-----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, HZoI9FWwTiOFQ57LTHwirdKwWsxegPojsPc5JlK5GwOGmgty0rBJaSVOKzcaVI3T DdkcJerFUOnzv6eB+NkMfQ== 0001047469-98-033131.txt : 19980831 0001047469-98-033131.hdr.sgml : 19980831 ACCESSION NUMBER: 0001047469-98-033131 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980828 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUSSELL FRANK INVESTMENT CO CENTRAL INDEX KEY: 0000351601 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 911151059 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03153 FILM NUMBER: 98700905 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 N-30D FRANK RUSSELL INVESTMENT COMPANY Frank Russell Investment Company is a "series mutual fund" with 28 different investment portfolios. These financial statements report on seven 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 SPECIALTY FUNDS SEMIANNUAL REPORT JUNE 30, 1998 (UNAUDITED) TABLE OF CONTENTS Page Letter to Our Clients . . . . . . . . . . . . . . . . . . . . . 1 Real Estate Securities Fund . . . . . . . . . . . . . . . . . . 2 Emerging Markets Fund . . . . . . . . . . . . . . . . . . . . . 10 Equity T Fund . . . . . . . . . . . . . . . . . . . . . . . . . 24 Limited Volatility Tax Free Fund. . . . . . . . . . . . . . . . 32 Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . 44 U.S. Government Money Market Fund . . . . . . . . . . . . . . . 52 Tax Free Money Market Fund. . . . . . . . . . . . . . . . . . . 58 Notes to Financial Statements . . . . . . . . . . . . . . . . . 71 Manager, Money Managers and Service Providers . . . . . . . . . 80 FRANK RUSSELL INVESTMENT COMPANY - SPECIALTY FUNDS Copyright -C- Frank Russell Company 1998. 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, except for a money market fund, 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. An investment in a money market fund is neither insured nor guaranteed by the US government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. 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. Income from tax-free funds may be subject to an alternative minimum tax, or state and local taxes. 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 1998 Semiannual Report. This report covers information on seven of the Funds and represents the Funds' first six months of our seventeenth 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 the first six months of 1998, as our Funds, in general, provided solid returns as compared to their respective benchmarks and attracted many new investors, both creating significant growth in assets. 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 1997, we have implemented changes in our Funds' structure which we believe will benefit current and potential investors. The former Class C shares of the Russell Funds have been renamed Russell Fund Class E shares, and their fee structure now aligns with the Russell LifePoints-Registered Trademark- Funds' Class E shares. Additionally, the Russell LifePoints-Registered Trademark- Funds' Class D shares were opened for investment in March 1998. We are also pleased to announce FRIMCo has retained Boston Financial Data Services (BFDS) to assist in the transfer agent process, effective June 1998. We anticipate this change will enhance the level of services provided to our clients. Thank you for your continued confidence and investment with Frank Russell Investment Company. We look forward to the remainder of 1998 and continuing to earn your support. Sincerely, /s/ George F. Russell, Jr. /s/ Lynn L. Anderson George F. Russell, Jr. Lynn L. Anderson Chairman President and Chief Executive Officer Frank Russell Investment Company Frank Russell Investment Company REAL ESTATE SECURITIES FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS (B) - 93.1% APARTMENTS - 14.8% Apartment Investment & Management Co. Class A 464,915 $ 18,364 Avalon Bay Communities, Inc. 441,323 16,770 Camden Property Trust 192,779 5,735 Equity Residential Properties Trust 110,000 5,218 Essex Property Trust, Inc. 222,000 6,882 Irvine Apartment Communities, Inc. 171,500 4,963 Merry Land & Investment Company, Inc. 74,900 1,578 Mid-America Apartment Communities, Inc. 42,900 1,129 Post Properties, Inc. 203,096 7,819 Security Capital Atlantic, Inc. 278,574 6,216 Security Capital Pacific Trust 426,400 9,594 Smith (Charles E.) Residential Realty, Inc. 272,000 8,704 Summit Properties, Inc. 175,700 3,327 United Dominion Realty Trust 47,138 654 ---------- 96,953 ---------- HEALTH CARE - 4.2% American Retirement Corp. (a) 195,700 3,474 Health Care Property Investors, Inc. 23,700 855 Healthcare Realty Trust, Inc. 164,300 4,477 Meditrust Cos. 422,600 11,806 Sunrise Assisted Living, Inc. (a) 197,600 6,793 ---------- 27,405 ---------- HOTELS/LEISURE - 6.8% Boykin Lodging Company 87,400 1,895 FelCor Suite Hotels, Inc. 115,700 3,630 RFS Hotel Investors, Inc. 88,700 1,685 Starwood Lodging Trust 777,500 37,563 ---------- 44,773 ---------- LEASING - 0.3% CCA Prison Realty Trust 13,600 417 Entertainment Properties Trust 71,800 1,310 ---------- 1,727 ---------- OFFICE/INDUSTRIAL - 37.4% AMB Property Corp. 100,100 2,452 Arden Realty Group, Inc. 812,400 21,021 Bedford Property Investors, Inc. 97,600 1,781 Brandywine Realty Trust 224,400 5,021 Cabot Industrial Trust 73,100 1,563 CarrAmerica Realty Corp. 144,950 4,113 CenterPoint Properties Corp. 163,500 5,406 Cornerstone Properties, Inc. 8,100 143 Cousins Properties, Inc. 257,000 7,678 Crescent Operating, Inc. (a) 47,900 805 Crescent Real Estate Equities, Inc. 814,000 27,371 Equity Office Properties Trust 248,448 7,050 First Industrial Realty Trust, Inc. 451,700 14,370 Highwoods Properties, Inc. 703,100 22,719 Kilroy Realty Corp. 164,400 4,110 Liberty Property Trust 199,900 5,110 Mack-Cali Realty Corp. 782,400 26,895 Meridan Industrial Trust, Inc. 116,800 2,686 Pacific Gulf Properties, Inc. 99,000 2,141 Prentiss Properties Trust 163,900 3,985 Reckson Associates Realty Corp. 495,600 11,709 Reckson Services Industries, Inc. (a) 211,296 700 Security Capital Group, Inc. 1998 Warrant (a) 23,808 8 Security Capital Group, Inc. Class B (a) 84,900 2,260 Security Capital Industrial Trust 681,318 17,033 SL Green Realty Corp. 259,600 5,841 Spieker Properties, Inc. 466,800 18,088 St. Joe Co. (The) 242,400 6,636 Tower Realty Trust, Inc. 47,200 1,056 TriNet Corporate Realty Trust, Inc. 269,600 9,166 Trizec Hahn Corp. 124,200 2,662 Weeks Corp. 103,300 3,267 ---------- 244,846 ---------- OUTLET CENTERS - 1.8% Prime Retail, Inc. 472,500 5,640 Tanger Factory Outlet Centers, Inc. 195,300 6,189 ---------- 11,829 ---------- REGIONAL MALLS - 11.1% CBL & Associates Properties, Inc. 52,700 1,278 General Growth Properties 523,000 19,547 J.P. Realty, Inc. 216,200 5,094 Macerich Co. (The) 417,800 12,247 Rouse Co. (The) 584,100 18,363 Simon DeBartolo Group, Inc. 341,300 11,092 Taubman Centers, Inc. 290,400 4,138 Urban Shopping Centers, Inc. 28,500 898 ---------- 72,657 ----------
2 Real Estate Securities Fund Specialty Funds REAL ESTATE SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- SELF STORAGE - 3.3% Public Storage, Inc. 672,400 $ 18,827 Shurgard Storage Centers, Inc. 114,600 3,180 ---------- 22,007 ---------- SHOPPING CENTERS - 13.4% Bradley Real Estate, Inc. 210,800 4,453 Developers Diversified Realty Corp. 407,800 15,981 Glimcher Realty Trust 283,000 5,501 Kimco Realty Corp. 382,800 15,695 Kranzco Realty Trust 106,400 1,962 Pan Pacific Retail Properties, Inc. 434,300 8,414 Philips International Realty Corp. 93,100 1,536 Vornado Realty Trust 857,100 34,016 ---------- 87,558 ---------- TOTAL COMMON STOCKS (cost $ 545,462) 609,755 ---------- PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- SHORT-TERM INVESTMENT - 4.7% Frank Russell Investment Company Money Market Fund, due on demand (c) $ 30,493 $ 30,493 ---------- TOTAL SHORT-TERM INVESTMENT (cost $30,493 ) 30,493 ---------- TOTAL INVESTMENTS (identified cost $575,955)(d) - 97.8% 640,248 OTHER ASSETS AND LIABILITIES, NET - 2.2% 14,620 ---------- NET ASSETS - 100% $ 654,868 ---------- ----------
(a) Nonincome-producing security. (b) All common stocks held are Real Estate Investment Trusts (REIT) with the exception of the following: American Retirement Corp. Crescent Operating, Inc. Security Capital Group, Inc. Class B St. Joe Co. (The) Sunrise Assisted Living, Inc. Trizec Hahn Corp. (c) At cost, which approximates market. (d) See Note 2 for federal income tax information. The accompanying notes are an integral part of the financial statements. Specialty Funds Real Estate Securities Fund 3 REAL ESTATE SECURITIES FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $575,955)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 640,248 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,402 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,706 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,160 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 23,834 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681,350 LIABILITIES Payables: Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 657 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,502 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 436 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 23,834 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,482 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 654,868 -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,872 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,489 Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . . . 64,293 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569,984 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 654,868 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: Class S ($654,468,853 divided by 22,951,732 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28.52 -------------- -------------- Class E ($398,801 divided by 14,119 shares of $.01 par value shares of beneficial interest outstanding)(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . $ 28.25 -------------- --------------
The accompanying notes are an integral part of the financial statements. 4 Real Estate Securities Fund Specialty Funds REAL ESTATE SECURITIES FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,441 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 947 -------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,388 EXPENSES (Notes 1, 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,652 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 1 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,958 -------------- Net Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,430 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,678 Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . (61,841) -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,163) -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ (34,733) -------------- --------------
The accompanying notes are an integral part of the financial statements. Specialty Funds Real Estate Securities Fund 5 REAL ESTATE SECURITIES FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,430 $ 23,853 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,678 44,736 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . (61,841) 27,721 ----------------- ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . (34,733) 96,310 ----------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,541) (24,656) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) (9) In excess of net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (9) Net realized gain on investments Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,488) (40,156) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) (25) ----------------- ----------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . (15,043) (64,855) ----------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 88,773 138,695 ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 38,997 170,150 NET ASSETS Beginning of Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 615,871 445,721 ----------------- ----------------- End of Period (including undistributed net investment income of $7,872 and accumulated distributions in excess of net investment income of $9, respectively). . . . . . . . . . . . . . . . . . . . . $ 654,868 $ 615,871 ----------------- ----------------- ----------------- -----------------
The accompanying notes are an integral part of the financial statements. 6 Real Estate Securities Fund Specialty Funds REAL ESTATE SECURITIES FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . $ 30.86 $ 29.19 $ 23.51 $ 22.53 $ 22.76 $ 21.50 -------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income . . . . . . . . . . . 60 1.36 1.39 1.32 1.25 1.05 Net realized and unrealized gain (loss) on investments. . . . . . . . . . . . . . (2.22) 3.93 6.89 1.03 .40 2.68 -------- -------- -------- -------- -------- -------- Total Income From Investment Operations. . . . . . . . . . . . . . . (1.62) 5.29 8.28 2.35 1.65 3.73 -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS: Net investment income . . . . . . . . . . . (.26) (1.41) (1.34) (1.35) (1.23) (1.04) Net realized gain on investments. . . . . . (.46) (2.21) (1.26) -- (.45) (1.43) In excess of net realized gain on investments . . . . . . . . . . . . . . . -- -- -- -- (.20) -- Tax return of capital . . . . . . . . . . . -- -- -- (.02) -- -- -------- -------- -------- -------- -------- -------- Total Distributions . . . . . . . . . . . (.72) (3.62) (2.60) (1.37) (1.88) (2.47) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD . . . . . . . $ 28.52 $ 30.86 $ 29.19 $ 23.51 $ 22.53 $ 22.76 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- TOTAL RETURN (%)(a). . . . . . . . . . . . . (5.35) 18.99 36.81 10.87 7.24 17.42 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted). . 654,469 615,483 445,619 290,990 209,208 145,167 Ratios to average net assets (%)(b): Operating expenses. . . . . . . . . . . . .94 1.02 1.04 1.04 1.05 1.11 Net investment income . . . . . . . . . . 4.28 4.57 5.64 6.10 5.65 4.52 Portfolio turnover rate (%)(b). . . . . . . 44.73 49.40 51.75 23.49 45.84 58.38
* For the six months ended June 30, 1998 (unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. Specialty Funds Real Estate Securities Fund 7 REAL ESTATE SECURITIES FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ----------------------- 1998* 1997 1996** -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . $ 31.02 $ 29.18 $ 26.67 -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . .57 1.14 .24 Net realized and unrealized gain (loss) on investments. . . . . . . . . . (2.29) 3.95 3.85 -------- -------- -------- Total Income From Investment Operations . . . . . . . . . . . . . . . . (1.72) 5.09 4.09 -------- -------- -------- LESS DISTRIBUTIONS: Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . (.59) (1.04) (.32) Net realized gain on investments. . . . . . . . . . . . . . . . . . . . . (.46) (2.21) (1.26) -------- -------- -------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (1.05) (3.25) (1.58) -------- -------- -------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 28.25 $ 31.02 $ 29.18 -------- -------- -------- -------- -------- -------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.65) 18.20 15.75(b) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted). . . . . . . . . . . . . . . . . 399 388 101 Ratios to average net assets (%)(c): Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.50 1.71 1.77 Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 3.73 3.94 5.31 Portfolio turnover rate (%)(c). . . . . . . . . . . . . . . . . . . . . . 44.73 49.40 51.75
* For the six months ended June 30, 1998 (Unaudited). ** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) Periods less than one year are not annualized. (b) Total return represents performance for the period November 4, 1996 to December 31, 1996. (c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are annualized. 8 Real Estate Securities Fund Specialty Funds EMERGING MARKETS FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 80.3% ARGENTINA - 5.5% Banco de Galicia y Buenos Aires Class B New - ADR 75,067 $ 1,361 Cementera Argentina Class B 137,762 831 Central Puerto SA Class B 120,000 281 Cresud SA (a) 211,000 338 Inversiones Y Representaciones 149,781 440 Inversiones Y Representaciones SA - GDR 10,372 302 Molinos Rio Plata 164,068 359 Naviera Perez Companc Class B 341,431 1,714 Nobleza Piccardo 73,900 299 Perez Companc SA Class B - ADR 33,680 338 Quilmes Industrial (Regd)(a) 55,000 484 Siderar SA Series A 211,000 802 Telecom Argentina Class B 170,122 1,004 Telefonica de Argentina Class B 220,000 713 Telefonica de Argentina Class B - ADR 95,500 3,098 Transportadora de Gas del Sur SA Class B 535,284 1,199 YPF Sociedad Anonima Class D - ADR 185,900 5,588 ---------- 19,151 ---------- AUSTRALIA - 0.5% Lihir Gold, Ltd. (a) 444,200 549 Orogen Minerals, Ltd. 800,000 1,067 ---------- 1,616 ---------- BANGLADESH - 0.0% Apex Tannery, Ltd. 600 4 Beximco Infusions 7,500 55 ---------- 59 ---------- BERMUDA - 0.3% Central European Media Enterprises, Ltd. Class A (a) 57,600 1,235 ---------- 1,235 ---------- BRAZIL - 6.5% Bompreco SA Supermercados do Nordeste - GDR (Regd)(a) 28,500 534 Centrais Eletricas de Santa Catarina SA - GDR 144A 5,400 444 Centrais Eletricas de Santa Catarina SA - GDR 700 57 Centrais Geradoras do Sul do Brasil SA NPV (a) 49,510,000 68 Companhia Brasileira de Distribuicao Grupo Pao de Acucar (Regd) - GDR 20,500 464 Companhia Cervejaria Brahma - ADR 85,100 1,064 Companhia de Saneamento Basico do Estado de Sao Paulo 3,507,000 421 Companhia Energetica de Minas Gerais SA - ADR 19,947 617 Companhia Paranaense de Energia-Copel - ADR 45,400 349 Copene Petroquimica do Nordeste SA - ADR 68,500 761 Eletrobras (centrais) NPV 49,510,000 1,455 Forca E Luz (Cia Paul) NPV (a) 15,747,000 1,607 Light - Servicos de Eletricidade SA NPV 2,810,000 863 Makro Atacadista - GDS (a) 60,000 402 Makro Atacadista SA - GDR 60,800 407 Petroleo Brasileiro Petrobras SA - ADR 78,000 1,450 Souza Cruz NPV 173,620 1,291 Telecomunicacoes Brasileiras - ADR 34,208 3,735 Telecomunicacoes Brasileiras NPV 57,060,000 4,539 Telecomunicacoes Brasileiras SA 1998 Rights (a) 764,509 12 Telecomunicacoes de Sao Paulo NPV (a) 19,113 3 Telesp Celular SA NPV (a) 19,113 1 Uniao de Bancos Brasileiros SA - GDR 32,100 947 Votorantim Celulose e Papel SA - ADR 39,500 302 White Martins SA - NPV 374,738 348 ---------- 22,141 ---------- CHILE - 4.4% Administradora de Fondos de Pensiones Provida SA - ADR 34,370 574 Antofagasta Holdings PLC 308,636 1,288 Banco Santander Chile Series A - ADR 45,600 587 Banco Santiago - ADR 20,000 335 Compania de Telecomunicaciones de Chile SA - ADR 108,393 2,202 Distribucion y Servicio D&S SA - ADR 80,000 1,200 Embotelladora Andina SA - ADR Series A 71,600 1,253 Embotelladora Andina SA - ADR Series B 58,000 906 Enersis SA - ADR 89,255 2,181 Gener SA - ADR 62,397 1,139 Laboratorio Chile SA - ADR 30,000 431 Linea Aerea Nacional Chile SA - ADR 47,100 383 Madeco SA - ADR 17,142 151 Maderas Y Sinteticos Sociedad - ADR 50,000 406 Quinenco SA - ADR 90,100 811 Sociedad Quimica Y Minera de Chile SA - ADR 23,730 795 Supermercados Unimarc SA - ADR 31,500 240 ---------- 14,882 ----------
10 Emerging Markets Fund Specialty Funds EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- CHINA - 0.9% Anhui Conch Cement Co., Ltd. 1,264,000 $ 176 Beijing North Star Co., Ltd. Class H 2,470,000 669 China Telecom (Hong Kong), Ltd. - ADR (a) 30,000 1,037 Huaneng Power International, Inc. Series N - ADR (a) 70,000 941 Yanzhou Coal Mining Co., Ltd. - ADR (a) 28,000 273 ---------- 3,096 ---------- COLOMBIA - 0.1% Cementos Diamante SA Class B - ADR 31,200 275 ---------- 275 ---------- CROATIA - 0.1% Pliva d.d. - GDR 23,200 371 ---------- 371 ---------- CZECH REPUBLIC - 1.4% Ameriyah Cement Co. 46,100 797 CSEKE Radiokomunikace - GDR (a) 37,200 797 Czechoslovakian Value Fund (Units)(a) 87,000 522 Elektrarny Opatovice AS 2,200 282 Komercni Banka AS - ADR 24,300 301 Tabak AS 3,500 844 Vseobecny Investment Fund (a) 149,775 292 Vynosovy Investment Fund (a) 72,500 507 Zivnostenska Banka 8,200 447 ---------- 4,789 ---------- ECUADOR - 0.2% La Cement National - GDR (a) 3,700 574 La Cemento Nacional CA - GDR 700 108 ---------- 682 ---------- EGYPT - 1.6% A1 Ahram Beverage Co. SAE 8,700 556 Al Ahram Beverage Co. SAE - GDR 40,000 1,278 Al Ahram Beverage Co. SAE - GDR (144A) 25,400 795 Commercial International Bank (Regd) - GDR 42,705 453 MISR International Bank SAE - GDR 52,700 603 Paints & Chemical Industry Co. SAE 5,000 144 Paints & Chemical Industry Co. SAE - GDR 54,600 505 Suez Cement Co. (Regd) - GDR (a) 31,900 571 Torah Portland Cement Co. 34,985 602 ---------- 5,507 ---------- FRANCE - 0.0% Elf Gabon 1,100 173 ---------- 173 ---------- GHANA - 0.3% Ashanti Goldfields, Ltd. - ADR 140,000 1,138 ---------- 1,138 ---------- GREECE - 3.0% Alpha Credit Bank Rights (a) 8,200 14 Athens Medical Center SA (Regd)(a) 56,550 1,115 Credit Bank (Regd) 8,200 665 Ergo Bank (Regd) 35,000 2,995 Hellenic Bottling 22,000 680 Hellenic Petroleum SA (a) 17,400 142 Hellenic Telecommunication Organization SA 74,387 1,909 Heracles General Cement SA (a) 25,100 586 National Bank of Greece (Regd) 5,880 754 National Mortgage Bank 7,311 461 Silver & Baryte Ores Mining 580 21 STET Hellas Telecommunications SA - ADR (a) 9,000 371 Titan Cement Co. 7,130 467 ---------- 10,180 ---------- HONG KONG - 1.8% Chen Hsong Holding 1,900,000 275 China Merchants Holdings International Co., Ltd. 550,000 335 Citic Pacific, Ltd. 240,000 424 Goldlion Holdings, Ltd. 894,000 100 Guangdong Investment 2,850,000 640 Guangdong Kelon Electric Holdings 141,000 111 Jiangsu Expressway Co., Ltd. Class H 4,590,000 871 New World Infrastructure, Ltd. (a) 1,166,100 1,339 Shanghai Industrial Holdings, Ltd. 330,000 777 Tan Chong International, Ltd. (a) 1,341,000 90 Tingyi (Cayman Island) Holding Co. 7,999,000 491 Yue Yuen Industrial Holdings 312,800 560 ---------- 6,013 ---------- HUNGARY - 2.7% BorsodChem - GDR 42,000 1,193 BorsodChem Rt. 37,200 1,088 Egis Gyogyszergyar 20,950 738 Magyar Olaj Es Gas 38,000 1,025 Magyar Tavkozlesi Rt. (Regd) 158,076 918
Specialty Funds Emerging Markets Fund 11 EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Mol Magyar Olay-Es Gazipari - GDS (a) 90,000 $ 2,412 Gedeon Richter, Ltd. 2,800 225 Gedeon Richter, Ltd. - GDR (a) 13,868 1,096 Zalakeramia Reszvenytarsasag - GDR 45,400 311 Zalakeramia Rt. 4,300 153 ---------- 9,159 ---------- INDIA - 2.7% Bajaj Auto Ltd. - GDR (a) 22,050 288 Bajaj Auto, Ltd. - GDR (144A) 27,300 356 BSES Ltd. - GDR 15,000 151 BSES, Ltd. (a) 20,000 201 Genesis India Investment Co. (a) 490,000 3,709 Global Tele-Systems Group, Inc. (a) 787 38 Hindalco Industries, Ltd. - GDR 29,000 392 India Cements, Ltd. - GDS (a) 114,200 114 Indian Hotels Co., Ltd. - GDR 50,500 512 Larsen & Toubro, Ltd. - GDR 42,400 382 Raymond Woolen Mills, Ltd. - GDR (a) 5,100 15 Reliance Industries, Ltd. - GDS (a) 134,300 860 State Bank of India - GDR (144A) 8,000 92 State Bank of India - GDR 30,000 345 Tata Engineering & Locomotive Co. - GDR (a) 104,400 410 Videsh Sanchar Nigam, Ltd. (a) 144,300 1,472 ---------- 9,337 ---------- INDONESIA - 0.4% Gulf Indonesia Resources, Ltd. (a) 55,100 634 Ometraco Corporation 2000 Warrants (a) 75,000 5 PT Bank Niaga Tbk (Alien Market)(a) 114,200 2 PT Ometraco Corp. 700,000 93 PT Ramayana Lestari Sentosa 1,000,000 78 PT Unilever Indonesia 19,000 36 Semen Gresik 698,000 401 ---------- 1,249 ---------- ISRAEL - 0.5% Bank Leumi Le-Israel (a) 182,000 363 Dor Energy 1988, Ltd. - ADR (a) 28,000 202 ECI Telecom, Ltd. 11,300 427 Elbit Medical Imaging, Ltd. 200 2 Elbit Systems, Ltd. 200 3 Elbit, Ltd. 200 1 Formula Systems (1985), Ltd. - ADR (a) 4,200 145 Makhteshim-Agan Industries, Ltd. (a) 106,161 337 Supersol, Ltd. 111,000 365 ---------- 1,845 ---------- JORDAN - 0.1% Arab Bank Group 1,000 274 ---------- 274 ---------- LEBANON - 0.2% Solidere - GDR (a) 70,000 854 ---------- 854 ---------- LUXEMBOURG - 0.6% Millicom International Cellular SA (a) 43,000 1,879 ---------- 1,879 ---------- MALAYSIA - 1.0% Berjaya Sports 116,000 172 Genting International (CLOB Line)(a) 162,000 17 Golden Hope Plantation 463,000 424 Kuala Lumpur Kepong 314,000 507 Lion Corp. Berhad 6,400 1 London & Pacific Insurance Co. Berhad 1,300 1 Malaysia Mining Corp. 494,800 157 Malaysian Airline System 128,000 42 Malaysian Assurance Alliance Berhad 247,137 214 Malaysian Pacific 304,000 359 Malaysian Tobacco 243,000 98 Nestle Berhad 55,000 249 Nylex Berhad 37,000 9 O.Y.L. Industries Berhad 119,000 247 Perlis Plantations 42,000 36 Powertek Berhad 231,000 245 Shell Refining (Malaysia) 147,000 209 Tan Chong Motor Holdings 447,000 82 Telekom Malaysia 185,000 313 YTL Power International Berhad (a) 313,000 171 ---------- 3,553 ---------- MEXICO - 7.8% Accel SA de CV Series B NPV (a) 1,503,000 191 Acer Computec Latino America SA de CV NPV (a) 131,000 77
12 Emerging Markets Fund Specialty Funds EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Alfa SA de CV Class A NPV 71,200 $ 291 Cemex SA de CV Class B NPV 151,400 666 Cemex SA de CV NPV 418,231 1,571 Compania Cervecerias Unidas SA - ADR 22,700 477 Corporacion GEO SA de CV Series B (a) 101,000 564 Corporacion Industrial Sanluis SA de CV (Units) 96,000 374 Corporacion Interamericana de Entretenimiento SA Series B NPV (a) 157,300 438 Corporacion Interamericana de Entretenimiento SA Series L NPV (a) 20,973 49 Cydsa SA Series A NPV 114,300 188 Desc SA de CV Series C - ADR 74,000 1,471 Empresa Nacional de Electric - ADR 43,200 616 Empresas ICA Sociedad - ADR (a) 124,628 1,176 Fomento Economico Mexicano SA de CV Series B - ADR (a) 72,600 2,287 Grupo Carso Series A NPV 64,500 267 Grupo Casa Autrey SA de CV - ADR 18,700 122 Grupo Financiero Banamex AC Series B NPV (a) 211,000 411 Grupo Financiero Banorte SA de CV Series B NPV (a) 661,000 736 Grupo Gigante SA Series B NPV (a) 970,000 378 Grupo Iusacell SA de CV - ADR Series L (a) 27,600 380 Grupo Modelo SA Series C 46,700 397 Grupo Radio Centro SA de CV - ADR 65,600 730 Grupo Television SA de CV - GDR (a) 18,900 711 Herdez Class B NPV 462,000 221 Kimberly-Clark, Mexico Class A NPV 330,000 1,166 Panamerican Beverages, Inc. Class A 71,600 2,251 Ponderosa Industrial SA de CV Series B NPV (a) 460,000 287 Seguros Comercial America Series B NPV (a) 87,000 292 Sigma Alimentos SA Series B 162,043 369 Telefonos de Mexico SA Series L - ADR 106,200 5,103 Transportacion Maritima Mexicana SA de CV Series A - ADR (a) 80,000 464 TV Azteca SA de CV - ADR 159,700 1,726 ---------- 26,447 ---------- MOROCCO - 0.6% Banque Marocaine Du Commerce Exterieur - GDR 23,233 548 ONA SA 4,700 568 Wafabank 8,000 961 ---------- 2,077 ---------- NETHERLANDS - 0.4% Ceteco Holding NV 26,042 1,416 ---------- 1,416 ---------- PAKISTAN - 0.3% Adamjee Insurance 8,202 8 Fauji Fertilizer 294,600 319 Hub Power Co. - GDR 35,598 248 Pakistan State Oil 230,694 370 Pakistan Telecommunications Corp. (a) 160,000 57 ---------- 1,002 ---------- PANAMA - 0.4% Banco Latinoamericano de Exportaciones SA Class E 40,000 1,230 ---------- 1,230 ---------- PAPUA NEW GUINEA - 0.4% Oil Search, Ltd. (Australia Regd) 800,000 1,212 ---------- 1,212 ---------- PERU - 1.4% Cementos Norte Pacasmayo SA Series T 285,841 457 Compania de Minas Buenaventura Series B - ADR 29,400 386 CPT Telefonica del Peru Class B 137,380 283 Credicorp, Ltd. 23,282 342 Enrique Ferreyros 148,701 200 Ferreyros SA - ADR 10,875 291 Telefonica Del Peru SA Class B - ADR 129,500 2,647 ---------- 4,606 ---------- PHILIPPINES - 1.7% Ayala Land, Inc. 3,103,286 893 Benpres Holdings Corp. - GDR (a) 85,000 213 First Philippine Holdings Class B 925,960 622 Jollibee Foods 2003 Warrants (a) 645,000 197 Manila Electric Co. Class B 107,200 283 Philippine Commercial International Bank 188,777 688 Philippine Long Distance Telephone Co. - ADR 123,127 2,786 Pilipino Telephone Corp. (a) 1,700,000 134 ---------- 5,816 ----------
Specialty Funds Emerging Markets Fund 13 EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- POLAND - 1.0% Bank Handlowy W Warszawie SA - GDR 50,000 $ 955 Bank Slaski SA 3,400 228 Elektrim SA (Austrian Shares)(a) 67,401 821 Prokom Software SA - GDR (a) 52,000 884 WBK 50,600 392 Zaklady Przemyslu Cukierniczego Jutrzenka SA (Austrian Shares)(a) 25,900 207 Zywiec (Austrian Shares)(a) 134 16 ---------- 3,503 ---------- PORTUGAL - 5.4% Banco Espir Santo (Regd) 33,500 1,007 Banco Espirito Santo e Comercial de Lisboa (a) 10,887 327 Brisa - Auto Estradas de Portugal SA 57,200 2,448 Cimpor Cimentos de Portugal 99,400 3,495 Companhia de Seguros Mundial Confianca SA (Regd)(a) 32,000 851 Companhia de Seguros Tranquilidade 36,200 980 Electricidade de Portugal SA 73,600 1,712 Portugal Telecom SA 20,000 1,061 Portugal Telecom SA - ADR 35,100 1,858 Sonae Investimentos SA 83,500 4,563 ---------- 18,302 ---------- RUSSIA - 1.7% AO Tatneft - ADR 103,500 803 Lukoil Oil Co. - ADR 36,700 1,227 Mosenergo - ADR 165,000 784 Russian Depositary Trust (a) 23 460 SFMT, Inc. (a) 3,000 146 Surgutneftegaz - ADR 16,400 66 Torgovy Dom GUM - ADR 46,400 132 Ukraine Enterprise Corp. (a) 31,000 15 Unified Energy Systems - ADR 30,300 391 Unified Energy Systems - GDR 31,000 399 Vimpel-Communications - ADR (a) 31,300 1,400 ---------- 5,823 ---------- SINGAPORE - 0.1% Star Cruises PLC (a) 162,000 309 ---------- 309 ---------- SLOVAKIA - 0.1% Slovakofarma AS 2,200 213 ---------- 213 ---------- SOUTH AFRICA - 9.3% Amalgamated Banks of South Africa 293,200 1,829 Anglo America Coal 2,260 105 Anglo America Corp. SA 27,900 941 Anglo American Industrial Corp. 2,130 36 Angloglold Ltd. (a) 13,100 528 Barlow, Ltd. 414,019 2,182 Billiton PLC 500,560 988 C.G. Smith, Ltd. 329,000 904 Consolidated African Mines, Ltd. (a) 2,875,000 625 De Beers Centenary AG 182,000 3,198 De Beers Consolidated Mines, Ltd. - ADR 5,000 87 Del Monte Royal Food, Ltd. (a) 524,300 239 Edgars Stores, Ltd. 51,100 452 Ellerine Holdings, Ltd. 19,502 107 Engen, Ltd. 258,591 715 Gencor, Ltd. - ADR 10,935 17 Highstone Property 430,000 94 Highveld Steel & Vanadium Corp., Ltd. 202,134 375 Investec Group, Ltd. 27,000 1,047 Iscor 2,750,528 519 JCI, Ltd. 182,487 949 JD Group, Ltd. 64,121 431 Kersaf Investments, Ltd. 94,718 431 Liberty Holdings, Ltd. 9,200 482 Liberty Life Association of Africa 106,065 2,068 Molope Foods, Ltd. (a) 251,700 301 Molpe Foods, Ltd. Series N (a) 128,300 130 Murray & Roberts Holdings, Ltd. 443,000 456 Nasionale Pers Beperk Class N 86,500 569 NBS Boland Group, Ltd. 213,500 277 Orion Selections, Ltd. 760,000 942 PepsiCo International, Inc. (a) 2,000 174 Plate Glass and Shatterprufe Industries, Ltd. 44,466 427 Rembrandt Group, Ltd. 251,952 1,572 Safmarine & Rennie Holdings, Ltd. 168,700 128 Sappi, Ltd. (a) 124,500 467 Sasol NPV 637,994 3,696 South African Breweries 63,100 1,298 Standard Bank Investment Corporation, Ltd. (a) 230,700 984 Trans Natal Coal Corp., Ltd. 115,600 349 Truworths International, Ltd. (a) 26,400 19 Wooltru, Ltd. 134,000 175 Wooltru, Ltd. Class N 160,000 206 ---------- 31,519 ---------- SOUTH KOREA - 2.9% Hana Bank - GDR (a) 64,548 223 Hanwha Chemical Corp. (a) 282,391 370
14 Emerging Markets Fund Specialty Funds EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Housing & Commercial Bank, Korea 41,789 $ 139 Housing & Commercial Bank, Korea - GDR 84,922 272 Korea Electric Power Corp. 32,700 349 Korea Long-Term Credit Bank (a) 37,196 69 LG Semiconductor Co. (a) 85,810 669 Lucky Co., Ltd. 137,000 758 Pohang Iron & Steel 30,700 1,006 Pohang Iron & Steel - ADR 11,700 140 Pusan City Gas Co., Ltd. 30,000 395 Samsung Electronics Co. - GDR (a) 10,693 169 Samsung Electronics, Ltd. 20,605 638 Samsung Electronics, Ltd. - GDR (a) 87,102 723 Seoul City Gas Co., Ltd. 23,000 343 Shin Han Bank (a) 180,000 598 Sindo Ricoh Co. 25,260 688 SK Telecommunications Co., Ltd. 3,126 1,413 Ssangyong Cement Co., Ltd. 45,570 57 Ssangyong Oil Refining Co., Ltd. 62,620 425 Tae Young Corp. 16,000 136 Youngone Corp. 18,500 363 ---------- 9,943 ---------- SRI LANKA - 0.1% Aitken Spence & Co. 11,600 17 Ceylon Theatre 13,660 42 Development Finance Corp. 97,221 201 Hayleys 18,240 48 John Keells Holdings, Ltd. 43,535 126 National Development Bank 9,800 19 ---------- 453 ---------- SWITZERLAND - 0.5% Holderbank Financiere Glarus AG (BR) 1,392 1,774 ---------- 1,774 ---------- TAIWAN - 3.5% Advanced Semiconductor Engineering - GDR (a) 9,360 83 Asia Cement Corp. - GDR 78,840 710 China Steel Corp. - GDS (a) 62,383 749 Evergreen Marine Corp. - GDR 70,486 560 Hocheng Group Corp. - GDR 126,565 506 President Enterprises - GDS (a) 60,800 548 ROC Taiwan Fund 156,500 1,056 Siliconware Precision Industries Co. - GDR (a) 66,864 535 Standard Foods Taiwan Ltd. (Regd) - GDR (a) 64,400 742 Standard Foods Taiwan, Ltd. - GDR (144A)(a) 20,000 225 Synnex Technology International Corp. (a) 32,000 538 Synnex Technology International Corp. (Regd) - GDR (a) 44,000 739 Taiwan Fund, Inc. 52,600 707 Taiwan Semiconductor Manufacturing Co., Ltd (a) 96,000 1,620 Yageo Corp. - GDR (144A)(a) 53,136 441 Yageo Corp. - GDR (a) 160,123 1,329 Yang Ming Marine Transport - GDR (a) 116,840 701 ---------- 11,789 ---------- THAILAND - 1.2% Advanced Information Services (Alien Market) 96,600 412 Ban Pu Coal (Alien Market) 87,900 144 BEC World PLC (Alien Market) 197,200 752 Cogeneration PLC (Alien Market) 685,000 275 Grammy Entertainment PLC (Alien Market) 42,000 98 Industrial Finance Corp. of Thailand (Alien Market)(a) 910,000 188 PTT Exploration & Production PLC (Alien Market)(a) 230,600 1,749 Siam Cement Co. (Alien Market)(a) 85,200 412 ---------- 4,030 ---------- TURKEY - 4.2% Aksigorta AS 11,740,000 760 Dogan Sirketler GR (a) 8,650,000 528 EGE Biracilik Ve Malt Sanayii 5,400,000 639 Eregli Demir Ve Celik Fabrikalari (a) 3,700,000 577 Ford Otomotiv Sanayi AS 618,000 331 Haci Omer Sabanci Holding AS 23,505,000 1,456 Kazkommertsbank Co. - GDR (a) 4,800 96 Koc Holding 1,935,500 378 Sarkuysan Elektrolitik Bakir 8,490,000 614 T Garanti Bankasi (a) 6,154,657 283 T Sise Cam 30,586,672 1,011 Turkiye Is Bankasi 25,955,500 1,048 Yapi Kredi Bankasi 171,174,320 4,371 Yapi Kredi Bankasi AS (a) 83,877,710 2,141 ---------- 14,233 ----------
Specialty Funds Emerging Markets Fund 15 EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- UNITED KINGDOM - 1.1% Billiton PLC - ADR 54,678 $ 109 Genesis Smaller Companies (a) 147,886 1,962 Lonrho Africa PLC (a) 225,204 276 Lonrho PLC (a) 225,204 1,057 Reunion Mining PLC (a) 250,000 296 ---------- 3,700 ---------- VENEZUELA - 1.1% CIA Anon Nacional Telefonos de Venezuela - ADR 107,446 2,686 Electricidad de Caracas (Regd) 439,733 199 Mavesa SA - ADR 151,875 484 Siderurgica Venezolana Sivensa - ADR 65,833 397 Siderurgica Venezolana Sivensa - GDR 5,984 45 ---------- 3,811 ---------- ZIMBABWE - 0.3% Delta Corp. 1,338,248 877 ---------- 877 ---------- TOTAL COMMON STOCKS (cost $335,924) 273,543 ---------- PREFERRED STOCKS - 10.6% ARGENTINA - 0.3% Quilmes Industrial Quinsa Societe - ADR 104,450 1,018 ---------- 1,018 ---------- BRAZIL - 9.6% Banco de Credito Nacional 41,000,000 425 Banco do Estado de Sao Paulo NPV 50,049,000 2,316 Banco Itau SA (Regd) 3,411,418 1,947 Brahma (cia Cervej) NPV 1,093,000 680 Brasmotor SA NPV 9,140,000 838 Centrais Electricas de Santa Catrina SA Series B - ADR 3,600 296 CEMIG SA 89,768,148 2,794 Cia Riograndense Telecom NPV 751,000 819 Companhia Brasileira de Distribuicao Grupo Pao de Acucar NPV 46,200,000 1,039 Companhia Energetica de Minas Gerais - ADR 31,357 971 Companhia Energetica de Sao Paulo NPV 10,225,000 284 Companhia Paranaense de Energia - Copel 57,640,000 538 Companhia Paranaense de Energia Copel Class B - ADR 15,800 146 Companhia Paulista de Forca e Luz (a) 41,484 4 Coteminas (Cia Tec) NPV 3,805,105 576 Duratex SA (BR) 3,364,000 131 Industrias Klabin de Papel e Celulose SA NPV 1,214,928 504 Iochpe Maxion SA - ADR (a) 232,300 266 Itausa Investimentos Itau SA 1,390,000 877 Kepler Weber SA NPV 3,200 8 Lojas Renner SA NPV 6,000,000 176 Marcopolo SA NPV 521,000 892 Odebrecht SA NPV 11,793,000 38 Papel Simao NPV 20,700,000 317 Perdigao SA NPV 225,200,000 282 Petro Ipiranga (cia) NPV 79,100,000 722 Petrobras Distribuidora NPV 34,472,500 477 Petroleo Brasileiro SA NPV 22,498,866 4,182 Telecomunicacoes Brasileiras NPV 23,035,542 2,506 Telecomunicacoes de Minas Gerais Class B NPV 9,325,489 649 Telecomunicacoes de Sao Paulo SA NPV 16,247,842 3,821 Telecomunicacoes do Rio de Janeiro SA NPV 8,900,940 670 Telemig Celular SA Class C NPV (a) 9,325,489 282 Telerj Celular SA Class B NPV (a) 9,800,940 583 Telesp Celular SA Class B NPV (a) 18,547,842 1,540 ---------- 32,596 ---------- COLOMBIA - 0.0% Gran Cadena de Almacenes Class B - ADR 38,320 159 ---------- 159 ---------- GREECE - 0.0% Delta Dairy 15,520 179 ---------- 179 ---------- HUNGARY - 0.3% OTP Bank 19,500 959 ---------- 959 ---------- PORTUGAL - 0.3% Filmes Lusomundo-SGPS SA 65,000 858 ---------- 858 ----------
16 Emerging Markets Fund Specialty Funds EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- RUSSIA - 0.2% Lukoil Holding Oil Co. - ADR 73,200 $ 575 ---------- 575 ---------- TOTAL PREFERRED STOCKS (cost $38,080) 36,344 ---------- PRINCIPAL AMOUNT (000) ---------- LONG-TERM INVESTMENTS - 0.6% BRAZIL - 0.0% Casa Anglo Series 2 1.000% due 11/01/99 (conv.) $ 3 166 ---------- 166 ---------- INDONESIA - 0.0% Modernland Realty 6.000% due 01/04/03 (conv.) IDR 30 3 ---------- 3 ---------- POLAND - 0.1% Elektrim Spolka Akcyjna SA 2.000% due 05/30/04 (conv.) $ 596 396 ---------- 396 ---------- SOUTH KOREA - 0.1% Shinwon Corp. 0.500% due 12/31/08 (conv.) 520 489 ---------- 489 ---------- TAIWAN - 0.3% Far Eastern Dept. Stores 3.000% due 07/06/01 (conv.) 981 852 ---------- 852 ---------- TOTAL LONG-TERM INVESTMENTS (cost $2,241) 1,906 ---------- SHORT-TERM INVESTMENTS - 6.9% UNITED STATES - 6.9% Frank Russell Investment Company Money Market Fund, due on demand (b) $ 23,351 23,351 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $23,351) 23,351 ---------- TOTAL INVESTMENTS (identified cost $399,596)(c) - 98.4% 335,144 OTHER ASSETS AND LIABILITIES, NET - 1.6% 5,392 ---------- NET ASSETS - 100.0% $ 340,536 ---------- ----------
(a) Nonincome-producing security. (b) At cost, which approximates market. (c) See Note 2 for federal income tax information. ABBREVIATIONS: ADR - American Depositary Receipt EDR - European Depositary Receipt GDR - Global Depositary Receipt GDS - Global Depositary Share NPV - No Par Value NV - Nonvoting PLC - Public Limited Company SEC - Shareholders Equity Certificates 144A - Represents private placement security for qualified buyers according to rule 144A of the Securities Act of 1933. FOREIGN CURRENCY ABBREVIATIONS: USD - United States dollar HKD - Hong Kong dollar ZAR - South African rand Specialty Funds Emerging Markets Fund 17 EMERGING MARKETS FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
MARKET % OF NET VALUE INDUSTRY DIVERSIFICATION ASSETS (000) - ------------------------------------------ ---------- ---------- Auto & Transportation 2.7% $ 9,033 Consumer Discretionary 11.3 38,412 Consumer Staples 7.9 26,825 Financial Services 17.1 58,319 Health Care 1.2 4,246 Integrated Oils 5.0 17,024 Materials & Processing 15.4 52,385 Miscellaneous 2.4 8,147 Other Energy 4.7 16,095 Producer Durables 2.6 9,017 Technology 2.5 8,696 Utilities 18.1 61,688 Short-Term Investments 6.9 23,351 Long-Term Investments 0.6 1,906 ---------- ---------- Total Investments 98.4 335,144 Other Assets and Liabilities, Net 1.6 5,392 ---------- ---------- NET ASSETS 100.0% $ 340,536 ---------- ---------- ---------- ---------- MARKET % OF NET VALUE GEOGRAPHIC DIVERSIFICATION ASSETS (000) - ------------------------------------------ ---------- ---------- Latin America 37.2% $ 126,681 Europe 16.6 56,534 Pacific Basin 14.7 49,970 Africa 11.2 38,202 United Kingdom 1.4 4,913 United States (Short-Term Investments) 6.9 23,351 Middle East 8.1 27,647 Bermuda 0.4 1,235 Other 1.9 6,611 ---------- ---------- Total Investments 98.4 335,144 Other Assets and Liabilities, Net 1.6 5,392 ---------- ---------- NET ASSETS 100.0% $ 340,536 ---------- ---------- ---------- ----------
FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS UNREALIZED CONTRACTS TO IN APPRECIATION DELIVER EXCHANGE FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - -------------- -------------- ---------- -------------- USD 3 HKD 26 07/03/98 -- USD 12 ZAR 73 07/01/98 -- USD 58 ZAR 334 07/07/98 (1) HKD 873 USD 113 07/02/98 -- -------------- $ (1) -------------- --------------
The accompanying notes are an integral part of the financial statements. 18 Emerging Markets Fund Specialty Funds EMERGING MARKETS FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $399,596)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 335,144 Foreign currency holdings (identified cost $5,873) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,728 Foreign currency exchange spot contracts (cost $186)(Note 2) . . . . . . . . . . . . . . . . . . . . . . 185 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 877 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 920 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,194 Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 30,681 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,744 LIABILITIES Payables: Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,120 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 373 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 Foreign currency exchange spot contracts (cost $186)(Note 2) . . . . . . . . . . . . 186 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 30,681 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,208 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 340,536 -------------- -------------- NET ASSETS CONSIST OF: Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . . . $ (362) Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,607) Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,452) Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39) Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429,642 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 340,536 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($340,536,005 divided by 35,442,182 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.61 -------------- --------------
The accompanying notes are an integral part of the financial statements. Specialty Funds Emerging Markets Fund 19 EMERGING MARKETS FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,394 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Less foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (336) ------------------ Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,727 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,157 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ------------------ Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,899 ------------------ Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,828 ------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,343) Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (688) (11,031) ------------------ Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60,558) Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . 7 (60,551) ------------------ ------------------ Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71,582) ------------------ Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ (68,754) ------------------ ------------------
The accompanying notes are an integral part of the financial statements. 20 Emerging Markets Fund Specialty Funds EMERGING MARKETS FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX FOR THE MONTHS ENDED FISCAL YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 -------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,828 $ 3,030 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,031) (4,838) Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . (60,551) (18,122) -------------- -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . (68,754) (19,930) -------------- -------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,966) (1,176) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (362) (2,439) -------------- -------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (2,328) (3,615) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,566 85,107 -------------- -------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 7,484 61,562 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333,052 271,490 -------------- -------------- End of period (including accumulated distributions in excess of net investment income of $362 and $862, respectively) . . . . . . . . . . . . . . . $ 340,536 $ 333,052 -------------- -------------- -------------- --------------
The accompanying notes are an integral part of the financial statements. Specialty Funds Emerging Markets Fund 21 EMERGING MARKETS FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
Year Ended December 31, ----------------------------------------------------------------- 1998* 1997 1996 1995 1994 1993** --------- --------- --------- --------- --------- --------- NET ASSET VALUE, BEGINNING OF PERIOD. . . . $ 11.79 $ 12.35 $ 11.16 $ 12.25 $ 13.90 $ 10.00 --------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income . . . . . . . . . . .09 .14 .10 .11 .15 .07 Net realized and unrealized gain (loss) on investments. . . . . . . . . . (2.20) (.56) 1.26 (1.12) (1.24) 4.09 --------- --------- --------- --------- --------- --------- Total Income From Investment Operations (2.11) (.42) 1.36 (1.01) (1.09) 4.16 --------- --------- --------- --------- --------- --------- LESS DISTRIBUTIONS: Net investment income . . . . . . . . . . (.06) (.05) (.08) (.03) (.10) (.07) In excess of net investment income. . . . (.01) (.09) (.09) (.02) (.10) (.01) Net realized gain on investments. . . . . -- -- -- -- (.31) (.18) In excess of net realized gain on investments . . . . . . . . . . -- -- -- (.03) (.05) -- --------- --------- --------- --------- --------- --------- Total Distributions. . . . . . . . . . (.07) (.14) (.17) (.08) (.56) (.26) --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD. . . . . . . $ 9.61 $ 11.79 $ 12.35 $ 11.16 $ 12.25 $ 13.90 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- TOTAL RETURN (%)(a)(c). . . . . . . . . . . (17.96) (3.45) 12.26 (8.21) (5.83) 41.83 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted). 340,536 333,052 271,490 172,673 127,271 65,457 Ratios to average net assets (%)(b)(c): Operating expenses, net. . . . . . . . 1.60 1.64 1.71 1.75 .80 .80 Operating expenses, gross. . . . . . . 1.60 1.64 1.72 1.80 .83 1.60 Net investment income. . . . . . . . . 1.56 .87 .77 .88 1.10 1.33 Portfolio turnover rate (%)(b). . . . . . 54.55 50.60 34.62 71.16 57.47 89.99
* For the six months ended June 30, 1998 (Unaudited). ** For the period January 29, 1993 (commencement of operations) to December 31, 1993. (a) Periods less than one year are not annualized. (b) The ratios for the periods ended June 30, 1998 and December 31, 1993, are annualized. (c) For periods prior to April 1, 1995, Fund performance, operating expenses, and net investment income do not include any management fees paid to the Manager or money managers. For periods thereafter, they are reported net of investment management fees but gross of any investment services fees. See Note 4. 22 Emerging Markets Fund Specialty Funds EQUITY T FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 98.1% AUTO AND TRANSPORTATION - 3.0% Burlington Northern, Inc. 700 $ 69 Chrysler Corp. 40,700 2,294 CNF Transportation, Inc. 11,500 489 Consolidated Freightways Corp. (a) 250 3 CSX Corp. 6,300 287 Eaton Corp. 2,400 187 FDX Corp. (a) 100 6 Ford Motor Co. 8,600 507 General Motors Corp. 2,800 187 Goodyear Tire & Rubber Co. 8,000 516 Lear Corp. (a) 4,500 231 Norfolk Southern Corp. 4,700 140 Southwest Airlines Co. 8,050 238 Union Pacific Corp. 22,300 984 ---------- 6,138 ---------- CONSUMER DISCRETIONARY - 10.7% AutoZone Inc. (a) 11,400 364 Best Buy Co. (a) 8,200 296 Black & Decker Corp. 500 31 Circuit City Stores, Inc. 6,000 281 Corporate Express, Inc. (a) 14,100 178 Dayton Hudson Corp. 13,800 669 Dillard's, Inc. Class A 5,500 228 Disney (Walt) Co. 900 95 Donnelley (R.R.) & Sons Co. 4,100 188 Eastman Kodak Co. 13,000 950 Extended Stay America, Inc. (a) 1,700 19 Federated Department Stores, Inc. (a) 19,500 1,049 Fruit of the Loom, Inc. Class A (a) 9,200 305 Gap, Inc. 2,400 148 General Nutrition Companies, Inc. (a) 100 3 Harrah's Entertainment, Inc. (a) 900 21 Hasbro, Inc. 14,300 562 Home Depot, Inc. (The) 8,100 673 International Game Technology 11,100 269 JC Penney & Co., Inc. 800 58 Kmart Corp. (a) 29,600 570 Leggett & Platt, Inc. 14,500 363 Mattel, Inc. 28,000 1,185 McDonald's Corp. 13,700 945 MediaOne Group, Inc. (a) 17,900 786 Mirage Resorts, Inc. (a) 7,600 162 Reebok International, Ltd. (a) 8,700 241 Rubbermaid, Inc. 100 3 Sears Roebuck & Co. 24,500 1,496 Service Corp. International 50,800 2,178 Time Warner, Inc. 30,225 2,582 TJX Cos., Inc. 18,000 434 Toys "R" Us, Inc. (a) 11,700 276 Tricon Global Restaurants, Inc. (a) 860 27 Viacom, Inc. Class B (a) 3,800 221 Wal-Mart Stores, Inc. 22,100 1,343 Waste Management, Inc. 58,600 2,051 Whirlpool Corp. 4,300 296 ---------- 21,546 ---------- CONSUMER STAPLES - 11.3% Albertson's, Inc. 11,200 580 Anheuser-Busch Cos., Inc. 26,400 1,246 Bestfoods 2,000 116 Campbell Soup Co. 3,200 170 Coca-Cola Co. (The) 33,500 2,864 Colgate-Palmolive Co. 400 35 Corn Products International, Inc. (a) 250 8 Gillette Co. 26,200 1,485 Hannaford Brothers Co. 11,300 497 Heinz (H.J.) Co. 8,300 466 Kellogg Co. 4,800 180 Kroger Co. (a) 20,200 866 PepsiCo, Inc. 39,800 1,639 Philip Morris Cos., Inc. 84,200 3,315 Procter & Gamble Co. 49,400 4,498 Ralston-Purina Group 7,000 818 Safeway, Inc. (a) 10,000 407 Sara Lee Corp. 1,800 101 Seagram Co., Ltd. 33,400 1,367 Unilever NV 28,000 2,211 Vlasic Foods International, Inc. (a) 30 2 ---------- 22,871 ---------- FINANCIAL SERVICES - 17.5% AEGON NV 5,608 485 Ahmanson (H.F.) & Co. 9,800 696 Allstate Corp. 10,800 989 Ambac Financial Group, Inc. 8,000 468 American Express Co. 12,300 1,402 American General Corp. 200 14 American International Group, Inc. 15,800 2,307 Associates First Capital Corp. Class A 3,053 235 Banc One Corp. 15,634 873 BankAmerica Corp. 20,100 1,737 Bear Stearns Cos., Inc. 1,770 101
24 Equity T Fund Specialty Funds EQUITY T FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Beneficial Corp. 3,800 $ 582 Capital One Financial Corp. 300 37 Charter One Financial, Inc. 3,570 120 Chase Manhattan Corp. 17,900 1,351 Chubb Corp. (The) 200 16 CIGNA Corp. 13,800 952 Citicorp 18,400 2,746 Crestar Financial Corp. 668 36 Dime Bancorp, Inc. 2,600 78 Edwards (A.G.), Inc. 5,700 243 Federal Home Loan Mortgage Corp. 6,500 306 Federal National Mortgage Association 38,800 2,357 Financial Security Assurance Holdings, Ltd. 3,400 200 First Chicago NBD Corp. 8,300 736 First Data Corp. 9,100 303 First Union Corp. 45,118 2,628 Firstar Corp. 10,500 399 Fleet Financial Group, Inc. 2,300 192 Fremont General Corp. 400 22 General Re Corp. 200 51 Green Tree Financial Corp. 3,500 150 Hartford Financial Services Group, Inc. (The) 900 103 Household International Corp. 8,400 418 Lincoln National Corp. 400 37 Marsh & McLennan Cos., Inc. 20,100 1,215 MBIA, Inc. 4,400 329 Morgan Stanley, Dean Witter, Discover and Co. 11,840 1,082 NationsBank Corp. 27,838 2,130 Norwest Corp. 7,400 277 Ocwen Financial Corp. (a) 19,800 532 Pacific Century Financial Corp. 4,800 115 PMI Group, Inc. (The) 2,100 154 Provident Financial Group, Inc. 9,700 443 Providian Financial Corp. 6,400 503 Republic New York Corp. 2,000 126 Ryder System, Inc. 5,000 158 SouthTrust Corp. 7,800 339 TCF Financial Corp. 5,800 171 Transamerica Financial Corp. 2,000 230 Travelers Property Casualty Corp. Class A 5,100 219 Travelers, Inc. 32,717 1,983 UNUM Corp. 4,100 228 Washington Federal, Inc. 11,275 311 Washington Mutual, Inc. 18,345 796 Wells Fargo & Co. 1,700 626 ---------- 35,337 ---------- HEALTH CARE - 10.8% Abbott Laboratories 13,900 568 Aetna, Inc. 1,000 76 ALZA Corp. (a) 22,100 956 American Home Products Corp. 51,400 2,660 Bausch & Lomb, Inc. 7,600 381 Bristol-Myers Squibb Co. 46,800 5,379 Crescendo Pharmaceuticals Corp. Class A (a) 235 3 Forest Labs, Inc. (a) 28,600 1,030 Health Care & Retirement Corp. (a) 3,400 134 Humana, Inc. (a) 23,200 724 Johnson & Johnson 10,500 774 Lilly (Eli) & Co. 10,600 700 Merck & Co., Inc. 13,800 1,846 Pfizer, Inc. 15,300 1,663 Schering-Plough Corp. 10,100 925 Tenet Healthcare Corp. (a) 28,000 875 United Healthcare Corp. 9,700 616 Warner-Lambert Co. 34,800 2,414 ---------- 21,724 ---------- INTEGRATED OILS - 6.4% Amoco Corp. 200 8 Ashland, Inc. 100 5 Atlantic Richfield Co. 37,400 2,922 Enron Corp. 15,400 833 Exxon Corp. 77,400 5,520 Mobil Corp. 19,300 1,479 Phillips Petroleum Co. 2,300 111 Royal Dutch Petroleum Co. 25,400 1,392 Tenneco, Inc. 4,800 183 Texaco, Inc. 6,500 387 ---------- 12,840 ---------- MATERIALS AND PROCESSING - 5.8% Agribrands International, Inc. (a) 700 22 Albemarle Corp. 13,400 296 Allegheny Teldyne, Inc. 81,618 1,867 Crompton & Knowles Corp. 6,300 159 Cytec Industries, Inc. (a) 2,500 111 Dow Chemical Co. 25,800 2,495 du Pont (E.I.) de Nemours & Co. 15,400 1,149 Georgia-Pacific Group 8,200 483 Illinois Tool Works, Inc. 1,600 107 Kimberly-Clark Corp. 11,200 514 Louisiana Pacific Corp. 10,200 186
Specialty Funds Equity T Funds 25 EQUITY T FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Mead Corp. 3,300 $ 105 Monsanto Co. 25,900 1,447 Rohm & Haas Co. 1,900 197 Starwood Lodging Trust 734 35 Stone Container Corp. (a) 32,300 505 Temple-Inland, Inc. 7,300 393 Tyco International, Ltd. 23,008 1,450 Unifi, Inc. 7,900 270 ---------- 11,791 ---------- OTHER ENERGY - 1.5% Cooper Cameron Corp. (a) 400 20 Diamond Offshore Drilling, Inc. 1,800 72 El Paso Natural Gas Co. 7,600 291 R&B Falcon Corp. (a) 15,300 346 Schlumberger, Ltd. 4,200 287 Tosco Corp. 43,200 1,269 Valero Energy Corp. 20,900 695 ---------- 2,980 ---------- PRODUCER DURABLES - 6.8% AlliedSignal, Inc. 38,100 1,691 Applied Materials, Inc. (a) 19,200 566 Boeing Co. 45,760 2,039 Boston Scientific Corp. (a) 2,200 158 Caterpillar, Inc. 9,500 502 Coltec Industries, Inc. (a) 29,400 584 Emerson Electric Co. 9,700 586 General Electric Co. 38,900 3,540 Grainger (W.W.), Inc. 13,600 677 ITT Industries, Inc. 10,600 396 Johnson Controls, Inc. 10,900 623 Lockheed Martin Corp. 1,000 106 Northrop Grumman Corp. 300 31 Perkin-Elmer Corp. 14,000 871 Raytheon Co. Class A 51 3 Rockwell International Corp. 9,600 461 Xerox Corp. 9,700 987 ---------- 13,821 ---------- TECHNOLOGY - 14.1% Cisco Systems, Inc. (a) 33,750 3,107 COMPAQ Computer Corp. 24,900 707 CompUSA, Inc. (a) 17,800 322 Computer Associates International, Inc. 19,700 1,095 Cooper Industries, Inc. 9,200 505 Dell Computer Corp. (a) 7,600 705 EMC Corp. (a) 39,900 1,788 General Dynamics Corp. 800 37 Harris Corp. 24,100 1,077 Hewlett-Packard Co. 400 24 Intel Corp. 62,500 4,629 International Business Machines Corp. 33,600 3,858 Lucent Technologies, Inc. 20,200 1,680 Microsoft Corp. (a) 33,900 3,674 Newport News Shipbuilding, Inc. 60 2 Oracle Systems Corp. (a) 94,200 2,308 Sun Microsystems, Inc. (a) 47,500 2,063 Texas Instruments, Inc. 13,700 798 ---------- 28,379 ---------- UTILITIES - 10.2% Airtouch Communications, Inc. (a) 1,400 82 Ameritech Corp. 5,700 256 AT&T Corp. 21,600 1,234 Bell Atlantic Corp. 12,464 569 BellSouth Corp. 14,400 967 Central & Southwest Corp. 17,500 470 Columbia Gas System, Inc. 23,250 1,293 Comcast Corp. Special Class A 24,900 1,010 Duke Power Co. 7,206 427 Entergy Corp. 6,400 184 GTE Corp. 42,700 2,375 MCI Communications Corp. 15,500 900 New England Electric System 500 22 Northern States Power Co. 24,200 693 Peco Energy Co. 8,500 248 PG&E Corp. 1,717 54 PP&L Resources, Inc. 26,600 603 SBC Communications, Inc. 57,700 2,308 Southern Co. 25,000 692 Sprint Corp. 20,600 1,452 Tele-Communications TCI Ventures Group Series A (a) 25,128 503 Tele-Communications, Inc. Class A (a) 19,086 732 U.S. West, Inc. (a) 489 23 Unicom Corp. 2,200 77 Wisconsin Energy Corp. 700 21 WorldCom, Inc. (a) 70,010 3,383 ---------- 20,578 ---------- TOTAL COMMON STOCKS (cost $159,315) 198,005 ----------
26 Equity T Fund Specialty Funds EQUITY T FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- SHORT-TERM INVESTMENTS - 2.4% Frank Russell Investment Company Money Market Fund, due on demand (b) $ 4,559 $ 4,559 United States Treasury Notes 5.250% due 07/31/98 (b)(c) 250 250 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $4,809) 4,809 ---------- TOTAL INVESTMENTS (identified cost $164,124)(d) - 100.5% 202,814 OTHER ASSETS AND LIABILITIES, NET - (0.5%) (990) ---------- NET ASSETS - 100.0% $ 201,824 ---------- ---------- UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) --------- ---------- FUTURES CONTRACTS (Notes 2 and 3) S&P 500 Index Futures Contracts expiration date 09/98 4 $ 41 ---------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 41 ---------- ----------
(#) At June 30, 1998, United States Treasury Notes valued at $250 were held as collateral in connection with futures contracts purchased by the Fund. (a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund (d) See Note 2 for federal income tax information. ABBREVIATIONS: NV - Nonvoting The accompanying notes are an integral part of the financial statements. Specialty Funds Equity T Fund 27 EQUITY T FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $164,124)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 202,814 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080 Deferred organization expenses (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 3,792 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207,919 LIABILITIES Payables: Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,065 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 135 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 8 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 3,792 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,095 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201,824 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 472 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,690 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 -------------- Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,023 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201,824 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($201,823,607 divided by 12,235,440 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16.50 -------------- --------------
The accompanying notes are an integral part of the financial statements. 28 Equity T Fund Specialty Funds EQUITY T FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,216 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 -------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,235 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 579 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422 515 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,429 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 24,439 -------------- -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,954 -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 25,426 -------------- --------------
The accompanying notes are an integral part of the financial statements. Specialty Funds Equity T Fund 29 EQUITY T FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 472 $ 516 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515 65 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 24,439 13,594 ----------------- ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 25,426 14,175 ----------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) (496) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (78) -- ----------------- ----------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (98) (496) ----------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 66,761 76,125 ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 92,089 89,804 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,735 19,931 ----------------- ----------------- End of period (including undistributed net investment income of $472 and $20, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201,824 $ 109,735 ----------------- ----------------- ----------------- -----------------
The accompanying notes are an integral part of the financial statements. 30 Equity T Funds Specialty Funds EQUITY T FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------- 1998* 1997 1996** ------------- ------------- ------------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $ 13.90 $ 10.61 $ 10.00 ------------- ------------- ------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . 04 .08 .03 Net realized and unrealized gain (loss) on investments . . . . 2.57 3.28 .61 ------------- ------------- ------------- Total Income From Investment Operations . . . . . . . . . . 2.61 3.36 .64 ------------- ------------- ------------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . -- (.07) (.03) Net realized gain on investments . . . . . . . . . . . . . . . (.01) -- -- ------------- ------------- ------------- Total Distributions . . . . . . . . . . . . . . . . . . . . (.01) (.07) (.03) ------------- ------------- ------------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 16.50 $ 13.90 $ 10.61 ------------- ------------- ------------- ------------- ------------- ------------- TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . . . . 18.79 31.73 6.10 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . 201,824 109,735 19,931 Ratios to average net assets (%)(b)(c): Operating expenses, net . . . . . . . . . . . . . . . . . . .98 1.00 1.00 Operating expenses, gross . . . . . . . . . . . . . . . . . .98 1.08 2.83 Net investment income . . . . . . . . . . . . . . . . . . . .61 .92 1.62 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . 32.09 39.23 8.86
* For the six months ended June 30, 1998 (Unaudited). ** For the period October 7, 1996 (commencement of operations) to December 31, 1996. (a) Periods less than one year are not annualized. (b) The ratios for the periods ended June 30, 1998 and October 7, 1996 (commencement of operations) to December 31, 1996 are annualized. (c) Fund performance, operating expenses, and net investment income are reported net of investment management fees paid to the Manager or money managers, but gross of any investment services fees. See Note 4. Specialty Funds Equity T Funds 31 LIMITED VOLATILITY TAX FREE FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
PRINCIPAL DATE MARKET AMOUNT OF VALUE (000) RATE MATURITY (000) ------------ --------- -------- --------- MUNICIPAL BONDS - 101.6% ALABAMA - 0.8% Huntsville, Alabama Health Care Authority Revenue, Series A (a) $ 335 4.500% 06/01/01 $ 339 Jefferson County, Alabama Sewer Revenue, Series A (a) 500 5.000 02/01/05 519 ---------- 858 ---------- ALASKA - 3.3% Alaska State Housing Finance Corp. Revenue, Series A-1 (a) 650 4.550 12/01/02 655 North Slope Borough, Alaska, Zero Coupon, Series A, General Obligation (a) 500 0.000 06/30/99 481 North Slope Borough, Alaska, Zero Coupon, Series A, General Obligation (a) 1,385 0.000 06/30/00 1,275 North Slope Borough, Alaska, Zero Coupon, Series B, General Obligation (a) 375 0.000 06/30/99 361 North Slope Borough, Alaska, Zero Coupon, Series B, General Obligation (a) 900 0.000 01/01/01 810 ---------- 3,582 ---------- ARIZONA - 1.4% Arizona State Transportation Board, Special Obligations Revenue, Series A (pre-refunded 07/01/01) 1,425 6.450 07/01/06 1,543 ---------- 1,543 ---------- ARKANSAS - 0.2% Arkansas State, Zero Coupon, Series B, General Obligation 300 0.000 06/01/03 242 ---------- 242 ---------- CALIFORNIA - 4.1% California Health Facilities Financing Authority Revenue, Series B (a) 1,000 5.000 11/15/04 1,042 California State Public Works Board Lease Revenue, Series C 675 5.000 10/01/02 698 California, State of, General Obligation (a) 850 6.100 11/01/01 906 Los Angeles County, California Transportation Participation Certificate, Tax Revenue, Series B 760 5.900 07/01/00 788 Sacramento, California Municipal Utility District, Utility Revenue, Series Z (a) 1,000 6.000 07/01/01 1,057 ---------- 4,491 ---------- COLORADO - 1.4% Colorado Housing Finance Authority Revenue, Series C-2 500 4.500 11/01/05 498 Denver, Colorado Health & Hospital Revenue, Series A (d) 1,000 5.000 12/01/04 1,011 ---------- 1,509 ---------- CONNECTICUT - 2.1% Bridgeport, Connecticut, Series A, General Obligation (a) 1,150 5.250 09/01/99 1,171 Connecticut State Unemployment Compensation Revenue, Series A (a) 1,125 5.000 11/15/99 1,145 ---------- 2,316 ----------
32 Limited Volatility Tax Free Fund Specialty Funds LIMITED VOLATILITY TAX FREE FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE MARKET AMOUNT OF VALUE (000) RATE MATURITY (000) ------------ --------- -------- --------- DISTRICT OF COLUMBIA - 1.4% District of Columbia Revenue (a) $ 1,000 5.250% 10/01/02 $ 1,039 District of Columbia, Series A, General Obligation (a) 500 5.500 04/01/01 518 ---------- 1,557 ---------- FLORIDA - 2.4% Hillsborough County, Florida, Zero Coupon, Utility Refunding Revenue, Series A (a) 1,000 0.000 08/01/99 960 Jacksonville, Florida Pollution Control Revenue 1,100 4.100(b) 05/01/29 1,100 Orange County, Florida School Board Participation Certificate, Series A (a) 575 4.700 08/01/01 587 ---------- 2,647 ---------- GEORGIA - 4.4% Appling County, Georgia Pollution Control Revenue 1,400 4.100(b) 09/01/29 1,400 Atlanta, Georgia Airport Facilities Revenue (a) 500 5.500 01/01/01 517 Bartow County, Georgia Development Authority Pollution Control Revenue 500 3.900(b) 03/01/24 500 Chatham County, Georgia Hospital Authority Revenue, Series A (a) 500 5.000 01/01/00 508 Fulco, Georgia Hospital Authority Revenue Anticipation Certificates 500 5.000 11/15/02 517 Fulco, Georgia Hospital Authority Revenue Anticipation Certificates 500 4.300 11/15/03 502 Georgia Municipal Electric Authority, General Resolution Revenue, Series A (a) 850 5.000 01/01/02 874 ---------- 4,818 ---------- HAWAII - 4.1% Hawaii State, General Obligation (a) 1,000 5.500 04/01/04 1,058 Hawaii State, Housing Financial & Development Corp., Single Family Management Purchasing Revenue 1,000 4.450 07/01/03 1,007 Hawaii State, Series CP, General Obligation (a) 600 5.000 10/01/02 619 Honolulu, Hawaii City & County, Series A, General Obligation 650 5.000 11/01/02 672 Honolulu, Hawaii City & County, Series B, General Obligation 1,150 5.000 10/01/02 1,187 ---------- 4,543 ---------- ILLINOIS - 8.6% Bolingbrook, Illinois Parks District, Zero Coupon, General Obligation (a) 1,230 0.000 01/01/05 919 Chicago, Illinois Sales Tax Revenue (a) 1,000 5.250 01/01/05 1,048 Chicago, Illinois Series C, General Obligation (a) 1,500 6.250 10/31/01 1,601 Illinois Development Finance Authority Revenue, Series A (a) 1,145 5.500 05/15/05 1,209 Illinois Health Facilities Authority Revenue 1,000 5.250 09/01/04 1,033 Illinois Health Facilities Authority Revenue (a) 500 5.000 08/01/03 517 Illinois Health Facilities Authority Revenue (a) 270 5.250 08/15/03 281 Illinois Health Facilities Authority Revenue (a) 500 5.000 08/15/04 515 Illinois Health Facilities Authority Revenue, Series A (a) 250 4.800 10/01/99 253 Illinois Health Facilities Authority Revenue, Series A (a) 500 5.000 10/01/00 510 Illinois Health Facilities Authority Revenue, Series A (a) 1,000 4.550 07/01/01 1,013 Illinois State General Obligation (a) 500 5.375 05/01/01 518 ---------- 9,417 ----------
Specialty Funds Limited Volatility Tax Free Fund 33 LIMITED VOLATILITY TAX FREE FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE MARKET AMOUNT OF VALUE (000) RATE MATURITY (000) ------------ --------- -------- --------- INDIANA - 1.4% Indiana Health Facilities Financing Authority, Hospital Revenue $ 500 4.500% 02/15/05 $ 499 Indiana Health Facilities Financing Authority, Hospital Revenue, Series A (a) 500 5.000 11/01/02 515 Monroe County, Industrial Hospital Authority Revenue (a) 500 4.500 05/01/03 504 ---------- 1,518 ---------- KENTUCKY - 0.9% McCracken County, Kentucky Hospital Revenue, Series A (a) 1,000 5.700 11/01/00 1,038 ---------- 1,038 ---------- LOUISIANA - 2.2% De Soto Parish, Louisiana Pollution Control Revenue, Series A 650 5.050 12/01/02 671 Louisiana Public Facilities Authority Revenue, Health Care Revenue 500 5.500 10/15/99 511 Louisiana, State of, Series A, General Obligation (a) 500 6.000 08/01/00 520 Shreveport, Louisiana, Zero Coupon, General Obligation (a) 1,000 0.000 01/01/05 747 ---------- 2,449 ---------- MAINE - 0.9% Maine Health & Higher Educational Facilities Authority Revenue, Series A 1,000 4.300 07/01/04 997 ---------- 997 ---------- MARYLAND - 1.4% Maryland State & Local Facilities Loan, Series 3, General Obligation 500 5.000 10/15/02 519 Maryland State Stadium Authority Lease Revenue, Convention Center Expansion (a) 1,000 5.375 12/15/00 1,033 ---------- 1,552 ---------- MASSACHUSETTS - 1.5% Massachusetts State Health & Educational Facilities Authority Revenue, Series B 500 4.550 01/01/21 507 Massachusetts State Health & Educational Facilities Authority Revenue, Series D (a) 100 3.900(b) 01/01/35 100 Massachusetts State Water Resources Authority Revenue, Series A 1,000 4.500 08/01/03 1,015 ---------- 1,622 ---------- MICHIGAN - 3.5% Jackson County, Michigan Hospital Financial Authority Revenue (a) 300 4.375 06/01/02 302 Michigan Municipal Bond Authority Revenue, State and Local Appropriations, Series B (a) 550 6.900 05/01/99 565 Michigan State Building Authority Revenue, Series I 375 5.400 10/01/03 396 Michigan State Hospital Finance Authority Revenue, Series A 500 5.000 07/01/02 515
34 Limited Volatility Tax Free Fund Specialty Funds LIMITED VOLATILITY TAX FREE FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE MARKET AMOUNT OF VALUE (000) RATE MATURITY (000) ------------ --------- -------- --------- Michigan State Hospital Finance Authority Revenue, Series A $ 500 4.250% 05/15/04 $ 497 Michigan State Hospital Finance Authority Revenue, Series A 1,000 5.500 10/01/04 1,043 Michigan State Hospital Finance Authority Revenue, Series S 500 5.500 08/15/00 515 ---------- 3,833 ---------- MINNESOTA - 1.1% Minnesota State Revenue, Series A (a) 500 5.000 06/30/99 507 Minnesota, State of, General Obligation 700 5.600 10/01/99 717 ---------- 1,224 ---------- MISSISSIPPI - 0.4% Jackson County, Mississippi Pollution Control Revenue 400 3.750(b) 06/01/23 400 ---------- 400 ---------- MISSOURI - 0.7% Kansas City, Missouri Industrial Development Authority Hospital Revenue (a) 800 3.800 10/15/15 800 ---------- 800 ---------- NEBRASKA - 0.9% Douglas County, Nebraska Hospital Authority No. 001 Revenue (a) 1,000 4.350 09/01/01 1,008 ---------- 1,008 ---------- NEW JERSEY - 3.3% Camden County, New Jersey Improvement Authority Revenue 350 4.250 11/15/04 349 New Jersey State, Series E, General Obligation 500 5.500 07/15/02 526 New Jersey State Transportation Corporation Capital Grant Anticipation Notes, Series A 1,000 5.000 09/01/00 1,017 New Jersey State Transportation Corporation Capital Grant Anticipation Notes, Series A 670 4.900 09/01/01 685 Ocean County, New Jersey Utilities Authority Waste Water Revenue 1,000 5.000 01/01/01 1,024 ---------- 3,601 ---------- NEW MEXICO - 0.9% New Mexico Mortgage Finance Authority Revenue, Series A1 950 6.200 01/01/01 982 ---------- 982 ---------- NEW YORK - 13.2% Metropolitan Transportation Authority, New York, Service Contract Commuter Facilities, Series 7 1,000 5.300 07/01/05 1,043 Metropolitan Transportation Authority, New York, Transit Facilities Revenue, Series R 650 5.000 07/01/03 667
Specialty Funds Limited Volatility Tax Free Fund 35 LIMITED VOLATILITY TAX FREE FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE MARKET AMOUNT OF VALUE (000) RATE MATURITY (000) ------------ --------- -------- --------- Municipal Assistance Corp., New York, New York Revenue, Series E $ 1,000 4.700% 07/01/02 $ 1,021 Municipal Assistance Corp., New York, New York Revenue, Series L 500 4.500 07/01/02 507 New York City, New York, Series H, General Obligation 750 5.250 08/01/03 779 New York State Dormitory Authority Revenue 500 4.900 05/15/00 508 New York State Dormitory Authority Revenue 1,000 5.500 02/15/03 1,044 New York State Dormitory Authority Revenue 450 5.000 04/01/03 461 New York State Dormitory Authority Revenue 500 5.000 02/01/04 517 New York State Dormitory Authority Revenue, Series A 375 6.000 02/15/03 400 New York State Dormitory Authority Revenue, Series A 375 6.000 08/15/04 406 New York State Dormitory Authority Revenue, Series A (d) 1,000 4.300 08/15/04 997 New York State Dormitory Authority Revenue, Series B 745 4.500 02/15/03 747 New York State Dormitory Authority Revenue, Series 1 500 5.000 07/01/03 513 New York State Housing Finance Agency Service Contract Obligation Revenue, Zero Coupon, Series C 1,000 0.000 09/15/03 788 New York State Urban Development Corp. Revenue, Series 7 125 5.500 01/01/01 129 New York State General Obligation 765 4.500 10/15/01 775 New York, New York, Series A, General Obligation 500 5.700 08/01/02 526 New York, New York, Series C, General Obligation 500 6.125 08/01/01 528 New York, New York, Series D, General Obligation 250 6.000 02/01/99 253 New York, New York, Series E, General Obligation 500 5.300 08/01/03 521 New York, New York, Series F, General Obligation 500 5.300 08/01/03 521 United Nations Development Corp., New York Revenue, Series B 250 4.450 07/01/01 251 United Nations Development Corp., New York Revenue, Series B 250 4.600 07/01/02 251 Wallkill, New York General Obligation (a) 300 4.500 03/01/01 304 ---------- 14,457 ---------- NORTH CAROLINA - 1.4% North Carolina Medical Care Community Hospital Revenue 1,000 4.250 06/01/04 994 North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue, Series A (a) 500 5.000 01/01/01 511 ---------- 1,505 ---------- OHIO - 2.5% Cleveland, Ohio City School District Revenue Anticipation Notes (a) 555 5.000 06/01/00 566 Cuyahoga County, Ohio Hospital Revenue (a) 1,000 5.000 02/15/00 1,016 Lorain County, Ohio Hospital Revenue 500 4.750 09/01/00 508 Ohio State Building Authority Revenue, State Facilities, Administration Building Fund, Series A 600 5.250 10/01/03 629 ---------- 2,719 ---------- OKLAHOMA - 0.3% Stillwater, Oklahoma, Series A, Medical Center Authority Revenue 300 5.550 05/15/01 309 ---------- 309 ----------
36 Limited Volatility Tax Free Fund Specialty Funds LIMITED VOLATILITY TAX FREE FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE MARKET AMOUNT OF VALUE (000) RATE MATURITY (000) ------------ --------- -------- --------- PENNSYLVANIA - 2.3% Erie, Pennsylvania Water Authority Water Revenue (a)(d) $ 420 4.300% 12/01/04 $ 417 Harrisburg, Pennsylvania, Zero Coupon, Series D, General Obligation (a) 815 0.000 03/15/04 636 Pennsylvania, State of, General Obligation 500 5.300 07/01/99 508 Philadelphia, Pennsylvania Hospitals & Higher Education Facilities Authority Revenue, Series A 500 5.000 05/15/02 513 Philadelphia, Pennsylvania, Zero Coupon, Water & Sewer Revenue (a) 500 0.000 10/01/02 417 ---------- 2,491 ---------- PUERTO RICO - 0.9% Puerto Rico Electrical Power Authority Power Revenue, Series DD 1,000 5.000 07/01/04 1,041 ---------- 1,041 ---------- RHODE ISLAND - 0.9% Rhode Island Housing & Mortgage Finance Authority, Series A, Housing Revenue (a) 1,000 5.150 07/01/01 1,024 ---------- 1,024 ---------- SOUTH CAROLINA - 1.2% Columbia, South Carolina, Zero Coupon, Waterworks & Sewer System Revenue 1,000 0.000 02/01/04 789 Spartanburg County, South Carolina Social Health Services, Inc. Hospital Revenue (a) 500 4.400 04/15/01 504 ---------- 1,293 ---------- TENNESSEE - 1.7% Metropolitan Government, Nashville & Davidson County, Tennessee Health & Educational Facilities Bond Revenue, Series A 615 5.250 05/01/01 635 Metropolitan Government, Nashville & Davidson County, Tennessee Health & Educational Facilities Bond Revenue, Series A (a) 750 4.500 11/01/03 759 White House Utility District, Tennessee, Robertson & Sumner Counties, Zero Coupon, Waterworks Revenue (a) 650 0.000 01/01/05 487 ---------- 1,881 ---------- TEXAS - 8.4% Abilene, Texas Health Facilities Development Corp., Medical Center A, Health Care Revenue (a) 500 5.100 09/01/99 508 Denison, Texas Hospital Authority Revenue 500 5.250 08/15/01 515 Harris County, Texas Health Facilities Development Corporation, Hospital Revenue 500 5.000 06/01/04 516 Harris County, Texas, Zero Coupon, General Obligation (a) 1,000 0.000 08/15/03 800 Houston, Texas, Series A, General Obligation 650 5.000 03/01/02 669 Houston, Texas, Series C, General Obligation 1,000 5.900 03/01/03 1,057 Irving, Texas Independent School District, Zero Coupon, General Obligation 650 0.000 02/15/03 531
Specialty Funds Limited Volatility Tax Free Fund 37 LIMITED VOLATILITY TAX FREE FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE MARKET AMOUNT OF VALUE (000) RATE MATURITY (000) ------------ --------- -------- --------- San Antonio, Texas Electric & Gas Revenue, Zero Coupon, Series B (a) $ 1,000 0.000% 02/01/04 $ 781 San Antonio, Texas General Obligation 1,000 5.000 08/01/00 1,021 Stephenville, Texas Independent School District, Zero Coupon, General Obligation 830 0.000 02/15/04 647 Tarrant County, Texas Health Facilities Development Corp. Systems Revenue, Series A (a) 500 5.000 02/15/01 512 Texas State Public Finance Authority Building Revenue (d) 1,000 5.000 02/01/05 1,035 University of Texas, University Revenues, Series A 605 5.000 08/15/03 628 ---------- 9,220 ---------- UTAH - 4.2% Intermountain Power Agency, Power Supply Revenue, Series B (a) 500 5.250 07/01/99 508 Intermountain Power Agency, Power Supply Revenue, Series B (a) 500 7.200 07/01/99 511 Intermountain Power Agency, Power Supply Revenue, Series C 1,000 4.700 07/01/02 1,017 Intermountain Power Agency, Power Supply Revenue, Series C (a) 1,250 5.500 07/01/99 1,273 Intermountain Power Agency, Power Supply Revenue, Series E 500 5.250 07/01/01 517 Utah State Board of Regents Revenue 300 5.000 08/01/02 309 Utah State Building Ownership Authority Lease Revenue, Series A 500 5.500 05/15/00 514 ---------- 4,649 ---------- VIRGINIA - 0.5% Virginia Public Building Authority Revenue, Staff and Local Appropriation 500 5.100 08/01/99 508 ---------- 508 ---------- WASHINGTON - 9.2% CDP King County III, Washington, Lease Revenue (a) 1,000 4.600 06/01/03 1,016 Washington State Health Care Facilities Authority Revenue, Series A 250 4.300 08/15/01 251 Washington State Public Power Supply System, Nuclear Project No. 1 Revenue, Series B 500 5.000 07/01/00 509 Washington State Public Power Supply System, Nuclear Project No. 2 Revenue, Series A 280 5.000 07/01/00 285 Washington State Public Power Supply System, Nuclear Project No. 2 Revenue, Series B 1,500 5.450 07/01/00 1,539 Washington State Public Power Supply System, Nuclear Project No. 2 Revenue, Series C 650 7.200 07/01/99 671 Washington State Public Power Supply System, Nuclear Project No. 3 Revenue, Series A 1,000 5.000 07/01/04 1,028 Washington State, Series A, General Obligation 1,060 6.500 07/01/04 1,183 Washington State, Series C, General Obligation 1,000 5.000 07/01/02 1,032 Washington State, Series C, General Obligation 2,000 5.500 07/01/99 2,037 Washington State, Series R, General Obligation 500 5.000 07/01/99 507 ---------- 10,058 ----------
38 Limited Volatility Tax Free Fund Specialty Funds LIMITED VOLATILITY TAX FREE FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE MARKET AMOUNT OF VALUE (000) RATE MATURITY (000) ------------ --------- -------- --------- WISCONSIN - 1.3% Chippewa Falls, Wisconsin Area University School District, General Obligation $ 1,375 5.250% 04/01/05 $ 1,435 ---------- 1,435 ---------- WYOMING - 0.3% Uinta County, Wyoming Pollution Control Revenue 300 3.750(b) 08/15/20 300 ---------- 300 ---------- TOTAL INVESTMENTS (identified cost $110,127)(c) - 101.6% 111,437 OTHER ASSETS AND LIABILITIES, NET - (1.6%) (1,710) ---------- NET ASSETS - 100.0% $ 109,727 ---------- ----------
(a) Bond is insured by AMBAC, FGIC, or MBIA. (b) Adjustable or floating rate security. (c) See Note 2 for federal income tax information. (d) Forward commitment. See Note 2. ABBREVIATIONS: AMBAC - AMBAC Indemnity Corporation FGIC - Financial Guaranty Insurance Company MBIA - Municipal Bond Investors Assurance QUALITY RATINGS AS A % OF MARKET VALUE
AAA 60% AA 22 A 10 BBB 8 ---- 100% ---- ----
ECONOMIC SECTOR EMPHASIS AS A % OF MARKET VALUE
General Obligation 30% Utility Revenue 16 State and Community Lease 12 Health Care Revenue 24 Refunded 1 Housing Revenue 4 University Revenue 3 Other 10 -------- 100% -------- --------
The accompanying notes are an integral part of the financial statements. Specialty Funds Limited Volatility Tax Free Fund 39 LIMITED VOLATILITY TAX FREE FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amount in thousands (except per share amount) ASSETS Investments at market (identified cost $110,127)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 111,437 Receivables: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,732 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,317 LIABILITIES Payables: Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . $ 3,468 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 44 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 -------------- Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,590 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,727 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 321 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (817) Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . . . 1,310 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,861 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,727 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($109,726,825 divided by 5,160,207 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.26 -------------- --------------
The accompanying notes are an integral part of the financial statements. 40 Limited Volatility Tax Free Fund Specialty Funds LIMITED VOLATILITY TAX FREE FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,232 EXPENSES (Notes 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 244 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 -------------- Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,904 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . (88) -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33) -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 1,871 -------------- --------------
The accompanying notes are an integral part of the financial statements. Specialty Funds Limited Volatility Tax Free Fund 41 LIMITED VOLATILITY TAX FREE FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ------------------ ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,904 $ 2,885 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 113 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . (88) 530 ----------------- ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . 1,871 3,528 ----------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,559) (2,885) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . -- (24) ----------------- ----------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (1,559) (2,909) ----------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 26,339 16,113 ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 26,651 16,732 NET ASSETS Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,076 66,344 ----------------- ----------------- End of period (including undistributed net investment income of $321 and accumulated distributions in excess of net investment income of $24, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,727 $ 83,076 ----------------- ----------------- ----------------- -----------------
The accompanying notes are an integral part of the financial statements. 42 Limited Volatility Tax Free Fund Specialty Funds LIMITED VOLATILITY TAX FREE FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- --------- NET ASSET VALUE, BEGINNING OF PERIOD. . . . $ 21.19 $ 21.02 $ 21.24 $ 20.48 $ 21.45 $ 21.03 --------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income . . . . . . . . . .40 .84 .85 .81 .86 .94 Net realized and unrealized gain (loss) on investments . . . . . . .01 .18 (.21) .77 (.97) .42 --------- --------- --------- --------- --------- --------- Total Income From Investment Operations. . . . . . . . .41 1.02 .64 1.58 (.11) 1.36 --------- --------- --------- --------- --------- --------- LESS DISTRIBUTIONS: Net investment income . . . . . . . . . (.34) (.84) (.86) (.82) (.86) (.94) In excess of net investment income. . . -- (.01) -- -- -- -- --------- --------- --------- --------- --------- --------- Total Distributions. . . . . . . . . . (.34) (.85) (.86) (.82) (.86) (.94) --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD. . . . . . . $ 21.26 $ 21.19 $ 21.02 $ 21.24 $ 20.48 $ 21.45 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- TOTAL RETURN (%)(a) . . . . . . . . . . . . 4.86 4.92 3.07 7.81 (0.54) 6.58 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . 109,727 83,076 66,344 63,838 48,975 51,211 Ratios to average net assets (%)(b): Operating expenses . . . . . . . . . . .67 .71 .75 .74 .72 .75 Net investment income. . . . . . . . . 3.91 3.99 4.02 3.91 4.14 4.40 Portfolio turnover rate (%)(b) . . . . . 92.86 40.79 74.34 73.91 71.71 24.05 * For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized.
Specialty Funds Limited Volatility Tax Free Fund 43 MONEY MARKET FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ------------- -------- ------------ ----------- CORPORATE BONDS AND NOTES - 32.6% Bank of Nova Scotia (MTN) $ 11,500 6.375% 04/14/99 $ 11,543 Bravo Trust (a) 45,000 5.706 10/15/98 45,000 Carolina Medical Plan, Inc. (a) 20,000 5.640 06/01/22 20,000 First USA Bank (a) 2,000 5.882 10/01/98 2,001 General Electric Capital Corp. 15,000 5.520 07/23/98 15,000 Goldman Sachs Group L.P. 30,000 5.570 09/01/98 30,000 Grantor Trust (a) 44,427 5.687 12/01/04 44,427 Household International (MTN) 6,000 5.700 07/03/98 6,000 McDonnell Douglas Finance Corp. (MTN) 5,485 6.500 07/01/98 5,485 Merrill Lynch & Co., Inc. (MTN)(a) 14,000 5.631 10/14/98 14,000 Morgan (J.P.) & Co., Inc. (MTN) 15,000 5.750 03/10/99 15,000 Pacific Life Insurance Co. 25,000 5.747 04/23/99 25,000 Providian Life & Health (a) 25,000 5.806 07/15/99 25,000 Salts III Cayman Island Corp. Series 98-3 31,000 5.850 12/14/98 31,000 Salts III Cayman Island Corp. Series 98-6 8,000 5.816 12/18/98 8,000 Wells Fargo & Co. (a) 10,000 5.727 07/01/98 10,000 Westpac Banking Corp. 15,000 5.690 03/29/99 14,994 ---------- TOTAL CORPORATE BONDS AND NOTES (cost $322,450) 322,450 ---------- EURODOLLAR BONDS AND NOTES- 1.4% Metropolis of Tokyo 5,000 9.250 10/11/98 5,044 Sony Euro-Finance BV (MTN) 8,830 5.750 08/06/98 8,827 ---------- TOTAL EURODOLLAR BONDS AND NOTES (cost $13,871) 13,871 ---------- DOMESTIC CERTIFICATES OF DEPOSIT - 3.5% Corestates Bank NA (a) 15,000 5.630 07/13/98 15,000 Corestates Bank NA (a) 20,000 5.670 08/27/98 20,000 ---------- TOTAL DOMESTIC CERTIFICATES OF DEPOSIT (cost $35,000) 35,000 ---------- YANKEE CERTIFICATES OF DEPOSIT - 6.6% Deutsche Bank 30,000 5.700 03/30/99 29,983 National Westminster Bank PLC 10,000 5.740 04/28/99 9,990 Societe Generale (a) 25,000 5.780 07/01/98 25,000 ---------- TOTAL YANKEE CERTIFICATES OF DEPOSIT (cost $64,973) 64,973 ---------- DOMESTIC COMMERCIAL PAPER - 52.7% Banco Real SA 10,000 5.575 07/02/98 9,998 Banco Real SA Grand Cayman 13,000 5.530 07/27/98 12,948 Banco Rio De La Plata 10,000 5.465 12/08/98 9,757 Bavaria TRR Corp. 25,000 5.550 08/04/98 24,869 BTM Capital Corp. 27,000 5.670 07/08/98 26,970
44 Money Market Fund Specialty Funds MONEY MARKET FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ------------- -------- ------------ ----------- BTM Capital Corp. $ 10,000 5.660% 08/03/98 $ 9,948 Centric Capital Corp. 17,000 5.560 07/20/98 16,950 Centric Capital Corp. 10,000 5.550 07/28/98 9,958 Centric Capital Corp. 3,000 5.550 08/03/98 2,985 Centric Capital Corp. 10,000 5.580 08/03/98 9,949 Centric Capital Corp. 10,000 5.550 08/13/98 9,934 Certain Funding Corp. 30,738 5.540 08/03/98 30,582 China Merchants 18,750 5.553 07/28/98 18,672 China Merchants 28,000 5.560 08/26/98 27,758 Dixie Overseas Ltd. 25,000 5.550 07/09/98 24,969 Gotham Funding Corp. 15,000 5.720 07/22/98 14,950 Gotham Funding Corp. 4,383 5.750 07/22/98 4,368 Hitachi Credit America Corp. 9,000 5.730 09/15/98 8,891 Hitachi Credit America Corp. 14,000 5.680 09/21/98 13,819 Hitachi Credit America Corp. 14,267 5.770 09/24/98 14,073 KZH CNC Corp. 5,036 5.800 08/06/98 5,007 KZH Holding Corp. III 10,000 5.550 08/06/98 9,944 KZH IV Corp. 7,583 5.560 08/03/98 7,544 KZH IV Corp. 14,555 5.600 09/30/98 14,349 KZH-Soleil Corp. 15,195 5.570 08/19/98 15,080 KZH-Soleil Corp. 5,654 5.560 08/20/98 5,610 KZH-Soleil Corp. 11,198 5.510 08/25/98 11,104 KZH-Soleil Corp. 6,739 5.510 09/16/98 6,660 Mitsubishi International 9,000 5.555 07/20/98 8,974 Mitsubishi International 20,023 5.555 07/28/98 19,939 Mitsubishi Motors Credit America 10,000 5.660 07/15/98 9,978 Nomura Holding America Inc. 14,068 6.300 07/01/98 14,068 Pegasus Two Ltd. 11,596 5.570 07/16/98 11,569 Siebe PLC 25,000 5.550 07/23/98 24,915 Special Purpose Accounts Receivable Co. 16,000 5.550 08/10/98 15,901 Tasmanian Public Finance Corp. 13,000 5.550 07/08/98 12,986 Westways Funding I Ltd. 11,014 5.570 07/08/98 11,002 Westways Funding I Ltd. 15,000 5.580 07/31/98 14,930 ---------- TOTAL DOMESTIC COMMERCIAL PAPER (cost $521,908) 521,908 ----------
Specialty Funds Money Market Fund 45 MONEY MARKET FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ------------- -------- ------------ ----------- EURODOLLAR TIME DEPOSITS - 1.0% Bank of Tokyo Mitsubishi, Ltd. $ 10,000 5.800% 08/06/98 $ 10,000 ---------- TOTAL EURODOLLAR TIME DEPOSITS (cost $10,000) 10,000 ---------- UNITED STATES GOVERNMENT AGENCIES - 2.4% Aid to Chile Guaranteed Note (LIBOR Floater)(a) 11,739 5.875 06/01/05 11,749 Aid to INH Portugal Guaranteed Note (LIBOR Floater)(a) 12,188 5.950 12/01/17 12,390 ---------- TOTAL UNITED STATES GOVERNMENT AGENCIES (cost $24,139) 24,139 ---------- TOTAL INVESTMENTS (amortized cost $992,341)(b) - 100.2% 992,341 OTHER ASSETS AND LIABILITIES, NET - (0.2%) (2,044) ---------- NET ASSETS - 100% $ 990,297 ---------- ----------
* The interest rate for all securities with a maturity greater than thirteen months has an automatic reset feature resulting in an effective maturity of thirteen months or less. (a) Adjustable or floating rate security. (b) The identified cost for federal income tax purposes is the same as shown above. ABBREVIATIONS: LIBOR - London Interbank Offered Rate MTN - Medium Term Note The accompanying notes are an integral part of the financial statements. 46 Money Market Fund Specialty Funds MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILTIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at amortized cost which approximates market (Note 2) . . . . . . . . . . . . . . . . . . . . $ 992,341 Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,656 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 996,997 LIABILITIES Payables: Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,856 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,563 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 105 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,700 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 990,297 -------------- -------------- NET ASSETS CONSIST OF: Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,903 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,394 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 990,297 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($990,297,001 divided by 990,297,001 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.00 -------------- --------------
The accompanying notes are an integral part of the financial statements. Specialty Funds Money Market Fund 47 MONEY MARKET FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,761 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,204 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 Transfer Agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 -------------- Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,524 Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (722) -------------- Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 802 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,959 -------------- Net increase in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,959 -------------- --------------
The accompanying notes are an integral part of the financial statements. 48 Money Market Fund Specialty Funds MONEY MARKET FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX FOR THE MONTHS ENDED YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,959 $ 40,768 FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,959) (40,768) FROM FUND SHARE TRANSACTIONS: Net increase in net assets from Fund share transactions (Note 6) . . . . . . . . . 64,014 429,351 ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 64,014 429,351 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 926,283 496,932 ----------------- ----------------- End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 990,297 $ 926,283 ----------------- ----------------- ----------------- -----------------
The accompanying notes are an integral part of the financial statements. Specialty Funds Money Market Fund 49 MONEY MARKET FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .0277 .0563 .0549 .0601 .0447 .0342 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.0277) (.0563) (.0549) (.0601) (.0447) (.0342) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a)(b) . . . . . . . . . . . . . . . . . . 2.81 5.79 5.63 6.19 4.57 3.48 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 990,297 926,283 496,932 533,643 502,302 415,998 Ratios to average net assets (%)(b)(c): Operating expenses, net . . . . . . . . . . . . . . . .17 .08 .05 .06 .05 .07 Operating expenses, gross . . . . . . . . . . . . . . .32 .30 .30 .26 .05 .07 Net investment income . . . . . . . . . . . . . . . . 5.60 5.65 5.49 6.01 4.49 3.38
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) For periods prior to April 1, 1995, fund performance, operating expenses, and net investment income do not include any management fees paid to the Manager or money managers. For periods thereafter, they are reported net of investment advisory fees. See Note 4. (c) The ratios for the period ended June 30, 1998 are annualized. 50 Money Market Fund Specialty Funds U.S. GOVERNMENT MONEY MARKET FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY (000) ----------- ------------ ------------ ---------- UNITED STATES GOVERNMENT AGENCIES - 63.2% Aid to Sri Lanka Guaranteed Note (LIBOR Floater)(a) $ 3,500 5.950% 06/15/12 $ 3,534 Aid to Chile Guaranteed Note (LIBOR Floater)(a) 5,516 5.875 06/01/05 5,521 Federal Farm Credit Bank Bonds 2,500 5.650 07/01/98 2,500 Federal Home Loan Mortgage Corp. 2,300 5.500 10/30/98 2,298 Federal Farm Credit Bank Bonds Participation Certificates 1,479 6.000 03/15/99 1,479 Federal Farm Credit Bank Bonds Participation Certificates 1,794 5.500 05/01/99 1,790 Federal Home Loan Mortgage Corp. 10,000 5.550 04/29/99 9,988 Federal National Mortgage Association (MTN) 1,000 5.220 07/10/98 1,000 Federal National Mortgage Association (MTN 1,000 5.240 07/15/98 1,000 Federal National Mortgage Association (MTN) 5,000 5.530 03/11/99 4,995 Federal National Mortgage Association (MTN) 12,460 5.261 06/02/99 12,424 Nebraska Higher Education Loan (c) 9,568 5.510 07/20/98 9,540 Nebraska Higher Education Loan (c) 15,000 5.500 07/23/98 14,950 Student Loan Marketing Association (a) 2,600 5.321 08/20/98 2,599 Student Loan Marketing Association (a) 1,000 5.341 01/13/99 998 Student Loan Marketing Association (MTN)(a) 10,000 5.557 10/06/98 9,998 Student Loan Marketing Association (MTN)(a) 2,000 5.261 07/12/99 1,998 Student Loan Marketing Association Notes 1,000 5.800 12/18/98 1,001 ---------- TOTAL UNITED STATES GOVERNMENT AGENCIES 87,613 ---------- TOTAL INVESTMENTS (amortized cost $87,613) - 63.2% 87,613 ---------- REPURCHASE AGREEMENTS - 36.8% Agreement with BZW Securities and the Bank of New York (Tri-Party) of $20,080 acquired June 30, 1998 at 6.000% to be repurchased at $20,084 on July 1, 1998, collateralized by: $20,281 Student Loan Marketing Association, due June 10, 1999, valued at $20,482 20,080 Agreement with HSBC and Chase Bank (Tri-Party) of $31,000 acquired June 30, 1998 at 6.050% to be repurchased at $31,005 on July 1, 1998, collateralized by: $32,055 United States Treasury Obligations and Government Agencies, valued at $31,622 31,000 ---------- TOTAL REPURCHASE AGREEMENTS (identified cost $51,080) 51,080 ---------- TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS (cost $138,693)(b) - 100.0% 138,693 OTHER ASSETS AND LIABILITIES, NET - 0.0% 33 ---------- NET ASSETS - 100.0% $ 138,726 ---------- ----------
* The interest rate for all securities with a maturity greater than thirteen months has an automatic reset feature resulting in an effective maturity of thirteen months or less. (a) Adjustable or floating rate security. (b) The identified cost for federal income tax purposes is the same as shown above. (c) Guaranteed by Student Loan Marketing Association. ABBREVIATIONS: LIBOR - London Interbank Offered Rate MTN - Medium Term Note The accompanying notes are an integral part of the financial statements. 52 U.S. Government Money Market Fund Specialty Funds U.S. GOVERNMENT MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at amortized cost which approximates market (Note 2) . . . . . . . . . . . . . . . . . . . . $ 87,613 Repurchase agreements (identified cost $51,080)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . 51,080 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730 Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 667 Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,100 LIABILITIES Payables: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 578 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 791 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,374 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,726 -------------- -------------- NET ASSETS CONSIST OF: Shares of beneficial interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,387 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,339 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,726 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($138,725,961 divided by 138,725,961 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.00 -------------- --------------
The accompanying notes are an integral part of the financial statements. Specialty Funds U.S. Government Money Market Fund 53 U.S. GOVERNMENT MONEY MARKET FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,049 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 179 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 -------------- Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352 Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (105) -------------- Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,802 -------------- Net increase in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,802 -------------- --------------
The accompanying notes are an integral part of the financial statements. 54 U.S. Government Money Market Fund Specialty Funds U.S. GOVERNMENT MONEY MARKET FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX FOR THE MONTHS ENDED FISCAL YEAR FEBRUARY 28, 1998 ENDED (UNAUDITED) AUGUST 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,802 $ 11,788 FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,802) (11,788) FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . (48,686) (52,313) ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . (48,686) (52,313) NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,412 239,725 ----------------- ----------------- End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,726 $ 187,412 ----------------- ----------------- ----------------- -----------------
The accompanying notes are an integral part of the financial statements. Specialty Funds U.S. Government Money Market Fund 55 U.S. GOVERNMENT MONEY MARKET FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income . . . . . . . . . . . . . . . . . .0264 .0545 .0526 .0580 .0380 .0284 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.0264) (.0545) (.0526) (.0580) (.0380) (.0284) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 2.67 5.59 5.40 5.98 3.87 2.88 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 138,726 187,412 239,725 149,941 112,077 95,410 Ratios to average net assets (%): Operating expenses, net (b)(c). . . . . . . . . . . . .35 .20 .25 .32 .57 .49 Operating expenses, gross (b)(c). . . . . . . . . . . .49 .41 .50 .51 .57 .49 Net investment income (b) . . . . . . . . . . . . . . 5.32 5.44 5.27 5.82 3.91 2.85
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. (c) See Note 4 for current period amounts. 56 U.S. Government Money Market Fund Specialty Funds TAX FREE MONEY MARKET FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ----------- ----------- ----------- ----------- ALABAMA - 4.8% Alabama Housing Financing Authority Revenue Development, Series B, weekly demand $ 1,605 3.650(2)% 12/01/14 $ 1,605 Alabama Housing Financing Authority Revenue Development, Project A, weekly demand 4,000 3.600(2) 06/15/26 4,000 Birmingham, Alabama Baptist Medical Center Special Care Facility Finance Authority, weekly demand 1,500 3.700(2) 09/01/20 1,500 Tuscaloosa, Alabama Industrial Development Revenue, weekly demand 1,100 3.550(2) 12/01/99 1,100 ----------- 8,205 ----------- ARIZONA - 2.6% Apache County, Arizona Industrial Development Authority, weekly demand 300 3.600(2) 12/01/20 300 Chandler, Arizona Industrial Development Authority Revenue, monthly demand 2,955 3.700(3) 12/15/09 2,955 Maricopa County, Arizona Industrial Development Authority Revenue, weekly demand 700 4.000(2) 10/01/04 700 Phoenix, Arizona Street & Highway Revenue, Series 1987, quarterly demand 500 6.100 07/01/98 500 ----------- 4,455 ----------- COLORADO - 3.1% Adams & Weld Counties, Colorado School District, Series B, semi-annual demand (a) 410 4.300 12/01/98 410 Colorado Housing Financial Authority, weekly demand 1,150 3.650(2) 06/01/05 1,150 Colorado Housing Financial Authority, weekly demand 600 3.650(2) 05/01/15 600 Colorado Multi-family Housing Financing Authority Series A, weekly demand 175 3.625(2) 11/01/09 175 Denver, Colorado City & County Multi-family Housing Revenue, daily demand 100 4.050(1) 12/01/09 100 Smith Creek Metropolitan District, Colorado Revenue, weekly demand 2,700 3.550(2) 10/01/35 2,700 Smith Creek Metropolitan District, Colorado Revenue, weekly demand 200 3.600(2) 10/01/35 200 ----------- 5,335 ----------- DELAWARE - 0.4% Delaware Economic Development Authority Multi-family Housing Revenue, weekly demand 650 3.650(2) 12/01/15 650 ----------- 650 ----------- FLORIDA - 7.5% Boca Raton, Florida Industrial Development Authority Revenue, weekly demand 425 3.875(2) 12/01/14 425 Lee County, Florida Industrial Development Authority Revenue, weekly demand 3,575 3.625(2) 04/01/10 3,575 Orange County, Florida Education Authority Revenue, weekly demand 3,000 3.600(2) 05/01/23 3,000 Orange County, Florida Industrial Development Authority Revenue, weekly demand 950 3.700(2) 01/01/11 950 Orange County, Florida Industrial Development Authority Revenue, semi-annual demand 3,145 3.700(5) 10/01/15 3,145 Orange County, Florida Industrial Development Authority Revenue, weekly demand 800 3.600(2) 11/01/12 800
58 Tax Free Money Market Fund Specialty Funds TAX FREE MONEY MARKET FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ----------- ----------- ----------- ----------- Orange County, Florida Industrial Development Authority Revenue, weekly demand $ 1,000 3.600(2)% 02/01/16 $ 1,000 ----------- 12,895 ----------- GEORGIA - 6.1% DeKalb County, Georgia Housing Authority Multi-family Housing Revenue, weekly demand 600 3.600(2) 06/01/25 600 Fulton County, Georgia Development Authority Revenue, weekly demand 3,000 3.600(2) 02/01/16 3,000 Gwinnett County, Georgia Development Authority Revenue, weekly demand 200 3.600(2) 03/01/17 200 Marietta, Georgia Housing Finance Authority, annual demand 1,000 3.950(6) 01/15/09 1,001 Marietta, Georgia Housing Finance Authority, weekly demand 2,500 3.625(2) 01/01/08 2,500 Savannah, Georgia Housing Authority Multi-family Housing Revenue, weekly demand 1,000 3.600(2) 06/15/26 1,000 Smyrna, Georgia Housing Authority Multi-family Housing Revenue, weekly demand 700 3.600(2) 06/01/25 700 Thomasville, Georgia Hospital Authority Revenue, weekly demand 1,500 3.600(2) 11/01/17 1,500 ----------- 10,501 ----------- HAWAII - 0.8% Hawaii State Department of Budget & Finance Special Purpose Mortgage Revenue, semi-annual demand 1,275 3.950(5) 12/01/15 1,276 ----------- 1,276 ----------- ILLINOIS - 5.3% Cook County, Illinois Community College Lease Certificates, Series C, semi-annual demand (a) 250 7.200 12/01/98 254 DeKalb, Illinois Industrial Development Revenue, weekly demand 500 3.700(2) 02/01/01 500 East Peoria, Illinois Multi-family Housing Revenue, weekly demand 1,810 3.750(2) 06/01/08 1,810 Illinois Development Finance Authority Revenue, quarterly demand 700 4.000(4) 08/01/25 700 Illinois Development Finance Authority Revenue, weekly demand 2,068 3.650(2) 09/01/26 2,068 Illinois Health & Educational Facilities Authority Revenue, Series B, weekly demand 2,000 3.550(2) 08/15/22 2,000 St. Clair County, Illinois Industrial Development Board Revenue, weekly demand 1,000 3.800(2) 10/01/15 1,000 Troy Grove, Illinois Revenue, weekly demand 750 5.015(2) 05/01/10 750 ----------- 9,082 ----------- INDIANA - 8.9% Baugo, Indiana Community Schools Tax Anticipation Warrants 1,000 4.000 12/31/98 1,001 Benton, Indiana Community Schools Tax Anticipation Warrants 1,000 4.250 12/31/98 1,001 Central High School Building Corporation, Indiana First Mortgage Revenue (a) 930 4.250 02/01/99 933 Crawfordville, Indiana Community Schools Tax Anticipation Warrants 1,400 4.100 12/31/98 1,401
Specialty Funds Tax Free Money Market Fund 59 TAX FREE MONEY MARKET FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ----------- ----------- ----------- ----------- Crown Point, Indiana Temporary Loan Warrants $ 1,700 3.900% 12/31/98 $ 1,701 Fort Wayne, Indiana Economic Development Revenue, weekly demand 1,000 3.625(2) 12/01/03 1,000 Marion County, Indiana Metropolitan School District, Series 1998, quarterly demand 1,900 4.250 07/01/98 1,900 Merrillville, Indiana Community School Corp. Tax Anticipation Warrants 1,900 3.900 12/31/98 1,900 Perry Township, Indiana Metropolitan School District, quarterly demand 945 3.750 07/01/98 945 Residential Apartments I Portfolio CERT Trust, 1996 Series A, weekly demand 2,000 3.550(2) 12/01/02 2,000 Westfield-Washington, Indiana Schools Temporary Loan Warrants 1,500 4.100 12/31/98 1,500 ----------- 15,282 ----------- IOWA - 1.6% Carroll, Iowa Finance Authority Revenue, daily demand 1,300 4.050(1) 06/01/28 1,300 Storm Lake, Iowa Private College Revenue, weekly demand 1,400 3.600(2) 12/01/03 1,400 ----------- 2,700 ----------- KANSAS - 0.9% Wamego, Kansas Pollution Control Revenue, weekly demand 1,600 3.250(2) 03/01/26 1,600 ----------- 1,600 ----------- KENTUCKY - 4.0% Calloway County, Kentucky Fire Protection Area Development E1, District 2, weekly demand 910 3.650(2) 12/01/31 910 Calloway County, Kentucky Fire Protection Area Development E2, District 2, weekly demand 490 3.650(2) 12/01/31 490 Elsmere, Kentucky Industrial Building Revenue, quarterly demand 560 3.750(4) 02/01/06 560 Elva-New Harmony, Kentucky Fire Protection District Area Development Series A-1, weekly demand 3,315 3.650(2) 12/01/31 3,315 Hardin County, Kentucky Hospital Revenue, semi-annual demand (a) 400 7.700(5) 10/01/05 418 Jefferson County, Kentucky School District Financing Corp. Revenue, Series A, annual demand 475 3.800 02/01/99 475 Louisville, Kentucky Industrial Development Revenue, weekly demand 750 3.650(2) 09/01/01 750 ----------- 6,918 ----------- LOUISIANA - 1.2% New Orleans, Louisiana Industrial Development Revenue, weekly demand 2,100 3.600(2) 03/01/07 2,100 ----------- 2,100 ----------- MARYLAND - 2.4% Anne Arundel County, Maryland Industrial Development Revenue, weekly demand 2,260 3.700(2) 02/01/01 2,260 Montgomery County, Maryland Industrial Development Revenue, monthly demand (a) 800 3.900(3) 04/01/14 800
60 Tax Free Money Market Fund Specialty Funds TAX FREE MONEY MARKET FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ----------- ----------- ----------- ----------- University of Maryland, University Revenues Revolving Equipment Loan, weekly demand $ 1,000 3.450(2)% 07/01/15 $ 1,000 ----------- 4,060 ----------- MASSACHUSSETTS - 1.8% Brockton, Massachussetts Bond Anticipation Notes, annual demand 2,000 4.000 05/18/99 2,003 New England Education Loan Marketing Corp., Series C, quarterly demand 1,000 4.750 07/01/98 1,000 ----------- 3,003 ----------- MICHIGAN - 2.9% Lansing, Michigan Economic Development Corp., semiannual demand 2,000 3.800(5) 05/01/15 2,000 Livonia, Michigan Economic Development Corp., semiannual demand 270 3.800(5) 11/15/04 270 McDonald Tax Exempt Mortgage Bond Trust, thirteen month demand (c) 143 4.100(7) 01/15/09 143 Meridian, Michigan Economic Development, monthly demand 455 3.700(3) 11/15/14 455 Michigan State Job Development Authority Revenue, monthly demand 1,300 3.750(3) 11/01/14 1,300 Northville, Michigan Economic Development Corporation Limited Obligation Revenue, Series P, weekly demand 500 3.625(2) 05/01/14 500 Oakland County, Michigan Economic Development Corporation Limited Obligation Revenue, quarterly demand 380 3.600(4) 08/01/15 380 ----------- 5,048 ----------- MINNESOTA - 6.1% Burnsville, Minnesota Industrial Development Revenue, Series C, weekly demand 350 3.700(2) 02/01/01 350 Capital Realty Investment Tax Exempt Fund, Series 96-1, weekly demand 7,815 3.850(2) 12/01/04 7,815 Mendota Heights, Minnesota Commercial Development, weekly demand 1,580 3.650(2) 12/01/15 1,580 Minneapolis, Minnesota General Obligation, Series A, weekly demand 800 3.550(2) 12/01/05 800 ----------- 10,545 ----------- MISSISSIPPI - 0.2% DeSoto County, Mississippi Industrial Development Revenue, weekly demand 400 5.015(2) 12/01/08 400 ----------- 400 ----------- MISSOURI - 4.8% Kansas City, Missouri Industrial Development Authority Hospital Revenue, weekly demand 260 3.550(2) 08/01/18 260 Kansas City, Missouri Industrial Development Authority Multi-family Housing Revenue, weekly demand 4,000 4.000(2) 10/01/15 4,000 St. Charles County, Missouri Industrial Development Authority Revenue, weekly demand 2,300 3.630(2) 12/01/27 2,300 St. Louis, Missouri Industrial Development Authority Revenue, weekly demand 700 3.950(2) 08/30/99 700 St. Louis, Missouri Industrial Development Authority Revenue, weekly demand 965 3.700(2) 02/01/01 965 ----------- 8,225 -----------
Specialty Funds Tax Free Money Market Fund 61 TAX FREE MONEY MARKET FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ----------- ----------- ----------- ----------- NEW MEXICO - 0.5% Albuquerque, New Mexico General Obligation, Series B, quarterly demand $ 825 4.700% 07/01/98 $ 825 ----------- 825 ----------- NEW YORK - 0.1% New York State Job Development Authority, 1984 Series E-1 to E-55, monthly demand 150 3.750 03/01/99 150 ----------- 150 ----------- NORTH CAROLINA - 1.3% Durham, North Carolina General Obligation, annual demand 265 4.800 02/01/99 267 Wayne County, North Carolina Industrial Facility & Pollution Control Revenue, weekly demand 2,000 3.600(2) 12/01/00 2,000 ----------- 2,267 ----------- OHIO - 9.3% Bellevue, Ohio Hospital Revenue, quarterly demand 340 3.700(4) 03/01/17 340 Buckeye, Ohio Tax-Exempt Mortgage Bond Trust, quarterly demand 320 4.050(4) 02/01/05 320 Cincinnati & Hamilton County, Ohio Port Authority, quarterly demand 405 3.750(4) 09/01/99 405 Citizens Federal Tax-Exempt Mortgage Bond Trust, semiannual demand 460 3.850(5) 09/01/08 460 Clermont County, Ohio Economic Development Revenue, semiannual demand 405 3.900(5) 12/01/09 405 Clermont County, Ohio Economic Development Revenue, semiannual demand 205 3.800(5) 05/01/12 205 Columbus, Ohio Electric Systems Revenue, monthly demand 1,300 3.650(3) 09/01/09 1,300 Cuyahoga County, Ohio Industrial Development Revenue, semiannual demand 160 3.800(5) 06/01/99 160 East Muskingum, Ohio Water Authority Water Revenue Bond Anticipation Notes, annual demand 2,500 4.320(6) 06/24/99 2,508 Franklin County, Ohio Hospital Revenue, weekly demand 5,000 3.550(2) 12/01/11 5,000 Franklin County, Ohio Industrial Development Revenue, semiannual demand 595 3.650(5) 04/01/15 595 Franklin County, Ohio Industrial Development Revenue, semiannual demand 150 3.750(5) 11/01/15 150 Mahoning County, Ohio Industrial Development Revenue, Series A, weekly demand 5 3.600(2) 10/01/00 5 Mahoning County, Ohio Industrial Development Revenue, Series B, weekly demand 40 3.600(2) 10/01/00 40 McDonald Tax Exempt Mortgage Bond Trust, thirteen month demand (c) 669 4.100(7) 01/15/09 669 Ohio State Higher Educational Facilities Community College Revenue, weekly demand 650 3.550(2) 09/01/20 650 Scioto County, Ohio Health Care Facilities, semiannual demand 690 3.800(5) 12/01/15 690 Stark County, Ohio Health Care Facilities, quarterly demand 1,640 3.600(4) 09/15/16 1,640 Trumbull County, Ohio Industrial Development Revenue, weekly demand 470 3.600(2) 04/01/04 470 ----------- 16,012 -----------
62 Tax Free Money Market Fund Specialty Funds TAX FREE MONEY MARKET FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ------------ ------------- ---------- ----------- OKLAHOMA - 1.9% Muskogee, Oklahoma, Industrial Development Authority Revenue, weekly demand $ 2,090 3.850(2)% 12/01/15 $ 2,090 Tulsa County, Oklahoma Industrial Development Authority Revenue, semiannual demand 1,250 3.800(5) 12/15/08 1,250 ----------- 3,340 ---------- OREGON - 1.1% Hillsboro, Oregon Graduate Institute Revenue, weekly demand 1,950 3.500(2) 08/01/11 1,950 ---------- 1,950 ---------- PENNSYLVANIA - 4.9% Berks County, Pennsylvania Industrial Development Authority, weekly demand 2,050 3.625(2) 12/01/04 2,050 Commonwealth Tax-Exempt Mortgage Bond Trust, semiannual demand 420 3.900(5) 11/01/05 420 Erie, Pennsylvania Higher Education Building Authority College Revenue, Series A, annual demand 1,000 8.500(6) 06/01/15 1,067 McDonald Tax Exempt Mortgage Bond Trust, thirteen month demand (c) 143 4.100(7) 01/15/09 143 Montgomery County, Pennsylvania, Industrial Development Authority Revenue, weekly demand 500 3.600(2) 04/01/04 500 Norristown, Pennsylvania Tax & Revenue Anticipation Notes 1,000 4.050 12/31/98 1,000 Union County, Pennsylvania Hospital Authority Revenue Bond, weekly demand 1,400 3.650(2) 04/01/27 1,400 York, Pennsylvania General Authority Pooled Financing Revenue, weekly demand 1,850 3.600(2) 09/01/26 1,850 ----------- 8,430 ----------- RHODE ISLAND - 1.2% Cranston, Rhode Island Bond Anticipation Notes, annual demand 2,000 4.500 06/28/99 2,013 Rhode Island Housing & Mortgage Finance Corporation, Series A, quarterly demand (a) 100 4.750 07/01/98 100 ----------- 2,113 ----------- SOUTH CAROLINA - 0.3% South Carolina State Public Service Authority Revenue Series B, annual demand (a) 205 5.000 01/01/99 206 Spartanburg, South Carolina Sanitation Sewer District, annual demand 300 5.000 03/01/99 302 ----------- 508 ----------- SOUTH DAKOTA - 0.9% Sioux Falls, South Dakota Industrial Development Revenue, weekly demand 1,620 3.650(2) 06/01/06 1,620 ----------- 1,620 -----------
Specialty Funds Tax Free Money Market Fund 63 TAX FREE MONEY MARKET FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ------------ ------------- ---------- ----------- TENNESSEE - 2.5% Franklin County, Tennessee Health & Educational Facilities Revenue, monthly demand $ 1,680 3.700(3)% 09/01/10 $ 1,680 Knox County, Tennessee Industrial Development Revenue, monthly demand (a) 2,700 3.800(3) 12/01/14 2,700 ----------- 4,380 ----------- TEXAS - 1.9% Austin, Texas General Obligation, Series C, quarterly demand 610 6.500 09/01/98 613 Tarrant County, Texas Multi-family Housing Revenue, weekly demand 2,720 3.550(2) 12/01/07 2,720 ----------- 3,333 ----------- UTAH - 2.1% Salt Lake City, Utah Industrial Development Revenue, weekly demand 2,700 3.650(2) 04/01/08 2,700 West Valley Utah Industrial Revenue, daily demand 1,000 4.100(1) 11/01/11 1,000 ----------- 3,700 ----------- VIRGINIA - 3.5% Harrisonburg, Virginia Multi-family Housing Revenue, annual demand 3,495 3.700(6) 02/01/26 3,495 Harrisonburg, Virginia Multi-family Housing Revenue, annual demand 1,000 3.750(6) 02/01/26 1,000 Norfolk, Virginia General Obligation, semi-annual demand 500 6.750(5) 10/01/00 514 Norfolk, Virginia Industrial Development Authority Revenue, weekly demand 1,075 3.625(2) 03/01/16 1,075 ----------- 6,084 ----------- WASHINGTON - 1.2% Chelan-Douglas, Washington Public Transportation, annual demand (a) 315 3.850 05/01/99 315 Washington State Housing Financial Community Nonprofit Housing Revenue, daily demand 725 3.600(1) 07/01/11 725 Washington State Housing Financial Community Nonprofit Housing Revenue, daily demand 1,100 4.000(1) 01/01/21 1,100 ----------- 2,140 ----------- WEST VIRGINIA - 0.6% Marshall County, West Virginia Pollution Control Revenue, weekly demand 1,000 3.650(2) 03/01/26 1,000 ----------- 1,000 ----------- WISCONSIN - 1.8% Clinton, Wisconsin Community School District Tax & Revenue Anticipation Notes, semiannual demand 775 4.240 08/31/98 775 Lodi, Wisconsin School District Tax & Revenue Anticipation Notes, semiannual demand 1,000 3.990 10/15/98 1,000 Oregon, Wisconsin School District Tax & Revenue Anticipation Notes, semiannual demand 1,100 4.220 09/16/98 1,100
64 Tax Free Money Market Fund Specialty Funds TAX FREE MONEY MARKET FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL DATE AMOUNT OF VALUE (000) RATE MATURITY* (000) ------------ ------------- ---------- ----------- Wisconsin Housing & Economic Development Authority Housing Revenue, Series A, semi-annual demand $ 170 4.450% 11/01/98 $ 170 ----------- 3,045 ----------- TOTAL INVESTMENTS (amortized cost $173,177)(b) - 100.5% 173,177 OTHER ASSETS AND LIABILITIES, NET - (0.5)% (857) ----------- NET ASSETS - 100% $ 172,320 ----------- -----------
(a) Bond is insured by AMBAC, FGIC, or MBIA. (b) The cost for federal income tax purposes is the same as shown above. (c) Multi-State bond issue including Michigan, Ohio, and Pennsylvania. * All securities with a maturity date greater than thirteen months have a demand feature, or an optional or mandatory put, or are pre-refunded resulting in an effective maturity of thirteen months or less. Variable Rate: (1) Daily (2) Weekly (3) Monthly (4) Quarterly (5) Semiannual (6) Annual (7) Thirteen-month The accompanying notes are an integral part of the financial statements. Specialty Funds Tax Free Money Market Fund 65 TAX FREE MONEY MARKET FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited) QUALITY RATINGS AS A % OF MARKET VALUE ++ VMIG1 or SP-1 91% P1 9 ------ 100% ------ ------
ECONOMIC SECTOR EMPHASIS AS A % OF MARKET VALUE General Obligation 28% Education Revenue 12 Industrial Revenue Bonds 29 Housing Revenue 21 Healthcare Revenue 8 Pollution Control Revenue 2 ------ 100% ------ ------
++VMIG1: The highest short-term municipal note credit rating given by Moody's Investors Services to notes with a demand feature which are of the "best quality." SP-1: The highest short-term municipal note credit rating given by Standard & Poor's Corporation to notes with a "very strong or strong capacity to pay principal and interest." P1: The highest tax-exempt commercial paper rating given by Moody's Investors Services to commercial paper with a superior capacity for repayment. The accompanying notes are an integral part of the financial statements. 66 Tax Free Money Market Fund Specialty Funds TAX FREE MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at amortized cost which approximates market (Note 2) . . . . . . . . . . . . . . . . . . . . $ 173,177 Receivables: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,227 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ----------------- Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,443 LIABILITIES Payables: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 480 Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 21 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ----------------- Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,123 ----------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172,320 ----------------- ----------------- NET ASSETS CONSIST OF: Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3) Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,723 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,600 ----------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172,320 ----------------- ----------------- NET ASSET VALUE, offering and redemption price per share: ($172,319,591 divided by 172,322,826 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.00 ----------------- -----------------
The accompanying notes are an integral part of the financial statements. Specialty Funds Tax Free Money Market Fund 67 TAX FREE MONEY MARKET FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,914 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ----------------- Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (78) ----------------- Expenses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 ----------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,699 ----------------- REALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) ----------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 2,696 ----------------- -----------------
The accompanying notes are an integral part of the financial statements. 68 Tax Free Money Market Fund Specialty Funds TAX FREE MONEY MARKET FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX FOR THE MONTHS ENDED FISCAL YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,699 $ 3,793 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) -- ----------------- ----------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . 2,696 3,793 FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,699) (3,793) ----------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase in net assets from Fund share transactions (Note 6) . . . . . . . . . 41,598 28,518 ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 41,595 28,518 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,725 102,207 ----------------- ----------------- End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172,320 $ 130,725 ----------------- ----------------- ----------------- -----------------
The accompanying notes are an integral part of the financial statements. Specialty Funds Tax Free Money Market Fund 69 TAX FREE MONEY MARKET FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ----------- ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . .0171 .0355 .0329 .0370 .0279 .0251 ----------- ----------- ----------- ----------- ----------- ----------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . (.0171) (.0355) (.0329) (.0370) (.0279) (.0251) ----------- ----------- ----------- ----------- ----------- ----------- NET ASSET VALUE, END OF PERIOD . . . . . . $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- TOTAL RETURN (%)(a). . . . . . . . . . . . 1.72 3.61 3.35 3.76 2.83 2.55 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) 172,320 130,725 102,207 78,000 100,819 68,154 Ratios to average net assets (%)(b): Operating expenses, net (c) . . . . . .27 .28 .42 .48 .40 .43 Operating expenses, gross (c) . . . . .37 .38 .42 .48 .40 .43 Net investment income . . . . . . . . 3.44 3.55 3.28 3.69 2.84 2.52
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. (c) See Note 4 for current period amounts. 70 Tax Free Money Market Fund Specialty Funds FRANK RUSSELL INVESTMENT COMPANY SPECIALTY FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1998 (Unaudited) 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company") is a series mutual fund with 28 different investment portfolios, referred to as "Funds." These financial statements report on seven 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. Effective May 18, 1998, pursuant to approval of the Investment Company's Board of Trustees, Class C shares were renamed Class E shares. As of July 8, 1996, the Real Estate Securities and Emerging Markets Funds have available Class S and Class E shares. Each Class has equal rights as to assets and voting privileges. Investment income, realized and unrealized gains and losses and fund level expenses of a Fund are allocated on a pro rata basis to each Class, based on relative net assets of each Class to the total net assets of a Fund. Certain expenses may also be charged to an individual Class for services or fees that relate specifically to that particular Class. Class E shares are charged a shareholder servicing fee of 0.25% of average daily net assets. Class S shares which are reported herein are charged no such fees. Prior to May 18, 1998 Class E shares were charged a 12b-1 distribution fee and a shareholder servicing fee of 0.40% and 0.25% of average net assets, respectively. 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. The Money Market, U.S. Government Money Market and the Tax Free Money Market Funds' portfolio investments are valued on the basis of "amortized cost," a method by which each portfolio instrument is initially valued at cost, and thereafter a constant accretion/amortization to maturity of any discount/premium is assumed. All three Funds utilize the amortized cost valuation method in accordance with Rule 2a-7 of the Investment Company Act of 1940, as amended. Short-term investments maturing within 60 days of the valuation date held by Funds other than the Money Market, U.S. Government Money Market and Tax Free Money Market Funds are also valued at amortized cost unless the Board of Trustees determines that amortized cost does not represent fair value. Municipal investments of the Limited Volatility Tax Free Fund are appraised or priced by an independent pricing source, approved by the Board of Trustees, which utilizes information with respect to bond transactions, quotations from bond dealers, market transactions in comparable securities, and various relationships between securities. 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. The Funds, except Limited Volatility Tax Free, Tax Free Money Market, U.S. Government Money Market, and Money Market Funds may lend portfolio securities as approved by the Board of Trustees on April 27, 1998. Specialty Funds Notes to Financial Statements 71 FRANK RUSSELL INVESTMENT COMPANY SPECIALTY FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions from Real Estate Investment Trusts ("REITs") owned by the Real Estate Securities Fund may have as their components dividend income, capital gains and/or returns of capital. Distributions that are deemed to be capital gains or returns of capital by the trusts are treated by the Fund, respectively, as an adjustment to its realized capital gains or its cost of the investment. The exact amount to be adjusted can be ascertained only at the end of each REIT's fiscal year when finally determined and reported by the various trusts. 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. Therefore, no federal income tax provision was required for the Funds. From November 1, 1997 to December 31, 1997, the Emerging Markets Fund, U.S. Government Money Market Fund and Tax Free Money Market Fund incurred net realized capital losses of $8,399,434, $1,427 and $200, respectively. As permitted by tax regulations, the Emerging Markets Fund, U.S. Government Money Market Fund and Tax Free Money Market Fund intend to elect to defer these losses and treat them as arising in the year ending December 31, 1998. At December 31, 1997, certain Funds had net tax basis capital loss carryforwards which may be applied against any realized net 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:
12/31/98 12/31/99 12/31/02 12/31/03 12/31/04 12/31/05 TOTALS ----------- ----------- ----------- ----------- ----------- ----------- ----------- Emerging Markets $ -- $ -- $ -- $ 3,235,981 $ -- $ -- $ 3,235,981 Limited Volatility Tax Free 17,292 383,404 345,504 110,634 15,075 -- 871,909 Money Market -- -- -- 42,906 814 -- 43,720 U.S. Government Money Market -- -- 1,309 4,913 3,331 1,570 11,123 Tax Free Money Market -- -- -- -- -- 1,583 1,583
The aggregate cost of investments and the composition of gross unrealized appreciation and depreciation of investment securities for federal income tax purposes for certain Funds as of June 30, 1998 were as follows:
NET GROSS GROSS UNREALIZED FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION COST APPRECIATION (DEPRECIATION) (DEPRECIATION) --------------- --------------- --------------- --------------- Real Estate Securities $ 576,078,747 $ 79,667,660 $ (15,498,407) $ 64,169,253 Emerging Markets 403,699,670 34,025,755 (102,581,425) (68,555,670) Equity T 164,123,559 40,264,337 (1,573,896) 38,690,441 Limited Volatility Tax Free 110,126,938 1,351,716 (41,654) 1,310,062
REDEMPTION FEES: In general, shares of the Equity T Fund may be redeemed at net asset value. However, upon the redemption or exchange of shares held by shareholders of the Fund, a redemption fee of 1% of the current net asset value of the shares will be assessed and retained by the Fund for the benefit of the remaining shareholders. The redemption fee is included in additional paid-in capital in the accompanying Statement of Assets and Liabilities. 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 monthly for the Limited Volatility Tax Free Fund; quarterly for the Real Estate Securities Fund and annually for the Equity T and Emerging Markets Funds. The Money Market, U.S. Government Money Market and Tax Free Money Market Funds declare and record dividends daily and pay them monthly. 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. 72 Notes to Financial Statements Specialty Funds FRANK RUSSELL INVESTMENT COMPANY SPECIALTY FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED 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, and certain securities sold at a loss. Accordingly, a Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. 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 "Manager"). Most expenses can be directly attributed to the individual Funds. Expenses which cannot be directly attributed are allocated among all Funds principally based on their relative net assets. In addition, Class E shares will pay shareholder servicing fees along with other expenses that may be attributable to that Class. Prior to May 18, 1998, Class E Shares paid a 12b-1 distribution fee. DEFERRED ORGANIZATION EXPENSES: Organization and initial registration costs of the Emerging Markets and Equity T Funds have been deferred and are being amortized over 60 months on a straight-line basis. REPURCHASE AGREEMENTS: The Funds may engage in repurchase agreements with several financial institutions whereby a Fund, through its custodian, receives delivery of underlying securities as collateral. Each Fund's Money Manager will monitor repurchase agreements daily to determine that the market value (including accrued interest) of the underlying securities at Fedwire closing time remains at least equal to 102% of the repurchase price. The Money Manager will notify the Seller to immediately increase the collateral on the repurchase agreement to 102% of the repurchase price if collateral value falls below 102%. FOREIGN CURRENCY TRANSLATIONS: The books and records of the Emerging Markets Fund are maintained in U.S. dollars. Foreign currency amounts and transactions of the Fund are translated into U.S. 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) Outstanding 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 Fund's books and the U.S. 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 period-end, as a result of changes in the exchange rates. It is not practical to isolate that portion of the results of operations of the Emerging Markets Fund 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 Fund does 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, certain 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. 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. Specialty Funds Notes to Financial Statements 73 FRANK RUSSELL INVESTMENT COMPANY SPECIALTY FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED FOREIGN CURRENCY EXCHANGE CONTRACTS: In connection with portfolio purchases and sales of securities denominated in a foreign currency, the Emerging Markets Fund may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts ("contracts"). Additionally, from time to time the Emerging Markets Fund 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 its 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 June 30, 1998, are presented on the Statement of Net Assets for the Fund. INVESTMENT IN EMERGING MARKETS: Investing in emerging markets may involve special risks and considerations not typically associated with investing in the United States markets. These risks include revaluation of currencies, high rates of inflation, repatriation, restrictions 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. FUTURES CONTRACTS: The Equity T Fund utilizes futures to equitize liquidity reserve balances. The face or contract amounts of these instruments reflect the extent of the Fund's 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. 3. INVESTMENT TRANSACTIONS SECURITIES: During the six months ended June 30, 1998, purchases and sales of investment securities (excluding U.S. Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were as follows:
PURCHASES SALES PURCHASES SALES -------------- -------------- -------------- -------------- Real Estate Securities $ 199,726,886 $ 133,146,982 Equity T $ 95,236,029 $ 24,309,358 Emerging Markets 159,918,953 90,495,699 Limited Volatility 69,549,224 43,706,795
Money Market purchases, sales and maturities of securities (excluding U.S. Government and Agency obligations and repurchase agreements) were $5,315,952,463, $51,261,480 and $5,200,856,948, respectively. Sales of U.S. Government and Agency obligations (excluding repurchase agreements) were $5,921,393. U.S. Government Money Market purchases, sales and maturities of U.S. Government and Agency obligations (excluding repurchase agreements) were $184,907,210, $21,844,610 and $246,911,706, respectively. Tax Free Money Market purchases, sales and maturities of short-term tax-exempt obligations were $302,812,697, $248,676,643 and $18,629,000, respectively. FUTURES CONTRACTS: Fund transactions in futures contract purchases for the six months ended June 30, 1998 were as follows:
EQUITY T FUTURES CONTRACTS ------------------------------ AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ------------- ------------- Outstanding December 31, 1997 10 $ 2,416,750 Opened 40 10,603,904 Closed (46) (11,918,804) ------------- ------------- Outstanding June 30, 1998 4 $ 1,101,850 ------------- ------------- ------------- -------------
(1) The aggregate face value of contracts is computed on the date each contract was opened. 74 Notes to Financial Statements Specialty Funds FRANK RUSSELL INVESTMENT COMPANY SPECIALTY FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED SECURITIES LENDING: Effective April 27, 1998, the Investment Company resumed its securities lending program. This program allows the Real Estate Securities Fund, the Emerging Markets Fund, and the Equity T Fund to loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by Morgan Stanley Trust Company ("MSTC") 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. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. 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 MSTC and is included as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and MSTC and are included as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. This collateral must be maintained at not less than 100% of the market value of the loaned securities during the period of the 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 June 30, 1998, the value of outstanding securities on loan and the value of collateral amounted to as follows:
VALUE OF VALUE SECURITIES ON OF LOAN COLLATERAL -------------- -------------- Real Estate Securities $ 23,002,168 $ 23,833,900 Emerging Markets 26,386,073 30,681,000
4. RELATED PARTIES MANAGER: FRIMCo operates and administers all of the Funds which comprise the Investment Company, and manages the Money Market and the U.S. Government Money Market Funds. FRIMCo is a wholly owned subsidiary of Frank Russell Company, which researches and recommends to FRIMCo, and to the Investment Company, one or more investment management organizations to manage the portfolio of each Fund. For the six months ended June 30, 1998, the management fee paid to FRIMCo, for the Funds listed below, in accordance with the Investment Company's Management Agreement with that firm, amounted to $7,210,570 before waivers. Such fee is payable monthly and is equal to the annual rate, by Fund, shown in the table below, of the average daily net assets of the applicable Fund.
ANNUAL RATE ANNUAL RATE ----------- ----------- Real Estate Securities 0.85% Money Market 0.25% Emerging Markets 1.20 Tax Free Money Market 0.25 Equity T 0.75 U.S. Government Money Market 0.25 Limited Volatility Tax Free 0.50
Specialty Funds Notes to Financial Statements 75 FRANK RUSSELL INVESTMENT COMPANY SPECIALTY FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED The management contract also provides that if any Fund's expenses (exclusive of interest and taxes) exceed specified limits imposed by the Manager on an annual basis, such excess will be paid by FRIMCo. The Manager has voluntarily agreed to waive a portion of its 0.75% management fee for the Equity T Fund, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 1.00% of the Fund's average daily net assets on an annual basis. There were no waivers by the Manager for the six months ended June 30, 1998. The Manager has voluntarily agreed to waive 0.10% management fee for the Tax Free Money Market Fund. The amount of such waiver for the six months ended June 30, 1998 was $78,462. Prior to June 15, 1998, the Manager voluntarily agreed to waive 0.13% of its 0.25% management fee for the U.S. Government Money Market Fund. Effective June 15, 1998, the manager has voluntarily agreed to waive its management fee, up to the full amount of that fee, equal to the amount by which the Fund's total operating expenses exceed 0.30% of the Fund's average daily net assets on an annual basis. The amount of such waiver for the six months ended June 30, 1998 was $104,831. The Manager has voluntarily agreed to waive 0.15% of its 0.25% management fee for the Money Market Fund. The amount of such waiver for the six months ended June 30, 1998 was $722,207. FRIMCo calculates its management fee based on average daily net assets for each Fund less any management fee incurred on assets invested in the Money Market Fund (see Note 5) thereby eliminating any duplication of fees. ANALYTIC SERVICES: Fees for analytic services provided to the Funds are paid or accrued to Frank Russell Company, an affiliate of the Investment Company. Frank Russell Company provides its TruVP System to the Real Estate Securities, Emerging Markets and Equity T Funds, pursuant to a written Service Agreement. TRANSFER AGENT: The Funds have a contract with FRIMCo to provide transfer agent services to the Investment Company. Total fees for the six months ended June 30, 1998 were $595,971. DISTRIBUTOR AND SHAREHOLDER SERVICING: Prior to May 18, 1998, the Investment Company had a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company was authorized to make payments to the Distributor, 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 were primarily intended to result in the sale of the Class C Shares subject to the Distribution Plan. Effective May 18, 1998, Class C shares were renamed Class E shares and the 12b-1 fee was eliminated. The Investment Company has entered into a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of FRIMCo to promote and offer shares of Class S and Class E of the Investment Company Funds. The Distributor may enter into sub-distribution agreements with other non-affiliated parties (the "Selling/Servicing Agents"). , The amounts paid to the Distributor prior to May 18, 1998 for distribution services relating to Class E are included in the accompanying Statements of Operations. Currently, the Distributor receives no compensation from the Investment Company for its services relating to distributions of the Class S and Class E Shares. In addition, the Investment Company has adopted a Shareholder Services Plan (the "Services Plan") under which it 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 Shares of the Funds. The amounts paid to the Distributor for shareholder services relating to Class E are included in the accompanying Statements of Operations. The shareholder servicing payments shall not exceed 0.25% of the average daily net assets of a Fund's Class E Shares on an annual basis. The Investment Company does not pay for unreimbursed expenses of the Distributor including amounts expended by the Distributor in excess of amounts received by it from the Investment Company interest, carrying or other financing charges in connection with excess amounts expended, or the Distributor's overhead expenses. However, the Distributor may be able to recover such amount or more from future payments made by the Investment Company under the Distribution plan. 76 Notes to Financial Statements Specialty Funds FRANK RUSSELL INVESTMENT COMPANY SPECIALTY FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED ACCRUED FEES PAYABLE TO AFFILIATES AS OF JUNE 30, 1998 WERE AS FOLLOWS:
SHAREHOLDER SERVICING & MANAGEMENT ANALYTIC TRANSFER DISTRIBUTION FEES SERVICE FEES AGENT FEES FEES TOTALS ------------ ------------ ------------ ------------ ------------ Real Estate Securities $ 433,678 $ 1,988 $ -- $ 517 $ 436,183 Emerging Markets 341,209 3,576 28,502 -- 373,287 Equity T 118,794 1,815 13,963 -- 134,572 Limited Volatility Tax Free 43,035 513 -- -- 43,548 U.S. Government Money Market -- -- -- -- -- Tax Free Money Market 20,609 546 233 -- 21,388 Money Market 82,905 1,178 21,013 -- 105,096 ------------ ------------ ------------ ------------ ------------ $ 1,040,230 $ 9,616 $ 63,711 $ 517 $ 1,114,074 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
BOARD OF TRUSTEES: The Investment Company pays each of its Trustees not affiliated with FRIMCo a retainer of $20,000 per year plus out-of-pocket expenses. Total Trustee expenses were $54,794 for the six months ended June 30, 1998, and were allocated to each Fund and Class, where appropriate, on a pro rata basis, including 21 other affiliated funds not presented herein. 5. MONEY MARKET FUND The Real Estate Securities, Emerging Markets and Equity T 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. As of June 30, 1998, $58,403,000 of the Money Market Fund's net assets represents investments by these Funds and $688,108,000 represents the investments of other affiliated Funds not presented herein. 6. FUND SHARE TRANSACTIONS Share transactions for each Class of shares were as follows:
SHARES DOLLARS --------------------------------------- --------------------------------------- FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 ------------------- ------------------- ------------------- ------------------- REAL ESTATE SECURITIES CLASS S Proceeds from shares sold 4,844,747 7,684,555 $ 142,784,562 $ 230,371,098 Proceeds from reinvestment of distributions 423,741 1,795,828 12,556,340 53,609,700 Payments for shares redeemed (2,259,539) (4,804,495) (66,620,635) (145,560,311) ------------------- ------------------- ------------------- ------------------- Net increase (decrease) 3,008,949 4,675,888 88,720,267 138,420,487 ------------------- ------------------- ------------------- ------------------- CLASS E * Proceeds form shares sold 6,279 10,282 186,123 312,091 Proceeds from reinvestment of distributions 1 2 20 56 Payments for shares redeemed (4,685) (1,234) (133,082) (38,088) ------------------- ------------------- ------------------- ------------------- Net increase (decrease) 1,595 9,050 53,061 274,059 ------------------- ------------------- ------------------- ------------------- Total net increase (decrease) 3,010,544 4,684,938 $ 88,773,328 $ 138,694,546 ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- * Effective May 18, 1998, Class C was renamed Class E.
Specialty Funds Notes to Financial Statements 77 FRANK RUSSELL INVESTMENT COMPANY SPECIALTY FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED
SHARES DOLLARS --------------------------------------- --------------------------------------- FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 ------------------- ------------------- ------------------- ------------------- EMERGING MARKETS* CLASS S Proceeds from shares sold 12,046,418 14,335,518 $ 134,058,610 $ 190,158,016 Proceeds from reinvestment of distributions 172,875 247,790 1,944,839 3,101,136 Payments for shares redeemed (5,031,216) (8,321,103) (57,437,836) (108,152,054) ------------------- ------------------- ------------------- ------------------- Total net increase (decrease) 7,188,077 6,262,205 $ 78,565,613 $ 85,107,098 ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- EQUITY T Proceeds from shares sold 4,944,723 6,151,525 $ 76,405,522 $ 77,850,485 Proceeds from reinvestment of distributions 4,755 32,047 70,776 433,594 Payments for shares redeemed (610,981) (165,627) (9,715,188) (2,158,852) ------------------- ------------------- ------------------- ------------------- Total net increase (decrease) 4,338,497 6,017,945 $ 66,761,110 $ 76,125,227 ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- LIMITED VOLATILITY TAX FREE Proceeds from shares sold 1,977,751 2,531,242 $ 42,002,257 $ 53,259,367 Proceeds from reinvestment of distributions 51,716 103,927 1,094,624 2,187,639 Payments for shares redeemed (789,486) (1,870,802) (16,758,133) (39,334,693) ------------------- ------------------- ------------------- ------------------- Total net increase (decrease) 1,239,981 764,367 $ 26,338,748 $ 16,112,313 ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
ON A CONSTANT DOLLAR BASIS FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ------------------- ------------------- MONEY MARKET Proceeds from shares sold 5,151,970,867 8,643,687,722 Proceeds from reinvestment of distributions 5,968,311 1,300,153 Payments for shares redeemed (5,093,924,743) (8,215,637,307) ------------------- ------------------- Total net increase (decrease) 64,014,435 429,350,568 ------------------- ------------------- ------------------- ------------------- U.S. GOVERNMENT MONEY MARKET Proceeds from shares sold 185,670,915 667,733,205 Proceeds from reinvestment of distributions 3,330,673 9,531,602 Payments for shares redeemed (237,687,924) (729,577,537) ------------------- ------------------- Total net increase (decrease) (48,686,336) (52,312,730) ------------------- ------------------- ------------------- ------------------- TAX FREE MONEY MARKET Proceeds from shares sold 201,011,372 267,746,557 Proceeds from reinvestment of distributions 1,402,633 1,922,212 Payments for shares redeemed (160,815,765) (241,151,219) ------------------- ------------------- Total net increase (decrease) 41,598,240 28,517,550 ------------------- ------------------- ------------------- -------------------
* There was no activity for Class E shares for the Emerging Markets Fund. Effective May 18, 1998 Class C was renamed Class E. 78 Notes to Financial Statements Specialty Funds FRANK RUSSELL INVESTMENT COMPANY SPECIALTY FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED 7. DIVIDENDS On July 2, 1998, the Board of Trustees declared the following dividends from net investment income payable on July 7, 1998, to shareholders of record on July 2, 1998: Limited Volatility Tax Free $ 0.0667 Real Estate Securities - Class S 0.3397 Real Estate Securities - Class E 0.3049 8. BENEFICIAL INTEREST The following Funds or Class of shares have one or more shareholders with an interest greater than 10% of the total outstanding shares as of June 30, 1998: Emerging Markets 13.1%, Equity T 11.6% and 15.9%, Tax Free Money Market 32.4%, 10.7%, and 11.3%, and Real Estate Securities - Class E 28.9% and 70.9%. 9. SUBSEQUENT EVENTS On August 10, 1998, Frank Russell Company entered into an agreement with The Northwestern Mutual Life Insurance Co., an insurance organization, pursuant to which Northwestern Mutual Life will acquire all of the outstanding common stock of Frank Russell Company. Specialty Funds Notes to Financial Statements 79 FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 832-6688 In Washington (253) 627-7001 TRUSTEES George F. Russell, Jr., Chairman Lynn L. Anderson Paul E. Anderson Paul Anton, PhD William E. Baxter Lee C. Gingrich Eleanor W. Palmer OFFICERS Lynn L. Anderson, President and Chief Executive Officer Peter Apanovitch, 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 AND TRANSFER AGENT Frank Russell Investment Management Company 909 A Street Tacoma, WA 98402 CONSULTANT Frank Russell Company 909 A Street Tacoma, WA 98402 MONEY MANAGERS REAL ESTATE SECURITIES AEW Capital Management, L.P., Boston, MA Cohen & Steers Capital Management, New York, NY EMERGING MARKETS Genesis Asset Managers Limited, London, England J.P. Morgan Investment Management, Inc., New York, NY Montgomery Asset Management, L.P., San Francisco, CA EQUITY T FUND J.P. Morgan Investment Management, Inc., New York, NY LIMITED VOLATILITY TAX FREE MFS Institutional Advisors, Inc., Boston, MA T. Rowe Price Associates, Inc., Baltimore, MD MONEY MARKET Frank Russell Investment Management Co., Tacoma, WA U.S. GOVERNMENT MONEY MARKET Frank Russell Investment Management Co., Tacoma, WA TAX FREE MONEY MARKET Weiss, Peck & Greer, LLC, New York, NY CUSTODIAN State Street Bank and Trust Company 1776 Heritage Drive 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 One Post Office Square Boston, MA 02109 DISTRIBUTOR Russell Fund Distributors, Inc. 909 A Street Tacoma, WA 98402 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. 80 Manager, Money Managers and Service Providers Specialty Funds FRANK RUSSELL INVESTMENT COMPANY Frank Russell Investment Company is a "series mutual fund" with 28 different investment portfolios. These financial statements report on eight 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 INSTITUTIONAL FUNDS SEMIANNUAL REPORT JUNE 30, 1998 (UNAUDITED) TABLE OF CONTENTS
Page Letter to Our Clients . . . . . . . . . . . . . . . . . . . . . . 1 Equity I Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Equity II Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 14 Equity III Fund . . . . . . . . . . . . . . . . . . . . . . . . . 28 Equity Q Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 36 International Fund. . . . . . . . . . . . . . . . . . . . . . . . 48 Fixed Income I Fund . . . . . . . . . . . . . . . . . . . . . . . 66 Fixed Income II Fund. . . . . . . . . . . . . . . . . . . . . . . 82 Fixed Income III Fund . . . . . . . . . . . . . . . . . . . . . . 92 Notes to Financial Statements . . . . . . . . . . . . . . . . . . 105 Manager, Money Managers and Service Providers . . . . . . . . . . 115
FRANK RUSSELL INVESTMENT COMPANY - INSTITUTIONAL FUNDS Copyright -C- Frank Russell Company 1998. 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 as of April 1, 1995 is reported gross of investment advisory fees. For periods thereafter, performance and yields are reported net of investment advisory fees but gross of investment services fees, descriptions of which can be obtained from the investment advisor. Investment services fees and other account expenses will reduce performance (e.g., an investment services fee of 0.2% of average managed assets will reduce a 10.0% annual return to 9.8%). 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 1998 Semiannual Report. This report covers information on eight of the Funds and represents the Funds' first six months of our seventeenth 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 the first six months of 1998, as our Funds, in general, provided solid returns as compared to their respective benchmarks and attracted many new investors, both creating significant growth in assets. 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 1997, we have implemented changes in our Funds' structure which we believe will benefit current and potential investors. The former Class C shares of the Russell Funds have been renamed Russell Fund Class E shares, and their fee structure now aligns with the Russell LifePoints-Registered Trademark- Funds' Class E shares. Additionally, the Russell LifePoints-Registered Trademark- Funds' Class D shares were opened for investment in March 1998. We are also pleased to announce FRIMCo has retained Boston Financial Data Services (BFDS) to assist in the transfer agent process, effective June 1998. We anticipate this change will enhance the level of services provided to our clients. Thank you for your continued confidence and investment with Frank Russell Investment Company. We look forward to the remainder of 1998 and continuing to earn your support. Sincerely, /s/ George F. Russell, Jr. /s/ Lynn L. Anderson George F. Russell, Jr. Lynn L. Anderson Chairman President and Chief Executive Officer Frank Russell Investment Company Frank Russell Investment Company EQUITY I FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 96.0% AUTO AND TRANSPORTATION - 4.2% AMR Corp. (a) 49,300 $ 4,104 Aviall, Inc. (a) 20,100 275 Bandag, Inc. 1,000 39 BE Aerospace, Inc. (a) 28,300 828 Chrysler Corp. 33,000 1,860 Comair Holdings, Inc. 17,200 530 Continental Airlines, Inc. Class B (a) 51,100 3,111 Cooper Tire & Rubber Co. 158,000 3,259 Dana Corp. 15,600 835 Delta Air Lines, Inc. 24,200 3,128 Eaton Corp. 1,100 85 Echlin, Inc. 4,600 226 Exide Corp. 74,800 1,257 FDX Corp. (a) 16,600 1,042 Ford Motor Co. 161,000 9,499 General Motors Corp. 21,000 1,403 Kansas City Southern Industries, Inc. 7,900 392 KLM Royal Dutch Airlines 65,991 2,701 Meritor Automotive, Inc. 29,675 712 Navistar International Corp. (a) 63,400 1,831 Nordic American Tanker Shipping, Ltd. 195,200 2,940 Norfolk Southern Corp. 129,500 3,861 Northwest Airlines Corp. Class A (a) 111,200 4,288 Overseas Shipholding Group, Inc. 15,000 306 PACCAR, Inc. 11,100 578 Southwest Airlines Co. 900 27 Trinity Industries, Inc. 32,200 1,336 UAL Corp. (a) 72,600 5,663 ---------- 56,116 ---------- CONSUMER DISCRETIONARY - 13.6% Abercrombie & Fitch Co. Class A (a) 8,169 359 America Online, Inc. 30,600 3,244 Apple South 22,200 289 Avon Products, Inc. 20,500 1,589 Barry (R.G.) Corp. (a) 126,100 2,081 Bed Bath & Beyond, Inc. (a) 30,000 1,554 Belo (A.H.) Corp. Class A 17,600 429 Borders Group, Inc. (a) 5,800 215 Brinker International, Inc. (a) 35,500 683 Browning-Ferris Industries, Inc. 1,300 45 Brunswick Corp. 27,500 681 Carnival Corp. Class A 180,400 7,148 Cendant Corp. (a) 41,200 860 Chancellor Media Corp. (a) 31,000 1,538 Chris Craft Industries, Inc. (a) 2,996 164 Circuit City Stores, Inc. 12,800 600 Clear Channel Communications, Inc. (a) 17,900 1,953 Cognizant Corp. 9,500 599 Costco Companies, Inc. (a) 10,700 675 Cracker Barrel Old Country Store, Inc. 5,600 178 Danka Business Systems - ADR 62,000 732 Darden Restaurants, Inc. 49,600 787 Dayton Hudson Corp. 244,400 11,853 Dillard's, Inc. Class A 15,800 655 Disney (Walt) Co. 115,200 12,103 Dollar Tree Stores, Inc. (a) 5,325 216 Eastman Kodak Co. 35,489 2,593 Estee Lauder Companies Class A 1,100 77 Extended Stay America, Inc. (a) 3,300 37 Federated Department Stores, Inc. (a) 117,815 6,340 Fortune Brands, Inc. 21,900 842 Fruit of the Loom, Inc. Class A (a) 16,700 554 Gannett Co., Inc. 11,600 824 General Nutrition Companies, Inc. (a) 37,600 1,170 Grand Casinos, Inc. (a) 47,400 794 Harland (John H.) Co. 20,000 339 Harrah's Entertainment, Inc. (a) 2,300 53 Hasbro, Inc. 77,300 3,039 Hilton Hotels Corp. 55,800 1,590 Hollinger International, Inc. Class A 11,200 190 Home Depot, Inc. (The) 141,500 11,753 Host Marriott Corp. (a) 38,500 686 International Game Technology 20,000 485 JC Penney & Co., Inc. 45,800 3,312 Jones Apparel Group, Inc. (a) 55,000 2,011 Kellwood Co. 40,300 1,441 King World Productions, Inc. (a) 35,500 905 Kmart Corp. (a) 75,200 1,448 Knight-Ridder, Inc. 5,000 275 Kohl's Corp. (a) 57,500 2,983 Legacy Hotels Real Estate Investment Trust (Units) 8,600 50 Limited, Inc. (The) 174,800 5,790 Liz Claiborne, Inc. 6,500 340 Lowe's Cos., Inc. 57,400 2,328 Mark Bros. Jewelers, Inc. (a) 30,000 574 Marriot International, Inc. Class A 1,000 32 Mattel, Inc. 234,043 9,903 May Department Stores Co. 63,200 4,140 Maytag Corp. 20,000 988 McDonald's Corp. 28,900 1,994 McGraw-Hill, Inc. 1,500 122 MediaOne Group, Inc. (a) 115,700 5,084 Meredith Corp. 14,700 690
2 Equity I Fund EQUITY I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Metromedia International Group, Inc. (a) 176,100 $ 2,102 Neiman-Marcus Group, Inc. (a) 8,800 382 New York Times Co. Class A 62,700 4,969 Newell Co. 2,100 105 Nordstrom, Inc. 31,200 2,408 Office Depot, Inc. (a) 8,500 268 OfficeMax, Inc. (a) 47,100 777 Omnicom Group, Inc. 34,100 1,701 Payless ShoeSource, Inc. (a) 5,200 383 Petroleum Heat & Power, Inc. Class A 391,077 758 Premark International, Inc. 28,400 916 Promus Hotel Corp. New (a) 425 16 Pulitzer Publishing Co. 4,000 357 Rubbermaid, Inc. 52,800 1,752 Sears Roebuck & Co. 92,900 5,673 Service Corp. International 57,200 2,452 Sodexho Marriott Services, Inc. (a) 125 4 Staples, Inc. (a) 5,300 153 Stewart Enterprises, Inc. Class A 33,000 883 Tiffany & Co. 3,600 173 Time Warner, Inc. 57,300 4,896 TJX Cos., Inc. 75,800 1,829 Tribune Co. 44,400 3,055 Tupperware Corp. 13,100 368 Unisource Worldwide, Inc. 139,800 1,512 USA Waste Services, Inc. (a) 59,400 2,933 V.F. Corp. 1,700 87 Valassis Communications, Inc. (a) 3,800 147 Viacom, Inc. Class B (a) 41,700 2,429 Viad Corp. 41,400 1,149 Wal-Mart Stores, Inc. 135,200 8,213 Whirlpool Corp. 46,600 3,204 Young & Rubicam, Inc. (a) 5,000 160 ---------- 183,220 ---------- CONSUMER STAPLES - 7.5% American Stores Co. 9,300 225 Anheuser-Busch Cos., Inc. 52,900 2,496 Bestfoods 39,900 2,317 Campbell Soup Co. 21,700 1,153 Chiquita Brands International, Inc. 80,600 1,134 Coca-Cola Co. (The) 136,600 11,679 Coca-Cola Enterprises, Inc. 65,100 2,555 Colgate-Palmolive Co. 65,400 5,755 ConAgra, Inc. 80,000 2,535 Corn Products International, Inc. (a) 8,000 271 CVS Corp. 63,900 2,488 Dean Foods Co. 1,200 66 Dial Corp. New 1,700 44 Dole Food, Inc. 26,400 1,312 Gillette Co. 87,600 4,966 Hannaford Brothers Co. 3,200 141 International Multifoods Corp. 68,400 1,881 Interstate Bakeries Corp. 11,000 365 McCormick & Co., Inc. 1,100 39 PepsiCo, Inc. 302,800 12,472 Philip Morris Cos., Inc. 546,050 21,501 Procter & Gamble Co. 120,100 10,937 Quaker Oats Co. 15,800 868 Ralston-Purina Group 2,600 304 Rite Aid Corp. 112,000 4,207 RJR Nabisco Holdings Corp. 104,020 2,470 SuperValu, Inc. 21,800 967 SYSCO Corp. 46,200 1,184 Tyson Foods, Inc. Class A 4,900 106 U.S. Foodservice (a) 2,002 70 Unilever NV 45,900 3,623 Universal Corp. 15,900 594 UST Corp. 10,100 273 Vlasic Foods International, Inc. (a) 1,500 30 Weis Markets, Inc. 2,200 81 Winn-Dixie Stores, Inc. 400 21 Wrigley (Wm.), Jr. Co. 4,800 470 ---------- 101,600 ---------- FINANCIAL SERVICES - 19.6% ACE, Ltd. 7,600 296 AFLAC, Inc. 196,000 5,941 Ahmanson (H.F.) & Co. 110,500 7,846 Allstate Corp. 99,466 9,107 Ambac Financial Group, Inc. 26,000 1,521 American Express Co. 56,300 6,418 American International Group, Inc. 105,200 15,359 AmSouth Bancorp 55,650 2,188 Associates First Capital Corp. Class A 67,761 5,209 Automatic Data Processing, Inc. 127,100 9,262 Banc One Corp. 79,800 4,454 Bank of New York Co., Inc. 4,000 243 BankAmerica Corp. 86,400 7,468 Bankers Trust New York Corp. 11,600 1,346 Bear Stearns Cos., Inc. 9,968 567 Beneficial Corp. 12,900 1,976 Berkshire Hathaway, Inc. Class A (a) 12 940 Canadian Hotel Income Properties 226,100 1,844
Equity I Fund 3 EQUITY I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Charter One Financial, Inc. 57,300 $ 1,923 Chase Manhattan Corp. 169,484 12,796 Chubb Corp. (The) 20,000 1,607 Citicorp 54,100 8,074 City National Corp. 2,000 74 CMAC Investment Corp. 3,300 203 Comdisco, Inc. 13,200 251 Comerica, Inc. 40,500 2,683 Commerce Bancshares, Inc. 25,885 1,255 Conseco, Inc. 80,844 3,779 Countrywide Credit Industries, Inc. 8,700 441 Crestar Financial Corp. 19,000 1,037 Danielson Holding Corp. (a) 128,300 946 Dime Bancorp, Inc. 50,500 1,512 Dow Jones & Co., Inc. 14,500 808 DST Systems, Inc. (a) 14,600 818 Dun & Bradstreet Corp. 11,200 405 Edwards (A.G.), Inc. 4,300 184 Equitable Companies, Inc. 15,500 1,162 Everest Reinsurance Holdings, Inc. 14,700 565 Federal Home Loan Mortgage Corp. 64,400 3,031 Federal National Mortgage Association 111,300 6,761 Fifth Third Bancorp 19,200 1,207 FINOVA Group, Inc. 22,400 1,268 First American Corp. 68,600 3,301 First Data Corp. 143,600 4,784 First Security Corp. 51,900 1,109 First Union Corp. 26,900 1,567 Fleet Financial Group, Inc. 52,100 4,350 Fremont General Corp. 13,000 704 GATX Corp. 3,000 132 General Re Corp. 19,300 4,892 Golden West Financial Corp. 9,000 957 Green Tree Financial Corp. 107,800 4,615 Hartford Financial Services Group, Inc. (The) 18,700 2,139 Household International Corp. 91,800 4,567 Jefferson-Pilot Corp. 4,050 235 KeyCorp 30,000 1,069 Lehman Brothers Holdings, Inc. 17,500 1,357 Local Financial Corp. (144A) 157,900 2,053 Loews Corp. 19,800 1,725 M & T Bank Corp. (a) 500 277 Marsh & McLennan Cos., Inc. 22,950 1,387 MBIA, Inc. 28,700 2,149 MBNA Corp. 441,912 14,583 Mercury General Corp. 4,600 296 Merrill Lynch & Co., Inc. 41,700 3,847 MGIC Investment Corp. 30,700 1,752 Morgan (J.P.) & Co., Inc. 2,000 234 Morgan Stanley, Dean Witter, Discover and Co. 135,750 12,404 National City Corp. 28,100 1,995 NationsBank Corp. 113,462 8,680 Nationwide Financial Services, Inc. Class A 3,900 199 North Fork Bancorporation, Inc. 17,700 433 Northern Trust Corp. 19,500 1,486 Norwest Corp. 144,800 5,412 Old Kent Financial Corp. 735 26 Old Republic International Corp. 38,475 1,128 Pacific Century Financial Corp. 28,900 694 PaineWebber Group, Inc. 44,850 1,923 Paychex, Inc. 36,600 1,487 PennCorp Financial Group, Inc. 80,900 1,658 PNC Bank Corp. 47,600 2,561 Progressive Corp. 23,500 3,314 Provident Companies, Inc. 4,000 138 Reinsurance Group of America, Inc. (a) 5,400 277 Reliance Group Holdings, Inc. 30,800 539 Reliastar Financial Corp. 23,300 1,118 Republic New York Corp. 3,600 227 Ryder System, Inc. 84,400 2,664 SLM Holding Corp. 7,200 353 SouthTrust Corp. 40,150 1,747 St. Paul Cos., Inc. 64,300 2,705 Star Banc Corp. 2,200 141 State Street Corp. 11,700 813 TCF Financial Corp. 39,500 1,165 TIG Holdings, Inc. 34,400 791 Transamerica Financial Corp. 14,500 1,669 Transatlantic Holdings, Inc. 1,950 151 Travelers, Inc. 46,475 2,818 United Asset Management Corp. 600 16 Washington Mutual, Inc. 102,840 4,461 Wells Fargo & Co. 2,600 959 Westcorp, Inc. 28,200 388 Zions Bancorp 6,300 335 ---------- 265,731 ---------- HEALTH CARE - 10.3% Aetna, Inc. 74,500 5,671 Allergan, Inc. 7,200 334 ALZA Corp. (a) 38,500 1,665 American Home Products Corp. 88,200 4,564 Amgen, Inc. (a) 30,500 1,994
4 Equity I Fund EQUITY I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Bard (C.R.), Inc. 1,400 $ 53 Bausch & Lomb, Inc. 5,200 261 Baxter International, Inc. 90,800 4,886 Becton, Dickinson & Co. 1,100 85 Bergen Brunswig Corp. Class A 8,200 380 Beverly Enterprises, Inc. New (a) 35,800 494 Biogen, Inc. (a) 2,300 112 Biomet, Inc. 66,800 2,204 Bristol-Myers Squibb Co. 136,360 15,673 Cardinal Health, Inc. 23,900 2,241 ChromaVision Medical Systems, Inc. (a) 140 1 Columbia/HCA Healthcare Corp. 230,900 6,725 First Health Group Corp. (a) 54,600 1,556 Forest Labs, Inc. (a) 11,100 397 Genesis Health Ventures, Inc. (a) 5,400 135 Genzyme Corp. (a) 17,400 440 HBO & Co. 32,000 1,128 Humana, Inc. (a) 29,900 933 Integrated Health Services, Inc. 50,000 1,875 IVAX Corp. (a) 106,000 981 Johnson & Johnson 84,800 6,254 Lilly (Eli) & Co. 71,900 4,750 Mallinckrodt, Inc. 6,100 181 Medtronic, Inc. 19,500 1,243 Merck & Co., Inc. 141,850 18,973 Mylan Laboratories, Inc. 243,800 7,329 PacifiCare Health Systems, Inc. Class B (a) 30,300 2,676 Pfizer, Inc. 155,400 16,890 Quest Diagnostics, Inc. (a) 98,300 2,150 Quintiles Transnational Corp. (a) 34,800 1,710 Schering-Plough Corp. 111,000 10,170 Stryker Corp. 6,600 253 Tenet Healthcare Corp. (a) 44,700 1,397 Total Renal Care Holdings, Inc. (a) 3,500 121 Trigon Healthcare, Inc. (a) 1,400 51 United Healthcare Corp. 82,500 5,239 US Bioscience, Inc. (a) 81,100 664 Warner-Lambert Co. 56,800 3,941 Wellpoint Health Networks, Inc. Class A (a) 6,406 474 ---------- 139,254 ---------- INTEGRATED OILS - 3.3% Amerada Hess Corp. NPV 64,000 3,476 Amoco Corp. 82,000 3,413 Ashland, Inc. 46,714 2,412 Atlantic Richfield Co. 21,900 1,711 Coastal Corp. 63,600 4,440 Crown Central Petroleum Co. Class B (a) 98,000 1,237 Exxon Corp. 132,720 9,464 Kerr-McGee Corp. 21,500 1,244 Lyondell Petrochemical Co. 27,000 822 Mobil Corp. 25,000 1,916 Murphy Oil Corp. 1,900 96 Phillips Petroleum Co. 45,300 2,183 Sun Co., Inc. 17,000 660 Tenneco, Inc. 46,900 1,785 Texaco, Inc. 42,600 2,543 Unocal Corp. 69,200 2,474 USX-Marathon Group 142,900 4,903 ---------- 44,779 ---------- MATERIALS AND PROCESSING - 7.5% Air Products & Chemicals, Inc. 52,200 2,088 Albany International Corp. Class A 11,156 267 Albemarle Corp. 22,300 492 Alumax, Inc. 3,400 158 Aluminum Co. of America 3,800 251 American Real Estate Partners, L.P. (a) 318,062 3,260 Archer-Daniels-Midland Co. 32,500 630 Arco Chemical Co. 7,700 442 Armstrong World Industries, Inc. 26,100 1,758 ASARCO, Inc. 11,700 260 Asia Pulp & Paper Co, - ADR Ltd. 60,000 675 Avery Dennison Corp. 17,000 914 Bethlehem Steel Corp. (a) 31,200 388 Betz Laboratories, Inc. 5,500 228 Boise Cascade Office Products Corp. (a) 10,195 158 Bowater, Inc. 3,600 170 Capital Automotive 17,800 253 Catellus Development Corp. (a) 139,900 2,474 Centex Corp. 16,000 604 Champion International Corp. 28,100 1,382 Commonwealth Industries, Inc. 30,000 296 Consolidated Papers, Inc. 1,800 49 Corning, Inc. 12,700 441 Crown Cork & Seal Co., Inc. 48,500 2,304 Cytec Industries, Inc. (a) 2,300 102 du Pont (E.I.) de Nemours & Co. 47,100 3,515 Eastman Chemical Co. 46,900 2,920 Ecolab, Inc. 300 9 Engelhard Corp. 26,800 543 FMC Corp. (a) 24,200 1,650 Fort James Corp. 52,300 2,327
Equity I Fund 5 EQUITY I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Gaylord Container Corp. Class A (a) 483,800 $ 3,719 Georgia-Pacific Group 12,400 731 Georgia-Pacific Timber Group 26,100 602 Getty Realty Holding Corp. 40,000 775 Goodrich (B.F.) Co. 15,200 754 Great Lakes Chemical Corp. 77,500 3,056 Harsco Corp. 17,800 816 Hexcel Corp. (a) 95,700 2,165 Homestake Mining Co. 60,300 626 Illinois Tool Works, Inc. 32,300 2,154 International Paper Co. 41,000 1,763 Johns Manville Corp. 6,000 90 Kimberly-Clark Corp. 74,300 3,409 Lafarge Corp. 19,900 782 Longview Fibre Co. 8,000 114 Louisiana Pacific Corp. 41,600 759 LTV Corp. 15,400 147 Lubrizol Corp. 9,200 278 Mead Corp. 46,300 1,470 Mercer International, Inc. 130,300 1,299 Mohawk Industries, Inc. (a) 13,100 415 Monsanto Co. 127,000 7,096 Newhall Land & Farming Co. 38,800 1,096 Olin Corp. 34,200 1,426 Oregon Steel Mills, Inc. 20,000 373 Owens-Illinois, Inc. (a) 1,000 45 Pentair, Inc. 5,100 217 Phelps Dodge Corp. 59,000 3,374 Philip Services Corp. (a) 39,000 161 Potlatch Corp. 10,400 437 Praxair, Inc. 58,300 2,729 Reynolds Metals Co. 28,500 1,594 Rohm & Haas Co. 600 62 Sealed Air Corp. New (a) 25,900 952 Solutia, Inc. 31,700 909 Sonoco Products Co. 11,890 360 Stone Container Corp. (a) 53,500 836 Timken Co. 24,300 749 Tyco International, Ltd. 304,000 19,152 UCAR International, Inc. (a) 12,100 353 USG Corp. 2,300 124 Vulcan Materials Co. 1,200 128 W.R. Grace & Co. New (a) 55,500 947 Witco Corp. 17,900 524 ---------- 100,576 ---------- MISCELLANEOUS - 0.3% BEC Energy (a) 900 38 FBR Asset Investment Corp. (a) 32,600 603 Legacy Hotels Real Estate Investment Trust (a) 328,500 1,920 Mack-Cali Realty Corp. 14,900 512 SFX Entertainment, Inc. Class A (a) 8,100 371 TeleTech Holdings, Inc. (a) 5,700 70 ---------- 3,514 ---------- OTHER ENERGY - 2.4% Apache Corp. 62,200 1,959 Baker Hughes, Inc. 94,200 3,256 BJ Services Co. (a) 6,800 198 British Petroleum Co. PLC - ADR 225 20 Burlington Resources, Inc. 6,000 258 Camco International, Inc. 15,100 1,176 Diamond Offshore Drilling, Inc. 4,600 184 Dresser Industries, Inc. 12,500 551 EEX Corp. (a) 40,186 377 Enron Oil & Gas Co. 5,200 105 ENSCO International, Inc. 19,800 344 EVI Weatherford, Inc. (a) 4,295 159 Gulf Canada Resources, Ltd. (a) 27,500 136 Halliburton Co. 71,500 3,186 MarketSpan Corp. (a) 29,880 895 Nabors Industries, Inc. (a) 14,300 283 Noble Affiliates, Inc. 30,900 1,174 Ocean Energy, Inc. New (a) 1,170 23 Octel Corp. (a) 19,375 385 R&B Falcon Corp. (a) 86,000 1,946 Rowan Cos., Inc. (a) 5,000 97 Santa Fe Energy Resources, Inc. (a) 39,200 421 Schlumberger, Ltd. 95,900 6,551 Sempra Energy (a) 2,000 56 Tidewater, Inc. 8,300 274 Tosco Corp. 14,600 429 Transocean Offshore, Inc. 68,300 3,039 TransTexas Gas Corp. (a) 2,300 20 Triton Energy, Ltd. Class A (a) 49,400 1,763 Ultramar Diamond Shamrock Corp. 500 16 UTI Energy Corp. (a) 24,800 319 Valero Energy Corp. 53,900 1,792 Vastar Resources, Inc. 1,900 83 Western Atlas, Inc. (a) 4,000 340 ---------- 31,815 ----------
6 Equity I Fund EQUITY I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- PRODUCER DURABLES - 6.2% AGCO Corp. 45,800 $ 942 Alcatel Alsthom Compagnie Generale d'Electricite - ADR 36,449 1,483 AMP, Inc. 14,900 512 Case Corp. 31,800 1,534 Caterpillar, Inc. 86,300 4,563 Clayton Homes, Inc. 8,300 158 Cordant Technologies, Inc. 9,600 443 Crane Co. 40,800 1,981 Credence Systems Corp. (a) 12,100 230 Cummins Engine Co., Inc. 5,600 287 Danaher Corp. 1,000 37 Elsag Bailey Process Automation NV (a) 80,200 1,930 Foster Wheeler Corp. 48,900 1,048 General Electric Co. 157,600 14,342 General Semiconductor, Inc. (a) 151,600 1,497 Gulfstream Aerospace Corp. (a) 17,400 809 Honeywell, Inc. 4,900 409 Ingersoll-Rand Co. 71,200 3,137 ITT Industries, Inc. 5,000 187 Johnson Controls, Inc. 29,500 1,687 Kaiser Ventures, Inc. (a) 65,000 788 Knoll, Inc. (a) 20,400 602 Lexmark International Group, Inc. Class A (a) 23,600 1,440 Litton Industries, Inc. (a) 19,700 1,162 Lockheed Martin Corp. 36,200 3,833 MagneTek, Inc. (a) 48,100 758 Molex, Inc. 3,625 91 National Service Industries, Inc. 800 41 Northern Telecom, Ltd. 93,400 5,300 Northrop Grumman Corp. 14,200 1,464 Parker-Hannifin Corp. 14,650 559 Pitney Bowes, Inc. 6,100 294 Raytheon Co. Class A 1,237 71 Raytheon Co. Class B 13,400 792 Sensormatic Electronics Corp. (a) 108,000 1,512 Sundstrand Corp. 1,000 57 Tecumseh Products Co. Class A 400 21 Tektronix, Inc. 12,800 453 Teradyne, Inc. (a) 22,300 597 Thermo Instrument Systems, Inc. (a) 4,800 125 Thomas & Betts Corp. 4,600 227 U.S. Filter Corp. New (a) 102,800 2,885 United Technologies Corp. 88,400 8,177 Whittaker Corp. New (a) 177,300 2,349 Xerox Corp. 122,200 12,418 ---------- 83,232 ---------- TECHNOLOGY - 12.9% 3Com Corp. (a) 49,000 1,503 ADC Telecommunications, Inc. (a) 14,500 529 Advanced Micro Devices, Inc. (a) 2,800 48 Altera Corp. (a) 3,200 94 Apple Computer, Inc. (a) 51,800 1,486 Ascend Communications, Inc. (a) 44,200 2,188 Autodesk, Inc. 5,700 219 BMC Software, Inc. (a) 63,400 3,293 Cadence Design Systems, Inc. (a) 28,000 875 CDW Computer Centers, Inc. (a) 2,100 105 CIENA Corp. (a) 1,400 97 Cisco Systems, Inc. (a) 254,900 23,467 COMPAQ Computer Corp. 339,600 9,636 CompUSA, Inc. (a) 35,700 645 Computer Associates International, Inc. 18,300 1,017 Computer Sciences Corp. 900 58 Compuware Corp. (a) 28,000 1,430 Cooper Industries, Inc. 23,100 1,269 Cypress Semiconductor Corp. (a) 110,700 920 Dell Computer Corp. (a) 180,900 16,778 Electronic Data Systems Corp. 179,226 7,169 EMC Corp. (a) 55,700 2,496 Ericsson (LM) Telephone Co. Class B - ADR 118,166 3,382 ESS Technology, Inc. (a) 10,000 47 FORE Systems (a) 12,400 328 General Dynamics Corp. 3,400 158 General Motors Corp. Class H (a) 16,800 792 Haemonetics Corp. (a) 10,200 163 Hewlett-Packard Co. 101,400 6,071 Hutchinson Technology, Inc. (a) 15,900 433 Imation Corp. (a) 25,700 426 IMS Health, Inc. (a) 2,800 161 Informix Corp. (a) 27,500 216 Ingram Micro, Inc. Class A (a) 8,500 376 Integrated Device Technology (a) 148,600 1,059 Intel Corp. 131,900 9,769 International Business Machines Corp. 59,200 6,797 Iomega Corp. (a) 76,400 449 Learning Co., Inc. (The) (a) 24,300 720 Lernout & Hauspie Speech Products N.V. (a) 19,700 1,175 Linear Technology Corp. 3,100 187 LSI Logic Corp. (a) 5,500 127 Lucent Technologies, Inc. 105,900 8,809 Micron Technology, Inc. (a) 35,000 868 Microsoft Corp. (a) 202,500 21,946 Motorola, Inc. 38,800 2,039
Equity I Fund 7 EQUITY I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- NCR Corp. (a) 3,800 $ 124 Nokia Corp. - ADR 178,000 12,916 Novell, Inc. (a) 117,800 1,502 Oracle Systems Corp. (a) 35,000 858 PeopleSoft, Inc. (a) 30,000 1,408 SCI Systems, Inc. (a) 10,000 376 Seagate Technology (a) 2,100 50 Sterling Software, Inc. (a) 18,000 532 Storage Technology Corp. (a) 41,000 1,778 Sun Microsystems, Inc. (a) 21,700 943 Synopsys, Inc. (a) 29,400 1,345 Tandy Corp. 27,400 1,454 Tellabs, Inc. (a) 45,300 3,242 Texas Instruments, Inc. 82,000 4,782 Textron, Inc. 4,300 308 Vishay Intertechnology, Inc. (a) 40,735 731 Vitesse Semiconductor Corp. (a) 4,500 139 Western Digital Corp. (a) 75,900 897 Xilinx, Inc. (a) 500 17 ---------- 175,222 ---------- UTILITIES - 8.2% 360 Communications Co. (a) 11,700 374 Airtouch Communications, Inc. (a) 195,300 11,413 Ameren Corp. 300 12 American Water Works, Inc. 33,900 1,051 Associated Group, Inc. Class B (a) 4,700 183 AT&T Corp. 174,713 9,980 Baltimore Gas & Electric Co. 30,100 935 Bell Atlantic Corp. 160,404 7,318 Carolina Power & Light Co. 300 13 Central & Southwest Corp. 32,600 876 Century Telephone Enterprises, Inc. 32,950 1,511 Citizens Utilities Co. Class B (a) 227,073 2,186 Comcast Corp. Class A 3,300 131 Conectiv, Inc. 1,900 39 Consolidated Edison, Inc. 45,600 2,100 Consolidated Natural Gas Co. 300 18 DTE Energy Co. 193,900 7,829 Duke Power Co. 72,000 4,266 Edison International 137,100 4,053 Energy East Corp. (a) 15,600 649 Entergy Corp. 140,000 4,025 FirstEnergy Corp. 2,635 81 Florida Progress Corp. 7,400 304 FPL Group, Inc. 30,000 1,890 GPU, Inc. 41,200 1,558 GTE Corp. 45,189 2,514 IPALCO Enterprises, Inc. 8,700 387 Kansas City Power & Light Co. 10,300 299 MCI Communications Corp. 41,100 2,386 Montana Power Co. 21,500 747 National Fuel & Gas Co. 5,600 244 Niagara Mohawk Power Corp. (a) 40,200 600 NICOR, Inc. 12,000 482 NIPSCO Industries, Inc. 16,600 465 Northeast Utilities (a) 114,400 1,938 PacifiCorp. 93,600 2,118 Paging Network, Inc. (a) 103,200 1,438 Peco Energy Co. 10,400 304 PG&E Corp. 112,000 3,535 Pinnacle West Capital Corp. 32,200 1,449 Public Service Enterprise Group, Inc. 64,300 2,214 SBC Communications, Inc. 160,000 6,400 Tele-Communications, Inc. Series A (a) 140,200 5,442 Unicom Corp. 163,000 5,715 United States Cellular Corp. (a) 6,300 194 Williams Cos. (The) 46,400 1,566 WorldCom, Inc. (a) 154,200 7,450 ---------- 110,682 ---------- TOTAL COMMON STOCKS (cost $979,643) 1,295,741 ---------- PREFERRED STOCKS - 0.2% Elsag Bailey Financing Trust (conv.)(a) 18,200 778 Sealed Air Corp. (conv.) 30,200 1,269 ---------- TOTAL PREFERRED STOCKS (cost $10,189) 2,047 ---------- PRINCIPAL AMOUNT (000) ---------- SHORT-TERM INVESTMENTS - 4.1% Frank Russell Investment Company Money Market Fund, due on demand (b) $ 51,602 51,602 United States Treasury Notes (b)(c) 5.250% due 07/31/98 4,300 4,300 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $55,902) 55,902 ----------
8 Equity I Fund EQUITY I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
MARKET VALUE (000) ---------- TOTAL INVESTMENTS (identified cost $1,037,556)(d) - 100.3% $1,353,690 OTHER ASSETS AND LIABILITIES, NET - (0.3%) (4,048) ---------- NET ASSETS - 100.0% $1,349,642 ---------- ----------
(a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) See Note 2 for federal income tax information. ABBREVIATIONS: ADR - American Depositary Receipt NPV - No Par Value NV - Nonvoting PLC - Public Limited Company
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ---------- ---------- FUTURES CONTRACTS (Notes 2 and 3) S&P 500 Index Futures Contracts expiration date 09/98 183 $ 1,652 S&P 400 Midcap Index Futures Contracts expiration date 09/98 5 21 ---------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 1,673 ---------- ----------
(#) At June 30, 1998, United States Treasury Notes valued at $4,300 were held as collateral in connection with futures contracts purchased by the Fund. The accompanying notes are an integral part of the financial statements. Equity I Fund 9 EQUITY I FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $1,037,556)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . $ 1,353,690 Cash. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,891 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,977 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 969 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 25,128 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,393,324 LIABILITIES Payable: Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,391 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,888 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 704 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 388 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 25,128 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,682 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,349,642 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,667 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,159 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,129 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,673 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 958,627 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,349,642 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($1,349,642,080 divided by 38,707,640 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34.87 -------------- --------------
The accompanying notes are an integral part of the financial statements. 10 Equity I Fund EQUITY I FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,188 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,296 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 -------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,623 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,783 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,332 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,291 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,880 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,967 97,847 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,092 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,244 106,336 -------------- -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,183 -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 209,474 -------------- --------------
The accompanying notes are an integral part of the financial statements. Equity I Fund 11 EQUITY I FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE JUNE 30, 1998 YEAR ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,291 $ 10,379 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,847 250,266 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 106,336 31,174 ----------------- ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 209,474 291,819 ----------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,624) (10,379) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (26) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (35,017) (260,727) ----------------- ----------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (37,641) (271,132) ----------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 41,436 153,733 ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 213,269 174,420 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,136,373 961,953 ----------------- ----------------- End of period (including undistributed net investment income of $2,667 at June 30, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,349,642 $ 1,136,373 ----------------- ----------------- ----------------- -----------------
The accompanying notes are an integral part of the financial statements. 12 Equity I Fund EQUITY I FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 30.51 $ 30.34 $ 28.00 $ 23.32 $ 24.91 $ 25.00 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .14 .34 .42 .52 .62 .60 Net realized and unrealized gain (loss) on investments . 5.21 8.89 5.96 7.71 (.41) 2.18 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . 5.35 9.23 6.38 8.23 .21 2.78 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income . . . . . . . . . . . . . . . . . (.07) (.34) (.42) (.52) (.62) (.60) Net realized gain on investments . . . . . . . . . . . . (.92) (8.72) (3.62) (3.03) (.94) (2.11) In excess of net realized gain on investments. . . . . . -- -- -- -- (.24) (.16) ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (.99) (9.06) (4.04) (3.55) (1.80) (2.87) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 34.87 $ 30.51 $ 30.34 $ 28.00 $ 23.32 $ 24.91 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 17.80 32.02 23.58 35.94 0.79 11.61 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 1,349,642 1,136,373 961,953 751,497 547,242 514,356 Ratios to average net assets (%)(b)(c): Operating expenses. . . . . . . . . . . . . . . . . . .68 .70 .71 .59 .12 .14 Net investment income . . . . . . . . . . . . . . . . .83 .96 1.38 1.91 2.52 2.36 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 98.25 110.75 99.51 92.04 75.02 91.87
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. (c) For periods prior to April 1, 1995, Fund performance, operating expenses, and net investment income do not include any management fees paid to the Manager or money managers. For periods thereafter, they are reported net of investment management fees but gross of anyinvestment services fees. See Note 4. Equity I Fund 13 EQUITY II FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 95.0% AUTO AND TRANSPORTATION - 4.5% AAR Corp. 87,700 $ 2,593 ABC Rail Products Corp. (a) 7,000 121 Aftermarket Technology Corp. (a) 19,200 360 Airborne Freight Corp. 55,300 1,932 AirNet Systems, Inc. (a) 6,000 97 Alaska Air Group, Inc. (a) 21,400 1,168 Alexander & Baldwin, Inc. 3,000 87 America West Holding Corp. Class B (a) 18,900 540 Arvin Industries, Inc. 8,200 298 ASA Holdings, Inc. 25,000 1,241 Bandag, Inc. 5,900 230 Carey International, Inc. New (a) 8,000 224 Coach USA, Inc. (a) 14,250 650 Coachmen Industries, Inc. 85,400 2,231 Consolidated Freightways Corp. (a) 27,700 384 Control Devices, Inc. 11,666 152 Excel Industries, Inc. 7,000 100 Fleetwood Enterprises, Inc. 43,100 1,724 FRP Properties, Inc. (a) 4,000 128 Hawker Pacific Aerospace (a) 12,000 133 Hertz Corp. Class A 3,800 168 Hunt (JB) Transportation Services, Inc. 14,500 517 Keystone Automotive Industries, Inc. (a) 6,000 138 Landair Services, Inc. (a) 5,000 147 Lear Corp. (a) 7,700 395 M.S. Carriers, Inc. (a) 8,600 232 Mark VII, Inc. (a) 8,000 143 Midwest Express Holdings, Inc. (a) 45,600 1,650 Navistar International Corp. (a) 68,800 1,987 Offshore Logistics, Inc. (a) 51,400 912 Skywest, Inc. 69,600 1,940 Transport Corp. of America (a) 10,000 164 Trinity Industries, Inc. 43,000 1,784 USA Truck, Inc. (a) 11,000 173 USFreightways Corp. 15,500 509 Wynn's International, Inc. 3,750 72 ---------- 25,324 ---------- CONSUMER DISCRETIONARY - 19.4% Abacus Direct Corp. (a) 20,250 1,052 Abercrombie & Fitch Co. Class A (a) 43,250 1,903 AccuStaff, Inc. (a) 79,600 2,487 ACNielsen Corp. (a) 19,000 480 American Eagle Outfitters, Inc. (a) 38,475 1,481 American Greetings Corp. Class A 52,500 2,674 Anchor Gaming (a) 15,700 1,219 Apollo Group, Inc. Class A (a) 17,500 579 Applied Graphics Technologies, Inc. (a) 17,500 797 ARC International Corp. (a) 20,000 82 Ascent Entertainment Group, Inc. (a) 14,000 156 Aviation Sales Co. (a) 4,400 174 Aztar Corp. (a) 15,600 106 Barnes & Noble, Inc. (a) 41,000 1,535 Belo (A.H.) Corp. Class A 2,000 49 Best Buy Co. (a) 93,100 3,363 BJ's Wholesale Club, Inc. (a) 19,000 772 Bowne & Co., Inc. 35,200 1,584 Brinker International, Inc. (a) 19,500 375 Brylane, Inc. (a) 2,000 92 Buckle, Inc. (The) (a) 56,850 1,677 Cameron Ashley, Inc. (a) 10,000 169 Capstar Broadcasting Corp. Class A (a) 65,000 1,633 Catalytica, Inc. (a) 8,000 157 Central Newspapers, Inc. Class A 19,900 1,388 Choice Hotels International, Inc. (a) 5,900 80 Chris Craft Industries, Inc. (a) 6,200 339 CKE Restaurants, Inc. 49,426 2,039 Claire's Stores, Inc. 53,100 1,089 Coinmach Laundry Corp. (a) 7,000 164 Cole National Corp. Class A (a) 4,000 160 Computer Horizons Corp. (a) 47,950 1,777 Consolidated Graphics, Inc. (a) 13,500 796 Cornell Corrections, Inc. (a) 5,000 105 Daisytek International Corp. (a) 6,000 153 Dan River, Inc. Class A (a) 9,000 153 Darden Restaurants, Inc. 56,700 900 Data Processing Corp. (a) 4,700 146 Department 56, Inc. (a) 36,000 1,278 DeVry, Inc. (a) 80,000 1,755 Dollar Tree Stores, Inc. (a) 27,450 1,112 Dress Barn, Inc. (a) 5,900 147 Equity Corp. International (a) 32,700 785 Footstar, Inc. (a) 8,100 389 Fossil, Inc. (a) 40,925 1,018 Furniture Brands International, Inc. (a) 4,700 132 Gibson Greetings, Inc. (a) 5,300 132 Goody's Family Clothing, Inc. (a) 40,900 2,232 Grand Casinos, Inc. (a) 33,100 554 Grey Advertising 4,070 1,612 Hearst-Argyle Television, Inc. (a) 30,000 1,200 Helen of Troy, Ltd. New (a) 7,000 152 Huffy Corp. 3,000 54 InaCom Corp. (a) 21,900 695 Insurance Auto Auctions, Inc. (a) 15,000 210 Interim Services, Inc. (a) 47,300 1,520 Iron Mountain, Inc. (a) 4,000 176
14 Equity II Fund EQUITY II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- ITT Educational Services, Inc. (a) 20,000 $ 645 Knight-Ridder, Inc. 21,900 1,206 La-Z-Boy Chair Co. 2,400 136 Leather Factory, Inc. (a) 60,000 30 Lee Enterprises, Inc. 39,000 1,194 Legato Systems, Inc. (a) 49,600 1,934 Linens 'N Things, Inc. (a) 13,600 416 Lithia Motors, Inc., Class A (a) 9,100 132 Lo-Jack Corp. (a) 10,000 124 Lodgenet Entertainment Corp. (a) 10,000 99 Maxim Group, Inc. (a) 8,000 159 Maytag Corp. 16,200 800 Mazel Stores, Inc. (a) 10,000 160 McClatchy Newspapers, Inc. Class A 39,000 1,350 McGraw-Hill, Inc. 15,600 1,272 Media General, Inc. Class A 3,600 175 Metzler Group, Inc. (a) 61,000 2,234 NewsEdge Corp. (a) 34,350 339 Nutramax Products, Inc. New (a) 8,000 75 O'Charleys, Inc. (a) 12,000 177 OfficeMax, Inc. (a) 12,300 203 Ogden Corp. 18,800 521 On Assignment, Inc. (a) 43,000 1,502 Orckit Communications, Ltd. (a) 17,000 322 Outdoor Systems, Inc. (a) 28,200 790 Oxford Industries, Inc. 2,400 84 Pacific Sunwear of California (a) 44,600 1,561 Personnel Group of America, Inc. (a) 17,300 346 Petco Animal Supplies, Inc. (a) 9,000 179 Pillowtex Corp. 4,700 189 Polo Ralph Lauren Corp. Class A New (a) 46,950 1,315 Prime Hospitality Corp. (a) 50,700 884 Protection One, Inc. 9,000 98 Pulitzer Publishing Co. 11,000 982 RCM Technologies, Inc. (a) 8,000 162 RDO Equipment Co. Class A (a) 6,000 100 Recoton Corp. (a) 3,700 124 Red Roof Inns, Inc. (a) 11,400 193 Regis Corp. 5,000 147 Rent-Way, Inc. (a) 27,410 833 Reynolds & Reynolds Co. Class A 54,300 988 Richey Electronics, Inc. (a) 12,000 91 Robert Half International, Inc. (a) 25,550 1,428 RockShox, Inc. (a) 11,000 44 Rocky Shoes & Boots, Inc. (a) 9,000 128 Romac International, Inc. (a) 45,000 1,367 Ross Stores, Inc. 78,200 3,363 Rural/Metro Corp. (a) 11,500 149 Russ Berrie & Co., Inc. 4,000 100 Ryan's Family Steak Houses, Inc. (a) 98,000 998 Saga Communications Class A (a) 7,813 125 Schultz Sav-o Stores, Inc. 60,750 957 SCP Pool Corp. (a) 8,000 192 Scripps (E.W.) Co. Class A 23,000 1,261 Select Appointments Holdings PLC - ADR 50,000 1,450 ShoLodge, Inc. (a) 8,000 63 Shopko Stores, Inc. (a) 56,500 1,921 Showbiz Pizza Time, Inc. (a) 50,250 2,016 Spectrian Corp. (a) 6,700 108 Sport Supply Group, Inc. (a) 16,000 130 Sportsman's Guide, Inc. (The) (a) 20,100 87 Springs Industries, Inc. 200 9 StaffMark, Inc. (a) 41,800 1,531 Strategic Distribution, Inc. (a) 35,410 186 Superior Services, Inc. (a) 30,250 909 Talbots, Inc. 9,600 251 Teltrend, Inc. (a) 6,000 103 The Men's Wearhouse, Inc. (a) 78,925 2,605 Tiffany & Co. 20,500 984 TJX Cos., Inc. 97,000 2,340 TRM Copy Centers Corp. (a) 15,000 202 Unifirst Corp. 3,300 83 United Natural Foods, Inc. (a) 6,000 171 United Television, Inc. 11,000 1,260 United Video Satellite Group Class A (a) 4,450 176 Urban Outfitters, Inc. (a) 7,000 128 Valassis Communications, Inc. (a) 66,550 2,566 Video Update, Inc. Class A (a) 60,000 86 Wackenhut Corp. 5,000 113 Wackenhut Corrections Corp. (a) 37,000 865 Washington Post Co. Class B 3,600 2,074 West Marine, Inc. (a) 15,500 279 Wolverine World Wide, Inc. 45,000 976 World Color Press, Inc. (a) 15,100 529 Youth Services International, Inc. (a) 14,000 102 Zale Corp. (a) 10,900 347 ---------- 108,071 ---------- CONSUMER STAPLES - 2.6% American Italian Pasta Co. Class A (a) 12,650 471 Aurora Foods, Inc. (a) 33,600 710 Beringer Wine Estates Holdings, Inc. Class B (a) 15,000 660 Block Drug Co., Inc. Class A 18,418 694 Canandaigua Wine International, Inc. Class A (a) 4,200 206
Equity II Fund 15 EQUITY II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Coca-Cola Bottling Co. 15,000 $ 992 Earthgrains Co. 35,650 1,992 Fleming Cos., Inc. 23,700 416 Hormel (George A.) & Co. - Hormel Foods Corp. 5,800 201 IBP, Inc. 27,100 491 International Multifoods Corp. 7,300 201 Longs Drug Stores, Inc. 8,800 254 Nature's Sunshine Products, Inc. 5,000 112 Robert Mondavi Corp. Class A (a) 20,000 566 Standard Commercial Corp. (a) 12,000 132 Suiza Foods Corp. (a) 30,000 1,791 SuperValu, Inc. 23,600 1,047 Tootsie Roll Industries, Inc. 23,000 1,765 Universal Foods Corp. 18,600 413 Whole Foods Market, Inc. (a) 26,000 1,573 ---------- 14,687 ---------- FINANCIAL SERVICES - 22.4% Acceptance Insurance Companies, Inc. (a) 5,200 128 Alleghany Corp. (a) 200 47 Allmerica Financial Corp. 18,000 1,170 AMBAC Financial Group, Inc. 21,900 1,281 AmerUs Life Holdings, Inc. 7,800 253 Amplicon, Inc. 10,000 130 AMRESCO, Inc. (a) 31,200 905 Amwest Insurance Group, Inc. 9,140 134 Arden Realty Group, Inc. 30,000 776 Argonaut Group, Inc. 900 28 ARM Financial Group, Inc. Class A 6,000 133 Astoria Financial Corp. 36,900 1,974 BancorpSouth, Inc. 2,300 48 Bank Plus Corp. (a) 13,000 159 BankAtlantic Bancorp, Inc. 48,000 615 Bankatlantic Bancorp, Inc. Class A 47,140 557 Banknorth Group, Inc. 2,600 96 Bear Stearns Cos., Inc. 53,440 3,039 Berkley (W.R.) Corp. 3,200 128 Billing Information Concepts Corp. (a) 42,500 648 BISYS Group, Inc. New (a) 20,000 820 Capital One Financial Corp. 22,400 2,782 Centris Group, Inc. 107,000 1,324 Centura Banks, Inc. 4,300 269 Charter One Financial, Inc. 53,100 1,782 Chartwell Re Corp. 1,300 38 Chicago Title Corp. (a) 600 28 Chittenden Corp. 100 4 City National Corp. 87,400 3,228 Colonial BancGroup, Inc. 46,400 1,496 Comdisco, Inc. 47,800 908 Commerce Bancshares, Inc. 7,035 341 Commerce Group, Inc. 2,600 101 Commonwealth Bancorp, Inc. 3,400 78 Community Bank System, Inc. 3,000 94 Compass Bancshares, Inc. 11,900 534 Conning Corp. New 3,000 58 CORT Business Services Corp. (a) 28,700 904 Cullen Frost Bankers, Inc. 5,100 277 Data Transmission Network Corp. (a) 6,000 240 Delphi Financial Group, Inc. (a) 2,700 152 Delta Financial Corp. (a) 8,700 160 Dime Bancorp, Inc. 27,900 835 Dime Community Bancorp, Inc. 300 8 Donaldson, Lufkin & Jenrette, Inc. 80,200 4,075 Donegal Group, Inc. 71,288 1,283 Downey Financial Corp. 7,895 258 DST Systems, Inc. (a) 28,500 1,596 Duke Realty Investments, Inc. 41,700 985 Edwards (A.G.), Inc. 42,900 1,831 Enhance Financial Services Group, Inc. 12,400 419 Envoy Corp. New (a) 28,800 1,364 Everest Reinsurance Holdings, Inc. 14,800 569 Executive Risk, Inc. 23,000 1,696 EXEL, Ltd. 17,000 1,323 F&M National Corp. 2,000 58 FBL Financial Group, Inc. Class A 6,500 167 Fidelity National Financial 91,510 3,643 Financial Federal Corp. (a) 6,500 174 Financial Security Assurance Holdings, Ltd. 7,400 435 FINOVA Group, Inc. 14,700 832 First American Corp. 23,900 1,150 First American Financial Corp. 5,850 527 First Hawaiian Creditcorp, Inc. 4,300 156 First Republic Bank (a) 15,100 545 First Savings Bank of Washington Bancorp, Inc. 2,300 58 First Virginia Banks, Inc. 6,900 353 FirstFed Financial Corp. (a) 29,500 1,534 FIRSTPLUS Financial Group, Inc. (a) 19,750 711 Flagstar Bancorp, Inc. 2,200 54 Flushing Financial Corp. 6,200 178 Foremost Corp. of America 2,400 58 Fremont General Corp. 26,350 1,428 GATX Corp. 6,400 281 Hartford Life, Inc. Class A 18,600 1,059
16 Equity II Fund EQUITY II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- HealthCare Financial Partners, Inc. (a) 26,000 $ 1,593 Hibernia Corp. 25,700 519 Horace Mann Educators Corp. 25,000 863 HSB Group, Inc. 4,600 246 IMC Mortgage Co. (a) 76,300 801 Imperial Bancorp (a) 800 24 Imperial Credit Industries, Inc. (a) 55,316 1,279 Imperial Credit Mortgage Holdings 11,850 184 Intercontinental Life Corp. (a) 5,400 136 Jack Henry & Assocociates, Inc. 40,000 1,375 Jefferies Group, Inc. 24,400 1,000 JSB Financial, Inc. 1,100 64 LandAmerica Financial Group, Inc. 37,400 2,141 Legg Mason, Inc. 17,500 1,007 Lehman Brothers Holdings, Inc. 23,300 1,807 Leucadia National Corp. 39,800 1,316 Liberty Financial Cos., Inc. 3,500 121 Life Re Corp. 5,500 451 Life USA Holdings, Inc. New 8,000 103 Litchfield Financial Corp. 6,000 125 MAF Bancorp, Inc. 3,800 138 Markel Corp. (a) 12,500 2,225 Medical Assurance, Inc. (a) 840 23 Mid Ocean, Ltd. 14,500 1,138 Morgan Keegan, Inc. 53,800 1,392 Mutual Risk Management, Ltd. 19,850 723 National Commerce Bancorp 7,500 314 National Data Corp. 31,000 1,356 Nationwide Financial Services, Inc. Class A 21,300 1,086 Ocean Financial Corp. 4,600 88 Ocwen Financial Corp. (a) 50,750 1,364 Ohio Casualty Corp. 6,100 269 Old Kent Financial Corp. 4,400 158 Old Republic International Corp. 41,050 1,203 Orion Capital Corp. 8,900 497 Pacific Century Financial Corp. 29,800 715 Pacific Gulf Properties, Inc. 5,000 108 Paychex, Inc. 39,375 1,600 Penn Treaty American Corp. (a) 4,400 139 Pennsylvania Real Estate Investment Trust 5,000 111 Peoples Heritage Financial Group 65,624 1,550 PMI Group, Inc. (The) 11,500 844 Price (T. Rowe) & Associates, Inc. 35,000 1,313 Profit Recovery Group International, Inc. (The) (a) 50,000 1,397 Protective Life Corp. 1,500 55 Provident Bankshares Corp. 10,798 319 Provident Companies, Inc. 28,500 983 PXRE Corp. 36,786 1,104 Queens County Bancorp 5,998 262 Raymond James Financial, Inc. 58,800 1,760 Reliance Group Holdings, Inc. 34,600 606 RenaissanceRe Holdings, Ltd. 32,500 1,505 Republic Bancorp, Inc. 4,290 81 Resource Bancshares Mortgage Group 86,800 1,606 RLI Corp. 4,750 193 Rollins Truck Leasing Corp. 17,700 219 Roslyn Bancorp, Inc. 23,800 531 Ryder System, Inc. 20,200 638 Saville Systems Ireland PLC - ADR (a) 30,800 1,536 SCPIE Holdings, Inc. 800 27 Selective Insurance Group, Inc. 53,600 1,199 Silicon Valley Bancshares (a) 50,200 1,773 SL Green Realty Corp. REIT 12,000 270 Smith (Charles E.) Residential Realty, Inc. 36,600 1,171 Southern Pacific Funding Corp. (a) 12,000 188 Sovereign Bancorp, Inc. 82,227 1,341 Sovran Self Storage, Inc. 31,100 879 St. Francis Capital Corp. 3,000 116 SunAmerica, Inc. 32,000 1,838 Sunstone Hotel Investors, Inc. 7,400 99 TCF Financial Corp. 48,000 1,416 TR Financial Corp. 4,100 172 Transatlantic Holdings, Inc. 31,800 2,459 Trenwick Group, Inc. 36,000 1,397 UMB Financial Corp. 1,000 50 Union Planters Corp. 22,002 1,294 United Fire & Casualty Co. 25,575 1,002 Unitrin, Inc. 4,900 338 Valley National Bancorp 5,587 162 Washington Federal, Inc. 17,232 476 Webster Financial Corp. 49,200 1,624 Westamerica Bancorporation 45,600 1,465 Whitney Holding Corp. 1,000 51 Wilmington Trust Corp. 1,800 110 ---------- 124,731 ---------- HEALTH CARE - 6.4% American Dental Partners, Inc. New (a) 25,000 350 AmSurg Corp. Class A (a) 8,500 64 Arterial Vascular Engineering, Inc. (a) 40,200 1,435 ARV Assisted Living, Inc. (a) 10,000 125 Assisted Living Concepts, Inc. (a) 8,000 138 Balanced Care Corp. (a) 16,700 121
Equity II Fund 17 EQUITY II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Beverly Enterprises, Inc. New (a) 10,000 $ 138 Bindley Western Industries, Inc. 16,800 554 Biogen, Inc. (a) 18,000 880 Biosite Diagnostics, Inc. (a) 10,000 107 CorVel Corp. (a) 4,000 154 Curative Technologies, Inc. (a) 18,700 533 Genset - ADR (a) 20,000 586 Health Care & Retirement Corp. (a) 26,500 1,045 Health Management Associates Class A (a) 52,500 1,755 Healthcare Services Group, Inc. (a) 10,000 159 Hooper Holmes, Inc. 8,000 168 Human Genome Sciences, Inc. (a) 15,500 553 IDEXX Laboratories, Inc. (a) 42,900 1,067 Immucor Corp. (a) 15,000 128 Incyte Pharmaceuticals, Inc. (a) 27,400 935 Integrated Health Services, Inc. 6,100 229 Landauer, Inc. 5,300 158 Lincare Holdings, Inc. (a) 84,400 3,545 Lunar Corp. (a) 9,000 164 Maxxim Medical, Inc. (a) 5,000 145 MedImmune, Inc. (a) 5,400 337 Monarch Dental Corp. New (a) 9,000 141 NBTY, Inc. (a) 68,400 1,248 NCS HealthCare, Inc. Class A (a) 40,000 1,140 NovaCare, Inc. (a) 112,100 1,317 Orthodontic Centers of America, Inc. (a) 40,000 838 Pediatric Services of America, Inc. (a) 7,300 110 Pediatrix Medical Group (a) 30,000 1,116 Physio-Control International Corp. (a) 9,000 237 PMR Corp. (a) 9,600 96 Protocol Systems, Inc. (a) 12,000 104 Quintiles Transnational Corp. (a) 28,500 1,400 Renal Care Group, Inc. (a) 38,600 1,701 Res-Care, Inc. (a) 9,000 165 Respironics, Inc. (a) 36,000 554 Rexall Sundown, Inc. (a) 38,300 1,364 Sola International, Inc. (a) 48,000 1,569 STAAR Surgical Co. New (a) 13,000 201 Steris Corp. (a) 13,600 863 Sun Healthcare Group, Inc. (a) 18,000 263 Theragenics Corp. (a) 19,700 512 Thermo BioAnalysis Corp. (a) 25,000 453 Total Renal Care Holdings, Inc. (a) 55,600 1,918 Trigon Healthcare, Inc. (a) 24,700 894 Twinlab Corp. New (a) 28,400 1,241 U.S. Vision, Inc. New (a) 12,000 144 UroCor, Inc. (a) 18,000 124 Urologix, Inc. (a) 14,000 119 Weider Nutrition International, Inc. Class A 9,500 162 ---------- 35,567 ---------- INTEGRATED OILS - 0.9% Cross Timbers Oil Co. 89,925 1,714 Equitable Resources, Inc. 11,700 357 Giant Industries, Inc. 38,900 676 Houston Exploration Co. (The) (a) 5,700 131 Murphy Oil Corp. 14,000 710 Sun Co., Inc. 26,100 1,013 Tesoro Petroleum Corp. (a) 12,300 195 ---------- 4,796 ---------- MATERIALS AND PROCESSING - 8.6% ACX Technologies, Inc. (a) 1,100 24 Advanced Energy Industries, Inc. (a) 12,200 142 Agrium, Inc. 76,500 966 AK Steel Holding Corp. 23,100 413 Albany International Corp. Class A 6,100 146 Albemarle Corp. 12,300 271 American Buildings Co. New (a) 5,000 146 Applied Extrusion Technologies, Inc. (a) 18,000 128 AptarGroup, Inc. 26,800 1,667 Atchison Casting Corp. (a) 6,000 107 Ball Corp. 7,600 305 Banta Corp. 26,400 804 Bethlehem Steel Corp. (a) 38,400 478 Bowater, Inc. 12,200 576 Brush Wellman, Inc. 300 6 Building Materials Holding Corp. (a) 12,000 164 Burlington Industries, Inc. (a) 18,900 266 BWay Corp. (a) 7,000 151 CalMat Co. 6,900 152 Cambrex Corp. 5,500 144 Carbide/Graphite Group, Inc. (The) (a) 4,000 111 Centex Construction Products, Inc. 42,400 1,632 Centex Corp. 49,900 1,884 Channell Commercial Corp. (a) 8,000 85 Chemed Corp. 3,500 119 Chesapeake Corp. 8,500 331 Citation Corp. (a) 9,000 179 Cleveland-Cliffs, Inc. 6,800 365 Comfort Systems USA, Inc. (a) 38,450 899
18 Equity II Fund EQUITY II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Commercial Metals Co. 2,900 $ 89 Consolidated Papers, Inc. 24,000 654 Correctional Properties Trust New (a) 2,500 51 Crompton & Knowles Corp. 34,650 873 Culp, Inc. 1,600 18 CUNO, Inc. (a) 6,000 130 Cyprus Amax Minerals Co. 27,900 370 Dayton Superior Corp. Class A (a) 4,400 79 Dexter Corp. 10,900 347 Easco, Inc. 11,000 111 Engle Homes, Inc. 8,300 127 Ennis Business Forms, Inc. 47,450 552 Finish Line (The), Inc. Class A (a) 36,800 1,030 Giant Cement Holding, Inc. (a) 4,000 114 Goodrich (B.F.) Co. 22,500 1,117 Granite Construction, Inc. 4,100 126 Guilford Mills, Inc. 7,400 148 Hughes Supply, Inc. 28,200 1,033 IMCO Recycling, Inc. 9,000 167 International Specialty Products (a) 7,000 130 Kaydon Corp. 16,800 593 Lafarge Corp. 13,900 546 Lesco, Inc. 8,000 148 Lone Star Industries, Inc. 25,500 1,965 LTV Corp. 36,600 350 Millennium Chemicals, Inc. 33,300 1,128 Minerals Technologies, Inc. 26,800 1,363 Mohawk Industries, Inc. (a) 18,000 570 NCI Building Systems, Inc. (a) 26,800 1,544 NN Ball & Roller, Inc. 8,000 95 Northland Cranberries, Inc. Class A 7,000 108 Olin Corp. 21,700 905 OM Group 17,500 722 P.H. Glatfelter Co. 5,100 81 Pan Pacific Retail Properties, Inc. 7,000 136 Penford Corp. 4,000 120 Plum Creek Timber Co. L.P. 29,000 872 Potlatch Corp. 11,500 483 Quaker Fabric Corp. New (a) 9,000 129 Quanex Corp. 4,700 142 Rayonier, Inc. 11,800 543 Reliance Steel & Aluminum Co. 1,900 73 RMI Titanium Co. (a) 4,500 102 Rock of Ages Corp. Class A (a) 8,000 124 RPM, Inc. (Ohio) 20,600 350 Schulman (A.), Inc. 2,750 53 Scotts Co. (The) Class A (a) 7,600 283 SIFCO Industries 55,900 1,181 Southdown, Inc. 20,000 1,428 SPS Technologies, Inc. (a) 2,400 140 St. Joe Corp. 41,200 1,128 Stone & Webster, Inc. 3,000 119 Synalloy Corp. 7,000 94 Texas Industries, Inc. 62,500 3,313 Thomas Industries, Inc. 700 17 Timken Co. 21,100 650 TJ International, Inc. 19,100 573 Tractor Supply Co. (a) 6,000 149 Universal Stainless & Alloy Products, Inc. (a) 9,000 82 USG Corp. 42,400 2,295 USX-U.S. Steel Group 31,100 1,026 Valley National Gases, Inc. (a) 12,000 132 Webb (Del E.) Corp. 46,200 1,198 Wellman, Inc. 18,200 413 Wellsford Real Properties, Inc. 10,000 141 Wolverine Tube, Inc. (a) 4,000 152 Zero Corp. 5,000 142 ---------- 47,828 ---------- MISCELLANEOUS - 1.0% BEC Energy (a) 15,600 647 ChoicePoint, Inc. (a) 14,000 709 Griffon Corp. (a) 79,500 1,019 Kaynar Technologies, Inc. (a) 5,000 114 LNR Property Corp. 50,000 1,281 MAXIMUS, Inc. (a) 47,500 1,366 Pameco Corp. (a) 7,000 140 Stolt Comex Seaway, S. A. - ADR Class A (a) 12,700 219 ---------- 5,495 ---------- OTHER ENERGY - 4.3% Atwood Oceanics, Inc. (a) 14,200 565 Bayard Drilling Technologies, Inc. (a) 15,000 122 BJ Services Co. (a) 35,000 1,017 Chesapeake Energy Corp. 19,500 78 Coho Energy, Inc. (a) 13,181 89 Costilla Energy, Inc. (a) 10,000 87 Dailey International Inc. (a) 17,800 107 Eastern Enterprises, Inc. 8,100 347 Evergreen Resources, Inc. (a) 8,000 150 Global Industries, Inc. (a) 39,350 662 HS Resources, Inc. (a) 4,800 70
Equity II Fund 19 EQUITY II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Input/Output, Inc. (a) 40,800 $ 727 Mallon Resources Corp. New (a) 20,000 237 Marine Drilling Co, Inc. (a) 38,300 610 MarketSpan Corp. (a) 44,988 1,347 Mitcham Industries, Inc. (a) 15,000 173 Noble Drilling Corp. (a) 34,000 818 OMNI Energy Services Corp. New (a) 15,400 208 ONEOK, Inc. New 14,200 566 Pool Energy Services Co. (a) 64,600 953 Rowan Cos., Inc. (a) 40,400 785 Santa Fe International Corp. 31,800 962 Seacor Holdings, Inc. (a) 36,300 2,226 Sempra Energy (a) 21,400 594 Stolt Comex Seaway SA (a) 30,650 590 Supreme Industries, Inc. Class A (a) 12,363 151 Transocean Offshore, Inc. 24,000 1,068 Tuboscope Vetco International Corp. (a) 17,000 336 Ultramar Diamond Shamrock Corp. 32,300 1,019 Unit Corp. (a) 18,000 109 Valero Energy Corp. 8,600 286 Varco International, Inc. (a) 93,850 1,859 Veritas DGC, Inc. (a) 54,200 2,707 Vintage Petroleum, Inc. 62,650 1,183 Willbros Group, Inc. (a) 6,000 94 Wiser Oil Co. 85,200 943 ---------- 23,845 ---------- PRODUCER DURABLES - 6.8% AFC Cable Systems, Inc. (a) 7,200 256 Ag-Chem Equipment Co., Inc. (a) 10,000 221 AgriBiotech, Inc. New (a) 11,900 329 Allied Waste Industries, Inc. (a) 35,150 841 AMETEK, Inc. 4,400 129 ANTEC Corp. (a) 4,000 93 Bell Industries (a) 68,129 775 C&D Technologies, Inc. 2,400 139 Cascade Corp. 6,300 115 CFM Technologies, Inc. (a) 8,000 115 Champion Enterprises, Inc. (a) 47,700 1,401 Chart Industries, Inc. 39,700 948 Cincinnati Milacron, Inc. 10,700 260 Cohu, Inc. 32,400 788 Columbus McKinnon Corp. 39,000 1,033 Commercial Intertech Corp. 2,900 53 D.R. Horton, Inc. 59,300 1,238 Daniel Industries, Inc. 4,200 80 DeCrane Aircraft Holdings, Inc. (a) 5,700 97 Detroit Diesel Corp. (a) 3,600 78 EG&G, Inc. 15,700 471 FARO Technologies, Inc. (a) 10,000 106 Farr Co. (a) 13,500 159 FLIR Systems, Inc. (a) 6,000 103 Flow International Corp. (a) 10,000 115 Franklin Electric Co., Inc. 1,900 127 Gemstar International Group, Ltd. (a) 45,250 1,686 GenCorp, Inc. 500 13 General Cable Corp. 22,650 654 Gleason Corp. 4,500 127 Graco, Inc. 4,000 139 Gradall Industries, Inc. (a) 10,000 145 Helix Technology Corp. 8,000 120 Holophane Corp. (a) 6,000 151 Innovative Valve Technologies, Inc. (a) 20,000 145 JLK Direct Distribution, Inc. Class A (a) 1,600 35 Kaman Corp. Class A 5,900 112 Kaufman & Broad Home Corp. 10,500 333 Kellstrom Industries, Inc. (a) 22,450 657 Kennametal, Inc. 11,600 484 KLA Instruments Corp. (a) 25,500 706 Knoll, Inc. (a) 16,700 493 Lennar Corp. 81,600 2,407 Lexmark International Group, Inc. Class A (a) 28,600 1,745 Litton Industries, Inc. (a) 17,900 1,056 Middleby Corp. (The) (a) 21,600 130 Molex, Inc. Class A 25,100 587 NACCO Industries, Inc. Class A 3,600 465 National-Oilwell, Inc. (a) 45,600 1,223 Newmark Homes Corp. (a) 15,000 150 Novellus Systems, Inc. (a) 15,000 535 NVR, Inc. (a) 3,100 127 OYO Geospace Corp. (a) 8,000 216 Perceptron, Inc. (a) 4,300 51 Pittway Corp. Class A 19,561 1,445 Powell Industries, Inc. (a) 8,000 97 Pulte Corp. 19,200 574 Ryland Group, Inc. 27,100 711 Scotman Industries, Inc. 2,300 64 Snap-On Tools Corp. 5,600 203 Standard Pacific Corp. 74,600 1,539 Starrett (L.S.) Co. Class A 24,500 968 STM Wireless, Inc. Class A (a) 12,000 109 Superior TeleCom, Inc. 5,600 233 TB Wood's Corporation 8,000 168 Tecumseh Products Co. Class A 3,700 195
20 Equity II Fund EQUITY II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Teradyne, Inc. (a) 30,800 $ 824 Terex Corp. (a) 55,600 1,585 Thomas & Betts Corp. 11,400 560 Toll Brothers, Inc. (a) 36,100 1,036 TransTechnology Corp. 4,300 110 TriStar Aerospace Co. (a) 55,000 852 U.S. Home Corp. (a) 5,400 223 Uniphase Corp. (a) 26,300 1,650 Worldtex, Inc. (a) 15,000 87 ---------- 37,995 ---------- TECHNOLOGY - 12.6% ADC Telecommunications, Inc. (a) 12,000 438 Allen Telecom, Inc. (a) 13,000 151 American Xtal Technology, Inc. (a) 4,500 65 Anixter International, Inc. (a) 23,500 448 Aspen Technology, Inc. (a) 40,000 2,020 Autodesk, Inc. 27,200 1,046 Avid Technology, Inc. (a) 36,400 1,217 Avnet, Inc. 20,900 1,143 Bel Fuse, Inc. (a) 4,000 89 Berg Electronics Corp. (a) 42,000 822 Boole & Babbage, Inc. (a) 5,250 125 BTG, Inc. (a) 10,000 90 Business Objects SA - ADR (a) 28,400 479 Cable Design Technologies Corp. (a) 63,500 1,310 CACI International, Inc. Class A (a) 7,000 147 Cambridge Technology Partners, Inc. (a) 44,000 2,403 CBT Group Public, Ltd. - ADR (a) 47,550 2,544 Celeritek, Inc. (a) 20,200 125 CFI ProServices, Inc. (a) 10,000 170 CHS Electronics, Inc. (a) 46,300 822 Ciber, Inc. (a) 82,500 3,135 Citrix Systems, Inc. (a) 23,500 1,607 Comarco, Inc. (a) 5,000 105 Compuware Corp. (a) 77,850 3,975 Cotelligent Group, Inc. (a) 5,000 117 Diamond Multimedia Systems, Inc. (a) 1,400 10 Digi International, Inc. (a) 55,900 1,128 DSP Communications, Inc. (a) 65,900 906 Electronics For Imaging, Inc. (a) 18,800 396 Esterline Corp. (a) 11,600 242 Exar Corp. (a) 8,000 167 Fairchild Corp. (The) Class A (a) 6,500 131 FORE Systems (a) 31,200 825 Harmon Industries, Inc. 7,500 178 HNC Software, Inc. (a) 45,000 1,837 Hyperion Software Corp. (a) 33,450 953 IDX Systems Corp. (a) 60,400 2,786 Industri-Matematik International Corp. (a) 4,800 52 Information Management Resources, Inc. (a) 55,200 1,866 Integrated Circuit Systems, Inc. (a) 5,000 83 Integrated Silicon Solution, Inc. (a) 106,000 735 Intersolv, Inc. (a) 1,300 21 Keane, Inc. (a) 24,150 1,352 Kronos, Inc. (a) 5,300 194 Lernout & Hauspie Speech Products NV (a) 10,000 596 LSI Logic Corp. (a) 52,000 1,199 Macromedia, Inc. (a) 39,700 742 Manhattan Associates, Inc. (a) 20,000 415 Mercury Interactive Corp. (a) 39,200 1,744 MicroStrategy, Inc. (a) 12,800 362 Network Associates, Inc. (a) 27,975 1,338 Open Market, Inc. (a) 50,000 937 Optek Technology, Inc. (a) 7,000 130 ORBIT/FR, Inc. (a) 9,000 60 OSI Systems, Inc. New (a) 13,000 129 Par Technology Corp. (a) 15,000 91 PeopleSoft, Inc. (a) 30,500 1,432 Pericom Semiconductor Corp. New (a) 14,000 94 Photronics, Inc. (a) 4,000 88 PMC - Sierra, Inc. (a) 30,400 1,421 PSINET, Inc. (a) 50,000 644 QuadraMed Corp. New (a) 98,550 2,692 Safeguard Scientifics, Inc. (a) 21,300 888 Sandisk Corp. (a) 3,000 41 ScanSource, Inc. (a) 6,000 115 SeaChange International, Inc. (a) 18,000 222 Seagate Technology (a) 17,500 417 SpecTran Corp. (a) 12,000 95 Sterling Software, Inc. (a) 44,800 1,324 Storage Technology Corp. (a) 47,200 2,047 Symantec Corp. (a) 49,500 1,287 Systems & Computer Technology Corp. (a) 23,500 632 Tech-Sym Corp. (a) 35,200 979 Tekelec, Inc. (a) 14,500 649 Tellabs, Inc. (a) 14,500 1,038 Transaction Systems Architects, Inc. Class A (a) 40,000 1,540 USCS International, Inc. (a) 30,000 621
Equity II Fund 21 EQUITY II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Verilink Corp. (a) 18,000 $ 144 Veritas Software Corp. (a) 55,564 2,295 Vitesse Semiconductor Corp. (a) 50,100 1,547 World Access, Inc. (a) 1,000 30 Xylan Corp. (a) 50,150 1,492 ---------- 69,972 ---------- UTILITIES - 5.5% AGL Resources, Inc. 12,500 248 Aquarion Co. 1,000 34 Atmos Energy Corp. 4,100 125 California Water Service Group 1,800 45 Centennial Cellular Corp. Class A (a) 42,500 1,586 Central Hudson Gas & Electric Corp. 5,500 252 Central Maine Power Co. 74,800 1,459 Century Telephone Enterprises, Inc. 23,300 1,069 CILCORP, Inc. 1,500 72 Citizens Utilities Co. Class B (a) 63,463 611 Cleco Corp. 4,600 137 Colonial Gas Co. 800 23 Commonwealth Energy System 3,600 136 Conectiv, Inc. 22,600 463 Connecticut Energy Corp. 1,700 47 CoreComm, Inc. (a) 59,000 1,534 DPL, Inc. 35,400 642 E'town Corp. 300 11 Eastern Utilities Associates 10,900 286 Energen Corp. 6,200 125 Energy East Corp. (a) 23,400 974 Florida Progress Corp. 27,100 1,114 General Communication, Inc. Class A (a) 16,000 95 Hawaiian Electric Industries, Inc. 6,900 274 Idaho Power Co. 7,000 242 Interstate Energy Corp. 17,400 566 IXC Communications, Inc. (a) 28,200 1,361 Jones Intercable, Inc. Class A (a) 60,900 1,523 K N Energy, Inc. 14,900 807 MCN Corp. 33,900 843 MDU Resources Group, Inc. 6,300 225 Metrocall, Inc. (a) 24,000 146 MidAmerican Energy Holdings Co. 18,000 389 Minnesota Power & Light Co. 7,800 310 Montana Power Co. 27,600 959 National Fuel & Gas Co. 9,500 414 Nevada Power Co. 19,800 510 New Century Energies, Inc. 23,700 1,077 New England Electric System 20,100 869 New Jersey Resources Corp. 2,600 93 NICOR, Inc. 10,000 401 NUI Corp. 3,100 79 Piedmont Natural Gas Co., Inc. 4,005 135 Pinnacle West Capital Corp. 2,600 117 Public Service Co. of New Mexico 20,600 467 Puget Sound Power & Light Co. 27,300 732 Rochester Gas & Electric Corp. 16,600 530 SCANA Corp. 21,200 632 SIG Corp., Inc. 2,500 80 Southwest Gas Corp. 16,400 401 St. Joseph Light & Power Co. 7,000 130 TNP Enterprises, Inc. 7,900 244 UGI Corp. 6,800 169 United Illuminating Co. 5,800 294 United States Cellular Corp. (a) 38,000 1,168 UtiliCorp United, Inc. 20,600 776 Washington Gas & Light Co. 10,600 284 Washington Water Power Co. 9,300 209 Western Resources, Inc. 23,200 900 WICOR, Inc. 7,600 176 Wisconsin Energy Corp. 25,500 775 WPS Resources Corp. 5,400 177 ---------- 30,572 ---------- TOTAL COMMON STOCKS (cost $409,278) 528,883 ---------- PREFERRED STOCKS - 0.2% Callon Petroleum Co. Series A (conv.) 2,000 66 Finova Finance Trust 13,000 1,021 Golden Books Financial Trust (conv.) (a) 2,500 59 ---------- TOTAL PREFERRED STOCKS (cost $848) 1,146 ---------- PRINCIPAL AMOUNT (000) ---------- LONG-TERM INVESTMENTS - 0.2% American Residential Services, Inc. (conv.) 7.250% due 04/15/04 $ 200 142 Aviron (conv.) 5.750% due 04/01/05 320 352
22 Equity II Fund EQUITY II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Getty Images, Inc. (conv.) 4.750% due 06/01/03 $ 700 $ 663 Titan Corp. (conv.) 8.250% due 11/01/03 45 82 ---------- TOTAL LONG-TERM INVESTMENTS (cost $1,233) 1,239 ---------- SHORT-TERM INVESTMENTS - 4.6% Frank Russell Investment Company Money Market Fund, due on demand (b) 23,998 23,998 United States Treasury Notes (b)(c) 5.250% due 07/31/98 1,550 1,550 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $25,548) 25,548 ---------- TOTAL INVESTMENTS - 100.0% (identified cost $436,907)(d) 556,816 OTHER ASSETS AND LIABILITIES, NET - 0.0% 233 ---------- NET ASSETS - 100.0% $ 557,049 ---------- ----------
(a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) See Note 2 for federal income tax information. ABBREVIATIONS: ADR - American Depositary Receipt PLC - Public Limited Company REIT - Real Estate Investment Trust NV - Nonvoting
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ---------- ------------ FUTURES CONTRACTS (Notes 2 and 3) S&P 400 Midcap Index Futures Contracts expiration date 09/98 104 $ 150 S&P 500 Index Futures Contracts expiration date 09/98 32 300 ---------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 450 ---------- ----------
(#) At June 30, 1998, United States Treasury Notes valued at $1,550 were held as collateral in connection with futures contracts purchased by the Fund. The accompanying notes are an integral part of the financial statements. Equity II Fund 23 EQUITY II FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $436,907)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 556,816 Cash. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,862 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 44,629 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612,733 LIABILITIES Payables: Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,953 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,545 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 363 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 84 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 44,629 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,684 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 557,049 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 292 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,835 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,909 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411,407 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 557,049 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($557,049,376 divided by 15,575,632 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35.76 -------------- --------------
The accompanying notes are an integral part of the financial statements. 24 Equity II Fund EQUITY II FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,995 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 -------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,842 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,953 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,312 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,847 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,185 31,032 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,431 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 19,676 -------------- -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,708 -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 51,238 -------------- --------------
The accompanying notes are an integral part of the financial statements. Equity II Fund 25 EQUITY II FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 530 $ 1,520 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,032 61,756 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 19,676 48,513 -------------- -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 51,238 111,789 -------------- -------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (468) (1,485) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (8,471) (65,718) -------------- -------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (8,939) (67,203) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 32,591 71,618 -------------- -------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 74,890 116,204 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482,159 365,955 -------------- -------------- End of period (including undistributed net investment income of $292 and $230, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 557,049 $ 482,159 -------------- -------------- -------------- --------------
The accompanying notes are an integral part of the financial statements. 26 Equity II Fund EQUITY II FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 32.96 $ 30.05 $ 28.88 $ 25.00 $ 26.58 $ 27.71 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .03 .11 .16 .27 .36 .32 Net realized and unrealized gain (loss) on investments . 3.37 8.11 4.96 6.80 (.86) 3.97 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . 3.40 8.22 5.12 7.07 (.50) 4.29 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.03) (.11) (.16) (.29) (.31) (.31) Net realized gain on investments . . . . . . . . . . . . (.57) (5.20) (3.79) (2.90) (.21) (4.72) In excess of net realized gain on investments. . . . . . -- -- -- -- (.56) (.39) ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (.60) (5.31) (3.95) (3.19) (1.08) (5.42) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 35.76 $ 32.96 $ 30.05 $ 28.88 $ 25.00 $ 26.58 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 10.42 28.66 18.51 28.67 (2.60) 16.70 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 557,049 482,159 365,955 279,566 202,977 171,421 Ratios to average net assets (%)(b)(c): Operating expenses. . . . . . . . . . . . . . . . . . .88 .92 .95 .83 .23 .34 Net investment income . . . . . . . . . . . . . . . . .20 .35 .52 .97 1.46 1.14 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 91.95 103.00 120.78 89.31 58.04 87.25
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. (c) For periods prior to April 1, 1995, Fund performance, operating expenses, and net investment income do not include any management fees paid to the Manager or money managers. For periods thereafter, they are reported net of investment management fees but gross of any investment services fees. See Note 4. Equity II Fund 27 EQUITY III FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 97.7% AUTO AND TRANSPORTATION - 6.0% Airborne Freight Corp. 28,100 $ 982 AMR Corp. (a) 29,300 2,439 Chrysler Corp. 56,700 3,197 CSX Corp. 11,200 510 Delta Air Lines, Inc. 12,200 1,577 Ford Motor Co. 57,900 3,416 General Motors Corp. 9,700 648 Navistar International Corp. (a) 23,600 681 Trinity Industries, Inc. 14,900 618 UAL Corp. (a) 14,800 1,154 Union Pacific Corp. 5,700 252 ---------- 15,474 ---------- CONSUMER DISCRETIONARY - 10.4% Carnival Corp. Class A 40,400 1,601 De Beers Consolidated Mines, Ltd. - ADR 29,800 518 Deluxe Corp. 15,800 566 Eastman Kodak Co. 19,493 1,424 Federated Department Stores, Inc. (a) 36,004 1,937 Fortune Brands, Inc. 22,000 846 Harrah's Entertainment, Inc. (a) 4,700 109 Hasbro, Inc. 25,000 983 JC Penney & Co., Inc. 24,500 1,772 King World Productions, Inc. (a) 27,500 701 Kmart Corp. (a) 36,400 701 Limited, Inc. (The) 11,400 377 MediaOne Group, Inc. (a) 63,200 2,777 Office Depot, Inc. (a) 26,300 830 Promus Hotel Corp. New (a) 8,200 316 Sears Roebuck & Co. 34,700 2,119 Time Warner, Inc. 14,500 1,239 Toys "R" Us, Inc. (a) 46,900 1,105 Tribune Co. 23,300 1,603 Viacom, Inc. Class B (a) 47,400 2,761 Whirlpool Corp. 36,000 2,475 ---------- 26,760 ---------- CONSUMER STAPLES - 2.7% Anheuser-Busch Cos., Inc. 29,000 1,368 ConAgra, Inc. 43,100 1,366 IBP, Inc. 28,500 516 PepsiCo, Inc. 35,200 1,450 RJR Nabisco Holdings Corp. 60,580 1,439 SuperValu, Inc. 10,200 453 UST Corp. 15,800 426 ---------- 7,018 ---------- FINANCIAL SERVICES - 29.7% Ahmanson (H.F.) & Co. 20,800 1,477 Allstate Corp. 60,331 5,524 AMBAC Financial Group, Inc. 27,700 1,620 American General Corp. 10,000 712 Associates First Capital Corp. Class A 11,324 871 Banc One Corp. 54,800 3,059 Bank of New York Co., Inc. 50,700 3,077 BankAmerica Corp. 26,400 2,282 Bankers Trust New York Corp. 16,300 1,892 Camden Property Trust 11,080 330 Chase Manhattan Corp. 73,476 5,547 Chelsea GCA Realty, Inc. 10,000 400 CIGNA Corp. 10,900 752 CIT Group, Inc. (The) Class A 26,700 1,001 Colonial Properties Trust 15,200 471 Comdisco, Inc. 41,700 792 Countrywide Credit Industries, Inc. 14,300 726 Dime Bancorp, Inc. 43,600 1,305 Dow Jones & Co., Inc. 18,800 1,048 Federal National Mortgage Association 30,700 1,865 First American Corp. 27,400 1,319 First Chicago NBD Corp. 12,600 1,117 First Union Corp. 73,600 4,287 Fleet Financial Group, Inc. 37,100 3,098 Hartford Financial Services Group, Inc. (The) 16,700 1,910 Kilroy Realty Corp. 16,700 417 MBIA, Inc. 28,600 2,141 Morgan Stanley, Dean Witter, Discover and Co. 50,100 4,578 National City Corp. 39,500 2,805 NationsBank Corp. 31,550 2,414 Norwest Corp. 80,500 3,009 PaineWebber Group, Inc. 2,600 111 PMI Group, Inc. (The) 14,400 1,057 PNC Bank Corp. 20,600 1,109 Prentiss Properties Trust 13,700 333 Provident Companies, Inc. 30,600 1,056 Public Storage, Inc. 33,000 924 Reliance Group Holdings, Inc. 37,800 661 Reliastar Financial Corp. 7,200 346 Ryder System, Inc. 38,500 1,215 Spieker Properties, Inc. 28,900 1,120 TIG Holdings, Inc. 45,300 1,042 Transamerica Financial Corp. 7,900 909 Travelers, Inc. 21,096 1,279 Union Planters Corp. 13,500 794 Washington Mutual, Inc. 57,450 2,491 ---------- 76,293 ----------
28 Equity III Fund EQUITY III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- HEALTH CARE - 4.1% Aetna, Inc. 22,500 $ 1,713 Baxter International, Inc. 22,100 1,189 Bergen Brunswig Corp. Class A 16,300 756 Bristol-Myers Squibb Co. 12,900 1,483 Columbia/HCA Healthcare Corp. 72,700 2,117 Genzyme Corp. (a) 16,300 412 Schering-Plough Corp. 17,700 1,622 Tenet Healthcare Corp. (a) 40,800 1,275 ---------- 10,567 ---------- INTEGRATED OILS - 9.2% Amerada Hess Corp. NPV 24,100 1,309 Amoco Corp. 25,300 1,053 Ashland, Inc. 29,000 1,497 Atlantic Richfield Co. 26,300 2,055 Coastal Corp. 33,400 2,332 Equitable Resources, Inc. 26,100 796 Exxon Corp. 48,400 3,452 Kerr-McGee Corp. 21,900 1,268 Mobil Corp. 13,500 1,034 Phillips Petroleum Co. 21,700 1,046 Sun Co., Inc. 14,000 543 Tenneco, Inc. 38,100 1,450 Texaco, Inc. 40,600 2,423 USX-Marathon Group 93,700 3,215 ---------- 23,473 ---------- MATERIALS AND PROCESSING - 6.4% Aluminum Co. of America 18,900 1,246 Armstrong World Industries, Inc. 7,400 498 Bowater, Inc. 9,900 468 Dow Chemical Co. 6,700 648 Eastman Chemical Co. 36,300 2,260 FMC Corp. (a) 11,800 805 Freeport McMoRan Copper & Gold, Inc. Class B 53,000 805 Great Lakes Chemical Corp. 10,300 406 Harsco Corp. 20,300 930 IMC Global, Inc. 23,000 693 International Paper Co. 22,500 967 Lafarge Corp. 16,800 660 LTV Corp. 31,500 301 Lubrizol Corp. 20,100 608 Mead Corp. 41,200 1,308 Nucor Corp. 11,300 520 Olin Corp. 6,200 258 Reynolds Metals Co. 15,600 873 Sonoco Products Co. 11,000 333 Temple-Inland, Inc. 11,300 609 Timken Co. 21,000 647 Westvaco Corp. 18,400 520 ---------- 16,363 ---------- OTHER ENERGY - 2.2% Apache Corp. 17,600 554 BJ Services Co. (a) 19,200 558 Global Marine, Inc. (a) 20,900 390 Helmerich & Payne, Inc. 14,100 314 Occidental Petroleum Corp. 23,103 624 Santa Fe Energy Resources, Inc. (a) 57,900 622 Transocean Offshore, Inc. 10,600 472 Ultramar Diamond Shamrock Corp. 42,700 1,348 Valero Energy Corp. 24,300 808 ---------- 5,690 ---------- PRODUCER DURABLES - 4.8% AGCO Corp. 17,600 362 AMP, Inc. 17,900 615 Case Corp. 20,700 999 Caterpillar, Inc. 20,200 1,068 Deere & Co. 4,300 227 Diebold, Inc. 7,600 219 Foster Wheeler Corp. 26,800 575 General Electric Co. 17,100 1,556 Harnischfeger Industries, Inc. 19,100 541 Hitachi, Ltd. ADR 4,700 303 Johnson Controls, Inc. 30,500 1,744 Matsushita Electric Industrial Co., Ltd. - ADR 3,200 514 Northrop Grumman Corp. 11,200 1,155 Tektronix, Inc. 11,700 414 Xerox Corp. 20,000 2,033 ---------- 12,325 ---------- TECHNOLOGY - 5.4% COMPAQ Computer Corp. 38,100 1,081 Data General Corp. (a) 29,400 439 Electronic Data Systems Corp. 46,667 1,867 Hewlett-Packard Co. 13,100 784 International Business Machines Corp. 42,700 4,903 MEMC Electronic Materials, Inc. (a) 14,400 149 National Semiconductor Corp. (a) 15,500 205 Seagate Technology (a) 31,800 757 Storage Technology Corp. (a) 37,400 1,622 Tandy Corp. 26,700 1,417 VLSI Technology, Inc. (a) 37,600 630 ---------- 13,854 ----------
Equity III Fund 29 EQUITY III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- UTILITIES - 16.8% AT&T Corp. 85,300 $ 4,873 Baltimore Gas & Electric Co. 21,100 655 BCE, Inc. 29,006 1,238 Bell Atlantic Corp. 126,054 5,751 BellSouth Corp. 6,600 443 Columbia Gas System, Inc. 12,550 698 Consolidated Edison, Inc. 24,900 1,147 DTE Energy Co. 50,300 2,031 Edison International 26,800 792 Entergy Corp. 42,500 1,222 FPL Group, Inc. 14,700 926 GPU, Inc. 39,600 1,497 GTE Corp. 68,773 3,826 Illinova Corp. 22,300 669 Niagara Mohawk Power Corp. (a) 44,200 660 PacifiCorp. 90,000 2,036 Peco Energy Co. 25,500 744 PG&E Corp. 90,859 2,868 Public Service Enterprise Group, Inc. 13,500 465 SBC Communications, Inc. 127,700 5,108 Southern Co. 18,300 507 Texas Utilities Co. 34,400 1,432 U S West, Inc. (a) 23,801 1,119 WorldCom, Inc. (a) 50,600 2,445 ---------- 43,152 ---------- TOTAL COMMON STOCKS (cost $208,680) 250,969 ---------- PRINCIPAL AMOUNT (000) ---------- SHORT-TERM INVESTMENTS - 2.3% Frank Russell Investment Company Money Market Fund, due on demand (b) $ 4,853 $ 4,853 United States Treasury Notes (b)(c) 5.250% due 07/31/98 1,000 1,000 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $5,853) 5,853 ---------- TOTAL INVESTMENTS (identified cost $214,533)(d) - 100.0% 256,822 OTHER ASSETS AND LIABILITIES, NET - 0.0% 92 ---------- NET ASSETS - 100.0% $ 256,914 ---------- ----------
(a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) See Note 2 for federal income tax information. ABBREVIATIONS: ADR - American Depositary Receipt NPV - No Par Value The accompanying notes are an integral part of the financial statements. 30 Equity III Fund EQUITY III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ---------- ------------ FUTURES CONTRACTS (Notes 2 and 3) S&P 500 Index Futures Contracts expiration date 09/98 8 $ 26 S&P Barra Value Futures Contracts expiration date 09/98 22 19 ---------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 45 ---------- ----------
(#) At June 30, 1998, United States Treasury Notes valued at $1,000 were held as collateral in connection with futures contracts purchased by the Fund. The accompanying notes are an integral part of the financial statements. Equity III Fund 31 EQUITY III FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited) Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $214,533)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 256,822 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,514 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 7,538 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266,563 LIABILITIES Payables: Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,720 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 142 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 30 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 7,538 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,649 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 256,914 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 864 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,825 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,289 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,811 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 256,914 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($256,913,610 divided by 8,015,025 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.05 -------------- --------------
The accompanying notes are an integral part of the financial statements. 32 Equity III Fund EQUITY III FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,586 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 -------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,767 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 762 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 937 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,830 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,339 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733 25,072 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,597 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) 1,586 -------------- -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,658 -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 28,488 -------------- --------------
The accompanying notes are an integral part of the financial statements. Equity III Fund 33 EQUITY III FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,830 $ 4,089 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,072 52,299 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 1,586 8,826 -------------- -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 28,488 65,214 -------------- -------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (966) (4,089) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (43) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (8,655) (58,222) -------------- -------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (9,621) (62,354) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . (4,065) 17,474 -------------- -------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 14,802 20,334 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,112 221,778 -------------- -------------- End of period (including undistributed net investment income of $864 at June 30, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 256,914 $ 242,112 -------------- -------------- -------------- --------------
The accompanying notes are an integral part of the financial statements. 34 Equity III Fund EQUITY III FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 29.80 $ 29.68 $ 29.11 $ 24.18 $ 27.05 $ 26.75 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .22 .60 .70 .82 .93 .89 Net realized and unrealized gain (loss) on investments . 3.21 8.69 5.10 7.73 (.85) 2.99 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . 3.43 9.29 5.80 8.55 .08 3.88 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.12) (.60) (.71) (.83) (.91) (.90) In excess of net investment income . . . . . . . . . . . -- (.01) -- -- -- -- Net realized gain on investments . . . . . . . . . . . . (1.06) (8.56) (4.52) (2.79) (1.94) (2.68) In excess of net realized gain on investments. . . . . . -- -- -- -- (.10) -- ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (1.18) (9.17) (5.23) (3.62) (2.95) (3.58) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 32.05 $ 29.80 $ 29.68 $ 29.11 $ 24.18 $ 27.05 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 11.73 33.13 20.90 35.96 1.16 14.95 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 256,914 242,112 221,778 222,541 177,807 181,630 Ratios to average net assets (%)(b)(c): Operating expenses. . . . . . . . . . . . . . . . . . .74 .78 .79 .65 .17 .16 Net investment income . . . . . . . . . . . . . . . . 1.44 1.77 2.23 2.90 3.39 3.09 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 116.66 128.86 100.78 103.40 85.92 76.77
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. (c) For periods prior to April 1, 1995, Fund performance, operating expenses, and net investment income do not include any management fees paid to the Manager or money managers. For periods thereafter, they are reported net of investment management fees but gross of any investment services fees. See Note 4. Equity III Fund 35 EQUITY Q FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 98.9% AUTO AND TRANSPORTATION - 3.8% AirTran Holdings, Inc. (a) 7,600 $ 57 AMR Corp. (a) 94,300 7,850 Bandag, Inc. 5,800 226 Burlington Northern, Inc. 7,500 736 Chrysler Corp. 66,700 3,760 CNF Transportation, Inc. 4,000 170 Consolidated Freightways Corp. (a) 1,300 18 Cooper Tire & Rubber Co. 13,600 281 CSX Corp. 19,300 878 Dana Corp. 29,400 1,573 Eaton Corp. 28,900 2,247 Echlin, Inc. 32,600 1,599 Exide Corp. 1,900 32 FDX Corp. (a) 2,200 138 Ford Motor Co. 142,700 8,419 General Motors Corp. 63,800 4,263 Genuine Parts Co. 19,900 688 Goodyear Tire & Rubber Co. 18,200 1,173 Hertz Corp. Class A 15,100 669 Kansas City Southern Industries, Inc. 90,300 4,481 Lear Corp. (a) 15,100 775 Meritor Automotive, Inc. 2,800 67 Modine Manufacturing Co. 3,200 111 Navistar International Corp. (a) 58,900 1,701 Norfolk Southern Corp. 33,800 1,008 Offshore Logistics, Inc. (a) 3,000 53 PACCAR, Inc. 4,400 229 Southwest Airlines Co. 600 18 Union Pacific Corp. 22,100 975 Wisconsin Central Transportation Corp. (a) 3,500 77 ---------- 44,272 ---------- CONSUMER DISCRETIONARY - 11.0% ACNielsen Corp. (a) 13,400 338 AnnTaylor Stores Corp. (a) 21,400 453 AutoZone Inc. (a) 26,500 846 Avon Products, Inc. 2,700 209 Belo (A.H.) Corp. Class A 5,200 127 Best Buy Co. (a) 19,300 697 BHC Communications, Inc. Class A 2,000 281 Black & Decker Corp. 6,600 403 Buffets, Inc. (a) 15,000 235 Burlington Coat Factory Warehouse Corp. 20,700 466 Chris Craft Industries, Inc. (a) 745 41 Circuit City Stores, Inc. 17,300 811 Circus Circus Enterprises, Inc. (a) 15,500 263 Corporate Express, Inc. (a) 18,300 231 Darden Restaurants, Inc. 51,600 819 Dayton Hudson Corp. 317,300 15,389 Deluxe Corp. 17,400 623 Department 56, Inc. (a) 18,900 671 Dillard's, Inc. Class A 16,500 684 Disney (Walt) Co. 59,600 6,262 Donnelley (R.R.) & Sons Co. 11,500 526 Eastman Kodak Co. 26,500 1,936 EKCO Group, Inc. (a) 4,100 32 Enesco Group, Inc. 12,000 369 Extended Stay America, Inc. (a) 13,300 150 Federated Department Stores, Inc. (a) 37,400 2,013 Fingerhut Cos., Inc. 27,400 904 Fortune Brands, Inc. 7,600 292 Fruit of the Loom, Inc. Class A (a) 99,900 3,315 Furniture Brands International, Inc. (a) 9,000 253 Gannett Co., Inc. 79,800 5,671 General Nutrition Companies, Inc. (a) 14,500 451 Genesco, Inc. (a) 4,500 73 Hasbro, Inc. 29,900 1,175 Home Depot, Inc. (The) 125,950 10,462 Host Marriott Corp. (a) 68,300 1,217 Huffy Corp. 10,500 190 International Game Technology 19,100 463 JC Penney & Co., Inc. 300 22 Kmart Corp. (a) 295,500 5,688 Knight-Ridder, Inc. 37,400 2,059 La-Z-Boy Chair Co. 7,200 407 Leggett & Platt, Inc. 35,200 880 Mattel, Inc. 51,300 2,171 May Department Stores Co. 10,400 681 McClatchy Newspapers, Inc. Class A 2,700 93 McDonald's Corp. 20,200 1,394 McGraw-Hill, Inc. 29,800 2,431 MGM Grand, Inc. (a) 9,400 297 Mirage Resorts, Inc. (a) 26,800 571 Nine West Group, Inc. (a) 3,200 86 Premark International, Inc. 18,300 590 Promus Hotel Corp. New (a) 40,825 1,572 QUALCOMM, Inc. (a) 11,300 635 Reebok International, Ltd. (a) 10,300 285 Rubbermaid, Inc. 21,600 717 Sears Roebuck & Co. 66,500 4,061 Service Corp. International 41,600 1,784 Shaw Industries, Inc. 24,900 439 Snyder Communications, Inc. (a) 16,300 717 Spelling Entertainment Group, Inc. (a) 700 7 Sunglass Hut International, Inc. (a) 43,000 473 Talbots, Inc. 2,600 68
36 Equity Q Fund EQUITY Q FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Time Warner, Inc. 86,900 $ 7,425 Times Mirror Co. Series A 6,800 428 TJX Cos., Inc. 57,400 1,385 Toys "R" Us, Inc. (a) 47,900 1,129 Tribune Co. 38,600 2,656 Tricon Global Restaurants, Inc. (a) 34,900 1,106 Tupperware Corp. 30,000 844 V.F. Corp. 24,800 1,277 Venator Group, Inc. (a) 1,600 31 Viacom, Inc. Class B (a) 122,200 7,118 Viad Corp. 85,400 2,370 Wal-Mart Stores, Inc. 110,300 6,701 Warnaco Group, Inc. Class A 24,700 1,047 Washington Post Co. Class B 1,200 690 Waste Management, Inc. 94,900 3,321 Whirlpool Corp. 32,000 2,200 ---------- 127,197 ---------- CONSUMER STAPLES - 8.1% Albertson's, Inc. 88,500 4,585 American Stores Co. 6,500 157 Anheuser-Busch Cos., Inc. 55,000 2,595 Block Drug Co., Inc. Class A 7,972 300 Coca-Cola Co. (The) 99,600 8,516 Dean Foods Co. 15,000 824 Fleming Cos., Inc. 28,000 492 Flowers Industries, Inc. 32,500 664 General Mills, Inc. 600 41 Gillette Co. 113,600 6,440 Hannaford Brothers Co. 7,700 339 Heinz (H.J.) Co. 13,600 763 Interstate Bakeries Corp. 20,200 670 Kellogg Co. 19,600 736 Kroger Co. (a) 46,300 1,985 Nabisco Holdings Corp. Class A 4,200 151 PepsiCo, Inc. 118,500 4,881 Philip Morris Cos., Inc. 248,400 9,781 Procter & Gamble Co. 128,400 11,692 Quaker Oats Co. 122,300 6,719 Ralston-Purina Group 13,300 1,554 RJR Nabisco Holdings Corp. 141,400 3,358 Safeway, Inc. (a) 245,250 9,979 Sara Lee Corp. 9,800 548 Seagram Co., Ltd. 56,200 2,301 SuperValu, Inc. 6,700 297 Unilever NV 147,400 11,635 Universal Corp. 38,100 1,425 Whitman Corp. 5,600 129 ---------- 93,557 ---------- FINANCIAL SERVICES - 20.0% Ahmanson (H.F.) & Co. 43,500 3,089 Allstate Corp. 85,414 7,821 Ambac Financial Group, Inc. 34,400 2,012 American Express Co. 16,600 1,892 American International Group, Inc. 186,450 27,222 American National Insurance Co. 5,000 523 AmSouth Bancorp 48,450 1,905 Associated Banc-Corp. 4,000 151 Associates First Capital Corp. Class A 57,697 4,435 BankAmerica Corp. 232,900 20,131 Bankers Trust New York Corp. 41,200 4,782 Bear Stearns Cos., Inc. 71,868 4,087 Beneficial Corp. 5,800 888 Block (H&R) Co., Inc. 14,000 590 Capital One Financial Corp. 4,500 559 Charter One Financial, Inc. 9,100 305 Chase Manhattan Corp. 9,200 695 CIGNA Corp. 44,400 3,064 Citicorp 41,200 6,149 City National Corp. 23,600 872 Colonial BancGroup, Inc. 2,400 77 Comdisco, Inc. 61,400 1,167 Comerica, Inc. 51,300 3,399 Conseco, Inc. 31,600 1,477 ContiFinancial Corp. (a) 4,300 99 Credit Acceptance Corp. (a) 2,500 21 Crescent Real Estate Equities, Inc. 18,900 636 Dime Bancorp, Inc. 54,700 1,638 Dow Jones & Co., Inc. 5,600 312 DST Systems, Inc. (a) 6,200 347 Dun & Bradstreet Corp. 77,600 2,803 Edwards (A.G.), Inc. 35,100 1,498 Equifax, Inc. 24,100 875 Equitable Companies, Inc. 64,700 4,848 Everest Reinsurance Holdings, Inc. 1,400 54 Federal Home Loan Mortgage Corp. 193,600 9,111 Federal National Mortgage Association 158,100 9,605 Financial Security Assurance Holdings, Ltd. 2,500 147 FINOVA Group, Inc. 5,000 283 First Chicago NBD Corp. 35,581 3,153 First Data Corp. 57,000 1,899
Equity Q Fund 37 EQUITY Q FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- First Tennessee National Corp. 9,200 $ 290 First Union Corp. 78,900 4,596 Firstar Corp. 10,200 388 Fleet Financial Group, Inc. 119 10 Fremont General Corp. 3,400 184 GATX Corp. 4,800 211 Golden West Financial Corp. 23,600 2,509 Greenpoint Financial Corp. 6,000 226 HRPT Properties Trust 29,100 547 Huntington Bancshares, Inc. 13,200 441 KeyCorp 33,700 1,201 Lehman Brothers Holdings, Inc. 75,200 5,833 Lincoln National Corp. 33,100 3,025 Long Island Bancorp, Inc. 4,800 291 M & T Bank Corp. (a) 500 277 Marsh & McLennan Cos., Inc. 114,750 6,935 Marshall & Ilsley Corp. 2,100 107 MBIA, Inc. 20,100 1,505 Merrill Lynch & Co., Inc. 16,100 1,485 Money Store, Inc. 4,000 136 Morgan (J.P.) & Co., Inc. 9,200 1,078 Morgan Stanley, Dean Witter, Discover and Co. 132,140 12,074 National City Corp. 38,100 2,705 National Commerce Bancorp 2,900 121 NationsBank Corp. 178,007 13,618 North Fork Bancorporation, Inc. 38,700 946 Norwest Corp. 6,100 228 Ocwen Financial Corp. (a) 4,600 124 Ohio Casualty Corp. 1,200 53 Old Republic International Corp. 50,700 1,486 Pacific Century Financial Corp. 7,800 187 PaineWebber Group, Inc. 6,800 292 Peoples Heritage Financial Group 5,700 135 PMI Group, Inc. (The) 1,500 110 PNC Bank Corp. 4,350 234 Provident Financial Group, Inc. 3,200 146 Republic New York Corp. 5,200 327 Riggs National Corp. 2,400 70 Ryder System, Inc. 6,400 202 SAFECO Corp. 13,500 613 SouthTrust Corp. 70,550 3,069 Sovereign Bancorp, Inc. 11,500 188 St. Paul Cos., Inc. 11,100 467 Star Banc Corp. 100 6 Starwood Financial Trust Class A (a) 100 6 SunTrust Banks, Inc. 40,200 3,269 TCF Financial Corp. 5,900 174 Trans Financial, Inc. 5,600 321 Travelers Property Casualty Corp. Class A 75,700 3,246 Travelers, Inc. 245,650 14,893 UNUM Corp. 13,200 733 Washington Federal, Inc. 4,900 135 Washington Mutual, Inc. 37,700 1,634 Wells Fargo & Co. 8,800 3,246 Zions Bancorp 13,800 732 ---------- 231,686 ---------- HEALTH CARE - 11.5% Abbott Laboratories 14,200 580 Aetna, Inc. 1,800 137 Allergan, Inc. 2,700 125 ALZA Corp. (a) 14,700 636 American Home Products Corp. 186,500 9,651 Amgen, Inc. (a) 1,400 92 Bausch & Lomb, Inc. 8,600 431 Baxter International, Inc. 13,200 710 Bergen Brunswig Corp. Class A 20,700 960 Beverly Enterprises, Inc. New (a) 64,900 896 Boston Scientific Corp. (a) 27,400 1,963 Bristol-Myers Squibb Co. 182,980 21,031 Cardinal Health, Inc. 49,900 4,678 Chiron Corp. (a) 14,200 223 Columbia/HCA Healthcare Corp. 64,600 1,881 Forest Labs, Inc. (a) 20,200 727 Genesis Health Ventures, Inc. (a) 24,900 623 HBO & Co. 118,400 4,174 Health Care & Retirement Corp. (a) 16,100 635 HEALTHSOUTH Corp. (a) 81,200 2,167 Humana, Inc. (a) 68,700 2,143 Immune Response Corp. (a) 36,500 545 Integrated Health Services, Inc. 17,000 638 IVAX Corp. (a) 19,000 176 Johnson & Johnson 128,400 9,470 Lilly (Eli) & Co. 2,500 165 McKesson Corp. 32,400 2,633 Merck & Co., Inc. 172,107 23,019 Mylan Laboratories, Inc. 182,400 5,483 NovaCare, Inc. (a) 22,500 264 Olsten Corp. 4,800 54 Omnicare, Inc. 23,000 877 PacifiCare Health Systems, Inc. Class B (a) 42,500 3,753 Pfizer, Inc. 11,100 1,206 Schering-Plough Corp. 113,000 10,354 Shared Medical Systems 4,900 360
38 Equity Q Fund EQUITY Q FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Tenet Healthcare Corp. (a) 105,300 $ 3,291 United Healthcare Corp. 93,200 5,918 Warner-Lambert Co. 130,200 9,033 Watson Pharmaceuticals, Inc. (a) 6,400 299 Wellpoint Health Networks, Inc. Class A (a) 19,200 1,420 ---------- 133,421 ---------- INTEGRATED OILS - 5.0% Amoco Corp. 13,400 558 Ashland, Inc. 39,500 2,039 Atlantic Richfield Co. 41,000 3,203 Coastal Corp. 22,500 1,571 Enron Corp. 15,800 854 Exxon Corp. 393,000 28,026 Lyondell Petrochemical Co. 7,600 231 Mobil Corp. 135,700 10,398 Pennzoil Co. 17,100 866 Phillips Petroleum Co. 111,400 5,368 Royal Dutch Petroleum Co. 17,400 954 Sun Co., Inc. 6,000 233 Tenneco, Inc. 82,700 3,148 Texaco, Inc. 11,700 698 Unocal Corp. 4,900 175 ---------- 58,322 ---------- MATERIALS AND PROCESSING - 5.4% Albemarle Corp. 4,700 104 Alcan Aluminum, Ltd. 30,100 832 Allegheny Teldyne, Inc. 26,800 613 Aluminum Co. of America 22,300 1,470 Arco Chemical Co. 2,600 149 Avery Dennison Corp. 3,100 167 Bethlehem Steel Corp. (a) 94,000 1,169 Boise Cascade Corp. 3,800 124 Burlington Industries, Inc. (a) 9,500 134 Catellus Development Corp. (a) 24,200 428 Champion International Corp. 5,500 271 Cleveland-Cliffs, Inc. 1,200 64 Consolidated Papers, Inc. 10,800 294 Crompton & Knowles Corp. 62,800 1,582 Cytec Industries, Inc. (a) 3,000 133 Dow Chemical Co. 144,500 13,971 du Pont (E.I.) de Nemours & Co. 67,500 5,037 Ecolab, Inc. 6,900 214 Engelhard Corp. 56,500 1,144 Fluor Corp. 35,400 1,805 Fort James Corp. 19,500 868 Freeport-McMoRan Copper & Gold, Inc. Class B 14,300 217 Georgia Gulf Corp. 2,400 55 Georgia-Pacific Group 42,400 2,499 Georgia-Pacific Timber Group 30,100 694 Goodrich (B.F.) Co. 50,580 2,510 Harsco Corp. 20,500 939 International Paper Co. 7,700 331 Kimberly-Clark Corp. 50,900 2,335 Lafarge Corp. 16,800 660 Louisiana Pacific Corp. 14,700 268 Masco Corp. 30,700 1,857 Mead Corp. 19,000 603 Millennium Chemicals, Inc. 39,300 1,331 Monsanto Co. 80,700 4,509 NL Industries, Inc. 1,500 30 Nucor Corp. 18,800 865 Owens-Corning Fiberglas Corp. 12,000 490 Pentair, Inc. 7,400 315 Reynolds Metals Co. 9,100 509 Rohm & Haas Co. 5,800 603 Rouse Co. (The) 2,400 75 Sherwin-Williams Co. 1,000 33 Sigma Aldrich Corp. 15,300 537 Solutia, Inc. 39,100 1,122 Stone Container Corp. (a) 28,300 442 Temple-Inland, Inc. 10,200 550 Tyco International, Ltd. 75,400 4,750 UCAR International, Inc. (a) 7,300 213 Unifi, Inc. 10,800 370 Union Camp Corp. 26,400 1,310 Union Carbide Corp. 9,000 480 USX-U.S. Steel Group 13,300 439 Vulcan Materials Co. 1,000 107 Wellman, Inc. 8,000 182 Witco Corp. 1,200 36 ---------- 62,839 ---------- MISCELLANEOUS - 0.0% LNR Property Corp. 900 23 TeleTech Holdings, Inc. (a) 6,500 80 Ventas, Inc. (a) 8,800 122 ---------- 225 ----------
Equity Q Fund 39 EQUITY Q FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- OTHER ENERGY - 1.9% AES Corp. (a) 24,700 $ 1,298 Apache Corp. 29,100 917 Baker Hughes, Inc. 66,300 2,291 Camco International, Inc. 7,600 592 Cooper Cameron Corp. (a) 6,700 342 Diamond Offshore Drilling, Inc. 8,900 356 El Paso Natural Gas Co. 12,400 474 Enron Oil & Gas Co. 7,600 154 ENSCO International, Inc. 45,500 791 Halliburton Co. 36,900 1,644 Helmerich & Payne, Inc. 43,800 975 Input/Output, Inc. (a) 2,800 50 MarketSpan Corp. (a) 104,672 3,134 McDermott International, Inc. 34,900 1,202 Octel Corp. (a) 1,775 35 ONEOK, Inc. 18,700 746 R&B Falcon Corp. (a) 18,100 410 Schlumberger, Ltd. 33,400 2,282 Sempra Energy (a) 33,500 930 Tosco Corp. 38,400 1,128 Transocean Offshore, Inc. 14,500 645 Ultramar Diamond Shamrock Corp. 4,000 126 Union Pacific Resources Group, Inc. 32,000 562 Valero Energy Corp. 15,200 504 ---------- 21,588 ---------- PRODUCER DURABLES - 8.6% AGCO Corp. 28,500 586 AlliedSignal, Inc. 106,000 4,704 Applied Materials, Inc. (a) 34,100 1,006 Boeing Co. 164,000 7,308 Case Corp. 11,200 540 Caterpillar, Inc. 205,700 10,876 Cincinnati Milacron, Inc. 4,200 102 Coltec Industries, Inc. (a) 25,400 505 Cummins Engine Co., Inc. 6,900 354 Deere & Co. 115,600 6,112 Dover Corp. 58,400 2,000 EG&G, Inc. 11,400 342 Emerson Electric Co. 30,200 1,823 Foster Wheeler Corp. 5,900 126 General Electric Co. 230,400 20,966 Grainger (W.W.), Inc. 27,400 1,365 Gulfstream Aerospace Corp. (a) 36,300 1,688 Honeywell, Inc. 18,400 1,538 Ingersoll-Rand Co. 75,900 3,344 ITT Industries, Inc. 47,600 1,779 Johnson Controls, Inc. 14,800 846 Kaufman & Broad Home Corp. 3,000 95 Lexmark International Group, Inc. Class A (a) 85,700 5,228 Litton Industries, Inc. (a) 6,300 372 Lockheed Martin Corp. 8,900 942 Manitowoc Co., Inc. 2,800 113 Molex, Inc. 1,500 38 National Service Industries, Inc. 16,500 839 Northern Telecom, Ltd. 18,000 1,022 Parker-Hannifin Corp. 37,900 1,445 Perkin-Elmer Corp. 11,100 690 Picturetel Corp. (a) 3,800 35 Pitney Bowes, Inc. 118,200 5,688 Pulte Corp. 16,300 487 Raychem Corp. 37,900 1,120 Republic Industries, Inc. (a) 107,900 2,698 Rockwell International Corp. 4,500 216 Sensormatic Electronics Corp. (a) 16,700 234 Snap-On Tools Corp. 33,400 1,211 Solectron Corp. (a) 9,100 383 Sundstrand Corp. 6,900 395 Tektronix, Inc. 1,100 39 Thermo Electron Corp. (a) 55,700 1,904 Thermo Instrument Systems, Inc. (a) 9,300 244 Thomas & Betts Corp. 23,000 1,133 United Technologies Corp. 31,700 2,932 Xerox Corp. 19,500 1,983 ---------- 99,396 ---------- TECHNOLOGY - 11.2% 3Com Corp. (a) 3,500 107 Andrew Corp. (a) 6,700 121 Anixter International, Inc. (a) 35,900 684 Apple Computer, Inc. (a) 268,900 7,714 Autodesk, Inc. 18,100 696 AVX Corp. 14,100 226 Bay Networks, Inc. (a) 35,300 1,138 C-Cube Microsystems, Inc. (a) 43,800 810 Cabletron Systems, Inc. (a) 3,200 43 Cisco Systems, Inc. (a) 106,700 9,823 COMPAQ Computer Corp. 132,037 3,747 CompUSA, Inc. (a) 14,700 266 Computer Associates International, Inc. 50,300 2,795 Computer Sciences Corp. 18,800 1,203 Comverse Technology, Inc. (a) 47,300 2,454 Cooper Industries, Inc. 57,500 3,159
40 Equity Q Fund EQUITY Q FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Dell Computer Corp. (a) 11,000 $ 1,020 Electronic Data Systems Corp. 81,500 3,260 EMC Corp. (a) 106,500 4,773 General Dynamics Corp. 100,100 4,655 Gerber Scientific, Inc. 1,100 25 Harris Corp. 18,800 840 Informix Corp. (a) 231,100 1,820 Ingram Micro, Inc. Class A (a) 20,600 912 Inprise Corp. (a) 5,400 39 Intel Corp. 187,800 13,909 International Business Machines Corp. 88,400 10,149 LSI Logic Corp. (a) 31,200 720 Lucent Technologies, Inc. 85,700 7,129 Microsoft Corp. (a) 184,900 20,039 Motorola, Inc. 39,800 2,092 Novell, Inc. (a) 397,400 5,067 Oracle Systems Corp. (a) 130,200 3,190 Quantum Corp. (a) 17,900 370 Read-Rite Corp. (a) 7,900 71 SCI Systems, Inc. (a) 42,900 1,614 Standard Microsystems Corp. (a) 1,000 9 Sterling Software, Inc. (a) 56,600 1,673 Storage Technology Corp. (a) 34,800 1,509 Sun Microsystems, Inc. (a) 106,700 4,635 Symbol Technologies, Inc. 29,300 1,106 Tech Data Corp. (a) 23,000 986 Texas Instruments, Inc. 36,300 2,117 Textron, Inc. 1,400 100 Vishay Intertechnology, Inc. (a) 36,360 652 Xilinx, Inc. (a) 6,800 231 ---------- 129,698 ---------- UTILITIES - 12.4% Airtouch Communications, Inc. (a) 45,200 2,641 Allegheny Energy, Inc. 12,600 380 Ameren Corp. 34,300 1,363 American Electric Power Co., Inc. 21,800 989 American Water Works, Inc. 30,200 936 Ameritech Corp. 155,200 6,965 AT&T Corp. 340,500 19,451 Baltimore Gas & Electric Co. 36,400 1,131 Bell Atlantic Corp. 192,806 8,797 BellSouth Corp. 166,550 11,180 Carolina Power & Light Co. 44,900 1,948 Central & Southwest Corp. 62,000 1,666 Cincinnati Bell, Inc. 5,300 152 CINergy Corp. 17,100 599 CMS Energy Corp. 10,500 462 Columbia Gas System, Inc. 33,200 1,847 Comcast Corp. Special Class A 56,800 2,304 Comsat Corp. Series 1 64,400 1,823 Consolidated Natural Gas Co. 7,600 447 Dominion Resources, Inc. 18,700 762 DTE Energy Co. 46,800 1,890 Energy East Corp. (a) 61,100 2,543 Entergy Corp. 23,500 676 FirstEnergy Corp. 600 18 Florida Progress Corp. 4,400 181 FPL Group, Inc. 70,400 4,435 Frontier Corp. 17,100 539 GPU, Inc. 29,500 1,115 GTE Corp. 112,300 6,247 Houston Industries, Inc. 72,000 2,223 K N Energy, Inc. 22,800 1,235 MCI Communications Corp. 36,500 2,119 New Century Energies, Inc. 12,300 559 New England Electric System 7,000 303 Northern States Power Co. 16,400 469 OGE Energy Corp. 17,500 473 Paging Network, Inc. (a) 47,300 659 Peco Energy Co. 23,400 683 PG&E Corp. 184,900 5,836 Pinnacle West Capital Corp. 47,500 2,138 PP&L Resources, Inc. 21,400 486 Public Service Enterprise Group, Inc. 46,500 1,601 SBC Communications, Inc. 370,528 14,821 Southern Co. 33,000 914 Southwest Gas Corp. 13,400 327 Sprint Corp. 29,000 2,045 Tele-Communications International, Inc. Series A (a) 800 16 Tele-Communications TCI Ventures Group Series A (a) 69,601 1,392 Tele-Communications, Inc. Class A (a) 37,400 1,435 Tele-Communications, Inc. Series A (a) 76,000 2,950 Texas Utilities Co. 77,000 3,205 U.S. West, Inc. (a) 11,100 522 UtiliCorp United, Inc. 23,700 893 Western Resources, Inc. 6,400 248 Wisconsin Energy Corp. 12,000 365 WorldCom, Inc. (a) 251,800 12,164 ---------- 143,568 ---------- TOTAL COMMON STOCKS (cost $823,061) 1,145,769 ----------
Equity Q Fund 41 EQUITY Q FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- SHORT-TERM INVESTMENTS - 1.4% Frank Russell Investment Company Money Market Fund, due on demand (b) $ 14,976 $ 14,976 United States Treasury Note (b)(c) 5.250% due 07/31/98 1,550 1,550 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $16,526) 16,526 ---------- TOTAL INVESTMENTS (identified cost $839,587)(d) - 100.3% 1,162,295 OTHER ASSETS AND LIABILITIES, NET - (0.3%) (3,734) ---------- NET ASSETS - 100.0% $1,158,561 ---------- ----------
(a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) See Note 2 for federal income tax information. ABBREVIATIONS: NV - Nonvoting
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ---------- ------------ FUTURES CONTRACTS (Notes 2 and 3) S&P 400 Midcap Index Futures Contracts expiration date 09/98 17 $ 26 S&P 500 Index Futures Contracts expiration date 09/98 51 517 ---------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 543 ---------- ----------
(#) At June 30, 1998, United States Treasury Notes valued at $1,550 were held as collateral in connection with futures contracts purchased by the Fund. The accompanying notes are an integral part of the financial statements. 42 Equity Q Fund EQUITY Q FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $839,587)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 1,162,295 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,437 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,378 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 23,939 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,196,766 LIABILITIES Payables: Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,835 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,820 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 601 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 109 Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 23,939 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,205 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,158,561 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,284 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,306 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,708 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 755,433 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,158,561 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($1,158,560,851 divided by 28,701,526 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.37 -------------- --------------
The accompanying notes are an integral part of the financial statements. Equity Q Fund 43 EQUITY Q FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,043 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 -------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,511 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,247 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,781 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,730 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,496 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 93,996 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,626 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 65,773 -------------- -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,769 -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 164,499 -------------- --------------
The accompanying notes are an integral part of the financial statements. 44 Equity Q Fund EQUITY Q FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,730 $ 11,846 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,996 180,923 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 65,773 93,779 -------------- -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 164,499 286,548 -------------- -------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,495) (11,797) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (34,796) (185,330) -------------- -------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (37,291) (197,127) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 43,593 80,058 -------------- -------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 170,801 169,479 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 987,760 818,281 -------------- -------------- End of period (including undistributed net investment income of $2,284 and $49, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,158,561 $ 987,760 -------------- -------------- -------------- --------------
The accompanying notes are an integral part of the financial statements. Equity Q Fund 45 EQUITY Q FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 35.90 $ 32.94 $ 30.40 $ 24.43 $ 26.03 $ 25.23 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .17 .44 .58 .59 .69 .66 Net realized and unrealized gain (loss) on investments . 5.63 10.01 6.33 8.52 (.41) 2.71 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . 5.80 10.45 6.91 9.11 0.28 3.37 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.09) (.44) (.58) (.61) (.69) (.66) In excess of net investment income . . . . . . . . . . . -- -- (.01) -- -- -- Net realized gain on investments . . . . . . . . . . . . (1.24) (7.05) (3.78) (2.53) (.97) (1.85) In excess of net realized gain on investments . . . . . -- -- -- -- (.22) (.06) ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (1.33) (7.49) (4.37) (3.14) (1.88) (2.57) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 40.37 $ 35.90 $ 32.94 $ 30.40 $ 24.43 $ 26.03 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 16.51 33.07 23.67 37.91 .99 13.80 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period ($000 omitted) . . . . . . . . 1,158,561 987,760 818,281 620,259 430,661 382,939 Ratios to average net assets (%)(b)(c): Operating expenses. . . . . . . . . . . . . . . . . . .70 .68 .71 .58 .11 .15 Net investment income . . . . . . . . . . . . . . . . .87 1.17 1.80 2.07 2.74 2.50 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 78.88 94.89 74.59 74.00 45.87 54.69
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. (c) For periods prior to April 1, 1995, Fund performance, operating expenses, and net investment income do not include any management fees paid to the Manager or money managers. For periods thereafter, they are reported net of investment management fees but gross of any investment services fees. See Note 4. 46 Equity Q Fund INTERNATIONAL FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 91.9% ARGENTINA - 0.1% Banco de Galicia y Buenos Aires Class B - ADR 5,328 $ 97 Banco Frances del Rio la Plata - ADR 3,653 84 Naviera Perez Companc Class B 23,952 120 Sociedad Comercial del Plata - ADR 1,606 18 Telefonica de Argentina Class B - ADR 6,220 202 YPF Sociedad Anonima Class D - ADR 13,018 390 ---------- 911 ---------- AUSTRALIA - 2.3% Amcor, Ltd. 232,800 1,022 AMP, Ltd. (a) 22,040 259 Australia & New Zealand Bank Group, Ltd. 823,994 5,698 Australian Gas & Light Co. 28,773 180 Boral, Ltd. 671,027 1,262 Brambles Industries, Ltd. 9,000 177 Broken Hill Proprietary Co. 165,047 1,398 Caltex Australia 100,000 239 Colonial, Ltd (a) 35,000 106 Commonwealth Bank of Australia 18,297 214 CSR, Ltd. 162,000 469 Eastern Aluminum 236,000 176 Eltin, Ltd. 272,754 222 Fairfax (John) 96,000 167 Foster's Brewing Group, Ltd. 244,300 576 GIO Australia Holdings 294,251 757 Goodman Fielder Wattie 111,000 162 Lend Lease Corp. 7,489 152 Mayne Nickless, Ltd. 80,285 426 National Australia Bank, Ltd. 34,092 451 News Corp. 348,785 2,854 Orica, Ltd. 39,233 233 Pacific Dunlop, Ltd. 516,095 836 Pasminco, Ltd. 65,000 50 Pioneer International, Ltd. 174,800 418 PMP Communications, Ltd. 196,000 319 Publishing Broadcasting, Ltd. 41,030 177 RGC, Ltd. 179,077 178 Santos, Ltd. 327,000 1,015 Tabcorp. Holdings, Ltd. 25,000 128 Telstra Corp., Ltd. 58,515 150 Western Mining Corp., Ltd. 518,658 1,565 Westfield Trust (Units) 588,000 1,132 Westfield Trust (Units)(New)(a) 19,375 37 Westpac Banking Corp. 205,699 1,257 Woodside Petroleum, Ltd. 22,000 109 Woolworth's, Ltd. 133,377 434 ---------- 25,005 ---------- AUSTRIA - 0.1% Bank Austria AG 3,100 252 Brau-Union Goess-Reininghaus-Osterreichische Brau 2,528 149 Oester Brau Beteil 1,562 92 Voest-Alpine Stahl AG 13,000 522 Wienerberger Baustoff 1,600 388 ---------- 1,403 ---------- BELGIUM - 0.7% Credit Communal Holding/ Dexia NPV 1,592 240 Generale de Banque NPV 709 527 KBC Bancassurance Holding (a) 17,500 1,567 Kredietbank NPV 2,500 224 PetroFina SA NPV 1,220 501 Tractebel Investments International NPV 25,621 3,755 UCB Capital NV 49 254 Virgin Express Holdings PLC - ADR (a) 31,950 407 ---------- 7,475 ---------- BRAZIL - 0.2% Centrais Eletricas Brasileiras Electrobras SA - ADR 2,000 29 Centrais Geradoras do Sul do Brasil SA NPV (a) 3,851,300 5 Companhia Brasileira de Distribuicao Grupo Pao de Acucar (Regd) - GDR 6,240 141 Companhia Energetica de Minas Gerais SA - ADR 3,480 110 Eletrobras (centrais) NPV 3,851,300 113 Telecomunicacoes Brasileiras - ADR 13,460 1,470 Telecomunicacoes de Sao Paulo NPV (a) 61,873 9 Telecomunicacoes Brasileiras SA 1998 Rights (a) 51,022 1 Telesp Celular SA NPV (a) 61,873 3 Uniao de Bancos Brasileiros SA - GDR 4,166 123 ---------- 2,004 ----------
48 International Fund INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- CANADA - 3.9% Abitibi-Consolidated, Inc. 76,000 $ 979 Air Canada, Inc. (a) 120,000 1,072 Alcan Aluminum, Ltd. 5,200 143 ATI Technologies, Inc. (a) 85,200 1,120 Barrick Gold Corp. (US Regd) 31,700 608 BCE, Inc. 99,600 4,271 Bombardier, Inc. Class B 84,700 2,308 Canadian Airlines Corp. (a) 59,000 167 Canadian Imperial Bank of Commerce 25,612 823 Canadian Pacific, Ltd. 219,200 6,167 CGI Group, Inc. (a) 96,500 2,053 Dofasco, Inc. NPV 32,701 532 Donohue, Inc. Class A 29,000 655 EdperBrascan Corp. Class A 22,000 369 Geac Computer Corp., Ltd. (a) 32,550 1,084 Hudson's Bay Co. 50,000 1,145 Imasco, Ltd. IF 91,774 1,693 Imperial Oil, Ltd. 76,270 1,332 Inco, Ltd. 77,731 1,059 Moore Corp., Ltd. 139,300 1,846 National Bank of Canada 78,700 1,538 Noranda, Inc. 116,800 2,016 Nova Scotia Power, Inc. 20,200 266 Potash Corp. of Saskatchewan, Inc. 24,800 1,867 Rogers Communications, Inc. Class B (a) 80,000 712 Royal Bank of Canada 40,230 2,419 Stelco, Inc. Series A 65,000 464 Suncor, Inc. NPV 5,717 194 The Seagram Co., Ltd. 59,500 2,424 Torstar Corp. Class B 18,400 589 Westcoast Energy, Inc. 24,000 535 42,450 ---------- CHILE - 0.0% Chilectra SA - ADR 6,335 136 Enersis SA - ADR 3,196 78 ---------- 214 ---------- CHINA - 0.0% Huaneng Power International, Inc. Series N - ADR (a) 13,400 180 ---------- 180 ---------- CZECH REPUBLIC - 0.0% SPT Telecom AS (a) 6,900 95 ---------- 95 ---------- DENMARK - 0.6% Bang & Olufsen Holding Series B 11,000 793 Coloplast AS Class B (Regd) 5,850 575 Danisco 17,200 1,157 Den Danske Bank 1,440 173 GN Store Nord A/S 30,300 926 Jyske Bank AS (Regd) 9,241 1,091 Tele Danmark AS Series B 1,000 96 Tele Danmark Class B - ADR 42,600 2,008 Unidanmark Class A (Regd) 1,260 113 ---------- 6,932 ---------- FINLAND - 1.1% Enso OY Series A 71,000 768 Huhtamaki Series I Free 3,000 172 Kesko Oyj 80,600 1,272 Kymmene OY 67,200 1,851 Metsa-Serla Oyj Series B 90,000 870 Nokia Oyj Series A 29,136 2,145 Orion-yhtyma OY Series B 21,390 660 Outokumpu OY Class A 47,500 607 OY Tamro AB 41,300 267 Pohjola Series B 11,300 563 Rauma Group (The) 11,500 236 Rautaruukki OY 123,200 944 Sampo Insurance Co., Ltd. Series A 16,400 778 Valmet Corp. Series A 76,700 1,324 ---------- 12,457 ---------- FRANCE - 11.9% Accor SA 24,076 6,738 Alcatel Alsthom 8,898 1,812 Alstom - ADR New (a) 38,530 1,255 AXA - UAP 16,104 1,811 Banque Nationale Paris 35,900 2,933 Banque Paribas (a) 42,721 4,572 Boiron 3,000 240 Bongrain SA 1,567 787 Bull SA (a) 210,000 3,421 Canal Plus 1,510 282 Carrefour SA 3,131 1,981 Chargeurs International SA 28,151 2,326 Christian Dior 6,755 850 Cie de St. Gobain 10,862 2,014 Clarins 3,460 320 Credit Commercial de France 4,320 364 Dexia France 9,927 1,337 Dexia France (Regd) 2,955 398
International Fund 49 INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Elf Aquitaine - ADR 35,800 $ 2,542 Elf Aquitaine SA 19,640 2,761 Eridania Beghin-Say 24,943 5,508 Euro RSCG 7,100 1,435 Galeries Lafayette 3,800 3,790 Groupe Andre SA (a) 5,655 665 Groupe Danone 29,381 8,101 GTM - Entrepose 21,740 2,258 Guyenne et Gascogne 3,046 1,242 Havas Advertising SA 1998 Warrants (a) 2,100 12 L'Air Liquide 13,780 2,279 L'Oreal (Societe) 358 199 Lafarge Corp. SA (BR) 11,076 1,145 Lagardere Groupe (Regd) 28,900 1,203 Lapeyre (BR) 1,820 169 Legrand 829 219 Legris Industries SA 4,600 215 LVMH Moet-Hennessy 14,722 2,946 Lyonnais Eaux Dumez 32,514 5,351 M6 Metropole Television 3,300 552 Michelin (Cie Gen) Class B (Regd) 42,236 2,438 Nord-Est 15,000 330 Omnicom SA (a) 10,000 1,168 Pathe SA 836 164 Pechiney International Class A 51,953 2,092 Peugeot SA 6,976 1,500 Pinault-Printemps Redoute SA 1,671 1,399 Primagaz CIE 125 11 Renault (a) 108,150 6,152 Rhodia SA (a) 48,307 1,347 Sanofi SA 13,851 1,629 Schneider SA 52,384 4,177 Scor SA 18,000 1,142 Sefimeg (Regd) 2,100 152 SGS Thomson Microelectronics (a) 16,657 1,181 Simco (Regd)(p) 3,900 320 Societe Generale 25,039 5,206 Sodexho 3,460 654 Strafor-Facom SA 22,400 2,190 Sylea 2,800 259 Thomson-CSF 31,718 1,207 Total Co. SA Class B 19,950 2,594 TV Francaise (TFI) 9,883 1,532 Union des Assurances Federales 5,404 852 Usinor Sacilor 165,153 2,551 Valeo 41,311 4,223 Vallourec (Usin) 460 37 Vivendi 32,936 7,034 ---------- 129,574 ---------- GERMANY - 8.6% Adidas AG 12,200 2,128 AGIV AG fuer Industrie und Verkehrswesen (a) 27,900 774 Allianz AG (Regd) 4,660 1,554 BASF AG 14,874 707 Bayer AG 99,731 5,165 Bayerische Hypotheken-und Wechsel Bank AG 7,139 453 Bayerische Motoren Werk AG 472 478 Bayerische Motoren Werke AG (New)(a) 94 78 Bayerische Vereinsbank AG 5,335 453 Bilfinger & Berger BAU AG 16,050 550 Buderus AG 1,447 722 Commerzbank AG 45,430 1,731 Continental AG 37,280 1,172 Daimler-Benz AG 50,291 4,950 Deutsche Bank AG 45,219 3,826 Deutsche Lufthansa AG 98,790 2,490 Deutsche Telekom AG 31,633 866 Dresdner Bank AG 44,830 2,424 Fresenius Medical Care AG - ADR 55,360 1,142 GEA AG 3,797 1,484 Gehe AG 13,610 730 Gerresheimer Glas AG 11,350 169 Hannover Rueckversicherungs AG 7,400 853 Hoechst AG 53,520 2,693 Holzmann (Philipp)(a) 2,300 548 Hornback Baumarkt AG 1,949 96 IKB Deutsche Industriebank AG (p) 2,250 46 Karstadt AG 2,200 1,070 Kiekert AG 26,225 1,483 KM Europa Metal AG 3,900 493 KSB AG (a) 3,600 858 M.A.N. AG 5,850 2,284 Mannesmann AG NPV (a) 92,600 9,525 Merck KGAA 40,400 1,812 Metro AG 12,720 769 Muenchener Rueckversicherungs-Gesellschaft AG 4,360 2,166 Preussag AG 10,080 3,611
50 International Fund INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- ProSieben Media AG - ADR (a) 1,410 $ 37 Rhoen - Klinikum AG 1,762 174 RWE AG 19,700 1,167 RWE AG 1998 Warrants (a) 13,000 227 SAP AG 4,120 2,502 Schering AG 9,800 1,155 Schmalbach Lubeca AG 6,825 1,722 SGL Carbon AG 4,614 538 Siemens AG 77,361 4,725 SKW Trostberg AG 24,600 887 Suedzucker AG 3,840 2,336 Tarkett AG 22,184 738 Veba AG 87,976 5,920 Viag AG 3,700 2,548 Volkswagen International AG 6,995 6,761 Wella Aktiengesellschaft 350 346 ---------- 94,136 ---------- HONG KONG - 1.6% Cathay Pacific Airways 392,000 276 CLP Holdings, Ltd. 157,500 718 First Pacific Co. 500,000 210 Great Eagle Holdings 626,849 550 Guangshen Railway Co., Ltd. 2,058,000 274 Guoco Group, Ltd. 207,000 218 Hang Lung Development Co. 250,000 248 Hang Seng Bank 96,000 543 Henderson Investment, Ltd. 1,863,000 968 Henderson Land Development Co., Ltd. 52,000 171 Hong Kong & China Gas Co., Ltd. 1999 Warrants (a) 22,591 2 Hong Kong & China Gas Co., Ltd. 668,206 759 Hong Kong Electric Holding, Ltd. 1,076,000 3,333 Hong Kong Telecommunications, Ltd. 97,200 183 HSBC Holdings (UK Regd) PLC 79,399 1,942 Hutchison Whampoa, Ltd. 583,000 3,078 Hysan Development 235,000 194 National Mutual Asia 681,000 435 New World Development Co., Ltd. 380,000 736 Orient Overseas International, Ltd. 188,000 69 QPL International Holdings, Ltd. 640,000 124 Sun Hung Kai Properties, Ltd. 211,200 897 Swire Pacific, Ltd. Class B 489,000 293 Tai Cheung Holdings 73,000 17 Television Broadcast 344,000 909 Vitasoy International Holdings, Ltd. 400,000 131 ---------- 17,278 ---------- IRELAND - 0.3% Greencore Group PLC 124,400 678 Independent Newspapers PLC 160,000 860 Smurfit (Jefferson) 239,100 711 Waterford Wedgwood (Units) 465,000 605 ---------- 2,854 ---------- ISRAEL - 0.3% ECI Telecom, Ltd. 73,100 2,760 ---------- 2,760 ---------- ITALY - 3.8% Assicurazioni Generali SPA 40,360 1,313 Banca Commerciale Italiana 307,000 1,837 Banca Pop di Bergamo CV 3,500 72 Banca Pop di Milano 171,343 1,365 Banco di Roma (a) 1,738,457 3,620 Credito Italiano 714,581 3,742 ENI SPA - ADR 34,000 2,210 Ente Nazionale Idrocarburi SPA (Regd) 579,973 3,803 Fiat SPA di Risp 264,358 655 Fila Holdings SPA - ADR 12,400 186 Finmeccanica SPA (a) 285,003 224 First Banco S. Paolo 65,000 938 Gucci Group NV 4,709 250 Industrie Natuzzi SPA - ADR 36,372 946 Istituto Mobiliare Italiano SPA - ADR 14,000 668 Istituto Mobiliare Italiano SPA 80,668 1,271 Istituto Nazionale Delle Assicurazioni 83,000 236 Italgas (Soc. Ital.) 24,591 100 Luxottica Group SPA - ADR 57,000 884 Magneti Marelli SPA 73,500 161 Mediaset SPA 406,676 2,597 Mediolanum SPA 37,381 1,187 Montefibre di Risp (a) 90,000 79 Pirelli SPA 483,161 1,509 Rinascente (LA) 15,500 154 Telecom Italia Mobile SPA 156,246 956 Telecom Italia SPA 960,337 4,650 Telecom Italia SPA di Risp 783,801 5,772 ---------- 41,385 ----------
International Fund 51 INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- JAPAN - 15.7% Advantest 2,930 $ 158 Alps Electric Co. 25,000 298 Amada Co., Ltd. 49,000 239 Aoki International 27,000 179 Aoyama Trading Co. 61,000 1,509 Apic Yamada Corp. 25,200 146 Asahi Bank, Ltd. 232,000 1,024 Bank of Kyoto, Ltd. 138,000 648 Bank of Yokohama 206,000 507 Bridgestone Tire Corp. 71,000 1,684 Brother Industries 122,000 457 Canon Chemicals, Inc. 8,000 84 Canon, Inc. 258,000 5,878 Chugai Pharmaceutical Co. 110,000 722 Citizen Watch Co., Ltd. 22,000 182 Credit Saison Co. 85,000 1,691 CSK Corp., Ltd. 18,000 359 Dai Ichi Kangyo Bank 198,000 1,167 Dai Ichi Pharmaceutical Co. 108,000 1,429 Dai Nippon Ink & Chemical Corp. 183,000 562 Dai Nippon Screen Manufacturing Co. 41,000 168 Dai-Tokyo Fire & Marine 418,000 1,460 Daifuku Machinery Co. 11,000 41 Daito Trust Construction 59,990 456 Daiwa House Industries Co. 25,000 221 Daiwa Kosho Lease Co., Ltd. 104,000 439 Daiwa Securities 100,000 432 DDI Corp. 493 1,722 Deodeo Corp. 18,000 105 East Japan Railway 508 2,395 Ebara Corp. 52,000 464 Eisai Co. 58,100 794 Ezaki Glico Co. 76,000 433 Fanuc Co. 21,400 743 Fuji Machine Manufacturing Co. 71,000 1,890 Fuji Oil Co. 78,000 344 Fujitsu, Ltd. 233,000 2,460 Fujitsu, Ltd. 1999 Warrants Series 2 (a) 29 59 Furukawa Electric Co. 152,000 513 Gakken Co. (a) 53,000 89 General Sekiyu KK 32,000 124 Heiwa Corp. 36,000 323 Hitachi Koki Co. 84,000 346 Hitachi, Ltd. 679,000 4,444 Hokkaido Electric 24,400 343 Honda Motor Co., Ltd. 67,000 2,394 Inax Corp. 25,000 86 Intec, Inc. 52,000 411 Ishihara Sangyo (a) 140,000 194 Ishikawajima-Harima Heavy Industries 298,000 545 Ito-Yokado Co., Ltd. 133,000 6,281 Itochu Corp. 200,000 434 Japan Tobacco, Inc. 163 1,107 Jeol 50,000 229 Kandenko Co., Ltd. 10,000 62 Kao Corp. 228,000 3,529 Kawasaki Steel Corp. 476,000 861 Kawasho Corp. 52,000 64 Kinki Coca-Cola Bottling 32,000 389 Kirin Beverage Corp. 28,000 528 Kirin Brewery Co. 80,000 758 Kissei Pharmaceutical Co. 35,000 519 Koa Fire & Marine 97,000 375 Kokuyo Co., Ltd. 13,000 221 Komatsu Forklift Co., Ltd. 43,000 210 Komori Corp. 11,000 210 Kuraray Co., Ltd. 29,000 247 Kurimoto Iron Works 97,000 358 Kyocera Corp. 10,000 490 Kyushu Electric Power 13,100 205 Laox 12,000 74 Mabuchi Motor Co. 37,300 2,374 Makita Corp. 124,000 1,434 Marubeni Corp. 787,000 1,577 Marui Co., Ltd. 30,000 449 Maruichi Steel Tube 51,000 706 Matsumotokiyoshi 32,000 1,129 Matsushita Electric Industrial Co., Ltd. 321,000 5,177 Mikuni Coca-Cola Bottling 29,000 499 Minebea Co., Ltd. 197,000 1,968 Ministop Co., Ltd. 900 17 Mitsubishi Chemical 441,000 801 Mitsubishi Corp. 161,000 1,001 Mitsubishi Electric Corp. 215,000 496 Mitsubishi Estate Co., Ltd. 119,000 1,050 Mitsubishi Heavy Industries 502,000 1,902 Mitsui Fudosan Co., Ltd. 197,000 1,562 Mitsui Marine & Fire Insurance Co., Ltd. 37,000 187 Mitsui Mining & Smelting Co., Ltd. 109,000 454 Mitsui O.S.K. Lines 156,000 266 Mitsui Trust & Banking 390,000 922 Murata Manufacturing Co., Ltd. 116,000 3,775 Namco 56,000 1,312 NEC Corp. 80,000 748 Nichido Fire & Marine 400 2 Nichiei Co., Ltd. 34,700 2,369
52 International Fund INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Nikko Securities Co., Ltd. 130,000 $ 541 Nintendo Co. 9,000 836 Nippon Denso Co. 179,000 2,978 Nippon Fire & Marine 113,000 463 Nippon Oil Co. 166,000 538 Nippon Telegraph & Telephone Corp. 911 7,577 Nippon Yusen 344,000 1,169 Nishimatsu Construction 332,000 1,633 Nisshin Flour Milling Co., Ltd. 58,000 383 Nissho Iwai Corp. 210,000 363 Nomura Securities 254,000 2,967 Noritake Co. 74,000 348 North Pacific Bank 100,000 341 Oki Electric Industries 120,000 289 Osaka Gas Co. 178,000 458 Pioneer Electronics Corp. 266,000 5,098 Ricoh Co., Ltd. 94,000 993 Rinnai Corp. 78,000 1,185 Rohm Co. 33,000 3,401 Roland Corp. 7,000 115 Sakura Bank, Ltd. 817,000 2,127 Sangetsu Co. 6,000 78 Sankyo Co., Ltd. 29,000 663 Sankyo Co., Ltd. GUNMA 53,000 862 Sankyo Seiko Co. 100,000 242 Sanwa Bank 126,000 1,131 Sega Enterprises 8,300 144 Sekisui Chemical Co., Ltd. 336,000 1,725 Sekisui House, Ltd. 113,000 879 Seven-Eleven Japan NPV 3,300 197 Sharp Corp. 81,000 658 Shin-Etsu Chemical Co. 80,400 1,396 Shiseido Co., Ltd. 104,000 1,185 Shohkoh Fund & Co., Ltd. 900 222 Showa Shell Sekiyu 60,000 269 Sony Corp. 115,700 9,999 Stanley Electric 116,000 426 Sumitomo Corp. 50,000 241 Sumitomo Electric Industries 62,000 629 Sumitomo Forestry 136,000 766 Sumitomo Realty & Development 281,000 1,244 Sumitomo Rubber Industries 38,000 206 Sumitomo Trust & Banking 277,000 1,242 Tadano 45,000 130 Takeda Chemical Industries 40,000 1,067 Takefuji Corp. 13,200 611 TDK Corp. 10,000 741 Toc Co. 50,000 430 Toda Corp. 70,000 281 Toho Bank 100,000 403 Tohoku Electric Power 19,700 291 Tokio Marine & Fire Insurance Co. 20,000 206 Tokyo Broadcasting 50,000 560 Tokyo Electric Power 80,000 1,574 Tokyo Electronics 5,900 181 Tokyo Gas Co. 762,000 1,703 Tokyo Steel Manufacturing 25,000 129 Toppan Printing 41,000 440 Torii Pharmaceutical Co., Ltd. 22,800 416 Toshiba Corp. 501,000 2,054 Tostem Corp. 42,000 546 Toyota Motor Corp. 124,000 3,219 Tsubakimoto Chain Co. 74,000 249 Uniden Corp. 54,000 592 UNY Co., Ltd. 13,000 212 West Japan Railway Co. 100 364 Yamaha Motor Co. 56,000 352 Yamanouchi Pharmaceutical 75,000 1,568 Yamato Kogyo Co. 42,000 310 Yamato Transport 87,000 978 Yasuda Fire & Marine Insurance Co., Ltd. (The) 88,000 375 Yodogawa Steel Works, Ltd. 71,000 334 Yurtec Corp. 4,550 28 ---------- 171,240 ---------- MALAYSIA - 0.2% Berjaya Leisure Berhad 60,000 33 Carlsberg Brewery Malaysia Berhad 170,000 516 Commerce Asset Holdings 180,000 67 Golden Hope Plantation 50,000 46 Kumpulan Guthrie 392,000 227 Malayan Banking Berhad 140,000 141 Malayan Banking Berhad Class A (a) 140,000 141 Malaysian Airline System 50,000 17 Oriental Holdings Berhad 30,000 50 Perlis Plantations 216,000 187 Resorts World Berhad 543,000 597 Technical Resource Industries Berhad 396,000 271 ---------- 2,293 ---------- MEXICO - 0.3% Cemex SA de CV - ADR 19,000 142 Cemex SA de CV Class B NPV 24,709 109
International Fund 53 INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Cemex SA de CV NPV 741 $ 3 Cifra SA de CV - ADR (a) 2,869 52 Compania Cervecerias Unidas SA - ADR 3,214 67 Fomento Economico Mexicano SA de CV (a) 4,511 141 Gruma SA - ADR (a) 10,526 93 Gruma SA Series B NPV (a) 45,900 100 Grupo Financiero Banamex AC Series B NPV (a) 58,052 113 Grupo Financiero Banamex AC Series L NPV (a) 3,655 6 Grupo Industrial Maseca Series B NPV 131,263 96 Grupo Modelo SA Series C 14,752 125 Grupo Radio Centro SA de CV - ADR 37,200 414 Grupo Television SA de CV - GDR (a) 8,409 316 Kimberly-Clark, Mexico Class A NPV 38,044 134 Panamerican Beverages, Inc. Class A 7,354 231 Telefonos de Mexico SA Series L - ADR 11,479 552 TV Azteca SA de CV - ADR 5,900 64 ---------- 2,758 ---------- NETHERLANDS - 6.4% ABN Amro Holdings NV 108,133 2,532 AKZO Nobel NV 649 144 AKZO Nobel NV - ADR 13,800 1,532 Apothekers Cooperatie OPG 15,600 526 ASM Lithography Holding NV (a) 12,840 380 Baan Co. NV (a) 4,170 149 Benckiser NV Class B (a) 18,000 1,108 Boskalis Westminster CVA 23,905 355 CSM NV CVA 8,507 409 DOCdata NV (a) 42,500 1,219 Elsevier NV 64,808 979 European Vinyls Corp. International NV 7,200 126 Fortis Amev NV 10,292 603 Heineken Holding NV Class A (a) 15,624 515 Hollandsche Beton Groep NV 51,580 1,076 Hunter Douglas NV 38,887 2,114 ING Groep NV 66,813 4,378 KNP BT (Kon) NV 60,442 1,561 Koninklijke Ahold NV 9,186 295 Koninklijke Emballage Industrie Van Leer 34,300 796 Koninklijke KPN NV (a) 129,427 4,985 Koninklijke Numico NV 6,060 190 Nedlloyd Groep NV 45,000 914 Nutreco Holding NV 57,000 1,997 Pakhoed Kon NV CVA 12,000 390 Philips Electronics 95,968 8,073 Philips Electronics NV - ADR 33,200 2,818 Polygram 20,276 1,035 Royal Dutch Petroleum Co. 143,437 7,960 Royal PTT Nederland NV 22,252 1,416 Stork NV 22,315 711 TNT Post Group NV (a) 129,427 3,311 Unilever NV 32,080 2,547 Vedior 32,135 909 Vendex NV (a) 32,565 1,226 Verenigde Nederlandse Uitgeversbedrijven Verenigd Bezit 202,357 7,357 Wereldhave NV 8,338 479 Wolters Kluwer CVA 21,795 2,993 ---------- 70,108 ---------- NEW ZEALAND - 0.4% Air New Zealand Class B 203,400 219 Fletcher Challenge Building 21,702 27 Fletcher Challenge Energy 583,101 1,396 Fletcher Challenge Paper 135,150 150 Lion Nathan, Ltd. 66,600 148 Telecom Corp. of New Zealand, Ltd. 786,133 1,685 Telecom Corp. of New Zealand, Ltd. NPV 219,549 907 Wrightson, Ltd. 300,000 59 ---------- 4,591 ---------- NORWAY - 0.5% Bergesen DY AS Series A 4,130 79 Fred. Olsen Energy ASA (a) 44,750 596 Kvaerner Industries AS Series B 10,000 309 Norsk Hydro AS 26,306 1,158 Orkla ASA Class A (a) 40,396 941 Orkla ASA Class B (a) 29,732 626 P4 Radio Hele Norge ASA 102,000 466 Rieber & Son ASA Series B 44,000 431 Saga Petroleum AS Series B 8,070 114 Schibsted AS 51,600 868 ---------- 5,588 ---------- PANAMA - 0.0% Banco Latinoamericano de Exportaciones SA Class E 1,820 56 ---------- 56 ----------
54 International Fund INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- PERU - 0.0% Credicorp, Ltd. 4,092 $ 60 Telefonica Del Peru SA Class B - ADR 3,440 70 ---------- 130 ---------- PORTUGAL - 0.4% Banco Totta e Acores (Regd) 16,000 485 Jeronimo Martins SGPS 10,580 509 Portugal Telecom SA 52,194 2,768 Telecel-Comunicacaoes Pessoaissa 4,600 817 ---------- 4,579 ---------- RUSSIA - 0.0% Gazprom - ADR 7,390 79 Lukoil Oil Co. - ADR 1,400 47 ---------- 126 ---------- SINGAPORE - 0.5% Creative Technology, Ltd. (a) 5,000 62 Development Bank of Singapore, Ltd. (Alien Market) 287,200 1,594 Fraser & Neave 135,000 364 Jardine Strategic Holdings, Ltd. (a) 541,437 1,029 Jurong Shipyard 100,000 484 Mandarin Oriental International, Ltd. (a) 542,878 309 Overseas Union Enterprises 166,000 245 Singapore Airlines, Ltd. (Alien Market) 74,000 347 Singapore Land 46,000 97 Singapore Press Holdings, Ltd. (Alien Market) 80,045 537 Singapore Telecommunications, Ltd. 87,000 124 Straits Steamship Land, Ltd. 110,000 101 United Overseas Bank, Ltd. (Alien Market) 103,000 320 ---------- 5,613 ---------- SOUTH AFRICA - 0.2% Sappi, Ltd. (a) 244,300 917 South African Breweries 55,100 1,133 ---------- 2,050 ---------- SOUTH KOREA - 0.0% Samsung Electronics, Ltd. 4,379 136 ---------- 136 ---------- SPAIN - 3.7% Acerinox SA 6,500 866 Adolfo Dominguez SA (a) 25,800 875 Banco Bilbao Vizcaya SA 29,630 1,521 Banco Popular Espanol SA 18,940 1,615 Banco Santander SA (Regd)(a) 106,472 2,725 Baron de Ley SA (a) 16,286 541 Campofrio Alimentacion SA (a) 8,500 701 Centros Commerciales Pryca 30,800 570 Corp. Fin. Reunida (a) 32,000 483 Corporacion Bancaria de Espana SA 50,600 2,283 Corporacion Bancaria de Espana SA (Regd)(a) 49,448 1,109 Dragados y Construcciones SA 6,600 211 Endesa SA 92,986 2,034 Fuerzas Electricat Series A 73,300 655 Gas Natural SDG SA 3,102 224 Gas Y Electricidad SA Series 2 19,741 1,502 Grupo Acciona SA 4,750 1,130 Hidroelectrica del Cantabrico SA 12,490 570 Iberdrola SA 110,483 1,794 Prosegur CIA de Seguridad SA (Regd) 55,000 655 Repsol SA 67,653 3,728 Repsol SA - ADR 52,800 2,904 Tabacalera SA Class A (Regd) 191,092 3,913 Telefonica de Espana 126,974 5,871 Union Electrica Fenosa 13,000 167 Viscofan Envoltura 25,500 1,188 ---------- 39,835 ---------- SWEDEN - 2.9% ABB AB Series A 19,610 278 ABB AB Series B 67,000 932 Asticus AB (a) 11,465 126 Astra AB Series A 161,081 3,292 Astra AB Series B 54,604 1,089 Atlas Copco AB Series B 11,030 301 Autoliv, Inc. 106,930 3,419 Avesta-Sheffield 54,500 270 BT Industries AB 22,000 444 Diligentia AB 22,930 198 Electrolux AB Series B (a) 178,820 3,072 Esselte AB Series B 3,570 83 Fastighetspartner NF AB (Units)(a) 19,000 19 Gambro AB Series B (a) 53,500 979 Granges AB 5,155 94 Hennes and Mauritz AB Series B 32,070 2,047
International Fund 55 INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Hoganas AB B Shares 27,450 $ 613 Munksjo AB 50,800 497 Nordbanken Holding AB 159,298 1,168 Om Gruppen AB (a) 52,600 1,095 Pharmacia & Upjohn, Inc. 48,300 2,228 Sandvik AB Series A 3,360 93 Sandvik AB Series B 9,820 270 Scandic Hotels AB 28,210 1,026 Scania AB Series A 39,200 953 Scania AB Series B 6,200 150 Scribona AB Series B Free 4,140 50 Stora Kopparbergs Bergslags Aktiebolag Series A 131,000 2,061 Svenska Celluosa Series B Free 19,000 492 Svenska Handelsbank Series A 37,700 1,749 Telefonaktiebolaget Ericsson (LM) Series B 42,840 1,251 Tornet Fastighets AB 52,000 834 ---------- 31,173 ---------- SWITZERLAND - 5.7% ABB AG 946 1,399 Adecco SA 3,879 1,752 Baloise Holding, Ltd. 425 349 Baloise Holding, Ltd. 1998 Rights (a) 850 697 Barry Callebaut AG (Regd)(a) 3,415 737 Bobst AG (BR) 300 553 Ciba Specialty Chemicals AG 3,672 472 Credit Suisse Group (Regd) 5,495 1,225 Fischer (Georg) AG (Regd) 1,600 623 Forbo Holding AG (Regd) 2,880 1,468 Generali (Schweiz) Holding 11,195 3,379 Hero (BR) 1,595 1,085 Holderbank Financiere Glarus AG (BR) 700 892 Jelmoli Holding AG 925 1,176 Lindt & Spruengli AG 160 413 Lindt & Spruengli AG (Regd) 10 261 Nestle SA (Regd) 6,159 13,202 Novartis AG (Regd) 1,668 2,780 Phoenix Mecano (BR) 800 518 Publicitas Holdings SA - (Regd) 2,000 621 Roche Holdings Genusscheine AG NPV 627 6,167 Sarna Kunststoff Holdings AG (Regd) 250 437 SGS Holding (BR) 450 764 Siegfried AG Series R 1,013 1,284 SMH AG Neuenburg (Regd) 8,900 1,487 Sulzer AG (Regd) 1,650 1,304 Sulzer Medica AG (Regd) 7,475 1,965 Swisslog Holding AG 9,558 1,105 UBS AG (a) 32,846 12,233 Zurich Versicherungsgesellschaft (Regd) 3,100 1,982 ---------- 62,330 ---------- THAILAND - 0.0% Thai Farmers Bank (Alien Market) 135,000 119 ---------- 119 ---------- UNITED KINGDOM - 19.5% Abbey National PLC 36,000 640 Airtours PLC 132,000 990 Anglian Water PLC 127,400 1,787 ASDA-MFI Group PLC 988,849 3,397 B.A.T. Industries PLC 319,500 3,201 Barclays Bank PLC 94,200 2,718 Barratt Development PLC 68,300 301 BASS PLC 48,214 904 Berisford PLC 231,000 883 BG PLC 36,441 211 Billiton PLC 327,300 664 BOC Group PLC 201,574 2,748 British Aerospace PLC (a) 631,480 4,840 British Airways PLC 145,580 1,576 British Airways PLC - ADR 8,270 890 British Petroleum Co. PLC 442,906 6,463 British Sky Broadcasting Group PLC 91,900 661 British Steel PLC 343,600 756 British Telecom PLC 195,007 2,409 BTR PLC (a) 1,016,003 2,884 Bunzl PLC 395,500 1,862 Burmah Castrol PLC 39,000 695 Cable & Wireless Communications PLC (a) 307,000 3,111 Cable & Wireless PLC 226,360 2,751 Cadbury Schweppes PLC 104,228 1,614 Caradon PLC 87,423 269 Centrica PLC (a) 68,500 116 Coats Viyella PLC 290,000 356 Commercial Union Assurance Co. PLC 148,000 2,763 Compass Group PLC (a) 111,200 1,279 Courtaulds Textile Co. PLC 130,000 629 Cowie Group PLC 149,166 872 Devro International PLC 210,000 1,765 Diageo PLC 885,933 10,503 ED&F Man Group PLC 140,000 725
56 International Fund INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Electrocomponents PLC 27,000 $ 212 EMI Group PLC 99,000 866 First Leisure Corp. PLC 165,000 959 Flextech PLC (a) 80,000 740 Gallaher Group PLC 92,900 514 General Accident PLC 61,500 1,386 GKN PLC (a) 10,000 127 Glaxo Wellcome PLC 273,463 8,214 Glynwed International PLC 185,200 762 Granada Group PLC 57,000 1,049 Great University Stores PLC 80,000 1,055 Guardian Royal Exchange PLC (a) 353,333 2,071 Hanson PLC 87,375 531 Heywood Williams Group PLC 21,666 94 Hickson International PLC 694,500 858 Hillsdown Holdings PLC 369,876 1,007 HSBC Holdings PLC 46,000 1,168 Hyder PLC 70,333 1,106 Imperial Chemical Industries PLC 182,985 2,939 Imperial Tobacco Group PLC 119,000 878 Independent Newspapers PLC 292,300 1,537 Kingfisher PLC 126,657 2,041 Ladbroke Group, Ltd. PLC 531,013 2,917 Laing (John) PLC Class A NV 18,800 124 Laird Group PLC 212,830 995 Lloyds TSB Group PLC 321,408 4,500 London Clubs International 200,000 528 LucasVarity PLC 1,722,137 6,844 Manchester United PLC 500,000 1,317 Medeva PLC 293,000 832 MEPC PLC 34,000 299 MFI Furniture Group PLC 409,641 434 Mirror Group News PLC 805,000 3,038 National Power PLC 78,000 735 National Westminster Bank PLC 140,000 2,504 Northern Rock PLC 50,600 448 Nycomed Amersham PLC (a) 52,217 389 Pace Micro Technology PLC 190,000 241 PIC International Group PLC (a) 300,000 1,077 Pilkington Brothers PLC 221,000 408 Powell Duffryn PLC 68,000 621 Powergen PLC 190,231 2,630 Premier Consolidated Oil PLC 605,000 427 Premier Farnell PLC 73,000 372 Provident Financial PLC 76,228 1,196 Prudential Corp. PLC 137,000 1,806 Racal Electronics PLC 316,800 1,796 Railtrack Group PLC 278,150 6,822 Rank Group PLC 132,750 729 Redland PLC 23,033 132 Reed International 191,080 1,729 Rio Tinto Corp. PLC (Regd) 262,953 2,964 Rolls-Royce PLC 37,370 154 Royal & Sun Alliance Insurance Group PLC 435,732 4,507 Royal Bank of Scotland Group PLC 104,500 1,815 Safeway PLC 393,541 2,579 Sainsbury (J.) PLC 218,432 1,948 Shell Transportation & Trading PLC (Regd) 901,000 6,349 Smith & Nephew PLC 757,000 1,893 Smith (David S.) Holdings PLC 43,000 139 SmithKline Beecham PLC 296,380 3,620 Somerfield PLC 795,058 5,084 South West Water PLC 93,100 1,544 Stagecoach Holdings PLC 79,160 1,685 Stakis PLC 595,442 1,213 Standard Chartered Bank Group PLC 141,000 1,603 Storehouse PLC 461,000 1,917 Tarmac, Ltd. PLC 1,020,699 1,824 Taylor Woodrow PLC 558,300 1,864 Tesco Store Holdings PLC 56,463 552 Thames Water PLC 33,000 601 Thorn PLC 261,428 1,056 Tomkins PLC 725,236 3,939 Transport Development Group PLC (a) 104,760 520 Unilever PLC 127,640 1,360 United Newspaper, Ltd. PLC 52,200 730 Vickers, Ltd. PLC 208,700 763 Vodafone Group PLC 595,680 7,564 W.H. Smith Group PLC (a) 396,720 3,524 Wessex Water PLC 147,000 1,119 WPP Group PLC 230,000 1,508 Zeneca Group PLC 39,000 1,674 ---------- 211,849 ---------- VENEZUELA - 0.0% CIA Anon Nacional Telefonos de Venezuela - ADR 5,282 132 ---------- 132 ---------- TOTAL COMMON STOCKS (cost $860,010) 1,001,819 ----------
International Fund 57 INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- PREFERRED STOCKS - 1.6% AUSTRALIA - 0.2% News Corp., Ltd. 189,897 $ 1,349 Sydney Harbour Casino Holdings, Ltd. (a) 1,058,762 617 ---------- 1,966 ---------- AUSTRIA - 0.3% Z Landerbank Bank Austria AG 39,141 3,181 ---------- 3,181 ---------- BRAZIL - 0.1% Banco Bradesco SA NPV 22,758,054 190 Banco Itau SA (Regd) 169,000 96 Brahma (cia Cervej) NPV 186,724 116 Brasmotor SA NPV 529,000 48 CEMIG SA 3,340,523 104 Cim Port Itau (Cia) 370,920 66 Empresa Nacional Com Redito NPV 288,490 1 Petroleo Brasileiro SA NPV 1,849,080 344 Telecomunicacoes de Minas Gerais Class B NPV 838,270 58 Telecomunicacoes de Sao Paulo SA - NPV 1,023,792 241 Telecomunicacoes do Rio de Janeiro SA NPV 872,476 66 Telemig Celular SA Class C NPV (a) 838,270 25 Telerj Celular SA Class B NPV (a) 872,476 52 Telesp Celular SA Class B NPV (a) 1,023,792 85 Usiminas Uni Sd Mg NPV 7,598 39 ---------- 1,531 ---------- GERMANY - 0.7% Bayer Motoren Werk 900 564 Bayerische Motoren Werke AG (a) 180 109 Draegerwerk AG 750 18 Dyckerhoff AG 250 98 Fielmann AG 2,133 75 Fresenius AG 1,010 192 Hornbach Holding AG 2,060 188 Hugo Boss 300 662 Jungheinrich 7,150 1,328 M.A.N. AG 250 68 Porsche AG 425 1,225 ProSieben Media AG NV (a) 11,555 599 Rheinmetall AG (a) 26,500 757 RWE AG 13,000 556 SAP AG 1,157 786 Volkswagen AG 500 345 Wella AG 100 111 ---------- 7,681 ---------- ITALY - 0.0% Fiat SPA 171,397 427 ---------- 427 ---------- JAPAN - 0.2% Sanwa International Financial Bermuda Trust (conv.) 216,000,000 1,593 ---------- 1,593 ---------- NETHERLANDS - 0.0% Internationale Nederlanden Groep NV 2,901 13 ---------- 13 ---------- UNITED STATES - 0.1% WBK STRYPES Trust (conv.) 18,900 571 ---------- 571 ---------- TOTAL PREFERRED STOCKS (cost $12,653) 16,963 ---------- PRINCIPAL AMOUNT (000) ---------- LONG-TERM INVESTMENTS - 0.1% JAPAN - 0.1% Sumitomo Wiring Systems 0.900% due 09/30/98 JPY 45,000 268 Yamanouchi Pharmaceutical (conv.) 1.250% due 03/31/14 90,000 924 ---------- TOTAL LONG-TERM INVESTMENTS (cost $1,357) 1,192 ----------
58 International Fund INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- SHORT-TERM INVESTMENTS - 4.3% UNITED STATES - 4.3% Frank Russell Investment Company Money Market Fund, due on demand (b) $ 38,492 $ 38,492 United States Treasury Notes 5.2505 due 07/31/98 (b)(c) 8,850 8,850 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $47,342) 47,342 ---------- TOTAL INVESTMENTS (identified cost $921,362)(d) - 97.9% 1,067,316 OTHER ASSETS AND LIABILITIES, NET - 2.1% 22,553 ---------- NET ASSETS - 100.0% $1,089,869 ---------- ----------
(a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) See Note 2 for federal income tax information. ABBREVIATIONS: ADR - American Depositary Receipt GDR - Global Depositary Receipt GDS - Global Depositary Share NPV - No Par Value NV - Nonvoting PLC - Public Limited Company FOREIGN CURRENCY ABBREVIATIONS: AUD - Australian dollar CAD - Canadian dollar CHF - Swiss franc DEM - German mark ESP - Spanish peseta FIM - Finnish markka FRF - French franc GBP - British pound ITL - Italian lira JPY - Japanese yen MXN - Mexican peso MYR - Malaysian ringgit NLG - Dutch guilder NZD - New Zealand dollar PTE - Portuguese escudo SEK - Swedish krone SGD - Singapore dollar USD - U.S. dollar The accompanying notes are an integral part of the financial statements. International Fund 59 INTERNATIONAL FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ---------- ------------ FUTURES CONTRACTS (Notes 2 and 3) FTSE - 100 Index Futures Contracts (UK) expiration date 09/98 309 $ 524 TOPIX Index Futures Contracts (Japan) expiration date 09/98 256 521 --------- ----------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 1,045 ----------- -----------
(#) At June 30, 1998, United States Treasury Notes valued at $8,850 were held as collateral in connection with futures contracts purchased by the Fund.
% OF MARKET NET VALUE INDUSTRY DIVERSIFICATION ASSETS (000) - ------------------------------------------------- ---------- ----------- Auto & Transportation 8.0% $ 87,217 Consumer Discretionary 17.6 192,011 Consumer Staples 8.6 93,916 Financial Services 15.9 172,674 Health Care 5.1 55,011 Integrated Oils 2.0 21,833 Material & Processing 11.9 129,813 Miscellaneous 1.4 15,503 Other Energy 3.0 33,106 Producer Durables 8.3 90,714 Technology 3.9 42,042 Utilities 7.8 84,942 Long-Term Investments 0.1 1,192 Short-Term Investments 4.3 47,342 ---------- ----------- Total Investments 97.9 1,067,316 Other Assets and Liabilities, Net 2.1 22,553 ---------- ----------- NET ASSETS 100% $ 1,089,869 ---------- ----------- ---------- -----------
% OF MARKET NET VALUE GEOGRAPHIC DIVERSIFICATION ASSETS (000) - ------------------------------------------------- ---------- ----------- Europe 47.8% $ 521,226 Japan 16.0 174,025 United Kingdom 19.4 211,849 Pacific Basin 5.3 57,182 Latin America 0.7 7,736 United States (Short-Term Investments) 4.3 47,342 United States 0.1 571 Other 4.3 47,385 ---------- ----------- Total Investments 97.9 1,067,316 Other Assets and Liabilities, Net 2.1 22,553 ---------- ----------- NET ASSETS 100% $ 1,089,869 ---------- ----------- ---------- -----------
The accompanying notes are an integral part of the financial statements. 60 International Fund INTERNATIONAL FUND FOREIGN CURRENCY EXCHANGE CONTRACTS (Note 2) June 30, 1998 (Unaudited) FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - ------------- -------------- ------------ ------------ GBP 2 AUD 4 07/02/98 $ -- USD 550 CHF 834 07/03/98 1 USD 114 DEM 205 07/02/98 -- USD 197 FRF 1,188 07/31/98 (1) USD 1,002 GBP 602 07/02/98 3 USD 926 GBP 556 07/07/98 2 USD 161 ITL 285,750 07/07/98 -- USD 127 JPY 17,663 07/02/98 -- USD 737 JPY 102,264 07/03/98 3 MYR 541 NLG 1,105 07/01/98 3 USD 265 NLG 540 07/02/98 -- USD 76 NZD 146 07/02/98 -- USD 135 SEK 1,078 07/02/98 -- AUD 212 USD 128 07/01/98 (4) AUD 125 USD 75 07/02/98 (2) AUD 222 USD 135 07/06/98 (3) AUD 33 USD 21 07/02/98 -- CAD 2 USD 2 07/02/98 -- DEM 883 USD 490 07/03/98 1 DEM 163 USD 90 07/02/98 -- ESP 1,013 USD 7 07/02/98 -- FIM 1,160 USD 211 07/01/98 (1) FRF 3,178 USD 524 07/31/98 (1) FRF 686 USD 113 07/31/98 -- FRF 2,335 USD 384 07/31/98 (2) FRF 2,178 USD 360 07/31/98 -- FRF 8,218 USD 1,359 07/02/98 -- GBP 1 AUD 2 07/02/98 -- GBP 567 USD 944 07/01/98 (2) GBP 367 USD 613 07/02/98 -- GBP 807 USD 1,340 07/03/98 (7) ITL 216 USD - 07/02/98 -- JPY 25,175 USD 177 07/03/98 (5) JPY 8,826 USD 62 07/06/98 (2) MXN 9,706 USD 1,080 07/02/98 1 MYR 2,276 NLG 541 07/01/98 (7) NLG 4,096 USD 2,005 07/01/98 (10) NZD 96 USD 50 07/02/98 -- PTE 1,139 USD 6 07/02/98 -- SEK 40 USD 5 07/02/98 -- SGD 3 USD 2 07/02/98 -- ------------ $ (33) ------------ ------------ FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - ------------- -------------- ------------- ------------ USD 1,626 GBP 1,000 09/18/98 $ 36 USD 809 GBP 500 09/18/98 22 USD 6,067 GBP 3,650 09/18/98 1 USD 23,448 GBP 14,100 09/18/98 (9) USD 528 JPY 75,000 09/18/98 20 USD 701 JPY 100,000 09/18/98 30 USD 1,483 JPY 200,000 09/18/98 (20) USD 1,806 JPY 250,000 09/18/98 23 USD 181 JPY 25,000 09/18/98 2 USD 1,079 JPY 150,000 09/18/98 18 USD 711 JPY 100,000 09/18/98 21 USD 15,907 JPY 2,200,000 09/18/98 189 USD 3,774 NZD 7,289,000 07/01/98 19 JPY 2,470,000 USD 18,147 08/27/98 133 JPY 100,000 USD 730 09/18/98 (2) NZD 1,153 USD 632 07/01/98 32 NZD 1,524 USD 829 07/01/98 36 NZD 3,272 USD 1,822 07/01/98 119 NZD 1,340 USD 732 07/01/98 34 NZD 4,074 USD 2,099 09/03/98 (21) ------------ $ 683 ------------ ------------
The accompanying notes are an integral part of the financial statements. International Fund 61 INTERNATIONAL FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $921,362)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 1,067,316 Foreign currency holdings (identified cost $17,163). . . . . . . . . . . . . . . . . . . . . . . . . . . 17,118 Forward foreign currency exchange contracts (cost $83,113)(Note 2) . . . . . . . . . . . . . . . . . . . 83,464 Foreign currency exchange spot contracts (cost $15,560)(Note 2). . . . . . . . . . . . . . . . . . . . . 15,573 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,641 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,222 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,215 Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,574 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . . . 147 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 95,609 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,299,879 LIABILITIES Payables: Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 765 Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,549 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,584 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 694 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422 Forward foreign currency exchange contracts (cost $83,113)(Note 2) . . . . . . . . . 82,781 Foreign currency exchange spot contracts (cost $15,560)(Note 2). . . . . . . . . . . 15,606 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 95,609 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,010 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,089,869 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,851 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,883 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,954 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,045 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 909,242 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,089,869 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($1,089,868,826 divided by 27,393,963 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39.79 -------------- --------------
The accompanying notes are an integral part of the financial statements. 62 International Fund INTERNATIONAL FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,041 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 Less foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,786) ---------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,661 EXPENSES (Notes 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,948 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,953 ---------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,708 ---------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,395 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,663 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (291) 48,767 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,147 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,066 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . 814 96,027 -------------- ---------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,794 ---------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 155,502 ---------------- ----------------
The accompanying notes are an integral part of the financial statements. International Fund 63 INTERNATIONAL FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ------------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,708 $ 11,499 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,767 41,977 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 96,027 (46,787) ------------ ----------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 155,502 6,689 ------------ ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (614) (9,488) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (4,696) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (9,225) (50,573) In excess of net realized gain on investments. . . . . . . . . . . . . . . . . . . -- (12,206) ------------ ----------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (9,839) (76,963) ------------ ----------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . (28,529) 98,629 ------------ ----------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 117,134 28,355 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 972,735 944,380 ------------ ----------- End of period (including undistributed net investment income of $3,851 and accumulated distributions in excess of net investment income of $6,243, respectively) . . . . . . . . . . . . . . . . . . . . . . . . $ 1,089,869 $ 972,735 ------------ ----------- ------------ -----------
The accompanying notes are an integral part of the financial statements. 64 International Fund INTERNATIONAL FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $ 34.60 $ 37.39 $ 36.26 $ 34.28 $ 37.34 $ 28.92 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . .39 .46 .44 .48 .61 .58 Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . 5.15 (.28) 2.41 3.16 .65 9.63 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . 5.54 .18 2.85 3.64 1.26 10.21 ---------- ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . (.02) (.37) (.35) (.64) (.36) (.57) In excess of net investment income . . . . . . . . . -- (.18) -- (.08) -- (.16) Net realized gain on investments . . . . . . . . . . (.33) (1.95) (1.37) (.94) (3.73) (1.06) In excess of net realized gain on investments. . . . -- (.47) -- -- (.23) -- ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . (.35) (2.97) (1.72) (1.66) (4.32) (1.79) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $ 39.79 $ 34.60 $ 37.39 $ 36.26 $ 34.28 $ 37.34 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . 16.10 .58 7.98 10.71 5.38 35.56 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . 1,089,869 972,735 944,380 796,777 674,180 562,497 Ratios to average net assets (%)(b)(c): Operating expenses, net . . . . . . . . . . . . . .94 1.00 1.04 .88 .32 .39 Operating expenses, gross . . . . . . . . . . . . .94 1.00 1.05 .89 .34 .41 Net investment income . . . . . . . . . . . . . . 2.02 1.14 1.20 1.41 1.63 1.83 Portfolio turnover rate (%)(b) . . . . . . . . . . . 72.00 79.45 42.69 36.78 71.09 62.04
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. (c) For periods prior to April 1, 1995, fund performance, operating expenses, and net investment income do not include any management fees paid to the Manager or money managers. For periods thereafter, they are reported net of investment management fees but gross of any investment services fees. See Note 4. International Fund 65 FIXED INCOME I FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- LONG-TERM INVESTMENTS - 97.7% ASSET-BACKED SECURITIES - 9.9% Advanta Home Equity Loan Trust Series 1991-1 Class A 9.000% due 02/25/06 $ 44 $ 45 AFC Home Equity Loan Trust Series 1996-2 Class 1 A3 7.590% due 09/25/27 2,030 2,049 Arcadia Automobile Receivables Trust Series 1998-A Class A4 6.000% due 11/17/03 395 395 Series 1998-B Class A3 5.950% due 11/15/02 765 766 Associates Manufactured Housing Pass-Thru Certificates Series 1997-2 Class A3 6.250% due 03/15/28 2,000 2,016 BankAmerica Manufactured Housing Contract Series 1997-1 Class A4 6.200% due 06/10/10(c) 1,000 1,008 Case Equipment Loan Trust Series 1998-A Class A4 5.830% due 02/15/05 2,400 2,401 Chase Credit Card Master Trust Series 1997-3 Class A 6.777% due 05/15/07 1,200 1,247 Series 1997-5 Class A 6.194% due 08/15/05 3,500 3,556 Circuit City Credit Card Master Trust 8.000% due 11/15/03 2,340 2,407 Citibank Credit Card Master Trust I Series 1997-3 Class A 6.839% due 02/10/04(c) 1,100 1,114 Series 1998-6 Class A 5.850% due 04/10/03 7,900 7,925 Contimortgage Home Equity Loan Trust Mortgage Pass-thru Certificate Series 1994-4 Class A6 8.270% due 12/15/24 448 464 Series 1996-4 Class A9 6.880% due 01/15/28 1,500 1,525 Series 1997-2 Class A6 7.120% due 03/15/16 825 851 Fleetwood Credit Corporation Grantor Trust Series 1997-B Class A 6.400% due 05/15/13(c) 4,041 4,086 Green Tree Financial Corp. Series 1997-1 Class M1 7.220% due 03/15/28(c) 1,300 1,340 Series 1997-7 Class A5 6.540% due 07/15/19 2,300 2,341 Green Tree Recreational, Equipment & Consumer Loan Trust Series 1997-3 Class A1 6.550% due 07/15/28 3,161 3,186 Series 1998-A Class A1C 6.180% due 06/15/19 631 633 IMC Home Equity Loan Trust Series 1997-5 Class M1 7.080% due 11/20/28(c) 1,500 1,546 Metris Master Trust Series 1996-1 Class A 6.450% due 02/20/02 3,290 3,308 Series 1997-1 Class A 6.870% due 10/20/05 3,350 3,466 Oakwood Mortgage Investors, Inc. Series 1997-D Class A3 6.500% due 02/15/28 1,110 1,127 Series 1998-A Class A2 6.100% due 05/15/28 1,070 1,071 Onyx Acceptance Grantor Trust Series 1997-1 Class A 6.550% due 09/15/03(c) 1,407 1,419 Series 1998-1 Class A 5.950% due 07/15/04 2,728 2,730 Series 1998-A Class A3 5.850% due 08/15/02 2,280 2,280 Pacificamerica Home Equity Loan Series 1998-2 Class AF 6.590% due 06/26/28 1,850 1,849 Preferred Credit Corp. Series 1997-1 Class A6 7.590% due 07/25/26 1,050 1,106 Premier Auto Trust Series 1997-2 Class A5 6.320% due 03/06/02 3,380 3,422 Series 1998-3 Class A4 5.960% due 10/08/02 4,665 4,668 Providian Master Trust 6.250% due 06/15/07 2,330 2,357
66 Fixed Income I Fund FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Saxon Asset Securities Trust Co. Series 1997-1 Class AF2 7.085% due 07/25/20 $ 2,500 $ 2,526 Sears Credit Account Master Trust Series 1997-1 Class A 6.200% due 07/16/07 2,170 2,182 Series 1998-1 Class A 5.800% due 08/15/05 1,070 1,067 Student Loan Marketing Association Series 1997-4 Class A1 5.976% due 01/25/03(c) 4,725 4,729 Team Fleet Financing Corp. Series 1997-1 Class A 7.350% due 05/15/03 1,975 2,046 The Money Store Home Equity Loan Trust Series 1996-A Class A5 6.850% due 06/15/19 1,050 1,066 Union Acceptance Corp. Series 1998-B Class A4 5.900% due 02/09/04 1,670 1,670 Wal-Mart Stores, Inc. Series 1994-B3 8.800% due 12/30/14 360 441 World Omni Automobile Lease Securitization Trust Series 1996-B Class A2 6.200% due 11/15/02 771 773 Series 1997- Class A2 6.750% due 06/25/03(c) 1,999 2,015 Series 1997-A Class B 7.300% due 06/25/03 (c) 850 865 Series 1997-B Class A3 6.180% due 11/25/03 1,830 1,838 ---------- 90,922 ---------- BANKERS ACCEPTANCE NOTES - 0.1% Mellon Bank, NA 7.625% due 09/15/07 510 558 ---------- 558 ---------- CORPORATE BONDS AND NOTES - 18.9% Air Products & Chemicals, Inc 8.750% due 04/15/21 300 379 Allegiance Corp. 7.300% due 10/15/06 900 952 7.000% due 10/15/26 100 102 America West Airlines, Series A 6.850% due 07/02/09 584 593 American Express Co. 8.500% due 08/15/01 45 48 American General Finance Corp. 8.500% due 06/15/99 800 819 American Health Properties 7.050% due 01/15/02 650 664 American Stores Co. 8.000% due 06/01/26 875 997 Analog Devices, Inc. 6.625% due 03/01/00 225 227 Appalachian Power Co. 6.800% due 03/01/06 1,250 1,296 Aristar, Inc. 6.300% due 07/15/00 1,040 1,045 7.750% due 06/15/01 600 625 Associates Corp. of North America Series H (MTN) 6.250% due 03/15/99 1,520 1,524 6.500% due 10/15/02 400 405 7.090% due 04/11/03 400 419 AT&T Capital Corp. 5.950% due 02/16/99 (MTN) 2,000 1,999 6.050% due 04/01/99 (c) 1,000 1,000 AT&T Corp. 8.625% due 12/01/31 440 495 Atlantic Richfield Co. 9.125% due 08/01/31 700 946 Avco Financial Services, Inc. 5.750% due 01/23/01 (MTN) 2,270 2,255 6.000% due 08/15/02 400 398 Baltimore Gas & Electric Co. 6.500% due 02/15/03 550 559 Banc One Corp. 7.250% due 08/01/02 790 820 Banco De Latinoamerica 6.500% due 04/02/01 1,400 1,418 Bank of New York, Inc. 7.875% due 11/15/02 500 535 Bank One, Columbus, Ohio 7.375% due 12/01/02 195 204 BankAmerica Corp. 6.850% due 03/01/03 425 436 Bankboston NA 6.375% due 04/15/08 2,000 1,996 Barnett Bank, Inc. 6.900% due 09/01/05 665 691
Fixed Income I Fund 67 FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Baxter International Inc. 6.625% due 02/15/28 $ 800 $ 796 Bear Stearns Co Inc. (MTN)(c) 5.856% due 02/16/01 2,000 2,008 Bell Telephone Co. of Pennsylvania 8.350% due 12/15/30 645 813 BellSouth Telecommunications 7.000% due 12/01/95 295 314 Beneficial Corp. 8.400% due 05/15/08 757 890 Boston Scientific 6.625% due 03/15/05 400 404 Campbell Soup Co. 8.875% due 05/01/21 500 651 Carolina Power & Light Co. 6.875% due 08/15/23 250 256 Case Corp. 7.250% due 01/15/16 400 432 7.250% due 08/01/05 395 417 Caterpillar Financial Services (MTN)(c) 9.500% due 02/06/07 80 98 Caterpillar, Inc. 8.000% due 02/15/23 750 880 Central Fidelity Banks, Inc. 8.150% due 11/15/02 280 302 Central Power & Light Co. Series FF 6.875% due 02/01/03 550 570 Champion International Corp. 6.400% due 02/15/26 570 589 Chesapeake & Potomac Telephone Co. 8.375% due 10/01/29 405 507 Chevron Corp. Profit Sharing Savings Plan Trust Fund 8.110% due 12/01/04 354 378 Choice Hotels International Inc. 7.125% due 05/01/08 1,250 1,270 Chrysler Corp. 7.450% due 03/01/27 900 999 Chrysler Financial Corp. 6.080% due 03/12/01 (MTN) 1,550 1,558 5.686% due 06/11/01 3,000 2,998 Cincinnati Gas & Electric Co. 7.200% due 10/01/23 250 256 CIT Group Holdings, Inc.(MTN) 6.625% due 06/28/99 1,575 1,586 6.700% due 05/02/00 500 507 6.700% due 06/02/00 300 304 6.150% due 12/15/02 300 301 Citicorp 5.799% due 05/24/01 (MTN)(c) 2,000 2,001 5.824% due 05/24/01 (MTN)(c) 3,000 3,000 9.500% due 02/01/02 195 215 7.125% due 06/01/03 485 504 City National Bank 6.375% due 01/15/08 875 878 Coca Cola Enterprises, Inc. 7.000% due 10/01/26 665 717 Colonial Realty LP (MTN) 6.980% due 09/26/05 500 515 Commercial Credit Co. Series 85 6.000% due 06/15/00 500 500 5.750% due 07/15/00 255 254 7.875% due 07/15/04 500 538 6.500% due 06/01/05 300 305 8.700% due 06/15/10 795 950 Commonwealth Edison Co. Series 85 7.375% due 09/15/02 1,120 1,166 Conagra, Inc. (MTN) 8.100% due 05/20/02 300 321 Consolidated Natural Gas Co. 8.625% due 12/01/11 54 57 Consolidated Rail Corp. Pass-thru Certificate Structured Note Series 1995 Class A 6.760% due 05/25/15 564 580 Constitution Capital Trust I 9.150% due 04/15/27 700 788 CoreStates Capital Corp. 5.875% due 10/15/03 750 740 Cox Communications Inc. 6.500% due 11/15/02 600 608 6.690% due 09/20/04 (MTN) 500 512 Crown Cork & Seal Finance PLC 7.000% due 12/15/06 850 880 Dayton Hudson Co. 6.400% due 02/15/03 415 416 Discover Credit Corp. (MTN) 8.350% due 04/27/99 465 473 Dole Food Co., Inc. 6.750% due 07/15/00 280 282 Duke Energy Corp. 6.875% due 08/01/23 600 599 Duke Power Co. 7.000% due 07/01/33 1,030 1,043
68 Fixed Income I Fund FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Excel Realty Trust, Inc. 6.875% due 10/15/04 $ 925 $ 936 Federal Express Corp. 7.600% due 07/01/97 400 430 Finova Capital Corp. 7.125% due 05/01/02 1,100 1,134 First Bank Systems, Inc. 8.000% due 07/02/04 1,050 1,139 First Chicago Corp. 5.791% due 11/14/01 (MTN)(c) 3,000 3,003 8.875% due 03/15/02 600 651 First Interstate Bancorp (MTN) 9.375% due 01/23/02 225 246 First Union Institutional Capital Trust I 8.040% due 12/01/26 100 107 First Union National Bank, Newark (MTN) 7.125% due 10/15/06 555 587 Fleet Financial Group, Inc. 6.875% due 03/01/03 350 359 8.125% due 07/01/04 675 736 Florida Residential Property & Casualty Insurance Co., Series A 7.250% due 07/01/02 2,100 2,173 Ford Motor Credit Co. 8.375% due 01/15/00 425 440 6.125% due 04/28/03 2,380 2,380 6.750% due 05/15/05 425 437 Fort James Corp. 6.625% due 09/15/04 1,075 1,091 Fortune Brands, Inc. 7.875% due 01/15/23 400 459 General Electric Capital Corp. 8.300% due 09/20/09 470 554 6.660% due 05/01/18 (c) 1,025 1,038 General Motors Acceptance Corp. 6.625% due 10/01/02 2,270 2,296 Goldman Sachs Group 5.836% due 01/16/01(c) 4,000 4,011 Grand Metropolitan Investment Corp. 7.450% due 04/15/35 425 481 GTE California Inc. 6.750% due 05/15/27 600 603 Heller Financial Inc. 6.440% due 10/06/02 1,100 1,102 Heller Financial Inc. Series G (MTN) 5.829% due 08/25/00 3,400 3,403 Hertz Corp. 7.625% due 08/01/02 450 470 9.000% due 11/01/09 390 467 Household Finance Corp. 6.375% due 06/30/00 750 755 ICI Wilmington, Inc. 6.950% due 09/15/04 725 752 International Lease Finance Corp. 5.750% due 01/15/99 685 685 6.375% due 08/01/01 300 302 6.375% due 02/15/02 1,200 1,209 8.375% due 12/15/04 900 1,008 International Paper Co. 9.400% due 06/01/02 600 663 IRT Property Co. 7.250% due 08/15/07 1,325 1,379 ITT Financial Corp. 7.400% due 11/15/25 865 921 Jackson National Life Insurance Co. 8.150% due 03/15/27 1,150 1,343 JPM Capital Trust I 7.540% due 01/15/27 285 296 Kansas Gas & Electric Co. 6.500% due 08/01/05 200 203 Kern River Funding Corp., Series B 6.720% due 09/30/01 1,025 1,046 Key Bank Corp. 8.000% due 07/01/04 200 218 7.500% due 06/15/06 875 943 6.500% due 04/15/08 650 655 Lehman Brothers Holdings, Inc. 6.150% due 03/15/00 (MTN) 835 836 6.250% due 04/01/03 450 451 Liberty Mutual Insurance Co. 7.697% due 10/15/97 850 928 7.875% due 10/15/26 1,000 1,125 Lincoln National Corp. 7.250% due 05/15/05 450 474 Lockheed Martin Corp. 7.750% due 05/01/26 800 912 Martin Marietta Corp. 7.000% due 03/15/11 325 324 Masco Corp. 6.625% due 04/15/18 500 504 MCI Communications Corp. 6.125% due 04/15/02 600 598
Fixed Income I Fund 69 FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Mellon Capital II Series B 7.995% due 01/15/27 $ 370 $ 402 Mirage Resorts Inc 6.625% due 02/01/05 1,070 1,052 Motorola, Inc. 7.500% due 05/15/25 480 532 Nabisco, Inc. 6.375% due 02/01/35 1,000 994 Natexis Ambs Co. LLC 8.440% due 12/29/49 2,000 2,000 Nationsbank Corp. 6.375% due 02/15/08 275 276 New England Telephone & Telegraph Co. 7.875% due 11/15/29 430 508 News America Holdings, Inc. 7.750% due 01/20/24 400 430 Northwestern Bell Telephone Co. 7.750% due 05/01/30 455 529 Norwest Corp. Series H (MTN) 6.750% due 06/15/07 150 155 Norwest Financial, Inc. 6.375% due 11/15/01 750 758 6.250% due 11/01/02 425 427 6.375% due 11/15/03 650 659 NYNEX Corp. 9.550% due 05/01/10 542 626 Occidental Petroleum Corp. 8.500% due 11/09/01 (MTN) 295 317 10.125% due 11/15/01 255 284 Pacific Bell 7.500% due 02/01/33 660 691 Pennsylvania Power & Light Co. 6.875% due 03/01/04 1,200 1,240 Pennzoil Co. 10.125% due 11/15/09 215 268 PepsiCo, Inc. 7.625% due 12/18/98 360 363 Philadelphia Electric Co., Series 1992 7.500% due 01/15/99 5,200 5,241 Philip Morris Cos., Inc. 6.150% due 03/15/00 2,900 2,900 6.950% due 06/01/06 380 394 7.200% due 02/01/07 2,000 2,066 7.650% due 07/01/08 395 422 Pitney Bowes Credit Corp. 8.550% due 09/15/09 780 927 PNC Funding Corp. 6.875% due 07/15/07 800 834 Praxair, Inc. 6.850% due 06/15/05 880 914 Ralston Purina Co. 7.875% due 06/15/25 845 965 Raytheon Co. 6.300% due 03/15/05 1,020 1,025 Realty Income Corp. 7.750% due 05/06/07 1,500 1,574 Republic of New York Corp. 9.750% due 12/01/00 130 141 8.250% due 11/01/01 240 255 7.875% due 12/12/01 300 317 Rite Aid Corp. 6.700% due 12/15/01 1,100 1,119 Rockwell International Corp. 8.875% due 09/15/99 300 310 Safeco Capital Trust I 8.072% due 07/15/37 300 321 Salomon Smith Barney Holdings, Inc. 6.750% due 02/15/03 550 561 6.250% due 06/15/05 500 497 Seagram Co., Ltd. 8.350% due 01/15/22 740 862 Sears Roebuck Acceptance Corp. 6.750% due 01/15/28 950 950 Sears Roebuck Acceptance Corp. Series II (MTN) 6.690% due 04/30/01 975 992 Service Corp. International 6.750% due 06/01/01 400 406 7.375% due 04/15/04 550 578 Shopping Center Associates 6.750% due 01/15/04 750 759 Socgen Real Estate Co. LLC 7.640% due 12/29/49 (g) 540 550 Spieker Properties (MTN) 8.000% due 07/19/05 800 857 Summit Properties Inc. 7.200% due 08/15/07 550 557 Suntrust Banks, Inc. 7.375% due 07/01/02 575 600 TCI Communciations Inc. 8.650% due 09/15/04 500 559 Temple Inland, Inc. 7.250% due 09/15/04 575 602 Tenneco Corp. 10.200% due 03/15/08 725 907
70 Fixed Income I Fund FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Texaco Capital, Inc. 9.750% due 03/15/20 $ 225 $ 312 8.875% due 09/01/21 440 570 Texas Utilities Electric Co. 9.500% due 08/01/99 1,370 1,418 TIG Capital Trust I 8.597% due 01/15/27 1,225 1,374 Time Warner, Inc 7.975% due 08/15/04 450 485 8.110% due 08/15/06 900 992 8.180% due 08/15/07 900 1,003 6.875% due 06/15/18 1,050 1,054 Union Carbide Chemicals & Plastics 7.875% due 04/01/23 835 902 Union Oil Co. (MTN) 9.400% due 02/15/11 390 492 Union Pacific Corp. 7.600% due 05/01/05 350 371 Union Pacific Railroad Trust Pass-thru Certificate Series 1996-A2 7.060% due 05/15/03 450 468 Union Planters Bank 6.500% due 03/15/18 700 696 United Technologies Corp. 8.750% due 03/01/21 445 561 US Bank National - Minnesota 5.762% due 12/19/01 (c) 3,000 2,997 USA Waste Services, Inc. 6.500% due 12/15/02 475 477 USX Marathon Group 8.500% due 03/01/23 930 1,089 Virginia Electric & Power Co. 8.750% due 04/01/21 335 358 Wachovia Corp. New 6.800% due 06/01/05 280 289 Wells Fargo & Co. 6.875% due 04/01/06 500 514 Whirlpool Corp. 9.500% due 06/15/00 400 423 Willamette Industries, Inc. 7.850% due 07/01/26 750 846 Wisconsin Central Transportation Corp. 6.625% due 04/15/08 1,190 1,188 World Financial Properties Tower Series 1996 WBF-B 6.910% due 09/01/13 1,305 1,357 ---------- 174,745 ---------- EURODOLLAR BONDS - 2.7% Abbey National PLC 6.700% due 06/29/49 (g) 1,000 1,004 Australian Gas Light Co. 6.400% due 04/15/08 1,300 1,318 Bear Stearns Companies Inc. 6.063% due 03/18/05 (MTN)(c) 2,000 2,000 Caterpillar Financial Services Corp. 5.778% due 02/12/01 (MTN)(c) 5,000 5,005 Finland, Republic of 5.875% due 02/27/06 325 325 Hutchison Whampoa Finance, Ltd. 7.450% due 08/01/17 1,625 1,289 Merrill Lynch & Co. 5.841% due 10/01/03 (MTN)(c) 5,250 5,248 Nationsbank Corp. 5.838% due 06/17/02 (MTN)(c) 3,000 3,002 Ontario, Province of 7.375% due 01/27/03 450 475 Skandinaviska Enskilda Banken 8.125% due 09/06/49 (g) 1,000 1,085 Societe Generale 7.850% due 04/29/49 (g) 1,825 1,950 Svenska Handelsbanken 7.125% due 03/29/49 (g) 1,000 1,029 Videotron Holdings PLC Step Up Bond Zero Coupon due 07/01/04 1,100 1,081 ---------- 24,811 ---------- MORTGAGE-BACKED SECURITIES - 34.9% ACLC Franchise Loan Receivables 1997 Pass-thru Class A1 7.120% due 03/15/12 957 995 BKB Commercial Mortgage Trust Series 1997-C1 Class B 7.218% due 04/25/00 (c) 1,199 1,196 Capita Equipment Receivables Trust Series 1996-1 Class A4 6.280% due 06/15/00 1,030 1,035 Chase Commercial Mortgage Securities Corp. Series 1997-1 Class E 7.370% due 12/19/07 (c) 1,000 1,008 Commercial Mortgage Acceptance Corp. Series 1997-ML1 Class A1 6.500% due 11/15/04 1,366 1,390 CSFB Finance Co., Ltd. Series 1995-A Class A 7.090% due 11/15/05 (c) 450 444
Fixed Income I Fund 71 FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Delta Funding Home Equity Loan Trust Series 1997-3 Class M1F 7.080% due 10/25/28 $ 1,200 $ 1,215 DLJ Commercial Mortgage Corp. Series 1998-CG1 Class A1A 6.110% due 12/10/07 1,350 1,348 Federal Home Loan Mortgage Corp. (b) 6.500% 15 Year TBA 6,115 6,157 6.500% 15 Year TBA 2,950 3,005 7.000% 30 Year TBA 1,775 1,802 6.500% 30 Year TBA 23,420 23,354 8.000% 30 Year TBA 2,225 2,301 8.500% 30 Year TBA 2,435 2,541 6.000% 30 Year TBA Gold 1,230 1,199 Federal Home Loan Mortgage Corp. Participation Certificate 7.000% due 2003 18 18 7.000% due 2008 66 67 6.500% due 2009 450 455 7.500% due 2009 1,785 1,839 8.000% due 2009 148 152 6.000% due 2010 251 251 8.000% due 2010 758 782 6.000% due 2011 5,291 5,268 6.500% due 2011 2,590 2,623 7.500% due 2011 64 66 7.500% due 2012 1,904 1,958 6.000% due 2013 1,200 1,188 6.500% due 2013 562 566 12.000% due 2014 188 214 6.500% due 2016 477 483 9.000% due 2016 1,267 1,349 12.500% due 2016 153 176 9.000% due 2017 33 35 9.000% due 2018 1,971 2,106 9.000% due 2020 1,227 1,310 7.500% due 2022 218 224 6.500% due 2024 4,740 4,749 7.500% due 2024 1,875 1,921 8.000% due 2025 9,429 9,849 8.500% due 2025 1,022 1,067 9.000% due 2025 849 898 8.500% due 2026 478 499 9.000% due 2026 22 23 6.500% due 2027 570 569 7.500% due 2027 178 183 8.500% due 2027 4,477 4,694 6.500% due 2028 1,581 1,577 7.500% due 2028 3,638 3,727 Federal Home Loan Mortgage Corp. Series K Class 5 7.760% due 05/01/12 1,451 1,537 Series 1552 Class D 5.500% due 02/15/14 219 218 Federal Housing Authority: Project 68 7.430% due 06/27/21 1,330 1,365 Federal National Mortgage Association 7.000% due 1999 702 707 7.500% due 1999 (c)(f) 6,396 6,560 7.000% due 2000 541 545 8.000% due 2002 725 736 7.000% due 2003 481 487 7.500% due 2003 978 993 8.000% due 2003 324 330 6.500% due 2004 280 282 8.000% due 2004 64 65 8.000% due 2005 48 49 6.500% due 2008 1,185 1,195 6.500% due 2009 8,505 8,580 10.500% due 2010 5 6 6.000% due 2011 1,758 1,740 7.000% due 2011 448 457 8.000% due 2011 203 210 6.000% due 2012 759 751 7.000% due 2012 42 43 7.500% due 2012 461 474 6.000% due 2013 95 94 8.000% due 2017 43 44 9.000% due 2017 502 534 8.000% due 2022 219 229 8.000% due 2023 613 636 6.500% due 2024 4,398 4,401 7.000% due 2024 (f) 1,716 1,741 7.500% due 2024 1,790 1,836 7.000% due 2025 (f) 5,133 5,207 8.500% due 2025 1,396 1,457 8.500% due 2026 2,546 2,657 6.500% due 2027 2,617 2,606 9.000% due 2027 31 32 6.500% due 2028 6,783 6,755 Federal National Mortgage Association (REMIC) Series 1992-158 Class ZZ 7.750% due 08/25/22 462 501 Series 1994-81 Class PJ 8.000% due 07/25/23 1,925 2,087 Series G92-36 Class A 7.000% due 04/25/15 114 113
72 Fixed Income I Fund FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Federal National Mortgage Association (b) 6.500% 15 Year TBA $ 1,490 $ 1,498 6.000% 30 Year TBA 5,945 5,787 6.500% 30 Year TBA 23,505 23,409 7.000% 30 Year TBA 4,160 4,218 7.500% 30 Year TBA 7,845 8,046 Federal National Mortgage Association Aces Series 1998 - M1 Class A2 6.250% due 01/25/08 1,250 1,253 Federal National Mortgage Association Principal Only Strip Zero Coupon due 03/25/20 155 128 First Union Lehman Brothers Commercial Trust Series 1997 - C1 Class C 7.440% due 04/18/07 950 1,006 Government National Mortgage Association 8.500% due 2005 51 53 6.500% due 2008 118 119 6.500% due 2009 737 746 6.500% due 2010 171 174 7.000% due 2011 204 209 9.000% due 2016 1,776 1,910 9.500% due 2016 175 190 8.000% due 2017 135 142 9.000% due 2020 11 12 10.500% due 2020 908 1,009 10.500% due 2021 105 117 8.500% due 2022 59 63 6.500% due 2023 899 900 7.000% due 2023 3,373 3,432 7.000% due 2023 (c) 2,672 2,734 7.500% due 2023 1,266 1,303 7.000% due 2024 (c) 2,711 2,773 7.000% due 2024 8,434 8,576 7.500% due 2024 3,165 3,254 7.500% due 2025 951 978 8.000% due 2025 3,725 3,860 6.500% due 2026 3,790 3,786 7.500% due 2026 288 296 8.000% due 2026 5,819 6,030 6.500% due 2027 4,583 4,680 7.000% due 2027 3,837 3,898 7.500% due 2027 1,902 1,955 8.000% due 2027 1,524 1,580 8.500% due 2027 723 761 6.500% due 2028 6,597 6,583 7.000% due 2028 1,017 1,034 7.500% due 2028 2,564 2,635 Government National Mortgage Association (b) 6.500% 30 Year TBA 3,620 3,612 7.500% 30 Year TBA 8,615 8,855 8.000% 30 Year TBA 7,085 7,342 Greenwich Capital Acceptance, Inc. Mortgage Pass-thru Certificate Series 1993 Class LB-1 7.320% due 04/25/23 (c) 582 588 GS Mortgage Securities Corp. II Series 1997-GL Class A2A 6.940% due 07/13/30 411 419 Series 1998-GLII Class A1 6.312% due 04/13/31 1,093 1,103 Guaranteed Export Trust Series 1996-A 6.550% due 06/15/04 780 801 Housing Securities, Inc. Series 1994-2 Class A1 6.500% due 07/25/09 1,004 1,009 Lehman Brothers Mortgage Trust, Inc. Series 1991-2 Class A-1 8.000% due 03/20/99 45 45 Merrill Lynch Mortgage Investors, Inc. Series 1995-C2 Class D 8.160% due 06/15/21 (c) 656 674 Series 1996-C2 Class A1 6.690% due 11/21/28 560 571 Series 1996-C2 Class A2 6.820% due 11/21/28 3,200 3,307 Series1997-C1 Class A1 6.950% due 06/18/29 (c) 1,478 1,525 Mortgage Capital Funding, Inc. Series 1996-MC1 Class A2B 7.900% due 02/15/06 950 1,019 Norwest Asset Securities Corp. Series 1997-9 Class A5 7.000% due 06/25/12 1,105 1,130 Series 1998-7 Class B4 6.500% due 04/25/13 2,473 2,486 Prudential Home Mortgage Securities Co. Series 1992-38 Class A8 6.950% due 11/25/22 1,640 1,612 Series 1993-52 Class A1 8.210% due 11/25/23 (c) 1,514 1,559 Railcar Leasing, L.L.C Series 1 Class A1 6.750% due 07/15/06 1,953 1,997
Fixed Income I Fund 73 FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Residential Accredited Loans, Inc. Series 1996-QS1 Class AI4 6.900% due 01/25/26 $ 3,000 $ 3,067 Residential Funding Mortgage Securities I Series 1997-S4 Class A5 7.000% due 03/25/12 1,330 1,358 Series 1997-S10 Class A5 7.000% due 07/25/12 965 986 Resolution Trust Corp. Mortgage Pass-thru Certificate Series 1994-C2 Class D 8.000% due 04/25/25 276 283 Series 1995-C1 Class C 6.900% due 02/25/27 (c) 400 406 Resolution Trust Corp. Series 1994-C1 Class C 8.000% due 06/25/26 1,200 1,264 Series 1995 - C1 Class D 6.900% due 02/25/27 900 900 Salomon Brothers Mortgage Securities VII, Inc. Mortgage Pass-thru Certificate Series 1994-16 8.286% due 11/25/24 (c) 1,084 1,127 Sears Mortgage Securities Corp. Series 1992 Class A 7.587% due 10/25/22 (c) 1,755 1,790 United States Department of Veteran Affairs REMIC Series 1992-1 Class 2-E 7.750% due 03/15/16 775 794 WFS Financial Owner Trust Series 1998-A Class A4 5.950% due 05/20/03 2,350 2,352 ---------- 323,254 ---------- UNITED STATES GOVERNMENT AGENCIES - 4.1% Federal Home Loan Bank 6.450% due 03/13/02 2,625 2,656 Federal National Mortgage Association 5.790% due 10/12/99 (MTN) 3,000 3,006 6.100% due 10/06/00 (MTN) 1,910 1,916 6.250% due 11/20/02 (MTN) 1,955 1,968 6.170% due 12/30/03 (MTN) 1,755 1,742 7.780% due 09/29/06 (MTN) 255 261 6.940% due 03/19/07 (MTN) 1,550 1,596 6.900% due 08/21/07 (MTN) 3,650 3,763 6.000% due 05/15/08 3,200 3,244 Government Backed Trust Certificates Class 1-C 9.250% due 11/15/01 3,981 4,222 Series 2E 9.400% due 05/15/02 1,708 1,805 Series T-3 9.625% due 05/15/02 (c) 1,781 1,884 Resolution Funding Corp. 8.875% due 07/15/20 2,275 3,127 8.625% due 01/15/21 1,700 2,272 8.625% due 01/15/30 240 336 Tennessee Valley Authority Series E 6.250% due 12/15/17 640 661 6.750% due 11/01/25 3,320 3,672 ---------- 38,131 ---------- UNITED STATES GOVERNMENT TREASURIES - 25.1% United States Treasury Bonds 10.750% due 08/15/05 12,595 16,387 8.750% due 11/15/08 2,650 3,025 10.375% due 11/15/09 2,275 2,843 11.750% due 02/15/10 2,425 3,235 12.750% due 11/15/10 14,490 20,637 13.875% due 05/15/11 3,365 5,106 14.000% due 11/15/11 1,590 2,467 10.375% due 11/15/12 565 757 12.000% due 08/15/13 990 1,468 13.250% due 05/15/14 365 587 12.500% due 08/15/14 415 646 11.750% due 11/15/14 50 75 9.875% due 11/15/15 45 66 9.250% due 02/15/16 3,590 4,993 7.250% due 05/15/16 1,785 2,091 7.500% due 11/15/16 11,030 13,241 8.875% due 08/15/17 9,980 13,606 8.125% due 08/15/19 82 90 8.125% due 08/15/19 (f) 9,563 12,358 8.000% due 11/15/21 22,470 28,965 7.625% due 11/15/22 5,150 6,418 6.875% due 08/15/25 260 301 6.750% due 08/15/26 10,250 11,735 6.500% due 11/15/26 13,000 14,436 6.625% due 02/15/27 5,275 5,957
74 Fixed Income I Fund FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- United States Treasury Notes 5.875% due 08/31/99 $ 145 $ 146 6.875% due 08/31/99 2,835 2,878 5.875% due 10/31/99 2,375 2,378 5.875% due 11/15/99 4,215 4,234 7.750% due 11/30/99 5,940 6,117 7.750% due 01/31/00 280 289 7.125% due 02/29/00 555 569 6.875% due 03/31/00 1,630 1,666 6.000% due 08/15/00 18,095 18,267 5.250% due 01/31/01 75 75 5.625% due 02/28/01 2,890 2,897 7.875% due 08/15/01 460 490 6.250% due 10/31/01 (f) 2,670 2,725 5.875% due 11/30/01 125 126 6.250% due 02/28/02 16,085 16,454 6.500% due 10/15/06 1,620 1,721 ---------- 232,522 ---------- YANKEE BONDS - 2.0% Abitibi-Consolidated Inc. 6.950% due 04/01/08 800 801 7.500% due 04/01/28 (f) 1,325 1,349 African Development Bank 9.750% due 12/15/03 425 499 6.750% due 10/01/04 400 415 6.875% due 10/15/15 775 824 8.800% due 09/01/19 535 694 Alberta, Province of 9.250% due 04/01/00 265 279 Asian Development Bank 8.000% due 04/30/01 295 311 8.500% due 05/02/01 295 314 6.250% due 10/24/05 400 406 Canadian Occidental Petroleum Ltd. 7.400% due 05/01/28 1,050 1,070 Carter Holt Harvey Ltd. 8.875% due 12/01/04 350 391 Hydro Quebec Series GH 8.250% due 04/15/26 605 733 International American Development Bank 7.000% due 06/15/25 1,770 1,986 6.950% due 08/01/26 220 244 International Bank for Reconstruction & Development 8.625% due 10/15/16 350 451 Manitoba, Province of Series CD 9.250% due 04/01/20 335 455 New Brunswick, Province of 7.125% due 10/01/02 500 520 9.750% due 05/15/20 320 454 Newfoundland, Province of 10.000% due 12/01/20 150 213 Noranda Forest, Inc. 6.875% due 11/15/05 350 354 Nova Scotia, Province of 9.125% due 05/01/21 685 910 Quebec, Province of 7.125% due 02/09/24 1,145 1,225 Royal Caribbean Cruises Ltd. 7.250% due 03/15/18 500 513 Saskatchewan, Province of 6.625% due 07/15/03 100 103 8.000% due 07/15/04 1,290 1,420 Tyco International Group SA 6.375% due 06/15/05 1,100 1,103 Wharf International Finance, Ltd. 7.625% due 03/13/07 1,050 828 ---------- 18,865 ---------- TOTAL LONG-TERM INVESTMENTS (cost $882,219) 903,808 ---------- NOTIONAL AMOUNT (000) --------- OPTIONS PURCHASED - 0.0% United States Treasury 30 Year Bonds (e) Jul 99.98 Call ** 10,400 10 Aug 100.65 Call ** 200 2 Sept 100.47 Call ** 1,100 16 Sept 101.61 Call * 868 7 United States Treasury 10 Year Notes (e) Nov 109.52 Call ** 2,700 36 ---------- TOTAL OPTIONS PURCHASED (cost $61) 71 ----------
Fixed Income I Fund 75 FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- PREFERRED STOCKS - 0.5% Banco Bilbao Vizcaya International - ADR 10,000 $ 276 Credit Lyonnais Capital 100,000 2,500 Equity Office Properties Trust 27,800 1,209 TIG Holdings, Inc. 7,500 796 ---------- TOTAL PREFERRED STOCKS (cost $5,150) 4,781 ---------- PRINCIPAL AMOUNT (000) ---------- SHORT-TERM INVESTMENTS - 12.4% Federal Agriculture Mortgage Corp. Discount Notes (a)(g) 5.400% due 07/20/98 $ 1,355 1,351 Federal Home Loan Mortgage Discount Notes 5.400% due 08/20/98 (a)(g) 1,000 992 5.400% due 09/08/98 (g) 2,500 2,474 Federal National Mortgage Association Discount Notes 5.370% due 09/23/98 (g) 1,000 987 Frank Russell Investment Company Money Market Fund, due on demand (a) 108,157 108,158 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $113,962) 113,962 ---------- MARKET VALUE (000) ---------- TOTAL INVESTMENTS (identified cost $1,001,392)(d) - 110.6% $1,022,622 OTHER ASSETS AND LIABILITIES, NET, INCLUDING OPTIONS WRITTEN - (10.6%) (97,670) ---------- NET ASSETS - 100.0% $ 924,952 ---------- ----------
(a) At cost, which approximates market. (b) Forward commitment. See Note 2. (c) Adjustable or floating rate securities. (d) See Note 2 for federal income tax information. (e) Nonincome-producing security. (f) Held as collateral in connection with options written by the Fund. (g) Rate noted is yield-to-maturity * Represents 1 OTC contract. ** $100,000 notional amount represents 1 contract. ABBREVIATIONS: ADR - American Depository Receipt MTN - Medium Term Note PLC - Public Limited Company REMIC - Real Estate Mortgage Investment Conduit TBA - To Be Announced Security The accompanying notes are an integral part of the financial statements. 76 Fixed Income I Fund FIXED INCOME I FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NOTIONAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- OPTIONS WRITTEN (Notes 2 and 3) ABITIBI Consolidated, Inc.* Aug 138.00 Call $ 1,325 $ -- Federal National Mortgage Association* Aug 102.84 Call 7,916 -- Sept 101.29 Call 2,112 8 Sept 101.30 Call 2,112 8 United States Treasury 10 Year Notes** Jul 99.75 Call 4,000 12 Jul 112.19 Call 2,200 -- Nov 109.00 Call 2,500 2 Nov 95.27 Put 2,500 -- United States Treasury 30 Year Bonds** Nov 94.28 Put 2,700 1 ---------- Total Liability for Options Written (premiums received $92)(#) $ 31 ---------- ----------
(#) June 30, 1998 United States Government Securities valued at $23,958 were held as collateral in connection with options written by the Fund. * Represents 1 OTC contract. ** $100,000 notional amount represents 1 contract. The accompanying notes are an integral part of the financial statements. Fixed Income I Fund 77 FIXED INCOME I FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited) Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $1,001,392)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . $ 1,022,622 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,411 Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,788 Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,372 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,872 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,049,065 LIABILITIES Payables: Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . . . $ 6,567 Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . 115,390 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,674 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 266 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 Options written, at market value (premiums received $92)(Notes 2 and 3). . . . . . . 31 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,113 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 924,952 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,620 Accumulated net realized (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,873) Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,230 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 891,493 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 924,952 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($924,952,490 divided by 42,066,992 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.99 -------------- --------------
The accompanying notes are an integral part of the financial statements. 78 Fixed Income I Fund FIXED INCOME I FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,955 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,897 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 -------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,028 EXPENSES (Notes 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,229 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,634 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,394 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,390 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (4) 6,585 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (258) Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (7) (273) -------------- -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,312 -------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 32,706 -------------- --------------
The accompanying notes are an integral part of the financial statements. Fixed Income I Fund 79 FIXED INCOME I FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 -------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,394 $ 47,275 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,585 5,135 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . (273) 14,104 -------------- ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 32,706 66,514 -------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,915) (47,931) -------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 107,909 116,770 -------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 126,700 135,353 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798,252 662,899 -------------- ----------------- End of period (including undistributed net investment income of $13,620 and $1,141, respectively) . . . . . . . . . . . . . . . . . . . . . . . $ 924,952 $ 798,252 -------------- ----------------- -------------- -----------------
The accompanying notes are an integral part of the financial statements. 80 Fixed Income I Fund FIXED INCOME I FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 21.51 $ 20.99 $ 21.59 $ 19.59 $ 21.74 $ 21.61 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .64 1.37 1.38 1.42 1.46 1.50 Net realized and unrealized gain (loss) on investments . .19 .54 (.62) 2.02 (2.06) .72 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . .83 1.91 .76 3.44 (.60) 2.22 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.35) (1.39) (1.36) (1.44) (1.44) (1.50) In excess of net investment income . . . . . . . . . . . -- -- -- -- -- (.01) Net realized gain on investments . . . . . . . . . . . . -- -- -- -- -- (.58) In excess of net realized gain on investments. . . . . . -- -- -- -- (.11) -- ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (.35) (1.39) (1.36) (1.44) (1.55) (2.09) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 21.99 $ 21.51 $ 20.99 $ 21.59 $ 19.59 $ 21.74 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 3.88 9.42 3.75 18.03 (2.97) 10.46 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 924,952 798,252 662,899 638,317 496,038 533,696 Ratios to average net assets (%)(b)(c): Operating expenses. . . . . . . . . . . . . . . . . . .38 .42 .42 .35 .10 .09 Net investment income . . . . . . . . . . . . . . . . 6.18 6.54 6.57 6.82 7.06 6.71 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 186.35 165.81 147.31 138.05 173.97 173.27
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. (c) For periods prior to April 1, 1995, Fund performance, operating expenses, and net investment income do not include any management fees paid to the Manager or money managers. For periods thereafter, they are reported net of investment management fees but gross of any investment services fees. See Note 4. Fixed Income I Fund 81 FIXED INCOME II FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- LONG-TERM INVESTMENTS - 95.9% ASSET-BACKED SECURITIES - 33.4% ABFS Equipment Contract Trust 6.100% due 10/15/05 $ 500 $ 502 Advanta Home Equity Loan Trust Series 1994-1 Class A-2 6.300% due 07/25/25 32 32 AFC Home Equity Loan Trust Series 1993-2 Class A 6.000% due 01/20/13 317 314 AFC Mortgage Loan Trust Series 1996-3 Class 1A2 7.220% due 02/25/27 344 343 Arcadia Automobile Receivables Trust Series 1998-B Class A3 5.950% due 11/15/02 1,000 1,000 Banc One Auto Grantor Trust Series 1997-A Class A 6.270% due 11/20/03 2,917 2,935 Barnett Auto Trust Series 1997-A Class A3 6.030% due 11/15/01 7,500 7,517 Chase Credit Card Master Trust Series 1997-2 Class A 6.300% due 04/15/03 4,500 4,551 Series 1997-5 Class A 6.194% due 08/15/05 1,000 1,016 Series 1996-B Class A 6.610% due 09/15/02 508 512 Chemical Master Credit Card Trust I Series 1996-1 Class A 5.550% due 09/15/03 4,000 3,961 Chevy Chase Auto Receivables Trust Series 1996-2 Class A 5.900% due 07/15/03 748 748 Series 1997-1 Class A 6.500% due 10/15/03 1,162 1,168 Series 1997-2 Class A 6.350% due 01/15/04 660 664 Series 1997-3 Class A 6.200% due 03/20/04 (c) 526 528 Contimortgage Home Equity Loan Trust Pass-thru Certificate Series 1997-4 Class A2 6.270% due 02/15/12 500 500 Delta Funding Home Equity Loan Trust Series 1998-1 Class A2A 5.858% due 05/25/30 (c) 470 470 EQCC Home Equity Loan Trust Series 1993-4 Class A 5.725% due 12/15/08 33 33 Equivantage Home Equity Loan Trust Series 1996-1 Class A 6.550% due 10/25/25 23 23 Fingerhut Master Trust Series 1998-1 Class A 6.070% due 02/15/05 325 325 First Chicago Master Trust II Credit Card Certificates Series 1994-L 7.150% due 04/15/01 4,500 4,569 First Security Auto Grantor Trust Series 1997-A Class A 6.300% due 08/15/03 716 718 Green Tree Financial Corp. Series 1998-1 Class A3 5.950% due 04/01/13 750 751 Series 1997 - 3 Class A2 6.490% due 07/15/28 556 558 Green Tree Home Improvement Loan Trust Series 1997-A Class HIA3 7.050% due 08/15/23 600 611 Honda Auto Receivables Grantor Trust Series 1995-A Class A 6.200% due 12/15/00 209 210 Series 1997-A Class A 5.850% due 02/15/03 379 379 IMC Home Equity Loan Trust Series 1997-5 Class A1 6.510% due 02/20/06 (c) 568 568 Series 1998-1 Class A3 6.410% due 04/20/18 (c) 700 702 Nationsbank Credit Card Master Trust Series 1995-1 Class A 6.450% due 04/15/03 5,650 5,714 New Century Home Equity Loan Trust Series 1998-NC3 Class A1 6.000% due 06/26/28 1,000 996 Nissan Auto Receivables Grantor Trust Series 1997-1 Class A 6.150% due 02/15/03 281 282 NPF VI Inc. Series 1998-1A Class A 6.220% due 06/01/02 600 601
82 Fixed Income II Fund FIXED INCOME II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Olympic Automobile Receivables Trust Series 1996-B Class A4 6.700% due 03/15/02 $ 1,000 $ 1,010 Series 1996-D Class CTFS 6.125% due 04/15/02 3,043 3,043 PBG Equipment Trust Series 1A Class A 6.270% due 01/20/12 900 901 PNC Student Loan Trust I Series 1997-2 Class A3 6.314% due 01/25/01 5,000 5,057 Premier Auto Trust Series 1997-3 Class A4 6.200% due 01/06/01 5,000 5,020 Prime Credit Card Master Trust Series 1992-2 Class A2 7.450% due 11/15/02 1,000 1,022 Remodelers Home Improvement Loan Series 1995-3 Class A2 6.800% due 12/20/07 260 260 Rental Car Finance Corp. Series 1997-1 Class A1 6.250% due 06/25/03 400 401 Ryder Vehicle Lease Trust Series 1998-A Class A 6.100% due 09/15/08 (c) 500 500 Sears Credit Account Master Trust Series 1995-2 Class A 8.100% due 06/15/04 4,300 4,420 Series 1995-3 Class A 7.000% due 10/15/04 900 918 Series 1997-1 Class A 6.200% due 07/16/07 500 503 Series 1998-1 Class A 5.800% due 08/15/05 2,800 2,793 SPNB Home Equity Loan Series 1991-1 Class B 8.150% due 06/15/20 87 89 Standard Credit Card Master Trust Series 1994-4 Class A 8.250% due 11/07/03 1,200 1,279 The Money Store Auto Grantor Trust Series 1997-4 Class A2 6.350% due 03/20/04 600 604 The Money Store Small Business Administration Loan Trust Series 1997-1 Class A 6.241% due 01/15/25 (c) 965 967 Series 1997-1 Class B 6.720% due 01/15/25 (c) 483 486 WFS Financial Owner Trust Series 1996-D Class A3 6.050% due 07/20/01 (c) 3,789 3,800 World Omni Automobile Lease Securitization Trust Series 1996-B Class A3 6.250% due 11/15/02 1,094 1,101 Series 1996-B Class B 6.850% due 11/15/02 (c) 349 349 Series 1997-Class A2 6.750% due 06/25/03 (c) 5,497 5,539 Series 1997-A Class A4 6.900% due 06/25/03 500 508 ---------- 84,371 ---------- CORPORATE BONDS AND NOTES - 28.7% Ahmanson (H.F.) 9.875% due 11/15/99 875 917 Aristar Inc. 6.125% due 12/01/00 725 727 Associates Corp. of North America 6.375% due 08/15/00 5,500 5,546 Banco De Latinoamerica 6.500% due 04/02/01 (c) 1,200 1,216 Bankamerica Corp. 9.500% due 04/01/01 1,250 1,354 Banponce Corp. (MTN) Series 2 5.750% due 03/01/99 2,075 2,071 Bear Stearns Co., Inc. 7.625% due 09/15/99 1,125 1,146 Chase Manhattan Corp. 10.125% due 11/01/00 1,259 1,371 5.813% due 12/05/09 (c) 200 197 Chrysler Financial Corp. (MTN) 6.610% due 06/16/00 1,150 1,164 CIT Group Holdings, Inc. (MTN) 6.125% due 12/15/00 5,000 5,018 Coca-Cola Put Asset Trust 6.000% due 03/15/01 1,000 1,001
Fixed Income II Fund 83 FIXED INCOME II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Comdisco Inc. (MTN) 6.070% due 05/08/00 $ 1,000 $ 1,003 Conseco Inc. 6.400% due 06/15/01 (c) 1,000 999 Cox Enterprises, Inc. 6.250% due 08/26/99 1,400 1,403 Crescent Real Estate Equities 6.625% due 09/15/02 750 740 ERAC USA Finance Co. 6.375% due 05/15/03 1,075 1,077 ERP Operating, L.P. 8.500% due 05/15/99 1,050 1,070 Finova Capital Corp. 6.450% due 06/01/00 400 403 First Chicago Corp. 9.000% due 06/15/99 500 514 First Industrial L.P. 6.500% due 04/05/01 (c) 1,375 1,378 First Union Corp. 6.600% due 06/15/00 1,000 1,012 Fleet Financial Group Inc. 6.875% due 03/01/03 700 718 Franchise Finance Corp. 7.000% due 11/30/00 1,000 1,015 General Electric Capital Corp. (MTN) 6.120% due 08/15/00 5,500 5,535 General Motors Acceptance Corp. (MTN) 7.500% due 07/22/99 925 940 7.465% due 07/25/19 1,383 1,386 7.012% due 04/01/20 (c) 979 991 Heller Financial, Inc. (MTN) 5.738% due 03/01/99 (c) 1,000 1,001 Hertz Corp. 6.500% due 04/01/00 450 452 Homeside Lending Inc. (MTN) 6.875% due 05/15/00 1,200 1,220 6.875% due 06/30/02 2,000 2,046 JC Penney & Co., Inc. (MTN) 6.375% due 09/15/00 1,125 1,137 KeyCorp 8.400% due 04/01/99 1,000 1,017 Lehman Brothers Holdings, Inc. (MTN) 6.000% due 02/26/01 1,250 1,248 Series IBC 7.000% due 05/13/99 800 807 Liberty Property L.P. (MTN) 6.600% due 06/05/02 600 608 MBNA Corp. (MTN) Series B 6.500% due 09/15/00 1,000 1,004 MCI Communications Corp. 6.125% due 04/15/02 (c) 1,500 1,502 Merrill Lynch & Co., Inc. (MTN) 7.260% due 03/25/02 1,425 1,463 Midlantic Corp. 9.250% due 09/01/99 375 388 Norwest Financial, Inc. 6.375% due 09/15/02 500 505 Occidental Petroleum Corp. (MTN) 5.950% due 11/09/98 950 949 Procter & Gamble 9.625% due 01/14/01 3,020 3,261 Salomon, Inc. 7.750% due 05/15/00 1,000 1,030 6.700% due 07/05/00 500 507 Salomon, Inc. CMT Floater (MTN) 5.382% due 04/05/99 (c) 1,100 1,100 Sears Roebuck Acceptance Corp. (MTN) 6.160% due 09/20/00 5,500 5,523 Sears Roebuck Acceptance Corp. (MTN) Series II 6.690% due 04/30/01 1,050 1,069 Sovereign Bancorp, Inc. (Regd) 6.750% due 07/01/00 1,250 1,261 Taubman Realty Group, L.P. 8.000% due 06/15/99 250 254 Wellsford Residential Property Trust (MTN) 6.019% due 11/24/99 (c) 1,300 1,302 ---------- 72,566 ---------- EURODOLLAR BONDS - 0.6% ALPS Pass-thru Trust Series 1994-1 Class A-2 7.150% due 09/15/04 (c) 210 210 Videotron Holdings PLC Step Up Bond Zero Coupon due 07/01/04 1,375 1,351 ---------- 1,561 ---------- MORTGAGE-BACKED SECURITIES - 10.4% Bayview Financial Acquisition Trust Series 1998-1 Class A1 7.010% due 05/25/29 800 812
84 Fixed Income II Fund FIXED INCOME II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Bear Stearns Mortgage Securities, Inc. Series 1996-6 Class A2 7.000% due 11/25/27 $ 821 $ 820 BKD Commercial Mortgage Trust Series 1997-C1 Class B 7.218% due 04/25/00 (c) 538 536 Chase Mortgage Finance Corp. Series 1998-S2 Class A1 6.500% due 07/25/28 700 703 Citicorp Mortgage Securities, Inc. REMIC Series 1997-5 Class A1 6.500% due 11/25/27 650 652 Credit Suisse First Boston Mortgage 7.000% due 12/25/37 600 600 Federal Home Loan Mortgage Corp. Partcipation Certificate Series 1540 Class C 6.050% due 02/15/11 866 866 Federal Home Loan Mortgage Corp. Groups Participation Certificate 7.500% due 2000 481 484 9.000% due 2005 153 157 7.375% due 2006 126 128 6.250% due 2007 78 78 Federal Home Loan Mortgage Corp. Series 2061 Class PH 6.000% due 05/15/16 600 600 Federal National Mortgage Association Pools 7.000% due 2004 683 692 8.000% due 2009 790 817 8.500% due 2010 680 709 6.250% due 2013 1,900 1,922 Federal National Mortgage Association Grantor Trust REMIC Series 1996-T6 Class C 6.200% due 02/26/01 1,235 1,236 GE Capital Mortgage Services, Inc. Series 1998-10 Class 2A1 6.500% due 05/25/13 600 602 GE Capital Mortgage Services, Inc. REMIC Series 1997-9 Class 1A2 6.750% due 10/25/27 225 227 Government National Mortgage Association Pools 9.500% due 2025 488 529 7.250% due 2026 1,165 1,200 5.000% due 2027 1,414 1,432 Merit Securities Corp. Series II Class 1A1 6.580% due 07/28/22 1,400 1,400 Norwest Integrated Structured Assets, Inc. Series 1998-1 Class 2A1 7.000% due 06/25/28 600 604 Prudential Home Mortgage Securities Co. Series 1993-S7 Class A4 5.900% due 12/25/23 1,150 1,140 Series 1994-19 Class A2 7.050% due 05/25/24 509 513 Residential Accredited Loans, Inc. Series 1997-QS7 Class A1 7.500% due 07/25/27 362 366 Residential Asset Secruitization Trust Mortgage Pass-thru Certificates Series 1996-A8 Class A1 8.000% due 12/25/26 30 31 Series 1997-A5 Class A3 7.125% due 07/25/27 75 75 Series 1998-A2 Class A1 6.750% due 04/25/28 555 557 Series 1998-A5 Class A1 6.750% due 05/25/28 582 583 Residential Funding Mortgage Securities I Series 1997-S12 Class A10 6.700% due 08/25/27 1,500 1,505 Resolution Trust Corp. Mortgage Pass-thru Certificate Series 1994-C1 Class D 8.000% due 06/25/26 (c) 863 876 Series 1995-2 Class C1 7.450% due 05/25/29 (c) 217 220 SASCO LLC Series 1997-N1 Class D 6.178% due 09/25/28 (c) 800 800 Structured Asset Securities Corp. Series 1998-C2A Class A 6.145% due 01/25/13 (c) 300 300 Union Planters Mortgage Finance Corp. Series 1998-A Class A1 6.350% due 01/25/28 625 626 Wilshire Funding Corporation Series 1997-WFC1 Class AI 7.250% due 08/25/27 790 797 ---------- 26,195 ----------
Fixed Income II Fund 85 FIXED INCOME II FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- MUNICIPAL BONDS - 0.3% Philadelphia, Pennsylvania, Authority for Industrial Development Class A 6.480% due 06/15/04 $ 836 $ 863 ---------- 863 ---------- UNITED STATES GOVERNMENT AGENCIES - 0.2% Federal Home Loan Bank 6.070% due 01/17/01 500 499 ---------- 499 ---------- UNITED STATES GOVERNMENT TREASURIES - 20.4% United States Treasury Notes 6.000% due 06/30/99 500 502 5.875% due 11/15/99 100 100 5.375% due 02/01/00 1,030 1,028 6.875% due 03/31/00 175 179 5.625% due 11/30/00 1,450 1,453 5.375% due 02/15/01 25,800 25,711 5.625% due 05/15/01 275 276 6.500% due 08/31/01 2,625 2,696 6.250% due 02/28/02 360 368 3.625% due 07/15/02 13,764 13,614 5.750% due 10/31/02 700 706 5.750% due 11/30/02 4,445 4,482 5.500% due 05/31/03 300 300 ---------- 51,415 ---------- YANKEE BONDS - 1.9% Brascan, Ltd 7.375% due 10/01/02 1,000 1,028 Household International 5.250% due 10/15/98 1,150 1,149 Quebec, Province of 13.250% due 09/15/14 450 505 Tyco International Group SA 6.125% due 06/15/01 1,000 1,003 Westpac Banking, Ltd. 7.875% due 10/15/02 1,000 1,060 ---------- 4,745 ---------- TOTAL LONG-TERM INVESTMENTS (cost $241,609) 242,215 ---------- SHORT-TERM INVESTMENTS - 4.2% Frank Russell Investment Company Money Market Fund, due on demand (a) 10,103 10,103 Goldman Sachs Group L.P. 5.750% due 07/10/98 (a)(b) 500 499 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $10,602) 10,602 ---------- TOTAL INVESTMENTS (identified cost $252,211)(b) - 100.1% 252,817 OTHER ASSETS AND LIABILITIES, NET - (0.1%) (342) ---------- NET ASSETS - 100.0% $ 252,475 ---------- ----------
(a) At cost, which approximates market. (b) See Note 2 for federal income tax information. (c) Adjustable or floating rate security. ABBREVIATIONS: MTN - Medium Term Note PLC - Public Limited Company REMIC - Real Estate Mortage Investment Conduit The accompanying notes are an integral part of the financial statements. 86 Fixed Income II Fund FIXED INCOME II FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $252,211)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 252,817 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,757 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 9,326 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,329 LIABILITIES Payables: Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . . . $ 2,715 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 126 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 9,326 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,854 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 252,475 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,361 Accumulated net realized loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,934) Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . . . 606 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256,306 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 252,475 -------------- -------------- Net Asset Value, offering and redemption price per share: ($252,475,463 divided by 13,600,839 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18.56 -------------- --------------
The accompanying notes are an integral part of the financial statements. Fixed Income II Fund 87 STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,984 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 -------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,345 EXPENSES (Notes 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 589 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,552 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (229) Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 296 -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 -------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 6,619 -------------- --------------
The accompanying notes are an integral part of the financial statements. 88 Fixed Income II Fund FIXED INCOME II FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,552 $ 13,527 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (229) (118) Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 296 487 -------------- -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 6,619 13,896 -------------- -------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,800) (13,676) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 20,186 6,267 -------------- -------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 23,005 6,487 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,470 222,983 -------------- -------------- End of period (including undistributed net investment income of $3,361 and $609, respectively). . . . . . . . . . . . . . . . . . . . . . . . . $ 252,475 $ 229,470 -------------- -------------- -------------- --------------
The accompanying notes are an integral part of the financial statements. Fixed Income II Fund 89 FIXED INCOME II FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 18.35 $ 18.36 $ 18.55 $ 17.98 $ 18.99 $ 18.56 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .49 1.08 1.04 1.16 1.21 .84 Net realized and unrealized gain (loss) on investments . .01 -- (.19) .59 (1.07) .44 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . .50 1.08 .85 1.75 .14 1.28 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.29) (1.09) (1.04) (1.18) (1.15) (.71) Tax return of capital. . . . . . . . . . . . . . . . . . -- -- -- -- -- (.14) ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (.29) (1.09) (1.04) (1.18) (1.15) (.85) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 18.56 $ 18.35 $ 18.36 $ 18.55 $ 17.98 $ 18.99 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a)(c) . . . . . . . . . . . . . . . . . . 2.77 6.02 4.76 9.95 .82 6.98 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . 252,475 229,470 222,983 183,577 144,030 138,619 Ratios to average net assets (%)(b)(c): Operating expenses . . . . . . . . . . . . . . . . . . . . .67 .66 .70 .58 .19 .16 Net investment income. . . . . . . . . . . . . . . . . . . 5.51 5.70 5.70 6.41 6.52 6.16 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . 136.41 213.14 264.40 269.31 233.75 229.07
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. (c) For periods prior to April 1, 1995, Fund performance, operating expenses, and net investment income do not include any management fees paid to the Manager or money managers. For periods thereafter, they are reported net of investment management fees but gross of any investment services fees. See Note 4. 90 Fixed Income II Fund FIXED INCOME III FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- LONG-TERM INVESTMENTS - 97.5% ASSET-BACKED SECURITIES - 3.8% American Airlines, Inc. Class A-1 9.710% due 01/02/07 $ 333 $ 383 Cityscape Home Equity Loan Trust Pass-thru Certificate Series 1996-2 Class A2 7.200% due 04/25/11 780 790 Contimortgage Home Equity Loan Trust 6.430% due 04/15/16 740 745 7.220% due 01/15/28 315 323 Fleetwood Credit Corp. Grantor Trust Series 1994-B Class A 6.750% due 03/15/10 308 310 Fund America Investors Corp. II Pass-thru Certificate Series 1993-F Class A-1 5.400% due 09/25/09 66 64 Green Tree Financial Corp. Series 1995-5 Class A3 6.250% due 10/15/25 880 882 Series 1995-6 Class A3 6.650% due 11/15/25 560 563 Series 1995-8 Class A2 6.150% due 12/15/26 (b) 176 176 Series 1998-4 Class A3 5.980% due 08/01/08 1,600 1,600 Green Tree Home Equity Loan Trust Series 1998-C Class A2 6.030% due 07/15/29 1,100 1,102 Green Tree Recreational Equipment 6.100% due 11/15/10 750 750 Greenwich Capital Acceptance, Inc. Series 1994 Class A-1 8.725% due 11/25/24 (b) 110 116 IMC Home Equity Loan Trust Series 1998-3 Class A3 6.160% due 05/20/14 430 430 MBNA Master Credit Card Trust Series 1994-B Class A 5.591% due 01/15/02 (b) 2,000 1,999 New Century Home Equity Loan Trust Series 1997-NC6 Class A4 6.730% due 07/25/22 260 264 Residential Funding Mortgage Securities II Series 1997-HS5 Class M1 7.010% due 05/25/27 1,368 1,393 Salomon Brothers Mortgage Securities VII, Inc. Series 1997 Class A2 7.174% due 03/25/25 790 826 Southern Pacific Secured Assets Corp. Series 1998-1 Class A2 6.270% due 02/25/18 850 851 Student Loan Marketing Association Series 1997-3 Class A1 5.787% due 04/25/06 (b) 2,721 2,716 The Money Store Home Equity Loan Trust Series 1996-A Class A5 6.850% due 06/15/19 800 812 UCFC Home Equity Loan Trust Series 1996-B1 Class A7 8.200% due 09/15/27 270 293 ---------- 17,388 ---------- CORPORATE BONDS AND NOTES - 33.2% A.H. BELO CORP. 6.875% due 06/01/02 850 867 Aames Financial Corp. 9.125% due 11/01/03 475 471 Advanta National Bank 6.450% due 10/30/00 825 824 Albank Capital Trust 9.270% due 06/06/27 600 700 American Airlines, Inc. Series 1990-P 10.600% due 03/04/09 1,013 1,324 American General Institutional Capital Series B 8.125% due 03/15/46 970 1,102 American Standard Co. 7.375% due 04/15/05 1,550 1,545 Amerus Capital I Series A 8.850% due 02/01/27 475 537 AMR Corp. (MTN) 9.950% due 03/07/01 1,000 1,094 Amresco, Inc. 9.875% due 03/15/05 575 581 AT&T Capital Corp. 6.050% due 04/01/99 (b) 2,000 1,999 6.920% due 04/29/99 (MTN) 105 106 6.410% due 08/13/99 (MTN) 290 291 6.470% due 12/03/99 (MTN) 400 400 6.480% due 12/03/99 (MTN) 1,050 1,060 Banesto Delaware, Inc. 8.250% due 07/28/02 1,000 1,064 Bank United Corp. 8.875% due 05/01/07 1,050 1,156 Bankamerica Corp. (MTN) 5.708% due 03/05/01 (b) 5,000 4,999 Banponce Trust I Series A 8.327% due 02/01/27 450 489 Banque Paribas-NY 6.875% due 03/01/09 595 598
92 Fixed Income III Fund FIXED INCOME III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Beaver Valley Funding Corp. 9.000% due 06/01/17 $ 1,295 $ 1,491 BellSouth Capital Funding Corp. 6.040% due 11/15/26 1,680 1,703 BellSouth Telecommunications, Inc. 5.850% due 11/15/45 670 669 Beneficial Corp. (MTN) 5.901% due 04/02/02 (b) 2,000 1,998 Building Materials Corp. 8.000% due 10/15/07 1,325 1,325 California Energy Co., Inc. 10.250% due 01/15/04 1,500 1,598 CBS, Inc. 7.125% due 11/01/23 675 645 Chase Manhattan Corp. 6.375% due 04/01/08 800 802 Citicorp (MTN) 5.738% due 06/27/02 (b) 3,000 2,995 5.778% due 08/13/02 (b) 2,000 2,001 Cleveland Electric Illumination Co. 7.430% due 11/01/09 240 252 Cliffs Drilling Co. Series B 10.250% due 05/15/03 395 423 Colonial Realty LP 7.500% due 07/15/01 825 846 Columbia/HCA Healthcare Corp. 8.020% due 08/05/02 (MTN) 2,000 2,040 8.360% due 04/15/24 600 632 Conmed Corp. 9.000% due 03/15/08 300 299 Connecticut Light & Power Co. 7.750% due 06/01/02 175 179 7.875% due 10/01/24 855 872 Conseco Finance Trust II 8.700% due 11/15/26 800 899 Conseco Finance Trust III 8.796% due 04/01/27 675 770 Contifinancial Corp. 8.375% due 08/15/03 1,050 1,093 Continental Airlines, Inc. 9.500% due 12/15/01 1,295 1,378 Crescent Real Estate Equities 6.625% due 09/15/02 850 842 7.125% due 09/15/07 925 933 CS Wireless System, Inc. Step Up Bond Zero Coupon due 03/01/06 340 78 CSC Holdings, Inc. 7.875% due 12/15/07 500 526 Dime Capital Trust I Series A 9.330% due 05/06/27 300 351 Dresser Industries, Inc. 7.600% due 08/15/96 780 898 EOP Operating LP 6.376% due 02/15/02 1,425 1,420 ERAC USA Finance Co. (MTN) 6.350% due 01/15/01 800 805 ERP Operating, LP 8.500% due 05/15/99 425 433 Felcor Suites LP 7.625% due 10/01/07 500 498 First Nationwide Holdings, Inc. 12.500% due 04/15/03 1,250 1,419 10.625% due 10/01/03 825 932 First Republic Bancorp 7.750% due 09/15/12 700 731 Ford Motor Credit Co. 5.908% due 03/05/01 (MTN)(b) 5,000 5,005 5.813% due 02/13/03 (b) 2,000 1,997 Fox/Liberty Networks LLC 8.875% due 08/15/07 845 862 Fox/Liberty Networks LLC Step Up Bond Zero Coupon due 08/15/07 280 195 Fugi JGB Investment LLC 9.870% due 12/31/49 (e) 1,990 1,749 General Motors Acceptance Corp. 6.625% due 04/24/00 (MTN) 600 607 5.800% due 02/23/01 (MTN) 1,350 1,343 6.375% due 12/01/01 700 705 Global Crossing Holdings Ltd. 9.625% due 05/15/08 750 782 Goldman Sachs Group, LP (MTN) 5.925% due 02/22/02 (b) 5,000 4,994 Great Atlantic & Pacific Tea, Inc. 7.750% due 04/15/07 625 627 Grove Worldwide LLC 9.250% due 05/01/08 400 392 GTE Corp. 6.840% due 04/15/18 600 602 6.940% due 04/15/28 1,105 1,114 Haven Capital Trust I 10.460% due 02/01/27 350 395 Health Care Reit, Inc. 7.625% due 03/15/08 725 731 Homeside, Inc. 11.250% due 05/15/03 241 286 Household Bank Nevada N.A. (MTN) 5.876% due 10/22/03 (b) 4,000 3,988 Imperial Capital Trust I Series B 9.980% due 12/31/26 250 294
Fixed Income III Fund 93 FIXED INCOME III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Imperial Credit Industries, Inc. Series B 9.875% due 01/15/07 $ 700 $ 697 Interpool Capital Trust Series B 9.875% due 02/15/27 500 580 K Mart Corp. 7.820% due 01/02/02 (MTN) 700 708 7.840% due 01/02/02 (MTN) 800 809 7.770% due 07/02/02 (MTN) 700 707 7.470% due 07/31/02 (MTN) 400 400 9.780% due 01/05/20 800 905 Kaufman and Broad Home Corp. 7.750% due 10/15/04 925 923 Lehman Brothers Holdings, Inc. 5.902% due 01/18/00 (MTN)(b) 3,000 3,009 6.250% due 04/01/03 1,000 1,001 Long Island Lighting Co. 9.000% due 11/01/22 3,935 4,497 Markel Capital Trust I Series B 8.710% due 01/01/46 325 357 MCI Communications Corp. 6.125% due 04/15/02 550 548 McLeodusa, Inc. 8.375% due 03/15/08 750 752 Merck and Co. Series B (MTN) 5.760% due 05/03/37 2,410 2,497 Merita Bank, Ltd. 7.150% due 12/29/49 (b) 1,200 1,224 Merrill Lynch & Co., Inc. 6.000% due 01/15/01 300 300 MMI Capital Trust I Series B 7.625% due 12/15/27 1,300 1,336 Morgan Stanley Dean Witter (MTN) 5.875% due 03/11/03 (b) 2,000 2,001 Natexis Ambs Co. LLC 8.440% due 12/29/49 400 400 Nextel Communications, Inc. Step Up Bond Zero Coupon due 01/15/04 140 138 Zero Coupon due 09/15/07 1,600 1,080 Zero Coupon due 10/31/07 405 264 Zero Coupon due 02/15/08 595 379 Niagara Mohawk Power Corp. 7.000% due 10/01/00 3,000 3,008 8.750% due 04/01/22 610 671 Norfolk Southern Corp. 7.800% due 05/15/27 200 230 7.050% due 05/01/37 795 844 North Atlantic Energy Corp. Series A 9.050% due 06/01/02 634 652 Northwest Airlines, Inc. 7.625% due 03/15/05 2,080 2,070 Ocwen Federal Bank 12.000% due 06/15/05 325 355 Ocwen Financial Corp. 11.875% due 10/01/03 650 730 Onbank Capital Trust I 9.250% due 02/01/27 450 550 Optel, Inc. 11.500% due 07/01/08 750 750 Paxson Communications Corp. 11.625% due 10/01/02 450 483 Premier Parks, Inc. Step Up Bond Zero Coupon due 04/01/08 350 232 Prime Succession Acquisition Co. 10.750% due 08/15/04 400 438 Providian Capital I Series A 9.525% due 02/01/27 500 571 Prudential Insurance Co. of America 6.875% due 04/15/03 700 715 PX Escrow Company Step Up Bond Zero Coupon due 02/01/06 (b) 1,225 882 Revlon Worldwide Zero Coupon due 03/15/01 1,600 1,244 Rose Hills Corp. 9.500% due 11/15/04 475 496 Salomon Smith Barney Holdings 7.980% due 03/01/00 325 336 Salomon, Inc. 7.125% due 08/01/99 425 430 7.750% due 05/15/00 500 515 6.625% due 11/30/00 (MTN) 625 633 SB Treasury Company LLC 9.400% due 12/29/49 (b) 675 667 Seagate Technology, Inc. 7.450% due 03/01/37 965 948 Simon Debartolo Group LP 6.750% due 07/15/04 875 874 Sinclair Broadcast Group, Inc. 8.750% due 12/15/07 400 408 Sovereign Capital Trust I 9.000% due 04/01/27 975 1,101 Spieker Properties, LP 6.950% due 12/15/02 500 508
94 Fixed Income III Fund FIXED INCOME III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Summit Properties, Inc. 7.200% due 08/15/07 $ 575 $ 583 Sun Healthcare Group, Inc. 9.500% due 07/01/07 300 305 TCI Communications, Inc. 5.975% due 09/11/00 (MTN)(b) 2,000 1,989 9.650% due 03/31/27 385 472 Tele-Communications, Inc. 6.340% due 02/01/02 495 493 Teleport Communications Group Step Up Bond Zero Coupon due 07/01/07 1,360 1,170 Tenet Healthcare Corp. 8.000% due 01/15/05 1,275 1,322 8.125% due 12/01/08 1,550 1,554 Time Warner, Inc. 7.975% due 08/15/04 375 404 8.110% due 08/15/06 750 827 8.180% due 08/15/07 750 836 8.050% due 01/15/16 1,150 1,293 6.850% due 01/15/26 2,390 2,457 Tokai Preferred Capital Co. LLC 9.980% due 12/29/49 (b) 2,500 2,313 Toledo Edison Co. 8.000% due 12/31/98 (MTN) 500 503 8.700% due 09/01/02 500 527 Toll Brothers Corp. 7.750% due 09/15/07 1,200 1,182 Trenwick Capital Trust I 8.820% due 02/01/37 575 637 Tricon Global Restaurants, Inc. 7.450% due 05/15/05 775 774 TU Electrical Capital V 8.175% due 01/30/37 710 743 United Companies Financial Corp. 8.375% due 07/01/05 575 571 United Technologies Corp. 8.875% due 11/15/19 170 214 US Air, Inc. 9.625% due 02/01/01 460 478 USF&G Corp. 8.375% due 06/15/01 250 264 Valero Energy 6.750% due 12/15/02 535 541 Webster Capital Trust I 9.360% due 01/29/27 225 257 Wellsford Residential Property Trust 9.375% due 02/01/02 475 519 Wireless One, Inc. Step Up Bond Zero Coupon due 08/01/06 (b) 200 29 ---------- 152,761 ---------- EURODOLLAR BONDS - 6.4% Amvescap PLC 6.600% due 05/15/05 1,550 1,567 Argentina, Republic of Series 10 5.688% due 04/01/00 (b) 289 238 Series L 6.625% due 03/31/05 (b) 1,900 1,677 Arisco Productos Alimenticios 10.750% due 05/22/05 100 94 Auxiliaire Credit Foncier 5.688% due 09/25/02 (b) 915 893 Brazil, Republic of 9.375% due 04/07/08 330 291 Bulgaria, Republic of, Series A 6.563% due 07/28/24 (b) 970 741 Cemex SA (MTN) 8.500% due 08/31/00 1,000 1,013 Colombia, Republic of 8.625% due 04/01/08 1,600 1,518 Credit Fonc France 8.000% due 01/14/02 560 590 Credit Lyonnais 7.125% due 09/19/49 (e) 1,040 1,015 Fifth Mexican Acceptance Corp. Class A 8.000% due 12/15/98 800 227 Ford Motor Credit 5.813% due 01/17/02 1,500 1,499 ForeningsSparbanken AB 7.500% due 11/29/49 430 445 Globo Communicacoes e Participacoes S.A. 10.625% due 12/05/08 680 605 Hutchison Whampoa Finance, Ltd. 7.450% due 08/01/17 525 417 Korea, Republic of 8.188% due 04/08/00 3,000 2,855 8.750% due 04/15/03 740 718 8.875% due 04/15/08 550 499 Nacional Financiera SNC 8.000% due 06/19/00 420 424 Okobank 7.114% due 10/29/49 (b) 50 51 Okobank Series E (MTN) 6.188% due 09/29/49 (b) 700 693
Fixed Income III Fund 95 FIXED INCOME III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Panama, Republic of 8.875% due 09/30/27 $ 1,325 $ 1,252 Poland, Republic of, Step Up Bond 4.000% due 10/27/14 (b) 3,705 3,312 Sibneft 9.691% due 08/15/00 540 513 Skandinaviska Enskilda Banken (e) 7.500% due 03/29/49 1,410 1,456 8.125% due 09/06/49 475 515 6.500% due 12/29/49 1,050 1,052 Skandinaviska Enskilda Banken Series 1 (MTN) 6.625% due 03/29/49 (e) 490 491 Tata Electric Co. 8.500% due 08/19/17 600 504 Telefonica De Argentina SA 9.125% due 05/07/08 650 613 TFM SA de CV Step Up Bond Zero Coupon due 06/15/09 320 191 Zero Coupon due 06/15/09 (144A) 1,090 692 Videotron Holdings PLC Step Up Bond Zero Coupon due 07/01/04 650 638 ---------- 29,299 ---------- MORTGAGE-BACKED SECURITIES - 40.6% Asset Securitization Corp. Series 1997-D5 Class A1C 6.750% due 02/14/41 440 457 Series 1997-D5 Class A10 6.850% due 02/14/41 850 894 Bear Stearns Mortgage Securities, Inc. 6.750% due 04/30/30 (b) 1,594 1,595 Chase Commercial Mortgage Securities Corp. 6.600% due 12/19/07 1,325 1,300 Collateralized Mortgage Securities Corp. Series J Class J-5 CMO 7.985% due 05/01/17 1,331 1,338 Federal Home Loan Mortgage Corp. (d) 6.500% 15 Year TBA 6,780 6,827 6.500% 30 Year TBA 25,000 24,930 Federal Home Loan Mortgage Corp. Participation Certificate Groups 7.000% due 2009 426 437 6.000% due 2011 2,646 2,634 6.000% due 2012 1,332 1,322 8.500% due 2017 955 1,008 7.950% due 2020 461 470 8.500% due 2020 643 645 7.000% due 2025 1,382 1,403 8.500% due 2025 682 712 7.500% due 2026 1 1 8.500% due 2026 679 708 8.500% due 2027 3,589 3,768 6.500% due 2028 1,977 1,971 Federal Home Loan Mortgage Corp. Series 1037 Class Z 9.000% due 02/15/21 1,291 1,363 Series 1934 Class AB 6.000% due 08/15/07 1,350 1,347 Federal National Mortgage Association Pools 7.500% due 1999 (f) 1,172 1,202 6.000% due 2003 271 270 10.000% due 2005 224 236 6.000% due 2012 1,851 1,831 6.500% due 2013 2,577 2,592 7.000% due 2024 (f) 1,055 1,071 7.716% due 2024 (b) 1,218 1,243 7.000% due 2025 (f) 6,515 6,609 7.718% due 2026 (b) 5,055 5,194 6.500% due 2027 1,706 1,699 6.500% due 2028 3,580 3,565 7.000% due 2028 (f) 2,257 2,289 Federal National Mortgage Association (REMIC) Series 1992-10 Class ZD 8.000% due 11/25/21 1,646 1,801 (REMIC) Series 1997-16 Class M Zero Coupon due 02/25/23 850 589 Federal National Mortgage Association (d) 6.000% 15 Year TBA 3,460 3,422 6.500% 15 Year TBA 8,375 8,340 7.000% 15 Year TBA 575 585 6.000% 30 Year TBA 2,985 2,906 6.500% 30 Year TBA 15,850 15,785 7.000% 30 Year TBA 3,000 3,042 8.000% 30 Year TBA 3,650 3,778 GMAC Commercial Mortgage Securities, Inc. 6.853% due 09/15/06 (b) 200 208 Government National Mortgage Association Pools 7.000% due 2023 (b) 2,699 2,756 7.000% due 2024 (b) 6,858 7,023 7.500% due 2024 405 417 7.500% due 2025 1,670 1,717 8.000% due 2025 936 970 7.000% due 2026 (b) 4,707 4,803 7.500% due 2026 1,947 2,001
96 Fixed Income III Fund FIXED INCOME III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- 8.000% due 2026 $ 1,233 $ 1,278 6.875% due 2027 (b) 3,952 4,038 7.500% due 2027 1,561 1,604 8.000% due 2027 4,027 4,173 Government National Mortgage Association (d) 6.500% 30 Year TBA 10,470 10,447 7.000% 30 Year TBA 3,100 3,149 7.500% 30 Year TBA 5,950 6,115 8.000% 30 Year TBA 4,500 4,663 Kidder Peabody Acceptance Corp. Series 1994-C1 Class B 6.850% due 02/01/06 1,050 1,066 Merrill Lynch Mortgage Investors, Inc. Series 1995-C2 Class D 8.164% due 06/15/21 (b) 1,881 1,931 Paine Webber Mortgage Acceptance Corp. IV Series 1995-M1 Class A 6.700% due 01/15/07 720 726 Resolution Trust Corp. Mortgage Pass-thru Certificate Series 1995-1 Class 2-C 7.500% due 10/25/28 (b) 325 327 Series 1995-C1 Class C 6.900% due 02/25/27 (b) 300 304 Resolution Trust Corp. Series 1994-C2 Class G 8.000% due 04/25/25 276 278 Series 1994-1 Class M-2 7.750% due 09/25/29 397 407 Salomon Brothers Mortgage Securities VII, Inc. Mortgage Pass-thru Certificate Series 1994-16 8.286% due 11/25/24 (b) 434 451 Structured Asset Securities Corp. Mortgage Pass-thru Certificate Series 1996-CFL Class A1C 5.944% due 02/25/28 263 261 Series 1996-CFL Class C 6.525% due 02/25/28 300 300 Series 1998-C2A Class A 6.145% due 01/25/13 (b) 1,919 1,919 ---------- 186,511 ---------- MUNICIPAL BONDS - 1.3% California, State of 5.000% due 02/01/23 280 273 Jacksonville, Florida Electric Authority Revenue 5.000% due 10/01/23 615 595 Massachusetts Bay Transportation Authority 4.750% due 03/01/21 380 357 Massachusetts State Water Reserve Authority 4.750% due 08/01/27 240 223 Municipal Electric Authority of Georgia 5.000% due 01/01/26 1,200 1,167 Nevada State General Obligation 4.750% due 05/15/26 890 833 New Jersey Economic Development Authority Series A 7.425% due 02/15/29 1,185 1,347 Series B Zero Coupon due 02/15/08 540 300 New York Metropolitan Transportation Authority 4.750% due 04/01/28 330 308 New York City, New York Municipal Water Finance Authority Water and Sewer System Revenue 4.750% due 06/15/25 500 471 South Carolina State Public Service Authority Revenue 5.000% due 01/01/29 280 270 ---------- 6,144 ---------- NON-US BONDS - 0.4% Australian Government 10.000% due 10/15/07 AUD 2,000 1,633 ---------- 1,633 ---------- UNITED STATES GOVERNMENT AGENCIES - 0.2% Tennessee Valley Authority 5.880% due 04/01/36 $ 875 910 ---------- 910 ----------
Fixed Income III Fund 97 FIXED INCOME III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- UNITED STATES GOVERNMENT TREASURIES - 8.7% United States Treasury Bonds 8.125% due 08/15/19 (f) $ 5,400 $ 6,969 6.625% due 02/15/27 4,625 5,223 United States Treasury Notes 5.125% due 11/30/98 (f) 2,150 2,148 5.750% due 12/31/98 (f) 1,350 1,353 6.000% due 06/30/99 (f) 1,525 1,532 5.875% due 11/15/99 3,300 3,315 7.750% due 11/30/99 6,150 6,334 5.625% due 11/30/00 (f) 400 401 6.375% due 03/31/01 (f) 650 664 6.625% due 06/30/01 5,175 5,326 6.250% due 10/31/01 5,675 5,793 7.875% due 11/15/04 400 449 United States Treasury Interest Only Strip Zero Coupon due 02/15/19 2,050 630 ---------- 40,137 ---------- YANKEE BONDS - 2.9% Argentina, Republic of 9.150% due 11/30/02 (b) 2,290 2,296 5.500% due 03/31/23 (b) 290 219 Brazil Media Trust 6.688% due 09/15/07 (b) 994 802 Credit Lyonnais 5.688% due 07/10/00 (b) 4,000 3,959 Crown Packaging Enterprise, Ltd. Step Up Bond Zero Coupon due 08/01/06 300 15 Diamond Cable Communication PLC Step Up Bond Zero Coupon due 02/15/07 275 204 Petroleos Mexicanos 9.500% due 09/15/27 800 753 Petroleum Geo-Services 7.125% due 03/30/28 700 708 Royal Caribbean Cruises 7.500% due 10/15/27 1,325 1,386 Santander Finnish Issuances 6.588% due 09/30/49 (e) 500 490 Societe Generale 7.850% due 04/29/49 (e) 300 321 St. George Bank, Ltd. 7.150% due 10/01/05 775 804 Tata Engineering & Locomotive, Ltd. 7.875% due 07/15/07 575 489 TV Azteca SA De CV 10.125% due 02/15/04 900 896 ---------- 13,342 ---------- TOTAL LONG-TERM INVESTMENTS (cost $442,865) 448,125 ---------- NOTIONAL AMOUNT (000) ---------- OPTIONS PURCHASED - 0.0% United States Treasury Bonds (h) Jul 99.98 Call * 12,200 11 Aug 100.65 Call * 300 3 Nov 109.52 Call * 3,100 42 Sept 100.47 Call * 1,300 19 Sept 100.55 Call ** 1,326 19 Sept 101.61 Call ** 1,346 11 ---------- TOTAL OPTIONS PURCHASED (cost $86) 105 ---------- NUMBER OF SHARES ---------- PREFERRED STOCKS - 1.4% American RE Capital 18,100 468 Australia & New Zealand Banking Group, Ltd. 7,200 196 California Federal Preferred Capital Corp. Series A 64,150 1,752 Credit Lyonnais Capital S.C.A. - ADR 3,500 88 El Paso Electric Co. Series A Payment in Kind Preferred Stock 4,603 505 Equity Office Properties Trust 15,000 653 NB Capital Corp. 600 625 Pinto Totta International Finance, Ltd. 1,175 1,203 Primedia, Inc. 4,000 396 Travelers Group, Inc. 9,050 499 ---------- TOTAL PREFERRED STOCKS (cost $6,292) 6,385 ----------
98 Fixed Income III Fund FIXED INCOME III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- WARRANTS - 0.0% Capital Pacific Holdings, Inc. 2002 Warrants (h) 2,212 $ 2 EOP Operating LP 1999 Warrants (h) 1,200 10 ---------- TOTAL WARRANTS (cost $10) 12 ---------- PRINCIPAL AMOUNT (000) ---------- SHORT-TERM INVESTMENTS - 21.0% AT&T Capital Corp. (MTN) 5.936% due 01/15/99 (b) $ 2,000 2,008 Bankers Trust Company 5.900% due 07/07/98 (a) 3,000 2,999 Federal National Mortgage Association Discount Notes 5.400% due 09/25/98 (g) 4,425 4,368 Frank Russell Investment Company Money Market Fund due on demand (a) 79,766 79,766 Imperial Chemical Industrial PLC 5.750% due 09/05/98 (b) 2,000 1,999 MBNA Corp. 5.838% due 09/14/98 (b) 875 875 Salomon, Inc. 5.728% due 10/20/98 (b) 2,000 2,000 Texaco, Inc. 5.500% due 08/10/98 (a) 2,000 1,988 United States Treasury Bills (f)(g) 4.955% due 07/23/98 (a) 155 155 5.055% due 08/20/98 (a) 330 327 4.990% due 10/15/98 170 167 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $96,645) 96,652 ---------- MARKET VALUE (000) ---------- TOTAL INVESTMENTS (identified cost $545,898)(c) - 119.9% $ 551,279 OTHER ASSETS AND LIABILITIES, NET, INCLUDING OPTIONS WRITTEN - (19.9%) (91,348) ---------- NET ASSETS - 100.0% $ 459,931 ---------- ----------
(a) At cost, which approximates market. (b) Adjustable or floating rate security. (c) See Note 2 for federal income tax information. (d) Forward Commitment. See Note 2. (e) Perpetual floating rate note. (f) Held as collateral in connection with futures contracts purchased (sold) and options written by the Fund. (g) Rate noted is yield-to-maturity. (h) Nonincome-producing security. * $100,000 notional value represents 1 contract ** Represents 1 OTC contract. ABBREVIATIONS: ADR - American Depositary Receipt CMO - Collateralized Mortgage Obligation MTN - Medium Term Note PLC - Public Limited Company REMIC - Real Estate Mortgage Investment Conduit TBA - To Be Announced Security FOREIGN CURRENCY ABBREVIATIONS: AUD - Australian dollar The accompanying notes are an integral part of the financial statements. Fixed Income III Fund 99 FIXED INCOME III FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ---------- ------------ FUTURES CONTRACTS (Notes 2 and 3) United States Treasury 5 Year Note Futures Contracts expiration date 09/98 (11) $ (6) United States Treasury 10 Year Note Futures Contracts expiration date 09/98 183 127 United States Treasury 20 Year Bond Futures Contracts expiration date 09/98 216 218 United States Treasury 30 Year Bond Futures Contracts expiration date 09/98 55 46 ---------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (Sold) (#) $ 385 ---------- ---------- NOTIONAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- OPTIONS WRITTEN (Notes 2 and 3) United States Treasury Jul 99.75 Call * $ 4,700 $ 14 Aug 102.84 Call ** 1,188 -- Nov 94.28 Call * 3,100 1 Nov 95.27 Put * 2,700 -- Nov 109.00 Call * 2,700 2 Federal National Mortgage Association Sept 101.23 Call * 3,200 12 Sept 101.29 Call ** 3,275 12 Sept 101.30 Call ** 3,275 13 ---------- Total Liability for Options Written (premiums received $112)(#) $ 54 ---------- ----------
(#) At June 30, 1998, United States Government Securities valued at $24,887 were held as collateral in connection with futures contracts purchased (sold) and options written by the Fund. * Represents 1 OTC contract. ** $100,000 notional amount represents 1 contract. The accompanying notes are an integral part of the financial statements. 100 Fixed Income III Fund FIXED INCOME III FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $545,898)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 551,279 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,823 Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 790 Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,043 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 795 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . . . 109 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 4,327 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 566,166 LIABILITIES Payables: Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . . . $ 750 Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . 99,465 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 227 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462 Options written, at market value (premiums received $112)(Notes 2 and 3) . . . . . . 54 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 4,327 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,235 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 459,931 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,500 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,394 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,381 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,688 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 459,931 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($459,931,159 divided by 43,383,676 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.60 -------------- --------------
The accompanying notes are an integral part of the financial statements. Fixed Income III Fund 101 FIXED INCOME III FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,676 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,814 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328 -------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,818 EXPENSES (Notes 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,118 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,392 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,426 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,236 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 927 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . 81 3,470 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (925) Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16) Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (26) (698) -------------- -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,772 -------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 15,198 -------------- --------------
The accompanying notes are an integral part of the financial statements. 102 Fixed Income III Fund FIXED INCOME III FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,426 $ 20,665 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,470 6,722 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . . (698) 4,087 -------------- -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . 15,198 31,474 -------------- -------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,898) (20,551) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . . -- (798) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . (1,957) (1,962) -------------- -------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . . (7,855) (23,311) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . . 70,155 82,193 -------------- -------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 77,498 90,356 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382,433 292,077 -------------- -------------- End of period (including undistributed net investment income of $6,500 and accumulated distributions in excess of net investment income of $28, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . $ 459,931 $ 382,433 -------------- -------------- -------------- --------------
The accompanying notes are an integral part of the financial statements. Fixed Income III Fund 103 FIXED INCOME III FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998* 1997 1996 1995 1994 1993** ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 10.42 $ 10.17 $ 10.34 $ 9.37 $ 10.44 $ 10.00 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .30 .63 .64 .67 .66 .49 Net realized and unrealized gain (loss) on investments . .08 .32 (.16) .97 (1.07) .52 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . .38 .95 .48 1.64 (.41) 1.01 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.15) (.62) (.64) (.67) (.66) (.48) In excess of net investment income . . . . . . . . . . . -- (.02) (.01) -- -- -- Net realized gain on investments . . . . . . . . . . . . (.05) (.06) -- -- -- (.08) In excess of net realized gain on investments. . . . . . -- -- -- -- -- (.01) ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (.20) (.70) (.65) (.67) (.66) (.57) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 10.60 $ 10.42 $ 10.17 $ 10.34 $ 9.37 $ 10.44 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a)(b) . . . . . . . . . . . . . . . . . . 3.65 9.64 4.88 17.99 (3.89) 10.22 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 459,931 382,433 292,077 252,465 166,620 124,234 Ratios to average net assets (%)(b)(c): Operating expenses, net . . . . . . . . . . . . . . . .67 .70 .73 .61 .20 .20 Operating expenses, gross . . . . . . . . . . . . . . .67 .70 .73 .61 .20 .40 Net investment income . . . . . . . . . . . . . . . . 5.94 6.13 6.32 6.83 7.02 6.30 Portfolio turnover rate (%)(c) . . . . . . . . . . . . . 323.55 274.84 144.26 141.37 134.11 181.86
* For the six months ended June 30, 1998 (Unaudited). ** For the period January 29, 1993 (commencement of operations) to December 31, 1993. (a) Periods less than one year are not annualized. (b) For periods prior to April 1, 1995, Fund performance, operating expenses, and net investment income do not include any management fees paid to the Manager or money managers. For periods thereafter, they are reported net of investment management fees but gross of anyinvestment services fees. See Note 4. (c) The ratios for the periods ended June 30, 1998 and December 31, 1993 are annualized. 104 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1998 (Unaudited) 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company") is a series mutual fund with 28 different investment portfolios, referred to as "Funds." These financial statements report on eight 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. 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. The Funds may lend portfolio securities as approved by the Board of Trustees on April 27, 1998. INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. 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. Therefore, no federal income tax provision was required for the Funds. At December 31, 1997, certain 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:
12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 TOTALS ------------ ------------ ------------ ------------ ------------ ------------ Fixed Income I $ -- $ 8,058,364 $ -- $ -- $ -- $ 8,058,364 Fixed Income II 948,478 3,534,633 698,949 1,746,912 538,227 7,467,199
Notes to Financial Statements 105 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED The aggregate cost of investments and the composition of gross unrealized appreciation and depreciation of investment securities for federal income tax purposes as of June 30, 1998 are as follows:
NET GROSS GROSS UNREALIZED FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION COST APPRECIATION (DEPRECIATION) (DEPRECIATION) ----------------- --------------- --------------- --------------- Equity I $ 1,034,311,545 $ 347,139,788 $ (27,761,333) $ 319,378,455 Equity II 436,005,416 136,641,878 (15,831,294) 120,810,584 Equity III 214,315,571 50,960,496 (8,454,067) 42,506,429 Equity Q 838,687,300 340,172,535 (16,564,835) 323,607,700 International 908,299,447 241,473,299 (82,456,746) 159,016,553 Fixed Income I 1,000,622,717 23,995,691 (1,996,408) 21,999,283 Fixed Income II 252,106,452 1,307,355 (596,807) 710,548 Fixed Income III 545,510,885 8,379,427 (2,611,312) 5,768,115
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, except for the International Fund, which generally declares and pays dividends annually. 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, and certain securities sold at a loss. Accordingly, a Fund may periodically make a reclassification among certain of its capital accounts without impacting its net asset value. EXPENSES: The Funds will pay their own expenses other than those expressly assumed by the Management Company. Most expenses can be directly attributed to the individual Funds. Expenses which cannot be directly attributed are allocated among all Funds principally based on their relative net assets. DEFERRED ORGANIZATION EXPENSES: Organization and initial registration costs of the Fixed Income III Fund were deferred and were amortized over 60 months on a straight-line basis. REPURCHASE AGREEMENTS: The Funds may engage in repurchase agreements with several financial institutions whereby a Fund, through its custodian, receives delivery of underlying securities as collateral. Each Fund's Money Manager will monitor repurchase agreements daily to determine that the market value (including accrued interest) of the underlying securities at Fedwire closing time remains at least equal to 102% of the repurchase price. The Money Manager will notify the Seller to immediately increase the collateral on the repurchase agreement to 102% of the repurchase price if collateral value falls below 102%. FOREIGN CURRENCY TRANSLATIONS: The books and records of the Funds are maintained in U.S. dollars. Foreign currency amounts and transactions of the Funds are translated into U.S. 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) Outstanding purchases and sales of investment securities and income at the closing rate of exchange prevailing on the respective trade dates of such transactions. 106 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED 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 Fund's books and the U.S. 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 period-end, as a result of changes in the exchange rates. It is not practical to 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 Fund may enter into foreign currency forward overlays on liquidity reserve balances. Additionally, from time to time the International, Fixed Income I, Fixed Income II and Fixed Income III 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 June 30, 1998, are presented on the Statement of Net Assets for the applicable Funds. FORWARD COMMITMENTS: The Funds may contract to purchase securities for a fixed price at a future date beyond customary settlement time (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. 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. Notes to Financial Statements 107 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED 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. The Funds' activities in written options are conducted through regulated exchanges, which do not result in counterparty credit risks. FUTURES: The domestic and international equity Funds utilize futures to equitize liquidity reserve balances. Fixed Income III 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. 3. INVESTMENT TRANSACTIONS SECURITIES: During the six months ended June 30, 1998, purchases and sales of investment securities (excluding U.S. Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were as follows:
PURCHASES SALES PURCHASES SALES --------------- --------------- --------------- --------------- Equity I $ 602,330,853 $ 595,620,410 International $ 354,909,112 $ 381,971,298 Equity II 257,887,684 228,519,812 Fixed Income I 167,583,482 97,384,725 Equity III 143,964,092 154,486,325 Fixed Income II 60,714,674 46,406,807 Equity Q 425,202,345 518,224,095 Fixed Income III 183,323,849 110,983,266
Purchases and sales of U.S. Government and Agency obligations (excluding short-term investments, options, futures and repurchase agreements) were as follows:
PURCHASES SALES --------------- --------------- Fixed Income I $ 736,617,581 $ 666,514,334 Fixed Income II 121,434,032 105,694,261 Fixed Income III 579,411,656 534,485,324
108 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED OPTIONS WRITTEN AND FUTURES CONTRACTS: Fund transactions in written options and futures contracts for the six months ended June 30, 1998 were as follows:
EQUITY I FUTURES CONTRACTS AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ------------ -------------- Outstanding December 31, 1997 176 $ 39,023,305 Opened 644 166,750,694 Closed (632) (154,242,604) ------------ -------------- Outstanding June 30, 1998 188 $ 51,531,395 ------------ -------------- ------------ --------------
EQUITY II FUTURES CONTRACTS AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ------------ -------------- Outstanding December 31, 1997 146 $ 26,114,344 Opened 379 81,887,863 Closed (389) (80,349,857) ------------ -------------- Outstanding June 30, 1998 136 $ 27,652,350 ------------ -------------- ------------ --------------
EQUITY III FUTURES CONTRACTS AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ------------ -------------- Outstanding December 31, 1997 39 $ 7,190,350 Opened 122 27,181,561 Closed (131) (29,106,311) ------------ -------------- Outstanding June 30, 1998 30 $ 5,265,600 ------------ -------------- ------------ --------------
EQUITY Q FUTURES CONTRACTS AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ------------ -------------- Outstanding December 31, 1997 109 $ 24,972,119 Opened 250 63,137,351 Closed (291) (70,979,445) ------------ -------------- Outstanding June 30, 1998 68 $ 17,130,025 ------------ -------------- ------------ --------------
INTERNATIONAL FUTURES CONTRACTS AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ------------ -------------- Outstanding December 31, 1997 361 $ 46,978,235 Opened 1,648 162,677,546 Closed (1,444) (157,742,217) ------------ -------------- Outstanding June 30, 1998 565 $ 51,913,564 ------------ -------------- ------------ --------------
(1) The aggregate face value of contracts is computed on the date each contract was opened. Notes to Financial Statements 109 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED
FIXED INCOME I WRITTEN OPTIONS NUMBER OF PREMIUMS CONTRACTS RECEIVED ------------ -------------- Outstanding December 31, 1997 209 $ 135,513 Opened 159 157,162 Closed (53) (19,953) Expired (172) (181,130) ------------ -------------- Outstanding June 30, 1998 143 $ 91,592 ------------ -------------- ------------ --------------
FIXED INCOME III WRITTEN OPTIONS NUMBER OF PREMIUMS CONTRACTS RECEIVED ------------ -------------- Outstanding December 31, 1997 226 $ 146,732 Opened 211 193,849 Closed (82) (29,313) Expired (188) (199,224) ------------ -------------- Outstanding June 30, 1998 167 $ 112,044 ------------ -------------- ------------ --------------
FIXED INCOME III FUTURES CONTRACTS FUTURES CONTRACTS SOLD SHORT PURCHASED AGGREGATE AGGREGATE NUMBER OF FACE VALUE OF NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) CONTRACTS CONTRACTS (1) ------------ -------------- ------------ -------------- Outstanding December 31, 1997 -- $ -- 429 $ 50,469,783 Opened (11) (1,200,609) 1,017 118,773,418 Closed -- -- (992) (115,306,343) ------------ -------------- ------------ -------------- Outstanding June 30, 1998 (11) $ (1,200,609) 454 $ 53,936,858 ------------ -------------- ------------ -------------- ------------ -------------- ------------ --------------
(1) The aggregate face value of contracts is computed on the date each contract was opened. SECURITIES LENDING: Effective April 27, 1998, the Investment Company resumed its securities lending program. The program allows each Fund to loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by Morgan Stanley Trust Company ("MSTC") 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. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. 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 MSTC and is included as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and MSTC and are included as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. This collateral must be maintained at not less than 100% of the market value of the loaned securities during the period of the 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 June 30, 1998, the value of outstanding securities on loan and the value of collateral amounted to as follows: 110 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED
VALUE OF VALUE VALUE OF VALUE SECURITIES ON OF SECURITIES ON OF LOAN COLLATERAL LOAN COLLATERAL -------------- -------------- -------------- ------------- Equity I $ 24,269,294 $ 25,127,643 International $ 84,853,827 $ 95,609,372 Equity II 43,756,804 44,628,850 Fixed Income II 9,142,524 9,326,250 Equity III 7,317,484 7,538,290 Fixed Income III 4,234,868 4,327,475 Equity Q 23,061,746 23,938,938
4. RELATED PARTIES MANAGER: Frank Russell Investment Management Company ("FRIMCo" or "Manager") operates and administers all of the Funds which comprise the Investment Company, and manages the Money Market and the U.S. Government Money Market Funds (the Money Market and the U.S. Government Money Market Funds are a series of the Investment Company that are not presented in this report). FRIMCo is a wholly owned subsidiary of Frank Russell Company, which researches and recommends to FRIMCo, and to the Investment Company, one or more investment management organizations to manage the portfolio of each Fund. For the six months ended June 30, 1998, the management fee paid to FRIMCo, for the Funds listed below, in accordance with the Investment Company's Management Agreement with that firm, amounted to $16,627,331 before waivers. Such fee is payable monthly and is equal to the annual rate, by Fund, shown in the table below, of the average daily net assets of the applicable Fund.
ANNUAL RATE ANNUAL RATE ----------- ----------- Equity I 0.60% International 0.75% Equity II 0.75 Fixed Income I 0.30 Equity III 0.60 Fixed Income II 0.50 Equity Q 0.60 Fixed Income III 0.55
The management contract also provides that if any Fund's expenses (exclusive of interest and taxes) exceed specified limits imposed by the Manager on an annual basis, such excess will be paid by FRIMCo. The Manager of the Fixed Income III Fund voluntarily agreed to waive a portion of its 0.55% management fee, to the extent total fund level expenses for the Fund exceed 0.75% of its average daily net assets on an annual basis. There were no waivers for the Fixed Income III Fund for the period ended June 30, 1998. FRIMCo calculates its management fee based on average daily net assets for each Fund less any management fee incurred on assets invested in the Money Market Fund (see Note 5) thereby eliminating any duplication of fees. ANALYTIC SERVICES: Fees for analytic services provided to the Funds are paid or accrued to Frank Russell Company, an affiliate of the Investment Company. Frank Russell Company provides its TruVP System to the Funds, pursuant to a written Service Agreement. The TruVP System provides analytics used by the investment department. TRANSFER AGENT: The Funds have a contract with FRIMCo, to provide transfer agent services to the Investment Company. Total fees for the six months ended June 30, 1998 were $912,381. DISTRIBUTOR: Russell Fund Distributors, Inc. (the "Distributor"), a wholly owned subsidiary of FRIMCo, is the principal Distributor for Investment Company shares. The Distributor receives no compensation from the Funds for its services. Notes to Financial Statements 111 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED ACCRUED FEES PAYABLE TO AFFILIATES AS OF JUNE 30, 1998 WERE AS FOLLOWS:
MANAGEMENT ANALYTIC TRANSFER AGENT FEES SERVICE FEES FEES TOTALS ------------ ------------ ------------ ------------ Equity I $ 649,662 $ 12,828 $ 41,716 $ 704,206 Equity II 330,651 8,106 24,538 363,295 Equity III 125,543 4,375 12,657 142,575 Equity Q 561,510 4,237 35,177 600,924 International 663,534 8,818 21,487 693,839 Fixed Income I 216,778 4,879 44,667 266,324 Fixed Income II 102,205 4,545 19,368 126,118 Fixed Income III 201,777 4,303 21,384 227,464 ------------ ------------ ------------ ------------ $ 2,851,660 $ 52,091 $ 220,994 $ 3,124,745 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
BROKERAGE COMMISSIONS: The Funds may effect portfolio transactions through Frank Russell Securities, Inc., an affiliate of the Manager, when a money manager determines that the Fund will receive competitive execution, price, and commissions. Upon completion of such transactions, Frank Russell Securities, Inc. will refund up to 70% of the commissions paid by that Fund after reimbursement for research services provided to FRIMCo. Amounts retained by Frank Russell Securities, Inc. for the six months ended June 30, 1998 were as follows: Equity I $ 31,158 Equity III $ 12,013 Equity II 1,792 International 141,438 Equity Q 1,526
Additionally, the Funds paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to the Manager. BOARD OF TRUSTEES: The Investment Company pays each of its Trustees not affiliated with FRIMCo a retainer of $20,000 per year plus out-of-pocket expenses. Total Trustee expenses were $54,794 for the six months ended June 30, 1998, and were allocated to each Fund on a pro rata basis, including 20 affiliated funds not presented herein. 5. MONEY MARKET 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 Frank Russell Investment Company not presented herein). As of June 30, 1998, $331,948,000 of the Money Market Fund's net assets represents investments by these Funds and $414,563,000 represents the investments of other affiliated funds not presented herein. 6. FUND SHARE TRANSACTIONS Share transactions for shares for each period were as follows:
SHARES DOLLARS -------------------------------------------- -------------------------------------------- FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 ------------------- ----------------- ------------------- ----------------- EQUITY I Proceeds from shares sold 6,485,718 9,571,549 $ 209,948,819 $ 318,926,605 Proceeds from reinvestment of distributions 1,048,082 8,403,086 33,735,537 251,274,449 Payments for shares redeemed (6,070,989) (12,432,666) (202,247,870) (416,468,295) ------------------- ----------------- ------------------- ----------------- Total net increase (decrease) 1,462,811 5,541,969 $ 41,436,486 $ 153,732,759 ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- ------------------- -----------------
112 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED
SHARES DOLLARS -------------------------------------------- -------------------------------------------- FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 ------------------- ----------------- ------------------- ----------------- EQUITY II Proceeds from shares sold 2,651,877 4,308,084 $ 92,634,427 $ 138,867,923 Proceeds from reinvestment of distributions 235,563 1,960,489 8,002,815 61,436,762 Payments for shares redeemed (1,938,749) (3,821,842) (68,046,401) (128,686,967) ------------------- ----------------- ------------------- ----------------- Total net increase (decrease) 948,691 2,446,731 $ 32,590,841 $ 71,617,718 ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- EQUITY III Proceeds from shares sold 645,957 1,592,374 $ 20,015,231 $ 53,105,282 Proceeds from reinvestment of distributions 274,074 1,960,469 8,206,424 57,577,559 Payments for shares redeemed (1,025,460) (2,899,571) (32,286,280) (93,209,130) ------------------- ----------------- ------------------- ----------------- Total net increase (decrease) (105,429) 653,272 $ (4,064,625) $ 17,473,711 ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- EQUITY Q Proceeds from shares sold 4,249,802 8,963,096 $ 162,602,368 $ 322,888,554 Proceeds from reinvestment of distributions 886,279 5,185,592 32,736,247 181,290,822 Payments for shares redeemed (3,952,603) (11,469,089) (151,745,934) (424,121,094) ------------------- ----------------- ------------------- ----------------- Total net increase (decrease) 1,183,478 2,679,599 $ 43,592,681 $ 80,058,282 ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- INTERNATIONAL Proceeds from shares sold 4,492,473 10,420,072 $ 171,020,342 $ 390,495,912 Proceeds from reinvestment of distributions 228,291 1,995,915 8,400,710 68,774,542 Payments for shares redeemed (5,436,499) (9,560,991) (207,949,900) (360,640,598) ------------------- ----------------- ------------------- ----------------- Total net increase (decrease) (715,735) 2,854,996 $ (28,528,848) $ 98,629,856 ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- FIXED INCOME I Proceeds from shares sold 8,378,077 13,731,606 $ 182,218,058 $ 290,844,536 Proceeds from reinvestment of distributions 537,702 1,875,831 11,612,328 39,542,171 Payments for shares redeemed (3,953,075) (10,089,965) (85,921,284) (213,616,474) ------------------- ----------------- ------------------- ----------------- Total net increase (decrease) 4,962,704 5,517,472 $ 107,909,102 $ 116,770,233 ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- FIXED INCOME II Proceeds from shares sold 2,784,635 7,036,585 $ 51,419,303 $ 129,655,206 Proceeds from reinvestment of distributions 177,960 641,394 3,266,703 11,742,346 Payments for shares redeemed (1,868,469) (7,319,010) (34,500,357) (135,131,042) ------------------- ----------------- ------------------- ----------------- Total net increase (decrease) 1,094,126 358,969 $ 20,185,649 $ 6,266,510 ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- FIXED INCOME III Proceeds from shares sold 11,319,246 16,294,869 $ 119,057,942 $ 168,283,128 Proceeds from reinvestment of distributions 708,556 2,096,517 7,412,839 21,580,122 Payments for shares redeemed (5,357,521) (10,407,484) (56,315,814) (107,669,883) ------------------- ----------------- ------------------- ----------------- Total net increase (decrease) 6,670,281 7,983,902 $ 70,154,967 $ 82,193,367 ------------------- ----------------- ------------------- ----------------- ------------------- ----------------- ------------------- -----------------
Notes to Financial Statements 113 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS 7. DIVIDENDS On July 2, 1998, the Board of Trustees declared the following dividends from net investment income payable on July 7, 1998, to shareholders of record on July 2, 1998: Equity I $ 0.0689 Fixed Income I $ 0.3207 Equity II 0.0187 Fixed Income II 0.2452 Equity III 0.1093 Fixed Income III 0.1903 Equity Q 0.0796
8. BENEFICIAL INTEREST The following Funds have one or more shareholders with an interest greater than 10% of the total outstanding shares as of June 30, 1998: Equity I 19.5%, Equity III 13.4% and 12.0%, Equity Q 21.3%, Fixed Income I 12.6% and 12.8%, Fixed Income III 23.3%, and International 21.1%. 9. SUBSEQUENT EVENTS On August 10, 1998, Frank Russell Company entered into an agreement with The Northwestern Mutual Life Insurance Co., an insurance organization, pursuant to which Northwestern Mutual Life will acquire all of the outstanding common stock of Frank Russell Company. 114 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 832-6688 In Washington (253) 627-7001 TRUSTEES George F. Russell, Jr., Chairman Lynn L. Anderson Paul E. Anderson Paul Anton, PhD William E. Baxter Lee C. Gingrich Eleanor W. Palmer OFFICERS Lynn L. Anderson, President and Chief Executive Officer Peter Apanovitch, 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 AND TRANSFER 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 1776 Heritage Drive North Quincy, MA 02171 OFFICE OF SHAREHOLDER INQUIRES 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 One Post Office Square Boston, MA 02109 DISTRIBUTOR Russell Fund Distributors, Inc. 909 A Street Tacoma, WA 98402 MONEY MANAGERS EQUITY I Alliance Capital Management L.P., Minneapolis, MN Barclays Global Investors, N.A., San Francisco, CA Equinox Capital Management, Inc., New York, NY INVESCO Capital Management, Inc., Atlanta, GA Lincoln Capital Management Company, Chicago, IL Morgan Stanley Asset Management, Inc., New York, NY Peachtree Asset Management, Atlanta, GA Schneider Capital Management, Wayne, PA Suffolk Capital Management, Inc., New York, NY Trinity Investment Management Corporation, Boston, MA EQUITY II Delphi Management, Inc., Boston, MA Fiduciary International, Inc., New York, NY GlobeFlex Capital, L.P., San Diego, CA Jacobs Levy Equity Management, Inc., Roseland, NJ Sirach Capital Management, Inc., Seattle, WA Wellington Management Company LLP, Boston, MA EQUITY III Brandywine Asset Management, Inc., Wilmington, DE Equinox Capital Management, Inc., New York, NY Trinity Investment Management Corporation, Boston, MA EQUITY Q Barclays Global Investors, N.A., San Francisco, CA Franklin Portfolio Associates, LLC, Boston, MA J.P. Morgan Investment Management, Inc., New York, NY INTERNATIONAL J.P. Morgan Investment Management, Inc., New York, NY Marathon Asset Management Limited, London, England Mastholm Asset Management, LLC, Bellevue, WA Oechsle International Advisors, Boston, MA Rowe Price-Fleming International, Inc., Baltimore, MD Sanford C. Bernstein & Co., Inc., New York, NY The Boston Company Asset Management, Inc., Boston, MA FIXED INCOME I Lincoln Capital Management Company, Chicago, IL Pacific Investment Management Company, Newport Beach, CA Standish, Ayer & Wood, Inc., Boston, MA FIXED INCOME II BlackRock Financial Management, New York, NY Standish, Ayer & Wood, Inc., Boston, MA STW Fixed Income Management, Hamilton, Bermuda FIXED INCOME III BEA Associates, Inc., New York, NY Pacific Investment Management Company, Newport Beach, CA Standish, Ayer & Wood, Inc., 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 115 FRANK RUSSELL INVESTMENT COMPANY Frank Russell Investment Company is a "series mutual fund" with 28 different investment portfolios. These financial statements report on five 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 LIFEPOINTS-Registered Trademark- FUNDS SEMIANNUAL REPORT JUNE 30, 1998 (UNAUDITED) TABLE OF CONTENTS Page Letter to Our Clients . . . . . . . . . . . . . . . . . . . . . . . . 1 Equity Balanced Strategy Fund . . . . . . . . . . . . . . . . . . . . 2 Aggressive Strategy Fund. . . . . . . . . . . . . . . . . . . . . . . 8 Balanced Strategy Fund. . . . . . . . . . . . . . . . . . . . . . . . 14 Moderate Strategy Fund. . . . . . . . . . . . . . . . . . . . . . . . 20 Conservative Strategy Fund. . . . . . . . . . . . . . . . . . . . . . 26 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 31 Manager, Money Managers and Service Providers . . . . . . . . . . . . 38 FRANK RUSSELL INVESTMENT COMPANY - LIFEPOINTS-Registered Trademark- FUNDS Copyright -C- Frank Russell Company 1998. 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 is the owner of the trademarks, service marks, and copyrights related to its 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 1998 Semiannual Report. This report covers information on five of the Funds and represents the Funds' first six months of our seventeenth 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 the first six months of 1998, as our Funds, in general, provided solid returns as compared to their respective benchmarks and attracted many new investors, both creating significant growth in assets. 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 1997, we have implemented changes in our Funds' structure which we believe will benefit current and potential investors. The former Class C shares of the Russell Funds have been renamed Russell Fund Class E shares, and their fee structure now aligns with the Russell LifePoints-Registered Trademark- Funds' Class E shares. Additionally, the Russell LifePoints-Registered Trademark- Funds' Class D shares were opened for investment in March 1998. We are also pleased to announce FRIMCo has retained Boston Financial Data Services (BFDS) to assist in the transfer agent process, effective June 1998. We anticipate this change will enhance the level of services provided to our clients. Thank you for your continued confidence and investment with Frank Russell Investment Company. We look forward to the remainder of 1998 and continuing to earn your support. Sincerely, /s/ George F. Russell, Jr. /s/ Lynn L. Anderson George F. Russell, Jr. Lynn L. Anderson Chairman President and Chief Executive Officer Frank Russell Investment Company Frank Russell Investment Company EQUITY BALANCED STRATEGY FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER OF MARKET SHARES VALUE ----------- ----------- INVESTMENTS Portfolios of the Frank Russell Investment Company Series Mutual Fund - Class S Shares DOMESTIC EQUITIES - 71.3% Diversified Equity Fund 389,348 $19,498,526 Quantitative Equity Fund 464,498 19,416,025 Real Estate Securities Fund 114,860 3,275,814 Special Growth Fund 131,815 6,535,366 ----------- 48,725,731 ----------- INTERNATIONAL EQUITIES - 23.8% Emerging Markets Fund 339,237 3,260,072 International Securities Fund 206,301 13,005,208 ----------- 16,265,280 ----------- SHORT-TERM INVESTMENTS - 4.6% Money Market Fund due on demand (b) 3,121,000 3,121,000 ----------- TOTAL INVESTMENTS - 99.7% (identified cost $64,247,956)(a) 68,112,011 ----------- OTHER ASSETS AND LIABILITIES Deferred organization expenses (Note 2) 29,118 Other assets 391,283 Liabilities (Note 4) (236,676) ----------- TOTAL OTHER ASSETS AND LIABILITIES, NET - 0.3% 183,725 ----------- NET ASSETS - 100.0% $68,295,736 ----------- ----------- NET ASSETS CONSIST OF: Accumulated distributions in excess of net investment income $ (738,035) Accumulated net realized gain (loss) 603,589 Unrealized appreciation (depreciation) on investments 3,864,055 Shares of beneficial interest 69,914 Additional paid-in capital 64,496,213 ----------- NET ASSETS $68,295,736 ----------- ----------- NET ASSET VALUE, offering and redemption price per share: Class E ($65,231,402 divided by 6,677,492 shares of $.01 par value shares of beneficial interest outstanding) $ 9.77 ----------- ----------- Class D ($3,064,334 divided by 313,907 shares of $.01 par value shares of beneficial interest outstanding) $ 9.76 ----------- -----------
(a) See Note 2 for federal income tax information. (b) At cost, which approximates market. The accompanying notes are an integral part of the financial statements. 2 Equity Balanced Strategy Fund EQUITY BALANCED STRATEGY FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited) INVESTMENT INCOME: Income distributions from Underlying Funds (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,234 EXPENSES (Notes 1, 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,688 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,533 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,448 Registration fees Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,591 Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 Distribution fees - Class D. . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 Shareholder servicing fees Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,256 Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,571 Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,590 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,227 -------------- Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,349 Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (95,229) -------------- Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,120 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,114 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51,049) Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . 694,660 643,611 -------------- Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 4,081,330 -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,724,941 -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 4,762,055 -------------- --------------
The accompanying notes are an integral part of the financial statements. Equity Balanced Strategy Fund 3 EQUITY BALANCED STRATEGY FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS FOR THE PERIOD ENDED JUNE 30, 1998 SEPTEMBER 30, 1997* TO (UNAUDITED) DECEMBER 31, 1997 ------------------- ------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,114 $ 8,083 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643,611 202,018 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 4,081,330 (217,275) ------------------- ------------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 4,762,055 (7,174) ------------------- ------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,004) (8,083) Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (310) -- In excess of net investment income Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (731,741) (79,767) Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,294) -- Net realized gain on investments Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (163,073) ------------------- ------------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (774,349) (250,923) ------------------- ------------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 61,322,868 3,243,259 ------------------- ------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 65,310,574 2,985,162 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,985,162 -- ------------------- ------------------- End of period (including accumulated distributions in excess of net investment income of $738,035 and $800, respectively) . . . . . . . . . . . $ 68,295,736 $ 2,985,162 ------------------- ------------------- ------------------- -------------------
* Commencement of operations. The accompanying notes are an integral part of the financial statements. 4 Equity Balanced Strategy Fund EQUITY BALANCED STRATEGY 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.
1998* 1997** ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 8.83 $ 10.00 ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01 (e) .09 Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . .14 2.73 Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . .95 (3.06) ---------- ---------- Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . 1.10 (.24) ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.01) (.09) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.15) (.24) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . -- (.60) ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.16) (.93) ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.77 $ 8.83 ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.43 (2.42) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 65,231 2,985 Ratios to average net assets (%): Operating expenses, net (b)(c) . . . . . . . . . . . . . . . . . . . . . . . . .25 .25 Operating expenses, gross (c) . . . . . . . . . . . . . . . . . . . . . . . . . .68(b) 3.58(d) Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18(b) .45(d) Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 58.32 48.30
* For the six months ended June 30, 1998 (Unaudited). ** For the period September 30, 1997 (commencement of operations) to December 31, 1997. (a) Periods less than one year are not annualized. (b) Annualized. (c) See Note 4 for current period amounts. (d) The ratio has not been annualized due to the Fund's short period of operation. (e) Average month-end shares outstanding for the period were used for this calculation. Equity Balanced Strategy Fund 5 EQUITY BALANCED STRATEGY FUND FINANCIAL HIGHLIGHTS - CLASS D The following table includes selected data for a share outstanding throughout the period and other performance information derived from the financial statements.
1998* ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.92 ---------- INCOME FROM INVESTMENT OPERATIONS: Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . (.01) ---------- LESS DISTRIBUTIONS: In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.15) ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.76 ---------- ---------- TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.07) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 3,064 Ratios to average net assets (%): Operating expenses, net (b)(c) . . . . . . . . . . . . . . . . . . . . . . . . .50 Operating expenses, gross (c)(d) . . . . . . . . . . . . . . . . . . . . . . . -- Net investment income (loss) (b) . . . . . . . . . . . . . . . . . . . . . . . (.05) Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 58.32
* For the period March 24, 1998 (commencement of sale) to June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) Annualized. (c) See Note 4 for current period amounts. (d) The ratio is not meaningful due to the Fund's short period of operation. 6 Equity Balanced Strategy Fund AGGRESSIVE STRATEGY FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER OF MARKET SHARES VALUE ---------- ----------- INVESTMENTS Portfolios of the Frank Russell Investment Company Series Mutual Fund - Class S Shares DOMESTIC EQUITIES - 55.6% Diversified Equity Fund 183,020 $ 9,165,646 Quantitative Equity Fund 219,457 9,173,288 Real Estate Securities Fund 78,169 2,229,392 Special Growth Fund 98,035 4,860,592 ----------- 25,428,918 ----------- INTERNATIONAL EQUITIES - 23.1% Emerging Markets Fund 222,452 2,137,759 International Securities Fund 133,861 8,438,608 ----------- 10,576,367 ----------- BONDS - 17.2% Multistrategy Bond Fund 762,358 7,890,403 ----------- SHORT-TERM INVESTMENTS - 2.7% Money Market Fund due on demand (b) 1,216,000 1,216,000 ----------- TOTAL INVESTMENTS - 98.6% (identified cost $44,230,833)(a) 45,111,688 ----------- OTHER ASSETS AND LIABILITIES Deferred organization expenses (Note 2) 28,888 Other assets 671,515 Liabilities (Note 4) (54,551) ----------- TOTAL OTHER ASSETS AND LIABILITIES, NET - 1.4% 645,852 ----------- NET ASSETS - 100.0% $45,757,540 ----------- ----------- NET ASSETS CONSIST OF: Accumulated distributions in excess of net investment income $ (176,307) Accumulated net realized gain (loss) 110,237 Unrealized appreciation (depreciation) on investments 880,855 Shares of beneficial interest 45,862 Additional paid-in capital 44,896,893 ----------- NET ASSETS $45,757,540 ----------- ----------- NET ASSET VALUE, offering and redemption price per share: Class E ($43,496,699 divided by 4,359,348 shares of $.01 par value shares of beneficial interest outstanding) $ 9.98 ----------- ----------- Class D ($2,260,841 divided by 226,798 shares of $.01 par value shares of beneficial interest outstanding) $ 9.97 ----------- -----------
(a) See Note 2 for federal income tax information. (b) At cost, which approximates market. The accompanying notes are an integral part of the financial statements. 8 Aggressive Strategy Fund AGGRESSIVE STRATEGY FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited) INVESTMENT INCOME: Income distributions from Underlying Funds (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 144,593 EXPENSES (Notes 1, 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,849 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,253 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Registration fees Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,645 Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467 Distribution fees - Class D. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,362 Shareholder servicing fees Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,488 Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,361 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,571 Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,590 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,523 -------------- Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,394 Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,094) -------------- Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,300 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,293 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,248) Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . 210,965 178,717 -------------- Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 1,192,962 -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,371,679 -------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 1,483,972 -------------- --------------
The accompanying notes are an integral part of the financial statements. Aggressive Strategy Fund 9 AGGRESSIVE STRATEGY FUND STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS FOR THE PERIOD ENDED JUNE 30, 1998 SEPTEMBER 16, 1997* TO (UNAUDITED) DECEMBER 31, 1997 ------------------- -------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 112,293 $ 22,778 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,717 304,411 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 1,192,962 (312,107) ------------------- -------------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 1,483,972 15,082 ------------------- -------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (106,292) (22,778) Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,717) -- In excess of net investment income Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (162,943) (119,617) Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,364) -- Net realized gain on investments Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (250,558) ------------------- -------------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (291,316) (392,953) ------------------- -------------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 39,257,610 5,685,145 ------------------- -------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 40,450,266 5,307,274 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,307,274 -- ------------------- -------------------- End of period (including accumulated distributions in excess of net investment income of $176,307 and undistributed net investment income of $2,716, respectively) . . . . . . . . . . . . . . . . . . . . . . . . $ 45,757,540 $ 5,307,274 ------------------- -------------------- ------------------- --------------------
* Commencement of operations. The accompanying notes are an integral part of the financial statements. 10 Aggressive Strategy Fund AGGRESSIVE STRATEGY 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.
1998* 1997** ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.14 $ 10.00 ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .08 .10 Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . .09 1.66 Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . .79 (1.77) ---------- ---------- Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . .96 (.01) ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.05) (.10) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.07) (.21) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . -- (.54) ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.12) (.85) ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.98 $ 9.14 ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.49 (.19) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 43,497 5,307 Ratios to average net assets (%): Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . . . . .25 .25 Operating expenses, gross (c) . . . . . . . . . . . . . . . . . . . . . . . . . .72 (b) 2.88 (d) Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92 (b) .97 (d) Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 118.85 56.88
* For the six months ended June 30, 1998 (Unaudited). ** For the period September 16, 1997 (commencement of operations) to December 31, 1997. (a) Periods less than one year are not annualized. (b) Annualized. (c) See Note 4 for current period amounts. (d) The ratio has not been annualized due to the Fund's short period of operation. Aggressive Strategy Fund 11 AGGRESSIVE STRATEGY FUND FINANCIAL HIGHLIGHTS - CLASS D The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
1998* ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 10.09 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .05 Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . (.04) ---------- Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . .01 ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.05) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.08) ---------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.13) ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.97 ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.08) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 2,261 Ratios to average net assets (%): Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . . . . .50 Operating expenses, gross (c)(d). . . . . . . . . . . . . . . . . . . . . . . . -- Net investment income (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 118.85
* For the period March 24, 1998 (commencement of sale) to June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) Annualized. (c) See Note 4 for current period amounts. (d) The ratio is not meaningful due to the Fund's short period of operation. (e) The ratio has not been annualized due to the Fund's short period of operation. 12 Aggressive Strategy Fund BALANCED STRATEGY FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ----------- ------------- INVESTMENTS Portfolios of the Frank Russell Investment Company Series Mutual Fund - Class S Shares DOMESTIC EQUITIES - 41.5% Diversified Equity Fund 402,364 $ 20,150,387 Quantitative Equity Fund 477,194 19,946,721 Real Estate Securities Fund 221,751 6,324,325 Special Growth Fund 128,048 6,348,624 ------------- 52,770,057 ------------- INTERNATIONAL EQUITIES - 16.6% Emerging Markets Fund 371,929 3,574,241 International Securities Fund 278,602 17,563,077 ------------- 21,137,318 ------------- BONDS - 40.0% Diversified Bond Fund 1,313,927 31,140,073 Multistrategy Bond Fund 1,898,161 19,645,969 ------------- 50,786,042 ------------- SHORT-TERM INVESTMENTS - 2.1% Money Market Fund due on demand (b) 2,700,000 2,700,000 ------------- TOTAL INVESTMENTS - 100.2% (identified cost $123,688,372)(a) 127,393,417 ------------- OTHER ASSETS AND LIABILITIES Deferred organization expenses (Note 2) 28,888 Other assets 353,135 Liabilities (Note 4) (660,805) ------------- TOTAL OTHER ASSETS AND LIABILITIES, NET - (0.2%) (278,782) ------------- NET ASSETS - 100.0% $ 127,114,635 ------------- ------------- NET ASSETS CONSIST OF: Accumulated distributions in excess of net investment income $ (78,290) Accumulated net realized gain (loss) 478,295 Unrealized appreciation (depreciation) on investments 3,705,045 Shares of beneficial interest 125,452 Additional paid-in capital 122,884,133 ------------- NET ASSETS $ 127,114,635 ------------- ------------- NET ASSET VALUE, offering and redemption price per share: Class E ($125,961,832 divided by 12,431,469 shares of $.01 par value shares of beneficial interest outstanding) $ 10.13 ------------- ------------- Class D ($1,152,803 divided by 113,752 shares of $.01 par value shares of beneficial interest outstanding) $ 10.13 ------------- -------------
(a) See Note 2 for federal income tax information. (b) At cost, which approximates market. The accompanying notes are an integral part of the financial statements. 14 Balanced Strategy Fund BALANCED STRATEGY FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
INVESTMENT INCOME: Income distributions from Underlying Funds (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,524,985 EXPENSES (Notes 1, 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 105,080 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,836 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,987 Registration fees Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,607 Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 Distribution fees - Class D. . . . . . . . . . . . . . . . . . . . . . . . . . . . 696 Shareholder servicing fees Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,384 Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,571 Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,590 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,848 -------------- Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289,227 Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (183,336) -------------- Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,891 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,419,094 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,294 Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . 447,917 495,211 -------------- Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 3,869,562 -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,364,773 -------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 5,783,867 -------------- --------------
The accompanying notes are an integral part of the financial statements. Balanced Strategy Fund 15 BALANCED STRATEGY FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS FOR THE PERIOD ENDED JUNE 30, 1998 SEPTEMBER 16, 1997* (UNAUDITED) TO DECEMBER 31, 1997 ------------------- -------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,419,094 $ 21,081 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495,211 174,597 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 3,869,562 (164,517) ------------------ ------------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 5,783,867 31,161 ------------------ ------------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,410,080) (21,081) Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,647) -- In excess of net investment income Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (77,485) (56,712) Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (805) -- Net realized gain on investments Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (129,168) ------------------ ------------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (1,503,017) (206,961) ------------------ ------------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 119,279,289 3,730,296 ------------------ ------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 123,560,139 3,554,496 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,554,496 -- ------------------ ------------------- End of period (including accumulated distributions in excess of net investment income of $78,290 and undistributed net investment income of $5,633, respectively) . . . . . . . . . . . . . . . . . . . . . . . . $ 127,114,635 $ 3,554,496 ------------------ ------------------ ------------------ ------------------
* Commencement of operations. The accompanying notes are an integral part of the financial statements. 16 Balanced Strategy Fund BALANCED STRATEGY 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.
1998* 1997** ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.46 $ 10.00 ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 .09 Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . .05 .85 Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . .64 (.83) ---------- ---------- Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . .83 .11 ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.15) (.09) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.01) (.15) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . -- (.41) ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.16) (.65) ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.13 $ 9.46 ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.79 1.04 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 125,962 3,554 Ratios to average net assets (%): Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . . . . .25 .25 Operating expenses, gross (c) . . . . . . . . . . . . . . . . . . . . . . . . . .69 (b) 4.03 (d) Net investment income (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.68 1.30 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 79.20 29.58
* For the six months ended June 30, 1998 (Unaudited). ** For the period September 16, 1997 (commencement of operations) to December 31, 1997. (a) Periods less than one year are not annualized. (b) Annualized. (c) See Note 4 for current period amounts. (d) The ratio has not been annualized due to the Fund's short period of operation. Balanced Strategy Fund 17 BALANCED STRATEGY FUND FINANCIAL HIGHLIGHTS - CLASS D The following table includes selected data for a share outstanding throughout the period and other performance information derived from the financial statements.
1998* ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 10.22 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .07 ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.15) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . (.01) ---------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.16) ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.13 ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.68 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 1,153 Ratios to average net assets (%): Operating expenses, net (b)(c) . . . . . . . . . . . . . . . . . . . . . . . . . .50 Operating expenses, gross (c)(d) . . . . . . . . . . . . . . . . . . . . . . . . -- Net investment income (e). . . . . . . . . . . . . . . . . . . . . . . . . . . . .52 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 79.20
* For the period March 24, 1998 (commencement of sale) to June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) Annualized. (c) See Note 4 for current period amounts. (d) The ratio is not meaningful due to the Fund's short period of operation. (e) The ratio has not been annualized due to the Fund's short period of operation. 18 Balanced Strategy Fund MODERATE STRATEGY FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER OF MARKET SHARES VALUE ------------ ------------ INVESTMENTS Portfolios of the Frank Russell Investment Company Series Mutual Fund - Class S Shares DOMESTIC EQUITIES - 28.9% Diversified Equity Fund 31,356 $ 1,570,329 Quantitative Equity Fund 37,276 1,558,135 Real Estate Securities Fund 25,091 715,583 Special Growth Fund 5,799 287,507 ------------ 4,131,554 ------------ INTERNATIONAL EQUITIES - 10.8% Emerging Markets Fund 28,096 269,998 International Securities Fund 20,289 1,279,019 ------------ 1,549,017 ------------ BONDS - 58.4% Diversified Bond Fund 158,680 3,760,705 Volatility Constrained Bond Fund 240,951 4,597,347 ------------ 8,358,052 ------------ SHORT-TERM INVESTMENTS - 1.7% Money Market Fund due on demand (b) 250,000 250,000 ------------ TOTAL INVESTMENTS - 99.8% (identified cost $14,114,172)(a) 14,288,623 ------------ OTHER ASSETS AND LIABILITIES Deferred organization expenses (Note 2) 29,154 Other assets 29,313 Liabilities (Note 4) (26,651) ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET - 0.2% 31,816 ------------ NET ASSETS - 100.0% $ 14,320,439 ------------ ------------ NET ASSETS CONSIST OF: Undistributed net investment income $ 17,569 Accumulated net realized gain (loss) 17,366 Unrealized appreciation (depreciation) on investments 174,451 Shares of beneficial interest 14,106 Additional paid-in capital 14,096,947 ------------ NET ASSETS $ 14,320,439 ------------ ------------ NET ASSET VALUE, offering and redemption price per share: Class E ($13,379,334 divided by 1,317,860 shares of $.01 par value shares of beneficial interest outstanding) $ 10.15 ------------ ------------ Class D ($941,105 divided by 92,770 shares of $.01 par value shares of beneficial interest outstanding) $ 10.14 ------------ ------------
(a) See Note 2 for federal income tax information. (b) At cost which approximates market. The accompanying notes are an integral part of the financial statements. 20 Moderate Strategy Fund MODERATE STRATEGY FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited) INVESTMENT INCOME: Income distributions from Underlying Funds (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,290 EXPENSES (Notes 1, 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,342 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,326 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 934 Registration fees Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516 Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Distribution fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614 Shareholder servicing fees Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,731 Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,571 Amortization of deferred organization expenses . . . . . . . . . . . . . . . . . . 1,590 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622 -------------- Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,945 Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,987) -------------- Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,958 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,332 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,104) Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . 24,907 17,803 -------------- Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 187,844 -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,647 -------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 294,979 -------------- --------------
The accompanying notes are an integral part of the financial statements. Moderate Strategy Fund 21 MODERATE STRATEGY FUND STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS FOR THE PERIOD ENDED JUNE 30, 1998 OCTOBER 2, 1997* TO (UNAUDITED) DECEMBER 31, 1997 ------------------- ------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,332 $ 2,421 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,803 12,847 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 187,844 (13,393) ----------------- ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 294,979 1,875 ----------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61,469) (2,421) Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,485) -- In excess of net investment income Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,985) Net realized gain on investments Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (9,109) ----------------- ----------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (72,954) (14,515) ----------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 13,713,287 397,767 ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 13,935,312 385,127 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385,127 -- ----------------- ----------------- End of period (including undistributed net investment income of $17,569 and $1,191, respectively) . . . . . . . . . . . . . . . . . . . . . . . $ 14,320,439 $ 385,127 ----------------- ----------------- ----------------- -----------------
* Commencement of operations. The accompanying notes are an integral part of the financial statements. 22 Moderate Strategy Fund MODERATE STRATEGY 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.
1998* 1997** ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.61 $ 10.00 ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 (f) .07 Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . .06 .38 Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . .49 (.46) ---------- ---------- Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . .69 (.01) ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.15) (.07) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (.07) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . -- (.24) ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.15) (.38) ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.15 $ 9.61 ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.18 (.06) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 13,379 385 Ratios to average net assets (%): Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . . . . .25 .25 Operating expenses, gross (c) . . . . . . . . . . . . . . . . . . . . . . . . . .76 (b) -- (d) Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.70 (b) 1.01 (e) Portfolio turnover rate (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . 118.88 (e) 9.66 (b)
* For the six months ended June 30, 1998 (Unaudited). ** For the period October 2, 1997 (commencement of operations) to December 31, 1997. (a) Periods less than one year are not annualized. (b) Annualized. (c) See Note 4 for current period amounts. (d) The ratio is not meaningful due to the Fund's short period of operation. (e) The ratio has not been annualized due to the Fund's short period of operation. (f) Average month-end shares outstanding for the period were used for this calculation. Moderate Strategy Fund 23 MODERATE STRATEGY FUND FINANCIAL HIGHLIGHTS - CLASS D The following table includes selected data for a share outstanding throughout the period and other performance information derived from the financial statements.
1998* ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 10.18 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .07 (f) Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . .02 ---------- Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . .09 ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.13) ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.14 ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 941 Ratios to average net assets (%): Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . . . . .50 Operating expenses, gross (c)(d). . . . . . . . . . . . . . . . . . . . . . . . -- Net investment income (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . .65 Portfolio turnover rate (%)(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 118.88
* For the period March 24, 1998 (commencement of sale) to June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) Annualized. (c) See Note 4 for current period amounts. (d) The ratio is not meaningful due to the Fund's short period of operation. (e) The ratio has not been annualized due to the Fund's short period of operation. (f) Average month-end shares outstanding for the period were used for this calculation. 24 Moderate Strategy Fund CONSERVATIVE STRATEGY FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER OF MARKET SHARES VALUE ---------- ---------- INVESTMENTS Portfolios of the Frank Russell Investment Company Series Mutual Fund - Class S Shares DOMESTIC EQUITIES - 16.3% Diversified Equity Fund 2,848 $ 142,630 Quantitative Equity Fund 4,081 170,597 Real Estate Securities Fund 5,035 143,591 ---------- 456,818 ---------- INTERNATIONAL EQUITIES - 6.0% Emerging Markets Fund 2,776 26,680 International Securities Fund 2,228 140,457 ---------- 167,137 ---------- BONDS - 77.5% Diversified Bond Fund 21,143 501,077 Volatility Constrained Bond Fund 87,397 1,667,537 ---------- 2,168,614 ---------- TOTAL INVESTMENTS - 99.8% (identified cost $2,783,624)(a) 2,792,569 ---------- OTHER ASSETS AND LIABILITIES Other assets 25,031 Liabilities (Note 4) (20,682) ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET - 0.2% 4,349 ---------- NET ASSETS - 100.0% $2,796,918 ---------- ---------- NET ASSETS CONSIST OF: Undistributed net investment income $ 9,945 Accumulated net realized gain (loss) 146 Unrealized appreciation (depreciation) on investments 8,945 Shares of beneficial interest 2,727 Additional paid-in capital 2,775,155 ---------- NET ASSETS $2,796,918 ---------- ---------- NET ASSET VALUE, offering and redemption price per share: Class E ($2,219,085 divided by 216,308 shares of $.01 par value shares of beneficial interest outstanding) $ 10.26 ---------- ---------- Class D ($577,833 divided by 56,390 shares of $.01 par value shares of beneficial interest outstanding) $ 10.25 ---------- ----------
(a) See Note 2 for federal income tax information. The accompanying notes are an integral part of the financial statements. 26 Conservative Strategy Fund CONSERVATIVE STRATEGY FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
INVESTMENT INCOME: Income distributions from Underlying Funds (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,714 -------------- EXPENSES (Notes 1, 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,186 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,894 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,519 Registration fees Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,031 Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544 Distribution fees - Class D. . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 Shareholder servicing fees Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 806 Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,061 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546 -------------- Expenses before reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,344 Expense reductions (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,781) -------------- Expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,563 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,151 -------------- REALIZED AND UNREALIZED GAIN (Loss) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (256) Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . . . . 402 146 -------------- Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 9,285 -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,431 -------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 23,582 -------------- --------------
The accompanying notes are an integral part of the financial statements. Conservative Strategy Fund 27 CONSERVATIVE STRATEGY FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE MONTHS ENDED PERIOD NOVEMBER 7, JUNE 30, 1998 1997* TO (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,151 $ 149 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 501 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 9,285 (340) ----------------- ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 23,582 310 ----------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,053) (149) Class D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,231) -- In excess of net investment income Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (72) Net realized gain on investments Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (351) ----------------- ----------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (4,284) (572) ----------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 2,755,000 22,882 ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 2,774,298 22,620 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,620 -- ----------------- ----------------- End of period (including undistributed net investment income of $9,945 and $78, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,796,918 $ 22,620 ----------------- ----------------- ----------------- -----------------
* Commencement of operations. The accompanying notes are an integral part of the financial statements. 28 Conservative Strategy Fund CONSERVATIVE STRATEGY 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.
1998* 1997** --------------- --------------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 9.88 $ 10.00 --------------- --------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 .07 Capital gain distributions from Underlying Funds . . . . . . . . . . . . . . .03 .23 Net realized and unrealized gain (loss) on investments . . . . . . . . . . . .34 (.16) --------------- --------------- Total Income From Investment Operations . . . . . . . . . . . . . . . . . .47 .14 --------------- --------------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . (.09) (.07) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . -- (.03) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . -- (.16) --------------- --------------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . (.09) (.26) --------------- --------------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 10.26 $ 9.88 --------------- --------------- --------------- --------------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.78 1.36 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . 2,219 23 Ratios to average net assets (%): Operating expenses, net (b)(c) . . . . . . . . . . . . . . . . . . . . . . .25 .25 Operating expenses, gross (c). . . . . . . . . . . . . . . . . . . . . . . 2.35 (e) -- (d) Net investment income (e). . . . . . . . . . . . . . . . . . . . . . . . . 1.47 .67 Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . 182.86 (e) 0.00 (b)
* For the six months ended June 30, 1998 (Unaudited). ** For the period November 7, 1997 (commencement of operations) to December 31, 1997. (a) Periods less than one year are not annualized. (b) Annualized. (c) See Note 4 for current period amounts. (d) The ratio is not meaningful due to the Fund's short period of operation. (e) The ratio has not been annualized due to the Fund's short period of operation. Conservative Strategy Fund 29 CONSERVATIVE STRATEGY FUND FINANCIAL HIGHLIGHTS - CLASS D The following table includes selected data for a share outstanding throughout the period and other performance information derived from the financial statements.
1998* --------------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 10.20 --------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .08 Net realized and unrealized gain (loss) on investments . . . . . . . . . . . .03 --------------- Total Income From Investment Operations . . . . . . . . . . . . . . . . . .11 --------------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . (.06) --------------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 10.25 --------------- --------------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.08 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . 578 Ratios to average net assets (%): Operating expenses, net (b)(c). . . . . . . . . . . . . . . . . . . . . . .50 Operating expenses, gross (c)(d). . . . . . . . . . . . . . . . . . . . . -- Net investment income (e) . . . . . . . . . . . . . . . . . . . . . . . . .81 Portfolio turnover rate (%)(e) . . . . . . . . . . . . . . . . . . . . . . . 182.86
* For the period March 24, 1998 (commencement of sale) to June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) Annualized. (c) See Note 4 for current period amounts. (d) The ratio is not meaningful due to the Fund's short period of operation. (e) The ratio has not been annualized due to the Fund's short period of operation. 30 Conservative Strategy Fund FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS-Registered Trademark- FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1998 (Unaudited) 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company") is a series mutual fund with 28 different investment portfolios, referred to as "Funds." These financial statements report on five LifePoints-Registered Trademark- 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. Beginning March 24, 1998 the Funds made available Class D shares in addition to their Class E shares. Each class has equal rights as to assets and voting privileges. Investment income, realized and unrealized gains and losses and fund level expenses of a Fund are allocated on a pro rata basis to each Class, based on relative net assets of each Class to the total net assets of a Fund. Certain expenses may also be charged to an individual Class for services or fees that relate specifically to that particular Class. Class D shares are charged a 12b-1 distribution fee not to exceed 0.25% and a shareholder servicing fee of 0.25%. Class E shares are charged a shareholder servicing fee of 0.25%. Each of the LifePoints Funds allocates its assets by investing in a combination of Class S shares of the Investment Company's portfolios (the "Underlying Funds"). Each of the LifePoints Funds will adjust its investments within set limits based on Frank Russell Investment Management Company's ("FRIMCo" or "Manager") outlook for the economy, financial markets and relative market valuation of the asset classes represented by each Underlying Fund. However, the LifePoints Funds may deviate from set limits when, in FRIMCo's opinion, it is necessary to do so to pursue a LifePoints Fund's investment objective. The amounts allocated to each Underlying Fund by each LifePoints Fund will generally vary within 10% of the percentages specified below:
ASSET ALLOCATION RANGES -------------------------------------------------------------------------- EQUITY BALANCED AGGRESSIVE BALANCED MODERATE CONSERVATIVE STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY ASSET CLASS/UNDERLYING FUNDS FUND FUND FUND FUND FUND ---------------------------- -------------------------------------------------------------------------- Equities US Equities Diversified Equity 30% 21% 16% 11% 5% Special Growth 10 11 5 2 -- Quantitative Equity 30 21 16 11 6 Real Estate Securities 5 5 5 5 5 International Equities International Securities 20 19 14 9 5 Emerging Markets 5 5 3 2 1 Bonds Diversified Bond -- -- 25 27 18 Volatility Constrained Bond -- -- -- 33 60 Multistrategy Bond -- 18 16 -- --
OBJECTIVES OF THE UNDERLYING FUNDS: DIVERSIFIED EQUITY FUND: To provide income and capital growth by investing principally in equity securities. SPECIAL GROWTH FUND: To maximize total return primarily through capital appreciation and by assuming a higher level of volatility than is ordinarily expected from the Diversified Equity Fund, by investing in equity securities. QUANTITATIVE EQUITY FUND: To provide a total return greater than the total return of the US stock market as measured by the Russell 1000-Registered Trademark- Index over a market cycle of four to six years, while maintaining volatility and diversification similar to the Index by investing in equity securities. Notes to Financial Statements 31 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS-Registered Trademark- FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED REAL ESTATE SECURITIES FUND: To achieve a high level of total return generated through above-average current income, while maintaining the potential for capital appreciation by investing primarily in the equity securities of companies in the real estate industry. INTERNATIONAL SECURITIES FUND: To provide favorable total return and additional diversification for US investors by investing primarily in equity and fixed-income securities of non-US companies, and securities issued by non-US governments. EMERGING MARKETS FUND: To maximize total return, primarily through capital appreciation and by assuming a higher level of volatility than is ordinarily expected from developed market international portfolios. DIVERSIFIED BOND FUND: To provide effective diversification against equities and a stable level of cash flow by investing in fixed-income securities. VOLATILITY CONSTRAINED BOND FUND: To preserve capital and generate current income consistent with the preservation of capital by investing primarily in fixed-income securities with low-volatility characteristics. MULTISTRATEGY BOND FUND: 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, by investing in fixed-income securities. Financial statements of the Underlying Funds can be obtained by calling the Office of Shareholder Inquiries at (800) RUSSEL4, (800) 787-7354. 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: Investments in Underlying Funds are valued at the net asset value per share of each Underlying Fund as of the close of regular trading on the New York Stock Exchange. Short-term investments having a maturity of sixty days or less are valued at amortized cost. INVESTMENT TRANSACTIONS: Securities transactions of the Underlying Funds are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of specific identified cost. INVESTMENT INCOME: Distributions of income and capital gains from the Underling Funds are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. 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. Therefore, no federal income tax provision was required for the Funds. The aggregate cost of investments and the composition of gross unrealized appreciation and depreciation of investment securities for federal income tax purposes as of June 30, 1998 were as follows:
GROSS GROSS NET UNREALIZED FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION COST APPRECIATION (DEPRECIATION) (DEPRECIATION) -------------- -------------- -------------- -------------- Equity Balanced Strategy $ 64,247,956 $4,478,550 $(614,495) $3,864,055 Aggressive Strategy 44,230,833 1,365,869 (485,014) 880,855 Balanced Strategy 123,688,372 4,565,490 (860,445) 3,705,045 Moderate Strategy 14,114,173 243,559 (69,109) 174,450 Conservative Strategy 2,783,624 16,153 (7,208) 8,945
32 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS-Registered Trademark- FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Income dividends are generally declared and paid quarterly. 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) from investment transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP relate primarily to certain securities sold at a loss. Accordingly, the Funds may periodically make reclassifications among certain of their capital accounts without impacting their net asset value. EXPENSES: The Funds incur shareholder servicing fees, management fees, and other operating expenses other than those expressly assumed by FRIMCo. Certain expenses not directly attributable to any one Fund but applicable to all Funds, such as Trustee fees, insurance, legal and other expenses will be allocated to each Fund based on each Fund's net assets. In addition, Class D and Class E will pay shareholder servicing fees and Class D will pay 12b-1 distribution fees. Expenses included in the accompanying financial statements reflect the expenses of each Fund and do not include any expenses associated with the Underlying Funds. DEFERRED ORGANIZATION EXPENSES: Organization costs of the Equity Balanced Strategy Fund, Aggressive Strategy Fund, Balanced Strategy Fund, and Moderate Strategy Fund have been deferred and are being amortized over 60 months on a straight-line basis. 3. INVESTMENT TRANSACTIONS SECURITIES: During the six months ended June 30, 1998, purchases and sales of the Underlying Funds were as follows:
PURCHASES SALES -------------- -------------- Equity Balanced Strategy $ 73,750,895 $ 12,884,779 Aggressive Strategy 52,815,583 14,503,204 Balanced Strategy 152,453,997 32,675,605 Moderate Strategy 21,412,332 7,702,885 Conservative Strategy 4,501,455 1,741,015
4. RELATED PARTIES MANAGER: The Investment Company has an investment advisory agreement with the Manager under which the Manager directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. The Funds are charged a fee by the Manager equal to 0.25% of average daily net assets. For the six months ended June 30, 1998, the Manager voluntarily agreed to waive the management fee of 0.25% of average daily net assets. The manager has voluntarily agreed to reimburse the Funds for all expenses excluding manager fees, shareholder servicing fees, and 12b-1 distribution fees. The waivers and reimbursements as of June 30, 1998 were as follows:
MANAGEMENT REIMBURSED TOTAL EXPENSE FEES WAIVED BY FRIMCO REDUCTIONS ----------- ---------- ------------- Equity Balanced Strategy $ 54,687 $ 40,542 $ 95,229 Aggressive Strategy 30,850 27,244 58,094 Balanced Strategy 105,080 78,256 183,336 Moderate Strategy 8,342 8,645 16,987 Conservative Strategy 1,185 16,596 17,781
Notes to Financial Statements 33 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS-Registered Trademark- FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED TRANSFER AGENT: The Funds have a contract with FRIMCo to provide transfer agent services to the Investment Company. DISTRIBUTOR AND SHAREHOLDER SERVICING: Pursuant to the Distribution Agreement with Investment Company, Russell Fund Distributors, Inc. ("Distributor"), a wholly owned subsidiary of the Administrator, serves as distributor for all Investment Company portfolio shares, including Class E and Class D of the Funds. The Investment Company has adopted 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 Distributor, 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 D Shares subject to the Distribution Plan. The 12b-1 Fee payments shall not exceed 0.25% of the average daily net assets of a Fund's Class D shares on an annual basis. The Investment Company has adopted a Shareholder Services Plan ("Services Plan") under which it may make payments to the distributor or any investment advisors, banks, broker-dealers, financial planners or other financial institutions ("Servicing Agents") for any activities or expenses primarily intended to assist, support or service the Servicing Agents' clients who beneficially own Class E and Class D shares of the LifePoints Funds. Payments under the Services Plan are calculated daily and paid quarterly by the Investment Company, at an annual rate of 0.25% of the average daily net assets of a LifePoints Fund's Class E and Class D Shares. ACCRUED FEES PAYABLE TO AFFILIATES AS OF JUNE 30, 1998 WERE AS FOLLOWS:
OTHER FEES SHAREHOLDER PAYABLE TO SERVICING AND MANAGER DISTRIBUTION FEES TOTALS ---------- ----------------- ---------- Equity Balanced Strategy $ 209 $ 37,336 $ 37,545 Aggressive Strategy 92 25,227 25,319 Balanced Strategy 611 72,156 72,767 Moderate Strategy 15,749 7,053 22,802 Conservative Strategy -- 1,467 1,467 ---------- ----------------- ---------- $ 16,661 $ 143,239 $ 159,900 ---------- ----------------- ---------- ---------- ----------------- ----------
RECEIVABLE FROM MANAGER FOR REIMBURSEMENT OF EXPENSES AS OF JUNE 30, 1998 WERE AS FOLLOWS: Equity Balanced Strategy $ 21,750 Aggressive Strategy 11,113 Balanced Strategy 60,625 Moderate Strategy 594 Conservative Strategy 7,708 ---------- $ 101,790 ---------- ----------
BOARD OF TRUSTEES: The Investment Company pays each of its Trustees not affiliated with FRIMCo a retainer of $20,000 per year plus out-of-pocket expenses. Total Trustee expenses were $54,794 for the six months ended June 30, 1998, and were allocated to each Fund on a pro rata basis, including 23 other affiliated funds not represented herein. The LifePoints Funds have been reimbursed by FRIMCo for this expense. 5. MONEY MARKET 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 Frank Russell Investment Company not presented herein). As of June 30, 1998, $7,287,000 of the Money Market Fund's net assets represents investments by these Funds and $739,224,000 represents the investments of other affiliated funds not presented herein. 34 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS-Registered Trademark- FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED 6. FUND SHARE TRANSACTIONS Share transactions for each Class of shares were as follows:
SHARES DOLLARS --------------------------------------- ---------------------------------------- FOR THE SIX MONTHS FOR THE PERIOD FOR THE SIX MONTHS FOR THE PERIOD ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 ------------------- ------------------ ------------------- ------------------ EQUITY BALANCED STRATEGY CLASS E (b) Proceeds from Shares Sold 6,385,187 313,780 $ 58,733,816 $ 3,028,465 Proceeds from reinvestment of distributions 76,756 27,548 756,770 244,906 Payments for shares redeemed (122,583) (3,196) (1,191,252) (30,112) ------------------- ----------------- ------------------ ---------------- Net increase (decrease) 6,339,360 338,132 58,299,334 3,243,259 ------------------- ----------------- ------------------ ---------------- CLASS D (e) Proceeds from Shares Sold 314,776 -- 3,031,741 -- Proceeds from reinvestment of distributions 669 -- 6,603 -- Payments for shares redeemed (1,538) -- (14,810) -- ------------------- ----------------- ------------------ ---------------- Net increase (decrease) 313,907 -- 3,023,534 -- ------------------- ----------------- ------------------ ---------------- Total increase (decrease) 6,653,267 338,132 $ 61,322,868 $ 3,243,259 ------------------- ----------------- ------------------ ---------------- ------------------- ----------------- ------------------ ---------------- AGGRESSIVE STRATEGY CLASS E (a) Proceeds from Shares Sold 3,854,575 552,413 $ 37,728,078 $ 5,431,416 Proceeds from reinvestment of distributions 21,656 35,751 218,862 329,624 Payments for shares redeemed (97,347) (7,700) (969,879) (75,895) ------------------- ----------------- ------------------ ---------------- Net increase (decrease) 3,778,884 580,464 36,977,061 5,685,145 ------------------- ----------------- ------------------ ---------------- CLASS D (e) Proceeds from Shares Sold 226,683 -- 2,279,348 -- Proceeds from reinvestment of distributions 2,195 -- 22,081 -- Payments for shares redeemed (2,080) -- (20,880) -- ------------------- ----------------- ------------------ ---------------- Net increase (decrease) 226,798 -- 2,280,549 -- ------------------- ----------------- ------------------ ---------------- Total increase (decrease) 4,005,682 580,464 $ 39,257,610 $ 5,685,145 ------------------- ----------------- ------------------ ---------------- ------------------- ----------------- ------------------ ----------------
(a) For the period ended December 31, 1997. Fund share transactions are for the period September 16, 1997 (commencement of sale of shares) to December 31, 1997. (b) For the period ended December 31, 1997. Fund share transactions are for the period September 30, 1997 (commencement of sale of shares) to December 31, 1997. (e) For the period March 24, 1998 (commencement of sale of shares) to June 30, 1998. Notes to Financial Statements 35 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS-Registered Trademark- FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED
SHARES DOLLARS --------------------------------------- ---------------------------------------- FOR THE SIX MONTHS FOR THE PERIOD FOR THE SIX MONTHS FOR THE PERIOD ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 ------------------- ----------------- ------------------- ------------------ BALANCED STRATEGY CLASS E (a) Proceeds from Shares Sold 13,213,141 358,855 $ 129,836,795 $ 3,571,839 Proceeds from reinvestment of distributions 144,873 19,490 1,467,096 185,933 Payments for shares redeemed (1,302,113) (2,777) (13,184,262) (27,476) ------------------- ----------------- ------------------- ------------------ Net increase (decrease) 12,055,901 375,568 118,119,629 3,730,296 ------------------- ----------------- ------------------- ------------------ CLASS D (e) Proceeds from Shares Sold 112,227 -- 1,144,208 -- Proceeds from reinvestment of distributions 1,525 -- 15,452 -- Payments for shares redeemed -- -- -- -- ------------------- ----------------- ------------------- ------------------ Net increase (decrease) 113,752 -- 1,159,660 -- ------------------- ----------------- ------------------- ------------------ Total increase (decrease) 12,169,653 375,568 $ 119,279,289 $ 3,730,296 ------------------- ----------------- ------------------- ------------------ ------------------- ----------------- ------------------- ------------------ MODERATE STRATEGY CLASS E (c) Proceeds from Shares Sold 1,289,952 39,036 $ 12,890,749 $ 387,800 Proceeds from reinvestment of distributions 4,204 1,213 42,379 11,694 Payments for shares redeemed (16,370) (175) (163,744) (1,727) ------------------- ----------------- ------------------- ------------------ Net increase (decrease) 1,277,786 40,074 12,769,384 397,767 ------------------- ----------------- ------------------- ------------------ CLASS D (e) Proceeds from Shares Sold 91,840 -- 934,509 -- Proceeds from reinvestment of distributions 1,137 -- 11,485 -- Payments for shares redeemed (207) -- (2,092) -- ------------------- ----------------- ------------------- ------------------ Net increase (decrease) 92,770 -- 943,902 -- ------------------- ----------------- ------------------- ------------------ Total increase (decrease) 1,370,556 40,074 $ 13,713,286 $ 397,767 ------------------- ----------------- ------------------- ------------------ ------------------- ----------------- ------------------- ------------------
(a) For the period ended December 31, 1997. Fund share transactions are for the period September 16, 1997 (commencement of sale of shares) to December 31, 1997. (c) For the period ended December 31, 1997. Fund share transactions are for the period October 2, 1997 (commencement of sale of shares) to December 31, 1997. (e) For the period March 24, 1998 (commencement of sale of shares) to June 30, 1998. 36 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS-Registered Trademark- FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED
SHARES DOLLARS --------------------------------------- ---------------------------------------- FOR THE SIX MONTHS FOR THE PERIOD FOR THE SIX MONTHS FOR THE PERIOD ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 ------------------- ----------------- ------------------- ------------------ CONSERVATIVE STRATEGY CLASS E (d) Proceeds from Shares Sold 222,298 2,231 $ 2,262,591 $ 22,309 Proceeds from reinvestment of distributions 50 58 511 573 Payments for shares redeemed (8,329) -- (83,229) -- ------------------- ----------------- ------------------- ------------------ Net increase (decrease) 214,019 2,289 2,179,873 22,882 ------------------- ----------------- ------------------- ------------------ CLASS D (e) Proceeds from Shares Sold 56,106 -- 572,234 -- Proceeds from reinvestment of distributions 317 -- 3,231 -- Payments for shares redeemed (33) -- (338) -- ------------------- ----------------- ------------------- ------------------ Net increase (decrease) 56,390 - 575,127 -- ------------------- ----------------- ------------------- ------------------ Total increase (decrease) 270,409 2,289 $ 2,755,000 $ 22,882 ------------------- ----------------- ------------------- ------------------ ------------------- ----------------- ------------------- ------------------
(d) For the period ended December 31, 1997. Fund share transactions are for the period November 7, 1997 (commencement of sale of shares) to December 31, 1997. (e) For the period March 24, 1998 (commencement of sale of shares) to June 30, 1998. 7. DIVIDENDS On July 2, 1998, the board of Trustees declared the following dividends from net investment income payable on July 7, 1998, to shareholders at record on July 2, 1998: Equity Balanced Strategy Class E $ 0.0105 Moderate Strategy Class E $0.0713 Equity Balanced Strategy Class D 0.0092 Moderate Strategy Class D 0.0652 Aggressive Strategy Class E 0.0295 Conservative Strategy Class E 0.0789 Aggressive Strategy Class D 0.0239 Conservative Strategy Class D 0.0727 Balanced Strategy Class E 0.0603 Balanced Strategy Class D 0.0546
8. BENEFICIAL INTEREST As of June 30, 1998, the following Funds have one or more shareholders with beneficial interest of greater than 10% of the total outstanding shares of each respective Fund: Equity Balanced Strategy Class E 49.3% and 17.3%, Equity Balanced Strategy Class D 80.7% and 14.3%, Aggressive Strategy Class E 30.2% and 13.7%, Aggressive Strategy Class D 88.4%, Balanced Strategy Class E 18.2%, 15.6% and 41.6%, Balanced Strategy Class D 89.0%, Moderate Strategy Class E 11.6% and 55.7%, Moderate Strategy Class D 98.4%, Conservative Strategy Class E 74.4% and Conservative Strategy Class D 99.3%. 9. SUBSEQUENT EVENTS On August 10, 1998, Frank Russell Company entered into an agreement with The Northwestern Mutual Life Insurance Co., an insurance organization, pursuant to which Northwestern Mutual Life will acquire all of the outstanding common stock of Frank Russell Company. Notes to Financial Statements 37 Frank Russell Investment Company 909 A Street, Tacoma, Washington 98402 (800) 832-6688 In Washington (253) 627-7001 TRUSTEES George F. Russell, Jr., Chairman Lynn L. Anderson Paul E. Anderson Paul Anton, PhD William E. Baxter Lee C. Gingrich Eleanor W. Palmer OFFICERS Lynn L. Anderson, President and Chief Executive Officer Peter Apanovitch, 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 AND TRANSFER 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 1776 Heritage Drive North Quincy, MA 02171 OFFICE OF SHAREHOLDER INQUIRES 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 One Post Office Square Boston, MA 02109 DISTRIBUTOR Russell Fund Distributors, Inc. 909 A Street Tacoma, WA 98402 MONEY MANAGERS OF UNDERLYING FUNDS DIVERSIFIED EQUITY Alliance Capital Management L.P., Minneapolis, MN Barclays Global Investors, N.A., San Francisco, CA Equinox Capital Management, Inc., New York, NY INVESCO Capital Management, Inc., Atlanta, GA Lincoln Capital Management Company, Chicago, IL Morgan Stanley Asset Management, Inc., New York, NY Peachtree Asset Management, Atlanta, GA Schneider Capital Management, Wayne, PA Suffolk Capital Management, Inc., New York, NY Trinity Investment Management Corporation, Boston, MA SPECIAL GROWTH Delphi Management, Inc., Boston, MA Fiduciary International, Inc., New York, NY GlobeFlex Capital, L.P., San Diego, CA Jacobs Levy Equity Management, Inc., Roseland, NJ Sirach Capital Management, Inc., Seattle, WA Wellington Management Company LLP, Boston, MA QUANTITATIVE EQUITY Barclays Global Investors, N.A., San Francisco, CA Franklin Portfolio Associates, LLC, Boston, MA J.P. Morgan Investment Management, Inc., New York, NY INTERNATIONAL SECURITIES J.P. Morgan Investment Management, Inc., New York, NY Marathon Asset Management Limited, London, England Mastholm Asset Management, LLC, Bellevue, WA Oechsle International Advisors, Boston, MA Rowe Price-Fleming International, Inc., Baltimore, MD Sanford C. Bernstein & Co., Inc., New York, NY The Boston Company Asset Management, Inc., Boston, MA EMERGING MARKETS Genesis Asset Management Limited, London, England J.P. Morgan Investment Management, Inc., New York, NY Montgomery Asset Management, L.P., San Francisco, CA REAL ESTATE SECURITIES AEW Capital Management, L.P., Boston, MA Cohen & Steers Capital Management, New York, NY DIVERSIFIED BOND Lincoln Capital Management Company, Chicago, IL Pacific Investment Management Company, Newport Beach, CA Standish, Ayer & Wood, Inc., Boston, MA VOLATILITY CONSTRAINED BOND BlackRock Financial Management, New York, NY Standish, Ayer & Wood, Inc., Boston, MA STW Fixed Income Management, Hamilton, Bermuda MULTISTRATEGY BOND BEA Associates, New York, NY Pacific Investment Management Company, Newport Beach, CA Standish, Ayer & Wood, Inc., 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. 38 Manager, Money Managers and Service Providers FRANK RUSSELL INVESTMENT COMPANY Frank Russell Investment Company is a "series mutual fund" with 28 different investment portfolios. These financial statements report on eight 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 SEMIANNUAL REPORT JUNE 30, 1998 (UNAUDITED) Table of Contents
Page Letter to Our Clients . . . . . . . . . . . . . . . . . . . 1 Diversified Equity Fund . . . . . . . . . . . . . . . . . . 2 Special Growth Fund . . . . . . . . . . . . . . . . . . . . 16 Equity Income Fund. . . . . . . . . . . . . . . . . . . . . 32 Quantitative Equity Fund. . . . . . . . . . . . . . . . . . 42 International Securities Fund . . . . . . . . . . . . . . . 54 Diversified Bond Fund . . . . . . . . . . . . . . . . . . . 74 Volatility Constrained Bond Fund. . . . . . . . . . . . . . 92 Multistrategy Bond Fund . . . . . . . . . . . . . . . . . . 102 Notes to Financial Statements . . . . . . . . . . . . . . . 116 Manager, Money Managers and Service Providers . . . . . . . 128
FRANK RUSSELL INVESTMENT COMPANY - RUSSELL FUNDS Copyright -C- Frank Russell Company 1998. 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 1998 Semiannual Report. This report covers information on eight of the Funds and represents the Funds' first six months of our seventeenth 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 the first six months of 1998, as our Funds, in general, provided solid returns as compared to their respective benchmarks and attracted many new investors, both creating significant growth in assets. 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 1997, we have implemented changes in our Funds' structure which we believe will benefit current and potential investors. The former Class C shares of the Russell Funds have been renamed Russell Fund Class E shares, and their fee structure now aligns with the Russell LifePoints-Registered Trademark- Funds' Class E shares. Additionally, the Russell LifePoints-Registered Trademark- Funds' Class D shares were opened for investment in March 1998. We are also pleased to announce FRIMCo has retained Boston Financial Data Services (BFDS) to assist in the transfer agent process, effective June 1998. We anticipate this change will enhance the level of services provided to our clients. Thank you for your continued confidence and investment with Frank Russell Investment Company. We look forward to the remainder of 1998 and continuing to earn your support. Sincerely, /s/ George F. Russell, Jr. /s/ Lynn L. Anderson George F. Russell, Jr. Lynn L. Anderson Chairman President and Chief Executive Officer Frank Russell Investment Company Frank Russell Investment Company DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 94.9% AUTO AND TRANSPORTATION - 3.9% AMR Corp. (a) 50,200 $ 4,179 Aviall, Inc. (a) 8,600 118 Bandag, Inc. 900 35 BE Aerospace, Inc. (a) 2,400 70 Chrysler Corp. 38,600 2,176 Comair Holdings, Inc. 10,400 320 Continental Airlines, Inc. Class B (a) 46,300 2,819 Cooper Tire & Rubber Co. 154,200 3,180 Dana Corp. 13,000 696 Delta Air Lines, Inc. 26,100 3,373 Eaton Corp. 4,500 350 Echlin, Inc. 4,100 201 Exide Corp. 68,700 1,155 FDX Corp. (a) 14,200 891 Ford Motor Co. 152,500 8,997 General Motors Corp. 19,700 1,316 Kansas City Southern Industries, Inc. 7,500 372 KLM Royal Dutch Airlines 64,072 2,623 Meritor Automotive, Inc. 34,400 826 Navistar International Corp. (a) 53,800 1,553 Nordic American Tanker Shipping, Ltd. 108,400 1,633 Norfolk Southern Corp. 123,000 3,667 Northwest Airlines Corp.Class A (a) 109,500 4,223 Overseas Shipholding Group, Inc. 15,000 306 PACCAR, Inc. 7,600 396 Southwest Airlines Co. 2,100 62 Trinity Industries, Inc. 9,500 394 UAL Corp. (a) 71,600 5,585 Walbro Corp. 31,500 441 ---------- 51,957 ---------- CONSUMER DISCRETIONARY - 13.2% Abercrombie & Fitch Co. Class A (a) 10,050 442 America Online, Inc. 26,600 2,820 American Greetings Corp. Class A 1,700 86 Apple South 28,900 376 Avon Products, Inc. 21,800 1,689 Barry (R.G.) Corp. (a) 90,000 1,485 Bed Bath & Beyond, Inc. (a) 30,000 1,554 Belo (A.H.) Corp. Class A 15,000 366 Borders Group, Inc. (a) 8,400 311 Brinker International, Inc. (a) 7,000 135 Browning-Ferris Industries, Inc. 800 28 Brunswick Corp. 27,100 671 Carnival Corp. Class A 184,600 7,315 Cendant Corp. (a) 46,300 967 Chancellor Media Corp. (a) 31,000 1,538 Chris Craft Industries, Inc. (a) 3,202 175 Circuit City Stores, Inc. 14,800 694 Clear Channel Communications, Inc. (a) 15,300 1,670 Cognizant Corp. 8,700 548 Costco Companies, Inc. (a) 11,300 713 Cracker Barrel Old Country Store, Inc. 8,800 279 Danka Business Systems - ADR 38,600 456 Darden Restaurants, Inc. 41,800 663 Dayton Hudson Corp. 224,900 10,908 Dillard's, Inc. Class A 9,100 377 Disney (Walt) Co. 117,300 12,324 Dollar Tree Stores, Inc. (a) 1,425 58 Eastman Kodak Co. 34,891 2,549 Estee Lauder Companies Class A 800 56 Federated Department Stores, Inc. (a) 109,557 5,895 Fortune Brands, Inc. 22,700 872 Fruit of the Loom, Inc. Class A (a) 18,800 624 Gannett Co., Inc. 11,000 782 General Nutrition Companies, Inc. (a) 39,700 1,236 Grand Casinos, Inc. (a) 50,000 837 Harland (John H.) Co. 20,000 339 Harrah's Entertainment, Inc. (a) 25,200 586 Hasbro, Inc. 72,800 2,862 Hilton Hotels Corp. 54,600 1,556 Hollinger International, Inc. Class A 11,600 197 Home Depot, Inc. (The) 135,850 11,284 Host Marriott Corp. (a) 35,800 638 International Game Technology 13,300 322 Interpublic Group Cos., Inc. 2,400 146 InterTAN, Inc. (a) 20,000 107 JC Penney & Co., Inc. 45,000 3,254 Jones Apparel Group, Inc. (a) 21,000 768 Kellwood Co. 20,000 715 King World Productions, Inc. (a) 23,300 594 Kmart Corp. (a) 81,900 1,576 Knight-Ridder, Inc. 6,400 352 Kohl's Corp. (a) 52,700 2,734 Limited, Inc. (The) 166,100 5,502 Liz Claiborne, Inc. 4,500 235 Lowe's Cos., Inc. 60,000 2,434 Mark Bros. Jewelers, Inc. (a) 70,000 1,339 Marriot International, Inc. Class A 13,200 427 Mattel, Inc. 216,041 9,141 May Department Stores Co. 62,400 4,087 Maytag Corp. 22,500 1,111 McDonald's Corp. 28,400 1,960 McGraw-Hill, Inc. 4,700 383 MediaOne Group, Inc. (a) 113,800 5,000 Meredith Corp. 11,400 535 Metromedia International Group, Inc. (a) 127,200 1,518
2 Diversified Equity Fund DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Neiman-Marcus Group, Inc. (a) 7,900 $ 343 New York Times Co. Class A 7,000 555 Nordstrom, Inc. 21,000 1,621 Office Depot, Inc. (a) 44,400 1,401 OfficeMax, Inc. (a) 46,800 772 Omnicom Group, Inc. 31,600 1,576 Payless ShoeSource, Inc. (a) 5,200 383 Petroleum Heat & Power, Inc. Class A 275,885 535 Premark International, Inc. 44,400 1,432 Promus Hotel Corp. New (a) 3,295 127 Pulitzer Publishing Co. 3,300 295 Rubbermaid, Inc. 54,500 1,809 Sears Roebuck & Co. 111,400 6,802 Service Corp. International 45,900 1,968 Staples, Inc. (a) 4,600 133 Stewart Enterprises, Inc. Class A 32,200 861 Tiffany & Co. 2,100 101 Time Warner, Inc. 51,500 4,400 TJX Cos., Inc. 63,400 1,530 Tribune Co. 43,900 3,021 Tupperware Corp. 11,400 321 Unisource Worldwide, Inc. 105,100 1,136 USA Waste Services, Inc. (a) 48,300 2,385 V.F. Corp. 12,700 654 Valassis Communications, Inc. (a) 2,900 112 Viacom, Inc. Class B (a) 52,000 3,029 Viad Corp. 39,400 1,093 Wal-Mart Stores, Inc. 136,700 8,305 Warnaco Group, Inc. Class A 300 13 Whirlpool Corp. 45,900 3,156 Young & Rubicam, Inc. (a) 4,200 134 ---------- 173,204 ---------- CONSUMER STAPLES - 7.7% American Stores Co. 15,100 365 Anheuser-Busch Cos., Inc. 58,100 2,742 Bestfoods 28,400 1,649 Campbell Soup Co. 23,000 1,222 Chiquita Brands International, Inc. 49,100 690 Coca-Cola Co. (The) 143,600 12,278 Coca-Cola Enterprises, Inc. 57,900 2,273 Colgate-Palmolive Co. 72,900 6,415 ConAgra, Inc. 78,700 2,494 Corn Products International, Inc. (a) 8,000 271 CVS Corp. 67,100 2,613 Dean Foods Co. 3,900 214 Dial Corp. New 3,500 91 Dole Food, Inc. 31,600 1,570 Gillette Co. 92,146 5,224 Hannaford Brothers Co. 4,500 198 International Multifoods Corp. 64,900 1,785 Interstate Bakeries Corp. 18,500 614 Kroger Co. (a) 900 39 McCormick & Co., Inc. 900 32 PepsiCo, Inc. 305,100 12,566 Philip Morris Cos., Inc. 537,325 21,157 Procter & Gamble Co. 116,100 10,572 Quaker Oats Co. 14,400 791 Ralston-Purina Group 2,200 257 Rite Aid Corp. 103,000 3,869 RJR Nabisco Holdings Corp. 85,300 2,026 SuperValu, Inc. 17,300 768 SYSCO Corp. 46,400 1,189 Tyson Foods, Inc. Class A 4,800 104 Unilever NV 49,100 3,876 Universal Corp. 15,700 587 Vlasic Foods International, Inc. (a) 2,300 46 Weis Markets, Inc. 800 29 Winn-Dixie Stores, Inc. 300 15 Wrigley (Wm.), Jr. Co. 4,300 421 ---------- 101,052 ---------- FINANCIAL SERVICES - 19.3% ACE, Ltd. 6,500 253 AFLAC, Inc. 190,000 5,759 Ahmanson (H.F.) & Co. 110,600 7,853 Allstate Corp. 92,908 8,507 Ambac Financial Group, Inc. 37,200 2,176 American Express Co. 48,700 5,552 American International Group, Inc. 105,143 15,351 AmSouth Bancorp 31,350 1,232 Associates First Capital Corp. Class A 66,558 5,117 Automatic Data Processing, Inc. 126,100 9,189 Banc One Corp. 77,800 4,342 BankAmerica Corp. 84,600 7,313 Bankers Trust New York Corp. 11,400 1,323 Bear Stearns Cos., Inc. 10,352 589 Beneficial Corp. 13,600 2,083 Berkshire Hathaway, Inc. Class A (a) 9 705 Canadian Hotel Income Properties 235,200 1,918 CCB Financial Corp. 200 21 Centura Banks, Inc. 700 44 Charter One Financial, Inc. 46,400 1,557 Chase Manhattan Corp. 166,400 12,563 Chubb Corp. (The) 20,000 1,607
Diversified Equity Fund 3 DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Cincinnati Financial Corp. 900 $ 35 Citicorp 61,000 9,104 City National Corp. 9,100 336 CMAC Investment Corp. 2,800 172 Comdisco, Inc. 60,200 1,144 Comerica, Inc. 29,700 1,968 Commerce Bancshares, Inc. 27,685 1,343 Conseco, Inc. 73,768 3,449 Countrywide Credit Industries, Inc. 14,000 711 Danielson Holding Corp. (a) 100,000 737 Dime Bancorp, Inc. 45,500 1,362 Donaldson, Lufkin & Jenrette, Inc. 400 20 Dow Jones & Co., Inc. 30,400 1,695 DST Systems, Inc. (a) 14,300 801 Duke Realty Investments, Inc. 13,000 307 Dun & Bradstreet Corp. 9,600 347 Edwards (A.G.), Inc. 3,500 149 Equitable Companies, Inc. 12,400 929 Everest Reinsurance Holdings, Inc. 13,600 523 Federal Home Loan Mortgage Corp. 62,600 2,946 Federal National Mortgage Association 104,000 6,318 Fifth Third Bancorp 18,700 1,176 First American Corp. 71,500 3,441 First Data Corp. 140,500 4,680 First Security Corp. 37,600 804 First Union Corp. 47,400 2,761 Fleet Financial Group, Inc. 51,400 4,292 GATX Corp. 3,000 132 General Re Corp. 17,100 4,335 Golden West Financial Corp. 6,800 723 Green Tree Financial Corp. 84,000 3,596 Hartford Financial Services Group, Inc. (The) 19,200 2,196 Household International Corp. 86,700 4,313 Jefferson-Pilot Corp. 4,800 278 KeyCorp 30,000 1,069 Lehman Brothers Holdings, Inc. 17,800 1,381 Local Financial Corp. (a) 129,300 1,681 Loews Corp. 16,800 1,464 Marsh & McLennan Cos., Inc. 18,450 1,115 MBIA, Inc. 29,900 2,239 MBNA Corp. 392,812 12,963 Mercury General Corp. 8,000 516 Merrill Lynch & Co., Inc. 41,400 3,819 MGIC Investment Corp. 29,100 1,661 Morgan (J.P.) & Co., Inc. 1,700 199 Morgan Stanley, Dean Witter, Discover and Co. 133,015 12,154 National City Corp. 18,640 1,323 National Commerce Bancorp 200 8 NationsBank Corp. 107,743 8,242 Nationwide Financial Services, Inc. Class A 3,300 168 North Fork Bancorporation, Inc. 30,600 748 Northern Trust Corp. 16,900 1,288 Norwest Corp. 126,900 4,743 Old Kent Financial Corp. 2,485 89 Old Republic International Corp. 25,200 739 Pacific Century Financial Corp. 25,000 600 PaineWebber Group, Inc. 34,650 1,486 Paychex, Inc. 38,250 1,554 PennCorp Financial Group, Inc. 54,000 1,107 PNC Bank Corp. 42,900 2,309 Progressive Corp. 22,200 3,130 Provident Companies, Inc. 27,200 938 Public Storage, Inc. 35,000 980 Reinsurance Group of America, Inc. (a) 4,300 221 Reliance Group Holdings, Inc. 10,700 187 Reliastar Financial Corp. 1,100 53 Republic New York Corp. 20,100 1,265 Ryder System, Inc. 79,800 2,519 Simon DeBartolo Group, Inc. 2,700 88 SLM Holding Corp. 8,900 436 SouthTrust Corp. 58,600 2,549 Spieker Properties, Inc. 10,500 407 St. Paul Cos., Inc. 54,100 2,276 Star Banc Corp. 4,600 294 State Street Corp. 7,200 500 TCF Financial Corp. 21,200 625 TIG Holdings, Inc. 30,300 697 Transamerica Financial Corp. 14,200 1,635 Transatlantic Holdings, Inc. 2,850 220 Travelers, Inc. 44,655 2,707 Union Planters Corp. 3,200 188 United Asset Management Corp. 3,500 91 Washington Mutual, Inc. 96,510 4,186 Wells Fargo & Co. 2,600 959 Westcorp, Inc. 24,700 340 Zions Bancorp 5,500 292 ---------- 254,625 ---------- HEALTH CARE - 10.6% Aetna, Inc. 70,300 5,351 Allergan, Inc. 6,400 297 Alliance Pharmaceutical Corp. (a) 40,000 165 ALZA Corp. (a) 39,500 1,708 American Home Products Corp. 92,500 4,787 Amgen, Inc. (a) 32,000 2,092 Bausch & Lomb, Inc. 5,200 261
4 Diversified Equity Fund DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Baxter International, Inc. 79,000 $ 4,251 Bergen Brunswig Corp. Class A 17,975 833 Beverly Enterprises, Inc. New (a) 34,500 476 Biogen, Inc. (a) 700 34 Biomet, Inc. 95,200 3,142 Bristol-Myers Squibb Co. 143,300 16,471 Cardinal Health, Inc. 24,400 2,287 ChromaVision Medical Systems, Inc. (a) 120 1 Columbia/HCA Healthcare Corp. 234,900 6,841 First Health Group Corp. (a) 52,600 1,499 Genesis Health Ventures, Inc. (a) 13,100 328 Genzyme Corp. (a) 17,100 433 HBO & Co. 36,000 1,269 Humana, Inc. (a) 24,200 755 Integrated Health Services, Inc. 32,000 1,200 IVAX Corp. (a) 50,100 463 Johnson & Johnson 79,600 5,871 Lilly (Eli) & Co. 68,300 4,512 Mallinckrodt, Inc. 9,000 267 Medtronic, Inc. 23,600 1,505 Merck & Co., Inc. 137,700 18,417 Mylan Laboratories, Inc. 249,900 7,513 PacifiCare Health Systems, Inc. Class B (a) 28,400 2,508 Pfizer, Inc. 163,200 17,738 Quest Diagnostics, Inc. (a) 47,600 1,041 Quintiles Transnational Corp. (a) 37,000 1,818 Schering-Plough Corp. 111,900 10,253 Shared Medical Systems 1,900 140 Stryker Corp. 7,300 280 Tenet Healthcare Corp. (a) 44,575 1,393 Total Renal Care Holdings, Inc. (a) 5,000 173 Trigon Healthcare, Inc. (a) 18,000 651 U.S. Surgical Corp. 1,800 82 United Healthcare Corp. 82,100 5,213 US Bioscience, Inc. (a) 42,014 344 Warner-Lambert Co. 59,700 4,142 Watson Pharmaceuticals, Inc. (a) 2,300 107 Wellpoint Health Networks, Inc. Class A (a) 2,737 203 ---------- 139,115 ---------- INTEGRATED OILS - 3.2% Amerada Hess Corp. NPV 59,200 3,216 Amoco Corp. 74,000 3,080 Ashland, Inc. 43,325 2,237 Atlantic Richfield Co. 21,500 1,680 Coastal Corp. 56,100 3,916 Crown Central Petroleum Co. Class B (a) 62,000 783 Exxon Corp. 126,800 9,042 Kerr-McGee Corp. 22,000 1,273 Lyondell Petrochemical Co. 31,700 965 Mobil Corp. 24,300 1,862 Murphy Oil Corp. 1,900 96 Phillips Petroleum Co. 46,000 2,217 Sun Co., Inc. 26,000 1,009 Tenneco, Inc. 52,300 1,991 Texaco, Inc. 41,900 2,501 Unocal Corp. 55,900 1,998 USX-Marathon Group 126,100 4,327 ---------- 42,193 ---------- MATERIALS AND PROCESSING - 7.2% Air Products & Chemicals, Inc. 41,400 1,656 Albany International Corp. Class A 55,275 1,323 Albemarle Corp. 12,300 272 Alumax, Inc. 2,200 102 Aluminum Co. of America 4,200 277 American Real Estate Partners, L.P. (a) 196,462 2,014 Archer-Daniels-Midland Co. 41,000 794 Arco Chemical Co. 5,200 298 Armstrong World Industries, Inc. 20,700 1,395 ASARCO, Inc. 13,400 298 Asia Pulp & Paper Co, - ADR Ltd. 30,000 338 Avery Dennison Corp. 22,000 1,183 Bethlehem Steel Corp. (a) 34,500 429 Boise Cascade Office Products Corp. (a) 10,254 159 Bowater, Inc. 7,600 359 Capital Automotive 15,100 215 Catellus Development Corp. (a) 105,100 1,859 Centex Corp. 9,400 355 Champion International Corp. 22,500 1,107 Commonwealth Industries, Inc. 85,000 839 Corning, Inc. 10,200 354 Crown Cork & Seal Co., Inc. 40,200 1,910 du Pont (E.I.) de Nemours & Co. 48,300 3,604 Eastman Chemical Co. 48,100 2,994 Ecolab, Inc. 400 12 Engelhard Corp. 25,800 522 FMC Corp. (a) 19,800 1,350 Fort James Corp. 43,500 1,936 Gaylord Container Corp. Class A (a) 429,200 3,299 Georgia-Pacific Group 11,700 690 Georgia-Pacific Timber Group 27,500 634 Getty Realty Holding Corp. 40,000 775 Goodrich (B.F.) Co. 16,300 809 Great Lakes Chemical Corp. 74,000 2,919
Diversified Equity Fund 5 DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Harsco Corp. 20,200 $ 925 Hexcel Corp. (a) 82,500 1,867 Homestake Mining Co. 50,400 523 Illinois Tool Works, Inc. 32,900 2,194 International Paper Co. 40,300 1,733 International Specialty Products (a) 1,300 24 Johns Manville Corp. 6,400 96 Kimberly-Clark Corp. 68,800 3,156 Lafarge Corp. 19,800 778 Longview Fibre Co. 50,000 713 Louisiana Pacific Corp. 45,000 821 LTV Corp. 6,800 65 Lubrizol Corp. 24,100 729 Mead Corp. 23,400 743 Mercer International, Inc. 131,100 1,307 Monsanto Co. 132,300 7,392 Nalco Chemical Co. 400 14 Newhall Land & Farming Co. 22,900 647 Olin Corp. 28,700 1,197 Oregon Steel Mills, Inc. 30,000 559 Pentair, Inc. 7,100 302 Phelps Dodge Corp. 60,000 3,431 Philip Services Corp. (a) 13,400 55 Potlatch Corp. 2,200 92 Praxair, Inc. 45,700 2,139 Reynolds Metals Co. 28,000 1,566 Sealed Air Corp. New (a) 28,438 1,045 Solutia, Inc. 35,400 1,016 Sonoco Products Co. 13,620 412 Standard Register Co. 5,800 205 Stone Container Corp. (a) 54,100 845 Timken Co. 20,800 641 Tyco International, Ltd. 290,800 18,320 UCAR International, Inc. (a) 10,000 292 USG Corp. 5,000 271 Vulcan Materials Co. 900 96 W.R. Grace & Co. New (a) 54,800 935 Westvaco Corp. 30,300 856 Zeigler Coal Holding Co. 10,000 171 ---------- 95,253 ---------- MISCELLANEOUS - 0.2% BEC Energy (a) 3,800 158 FBR Asset Investment Corp. (a) 30,600 566 Legacy Hotels Real Estate Investment Trust (a) 365,000 2,133 SFX Entertainment, Inc. Class A (a) 6,700 307 TeleTech Holdings, Inc. (a) 6,800 84 ---------- 3,248 ---------- OTHER ENERGY - 2.2% Apache Corp. 48,200 1,518 Baker Hughes, Inc. 85,200 2,945 BJ Services Co. (a) 18,600 541 British Petroleum Co. PLC - ADR 306 27 Burlington Resources, Inc. 6,700 289 Camco International, Inc. 14,800 1,152 Diamond Offshore Drilling, Inc. 4,600 184 Dresser Industries, Inc. 4,000 176 EEX Corp. (a) 50,989 478 Enron Oil & Gas Co. 4,800 97 ENSCO International, Inc. 24,300 422 EVI Weatherford, Inc. (a) 1,275 47 Gulf Canada Resources, Ltd. (a) 23,400 116 Halliburton Co. 71,300 3,177 MarketSpan Corp. (a) 23,692 709 Nabors Industries, Inc. (a) 12,000 238 Noble Affiliates, Inc. 23,200 882 Ocean Energy, Inc. New (a) 1,960 38 Octel Corp. (a) 18,500 368 R&B Falcon Corp. (a) 71,900 1,627 Rowan Cos., Inc. (a) 5,000 97 Santa Fe Energy Resources, Inc. (a) 32,300 347 Schlumberger, Ltd. 91,000 6,216 Sempra Energy (a) 2,400 67 Tidewater, Inc. 6,700 221 Transocean Offshore, Inc. 45,100 2,007 TransTexas Gas Corp. (a) 2,500 22 Triton Energy, Ltd. Class A (a) 48,800 1,742 UTI Energy Corp. (a) 20,700 267 Valero Energy Corp. 58,700 1,952 Vastar Resources, Inc. 1,100 48 Western Atlas, Inc. (a) 8,000 679 ---------- 28,696 ---------- PRODUCER DURABLES - 6.1% AGCO Corp. 40,900 841 Alcatel Alsthom Compagnie Generale d'Electricite - ADR 30,103 1,225 AMP, Inc. 15,600 536 Case Corp. 42,700 2,060 Caterpillar, Inc. 82,000 4,336 Clayton Homes, Inc. 9,300 177 CommScope, Inc. (a) 19,100 309 Cordant Technologies, Inc. 12,000 554 Crane Co. 39,100 1,899 Credence Systems Corp. (a) 10,300 196 Cummins Engine Co., Inc. 5,600 287 Elsag Bailey Process Automation NV (a) 79,300 1,908
6 Diversified Equity Fund DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Foster Wheeler Corp. 48,100 $ 1,031 General Electric Co. 161,500 14,697 General Semiconductor, Inc. (a) 134,000 1,323 Gulfstream Aerospace Corp. (a) 17,600 818 Honeywell, Inc. 5,100 426 Hubbell, Inc. Class B 300 12 Ingersoll-Rand Co. 74,350 3,276 ITT Industries, Inc. 4,200 157 Johnson Controls, Inc. 28,700 1,641 Kaiser Ventures, Inc. (a) 78,900 957 Knoll, Inc. (a) 17,400 513 Lexmark International Group, Inc. Class A (a) 22,000 1,342 Litton Industries, Inc. (a) 15,900 938 Lockheed Martin Corp. 33,600 3,557 MagneTek, Inc. (a) 54,700 862 Molex, Inc. 4,075 102 National Service Industries, Inc. 6,300 321 Northern Telecom, Ltd. 87,200 4,948 Northrop Grumman Corp. 20,400 2,104 Parker-Hannifin Corp. 10,000 381 Pitney Bowes, Inc. 3,900 188 Raytheon Co. Class A 2,811 162 Sensormatic Electronics Corp. (a) 85,000 1,190 Tecumseh Products Co. Class A 300 16 Tektronix, Inc. 11,450 405 Teradyne, Inc. (a) 17,900 479 Thermo Instrument Systems, Inc. (a) 7,500 197 Thomas & Betts Corp. 6,900 340 U.S. Filter Corp. New (a) 81,800 2,296 United Technologies Corp. 78,800 7,289 Whittaker Corp. New (a) 152,200 2,017 Xerox Corp. 116,600 11,848 ---------- 80,161 ---------- TECHNOLOGY - 13.2% 3Com Corp. (a) 51,500 1,580 ADC Telecommunications, Inc. (a) 15,700 573 Adobe Systems, Inc. 11,900 505 Altera Corp. (a) 1,000 30 Andrew Corp. (a) 800 14 Apple Computer, Inc. (a) 106,900 3,067 Arrow Electronics, Inc. (a) 2,400 52 Ascend Communications, Inc. (a) 36,500 1,807 Autodesk, Inc. 10,100 388 BMC Software, Inc. (a) 67,400 3,501 Cadence Design Systems, Inc. (a) 28,000 875 CDW Computer Centers, Inc. (a) 1,800 90 CIENA Corp. (a) 1,300 90 Cisco Systems, Inc. (a) 251,650 23,168 COMPAQ Computer Corp. 338,500 9,605 CompUSA, Inc. (a) 37,500 677 Computer Associates International, Inc. 31,400 1,745 Computer Sciences Corp. 900 58 Compuware Corp. (a) 28,000 1,430 Cooper Industries, Inc. 16,600 912 Cypress Semiconductor Corp. (a) 85,000 707 Dell Computer Corp. (a) 181,500 16,834 Electronic Data Systems Corp. 169,238 6,770 EMC Corp. (a) 54,500 2,442 Ericsson (LM) Telephone Co. Class B - ADR 119,940 3,432 FORE Systems (a) 5,600 148 General Dynamics Corp. 1,000 47 General Motors Corp. Class H (a) 16,300 768 Haemonetics Corp. (a) 8,300 133 Hewlett-Packard Co. 98,700 5,910 Hutchinson Technology, Inc. (a) 13,600 371 Imation Corp. (a) 10,000 166 IMS Health, Inc. (a) 2,700 155 Informix Corp. (a) 26,200 206 Ingram Micro, Inc. Class A (a) 13,300 589 Integrated Device Technology (a) 110,000 784 Intel Corp. 136,400 10,101 International Business Machines Corp. 58,350 6,699 Iomega Corp. (a) 55,900 328 Learning Co., Inc. (The) (a) 19,700 584 Lernout & Hauspie Speech Products N.V. (a) 18,300 1,091 Linear Technology Corp. 2,900 175 LSI Logic Corp. (a) 900 21 Lucent Technologies, Inc. 110,800 9,217 Micron Technology, Inc. (a) 27,100 672 Microsoft Corp. (a) 198,300 21,490 Motorola, Inc. 39,700 2,087 NCR Corp. (a) 700 23 Nokia Corp. - ADR 173,800 12,611 Novell, Inc. (a) 108,700 1,386 Oracle Systems Corp. (a) 35,000 858 PeopleSoft, Inc. (a) 25,000 1,173 SCI Systems, Inc. (a) 7,400 278 Seagate Technology (a) 10,100 241 Sterling Software, Inc. (a) 26,300 777 Storage Technology Corp. (a) 40,000 1,735 Sun Microsystems, Inc. (a) 21,700 943 Synopsys, Inc. (a) 24,800 1,135 Tandy Corp. 27,700 1,470 Tellabs, Inc. (a) 45,100 3,227
Diversified Equity Fund 7 DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Texas Instruments, Inc. 79,000 $ 4,606 Textron, Inc. 3,700 265 Vishay Intertechnology, Inc. (a) 37,835 679 Vitesse Semiconductor Corp. (a) 8,900 275 Western Digital Corp. (a) 56,100 663 ---------- 174,439 ---------- UTILITIES - 8.1% 360 Communications Co. (a) 600 19 Airtouch Communications, Inc. (a) 189,800 11,090 Ameren Corp. 6,700 266 American Water Works, Inc. 22,000 682 Associated Group, Inc. Class B (a) 4,000 156 AT&T Corp. 124,900 7,135 Baltimore Gas & Electric Co. 11,000 342 Bell Atlantic Corp. 154,070 7,029 BellSouth Corp. 13,300 893 Carolina Power & Light Co. 9,900 429 Central & Southwest Corp. 19,600 527 Century Telephone Enterprises, Inc. 45,250 2,075 Citizens Utilities Co. Class B (a) 189,655 1,825 Comcast Corp. Class A 2,800 111 Conectiv, Inc. 4,300 88 Consolidated Edison, Inc. 50,400 2,322 DTE Energy Co. 174,700 7,054 Duke Power Co. 68,000 4,029 Edison International 118,100 3,491 Energy East Corp. (a) 17,600 733 Entergy Corp. 164,800 4,738 Florida Progress Corp. 3,800 156 FPL Group, Inc. 26,400 1,663 GPU, Inc. 40,000 1,513 GTE Corp. 75,437 4,196 Houston Industries, Inc. 7,300 225 IPALCO Enterprises, Inc. 5,800 258 K N Energy, Inc. 5,100 276 Kansas City Power & Light Co. 14,800 429 MCI Communications Corp. 32,800 1,904 Montana Power Co. 25,600 890 National Fuel & Gas Co. 2,600 113 Niagara Mohawk Power Corp. (a) 53,000 792 NICOR, Inc. 13,100 526 NIPSCO Industries, Inc. 12,000 336 Northeast Utilities (a) 95,400 1,616 OGE Energy Corp. 6,800 184 PacifiCorp. 92,000 2,082 Paging Network, Inc. (a) 158,400 2,208 Peco Energy Co. 5,400 158 PG&E Corp. 110,200 3,478 Pinnacle West Capital Corp. 27,800 1,251 Public Service Enterprise Group, Inc. 48,400 1,667 Questar Corp. 600 12 SBC Communications, Inc. 166,300 6,652 Tele-Communications, Inc. Series A (a) 129,100 5,011 Unicom Corp. 146,000 5,119 United States Cellular Corp. (a) 2,400 74 Williams Cos. (The) 39,000 1,316 WorldCom, Inc. (a) 144,200 6,967 ---------- 106,106 ---------- TOTAL COMMON STOCKS (cost $965,841) 1,250,049 ---------- PREFERRED STOCKS - 0.2% Elsag Bailey Financing Trust (conv.)(a) 12,600 540 Metromedia International Group, Inc. (conv.) 16,100 829 Sealed Air Corp. (conv.) 31,700 1,331 ---------- TOTAL PREFERRED STOCKS (cost $2,647) 2,700 ---------- PRINCIPAL AMOUNT (000) ---------- SHORT-TERM INVESTMENTS - 4.9% Frank Russell Investment Company Money Market Fund, due on demand (b) $ 61,017 61,017 United States Treasury Notes (b)(c) 5.250% due 07/31/98 3,600 3,600 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $64,617) 64,617 ----------
The accompanying notes are an integral part of the financial statements. 8 Diversified Equity Fund DIVERSIFIED EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
MARKET VALUE (000) ---------- TOTAL INVESTMENTS (identified cost $1,033,105)(d) - 100.0% $1,317,366 OTHER ASSETS AND LIABILITIES, NET - 0.0% (33) ---------- NET ASSETS - 100.0% $1,317,333 ---------- ---------- (a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) See Note 2 for federal income tax information. ABBREVIATIONS: ADR - American Depositary Receipt NPV - No Par Value NV - Nonvoting PLC - Public Limited Company UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ---------- ---------- FUTURES CONTRACTS (Notes 2 and 3) S&P 500 Index Futures Contracts expiration date 09/98 190 $ 1,408 S&P 400 Midcap Index Futures Contracts expiration date 09/98 18 45 ---------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 1,453 ---------- ---------- (#) At June 30, 1998, United States Treasury Notes valued at $3,600 were held as collateral in connection with futures contracts purchased by the Fund.
The accompanying notes are an integral part of the financial statements. Diversified Equity Fund 9 DIVERSIFIED EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $1,033,105)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . $ 1,317,366 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,854 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,301 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,323 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 7,086 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,341,930 LIABILITIES Payables: Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,477 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,561 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 894 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 392 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 7,086 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,597 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,317,333 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,967 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,242 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284,261 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,453 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 983,147 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,317,333 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: Class S ($1,313,079,635 divided by 26,217,074 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50.08 -------------- -------------- Class E ($4,253,074 divided by 85,061 shares of $.01 par value shares of beneficial interest outstanding)(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . $ 50.00 -------------- --------------
The accompanying notes are an integral part of the financial statements. 10 Diversified Equity Fund DIVERSIFIED EQUITY FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,693 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,295 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 -------------- Total Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,092 EXPENSES (Notes 1, 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,644 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 5 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,280 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,812 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,933 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,002 74,935 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,297 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,302 113,599 -------------- -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,534 -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 192,346 -------------- --------------
The accompanying notes are an integral part of the financial statements. Diversified Equity Fund 11 DIVERSIFIED EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 -------------- -------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,812 $ 7,062 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,935 179,083 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 113,599 46,630 -------------- -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 192,346 232,775 -------------- -------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,845) (7,061) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1) In excess of net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (22) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1) Net realized gain on investments Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,831) (192,410) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (85) (475) In excess of net realized gain on investments Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (752) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (2) -------------- -------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (29,761) (200,724) -------------- -------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 109,289 313,717 -------------- -------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 271,874 345,768 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,045,459 699,691 -------------- -------------- End of period (including undistributed net investment income of $1,967 at June 30, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,317,333 $ 1,045,459 -------------- -------------- -------------- --------------
The accompanying notes are an integral part of the financial statements. 12 Diversified Equity Fund DIVERSIFIED EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 43.64 $ 41.45 $ 38.62 $ 32.26 $ 34.88 $ 35.60 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .14 .37 .48 .60 .58 .56 Net realized and unrealized gain (loss) on investments . 7.49 12.06 8.15 10.63 (.49) 3.03 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . 7.63 12.43 8.63 11.23 .09 3.59 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.07) (.37) (.48) (.60) (.58) (.55) Net realized gain on investments . . . . . . . . . . . . (1.12) (9.83) (5.32) (4.27) (1.87) (3.76) In excess of net realized gain on investments. . . . . . -- (.04) -- -- (.26) -- ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (1.19) (10.24) (5.80) (4.87) (2.71) (4.31) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 50.08 $ 43.64 $ 41.45 $ 38.62 $ 32.26 $ 34.88 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 17.73 31.32 23.29 35.17 (0.01) 10.53 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 1,313,080 1,042,620 699,691 530,645 414,036 388,420 Ratios to average net assets (%)(b): Operating expenses. . . . . . . . . . . . . . . . . . .88 .92 .94 .95 .95 .96 Net investment income . . . . . . . . . . . . . . . . .64 .80 1.18 1.56 1.73 1.54 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 87.94 114.11 99.90 92.53 57.53 99.80
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. Diversified Equity Fund 13 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.
1998* 1997** ------------- -------------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 43.64 $ 45.55 ------------- -------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .01 .06 Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . 7.47 7.97 ------------- -------------- Total Income From Investment Operations . . . . . . . . . . . . . . . . . . . . 7.48 8.03 ------------- -------------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (.06) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (.01) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (1.12) (9.83) In excess of net realized gain on investments. . . . . . . . . . . . . . . . . . . -- (.04) ------------- -------------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.12) (9.94) ------------- -------------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50.00 $ 43.64 ------------- -------------- ------------- -------------- TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.38 15.99(b) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . . . 4,253 2,839 Ratios to average net assets (%)(c): Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.50 1.63 Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .02 .10 Portfolio turnover rate (%)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 87.94 114.11
* For the six months ended June 30, 1998 (Unaudited). ** For the period May 27, 1997 (commencement of sale) to December 31, 1997. (a) Periods less than one year are not annualized. (b) Total return represents performance for the period May 27, 1997 to December 31, 1997. (c) The ratios for the periods ended June 30, 1998 and December 31, 1997 are annualized. 14 Diversified Equity Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 95.2% AUTO AND TRANSPORTATION - 4.4% AAR Corp. 108,450 $ 3,206 ABC Rail Products Corp. (a) 10,000 173 Airborne Freight Corp. 64,000 2,236 AirNet Systems, Inc. (a) 9,000 145 Alaska Air Group, Inc. (a) 24,700 1,348 Alexander & Baldwin, Inc. 6,200 180 America West Holding Corp. Class B (a) 25,900 740 Arvin Industries, Inc. 9,300 338 ASA Holdings, Inc. 35,000 1,737 Bandag, Inc. 5,700 222 Carey International, Inc. New (a) 10,000 280 Coach USA, Inc. (a) 18,300 835 Coachmen Industries, Inc. 100,600 2,628 Consolidated Freightways Corp. (a) 17,500 243 Control Devices, Inc. 13,332 173 Excel Industries, Inc. 8,000 114 Fleetwood Enterprises, Inc. 50,600 2,024 FRP Properties, Inc. (a) 5,000 160 Hawker Pacific Aerospace (a) 18,000 200 Hertz Corp. Class A 4,500 199 Hunt (JB) Transportation Services, Inc. 24,700 880 Keystone Automotive Industries, Inc. (a) 6,000 138 Landair Services, Inc. (a) 7,000 206 Lear Corp. (a) 10,500 539 M.S. Carriers, Inc. (a) 8,200 221 Mark VII, Inc. (a) 8,000 143 Midwest Express Holdings, Inc. (a) 54,450 1,970 Navistar International Corp. (a) 83,800 2,420 Offshore Logistics, Inc. (a) 62,100 1,102 Skywest, Inc. 84,000 2,341 Transport Corp. of America (a) 12,000 196 Trinity Industries, Inc. 50,900 2,112 USA Truck, Inc. (a) 14,000 221 USFreightways Corp. 15,900 522 Wynn?s International, Inc. 10,000 193 ---------- 30,385 ---------- CONSUMER DISCRETIONARY - 19.6% Aaron Rents, Inc. 1,100 22 Abacus Direct Corp. (a) 26,050 1,353 Abercrombie & Fitch Co. Class A (a) 55,600 2,446 AccuStaff, Inc. (a) 102,450 3,202 ACNielsen Corp. (a) 21,600 545 American Eagle Outfitters, Inc. (a) 46,425 1,787 American Greetings Corp. Class A 62,600 3,189 Anchor Gaming (a) 19,200 1,490 Apollo Group, Inc. Class A (a) 43,000 1,422 Applied Graphics Technologies, Inc. (a) 22,000 1,002 ARC International Corp. (a) 25,000 103 Ascent Entertainment Group, Inc. (a) 18,000 200 Aviation Sales Co. (a) 5,300 210 Aztar Corp. (a) 18,400 125 Barnes & Noble, Inc. (a) 48,000 1,797 Belo (A.H.) Corp. Class A 7,600 185 Best Buy Co. (a) 111,400 4,024 Big Flower Holdings, Inc. (a) 10,600 318 BJ?s Wholesale Club, Inc. (a) 23,600 959 Bowne & Co., Inc. 42,100 1,894 Brinker International, Inc. (a) 23,900 460 Brylane, Inc. (a) 20,000 920 Buckle, Inc. (The) (a) 61,050 1,801 Cameron Ashley, Inc. (a) 10,000 169 Capstar Broadcasting Corp. Class A (a) 80,000 2,010 Catalytica, Inc. (a) 12,000 235 Central Newspapers, Inc. Class A 24,200 1,688 Choice Hotels International, Inc. (a) 200 3 Chris Craft Industries, Inc. (a) 7,700 421 CKE Restaurants, Inc. 63,590 2,623 Claire?s Stores, Inc. 61,900 1,269 Coinmach Laundry Corp. (a) 6,000 140 Cole National Corp. Class A (a) 5,000 200 Computer Horizons Corp. (a) 61,700 2,287 Consolidated Graphics, Inc. (a) 16,500 973 Cornell Corrections, Inc. (a) 7,000 147 Daisytek International Corp. (a) 8,000 203 Dan River, Inc. Class A (a) 11,000 187 Darden Restaurants, Inc. 61,200 972 Data Processing Corp. (a) 5,700 177 Department 56, Inc. (a) 43,400 1,541 DeVry, Inc. (a) 84,000 1,843 Dollar Tree Stores, Inc. (a) 35,250 1,428 Dress Barn, Inc. (a) 10,000 249 Equity Corp. International (a) 31,100 746 Extended Stay America, Inc. (a) 100 1 Footstar, Inc. (a) 6,300 302 Fossil, Inc. (a) 52,650 1,310 Furniture Brands International, Inc. (a) 10,400 292 Gibson Greetings, Inc. (a) 6,600 165 Goody's Family Clothing, Inc. (a) 50,300 2,744 Grand Casinos, Inc. (a) 37,100 621 Grey Advertising 4,500 1,782 Hearst-Argyle Television, Inc. (a) 33,000 1,320 Helen of Troy, Ltd. New (a) 10,000 217 Huffy Corp. 6,500 118 InaCom Corp. (a) 24,600 781
16 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Insurance Auto Auctions, Inc. (a) 20,000 $ 280 Interim Services, Inc. (a) 59,000 1,895 Iron Mountain, Inc. (a) 5,000 220 ITT Educational Services, Inc. (a) 40,000 1,290 Knight-Ridder, Inc. 25,800 1,421 La-Z-Boy Chair Co. 2,700 153 Leather Factory, Inc. (a) 60,000 30 Lee Enterprises, Inc. 46,500 1,424 Legato Systems, Inc. (a) 59,600 2,324 Linens 'N Things, Inc. (a) 12,000 367 Lithia Motors, Inc. Class A (a) 10,000 145 Lo-Jack Corp. (a) 15,000 187 Lodgenet Entertainment Corp. (a) 18,000 178 Maxim Group, Inc. (a) 11,000 219 Maytag Corp. 19,300 953 Mazel Stores, Inc. (a) 12,000 192 McClatchy Newspapers, Inc. Class A 50,775 1,758 McGraw-Hill, Inc. 20,000 1,631 Media General, Inc. Class A 100 5 Metzler Group, Inc. (a) 70,000 2,564 NewsEdge Corp. (a) 44,150 436 Nutramax Products, Inc. New (a) 10,000 94 O'Charleys, Inc. (a) 15,000 221 OfficeMax, Inc. (a) 12,000 198 Ogden Corp. 22,700 628 On Assignment, Inc. (a) 50,000 1,747 Orckit Communications, Ltd. (a) 21,900 415 Outdoor Systems, Inc. (a) 35,625 997 Oxford Industries, Inc. 3,100 108 Pacific Sunwear of California (a) 57,400 2,009 Personnel Group of America, Inc. (a) 26,000 520 Petco Animal Supplies, Inc. (a) 13,000 259 Pillowtex Corp. 5,500 221 Polo Ralph Lauren Corp. Class A New (a) 60,450 1,693 Premark International, Inc. 13,000 419 Prime Hospitality Corp. (a) 64,800 1,130 Protection One, Inc. 12,000 130 Pulitzer Publishing Co. 13,500 1,205 RCM Technologies, Inc. (a) 8,000 162 RDO Equipment Co. Class A (a) 9,000 151 Recoton Corp. (a) 4,400 147 Red Roof Inns, Inc. (a) 11,600 196 Regis Corp. 6,000 177 Rent-Way, Inc. (a) 35,250 1,071 Reynolds & Reynolds Co. Class A 64,200 1,168 Richey Electronics, Inc. (a) 20,000 152 Robert Half International, Inc. (a) 31,250 1,746 RockShox, Inc. (a) 19,000 76 Rocky Shoes & Boots, Inc. (a) 12,000 171 Romac International, Inc. (a) 57,900 1,759 Ross Stores, Inc. 95,450 4,104 Rural/Metro Corp. (a) 15,900 207 Russ Berrie & Co., Inc. 6,100 152 Russell Corp. 13,800 417 Ryan's Family Steak Houses, Inc. (a) 128,800 1,312 Saga Communications Class A (a) 8,300 132 Schultz Sav-o Stores, Inc. 76,500 1,205 SCP Pool Corp. (a) 8,500 204 Scripps (E.W.) Co. Class A 28,000 1,535 Select Appointments Holdings PLC - ADR 60,000 1,740 ShoLodge, Inc. (a) 20,033 158 Shopko Stores, Inc. (a) 69,000 2,346 Showbiz Pizza Time, Inc. (a) 64,650 2,594 Spectrian Corp. (a) 9,500 154 Sport Supply Group, Inc. (a) 20,000 162 Sportsman's Guide, Inc. (The) (a) 24,200 104 Springs Industries, Inc. 4,500 208 StaffMark, Inc. (a) 49,600 1,817 Strategic Distribution, Inc. (a) 30,600 161 Superior Services, Inc. (a) 39,000 1,172 Talbots, Inc. 11,700 306 Teltrend, Inc. (a) 12,000 206 The Men's Wearhouse, Inc. (a) 101,550 3,351 Tiffany & Co. 23,000 1,104 TJX Cos., Inc. 114,800 2,770 TRM Copy Centers Corp. (a) 18,000 243 United Natural Foods, Inc. (a) 7,000 200 United Television, Inc. 10,450 1,197 United Video Satellite Group Class A (a) 5,700 226 Urban Outfitters, Inc. (a) 10,000 183 Valassis Communications, Inc. (a) 83,250 3,210 Video Update, Inc. Class A (a) 50,000 72 Wackenhut Corp. 6,000 136 Wackenhut Corrections Corp. (a) 45,000 1,052 Washington Post Co. Class B 4,500 2,592 West Marine, Inc. (a) 20,000 360 Wolverine World Wide, Inc. 57,900 1,256 World Color Press, Inc. (a) 17,400 609 Youth Services International, Inc. (a) 18,000 132 Zale Corp. (a) 13,700 436 ---------- 134,785 ---------- CONSUMER STAPLES - 2.6% American Italian Pasta Co. Class A (a) 16,300 607 Aurora Foods, Inc. (a) 41,000 866
Special Growth Fund 17 SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Beringer Wine Estates Holdings, Inc. Class B (a) 20,300 $ 893 Block Drug Co., Inc. Class A 22,331 842 Canandaigua Wine International, Inc. Class A (a) 5,100 251 Coca-Cola Bottling Co. 18,200 1,203 Earthgrains Co. 41,650 2,327 Fleming Cos., Inc. 24,600 432 Hormel (George A.) & Co. - Hormel Foods Corp. 13,100 453 IBP, Inc. 35,300 640 International Multifoods Corp. 8,300 228 Longs Drug Stores, Inc. 5,300 153 Nature's Sunshine Products, Inc. 8,000 179 Pilgrim's Pride Corp. 7,000 140 Robert Mondavi Corp. Class A (a) 23,500 665 Standard Commercial Corp. (a) 16,000 176 Suiza Foods Corp. (a) 35,000 2,089 SuperValu, Inc. 28,600 1,269 Tootsie Roll Industries, Inc. 30,000 2,303 Universal Foods Corp. 20,600 457 Whole Foods Market, Inc. (a) 33,400 2,021 ---------- 18,194 ---------- FINANCIAL SERVICES - 21.9% Acceptance Insurance Companies, Inc. (a) 6,200 152 Allmerica Financial Corp. 21,600 1,404 Ambac Financial Group, Inc. 26,800 1,568 AmerUs Life Holdings, Inc. 8,800 285 Amplicon, Inc. 12,000 156 AMRESCO, Inc. (a) 40,100 1,163 Amwest Insurance Group, Inc. 12,030 176 Arden Realty Group, Inc. 30,000 776 Argonaut Group, Inc. 1,200 38 ARM Financial Group, Inc. Class A 7,000 155 Associated Banc-Corp. 3,000 113 Astoria Financial Corp. 44,500 2,381 BancorpSouth, Inc. 1,800 38 Bank Plus Corp. (a) 15,600 191 Bank United Corp. Class A 3,300 158 Bankatlantic Bancorp, Inc. Class A 123,895 1,464 Banknorth Group, Inc. 1,600 59 Bear Stearns Cos., Inc. 61,398 3,492 Berkley (W.R.) Corp. 31,300 1,254 Billing Information Concepts Corp. (a) 48,700 743 BISYS Group, Inc. New (a) 28,300 1,160 Capital One Financial Corp. 26,300 3,266 Centris Group, Inc. 135,800 1,681 Centura Banks, Inc. 4,200 262 Charter One Financial, Inc. 67,600 2,269 Chartwell Re Corp. 2,700 79 Chittenden Corp. 925 32 City National Corp. 99,350 3,670 Colonial BancGroup, Inc. 52,300 1,687 Comdisco, Inc. 57,500 1,092 Commerce Bancshares, Inc. 8,917 432 Commerce Group, Inc. 3,000 116 Commonwealth Bancorp, Inc. 4,200 96 Compass Bancshares, Inc. 15,150 680 Conning Corp. New 9,600 187 CORT Business Services Corp. (a) 33,400 1,052 Cullen Frost Bankers, Inc. 5,500 298 Data Transmission Network Corp. (a) 5,000 200 Delta Financial Corp. (a) 15,000 276 Dime Bancorp, Inc. 35,700 1,069 Donaldson, Lufkin & Jenrette, Inc. 97,800 4,969 Downey Financial Corp. 10,155 332 DST Systems, Inc. (a) 30,000 1,680 Duke Realty Investments, Inc. 51,900 1,226 Edwards (A.G.), Inc. 47,600 2,032 Enhance Financial Services Group, Inc. 14,400 486 Envoy Corp. New (a) 37,050 1,755 Everest Reinsurance Holdings, Inc. 22,500 865 Executive Risk, Inc. 24,000 1,770 EXEL, Ltd. 21,000 1,634 F&M National Corp. 1,000 29 FBL Financial Group, Inc. Class A 7,200 184 Fidelity National Financial 109,946 4,377 Financial Federal Corp. (a) 8,500 228 Financial Security Assurance Holdings, Ltd. 8,900 523 FINOVA Group, Inc. 17,500 991 First American Corp. 26,000 1,251 First American Financial Corp. 7,700 693 First Financial Holdings, Inc. 3,000 72 First Hawaiian Creditcorp, Inc. 3,900 142 First Republic Bank (a) 15,250 551 First Savings Bank of Washington Bancorp, Inc. 2,100 53 First Virginia Banks, Inc. 7,050 360 FirstFed Financial Corp. (a) 35,200 1,830 FIRSTPLUS Financial Group, Inc. (a) 25,400 914 Flagstar Bancorp, Inc. 2,900 71 Flushing Financial Corp. 6,300 181 Foremost Corp. of America 2,900 70 Fremont General Corp. 35,125 1,903
18 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Gables Residential Trust 52,000 $ 1,410 GATX Corp. 14,800 649 Hartford Life, Inc. Class A 23,200 1,321 HealthCare Financial Partners, Inc. (a) 31,000 1,899 Hibernia Corp. 22,900 462 Horace Mann Educators Corp. 40,000 1,380 IMC Mortgage Co. (a) 92,100 967 Imperial Credit Industries, Inc. (a) 71,152 1,645 Intercontinental Life Corp. (a) 6,400 162 Jack Henry & Assocociates, Inc. 49,300 1,695 Jefferies Group, Inc. 30,100 1,234 JSB Financial, Inc. 1,300 76 LandAmerica Financial Group, Inc. 47,800 2,737 Legg Mason, Inc. 23,000 1,324 Lehman Brothers Holdings, Inc. 32,000 2,482 Leucadia National Corp. 52,000 1,719 Liberty Financial Cos., Inc. 5,400 186 Life USA Holdings, Inc. New 7,000 90 Litchfield Financial Corp. 7,350 153 M & T Bank Corp. (a) 250 139 MAF Bancorp, Inc. 28,800 1,048 Markel Corp. (a) 13,000 2,314 Medical Assurance, Inc. (a) 630 17 Mid Ocean, Ltd. 18,000 1,413 Morgan Keegan, Inc. 70,900 1,835 Mutual Risk Management, Ltd. 25,550 931 NAC Reinsurance Corp. 100 5 National Commerce Bancorp 9,300 389 National Data Corp. 35,000 1,531 Nationwide Financial Services, Inc. Class A 24,200 1,234 Ocean Financial Corp. 2,800 54 Ocwen Financial Corp. (a) 65,300 1,755 Ohio Casualty Corp. 8,300 366 Old Kent Financial Corp. 4,500 162 Old Republic International Corp. 52,050 1,526 Orion Capital Corp. 11,100 620 Pacific Century Financial Corp. 36,200 869 Pacific Gulf Properties, Inc. 7,000 151 Paychex, Inc. 40,500 1,645 Penn Treaty American Corp. (a) 5,400 170 Pennsylvania REIT 7,000 155 Peoples Heritage Financial Group 73,680 1,741 PMI Group, Inc. (The) 14,000 1,027 Price (T. Rowe) & Associates, Inc. 35,800 1,343 Profit Recovery Group International, Inc. (The) (a) 65,000 1,816 Provident Bankshares Corp. 13,430 396 Provident Companies, Inc. 34,400 1,187 PXRE Corp. 41,959 1,259 Queens County Bancorp 5,998 262 Raymond James Financial, Inc. 69,900 2,093 Reliance Group Holdings, Inc. 38,600 676 Reliastar Financial Corp. 6,300 302 RenaissanceRe Holdings, Ltd. 36,800 1,704 Republic Bancorp, Inc. 3,267 62 Resource Bancshares Mortgage Group 112,400 2,079 Riggs National Corp. 2,200 64 RLI Corp. 4,250 173 Rollins Truck Leasing Corp. 21,650 268 Roslyn Bancorp, Inc. 30,400 678 Ryder System, Inc. 36,200 1,143 Saville Systems Ireland PLC - ADR (a) 39,600 1,975 SCPIE Holdings, Inc. 300 10 Selective Insurance Group, Inc. 53,400 1,195 Silicon Valley Bancshares (a) 62,400 2,204 Smith (Charles E.) Residential Realty, Inc. 44,000 1,408 Southern Pacific Funding Corp. (a) 14,000 220 Sovereign Bancorp, Inc. 96,866 1,580 Sovran Self Storage, Inc. 37,200 1,051 St. Francis Capital Corp. 3,000 116 Sterling Bancshares, Inc. 45,000 709 SunAmerica, Inc. 39,000 2,240 Sunstone Hotel Investors, Inc. 8,100 108 TCF Financial Corp. 48,000 1,416 Transatlantic Holdings, Inc. 38,550 2,980 Trenwick Group, Inc. 31,500 1,223 UMB Financial Corp. 1,400 69 Union Planters Corp. 27,575 1,622 United Fire & Casualty Co. 27,450 1,076 Unitrin, Inc. 5,000 345 Valley National Bancorp 4,418 128 Washington Federal, Inc. 18,709 517 Webster Financial Corp. 58,100 1,917 Westamerica Bancorporation 60,000 1,928 Whitney Holding Corp. 1,000 51 Wilmington Trust Corp. 2,600 158 XTRA Corp. 2,500 151 ---------- 151,132 ---------- HEALTH CARE - 6.3% AmSurg Corp. Class A (a) 11,200 85 Arterial Vascular Engineering, Inc. (a) 47,200 1,684 ARV Assisted Living, Inc. (a) 12,000 150 Assisted Living Concepts, Inc. (a) 8,000 138
Special Growth Fund 19 SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Balanced Care Corp. (a) 22,100 $ 160 Beverly Enterprises, Inc. New (a) 14,100 195 Bindley Western Industries, Inc. 21,333 704 Biogen, Inc. (a) 20,000 977 Biosite Diagnostics, Inc. (a) 12,000 129 CorVel Corp. (a) 4,000 154 Curative Technologies, Inc. (a) 26,000 741 Genset - ADR (a) 23,000 674 Health Care & Retirement Corp. (a) 27,500 1,085 Health Management Associates Class A (a) 54,000 1,806 Healthcare Services Group, Inc. (a) 12,000 190 Hooper Holmes, Inc. 12,000 252 Human Genome Sciences, Inc. (a) 27,000 964 IDEXX Laboratories, Inc. (a) 55,150 1,372 Immucor Corp. (a) 16,000 136 Incyte Pharmaceuticals, Inc. (a) 35,300 1,205 Integrated Health Services, Inc. 7,400 277 Landauer, Inc. 3,700 111 Lincare Holdings, Inc. (a) 102,800 4,318 Lunar Corp. (a) 11,000 201 Maxxim Medical, Inc. (a) 6,000 174 MedImmune, Inc. (a) 6,900 430 Monarch Dental Corp. New (a) 11,000 172 NBTY, Inc. (a) 82,500 1,506 NCS HealthCare, Inc. Class A (a) 47,500 1,354 NovaCare, Inc. (a) 140,200 1,647 Orthodontic Centers of America, Inc. (a) 51,450 1,077 Pediatric Services of America, Inc. (a) 8,100 123 Pediatrix Medical Group (a) 49,800 1,852 Physio-Control International Corp. (a) 9,000 237 PMR Corp. (a) 29,000 290 Protocol Systems, Inc. (a) 20,000 172 Quintiles Transnational Corp. (a) 32,000 1,572 Renal Care Group, Inc. (a) 49,550 2,183 Res-Care, Inc. (a) 9,000 165 Respironics, Inc. (a) 36,000 553 Rexall Sundown, Inc. (a) 45,100 1,607 Sola International, Inc. (a) 54,600 1,785 STAAR Surgical Co. New (a) 15,000 232 Steris Corp. (a) 17,000 1,078 Sun Healthcare Group, Inc. (a) 17,700 259 Theragenics Corp. (a) 25,350 659 Thermo BioAnalysis Corp. (a) 25,000 453 Total Renal Care Holdings, Inc. (a) 71,507 2,467 Trigon Healthcare, Inc. (a) 30,600 1,107 Twinlab Corp. New (a) 36,100 1,577 U.S. Vision, Inc. New (a) 17,400 209 UroCor, Inc. (a) 20,000 137 Urologix, Inc. (a) 17,000 145 Weider Nutrition International, Inc. Class A 10,700 182 Wesley Jessen VisionCare, Inc. New (a) 2,800 65 ---------- 43,177 ---------- INTEGRATED OILS - 0.9% Cross Timbers Oil Co. 106,200 2,024 Equitable Resources, Inc. 13,800 421 Giant Industries, Inc. 48,600 844 Houston Exploration Co. (The) (a) 14,300 328 Murphy Oil Corp. 20,300 1,029 Sun Co., Inc. 29,000 1,126 Tesoro Petroleum Corp. (a) 12,500 199 ---------- 5,971 ---------- MATERIALS AND PROCESSING - 8.9% ACX Technologies, Inc. (a) 3,600 78 Advanced Energy Industries, Inc. (a) 14,100 164 Agrium, Inc. 99,700 1,259 AK Steel Holding Corp. 26,300 470 Albany International Corp. Class A 10,521 252 Albemarle Corp. 12,400 274 American Buildings Co. New (a) 7,000 205 Ameron, Inc. 1,300 75 Applied Extrusion Technologies, Inc. (a) 22,000 157 AptarGroup, Inc. 31,700 1,971 Atchison Casting Corp. (a) 9,000 161 Ball Corp. 15,500 623 Banta Corp. 30,800 937 Bethlehem Steel Corp. (a) 47,200 587 Bowater, Inc. 15,000 709 Brush Wellman, Inc. 7,300 150 Building Materials Holding Corp. (a) 12,000 164 Burlington Industries, Inc. (a) 22,100 311 BWay Corp. (a) 7,500 161 CalMat Co. 9,200 202 Cambrex Corp. 7,500 197 Carbide/Graphite Group, Inc. (The) (a) 6,000 167 Centex Construction Products, Inc. 50,800 1,956 Centex Corp. 64,000 2,416 Channell Commercial Corp. (a) 18,000 190 Chemed Corp. 4,000 136 Chesapeake Corp. 10,300 401 Citation Corp. (a) 9,000 179 Cleveland-Cliffs, Inc. 9,200 493
20 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Comfort Systems USA, Inc. (a) 49,150 $ 1,149 Commercial Metals Co. 3,500 108 Consolidated Papers, Inc. 30,600 834 Correctional Properties Trust New (a) 3,300 67 Crompton & Knowles Corp. 44,550 1,122 Culp, Inc. 2,100 24 CUNO, Inc. (a) 10,000 216 Cyprus Amax Minerals Co. 13,100 174 Dayton Superior Corp. Class A (a) 10,000 180 Dexter Corp. 12,400 394 Easco, Inc. 12,000 121 Engle Homes, Inc. 10,200 156 Ennis Business Forms, Inc. 55,375 644 Finish Line (The), Inc. Class A (a) 47,350 1,326 Giant Cement Holding, Inc. (a) 5,000 143 Goodrich (B.F.) Co. 27,600 1,370 Granite Construction, Inc. 4,900 150 Guilford Mills, Inc. 8,600 172 Hughes Supply, Inc. 51,950 1,903 IMCO Recycling, Inc. 9,000 167 Interface, Inc. 18,800 378 International Specialty Products (a) 5,500 102 Kaydon Corp. 40,000 1,413 Lafarge Corp. 22,400 881 Lesco, Inc. 8,000 148 Lone Star Industries, Inc. 30,600 2,358 LTV Corp. 33,000 316 Millennium Chemicals, Inc. 39,800 1,348 Minerals Technologies, Inc. 33,600 1,709 Mohawk Industries, Inc. (a) 22,700 719 National Steel Corp. Class B 500 6 NCI Building Systems, Inc. (a) 30,400 1,752 NN Ball & Roller, Inc. 20,000 238 Northland Cranberries, Inc. Class A 12,000 185 Olin Corp. 16,600 692 OM Group 21,000 866 P.H. Glatfelter Co. 9,000 142 Pan Pacific Retail Properties, Inc. 8,000 155 Penford Corp. 8,000 240 Pentair, Inc. 4,200 179 Plum Creek Timber Co. L.P. 35,300 1,061 Potlatch Corp. 15,600 655 Quaker Fabric Corp. New (a) 10,500 151 Quanex Corp. 5,700 173 Rayonier, Inc. 13,400 616 Reliance Steel & Aluminum Co. 2,600 100 RMI Titanium Co. (a) 5,400 123 Rock of Ages Corp. Class A (a) 10,400 161 RPM, Inc. (Ohio) 24,600 418 Scotts Co. (The) Class A (a) 8,200 305 SIFCO Industries 62,000 1,310 Southdown, Inc. 21,500 1,534 SPS Technologies, Inc. (a) 6,500 380 St. Joe Corp. 50,700 1,388 Stone & Webster, Inc. 2,900 115 Synalloy Corp. 10,000 134 Texas Industries, Inc. 75,300 3,991 Thomas Industries, Inc. 100 2 Timken Co. 27,100 835 TJ International, Inc. 24,550 737 Tractor Supply Co. (a) 8,000 199 Triangle Pacific Corp. (a) 1,400 77 Universal Stainless & Alloy Products, Inc. (a) 10,000 91 USG Corp. 60,000 3,248 USX-U.S. Steel Group 31,500 1,040 Valley National Gases, Inc. (a) 15,000 165 Webb (Del E.) Corp. 54,500 1,413 Wellman, Inc. 20,100 456 Wellsford Real Properties, Inc. (a) 18,400 260 Wolverine Tube, Inc. (a) 8,000 304 Zero Corp. 8,000 227 ---------- 60,961 ---------- MISCELLANEOUS - 1.0% Alexandria Real Estate Equities, Inc. 26,000 778 BEC Energy (a) 18,000 747 ChoicePoint, Inc. (a) 13,200 668 Education Management Corp. New (a) 500 17 Griffon Corp. (a) 98,300 1,260 Kaynar Technologies, Inc. (a) 7,000 160 LNR Property Corp. 60,000 1,538 MAXIMUS, Inc. (a) 47,000 1,351 Pameco Corp. (a) 8,000 160 Stolt Comex Seaway, S. A. - ADR Class A (a) 16,125 278 ---------- 6,957 ---------- OTHER ENERGY - 4.4% Atwood Oceanics, Inc. (a) 14,000 557 Bayard Drilling Technologies, Inc. (a) 15,000 122 BJ Services Co. (a) 35,000 1,017 Chesapeake Energy Corp. 32,500 130 Coho Energy, Inc. (a) 125,480 847
Special Growth Fund 21 SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Core Laboratories NV (a) 30,000 $ 645 Costilla Energy, Inc. (a) 12,000 105 Dailey International Inc. (a) 22,400 134 Eastern Enterprises, Inc. 10,900 467 Evergreen Resources, Inc. (a) 15,000 281 Global Industries, Inc. (a) 50,600 851 HS Resources, Inc. (a) 7,900 115 Input/Output, Inc. (a) 47,800 851 Mallon Resources Corp. New (a) 20,000 238 Marine Drilling Co, Inc. (a) 46,000 733 MarketSpan Corp. (a) 54,972 1,646 Mitcham Industries, Inc. (a) 16,000 184 Noble Drilling Corp. (a) 43,750 1,053 Northwestern Corp. 1,600 40 OMNI Energy Services Corp. New (a) 13,600 184 ONEOK, Inc. 17,600 702 Pool Energy Services Co. (a) 80,500 1,187 Rowan Cos., Inc. (a) 47,300 919 Santa Fe International Corp. 37,400 1,131 Seacor Holdings, Inc. (a) 43,600 2,673 Sempra Energy (a) 24,100 669 Stolt Comex Seaway SA (a) 39,400 758 Supreme Industries, Inc. Class A (a) 15,037 184 Transocean Offshore, Inc. 24,000 1,068 Tuboscope Vetco International Corp. (a) 18,400 363 Ultramar Diamond Shamrock Corp. 37,000 1,168 Unit Corp. (a) 25,000 152 Valero Energy Corp. 15,000 499 Varco International, Inc. (a) 117,050 2,319 Veritas DGC, Inc. (a) 66,700 3,331 Vintage Petroleum, Inc. 80,450 1,518 Willbros Group, Inc. (a) 12,000 188 Wiser Oil Co. 97,000 1,073 ---------- 30,102 ---------- PRODUCER DURABLES - 6.8% AFC Cable Systems, Inc. (a) 8,125 288 Ag-Chem Equipment Co., Inc. (a) 12,000 266 AGCO Corp. 43,500 894 AgriBiotech, Inc. New (a) 15,300 423 Allied Waste Industries, Inc. (a) 45,250 1,083 AMETEK, Inc. 3,400 100 ANTEC Corp. (a) 5,000 116 Bell Industries (a) 75,583 860 C&D Technologies, Inc. 3,300 191 Cascade Corp. 7,900 144 CFM Technologies, Inc. (a) 10,000 144 Champion Enterprises, Inc. (a) 58,400 1,716 Chart Industries, Inc. 48,000 1,146 Cincinnati Milacron, Inc. 13,300 323 Cohu, Inc. 43,100 1,048 Columbus McKinnon Corp. 42,000 1,113 Commercial Intertech Corp. 2,700 49 D.R. Horton, Inc. 69,900 1,459 Daniel Industries, Inc. 6,800 129 DeCrane Aircraft Holdings, Inc. (a) 12,000 204 Detroit Diesel Corp. (a) 3,000 65 EG&G, Inc. 19,200 576 FARO Technologies, Inc. (a) 12,000 127 Farr Co. (a) 15,750 185 FLIR Systems, Inc. (a) 10,000 172 Flow International Corp. (a) 15,000 172 Franklin Electric Co., Inc. 2,400 161 Gemstar International Group, Ltd. (a) 58,250 2,170 General Cable Corp. 25,950 749 Gleason Corp. 5,300 149 Graco, Inc. 4,800 167 Gradall Industries, Inc. (a) 13,000 189 Helix Technology Corp. 10,000 150 Holophane Corp. (a) 7,000 177 Innovative Valve Technologies, Inc. (a) 24,000 174 JLK Direct Distribution, Inc. Class A (a) 1,400 31 Kaman Corp. Class A 4,700 89 Kaufman & Broad Home Corp. 9,200 292 Kellstrom Industries, Inc. (a) 28,900 845 Kennametal, Inc. 14,200 593 KLA Instruments Corp. (a) 32,500 900 Knoll, Inc. (a) 7,200 212 Lennar Corp. 99,100 2,923 Lexmark International Group, Inc. Class A (a) 34,500 2,105 Litton Industries, Inc. (a) 19,500 1,151 Middleby Corp. (The) (a) 27,700 166 Molex, Inc. Class A 28,200 659 NACCO Industries, Inc. Class A 2,400 310 National-Oilwell, Inc. (a) 54,000 1,448 Newmark Homes Corp. (a) 20,000 200 Novellus Systems, Inc. (a) 20,000 714 NVR, Inc. (a) 3,500 144 OYO Geospace Corp. (a) 7,700 208 Perceptron, Inc. (a) 8,000 95 Pittway Corp. Class A 22,467 1,660 Powell Industries, Inc. (a) 10,000 121 Pulte Corp. 30,600 914 Ryland Group, Inc. 43,200 1,134
22 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Scotman Industries, Inc. 2,800 $ 78 Snap-On Tools Corp. 6,900 250 Standard Pacific Corp. 89,200 1,840 Starrett (L.S.) Co. Class A 29,900 1,181 STM Wireless, Inc. Class A (a) 20,000 181 Superior TeleCom, Inc. 9,200 383 TB Wood's Corporation 10,000 210 Tecumseh Products Co. Class A 4,600 243 Teradyne, Inc. (a) 43,082 1,152 Terex Corp. (a) 73,900 2,106 Thomas & Betts Corp. 2,800 138 Toll Brothers, Inc. (a) 44,100 1,265 TransTechnology Corp. 5,600 144 TriStar Aerospace Co. (a) 80,000 1,240 U.S. Home Corp. (a) 5,400 223 Uniphase Corp. (a) 28,050 1,760 Worldtex, Inc. (a) 20,000 116 ---------- 46,503 ---------- TECHNOLOGY - 12.8% ADC Telecommunications, Inc. (a) 14,600 533 Allen Telecom, Inc. (a) 16,000 186 American Xtal Technology, Inc. (a) 5,900 85 Anixter International, Inc. (a) 28,500 543 Aspen Technology, Inc. (a) 50,000 2,525 Autodesk, Inc. 32,800 1,261 Avid Technology, Inc. (a) 44,700 1,495 Avnet, Inc. 21,500 1,176 Bel Fuse, Inc. (a) 6,000 134 Berg Electronics Corp. (a) 50,000 978 Boole & Babbage, Inc. (a) 9,000 215 BTG, Inc. (a) 22,000 198 Business Objects SA - ADR (a) 36,550 617 Cable Design Technologies Corp. (a) 76,000 1,568 CACI International, Inc. Class A (a) 6,000 126 Cambridge Technology Partners, Inc. (a) 50,000 2,731 CBT Group Public, Ltd. - ADR (a) 61,550 3,293 Celeritek, Inc. (a) 30,000 186 CFI ProServices, Inc. (a) 12,000 204 CHS Electronics, Inc. (a) 55,900 992 Ciber, Inc. (a) 101,500 3,857 Citrix Systems, Inc. (a) 28,950 1,979 Comarco, Inc. (a) 8,000 168 Compuware Corp. (a) 99,650 5,088 Cotelligent Group, Inc. (a) 9,000 210 Digi International, Inc. (a) 66,300 1,338 DSP Communications, Inc. (a) 79,600 1,095 Electronics For Imaging, Inc. (a) 18,500 390 Esterline Corp. (a) 11,800 246 Exar Corp. (a) 12,000 251 Excite, Inc. (a) 5,000 468 Fairchild Corp. (The) Class A (a) 8,000 162 FORE Systems (a) 40,100 1,060 Harmon Industries, Inc. 10,500 249 HNC Software, Inc. (a) 55,500 2,265 Hyperion Software Corp. (a) 43,000 1,226 IDX Systems Corp. (a) 79,150 3,651 Information Management Resources, Inc. (a) 67,650 2,287 Integrated Circuit Systems, Inc. (a) 6,000 99 Integrated Silicon Solution, Inc. (a) 133,200 924 Intersolv, Inc. (a) 900 14 Keane, Inc. (a) 31,050 1,739 Kronos, Inc. (a) 6,000 219 Lernout & Hauspie Speech Products NV (a) 11,800 704 LSI Logic Corp. (a) 64,000 1,476 Macromedia, Inc. (a) 51,050 954 Manhattan Associates, Inc. (a) 30,000 622 Mercury Interactive Corp. (a) 50,400 2,243 MicroStrategy, Inc. (a) 16,300 460 MIPS Technologies, Inc. (a) 15,000 210 Network Associates, Inc. (a) 34,650 1,657 Open Market, Inc. (a) 60,000 1,125 Optek Technology, Inc. (a) 9,000 168 ORBIT/FR, Inc. (a) 9,000 60 OSI Systems, Inc. New (a) 17,000 169 Par Technology Corp. (a) 25,000 152 PeopleSoft, Inc. (a) 37,800 1,774 Pericom Semiconductor Corp. New (a) 25,000 169 Photronics, Inc. (a) 4,000 88 PMC - Sierra, Inc. (a) 39,100 1,828 PSINET, Inc. (a) 70,000 901 QuadraMed Corp. New (a) 122,700 3,351 Safeguard Scientifics, Inc. (a) 28,500 1,188 Sandisk Corp. (a) 10,000 138 ScanSource, Inc. (a) 8,000 153 SeaChange International, Inc. (a) 14,000 172 Seagate Technology (a) 22,550 537 SpecTran Corp. (a) 18,000 143 Sterling Software, Inc. (a) 54,200 1,602 Storage Technology Corp. (a) 60,200 2,611 Symantec Corp. (a) 59,700 1,552 Systems & Computer Technology Corp. (a) 30,250 813 Tech-Sym Corp. (a) 39,700 1,104 Tekelec, Inc. (a) 18,700 837
Special Growth Fund 23 SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Tellabs, Inc. (a) 18,500 $ 1,324 Transaction Systems Architects, Inc. Class A (a) 48,000 1,848 USCS International, Inc. (a) 30,000 621 Verilink Corp. (a) 23,000 184 Veritas Software Corp. (a) 70,811 2,925 Vitesse Semiconductor Corp. (a) 64,500 1,991 Xylan Corp. (a) 64,150 1,908 ---------- 87,793 ---------- UTILITIES - 5.6% AGL Resources, Inc. 16,200 322 Aquarion Co. 1,500 51 Atmos Energy Corp. 5,000 153 California Water Service Group 2,100 53 Centennial Cellular Corp. Class A (a) 52,700 1,966 Central Hudson Gas & Electric Corp. 3,300 151 Central Maine Power Co. 89,300 1,741 Century Telephone Enterprises, Inc. 28,700 1,317 CILCORP, Inc. 3,300 158 Citizens Utilities Co. Class B (a) 86,746 835 Cleco Corp. 5,600 167 Colonial Gas Co. 2,700 77 Commonwealth Energy System 4,400 166 Conectiv, Inc. 26,800 549 Connecticut Energy Corp. 1,400 39 CoreComm, Inc. (a) 71,966 1,871 DPL, Inc. 45,000 816 E'town Corp. 1,000 37 Eastern Utilities Associates 13,200 346 Empire District Electric Co. 3,000 63 Energen Corp. 7,100 143 Energy East Corp. (a) 31,900 1,328 Florida Progress Corp. 32,700 1,345 General Communication, Inc. Class A (a) 22,000 131 Hawaiian Electric Industries, Inc. 8,400 333 Idaho Power Co. 7,200 249 Interstate Energy Corp. 22,200 721 IXC Communications, Inc. (a) 33,800 1,631 Jones Intercable, Inc. Class A (a) 79,400 1,985 K N Energy, Inc. 20,500 1,111 MCN Corp. 41,500 1,032 MDU Resources Group, Inc. 6,600 236 Metrocall, Inc. (a) 36,000 218 MidAmerican Energy Holdings Co. 21,200 458 Minnesota Power & Light Co. 9,800 390 Montana Power Co. 33,800 1,175 National Fuel & Gas Co. 11,000 479 Nevada Power Co. 23,300 600 New Century Energies, Inc. 25,500 1,159 New England Electric System 24,900 1,077 New Jersey Resources Corp. 2,300 82 NICOR, Inc. 12,500 502 Northwest Natural Gas Co. 1,400 39 NUI Corp. 3,900 99 Piedmont Natural Gas Co., Inc. 6,000 202 Pinnacle West Capital Corp. 28,100 1,265 Public Service Co. of New Mexico 23,900 542 Puget Sound Power & Light Co. 33,200 890 Questar Corp. 8,800 173 Rochester Gas & Electric Corp. 19,500 623 SCANA Corp. 25,500 760 SIG Corp., Inc. 2,800 90 Southwest Gas Corp. 11,100 271 St. Joseph Light & Power Co. 9,200 171 TNP Enterprises, Inc. 8,300 256 UGI Corp. 9,000 224 United Illuminating Co. 6,500 329 United States Cellular Corp. (a) 47,400 1,458 UtiliCorp United, Inc. 21,500 810 Washington Gas & Light Co. 12,300 329 Washington Water Power Co. 11,400 256 Western Resources, Inc. 28,100 1,091 WICOR, Inc. 9,200 213 Wisconsin Energy Corp. 37,800 1,148 WPS Resources Corp. 5,600 184 ---------- 38,686 ---------- TOTAL COMMON STOCKS (cost $515,494) 654,646 ---------- PREFERRED STOCKS - 0.2% Callon Petroleum Co. Series A (conv.) 4,000 132 Finova Finance Trust 13,000 1,021 Golden Books Financial Trust (conv.) (a) 3,000 71 ---------- TOTAL PREFERRED STOCKS (cost $952) 1,224 ----------
24 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- LONG-TERM INVESTMENTS - 0.1% American Residential Services, Inc. (conv.) 7.25% due 04/15/04 $ 250 $ 178 Getty Images, Inc. (conv.) 4.75% due 06/01/03 800 757 Titan Corp. (conv.) 8.250% due 11/01/03 45 82 ---------- TOTAL LONG-TERM INVESTMENTS (cost $1,019) 1,017 ---------- SHORT-TERM INVESTMENTS - 4.5% Frank Russell Investment Company Money Market Fund, due on demand (b) 28,759 28,759 United States Treasury Notes (b)(c) 5.250% due 07/31/98 1,900 1,900 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $30,659) 30,659 ---------- TOTAL INVESTMENTS - 100.0% (identified cost $548,124)(d) 687,546 OTHER ASSETS AND LIABILITIES, NET - 0.0% 113 ---------- NET ASSETS - 100.0% $ 687,659 ---------- ----------
(a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) See Note 2 for federal income tax information. ABBREVIATIONS: ADR - American Depositary Receipt NV - Nonvoting PLC - Public Limited Company REIT - Real Estate Investment Trust
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) --------- -------------- FUTURES CONTRACTS (Notes 2 and 3) S&P 500 Index Futures Contracts expiration date 09/98 35 $ 337 S&P 400 Midcap Index Futures Contracts expiration date 09/98 136 379 ---------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 716 ---------- ---------- (#) At June 30, 1997, United States Treasury Notes valued at $1,900 were held as collateral in connection with futures contracts purchased by the Fund.
The accompanying notes are an integral part of the financial statements. Special Growth Fund 25 SPECIAL GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $548,124)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 687,546 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 773 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,035 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,364 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 43,732 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746,944 LIABILITIES Payables: Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,679 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,088 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 569 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 94 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 43,732 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,285 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 687,659 -------------- -------------- NET ASSETS CONSIST OF: Accumulated distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . . . $ (21) Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,611 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,422 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518,792 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 687,659 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: Class S ($683,802,981 divided by 13,793,303 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49.58 -------------- -------------- Class E ($3,856,405 divided by 78,508 shares of $.01 par value shares of beneficial interest outstanding)(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . $ 49.12 -------------- --------------
The accompanying notes are an integral part of the financial statements. 26 Special Growth Fund SPECIAL GROWTH FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,434 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 -------------- Total Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,475 EXPENSES (Notes 1, 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,016 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 5 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 -------------- Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,484 -------------- Net investment loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,751 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,952 35,703 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,889 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 27,061 -------------- --------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,764 -------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . . $ 62,755 -------------- --------------
The accompanying notes are an integral part of the financial statements. Special Growth Fund 27 SPECIAL GROWTH FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE JUNE 30, 1998 YEAR ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9) $ 869 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,703 66,347 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 27,061 53,907 ---------------- ---------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 62,755 121,123 ---------------- ---------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (249) (842) In excess of net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) -- Net realized gain on investments Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,044) (68,942) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65) (356) ---------------- ---------------- Total Distributions to Shareholders. . . . . . . . . . . . . . . . . . . . (11,379) (70,140) ---------------- ---------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 60,495 130,847 ---------------- ---------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 111,871 181,830 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575,788 393,958 ---------------- ---------------- End of period (including accumulated distributions in excess of net investment income of $21 and undistributed net investment income of $258, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 687,659 $ 575,788 ---------------- ---------------- ---------------- ----------------
The accompanying notes are an integral part of the financial statements. 28 Special Growth Fund SPECIAL GROWTH FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 45.72 $ 40.79 $ 39.17 $ 33.47 $ 35.82 $ 36.63 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . -- .08 .12 .18 .16 .07 Net realized and unrealized gain (loss) on investments . 4.73 11.18 6.87 9.25 (.71) 5.22 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . 4.73 11.26 6.99 9.43 (.55) 5.29 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.02) (.08) (.12) (.21) (.10) (.07) Net realized gain on investments . . . . . . . . . . . . (.85) (6.25) (5.25) (3.52) (.85) (6.03) In excess of net realized gain on investments. . . . . . -- -- -- -- (.85) -- ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (.87) (6.33) (5.37) (3.73) (1.80) (6.10) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 49.58 $ 45.72 $ 40.79 $ 39.17 $ 33.47 $ 35.82 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . 10.44 28.77 18.65 28.52 (3.71) 15.48 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 683,803 572,635 393,048 313,678 229,077 188,891 Ratios to average net assets (%)(b): Operating expenses. . . . . . . . . . . . . . . . . . 1.09 1.15 1.19 1.22 1.20 1.31 Net investment income . . . . . . . . . . . . . . . . -- .18 .28 .49 .50 .19 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 91.10 97.19 118.13 87.56 55.40 91.97
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. Special Growth Fund 29 SPECIAL GROWTH FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ------------------------- 1998* 1997 1996** ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 45.42 $ 40.75 $ 43.48 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . (.41) (.13) (.02) Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . 4.96 11.05 1.63 ---------- ---------- ---------- Total Income From Investment Operations. . . . . . . . . . . . . . . . . . . 4.55 10.92 1.61 ---------- ---------- ---------- LESS DISTRIBUTIONS: Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (.85) (6.25) (4.34) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . $ 49.12 $ 45.42 $ 40.75 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11 27.90 4.04(b) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . 3,856 3,153 910 Ratios to average net assets (%)(c): Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.67 1.83 1.89 Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . . . (.58) (.51) (.38) Portfolio turnover rate (%)(c) . . . . . . . . . . . . . . . . . . . . . . . . 91.10 97.19 118.13
* For the six months ended June 30, 1998 (Unaudited). ** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) Periods less than one year are not annualized. (b) Total return represents performance for the period November 4, 1996 to December 31, 1996. (c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are annualized. 30 Special Growth Fund EQUITY INCOME FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 94.9% AUTO AND TRANSPORTATION - 6.1% AMR Corp. (a) 30,600 $ 2,547 Chrysler Corp. 57,600 3,247 CSX Corp. 11,400 519 Delta Air Lines, Inc. 15,300 1,978 Ford Motor Co. 60,400 3,564 General Motors Corp. 15,900 1,062 Navistar International Corp. (a) 24,700 713 Trinity Industries, Inc. 21,000 872 UAL Corp. (a) 25,800 2,012 Union Pacific Corp. 7,800 344 ---------- 16,858 ---------- CONSUMER DISCRETIONARY - 10.1% Brunswick Corp. 25,900 641 Carnival Corp. Class A 42,600 1,688 De Beers Consolidated Mines, Ltd. - ADR 38,200 664 Deluxe Corp. 16,200 580 Eastman Kodak Co. 20,493 1,497 Federated Department Stores, Inc. (a) 41,162 2,215 Fortune Brands, Inc. 22,300 857 Harrah's Entertainment, Inc. (a) 2,900 67 Hasbro, Inc. 26,300 1,034 JC Penney & Co., Inc. 25,800 1,866 King World Productions, Inc. (a) 33,600 857 Kmart Corp. (a) 36,700 707 MediaOne Group, Inc. (a) 68,500 3,010 Office Depot, Inc. (a) 32,600 1,029 Sears Roebuck & Co. 37,100 2,265 Time Warner, Inc. 15,900 1,358 Toys "R" Us, Inc. (a) 46,800 1,103 Tribune Co. 24,500 1,686 V.F. Corp. 7,600 391 Viacom, Inc. Class B (a) 43,100 2,511 Whirlpool Corp. 26,900 1,849 ---------- 27,875 ---------- CONSUMER STAPLES - 2.7% Albertson's, Inc. 7,600 394 American Stores Co. 8,200 198 Anheuser-Busch Cos., Inc. 30,500 1,439 ConAgra, Inc. 46,200 1,464 Heinz (H.J.) Co. 4,500 253 IBP, Inc. 27,100 491 PepsiCo, Inc. 37,100 1,528 RJR Nabisco Holdings Corp. 52,600 1,249 UST Corp. 15,400 416 ---------- 7,432 ---------- FINANCIAL SERVICES - 28.5% Ahmanson (H.F.) & Co. 21,900 1,555 Allstate Corp. 58,220 5,331 Ambac Financial Group, Inc. 29,200 1,708 American General Corp. 9,500 676 Associates First Capital Corp. Class A 11,915 916 Banc One Corp. 57,000 3,181 BankAmerica Corp. 28,400 2,455 Bankers Trust New York Corp. 16,200 1,880 Camden Property Trust 12,294 366 Chase Manhattan Corp. 93,936 7,092 Chelsea GCA Realty, Inc. 13,000 520 CIGNA Corp. 11,100 766 CIT Group, Inc. (The) Class A 26,600 998 Colonial Properties Trust 18,700 580 Countrywide Credit Industries, Inc. 31,400 1,594 Dime Bancorp, Inc. 48,000 1,437 Dow Jones & Co., Inc. 17,800 992 Federal National Mortgage Association 32,300 1,962 First American Corp. 40,900 1,968 First Chicago NBD Corp. 12,500 1,108 First Data Corp. 14,900 496 First Security Corp. 6,100 130 First Union Corp. 68,700 4,002 Fleet Financial Group, Inc. 37,700 3,148 Hartford Financial Services Group, Inc. (The) 17,100 1,956 Kilroy Realty Corp. 16,100 403 MBIA, Inc. 28,900 2,164 Morgan Stanley, Dean Witter, Discover and Co. 52,100 4,761 National City Corp. 5,800 412 NationsBank Corp. 33,781 2,584 PaineWebber Group, Inc. 3,500 150 PMI Group, Inc. (The) 13,800 1,013 PNC Bank Corp. 58,300 3,137 Prentiss Properties Trust 14,100 343 Provident Companies, Inc. 55,400 1,911 Public Storage, Inc. 28,800 807 Reliance Group Holdings, Inc. 38,700 677 Reliastar Financial Corp. 15,500 744 Ryder System, Inc. 44,200 1,395 SouthTrust Corp. 44,100 1,918 Spieker Properties, Inc. 11,000 426 TCF Financial Corp. 37,600 1,109 TIG Holdings, Inc. 46,400 1,067 Transamerica Financial Corp. 8,400 967 Travelers, Inc. 22,218 1,347 Union Planters Corp. 32,700 1,923 Washington Mutual, Inc. 53,100 2,303 ---------- 78,378 ----------
32 Equity Income Fund EQUITY INCOME FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- HEALTH CARE - 4.0% Aetna, Inc. 23,600 $ 1,797 Baxter International, Inc. 23,300 1,254 Bergen Brunswig Corp. Class A 16,400 761 Bristol-Myers Squibb Co. 13,650 1,569 Columbia/HCA Healthcare Corp. 76,000 2,213 Genzyme Corp. (a) 16,500 418 Schering-Plough Corp. 18,600 1,704 Tenet Healthcare Corp. (a) 35,600 1,112 United Healthcare Corp. 2,400 152 ---------- 10,980 ---------- INTEGRATED OILS - 9.0% Amerada Hess Corp. NPV 25,300 1,374 Amoco Corp. 25,800 1,074 Ashland, Inc. 35,237 1,819 Atlantic Richfield Co. 29,100 2,274 Coastal Corp. 33,700 2,353 Equitable Resources, Inc. 25,300 772 Exxon Corp. 53,400 3,808 Kerr-McGee Corp. 22,400 1,296 Mobil Corp. 14,200 1,088 Phillips Petroleum Co. 20,200 973 Tenneco, Inc. 52,900 2,014 Texaco, Inc. 42,200 2,519 USX-Marathon Group 95,100 3,263 ---------- 24,627 ---------- MATERIALS AND PROCESSING - 6.2% Aluminum Co. of America 19,100 1,259 Armstrong World Industries, Inc. 7,200 485 Bowater, Inc. 9,800 463 Dow Chemical Co. 6,800 658 Eastman Chemical Co. 37,200 2,316 FMC Corp. (a) 13,400 914 Freeport-McMoRan Copper & Gold, Inc. Class B 53,500 813 Great Lakes Chemical Corp. 10,200 402 Harsco Corp. 16,200 742 IMC Global, Inc. 35,600 1,072 International Paper Co. 23,600 1,015 Lafarge Corp. 16,200 637 LTV Corp. 29,900 286 Lubrizol Corp. 12,200 369 Mead Corp. 38,100 1,210 Nucor Corp. 11,500 529 Olin Corp. 20,000 834 Reynolds Metals Co. 16,400 917 Temple-Inland, Inc. 11,100 598 Timken Co. 22,700 699 Westvaco Corp. 34,600 977 ---------- 17,195 ---------- OTHER ENERGY - 2.1% Apache Corp. 17,600 554 BJ Services Co. (a) 19,600 570 Global Marine, Inc. (a) 20,700 387 Helmerich & Payne, Inc. 14,200 316 Occidental Petroleum Corp. 23,600 637 Santa Fe Energy Resources, Inc. (a) 57,900 622 Tosco Corp. 40,800 1,199 Transocean Offshore, Inc. 8,700 387 Ultramar Diamond Shamrock Corp. 13,600 429 Valero Energy Corp. 24,200 805 ---------- 5,906 ---------- PRODUCER DURABLES - 4.7% AGCO Corp. 44,000 905 AMP, Inc. 18,300 629 Case Corp. 7,900 381 Caterpillar, Inc. 20,800 1,100 Diebold, Inc. 14,000 404 Foster Wheeler Corp. 28,200 605 General Electric Co. 18,000 1,638 General Signal Corp. 8,300 299 Harnischfeger Industries, Inc. 18,300 518 Hitachi, Ltd. ADR 6,700 432 Johnson Controls, Inc. 27,700 1,584 Litton Industries, Inc. (a) 8,100 478 Matsushita Electric Industrial Co., Ltd. - ADR 3,000 482 Northrop Grumman Corp. 6,100 629 Raytheon Co. Class B 5,700 337 Tektronix, Inc. 8,300 294 Xerox Corp. 21,200 2,154 ---------- 12,869 ---------- TECHNOLOGY - 5.4% COMPAQ Computer Corp. 40,100 1,138 Data General Corp. (a) 29,500 441 Electronic Data Systems Corp. 49,162 1,966 Hewlett-Packard Co. 13,800 826 Equity Income Fund 33 EQUITY INCOME FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited) NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- International Business Machines Corp. 47,700 $ 5,477 MEMC Electronic Materials, Inc. (a) 13,700 142 National Semiconductor Corp. (a) 28,500 376 Seagate Technology (a) 32,500 774 Storage Technology Corp. (a) 39,000 1,692 Tandy Corp. 26,300 1,395 VLSI Technology, Inc. (a) 38,500 645 ---------- 14,872 ---------- UTILITIES - 16.1% Alltel Corp. 3,300 153 AT&T Corp. 74,800 4,273 Baltimore Gas & Electric Co. 30,400 944 BCE, Inc. 30,200 1,289 Bell Atlantic Corp. 127,098 5,799 Columbia Gas System, Inc. 12,450 693 Consolidated Edison, Inc. 26,200 1,207 DTE Energy Co. 43,400 1,752 Edison International 28,200 834 Entergy Corp. 36,400 1,046 FirstEnergy Corp. 24,700 760 FPL Group, Inc. 15,500 976 GPU, Inc. 22,300 843 GTE Corp. 82,172 4,571 Illinova Corp. 22,800 684 Niagara Mohawk Power Corp. (a) 41,200 615 PacifiCorp. 92,400 2,091 Peco Energy Co. 30,200 881 PG&E Corp. 93,965 2,966 Public Service Enterprise Group, Inc. 32,200 1,109 SBC Communications, Inc. 136,300 5,452 Texas Utilities Co. 37,000 1,540 U.S. West, Inc. (a) 23,700 1,114 WorldCom, Inc. (a) 54,200 2,619 ---------- 44,211 ---------- TOTAL COMMON STOCKS (cost $220,457) 261,203 ---------- PRINCIPAL AMOUNT (000) ---------- SHORT-TERM INVESTMENTS - 4.9% Frank Russell Investment Company Money Market Fund, due on demand (b) $ 12,351 12,351 United States Treasury Notes (b)(c) 5.250% due 07/31/98 1,000 1,000 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $13,351) 13,351 ---------- TOTAL INVESTMENTS (identified cost $233,808)(d) - 99.8% 274,554 OTHER ASSETS AND LIABILITIES, NET - 0.2% 660 ---------- NET ASSETS - 100.0% $ 275,214 ---------- ----------
(a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) See Note 2 for federal income tax information. ABBREVIATIONS: ADR - American Depositary Receipt NPV - No Par Value The accompanying notes are an integral part of the financial statements. 34 Equity Income Fund EQUITY INCOME FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ---------- ------------ FUTURES CONTRACTS (Notes 2 and 3) S&P 500 Index Futures Contracts expiration date 09/98 35 $ 296 S&P Barra Value Futures Contracts expiration date 09/98 30 31 ----------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 327 ----------- -----------
(#) At June 30, 1998, United States Treasury Notes valued at $1,000 were held as collateral in connection with futures contracts purchased by the Fund. The accompanying notes are an integral part of the financial statements. Equity Income Fund 35 EQUITY INCOME FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $233,808)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 274,554 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,205 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,158 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 6,712 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,184 LIABILITIES Payables: Investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,054 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 808 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 217 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 95 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 6,712 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,970 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,214 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 796 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,227 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,746 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,055 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,214 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: Class S ($274,635,700 divided by 6,254,333 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43.91 -------------- -------------- Class E ($577,904 divided by 13,131 shares of $.01 par value shares of beneficial interest outstanding)(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . $ 44.01 -------------- --------------
The accompanying notes are an integral part of the financial statements. 36 Equity Income Fund EQUITY INCOME FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,508 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ---------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,872 EXPENSES (Notes 1, 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,021 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 1 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,280 ---------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,592 ---------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,227 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,261 23,488 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,665 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 4,920 -------------- ---------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,408 ---------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 30,000 ---------------- ----------------
The accompanying notes are an integral part of the financial statements. Equity Income Fund 37 EQUITY INCOME FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE JUNE 30, 1998 YEAR ENDED (UNAUDITED) DECEMBER 31, 1997 -------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,592 $ 3,241 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,488 50,220 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 4,920 8,353 -------------- ---------------- Net increase (decrease) in net assets resulting from operations . . . . . . . 30,000 61,814 -------------- ---------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (793) (3,241) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) -- In excess of net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (46) Net realized gain on investments Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,016) (52,197) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) (78) -------------- ---------------- Total Distributions to Shareholders. . . . . . . . . . . . . . . . . . . . . (12,829) (55,562) -------------- ---------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 30,753 25,784 -------------- ---------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 47,924 32,036 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,290 195,254 -------------- ---------------- End of period (including undistributed net investment income of $796 at June 30, 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,214 $ 227,290 -------------- ---------------- -------------- ----------------
The accompanying notes are an integral part of the financial statements. 38 Equity Income Fund EQUITY INCOME FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 41.08 $ 40.22 $ 38.43 $ 32.21 $ 35.90 $ 35.32 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .26 .69 .82 .94 .90 .83 Net realized and unrealized gain (loss) on investments . 4.78 12.11 7.03 10.08 (.70) 3.69 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . 5.04 12.80 7.85 11.02 .20 4.52 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.13) (.69) (.82) (.97) (.89) (.83) In excess of net investment income . . . . . . . . . . . -- (.01) (.01) -- -- -- Net realized gain on investments . . . . . . . . . . . . (2.08) (11.24) (5.23) (3.83) (3.00) (3.11) ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (2.21) (11.94) (6.06) (4.80) (3.89) (3.94) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 43.91 $ 41.08 $ 40.22 $ 38.43 $ 32.21 $ 35.90 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 12.64 33.59 21.45 34.76 .69 13.23 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 274,636 226,952 195,132 180,116 144,285 149,532 Ratios to average net assets (%)(b): Operating expenses. . . . . . . . . . . . . . . . . . 1.00 1.04 1.07 1.06 1.04 1.05 Net investment income . . . . . . . . . . . . . . . . 1.24 1.51 2.03 2.51 2.56 2.23 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 124.62 139.33 106.40 92.40 89.91 78.72
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. Equity Income Fund 39 EQUITY INCOME FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ----------------------- 1998* 1997 1996** ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 41.43 $ 40.22 $ 41.86 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .13 .32 .10 Net realized and unrealized gain (loss) on investments . 4.81 12.20 2.39 ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . 4.94 12.52 2.49 ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.28) (.07) (.18) Net realized gain on investments . . . . . . . . . . . . (2.08) (11.24) (3.95) ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (2.36) (11.31) (4.13) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 44.01 $ 41.43 $ 40.22 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 12.30 32.68 6.23(b) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 578 338 122 Ratios to average net assets (%)(c): Operating expenses. . . . . . . . . . . . . . . . . . 1.56 1.74 1.77 Net investment income . . . . . . . . . . . . . . . . .66 .77 1.50 Portfolio turnover rate (%)(c) . . . . . . . . . . . . . 124.62 139.33 106.40
* For the six months ended June 30, 1998 (Unaudited). ** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) Periods less than one year are not annualized. (b) Total return represents performance for the period November 4, 1996 to December 31, 1996. (c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are annualized. 40 Equity Income Fund QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) --------- ---------- COMMON STOCKS - 97.6% AUTO AND TRANSPORTATION - 3.8% AMR Corp. (a) 105,000 $ 8,741 Bandag, Inc. 6,000 234 Burlington Northern, Inc. 7,800 766 Chrysler Corp. 58,400 3,292 CNF Transportation, Inc. 4,200 179 Consolidated Freightways Corp. (a) 1,400 19 Cooper Tire & Rubber Co. 9,500 196 CSX Corp. 20,500 933 Dana Corp. 35,600 1,905 Eaton Corp. 30,200 2,348 Echlin, Inc. 34,800 1,707 Exide Corp. 2,000 34 FDX Corp. (a) 2,100 132 Ford Motor Co. 143,200 8,449 General Motors Corp. 74,400 4,971 Genuine Parts Co. 20,800 719 Goodyear Tire & Rubber Co. 25,200 1,624 Hertz Corp. Class A 15,600 691 Hunt (JB) Transportation Services, Inc. 11,700 417 Kansas City Southern Industries, Inc. 90,700 4,501 Lear Corp. (a) 15,800 811 Meritor Automotive, Inc. 5,600 134 Modine Manufacturing Co. 11,500 398 Navistar International Corp. (a) 41,500 1,198 Norfolk Southern Corp. 34,900 1,040 PACCAR, Inc. 2,900 151 Southwest Airlines Co. 3,000 89 Union Pacific Corp. 23,200 1,024 Wisconsin Central Transportation Corp. (a) 3,100 67 ---------- 46,770 ---------- CONSUMER DISCRETIONARY - 11.0% ACNielsen Corp. (a) 18,000 455 AnnTaylor Stores Corp. (a) 23,100 489 AutoZone Inc. (a) 27,800 888 Avon Products, Inc. 2,300 178 Best Buy Co. (a) 16,800 607 BHC Communications, Inc. Class A 1,000 140 Black & Decker Corp. 8,800 537 Buffets, Inc. (a) 9,800 154 Burlington Coat Factory Warehouse Corp. 18,900 425 Carter-Wallace, Inc. 900 16 Cintas Corp. 2,200 112 Circuit City Stores, Inc. 18,100 848 Circus Circus Enterprises, Inc. (a) 16,200 274 Corporate Express, Inc. (a) 16,600 210 Darden Restaurants, Inc. 42,300 672 Dayton Hudson Corp. 340,900 16,534 Deluxe Corp. 15,700 562 Department 56, Inc. (a) 17,700 628 Dillard's, Inc. Class A 19,000 787 Disney (Walt) Co. 84,500 8,878 Donnelley (R.R.) & Sons Co. 12,000 549 Eastman Kodak Co. 42,500 3,105 EKCO Group, Inc. (a) 5,800 46 Enesco Group, Inc. 4,800 148 Extended Stay America, Inc. (a) 11,700 132 Federated Department Stores, Inc. (a) 39,200 2,109 Fingerhut Cos., Inc. 45,100 1,488 Fortune Brands, Inc. 7,700 296 Fruit of the Loom, Inc. Class A (a) 110,900 3,680 Furniture Brands International, Inc. (a) 9,200 258 Gannett Co., Inc. 83,900 5,962 General Nutrition Companies, Inc. (a) 15,400 479 Grand Casinos, Inc. (a) 6,500 109 Hasbro, Inc. 31,300 1,230 Home Depot, Inc. (The) 93,550 7,770 Host Marriott Corp. (a) 69,900 1,245 Huffy Corp. 3,500 63 International Game Technology 19,800 480 Kmart Corp. (a) 321,100 6,181 Knight-Ridder, Inc. 34,700 1,911 La-Z-Boy Chair Co. 7,200 407 Leggett & Platt, Inc. 36,400 910 Mattel, Inc. 61,100 2,585 May Department Stores Co. 8,600 563 McClatchy Newspapers, Inc. Class A 800 28 McDonald's Corp. 21,900 1,511 McGraw-Hill, Inc. 30,900 2,520 MGM Grand, Inc. (a) 9,900 312 Micro Warehouse, Inc. (a) 8,800 135 Mine Safety Appliances Co. 600 43 Mirage Resorts, Inc. (a) 29,300 624 Newell Co. 10,600 528 Nine West Group, Inc. (a) 3,100 83 Premark International, Inc. 15,000 484 Promus Hotel Corp. New (a) 31,727 1,221 QUALCOMM, Inc. (a) 10,800 607 Reebok International, Ltd. (a) 11,400 316 Rubbermaid, Inc. 19,300 641 Sears Roebuck & Co. 78,800 4,812 Service Corp. International 44,500 1,908 Shaw Industries, Inc. 25,300 446 Snyder Communications, Inc. (a) 19,500 858 Sunglass Hut International, Inc. (a) 44,200 486
42 Quantitative Equity Fund QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) --------- ---------- Talbots, Inc. 2,800 $ 73 Time Warner, Inc. 90,700 7,749 Times Mirror Co. Series A 7,500 472 TJX Cos., Inc. 94,600 2,282 Toys "R" Us, Inc. (a) 50,300 1,185 Tribune Co. 38,000 2,615 Tricon Global Restaurants, Inc. (a) 37,300 1,182 Tupperware Corp. 28,400 799 V.F. Corp. 29,100 1,499 Viacom, Inc. Class B (a) 130,900 7,625 Viad Corp. 98,200 2,725 Wal-Mart Stores, Inc. 115,700 7,029 Warnaco Group, Inc. Class A 25,400 1,078 Washington Post Co. Class B 1,300 749 Waste Management, Inc. 95,700 3,351 Whirlpool Corp. 35,000 2,407 ---------- 135,483 ---------- CONSUMER STAPLES - 7.7% Albertson's, Inc. 74,100 3,839 American Stores Co. 16,000 387 Anheuser-Busch Cos., Inc. 48,300 2,279 Block Drug Co., Inc. Class A 4,724 178 Coca-Cola Co. (The) 110,600 9,456 Dean Foods Co. 15,000 824 Fleming Cos., Inc. 14,100 248 Flowers Industries, Inc. 35,000 715 General Mills, Inc. 3,800 260 Gillette Co. 112,400 6,372 Hannaford Brothers Co. 8,000 352 Heinz (H.J.) Co. 26,400 1,482 Hormel (George A.) & Co. - Hormel Foods Corp. 2,200 76 Interstate Bakeries Corp. 22,000 730 Kellogg Co. 21,600 811 Kroger Co. (a) 48,500 2,079 Nabisco Holdings Corp. Class A 4,400 159 PepsiCo, Inc. 153,400 6,318 Philip Morris Cos., Inc. 261,700 10,304 Procter & Gamble Co. 139,000 12,658 Quaker Oats Co. 98,900 5,433 Ralston-Purina Group 11,500 1,343 RJR Nabisco Holdings Corp. 123,500 2,933 Safeway, Inc. (a) 239,870 9,760 Sara Lee Corp. 6,300 352 Seagram Co., Ltd. 58,600 2,399 SuperValu, Inc. 6,000 266 Tyson Foods, Inc. Class A 16,700 362 Unilever NV 133,600 10,546 Universal Corp. 40,000 1,496 Whitman Corp. 2,100 49 ---------- 94,466 ---------- FINANCIAL SERVICES - 19.8% AFLAC, Inc. 11,800 358 Ahmanson (H.F.) & Co. 42,100 2,989 Allstate Corp. 87,579 8,019 Ambac Financial Group, Inc. 23,800 1,392 American Express Co. 30,500 3,477 American International Group, Inc. 183,900 26,849 American National Insurance Co. 500 52 AmSouth Bancorp 44,250 1,740 Associated Banc-Corp. 4,700 177 Associates First Capital Corp. Class A 59,046 4,539 BankAmerica Corp. 244,000 21,091 Bankers Trust New York Corp. 58,600 6,801 Bear Stearns Cos., Inc. 81,526 4,637 Beneficial Corp. 6,000 919 Block (H&R) Co., Inc. 14,400 607 Capital One Financial Corp. 4,400 546 Charter One Financial, Inc. 12,300 413 CIGNA Corp. 58,700 4,050 Citicorp 44,200 6,597 City National Corp. 23,300 861 Colonial BancGroup, Inc. 3,200 103 Comdisco, Inc. 76,200 1,448 Comerica, Inc. 72,450 4,800 Conseco, Inc. 31,700 1,482 ContiFinancial Corp. (a) 3,800 88 Crescent Real Estate Equities, Inc. 19,400 652 Dime Bancorp, Inc. 61,600 1,844 Dow Jones & Co., Inc. 13,400 747 DST Systems, Inc. (a) 7,100 398 Dun & Bradstreet Corp. 77,200 2,789 Edwards (A.G.), Inc. 42,000 1,793 Equifax, Inc. 25,100 911 Equitable Companies, Inc. 79,500 5,958 Federal Home Loan Mortgage Corp. 217,400 10,231 Federal National Mortgage Association 144,500 8,778 Financial Security Assurance Holdings, Ltd. 2,800 165 FINOVA Group, Inc. 4,400 249 First Chicago NBD Corp. 12,752 1,130 First Data Corp. 53,400 1,779
Quantitative Equity Fund 43 QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) --------- ---------- First Tennessee National Corp. 9,100 $ 287 First Union Corp. 83,700 4,876 Firstar Corp. 10,400 395 Fleet Financial Group, Inc. 140 12 Fremont General Corp. 3,500 190 GATX Corp. 11,400 500 Golden West Financial Corp. 27,600 2,934 Greenpoint Financial Corp. 6,300 237 HRPT Properties Trust 31,500 593 Huntington Bancshares, Inc. 13,300 445 Kansas City Life Insurance Co. 1,300 118 KeyCorp 33,000 1,176 Lehman Brothers Holdings, Inc. 76,000 5,895 Lincoln National Corp. 29,600 2,705 Long Island Bancorp, Inc. 5,300 321 M & T Bank Corp. (a) 600 332 Marsh & McLennan Cos., Inc. 117,600 7,107 Marshall & Ilsley Corp. 2,100 107 MBIA, Inc. 11,600 869 Merrill Lynch & Co., Inc. 17,600 1,624 Money Store, Inc. 3,800 130 Morgan (J.P.) & Co., Inc. 13,600 1,593 Morgan Stanley, Dean Witter, Discover and Co. 148,750 13,592 National City Corp. 33,260 2,361 National Commerce Bancorp 3,200 134 NationsBank Corp. 199,609 15,270 North Fork Bancorporation, Inc. 34,650 847 Norwest Corp. 10,800 404 Ocwen Financial Corp. (a) 4,200 113 Ohio Casualty Corp. 1,200 53 Old Republic International Corp. 63,225 1,853 Pacific Century Financial Corp. 7,200 173 PaineWebber Group, Inc. 2,700 116 Peoples Heritage Financial Group 5,900 139 PMI Group, Inc. (The) 1,600 117 PNC Bank Corp. 4,905 264 Provident Financial Group, Inc. 2,900 132 Republic New York Corp. 12,200 768 Riggs National Corp. 1,100 32 Ryder System, Inc. 6,700 211 SAFECO Corp. 14,100 640 SLM Holding Corp. 2,500 123 SouthTrust Corp. 76,350 3,321 Sovereign Bancorp, Inc. 12,100 197 St. Paul Cos., Inc. 12,400 522 Star Banc Corp. 16,200 1,035 SunTrust Banks, Inc. 26,900 2,187 TCF Financial Corp. 6,600 195 Trans Financial, Inc. 5,800 332 Transamerica Financial Corp. 2,900 334 Travelers Property Casualty Corp. Class A 80,000 3,430 Travelers, Inc. 249,557 15,129 United Asset Management Corp. 1,200 31 UNUM Corp. 13,800 766 Washington Federal, Inc. 4,500 124 Washington Mutual, Inc. 32,900 1,426 Wells Fargo & Co. 9,100 3,357 Zions Bancorp 16,300 866 ---------- 244,499 ---------- HEALTH CARE - 11.2% Aetna, Inc. 11,400 868 Allergan, Inc. 13,200 612 ALZA Corp. (a) 15,000 649 American Home Products Corp. 194,200 10,050 Amgen, Inc. (a) 500 33 Bausch & Lomb, Inc. 3,700 185 Baxter International, Inc. 11,600 624 Bergen Brunswig Corp. Class A 20,500 951 Beverly Enterprises, Inc. New (a) 66,600 920 Boston Scientific Corp. (a) 28,600 2,048 Bristol-Myers Squibb Co. 168,100 19,321 Cardinal Health, Inc. 47,950 4,495 Chiron Corp. (a) 15,700 246 Columbia/HCA Healthcare Corp. 77,700 2,263 Forest Labs, Inc. (a) 16,200 583 Genesis Health Ventures, Inc. (a) 27,000 675 HBO & Co. 110,400 3,892 Health Care & Retirement Corp. (a) 16,600 655 HEALTHSOUTH Corp. (a) 87,000 2,322 Humana, Inc. (a) 64,700 2,018 Immune Response Corp. (a) 40,400 603 Integrated Health Services, Inc. 20,400 765 IVAX Corp. (a) 14,800 137 Johnson & Johnson 152,900 11,276 Lilly (Eli) & Co. 3,600 238 McKesson Corp. 30,600 2,486 Merck & Co., Inc. 166,270 22,239 Mylan Laboratories, Inc. 184,300 5,541 NovaCare, Inc. (a) 19,100 224 Olsten Corp. 4,100 46 Omnicare, Inc. 26,500 1,010 PacifiCare Health Systems, Inc. Class B (a) 43,700 3,859
44 Quantitative Equity Fund QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) --------- ---------- Pfizer, Inc. 11,800 $ 1,283 Schering-Plough Corp. 119,400 10,940 Shared Medical Systems 6,600 485 Tenet Healthcare Corp. (a) 120,900 3,778 United Healthcare Corp. 132,500 8,414 Warner-Lambert Co. 135,500 9,400 Watson Pharmaceuticals, Inc. (a) 6,500 303 Wellpoint Health Networks, Inc. Class A (a) 25,100 1,858 ---------- 138,295 ---------- INTEGRATED OILS - 5.1% Amoco Corp. 17,800 741 Ashland, Inc. 48,900 2,524 Atlantic Richfield Co. 42,900 3,352 Coastal Corp. 24,000 1,676 Enron Corp. 16,400 887 Exxon Corp. 404,644 28,856 Lyondell Petrochemical Co. 7,800 237 Mobil Corp. 125,800 9,639 Pennzoil Co. 17,700 896 Phillips Petroleum Co. 134,100 6,462 Royal Dutch Petroleum Co. 25,400 1,392 Sun Co., Inc. 6,300 245 Tenneco, Inc. 107,600 4,096 Tesoro Petroleum Corp. (a) 1,600 25 Texaco, Inc. 21,700 1,295 Unocal Corp. 7,500 268 ---------- 62,591 ---------- MATERIALS AND PROCESSING - 5.6% Albemarle Corp. 4,100 90 Alcan Aluminum, Ltd. 31,400 867 Allegheny Teldyne, Inc. 24,400 558 Aluminum Co. of America 23,300 1,536 Arco Chemical Co. 10,300 591 Avery Dennison Corp. 6,400 344 Ball Corp. 1,400 56 Bethlehem Steel Corp. (a) 110,400 1,373 Boise Cascade Corp. 3,900 128 Burlington Industries, Inc. (a) 6,700 94 Catellus Development Corp. (a) 19,800 350 Champion International Corp. 2,900 143 Cleveland-Cliffs, Inc. 1,200 64 Consolidated Papers, Inc. 10,000 273 Crompton & Knowles Corp. 68,200 1,718 Cytec Industries, Inc. (a) 3,200 142 Dow Chemical Co. 140,900 13,623 du Pont (E.I.) de Nemours & Co. 97,300 7,261 Ecolab, Inc. 4,300 133 Engelhard Corp. 58,700 1,189 Fluor Corp. 36,200 1,846 Fort James Corp. 21,400 952 Freeport-McMoRan Copper & Gold, Inc. Class B 20,200 307 Georgia Gulf Corp. 1,900 43 Georgia-Pacific Group 44,000 2,593 Georgia-Pacific Timber Group 47,100 1,086 Goodrich (B.F.) Co. 62,410 3,097 Harsco Corp. 19,700 903 Illinois Tool Works, Inc. 9,200 614 Kimberly-Clark Corp. 62,200 2,853 Lafarge Corp. 12,700 499 Louisiana Pacific Corp. 15,200 277 Masco Corp. 36,700 2,220 Mead Corp. 16,600 527 Millennium Chemicals, Inc. 46,900 1,589 Monsanto Co. 87,700 4,900 Nucor Corp. 22,600 1,040 Owens-Corning Fiberglas Corp. 12,600 514 Pentair, Inc. 7,600 323 Reynolds Metals Co. 9,500 531 Rohm & Haas Co. 6,000 624 Rouse Co. (The) 2,400 75 Sherwin-Williams Co. 1,000 33 Sigma Aldrich Corp. 25,200 885 Solutia, Inc. 41,600 1,193 Stone Container Corp. (a) 33,300 520 Temple-Inland, Inc. 9,000 485 Tyco International, Ltd. 79,900 5,034 UCAR International, Inc. (a) 3,700 108 Unifi, Inc. 11,200 384 Union Camp Corp. 30,600 1,519 Union Carbide Corp. 9,100 486 USX-U.S. Steel Group 11,800 389 Vulcan Materials Co. 400 44 Wellman, Inc. 8,200 187 Witco Corp. 1,500 45 ---------- 69,258 ----------
Quantitative Equity Fund 45 QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) --------- ---------- MISCELLANEOUS - 0.0% Ventas, Inc. (a) 9,000 $ 124 ---------- 124 ---------- OTHER ENERGY - 1.7% AES Corp. (a) 29,000 1,524 Anadarko Petroleum Corp. 1,500 101 Apache Corp. 6,900 217 Baker Hughes, Inc. 63,530 2,196 Burlington Resources, Inc. 1,300 56 Camco International, Inc. 9,400 732 Cooper Cameron Corp. (a) 8,100 413 Diamond Offshore Drilling, Inc. 10,400 416 El Paso Natural Gas Co. 13,000 497 ENSCO International, Inc. 44,200 768 Halliburton Co. 34,700 1,546 Helmerich & Payne, Inc. 45,800 1,019 Input/Output, Inc. (a) 2,800 50 MarketSpan Corp. (a) 85,448 2,558 McDermott International, Inc. 46,900 1,615 Octel Corp. (a) 1,700 34 ONEOK, Inc. 15,900 634 R&B Falcon Corp. (a) 18,700 423 Schlumberger, Ltd. 43,800 2,992 Sempra Energy (a) 26,700 741 Tosco Corp. 26,700 784 Ultramar Diamond Shamrock Corp. 7,700 243 Union Pacific Resources Group, Inc. 33,500 588 Valero Energy Corp. 14,400 480 Western Atlas, Inc. (a) 6,000 510 ---------- 21,137 ---------- PRODUCER DURABLES - 8.1% AGCO Corp. 33,300 685 AlliedSignal, Inc. 109,100 4,841 Applied Materials, Inc. (a) 32,300 953 Boeing Co. 170,100 7,580 Case Corp. 14,800 714 Caterpillar, Inc. 210,500 11,130 Cincinnati Milacron, Inc. 3,600 88 Coltec Industries, Inc. (a) 22,600 449 Crane Co. 3,300 160 Cummins Engine Co., Inc. 2,200 113 Deere & Co. 119,000 6,292 Dover Corp. 54,000 1,850 EG&G, Inc. 20,600 618 Emerson Electric Co. 31,400 1,896 Foster Wheeler Corp. 5,200 111 General Electric Co. 221,700 20,175 Grainger (W.W.), Inc. 26,200 1,305 Gulfstream Aerospace Corp. (a) 37,300 1,734 Honeywell, Inc. 12,900 1,078 Ingersoll-Rand Co. 81,450 3,589 ITT Industries, Inc. 46,700 1,745 Johnson Controls, Inc. 15,400 881 Lexmark International Group, Inc. Class A (a) 47,500 2,898 Litton Industries, Inc. (a) 4,900 289 Lockheed Martin Corp. 15,300 1,620 Molex, Inc. 1,300 33 National Service Industries, Inc. 17,500 890 Northern Telecom, Ltd. 35,000 1,986 Parker-Hannifin Corp. 37,700 1,437 Perkin-Elmer Corp. 10,100 628 Pitney Bowes, Inc. 109,500 5,270 Pulte Corp. 20,600 615 Raychem Corp. 32,200 952 Republic Industries, Inc. (a) 131,400 3,285 Rockwell International Corp. 8,600 413 Sensormatic Electronics Corp. (a) 16,800 235 Snap-On Tools Corp. 35,100 1,272 Solectron Corp. (a) 8,800 370 Sundstrand Corp. 7,000 401 Tektronix, Inc. 4,700 166 Thermo Electron Corp. (a) 61,300 2,096 Thermo Instrument Systems, Inc. (a) 8,800 231 Thomas & Betts Corp. 22,800 1,123 United Technologies Corp. 33,600 3,108 Xerox Corp. 25,500 2,592 ---------- 99,897 ---------- TECHNOLOGY - 11.2% 3Com Corp.v (a) 21,800 669 ADC Telecommunications, Inc. (a) 23,700 865 Anixter International, Inc. (a) 35,900 684 Apple Computer, Inc. (a) 297,700 8,540 Autodesk, Inc. 24,500 942 AVX Corp. 16,500 265 Bay Networks, Inc. (a) 43,900 1,416 C-Cube Microsystems, Inc. (a) 46,700 864 Cabletron Systems, Inc. (a) 7,400 99 Cisco Systems, Inc. (a) 110,100 10,136 COMPAQ Computer Corp. 126,120 3,579 CompUSA, Inc. (a) 15,100 273 Computer Associates International, Inc. 53,000 2,945 Computer Sciences Corp. 19,300 1,235
46 Quantitative Equity Fund QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) --------- ---------- Comverse Technology, Inc. (a) 47,600 $ 2,469 Cooper Industries, Inc. 53,300 2,928 Dell Computer Corp. (a) 27,900 2,588 Electronic Data Systems Corp. 83,800 3,352 EMC Corp. (a) 95,400 4,275 General Dynamics Corp. 92,400 4,297 Gerber Scientific, Inc. 1,100 25 Harris Corp. 15,000 670 Informix Corp. (a) 236,600 1,863 Ingram Micro, Inc. Class A (a) 23,300 1,031 Intel Corp. 202,300 14,983 International Business Machines Corp. 83,700 9,610 LSI Logic Corp. (a) 35,300 814 Lucent Technologies, Inc. 107,000 8,901 Microsoft Corp. (a) 178,500 19,345 Motorola, Inc. 41,800 2,197 NCR Corp. (a) 24,000 780 Novell, Inc. (a) 472,500 6,024 Oracle Systems Corp. (a) 114,000 2,793 Quantum Corp. (a) 15,400 319 SCI Systems, Inc. (a) 47,600 1,791 Sterling Software, Inc. (a) 51,600 1,525 Storage Technology Corp. (a) 35,400 1,535 Sun Microsystems, Inc. (a) 102,500 4,452 Symantec Corp. (a) 5,500 143 Symbol Technologies, Inc. 31,350 1,183 Tech Data Corp. (a) 29,700 1,273 Texas Instruments, Inc. 40,000 2,333 Textron, Inc. 9,600 688 Vishay Intertechnology, Inc. (a) 46,470 834 Xilinx, Inc. (a) 7,200 246 ---------- 137,779 ---------- UTILITIES - 12.4% Airtouch Communications, Inc. (a) 71,500 4,178 Allegheny Energy, Inc. 13,200 398 Ameren Corp. 12,500 497 American Electric Power Co., Inc. 22,900 1,039 American Water Works, Inc. 31,100 964 Ameritech Corp. 149,500 6,709 AT&T Corp. 364,900 20,845 Baltimore Gas & Electric Co. 46,100 1,432 Bell Atlantic Corp. 250,014 11,407 BellSouth Corp. 168,100 11,284 Carolina Power & Light Co. 34,600 1,501 Central & Southwest Corp. 70,500 1,895 Cincinnati Bell, Inc. 14,300 409 CINergy Corp. 17,900 627 CMS Energy Corp. 10,900 480 Columbia Gas System, Inc. 32,450 1,805 Comcast Corp. Special Class A 59,300 2,405 Comsat Corp. Series 1 66,300 1,877 Consolidated Natural Gas Co. 7,800 459 Dominion Resources, Inc. 19,500 795 DTE Energy Co. 87,500 3,533 Energy East Corp. (a) 60,600 2,522 Entergy Corp. 24,500 704 FPL Group, Inc. 80,200 5,053 Frontier Corp. 20,000 630 GPU, Inc. 29,400 1,112 GTE Corp. 113,200 6,297 Houston Industries, Inc. 70,900 2,189 K N Energy, Inc. 25,300 1,371 Kansas City Power & Light Co. 7,400 215 MCI Communications Corp. 34,000 1,974 New Century Energies, Inc. 11,800 536 New England Electric System 7,400 320 Northern States Power Co. 17,200 492 OGE Energy Corp. 18,000 486 Paging Network, Inc. (a) 56,800 792 Peco Energy Co. 24,500 715 PG&E Corp. 213,200 6,729 Pinnacle West Capital Corp. 42,800 1,926 PP&L Resources, Inc. 21,900 497 Public Service Enterprise Group, Inc. 55,300 1,904 SBC Communications, Inc. 315,290 12,612 Southern Co. 33,400 925 Southwest Gas Corp. 13,100 320 Sprint Corp. 22,600 1,593 Tele-Communications TCI Ventures Group Series A (a) 65,500 1,310 Tele-Communications, Inc. Class A (a) 41,800 1,604 Tele-Communications, Inc. Series A (a) 75,800 2,942 Texas Utilities Co. 78,400 3,263 U.S. West, Inc. (a) 21,500 1,011 UtiliCorp United, Inc. 37,900 1,428 Western Resources, Inc. 6,800 264 Wisconsin Energy Corp. 12,600 383 WorldCom, Inc. (a) 281,900 13,619 ---------- 152,277 ---------- TOTAL COMMON STOCKS (cost $872,946) 1,202,576 ----------
Quantitative Equity Fund 47 QUANTITATIVE EQUITY FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) --------- ---------- SHORT-TERM INVESTMENTS - 2.3% Frank Russell Investment Company Money Market Fund, due on demand (b) $ 26,304 $ 26,304 United States Treasury Notes (b)(c) 5.250% due 07/31/98 2,100 2,100 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $28,404) 28,404 ---------- TOTAL INVESTMENTS (identified cost $901,350)(d) - 99.9% 1,230,980 OTHER ASSETS AND LIABILITIES, NET - 0.1% 1,115 ---------- NET ASSETS - 100.0% $1,232,095 ---------- ----------
(a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) See Note 2 for federal income tax information. ABBREVIATIONS: NV - Nonvoting
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ---------- -------------- FUTURES CONTRACTS (Notes 2 and 3) S&P 500 Index Futures Contracts expiration date 09/98 29 $ 825 S&P 400 Midcap Index Futures Contracts expiration date 09/98 84 122 ----------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 947 ----------- -----------
(#) At June 30, 1998, United States Treasury Notes valued at $2,100 were held as collateral in connection with futures contracts purchased by the Fund. The accompanying notes are an integral part of the financial statements. 48 Quantitative Equity Fund QUANTITATIVE EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $901,350)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . $ 1,230,980 Receivables: Dividends and interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,618 Investments sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,605 Fund shares sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,514 Short term investments held as collateral for securities loaned, at market (Note 3) . . . . . . . . . . . 29,124 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,274,841 LIABILITIES Payables: Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155 Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,189 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,104 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 830 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . 183 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 29,124 -------------- Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,746 -------------- NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,232,095 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,050 Accumulated net realized gain (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,824 Unrealized appreciation (depreciation) on: Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,630 Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 947 Shares of beneficial interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 857,349 -------------- NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,232,095 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: Class S ($1,229,187,982 divided by 29,402,894 shares of $.01 par value shares of beneficial interest outstanding). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41.80 -------------- -------------- Class E ($2,907,175 divided by 69,725 shares of $.01 par value shares of beneficial interest outstanding)(Note 1). . . . . . . . . . . . . . . . . . . . . . . . . . $ 41.69 -------------- --------------
The accompanying notes are an integral part of the financial statements. Quantitative Equity Fund 49 QUANTITATIVE EQUITY FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,288 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . 797 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 -------------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,141 EXPENSES (Notes 1, 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,371 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . 78 Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . 4 Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . 3 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,924 -------------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,217 -------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,054 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,099 59,153 ------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,162 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829 105,991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ------------- -------------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,144 -------------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . $ 169,361 -------------------- --------------------
The accompanying notes are an integral part of the financial statements. 50 Quantitative Equity Fund QUANTITATIVE EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED FOR THE JUNE 30, 1998 YEAR ENDED (UNAUDITED) DECEMBER 31, 1997 ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,217 $ 8,796 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,153 131,310 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . 105,991 93,591 ---------------- ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . 169,361 233,697 ---------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,139) (8,794) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (2) In excess of net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (23) Net realized gain on investments Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,216) (145,647) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53) (311) ---------------- ----------------- Total Distributions to Shareholders. . . . . . . . . . . . . . . . . . . . (25,413) (154,777) ---------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6) . . 88,923 256,057 ---------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . 232,871 334,977 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 999,224 664,247 ---------------- ----------------- End of period (including undistributed net investment income of $2,050 and accumulated distributions in excess of net investment income of $23, respectively) $ 1,232,095 $ 999,224 ---------------- ----------------- ---------------- -----------------
The accompanying notes are an integral part of the financial statements. Quantitative Equity Fund 51 QUANTITATIVE EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $ 36.78 $ 33.05 $ 30.76 $ 24.84 $ 26.44 $ 25.82 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . .15 .38 .51 .50 .49 .45 Net realized and unrealized gain (loss) on investments 5.78 10.00 6.24 8.72 (.19) 2.69 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . 5.93 10.38 6.75 9.22 .30 3.14 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . (.08) (.38) (.51) (.51) (.49) (.45) Net realized gain on investments . . . . . . . . . . . (.83) (6.27) (3.95) (2.79) (1.41) (2.07) ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . (.91) (6.65) (4.46) (3.30) (1.90) (2.52) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $ 41.80 $ 36.78 $ 33.05 $ 30.76 $ 24.84 $ 26.44 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . 16.32 32.70 23.08 37.69 .19 12.56 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . 1,229,188 996,880 663,925 488,948 380,592 314,647 Ratios to average net assets (%)(b): Operating expenses. . . . . . . . . . . . . . . . . .87 .91 .93 .93 .94 .98 Net investment income . . . . . . . . . . . . . . . .75 1.04 1.59 1.71 1.95 1.68 Portfolio turnover rate (%)(b) . . . . . . . . . . . . 77.26 87.67 74.33 78.83 45.97 62.48
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. 52 Quantitative Equity Fund QUANTITATIVE EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ---------------------------- 1998* 1997 1996** ------------ ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 36.80 $ 33.05 $ 33.81 ------------ ------------ ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .03 .14 .05 Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . 5.77 9.95 1.87 ------------ ------------ ------------ Total Income From Investment Operations . . . . . . . . . . . . . . . . . . 5.80 10.09 1.92 ------------ ------------ ------------ LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.08) (.07) (.08) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . (.83) (6.27) (2.60) ------------ ------------ ------------ Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.91) (6.34) (2.68) ------------ ------------ ------------ NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . $ 41.69 $ 36.80 $ 33.05 ------------ ------------ ------------ ------------ ------------ ------------ TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.99 31.70 5.91(b) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . . . . 2,907 2,344 322 Ratios to average net assets (%)(c): Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.45 1.59 1.65 Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 .33 .81 Portfolio turnover rate (%)(c) . . . . . . . . . . . . . . . . . . . . . . . . . 77.26 87.67 74.33
* For the six months ended June 30, 1998 (Unaudited). ** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) Periods less than one year are not annualized. (b) Total return represents performance for the period November 4, 1996 to December 31, 1996. (c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are annualized. Quantitative Equity Fund 53 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- COMMON STOCKS - 91.2% ARGENTINA - 0.1% Banco de Galicia y Buenos Aires Class B - ADR 4,006 $ 73 Banco Frances del Rio la Plata - ADR 5,554 127 Naviera Perez Companc Class B 21,372 107 Sociedad Comercial del Plata - ADR 1,296 14 Telefonica de Argentina Class B - ADR 5,550 180 YPF Sociedad Anonima Class D - ADR 11,612 350 ---------- 851 ---------- AUSTRALIA - 2.2% Amcor, Ltd. 238,100 1,045 AMP, Ltd. (a) 20,309 238 Australia & New Zealand Bank Group, Ltd. 728,577 5,038 Australian Gas & Light Co. 25,740 161 Boral, Ltd. 557,892 1,049 Brambles Industries, Ltd. 8,000 157 Broken Hill Proprietary Co. 144,005 1,220 Caltex Australia 100,000 239 Colonial, Ltd (a) 31,000 94 Colonial, Ltd. Rights (a) 5,200 1 Commonwealth Bank of Australia 16,837 197 CSR, Ltd. 194,000 561 Eastern Aluminum 272,000 203 Eltin, Ltd. 204,565 166 Fairfax (John) 80,000 139 Foster's Brewing Group, Ltd. 192,400 454 GIO Australia Holdings 259,788 668 Goodman Fielder Wattie 93,000 136 Lend Lease Corp. 6,457 131 Mayne Nickless, Ltd. 63,836 339 National Australia Bank, Ltd. 42,135 557 News Corp. 288,310 2,359 Orica, Ltd. 60,000 356 Pacific Dunlop, Ltd. 456,137 739 Pasminco, Ltd. 70,000 53 Pioneer International, Ltd. 213,500 510 PMP Communications, Ltd. 165,000 268 Publishing Broadcasting, Ltd. 36,360 157 RGC, Ltd. 138,905 138 Santos, Ltd. 250,000 776 Tabcorp Holdings, Ltd. 22,000 113 Telstra Corp., Ltd. 52,194 134 Western Mining Corp., Ltd. 437,929 1,321 Westfield Trust (Units) 494,000 951 Westfield Trust (Units)(New)(a) 16,277 31 Westpac Banking Corp. 171,751 1,051 Woodside Petroleum, Ltd. 20,000 101 Woolworth's, Ltd. 123,811 404 ---------- 22,255 ---------- AUSTRIA - 0.1% Bank Austria AG 4,000 326 Brau-Union Goess-Reininghaus-Osterreichische Brau 1,346 80 Oester Brau Beteil 1,200 71 Voest-Alpine Stahl AG 11,000 441 Wienerberger Baustoff 1,300 314 ---------- 1,232 ---------- BELGIUM - 0.7% Credit Communal Holding/ Dexia NPV 1,287 194 Generale de Banque NPV 628 466 KBC Bancassurance Holding (a) 15,600 1,397 Kredietbank NPV 2,200 197 PetroFina SA NPV 970 398 Tractebel Investments International NPV 23,208 3,401 UCB Capital NV 29 151 Virgin Express Holdings PLC - ADR (a) 34,350 438 ---------- 6,642 ---------- BRAZIL - 0.2% Centrais Geradoras do Sul do Brasil SA NPV (a) 3,435,180 5 Companhia Brasileira de Distribuicao Grupo Pao de Acucar (Regd) - GDR 4,750 107 Companhia Energetica de Minas Gerais SA - ADR 3,539 112 Eletrobras (centrais) NPV 3,435,180 101 Telecomunicacoes Brasileiras - ADR 12,624 1,378 Telecomunicacoes de Sao Paulo - NPV (a) 37,771 6 Telecomunicacoes Brasileiras SA 1998 Rights (a) 44,709 1 Telesp Celular SA NPV (a) 37,771 2 Uniao de Bancos Brasileiros SA - GDR 3,974 117 Usinas Siderurgicas de Minas - ADR 19,363 97 ---------- 1,926 ---------- CANADA - 3.8% Abitibi-Consolidated, Inc. 67,000 863 Air Canada, Inc. (a) 100,000 894
54 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Alcan Aluminum, Ltd. 4,640 $ 128 Algoma Steel, Inc. (a) 30,000 97 ATI Technologies, Inc. (a) 78,300 1,030 Barrick Gold Corp. (US Regd) 27,100 520 BCE, Inc. 91,000 3,902 Bombardier, Inc. Class B 77,800 2,120 Canadian Airlines Corp. (a) 45,000 127 Canadian Imperial Bank of Commerce 24,740 795 Canadian Pacific, Ltd. 206,800 5,818 CGI Group, Inc. (a) 88,600 1,885 Dofasco, Inc. NPV 27,601 449 Donohue, Inc. Class A 23,700 536 Edperbrascan Corp. Class A 26,500 445 Finning International, Inc. 17,000 155 Geac Computer Corp., Ltd. (a) 27,525 917 Hudson's Bay Co. 50,000 1,145 Imasco, Ltd. IF 69,600 1,284 Imperial Oil, Ltd. 59,796 1,044 Inco, Ltd. 66,087 900 Moore Corp., Ltd. 120,100 1,591 National Bank of Canada 65,500 1,280 Noranda, Inc. 100,600 1,736 Nova Scotia Power, Inc. 22,500 297 Potash Corp. of Saskatchewan, Inc. 21,400 1,611 Rogers Communications, Inc. Class B (a) 70,000 623 Royal Bank of Canada 37,520 2,256 Stelco, Inc. Series A 56,800 405 Suncor, Inc. NPV 3,790 129 The Seagram Co., Ltd. 51,300 2,090 Torstar Corp. Class B 15,600 498 Westcoast Energy, Inc. 20,500 456 ---------- 38,026 ---------- CHILE - 0.0% Chilectra SA - ADR 4,271 92 Enersis SA - ADR 1,783 43 Santa Isabel SA - ADR 918 10 ---------- 145 ---------- CHINA - 0.0% Huaneng Power International, Inc. Series N - ADR (a) 12,000 161 ---------- 161 ---------- CZECH REPUBLIC - 0.0% SPT Telecom AS (a) 5,800 80 ---------- 80 ---------- DENMARK - 0.6% Bang & Olufsen Holding Series B 10,000 721 Coloplast AS Class B (Regd) 5,250 516 Danisco 14,300 962 Den Danske Bank 1,285 154 GN Store Nord A/S 28,700 877 Jyske Bank AS (Regd) 7,700 909 Tele Danmark AS Series B 840 81 Tele Danmark Class B - ADR 39,100 1,843 Unidanmark Class A (Regd) 1,120 100 ---------- 6,163 ---------- FINLAND - 1.2% Enso OY Series A 82,500 893 Kesko 68,300 1,078 Kymmene OY 66,000 1,818 Metsa-Serla Oyj Series B 91,000 880 Neste 3,000 93 Nokia Oyj Series A 26,488 1,950 Orion-yhtyma OY Series B 18,210 561 Outokumpu OY Class A 37,200 475 OY Tamro AB 34,700 225 Pohjola Series B 9,600 478 Rauma Group (The) 9,300 191 Rautaruukki OY 102,200 783 Sampo Insurance Co., Ltd. Series A 18,000 855 Valmet Corp. Series A 66,600 1,149 ---------- 11,429 ---------- FRANCE - 11.8% Accor SA 21,841 6,113 Alcatel Alsthom 7,675 1,563 Alstom - ADR New (a) 34,250 1,115 AXA - UAP 14,041 1,579 Banque Nationale Paris 42,139 3,443 Boiron 3,400 272 Bongrain SA 1,300 653 Bull SA (a) 192,800 3,141 Canal Plus 1,100 206 Carrefour SA 2,872 1,817
International Securities Fund 55 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Chargeurs International SA 25,622 $ 2,117 Christian Dior 5,855 737 Cie de St. Gobain 9,144 1,695 Clarins 3,284 304 Credit Commercial de France 3,834 323 Dexia France 9,069 1,221 Dexia France (Regd) 2,247 302 Elf Aquitaine - ADR 31,700 2,251 Elf Aquitaine SA 17,910 2,518 Eridania Beghin-Say 21,755 4,804 Euro RSCG 6,500 1,314 Galeries Lafayette 3,435 3,426 Groupe Andre SA (a) 4,745 558 Groupe Danone 26,452 7,294 GTM - Entrepose 18,900 1,963 Guyenne et Gascogne 2,295 936 Havas Advertising SA 1998 Warrants (a) 1,700 10 L'Air Liquide 11,880 1,965 L'Oreal (Societe) 321 179 Lafarge Corp. SA (BR) 7,567 782 Lagardere Groupe (Regd) 22,600 941 Lapeyre (BR) 1,620 151 Legrand 739 196 Legris Industries SA 3,900 183 LVMH Moet-Hennessy 13,354 2,673 Lyonnais Eaux Dumez 29,441 4,845 M6 Metropole Television 4,500 753 Michelin (Cie Gen) Class B (Regd) 36,889 2,129 Nord-Est 11,000 242 Omnicom SA (a) 8,736 1,020 Banque Paribas (a) 37,360 3,998 Pathe SA 469 92 Pechiney International Class A 44,282 1,784 Peugeot SA 6,051 1,301 Pinault-Printemps Redoute SA 1,484 1,242 Primagaz CIE 71 6 Renault (a) 98,072 5,579 Rhodia SA (a) 45,485 1,268 Sanofi SA 11,875 1,397 Schneider SA 47,763 3,809 Scor SA 16,000 1,015 Sefimeg (Regd) 2,000 145 SGS Thomson Microelectronics (a) 14,060 997 Simco (Regd) 3,300 271 Societe Generale 21,584 4,488 Sodexho 3,090 584 Strafor-Facom SA 20,500 2,004 Sylea 2,400 222 Thomson-CSF 45,524 1,732 Total Co. SA Class B 19,478 2,532 TV Francaise (TFI) 7,852 1,217 Union des Assurances Federales 4,538 715 Usinor Sacilor 147,542 2,279 Valeo 36,449 3,726 Vallourec (Usin) 360 27 Vivendi 34,577 7,383 ---------- 117,547 ---------- GERMANY - 8.5% Adidas AG 10,600 1,849 AGIV AG fuer Industrie und Verkehrswesen (a) 24,400 676 Allianz AG (Regd) 4,350 1,451 BASF AG 15,450 735 Bayer AG 86,029 4,455 Bayerische Hypotheken-und Wechsel Bank AG 6,371 404 Bayerische Motoren Werke AG 381 386 Bayerische Motoren Werke AG New (a) 76 63 Bayerische Vereinsbank AG 4,756 403 Bilfinger & Berger BAU AG 11,400 391 Buderus AG 1,093 546 Commerzbank AG 37,610 1,433 Continental AG 41,800 1,314 Daimler-Benz AG 45,680 4,496 Deutsche Bank AG 41,084 3,476 Deutsche Lufthansa AG 77,750 1,959 Deutsche Telekom AG 29,539 809 Dresdner Bank AG 44,446 2,403 Fresenius Medical Care AG - ADR 47,240 974 GEA AG 3,532 1,381 Gehe AG 12,085 648 Gerresheimer Glas AG 10,500 157 Hannover Rueckversicherungs AG 4,900 565 Hoechst AG 47,730 2,402 Holzmann (Philipp) (a) 2,100 501 Hornback Baumarkt AG 1,135 56 IKB Deutsche Industriebank AG 1,750 36 Karstadt AG 2,075 1,010 Kiekert AG 23,975 1,356 KM Europa Metal AG 3,400 430 KSB AG (a) 3,300 787 M.A.N. AG 5,470 2,135 Mannesmann AG NPV (a) 85,620 8,807
56 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Merck KGAA 36,100 $ 1,619 Metro AG 9,240 558 Muenchener Rueckversicherungs-Gesellschaft AG 3,790 1,883 Preussag AG 9,270 3,321 ProSieben Media AG - ADR (a) 1,154 30 Rhoen - Klinikum AG 1,574 156 RWE AG 13,900 823 RWE AG 1998 Warrants (a) 15,000 262 SAP AG 3,800 2,307 Schering AG 9,400 1,108 Schmalbach Lubeca AG 6,275 1,583 SGL Carbon AG 4,279 499 Siemens AG 78,897 4,819 SKW Trostberg AG 21,200 764 Suedzucker AG 3,330 2,026 Tarkett AG 18,923 630 Veba AG 75,900 5,107 Viag AG 3,525 2,428 Volkswagen International AG 6,175 5,968 Wella Aktiengesellschaft 250 247 ---------- 84,632 ---------- HONG KONG - 1.5% Cathay Pacific Airways 343,000 241 CLP Holdings, Ltd. 192,500 877 First Pacific Co. 700,000 294 Great Eagle Holdings 559,041 491 Great Eagle Holdings 1998 Warrants (a) 12,094 0 Guangshen Railway Co., Ltd. 1,794,500 239 Guoco Group, Ltd. 162,000 170 Hang Lung Development Co. 192,000 191 Hang Seng Bank 85,000 481 Henderson Investment, Ltd. 1,550,000 805 Henderson Land Development Co., Ltd. 46,000 152 Hong Kong & China Gas Co., Ltd. 1999 Warrants (a) 16,236 1 Hong Kong & China Gas Co., Ltd. 575,392 654 Hong Kong Electric Holding, Ltd. 946,000 2,930 Hong Kong Telecommunications, Ltd. 86,400 162 HSBC Holdings (UK Regd) PLC 79,958 1,956 Hutchison Whampoa, Ltd. 501,000 2,645 Hysan Development 200,000 165 National Mutual Asia 596,000 381 New World Development Co., Ltd. 335,000 649 Orient Overseas International, Ltd. 121,000 45 QPL International Holdings, Ltd. 600,000 116 Sun Hung Kai Properties, Ltd. 156,000 662 Swire Pacific, Ltd. Class B 404,000 242 Tai Cheung Holdings 56,000 13 Television Broadcast 302,000 798 ---------- 15,360 ---------- IRELAND - 0.3% Greencore Group PLC 107,300 585 Independent Newspapers PLC 140,000 753 Smurfit (Jefferson) 206,300 614 Waterford Wedgwood (Units) 405,000 525 ---------- 2,477 ---------- ISRAEL - 0.3% ECI Telecom, Ltd. 67,000 2,529 ---------- 2,529 ---------- ITALY - 3.7% Assicurazioni Generali SPA 37,340 1,215 Banca Commerciale Italiana 242,000 1,448 Banca Pop di Bergamo CV 3,000 62 Banca Pop di Milano 153,000 1,218 Banco di Roma (a) 1,570,045 3,270 Credito Italiano 650,001 3,404 ENI SPA - ADR 30,300 1,970 Ente Nazionale Idrocarburi SPA (Regd) 510,940 3,350 Fiat SPA di Risp 179,300 444 Fila Holdings SPA - ADR 8,000 120 Finmeccanica SPA (a) 217,196 171 First Banco S. Paolo 52,000 751 Gucci Group NV 2,626 139 Industrie Natuzzi SPA - ADR 27,412 713 Istituto Mobiliare Italiano SPA 66,430 1,047 Istituto Mobiliare Italiano SPA - ADR 12,300 587 Istituto Nazionale Delle Assicurazioni 74,000 210 Italgas (Soc. Ital.) 22,000 90 Luxottica Group SPA - ADR 49,500 767 Magneti Marelli SPA 56,000 123 Mediaset SPA 358,985 2,292 Mediolanum SPA 40,576 1,288 Montefibre di Risp (a) 67,000 58 Montefibre SPA (a) 240,000 220 Pirelli SPA 438,700 1,370 Rinascente (LA) 13,100 131 Telecom Italia Mobile SPA 139,534 853 Telecom Italia SPA di Risp 893,953 4,330 Telecom Italia SPA 661,573 4,871 ---------- 36,512 ----------
International Securities Fund 57 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- JAPAN - 15.6% Advantest 2,620 $ 141 Alps Electric Co. 11,000 131 Amada Co., Ltd. 42,000 205 Aoki International 32,000 212 Aoyama Trading Co. 57,600 1,425 Apic Yamada Corp. 19,300 112 Asahi Bank, Ltd. 204,000 900 Bank of Kyoto, Ltd. 120,000 563 Bank of Yokohama 182,000 448 Bridgestone Tire Corp. 73,000 1,732 Brother Industries 122,000 457 Canon Chemicals, Inc. 8,000 84 Canon, Inc. 218,000 4,966 Chugai Pharmaceutical Co. 89,000 584 Citizen Watch Co., Ltd. 12,000 99 Credit Saison Co. 74,750 1,487 CSK Corp., Ltd. 22,000 439 Dai Ichi Kangyo Bank 175,000 1,031 Dai Ichi Pharmaceutical Co. 117,000 1,548 Dai Nippon Ink & Chemical Corp. 171,000 526 Dai Nippon Screen Manufacturing Co. 21,000 86 Dai-Tokyo Fire & Marine 361,000 1,261 Daifuku Machinery Co. 9,000 34 Daito Trust Construction 51,350 390 Daiwa House Industries Co. 22,000 195 Daiwa Kosho Lease Co., Ltd. 87,000 367 Daiwa Securities 95,000 410 DDI Corp. 480 1,677 Deodeo Corp. 15,000 88 East Japan Railway 456 2,150 Ebara Corp. 59,000 527 Eisai Co. 54,900 750 Ezaki Glico Co. 69,000 393 Fanuc Co. 20,800 722 Fuji Machine Manufacturing Co. 61,000 1,623 Fuji Oil Co. 60,000 264 Fujitsu, Ltd. 235,000 2,481 Fujitsu, Ltd. 1999 Warrants Series 2 (a) 23 47 Furukawa Electric Co. 148,000 500 Gakken Co. (a) 64,000 107 General Sekiyu KK 26,000 101 Heiwa Corp. 19,000 170 Hitachi Koki Co. 71,000 292 Hitachi Zosen Corp. 62,000 100 Hitachi, Ltd. 570,000 3,731 Hokkaido Electric 20,700 291 Honda Motor Co., Ltd. 64,000 2,287 Inax Corp. 21,000 72 Intec, Inc. 40,000 316 Ishihara Sangyo 110,000 153 Ishikawajima-Harima Heavy Industries 271,000 496 Ito-Yokado Co., Ltd. 119,000 5,620 Itochu Corp. 150,000 325 Japan Tobacco, Inc. 147 998 Jeol 50,000 229 Kandenko Co., Ltd. 9,000 56 Kao Corp. 202,000 3,126 Kawasaki Steel Corp. 445,000 805 Kawasho Corp. 17,000 21 Kinki Coca-Cola Bottling 27,000 328 Kirin Beverage Corp. 27,000 509 Kirin Brewery Co. 84,000 796 Kissei Pharmaceutical Co. 34,000 504 Koa Fire & Marine 82,000 317 Kokuyo Co., Ltd. 11,000 187 Komatsu Forklift Co., Ltd. 36,000 175 Komori Corp. 10,000 191 Kuraray Co., Ltd. 26,000 222 Kurimoto Iron Works 90,000 332 Kyocera Corp. 9,000 441 Kyushu Electric Power 13,900 218 Laox 10,000 62 Mabuchi Motor Co. 29,600 1,884 Makita Corp. 107,000 1,237 Marubeni Corp. 687,000 1,376 Marui Co., Ltd. 27,000 404 Maruichi Steel Tube 38,000 526 Matsumotokiyoshi 28,500 1,006 Matsushita Electric Industrial Co., Ltd. 297,000 4,790 Mikuni Coca-Cola Bottling 36,000 620 Minebea Co., Ltd. 168,000 1,678 Ministop Co., Ltd. 700 13 Mitsubishi Chemical 387,000 703 Mitsubishi Corp. 142,000 883 Mitsubishi Estate Co., Ltd. 121,000 1,068 Mitsubishi Heavy Industries 425,000 1,611 Mitsui Fudosan Co., Ltd. 174,000 1,379 Mitsui Marine & Fire Insurance Co., Ltd. 30,000 151 Mitsui O.S.K. Lines 156,000 266 Mitsui Trust & Banking 374,000 884 Murata Manufacturing Co., Ltd. 101,000 3,287 Namco 50,600 1,186 Nanto Bank 57,000 239 NEC Corp. 71,000 664 Nichido Fire & Marine 450 2
58 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Nichiei Co., Ltd. 31,900 $ 2,178 Nikko Securities Co., Ltd. 110,000 457 Nintendo Co. 8,300 771 Nippon Denso Co. 159,000 2,645 Nippon Fire & Marine 80,000 328 Nippon Oil Co. 156,000 505 Nippon Steel Corp. 205,000 362 Nippon Telegraph & Telephone Corp. 804 6,687 Nippon Yusen 320,000 1,088 Nishimatsu Construction 298,000 1,466 Nisshin Flour Milling Co., Ltd. 118,000 779 Nissho Iwai Corp. 250,000 432 Nomura Securities 225,000 2,628 Noritake Co. 73,000 343 Oki Electric Industries 120,000 289 Osaka Gas Co. 138,000 355 Pioneer Electronics Corp. 245,000 4,696 Ricoh Co., Ltd. 68,000 719 Rinnai Corp. 70,000 1,063 Rohm Co. 31,000 3,195 Roland Corp. 9,000 148 Sakura Bank, Ltd. 736,000 1,916 Sangetsu Co. 6,000 78 Sankyo Co., Ltd. 26,000 594 Sankyo Co., Ltd. GUNMA 45,000 732 Sankyo Seiko Co. 96,000 232 Sanwa Bank 116,000 1,041 Sega Enterprises 6,800 118 Sekisui Chemical Co., Ltd. 298,000 1,530 Sekisui House, Ltd. 109,000 847 Seven-Eleven Japan NPV 3,200 191 Sharp Corp. 76,000 618 Shin Etsu Chemical Co. 80,050 1,389 Shiseido Co., Ltd. 89,000 1,014 Shohkoh Fund & Co., Ltd. 700 173 Showa Shell Sekiyu 50,000 224 Sony Corp. 102,400 8,850 Stanley Electric 76,000 279 Sumitomo Corp. 45,000 217 Sumitomo Electric Industries 55,000 558 Sumitomo Forestry 145,000 817 Sumitomo Realty & Development 232,000 1,027 Sumitomo Rubber Industries 30,000 162 Sumitomo Trust & Banking 293,000 1,314 Tadano 60,000 174 Taiyo Yuden Co. 58,000 619 Takeda Chemical Industries 44,000 1,174 Takefuji Corp. 11,300 523 TDK Corp. 9,000 667 Toc Co. 42,000 361 Toda Corp. 50,000 201 Toho Bank 83,000 334 Tohoku Electric Power 16,500 244 Tokio Marine & Fire Insurance Co. 17,000 175 Tokyo Broadcasting 40,000 448 Tokyo Electric Power 74,000 1,456 Tokyo Electronics 4,800 148 Tokyo Gas Co. 718,000 1,605 Tokyo Steel Manufacturing 67,400 348 Toppan Printing 35,000 376 Torii Pharmaceutical Co., Ltd. 12,200 223 Toshiba Corp. 441,000 1,808 Tostem Corp. 50,000 650 Toyota Motor Corp. 117,000 3,038 Uniden Corp. 49,000 537 UNY Co., Ltd. 12,000 195 Yamaha Motor Co. 50,000 315 Yamanouchi Pharmaceutical 92,000 1,923 Yamato Kogyo Co. 34,000 251 Yamato Transport 108,000 1,215 Yasuda Fire & Marine Insurance Co., Ltd. (The) 33,000 142 Yodogawa Steel Works, Ltd. 61,000 287 Yurtec Corp. 11,550 69 ---------- 155,051 ---------- MALAYSIA - 0.2% Berjaya Leisure Berhad 50,000 27 Carlsberg Brewery Malaysia Berhad 149,000 452 Commerce Asset Holdings 160,000 60 Golden Hope Plantation 45,000 41 Kumpulan Guthrie 344,000 199 Malayan Banking Berhad 123,000 124 Malayan Banking Berhad Class A (a) 123,000 124 Malaysian Airline System 41,000 14 Oriental Holdings Berhad 25,000 42 Perlis Plantations 189,000 164 Resorts World Berhad 481,000 528 Technical Resource Industries Berhad 349,000 240 ---------- 2,015 ---------- MEXICO - 0.2% Cemex SA de CV - ADR 18,000 134 Cemex SA de CV Class B NPV 21,360 94
International Securities Fund 59 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Cemex SA de CV NPV 640 $ 2 Cifra SA de CV - ADR (a) 2,283 41 Compania Cervecerias Unidas SA - ADR 2,702 57 Fomento Economico Mexicano SA de CV (a) 4,031 126 Gruma SA - ADR (a) 8,262 73 Gruma SA Series B NPV (a) 28,131 61 Grupo Financiero Banamex AC Series B NPV (a) 49,168 96 Grupo Financiero Banamex AC Series L NPV (a) 3,238 5 Grupo Industrial Maseca Series B NPV 88,656 65 Grupo Modelo SA Series C 13,110 111 Grupo Radio Centro SA de CV - ADR 32,600 363 Grupo Television SA de CV - GDR (a) 5,556 209 Kimberly-Clark, Mexico Class A NPV 33,601 119 Panamerican Beverages, Inc. Class A 6,508 205 Telefonos de Mexico SA Series L - ADR 8,675 417 TV Azteca SA de CV - ADR 5,700 61 ---------- 2,239 ---------- NETHERLANDS - 6.5% ABN Amro Holdings NV 93,878 2,198 AKZO Nobel NV 12,500 1,388 AKZO Nobel NV 575 128 Apothekers Cooperatie OPG 17,600 593 ASM Lithography Holding NV (a) 11,410 338 Baan Co. NV (a) 2,460 88 Benckiser NV Class B (a) 15,000 923 Boskalis Westminster CVA 20,856 310 CSM NV CVA 7,592 365 DOCdata NV (a) 34,400 987 Elsevier NV 57,804 873 European Vinyls Corp. International NV 6,100 107 Fortis Amev NV 9,187 538 Heineken Holding NV Class A (a) 13,125 433 Hollandsche Beton Groep NV 41,630 868 Hunter Douglas NV 34,903 1,897 ING Groep NV 61,046 4,000 KNP BT (Kon) NV 53,302 1,377 Koninklijke Ahold NV 8,194 263 Koninklijke Emballage Industrie Van Leer 41,400 961 Koninklijke KPN NV (a) 118,251 4,555 Koninklijke Numico NV 5,400 169 Nedlloyd Groep NV 40,000 813 Nutreco Holding NV 49,800 1,744 Pakhoed Kon NV CVA 6,000 195 Philips Electronics 84,795 7,133 Philips Electronics NV - ADR 42,100 3,573 Polygram 31,663 1,617 Royal Dutch Petroleum Co. 133,083 7,385 Royal PTT Nederland NV 21,375 1,360 Stork NV 20,634 658 TNT Post Group NV (a) 118,251 3,025 Unilever NV 27,010 2,145 Vedior 29,113 824 Vendex NV (a) 29,503 1,110 Verenigde Nederlandse Uitgeversbedrijven Verenigd Bezit 178,323 6,483 Wereldhave NV 6,966 401 Wolters Kluwer CVA 19,304 2,650 ---------- 64,475 ---------- NEW ZEALAND - 0.4% Air New Zealand Class B 177,600 191 Fletcher Challenge Building 19,322 24 Fletcher Challenge Energy 518,204 1,240 Fletcher Challenge Paper 120,098 134 Lion Nathan, Ltd. 61,200 136 Telecom Corp. of New Zealand, Ltd. 710,265 1,523 Telecom Corp. of New Zealand, Ltd. NPV 189,645 784 Wrightson Limited 250,000 48 ---------- 4,080 ---------- NORWAY - 0.6% Bergesen DY AS Series A 3,510 67 Fred. Olsen Energy ASA (a) 42,700 568 Kvaerner Industries AS Series B 7,200 223 Norsk Hydro AS 23,234 1,023 Orkla ASA Class A (a) 41,024 955 Orkla ASA Class B (a) 26,628 561 P4 Radio Hele Norge ASA 89,200 407 Rieber & Son ASA Series B 40,000 391 Saga Petroleum AS Series B 6,610 94 Schibsted AS 45,100 759 Storebrand ASA Series A (a) 45,000 400 ---------- 5,448 ---------- PANAMA - 0.0% Banco Latinoamericano de Exportaciones SA Class E 1,435 44 ---------- 44 ----------
60 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- PERU - 0.0% Credicorp, Ltd. 3,300 $ 48 Telefonica Del Peru SA Class B - ADR 4,441 91 ---------- 139 ---------- PORTUGAL - 0.4% Banco Totta e Acores (Regd) 14,200 431 Jeronimo Martins SGPS 9,431 453 Portugal Telecom SA 47,814 2,536 Telecel-Comunicacaoes Pessoaissa 4,000 711 ---------- 4,131 ---------- RUSSIA - 0.0% Gazprom - ADR 6,190 66 Lukoil Oil Co. - ADR 1,140 38 ---------- 104 ---------- SINGAPORE - 0.5% Creative Technology, Ltd. (a) 5,000 62 Development Bank of Singapore, Ltd. (Alien Market) 259,600 1,441 Fraser & Neave 120,000 323 Jardine Strategic Holdings, Ltd. (a) 436,375 829 Jurong Shipyard 87,000 421 Mandarin Oriental International, Ltd. (a) 476,318 272 Overseas Union Bank (Alien Market) 60,000 132 Overseas Union Enterprises 192,000 284 Singapore Airlines, Ltd. (Alien Market) 59,000 277 Singapore Land 40,000 84 Singapore Press Holdings, Ltd. (Alien Market) 71,317 478 Singapore Telecommunications, Ltd. 73,000 104 Straits Steamship Land, Ltd. 95,000 86 United Overseas Bank, Ltd. (Alien Market) 93,000 290 ---------- 5,083 ---------- SOUTH AFRICA - 0.2% Sappi, Ltd. (a) 225,100 845 South African Breweries 48,000 987 ---------- 1,832 ---------- SOUTH KOREA - 0.0% Samsung Electronics, Ltd. 3,527 109 ---------- 109 ---------- SPAIN - 3.6% Acerinox SA 5,700 759 Adolfo Dominguez SA (a) 23,600 800 Banco Bilbao Vizcaya SA 35,290 1,811 Banco Popular Espanol SA 14,320 1,221 Banco Santander SA (Regd) (a) 96,228 2,463 Baron de Ley SA (a) 15,012 498 Campofrio Alimentacion SA (a) 6,800 561 Centros Commerciales Pryca 36,800 682 Corp. Fin. Reunida (a) 30,000 453 Corporacion Bancaria de Espana SA 44,300 1,999 Corporacion Bancaria de Espana SA (Regd)(a) 47,876 1,074 Dragados y Construcciones SA 5,300 170 Endesa SA 83,096 1,818 Fuerzas Electricat Series A 58,800 525 Gas Natural SDG SA 2,767 200 Gas Y Electricidad SA Series 2 17,424 1,326 Grupo Acciona SA 4,250 1,011 Hidroelectrica del Cantabrico SA 12,330 563 Iberdrola SA 107,643 1,748 Prosegur CIA de Seguridad SA (Regd) 40,000 476 Repsol SA 54,900 3,025 Repsol SA - ADR 45,200 2,486 Tabacalera SA Class A (Regd) 173,143 3,545 Telefonica de Espana 114,670 5,302 Union Electrica Fenosa 17,000 219 Viscofan Envoltura 20,000 931 ---------- 35,666 ---------- SWEDEN - 2.9% ABB AB Series A 17,490 248 ABB AB Series B 113,600 1,581 Asticus AB (a) 9,185 101 Astra AB Series A 141,850 2,899 Astra AB Series B 48,600 969 Atlas Copco AB Series B 9,840 268 Autoliv, Inc. 97,270 3,110 Avesta-Sheffield 52,500 260 BT Industries AB 19,000 384 Celsius Industrier AB Series B 12,000 280 Diligentia AB 18,370 159 Electrolux AB Series B (a) 156,800 2,693 Esselte AB Series B 3,090 72 Fastighetspartner NF AB (Units) (a) 17,000 17 Gambro AB Series B (a) 71,000 1,300 Granges AB 4,420 81
International Securities Fund 61 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Hennes and Mauritz AB Series B 27,660 $ 1,765 Hoganas AB B Shares 21,000 469 Munksjo AB 40,900 400 Nordbanken Holding AB 133,432 979 Om Gruppen AB (a) 46,000 957 Pharmacia & Upjohn, Inc. 43,600 2,011 Sandvik AB Series A 3,420 95 Sandvik AB Series B 8,760 241 Scandic Hotels AB 24,090 876 Scania AB Series A 34,300 834 Scania AB Series B 4,800 116 Scribona AB Series B Free 3,060 37 Stora Kopparbergs Bergslags Aktiebolag Series A 122,900 1,934 Svenska Celluosa Series B Free 13,700 355 Svenska Handelsbank Series A 39,000 1,809 Telefonaktiebolaget Ericsson (LM) Series B 34,520 1,007 Tornet Fastighets AB 52,500 842 ---------- 29,149 ---------- SWITZERLAND - 5.7% ABB AG 789 1,167 Adecco SA 3,532 1,595 Baloise Holding, Ltd. 400 328 Baloise Holding, Ltd. 1998 Rights (a) 800 656 Barry Callebaut AG (Regd) (a) 3,035 655 Bobst AG (BR) 250 461 Ciba Specialty Chemicals AG 3,100 399 Credit Suisse Group (Regd) 5,295 1,180 Fischer (Georg) AG (Regd) 1,400 545 Forbo Holding AG (Regd) 2,450 1,249 Generali (Schweiz) Holding 9,525 2,875 Hero (BR) 1,465 996 Holderbank Financiere Glarus AG (BR) 600 765 Jelmoli Holding AG 835 1,061 Lindt & Spruengli AG 120 310 Lindt & Spruengli AG (Regd) 10 261 Nestle SA (Regd) 5,492 11,772 Novartis AG (Regd) 2,229 3,715 Phoenix Mecano (BR) 400 259 Publicitas Holdings SA - (Regd) 1,000 310 Roche Holdings Genusscheine AG NPV 578 5,685 Sarna Kunststoff Holdings AG (Regd) 200 350 SGS Holding (BR) 675 1,146 Siegfried AG Series R 1,041 1,320 SMH AG Neuenburg (Regd) 7,700 1,286 Sulzer AG (Regd) 1,480 1,170 Sulzer Medica AG (Regd) 7,485 1,967 Swisslog Holding AG 8,992 1,039 UBS AG (a) 28,451 10,597 Valora Holding AG (Regd) 800 212 Zurich Versicherungsgesellschaft (Regd) 2,800 1,791 ---------- 57,122 ---------- THAILAND - 0.0% Thai Farmers Bank (Alien Market) 114,000 101 ---------- 101 ---------- UNITED KINGDOM - 19.4% Abbey National PLC 32,000 569 Airtours PLC 116,000 870 Anglian Water PLC 87,300 1,224 ASDA-MFI Group PLC 876,708 3,012 B.A.T. Industries PLC 281,700 2,822 Barclays Bank PLC 92,000 2,654 Barratt Development PLC 57,400 253 BASS PLC 53,071 995 Berisford PLC 230,000 879 BG PLC 33,176 192 Billiton PLC 281,000 570 BOC Group PLC 178,100 2,428 British Aerospace PLC (a) 540,740 4,144 British Airways PLC 146,281 1,584 British Airways PLC - ADR 7,350 791 British Petroleum Co. PLC 402,598 5,875 British Sky Broadcasting Group PLC 72,800 523 British Steel PLC 367,600 809 British Telecom PLC 182,160 2,251 BTR PLC (a) 1,141,230 3,239 Bunzl PLC 355,000 1,672 Burmah Castrol PLC 33,000 588 Cable & Wireless Communications PLC (a) 268,600 2,722 Cable & Wireless PLC 197,000 2,395 Cadbury Schweppes PLC 105,918 1,640 Caradon PLC 77,624 238 Centrica PLC (a) 58,000 98 Clark (Matthew) & Sons 45,000 142 Coats Viyella PLC 268,000 329 Commercial Union Assurance Co. PLC 122,000 2,277 Compass Group PLC (a) 172,000 1,979 Courtaulds Textile Co. PLC 111,200 538 Cowie Group PLC 167,416 978 Devro International PLC 162,000 1,362
62 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- Diageo PLC 787,087 $ 9,331 Diageo PLC Class B (a) 1,360 11 ED&F Man Group PLC 110,000 569 Electrocomponents PLC 24,000 188 EMI Group PLC 137,000 1,199 First Leisure Corp. PLC 135,000 784 Flextech PLC (a) 70,000 648 Gallaher Group PLC 80,000 442 General Accident PLC 66,900 1,508 GKN PLC (a) 14,000 178 Glaxo Wellcome PLC 245,315 7,369 Glynwed International PLC 165,200 680 Granada Group PLC 56,000 1,030 Great University Stores PLC 88,000 1,161 Guardian Royal Exchange PLC (a) 332,857 1,951 Hanson PLC 212,750 1,294 Heywood Williams Group PLC 21,041 91 Hickson International PLC 607,000 750 Hillsdown Holdings PLC 269,051 732 HSBC Holdings PLC 28,000 711 Hyder PLC 92,250 1,451 Imperial Chemical Industries PLC 166,000 2,666 Imperial Tobacco Group PLC 81,000 598 Independent Newspapers PLC 268,300 1,411 Kingfisher PLC 131,642 2,121 Ladbroke Group, Ltd. PLC 449,269 2,468 Laing (John) PLC Class A NV 31,000 204 Laird Group PLC 188,868 883 Lloyds TSB Group PLC 260,620 3,649 London Clubs International 110,000 290 LucasVarity PLC 1,573,503 6,253 Manchester United PLC 240,000 632 Medeva PLC 248,000 704 MEPC PLC 46,800 412 MFI Furniture Group PLC 352,076 373 Mirror Group News PLC 866,000 3,268 Monsoon PLC (a) 79,000 202 National Power PLC 68,000 640 National Westminster Bank PLC 125,000 2,235 Northern Rock PLC 64,000 566 Nycomed Amersham PLC (a) 80,652 601 Pace Micro Technology PLC 160,000 203 PIC International Group PLC (a) 235,000 844 Pilkington Brothers PLC 176,000 325 Powell Duffryn PLC 55,000 502 Powergen PLC 180,848 2,500 Premier Consolidated Oil PLC 836,000 590 Premier Farnell PLC 61,000 311 Provident Financial PLC 64,649 1,015 Prudential Corp. PLC 118,000 1,556 Racal Electronics PLC 301,400 1,709 Railtrack Group PLC 249,664 6,124 Rank Group PLC 125,500 689 Redland PLC 17,927 103 Reed International 207,880 1,881 Rio Tinto Corp. PLC (Regd) 243,724 2,747 Rolls-Royce PLC 37,037 153 Royal & Sun Alliance Insurance Group PLC 362,399 3,749 Royal Bank of Scotland Group PLC 95,200 1,653 Safeway PLC 340,875 2,234 Sainsbury (J.) PLC 184,595 1,646 Shell Transportation & Trading PLC (Regd) 738,100 5,201 Smith & Nephew PLC 599,000 1,498 Smith (David S.) Holdings PLC 38,500 124 SmithKline Beecham PLC 269,000 3,286 Somerfield PLC 680,500 4,352 South West Water PLC 72,200 1,197 Stagecoach Holdings PLC 72,273 1,539 Stakis PLC 535,302 1,090 Standard Chartered Bank Group PLC 152,000 1,728 Storehouse PLC 410,000 1,705 Tarmac, Ltd. PLC 891,768 1,593 Taylor Woodrow PLC 500,200 1,670 Tesco Store Holdings PLC 51,181 500 Thames Water PLC 57,000 1,038 Thorn PLC 292,285 1,181 Tomkins PLC 721,256 3,917 Transport Development Group PLC (a) 91,560 454 Unilever PLC 111,200 1,185 United Newspaper, Ltd. PLC 47,200 660 Vickers, Ltd. PLC 179,700 657 Vodafone Group PLC 515,150 6,542 W.H. Smith Group PLC (a) 346,140 3,076 Wessex Water PLC 126,400 963 WPP Group PLC 221,000 1,449 Zeneca Group PLC 32,000 1,375 ---------- 193,410 ---------- VENEZUELA - 0.0% CIA Anon Nacional Telefonos de Venezuela - ADR 4,397 110 ---------- 110 ---------- TOTAL COMMON STOCKS (cost $782,073) 908,275 ----------
International Securities Fund 63 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NUMBER MARKET OF VALUE SHARES (000) ---------- ---------- PREFERRED STOCKS - 1.5% AUSTRALIA - 0.2% News Corp., Ltd. 179,345 $ 1,274 Sydney Harbour Casino Holdings, Ltd. (a) 850,053 496 ---------- 1,770 ---------- AUSTRIA - 0.3% Z Landerbank Bank Austria AG 33,509 2,723 ---------- 2,723 ---------- BRAZIL - 0.1% Banco Bradesco SA NPV 12,694,361 106 Banco Itau SA (Regd) 151,000 86 Brahma (cia Cervej) NPV 166,711 104 Brasmotor SA NPV 445,000 41 CEMIG SA 2,979,808 93 Cim Port Itau (Cia) 313,600 56 Petroleo Brasileiro SA NPV 1,642,669 305 Telecomunicacoes de Minas Gerais Class B NPV 668,186 47 Telecomunicacoes de Sao Paulo SA NPV 913,538 215 Telecomunicacoes do Rio de Janeiro SA NPV 694,625 52 Telemig Celular SA Class C NPV (a) 668,186 20 Telerj Celular SA Class B NPV (a) 694,625 41 Telesp Celular SA Class B NPV (a) 913,538 76 Usiminas Uni Sd Mg NPV 14,962 75 ---------- 1,317 ---------- GERMANY - 0.7% Bayer Motoren Werk 600 376 Bayerische Motoren Werke AG (a) 120 73 Draegerwerk AG 950 23 Dyckerhoff AG 200 78 Fielmann AG 2,271 79 Fresenius AG 820 156 Hornbach Holding AG 1,130 103 Hugo Boss 261 576 Jungheinrich 6,290 1,168 Krones AG NV 800 322 M.A.N. AG 200 54 Porsche AG 350 1,009 ProSieben Media AG NV (a) 9,543 495 Rheinmetall AG (a) 23,800 680 RWE AG 15,000 641 SAP AG 1,062 721 Volkswagen AG 400 276 Wella AG 100 112 ---------- 6,942 ---------- ITALY - 0.0% Fiat SPA 135,300 337 ---------- 337 ---------- JAPAN - 0.2% Sanwa International Financial Bermuda Trust (conv.) 204,000,000 1,505 ---------- 1,505 ---------- NETHERLANDS - 0.0% Internationale Nederlanden Groep NV 2,274 11 ---------- 11 ---------- UNITED STATES - 0.0% WBK STRYPES Trust (conv.) 15,700 474 ---------- 474 ---------- TOTAL PREFERRED STOCKS (cost $11,552) 15,079 ---------- PRINCIPAL AMOUNT (000) ---------- LONG-TERM INVESTMENTS - 0.1% JAPAN - 0.1% Sumitomo Wiring Systems 0.900% due 09/03/08 JPY 40,000 239 Yamanouchi Pharmaceutical (conv.) 1.250% due 03/31/14 60,000 615 ---------- TOTAL LONG-TERM INVESTMENTS (cost $986) 854 ---------- SHORT-TERM INVESTMENTS - 4.6% UNITED STATES - 4.6% Frank Russell Investment Company Money Market Fund, due on demand (b) $ 36,968 36,968 United States Treasury Notes 5.250% due 07/31/98 (b)(c) 9,400 9,400 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $46,368) 46,368 ----------
64 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
MARKET VALUE (000) ---------- TOTAL INVESTMENTS (identified cost $840,979)(d) - 97.4% $ 970,576 OTHER ASSETS AND LIABILITIES, NET - 2.6% 25,623 ---------- NET ASSETS - 100.0% $ 996,199 ---------- ----------
(a) Nonincome-producing security. (b) At cost, which approximates market. (c) Held as collateral in connection with futures contracts purchased by the Fund. (d) See Note 2 for federal income tax information. ABBREVIATIONS: ADR - American Depositary Receipt GDR - Global Depositary Receipt GDS - Global Depositary Share NPV - No Par Value NV - Nonvoting PLC - Public Limited Company FOREIGN CURRENCY ABBREVIATIONS: AUD - Australian dollar CAD - Canadian dollar CHF - Swiss franc DEM - German mark ESP - Spanish peseta FIM - Finnish markka FRF - French franc GBP - British pound ITL - Italian lira JPY - Japanese yen MXN - Mexican peso MYR - Malaysian ringgit NLG - Dutch guilder NOK - Norwegian krone NZD - New Zealand dollar PTE - Portuguese escudo SEK - Swedish krone SGD - Singapore dollar USD - U.S. dollar The accompanying notes are an integral part of the financial statements. International Securities Fund 65 INTERNATIONAL SECURITIES FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ---------- ------------ FUTURES CONTRACTS (Notes 2 and 3) FTSE - 100 Index Futures Contracts (UK) expiration date 09/98 305 $ 541 TOPIX Index Futures Contracts (Japan) expiration date 09/98 242 509 ---------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (#) $ 1,050 ---------- ----------
(#) At June 30, 1998, United States Treasury Notes valued at $9,400 were held as collateral in connection with futures contracts purchased by the Fund.
% OF MARKET NET VALUE INDUSTRY DIVERSIFICATION ASSETS (000) - ------------------------------------------------- ---------- ---------- Auto & Transportation 7.9% $ 78,545 Consumer Discretionary 17.8 177,150 Consumer Staples 8.4 83,526 Financial Services 15.6 155,395 Health Care 5.2 51,979 Integrated Oils 1.9 19,000 Materials & Processing 11.9 118,693 Miscellaneous 1.4 13,606 Other Energy 3.1 31,281 Producer Durables 8.5 84,637 Technology 3.7 37,199 Utilities 7.3 72,343 Long-Term Investments 0.1 854 Short-Term Investments 4.6 46,368 ---------- ---------- Total Investments 97.4 970,576 Other Assets and Liabilities, Net 2.6 25,623 ---------- ---------- NET ASSETS 100.0% $ 996,199 ---------- ---------- ---------- ----------
% OF MARKET NET VALUE GEOGRAPHIC DIVERSIFICATION ASSETS (000) - ------------------------------------------------- ---------- ---------- Europe 47.4% $ 472,717 Japan 15.8 157,410 United Kingdom 19.4 193,410 Pacific Basin 5.1 50,933 Latin America 0.7 6,772 United States (Short-Term Investments) 4.6 46,368 Other 4.4 42,966 ---------- ---------- Total Investments 97.4 970,576 Other Assets and Liabilities, Net 2.6 25,623 ---------- ---------- NET ASSETS 100.0% $ 996,199 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of the financial statements. 66 International Securities Fund INTERNATIONAL SECURITIES FUND FOREIGN CURRENCY EXCHANGE CONTRACTS (Note 2) June 30, 1998 (Unaudited) FOREIGN CURRENCY EXCHANGE SPOT CONTRACTS
UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - --------------- --------------- ------------ ------------ AUD 169 USD 102 07/01/98 $ (3) AUD 99 USD 60 07/02/98 (2) AUD 9 USD 6 07/02/98 -- AUD 229 USD 139 07/06/98 (3) CAD 2 USD 1 07/02/98 -- DEM 183 USD 101 07/02/98 -- DEM 267 USD 148 07/03/98 -- ESP 394 USD 3 07/02/98 -- FIM 1,025 USD 186 07/01/98 (1) FRF 4,056 DEM 1,210 07/02/98 (4) FRF 5,113 USD 846 07/02/98 -- FRF 4,056 DEM 1,210 07/02/98 4 FRF 3,028 USD 500 07/31/98 (1) FRF 626 USD 103 07/31/98 -- FRF 2,131 USD 351 07/31/98 (2) FRF 1,985 USD 329 07/31/98 -- GBP 454 USD 756 07/01/98 (2) GBP 1 AUD 3 07/02/98 -- GBP 1 AUD 3 07/02/98 -- GBP 6 USD 10 07/02/98 -- GBP 314 USD 524 07/02/98 -- GBP 705 USD 1,170 07/03/98 (6) GBP 158 USD 263 07/03/98 (1) GBP 455 USD 759 07/07/98 (1) ITL 27 USD -- 07/02/98 -- JPY 21,762 USD 153 07/03/98 (4) MXN 8,484 USD 945 07/02/98 1 MYR 2,574 NLG 1,250 07/01/98 (9) MYR 2,574 NLG 1,250 07/01/98 4 NLG 3,718 USD 1,820 07/01/98 (9) NZD 4 USD 2 07/02/98 -- PTE 990 USD 5 07/02/98 -- PY 13,992 USD 99 07/06/98 (2) SEK 35 USD 4 07/02/98 -- SEK 1,430 USD 181 07/03/98 2 SEK 2,705 USD 339 07/06/98 -- SGD 2 USD 1 07/02/98 -- USD 239 CHF 362 07/02/98 -- USD 195 DEM 351 07/02/98 -- USD 307 JPY 42,587 07/02/98 1 USD 519 NLG 1,053 07/02/98 1 USD 114 NOK 874 07/02/98 -- USD 67 NZD 68 07/02/98 -- USD 118 SEK 944 07/02/98 -- USD 179 SGD 300 07/02/98 (1) USD 465 ITL 825,727 07/02/98 (1) USD 508 CHF 772 07/03/98 1 USD 673 JPY 93,375 07/03/98 2 USD 161 ITL 285,750 07/07/98 1 USD 166 FRF 997 07/31/98 (1) ------------ $ (36) ------------ ------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED CONTRACTS TO IN EXCHANGE APPRECIATION DELIVER FOR SETTLEMENT (DEPRECIATION) (000) (000) DATE (000) - --------------- --------------- ------------ ------------ JPY 2,049,000 USD 15,054 08/27/98 $ 110 JPY 100,000 USD 730 09/18/98 (2) NZD 983 USD 538 07/01/98 27 NZD 1,300 USD 707 07/01/98 31 NZD 2,788 USD 1,552 07/01/98 102 NZD 1,140 USD 622 07/01/98 29 NZD 3,690 USD 1,901 09/03/98 (19) USD 3,216 NZD 6,211 07/01/98 16 USD 9,816 GBP 6,000 09/18/98 158 USD 11,635 GBP 7,000 09/18/98 2 USD 7,068 GBP 4,250 09/18/98 (3) USD 1,483 JPY 200,000 09/18/98 (20) USD 8,490 JPY 1,175,000 09/18/98 106 USD 362 JPY 50,000 09/18/98 4 USD 693 JPY 100,000 09/18/98 38 USD 10,846 JPY 1,500,000 09/18/98 129 ------------ $ 708 ------------ ------------
The accompanying notes are an integral part of the financial statements. International Securities Fund 67 INTERNATIONAL SECURITIES FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $840,979)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 970,576 Foreign currency holdings (identified cost $18,148). . . . . . . . . . . . . . . . . . . . . . . . . . . 18,057 Forward foreign currency exchange contracts (cost $74,715)(Note 2) . . . . . . . . . . . . . . . . . . . 89,612 Foreign currency exchange spot contracts (cost $16,178)(Note 2). . . . . . . . . . . . . . . . . . . . . 16,189 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,393 Investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,429 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,301 Foreign taxes recoverable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,315 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . . . . 127 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 91,381 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,208,380 LIABILITIES Payables: Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,165 Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,082 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,006 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 856 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562 Forward foreign currency exchange contracts (cost $74,715)(Note 2) . . . . . . . . . 88,904 Foreign currency exchange spot contracts (cost $16,178)(Note 2). . . . . . . . . . . 16,225 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 91,381 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,181 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 996,199 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,871 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,545 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,597 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841,391 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 996,199 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: Class S ($994,537,569 divided by 15,776,662 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63.04 -------------- -------------- Class E ($1,661,882 divided by 26,465 shares of $.01 par value shares of beneficial interest outstanding)(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . $ 62.80 -------------- --------------
The accompanying notes are an integral part of the financial statements. 68 International Securities Fund INTERNATIONAL SECURITIES FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,054 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,301 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326 Less foreign taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,561) -------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,120 EXPENSES (Notes 1,2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,450 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 861 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 2 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,643 -------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,477 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,374 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,151 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (1,487) 37,038 -------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,337 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,325 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . 1,157 87,819 -------------- -------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,857 -------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 133,334 -------------- --------------
The accompanying notes are an integral part of the financial statements. International Securities Fund 69 INTERNATIONAL SECURITIES FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS ENDED JUNE 30, 1998 FOR THE YEAR ENDED (UNAUDITED) DECEMBER 31, 1997 ------------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,477 $ 7,468 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . 37,038 25,520 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . 87,819 (33,866) ------------------- ----------------- Net increase (decrease) in net assets resulting from operations. . . . 133,334 (878) ------------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (5,261) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3) In excess of net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3,871) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3) Net realized gain on investments Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,175) (31,097) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) (45) In excess of net realized gain on investments Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (15,023) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (22) ------------------- ----------------- Total Distributions to Shareholders. . . . . . . . . . . . . . . . . . (3,180) (55,325) ------------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). 25,008 153,002 ------------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . 155,162 96,799 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841,037 744,238 ------------------- ----------------- End of period (including undistributed net investment income of $2,871 and accumulated distributions in excess of net investment income of $5,606, respectively) . . . . . . . . . . . . . . . . . . . . . $ 996,199 $ 841,037 ------------------- ----------------- ------------------- -----------------
The accompanying notes are an integral part of the financial statements. 70 International Securities Fund INTERNATIONAL SECURITIES FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 54.69 $ 58.48 $ 56.61 $ 53.96 $ 57.95 $ 44.75 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .54 .56 .53 .56 .44 .40 Net realized and unrealized gain (loss) on investments . 8.01 (.46) 3.72 4.89 1.23 14.53 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . 8.55 .10 4.25 5.45 1.67 14.93 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . -- (.37) (.31) (.88) (.04) (.38) In excess of net investment income . . . . . . . . . . . -- (.27) (.17) (.23) (.02) (.23) Net realized gain on investments . . . . . . . . . . . . (.20) (2.19) (1.90) (1.69) (5.60) (1.12) In excess of net realized gain on investments. . . . . . -- (1.06) -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (.20) (3.89) (2.38) (2.80) (5.66) (1.73) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 63.04 $ 54.69 $ 58.48 $ 56.61 $ 53.96 $ 57.95 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 15.67 .26 7.63 10.20 4.86 33.48 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 994,537 839,767 743,615 623,389 563,333 454,482 Ratios to average net assets (%)(b): Operating expenses, net . . . . . . . . . . . . . . . 1.20 1.26 1.30 1.30 1.30 1.38 Operating expenses, gross . . . . . . . . . . . . . . 1.20 1.26 1.31 1.31 1.33 1.42 Net investment income . . . . . . . . . . . . . . . . 1.80 .91 .91 .97 .70 .82 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 71.72 73.54 42.43 42.96 72.23 60.22
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. International Securities Fund 71 INTERNATIONAL SECURITIES FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ---------------------- 1998* 1997 1996** ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . $ 54.64 $ 58.47 $ 58.56 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . . .44 .35 (.03) Net realized and unrealized gain (loss) on investments . . . . . . . . . 7.92 (.64) 1.68 ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . . . . . . . . . 8.36 (.29) 1.65 ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . -- (.14) (.27) In excess of net investment income . . . . . . . . . . . . . . . . . . . -- (.15) (.16) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . (.20) (2.19) (1.31) In excess of net realized gain on investments. . . . . . . . . . . . . . -- (1.06) -- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . (.20) (3.54) (1.74) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 62.80 $ 54.64 $ 58.47 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.34 (.41) 2.86(b) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . . . . . . . 1,662 1,271 623 Ratios to average net assets (%)(c): Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 1.75 1.96 2.00 Net investment income (loss). . . . . . . . . . . . . . . . . . . . . 1.29 .19 (.61) Portfolio turnover rate (%)(c) . . . . . . . . . . . . . . . . . . . . . 71.72 73.54 42.43
* For the six months ended June 30, 1998 (Unaudited). ** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) Periods less than one year are not annualized. (b) Total return represents performance for the period November 4, 1996 to December 31, 1996. (c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are annualized. 72 International Securities Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- LONG-TERM INVESTMENTS - 96.6% ASSET-BACKED SECURITIES - 8.6% Advanta Home Equity Loan Trust Series 1991-1 Class A 9.000% due 02/25/06 $ 44 $ 45 AFC Home Equity Loan Trust Series 1996-2 Class 1 A3 7.590% due 09/25/27 1,315 1,327 Arcadia Automobile Receivables Trust Series 1998-A Class A4 6.000% due 11/17/03 315 315 Series 1998-B Class A3 5.950% due 11/15/02 610 611 Series 1998-B Class A4 6.000% due 11/15/03 215 216 BankAmerica Manufactured Housing Contract Series 1997-1 Class A4 6.200% due 06/10/10 (c) 1,000 1,008 Case Equipment Loan Trust Series 1998-A Class A4 5.830% due 02/15/05 2,185 2,185 Chase Credit Card Master Trust Series 1997-5 Class A 6.194% due 08/15/05 3,000 3,048 Circuit City Credit Card Master Trust 8.000% due 11/15/03 2,030 2,088 Citibank Credit Card Master Trust I Series 1997-3 Class A 6.839% due 02/10/04 (c) 980 993 Series 1998-6 Class A 5.850% due 04/10/03 4,570 4,584 Contimortgage Home Equity Loan Mortgage Pass-thru Certificate Series 1994-3 Class A-4 7.850% due 06/01/24 321 336 Series 1994-4 Class A-6 8.270% due 12/15/24 232 240 Series 1996-4 Class A-9 6.880% due 01/15/28 825 839 Series 1997-2 Class A-6 7.120% due 03/15/16 825 851 Fleetwood Credit Corp. Grantor Trust Series 1997-B Class A 6.400% due 05/15/13 3,442 3,480 Green Tree Financial Corp. Series 1997-1 Class M1 7.220% due 03/15/28 (c) 1,200 1,237 Series 1997-4 Class M1 7.220% due 02/15/29 925 972 Series 1997-7 Class A5 6.540% due 07/15/19 3,000 3,053 Green Tree Recreational, Equipment & Consumer Loan Trust Series 1997-3 Class A1 6.550% due 07/15/28 2,743 2,765 Series 1998-A Class A1C 6.180% due 06/15/19 561 562 Metris Master Trust Series 1996-1 Class A 6.450% due 02/20/02 2,560 2,574 Series 1997-1 Class A 6.870% due 10/20/05 2,695 2,789 Oakwood Mortgage Investors, Inc. Series 1997-D Class A3 6.500% due 02/15/28 605 614 Series 1998-A Class A2 6.100% due 05/15/28 715 716 Onyx Acceptance Grantor Trust Series 1997-1 Class A 6.550% due 09/15/03 (c) 95 96 Series 1998-1 Class A 5.950% due 07/15/04 2,728 2,730 Series 1998-A Class A3 5.850% due 08/15/02 2,580 2,580 Pacificamerica Home Equity Loan Series 1998-2 Class AF 6.590% due 06/26/28 1,600 1,600 Preferred Credit Corp. Series 1997-1 Class A6 7.590% due 07/25/26 850 896 Premier Auto Trust Series 1997-2 Class A5 6.320% due 03/06/02 3,770 3,817 Series 1998-3 Class A4 5.960% due 10/08/02 4,000 4,002 Providian Master Trust 6.250% due 06/15/07 2,065 2,089 Sears Credit Account Master Trust Series 1997-1 Class A 6.200% due 07/16/07 1,860 1,870 Series 1998-1 Class A 5.800% due 08/15/05 915 913 Student Loan Marketing Association Series 1996-3 Class A1 5.680% due 10/25/04 (c) 2,008 2,006 Team Fleet Financing Corp. Series 1997-1 Class A 7.350% due 05/15/03 1,800 1,864 Union Acceptance Corp. Series 1998-B Class A4 5.900% due 02/09/04 1,440 1,440
74 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Wal-Mart Stores, Inc. Series 1994-B3 8.800% due 12/30/14 $ 315 $ 386 WFS Financial Owner Trust 6.050% due 04/20/03 855 854 World Omni Automobile Lease Securitization Trust Series 1996 - B Class A2 6.200% due 11/15/02 771 773 Series 1997-A Class B 7.300% due 06/25/03 (c) 750 763 Series 1997-B Class A3 6.180% due 11/25/03 1,565 1,572 ---------- 67,699 ---------- BANKERS ACCEPTANCE NOTES - 0.1% Mellon Bank, NA 7.625% due 09/15/07 355 389 ---------- 389 ---------- CORPORATE BONDS AND NOTES - 17.7% Air Products & Chemicals, Inc 8.750% due 04/15/21 250 316 Allegiance Corp. 7.300% due 10/15/06 875 925 7.000% due 10/15/26 130 133 America West Airlines, Series A 6.850% due 07/02/09 480 487 American Express Co. 8.500% due 08/15/01 255 273 American General Finance Corp. 8.500% due 06/15/99 570 584 American Health Properties 7.050% due 01/15/02 550 562 American Stores Co. 8.000% due 06/01/26 690 786 Analog Devices, Inc. 6.625% due 03/01/00 125 126 Aristar, Inc. 6.300% due 07/15/00 1,270 1,276 7.750% due 06/15/01 500 521 Associates Corp. of North America Series H (MTN) 6.250% due 03/15/99 1,010 1,013 6.500% due 10/15/02 450 456 7.090% due 04/11/03 400 419 AT&T Capital Corp. 6.050% due 04/01/99 (c) 2,000 1,999 AT&T Corp. 8.625% due 12/01/31 220 248 Atlantic Richfield Co. 9.125% due 08/01/31 550 743 Avco Financial Services, Inc. 5.750% due 01/23/01 (MTN) 1,280 1,272 6.000% due 08/15/02 800 796 Baltimore Gas & Electric Co. 7.250% due 07/01/02 500 522 6.500% due 02/15/03 840 853 Banco De Latinoamerica 6.500% due 04/02/01 1,225 1,241 Bank of New York, Inc. 7.875% due 11/15/02 350 374 Bank One, Columbus, Ohio 7.375% due 12/01/02 120 125 BankAmerica Corp. 6.850% due 03/01/03 425 436 6.875% due 06/01/03 260 269 Bankboston NA 6.375% due 04/15/08 1,300 1,297 Barnett Bank, Inc. 6.900% due 09/01/05 405 421 Baxter International Inc. 6.625% due 02/15/28 825 820 Bear Stearns Co Inc. (MTN)(c) 5.856% due 02/16/01 2,000 2,008 Bell Atlantic Corp. (MTN) 8.750% due 12/01/04 450 512 Bell Telephone Co. of Pennsylvania 8.350% due 12/15/30 355 448 BellSouth Telecommunications 7.000% due 12/01/95 385 410 Beneficial Corp. 8.400% due 05/15/08 1,235 1,451 Boeing Co. 8.750% due 08/15/21 550 699 Boston Scientific 6.625% due 03/15/05 300 303 Campbell Soup Co. 8.875% due 05/01/21 420 546 Carolina Power & Light Co. 6.875% due 08/15/23 410 419 Case Corp. 7.250% due 08/01/05 330 349 7.250% due 01/15/16 295 318
Diversified Bond Fund 75 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Caterpillar Financial Services (MTN) 9.500% due 02/06/07 $ 420 $ 514 Caterpillar, Inc. 8.000% due 02/15/23 200 235 Central Fidelity Banks, Inc. 8.150% due 11/15/02 170 189 Central Power & Light Co. Series FF 6.875% due 02/01/03 600 622 Champion International Corp. 6.400% due 02/15/26 460 475 Chase Manhattan Corp. 6.500% due 08/01/05 300 304 Chesapeake & Potomac Telephone Co. 8.375% due 10/01/29 230 288 Choice Hotels International Inc. 7.125% due 05/01/08 1,075 1,092 Chrysler Corp. 7.450% due 03/01/27 800 888 Chrysler Financial Corp. 6.080% due 03/12/01 (MTN) 900 905 5.686% due 06/11/01 2,000 1,998 Cincinnati Gas & Electric Co. 7.200% due 10/01/23 410 420 CIT Group Holdings, Inc. 6.350% due 07/31/98 3,000 3,001 6.625% due 06/28/99 (MTN) 1,200 1,208 6.700% due 05/02/00 (MTN) 500 507 6.150% due 12/15/02 (MTN) 500 502 Citicorp 5.824% due 05/24/01 (MTN)(c) 2,000 2,000 9.500% due 02/01/02 120 132 7.125% due 06/01/03 390 406 City National Bank 6.375% due 01/15/08 850 853 Coca Cola Enterprises, Inc. 7.000% due 10/01/26 675 728 6.750% due 01/15/38 250 252 Colonial Realty LP (MTN) 6.980% due 09/26/05 450 463 Commercial Credit Co. 5.750% due 07/15/00 295 294 7.875% due 07/15/04 805 867 6.500% due 06/01/05 540 548 8.700% due 06/15/10 380 454 Commonwealth Edison Co. Series 85 7.375% due 09/15/02 945 984 Conagra, Inc. (MTN) 8.100% due 05/20/02 300 321 Consolidated Natural Gas Co. 8.625% due 12/01/11 31 32 Consolidated Rail Corp. Pass-thru Certificate Structured Note Series 1995 Class A 6.760% due 05/25/15 459 472 Constitution Capital Trust I 9.150% due 04/15/27 400 450 CoreStates Capital Corp. 5.875% due 10/15/03 400 395 Cox Communications Inc. 6.500% due 11/15/02 550 557 6.690% due 09/20/04 (MTN) 400 409 Crown Cork & Seal Finance PLC 7.000% due 12/15/06 750 777 Dayton Hudson Corp. 6.400% due 02/15/03 295 296 7.500% due 07/15/06 100 108 Discover Credit Corp. (MTN) 8.350% due 04/27/99 360 366 Dole Food Co., Inc. 6.750% due 07/15/00 170 171 Duke Power Co. 7.000% due 07/01/33 695 704 Eastman Chemical Co. 7.250% due 01/15/24 300 313 EQCC Home Equity Loan Trust Series 1997-1 Class A4 7.160% due 03/15/13 900 933 Excel Realty Trust, Inc. 6.875% due 10/15/04 775 785 Federal Express Corp. 7.600% due 07/01/97 300 322 Finova Capital Corp. 7.125% due 05/01/02 925 953 First Bank Systems, Inc. 8.000% due 07/02/04 700 759 First Chicago Corp. 5.791% due 11/14/01 (MTN) 3,000 3,003 8.875% due 03/15/02 505 548 First Interstate Bancorp (MTN) 9.375% due 01/23/02 135 148 First Union Institutional Capital Trust I 8.040% due 12/01/26 225 242 First Union National Bank, Newark (MTN) 7.125% due 10/15/06 500 529 Fleet Financial Group Inc. 6.875% due 03/01/03 300 308 8.125% due 07/01/04 595 649
76 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Florida Residential Property & Casualty Insurance Co. Series A 7.375% due 07/01/03 $ 1,700 $ 1,760 Ford Motor Credit Co. 5.968% due 03/21/01 (MTN)(c) 4,000 4,016 6.125% due 04/28/03 1,830 1,830 7.500% due 06/15/04 300 319 6.750% due 05/15/05 350 360 Fort James Corp. 6.625% due 09/15/04 895 908 Fortune Brands, Inc. 7.875% due 01/15/23 380 436 General Electric Capital Corp. 8.300% due 09/20/09 235 277 6.660% due 05/01/18 (c) 775 785 General Motors Acceptance Corp. 6.625% due 10/01/02 1,975 1,997 Grand Metropolitan Investment Corp. 7.450% due 04/15/35 300 339 GTE California, Inc. 6.750% due 05/15/27 550 553 Hertz Corp. 7.625% due 08/01/02 550 575 9.000% due 11/01/09 230 276 Household Finance Corp. 6.375% due 06/30/00 1,200 1,208 ICI Wilmington, Inc. 6.950% due 09/15/04 380 394 Interamerican Development Bank 6.375% due 10/22/07 300 312 International Lease Finance Corp. 5.750% due 01/15/99 455 455 6.375% due 08/01/01 400 403 6.375% due 02/15/02 400 403 8.375% due 12/15/04 1,000 1,120 IRT Property Co. 7.250% due 08/15/07 450 468 ITT Financial Corp. 7.400% due 11/15/25 715 761 Jackson National Life Insurance Co. 8.150% due 03/15/27 950 1,110 JC Penney & Co., Inc. 7.600% due 04/01/07 550 595 JPM Capital Trust I 7.540% due 01/15/27 225 234 Kansas Gas & Electric Co. 7.600% due 12/15/03 200 213 6.500% due 08/01/05 450 458 Key Bank Corp. 8.000% due 07/01/04 150 163 7.500% due 06/15/06 750 808 6.500% due 04/15/08 750 756 Lehman Brothers Holdings, Inc. 6.150% due 03/15/00 (MTN) 800 801 6.000% due 02/26/01 (MTN) 1,000 998 6.250% due 04/01/03 150 150 Liberty Mutual Insurance Co. 7.697% due 10/15/97 650 710 7.875% due 10/15/26 1,000 1,125 Lincoln National Corp. 7.250% due 05/15/05 450 474 Lockheed Martin Corp. 7.750% due 05/01/26 600 684 Masco Corp. 6.625% due 04/15/18 500 504 May Department Stores Co. 6.875% due 11/01/05 480 503 MCI Communications Corp. 6.125% due 04/15/02 550 548 Mellon Capital II Series B 7.995% due 01/15/27 320 348 Mirage Resorts, Inc. 6.625% due 02/01/05 955 939 Motorola, Inc. 7.500% due 05/15/25 600 665 Nabisco, Inc. 6.375% due 02/01/35 850 845 Nationsbank Corp. 7.750% due 08/15/04 450 483 Natexis Ambs Co. LLC 8.440% due 12/29/49 150 150 New England Telephone & Telegraph Co. 7.875% due 11/15/29 235 278 News America Holdings, Inc. 7.750% due 01/20/24 300 323 Northwestern Bell Telephone Co. 7.750% due 05/01/30 630 733 Norwest Corp. Series H (MTN) 6.750% due 06/15/07 300 310 Norwest Financial, Inc. 6.250% due 11/01/02 525 527 6.375% due 11/15/03 575 583 6.000% due 02/01/04 600 599 6.750% due 06/01/05 200 208 NYNEX Corp. 9.550% due 05/01/10 349 403
Diversified Bond Fund 77 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Occidental Petroleum Corp. 8.500% due 11/09/01 (MTN) $ 245 $ 263 10.125% due 11/15/01 210 234 Pacific Bell 7.500% due 02/01/33 785 821 Pennsylvania Power & Light Co. 6.875% due 03/01/04 1,000 1,033 Pennzoil Co. 10.125% due 11/15/09 85 106 PepsiCo, Inc. 7.625% due 12/18/98 285 287 Philadelphia Electric Company 7.125% due 09/01/02 550 567 Philip Morris Cos., Inc. 6.950% due 06/01/06 295 306 7.200% due 02/01/07 1,000 1,033 7.650% due 07/01/08 310 331 Pitney Bowes Credit Corp. 8.550% due 09/15/09 460 546 PNC Funding Corp. 6.875% due 07/15/07 800 834 Praxair, Inc. 6.850% due 06/15/05 700 727 Procter & Gamble Co. Sharing ESOP Series A 9.360% due 01/01/21 90 119 Ralston Purina Co. 7.875% due 06/15/25 615 702 Raytheon Co. 6.300% due 03/15/05 880 884 Realty Income Corp. 7.750% due 05/06/07 1,175 1,233 Republic of New York Corp. 8.250% due 11/01/01 150 160 9.750% due 12/01/00 190 206 Rite Aid Corp. 6.700% due 12/15/01 950 966 Rockwell International Corp. 8.875% due 09/15/99 255 264 Salomon Smith Barney Holdings, Inc. 6.750% due 02/15/03 800 816 6.250% due 06/15/05 150 149 Seagram Co., Ltd. 8.350% due 01/15/22 320 373 Sears Roebuck Acceptance Corp. 6.750% due 01/15/28 800 800 Sears Roebuck Acceptance Corp. Series II (MTN) 6.690% due 04/30/01 375 382 Service Corp. International 7.375% due 04/15/04 560 589 6.750% due 06/01/01 250 254 Shopping Center Associates 6.750% due 01/15/04 750 759 Socgen Real Estate Co. LLC 7.640% due 12/29/49 (g) 430 438 Spieker Properties (MTN) 8.000% due 07/19/05 700 750 Summit Properties Inc. 7.200% due 08/15/07 475 481 Suntrust Banks, Inc. 7.375% due 07/01/02 700 730 Tenneco Corp. 10.200% due 03/15/08 590 738 Texaco Capital, Inc. 9.750% due 03/15/20 440 610 8.875% due 09/01/21 220 285 Texas Utilities Electric Co. 9.500% due 08/01/99 805 833 TIG Capital Trust I 8.597% due 01/15/27 1,050 1,178 Time Warner, Inc. 7.975% due 08/15/04 300 323 8.110% due 08/15/06 600 661 8.180% due 08/15/07 600 669 6.875% due 06/15/18 950 954 Union Carbide Chemicals & Plastics 7.875% due 04/01/23 590 637 Union Oil Co. (MTN) 9.400% due 02/15/11 470 592 Union Pacific Corp. 7.600% due 05/01/05 120 127 Union Pacific Railroad Trust Pass-thru Certificate Series 1996-A2 7.060% due 05/15/03 500 520 Union Planters Bank 6.500% due 03/15/18 670 667 United Technologies Corp. 8.750% due 03/01/21 380 479 US Bank National - Minnesota 5.762% due 12/19/01 2,000 1,998 USA Waste Services, Inc. 6.500% due 12/15/02 825 828 USX Marathon Group 8.500% due 03/01/23 800 937 Virginia Electric & Power Co. 8.750% due 04/01/21 200 214
78 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Wachovia Corp. New 6.800% due 06/01/05 $ 305 $ 314 Wal-Mart Stores, Inc. 7.500% due 05/15/04 300 321 Wells Fargo & Co. 6.875% due 04/01/06 500 514 Wellsford Residential Properties Trust 9.375% due 02/01/02 750 819 Westvaco Corp. 9.750% due 06/15/20 115 155 Whirlpool Corp. 9.500% due 06/15/00 250 265 Willamette Industries, Inc. 7.850% due 07/01/26 520 586 Wilmington Trust 10.370% due 01/02/07 1,647 1,774 Wisconsin Central Transportation Corp. 6.625% due 04/15/08 850 848 World Financial Properties Tower Series 1996 WBF-B 6.910% due 09/01/13 1,182 1,229 ---------- 138,836 ---------- EURODOLLAR BONDS - 2.0% Abbey National PLC 6.700% due 06/29/49 (g) 900 904 Australian Gas Light Co. 6.400% due 04/15/08 1,000 1,014 Caterpillar Financial Services Corp. 5.778% due 02/12/01 (MTN) 4,000 4,004 Finland, Republic of 5.875% due 02/27/06 475 476 Hutchison Whampoa Finance, Ltd. 7.450% due 08/01/17 1,475 1,170 Italy, Republic of 6.875% due 09/27/23 150 165 Nationsbank Corp. 5.838% due 06/17/02 (MTN)(c) 3,000 3,001 Ontario, Province of 7.375% due 01/27/03 525 554 Skandinaviska Enskilda Banken 8.125% due 09/06/49 (g) 800 868 Societe Generale 7.850% due 04/29/49 (g) 1,500 1,603 Svenska Handelsbanken 7.125% due 03/29/49 (g) 875 901 Videotron Holdings PLC Step Up Bond Zero Coupon due 07/01/04 925 909 ---------- 15,569 ---------- MORTGAGE-BACKED SECURITIES - 36.6% ACLC Franchise Loan Receivables 1997 Pass Thru Class A1 7.120% due 03/15/12 861 896 American Southwest Financial Corp. Series G Class G-4 CMO 12.250% due 11/01/14 215 244 BKB Commercial Mortgage Trust Series 1997-C1 Class B 7.218% due 04/25/00 (c) 712 710 Capita Equipment Receivables Trust Series 1996 - 1 Class A4 6.280% due 06/15/00 860 864 Chase Commercial Mortgage Securities Corp. Series 1997-1 Class E 7.370% due 12/19/07 (c) 800 806 Citicorp Mortgage Securities, Inc. Series 1992-1 Class A-5 8.000% due 04/25/21 285 286 Series 1997-5 Class A1 6.500% due 11/25/27 1,000 1,003 Collateralized Mortgage Obligation Trust 56 Class B CMO 9.985% due 12/01/18 227 244 Commercial Mortgage Acceptance Corp. Series 1997-ML1 Class A1 6.500% due 11/15/04 (c) 1,191 1,212 CSFB Finance Co., Ltd. Series 1995-A Class A 7.090% due 11/15/05 (c) 450 444 Delta Funding Home Equity Loan Trust Series 1997-3 Class M1F 7.080% due 10/25/28 500 506 DLJ Commercial Mortgage Corp Series 1998-CG1 Class A1A 6.110% due 12/10/07 1,350 1,349 DLJ Mortgage Acceptance Corp. Series 1993 Class A-2 CMO 7.650% due 09/18/03 2,500 2,532 Federal Home Loan Mortgage Corp. (b) 6.500% 15 Year TBA 6,170 6,212 7.000% 30 Year TBA 1,575 1,599
Diversified Bond Fund 79 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- 6.500% 30 Year TBA $ 32,950 $ 32,857 8.000% 30 Year TBA 1,425 1,474 6.000% 30 Year TBA Gold 2,830 2,759 Federal Home Loan Mortgage Corp. Partcipation Certificate 7.000% due 1998 8 8 7.000% due 1999 2,315 2,358 7.500% due 2001 171 173 7.000% due 2002 74 75 7.000% due 2003 288 292 6.750% due 2007 344 349 7.000% due 2008 66 67 8.000% due 2008 112 116 8.500% due 2008 143 149 6.500% due 2009 1,496 1,510 7.500% due 2009 (c) 2,061 2,123 8.000% due 2009 229 237 7.500% due 2010 47 48 8.000% due 2010 42 43 6.000% due 2011 6,248 6,221 6.500% due 2011 657 664 7.500% due 2011 416 428 8.000% due 2011 436 450 6.000% due 2012 998 991 7.500% due 2012 688 708 8.000% due 2012 291 301 12.000% due 2014 94 107 12.000% due 2015 63 72 9.000% due 2016 638 679 12.500% due 2016 77 88 8.000% due 2017 661 683 9.000% due 2017 5 5 9.000% due 2018 1,265 1,351 9.000% due 2020 616 658 8.500% due 2022 153 160 9.000% due 2022 204 217 6.500% due 2024 3,237 3,243 7.500% due 2024 1,672 1,713 9.000% due 2024 738 780 8.000% due 2025 4,067 4,250 8.500% due 2025 817 853 9.000% due 2025 543 574 8.500% due 2026 1,069 1,115 9.000% due 2026 22 23 6.500% due 2027 496 495 7.500% due 2027 1,049 1,075 8.500% due 2027 4,420 4,634 6.500% due 2028 1,581 1,577 7.000% due 2028 502 509 7.500% due 2028 3,475 3,561 Federal Home Loan Mortgage Corp. Participation Certificate Series 1053 Class G 7.000% due 03/15/21 1,561 1,590 Federal National Mortgage Association Pools 7.000% due 1999 228 229 7.500% due 1999 (c) 1,683 1,756 7.500% due 1999 (c)(h) 1,201 1,202 7.000% due 2000 685 690 9.500% due 2001 34 35 8.000% due 2002 359 365 9.500% due 2002 83 85 6.000% due 2003 468 466 7.000% due 2003 636 644 7.500% due 2003 841 853 8.000% due 2003 134 136 9.500% due 2003 101 106 6.500% due 2004 28 28 8.000% due 2004 166 169 9.500% due 2005 111 116 7.790% due 2006 775 790 9.500% due 2006 105 110 7.000% due 2007 110 112 6.500% due 2008 656 662 7.000% due 2008 356 363 6.500% due 2009 4,841 4,883 7.000% due 2009 573 586 8.000% due 2010 27 28 10.500% due 2010 28 31 6.000% due 2011 1,630 1,613 7.500% due 2011 195 200 8.000% due 2011 95 98 7.000% due 2012 852 867 7.500% due 2012 114 117 9.000% due 2016 29 31 8.000% due 2017 655 683 9.000% due 2017 664 708 8.000% due 2020 35 36 8.000% due 2022 565 589 7.000% due 2023 741 752 7.000% due 2023 (h) 74 75 8.000% due 2023 109 113 6.500% due 2024 5,301 5,305
80 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- 7.000% due 2024 (h) $ 676 $ 686 7.500% due 2024 584 599 7.000% due 2025 (h) 3,738 3,792 8.500% due 2025 1,074 1,121 8.500% due 2026 2,649 2,765 9.000% due 2026 547 579 6.500% due 2027 2,372 2,363 6.500% due 2028 4,870 4,850 8.000% due 2028 353 365 Federal National Mortgage Association (REMIC) Series 1992-10 Class ZD 8.000% due 11/25/21 1,685 1,844 Series 1994-81 Class PJ 8.000% due 07/25/23 1,550 1,681 Series G92-36 Class A 7.000% due 04/25/15 85 85 Federal National Mortgage Association (b) 6.500% 15 Year TBA 1,705 1,715 6.000% 30 Year TBA 4,480 4,361 6.500% 30 Year TBA 2,345 2,335 7.000% 30 Year TBA 2,005 2,033 7.500% 30 Year TBA 8,510 8,728 8.000% 30 Year TBA 2,755 2,851 Federal National Mortgage Association Aces Series 1998-M1 Class A2 6.250% due 01/25/08 1,250 1,253 Federal National Mortgage Association Principal Only Strip Zero Coupon due 03/25/20 124 102 Federal National Mortgage Association Interest Only Inverse Floater Series 1993-208 Class SA 0.103% due 02/25/23 (c) 32,569 364 First Union Lehman Brothers Commercial Trust Series 1997 - C1 Class C 7.440% due 04/18/07 750 794 Government National Mortgage Association Pools 6.500% due 2008 175 177 6.500% due 2009 1,578 1,599 7.000% due 2011 21 21 9.000% due 2016 1,586 1,704 9.500% due 2016 82 89 8.000% due 2017 2,229 2,407 9.000% due 2017 153 166 9.000% due 2020 59 63 10.500% due 2020 340 378 10.500% due 2021 55 62 7.000% due 2022 617 628 7.000% due 2023 (c) 9,357 9,578 7.000% due 2023 2,278 2,317 7.500% due 2023 2,166 2,228 7.000% due 2024 (c) 1,652 1,670 7.000% due 2024 7,106 7,226 7.500% due 2024 1,215 1,250 7.500% due 2025 1,738 1,787 8.000% due 2025 3,134 3,248 9.000% due 2025 5,445 5,857 6.500% due 2026 261 260 8.000% due 2026 5,190 5,378 7.000% due 2027 2,970 3,017 7.500% due 2027 1,974 2,029 8.000% due 2027 3,473 3,599 8.500% due 2027 306 322 6.500% due 2028 7,336 7,320 7.000% due 2028 193 196 Government National Mortgage Association (b) 6.500% 30 Year TBA 5,980 5,967 7.500% 30 Year TBA 9,955 10,232 8.000% 30 Year TBA 2,825 2,927 GS Mortgage Securities Corp. II Series 1997-GL Class A2A 6.940% due 07/13/30 2,079 2,121 Series 1998-GLII Class A1 6.312% due 04/13/31 (c) 973 983 Housing Securities, Inc. Series 1994-2 Class A1 6.500% due 07/25/09 861 865 Lehman Brothers Mortgage Trust, Inc. Series 1991-2 Class A-1 8.000% due 03/20/99 23 24 Merrill Lynch Mortgage Investors, Inc. Series 1996-C2 Class A1 6.690% due 11/21/28 453 462 Series 1996-C2 Class A2 6.820% due 11/21/28 2,400 2,480 Series 1997-C1 Class A1 6.950% due 06/18/29 (c) 3,574 3,689 Mortgage Capital Funding, Inc. Series 1996-MC1 Class A2B 7.900% due 02/15/06 775 831
Diversified Bond Fund 81 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Norwest Asset Securities Corp. Series 1997-9 Class A5 7.000% due 06/25/12 $ 961 $ 983 Series 1998-7 Class B4 6.500% due 04/25/13 2,113 2,124 Railcar Leasing, LLC Series 1 Class A1 6.750% due 07/15/06 1,953 1,997 Residential Funding Mortgage Securities Series 1997-S4 Class A5 7.000% due 03/25/12 950 970 Series 1997-S10 Class A-5 7.000% due 07/25/12 965 986 Series 1997-S18 Class A7 6.750% due 11/25/12 733 747 Series 1998-S9 Class 1A1 6.500% due 04/25/13 1,111 1,117 Resolution Trust Corp. Mortgage Pass-thru Certificate Series 1992 Class A-3 10.500% due 05/25/24 (c) 128 129 Series 1994-C1 Class C 8.000% due 06/25/26 975 1,027 Series 1994-C2 Class D 8.000% due 04/25/25 368 378 Series 1995-C1 Class C 6.900% due 02/25/27 (c) 350 355 Series 1995-C1 Class D 6.900% due 02/25/27 775 775 Ryland Acceptance Corp. Four Series 88 Class E CMO 7.950% due 01/01/19 1,944 2,017 Structured Asset Securities Corp. Mortgage Pass-thru Certificate Series 1996-CFL Class C 6.525% due 02/25/28 300 301 United States Department of Veteran Affairs REMIC Series 1992-1 Class 2-E 7.750% due 03/15/16 550 564 WFS Financial Owner Trust Series 1998-A Class A4 5.950% due 05/20/03 2,610 2,612 ---------- 286,457 ---------- UNITED STATES GOVERNMENT AGENCIES - 4.9% Federal Home Loan Bank 6.450% due 03/13/02 4,250 4,301 Federal National Mortgage Association 5.790% due 10/12/99 (MTN) 4,000 4,008 6.100% due 10/06/00 (MTN) 1,305 1,309 6.250% due 11/20/02 (MTN) 1,335 1,344 7.780% due 09/29/06 (MTN) 665 680 6.940% due 03/19/07 (MTN) 1,065 1,097 7.280% due 05/23/07 (MTN) 655 684 6.900% due 08/21/07 (MTN) 2,155 2,222 6.780% due 10/22/07 (MTN) 2,010 2,060 6.000% due 05/15/08 4,600 4,663 Government Backed Trust Certificates Class 1-C 9.250% due 11/15/01 2,725 2,890 Government Backed Trust Certificates Series 2E 9.400% due 05/15/02 803 848 Series T-3 9.625% due 05/15/02 (c) 3,091 3,270 Resolution Funding Corp. 8.625% due 01/15/21 1,380 1,844 8.625% due 01/15/30 390 545 8.875% due 07/15/20 1,855 2,550 Tennessee Valley Authority Series E 6.250% due 12/15/17 610 630 6.750% due 11/01/25 2,900 3,207 ---------- 38,152 ---------- UNITED STATES GOVERNMENT TREASURIES - 24.8% United States Treasury Bonds 10.750% due 05/15/03 5,825 7,098 10.750% due 08/15/05 5,760 7,494 8.750% due 11/15/08 2,680 3,059 10.375% due 11/15/09 1,510 1,887 11.750% due 02/15/10 3,025 4,036 12.750% due 11/15/10 13,805 19,661 13.875% due 05/15/11 2,120 3,217 14.000% due 11/15/11 1,100 1,707 10.375% due 11/15/12 980 1,312 12.000% due 08/15/13 980 1,453 13.250% due 05/15/14 725 1,166 11.750% due 11/15/14 195 293 9.875% due 11/15/15 2,850 4,151
82 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- 7.250% due 05/15/16 $ 1,075 $ 1,259 9.250% due 02/15/16 3,920 5,452 7.500% due 11/15/16 7,900 9,484 8.750% due 05/15/17 230 310 8.875% due 08/15/17 7,130 9,720 8.125% due 08/15/19 9,610 12,403 8.000% due 11/15/21 12,460 16,062 7.625% due 11/15/22 6,980 8,699 6.250% due 08/15/23 2,210 2,366 7.500% due 11/15/24 1,255 1,557 6.875% due 08/15/25 1,100 1,274 6.750% due 08/15/26 13,535 15,495 6.500% due 11/15/26 2,000 2,221 6.625% due 02/15/27 3,975 4,489 United States Treasury Notes 5.875% due 08/31/99 4,365 4,382 6.875% due 08/31/99 2,990 3,035 5.875% due 10/31/99 1,055 1,056 5.875% due 11/15/99 3,625 3,641 7.750% due 11/30/99 7,060 7,271 7.750% due 01/31/00 2,075 2,144 5.875% due 02/15/00 95 96 6.000% due 08/15/00 10,595 10,696 8.750% due 08/15/00 795 846 6.250% due 08/31/00 425 431 5.250% due 01/31/01 30 30 6.375% due 03/31/01 90 92 5.875% due 11/30/01 50 51 6.250% due 01/31/02 985 1,007 6.250% due 02/28/02 7,180 7,345 6.500% due 05/31/02 330 341 3.625% due 07/15/02 4,000 3,956 5.750% due 10/31/02 640 645 ---------- 194,390 ---------- YANKEE BONDS - 1.9% Abitibi-Consolidated Inc. (h) 7.400% due 04/01/18 400 407 7.500% due 04/01/28 675 689 African Development Bank 9.750% due 12/15/03 325 381 6.750% due 10/01/04 300 312 6.875% due 10/15/15 1,245 1,323 8.800% due 09/01/19 295 382 Alberta, Province of 9.250% due 04/01/00 160 169 Asian Development Bank 8.000% due 04/30/01 175 184 8.500% due 05/02/01 180 192 6.250% due 10/24/05 315 320 Canadian Occidental Petroleum Ltd. 7.400% due 05/01/28 900 918 Carter Holt Harvey Ltd. 8.875% due 12/01/04 350 392 Hydro Quebec Series GH 8.250% due 04/15/26 505 612 International American Development Bank 7.000% due 06/15/25 1,400 1,571 6.950% due 08/01/26 155 172 International Bank for Reconstruction & Development 8.625% due 10/15/16 270 348 Manitoba, Province of Series CB 8.800% due 01/15/20 200 261 Series CD 9.250% due 04/01/20 200 271 New Brunswick, Province of 7.125% due 10/01/02 400 416 9.750% due 05/15/20 190 269 Newfoundland, Province of 10.000% due 12/01/20 90 128 Noranda Forest, Inc. 6.875% due 11/15/05 250 253 Nova Scotia, Province of 9.125% due 05/01/21 690 916 Quebec, Province of 7.125% due 02/09/24 985 1,054 Royal Caribbean Cruises Ltd. 7.250% due 03/15/18 450 461 Saskatchewan, Province of 8.000% due 07/15/04 1,045 1,151 Tyco International Group S.A. 6.375% due 06/15/05 700 702 Wharf International Finance, Ltd. 7.625% due 03/13/07 850 670 ---------- 14,924 ---------- TOTAL LONG-TERM INVESTMENTS (cost $738,521) 756,416 ----------
Diversified Bond Fund 83 DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NOTIONAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- OPTIONS PURCHASED - 0.0% United States Treasury 10 Year Notes (e) Jul 99.98 Call** $ 8,900 $ 8 Aug 100.65 Call** 300 3 Sep 100.47 Call** 900 13 Sep 101.61 Call* 601 5 Sep 100.55 Call* 592 8 United States Treasury 30 Year Bonds (e) Nov 109.52 Call** 2,300 30 ---------- TOTAL OPTIONS PURCHASED (cost $56) 67 ---------- NUMBER OF SHARES ---------- PREFERRED STOCKS - 0.3% Credit Lyonnais Capital S.C.A. - ADR 15,700 393 Equity Office Properties Trust 21,500 935 TIG Holdings, Inc. 7,200 764 ---------- TOTAL PREFERRED STOCKS (cost $2,190) 2,092 ---------- PRINCIPAL AMOUNT (000) ---------- SHORT-TERM INVESTMENTS - 13.3% Federal Home Loan Mortgage Discount Notes (a)(f) 5.400% due 07/09/98 $ 2,000 1,998 5.450% due 07/20/98 3,340 3,330 5.400% due 08/28/98 2,000 1,982 Frank Russell Investment Company Money Market Fund, due on demand (a) 95,837 95,837 Raytheon Co. 5.700% due 07/09/98 (a) 1,000 999 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $104,146) 104,146 ---------- TOTAL INVESTMENTS (identified cost $844,913)(d) - 110.2% 862,721 OTHER ASSETS AND LIABILITIES, NET, INCLUDING OPTIONS WRITTEN - (10.2%) (79,668) ---------- NET ASSETS - 100.0% $ 783,053 ---------- ----------
(a) At cost, which approximates market. (b) Forward commitment. See Note 2. (c) Adjustable or floating rate securities. (d) See Note 2 for federal income tax information. (e) Nonincome-producing security. (f) Rate noted is yield-to-maturity. (g) Perpetual floating rate note. (h) Held as collateral in connection with options written by the Fund. * Represents 1 OTC contract. ** $100,000 notional amount represents 1 contract. ABBREVIATIONS: ADR - American Depositary Receipt CMO - Collateralized Mortgage Obligation MTN - Medium Term Note PLC - Public Limited Company REMIC - Real Estate Mortgage Investment Conduit TBA - To Be Announced Security The accompanying notes are an integral part of the financial statements. 84 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
NOTIONAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- OPTIONS WRITTEN (Notes 2 and 3) Abitibi-Consolidated, Inc.* Aug 138.00 Call $ 675 $ -- Aug 148.00 Call 400 -- Federal National Mortgage Association* Aug 102.84 Call 1,188 -- Sep 101.29 Call 1,462 6 Sep 101.30 Call 1,462 6 United States Treasury 10 Year Notes** Jul 99.75 Call 3,400 10 Jul 112.19 Call 2,000 -- Nov 109.00 Call 2,100 2 Nov 94.28 Put 2,300 -- United States Treasury 30 Year Bonds** Nov 95.27 Put 2,100 -- ---------- Total Liability for Options Written (premiums received $76)(#) $ 24 ---------- ----------
(#) At June 30, 1998, United States Government Securities valued at $20,007 were held as collateral in connection with options written by the Fund. * Represents 1 OTC contract. ** $100,000 notional amount represents 1 contract. The accompanying notes are an integral part of the financial statements. Diversified Bond Fund 85 DIVERSIFIED BOND FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $844,913)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 862,721 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,648 Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,122 Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,403 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,698 ----------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887,592 LIABILITIES Payables: Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . . . $ 4,170 Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . 99,690 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 331 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Options written, at market value (premiums received $76)(Notes 2 and 3). . . . . . . 24 ------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,539 ----------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 783,053 ----------------- ----------------- NET ASSETS CONSIST OF: Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,657 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,036) Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,808 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765,242 ----------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 783,053 ----------------- ----------------- NET ASSET VALUE, offering and redemption price per share: Class S ($779,739,493 divided by 32,903,022 shares of $.01 par value shares of beneficial interest outstanding). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23.70 ----------------- ----------------- Class E ($3,313,059 divided by 137,920 shares of $.01 par value shares of beneficial interest outstanding)(Note 1). . . . . . . . . . . . . . . . . . . . . . . . . $ 24.02 ----------------- -----------------
The accompanying notes are an integral part of the financial statements. 86 Diversified Bond Fund DIVERSIFIED BOND FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,809 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,425 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 -------------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,294 EXPENSES (Notes 1, 2 and 4): Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,618 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Registration fees - Class S. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Distribution fees - Class E. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Shareholder servicing fees - Class E . . . . . . . . . . . . . . . . . . . . . . . 4 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ------------ Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,058 -------------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,236 -------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,688 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . (2) 4,856 ------------ Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (10) 182 ------------ -------------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,038 -------------------- Net increase (decrease) in net assets resulting from operations. . . . . . . . . . . . . . . . . . . . $ 27,274 -------------------- --------------------
The accompanying notes are an integral part of the financial statements. Diversified Bond Fund 87 DIVERSIFIED BOND FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX FOR THE MONTHS ENDED FISCAL YEAR JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 --------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,236 $ 39,108 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,856 4,407 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 182 11,285 --------------- ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 27,274 54,800 --------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,359) (39,001) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (120) (45) In excess of net investment income Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (514) In excess of net realized gain on investments Class S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (578) (2,393) Class E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (8) --------------- ----------------- Total Distributions to Shareholders. . . . . . . . . . . . . . . . . . . . . (19,060) (41,961) --------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 85,039 121,196 --------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 93,253 134,035 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689,800 555,765 --------------- ----------------- End of period (including undistributed net investment income of $3,657 and accumulated distributions in excess of net investment income of $100, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . $ 783,053 $ 689,800 --------------- ----------------- --------------- -----------------
The accompanying notes are an integral part of the financial statements. 88 Diversified Bond Fund DIVERSIFIED BOND FUND FINANCIAL HIGHLIGHTS - CLASS S The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 23.43 $ 22.97 $ 23.69 $ 21.53 $ 23.73 $ 23.49 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .71(c) 1.45 1.47 1.54 1.46 1.48 Net realized and unrealized gain (loss) on investments . .16 .56 (.71) 2.18 (2.22) .83 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . .87 2.01 .76 3.72 (.76) 2.31 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income . . . . . . . . . . . . . . . . . (.58) (1.45) (1.48) (1.56) (1.42) (1.48) In excess of net investment income . . . . . . . . . . . -- (.02) -- -- -- (.01) Net realized gain on investments . . . . . . . . . . . . -- -- -- -- -- (.58) In excess of net realized gain on investments . . . . . (.02) (.08) -- -- (.02) -- ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (.60) (1.55) (1.48) (1.56) (1.44) (2.07) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 23.70 $ 23.43 $ 22.97 $ 23.69 $ 21.53 $ 23.73 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a). . . . . . . . . . . . . . . . . . . . 3.77 9.09 3.43 17.76 (3.25) 10.02 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 779,739 687,331 554,804 513,808 525,315 477,341 Ratios to average net assets (%)(b): Operating expenses . . . . . . . . . . . . . . . . . .56 .60 .61 .59 .56 .58 Net investment income . . . . . . . . . . . . . . . . 6.03 6.35 6.46 6.69 6.57 6.13 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 185.78 172.43 138.98 135.85 153.21 177.74
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the periods ended June 30, 1998 are annualized. (c) Average month-end shares outstanding for the period were used for this calculation. Diversified Bond Fund 89 DIVERSIFIED BOND FUND FINANCIAL HIGHLIGHTS - CLASS E The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ----------------------- 1998* 1997 1996** ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . $ 24.06 $ 22.98 $ 23.16 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . .67(d) 1.22 .25 Net realized and unrealized gain (loss) on investments . . . .14 .66 (.09) ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . . . .81 1.88 .16 ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . . . (.83) (.72) (.34) Net realized gain on investments . . . . . . . . . . . . . . -- -- -- In excess of net realized gain on investments. . . . . . . . (.02) (.08) -- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . . . (.85) (.80) (.34) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . $ 24.02 $ 24.06 $ 22.98 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . . . 3.44 8.35 .67(b) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . . . 3,313 2,469 962 Ratios to average net assets (%)(c): Operating expenses. . . . . . . . . . . . . . . . . . . . 1.14 1.29 1.31 Net investment income . . . . . . . . . . . . . . . . . . 5.45 5.64 5.75 Portfolio turnover rate (%)(c) . . . . . . . . . . . . . . . 185.78 172.43 138.98
* For the six months ended June 30, 1998 (Unaudited). ** For the period November 4, 1996 (commencement of sale) to December 31, 1996. (a) Periods less than one year are not annualized. (b) Total return represents performance for the period November 4, 1996 to December 31, 1996. (c) The ratios for the periods ended June 30, 1998 and December 31, 1996 are annualized. (d) Average month-end shares outstanding for the period were used for this calculation. 90 Diversified Bond Fund VOLATILITY CONSTRAINED BOND FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- LONG-TERM INVESTMENTS - 94.3% ASSET-BACKED SECURITIES - 34.0% ABFS Equipment Contract Trust 6.100% due 10/15/05 $ 400 $ 401 Advanta Home Equity Loan Trust Series 1994-1 Class A-2 6.300% due 07/25/25 152 152 AFC Home Equity Loan Trust Series 1993-2 Class A 6.000% due 01/20/13 129 128 AFC Mortgage Loan Trust Series 1996-3 Class 1A2 7.220% due 02/25/27 123 123 Banc One Auto Grantor Trust Series 1997-A Class A 6.270% due 11/20/03 2,204 2,218 Barnett Auto Trust Series 1997-A Class A3 6.030% due 11/15/01 5,700 5,713 California Infrastructure PG&E Series 1997-1 Class A3 6.150% due 06/25/02 1,600 1,610 Case Equipment Loan Trust Series 1997-B Class C 6.410% due 09/15/04 233 234 Chase Credit Card Master Trust Series 1997-2 Class A 6.300% due 04/15/03 2,900 2,933 Series 1997-5 Class A 6.194% due 08/15/05 800 813 Chase Manhattan Auto Owner Trust Series 1998-B Class A4 5.800% due 02/17/03 2,000 2,000 Chemical Master Credit Card Trust I Series 1996-1 Class A 5.550% due 09/15/03 4,000 3,961 Chevy Chase Auto Receivables Trust Series 1996-2 Class A 5.900% due 07/15/03 619 619 Series 1997-1 Class A 6.500% due 10/15/03 872 876 Series 1997-3 Class A 6.200% due 03/20/04 (c) 699 702 Contimortgage Home Equity Loan Trust Pass-thru Certificate Series 1997-4 Class A2 6.270% due 02/15/12 500 500 Delta Funding Home Equity Loan Trust Series 1998-1 Class A2A 5.858% due 05/25/30 (c) 364 364 EQCC Home Equity Loan Trust Series 1993-4 Class A 5.725% due 12/15/08 42 42 Equivantage Home Equity Loan Trust Series 1996-1 Class A 6.550% due 10/25/25 15 15 Fingerhut Master Trust Series 1998-1 Class A 6.070% due 02/15/05 250 250 First Chicago Master Trust II Credit Card Certificates Series 1994-L 7.150% due 04/15/01 3,200 3,249 First Security Auto Grantor Trust Series 1997-A Class A 6.300% due 08/15/03 500 502 Green Tree Financial Corp. Series 1998-1 Class A3 5.950% due 04/01/13 500 500 Series 1998-2 Class A3 6.050% due 10/01/07 325 326 Green Tree Home Improvement Loan Trust Series 1997-A Class HIA3 7.050% due 08/15/23 500 509 Honda Auto Receivables Grantor Trust Series 1995-A Class A 6.200% due 12/15/00 209 209 Series 1997-A Class A 5.850% due 02/15/03 253 253 IMC Home Equity Loan Trust Series 1997-5 Class A1 6.510% due 02/20/06 (c) 433 434 Series 1998-1 Class A3 6.410% due 04/20/18 350 351 Nationsbank Credit Card Master Trust Series 1995-1 Class A 6.450% due 04/15/03 2,500 2,528 New Century Home Equity Loan Trust Series 1998-NC3 Class A1 6.000% due 06/26/28 1,000 996 Nissan Auto Receivables Grantor Trust Series 1997-1 Class A 6.150% due 02/15/03 633 634 NPF VI Inc. Series 1998-1A Class A 6.220% due 06/01/02 400 401
92 Volatility Constrained Bond Fund VOLATILITY CONSTRAINED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Olympic Automobile Receivables Trust Series 1996-B Class A4 6.700% due 03/15/02 $ 1,000 $ 1,010 Series 1996-D Class CTFS 6.125% due 04/15/02 2,315 2,316 PBG Equipment Trust Series 1A Class A 6.270% due 01/20/12 550 550 PNC Student Loan Trust I Series 1997-2 Class A3 6.314% due 01/25/01 3,500 3,540 Premier Auto Trust Series 1997-3 Class A4 6.200% due 01/06/01 3,500 3,514 Prime Credit Card Master Trust Series 1992-2 Class A2 7.450% due 11/15/02 1,000 1,022 Remodelers Home Improvement Loan Series 1995-3 Class A2 6.800% due 12/20/07 76 76 Rental Car Finance Corp. Series 1997-1 Class A1 6.250% due 06/25/03 420 421 Ryder Vehicle Lease Trust Series 1998-A Class A 6.100% due 09/15/08 (c) 400 400 Sears Credit Account Master Trust II Series 1995-3 Class A 7.000% due 10/15/04 500 510 Series 1997-1 Class A 6.200% due 07/16/07 500 503 Series 1998-1 Class A 5.800% due 08/15/05 1,000 998 SPNB Home Equity Loan Series 1991-1 Class B 8.150% due 06/15/20 39 39 Standard Credit Card Master Trust Series 1994-4 Class A 8.250% due 11/07/03 850 906 The Money Store Auto Grantor Trust Series 1997-4 Class A2 6.350% due 03/20/04 500 504 The Money Store Small Business Administration Loan Trust Series 1997-1 Class A 6.241% due 01/15/25 (c) 483 484 Series 1997-1 Class B 6.720% due 01/15/25 (c) 483 486 Toyota Auto Lease Trust Series 1997-A Class A1 6.200% due 04/26/04 3,600 3,612 UCFC Home Equity Loan Trust Series 1993-B1 Class A-1 6.075% due 07/25/14 78 78 WFS Financial Owner Trust Series 1996-D Class A3 6.050% due 07/20/01 (c) 2,947 2,955 World Omni Automobile Lease Securitization Trust Series 1996-B Class A3 6.250% due 11/15/02 696 700 Series 1996-B Class B 6.850% due 11/15/02 (c) 399 399 Series 1997-A Class A2 6.750% due 06/25/03 (c) 3,498 3,525 Series 1997-A Class A4 6.900% due 06/25/03 400 406 Series 1997-B Class A1 6.070% due 11/25/03 600 600 ---------- 64,100 ---------- CORPORATE BONDS AND NOTES - 28.4% Advanta National Bank 6.450% due 10/30/00 250 239 Ahmanson (H.F.) 9.875% due 11/15/99 900 944 Aristar Inc. 6.125% due 12/01/00 500 501 Associates Corp. of North America 6.375% due 08/15/00 4,000 4,033 Banco De Latinoamerica 6.500% due 04/02/01 (c) 1,000 1,013 Bankamerica Corp. 9.500% due 04/01/01 750 812 Banponce Corp. (MTN) Series 2 5.750% due 03/01/99 1,100 1,098
Volatility Constrained Bond Fund 93 VOLATILITY CONSTRAINED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Bear Stearns Co., Inc. 7.625% due 09/15/99 $ 725 $ 738 Caterpillar Financial Services (MTN) 6.100% due 07/15/99 500 501 Chase Manhattan Corp. 10.125% due 11/01/00 750 817 5.813% due 12/05/09 (c) 800 790 Chrysler Financial Corp. (MTN) 6.610% due 06/16/00 850 860 CIT Group Holdings, Inc. (MTN) 6.125% due 12/15/00 3,100 3,111 Coca-Cola Put Asset Trust 6.000% due 03/15/01 950 951 Comdisco, Inc. (MTN) 6.070% due 05/08/00 1,000 1,003 Conseco, Inc. 6.400% due 06/15/0 (c) 850 849 Cox Enterprises, Inc. 6.250% due 08/26/99 1,000 1,002 Crescent Real Estate Equities 6.625% due 09/15/02 750 740 ERAC USA Finance Co. 6.375% due 05/15/03 825 827 ERP Operating, L.P. 8.500% due 05/15/99 225 229 Finova Capital Corp. 6.450% due 06/01/00 625 630 First Bank South Dakota 5.722% due 12/20/00 (c) 500 500 First Chicago Corp. 9.000% due 06/15/99 500 514 First Industrial, L.P. 6.500% due 04/05/01 (c) 1,075 1,077 Franchise Finance Corp. 7.000% due 11/30/00 575 584 General Electric Capital Corp. (MTN) 6.120% due 08/15/00 4,000 4,026 General Motors Acceptance Corp. (MTN) 7.500% due 07/22/99 850 864 7.465% due 07/25/19 938 941 7.012% due 04/01/20 (c) 972 984 Greyhound Financial Corp. 8.500% due 02/15/99 775 786 Heller Financial, Inc. (MTN) 5.738% due 03/01/99 (c) 600 600 Hertz Corp. 6.625% due 07/15/00 650 655 Homeside Lending, Inc. (MTN) 6.875% due 05/15/00 825 839 JC Penney & Co., Inc. (MTN) 6.375% due 09/15/00 675 682 KeyCorp 8.400% due 04/01/99 1,000 1,017 Lehman Brothers Holdings, Inc. (MTN) 6.000% due 02/26/01 1,250 1,248 Lehman Brothers Holdings, Inc. (MTN) Series IBC 7.000% due 05/13/99 700 706 Liberty Property, L.P. (MTN) 6.600% due 06/05/02 400 405 MBNA Corp. (MTN) Series B 6.500% due 09/15/00 375 377 MCI Communications Corp. 6.125% due 04/15/02 (c) 1,250 1,251 Merrill Lynch & Co., Inc. (MTN) 7.260% due 03/25/02 925 950 Midlantic Corp. 9.250% due 09/01/99 450 466 Norwest Financial, Inc. 6.375% due 09/15/02 500 505 Procter & Gamble 9.625% due 01/14/01 3,900 4,211 Salomon Smith Barney Holdings, Inc. 6.625% due 07/01/02 75 76 6.500% due 10/15/02 300 303 Salomon, Inc. (MTN) 5.382% due 04/05/99 (c) 1,000 1,000 Sears Roebuck Acceptance Corp. (MTN) 6.160% due 09/20/00 4,000 4,017 Sears Roebuck Acceptance Corp. (MTN) Series II 6.690% due 04/30/01 750 763 Sovereign Bancorp, Inc. (Regd) 6.750% due 07/01/00 625 631 Wellsford Residential Property Trust (MTN) 6.019% due 11/24/99 (c) 850 851 ---------- 53,517 ---------- EURODOLLAR BONDS - 0.8% ALPS Pass-thru Trust Series 1994-1 Class A-2 7.150% due 09/15/04 (c) 262 262
94 Volatility Constrained Bond Fund VOLATILITY CONSTRAINED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Videotron Holdings PLC Step Up Bond Zero Coupon due 07/01/04 $ 1,175 $ 1,155 ---------- 1,417 ---------- MORTGAGE-BACKED SECURITIES - 10.4% Bayview Financial Acquisition Trust Series 1998-1 Class A1 7.010% due 05/25/29 600 609 Bear Stearns Mortgage Securities, Inc. Series 1996-6 Class A2 7.000% due 11/25/27 688 688 BKD Commercial Mortgage Trust Series 1997-C1 Class B 7.218% due 04/25/00 (c) 441 440 Chase Mortgage Finance Corp. Series 1998-S2 Class A1 6.500% due 07/25/28 500 502 Citicorp Mortgage Securities, Inc. REMIC Series 1997-5 Class A1 6.500% due 11/25/27 400 401 Credit Suisse First Boston Mortgage 7.000% due 12/25/37 450 450 Federal Home Loan Mortgage Corp (MTN). 6.770% due 09/15/02 300 311 Federal Home Loan Mortgage Corp. Groups 7.500% due 2000 169 170 7.500% due 2002 70 71 9.000% due 2005 203 209 7.375% due 2006 188 192 8.000% due 2018 645 668 Federal Home Loan Mortgage Corp. Participation Certificate Series 1540 Class C 6.050% due 02/15/11 692 693 Series 2061 Class PH 6.000% due 05/15/16 400 400 Federal National Mortgage Association Pools 7.000% due 2004 621 629 8.750% due 2004 40 42 8.500% due 2010 612 638 6.250% due 2013 1,400 1,416 Federal National Mortgage Association Grantor Trust REMIC Series 1996-T6 Class C 6.200% due 02/26/01 988 988 GE Capital Mortgage Services, Inc. Series 1998-10 Class 2A1 6.500% due 05/25/13 500 502 REMIC Series 1997-9 Class 1A2 6.750% due 10/25/27 300 302 Government National Mortgage Association Pools 9.500% due 2025 597 647 7.250% due 2026 913 940 Merit Securities Corp. Series II Class 1A1 6.580% due 07/28/22 1,100 1,100 Norwest Integrated Structured Assets, Inc. Series 1998-1 Class 2A1 7.000% due 06/25/28 500 503 Prudential Home Mortgage Securities Co. Series 1993-S7 Class A4 5.900% due 12/25/23 850 843 Series 1994-19 Class A2 7.050% due 05/25/24 370 373 Residential Accredited Loans, Inc. Series 1997-QS7 Class A1 7.500% due 07/25/27 279 282 Residential Asset Secruitization Trust Mortgage Pass-thru Certificates Series 1996-A8 Class A1 8.000% due 12/25/26 20 20 Series 1997-A5 Class A3 7.125% due 07/25/27 50 50 Series 1997-A9 Class A1 7.250% due 11/26/27 6 6 Series 1998-A2 Class A1 6.750% due 04/25/28 473 475 Series 1998-A5 Class A1 6.750% due 05/25/28 494 494 Residential Funding Mortgage Securities I Series 1997-S12 Class A10 6.700% due 08/25/27 850 853 Resolution Trust Corp. Mortgage Pass-thru Certificate Series 1994-C1 Class D 8.000% due 06/25/26 (c) 647 657 Series 1995-2 Class C1 7.450% due 05/25/29 (c) 264 268 SASCO LLC Series 1997-N1 Class D 6.178% due 09/25/28 (c) 600 600
Volatility Constrained Bond Fund 95 VOLATILITY CONSTRAINED BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Structured Asset Securities Corp. Series 1998-C2A Class A 6.145% due 01/25/13 (c) $ 200 $ 200 Union Planters Mortgage Finance Corp. Series 1998-A Class A1 6.350% due 01/25/28 475 476 Wilshire Funding Corporation Series 1997-WFC1 Class AI 7.250% due 08/25/27 607 612 ---------- 19,720 ---------- MUNICIPAL BONDS - 0.3% Philadelphia, Pennsylvania, Authority for Industrial Development Class A 6.480% due 06/15/04 604 623 ---------- 623 ---------- UNITED STATES GOVERNMENT AGENCIES - 0.3% Federal Home Loan Bank 6.070% due 01/17/01 500 499 ---------- 499 ---------- UNITED STATES GOVERNMENT TREASURIES - 17.8% United States Treasury Notes 6.000% due 06/30/99 850 854 5.875% due 11/15/99 225 226 5.375% due 02/01/00 75 75 5.375% due 02/15/01 15,800 15,746 6.500% due 08/31/01 1,625 1,669 6.250% due 02/28/02 650 665 3.625% due 07/15/02 10,558 10,442 5.750% due 10/31/02 500 504 5.750% due 11/30/02 3,120 3,146 5.500% due 05/31/03 250 250 ---------- 33,577 ---------- YANKEE BONDS - 2.3% Brascan, Ltd. 7.375% due 10/01/02 1,000 1,028 Household International 5.250% due 10/15/98 850 849 Noranda Forest, Inc. 8.875% due 10/15/99 450 465 Quebec, Province of 13.250% due 09/15/14 450 506 Tyco International Group SA 6.125% due 06/15/01 500 501 Westpac Banking, Ltd. 7.875% due 10/15/02 1,006 1,067 ---------- 4,416 ---------- TOTAL LONG-TERM INVESTMENTS (cost $177,577) 177,869 ---------- SHORT-TERM INVESTMENTS - 5.3% Frank Russell Investment Company Money Market Fund, due on demand (a) 9,979 9,979 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $9,979) 9,979 ---------- TOTAL INVESTMENTS (identified cost $187,556)(b) - 99.6% 187,848 OTHER ASSETS AND LIABILITIES, NET - 0.4% 809 ---------- NET ASSETS - 100.0% $ 188,657 ---------- ----------
(a) At cost, which approximates market. (b) See Note 2 for federal income tax information. (c) Adjustable or floating rate securities. ABBREVIATIONS: MTN - Medium Term Note PLC - Public Limited Company REMIC - Real Estate Mortgage Investment Conduit The accompanying notes are an integral part of the financial statements. 96 Volatility Constrained Bond Fund VOLATILITY CONSTRAINED BOND FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $187,556)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 187,848 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,125 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 9,326 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,444 LIABILITIES Payables: Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 604 Investments purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,488 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 127 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 9,326 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,787 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,657 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 831 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,357) Unrealized appreciation (depreciation) on investments. . . . . . . . . . . . . . . . . . . . . . . . . . 292 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,792 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,657 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($188,656,577 divided by 9,886,198 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.08 -------------- --------------
The accompanying notes are an integral part of the financial statements. Volatility Constrained Bond Fund 97 VOLATILITY CONSTRAINED BOND FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,292 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ----------------- Total Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,581 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 448 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 -------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707 ----------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,874 ----------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (269) Net change in unrealized appreciation or depreciation of investments . . . . . . . . . . . . . . . . . . 337 ----------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 4,942 ----------------- -----------------
The accompanying notes are an integral part of the financial statements. 98 Volatility Constrained Bond Fund VOLATILITY CONSTRAINED BOND FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ------------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,874 $ 9,182 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (269) (141) Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . 337 325 ---------------- --------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 4,942 9,366 ---------------- --------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,751) (9,388) ---------------- --------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6). . . . 15,490 9,801 ---------------- --------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 15,681 9,779 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,976 163,197 ---------------- --------------- End of period (including undistributed net investment income of $831 and $708, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,657 $ 172,976 ---------------- --------------- ---------------- ---------------
The accompanying notes are an integral part of the financial statements. Volatility Constrained Bond Fund 99 VOLATILITY CONSTRAINED BOND FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998* 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $ 19.06 $ 19.07 $ 19.21 $ 18.64 $ 19.78 $ 19.51 ---------- ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . .50 1.07 1.09 1.21 1.15 .82 Net realized and unrealized gain (loss) on investments . .02 .02 (.22) .58 (1.16) .45 ---------- ---------- ---------- ---------- ---------- ---------- Total Income From Investment Operations . . . . . . . .52 1.09 .87 1.79 (.01) 1.27 ---------- ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Net investment income. . . . . . . . . . . . . . . . . . (.50) (1.10) (1.01) (1.22) (1.13) (.71) Tax return of capital. . . . . . . . . . . . . . . . . . -- -- -- -- -- (.29) ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions . . . . . . . . . . . . . . . . . (.50) (1.10) (1.01) (1.22) (1.13) (1.00) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $ 19.08 $ 19.06 $ 19.07 $ 19.21 $ 18.64 $ 19.78 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN (%)(a) . . . . . . . . . . . . . . . . . . . 2.75 5.90 4.66 9.89 (.02) 6.67 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) . . . . . . . . 188,657 172,976 163,197 181,881 195,007 225,672 Ratios to average net assets (%)(b): Operating expenses. . . . . . . . . . . . . . . . . . .78 .78 .76 .71 .67 .66 Net investment income . . . . . . . . . . . . . . . . 5.38 5.63 5.69 6.33 5.97 5.79 Portfolio turnover rate (%)(b) . . . . . . . . . . . . . 136.83 197.45 311.51 256.72 182.65 220.77
* For the six months ended June 30, 1998 (Unaudited). (a) Periods less than one year are not annualized. (b) The ratios for the period ended June 30, 1998 are annualized. 100 Volatility Constrained Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- LONG-TERM INVESTMENTS - 95.1% ASSET-BACKED SECURITIES - 4.5% ACLC Franchise Loan Receivables Series 1997-B Class A1 6.728% due 04/15/14 $ 987 $ 1,004 Advanta Mortgage Loan Trust 7.040% due 01/25/29 1,600 1,645 American Airlines, Inc. Series 1990-H 9.800% due 01/02/08 1,190 1,460 Class A-1 9.710% due 01/02/07 333 383 Cityscape Home Equity Loan Trust Pass-thru Certificate Series 1996-2 Class A2 7.200% due 04/25/11 826 837 Contimortgage Home Equity Loan Trust 6.430% due 04/15/16 870 876 7.220% due 01/15/28 370 379 Fleetwood Credit Corp. Grantor Trust Series 1994-B Class A 6.750% due 03/15/10 308 310 Fund America Investors Corp. II Pass-thru Certificate Series 1993-F Class A-1 5.400% due 09/25/09 82 81 GMAC Commercial Mortgage Securities, Inc. Series 1996-C1 Class F 7.860% due 11/15/06 500 489 Green Tree Financial Corp. Series 1995-5 Class A3 6.250% due 10/15/25 856 858 Series 1995-6 Class A3 6.650% due 11/15/25 900 905 Series 1995-8 Class A2 6.150% due 12/15/26 (b) 176 176 Series 1998-4 Class A3 5.980% due 08/01/08 1,800 1,801 Green Tree Home Equity Loan Trust Series 1998-C Class A2 6.030% due 07/15/29 1,300 1,302 Green Tree Recreational Equipment 6.100% due 11/15/10 800 800 Greenwich Capital Acceptance, Inc. Series 1994 Class A-1 8.725% due 11/25/24 (b) 121 126 IMC Home Equity Loan Trust Series 1998-3 Class A3 6.160% due 05/20/14 490 490 MBNA Master Credit Card Trust Series 1994-B Class A 5.591% due 01/15/02 (b) 2,000 1,999 New Century Home Equity Loan Trust Series 1997-NC6 Class A4 6.730% due 07/25/22 300 305 Residential Funding Mortgage Securities II Series 1997-HS5 Class M1 7.010% due 05/25/27 1,400 1,425 Salomon Brothers Mortgage Securities VII, Inc. Series 1997 Class A2 7.174% due 03/25/25 855 894 Southern Pacific Secured Assets Corp. Series 1998-1 Class A2 6.270% due 02/25/18 1,000 1,001 Student Loan Marketing Association Series 1997-3 Class A1 5.787% due 04/25/06 (b) 2,721 2,716 The Money Store Home Equity Loan Trust Series 1996-A Class A5 6.850% due 06/15/19 700 709 UCFC Home Equity Loan Trust Series 1996-B1 Class A7 8.200% due 09/15/27 320 347 ---------- 23,318 ---------- CORPORATE BONDS AND NOTES - 33.1% A.H. Belo Corp. 6.875% due 06/01/02 900 918 Aames Financial Corp. 9.125% due 11/01/03 475 471 Advanta National Bank 6.450% due 10/30/00 700 699 Albank Capital Trust 9.270% due 06/06/27 625 729 American General Institutional Capital Series B 8.125% due 03/15/46 1,130 1,284 American Standard Co. 7.375% due 04/15/05 1,675 1,669 Amerus Capital I Series A 8.850% due 02/01/27 500 565 AMR Corp. (MTN) 9.950% due 03/07/01 1,000 1,094
102 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Amresco, Inc. 9.875% due 03/15/05 $ 650 $ 657 AT&T Capital Corp. 6.050% due 04/01/99 (b) 3,000 2,999 6.920% due 04/29/99 (MTN) 205 207 6.410% due 08/13/99 (MTN) 310 311 6.470% due 12/03/99 (MTN) 480 481 6.480% due 12/03/99 (MTN) 1,100 1,110 Banesto Delaware, Inc. 8.250% due 07/28/02 500 532 Bankamerica Corp. (MTN) 5.708% due 03/05/01 (b) 5,000 4,999 Bankers Trust of NY Corp. 5.788% due 05/11/03 2,000 1,998 Banponce Trust I Series A 8.327% due 02/01/27 475 517 Banque Paribas-NY 6.875% due 03/01/09 675 679 Beaver Valley Funding Corp. 9.000% due 06/01/17 1,470 1,692 BellSouth Capital Funding Corp. 6.040% due 11/15/26 2,020 2,048 BellSouth Telecommunications, Inc. 5.850% due 11/15/45 640 639 Beneficial Corp. (MTN) 5.901% due 04/02/02 (b) 2,000 1,998 Building Materials Corp. 8.000% due 10/15/07 1,400 1,400 California Energy Co., Inc. 10.250% due 01/15/04 2,250 2,396 CBS, Inc. 7.125% due 11/01/23 725 692 Chase Manhattan Corp. 6.375% due 04/01/08 890 892 Citicorp (MTN) 5.738% due 06/27/02 (b) 3,000 2,995 5.778% due 08/13/02 (b) 2,000 2,001 Cleveland Electric Illumination Co. 7.430% due 11/01/09 260 273 Cliffs Drilling Co. Series B 10.250% due 05/15/03 445 476 Colonial Realty LP 7.500% due 07/15/01 775 795 Columbia/HCA Healthcare Corp. 8.020% due 08/05/02 (MTN) 2,000 2,040 8.360% due 04/15/24 680 716 Commercial Federal Corp. 7.950% due 12/01/06 100 100 Conmed Corp. 9.000% due 03/15/08 350 349 Connecticut Light & Power Co. 7.750% due 06/01/02 195 200 7.875% due 10/01/24 975 995 Conseco Financing Trust II 8.700% due 11/15/26 875 984 Conseco Financing Trust III 8.796% due 04/01/27 700 799 Contifinancial Corp. 8.375% due 08/15/03 900 936 Continental Airlines, Inc. 9.500% due 12/15/01 1,445 1,537 CP Limited Partnership 8.750% due 03/02/00 500 518 Crescent Real Estate Equities 6.625% due 09/15/02 900 891 7.125% due 09/15/07 1,000 1,009 CS Wireless System, Inc. Step Up Bond Zero Coupon due 03/01/06 (b) 360 83 CSC Holdings, Inc. 7.875% due 12/15/07 600 632 Dime Capital Trust I Series A 9.330% due 05/06/27 325 381 Dresser Industries, Inc. 7.600% due 08/15/96 910 1,047 EOP Operating LP 6.376% due 02/15/02 1,610 1,604 ERAC USA Finance Co. (MTN) 6.350% due 01/15/01 725 730 ERP Operating, LP 8.500% due 05/15/99 350 357 Felcor Suites LP 7.625% due 10/01/07 570 567 First Nationwide Holdings, Inc. 12.500% due 04/15/03 1,100 1,249 10.625% due 10/01/03 875 989 First Republic Bancorp 7.750% due 09/15/12 750 783 Ford Motor Credit Co. 5.908% due 03/05/01 (MTN)(b) 5,000 5,005 5.813% due 02/13/03 (b) 2,000 1,997 Fox/Liberty Networks LLC 8.875% due 08/15/07 950 969
Multistrategy Bond Fund 103 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Fox/Liberty Networks LLC Step Up Bond Zero Coupon due 08/15/07 $ 295 $ 205 Fugi JGB Investment LLC 9.870% due 12/31/49 (e) 2,190 1,924 General Motors Acceptance Corp. 6.625% due 04/24/00 (MTN) 550 556 5.800% due 02/23/01 (MTN) 1,730 1,721 6.375% due 12/01/01 755 760 Global Crossing Holdings Ltd. 9.625% due 05/15/08 700 730 Goldman Sachs Group, LP (MTN) 5.925% due 02/22/02 (b) 5,000 4,994 Great Atlantic & Pacific Tea, Inc. 7.750% due 04/15/07 1,225 1,229 Grove Worldwide LLC 9.250% due 05/01/08 400 392 GTE Corp. 6.840% due 04/15/18 650 652 6.940% due 04/15/28 1,250 1,260 Haven Capital Trust I 10.460% due 02/01/27 350 395 Health Care Reit, Inc. 7.625% due 03/15/08 825 832 Homeside, Inc. 11.250% due 05/15/03 226 268 Household Bank Nevada NA (MTN) 5.876% due 10/22/03 (b) 4,000 3,988 Imperial Capital Trust I Series B 9.980% due 12/31/26 250 294 Imperial Credit Industries, Inc. Series B 9.875% due 01/15/07 675 672 Interpool Capital Trust Series B 9.875% due 02/15/27 500 580 K Mart Corp. 7.820% due 01/02/02 (MTN) 700 708 7.840% due 01/02/02 (MTN) 900 911 7.770% due 07/02/02 (MTN) 700 707 7.470% due 07/31/02 (MTN) 500 499 9.780% due 01/05/20 1,000 1,131 Kaufman and Broad Home Corp. 7.750% due 10/15/04 800 798 Lehman Brothers Holdings, Inc. 5.902% due 01/18/00 (MTN)(b) 3,000 3,009 6.250% due 04/01/03 1,000 1,001 Loewen Group International, Inc. Series 4 8.250% due 10/15/03 700 726 Long Island Lighting Co. 9.000% due 11/01/22 4,045 4,622 Markel Capital Trust I Series B 8.710% due 01/01/46 325 357 MCI Communications Corp. 6.125% due 04/15/02 650 648 McLeodusa, Inc. 8.375% due 03/15/08 825 827 Merck and Co. Series B (MTN) 5.760% due 05/03/37 2,765 2,865 Merita Bank, Ltd. 7.150% due 12/29/49 (b) 1,200 1,224 Merrill Lynch & Co (MTN) 6.019% due 08/03/00 (b) 5,000 5,029 MMI Capital Trust I Series B 7.625% due 12/15/27 1,425 1,474 Morgan Stanley Dean Witter (MTN) 5.875% due 03/11/03 (b) 1,700 1,701 Natexis Ambs Co. LLC 8.440% due 12/29/49 425 425 New England Education Loan Marketing Corp. (MTN) 1.000% due 06/11/01 4,000 4,000 Nextel Communications, Inc. Step Up Bond Zero Coupon due 01/15/04 160 157 Zero Coupon due 09/15/07 1,800 1,215 Zero Coupon due 10/31/07 485 316 Zero Coupon due 02/15/08 650 414 Niagara Mohawk Power Corp. 7.000% due 10/01/00 3,000 3,008 8.750% due 04/01/22 715 786 Norfolk Southern Corp. 7.800% due 05/15/27 235 270 7.050% due 05/01/37 915 972 North Atlantic Energy Corp. Series A 9.050% due 06/01/02 671 690 Northwest Airlines, Inc. 7.625% due 03/15/05 2,370 2,358 Ocwen Federal Bank 12.000% due 06/15/05 300 328
104 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Ocwen Financial Corp. 11.875% due 10/01/03 $ 725 $ 814 Onbank Capital Trust I 9.250% due 02/01/27 450 550 Optel, Inc. 11.500% due 07/01/08 825 825 Orion Capital Trust I 8.730% due 01/01/37 125 135 Orion Capital Trust II 7.701% due 04/15/28 100 105 Paxson Communications Corp. 11.625% due 10/01/02 550 590 Philip Morris, Inc. 6.150% due 03/15/00 3,000 3,000 Premier Parks, Inc. Step Up Bond Zero Coupon due 04/01/08 375 249 Prime Succession Acquisition Co. 10.750% due 08/15/04 400 438 Providian Capital I Series A 9.525% due 02/01/27 500 571 Prudential Insurance Co. of America 6.875% due 04/15/03 700 715 PX Escrow Company Step Up Bond Zero Coupon due 02/01/06 1,650 1,188 Revlon Worldwide Zero Coupon due 03/15/01 1,900 1,477 Rose Hills Corp. 9.500% due 11/15/04 500 523 Salomon Smith Barney Holdings 7.980% due 03/01/00 400 413 Salomon, Inc. 7.125% due 08/01/99 275 278 7.750% due 05/15/00 550 567 6.625% due 11/30/00 (MTN) 750 760 SB Treasury Company LLC 9.400% due 12/29/49 (b) 725 716 Seagate Technology, Inc. 7.450% due 03/01/37 1,085 1,066 Simon Debartolo Group, LP 6.750% due 07/15/04 850 849 Sinclair Broadcast Group, Inc. 8.750% due 12/15/07 375 383 Sovereign Capital Trust I 9.000% due 04/01/27 975 1,101 Spieker Properties, LP 6.950% due 12/15/02 500 508 Summit Properties, Inc. 7.200% due 08/15/07 625 633 Sun Healthcare Group, Inc. 9.500% due 07/01/07 625 634 TCI Communications, Inc. 5.975% due 09/11/00 (MTN)(b) 2,000 1,989 9.650% due 03/31/27 435 533 Tele-Communications, Inc. 6.340% due 02/01/02 570 568 Teleport Communications Group Step Up Bond Zero Coupon due 07/01/07 1,545 1,329 Tenet Healthcare Corp. 8.000% due 01/15/05 500 518 8.125% due 12/01/08 1,700 1,704 Time Warner, Inc. 7.975% due 08/15/04 225 242 8.110% due 08/15/06 450 496 8.180% due 08/15/07 450 501 7.480% due 01/15/08 800 854 8.050% due 01/15/16 900 1,012 6.850% due 01/15/26 2,470 2,539 Tokai Preferred Capital Co. LLC 9.980% due 12/29/49 (b) 2,500 2,313 Toledo Edison Co. 8.000% due 12/31/98 (MTN) 500 503 8.700% due 09/01/02 500 527 Toll Brothers Corp. 7.750% due 09/15/07 1,175 1,157 Trenwick Capital Trust I 8.820% due 02/01/37 625 692 Tricon Global Restaurants Inc. 7.450% due 05/15/05 825 824 TU Electrical Capital V 8.175% due 01/30/37 830 869 United Companies Financial Corp. 8.375% due 07/01/05 625 621 US Air, Inc. 9.625% due 02/01/01 500 520 Valero Energy 6.750% due 12/15/02 570 577 Webster Capital Trust I 9.360% due 01/29/27 250 285
Multistrategy Bond Fund 105 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Wellsford Residential Property Trust 9.375% due 02/01/02 $ 475 $ 518 Wireless One, Inc. Step Up Bond Zero Coupon due 08/01/06 (b) 220 32 ---------- 173,122 ---------- EURODOLLAR BONDS - 5.9% Amvescap PLC 6.600% due 05/15/05 1,675 1,693 Argentina, Republic of Series 10 5.688% due 04/01/00 (b) 289 238 Series L 6.625% due 03/31/05 (b) 1,900 1,677 Arisco Productos Alimenticios 10.750% due 05/22/05 110 103 Auxiliaire Credit Foncier 5.688% due 09/25/02 (b) 1,070 1,045 Brazil, Republic of 9.375% due 04/07/08 350 309 Bulgaria, Republic of, Series A 6.563% due 07/28/24 (b) 1,090 833 Colombia, Republic of 8.625% due 04/01/08 1,800 1,708 Credit Fonc France 8.000% due 01/14/02 600 632 Credit Lyonnais 7.125% due 09/19/49 (e) 1,170 1,142 Fifth Mexican Acceptance Corp. Class A 8.000% due 12/15/98 1,050 297 Ford Motor Credit 5.813% due 01/17/02 2,175 2,173 ForeningsSparbanken AB 7.500% due 11/29/49 480 497 Globo Communicacoes e Participacoes S.A. 10.625% due 12/05/08 750 668 Hutchison Whampoa Finance, Ltd. 7.450% due 08/01/17 325 258 Korea, Republic of 8.188% due 04/08/00 3,000 2,855 8.750% due 04/15/03 840 815 8.875% due 04/15/08 600 545 Okobank 7.114% due 10/29/49 (b) 90 91 Okobank Series E (MTN) 6.188% due 09/29/49 (b) 750 743 Panama, Republic of 8.875% due 09/30/27 1,450 1,370 Poland, Republic of, Step Up Bond 4.000% due 10/27/14 (b) 4,265 3,812 Sibneft 9.691% due 08/15/00 600 570 Skandinaviska Enskilda Banken (e) 7.500% due 03/29/49 1,610 1,662 8.125% due 09/06/49 475 515 6.500% due 12/29/49 1,200 1,202 Skandinaviska Enskilda Banken Series 1 (MTN) 6.625% due 03/29/49 (e) 510 511 Tata Electric Co. 8.500% due 08/19/17 625 525 Telefonica De Argentina SA 9.125% due 05/07/08 750 707 TFM SA de CV Step Up Bond Zero Coupon due 06/15/09 (144A) 1,160 737 Zero Coupon due 06/15/09 370 221 Videotron Holdings PLC Step Up Bond Zero Coupon due 07/01/04 (b) 650 638 ---------- 30,792 ---------- MORTGAGE-BACKED SECURITIES - 39.8% Asset Securitization Corp. Series 1997-D5 Class A1C 6.750% due 02/14/41 500 520 Series 1997-D5 Class A10 6.850% due 02/14/41 900 946 Bear Stearns Mortgage Securities, Inc. 6.750% due 04/30/30 (b) 1,744 1,745 Chase Commercial Mortgage Securities Corp. 6.600% due 12/19/07 1,500 1,472 Collateralized Mortgage Securities Corp. Series J Class J-5 CMO 7.985% due 05/01/17 1,775 1,784 Delta Funding Home Equity Loan Trust Series 1997-3 Class M1F 7.080% due 10/25/28 1,250 1,265 Federal Home Loan Mortgage Corp. (d) 6.500% 15 Year TBA 7,700 7,753 6.500% 30 Year TBA 15,300 15,257 6.000% 30 Year TBA GOLD 5,000 4,875
106 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Federal Home Loan Mortgage Corp. Participation Certificate Groups 7.000% due 2009 $ 469 $ 480 6.000% due 2011 2,615 2,604 8.500% due 2025 1,364 1,424 6.000% due 2026 990 957 8.500% due 2026 1,379 1,439 8.500% due 2027 7,157 7,519 6.000% due 2028 2,495 2,433 6.500% due 2028 2,570 2,563 Federal Home Loan Mortgage Corp. Participation Certificate Series 1014 Class E 7.950% due 02/15/20 433 441 Federal Home Loan Mortgage Corp. Series 1037 Class Z 9.000% due 02/15/21 1,291 1,363 Series 1934 Class AB 6.000% due 08/15/07 1,415 1,412 Federal National Mortgage Association Pools 7.500% due 1999 (f) 1,758 1,803 6.000% due 2003 262 261 10.000% due 2005 224 236 6.000% due 2009 1,313 1,306 6.000% due 2011 1,762 1,747 6.500% due 2013 5,907 5,940 7.815% due 2023 (b) 865 892 7.000% due 2024 (f) 1,035 1,050 7.000% due 2025 (f) 6,868 6,967 7.000% due 2026 (b)(f) 855 867 7.718% due 2026 (b) 6,885 7,074 6.500% due 2027 1,033 1,029 7.000% due 2027 (f) 418 424 6.500% due 2028 3,785 3,769 7.000% due 2028 (f) 1,472 1,493 Federal National Mortgage Association (REMIC) Series 1992-10 Class ZD 8.000% due 11/25/21 1,657 1,813 (REMIC) Series 1997-16 Class M Zero Coupon due 02/25/23 950 658 Federal National Mortgage Association (d) 6.000% 15 Year TBA 3,925 3,882 6.500% 15 Year TBA 9,480 9,441 7.000% 15 Year TBA 640 652 6.000% 30 Year TBA 3,360 3,271 6.500% 30 Year TBA 14,875 14,814 7.000% 30 Year TBA 3,450 3,499 8.000% 30 Year TBA 4,140 4,285 GMAC Commercial Mortgage Securities, Inc. 6.853% due 09/15/06 (b) 230 239 Government National Mortgage Association Pools 7.000% due 2023 (b) 4,918 5,021 7.000% due 2024 (b) 7,507 7,682 8.000% due 2024 440 456 7.500% due 2025 1,987 2,043 8.000% due 2025 1,169 1,211 7.000% due 2026 (b) 3,193 3,265 7.500% due 2026 1,111 1,142 8.000% due 2026 871 903 8.500% due 2026 3,109 3,266 6.875% due 2027 (b) 3,952 4,038 7.500% due 2027 1,171 1,204 8.000% due 2027 4,477 4,639 7.500% due 2028 1,814 1,864 Government National Mortgage Association (d) 6.500% 30 Year TBA 11,820 11,794 7.000% 30 Year TBA 3,500 3,556 7.500% 30 Year TBA 6,800 6,989 8.000% 30 Year TBA 6,500 6,736 Kidder Peabody Acceptance Corp. Series 1994-C1 Class B 6.850% due 02/01/06 1,065 1,082 Paine Webber Mortgage Acceptance Corp. IV Series 1995-M1 Class A 6.700% due 01/15/07 720 726 Resolution Trust Corp. Mortgage Pass-thru Certificate Series 1994-C2 Class G 8.000% due 04/25/25 253 256 Series 1995-C1 Class C 6.900% due 02/25/27 (b) 300 304 Series 1995-1 Class 2-C 7.500% due 10/25/28 (b) 325 327 Series 1994-1 Class M-2 7.750% due 09/25/29 399 409 Salomon Brothers Mortgage Securities VII, Inc. Mortgage Pass-thru Certificate Series 1994-16 8.286% due 11/25/24 (b) 651 676
Multistrategy Bond Fund 107 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Structured Asset Securities Corp. Mortgage Pass-thru Certificate Series 1996-CFL Class A1C 5.944% due 02/25/28 $ 201 $ 200 Series 1996-CFL Class C 6.525% due 02/25/28 250 250 Series 1998-C2A Class A 6.145% due 01/25/13 (b) 2,189 2,189 ---------- 207,892 ---------- MUNICIPAL BONDS - 1.3% California, State of 5.000% due 02/01/23 310 303 Jacksonville, Florida Electric Authority Revenue 5.000% due 10/01/23 715 692 Massachusetts Bay Transportation Authority 4.750% due 03/01/21 440 413 Massachusetts State Water Reserve Authority 4.750% due 08/01/27 280 260 Municipal Electric Authority of Georgia 5.000% due 01/01/26 1,300 1,264 Nevada State General Obligation 4.750% due 05/15/26 920 861 New Jersey Economic Development Authority Series A 7.425% due 02/15/29 1,335 1,517 Series B Zero Coupon due 02/15/08 520 289 New York Metropolitan Transportation Authority 4.750% due 04/01/28 490 457 New York City, New York Municipal Water Finance Authority Water and Sewer System Revenue 4.750% due 06/15/25 565 533 South Carolina State Public Service Authority Revenue 5.000% due 01/01/29 350 338 ---------- 6,927 ---------- NON-US BONDS - 0.3% Australian Government 10.000% due 10/15/07 AUD 2,000 1,633 ---------- 1,633 ---------- UNITED STATES GOVERNMENT AGENCIES - 0.2% Tennessee Valley Authority 5.880% due 04/01/36 990 1,029 ---------- 1,029 ---------- UNITED STATES GOVERNMENT TREASURIES - 7.1% United States Treasury Bonds 6.625% due 02/15/27 5,420 6,120 8.125% due 08/15/19 (f) 8,040 10,377 United States Treasury Interest Only Strips Zero Coupon due 02/15/19 1,775 546 United States Treasury Notes 5.125% due 11/30/98 (f) 2,150 2,148 5.750% due 12/31/98 (f) 725 726 5.875% due 11/15/99 2,725 2,737 7.750% due 11/30/99 6,950 7,157 6.625% due 06/30/01 (f) 4,625 4,760 6.250% due 10/31/01 1,675 1,710 7.875% due 11/15/04 470 528 United States Treasury Principal Only Strip Zero Coupon due 11/15/99 465 432 ---------- 37,241 ---------- YANKEE BONDS - 2.9% Argentina, Republic of 9.150% due 11/30/02 (b) 2,570 2,576 5.500% due 03/31/23 (b) 450 340 Brazil Media Trust 6.563% due 09/15/07 (b) 1,129 912 Credit Lyonnais 5.688% due 07/10/00 (b) 4,000 3,959 Crown Packaging Enterprise, Ltd. Step Up Bond Zero Coupon due 08/01/06 300 15 Diamond Cable Communication PLC Step Up Bond Zero Coupon due 02/15/07 310 229 Grupo Iusacell S.A. de C.V. 10.000% due 07/15/04 750 741 Petroleos Mexicanos 9.500% due 09/15/27 900 847 Petroleum Geo-Services 7.125% due 03/30/28 800 810 Royal Caribbean Cruises 7.500% due 10/15/27 1,400 1,464
108 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Santander Finnish Issuances 6.588% due 09/30/49 (e) $ 500 $ 490 Societe Generale 7.850% due 04/29/49 (e) 300 321 St. George Bank, Ltd. 7.150% due 10/01/05 700 727 Tata Engineering & Locomotive, Ltd. 7.875% due 07/15/07 625 532 TV Azteca SA De CV 10.125% due 02/15/04 1,050 1,045 ---------- 15,008 ---------- TOTAL LONG-TERM INVESTMENTS (cost $491,675) 496,962 ---------- NOTIONAL AMOUNT (000) ---------- OPTIONS - 0.0% United States Treasury Bonds Jul 99.98 Call * 13,300 12 Aug 100.65 Call * 500 5 Sept 100.47 Call * 1,400 20 Sept 100.55 Call ** 1,447 21 Sept 101.61 Call ** 1,470 13 Nov 109.52 Call * 3,400 45 ---------- TOTAL OPTIONS (cost $95) 116 ----------
NUMBER OF SHARES ---------- PREFERRED STOCKS - 1.3% American RE Capital 18,100 468 Australia & New Zealand Banking Group, Ltd. 5,300 144 California Federal Preferred Capital Corp. Series A 66,050 1,804 Credit Lyonnais Capital S.C.A. - ADR 6,400 160 El Paso Electric Co. Series A Payment in Kind Preferred Stock 4,603 505 Equity Office Properties Trust 18,000 783 NB Capital Corp. 700 730 Pinto Totta International Finance, Ltd. 1,250 1,280 Primedia, Inc. 5,000 495 Travelers Group, Inc. 10,550 582 ---------- TOTAL PREFERRED STOCKS (cost $6,872) 6,951 ---------- WARRANTS - 0.0% Capital Pacific Holdings, Inc. 2002 Warrants (h) 1,817 2 EOP Operating LP 1999 Warrants (h) 1,325 11 ---------- TOTAL WARRANTS (cost $0) 13 ---------- PRINCIPAL AMOUNT (000) ---------- SHORT-TERM INVESTMENTS - 20.5% AT&T Capital Corp. (MTN) 5.963% due 01/15/99 (b) $ 2,000 2,008 Bankers Trust Company 5.900% due 07/07/98 (a) 3,000 2,999 Bemis Company, Inc. 5.520% due 07/06/98 (a) 1,000 999 Federal Home Loan Mortgage Corp. Discount Notes (g) 5.400% due 09/08/98 8,010 7,927 5.425% due 09/21/98 410 405 Federal National Mortgage Association Discount Notes (a)(g) 5.750% due 07/06/98 2,000 1,998 5.460% due 07/17/98 5,100 5,078 Frank Russell Investment Company Money Market Fund, due on demand (a) 77,658 77,658 Imperial Chemical Industrial PLC 5.750% due 09/05/98 (b) 2,000 1,999 MBNA Corp. 5.838% due 09/14/98 (b) 950 950
Multistrategy Bond Fund 109 MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
PRINCIPAL MARKET AMOUNT VALUE (000) (000) ---------- ---------- Salomon, Inc. 5.728% due 10/20/98 (b) $ 2,000 $ 2,000 Texaco, Inc. 5.500% due 08/10/98 (a) 2,000 1,988 United States Treasury Bills (f)(g) 4.955% due 07/23/98 295 294 5.055% due 08/20/98 (a) 450 447 4.990% due 10/15/98 130 128 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $106,850) 106,878 ---------- TOTAL INVESTMENTS (identified cost $605,492)(c) - 116.9% 610,920 OTHER ASSETS AND LIABILITIES, NET, INCLUDING OPTIONS WRITTEN - (16.9%) (88,185) ---------- NET ASSETS - 100.0% $ 522,735 ---------- ----------
(a) At cost, which approximates market. (b) Adjustable or floating rate security. (c) See Note 2 for federal income tax information. (d) Forward commitment. See Note 2. (e) Perpetual floating rate note. (f) Held as collateral in connection with futures contracts purchased (sold) and options written by the Fund. (g) Rate noted is yield-to-maturity. (h) Nonincome-producing security. * $100,000 notional value represents 1 contract. ** Represents 1 OTC contract. ABBREVIATIONS: ADR - American Depositary Receipt CMO - Collateralized Mortgage Obligation MTN - Medium Term Note PLC - Public Limited Company REMIC - Real Estate Mortgage Investment Conduit TBA - To Be Announced Security FOREIGN CURRENCY ABBREVIATIONS: AUD - Australian dollar The accompanying notes are an integral part of the financial statements. 110 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF NET ASSETS, CONTINUED June 30, 1998 (Unaudited)
UNREALIZED NUMBER APPRECIATION OF (DEPRECIATION) CONTRACTS (000) ----------- ------------ FUTURES CONTRACTS (Notes 2 and 3) United States Treasury 5 Year Note Futures Contracts expiration date 09/98 (12) $ (6) United States Treasury 10 Year Note Futures Contracts expiration date 09/98 246 139 United States Treasury 10 Year Note Futures Contracts expiration date 12/98 8 6 United States Treasury 20 Year Note Futures Contracts expiration date 09/98 287 462 United States Treasury 30 Year Bond Futures Contracts expiration date 09/98 41 33 ------------ Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (Sold) (#) $ 634 ------------ ------------
NOTIONAL MARKET AMOUNT VALUE (000) (000) ----------- ------------ OPTIONS WRITTEN (Notes 2 and 3) United States Treasury Jul 99.75 Call * $ 5,100 $ 15 Aug 102.84 Call ** 1,782 -- Nov 94.28 Call * 3,400 1 Nov 95.27 Put * 2,900 -- Nov 109.00 Call * 2,900 2 Federal National Mortgage Association Sept 101.23 Call ** 3,400 13 Sept 101.29 Call ** 3,575 13 Sept 101.30 Call ** 3,575 15 Total Liability for Options Written ------------ (premiums received $122)(#) $ 59 ------------ ------------
(#) At June 30, 1998, United States Government Securities valued at $31,485 were held as collateral in connection with futures contracts purchased (sold) and options written by the Fund. * $100,000 notional value represents 1 contract. ** Represents 1 OTC contract. The accompanying notes are an integral part of the financial statements. Multistrategy Bond Fund 111 MULTISTRATEGY BOND FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 1998 (Unaudited)
Amounts in thousands (except per share amount) ASSETS Investments at market (identified cost $605,492)(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . $ 610,920 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,180 Receivables: Dividends and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,414 Investments sold (regular settlement). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,435 Investments sold (delayed settlement)(Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,442 Fund shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,477 Daily variation margin on futures contracts (Notes 2 and 3). . . . . . . . . . . . . . . . . . . . . . 138 Short-term investments held as collateral for securities loaned, at market (Note 3). . . . . . . . . . . 4,253 -------------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 631,259 LIABILITIES Payables: Investments purchased (regular settlement) . . . . . . . . . . . . . . . . . . . . $ 827 Investments purchased (delayed settlement)(Note 2) . . . . . . . . . . . . . . . . 102,750 Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Accrued fees to affiliates (Note 4). . . . . . . . . . . . . . . . . . . . . . . . 326 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Options written, at market value (premiums received $122)(Notes 2 and 3) . . . . . . 59 Payable upon return of securities loaned, at market (Note 3) . . . . . . . . . . . . 4,253 -------------- Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,524 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 522,735 -------------- -------------- NET ASSETS CONSIST OF: Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,448 Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,690 Unrealized appreciation (depreciation) on: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,428 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Shares of beneficial interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,877 -------------- NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 522,735 -------------- -------------- NET ASSET VALUE, offering and redemption price per share: ($522,734,584 divided by 50,513,484 shares of $.01 par value shares of beneficial interest outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.35 -------------- --------------
The accompanying notes are an integral part of the financial statements. 112 Multistrategy Bond Fund MULTISTRATEGY BOND FUND STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1998 (Unaudited)
Amounts in thousands INVESTMENT INCOME: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,720 Dividends from Money Market Fund (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,505 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356 --------------- Total Investment Income 15,581 EXPENSES (Notes 2 and 4): Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,510 Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Registration fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ------------- Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,913 --------------- Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,668 --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Notes 2 and 3) Net realized gain (loss) from: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,397 Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,032 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . 81 3,758 ------------- Net change in unrealized appreciation or depreciation of: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (955) Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475 Options written. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16) Foreign currency-related transactions. . . . . . . . . . . . . . . . . . . . . . . (27) (523) ------------- --------------- Net gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,235 --------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . $ 16,903 --------------- ---------------
The accompanying notes are an integral part of the financial statements. Multistrategy Bond Fund 113 MULTISTRATEGY BOND FUND STATEMENTS OF CHANGES IN NET ASSETS
Amounts in thousands FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,668 $ 21,669 Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,758 8,182 Net change in unrealized appreciation or depreciation. . . . . . . . . . . . . . . (523) 4,081 ----------------- ----------------- Net increase (decrease) in net assets resulting from operations . . . . . . . . 16,903 33,932 ----------------- ----------------- FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,211) (21,584) In excess of net investment income . . . . . . . . . . . . . . . . . . . . . . . . -- (670) Net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . (1,726) (6,734) ----------------- ----------------- Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . (12,937) (28,988) ----------------- ----------------- FROM FUND SHARE TRANSACTIONS: Net increase (decrease) in net assets from Fund share transactions (Note 6) . . . 81,457 126,940 ----------------- ----------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 85,423 131,884 NET ASSETS Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437,312 305,428 ----------------- ----------------- End of period (including undistributed net investment income of $2,448 and accumulated distributions in excess of net investment income of $9, respectively) . . . . . . . . . . . . . . . . . . . . $ 522,735 $ 437,312 ----------------- ----------------- ----------------- -----------------
The accompanying notes are an integral part of the financial statements. 114 Multistrategy Bond Fund MULTISTRATEGY BOND FUND FINANCIAL HIGHLIGHTS The following table includes selected data for a share outstanding throughout each year or period and other performance information derived from the financial statements.
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1998* 1997 1996 1995 1994 1993** --------- --------- --------- --------- --------- --------- NET ASSET VALUE, BEGINNING OF PERIOD. . . . $ 10.26 $ 10.11 $ 10.25 $ 9.29 $ 10.31 $ 10.00 --------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income . . . . . . . . . . .29 .60 .61 .65 .58 .46 Net realized and unrealized gain (loss) on investments . . . . . . . .08 .33 (.12) .97 (1.03) .40 --------- --------- --------- --------- --------- --------- Total Income From Investment Operations .37 .93 .49 1.62 (.45) .86 --------- --------- --------- --------- --------- --------- LESS DISTRIBUTIONS: Net investment income . . . . . . . . . . (.24) (.60) (.61) (.66) (.57) (.46) In excess of net investment income. . . . -- (.01) (.01) -- -- -- Net realized gain on investments. . . . . (.04) (.17) (.01) -- -- (.08) In excess of net realized gain on investments . . . . . . . . . . -- -- -- -- -- (.01) --------- --------- --------- --------- --------- --------- Total Distributions. . . . . . . . . . (.28) (.78) (.63) (.66) (.57) (.55) --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD. . . . . . . $ 10.35 $ 10.26 $ 10.11 $ 10.25 $ 9.29 $ 10.31 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- TOTAL RETURN (%)(a) . . . . . . . . . . . . 3.63 9.50 4.97 17.92 (4.35) 8.74 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period ($000 omitted) 522,735 437,312 305,428 218,765 173,035 98,374 Ratios to average net asssets (%)(b): Operating expenses, net. . . . . . . . .80 .80 .81 .85 .85 .85 Operating expenses, gross. . . . . . . .80 .83 .88 .89 .90 1.20 Net investment income. . . . . . . . . 5.72 5.93 6.19 6.61 6.26 5.60 Portfolio turnover rate (%)(b). . . . . . 343.06 263.75 145.38 142.26 136.39 188.95
* For the six months ended June 30, 1998 (Unaudited). ** For the period January 29, 1993 (commencement of operations) to December 31, 1993. (a) Periods less than one year are not annualized. (b) The ratios for the periods ended June 30, 1998 and December 31, 1993 are annualized. Multistrategy Bond Fund 115 FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS June 30, 1998 (Unaudited) 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company") is a series mutual fund with 28 different investment portfolios, referred to as "Funds." These financial statements report on eight 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. Effective May 18, 1998, pursuant to approval of the Investment Company's Board of Trustees, Class C shares were renamed Class E shares. As of July 8, 1996, the eight Funds that are reported in these financial statements have available Class S and Class E shares. Each Class has equal rights as to assets and voting privileges. Investment income, realized and unrealized gains and losses and fund level expenses of a Fund are allocated on a pro rata basis to each Class, based on relative net assets of each Class to the total net assets of a Fund. Certain expenses may also be charged to an individual Class for services or fees that relate specifically to that particular Class. Class E shares are charged a shareholder servicing fee of 0.25% of average net assets. Class S shares are charged no such fees. Prior to May 18, 1998 Class E shares were charged a 12b-1 distribution fee and a shareholder servicing fee of 0.40% and 0.25% of average net assets, respectively. 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. The Funds may lend portfolio securities as approved by the Board of Trustees on April 27, 1998. INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. 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. 116 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED It is each Fund's intention to qualify as a regulated investment company and distribute all of its taxable income. Therefore, no federal income tax provision was required for the Funds. At December 31, 1997, the following Fund 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: 12/31/02 12/31/03 12/31/04 12/31/05 Totals -------------- -------------- -------------- ------------ -------------- Volatility Constrained Bond $ 5,583,410 $ 1,871,605 $ 2,135,100 $ 201,012 $ 9,791,127
The aggregate cost of investments and the composition of gross unrealized appreciation and depreciation of investment securities for federal income tax purposes as of June 30, 1998 are as follows:
NET GROSS GROSS UNREALIZED FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION COST APPRECIATION (DEPRECIATION) (DEPRECIATION) ------------------ ---------------- ---------------- ---------------- Diversified Equity $ 1,030,032,589 $ 313,936,215 $ (26,602,804) $ 287,333,411 Special Growth 547,390,314 159,811,042 (19,655,356) 140,155,686 Equity Income 233,640,314 49,131,303 (8,217,617) 40,913,686 Quantitative Equity 900,659,710 347,413,225 (17,092,935) 330,320,290 International Securities 830,836,359 211,873,553 (72,133,912) 139,739,641 Diversified Bond 844,690,868 19,463,797 (1,433,665) 18,030,132 Volatility Constrained Bond 187,498,796 884,054 (534,850) 349,204 Multistrategy Bond 605,211,483 8,237,263 (2,528,746) 5,708,517
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, and certain securities sold at a loss. Accordingly, a Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. 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 "Manager). Most expenses can be directly attributed to the individual Funds. Expenses which cannot be directly attributed are allocated among all Funds principally based on their relative net assets. In addition, Class E shares will pay shareholder servicing fees along with other expenses that may be attributable to that Class. Prior to May 18, 1998, Class E shares were charged a 12b-1 distribution fee. DEFERRED ORGANIZATION EXPENSES: Organization costs of the Multistrategy Bond Fund were deferred and amortized over 60 months on a straight-line basis. Notes to Financial Statements 117 FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED REPURCHASE AGREEMENTS: The Funds may engage in repurchase agreements with several financial institutions whereby a Fund, through its custodian, receives delivery of underlying securities as collateral. Each Fund's Money Manager will monitor repurchase agreements daily to determine that the market value (including accrued interest) of the underlying securities at Fedwire closing time remains at least equal to 102% of the repurchase price. The Money Manager will notify the Seller to immediately increase the collateral on the repurchase agreement to 102% of the repurchase price if collateral value falls below 102%. FOREIGN CURRENCY TRANSLATIONS: The books and records of the Funds are maintained in U.S. dollars. Foreign currency amounts and transactions of the Funds are translated into U.S. 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) Outstanding 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 U.S. 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 period-end, as a result of changes in the exchange rates. It is not practical to 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 foreign currency forward overlays on liquidity reserve balances. Additionally, from time to time the International Securities, Diversified Bond, Volatility Constrained 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 June 30, 1998, are presented on the Statement of Net Assets for the applicable Funds. 118 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED FORWARD COMMITMENTS: The Funds may contract to purchase securities for a fixed price at a future date beyond customary settlement time (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. 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. The Funds' activities in written options are conducted through regulated exchanges, which do not result in counterparty credit risks. 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. 3. INVESTMENT TRANSACTIONS SECURITIES: During the six months ended June 30, 1998, purchases and sales of investment securities (excluding U.S. Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were as follows:
PURCHASES SALES PURCHASES SALES ---------------- ---------------- ---------------- ---------------- Diversified Equity $ 595,645,576 $ 500,013,696 International Securities $ 343,343,144 $ 310,488,887 Special Growth 334,832,019 275,232,968 Diversified Bond 132,023,870 82,758,405 Equity Income 172,928,939 150,835,424 Volatility Constrained Bond 46,904,438 28,880,536 Quantitative Equity 503,879,129 420,103,983 Multistrategy Bond 220,768,220 122,638,427
Notes to Financial Statements 119 FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED Purchases and sales of U.S. Government and Agency obligations (excluding short-term investments, options, futures and repurchase agreements) were as follows:
PURCHASES SALES --------------- --------------- Diversified Bond $ 620,216,521 $ 568,187,761 Volatility Constrained Bond 89,504,490 86,589,801 Multistrategy Bond 681,834,222 621,904,387
OPTIONS WRITTEN AND FUTURES CONTRACTS: Fund transactions in written options and futures contracts for the six months ended June 30, 1998 were as follows:
DIVERSIFIED EQUITY FUTURES CONTRACTS AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ----------- --------------- Outstanding December 31, 1997 218 $ 49,118,032 Opened 620 160,137,907 Closed (630) (153,135,214) ----------- --------------- Outstanding June 30, 1998 208 $ 56,120,725 ----------- --------------- ----------- --------------- SPECIAL GROWTH FUTURES CONTRACTS AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ----------- --------------- Outstanding December 31, 1997 209 $ 36,950,817 Opened 472 100,685,345 Closed (510) (103,557,712) ----------- --------------- Outstanding June 30, 1998 171 $ 34,078,450 ----------- --------------- ----------- --------------- EQUITY INCOME FUTURES CONTRACTS AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ----------- --------------- Outstanding December 31, 1997 56 $ 10,247,020 Opened 177 39,980,815 Closed (168) (36,428,459) ----------- --------------- Outstanding June 30, 1998 65 $ 13,799,376 ----------- --------------- ----------- --------------- QUANTITATIVE EQUITY FUTURES CONTRACTS AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ----------- --------------- Outstanding December 31, 1997 108 $ 23,847,309 Opened 481 120,130,816 Closed (476) (115,635,624) ----------- --------------- Outstanding June 30, 1998 113 $ 28,342,501 ----------- --------------- ----------- ---------------
(1) The aggregate face value of contracts is computed on the date each contract was opened. 120 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED
INTERNATIONAL SECURITIES FUTURES CONTRACTS AGGREGATE NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) ----------- --------------- Outstanding December 31, 1997 409 $ 52,115,383 Opened 1,509 145,909,658 Closed (1,371) (147,744,332) ----------- --------------- Outstanding June 30, 1998 547 $ 50,280,709 ----------- --------------- ----------- --------------- DIVERSIFIED BOND WRITTEN OPTIONS NUMBER OF PREMIUMS CONTRACTS RECEIVED ----------- --------------- Outstanding December 31, 1997 177 $ 114,076 Opened 138 133,393 Closed (46) (17,594) Expired (145) (153,990) ----------- --------------- Outstanding June 30, 1998 124 $ 75,885 ----------- --------------- ----------- --------------- MULTISTRATEGY BOND WRITTEN OPTIONS NUMBER OF PREMIUMS CONTRACTS RECEIVED ----------- --------------- Outstanding December 31, 1997 241 $ 157,083 Opened 232 216,244 Closed (87) (30,930) Expired (206) (220,161) ----------- --------------- Outstanding June 30, 1998 180 $ 122,236 ----------- --------------- ----------- ---------------
MULTISTRATEGY BOND FUTURES CONTRACTS FUTURES CONTRACTS PURCHASED SOLD SHORT AGGREGATE AGGREGATE NUMBER OF FACE VALUE OF NUMBER OF FACE VALUE OF CONTRACTS CONTRACTS (1) CONTRACTS CONTRACTS (1) ----------- --------------- ----------- --------------- Outstanding December 31, 1997 -- $ -- 557 $ 65,554,916 Opened (12) (1,309,755) 1,229 143,529,767 Closed -- -- (1,204) (140,271,367) ----------- --------------- ----------- --------------- Outstanding June 30, 1998 (12) $ (1,309,755) 582 $ 68,813,316 ----------- --------------- ----------- --------------- ----------- --------------- ----------- ---------------
(1) The aggregate face value of contracts is computed on the date each contract was opened. Notes to Financial Statements 121 FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED SECURITIES LENDING: Effective April 27, 1998, the Investment Company resumed its securities lending program. The program allows each Fund to loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by Morgan Stanley Trust Company ("MSTC") 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. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. 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 MSTC and is included as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and MSTC and are included as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. This collateral must be maintained at not less than 100% of the market value of the loaned securities during the period of the 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 June 30, 1998, the value of outstanding securities on loan and the value of collateral amounted to as follows:
VALUE OF VALUE VALUE OF VALUE SECURITIES ON OF SECURITIES ON OF LOAN COLLATERAL LOAN COLLATERAL -------------- -------------- --------------- --------------- Diversified Equity $ 6,864,339 $ 7,086,404 International Securities $ 76,660,265 $ 91,380,958 Special Growth 42,773,085 43,731,950 Volatility Constrained Bond 9,142,524 9,326,250 Equity Income 6,508,202 6,712,277 Multistrategy Bond 4,209,060 4,252,750 Quantitative Equity 28,108,262 29,123,802
4. RELATED PARTIES MANAGER: FRIMCo operates and administers all of the Funds which comprise the Investment Company, and manages the Money Market and U.S. Government Money Market Funds (two series of the Investment Company not presented in this report). FRIMCo is a wholly owned subsidiary of Frank Russell Company, which researches and recommends to FRIMCo, and to the Investment Company, one or more investment management organizations to manage the portfolio of each Fund. For the six months ended June 30, 1998, the management fee paid to FRIMCo, for the Funds listed below, in accordance with the Investment Company's Management Agreement with that firm, amounted to $21,077,352 before waivers. Such fee is payable monthly and is equal to the annual rate, by Fund, shown in the table below, of the average daily net assets of the applicable Fund.
ANNUAL RATE ANNUAL RATE ----------- ----------- Diversified Equity 0.78% International Securities 0.95% Special Growth 0.95 Diversified Bond 0.45 Equity Income 0.80 Volatility Constrained Bond 0.50 Quantitative Equity 0.78 Multistrategy Bond 0.65
The management contract also provides that if any Fund's expenses (exclusive of interest and taxes) exceed specified limits imposed by the Manager on an annual basis, such excess will be paid by FRIMCo. FRIMCo calculates its management fee based on average daily net assets for each Fund, less any management fee incurred on assets invested in the Money Market Fund (see Note 5) thereby eliminating any duplication of fees. ANALYTIC SERVICES: Fees for analytic services provided to the Funds are paid or accrued to Frank Russell Company, an affiliate of the Investment Company. Frank Russell Company provides TruVP System to the Funds, pursuant to a written Service Agreement. The TruVP System provides analytics used by the investment department. 122 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED TRANSFER AGENT: The Funds have a contract with FRIMCo to provide transfer agent services to the Investment Company. Total fees for the six months ended June 30, 1998 were $1,454,790. DISTRIBUTOR AND SHAREHOLDER SERVICING: Prior to May 18, 1998, the Investment Company had a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company was authorized to make payments to the Distributor, 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 were primarily intended to result in the sale of the Class C shares subject to the Distribution Plan. Effective May 18, 1998, Class C shares were renamed Class E shares and the 12b-1 fee was eliminated. The Investment Company has entered into a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of FRIMCo to promote and offer shares of Class S and Class E of the Investment Company Funds. The Distributor may enter into sub-distribution agreements with other non-affiliated parties (the "Selling/Servicing Agents"). The amounts paid to the Distributor prior to May 18, 1998 for distribution services relating to Class E are included in the accompanying Statements of Operations. Currently, the Distributor receives no compensation from the Investment Company for its services relating to distributing the Class S and Class E Shares. In addition, the Investment Company has adopted a Shareholder Services Plan (the "Services Plan") under which it 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 Shares of the Funds. The amounts paid to the Distributor for shareholder services relating to Class E are included in the accompanying Statements of Operations. The shareholder servicing payments shall not exceed 0.25% of the average daily net assets of a Fund's Class E Shares on an annual basis. The Investment Company does not pay for unreimbursed expenses of the Distributor including amounts expended by the Distributor in excess of amounts received by it from the Investment Company, interest, carrying or other financial charges in connection with excess amounts expended, or the Distributor's overhead expenses. However, the Distributor may be able to recover such amount or more from future payments made by the Investment Company under the Distribution plan. ACCRUED FEES PAYABLE TO AFFILIATES AS OF JUNE 30, 1998 WERE AS FOLLOWS:
SHAREHOLDER SERVICING & MANAGEMENT ANALYTIC TRANSFER DISTRIBUTION DISTRIBUTION FEES SERVICE FEES AGENT FEES FEES FEES TOTALS ------------ ------------ ----------- ------------ ------------ ------------ Diversified Equity $ 815,946 $ 12,158 $ 57,629 $ (459) $ 8,707 $ 893,981 Special Growth 515,938 7,760 40,325 (2,959) 7,543 568,607 Equity Income 177,478 4,641 33,920 233 1,138 217,410 Quantitative Equity 769,149 3,999 52,859 (1,921) 5,531 829,617 International Securities 764,447 10,485 79,422 (1,977) 3,892 856,269 Diversified Bond 280,358 4,379 42,115 (2,559) 6,654 330,947 Volatility Constrained Bond 75,827 5,775 45,570 -- -- 127,172 Multistrategy Bond 270,873 4,535 50,986 -- -- 326,394 ------------ ------------ ----------- ------------ ------------ ------------ $ 3,670,016 $ 53,732 $ 402,826 $ (9,642) $ 33,465 $ 4,150,397 ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------
BROKERAGE COMMISSIONS: The Funds may effect portfolio transactions through Frank Russell Securities, Inc., an affiliate of the Manager, when a money manager determines that the Fund will receive competitive execution, price, and commissions. Upon completion of such transactions, Frank Russell Securities, Inc. will refund up to 70% of the commissions paid by that Fund after reimbursement for research services provided to FRIMCo. Amounts retained by Frank Russell Securities, Inc. for the six months ended June 30, 1998 were as follows: Diversified Equity $ 32,597 Equity Income $ 13,838 Special Growth 5,981 International Securities 51,176 Quantitative Equity 1,387
Additionally, the Funds paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to the Manager. Notes to Financial Statements 123 FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED BOARD OF TRUSTEES: The Investment Company pays each of its Trustees not affiliated with FRIMCo a retainer of $20,000 per year plus out-of-pocket expenses. Total Trustee expenses were $54,794 for the six months ended June 30, 1998, and were allocated to each Fund and Class, where appropriate, on a pro rata basis, including 20 other affiliated funds not presented herein. 5. MONEY MARKET 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 Frank Russell Investment Company not presented herein). As of June 30, 1998, $348,873,000 of the Money Market Fund's net assets represents investments by these Funds and $397,638,000 represents the investments of other affiliated Funds not presented herein. 6. FUND SHARE TRANSACTIONS Share transactions for each Class of shares were as follows:
SHARES DOLLARS -------------------------------------- ---------------------------------------- FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 ------------------- ----------------- --------------------- ----------------- DIVERSIFIED EQUITY CLASS S Proceeds from shares sold 5,479,820 8,086,088 $ 258,874,854 $ 375,766,850 Proceeds from reinvestment of distributions 526,558 3,725,974 24,304,582 158,438,737 Payments for shares redeemed (3,679,362) (4,802,360) (174,813,319) (223,615,053) -------------- -------------- ---------------- ---------------- Net increase (decrease) 2,327,016 7,009,702 108,366,117 310,590,534 -------------- -------------- ---------------- ---------------- CLASS E (a)(b) Proceeds from shares sold 22,793 66,243 1,057,135 3,187,196 Proceeds from reinvestment of distributions -- 2 14 89 Payments for shares redeemed (2,777) (1,200) (133,788) (62,020) -------------- -------------- ---------------- ---------------- Net increase (decrease) 20,016 65,045 923,361 3,125,265 -------------- -------------- ---------------- ---------------- Total net increase (decrease) 2,347,032 7,074,747 $ 109,289,478 $ 313,715,799 -------------- -------------- ---------------- ---------------- -------------- -------------- ---------------- ---------------- SPECIAL GROWTH CLASS S Proceeds from shares sold 2,950,995 4,899,155 $ 142,158,320 $ 218,414,199 Proceeds from reinvestment of distributions 187,374 1,184,723 8,815,920 51,369,028 Payments for shares redeemed (1,868,927) (3,197,051) (90,908,561) (141,074,274) -------------- -------------- ---------------- ---------------- Net increase (decrease) 1,269,442 2,886,827 60,065,679 128,708,953 -------------- -------------- ---------------- ---------------- CLASS E (b) Proceeds from shares sold 19,422 52,918 922,768 2,414,652 Proceeds from reinvestment of distributions -- 2 16 99 Payments for shares redeemed (10,321) (5,846) (493,515) (276,164) -------------- -------------- ---------------- ---------------- Net increase (decrease) 9,101 47,074 429,269 2,138,587 -------------- -------------- ---------------- ---------------- Total net increase (decrease) 1,278,543 2,933,901 $ 60,494,948 $ 130,847,540 -------------- -------------- ---------------- ---------------- -------------- -------------- ---------------- ----------------
(a) Share transactions for Class E for the year ended December 31, 1997 are for the period May 27, 1997 (commencement of sale of shares) to December 31, 1997. (b) Effective May 18, 1998, Class C was renamed Class E. 124 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED
SHARES DOLLARS -------------------------------------- ---------------------------------------- FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 ------------------- ----------------- --------------------- ----------------- EQUITY INCOME CLASS S Proceeds from shares sold 1,255,315 1,660,711 $ 53,523,552 $ 73,122,240 Proceeds from reinvestment of distributions 219,920 911,813 9,068,151 36,860,520 Payments for shares redeemed (745,573) (1,899,151) (32,062,124) (84,411,404) -------------- -------------- ---------------- ---------------- Net increase (decrease) 729,662 673,373 30,529,579 25,571,356 -------------- -------------- ---------------- ---------------- CLASS E (b) Proceeds from shares sold 7,163 11,673 317,703 500,212 Proceeds from reinvestment of distributions 1 4 48 177 Payments for shares redeemed (2,182) (6,565) (94,703) (288,276) -------------- -------------- ---------------- ---------------- Net increase (decrease) 4,982 5,112 223,048 212,113 -------------- -------------- ---------------- ---------------- Total net increase (decrease) 734,644 678,485 $ 30,752,627 $ 25,783,469 -------------- -------------- ---------------- ---------------- -------------- -------------- ---------------- ---------------- QUANTITATIVE EQUITY CLASS S Proceeds from shares sold 6,030,662 9,083,437 $ 237,914,410 $ 338,711,998 Proceeds from reinvestment of distributions 530,117 3,377,853 20,337,558 119,025,818 Payments for shares redeemed (4,263,407) (5,466,417) (169,579,331) (203,662,362) -------------- -------------- ---------------- ---------------- Net increase (decrease) 2,297,372 6,994,873 88,672,637 254,075,454 -------------- -------------- ---------------- ---------------- CLASS E (b) Proceeds form shares sold 18,607 57,845 747,693 2,137,628 Proceeds from reinvestment of distributions -- 3 18 102 Payments for shares redeemed (12,585) (3,888) (497,211) (155,726) -------------- -------------- ---------------- ---------------- Net increase (decrease) 6,022 53,960 250,500 1,982,004 -------------- -------------- ---------------- ---------------- Total net increase (decrease) 2,303,394 7,048,833 $ 88,923,137 $ 256,057,458 -------------- -------------- ---------------- ---------------- -------------- -------------- ---------------- ---------------- INTERNATIONAL SECURITIES CLASS S Proceeds from shares sold 3,073,083 5,602,508 $ 185,040,737 $ 329,786,927 Proceeds from reinvestment of distributions 44,754 778,773 2,611,288 42,316,642 Payments for shares redeemed (2,695,073) (3,744,190) (162,841,543) (219,850,134) -------------- -------------- ---------------- ---------------- Net increase (decrease) 422,764 2,637,091 24,810,482 152,253,435 -------------- -------------- ---------------- ---------------- CLASS E (b) Proceeds from shares sold 6,124 15,385 370,870 911,652 Proceeds from reinvestment of distributions -- 1 3 48 Payments for shares redeemed (2,914) (2,782) (173,240) (161,903) -------------- -------------- ---------------- ---------------- Net increase (decrease) 3,210 12,604 197,633 749,797 -------------- -------------- ---------------- ---------------- Total net increase (decrease) 425,974 2,649,695 $ 25,008,115 $ 153,003,232 -------------- -------------- ---------------- ---------------- -------------- -------------- ---------------- ----------------
(b) Effective May 18, 1998, Class C was renamed Class E. Notes to Financial Statements 125 FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED
SHARES DOLLARS -------------------------------------- -------------------------------------------- FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR ENDED JUNE 30, 1998 ENDED ENDED JUNE 30, 1998 ENDED (UNAUDITED) DECEMBER 31, 1997 (UNAUDITED) DECEMBER 31, 1997 ------------------- ----------------- --------------------- --------------------- DIVERSIFIED BOND CLASS S Proceeds from shares sold 7,720,398 12,348,179 $ 181,913,823 $ 285,135,050 Proceeds from reinvestment of distributions 486,301 1,005,608 11,413,737 23,212,199 Payments for shares redeemed (4,633,095) (8,175,529) (109,148,930) (188,567,724) ----------------- ----------------- ------------------- -------------------- Net increase (decrease) 3,573,604 5,178,258 84,178,630 119,779,525 ----------------- ----------------- ------------------- -------------------- CLASS E (b) Proceeds from shares sold 72,493 71,904 1,750,606 1,676,993 Proceeds from reinvestment of distributions 1 1 17 14 Payments for shares redeemed (37,202) (11,128) (890,008) (260,392) ----------------- ----------------- ------------------- -------------------- Net increase (decrease) 35,292 60,777 860,615 1,416,615 ----------------- ----------------- ------------------- -------------------- Total net increase (decrease) 3,608,896 5,239,035 $ 85,039,245 $ 121,196,140 ----------------- ----------------- ------------------- -------------------- ----------------- ----------------- ------------------- -------------------- VOLATILITY CONSTRAINED BOND CLASS S Proceeds from shares sold 2,678,972 4,531,595 $ 51,101,263 $ 86,343,467 Proceeds from reinvestment of distributions 171,750 318,828 3,269,608 6,058,603 Payments for shares redeemed (2,038,939) (4,334,448) (38,880,533) (82,601,508) ----------------- ----------------- ------------------- -------------------- Total net increase (decrease) 811,783 515,975 $ 15,490,338 $ 9,800,562 ----------------- ----------------- ------------------- -------------------- ----------------- ----------------- ------------------- -------------------- MULTISTRATEGY BOND CLASS S Proceeds from shares sold 13,197,534 19,095,215 $ 136,061,616 $ 195,040,097 Proceeds from reinvestment of distributions 1,073,173 2,374,546 11,032,592 24,254,657 Payments for shares redeemed (6,366,477) (9,058,823) (65,637,682) (92,355,378) ----------------- ----------------- ------------------- -------------------- Total net increase (decrease) 7,904,230 12,410,938 $ 81,456,526 $ 126,939,376 ----------------- ----------------- ------------------- -------------------- ----------------- ----------------- ------------------- --------------------
There was no activity in Class E shares for Volatility Constrained Bond and Multistrategy Bond Funds. (b) Effective May 18, 1998, Class C was renamed Class E. 7. DIVIDENDS On July 2, 1998, the Board of Trustees declared the following dividends from net investment income payable on July 7, 1998, to shareholders of record on July 2, 1998: Diversified Equity - Class S $ 0.0752 Diversified Bond - Class S $ 0.1153 Diversified Equity - Class E 0.0177 Diversified Bond - Class E 0.1095 Equity Income - Class S 0.1279 Multistrategy Bond - Class S 0.0486 Equity Income - Class E 0.0748 Volatility Constrained - Class S 0.0842 Quantitative Equity - Class S 0.0711 Quantitative Equity - Class E 0.0237
126 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED 8. BENEFICIAL INTEREST The following Funds or Class of shares have a shareholder with an interest greater than 10% of the total outstanding shares as of June 30, 1998: Diversified Bond - Class S 15.7%, Diversified Bond - Class E 81.3% and 18.7%, Diversified Equity - Class E 99.1%, Special Growth Fund - Class E 93.8%, Equity Income - Class E 40.4% and 59.4%, International Securities - Class E 61.1% and 38.9% and Quantitative Equity - Class E 71.9% and 28.1%. 9. SUBSEQUENT EVENTS On August 10, 1998, Frank Russell Company entered into an agreement with The Northwestern Mutual Life Insurance Co., an insurance organization, pursuant to which Northwestern Mutual Life will acquire all of the outstanding common stock of Frank Russell Company. FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 832-6688 In Washington (253) 627-7001 TRUSTEES George F. Russell, Jr., Chairman Lynn L. Anderson Paul E. Anderson Paul Anton, PhD William E. Baxter Lee C. Gingrich Eleanor W. Palmer OFFICERS Lynn L. Anderson, President and Chief Executive Officer Peter Apanovitch, 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 AND TRANSFER 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 1776 Heritage Drive 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 One Post Office Square Boston, MA 02109 DISTRIBUTOR Russell Fund Distributors, Inc. 909 A Street Tacoma, WA 98402 MONEY MANAGERS DIVERSIFIED EQUITY Alliance Capital Management L.P., Minneapolis, MN Barclays Global Investors, N.A., San Francisco, CA Equinox Capital Management, Inc., New York, NY INVESCO Capital Management, Inc., Atlanta, GA Lincoln Capital Management Company, Chicago, IL Morgan Stanley Asset Management, Inc., New York, NY Peachtree Asset Management, Atlanta, GA Schneider Capital Management, Wayne, PA Suffolk Capital Management, Inc., New York, NY Trinity Investment Management Corporation, Boston, MA SPECIAL GROWTH Delphi Management, Inc., Boston, MA Fiduciary International, Inc., New York, NY GlobeFlex Capital, L.P., San Diego, CA Jacobs Levy Equity Management, Inc., Roseland, NJ Sirach Capital Management, Inc., Seattle, WA Wellington Management Company LLP, Boston, MA EQUITY INCOME Brandywine Asset Management, Inc., Wilmington, DE Equinox Capital Management, Inc., New York, NY Trinity Investment Management Corporation, Boston, MA QUANTITATIVE EQUITY Barclays Global Investors, N.A., San Francisco, CA Franklin Portfolio Associates, LLC, Boston, MA J.P. Morgan Investment Management, Inc., New York, NY INTERNATIONAL SECURITIES J.P. Morgan Investment Management, Inc., New York, NY Marathon Asset Management Limited, London, England Mastholm Asset Management, LLC, Bellevue, WA Oechsle International Advisors, Boston, MA Rowe Price-Fleming International, Inc., Baltimore, MD Sanford C. Bernstein & Co., Inc., New York, NY The Boston Company Asset Management, Inc., Boston, MA DIVERSIFIED BOND Lincoln Capital Management Company, Chicago, IL Pacific Investment Management Company, Newport Beach, CA Standish, Ayer & Wood, Inc., Boston, MA VOLATILITY CONSTRAINED BOND BlackRock Financial Management, New York, NY Standish, Ayer & Wood, Inc., Boston, MA STW Fixed Income Management, Hamilton, Bermuda MULTISTRATEGY BOND BEA Associates, Inc., New York, NY Pacific Investment Management Company, Newport Beach, CA Standish, Ayer & Wood, Inc., 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. 128 Manager, Money Managers and Service Providers -----END PRIVACY-ENHANCED MESSAGE-----