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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: | 811-4338 |
HERITAGE CAPITAL APPRECIATION TRUST
| (Exact name of Registrant as Specified in Charter) |
880 Carillon Parkway St. Petersburg, FL | 33716 | |
| (Address of Principal Executive Office) | (Zip Code) |
Registrant’s Telephone Number, including Area Code: (727) 567-8143
STEPHEN G. HILL, PRESIDENT
880 Carillon Parkway
St. Petersburg, FL 33716
| (Name and Address of Agent for Service) |
Copy to:
FRANCINE J. ROSENBERGER, ESQ.
Kirkpatrick & Lockhart Preston Gates Ellis LLP
1601 K Street, NW
Washington, D.C. 20006
Date of fiscal year end: October 31
Date of reporting period: April 30, 2007
Table of Contents
| Item 1. | Reports to Shareholders |
Table of Contents
Heritage Mutual Funds
Supplement to the Prospectus
July 1, 2007
Semiannual Report
for the Period Ended April 30, 2007
(Unaudited)
Capital Appreciation Trust
Core Equity Fund
Diversified Growth Fund
Growth and Income Trust
High Yield Bond Fund
International Equity Fund
Mid Cap Stock Fund
Small Cap Stock Fund
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HERITAGE CAPITAL APPRECIATION TRUST
HERITAGE GROWTH AND INCOME TRUST
HERITAGE INCOME TRUST
HERITAGE SERIES TRUST
Classes A and C Shares
SUPPLEMENT DATED JULY 1, 2007
TO THE PROSPECTUS DATED JANUARY 2, 2007
Heritage Series Trust—International Equity Fund
International Equity Fund—Investments in Emerging Markets. Effective July 1, 2007, the Heritage Series Trust—International Equity Fund (the “Fund”) may invest up to 35% of its total assets in emerging markets. The 35% investment guideline is higher than the Fund’s previous emerging markets investment guideline of 25%. This guideline change will provide the Fund with additional flexibility to respond to changes in the global economy and investment universe. As a result, the sixth bullet point of the “Principal Risks” paragraph on page 18 is replaced as follows:
| • | Emerging markets risk arises because emerging markets are generally smaller, less developed, less liquid and more volatile than the securities markets of the U.S. and developed markets. Additionally, risk arises because investing in emerging markets has greater social, political and economic uncertainty, dependence on foreign aid and a limited number of buyers; |
Additionally, the section noted as “Emerging Markets” on page 28 should be replaced in its entirety as follows:
Emerging Markets. When investing in emerging markets, the risks of foreign securities investing mentioned above are heightened. The emerging markets have unique risks that are greater than or in addition to investing in developed markets because emerging markets are generally smaller, less developed, less liquid and more volatile than the securities markets of the U.S. and developed markets. There are also risks of greater political uncertainties, an economy’s dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, a limited number of potential buyers for such securities and delays and disruptions in securities settlement procedures. In addition, there may be more volatile rates of return.
International Equity Fund Change in Benchmark Index. Also effective on July 1, 2007, the Fund will replace its performance benchmark index, the Morgan Stanley Europe Australasia and Far East Index (“MSCI EAFE”), with the Morgan Stanley Capital International, Inc. All Country World ex-U.S. Index (“MSCI ACWI-ex US”). The MSCI ACWI-ex US benchmark index contains emerging markets in the index, while the MSCI EAFE does not. Thus, the MSCI ACWI-ex US better reflects the holdings within the Fund. Accordingly, the index and the footnote following the table marked as “Average Annual Total Returns” on page 19 will be supplemented as follows:
| This supplement is not part of the semiannual report | P1 |
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| AVERAGE ANNUAL TOTAL RETURNS (for the period ended December 31, 2006): | ||||||
| Fund Return (After Deduction of Sales Charges and Expenses) | 1 Year | 5 Years | 10 Years | |||
| Class A (Inception 12/27/95) | ||||||
| Before Taxes | 23.16% | 14.03% | 6.87% | |||
| After Taxes on Distributions | 21.16% | 13.10% | 5.82% | |||
| After Taxes on Distributions and Sale of Fund Shares | 19.15% | 11.89% | 5.53% | |||
| 1 Year | 5 Years | Lifetime | ||||
| Class B (Inception 01/02/98) | ||||||
| Before Taxes | 28.33% | 14.28% | 6.35% | |||
| 1 Year | 5 Years | 10 Years | ||||
| Class C (Inception 12/27/95) | ||||||
| Before Taxes | 28.37% | 14.30% | 6.59% | |||
| Index (before taxes, fees, expenses) | 1 Year | 5 Years | 10 Years | |||
| MSCI EAFE® Index(a) | 26.86% | 15.43% | 8.06% | |||
| MSCI® ACWI-ex US Index(b) | 26.65% | 16.42% | 7.89% | |||
(a) The MSCI EAFE® Index is an unmanaged index representative of the market structure of approximately 20 countries from the stock markets of Europe, Australasia, and the Far East. Its returns do not include the net effect of any sales charges. That means that actual returns would be lower if they included the effect of sales charges.
(b) The MSCI® ACWI-ex US Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets. As of June 2006, the MSCI ACWI-ex U.S. Index consisted of 47 developed and emerging market country indices. Its returns do not include the net effect of any sales charges. That means that actual returns would be lower if they included the effect of sales charges.
Additional Voluntary Cap on Expenses for International Equity Fund. Also, effective July 1, 2007, Heritage Asset Management, Inc. has voluntarily agreed to reimburse certain expenses and, if necessary, waive its investment advisory fee in order to cap the total expenses of the Class A and Class C shares of the Fund. The voluntary fee waiver is in addition to the contractual fee waiver that is currently in place for the Fund’s fiscal year 2007, and will have lower reimbursement thresholds than the contractual fee wavier. As a result of the voluntary fee waiver, footnote (c) on Page 20 of the prospectus is replaced in its entirety as follows:
(c) Heritage Asset Management, Inc. (“Heritage”) has contractually agreed to waive its investment advisory fee and/or reimburse certain expenses of the fund to the extent that Class A annual operating expenses exceed 1.65% of the class’ average daily net assets and to the extent that Class C annual operating expenses each exceed 2.45% of that class’ average daily net assets for the fund’s 2007 fiscal year. In addition, effective July 1, 2007, Heritage has voluntarily agreed to reimburse certain expenses of the fund and/or waive its investment advisory fees to the extent that Class A annual operating expenses exceed 1.45% of that class’ average daily net assets and to the extent that Class C annual operating expenses each exceed 2.25% of that class’ average daily net assets through February 28, 2008. Both the contractual and voluntary expense limitations exclude interest, taxes, brokerage commissions, extraordinary expenses and include offset expense arrangements with the fund’s custodian. The Board may agree to change these contractual and voluntary fee waivers or reimbursements without the approval of fund shareholders. Any such reimbursement of fund expenses and/or waiver of Heritage’s investment advisory fees is subject to reimbursement by the fund to Heritage within the following two fiscal years if overall expenses fall below these percentage limitations.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH
THE PROSPECTUS FOR FUTURE REFERENCE
| P2 | This supplement is not part of the semiannual report |
Table of Contents
Heritage Mutual Funds
Semiannual Report
and Investment Performance Review
for the Six-Month Period Ended
April 30, 2007
(Unaudited)
Capital Appreciation Trust
Core Equity Fund
Diversified Growth Fund
Growth and Income Trust
High Yield Bond Fund
International Equity Fund
Mid Cap Stock Fund
Small Cap Stock Fund
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Discussion of Fund Performance |
Investment Portfolios |
Table of Contents
I am pleased to present the semiannual report and investment performance review of the Heritage Mutual Funds (the “Funds”) for the six-month period ended April 30, 2007 (the “reporting period”).
During the reporting period, we observed some volatility in the global equity markets, notably a sharp decline in February followed by a strong rebound in March. In spite of these market swings, a favorable climate existed for the long-term investor, as shown by the positive returns of most major market indices. On the pages that follow, the portfolio managers for each Fund will discuss the Fund’s performance, including an assessment of the economic environment as it pertains to their particular Fund.
The performance summary on the next page shows the returns for the Class A shares of each Heritage Mutual Fund and its respective benchmark index during the reporting period. Our website, HeritageFunds.com, provides monthly and quarterly performance updates, daily prices, portfolio holdings and other information.
Effective July 1, 2007, the Funds’ prospectus has been supplemented with respect to the International Equity Fund. Effective July 1, 2007, the Fund may invest up to 35% of its total assets in emerging markets. Previously, the investment guideline limited such investments to 25% of its total assets. In conjunction with this change, we have also changed the Fund’s benchmark index to the Morgan Stanley Capital International, Inc. All Country ex-US Index, which we feel more appropriately reflects the Fund’s investment strategy.
Since our last report, there have been some personnel changes that I would like to bring to your attention. First, Herb Ehlers has retired as Chairman of the team managing the Capital Appreciation Trust. Steven Barry, Greg Ekizian and David Shell remain as co-portfolio managers of the Fund. Further, David Adams and Jack McPherson have taken over as co-portfolio mangers of the portion of the Small Cap Stock Fund managed by Awad Asset Management, Inc. Finally, Richard Riess has been appointed as Chairman of the Boards of Trustees of the Heritage Mutual Funds. Richard is the Chief Executive Officer of Heritage Asset Management, Inc., the Funds’ investment adviser, and has been associated with the Funds since their inception.
I would like to remind you that investing in any mutual fund carries certain risks. For your convenience, we have included a Principal Risks section beginning on page 55 which gives a description of the principal risk factors that relate to the Funds. In addition, I ask that you carefully consider the investment objectives, charges and expenses of any fund before you invest. Contact us at 800.421.4184 or at HeritageFunds.com or your financial advisor for a prospectus, which contains this and other important information about the Funds.
Our firm is committed to the financial well-being of our clients. We are grateful for your continued support and confidence in the Heritage Mutual Funds.
Sincerely,
Stephen G. Hill
President
May 15, 2007
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The table below provides the Class A shares return for each fund and its comparative benchmark index for the six-month period ended April 30, 2007. Performance data quoted represents past performance which does not guarantee future results. The investment return and principal value of an investment will fluctuate, and you may have a gain or loss when you sell shares. Current performance may be higher or lower than the performance data shown. To obtain more current performance data as of the most recent month end, please visit our website at HeritageFunds.com.
| Annualized expense ratios (a) | ||||||||
| Fund/Benchmark index | Class A return 11/1/06 to 4/30/07 | Without expenses waived/ recovered | With expenses waived/ recovered | |||||
| Capital Appreciation Trust | 10.79% | 1.20% | 1.20% | |||||
| Russell 1000® Growth Index | 8.44% | N/A | N/A | |||||
| S&P 500 Index | 8.60% | N/A | N/A | |||||
| Core Equity Fund | 6.49% | 1.30% | 1.44% | |||||
| S&P 500 Index | 8.60% | N/A | N/A | |||||
| Diversified Growth Fund | 14.61% | 1.35% | 1.35% | |||||
| Russell Midcap® Growth Index | 11.70% | N/A | N/A | |||||
| Growth and Income Trust | 11.11% | 1.43% | 1.35% | |||||
| S&P 500 Index | 8.60% | N/A | N/A | |||||
| High Yield Bond Fund | 6.99% | 1.67% | 1.20% | |||||
| Citigroup High Yield Market IndexSM | 6.88% | N/A | N/A | |||||
| International Equity Fund | 18.60% | 1.47% | 1.60% | |||||
| MSCI® ACWI ex-US | 15.89% | N/A | N/A | |||||
| MSCI EAFE® Index | 15.72% | N/A | N/A | |||||
| Mid Cap Stock Fund | 10.69% | 1.13% | 1.13% | |||||
| S&P MidCap 400 Index | 11.97% | N/A | N/A | |||||
| Small Cap Stock Fund | 10.39% | 1.26% | 1.26% | |||||
| Russell 2000® Index | 6.38% | N/A | N/A | |||||
All of the returns quoted include the effect of reinvested dividends. The performance numbers quoted for Class A shares are shown without the imposition of a front-end sales charge and include the deduction of fund expenses. If reflected, the imposition of a front-end sales charge would reduce performance. Performance results for other classes of shares would differ based on each class’ expense ratio.
Please consider the investment objectives, risks, charges and expenses of each fund carefully before investing. Contact Heritage at 800.421.4184 or your financial advisor for a prospectus, which contains this and other important information about each fund. Read the prospectus carefully before you invest or send money.
(a) The funds’ investment adviser, Heritage Asset Management, Inc. contractually agreed to waive or reimburse certain fees and expenses through October 31, 2007. For further details, see the Notes to Financial Statements.
Index Descriptions
Please keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Descriptions for the funds’ benchmark indices are as follows:
• | The Citigroup High Yield Market IndexSM is a broad-based unmanaged index that measures the performance of below-investment grade debt issued by corporations domiciled in the U.S. or Canada. |
| • | The Morgan Stanley Capital International® All Country World Index ex-US (“MSCI® ACWI ex-US”) is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets. |
| • | The Morgan Stanley Capital International Europe, Australasia, and Far East® Index (“MSCI EAFE® Index”) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada. |
| • | The Russell 1000® Growth Index is constructed to provide a comprehensive and unbiased barometer of the large-cap growth market. |
| • | The Russell 2000® Index is an unmanaged index comprised of the 2,000 smallest companies in the Russell 3000® Index. The Russell 3000® Index measures the performances of the 3,000 largest U.S. companies based on total market capitalization. |
| • | The Russell Midcap® Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. |
| • | The Standard & Poor’s 500 Composite Stock Index (“S&P 500 Index”) is an unmanaged index of 500 widely held stocks that are considered representative of the U.S. stock market. |
| • | The Standard & Poor’s MidCap 400 Index (“S&P MidCap 400 Index”) is an unmanaged index that measures the performance of the mid-sized company segment of the U.S. market. |
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Discussion of Fund Performance |
| Capital Appreciation Trust |
The Heritage Capital Appreciation Trust (the “Fund”) seeks long-term capital appreciation by using a “bottom-up”(a) method of analysis based on in-depth, fundamental research to determine which stocks to purchase for the fund. The portfolio management team purchases stock of companies that have the potential for attractive long-term growth in earnings, cash flow and total worth of the company. In addition, the portfolio management team prefers to purchase such stocks that appear to be undervalued in relation to the company’s long-term growth fundamentals.
Herb Ehlers, founder and Chairman of the Goldman Sachs Asset Management, L.P. Growth Team and portfolio manager of the Fund since its inception 22 years ago, retired effective December 31, 2006. The management of the Fund remains the same with a team of 19 investment professionals all dedicated to our philosophy and process.
During an interview conducted on May 21, 2007, Steven Barry, Gregory Ekizian, and David Shell, the portfolio managers of the Fund, discussed the Fund’s performance for the six-month period ended April 30, 2007. For performance returns, please see the Performance Summary on Page 2.
Q: How would you describe the overall U.S. market environment and condition during the reporting period?
A: During the reporting period, the U.S. equity markets showed strength across the board. The Dow Jones Industrial Average hit record highs, closing above 13,000 for the first time and the S&P 500 reached its highest level in more than six years. The market advanced due to strong corporate earnings announcements and continued private equity activity. According to a government report, economic growth is the slowest it has been in four years but inflationary pressures remain. This makes it less likely that the Federal Reserve Board will cut short-term interest rates in the near future.
Q: How did the Fund compare to the Russell 1000® Growth Index during the reporting period?
A: During the reporting period, the Fund outperformed its benchmark index. As business buyers we do not attempt to predict the economy, nor do we try to position the Fund’ for any
specific economic environment. We do, however, pay attention to the weights in the Fund’s benchmark (the Russell 1000® Growth Index) so we are aware of any relative positions that may exist.
In several instances, on both a stock and sector level, the Fund’s portfolio is meaningfully different from the benchmark, thus representing potential sources of positive or negative returns relative to the benchmark. The Fund has an underweight investment in the cyclicals sector when compared to the Russell 1000® Growth Index, as most of these businesses do not typically meet our investment criteria because their revenues predominately depend on the increasing price of an underlying commodity. During the six-month period, this underweight position detracted from Fund performance as the cyclicals sector was one of the top performing sectors in the market. The Fund’s healthcare holdings made the largest contribution to overall performance as stock selection within healthcare was the strongest across the Fund. The Fund had an underweight in the healthcare sector. The Fund’s underweight position in the consumer discretionary sector contributed to performance as this was the weakest performing area of the market. The Fund also benefited from strong stock selection within this sector. Performance was also driven by an overweight in the Energy sector as Energy was the top performing sector in the market during the period.
Q: Which securities positively impacted the Fund’s performance during the reporting period?
A: In April, AstraZeneca agreed to buy MedImmune, Inc. for $15.6 billion in cash, which represented a 21% premium to the company’s stock price in a deal that is expected to close in June. The bidding process was fairly competitive, with at least four large pharmaceutical companies wanting to purchase the maker of FluMist. Shares of MedImmune are up 76% year to date through May 2nd. Previously, MedImmune’s board had not been interested in a sale; however, in recent months the board has been pressured by large investors to sell the company. “Indications of interest by major pharmaceutical companies” and “dissatisfaction with the company’s short-term stock price performance” were reasons for the decision change. We believe acquisitions are one way in which the gap between the stock price and the economic value of the business can close. We believe the MedImmune acquisition is another strong data point reinforcing that our approach of owning high-quality businesses for the long term works.
Medco Health Solutions contributed to positive performance during the period. After selling out of the position in November, we repurchased shares of Medco in January as we believed it
(a) A bottom-up method of analysis de-emphasizes the significance of economic and market cycles. The primary focus is the analysis of individual companies rather than the industry in which that company operates or the economy as a whole.
| 3 |
Table of Contents
Discussion of Fund Performance |
| Capital Appreciation Trust (cont’d) |
was well positioned to gain market share as a result of the uncertainty surrounding the integration of rivals Caremark and CVS. A third of Caremark’s contracts were approaching expiration, which could provide market share opportunities for Medco. Medco also raised its financial guidance and announced a significant share repurchase. With shares having risen about 18% after our purchase, we believed the price of the stock fairly reflected many of these positive events and outlook and sold out of the Fund’s position.
We recently exited the Fund’s position in First Data Corp. First Data demonstrates our investment philosophy of buying businesses and maintaining a long-term perspective, as we first bought the company in 1991 and have reaped the rewards of the tremendous growth that the company has achieved over the past 17 years. Recently, First Data accepted a $34 per share buyout bid from private equity firm Kohlberg Kravis Roberts & Co. Shares of First Data rose over 20% on the news as the value of the business is beginning to be fully recognized by the market. As the deal is expected to close early in the second quarter, we decided to exit the position and redeploy the Fund’s investment capital into companies that we believe have growth potential over the long term.
Shares of Schlumberger Ltd. rose as the company released fiscal fourth quarter earnings that beat expectations. Management cited price increases, stronger exploration activity, and new technology as the main drivers of performance. In addition, Schlumberger believes growth will continue throughout 2007.
Q: Which securities negatively impacted the Fund’s performance during the reporting period?
A: Freddie Mac primarily underperformed during the period because management delayed timely financial reporting from the second quarter to the second half of 2007. We believe that the timely reporting of financial results is an important catalyst for the stock price of Freddie Mac to more closely reflect the value of the underlying business. In addition, the company’s underlying housing credit business remains exceptionally strong in spite of a weak housing market. Although the energy sector was a significant contributor to both absolute and relative performance, Interoil Corp detracted slightly from performance during the period. We have since exited our position to redeploy the capital into higher conviction ideas. Other securities that detracted slightly for the period included Moody’s, which saw a pullback due to the sub-prime mortgage market concerns, Western Union, which pulled back slightly
after a strong 2006, and Genentech, which remained relatively
flat for the period in an overall up market. All three companies continue to demonstrate the fundamental growth characteristics we look for in businesses we invest in and remain significant positions in the portfolio.
Q: What steps do you take to manage the Fund’s portfolio investment risks?
A: The risks of the Fund are managed in three key ways: thorough knowledge of high-quality companies, a consistent investment style, and disciplined portfolio construction. Our ability to identify excellent companies, that we believe are strategically poised for long-term growth, is a key component of our risk management process. We perform rigorous fundamental research on each of our investments to ensure that we understand the risks and rewards. We define risk as related to the probability of a permanent loss of capital rather than the volatility of returns and we assess the real business worth of each company that meets our rigorous standards. Our research includes extensive visits with the management of each company as well as customers, competitors, and suppliers, in-depth balance sheet and income statement analysis, analysis of company- and industry-specific risks and continual reassessment of the threats to portfolio holdings. Since we invest in high-quality growth companies whose stocks are attractively valued, we believe that we are inherently limiting our level of risk over the long-term. The second component of risk management is a consistent investment style, which has remained the same since the Fund’s inception. Our team approach to investment management helps ensure that we maintain our defined style. Our portfolio characteristics, which have remained consistent over time, reflect our disciplined style adherence. The third component of risk management is disciplined portfolio construction. An experienced senior portfolio management team manages the Fund’s portfolio. We actively monitor the individual stock, sector, and thematic exposure of the Fund in order to adhere to its risk profile. Our guidelines are as follows: we strive to have no more than 10% of the Fund concentrated in any one stock holding and no more than 50% of the portfolio concentrated in any single sector. We are not market timers and we strive to keep the Fund fully invested, aiming for less than 5% cash at most times.
In addition, by focusing on the long-term growth potential of companies that meet our criteria, we are not distracted by the “noise” of the market, such as short-term trends or momentum activities. This is evident through the Fund’s relative low portfolio turnover rate of 39% for the six-month period ended April 30, 2007.
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Table of Contents
Discussion of Fund Performance |
| Core Equity Fund |
The Core Equity Fund (the “Fund”) seeks long-term growth through capital appreciation by investing in equity securities which the portfolio managers of the Fund’s subadviser, Eagle Asset Management, Inc., believe to have the potential for growth over the intermediate- and long-term.
The Fund will invest in established companies that the portfolio managers determine are undervalued relative to their earnings growth prospects. The portfolio managers’ strategy combines a “bottom up”(a) research process with a relative-valuation discipline in purchasing stocks. In general, the Fund’s portfolio managers seek to select securities that, at the time of purchase, typically have at least one of the following characteristics:
| (1) | projected earnings growth rate at or above the S&P 500 Index, |
| (2) | above-average earnings quality and stability, or |
| (3) | a price-to-earnings ratio comparable to the S&P 500 Index. |
During an interview conducted on May 21, 2007, Richard Skeppstrom, E. Craig Dauer, CFA, John Jordan, CFA, and Robert Marshall, the portfolio managers of the Fund, discussed the Fund’s performance for the six-month period ended April 30, 2007. For performance returns, please see the Performance Summary on Page 2.
Q: How would you describe the overall U.S. market environment and condition during the reporting period?
A: An expanding economy with strong corporate profit growth, relatively low “core” inflation (excluding food and energy), and interest rates that remained at a historically low range continued to provide a favorable backdrop for the equity market during the reporting period. Stock prices generally trended higher from the beginning of the period through late February when a global sell-off interrupted the rally that had begun last July. Prior to the sell-off, deteriorating housing-related news began to weigh on stock prices. Rising delinquency rates on sub-prime mortgages that resulted in large provisions for losses triggered a sell-off of sub-prime specialist lenders such as New Century Financial (which subsequently filed for Chapter 11). In addition, crude oil prices were on the rise and Thomson First Call(b) earnings
(a) A bottom-up method of analysis de-emphasizes the significance of economic and market cycles. The primary focus is the analysis of individual companies rather than the industry in which that company operates or the economy as a whole. (b) Thomson First Call provides broker-sourced research and earnings estimates for quick insight on analysts' expectations.
estimates for S&P 500 companies showed year-to-year growth slowing to about 4% in the first calendar quarter of 2007 from about 11% in the fourth quarter of 2006.
Shanghai’s stock exchange plunged 9% on February 27th, triggered in part by increasing government efforts to quell speculative investments, and the sell-off spread to markets around the globe, raising risk premiums in both equity and fixed income markets. Contributing to the markets’ heightened focus on risk included: former Fed Chairman Greenspan’s mention of a possible recession in a satellite presentation to a Hong Kong audience; a sharp drop in January’s durable goods orders; and Freddie Mac’s plan to tighten its purchase standards on sub-prime loans, adding to the widening fallout from rising default rates in the sub-prime mortgage sector. Stocks remained essentially flat through the first half of March, supported by recoveries in overseas markets with related short-covering, and weakened by broadening mortgage credit quality concerns following a report that foreclosures in the fourth quarter reached a record 0.54% of all loans.
Stocks rebounded during the third week of March, boosted by favorable interpretations of the Federal Reserve’s policy statement after leaving its target interest rate unchanged and high level of merger and acquisition activity. Stock prices remained in an uptrend through the end of April as investors were encouraged by: continued gains in global markets; strong employment and retail sales reports; a March core consumer price index that rose 0.1%, down from 0.2% in February, but up 2.5% year-to-year; and better-than-expected first calendar quarter earnings reports for larger companies that benefited from strong overseas growth and the weaker dollar which reached a record low against the Euro. Domestic profit growth is under pressure in a sluggish economy where real gross domestic product growth slowed to a weaker-than-expected 1.3% in the first calendar quarter of 2007 versus 2.5% in the fourth calendar quarter of 2006, according to the U.S. Commerce Department’s “advance” estimate report released April 27th. Negative swing factors included a deterioration in net exports, a continuing drop in residential construction, and a negative swing in federal spending, which more than offset the positives of strong consumer spending growth, improved business investment, and reduced inventory liquidation.
In this environment of sluggish economic growth with underlying inflation pressures above the Federal Reserves’ comfort zone, the strongest-performing S&P sectors included utilities, materials, energy, telecommunications services,
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Discussion of Fund Performance |
| Core Equity Fund (cont’d) |
industrials, and health care. The weakest sectors included consumer discretionary, financials, technology, and consumer staples. During the reporting period, smaller capitalization stocks underperformed larger capitalization stocks as evidenced by the weaker performance of the Russell 2000® Index (up 6.88%) compared to the S&P 500 Index (up 8.60%).
Q: How did the Fund compare to the S&P 500 Index during the reporting period?
A: The Fund’s return was below its benchmark, the S&P 500 Index, primarily due to: (1) underperformance in the relatively weak, market-weighted financial sector by holdings including Freddie Mac, Capital One Financial, Wachovia, and Progressive Corp., (2) lack of exposure to energy and materials, two strong-performing S&P 500 Index sectors, and (3) underperformance in the slightly overweight industrial sector by holdings including Waste Management, United Technologies, and United Parcel Service. On the other hand, relative performance was helped by good stock selection in the overweight technology sector and market-weighted consumer discretionary and consumer staples sectors.
The Fund’s fundamentally-driven, bottom-up research approach normally underweights energy and materials sectors due to their historical volatility and lack of sustainable growth characteristics. This was particularly true during the reporting period when, in our view, the market’s strong momentum into these sectors created excessive valuations, and our price discipline kept us from adding any commodity exposure. In addition, our longer term relative valuation assumptions in the financial and industrial sectors were not realized during the reporting period.
Q: Which securities negatively impacted the Fund’s performance during the reporting period?
A: Freddie Mac’s stock price declined five percent during the six-month reporting period due to regulatory and sub-prime mortgage market concerns. The Fund continues to hold the stock as we believe that tight spreads in the mortgage market will ease over time, resulting in improved earnings. Further catalysts include the imminent return to timely financial reporting and the passage of acceptable government-sponsored enterprises legislation.
Boston Scientific Corporation was added to the Fund’s portfolio in December. At the time, we felt that earnings expectations reflected the bad news on stents and implantable defibrillators (“ICDs”). Specifically, we believed the stent market would
stabilize and that 2007 would be a year of recovery in ICDs. Additionally, we felt there was an opportunity to reduce expenses, as the business had been built to support a meaningfully higher level of revenues. While the ICD market has shown signs of improvement, the stent market has continued to decline. Earnings expectations have had to come down again due to reduced stent sales projections and management’s plan to “grow into” the cost base rather than shoot for immediate cost savings. However, the hiring of former Zimmer Holdings Inc. CFO Sam Leno may suggest a change in the company’s attitude toward cost cutting, as Leno was a key part of Zimmer Holdings’ cost containment strategies. The Fund continues to hold the stock as we believe its price already reflects a negative scenario for the stent market (and Boston Scientific Corporation’s future market share), but not the possibility of a cost-saving restructuring.
Capital One Financial Corporation, a new purchase during the six-month reporting period, declined four percent. Capital One is a high quality, attractively valued consumer lending institution. The stock is inexpensive because of market fears of a consumer credit downturn associated with the sub-prime lending crisis and a slowing economy in general. In addition, Capital One is being penalized for the unexpected and poorly timed purchase of North Fork Bank, which included Greenpoint Financial, an alternative-documentation mortgage (“Alt-A”) lender. Because of poor conditions in the Alt-A secondary market, we believe that Greenpoint will suffer significant margin erosion in that business segment. However, we also believe profit margins will improve as the crisis fades and continue to hold the stock in the Fund. We are also acutely aware of the merger and buyout wave crashing over the markets and Capital One, in our opinion, is a perfect target.
Johnson & Johnson has suffered from moderate fundamental erosion due to lower projected sales of Procrit (an anemia drug) and stents. Also, shares of stable, high-quality businesses like Johnson & Johnson have been out of favor as the market has chased stocks in more economically sensitive areas including energy and commodities. The Fund continues to hold Johnson & Johnson shares, which in prior periods were a positive contributor to performance. We believe that the fundamental issues are well understood and that the stock is currently inexpensive due to the market’s rotation away from stable growth businesses.
The combination of a weakening economy and difficult volume comparisons remained a headwind for the United Parcel
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Discussion of Fund Performance |
| Core Equity Fund (cont’d) |
Service over the six-month reporting period. Our decision to purchase a small position in United Parcel Service in the first calendar quarter of 2007 was predicated on the belief that easing comparisons in the latter half of 2007 coupled with continued disciplined industry pricing will result in earnings growth that is either in line with or better than current expectations while valuation appears attractive.
Q: Which securities positively impacted the Fund’s performance during the reporting period?
A: Pricing of orthopedic implants seems to have stabilized, and now a combination of improving volumes, the weak dollar, and a strong product cycle are leading to improved sales growth at Zimmer Holdings Inc. Specifically, the recently-launched Gender Solutions knee replacement, designed for a better fit in female patients, looks like a hit. The Fund continues to hold the stock, which was also a positive contributor in prior periods. We expect to see long-term growth in hip and knee implants, combined with positive operating leverage and strong cash flow generation, driving sustained double-digit earnings growth for Zimmer. However, we did reduce the position in the Fund’s portfolio at the end of the period because we did not see the stock’s risk-reward profile as quite as attractive as it was when the stock’s price was lower.
Nokia Corporation has been the primary beneficiary of a strong global handset industry driven by continued penetration in emerging markets (particularly China and India) along with the initial stages of the 3G upgrade cycle in developed markets. A meaningful new product cycle coupled with underinvestment in product development at primary competitor Motorola, Inc. has allowed Nokia to gain market share without sacrificing profit margins.
EMC Corporation’s shares made a strong move higher during the period, as the rollout of new storage hardware at the mid- and high-end gained traction, and the company announced the initial public offering of its VM Ware server virtualization software unit. After struggling for several quarters in 2006, as customers postponed hardware purchases in anticipation of the new mid-range CLARiiON and high-end Symmetrix storage hardware systems, sales activity gained momentum in the fourth calendar quarter of 2006. The company’s shares got a subsequent boost from the news that EMC would sell a ten percent share of its VM Ware unit for roughly $1 billion. The software unit had sales of $710 million in fiscal 2006 and revenues continue to grow. As a result, we viewed the shares as attractively valued and continued to maintain the position in the Fund.
Business continues to be good at CVS Corporation, with increasing generic drug sales driving margin expansion. Continued improvements at acquired Eckerd and Sav-On stores are also helping both sales and margins. During the period, the company acquired Caremark Rx, a large pharmacy benefits manager (“PBM”). While we are skeptical that this is a strategic “game-changer” as management has described it, the price paid was reasonable and cost synergy targets seem very achievable. While CVS is primarily a drugstore company, it did operate its own medium-sized PBM and thus should have a pretty good idea of that industry’s dynamics. CVS has also been a positive contributor to Fund performance in the past and we continue to hold its shares in the Fund as we believe Caremark integration risks are not as high as the market perceives.
Coca-Cola Company’s stock price rose 13% during the six-month reporting period. Worldwide volume growth is moving up to the mid- single digits range thanks to strength in Europe and emerging markets. This is offsetting carbonated soft drink volume pressure in the United States. While the stock has become modestly more expensive given the improved results, we believe the volume growth looks sustainable and it remains within the range that we find acceptable.
Q: What steps do you take to manage the Fund’s portfolio investment risks?
A: Portfolio risk control measures include the following:
| • | Diversification – Initial position sizes are normally 2% to 3%, and successful positions are not allowed to exceed 5% to 6% of the total portfolio. The typical number of holdings ranges between 25 and 40 with diversification across most industry sectors; |
| • | Knowledge – Internal development of thorough understanding of company fundamentals; |
| • | Quality – Internal focus is on above-average quality and predictability characteristics within a universe of large capitalization, seasoned companies; |
| • | Valuation – Diligent attention to valuations via a continually-updated relative valuation discipline. |
Q: Are there other factors that impacted Fund performance during the reporting period?
A: Cash reserves were higher than normal primarily due to a lack of attractive investments in a momentum-driven market toward energy and commodities. Consequently, relative performance was negatively impacted during this period of strong stock market performance.
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| Diversified Growth Fund |
The Diversified Growth Fund (the “Fund”) seeks long-term capital appreciation by investing in the equity securities of companies that the portfolio manager of the Fund’s subadviser, Eagle Asset Management, Inc., believes to have high growth rates and strong prospects for their business or services. The Fund’s portfolio manager uses a “bottom-up”(a) method of analysis based on fundamental research to determine which common stocks to purchase for the Fund. The portfolio manager attempts to purchase stocks that have the potential for above-average earnings or sales growth, reasonable valuations and acceptable debt levels.
The Fund invests a majority of its assets in common stocks of companies with total market capitalization between $1 billion and $16 billion, although the Fund may invest a portion of its assets in common stocks of smaller or larger companies that the portfolio manager believes to have significant growth potential.
During an interview conducted on May 21, 2007, Bert Boksen, CFA, the portfolio manager of the Fund, discussed the Fund’s performance for the six-month period ended April 30, 2007. For performance returns, please see the Performance Summary on Page 2.
Q: How would you describe the overall U.S. market environment and condition during the reporting period?
A: During the six-month period ending April 30, 2007, mid-cap stocks outperformed large-cap stocks, and growth stocks trailed value. However, growth stocks resurged during the latter part of the reporting period and have outpaced value so far in calendar year 2007. Breadth in the mid-cap growth market was expansive as all major sectors had positive returns. Sectors with above-average total returns in the mid-cap growth space included materials, energy and healthcare. Sectors with total returns less than market average were financials, information technology and telecommunications services.
The second half of the reporting period witnessed increased volatility in the market, due in part to rising energy costs and mounting fears that troubles in the sub-prime mortgage market could spill over into other segments of the economy. Despite these woes, most major indices finished in positive territory. Strong employment and wage growth, continued flows into private equity funds and a rally in the bond market seem to have helped ameliorate some of the negative market sentiment.
Q: How did the Fund compare to the Russell Midcap® Growth Index during the reporting period?
A: For the six-month period ended April 30, 2007, the Fund outperformed the Russell Midcap® Growth Index, its benchmark index. We were pleased to have outperformed the benchmark index in a period of solid absolute returns. While we are growth investors, our secondary emphasis on valuation has historically led our strategy to lag the benchmark in very strong periods, while outperforming in flat and falling markets.
Over the six-month reporting period, the Fund earned positive absolute returns in every sector. The Fund benefited, relative to the benchmark index, from its overweight posture and strong stock selection in the heathcare and materials sectors. Both sectors had double digit returns for the reporting period, so our strong stock selection and overweight posture helped magnify these returns. In the consumer discretionary sector, the Fund was underweight and underperformed relative to the benchmark.
Q: Which securities positively impacted the Fund’s performance during the reporting period?
A: IntercontinentalExchange is a leading exchange in the growing energy-derivatives sector, with a significant presence in the futures and over-the-counter (“OTC”) energy markets. The firm had been benefiting from volatility in energy markets, strong earnings and speculation that the company could be acquired in a consolidating industry. We sold the Fund’s position in the stock after the company reported lighter-than-expected OTC volumes in the fourth quarter.
Bucyrus International is a leading manufacturer of mining equipment. Bucyrus products primarily serve four commodity markets: copper, coal, iron ore and oil sands. All of these commodities are in the midst of a strong upswing in pricing owing to favorable supply/demand issues. In a typical commodity cycle, mining equipment capital expenditures lag mineral prices, and the current cycle seems to be following that pattern.
Medco Health Solutions is the nation's biggest pharmacy-benefit manager (“PBM”), providing services through a network of retail pharmacies and its own high-tech mail-order pharmacy. The company recently gave very favorable earnings guidance for the year, which helped to boost its share price. We believe the stock has excellent growth potential as several large branded drugs are losing patent protection over the next couple of years. As these drugs go generic, they will become much more profitable for PBMs. We also believe the company stands to benefit from the success and growth of the Medicare prescription drug plan.
(a) A bottom-up method of analysis de-emphasizes the significance of economic and market cycles. The primary focus is the analysis of individual companies rather than the industry in which that company operates or the economy as a whole.
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Discussion of Fund Performance |
| Diversified Growth Fund (cont’d) |
The Mosaic Company, a fertilizer company, is benefiting from higher fertilizer prices fueled by sharply higher crop plantings, reflecting increasing ethanol demand. Largely due to favorable legislation, the rapidly expanding ethanol industry is consuming an increasing amount of the nation’s corn supplies. As higher corn prices encourage increased plantings, we believe the demand for fertilizers, such as nitrogen and potash, will show considerable growth in the coming years. We sold the Fund’s position in Mosaic to purchase CF Industries, another fertilizer producer, which we believe has more long-term growth potential.
Oceaneering International Inc. provides remote operated vehicles (“ROVs”) used in underwater oil and natural-gas pipeline construction. Many current orders for the construction of new deepwater rigs include ROVs, which we believe should continue to drive demand for the next several years. As the industry struggles to grow oil production, we expect that ownership of Oceaneering International should benefit from the trend toward deepwater exploration.
Q: Which securities negatively impacted the Fund’s performance during the reporting period?
A: International Game Technology is the world's largest manufacturer of casino gaming machines and related systems. The company reported slightly lower operating margins as compared to last year. We maintain a positive outlook for the company, as we continue to see a solid pipeline of new opportunities both domestically and internationally. One such opportunity is Japan, which is in the early stages of a major replacement cycle for many of its gaming machines.
Coldwater Creek is a specialty retailer offering apparel and accessories for women age 35 and older. We purchased the stock during the period because we believe Coldwater Creek has solid long-term growth opportunities, especially overseas. We also liked its margin expansion and solid new store growth. The stock traded down after it was added to the Fund’s portfolio when the company announced weaker-than-expected fourth quarter results. Despite some short-term volatility, we expect growth to reaccelerate so the Fund continues to hold the stock.
Barr Pharmaceuticals develops, manufactures, and sells generic and branded drugs. Although the company beat fourth quarter expectations on revenues and earnings per share, forward guidance was not as strong as anticipated. We sold the Fund’s position in Barr Pharmaceuticals during the reporting period.
Carter’s, Inc. markets apparel for babies and young children in the United States. It offers baby and sleepwear products, play clothes, and accessories under the brand names of Carter's and OshKosh. The stock reacted negatively following an announcement of lower expectations for 2007. Following the drop in stock price, management authorized a $100 million buyback. We believe that Carter’s strong financials and brand make it well positioned for long-term growth so the Fund continues to hold its shares.
CF Industries manufactures and distributes nitrogen and phosphate fertilizer. Corn is the primary raw material in the production of ethanol, and corn acreage is expected to increase dramatically over the next few years in order to meet demand for the fuel. Recent strength in corn prices makes it attractive for farmers to fertilize more heavily in order to lessen the need to rotate between crops. The stock traded down due to a brief correction in the fertilizer group. We believe that as higher corn prices encourage increased plantings, demand for fertilizer will grow in the coming years so the Fund continues to hold the stock.
Q: What steps do you take to manage the Fund’s portfolio investment risks?
A: Investments in mid-cap companies generally involve greater risks than large-capitalization companies due to their more limited managerial and financial resources. In our efforts to manage these risks, prior to purchasing a security we perform fundamental research on the company and a comparative analysis of its peer group. We will then only purchase the security if we can do so at what we consider a reasonable price. In addition, we diversify among market sectors and trim holdings that grow above 5% of the total portfolio.
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| Growth and Income Trust |
The Growth and Income Trust (the “Fund”) primarily seeks long-term capital appreciation and, secondarily, seeks current income. The Fund expects to invest primarily in domestic equity securities (primarily common stocks) selected on a value basis. However, the Fund may own a variety of securities, including foreign equity and debt securities and domestic debt securities which the portfolio managers of the Fund’s subadviser, Thornburg Investment Management, believes to offer prospects for meeting the Fund’s investment goals. The Fund may invest up to 30% of its net assets in foreign securities.
The Fund’s portfolio managers use a “bottom up”(a) method of analysis based on fundamental research to select securities for the Fund’s portfolio. Investments in the Fund’s portfolio typically have at least one of the following characteristics:
| (1) | a forecasted long-term growth rate greater than inflation; |
| (2) | priced below estimated intrinsic value, illustrated by the Fund’s portfolio overall value indicators relative to the S&P 500 Index; |
| (3) | investing in companies that the fund believes to have a greater profitability and shareholder orientated management than the overall market based on the portfolio managers’ analysis; |
| (4) | broadly diversified across industries and sectors, as well as, diversified with holdings outside the United States of America, and |
| (5) | weighted average market capitalization approximating that of the S&P 500. |
During an interview conducted on May 23, 2007, William V. Fries, CFA and Brad Kinkelaar, the portfolio managers of the Fund, discussed the Fund’s performance for the six-month period ended April 30, 2007. For performance returns, please see the Performance Summary on Page 2.
Q: Discuss the domestic and foreign market environments in which the Fund invests and their conditions during the reporting period.
A: The U.S. equity market got off to a good start for the reporting period with worries about an economic slowdown
diminishing as the consumer sector remained healthy during the important holiday shopping season. Fears of declining same store sales, a worry last summer, proved to be the favorable entry point we expected. Earnings season is well underway for 2007, and U.S. corporations reported rosy results, for the most part. Economic news was not quite as good, with a report showing gross domestic product growth during the first quarter slowed to 1.3%. The slowdown in residential construction and rising default rates among sub-prime borrowers are causing stress in some segments of the financial service industry. However, U.S. markets were helped by expectations that the Federal Reserve might consider lowering the Fed Funds rate, in part to help out a declining housing industry. This is conventionally thought to be a good thing for financial services. Nonetheless, the sector has come under pressure as an increase in the non-performing status of sub-prime mortgages has been revealed.
The foreign market was characterized by exceptional strength early on as concerns about a global economic slowdown diminished and earnings development remained robust. Investments in China, Peru, Spain, the United Kingdom, Finland, Greece, France, Italy, Switzerland and Hong Kong performed very well overall during the reporting period. In the UK, retail spending in March was the best in eleven months, with clothing and home improvement chains benefiting. Interest rates remain benign with the UK benchmark rate remaining at 5.25% and the Euro rate a relatively low 3.75%. Acquisition activity in retail, telecom, financial services and other industries also boosted stock prices. Japanese stocks proved to have disappointing performance as investor uncertainty has grown over the pace of economic recovery as well as the long-term impact of removing the quantitative easing program by the Bank of Japan.
Q: How did the Fund’s portfolio investments in these markets perform during the reporting period?
A: As bottom-up stock pickers using fundamental analysis on a company-specific basis, we primarily measure performance in terms of stock selection effect rather than from an industry or sector allocation effect basis. In general terms, the Fund’s performance was strongest in the consumer discretionary, materials, and financials sectors. Consumer spending ex-autos and housing continued to be relatively robust in the U.S. economy and emerging markets provided additional opportunities to capitalize on the migration of labor away from rural areas into more urban centers. The Fund’s exposure in the materials sector during the period reflected the ongoing supply/demand shortage of key raw materials (aluminum,
(a) A bottom-up method of analysis de-emphasizes the significance of economic and market cycles. The primary focus is the analysis of individual companies rather than the industry in which that company operates or the economy as a whole.
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Discussion of Fund Performance |
| Growth and Income Trust (cont’d) |
copper, hydrogen gas, etc.) where certain firms may be in the process of vertically-integrating, taking advantage of a unique business line, or capitalizing on a low-cost production advantage over its competitors. In the financials sector, diversification among industries allowed the Fund to largely avoid the sub-prime lending issues that occurred more recently in the U.S. (and which spilled over into Europe).
Sectors that were unable to contribute included healthcare, energy, and technology. Within healthcare, our stock selection in global pharmaceuticals failed to keep pace as several new drugs were either delayed, issued disappointing trial data, or required a more cautious labeling by safety regulators. In addition, the Fund’s U.S. healthcare exposure experienced pricing concerns regarding reimbursement rates under a new Democrat-led Congress. Energy stocks witnessed heightened volatility (mostly to the downside over the past two quarters) as oil prices began moderating after the political crisis in the Middle East abated last summer. Competition for wireless handsets in emerging markets hurt profit margins for some of the Fund’s technology holdings. Turnaround stories in technology are becoming more prevalent in areas such as semiconductors/software at low prices when compared to our earnings estimates.
Q: How did the Fund compare to the S&P 500 Index during the reporting period?
A: During the reporting period ended April 30, 2007, the Fund’s performance exceeded that of the S&P 500 Index. This was primarily due to the performance of the Fund’s holdings in the consumer discretionary, financials and materials sectors. The top three performers for the period were in two of these sectors.
Relative to the S&P 500 Index, the Fund was overweight in the telecommunication services, materials, financials and energy sectors. In telecommunication services and materials, the Fund benefited from the overweight position as the sector performed better than the overall market. In addition, the holdings in the Fund within the materials sector outperformed the overall sector, creating a positive selection effect. In the energy sector, the holdings in the Fund did not perform as well as the overall sector, creating a negative selection effect. The financials sector was overweight in an underperforming sector; however, the securities selected in the Fund outperformed those in the market creating a positive selection effect.
Relative to the S&P 500 Index, the Fund was underweight in the information technology, consumer staples, health care,
industrials and consumer discretionary sectors. The Fund’s underweight position in information technology, consumer staples and consumer discretionary, which were all bottom performing sectors in the S&P 500 Index, created a positive allocation effect. Healthcare was a strong performing sector for the market but, the Fund’s investment there during the reporting period was not as positive. The Fund was negatively impacted by an underweight position, but more significantly, the Fund’s investments in those specific stocks did not perform as well as the rest of the sector did during the same period. Industrials were a strong performer in the broad market during the reporting period, creating a negative allocation effect due to the Fund’s underweight position. However, the specific Fund holdings in this sector performed well during the period creating a positive selection effect.
Q: Which securities positively impacted the Fund’s performance during the reporting period?
A: Entergy Corporation benefited from higher expectations for power prices in the Northeast along with the potential for incremental capacity in its nuclear generation fleet. Southern Copper Corporation continued to perform well as China demonstrated strong import demand growth from year ago levels for copper. Fu Ji Food & Catering benefited from strong new business development and improving distribution efficiencies across China. Future prospects for new business lines looks promising. Telefonica SA stock rose on strong wireless subscriber results in Latin America, as well as margin stabilization in its home market. Kraft Foods Inc., Class A benefited from being recently spun-off from Altria as a separate company.
Q: Which securities negatively impacted the Fund’s performance during the reporting period?
A: The Fund’s position of Jet Blue Airways Corporation was trimmed during the reporting period due to their highly publicized service problems. Motorola Inc.’s weakness reflected lingering fundamental business execution concerns. We believe the issues are fixable and reflected in their valuations. Precision Drilling Trust’s negative performance was due to ongoing weak drilling activity in Western Canada. The halt of Pfizer Inc.’s Torcetrapib trial removes the company’s most exciting pipeline candidate as well as weakens its defensive strategy with regard to its largest drug, Lipitor. The position was sold based on poor visibility into post-Lipitor earnings and a high likelihood of a too-expensive acquisition to fill the gap. Caremark Rx Inc.’s outlook became clouded following the announced transaction with CVS at no premium.
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| Growth and Income Trust (cont’d) |
We exited the Fund’s position in the stock based on concerns regarding the strategic positioning of the pharmacy benefit manager business.
Q: What steps do you take to manage the Fund’s portfolio investment risks?
A: We attempt to manage risk through diversification and stock selection. We are broadly diversified across market sectors, and over 25% of the Fund’s assets are invested in non-U.S. securities. In addition, we believe that the process of identifying companies at a discount through bottom-up fundamental research helps us to identify these potential risks and incorporate them into our evaluation of each stock’s risk/reward trade-off.
Occasionally, the Fund invests in forward currency contracts as a risk control measure. We evaluate currency risk on a stock-by-stock basis. We will hedge currencies utilizing forward contracts if deemed appropriate. We use currency hedging to protect the investment thesis for a given stock from being significantly undermined by dollar/foreign currency fluctuations.
During the reporting period, the Fund had very limited exposure to high yield securities. We attempt to manage the risks associated with these types of securities through comprehensive credit analysis techniques, including, but not limited to, cash flow analysis, balance sheet ratios, and competitive positioning. We used the results of our analysis to evaluate the risk/reward trade-off.
The High Yield Bond Fund (the “Fund”) seeks high current income by investing in lower-rated corporate bonds and other fixed income securities that focus on delivering high income or if not rated, securities deemed to be of comparable quality by the portfolio managers of the Fund’s subadviser, Western Asset Management Company. These lower-rated securities are commonly known as “junk bonds” or “high-yield securities.” High-yield securities offer the potential for greater income than securities with higher ratings. Most of the securities in which the fund invests are rated B or lower by Moody’s Investors Service, Inc. (“Moody’s”) or B or lower by Standard & Poor’s Ratings Services (“S&P”). Certain of the securities purchased by the Fund may be rated as low as C by Moody’s or D by S&P.
Although credit ratings are considered, the Fund’s portfolio managers select high-yield securities based primarily on its own investment analysis, which involves relative value analysis, qualitative analysis and quantitative analysis.
During an interview conducted on May 23, 2007, Investment Officers S. Kenneth Leech, Stephen Walsh and portfolio manager Michael Buchanan, the investment team of the Fund, discussed the Fund’s performance for the six-month period ended April 30, 2007. For performance returns, please see the Performance Summary on Page 2.
Q: How would you describe the high yield market environment and condition during the reporting period?
A: The Citigroup High Yield Market IndexSM returned 6.99% for the six-month period ended April 30, 2007. The best performing sectors included service and consumer which returned 7.93% and 7.30%, respectively. Within the service sector the best performing industry was healthcare driven by strength in hospital providers. Finance and utilities were the worst performing sectors returning 2.40% and 5.63%, respectively.
Interest rates were mixed during the period, with short-term rates falling modestly on weaker economy news, and long rates edging higher as rising energy prices boosted inflation concerns. The Federal Reserve held rates steady throughout the period, but most major central banks pushed their target rates higher. Credit spreads were generally tighter, bolstered by strong profits, low default rates, and a generally favorable economic backdrop. Lower quality credits and emerging market debt generally outperformed as spreads reached historically tight levels. Mortgage-backed spreads were generally tighter as volatility remained relatively low. The dollar weakened against most currencies and against gold, as overseas economies firmed and other central banks were expected to raise rates while the Federal Reserve was expected to hold and eventually lower rates. Non-energy industrial commodity prices continued to rise reflecting strong global demand conditions. Energy prices were volatile but ended the period somewhat higher, with the result that almost half of the decline in oil prices from August to January was reversed by March. Headline inflation fell sharply early in the period thanks mainly to lower energy prices, but rebounded somewhat by the end of the period; core inflation measures were relatively unchanged. Real yields fell relative to nominal yields as inflation expectations rose on the back of higher energy prices.
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Discussion of Fund Performance |
| High Yield Bond Fund (cont’d) |
The high yield sector performed well on both an absolute and relative basis. High yield outperformed U.S. treasuries and mortgage-backed securities while underperforming the equity markets. The Citigroup High Yield IndexSM outperformed similar duration U.S. treasuries by approximately 4.5%. The option-adjusted spread of the Index narrowed from 3.24% to 2.77% during the period. Lower rated issues outperformed higher rated issues. BB rated issues returned 5.11% while CCC rated issues returned 11.03%.
Q: How did the Fund compare to the Citigroup High Yield Market IndexSM during the reporting period?
A: For the six-month reporting period, the Fund’s performance exceeded the benchmark index. The Fund’s return was enhanced by sector, industry and issue selection as well as the overall credit quality positioning. Overweight positions in the service and consumer sectors and underweight positions in the utility and finance sectors aided relative performance. Within the service sector, an overweight position in the cable industry helped relative performance. Within the consumer sector, an overweight position in the consumer products industry boosted relative performance. Issue selection aided relative performance as demonstrated by the fact that the portfolio was underweight in the 10 worst performers in the benchmark index as well as the fact that 7 of the Fund’s 10 largest overweights outperformed and 7 of the Fund’s 10 largest underweights underperformed the benchmark index. The Fund’s overweight positions in lower rated issues, which in general outperformed higher rated issues, aided relative performance.
The investment environment during the period rewarded risk as demonstrated by higher returns for those asset classes perceived to have a higher risk profile than those with less risk, or in the case of U.S. treasuries, risk-free investments. The manager’s decision to maintain an overweight position in lower rated issues aided relative performance.
Q: Which securities positively impacted the Fund’s performance during the reporting period?
A: The Fund benefited from the fact that 4 of the 5 largest overweights outperformed the benchmark index: (1) Intelsat continued to post solid results raising the likelihood of the company doing an IPO in the near future, (2) MDPAC is generating well above forecasted cashflows, (3) NXP spun-off from Philips Electronics in an leveraged buyout transaction and posted above forecasted results, (4) Visteon benefited from a very strong liquidity position.
Five companies that generated the largest gains for the portfolio were Charter Communication, El Paso, HCA, General
Motors and Freeport McMoran. All companies except Freeport McMoran outperformed the benchmark index and each represented at least a 1.0% of the Fund’s portfolio. Relative to the benchmark, the Fund was overweight in Charter, El Paso, and General Motors. Charter has benefited from the successful bundling of their services, El Paso has benefited from improving operations and General Motors continues to improve their competitive position.
Q: Which securities negatively impacted the Fund’s performance during the reporting period?
A: Calpine Generating and Radnor Holdings were defaulted securities which were liquidated during the period. Hines Nurseries, in our view, had limited value prospects and was also liquidated during the period. Nutro Products is a core high- yield holding of the Fund, which was added to when the company’s bonds declined in price after Moody’s placed the company’s rating on negative watchlist. The Fund realized a loss when the manager consolidated 2 Hovnanian Enterprises holdings into 1 larger position. Hovnanian remained under pressure during the period as did all homebuilders due to the weakening housing market.
Q: What steps do you take to manage the Fund’s portfolio investment risks?
A: We have a dedicated team that oversees risk management and incorporates it into the investment process. The risk management team combines the best of technology and experience to develop useful risk management tools and procedures. These tools and procedures provide daily analysis for the investment team, ensuring the integration of professional risk management practices into the investment process. Furthermore, we have a risk management committee that is responsible for ensuring the risk management process is complete and monitored on a regular basis. Despite using a large number of independent models to evaluate the risk of different portfolios, we understand that quantitative models are only as good as the assumptions on which they are based. Therefore, the high-quality analysis and observation that comes with experience is applied to all model output, increasing the usefulness of the data.
Analysis of data is carried on throughout the trading day and involves a thorough review of portfolio holdings and sector concentrations. Techniques such as factor analysis, key rate duration measurement and other analytic systems are also employed to evaluate portfolio risk. In addition, the investment team regularly performs scenario analysis and stress testing to analyze portfolio exposure to market factors. Tracking error is also monitored on a historical and a forward-looking basis.
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Discussion of Fund Performance |
| International Equity Fund |
The International Equity Fund (the “Fund”) seeks capital appreciation principally through investment in equity securities of foreign companies that the portfolio managers of the Fund’s subadviser, Julius Baer Investment Management Inc., believes to have the potential to capitalize on worldwide growth trends and global changes. The Fund will invest primarily in equity securities of foreign issuers and depository receipts representing the securities of foreign issuers. The Fund may invest in securities traded on any securities market in the world. In allocating the Fund’s assets among various securities markets of the world, the portfolio managers consider such factors as the condition and growth potential of the economies and securities markets, currency and taxation considerations, and financial, social, national and political factors. The portfolio managers also consider market regulations and liquidity of the market. Generally, the Fund will invest in companies with a market capitalization greater than $2.5 billion.
The Fund normally invests at least 50% of its investment portfolio in securities traded in developed foreign securities markets, such as those included in the Morgan Stanley Capital International Europe, Australasia, Far East Index (“MSCI EAFE”). The Fund also invests in emerging markets, which are those countries whose markets are not yet highly developed. The Fund’s portfolio managers use a “bottom-up”(a) sector and stock-specific approach within the developed markets (Europe, Canada, Australia). Within the emerging markets, a “top-down”(b), macro-economic driven process is adopted. Finally, when considering investments in Japanese companies, a hybrid approach (both bottom-up and top-down) is most effective.
During an interview conducted on May 10, 2007, Rudolph-Riad Younes, CFA, and Richard Pell, the portfolio managers of the Fund, discussed the Fund’s performance for the six-month period ended April 30, 2007. For performance returns, please see the Performance Summary on Page 2.
Q: Discuss the reasoning behind the upcoming change to the Fund’s benchmark index from the MSCI EAFE® Index to the MSCI® ACWI ex-US.
A: Over the past few years, the emerging market exposure within the Fund has averaged close to 20%, with a particular
emphasis on Central and Eastern Europe. The last decade has witnessed important fundamental changes in emerging markets generally. Not only has the market capitalization of such countries dramatically increased during this timeframe, but corporate governance standards were introduced, making many of these markets more compelling. Effective July 1, 2007, the Fund may invest up to 35% of its total assets in emerging markets. Additionally, reflecting the growing importance of emerging markets within the context of international equity investing, the Fund will also compare its performance to a new benchmark index. The Morgan Stanley Capital International, Inc. All Country World Index ex-US (“MSCI ACWI ex-US”), will replace the MSCI EAFE as the Fund’s benchmark index. The MSCI EAFE is an unmanaged index representative of the market structure of 21 countries from the stock markets of Europe, Australasia and the Far East. The MSCI ACWI ex-US is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets. As of April 30, 2007, the MSCI ACWI ex-US consisted of 47 developed and emerging market country indices.
As the economies of emerging markets have broadened, the universe has become more diversified in macroeconomic terms. Most of the significant countries in the universe saw major economic policy improvement, addressing many of the issues from the various crises of the 1990s. In particular, the virtual elimination of fixed or quasi-fixed exchange rates, the widespread policy (encouraged by the International Monetary Fund) of maintaining sizeable foreign exchange reserves and better domestic demand management reduced the likelihood of currency crises.
We believe that the Central and Eastern European (“CEE”) markets have made the most significant improvements on all fronts, encouraged by the prospect of European Union (“EU”) membership and possibly of inclusion in the Eurozone. In our opinion, from a policy risk perspective, many of the twelve emerging markets that joined the EU since May 2004 differ very little from many of their developed EU counterparts. Structurally, these countries have also been highly successful across emerging economies in encouraging domestic demand. We find this aspect of CEE markets particularly attractive as this makes them steadily less susceptible to a slowdown elsewhere in the global economy.
(a) A bottom-up method of analysis de-emphasizes the significance of economic and market cycles. The primary focus is the analysis of individual companies rather than the industry in which that company operates or the economy as a whole. (b) A top-down method of analysis emphasizes the significance of economic and market cycles. The primary focus is the analysis of the economy as a whole to discover which industries will generate the best returns.
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| International Equity Fund (cont’d) |
Q: How would you describe the overall market environment and condition during the reporting period?
A: The six-month period ended April 30, 2007 was a positive one for international equity investors. Overseas markets outperformed the U.S. by a wide margin, helped by a declining dollar versus the Euro and Pound Sterling. Against the Japanese Yen, the dollar actually advanced over the reporting period.
While the beginning of the review period started on a strong note, turmoil at the end of February led to a sell-off in equities, notably within emerging markets. Markets then rebounded strongly during the final two months of the period. The February declines were led by a dramatic fall in Chinese equities and created a ripple effect in both developed and emerging markets. Concerns that the Chinese government was taking measures to control the pace of stock market gains coupled with sluggish U.S. economic news were the primary impetus for profit-taking. Despite the turbulence witnessed in February, emerging markets were top performers, with Continental European markets also providing impressive results. The dollar bloc markets of Canada, Australia and New Zealand also provided solid returns, while the United Kingdom lagged. The Japanese market was the notable underperformer for the period.
Q: How did the Fund compare to the MSCI EAFE® Index and the MSCI® ACWI ex-US during the reporting period?
A: For the six-month reporting period, the Fund outperformed its benchmark indices. The Fund’s focus on top-down factors within emerging markets led us to continue to prefer Central and Eastern Europe. This was of benefit to the Fund over the period. Relative to the indices, the Fund’s underweight holdings in Japan and the United Kingdom also had a positive impact on results. In particular, positions held in Poland, Hungary, Cyprus and Russia were positive contributors. Underweight positions in Japanese equities were also supportive to results, although stock selection reduced this positive impact.
Investments in Continental Europe positively contributed to results. In the United Kingdom, stock selection and the Fund’s underweight holdings in this market also had a positive impact on results. Finally, stock selection within Asia ex-Japan detracted from performance as did underweight holdings to the dollar bloc markets (Canada, Australia and New Zealand).
From an industry perspective, the Fund’s overweight holdings within the financials sector in Central and Eastern Europe had
the greatest positive impact on performance. Additionally, underweight holdings within the energy sector also contributed to results.
Q: Which securities positively impacted the Fund’s performance during the reporting period?
A: Positions held in Central and Eastern European banks positively contributed to results, particularly positions in OTP Bank in Hungary and PKO Bank Polski and Bank Polska Kasa Opieki in Poland. The increase in demand for financial services in this region continues to support the Fund’s investments in the banking sector. OAO Unified Energy System, Russia’s national power utility exhibited strong results. The company approved a reorganization plan which will result in spinning off its generating units to raise funds for investing in expanding and upgrading the country’s power grids and generators over the next few years. Bharti Televentures warrants also performed well over the review period. Unlike China where we continue to have concerns over corporate governance and other issues, we are optimistic toward India which has exhibited equally impressive economic growth. There is much more of a focus on services rather than manufacturing and, while structural problems remain, there seems to be recognition of the role of shareholders and the need to deliver value to them.
Q: Which securities negatively impacted the Fund’s performance during the reporting period?
A: Concerns that the Chinese government was taking measures to control the pace of stock market gains coupled with sluggish U.S. economic news were the primary impetus for profit-taking witnessed in developed and emerging markets in February. Amid this backdrop, we saw profit taking in some of the Fund’s positions, including State Bank of India warrants and Melco International Development, both of which the Fund continues to hold. With regard to the State Bank of India, we find the Indian market very exciting due to the potential for growth. Melco International Development in Hong Kong provides us with exposure to the growing Macao casino market. Shares of Samsung, the world’s second-largest chipmaker, underperformed amid general concerns for semiconductor-related stocks, but we continue to view the position as a core holding. Finally, shares of Gazprom ADRs and Rosneft ADRs also underperformed amid concerns by some investors that oil prices may have peaked. We continue to view the Russian energy sector as inexpensive relative to other markets and have maintained these positions in the Fund.
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Discussion of Fund Performance |
| International Equity Fund (cont’d) Mid Cap Stock Fund |
Q: What steps do you take to manage the Fund’s portfolio investment risks?
A: Our risk management process includes the following components:
| • | Valuation risk management – The most critical component of our overall risk management is our stock selection process. We constantly evaluate the risk/reward profile of every security. When a security is considered for inclusion we evaluate all potential risk factors (quantitative and qualitative); |
| • | Liquidity risk management – The second level of our risk management process is liquidity risk management. We expect a significant reward for taking on liquidity risk and we monitor the overall portfolio liquidity; |
| • | Operational risk management – The third level of our process is operational risk control, the key elements of which include a consistent, disciplined investment process and clearly defined separation of functions; |
| • | Portfolio risk management – The final level of our risk management process is portfolio level risk control. We systematically monitor the deviation of our portfolios from their respective benchmarks, to assure they remain within stated objectives and guidelines. Additionally, we analyze performance attribution, as well as portfolio characteristics and other information on an ongoing basis. |
Q: Are there other factors that impacted Fund performance during the reporting period?
A: The Fund’s position held in cash equivalents detracted from results amid a strong overall backdrop for equities over the period. As a defensive measure, we increased our cash equivalents position amid the market weakness in February and March.
Our use of warrants and other derivative instruments allows the Fund to invest in markets such as India where registration requirements make local investment difficult. Over the period, the instruments had a mixed impact on Fund performance. On the positive side, positions held in warrants on Bharti Televentures performed well, whereas the positions in warrants on the State Bank of India and Canara Bank detracted.
The Mid Cap Stock Fund (the “Fund”) seeks long-term capital appreciation by using a “bottom-up”(a) method of analysis based on fundamental research to determine which common stocks to purchase for the Fund. The portfolio managers of the Fund’s subadviser, Eagle Asset Management, Inc., seek to purchase mid-cap companies (those with a total market capitalization between $500 million and $15 billion) that have above-average earnings, cash flow and/or growth at a discount from their market value. The portfolio managers focus on common stocks of mid-cap companies that are believed to have sustainable advantages in their industries or sectors, are rapidly developing their business franchises, services and products, and have competitive advantages in their sectors and fit within the portfolio management team’s growth and valuation guidelines.
During an interview conducted on May 23, 2007, Todd McCallister, Ph.D., CFA and Stacey Serafini Thomas, CFA, the portfolio managers of the Fund, discussed the Fund’s performance for the six-month period ended April 30, 2007. For performance returns, please see the Performance Summary on Page 2.
Q: How would you describe the overall U.S. market environment and condition during the reporting period?
A: In the broad market, as measured by the S&P 500 Index, the best overall performing sectors were the commodity susceptible materials (particularly steel, copper and aluminum), low-beta utilities (currently trading at historically high multiples) and energy (mostly service names and diversified exploration). The sub-prime mortgage market scare and inverted yield curve spurred underperformance within the financials sector. The consumer sector was hurt by higher oil prices, which rallied 30% since January lows. Structural problems, such as the continued slowdown in housing and decrease in its byproduct (mortgage equity withdrawals), still remain.
The U.S. dollar continued to lose its footing against the currencies of other major economies. Large-cap stocks that generate most of their revenue abroad reported better earnings than their smaller counterparts. However, mid-cap stocks were the sweet spot, and outperformed their large-cap peers, while small-caps lagged both groups. The S&P Midcap 400 Index benefited from having nearly twice as much allocated to both
(a) A bottom-up method of analysis de-emphasizes the significance of economic and market cycles. The primary focus is the analysis of individual companies rather than the industry in which that company operates or the economy as a whole.
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Discussion of Fund Performance |
| Mid Cap Stock Fund (cont’d) |
the materials and utilities sectors as the S&P 500 Index. Mergers and acquisitions (“M&A”) activity contributed greatly, as well. M&A and private equity activities are at record levels because of cheap debt, abundance of liquidity and, on an historical basis, fairly cheap valuations.
Q: How did the Fund compare to the S&P MidCap 400 Index during the reporting period?
A: For the reporting period ended April 30, 2007, the Fund underperformed its benchmark, the S&P MidCap 400 Index. One factor that hurt relative performance was an overweight position within the information technology sector, where certain stock picks within the software industry did not fare well. The Fund’s relative performance also suffered from the benchmark’s outperfomance of low-beta sectors that are fundamentally trading in the highest end of their historical range. The biggest detractors were the lack of exposure to utilities stocks as well as an underweight stance toward cyclical materials.
Our focus on the investment management industry within the financials sector contributed to most of the Fund’s gains. The overweight position in telecommunications, particularly within the wireless service industry, had significant positive contribution to overall performance. Relative to the benchmark, the Fund’s investments in the consumer discretionary sector produced superior returns. While underweight, stock selection in this sector contributed to relative outperformance. Cyclical value industries continued to fare well from their exposure to China- and India-driven growth. In anticipation of sluggish growth, we expect these cyclical stocks to underperform the stable growth companies that we favor. Market takeover served the Fund well in the previous reporting period as takeover targets tend to be companies that are steadily generating sustainable cash flow.
Q: Which securities negatively impacted the Fund’s performance during the reporting period?
A: Corporate Executive Board provides consulting and decision support tools and education to corporations throughout the world. The company’s client list includes over 2,800 of the world’s largest and most prestigious companies, including more than 80% of the companies in the Fortune 500. Earnings came in higher than expectations; however, sales came in below internal forecasts for the all-important December quarter, which led to lower than expected revenue guidance. The Fund continues to hold the stock.
HCC Insurance Holdings provides specialized coverage, related agency and reinsurance brokerage services to commercial customers and individuals. During the period, while being investigated for stock-option granting practices, the CEO of the company resigned. The Fund no longer holds the stock.
American Reprographics provides document management services to architecture and construction businesses. At the beginning of the reporting period, after trading up significantly during the previous reporting period, the stock traded down on organic revenue growth that appeared light due to the quarter having two less working days. We later sold the Fund’s position in this stock on size concerns ($1.6 billion market cap) in addition to having more attractive opportunities within business services.
Moody’s Corporation provides credit ratings, research and analysis covering fixed income securities. We bought the stock after a pullback due to the sub-prime mortgage scare. We later sold the stock when quarterly results beat expectations, but the company reiterated yearly guidance, which suggested weakness in the remaining quarters. It marked the first time in years that the company had beaten quarterly expectations and failed to raise yearly guidance.
Intuit Inc. provides business, financial and tax solutions to individuals and small businesses. Its staple products are QuickBooks and TurboTax. Intuit’s online offerings during the last tax season did not meet the market expectations and the stock sold off despite the fact that company did not lose market share. We believe that the sale was overdone and, due to company’s pricing power, the Fund continues to hold the stock.
Q: Which securities positively impacted the Fund’s performance during the reporting period?
A: Discovery Holdings provides creative and network services to the media and entertainment industry. Its strong rating performance was finally recognized and rewarded by the market. Domestic advertising experienced positive growth during the most recent quarter. We recently sold the Fund’s position in the stock at a full valuation.
Service Corp. International provides funeral and cemetery services primarily in the U.S. and Germany. The company has benefited from stronger than expected cost-cutting synergies from a recent acquisition. The Fund continues to hold the stock.
AllianceBernstein Holding is an investment manager with a broad international customer base. The company has reported
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Table of Contents
Discussion of Fund Performance |
| Mid Cap Stock Fund (cont’d) Small Cap Stock Fund |
growth in assets under management (driven by international client base) and solid organic revenue growth. It has proven that it can grow even when the equity markets are under pressure. The Fund continues to hold the position.
Thermo Fisher Scientific provides analytical instruments, reagents and consumables, software and services used for research, manufacturing, analysis, discovery and diagnostics. The company’s stock has benefited from strong organic revenue growth, margin expansion, and free cash flow trends. The Fund continues to hold the stock.
MBIA Inc. provides financial guarantee insurance and credit protection products to public finance and structured capital market participants. The stock traded up as the market began to value the company more in-line with its biggest competitor, Ambac Financial. We sold the Fund’s position in the stock at this full valuation, and recently repurchased it after the stock was unfairly punished on fears related to the company’s sub-prime mortgage exposure. We believe the fears to be overdone considering the majority of the company’s sub-prime exposure came from secondary markets, typically rated triple-A prior to MBIA’s participation. Additionally, the company announced a $1 billion share repurchase program.
Q: What steps do you take to manage the Fund’s portfolio investment risks?
A: Investments in mid-cap companies generally involve greater risks than large-capitalization companies, due to their more limited managerial and financial resources. As a result, their performance can be more volatile and they face greater risk of business failure, which could increase the volatility of the Fund’s portfolio. Generally, the smaller the company size, the greater these risks. In addition, the Fund invests in growth companies that entail greater risks. The prices of growth company securities may rise and fall dramatically, based in part on investors’ perceptions of the company rather than on fundamental analysis of the stocks. We measure, monitor and manage the risk of the mandate by examining the Fund’s beta, tracking error and standard deviation versus the benchmark. Additionally, we seek to limit risk by purchasing stocks we believe to be undervalued, conducting enough fundamental research to come away with a full understanding of the business in order to reduce the risk of earnings surprises or accounting problems, limiting individual industry weightings to a maximum of 25% of the Fund and attempting to keep Fund sector weightings within seven percentage points of benchmark sector weightings.
(a) A bottom-up method of analysis de-emphasizes the significance of economic and market cycles. The primary focus is the analysis of individual companies rather than the industry in which that company operates or the economy as a whole.
The Small Cap Stock Fund (the “Fund”) seeks long-term capital appreciation. The Fund will invest in stocks of companies that, based on fundamental research, appear to be undervalued in relation to their long-term earning power or the asset value of their issuers and that appear to have significant future growth potential. The Fund has two subadvisers, Eagle Asset Management, Inc. (“Eagle”) and Awad Asset Management, Inc. (“Awad”). Each subadviser manages a portion of the Fund’s investment portfolio and has a different management style.
In making its investment decisions, Eagle generally focuses on investing in the securities of companies that the portfolio manager believes have accelerating earnings growth rates, reasonable valuations (typically with a price-to-earnings ratio of no more than the earnings growth rate), strong management that participates in the ownership of the company, reasonable debt levels and/or a high or expanding return on equity. Eagle utilizes a “bottom-up”(a) method of analysis based on fundamental research to identify the companies in which it invests.
Awad employs an investment management approach that seeks to provide investment returns in excess of inflation while attempting to minimize volatility relative to the overall small-cap market. The companies in which Awad invests generally will have, in the opinion of Awad, steady earnings and cash flow growth, good and/or improving balance sheets, strong positions in their market niches and/or the ability to perform well in a stagnant economy. The companies purchased generally will have low price-to-earnings ratios relative to the stock market in general.
During an interview conducted on May 22, 2007, Bert Boksen, CFA of Eagle and David Adams and John “Jack” McPherson of Awad, the portfolio managers of the Fund, discussed the Fund’s performance for the six-month period ended April 30, 2007. For performance returns, please see the Performance Summary on Page 2.
Q: How would you describe the small-cap market environment and condition during the reporting period?
A: The small-cap segment of the market, as measured by the Russell 2000® Index, returned a respectable 6.38% during the
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Table of Contents
Discussion of Fund Performance |
| Small Cap Stock Fund (cont’d) |
six-month period ended April, 30 2007. However, this number does not tell the whole story because performance can be segmented into three distinct periods with distinct drivers and outcomes. From the beginning of November 2006 through February 22nd, the Russell 2000® Index appreciated by 8.60% as investor optimism exhibited in the later half of 2006 carried over into the new year. However, this optimism completely evaporated over the next seven days as the markets appetite for risk abated, as evidenced by the 8.4% drop in the index during this stretch of time. Explanations for this sudden shift in sentiment included uncertainty regarding implications of the unfolding sub-prime mortgage market collapse, an unwinding of the yen carry trade and concerns about risks associated with the booming Chinese equity market. Finally, the last eight weeks of the quarter saw a 7.35% rebound from the March 5th low as the markets began to believe a Federal Reserve rate cut was increasingly likely by the middle of the year.
From an industry and sector standpoint of the Russell 2000® Index, performance was mixed. Leading the market in returns were two relatively small sectors (materials and consumer staples), along with a large sector (industrials). Materials were driven by increased global demand for infrastructure and construction benefiting many of the steel, aggregate and construction related firms. Consumer staples benefited from strong performance in the food and beverage industries. The strength in the industrial sector, which covers capital goods to services, provided another data point reflecting steady growth in all sectors of the U.S. economy, excluding the residential housing sectors. The only sector with negative returns during the period was financials, which was concentrated in the bank and thrift area. As mentioned above, with the fallout in sub-prime mortgages, companies that had exposure, or were thought to have significant exposure to mortgages, performed poorly beginning in early 2007.
Q: How did the Fund compare to the Russell 2000® Index during the reporting period?
A: During the reporting period ended April 30, 2007, the Fund’s performance exceeded that of the Russell 2000® Index. This was primarily due to the performance of the Fund’s holdings in the consumer discretionary, financials and industrials sectors.
As bottom-up stock pickers using fundamental analysis on a company-specific basis, both Awad and Eagle primarily measure performance in terms of stock selection effect rather than from an industry or sector allocation effect basis. Relative
to the Russell 2000® Index, the Fund was overweight in the information technology, energy and industrials sectors. In all three sectors, the Fund benefited from an overweight position as the sector performed better than the overall market. In addition, the holdings in the Fund within these three sectors performed better than the overall sector, creating a positive selection effect. In particular, stock selection in the industrials sector produced the greatest contribution to return relative to the benchmark.
Compared to the Russell 2000®, the Fund was underweight in financials and consumer discretionary. Benchmark financials actually posted negative returns (-2.4%) for the reporting period, as the spillover from sub-prime issues hurt the performance of many banks and thrifts. The Fund’s underweight position in residential lending financial concerns and strong stock selection in the remainder of the financials sector contributed to the Fund’s significant outperformance relative to the benchmark. In the consumer discretionary sector, strong stock selection once again greatly contributed to the Fund’s solid outperformance relative to the benchmark.
Q: Which securities positively impacted the Fund’s performance during the reporting period?
A: Terra Industries Inc. manufactures nitrogen fertilizers for use in agriculture. Eagle believes a multi-year cycle for agricultural commodities has begun largely due to favorable legislation; the rapidly expanding ethanol industry is consuming an increasing amount of the nation’s corn supplies. Terra Industries is a near pure-play in US nitrogen, and thus looks well positioned to benefit from the growing demand for ethanol through increased corn acreage over the next several years. Nitrogen fertilizer prices continue to strengthen, now 5-10% higher than 2006 year-end levels, driven by expectations of greater U.S. plantings of nitrogen-intensive corn. Terra Industries should continue to benefit from the secular trend toward biofuels.
Dolby Laboratories, a Fund position managed by Eagle, develops audio technologies for use in theatres, homes and vehicles. Seventy percent of Dolby’s revenues are from high-margin royalty payments in DVDs. Dolby’s technologies are patent protected (most significant patents do not expire until 2012) and these patents are typically extended as more bells and whistles are added. The two big drivers for this company over the next 12 to 18 months will be the roll-out of both digital cinema and high-definition DVDs. Dolby has a very strong balance sheet with significant cash that it can use to make strategic acquisitions.
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Discussion of Fund Performance |
| Small Cap Stock Fund (cont’d) |
Bucyrus International, another of Eagle’s holdings, is a leading manufacturer of mining equipment. The company’s products primarily serve four commodity markets: copper, coal, iron ore and oil sands. All of these commodities are in the midst of a strong upswing in pricing owing to favorable supply/demand issues. In a typical commodity cycle, mining equipment capital expenditures lag mineral prices, and the current cycle seems to be following that pattern.
Commscope Inc., the Fund’s largest holding and managed by Awad, was up 46% after strong-end markets for this high-performance cable manufacturer continue to drive their revenue and operating margins. The company has continued to execute on improving margins from acquired businesses and solid performance on its core wiring operations. With forward year earnings approaching the $3 level, the stock is not expensive, but the majority of excess returns have been achieved with the stock.
The stock price of Belden CDT Inc., another of Awad’s Fund holdings, went up 55% and like Commscope is benefiting from the same macro environment. Strong demand and continued margin expansion have driven upward earnings revisions. The post 9/11 recession and delayed non-residential construction environment have now cleared and the company is benefiting from both pricing flexibility and increasing volumes. Similar to Commscope, the company’s stock price is clearly now closer to fair value than it has been the past 3 years.
Oceaneering International Inc, a provider of subsea drilling services to the oil and gas industry, has benefited from continued growth in offshore drilling around the world. Oceaneering is benefiting from both revenues and margin improvement as utilization in subsea and deepwater markets are strengthening and show potential for a long cycle. The stock was up 32% and Awad still believes the strong end-market fundamentals and reasonable valuation make this security a strong investment case for the Fund.
Q: Which securities negatively impacted the Fund’s performance during the reporting period?
A: Red Robin Gourmet Burgers is a casual dining company. The stock took a hit when the company lowered same-store-sales guidance for the December quarter, reflecting sub par results from some of its newer restaurants. This also prompted the company to temporarily suspend rollouts of new stores while it diagnoses this issue. Although Eagle trimmed a portion of the Fund’s position, the Fund continues to hold the stock because
Eagle still believes the company has a strong concept and should soon be able to reaccelerate growth. At current levels, Eagle believes the risk/reward level of the stock is in the Fund’s favor.
Eclipsys Corporation is a provider of IT services for the healthcare industry. Eagle has invested in and followed Eclipsys’ progress and transition over the long-term. The stock price suffered after the most recent earnings announcement and is trading at a discount to its peer group. Eagle feels that the earnings disappointment is the result of high start-up costs associated with current changes to its sales force and subscription business, which Eagle expects to generate positive growth. Eclipsys Corporation remains a Fund holding.
Supertex Inc. manufactures semiconductor components used in various electronic devices. As its largest customer, Supertex has had success providing components for Motorola’s line of Razr phones. However, Razr unit sales are dropping, and Motorola is struggling to come up with replacement products with the same level of popularity. With its largest customer potentially in disarray, Eagle believes Supertex faces significant near-term headwinds, so we sold the stock.
School Specialty Inc., a company’s stock that Awad has held in the Fund for some time, was down 16% after announcing a disappointing March 2007 quarter due to general softness across their businesses and the push out of a large order. School Specialty is a distributor of furniture and non-textbook supplies for K through 12 schools. Awad continues to hold the security in the Fund and believes the current slowness is more of a temporary issue. Awad continues to monitor the security and awaits the results of restructuring steps management has indicated, including selling money losing businesses.
Merit Medical Systems Inc., a company that Awad has been building a position in, is a maker of disposable medical products used in a variety of surgical procedures. The stock dropped 28% after they issued disappointing earnings guidance for the remainder of 2007. With the company in the early stages of several new product introductions, operating costs have increased that have yet to be fully absorbed with increased revenues. As a result of our due diligence efforts, Awad remains confident that the initial investment thesis of accelerating revenue growth driving positive operating leverage with above-average earnings and cash flow growth will play out over the next several years. Consequently, Awad continues to view this as an attractive investment and has taken advantage of the sell-off to add to the Fund’s position.
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Table of Contents
Discussion of Fund Performance |
| Small Cap Stock Fund (cont’d) |
Avid Technology Inc. is a technology company that Awad believes to have significant potential but continues to have issues getting all of their business initiatives going at the same time. The company is moving to define itself as the key provider of infrastructure for digital media (production, storage, manipulation and broadcast). Such a transition is a technical challenge and one that takes time. Awad believes that the fundamental outlook is intact and that the stock will begin to see the fruits of this transformation in the medium-term as orders and revenue currently in backlog begin to flow to revenue and drive improving returns. Avid Technology remains a Fund holding.
Q: What steps do you take to manage the Fund’s portfolio investment risks?
A: Investments in small-cap companies generally involve greater risks than large-capitalization companies due to their more limited managerial and financial resources. As a result, their performance can be more volatile and they face greater risk of business failure, which could increase the volatility of the Fund’s portfolio. Generally, the smaller the company size, the greater these risks. In addition, the Fund invests in growth companies that entail greater risks. The prices of growth company securities may rise and fall dramatically, based in part on investors’ perceptions of the company rather than on
fundamental analysis of the stocks. In Eagle’s efforts to manage these risks, we perform fundamental research on the company and a comparative analysis of its peer group prior to purchasing a security. We will then only purchase the security for the Fund if we can do so at what we consider a reasonable price. In addition, we diversify among market sectors and trim holdings that grow above 5% of the Fund’s total portfolio.
Our risk management philosophy at Awad begins at the security level in that our focus is on the concept of margin of safety. We are always looking for stocks with attractive potential total returns, but where the downside is contained. We feel that our in-depth fundamentally based stock picking approach provides reasonable assurance for protecting against adverse security-specific events. Before initiating a position we consider the trading liquidity of the shares over the course of the previous year and factor in any reasons why trading liquidity may change for the better or worse in the future. We strive for diversification across sectors, industries and stocks, while, at the same time, maintaining the portfolio’s risk profile within the guidelines of the prospectus. The goal of our investment process is to construct a portfolio that, on a prospective basis, maximizes the upside potential while minimizing the downside risk.
| 21 |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| Common stocks—99.6% (a) | Shares | Value | |||||
| MetroPCS Communications, Inc.* | 71,662 | $2,010,119 | |||||
| QUALCOMM Inc. | 506,440 | 22,182,072 | |||||
| Sprint Nextel Corporation | 1,028,500 | 20,600,855 | |||||
| Total common stocks (cost $519,305,733) | 680,182,978 | ||||||
| Repurchase agreement—0.8% (a) | |||||||
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2007 @ 4.98% to be repurchased at $5,374,743 on May 1, 2007, collateralized by $4,530,000 United States Treasury Bonds, 7.25% due May 15, 2016 (market value $5,543,427 including interest) (cost $5,374,000) | 5,374,000 | ||||||
| Total investment portfolio (cost $524,679,733) 100.4% (a) | 685,556,978 | ||||||
| Other assets and liabilities, net, (0.4%) (a) | (2,857,969 | ) | |||||
| Net assets, 100.0% | $682,699,009 | ||||||
* Non-income producing security (a) Percentages indicated are based on net assets. | |||||||
| Sector allocation | ||
| Sector | Percent of net assets | |
| Communications | 35% | |
| Financial | 17% | |
| Technology | 13% | |
| Energy | 11% | |
| Consumer, cyclical | 10% | |
| Consumer, non-cyclical | 9% | |
| Industrial | 5% | |
| 22 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| CORE EQUITY FUND (cont’d) | ||||||
| Common stocks—92.7% (a) | Shares | Value | ||||
| Environmental control—3.1% | ||||||
| Waste Management, Inc. | 173,580 | $6,493,628 | ||||
| Financial services—9.5% | ||||||
| American Express Company | 65,980 | 4,003,007 | ||||
| Citigroup Inc. | 148,240 | 7,948,629 | ||||
| Countrywide Financial Corporation | 51,400 | 1,905,912 | ||||
| Freddie Mac | 90,740 | 5,878,137 | ||||
| Healthcare products—7.0% | ||||||
| Boston Scientific Corporation* | 231,125 | 3,568,570 | ||||
| Johnson & Johnson | 91,150 | 5,853,653 | ||||
| Zimmer Holdings, Inc.* | 54,770 | 4,955,590 | ||||
| Household products—1.9% | ||||||
| Kimberly-Clark Corporation | 54,075 | 3,848,518 | ||||
| Insurance—4.6% | ||||||
| American International Group, Inc. | 98,570 | 6,891,029 | ||||
| The Progressive Corporation | 112,205 | 2,588,569 | ||||
| Multimedia—1.9% | ||||||
| Viacom Inc., Class B* | 94,490 | 3,897,712 | ||||
| Pharmaceuticals—4.2% | ||||||
| Pfizer Inc. | 161,040 | 4,261,118 | ||||
| Wyeth | 77,985 | 4,328,168 | ||||
| Retail—7.2% | ||||||
| CVS/Caremark Corporation | 195,520 | 7,085,645 | ||||
| McDonald’s Corporation | 105,680 | 5,102,230 | ||||
| Wal-Mart Stores, Inc. | 58,285 | 2,793,017 | ||||
| Semiconductors—5.2% | ||||||
| Applied Materials, Inc. | 222,075 | 4,268,282 | ||||
| Intel Corporation | 300,150 | 6,453,225 | ||||
| Software—6.7% | ||||||
| Microsoft Corporation | 283,765 | 8,495,924 | ||||
| Oracle Corporation* | 280,865 | 5,280,262 | ||||
| Telecommunications—6.7% | ||||||
| Nokia Corporation, Sponsored ADR | 253,955 | 6,412,364 | ||||
| Sprint Nextel Corporation | 370,340 | 7,417,910 | ||||
| Transportation—1.8% | ||||||
| United Parcel Service, Inc., Class B | 53,460 | 3,765,188 | ||||
| Total common stocks (cost $172,608,931) | 191,654,919 | |||||
| Repurchase agreement—6.5% (a) | ||||||
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2007 @ 4.98% to be repurchased at $13,328,844 on May 1, 2007, collateralized by $11,235,000 United States Treasury Bonds, 7.25% due May 15, 2016 (market value $13,748,434 including interest) (cost $13,327,000) | 13,327,000 | |||||
| Total investment portfolio (cost $185,935,931) 99.2% (a) | 204,981,919 | |||||
| Other assets and liabilities, net, 0.8% (a) | 1,711,338 | |||||
| Net assets, 100.0% | $206,693,257 | |||||
* Non-income producing security (a) Percentages indicated are based on net assets. | ||||||
| ADR—American depository receipt | ||||||
| Sector allocation | ||
| Sector | Percent of net assets | |
| Financial | 25% | |
| Technology | 17% | |
| Consumer, non-cyclical | 16% | |
| Industrial | 16% | |
| Communications | 12% | |
| Consumer, cyclical | 7% | |
| Cash/Other | 7% | |
| The accompanying notes are an integral part of the financial statements | 23 |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| DIVERSIFIED GROWTH FUND (cont’d) | ||||||
| Common stocks—96.0% (a) | Shares | Value | ||||
| Healthcare products—6.5% | ||||||
| Henry Schein, Inc.* | 62,335 | $3,249,524 | ||||
| Intuitive Surgical, Inc.* | 18,695 | 2,423,994 | ||||
| Mentor Corporation | 37,140 | 1,445,117 | ||||
| ResMed Inc.* | 39,235 | 1,658,071 | ||||
| The Cooper Companies, Inc. | 57,870 | 2,957,157 | ||||
| Iron/Steel—1.5% | ||||||
| Carpenter Technology Corporation | 21,750 | 2,639,798 | ||||
| Lodging—3.5% | ||||||
| Boyd Gaming Corporation | 57,780 | 2,628,990 | ||||
| Starwood Hotels & Resorts Worldwide, Inc. | 53,975 | 3,617,404 | ||||
| Machinery—4.3% | ||||||
| Bucyrus International, Inc., Class A | 54,970 | 3,448,818 | ||||
| Joy Global Inc. | 84,080 | 4,256,970 | ||||
| Mining—2.5% | ||||||
| Freeport-McMoRan Copper & Gold Inc. | 67,425 | 4,528,263 | ||||
| Oil & gas—1.5% | ||||||
| Southwestern Energy Company* | 66,875 | 2,808,750 | ||||
| Oil & gas services—3.7% | ||||||
| Oceaneering International Inc.* | 119,905 | 5,700,284 | ||||
| Tetra Technologies, Inc.* | 35,790 | 948,077 | ||||
| Pharmaceuticals—6.0% | ||||||
| Allergan, Inc. | 32,720 | 3,965,664 | ||||
| Express Scripts Inc.* | 23,070 | 2,204,338 | ||||
| Medco Health Solutions, Inc.* | 58,470 | 4,561,829 | ||||
| Pipelines—2.1% | ||||||
| Williams Companies, Inc. | 129,695 | 3,826,002 | ||||
| Retail—6.9% | ||||||
| Coldwater Creek Inc.* | 63,505 | 1,314,554 | ||||
| Copart, Inc.* | 44,935 | 1,302,216 | ||||
| GameStop Corporation, Class A* | 52,585 | 1,744,244 | ||||
| PetSmart, Inc. | 70,245 | 2,331,432 | ||||
| The Cheesecake Factory Inc.* | 140,670 | 3,882,492 | ||||
| Urban Outfitters Inc.* | 70,085 | 1,805,390 | ||||
| Semiconductors—4.0% | ||||||
| ASML Holding N.V.* | 73,900 | 2,013,775 | ||||
| Broadcom Corporation, Class A* | 50,475 | 1,642,961 | ||||
| Intersil Corporation, Class A | 117,700 | 3,506,283 | ||||
| Software—8.9% | ||||||
| Adobe Systems Inc.* | 81,305 | 3,379,035 | ||||
| ANSYS, Inc.* | 63,585 | 3,255,552 | ||||
| Electronic Arts Inc.* | 52,645 | 2,653,834 | ||||
| Global Payments Inc. | 98,515 | 3,741,600 | ||||
| Novell, Inc.* | 413,875 | 3,021,288 | ||||
| Telecommunications—2.1% | ||||||
| Amdocs Ltd.* | 102,385 | 3,762,649 | ||||
| Toys/Games/Hobbies—1.2% | ||||||
| Nintendo Co. Ltd., Sponsored ADR | 53,505 | 2,142,875 | ||||
| Transportation—1.3% | ||||||
| Landstar System, Inc. | 49,710 | 2,401,490 | ||||
| Total common stocks (cost $140,498,842) | 172,334,847 | |||||
| Repurchase agreement—4.8% (a) | |||||||
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2007 @ 4.98% to be repurchased at $8,583,187 on May 1, 2007, collaterlized by $6,565,000 United States Treasury Bonds, 9.25% due February 15, 2016 (market value $8,855,587 including interest) (cost $8,582,000) | $8,582,000 | ||||||
| Total investment portfolio (cost $149,080,842) 100.8% (a) | 180,916,847 | ||||||
| Other assets and liabilities, net, (0.8%) (a) | (1,352,557 | ) | |||||
| Net assets, 100.0% | $179,564,290 | ||||||
* Non-income producing security (a) Percentages indicated are based on net assets. | |||||||
| ADR—American depository receipt | |||||||
| Sector allocation | ||
| Sector | Percent of net assets | |
| Industrial | 20% | |
| Consumer, non-cyclical | 18% | |
| Technology | 17% | |
| Consumer, cyclical | 16% | |
| Financial | 8% | |
| Basic materials | 8% | |
| Energy | 7% | |
| Cash/Other | 6% | |
| 24 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| GROWTH AND INCOME TRUST (cont’d) | ||||||
| Common stocks—93.6% (a) | Shares | Value | ||||
| Food—1.1% | ||||||
| Kraft Foods, Inc., Class A | 42,628 | $1,426,759 | ||||
| Healthcare products—2.0% | ||||||
| Johnson & Johnson | 40,000 | 2,568,800 | ||||
| Healthcare services—2.6% | ||||||
| WellPoint, Inc.* | 42,400 | 3,348,328 | ||||
| Mining—6.9% | ||||||
| Alcoa Inc. | 119,600 | 4,244,604 | ||||
| Freeport-McMoRan Copper & Gold Inc. | 39,500 | 2,652,820 | ||||
| Southern Copper Corporation | 26,574 | 2,133,892 | ||||
| Oil & gas—5.5% | ||||||
| Chevron Corporation | 54,800 | 4,262,892 | ||||
| Diamond Offshore Drilling, Inc. | 33,500 | 2,867,600 | ||||
| Pharmaceuticals—3.0% | ||||||
| Wyeth | 70,300 | 3,901,650 | ||||
| Retail—3.2% | ||||||
| McDonald’s Corporation | 87,600 | 4,229,328 | ||||
| Semiconductors—4.1% | ||||||
| Intel Corporation | 190,900 | 4,104,350 | ||||
| MEMC Electronic Materials, Inc.* | 23,100 | 1,267,728 | ||||
| Software—3.1% | ||||||
| Microsoft Corporation | 135,500 | 4,056,870 | ||||
| Telecommunications—2.2% | ||||||
| Motorola, Inc. | 165,400 | 2,866,382 | ||||
| Total domestic (cost $70,792,138) | 84,664,965 | |||||
| Foreign—28.6% (b) | ||||||
| Banks—4.1% | ||||||
| Banco Bilbao Vizcaya Argentaria SA | 135,500 | 3,227,740 | ||||
| Lloyds TSB Group PLC | 183,800 | 2,119,611 | ||||
| Electric—1.1% | ||||||
| Algonquin Power Income Fund | 165,800 | 1,387,730 | ||||
| Entertainment—2.8% | ||||||
| OPAP SA | 96,645 | 3,650,605 | ||||
| Financial services—3.7% | ||||||
| Bolsas y Mercados Espanoles | 38,300 | 2,073,112 | ||||
| GMP Capital Trust | 69,200 | 1,432,653 | ||||
| Hong Kong Exchanges and Clearing Ltd. | 133,000 | 1,266,528 | ||||
| Food—2.0% | ||||||
| Fu Ji Food and Catering Services Holdings Ltd. | 850,000 | 2,583,724 | ||||
| Oil & gas—2.0% | ||||||
| Canadian Oil Sands Trust | 97,500 | 2,660,815 | ||||
| Pharmaceuticals—1.9% | ||||||
| Novartis AG, Sponsored ADR | 43,400 | 2,521,106 | ||||
| Telecommunications—11.0% | ||||||
| France Telecom SA | 119,100 | 3,472,213 | ||||
| Nokia Oyj | 121,400 | 3,069,189 | ||||
| Telefonica, SA | 237,200 | 5,291,414 | ||||
| Vodafone Group PLC | 887,535 | 2,526,630 | ||||
| Total foreign (cost $32,032,670) | 37,283,070 | |||||
| Total common stocks (cost $102,824,808) | 121,948,035 | |||||
| Preferred stocks—1.2% (a) | ||||||
| Financial services—1.2% | ||||||
| Merrill Lynch & Co. Inc., 6.01% | 60,000 | 1,519,800 | ||||
| Total preferred stocks (cost $1,500,000) | 1,519,800 | |||||
| Convertible bonds—4.0% (a) | Principal amount | Value | |||||
| Pharmaceuticals—1.8% | |||||||
| Cubist Pharmaceuticals, Inc., 2.25%, 06/15/13 | $2,400,000 | $2,316,000 | |||||
| Telecommunications—2.2% | |||||||
| Level 3 Communications, Inc., 6.0%, 03/15/10 | 3,000,000 | 2,861,250 | |||||
| Total convertible bonds (cost $4,570,880) | 5,177,250 | ||||||
| Total investment portfolio excluding repurchase agreement (cost $108,895,688) | 128,645,085 | ||||||
| Repurchase agreement—1.3% (a) | |||||||
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2007 @ 4.98% to be repurchased at $1,646,228 on May 1, 2007, collaterlized by $1,390,000 United States Treasury Bonds, 7.25% due May 15, 2016 (market value $1,700,963 including interest) (cost $1,646,000) | 1,646,000 | ||||||
| Total investment portfolio (cost $110,541,688) 100.1% (a) | 130,291,085 | ||||||
| Other assets and liabilities, net, (0.1%) (a) | (114,513 | ) | |||||
| Net assets, 100.0% | $130,176,572 | ||||||
* Non-income producing security (a) Percentages indicated are based on net assets. (b) U.S. dollar denominated. | |||||||
| ADR—American depository receipt | |||||||
| Sector allocation | ||
| Sector | Percent of net assets | |
| Financial | 22% | |
| Consumer, non-cyclical | 19% | |
| Communications | 15% | |
| Basic materials | 10% | |
| Consumer, cyclical | 8% | |
| Energy | 8% | |
| Other sectors | 17% | |
| Cash/Other | 1% | |
| The accompanying notes are an integral part of the financial statements | 25 |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| HIGH YIELD BOND FUND (cont’d) | ||||||
| Corporate bonds—93.1% (a) | Principal amount | Value | ||||
| Agriculture—0.1% | ||||||
| Alliance One International Inc., 11.0%, 05/15/12 | $50,000 | $55,500 | ||||
| Airlines—0.9% | ||||||
| Continental Airlines Inc., Series 981C, 6.541%, 09/15/09 | 22,489 | 22,461 | ||||
| Continental Airlines Inc., 8.75%, 12/01/11 | 475,000 | 469,062 | ||||
| Apparel—1.5% | ||||||
| Levi Strauss & Company, 9.75%, 01/15/15 | 540,000 | 592,650 | ||||
| Levi Strauss & Company, 8.875%, 04/01/16 | 200,000 | 214,750 | ||||
| Auto manufacturers—2.9% | ||||||
| Ford Motor Company, 7.45%, 07/16/31 | 460,000 | 363,975 | ||||
| Ford Motor Company, 8.9%, 01/15/32 | 200,000 | 172,000 | ||||
| General Motors Corporation, 7.2%, 01/15/11 | 155,000 | 148,025 | ||||
| General Motors Corporation, 8.375%, 07/15/33 | 1,000,000 | 903,750 | ||||
| Auto parts & equipment—1.6% | ||||||
| Breed Technologies Inc., 9.25%, 04/15/08 (c)(d)* | 500,000 | — | ||||
| Visteon Corporation, 8.25%, 08/01/10 | 865,000 | 882,300 | ||||
| Building materials—2.4% | ||||||
| Associated Materials Inc., 9.75%, 04/15/12 | 210,000 | 218,925 | ||||
| Associated Materials Inc., 0.0% to 03/01/09, 11.25% to maturity (b), 03/01/14* | 400,000 | 300,000 | ||||
| Nortek Inc., 8.5%, 09/01/14 | 175,000 | 172,812 | ||||
| NTK Holdings Inc., 0.0% to 09/01/09, 10.75% to maturity (b), 03/01/14* | 815,000 | 611,250 | ||||
| Chemicals—1.3% | ||||||
| Georgia Gulf Corporation, 144A, 9.5%, 10/15/14 | 690,000 | 690,000 | ||||
| Coal—1.1% | ||||||
| International Coal Group Inc., 10.25%, 07/15/14 | 615,000 | 628,069 | ||||
| Commercial services—6.6% | ||||||
| Allied Security Escrow Corporation, 11.375%, 07/15/11 | 500,000 | 507,500 | ||||
| Aramark Corporation, 144A, FRN, 8.86%, 02/01/15 | 30,000 | 30,825 | ||||
| Aramark Corporation, 144A, 8.5%, 02/01/15 | 130,000 | 136,012 | ||||
| Ashtead Capital Inc., 144A, 9.0%, 08/15/16 | 475,000 | 510,625 | ||||
| DynCorp International LLC and DI Finance LLC, Series B, 9.5%, 02/15/13 | 515,000 | 553,625 | ||||
| Education Management LLC, 8.75%, 06/01/14 | 180,000 | 190,350 | ||||
| Education Management LLC, 10.25%, 06/01/16 | 305,000 | 333,212 | ||||
| Hertz Corporation, 8.875%, 01/01/14 | 120,000 | 129,300 | ||||
| Hertz Corporation, 10.5%, 01/01/16 | 645,000 | 735,300 | ||||
| Penhall International Corporation, 144A, 12.0%, 08/01/14 | 255,000 | 279,225 | ||||
| Rental Service Corporation, 144A, 9.5%, 12/01/14 | 175,000 | 185,938 | ||||
| Service Corporation International, 7.875%, 02/01/13 | 40,000 | 41,200 | ||||
| Service Corporation International, 7.625%, 10/01/18 | 20,000 | 21,175 | ||||
| Computers—0.9% | ||||||
| SunGard Data Systems Inc., 9.125%, 08/15/13 | 100,000 | 107,250 | ||||
| SunGard Data Systems Inc., 10.25%, 08/15/15 | 365,000 | 401,500 | ||||
| Diversified manufacturer—0.9% | ||||||
| Nutro Products Inc., 144A, FRN, 9.37%, 10/15/13 | 35,000 | 35,788 | ||||
| Nutro Products Inc., 144A, 10.75%, 04/15/14 | 445,000 | 471,700 | ||||
| Electric—1.7% | ||||||
| NRG Energy Inc., 7.25%, 02/01/14 | 125,000 | 129,375 | ||||
| NRG Energy Inc., 7.375%, 02/01/16 | 600,000 | 623,250 | ||||
| Orion Power Holdings Inc., 12.0%, 05/01/10 | 145,000 | 167,475 | ||||
| Corporate bonds—93.1% (a) | Principal amount | Value | ||||
| Entertainment—1.8% | ||||||
| AMC Entertainment Inc., 11.0%, 02/01/16 | $535,000 | $613,912 | ||||
| Warner Music Group Corporation, 7.375%, 04/15/14 | 400,000 | 384,000 | ||||
| Environmental control—0.0% | ||||||
| Safety-Kleen Services Inc., 9.25%, 06/01/08 (c)(d)* | 500,000 | 500 | ||||
| Financial services—8.5% | ||||||
| AAC Group Holding Corporation, 0.0% to 10/01/09, 10.25% to maturity (b), 10/01/12* | 580,000 | 527,800 | ||||
| Airplanes Pass Through Trust, Series D, 10.875%, 03/15/19 (c)(d)* | 493,850 | — | ||||
| E*TRADE Financial Corporation, 7.375%, 09/15/13 | 160,000 | 167,000 | ||||
| E*TRADE Financial Corporation, 7.875%, 12/01/15 | 45,000 | 48,544 | ||||
| Ford Motor Credit Company, FRN, 10.605%, 06/15/11 | 293,000 | 315,784 | ||||
| Ford Motor Credit Company, 9.875%, 08/10/11 | 125,000 | 133,105 | ||||
| Ford Motor Credit Company, FRN, 8.105%, 01/13/12 | 70,000 | 69,042 | ||||
| Ford Motor Credit Company, 8.0%, 12/15/16 | 130,000 | 127,137 | ||||
| General Motors Acceptance Corporation, 8.0%, 11/01/31 | 700,000 | 751,334 | ||||
| Idearc Inc., 144A, 8.0%, 11/15/16 | 780,000 | 813,150 | ||||
| Kansas City Southern Railway Company, 7.5%, 06/15/09 | 40,000 | 40,900 | ||||
| Milacron Escrow Corporation, 11.5%, 05/15/11 | 380,000 | 376,675 | ||||
| Nebco Evans Holding Company, 12.375%, 07/15/07 (c)(d)* | 700,000 | — | ||||
| PGS Solutions Inc., 144A, 9.625%, 02/15/15 | 120,000 | 121,923 | ||||
| UCAR Finance Inc., 10.25%, 02/15/12 | 69,000 | 72,622 | ||||
| Vanguard Health Holding Company I LLC, 0.0% to 10/01/09, 11.25% to maturity (b), 10/01/15* | 430,000 | 359,050 | ||||
| Vanguard Health Holding Company II LLC, 9.0%, 10/01/14 | 195,000 | 202,069 | ||||
| Wind Acquisition Holdings Finance SA, PIK, 12/21/11 (d) | 520,642 | 529,971 | ||||
| Food—1.8% | ||||||
| Delhaize America Inc., 9.0%, 04/15/31 | 425,000 | 517,778 | ||||
| Dole Food Company Inc., 7.25%, 06/15/10 | 500,000 | 490,625 | ||||
| Forest products & paper—2.3% | ||||||
| Appleton Papers Inc., Series B, 8.125%, 06/15/11 | 485,000 | 503,794 | ||||
| Appleton Papers Inc., Series B, 9.75%, 06/15/14 | 200,000 | 207,250 | ||||
| NewPage Corporation, FRN, 11.61%, 05/01/12 | 305,000 | 338,169 | ||||
| Verso Paper Holdings LLC, 144A, 11.375%, 08/01/16 | 185,000 | 197,950 | ||||
| Healthcare services—3.4% | ||||||
| HCA Inc., 6.5%, 02/15/16 | 675,000 | 588,094 | ||||
| HCA Inc., 144A, 9.25%, 11/15/16 | 175,000 | 190,750 | ||||
| HCA Inc., 144A, PIK, 9.625%, 11/15/16 | 146,139 | 159,474 | ||||
| HCA Inc., 7.5%, 11/15/95 | 100,000 | 82,265 | ||||
| Psychiatric Solutions Inc., 10.625%, 06/15/13 | 133,000 | 145,635 | ||||
| Tenet Healthcare Corporation, 7.375%, 02/01/13 | 375,000 | 352,500 | ||||
| Tenet Healthcare Corporation, 9.25%, 02/01/15 | 150,000 | 150,000 | ||||
| Tenet Healthcare Corporation, 6.875%, 11/15/31 | 85,000 | 68,000 | ||||
| Triad Hospitals Inc., 7.0%, 11/15/13 | 110,000 | 114,950 | ||||
| Home builders—0.9% | ||||||
| K. Hovnanian Enterprises Inc., 8.625%, 01/15/17 | 500,000 | 502,500 | ||||
| Home furnishings—2.2% | ||||||
| Norcraft Companies LP and Norcraft Finance Corporation, 9.0%, 11/01/11 | 110,000 | 114,675 | ||||
| Norcraft Holdings LP and Norcraft Capital Corporation, 0.0% to 09/01/08, 9.75% to maturity (b), 09/01/12* | 650,000 | 591,500 | ||||
| 26 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| HIGH YIELD BOND FUND (cont’d) | ||||||
| Corporate bonds—93.1% (a) | Principal amount | Value | ||||
| Home furnishings (cont’d) | ||||||
| Sealy Mattress Company, 8.25%, 06/15/14 | $325,000 | $342,062 | ||||
| Simmons Bedding Company, 7.875%, 01/15/14 | 150,000 | 154,125 | ||||
| Internet—0.3% | ||||||
| FTD Inc., 7.75%, 02/15/14 | 165,000 | 165,825 | ||||
| Iron/Steel—1.9% | ||||||
| Chaparral Steel Company, 10.0%, 07/15/13 | 460,000 | 514,625 | ||||
| Metals USA Holding Corporation, 144A, PIK, FRN, 11.356%, 01/15/12 | 425,000 | 420,750 | ||||
| Tube City IMS Corporation, 144A, 9.75%, 02/01/15 | 120,000 | 126,600 | ||||
| Lodging—3.7% | ||||||
| Inn of the Mountain Gods Resort & Casino, 12.0%, 11/15/10 | 610,000 | 664,138 | ||||
| MGM Mirage Inc., 8.375%, 02/01/11 | 175,000 | 185,719 | ||||
| MGM Mirage Inc., 7.625%, 01/15/17 | 470,000 | 479,400 | ||||
| Station Casinos Inc., 7.75%, 08/15/16 | 260,000 | 270,400 | ||||
| Turning Stone Resort Casino Enterprise, 144A, 9.125%, 12/15/10 | 400,000 | 408,000 | ||||
| Metal fabricate/hardware—2.0% | ||||||
| Metals USA Inc., 11.125%, 12/01/15 | 370,000 | 410,700 | ||||
| Mueller Group Inc., 10.0%, 05/01/12 | 184,000 | 198,720 | ||||
| Mueller Holdings Inc., 0.0% to 04/15/09, 14.75% to maturity (b), 04/15/14* | 545,000 | 509,575 | ||||
| Mining—1.4% | ||||||
| Freeport-McMoRan Copper & Gold Inc., 8.375%, 04/01/17 | 710,000 | 776,562 | ||||
| Oil & gas—3.5% | ||||||
| Belden & Blake Corporation, 8.75%, 07/15/12 | 810,000 | 834,300 | ||||
| Chesapeake Energy Corporation, 6.375%, 06/15/15 | 15,000 | 15,019 | ||||
| EXCO Resources Inc., 7.25%, 01/15/11 | 660,000 | 661,650 | ||||
| Mariner Energy Inc., 7.5%, 04/15/13 | 115,000 | 114,138 | ||||
| Pogo Producing Company, 7.875%, 05/01/13 | 180,000 | 182,250 | ||||
| Pride International Inc., 7.375%, 07/15/14 | 70,000 | 71,838 | ||||
| Whiting Petroleum Corporation, 7.0%, 02/01/14 | 55,000 | 53,488 | ||||
| Oil & gas services—1.0% | ||||||
| Complete Production Services Inc., 144A, 8.0%, 12/15/16 | 535,000 | 553,056 | ||||
| SESI LLC, 6.875%, 06/01/14 | 10,000 | 10,150 | ||||
| Packaging & containers—2.6% | ||||||
| Graham Packaging Company, 9.875%, 10/15/14 | 795,000 | 822,825 | ||||
| Graphic Packaging International Corporation, 9.5%, 08/15/13 | 450,000 | 481,500 | ||||
| Plastipak Holdings, Inc., 144A, 8.5%, 12/15/15 | 115,000 | 123,050 | ||||
| Radnor Holdings Corporation, 11.0%, 03/15/10 (c)* | 150,000 | 562 | ||||
| Pharmaceuticals—0.9% | ||||||
| Leiner Health Products Inc., 11.0%, 06/01/12 | 515,000 | 505,988 | ||||
| Pipelines—2.7% | ||||||
| El Paso Corporation, 7.875%, 06/15/12 | 375,000 | 409,579 | ||||
| El Paso Corporation, MTN, 7.8%, 08/01/31 | 185,000 | 206,275 | ||||
| SemGroup LP, 144A, 8.75%, 11/15/15 | 670,000 | 691,775 | ||||
| Southern Natural Gas, 8.0%, 03/01/32 | 40,000 | 48,164 | ||||
| The Williams Companies Inc., 7.625%, 07/15/19 | 125,000 | 136,250 | ||||
| Printing & publishing—0.2% | ||||||
| Dex Media West LLC and Dex Media West Finance Co., Series B, 9.875%, 08/15/13 | 100,000 | 108,875 | ||||
| Corporate bonds—93.1% (a) | Principal amount | Value | ||||
| Real estate—0.9% | ||||||
| Ashton Woods USA LLC and Ashton Woods Finance Company, 9.5%, 10/01/15 | $545,000 | $523,881 | ||||
| REIT—0.1% | ||||||
| Ventas Realty LP and Ventas Capital Corporation, 6.5%, 06/01/16 | 50,000 | 50,562 | ||||
| Retail—4.1% | ||||||
| AutoNation Inc., 7.0%, 04/15/14 | 35,000 | 35,175 | ||||
| Blockbuster Inc., 9.0%, 09/01/12 | 550,000 | 561,000 | ||||
| Denny’s Corporation and Denny’s Holdings Inc., 10.0%, 10/01/12 | 550,000 | 587,125 | ||||
| EPL Finance Corporation, 11.75%, 11/15/13 | 205,000 | 222,938 | ||||
| Eye Care Centers of America Inc., 10.75%, 02/15/15 | 40,000 | 44,600 | ||||
| Linens ‘n Things Inc., FRN, 10.981%, 01/15/14 | 75,000 | 70,594 | ||||
| Neiman Marcus Group Inc., PIK, 9.0%, 10/15/15 | 145,000 | 159,862 | ||||
| Neiman Marcus Group Inc., 10.375%, 10/15/15 | 510,000 | 573,112 | ||||
| Semiconductors—0.8% | ||||||
| Freescale Semiconductor Inc., 144A, 8.875%, 12/15/14 | 415,000 | 415,519 | ||||
| Software—0.7% | ||||||
| UGS Capital Corporation II, 144A, PIK, FRN, 10.348%, 06/01/11 | 235,651 | 242,720 | ||||
| UGS Corporation, 10.0%, 06/01/12 | 120,000 | 130,800 | ||||
| Telecommunications—4.5% | ||||||
| Hawaiian Telecom Communications Inc., Series B, 12.5%, 05/01/15 | 550,000 | 618,750 | ||||
| Intelsat Corporation, 9.0%, 06/15/16 | 225,000 | 246,656 | ||||
| Level 3 Financing Inc., 144A, 9.25% 11/01/14 | 100,000 | 103,875 | ||||
| Level 3 Financing Inc., 144A, FRN, 9.15% 02/15/15 | 60,000 | 60,750 | ||||
| Qwest Communications International Inc., Series B, 7.5%, 02/15/14 | 255,000 | 263,287 | ||||
| Rural Cellular Corporation, 9.875%, 02/01/10 | 260,000 | 274,950 | ||||
| Rural Cellular Corporation, 8.25%, 03/15/12 | 330,000 | 348,150 | ||||
| Windstream Corporation, 8.625%, 08/01/16 | 475,000 | 521,312 | ||||
| World Access Inc., 13.25%, 01/15/08 (c)(d)* | 491,541 | 14,255 | ||||
| Television, cable & radio—3.7% | ||||||
| Charter Communications Holdings LLC, 11.75%, 05/15/14 | 300,000 | 298,500 | ||||
| Charter Communications Holdings LLC and Charter Communications Holdings Capital Corporation, 11.75%, 05/15/11 | 70,000 | 72,100 | ||||
| Charter Communications Holdings LLC and Charter Communications Holdings Capital Corporation, 12.125%, 01/15/12 | 145,000 | 149,712 | ||||
| Charter Communications Holdings LLC and Charter Communications Holdings Capital Corporation, 11.0%, 10/01/15 | 359,000 | 381,438 | ||||
| Charter Communications Holdings II LLC and Charter Communications Holdings II Capital Corporation, 10.25%, 09/15/10 | 240,000 | 255,600 | ||||
| Charter Communications Holdings II LLC and Charter Communications Holdings II Capital Corporation, 10.25%, 10/01/13 | 179,000 | 196,676 | ||||
| CMP Susquehanna Corporation, 144A, 9.875%, 05/15/14 | 655,000 | 668,100 | ||||
| Total domestic (cost $46,699,114) | 45,275,983 | |||||
| The accompanying notes are an integral part of the financial statements | 27 |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| HIGH YIELD BOND FUND (cont’d) | ||||||
| Corporate bonds—93.1% (a) | Principal amount | Value | ||||
| Foreign—10.7% (e) | ||||||
| Chemicals—0.3% | ||||||
| Montell Finance Co. BV, 144A, 8.1%, 03/15/27 | $175,000 | $173,250 | ||||
| Electric—0.1% | ||||||
| AES China Generating Company Ltd., 8.25%, 06/26/10 | 90,000 | 89,879 | ||||
| Electronics—1.5% | ||||||
| NXP BV and NXP Funding LLC, 144A, 7.875%, 10/15/14 | 145,000 | 150,800 | ||||
| NXP BV and NXP Funding LLC, 144A, 9.5%, 10/15/15 | 620,000 | 651,000 | ||||
| Forest products & paper—1.9% | ||||||
| Abitibi-Consolidated Inc., 7.4%, 04/01/18 | 310,000 | 263,500 | ||||
| Smurfit Capital Funding PLC, 7.5%, 11/20/25 | 775,000 | 794,375 | ||||
| Holding companies—1.2% | ||||||
| Basell AF SCA, 144A, 8.375%, 08/15/15 | 630,000 | 655,200 | ||||
| Oil & gas—1.4% | ||||||
| OPTI Canada Inc., 144A, 8.25%, 12/15/14 | 730,000 | 771,975 | ||||
| Telecommunications—3.5% | ||||||
| Intelsat Bermuda Ltd., FRN, 8.872%, 01/15/15 | 185,000 | 189,162 | ||||
| Intelsat Bermuda Ltd., 11.25%, 06/15/16 | 440,000 | 502,150 | ||||
| NTL Cable PLC, 8.75%, 04/15/14 | 160,000 | 168,000 | ||||
| NTL Cable PLC, 9.125%, 08/15/16 | 340,000 | 362,950 | ||||
| True Move Company Ltd., 144A, 10.75%, 12/16/13 | 650,000 | 682,500 | ||||
| Transportation—0.8% | ||||||
| Kansas City Southern de Mexico SA de CV, 144A, 7.625%, 12/01/13 | 60,000 | 61,050 | ||||
| OMI Corporation, 7.625%, 12/01/13 | 35,000 | 35,700 | ||||
| Transportaction Ferroviaria Mexicana SA de CV, 9.375%, 05/01/12 | 285,000 | 307,800 | ||||
| Transportaction Ferroviaria Mexicana SA de CV, 12.5%, 06/15/12 | 10,000 | 10,680 | ||||
| Total foreign (cost $5,679,534) | 5,869,971 | |||||
| Total corporate bonds (cost $52,378,648) | 51,145,954 | |||||
| Convertible bonds — 0.1% (a) | ||||||
| Auto manufacturers—0.1% | ||||||
| Ford Motor Company, 4.25%, 12/15/36 | 40,000 | 45,000 | ||||
| Total convertible bonds (cost $40,000) | 45,000 | |||||
| Foreign government issued securities—1.1% (a)(e) | ||||||
| Egypt Treasury Bill, 01/01/08* | 1,600,000 | 267,849 | ||||
| JP Morgan Chase London/Egypt Treasury Bill, 144A, 11/08/07* | 327,000 | 312,550 | ||||
| Total foreign government issued securities (cost $575,430) | 580,399 | |||||
| Warrants, common & preferred stocks—1.5% (a) | Shares | Value | ||||
| Axiohm Transaction Solutions Inc. (common stock) (d)(f)* | 4,056 | — | ||||
| Brown Jordan International Inc., 08/15/07 (warrants) (d)* | 250 | 2 | ||||
| Chesapeake Energy Corporation, 6.25% (convertible preferred stock) | 368 | 103,822 | ||||
| Warrants, common & preferred stocks—1.5% (a) | Shares | Value | ||||
| ContinentalAFA Dispensing Company (common stock) (d)(f)* | 17,241 | $94,826 | ||||
| Home Interiors & Gifts Inc. (common stock) (d)(f)* | 735,946 | 7,359 | ||||
| Imperial Sugar Company (common stock) | 344 | 10,237 | ||||
| ION Media Networks Inc., PIK, 7.125%, (preferred stock)* | 75 | 592,500 | ||||
| Mattress Discounters Corporation (common stock) (d)* | 3,747 | — | ||||
| Mattress Discounters Corporation, 07/15/07 (warrants) (d)* | 250 | — | ||||
| TCR Holding Corporation, Class B (preferred stock) (d)* | 602 | 1 | ||||
| TCR Holding Corporation, Class C (preferred stock) (d)* | 331 | — | ||||
| TCR Holding Corporation, Class D (preferred stock) (d)* | 873 | 1 | ||||
| TCR Holding Corporation, Class E (preferred stock) (d)* | 1,807 | 2 | ||||
| UbiquiTel Inc., 04/15/10 (warrants) (d)* | 375 | 4 | ||||
| World Access Inc. (common stock)* | 1,571 | 2 | ||||
| Total warrants, common & preferred stocks (cost $1,776,094) | 808,756 | |||||
| Total investment portfolio excluding repurchase agreement (cost $54,770,172) | 52,580,109 | |||||
| Repurchase agreement—2.2% (a) | ||||||
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2007 @ 4.98% to be repurchased at $1,211,168 on May 1, 2007, collaterlized by $1,025,000 United States Treasury Bonds, 7.25% due May 15, 2016 (market value $1,254,307 including interest) (cost $1,211,000) | 1,211,000 | |||||
| Total investment portfolio (cost $55,981,172) 98.0% (a) | 53,791,109 | |||||
| Other assets and liabilities, net, 2.0% (a) | 1,134,078 | |||||
| Net assets, 100.0% | $54,925,187 | |||||
* Non-income producing security. (a) Percentages indicated are based on net assets. (b) Bonds reset to applicable coupon rate at a future date. (c) Issuer has defaulted on principal and/or interest payments and may have sought bankruptcy protection. (d) Restricted securities deemed to be illiquid for purposes of compliance limitations on holdings of illiquid securities and fair valued according to procedures adopted by the Board of Trustees. At April 30, 2007, these securities aggregated $646,921 or 1.2% of the net assets of the Fund. (e) U.S. dollar denominated. (f) Private placement security acquired from issuers of bonds that have defaulted. At April 30, 2007, these securities aggregated $102,185 or 0.2% of the net assets of the Fund.
144A—144A securities are issued pursuant to Rule 144A of the Securities Act of 1933. Most of these are deemed to be liquid for purposes of compliance limitations on holdings of illiquid securities and all may be resold as transactions exempt from registration to qualified institutional buyers. At April 30, 2007, these securities aggregated $11,398,568 or 20.7% of the net assets of the Fund. FRN—Floating rate notes reset their interest rate on a semiannual or quarterly basis. MTN—Medium term note PIK—Payment-in-kind securities may pay interest in the form of additional shares, as opposed to cash payouts. REIT—Real estate investment trust | ||||||
| 28 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| HIGH YIELD BOND FUND (cont’d) | ||
| Standard & Poor’s bond ratings (a) | ||
| Bond rating | Percent of net assets | |
| BB | 12.6% | |
| B | 52.0% | |
| CCC | 27.3% | |
| NR | 1.3% | |
(a) Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., provides independent credit ratings, indices, risk evaluation, investment research, data and valuations. Analytic services provided by Standard & Poor’s Rating Services (“Rating Services”) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. These ratings issued by Ratings Services are statements of opinion and not statements of fact or recommendations to purchase, hold or sell any securities or make any other investment decisions.
BB—An obligation rated ‘BB’ is less vulnerable to nonpayment than other lower-rated obligations. B—An obligation rate ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has capacity to meet its financial commitment on the obligation. CCC—An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments. NR—Indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor’s does not rate a particular obligation as a matter of policy. | ||
| Common stocks—90.3% (a) | Shares | Value | ||||
| Canada—0.9% | ||||||
| Eldorado Gold Corporation* | 19,106 | $110,997 | ||||
| Ivanhoe Mines Ltd.* | 114,619 | 1,423,935 | ||||
| Kinross Gold Corporation* | 36,413 | 485,923 | ||||
| Potash Corporation of Saskatchewan Inc. | 3,172 | 569,745 | ||||
| Chile—0.1% | ||||||
| Sociedad Quimica y Minera de Chile SA, Sponsored ADR | 943 | 148,636 | ||||
| China—0.5% | ||||||
| Beijing Capital International Airport Company Ltd., Class H | 1,114,425 | 1,085,989 | ||||
| Shenzhen Chiwan Wharf Holdings Ltd., Class B* | 28,080 | 62,683 | ||||
| Wumart Stores Inc., Class H (b)* | 207,156 | 145,670 | ||||
| Cyprus—0.9% | ||||||
| Bank of Cyprus Public Company Ltd. | 163,022 | 2,568,664 | ||||
| Czech—1.9% | ||||||
| Komercni Banka, AS | 29,077 | 5,467,265 | ||||
| Denmark—0.6% | ||||||
| ALK-Abello AS | 1,395 | 272,399 | ||||
| Carlsberg AS, Class B | 1,244 | 139,384 | ||||
| Novo Nordisk AS, Class B | 7,867 | 769,265 | ||||
| Rockwool International AS, Class B | 739 | 168,705 | ||||
| Royal UNIBREW AS | 1,200 | 162,679 | ||||
| Vestas Wind Systems AS* | 2,884 | 186,410 | ||||
| Finland—2.8% | ||||||
| Elisa Oyj | 4,288 | 124,836 | ||||
| Fortum Oyj | 54,028 | 1,670,542 | ||||
| Kemira Oyj | 3,420 | 82,918 | ||||
| Kesko Oyj, Class B | 2,396 | 165,825 | ||||
| Nokia Oyj | 75,448 | 1,909,251 | ||||
| Nokian Renkaat Oyj | 2,793 | 85,791 | ||||
| Orion Oyj, Class B | 5,486 | 130,571 | ||||
| Ramirent Oyj | 8,396 | 206,642 | ||||
| Sampo Oyj, Class A | 20,990 | 653,680 | ||||
| Sanomawsoy Oyj | 17,941 | 529,222 | ||||
| Stockmann Oyj Abp, Class B | 10,661 | 531,643 | ||||
| Wartsila Oyj, Class B | 2,136 | 142,451 | ||||
| Yit Oyj | 42,582 | 1,506,928 | ||||
| France—12.4% | ||||||
| Accor SA | 1,306 | 122,834 | ||||
| Aeroports de Paris | 13,780 | 1,373,452 | ||||
| Air Liquide | 7,080 | 1,756,793 | ||||
| ALSTOM SA | 56 | 8,314 | ||||
| Atos Origin SA* | 1,446 | 103,683 | ||||
| BNP Paribas | 18,040 | 2,089,974 | ||||
| Bouygues | 12,275 | 976,423 | ||||
| Carrefour SA | 6,896 | 528,947 | ||||
| Compagnie de Saint-Gobain | 16,630 | 1,770,752 | ||||
| EDF Energies Nouvelles SA | 872 | 51,133 | ||||
| Electricite de France | 17,805 | 1,544,751 | ||||
| France Telecom SA | 44,256 | 1,291,449 | ||||
| Gaz de France | 2,692 | 126,077 | ||||
| Havas SA | 20,553 | 114,486 | ||||
| Hermes International | 1,149 | 165,994 | ||||
| JC Decaux SA | 8,582 | 266,719 | ||||
| Lafarge SA | 20,937 | 3,389,308 | ||||
| The accompanying notes are an integral part of the financial statements | 29 |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| INTERNATIONAL EQUITY FUND (cont’d) | ||||||
| Common stocks—90.3% (a) | Shares | Value | ||||
| France (cont’d) | ||||||
| Lagardere SCA | 3,485 | $273,622 | ||||
| LVMH Moet Hennessy Louis Vuitton SA | 20,506 | 2,390,198 | ||||
| Natixis SA | 11,971 | 326,193 | ||||
| Neuf Cegetel | 3,645 | 148,138 | ||||
| Nexity Initiale, SAS | 1,487 | 130,410 | ||||
| Pernod-Ricard SA | 7,423 | 1,578,600 | ||||
| PPR SA | 7,219 | 1,252,794 | ||||
| Publicis Groupe SA | 2,250 | 107,143 | ||||
| Remy Cointreau | 1,544 | 112,862 | ||||
| Renault SA | 2,956 | 383,895 | ||||
| Sanofi-Aventis SA | 19,048 | 1,750,916 | ||||
| Societe Generale | 10,254 | 2,172,560 | ||||
| Sodexho Alliance SA | 1,876 | 148,735 | ||||
| Suez SA* | 24,451 | 1,388,499 | ||||
| Thales SA | 2,139 | 129,812 | ||||
| TOTAL SA | 51,479 | 3,804,674 | ||||
| Veolia Environnement | 5,772 | 477,098 | ||||
| Vinci SA* | 6,386 | 1,025,486 | ||||
| Vivendi SA | 22,891 | 944,479 | ||||
| Wendel Investissement | 832 | 142,946 | ||||
| Germany—9.4% | ||||||
| Adidas AG | 2,081 | 124,363 | ||||
| Bilfinger Berger AG | 8,985 | 844,571 | ||||
| Celesio AG | 1,986 | 142,555 | ||||
| Commerzbank AG | 66,126 | 3,312,176 | ||||
| Continental AG | 1,228 | 171,456 | ||||
| DaimlerChrysler AG | 20,981 | 1,710,724 | ||||
| Deutsche Bank AG | 11,427 | 1,762,402 | ||||
| Deutsche Boerse AG | 3,974 | 936,475 | ||||
| Deutsche Post AG | 62,459 | 2,157,594 | ||||
| Deutsche Postbank AG | 10,423 | 1,022,046 | ||||
| E.ON AG | 12,141 | 1,829,680 | ||||
| Fraport AG Frankfurt Airport Services Worldwide | 35,935 | 2,620,765 | ||||
| Fresenius AG | 16,901 | 1,408,171 | ||||
| Fresenius Medical Care AG & Co. KGaA | 8,454 | 1,274,758 | ||||
| Henkel KGaA | 3,421 | 479,868 | ||||
| Hypo Real Estate Holding AG | 9,399 | 629,657 | ||||
| IKB Deutsche Industriebank AG | 9,005 | 375,927 | ||||
| IVG Immobilien AG | 36,396 | 1,639,482 | ||||
| KarstadtQuelle AG* | 10,226 | 395,329 | ||||
| Landesbank Berlin Holding AG | 13,870 | 128,840 | ||||
| MAN AG | 601 | 80,525 | ||||
| Merck KGaA | 1,988 | 264,960 | ||||
| Metro AG | 1,855 | 143,475 | ||||
| MTU Aero Engines Holding AG | 3,528 | 205,005 | ||||
| Puma AG Rudolf Dassler Sport | 149 | 67,615 | ||||
| Rhoen-Klinikum AG | 12,617 | 759,501 | ||||
| Siemens AG | 17,084 | 2,065,228 | ||||
| Symrise AG* | 1,003 | 29,283 | ||||
| Common stocks—90.3% (a) | Shares | Value | ||||
| Greece—0.3% | ||||||
| Hellenic Telecommunications Organization SA | 29,118 | $836,221 | ||||
| Hong Kong—1.9% | ||||||
| China Merchants Holdings (International) Company Ltd. | 391,957 | 1,711,317 | ||||
| Clear Media Ltd.* | 66,000 | 69,562 | ||||
| Galaxy Entertainment Group Ltd. | 367,775 | 357,841 | ||||
| GOME Electrical Appliances Holdings Ltd. | 431,000 | 660,343 | ||||
| Hutchison Telecommunications International Ltd.* | 61,549 | 126,886 | ||||
| Melco International Development Ltd. | 383,305 | 747,485 | ||||
| Melco PBL Entertainment Macau Ltd., Sponsored ADR* | 6,407 | 111,610 | ||||
| Shun Tak Holdings Ltd. | 1,050,942 | 1,459,940 | ||||
| Texwinca Holdings Ltd. | 97,996 | 69,587 | ||||
| Hungary—3.5% | ||||||
| Magyar Telekom Telecommunications PLC | 235,419 | 1,368,470 | ||||
| MOL Magyar Olaj-es Gazipari Rt. | 2,306 | 281,566 | ||||
| OTP Bank Ltd. | 142,653 | 7,265,307 | ||||
| Richter Gedeon Rt. | 4,753 | 978,933 | ||||
| India—0.1% | ||||||
| State Bank of India, Sponsored GDR | 5,623 | 383,053 | ||||
| Indonesia—0.1% | ||||||
| Semen Gresik Persero Tbk PT | 44,743 | 187,904 | ||||
| Italy—4.1% | ||||||
| Assicurazioni Generali SpA | 10,493 | 483,149 | ||||
| Banca CR Firenze | 106,359 | 849,956 | ||||
| Banca Popolare dell’Emilia Romagna | 9,068 | 255,911 | ||||
| Banca Popolare di Milano Scrl | 53,047 | 892,085 | ||||
| Banca Popolare di Sondrio Scrl | 5,722 | 128,191 | ||||
| Banca Popolare Italiana Scrl* | 41,397 | 690,443 | ||||
| Banco Popolare di Verona e Novara Scrl | 13,454 | 448,882 | ||||
| Bulgari SpA | 7,137 | 109,028 | ||||
| Buzzi Unicem SpA | 26,973 | 861,075 | ||||
| Capitalia SpA | 145,353 | 1,381,682 | ||||
| Credito Emiliano SpA | 39,724 | 660,215 | ||||
| ENI SpA | 16,320 | 542,101 | ||||
| Finmeccanica SpA | 8,455 | 259,582 | ||||
| Geox SpA | 20,258 | 370,375 | ||||
| Impregilo SpA* | 20,315 | 164,712 | ||||
| Intesa Sanpaolo SpA | 105,773 | 851,375 | ||||
| Luxottica Group SpA | 4,711 | 164,131 | ||||
| Telecom Italia SpA | 71,714 | 215,543 | ||||
| UniCredito Italiano SpA | 171,118 | 1,755,799 | ||||
| Unione di Banche Italiane ScpA | 11,596 | 350,842 | ||||
| Japan—5.6% | ||||||
| Acom Co., Ltd. | 2,800 | 101,066 | ||||
| Aeon Credit Service Company Ltd. | 2,968 | 49,411 | ||||
| Aiful Corporation | 3,100 | 77,279 | ||||
| Aisin Seiki Co., Ltd. | 3,001 | 98,690 | ||||
| Canon Inc. | 11,673 | 652,889 | ||||
| Credit Saison Co., Ltd. | 2,617 | 74,483 | ||||
| Daihatsu Motor Co., Ltd. | 11,000 | 92,319 | ||||
| 30 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| INTERNATIONAL EQUITY FUND (cont’d) | ||||||
| Common stocks—90.3% (a) | Shares | Value | ||||
| Japan (cont’d) | ||||||
| Daikin Industries, Ltd. | 6,300 | $213,071 | ||||
| Daiwa Securities Group Inc. | 6,003 | 66,799 | ||||
| Denso Corporation | 5,613 | 198,482 | ||||
| Dentsu Inc. | 65 | 184,831 | ||||
| East Japan Railway Company | 46 | 372,934 | ||||
| Eisai Co., Ltd. | 3,800 | 180,663 | ||||
| Fanuc Ltd. | 2,300 | 225,153 | ||||
| Fuji Television Network, Inc. | 41 | 96,110 | ||||
| Fujitsu Ltd. | 16,000 | 100,554 | ||||
| Fukuoka Financial Group Inc. | 14,000 | 106,664 | ||||
| Honda Motor Co., Ltd. | 12,020 | 413,857 | ||||
| Hoya Corporation | 8,300 | 254,869 | ||||
| IBIDEN Co., Ltd. | 1,900 | 107,971 | ||||
| ITOCHU Corporation | 8,000 | 78,682 | ||||
| Japan Tobacco Inc. | 96 | 468,820 | ||||
| JS Group Corporation | 3,494 | 78,940 | ||||
| JSR Corporation | 2,913 | 65,266 | ||||
| KDDI Corporation | 26 | 204,194 | ||||
| Keyence Corporation | 500 | 111,323 | ||||
| Koito Manufacturing Co., Ltd. | 9,474 | 110,570 | ||||
| Kubota Corporation | 24,491 | 230,990 | ||||
| Kyocera Corporation | 2,400 | 233,280 | ||||
| Makita Corporation | 2,163 | 82,637 | ||||
| Matsushita Electric Industrial Co., Ltd. | 26,853 | 519,318 | ||||
| Mitsubishi Electric Corporation | 11,000 | 106,672 | ||||
| Mitsubishi UFJ Financial Group, Inc. | 74 | 773,935 | ||||
| Mitsubishi UFJ Securities Co., Ltd. | 8,000 | 84,165 | ||||
| Mitsui Fudosan Co., Ltd. | 3,129 | 91,407 | ||||
| Mitsui Mining & Smelting Company, Ltd. | 2 | 10 | ||||
| Mizuho Financial Group, Inc. | 87 | 524,398 | ||||
| NGK Spark Plug Co., Ltd. | 13,000 | 228,886 | ||||
| NHK Spring Co., Ltd. | 7,562 | 65,078 | ||||
| Nintendo Co., Ltd. | 501 | 155,925 | ||||
| Nippon Electric Glass Co., Ltd. | 6,000 | 102,879 | ||||
| Nippon Telegraph & Telephone Corporation | 56 | 278,792 | ||||
| Nissan Chemical Industries Ltd. | 5,000 | 56,729 | ||||
| Nissan Motor Co., Ltd. | 7,362 | 74,305 | ||||
| Nitto Denko Corporation | 6,801 | 299,745 | ||||
| Nomura Holdings, Inc. | 5,622 | 108,319 | ||||
| NSK Ltd. | 11,000 | 106,566 | ||||
| NTT DoCoMo, Inc. | 126 | 215,059 | ||||
| ORIX Corporation | 540 | 143,900 | ||||
| Promise Co., Ltd. | 2,960 | 89,094 | ||||
| Resona Holdings, Inc. | 23 | 51,923 | ||||
| Ricoh Company, Ltd. | 17,000 | 372,957 | ||||
| Sapporo Hokuyo Holdings, Inc. | 6 | 57,897 | ||||
| Seven & I Holdings Co., Ltd. | 3,800 | 109,537 | ||||
| Sharp Corporation | 5,000 | 91,553 | ||||
| Sony Corporation | 9,986 | 532,102 | ||||
| Stanley Electric Co., Ltd. | 9,699 | 192,507 |
| Common stocks—90.3% (a) | Shares | Value | ||||
| Sumitomo Chemical Company, Ltd. | 21,000 | $138,688 | ||||
| Sumitomo Corporation | 7,048 | 119,890 | ||||
| Sumitomo Electric Industries, Ltd. | 7,400 | 104,996 | ||||
| Sumitomo Metal Industries, Ltd. | 13,084 | 66,328 | ||||
| Sumitomo Mitsui Financial Group Inc. | 54 | 472,666 | ||||
| Suruga Bank, Ltd. | 6,000 | 72,666 | ||||
| Suzuki Motor Corporation | 31,800 | 905,732 | ||||
| Takata Corporation | 2,500 | 91,323 | ||||
| Takeda Pharmaceutical Company, Ltd. | 4,800 | 311,266 | ||||
| Takefuji Corporation | 2,970 | 99,729 | ||||
| Teijin Ltd. | 12,000 | 61,945 | ||||
| The Bank of Kyoto, Ltd. | 7,184 | 83,034 | ||||
| The Bank of Yokohama, Ltd. | 14,997 | 109,902 | ||||
| The Chiba Bank, Ltd. | 12,000 | 99,286 | ||||
| The Gunma Bank, Ltd. | 15,000 | 99,876 | ||||
| The Shizuoka Bank, Ltd. | 8,486 | 89,876 | ||||
| The Sumitomo Trust & Banking Company, Ltd. | 11,065 | 108,081 | ||||
| Toppan Printing Co., Ltd. | 6,000 | 60,996 | ||||
| Toray Industries Inc. | 11,000 | 75,658 | ||||
| Toyota Motor Corporation | 18,732 | 1,141,653 | ||||
| Yamada Denki Co., Ltd. | 4,970 | 458,119 | ||||
| Yamaha Motor Co., Ltd. | 4,201 | 111,015 | ||||
| Yamato Holdings Co., Ltd. | 2,564 | 37,230 | ||||
| Yokogawa Electric Corporation | 7,801 | 114,751 | ||||
| Luxembourg—0.3% | ||||||
| Millicom International Cellular SA* | 10,927 | 887,819 | ||||
| Malaysia—0.1% | ||||||
| Sime Darby Bhd | 60,000 | 161,309 | ||||
| Mexico—0.6% | ||||||
| Consorcio ARA, SA de CV | 13,888 | 22,741 | ||||
| Controladora Comercial Mexicana, SA de CV | 48,217 | 124,605 | ||||
| Corporacion Moctezuma, SA de CV | 65,059 | 190,447 | ||||
| Desarrolladora Homex, SA de CV, Sponsored ADR* | 2,146 | 124,554 | ||||
| Fomento Economico Mexicano, SA de CV, Sponsored ADR | 3,233 | 348,162 | ||||
| Grupo Televisa SA, Sponsored ADR | 13,604 | 381,592 | ||||
| Urbi Desarrollos Urbanos, SA de CV* | 102,432 | 428,690 | ||||
| Netherlands—3.3% | ||||||
| Heineken NV | 4,886 | 261,233 | ||||
| ING Groep NV | 32,781 | 1,489,623 | ||||
| Koninklijke Ahold NV* | 47,836 | 608,147 | ||||
| Koninklijke KPN NV | 43,931 | 744,870 | ||||
| Koninklijke Numico NV | 20,098 | 1,111,144 | ||||
| Koninklijke Philips Electronics NV | 20,680 | 846,584 | ||||
| Koninklijke Vopak NV | 3,601 | 215,965 | ||||
| TNT NV | 50,260 | 2,266,451 | ||||
| Unilever NV | 56,349 | 1,716,426 | ||||
| New Zealand—0.1% | ||||||
| Auckland International Airport Ltd. | 93,060 | 170,809 | ||||
| Norway—1.0% | ||||||
| DnB NOR ASA | 8,784 | 125,239 | ||||
| Norsk Hydro ASA | 24,739 | 855,795 | ||||
| The accompanying notes are an integral part of the financial statements | 31 |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| INTERNATIONAL EQUITY FUND (cont’d) | ||||||
| Common stocks—90.3% (a) | Shares | Value | ||||
| Norway (cont’d) | ||||||
| Orkla ASA | 47,840 | $762,590 | ||||
| Statoil ASA | 9,786 | 275,010 | ||||
| Storebrand ASA | 8,958 | 151,788 | ||||
| Telenor ASA* | 33,520 | 628,029 | ||||
| Philippines—0.2% | ||||||
| Ayala Corporation | 20,919 | 262,975 | ||||
| Ayala Land, Inc. | 400,794 | 146,242 | ||||
| Philippine Long Distance Telephone Company | 4,030 | 213,850 | ||||
| Poland—4.1% | ||||||
| Agora SA | 6,718 | 108,592 | ||||
| Bank BPH | 3,058 | 1,081,799 | ||||
| Bank Handlowy w Warszawie SA | 30,322 | 1,028,613 | ||||
| Bank Millenium SA | 10,822 | 41,979 | ||||
| Bank Pekao SA | 23,989 | 2,240,115 | ||||
| Bank Zachodni WBK SA | 15,826 | 1,720,340 | ||||
| BRE Bank SA* | 1,862 | 336,817 | ||||
| Budimex SA* | 8,720 | 392,162 | ||||
| Cersanit-Krasnystaw SA* | 27,443 | 467,680 | ||||
| Globe Trade Centre SA* | 13,481 | 236,642 | ||||
| Grupa Kety SA | 2,836 | 197,969 | ||||
| ING Bank Slaski SA | 653 | 192,395 | ||||
| Inter Cars SA* | 3,447 | 97,565 | ||||
| Polska Grupa Farmaceutyczna SA | 2,798 | 86,311 | ||||
| Polski Koncern Miesny Duda SA | 43,506 | 210,536 | ||||
| Powszechna Kasa Oszczednosci Bank Polski SA | 120,751 | 2,202,975 | ||||
| Stomil Sanok SA | 899 | 72,656 | ||||
| Telekomunikacja Polska SA | 109,015 | 872,179 | ||||
| Portugal—0.5% | ||||||
| Energias de Portugal, SA | 23,575 | 130,732 | ||||
| Jeronimo Martins, SGPS, SA | 45,701 | 1,308,882 | ||||
| Romania—0.1% | ||||||
| Board of Romanian Development Bank-Groupe Societe Generale | 33,800 | 320,346 | ||||
| SNP Petrom SA | 98,316 | 22,388 | ||||
| Socep Constanta | 372,000 | 40,904 | ||||
| Russia—2.9% | ||||||
| CTC Media, Inc.* | 20,317 | 529,867 | ||||
| JSC MMC Norilsk Nickel, Sponsored ADR | 8,437 | 1,645,215 | ||||
| LUKOIL, Sponsored ADR | 5,012 | 392,440 | ||||
| OAO Gazprom, Sponsored ADR | 14,921 | 594,602 | ||||
| OAO Novatek, 144A, Sponsored GDR | 6,873 | 343,650 | ||||
| OAO Rosneft Oil Company, Sponsored GDR* | 175,832 | 1,529,316 | ||||
| Polyus Gold Mining Co., Sponsored ADR | 11,099 | 502,230 | ||||
| Sistema-Hals, 144A, Sponsored GDR* | 15,522 | 233,606 | ||||
| Unified Energy System, Sponsored GDR | 16,701 | 2,137,905 | ||||
| Uralsvyazinform, Sponsored ADR | 18,733 | 234,162 | ||||
| South Korea—0.4% | ||||||
| Hyundai Motor Company | 2,870 | 181,822 | ||||
| NHN Corporation | 561 | 87,645 | ||||
| Samsung Electronics Co., Ltd. | 1,213 | 742,815 | ||||
| Common stocks—90.3% (a) | Shares | Value | ||||
| Spain—0.8% | ||||||
| Corporacion Mapfre, SA | 98,043 | $509,335 | ||||
| Gamesa Corporacion Technologica SA | 5,163 | 176,964 | ||||
| Grifols SA* | 8,422 | 147,722 | ||||
| Inditex SA* | 9,030 | 554,108 | ||||
| Telefonica SA | 41,954 | 936,787 | ||||
| Sweden—3.4% | ||||||
| Autoliv, Inc., Sponsored SDR | 1,635 | 94,678 | ||||
| Getinge AB, Class B | 20,939 | 479,156 | ||||
| Hennes & Mauritz AB, Class B | 9,224 | 609,812 | ||||
| Modern Times Group AB, Class B | 11,643 | 680,222 | ||||
| Nordea Bank AB | 89,910 | 1,554,547 | ||||
| OMX AB | 12,140 | 290,287 | ||||
| Skandinaviska Enskilda Banken AB, Class A | 59,606 | 2,179,055 | ||||
| Skanska AB, Class B | 36,243 | 837,700 | ||||
| Swedbank AB, Class A | 56,316 | 2,164,117 | ||||
| Telefonaktiebolaget LM Ericsson, Class B | 81,109 | 309,298 | ||||
| TeliaSonera AB | 29,792 | 241,353 | ||||
| Switzerland—6.6% | ||||||
| Adecco SA | 4,347 | 298,499 | ||||
| BKW FMB Energie AG | 1,009 | 108,064 | ||||
| Compagnie Financiere Richemont SA, Class A | 30,455 | 1,838,136 | ||||
| Credit Suisse Group | 21,577 | 1,697,539 | ||||
| Flughafen Zuerich AG | 132 | 52,377 | ||||
| Givaudan SA | 246 | 230,270 | ||||
| Holcim Ltd. | 24,943 | 2,670,289 | ||||
| Nestle SA | 9,552 | 3,788,688 | ||||
| Novartis AG | 40,027 | 2,332,848 | ||||
| Roche Holding AG | 14,173 | 2,676,699 | ||||
| SGS SA | 460 | 584,496 | ||||
| Syngenta AG | 2,094 | 416,998 | ||||
| The Swatch Group AG | 6,699 | 1,916,267 | ||||
| Thailand—0.0% | ||||||
| Bangkok Bank PCL, NVDR | 39,662 | 124,831 | ||||
| Turkey—1.0% | ||||||
| Dogan Sirketler Grubu Holding AS | 474,098 | 886,648 | ||||
| Haci Omer Sabanci Holding AS | 93,832 | 408,649 | ||||
| Turkiye Garanti Bankasi AS | 144,073 | 692,005 | ||||
| Turkiye Is Bankasi AS, Class C | 161,446 | 759,693 | ||||
| Ukraine—0.7% | ||||||
| Centrenergo, Sponsored ADR (b)* | 3,570 | 118,252 | ||||
| Raiffeisen Bank Aval* | 296,908 | 56,876 | ||||
| Ukrnafta | 6,514 | 495,228 | ||||
| Ukrnafta, Sponsored ADR (b)* | 58 | 25,963 | ||||
| UkrTelecom* | 5,916,954 | 1,307,322 | ||||
| UkrTelecom, Sponsored GDR* | 9,912 | 109,676 | ||||
| United Kingdom—9.8% | ||||||
| Aegis Group PLC | 71,954 | 199,383 | ||||
| Alliance Boots PLC | 12,619 | 281,879 | ||||
| Amec PLC | 14,105 | 156,305 | ||||
| 32 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| INTERNATIONAL EQUITY FUND (cont’d) | ||||||
| Common stocks—90.3% (a) | Shares | Value | ||||
| United Kingdom (cont’d) | ||||||
| Anglo American PLC | 36,095 | $1,910,579 | ||||
| Arriva PLC | 8,690 | 130,540 | ||||
| BAE Systems PLC | 34,566 | 313,773 | ||||
| BHP Billiton PLC | 45,194 | 1,008,055 | ||||
| BP PLC | 18,895 | 212,336 | ||||
| Burberry Group PLC | 34,106 | 468,175 | ||||
| Compass Group PLC | 199,929 | 1,446,784 | ||||
| Diageo PLC | 131,536 | 2,774,574 | ||||
| FirstGroup PLC | 10,739 | 141,087 | ||||
| GlaxoSmithKline PLC | 113,750 | 3,291,774 | ||||
| Go-Ahead Group PLC | 3,148 | 163,800 | ||||
| Group 4 Securicor PLC | 18,652 | 85,159 | ||||
| Imperial Tobacco Group PLC | 7,613 | 329,884 | ||||
| Intertek Group PLC | 21,736 | 402,806 | ||||
| Kingfisher PLC | 24,259 | 131,126 | ||||
| National Express Group PLC | 5,928 | 144,330 | ||||
| Peter Hambro Mining PLC* | 14,808 | 341,698 | ||||
| Prudential PLC | 27,198 | 403,724 | ||||
| QinetiQ PLC | 62,289 | 236,959 | ||||
| Reckitt Benckiser PLC | 24,221 | 1,327,462 | ||||
| Rentokil Initial PLC | 54,558 | 187,805 | ||||
| Rio Tinto PLC | 15,978 | 974,244 | ||||
| Rolls-Royce Group PLC | 86,359 | 825,354 | ||||
| SABMiller PLC | 8,630 | 203,988 | ||||
| Scottish & Newcastle PLC | 14,066 | 172,459 | ||||
| Smith & Nephew PLC | 172,677 | 2,160,065 | ||||
| Smiths Group PLC | 10,623 | 229,611 | ||||
| Stagecoach Group PLC* | 42,222 | 156,196 | ||||
| Tesco PLC | 167,901 | 1,543,180 | ||||
| Vodafone Group PLC | 1,386,172 | 3,946,557 | ||||
| William Hill PLC | 37,100 | 441,444 | ||||
| Wolseley PLC | 7,659 | 183,981 | ||||
| WPP Group PLC | 50,488 | 747,738 | ||||
| United States—0.5% | ||||||
| News Corporation, Class B | 56,673 | 1,360,152 | ||||
| Total common stocks (cost $193,744,304) | 253,836,030 | |||||
| Warrants—2.9% (a) | ||||||
| India—1.8% | ||||||
| Calyon Financial Products Ltd./Bharti Airtel Ltd., 144A, 05/31/10* | 63,788 | 1,252,619 | ||||
| Calyon Financial Products Ltd./State Bank of India, 144A, 05/13/10 | 80,950 | 2,582,987 | ||||
| Citigroup Global Markets Holdings/Idea Celluar Ltd., 01/17/12* | 53,985 | 150,203 | ||||
| Citigroup Global Markets Holdings/State Bank of India, 01/19/09* | 28,770 | 919,958 | ||||
| Citigroup Global Markets Holdings/Suzlon Energy Ltd., 01/20/10 | 7,143 | 205,758 | ||||
| Warrants—2.9% (a) | Shares | Value | ||||
| Russia—1.1% | ||||||
| UBS AG London Branch/Sberbank, 144A, 09/01/07 | 763 | $3,025,295 | ||||
| Total warrants (cost $6,054,071) | 8,136,820 | |||||
| Preferred stocks—0.2% (a) | ||||||
| Germany—0.2% | ||||||
| ProSiebenSat.1 Media AG | 11,989 | 435,933 | ||||
| Poland—0.0% | ||||||
| Sniezka SA* | 6,301 | 124,421 | ||||
| United Kingdom—0.0% | ||||||
| Rolls-Royce Group PLC, Class B | 9,514,446 | 19,410 | ||||
| Total preferred stocks (cost $336,359) | 579,764 | |||||
| Investment companies—3.1% (a) | ||||||
| British Virgin Islands—0.1% | ||||||
| RenShares Utilities Ltd., Class RenGen* | 52,051 | 196,753 | ||||
| France—1.1% | ||||||
| Eurazeo | 2,513 | 396,402 | ||||
| Lyxor ETF CAC 40 | 34,661 | 2,802,340 | ||||
| Luxembourg—1.1% | ||||||
| Citigroup Global Markets Holdings/Banking Index Benchmark Exchange Traded Scheme - Bank BeES, 144A, 01/20/10 (warrants)* | 175,953 | 2,393,137 | ||||
| Citigroup Global Markets Holdings/Canara Bank, 144A, 01/19/09 (warrants)* | 59,590 | 322,366 | ||||
| ProLogis European Properties | 12,411 | 264,483 | ||||
| Romania—0.1% | ||||||
| Societatea de Investitii Financiare/Banat-Crisana SA (SIF 1) | 71,000 | 90,596 | ||||
| Societatea de Investitii Financiare/Moldova SA (SIF 2) | 77,000 | 99,200 | ||||
| Societatea de Investitii Financiare/Muntenia SA (SIF 4) | 53,500 | 42,364 | ||||
| Societatea de Investitii Financiare/Oltenia Craiova (SIF 5) | 41,000 | 59,550 | ||||
| Societatea de Investitii Financiare/Transilvania SA (SIF 3) | 29,000 | 43,548 | ||||
| United States—0.7% | ||||||
| KKR Private Equity Investors LLP | 82,706 | 2,014,802 | ||||
| Total investment companies (cost $8,121,265) | 8,725,541 | |||||
| Government issued securities—0.0% (a) | ||||||
| Bulgaria—0.0% | ||||||
| Republic of Bulgaria Compensation Notes* | 33,115 | 10,196 | ||||
| Republic of Bulgaria Housing Compensation Notes* | 13,665 | 4,139 | ||||
| Republic of Bulgaria Registered Compensation Vouchers* | 20,024 | 6,042 | ||||
| Total government issued securities (cost $29,438) | 20,377 | |||||
| Total investment portfolio excluding repurchase agreement (cost $208,285,437) | 271,298,532 | |||||
| The accompanying notes are an integral part of the financial statements | 33 |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| INTERNATIONAL EQUITY FUND (cont’d) | ||||||
| Repurchase agreement—3.2% (a) | Shares | Value | ||||
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2007 @ 4.98% to be repurchased at $9,228,276 on May 1, 2007, collaterlized by $7,780,000 United States Treasury Bonds, 7.25% due May 15, 2016 (market value $9,520,500 including interest) (cost $9,227,000) | $9,227,000 | |||||
| Total investment portfolio (cost $217,512,437) 99.7% (a) | 280,525,532 | |||||
| Other assets and liabilities, net, 0.3% (a) | 693,722 | |||||
| Net assets, 100.0% | $281,219,254 | |||||
* Non-income producing security. (a) Percentages indicated are based on net assets. (b) Restricted securities deemed to be illiquid for purposes of compliance limitations on holdings of illiquid securities. At April 30, 2007, these securities aggregated $289,885 or 0.1% of the net assets of the Fund.
| ||||||
| ADR—American depository receipt | ||||||
| GDR—Global depository receipt | ||||||
| NVDR—Non-voting depository receipt | ||||||
| SDR—Swedish depository receipt | ||||||
| 144A—144A securities are issued pursuant to Rule 144A of the Securities Act of 1993. Most of these are deemed to be liquid for purposes of compliance limitations on holdings of illiquid securities and all may be resold as transactions exempt from registration to qualified institutional buyers. At April 30, 2007, these securities aggregated $10,153,660 or 3.6% of the net assets of the Fund. | ||||||
| Sector allocation | ||
| Sector | Percent of net assets | |
| Financial | 33% | |
| Consumer, non-cyclical | 15% | |
| Industrial | 14% | |
| Communications | 10% | |
| Consumer, cyclical | 8% | |
| Basic materials | 6% | |
| Other sectors | 11% | |
| Cash/Other | 3% | |
| Forward foreign currency contracts outstanding | ||||||||||
| Contract to deliver | In exchange for | Delivery date | Unrealized depreciation | |||||||
| HUF | 230,979,259 | USD | 1,197,528 | 5/22/07 | $74,888 | |||||
| TRY | 826,410 | USD | 578,131 | 6/21/07 | 13,248 | |||||
| CZK | 25,433,329 | USD | 1,222,337 | 6/22/07 | 15,609 | |||||
| EUR | 2,935,295 | USD | 4,003,845 | 7/31/07 | 19,286 | |||||
| Net unrealized depreciation | 123,030 | |||||||||
| CZK—Czech Koruna | ||||||||||
| EUR—Euro Currency | ||||||||||
| HUF—Hungarian Forint | ||||||||||
| TRY—New Turkish Lira | ||||||||||
| USD—United States Dollar | ||||||||||
| Industry allocation | ||||
| Industry | Value | Percent of net assets | ||
| Banks | $68,581,000 | 24.4% | ||
| Telecommunications | 19,423,925 | 6.9% | ||
| Engineering & construction | 13,819,412 | 4.9% | ||
| Financial services | 13,766,431 | 4.9% | ||
| Pharmaceuticals | 13,336,882 | 4.7% | ||
| Mining | 12,805,728 | 4.6% | ||
| Oil & gas | 12,749,492 | 4.5% | ||
| Food | 11,887,840 | 4.2% | ||
| Building materials | 10,907,474 | 3.9% | ||
| Retail | 9,118,396 | 3.2% | ||
| Electric | 8,928,425 | 3.2% | ||
| Investment companies | 8,725,541 | 3.1% | ||
| Transportation | 5,786,127 | 2.1% | ||
| Beverages | 5,753,941 | 2.0% | ||
| Real estate | 5,464,820 | 1.9% | ||
| Auto manufacturers | 4,904,307 | 1.7% | ||
| Chemicals | 3,919,492 | 1.4% | ||
| Insurance | 3,719,628 | 1.3% | ||
| Healthcare services | 3,442,430 | 1.2% | ||
| Multimedia | 3,276,216 | 1.2% | ||
| Healthcare products | 2,803,352 | 1.0% | ||
| Commercial services | 2,555,405 | 0.9% | ||
| Diversified manufacturer | 2,437,290 | 0.9% | ||
| Television, cable & radio | 2,282,431 | 0.8% | ||
| Electronics | 1,996,810 | 0.7% | ||
| Household products | 1,807,330 | 0.6% | ||
| Aerospace/Defense | 1,752,936 | 0.6% | ||
| Advertising | 1,689,862 | 0.6% | ||
| Food service | 1,595,519 | 0.6% | ||
| Auto parts & equipment | 1,217,610 | 0.4% | ||
| Apparel | 1,196,522 | 0.4% | ||
| Electrical components & equipment | 1,064,860 | 0.4% | ||
| Home furnishings | 1,051,420 | 0.4% | ||
| Office/Business equipment | 1,025,846 | 0.4% | ||
| Agriculture | 798,704 | 0.3% | ||
| Semiconductors | 742,815 | 0.3% | ||
| Home builders | 575,985 | 0.2% | ||
| Biotechnology | 554,012 | 0.2% | ||
| Distribution/Wholesale | 480,118 | 0.2% | ||
| Water | 477,098 | 0.2% | ||
| Entertainment | 441,444 | 0.2% | ||
| 34 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| INTERNATIONAL EQUITY FUND (cont’d) | ||||
| Industry allocation (cont’d) | ||||
| Industry | Value | Percent of net assets | ||
| Broadcasting services/programs | $381,592 | 0.1% | ||
| Machinery | 319,829 | 0.1% | ||
| Printing & publishing | 278,661 | 0.1% | ||
| Lodging | 234,444 | 0.1% | ||
| Textiles | 207,190 | 0.1% | ||
| Computers | 204,237 | 0.1% | ||
| Toys/Games/Hobbies | 155,925 | 0.1% | ||
| Other | 651,778 | 0.2% | ||
| Total investment portfolio excluding repurchase agreement | 271,298,532 | 96.5% | ||
| Common stocks—98.0% (a) | Shares | Value | ||||
| Financial services—4.7% | ||||||
| Affiliated Managers Group, Inc.* | 364,960 | $42,930,245 | ||||
| AllianceBernstein Holding LP* | 364,040 | 33,113,078 | ||||
| Food—1.8% | ||||||
| The Hershey Company | 529,105 | 29,079,611 | ||||
| Healthcare products—3.9% | ||||||
| C.R. Bard, Inc. | 180,703 | 15,021,840 | ||||
| Dade Behring Holdings, Inc. | 354,730 | 17,420,790 | ||||
| Dentsply International Inc. | 473,290 | 15,812,619 | ||||
| Edwards Lifesciences Corporation* | 311,645 | 15,270,605 | ||||
| Home builders—1.6% | ||||||
| Thor Industries, Inc. | 657,195 | 26,176,077 | ||||
| Home furnishings—1.8% | ||||||
| Harman International Industries, Inc. | 238,990 | 29,130,491 | ||||
| Insurance—12.3% | ||||||
| AMBAC Financial Group, Inc. | 396,350 | 36,384,930 | ||||
| Aon Corporation | 1,595,330 | 61,819,038 | ||||
| Arch Capital Group Ltd.* | 294,765 | 21,464,787 | ||||
| MBIA Inc. | 219,740 | 15,285,114 | ||||
| The Progressive Corporation | 1,372,020 | 31,652,501 | ||||
| Unum Group | 1,295,210 | 32,224,825 | ||||
| Internet—3.5% | ||||||
| Liberty Media Interactive, Class A* | 2,286,359 | 57,227,566 | ||||
| Oil & gas—1.0% | ||||||
| Range Resources Corporation | 429,080 | 15,682,874 | ||||
| Oil & gas services—2.6% | ||||||
| Cameron International Corporation* | 282,385 | 18,233,599 | ||||
| Dresser-Rand Group, Inc.* | 324,185 | 10,344,743 | ||||
| FMC Technologies, Inc.* | 201,060 | 14,251,133 | ||||
| Packaging & containers—0.7% | ||||||
| Greif Inc., Class A | 208,610 | 11,598,716 | ||||
| Pipelines—2.7% | ||||||
| Williams Companies, Inc. | 1,476,855 | 43,567,222 | ||||
| REIT—1.3% | ||||||
| KKR Financial Corporation | 783,730 | 20,933,428 | ||||
| Retail—4.5% | ||||||
| Advance Auto Parts, Inc. | 364,815 | 15,030,378 | ||||
| Staples, Inc. | 1,363,780 | 33,821,744 | ||||
| TJX Companies, Inc. | 872,640 | 24,337,930 | ||||
| Semiconductors—3.5% | ||||||
| Intersil Corporation, Class A | 1,085,395 | 32,333,917 | ||||
| Lam Research Corporation* | 466,405 | 25,083,261 | ||||
| Software—10.0% | ||||||
| ANSYS, Inc.* | 432,716 | 22,155,059 | ||||
| Autodesk, Inc.* | 944,725 | 38,988,801 | ||||
| Dun & Bradstreet Corporation | 168,160 | 15,184,848 | ||||
| Electronic Arts Inc.* | 405,300 | 20,431,173 | ||||
| Fiserv, Inc.* | 368,770 | 19,607,501 | ||||
| Intuit Inc.* | 1,028,560 | 29,262,532 | ||||
| Novell, Inc.* | 2,240,095 | 16,352,694 | ||||
| Telecommunications—1.4% | ||||||
| CommScope, Inc.* | 487,455 | 22,739,776 | ||||
| Textiles—1.0% | ||||||
| Cintas Corporation | 425,510 | 15,943,860 | ||||
| Transportation—1.1% | ||||||
| J.B. Hunt Transport Services, Inc. | 658,420 | 17,816,845 | ||||
| Total common stocks (cost $1,417,209,755) | 1,589,277,559 | |||||
| The accompanying notes are an integral part of the financial statements | 35 |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| MID CAP STOCK FUND (cont’d) | |||||||
| Repurchase agreement—4.3% (a) | Shares | Value | |||||
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2007 @ 4.98% to be repurchased at $70,404,738 on May 1, 2007, collaterlized by $74,655,000 United States Treasury Notes, 4.0% due February 15, 2014 (market value $72,769,162 including interest) (cost $70,395,000) | $70,395,000 | ||||||
| Total investment portfolio (cost $1,487,604,755) 102.3% (a) | 1,659,672,559 | ||||||
| Other assets and liabilities, net, (2.3%) (a) | (37,846,596 | ) | |||||
| Net assets, 100.0% | $1,621,825,963 | ||||||
* Non-income producing security (a) Percentages indicated are based on net assets.
REIT—Real estate investment trust | |||||||
| Sector allocation | ||
| Sector | Percent of net assets | |
| Consumer, non-cyclical | 19% | |
| Financial | 18% | |
| Technology | 15% | |
| Industrial | 14% | |
| Consumer, cyclical | 12% | |
| Communications | 9% | |
| Other sectors | 11% | |
| Cash/Other | 2% | |
| Common stocks—90.2% (a) | Shares | Value | ||||
| Building materials—2.0% | ||||||
| Goodman Global, Inc.* | 93,860 | $1,750,489 | ||||
| Lennox International Inc. | 104,500 | 3,533,145 | ||||
| Texas Industries Inc. | 46,925 | 3,574,277 | ||||
| Chemicals—1.7% | ||||||
| Quaker Chemical Corporation | 47,390 | 1,083,335 | ||||
| Terra Industries Inc.* | 348,225 | 6,142,689 | ||||
| Commercial services—7.1% | ||||||
| Chemed Corporation | 54,300 | 2,731,290 | ||||
| Corrections Corporation of America* | 85,002 | 4,828,114 | ||||
| Cross Country Healthcare, Inc.* | 151,716 | 2,987,288 | ||||
| Gartner, Inc.* | 105,350 | 2,657,980 | ||||
| Global Cash Access Holdings, Inc.* | 272,445 | 4,269,213 | ||||
| Interactive Data Corporation | 129,818 | 3,716,689 | ||||
| LECG Corporation* | 112,570 | 1,649,150 | ||||
| Net 1 UEPS Technologies, Inc.* | 66,775 | 1,681,394 | ||||
| On Assignment, Inc.* | 179,525 | 2,007,090 | ||||
| The GEO Group, Inc.* | 26,895 | 1,377,024 | ||||
| The Providence Service Corporation* | 121,750 | 2,919,565 | ||||
| Computers—2.1% | ||||||
| Electronics for Imaging, Inc.* | 96,750 | 2,580,322 | ||||
| FactSet Research Systems Inc. | 48,247 | 2,967,673 | ||||
| Mercury Computer Systems, Inc.* | 118,650 | 1,610,080 | ||||
| SMART Modular Technologies (WWH), Inc.* | 151,700 | 2,017,610 | ||||
| Cosmetics/Personal care—0.4% | ||||||
| Physicians Formula Holdings, Inc.* | 87,780 | 1,845,136 | ||||
| Distribution/Wholesale—0.8% | ||||||
| MWI Veterinary Supply, Inc.* | 28,705 | 1,066,678 | ||||
| Pool Corporation | 58,540 | 2,349,210 | ||||
| Diversified manufacturer—0.6% | ||||||
| Actuant Corporation, Class A | 52,820 | 2,799,460 | ||||
| Electrical components & equipment—2.3% | ||||||
| Advanced Energy Industries, Inc.* | 56,075 | 1,373,838 | ||||
| Belden CDT, Inc. | 79,950 | 4,467,606 | ||||
| General Cable Corporation* | 68,490 | 3,934,066 | ||||
| Electronics—4.9% | ||||||
| Benchmark Electronics, Inc.* | 84,500 | 1,789,710 | ||||
| Coherent, Inc.* | 162,720 | 5,107,781 | ||||
| Daktronics, Inc. | 102,095 | 2,325,724 | ||||
| Dolby Laboratories, Inc., Class A* | 91,125 | 3,227,648 | ||||
| Eagle Test Systems, Inc.* | 82,605 | 1,426,588 | ||||
| OYO Geospace Corporation* | 78,223 | 5,851,863 | ||||
| Sonic Solutions, Inc.* | 119,690 | 1,559,561 | ||||
| Engineering & construction—2.4% | ||||||
| Dycom Industries, Inc.* | 118,250 | 3,063,858 | ||||
| Infrasource Services, Inc.* | 99,325 | 3,315,468 | ||||
| URS Corporation* | 96,900 | 4,234,530 | ||||
| Entertainment—1.3% | ||||||
| Lions Gate Entertainment Corporation* | 195,375 | 2,233,136 | ||||
| Vail Resorts, Inc.* | 58,920 | 3,359,618 | ||||
| Environmental control—1.3% | ||||||
| Waste Connections, Inc.* | 179,598 | 5,598,070 | ||||
| 36 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| SMALL CAP STOCK FUND (cont’d) | ||||||
| Common stocks—90.2% (a) | Shares | Value | ||||
| Financial services—1.9% | ||||||
| Advanta Corporation, Class A | 32,900 | $1,390,354 | ||||
| Cowen Group, Inc.* | 109,910 | 1,845,389 | ||||
| Investment Technology Group Inc.* | 54,530 | 2,063,415 | ||||
| Lazard Ltd., Class A | 56,380 | 3,052,977 | ||||
| Food—0.3% | ||||||
| B&G Foods, Inc. | 51,420 | 1,221,739 | ||||
| Gas—0.7% | ||||||
| AGL Resources, Inc. | 72,775 | 3,168,624 | ||||
| Healthcare products—4.4% | ||||||
| American Medical Systems Holdings, Inc.* | 197,675 | 3,504,778 | ||||
| Arrow International, Inc. | 93,695 | 2,983,249 | ||||
| Cutera, Inc.* | 69,750 | 2,042,280 | ||||
| DJO Inc.* | 41,115 | 1,605,952 | ||||
| Merit Medical Systems, Inc.* | 190,100 | 2,191,853 | ||||
| Respironics, Inc.* | 86,695 | 3,533,688 | ||||
| Thoratec Corporation* | 70,280 | 1,378,894 | ||||
| Vital Images, Inc.* | 61,915 | 1,910,697 | ||||
| Healthcare services—3.5% | ||||||
| AMERIGROUP Corporation* | 51,500 | 1,448,695 | ||||
| Amsurg Corporation* | 67,550 | 1,550,272 | ||||
| Centene Corporation* | 79,940 | 1,663,551 | ||||
| Horizon Health Corporation* | 128,005 | 2,479,457 | ||||
| Icon PLC, Sponsored ADR* | 46,785 | 2,195,620 | ||||
| Matria Healthcare, Inc.* | 90,120 | 2,611,678 | ||||
| Pediatrix Medical Group, Inc.* | 53,479 | 3,050,977 | ||||
| Holding companies—0.4% | ||||||
| Compass Diversified Trust | 100,397 | 1,587,277 | ||||
| Home furnishings—1.4% | ||||||
| Universal Electronics, Inc.* | 220,330 | 6,235,339 | ||||
| Household products—0.6% | ||||||
| Jarden Corporation* | 59,900 | 2,524,186 | ||||
| Insurance—3.1% | ||||||
| American Equity Investment Life Holding Company | 158,900 | 2,168,985 | ||||
| American Safety Insurance Holdings, Ltd.* | 52,655 | 1,092,591 | ||||
| Assured Guaranty Ltd. | 68,250 | 1,925,332 | ||||
| First Mercury Financial Corporation* | 69,150 | 1,431,405 | ||||
| IPC Holdings Ltd. | 89,335 | 2,678,263 | ||||
| Platinum Underwriters Holdings, Ltd. | 50,600 | 1,731,532 | ||||
| RAM Holdings, Ltd.* | 145,400 | 2,326,400 | ||||
| Internet—2.4% | ||||||
| 1-800-FLOWERS.COM, Inc., Class A* | 403,000 | 3,260,270 | ||||
| CNET Networks, Inc.* | 372,290 | 3,138,405 | ||||
| Internet Capital Group, Inc.* | 126,075 | 1,509,118 | ||||
| SonicWALL, Inc.* | 250,372 | 2,043,036 | ||||
| U.S. Auto Parts Network, Inc.* | 97,100 | 563,180 | ||||
| Iron/Steel—0.4% | ||||||
| Claymont Steel Holdings, Inc.* | 83,240 | 1,924,509 | ||||
| Machinery—1.9% | ||||||
| Bucyrus International, Inc., Class A | 102,482 | 6,429,721 | ||||
| Wabtec Corporation | 47,400 | 1,760,910 | ||||
| Common stocks—90.2% (a) | Shares | Value | ||||
| Machinery-Diversified—0.3% | ||||||
| Flowserve Corporation | 20,600 | $1,256,806 | ||||
| Metal fabricate/hardware—1.3% | ||||||
| Kaydon Corporation | 100,450 | 4,774,388 | ||||
| Northwest Pipe Company* | 22,560 | 806,520 | ||||
| Mining—0.6% | ||||||
| Iamgold Corporation | 332,884 | 2,703,018 | ||||
| Multimedia—0.6% | ||||||
| Entravision Communications Corporation, Class A* | 251,620 | 2,468,392 | ||||
| Oil & gas—3.3% | ||||||
| Comstock Resources, Inc.* | 103,000 | 2,920,050 | ||||
| Edge Petroleum Corporation* | 90,715 | 1,245,517 | ||||
| Goodrich Petroleum Corporation* | 98,440 | 3,458,197 | ||||
| Grey Wolf, Inc.* | 235,500 | 1,686,180 | ||||
| Rosetta Resources, Inc.* | 72,600 | 1,561,626 | ||||
| Unit Corporation* | 59,620 | 3,407,283 | ||||
| Oil & gas services—3.5% | ||||||
| Core Laboratories N.V.* | 28,765 | 2,615,314 | ||||
| Dresser-Rand Group, Inc.* | 82,200 | 2,623,002 | ||||
| Lufkin Industries, Inc. | 17,210 | 1,070,806 | ||||
| Oceaneering International Inc.* | 104,950 | 4,989,323 | ||||
| Tetra Technologies, Inc.* | 150,050 | 3,974,824 | ||||
| Pharmaceuticals—1.5% | ||||||
| Animal Health International, Inc.* | 86,150 | 1,150,964 | ||||
| Cubist Pharmaceuticals, Inc.* | 131,810 | 2,827,324 | ||||
| Herbalife Ltd. | 64,970 | 2,604,647 | ||||
| Printing & publishing—0.8% | ||||||
| John Wiley & Sons, Inc., Class A | 94,075 | 3,523,109 | ||||
| REITs—2.0% | ||||||
| Annaly Capital Management, Inc. | 164,700 | 2,620,377 | ||||
| Deerfield Triarc Capital Corporation | 221,868 | 3,592,043 | ||||
| Kite Realty Group Trust | 113,328 | 2,266,560 | ||||
| Retail—7.3% | ||||||
| AFC Enterprises* | 117,400 | 2,231,774 | ||||
| Build-A-Bear Workshop, Inc.* | 144,045 | 3,968,440 | ||||
| Cash America International, Inc. | 115,545 | 4,986,922 | ||||
| Genesco Inc.* | 125,325 | 6,351,471 | ||||
| Guitar Center, Inc.* | 34,600 | 1,601,980 | ||||
| Insight Enterprises, Inc.* | 88,400 | 1,752,088 | ||||
| Nu Skin Enterprises, Inc., Class A | 141,425 | 2,450,895 | ||||
| Red Robin Gourmet Burgers, Inc.* | 47,505 | 1,881,198 | ||||
| School Specialty, Inc.* | 128,979 | 4,253,727 | ||||
| Stage Stores, Inc. | 93,150 | 2,053,958 | ||||
| Savings & loans—0.7% | ||||||
| BankAtlantic Bancorp, Inc., Class A | 151,700 | 1,462,388 | ||||
| Provident Financial Services, Inc. | 100,950 | 1,730,283 | ||||
| Semiconductors—0.4% | ||||||
| Microsemi Corporation* | 72,350 | 1,672,008 | ||||
| Software—7.5% | ||||||
| ANSYS, Inc.* | 82,595 | 4,228,864 | ||||
| Aspen Technology, Inc.* | 302,225 | 4,104,216 | ||||
| The accompanying notes are an integral part of the financial statements | 37 |
Table of Contents
Investment Portfolios
| UNAUDITED | 04.30.2007 |
| SMALL CAP STOCK FUND (cont’d) | ||||||
| Common stocks—90.2% (a) | Shares | Value | ||||
| Software (cont’d) | ||||||
| Avid Technology, Inc.* | 184,265 | $6,126,811 | ||||
| Bottomline Technologies, Inc.* | 153,200 | 1,902,744 | ||||
| Eclipsys Corporation* | 244,915 | 4,589,707 | ||||
| eFunds Corporation* | 68,625 | 1,914,638 | ||||
| SPSS, Inc.* | 64,750 | 2,373,735 | ||||
| Sybase, Inc.* | 82,850 | 2,004,142 | ||||
| The9 Ltd., Sponsored ADR* | 78,095 | 3,194,866 | ||||
| Trident Microsystems, Inc.* | 96,275 | 2,043,918 | ||||
| Telecommunications—3.6% | ||||||
| CommScope, Inc.* | 132,725 | 6,191,621 | ||||
| EMS Technologies, Inc.* | 100,535 | 1,888,047 | ||||
| Ixia* | 161,760 | 1,387,901 | ||||
| Premiere Global Services, Inc.* | 167,375 | 2,036,955 | ||||
| Sirenza Microdevices, Inc.* | 48,475 | 441,607 | ||||
| Switch & Data Facilities Company, Inc.* | 68,830 | 1,261,655 | ||||
| Symmetricom, Inc.* | 310,300 | 2,535,151 | ||||
| Transportation—0.8% | ||||||
| Genesee & Wyoming, Inc., Class A* | 58,950 | 1,602,850 | ||||
| Quintana Maritime Ltd. | 111,900 | 1,804,947 | ||||
| Total common stocks (cost $305,110,336) | 391,940,222 | |||||
| Investment companies—5.2% (a) | ||||||
| Apollo Investment Corporation | 177,290 | 3,895,061 | ||||
| iShares Russell 2000 Growth Index Fund | 43,700 | 3,611,368 | ||||
| iShares Russell 2000 Index Fund | 106,700 | 8,614,958 | ||||
| iShares Russell 2000 Value Index Fund | 52,100 | 4,255,528 | ||||
| PennantPark Investment Corporation* | 155,216 | 2,325,136 | ||||
| Total investment companies (cost $22,295,057) | 22,702,051 | |||||
| Total investment portfolio excluding repurchase agreement (cost $327,405,393) | 414,642,273 | |||||
| Repurchase agreement—5.2% (a) | Shares | Value | |||||
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2007 @ 4.98% to be repurchased at $22,723,143 on May 1, 2007, collaterlized by $17,375,000 United States Treasury Bonds, 9.25% due February 15, 2016 (market value $23,437,291 including interest) (cost $22,720,000) | $22,720,000 | ||||||
| Total investment portfolio (cost $350,125,393) 100.6% (a) | 437,362,273 | ||||||
| Other assets and liabilities, net, (0.6%) (a) | (2,835,522 | ) | |||||
| Net assets, 100.0% | $434,526,751 | ||||||
* Non-income producing security (a) Percentages indicated are based on net assets.
ADR—American depository receipt REIT—Real estate investment trust | |||||||
| Sector allocation | ||
| Sector | Percent of net assets | |
| Industrial | 19% | |
| Consumer, non-cyclical | 18% | |
| Financial | 16% | |
| Consumer, cyclical | 14% | |
| Technology | 11% | |
| Communications | 7% | |
| Other sectors | 10% | |
| Cash/Other | 5% | |
| 38 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Fiscal periods† | From investment operations | Dividends & distributions | Ratios to average daily net asset (%) | ||||||||||||||||||||||||||||||||||||||
| Beginning net asset value | Income (loss) | Realized & unrealized gain (loss) | Total | From investment income | From realized gains | Total | Ending net asset value | With expenses waived/ recovered | Without expenses waived/ recovered | Net income (loss) | Portfolio turnover rate (%) | Total return (%) (a) | Ending net assets (millions) | ||||||||||||||||||||||||||||
| Beginning | Ending | ||||||||||||||||||||||||||||||||||||||||
| Capital Appreciation Trust | |||||||||||||||||||||||||||||||||||||||||
| Class A | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | * | $29.67 | $— | $3.19 | (b) | $3.19 | $— | ($0.18 | ) | ($0.18 | ) | $32.68 | 1.20 | (d) | 1.20 | (d) | (0.03 | )(d) | 39 | 10.79 | (c) | $474 | ||||||||||||||||||
| 09/01/06 | 10/31/06 | * | 28.59 | (0.01 | ) | 1.09 | (b) | 1.08 | — | — | — | 29.67 | 1.23 | (d) | 1.23 | (d) | (0.19 | )(d) | 7 | 3.78 | (c) | 387 | |||||||||||||||||||
| 09/01/05 | 08/31/06 | * | 26.28 | (0.06 | ) | 2.37 | (b) | 2.31 | — | — | — | 28.59 | 1.19 | 1.19 | (0.23 | ) | 58 | 8.79 | 378 | ||||||||||||||||||||||
| 09/01/04 | 08/31/05 | * | 22.85 | — | 3.43 | (b) | 3.43 | — | — | — | 26.28 | 1.18 | 1.18 | 0.01 | 42 | 15.01 | 391 | ||||||||||||||||||||||||
| 09/01/03 | 08/31/04 | 21.82 | (0.08 | ) | 1.11 | 1.03 | — | — | — | 22.85 | 1.19 | 1.19 | (0.39 | ) | 27 | 4.72 | 321 | ||||||||||||||||||||||||
| 09/01/02 | 08/31/03 | 18.26 | (0.12 | ) | 3.68 | 3.56 | — | — | — | 21.82 | 1.26 | 1.26 | (0.66 | ) | 22 | 19.50 | 248 | ||||||||||||||||||||||||
| 09/01/01 | 08/31/02 | 23.61 | (0.17 | ) | (5.18 | ) | (5.35 | ) | — | — | — | 18.26 | 1.23 | 1.23 | (0.80 | ) | 31 | (22.66 | ) | 197 | |||||||||||||||||||||
| Class C | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | * | 27.13 | (0.11 | ) | 2.91 | (b) | 2.80 | — | (0.18 | ) | (0.18 | ) | 29.75 | 1.98 | (d) | 1.98 | (d) | (0.79 | )(d) | 39 | 10.36 | (c) | 158 | |||||||||||||||||
| 09/01/06 | 10/31/06 | * | 26.17 | (0.04 | ) | 1.00 | (b) | 0.96 | — | — | — | 27.13 | 1.99 | (d) | 1.99 | (d) | (0.94 | )(d) | 7 | 3.67 | (c) | 149 | |||||||||||||||||||
| 09/01/05 | 08/31/06 | * | 24.29 | (0.25 | ) | 2.13 | (b) | 1.88 | — | — | — | 26.17 | 1.94 | 1.94 | (0.98 | ) | 58 | 7.74 | 145 | ||||||||||||||||||||||
| 09/01/04 | 08/31/05 | * | 21.27 | (0.17 | ) | 3.19 | (b) | 3.02 | — | — | — | 24.29 | 1.93 | 1.93 | (0.73 | ) | 42 | 14.20 | 120 | ||||||||||||||||||||||
| 09/01/03 | 08/31/04 | 20.46 | (0.24 | ) | 1.05 | 0.81 | — | — | — | 21.27 | 1.94 | 1.94 | (1.14 | ) | 27 | 3.96 | 111 | ||||||||||||||||||||||||
| 09/01/02 | 08/31/03 | 17.25 | (0.21 | ) | 3.42 | 3.21 | — | — | — | 20.46 | 1.97 | 1.97 | (1.37 | ) | 22 | 18.61 | 96 | ||||||||||||||||||||||||
| 09/01/01 | 08/31/02 | 22.46 | (0.30 | ) | (4.91 | ) | (5.21 | ) | — | — | — | 17.25 | 1.93 | 1.93 | (1.50 | ) | 31 | (23.20 | ) | 67 | |||||||||||||||||||||
| Class I | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | * | 29.73 | 0.06 | 3.20 | (b) | 3.26 | — | (0.18 | ) | (0.18 | ) | 32.81 | 0.81 | (d) | 0.81 | (d) | 0.37 | (d) | 39 | 11.01 | (c) | 40 | ||||||||||||||||||
| 09/01/06 | 10/31/06 | * | 28.63 | 0.01 | 1.09 | (b) | 1.10 | — | — | — | 29.73 | 0.85 | (d) | 0.85 | (d) | 0.20 | (d) | 7 | 3.84 | (c) | 30 | ||||||||||||||||||||
| 03/21/06 | 08/31/06 | * | 28.93 | 0.01 | (0.31 | )(b) | (0.30 | ) | — | — | — | 28.63 | 0.91 | (d) | 0.91 | (d) | 0.07 | (d) | 58 | (1.04 | )(c) | 26 | |||||||||||||||||||
| Class R-5 | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | * | 29.68 | 0.06 | 3.19 | (b) | 3.25 | — | (0.18 | ) | (0.18 | ) | 32.75 | 0.80 | (d) | 0.80 | (d) | 0.40 | (d) | 39 | 10.99 | (c) | 10 | ||||||||||||||||||
| 10/02/06 | 10/31/06 | * | 29.04 | — | 0.64 | (b) | 0.64 | — | — | — | 29.68 | 0.85 | (d) | 0.85 | (d) | (0.20 | )(d) | 7 | 2.20 | (c) | 7 | ||||||||||||||||||||
| Core Equity Fund | |||||||||||||||||||||||||||||||||||||||||
| Class A* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 16.54 | 0.05 | (e) | 1.01 | (b) | 1.06 | (0.08 | ) | (0.12 | ) | (0.20 | ) | 17.40 | 1.44 | (d)(e) | 1.30 | (d) | 0.59 | (d) | 16 | 6.49 | (c) | 27 | |||||||||||||||||
| 11/01/05 | 10/31/06 | 14.29 | 0.09 | (e) | 2.16 | (b) | 2.25 | — | — | — | 16.54 | 1.53 | (e) | 1.52 | 0.57 | 43 | 15.75 | 23 | |||||||||||||||||||||||
| 05/02/05 | 10/31/05 | 14.29 | (0.01 | ) | 0.01 | (b) | — | — | — | — | 14.29 | 1.65 | (d) | 3.25 | (d) | (0.09 | )(d) | 66 | — | (c) | 19 | ||||||||||||||||||||
| Class C* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 16.35 | (0.02 | )(e) | 1.00 | (b) | 0.98 | — | (0.12 | ) | (0.12 | ) | 17.21 | 2.26 | (d)(e) | 2.12 | (d) | (0.23 | )(d) | 16 | 6.05 | (c) | 17 | ||||||||||||||||||
| 11/01/05 | 10/31/06 | 14.23 | (0.03 | )(e) | 2.15 | (b) | 2.12 | — | — | — | 16.35 | 2.28 | (e) | 2.27 | (0.19 | ) | 43 | 14.90 | 15 | ||||||||||||||||||||||
| 05/02/05 | 10/31/05 | 14.29 | (0.05 | ) | (0.01 | )(b) | (0.06 | ) | — | — | — | 14.23 | 2.40 | (d) | 4.00 | (d) | (0.85 | )(d) | 66 | (0.42 | )(c) | 10 | |||||||||||||||||||
| Class I* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 16.60 | 0.09 | (e) | 1.01 | (b) | 1.10 | (0.14 | ) | (0.12 | ) | (0.26 | ) | 17.44 | 0.95 | (d)(e) | 1.07 | (d) | 1.06 | (d) | 16 | 6.73 | (c) | 163 | |||||||||||||||||
| 03/03/06 | 10/31/06 | 15.17 | 0.08 | (e) | 1.35 | (b) | 1.43 | — | — | — | 16.60 | 0.95 | (d)(e) | 1.23 | (d) | 0.87 | (d) | 43 | 9.43 | (c) | 128 | ||||||||||||||||||||
| Class R-5* | |||||||||||||||||||||||||||||||||||||||||
| 04/02/06 | 04/30/07 | 16.51 | (0.02 | )(e) | 0.91 | (b) | 0.89 | — | — | — | 17.40 | 0.95 | (d)(e) | 2.56 | (d) | (0.53 | )(d) | 16 | 5.39 | (c) | 0 | ||||||||||||||||||||
| Diversified Growth Fund | |||||||||||||||||||||||||||||||||||||||||
| Class A* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 28.11 | (0.12 | ) | 4.01 | (b) | 3.89 | — | (2.57 | ) | (2.57 | ) | 29.43 | 1.35 | (d) | 1.35 | (d) | (0.90 | )(d) | 47 | 14.61 | (c) | 116 | ||||||||||||||||||
| 11/01/05 | 10/31/06 | 26.72 | (0.14 | ) | 2.95 | (b) | 2.81 | — | (1.42 | ) | (1.42 | ) | 28.11 | 1.29 | 1.29 | (0.49 | ) | 111 | 10.70 | 135 | |||||||||||||||||||||
| 11/01/04 | 10/31/05 | 25.26 | (0.22 | ) | 2.89 | (b) | 2.67 | — | (1.21 | ) | (1.21 | ) | 26.72 | 1.34 | 1.34 | (0.81 | ) | 75 | 10.66 | 127 | |||||||||||||||||||||
| 11/01/03 | 10/31/04 | 23.92 | (0.23 | ) | 1.57 | 1.34 | — | — | — | 25.26 | 1.38 | 1.38 | (0.92 | ) | 92 | 5.60 | 80 | ||||||||||||||||||||||||
| 11/01/02 | 10/31/03 | 18.21 | (0.23 | ) | 5.94 | 5.71 | — | — | — | 23.92 | 1.48 | 1.48 | (1.14 | ) | 152 | 31.36 | 60 | ||||||||||||||||||||||||
| 11/01/01 | 10/31/02 | 17.98 | (0.23 | ) | 0.46 | 0.23 | — | — | — | 18.21 | 1.45 | 1.45 | (1.13 | ) | 201 | 1.28 | 41 | ||||||||||||||||||||||||
| Class C* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 26.18 | (0.21 | ) | 3.71 | (b) | 3.50 | — | (2.57 | ) | (2.57 | ) | 27.11 | 2.10 | 2.10 | (d) | (1.64 | )(d) | 47 | 14.16 | (c) | 63 | |||||||||||||||||||
| 11/01/05 | 10/31/06 | 25.15 | (0.32 | ) | 2.77 | (b) | 2.45 | — | (1.42 | ) | (1.42 | ) | 26.18 | 2.04 | 2.04 | (1.23 | ) | 111 | 9.90 | 64 | |||||||||||||||||||||
| 11/01/04 | 10/31/05 | 24.02 | (0.39 | ) | 2.73 | (b) | 2.34 | — | (1.21 | ) | (1.21 | ) | 25.15 | 2.09 | 2.09 | (1.55 | ) | 75 | 9.80 | 67 | |||||||||||||||||||||
| 11/01/03 | 10/31/04 | 22.92 | (0.40 | ) | 1.50 | 1.10 | — | — | — | 24.02 | 2.13 | 2.13 | (1.68 | ) | 92 | 4.80 | 65 | ||||||||||||||||||||||||
| 11/01/02 | 10/31/03 | 17.57 | (0.37 | ) | 5.72 | 5.35 | — | — | — | 22.92 | 2.23 | 2.23 | (1.89 | ) | 152 | 30.45 | 52 | ||||||||||||||||||||||||
| 11/01/01 | 10/31/02 | 17.48 | (0.37 | ) | 0.46 | 0.09 | — | — | — | 17.57 | 2.20 | 2.20 | (1.88 | ) | 201 | 0.51 | 36 | ||||||||||||||||||||||||
| Class I* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 28.16 | (0.07 | ) | 4.02 | (b) | 3.95 | — | (2.57 | ) | (2.57 | ) | 29.54 | 0.95 | (d) | 1.06 | (d) | (0.48 | )(d) | 47 | 14.81 | (c) | 0 | ||||||||||||||||||
| 06/21/06 | 10/31/06 | 26.63 | (0.04 | ) | 1.57 | (b) | 1.53 | — | — | — | 28.16 | 0.95 | (d) | 1.05 | (d) | (0.42 | )(d) | 111 | 5.75 | (c) | 0 | ||||||||||||||||||||
| The accompanying notes are an integral part of the financial statements | 39 |
Table of Contents
Financial Highlights
Fiscal periods† | From investment operations | Dividends & distributions | Ratios to average daily net asset (%) | ||||||||||||||||||||||||||||||||||||||
| Beginning net asset value | Income (loss) | Realized & unrealized gain (loss) | Total | From investment income | From realized gains | Total | Ending net asset value | With expenses waived/ recovered | Without expenses waived/ recovered | Net income (loss) | Portfolio turnover rate (%) | Total return (%) (a) | Ending net assets (millions) | ||||||||||||||||||||||||||||
| Beginning | Ending | ||||||||||||||||||||||||||||||||||||||||
| Growth and Income Trust | |||||||||||||||||||||||||||||||||||||||||
| Class A* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | $14.68 | $0.18 | (e) | $1.40 | (b) | $1.58 | ($0.16 | ) | ($0.53 | ) | ($0.69 | ) | $15.57 | 1.35 | (d)(e) | 1.43 | (d) | 2.42 | (d) | 45 | 11.11 | (c) | $80 | |||||||||||||||||
| 10/01/06 | 10/31/06 | 14.43 | 0.02 | 0.34 | (b) | 0.36 | (0.11 | ) | — | (0.11 | ) | 14.68 | 1.35 | (d) | 1.56 | (d) | 1.33 | (d) | 4 | 2.52 | (c) | 68 | |||||||||||||||||||
| 10/01/05 | 09/30/06 | 13.81 | 0.38 | 1.43 | (b) | 1.81 | (0.34 | ) | (0.85 | ) | (1.19 | ) | 14.43 | 1.35 | 1.42 | 2.74 | 54 | 13.90 | 68 | ||||||||||||||||||||||
| 10/01/04 | 09/30/05 | 11.80 | 0.28 | 1.99 | (b) | 2.27 | (0.26 | ) | — | (0.26 | ) | 13.81 | 1.35 | 1.51 | 2.13 | 73 | 19.41 | 45 | |||||||||||||||||||||||
| 10/01/03 | 09/30/04 | 11.10 | 0.16 | 0.68 | 0.84 | (0.14 | ) | — | (0.14 | ) | 11.80 | 1.35 | 1.50 | 1.31 | 80 | 7.57 | 41 | ||||||||||||||||||||||||
| 10/01/02 | 09/30/03 | 9.07 | 0.12 | 2.02 | 2.14 | (0.11 | ) | — | (0.11 | ) | 11.10 | 1.35 | 1.61 | 1.20 | 82 | 23.82 | 36 | ||||||||||||||||||||||||
| 10/01/01 | 09/30/02 | 11.33 | 0.11 | (2.28 | ) | (2.17 | ) | (0.09 | ) | — | (0.09 | ) | 9.07 | 1.35 | 1.59 | 0.98 | 72 | (19.29 | ) | 29 | |||||||||||||||||||||
| Class C* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 14.38 | 0.12 | (e) | 1.35 | (b) | 1.47 | (0.12 | ) | (0.53 | ) | (0.65 | ) | 15.20 | 2.13 | (d)(e) | 2.19 | (d) | 1.68 | (d) | 45 | 10.57 | (c) | 50 | |||||||||||||||||
| 10/01/06 | 10/31/06 | 14.12 | 0.01 | 0.34 | (b) | 0.35 | (0.09 | ) | — | (0.09 | ) | 14.38 | 2.10 | (d) | 2.31 | (d) | 0.58 | (d) | 4 | 2.46 | (c) | 47 | |||||||||||||||||||
| 10/01/05 | 09/30/06 | 13.54 | 0.27 | 1.40 | (b) | 1.67 | (0.24 | ) | (0.85 | ) | (1.09 | ) | 14.12 | 2.10 | 2.17 | 2.00 | 54 | 13.01 | 46 | ||||||||||||||||||||||
| 10/01/04 | 09/30/05 | 11.57 | 0.18 | 1.96 | (b) | 2.14 | (0.17 | ) | — | (0.17 | ) | 13.54 | 2.10 | 2.26 | 1.37 | 73 | 18.60 | 31 | |||||||||||||||||||||||
| 10/01/03 | 09/30/04 | 10.88 | 0.07 | 0.66 | 0.73 | (0.04 | ) | — | (0.04 | ) | 11.57 | 2.10 | 2.25 | 0.57 | 80 | 6.73 | 26 | ||||||||||||||||||||||||
| 10/01/02 | 09/30/03 | 8.90 | 0.04 | 1.99 | 2.03 | (0.05 | ) | — | (0.05 | ) | 10.88 | 2.10 | 2.36 | 0.45 | 82 | 22.82 | 19 | ||||||||||||||||||||||||
| 10/01/01 | 09/30/02 | 11.14 | 0.02 | (2.22 | ) | (2.20 | ) | (0.04 | ) | — | (0.04 | ) | 8.90 | 2.10 | 2.34 | 0.21 | 72 | (19.83 | ) | 14 | |||||||||||||||||||||
| High Yield Bond Fund | |||||||||||||||||||||||||||||||||||||||||
| Class A | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | * | 7.75 | 0.29 | (e) | 0.24 | (b) | 0.53 | (0.29 | ) | — | (0.29 | ) | 7.99 | 1.20 | (d)(e) | 1.67 | (d) | 7.48 | (d) | 60 | 6.99 | (c) | 36 | |||||||||||||||||
| 10/01/06 | 10/31/06 | * | 7.69 | 0.05 | 0.06 | (b) | 0.11 | (0.05 | ) | — | (0.05 | ) | 7.75 | 1.20 | (d) | 1.90 | (d) | 7.06 | (d) | 5 | 1.40 | (c) | 31 | ||||||||||||||||||
| 10/01/05 | 09/30/06 | * | 7.77 | 0.57 | (0.07 | )(b) | 0.50 | (0.58 | ) | — | (0.58 | ) | 7.69 | 1.17 | 1.52 | 7.40 | 63 | 6.79 | 32 | ||||||||||||||||||||||
| 10/01/04 | 09/30/05 | * | 7.85 | 0.57 | (0.09 | )(b) | 0.48 | (0.56 | ) | — | (0.56 | ) | 7.77 | 1.10 | 1.34 | 7.14 | 25 | 6.35 | 38 | ||||||||||||||||||||||
| 10/01/03 | 09/30/04 | * | 7.61 | 0.58 | 0.27 | 0.85 | (0.61 | ) | — | (0.61 | ) | 7.85 | 1.10 | 1.24 | 7.54 | 35 | 11.60 | 43 | |||||||||||||||||||||||
| 10/01/02 | 09/30/03 | * | 6.64 | 0.56 | 0.95 | 1.51 | (0.54 | ) | — | (0.54 | ) | 7.61 | 1.10 | 1.32 | 7.75 | 31 | 23.70 | 52 | |||||||||||||||||||||||
| 10/01/01 | 09/30/02 | 7.10 | 0.57 | (0.44 | ) | 0.13 | (0.59 | ) | — | (0.59 | ) | 6.64 | 1.12 | 1.59 | 8.36 | 61 | 1.68 | 23 | |||||||||||||||||||||||
| Class C | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | * | 7.68 | 0.27 | (e) | 0.24 | (b) | 0.51 | (0.27 | ) | — | (0.27 | ) | 7.92 | 1.79 | (d)(e) | 2.20 | (d) | 6.89 | (d) | 60 | 6.76 | (c) | 19 | |||||||||||||||||
| 10/01/06 | 10/31/06 | * | 7.62 | 0.04 | 0.06 | (b) | 0.10 | (0.04 | ) | — | (0.04 | ) | 7.68 | 1.75 | (d) | 2.45 | (d) | 6.51 | (d) | 5 | 1.37 | (c) | 21 | ||||||||||||||||||
| 10/01/05 | 09/30/06 | * | 7.70 | 0.52 | (0.06 | )(b) | 0.46 | (0.54 | ) | — | (0.54 | ) | 7.62 | 1.72 | 2.07 | 6.85 | 63 | 6.26 | 21 | ||||||||||||||||||||||
| 10/01/04 | 09/30/05 | * | 7.79 | 0.52 | (0.09 | )(b) | 0.43 | (0.52 | ) | — | (0.52 | ) | 7.70 | 1.65 | 1.89 | 6.59 | 25 | 5.68 | 25 | ||||||||||||||||||||||
| 10/01/03 | 09/30/04 | * | 7.55 | 0.54 | 0.27 | 0.81 | (0.57 | ) | — | (0.57 | ) | 7.79 | 1.65 | 1.79 | 7.00 | 35 | 11.07 | 28 | |||||||||||||||||||||||
| 10/01/02 | 09/30/03 | * | 6.60 | 0.52 | 0.94 | 1.46 | (0.51 | ) | — | (0.51 | ) | 7.55 | 1.65 | 1.87 | 7.15 | 31 | 22.90 | 31 | |||||||||||||||||||||||
| 10/01/01 | 09/30/02 | 7.06 | 0.54 | (0.45 | ) | 0.09 | (0.55 | ) | — | (0.55 | ) | 6.60 | 1.65 | 2.12 | 7.82 | 61 | 1.15 | 9 | |||||||||||||||||||||||
| International Equity Fund | |||||||||||||||||||||||||||||||||||||||||
| Class A* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 29.97 | 0.02 | (e) | 5.27 | (b) | 5.29 | (0.47 | ) | (2.12 | ) | (2.59 | ) | 32.67 | 1.60 | (d)(e) | 1.47 | (d) | 0.12 | (d) | 22 | 18.60 | (c) | 127 | |||||||||||||||||
| 11/01/05 | 10/31/06 | 25.20 | 0.24 | (e) | 6.73 | (b) | 6.97 | (0.16 | ) | (2.04 | ) | (2.20 | ) | 29.97 | 1.71 | (e) | 1.53 | 0.86 | 58 | 29.31 | 91 | ||||||||||||||||||||
| 11/01/04 | 10/31/05 | 20.95 | 0.09 | 4.49 | (b) | 4.58 | (0.33 | ) | — | (0.33 | ) | 25.20 | 1.78 | 2.00 | 0.38 | 78 | 21.98 | 50 | |||||||||||||||||||||||
| 11/01/03 | 10/31/04 | 17.93 | 0.05 | 3.12 | 3.17 | (0.15 | ) | — | (0.15 | ) | 20.95 | 1.78 | 2.15 | 0.24 | 162 | 17.74 | 29 | ||||||||||||||||||||||||
| 11/01/02 | 10/31/03 | 14.68 | 0.10 | 3.15 | 3.25 | — | — | 0.00 | 17.93 | 1.78 | 2.43 | 0.63 | 133 | 22.14 | 23 | ||||||||||||||||||||||||||
| 11/01/01 | 10/31/02 | 17.14 | (0.09 | )(f) | (2.37 | ) | (2.46 | ) | — | — | 0.00 | 14.68 | 1.85 | (f) | 2.81 | (0.54 | ) | 234 | (14.35 | ) | 7 | ||||||||||||||||||||
| Class C* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 27.85 | (0.09 | )(e) | 4.90 | (b) | 4.81 | (0.31 | ) | (2.12 | ) | (2.43 | ) | 30.23 | 2.37 | (d)(e) | 2.24 | (d) | (0.67 | )(d) | 22 | 18.19 | (c) | 154 | |||||||||||||||||
| 11/01/05 | 10/31/06 | 23.58 | 0.02 | (e) | 6.30 | (b) | 6.32 | (0.01 | ) | (2.04 | ) | (2.05 | ) | 27.85 | 2.46 | (e) | 2.28 | 0.07 | 58 | 28.38 | 118 | ||||||||||||||||||||
| 11/01/04 | 10/31/05 | 19.66 | (0.08 | ) | 4.20 | (b) | 4.12 | (0.20 | ) | — | (0.20 | ) | 23.58 | 2.53 | 2.75 | (0.35 | ) | 78 | 21.06 | 73 | |||||||||||||||||||||
| 11/01/03 | 10/31/04 | 16.89 | (0.09 | ) | 2.93 | 2.84 | (0.07 | ) | — | (0.07 | ) | 19.66 | 2.53 | 2.90 | (0.46 | ) | 162 | 16.85 | 47 | ||||||||||||||||||||||
| 11/01/02 | 10/31/03 | 13.94 | (0.03 | ) | 2.98 | 2.95 | — | — | — | 16.89 | 2.53 | 3.18 | (0.25 | ) | 133 | 21.16 | 26 | ||||||||||||||||||||||||
| 11/01/01 | 10/31/02 | 16.39 | (0.20 | )(f) | (2.25 | ) | (2.45 | ) | — | — | — | 13.94 | 2.60 | (f) | 3.56 | (1.30 | ) | 234 | (14.95 | ) | 11 | ||||||||||||||||||||
| Mid Cap Stock Fund | |||||||||||||||||||||||||||||||||||||||||
| Class A* | |||||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 30.12 | (0.05 | ) | 3.05 | (b) | 3.00 | — | (3.08 | ) | (3.08 | ) | 30.04 | 1.13 | (d) | 1.13 | (d) | (0.32 | )(d) | 85 | 10.69 | (c) | 1,157 | ||||||||||||||||||
| 11/01/05 | 10/31/06 | 27.79 | (0.10 | ) | 4.39 | (b) | 4.29 | — | (1.96 | ) | (1.96 | ) | 30.12 | 1.13 | 1.13 | (0.35 | ) | 180 | 16.18 | 904 | |||||||||||||||||||||
| 11/01/04 | 10/31/05 | 24.57 | (0.13 | ) | 3.35 | (b) | 3.22 | — | — | — | 27.79 | 1.15 | 1.15 | (0.48 | ) | 146 | 13.11 | 633 | |||||||||||||||||||||||
| 11/01/03 | 10/31/04 | 21.67 | (0.15 | ) | 3.05 | 2.90 | — | — | — | 24.57 | 1.20 | 1.20 | (0.64 | ) | 124 | 13.38 | 370 | ||||||||||||||||||||||||
| 11/01/02 | 10/31/03 | 17.99 | (0.14 | ) | 3.82 | 3.68 | — | — | — | 21.67 | 1.28 | 1.28 | (0.72 | ) | 163 | 20.46 | 217 | ||||||||||||||||||||||||
| 11/01/01 | 10/31/02 | 20.21 | (0.19 | )(e) | (1.44 | ) | (1.63 | ) | — | (0.59 | ) | (0.59 | ) | 17.99 | 1.27 | (e) | 1.27 | (0.88 | ) | 171 | (8.50 | ) | 174 | ||||||||||||||||||
| 40 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Financial Highlights
Fiscal periods† | From investment operations | Dividends & distributions | Ratios to average daily net asset (%) | ||||||||||||||||||||||||||||||||||||
| Beginning net asset value | Income (loss) | Realized & unrealized gain (loss) | Total | From investment income | From realized gains | Total | Ending net asset value | With expenses waived/ recovered | Without expenses waived/ recovered | Net income (loss) | Portfolio turnover rate (%) | Total return (%) (a) | Ending net assets (millions) | ||||||||||||||||||||||||||
| Beginning | Ending | ||||||||||||||||||||||||||||||||||||||
| Mid Cap Stock Fund (cont’d) | |||||||||||||||||||||||||||||||||||||||
| Class C* | |||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | $27.83 | ($0.14 | ) | $2.79 | (b) | $2.65 | $— | ($3.08 | ) | ($3.08 | ) | $27.40 | 1.89 | (d) | 1.89 | (d) | (1.08 | )(d) | 85 | 10.27 | (c) | $382 | ||||||||||||||||
| 11/01/05 | 10/31/06 | 26.00 | (0.29 | ) | 4.08 | (b) | 3.79 | — | (1.96 | ) | (1.96 | ) | 27.83 | 1.88 | 1.88 | (1.10 | ) | 180 | 15.31 | 345 | |||||||||||||||||||
| 11/01/04 | 10/31/05 | 23.16 | (0.31 | ) | 3.15 | (b) | 2.84 | — | — | — | 26.00 | 1.90 | 1.90 | (1.23 | ) | 146 | 12.26 | 284 | |||||||||||||||||||||
| 11/01/03 | 10/31/04 | 20.59 | (0.31 | ) | 2.88 | 2.57 | — | — | — | 23.16 | 1.95 | 1.95 | (1.39 | ) | 124 | 12.48 | 214 | ||||||||||||||||||||||
| 11/01/02 | 10/31/03 | 17.22 | (0.27 | ) | 3.64 | 3.37 | — | — | — | 20.59 | 2.03 | 2.03 | (1.46 | ) | 163 | 19.57 | 149 | ||||||||||||||||||||||
| 11/01/01 | 10/31/02 | 19.51 | (0.33 | )(e) | (1.37 | ) | (1.70 | ) | — | (0.59 | ) | (0.59 | ) | 17.22 | 2.02 | (e) | 2.01 | (1.64 | ) | 171 | (9.18 | ) | 100 | ||||||||||||||||
| Class I* | |||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 30.15 | — | 3.06 | (b) | 3.06 | — | (3.08 | ) | (3.08 | ) | 30.13 | 0.82 | (d) | 0.82 | (d) | 0.01 | (d) | 85 | 10.89 | (c) | 63 | |||||||||||||||||
| 06/06/06 | 10/31/06 | 28.21 | (0.01 | ) | 1.95 | (b) | 1.94 | — | — | — | 30.15 | 0.84 | (d) | 0.84 | (d) | (0.15 | )(d) | 180 | 6.88 | (c) | 17 | ||||||||||||||||||
| Class R-3* | |||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 30.10 | — | 2.98 | (b) | 2.98 | — | (3.08 | ) | (3.08 | ) | 30.00 | 1.27 | (d) | 1.27 | (d) | (0.43 | )(d) | 85 | 10.62 | (c) | 1 | |||||||||||||||||
| 08/10/06 | 10/31/06 | 27.82 | (0.04 | ) | 2.32 | (b) | 2.28 | — | — | — | 30.10 | 1.27 | (d) | 1.27 | (d) | (0.60 | )(d) | 180 | 8.20 | (c) | 0 | ||||||||||||||||||
| Class R-5* | |||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 30.13 | 0.02 | 3.04 | (b) | 3.06 | — | (3.08 | ) | (3.08 | ) | 30.11 | 0.70 | (d) | 0.70 | (d) | 0.12 | (d) | 85 | 10.90 | (c) | 19 | |||||||||||||||||
| 10/02/06 | 10/31/06 | 28.96 | — | 1.17 | (b) | 1.17 | — | — | — | 30.13 | 0.67 | (d) | 0.67 | (d) | (0.15 | )(d) | 180 | 4.04 | (c) | 12 | |||||||||||||||||||
| Small Cap Stock Fund | |||||||||||||||||||||||||||||||||||||||
| Class A* | |||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 37.87 | (0.06 | ) | 3.82 | (b) | 3.76 | — | (2.85 | ) | (2.85 | ) | 38.78 | 1.26 | (d) | 1.26 | (d) | (0.31 | )(d) | 44 | 10.39 | (c) | 312 | ||||||||||||||||
| 11/01/05 | 10/31/06 | 32.93 | (0.15 | ) | 6.23 | (b) | 6.08 | — | (1.14 | ) | (1.14 | ) | 37.87 | 1.24 | 1.24 | (0.43 | ) | 49 | 18.89 | 269 | |||||||||||||||||||
| 11/01/04 | 10/31/05 | 32.19 | (0.13 | )(e) | 2.43 | (b) | 2.30 | — | (1.56 | ) | (1.56 | ) | 32.93 | 1.30 | (e) | 1.25 | (0.39 | ) | 50 | 7.08 | 225 | ||||||||||||||||||
| 11/01/03 | 10/31/04 | 29.00 | (0.16 | ) | 3.35 | 3.19 | — | — | — | 32.19 | 1.33 | 1.33 | (0.50 | ) | 59 | 11.00 | 182 | ||||||||||||||||||||||
| 11/01/02 | 10/31/03 | 21.36 | (0.19 | ) | 7.83 | 7.64 | — | — | — | 29.00 | 1.30 | 1.42 | (0.83 | ) | 45 | 35.77 | 111 | ||||||||||||||||||||||
| 11/01/01 | 10/31/02 | 24.41 | 0.02 | (1.48 | ) | (1.46 | ) | — | (1.59 | ) | (1.59 | ) | 21.36 | 1.30 | 1.34 | 0.06 | 54 | (6.98 | ) | 83 | |||||||||||||||||||
| Class C* | |||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 34.17 | (0.18 | ) | 3.41 | (b) | 3.23 | — | (2.85 | ) | (2.85 | ) | 34.55 | 2.01 | (d) | 2.01 | (d) | (1.06 | )(d) | 44 | 9.94 | (c) | 107 | ||||||||||||||||
| 11/01/05 | 10/31/06 | 30.03 | (0.38 | ) | 5.66 | (b) | 5.28 | — | (1.14 | ) | (1.14 | ) | 34.17 | 1.99 | 1.99 | (1.18 | ) | 49 | 18.02 | 100 | |||||||||||||||||||
| 11/01/04 | 10/31/05 | 29.70 | (0.34 | )(e) | 2.23 | (b) | 1.89 | — | (1.56 | ) | (1.56 | ) | 30.03 | 2.05 | (e) | 2.00 | (1.13 | ) | 50 | 6.26 | 91 | ||||||||||||||||||
| 11/01/03 | 10/31/04 | 26.96 | (0.36 | ) | 3.10 | 2.74 | — | — | — | 29.70 | 2.08 | 2.08 | (1.26 | ) | 59 | 10.16 | 78 | ||||||||||||||||||||||
| 11/01/02 | 10/31/03 | 20.00 | (0.35 | ) | 7.31 | 6.96 | — | — | — | 26.96 | 2.05 | 2.17 | (1.58 | ) | 45 | 34.79 | 57 | ||||||||||||||||||||||
| 11/01/01 | 10/31/02 | 23.12 | (0.15 | ) | (1.38 | ) | (1.53 | ) | — | (1.59 | ) | (1.59 | ) | 20.00 | 2.05 | 2.09 | (0.66 | ) | 54 | (7.72 | ) | 43 | |||||||||||||||||
| Class I* | |||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 37.91 | (0.02 | ) | 3.84 | (b) | 3.82 | — | (2.85 | ) | (2.85 | ) | 38.88 | 0.95 | (d) | 0.95 | (d) | (0.11 | )(d) | 44 | 10.55 | (c) | 1 | ||||||||||||||||
| 06/27/06 | 10/31/06 | 33.68 | (0.02 | ) | 4.25 | (b) | 4.23 | — | — | — | 37.91 | 0.95 | (d) | 1.08 | (d) | (0.14 | )(d) | 49 | 12.56 | (c) | 0 | ||||||||||||||||||
| Class R-3* | |||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 37.88 | (0.10 | ) | 3.80 | (b) | 3.70 | — | (2.85 | ) | (2.85 | ) | 38.73 | 1.49 | (d) | 1.49 | (d) | (0.68 | )(d) | 44 | 10.23 | (c) | 0 | ||||||||||||||||
| 09/19/06 | 10/31/06 | 35.99 | (0.03 | ) | 1.92 | (b) | 1.89 | — | — | — | 37.88 | 1.60 | (d) | 2.05 | (d) | (1.04 | )(d) | 49 | 5.25 | (c) | 0 | ||||||||||||||||||
| Class R-5* | |||||||||||||||||||||||||||||||||||||||
| 11/01/06 | 04/30/07 | 37.88 | 0.03 | 3.81 | (b) | 3.84 | — | (2.85 | ) | (2.85 | ) | 38.87 | 0.81 | (d) | 0.81 | (d) | 0.14 | (d) | 44 | 10.62 | (c) | 14 | |||||||||||||||||
| 10/02/06 | 10/31/06 | 35.86 | — | 2.02 | (b) | 2.02 | — | — | — | 37.88 | 0.83 | (d) | 0.83 | (d) | (0.10 | )(d) | 49 | 5.63 | (c) | 13 | |||||||||||||||||||
† The data for the fiscal periods ending April 30, 2007 is unaudited.
* Per share amounts have been calculated using the monthly average share method.
(a) Total returns are calculated without the imposition of either front-end or contingent deferred sales charges. (b) Redemption fee amounts represent less than $0.01 per share. (c) Not annualized. (d) Annualized. (e) Includes the recovery of previously waived investment advisory fees to the Manager. (f) Effective July 1, 2002, Eagle Class shares of the International Equity Fund were discontinued and redesignated as Class C shares. Prior to July 1, 2002, the expense limitations of the International Equity Fund's Class A, B and C shares were 1.90%, 2.65% and 2.65%, respectively. Thereafter, the expense limitations of Class A, B and C shares were 1.78%, 2.53% and 2.53%, respectively.
| The accompanying notes are an integral part of the financial statements | 41 |
Table of Contents
Statements of Assets and Liabilities
| UNAUDITED | 04.30.2007 |
| Capital Appreciation Trust | Core Equity Fund | Diversified Growth Fund | Growth & Income Trust | High Yield Bond Fund | International Equity Fund | Mid Cap Stock Fund | Small Cap Stock Fund | |||||||||||||||
| Assets | ||||||||||||||||||||||
| Investments, at value (a) | $680,182,978 | $191,654,919 | $172,334,847 | $128,645,085 | $52,580,109 | $271,298,532 | $1,589,277,559 | $414,642,273 | ||||||||||||||
| Repurchase agreements (b) | 5,374,000 | 13,327,000 | 8,582,000 | 1,646,000 | 1,211,000 | 9,227,000 | 70,395,000 | 22,720,000 | ||||||||||||||
| Cash | 859 | 729 | 455 | 614 | 285 | 390 | 227 | 754 | ||||||||||||||
| Foreign currency (identified cost $1,358,458) | — | — | — | — | — | 1,366,775 | — | — | ||||||||||||||
| Receivable for investments sold | 5,586,064 | 3,735,314 | 2,599,005 | — | 27,827 | 9,977,786 | 21,385,624 | — | ||||||||||||||
| Receivable for fund shares sold | 1,470,925 | 1,173,952 | 164,844 | 136,324 | 107,542 | 928,527 | 4,784,076 | 958,208 | ||||||||||||||
| Receivable for dividends and interest | 163,667 | 23,165 | 24,365 | 285,501 | 1,175,171 | 481,514 | 1,235,040 | 52,768 | ||||||||||||||
| Receivable for recoverable foreign withholding taxes | — | — | — | — | — | 82,860 | — | — | ||||||||||||||
| Prepaid expenses | 142,750 | 81,389 | 77,169 | 55,791 | 41,227 | 28,624 | 222,133 | 96,537 | ||||||||||||||
| Total assets | 692,921,243 | 209,996,468 | 183,782,685 | 130,769,315 | 55,143,161 | 293,392,008 | 1,687,299,659 | 438,470,540 | ||||||||||||||
| Liabilities | ||||||||||||||||||||||
| Payable for investments purchased | 7,855,848 | 2,675,644 | 3,396,152 | — | — | 11,124,316 | 57,404,711 | 2,180,380 | ||||||||||||||
| Payable for fund shares redeemed | 1,579,062 | 416,468 | 546,237 | 395,712 | 119,288 | 449,020 | 6,313,170 | 1,200,161 | ||||||||||||||
| Accrued investment advisory fee | 331,396 | 130,337 | 90,982 | 83,643 | 20,935 | 163,777 | 717,061 | 214,041 | ||||||||||||||
| Accrued administrative fee | 80,827 | 5,302 | 22,744 | — | — | 35,044 | 193,481 | 52,881 | ||||||||||||||
| Accrued distribution fee | 224,137 | 18,814 | 77,465 | 55,586 | 9,450 | 148,654 | 545,085 | 152,354 | ||||||||||||||
| Accrued shareholder servicing fee | 88,857 | 4,346 | 33,615 | 984 | — | 19,378 | 213,826 | 82,381 | ||||||||||||||
| Accrued fund accounting fee | 8,300 | 7,920 | 8,120 | 7,900 | 9,300 | 10,700 | 8,500 | 8,500 | ||||||||||||||
| Accrued trustees and officers compensation | 7,913 | 6,964 | 6,964 | 6,965 | 7,224 | 6,964 | 6,964 | 6,964 | ||||||||||||||
| Unrealized loss on forward foreign currency contracts | — | — | — | — | — | 123,030 | — | — | ||||||||||||||
| Other accrued expenses | 45,894 | 37,416 | 36,116 | 41,953 | 51,777 | 91,871 | 70,898 | 46,127 | ||||||||||||||
| Total liabilities | 10,222,234 | 3,303,211 | 4,218,395 | 592,743 | 217,974 | 12,172,754 | 65,473,696 | 3,943,789 | ||||||||||||||
| Net assets | 682,699,009 | 206,693,257 | 179,564,290 | 130,176,572 | 54,925,187 | 281,219,254 | 1,621,825,963 | 434,526,751 | ||||||||||||||
| Net assets consists of | ||||||||||||||||||||||
| Paid-in capital | 470,746,236 | 182,893,774 | 121,506,859 | 98,870,444 | 63,266,037 | 205,366,218 | 1,347,103,764 | 303,317,644 | ||||||||||||||
| Undistributed net investment income (loss) | (682,368 | ) | 274,174 | (1,175,599 | ) | 35,424 | 444,626 | (974,129 | ) | (3,770,890 | ) | (1,019,088 | ) | |||||||||
| Accumulated net realized gain (loss) | 51,757,896 | 4,479,321 | 27,397,025 | 11,514,493 | (6,595,412 | ) | 13,928,940 | 106,425,285 | 44,991,315 | |||||||||||||
| Net unrealized appreciation (depreciation) on investment and other assets and liabilities denominated in foreign currencies | 160,877,245 | 19,045,988 | 31,836,005 | 19,756,211 | (2,190,064 | ) | 62,898,225 | 172,067,804 | 87,236,880 | |||||||||||||
| Net assets | 682,699,009 | 206,693,257 | 179,564,290 | 130,176,572 | 54,925,187 | 281,219,254 | 1,621,825,963 | 434,526,751 | ||||||||||||||
| Net assets, at market value | ||||||||||||||||||||||
| Class A | 474,117,153 | 27,437,632 | 116,093,949 | 80,278,868 | 35,597,633 | 127,440,021 | 1,157,229,862 | 311,884,364 | ||||||||||||||
| Class C | 158,091,636 | 16,572,833 | 63,453,810 | 49,897,704 | 19,327,554 | 153,779,233 | 381,618,846 | 107,295,847 | ||||||||||||||
| Class I | 40,499,064 | 162,680,972 | 16,531 | N/A | N/A | N/A | 62,771,974 | 1,171,310 | ||||||||||||||
| Class R-3 | — | — | — | N/A | N/A | N/A | 1,220,940 | 37,247 | ||||||||||||||
| Class R-5 | 9,991,156 | 1,820 | — | N/A | N/A | N/A | 18,984,341 | 14,137,983 | ||||||||||||||
| Net asset value (“NAV”), offering and redemption price per share | ||||||||||||||||||||||
| Class A | $32.68 | $17.40 | $29.43 | $15.57 | $7.99 | $32.67 | $30.04 | $38.78 | ||||||||||||||
| Maximum offering price (c) | $34.31 | $18.27 | $30.90 | $16.35 | $8.30 | $34.30 | $31.54 | $40.71 | ||||||||||||||
| Class C | $29.75 | $17.21 | $27.11 | $15.20 | $7.92 | $30.23 | $27.40 | $34.55 | ||||||||||||||
| Class I | $32.81 | $17.44 | $29.54 | N/A | N/A | N/A | $30.13 | $38.88 | ||||||||||||||
| Class R-3 | $— | $— | $— | N/A | N/A | N/A | $30.00 | $38.73 | ||||||||||||||
| Class R-5 | $32.75 | $17.40 | $— | N/A | N/A | N/A | $30.11 | $38.87 | ||||||||||||||
| Shares of beneficial interest outstanding | ||||||||||||||||||||||
| Class A | 14,507,989 | 1,577,130 | 3,944,998 | 5,157,466 | 4,452,582 | 3,900,610 | 38,526,459 | 8,043,349 | ||||||||||||||
| Class C | 5,314,231 | 962,910 | 2,340,239 | 3,281,767 | 2,440,795 | 5,087,644 | 13,927,377 | 3,105,385 | ||||||||||||||
| Class I | 1,234,361 | 9,329,733 | 560 | N/A | N/A | N/A | 2,083,546 | 30,124 | ||||||||||||||
| Class R-3 | — | — | — | N/A | N/A | N/A | 40,698 | 962 | ||||||||||||||
| Class R-5 | 305,057 | 105 | — | N/A | N/A | N/A | 630,438 | 363,701 | ||||||||||||||
| (a) Identified cost | $519,305,733 | $172,608,931 | $140,498,842 | $108,895,688 | $54,770,172 | $208,285,437 | $1,417,209,755 | $327,405,393 | ||||||||||||||
(b) Identified cost is the same as value. (c) For all funds except for the High Yield Bond Fund, maximum offering price is computed as 100/95.25 of NAV. For the High Yield Bond Fund, it is computed as 100/96.25 of NAV.
| 42 | The accompanying notes are an integral part of the financial statements |
Table of Contents
| UNAUDITED | 11.01.2006 - 04.30.2007 |
| Capital Appreciation Trust | Core Equity Fund | Diversified Growth Fund | Growth & Income Trust | High Yield Bond Fund | International Equity Fund | Mid Cap Stock Fund | Small Cap Stock Fund | |||||||||||||||||||||||||
| Investment income | ||||||||||||||||||||||||||||||||
| Dividends (a) | $ | 3,420,890 | $ | 1,467,442 | $ | 377,174 | $ | 1,960,278 | $ | 3,952 | $ | 1,892,179 | $ | 4,900,964 | $ | 1,306,343 | ||||||||||||||||
| Interest | 353,526 | 365,637 | 77,145 | 427,062 | 2,380,669 | 176,241 | 984,430 | 623,994 | ||||||||||||||||||||||||
| Total income | 3,774,416 | 1,833,079 | 454,319 | 2,387,340 | 2,384,621 | 2,068,420 | 5,885,394 | 1,930,337 | ||||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||||||
| Investment advisory fee | 2,068,274 | 545,489 | 599,878 | 386,742 | 123,704 | 891,450 | 3,992,715 | 1,228,556 | ||||||||||||||||||||||||
| Administrative fee | 314,006 | 101,017 | 149,966 | 62,803 | 41,235 | 182,832 | 1,074,094 | 303,577 | ||||||||||||||||||||||||
| Distribution fees | 1,428,676 | 107,770 | 531,002 | 365,025 | 136,943 | 825,608 | 3,273,582 | 906,302 | ||||||||||||||||||||||||
| Shareholder servicing fees | 382,916 | 139,975 | 152,092 | 81,800 | 34,955 | 109,196 | 943,893 | 291,485 | ||||||||||||||||||||||||
| Fund accounting fee | 49,886 | 47,306 | 48,502 | 47,507 | 55,783 | 23,964 | 51,256 | 51,286 | ||||||||||||||||||||||||
| Professional fees | 44,750 | 45,268 | 40,779 | 44,603 | 59,809 | 58,575 | 42,376 | 44,274 | ||||||||||||||||||||||||
| State qualification expenses | 47,031 | 36,968 | 35,030 | 22,661 | 21,538 | 25,505 | 54,459 | 39,899 | ||||||||||||||||||||||||
| Reports to shareholders | 43,832 | 13,070 | 15,308 | 26,188 | 7,401 | 15,826 | 87,921 | 23,461 | ||||||||||||||||||||||||
| Trustees and officers compensation | 18,909 | 17,760 | 17,660 | 19,135 | 19,413 | 17,460 | 17,660 | 17,660 | ||||||||||||||||||||||||
| Custodian fee | 16,712 | 5,294 | 10,631 | 17,217 | 6,831 | 125,802 | 37,987 | 16,606 | ||||||||||||||||||||||||
| Other | 46,087 | 25,001 | 29,385 | 30,997 | 16,162 | 53,238 | 86,394 | 33,824 | ||||||||||||||||||||||||
| Total expenses before adjustments | 4,461,079 | 1,084,918 | 1,630,233 | 1,104,678 | 523,774 | 2,329,456 | 9,662,337 | 2,956,930 | ||||||||||||||||||||||||
| Fees and expenses waived | — | (187,533 | ) | (10 | ) | (267,817 | ) | (140,961 | ) | — | — | — | ||||||||||||||||||||
| Recovered fees previously waived by Manager | — | 128,552 | — | 229,300 | 20,459 | 154,907 | — | — | ||||||||||||||||||||||||
| Expense offsets | (4,295 | ) | (1,017 | ) | (305 | ) | (4,175 | ) | (1,222 | ) | (4,165 | ) | (6,053 | ) | (7,505 | ) | ||||||||||||||||
| Total expenses after adjustments | 4,456,784 | 1,024,920 | 1,629,918 | 1,061,986 | 402,050 | 2,480,198 | 9,656,284 | 2,949,425 | ||||||||||||||||||||||||
| Net investment income (loss) | (682,368 | ) | 808,159 | (1,175,599 | ) | 1,325,354 | 1,982,571 | (411,778 | ) | (3,770,890 | ) | (1,019,088 | ) | |||||||||||||||||||
| Realized and unrealized gain (loss) on investments | ||||||||||||||||||||||||||||||||
| Net realized gain (loss) on investments | 64,495,441 | 4,506,161 | 27,514,243 | 11,628,699 | 1,314,681 | 14,604,611 | 107,087,584 | 45,163,480 | ||||||||||||||||||||||||
| Net realized gain (loss) on foreign currency transactions | — | — | — | (101,569 | ) | — | (472,796 | ) | — | — | ||||||||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | 1,829,239 | 6,828,289 | 746,302 | 124,112 | 468,978 | 27,526,258 | 45,402,591 | (3,724,411 | ) | |||||||||||||||||||||||
| Net change in unrealized appreciation (depreciation) on translation of assets and liabilities denominated in foreign currencies | — | — | — | 6,815 | — | (114,869 | ) | — | — | |||||||||||||||||||||||
| Net gain (loss) on investments | 66,324,680 | 11,334,450 | 28,260,545 | 11,658,057 | 1,783,659 | 41,543,204 | 152,490,175 | 41,439,069 | ||||||||||||||||||||||||
| Net increase (decrease) in net assets resulting from operations | 65,642,312 | 12,142,609 | 27,084,946 | 12,983,411 | 3,766,230 | 41,131,426 | 148,719,285 | 40,419,981 | ||||||||||||||||||||||||
| (a) Net of foreign withholding taxes | $ | — | $ | — | $ | 1,281 | $ | 68,810 | $ | — | $ | 223,496 | $ | 15,720 | $ | 2,113 | ||||||||||||||||
| The accompanying notes are an integral part of the financial statements | 43 |
Table of Contents
Statements of Changes in Net Assets
| Capital Appreciation Trust | Core Equity Fund | Diversified Growth Fund | |||||||||||||||||||
| 11/1/06 to 4/30/07* | 9/1/06 to 10/31/06 | 9/1/05 to 8/31/06 | 11/1/06 to 4/30/07* | 11/1/05 to 10/31/06 | 11/1/06 to 4/30/07* | 11/1/05 to 10/31/06 | |||||||||||||||
| Net assets, beginning of period | $611,368,188 | $588,324,651 | $545,008,908 | $165,300,826 | $29,140,394 | $213,089,008 | $213,566,366 | ||||||||||||||
| Increase (decrease) in net assets from operations | |||||||||||||||||||||
| Net investment income (loss) | (682,368 | ) | (398,755 | ) | (2,659,497 | ) | 808,159 | 672,015 | (1,175,599 | ) | (1,745,537 | ) | |||||||||
| Net realized gain (loss) on investments | 64,495,441 | 8,653,090 | 17,400,953 | 4,506,161 | 1,253,630 | 27,514,243 | 21,417,912 | ||||||||||||||
| Net realized gain (loss) on foreign currency transactions | — | — | — | — | — | — | — | ||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | 1,829,239 | 13,834,753 | 29,584,095 | 6,828,289 | 12,753,682 | 746,302 | 2,130,893 | ||||||||||||||
| Net change in unrealized appreciation (depreciation) on translation of assets and liabilities denominated in foreign currencies | — | — | — | — | — | — | — | ||||||||||||||
| Net increase (decrease) in net assets resulting from operations | 65,642,312 | 22,089,088 | 44,325,551 | 12,142,609 | 14,679,327 | 27,084,946 | 21,803,268 | ||||||||||||||
| Distributions to shareholders from | |||||||||||||||||||||
| Net investment income | — | — | — | (1,206,000 | ) | — | — | — | |||||||||||||
| Net realized gains | (3,788,440 | ) | — | — | (1,258,126 | ) | — | (19,610,548 | ) | (11,646,538 | ) | ||||||||||
| Net distributions to shareholders | (3,788,440 | ) | — | — | (2,464,126 | ) | — | (19,610,548 | ) | (11,646,538 | ) | ||||||||||
| Fund share transactions | |||||||||||||||||||||
| Proceeds from shares sold-Class A | 48,456,233 | 12,797,525 | 81,495,115 | 4,014,233 | 8,121,283 | 5,735,550 | 36,854,536 | ||||||||||||||
| Proceeds from shares converted-Class A | 37,528,784 | 560,707 | 4,965,497 | — | — | 13,841,816 | 2,956,722 | ||||||||||||||
| Issued as reinvestment of distributions-Class A | 2,202,349 | — | — | 265,763 | — | 11,255,297 | 6,475,969 | ||||||||||||||
| Cost of shares redeemed-Class A | (42,772,796 | ) | (18,848,219 | ) | (175,105,196 | ) | (1,243,516 | ) | (6,837,762 | ) | (54,506,657 | ) | (45,488,988 | ) | |||||||
| Proceeds from shares sold-Class C | 7,897,800 | 2,866,559 | 15,038,275 | 2,186,972 | 4,615,270 | 1,428,235 | 5,246,601 | ||||||||||||||
| Issued as reinvestment of distributions-Class C | 902,418 | — | — | 105,968 | — | 6,032,538 | 3,632,777 | ||||||||||||||
| Cost of shares redeemed-Class C | (13,859,299 | ) | (3,913,082 | ) | (31,426,351 | ) | (1,043,192 | ) | (2,280,583 | ) | (10,677,576 | ) | (14,412,678 | ) | |||||||
| Proceeds from shares sold-Class I | 8,299,877 | 4,450,510 | 26,735,728 | 33,557,077 | 125,296,337 | 896 | 12,877 | ||||||||||||||
| Issued as reinvestment of distributions-Class I | 189,247 | — | — | 2,040,608 | — | 1,246 | — | ||||||||||||||
| Cost of shares redeemed-Class I | (1,407,567 | ) | (1,488,410 | ) | (627,937 | ) | (8,171,769 | ) | (7,434,519 | ) | (19 | ) | — | ||||||||
| Proceeds from shares sold-Class R-3 | — | — | — | — | — | — | — | ||||||||||||||
| Issued as reinvestment of distributions-Class R-3 | — | — | — | — | — | — | — | ||||||||||||||
| Cost of shares redeemed-Class R-3 | — | — | — | — | — | — | — | ||||||||||||||
| Proceeds from shares sold-Class R-5 | 3,164,584 | 6,722,474 | — | 1,793 | — | — | — | ||||||||||||||
| Issued as reinvestment of distributions-Class R-5 | 39,845 | — | — | — | — | — | — | ||||||||||||||
| Cost of shares redeemed-Class R-5 | (659,524 | ) | (267,132 | ) | — | (1 | ) | — | — | — | |||||||||||
| Net decrease from fund share transactions-Class B | (40,505,022 | ) | (1,927,341 | ) | (12,523,584 | ) | — | — | (14,110,459 | ) | (5,913,419 | ) | |||||||||
| Proceeds from Fund reorganization | — | — | 90,435,785 | — | — | — | — | ||||||||||||||
| Proceeds from Fund redemption fees | 20 | 858 | 2,860 | 12 | 1,079 | 17 | 1,515 | ||||||||||||||
| Net increase (decrease) from fund share transactions | 9,476,949 | 954,449 | (1,009,808 | ) | 31,713,948 | 121,481,105 | (40,999,116 | ) | (10,634,088 | ) | |||||||||||
| Increase (decrease) in net assets | 71,330,821 | 23,043,537 | 43,315,743 | 41,392,431 | 136,160,432 | (33,524,718 | ) | (477,358 | ) | ||||||||||||
| Net assets, end of period (a) | 682,699,009 | 611,368,188 | 588,324,651 | 206,693,257 | 165,300,826 | 179,564,290 | 213,089,008 | ||||||||||||||
| (a) Includes undistributed net investment income (accumulated net investment loss) of: | $(682,368 | ) | $— | $— | $808,159 | $672,015 | $(1,175,599 | ) | $— | ||||||||||||
| Shares issued and redeemed | |||||||||||||||||||||
| Shares sold-Class A | 1,562,430 | 440,945 | 2,911,868 | 240,911 | 535,048 | 202,546 | 1,323,343 | ||||||||||||||
| Shares converted-Class A | 1,216,061 | 19,407 | 171,229 | — | — | 488,654 | 106,097 | ||||||||||||||
| Issued as reinvestment of distributions-Class A | 72,517 | — | — | 16,146 | — | 415,018 | 239,230 | ||||||||||||||
| Shares redeemed-Class A | (1,376,603 | ) | (649,177 | ) | (6,308,515 | ) | (74,204 | ) | (453,648 | ) | (1,949,677 | ) | (1,638,249 | ) | |||||||
| Shares sold-Class C | 280,385 | 107,630 | 586,617 | 132,063 | 307,312 | 54,906 | 200,869 | ||||||||||||||
| Issued as reinvestment of distributions-Class C | 32,555 | — | — | 6,485 | — | 240,724 | 143,135 | ||||||||||||||
| Shares redeemed-Class C | (490,945 | ) | (147,179 | ) | (1,218,194 | ) | (62,500 | ) | (150,205 | ) | (413,099 | ) | (557,464 | ) | |||||||
| Shares sold-Class I | 267,645 | 153,827 | 925,006 | 1,998,355 | 8,176,767 | 32 | 483 | ||||||||||||||
| Issued as reinvestment of distributions-Class I | 6,215 | — | — | 123,899 | — | 46 | — | ||||||||||||||
| Shares redeemed-Class I | (45,189 | ) | (51,143 | ) | (22,000 | ) | (487,079 | ) | (482,209 | ) | (1 | ) | — | ||||||||
| Shares sold-Class R-3 | — | — | — | — | — | — | — | ||||||||||||||
| Issued as reinvestment of distributions-Class R-3 | — | — | — | — | — | — | — | ||||||||||||||
| Shares redeemed-Class R-3 | — | — | — | — | — | — | — | ||||||||||||||
| Shares sold-Class R-5 | 102,718 | 231,477 | — | 105 | — | — | — | ||||||||||||||
| Issued as reinvestment of distributions-Class R-5 | 1,311 | — | — | — | — | — | — | ||||||||||||||
| Shares redeemed-Class R-5 | (21,326 | ) | (9,123 | ) | — | — | — | — | — | ||||||||||||
| Net decrease from shares issued and redeemed-Class B | (1,441,066 | ) | (72,613 | ) | (478,731 | ) | — | — | (539,018 | ) | (227,323 | ) | |||||||||
| Shares issued from Fund reorganization | — | — | 3,387,641 | — | — | — | — | ||||||||||||||
| Shares issued and redeemed | 166,708 | 24,051 | (45,079 | ) | 1,894,181 | 7,933,065 | (1,499,869 | ) | (409,879 | ) | |||||||||||
| * Unaudited. | |||||||||||||||||||||
| 44 | The accompanying notes are an integral part of the financial statements |
Table of Contents
Statements of Changes in Net Assets
| Growth and Income Trust | High Yield Bond Fund | International Equity Fund | Mid Cap Stock Fund | Small Cap Stock Fund | ||||||||||||||||||||||||||||||
| 11/1/06 to 4/30/07* | 10/1/06 to 10/31/06 | 10/1/05 to 9/30/06 | 11/1/06 to 4/30/07* | 10/1/06 to 10/31/06 | 10/1/05 to 9/30/06 | 11/1/06 to 4/30/07* | 11/1/05 to 10/31/06 | 11/1/06 to 4/30/07* | 11/1/05 to 10/31/06 | 11/1/06 to 4/30/07* | 11/1/05 to 10/31/06 | |||||||||||||||||||||||
| $125,274,504 | $123,671,855 | $83,335,145 | $59,535,011 | $59,889,472 | $73,334,834 | $214,233,953 | $126,574,752 | $1,336,135,358 | $976,278,534 | $391,432,606 | $329,009,079 | |||||||||||||||||||||||
| 1,325,354 | 105,080 | 2,657,649 | 1,982,571 | 343,243 | 4,670,290 | (411,778 | ) | 685,682 | (3,770,890 | ) | (6,925,440 | ) | (1,019,088 | ) | (2,377,547 | ) | ||||||||||||||||||
| 11,628,699 | 1,538,982 | 8,095,682 | 1,314,681 | (29,939 | ) | 978,438 | 14,604,611 | 17,646,390 | 107,087,584 | 149,252,135 | 45,163,480 | 31,540,342 | ||||||||||||||||||||||
| (101,569 | ) | (1,002 | ) | (612,138 | ) | — | — | — | (472,796 | ) | 159,459 | — | — | — | — | |||||||||||||||||||
| 124,112 | 1,501,569 | 3,528,713 | 468,978 | 517,265 | (1,650,907 | ) | 27,526,258 | 35,558,509 | 45,402,591 | 24,495,243 | (3,724,411 | ) | 32,047,112 | |||||||||||||||||||||
| 6,815 | (61,852 | ) | 57,136 | — | — | — | (114,869 | ) | (13,209,309 | ) | — | — | — | — | ||||||||||||||||||||
| 12,983,411 | 3,082,777 | 13,727,042 | 3,766,230 | 830,569 | 3,997,821 | 41,131,426 | 40,840,731 | 148,719,285 | 166,821,938 | 40,419,981 | 61,209,907 | |||||||||||||||||||||||
| (1,214,957 | ) | (870,265 | ) | (2,192,799 | ) | (2,000,178 | ) | (355,189 | ) | (4,853,567 | ) | (2,846,330 | ) | (385,595 | ) | — | — | — | — | |||||||||||||||
| (4,405,973 | ) | — | (5,303,263 | ) | — | — | — | (16,103,129 | ) | (11,215,211 | ) | (141,917,616 | ) | (71,749,185 | ) | (30,288,741 | ) | (11,740,872 | ) | |||||||||||||||
| (5,620,930 | ) | (870,265 | ) | (7,496,062 | ) | (2,000,178 | ) | (355,189 | ) | (4,853,567 | ) | (18,949,459 | ) | (11,600,806 | ) | (141,917,616 | ) | (71,749,185 | ) | (30,288,741 | ) | (11,740,872 | ) | |||||||||||
| 4,070,440 | 619,955 | 14,569,605 | 2,986,357 | 241,092 | 3,847,296 | 20,326,365 | 34,278,894 | 202,501,125 | 332,910,782 | 39,261,193 | 67,609,144 | |||||||||||||||||||||||
| 10,070,931 | 75,026 | 1,340,461 | 6,369,229 | 71,722 | 601,517 | 6,528,838 | 369,297 | 56,563,684 | 3,345,616 | 9,394,896 | 2,861,428 | |||||||||||||||||||||||
| 2,900,412 | 480,325 | 3,780,354 | 755,763 | 128,355 | 1,699,574 | 7,266,598 | 4,237,390 | 88,138,319 | 42,403,786 | 18,044,955 | 7,321,053 | |||||||||||||||||||||||
| (9,618,707 | ) | (1,662,546 | ) | (13,143,751 | ) | (6,728,560 | ) | (978,632 | ) | (12,279,869 | ) | (7,339,252 | ) | (10,095,366 | ) | (104,266,089 | ) | (174,151,597 | ) | (32,303,688 | ) | (68,717,470 | ) | |||||||||||
| 2,961,107 | 601,167 | 6,543,558 | 728,312 | 137,755 | 1,942,868 | 21,216,594 | 34,501,434 | 32,111,563 | 65,779,000 | 5,752,011 | 11,788,259 | |||||||||||||||||||||||
| 2,001,898 | 265,228 | 2,535,748 | 474,674 | 81,662 | 1,106,492 | 10,025,814 | 6,284,709 | 36,460,148 | 20,629,484 | 7,858,629 | 3,261,383 | |||||||||||||||||||||||
| (4,739,144 | ) | (984,154 | ) | (12,636,289 | ) | (3,172,559 | ) | (337,859 | ) | (7,425,064 | ) | (7,311,886 | ) | (11,609,203 | ) | (29,056,119 | ) | (48,255,379 | ) | (7,478,746 | ) | (18,455,938 | ) | |||||||||||
| — | — | — | — | — | — | — | — | 44,012,527 | 16,881,473 | 879,428 | 200,581 | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | 1,805,339 | — | 60,929 | — | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | (2,378,739 | ) | (516,084 | ) | (10,405 | ) | (823 | ) | |||||||||||||||||||
| — | — | — | — | — | — | — | — | 788,586 | 390,523 | 29,276 | 6,790 | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | 42,742 | — | 544 | — | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | (57,396 | ) | (230 | ) | — | — | |||||||||||||||||||||
| — | — | — | — | — | — | — | — | 6,543,313 | 12,054,342 | 1,076,246 | 12,353,496 | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | 1,230,356 | — | 966,637 | — | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | (1,209,940 | ) | (273,452 | ) | (1,189,810 | ) | (164,125 | ) | |||||||||||||||||||
| (10,107,528 | ) | (4,864 | ) | (1,793,491 | ) | (7,789,225 | ) | (173,937 | ) | (2,082,433 | ) | (5,910,318 | ) | 441,401 | (54,342,787 | ) | (6,424,372 | ) | (9,379,442 | ) | (5,110,174 | ) | ||||||||||||
| — | — | 32,909,457 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
| 178 | — | 78 | 133 | 1 | 3 | 581 | 10,720 | 2,304 | 10,179 | 252 | 888 | |||||||||||||||||||||||
| (2,460,413 | ) | (609,863 | ) | 34,105,730 | (6,375,876 | ) | (829,841 | ) | (12,589,616 | ) | 44,803,334 | 58,419,276 | 278,888,936 | 264,784,071 | 32,962,905 | 12,954,492 | ||||||||||||||||||
| 4,902,068 | 1,602,649 | 40,336,710 | (4,609,824 | ) | (354,461 | ) | (13,445,362 | ) | 66,985,301 | 87,659,201 | 285,690,605 | 359,856,824 | 43,094,145 | 62,423,527 | ||||||||||||||||||||
| 130,176,572 | 125,274,504 | 123,671,855 | 54,925,187 | 59,535,011 | 59,889,472 | 281,219,254 | 214,233,953 | 1,621,825,963 | 1,336,135,358 | 434,526,751 | 391,432,606 | |||||||||||||||||||||||
| $1,325,354 | $(74,972 | ) | $149,373 | $1,982,571 | $462,233 | $474,179 | $(411,778 | ) | $2,283,979 | $(3,770,890 | ) | $— | $(1,019,088 | ) | $— | |||||||||||||||||||
| 271,669 | 42,513 | 1,042,262 | 377,627 | 31,328 | 502,210 | 661,198 | 1,242,282 | 6,989,927 | 11,689,772 | 1,052,205 | 1,911,902 | |||||||||||||||||||||||
| 668,474 | 5,217 | 96,325 | 803,501 | 9,375 | 77,918 | 209,419 | 13,117 | 1,955,768 | 117,013 | 249,290 | 79,404 | |||||||||||||||||||||||
| 197,274 | 33,080 | 281,937 | 96,540 | 16,779 | 222,562 | 246,325 | 167,618 | 3,146,673 | 1,556,102 | 493,571 | 216,727 | |||||||||||||||||||||||
| (641,731 | ) | (114,385 | ) | (955,816 | ) | (854,759 | ) | (127,362 | ) | (1,605,002 | ) | (239,148 | ) | (366,114 | ) | (3,596,334 | ) | (6,109,314 | ) | (860,220 | ) | (1,940,746 | ) | |||||||||||
| 201,917 | 42,006 | 483,689 | 93,050 | 18,041 | 256,207 | 743,074 | 1,338,991 | 1,210,068 | 2,488,544 | 172,453 | 368,194 | |||||||||||||||||||||||
| 139,558 | 18,652 | 193,018 | 61,186 | 10,773 | 146,056 | 366,441 | 265,851 | 1,422,557 | 813,465 | 240,546 | 106,303 | |||||||||||||||||||||||
| (324,452 | ) | (68,775 | ) | (938,361 | ) | (408,032 | ) | (44,424 | ) | (978,366 | ) | (256,838 | ) | (451,320 | ) | (1,092,897 | ) | (1,827,351 | ) | (222,635 | ) | (576,405 | ) | |||||||||||
| — | — | — | — | — | — | — | — | 1,529,791 | 589,088 | 23,028 | 5,733 | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | 64,338 | — | 1,664 | — | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | (81,337 | ) | (18,334 | ) | (279 | ) | (22 | ) | |||||||||||||||||||
| — | — | — | — | — | — | — | — | 27,608 | 13,577 | 767 | 180 | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | 1,527 | — | 15 | — | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | (2,006 | ) | (8 | ) | — | — | |||||||||||||||||||||
| — | — | — | — | — | — | — | — | 220,904 | 416,042 | 28,947 | 344,432 | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | 43,894 | — | 26,425 | — | |||||||||||||||||||||||
| — | — | — | — | — | — | — | — | (41,182 | ) | (9,220 | ) | (31,686 | ) | (4,417 | ) | |||||||||||||||||||
| (687,115 | ) | (388 | ) | (131,458 | ) | (994,210 | ) | (22,888 | ) | (273,565 | ) | (204,012 | ) | 18,654 | (2,054,330 | ) | (236,147 | ) | (278,831 | ) | (157,298 | ) | ||||||||||||
| — | — | 2,495,196 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
| (174,406 | ) | (42,080 | ) | 2,566,792 | (825,097 | ) | (108,378 | ) | (1,651,980 | ) | 1,526,459 | 2,229,079 | 9,744,969 | 9,483,229 | 895,260 | 353,987 | ||||||||||||||||||
| The accompanying notes are an integral part of the financial statements | 45 |
Table of Contents
| UNAUDITED | 04.30.2007 |
NOTE 1 | Organization and investment objective Heritage Capital Appreciation Trust, Heritage Growth and Income Trust, Heritage Income Trust, and Heritage Series Trust, (each, a “Trust” and collectively the “Trusts”) are organized as separate Massachusetts business trusts and are registered under the Investment Company Act of 1940, as amended, as diversified, open-end management investment companies. The Trusts may offer shares in one or more series (each, a “Fund” and collectively the “Funds”) and are advised by Heritage Asset Management, Inc. (the “Manager” or “Heritage”). The Heritage Mutual Funds consist of the Trusts in addition to another investment company advised by the Manager, the Heritage Cash Trust. Members of the Board of Trustees (“Board of Trustees” or the “Board”) for the Heritage Mutual Funds may serve as trustees for one or more Trusts.
The Heritage Capital Appreciation Trust (“Capital Appreciation Trust”) seeks long-term capital appreciation. The Heritage Growth and Income Trust (“Growth and Income Trust”) primarily seeks long-term capital appreciation and, secondarily, seeks current income. The Heritage Income Trust presently offers shares in the High Yield Bond Fund which seeks high current income. The Heritage Series Trust presently offers shares in five series: 1) the Core Equity Fund which seeks long-term growth through capital appreciation; 2) the Diversified Growth Fund which seeks long-term capital appreciation; 3) the International Equity Fund which seeks capital appreciation principally through investment in a portfolio of international equity securities; 4) the Mid Cap Stock Fund which seeks long-term capital appreciation; 5) the Small Cap Stock Fund which seeks long-term capital appreciation.
At a regular meeting of the Board of Trustees on August 15, 2006, the Board voted to change the fiscal and tax year end of the Capital Appreciation Trust from August 31 to October 31 and to change the Growth and Income Trust and High Yield Bond Fund fiscal and tax year ends from September 30 to October 31.
Class offerings The Trusts are authorized and currently offer Class A and Class C shares to the public. Additionally, the Capital Appreciation Trust and Heritage Series Trust are authorized to offer Class I, Class R-3 and Class R-5 shares to qualified buyers (the International Equity Fund currently offers Class A and Class C only).
| • | In the High Yield Bond Fund, Class A shares are sold subject to a maximum front-end sales charge of 3.75% of the amount invested payable at the time of purchase. In |
each of the other Funds, Class A shares are sold at a maximum front-end sales charge of 4.75%. Class A share investments greater than $1 million, which are not sold subject to a sales charge, may be subject to a contingent deferred sales charge (“CDSC”) of 1% of the lower of net asset value or purchase price if redeemed within 18 months of purchase. |
| • | Class C shares are sold subject to a CDSC of 1% of the lower of net asset value or purchase price if redeemed prior to one year of purchase. |
| • | Class I, Class R-3 and Class R-5 shares are each sold without a front-end sales charge or a CDSC to qualified buyers. As of the six-month period ended April 30, 2007, there were no shares issued in Class R-3 for the Capital Appreciation Trust, Core Equity Fund or Diversified Growth Fund nor were there shares issued in Class R-5 for the Diversified Growth Fund. |
| • | Class B shares, an additional class of shares, are no longer offered. As of March 30, 2007, all Class B shares were converted to Class A shares and are no longer outstanding. The conversion from Class B shares was not a taxable event and shareholders, as of the conversion date, were not charged a CDSC. |
NOTE 2 | Significant accounting policies
Use of estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates and those differences could be material.
Valuation of securities The price of each Fund’s shares is based on the Fund’s net asset value per share. Each Fund determines the net asset value of its shares on each day the New York Stock Exchange (“NYSE”) is open for business, as of the close of the customary trading session (typically 4:00 ET), or earlier NYSE closing time that day. If the NYSE or other securities exchange modifies the closing price of securities traded on that exchange after the Fund is priced, Heritage is not required to revalue the Fund.
Generally, the Funds value portfolio securities for which market quotations are readily available at market value; however, the Fund may adjust the market quotation price to reflect events that occur between the close of those markets and the time of the Fund’s determination of net asset value.
| 46 |
Table of Contents
Notes to Financial Statements
| UNAUDITED | 04.30.2007 |
Both the latest transaction prices and adjustments are furnished by an independent pricing service subject to supervision by the Board of Trustees. The Funds value all other securities and assets for which market quotations are unavailable or unreliable at their fair value in good faith using procedures (“Procedures”) approved by the Boards of Trustees. Fair value is that amount that the owner might reasonably expect to receive for the security upon its current sale. Fair value requires consideration of all appropriate factors, including indications of fair value available from pricing services. A fair value price is an estimated price and may vary from the prices used by other mutual funds to calculate their net asset values. Fair value pricing methods, Procedures and pricing services can change from time to time as approved by the Board of Trustees. Pursuant to the Procedures, the Board of Trustees have delegated the day-to-day responsibility for applying and administering the Procedures to a Valuation Committee comprised of associates from Heritage, the manager and administrator for the Funds. The composition of this Valuation Committee may change from time to time.
There can be no assurance, however, that a fair value price used by a Fund on any given day will more accurately reflect the market value of a security or securities than the market price of such security or securities on that day. Fair value pricing may deter shareholders from trading the Fund shares on a frequent basis in an attempt to take advantage of arbitrage opportunities resulting from potentially stale prices of portfolio holdings. However, it cannot eliminate the possibility of frequent trading. Specific types of securities are valued as follows:
| • | Domestic exchange traded equity securities Market quotations are generally available and reliable for domestic exchange traded equity securities. If market quotations are not available or are unreliable, Heritage will value the security at fair value in good faith using the Procedures. |
| • | Foreign securities If market quotations from a pricing source are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. Heritage relies on a screening process from a fair valuation vendor to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not reliable and does not reflect the current market value as of the close of the NYSE. Consequently, fair valuation of portfolio |
securities may occur on a daily basis. The Fund may also fair value a security if certain events occur between the time trading ends on a particular security and the time of the Fund’s net asset value calculation. The Fund may fair value the particular security if the events are significant and make the closing price unreliable. If an issuer specific event has occurred that Heritage determines, in its judgment, is likely to have affected the closing price of a foreign security, it will price the security at fair value. Securities and other assets quoted in foreign currencies are valued in U.S. dollars based on exchange rates provided by a pricing service. The pricing vendor, pricing methodology or degree of certainty may change from time to time. Fund securities primarily traded on foreign markets may trade on days that are not business days of the Fund. Because the net asset value of Fund shares is determined only on business days of the Fund, the value of the portfolio securities of a Fund that invests in foreign securities may change on days when you will not be able to purchase or redeem shares of the Fund. |
| • | Fixed income securities Government, corporate, asset-backed and municipal bonds and convertible securities, including high yield or junk bonds, normally are valued on the basis of prices provided by independent pricing services. Prices provided by the pricing services may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, maturity and other market data. If the prices provided by the pricing service and independent quoted prices are unreliable, the valuation committee described above will fair value the security using Procedures. |
| • | Short-term securities The Funds’ short-term investments are valued at amortized cost when the security has 60 days or less to maturity. |
Foreign currency transactions The books and records of each Fund are maintained in U.S. dollars. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, other assets and other liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. Each Fund does not isolate that portion of gains and losses on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the
| 47 |
Table of Contents
Notes to Financial Statements
| UNAUDITED | 04.30.2007 |
net realized and unrealized gains and losses from investment transactions. Net realized gain (loss) from foreign currency transactions and the net change in unrealized appreciation (depreciation) on translation of assets and liabilities denominated in foreign currencies include gains and losses between trade and settlement date on securities transactions, gains and losses arising from the purchase and sale of forward foreign currency contracts and gains and losses between the ex and payment dates on dividends, interest and foreign withholding taxes.
Forward foreign currency contracts Each of the Funds except the Small Cap Stock Fund is authorized to enter into forward foreign currency contracts. Forward foreign currency contracts are valued at the contractual forward rate and are marked-to-market daily, with the change in market value recorded as an unrealized gain or loss. When the contracts are closed, the gain or loss is realized. Risks may arise from unanticipated movements in the currency’s value relative to the U.S. dollar and from the possible inability of counter-parties to meet the terms of their contracts.
Real estate investment trusts (“REITs”) There are certain additional risks involved in investing in REITs. These include, but are not limited to, economic conditions, changes in zoning laws, real estate values, property taxes and interest rates. Dividend income is recorded at the Manager’s estimate of the income included in distributions from the REIT investments. Distributions received in excess of the estimated amount are recorded as a reduction of the cost investments. The actual amounts of income, return of capital and capital gains are only determined by each REIT after the fiscal year end and may differ from the estimated amounts.
Repurchase agreements Each Fund enters into repurchase agreements whereby a Fund, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount of at least 100% of the resale price. Repurchase agreements involve the risk that the seller will fail to repurchase the security, as agreed. In that case, each Fund will bear the risk of market value fluctuations until the security can be sold and may encounter delays and incur costs in liquidating the security. In the event of bankruptcy or insolvency of the seller, delays and costs may be incurred.
Revenue recognition Investment security transactions are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis.
Expenses Each Fund is charged for those expenses that are directly attributable to it, while other expenses are allocated proportionately among the Heritage Mutual Funds based upon methods approved by the Board of Trustees. Expenses that are directly attributable to a specific class of shares, such as distribution fees, shareholder servicing fees and administrative fees, are charged directly to that class. Other expenses of each Fund are allocated to each class of shares based upon their relative percentage of net assets. The Funds have entered into an arrangement with the custodian whereby each Fund receives credits on uninvested cash balances which are used to offset a portion of each Fund’s expenses. These custodian credits are shown as “Expense offsets” in the Statements of Operations.
Class allocations Each class of shares has equal rights to earnings and assets except that each class may bear different expense for distribution and/or shareholder services. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
Distribution of income and gains In each of the Funds except the Growth and Income Trust and High Yield Bond Fund, distributions of net investment income are made annually. In the Growth and Income Trust, distributions of net investment income are made quarterly and in the High Yield Bond Fund, distributions of net investment income are made monthly. Net realized gains from investment transactions during any particular year in excess of available capital loss carryforwards, which, if not distributed, would be taxable to each Fund, will be distributed to shareholders in the following fiscal year. Each Fund uses the identified cost method for determining realized gain or loss on investments for both financial and federal income tax reporting purposes.
Other In the normal course of business the Funds enter into contracts that contain a variety of representations and warranties, which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds and/or its affiliates that have not yet occurred. However, based on experience, the risk of loss to each Fund is expected to be remote.
Redemption fees Effective January 2, 2007, a redemption fee was no longer imposed for any type of transaction. Prior to January 2, 2007, a redemption fee of 2% of the value of the shares sold was imposed on fund shares sold (by redemption
| 48 |
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Notes to Financial Statements
| UNAUDITED | 04.30.2007 |
or exchange to another Heritage Mutual Fund) within seven calendar days of their acquisition by purchase or exchange. Redemption fees were accounted for as an addition to paid in capital and offset the costs and market impact associated with short-term money movements.
NOTE 3 | Purchases and sales of securities For the six-month period ended April 30, 2007, purchases and sales of investment securities (excluding repurchase agreements and short-term obligations) were as follows:
| Purchases | Sales | |||
| Capital Appreciation Trust | $269,691,169 | $244,259,706 | ||
| Core Equity Fund | 66,056,676 | 27,864,194 | ||
| Diversified Growth Fund | 91,781,519 | 158,543,120 | ||
| Growth and Income Trust | 54,164,499 | 58,882,363 | ||
| High Yield Bond Fund (a) | 32,434,983 | 36,860,886 | ||
| International Equity Fund | 92,377,575 | 51,350,563 | ||
| Mid Cap Stock Fund | 1,360,016,891 | 1,212,151,391 | ||
| Small Cap Stock Fund | 208,182,142 | 170,205,725 | ||
| (a) The High Yield Bond Fund also had paydowns in the amount of $27,216. | ||||
NOTE 4 | Investment advisory fees and other transactions with affiliates Each Fund has agreed to pay to the Manager an investment advisory and administrative fee equal to an annualized rate based on a percentage of each Fund’s average daily net assets, which is computed daily and payable monthly.
For advisory services provided by the Manager, the current investment advisory fee rate for each Fund is as follows:
Investment advisory fee rate schedule | Breakpoint | Investment advisory fee | ||
| Capital Appreciation Trust (a) | First $1 billion Over $1 billion | 0.60% 0.55% | ||
| Core Equity Fund | All assets | 0.60% | ||
Diversified Growth Fund, Mid Cap Stock Fund and Small Cap Stock Fund | First $500 million $500 million to $1 billion Over $1 billion | 0.60% 0.55% 0.50% | ||
| Growth and Income Trust (a) | First $100 million $100 million to $500 million Over $500 million | 0.60% 0.45% 0.40% | ||
| High Yield Bond Fund | First $100 million $100 million to $500 million Over $500 million | 0.45% 0.35% 0.30% | ||
| International Equity Fund | First $100 million $100 million to $1 billion Over $1 billion | 0.85% 0.65% 0.55% | ||
| (a) Prior to January 1, 2007, the investment advisory fee included an administrative fee of 0.15%. | ||||
For administrative services provided by the Manager, each Fund has agreed to pay an administrative fee rate of 0.15% for Class A, Class B, Class C and Class R-3 shares and 0.10% for Class I and Class R-5. For the six-month period ended April 30, 2007, the amount of administrative fees charged to the Funds were as follows:
| Administrative fees | Class A | Class B | Class C | |||
| Capital Appreciation Trust | $209,801 | $13,811 | $75,521 | |||
| Core Equity Fund | 18,854 | N/A | 11,452 | |||
| Diversified Growth Fund | 93,745 | 8,206 | 48,008 | |||
| Growth and Income Trust | 35,313 | 3,604 | 23,886 | |||
| High Yield Bond Fund | 22,630 | 4,112 | 14,493 | |||
| International Equity Fund | 78,654 | 3,770 | 100,408 | |||
| Mid Cap Stock Fund | 744,632 | 35,337 | 269,248 | |||
| Small Cap Stock Fund | 214,005 | 5,566 | 76,874 | |||
| Administrative fees (cont’d) | Class I | Class R-3 | Class R-5 | |||
| Capital Appreciation Trust | $11,939 | $— | $2,934 | |||
| Core Equity Fund | 70,711 | — | — | |||
| Diversified Growth Fund | 7 | — | — | |||
| Mid Cap Stock Fund | 17,667 | 588 | 6,622 | |||
| Small Cap Stock Fund | 440 | 9 | 6,683 |
Subadvisory fees The Manager enters into subadvisory agreements with certain parties to provide to the Funds investment advice, portfolio management services (including the placement of brokerage orders) and certain compliance and other services.
The Manager entered into subadvisory agreements with unaffiliated parties to serve as subadviser to the Capital Appreciation Trust, Growth and Income Trust, High Yield Bond Fund and International Equity Fund. The Manager also entered into subadvisory agreements with Eagle Asset Management, Inc. (“Eagle”), an affiliate of Heritage, to serve as an additional subadviser to the Capital Appreciation Trust and Growth and Income Trust; however, the Manager currently has not allocated any assets of these Funds to Eagle.
To serve as sole subadviser to the Core Equity Fund, Diversified Growth Fund and Mid Cap Stock Fund, the Manager entered into subadvisory agreements with Eagle. Awad Asset Management, Inc. (“Awad”), an affiliate of Heritage, and Eagle entered into subadvisory agreements with the Manager to serve as subadvisers for the Small Cap Stock Fund. For these subadvisory agreements with Eagle and Awad, the Manager is charged an annualized fee rate as a percentage of each Fund’s
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average daily net assets, computed daily and payable monthly. For the Core Equity Fund, the fee rate charged is 0.375% on all Fund assets. For the Diversified Growth Fund, Mid Cap Stock Fund and Small Cap Stock Fund the fee rate charged is 0.375% on the first $500 million of total assets, 0.35% on assets between $500 million and $1 billion, and 0.325% on all assets over $1 billion.
Distribution fees Pursuant to the Class A, Class B, Class C and Class R-3 Distribution plans and in accordance with Rule 12b-1 of the Investment Company Act of 1940, as amended, the Funds are authorized to pay Heritage Fund Distributors, Inc. (the “Distributor” or “HFD”), a wholly owned subsidiary of Heritage, a fee based on the average daily net assets for each class of shares, accrued daily and payable monthly. The distribution fee rate for Class A shares is 0.25%. The distribution fee rate for both Class B and Class C shares in each of the Funds except for the High Yield Bond Fund is 1%. The distribution fee rate for both Class B and Class C shares in the High Yield Bond Fund is 0.80%. The distribution fee rate for Class R-3 shares is 0.50%. The Distribution plan for Class I and Class R-5 shares does not authorize a distribution fee to be paid from Fund assets. For the six-month period ended April 30, 2007, the amount of distribution fees charged to the Funds were as follows:
| Distribution fees | Class A | Class B | Class C | |||
| Capital Appreciation Trust | $515,047 | $157,265 | $756,364 | |||
| Core Equity Fund | 31,421 | N/A | 76,349 | |||
| Diversified Growth Fund | 156,240 | 54,710 | 320,052 | |||
| Growth and Income Trust | 86,748 | 40,549 | 237,728 | |||
| High Yield Bond Fund | 37,716 | 21,930 | 77,297 | |||
| International Equity Fund | 131,090 | 25,131 | 669,387 | |||
| Mid Cap Stock Fund (b) | 1,241,052 | 235,581 | 1,794,988 | |||
| Small Cap Stock Fund (b) | 356,677 | 37,104 | 512,492 | |||
| (b) The Mid Cap Stock Fund and Small Cap Stock Fund also paid Distribution fees for Class R-3 shares in the amounts of $1,961 and $29, respectively. | ||||||
The Manager, Fund Accountant, Shareholder Servicing Agent, Eagle, and Awad are all wholly owned subsidiaries of Raymond James Financial, Inc. (“RJF”).
Sales charges For the six-month period ended April 30, 2007, total front-end and contingent deferred sales charges paid to the Distributor were as follows:
Front-end sales charge | Contingent deferred sales charges | |||||||
| Class A | Class A | Class B | Class C | |||||
| Capital Appreciation Trust | $110,422 | $3 | $22,711 | $3,247 | ||||
| Core Equity Fund | 16,063 | 30 | N/A | 357 | ||||
| Diversified Growth Fund | 21,654 | — | 6,017 | 1,887 | ||||
| Growth and Income Trust | 29,779 | — | 5,092 | 663 | ||||
| High Yield Bond Fund | 7,802 | — | 30,508 | 578 | ||||
| International Equity Fund | 101,039 | — | 456 | 9,684 | ||||
| Mid Cap Stock Fund | 360,432 | 46 | 34,366 | 15,171 | ||||
| Small Cap Stock Fund | 88,996 | — | 3,449 | 2,211 | ||||
The Distributor paid commissions to salespersons from these fees and incurred other distribution costs.
Agency commissions For the six-month period ended April 30, 2007, total agency brokerage commissions paid by the Funds and agency brokerage commissions paid directly to Raymond James & Associates, Inc., an affiliate of the Manager, were as follows:
| Total agency brokerage commissions | Paid to Raymond James & Associates, Inc. | |||
| Capital Appreciation Trust | $355,413 | $6,744 | ||
| Core Equity Fund | 72,130 | — | ||
| Diversified Growth Fund | 237,211 | 6,221 | ||
| Growth and Income Trust | 84,597 | — | ||
| High Yield Bond Fund | — | — | ||
| International Equity Fund | 240,071 | — | ||
| Mid Cap Stock Fund | 2,360,708 | 30,476 | ||
| Small Cap Stock Fund | 450,321 | 1,498 |
Fund accounting fees The Manager is the Fund Accountant for each of the Funds except the International Equity Fund. For providing Fund Accounting services, the Manager receives payment from the Funds at a fixed base fee per fund, a multiple class fee and any out-of-pocket expenses. The custodian, not the Manager, provides Fund Accounting services for the International Equity Fund.
Shareholder servicing fees The Manager is the Shareholder Servicing Agent for each of the Funds. For providing Shareholder Services, the Manager receives payment from the Funds at a fixed fee per shareholder account plus any
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out-of-pocket expenses. For the six-month period ended April 30, 2007, the amount of Shareholder Servicing fees charged to the Funds were as follows:
| Shareholder servicing fees | Class A | Class B | Class C | |||
| Capital Appreciation Trust | $240,648 | $33,148 | $107,650 | |||
| Core Equity Fund | 10,756 | N/A | 12,398 | |||
| Diversified Growth Fund | 94,610 | 10,739 | 46,731 | |||
| Growth and Income Trust | 43,875 | 5,463 | 32,462 | |||
| High Yield Bond Fund | 20,440 | 3,286 | 11,229 | |||
| International Equity Fund | 42,322 | 3,936 | 62,938 | |||
| Mid Cap Stock Fund | 633,667 | 45,486 | 245,165 | |||
| Small Cap Stock Fund | 207,004 | 7,864 | 76,000 | |||
| Shareholder servicing fees (cont’d) | Class I | Class R-3 | Class R-5 | |||
| Capital Appreciation Trust | $1,460 | $— | $10 | |||
| Core Equity Fund | 116,820 | — | 1 | |||
| Diversified Growth Fund | 12 | — | — | |||
| Mid Cap Stock Fund | 19,491 | 66 | 18 | |||
| Small Cap Stock Fund | 603 | 8 | 6 | |||
Expense limitations For the periods indicated in the table below, the Manager has contractually agreed to waive its fees and/or reimburse expenses to each class to the extent that the annual operating expense rate for each class of shares exceed the following annualized rates as a percentage of average daily net assets of each class of shares.
| Expense rate limitation schedule | 1/2/07 to 10/31/07 | 11/1/06 to 1/1/07 | ||
| Capital Appreciation Trust | ||||
| Class A | 1.35% | 1.35% | ||
| Class C | 2.15% | 2.10% | ||
| Class I | 0.95% | 0.95% | ||
| Class R-3 | 1.65% | 1.65% | ||
| Class R-5 | 0.95% | 0.95% | ||
| Core Equity Fund | ||||
| Class A | 1.65% | 1.65% | ||
| Class C | 2.45% | 2.40% | ||
| Class I | 0.95% | 0.95% | ||
| Class R-3 | 1.95% | 1.90% | ||
| Class R-5 | 0.95% | 0.95% |
| Expense rate limitation schedule (cont’d) | 1/2/07 to 10/31/07 | 11/1/06 to 1/1/07 | |||
| Diversified Growth Fund | |||||
| Class A | 1.60% | 1.60% | |||
| Class C | 2.40% | 2.35% | |||
| Class I | 0.95% | 0.95% | |||
| Class R-3 | 1.90% | 1.85% | |||
| Class R-5 | 0.95% | 0.95% | |||
| Growth and Income Trust | |||||
| Class A | 1.35% | 1.35% | |||
| Class C | 2.15% | 2.10% | |||
| High Yield Bond Fund | |||||
| Class A | 1.20% | 1.20% | |||
| Class C | 1.80% | 1.75% | |||
| International Equity Fund | |||||
| Class A | 1.65% | (c) | 1.65% | ||
| Class C | 2.45% | (c) | 2.40% | ||
| Mid Cap Stock Fund | |||||
| Class A | 1.45% | 1.45% | |||
| Class C | 2.25% | 2.20% | |||
| Class I | 0.95% | 0.95% | |||
| Class R-3 | 1.75% | 1.70% | |||
| Class R-5 | 0.95% | 0.95% | |||
| Small Cap Stock Fund | |||||
| Class A | 1.40% | 1.40% | |||
| Class C | 2.20% | 2.15% | |||
| Class I | 0.95% | 0.95% | |||
| Class R-3 | 1.70% | 1.65% | |||
| Class R-5 | 0.95% | 0.95% | |||
| (c) Effective July 1, 2007, the Manager voluntarily, but not contractually, agreed to waive its fees and/or reimburse expenses to Class A and Class C shares to the extent that the annual operating expense rate for each of these classes of shares exceed 1.45% and 2.25%, respectively, of those shares average daily net assets. | |||||
For the six-month period ended April 30, 2007, fees and expenses waived and/or reimbursed based on the expense rate limitation schedule were as follows:
| Expenses waived/reimbursed | Class A | Class B | Class C | |||
| Growth and Income Trust | $151,137 | $18,003 | $98,677 | |||
| High Yield Bond Fund | 80,786 | 13,465 | 46,710 |
| Expenses waived/reimbursed (cont’d) | Class I | Class R-5 | ||
| Core Equity Fund | $187,532 | $1 | ||
| Diversified Growth Fund | 10 | — | ||
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For the fiscal year ending October 31, 2007, a portion or all of a Fund’s fees and expenses previously waived and/or reimbursed may be recoverable by the Manager prior to their expiration date. The Manager must recover from the same class of shares any previously waived and/or reimbursed fees and expenses within two years from the Fund’s fiscal year end during which the fees and expenses where originally waived and/or reimbursed. Previously waived and/or reimbursed fees and expenses are recovered by the Manager when expenses in the current fiscal year fall below the expense rate limitation in effect; for more details, see the expense rate limitation schedule. The following table illustrates the amounts that the Manager is allowed to recover and the date in which these amounts will expire.
| Recoverable expenses | 9/30/07 | 10/31/07 | ||
| Core Equity Fund | $— | $14,398 | ||
| Growth and Income Trust | 130,500 | — | ||
| High Yield Bond Fund | 154,082 | — | ||
| Recoverable expenses (cont’d) | 9/30/08 | 10/31/08 | 10/31/09 (d) | ||||
| Core Equity Fund | $— | $191,221 | (d) | $58,981 | |||
| Diversified Growth Fund | — | 5 | (d) | 10 | |||
| Growth and Income Trust | 77,000 | 21,800 | 38,517 | ||||
| High Yield Bond Fund | 228,000 | 35,120 | (d) | 120,502 | |||
| Small Cap Stock Fund | — | 46 | (d) | — | |||
| (d) Fees previously waived for a specific class may only be recovered from that class. | |||||||
For the six-month period ended April 30, 2007, the Manager recovered previously waived expenses from the Core Equity Fund, Growth and Income Trust, High Yield Bond Fund and International Equity Fund in the amounts of $128,552, $229,300, $20,459 and $154,907, respectively.
Trustees and officers compensation Each member of the Board of Trustees who is not an employee of the Manager or employee of an affiliate of the Manager receives an annual retainer along with meeting fees for those Heritage Mutual Funds’ meetings attended. Trustees’ fees and expenses are paid equally by each portfolio in the Heritage Mutual Funds. Certain Officers of the Trusts may also be Officers and/or Directors of Heritage. Such Officers receive no compensation from the Heritage Mutual Funds except for the Heritage Mutual Funds’ Chief Compliance Officer. A portion of the Chief Compliance Officer’s total compensation is paid equally by each portfolio in the Heritage Mutual Funds.
NOTE 5 | Fund reorganizations On December 23, 2005, the Capital Appreciation Trust acquired all the net assets of the
Heritage Series Trust—Growth Equity Fund (“Growth Equity Fund”) pursuant to a plan of reorganization approved by Growth Equity Fund shareholders on December 20, 2005. The reorganization was accomplished by a tax-free exchange of 3,387,641 shares of the Capital Appreciation Trust for 3,299,612 shares of Growth Equity Fund outstanding on December 23, 2005. Growth Equity Fund’s net assets at that date, $90,435,785, including $8,306,571 unrealized appreciation, were combined with those of the Capital Appreciation Trust. The aggregate net assets of the Capital Appreciation Trust immediately before the acquisition were $521,500,895. The combined net assets of the Capital Appreciation Trust immediately after the acquisition were $611,936,680.
On December 23, 2005, the Growth and Income Trust acquired all the assets and liabilities of the Heritage Series Trust—Value Equity Fund (“Value Equity Fund”) pursuant to a plan of reorganization approved by Value Equity Fund shareholders on December 20, 2005. The reorganization was accomplished by a tax-free exchange of 2,495,196 shares of Growth and Income Trust for 1,640,841 shares of Value Equity Fund outstanding on December 23, 2005. Value Equity Fund’s net assets at that date, $32,909,457, including $7,630,040 unrealized appreciation, were combined with those of Growth and Income Trust. The aggregate net assets of Growth and Income Trust immediately before the acquisition were $88,010,980. The combined net assets of Growth and Income Trust immediately after the acquisition were $120,920,437.
NOTE 6 | Federal income taxes and distributions Each Fund is treated as a single corporate taxpayer as provided for in the Tax Reform Act of 1986, as amended. Each Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, which are applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no provision has been made for federal income and excise taxes.
The timing and character of certain income and capital gain distributions are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. As a result, net investment income (loss) and net realized gain (loss) from investment transactions for a reporting period may differ from distributions during such period. These book/tax differences may be temporary or permanent in nature. To the extent these differences are permanent; they are charged or credited to paid-in capital or accumulated net realized gain (loss), as
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appropriate, in the period that the differences arise. These reclassifications have no effect on net assets or net asset value per share.
As of April 30, 2007, the identified cost of investments in securities owned by each Fund for federal income tax purposes were as follows:
| Identified cost | ||
| Capital Appreciation Trust | $524,679,733 | |
| Core Equity Fund | 185,935,931 | |
| Diversified Growth Fund | 149,080,842 | |
| Growth and Income Trust | 110,541,688 | |
| High Yield Bond Fund | 55,981,172 | |
| International Equity Fund | 217,512,437 | |
| Mid Cap Stock Fund | 1,487,604,755 | |
| Small Cap Stock Fund | 350,125,393 |
As of April 30, 2007, the net unrealized appreciation (depreciation) of investments in securities owned by each Fund were as follows:
| Unrealized appreciation | Unrealized depreciation | Net unrealized appreciation (depreciation) | ||||||
| Capital Appreciation Trust | $163,438,433 | $(2,561,188) | $160,877,245 | |||||
| Core Equity Fund | 19,980,115 | (934,127 | ) | 19,045,988 | ||||
| Diversified Growth Fund | 33,179,076 | (1,343,071 | ) | 31,836,005 | ||||
| Growth and Income Trust | 21,402,751 | (1,653,354 | ) | 19,749,397 | ||||
| High Yield Bond Fund | 1,668,758 | (3,858,822 | ) | (2,190,064 | ) | |||
| International Equity Fund | 64,826,603 | (1,813,508 | ) | 63,013,095 | ||||
| Mid Cap Stock Fund | 187,443,610 | (15,375,806 | ) | 172,067,804 | ||||
| Small Cap Stock Fund | 96,782,591 | (9,545,711 | ) | 87,236,880 |
Distributions All dividends paid by the Funds from net investment income are deemed to be ordinary income for Federal income tax purposes. Dividends paid by each Fund to shareholders from net investment income were as follows:
| Distributions from net investment income | 11/1/06 to 4/30/07 | 10/1/06 to 10/31/06 | Fiscal year ended 2006 (a) | |||
| Core Equity Fund | ||||||
| Class A | $112,366 | N/A | $— | |||
| Class I | 1,093,634 | N/A | — | |||
| Growth and Income Trust | ||||||
| Class A | 768,872 | $526,580 | 1,333,584 | |||
| Class B | 47,329 | 59,453 | 157,271 | |||
| Class C | 398,756 | 284,232 | 701,944 |
| Distributions from net investment income (cont’d) | 11/1/06 to 4/30/07 | 10/1/06 to 10/31/06 | Fiscal year ended 2006 (a) | |||
| High Yield Bond Fund | ||||||
| Class A | $1,128,969 | $192,679 | $2,620,471 | |||
| Class B | 194,447 | 44,345 | 615,708 | |||
| Class C | 676,762 | 118,165 | 1,617,388 | |||
| International Equity Fund | ||||||
| Class A | 1,450,575 | N/A | 342,350 | |||
| Class B | 63,016 | N/A | 2,378 | |||
| Class C | 1,332,739 | N/A | 40,867 | |||
| (a) The Core Equity Fund and International Equity Fund’s 2006 fiscal year ended October 31, 2006. The Growth and Income Trust and High Yield Bond Fund’s 2006 fiscal year ended September 30, 2006. | ||||||
Dividends paid by each Fund to shareholders from net realized gains were as follows:
| Distributions from net realized gains | 11/1/06 to 4/30/07 | 11/1/05 to 10/31/06 | 10/1/05 to 9/30/06 | |||
| Capital Appreciation Trust | ||||||
| Class A | $2,342,132 | N/A | N/A | |||
| Class B | 248,003 | N/A | N/A | |||
| Class C | 969,213 | N/A | N/A | |||
| Class I | 189,247 | N/A | N/A | |||
| Class R-5 | 39,845 | N/A | N/A | |||
| Core Equity Fund | ||||||
| Class A | 177,172 | $— | N/A | |||
| Class C | 110,846 | — | N/A | |||
| Class I | 970,108 | — | N/A | |||
| Diversified Growth Fund | ||||||
| Class A | 12,109,563 | 6,832,930 | N/A | |||
| Class B | 1,297,838 | 1,065,603 | N/A | |||
| Class C | 6,201,901 | 3,748,005 | N/A | |||
| Class I | 1,246 | — | N/A | |||
| Growth and Income Trust | ||||||
| Class A | 2,351,802 | N/A | $2,874,598 | |||
| Class B | 355,867 | N/A | 468,849 | |||
| Class C | 1,698,304 | N/A | 1,959,816 | |||
| International Equity Fund | ||||||
| Class A | 6,501,098 | 4,261,006 | N/A | |||
| Class B | 433,516 | 382,474 | N/A | |||
| Class C | 9,168,515 | 6,571,731 | N/A |
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| Distributions from net realized gains (cont’d) | 11/1/06 to 4/30/07 | 11/1/05 to 10/31/06 | 10/1/05 to 9/30/06 | |||
| Mid Cap Stock Fund | ||||||
| Class A | $94,068,687 | $45,723,220 | N/A | |||
| Class B | 6,231,135 | 4,446,121 | N/A | |||
| Class C | 38,164,272 | 21,579,844 | N/A | |||
| Class I | 2,180,424 | — | N/A | |||
| Class R-3 | 42,742 | — | N/A | |||
| Class R-5 | 1,230,356 | — | N/A | |||
| Small Cap Stock Fund | ||||||
| Class A | 20,253,581 | 7,831,214 | N/A | |||
| Class B | 747,867 | 489,107 | N/A | |||
| Class C | 8,258,449 | 3,420,551 | N/A | |||
| Class I | 61,663 | — | N/A | |||
| Class R-3 | 544 | — | N/A | |||
| Class R-5 | 966,637 | — | N/A |
NOTE 7 | New accounting pronouncements In July 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the accounting and disclosure of tax positions taken or expected to
be taken in the course of preparing the Funds’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after June 29, 2007, and is to be applied to all open tax years as of the effective date. The Manager is evaluating the application of FIN 48 to the Funds, and is not in a position at this time to estimate the significance of its impact, if any, on the Funds’ financial statements.
In September 2006, FASB issued its new Standard No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 is designed to unify guidance for the measurement of fair value of all types of assets, including financial instruments, and certain liabilities, throughout a number of accounting standards. FAS 157 also establishes a hierarchy for measuring fair value in generally accepted accounting principles and expands financial statement disclosures about fair value measurements that are relevant to mutual funds. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and earlier application is permitted. The Manager is evaluating the application of FAS 157 to the Funds, and is not in a position at this time to estimate the significance of its impact on the Funds’ financial statements.
UNAUDITED
For the fiscal year ended October 31, 2006 for each of the Funds except Growth and Income Trust and September 30, 2006 for Growth and Income Trust, certain dividends paid by the Funds may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2004. For each applicable Fund, the table below designates the maximum amount of qualified dividend income, which is 100% of what was distributed. The information and distributions reported herein may differ from the information and distributions taxable to the shareholders for the calendar
year ending December 31, 2006. Complete information was computed and reported in conjunction with your 2006 Form 1099-DIV.
| Qualified dividend income | ||
| Diversified Growth Fund | $11,646,538 | |
| Growth and Income Trust | 5,066,343 | |
| International Equity Fund | 11,215,211 | |
| Mid Cap Stock Fund | 71,749,185 | |
| Small Cap Stock Fund | 11,740,872 |
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The greatest risk of investing in a mutual fund is that its returns will fluctuate and you could lose money. The following table identifies the primary risk factors of each fund in light of their respective principal investment strategies. These risk factors are explained below.
| Risk factor | Capital Appreciation Trust | Core Equity Fund | Diversified Growth Fund | Growth and Income Trust | High Yield Bond Fund | International Equity Fund | Mid Cap Stock Fund | Small Cap Stock Fund | ||||||||
| Stock market risks | X | X | X | X | X | X | X | |||||||||
| Growth stocks | X | X | X | X | X | X | X | |||||||||
| Value stocks | X | |||||||||||||||
| Mid-Cap companies | X | X | X | X | ||||||||||||
| Small-Cap companies | X | X | X | X | ||||||||||||
| High-Yield securities | X | X | X | |||||||||||||
| Fixed income securities | X | X | X | |||||||||||||
| Foreign securities | X | X | X | |||||||||||||
| Emerging markets | X | X | ||||||||||||||
| Derivatives | X | |||||||||||||||
| Covered call options | X | |||||||||||||||
| Credit risk | X | |||||||||||||||
| Changes in interest rates | X | X | ||||||||||||||
| Government sponsored entities | X | |||||||||||||||
| Focused holdings | X | X | X | X | ||||||||||||
| Sector risk | X | X | X | |||||||||||||
| Portfolio turnover | X | X | X | |||||||||||||
| Market timing activities | X | X |
| • | Stock market risks. The value of a fund’s stock holdings may decline in price because of changes in prices of its holdings or a broad stock market decline. These fluctuations could be a sustained trend or a drastic movement. The stock markets generally move in cycles, with periods of rising prices followed by periods of declining prices. The value of your investment may reflect these fluctuations. |
| • | Growth stocks. Growth companies are expected to increase their earnings at a certain rate. When these expectations are not met, investors may punish the prices of stocks excessively, even if earnings showed an absolute increase. Growth company stocks also typically lack the dividend yield that can cushion stock prices in market downturns. |
| • | Value stocks. Investments in value stocks are subject to the risk that their true worth may not be fully realized by the market. This may result in the value stocks’ prices remaining undervalued for extended periods of time. A fund’s performance also may be affected adversely if value stocks remain unpopular with or lose favor among investors. |
| • | Mid-Cap companies. Investments in medium-capitalization companies generally involve greater risks than investing in larger, more established companies. Mid-cap companies often have narrower commercial markets and more limited managerial and financial resources than larger, more established companies. As a result, their performance can |
be more volatile and they face greater risk of business failure, which could increase the volatility of a fund’s portfolio. Generally, the smaller the company size, the greater these risks. Additionally, mid-cap companies may have less market liquidity than large-cap companies. |
| • | Small-Cap companies. Investments in small-cap companies generally involve greater risks than investing in mid- or large-capitalization companies. Small-cap companies often have narrower markets and more limited managerial and financial resources than larger, more established companies. As a result, their performance can be more volatile and they face greater risk of business failure, which could increase the volatility of a fund’s portfolio. Generally, the smaller the company size, the greater these risks. Additionally, small-cap companies may have less market liquidity than mid-cap companies and large-cap companies. |
| • | High-Yield securities. Investments in securities rated below investment grade or “junk bonds” generally involve significantly greater risks of loss of your money than an investment in investment grade bonds. Compared with issuers of investment grade bonds, junk bonds are more likely to encounter financial difficulties and to be materially affected by these difficulties. Rising interest rates may compound these difficulties and reduce an issuer’s ability to repay principal and interest obligations. Issuers of lower-rated securities also have a greater risk of default or bankruptcy. Additionally, due to |
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Table of Contents
Principal Risks
the greater number of considerations involved in the selection of a fund’s securities, the achievement of a fund’s objective depends more on the skills of the portfolio manager than investing only in higher rated securities. Therefore, your investment may experience greater volatility in price and yield. High-yield securities may be less liquid than higher quality investments. A security whose credit rating has been lowered may be particularly difficult to sell. |
| • | Fixed income securities. A fund could lose money if the issuer of a fixed-income security is unable to meet its financial obligations or goes bankrupt. Credit risk usually applies to most fixed-income securities, but generally is not a factor for U.S. government obligations. In addition, investing in non-investment grade bonds generally involves significantly greater risk of loss than investments in investment-grade bonds. Issuers of non-investment grade bonds are more likely than issuers of investment-grade bonds to encounter financial difficulties and to be materially affected by these difficulties. |
| • | Foreign securities. Investments in foreign securities involve greater risks than investing in domestic securities. As a result, a fund’s returns and net asset value may be affected by fluctuations in currency exchange rates or political or economic conditions and regulatory requirements in a particular country. Foreign markets, as well as foreign economies and political systems, may be less stable than U.S. markets, and changes in the exchange rates of foreign currencies can affect the value of a fund’s foreign assets. Foreign laws and accounting standards typically are not as strict as they are in the U.S., and there may be less public information available about foreign companies. |
| • | Emerging markets. When investing in emerging markets, the risks for foreign securities investing mentioned above are heightened. The emerging markets have unique risks that are greater than or in addition to investing in developed markets because emerging markets are generally smaller, less developed, less liquid and more volatile than the securities markets of the U.S. and developed markets. There are also risks of greater political uncertainties, an economy’s dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, a limited number of potential buyers for such securities and delays and disruptions in securities settlement procedures. In addition, there may be more volatile rates of return. |
| • | Derivatives. A fund may use derivatives such as futures contracts, foreign currency forward contracts and options on futures to adjust the risk/return characteristics of its investment portfolio. These practices, however, may present risks different from or in addition to the risks associated with investments in foreign currencies. There can be no assurance that any strategy used will succeed. If a fund’s portfolio manager incorrectly forecasts stock market values or currency exchange rates in utilizing a strategy for the fund, the fund could lose money. |
| • | Covered call options. Because a fund may write covered call options, a fund may be exposed to risk stemming from changes in the value of |
the stock that the option is written against. While call option premiums may generate incremental portfolio income, they also can limit gains from market movements. |
| • | Credit risk. A fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. Credit risk usually applies to most fixed-income securities, but generally is not a factor for U.S. government obligations. A fund can be subject to more credit risk than other income mutual funds because it invests in high-yield debt securities, which are considered predominantly speculative with respect to the issuer’s continuing ability to meet interest and principal payments. This is especially true during periods of economic uncertainty or economic downturns. |
| • | Changes in interest rates. Investments in investment-grade and non-investment grade fixed-income securities are subject to interest rate risk. The value of a fund’s investments typically will fall when interest rates rise. A fund is particularly sensitive to changes in interest rates because it may invest in debt securities with intermediate and long terms to maturity. Debt securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. Yields of debt securities will fluctuate over time. |
| • | Government sponsored enterprises. Investments in government sponsored enterprises are obligations issued by agencies and instrumentalities of the U.S. Government. These obligations vary in the level of support they receive from the U.S. Government. They may be: (i) supported by the full faith and credit of the U.S. Treasury, such as those of the Government National Mortgage Association; (ii) supported by the right of the issuer to borrow from the U.S. Treasury, such as those of the Federal National Mortgage Association; (iii) supported by the discretionary authority of the U.S. Government to purchase the issuer’s obligations, such as those of the Student Loan Marketing Association; or (iv) supported only by the credit of the issuer, such as those of the Federal Farm Credit Bureau. The U.S. Government may choose not to provide financial support to U.S. Government sponsored agencies or instrumentalities if it is not legally obligated to do so in which case, if the issuer defaulted, the fund holding securities of such issuer might not be able to recover its investment from the U.S. Government. |
| • | Focused holdings. For funds that normally hold a core portfolio of stocks of fewer companies than other greater diversified funds, the increase or decrease of the value of a single stock may have a greater impact on the fund’s net asset value and total return. |
| • | Sector risk. Companies that are in similar businesses may be similarly affected by particular economic or market events, which may, in certain circumstances, cause the value of securities of all companies in a particular sector of the market to decrease. To the extent that a fund has substantial holdings within a particular sector, the risks associated with that sector increase. |
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Principal Risks
| • | Portfolio turnover. A fund may engage in more active and frequent trading of portfolio securities to a greater extent than certain other mutual funds with similar investment objectives. A fund’s turnover rate may vary greatly from year to year or during periods within a year. A high rate of portfolio turnover may lead to greater transaction costs, result in additional tax consequences to investors and adversely affect performance. |
| • | Risk of market timing activities. Because of specific securities a fund may invest in, it could be subject to the risk of market timing activities by fund shareholders. Some examples of these types of securities are high-yield, small-cap and foreign securities. Typically, |
foreign securities offer the most opportunity for these market timing activities. A fund generally prices these foreign securities using their closing prices from the foreign markets in which they trade, typically prior to a fund’s calculation of its net asset value. These prices may be affected by events that occur after the close of a foreign market but before a fund prices its shares. In such instances, a fund may fair value foreign securities. However, some investors may engage in frequent short-term trading in a fund to take advantage of any price differentials that may be reflected in the net asset value of a fund’s shares. There is no assurance that fair valuation of securities can reduce or eliminate market timing. While Heritage monitors trading in the fund, there is no guarantee that it can detect all market timing activities. |
Results of Shareholder Meeting
| UNAUDITED | 04.30.2007 |
On November 6, 2006, a special shareholder meeting of the Trusts and Funds was held to consider several proposals as listed below. At that meeting, shareholders of Growth and Income Trust and Heritage Income Trust approved the proposals. Because the remaining Funds and Trusts did not reach a quorum or had an insufficient number of votes to pass one or more proposals, those Funds and Trusts adjourned until November 21, 2006. At the November 21st meeting, shareholders of the Capital Appreciation Trust and Heritage Series Trust approved the proposal regarding the election and re-election of the Board of Trustees. In addition, shareholders of the Capital Appreciation Trust, Core Equity Fund, Diversified Growth Fund and Mid Cap Stock Fund approved the other
proposals. The International Equity Fund and Small Cap Stock Fund adjourned until December 11, 2006, when shareholders approved the remaining proposals.
Re-elected to the Board of Trustees of the Trusts were C. Andrew Graham, Keith B. Jarrett, William J. Meurer, James L. Pappas and Deborah L. Talbot as independent Trustees and Thomas A. James and Richard K. Riess as interested Trustees. Lincoln Kinnicutt was elected to the Board of Trustees of the Heritage Growth and Income Trust, Heritage Series Trust and the Heritage Income Trust. There were no votes cast against any of the nominees. The following is a summary of the shareholder votes cast for each nominee:
| Capital Appreciation Trust | Growth and Income Trust | Heritage Income Trust | Heritage Series Trust | |||||||||||||
| For | Abstained | For | Abstained | For | Abstained | For | Abstained | |||||||||
| C. Andrew Graham | 11,299,568 | 283,146 | 4,580,574 | 123,231 | 4,655,495 | 79,816 | 41,198,999 | 2,255,622 | ||||||||
| Keith B. Jarrett | 11,299,165 | 283,549 | 4,584,947 | 118,858 | 4,656,673 | 78,638 | 41,226,763 | 2,227,859 | ||||||||
| William J. Meurer | 11,302,925 | 279,789 | 4,584,947 | 118,858 | 4,657,608 | 77,703 | 41,236,739 | 2,217,883 | ||||||||
| James L. Pappas | 11,301,955 | 280,759 | 4,584,947 | 118,858 | 4,656,867 | 78,444 | 41,237,082 | 2,217,539 | ||||||||
| David M. Phillips | 11,301,605 | 281,109 | 4,574,928 | 128,877 | 4,654,823 | 80,488 | 41,214,541 | 2,240,080 | ||||||||
| Deborah L. Talbot | 11,304,433 | 278,281 | 4,579,301 | 124,504 | 4,655,745 | 79,567 | 41,214,447 | 2,240,174 | ||||||||
| Lincoln Kinnicutt | N/A | N/A | 4,584,947 | 118,858 | 4,653,128 | 82,183 | 41,216,356 | 2,238,265 | ||||||||
| Thomas A. James | 11,301,216 | 281,498 | 4,580,574 | 123,231 | 4,655,103 | 80,208 | 41,239,641 | 2,214,981 | ||||||||
| Richard K. Riess | 11,302,063 | 280,651 | 4,581,184 | 122,621 | 4,653,536 | 81,776 | 41,212,291 | 2,242,330 |
| 57 |
Table of Contents
Results of Shareholder Meeting
| UNAUDITED | 04.30.2007 |
The following is each additional matter submitted to shareholder vote and a summary of the voting results:
| Capital Appreciation Trust | Core Equity Fund | Diversified Growth Fund | Growth & Income Trust | High Yield Bond Fund | International Equity Fund | Mid Cap Stock Fund | Small Cap Stock Fund | |||||||||
1. Re-classifying the investment objective as non-fundamental | ||||||||||||||||
For | 8,157,873 | 33,288,078 | 3,149,922 | 3,341,781 | 3,509,299 | 2,726,001 | 16,681,602 | 4,468,357 | ||||||||
Against | 275,200 | 97,619 | 239,940 | 102,740 | 100,854 | 139,026 | 621,181 | 258,307 | ||||||||
Abstained | 394,002 | 133,612 | 144,517 | 170,830 | 135,407 | 449,149 | 700,490 | 209,164 | ||||||||
2. Modernizing the fundamental investment policies of the Funds in regards to: | ||||||||||||||||
a. Borrowing | ||||||||||||||||
For | 8,187,925 | 3,288,371 | 3,132,871 | 3,367,529 | 3,502,699 | 2,752,550 | 16,716,577 | 4,572,754 | ||||||||
Against | 249,576 | 100,675 | 247,650 | 81,059 | 116,001 | 123,781 | 603,295 | 150,952 | ||||||||
Abstained | 389,574 | 167,481 | 144,749 | 129,544 | 135,971 | 437,846 | 683,402 | 212,121 | ||||||||
| b. Commodities | ||||||||||||||||
For | 8,175,435 | 3,304,629 | 3,141,307 | 3,381,200 | 3,502,950 | 2,772,358 | 16,731,319 | 4,579,326 | ||||||||
Against | 270,360 | 85,815 | 242,566 | 57,938 | 105,310 | 106,377 | 593,635 | 146,379 | ||||||||
Abstained | 381,281 | 166,083 | 141,396 | 138,994 | 146,419 | 435,442 | 678,319 | 210,123 | ||||||||
| c. Concentration | ||||||||||||||||
For | 8,266,603 | 3,293,445 | 3,155,625 | 3,386,455 | 3,529 | 2,776,913 | 16,807,477 | 4,595,716 | ||||||||
Against | 215,227 | 86,273 | 228,367 | 56,637 | 81,340 | 94,517 | 513,681 | 124,766 | ||||||||
Abstained | 378,245 | 176,809 | 141,278 | 135,042 | 144,247 | 442,746 | 682,115 | 215,346 | ||||||||
| d. Diversification | ||||||||||||||||
For | 8,238,094 | 3,298,139 | 3,170,521 | 3,385,087 | 3,514,732 | 2,792,416 | 16,831,814 | 4,619,441 | ||||||||
Against | 212,067 | 84,759 | 221,548 | 64,476 | 94,197 | 87,507 | 496,408 | 105,567 | ||||||||
Abstained | 376,914 | 173,629 | 133,200 | 127,570 | 145,742 | 434,254 | 675,051 | 210,820 | ||||||||
e. Loans, repurchase agreements and loans of portfolio securities | ||||||||||||||||
For | 8,197,887 | 3,297,551 | 3,149,703 | 3,386,121 | 3,500,804 | 2,773,100 | 16,755,910 | 4,591,634 | ||||||||
Against | 240,432 | 81,609 | 238,721 | 53,639 | 111,978 | 104,194 | 552,589 | 132,821 | ||||||||
Abstained | 388,755 | 177,367 | 136,845 | 138,372 | 141,889 | 436,883 | 694,774 | 211,373 | ||||||||
| f. Real estate | ||||||||||||||||
For | 8,223,567 | 3,324,276 | 3,161,599 | 3,407,791 | 3,504,604 | 2,775,506 | 16,845,818 | 4,646,460 | ||||||||
Against | 224,028 | 73,637 | 230,529 | 55,704 | 104,206 | 105,773 | 505,392 | 117,287 | ||||||||
Abstained | 379,480 | 158,614 | 133,141 | 114,637 | 145,860 | 432,898 | 652,064 | 202,081 | ||||||||
| g. Senior securities | ||||||||||||||||
For | 8,218,483 | 3,315,430 | 3,161,976 | 3,384,138 | 3,513,891 | 2,788,920 | 16,845,908 | 4,610,460 | ||||||||
Against | 229,107 | 77,872 | 231,113 | 69,606 | 103,133 | 94,402 | 506,061 | 127,816 | ||||||||
Abstained | 379,485 | 163,225 | 132,180 | 124,389 | 137,647 | 430,855 | 651,305 | 197,552 | ||||||||
| h. Underwriting | ||||||||||||||||
For | 8,209,309 | 3,317,834 | 3,158,167 | 3,380,054 | 3,504,532 | 2,767,428 | 16,810,248 | 4,613,221 | ||||||||
Against | 233,105 | 75,099 | 230,777 | 62,343 | 112,056 | 104,619 | 530,069 | 123,598 | ||||||||
Abstained | 384,661 | 163,594 | 136,325 | 135,735 | 138,083 | 442,129 | 662,956 | 199,009 | ||||||||
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Table of Contents
Results of Shareholder Meeting
| UNAUDITED | 04.30.2007 |
| Capital Appreciation Trust | Core Equity Fund | Diversified Growth Fund | Growth & Income Trust | High Yield Bond Fund | International Equity Fund | Mid Cap Stock Fund | Small Cap Stock Fund | |||||||||
| i. Oil, gas and other mineral programs | ||||||||||||||||
For | 8,236,579 | 3,321,778 | N/A | 3,395,678 | 3,532 | 2,784,181 | N/A | 4,609,141 | ||||||||
Against | 223,105 | 74,941 | N/A | 64,420 | 88,422 | 92,745 | N/A | 128,726 | ||||||||
Abstained | 384,661 | 159,808 | N/A | 118,032 | 133,928 | 437,251 | N/A | 197,961 | ||||||||
| j. Margin purchases | ||||||||||||||||
For | N/A | N/A | N/A | 3,361,148 | 3,505,564 | 2,764,078 | N/A | N/A | ||||||||
Against | N/A | N/A | N/A | 77,537 | 109,891 | 111,065 | N/A | N/A | ||||||||
Abstained | N/A | N/A | N/A | 139,448 | 139,216 | 439,034 | N/A | N/A | ||||||||
| k. Short sales | ||||||||||||||||
For | N/A | N/A | N/A | N/A | 3,504,206 | 2,765,216 | N/A | N/A | ||||||||
Against | N/A | N/A | N/A | N/A | 103,832 | 104,875 | N/A | N/A | ||||||||
Abstained | N/A | N/A | N/A | N/A | 146,632 | 444,086 | N/A | N/A | ||||||||
| l. Affiliated transactions | ||||||||||||||||
For | N/A | N/A | N/A | N/A | 35,431,923 | N/A | N/A | N/A | ||||||||
Against | N/A | N/A | N/A | N/A | 76,361 | N/A | N/A | N/A | ||||||||
Abstained | N/A | N/A | N/A | N/A | 135,118 | N/A | N/A | N/A | ||||||||
3. Approving an investment advisory agreement between Heritage and the Funds | ||||||||||||||||
For | 8,276,407 | 3,325,416 | 3,315,831 | 3,403,286 | 3,547,237 | 2,787,532 | 16,918,199 | 4,637,056 | ||||||||
Against | 176,789 | 69,456 | 77,009 | 52,536 | 76,684 | 83,219 | 440,160 | 107,510 | ||||||||
Abstained | 373,879 | 161,655 | 132,429 | 122,311 | 130,750 | 443,426 | 644,915 | 191,262 | ||||||||
4. Approving a subadvisory agreement between Heritage and Goldman Sachs Investment Management, L.P. | ||||||||||||||||
For | 8,250,964 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||
Against | 201,559 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||
Abstained | 374,552 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||
5. Approving a subadvisory agreement between Heritage and Eagle | ||||||||||||||||
For | 8,255,573 | 3,332,422 | 3,310,487 | 3,379,823 | N/A | N/A | 16,888,674 | 4,616,855 | ||||||||
Against | 186,651 | 65,515 | 84,319 | 56,306 | N/A | N/A | 465,871 | 119,395 | ||||||||
Abstained | 384,851 | 158,590 | 130,463 | 142,003 | N/A | N/A | 648,728 | 199,578 | ||||||||
6. Approving a subadvisory agreement between Heritage and Awad | ||||||||||||||||
For | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 4,613,768 | ||||||||
Against | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 118,225 | ||||||||
Abstained | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 203,836 | ||||||||
7. Approving Manager’s structure which would allow Heritage and the Board to enter into, termianate or materially amend subadvisory agreements without obtaining future shareholder approval | ||||||||||||||||
For | 8,164,031 | N/A | N/A | N/A | N/A | N/A | 16,671,082 | 4,586,071 | ||||||||
Against | 283,233 | N/A | N/A | N/A | N/A | N/A | 643,891 | 148,994 | ||||||||
Abstained | 379,811 | N/A | N/A | N/A | N/A | N/A | 688,300 | 200,763 | ||||||||
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Table of Contents
Understanding Your Ongoing Costs
| UNAUDITED | 04.30.2007 |
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges on purchases, contingent deferred sales charges, or redemption fees; and (2) ongoing costs, including investment advisory fees; distribution (12b-1) fees; and other fund expenses. The following sections are intended to help you understand your ongoing cost (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect one-time transaction expenses, such as sales charges or redemption fees. Therefore, if these transactional costs were included, your costs would have been higher. For more information, see your Fund’s prospectus or contact your financial advisor.
Actual expenses | The table below shows the actual expenses you would have paid on a $1,000 investment in each Fund on November 1, 2006, and held through April 30, 2007. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns after ongoing expenses. This table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses paid during period” to estimate the expenses you paid on your account during this period.
| Beginning account value November 1, 2006 | Ending account value April 30, 2007 | Expenses paid during period (a) | Annualized expense ratio | ||||||
| Capital Appreciation Trust | |||||||||
| Class A | $1,000.00 | 1,107.90 | 6.28 | 1.20 | % | ||||
| Class C | $1,000.00 | 1,103.60 | 10.31 | 1.98 | % | ||||
| Class I | $1,000.00 | 1,110.10 | 4.23 | 0.81 | % | ||||
| Class R-5 | $1,000.00 | 1,109.90 | 4.18 | 0.80 | % | ||||
| Core Equity Fund | |||||||||
| Class A | $1,000.00 | 1,064.90 | 7.36 | 1.44 | % | ||||
| Class C | $1,000.00 | 1,060.50 | 11.56 | 2.26 | % | ||||
| Class I | $1,000.00 | 1,067.30 | 4.88 | 0.95 | % | ||||
| Class R-5 (b) | $1,000.00 | 1,053.90 | 0.74 | 0.95 | % | ||||
| Diversified Growth Fund | |||||||||
| Class A | $1,000.00 | 1,146.10 | 7.18 | 1.35 | % | ||||
| Class C | $1,000.00 | 1,141.60 | 11.13 | 2.10 | % | ||||
| Class I | $1,000.00 | 1,148.10 | 4.97 | 0.95 | % | ||||
| Growth and Income Trust | |||||||||
| Class A | $1,000.00 | 1,111.10 | 7.10 | 1.35 | % | ||||
| Class C | $1,000.00 | 1,105.70 | 11.17 | 2.13 | % | ||||
| High Yield Bond Fund | |||||||||
| Class A | $1,000.00 | 1,069.90 | 6.18 | 1.20 | % | ||||
| Class C | $1,000.00 | 1,067.60 | 9.16 | 1.79 | % | ||||
| International Equity Fund | |||||||||
| Class A | $1,000.00 | 1,186.00 | 8.68 | 1.60 | % | ||||
| Class C | $1,000.00 | 1,181.90 | 12.80 | 2.37 | % | ||||
| Mid Cap Stock Fund | |||||||||
| Class A | $1,000.00 | 1,106.90 | 5.91 | 1.13 | % | ||||
| Class C | $1,000.00 | 1,102.70 | 9.85 | 1.89 | % | ||||
| Class I | $1,000.00 | 1,108.90 | 4.27 | 0.82 | % | ||||
| Class R-3 | $1,000.00 | 1,106.20 | 6.64 | 1.27 | % | ||||
| Class R-5 | $1,000.00 | 1,109.00 | 3.68 | 0.70 | % | ||||
| Small Cap Stock Fund | |||||||||
| Class A | $1,000.00 | 1,103.90 | 6.55 | 1.26 | % | ||||
| Class C | $1,000.00 | 1,099.40 | 10.46 | 2.01 | % | ||||
| Class I | $1,000.00 | 1,105.50 | 4.97 | 0.95 | % | ||||
| Class R-3 | $1,000.00 | 1,102.30 | 7.79 | 1.49 | % | ||||
| Class R-5 | $1,000.00 | 1,106.20 | 4.23 | 0.81 | % | ||||
(a) Expenses are calculated using each Funds’ annualized expense ratios for each class of shares, multiplied by the average account value for the period, then multiplying the result by the actual number of days in the period (181); and then dividing that result by the actual number of days in the fiscal year (365). (b) Data reflects the 29 day period from April 2, 2007 (commencement of operations) to April 30, 2007.
| 60 |
Table of Contents
Understanding Your Ongoing Costs
| UNAUDITED | 04.30.2007 |
Hypothetical example for comparison purposes | All mutual funds now follow guidelines to assist shareholders in comparing expenses between different funds. Per these guidelines, the table below shows each Fund’s expenses based on a $1,000 investment held from November 1, 2006 through April 30, 2007 and assuming for this period a hypothetical 5% annualized rate of return before ongoing expenses, which is not
the Fund's actual return. Please note that you should not use this information to estimate your actual ending account balance and expenses paid during the period. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the Funds with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison.
| Beginning account value November 1, 2006 | Ending account value April 30, 2007 | Expenses paid during period (a) | Annualized expense ratio | ||||||
| Capital Appreciation Trust | |||||||||
| Class A | $1,000.00 | 1,018.84 | 6.01 | 1.20 | % | ||||
| Class C | $1,000.00 | 1,015.00 | 9.87 | 1.98 | % | ||||
| Class I | $1,000.00 | 1,020.79 | 4.05 | 0.81 | % | ||||
| Class R-5 | $1,000.00 | 1,020.83 | 4.01 | 0.80 | % | ||||
| Core Equity Fund | |||||||||
| Class A | $1,000.00 | 1,017.67 | 7.19 | 1.44 | % | ||||
| Class C | $1,000.00 | 1,013.57 | 11.30 | 2.26 | % | ||||
| Class I | $1,000.00 | 1,020.08 | 4.76 | 0.95 | % | ||||
| Class R-5 | $1,000.00 | 1,020.13 | 4.71 | 0.95 | % | ||||
| Diversified Growth Fund | |||||||||
| Class A | $1,000.00 | 1,018.11 | 6.75 | 1.35 | % | ||||
| Class C | $1,000.00 | 1,014.40 | 10.47 | 2.10 | % | ||||
| Class I | $1,000.00 | 1,020.17 | 4.67 | 0.95 | % | ||||
| Growth and Income Trust | |||||||||
| Class A | $1,000.00 | 1,018.07 | 6.79 | 1.35 | % | ||||
| Class C | $1,000.00 | 1,014.18 | 10.69 | 2.13 | % | ||||
| High Yield Bond Fund | |||||||||
| Class A | $1,000.00 | 1,018.82 | 6.03 | 1.20 | % | ||||
| Class C | $1,000.00 | 1,015.93 | 8.93 | 1.79 | % | ||||
| International Equity Fund | |||||||||
| Class A | $1,000.00 | 1,016.86 | 8.01 | 1.60 | % | ||||
| Class C | $1,000.00 | 1,013.06 | 11.81 | 2.37 | % | ||||
| Mid Cap Stock Fund | |||||||||
| Class A | $1,000.00 | 1,019.18 | 5.66 | 1.13 | % | ||||
| Class C | $1,000.00 | 1,015.42 | 9.44 | 1.89 | % | ||||
| Class I | $1,000.00 | 1,020.74 | 4.09 | 0.82 | % | ||||
| Class R-3 | $1,000.00 | 1,018.49 | 6.37 | 1.27 | % | ||||
| Class R-5 | $1,000.00 | 1,021.30 | 3.53 | 0.70 | % | ||||
| Small Cap Stock Fund | |||||||||
| Class A | $1,000.00 | 1,018.57 | 6.29 | 1.26 | % | ||||
| Class C | $1,000.00 | 1,014.83 | 10.04 | 2.01 | % | ||||
| Class I | $1,000.00 | 1,020.08 | 4.76 | 0.95 | % | ||||
| Class R-3 | $1,000.00 | 1,017.39 | 7.47 | 1.49 | % | ||||
| Class R-5 | $1,000.00 | 1,020.77 | 4.06 | 0.81 | % | ||||
(a) Expenses are calculated using each Funds' annualized expense ratios for each class of shares, multiplied by the average account value for the period, then multiplying the result by the actual number of days in the period (181); and then dividing that result by the actual number of days in the fiscal year (365).
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HeritageFunds.com
880 Carillon Parkway I St. Petersburg, FL 33716 I 727.567.8143 I 800.421.4184
Heritage Fund Distributors, Inc.
Member NASD
Not FDIC Insured t May Lose Value t No Bank Guarantee
Please consider the investment objectives, risks, charges, and expenses of any fund carefully before investing. Contact Heritage at 800.421.4184 or your financial advisor for a prospectus, which contains this and other important information about the Funds. Read the prospectus carefully before you invest or send money.
This report is for the information of shareholders of the Heritage Mutual Funds. If you wish to review additional information on the portfolio holdings of a fund, a complete schedule has been filed with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fund’s fiscal year end on Form N-Q. These filings are available on the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operations of the Public Reference Room may be obtained by calling 800.SEC.0330. A description of each fund’s proxy voting policies, procedures and information regarding how each fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, is available without charge, upon request, by calling the Heritage Family of Funds, toll-free at the number above, by accessing the website at HeritageFunds.com or by accessing the SEC’s website at www.sec.gov.
| 04/07 |  | Printed on recycled paper |
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| Item 2. | Code of Ethics |
Not applicable to semi-annual reports.
| Item 3. | Audit Committee Financial Expert |
Not applicable to semi-annual reports.
| Item 4. | Principal Accountant Fees and Services |
Not applicable to semi-annual reports.
| Item 5. | Audit Committee of Listed Registrants |
Not applicable to the registrant.
| Item 6. | Schedule of Investments |
Included as part of report to shareholders under Item 1.
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-end Management Investment Companies |
Not applicable to the registrant.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies |
Not applicable to the registrant.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers |
Not applicable to the registrant.
| Item 10. | Submission of Matters to a Vote of Security Holders |
There have been no material changes to the Nominating Committee Charter, which sets forth procedures by which shareholders may recommend nominees to the Trust’s Board of Trustees, since the Trust last provided disclosure in response to this item.
| Item 11. | Controls and Procedures |
| (a) | Based on an evaluation of the disclosure controls and procedures (as defined in Rule 30a-2(c) under the Act), the Principal Executive Officer and Principal Financial Officer of Heritage Capital Appreciation Trust have concluded that such disclosure controls and procedures are effective as of June 26, 2007. |
| (b) | There was no change in the internal controls over financial reporting (as defined in Rule 30a-3(d) of Heritage Capital Appreciation Trust that occurred during the second fiscal quarter of the period covered by this report that has materially affected or is reasonably likely to materially affect, its internal control over financial reporting. |
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| Item 12. | Exhibits |
(a)(1) Not applicable to semi-annual reports.
(a)(2) The certifications required by Rule 30a-2(a) of the Investment Company Act of 1940, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 is filed and attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable to the registrant.
(b) The certifications required by Rule 30a-2(b) of the Investment Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 is filed and attached hereto as Exhibit 99.906CERT.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HERITAGE CAPITAL APPRECIATION TRUST | ||||
Date: July 5, 2007 | ||||
/s/ Mathew J. Calabro | ||||
| Mathew J. Calabro | ||||
| Principal Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: July 5, 2007 | ||||
/s/ Mathew J. Calabro | ||||
| Mathew J. Calabro | ||||
| Principal Executive Officer | ||||
Date: July 5, 2007 | ||||
/s/ Andrea N. Mullins | ||||
| Andrea N. Mullins | ||||
| Principal Financial Officer | ||||