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! ) Portfolio; Compositio" INSTITUTIONAL '. As.l pern.'rrt.lgf! of tot.l( .1~serS GOVERNMENT INCO:NIE RECE1VED PORTFOLIO DEe 2 81994 illY OF ARDEN HILLS November 30, 199.:1- Institutional Government Income Portfolio':; investment objectit/e is a high in'ei of current income consistent with preseroation of c..lpiul. - u.s. .-\l:!;l:I1CY Po..-:!'olio Commentat-y - Prm"':lp.ll-unlv i,2."" I I The economic figures reponed in November did little to cJ.lm fixed - Shofr.Term 11 (~-;, income invesrors' fears ot infla[ion~ as most economic data continued co U.S. T~e:lsury 23')/" indicate <l strong U.S. economy. Even after the Federal Reserve's -5 - basis poinr increase uf both the feder:ll funds rate and the dis...:ounr rate, - investors began predicting further interest rate increases. The unsettled , Fund Performance Treasury marker dissuaded some invesrors from rhe mortgage~backed - securities marker. Nlany have nor rerurned to this market since the Fund performance calculations <.Ire through exodus earlier this year when interest rates rose sharply and November 30, 1994, and reflect the reinvestment of unexpectedly. Consequently, the spreads of these securities (the I dl dividend and capital gams distributions. difference between [he bid and offer prices l continue co be wider rhan One.Year Total Return their histOrical norms. Does not reflect the fimd's L5~,"o sales charge. The fund's November toral teturn was -1.89% (with dividends I eriturional Govemmenc Income Porrtolio.....-29.46% reinvested and not including sales chatgel compared ro the Merrill errill Lynch 3~j Year Treasury Index.........42.72% Lynch 3~ to 5-Year Index's total remrn of -0.71 ~-~. Average Annual Total Re'turns Beginning with the December dividend payout, we are I Rer1ects the fund's L5%l safes charge. increasing the monthly dividend of the Institutional Government One-Year ...........................................,..,.....-30.52 ';''0 Income Portfolio to 8.5 cents per share, from 7.5 cents per share, Fi\'e. Year .............................................__........3.3 7Oc~ which the fund has paid since inception. Assuming stable conditions I Since Inl.;eption (7/11/88) ...............................4.82% in the fixed income market, we believe this higher dividend can be sustained for much of 1995. subject co rhe level of purchases and I Fund Statistics: redemptions. - - - - Our decision to raise rhe dividend is based on t\vo factors. Firsr. [he fund has continued to e3rn an amount char approximates [he monthly Net Assets 5420 million dividend. despite the fact that 441~{.. of the portfolio is now im.ested in I Net A5se~ Value 57.45 (:;1sh, one- Jnd rwo~~ear U.S. Tre:1sury securities. This is primaril~' due co Inception Date July 1988 the dram3ric rise in interest rates over the course ot 1994. whlch has I Fiscal Year End September 30 enabled the fund to purchase short-term and Treasury securities -char are at higher rates than in 1993. In addition, cash flow trom the morrgage- Ti cker Sym bo I PJlGX backed derivative securities in the porttolio has remained fairly stable, in I Initiallnvescment Fund dosed to spite of the market conditions that led to depressed pncing or those new Investors securmes. Subsequent Investments 52,500 Second, bec;1use the fund now has fewer sh;1res nursmnding, the I 12-Month Distribution 51.18 dividend reserve has increased when measured on J per~share basis. The dividend reserve is undisrributed earnings from the fund that are held in . reserve to help ensure continued sr;1biliry of the fund's dividend. The I dividend reserve is reflecred in the fund's net asset \.alue iNt\. v) and income p;1id from this reserve may redu(:e the funJ\ 0JA V. I ("lJl!wltIl:'d '-,J1:)vlCl.: {J.':;C