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: 811-04767
HERITAGE GROWTH AND INCOME 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, 2008
Item 1. Reports to Shareholders
Heritage Mutual Funds
Semiannual Report
and Investment Performance Review
for the six-month period ended
April 30, 2008
(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
President’s Letter
Dear Fellow Shareholders:
I am pleased to present the semiannual report and investment performance review of the Heritage mutual funds for the six-month period ended April 30, 2008 (the “reporting period”).
The reporting period was turbulent as economic growth slowed throughout the world. A weak housing market, high energy and food prices and the demise of Bear Stearns dominated the U.S. financial headlines. Most major market indices were down during the period. The only economic sector to realize a significant positive return was the energy sector. In an attempt to stimulate growth, the Federal Reserve Bank cut its benchmark interest rate several times and took other steps to improve liquidity in the marketplace. Further, Congress passed a $150 billion tax rebate package designed to stimulate the economy later this year. The short-term volatility points out the importance of adopting a long-term, diversified investment plan and maintaining discipline throughout all market environments.
| | | |
| Fund/Benchmark index | | Return
11/1/07 to
4/30/08 | |
| Capital Appreciation Trust | | -8.99 | % |
| Russell 1000® Growth | | -9.28 | % |
| S&P 500 Index | | -9.63 | % |
| Core Equity Fund | | -11.38 | % |
| S&P 500 Index | | -9.63 | % |
| Diversified Growth Fund | | -4.12 | % |
| Russell Midcap® Growth Index | | -7.12 | % |
| Growth and Income Trust | | -13.93 | % |
| S&P 500 Index | | -9.63 | % |
| High Yield Bond Fund | | -3.53 | % |
| Citigroup High YieldSM Market Index | | -0.62 | % |
| International Equity Fund | | -10.83 | % |
| MSCI® ACWI ex-US | | -9.34 | % |
| MSCI EAFE® Index | | -8.93 | % |
| Mid Cap Stock Fund | | -8.99 | % |
| S&P MidCap 400 Index | | -6.95 | % |
| Small Cap Stock Fund | | -12.00 | % |
| Russell 2000® Index | | -12.92 | % |
For each fund covered by this report, the table provides the Class A shares return, without the imposition of a front-end sales charge for each fund and its respective benchmark index during the reporting period. On the pages that follow, the portfolio managers for each fund discuss their particular fund’s performance. Please remember that the views expressed are not intended as investment advice. While a manager may view a particular fund holding favorably, there is no guarantee that the security will be held in the future. Visit our website, HeritageFunds.com for performance updates, daily prices, portfolio holdings and other information.
On June 15, 2008, Julius Baer Investment Management LLC, the subadviser to the International Equity Fund changed its name to Artio Global Management LLC. This name change is in anticipation of an initial public offering by its parent Julius Baer Americas Inc. The fund’s prospectus has been supplemented to reflect this change.
I would like to remind you that investing in any mutual fund carries certain risks. The principal risk factors for each fund are described at the end of this report. Carefully consider the investment objectives, charges and expenses of any fund before you invest. Contact us at 800.421.4184 or HeritageFunds.com or your financial advisor for a prospectus, which contains this and other important information about the Heritage mutual funds.
Our firm is committed to the financial well-being of our clients. As always, we appreciate your confidence in allowing us to manage a portion of your assets.
Sincerely,
Stephen G. Hill
President
June 16, 2008
|
| Discussion of Fund Performance |
| Capital Appreciation Trust |
Investment Objective | The Heritage Capital Appreciation Trust (the “Fund”) seeks long-term capital appreciation.
Investment Highlights | During normal market conditions, the Fund invests at least 65% of its total assets in common stocks. The portfolio management team invests in the stocks of companies of any size without regard to market capitalization.
The Fund’s portfolio management team uses a “bottom-up” method of analysis based on in-depth, fundamental research to determine which stocks to purchase for the Fund. 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 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.
Benchmark Indices | The Russell 1000® Growth Index measures performance of those Russell 1000® companies
with higher price-to-book ratios and higher forecasted growth values and is representative of U.S. securities exhibiting growth characteristics. The Standard & Poor’s 500 Composite Stock Index (“S&P 500 Index”) is an unmanaged index of 500 U.S. stocks and gives a broad look at how stock prices have performed.
Meet the Managers | Steven M. Barry, David G. Shell and Gregory H. Ekizian are Chief Investment Officers and Senior Portfolio Managers of Goldman Sachs Asset Management, L.P. (“Goldman Sachs”), and have been responsible for the day-to-day management of the Fund since 2002. Mr. Shell and Mr. Ekizian have been affiliated with the Fund since 1987 and 1990, respectively; Mr. Barry joined the team in 1999. Mr. Shell is a Chartered Financial Analyst and has 21 years of investment experience. He earned a BA from the University of South Florida. Mr. Ekizian is a Chartered Financial Analyst with 18 years of investment experience. He earned an MBA from the University of Chicago Graduate School of Business. Mr. Barry has 22 years of investment experience and earned a BA from Boston College. Goldman Sachs assumed management of the Fund in 1997.
During an interview conducted on May 15, 2008, the portfolio managers of the Fund discussed the Fund’s performance for the six-month period ended April 30, 2008 (the “reporting period”).
Q: How would you describe the large-cap growth market environment (the Fund’s investment market) during the reporting period?
A: The Russell 1000® Growth Index ended the reporting period in negative territory as volatility persisted and risk aversion remained a prevalent theme for investors. The Chicago Board Options Exchange® Volatility Index hit a five-year high during March as investor uncertainty was fueled by weakness in the financial sector and a poor consumer confidence report, which indicated an economic slowdown in progress. Concerns about the credit crisis caused the dollar to tumble while oil prices reached historic highs and finished the reporting period over $100 per barrel. The Federal Reserve Board (the “Fed”) cut short-term interest rates several times during the reporting period and initiated other monetary policies to enhance liquidity and promote an orderly and functioning market.
Q: How did the Fund perform during the reporting period?
A: For the six-month period ended April 30, 2008, the Fund’s Class A shares returned -8.99% (excluding front-end sales
charges). Strong performance from the Fund’s holdings within the energy and technology sectors positively contributed to relative performance. On the downside, select finance and consumer discretionary portfolio holdings were weak in sympathy with the negative sentiment surrounding the sub-prime mortgage market.
Q: How did the Fund compare to its benchmark indices during the reporting period?
A: During the reporting period, the Fund’s Class A shares outperformed its primary benchmark index. The Fund’s primary benchmark, the Russell 1000® Growth Index, returned -9.28%, while the S&P 500 Index, a secondary benchmark, returned -9.63%. In several instances, on both a stock and sector level, the Fund is meaningfully different from the primary benchmark index, thus representing potential sources of positive or negative relative returns. The Fund’s sector weightings are a direct result of our bottom-up, research-intensive approach to investing. For example, when compared to the Russell 1000® Growth Index, the Fund’s portfolio is underweight in cyclicals, 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.
|
| Discussion of Fund Performance |
| Capital Appreciation Trust (cont’d) |
While our growth strategy is based on a purely bottom-up approach to investing, we do pay attention to the weights in the Russell 1000® Growth Index so we are aware of any relative positions that may exist. During the reporting period, the Fund’s overweight position in the energy and utilities sectors contributed to its relative performance over its primary benchmark. On the downside, overweight holdings in the healthcare and finance sectors detracted from the Fund’s relative returns when compared to the primary benchmark.
Q: Which securities had the most positive impact on the Fund’s performance during the reporting period?
A: As the price of oil continued to hit record highs, the energy sector benefited. Among the Fund’s holdings, Canadian oils sands producer, Suncor, Inc. has been able to execute effectively, despite an unusually harsh winter in Canada. These severe weather conditions had originally led investors to anticipate a slowdown, but the weather had little impact on the company’s reported production and margin results.
Shares of oil well services company Weatherford International rose as the company was awarded a multimillion dollar contract by Sakhalin Energy Investment Company (a consortium including Royal Dutch Shell, Russia’s Gazprom and Japan’s Mitsui). Under the terms of the deal, Weatherford will provide its casing running and drilling services for the consortium’s Sakhalin II project, which is one of the largest integrated oil and gas development ventures in the world. We believe Weatherford has a first-mover advantage with its patent technology on case drilling, which is a drilling area still in its infancy.
Chesapeake Energy, a new position in the Fund’s portfolio, reported better-than-expected earnings during the reporting period. The natural gas producer has been generating substantial cash flow that enables it to make strategic purchases. We believe these acquisitions will allow Chesapeake Energy to grow natural gas reserves and increase production over the next few years.
Research In Motion contributed positively to Fund performance. Its shares were boosted after the company announced a new deal in China. We believe Research In Motion’s growth prospects are favorable as businesses continue to advance the adoption of mobile email and introduce it deeper within their organizations. Furthermore, the company is focused on broadening its distribution and increasing its share of the consumer market. We continue to have high conviction in the company, as we believe BlackBerry’s strong brand name and
superior technology provide a competitive advantage over substitute products.
Visa, purchased into the portfolio at its initial public offering, also contributed positively to Fund performance. Its stock price surged around 28% by the end of the first day of trading. Visa has one of the most recognizable financial services brands and enjoys a duopoly with MasterCard in pure card processing (no credit risk). We believe Visa’s business model is attractive as it is built on a per transaction basis (without credit sensitivity) and this recurring revenue generates significant free cash flow. Additionally, we believe new products, such as contactless payment, mobile device payment, quick service restaurant acceptance and money transfer provide Visa with opportunities for long-term growth in the U.S. and abroad.
Q: Which securities had the most negative impact on the Fund’s performance during the reporting period?
A: Freddie Mac detracted from the Fund’s performance during the reporting period as the company announced higher than expected future credit loss protections, contrary to our thesis. However, due to the increase in credit loss expectations and higher writedowns to their existing portfolio, we now believe there is a greater risk that Freddie Mac may need to raise more capital in a very difficult market, which could be dilutive to common equity shareholders. As a result, our evaluation of Freddie Mac’s growth prospects changed so we decided to sell the Fund’s position during the reporting period.
Shares of Sprint-Nextel were down as the company reported disappointing earnings. In the report, Sprint detailed that its wireless unit had a net loss of customers during its last fiscal quarter. Our investment in Sprint was predicated on the belief that it was in the midst of a turnaround and was positioned to benefit from growth in the wireless communications market. Recently, there have been significant fundamental changes within the wireless communications industry as major players (Verizon and AT&T) have introduced unlimited voice/data offerings. As a result, we believe Sprint will struggle to execute its turnaround profitably in this competitive pricing environment. Consequently, we decided to sell the Fund’s position as we believe this is the beginning of a pricing war within the industry and Sprint will likely begin offering aggressive pricing plans.
Amylin Pharmaceuticals, Inc. continued to face headwinds as it reported a wider loss in its fourth fiscal quarter despite an increase in revenues. In addition, the company’s 2008 outlook was below analysts’ expectations. Amylin has been affected by
|
| Discussion of Fund Performance |
| Capital Appreciation Trust (cont’d) |
higher marketing costs for its diabetes drugs Byetta and Symlin and development costs for Byetta LAR (exenatide). Spending on Byetta LAR will likely increase this year as three new studies will focus on the drug. Amylin’s management believes its efforts to support physicians and patients starting Byetta therapy will be more productive in generating sales. The Fund continues to hold the stock because although Amylin may experience near-term weakness, the company has attractive opportunities that we believe should come to fruition over the long-term.
Also within healthcare, Merck & Co., Inc. detracted from performance as negative headlines surrounding its cholesterol drug, Vytorin, caused the company’s stock to sell-off. A study found that Vytorin, which is marketed through a joint venture between Merck and Schering-Plough, was no more effective in combating heart disease than a generic. In our view, the market overreacted to the clinical data and as the stock’s valuation reflected essentially zero contribution from the joint venture. We believe Merck has growth opportunities in its currently approved products, Gardasil and Januvia, which are in early launch. The company should benefit from additional products in the pipeline over the next few years; therefore, the Fund continues to hold the stock.
Shares of the software giant Microsoft were down as investors expressed uncertainty about the company’s bid for Yahoo. We believe Microsoft has significant opportunities for growth in its other business segments including Windows Vista, Microsoft Office and Xbox. The Xbox product is still early in its product life cycle and we believe Microsoft should see significant margin expansion in its gaming console business going forward.
Q: What is your methodology for managing 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 companies which 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 company managements as well as customers, competitors, and suppliers, in-depth balance sheet and income statement analysis, analysis of company-and industry-specific risks. 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 its 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, rather than an individual, manages portfolios. We actively monitor the individual stock, sector, and thematic exposure of the Fund’s exposure in order to adhere to its risk profile.
|
| Discussion of Fund Performance |
| Core Equity Fund |
Investment Objective | The Core Equity Fund (the “Fund”) seeks long-term growth through capital appreciation.
Investment Highlights | Under normal market conditions, the Fund invests at least 80% of its net assets in equity securities consisting primarily of common stocks of large U.S. companies (i.e., typically having a market capitalization over $5 billion at the time of investment).
The Fund seeks to achieve its objective by investing in equity securities which the portfolio managers 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” research process with a relative-valuation discipline in purchasing stocks. 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. 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 Standard & Poor’s 500 Composite Stock Index (“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. |
Benchmark Index | The S&P 500 Index is an unmanaged index of 500 widely held stocks that are considered representative of the U.S. stock market.
Meet the Managers | Richard Skeppstrom, John “Jay” Jordan, Craig Dauer and Robert Marshall of Eagle Asset Management, Inc. (“Eagle”) are Co-Portfolio Managers of the Fund. Mr. Skeppstrom is a Managing Director of Eagle and has 17 years of investment experience. He earned a BA and an MBA from the University of Virginia. Mr. Jordan is a Chartered Financial Analyst and has 17 years of investing experience. He received a BS from the University of Virginia. Mr. Dauer has 14 years of investing experience and holds a BA from Colgate University and an MBA from the University of Virginia. Mr. Marshall has 21 years of investing experience. He received a BA from the University of Virginia and an MBA from Santa Clara (California) University. The team has managed the Fund since inception. Eagle is an affiliate of Heritage Asset Management, Inc., the Fund’s Investment Adviser.
During an interview conducted on May 15, 2008, the portfolio managers of the Fund discussed the Fund’s performance for the six-month period ended April 30, 2008 (the “reporting period”).
Q: How would you describe the large-cap growth market environment (the Fund’s investment market) during the reporting period?
A: Major stock indexes lost ground during the reporting period, weighed down by the deepening housing recession, continued credit market turmoil with unexpectedly large sub-prime-related security write-offs in the banking industry, uncertainty regarding the Federal Reserve Board’s (the “Fed”) flexibility for further ease in light of inflationary pressures and the weak dollar.
Stock prices began their decline on the first trading day of November 2007 when Citigroup’s stock was downgraded, followed by disappointing earnings reports/guidance from
General Motors and other companies that heightened recession concerns. Following a short rally into early December, stocks sold off when the Fed announced on December 11th a lower than expected federal funds rate cut of only 0.25% along with a higher-than-expected November consumer price index report.
The start of 2008 saw stock prices continuing down, interrupted briefly by an unexpected 0.75% cut in the federal funds rate by the Fed on January 22nd. Stocks declined again in February through mid-March, led by a sharp drop in the Institute for Supply Management services index and credit concerns in the financial sector. The market had a brief positive reaction in mid-March when the Fed expanded its discount-window lending to (non-bank) securities dealers for the first time since the 1930s and cut the federal funds rate again by 0.75% to 2.25%. However, weak economic reports on consumer confidence, housing, durable goods orders, and consumer spending led markets lower during the final week of
|
| Discussion of Fund Performance |
| Core Equity Fund (cont’d) |
March. Finally, major indexes rebounded during April as investors tentatively acted on the premise that credit market conditions were beginning to stabilize, along with some encouragement from first calendar quarter earnings reports.
In an environment of very weak economic growth (e.g. real gross domestic product growth of just 0.6% in the fourth and first calendar quarters) with underlying inflation at the upper end of the Fed’s comfort zone, the strongest-performing S&P 500 sectors during the reporting period included energy (the only sector with a positive return), consumer staples, materials, utilities, and industrials. On the other hand, the weakest-performing sectors included financials, information technology, telecommunication services, healthcare, and consumer discretionary.
Q: How did the Fund perform during the reporting period?
A: The Fund’s Class A shares returned -11.38% during the six-month period ended April 30, 2008 (excluding front-end sales charges). The Fund’s return during the reporting period reflected the weak stock market environment described above with particular weakness in holdings within the telecommunication services, financials, and information technology sectors. The only positive-performing sector in the Fund was the relatively economically-insensitive consumer staples sector.
Q: How did the Fund compare to its benchmark index during the reporting period?
A: The Fund’s Class A shares returned -11.38% versus -9.63% for its benchmark, the S&P 500 Index. The Fund’s underperformance versus the benchmark index was due to its significant underweighting in energy, the strongest-performing sector of the S&P 500 Index. Other sectors of relative weakness versus the benchmark included the underperformance in slightly-underweighted telecommunication services, and the underperformance in overweight financials. On the other hand, sectors of relative strength versus the benchmark included outperformance in overweight healthcare, consumer discretionary and industrials.
Q: Which securities had the most negative impact on the Fund’s performance during the reporting period?
A: Rising customer losses and the resultant pressure on profits has severely impacted Sprint Nextel. However, we have maintained the Fund’s investment position in the stock based on the belief that the path to improved operations is readily achievable while the market is undervaluing the third-largest wireless network under conservative expectations.
Wachovia disappointed in the first quarter with a 41% reduction in the dividend and a $7 billion capital raise that is more than 10% dilutive. The company’s repeated reassurances to its shareholders that the mortgage losses from the Golden West acquisition would be manageable and require no capital infusions were false. We have reduced the Fund’s position but continue to hold the stock because we feel that the stock price reflects the bad news that is already known and we do not expect Wachovia to need to raise capital in the near term. In this environment there are plenty of struggling financial service companies that are attractively valued, and after Bear Stearns’ demise, diversification is prudent.
Our expectation of improving fundamentals in the handset business as Motorola reinvigorates its product portfolio has proven more difficult than we had anticipated. Significant handset market share loss has meaningfully pressured profitability, and thus the long term competitive position of Motorola appears challenged. We sold the Fund’s position during the reporting period.
American International Group (“AIG”) reported worse than expected first fiscal quarter results that included $25.7 billion in realized and unrealized losses in its credit default swap (“CDS”) and investment portfolios. Breaking this down, $9 billion was for unrealized CDS losses, $6 billion was realized investment losses and $10.5 billion was for unrealized investment losses. The company also announced they would raise $18 billion in new capital, which was surprising given recent statements from management indicating that they believed they had excess capital of at least $15 billion. The good news is:
| | 1. | The company has so far written-down $21 billion of $78 billion in the CDS business. Actual losses could be a fraction of this amount. Management makes a strong case that significant reversals are likely here because the market values that they are forced to use to value the CDSs are unrealistic. |
| | 2. | Credit markets have improved since March and AIG’s investment portfolio losses may be reversed. |
| | 3. | Credit rating agencies forced AIG to raise capital and if significant loss reversals happen, as we expect, the dilution should be reversed. |
Microsoft gave up ground during the reporting period as it pursued the acquisition of internet search giant Yahoo. At this juncture, however, the company withdrew its offer for Yahoo and seems content to chart its own course in the paid search
|
| Discussion of Fund Performance |
| Core Equity Fund (cont’d) |
arena. From a fundamental perspective Microsoft remains sound, and remains a solid defensive holding as a myriad of new products continue to hit the market.
Q: Which securities had the most positive impact on the Fund’s performance during the reporting period?
A: Wal-Mart’s results appear to be benefiting from both company-specific initiatives (store remodels, improved checkout, enhanced labor scheduling, etc.) as well as a “trade-down” impact as consumers shift spending to lower-price retailers. The Fund continues to own the stock as we see management’s efforts to improve its return on capital as promising.
Comcast reported very strong first fiscal quarter data subscriber growth and good phone growth and did not disappoint with guidance. In addition, the cash flow guidance is improved from last year, a period in which the company was forced to accelerate capital spending to meet anticipated demand requirements.
In our continuing effort to diversify and improve the quality of our financials, we purchased a small position in JP Morgan Chase and the good timing of that purchase is the main reason for the positive performance of the stock as it coincided with an improvement in financial stocks.
At Tyco Intl., transitory selling pressure after the spinoff of Tyco Electronics and Covidien left Tyco’s stock valuation depressed at the beginning of the reporting period. Improving operating performance at its Fire Protection Services business segment
continued strong growth in its Flow Control segment, and the markets rewarding of improving fundamental trends through modest multiple expansion was reflected in stock performance.
The Fund purchased eBay stock in late January, following the announcement of some eBay price changes. We felt these changes, though controversial, would be less disruptive than the market believed, and also thought management’s guidance for 2008 earnings was conservative—leaving some room for error. First quarter results, though still early, confirmed this thesis. The Fund continues to hold the stock as we consider valuation reasonable and near-term expectations achievable.
Q: What is your methodology for managing the Fund’s portfolio investment risks?
A: Portfolio risk control measures include the following:
| | • | | Diversification – Initial position sizes are normally 2% to 3% of the Fund’s total portfolio, and successful positions may be trimmed. The typical number of holdings range 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-cap, seasoned companies; |
| | • | | Stock valuation – Diligent attention to stock prices via a continually-updated relative valuation discipline. |
|
| Discussion of Fund Performance |
| Diversified Growth Fund |
Investment Objective | The Diversified Growth Fund (the “Fund”) seeks long-term capital appreciation.
Investment Highlights | Under normal market conditions, the Fund invests at least 65% of its total assets in the equity securities of companies that may have significant growth potential (i.e., typically having a market capitalization between $1 billion and $16 billion at the time of investment).
The Fund seeks to achieve its objective by investing in the equity securities of companies that the portfolio manager believes to have high growth rates and strong prospects for their business or services. The Fund’s portfolio manager uses a “bottom-up” method of analysis based on fundamental research to determine which common stocks to purchase for the Fund. 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 portfolio manager attempts to purchase stocks that have the potential for above-average earnings or sales growth, reasonable valuations and acceptable debt levels.
Benchmark Index | The Russell Midcap® Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values.
Meet the Managers | Bert L. Boksen, CFA, is the Managing Director of the small-cap equity program at subadviser Eagle Asset Management, Inc. (“Eagle”) and has 31 years of investment experience. Before joining Eagle in 1995, Boksen served as Chief Investment Officer of Raymond James & Associates, Inc. Prior to working for Raymond James & Associates, Inc., he was an Analyst for Standard & Poor’s. He has managed the Fund since inception. Christopher Sassouni, DMD, has been Assistant Portfolio Manager since 2006. He has 19 years of investment experience as an Analyst and has also served as President of an independent investment management research firm focused on healthcare. Eric Mintz, CFA, has been Assistant Portfolio Manager since 2008. He earned the Chartered Financial Analyst designation in 2000 and has 13 years of investment experience as an Analyst and Research Associate. Eagle is an affiliate of Heritage Asset Management, Inc., the Fund’s Investment Adviser.
During an interview conducted on May 15, 2008, the portfolio managers of the Fund discussed the Fund’s performance for the six-month period ended April 30, 2008 (the “reporting period”).
Q: How would you describe the mid-cap growth market environment (the Fund’s investment market) during the reporting period?
A: Over the six-month reporting period ended April 30, 2008, the Russell Midcap® Growth Index finished at -7.12%. This time period was turbulent as a weakening economy, largely reflecting ongoing housing softness and sky-high energy prices, pressured equity markets. The situation was further compounded by liquidity issues in fixed-income markets. That, in turn, resulted in ratings downgrades, large write-offs at financial-service institutions and the demise of Bear Stearns. Although the materials and energy sectors continue to bolster benchmark returns, the dynamics amongst the other sectors with regards to performance have changed since 2007 and even the beginning of 2008 with information technology and industrials, in particular weighing down benchmark returns.
Q: How did the Fund perform during the reporting period?
A: For the six-month period ended April 30, 2008, the Fund’s Class A shares returned -4.12% (excluding front-end sales
charges). On an absolute basis, the Fund’s strongest performing sectors were energy, consumer discretionary and materials. Strong returns in the energy sector were due to the rising price of oil. In the consumer discretionary sector, the Fund’s investments in media and distributors paid off. Portfolio investments in construction materials and fertilizer industries helped increase returns in the materials sector. Detractors to the Fund’s performance for the reporting period on an absolute basis were investments in the information technology and healthcare sectors. Concerns about a spending slowdown hurt the performance of the Fund’s holdings in information technology companies, though absolute returns were in line with the benchmark. In the healthcare sector, investments in the equipment and supplies industry hurt the Fund’s performance.
Q: How did the Fund compare to its benchmark index during the reporting period?
A: The Fund outperformed the benchmark over the six-month reporting period. Strong stock selection benefited the Fund’s performance in the consumer discretionary, industrials and financials sectors. The media industry in consumer discretionary was particularly strong. The consumer discretionary sector also benefited from an underweight
|
| Discussion of Fund Performance |
| Diversified Growth Fund (cont’d) |
position as this six-month time period was especially damaging in this sector. In industrials, the Fund’s machinery and road and rail stocks were particularly strong performers. Although the Fund’s position in the industrials sector was overweight compared to the benchmark, the primary driver of outperformance was stock selection rather than the overweight posture. In financials, the Fund benefited from investment in niche companies that grow in the face of difficult market conditions.
The materials and healthcare sectors performed in line with the benchmark. For the reporting period, energy and information technology sectors slightly underperformed the benchmark. In energy, although the Fund had strong returns, it failed to keep up with the benchmark returns in this sector (energy was the only sector in the benchmark to post positive returns during the reporting period). Overall, information technology returns were approximately in line with the benchmark, with software investments lagging the rest of the sector.
Q: Which securities had the most positive impact on the Fund’s performance during the reporting period?
A: CF Industries Holdings is a manufacturer of nitrogen and phosphate fertilizer. The company’s stock price benefited from recent strength in grain prices which increased the demand for fertilizer. The Fund has reduced its exposure to agricultural-related names, following exceptionally strong performance as we believe surging natural-gas prices may impact nitrogen margins in the future.
Southwestern Energy Company engages in the exploration and production of natural gas using horizontal drilling technology. As the stock price is pegged to the price of natural gas, the company has seen a boost recently due to surging natural gas prices. During the reporting period, we decided to increase the Fund’s position as the company is planning to increase drilling in Fayetteville Shale which should help further accelerate production growth and earnings.
Bucyrus International manufactures underground and surface mining equipment. The company continues to experience robust demand from its mining customers due to strong prices for coal, iron ore, copper and oil. Additionally, Bucyrus has a large order backlog that provides visibility into continued earnings growth and an extended cycle. There is also potential upside due to an emerging drag line replacement cycle.
Texas Industries is a supplier of heavy building materials. We added to the Fund’s position during the reporting period as the company has substantial new capacity coming on in California and is the beneficiary of a weak dollar, which compresses imports.
Landstar System, a transportation and logistics company, pleased investors by exceeding fourth-quarter revenues and earnings-per-share estimates. We remain optimistic about Landstar’s ability to grow its business by signing up new agents and increasing contracts with existing customers, as well as improving operating margins.
Q: Which securities had the most negative impact on the Fund’s performance during the reporting period?
A: Monster Worldwide operates in two disparate business segments: Monster, a leading global online recruitment company and TMP Worldwide Advertising and Communications. We sold the stock out of the Fund due to concerns over declining jobs data.
Metals and mining stock Carpenter Technology’s stock price sold off during the reporting period due to mounting investor concerns over the effect of a global slowdown on the aerospace cycle. Although we reduced the Fund’s position during the first quarter, we believe Carpenter remains well-positioned in attractive markets despite potential near-term headwinds.
Freeport-McMoRan Copper and Gold is involved in the exploration and mining of copper as well as gold and silver byproducts. We sold the stock out of the Fund during the reporting period in order to reduce the Fund’s overweight exposure to the materials sector given the reduced outlook for global economic growth.
FactSet Research Systems is the leader in complex modeling and screening for financial firms. The stock price traded down due to pressure from the financial industry slowdown.
Mentor Corporation develops, manufactures and markets a range of products serving the aesthetic medical market, including plastic and reconstructive surgery. Although we still like the company’s fundamentals, the security was sold out of the Fund during the reporting period because companies in this space have been affected by concerns regarding consumer spending.
Q: What is your methodology for managing the Fund’s portfolio investment risks?
A: Investments in mid-cap companies generally involve greater risks than large-cap 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 desired levels of the Fund’s total portfolio.
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| Discussion of Fund Performance |
| Growth and Income Trust |
Investment Objective | The Heritage Growth and Income Trust (the “Fund”) primarily seeks long-term capital appreciation and, secondarily, seeks current income.
Investment Highlights | 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, in the opinion of the Fund’s investment subadviser, 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” investment process that seeks to acquire promising companies with sound business fundamentals at a time when they believe intrinsic value is not fully recognized by the marketplace. 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 portfolio managers’ philosophy defines value in three categories:
| | (1) | Basic Value – stocks of financially sound companies with well established businesses that are selling at low valuations relative to the company’s net assets or potential earning power; |
| | (2) | Consistent Earners – companies that exhibit blue chip characteristics, with steady earnings and dividend growth that are selling at attractive valuations and are priced below historical norms; and |
| | (3) | Emerging Franchises – value-priced companies in the process of establishing a leading position in a product, service or market that is expected to grow at an above average rate. |
Benchmark Index | The Standard & Poor’s 500 Composite Stock Index (“S&P 500 Index”) is an unmanaged index of 500 U.S. stocks and gives a broad look at how stock prices have performed.
Meet the Managers | William V. Fries, CFA, is a Managing Director at Thornburg Investment Management, Inc. (“Thornburg”) and Co-Portfolio Manager of the Fund. He has more than 32 years of investment experience. Mr. Fries joined Thornburg in 1995. He began his investment career as a Security Analyst and Bank Investment Officer. He assumed management of the Fund in July 2001. Brad Kinkelaar is a Managing Director of Thornburg and has been a Co-Portfolio Manager of the Fund since 2006. He has 12 years of investment experience. Mr. Kinkelaar received an MBA from the J.L. Kellogg School of Management at Northwestern University.
During an interview conducted on May 15, 2008, the portfolio managers of the Fund discussed the Fund’s performance for the six-month period ended April 30, 2008 (the “reporting period”).
Q: How would you describe the large-cap equity market environment (the Fund’s investment market) during the reporting period?
A: The S&P 500 Index returned -9.63% during the six-month period ended April 30, 2008. Most sectors in the benchmark showed negative performance. The only positive performance came from the energy sector. Financials, information technology, and healthcare were the weakest sectors for the benchmark during the reporting period.
The dichotomy of deflationary financial assets and inflationary commodities creates a classic dilemma for monetary and fiscal management. As monetary authorities in the U.S. provide economic stimulus with lower interest rates, there is the risk that inflationary pressures will be more difficult to tame and will spread to other economies. In this environment, investors must contend with de-leveraging of financial institutions’ balance sheets, the impact of higher costs on profits and the possibility of a steeper yield curve (discount rate of future earnings).
Q: How did the Fund perform during the reporting period?
A: The Fund’s Class A shares returned -13.93% (excluding front-end sales charges) during the six-month period ended April 30, 2008. Investments in the financial sector were negatively impacted by the debacle in the U.S. sub-prime mortgage securities business—some directly, most indirectly. Nearly all of the Fund’s financial holdings detracted from performance. Additionally, a risk-adverse environment was unfriendly to several Fund holdings with financial leverage. Good performance in the materials and energy sectors provided the principal positive selection effect in the portfolio.
Q: What factors led the Fund to underperform its benchmark index during the reporting period?
A: The primary driver of the Fund’s underperformance during the reporting period was stock selection in the financials, consumer staples, and healthcare sectors. The holdings of the Fund in each of these sectors underperformed these sectors’ respective holdings in the S&P 500 Index.
The Fund’s investment portfolio was underweight in the industrials, energy and healthcare sectors. Investments in the energy sector were the Fund’s top contributor to performance and
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| Discussion of Fund Performance |
| Growth and Income Trust (cont’d) |
displayed positive stock selection. The industrials and healthcare sectors underperformed for the S&P 500 Index and the Fund.
The Fund’s portfolio, when compared to the benchmark, was overweight in the telecommunication services and materials sectors. While the telecommunication services sector underperformed, the Fund benefited from positive stock selection. Materials were a positive contributor to the Fund’s return, displaying both positive allocation and selection effect.
Q: Which securities had the most negative impact on the Fund’s performance during the reporting period?
A: WellPoint Inc. has revised guidance for 2008 materially downward due to a higher medical loss ratio and a “miss” on cost trends. Although the price of the stock may appear undervalued, we decided to sell the position out of the Fund due to a fundamental deterioration as further negative medical loss ratio moves could evaporate earnings and cash flows rapidly.
Hong Kong Exchange was affected by the pullback in the Chinese market which has had an impact on volume over the exchange. Despite the general equity market pullback, Hong Kong Exchanges has seen its average daily turnover consistently rise over the last three years and we believe it is well positioned to retain its important position among Asian securities exchanges.
Our downside scenarios for Wachovia Corporation widened as the crisis in financial markets evolved toward an illiquidity meltdown. We felt it was more important to recognize the potential for catastrophic failure that this leveraged financial institution could have on the portfolio’s return.
Motorola Inc. was sold out of the Fund in response to deterioration in company specific fundamentals, particularly product and top line related, that were disappointing and different than our expectations.
The main issue for the Chicago Mercantile Exchange (“CME Group”) has been the risk of re-regulation as the exchange innovates across product lines more rapidly with streamlined oversight from the Commodity Futures Trading Commission. CME Group uses a transaction-driven business model and the heightened volatility in the second half of calendar 2007 and into 2008 has not only helped that dynamic but also led to a broadening of financial instruments (exchange-traded funds, stock futures, new commodity baskets, etc.) so that institutional investors can achieve better risk management thru hedging/diversification. The integration with the Chicago Board of Trade has been relatively smooth and more recently the company acquired a 10% interest in Bolsa de Mercadorias & Futuros (“BM&F”). BM&F is the Brazilian futures market exchange. We believe this is a very good transaction for CME Group especially if they were to move the relationship to one where Globex becomes the electronic platform for BM&F.
Q: Which securities had the most positive impact on the Fund’s performance during the reporting period?
A: Canadian Oil Sands’ stock benefited due to oil prices that have spiked resulting in energy companies that are highly sensitive to the commodity doing well.
Diamond Offshore Drilling benefited from strong demand for drilling rigs, rising rig rates and improved dividend policy.
The Fund participated in Visa’s IPO on March 19th. The stock was purchased at $44 per share which we believed represented an attractive valuation. Its stock price quickly appreciated and closed at over $80 per share by the end of the reporting period. Visa uses their vast payments network to process credit and debit transactions, benefiting from scale and a secular shift from paper to electronic transactions.
While other U.S. banks’ shares are down more in price, most remain more expensive than JP Morgan Chase on tangible book value. JP Morgan’s core businesses remain in good shape due to superior risk management. We believe that the company represents a good way to play offense (i.e., dip a toe in a deeply out-of-favor and controversial sector) in a risk-adverse manner.
Apple Inc. has benefited recently from lowering the initial price point and expanding third party distribution for its iPhone product. The Fund purchased Apple because we believe it has great growth potential—the company is coming up with products that meaningfully change the way we live and work and appears to have the potential to be a market share gainer in both the computer and mobile phone markets, which are each huge markets. We think its valuation is attractive considering the company’s growth potential.
Q: What is your methodology for managing 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 currently 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.
During the reporting period, the Fund’s portfolio 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.
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| Discussion of Fund Performance |
| High Yield Bond Fund |
Investment Objective | The High Yield Bond Fund (the “Fund”) seeks high current income.
Investment Highlights | The Fund seeks to achieve its objective by investing at least 80% of its net assets (plus any borrowings for investment purposes) 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. 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.
The Fund may invest up to 20% of its assets in foreign debt securities (including emerging market securities). Normally, the portfolio managers seek to maintain a weighted average portfolio maturity of between 5 to 10 years. 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.
Benchmark Index | The Citigroup High YieldSM Market Index is a broad-based unmanaged index of below investment-grade corporate bonds issued in the United States. This index excludes defaulted debt securities.
Meet the Managers | A team of investment professionals from Western Asset Management Company led by Chief Investment Officer S. Kenneth Leech, Deputy Chief Investment Officer Stephen A. Walsh and Portfolio Manager Michael C. Buchanan are responsible for the day-to-day management of the Fund. The team assumed management of the Fund effective April 1, 2006. Mr. Leech has 30 years of investment experience and earned an MBA, BS and BA from The Wharton School, University of Pennsylvania. Mr. Walsh has 26 years of investing experience and earned a BS degree from the University of Colorado at Boulder. Mr. Buchanan is a Chartered Financial Analyst with 18 years of investment experience. He earned a BA from Brown University.
During an interview conducted on May 15, 2008, the portfolio managers of the Fund discussed the Fund’s performance for the six-month period ended April 30, 2008 (the “reporting period”).
Q: How would you describe the high-yield bond market environment (the Fund’s investment market) during the reporting period?
A: The Federal Reserve Board (the “Fed”) intensified its campaign against downside risks to growth during the reporting period. The federal funds rate was reduced by a cumulative 2.5% during the reporting period. In addition, the Fed implemented a number of new lending facilities, designed to meet the liquidity demands of financial intermediaries across the full banking spectrum. Volatility remained high and the Treasury/Eurodollar spread, a measure of systemic risk, held steady at nearly three times year-ago levels. Margin calls on a number of leveraged hedge funds prompted fire sales at below-market prices, and the emergency rescue of Bear Stearns exacerbated the situation in mid-March. Ironically enough, this event marked the beginning of a period of steady improvement in investor sentiment that continues to date, as many global bank CEOs think that the worst is behind us.
Economic data was generally negative. Sales of new and existing homes continued to fall—despite significant home
price depreciation—and remained a tremendous drag on gross domestic product growth. Consumer confidence fell as labor market conditions deteriorated. Headline inflation measures remained elevated as oil prices surged. Core inflation was better behaved but has remained stubbornly near the upper bound of the Fed’s comfort zone. Credit spreads widened to historic levels through mid-March before rebounding during the final six weeks of the reporting period.
Q: How did the Fund compare to its benchmark index during the reporting period?
A: During the six-month reporting period ended April 30, 2008, the Fund’s Class A shares returned - -3.53% (excluding front-end sales charges). The Fund underperformed its primary benchmark, the Citigroup High YieldSM Index, which returned -0.62%. Issue selection aided relative performance as 8 of the Fund’s 10 largest overweight positions outperformed the benchmark. Industry allocation also contributed positively in large part due to overweight positions versus the benchmark in the utilities sub-sector, specifically to electric utilities. The Fund’s underweight investments versus the benchmark in media non-cable and consumer cyclical positions also aided relative performance. Compared to the benchmark, the Fund’s portfolio was also underweight in the financial sector which
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| Discussion of Fund Performance |
| High Yield Bond Fund (cont’d) |
included the worst performing industry for the reporting period, finance companies.
The Fund’s overweight to lower rated high yield, those issues rated CCC and below was the main driver of negative performance for the reporting period.
Q: Which securities had the most negative impact on the Fund’s performance during the reporting period?
A: Leiner Health filed for chapter 11 during the reporting period and we are working with other bondholders as well as the company on the best course of action. Charter Communication, as well as all the other cable companies, reported financial results that showed they continue to see erosion of margins due in large part to alternative programming options. Idearc is much the same story. This yellow page directory unit has seen margins and cashflow erode as users rely more and more on the internet to provide information. Saint Acquisitions, a trucking company, has performed poorly as economic activity has slowed. General Motors was one of the larger loss positions due more to the portfolios’ absolute level of exposure than poor operating metrics. General Motors is coming along in its restructuring program and is poised to benefit from reduced labor and healthcare costs.
Q: Which securities had the most positive impact on the Fund’s performance during the reporting period?
A: The Lehman Brothers and the Bank of America positions were initiated during the reporting period at the height of the financial liquidity crisis. They are both convertible securities and performed extremely well after the worst of the crisis seemed to have passed. Tenet Healthcare was the top performing issuer in the benchmark index for the reporting period. Its securities benefited from strong earnings announcement showing improved revenues, earnings before interest, taxes, depreciation and amortization and margins. NRG Energy bonds performed well as energy producers provided a defensive haven for investors as the flight to quality trade accelerated during the reporting period. Texas Utilities priced their leveraged buyout debt during the reporting period and it was well received by the market, in part because of the defensive nature of the electric utility industry as well as the attractive levels at which the deal was priced.
Q: What is your methodology for managing 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 |
Investment Objective | The International Equity Fund (the “Fund”) seeks capital appreciation principally through investment in a portfolio of international equity securities.
Investment Highlights | The Fund may invest in securities traded on any securities market in the world but normally invests at least 50% of its investment portfolio in securities traded in developed foreign securities markets. Generally, the Fund will invest in companies with a market capitalization greater than $2.5 billion. The Fund may also invest up to 35% of its total assets in emerging markets. The Fund seeks to achieve its objective by investing, under normal market conditions, at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in equity securities of foreign companies that the portfolio managers believe to have the potential to capitalize on worldwide growth trends and global changes. The Fund primarily invests in equity securities of foreign issuers and depository receipts representing the securities of foreign issuers. 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. Market regulations and market liquidity are also considered. The Fund’s portfolio managers use a “bottom-up” sector and stock-specific approach within the developed markets. A bottom-up method of analysis de-emphasizes the significance of economic and market cycles. The primary focus is the analysis of individual companies as well as the industry in which that company operates rather than the economy as a whole. Within the
emerging markets, a “top-down”, macro-economic driven process is adopted. 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. Finally, when considering investments in Japanese companies, a hybrid approach (both bottom-up and top-down) is most effective.
Benchmark Indices | 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 an unmanaged index representative of the market structure of approximately 20 countries from the stock markets of Europe, Australasia, and the Far East.
Meet the Managers | Richard C. Pell is Chief Executive Officer at Artio Global Investors Inc., the holding company of Artio Global Management LLC (both formerly Julius Baer) where he serves as Chief Investment Officer. Mr. Pell has 23 years of investment experience. He joined the firm in 1995. Mr. Pell has a BA from the University of California, Berkeley, and an MBA in finance from New York University. Rudolph-Riad Younes, CFA, is Managing Director, Head of International Equities at Artio Global and has 17 years of investment experience. He joined the firm in 1993. Mr. Younes received an MS from Columbia University and an MBA from Yale University. Messrs. Pell and Younes assumed management of the Fund in July 2002.
During an interview conducted on May 15, 2008, the portfolio managers of the Fund discussed the Fund’s performance for the six-month period ended April 30, 2008 (the “reporting period”).
Q: How would you describe the international equity market environment (the Fund’s investment market) during the reporting period?
A: The six-month reporting period ended April 30, 2008 was among the most turbulent in recent memory. In an attempt to cushion the economy from slowing global growth and thaw the freeze in credit markets, the Federal Reserve Board (the “Fed”) cut the federal funds rate by 2.5%, the fastest pace in two decades, down to 2% by the end of April. They also took two bold steps to reassure an anxious investment community, first
by infusing markets with $200 billion to ease liquidity, and second, by creating a lending facility for investment banks to secure short-term loans (a benefit previously available only to commercial banks). Meanwhile, the European Central Bank (“ECB”) and the Bank of England were also faced with inflationary fears, however the ECB held rates steady through the reporting period at 4% and the Bank of England cut its base rate by a mere 0.25% in April to 5%. Compared with other major world currencies, the dollar continued to move lower, declining by approximately 10% versus the Japanese Yen and 8% versus the Euro.
The materials sector finished the reporting period as one of the primary benchmark index’s best performers, albeit slightly negative. Given this year’s record prices set by gold, oil and
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| Discussion of Fund Performance |
| International Equity Fund (cont’d) |
other commodities and continued demand from emerging markets, especially Brazil, Russia, India and China (the so-called “BRIC” countries), companies that extract these products fared well. The energy sector performed toward the top of the list for the reporting period, yet it too was slightly negative. At the other end of the performance spectrum, consumer discretionary, financials and industrial were the worst performing sectors for the primary benchmark.
Q: How did the Fund compare to its benchmark indices during the reporting period?
A: For the six-month reporting period ended April 30, 2008, the Fund’s Class A shares returned -10.83% (excluding front-end sales charges). The MSCI® ACWI ex-US returned -9.34%, while the MSCI EAFE® Index, a secondary benchmark, returned -8.93%. The Fund’s underweight positions versus the primary benchmark in the commodity-oriented market of Brazil detracted from results as did stock selection within several emerging markets such as India, Hungary and Poland. However, the Fund’s underweight positions compared to the primary benchmark in China and South Korea and overweight positions in the Czech Republic and Russia had a positive impact on relative performance.
Positively contributing to relative performance versus the primary benchmark was the Fund’s underweight investments in U.K. financials, particularly banks and consumer discretionary companies (notably department stores, restaurants and homebuilders). However, the Fund’s underweight investments in Japan detracted from relative results compared to the primary benchmark as this market declined less than the index. Within the materials sector, agricultural chemicals companies were quite strong amid continued demand for crop nutrients. Additionally, infrastructure-related companies such as cement and mining provided positive results.
Q: Which securities had the most negative impact on the Fund’s performance during the reporting period?
A: In India, banks fell after the government’s proposal to forgive certain agricultural loans without announcing a means to compensate banks for these write-offs, and consequently, the Fund’s position held in warrants on the State Bank of India detracted. We have maintained exposure to this company which we view as well positioned to leverage gross domestic product (“GDP”) growth in the country. The position held in Suzlon Energy Ltd Notes, India’s largest producer of wind-turbine generators, underperformed during the reporting period as price estimates were reduced. By the end of the review period, the position had been sold amid a general reduction in emerging market exposure within the Fund. Within Hungary, GDP is slowing as a result of governmental action to restrict growth and reign in current account deficits and the country’s banks (specifically OTP Bank, which the Fund continues to
hold) suffered because of the difficulty they experienced when they went out to the wholesale market for funding. Also, late in the quarter, the country’s coalition government broke-up without setting a date for new elections, which put the progress of economic reforms in question. In Canada, shares of Ivanhoe Mines Ltd., still held in the Fund, involved in gold, copper, uranium and coal exploration and development underperformed. The company is seeking approval for a gold and copper project in Mongolia amid reports the Asian nation is considering claiming a majority of all strategic deposits. Finally, shares of Beijing Capital International Airport Co. Ltd., Asia’s second-busiest airfield, underperformed as concerns over profit growth have mounted. The Fund continues to hold the position.
Q: Which securities had the most positive impact on the Fund’s performance during the reporting period?
A: Komercni Banka, the third-largest Czech lender by assets, controlled by Societe Generale of France, was among the top contributors to relative returns amid expectations for solid earnings growth for 2008. Potash of Saskatchewan Inc. (Canada) benefited from continued strong demand for agricultural chemicals as did Yara International ASA of Norway. Within the energy sector, Gazprom OAO (Russia), the world’s biggest gas producer, outperformed, as did Rio Tinto (Australia), the world’s second biggest aluminum producer and the subject of a takeover bid by BHP Billiton. All positions noted above were maintained in the Fund at the end of the reporting period.
Q: Are there other factors that affected Fund performance during the reporting period?
A: Over the reporting period, negative returns experienced by U.S. investors in overseas markets were somewhat mitigated by currency appreciation versus the U.S. dollar. This was particularly evident with appreciation of the Euro and Japanese Yen. As a risk reduction measure, we hedged a modest portion of our currency exposure within emerging markets back to U.S. dollars. Although these hedges detracted from results, this was largely offset by cash balances held in Euros and other foreign currencies which appreciated.
Q: What is your methodology for managing the Fund’s portfolio investment risks?
A: Portfolio risk control measures include the following:
| | • | | 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); |
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| Discussion of Fund Performance |
| International Equity Fund (cont’d) |
| | • | | Liquidity risk management – The second level of our risk management process is liquidity risk management. We expect a significant reward to the Fund 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.
Mid Cap Stock Fund
Investment Objective | The Mid Cap Stock Fund (the “Fund”) seeks long-term capital appreciation.
Investment Highlights | Under normal market conditions, the Fund invests at least 80% of its net assets in stocks of companies with total market capitalization between $500 million and $15 billion. The Fund seeks to achieve its objective by using a “bottom-up” method of analysis based on fundamental research to determine which common stocks to purchase for the Fund. 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 portfolio managers seek to purchase mid-cap companies 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, have competitive advantages in their sectors and fit within the portfolio management team’s growth and valuation guidelines.
Benchmark Index | 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.
Meet the Managers | Todd L. McCallister, CFA, is a Managing Director at Eagle Asset Management, Inc. (“Eagle”), the Fund’s subadviser. He has a doctorate from the University of Virginia. Mr. McCallister has 21 years of investment experience and has managed the Fund since its inception. Stacey Serafini Thomas, CFA, is a Vice President of Eagle. She graduated cum laude from Harvard University in 1997 with a BA in government. Ms. Thomas served as Assistant Portfolio Manager from 2000 to 2005, before being named Co-Portfolio Manager. She has more than 11 years of investment experience. Eagle is an affiliate of Heritage Asset Management, Inc., the Fund’s Investment Adviser.
During an interview conducted on May 15, 2008, the portfolio managers of the Fund discussed the Fund’s performance for the six-month period ended April 30, 2008 (the “reporting period”).
Q: How would you describe the mid-cap equity market environment (the Fund’s investment market) during the reporting period?
A: During the reporting period, the big story was the Federal Reserve Board (the “Fed”) full-crises management and the cut of an aggregate 2.5% in the federal funds rate. The easing in overnight lending rate and the establishment of three different funding facilities came as a response to liquidity crises, as the Fed governors put the health of the financial system and diminishing growth in front of inflation pressures spurred by
raising commodity prices. This low interest rate environment resulted in a U.S. dollar sell-off, while the combination of both gave a secure backdrop for the rally in virtually every commodity class.
As a result, the energy sector of S&P 400 Index was the only sector with positive return during the reporting period. Big losers for the reporting period were the financials sector, the consumer discretionary sector and, to our surprise, the information technology sector.
Q: How did the Fund perform during the reporting period?
A: During the six-month period ended April 30, 2008, the Fund’s Class A shares returned -8.99% (excluding front-end
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| Discussion of Fund Performance |
| Mid Cap Stock Fund (cont’d) |
sales charges). In terms of absolute return, the Fund only shared positive returns in two sectors: telecommunications and utilities. The Fund’s position in the consumer discretionary sector was the biggest detractor from performance during the reporting period, mostly on the underperformance of household durables holdings. The financial and energy sectors traded down substantially as well during the reporting period. Our single selection in commercial banks traded down the most, just a few percentage points worse than the Fund’s capital markets exposure. In energy, our selection in energy equipment and services led to the Fund’s underperformance in that sector.
Q: How did the Fund compare to its benchmark index during the reporting period?
A: During the reporting period, the S&P 400 Index, the Fund’s benchmark index returned -6.95%. In relative comparison to the benchmark, the Fund’s best performing sector was information technology, led by our stock selection within the electronic equipment, semiconductors and software sectors. The Fund’s position in the information technology sector is its largest overweight position versus the benchmark. In addition, the Fund’s investment holdings in the telecommunication and utility sectors outperformed the benchmark.
The Fund’s overall underperformance can be contributed to our security selection in the energy and consumer discretionary sectors. In energy, our stock selection in the equipment and services industry and consumable fuels industry performed poorly. Further, the Fund’s exposure to energy is underweight in comparison to the benchmark. In the consumer discretionary sector, most of the Fund’s underperformance stems from selections in household durables and media.
Q: Which securities had the most negative impact on the Fund’s performance during the reporting period?
A: Harman International, a maker of high-fidelity audio equipment, dropped in early January after the company cut its earnings forecast as a result of its weak navigation-systems segment. More importantly to us was the deterioration in the company’s margins; the Fund sold the stock.
Washington Post is a diversified media company with newspaper, magazine, television and education assets. Education (Kaplan test-preparation programs) is almost half of revenue and has increasing margins; further, we don’t believe Kaplan will be affected by a pullback in education lending. The Fund continues to hold the stock because we are bullish on Kaplan and the Post’s cable business is solid and should get an added boost from election-year advertising.
Cognizant Technology Solutions provides application development and integration, and applications maintenance services through on-site/offshore deliver model. The stock sold off in early November on weaker than expected sales forecast and the shares have not recovered completely since. The Fund continues to hold the stock as we believe its valuation is very compelling considering that the growth in information technology services outsourcing is still in early stages. We believe that information technology services outsourcing should continue to grow at 20% or better per annum.
Acergy, which provides global contract engineering, survey and construction services to the offshore oil and gas industry, fell after the company guided to lower-than-expected earnings for 2008. In addition, succession became a factor after the company’s chief executive retired. We sold the stock out of the Fund and put the proceeds into FMC Technology, an existing portfolio holding, which has sub-sea exposure and what we view as more compelling valuation and fundamentals.
Teradata, which offers enterprise database-warehousing solutions, sold off when it reported slightly weaker sales growth. However, its gross margin expanded 3% while net income rose 27% year-over-year. The stock price was, in our mind, punished unfairly on fears that overall U.S. tech spending will be much softer than previously projected. The Fund continues to hold the stock because it trades at a discount to its peers and it operates with one dominant database as opposed to several databases (a model more common in the industry).
Q: Which securities had the most positive impact on the Fund’s performance during the reporting period?
A: Equitable Resources is the largest natural-gas producer in the Appalachian basin, including its most potent Marcellus Shale site with more than 2.5 trillion cubic feet in reserves. In addition, Equitable Resources has an interstate pipeline and regulated natural-gas-distribution businesses. During the reporting period the company announced a significant increase in proven reserves. Due to the high fixed-cost nature of this business, we believe this increased production should have positive impact on operating margins and future earnings and the stock remains as a core holding for the Fund.
DeVry Inc., which owns proprietary higher-education systems throughout the country, was the second best performer for the Fund. DeVry’s stock price, traded down substantially on fears of potential credit losses within its private student-loan portfolio. In reality, its private-loan portfolio represents only 5% of revenue and the impact of losses from its sub-prime
|
| Discussion of Fund Performance |
| Mid Cap Stock Fund (cont’d) |
portfolio would be less than 0.5% of revenue. We took advantage of the overreaction and added this growth stock at very attractive levels. After the fact, DeVry posted an outstanding quarter and disputed any credit problems.
Cellcom Israel posted strong results throughout the reporting period, with significant cost controls, earnings before interest, taxes, depreciation and amortization, margin expansion and strong subscriber additions. In addition, data revenue as a percentage of subscriber’s revenue, which we believe is the growth driver for Cellcom Israel, was the highest in the company’s history.
AON Corporation posted very good numbers, considering the negative trends in insurance pricing. AON managed to post organic revenue growth of 2% and earnings per share growth of 10% in most recent quarter. Both numbers are well ahead of its industry peers. In addition, AON continues to buy back its own shares at an impressive rate. The Fund continues to hold the name as one of its core positions.
Ansys posted great operating numbers and acquired Ansoft, which should help the company penetrate into electronic design automation market. Ansys continues to have high visibility and 70% recurring revenues. We still believe that the
simulation market is under penetrated Ansys is the market leader in this segment. The Fund continues to hold the position.
Q: What is your methodology for managing the Fund’s portfolio investment risks?
A: Investments in mid-cap companies generally involve greater risks than large-cap 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.
|
| Discussion of Fund Performance |
| Small Cap Stock Fund |
Investment Objective | The Small Cap Stock Fund (the “Fund”) seeks long-term capital appreciation.
Investment Highlights | Under normal market conditions, the Fund invests at least 80% of its net assets in stocks of companies with total market capitalization less than $2 billion. 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 Eagle Boston Investment Management, Inc. (“EBIM”) previously known as Awad Asset Management, Inc. 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 to 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” method of analysis based on fundamental research to identify the companies in which it invests. 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.
EBIM 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 EBIM invests generally will have, in the opinion of EBIM, 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.
Benchmark Index | 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.
Meet the Managers | The Fund’s two subadvisers, Eagle and EBIM, each manage a portion of the Fund’s investment portfolio and have different management styles. Bert L. Boksen, CFA, is Managing Director of the small-cap equity strategy at Eagle. He has been responsible for the management of Eagle’s portion of the Fund since 1995. Mr. Boksen is a Chartered Financial Analyst and has 31 years of investment experience. He received a BA from the City College of New York and an MBA from St. John’s University. Eric Mintz, CFA, has been Assistant Portfolio Manager since 2008. He earned the Chartered Financial Analyst designation in 2000 and has 13 years of investment experience as an Analyst and Research Associate. David M. Adams, CFA, Lead Portfolio Manager, and John McPherson, CFA, Co-Portfolio Manager, are Managing Directors at EBIM and have been responsible for the EBIM portion of the Fund’s portfolio since August 2007. EBIM has been a subadviser to the Fund since inception. Mr. Adams has 18 years of investment experience. He received a BA and an MBA from Boston College. Mr. McPherson has 18 years of investment experience. He holds a BA from Northeastern University and an MBA from Babson College. Eagle and EBIM are affiliates of Heritage Asset Management, Inc., the Fund’s Investment Adviser.
During an interview conducted on May 15, 2008, the portfolio managers of the Fund discussed the Fund’s performance for the six-month period ended April 30, 2008 (the “reporting period”).
Q: How would you describe the small-cap equity market environment (the Fund’s investment market) during the reporting period?
A: The reporting period was characterized by extreme weakness as the Russell 2000® Index, returned -12.92% for the reporting period. This weakness was driven by concerns
about an economic slowdown in the U.S., the ongoing housing crisis, credit market turmoil, the weak U.S. dollar and inflationary pressures. All of the above appeared to contribute to an increased level of risk aversion on the part of investors.
In this market environment the only economic sector during the reporting period to realize a positive return was the energy sector. Strong global demand growth and rising prices appear to be the primary catalysts for the positive performance. During this time period, information technology, consumer
|
| Discussion of Fund Performance |
| Small Cap Stock Fund (cont’d) |
discretionary, healthcare and financials were the worst performing sectors. The prospect of a slowing economy appears to be the culprit for the weak technology performance. Concerns about the financial health of consumers as a result of the housing crisis and a weakening economy hurt the discretionary stocks. Financials were weak as deteriorating credit quality weighed on their results.
Q: How did the Fund perform during the reporting period?
A: For the six-month period ended April 30, 2008, the Fund’s Class A shares returned -12.00% (excluding front-end sales charges), in line with its benchmark, the Russell 2000® Index, which returned -12.92%. On an absolute basis, the Fund’s strongest performing investments were in the materials, consumer staples, and industrial sectors. Fund holdings in the materials and consumer staples sectors finished in positive territory for the reporting period despite negative returns in these sectors for the benchmark. Detractors from Fund performance for the reporting period on an absolute basis were the information technology, healthcare and consumer discretionary sectors.
Q: How did the Fund compare to its benchmark index during the reporting period?
A: Relative to the benchmark, the Fund outperformed in the industrials, information technology and healthcare sectors due primarily to strong stock selection. Additionally, the Fund benefited slightly from its overweight position in the industrials sector. In industrials, the Fund’s machinery stock holdings were particularly strong. In information technology, the Fund benefited from strong stock selection, particularly in the communications equipment, internet software and services, and semiconductors industries. Within the healthcare sector, the Fund’s investments in the equipment and supplies and life sciences industries outperformed relative to the benchmark. The materials, consumer staples, and consumer discretionary sectors performed in line with the benchmark.
Fund holdings underperforming the benchmark were investments in the energy and financial sectors. In the energy sector, the Fund’s investments failed to keep up with the strong returns by the benchmark. Overall returns in the Fund’s financial sector were approximately in line with the benchmark, with the Fund’s real estate investment trust investments lagging the rest of the sector.
Q: Which securities had the most positive impact on the Fund’s performance during the reporting period?
A: Bucyrus manufactures underground and surface mining equipment. The company continues to experience robust
demand from its mining customers due to strong prices for coal, iron ore, copper and oil. Additionally, Bucyrus has a large order backlog that provides visibility into continued earnings growth and an extended cycle. In addition, we believe there is also potential upside due to an emerging drag line replacement cycle and therefore, the Fund continues to hold the stock as one of its core positions.
Lufkin Industries manufactures and sells oil-field pumping units, power-transmission products and highway trailers which help to maximize oil production from aging fields. The company continues to benefit from the rising price of oil, which we believe should help maintain strong demand, especially in international markets.
Cash America, a payday-loan provider and pawn-shop operator, announced better-than-expected fourth quarter revenues from its pawn segment and strong growth and margins in its internet payday-loan business. We believe the stock provides a more defensive, if not growing, position in the financial sector, which we believe will continue to face headwinds in the current economic environment.
Polypore International manufactures micro-porous membranes for use in lead-acid and lithium-ion batteries. Strong fundamental performance has been driven by steady performance of the lead-acid business and new product opportunities in the lithium-ion segment of the business.
Comstock Resources, an independent exploration and production company, appreciated nicely during the reporting period as a result of better than expected exploration and development activity, as well as because of a favorable commodity price environment.
Q: Which securities had the most negative impact on the Fund’s performance during the reporting period?
A: Universal Electronics produces pre-programmed universal remote controls and other audio-video accessories. The stock’s price dropped during the reporting period on concerns of a consumer slowdown. The Fund continues to hold the stock as we are optimistic about the company’s strong fundamentals, new products and international expansion.
RAM Holdings provides financial guaranty reinsurance to primary financial guarantors. The stock price dropped during the reporting period as investors became concerned that the credit issues facing structured finance products would ultimately impact RAM’s results. We think the market is discounting an absolute worst case scenario and thus have elected to maintain the Fund’s position.
|
| Discussion of Fund Performance |
| Small Cap Stock Fund (cont’d) |
URS Corporation is an engineering and construction services company. The drop in its stock price during the reporting period can be attributed to profit-taking following a strong advance which was then exacerbated by concerns about an economic slowdown negatively impacting their future business. The Fund continues to hold the stock as we believe their global focus mitigates the economic risk.
Deerfield Capital is a mortgage real estate investment trust. The stock price dropped during the reporting period as the credit crisis spread from being primarily a sub-prime issue to one that hurt the prices of government agency-backed and AAA-rated mortgage securities, forcing them to liquidate a portion of their investment portfolio at a loss. We decided to eliminate this position from the Fund’s portfolio when we determined that their earnings power had been permanently reduced as a result of the losses.
OYO Geospace is a provider of seismic equipment for oil companies. OYO Geospace had been a big winner in previous periods and the Fund trimmed some of its position at much higher prices; however, it sold off dramatically during the reporting period due to delays in receiving anticipated contracts. The Fund continues to hold the stock because we believe the company’s new wireless data-acquisition system will be very well received.
Q: What is your methodology for managing the Fund’s portfolio investment risks?
A: Investments in small-cap companies generally involve greater risks than large-cap 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 a portion of the assets 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 an effort 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 preferred levels of the Fund’s total portfolio.
Our risk management philosophy 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 Fund’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.
Investment Portfolios
| | | | | | |
| CAPITAL APPRECIATION TRUST | | | | | | |
| Common stocks—97.3% (a) | | | | Shares | | Value |
| | | |
| Domestic—82.2% | | | | | | |
| Advertising—1.1% | | | | | | |
| Lamar Advertising Company, Class A* | | | | 193,684 | | $7,658,265 |
| | | |
| Beverages—4.0% | | | | | | |
| PepsiCo, Inc. | | | | 420,110 | | 28,790,138 |
| | | |
| Biotechnology—1.6% | | | | | | |
| Genentech Inc.* | | | | 173,800 | | 11,853,160 |
| | | |
| Commercial services—7.8% | | | | | | |
| Moody's Corporation | | | | 249,490 | | 9,221,150 |
| The Western Union Company | | | | 1,561,067 | | 35,904,541 |
| Visa Inc., Class A* | | | | 131,401 | | 10,965,413 |
| | | |
| Electronics—3.0% | | | | | | |
| Thermo Fisher Scientific Inc.* | | | | 371,746 | | 21,512,941 |
| | | |
| Financial services—6.4% | | | | | | |
| CME Group Inc. | | | | 24,800 | | 11,344,760 |
| NYMEX Holdings Inc. | | | | 54,000 | | 5,000,400 |
| The Charles Schwab Corporation | | | | 1,356,629 | | 29,303,186 |
| | | |
| Healthcare products—4.0% | | | | | | |
| Baxter International Inc. | | | | 174,300 | | 10,862,376 |
| St. Jude Medical, Inc.* | | | | 402,234 | | 17,609,805 |
| | | |
| Household products—3.1% | | | | | | |
| Fortune Brands, Inc. | | | | 331,465 | | 22,413,663 |
| | | |
| Internet—3.6% | | | | | | |
| Google Inc., Class A* | | | | 44,600 | | 25,613,334 |
| | | |
| Multimedia—5.3% | | | | | | |
| Entravision Communications Corporation, Class A* | | | | 1,625,740 | | 11,363,923 |
| The McGraw-Hill Companies, Inc. | | | | 479,110 | | 19,638,719 |
| Viacom Inc., Class B* | | | | 172,829 | | 6,643,547 |
| | | |
| Oil & gas—7.2% | | | | | | |
| Chesapeake Energy Corporation | | | | 376,700 | | 19,475,390 |
| Hess Corporation | | | | 299,455 | | 31,802,121 |
| | | |
| Pharmaceuticals—5.9% | | | | | | |
| Amylin Pharmaceuticals Inc.* | | | | 527,489 | | 14,548,147 |
| Merck & Co., Inc. | | | | 293,900 | | 11,179,956 |
| Schering-Plough Corporation | | | | 919,700 | | 16,931,677 |
| | | |
| Retail—2.8% | | | | | | |
| Target Corporation | | | | 377,400 | | 20,051,262 |
| | | |
| Software—8.6% | | | | | | |
| Activision, Inc.* | | | | 889,113 | | 24,050,507 |
| Electronic Arts Inc.* | | | | 284,178 | | 14,626,642 |
| Microsoft Corporation | | | | 802,150 | | 22,877,318 |
| | | |
| Telecommunications—17.8% | | | | | | |
| American Tower Corporation, Class A* | | | | 792,450 | | 34,408,179 |
| Crown Castle International Corporation* | | | | 1,553,635 | | 60,358,720 |
| QUALCOMM Inc. | | | | 760,140 | | 32,830,447 |
| Total domestic (cost $487,314,348) | | | | | | 588,839,687 |
| | | |
| Foreign—15.1% (b) | | | | | | |
| Computers—3.4% | | | | | | |
| Research In Motion Ltd* | | | | 203,502 | | 24,751,948 |
| | | |
| Oil & gas—4.3% | | | | | | |
| Suncor Energy Inc. | | | | 272,670 | | 30,727,182 |
| | | | | | | |
| | | |
| Common stocks—97.3% (a) | | | | Shares | | Value | |
| | | |
| Oil & gas services—5.4% | | | | | | | |
| Schlumberger Ltd | | | | 166,200 | | $16,711,410 | |
| Weatherford International Ltd* | | | | 274,600 | | 22,151,982 | |
| | | |
| Pharmaceuticals—2.0% | | | | | | | |
| Teva Pharmaceutical Industries Ltd, Sponsored ADR | | | | 306,000 | | 14,314,680 | |
| Total foreign (cost $74,309,100) | | | | | | 108,657,202 | |
| Total common stocks (cost $561,623,448) | | | | | | 697,496,889 | |
| | | |
| Repurchase agreement—2.8% (a) | | | | | | | |
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2008 @ 1.87% to be repurchased at $19,683,022 on May 1, 2008, collateralized by $18,885,000 United States Treasury Bonds, 4.625% due February 15, 2017 (market value $20,363,309 including interest) (cost $19,682,000) | | 19,682,000 | |
| |
| Total investment portfolio (cost $581,305,448) 100.1% (a) | | 717,178,889 | |
| | | |
| Other assets and liabilities, net, (0.1%) (a) | | | | | | (529,102 | ) |
| | | |
| Net assets, 100.0% | | | | | | $716,649,787 | |
| |
* 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 |
| Communications | | 28% |
| Consumer, non-cyclical | | 27% |
| Energy | | 17% |
| Technology | | 14% |
| Financial | | 6% |
| Other sectors | | 6% |
| Cash/Other | | 2% |
| | | | | | |
| | | | |
| CORE EQUITY FUND | | | | | | |
| Common stocks—87.0% (a) | | | | Shares | | Value |
| Advertising—3.2% | | | | | | |
| Omnicom Group Inc. | | | | 142,365 | | $6,796,505 |
| | | |
| Aerospace/Defense—2.0% | | | | | | |
| United Technologies Corporation | | | | 56,760 | | 4,113,397 |
| | | |
| Banks—4.4% | | | | | | |
| Bank of America Corporation | | | | 84,415 | | 3,168,939 |
| State Street Corporation | | | | 37,170 | | 2,681,444 |
| Wachovia Corporation | | | | 120,630 | | 3,516,364 |
| | | |
| Biotechnology—2.6% | | | | | | |
| Genzyme Corporation* | | | | 78,765 | | 5,541,118 |
| | |
| The accompanying notes are an integral part of the financial statements. | | 21 |
Investment Portfolios
| | | | | | |
| CORE EQUITY FUND (cont’d) | | | | | | |
| Common stocks—87.0% (a) | | | | Shares | | Value |
| Cosmetics/Personal care—2.0% | | | | | | |
| The Procter & Gamble Company | | | | 63,790 | | $4,277,120 |
| | | |
| Diversified manufacturer—7.0% | | | | | | |
| General Electric Company | | | | 312,600 | | 10,222,020 |
| Tyco International Ltd | | | | 96,891 | | 4,533,530 |
| | | |
| Environmental control—2.0% | | | | | | |
| Waste Management, Inc. | | | | 118,785 | | 4,288,138 |
| | | |
| Financial services—6.7% | | | | | | |
| American Express Company | | | | 74,140 | | 3,560,203 |
| JPMorgan Chase & Co. | | | | 78,995 | | 3,764,112 |
| The Goldman Sachs Group, Inc. | | | | 35,755 | | 6,842,434 |
| Healthcare products—6.3% | | | | | | |
| Covidien Ltd | | | | 33,606 | | 1,569,064 |
| Johnson & Johnson | | | | 104,615 | | 7,018,620 |
| Zimmer Holdings, Inc.* | | | | 62,845 | | 4,660,585 |
| | | |
| Household products—1.9% | | | | | | |
| Kimberly-Clark Corporation | | | | 62,235 | | 3,982,418 |
| | | |
| Insurance—3.4% | | | | | | |
| American International Group, Inc. | | | | 154,140 | | 7,121,268 |
| | | |
| Internet—1.8% | | | | | | |
| eBay Inc.* | | | | 119,800 | | 3,748,542 |
| | | |
| Multimedia—1.9% | | | | | | |
| Viacom Inc., Class B* | | | | 106,485 | | 4,093,283 |
| | | |
| Oil & gas—3.3% | | | | | | |
| BP PLC, Sponsored ADR | | | | 96,430 | | 7,019,140 |
| | | |
| Pharmaceuticals—5.5% | | | | | | |
| Pfizer Inc. | | | | 379,420 | | 7,630,136 |
| Wyeth | | | | 90,915 | | 4,042,990 |
| Retail—11.7% | | | | | | |
| CVS/Caremark Corporation | | | | 215,485 | | 8,699,129 |
| Home Depot, Inc. | | | | 110,730 | | 3,189,024 |
| McDonald’s Corporation | | | | 55,465 | | 3,304,605 |
| Staples, Inc. | | | | 268,140 | | 5,818,638 |
| Wal-Mart Stores, Inc. | | | | 66,420 | | 3,851,032 |
| | | |
| Semiconductors—4.8% | | | | | | |
| Applied Materials, Inc. | | | | 362,150 | | 6,757,719 |
| Intel Corporation | | | | 153,490 | | 3,416,687 |
| | | |
| Software—6.9% | | | | | | |
| Microsoft Corporation | | | | 367,905 | | 10,492,651 |
| Oracle Corporation* | | | | 198,645 | | 4,141,748 |
| | | |
| Telecommunications—4.0% | | | | | | |
| Cisco Systems, Inc.* | | | | 132,310 | | 3,392,428 |
| Sprint Nextel Corporation* | | | | 638,485 | | 5,101,495 |
| | | |
| Television, cable & radio—3.6% | | | | | | |
| Comcast Corporation, Class A | | | | 373,920 | | 7,684,057 |
| | | |
| Transportation—2.0% | | | | | | |
| United Parcel Service Inc., Class B | | | | 59,470 | | 4,306,223 |
| Total common stocks (cost $185,504,403) | | | | | | 184,346,806 |
| | | | | | | |
| | | |
| Repurchase agreement—13.2% (a) | | | | | | Value | |
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2008 @ 1.87% to be repurchased at $27,900,449 on May 1, 2008, collateralized by $26,765,000 United States Treasury Bonds, 4.625% due February 15, 2017 (market value $28,860,152 including interest) (cost $27,899,000) | | $27,899,000 | |
| |
| Total investment portfolio (cost $213,403,403) 100.2% (a) | | 212,245,806 | |
| | | |
| Other assets and liabilities, net, (0.2%) (a) | | | | | | (334,085 | ) |
| | | |
| Net assets, 100.0% | | | | | | $211,911,721 | |
| | | |
| * Non-income producing security | | | | | | | |
| (a) Percentages indicated are based on net assets. | | | |
| |
| ADR—American depository receipt | | | |
| | |
| |
| Sector allocation | | |
| Sector | | Percent of net assets |
| Consumer, non-cyclical | | 16% |
| Communications | | 15% |
| Financial | | 14% |
| Technology | | 14% |
| Industrial | | 13% |
| Consumer, cyclical | | 12% |
| Energy | | 3% |
| Cash/Other | | 13% |
| | | | | | |
| | | | |
| DIVERSIFIED GROWTH FUND | | | | | | |
| Common stocks—96.3% (a) | | | | Shares | | Value |
| Aerospace/Defense—2.4% | | | | | | |
| L-3 Communications Holdings, Inc. | | | | 40,575 | | $4,522,084 |
| | | |
| Biotechnology—2.6% | | | | | | |
| Celgene Corporation* | | | | 79,570 | | 4,944,480 |
| | | |
| Building materials—2.6% | | | | | | |
| Texas Industries Inc. | | | | 62,710 | | 4,854,381 |
| | | |
| Chemicals—2.0% | | | | | | |
| CF Industries Holdings Inc. | | | | 15,180 | | 2,029,566 |
| Intrepid Potash Inc.* | | | | 37,865 | | 1,798,209 |
| | | |
| Coal—2.3% | | | | | | |
| Consol Energy Inc. | | | | 25,155 | | 2,036,549 |
| Massey Energy Company | | | | 43,075 | | 2,254,115 |
| | | |
| Commercial services—6.8% | | | | | | |
| Alliance Data Systems Corporation* | | | | 36,320 | | 2,085,131 |
| Corrections Corporation of America* | | | | 102,205 | | 2,606,228 |
| FTI Consulting, Inc.* | | | | 61,405 | | 3,929,920 |
| Quanta Services, Inc.* | | | | 163,080 | | 4,328,143 |
| | |
| 22 | | The accompanying notes are an integral part of the financial statements. |
Investment Portfolios
| | | | | | |
| DIVERSIFIED GROWTH FUND (cont’d) | | | | | | |
| Common stocks—96.3% (a) | | | | Shares | | Value |
| Computers—2.3% | | | | | | |
| Cognizant Technology Solutions Corporation, Class A* | | | | 95,075 | | $3,066,169 |
| Teradata Corporation* | | | | 65,315 | | 1,390,556 |
| | | |
| Distribution/Wholesale—1.0% | | | | | | |
| LKQ Corporation* | | | | 90,095 | | 1,960,467 |
| | | |
| Diversified manufacturer—1.9% | | | | | | |
| Danaher Corporation | | | | 46,150 | | 3,600,623 |
| | | |
| Electrical components & equipment—2.9% | | | | | | |
| General Cable Corporation* | | | | 81,385 | | 5,452,795 |
| | | |
| Electronics—7.8% | | | | | | |
| Agilent Technologies Inc.* | | | | 60,975 | | 1,842,055 |
| Dolby Laboratories Inc., Class A* | | | | 124,020 | | 4,979,403 |
| Thermo Fisher Scientific Inc.* | | | | 73,210 | | 4,236,663 |
| Woodward Governor Company | | | | 111,200 | | 3,906,456 |
| | | |
| Entertainment—2.6% | | | | | | |
| Bally Technologies Inc.* | | | | 58,510 | | 1,971,202 |
| Vail Resorts, Inc.* | | | | 59,785 | | 2,919,302 |
| | | |
| Environmental control—2.9% | | | | | | |
| Republic Services, Inc. | | | | 117,222 | | 3,726,487 |
| Waste Connections, Inc.* | | | | 53,950 | | 1,730,176 |
| Financial services—5.2% | | | | | | |
| IntercontinentalExchange, Inc.* | | | | 28,980 | | 4,496,247 |
| T. Rowe Price Group, Inc. | | | | 32,460 | | 1,900,858 |
| TD Ameritrade Holding Corporation* | | | | 198,820 | | 3,598,642 |
| | | |
| Healthcare products—6.7% | | | | | | |
| Hologic Inc.* | | | | 122,940 | | 3,588,619 |
| Intuitive Surgical, Inc.* | | | | 20,020 | | 5,790,985 |
| Patterson Companies, Inc.* | | | | 101,670 | | 3,477,114 |
| | | |
| Internet—1.0% | | | | | | |
| IAC/InterActiveCorp* | | | | 93,680 | | 1,949,481 |
| | | |
| Iron/Steel—1.7% | | | | | | |
| Carpenter Technology Corporation | | | | 29,285 | | 1,501,735 |
| Steel Dynamics, Inc. | | | | 50,055 | | 1,744,417 |
| | | |
| Lodging—1.7% | | | | | | |
| Starwood Hotels & Resorts Worldwide, Inc. | | | | 62,075 | | 3,240,936 |
| | | |
| Machinery—2.3% | | | | | | |
| Bucyrus International Inc., Class A | | | | 34,655 | | 4,364,104 |
| | | |
| Metal fabricate/hardware—1.0% | | | | | | |
| Sims Group Ltd, Sponsored ADR | | | | 58,040 | | 1,874,692 |
| | | |
| Miscellaneous manufacturer—1.0% | | | | | | |
| Hexcel Corporation* | | | | 85,795 | | 1,920,092 |
| | | |
| Oil & gas—6.7% | | | | | | |
| CNX Gas Corporation* | | | | 110,505 | | 4,535,125 |
| Denbury Resources Inc.* | | | | 123,510 | | 3,774,466 |
| Southwestern Energy Company* | | | | 105,130 | | 4,448,050 |
| | | |
| Oil & gas services—3.3% | | | | | | |
| Acergy SA, Sponsored ADR* | | | | 89,120 | | 2,195,026 |
| Oceaneering International Inc.* | | | | 62,410 | | 4,167,740 |
| | | |
| Pharmaceuticals—2.0% | | | | | | |
| Express Scripts Inc.* | | | | 40,550 | | 2,839,311 |
| Herbalife Ltd | | | | 21,880 | | 957,906 |
| | | | | | |
| | | |
| Common stocks—96.3% (a) | | | | Shares | | Value |
| Pipelines—2.1% | | | | | | |
| Williams Companies, Inc. | | | | 110,755 | | $3,931,802 |
| | | |
| Retail—4.0% | | | | | | |
| Cash America International, Inc. | | | | 86,750 | | 3,538,532 |
| Urban Outfitters Inc.* | | | | 62,960 | | 2,156,380 |
| Yum! Brands Inc. | | | | 49,415 | | 2,010,202 |
| | | |
| Software—8.5% | | | | | | |
| Adobe Systems Inc.* | | | | 92,875 | | 3,463,309 |
| ANSYS, Inc.* | | | | 136,435 | | 5,488,780 |
| Eclipsys Corporation* | | | | 133,195 | | 2,766,460 |
| Novell, Inc.* | | | | 715,095 | | 4,490,797 |
| | | |
| Telecommunications—3.0% | | | | | | |
| Amdocs Ltd* | | | | 133,560 | | 4,191,113 |
| Windstream Corporation | | | | 137,705 | | 1,616,657 |
| | | |
| Television, cable & radio—2.7% | | | | | | |
| Central European Media Enterprises Ltd, Class A* | | | | 48,515 | | 5,143,560 |
| | | |
| Toys/Games/Hobbies—1.9% | | | | | | |
| Nintendo Co. Ltd, Sponsored ADR | | | | 53,505 | | 3,673,118 |
| | | |
| Transportation—1.4% | | | | | | |
| Landstar System, Inc. | | | | 52,325 | | 2,718,805 |
| Total common stocks (cost $151,036,304) | | | | | | 183,726,221 |
| | | |
| Repurchase agreement—0.3% (a) | | | | | | |
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2008 @ 1.87% to be repurchased at $584,030 on May 1, 2008, collateralized by $565,000 United States Treasury Bonds, 4.625% due February 15, 2017 (market value $609,228 including interest) (cost $584,000) | | 584,000 |
| |
| Total investment portfolio (cost $151,620,304) 96.6% (a) | | 184,310,221 |
| | | |
| Other assets and liabilities, net, 3.4% (a) | | | | | | 6,452,013 |
| | | |
| Net assets, 100.0% | | | | | | $190,762,234 |
| | | |
| * Non-income producing security | | | | | | |
| (a) Percentages indicated are based on net assets. | | | | | | |
| | | |
| ADR—American depository receipt | | | | | | |
| | |
| |
| Sector allocation | | |
| Sector | | Percent of net assets |
| Industrial | | 26% |
| Consumer, non-cyclical | | 16% |
| Energy | | 14% |
| Technology | | 13% |
| Consumer, cyclical | | 11% |
| Communications | | 7% |
| Financial | | 5% |
| Basic materials | | 4% |
| Cash/Other | | 4% |
| | |
| The accompanying notes are an integral part of the financial statements. | | 23 |
Investment Portfolios
| | | | | | |
| GROWTH AND INCOME TRUST | | | | | | |
| Common stocks—86.5% (a) | | | | Shares | | Value |
| Domestic—54.5% | | | | | | |
| Agriculture—4.4% | | | | | | |
| Altria Group, Inc. | | | | 157,200 | | $3,144,000 |
| Philip Morris International Inc.* | | | | 61,600 | | 3,143,448 |
| | | |
| Airlines—0.5% | | | | | | |
| JetBlue Airways Corporation* | | | | 152,000 | | 766,080 |
| | | |
| Banks—2.4% | | | | | | |
| Bank of America Corporation | | | | 14,560 | | 546,582 |
| U.S. Bancorp | | | | 83,493 | | 2,829,578 |
| | | |
| Beverages—2.1% | | | | | | |
| The Coca-Cola Company | | | | 49,700 | | 2,925,839 |
| | | |
| Chemicals—3.1% | | | | | | |
| Air Products & Chemicals Inc. | | | | 45,000 | | 4,429,350 |
| | | |
| Commercial services—2.1% | | | | | | |
| Paychex, Inc. | | | | 61,800 | | 2,247,666 |
| Visa Inc., Class A* | | | | 9,375 | | 782,344 |
| | | |
| Computers—0.6% | | | | | | |
| Apple, Inc.* | | | | 4,900 | | 852,355 |
| | | |
| Diversified manufacturer—0.8% | | | | | | |
| Reddy Ice Holdings, Inc. | | | | 81,900 | | 1,084,356 |
| | | |
| Electric—5.8% | | | | | | |
| Energy East Corporation | | | | 173,535 | | 3,956,598 |
| Entergy Corporation | | | | 37,600 | | 4,318,736 |
| | | |
| Financial services—4.8% | | | | | | |
| CIT Group Inc. | | | | 62,700 | | 682,803 |
| CME Group Inc. | | | | 7,084 | | 3,240,576 |
| JPMorgan Chase & Co. | | | | 60,400 | | 2,878,060 |
| | | |
| Food—3.0% | | | | | | |
| Kraft Foods Inc., Class A | | | | 133,728 | | 4,229,817 |
| | | |
| Healthcare products—1.9% | | | | | | |
| Varian Medical Systems, Inc.* | | | | 59,000 | | 2,765,920 |
| | | |
| Insurance—1.9% | | | | | | |
| Hartford Financial Services | | | | 37,500 | | 2,672,625 |
| | | |
| Mining—3.2% | | | | | | |
| Freeport-McMoRan Copper & Gold Inc. | | | | 39,500 | | 4,493,125 |
| | | |
| Oil & gas—2.9% | | | | | | |
| Diamond Offshore Drilling, Inc. | | | | 33,500 | | 4,201,235 |
| | | |
| Pharmaceuticals—2.8% | | | | | | |
| Eli Lilly & Company | | | | 81,975 | | 3,946,276 |
| | | |
| Retail—3.3% | | | | | | |
| McDonald’s Corporation | | | | 79,800 | | 4,754,484 |
| | | |
| Semiconductors—3.0% | | | | | | |
| Intel Corporation | | | | 190,900 | | 4,249,434 |
| | | |
| Software—2.7% | | | | | | |
| Microsoft Corporation | | | | 135,500 | | 3,864,460 |
| | | |
| Telecommunications—3.2% | | | | | | |
| AT&T Inc. | | | | 117,000 | | 4,529,070 |
| Total domestic (cost $71,676,218) | | | | | | 77,534,817 |
| | | | | | |
| | | | | | | |
| Common stocks—86.5% (a) | | | | Shares | | Value |
| Foreign—32.0% (b) | | | | | | |
| Banks—2.2% | | | | | | |
| Banco Bilbao Vizcaya Argentaria SA | | | | 135,500 | | $3,111,224 |
| | | |
| Electric—0.9% | | | | | | |
| Algonquin Power Income Fund | | | | 165,800 | | 1,264,367 |
| | | |
| Entertainment—2.6% | | | | | | |
| OPAP SA | | | | 96,645 | | 3,772,661 |
| | | |
| Financial services—4.1% | | | | | | |
| Bolsas y Mercados Espanoles | | | | 38,300 | | 1,934,645 |
| GMP Capital Trust | | | | 69,200 | | 1,229,947 |
| Hong Kong Exchanges and Clearing Ltd | | | | 133,000 | | 2,716,950 |
| | | |
| Food—1.0% | | | | | | |
| Fu Ji Food and Catering Services Holdings Ltd | | | | 850,000 | | 1,389,554 |
| | | |
| Home builders—1.6% | | | | | | |
| Persimmon PLC | | | | 200,000 | | 2,281,087 |
| | | |
| Insurance—2.1% | | | | | | |
| ACE Ltd | | | | 48,700 | | 2,936,123 |
| | | |
| Oil & gas—3.1% | | | | | | |
| Canadian Oil Sands Trust | | | | 97,500 | | 4,378,835 |
| | | |
| Telecommunications—14.4% | | | | | | |
| America Movil SAB de CV, Sponsored ADR* | | | | 58,600 | | 3,396,456 |
| France Telecom SA | | | | 119,100 | | 3,740,594 |
| Nokia Oyj | | | | 121,400 | | 3,654,336 |
| Telefonica, SA | | | | 237,200 | | 6,877,885 |
| Vodafone Group PLC | | | | 887,535 | | 2,807,214 |
| Total foreign (cost $37,599,756) | | | | | | 45,491,878 |
| Total common stocks (cost $109,275,974) | | | | | | 123,026,695 |
| | | |
| Investment company—1.4% (a) | | | | | | |
| KKR Financial Holdings LLC | | | | 153,000 | | 1,943,100 |
| Total investment company (cost $2,382,768) | | | | | | 1,943,100 |
| | | |
| Preferred stocks—1.0% (a) | | | | | | |
| Financial services—1.0% | | | | | | |
| CIT Group Inc., 8.75% (convertible) | | | | 9,500 | | 529,626 |
| Merrill Lynch & Co. Inc., 3.74% | | | | 60,000 | | 913,800 |
| Total preferred stocks (cost $1,975,000) | | | | | | 1,443,426 |
| | | |
| Convertible bonds—1.8% (a) | | | | Principal amount | | Value |
| Telecommunications—1.8% | | | | | | |
| Level 3 Communications Inc., 6.0%, 03/15/10 | | | | $3,000,000 | | 2,550,000 |
| Total convertible bonds (cost $2,411,957) | | | | | | 2,550,000 |
| | | |
| Total investment portfolio excluding repurchase agreement (cost $116,045,699) | | | | | | 128,963,221 |
| | |
| 24 | | The accompanying notes are an integral part of the financial statements. |
Investment Portfolios
| | | | | | | |
| GROWTH AND INCOME TRUST (cont’d) | | | | | | | |
| Repurchase agreement—9.6% (a) | | | | | | Value | |
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2008 @ 1.87% to be repurchased at $13,580,705 on May 1, 2008, collateralized by $13,030,000 United States Treasury Bonds, 4.625% due February 15, 2017 (market value $14,049,982 including interest) (cost $13,580,000) | | | | | | $13,580,000 | |
| |
| Total investment portfolio (cost $129,625,699) 100.3% (a) | | 142,543,220 | |
| | | |
| Other assets and liabilities, net, (0.3%) (a) | | | | | | (390,194 | ) |
| | | |
| Net assets, 100.0% | | | | | | $142,153,026 | |
| | | |
| * 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 | | 20% |
| Communications | | 19% |
| Consumer, non-cyclical | | 17% |
| Consumer, cyclical | | 8% |
| Other sectors | | 8% |
| Utilities | | 7% |
| Energy | | 6% |
| Technology | | 6% |
| Cash/Other | | 9% |
| | | | | | |
| HIGH YIELD BOND FUND | | | | | | |
| Corporate bonds—95.3% (a) | | | | Principal
amount | | Value |
| Domestic—85.1% | | | | | | |
| Advertising—0.3% | | | | | | |
| Affinion Group Inc., 10.125%, 10/15/13 | | | | $20,000 | | $20,200 |
| Affinion Group Inc., 11.5%, 10/15/15 | | | | 85,000 | | 83,406 |
| | | |
| Aerospace/Defense—0.5% | | | | | | |
| DRS Technologies Inc., 7.625%, 02/01/18 | | | | 180,000 | | 183,600 |
| | | |
| Agriculture—1.1% | | | | | | |
| Alliance One International Inc., 8.5%, 05/15/12 | | | | 340,000 | | 323,000 |
| Alliance One International Inc., 11.0%, 05/15/12 | | | | 50,000 | | 51,500 |
| | | |
| Airlines—0.5% | | | | | | |
| Continental Airlines Inc., Series 981C, 6.541%, 09/15/09 | | | | 10,779 | | 10,779 |
| DAE Aviation Holdings Inc., 144A, 11.25%, 08/01/15 | | | | 150,000 | | 152,438 |
| | | |
| Auto manufacturers—2.2% | | | | | | |
| General Motors Corporation, 8.375%, 07/15/33 | | | | 1,000,000 | | 761,250 |
| | | |
| Auto parts & equipment—3.0% | | | | | | |
| Allison Transmission Inc., 8.57%, 08/07/14 | | | | 248,750 | | 232,892 |
| Allison Transmission Inc., 144A, 11.0%, 11/01/15 | | | | 90,000 | | 88,425 |
| Keystone Automotive Operations Inc., 9.75%, 11/01/13 | | | | 115,000 | | 65,550 |
| Visteon Corporation, 8.25%, 08/01/10 | | | | 750,000 | | 660,000 |
| | | | | | |
| HIGH YIELD BOND FUND | | | | | | |
| Corporate bonds—95.3% (a) | | | | Principal
amount | | Value |
| Building materials—2.0% | | | | | | |
| Associated Materials Inc., 9.75%, 04/15/12 | | | | $210,000 | | $208,950 |
| Associated Materials Inc., 0.0% to 03/01/09, 11.25% to maturity (b), 03/01/14* | | | | 305,000 | | 218,075 |
| Nortek Inc., 8.5%, 09/01/14 | | | | 195,000 | | 142,838 |
| NTK Holdings Inc., 0.0% to 09/01/09, 10.75% to maturity (b), 03/01/14* | | | | 299,000 | | 128,570 |
| | | |
| Chemicals—0.5% | | | | | | |
| Georgia Gulf Corporation, 9.5%, 10/15/14 | | | | 40,000 | | 33,800 |
| Georgia Gulf Corporation, 10.75%, 10/15/16 | | | | 200,000 | | 145,000 |
| | | |
| Coal—1.2% | | | | | | |
| International Coal Group Inc., 10.25%, 07/15/14 | | | | 400,000 | | 404,000 |
| | | |
| Commercial services—7.0% | | | | | | |
| Allied Security Escrow Corporation, 11.375%, 07/15/11 | | | | 330,000 | | 283,800 |
| Ashtead Capital Inc., 144A, 9.0%, 08/15/16 | | | | 200,000 | | 175,000 |
| DynCorp International LLC and DI Finance LLC, Series B, 9.5%, 02/15/13 | | | | 515,000 | | 531,094 |
| Education Management LLC, 10.25%, 06/01/16 | | | | 160,000 | | 134,400 |
| H&E Equipment Services Inc., 8.375%, 07/15/16 | | | | 245,000 | | 213,150 |
| Hertz Corporation, 10.5%, 01/01/16 | | | | 500,000 | | 503,125 |
| Penhall International Corporation, 144A, 12.0%, 08/01/14 | | | | 300,000 | | 229,500 |
| RSC Equipment Rental Inc., 9.5%, 12/01/14 | | | | 170,000 | | 152,150 |
| Service Corporation International, 7.625%, 10/01/18 | | | | 20,000 | | 20,925 |
| U.S. Investigations Services Inc., 144A, 10.5%, 11/01/15 | | | | 220,000 | | 194,700 |
| | | |
| Computers—1.7% | | | | | | |
| Ceridian Corporation, 144A, PIK, 12.25%, 11/15/15 | | | | 95,000 | | 89,062 |
| SunGard Data Systems Inc., 9.125%, 08/15/13 | | | | 100,000 | | 104,500 |
| SunGard Data Systems Inc., 10.25%, 08/15/15 | | | | 365,000 | | 387,812 |
| | | |
| Electric—9.1% | | | | | | |
| AES Corporation, 8.0%, 10/15/17 | | | | 360,000 | | 375,300 |
| Edison Mission Energy, 7.2%, 05/15/19 | | | | 120,000 | | 120,900 |
| Energy Future Holdings, 144A, PIK, 11.25%, 11/01/17 | | | | 1,240,000 | | 1,298,900 |
| Mirant Mid-Atlantic LLC, 9.125%, 06/30/17 | | | | 178,906 | | 198,138 |
| NRG Energy Inc., 7.25%, 02/01/14 | | | | 125,000 | | 128,438 |
| NRG Energy Inc., 7.375%, 02/01/16 | | | | 600,000 | | 618,000 |
| Orion Power Holdings Inc., 12.0%, 05/01/10 | | | | 145,000 | | 159,862 |
| Texas Competitive Electric Holdings Co. LLC, 144A, PIK, 10.5%, 11/01/16 | | | | 240,000 | | 245,700 |
| | | |
| Energy-Alternative sources—0.3% | | | | | | |
| VeraSun Energy Corporation, 144A, 9.375%, 06/01/17 | | | | 175,000 | | 115,500 |
| | | |
| Entertainment—0.3% | | | | | | |
| Indianapolis Downs LLC and Downs Capital Corporation, 144A, 11.0% 11/01/12 | | | | 110,000 | | 99,000 |
| | | |
| Environmental control—0.0% | | | | | | |
| Safety-Kleen Services Inc., 9.25%, 06/01/08 (c)(d)* | | | | 500,000 | | 50 |
| | | |
| Financial services—12.6% | | | | | | |
| AAC Group Holding Corporation, 0.0% to 10/01/09, 10.25% to maturity (b), 10/01/12* | | | | 580,000 | | 452,400 |
| Airplanes Pass Through Trust, Series D, 10.875%, 03/15/19 (c)(d)* | | | | 493,850 | | — |
| AmeriCredit Corporation, 8.5%, 07/01/15 | | | | 70,000 | | 54,250 |
| Citigroup Inc., 8.4%, 04/29/49 | | | | 130,000 | | 131,570 |
| El Paso Performance-Linked Trust, 144A, 7.75%, 07/15/11 | | | | 100,000 | | 103,470 |
| FireKeepers Development Authority, 144A, 13.875%, 05/15/15 | | | | 30,000 | | 30,450 |
| Ford Motor Credit Company, FRN, 8.05%, 06/15/11 | | | | 293,000 | | 268,557 |
| Ford Motor Credit Company, 9.875%, 08/10/11 | | | | 125,000 | | 120,952 |
| | |
| The accompanying notes are an integral part of the financial statements. | | 25 |
Investment Portfolios
| | | | | | |
| HIGH YIELD BOND FUND (cont’d) | | | | | | |
| Corporate bonds—95.3% (a) | | | | Principal
amount | | Value |
| Financial services (cont’d) | | | | | | |
| Ford Motor Credit Company, FRN, 5.46%, 01/13/12 | | | | $70,000 | | $58,863 |
| Ford Motor Credit Company, 12.0%, 05/15/15 | | | | 520,000 | | 533,919 |
| Ford Motor Credit Company, 8.0%, 12/15/16 | | | | 10,000 | | 8,752 |
| General Motors Acceptance Corporation, 8.0%, 11/01/31 | | | | 700,000 | | 529,608 |
| Hawker Beechcraft Acquisition Co. LLC, PIK, 8.875%, 04/01/15 | | | | 500,000 | | 523,750 |
| Leucadia National Corporation, 8.125%, 09/15/15 | | | | 110,000 | | 112,200 |
| LVB Acquisition Merger Sub Inc., 144A, PIK, 10.375%, 10/15/17 | | | | 30,000 | | 31,800 |
| LVB Acquisition Merger Sub Inc., 144A, 11.625%, 10/15/17 | | | | 60,000 | | 63,750 |
| Residential Capital LLC, 144A, FRN, 6.54594%, 04/17/09 | | | | 100,000 | | 45,125 |
| Residential Capital LLC, 8.38%, 06/30/10 | | | | 100,000 | | 54,250 |
| Residential Capital LLC, 8.0%, 02/22/11 | | | | 260,000 | | 133,900 |
| Vanguard Health Holding Company I LLC, 0.0% to 10/01/09, 11.25% to maturity (b), 10/01/15* | | | | 430,000 | | 361,200 |
| Vanguard Health Holding Company II LLC, 9.0%, 10/01/14 | | | | 195,000 | | 198,412 |
| Wind Acquisition Holdings Finance SA, PIK, 12/21/11 (d) | | | | 587,852 | | 552,581 |
| | | |
| Food—0.4% | | | | | | |
| Dole Food Co. Inc., 8.625%, 05/01/09 | | | | 70,000 | | 67,725 |
| Dole Food Co. Inc., 7.25%, 06/15/10 | | | | 90,000 | | 80,550 |
| | | |
| Forest products & paper—2.1% | | | | | | |
| Appleton Papers Inc., Series B, 8.125%, 06/15/11 | | | | 235,000 | | 229,125 |
| NewPage Corporation, FRN, 9.48938%, 05/01/12 | | | | 365,000 | | 380,512 |
| Rock-Tenn Company, 144A, 9.25%, 03/15/16 | | | | 60,000 | | 63,000 |
| Verso Paper Holdings LLC and Verso Paper Inc, Series B, 11.375%, 08/01/16 | | | | 60,000 | | 61,500 |
| | | |
| Healthcare products—0.3% | | | | | | |
| Advanced Medical Optics Inc., 7.5%, 05/01/17 | | | | 90,000 | | 81,450 |
| Universal Hospital Services Inc., FRN, 8.2875%, 06/01/15 | | | | 40,000 | | 37,800 |
| | | |
| Healthcare services—3.4% | | | | | | |
| HCA Inc., 9.25%, 11/15/16 | | | | 175,000 | | 188,125 |
| HCA Inc., PIK, 9.625% 11/15/16 | | | | 240,000 | | 257,700 |
| Tenet Healthcare Corporation, 6.375%, 12/01/11 | | | | 190,000 | | 178,600 |
| Tenet Healthcare Corporation, 7.375%, 02/01/13 | | | | 375,000 | | 347,812 |
| U.S. Oncology Holdings Inc., PIK, FRN, 7.94938%, 03/15/12 | | | | 254,499 | | 204,872 |
| | | |
| Home builders—0.5% | | | | | | |
| K. Hovnanian Enterprises Inc., 8.625%, 01/15/17 | | | | 200,000 | | 155,000 |
| | | |
| Home furnishings—2.1% | | | | | | |
| Norcraft Companies LP and Norcraft Finance Corporation, 9.0%, 11/01/11 | | | | 110,000 | | 112,475 |
| Norcraft Holdings LP and Norcraft Capital Corporation, 0.0% to 09/01/08, 9.75% to maturity (b), 09/01/12* | | | | 650,000 | | 598,000 |
| | | |
| Iron/Steel—1.3% | | | | | | |
| Ryerson Inc., 144A, 12.0%, 11/01/15 | | | | 270,000 | | 267,300 |
| Steel Dynamics Inc., 144A, 7.375%, 11/01/12 | | | | 65,000 | | 66,138 |
| Tube City IMS Corporation, 9.75%, 02/01/15 | | | | 110,000 | | 105,050 |
| | | |
| Lodging—2.4% | | | | | | |
| Harrah’s Operating Co. Inc., 5.5%, 07/01/10 | | | | 105,000 | | 93,188 |
| Harrah’s Operating Co. Inc., 144A, 10.75%, 02/01/16 | | | | 70,000 | | 60,200 |
| Inn of the Mountain Gods Resort & Casino, 12.0%, 11/15/10 | | | | 400,000 | | 346,000 |
| MGM Mirage Inc., 7.625%, 01/15/17 | | | | 120,000 | | 109,500 |
| Station Casinos Inc., 7.75%, 08/15/16 | | | | 260,000 | | 216,450 |
| | | |
| Metal fabricate/hardware—0.6% | | | | | | |
| Metals USA Inc., 11.125%, 12/01/15 | | | | 200,000 | | 206,000 |
| | | |
| Mining—1.0% | | | | | | |
| Freeport-McMoRan Copper & Gold Inc., 8.375%, 04/01/17 | | | | 300,000 | | 331,500 |
| | | | | | |
| | | | | | | |
| Corporate bonds—95.3% (a) | | | | Principal
amount | | Value |
| Oil & gas—3.8% | | | | | | |
| Belden & Blake Corporation, 8.75%, 07/15/12 | | | | $810,000 | | $830,250 |
| Chesapeake Energy Corporation, 6.375%, 06/15/15 | | | | 15,000 | | 14,775 |
| EXCO Resources Inc., 7.25%, 01/15/11 | | | | 200,000 | | 199,000 |
| Mariner Energy Inc., 7.5%, 04/15/13 | | | | 115,000 | | 113,562 |
| Parallel Petroleum Corporation 10.25%, 08/01/14 | | | | 40,000 | | 40,000 |
| Pride International Inc., 7.375%, 07/15/14 | | | | 70,000 | | 73,062 |
| Whiting Petroleum Corporation, 7.0%, 02/01/14 | | | | 55,000 | | 55,138 |
| | | |
| Oil & gas services—1.9% | | | | | | |
| Complete Production Services Inc., 8.0%, 12/15/16 | | | | 535,000 | | 536,338 |
| Forbes Energy Services, 144A, 11.0%, 02/15/15 | | | | 30,000 | | 30,000 |
| Key Energy Services Inc., 144A, 8.375%, 12/01/14 | | | | 90,000 | | 93,150 |
| | | |
| Packaging & containers—1.8% | | | | | | |
| Ball Corporation, 6.625%, 03/15/18 | | | | 155,000 | | 154,612 |
| Berry Plastics Holding Corporation, 10.25%, 03/01/16 | | | | 150,000 | | 127,125 |
| Graham Packaging Company, 9.875%, 10/15/14 | | | | 140,000 | | 131,600 |
| Graphic Packaging International Corporation, 9.5%, 08/15/13 | | | | 180,000 | | 179,100 |
| Newpage Holding Corporation, PIK, FRN, 11.81813%, 11/01/13 | | | | 31,339 | | 29,929 |
| Radnor Holdings Corporation, 11.0%, 03/15/10 (c)* | | | | 150,000 | | — |
| | | |
| Pharmaceuticals—0.0% | | | | | | |
| Leiner Health Products Inc., 11.0%, 06/01/12 (c)* | | | | 515,000 | | 644 |
| | | |
| Pipelines—4.5% | | | | | | |
| Dynegy Holdings Inc., 7.75%, 06/01/19 | | | | 520,000 | | 517,400 |
| El Paso Corporation, MTN, 7.8%, 08/01/31 | | | | 185,000 | | 194,582 |
| MarkWest Energy Partners LP and MarkWest Energy Finance Corporation, 144A, 8.75%, 04/15/18 | | | | 155,000 | | 160,812 |
| SemGroup LP, 144A, 8.75%, 11/15/15 | | | | 670,000 | | 634,825 |
| Southern Natural Gas, 8.0%, 03/01/32 | | | | 40,000 | | 44,444 |
| | | |
| Printing & publishing—2.8% | | | | | | |
| Dex Media West LLC and Dex Media West Finance Co., Series B, 9.875%, 08/15/13 | | | | 100,000 | | 94,250 |
| Idearc Inc., 8.0%, 11/15/16 | | | | 700,000 | | 455,000 |
| R.H. Donnelley Corporation, Series A-1, 6.875%, 01/15/13 | | | | 230,000 | | 147,200 |
| R.H. Donnelley Corporation, Series A-2, 6.875%, 01/15/13 | | | | 85,000 | | 54,400 |
| TL Acquisitions Inc., 144A, 10.5%, 01/15/15 | | | | 230,000 | | 208,150 |
| | | |
| Real estate—1.1% | | | | | | |
| Ashton Woods USA LLC and Ashton Woods Finance Company, 9.5%, 10/01/15 | | | | 365,000 | | 200,750 |
| Realogy Corporation, 10.5%, 04/15/14 | | | | 40,000 | | 29,400 |
| Realogy Corporation, PIK, 11.0%, 04/15/14 | | | | 130,000 | | 85,150 |
| Realogy Corporation, 12.375%, 04/15/15 | | | | 135,000 | | 73,575 |
| | | |
| REIT—0.1% | | | | | | |
| Ventas Realty LP and Ventas Capital Corporation, 6.5%, 06/01/16 | | | | 50,000 | | 48,375 |
| | | |
| Retail—4.1% | | | | | | |
| AutoNation Inc., 7.0%, 04/15/14 | | | | 35,000 | | 32,812 |
| Blockbuster Inc., 9.0%, 09/01/12 | | | | 100,000 | | 81,250 |
| Buffets Inc., 12.5%, 11/01/14 | | | | 140,000 | | 3,500 |
| Denny’s Holdings Inc., 10.0%, 10/01/12 | | | | 200,000 | | 190,750 |
| Dollar General Corporation, PIK, 11.88%, 07/15/17 | | | | 220,000 | | 202,400 |
| EPL Finance Corporation, 11.75%, 11/15/13 | | | | 205,000 | | 198,850 |
| Eye Care Centers of America, 10.75%, 02/15/15 | | | | 40,000 | | 41,150 |
| Inergy LP and Inergy Finance Corporation, 144A, 8.25%, 03/01/16 | | | | 35,000 | | 35,875 |
| Michaels Stores Inc., 11.375%, 11/01/16 | | | | 60,000 | | 53,850 |
| Neiman Marcus Group Inc., 10.375%, 10/15/15 | | | | 450,000 | | 472,500 |
| Sbarro Inc., 10.375%, 02/01/15 | | | | 100,000 | | 90,000 |
| | |
| 26 | | The accompanying notes are an integral part of the financial statements. |
Investment Portfolios
| | | | | | |
| HIGH YIELD BOND FUND (cont’d) | | | | | | |
| Corporate bonds—95.3% (a) | | | | Principal
amount | | Value |
| Software—0.5% | | | | | | |
| First Data Corporation, 144A, 9.875%, 09/24/15 | | | | $210,000 | | $191,100 |
| | | |
| Telecommunications—4.4% | | | | | | |
| ALLTEL Communications Inc., 144A, PIK, 10.38%, 12/01/17 | | | | 110,000 | | 86,900 |
| Hawaiian Telecom Communications Inc., Series B, 12.5%, 05/01/15 | | | | 80,000 | | 20,400 |
| Intelsat Corporation, 9.0%, 06/15/16 | | | | 225,000 | | 226,969 |
| Level 3 Financing Inc., 9.25%, 11/01/14 | | | | 400,000 | | 364,000 |
| Level 3 Financing Inc., FRN, 6.70438%, 02/15/15 | | | | 60,000 | | 48,000 |
| Qwest Communications International Inc., Series B, 7.5%, 02/15/14 | | | | 300,000 | | 294,750 |
| Windstream Corporation, 8.625%, 08/01/16 | | | | 475,000 | | 497,562 |
| | | |
| Television, cable & radio—2.9% | | | | | | |
| CCH I Holdings LLC and CCH I Holdings Capital Corporation, 11.75%, 05/15/14 | | | | 40,000 | | 22,400 |
Charter Communications Holdings LLC and Charter Communications Holdings Capital Corporation,
11.75%, 05/15/11 | | | | 70,000 | | 43,488 |
Charter Communications Holdings LLC and Charter Communications Holdings Capital Corporation,
12.125%, 01/15/12 | | | | 145,000 | | 87,544 |
Charter Communications Holdings LLC and Charter Communications Holdings Capital Corporation,
11.0%, 10/01/15 | | | | 724,000 | | 562,910 |
Charter Communications Holdings II LLC and Charter Communications Holdings II Capital Corporation,
10.25%, 09/15/10 | | | | 65,000 | | 62,562 |
| Charter Communications Inc., 144A, 10.875%, 09/15/14 | | | | 200,000 | | 211,500 |
| | | |
| Transportation—0.8% | | | | | | |
| Saint Acquisition Corporation, 144A, FRN, 10.815%, 05/15/15 | | | | 390,000 | | 128,700 |
| Saint Acquisition Corporation, 144A, 12.5%, 05/15/17 | | | | 400,000 | | 141,000 |
| Total domestic (cost $33,847,181) | | | | | | 29,457,930 |
| Foreign—10.2% (e) | | | | | | |
| Chemicals—1.7% | | | | | | |
| Montell Finance Co. BV, 144A, 8.1%, 03/15/27 | | | | 175,000 | | 116,375 |
| Nell AF SARL, 144A, 8.375%, 08/15/15 | | | | 630,000 | | 456,750 |
| | | |
| Electric—0.2% | | | | | | |
| AES China Generating Company Ltd, 8.25%, 06/26/10 | | | | 80,000 | | 74,743 |
| | | |
| Electronics—1.9% | | | | | | |
| NXP BV and NXP Funding LLC, 7.875%, 10/15/14 | | | | 75,000 | | 74,062 |
| NXP BV and NXP Funding LLC, 9.5%, 10/15/15 | | | | 620,000 | | 599,850 |
| | | |
| Forest products & paper—1.5% | | | | | | |
| Abitibi-Consolidated Co. of Canada, 15.5%, 07/15/10 | | | | 123,000 | | 84,870 |
| Abitibi-Consolidated Co. of Canada, 144A, 13.75%, 04/01/11 | | | | 170,000 | | 178,500 |
| Smurfit Capital Funding PLC, 7.5%, 11/20/25 | | | | 275,000 | | 246,125 |
| | | |
| Mining—0.3% | | | | | | |
| Novelis Inc., 7.25%, 02/15/15 | | | | 100,000 | | 91,500 |
| | | |
| Oil & gas—0.3% | | | | | | |
| Opti Canada Inc., 7.875%, 12/15/14 | | | | 90,000 | | 91,575 |
| | | |
| Telecommunications—3.0% | | | | | | |
| NTL Cable PLC, 9.125%, 08/15/16 | | | | 500,000 | | 482,500 |
| True Move Company Ltd, 144A, 10.75%, 12/16/13 | | | | 650,000 | | 578,500 |
| | | |
| Transportation—1.3% | | | | | | |
| Kansas City Southern de Mexico SA de CV, 7.625%, 12/01/13 | | | | 60,000 | | 57,375 |
| Teekay Corporation, 8.875%, 07/15/11 | | | | 145,000 | | 154,062 |
| Transportaction Ferroviaria Mexicana SA de CV, 9.375%, 05/01/12 | | | | 235,000 | | 244,988 |
| Total foreign (cost $3,923,433) | | | | | | 3,531,775 |
| Total corporate bonds (cost $37,770,614) | | | | | | 32,989,705 |
| | | | | | |
| | | | | | | |
| Domestic convertible bonds—0.6% (a) | | | | Principal
amount | | Value |
| Telecommunications—0.3% | | | | | | |
| Virgin Media Inc., 144A, 6.5%, 11/15/16 | | | | $105,000 | | $105,394 |
| | | |
| Television, cable & radio—0.0% | | | | | | |
| ION Media Networks Inc., Series A, 11.0%, 07/31/13 | | | | 500 | | 106 |
| | | |
| Transportation—0.3% | | | | | | |
| Horizon Lines Inc., 4.25%, 08/15/12 | | | | 125,000 | | 93,125 |
| Total domestic convertible bonds (cost $203,268) | | | | | | 198,625 |
| | | |
| Warrants, common & preferred stocks—1.3% (a) | | | | Shares | | Value |
| Axiohm Transaction Solutions (common stock) (d)(f)* | | | | 4,056 | | — |
| Bank of America Corporation, Series L, 7.25% (convertible preferred stock) | | | | 210 | | 230,580 |
| Home Interiors & Gifts Inc. (common stock) (d)(f)* | | | | 735,946 | | 7 |
| ION Media Networks Inc, Series B, 12.0%, 08/31/13 (convertible preferred stock) | | | | 0 | | 225 |
| Lehman Brothers Holdings Inc., 7.25% (convertible preferred stock) | | | | 180 | | 220,320 |
| Mattress Discounters Corporation (common stock) (d)* | | | | 3,747 | | — |
| 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) (d)* | | | | 1,571 | | 3 |
| Total warrants, common & preferred stocks (cost $1,484,501) | | | | | | 451,143 |
| | | |
| Total investment portfolio excluding repurchase agreement (cost $39,458,383) | | | | | | 33,639,473 |
| | | |
| Repurchase agreement—1.6% (a) | | | | | | |
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2008 @ 1.87% to be repurchased at $563,0298 on May 1, 2008, collateralized by $545,000 United States Treasury Bonds, 4.625% due February 15, 2017 (market value $587,662 including interest) (cost $563,000) | | 563,000 |
| |
| Total investment portfolio (cost $40,021,383) 98.8% (a) | | 34,202,473 |
| | | |
| Other assets and liabilities, net, 1.2% (a) | | | | | | 426,024 |
| | | |
| Net assets, 100.0% | | | | | | $34,628,497 |
| | | |
| * 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, 2008, these securities aggregated $552,649 or 1.6% 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, 2008, these securities aggregated $7 or 0.0% 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, 2008, these securities aggregated $6,776,989 or 19.6% 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 | | |
| | |
| The accompanying notes are an integral part of the financial statements. | | 27 |
Investment Portfolios
| | |
| |
| HIGH YIELD BOND FUND (cont’d) | | |
| Standard & Poor’s bond ratings (a) | | |
| Bond rating | | Percent of net assets |
| BBB | | 1.1% |
| BB | | 14.7% |
| B | | 58.7% |
| CCC | | 18.8% |
| NR | | 2.0% |
|
(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. BBB—An obligation rated ‘BBB’ has adequate capacity to meet its financial commitments. 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 the 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. |
| | | | | | |
| | | | |
| INTERNATIONAL EQUITY FUND | | | | | | |
| Common stocks—84.0% (a) | | | | Shares | | Value |
| Australia—3.8% | | | | | | |
| BHP Billiton Ltd | | | | 66,165 | | $2,665,096 |
| Consolidated Media Holdings Ltd | | | | 13,083 | | 44,551 |
| Crown Ltd | | | | 13,083 | | 135,020 |
| Fairfax Media Ltd | | | | 16,720 | | 54,997 |
| Macquarie Airports | | | | 833,076 | | 2,455,965 |
| Newcrest Mining Ltd | | | | 85,349 | | 2,327,225 |
| Rio Tinto Ltd | | | | 36,891 | | 4,736,492 |
| | | |
| Austria—3.9% | | | | | | |
| Erste Bank der Oesterreichischen Sparkassen AG | | | | 13,981 | | 1,041,322 |
| Flughafen Wien AG | | | | 2,492 | | 315,482 |
| Immoeast AG* | | | | 103,356 | | 1,046,137 |
| OMV AG | | | | 69,790 | | 5,245,471 |
| Raiffeisen International Bank Holding AG | | | | 18,552 | | 3,015,573 |
| Telekom Austria AG | | | | 8,944 | | 221,355 |
| Verbund - Oesterreichische Elektrizitaetswirtschafts AG, Class A | | | | 6,091 | | 473,067 |
| Vienna Insurance Group | | | | 9,870 | | 740,986 |
| Wienerberger AG | | | | 8,518 | | 492,382 |
| | | |
| Belgium—1.0% | | | | | | |
| Groupe Bruxelles Lambert SA | | | | 1,347 | | 170,547 |
| KBC Ancora | | | | 14,050 | | 1,508,703 |
| KBC Groep NV | | | | 12,578 | | 1,696,394 |
| | | | | | |
| | | |
| | | | | | | |
| Common stocks—84.0% (a) | | | | Shares | | Value |
| Bermuda—0.3% | | | | | | |
| Central European Media Enterprises Ltd, Class A* | | | | 8,581 | | $909,758 |
| | | |
| Canada—4.5% | | | | | | |
| Barrick Gold Corporation | | | | 12,322 | | 473,622 |
| Cameco Corporation | | | | 13,108 | | 455,676 |
| Canadian Natural Resources Ltd | | | | 2,208 | | 187,563 |
| Eldorado Gold Corporation* | | | | 42,060 | | 286,915 |
| Imperial Oil Ltd | | | | 14,119 | | 833,036 |
| Ivanhoe Mines Ltd* | | | | 256,314 | | 2,453,447 |
| OPTI Canada Inc.* | | | | 14,406 | | 304,971 |
| Potash Corporation of Saskatchewan Inc. | | | | 22,425 | | 4,128,062 |
| Research in Motion Ltd* | | | | 23,183 | | 2,819,748 |
| Suncor Energy Inc. | | | | 20,264 | | 2,286,768 |
| Talisman Energy Inc. | | | | 17,278 | | 349,472 |
| UTS Energy Corporation* | | | | 28,515 | | 153,179 |
| | | |
| Chile—0.3% | | | | | | |
| Sociedad Quimica y Minera de Chile SA, Sponsored ADR | | | | 35,603 | | 1,015,042 |
| | | |
| China—0.4% | | | | | | |
| Beijing Capital International Airport Co., Ltd, Class H | | | | 1,345,847 | | 1,372,612 |
| Weiqiao Textile Company Ltd, Class H | | | | 1 | | 1 |
| | | |
| Cyprus—0.3% | | | | | | |
| Bank of Cyprus Public Co., Ltd | | | | 70,918 | | 981,112 |
| | | |
| Czech—2.5% | | | | | | |
| Komercni Banka, AS | | | | 33,575 | | 8,225,638 |
| | | |
| Denmark—1.2% | | | | | | |
| ALK-Abello AS | | | | 1,222 | | 144,214 |
| Carlsberg AS, Class B | | | | 12,359 | | 1,646,932 |
| Danske Bank AS | | | | 1,347 | | 46,566 |
| FLSmidth & Co. AS | | | | 4,312 | | 454,917 |
| Novo Nordisk AS, Class B | | | | 18,448 | | 1,270,000 |
| Vestas Wind Systems AS* | | | | 2,880 | | 314,935 |
| | | |
| Finland—2.9% | | | | | | |
| Fortum Oyj | | | | 53,141 | | 2,246,959 |
| Kemira Oyj | | | | 14,362 | | 206,507 |
| Kesko Oyj, Class B | | | | 2,919 | | 110,571 |
| Metso Oyj | | | | 2,401 | | 103,128 |
| Nokia Oyj | | | | 123,947 | | 3,731,005 |
| Orion Oyj, Class B | | | | 12,142 | | 255,352 |
| Outotec Oyj | | | | 10,023 | | 627,491 |
| Pohjola Bank PLC | | | | 8,565 | | 171,185 |
| Ramirent Oyj | | | | 17,943 | | 298,456 |
| Sanoma-WSOY Oyj | | | | 15,660 | | 399,870 |
| Wartsila Oyj | | | | 2,418 | | 164,505 |
| YIT Oyj | | | | 42,556 | | 1,208,400 |
| | | |
| France—8.5% | | | | | | |
| Accor SA | | | | 1,904 | | 157,056 |
| Aeroports de Paris | | | | 16,090 | | 1,918,582 |
| Air Liquide | | | | 12,211 | | 1,831,129 |
| Alstom | | | | 1,727 | | 400,347 |
| BNP Paribas | | | | 7,098 | | 764,699 |
| Bouygues | | | | 8,689 | | 649,569 |
| Bureau Veritas SA | | | | 2,160 | | 120,045 |
| Compagnie de Saint-Gobain | | | | 7,760 | | 624,417 |
| EDF Energies Nouvelles SA | | | | 872 | | 58,664 |
| Electricite de France | | | | 25,241 | | 2,633,596 |
| France Telecom SA | | | | 36,330 | | 1,141,023 |
| JC Decaux SA | | | | 7,090 | | 203,239 |
| | |
| 28 | | The accompanying notes are an integral part of the financial statements. |
Investment Portfolios
| | | | | | |
| INTERNATIONAL EQUITY FUND (cont’d) | | | | | | |
| Common stocks—84.0% (a) | | | | Shares | | Value |
| France (cont’d) | | | | | | |
| Lafarge SA | | | | 9,123 | | $1,647,240 |
| LVMH Moet Hennessy Louis Vuitton SA | | | | 23,414 | | 2,675,479 |
| Neuf Cegetel | | | | 4,887 | | 273,583 |
| Nexity | | | | 1,670 | | 74,721 |
| Pernod-Ricard SA | | | | 11,043 | | 1,273,198 |
| PPR | | | | 9,723 | | 1,270,944 |
| Remy Cointreau SA | | | | 1,960 | | 121,614 |
| Sanofi-Aventis SA | | | | 7,714 | | 594,178 |
| Societe Television Francaise 1 | | | | 10,782 | | 227,410 |
| Sodexo | | | | 1,876 | | 125,682 |
| Suez SA | | | | 35,688 | | 2,514,912 |
| Technip SA | | | | 1,774 | | 163,011 |
| TOTAL SA | | | | 53,773 | | 4,517,889 |
| Veolia Environnement | | | | 3,779 | | 272,524 |
| Vinci SA | | | | 15,719 | | 1,160,342 |
| Vivendi | | | | 3,941 | | 160,056 |
| Wendel | | | | 832 | | 114,022 |
| | | |
| Germany—5.5% | | | | | | |
| Adidas AG | | | | 1,551 | | 98,876 |
| Arcandor AG* | | | | 6,633 | | 124,251 |
| Bayer AG | | | | 14,243 | | 1,214,210 |
| Commerzbank AG | | | | 11,063 | | 399,862 |
| Continental AG | | | | 1,699 | | 199,382 |
| Daimler AG | | | | 13,752 | | 1,066,873 |
| Deutsche Boerse AG | | | | 4,715 | | 689,600 |
| Deutsche Post AG* | | | | 5,746 | | 179,279 |
| Deutsche Postbank AG | | | | 1,435 | | 125,560 |
| E.ON AG | | | | 11,208 | | 2,279,458 |
| Fraport AG Frankfurt Airport Services Worldwide | | | | 45,809 | | 3,301,209 |
| Fresenius Medical Care AG & Co. KGaA | | | | 29,750 | | 1,583,588 |
| Fresenius SE | | | | 19,739 | | 1,674,839 |
| Hamburger Hafen und Logistik AG | | | | 3,874 | | 322,241 |
| Henkel AG & Co. KGaA | | | | 7,056 | | 283,699 |
| K+S AG | | | | 2,625 | | 1,098,570 |
| MAN AG | | | | 1,156 | | 160,845 |
| Merck KGaA | | | | 2,408 | | 342,404 |
| Praktiker Bau- und Heimwerkermaerkte AG | | | | 3,689 | | 79,735 |
| Premiere AG* | | | | 4,530 | | 95,060 |
| Rheinmetall AG | | | | 2,142 | | 161,608 |
| Rhoen-Klinikum AG | | | | 28,899 | | 871,967 |
| Siemens AG | | | | 13,394 | | 1,580,477 |
| Tognum AG | | | | 3,566 | | 102,180 |
| | | |
| Greece—0.4% | | | | | | |
| Alapis Holding Industrial and Commercial SA of Pharmaceutical Chemical & Organic Products | | | | 181,129 | | 588,274 |
| Hellenic Telecommunications Organization SA | | | | 23,094 | | 684,882 |
| | | |
| Hong Kong—2.4% | | | | | | |
| China Merchants Holdings (International) Company Ltd | | | | 391,957 | | 2,005,413 |
| China Mobile Ltd | | | | 79,273 | | 1,366,855 |
| Galaxy Entertainment Group Ltd* | | | | 478,684 | | 362,400 |
| GOME Electrical Appliances Holdings Ltd | | | | 648,366 | | 1,502,536 |
| Hutchison Telecommunications International Ltd | | | | 61,549 | | 86,560 |
| Melco International Development | | | | 383,305 | | 529,229 |
| Melco PBL Entertainment Macau Ltd, Sponsored ADR* | | | | 23,775 | | 313,830 |
| Shun Tak Holdings Ltd | | | | 1,279,649 | | 1,710,982 |
| Texwinca Holdings Ltd | | | | 87,117 | | 65,619 |
| | | | | | |
| | | | | | | |
| Common stocks—84.0% (a) | | | | Shares | | Value |
| Hungary—3.4% | | | | | | |
| Magyar Telekom Telecommunications PLC | | | | 316,086 | | $1,681,267 |
| MOL Hungarian Oil and Gas | | | | 1,403 | | 199,613 |
| OTP Bank | | | | 205,167 | | 8,747,583 |
| Richter Gedeon | | | | 1,553 | | 320,726 |
| | | |
| India—1.0% | | | | | | |
| ICICI Bank Ltd, Sponsored ADR | | | | 16,623 | | 741,220 |
| State Bank of India, Sponsored GDR | | | | 27,270 | | 2,533,383 |
| | | |
| Indonesia—0.1% | | | | | | |
| Semen Gresik Persero Tbk PT | | | | 318,110 | | 145,183 |
| | | |
| Ireland—0.5% | | | | | | |
| CRH PLC | | | | 11,768 | | 445,689 |
| Dragon Oil PLC* | | | | 118,936 | | 1,173,373 |
| | | |
| Isreal—0.1% | | | | | | |
| Israel Chemicals Ltd | | | | 19,549 | | 358,576 |
| | | |
| Italy—2.4% | | | | | | |
| Autogrill SpA | | | | 1,716 | | 26,079 |
| Banca Popolare di Milano Scarl | | | | 85,213 | | 1,046,846 |
| Banca Popolare di Sondrio Scarl | | | | 6,866 | | 96,208 |
| Buzzi Unicem SpA | | | | 32,986 | | 839,138 |
| Credito Emiliano SpA | | | | 61,106 | | 811,248 |
| Finmeccanica SpA | | | | 2,212 | | 76,869 |
| Geox SpA | | | | 22,809 | | 327,007 |
| Intesa Sanpaolo SpA | | | | 278,487 | | 1,964,262 |
| Italcementi SpA | | | | 7,017 | | 152,403 |
| Lottomatica SpA | | | | 919 | | 28,381 |
| Mediobanca SpA | | | | 48,141 | | 1,001,941 |
| Telecom Italia SpA | | | | 173,293 | | 364,412 |
| UniCredit SpA | | | | 130,153 | | 981,907 |
| Unione di Banche Italiane ScpA | | | | 6,162 | | 162,934 |
| | | |
| Japan—6.4% | | | | | | |
| Acom Co., Ltd | | | | 2,800 | | 87,175 |
| Aeon Credit Service Co., Ltd | | | | 2,968 | | 47,746 |
| Aiful Corporation | | | | 3,100 | | 60,560 |
| Aisin Seiki Co., Ltd | | | | 3,001 | | 105,905 |
| Canon Inc. | | | | 17,273 | | 863,775 |
| Central Japan Railway Company | | | | 67 | | 655,781 |
| Credit Saison Co., Ltd | | | | 2,617 | | 70,077 |
| Daihatsu Motor Co., Ltd | | | | 16,000 | | 192,070 |
| Daikin Industries, Ltd | | | | 2,800 | | 140,571 |
| Daiwa Securities Group Inc. | | | | 6,003 | | 60,100 |
| Denso Corporation | | | | 8,813 | | 308,636 |
| Dentsu Inc. | | | | 25 | | 57,754 |
| East Japan Railway Company | | | | 112 | | 894,538 |
| Eisai Co., Ltd | | | | 3,800 | | 135,020 |
| Fanuc Ltd | | | | 3,400 | | 360,108 |
| Fuji Television Network Inc. | | | | 41 | | 67,264 |
| Honda Motor Co., Ltd | | | | 9,520 | | 303,250 |
| Hoya Corporation | | | | 6,400 | | 178,066 |
| Ibiden Co., Ltd | | | | 4,000 | | 175,992 |
| Isuzu Motors Ltd | | | | 32,000 | | 154,297 |
| ITOCHU Corporation | | | | 7,000 | | 73,750 |
| Japan Tobacco Inc. | | | | 144 | | 698,551 |
| JFE Holdings, Inc. | | | | 2,429 | | 132,447 |
| JS Group Corporation | | | | 5,594 | | 97,349 |
| JSR Corporation | | | | 2,913 | | 65,368 |
| | |
| The accompanying notes are an integral part of the financial statements. | | 29 |
Investment Portfolios
| | | | | | |
| INTERNATIONAL EQUITY FUND (cont’d) | | | | | | |
| Common stocks—84.0% (a) | | | | Shares | | Value |
| Japan (cont’d) | | | | | | |
| KDDI Corporation | | | | 86 | | $553,655 |
| Komatsu Ltd | | | | 35,000 | | 1,069,855 |
| Kubota Corporation | | | | 7,491 | | 52,778 |
| Kyocera Corporation | | | | 3,000 | | 275,809 |
| Makita Corporation | | | | 7,663 | | 261,872 |
| Matsushita Electric Industrial Co., Ltd | | | | 18,853 | | 442,088 |
| Mitsubishi Corporation | | | | 5,200 | | 168,284 |
| Mitsubishi Electric Corporation | | | | 11,000 | | 113,243 |
| Mitsubishi UFJ Financial Group, Inc. | | | | 81,100 | | 892,229 |
| Mitsui & Co., Ltd | | | | 7,000 | | 163,130 |
| Mitsui Fudosan Co., Ltd | | | | 3,129 | | 78,185 |
| Mitsui Mining & Smelting Co., Ltd | | | | 2 | | 7 |
| Mizuho Financial Group, Inc. | | | | 35 | | 181,757 |
| Nintendo Co., Ltd | | | | 3,401 | | 1,884,833 |
| Nippon Electric Glass Co., Ltd | | | | 44,000 | | 679,136 |
| Nippon Telegraph & Telephone Corporation | | | | 23 | | 99,445 |
| Nissan Motor Co., Ltd | | | | 6,562 | | 58,753 |
| Nitto Denko Corporation | | | | 2,301 | | 94,851 |
| Nomura Holdings, Inc. | | | | 5,622 | | 97,750 |
| NSK Ltd | | | | 16,000 | | 134,549 |
| NTT DoCoMo, Inc. | | | | 344 | | 508,868 |
| Olympus Corporation | | | | 1,508 | | 49,888 |
| Promise Co., Ltd* | | | | 2,960 | | 94,059 |
| Ricoh Company Ltd | | | | 16,000 | | 277,924 |
| Sapporo Hokuyo Holdings Inc. | | | | 6 | | 48,697 |
| Seven & I Holdings Co., Ltd | | | | 3,800 | | 113,520 |
| Sharp Corporation | | | | 5,000 | | 84,702 |
| Shin-Etsu Chemical Co., Ltd | | | | 2,900 | | 180,926 |
| Sony Corporation | | | | 17,486 | | 801,554 |
| Stanley Electric Co., Ltd | | | | 5,599 | | 142,644 |
| Sumitomo Chemical Co., Ltd | | | | 21,000 | | 137,441 |
| Sumitomo Corporation | | | | 4,948 | | 66,054 |
| Sumitomo Electric Industries Ltd | | | | 4,400 | | 56,344 |
| Sumitomo Heavy Industries Ltd | | | | 19,996 | | 169,637 |
| Sumitomo Metal Industries Ltd | | | | 40,084 | | 169,461 |
| Sumitomo Mitsui Financial Group Inc | | | | 54 | | 468,918 |
| Suruga Bank, Ltd | | | | 8,000 | | 112,862 |
| Suzuki Motor Corporation | | | | 27,500 | | 700,839 |
| Takeda Pharmaceutical Co., Ltd | | | | 4,800 | | 254,860 |
| Takefuji Corporation | | | | 2,970 | | 70,405 |
| The Bank of Kyoto, Ltd | | | | 7,184 | | 91,972 |
| The Bank of Yokohama, Ltd | | | | 37,997 | | 276,838 |
| The Chiba Bank, Ltd | | | | 19,000 | | 150,548 |
| The Gunma Bank, Ltd | | | | 13,000 | | 104,263 |
| The Shizuoka Bank, Ltd | | | | 11,000 | | 135,460 |
| The Sumitomo Trust & Banking Co., Ltd | | | | 24,065 | | 214,932 |
| Toyota Motor Corporation | | | | 25,532 | | 1,298,644 |
| Yamada Denki Co., Ltd | | | | 7,550 | | 651,394 |
| Yamaha Motor Co., Ltd | | | | 6,001 | | 117,060 |
| Yamato Holdings Co., Ltd | | | | 2,564 | | 37,405 |
| | | |
| Luxembourg—0.9% | | | | | | |
| Evraz Group SA, 144A, Sponsored GDR | | | | 3,864 | | 400,890 |
| Millicom International Cellular SA | | | | 21,925 | | 2,368,119 |
| | | |
| Mexico—1.1% | | | | | | |
| America Movil, SAB de CV, Series L | | | | 282,827 | | 821,617 |
| America Movil, SAB de CV, Sponsored ADR | | | | 3,398 | | 196,948 |
| Controladora Comercial Mexicana, SAB de CV | | | | 42,733 | | 120,188 |
| Corporacion Moctezuma, SAB de CV | | | | 125,501 | | 327,729 |
| | | | | | |
| | | | | | | |
| Common stocks—84.0% (a) | | | | Shares | | Value |
| Fomento Economico Mexicano, SAB de CV, Sponsored ADR | | | | 19,438 | | $844,581 |
| Grupo Cementos de Chihuahua, SAB de CV | | | | 21,355 | | 108,905 |
| Grupo Financiero Banorte, SAB de CV | | | | 218,285 | | 963,773 |
| Grupo Televisa SA, Sponsored ADR | | | | 7,421 | | 183,150 |
| Urbi Desarrollos Urbanos, SA de CV* | | | | 41,530 | | 133,237 |
| | | |
| Netherlands—0.8% | | | | | | |
| Koninklijke KPN NV | | | | 50,915 | | 930,639 |
| Koninklijke Vopak NV | | | | 3,601 | | 244,851 |
| TNT NV | | | | 4,253 | | 165,105 |
| Unilever NV | | | | 34,245 | | 1,151,231 |
| | | |
| New Zealand—0.1% | | | | | | |
| Auckland International Airport Ltd | | | | 264,479 | | 440,250 |
| | | |
| Norway—2.1% | | | | | | |
| Aker Solutions ASA | | | | 12,557 | | 318,878 |
| DnB NOR ASA | | | | 72,499 | | 1,079,447 |
| Norsk Hydro ASA | | | | 10,600 | | 156,664 |
| StatoilHydro ASA | | | | 82,366 | | 2,967,409 |
| Telenor ASA | | | | 39,783 | | 799,932 |
| Yara International ASA | | | | 20,865 | | 1,516,266 |
| | | |
| Poland—3.6% | | | | | | |
| Bank BPH SA | | | | 3,453 | | 138,440 |
| Bank Handlowy w Warszawie SA | | | | 34,266 | | 1,309,548 |
| Bank Millenium SA | | | | 10,822 | | 38,226 |
| Bank Pekao SA | | | | 36,818 | | 3,213,801 |
| Bank Zachodni WBK SA | | | | 3,805 | | 279,647 |
| BRE Bank SA* | | | | 2,246 | | 365,691 |
| ING Bank Slaski SA | | | | 653 | | 146,531 |
| Polskie Gornictwo Naftowe I Gazownictwo SA | | | | 348,149 | | 658,177 |
| Powszechna Kasa Oszczednosci Bank Polski SA | | | | 152,317 | | 3,152,311 |
| Telekomunikacja Polska SA | | | | 242,111 | | 2,441,860 |
| | | |
| Portugal—0.6% | | | | | | |
| Energias de Portugal SA | | | | 56,525 | | 356,229 |
| Jeronimo Martins, SGPS, SA | | | | 189,778 | | 1,497,611 |
| | | |
| Romania—0.6% | | | | | | |
| Board of Romanian Development Bank-Groupe Societe Generale | | | | 88,073 | | 799,452 |
| SNP Petrom SA | | | | 5,060,063 | | 1,054,472 |
| | | |
| Russia—4.4% | | | | | | |
| Gazprom OAO, Sponsored ADR | | | | 61,543 | | 3,274,088 |
| JSC MMC Norilsk Nickel, Sponsored ADR | | | | 71,280 | | 1,924,560 |
| LUKOIL, Sponsored ADR | | | | 9,347 | | 844,034 |
| Mechel, Sponsored ADR | | | | 6,642 | | 968,404 |
| Novatek OAO, 144A, Sponsored GDR | | | | 9,990 | | 756,243 |
| Novorossiysk Commercial Sea Port, 144A, Sponsored GDR | | | | 30,701 | | 475,866 |
| OAO Rosneft Oil Company, Sponsored GDR | | | | 88,277 | | 865,115 |
| Open Investments OJSC, Sponsored GDR* | | | | 9,847 | | 309,490 |
| Pharmstandard OJSC, 144A, Sponsored GDR* | | | | 36,782 | | 915,247 |
| Polyus Gold Co., Sponsored ADR | | | | 12,612 | | 665,283 |
| Severstal, 144A, Sponsored GDR | | | | 7,097 | | 174,657 |
| Sistema-Hals, 144A, Sponsored GDR* | | | | 21,005 | | 154,807 |
| Uralkali* | | | | 11,678 | | 610,176 |
| Uralsvyazinform, Sponsored ADR | | | | 9,771 | | 93,830 |
| VimpleCom, Sponsored ADR | | | | 21,782 | | 656,945 |
| VTB Bank OJSC, 144A, Sponsored GDR | | | | 37,776 | | 282,942 |
| Wimm-Bill-Dann Foods OJSC, Sponsored ADR | | | | 9,209 | | 1,120,735 |
| X5 Retail Group NV, Sponsored GDR* | | | | 6,713 | | 253,504 |
| | |
| 30 | | The accompanying notes are an integral part of the financial statements. |
Investment Portfolios
| | | | | | |
| INTERNATIONAL EQUITY FUND (cont’d) | | | | | | |
| Common stocks—84.0% (a) | | | | Shares | | Value |
| South Africa—0.2% | | | | | | |
| Impala Platinum Holdings Ltd | | | | 13,901 | | $569,082 |
| | | |
| South Korea—0.3% | | | | | | |
| NHN Corporation* | | | | 664 | | 154,303 |
| Samsung Electronics Co., Ltd | | | | 1,304 | | 928,362 |
| | | |
| Spain—1.6% | | | | | | |
| Acciona SA | | | | 1,050 | | 298,286 |
| Banco Bilbao Vizcaya Argentaria SA | | | | 37,289 | | 856,195 |
| Gamesa Corporacion Technologica SA | | | | 6,428 | | 312,853 |
| Iberdrola Renovables* | | | | 57,396 | | 416,738 |
| Iberdrola SA | | | | 65,900 | | 963,984 |
| Inditex SA | | | | 2,593 | | 141,629 |
| Telefonica SA | | | | 76,385 | | 2,214,870 |
| | | |
| Sweden—1.2% | | | | | | |
| Getinge AB, Class B | | | | 13,019 | | 332,711 |
| Hennes & Mauritz AB, Class B | | | | 5,930 | | 351,946 |
| Modern Times Group AB, Class B | | | | 4,356 | | 320,139 |
| Nordea Bank AB | | | | 130,543 | | 2,158,684 |
| Swedbank AB, Class A | | | | 17,113 | | 434,478 |
| TeliaSonera AB | | | | 36,066 | | 322,292 |
| | | |
| Switzerland—5.2% | | | | | | |
| ABB Ltd | | | | 31,235 | | 959,825 |
| BKW FMB Energie AG | | | | 2,943 | | 363,845 |
| Compagnie Financiere Richemont SA, Class A | | | | 36,830 | | 2,236,575 |
| Flughafen Zuerich AG | | | | 1,903 | | 833,950 |
| Holcim Ltd | | | | 40,025 | | 3,927,293 |
| Nestle SA | | | | 5,857 | | 2,809,370 |
| Nobel Biocare Holding AG | | | | 3,440 | | 124,566 |
| Roche Holding AG | | | | 4,580 | | 762,659 |
| SGS SA | | | | 343 | | 480,683 |
| Synthes Inc. | | | | 1,511 | | 207,136 |
| The Swatch Group AG | | | | 6,662 | | 1,782,149 |
| Xstrata PLC | | | | 30,656 | | 2,381,129 |
| | | |
| Taiwan—0.8% | | | | | | |
| Asia Cement Corporation, 144A, Sponsored GDR | | | | 10,054 | | 180,954 |
| Cathay Financial Holding Co., Ltd, Sponsored GDR | | | | 12,377 | | 350,888 |
| Chunghwa Telecom Co., Ltd, Sponsored ADR | | | | 47,708 | | 1,217,031 |
| Far Eastern Textile Co., Ltd, Sponsored GDR | | | | 27,359 | | 458,084 |
| First Financial Holding Co., Ltd, Sponsored GDR | | | | 9,854 | | 236,003 |
| Fubon Financial Holding Co., Ltd | | | | 14,757 | | 182,987 |
| | | |
| Ukraine—0.8% | | | | | | |
| Emrise Corporation* | | | | 58 | | 18,928 |
| Raiffeisen Bank Aval | | | | 1,908,985 | | 307,012 |
| Ukrnafta Oil Co. | | | | 7,557 | | 426,932 |
| Ukrsotsbank JSCB* | | | | 2,466,696 | | 469,995 |
| UkrTelecom* | | | | 5,916,954 | | 1,116,291 |
| UkrTelecom, Sponsored GDR* | | | | 9,912 | | 91,160 |
| | | |
| United Kingdom—7.9% | | | | | | |
| Amec PLC | | | | 22,388 | | 351,102 |
| Anglo American PLC | | | | 36,411 | | 2,338,094 |
| BAE Systems PLC | | | | 20,994 | | 193,564 |
| BHP Billiton PLC | | | | 24,817 | | 876,905 |
| BP PLC | | | | 356,714 | | 4,333,546 |
| BT Group PLC | | | | 44,900 | | 197,325 |
| Burberry Group PLC | | | | 39,693 | | 379,036 |
| Cadbury Schweppes PLC | | | | 39,727 | | 458,816 |
| Compass Group PLC | | | | 106,797 | | 719,059 |
| | | | | | |
| | | | | | | |
| Common stocks—84.0% (a) | | | | Shares | | Value |
| Diageo PLC | | | | 117,179 | | $2,397,953 |
| GlaxoSmithKline PLC | | | | 35,694 | | 790,721 |
| Intertek Group PLC | | | | 14,564 | | 279,740 |
| Peter Hambro Mining PLC | | | | 14,808 | | 369,125 |
| QinetiQ PLC | | | | 44,616 | | 171,607 |
| Reckitt Benckiser Group PLC | | | | 25,048 | | 1,459,429 |
| Rio Tinto PLC | | | | 20,152 | | 2,339,231 |
| Rolls-Royce Group PLC | | | | 81,104 | | 702,442 |
| Rolls-Royce Group PLC, Class B* | | | | 7,266,918 | | 14,449 |
| Royal Bank of Scotland Group PLC | | | | 46,402 | | 313,482 |
| Smith & Nephew PLC | | | | 116,815 | | 1,512,046 |
| Tesco PLC | | | | 189,084 | | 1,598,167 |
| Vodafone Group PLC | | | | 1,201,178 | | 3,799,229 |
| William Hill PLC | | | | 9,069 | | 69,100 |
| WPP Group PLC | | | | 12,250 | | 149,406 |
| Total common stocks (cost $233,156,162) | | | | | | 273,621,932 |
| | | |
| Warrants and rights—3.5% (a) | | | | | | |
| Austria—0.0% | | | | | | |
| Vienna Insurance Group, 05/07/08 (rights) | | | | 9,870 | | 0 |
| | | |
| Germany—0.3% | | | | | | |
Deutsche Bank AG London, Series 53, 0%, 12/31/09
(warrants) (b)* | | | | 17 | | 375,704 |
Deutsche Bank AG London, Series 64, 0%, 12/31/09
(warrants) (b)* | | | | 17 | | 26,143 |
Deutsche Bank AG London, Series 67, 0%, 12/31/09
(warrants) (b)* | | | | 17 | | 293,770 |
Deutsche Bank AG London, Series 68, 0%, 12/31/09
(warrants) (b)* | | | | 17 | | 71,169 |
Deutsche Bank AG London, Series 69, 0%, 12/31/09
(warrants) (b)* | | | | 17 | | 274,550 |
Deutsche Bank AG London, Series 70, 0%, 12/31/09
(warrants) (b)* | | | | 17 | | 45,900 |
Deutsche Bank AG London, Series 71, 0%, 12/31/09
(warrants) (b)* | | | | 17 | | 0 |
| | | |
| India—1.6% | | | | | | |
| Caylon Financial Products Ltd/Bharti Airtel Ltd, 05/31/10 (warrants)* | | | | 33,335 | | 761,182 |
Caylon Financial Products Ltd/Mahindra & Mahindra Ltd,
06/10/28 (warrants) | | | | 8,245 | | 136,389 |
| Caylon Financial Products Ltd/Oil and Natural Gas Corporation Ltd, 05/13/10 (warrants) | | | | 6,246 | | 159,727 |
Caylon Financial Products Ltd/State Bank of India,
05/13/10 (warrants) | | | | 62,814 | | 2,782,464 |
Citigroup Global Markets Holdings/State Bank of India,
01/19/09 (warrants) | | | | 33,443 | | 1,503,328 |
| | | |
| Russia—1.0% | | | | | | |
| Deutsche Bank AG/OGK-1-BRD, 01/04/10 (warrants) (b)* | | | | 17 | | 112,845 |
| Deutsche Bank AG/OGK-2-CLS, 01/04/10 (warrants) (b) | | | | 17 | | 59,595 |
| Deutsche Bank AG/OGK-4-CLS, 01/04/10 (warrants) (b)* | | | | 17 | | 129,243 |
| Deutsche Bank AG/TGK-1-CLS, 01/04/10 (warrants) (b) | | | | 17 | | 74,746 |
| Deutsche Bank AG/TGK-2-BRD, 01/04/10 (warrants) (b)* | | | | 17 | | 17,215 |
| Deutsche Bank AG/TGK-8-CLS, 01/04/10 (warrants) (b) | | | | 17 | | 37,857 |
| Deutsche Bank AG/TGK-9-CLS, 01/04/10 (warrants) (b) | | | | 17 | | 30,907 |
| Deutsche Bank AG/TGK-10-CLS, 01/04/10 (warrants) (b) | | | | 17 | | 56,483 |
| Deutsche Bank AG/TGK-11-CLS, 01/04/10 (warrants) (b)* | | | | 17 | | 11,568 |
| Deutsche Bank AG/TGK-13-CLS, 01/04/10 (warrants) (b) | | | | 17 | | 19,921 |
| Deutsche Bank AG/TGK-14-CLS, 01/04/10 (warrants) (b) | | | | 17 | | 4,293 |
| | |
| The accompanying notes are an integral part of the financial statements. | | 31 |
Investment Portfolios
| | | | | | |
| INTERNATIONAL EQUITY FUND (cont’d) | | | | | | |
| Warrants and rights—3.5% (a) | | | | Shares | | Value |
| Russia (cont’d) | | | | | | |
Deutsche Bank AG/Volga Territorial Generating Co., 12/31/09
(warrants) (b) | | | | 17 | | $40,931 |
Deutsche Bank AG London/OGK-3-CLS, 12/31/09
(warrants) (b)* | | | | 17 | | 59,447 |
Deutsche Bank AG London/OGK-6-CLS, 12/31/09
(warrants) (b) | | | | 17 | | 66,477 |
| Deutsche Bank AG London/TGK-3-CLS, 01/04/10 (warrants) (b) | | | | 17 | | 82,819 |
Deutsche Bank AG London/TGK-4-CLS, 01/04/10
(warrants) (b) | | | | 17 | | 23,195 |
| Deutsche Bank AG London/TGK-6-CLS, 01/04/10 (warrants) (b) | | | | 17 | | 18,759 |
| UBS AG London/Sberbank, 144A, 01/12/09 (warrants) | | | | 684 | | 2,215,177 |
| | | |
| Taiwan—0.6% | | | | | | |
| Citigroup Global Markets Holdings/Chinatrust Financial Holding Co., Ltd, 12/17/12 (warrants) | | | | 537,724 | | 558,158 |
| Citigroup Global Markets Holdings/Yuanta Financial Holding Co., Ltd, 01/17/12 (warrants) | | | | 246,360 | | 233,549 |
| CLSA Financial Products Ltd/Uni-President Enterprises Corporation, 01/04/11 (warrants) | | | | 108,006 | | 153,854 |
| Deutsche Bank AG/Tatung Co., Ltd, 03/26/18 (warrants)* | | | | 246,106 | | 148,213 |
Deutsche Bank AG London/President Chain Store Corporation,
10/05/16 (warrants) | | | | 47,050 | | 165,146 |
Deutsche Bank AG London/Taiwan Fertilizer Co., Ltd,
01/19/17 (warrants) | | | | 111,427 | | 539,530 |
Morgan Stanley Asia Products/Taiwan Cement Corporation,
12/05/09 (warrants) | | | | 176,190 | | 285,596 |
| Total warrants (cost $9,438,815) | | | | | | 11,575,850 |
| | | |
| Preferred stocks—1.1% (a) | | | | | | |
| Brazil—1.0% | | | | | | |
| Petroleo Brasileiro SA | | | | 129,282 | | 3,247,217 |
| | | |
| Germany—0.1% | | | | | | |
| Volkswagen AG | | | | 1,927 | | 317,580 |
| Total preferred stocks (cost $2,924,877) | | | | | | 3,564,797 |
| | | | | | | |
| Investment companies—7.3% (a) | | | | | | |
| British Virgin Islands—0.0% | | | | | | |
| RenShares Utilities Ltd, Class RenGen* | | | | 52,051 | | 163,961 |
| | | |
| France—0.4% | | | | | | |
| Eurazeo | | | | 2,973 | | 383,170 |
| Lyxor ETF CAC 40 | | | | 10,760 | | 842,773 |
| | | |
| Guernsey—0.3% | | | | | | |
| KKR Private Equity Investors LP | | | | 66,557 | | 985,531 |
| | | |
| Ireland—4.3% | | | | | | |
| iShares DJ Euro STOXX 50 | | | | 223,805 | | 13,341,093 |
| iShares PLC - iShares FTSE 100 | | | | 46,414 | | 563,764 |
| | | |
| Luxembourg—0.1% | | | | | | |
Citigroup Global Markets Holdings/Banking Index
Benchmark Exchange Traded Scheme-Bank BeES, 144A, 01/20/10 (warrants)* | | | | 17,824 | | 334,164 |
| | | |
| Romania—0.0% | | | | | | |
| Societatea de Investitii Financiare/Transilvania SA (SIF 3) | | | | 29,000 | | 18,909 |
| | | |
| United States—1.8% | | | | | | |
| iShares MSCI Australia Index Fund | | | | 50,280 | | 1,396,778 |
| iShares MSCI Brazil Index Fund | | | | 4,015 | | 361,711 |
| iShares MSCI Taiwan Index Fund | | | | 249,858 | | 4,137,648 |
| | | | | | |
| | | | | | | |
| Investment companies—7.3% (a) | | | | Shares | | Value |
| United Kingdom—0.4% | | | | | | |
| Goldman Sachs International Ltd* | | | | 32,797 | | $1,286,760 |
| Total investment companies (cost $23,562,474) | | | | | | 23,816,262 |
| | | |
| Government issued securities—0.0% (a) | | | | | | |
| Bulgaria—0.0% | | | | | | |
| Republic of Bulgaria Housing Compensation Notes* | | | | 13,665 | | 3,941 |
| Republic of Bulgaria Registered Compensation Vouchers* | | | | 20,024 | | 6,249 |
| Total government issued securities (cost $14,496) | | | | | | 10,190 |
| | | |
| Total investment portfolio excluding repurchase agreement (cost $269,096,824) | | | | | | 312,589,031 |
| | | |
| Repurchase agreement—1.3% (a) | | | | | | |
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2008 @ 1.87% to be repurchased at $4,148,215 on May 1, 2008, collateralized by $3,980,000 United States Treasury Bonds, 4.625% due February 15, 2017 (market value $4,291,553 including interest) (cost $4,148,000) | | 4,148,000 |
| |
| Total investment portfolio (cost $273,244,824) 97.2% (a) | | 316,737,031 |
| | | |
| Other assets and liabilities, net, 2.8% (a) | | | | | | 9,244,629 |
| | | |
| Net assets, 100.0% | | | | | | $325,981,660 |
| |
* Non-income producing security. (a) Percentages indicated are based on net assets and are U.S. dollar denominated. (b) Restricted securities deemed to be illiquid for purposes of compliance limitations on holdings of illiquid securities. At April 30, 2008, these securities aggregated $1,933,537 or 0.6% of the net assets of the Fund. | | |
| |
ADR—American depository receipt GDR—Global 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, 2008, these securities aggregated $5,890,947 or 1.8% of the net assets of the Fund. | | |
| | |
| |
| Sector allocation | | |
| Sector | | Percent of net assets |
| Financial | | 29% |
| Basic materials | | 12% |
| Industrial | | 11% |
| Communications | | 10% |
| Consumer, non-cyclical | | 10% |
| Energy | | 10% |
| Other sectors | | 8% |
| Consumer, cyclical | | 6% |
| Cash/Other | | 4% |
| | |
| 32 | | The accompanying notes are an integral part of the financial statements. |
Investment Portfolios
| | | | | | | | | | | | |
| INTERNATIONAL EQUITY FUND (cont’d) | | | |
| Forward foreign currency contracts outstanding | |
| Contract to deliver | | In exchange for | | Delivery
date | | Unrealized
appreciation
(depreciation) | |
| HUF | | 654,256,226 | | USD | | 3,608,296 | | 5/19/08 | | | $(428,029) | |
| PLN | | 8,521,216 | | USD | | 3,466,304 | | 5/19/08 | | | (381,272 | ) |
| MXN | | 17,657,031 | | USD | | 1,625,578 | | 5/21/08 | | | (53,456 | ) |
| CZK | | 25,433,329 | | USD | | 1,582,970 | | 6/20/08 | | | 11,251 | |
| CAD | | 819,529 | | USD | | 808,293 | | 6/20/08 | | | (5,089 | ) |
| EUR | | 1,925,566 | | USD | | 2,995,237 | | 6/20/08 | | | (4,538 | ) |
| | | | Net unrealized depreciation | | $ | (861,133 | ) |
| | | |
| CAD—Canadian Dollar | | | | | | | | |
| CZK—Czech Koruna | | | | | | | | |
| EUR—Euro Currency | | | | | | | | |
| HUF—Hungarian Forint | | | | | | | | |
| MXN—Mexican Peso | | | | | | | | |
| PLN—Polish Zloty | | | | | | | | |
| USD—United States Dollar | | | | | | | | |
| | | | |
| | |
| Industry allocation | | | | |
| Industry diversification | | Value | | Percent of
net assets |
| Banks | | $59,166,065 | | 18.1% |
| Oil & gas | | 33,857,223 | | 10.3% |
| Telecommunications | | 28,742,179 | | 8.6% |
| Mining | | 24,861,888 | | 7.6% |
| Investment companies | | 23,816,262 | | 7.3% |
| Engineering & construction | | 15,584,452 | | 4.8% |
| Chemicals | | 12,996,654 | | 3.8% |
| Electric | | 12,678,350 | | 3.6% |
| Financial services | | 11,457,276 | | 3.3% |
| Building materials | | 9,414,849 | | 2.8% |
| Food | | 9,153,859 | | 2.8% |
| Retail | | 8,566,091 | | 2.7% |
| Pharmaceuticals | | 6,373,655 | | 2.0% |
| Beverages | | 6,284,278 | | 1.9% |
| Auto manufacturers | | 4,228,695 | | 1.2% |
| Healthcare products | | 3,851,298 | | 1.2% |
| Real estate | | 3,374,322 | | 1.0% |
| Machinery | | 3,302,786 | | 1.0% |
| Computers | | 2,819,748 | | 0.9% |
| Transportation | | 2,652,825 | | 0.8% |
| Healthcare services | | 2,455,555 | | 0.8% |
| Toys/Games/Hobbies | | 1,884,833 | | 0.6% |
| Iron/Steel | | 1,845,859 | | 0.6% |
| | | | |
| | |
| Industry allocation | | | | |
| Industry diversification | | Value | | Percent of
net assets |
| Diversified manufacturer | | $1,744,982 | | 0.5% |
| Household products | | 1,743,127 | | 0.5% |
| Commercial services | | 1,672,772 | | 0.5% |
| Electronics | | 1,669,111 | | 0.5% |
| Television, cable & radio | | 1,619,631 | | 0.5% |
| Home furnishings | | 1,243,642 | | 0.4% |
| Office/Business equipment | | 1,141,699 | | 0.4% |
| Insurance | | 1,091,874 | | 0.4% |
| Aerospace/Defense | | 987,324 | | 0.3% |
| Lodging | | 968,306 | | 0.3% |
| Semiconductors | | 928,362 | | 0.3% |
| Electrical components & equipment | | 857,999 | | 0.3% |
| Food service | | 844,741 | | 0.3% |
| Apparel | | 804,919 | | 0.3% |
| Energy-Alternative sources | | 790,337 | | 0.2% |
| Multimedia | | 753,883 | | 0.2% |
| Agriculture | | 698,551 | | 0.2% |
| Auto parts & equipment | | 613,923 | | 0.2% |
| Textiles | | 523,704 | | 0.2% |
| Distribution/Wholesale | | 471,218 | | 0.2% |
| Metal fabricate/hardware | | 291,213 | | 0.2% |
| Water | | 272,519 | | 0.2% |
| Hand/Machine tools | | 261,872 | | 0.2% |
| Advertising | | 260,993 | | 0.2% |
| Broadcasting services/programs | | 183,150 | | 0.2% |
| Oil & gas services | | 163,011 | | 0.2% |
| Other | | 617,166 | | 0.2% |
| Total investment portfolio excluding repurchase agreement | | $312,589,031 | | 95.9% |
| | | | | | |
| MID CAP STOCK FUND | | | | | | |
| Common stocks—100.2% (a) | | | | Shares | | Value |
| Aerospace/Defense—1.0% | | | | | | |
| Alliant Techsystems Inc.* | | | | 148,725 | | $16,356,776 |
| | | |
| Broadcasting services/programs—1.4% | | | | | | |
| Liberty Global Inc., Class C* | | | | 668,824 | | 22,204,957 |
| | | |
| Chemicals—4.8% | | | | | | |
| Albemarle Corporation | | | | 953,685 | | 35,677,356 |
| Celanese Corporation, Class A | | | | 386,266 | | 17,285,404 |
| Ecolab Inc. | | | | 565,795 | | 26,003,938 |
| | | |
| Commercial services—4.0% | | | | | | |
| DeVry Inc. | | | | 321,075 | | 18,301,275 |
| | |
| The accompanying notes are an integral part of the financial statements. | | 33 |
Investment Portfolios
| | | | | | |
| MID CAP STOCK FUND (cont’d) | | | | | | |
| Common stocks—100.2% (a) | | | | Shares | | Value |
| Commercial services (cont’d) | | | | | | |
| Pharmaceutical Product Development, Inc. | | | | 315,789 | | $13,079,980 |
| Service Corporation International | | | | 3,052,512 | | 33,913,408 |
| | | |
| Computers—6.3% | | | | | | |
| Cognizant Technology Solutions Corporation, Class A* | | | | 604,580 | | 19,497,705 |
| DST Systems, Inc.* | | | | 425,518 | | 25,462,997 |
| IHS Inc., Class A* | | | | 254,355 | | 16,800,148 |
| Logitech International SA* | | | | 639,807 | | 19,302,977 |
| Teradata Corporation* | | | | 1,052,810 | | 22,414,325 |
| | | |
| Cosmetics/Personal care—0.3% | | | | | | |
| Alberto-Culver Company | | | | 188,945 | | 4,755,746 |
| | | |
| Diversified manufacturer—5.9% | | | | | | |
| Danaher Corporation | | | | 656,198 | | 51,196,568 |
| Dover Corporation | | | | 428,005 | | 21,173,407 |
| SPX Corporation | | | | 196,940 | | 24,223,620 |
| | | |
| Electric—2.3% | | | | | | |
| NRG Energy, Inc.* | | | | 849,860 | | 37,351,347 |
| | | |
| Electrical components & equipment—1.6% | | | | | | |
| AMETEK, Inc. | | | | 523,059 | | 25,378,823 |
| | | |
| Electronics—4.1% | | | | | | |
| Agilent Technologies Inc.* | | | | 521,055 | | 15,741,072 |
| Amphenol Corporation, Class A | | | | 739,486 | | 34,149,463 |
| Dolby Laboratories Inc., Class A* | | | | 409,044 | | 16,423,117 |
| | | |
| Entertainment—1.2% | | | | | | |
| International Game Technology | | | | 569,010 | | 19,767,407 |
| | | |
| Environmental control—2.4% | | | | | | |
| Republic Services, Inc. | | | | 1,218,812 | | 38,746,033 |
| | | |
| Financial services—2.4% | | | | | | |
| IntercontinentalExchange, Inc.* | | | | 102,040 | | 15,831,506 |
| Invesco Ltd | | | | 899,070 | | 23,061,146 |
| | | |
| Food—3.3% | | | | | | |
| Campbell Soup Company | | | | 657,300 | | 22,874,040 |
| Dean Foods Company* | | | | 812,820 | | 18,889,937 |
| H.J. Heinz Company | | | | 256,180 | | 12,048,145 |
| | | |
| Forest products & paper—1.4% | | | | | | |
| Plum Creek Timber Company, Inc. | | | | 557,485 | | 22,767,687 |
| | | |
| Healthcare products—7.8% | | | | | | |
| C.R. Bard, Inc. | | | | 394,273 | | 37,128,688 |
| Dentsply International Inc. | | | | 428,865 | | 16,669,983 |
| Gen-Probe Inc.* | | | | 323,785 | | 18,248,523 |
| Hologic Inc.* | | | | 479,500 | | 13,996,605 |
| Idexx Laboratories Inc.* | | | | 310,265 | | 16,506,098 |
| Steris Corporation | | | | 864,370 | | 23,951,693 |
| | | |
| Healthcare services—3.4% | | | | | | |
| Laboratory Corporation of America Holdings* | | | | 732,577 | | 55,397,473 |
| Insurance—8.5% | | | | | | |
| Aon Corporation | | | | 1,078,955 | | 48,973,767 |
| Arch Capital Group Ltd* | | | | 452,182 | | 31,946,658 |
| HCC Insurance Holdings, Inc. | | | | 1,053,390 | | 25,997,665 |
| Reinsurance Group of America, Inc. | | | | 614,060 | | 31,918,839 |
| | | |
| Internet—0.9% | | | | | | |
| VeriSign, Inc.* | | | | 426,955 | | 15,391,728 |
| | | | | | | |
| | | | | | | | |
| Common stocks—100.2% (a) | | | | Shares | | Value | |
| Machinery—0.7% | | | | | | | |
| Roper Industries Inc. | | | | 183,075 | | $11,372,619 | |
| | | |
| Multimedia—2.1% | | | | | | | |
| Liberty Media Corporation - Entertainment, Class A* | | | | 1,315,600 | | 34,139,820 | |
| | | |
| Oil & gas—1.7% | | | | | | | |
| CNX Gas Corporation* | | | | 319,645 | | 13,118,231 | |
| Range Resources Corporation | | | | 222,570 | | 14,774,197 | |
| | | |
| Oil & gas services—1.1% | | | | | | | |
| Oceaneering International Inc.* | | | | 256,605 | | 17,136,082 | |
| | | |
| Packaging & containers—4.2% | | | | | | | |
| Greif Inc., Class A | | | | 179,636 | | 11,604,486 | |
| Owens-Illinois Inc.* | | | | 447,850 | | 24,698,928 | |
| Pactiv Corporation* | | | | 1,325,295 | | 31,528,768 | |
| | | |
| Pharmaceuticals—1.7% | | | | | | | |
| Barr Pharmaceuticals, Inc.* | | | | 559,420 | | 28,099,667 | |
| | | |
| Pipelines—6.4% | | | | | | | |
| Equitable Resources Inc. | | | | 783,292 | | 51,987,090 | |
| Williams Companies, Inc. | | | | 1,491,560 | | 52,950,380 | |
| | | |
| Printing & publishing—5.2% | | | | | | | |
| John Wiley & Sons Inc., Class A | | | | 763,511 | | 35,159,682 | |
| The Washington Post Company, Class B | | | | 75,295 | | 49,363,402 | |
| | | |
| Retail—2.7% | | | | | | | |
| O’Reilly Automotive Inc.* | | | | 699,275 | | 20,188,069 | |
| TJX Companies, Inc. | | | | 735,985 | | 23,713,437 | |
| Savings & loans—1.0% | | | | | | | |
| People’s United Financial Inc. | | | | 937,215 | | 15,904,539 | |
| | | |
| Semiconductors—5.0% | | | | | | | |
| Analog Devices, Inc. | | | | 375,025 | | 12,079,555 | |
| Intersil Corporation, Class A | | | | 872,430 | | 23,311,330 | |
| Microchip Technology Inc. | | | | 577,070 | | 21,207,322 | |
| Varian Semiconductor Equipment Associates, Inc.* | | | | 676,020 | | 24,762,613 | |
| | | |
| Software—5.1% | | | | | | | |
| ANSYS, Inc.* | | | | 910,903 | | 36,645,628 | |
| Fiserv, Inc.* | | | | 622,315 | | 31,458,023 | |
| Intuit Inc.* | | | | 590,640 | | 15,929,561 | |
| | | |
| Telecommunications—0.3% | | | | | | | |
| Cellcom Israel Ltd | | | | 163,180 | | 5,394,727 | |
| Total common stocks (cost $1,562,902,581) | | | | | | 1,633,336,186 | |
| | | |
| Repurchase agreement—0.4% (a) | | | | | | | |
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2008 @ 1.87% to be repurchased at $7,362,382 on May 1, 2008, collateralized by $7,065,000 United States Treasury Bonds, 4.625% due February 15, 2017 (market value $7,618,045 including interest) (cost $7,362,000) | | 7,362,000 | |
| |
| Total investment portfolio (cost $1,570,264,581) 100.6% (a) | | 1,640,698,186 | |
| | | |
| Other assets and liabilities, net, (0.6%) (a) | | | | | | (10,197,666 | ) |
| | | |
| Net assets, 100.0% | | | | | | $1,630,500,520 | |
| | | |
* Non-income producing security (a) Percentages indicated are based on net assets. | | | | | | | |
| | |
| 34 | | The accompanying notes are an integral part of the financial statements. |
Investment Portfolios
| | |
| |
| MID CAP STOCK FUND (cont’d) | | |
| Sector allocation | | |
| Sector | | Percent of net assets |
| Consumer, non-cyclical | | 20% |
| Industrial | | 20% |
| Technology | | 17% |
| Financial | | 12% |
| Communications | | 10% |
| Energy | | 9% |
| Basic materials | | 6% |
| Other sectors | | 6% |
| | | | | | |
| | | | |
| SMALL CAP STOCK FUND | | | | | | |
| Common stocks—93.6% (a) | | | | Shares | | Value |
| Advertising—0.4% | | | | | | |
| Greenfield Online, Inc.* | | | | 117,505 | | $1,340,732 |
| | | |
| Apparel—0.6% | | | | | | |
| Volcom, Inc.* | | | | 125,910 | | 2,391,031 |
| | | |
| Auto parts & equipment—0.3% | | | | | | |
| Cooper Tire & Rubber Company | | | | 93,344 | | 1,226,540 |
| Banks—2.3% | | | | | | |
| Cardinal Financial Corporation | | | | 221,600 | | 1,706,320 |
| Signature Bank* | | | | 72,141 | | 1,903,080 |
| Southwest Bancorp, Inc. | | | | 54,499 | | 959,182 |
| Sterling Bancshares, Inc. | | | | 81,890 | | 850,837 |
| SVB Financial Group* | | | | 42,825 | | 2,083,864 |
| Texas Capital Bancshares, Inc.* | | | | 68,555 | | 1,264,840 |
| | | |
| Biotechnology—1.1% | | | | | | |
| Charles River Laboratories International, Inc.* | | | | 40,200 | | 2,333,610 |
| Myriad Genetics, Inc.* | | | | 38,065 | | 1,581,220 |
| | | |
| Building materials—1.7% | | | | | | |
| Lennox International Inc. | | | | 38,999 | | 1,292,427 |
| Texas Industries Inc. | | | | 65,285 | | 5,053,712 |
| | | |
| Chemicals—1.2% | | | | | | |
| Quaker Chemical Corporation | | | | 61,690 | | 1,912,390 |
| Terra Industries Inc.* | | | | 65,730 | | 2,488,538 |
| | | |
| Commercial services—8.4% | | | | | | |
| AerCap Holdings NV* | | | | 72,179 | | 1,247,253 |
| American Public Education Inc.* | | | | 57,210 | | 1,842,734 |
| Chemed Corporation | | | | 65,725 | | 2,241,222 |
| Corrections Corporation of America* | | | | 71,674 | | 1,827,687 |
| Cross Country Healthcare, Inc.* | | | | 199,866 | | 2,390,397 |
| Gartner, Inc.* | | | | 116,630 | | 2,673,160 |
| Global Cash Access Holdings, Inc.* | | | | 245,285 | | 1,515,861 |
| Interactive Data Corporation | | | | 100,468 | | 2,710,627 |
| K12 Inc.* | | | | 22,750 | | 579,670 |
| LECG Corporation* | | | | 255,463 | | 2,654,261 |
| Net 1 UEPS Technologies, Inc.* | | | | 100,980 | | 2,366,971 |
| On Assignment, Inc.* | | | | 401,590 | | 2,823,178 |
| The GEO Group, Inc.* | | | | 130,690 | | 3,456,750 |
| The Providence Service Corporation* | | | | 115,587 | | 3,252,618 |
| | | | | | |
| | | |
| | | | | | | |
| Common stocks—93.6% (a) | | | | Shares | | Value |
| Computers—1.9% | | | | | | |
| Compellent Technologies, Inc.* | | | | 184,745 | | $2,355,499 |
| Electronics for Imaging, Inc.* | | | | 96,750 | | 1,395,135 |
| Mercury Computer Systems, Inc.* | | | | 118,650 | | 951,573 |
| Netezza Corporation* | | | | 122,420 | | 1,297,652 |
| SMART Modular Technologies (WWH), Inc.* | | | | 174,775 | | 1,053,893 |
| | | |
| Cosmetics/Personal care—0.4% | | | | | | |
| Physicians Formula Holdings, Inc.* | | | | 138,302 | | 1,598,771 |
| | | |
| Distribution/Wholesale—0.3% | | | | | | |
| MWI Veterinary Supply, Inc.* | | | | 33,305 | | 1,148,023 |
| | | |
| Diversified manufacturer—1.4% | | | | | | |
| Ameron International Corporation | | | | 44,600 | | 4,406,480 |
| Barnes Group Inc. | | | | 31,496 | | 821,416 |
| | | |
| Electric—0.2% | | | | | | |
| Allete Inc. | | | | 15,810 | | 660,384 |
| | | |
| Electrical components & equipment—2.0% | | | | | | |
| Advanced Energy Industries, Inc.* | | | | 120,735 | | 1,690,290 |
| Belden, Inc. | | | | 59,905 | | 2,021,195 |
| General Cable Corporation* | | | | 55,160 | | 3,695,720 |
| | | |
| Electronics—5.0% | | | | | | |
| Benchmark Electronics, Inc.* | | | | 84,500 | | 1,502,410 |
| Coherent, Inc.* | | | | 181,880 | | 5,420,024 |
| Dolby Laboratories Inc., Class A* | | | | 78,945 | | 3,169,642 |
| Eagle Test Systems, Inc.* | | | | 137,791 | | 1,663,137 |
| OYO Geospace Corporation* | | | | 100,548 | | 4,867,529 |
| Sonic Solutions, Inc.* | | | | 215,611 | | 1,981,465 |
| | | |
| Engineering & construction—2.1% | | | | | | |
| Dycom Industries, Inc.* | | | | 144,520 | | 2,078,198 |
| KHD Humboldt Wedag International Ltd* | | | | 69,881 | | 2,025,850 |
| URS Corporation* | | | | 91,880 | | 3,706,439 |
| | | |
| Entertainment—1.1% | | | | | | |
| Lions Gate Entertainment Corporation* | | | | 288,760 | | 2,965,565 |
| Macrovision Corporation* | | | | 84,335 | | 1,330,806 |
| | | |
| Environmental control—1.0% | | | | | | |
| Casella Waste Systems Inc., Class A* | | | | 127,780 | | 1,362,135 |
| Waste Connections, Inc.* | | | | 71,683 | | 2,298,874 |
| | | |
| Financial services—2.9% | | | | | | |
| Compass Diversified Holdings | | | | 176,247 | | 2,160,788 |
| FCStone Group, Inc.* | | | | 82,073 | | 3,399,464 |
| Greenhill & Co., Inc. | | | | 13,815 | | 898,666 |
| Investment Technology Group Inc.* | | | | 54,530 | | 2,631,618 |
| KBW Inc.* | | | | 43,564 | | 1,034,209 |
| optionsXpress Holdings Inc. | | | | 36,594 | | 785,673 |
| | | |
| Gas—0.7% | | | | | | |
| AGL Resources, Inc. | | | | 78,015 | | 2,652,510 |
| | | |
| Healthcare products—5.2% | | | | | | |
| American Medical Systems Holdings, Inc.* | | | | 269,740 | | 3,803,334 |
| Cutera, Inc.* | | | | 127,160 | | 1,691,228 |
| Hansen Medical Inc.* | | | | 50,995 | | 889,863 |
| Mentor Corporation | | | | 71,400 | | 2,089,878 |
| Merit Medical Systems, Inc.* | | | | 280,427 | | 4,125,081 |
| SurModics, Inc.* | | | | 55,915 | | 2,486,540 |
| Thoratec Corporation* | | | | 211,800 | | 3,386,682 |
| Vital Images, Inc.* | | | | 70,670 | | 1,067,117 |
| | |
| The accompanying notes are an integral part of the financial statements. | | 35 |
Investment Portfolios
| | | | | | |
| | | |
| SMALL CAP STOCK FUND (cont’d) | | | | | | |
| Common stocks—93.6% (a) | | | | Shares | | Value |
| Healthcare services—5.2% | | | | | | |
| AMERIGROUP Corporation* | | | | 53,330 | | $1,386,047 |
| Amsurg Corporation* | | | | 125,582 | | 3,207,364 |
| Centene Corporation* | | | | 204,125 | | 3,749,776 |
| Healthways, Inc.* | | | | 33,800 | | 1,234,714 |
| Icon PLC, Sponsored ADR* | | | | 63,801 | | 4,593,672 |
| Pediatrix Medical Group, Inc.* | | | | 53,479 | | 3,637,642 |
| Psychiatric Solutions Inc.* | | | | 46,445 | | 1,612,106 |
| | | |
| Home furnishings—1.2% | | | | | | |
| Universal Electronics, Inc.* | | | | 168,415 | | 4,328,266 |
| | | |
| Household products—0.5% | | | | | | |
| Jarden Corporation* | | | | 82,360 | | 1,755,915 |
| | | |
| Insurance—3.3% | | | | | | |
| American Equity Investment Life Holding Company | | | | 334,755 | | 3,230,386 |
| American Safety Insurance Holdings Ltd* | | | | 50,900 | | 862,246 |
| Assured Guaranty Ltd | | | | 84,378 | | 2,133,920 |
| First Mercury Financial Corporation* | | | | 69,150 | | 1,092,570 |
| IPC Holdings Ltd | | | | 89,335 | | 2,600,542 |
| Platinum Underwriters Holdings, Ltd | | | | 50,600 | | 1,815,022 |
| RAM Holdings, Ltd* | | | | 354,645 | | 609,989 |
| | | |
| Internet—3.9% | | | | | | |
| 1-800-FLOWERS.COM Inc., Class A* | | | | 403,000 | | 3,554,460 |
| CNET Networks, Inc.* | | | | 316,785 | | 2,455,084 |
| Giant Interactive Group Inc., Sponsored ADR* | | | | 110,420 | | 1,799,846 |
| Internet Capital Group, Inc.* | | | | 126,075 | | 1,267,054 |
| SonicWALL, Inc.* | | | | 329,732 | | 2,535,639 |
| TIBCO Software, Inc.* | | | | 345,860 | | 2,652,746 |
| U.S. Auto Parts Network, Inc.* | | | | 96,610 | | 337,169 |
| | | |
| Leisure time—0.7% | | | | | | |
| WMS Industries, Inc.* | | | | 66,795 | | 2,417,311 |
| | | |
| Machinery—2.7% | | | | | | |
| Altra Holdings, Inc.* | | | | 97,415 | | 1,483,630 |
| Bucyrus International Inc., Class A | | | | 55,632 | | 7,005,738 |
| Wabtec Corporation | | | | 41,580 | | 1,782,950 |
| | | |
| Machinery-Diversified—0.3% | | | | | | |
| Flowserve Corporation | | | | 10,485 | | 1,301,084 |
| | | |
| Metal fabricate/hardware—2.5% | | | | | | |
| CIRCOR International Inc. | | | | 37,605 | | 1,811,433 |
| Kaydon Corporation | | | | 60,495 | | 3,168,123 |
| Northwest Pipe Company* | | | | 57,755 | | 2,455,743 |
| RBC Bearings Inc.* | | | | 51,730 | | 2,067,648 |
| | | |
| Mining—0.4% | | | | | | |
| Iamgold Corporation | | | | 248,309 | | 1,484,888 |
| Miscellaneous manufacturer—0.5% | | | | | | |
| Polypore International, Inc.* | | | | 81,785 | | 1,914,587 |
| | | |
| Multimedia—1.2% | | | | | | |
| Entravision Communications Corporation, Class A* | | | | 262,290 | | 1,833,407 |
| FactSet Research Systems Inc. | | | | 41,232 | | 2,475,157 |
| | | |
| Oil & gas—2.7% | | | | | | |
| Comstock Resources, Inc.* | | | | 103,000 | | 4,685,470 |
| Grey Wolf, Inc.* | | | | 235,500 | | 1,476,585 |
| Petroleum Development Corporation* | | | | 25,160 | | 1,892,787 |
| Rosetta Resources, Inc.* | | | | 97,860 | | 2,132,369 |
| | | | | | |
| | | |
| | | | | | | |
| Common stocks—93.6% (a) | | | | Shares | | Value |
| Oil & gas services—4.1% | | | | | | |
| Core Laboratories NV* | | | | 12,570 | | $1,574,770 |
| Dresser-Rand Group, Inc.* | | | | 82,200 | | 3,006,054 |
| Lufkin Industries, Inc. | | | | 87,130 | | 6,573,958 |
| Oceaneering International Inc.* | | | | 64,235 | | 4,289,613 |
| | | |
| Pharmaceuticals—2.1% | | | | | | |
| Animal Health International, Inc.* | | | | 213,910 | | 1,880,269 |
| Cubist Pharmaceuticals, Inc.* | | | | 170,160 | | 3,294,298 |
| Herbalife Ltd | | | | 64,970 | | 2,844,387 |
| | | |
| Printing & publishing—1.2% | | | | | | |
| John Wiley & Sons Inc., Class A | | | | 94,075 | | 4,332,154 |
| | | |
| REIT—0.3% | | | | | | |
| Kite Realty Group Trust | | | | 92,493 | | 1,256,055 |
| | | |
| Retail—8.7% | | | | | | |
| AFC Enterprises, Inc.* | | | | 168,415 | | 1,743,095 |
| BJ’s Restaurants, Inc.* | | | | 129,685 | | 1,807,809 |
| Carrols Restaurant Group Inc.* | | | | 138,760 | | 1,117,018 |
| Cash America International, Inc. | | | | 179,475 | | 7,320,785 |
| FGX International Holdings Ltd* | | | | 155,629 | | 2,030,958 |
| Genesco Inc.* | | | | 151,415 | | 3,355,356 |
| Insight Enterprises, Inc.* | | | | 88,400 | | 1,066,104 |
| Nu Skin Enterprises Inc., Class A | | | | 141,425 | | 2,535,750 |
| Red Robin Gourmet Burgers, Inc.* | | | | 63,702 | | 2,616,878 |
| School Specialty, Inc.* | | | | 128,979 | | 3,797,142 |
| Stage Stores, Inc. | | | | 93,150 | | 1,466,181 |
| The Cheesecake Factory Inc.* | | | | 162,305 | | 3,672,962 |
| | | |
| Savings & loans—0.3% | | | | | | |
| Provident Financial Services, Inc. | | | | 77,314 | | 1,192,955 |
| | | |
| Semiconductors—0.6% | | | | | | |
| Microsemi Corporation* | | | | 89,505 | | 2,192,872 |
| | | |
| Software—7.6% | | | | | | |
| ACI Worldwide, Inc.* | | | | 75,787 | | 1,674,893 |
| ANSYS, Inc.* | | | | 112,170 | | 4,512,599 |
| Aspen Technology, Inc.* | | | | 302,225 | | 4,152,572 |
| Avid Technology, Inc.* | | | | 88,970 | | 1,856,804 |
| Bottomline Technologies, Inc.* | | | | 153,200 | | 1,631,580 |
| Eclipsys Corporation* | | | | 289,745 | | 6,018,004 |
| Quality Systems, Inc. | | | | 81,765 | | 2,626,292 |
| SPSS, Inc.* | | | | 51,450 | | 2,173,248 |
| Sybase, Inc.* | | | | 82,850 | | 2,437,447 |
| The9 Ltd., Sponsored ADR* | | | | 56,070 | | 1,203,823 |
| | | |
| Telecommunications—2.7% | | | | | | |
| Alaska Communications Systems Group Inc. | | | | 81,540 | | 911,617 |
| CommScope, Inc.* | | | | 58,250 | | 2,769,788 |
| EMS Technologies, Inc.* | | | | 127,250 | | 3,290,685 |
| Switch & Data Facilities Company, Inc.* | | | | 117,302 | | 1,775,952 |
| Symmetricom, Inc.* | | | | 310,300 | | 1,331,187 |
| | | |
| Transportation—0.7% | | | | | | |
| Excel Maritime Carriers Ltd | | | | 21,847 | | 867,551 |
| Genesee & Wyoming Inc., Class A* | | | | 40,495 | | 1,444,862 |
| Ultrapetrol Bahamas Ltd* | | | | 34,760 | | 334,042 |
| Total common stocks (cost $320,988,658) | | | | | | 350,362,922 |
| | |
| 36 | | The accompanying notes are an integral part of the financial statements. |
Investment Portfolios
| | | | | | | |
| | | |
| SMALL CAP STOCK FUND (cont’d) | | | | | | | |
| Investment Companies—3.2% (a) | | | | Shares | | Value | |
| Apollo Investment Corporation | | | | 188,395 | | $3,048,231 | |
| iShares Russell 2000 Index Fund | | | | 52,235 | | 3,729,057 | |
| iShares Russell 2000 Value Index Fund | | | | 54,315 | | 3,702,110 | |
| PennantPark Investment Corporation | | | | 187,496 | | 1,389,345 | |
| Total investment companies (cost $14,057,366) | | | | | | 11,868,743 | |
| | | |
| Total investment portfolio excluding repurchase agreement (cost $335,046,024) | | | | | | 362,231,665 | |
| | | |
| Repurchase agreement—3.4% (a) | | | | | | | |
| Repurchase agreement with Fixed Income Clearing Corporation dated April 30, 2008 @ 1.87% to be repurchased at $12,751,662 on May 1, 2008, collateralized by $12,235,000 United States Treasury Bonds, 4.625% due February 15, 2017 (market value $13,192,750 including interest) (cost $12,751,000) | | 12,751,000 | |
| |
| Total investment portfolio (cost $347,797,024) 100.2% (a) | | 374,982,665 | |
| | | |
| Other assets and liabilities, net, (0.2%) (a) | | | | | | (663,742 | ) |
| | | |
| Net assets, 100.0% | | | | | | $374,318,923 | |
| |
* 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 |
| Consumer, non-cyclical | | 22% |
| Industrial | | 20% |
| Consumer, cyclical | | 13% |
| Financial | | 12% |
| Technology | | 11% |
| Communications | | 9% |
| Energy | | 7% |
| Other sectors | | 3% |
| Cash/Other | | 3% |
| | |
| The accompanying notes are an integral part of the financial statements. | | 37 |
Financial Highlights
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal periods† | | | | | From investment operations | | | Dividends & distributions | | | | | Ratios to average daily net assets (%) | | | | | | | | |
| | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | * | | $35.99 | | ($0.06 | ) | | ($3.00 | ) | | ($3.06 | ) | | $— | | | ($4.57 | ) | | ($4.57 | ) | | $28.36 | | 1.19 | (c) | | 1.19 | (c) | | (0.40 | )(c) | | 32 | | (8.99 | )(d) | | $508 |
| 11/01/06 | | 10/31/07 | * | | 29.67 | | 0.04 | | | 6.46 | (b) | | 6.50 | | | — | | | (0.18 | ) | | (0.18 | ) | | 35.99 | | 1.20 | | | 1.20 | | | 0.11 | | | 62 | | 22.02 | | | 566 |
| 09/01/06 | | 10/31/06 | * | | 28.59 | | (0.01 | ) | | 1.09 | (b) | | 1.08 | | | — | | | — | | | — | | | 29.67 | | 1.23 | (c) | | 1.23 | (c) | | (0.19 | )(c) | | 7 | | 3.78 | (d) | | 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 |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | * | | 32.64 | | (0.15 | ) | | (2.71 | ) | | (2.86 | ) | | — | | | (4.57 | ) | | (4.57 | ) | | 25.21 | | 1.95 | (c) | | 1.95 | (c) | | (1.15 | )(c) | | 32 | | (9.34 | )(d) | | 142 |
| 11/01/06 | | 10/31/07 | * | | 27.13 | | (0.19 | ) | | 5.88 | (b) | | 5.69 | | | — | | | (0.18 | ) | | (0.18 | ) | | 32.64 | | 1.96 | | | 1.96 | | | (0.65 | ) | | 62 | | 21.09 | | | 170 |
| 09/01/06 | | 10/31/06 | * | | 26.17 | | (0.04 | ) | | 1.00 | (b) | | 0.96 | | | — | | | — | | | — | | | 27.13 | | 1.99 | (c) | | 1.99 | (c) | | (0.94 | )(c) | | 7 | | 3.67 | (d) | | 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 |
| Class I* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 36.21 | | — | | | (3.02 | ) | | (3.02 | ) | | — | | | (4.57 | ) | | (4.57 | ) | | 28.62 | | 0.78 | (c) | | 0.78 | (c) | | — | | | 32 | | (8.81 | )(d) | | 51 |
| 11/01/06 | | 10/31/07 | | | 29.73 | | 0.17 | | | 6.49 | (b) | | 6.66 | | | — | | | (0.18 | ) | | (0.18 | ) | | 36.21 | | 0.80 | | | 0.80 | | | 0.51 | | | 62 | | 22.51 | | | 51 |
| 09/01/06 | | 10/31/06 | | | 28.63 | | 0.01 | | | 1.09 | (b) | | 1.10 | | | — | | | — | | | — | | | 29.73 | | 0.85 | (c) | | 0.85 | (c) | | 0.20 | (c) | | 7 | | 3.84 | (d) | | 30 |
| 03/21/06 | | 08/31/06 | | | 28.93 | | 0.01 | | | (0.31 | )(b) | | (0.30 | ) | | — | | | — | | | — | | | 28.63 | | 0.91 | (c) | | 0.91 | (c) | | 0.07 | (c) | | 58 | | (1.04 | )(d) | | 26 |
| Class R-3* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 35.97 | | (0.10 | ) | | (3.00 | ) | | (3.10 | ) | | — | | | (4.57 | ) | | (4.57 | ) | | 28.30 | | 1.35 | (c) | | 1.35 | (c) | | (0.61 | )(c) | | 32 | | (9.12 | )(d) | | 0 |
| 09/12/07 | | 10/31/07 | | | 33.30 | | (0.05 | ) | | 2.72 | (b) | | 2.67 | | | — | | | — | | | — | | | 35.97 | | 1.65 | (c) | | 7.17 | (c) | | (1.26 | )(c) | | 62 | | 8.02 | (d) | | 0 |
| Class R-5* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 36.13 | | (0.01 | ) | | (3.01 | ) | | (3.02 | ) | | — | | | (4.57 | ) | | (4.57 | ) | | 28.54 | | 0.83 | (c) | | 0.83 | (c) | | (0.09 | )(c) | | 32 | | (8.83 | )(d) | | 15 |
| 11/01/06 | | 10/31/07 | | | 29.68 | | 0.16 | | | 6.47 | (b) | | 6.63 | | | — | | | (0.18 | ) | | (0.18 | ) | | 36.13 | | 0.85 | | | 0.85 | | | 0.48 | | | 62 | | 22.45 | | | 12 |
| 10/02/06 | | 10/31/06 | | | 29.04 | | — | | | 0.64 | (b) | | 0.64 | | | — | | | — | | | — | | | 29.68 | | 0.85 | (c) | | 0.85 | (c) | | (0.20 | )(c) | | 7 | | 2.20 | (d) | | 7 |
| | | | | | | | | | | | | | |
| Core Equity Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 17.95 | | 0.10 | | | (2.08 | ) | | (1.98 | ) | | (0.13 | ) | | (0.77 | ) | | (0.90 | ) | | 15.07 | | 1.25 | (c) | | 1.25 | (c) | | 1.30 | (c) | | 24 | | (11.38 | )(d) | | 21 |
| 11/01/06 | | 10/31/07 | | | 16.54 | | 0.13 | | | 1.48 | (b) | | 1.61 | | | (0.08 | ) | | (0.12 | ) | | (0.20 | ) | | 17.95 | | 1.36 | | | 1.28 | | | 0.73 | | | 45 | | 9.85 | | | 27 |
| 11/01/05 | | 10/31/06 | | | 14.29 | | 0.09 | | | 2.16 | (b) | | 2.25 | | | — | | | — | | | — | | | 16.54 | | 1.53 | | | 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 | (c) | | 3.25 | (c) | | (0.09 | )(c) | | 66 | | — | (d) | | 19 |
| Class C* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 17.68 | | 0.03 | | | (2.05 | ) | | (2.02 | ) | | — | | | (0.77 | ) | | (0.77 | ) | | 14.89 | | 2.09 | (c) | | 2.09 | (c) | | 0.46 | (c) | | 24 | | (11.74 | )(d) | | 14 |
| 11/01/06 | | 10/31/07 | | | 16.35 | | (0.02 | ) | | 1.47 | (b) | | 1.45 | | | — | | | (0.12 | ) | | (0.12 | ) | | 17.68 | | 2.18 | | | 2.11 | | | (0.10 | ) | | 45 | | 8.95 | | | 17 |
| 11/01/05 | | 10/31/06 | | | 14.23 | | (0.03 | ) | | 2.15 | (b) | | 2.12 | | | — | | | — | | | — | | | 16.35 | | 2.28 | | | 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 | (c) | | 4.00 | (c) | | (0.85 | )(c) | | 66 | | (0.42 | )(d) | | 10 |
| Class I* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 18.01 | | 0.12 | | | (2.07 | ) | | (1.95 | ) | | (0.20 | ) | | (0.77 | ) | | (0.97 | ) | | 15.09 | | 0.95 | (c) | | 1.03 | (c) | | 1.57 | (c) | | 24 | | (11.20 | )(d) | | 176 |
| 11/01/06 | | 10/31/07 | | | 16.60 | | 0.19 | | | 1.48 | (b) | | 1.67 | | | (0.14 | ) | | (0.12 | ) | | (0.26 | ) | | 18.01 | | 0.95 | | | 1.06 | | | 1.12 | | | 45 | | 10.22 | | | 183 |
| 03/03/06 | | 10/31/06 | | | 15.17 | | 0.08 | | | 1.35 | (b) | | 1.43 | | | — | | | — | | | — | | | 16.60 | | 0.95 | (c) | | 1.23 | (c) | | 0.87 | (c) | | 43 | | 9.43 | (d) | | 128 |
| Class R-5* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 17.98 | | 0.13 | | | (2.08 | ) | | (1.95 | ) | | (0.21 | ) | | (0.77 | ) | | (0.98 | ) | | 15.05 | | 0.86 | (c) | | 0.86 | (c) | | 1.66 | (c) | | 24 | | (11.21 | )(d) | | 1 |
| 04/02/07 | | 10/31/07 | | | 16.51 | | — | | | 1.47 | (b) | | 1.47 | | | — | | | — | | | — | | | 17.98 | | 0.91 | (c) | | 0.91 | (c) | | 0.05 | (c) | | 45 | | 8.90 | (d) | | 1 |
| | | | | | | | | | | | | |
| Diversified Growth Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 34.48 | | (0.08 | ) | | (1.27 | ) | | (1.35 | ) | | — | | | (5.36 | ) | | (5.36 | ) | | 27.77 | | 1.31 | (c) | | 1.31 | (c) | | (0.60 | )(c) | | 48 | | (4.12 | )(d) | | 127 |
| 11/01/06 | | 10/31/07 | | | 28.11 | | (0.24 | ) | | 9.18 | (b) | | 8.94 | | | — | | | (2.57 | ) | | (2.57 | ) | | 34.48 | | 1.36 | | | 1.36 | | | (0.80 | ) | | 98 | | 34.28 | | | 130 |
| 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 |
| | |
| 38 | | The accompanying notes are an integral part of the financial statements. |
Financial Highlights
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal periods† | | | | | From investment operations | | | Dividends & distributions | | | | | Ratios to average daily net assets (%) | | | | | | | | |
| | 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 | | | | | | | | | | | | | | | |
| Diversified Growth Fund (con’t) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class C* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | $31.65 | | ($0.17 | ) | | ($1.16 | ) | | ($1.33 | ) | | $— | | | ($5.36 | ) | | ($5.36 | ) | | $24.96 | | 2.05 | (c) | | 2.05 | (c) | | (1.34 | )(c) | | 48 | | (4.47 | )(d) | | $64 |
| 11/01/06 | | 10/31/07 | | | 26.18 | | (0.42 | ) | | 8.46 | (b) | | 8.04 | | | — | | | (2.57 | ) | | (2.57 | ) | | 31.65 | | 2.11 | | | 2.11 | | | (1.54 | ) | | 98 | | 33.28 | | | 69 |
| 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 |
| Class I* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 34.69 | | (0.03 | ) | | (1.28 | ) | | (1.31 | ) | | — | | | (5.36 | ) | | (5.36 | ) | | 28.02 | | 0.95 | (c) | | 1.01 | (c) | | (0.24 | )(c) | | 48 | | (3.96 | )(d) | | 0 |
| 11/01/06 | | 10/31/07 | | | 28.16 | | (0.11 | ) | | 9.21 | (b) | | 9.10 | | | — | | | (2.57 | ) | | (2.57 | ) | | 34.69 | | 0.95 | | | 1.08 | | | (0.37 | ) | | 98 | | 34.83 | | | 0 |
| 06/21/06 | | 10/31/06 | | | 26.63 | | (0.04 | ) | | 1.57 | (b) | | 1.53 | | | — | | | — | | | — | | | 28.16 | | 0.95 | (c) | | 1.05 | (c) | | (0.42 | )(c) | | 111 | | 5.75 | (d) | | 0 |
| | | | | | | | | | | | | |
| Growth and Income Trust | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 4/30/08 | * | | 17.77 | | 0.20 | | | (2.46) | | | (2.26 | ) | | (0.17 | ) | | (1.81 | ) | | (1.98 | ) | | 13.53 | | 1.35 | (c) | | 1.30 | (c) | | 2.79 | (c) | | 25 | | (13.93 | )(d) | | 89 |
| 11/01/06 | | 10/31/07 | | | 14.68 | | 0.36 | | | 3.60 | (b) | | 3.96 | | | (0.34 | ) | | (0.53 | ) | | (0.87 | ) | | 17.77 | | 1.35 | | | 1.40 | | | 2.28 | | | 63 | | 28.17 | | | 96 |
| 10/01/06 | | 10/31/06 | | | 14.43 | | 0.02 | | | 0.34 | (b) | | 0.36 | | | (0.11 | ) | | — | | | (0.11 | ) | | 14.68 | | 1.35 | (c) | | 1.56 | (c) | | 1.33 | (c) | | 4 | | 2.52 | (d) | | 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 |
| Class C* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 17.34 | | 0.14 | | | (2.40 | ) | | (2.26 | ) | | (0.11 | ) | | (1.81 | ) | | (1.92 | ) | | 13.16 | | 2.15 | (c) | | 2.05 | (c) | | 1.99 | (c) | | 25 | | (14.29 | )(d) | | 53 |
| 11/01/06 | | 10/31/07 | | | 14.38 | | 0.23 | | | 3.50 | (b) | | 3.73 | | | (0.24 | ) | | (0.53 | ) | | (0.77 | ) | | 17.34 | | 2.14 | | | 2.16 | | | 1.52 | | | 63 | | 27.05 | | | 59 |
| 10/01/06 | | 10/31/06 | | | 14.12 | | 0.01 | | | 0.34 | (b) | | 0.35 | | | (0.09 | ) | | — | | | (0.09 | ) | | 14.38 | | 2.10 | (c) | | 2.31 | (c) | | 0.58 | (c) | | 4 | | 2.46 | (d) | | 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 |
| | | | | | | | | | | | | |
| High Yield Bond Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 7.53 | | 0.33 | | | (0.60 | ) | | (0.27 | ) | | (0.34 | ) | | — | | | (0.34 | ) | | 6.92 | | 1.20 | (c) | | 1.69 | (c) | | 9.49 | (c) | | 25 | | (3.53 | )(d) | | 21 |
| 11/01/06 | | 10/31/07 | | | 7.75 | | 0.61 | | | (0.23 | )(b) | | 0.38 | | | (0.60 | ) | | — | | | (0.60 | ) | | 7.53 | | 1.20 | | | 1.65 | | | 7.74 | | | 87 | | 4.93 | | | 29 |
| 10/01/06 | | 10/31/06 | | | 7.69 | | 0.05 | | | 0.06 | (b) | | 0.11 | | | (0.05 | ) | | — | | | (0.05 | ) | | 7.75 | | 1.20 | (c) | | 1.90 | (c) | | 7.06 | (c) | | 5 | | 1.40 | (d) | | 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 |
| Class C* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 7.46 | | 0.31 | | | (0.60 | ) | | (0.29 | ) | | (0.32 | ) | | — | | | (0.32 | ) | | 6.85 | | 1.80 | (c) | | 2.22 | (c) | | 8.95 | (c) | | 25 | | (3.83 | )(d) | | 14 |
| 11/01/06 | | 10/31/07 | | | 7.68 | | 0.55 | | | (0.22 | )(b) | | 0.33 | | | (0.55 | ) | | — | | | (0.55 | ) | | 7.46 | | 1.79 | | | 2.18 | | | 7.13 | | | 87 | | 4.38 | | | 17 |
| 10/01/06 | | 10/31/06 | | | 7.62 | | 0.04 | | | 0.06 | (b) | | 0.10 | | | (0.04 | ) | | — | | | (0.04 | ) | | 7.68 | | 1.75 | (c) | | 2.45 | (c) | | 6.51 | (c) | | 5 | | 1.37 | (d) | | 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 |
| | | | | | | | | | | | | |
| International Equity Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | | 36.52 | | — | | | (3.81 | ) | | (3.81 | ) | | — | | | (2.89 | ) | | (2.89 | ) | | 29.82 | | 1.38 | (c) | | 1.38 | (c) | | — | | | 33 | | (10.83 | )(d) | | 155 |
| 11/01/06 | | 10/31/07 | | | 29.97 | | 0.27 | | | 8.87 | (b) | | 9.14 | | | (0.47 | ) | | (2.12 | ) | | (2.59 | ) | | 36.52 | | 1.47 | | | 1.41 | | | 0.83 | | | 56 | | 32.58 | | | 166 |
| 11/01/05 | | 10/31/06 | | | 25.20 | | 0.24 | | | 6.73 | (b) | | 6.97 | | | (0.16 | ) | | (2.04 | ) | | (2.20 | ) | | 29.97 | | 1.71 | | | 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 | | | — | | | — | | | — | | | 17.93 | | 1.78 | | | 2.43 | | | 0.63 | | | 133 | | 22.14 | | | 23 |
| | |
| The accompanying notes are an integral part of the financial statements. | | 39 |
Financial Highlights
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal periods† | | | | From investment operations | | | Dividends & distributions | | | | | Ratios to average daily net assets (%) | | | | | | | | |
| | 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 | | | | | | | | | | | | | | |
| International Equity Fund (con’t) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class C* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | $33.66 | | ($0.11 | ) | | ($3.49 | ) | | ($3.60 | ) | | $— | | | ($2.89 | ) | | ($2.89 | ) | | $27.17 | | 2.14 | (c) | | 2.14 | (c) | | (0.75 | )(c) | | 33 | | (11.15 | )(d) | | $171 |
| 11/01/06 | | 10/31/07 | | 27.85 | | 0.01 | | | 8.23 | (b) | | 8.24 | | | (0.31 | ) | | (2.12 | ) | | (2.43 | ) | | 33.66 | | 2.23 | | | 2.17 | | | 0.05 | | | 56 | | 31.60 | | | 189 |
| 11/01/05 | | 10/31/06 | | 23.58 | | 0.02 | | | 6.30 | (b) | | 6.32 | | | (0.01 | ) | | (2.04 | ) | | (2.05 | ) | | 27.85 | | 2.46 | | | 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 |
| | | | | | | | | | | | | |
| Mid Cap Stock Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | 32.59 | | (0.03 | ) | | (2.72 | ) | | (2.75 | ) | | — | | | (3.33 | ) | | (3.33 | ) | | 26.51 | | 1.14 | (c) | | 1.14 | (c) | | (0.19 | )(c) | | 83 | | (8.99 | )(d) | | 1,142 |
| 11/01/06 | | 10/31/07 | | 30.12 | | (0.06 | ) | | 5.61 | (b) | | 5.55 | | | — | | | (3.08 | ) | | (3.08 | ) | | 32.59 | | 1.13 | | | 1.13 | | | (0.18 | ) | | 185 | | 20.08 | | | 1,312 |
| 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 |
| Class C* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | 29.62 | | (0.11 | ) | | (2.46 | ) | | (2.57 | ) | | — | | | (3.33 | ) | | (3.33 | ) | | 23.72 | | 1.87 | (c) | | 1.87 | (c) | | (0.93 | )(c) | | 83 | | (9.31 | )(d) | | 355 |
| 11/01/06 | | 10/31/07 | | 27.83 | | (0.26 | ) | | 5.13 | (b) | | 4.87 | | | — | | | (3.08 | ) | | (3.08 | ) | | 29.62 | | 1.88 | | | 1.88 | | | (0.94 | ) | | 185 | | 19.21 | | | 410 |
| 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 |
| Class I* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | 32.74 | | 0.02 | | | (2.74 | ) | | (2.72 | ) | | — | | | (3.33 | ) | | (3.33 | ) | | 26.69 | | 0.80 | (c) | | 0.80 | (c) | | 0.15 | (c) | | 83 | | (8.84 | )(d) | | 99 |
| 11/01/06 | | 10/31/07 | | 30.15 | | 0.05 | | | 5.62 | (b) | | 5.67 | | | — | | | (3.08 | ) | | (3.08 | ) | | 32.74 | | 0.81 | | | 0.81 | | | 0.17 | | | 185 | | 20.50 | | | 94 |
| 06/06/06 | | 10/31/06 | | 28.21 | | (0.01 | ) | | 1.95 | (b) | | 1.94 | | | — | | | — | | | — | | | 30.15 | | 0.84 | (c) | | 0.84 | (c) | | (0.15 | )(c) | | 180 | | 6.88 | (d) | | 17 |
| Class R-3* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | 32.52 | | (0.05 | ) | | (2.72 | ) | | (2.77 | ) | | — | | | (3.33 | ) | | (3.33 | ) | | 26.42 | | 1.32 | (c) | | 1.32 | (c) | | (0.36 | )(c) | | 83 | | (9.08 | )(d) | | 1 |
| 11/01/06 | | 10/31/07 | | 30.10 | | (0.10 | ) | | 5.60 | (b) | | 5.50 | | | — | | | (3.08 | ) | | (3.08 | ) | | 32.52 | | 1.29 | | | 1.29 | | | (0.33 | ) | | 185 | | 19.91 | | | 1 |
| 08/10/06 | | 10/31/06 | | 27.82 | | (0.04 | ) | | 2.32 | (b) | | 2.28 | | | — | | | — | | | — | | | 30.10 | | 1.27 | (c) | | 1.27 | (c) | | (0.60 | )(c) | | 180 | | 8.20 | (d) | | 0 |
| Class R-5* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | 32.73 | | 0.03 | | | (2.74 | ) | | (2.71 | ) | | — | | | (3.33 | ) | | (3.33 | ) | | 26.69 | | 0.74 | (c) | | 0.74 | (c) | | 0.21 | (c) | | 83 | | (8.82 | )(d) | | 33 |
| 11/01/06 | | 10/31/07 | | 30.13 | | 0.07 | | | 5.61 | (b) | | 5.68 | | | — | | | (3.08 | ) | | (3.08 | ) | | 32.73 | | 0.75 | | | 0.75 | | | 0.23 | | | 185 | | 20.55 | | | 34 |
| 10/02/06 | | 10/31/06 | | 28.96 | | ��� | | | 1.175 | (b) | | 1.17 | | | — | | | — | | | — | | | 30.13 | | 0.67 | (c) | | 0.67 | (c) | | (0.15 | )(c) | | 180 | | 4.04 | (d) | | 12 |
| | | | | | | | | | | | | |
| Small Cap Stock Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | 41.33 | | (0.07 | ) | | (4.55 | ) | | (4.62 | ) | | — | | | (5.84 | ) | | (5.84 | ) | | 30.87 | | 1.26 | (c) | | 1.26 | (c) | | (0.41 | )(c) | | 21 | | (12.00 | )(d) | | 269 |
| 11/01/06 | | 10/31/07 | | 37.87 | | (0.15 | ) | | 6.46 | (b) | | 6.31 | | | — | | | (2.85 | ) | | (2.85 | ) | | 41.33 | | 1.25 | | | 1.25 | | | (0.38 | ) | | 64 | | 17.65 | | | 327 |
| 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 | ) | | 2.43 | (b) | | 2.30 | | | — | | | (1.56 | ) | | (1.56 | ) | | 32.93 | | 1.30 | | | 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 |
| Class C* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | 36.69 | | (0.16 | ) | | (4.01 | ) | | (4.17 | ) | | — | | | (5.84 | ) | | (5.84 | ) | | 26.68 | | 2.01 | (c) | | 2.01 | (c) | | (1.15 | )(c) | | 21 | | (12.34 | )(d) | | 89 |
| 11/01/06 | | 10/31/07 | | 34.17 | | (0.39 | ) | | 5.76 | (b) | | 5.37 | | | — | | | (2.85 | ) | | (2.85 | ) | | 36.69 | | 2.00 | | | 2.00 | | | (1.12 | ) | | 64 | | 16.75 | | | 110 |
| 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 | ) | | 2.23 | (b) | | 1.89 | | | — | | | (1.56 | ) | | (1.56 | ) | | 30.03 | | 2.05 | | | 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 |
| Class I* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | 41.51 | | (0.02 | ) | | (4.58 | ) | | (4.60 | ) | | — | | | (5.84 | ) | | (5.84 | ) | | 31.07 | | 0.95 | (c) | | 0.96 | (c) | | (0.10 | )(c) | | 21 | | (11.89 | )(d) | | 2 |
| 11/01/06 | | 10/31/07 | | 37.91 | | (0.06 | ) | | 6.51 | (b) | | 6.45 | | | — | | | (2.85 | ) | | (2.85 | ) | | 41.51 | | 0.95 | | | 0.96 | | | (0.15 | ) | | 64 | | 18.03 | | | 2 |
| 06/27/06 | | 10/31/06 | | 33.68 | | (0.02 | ) | | 4.25 | (b) | | 4.23 | | | — | | | — | | | — | | | 37.91 | | 0.95 | (c) | | 1.08 | (c) | | (0.14 | )(c) | | 49 | | 12.56 | (d) | | 0 |
| | |
| 40 | | The accompanying notes are an integral part of the financial statements. |
Financial Highlights
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal periods† | | | | From investment operations | | | Dividends & distributions | | | | | Ratios to average daily net assets (%) | | | | | | | | |
| | 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 | | | | | | | | | | | | | | |
| Small Cap Stock Fund (con’t) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class R-3* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | $41.25 | | ($0.08 | ) | | ($4.55 | ) | | ($4.63 | ) | | $— | | ($5.84 | ) | | ($5.84 | ) | | $30.78 | | 1.36 | (c) | | 1.36 | (c) | | (0.51 | )(c) | | 21 | | (12.05 | )(d) | | $1 |
| 11/01/06 | | 10/31/07 | | 37.88 | | (0.28 | ) | | 6.50 | (b) | | 6.22 | | | — | | (2.85 | ) | | (2.85 | ) | | 41.25 | | 1.37 | | | 1.37 | | | (0.65 | ) | | 64 | | 17.40 | | | 1 |
| 09/19/06 | | 10/31/06 | | 35.99 | | (0.03 | ) | | 1.92 | (b) | | 1.89 | | | — | | — | | | — | | | 37.88 | | 1.60 | (c) | | 2.05 | (c) | | (1.04 | )(c) | | 49 | | 5.25 | (d) | | 0 |
| Class R-5* | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 11/01/07 | | 04/30/08 | | 41.50 | | (0.01 | ) | | (4.58 | ) | | (4.59 | ) | | — | | (5.84 | ) | | (5.84 | ) | | 31.07 | | 0.90 | (c) | | 0.90 | (c) | | (0.06 | )(c) | | 21 | | (11.87 | )(d) | | 14 |
| 11/01/06 | | 10/31/07 | | 37.88 | | — | | | 6.47 | (b) | | 6.47 | | | — | | (2.85 | ) | | (2.85 | ) | | 41.50 | | 0.88 | �� | | 0.88 | | | (0.01 | ) | | 64 | | 18.10 | | | 15 |
| 10/02/06 | | 10/31/06 | | 35.86 | | — | | | 2.02 | (b) | | 2.02 | | | — | | — | | | — | | | 37.88 | | 0.83 | (c) | | 0.83 | (c) | | (0.10 | )(c) | | 49 | | 5.635 | (d) | | 13 |
† The data for the fiscal periods ending April 30, 2008 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) Annualized. (d) Not annualized.
| | |
| The accompanying notes are an integral part of the financial statements. | | 41 |
Statements of Assets and Liabilities
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | |
| | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Investments, at value (a) | | $697,496,889 | | | $184,346,806 | | | $183,726,221 | | | $128,963,221 | | | $33,639,473 | | | $312,589,031 | | | $1,633,336,186 | | | $362,231,665 | |
| Repurchase agreements (b) | | 19,682,000 | | | 27,899,000 | | | 584,000 | | | 13,580,000 | | | 563,000 | | | 4,148,000 | | | 7,362,000 | | | 12,751,000 | |
| Cash | | 675 | | | 110 | | | 28 | | | 120 | | | 12 | | | 736 | | | 559 | | | 795 | |
| Foreign currency (identified cost $12,955,102) | | — | | | — | | | — | | | — | | | — | | | 12,953,449 | | | — | | | — | |
| Unrealized gain on forward foreign currency contracts | | — | | | — | | | — | | | — | | | — | | | 11,251 | | | — | | | — | |
| Receivable for investments sold | | — | | | — | | | 8,063,925 | | | — | | | 312,293 | | | 1,898,043 | | | 35,999,302 | | | 1,792,481 | |
| Receivable for fund shares sold | | 1,466,970 | | | 947,162 | | | 134,016 | | | 927,910 | | | 14,805 | | | 706,831 | | | 5,259,222 | | | 496,088 | |
| Receivable for dividends and interest | | 60,803 | | | 139,053 | | | 78,020 | | | 426,845 | | | 889,865 | | | 446,455 | | | 700,202 | | | 35,698 | |
| Receivable for recoverable foreign withholding taxes | | — | | | — | | | — | | | 1,758 | | | — | | | 113,838 | | | — | | | — | |
| Prepaid expenses | | 66,434 | | | 42,688 | | | 31,872 | | | 22,542 | | | 26,014 | | | 31,823 | | | 67,461 | | | 45,869 | |
| Total assets | | 718,773,771 | | | 213,374,819 | | | 192,618,082 | | | 143,922,396 | | | 35,445,462 | | | 332,899,457 | | | 1,682,724,932 | | | 377,353,596 | |
| | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Payable for investments purchased | | — | | | — | | | 1,213,500 | | | 511,718 | | | 619,801 | | | 4,503,378 | | | 46,262,800 | | | 1,457,387 | |
| Payable for fund shares redeemed | | 1,332,393 | | | 1,252,849 | | | 375,738 | | | 1,033,159 | | | 146,869 | | | 1,005,156 | | | 4,239,101 | | | 1,110,398 | |
| Accrued investment advisory fee | | 344,325 | | | 103,514 | | | 91,218 | | | 64,961 | | | 11,924 | | | 189,214 | | | 714,286 | | | 181,070 | |
| Accrued administrative fee | | 83,448 | | | 18,728 | | | 22,804 | | | 17,555 | | | 4,204 | | | 39,882 | | | 190,607 | | | 44,646 | |
| Accrued distribution fee | | 216,273 | | | 16,255 | | | 76,191 | | | 61,873 | | | 2,470 | | | 170,695 | | | 514,539 | | | 126,234 | |
| Accrued shareholder servicing fee | | 75,328 | | | 16,647 | | | 20,851 | | | 19,523 | | | — | | | 24,381 | | | 198,767 | | | 52,430 | |
| Accrued fund accounting fee | | 8,223 | | | 8,192 | | | 7,992 | | | 8,369 | | | 7,090 | | | 6,819 | | | 8,814 | | | 8,814 | |
| Accrued trustees and officers compensation | | 7,435 | | | 8,467 | | | 8,467 | | | 8,467 | | | 8,438 | | | 8,467 | | | 8,467 | | | 8,467 | |
| Unrealized loss on forward foreign currency contracts | | — | | | — | | | — | | | — | | | — | | | 872,384 | | | — | | | — | |
| Other accrued expenses | | 56,559 | | | 38,446 | | | 39,087 | | | 43,745 | | | 16,169 | | | 97,421 | | | 87,031 | | | 45,227 | |
| Total liabilities | | 2,123,984 | | | 1,463,098 | | | 1,855,848 | | | 1,769,370 | | | 816,965 | | | 6,917,797 | | | 52,224,412 | | | 3,034,673 | |
| Net assets | | 716,649,787 | | | 211,911,721 | | | 190,762,234 | | | 142,153,026 | | | 34,628,497 | | | 325,981,660 | | | 1,630,500,520 | | | 374,318,923 | |
| | | | | | | | |
| Net assets consists of | | | | | | | | | | | | | | | | | | | | | | | | |
| Paid-in capital | | 605,468,495 | | | 219,236,988 | | | 147,870,006 | | | 132,606,249 | | | 49,783,537 | | | 283,500,723 | | | 1,573,879,375 | | | 333,547,170 | |
| Undistributed net investment income (loss) | | (1,852,155 | ) | | 675,035 | | | (767,438 | ) | | 230,915 | | | 361,067 | | | 1,973,388 | | | (2,885,158 | ) | | (987,534 | ) |
| Accumulated net realized gain (loss) | | (22,839,994 | ) | | (6,842,705 | ) | | 10,969,749 | | | (3,602,019 | ) | | (9,697,197 | ) | | (2,123,754 | ) | | (10,927,302 | ) | | 14,573,646 | |
| Unrealized loss on forward foreign currency contracts | | — | | | — | | | — | | | — | | | — | | | (861,133 | ) | | — | | | — | |
| Net unrealized appreciation (depreciation) on investments and other assets and liabilities denominated in foreign currencies | | 135,873,441 | | | (1,157,597 | ) | | 32,689,917 | | | 12,917,881 | | | (5,818,910 | ) | | 43,492,436 | | | 70,433,605 | | | 27,185,641 | |
| Net assets | | 716,649,787 | | | 211,911,721 | | | 190,762,234 | | | 142,153,026 | | | 34,628,497 | | | 325,981,660 | | | 1,630,500,520 | | | 374,318,923 | |
| | | | | | | | |
| Net assets, at market value | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A | | 507,884,339 | | | 21,175,360 | | | 127,154,674 | | | 89,338,852 | | | 20,932,396 | | | 155,437,864 | | | 1,142,116,038 | | | 269,162,784 | |
| Class C | | 142,206,649 | | | 14,449,871 | | | 63,587,603 | | | 52,814,174 | | | 13,696,101 | | | 170,543,796 | | | 354,891,070 | | | 88,780,219 | |
| Class I | | 50,773,363 | | | 175,749,091 | | | 19,957 | | | N/A | | | N/A | | | N/A | | | 98,955,808 | | | 1,747,641 | |
| Class R-3 | | 369,051 | | | — | | | — | | | N/A | | | N/A | | | N/A | | | 1,416,672 | | | 828,797 | |
| Class R-5 | | 15,416,385 | | | 537,399 | | | — | | | N/A | | | N/A | | | N/A | | | 33,120,932 | | | 13,799,482 | |
| | | | | | | | |
Net asset value (“NAV”),
offering and redemption price per share | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A | | $28.36 | | | $15.07 | | | $27.77 | | | $13.53 | | | $6.92 | | | $29.82 | | | $26.51 | | | $30.87 | |
| Maximum offering price (c) | | $29.77 | | | $15.82 | | | $29.15 | | | $14.20 | | | $7.19 | | | $31.31 | | | $27.83 | | | $32.41 | |
| Class C | | $25.21 | | | $14.89 | | | $24.96 | | | $13.16 | | | $6.85 | | | $27.17 | | | $23.72 | | | $26.68 | |
| Class I | | $28.62 | | | $15.09 | | | $28.02 | | | N/A | | | N/A | | | N/A | | | $26.69 | | | $31.07 | |
| Class R-3 | | $28.30 | | | $— | | | $— | | | N/A | | | N/A | | | N/A | | | $26.42 | | | $30.78 | |
| Class R-5 | | $28.54 | | | $15.05 | | | $— | | | N/A | | | N/A | | | N/A | | | $26.69 | | | $31.07 | |
| | | | | | | | |
| Shares of beneficial interest outstanding | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A | | 17,908,351 | | | 1,405,274 | | | 4,578,587 | | | 6,604,910 | | | 3,025,169 | | | 5,211,682 | | | 43,079,906 | | | 8,719,862 | |
| Class C | | 5,640,842 | | | 970,565 | | | 2,547,485 | | | 4,011,717 | | | 2,000,547 | | | 6,276,872 | | | 14,963,617 | | | 3,327,341 | |
| Class I | | 1,774,315 | | | 11,649,514 | | | 712 | | | N/A | | | N/A | | | N/A | | | 3,707,054 | | | 56,243 | |
| Class R-3 | | 13,041 | | | — | | | — | | | N/A | | | N/A | | | N/A | | | 53,613 | | | 26,930 | |
| Class R-5 | | 540,229 | | | 35,704 | | | — | | | N/A | | | N/A | | | N/A | | | 1,240,760 | | | 444,118 | |
| | | | | | | | |
| (a) Identified cost | | $561,623,448 | | | $185,504,403 | | | $151,036,304 | | | $116,045,699 | | | $39,458,383 | | | $269,096,824 | | | $1,562,902,581 | | | $335,046,024 | |
(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. |
Statements of Operations
| | |
| UNAUDITED | | 11.01.2007 - 04.30.2008 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | |
| | | | | | | | |
| Investment income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dividends (a) | | $ | 2,455,576 | | | $ | 2,328,841 | | | $ | 493,024 | | | $ | 2,580,538 | | | $ | 3,849 | | | $ | 2,173,300 | | | $ | 7,417,318 | | | $ | 1,431,976 | |
| Interest | | | 343,411 | | | | 320,531 | | | | 142,971 | | | | 405,510 | | | | 1,959,915 | | | | 79,612 | | | | 289,603 | | | | 194,417 | |
| Other income | | | — | | | | — | | | | — | | | | — | | | | 78,944 | | | | — | | | | — | | | | — | |
| Total income | | | 2,798,987 | | | | 2,649,372 | | | | 635,995 | | | | 2,986,048 | | | | 2,042,708 | | | | 2,252,912 | | | | 7,706,921 | | | | 1,626,393 | |
| | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment advisory fee | | | 2,121,217 | | | | 630,595 | | | | 538,138 | | | | 399,183 | | | | 85,864 | | | | 1,157,338 | | | | 4,452,439 | | | | 1,144,124 | |
| Administrative fee | | | 515,426 | | | | 114,608 | | | | 134,530 | | | | 108,198 | | | | 28,621 | | | | 244,127 | | | | 1,193,050 | | | | 282,303 | |
| Distribution fees | | | 1,355,246 | | | | 104,408 | | | | 458,162 | | | | 384,384 | | | | 87,242 | | | | 1,049,291 | | | | 3,239,746 | | | | 804,759 | |
| Shareholder servicing fees | | | 434,726 | | | | 170,670 | | | | 123,356 | | | | 88,729 | | | | 26,989 | | | | 146,296 | | | | 1,195,528 | | | | 314,841 | |
| Fund accounting fee | | | 50,353 | | | | 49,221 | | | | 47,901 | | | | 47,697 | | | | 53,616 | | | | 31,027 | | | | 50,742 | | | | 50,742 | |
| Professional fees | | | 41,108 | | | | 34,798 | | | | 34,782 | | | | 44,361 | | | | 25,764 | | | | 45,491 | | | | 34,751 | | | | 39,395 | |
| State qualification expenses | | | 52,297 | | | | 30,042 | | | | 28,719 | | | | 20,056 | | | | 16,859 | | | | 25,957 | | | | 57,400 | | | | 33,415 | |
| Reports to shareholders | | | 24,836 | | | | 14,653 | | | | 3,650 | | | | 5,556 | | | | 2,203 | | | | 10,634 | | | | 70,824 | | | | 14,355 | |
| Trustees and officers compensation | | | 16,228 | | | | 19,352 | | | | 19,352 | | | | 19,352 | | | | 19,398 | | | | 19,352 | | | | 19,352 | | | | 16,352 | |
| Custodian fee | | | 19,866 | | | | 5,832 | | | | 2,698 | | | | 15,821 | | | | 3,817 | | | | 158,051 | | | | 51,515 | | | | 11,661 | |
| Other | | | 20,638 | | | | 13,646 | | | | 13,640 | | | | 11,135 | | | | 10,085 | | | | 11,440 | | | | 29,412 | | | | 16,264 | |
| Total expenses before adjustments | | | 4,651,941 | | | | 1,187,825 | | | | 1,404,928 | | | | 1,144,472 | | | | 360,458 | | | | 2,899,004 | | | | 10,394,759 | | | | 2,728,211 | |
| Fees and expenses waived | | | — | | | | (69,143 | ) | | | (5 | ) | | | — | | | | (99,718 | ) | | | — | | | | — | | | | (87 | ) |
| Recovered fees previously waived by Manager | | | 2 | | | | — | | | | — | | | | 47,264 | | | | 11,366 | | | | — | | | | — | | | | — | |
| Expense offsets | | | (801 | ) | | | (657 | ) | | | (1,489 | ) | | | (384 | ) | | | (1,452 | ) | | | (4,401 | ) | | | (10,687 | ) | | | (3,313 | ) |
| Total expenses after adjustments | | | 4,651,142 | | | | 1,118,025 | | | | 1,403,434 | | | | 1,191,352 | | | | 270,654 | | | | 2,894,603 | | | | 10,384,072 | | | | 2,724,811 | |
| Net investment income (loss) | | | (1,852,155 | ) | | | 1,531,347 | | | | (767,439 | ) | | | 1,794,696 | | | | 1,772,054 | | | | (641,691 | ) | | | (2,677,151 | ) | | | (1,098,418 | ) |
| | | | | | | | |
| Realized and unrealized gain (loss) on investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net realized gain (loss) on investments | | | (19,000,003 | ) | | | (6,811,287 | ) | | | 11,102,994 | | | | (3,457,414 | ) | | | (2,601,768 | ) | | | 2,400,127 | | | | (8,867,639 | ) | | | 14,318,771 | |
| Net realized gain (loss) on foreign currency transactions | | | — | | | | — | | | | — | | | | (20,887 | ) | | | 24,673 | | | | (3,990,328 | ) | | | — | | | | — | |
| Net change in unrealized appreciation (depreciation) on investments | | | (51,427,132 | ) | | | (20,649,823 | ) | | | (18,735,270 | ) | | | (20,676,604 | ) | | | (1,053,944 | ) | | | (40,156,869 | ) | | | (155,960,424 | ) | | | (66,875,436 | ) |
Net change in unrealized appreciation (depreciation) on
translation of assets and liabilities denominated in foreign currencies | | | — | | | | — | | | | — | | | | (543 | ) | | | — | | | | 2,686,481 | | | | — | | | | — | |
| Net gain (loss) on investments | | | (70,427,135 | ) | | | (27,461,110 | ) | | | (7,632,276 | ) | | | (24,155,448 | ) | | | (3,631,039 | ) | | | (39,060,589 | ) | | | (164,828,063 | ) | | | (52,556,665 | ) |
Net increase (decrease) in net assets
resulting from operations | | | (72,279,290 | ) | | | (25,929,763 | ) | | | (8,399,715 | ) | | | (22,360,752 | ) | | | (1,858,985 | ) | | | (39,702,280 | ) | | | (167,505,214 | ) | | | (53,655,083 | ) |
| | | | | | | | |
| (a) Net of foreign withholding taxes | | $ | 13,670 | | | $ | — | | | $ | 8,382 | | | $ | 138,591 | | | $ | — | | | $ | 217,109 | | | $ | 340,925 | | | $ | 2,235 | |
| | |
| The accompanying notes are an integral part of the financial statements. | | 43 |
Statements of Changes in Net Assets
| | | | | | | | | | | | | | | | | | |
| | | Capital Appreciation Trust | | | Core Equity Fund | | | Diversified Growth Fund | |
| | | 11/1/07 to
4/30/08* | | | 11/1/06 to
10/31/07 | | | 11/1/07 to
4/30/08* | | | 11/1/06 to
10/31/07 | | | 11/1/07 to
4/30/08* | | | 11/1/06 to
10/31/07 | |
| | | | | | |
| Net assets, beginning of period | | $798,609,436 | | | $611,368,188 | | | $227,229,575 | | | $165,300,826 | | | $199,359,924 | | | $213,089,008 | |
| Increase (decrease) in net assets from operations | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | (1,852,155 | ) | | (371,125 | ) | | 1,531,347 | | | 1,941,909 | | | (767,439 | ) | | (2,056,014 | ) |
| Net realized gain (loss) on investments | | (19,000,003 | ) | | 108,925,891 | | | (6,811,287 | ) | | 9,853,047 | | | 11,102,994 | | | 38,129,001 | |
| Net realized gain (loss) on foreign currency transactions | | — | | | — | | | — | | | — | | | — | | | — | |
| Net change in unrealized appreciation (depreciation) on investments | | (51,427,132 | ) | | 28,252,567 | | | (20,649,823 | ) | | 7,274,527 | | | (18,735,270 | ) | | 20,335,484 | |
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 | | (72,279,290 | ) | | 136,807,333 | | | (25,929,763 | ) | | 19,069,483 | | | (8,399,715 | ) | | 56,408,471 | |
| Distributions to shareholders from | | | | | | | | | | | | | | | | | | |
| Net investment income | | — | | | — | | | (2,264,236 | ) | | (1,206,000 | ) | | — | | | — | |
| Net realized gains | | (103,643,660 | ) | | (3,788,440 | ) | | (9,857,625 | ) | | (1,258,126 | ) | | (31,289,716 | ) | | (19,610,548 | ) |
| Net distributions to shareholders | | (103,643,660 | ) | | (3,788,440 | ) | | (12,121,861 | ) | | (2,464,126 | ) | | (31,289,716 | ) | | (19,610,548 | ) |
| Fund share transactions | | | | | | | | | | | | | | | | | | |
| Proceeds from shares sold-Class A | | 60,967,576 | | | 138,904,199 | | | 669,441 | | | 5,744,266 | | | 18,185,949 | | | 16,056,256 | |
| Proceeds from shares converted-Class A | | — | | | 37,528,784 | | | — | | | — | | | — | | | 13,841,816 | |
| Issued as reinvestment of distributions-Class A | | 68,156,580 | | | 2,202,349 | | | 1,255,722 | | | 265,763 | | | 18,440,356 | | | 11,255,297 | |
| Cost of shares redeemed-Class A | | (64,601,374 | ) | | (91,369,855 | ) | | (3,101,008 | ) | | (4,591,890 | ) | | (14,930,853 | ) | | (69,956,204 | ) |
| Proceeds from shares sold-Class C | | 5,087,285 | | | 16,143,301 | | | 662,692 | | | 3,550,960 | | | 2,790,955 | | | 3,163,935 | |
| Issued as reinvestment of distributions-Class C | | 21,930,491 | | | 902,418 | | | 724,547 | | | 105,968 | | | 11,382,863 | | | 6,032,538 | |
| Cost of shares redeemed-Class C | | (14,853,731 | ) | | (25,724,333 | ) | | (1,469,770 | ) | | (2,133,706 | ) | | (4,781,544 | ) | | (16,813,493 | ) |
| Proceeds from shares sold-Class I | | 8,596,646 | | | 16,921,374 | | | 28,172,513 | | | 61,816,094 | | | 948 | | | 1,286 | |
| Issued as reinvestment of distributions-Class I | | 6,449,529 | | | 189,247 | | | 9,891,817 | | | 2,040,608 | | | 3,067 | | | 1,246 | |
| Cost of shares redeemed-Class I | | (4,331,042 | ) | | (4,060,070 | ) | | (14,121,400 | ) | | (22,070,365 | ) | | — | | | (80 | ) |
| Proceeds from shares sold-Class R-3 | | 395,137 | | | 467 | | | — | | | — | | | — | | | — | |
| Issued as reinvestment of distributions-Class R-3 | | 43,729 | | | — | | | — | | | — | | | — | | | — | |
| Cost of shares redeemed-Class R-3 | | (14,594 | ) | | — | | | — | | | — | | | — | | | — | |
| Proceeds from shares sold-Class R-5 | | 5,913,477 | | | 5,107,344 | | | 19,086 | | | 654,996 | | | — | | | — | |
| Issued as reinvestment of distributions-Class R-5 | | 1,474,877 | | | 39,845 | | | 32,104 | | | — | | | — | | | — | |
| Cost of shares redeemed-Class R-5 | | (1,251,285 | ) | | (2,055,464 | ) | | (1,974 | ) | | (59,314 | ) | | — | | | — | |
| Net decrease from fund share transactions-Class B | | — | | | (40,507,272 | ) | | — | | | — | | | — | | | (14,109,621 | ) |
| Proceeds from Fund redemption fees | | — | | | 20 | | | — | | | 12 | | | — | | | 17 | |
| Net increase (decrease) from fund share transactions | | 93,963,301 | | | 54,222,355 | | | 22,733,770 | | | 45,323,392 | | | 31,091,741 | | | (50,527,007 | ) |
| Increase (decrease) in net assets | | (81,959,649 | ) | | 187,241,248 | | | (15,317,854 | ) | | 61,928,749 | | | (8,597,690 | ) | | (13,729,084 | ) |
| Net assets, end of period (a) | | 716,649,787 | | | 798,609,436 | | | 211,911,721 | | | 227,229,575 | | | 190,762,234 | | | 199,359,924 | |
| (a) Includes undistributed net investment income | | | | | | | | | | | | | | | | | | |
| (accumulated net investment loss) of: | | $(1,852,155 | ) | | $— | | | $1,531,347 | | | $1,407,924 | | | $(767,439 | ) | | $— | |
| | | | | | |
| Shares issued and redeemed | | | | | | | | | | | | | | | | | | |
| Shares sold-Class A | | 2,139,833 | | | 4,212,669 | | | 42,594 | | | 339,479 | | | 673,237 | | | 529,022 | |
| Shares converted-Class A | | — | | | 1,216,061 | | | — | | | — | | | — | | | 488,654.00 | |
| Issued as reinvestment of distributions-Class A | | 2,308,827 | | | 72,517 | | | 77,514 | | | 16,146 | | | 655,075 | | | 415,018 | |
| Shares redeemed-Class A | | (2,272,513 | ) | | (2,802,627 | ) | | (199,872 | ) | | (264,864 | ) | | (523,908 | ) | | (2,446,968 | ) |
| Shares sold-Class C | | 199,981 | | | 548,264 | | | 43,659 | | | 210,707 | | | 112,362 | | | 114,979 | |
| Issued as reinvestment of distributions-Class C | | 833,225 | | | 32,555 | | | 45,143 | | | 6,485 | | | 448,674 | | | 240,724 | |
| Shares redeemed-Class C | | (589,407 | ) | | (876,012 | ) | | (96,987 | ) | | (125,304 | ) | | (200,055 | ) | | (626,907 | ) |
| Shares sold-Class I | | 302,348 | | | 519,448 | | | 1,819,001 | | | 3,596,750 | | | 34 | | | 44 | |
| Issued as reinvestment of distributions-Class I | | 216,864 | | | 6,215 | | | 610,606 | | | 123,899 | | | 108 | | | 46 | |
| Shares redeemed-Class I | | (155,178 | ) | | (121,072 | ) | | (921,512 | ) | | (1,273,788 | ) | | — | | | (3 | ) |
| Shares sold-Class R-3 | | 12,052 | | | 13 | | | — | | | — | | | — | | | — | |
| Issued as reinvestment of distributions-Class R-3 | | 1,483 | | | — | | | — | | | — | | | — | | | — | |
| Shares redeemed-Class R-3 | | (507 | ) | | — | | | — | | | — | | | — | | | — | |
| Shares sold-Class R-5 | | 212,077 | | | 159,807 | | | 1,245 | | | 35,967 | | | — | | | — | |
| Issued as reinvestment of distributions-Class R-5 | | 49,709 | | | 1,311 | | | 1,988 | | | — | | | — | | | — | |
| Shares redeemed-Class R-5 | | (43,444 | ) | | (61,585 | ) | | (130 | ) | | (3,366 | ) | | — | | | — | |
| Net decrease from shares issued and redeemed-Class B | | — | | | (1,441,066 | ) | | — | | | — | | | — | | | (539,018 | ) |
| Shares issued and redeemed | | 3,215,350 | | | 1,466,498 | | | 1,423,249 | | | 2,662,111 | | | 1,165,527 | | | (1,824,409 | ) |
| * Unaudited. | | | | | | | | | | | | | | | | | | |
| | |
| 44 | | The accompanying notes are an integral part of the financial statements. |
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 | |
11/1/07 to
4/30/08* | | | 11/1/06 to
10/31/07 | | | 11/1/07 to
4/30/08* | | | 11/1/06 to
10/31/07 | | | 11/1/07 to
4/30/08* | | | 11/1/06 to
10/31/07 | | | 11/1/07 to
4/30/08* | | | 11/1/06 to
10/31/07 | | | 11/1/07 to
4/30/08* | | | 11/1/06 to
10/31/07 | |
| | | | | | | | | |
| $155,175,889 | | | $125,274,504 | | | $45,256,969 | | | $59,535,011 | | | $355,441,137 | | | $214,233,953 | | | $1,851,253,969 | | | $1,336,135,358 | | | $453,905,178 | | | $391,432,606 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1,794,696 | | | 2,619,676 | | | 1,772,054 | | | 3,928,436 | | | (641,691 | ) | | 1,076,510 | | | (2,677,151 | ) | | (5,711,648 | ) | | (1,098,418 | ) | | (2,375,496 | ) |
| (3,457,414 | ) | | 16,322,391 | | | (2,601,768 | ) | | 789,990 | | | 2,400,127 | | | 31,857,601 | | | (8,867,639 | ) | | 196,324,615 | | | 14,318,771 | | | 67,742,702 | |
| (20,887 | ) | | (91,022 | ) | | 24,673 | | | — | | | (3,990,328 | ) | | (365,868 | ) | | — | | | — | | | — | | | — | |
| (20,676,604 | ) | | 13,964,125 | | | (1,053,944 | ) | | (2,105,924 | ) | | (40,156,869 | ) | | 48,090,567 | | | (155,960,424 | ) | | 99,728,816 | | | (66,875,436 | ) | | 3,021,994 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (543 | ) | | 5,619 | | | — | | | — | | | 2,686,481 | | | (3,475,712 | ) | | — | | | — | | | — | | | — | |
| (22,360,752 | ) | | 32,820,789 | | | (1,858,985 | ) | | 2,612,502 | | | (39,702,280 | ) | | 77,183,098 | | | (167,505,214 | ) | | 290,341,783 | | | (53,655,083 | ) | | 68,389,200 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1,477,786 | ) | | (2,539,676 | ) | | (1,855,186 | ) | | (3,946,469 | ) | | — | | | (2,846,330 | ) | | — | | | — | | | — | | | — | |
| (16,433,145 | ) | | (4,406,301 | ) | | — | | | — | | | (29,731,591 | ) | | (16,103,129 | ) | | (192,218,338 | ) | | (141,917,616 | ) | | (64,932,432 | ) | | (30,288,447 | ) |
| (17,910,931 | ) | | (6,945,977 | ) | | (1,855,186 | ) | | (3,946,469 | ) | | (29,731,591 | ) | | (18,949,459 | ) | | (192,218,338 | ) | | (141,917,616 | ) | | (64,932,432 | ) | | (30,288,447 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 16,511,404 | | | 16,513,271 | | | 2,567,531 | | | 6,156,632 | | | 23,758,823 | | | 51,170,648 | | | 149,935,869 | | | 399,168,466 | | | 29,288,530 | | | 71,844,759 | |
| — | | | 10,070,931 | | | — | | | 6,369,229 | | | — | | | 6,528,838 | | | — | | | 56,563,684 | | | — | | | 9,394,896 | |
| 10,412,942 | | | 3,748,593 | | | 759,959 | | | 1,579,038 | | | 12,054,716 | | | 7,266,598 | | | 123,720,543 | | | 88,138,319 | | | 40,301,242 | | | 18,044,955 | |
| (8,991,592 | ) | | (18,275,435 | ) | | (8,770,337 | ) | | (15,610,120 | ) | | (14,839,203 | ) | | (16,638,735 | ) | | (193,721,185 | ) | | (247,533,407 | ) | | (43,774,709 | ) | | (70,485,402 | ) |
| 6,523,745 | | | 7,894,536 | | | 551,679 | | | 1,745,565 | | | 14,642,510 | | | 44,943,345 | | | 18,092,085 | | | 56,839,496 | | | 3,838,230 | | | 10,617,679 | |
| 6,423,982 | | | 2,370,064 | | | 501,921 | | | 959,249 | | | 15,706,259 | | | 10,025,814 | | | 44,098,171 | | | 36,460,148 | | | 16,249,154 | | | 7,858,335 | |
| (3,631,661 | ) | | (8,186,586 | ) | | (2,525,054 | ) | | (6,357,552 | ) | | (11,348,711 | ) | | (14,413,095 | ) | | (32,857,872 | ) | | (56,388,856 | ) | | (10,182,417 | ) | | (16,545,310 | ) |
| — | | | — | | | — | | | — | | | — | | | — | | | 25,769,520 | | | 73,813,986 | | | 253,554 | | | 1,646,872 | |
| — | | | — | | | — | | | — | | | — | | | — | | | 8,841,731 | | | 1,805,339 | | | 261,024 | | | 60,929 | |
| — | | | — | | | — | | | — | | | — | | | — | | | (10,889,441 | ) | | (7,810,643 | ) | | (208,242 | ) | | (95,987 | ) |
| — | | | — | | | — | | | — | | | — | | | — | | | 309,728 | | | 1,175,337 | | | 277,927 | | | 1,054,630 | |
| — | | | — | | | — | | | — | | | — | | | — | | | 156,975 | | | 42,742 | | | 115,250 | | | 544 | |
| — | | | — | | | — | | | — | | | — | | | — | | | (237,318 | ) | | (285,060 | ) | | (265,351 | ) | | (164,912 | ) |
| — | | | — | | | — | | | — | | | — | | | — | | | 6,688,664 | | | 22,191,828 | | | 1,696,112 | | | 1,853,663 | |
| — | | | — | | | — | | | — | | | — | | | — | | | 3,591,397 | | | 1,230,356 | | | 2,091,439 | | | 966,637 | |
| — | | | — | | | — | | | — | | | — | | | — | | | (4,528,764 | ) | | (4,370,337 | ) | | (940,483 | ) | | (2,298,572 | ) |
| — | | | (10,108,979 | ) | | — | | | (7,786,249 | ) | | — | | | (5,910,449 | ) | | — | | | (54,349,258 | ) | | — | | | (9,382,149 | ) |
| — | | | 178 | | | — | | | 133 | | | — | | | 581 | | | — | | | 2,304 | | | — | | | 252 | |
| 27,248,820 | | | 4,026,573 | | | (6,914,301 | ) | | (12,944,075 | ) | | 39,974,394 | | | 82,973,545 | | | 138,970,103 | | | 366,694,444 | | | 39,001,260 | | | 24,371,819 | |
| (13,022,863 | ) | | 29,901,385 | | | (10,628,472 | ) | | (14,278,042 | ) | | (29,459,477 | ) | | 141,207,184 | | | (220,753,449 | ) | | 515,118,611 | | | (79,586,255 | ) | | 62,472,572 | |
| 142,153,026 | | | 155,175,889 | | | 34,628,497 | | | 45,256,969 | | | 325,981,660 | | | 355,441,137 | | | 1,630,500,520 | | | 1,851,253,969 | | | 374,318,923 | | | 453,905,178 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $1,794,696 | | | $(85,994 | ) | | $1,772,054 | | | $444,200 | | | $(641,691 | ) | | $2,615,079 | | | $(2,677,151 | ) | | $(208,006 | ) | | $(1,098,418 | ) | | $110,883 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1,129,677 | | | 1,016,424 | | | 368,075 | | | 794,194 | | | 768,353 | | | 1,585,498 | | | 5,604,047 | | | 13,305,724 | | | 930,701 | | | 1,868,618 | |
| — | | | 668,474 | | | — | | | 803,501 | | | — | | | 209,419 | | | — | | | 1,955,768 | | | — | | | 249,290 | |
| 679,762 | | | 247,300 | | | 108,056 | | | 204,297 | | | 383,298 | | | 246,325 | | | 4,409,143 | | | 3,146,673 | | | 1,229,446 | | | 493,571 | |
| (625,217 | ) | | (1,173,290 | ) | | (1,266,596 | ) | | (2,016,031 | ) | | (487,232 | ) | | (516,795 | ) | | (7,204,226 | ) | | (8,167,648 | ) | | (1,344,073 | ) | | (1,816,194 | ) |
| 452,286 | | | 507,831 | | | 79,479 | | | 229,553 | | | 515,822 | | | 1,511,601 | | | 752,163 | | | 2,079,150 | | | 138,113 | | | 309,828 | |
| 429,453 | | | 161,900 | | | 72,321 | | | 125,268 | | | 546,685 | | | 366,441 | | | 1,752,013 | | | 1,422,557 | | | 571,952 | | | 240,537 | |
| (263,532 | ) | | (540,965 | ) | | (366,833 | ) | | (833,832 | ) | | (411,809 | ) | | (486,835 | ) | | (1,375,761 | ) | | (2,054,154 | ) | | (370,002 | ) | | (478,108 | ) |
| — | | | — | | | — | | | — | | | — | | | — | | | 945,625 | | | 2,480,668 | | | 7,892 | | | 42,145 | |
| — | | | — | | | — | | | — | | | — | | | — | | | 313,425 | | | 64,338 | | | 7,919 | | | 1,664 | |
| — | | | — | | | — | | | — | | | — | | | — | | | (413,216 | ) | | (254,540 | ) | | (6,666 | ) | | (2,422 | ) |
| — | | | — | | | — | | | — | | | — | | | — | | | 11,314 | | | 39,872 | | | 9,151 | | | 26,015 | |
| — | | | — | | | — | | | — | | | — | | | — | | | 5,610 | | | 1,527 | | | 3,526 | | | 15 | |
| — | | | — | | | — | | | — | | | — | | | — | | | (8,821 | ) | | (9,458 | ) | | (7,954 | ) | | (4,003 | ) |
| — | | | — | | | — | | | — | | | — | | | — | | | 240,320 | | | 729,209 | | | 54,411 | | | 48,285 | |
| — | | | — | | | — | | | — | | | — | | | — | | | 127,309 | | | 43,894 | | | 63,473 | | | 26,425 | |
| — | | | — | | | — | | | (994,210 | ) | | — | | | — | | | (164,878 | ) | | (141,916 | ) | | (29,444 | ) | | (59,047 | ) |
| — | | | (687,115 | ) | | — | | | — | | | — | | | (204,012 | ) | | — | | | (2,054,330 | ) | | — | | | (278,831 | ) |
| 1,802,429 | | | 200,559 | | | (1,005,498 | ) | | (1,687,260 | ) | | 1,315,117 | | | 2,711,642 | | | 4,994,067 | | | 12,587,334 | | | 1,258,445 | | | 667,788 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| The accompanying notes are an integral part of the financial statements. | | 45 |
Notes to Financial Statements
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 Boards of Trustees (“Boards of Trustees” or the “Boards”) 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; and 5) the Small Cap Stock Fund which seeks long-term capital appreciation.
At a regular meeting of the Boards of Trustees on August 15, 2006, the Boards 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 (“NAV”) 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 NAV 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, 2008, there were no shares issued in Class R-3 for the 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 NAV per share. Each Fund determines the NAV 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 the NAV.
Both the latest transaction prices and adjustments are furnished by an independent pricing service subject to supervision by the Boards of Trustees. The Funds value all
Notes to Financial Statements
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 NAVs. Fair value pricing methods, Procedures and pricing services can change from time to time as approved by the Boards of Trustees. Pursuant to the Procedures, the Boards of Trustees has delegated the day-to-day responsibility for applying and administering the Procedures to a Valuation Committee comprised of associates from Heritage. 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 NAV 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 NAV 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 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
Notes to Financial Statements
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 which are used primarily to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated investment securities. Forward foreign currency contracts are valued on each valuation day and the unrealized gain or loss is included in the Statement of Assets and Liabilities. When the contracts are closed, the gain or loss is realized. Realized and unrealized gains and losses are included in the Statements of Operations. 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 an 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 Boards 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 administration, 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.
All dividends paid by the Funds from net investment income are deemed to be ordinary income for Federal income tax
Notes to Financial Statements
purposes. Dividends paid by each Fund to shareholders from net investment income were as follows:
| | | | |
| Distributions from net investment income | | 11/1/07 to
4/30/08 | | 11/1/06 to
10/31/07 |
| Core Equity Fund | | | | |
| Class A | | $189,225 | | $112,366 |
| Class I | | 2,068,073 | | 1,093,634 |
| Class R-5 | | 6,938 | | — |
| Growth and Income Trust | | | | |
| Class A | | 1,056,669 | | 1,699,237 |
| Class B | | — | | 47,329 |
| Class C | | 421,117 | | 793,110 |
| High Yield Bond Fund | | | | |
| Class A | | 1,173,751 | | 2,406,276 |
| Class B | | — | | 194,447 |
| Class C | | 681,435 | | 1,345,746 |
| International Equity Fund | | | | |
| Class A | | — | | 1,450,575 |
| Class B | | — | | 63,016 |
| Class C | | — | | 1,332,739 |
Dividends paid by each Fund to shareholders from net realized gains were as follows:
| | | | |
| Distributions from net realized gains | | 11/1/07 to
4/30/08 | | 11/1/06 to
10/31/07 |
| Capital Appreciation Trust | | | | |
| Class A | | $72,026,182 | | $2,342,132 |
| Class B | | — | | 248,003 |
| Class C | | 23,540,004 | | 969,213 |
| Class I | | 6,558,868 | | 189,247 |
| Class R-3 | | 43,729 | | — |
| Class R-5 | | 1,474,877 | | 39,845 |
| Core Equity Fund | | | | |
| Class A | | 1,122,952 | | 177,172 |
| Class C | | 746,545 | | 110,846 |
| Class I | | 7,962,962 | | 970,108 |
| Class R-5 | | 25,166 | | — |
| Diversified Growth Fund | | | | |
| Class A | | 19,595,467 | | 12,109,563 |
| Class B | | — | | 1,297,838 |
| Class C | | 11,691,182 | | 6,201,901 |
| Class I | | 3,067 | | 1,246 |
| | | | |
| Distributions from net realized gains | | 11/1/07 to
4/30/08 | | 11/1/06 to
10/31/07 |
| Growth and Income Trust | | | | |
| Class A | | $10,152,491 | | $2,351,802 |
| Class B | | — | | 355,867 |
| Class C | | 6,280,654 | | 1,698,632 |
| International Equity Fund | | | | |
| Class A | | 13,242,352 | | 6,501,098 |
| Class B | | — | | 433,516 |
| Class C | | 16,489,239 | | 9,168,515 |
| Mid Cap Stock Fund | | | | |
| Class A | | 132,489,950 | | 94,068,687 |
| Class B | | — | | 6,231,135 |
| Class C | | 45,853,865 | | 38,164,272 |
| Class I | | 10,126,151 | | 2,180,424 |
| Class R-3 | | 156,975 | | 42,742 |
| Class R-5 | | 3,591,397 | | 1,230,356 |
| Small Cap Stock Fund | | | | |
| Class A | | 45,150,387 | | 20,253,581 |
| Class B | | — | | 747,867 |
| Class C | | 17,297,442 | | 8,258,155 |
| Class I | | 277,914 | | 61,663 |
| Class R-3 | | 115,250 | | 544 |
| Class R-5 | | 2,091,439 | | 966,637 |
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 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.
Notes to Financial Statements
NOTE 3 | Purchases and sales of securities For the six-month period ended April 30, 2008, purchases and sales of investment securities (excluding repurchase agreements and short-term obligations) were as follows:
| | | | |
| | | Purchases | | Sales |
| Capital Appreciation Trust | | $223,721,915 | | $231,101,094 |
| Core Equity Fund | | 54,508,384 | | 45,298,467 |
| Diversified Growth Fund | | 91,353,649 | | 83,633,396 |
| Growth and Income Trust | | 46,025,162 | | 33,095,530 |
| High Yield Bond Fund (a) | | 9,337,015 | | 15,592,444 |
| International Equity Fund | | 109,529,127 | | 106,933,810 |
| Mid Cap Stock Fund | | 1,378,430,317 | | 1,418,921,163 |
| Small Cap Stock Fund | | 78,922,553 | | 101,580,146 |
| (a) The High Yield Bond Fund also had paydowns in the amount of $35,648. |
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 rate for each Fund is as follows:
| | | | |
Investment advisory fee
rate schedule | | Breakpoint | | Investment
advisory fee |
| Capital Appreciation Trust | | 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 | | 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% |
For administrative services provided by the Manager, each Fund has agreed to pay an administrative rate of 0.15% for Class A, 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, 2008, the amount of administrative fees charged to the Funds were as follows:
| | | | | | |
| Administrative fees | | Class A | | | | Class C |
| Capital Appreciation Trust | | $376,371 | | | | $109,089 |
| Core Equity Fund | | 17,153 | | | | 11,373 |
| Diversified Growth Fund | | 87,729 | | | | 46,792 |
| Growth and Income Trust | | 67,387 | | | | 40,811 |
| High Yield Bond Fund | | 17,837 | | | | 10,784 |
| International Equity Fund | | 115,644 | | | | 128,483 |
| Mid Cap Stock Fund | | 859,961 | | | | 270,447 |
| Small Cap Stock Fund | | 205,152 | | | | 69,155 |
| | | |
| Administrative fees (cont’d) | | Class I | | Class R-3 | | Class R-5 |
| Capital Appreciation Trust | | $23,786 | | $210 | | $5,970 |
| Core Equity Fund | | 85,816 | | — | | 266 |
| Diversified Growth Fund | | 9 | | — | | — |
| Mid Cap Stock Fund | | 45,552 | | 1,049 | | 16,041 |
| Small Cap Stock Fund | | 854 | | 541 | | 6,601 |
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. Eagle Boston Investment Management, Inc. (“EBIM”), previously known as Awad Asset Management, Inc., 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 EBIM, the Manager is charged an annualized rate as a percentage of each Fund’s average daily net assets, computed daily and payable monthly. For the Core Equity Fund, the rate charged is 0.375% on all Fund assets. For the Diversified Growth Fund, Mid Cap Stock Fund and Small Cap Stock Fund the 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.
Notes to Financial Statements
Distribution fees Pursuant to the Class A, 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 rate for Class A shares is 0.25%. The distribution rate for Class C shares in each of the Funds except for the High Yield Bond Fund is 1%. The distribution rate for Class C shares in the High Yield Bond Fund is 0.80%. The distribution 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, 2008, the amount of distribution fees charged to the Funds were as follows:
| | | | | | |
| Distribution fees | | Class A | | Class C | | Class R-3 |
| Capital Appreciation Trust | | $627,287 | | $727,260 | | $699 |
| Core Equity Fund | | 28,590 | | 75,818 | | — |
| Diversified Growth Fund | | 146,214 | | 311,948 | | — |
| Growth and Income Trust | | 112,311 | | 272,073 | | — |
| High Yield Bond Fund | | 29,729 | | 57,513 | | — |
| International Equity Fund | | 192,740 | | 856,551 | | — |
| Mid Cap Stock Fund | | 1,433,268 | | 1,802,982 | | 3,496 |
| Small Cap Stock Fund | | 341,920 | | 461,035 | | 1,804 |
Heritage, Eagle, and EBIM are all wholly owned subsidiaries of Raymond James Financial, Inc. (“RJF”).
Sales charges For the six-month period ended April 30, 2008, total front-end and CDSCs paid to the Distributor were as follows:
| | | | | | |
| | | Front-end
sales charge | | Contingent
deferred
sales charges |
| | | Class A | | Class A | | Class C |
| Capital Appreciation Trust | | $81,876 | | $— | | $4,211 |
| Core Equity Fund | | 5,738 | | — | | 583 |
| Diversified Growth Fund | | 21,715 | | — | | 1,007 |
| Growth and Income Trust | | 92,055 | | — | | 4,198 |
| High Yield Bond Fund | | 3,137 | | — | | 590 |
| International Equity Fund | | 112,076 | | — | | 15,175 |
| Mid Cap Stock Fund | | 204,291 | | 185 | | 14,273 |
| Small Cap Stock Fund | | 67,165 | | — | | 2,879 |
The Distributor paid commissions to salespersons from these fees and incurred other distribution costs.
Agency commissions For the six-month period ended April 30, 2008, 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 | | $312,199 | | $— |
| Core Equity Fund | | 90,614 | | — |
| Diversified Growth Fund | | 137,218 | | 3,462 |
| Growth and Income Trust | | 44,130 | | — |
| International Equity Fund | | 226,602 | | 1,264 |
| Mid Cap Stock Fund | | 2,229,484 | | 32,624 |
| Small Cap Stock Fund | | 215,333 | | 11,657 |
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. These fees are disclosed on each Fund’s Statement of Operations. 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 out-of-pocket expenses. For the six-month period ended April 30, 2008, the amount of Shareholder Servicing fees charged to the Funds were as follows:
| | | | | | |
| Shareholder servicing fees | | Class A | | | | Class C |
| Capital Appreciation Trust | | $327,783 | | | | $97,779 |
| Core Equity Fund | | 10,453 | | | | 13,335 |
| Diversified Growth Fund | | 81,010 | | | | 42,333 |
| Growth and Income Trust | | 55,023 | | | | 33,706 |
| High Yield Bond Fund | | 17,880 | | | | 9,109 |
| International Equity Fund | | 67,551 | | | | 78,745 |
| Mid Cap Stock Fund | | 885,305 | | | | 246,955 |
| Small Cap Stock Fund | | 230,534 | | | | 75,646 |
| | | |
| Shareholder servicing fees (cont’d) | | Class I | | Class R-3 | | Class R-5 |
| Capital Appreciation Trust | | $4,932 | | $60 | | $4,172 |
| Core Equity Fund | | 146,876 | | — | | 6 |
| Diversified Growth Fund | | 13 | | — | | — |
| Mid Cap Stock Fund | | 54,022 | | 573 | | 8,673 |
| Small Cap Stock Fund | | 1,405 | | 47 | | 7,209 |
Notes to Financial Statements
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 limitations rate schedule | | 3/1/08 to
2/28/09 | | | 1/2/07 to
2/29/08 | |
| Capital Appreciation Trust | | | | | | |
| Class A | | 1.35 | % | | 1.35 | % |
| Class C | | 2.15 | % | | 2.15 | % |
| 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 | | 1.35 | % | | 1.65 | % |
| Class C | | 2.15 | % | | 2.45 | % |
| Class I | | 0.95 | % | | 0.95 | % |
| Class R-3 | | 1.65 | % | | 1.95 | % |
| Class R-5 | | 0.95 | % | | 0.95 | % |
| Diversified Growth Fund | | | | | | |
| Class A | | 1.45 | % | | 1.60 | % |
| Class C | | 2.25 | % | | 2.40 | % |
| Class I | | 0.95 | % | | 0.95 | % |
| Class R-3 | | 1.75 | % | | 1.90 | % |
| Class R-5 | | 0.95 | % | | 0.95 | % |
| Growth and Income Trust | | | | | | |
| Class A | | 1.35 | % | | 1.35 | % |
| Class C | | 2.15 | % | | 2.15 | % |
| High Yield Bond Fund | | | | | | |
| Class A | | 1.20 | % | | 1.20 | % |
| Class C | | 1.80 | % | | 1.80 | % |
| International Equity Fund | | | | | | |
| Class A | | 1.65 | % | | 1.65 | % (c) |
| Class C | | 2.45 | % | | 2.45 | % (c) |
| Mid Cap Stock Fund | | | | | | |
| Class A | | 1.45 | % | | 1.45 | % |
| Class C | | 2.25 | % | | 2.25 | % |
| Class I | | 0.95 | % | | 0.95 | % |
| Class R-3 | | 1.75 | % | | 1.75 | % |
| Class R-5 | | 0.95 | % | | 0.95 | % |
| | | | | | |
| Expense limitations rate schedule | | 3/1/08 to
2/28/09 | | | 1/2/07 to
2/29/08 | |
| Small Cap Stock Fund | | | | | | |
| Class A | | 1.40 | % | | 1.40 | % |
| Class C | | 2.20 | % | | 2.20 | % |
| Class I | | 0.95 | % | | 0.95 | % |
| Class R-3 | | 1.60 | % | | 1.60 | % |
| 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, 2008, fees and expenses waived and/or reimbursed based on the expense rate limitation schedule were as follows:
| | | | | | |
| Expenses waived and/or reimbursed | | Class A | | Class C | | Class I |
| High Yield Bond Fund | | $65,447 | | $34,271 | | $— |
| Core Equity Fund | | — | | — | | 69,143 |
| Diversified Growth Fund | | — | | — | | 5 |
| Small Cap Stock Fund | | — | | — | | 87 |
For the six-month period ended April 30, 2008, 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. The following table shows the amounts that the Manager may be allowed to recover by Fund and by class of shares and the date in which these amounts will expire.
| | | | | | | | | |
| Recoverable expenses | | 10/31/10 | | 10/31/09 | | 10/31/08 | | | 9/30/08 |
| Core Equity Fund Class I | | $69,143 | | $142,963 | | $181,171 | | | $— |
| Diversified Growth Fund Class I | | 5 | | 21 | | 5 | | | — |
| Growth and Income Trust Class A | | — | | 38,361 | | 13,514 | | | 26,556 |
| Growth and Income Trust Class C | | — | | 6,357 | | 8,286 | | | 3,180 |
| High Yield Bond Fund | | — | | — | | 22,450 | | | 216,634 |
| High Yield Bond Fund Class A | | 58,200 | | 148,917 | | 8,288 | | | — |
| High Yield Bond Fund Class C | | 30,152 | | 72,708 | | 4,382 | | | — |
| Small Cap Stock Fund Class I | | 87 | | 29 | | 46 | | | — |
Notes to Financial Statements
For the six-month period ended April 30, 2008, the Manager recovered previously waived expenses from the Capital Appreciation Trust, Growth and Income Trust and High Yield Bond Fund in the amounts of $2, $47,264 and $11,366, respectively.
Trustees and officers compensation Each member of the Board of Trustees who is not an employee of the Manager receives an annual retainer along with meeting fees for those Heritage Mutual Funds’ regular or special meetings attended in person and 25% of such fees are received for telephonic meetings. All reasonable out-of-pocket expenses are also reimbursed. Trustees’ fees and expenses are allocated on a pro rata basis among each portfolio in the Heritage Mutual Funds for which a Trustee is elected to serve. 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 | Federal income taxes Each fund is treated as a single corporate taxpayer as provided for in the Tax Reform Act of 1986, as amended. Accordingly, no provision for federal income taxes is required since the Funds intend to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character; these adjustments have no effect on net assets or NAV per share. Financial reporting records are not adjusted for temporary differences.
As of April 30, 2008, the identified cost of investments in securities owned by each Fund for federal income tax purposes were as follows:
| | |
| | | Identified cost |
| Capital Appreciation Trust | | $582,032,997 |
| Core Equity Fund | | 214,266,296 |
| Diversified Growth Fund | | 151,783,466 |
| Growth and Income Trust | | 129,625,699 |
| | |
| | | Identified cost |
| High Yield Bond Fund | | $40,030,121 |
| International Equity Fund | | 273,694,454 |
| Mid Cap Stock Fund | | 1,577,953,593 |
| Small Cap Stock Fund | | 348,084,670 |
As of April 30, 2008, 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 | | $163,729,209 | | $(28,583,317) | | | $135,145,892 | |
| Core Equity Fund | | 15,180,501 | | (17,200,991 | ) | | (2,020,490 | ) |
| Diversified Growth Fund | | 35,733,514 | | (3,206,759 | ) | | 32,526,755 | |
| Growth and Income Trust | | 19,219,559 | | (6,302,037 | ) | | 12,917,522 | |
| High Yield Bond Fund | | 414,414 | | (6,242,062 | ) | | (5,827,648 | ) |
| International Equity Fund | | 52,681,537 | | (9,638,960 | ) | | 43,042,577 | |
| Mid Cap Stock Fund | | 126,977,326 | | (64,232,733 | ) | | 62,744,593 | |
| Small Cap Stock Fund | | 68,969,512 | | (42,071,517 | ) | | 26,897,995 | |
NOTE 6 | 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”). FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax return positions presented and disclosed in the financial statements. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. The Manager has evaluated the Funds’ tax positions taken for all open tax years and has concluded that no provision for income tax is required in 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.
Understanding Your Ongoing Costs
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 costs (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, 2007, and held through April 30, 2008. 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, 2007 | | Ending account value
April 30, 2008 | | Expenses paid
during period (a) | | Annualized
expense ratio | |
| | | | |
| Capital Appreciation Trust | | | | | | | | | |
| Class A | | $1,000.00 | | $910.10 | | $5.67 | | 1.19 | % |
| Class C | | $1,000.00 | | $906.60 | | $9.24 | | 1.95 | % |
| Class I | | $1,000.00 | | $911.90 | | $3.73 | | 0.78 | % |
| Class R-3 | | $1,000.00 | | $908.80 | | $6.45 | | 1.35 | % |
| Class R-5 | | $1,000.00 | | $911.70 | | $3.96 | | 0.83 | % |
| Core Equity Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $886.20 | | $5.87 | | 1.25 | % |
| Class C | | $1,000.00 | | $882.60 | | $9.76 | | 2.09 | % |
| Class I | | $1,000.00 | | $888.00 | | $4.46 | | 0.95 | % |
| Class R-5 | | $1,000.00 | | $887.90 | | $4.05 | | 0.86 | % |
| Diversified Growth Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $958.80 | | $6.36 | | 1.31 | % |
| Class C | | $1,000.00 | | $955.30 | | $9.98 | | 2.05 | % |
| Class I | | $1,000.00 | | $960.40 | | $4.63 | | 0.95 | % |
| Growth and Income Trust | | | | | | | | | |
| Class A | | $1,000.00 | | $860.70 | | $6.25 | | 1.35 | % |
| Class C | | $1,000.00 | | $857.10 | | $9.93 | | 2.15 | % |
| High Yield Bond Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $964.70 | | $5.86 | | 1.20 | % |
| Class C | | $1,000.00 | | $961.70 | | $8.78 | | 1.80 | % |
| International Equity Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $891.70 | | $6.51 | | 1.38 | % |
| Class C | | $1,000.00 | | $888.50 | | $10.04 | | 2.14 | % |
| Mid Cap Stock Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $910.10 | | $5.41 | | 1.14 | % |
| Class C | | $1,000.00 | | $906.90 | | $8.87 | | 1.87 | % |
| Class I | | $1,000.00 | | $911.60 | | $3.82 | | 0.80 | % |
| Class R-3 | | $1,000.00 | | $909.20 | | $6.25 | | 1.32 | % |
| Class R-5 | | $1,000.00 | | $911.80 | | $3.51 | | 0.74 | % |
| Small Cap Stock Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $880.00 | | $5.91 | | 1.26 | % |
| Class C | | $1,000.00 | | $876.60 | | $9.38 | | 2.01 | % |
| Class I | | $1,000.00 | | $881.10 | | $4.44 | | 0.95 | % |
| Class R-3 | | $1,000.00 | | $879.50 | | $6.35 | | 1.36 | % |
| Class R-5 | | $1,000.00 | | $881.30 | | $4.23 | | 0.90 | % |
(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 (182); and then dividing that result by the actual number of days in the fiscal year (366).
Understanding Your Ongoing Costs
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, 2007 through April 30, 2008 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, 2007 | | Ending account value
April 30, 2008 | | Expenses paid
during period (a) | | Annualized
expense ratio | |
| | | | |
| Capital Appreciation Trust | | | | | | | | | |
| Class A | | $1,000.00 | | $1,018.92 | | $6.00 | | 1.19 | % |
| Class C | | $1,000.00 | | $1,015.18 | | $9.76 | | 1.95 | % |
| Class I | | $1,000.00 | | $1,020.96 | | $3.94 | | 0.78 | % |
| Class R-3 | | $1,000.00 | | $1,018.11 | | $6.82 | | 1.35 | % |
| Class R-5 | | $1,000.00 | | $1,020.72 | | $4.19 | | 0.83 | % |
| Core Equity Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $1,018.64 | | $6.28 | | 1.25 | % |
| Class C | | $1,000.00 | | $1,014.49 | | $10.44 | | 2.09 | % |
| Class I | | $1,000.00 | | $1,020.14 | | $4.77 | | 0.95 | % |
| Class R-5 | | $1,000.00 | | $1,020.58 | | $4.33 | | 0.86 | % |
| Diversified Growth Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $1,018.37 | | $6.56 | | 1.31 | % |
| Class C | | $1,000.00 | | $1,014.65 | | $10.29 | | 2.05 | % |
| Class I | | $1,000.00 | | $1,020.14 | | $4.77 | | 0.95 | % |
| Growth and Income Trust | | | | | | | | | |
| Class A | | $1,000.00 | | $1,018.15 | | $6.77 | | 1.35 | % |
| Class C | | $1,000.00 | | $1,014.17 | | $10.77 | | 2.15 | % |
| High Yield Bond Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $1,018.90 | | $6.02 | | 1.20 | % |
| Class C | | $1,000.00 | | $1,015.91 | | $9.02 | | 1.80 | % |
| International Equity Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $1,017.98 | | $6.95 | | 1.38 | % |
| Class C | | $1,000.00 | | $1,014.23 | | $10.71 | | 2.14 | % |
| Mid Cap Stock Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $1,019.20 | | $5.72 | | 1.14 | % |
| Class C | | $1,000.00 | | $1,015.56 | | $9.38 | | 1.87 | % |
| Class I | | $1,000.00 | | $1,020.87 | | $4.03 | | 0.80 | % |
| Class R-3 | | $1,000.00 | | $1,018.32 | | $6.61 | | 1.32 | % |
| Class R-5 | | $1,000.00 | | $1,021.19 | | $3.71 | | 0.74 | % |
| Small Cap Stock Fund | | | | | | | | | |
| Class A | | $1,000.00 | | $1,018.58 | | $6.34 | | 1.26 | % |
| Class C | | $1,000.00 | | $1,014.87 | | $10.07 | | 2.01 | % |
| Class I | | $1,000.00 | | $1,020.14 | | $4.77 | | 0.95 | % |
| Class R-3 | | $1,000.00 | | $1,018.11 | | $6.82 | | 1.36 | % |
| Class R-5 | | $1,000.00 | | $1,020.36 | | $4.55 | | 0.90 | % |
(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 (182); and then dividing that result by the actual number of days in the fiscal year (366).
Principal Risks
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 | | X | | X | | X | | X | | | | X | | X | | X |
| Growth stocks | | X | | X | | X | | X | | | | X | | X | | X |
| Value stocks | | | | X | | | | X | | | | | | | | |
| Mid-cap companies | | X | | | | X | | X | | | | | | X | | |
| Small-cap companies | | X | | | | X | | X | | | | | | | | X |
| High-yield securities | | | | | | | | X | | X | | X | | | | |
| Credit | | | | | | | | X | | X | | X | | | | |
| Foreign securities | | X | | | | | | X | | X | | X | | | | |
| Emerging markets | | | | | | | | | | X | | X | | | | |
| Derivatives | | | | | | | | | | | | X | | | | |
| Covered call options | | | | | | | | X | | | | | | | | |
| Changes in interest rates | | | | | | | | X | | X | | | | | | |
| Government sponsored entities | | | | | | | | X | | | | | | | | |
| Focused holdings | | X | | X | | | | | | | | | | | | |
| Sectors | | X | | X | | | | | | | | X | | | | |
| Portfolio turnover | | | | | | X | | | | | | | | X | | |
| Market timing activities | | | | | | | | X | | | | X | | | | |
| Other investment companies | | | | | | | | | | | | X | | | | |
Stock market | 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
Principal Risks
companies may have less market liquidity than mid-cap 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 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.
Credit | 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.
Foreign securities | Investments in foreign securities involve greater risks than investing in domestic securities. As a result, a fund’s returns and NAV 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 mentioned above of investing in foreign securities are heightened. 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 other 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.
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 debt 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
Principal Risks
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 more diversified funds, the increase or decrease of the value of a single stock may have a greater impact on the fund’s NAV and total return.
Sectors | 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 change. To the extent that a fund has substantial holdings within a particular sector, the risks associated with that sector increase.
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 NAV. 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 NAV of a fund’s shares. There is no assurance that fair valuation of securities can reduce or eliminate market timing. While Heritage Asset Management, Inc. monitors trading in the fund, there is no guarantee that it can detect all market timing activities.
Other investment companies and ETFs | Investments in the securities of other investment companies and ETFs, (which may, in turn invest in equities, bonds, and other financial vehicles) may involve duplication of advisory fees and certain other expenses. By investing in another investment company or ETF, a Fund becomes a shareholder of that investment company or ETF. As a result, Fund shareholders indirectly bear the Fund’s proportionate share of the fees and expenses paid by shareholders of the other investment company or ETF, in addition to the fees and expenses Fund shareholders directly bear in connection with the Fund’s own operations. As a shareholder, the Fund must rely on the investment company or ETF to achieve its investment objective. If the investment company or ETF fails to achieve its investment objective, the value of the Fund’s investment will decline, adversely affecting the Fund’s performance. In addition, because ETFs are listed on national stock exchanges and are traded like stocks listed on an exchange, ETF shares potentially may trade at a discount or a premium. Investments in ETFs are also subject to brokerage and other trading costs, which could result in greater expenses to a Fund. Finally, because the value of ETF shares depends on the demand in the market, the portfolio manager may not be able to liquidate a Fund’s holdings at the most optimal time, adversely affecting the Fund’s performance.
HeritageFunds.com
727.567.8143 I 800.421.4184
Heritage Fund Distributors, Inc.
Member FINRA
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 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, 2007, 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. Would you like to receive future mailings via e-mail? If so, please let us know. Visit HeritageFunds.com to enroll.
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| 04/08 | |  | | Printed on recycled paper |
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-3(c) under the Investment Company Act of 1940, as amended), the Principal Executive Officer and Principal Financial Officer of Heritage Growth & Income Trust have concluded that such disclosure controls and procedures are effective as of July 2, 2008. |
| (b) | There was no change in the internal controls over financial reporting (as defined in Rule 30a-3(d)) of Heritage Growth & Income 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.
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 certification 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.
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.
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| | HERITAGE GROWTH & INCOME TRUST |
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| Date: July 2, 2008 | | | | |
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| | | | /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.
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| Date: July 2, 2008 | | | | |
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| | | | /s/ Mathew J. Calabro |
| | | | Mathew J. Calabro Principal Executive Officer |
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| Date: July 2, 2008 | | | | |
| | |
| | | | /s/ Andrea N. Mullins |
| | | | /s/ Andrea N. Mullins Principal Financial Officer |
