N-30D 1 mf-n30dindex.htm INDEX ANNUAL REPORT The AAL Index Funds Annual Report

The AAL Mutual Funds

A N N U A L
R E P O R T

April 30, 2001

Index Funds

The AAL Mid Cap Index Fund
The AAL Large Company Index Fund
The AAL Bond Index Fund

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The AAL Mutual Funds Annual Report

President's Letter.........................................................2
The Economy and Markets in Review..........................................3
Portfolio Perspectives
    The AAL Mid Cap Index Fund.............................................4
    The AAL Large Company Index Fund.......................................6
    The AAL Bond Index Fund................................................8
Schedule of Investments
    The AAL Mid Cap Index Fund............................................10
    The AAL Large Company Index Fund......................................15
    The AAL Bond Index Fund...............................................21
Statement of Assets and Liabilities.......................................26
Statement of Operations...................................................27
Statement of Changes in Net Assets........................................28
Notes to Financial Statements.............................................29
A Note on Forward Looking Statements......................................32
Glossary of Terms.........................................................32
Financial Highlights
    The AAL Mid Cap Index Fund............................................33
    The AAL Large Company Index Fund......................................34
    The AAL Bond Index Fund...............................................35
Report of Independent Accountants.........................................36

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Dear AAL Mutual Fund
Institutional Investor:

Dear Shareholder,

We are pleased to provide you with the Annual Report for The AAL Mutual Funds for the period ended April 30, 2001. On the following pages, you will find in-depth information about each of The AAL Mutual Funds. Included in this book are commentaries from each of the portfolio managers that include reviews of past market events that affected performance and discussion of their investment strategy. We hope you find their comments informative.

The AAL Mutual Funds family offers a broad spectrum of investment choices to meet most investment needs: growth, income, tax-free and even international holdings. Whether you want to create a new investment program, further diversify your assets or take advantage of specific market opportunities, The AAL Mutual Funds are designed to help you meet your needs.

The AAL Mutual Funds now offer the following investment options:


Equity and Balanced Funds              Index Funds 
o The AAL Technology Stock Fund        o  The AAL Mid Cap Index Fund
o The AAL Aggressive Growth Fund       o  The AAL Large Company Index Fund
o The AAL Small Cap Stock Fund         o  The AAL Bond Index Fund
o The AAL Mid Cap Stock Fund           Fixed-Income Funds
o The AAL International Fund           o  The AAL High Yield Bond Fund
o The AAL Capital Growth Fund          o  The AAL Municipal Bond Fund
o The AAL Equity Income Fund           o  The AAL Bond Fund
o The AAL Balanced Fund                o  The AAL Money Market Fund

If you have any questions about your investments or this report, please contact your local AAL representative. You can also access your account information 24 hours a day at our Web site, www.aalcmc.org, or through our automated phone line at (800) 553-6319. Through this phone number you can access and speak with a Mutual Fund Service Center representative. The service center representatives are available from 7 a.m. to 8 p.m. Central time, Monday through Thursday, 7 a.m. to 6 p.m. Fridays and from 9 a.m. to 1 p.m. on Saturdays.

Thank you for your continued confidence in The AAL Mutual Funds.

Sincerely,

/s/ Robert G. Same

Robert G. Same
President
The AAL Mutual Funds

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The Economy and Markets in Review

Economic summary
U.S. Gross Domestic Product (GDP) grew at a 1.0% annualized rate in the fourth quarter of 2000, before inching up to a 1.3% growth rate in the first quarter of 2001. This anemic growth in our economy is a dramatic shift from the robust 5.50% annualized rate we experienced in the first half of 2000.

The Federal Reserve Open Market Committee (FOMC) began an aggressive easing campaign during the first four months of 2001, reducing short-term rates by two percent in four separate half percent moves. By maintaining an opinion that continued weakness remains the greatest threat to the domestic economy, the FOMC has effectively signaled to the marketplace that further rate reductions should be expected. The FOMC has two scheduled meetings during the second quarter of this year.

Market summary
Treasury yields along much of the yield curve fell dramatically in response to the weaker economic environment described above. As would be expected, the short end of the Treasury curve led the rally. During the first four months of this year, yields on two-year and five-year U.S. Treasury Notes declined. However, yield levels on long-term Treasury securities increased. This shift reflects bond investor expectations that the economy will continue to slow, the FOMC will continue to ease in an effort to avoid a recession and inflation will remain under control. This declining interest rate environment provided for attractive total rates of return for bond investors over the past year with the exception of investors in high-yield bonds. The high-yield bond asset class has now struggled for two and-a-half years as a result of high default rates and poor liquidity within the universe of these securities.

While Treasuries rallied, equity indexes fell precipitously during the first three months of 2001, before improving slightly in April. Anemic economic growth, both domestically and abroad, manifested itself in weaker-than-anticipated earnings realizations for a large number of companies. Furthermore, the market’s expectations for future earnings growth in many sectors have been and continue to be cut dramatically.

In turn, equity valuation levels, which by many measures were unsustainably high, corrected dramatically over the past year. For example, the S&P 500 Index of large-capitalization stocks fell, and as of April 30, 2001, was off 18.2% from its highs in the first quarter of 2000. Also, as of April 30, 2001, mid-capitalization stocks, as represented by the S&P 400 Index, were off 5.65% from their highs, while the S&P 600 Index of small-capitalization stocks was down 6.35% since its high in 2000. The technology-laden NASDAQ Composite Index saw its value decline dramatically as of April 30, 2001, by 58.1% from its peak in the first quarter of 2000. Certainly, we have seen major revisions in the valuations of stocks.

So where do you go from here?

Stay diversified between asset classes in keeping with your risk tolerance and goals. Diversification is the key to managing risk in these volatile times.
Don’t try to market time--it’s time in the market, not market timing that leads to best results. Studies show that major market rallies come in short time frames and if you are on the sidelines during these market surges, you may hurt your performance.
Keep a long-term perspective to maximize your results. Sitting on the sidelines often leads to missed opportunities and may impact your ability to meet your long-term goals.

Your AAL representative will help you sort through the financial questions you need to answer as you plan for the future.

/s/James H. Abitz

James H. Abitz
Chief Investment Officer
Aid Association for Lutherans

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The AAL Mid Cap Index Fund

I Share Assets . . .  $13,011,530  I Share NAV . . . $10.80 Number of Securities
in Portfolio .. . 400

The MidCap Index Fund was up 6.13% during fiscal 2001. This compares well with the S&P MidCap 400 Index*, which was up 7.04% during the period. The difference in returns is the result of expenses, transaction costs, and small mismatches between the Fund and the Index.

In a year widely regarded as one of the worst for equities in a decade, our Fund generated solidly positive results, only moderately below long-term historical averages.

Major factors impacting performance in the mid-cap market for the period included the significant decline of technology and telecom shares and the resurgence of energy and utility stocks. During the fiscal year, mid-cap technology and telecom holdings lost about 20% of their value; broader-based technology indexes lost more than double that when the combination of all-time high valuations and slowing spending on technology infrastructure led to the market’s reassessment of the future. On the other end of the spectrum, energy and utility holdings increased by about 30% during the period as the country came to grips with a very real energy shortage.

The AAL Mid Cap Index Fund is an index fund, which means that it is managed with the primary goal of replicating the S&P MidCap 400 Index as closely as possible. In this passive approach to managing the Fund, we simply purchase all 400 securities in proportions as close as practical to those of the Index. Differences in performance between the Fund and the Index are the result of management fees, costs for transacting and holding the securities, cash held by the Fund (the Index has none), and minor variances in the proportion of each security relative to the Index. The key issue in any decision made regarding the management of the Fund is the long-term minimization of the combination of these factors.

/s/ Michael R. Hochholzer

Michael R. Hochholzer
Portfolio Manager

Value of a $10,000 Investment
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Date                    The AAL Mid Cap              S&P MidCap
                           Index Fund                400 Index*

December 31, 1999.         10000.00                  10000.00
Jan-00                      9730.00                   9718.40
Feb-00                     10480.00                  10398.49
Mar-00                     11320.00                  11268.74
Apr-00                     10900.00                  10875.24
May-00                     10760.00                  10739.52
Jun-00                     10940.00                  10897.28
Jul-00                     11090.00                  11069.46
Aug-00                     12320.00                  12305.36
Sep-00                     12220.00                  12221.07
Oct-00                     11780.00                  11806.65
Nov-00                     10880.00                  10915.49
Dec-00                     11728.59                  11750.52
Jan-01                     11942.81                  12012.21
Feb-01                     11278.73                  11326.67
Mar-01                     10432.55                  10484.53
April 30, 2001             11567.92                  11641.18

                             10.88%                    11.03%
                             -1.37%                    -0.93%
                              6.13%                     7.04%
                               N/A                       N/A
                               N/A                       N/A
                             11.56%                    12.09%

*An unmanaged index comprised of 400 stocks designed to represent performance of the mid cap segment of the U.S. equity markets. "S&P MidCap 400Index" is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by AAL. The product is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's make no representation regarding the advisability of investing in the product. It is not possible to invest directly in the Index. Index funds are subject to the same market risks associated with the stocks in their respective index.

Average Annual Total Returns/1/
April 30, 2001

                                                                  From
                                                 1-Year         Inception
--------------------------------------------------------------------------------
The AAL Mid Cap Index Fund                        6.13%         11.56%/2/

/1/ Past performance is not an indication of future results. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost.

/2/ Since inception of Fund (December 31, 1999.)

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The AAL Large Company Index Fund

I Share  Ticker . . . IILCX I Share Assets . . .  $26,565,603  I Share NAV . . .
$8.56 Number of Securities in Portfolio . . . 502

The AAL Large Company Index Fund had a negative return of 13.18% for the year ending April 30, 2001, versus a negative return for the S&P 500 Index* benchmark of 12.97%. While the return was negative, the Fund tracked very well relative to the Index. Advantageous timing of the investment of cash flows into the Fund helped performance, especially given the declining price trend of the stock market.

The Fund’s fiscal year marked a period of adjustment after many years of extraordinarily positive returns for the market. These positive returns culminated in a speculative environment during the later part of 1999 and early 2000 in which “dot.com” companies and other perceived high growth investments appreciated to valuation levels that were unprecedented. With the “dot.com” companies being valued at a multiple of sales rather than the normal metric of earnings per share and the NASDAQ Index appreciating over 65% in the course of six months, the investment environment could be truly labeled as a “bubble.” Eventually all bubbles burst as the perceived growth gives way to reality and this process proceeded over the past year. The NASDAQ market has declined over 65% from its peak to its recent trough and many of the “dot.com” companies have either gone out of business or are trading at low single digit dollar values. The larger capitalization stocks have not been immune to this correction but they have done well in comparison to other sectors of the stock market.

The correction was also a natural product of the economic and monetary cycles that the United States is experiencing. The Federal Reserve Board (the Fed) engineered a series of interest rate increases through May 2000 to reign in an economy that, in their view, was growing too strongly. Those rate increases, coupled with a labor market that had become very tight, led to a slowdown in the economy. The stock markets, reacting to the Fed’s reduced financial liquidity and anticipating an economic slowdown that could hurt corporate profits, experienced a “normal” decline in price.

The performance of the S&P 500 Index and thus the Fund over the past year was sharply divided when looked at on a sector basis. Technology and communication services stocks had very significant declines while consumer cyclicals had a moderate decline. All other sectors of the market had positive returns. Because these three declining sectors make up about 40% of the value of the Index and the declines were so large, the Index as a whole had a negative return.

The Fund attempts to duplicate the performance of the S&P 500 Index. Therefore it is passively managed to consistently mirror the composition of the S&P 500 Index—no active stock selection is taking place. Variances in performance relative to the Index are a function of management fees, timing of the investment of cash flows, transaction fees, friction costs of trading and some small amount of potential variation in portfolio composition relative to that of the Index. Two active decisions are made relative to the management of the portfolio: 1) the timing of the investment of cash flows, and 2) the timing of the investment in new stocks that enter the Index. Cash flows into the Fund are not immediately invested as the transaction cost to do so would be prohibitively high. Cash flows are allowed to build up in size to a threshold level of significance before being invested.

In an effort to reduce the tracking error, an adjustment to the management procedure for the Fund was implemented during the year. Prior to this new procedure, trading in the Fund only occurred as a result of new capital flowing into the Fund or because of Index changes. It appeared that this trading caused the Fund to drift away from a position that was truly replicating the structure of the S&P 500 Index. To correct for this drift during the year periodic rebalances of the Fund will be implemented, where, for holdings that are out of line with the Index, the simultaneous purchase and sale of some amount of shares will take place to bring the Fund back into alignment. This should serve to maintain the Fund in a position that more closely replicates the structure of the S&P 500 Index.

/s/ David J. Schnarsky

David J. Schnarsky
Portfolio Manager

Value of a $10,000 Investment
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Large Company Index Fund
Inception to Date Mountain Charts

                  Value Original         Value Div/Cap         Total               S&P 500
Date               Shares                  Reinvest            Value                       Value

31-Dec-99          10,000.00                 -                10,000.00                 10,000.00
31-Jan-00           9,530.00                 -                 9,530.00         -5.02%   9,497.60
29-Feb-00           9,360.00                 -                 9,360.00         -1.89%   9,317.81
31-Mar-00          10,270.00                 -                10,270.00          9.78%  10,229.37
28-Apr-00           9,950.00                 -                 9,950.00         -3.01%   9,921.57
31-May-00           9,740.00                 -                 9,740.00         -2.05%   9,717.98
30-Jun-00           9,990.00                 -                 9,990.00          2.47%   9,957.53
31-Jul-00           9,840.00                 -                 9,840.00         -1.56%   9,801.89
31-Aug-00          10,450.00                 -                10,450.00          6.21%  10,410.69
29-Sep-00           9,900.00                 -                 9,900.00         -5.28%   9,861.11
31-Oct-00           9,850.00                 -                 9,850.00         -0.42%   9,819.39
30-Nov-00           9,070.00                 -                 9,070.00         -7.88%   9,045.23
29-Dec-00           9,030.00                83.41              9,113.41          0.49%   9,089.46
31-Jan-01           9,340.00                86.28              9,426.28          3.55%   9,411.96
28-Feb-01           8,480.00                78.33              8,558.33         -9.12%   8,553.78
30-Mar-01           7,950.00                73.44              8,023.44         -6.34%   8,011.89
30-Apr-01           8,560.00                79.07              8,639.07          7.77%   8,634.50

*An unmanaged index comprised of 500 stocks representative of the stock market as a whole. “S&P 500 Index®” is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by AAL. The product is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s make no representation regarding the advisability of investing in the product. It is not possible to invest directly in the Index. Index funds are subject to the same market risks associated with the stocks in their respective index.

Average Annual Total Returns/1/
April 30, 2001

                                                                From
                                                   1-Year     Inception
--------------------------------------------------------------------------------
The AAL Large Company Index Fund                  (13.18%)   (10.40)%/2/

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The AAL Bond Index Fund

I Share Assets . . .  $18,559,813  I Share NAV . . . $10.47 Number of Securities
in Portfolio . . . 128

The past year was a good one for bond returns. Over the past 12 months, the Federal Open Market Committee (FOMC) raised the federal funds rate on May 16, 2000, to 6.50%. The fed funds rate remained unchanged until January 3, 2001, when the FOMC began an aggressive easing cycle in response to a weakening economic environment. Since the beginning of the year, the FOMC has lowered the fed funds rate by two and a half points to 4.00% in five separate half point moves. Short and intermediate Treasury yields fell dramatically over the past year, which has benefited bond returns (bond prices appreciate as interest rates fall).

The AAL Bond Index Fund closely tracked the performance of the Lehman Aggregate Bond Index* over the past year. The Fund returned 12.50% after expenses and exceeded the Lehman Index return of 12.38% for the year. All sectors of the investment grade bond market produced positive returns as Treasury yields fell dramatically in the second half of the year. During the year, yields on two-year U.S. Treasury notes fell to 4.27% while five-year Treasury yields declined to 4.88%. Yields on 10-year and 30-year U.S.Treasuries declined less dramatically. The yield curve shift reflected bond investor expectations that the economy will continue to slow and the FOMC will reduce short-term rates. During the first six months of the year, longer maturity securities and higher quality sections, such as U.S. Treasuries and agencies, produced the best returns, while the performance of the corporate bonds in the Fund lagged. Over the last six months of the year, corporate bonds have outperformed while U.S. Treasuries and agencies have lagged.

The objective of the Fund is to achieve investment results that approximate the total return of the Lehman Aggregate Bond Index by investing primarily in investment-grade bonds and other debt securities included in the Index. The Fund invests in a well-diversified sample of securities that replicate the key characteristics (sector weightings, maturity, credit quality distributions, yield curve exposure and coupon rates) of the Index. Within each sector, the Fund invests in securities that offer the best return potential relative to their risk.To minimize tracking error in the investment grade corporate bond sector, the Fund maintains adequate exposure to a well-diversified sample of the largest corporate issuers in the Index.

The Federal Reserve has been aggressive in lowering short-term rates in response to weakening economic fundamentals. We believe that the Federal Reserve's actions will provide the stimulus for an economic recovery late in the year. Although energy prices are rising, we believe inflation is well contained and not a threat in the near term.

/s/ Gregory R. Anderson

Gregory R. Anderson
Portfolio Manager

Value of a $10,000 Investment
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Date                      The AAL Bond Index Fund   Lehman Aggregate Bond Index*
"Dec. 31, 1999"            10000.00                  10000.00
Jan-00                      9941.36                   9967.30
                           10057.50                  10087.80
                           10196.23                  0220.66
Apr-00                     10168.24                  10191.53
                           10169.21                  10186.84
                           10381.61                  10398.73
Jul-00                     10471.94                  10493.15
                           10625.57                  10645.30
                           10704.51                  10712.26
Oct-00                     10777.47                  10783.07
                           10964.93                  10959.48
                           11170.95                  11162.78
Jan-01                     11331.73                  11345.29
                           11436.24                  11444.11
                           11495.72                  11501.56
"April 30, 2001"           11439.08                  11453.82

                             -0.49%                    -0.41%
                              2.40%                     2.61%
                             12.50%                    12.39%
                               N/A                       N/A
                               N/A                       N/A

*An unmanaged index that encompasses five major classes of U.S. fixed-income securities: U.S.Treasury and Government Agency securities, corporate debt obligations, mortgage-backed securities, asset-backed securities and commercial mortgage backed securities. It is not possible to invest directly in the Index.

Average Annual Total Returns/1/
April 30, 2001

                                                      From
                                         1-Year     Inception
--------------------------------------------------------------------------------
The AAL Bond Index Fund                  12.50%     10.63%/2/

The AAL Mid Cap Index Fund
Schedule of Investments as of April 30, 2001

Investment Objective

The Fund seeks total returns that track the performance of the S&P MidCap 400 Index, by investing primarily in common stocks comprising the Index.

  Shares  Common Stocks (99.6%)                  Market Value
================================================================================

Basic Materials (3.9%)
     350  A. Schulman, Inc.                         $ 4,085
     995  Airgas, Inc.*                               8,905
   1,540  AK Steel Holding Corporation               19,974
     680  Albemarle Corporation                      15,885
     845  Bowater, Inc.                              40,983
     975  Cabot Corporation                          31,697
     280  Carpenter Technology Corporation            7,336
   1,620  Crompton Corporation                       16,411
     565  Cytec Industries, Inc.*                    18,481
     490  Ferro Corporation                          10,226
   1,210  Georgia-Pacific Corporation
          (Timber Group)                             35,828
     310  H.B. Fuller Company                        12,815
   1,680  IMC Global, Inc.                           20,160
     720  Longview Fibre Company                      9,144
     770  Lubrizol Corporation                       22,553
   1,710  Lyondell Chemical Company                  26,864
     805  Martin Marietta Materials, Inc.            37,006
     270  Minerals Technologies, Inc.                10,355
     585  Olin Corporation                           11,086
     640  P.H. Glatfelter Company                     9,216
     445  Rayonier, Inc.                             19,513
   1,515  RPM, Inc.                                  14,453
   1,545  Solutia, Inc.                              19,622
   1,475  Sonoco Products Company                    32,966
     670  UCAR International, Inc.*                   8,000
     450  Universal Corporation                      17,415
     600  Valspar Corporation                        18,540
     720  Wausau-Mosinee Paper Corporation            9,906
          Total Basic Materials                     509,425
----------------------------------------------------------------------------------------------------------------------

Capital Goods (6.9%)
     810  AGCO Corporation                            7,047
     450  Albany International Corporation*           8,919
   1,110  American Standard Companies, Inc.*         66,878
     460  AMETEK, Inc.                               12,701
     465  Carlisle Companies, Inc.                   17,182
     990  Diebold, Inc.                              32,261
     595  Donaldson Company, Inc.                    16,470
     600  Dycom Industries, Inc.*                     9,858
     595  Federal Signal Corporation                 13,608
     500  Flowserve Corporation*                     14,150
     630  Granite Construction, Inc.                 16,178
    530    Harsco Corporation                        $4,999
  1,080    Herman Miller, Inc.                       28,674
  1,030    Hillenbrand Industries, Inc.              52,015
    815    HON INDUSTRIES, Inc.                      20,342
    855    Hubbell, Inc. , Class B                   23,615
    410    Jacobs Engineering Group, Inc*            27,027
    450    Kaydon Corporation                        11,529
  1,300    KEMET Corporation                         26,676
    465    Kennametal, Inc.                          15,238
    700    MasTec, Inc.*                             10,262
    570    Newport News Shipbuilding, Inc.           36,851
    460    Nordson Corporation                       12,379
    715    Pentair, Inc.                             22,001
    600    Plexus Corporation*                       18,432
    700    Precision Castparts Corporation           26,152
    800    Quanta Services, Inc.*                    20,552
  1,355    Reynolds & Reynolds Company               27,994
    300    Ryerson Tull, Inc.                         3,282
  2,135    SCI Systems, Inc.*                        54,549
  1,155    Sensormatic Electronics Corporation*      16,748
    175    Sequa Corporation*                         8,155
    470    SPX Corporation*                          52,927
    430    Stewart & Stevenson Services, Inc.         9,611
    385    Tecumseh Products Company                 18,981
    635    Teleflex, Inc.                            31,058
    520    Trinity Industries, Inc.                  10,140
  1,995    Vishay Intertechnology, Inc.*             49,775
    540    Wallace Computer Services, Inc.            9,666
    520    York International Corporation            15,709
           Total Capital Goods                      890,591
--------------------------------------------------------------------------------

Communication Services (1.6%)
  3,260    Broadwing, Inc.*                         80,848
    900    Powerwave Technologies, Inc.*            16,353
    800    Price Communications Corporation*        14,416
    935    Telephone and Data Systems, Inc.         98,175
           Total Communication Services            209,792
--------------------------------------------------------------------------------

Consumer Cyclicals (14.2%)
  1,475    Abercrombie & Fitch Company*             49,118
  1,345    Acxiom Corporation*                      20,404
  1,715    A.H. Belo Corporation                    30,253
    957    American Eagle Outfitters, Inc.*         35,620



Consumer Cyclicals--continued
  1,682   Apollo Group, Inc.*                     $52,310
    986   ArvinMeritor, Inc.                       15,175
    280   Bandag, Inc.                              8,392
    895   Barnes & Noble, Inc.*                    28,452
  1,130   BJ's Wholesale Club, Inc.*               51,189
    615   Blyth, Inc.                              14,084
  1,165   Borders Group, Inc.*                     21,669
    420   Borg Warner, Inc.                        18,703
  1,050   Callaway Golf Company                    25,473
    800   Catalina Marketing Corporation*          27,968
  1,250   CDW Computer Centers, Inc.*              50,525
    900   ChoicePoint, Inc.*                       33,390
    640   Claire's Stores, Inc.                    12,192
  2,000   Clayton Homes, Inc.                      27,840
    700   Coach, Inc.*                             22,708
    725   Covanta Energy Corporation*              13,413
    995   DeVry, Inc.*                             31,452
  1,603   Dollar Tree Stores, Inc.*                33,524
  1,200   Dun & Bradstreet Corporation*            33,324
  2,585   Family Dollar Stores, Inc.               65,943
    635   Fastenal Company                         41,180
    700   Furniture Brands International, Inc.*    15,869
  1,300   Galileo International, Inc.              31,746
  1,100   Gentex Corporation*                      29,700
    480   GTECH Holdings Corporation*              15,648
    990   Harte-Hanks, Inc.                        22,780
    475   Houghton Mifflin Company                 21,617
  1,144   International Game Technology*           63,984
    855   International Speedway Corporation       38,518
  1,855   Jones Apparel Group, Inc.*               73,718
    545   Lancaster Colony Corporation             16,443
    365   Lands' End, Inc.*                        10,804
    975   Lear Corporation*                        35,100
    660   Lee Enterprises, Inc.                    20,526
  1,000   Lennar Corporation                       43,770
  1,075   Mandalay Resort Group*                   25,542
    435   Media General, Inc.                      20,906
    440   Modine Manufacturing Company             12,267
    720   Mohawk Industries, Inc.*                 23,515
    145   NCH Corporation                           8,121
    425   NCO Group, Inc.*                         11,475
    725   Nieman Marcus Group, Inc.*               23,563
  4,420   Park Place Entertainment Corporation*    49,150
    375   Payless ShoeSource, Inc.*                23,906
    705   Pittston Company                         15,017
  1,515   Readers Digest Association, Inc.         41,890
    440   Rollins, Inc.                             8,210
  1,160   Ross Stores, Inc.                        25,497
 2,135     Saks, Inc.*                             25,407
   610     Scholastic Corporation*                 25,461
 1,170     Six Flags, Inc.*                        25,670
   805     Sothebys Holdings, Inc.*                14,571
   420     Superior Industries International, Inc. 16,905
   500     Sylvan Learning Systems, Inc.*          10,110
   745     Tech Data Corporation*                  25,971
   800     True North Communications, Inc.         30,560
   805     Unifi, Inc.*                             4,814
 1,000     United Rentals, Inc.*                   20,020
   625     USG Corporation                          6,794
 1,315     Viad Corporation                        32,691
   160     Washington Post Company                 92,960
   655     WestPoint Stevens, Inc.                  4,238
   785     Williams-Sonoma, Inc.*                  23,599
Total Consumer Cyclicals                        1,853,354
--------------------------------------------------------------------------------

Consumer Staples (7.6%)
   800     AmeriSource Health Corporation*         43,200
   310     Banta Corporation                        8,091
 1,955     Bergen Brunswig Corporation             35,777
   520     Bob Evans Farms, Inc.                    9,880
 1,490     Brinker International, Inc.*            42,763
   685     Carter-Wallace, Inc.                    15,550
   780     CBRL Group, Inc.                        15,405
   603     Chris-Craft Industries, Inc.*           42,813
   510     Church & Dwight Company, Inc.           12,235
   620     Dean Foods Company                      22,940
 1,405     Dial Corporation                        18,335
   780     Dole Food Company, Inc.                 11,700
   420     Dreyer's Grand Ice Cream, Inc.          10,807
   700     Emmis Communications Corporation*       17,864
 1,400     Energizer Holdings, Inc.*               33,348
   700     Entercom Communications Corporation  *  31,934
 1,640     Hispanic Broadcasting Corporation*      39,311
 2,025     Hormel Foods Corporation                41,756
 1,515     IBP, Inc.                               24,089
   670     Interstate Bakeries Corporation          9,400
   330     J.M. Smucker Company                     8,633
   490     Kelly Services, Inc.                    11,569
   500     Korn/Ferry International*                9,000
   340     Lance, Inc.                              4,012
   370     Lone Star Steakhouse & Saloon, Inc.      4,459
 1,050     _Manpower, Inc.                         33,968
 1,110     McCormick & Company, Inc.               43,623
 1,425     Modis Professional Services, Inc.*       7,410
 1,145     Outback Steakhouse, Inc.*               33,194
   350     Papa John's International, Inc.*         9,765
 1,030     Perrigo Company*                        12,298
 2,310    PepsiAmericas, Inc.                      34,304
 1,540    R.J. Reynolds Tobacco Holdings, Inc.     90,198
   680    Ruddick Corporation                       9,377
   710    Sensient Technologies Corporation        12,780
   475    Suiza Foods Corporation*                 22,016
   821    Toostie Roll Industries, Inc.            39,704
 3,345    Tyson Foods, Inc.                        46,061
   775    Valassis Communications, Inc.*           27,396
 1,560    Westwood One, Inc.*                      40,945
          Total Consumer Staples                  987,910
--------------------------------------------------------------------------------

Energy (7.9%)
 1,270    BJ Services Company*                   104,458
   900    Cooper Cameron Corporation*             56,754
 2,080    ENSCO International, Inc.               80,912
 2,595    Global Marine, Inc.*                    74,606
 1,630    Grant Prideco, Inc.*                    32,600
   910    Hanover Compressor Company*             33,124
   825    Helmerich & Payne, Inc.                 42,265
   800    Marine Drilling Company, Inc.*          23,976
   685    Murphy Oil Corporation                  56,170
 1,200    National-Oilwell, Inc.*                 47,460
   890    Noble Affiliates, Inc.                  38,688
 2,435    Ocean Energy, Inc.                      45,072
 1,170    Pennzoil-Quaker State Company           16,626
 1,460    Pioneer Natural Resources Company*      27,901
   825    Smith International, Inc.*              66,982
   880    Tidewater, Inc.                         41,246
 1,345    Ultramar Diamond Shamrock
          Corporation                             60,673
   980    Valero Energy Corporation               47,197
 1,355    Varco International, Inc.*              31,680
 1,730    Weatherford International, Inc.*       100,736
          Total Energy                         1,029,126
--------------------------------------------------------------------------------

Financials (16.4%)
 1,275    A.G. Edwards, Inc.                      51,854
   865    Allmerica Financial Corporation         43,683
 1,000    American Financial Group, Inc.          26,590
 1,300    AmeriCredit Corporation*                60,268
 1,100    Arthur J. Gallagher & Company           27,742
 1,015    Associated Banc-Corp                    35,454
   765    Astoria Financial Corporation           44,263
 2,100    Banknorth Group, Inc.                   41,559
   710    City National Corporation               27,442
 1,775    Compass Bancshares, Inc.                41,074
 1,550    Dime Bancorp, Inc.                      51,693
 4,790    E*TRADE Group, Inc.*                    45,026
   705    Everest Re Group, Ltd.                  45,014
 1,920    First Tennessee National Corporation    62,726
   725    First Virginia Banks, Inc.              31,799
 1,270    FirstMerit Corporation                  31,344
 2,000    Golden State Bancorp, Inc.              59,600
   600    Greater Bay Bancorp                     16,386
 1,525    GreenPoint Financial Corporation        56,120
   900    HCC Insurance Holdings, Inc.            25,380
 2,375    Hibernia Corporation                    38,760
   530    Horace Mann Educators Corporation        8,989
   900    IndyMac Bancorp, Inc.*                  20,610
   500    Investors Financial Services
          Corporation                             35,770
   800    LaBranche & Company, Inc.*              28,800
   995    Legg Mason, Inc.                        47,631
   800    Leucadia National Corporation           25,640
 1,500    M&T Bank Corporation                   107,325
 1,615    Marshall & Ilsley Corporation           81,493
 1,090    Mercantile Bankshares Corporation       40,930
Financials--continued
   700    Mony Group, Inc.                        24,612
 3,044    National Commerce Bancorporation        75,826
   800    Neuberger Berman, Inc.                  57,224
 2,415    North Fork Bancorporation, Inc.         64,118
   815    Ohio Casualty Corporation                7,580
 1,685    Old Republic International Corporation  48,680
 1,185    Pacific Century Financial Corporation   26,544
   685    PMI Group, Inc.                         44,046
   955    Protective Life Corporation             28,574
   715    Provident Financial Group, Inc.         21,321
   700    Radian Group, Inc.                      54,250
   900    Roslyn Bancorp, Inc.                    22,959
 1,600    SEI Investments Company                 64,176
   700    Silicon Valley Bancshares*            17,542
 3,680    Sovereign Bancorp, Inc.                 39,045
 1,210    TCF Financial Corporation               46,016
 1,015    Unitrin, Inc.                           37,707
 1,200    Waddell & Reed Financial, Inc.          36,504
   670    Webster Financial Corporation           21,346
   625    Westamerica Bancorporation              22,875
   585    Wilmington Trust Corporation            33,813
 1,335    Zions Bancorporation                    71,138
          Total Financials                     2,126,861
--------------------------------------------------------------------------------

Health Care (11.8%)
 1,495    Apogent Technologies, Inc.*             34,385
   745    Apria Healthcare Group, Inc.*           19,348
   600    Barr Laboratories, Inc.*                34,770
   910    Beckman Coulter, Inc.                   32,351
   800    COR Therapeutics, Inc.*                 24,800
   870    Covance, Inc.*                          14,312
    755   DENTSPLY International, Inc.            29,581
    800   Edwards Lifesciences Corporation*       17,320
    635   Express Scripts, Inc.*                  53,912
    725   First Health Group Corporation*         37,519
  1,525   Genzyme Corporation*                   166,179
  1,470   Gilead Sciences, Inc.*                  72,001
  3,660   Health Management Associates, Inc.*     65,587
  1,850   Health Net, Inc.*                       39,868
  1,170   ICN Pharmaceuticals, Inc.               29,975
  2,200   IDEC Pharmaceuticals Corporation*      108,240
    900   Incyte Genomics, Inc.*                  14,513
  2,360   IVAX Corporation*                       94,518
    865   Lincare Holdings, Inc.*                 43,138
  3,140   Millennium Pharmaceuticals, Inc.*      116,808
    940   MiniMed, Inc.*                          37,544
  1,810   Mylan Laboratories, Inc.                48,399
  1,385   Omnicare, Inc.                          30,747
  1,400   Oxford Health Plans, Inc.*              43,540
    475   PacifiCare Health Systems, Inc.*        16,810
    700   Protein Design Labs, Inc.*              44,975
    700   Quest Diagnostics, Inc.*                86,240
  1,270   Sepracor, Inc.*                         33,477
    980   STERIS Corporation*                     17,816
  1,000   Triad Hospitals, Inc.*                  30,750
    645   Trigon Healthcare, Inc.*                38,835
    900   Vertex Pharmaceuticals, Inc.*           34,704
    850   VISX, Inc.*                             17,211
          Total Health Care                    1,530,173
--------------------------------------------------------------------------------

Technology (19.3%)
  5,100   3Com Corporation*                       33,252
    545   ADTRAN, Inc.*                           14,906
  1,200   Advanced Fibre Communications, Inc.*    18,828
    825   Affiliated Computer Services, Inc.*     59,400
    500   ANTEC Corporation*                       4,120
  1,425   Arrow Electronics, Inc.*                39,900
  6,990   Atmel Corporation*                      97,091
  1,360   Avnet, Inc.                             34,694
    600   Avocent Corporation*                    14,934
    900   BISYS Group, Inc.*                      43,380
    417   Cabot Microelectonics Corporation*      26,696
  3,680   Cadence Design Systems, Inc.*           76,176
  2,200   Ceridian Corporation*                   39,600
  1,070   CheckFree Holdings Corporation*         42,629
  1,165   Cirrus Logic, Inc.*                     18,943
    700   CommScope, Inc.*                        13,216
    800   Credence Systems Corporation*           19,000
    845   CSG Systems International, Inc.*        49,187
 1,940      Cypress Semiconductor Corporation*    43,844
   400      DSP Group, Inc.*                       8,672
 1,890      DST Systems, Inc.*                    92,837
 2,010      Electronic Arts, Inc.*               113,806
 1,260      Gartner Group, Inc., Class B*          9,803
   895      Harris Corporation                    25,731
   500      Imation Corporation*                  11,535
   500      InFocus Corporation*                   9,755
 4,215      Informix Corporation*                 21,075
 1,605      Integrated Device Technology, Inc.*   62,868
 1,000      International Rectifier Corporation*  55,500
   575      Investment Technolgy Group, Inc.*     28,031
 1,300      Jack Henry & Associates, Inc.         36,647
 1,015      Keane, Inc.*                          18,016
   575      L-3 Communciations Holdings, Inc.*    44,419
 1,800      Lam Research Corporation*             53,280
 1,600      Lattice Semiconductor Corporation*    39,408
 1,230      Legato Systems, Inc.*                 16,273
   800      Macromedia, Inc.*                     18,128
   800      Macrovision Corporation*              45,744
   950      Mentor Graphics Corporation*          24,995
 1,200      Micrel, Inc.*                         40,752
 1,94_      Microchip Technology, Inc.*           56,124
   600      MIPS Technologies, Inc., Class B*     10,992
   800      National Instruments Corporation*     28,000
 1,995      Network Associates, Inc.*             22,005
   500      Newport Corporation                   18,900
   930      NOVA Corporation*                     21,074
 1,030      NVIDIA Corporation*                   85,799
   700      Plantronics, Inc.*                    13,692
 1,190      Polycom, Inc.*                        27,644
 2,280      Quantum Corporation*                  25,992
Technology--continued
 3,030      Rational Software Corporation*        73,356
   700      Retek, Inc.*                          20,223
 2,400      RF Micro Devices, Inc.*               70,512
 1,000      SanDisk Corporation*                  26,860
   565      Sawtek, Inc.*                         13,899
 1,000      Semtech Corporation*                  28,770
 1,560      Storage Technology Corporation*       19,952
   490      Structural Dynamics Research
            Corporation*                           8,085
 2,005      SunGard Data Systems, Inc.*          110,816
 1,300      Sybase, Inc.*                         20,475
   540      Sykes Enterprises, Inc.*               3,062
 1,210      Symantec Corporation*                 78,420
 1,000      Synopsys, Inc.*                       57,430
   800      Titan Corporation*                    13,360
   485      Transaction Systems Architects, Inc.*  4,093
 1,200      TranSwitch Corporation*               20,820
1,150     TriQuint Semiconductor, Inc.*           33,385
1,970     Waters Corporation*                    102,834
1,100     Wind River Systems, Inc.*               30,932
          Total Technology                     2,514,577
----------------------------------------------------------------------------------------------------------------------

Transportation (1.8%)
  715     Airborne Freight Corporation             6,549
  335     Alaska Air Group, Inc.*                  9,430
  550     Alexander & Baldwin, Inc.               12,414
  600     Atlas Air, Inc.*                        15,240
1,210     C.H. Robinson Worldwide, Inc.           32,743
  715     CNF Transportation, Inc.                21,922
  700     EGL, Inc.*                              16,597
  800     Expeditors International of
          Washington, Inc.                        40,024
  725     GATX Corporation                        28,891
  490     J.B. Hunt Transport Services, Inc.       8,820
  470     Overseas Shipholding Group, Inc.        14,241
  950     Swift Transportation Company, Inc.*     17,300
  620     Wisconsin Central Transportation
          Corporation*                             9,957
          Total Transportation                   234,128
--------------------------------------------------------------------------------

Utilities (8.2%)
  785     AGL Resources, Inc.                     17,937
1,130     ALLETE                                  27,538
1,175     Alliant Energy Corporation              36,660
1,430     American Water Works Company, Inc.      44,330
  370     Black Hills Corporation                 19,007
  380     Cleco Corporation                       17,100
1,295     Conectiv, Inc.                          28,879
1,845     DPL, Inc.                               57,177
  850     DQE, Inc.                               25,866
1,765     Energy East Corporation                 35,565
  500     Equitable Resources, Inc.               40,000
  485     Hawaiian Electric Industries, Inc.      18,032
  625     IDACORP, Inc.                           24,063
  930     Kansas City Power & Light Company       24,273
1,335     MCN Energy Group, Inc.                  35,084
1,000     MDU Resources Group, Inc.               40,000
1,550     Montana Power Company                   19,313
  635     National Fuel Gas Company               35,687
2,125     Northeast Utilities                     37,931
  815     NSTAR, Inc.                             32,861
1,165     OGE Energy Corporation                  25,688
1,615     Potomac Electric Power Company          35,304
  530     Public Service Company of
          New Mexico                              19,149
1,225     Puget Sound Energy, Inc.                29,082
1,205     Questar Corporation                     38,765
1,490     SCANA Corporation                       41,809
1,170     Sierra Pacific Resources                18,732
2,010     TECO Energy, Inc.                       64,300
1,595     UtiliCorp United, Inc.                  56,304
  940     Vectren Corporation                     21,282
  400     Western Gas Resources, Inc.             15,904
1,000     Western Resources Inc.                  24,770
  680     WGL Holdings, Inc.                      19,448
1,810     Wisconsin Energy Corporation            39,817
          Total Utilities                      1,067,657
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
           Total Common Stocks
           (cost basis $12,275,258)           12,953,594
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
           TOTAL INVESTMENTS (99.6%)
           (cost basis $12,275,258)           12,953,594

           Other Assets, Less Liabilities (0.4%)  57,936
--------------------------------------------------------------------------------

           Net Assets (100.0%)               $13,011,530

______________
* Non-income producing security.
See page 32 for a complete discussion of investment terms.