57 ScanSource, Inc. (a) 2,400 103 SCI Systems, Inc. (a) 13,900 282 Secure Computing Corp. (a) 1,800 29 Semtech Corp. (a) 6,400 242 SERENA Software, Inc. (a) 1,300 21 SonicWALL, Inc. (a) 1,500 21 Storage Technology Corp. (a) 13,600 255 Sybase, Inc. (a) 7,600 103 Symantec Corp. (a) 7,650 421 Synopsys, Inc. (a) 4,400 207 Synplicity, Inc. New (a) 3,000 29 TALX Corp. 2,364 40 Tekelec, Inc. (a) 5,000 96 The TriZetto Group, Inc., (The) New (a) 1,800 17 Titan Corp. (a) 5,700 149 Transaction Systems Architects, Inc. Class A (a) 1,800 17 Trimble Navigation, Ltd. (a) 1,500 26 VeriSign, Inc. (a) 11,500 445 Verity, Inc. (a) 2,100 22 ViaSat, Inc. (a) 1,400 21 Wind River Systems, Inc. (a) 6,300 90 Zebra Technologies Corp. Class A (a) 2,700 124 Zoran Corp. (a) 1,200 30 ------ 12,451 ------ UTILITIES - 7.6% ALLETE 9,700 213 American Water Works, Inc. 13,100 532 Atmos Energy Corp. 4,400 95 Avista Corp. 5,600 67 Black Hills Corp. 1,800 49 Cablevision NY Group Class A (a) 6,000 206 Cablevision Systems Corp. (Rainbow Media Group) (a) 1,900 41 California Water Service Group 1,000 25 Cascade Natural Gas Corp. 700 14 CH Energy Group, Inc. 1,900 76 Commonwealth Telephone Enterprises, Inc. (a) 4,500 193 Conectiv, Inc. 11,700 276 DPL, Inc. 9,700 223 DQE, Inc. 7,500 140 Empire District Electric Co. 1,300 28 Energy East Corp. 15,400 290 Hawaiian Electric Industries, Inc. 3,800 141 Idacorp, Inc. 3,500 133 IDT Corp. (a) 2,000 22 Illuminet Holdings, Inc. (a) 7,600 272 Tax-Managed Small Cap Fund 219 TAX-MANAGED SMALL CAP FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ -------- Laclede Group, Inc. (The) (a) 1,400 32 Madison Gas & Electric Co. 1,200 29 MDU Resources Group, Inc. 8,200 199 National Fuel Gas Co. 8,600 201 New Jersey Resources Corp. 1,700 77 Northwest Natural Gas Co. 2,700 65 NSTAR 7,000 289 NUI Corp. 1,000 20 OGE Energy Corp. 9,200 199 Orion Power Holdings, Inc. New (a) 2,500 65 Otter Tail Power Co. 3,400 96 Potomac Electric Power Co. 15,000 322 Public Service Co. of New Mexico 4,100 100 Puget Sound Energy, Inc. 11,400 217 Rural Cellular Corp. Class A (a) 900 20 South Jersey Industries, Inc. 800 26 TECO Energy, Inc. 9,500 246 Telephone & Data Systems, Inc. 4,000 352 Triton PCS Holdings, Inc. Class A (a) 6,800 219 UGI Corp. 3,200 92 UIL Holdings Corp. 1,600 79 United States Cellular Corp. (a) 700 31 UtiliCorp United, Inc. 12,400 367 Vectren Corp. 6,300 133 Western Resources, Inc. 9,100 149 Wisconsin Energy Corp. 16,300 362 WPS Resources Corp. 3,100 105 -------- 7,128 -------- TOTAL COMMON STOCKS (cost $103,992) 90,966 -------- PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- -------- SHORT-TERM INVESTMENTS - 1.6% Frank Russell Investment Company Money Market Fund (b) 693 693 United States Treasury Bills (c)(d)(f) 2.070% due 12/20/01 850 848 -------- TOTAL SHORT-TERM INVESTMENTS (cost $1,541) 1,541 -------- TOTAL INVESTMENTS - 98.8% (identified cost $105,533) 92,507 OTHER ASSETS AND LIABILITIES, NET - 1.2% 1,113 -------- NET ASSETS - 100.0% 93,620 ======== (a) Nonincome-producing security. (b) At net asset value. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) Rate noted is yield-to-maturity from date of acquisition. (e) Real Estate Investment Trust (REIT). (f) At amortized cost, which approximates market. NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) Futures Contracts $ (000) --------- -------------- S&P 500 Index expiration date 12/01 796 $ (27) Russell 2000(TM) Index expiration date 12/01 1,929 7 ------------ Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ (20) ============ See accompanying notes which are an integral part of the financial statements. 220 Tax-Managed Small Cap Fund TAX-MANAGED SMALL CAP FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (identified cost $105,533) ............................... $ 92,507 Cash ........................................................................... 931 Receivables: Dividends .................................................................... 54 Fund shares sold ............................................................. 365 From Advisor ................................................................. 11 Daily variation margin on futures contracts................................... 60 --------- Total assets ............................................................... 93,928 LIABILITIES Payables: Fund shares redeemed................................................ $ 154 Accrued fees to affiliates ......................................... 85 Other accrued expenses ............................................. 69 -------- Total liabilities .......................................................... 308 --------- NET ASSETS ..................................................................... $ 93,620 ========= NET ASSETS CONSIST OF: Undistributed net investment income ............................................ 50 Accumulated net realized gain (loss) ........................................... (21,846) Unrealized appreciation (depreciation) on: Investments .................................................................. (13,026) Futures contracts ............................................................ (20) Shares of beneficial interest .................................................. 117 Additional paid-in capital ..................................................... 128,345 --------- NET ASSETS ..................................................................... $ 93,620 ========= NET ASSET VALUE, offering and redemption price per share: Class C ($2,687,576 divided by 340,949 shares of $.01 par value shares of beneficial interest outstanding) .................................. $ 7.88 ========= Class E ($837,075 divided by 104,628 shares of $.01 par value shares of beneficial interest outstanding) .................................. $ 8.00 ========= Class S ($90,095,742 divided by 11,236,044 shares of $.01 par value shares of beneficial interest outstanding) .................................. $ 8.02 =========
See accompanying notes which are an integral part of the financial statements. Tax-Managed Small Cap Fund 221 TAX-MANAGED SMALL CAP FUND STATEMENT OF OPERATIONS Amounts in thousands For the Fiscal Year Ended October 31, 2001 INVESTMENT INCOME Dividends......................................................... $ 1,139 Dividends from Money Market Fund.................................. 265 Interest.......................................................... 30 --------- Total investment income......................................... 1,434 EXPENSES Advisory fees............................................ $ 1,057 Administrative fees...................................... 55 Custodian fees........................................... 224 Distribution fees - Class C.............................. 20 Transfer agent fees...................................... 160 Professional fees........................................ 31 Registration fees........................................ 61 Shareholder servicing fees - Class C..................... 7 Shareholder servicing fees - Class E..................... 2 Trustees' fees........................................... 14 Miscellaneous............................................ 67 -------- Expenses before reductions............................... 1,698 Expense reductions....................................... (314) -------- Expenses, net................................................... 1,384 --------- Net investment income............................................... 50 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments.............................................. (15,160) Futures contracts........................................ (1,858) (17,018) -------- Net change in unrealized appreciation (depreciation) on: Investments.............................................. (19,466) Futures contracts........................................ (33) (19,499) -------- --------- Net realized and unrealized gain (loss)............................. (36,517) --------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............... $ (36,467) ========= See accompanying notes which are an integral part of the financial statements. 222 Tax-Managed Small Cap Fund TAX-MANAGED SMALL CAP FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
FISCAL YEAR ENDED TEN MONTHS ENDED YEAR ENDED OCTOBER 31, 2001 OCTOBER 31, 2000 DECEMBER 31, 1999 ------------------ ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income.............................................. $ 50 $ (38) $ 35 Net realized gain (loss)........................................... (17,018) (4,664) (181) Net change in unrealized appreciation (depreciation)............... (19,499) 4,607 1,846 ------------------ ------------------ ------------------ Net increase (decrease) in net assets from operations............ (36,467) (95) 1,700 ------------------ ------------------ ------------------ DISTRIBUTIONS From net investment income Class C.......................................................... -- (1) -- Class S.......................................................... -- (33) -- ------------------ ------------------ ------------------ Net decrease in net assets from distributions.................. -- (34) -- SHARE TRANSACTIONS Net increase (decrease) in net assets from distributions........... 22,043 78,898 27,575 ------------------ ------------------ ------------------ TOTAL NET INCREASE (DECREASE) IN NET ASSETS.......................... (14,424) 78,769 29,275 NET ASSETS Beginning of period................................................ 108,044 29,275 -- End of period (including undistributed net investment income of ------------------ ------------------ ------------------ $50 at October 31, 2001 and $35 at December 31, 1999)............. $ 93,620 $ 108,044 $ 29,275 ================== ================== ==================
See accompanying notes which are an integral part of the financial statements. Tax-Managed Small Cap Fund 223 TAX-MANAGED SMALL CAP FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* 2000** 1999*** ------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD................ $ 11.07 $ 10.71 $ 10.00 ------- ------- ------- INCOME FROM OPERATIONS Net investment income (loss)(a)****............... .12 (.10) -- Net realized and unrealized gain (loss)........... (3.31) .47 .71 ------- ------- ------- Total income from operations.................... (3.19) .37 .71 ------- ------- ------- DISTRIBUTIONS From net investment income........................ -- (.01) -- ------- ------- ------- NET ASSET VALUE, END OF PERIOD...................... $ 7.88 $ 11.07 $ 10.71 ======= ======= ======= TOTAL RETURN (%)(b)................................. (28.88) 3.52 7.10 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands).......... 2,688 2,414 222 Ratios to average net assets (%)(c): Operating expenses, net......................... 2.25 2.25 2.18 Operating expenses, gross....................... 2.54 2.77 8.78 Net investment income (loss).................... (.93) (1.05) .73 Portfolio turnover rate (%)....................... 105.31 71.20 3.33 * For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period December 1, 1999 (commencement of operations) to December 31, 1999. **** Less than $.01 per share for the period ended December 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 224 Tax-Managed Small Cap Fund TAX-MANAGED SMALL CAP FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout the period and other performance information derived from the financial statements. 2001* ------- NET ASSET VALUE, BEGINNING OF PERIOD................................... $ 10.00 ------- INCOME FROM OPERATIONS Net investment income (loss)(a)...................................... (.01) Net realized and unrealized gain (loss).............................. (1.99) ------- Total income from operations....................................... (2.00) ------- NET ASSET VALUE, END OF PERIOD......................................... $ 8.00 ======= TOTAL RETURN (%)(b).................................................... (20.00) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)............................. 837 Ratios to average net assets (%)(c): Operating expenses, net............................................ 1.50 Operating expenses, gross.......................................... 1.84 Net investment income (loss)....................................... (.16) Portfolio turnover rate (%).......................................... 105.31 * For the period December 8, 2000 (commencement of sale) to October 31, 2001. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) Annualized. Tax-Managed Small Cap Fund 225 TAX-MANAGED SMALL CAP FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
2001* 2000** 1999*** -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD ......................... $ 11.15 $ 10.73 $ 10.00 -------- -------- -------- INCOME FROM OPERATIONS Net investment income (a)**** .............................. .01 -- .01 Net realized and unrealized gain (loss) .................... (3.14) .43 .72 -------- -------- -------- Total income from operations ............................. (3.13) .43 .73 -------- -------- -------- DISTRIBUTIONS From net investment income ................................. -- (.01) -- -------- -------- -------- NET ASSET VALUE, END OF PERIOD ............................... $ 8.02 $ 11.15 $ 10.73 ======== ======== ======== TOTAL RETURN (%)(b) .......................................... (28.14) 4.08 7.30 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ................... 90,095 105,630 29,053 Ratios to average net assets (%)(c): Operating expenses, net .................................. 1.25 1.25 1.25 Operating expenses, gross ................................ 1.54 1.85 7.95 Net investment income (loss) ............................. .07 (.04) 1.92 Portfolio turnover rate (%) ................................ 105.31 71.20 3.33
* For the fiscal year ended October 31, 2001. ** For the ten months ended October 31, 2000. *** For the period December 1, 1999 (commencement of operations) to December 31, 1999. **** Less than $.01 per share for the period ended October 31, 2000. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for periods less than one year are annualized. 226 Tax-Managed Small Cap Fund SELECT GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide capital appreciation. INVESTS IN: Primarily US equity securities. STRATEGY: The Fund employs a multi-manager strategy to invest in stocks that appear to be undervalued on the basis of earnings, cash flow, or private market value. GROWTH OF A $10,000 INVESTMENT Dates Select Growth - Class I+ Russell 1000 Growth** - ----- ------------------------ --------------------- Inception* $10,000 $10,000 2001 $6,710 $6,804 YEARLY PERIODS ENDED OCTOBER 31 SELECT GROWTH FUND - CLASS S SELECT GROWTH FUND - CLASS I PERIOD ENDED GROWTH OF TOTAL PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN 10/31/01 $10,000 RETURN ------------ --------- -------- ------------ --------- -------- Inception $ 6,710 (32.90)% Inception $ 6,710 (32.90)% SELECT GROWTH FUND - CLASS E RUSSELL 1000(R) GROWTH FUND PERIOD ENDED GROWTH OF TOTAL PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN 10/31/01 $10,000 RETURN ------------ --------- -------- ------------ --------- -------- Inception $ 6,680 (33.20)% Inception $ 6,804 (31.96)% SELECT GROWTH FUND - CLASS C PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN ------------ --------- -------- Inception $ 6,650 (33.50)% 228 Select Growth Fund SELECT GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW Since the Fund's inception on January 31, 2001 to October 31, 2001, the Select Value Fund Class I, Class S, Class E and Class C shares lost 32.90%, 32.90%, 33.20% and 33.50%, respectively, as compared to the Russell 1000(R) Growth Index, which declined 31.96%. The Fund's performance trailed its benchmark in a hostile environment for growth stocks marked by unusually difficult events. The terrorist attacks on September 11, 2001 caused investor confidence to plummet. This was preceded by a heavy slate of sluggish economic news and declining corporate earnings announcements. This fiscal year also witnessed a reversal in monetary policy. At the beginning of the period, financial markets were still feeling the negative effects of the multiple interest rate hikes made by the Federal Reserve Board (Fed) during early 2000. By the end of the period, market participants were anxiously waiting for the numerous rate cuts during fiscal 2001 to gain traction, and help revive the struggling economy. These events caused growth investments to underperform their value counterparts. Start-up costs also dampened the Fund's performance during this nine-month period. PORTFOLIO HIGHLIGHTS Major shifts in political leadership, monetary policy, economic standing and national security during the fiscal period impacted the Fund's performance. This environment characterized by a flight to perceived quality and defensive issues, favored value investing at the expense of growth. From inception through the end of the second calendar quarter 2001, the Fund either tracked or outperformed relative to its benchmark, the Russell 1000(R) Growth Index. Outperforming managers during this start-up period were Fuller & Thaler, TCW and Turner. Fuller & Thaler was helped by its focus on microcap issues, TCW had strong selection among financial stocks, and Turner's returns were boosted by its selection of high technology companies. Fuller & Thaler again outperformed in the third calendar quarter of 2001 along with Capital Works and Strong. Turner and TCW gave back some of their positive early returns in the latter part of the reporting period. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 Pfizer, Inc. 3.9% General Electric Co. 3.4 Wal-Mart Stores, Inc. 3.4 Intel Corp. 2.9 Cisco Systems, Inc. 2.5 Johnson & Johnson 2.3 Progressive Corp. 2.3 American International Group, Inc. 2.2 Home Depot, Inc. (The) 2.2 Amgen, Inc. 2.0 PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 32.7x Portfolio Price/Book Ratio 4.45x Market Capitalization - $-Weighted Average 82.40 Bil Number of Holdings 261 MONEY MANAGERS STYLE CapitalWorks Investment Partners, LLC Growth Fuller & Thaler Asset Management, Inc. Growth Strong Capital Management, Inc. Growth TCW Investment Management Co. Growth Turner Investment Partners, Inc. Growth * The Fund commenced operations on January 31, 2001. Index comparison began February 1, 2001. ** The Russell 1000(R) Growth Index measures the performance of those Russell 1000(R) Index companies with higher price-to-book ratios and higher forecasted growth values. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Select Growth Fund 229 SELECT GROWTH FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------- ------- COMMON STOCKS - 93.5% AUTO AND TRANSPORTATION - 1.0% BE Aerospace, Inc. (a) 100 1 Harley-Davidson, Inc. 3,200 145 Magna Entertainment Corp. (a) 2,100 12 Mercury Air Group, Inc. (a) 6,200 35 OMI Corp. (a) 13,900 56 Southwest Airlines Co. 11,100 176 Werner Enterprises, Inc. 3,500 76 ------ 501 ------ CONSUMER DISCRETIONARY - 14.6% Action Performance Companies, Inc. (a) 3,700 97 Aldila, Inc. (a) 4,300 5 Alliance Gaming Corp. (a) 10,900 216 AOL Time Warner, Inc. (a) 27,860 870 Applebee's International, Inc. 2,250 68 Bed Bath & Beyond, Inc. (a) 2,600 65 Best Buy Co. (a) 6,610 363 Bon-Ton Stores, Inc. (The)(a) 12,000 30 Carriage Services, Inc. Class A (a) 11,600 69 CDW Computer Centers, Inc. (a) 800 37 CellStar Corp. (a) 30,200 36 ChoicePoint, Inc. (a) 800 34 Christopher & Banks Corp. (a) 2,000 66 CKE Restaurants, Inc. (a) 7,200 52 Clear Channel Communications, Inc. (a) 1,500 57 Cross (A.T.) Co. Class A (a) 9,600 52 Direct Focus, Inc. (a) 2,850 69 EarthLink, Inc. (a) 8,800 129 eBay, Inc. (a) 1,100 58 Electronic Arts, Inc. (a) 2,100 108 Fastenal Co. 1,500 89 Franklin Covey Co. (a) 7,400 26 Gadzooks, Inc. (a) 3,000 39 GTECH Holdings Corp. (a) 1,400 56 Home Depot, Inc. (The) 28,660 1,095 Hot Topic, Inc. (a) 2,200 56 House2Home, Inc. (a) 2,700 1 infoUSA, Inc. (a) 16,300 78 International Game Technology (a) 1,000 51 JAKKS Pacific, Inc. (a) 4,300 81 K-Swiss, Inc. Class A 2,400 67 Kohl's Corp. (a) 4,600 256 Lowe's Companies., Inc. 4,200 143 Pep Boys - Manny, Moe & Jack 8,000 94 Pixar, Inc. (a) 5,200 192 Racing Champions Corp. (a) 8,300 74 Rawlings Sporting Goods Co., Inc. (a) 5,800 19 Southern Energy Homes, Inc. (a) 29,000 51 THQ, Inc. (a) 500 25 United Auto Group, Inc. (a) 500 8 Venator Group, Inc. (a) 4,800 70 Viacom, Inc. Class B (a) 6,130 225 Wal-Mart Stores, Inc. 33,360 1,714 Waste Management, Inc. 2,300 56 Water Pik Technologies, Inc. (a) 1,200 10 Yahoo!, Inc. (a) 7,800 85 ------- 7,142 ------- MARKET NUMBER VALUE OF (000) SHARES $ ------- ------- CONSUMER STAPLES - 4.6% Constellation Brands, Inc. Class A (a) 1,700 70 D & K Healthcare Resources, Inc. 1,200 67 Dial Corp. 4,270 71 Duane Reade, Inc. (a) 700 21 Golden State Vintners, Inc. Class B (a) 3,500 18 Kraft Foods, Inc. 6,790 229 PepsiCo, Inc. 12,910 629 Philip Morris Cos., Inc. 2,100 98 Procter & Gamble Co. 8,080 596 Suiza Foods Corp. (a) 200 12 Walgreen Co. 13,000 421 ------- 2,232 ------- FINANCIAL SERVICES - 12.0% Advent Software, Inc. (a) 1,000 39 Affiliated Computer Services, Inc. Class A (a) 1,400 123 Affiliated Managers Group, Inc. (a) 1,200 74 American International Group, Inc. 14,380 1,130 BARRA, Inc. (a) 700 32 Citigroup, Inc. 12,340 562 Columbia Banking System, Inc. (a) 2,860 34 Concord EFS, Inc. (a) 11,880 325 Federal Home Loan Mortgage Corp. 1,500 102 Federal National Mortgage Association 1,100 89 First Data Corp. 1,900 128 Fiserv, Inc. (a) 2,400 89 Goldman Sachs Group, Inc. 4,590 359 IndyMac Bancorp, Inc. (a) 1,700 44 Investment Technology Group (a) 300 19 Investors Financial Services Corp. 500 26 Lehman Brothers Holdings, Inc. 1,100 69 Morgan Stanley Dean Witter & Co. 1,000 49 Paychex, Inc. 9,200 295 PICO Holdings, Inc. (a) 1,100 12 Principal Financial Group, Inc. (The) New (a) 3,200 72 Progressive Corp. 8,200 1,137 Republic First Bancorp, Inc. (a) 4,500 23 Schwab (Charles) Corp. 41,200 531 Scottish Annuity & Life Holdings, Ltd. 6,000 98 230 Select Growth Fund SELECT GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------- ------- Stilwell Financial, Inc. 14,700 296 SunGard Data Systems (a) 1,600 40 USA Education, Inc. 1,100 90 ------- 5,887 ------- HEALTH CARE - 22.6% Abaxis, Inc. (a) 10,500 40 Abbott Laboratories 8,960 475 Abgenix, Inc. (a) 3,300 98 American Home Products Corp. 1,600 89 Amgen, Inc. (a) 18,150 1,031 Baxter International, Inc. 6,070 294 Biogen, Inc. (a) 5,500 303 Biomet, Inc. 5,250 160 Biovail Corp. (a) 1,100 52 Bristol-Myers Squibb Co. 4,200 224 Bruker Daltonics, Inc. New (a) 1,300 30 Cardinal Health, Inc. 900 60 Caremark Rx, Inc. (a) 1,100 15 Celgene Corp. (a) 4,300 142 Cephalon, Inc. (a) 800 50 Charles River Laboratories International, Inc. (a) 3,200 108 Chiron Corp. (a) 3,500 188 Enzon, Inc. (a) 1,200 74 First Health Group Corp. (a) 3,700 100 Forest Labs, Inc. (a) 6,380 475 Genentech, Inc. (a) 15,890 830 Genzyme Corp. (a) 2,600 140 Guidant Corp. (a) 6,220 258 IDEC Pharmaceuticals Corp. (a) 2,870 179 Johnson & Johnson 20,420 1,182 Kendle International, Inc. (a) 3,400 67 King Pharmaceuticals, Inc. (a) 6,993 273 Laboratory Corp. of America Holdings (a) 2,100 181 LifePoint Hospitals, Inc. (a) 1,700 53 Lilly (Eli) & Co. 2,500 191 McKesson HBOC, Inc. 2,100 78 Medicis Pharmaceutical Corp. Class A (a) 3,200 185 MedImmune, Inc. (a) 1,600 63 Medtronic, Inc. 900 36 OrthoLogic Corp. (a) 20,700 83 OSI Pharmaceuticals, Inc. (a) 1,300 59 Pfizer, Inc. 47,390 1,985 Possis Medical, Inc. (a) 7,000 91 PSS World Medical, Inc. (a) 10,700 97 Quest Diagnostics, Inc. (a) 1,600 105 Renal Care Group, Inc. (a) 5,000 157 ResMed, Inc. (a) 700 39 Respironics, Inc. (a) 3,000 101 SangStat Medical Corp. (a) 4,500 102 Sierra Health Services, Inc. (a) 11,400 84 St. Jude Medical, Inc. (a) 1,100 78 Tenet Healthcare Corp. (a) 900 52 Teva Pharmaceutical Industries, Ltd. - ADR 300 19 Thoratec Laboratories Corp. (a) 5,200 101 UnitedHealth Group, Inc. 1,300 85 Wellpoint Health Networks, Inc. (a) 600 67 ------- 11,029 ------- INTEGRATED OILS - 0.6% ChevronTexaco Corp. (a) 2,040 181 Kerr-McGee Corp. 900 52 Murphy Oil Corp. 900 72 ------- 305 ------- MATERIALS AND PROCESSING - 1.4% Elcor Chemical Corp. 2,100 49 Finish Line (The), Inc. Class A (a) 6,300 64 Foamex International, Inc. (a) 4,800 36 Griffon Corp. (a) 2,530 29 Nucor Corp. 1,100 45 PPG Industries, Inc. 1,800 88 Rohm & Haas Co. 2,500 81 RTI International Metals (a) 6,500 64 Tyco International, Ltd. 4,500 221 ------- 677 ------- MISCELLANEOUS - 4.0% General Electric Co. 47,160 1,717 Illinois Tool Works, Inc. 1,600 92 Minnesota Mining & Manufacturing Co. 1,300 136 ------- 1,945 ------- OTHER ENERGY - 2.0% Anadarko Petroleum Corp. 600 34 Arch Coal, Inc. 2,700 60 Baker Hughes, Inc. 1,100 39 Calpine Corp. (a) 2,600 64 Cooper Cameron Corp. (a) 2,000 78 El Paso Corp. 1,000 49 Enron Corp. 2,300 32 FuelCell Energy, Inc. (a) 3,200 50 Global Marine, Inc. (a) 3,700 60 Hanover Compressor Co. (a) 3,500 97 Massey Energy Co. 1,300 27 Nabors Industries, Inc. (a) 1,800 55 Patterson-UTI Energy, Inc. (a) 5,700 103 Schlumberger, Ltd. 1,000 48 Select Growth Fund 231 SELECT GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ ------ ------ Smith International, Inc. (a) 2,800 132 Westport Resources Corp. (a) 1,732 30 ------ 958 ------ PRODUCER DURABLES - 3.7% Applied Materials, Inc. (a) 16,720 570 Celestica, Inc. (a) 8,950 307 Encore Wire Corp. (a) 8,400 97 Engineered Support Systems, Inc. 1,700 85 FLIR Systems, Inc. (a) 3,700 171 Itron, Inc. (a) 7,400 208 KLA Tencor Corporation (a) 1,900 78 Lockheed Martin Corp. 1,600 78 MICROS Systems, Inc. (a) 2,500 54 Polycom, Inc. (a) 2,300 69 RF Micro Devices, Inc. (a) 2,100 43 Tellium, Inc. (a) 4,700 31 ------ 1,791 ------ TECHNOLOGY - 25.3% 3Com Corp. (a) 17,500 72 Activision, Inc. (a) 2,100 76 Analog Devices, Inc. (a) 3,100 118 ANSYS, Inc. (a) 4,300 90 Automatic Data Processing, Inc. 1,300 67 BEA Systems, Inc. (a) 3,700 45 Borland Software Corp. (a) 6,900 77 Broadcom Corp. Class A (a) 9,870 340 Brocade Communications Systems, Inc. (a) 13,410 329 Cisco Systems, Inc. (a) 74,890 1,266 ClickAction, Inc. (a) 3,000 1 Computer Network Technology Corp. (a) 5,300 77 Dell Computer Corp. (a) 39,410 944 Digi International, Inc. (a) 1,800 8 Digital Generation Systems, Inc. (a) 5,000 7 Documentum, Inc. (a) 4,500 66 DRS Technologies, Inc. (a) 1,000 40 Electronic Data Systems Corp. 1,400 90 EMC Corp. (a) 4,400 54 Encad, Inc. (a) 3,800 4 Epicor Software Corp. (a) 11,200 11 Exar Corp. (a) 4,000 90 Flextronics International, Ltd. (a) 13,400 267 Genesis Microchip, Inc. (a) 3,500 162 Homeseekers.com, Inc. (a) 87,300 12 HPL Technologies, Inc. New (a) 2,400 28 i2 Technologies, Inc. (a) 19,500 89 Integrated Circuit Systems, Inc. New (a) 1,500 26 Intel Corp. 59,940 1,463 International Business Machines Corp. 1,300 140 JDS Uniphase Corp. (a) 28,860 231 Juniper Networks, Inc. (a) 18,900 421 L-3 Communications Holdings, Inc. (a) 400 35 Maxim Integrated Products, Inc. (a) 11,000 503 McDATA Corp. (a) 700 11 Microchip Technology, Inc. (a) 2,100 66 Micron Technology, Inc. (a) 14,670 334 Microsoft Corp. (a) 15,100 878 National Semiconductor Corp. (a) 1,600 42 Neoforma, Inc. (a) 3,960 32 Netegrity, Inc. (a) 2,300 27 NetIQ Corp. (a) 1,200 34 Network Appliance, Inc. (a) 13,600 181 Network Associates, Inc. (a) 4,200 81 Optimal Robotics Corp. (a) 2,700 80 Oracle Corp. (a) 5,200 71 Paradyne Networks, Inc. (a) 17,500 61 Pegasystems, Inc. (a) 1,600 6 Perot Systems Corp. Class A (a) 2,300 39 Pixelworks, Inc. New (a) 5,500 56 Precise Software Solutions, Ltd. (a) 2,000 38 QUALCOMM, Inc. (a) 16,320 802 Raytheon Co. 2,000 65 Register.com, Inc. (a) 5,400 46 Riverstone Networks, Inc. New (a) 7,100 90 Scientific-Atlanta, Inc. 2,100 44 Siebel Systems, Inc. (a) 18,100 296 SmartForce PLC - ADR (a) 4,000 66 Sun Microsystems, Inc. (a) 9,600 97 Texas Instruments, Inc. 17,590 492 Three-Five Systems, Inc. (a) 1,900 29 UTStarcom, Inc. (a) 4,200 99 VeriSign, Inc. (a) 7,480 290 Veritas Software Corp. (a) 4,400 125 ViaSat, Inc. (a) 2,700 40 Virage, Inc. (a) 6,800 19 Virata Corp. (a) 7,500 90 Xilinx, Inc. (a) 13,300 405 ------ 12,381 ------ UTILITIES - 1.7% AirGate PCS, Inc. (a) 300 15 AT&T Wireless Services, Inc. (a) 20,270 293 Nextel Communications, Inc. Class A (a) 8,000 64 Nokia Corp. - ADR 3,200 66 Sprint Corp. (PCS Group)(a) 12,290 274 US Unwired, Inc. New (a) 2,200 27 Vodafone Group PLC - ADR 3,200 74 ------ 813 ------ TOTAL COMMON STOCKS (cost $49,658) 45,661 ------ 232 Select Growth Fund SELECT GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ ----------- ----------- SHORT-TERM INVESTMENTS - 9.9% Frank Russell Investment Company Money Market Fund (b) 4,258 4,258 United States Treasury Bills 1.880% due 12/20/01 (c)(d)(e) 600 598 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $4,856) 4,856 ----------- TOTAL INVESTMENTS - 103.4% (identified cost $54,514) 50,517 OTHER ASSETS AND LIABILITIES, NET - (3.4%) (1,670) ----------- NET ASSETS - 100.0% 48,847 =========== NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) FUTURES CONTRACTS $ (000) ----------- ------------ Nasdaq 100 Index expiration date 12/01 958 $ (30) S&P Barra Growth Index expiration date 12/01 1,369 43 S&P 500 Index expiration date 12/01 530 (17) ------------ Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ (4) ============ (a) Nonincome-producing security. (b) At net asset value. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) Rate noted is yield-to-maturity from date of acquisition. (e) At amortized cost, which approximates market. Abbreviations: ADR - American Depositary Receipt See accompanying notes which are an integral part of the financial statements. Select Growth Fund 233 SELECT GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts) October 31, 2001 ASSETS Investments at market (identified cost $54,514) ............................. $ 50,517 Receivables: Dividends ................................................................. 24 Investments sold .......................................................... 1,476 Fund shares sold ......................................................... 172 From Advisor .............................................................. 9 Daily variation margin on futures contracts ............................... 26 -------- Total assets ............................................................ 52,224 LIABILITIES Payables: Investments purchased ......................................... $ 3,337 Accrued fees to affiliates .................................... 2 Other accrued expenses ........................................ 38 -------- Total liabilities ....................................................... 3,377 -------- NET ASSETS .................................................................. $ 48,847 ======== NET ASSETS CONSIST OF: Accumulated net realized gain (loss) ........................................ $(17,155) Unrealized appreciation (depreciation) on: Investments ............................................................... (3,997) Futures contracts ......................................................... (4) Shares of beneficial interest ............................................... 73 Additional paid-in capital .................................................. 69,930 -------- NET ASSETS .................................................................. $ 48,847 ======== NET ASSET VALUE, offering and redemption price per share: Class C ($1,016,991 divided by 152,992 shares of $.01 par value shares of beneficial interest outstanding) .............................. $ 6.65 ======== Class E ($2,714,072 divided by 406,181 shares of $.01 par value shares of beneficial interest outstanding) .............................. $ 6.68 ======== Class I ($21,043,767 divided by 3,135,597 shares of $.01 par value shares of beneficial interest outstanding) .............................. $ 6.71 ======== Class S ($24,071,968 divided by 3,588,662 shares of $.01 par value shares of beneficial interest outstanding) .............................. $ 6.71 ========
See accompanying notes which are an integral part of the financial statements. 234 Select Growth Fund SELECT GROWTH FUND STATEMENT OF OPERATIONS Amounts in thousands For the Period January 31, 2001 (commencement of operations) to October 31, 2001 INVESTMENT INCOME Dividends from Money Market Fund ....................................... $ 165 Dividends .............................................................. 146 Interest ............................................................... 16 -------- Total investment income .............................................. 327 EXPENSES Advisory fees .............................................. $ 303 Administrative fees ........................................ 19 Custodian fees ............................................. 140 Distribution fees - Class C ................................ 6 Transfer agent fees ........................................ 26 Professional fees .......................................... 38 Registration fees .......................................... 109 Shareholder servicing fees - Class C ....................... 2 Shareholder servicing fees - Class E ....................... 3 Trustees' fees ............................................. 9 Miscellaneous .............................................. 27 -------- Expenses before reductions ................................. 682 Expense reductions ......................................... (317) -------- Expenses, net ........................................................ 365 -------- Net investment loss ...................................................... (38) -------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments ................................................ (15,334) Futures contracts .......................................... (1,821) (17,155) -------- Net change in unrealized appreciation (depreciation) on: Investments ................................................ (3,997) Futures contracts .......................................... (4) (4,001) ------- -------- Net realized and unrealized gain (loss) .................................. (21,156) -------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .................... $(21,194) ========
See accompanying notes which are an integral part of the financial statements. Select Growth Fund 235 SELECT GROWTH FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands
JANUARY 31, 2001* TO OCTOBER 31, 2001 ----------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) ...................................... $ (38) Net realized gain (loss) ........................................... (17,155) Net change in unrealized appreciation (depreciation) ............... (4,001) -------- Net increase (decrease) in net assets from operations ............ (21,194) -------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions ...... 70,041 -------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS .......................... 48,847 NET ASSETS Beginning of period ................................................ -- -------- End of period ...................................................... $ 48,847 ========
* Commencement of operations. See accompanying notes which are an integral part of the financial statements. 236 Select Growth Fund SELECT GROWTH FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* ------- NET ASSET VALUE, BEGINNING OF PERIOD................................... $ 10.00 ------- INCOME FROM OPERATIONS Net investment income (loss)(a) .................................... (.08) Net realized and unrealized gain (loss) ............................ (3.27) ------- Total income from operations ..................................... (3.35) ------- NET ASSET VALUE, END OF PERIOD......................................... $ 6.65 ======= TOTAL RETURN (%)(b) ................................................... (33.50) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ........................... 1,017 Ratios to average net assets (%)(c): Operating expense, net ........................................... 2.17 Operating expense, gross ......................................... 2.97 Net investment income (loss) ..................................... (1.32) Portfolio turnover rate (%) ....................................... 169.36 * For the period January 31, 2001 (commencement of operations) to October 31, 2001. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) Annualized. Select Growth Fund 237 SELECT GROWTH FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* -------- NET ASSET VALUE, BEGINNING OF PERIOD ..................... $ 10.00 -------- INCOME FROM OPERATIONS Net investment income (loss)(a) ........................ (.02) Net realized and unrealized gain (loss) ................ (3.30) -------- Total income from operations ......................... (3.32) -------- NET ASSET VALUE, END OF PERIOD ........................... $ 6.68 ======== TOTAL RETURN (%)(b) ...................................... (33.20) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ............... 2,714 Ratios to average net assets (%)(c): Operating expense, net ............................... 1.29 Operating expense, gross ............................. 2.05 Net investment income (loss) ......................... (.45) Portfolio turnover rate (%) ............................ 169.36 * For the period January 31, 2001 (commencement of operations) to October 31, 2001. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) Annualized. 238 Select Growth Fund SELECT GROWTH FUND FINANCIAL HIGHLIGHTS - CLASS I The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* --------- NET ASSET VALUE, BEGINNING OF PERIOD ................................. $ 10.00 --------- INCOME FROM OPERATIONS Net investment income (loss)(a)**................................... -- Net realized and unrealized gain (loss)............................. (3.29) --------- Total income from operations...................................... (3.29) --------- NET ASSET VALUE, END OF PERIOD........................................ $ 6.71 ========= TOTAL RETURN (%)(b).................................................... (32.90) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)............................. 21,044 Ratios to average net assets (%)(c): Operating expense, net............................................. .89 Operating expense, gross........................................... 1.75 Net investment income (loss)....................................... (.03) Portfolio turnover rate (%).......................................... 169.36 * For the period January 31, 2001 (commencement of operations) to October 31, 2001. ** Less than $.01 per share for the period ended October 31, 2001. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) Annualized. Select Growth Fund 239 SELECT GROWTH FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* ----- NET ASSET VALUE, BEGINNING OF PERIOD .......................... $ 10.00 ------- INCOME FROM OPERATIONS Net investment income (loss)(a)** ........................... -- Net realized and unrealized gain (loss) ..................... (3.29) ------- Total income from operations ............................. (3.29) ------- NET ASSET VALUE, END OF PERIOD ................................ $ 6.71 ======= TOTAL RETURN (%)(b) ........................................... (32.90) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) .................... 24,072 Ratios to average net assets (%)(c): Operating expense, net .................................... .94 Operating expense, gross .................................. 1.74 Net investment income (loss) .............................. (.09) Portfolio turnover rate (%) ................................. 169.36 * For the period January 31, 2001 (commencement of operations) to October 31, 2001. ** Less than $.01 per share for the period ended October 31, 2001. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) Annualized. 240 Select Growth Fund SELECT VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) OBJECTIVE: To provide capital appreciation. INVESTS IN: Primarily US equity securities. STRATEGY: The Fund employs a multi-manager strategy to invest in stocks with above average growth rates and favorable earnings momentum. GROWTH OF A $10,000 INVESTMENT Dates Select Value - Class I+ Russell 1000 Value** - ----- ----------------------- -------------------- Inception* $10,000 $10,000 2001 $8,608 $8,683 YEARLY PERIODS ENDED OCTOBER 31 SELECT VALUE FUND - CLASS S PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ----------------- ------------ ----------- Inception $8,596 (14.04)% SELECT VALUE FUND - CLASS E PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ----------------- ------------ ----------- Inception $8,567 (14.33)% SELECT VALUE FUND - CLASS C PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ----------------- ------------ ----------- Inception $8,524 (14.76)% SELECT VALUE FUND - CLASS I PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ----------------- ------------ ----------- Inception $8,608 (13.92)% RUSSELL 1000(R) VALUE FUND PERIOD ENDED GROWTH OF TOTAL 10/31/01 $10,000 RETURN - ----------------- ------------ ----------- Inception $8,683 (13.17)% 242 Select Value Fund SELECT VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION October 31, 2001 (Unaudited) PERFORMANCE REVIEW Since the Fund's inception on January 31, 2001 to October 31, 2001, the Select Value Fund Class I, Class S, Class E and Class C shares lost 13.92%, 14.04%, 14.33% and 14.76%, respectively, as compared to the Russell 1000(R) Value Index, which declined 13.17%. The Fund's performance trailed its benchmark in an environment marked by unusually difficult events. These included terrorist attacks on September 11, 2001 that caused investor confidence to plummet. The attacks came after a heavy slate of sluggish economic news and declining corporate earnings announcements. This fiscal year also witnessed a reversal in monetary policy. At the beginning of the period, financial markets were still feeling the negative effects of the multiple interest rate hikes made by the Federal Reserve Board (Fed) during early 2000. By the end of the period, market participants were anxiously waiting for the numerous rate cuts during fiscal 2001 to gain traction, and help revive the struggling economy. These events caused value investing to outperform growth. Yet, due to the high level of cross-sectional volatility among the value economic sectors, active managers had difficulty outperforming the benchmarks. Start-up costs also dampened the Fund's performance during this nine-month period. PORTFOLIO HIGHLIGHTS Major shifts in political leadership, monetary policy, economic standing and national security during the fiscal period impacted the Fund's performance. This environment, characterized by a flight to perceived quality and defensive issues, favored value investing. MFS was the Fund's leading manager in terms of performance during the first two months following it's inception. In the second calendar quarter of 2001, the Fund outperformed its benchmark with Systematic's small cap portfolio contributing the best returns. Systematic's large cap portfolio strategy was added in early May. Iridian ended the period favoring insurance holdings and underweighting utilities. MFS maintained its defensive strategy, while incrementally increasing holdings in cyclical stocks. Systematic's large cap portfolio maintained its focus on fundamental analysis while keeping its sector weights close in line with the index weights. Systematic's small cap portfolio made several sector shifts during the period as they sold out of consumer discretionary and health care in favor of industrials and some technology. The Fund, in aggregate, favored companies with slightly discounted price-to-earnings ratios and above average expected earnings growth. At the end of the fiscal year, the Fund was underweight in utilities and integrated oils and overweight in health care and other energy. The capitalization bias indicated a 4% underweight to the largest capitalization tier of value stocks in the Russell 1000(R) Value Index. TOP TEN EQUITY HOLDINGS (as a percent of Total Investments) October 31, 2001 Citigroup, Inc. 2.8% International Business Machines Corp. 1.7 Exxon Mobil Corp. 1.6 ChevronTexaco Corp. 1.5 Marsh & McLennan Cos., Inc. 1.4 Bank of America Corp. 1.3 Lincoln National Corp. 1.3 Federal Home Loan Mortgage Corp. 1.3 Comcast Corp. Special Class A 1.2 Hartford Financial Services Group, Inc. 1.2 (The) PORTFOLIO CHARACTERISTICS October 31, 2001 Current P/E Ratio 18.1x Portfolio Price/Book Ratio 2.39x Market Capitalization - $-Weighted Average 47.83 Bil Number of Holdings 243 MONEY MANAGERS STYLE Iridian Asset Management, LLC Value MFS International Advisors, Inc. Value Systematic Financial Management, L.P. Value * The Fund commenced operations on January 31, 2001. Index comparison began February 1, 2001. ** The Russell 1000(R) Value Index measures the performance of those Russell 1000(R) Index securities with higher price-to-book ratios and higher forecasted growth values. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Select Value Fund 243 SELECT VALUE FUND STATEMENT OF NET ASSETS October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- -------- COMMON STOCKS - 91.5% AUTO AND TRANSPORTATION - 1.8% Canadian National Railway Co. 2,700 107 Delphi Automotive Systems Corp. 29,800 346 Landstar Systems, Inc. (a) 1,300 93 Lear Corp. (a) 1,900 58 Navistar International Corp. 2,100 63 Norfolk Southern Corp. 13,100 219 Tidewater, Inc. 8,700 263 -------- 1,149 -------- CONSUMER DISCRETIONARY - 8.4% Abercrombie & Fitch Co. Class A (a) 5,000 94 AnnTaylor Stores Corp. (a) 2,500 55 BJ's Wholesale Club, Inc. (a) 2,000 102 Buca, Inc. (a) 3,900 53 Cendant Corp. (a) 37,200 482 Circuit City Stores - Circuit City Group 19,500 268 Disney (Walt) Co. 18,000 335 F.Y.I., Inc. (a) 1,700 61 FTI Consulting, Inc. (a) 2,200 65 Gannett Co., Inc. 3,500 221 Gillette Co. (The) 10,500 326 Ikon Office Solutions, Inc. 7,200 70 Insight Communications Co., Inc. Class A (a) 3,600 74 International Flavors & Fragrances, Inc. 8,700 248 Kimberly-Clark Corp. 9,700 538 Liberty Media Corp. (a) 27,700 324 Maxwell Shoe Company, Inc. Class A (a) 4,700 67 McDonald's Corp. 6,200 162 Movado Group, Inc. 5,900 96 Office Depot, Inc. (a) 16,500 224 Phillips-Van Heusen Corp. 8,300 71 Reebok International, Ltd. (a) 2,600 54 Sears Roebuck & Co. 9,900 384 Target Corp. 5,900 184 TETRA Technologies, Inc. (a) 1,900 32 Tommy Hilfiger Corp. (a) 8,000 92 Tribune Co. 2,500 76 Universal Electronics, Inc. (a) 5,700 84 Viacom, Inc. Class B (a) 9,384 343 Waste Management, Inc. 11,600 284 -------- 5,469 -------- CONSUMER STAPLES - 5.7% Anheuser-Busch Cos., Inc. 7,200 300 Clorox Co. (The) 10,900 389 Coca-Cola Co. (The) 5,100 244 Diageo PLC - ADR 2,200 90 Interstate Bakeries Corp. 3,400 80 J.M. Smucker Co., (The) 7,100 237 Kellogg Co. 6,200 189 Kraft Foods, Inc. 7,300 246 Kroger Co. (a) 15,700 384 PepsiCo, Inc. 5,340 260 Philip Morris Cos., Inc. 9,700 454 Procter & Gamble Co. 9,300 686 Safeway, Inc. (a) 2,600 108 Standard Commercial Corp. 4,300 80 -------- 3,747 -------- FINANCIAL SERVICES - 27.8% Allstate Corp. 7,900 248 American Express Co. 3,700 109 American International Group, Inc. 3,800 299 AON Corp. 16,000 609 Astoria Financial Corp. 2,700 141 Bank of America Corp. 14,500 855 Bear Stearns Cos., Inc. (The) 5,200 281 CBL & Associates Properties, Inc. (e) 3,200 93 Chubb Corp. (The) 9,300 635 CIGNA Corp. 8,300 605 Citigroup, Inc. 40,200 1,830 Coastal Bancorp, Inc. 2,300 68 Cobalt Corp. (a) 6,600 36 Countrywide Credit Industries, Inc. 4,200 168 Cullen Frost Bankers, Inc. 2,300 62 Dime Community Bancorp, Inc. 2,700 65 Doral Financial Corp. 2,400 84 Equity Office Properties Trust (e) 9,800 279 Equity Residential Properties Trust (e) 7,400 192 FactSet Research Systems, Inc. 2,300 57 Federal Home Loan Mortgage Corp. 12,300 834 Federal National Mortgage Association 9,100 737 FleetBoston Financial Corp. 17,200 565 Franklin Resources, Inc. 8,500 273 Gallagher (Arthur J.) & Co. 2,800 102 Golden West Financial Corp. 3,400 165 Hartford Financial Services Group, Inc. (The) 14,300 772 Household International, Inc. 7,900 413 IndyMac Bancorp, Inc. (a) 2,500 64 Innkeepers USA Trust 8,300 58 Jefferson-Pilot Corp. 4,900 203 Lehman Brothers Holdings, Inc. 5,900 369 Lincoln National Corp. 20,100 851 Mack-Cali Realty Corp. (e) 3,100 96 Marsh & McLennan Cos., Inc. 9,300 900 Mellon Financial Corp. 22,100 743 Merrill Lynch & Co., Inc. 4,000 175 Metris Companies, Inc. 3,700 60 MGIC Investment Corp. 3,700 191 244 Select Value Fund SELECT VALUE FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- Morgan Stanley Dean Witter & Co. 11,200 548 Odyssey Re Holdings Corp. 3,800 57 PNC Bank Corp. 11,200 615 Principal Financial Group, Inc. (The) New (a) 650 15 Raymond James Financial, Inc. 3,000 88 RenaissanceRe Holdings, Ltd. 1,100 106 Republic Bancorp, Inc. 5,100 75 Republic Bancorp, Inc. 2,200 27 Ryder System, Inc. 2,800 52 SAFECO Corp. 3,700 114 Seacoast Banking Corp. of Florida 1,017 43 SouthTrust Corp. 5,500 125 Sovereign Bancorp, Inc. 5,700 56 St. Paul Cos., Inc. 9,600 441 Triad Guaranty, Inc. (a) 2,000 66 USA Education, Inc. 6,600 538 Wachovia Corp. (a) 11,600 332 Washington Mutual, Inc. 8,600 260 Wells Fargo & Co. 6,100 241 Whitney Holding Corp. 2,100 82 ------ 18,168 ------ HEALTH CARE - 7.7% Abbott Laboratories 5,800 307 American Home Products Corp. 4,500 251 Biogen, Inc. (a) 10,300 567 Boston Scientific Corp. (a) 25,866 588 Edwards Lifesciences Corp. (a) 4,000 102 Guidant Corp. (a) 4,200 174 HCA-The Healthcare Co. 10,900 432 Johnson & Johnson 3,700 214 Lifecore Biomedical, Inc. (a) 2,200 28 LifePoint Hospitals, Inc. (a) 3,000 94 Lilly (Eli) & Co. 2,600 199 Merck & Co., Inc. 3,200 204 Merit Medical Systems, Inc. (a) 6,625 101 Novartis AG - ADR 4,800 181 Pfizer, Inc. 2,100 88 Pharmaceutical Resources, Inc. (a) 1,200 41 Priority Healthcare Corp. Class B (a) 2,900 84 Quest Diagnostics, Inc. (a) 2,000 131 Schering-Plough Corp. 14,600 543 Tenet Healthcare Corp. (a) 11,800 679 ------ 5,008 ------ INTEGRATED OILS - 4.4% ChevronTexaco Corp. (a) 11,253 996 Exxon Mobil Corp. 26,600 1,049 Occidental Petroleum Corp. 1,700 43 Phillips Petroleum Co. 9,500 517 Royal Dutch Petroleum Co. 1,500 76 Unocal Corp. 5,900 190 ------ 2,871 ------ MATERIALS AND PROCESSING - 6.6% Air Products & Chemicals, Inc. 6,200 248 AKZO Nobel - ADR 5,400 222 Alcoa, Inc. 21,100 681 Apogee Enterprises, Inc. 2,000 28 Applied Films Corp. (a) 5,000 103 Archer-Daniels-Midland Co. 19,020 265 Ball Corp. 900 55 Dow Chemical Co. 6,200 206 Elcor Chemical Corp. 2,100 49 EMCOR Group, Inc. (a) 2,500 98 International Paper Co. 5,000 179 P.H. Glatfelter Co. 6,400 96 Packaging Corp. of America (a) 5,100 90 PPG Industries, Inc. 8,400 410 Praxair, Inc. 2,300 109 Syngenta AG - ADR (a) 16,500 170 Temple-Inland, Inc. 5,900 295 Tyco International, Ltd. 13,100 644 Weyerhaeuser Co. 7,300 364 ------ 4,312 ------ MISCELLANEOUS - 1.5% General Electric Co. 8,500 309 Hillenbrand Industries, Inc. 3,000 159 Honeywell International, Inc. 8,900 263 Minnesota Mining & Manufacturing Co. 2,400 251 ------ 982 ------ OTHER ENERGY - 5.2% Anadarko Petroleum Corp. 2,800 160 Apache Corp. 8,100 418 Arch Coal, Inc. 3,700 82 Devon Energy Corp. 4,900 188 El Paso Corp. 13,800 677 Forest Oil Corp. (a) 2,700 74 GulfMark Offshore, Inc. (a) 2,400 68 Noble Drilling Corp. (a) 3,400 104 Schlumberger, Ltd. 11,100 537 Valero Energy Corp. 8,600 323 Williams Cos. (The) 25,900 748 ------ 3,379 ------ PRODUCER DURABLES - 3.4% Alstom - ADR 3,380 52 Boeing Co. (The) 17,900 584 Caterpillar, Inc. 1,900 85 Select Value Fund 245 SELECT VALUE FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 MARKET NUMBER VALUE OF (000) SHARES $ -------- ------- Danaher Corp. 3,500 195 Deere & Co. 15,200 562 FSI International, Inc. (a) 3,500 29 KLA Tencor Corporation (a) 3,700 151 Kulicke & Soffa Industries, Inc. (a) 3,500 53 Lockheed Martin Corp. 5,200 254 LTX Corp. (a) 3,100 51 Ryland Group, Inc. (The) 1,600 86 Tollgrade Communications, Inc. (a) 2,000 51 TRC Companies, Inc. (a) 1,500 63 ------ 2,216 ------ TECHNOLOGY - 7.2% Accenture, Ltd. New (a) 700 12 Adaptec, Inc. (a) 2,700 33 Analog Devices, Inc. (a) 3,300 125 Applied Innovation, Inc. (a) 900 7 Avnet, Inc. 7,600 157 BEI Technologies, Inc. 5,000 81 CryptoLogic, Inc. (a) 3,700 49 DRS Technologies, Inc. (a) 1,300 52 DSP Group, Inc. (a) 3,200 67 Electronic Data Systems Corp. 9,000 579 Flextronics International, Ltd. (a) 3,300 66 General Dynamics Corp. 3,600 294 Hutchinson Technology, Inc. (a) 2,300 42 II-VI, Inc. (a) 200 3 Integrated Silicon Solution, Inc. (a) 7,200 75 International Business Machines Corp. 10,000 1,081 International Rectifier Corp. (a) 1,900 67 KEMET Corp. (a) 3,000 54 LSI Logic Corp. (a) 10,500 178 Microsoft Corp. (a) 1,300 76 Motorola, Inc. 9,800 160 Motorola, Inc. (a) 3,700 182 National Semiconductor Corp. (a) 12,400 322 Oracle Corp. (a) 9,900 134 Pixelworks, Inc. New (a) 4,000 40 Planar Systems, Inc. (a) 1,700 25 Raytheon Co. 1,200 39 Rockwell International Corp. 6,000 83 Silicon Storage Technology, Inc. (a) 6,600 59 Sun Microsystems, Inc. (a) 16,500 167 Texas Instruments, Inc. 6,100 171 Three-Five Systems, Inc. (a) 2,600 40 Vishay Intertechnology, Inc. (a) 10,900 206 ------ 4,726 ------ UTILITIES - 11.8% AGL Resources, Inc. 5,000 103 Alltel Corp. 4,400 251 AT&T Corp. 46,100 703 AT&T Wireless Services, Inc. (a) 10,541 152 BroadWing, Inc. (a) 16,400 152 Cascade Natural Gas Corp. 6,000 121 Comcast Corp. Special Class A (a) 21,800 781 Cox Communications, Inc. Class A (a) 4,600 176 Dominion Resources, Inc. 1,300 79 Duke Energy Corp. 9,400 361 Exelon Corp. 4,600 194 FirstEnergy Corp. 2,700 93 FPL Group, Inc. 2,100 112 Idacorp, Inc. 2,100 80 Mirant Corp. New (a) 3,900 101 National Fuel Gas Co. 10,100 236 NICOR, Inc. 4,100 159 NiSource, Inc. 5,600 133 Nokia Corp. - ADR 10,300 211 NSTAR 5,200 214 Pinnacle West Capital Corp. 4,300 181 Qwest Communications International, Inc. 24,700 320 SBC Communications, Inc. 18,800 716 Sprint Corp. (Fon Group) 29,500 590 Verizon Communications, Inc. 15,500 772 Vodafone Group PLC - ADR 14,600 338 WGL Holdings, Inc. 5,100 138 WorldCom, Inc. - WorldCom Group (a) 15,800 213 ------ 7,680 ------ TOTAL COMMON STOCKS (cost $64,569) 59,707 ------ 246 Select Value Fund SELECT VALUE FUND STATEMENT OF NET ASSETS, CONTINUED October 31, 2001 PRINCIPAL MARKET AMOUNT VALUE (000) (000) $ $ --------- ------ SHORT-TERM INVESTMENTS - 7.9% Frank Russell Investment Company Money Market Fund (b) 4,564 4,564 United States Treasury Bills 2.070% due 12/20/01 (c)(d)(f) 600 598 ------- 5,162 ------- TOTAL SHORT-TERM INVESTMENTS (cost $5,162) 5,162 ------- TOTAL INVESTMENTS - 99.4% (identified cost $69,731) 64,869 OTHER ASSETS AND LIABILITIES, NET - 0.6% 401 ------- NET ASSETS - 100.0% 65,270 ======= (a) Nonincome-producing security. (b) At net asset value. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) Rate noted is yield-to-maturity from date of acquisition. (e) Real Estate Investment Trust (REIT). (f) At amortized cost, which approximates market. Abbreviations: ADR - American Depositary Receipt NOTIONAL UNREALIZED AMOUNT APPRECIATION (000) (DEPRECIATION) FUTURES CONTRACTS $ (000) -------- -------------- S&P Barra Value Index expiration date 12/01 1,796 $ 19 S&P 500 Index expiration date 12/01 3,447 (15) ------ Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ 4 ====== See accompanying notes which are an integral part of the financial statements. Select Value Fund 247 SELECT VALUE FUND STATEMENT OF ASSETS AND LIABILITIES Amounts in thousands (except per share amounts)
October 31, 2001 ASSETS Investments at market (identified cost $69,731) ............................... $ 64,869 Cash .......................................................................... 398 Receivables: Dividends ................................................................... 95 Investments sold ............................................................ 85 Fund shares sold ............................................................ 319 From Advisor ................................................................ 10 Daily variation margin on futures contracts ................................. 4 ------------- Total assets ............................................................. 65,780 LIABILITIES Payables: Investments purchased ........................................ $ 460 Accrued fees to affiliates ................................... 17 Other accrued expenses ....................................... 32 Daily variation margin on futures contracts .................. 1 ------------- Total liabilities ........................................................ 510 ------------- NET ASSETS ..................................................................... $ 65,270 ============= NET ASSETS CONSIST OF: Undistributed net investment income ............................................ $ 83 Accumulated net realized gain (loss) ........................................... (4,890) Unrealized appreciation (depreciation) on: Investments .................................................................. (4,862) Futures contracts ........................................................... 4 Shares of beneficial interest ................................................ 77 Additional paid-in capital ................................................... 74,858 ------------- NET ASSETS ..................................................................... $ 65,270 ============= NET ASSET VALUE, offering and redemption price per share: Class C ($1,843,588 divided by 216,751 shares of $.01 par value shares of beneficial interest outstanding) ................................. $ 8.51 Class E ($3,154,803 divided by 369,879 shares of $.01 par value ============= shares of beneficial interest outstanding) ................................. $ 8.53 Class I ($28,983,223 divided by 3,395,535 shares of $.01 par value ============= shares of beneficial interest outstanding) ................................. $ 8.54 Class S ($31,288,114 divided by 3,668,405 shares of $.01 par value ============= shares of beneficial interest outstanding) ................................. $ 8.53 =============
See accompanying notes which are an integral part of the financial statements. 248 Select Value Fund SELECT VALUE FUND STATEMENT OF OPERATIONS
Amounts in thousands For the Period January 31, 2001(commencement of operations) to October 31, 2001 INVESTMENT INCOME Dividends .................................................................... $ 657 Dividends from Money Market Fund ............................................. 209 Interest ..................................................................... 16 -------------- Total investment income .................................................... 882 EXPENSES Advisory fees ................................................ $ 298 Administrative fees .......................................... 22 Custodian fees ............................................... 111 Distribution fees - Class C .................................. 8 Transfer agent fees .......................................... 34 Professional fees ............................................ 38 Registration fees ............................................ 109 Shareholder servicing fees - Class C ......................... 3 Shareholder servicing fees - Class E ......................... 4 Trustees' fees ............................................... 9 Miscellaneous ................................................ 25 -------------- Expenses before reductions ................................... 661 Expense reductions ........................................... (285) -------------- Expenses, net .............................................................. 376 -------------- Net investment income .......................................................... 506 -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments ................................................. (3,584) Futures contracts ........................................... (1,306) (4,890) -------------- Net change in unrealized appreciation (depreciation) on: Investments ................................................. (4,862) Futures contracts ........................................... 4 (4,858) -------------- -------------- Net realized and unrealized gain (loss) ........................................ (9,748) -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .......................... $ (9,242) ==============
See accompanying notes which are an integral part of the financial statements. Select Value Fund 249 SELECT VALUE FUND STATEMENT OF CHANGES IN NET ASSETS Amounts in thousands JANUARY 31, 2001* TO OCTOBER 31, 2001 ------------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income ....................................... $ 506 Net realized gain (loss) .................................... (4,890) Net change in unrealized appreciation (depreciation) ........ (4,858) -------------- Net increase (decrease) in net assets from operations ..... (9,242) -------------- DISTRIBUTIONS From net investment income Class C ................................................... (7) Class E ................................................... (216) Class I ................................................... (2) Class S ................................................... (198) -------------- Net decrease in net assets from distributions ........... (423) -------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions 74,935 -------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS ................... 65,270 NET ASSETS Beginning of period ......................................... -- End of period (including undistributed net investment income -------------- of $83 at October 31, 2001) ............................... $ 65,270 ============== * Commencement of operations. See accompanying notes which are an integral part of the financial statements. 250 Select Value Fund SELECT VALUE FUND FINANCIAL HIGHLIGHTS - CLASS C The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* ---------- NET ASSET VALUE, BEGINNING OF PERIOD .............................. $ 10.00 ---------- Income From Operations Net investment income (a)** ..................................... -- Net realized and unrealized gain (loss) ......................... (1.48) ---------- Total income from operations .................................. (1.48) ---------- DISTRIBUTIONS From net investment income ...................................... (.01) ---------- NET ASSET VALUE, END OF PERIOD .................................... $ 8.51 ========== TOTAL RETURN (%)(b) ............................................... (14.76) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ........................ 1,844 Ratios to average net assets (%)(c): Operating expense, net ........................................ 2.00 Operating expense, gross ...................................... 2.64 Net investment income ......................................... .00 Portfolio turnover rate (%) ..................................... 71.75 * For the period January 31, 2001 (commencement of operations) to October 31, 2001. ** Less than $.01 per share for the period ended October 31, 2001. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) Annualized. Select Value Fund 251 SELECT VALUE FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* -------- NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 10.00 -------- INCOME FROM OPERATIONS Net investment income (a) ................................ .05 Net realized and unrealized gain (loss) .................. (1.48) -------- Total income from operations ........................... (1.43) -------- DISTRIBUTIONS From net investment income ............................... (.04) -------- NET ASSET VALUE, END OF PERIOD ............................. $ 8.53 ======== TOTAL RETURN (%)(b) ........................................ (14.33) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ................. 3,155 Ratios to average net assets (%)(c): Operating expense, net ................................. 1.25 Operating expense, gross ............................... 1.85 Net investment income .................................. .76 Portfolio turnover rate (%) .............................. 71.75 * For the period January 31, 2001 (commencement of operations) to October 31, 2001. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) Annualized. 252 Select Value Fund SELECT VALUE FUND FINANCIAL HIGHLIGHTS - CLASS I The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* ------- NET ASSET VALUE, BEGINNING OF PERIOD ............................ $ 10.00 ------- INCOME FROM OPERATIONS Net investment income (a) .................................... .09 Net realized and unrealized gain (loss) ....................... (1.48) ------- Total income from operations ................................ (1.39) ------- DISTRIBUTIONS From net investment income .................................... (.07) ------- NET ASSET VALUE, END OF PERIOD .................................. $ 8.54 ======= TOTAL RETURN (%)(b) ............................................. (13.92) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) ...................... 28,983 Ratios to average net assets (%)(c): Operating expense, net ...................................... .79 Operating expense, gross .................................... 1.48 Net investment income ....................................... 1.25 Portfolio turnover rate (%) .................................. 71.75 * For the period January 31, 2001 (commencement of operations) to October 31, 2001. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) Annualized. Select Value Fund 253 SELECT VALUE FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. 2001* ------- NET ASSET VALUE, BEGINNING OF PERIOD ................................ $ 10.00 ------- INCOME FROM OPERATIONS Net investment income (a) ......................................... .08 Net realized and unrealized gain (loss) ........................... (1.48) ------- Total income from operations .................................... (1.40) ------- DISTRIBUTIONS From net investment income ........................................ (.07) ------- NET ASSET VALUE, END OF PERIOD ...................................... $ 8.53 ======= TOTAL RETURN (%)(b) ................................................. (14.04) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands) .......................... 31,288 Ratios to average net assets (%)(c): Operating expense, net .......................................... .86 Operating expense, gross ........................................ 1.50 Net investment income ........................................... 1.18 Portfolio turnover rate (%) ...................................... 71.75 * For the period January 31, 2001 (commencement of operations) to October 31, 2001. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) Annualized. 254 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS October 31, 2001 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company") is a series mutual fund with 31 different investment portfolios, referred to as "Funds." These financial statements report on fifteen Funds, each of which has distinct investment objectives and strategies. The Investment Company is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. It is organized and operates as a Massachusetts business trust under an amended master trust agreement dated July 26, 1984. The Investment Company's master trust agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.01 par value. On November 22, 1999, the Investment Company's Board of Trustees approved a change in the Funds' fiscal year end from December 31 to October 31. On February 26, 1999, the Fixed Income II Fund acquired all the net assets of the Volatility Constrained Bond Fund pursuant to a plan of reorganization approved by the Volatility Constrained Bond Fund shareholders. The acquisition was accomplished by a tax-free exchange of 8,934,738 shares of the Fixed Income II Fund (valued at $163,684,403) for the 8,932,673 shares of the Volatility Constrained Bond Fund on February 26, 1999. The Volatility Constrained Bond Fund's net assets of $163,684,403, including $495,215 of unrealized depreciation, were combined with those of the Fixed Income II Fund which changed its name to the Short Term Bond Fund. The aggregate net assets of the Fixed Income II Fund and the Volatility Constrained Bond Fund immediately before the acquisition were $320,538,146 and $163,684,403, respectively. In addition, the Short Term Bond Fund made a reclassification among certain of its capital accounts to reflect the acquisition of the Volatility Constrained Bond Fund, without impacting its net asset value. The following reclassification was made for the year ended December 31, 1999: UNDISTRIBUTED NET ACCUMULATED NET ADDITIONAL INVESTMENT INCOME REALIZED GAIN (LOSS) PAID-IN CAPITAL ----------------- -------------------- --------------- Short Term Bond Fund $ 42,226 $ (9,588,387) $ 9,546,161 2. SIGNIFICANT ACCOUNTING POLICIES The Funds' financial statements are prepared in accordance with generally accepted accounting principles ("GAAP") which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Funds in the preparation of these financial statements. SECURITY VALUATION: United States equity and fixed-income securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter equity and fixed-income securities and options are valued on the basis of the closing bid price. Futures contracts are valued on the basis of the last sale price. Many fixed-income securities do not trade each day and, thus, last sale or bid prices are frequently not available. Fixed-income securities, therefore, may be valued using prices provided by a pricing service when such prices are believed to reflect the fair market value of such securities. International equity and fixed-income securities traded on a national securities exchange are valued on the basis of the last sale price. International securities traded over the counter are valued on the basis of the mean of bid prices. In the absence of a last sale or mean bid price, respectively, such securities may be valued on the basis of prices provided by a pricing service if those prices are believed to reflect the fair market value of such securities. Short-term investments held by the Funds maturing within 60 days of the valuation date are valued at "amortized cost" unless the Board of Trustees determines that amortized cost does not represent fair value. The Funds may value certain securities for which market quotations are not readily available at "fair value," as determined in good faith pursuant to procedures established by the Board of Trustees. INVESTMENT TRANSACTIONS: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of specific identified cost incurred by each money manager within a particular Fund. INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Notes to Financial Statements 255 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 REVISED AICPA AUDIT AND ACCOUNTING GUIDE: In November 2001, a revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was issued, and is effective for fiscal years beginning after December 15, 2001. The revised Guide will require the Funds to classify gains and losses realized on prepayments received on mortgage-backed securities presently included in realized gain/loss, as part of interest income. Adopting this accounting principle will not affect the net asset value of the Funds, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of Operations and Changes in Net Assets. The Funds expect that the impact of the adoption of the principle of reclassifying gains and losses realized on prepayments received on mortgage-backed securities will not be material to the financial statements. AMORTIZATION AND ACCRETION: All premiums and discounts, including original issue discounts, for the Funds are amortized/ accreted for both tax and financial reporting purposes. FEDERAL INCOME TAXES: As a Massachusetts business trust, each Fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each Fund's shareholders without regard to the income and capital gains (or losses) of the other Funds. It is each Fund's intention to qualify as a regulated investment company and distribute all of its taxable income and capital gains. Therefore, no federal income tax provision was required for the Funds. At October 31, 2001, the following Funds had net tax basis capital loss carryforwards which may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first. Available capital loss carryforwards and expiration dates are as follows:
10/31/02 10/31/03 10/31/04 10/31/05 ------------ ------------ ------------ ------------ Diversified Equity $ -- $ -- $ -- $ -- Special Growth -- -- -- -- Equity Income -- -- -- -- Quantitative Equity -- -- -- -- International Securities -- -- -- -- Emerging Markets -- 2,887,175 348,806 -- Real Estate Securities -- -- -- -- Short Term Bond 5,004,287 2,834,049 1,947,924 574,853 Diversified Bond -- -- -- -- Multistrategy Bond -- -- -- -- Tax Exempt Bond -- -- 63,833 15,075 Tax-Managed Large Cap -- -- -- -- Tax-Managed Small Cap -- -- -- -- Select Growth -- -- -- -- Select Value -- -- -- -- 10/31/06 10/31/07 10/31/08 10/31/09 Totals ------------ ------------ ------------ ------------ ------------ Diversified Equity $ -- $ -- $ -- $176,093,570 $176,093,570 Special Growth -- -- -- 14,602,506 14,602,506 Equity Income -- -- 11,599,781 565,159 12,164,940 Quantitative Equity -- -- -- 110,262,910 110,262,910 International Securities -- -- -- 127,067,318 127,067,318 Emerging Markets 56,335,865 30,325,300 6,163,374 63,634,607 159,695,127 Real Estate Securities -- 15,587,051 10,165,234 -- 25,752,285 Short Term Bond 51,911 3,481,990 2,691,693 -- 16,586,707* Diversified Bond -- -- 549,836 -- 549,836 Multistrategy Bond -- 6,014,949 8,733,024 -- 14,747,973 Tax Exempt Bond 141,152 399,028 1,845,627 -- 2,464,715 Tax-Managed Large Cap 655,350 716,803 15,494,001 40,037,533 56,903,687 Tax-Managed Small Cap -- -- 6,468,429 17,757,128 24,225,557 Select Growth -- -- -- 15,489,408 15,489,408 Select Value -- -- -- 4,577,864 4,577,864
* A portion of the loss carryforward was acquired from the Volatility Constrained Bond Fund (see Note 1) and may be limited to offset future capital gains of the Fund to the extent provided by regulations. 256 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 The aggregate cost of investments and the composition of gross unrealized appreciation and depreciation of investment securities for federal income tax purposes as of October 31, 2001 are as follows:
NET GROSS GROSS UNREALIZED FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION COST APPRECIATION (DEPRECIATION) (DEPRECIATION) ---------------- -------------- ---------------- ---------------- Diversified Equity $1,076,526,767 $128,658,573 $ (49,502,187) $ 79,156,386 Special Growth 603,283,880 71,318,289 (45,188,820) 26,129,469 Equity Income 101,752,622 13,283,938 (5,302,816) 7,981,122 Quantitative Equity 1,107,376,742 213,640,535 (81,989,573) 131,650,962 International Securities 867,541,949 132,268,884 (173,307,925) (41,039,041) Emerging Markets 315,222,345 28,966,709 (64,685,464) (35,718,755) Real Estate Securities 531,900,644 94,990,697 (906,488) 94,084,209 Short Term Bond 437,935,938 12,413,678 (552,279) 11,861,399 Diversified Bond 946,139,582 19,280,190 (651,283) 18,628,907 Multistrategy Bond 754,927,154 14,804,348 (3,053,518) 11,750,830 Tax Exempt Bond 142,025,314 6,525,869 (95,536) 6,430,333 Tax-Managed Large Cap 436,052,037 64,462,102 (42,036,599) 22,425,503 Tax-Managed Small Cap 103,173,979 10,561,887 (21,228,779) (10,666,892) Select Growth 56,182,568 3,025,454 (8,691,250) (5,665,796) Select Value 70,039,469 1,621,473 (6,791,471) (5,169,998)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: For all Funds, income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly for the equity Funds, annually for the International Securities Fund and monthly for the fixed income Funds. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Funds to avoid imposition of federal income tax on any remaining undistributed capital gains and net investment income. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from GAAP. As a result, net investment income and net realized gain (or loss) on investment and foreign currency-related transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP primarily relate to investments in options, futures, forward contracts, passive foreign investment companies, foreign- denominated investments, mortgage-backed securities, certain securities sold at a loss and by recording gains and losses from securities transactions on the basis of specific identified cost incurred by each money manager for financial reporting purposes and on the basis of specific identified cost incurred by each Fund for tax purposes. The following reclassifications have been made to reflect activity for the year ended October 31, 2001:
UNDISTRIBUTED NET ACCUMULATED NET ADDITIONAL INVESTMENT INCOME REALIZED GAIN (LOSS) PAID-IN CAPITAL ----------------- ------------------- --------------- Diversified Equity $ 68,760 $ 187 $ (68,947) Special Growth 69,412 (69,412) -- Quantitative Equity 634,513 (629,986) (4,527) International Securities (6,834,058) 5,486,889 1,347,169 Emerging Markets (1,452,291) 502,650 949,641 Real Estate Securities 2,482 (4,278) 1,796 Short Term Bond 32,469 (32,469) -- Select Growth 38,004 -- (38,004) Select Value (9) 9 -- Diversified Bond 336,701 (336,701) -- Multistrategy Bond 6,159,717 (5,997,421) (162,296) Tax Exempt Bond -- (468,408) 468,408 Tax-Managed Large Cap 1,948 -- (1,948)
Notes to Financial Statements 257 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 EXPENSES: The Funds, and when appropriate each Class, will pay their own expenses other than those expressly assumed by Frank Russell Investment Management Company ("FRIMCo" or "Advisor"). Most expenses can be directly attributed to the individual Funds. Expenses which cannot be directly attributed to a specific Fund or Class are allocated among all Funds and/or Classes principally based on their relative net assets. FOREIGN CURRENCY TRANSLATIONS: The books and records of the Funds are maintained in US dollars. Foreign currency amounts and transactions of the Funds are translated into US dollars on the following basis: (a) Market value of investment securities, other assets and liabilities at the closing rate of exchange on the valuation date. (b) Purchases and sales of investment securities and income at the closing rate of exchange prevailing on the respective trade dates of such transactions. Reported net realized gains or losses from foreign currency-related transactions arise from: sales and maturities of short-term securities; sales of foreign currencies; currency gains or losses realized between the trade and settlement dates on securities transactions; the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books and the US dollar equivalent of the amounts actually received or paid. Net unrealized gains or losses from foreign currency-related transactions arise from changes in the value of assets and liabilities, other than investments in securities, at year-end, as a result of changes in the exchange rates. The Funds do not isolate that portion of the results of operations of the Funds that arises as a result of changes in exchange rates from that portion that arises from changes in market prices of investments during the year. Such fluctuations are included with the net realized and unrealized gain or loss from investments. However, for federal income tax purposes the Funds do isolate the effects of changes in foreign exchange rates from the fluctuations arising from changes in market prices for realized gain (or loss) on debt obligations. DERIVATIVES: To the extent permitted by the investment objectives, restrictions and policies set forth in the Funds' Prospectus and Statement of Additional Information, the Funds may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Funds in meeting their investment strategies. The Funds typically use derivatives in three ways: cash equitization, hedging, and return enhancement. Cash equitization is a technique that may be used by certain Funds through the use of options and futures to earn "market-like" returns with their excess and liquidity reserve cash balances. Hedging is used by some Funds to limit or control risks, such as adverse movements in exchange rates and interest rates. Return enhancement can be accomplished through the use of derivatives in a Fund. By purchasing certain instruments, Funds may more effectively achieve the desired portfolio characteristics that assist them in meeting their investment objectives. Depending on how the derivatives are structured and utilized, the risks associated with them may vary widely. These risks are generally categorized as market risk, liquidity risk and counterparty or credit risk. FOREIGN CURRENCY EXCHANGE CONTRACTS: In connection with portfolio purchases and sales of securities denominated in a foreign currency, certain Funds may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts ("contracts"). The International Securities Fund may enter into forward foreign currency overlays on liquidity reserve balances. Additionally, from time to time the International Securities, Emerging Markets, Diversified Bond and Multistrategy Bond Funds may enter into contracts to hedge certain foreign currency-denominated assets. Contracts are recorded at market value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and are generally limited to the amount of unrealized gain on the contracts, if any, that are recognized in the Statement of Assets and Liabilities. Realized gains or losses arising from such transactions are included in net realized gain (or loss) from foreign currency-related transactions. Open contracts at October 31, 2001 are presented on the Statement of Net Assets for the applicable Funds. 258 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 FORWARD COMMITMENTS: The Funds may contract to purchase securities for a fixed price at a future date beyond customary settlement time (not to exceed 120 days) (i.e., a "forward commitment", "delayed settlement" or "when issued" transaction, e.g., to be announced ("TBA")) consistent with a Fund's ability to manage its investment portfolio and meet redemption requests. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The Funds may dispose of a forward commitment transaction prior to settlement if it is appropriate to do so and realize short-term gains (or losses) upon such sale. When effecting such transactions, cash or liquid high-grade debt obligations of the Fund in a dollar amount sufficient to make payment for the portfolio securities to be purchased will be segregated on the Fund's records at the trade date and maintained until the transaction is settled. A forward commitment transaction involves a risk of loss if the value of the security to be purchased declines prior to the settlement date or the other party to the transaction fails to complete the transaction. INVESTMENT IN EMERGING MARKETS: Investing in emerging markets may involve special risks and considerations for the Emerging Markets Fund not typically associated with investing in the United States markets. These risks include revaluation of currencies, high rates of inflation, repatriation on income and capital, and future adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, delayed settlements, and their prices more volatile than those of comparable securities in the United States. OPTIONS: The Funds may purchase and sell (write) call and put options on securities and securities indices, provided such options are traded on a national securities exchange or in an over-the-counter market. These Funds may also purchase and sell call and put options on foreign currencies. The domestic equity Funds may utilize options to equitize liquidity reserve balances. When a Fund writes a covered call or a put option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. The Fund receives a premium on the sale of a call option but gives up the opportunity to profit from any increase in stock value above the exercise price of the option, and when the Fund writes a put option it is exposed to a decline in the price of the underlying security. If an option which the Fund has written either expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss, if the cost of a closing purchase transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option which the Fund has written is exercised, the Fund realizes a capital gain or loss from the sale of the underlying security, and the proceeds from such sale are increased by the premium originally received. When a put option which a Fund has written is exercised, the amount of the premium originally received will reduce the cost of the security which a Fund purchases upon exercise of the option. Realized gains (losses) on purchased options are included in net realized gain (loss) from investments. The Funds' use of written options involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The face or contract amounts of these instruments reflect the extent of the Funds' exposure to off balance sheet risk. The risks may be caused by an imperfect correlation between movements in the price of the instrument and the price of the underlying securities and interest rates. FUTURES CONTRACTS: The domestic and international equity Funds utilize futures to equitize liquidity reserve balances. Multistrategy Bond Fund may utilize futures contracts (i.e., interest rate, foreign currency and index futures contracts) to a limited extent. The face or contract amounts of these instruments reflect the extent of the Funds' exposure to off balance sheet risk. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Changes in the initial settlement values of futures contracts are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Notes to Financial Statements 259 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 3. INVESTMENT TRANSACTIONS SECURITIES: During the year ended October 31, 2001, purchases and sales of investment securities (excluding US Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were as follows: PURCHASES SALES --------------- -------------- Diversified Equity $1,888,784,125 $1,878,203,909 Special Growth 855,344,373 890,693,644 Equity Income 153,113,221 174,321,950 Quantitative Equity 1,172,792,956 1,151,105,655 International Securities 987,917,098 950,965,152 Emerging Markets 336,464,636 294,759,768 Real Estate Securities 288,060,079 398,375,460 Short-Term Bond 275,110,231 374,051,790 Diversified Bond 487,938,803 490,070,352 Multistrategy Bond 547,619,979 639,135,807 Tax Exempt Bond 49,554,749 30,105,806 Tax-Managed Large Cap 293,165,275 363,238,244 Tax-Managed Small Cap 129,875,191 107,830,300 Select Growth 144,141,761 79,150,603 Select Value 106,490,762 38,338,194 Purchases and sales of US Government and Agency obligations (excluding short-term investments, options, futures and repurchase agreements) were as follows: PURCHASES SALES ------------- ------------ Short-Term Bond $803,371,130 $733,573,967 Diversified Bond 765,269,751 792,232,289 Multistrategy Bond 640,702,933 613,357,319 WRITTEN OPTIONS CONTRACTS: Fund transactions in written options contracts for the year ended October 31, 2001 were as follows: DIVERSIFIED BOND ----------------------------- NOTIONAL VALUE(1) PREMIUMS (000) RECEIVED ----------------- --------- Outstanding October 31, 2000 $ 31,215 $ 184,180 Opened 70,101 235,694 Closed (48,759) (184,538) Expired (35,157) (175,735) -------- --------- Outstanding October 31, 2001 $ 17,400 $ 59,601 ======== ========= MULTISTRATEGY BOND ------------------------------ NOTIONAL VALUE(1) PREMIUMS (000) RECEIVED ----------------- ---------- Outstanding October 31, 2000 $ 50,859 $ 438,519 Opened 110,871 2,914,046 Closed (62,017) (383,108 Expired (53,027) (540,516 ----------- ---------- Outstanding October 31, 2001 $ 46,686 $2,428,941 =========== ========== WRITTEN OPTIONS CONTRACTS (CONTINUED) EMERGING MARKETS ----------------------------- NOTIONAL VALUE PREMIUMS (000) RECEIVED -------------- --------- Outstanding October 31, 2000 $ -- $ -- Opened 13,080 890,505 Closed (5,585) (338,881) Expired -- -- ------- --------- Outstanding October 31, 2001 $ 7,495 $ 551,624 ======= ========= (1) Each $100,000 notional value represents 1 contract. 260 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 SECURITIES LENDING: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (US currency), US Government or US Government agency obligations as collateral against the loaned securities. To the extent that a loan is collateralized by cash, such collateral shall be invested by securities lending agent in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and the securities lending agent and is recorded as income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of US securities) or 105% (for non-US securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of October 31, 2001, the value outstanding securities on loan and the value of collateral amounted to as follows: VALUE OF VALUE OF SECURITIES ON LOAN COLLATERAL ------------------ ------------- Diversified Equity $ 47,305,105 $ 49,431,786 Special Growth 56,518,992 59,695,176 Equity Income 315,168 330,903 Quantitative Equity $ 36,855,186 $ 38,453,219 Diversified Bond 76,398,419 77,713,740 As of October 31, 2001, the cash collateral received for the securities on loan are invested as follows: FRIC MONEY DEUTSCHE BANK MARKET IDA FUND (1) ------------- ------------- Diversified Equity 33,449,222 16,022,262 Special Growth 40,394,195 19,348,921 Equity Income 223,914 107,255 Quantitative Equity 26,020,307 12,463,793 Diversified Bond 50,134,627 24,014,613 (1) The Deutsche Bank IDA Fund investment balance includes pending items that account for the difference between the total amount invested and the total cash collateral amount. As of October 31, 2001, the value of the non-cash collateral received for the securities on loan in the Diversified Bond Fund is $3,624,000. The non-cash collateral consists of a pool of U.S. Government securities. 4. RELATED PARTIES ADVISOR AND ADMINISTRATOR: FRIMCo advises and administers all of the Funds which comprise the Investment Company. FRIMCo is a wholly-owned subsidiary of Frank Russell Company, a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company. Frank Russell Company researches and recommends to FRIMCo, and to the Investment Company, one or more investment management organizations to manage the portfolio of each Fund. The Funds are permitted to invest their cash reserves (i.e., monies awaiting investment in portfolio securities suitable for the Funds' objectives) in the Frank Russell Investment Company Money Market Fund (a series of the Investment Company not presented herein). As of October 31, 2001, $480,443,000 of the Money Market Fund's net assets represents investments by these Funds and $585,964,000 represents the investments of other affiliated Funds not presented herein. In addition, a portion of the collateral received from the Investment Company's securities lending program in the amount of $345,000,000 is invested in the Money Market Fund. Notes to Financial Statements 261 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 The advisory and administrative fees, which are based upon the average daily net assets of each Fund and the rates specified in the table below, are payable monthly and total $59,734,448 and $4,643,475, respectively, for the year ended October 31, 2001. FRIMCo reduces its advisory fees for each Fund by advisory fees incurred on assets invested in the Money Market Fund. ANNUAL RATE ------------------------------- ADVISOR ADMINISTRATOR ----------- ----------------- Diversified Equity 0.73% 0.05% Special Growth 0.90 0.05 Equity Income 0.75 0.05 Quantitative Equity 0.73 0.05 International Securities 0.90 0.05 Emerging Markets 1.15 0.05 Real Estate Securities 0.80 0.05 Short Term Bond 0.45 0.05 Diversified Bond 0.40 0.05 Multistrategy Bond 0.60 0.05 Tax Exempt Bond 0.30 0.05 Tax-Managed Large Cap 0.70 0.05 Tax-Managed Small Cap 0.98 0.05 Select Growth 0.80 0.05 Select Value 0.70 0.05 The Advisor has contractually agreed to waive up to the full amount of its 1.03% combined advisory and administrative fees for the Tax-Managed Small Cap Fund, and to reimburse the Fund to the extent that Fund level expenses exceed 1.25% of the Fund's average daily net assets on an annual basis. The total amount of the waiver for the year ended October 31, 2001 was $313,137. The Advisor has contractually agreed to waive up to the full amount of its 0.50% combined advisory and administrative fees for the Short Term Bond Fund, and to reimburse the Fund to the extent that fund level expenses exceed 0.52% of the Fund's average daily net assets on an annual basis. The total amount of the waiver for the year ended October 31, 2001 was $575,014. There were no reimbursements for the year ended October 31, 2001. Effective December 7, 2000 the Advisor has contractually agreed to waive up to the full amount of its 0.85% combined advisory and administrative fees for the Select Growth Fund, and to reimburse the Fund to the extent that Fund level expenses exceed 0.83% of the Fund's average daily net assets on an annual basis. The total amount of the waiver for the year ended October 31, 2001 was $306,973. There were no reimbursements for the year ended October 31, 2001. Effective December 7, 2000 the Advisor has contractually agreed to waive up to the full amount of its 0.75% combined advisory and administrative fees for the Select Value Fund, and to reimburse the Fund to the extent that Fund level expenses exceed 0.73% of the Fund's average daily net assets on an annual basis. The total amount of the waiver for the year ended October 31, 2001 was $275,006. There were no reimbursements for the year ended October 31, 2001. In accordance with the special servicing agreement entered into in February 1999 by the Advisor, the Fund of Funds (a group of five LifePoints and the Tax-Managed Global Equity Fund which invest in a combination of Class S shares of the Investment Company's portfolios) and the Funds listed below, with the exception of the Equity Income Fund and the Tax-Exempt Bond Fund, the "Underlying Funds" in which the Fund of Funds invest, expenses from the operation of the Fund of Funds are borne by the Underlying Funds based on each Underlying Fund's proportionate share of assets owned by the Fund of Funds. No Underlying Funds will be charged expenses that exceed the estimated savings to each respective Underlying Fund. These estimated savings result from the elimination of separate shareholder accounts which either currently are or have potential to be invested in the Underlying Funds. In the event that the financial benefits to the Underlying Funds do not exceed aggregate expenses of any Fund of Fund, the Advisor will reimburse the respective Underlying Funds. For the year ended October 31, 2001, the special servicing expense charged to the Underlying Funds amounted to: AMOUNT UNDERLYING FUNDS PAID --------------------------- -------------- Diversified Equity $ 435,543 Special Growth 163,567 Quantitative Equity 462,616 International Securities 390,372 Emerging Markets 100,073 Real Estate Securities 121,173 Short Term Bond 81,476 Diversified Bond 258,442 Multistrategy Bond 225,283 Tax-Managed Large Cap 25,714 Tax-Managed Small Cap 25,714 262 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 CUSTODIAN: The Funds have entered into arrangements with their Custodian whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Funds' expenses. During the year ended October 31, 2001 the Fund's custodian fees were reduced by the following amounts under these arrangements: Diversified Equity $ 14,471 Diversified Bond $ 37,431 Special Growth 9,122 Multistrategy Bond 35,346 Equity Income 463 Tax Exempt Bond 3,616 Quantitative Equity 3,706 Tax-Managed Large Cap 638 International Securities 11,737 Tax-Managed Small Cap 1,086 Emerging Markets 12,163 Select Growth 669 Real Estate Securities 6,486 Select Value 656 Short Term Bond 25,427 ANALYTIC SERVICES: Fees for analytic services provided to the Funds are paid or accrued to Russell/Mellon Analytical Services, an affiliate of the Investment Company. Russell/Mellon Analytical Services provides TruVP System to the Funds, pursuant to a written Service Agreement. The TruVP System provides analytics used by the investment department. Total fees for the Funds reported herein for the year ended October 31, 2001 were $169,082. TRANSFER AGENT: The Funds have a contract with FRIMCo to provide transfer agent services to the Investment Company. Total fees for the Funds reported herein for the year ended October 31, 2001 were $12,025,885. In addition, FRIMCo has contractually agreed to waive a portion of its transfer agency fees to the extent that those fees would affect "Other Expenses" of certain Funds by one basis point of more. The total transfer agent fee waiver for the year ended October 31, 2001 were as follows: TA Fee Fund Waiver Amount - ------------- ------------- Select Value $ 9,614 Select Growth 9,250 DISTRIBUTOR AND SHAREHOLDER SERVICING: The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of FRIMCo, or any Selling Agents, as defined in the Plan, an amount (the "12b-1 Fee") for sales support services provided, and related expenses incurred which are primarily intended to result in the sale of the Class C shares subject to the Distribution Plan. The 12b-1 distribution payments shall not exceed 0.75% of the average daily net assets of a Fund's Class C shares on an annual basis. In addition, the Investment Company has adopted a Shareholder Services Plan (the "Services Plan") under which the Funds may make payments to the Distributor or any Servicing Agent for any activities or expenses primarily intended to assist, support or service the Servicing Agents' clients who beneficially own Class E and Class C shares of the Funds. The shareholder servicing payments shall not exceed 0.25% of the average daily net assets of a Fund's Class E and Class C shares on an annual basis. BROKERAGE COMMISSIONS: The Funds may effect portfolio transactions through Frank Russell Securities, Inc., an affiliate of the Advisor, when a money manager determines that the Fund will receive competitive execution, price, and commissions. Amounts retained by Frank Russell Securities, Inc. for the year ended October 31, 2001 were as follows: Underlying Funds Amount Underlying Funds Amount - ------------------------ ---------- ---------------------- -------- Diversified Equity $ 29,482 Emerging Markets $ 38,307 Special Growth 16,171 Real Estate Securities 23,722 Equity Income 4,289 Tax Managed Large Cap 1,929 Quantitative Equity 13,901 Select Growth 4,957 International Securities 125,178 Select Value 3,257 Additionally, the Funds paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to the Advisor. BOARD OF TRUSTEES: The Investment Company pays each of its Trustees not affiliated with FRIMCo a retainer of $55,000 per year plus out-of-pocket expenses. Total Trustee expenses for the year ended October 31, 2001 were $249,592, and were allocated to each Fund, where appropriate, on a pro rata basis. Notes to Financial Statements 263 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 5. FUND SHARE TRANSACTIONS Share transactions for the year ended October 31, 2001, the ten months ended October 31, 2000 and the year ended December 31, 1999 were as follows:
Shares Dollars (000) ------------------------------------ ---------------------------------- DIVERSIFIED EQUITY 2001 2000 1999 2001 2000 1999 ---------- ---------- ---------- --------- --------- --------- CLASS C (a) Proceeds from shares sold 230,458 197,825 283,102 $ 9,785 $ 10,109 $ 15,432 Proceeds from reinvestment of distributions 2,897 7,426 24,102 127 360 1,252 Payments for shares redeemed (98,508) (48,986) (34,012) (4,199) (2,517) (1,856) ---------- ---------- ---------- --------- --------- --------- Net increase (decrease) 134,847 156,265 273,192 5,713 7,952 14,828 ---------- ---------- ---------- --------- --------- --------- CLASS E Proceeds from shares sold 464,640 189,781 184,280 19,882 9,750 9,964 Proceeds from reinvestment of distributions 3,339 7,099 23,961 144 349 1,251 Payments for shares redeemed (208,224) (45,922) (145,404) (9,025) (2,334) (8,037) ---------- ---------- ---------- --------- --------- --------- Net increase (decrease) 259,755 150,958 62,837 11,001 7,765 3,178 ---------- ---------- ---------- --------- --------- --------- CLASS S Proceeds from shares sold 8,758,504 6,923,099 8,172,792 372,636 354,896 440,700 Proceeds from reinvestment of distributions 211,490 654,758 2,438,734 9,069 32,100 127,171 Payments for shares redeemed (8,178,277) (6,476,771) (8,318,075) (347,412) (333,224) (450,865) ---------- ---------- ---------- --------- --------- --------- Net increase (decrease) 791,717 1,101,086 2,293,451 34,293 53,772 117,006 ---------- ---------- ---------- --------- --------- --------- Total increase (decrease) 1,186,319 1,408,309 2,629,480 $ 51,007 $ 69,489 $ 135,012 ========== ========== ========== ========= ========= ========= Shares Dollars (000) ------------------------------------ ---------------------------------- SPECIAL GROWTH 2001 2000 1999 2001 2000 1999 ---------- ---------- ---------- --------- --------- --------- CLASS C (a) Proceeds from shares sold 107,466 98,773 130,681 $ 4,466 $ 4,960 $ 5,765 Proceeds from reinvestment of distributions 31,189 3,788 7,607 1,301 183 342 Payments for shares redeemed (37,830) (15,961) (14,078) (1,596) (795) (629) ---------- ---------- ---------- --------- --------- --------- Net increase (decrease) 100,825 86,600 124,210 4,171 4,348 5,478 ---------- ---------- ---------- --------- --------- --------- CLASS E Proceeds from shares sold 223,652 100,328 96,481 9,707 5,103 4,107 Proceeds from reinvestment of distributions 27,857 3,272 6,816 1,181 159 308 Payments for shares redeemed (149,838) (27,964) (134,930) (6,548) (1,411) (5,986) ---------- ---------- ---------- --------- --------- --------- Net increase (decrease) 101,671 75,636 (31,633) 4,340 3,851 (1,571) ---------- ---------- ---------- --------- --------- --------- CLASS S Proceeds from shares sold 4,289,104 3,413,882 5,069,523 185,419 174,926 222,630 Proceeds from reinvestment of distributions 1,640,577 314,496 743,772 70,693 15,527 34,121 Payments for shares redeemed (4,780,046) (3,443,606) (5,387,701) (208,642) (177,146) (238,216) ---------- ---------- ---------- --------- --------- --------- Net increase (decrease) 1,149,635 284,772 425,594 47,470 13,307 18,535 ---------- ---------- ---------- --------- --------- --------- Total increase (decrease) 1,352,131 447,008 518,171 $ 55,981 $ 21,506 $ 22,442 ========== ========= ========== ========= ========= =========
(a) Share transactions for Class C are for the period January 27, 1999 (commencement of sale) to December 31, 1999. 264 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001
SHARES DOLLARS (000) --------------------------------------- -------------------------------------- EQUITY INCOME 2001 2000 1999 2001 2000 1999 ----------- ----------- ----------- ---------- ---------- ----------- CLASS C (a) Proceeds from shares sold 9,306 12,816 37,194 $ 319 $ 448 $ 1,522 Proceeds from reinvestment of distributions -- 171 1,899 -- 6 68 Payments for shares redeemed (3,269) (11,688) (12,211) (113) (404) (479) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) 6,037 1,299 26,882 206 50 1,111 ----------- ----------- ----------- ---------- ---------- ---------- CLASS E Proceeds from shares sold 34,360 11,622 20,927 1,224 407 855 Proceeds from reinvestment of distributions 88 294 2,209 3 10 81 Payments for shares redeemed (34,247) (10,752) (12,573) (1,216) (370) (522) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) 201 1,164 10,563 11 47 414 ----------- ----------- ----------- ---------- ---------- ---------- CLASS S Proceeds from shares sold 1,194,923 1,077,300 1,558,390 41,620 37,308 62,668 Proceeds from reinvestment of distributions 18,288 49,815 487,753 623 1,665 18,019 Payments for shares redeemed (1,881,238) (2,100,815) (3,052,584) (64,995) (72,406) (121,986) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) (668,027) (973,700) (1,006,441) (22,752) (33,433) (41,299) ----------- ----------- ----------- ---------- ---------- ---------- Total increase (decrease) (661,789) (971,237) (968,996) $ 22,535) $(33,336) $ (39,774) ========== =========== =========== ========== ========== ========== QUANTITATIVE EQUITY CLASS C (a) Proceeds from shares sold 239,209 208,443 312,907 $ 8,681 $ 9,158 $ 14,227 Proceeds from reinvestment of distributions 16,688 7,290 29,988 646 296 1,297 Payments for shares redeemed (89,051) (41,533) (39,969) (3,312) (1,834) (1,831) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) 166,846 174,200 302,926 6,015 7,620 13,693 ----------- ----------- ----------- ---------- ---------- ---------- CLASS E Proceeds from shares sold 598,117 201,200 98,189 22,163 8,969 4,483 Proceeds from reinvestment of distributions 13,239 4,356 20,011 513 180 868 Payments for shares redeemed (223,924) (35,574) (117,457) (8,417) (1,568) (5,392) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) 387,432 169,982 743 14,259 7,581 (41) ----------- ----------- ----------- ---------- ---------- ---------- CLASS S Proceeds from shares sold 10,479,081 7,964,248 10,418,764 388,643 350,749 468,516 Proceeds from reinvestment of distributions 1,027,396 688,453 3,368,265 39,774 28,459 146,301 Payments for shares redeemed (9,574,644) (7,683,282) (10,546,550) (356,590) (339,916) (476,897) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) 1,931,833 969,419 3,240,479 71,827 39,292 137,920 ----------- ----------- ----------- ---------- ---------- ---------- Total increase (decrease) 2,486,111 1,313,601 3,544,148 $ 92,101 $ 54,493 $ 151,572 ========== =========== =========== ========== ========== ==========
(a) Share transactions for Class C are for the period January 27, 1999 (commencement of sale) to December 31, 1999. Notes to Financial Statements 265 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001
SHARES DOLLARS (000) -------------------------------------- -------------------------------------- INTERNATIONAL SECURITIES 2001 2000 1999 2001 2000 1999 ----------- ---------- ----------- ----------- ---------- ----------- CLASS C (a) Proceeds from shares sold 112,217 99,230 107,715 $ 5,942 $ 6,873 $ 6,967 Proceeds from reinvestment of distributions 9,299 4,154 4,664 542 291 329 Payments for shares redeemed (31,169) (14,645) (11,427) (1,676) (1,007) (759) ----------- ---------- ----------- ----------- ---------- ----------- Net increase (decrease) 90,347 88,739 100,952 4,808 6,157 6,537 ----------- ---------- ----------- ----------- ---------- ----------- CLASS E Proceeds from shares sold 261,994 95,935 45,491 14,035 6,553 2,885 Proceeds from reinvestment of distributions 8,075 2,649 3,442 478 187 245 Payments for shares redeemed (78,019) (15,085) (47,879) (4,300) (1,024) (3,102) ----------- ---------- ----------- ----------- ---------- ----------- Net increase (decrease) 192,050 83,499 1,054 10,213 5,716 28 ----------- ---------- ----------- ----------- ---------- ----------- CLASS S Proceeds from shares sold 7,090,493 4,547,192 4,491,720 390,986 317,087 289,151 Proceeds from reinvestment of distributions 582,973 428,653 642,480 34,657 30,263 45,572 Payments for shares redeemed (6,627,569) (3,357,316) (5,502,727) (364,926) (234,553) (357,980) ----------- ---------- ----------- ----------- ---------- ----------- Net increase (decrease) 1,045,897 1,618,529 (368,527) 60,717 112,797 (23,257) ----------- ---------- ----------- ----------- ---------- ----------- Total increase (decrease) 1,328,294 1,790,767 (266,521) $ 75,738 $ 124,670 $ (16,692) =========== ========== =========== =========== ========== =========== EMERGING MARKETS CLASS C (a) Proceeds from shares sold 137,117 140,959 147,290 $ 1,123 $ 1,606 $ 1,466 Proceeds from reinvestment of distributions -- 228 45 -- 3 -- Payments for shares redeemed (35,899) (28,302) (16,617) (284) (319) (167) ----------- ---------- ----------- ----------- ---------- ----------- Net increase (decrease) 101,218 112,885 130,718 839 1,290 1,299 ----------- ---------- ----------- ----------- ---------- ----------- CLASS E Proceeds from shares sold 567,859 288,875 852,482 4,705 3,222 8,575 Proceeds from reinvestment of distributions -- 1,435 1,091 -- 19 13 Payments for shares redeemed (266,754) (103,971) (353,467) (2,184) (1,246) (3,674) ----------- ---------- ----------- ----------- ---------- ----------- Net increase (decrease) 301,105 186,339 500,106 2,521 1,995 4,914 ----------- ---------- ----------- ----------- ---------- ----------- CLASS S Proceeds from shares sold 16,388,682 13,110,992 14,900,682 135,632 150,574 140,982 Proceeds from reinvestment of distributions 424 131,179 281,096 3 1,688 2,639 Payments for shares redeemed (16,408,954) (8,818,705) (15,483,258) (136,160) (100,976) (152,294) ----------- ---------- ----------- ----------- ---------- ----------- Net increase (decrease) (19,848) 4,423,466 (301,480) (525) 51,286 (8,673) ----------- ---------- ----------- ----------- ---------- ----------- Total increase (decrease) 382,475 4,722,690 329,344 $ 2,835 $ 54,571 $ (2,460) =========== ========== =========== =========== ========== ===========
(a) Share transactions for Class C are for the period January 27, 1999 (commencement of sale) to December 31, 1999. 266 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001
SHARES DOLLARS (000) ----------------------------------------- ------------------------------------- REAL ESTATE SECURITIES 2001 2000 1999 2001 2000 1999 ----------- ---------- ----------- --------- ---------- ---------- CLASS C (a) Proceeds from shares sold 103,276 64,749 84,921 $ 2,875 $ 1,594 $ 2,034 Proceeds from reinvestment of distributions 6,912 3,034 2,678 192 76 59 Payments for shares redeemed (29,021) (14,954) (9,550) (804) (367) (227) ----------- ---------- ----------- --------- ---------- ---------- Net increase (decrease) 81,167 52,829 78,049 2,263 1,303 1,866 ----------- ---------- ----------- --------- ---------- ---------- CLASS E Proceeds from shares sold 212,123 142,796 378,070 5,932 3,584 9,451 Proceeds from reinvestment of distributions 16,648 9,694 13,837 465 243 312 Payments for shares redeemed (156,979) (117,101) (113,177) (4,398) (2,906) (2,588) ----------- ---------- ----------- --------- ---------- ---------- Net increase (decrease) 71,792 35,389 278,730 1,999 921 7,175 ----------- ---------- ----------- --------- ---------- ---------- CLASS S Proceeds from shares sold 5,249,657 6,443,988 10,307,873 147,150 156,960 247,786 Proceeds from reinvestment of distributions 928,495 687,466 1,500,692 26,005 17,315 34,444 Payments for shares redeemed (9,472,152) (7,381,200) (9,610,223) (265,634) (183,340) (227,746) ----------- ---------- ----------- --------- ---------- ---------- Net increase (decrease) (3,294,000) (249,746) 2,198,342 (92,479) (9,065) 54,484 ----------- ---------- ----------- --------- ---------- ---------- Total increase (decrease) (3,141,041) (161,528) 2,555,121 $ (88,217) $ (6,841) $ 63,525 =========== ========== =========== ========= ========== ========== SHORT-TERM BOND CLASS C (b) Proceeds from shares sold 78,584 22,477 104,488 $ 1,467 $ 408 $ 1,907 Proceeds from reinvestment of distributions 2,381 1,599 1,225 44 29 22 Payments for shares redeemed (27,890) (31,409) (61,555) (514) (571) (1,119) ----------- ---------- ----------- --------- ---------- ---------- Net increase (decrease) 53,075 (7,333) 44,158 997 (134) 810 ----------- ---------- ----------- --------- ---------- ---------- CLASS E (c) Proceeds from shares sold 564,628 116,497 550,310 10,581 2,122 10,084 Proceeds from reinvestment of distributions 36,645 22,134 14,963 680 401 271 Payments for shares redeemed (214,143) (76,745) (84,513) (4,004) (1,395) (1,538) ----------- ---------- ----------- ---------- ---------- ---------- Net increase (decrease) 387,130 61,886 480,760 7,257 1,128 8,817 ----------- ---------- ----------- --------- ---------- ---------- CLASS S Proceeds from shares sold 8,965,303 6,650,792 12,497,701 167,732 120,544 229,357 Shares issued in connection with acquisition of Volatility Constrained Bond Fund -- -- 8,934,738 -- -- 163,684 Proceeds from reinvestment of distributions 970,821 866,714 1,023,507 17,951 15,671 18,557 Payments for shares redeemed (12,032,878) (9,120,589) (11,748,485) (224,412) (165,693) (214,600) ----------- ---------- ----------- --------- ---------- ---------- Net increase (decrease) (2,096,754) (1,603,083) 10,707,461 (38,729) (29,478) 196,998 ----------- ---------- ----------- --------- ---------- ---------- Total increase (decrease) (1,656,549) (1,548,530) 11,232,379 $ (30,475) $ (28,484) $ 206,625 =========== ========== =========== ========= ========== ==========
(a) Share transactions for Class C are for the period January 27, 1999 (commencement of sale) to December 31, 1999. (b) Share transactions for Class C are for the period March 3, 1999 (commencement of sale) to December 31, 1999. (c) Share transactions for Class E are for the period February 18, 1999 (commencement of sale) to December 31, 1999. Notes to Financial Statements 267 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001
SHARES DOLLARS (000) ----------------------------------------- -------------------------------------- DIVERSIFIED BOND 2001 2000 1999 2001 2000 1999 ----------- ----------- ----------- ---------- ---------- ---------- CLASS C (a) Proceeds from shares sold 339,608 153,720 229,269 $ 7,991 $ 3,446 $ 5,279 Proceeds from reinvestment of distributions 18,406 9,351 4,803 430 209 109 Payments for shares redeemed (66,549) (50,119) (24,874) (1,564) (1,116) (564) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) 291,465 112,952 209,198 6,857 2,539 4,824 ----------- ----------- ----------- ---------- ---------- ---------- CLASS E Proceeds from shares sold 653,827 108,553 143,481 15,438 2,439 3,337 Proceeds from reinvestment of distributions 21,055 7,766 9,869 494 174 226 Payments for shares redeemed (192,408) (38,548) (186,265) (4,538) (863) (4,229) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) 482,474 77,771 (32,915) 11,394 1,750 (666) ----------- ----------- ----------- ---------- ---------- ---------- CLASS S Proceeds from shares sold 8,694,081 8,152,464 15,223,893 200,045 178,255 346,136 Proceeds from reinvestment of distributions 1,002,327 900,230 1,396,770 22,906 19,707 31,387 Payments for shares redeemed (10,710,798) (12,206,800) (15,825,030) (246,481) (267,427) (356,343) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) (1,014,390) (3,154,106) 795,633 (23,530) (69,465) 21,180 ----------- ----------- ----------- ---------- ---------- ---------- Total increase (decrease) (240,451) (2,963,383) 971,916 $ (5,279) $ (65,176) $ 25,338 =========== =========== =========== ========== ========== ========== MULTISTRATEGY BOND CLASS C (a) Proceeds from shares sold 620,916 520,921 775,114 $ 6,129 $ 4,950 $ 7,565 Proceeds from reinvestment of distributions 61,240 36,812 14,479 600 350 139 Payments for shares redeemed (254,709) (128,260) (85,733) (2,514) (1,214) (826) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) 427,447 429,473 703,860 4,215 4,086 6,878 ----------- ----------- ----------- ---------- ---------- ---------- CLASS E Proceeds from shares sold 1,167,068 344,280 198,146 11,535 3,287 1,968 Proceeds from reinvestment of distributions 51,741 19,789 17,908 508 188 174 Payments for shares redeemed (621,025) (63,444) (131,598) (6,163) (602) (1,294) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) 597,784 300,625 84,456 5,880 2,873 848 ----------- ----------- ----------- ---------- ---------- ---------- CLASS S Proceeds from shares sold 14,416,410 17,206,474 23,568,739 142,069 162,990 231,504 Proceeds from reinvestment of distributions 2,485,924 2,083,567 2,582,271 24,354 19,762 25,159 Payments for shares redeemed (17,658,846) (16,462,730) (21,484,524) (174,190) (156,218) (210,088) ----------- ----------- ----------- ---------- ---------- ---------- Net increase (decrease) (756,512) 2,827,311 4,666,486 (7,767) 26,534 46,575 ----------- ----------- ----------- ---------- ---------- ---------- Total increase (decrease) 268,719 3,557,409 5,454,802 $ 2,328 $ 33,493 $ 54,301 =========== =========== =========== ========== ========== ==========
(a) Share transactions for Class C are for the period January 27, 1999 (commencement of sale) to December 31, 1999. 268 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001
SHARES DOLLARS (000) -------------------------------------- ------------------------------------ 2001 2000 1999 2001 2000 1999 ------------ ---------- ---------- ---------- ---------- ---------- TAX MANAGED LARGE CAP CLASS C (a) Proceeds from shares sold 265,928 312,797 16,790 $ 4,882 $ 6,423 $ 350 Proceeds from reinvestment of distributions -- 15 54 -- 1 1 Payments for shares redeemed (96,916) (8,434) (2,291) (1,729) (182) (48) ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) 169,012 304,378 14,553 3,153 6,242 303 ----------- ---------- ---------- ---------- ---------- ---------- CLASS E (b) Proceeds from shares sold 218,119 -- -- 4,016 -- -- Proceeds from reinvestment of distributions 28 -- -- 1 -- -- Payments for shares redeemed (5,291) -- -- (91) -- -- ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) 212,856 -- -- 3,926 -- -- ----------- ---------- ---------- ---------- ---------- ---------- CLASS S Proceeds from shares sold 8,792,604 9,157,756 12,066,862 159,338 189,727 237,975 Proceeds from reinvestment of distributions 139,710 6,754 121,536 2,668 131 2,510 Payments for shares redeemed (12,883,890) (3,579,786) (2,179,216) (230,716) (73,799) (43,064) ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) (3,951,576) 5,584,724 10,009,182 (68,710) 116,059 197,421 ----------- ---------- ---------- ---------- ---------- ---------- Total increase (decrease) (3,569,708) 5,889,102 10,023,735 $ (61,631) $ 122,301 $ 197,724 =========== ========== ========== ========== ========== ========== TAX MANAGED SMALL CAP CLASS C (a) Proceeds from shares sold 173,113 228,528 23,465 $ 1,602 $ 2,584 $ 240 Proceeds from reinvestment of distributions -- 43 -- -- -- -- Payments for shares redeemed (50,117) (31,322) (2,761) (465) (352) (29) ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) 122,996 197,249 20,704 1,137 2,232 211 ----------- ---------- ---------- ---------- ---------- ---------- CLASS E (b) Proceeds from shares sold 140,876 -- -- 1,352 -- -- Proceeds from reinvestment of distributions -- -- -- -- -- -- Payments for shares redeemed (36,248) -- -- (285) -- -- ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) 104,628 -- -- 1,067 -- -- ----------- ---------- ---------- ---------- ---------- ---------- CLASS S (c) Proceeds from shares sold 8,998,145 7,159,888 2,756,585 83,585 81,153 27,852 Proceeds from reinvestment of distributions -- 2,801 -- -- 32 -- Payments for shares redeemed (7,231,736) (400,912) (48,728) (63,746) (4,519) (488) ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) 1,766,409 6,761,777 2,707,857 19,839 76,666 27,364 ----------- ---------- ---------- ---------- ---------- ---------- Total increase (decrease) 1,994,033 6,959,026 2,728,561 $ 22,043 $ 78,898 $ 27,575 =========== ========== ========== ========== ========== ==========
(a) Share transactions for Class C are for the period December 1, 1999 (commencement of sale) to December 31, 1999. (b) Share transactions for Class E are for the period December 8, 2000 (commencement of sale) to October 31, 2001. (c) Share transactions for Class S are for the period December 1, 1999 (commencement of sale) to December 31, 1999. Notes to Financial Statements 269 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001
SHARES DOLLARS (000) ---------------------------------- ------------------------------ 2001 2000 1999 2001 2000 1999 ---------- ---------- ---------- -------- -------- -------- TAX EXEMPT BOND CLASS C (a) Proceeds from shares sold 74,211 22,332 34,719 $ 1,578 $ 457 $ 722 Proceeds from reinvestment of distributions 1,875 740 320 40 16 7 Payments for shares redeemed (10,231) (8,822) (11,856) (218) (181) (243) ---------- ---------- ---------- -------- -------- -------- Net increase (decrease) 65,855 14,250 23,183 1,400 292 486 ---------- ---------- ---------- -------- -------- -------- CLASS E (b) Proceeds from shares sold 184,936 64,102 292,005 3,956 1,309 6,103 Proceeds from reinvestment of distributions 3,913 700 626 84 15 13 Payments for shares redeemed (60,599) (39,101) (153,223) (1,298) (806) (3,153) ---------- ---------- ---------- -------- -------- -------- Net increase (decrease) 128,250 25,701 139,408 2,742 518 2,963 ---------- ---------- ---------- -------- -------- -------- CLASS S Proceeds from shares sold 2,643,162 3,231,422 4,520,673 56,321 66,192 95,714 Proceeds from reinvestment of distributions 231,171 169,294 211,531 4,902 3,473 4,417 Payments for shares redeemed (2,624,376) (3,279,140) (4,689,527) (55,780) (67,442) (98,546) ---------- ---------- ---------- -------- -------- -------- Net increase (decrease) 249,957 121,576 42,677 5,443 2,223 1,585 ---------- ---------- ---------- -------- -------- -------- Total increase (decrease) 444,062 161,527 205,268 $ 9,585 $ 3,033 $ 5,034 ========== ========== ========== ======== ======== ========
SHARES DOLLARS (000) ---------- ------------- 2001 2001 ---------- ------------- SELECT GROWTH (c) CLASS C Proceeds from shares sold 166,964 $ 1,561 Proceeds from reinvestment of distributions -- -- Payments for shares redeemed (13,972) (102) --------- --------- Net increase (decrease) 152,992 1,459 --------- --------- CLASS E Proceeds from shares sold 406,916 3,499 Proceeds from reinvestment of distributions -- -- Payments for shares redeemed (735) (6) --------- --------- Net increase (decrease) (406,191) 3,493 --------- --------- CLASS I Proceeds from shares sold 3,258,910 31,629 Proceeds from reinvestment of distributions -- -- Payments for shares redeemed (123,313) (842) --------- --------- Net increase (decrease) 3,135,597 30,787 --------- --------- CLASS S Proceeds from shares sold 3,737,572 35,271 Proceeds from reinvestment of distributions -- -- Payments for shares redeemed (148,910) (969) --------- --------- Net increase (decrease) 3,588,662 34,302 --------- --------- Total increase (decrease) 7,283,442 $ 70,041 ========= ========= (a) Share transactions for Class C are for the period March 29, 1999 (commencement of sale) to December 31, 1999. (b) Share transactions for Class E are for the period May 14, 1999 (commencement of sale) to December 31, 1999. (c) Share transactions are for the period January 31, 2001 (commencement of operations) to October 31, 2001. 270 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 SHARES DOLLARS (000) --------- ------------- 2001 2001 --------- ------------- SELECT VALUE (a) CLASS C Proceeds from shares sold 223,038 $ 2,153 Proceeds from reinvestment of distributions 181 2 Payments for shares redeemed (6,468) (55) --------- -------- Net increase (decrease) 216,751 2,100 --------- -------- CLASS E Proceeds from shares sold 394,890 3,786 Proceeds from reinvestment of distributions 811 7 Payments for shares redeemed (25,822) (250) --------- -------- Net increase (decrease) 369,879 3,543 --------- -------- CLASS I Proceeds from shares sold 3,434,442 33,635 Proceeds from reinvestment of distributions 19,957 180 Payments for shares redeemed (58,864) (515) --------- -------- Net increase (decrease) 3,395,535 33,300 --------- -------- CLASS S Proceeds from shares sold 3,961,683 38,602 Proceeds from reinvestment of distributions 24,255 216 Payments for shares redeemed (317,533) (2,826) --------- -------- Net increase (decrease) 3,668,405 35,992 --------- -------- Total increase (decrease) 7,650,570 $ 74,935 ========= ======== (a) Share transactions are for the period January 31, 2001 (commencement of operations) to October 31, 2001. 6. LINE OF CREDIT The Investment Company (the "Participants"), excluding Select Growth Fund and Select Value Fund, share in a $75 million revolving credit facility for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee of .125% on the average daily unused amount of the aggregate commitment, which is allocated among each of the Participants. Interest, at the Federal Fund Rate plus .50% annually, is calculated based on the market rates at the time of the borrowing. The Funds may borrow up to a maximum of 33.33% of the value of their net assets under the agreement. The agreement will expire December 27, 2001. The Funds did not have any drawdowns for the year ended October 31, 2001. Notes to Financial Statements 271 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED October 31, 2001 7. DIVIDENDS On November 1, 2001 and December 6, 2001, the Funds declared the following dividends from net investment income payable on November 6, 2001 and December 11, 2001, to shareholders of record on November 2, 2001 and December 7, 2001, respectively. NOVEMBER 2001 ------------- Diversified Bond - Class C $ 0.0749 Diversified Bond - Class E 0.0681 Diversified Bond - Class S 0.0944 Multistrategy Bond - Class C 0.0357 Multistrategy Bond - Class E 0.0419 Multistrategy Bond - Class S 0.0440 Tax Exempt Bond - Class C 0.0547 Tax Exempt Bond - Class E 0.0681 Tax Exempt Bond - Class S 0.0727 DECEMBER 2001 ------------- Diversified Bond - Class C $ 0.0810 Diversified Bond - Class E 0.0959 Diversified Bond - Class S 0.1017 Multistrategy Bond - Class C 0.1165 Multistrategy Bond - Class E 0.1232 Multistrategy Bond - Class S 0.1255 Tax Exempt Bond - Class C 0.0533 Tax Exempt Bond - Class E 0.0676 Tax Exempt Bond - Class S 0.0727 Short Term Bond - Class C 0.2046 Short Term Bond - Class E 0.2347 Short Term Bond - Class S 0.2469 8. BENEFICIAL INTEREST As of October 31, 2001, the following Funds have one or more shareholders with shares of beneficial interest greater than 10% of the total outstanding shares of each respective Fund: % % % ------ ------ ------ Diversified Equity 16.2 -- -- Special Growth 20.8 -- -- Equity Income 16.8 -- -- Quantitative Equity 17.7 -- -- International Securities 16.6 -- -- Emerging Markets 25.0 -- -- Real Estate Securities 28.6 -- -- Short Term Bond 23.7 -- -- Diversified Bond 18.4 17.7 10.9 Multistrategy Bond 23.9 14.1 10.1 Tax Exempt Bond 47.7 -- -- Tax-Managed Large Cap 35.8 14.4 -- Tax-Managed Small Cap 37.0 -- -- Select Growth 82.5 -- -- Select Value 66.0 13.1 -- 272 Notes to Financial Statements REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Shareholders of Frank Russell Investment Company: In our opinion, the accompanying statements of assets and liabilities, including the statements of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the series of Frank Russell Investment Company (in this report comprised of Diversified Equity, Special Growth, Equity Income, Quantitative Equity, International Securities, Emerging Markets, Real Estate Securities, Short Term Bond, Diversified Bond, Multistrategy Bond, Tax Exempt Bond, Tax-Managed Large Cap, Tax-Managed Small Cap, Select Growth, and Select Value (the "Funds")) at October 31, 2001, the results of each of their operations, the changes in each of their net assets and the financial highlights for the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2001 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. [GRAPHIC] Seattle, Washington December 14, 2001 Report of Independent Accountants 273 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS TAX INFORMATION October 31, 2001 (Unaudited) Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the following amounts as long-term capital gain dividends for their taxable year ended October 31, 2001: TOTAL LONG-TERM CAPITAL GAINS ----------------- Diversified Equity $ 7,095,934 Special Growth 65,356,872 Quantitative Equity 45,634,022 International Securities 40,934,346 Of the dividends paid by the Tax Exempt Bond Fund from the net investment income for the taxable year ended October 31, 2001, 100% were exempt interest dividends which are tax exempt for purposes of regular federal income tax, and for purposes of the federal alternative minimum tax. Please consult a tax advisor for any questions about federal or state income tax laws. The Emerging Markets Fund and International Securities Fund paid foreign taxes of $743,098 and $2,123,807, and recognized $6,013,226 and $18,226,853 of foreign source income, respectively, during the taxable year ended October 31, 2001. Pursuant to Section 853 of the Internal Revenue Code, the Emerging Markets Fund and International Fund designates $.0.0185 and $.0.1155 per share of foreign taxes paid and $.0.1498 and $.0.9914 of gross income earned from foreign sources, respectively, in the taxable year ended October 31, 2001. 274 Tax Information RUSSELL FUNDS FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 832-6688 In Washington (253) 627-7001 TRUSTEES Lynn L. Anderson, Chairman Paul E. Anderson Paul Anton, PhD William E. Baxter Kristianne Blake Lee C. Gingrich Eleanor W. Palmer Raymond P. Tennison, Jr. TRUSTEES EMERITUS George F. Russell, Jr. OFFICERS Lynn L. Anderson, Chairman of the Board and President Mark Amberson, Manager of Short Term Investment Funds Mark E. Swanson, Treasurer and Chief Accounting Officer Randall P. Lert, Director of Investments Karl Ege, Secretary and General Counsel MANAGER, TRANSFER AND DIVIDEND PAYING AGENT Frank Russell Investment Management Company 909 A Street Tacoma, WA 98402 CONSULTANT Frank Russell Company 909 A Street Tacoma, WA 98402 CUSTODIAN State Street Bank and Trust Company Allan Forbes Building 150 Newport Avenue AFB35 North Quincy, MA 02171 OFFICE OF SHAREHOLDER INQUIRIES 909 A Street Tacoma, WA 98402 (800) RUSSEL4 (800) 787-7354 LEGAL COUNSEL Stradley, Ronon, Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 19103-7098 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 999 Third Avenue Suite 1800 Seattle, WA 98104 DISTRIBUTOR Russell Fund Distributors, Inc. 909 A Street Tacoma, WA 98402 MONEY MANAGERS DIVERSIFIED EQUITY FUND Alliance Capital Management L.P., Minneapolis, MN Alliance Capital Management L.P. through it's Bernstein Investment Research and Management Unit, New York, NY Barclays Global Investors, San Francisco, CA Jacobs Levy Equity Management, Inc., Florham Park, NJ Marsico Capital Management, LLC, Denver, CO MFS Institutional Advisers, Inc., Boston, MA Peachtree Asset Management, Atlanta, GA Strong Capital Management, Inc., Menomonee Falls, WI Suffolk Capital Management, Inc., New York, NY Turner Investment Partners, Inc., Berwyn, PA Westpeak Global Advisors, L.P., Boulder, CO SPECIAL GROWTH FUND CapitalWorks Investment Partners, LLC, San Diego, CA David J. Greene and Company, LLC, New York, NY Delphi Management, Inc., Boston, MA GlobeFlex Capital, L.P., San Diego, CA Jacobs Levy Equity Management, Inc., Florham Park, NJ Sirach Capital Management, Inc., Seattle, WA Suffolk Capital Management, Inc., New York, NY TimesSquare Capital Management, Inc., New York, NY Westpeak Global Advisors, L.P., Boulder, CO EQUITY INCOME FUND Barclays Global Fund Advisors, San Francisco, CA Iridian Asset Management LLC, Westport, CT Westpeak Global Advisors, L.P., Boulder, CO QUANTITATIVE EQUITY FUND Barclays Global Investors, San Francisco, CA Franklin Portfolio Associates, LLC, Boston, MA Jacobs Levy Equity Management, Inc., Florham Park, NJ J.P. Morgan Investment Management, Inc., New York, NY INTERNATIONAL SECURITIES FUND Alliance Capital Management L.P. through it's Bernstein Investment Research and Management Unit, New York, NY Capital International, Inc., Los Angeles, CA Delaware International Advisers Ltd., London, England Driehaus Capital Management, Inc., Chicago, IL Fidelity Management & Research Company, Boston, MA J.P. Morgan Investment Management, Inc., New York, NY Marvin & Palmer Associates, Inc., Wilmington, DE Mastholm Asset Management, LLC, Bellevue, WA Oechsle International Advisors, LLC, Boston, MA The Boston Company Asset Management, LLC, Boston, MA This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of Frank Russell Investment Company. Such offering is made only by Prospectus, which includes details as to offering price and other material information. Manager, Money Managers and Service Providers 275 RUSSELL FUNDS FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 832-6688 In Washington (253) 627-7001 EMERGING MARKETS FUND Alliance Capital Management L.P. through it's Bernstein Investment Research and Management Unit, New York, NY Foreign & Colonial Emerging Markets Limited, London, England Genesis Asset Managers Limited, London, England Nicholas Applegate Capital Management, San Diego, CA Schroder Investment Management North America Limited, New York, NY REAL ESTATE SECURITIES FUND AEW Management and Advisors, L.P., Boston, MA Cohen & Steers Capital Management, Inc., New York, NY Security Capital Global Capital Management Group, Inc., Chicago, IL SHORT TERM BOND FUND BlackRock Financial Management, Inc., New York, NY Merganser Capital Management L.P., Cambridge, MA Pacific Investment Management Company, LLC, Newport Beach, CA STW Fixed Income Management, Santa Barbara, CA DIVERSIFIED BOND FUND Lincoln Capital Management Company, Chicago, IL Pacific Investment Management Company, LLC, Newport Beach, CA Standish Mellon Asset Management Company LLC, Boston, MA MULTISTRATEGY BOND FUND Lazard Asset Management, a Division of Lazard Freres & Co. LLC, New York, NY Morgan Stanley Investments LP, West Conshohocken, PA Pacific Investment Management Company, LLC, Newport Beach, CA Standish Mellon Asset Management Company LLC, Boston, MA TAX EXEMPT BOND FUND MFS Institutional Advisors, Inc., Boston, MA Standish Mellon Asset Management Company LLC, Boston, MA TAX-MANAGED LARGE CAP FUND J.P. Morgan Investment Management, Inc. New York, NY TAX-MANAGED SMALL CAP FUND Geewax Terker & Co., Chadds Ford, PA SELECT GROWTH FUND CapitalWorks Investment Partners, LLC, San Diego, CA Fuller & Thaler Asset Management, Inc., San Mateo, CA Strong Capital Management, Inc., Menomonee Falls, WI TCW Investment Management Company, Los Angeles, CA Turner Investment Partners, Inc., Berwyn, PA SELECT VALUE FUND Iridian Asset Management LLC, Westport, CT MFS Institutional Advisors, Inc., Boston, MA Systematic Financial Management, L.P., Teaneck, NJ This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of Frank Russell Investment Company. Such offering is made only by Prospectus, which includes details as to offering price and other material information. 276 Manager, Money Managers and Service Providers [LOGO OF RUSSELL] FRANK RUSSELL INVESTMENT COMPANY 909 A Street Tacoma, Washington 98402 253-627-7001 800-787-7354 Fax: 253-591-3495 www.russell.com -----END PRIVACY-ENHANCED MESSAGE-----