<PAGE>
DISCOVERY SELECT-SM- Variable Annuity
is issued by Pruco Life Insurance Company,
except in New York where the issuer is
Pruco Life Insurance Company of New Jersey.
DISCOVERY SELECT is offered through Pruco
Securities Corporation. All are subsidiaries of
The Prudential Insurance Company of America.
ANNUAL REPORT TO CONTRACT OWNERS
DECEMBER 31, 1996
[GRAPHIC]
AS INDIVIDUAL AS YOU
Prudential - AIM Advisors - Janus - MFS - OpCap Advisors
- T. Rowe Price - Warburg Pincus
DISCOVERY SELECT-SM-
------------------
VARIABLE ANNUITY
<PAGE>
- --------------------------------------------------------------------------------
This Annual Report includes the financial statements of the variable investment
options in the DISCOVERY SELECT-SM- Variable Annuity. It does not include
the financial statements for your separate account. DISCOVERY SELECT Variable
Annuity was first offered to the public on October 7, 1996.
- --------------------------------------------------------------------------------
IMPORTANT NOTE
This Report may be used with contract owners only.
The rates of return quoted on the following pages reflect deduction of
investment management fees and investment-related expenses, but not product
charges. They reflect the reinvestment of dividend and capital gains
distributions. They are not an estimate or a guarantee of future performance.
Contract unit values increase or decrease based on the performance of the
portfolio and when redeemed, may be worth more or less than original cost.
Changes in contract values depend not only on the investment performance of
the portfolio but also on the insurance and administrative charges,
applicable sales charges, and the mortality and expense risk charge
applicable under the contract. These contract charges effectively reduce the
dollar amount of any net gains and increase the dollar amount of any net
losses.
Your Pruco Securities Representative or Prudential Securities Financial Advisor
can provide you with actual rates of return for your annuity contract, and show
you a personalized illustration of how insurance charges affect the returns you
experience.
All data from the outside companies was provided to Prudential from the fund
directly. Prudential does not guarantee the accuracy or completeness thereof.
DISCOVERY SELECT Variable Annuity is offered by Pruco Securities Corp.,
a subsidiary of The Prudential Insurance Company of America. The
principal business address of Pruco Securities is 1111 Durham Avenue, South
Plainfield, NJ 07080.
<PAGE>
YEAR ENDED DECEMBER 31, 1996
LETTER TO CONTRACT OWNERS
[PHOTO]
E. MICHAEL CAULFIELD
PRESIDENT
DEAR CONTRACT OWNER:
We are pleased to report to you on the performance of the variable
investment options that underlie your DISCOVERY SELECT-SM- Variable
Annuity contract.
We are especially pleased because 1996 was an extraordinary time for the U.S.
stock market. In fact, stocks have just concluded their best two-year
performance in 20 years, with back-to-back, 20% plus returns in both 1995 and
1996, as measured by the S&P 500. (If you look at the more
narrowly focused Dow Jones Industrial Average, it was the best in 40 years).
Conditions were ideal for stock investors -- U.S. economic growth was moderate,
inflation was stable, and corporate profits rose. 1996 was more difficult for
bonds, although they did finish in positive territory.
CONSISTENCY COUNTS.
Although in this report we're focusing primarily on one-year performance,
remember that it's long-term performance that counts. You'll note that over the
past three, five and 10 years, many of the Portfolios have consistently
delivered excellent performance as well, both on an absolute basis and in
comparison with funds with similar objectives.
Our goal is to achieve this kind of above-average investment performance over
time. Such long term consistency is important, because most people buy variable
annuity products to finance long-term goals. So when you consider how to
allocate either new or existing assets among these Portfolios, please look
closely at their long-term performance as well.
As of this writing, the U.S. stock market sits at valuations outside all
historic boundaries. While we certainly cannot predict the market's future
course, we believe it is worth reminding you that your asset allocations should
be based on reasonable expectations for those asset classes, not
on most recent performance. If you wish to, contact your Prudential Securities
Financial Advisor or Pruco Securities Representative for
assistance in structuring a program to help meet your needs.
All of us at Prudential thank you for your business in 1996 and look
forward to helping you make a plan for your future financial security.
/s/ E. Michael Caulfield
E. Michael Caulfield
President
January 23, 1997
<PAGE>
MARKET REVIEW
U.S. STOCKS
1995 - 96: TWO BEST YEARS IN 20.
Remember gas lines, bellbottoms and Nixon's resignation? That was the last
two-year period that U.S. stocks rose as much as they did in 1995 and 1996.
Stocks soared 61% during 1975 - 76, while they rose "only" 60% in 1995 - 96, as
measured by the S&P 500.* Interestingly, the 1975 - 76 rally marked a recovery
from the depths of an extraordinary bear market (stocks were down 41% over the
prior two years) induced by the Arab oil embargo. In contrast, the 1995 - 96
U.S. stock rally started at much higher levels -- stocks
hadn't experienced a down year since 1990 -- which makes it all the more
exceptional.
LARGE STOCKS WERE LEADERS.
Stocks of large companies were the ones to own in 1996. The Dow Jones Industrial
Average, the most widely quoted measure of stock prices, shot through 6000 in
October -- its third 1,000-point mark in as many years. Small company stocks
trailed, rising 17% as measured by the Russell 2000.* (These companies are
generally defined as those whose outstanding stock is valued at less than $1
billion.) As the stock market rose ever higher, large company stocks drew more
and more interest. Investors figured that if stock prices in general should
start to tumble, these large, well-known companies would be much easier and
faster to sell than smaller, more thinly traded stocks.
GROWTH INVESTING NARROWLY OUTPACED VALUE INVESTING.
There are two primary styles of investing in stocks: "value," which favors
low-priced stocks that are temporarily out of favor, and "growth," which prefers
stocks of companies that are growing their earnings at an above-average rate. In
1996, the growth style of investing narrowly outperformed value investing, 23%
to 22.7%, as measured by the Russell 1000.*
- --------------------------------------------------------------------------------
HOW THE MARKETS COMPARED.(1)
[GRAPH]
AVERAGE RETURN OVER
RETURN IN 1996 PAST 20 YEARS (ANNUALIZED)
MONEY MARKET 4.9% 7.7%
BONDS 2.9% 9.4%
FOREIGN STOCKS 14.0% 14.2%
U.S. STOCKS 23.0% 14.6%
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THIS CHART COMPARES THE MOST RECENT 12-MONTH RETURN FOR VARIOUS CATEGORIES
OF INVESTMENTS WITH THE AVERAGE ANNUAL TOTAL RETURN OVER 20 YEARS FOR THE
SAME INVESTMENT. AS YOU CAN SEE, STOCK AND BOND MARKET RETURNS CAN VARY
CONSIDERABLY FROM YEAR TO YEAR. UNLIKE STOCKS, BONDS GENERALLY OFFER A
FIXED RATE OF RETURN AND PRINCIPAL IF HELD TO MATURITY. AN INVESTMENT'S
PAST PERFORMANCE SHOULD NEVER BE USED TO PREDICT FUTURE RESULTS. THERE ARE
DIFFERENT RISKS ASSOCIATED WITH EACH INVESTMENT SECTOR, WHICH SHOULD BE
CAREFULLY CONSIDERED BEFORE INVESTING.
(1) SOURCE: PRUDENTIAL. FOR PURPOSES OF COMPARISON ONLY.
U.S. MONEY MARKETS AS MEASURED BY LIPPER MONEY MARKET AVERAGE. BONDS AS
MEASURED BY THE LEHMAN BROTHERS GOVERNMENT/CORPORATE AGGREGATE INDEX.
FOREIGN STOCKS AS MEASURED BY THE MORGAN STANLEY CAPITAL INTERNATIONAL
WORLD INDEX. U.S. STOCKS AS MEASURED BY THE S&P 500 INDEX.
2
<PAGE>
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U.S. STOCKS:
TECHNOLOGY TRIUMPHS
Technology 40.5%
Finance 35.5%
Energy 25.5%
Industrial 23.1%
Consumer Growth
& Staples 20.0%
Consumer Cyclical 18.2%
Utilities 2.7%
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SOURCE: PRUDENTIAL.
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LARGE STOCKS OUTPERFORMED SMALL STOCKS.
20-Year
1996 Average
---- -------
S&P 500* 23.0% 14.6%
NASDAQ* 22.7% 13.8%
Russell 2000* 16.5% 15.6%(1)
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(1) THE RUSSELL 2000 INDEX WAS FIRST CALCULATED IN 1978.
THE INDEX IS FOR 18 YEARS.
* THE STANDARD & POOR'S 500, NASDAQ, RUSSELL 1000 AND RUSSELL 2000 ARE
UNMANAGED INDICES THAT ARE CONSIDERED TO BE GENERALLY REPRESENTATIVE OF THE
U.S. STOCK MARKETS. INVESTORS CANNOT INVEST DIRECTLY IN INDICES OR MARKET
AVERAGES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
TECHNOLOGY WAS TOPS.
Technology stocks rose over 40% in 1996, growing 14% in November alone. A few
years ago, technology's stock market stars were companies with obscure names and
even more obscure products. In 1996, however, technology's stars were household
names. IBM, for example, rose 50% from midyear. Microsoft and Intel did well,
too, as innovative Internet and networking products captured America's
attention. (Technology stocks are classic examples of growth stocks: the
explosive use of computers in recent years is leading to tremendous earnings
growth for computer-related companies.)
- --------------------------------------------------------------------------------
THE DOW IN 1996.
[GRAPH]
AFTER A BRIEF EARLY DIP, THE DOW ROSE NEARLY 13% FROM JANUARY
TO MAY.
THE DOW THEN CLIMBED 20.7% FROM JULY TO DECEMBER TO CLOSE AT 6455.
A SUMMERTIME SCARE COST THE DOW 7.5% IN JULY.
- --------------------------------------------------------------------------------
DAILY CLOSES OF THE DOW JONES INDUSTRIAL AVERAGE FOR 1996.
Financial stocks also advanced smartly, by more than 35%. Profits at financial
services firms remained strong, and mergers and acquisitions in banking also
helped. (Bank stocks have risen twice as fast as the overall market in the last
two years.) As fears subsided that the Federal Reserve would feel compelled to
raise short-term interest rates to control inflation, interest rates drifted
lower in the second half of 1996.
3
<PAGE>
1996 MARKET REVIEW CONTINUED
U.S. BONDS
1996 WAS NO 1995.
After delivering double-digit returns in 1995, bonds were a disappointment in
1996, finishing far behind stocks. Interest rates rose early in the year, then
fell, but unfortunately ended only slightly higher than where they began,
limiting investors' gains. The villain was an economy that threw off conflicting
signals -- first accelerating frightfully, then settling down to a moderate pace
later in the year.
Bond prices fell early in 1996 when economic growth accelerated, because
investors feared rising inflation and in turn higher interest rates. And when
economic growth was cut in half over the summer, bonds rose, but not enough to
recoup their earlier losses. (Bonds do best when interest rates are falling, or
at least not rising.)
As a result, bonds returned only 3.6% in 1996, as measured by the Lehman
Brothers Aggregate Index. The yield on the bellwether 30-year U.S. Treasury
bonds rose by nearly three quarters of a percentage point, to 6.64% on December
31, up from 5.95% a year earlier.
HIGH YIELD BONDS LED THE U.S. MARKET.
High yield corporate bonds led all other sectors of the U.S. bond market in
1996, returning 11.4%. The same factors that lifted stocks lifted high yield
bonds: solid economic conditions and growing corporate profits. High yield bonds
frequently track the stock market more closely than the bond market, because
their high coupons insulate them from rising interest rates and their lower slot
in a company's credit structure nestles them closely to stocks.
- --------------------------------------------------------------------------------
30-YEAR U.S. TREASURY YIELDS
[GRAPH]
BOND PRICES FELL--AND YIELDS ROSE--UNTIL JULY.
SLOWER ECONOMIC GROWTH HELPED YIELDS DECLINE IN THE SECOND HALF OF THE YEAR.
- --------------------------------------------------------------------------------
WEEKLY CLOSING YIELDS FOR 1996. SOURCE: LEHMAN BROTHERS, AS OF 12/31/96.
- --------------------------------------------------------------------------------
IN U.S., HIGH YIELD WAS BEST.
High Yield 11.4%
Mortgages 5.4%
Aggregate Index 3.6%
Corporates 3.3%
Governments 2.8%
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SOURCE: LEHMAN BROTHERS, AS OF 12/31/96.
4
<PAGE>
FOREIGN STOCKS
IN 1996, NO MATCH FOR U.S. ISSUES.
Foreign stock markets just couldn't keep up with the torrid pace of the U.S.
stock market in 1996, as economic growth slowed overseas and corporate profits
weakened. This was the second year in a row that international stock markets
trailed behind those of the United States.
EUROPEAN STOCKS RISE.
Stocks were strongest in Europe, rising nearly 22% (just behind those in the
United States), as interest rates fell and corporations cut costs by
restructuring. European governments want to enter economic and monetary union in
1999 with shipshape budgets, and as a result government spending across Europe
declined in 1996, allowing interest rates to fall. In addition, many European
companies are restructuring to better compete in fast-paced and demanding
worldwide markets, helping to grow corporate profits and lift stock prices.
Fortunately, European stocks didn't need to rely on economic growth, which
was sluggish.
PACIFIC STOCKS DISAPPOINT.
Stocks were once again weakest in the Pacific, falling 8.4%. Economic growth was
slower than expected in this region, which hurt corporate profits, particularly
in Japan. Although Hong Kong markets rebounded nicely as fears surrounding the
scheduled Chinese takeover on July 1, 1997, subsided, virtually all other
markets from Singapore to Japan dragged down returns.
Japan, with $1.8 trillion in market capitalization (the largest stock market in
the world behind that of the United States), won the dubious distinction of
being the worst performing major stock market in the world in 1996, in total
return measured in U.S. dollars. Japan remains a stubborn enigma. Its economy
grew by 13% in the first quarter of 1996 (the fastest since 1973), lifting
stocks to their highest levels in four years and raising investor hopes that the
market had broken out of its doldrums once and for all. But the rest of the year
was a crushing disappointment, as economic growth in Japan slowed substantially,
with stocks following suit.
- --------------------------------------------------------------------------------
EUROPE LED FOREIGN
STOCK MARKETS IN 1996
MSCI World Index 14.0%
MSCI Europe Index 21.6%
MSCI EAFE Index 6.4%
MSCI Pacific Index -8.4%
MSCI Japan Index -15.4%
S&P 500 Index 23.0%
- --------------------------------------------------------------------------------
SOURCE: MORGAN STANLEY CAPITAL INTERNATIONAL, AS OF 12/31/96.
THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX IS A WEIGHTED,
UNMANAGED INDEX OF PERFORMANCE OF 1,472 SECURITIES LISTED ON THE STOCK EXCHANGES
OF THE U.S., EUROPE, CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST. INVESTORS
CANNOT INVEST DIRECTLY IN AN INDEX.
MORGAN STANLEY COUNTRY INDICES [EUROPE, ASIA, FAR EAST (EAFE), PACIFIC AND
JAPAN] ARE UNMANAGED INDICES THAT INCLUDE THOSE STOCKS MAKING UP THE LARGEST
TWO-THIRDS OF EACH COUNTRY'S TOTAL STOCK MARKET CAPITALIZATION. THIS CHART IS
FOR ILLUSTRATIVE PURPOSES ONLY AND IS NOT INDICATIVE OF THE PAST, PRESENT OR
FUTURE PERFORMANCE OF ANY SPECIFIC INVESTMENT. INVESTORS CANNOT INVEST DIRECTLY
IN STOCK INDICES.
THE STANDARD & POOR'S 500 IS A WEIGHTED, UNMANAGED INDEX COMPRISED OF 500
STOCKS, WHICH PROVIDES A BROAD INDICATOR OF STOCK PRICE MOVEMENTS.
5
<PAGE>
PRUDENTIAL'S OUTLOOK
- --------------------------------------------------------------------------------
ECONOMIC OUTLOOK.
Est.
1996 1997
---- ----
GDP* 2.5% 2.00%
Inflation 3.2% 2.75%
- --------------------------------------------------------------------------------
* GROSS DOMESTIC PRODUCT.
THE ECONOMY.
Our economists at Prudential expect slower economic growth and
subdued inflation in 1997. We're looking for the U.S. economy to grow by 2% and
inflation to run at 2.75%, both slightly lower than in 1996. This is somewhat
slow for an economic expansion, but remember that we are now in our seventh
consecutive year of economic growth. The Federal Reserve Board believes that
this is about as fast as an economy can grow in this stage of the business cycle
without increasing inflation.
Our economists expect interest rates, which rose in January, to slowly drift
lower as the year progresses, with slower economic growth reducing the demand
for money. They believe that the Federal Reserve may cut short-term interest
rates later this year, perhaps by a quarter of a percentage point.
Foreign economic growth should be slightly faster than in 1996.
U.S. STOCKS.
Can the U.S. stock market repeat its performance of 1995 and 1996? With the Dow
Jones Industrial Average approaching 7000 and U.S. economic growth excepted to
slow, this has become more and more unlikely.
Slower economic growth means less consumer and business spending, which will
translate into slower growth in sales and revenues for U.S. companies. In the
past few years, American companies were able to report sparkling corporate
profits even when their revenues were static, because they were lowering costs
by restructuring. But now already restructured balance sheets will not be as
easy to improve as they had been in prior years without some help from the top
line: revenues.
Some of our value-oriented managers continue to be in a defensive mode. Although
they see potential in some financial, paper, retail and heavy industrial stocks,
they have been having great difficulty finding enough attractively priced
companies at these elevated stock market levels. Our growth-oriented managers
are more inclined to stay with technology stocks, which have served them well
over the last two years and in which they see even further growth this year. In
addition, they like pharmaceuticals and specialty consumer and media companies.
6
<PAGE>
We'll be watching financial stocks closely. These issues have performed
handsomely over the past two years as interest rates fell in 1995 and once again
in the second half of 1996.
U.S. BONDS.
We expect the U.S. bond market to be volatile throughout 1997 but end little
changed from 1996. Investors should earn their coupon income plus perhaps some
slight capital appreciation.
The bond market may be jolted from time to time as investors try to decipher
whether government statistics show the economy weakening or strengthening, and
whether inflation could fall or rise as a result. Inflation was benign in 1996,
but unemployment hit a seven-year low last fall, which could induce pressure for
higher wages.
One question we've had for some time roiled the bond market in December: Will
investors overseas continue to buy U.S. bonds? Foreign buyers (especially the
Japanese) have bought at least three quarters of all the new U.S. Treasury bonds
issued over the last year, partly because the strengthening U.S. dollar made
U.S. Treasurys seem like a bargain to foreign investors. The dollar started to
give back some of its gains at year-end, and some Japanese officials have
signaled that the days of a weakening yen are drawing to a close. If Japanese
buyers fade from the U.S. market, demand for U.S. Treasurys could taper off and
interest rates could rise. So we'll be watching foreign buying carefully.
FOREIGN STOCKS.
We're positive on foreign stocks for 1997. Economic growth overseas should be a
lot stronger than in the U.S. in 1997, and stock prices overseas are lower.
We expect continued strong performance in Europe for at least the first half of
1997. In the Pacific, negative sentiment runs deep, but we see signs that even
this is starting to turn. Investors are beginning to look seriously at the
foreign markets, and we expect this trend to accelerate in 1997.
- --------------------------------------------------------------------------------
A REALITY CHECK.
The last two years have been the best in 20 years for the U.S. stock market.
We're quite pleased with the unusually high returns that stocks have provided
for our Contract Owners, and we are certain you are too. These types of returns
bring you closer to your goals of financial security faster than you might have
expected.
As much as we would like this tremendous performance to continue year after
year, we know it cannot. It's simply the law of averages.
Since 1926, the U.S. stock market has returned an average of 10.7% a year, as
measured by the S&P 500. Yet, in recent years, returns have been skewed much
higher, as the chart below shows.
- --------------------------------------------------------------------------------
RETURNS OF THE U.S. STOCK
MARKETS
Average
Annual
Return
-------
LAST 70 YEARS
1926-1996 10.7%
RECENT BULL MARKET
1982-1996 16.8%
LAST TWO YEARS
1995 37.4%
1996 23.0%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL.
Looking for another year of spectacular returns? These statistics suggest it
is unlikely. 1997 might turn out to be much closer to the long-term average.
7
<PAGE>
MONEY MARKET PORTFOLIO
PERFORMANCE SUMMARY.
Once again, it was another excellent year for your Portfolio. With a return of
5.2%, your Portfolio easily surpassed the 4.8% return of the average money
market fund tracked by Lipper Analytical Services. 1996 marked the tenth
consecutive year of top performance for your Portfolio. Your Portfolio's 7-day
yield was 5.15% (on 12/31/96). That's higher than our yield of 5.04% on
June 25, because we were able to take advantage of unusually high short-term
interest rates at year-end. Rates tend to rise as demand increases for cash at
the end of the year, when many firms finish their yearly accounting statements.
An investment in the Money Market Portfolio is neither insured nor guaranteed by
the U.S. government. There is no guarantee that the Portfolio will be able to
maintain a stable share value of $10.00.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1996
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------
MONEY MARKET(1) 5.22% 5.02% 4.36% 5.91%
- --------------------------------------------------------------------------------
LIPPER (VIP) MONEY MARKET AVG.(2) 4.81% 4.67% 4.02% 5.60%
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO INCEPTION DATE: 5/1/83.
- --------------------------------------------------------------------------------
SHORT-TERM INTEREST RATES DURING THE PAST 12 MONTHS
MONEY MARKET PORTFOLIO
AVERAGE MONEY MARKET FUND
[GRAPH]
- --------------------------------------------------------------------------------
WEEKLY 7-DAY CURRENT YIELDS OF THE MONEY MARKET PORTFOLIO AND THE IBC FINANCIAL
DATA, INC., MONEY MARKET FUND AVERAGE.
- --------------------------------------------------------------------------------
(1) PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PORTFOLIO
PERFORMANCE IS NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(2) THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) MONEY MARKET AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT
RETURNS OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS.
THESE RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
- --------------------------------------------------------------------------------
[CHART]
LOW RISK
FIXED INCOME
BALANCED
HIGH YIELD BOND
DIVERSIFIED STOCK
SPECIALIZED
HIGH RISK
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Current income, stability of capital and maintenance of liquidity.
TYPES OF INVESTMENTS
Short-term money market securities that generally mature in 13 months or less.
These securities primarily consist of U.S. Treasury bills (T-bills) and other
instruments issued by or guaranteed by the U.S. government or its agencies;
Certificates of Deposit (CDs); Commercial Paper and Bankers' Acceptances.
PERFORMANCE REVIEW.
WE MADE THE RIGHT CALL ON INTEREST RATES. During 1996, we continued to focus on
securities with both high yields and good quality. To seek superior yields, we
try to anticipate if, and in what direction, the Federal Reserve will maneuver
the rates banks pay when they borrow (which, in turn, affects all other interest
rates).
If we expect interest rates to fall, we lengthen maturities to lock in current
high rates. If we expect interest rates to rise, we shorten maturities so we are
prepared to buy securities at higher rates as they become available.
In 1996, anticipating interest rates proved to be especially challenging
because, while the Federal Reserve kept rates steady, investors' concerns about
the direction of the economy caused money market interest rates to fluctuate.
They rose in the first half of the year and then declined in later months.
8
<PAGE>
STRATEGY SESSION.
WE FOCUSED ON SHORT-TERM CORPORATE NOTES AND CDS. As the year began, we were
skittish that the Federal Reserve might raise short-term rates. So we focused on
shorter maturities, while selectively buying longer-term corporate notes. These
instruments were attractive because they offered not only top-tier credit
quality but also higher yields.
In the fall -- when further rises in interest rates seemed unlikely -- we began
to add more corporate issues with longer maturities. This enabled us to lock in
higher yields.
OUTLOOK
PORTFOLIO MANAGER
MANOLITA BRASIL
STEADY AS IT GOES.
"I track short-term rates by monitoring Federal Reserve policy and its
key interest rate, the Fed Funds rate (what banks charge each other for
overnight loans). Right now, Federal Reserve policy is neutral and I believe
that policy will remain in place at least through the first quarter of the year.
Thus, I expect the Fed Funds rate will remain at its current 5.25%.
As long as inflation remains tame, there is no need for the Federal Reserve to
raise short-term interest rates. Conversely, with the economy growing at a
moderate pace, there is no reason for the Federal Reserve to lower
interest rates.
"What could change this picture? Consumer spending is the key factor
to watch. After all, it represents two-thirds of the nation's total output.
If consumers stop spending, then economic growth will slow, causing a recession.
In that case, the Federal Reserve may lower short-term rates to try and
jumpstart the economy. On the other hand, if strong job growth leads to rising
wages, inflation pressures may mount, causing the Federal Reserve to raise
short-term interest rates.
"I will monitor trends in consumer spending, job growth and the Federal Funds
rate very carefully.
"In 1997, I hope the Portfolio continues to serve your need for current income
as well as it has in the past years. While the Portfolio offers a good
short-term place for your cash awaiting other investment destinations,
it may not the best option for long-term investment objectives. I'd encourage
you to look carefully at other Series Fund portfolios for your longer-term
investment goals."
[PHOTO]
PORTFOLIO MANAGER
MANOLITA BRASIL
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
12/31/96 12/31/95
-------- --------
U.S. Comm. Paper 47% 45%
Floating/Adj. Rate 20% 17%
Foreign Bank Oblg. 17% 15%
Yankee Comm. Paper 6% 7%
Other Corp. Oblg. 5% 5%
U.S. Bank Oblg. 4% 4%
Bank Holding Co. Oblg. 1% 4%
Gov't. Agencies 0% 3%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
A WORD ABOUT QUALITY.
AS OF DECEMBER 31, 1996, SUBSTANTIALLY ALL OF THE PORTFOLIO'S INVESTMENTS
WERE RATED AT LEAST "AA" OR "PRIME 2" BY MOODY'S INVESTORS SERVICE; "AA" OR
"A-2" BY STANDARD & POOR'S RATING GROUP; "AA" OR "DUFF 2" BY DUFF & PHELPS
CREDIT RATING CO. INVESTMENTS DEEMED TO BE OF EQUIVALENT QUALITY THAT WERE
NOT RATED WERE SUBJECT TO BOARD RATIFICATION.
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
9
<PAGE>
DIVERSIFIED BOND PORTFOLIO
PERFORMANCE SUMMARY.
1996 was a good year for your Portfolio although, as we noted earlier, the bond
market in general was soft. With a total return of 4.4%, your Portfolio placed
above the Lipper Corporate Debt category for the second consecutive year. In
fact, your Portfolio's returns in 1996 were over a full percentage point higher
than similar funds (up 2.8%). We achieved these superior results by emphasizing
yield as well as relative value when buying bonds last year.
1996 saw the continuation of strong performance for your Portfolio. If you've
been a long-term investor in this Portfolio, you've become accustomed to
consistent, solid returns -- year after year. In fact, your Portfolio has
outperformed the average corporate debt fund in variable life and annuity
products over the past 3, 5, and 10 years.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation and the impact of social, political and
economic change.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1996
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------
DIVERSIFIED BOND (1) 4.40% 6.84% 7.56% 8.38%
- --------------------------------------------------------------------------------
LIPPER (VIP) CORP. BBB AVG.(2) 2.82% 5.70% 7.31% 8.09%
- --------------------------------------------------------------------------------
LEHMAN AGGREGATE INDEX(3) 3.63% 6.03% 7.04% 8.47%
- --------------------------------------------------------------------------------
DIVERSIFIED BOND PORTFOLIO INCEPTION DATE: 5/1/83.
- --------------------------------------------------------------------------------
$10,000 INVESTED OVER TEN YEARS
$22,547 LEHMAN AGGREGATE INDEX (3)
$22,359 DIVERSIFIED BOND (1)
[GRAPH]
- --------------------------------------------------------------------------------
(1) PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PORTFOLIO
PERFORMANCE IS NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(2) THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) CORPORATE BBB AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT
RETURNS OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS.
THESE RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(3) THE LEHMAN AGGREGATE INDEX (LAI) IS COMPRISED OF OVER 5,000 GOVERNMENT AND
CORPORATE BONDS. THE LAI IS AN UNMANAGED INDEX AND INCLUDES THE REINVESTMENT
OF ALL INTEREST BUT DOES NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND
ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE PORTFOLIO. THE SECURITIES
THAT COMPRISE THE LAI MAY DIFFER SUBSTANTIALLY FROM THE SECURITIES IN THE
PORTFOLIO. THE LAI IS NOT THE ONLY INDEX THAT MAY BE USED TO CHARACTERIZE
PERFORMANCE OF INCOME FUNDS, AND OTHER INDICES MAY PORTRAY DIFFERENT
COMPARATIVE PERFORMANCE.
- --------------------------------------------------------------------------------
[CHART]
LOW RISK
FIXED INCOME
BALANCED
HIGH YIELD BOND
DIVERSIFIED STOCK
SPECIALIZED
HIGH RISK
- --------------------------------------------------------------------------------
INVESTMENT GOAL
High level of income over the long term while providing reasonable
safety of capital.
TYPES OF INVESTMENTS
U.S. government securities, mortgage backed bonds, both investment-grade and
high yield ("junk bond") corporate debt, and foreign securities (dollar and
non-dollar denominated).
INVESTMENT STYLE
This Portfolio seeks the highest yield while maintaining safety of capital, by
strategically allocating Portfolio assets among the above classes of bonds.
PERFORMANCE REVIEW.
WE SEARCHED FOR HIGH YIELDS. When interest rates rise, bonds with higher
coupons usually perform best, because their generous coupon income helps offset
price declines in the underlying bonds.
In 1996, interest rates fluctuated dramatically, finishing the year moderately
higher than where they began.
Your Portfolio performed well in 1996, because it held a significant portion of
assets in higher-yielding corporate bonds. It also held some foreign bonds,
which offered generous yields and helped contribute to the Portfolio's solid
performance.
10
<PAGE>
STRATEGY SESSION.
A FOCUS ON CORPORATE AND FOREIGN BONDS. Our search for high yields led us to
focus on corporate (61% of assets) and foreign bonds (17% of assets) over
Treasury securities. Among corporate issues, we chose both investment-grade
quality and high yield ("junk") bonds. This was a good move: corporate bonds
performed well in 1996, against a backdrop of strong corporate earnings,
moderate economic growth and stable inflation.
We liked foreign government bonds because many were paying higher interest than
U.S. bonds. We invested in bonds from a number of countries, including Poland,
Mexico, Canada and the Philippines. In the emerging markets, we focused on
countries whose financial condition had improved; we believed that would
eventually lead to upgraded credit ratings and rising bond prices. In 1996,
investors began recognizing many of the improved conditions in these countries,
helping bond prices rise. We believe further credit upgrades are still ahead.
WE CORRECTLY ANTICIPATED INTEREST RATE MOVES. Early in 1996 we began focusing on
bonds with intermediate-term maturities (five to fifteen years), because bonds
with longer maturities didn't seem to offer much more yield in return for the
extra risk.
This proved to be the correct strategy, as intermediate-term bonds held their
value better as interest rates rose during the early part of 1996. Late in the
summer, when we believed interest rates had peaked, we extended maturities to
around 20 years to lock in income and capture some price appreciation potential.
OUTLOOK
PORTFOLIO MANAGER
BARBARA KENWORTHY
VOLATILITY, VOLATILITY, VOLATILITY.
"We are in a very changeable bond market. Bond prices are fluctuating as
investors fret whether inflation could rise or fall and whether economic growth
is speeding up or slowing down.
"The value of the dollar is also affecting the U.S. bond market. The dollar's
strength in 1996 attracted substantial buying of U.S. bonds from overseas, which
helped to keep U.S. interest rates down.
"In 1997, I believe that interest rates could remain within a very tight trading
range. We'll continue to focus on corporate bonds, keeping a close eye on
corporate profit levels.
"Emerging markets and high yield debt should also remain attractive in the year
ahead."
[PHOTO]
PORTFOLIO MANAGER
BARBARA KENWORTHY
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
12/31/96 12/31/95
-------- --------
U.S. Corporates 61% 56%
Foreign (US$) 17% 18%
Treasurys 13% 14%
Mortgages 4% 3%
Other 4% 3%
Agencies 1% 6%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
CREDIT QUALITY
12/31/96
--------
U.S. Government 18%
AAA 1%
AA 3%
A 23%
BBB 39%
BB 13%
B 2%
Cash 1%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
11
<PAGE>
HIGH YIELD BOND PORTFOLIO
PERFORMANCE SUMMARY.
1996 was your Portfolio's second consecutive year of double-digit returns
(11.4%, following 1995's 17.6%), as high yield bonds led the U.S. bond market in
performance.
Despite its generous absolute return, in 1996 your Portfolio didn't perform as
well as the average high yield bond fund. Over the past 5 years, your Portfolio
outperformed the average high yield fund in variable life and annuity products.
We were hurt by a few large holdings in wireless cable and paging companies,
which suffered credit quality problems.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation and the impact of social, political and
economic change.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1996
ONE THREE FIVE SINCE
YEAR YEARS YEARS INCEPTION*
- --------------------------------------------------------------------------------
HIGH YIELD BOND(1) 11.39% 8.36% 12.27% 8.82%
- --------------------------------------------------------------------------------
LIPPER (VIP) HIGH YIELD AVG.(2) 12.50% 8.78% 12.13% 10.28%
- --------------------------------------------------------------------------------
LEHMAN HIGH YIELD INDEX(3) 11.35% 9.51% 12.23% 10.36%
- --------------------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO INCEPTION DATE: 2/28/87.
- --------------------------------------------------------------------------------
$10,000 INVESTED SINCE INCEPTION
$26,361 LEHMAN HIGH YIELD INDEX (3)
$22,970 HIGH YIELD BOND(1)
[GRAPH]
- --------------------------------------------------------------------------------
* LIPPER PROVIDES DATA ON A MONTHLY BASIS, SO FOR COMPARATIVE PURPOSES THE
LIPPER AVERAGE AND INDEX SINCE INCEPTION RETURNS REFLECT THE PORTFOLIO'S
FIRST FULL CALENDAR MONTH OF PERFORMANCE.
(1) PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PORTFOLIO
PERFORMANCE IS NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(2) THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) HIGH YIELD AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS.
THESE RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(3) THE LEHMAN HIGH YIELD INDEX (LHYI) IS COMPRISED OF OVER 700 NONINVESTMENT -
GRADE BONDS. THE LHYI IS AN UNMANAGED INDEX AND INCLUDES THE REINVESTMENT OF
ALL INTEREST BUT DOES NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND
ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE PORTFOLIO. THE SECURITIES
THAT COMPRISE THE LHYI MAY DIFFER SUBSTANTIALLY FROM THE SECURITIES IN THE
PORTFOLIO. THE LHYI IS NOT THE ONLY INDEX THAT MAY BE USED TO CHARACTERIZE
PERFORMANCE OF INCOME FUNDS, AND OTHER INDICES MAY PORTRAY DIFFERENT
COMPARATIVE PERFORMANCE.
- --------------------------------------------------------------------------------
[CHART]
LOW RISK
FIXED INCOME
BALANCED
HIGH YIELD BOND
DIVERSIFIED STOCK
SPECIALIZED
HIGH RISK
- --------------------------------------------------------------------------------
INVESTMENT GOAL
High total return.
TYPES OF INVESTMENTS
Primarily noninvestment-grade bonds. These bonds have speculative
characteristics and are subject to greater credit and market risk than
higher-quality securities.
INVESTMENT STYLE
Concentrates primarily on junk bonds that appear to offer an attractive
combination of high current income and attractive total return.
PERFORMANCE REVIEW.
WE APPROACHED THE MARKET WITH A CAUTIOUS OUTLOOK.
Believing that economic growth would be slow in 1996 and that high yield bond
defaults might rise, we invested in the junk bonds of larger companies in
industries such as telecommunications and cable television. We felt these
companies would be less vulnerable to credit problems in a weak economy.
We had mixed results with this strategy. Early in the year, the economy showed
no signs of slowing, and the best performers then were high yield bonds from
cyclical industries such as steel, paper and chemicals. In the second half of
1996, however, we were vindicated. The economy did begin to slow, and our bonds
began performing strongly.
12
<PAGE>
STRATEGY SESSION.
WE LOOKED FOR COMPANIES IN GOOD OR IMPROVING FINANCIAL CONDITION. One of our
strategies was to buy bonds of companies that seemed ripe for a credit rating
upgrade. As a company's credit rating rises to reflect its improved financial
condition, so too does the price of its bonds. In 1996, a number of the junk
bonds we had bought were upgraded. Our holdings of Tenant Healthcare, which
operates hospitals, and Trump Hotel & Casino, an Atlantic City casino operator,
appreciated nicely upon credit upgrading.
WE FOCUSED ON MERGERS. When a large company with a higher credit rating buys a
small company with a lower credit rating, the acquisition usually drives up the
smaller company's credit rating and, in turn, the price of its bonds.
This is what happened when U.S. West, an investment-grade company we
didn't own, signed a merger agreement with Continental Cablevision, a BB rated
company whose securities we did hold. We were also helped by the merger of
Bally's Entertainment (a Portfolio holding) with Hilton Hotels.
OUTLOOK
PORTFOLIO MANAGER
MIKE SNYDER
SELECTIVE AND DEFENSIVE.
"Our cautious outlook proved unfounded for the first half of 1996. In fact, with
the economy growing robustly, high yield bond defaults actually decreased in
1996.
"If the economy slows in 1997, as we expect, defaults will gradually rise to
more challenging (but still not troubling) levels.
"After two very good years for high yield bonds, we expect 1997 will be more
subdued. Investors will mainly earn their interest income, plus possibly benefit
from modest price appreciation from special opportunities such as mergers and
acquisitions.
"We will continue to be selective and defensive, looking for value in new issues
and trying to avoid defaults through intensive credit analysis."
[PHOTO]
PORTFOLIO MANAGER
MIKE SNYDER
- --------------------------------------------------------------------------------
TOP INDUSTRIES
12/31/96
--------
Cable 18.6%
Telecommunications 16.4%
Energy 8.7%
Health care 4.4%
Leisure/Tourism 4.1%
TOP ISSUERS
12/31/96
--------
Tenant Healthcare 2.2%
Cablevision Systems 1.9%
Foamex 1.7%
Comcast Corp. 1.4%
Videotron Holdings PLC 1.4%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
CREDIT QUALITY
12/31/96 12/31/95
-------- --------
BBB 1% 0%
BB 21% 16%
B 50% 59%
CCC or below 7% 7%
Nonrated 11% 13%
Cash/Other 10% 5%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
13
<PAGE>
STOCK INDEX PORTFOLIO
PERFORMANCE SUMMARY.
1996 was a great year for your Portfolio. With a return of 22.6%, your Portfolio
performed in line with the top-performing S&P 500 Index(3) (23.0%). Investment
management fees and Portfolio expenses account for the slight difference in
returns.
These returns were high in historical terms -- over the past 50 years, stocks
have risen an average of 12.6% a year, as reported by Ibbotson Associates. 1996
was such a good year largely on the strength of established "blue chip" stocks.
In fact, the last two years have been the best in 20 years for the U.S. stock
market. Although enjoyable while they last, they aren't the kind of returns that
we think investors should come to expect. Since 1926, the U.S. stock market has
returned an average of 10.7% a year, as measured by the S&P 500. (SOURCE:
PRUDENTIAL.)
Standard & Poor's neither sponsors nor endorses the Stock Index Portfolio.
Investors cannot directly invest in the S&P 500 Index.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1996
ONE THREE FIVE SINCE
YEAR YEARS YEARS INCEPTION*
- --------------------------------------------------------------------------------
STOCK INDEX(1) 22.57% 19.27% 14.80% 15.41%
- --------------------------------------------------------------------------------
LIPPER (VIP) S&P 500 INDEX AVG.(2) 22.54% 19.20% 14.69% 15.41%
- --------------------------------------------------------------------------------
S&P 500(3) 22.95% 19.65% 15.20% 15.95%
- --------------------------------------------------------------------------------
STOCK INDEX PORTFOLIO INCEPTION DATE: 10/19/87.
- --------------------------------------------------------------------------------
$10,000 INVESTED SINCE INCEPTION
$38,834 S&P 500(1)
$37,212 STOCK INDEX(1)
[GRAPH]
- --------------------------------------------------------------------------------
LIPPER PROVIDES DATA ON A MONTHLY BASIS, SO FOR COMPARATIVE PURPOSES THE
LIPPER AVERAGE AND INDEX SINCE INCEPTION RETURNS REFLECT THE PORTFOLIO'S
FIRST FULL CALENDAR MONTH OF PERFORMANCE.
(1) PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PORTFOLIO
PERFORMANCE IS NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(2) THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) S&P 500 INDEX AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS.
THESE RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(3) THE S&P 500 IS A CAPITAL-WEIGHTED INDEX REPRESENTING THE AGGREGATE MARKET
VALUE OF THE COMMON EQUITY OF 500 STOCKS PRIMARILY TRADED ON THE NEW YORK
STOCK EXCHANGE. THE S&P 500 IS AN UNMANAGED INDEX AND INCLUDES THE
REINVESTMENT OF ALL DIVIDENDS BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE S&P 500 IS NOT THE ONLY INDEX THAT MAY BE USED TO
CHARACTERIZE PERFORMANCE OF THIS PORTFOLIO, AND OTHER INDICES MAY PORTRAY
DIFFERENT COMPARATIVE PERFORMANCE.
- -------------------------------------------------------------------------------
[CHART]
LOW RISK
FIXED INCOME
BALANCED
HIGH YIELD BOND
DIVERSIFIED STOCK
SPECIALIZED
HIGH RISK
- -------------------------------------------------------------------------------
INVESTMENT GOAL
Seeks results that correspond to the price and yield performance of the S&P 500
Index.(3)
TYPES OF INVESTMENTS
Primarily stocks in the S&P 500 Index.
INVESTMENT STYLE
This Portfolio attempts to hold the same stocks as the S&P 500 Index in
approximately the same proportions. As such, this Portfolio tends to reflect the
general trends of the overall U.S. equity market.
- -------------------------------------------------------------------------------
S&P 500 INDEX -- TOTAL RETURN BY SECTOR
12/31/96
--------
Technology 40.5%
Financial 35.5%
Energy 25.5%
Industrial 23.1%
Consumer Growth 20.0%
Consumer Cyclicals 18.2%
Utilities 2.7%
S&P 500 Index 23.0%
- -------------------------------------------------------------------------------
SOURCE: PRUDENTIAL.
14
<PAGE>
PERFORMANCE REVIEW.
The Stock Index Portfolio attempts to hold all 500 stocks included in the S&P
500 Index and attempts to duplicate its performance. Portfolio Manager John W.
Moschberger manages the Portfolio by investing funds received daily while trying
to minimize commissions and transaction costs.
TECHNOLOGY AND FINANCE LED THE S&P 500 INDEX. Technology stocks (13% of the S&P
500 Index) continued their two-year upward run as revenues and profits surpassed
Wall Street's expectations again in 1996. The rally in technology stocks was led
by some of the biggest players in the industry, including IBM, Microsoft and
Intel.
Finance stocks (14% of the S&P 500 Index) returned over 35% in 1996.
Low interest rates -- combined with merger activity among some of the
well-known banks -- drove up the prices of finance stocks. Some of the big
winners for the year were the large money center banks.
UTILITY STOCKS DISAPPOINTED. Only utility stocks (11% of the S&P 500 Index)
performed poorly. In 1996, investors tended to favor growth companies while
shunning slower-growing utility companies. Modest earnings growth, coupled with
possible deregulation in the utility sector, has left these stocks at the bottom
of most investors' wish lists.
[PHOTO]
PORTFOLIO MANAGER
JOHN W. MOSCHBERGER
- --------------------------------------------------------------------------------
S&P 500 INDEX COMPOSITION
12/31/96 12/31/95
-------- --------
Consumer Growth 29% 28%
Industrial 16% 17%
Financial 14% 12%
Technology 13% 12%
Utility 11% 13%
Energy 9% 10%
Consumer Cyclicals 8% 8%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
12/31/96
--------
General Electric 2.8%
Coca-Cola Co. 2.3%
Exxon Corp. 2.1%
Intel 1.8%
Microsoft 1.7%
Merck & Co. 1.7%
Philip Morris 1.6%
Royal Dutch Petroleum 1.6%
IBM 1.4%
Procter & Gamble 1.3%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
15
<PAGE>
EQUITY INCOME PORTFOLIO
PERFORMANCE SUMMARY.
Over the past year, your Portfolio returned 21.7%, outperforming the Lipper
(VIP) Equity Income Average, 18.9%. (SOURCE: LIPPER ANALYTICAL SERVICES.)
1996 ended up another strong performance year for your Portfolio. While
trailing similar funds in variable life and annuity products for most of the
year, your Portfolio rebounded decisively later in the year to beat the average
fund. Your Portfolio has also outpaced the average similar fund since inception
(2/88).
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation and the impact of social, political and
economic change.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1996
ONE THREE FIVE SINCE
YEAR YEARS YEARS INCEPTION*
- --------------------------------------------------------------------------------
EQUITY INCOME(1) 21.74% 14.54% 15.15% 14.56%
- --------------------------------------------------------------------------------
LIPPER (VIP) EQUITY INCOME AVG.(2) 18.97% 16.32% 15.26% 13.82%
- --------------------------------------------------------------------------------
S&P 500(3) 22.95% 19.65% 15.20% 15.63%
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO INCEPTION DATE: 2/19/88.
- --------------------------------------------------------------------------------
$10,000 INVESTED SINCE INCEPTION
$36,070 S&P 500(3)
$33,233 EQUITY INCOME (1)
[GRAPH]
- --------------------------------------------------------------------------------
* LIPPER PROVIDES DATA ON A MONTHLY BASIS, SO FOR COMPARATIVE PURPOSES THE
LIPPER AVERAGE AND INDEX SINCE INCEPTION RETURNS REFLECT THE PORTFOLIO'S
FIRST CALENDAR MONTH OF PERFORMANCE.
(1) PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PORTFOLIO
PERFORMANCE IS NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(2) THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) EQUITY INCOME AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS.
THESE RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(3) THE S&P 500 IS A CAPITAL-WEIGHTED INDEX REPRESENTING THE AGGREGATE MARKET
VALUE OF THE COMMON EQUITY OF 500 STOCKS PRIMARILY TRADED ON THE NEW YORK
STOCK EXCHANGE. THE S&P 500 IS AN UNMANAGED INDEX AND INCLUDES THE
REINVESTMENT OF ALL DIVIDENDS BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE S&P 500 MAY DIFFER SUBSTANTIALLY
FROM THE SECURITIES IN THE PORTFOLIO. THE S&P 500 IS NOT THE ONLY INDEX THAT
MAY BE USED TO CHARACTERIZE PERFORMANCE OF THIS PORTFOLIO, AND OTHER INDICES
MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
- --------------------------------------------------------------------------------
[CHART]
LOW RISK
FIXED INCOME
BALANCED
HIGH YIELD BOND
DIVERSIFIED STOCK
SPECIALIZED
HIGH RISK
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Current income and capital appreciation.
TYPES OF INVESTMENTS
Primarily stocks and convertible securities with prospects for income returns
above those of the S&P 500.
INVESTMENT STYLE
The Portfolio uses a "value" investment approach to companies that are
attractively priced relative to book value, earnings, discretionary cash flow,
sales and other measures
of value.
PERFORMANCE REVIEW.
WE WERE EARLY -- AND WE WERE RIGHT! While we finished 1996 on a very strong
note, we had a slow start.
Throughout 1996, we invested in industrial companies such as steel manufacturers
and airlines; we think their current financial health is the best in years.
While it took some time for the stock market to share our viewpoint, investors
did begin to focus on industrial companies by the end of 1996. We believe that
investor interest in industrial companies will continue for quite some time.
SECURITIES BROKERAGES SCORE BIG GAINS. Low interest rates, strong stock market
performance and new government regulations helped securities brokerage firms
post strong performance in 1996.
16
<PAGE>
STRATEGY SESSION.
SECURITIES BROKERAGES ARE A BARGAIN. The Portfolio's largest investments are in
financial stocks (33% of assets). Within this group, we especially like
securities brokerages such as Lehman Brothers, for two reasons. First, the
Federal Reserve has recently implemented new regulations permitting banks
to be more involved in investment banking, which have made securities brokerage
firms attractive acquisition targets. Second, they're quite inexpensive. Despite
their excellent financial health, fears of a stock market correction are keeping
their stock prices low.
TAKING STOCK IN REAL ESTATE. Within our financial stocks, we also like Real
Estate Investment Trusts (REITs) -- which are publicly traded shares in real
estate properties. More and more investors seemed to discover that REITs could
benefit nicely from the increasing trend toward the securitization of
real estate.
OUTLOOK
PORTFOLIO MANAGER
WARREN E. SPITZ
LOOKING FOR A SHIFT BACK TO VALUE.
"If there's one truism about stock markets, it's that they run in cycles. No
single type of stock does well at all times. In a given period, value stocks may
lead the market, and then growth stocks will take the lead. For the past several
years, we've been in a cycle where growth stocks -- those of large, fast-growing
companies -- have consistently outperformed value stocks.
"I believe the cycle for growth stocks is almost over, partly because consumer
companies are losing their power to raise prices. Today's consumers want value.
In many instances, this translates to lower prices for consumer products and
narrower profits for consumer companies. At the same time, industrial companies
seem to be gaining pricing power.
"To me, this signals a fundamental shift back to value. The industrial stocks --
steel companies, airlines, trucking companies and aluminum producers are typical
value stocks, and are extremely underpriced when compared with the consumer
growth companies.
"What will accelerate this great shift in the market? It could be stronger
economic growth. But we may not have to wait for that. The prices of industrial
stocks versus the prices of consumer stocks have been driven so low that they
might just snap back. In November, for example, even without a major economic
catalyst, steel stocks rose 5% in a single day. It can happen that quickly."
[PHOTO]
PORTFOLIO MANAGER
WARREN E. SPITZ
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
12/31/96 12/31/95
-------- --------
Finance 33% 27%
Technology 15% 15%
Industry 14% 26%
Consumer Growth 11% 8%
Consumer Cyclical 9% 6%
Energy 8% 8%
Utility 4% 4%
Cash 4% 6%
U.S. Treasury Bonds 2% 0%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
12/31/96
--------
IBM 5.1%
Lehman Bros. 4.0%
Elf Aquitaine 4.0%
Equity Residential 3.6%
Chrysler Corp. 3.0%
Crescent Real Estate 2.8%
USX-U.S. Steel 2.7%
Westinghouse Electric 2.4%
Northrop Grumman 2.4%
AMR Corp. 2.4%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
17
<PAGE>
EQUITY PORTFOLIO
PERFORMANCE SUMMARY.
In 1996, your Portfolio returned 18.5%. This was high in absolute terms --
in fact, such a return would have surpassed the performance of the broad U.S.
stock market in more than half of the past 50 years, a period when the stock
market rose an average of 12.6% a year. (SOURCE: IBBOTSON ASSOCIATES.) 1996,
however, was such an extraordinary year for the stock market that your
Portfolio's returns slightly trailed both the S&P 500 Index (23.0%) and the
average stock mutual fund [Lipper (VIP) Growth Average, 19.8%. (SOURCE: LIPPER
ANALYTICAL SERVICES.)]
Despite mildly underperforming in 1996, your Portfolio has delivered
consistently solid returns over the long term. In fact, over the past 3, 5 and
10 years, it has outperformed similar funds, as the accompanying table shows.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation and the impact of social, political and
economic change.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1996
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------
EQUITY(1) 18.52% 16.94% 17.34% 15.16%
- --------------------------------------------------------------------------------
LIPPER (VIP) GROWTH AVG.(2) 19.81% 16.04% 13.68% 14.26%
- --------------------------------------------------------------------------------
S&P 500(3) 22.95% 19.65% 15.20% 15.26%
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO INCEPTION DATE: 5/1/83.
- --------------------------------------------------------------------------------
$10,000 INVESTED OVER TEN YEARS
$41,396 S&P 500(3)
$41,027 EQUITY(1)
[GRAPH]
- --------------------------------------------------------------------------------
* LIPPER PROVIDES DATA ON A MONTHLY BASIS, SO FOR COMPARATIVE PURPOSES THE
LIPPER AVERAGE AND INDEX SINCE INCEPTION RETURNS REFLECT THE PORTFOLIO'S
FIRST CALENDAR MONTH OF PERFORMANCE.
(1) PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PORTFOLIO
PERFORMANCE IS NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(2) THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GROWTH AVERAGE IS CALCULATED BY
LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT RETURN OF
CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(3) THE S&P 500 IS A CAPITAL-WEIGHTED INDEX REPRESENTING THE AGGREGATE MARKET
VALUE OF THE COMMON EQUITY OF 500 STOCKS PRIMARILY TRADED ON THE NEW YORK
STOCK EXCHANGE. THE S&P 500 IS AN UNMANAGED INDEX AND INCLUDES THE
REINVESTMENT OF ALL DIVIDENDS BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE S&P 500 MAY DIFFER SUBSTANTIALLY
FROM THE SECURITIES IN THE PORTFOLIO. THE S&P 500 IS NOT THE ONLY INDEX THAT
MAY BE USED TO CHARACTERIZE PERFORMANCE OF THIS PORTFOLIO, AND OTHER INDICES
MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
- --------------------------------------------------------------------------------
[CHART]
LOW RISK
FIXED INCOME
BALANCED
HIGH YIELD BOND
DIVERSIFIED STOCK
SPECIALIZED
HIGH RISK
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Capital appreciation.
TYPES OF INVESTMENTS
Primarily stocks of major, established companies.
INVESTMENT STYLE
This Portfolio uses a "deep value" investment approach to invest in stocks
believed to be temporarily undervalued relative to the companies' sales, earning
book value and cash flow.
PERFORMANCE REVIEW.
CASH HELD US BACK. Our performance in 1996 would have been better had we not
held so much cash. As value investors, though, we like to buy stocks only when
they're inexpensive.
As the stock market rose higher and higher over the past year, we found fewer
and fewer stocks that met our "value" investment criteria. In short, we didn't
find enough good bargains to buy.
Instead of abandoning our time-tested investment approach -- and buying stocks
at prices that we felt were too expensive -- we kept about a quarter of the
Portfolio's assets in cash.
Since "cash" earns only short-term interest rates, about 5%, holding even a
small portion of assets in cash in a year when the stock market returns 23% will
constrain performance. However, we believe that it's better to underperform by
taking too little risk than too much.
18
<PAGE>
STRATEGY SESSION.
This Portfolio is managed with a "deep value" investment style. As such,
it tends to focus on "out of favor" stocks.
FINANCIAL COMPANIES STILL TOP OUR LIST. We didn't make any major shifts to the
Portfolio's investment strategy in 1996. We continued to invest heavily in the
stocks of financial companies (28% of assets, up from 25% last year), including
banks, insurance companies and financial services firms. In recent years, demand
for financial assets such as stocks and bonds has risen significantly. If this
trend continues, companies in financial businesses should become far more
valuable than their current prices reflect. While the stocks of many of these
companies, such as Travelers, American Express and Dean Witter Discover, have
soared in the past year, they're still priced at a discount compared to the
overall stock market.
WE FAVOR INDUSTRIAL COMPANIES. We also continue to like some industrial
companies (12% of assets, up from 10% a year ago), especially paper and forest
products companies. Currently, few other investors share our enthusiasm for
these companies. The stock prices are low because paper produced prices have
been weak, negatively impacting paper companies earnings. In our judgment,
though, these negatives are already reflected in the stock prices. We believe
that the next likely move in the prices of paper products is upwards, which
should translate into strong performance from these stocks.
OUTLOOK
PORTFOLIO MANAGER
THOMAS R. JACKSON
THIS IS NOT A VALUE INVESTOR'S DREAM.
"We're in the sixth year of a bull market in stocks. By now, most of the
undervalued stocks have been discovered by investors, and there are not a lot of
extraordinarily cheap stocks left. Furthermore, as the economic expansion has
aged (in tandem with the market), growth in corporate profits is taking place in
a narrowing group of companies -- predominantly large, growing technology and
consumer product companies.
"As a result, a relatively narrow group of ever more expensive growth companies
has been leading the stock market higher. This is not a value investor's dream.
"In the meantime, I will continue to look for stocks priced low enough to
compensate for the risk that makes them cheap. I'm just not finding a lot of
them right now. The market eventually always offers opportunities, though. With
a little patience, I should get a chance eventually to buy some very cheap
stocks again."
[PHOTO]
PORTFOLIO MANAGER
THOMAS R. JACKSON
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
12/31/96 12/31/95
-------- --------
Finance 28% 25%
Cash 24% 20%
Industry 12% 10%
Consumer Cyclical 12% 12%
Technology 7% 9%
Consumer Growth 6% 14%
Energy 6% 6%
Utility 5% 4%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
12/31/96
--------
Loews 3.1%
Chrysler Corp. 2.7%
American Express 2.6%
Chubb Corp. 2.5%
Elf Aquitane 2.3%
Dean Witter Discover 2.2%
Digital Equipment 2.2%
Williamette Inds. 1.8%
Travelers Group 1.7%
Dillard Department Stores 1.6%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
19
<PAGE>
PRUDENTIAL JENNISON PORTFOLIO
PERFORMANCE SUMMARY.
Over the past year, your Portfolio returned 14.4%, trailing both the Lipper
(VIP) Growth Average (19.8%) and the S&P 500 Index (23.0%). (SOURCE: LIPPER
ANALYTICAL SERVICES.)
The Portfolio owned some of the best - performing large stocks in 1996,
including Intel, Microsoft, Cisco Systems, Gillette, Boeing and Disney. We also
had sizable investments in mid-cap stocks as well, though, and these were much
more treacherous.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation and the impact of social, political and
economic change.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1996
ONE THREE FIVE SINCE
YEAR YEARS YEARS INCEPTION*
- --------------------------------------------------------------------------------
PRUDENTIAL JENNISON(1) 14.41% -- -- 22.51%
- --------------------------------------------------------------------------------
LIPPER (VIP) GROWTH AVG.(2) 19.81% -- -- 23.92%
- --------------------------------------------------------------------------------
S&P 500(3) 22.95% -- -- 25.87%
- --------------------------------------------------------------------------------
PRUDENTIAL JENNISON PORTFOLIO INCEPTION DATE: 5/1/95.
- --------------------------------------------------------------------------------
$10,000 INVESTED SINCE INCEPTION
$14,395 S&P 500(3)
$13,792 PRUDENTIAL JENNISON(1)
[GRAPH]
- --------------------------------------------------------------------------------
* LIPPER PROVIDES DATA ON A MONTHLY BASIS, SO FOR COMPARATIVE PURPOSES THE
LIPPER AVERAGE AND INDEX SINCE INCEPTION RETURNS REFLECT THE PORTFOLIO'S
FIRST CALENDAR MONTH OF PERFORMANCE.
(1) PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PORTFOLIO
PERFORMANCE IS NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(2) THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GROWTH AVERAGE IS CALCULATED BY
LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT RETURN OF
CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(3) THE S&P 500 IS A CAPITAL-WEIGHTED INDEX REPRESENTING THE AGGREGATE MARKET
VALUE OF THE COMMON EQUITY OF 500 STOCKS PRIMARILY TRADED ON THE NEW YORK
STOCK EXCHANGE. THE S&P 500 IS AN UNMANAGED INDEX AND INCLUDES THE
REINVESTMENT OF ALL DIVIDENDS BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE S&P 500 MAY DIFFER SUBSTANTIALLY
FROM THE SECURITIES IN THE PORTFOLIO. THE S&P 500 IS NOT THE ONLY INDEX THAT
MAY BE USED TO CHARACTERIZE PERFORMANCE OF THIS PORTFOLIO, AND OTHER INDICES
MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
- --------------------------------------------------------------------------------
[CHART]
LOW RISK
FIXED INCOME
BALANCED
HIGH YIELD BOND
DIVERSIFIED STOCK
SPECIALIZED
HIGH RISK
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Long-term growth of capital.
TYPES OF INVESTMENTS
Primarily common stocks of established companies with above-average growth
prospects.
INVESTMENT STYLE
This Portfolio uses a "growth" investment style to invest in the common stocks
of both mid-sized and large companies.
PERFORMANCE REVIEW.
WINNERS FOR THE YEAR: BLUE CHIPS. We invest in mid-sized and large companies. We
were pleased to see stocks of large companies lead the stock market last year,
driven by strong flows into mutual funds (particularly index funds, which hold
large, established companies). Foreign investors also bought U.S. blue chip
stocks. Our holdings in large-company stocks contributed to much of your
Portfolio's gains last year.
MEDIOCRE YEAR FOR STOCKS OF MID-SIZED COMPANIES. While blue chips had a
terrific year, stocks of mid-sized companies had a more uneven record. We
held a quarter to a third of assets in medium-sized companies. Investing in
these stocks last year was like walking through a minefield -- investors
severely punished even the slightest misstep in quarterly earnings
expectations. Our holdings of mid-sized growth stocks hurt the Portfolio's
performance significantly in 1996.
20
<PAGE>
STRATEGY SESSION.
STILL COMMITTED TO TECHNOLOGY. We remain long-term investors in technology, and
have 33% of the Portfolio invested there now. This sector includes some of the
fastest-growing companies in the world, such as Microsoft and Intel.
Unfortunately, growth does not always follow a straight line, as the sharp ups
and downs in technology stock prices in 1996 demonstrated. In the beginning of
the year, a number of key technology industries -- personal computers, cellular
telephones, semiconductors -- had temporary excess inventories. This resulted in
disappointing earnings for the second quarter. Investors -- who had paid
significant premiums to buy these pricey stocks -- were unforgiving, selling
their stakes and driving down prices severely in June and July. While our large
technology holdings suffered, we remained optimistic. Inventories, we figured,
would soon return to normal, and, more importantly, demand for technology
products was healthy.
In time, the market accepted our longer-term view. By October, investors
had once again bid up the prices of the technology stocks that they had only
months earlier driven down so harshly. As the year closed, our technology
holdings finished in positive territory and helped contribute to the Portfolio's
performance. It has therefore made sense to maintain a patient outlook and hold
on to our stocks.
OTHER AREAS OF EMPHASIS: In addition to our technology focus, the Portfolio is
currently emphasizing stocks of consumer companies, health care companies and
intermediate goods and services providers. Several large positions in consumer
stocks reached full valuation and were sold during the fourth quarter. We remain
fully invested.
OUTLOOK
PORTFOLIO MANAGER
DAVID T. POIESZ
STILL EXCITED ABOUT GROWTH.
"We think the long term is indeed bright. If inflation remains low and economic
growth modest, interest rates should continue to be favorable. While a stock
market correction can occur at any time (especially since we haven't had one in
six years), we believe the long-term underpinnings of the U.S. stock market are
solid.
"I see improving federal government deficits, increased savings rates for baby
boomers with 15 to 20 years to go before retirement, and few other attractive
alternative investments.
"That's what's powered stock prices to today's historical levels, and I don't
see these conditions changing in the immediate future."
[PHOTO]
PORTFOLIO MANAGER
DAVID T. POIESZ
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
12/31/96 12/31/95
-------- --------
Technology 33% 37%
Consumer Staples 19% 18%
Health care 14% 16%
Goods and Services 14% 11%
Financial Services 10% 7%
Capital Spending 4% 4%
Energy 3% 1%
Cash 3% 6%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
12/31/96
--------
Intel Corp. 3.3%
Boeing Co. 3.2%
Disney Co. 2.7%
Microsoft Corp. 2.5%
Hewlett-Packard Co. 2.5%
Cisco Systems Inc. 2.4%
3Com Corp. 2.4%
Gillette Corp. 2.4%
Reuters Holdings 2.2%
MGIC Investment Corp. 2.1%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
21
<PAGE>
GLOBAL PORTFOLIO
PERFORMANCE SUMMARY.
1996 was a very strong year for your Portfolio. In fact, with a return of 20.0%,
your Portfolio surpassed both the Lipper (VIP) Global Average (18.5%) and the
MSCI World Index (14.0%). (SOURCE: LIPPER ANALYTICAL SERVICES.)
1996 was just a continuation of your Portfolio's solid long-term performance.
In addition to this past year, your Portfolio has outperformed the average
global fund in variable life and annuity products for the past five-year period
as well as since its inception (9/88).
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation and the impact of social, political and
economic change.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1996
ONE THREE FIVE SINCE
YEAR YEARS YEARS INCEPTION*
- --------------------------------------------------------------------------------
GLOBAL(1) 19.97% 9.76% 12.82% 10.51%
- --------------------------------------------------------------------------------
LIPPER (VIP) GLOBAL AVG.(2) 18.48% 9.99% 11.38% 11.01%
- --------------------------------------------------------------------------------
MORGAN STANLEY WORLD INDEX(3) 14.00% 13.45% 11.38% 10.17%
- --------------------------------------------------------------------------------
GLOBAL PORTFOLIO INCEPTION DATE: 9/19/88.
- --------------------------------------------------------------------------------
$10,000 INVESTED SINCE INCEPTION
$22,647 GLOBAL(1)
$22,230 MSCI WORLD INDEX (3)
[GRAPH]
- --------------------------------------------------------------------------------
* LIPPER PROVIDES DATA ON A MONTHLY BASIS, SO FOR COMPARATIVE PURPOSES THE
LIPPER AVERAGE AND INDEX SINCE INCEPTION RETURNS REFLECT THE PORTFOLIO'S
FIRST CALENDAR MONTH OF PERFORMANCE.
(1) PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PORTFOLIO
PERFORMANCE IS NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(2) THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GLOBAL AVERAGE IS CALCULATED BY
LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT RETURN OF
CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(3) THE MORGAN STANLEY WORLD INDEX IS A WEIGHTED INDEX COMPRISED OF
APPROXIMATELY 1,500 COMPANIES LISTED ON THE STOCK EXCHANGES OF THE U.S.A.,
EUROPE, CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST. THE COMBINED MARKET
CAPITALIZATION OF THESE COMPANIES REPRESENTS APPROXIMATELY 60% OF THE
AGGREGATE MARKET VALUE OF THE STOCK EXCHANGES IN THE COUNTRIES COMPRISING
THE WORLD INDEX. THE WORLD INDEX IS AN UNMANAGED INDEX AND INCLUDES THE
REINVESTMENT OF ALL DIVIDENDS BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE WORLD INDEX MAY DIFFER
SUBSTANTIALLY FROM THE SECURITIES IN THE PORTFOLIO. THE WORLD INDEX IS NOT
THE ONLY INDEX THAT MAY BE USED TO CHARACTERIZE PERFORMANCE OF GLOBAL FUNDS,
AND OTHER INDICES MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
- --------------------------------------------------------------------------------
[CHART]
LOW RISK
FIXED INCOME
BALANCED
HIGH YIELD BOND
DIVERSIFIED STOCK
SPECIALIZED
HIGH RISK
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Long-term growth of capital.
TYPES OF INVESTMENTS
Primarily common stock and common stock equivalents of U.S. and foreign
corporations.
INVESTMENT STYLE
This Portfolio uses a "growth" investment approach, coupled with a
theme-oriented view of the markets, to identify companies that seem best
positioned to take advantage of global changes.
PERFORMANCE REVIEW.
EUROPEAN MULTINATIONALS POST GAINS. We saw good results from our European
holdings (39% of assets). Given the fragile European economic recovery, we
wisely invested in companies that had strong international revenues.
RIGHT SECTORS, RIGHT STOCKS IN THE U.S. Although we were under- weighted in the
U.S. (21% of assets), we held some of the best-performing types of stocks --
technology and telecommunications stocks.
HONG KONG LEADS THE PACIFIC RIM. We were also successful in the Pacific Rim. We
saw our best returns from our holdings in Hong Kong and remain optimistic about
growth prospects there. On the other hand, we were held back by our Japanese
holdings. Quite simply, we were wrong about 1996 being the end of Japan's
longest-lasting postwar economic slump.
22
<PAGE>
STRATEGY SESSION.
WE'RE CAUTIOUS ABOUT THE UNITED STATES NOW. While the U.S. stock market served
the Portfolio well last year, we've turned cautious recently, now that U.S.
stock prices are at such exceptionally high levels. We're keeping our U.S. stock
holdings low (21% of assets) -- about half of their representation in the
widely watched MSCI World Index, our performance yardstick.
WE'RE MORE OPTIMISTIC ABOUT HONG KONG. While we think it will be difficult for
Hong Kong to duplicate its strong returns of 1996 next year, we remain
optimistic about growth prospects there. With its strong trade ties to China,
Hong Kong stands to gain the most from the growth of the burgeoning Chinese
economy. As more and more of the 1.1 billion people in mainland China prosper
and develop middle-class tastes, Hong Kong companies such as Guoco Group and New
World Development are likely to supply the goods and services they'll crave.
QUESTION MARKS: JAPAN AND CONTINENTAL EUROPE. We like the stock markets in these
regions. We're finding more values there than in the U.S. stock market. Still,
we're concerned: In both Japan and continental Europe, economic growth remains
weak. On the plus side, any signs of economic strength in 1997 could bolster
investors' interest in these markets and drive stock prices up. Since the tide
can turn either way, we're keeping our holdings in Japan (14%) and continental
Europe (26%) at moderate levels.
OUTLOOK
PORTFOLIO MANAGER
DAN J. DUANE
THE STORY OF 1997: FOREIGN MARKETS
"Stock prices are high in the United States, and so are the expectations of most
investors. For example, when a U.S. company recently announced that earnings
were up only 50%, the stock sold off heavily. Overseas, it's the exact opposite.
Prices are low, and so are expectations -- they're so low, in fact, that
investors are responding very favorably to any good news. For example, when a
Finnish company recently announced positive quarterly earnings after two
disappointing quarters, its stock price rose a full 10%. To me, that's a better
stock market.
"I know I've been predicting the outperformance of foreign markets over the U.S.
market for some time now, and it hasn't happened yet. Seldom have stock market
prices and investor expectations between the United States and the rest of the
world been so divergent. However, the case is stronger for investor sentiment to
shift away from U.S. stocks and into foreign stocks.
"That will be the story of 1997."
[PHOTO]
PORTFOLIO MANAGER
DANIEL J. DUANE
- --------------------------------------------------------------------------------
GEOGRAPHIC ALLOCATION
12/31/96 12/31/95
-------- --------
Continental Europe 26% 20%
United States 21% 23%
Japan 14% 17%
Pacific Basin 13% 17%
United Kingdom 13% 11%
Cash 6% 6%
Australia 4% 5%
Mexico 2% 1%
Other 1% 0%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
12/31/96
--------
Microsoft Corp. 2.4%
Siebe PLC 2.2%
Hennes & Mauritz 2.1%
Carrefour Supermarche 2.0%
GKN PLC Guest Keen 1.9%
Sony Corp. 1.9%
Guoco Group Ltd. 1.9%
Brambles Industry 1.9%
New World Development 1.9%
Oracle Corp. 1.8%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
23
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS
Investments (amortized cost:
$663,894,267)............................ $ 663,894,267
Cash....................................... 864
Interest receivable........................ 5,663,807
--------------
Total Assets............................. 669,558,938
--------------
LIABILITIES
Payable to investment adviser.............. 653,175
Accrued expenses........................... 137,642
--------------
Total Liabilities........................ 790,817
--------------
NET ASSETS................................... $ 668,768,121
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 668,768
Paid-in capital in excess of par......... 668,099,353
--------------
Net assets, December 31, 1996.............. $ 668,768,121
--------------
--------------
Net asset value and redemption price per
share of 66,876,812 outstanding shares of
common stock (authorized 200,000,000
shares).................................. $ 10.00
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C>
INVESTMENT INCOME
Interest................................... $ 34,610,969
---------------
EXPENSES
Investment advisory fee.................... 2,495,613
Shareholders' reports...................... 140,000
Accounting fees............................ 87,000
Custodian expense.......................... 32,000
Audit fees................................. 10,700
Directors' fees............................ 2,000
Legal fees................................. 400
Miscellaneous expenses..................... 21
---------------
2,767,734
---------------
NET INVESTMENT INCOME........................ 31,843,235
---------------
NET REALIZED GAIN ON INVESTMENTS
Net realized gain on investments........... 1,246
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 31,844,481
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 31,843,235 $ 33,920,243
Net realized gain on investments....................................................... 1,246 --
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 31,844,481 33,920,243
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (31,843,235) (33,920,243)
Distributions from net realized capital gains.......................................... (1,246) --
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (31,844,481) (33,920,243)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [18,464,400 and 13,987,392 shares, respectively].................... 184,644,000 139,873,920
Capital stock issued in reinvestment of dividends and distributions [3,184,448 and
3,392,024 shares, respectively]....................................................... 31,844,481 33,920,243
Capital stock repurchased [(16,104,000) and (14,375,600) shares, respectively]......... (161,040,000) (143,756,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 55,448,481 30,038,163
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 55,448,481 30,038,163
NET ASSETS:
Beginning of year...................................................................... 613,319,640 583,281,477
------------------ -------------------
End of year............................................................................ $ 668,768,121 $ 613,319,640
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
A1
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
DIVERSIFIED BOND PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$729,261,513)............................ $ 743,439,495
Cash....................................... 457
Interest and dividends receivable.......... 11,451,464
Receivable for investments sold short (Note
2)....................................... 26,546,678
--------------
Total Assets............................. 781,438,094
--------------
LIABILITIES
Payable for investments purchased.......... 33,940,503
Investments sold short at value (proceeds
$26,546,678 including accrued interest)
(Note 2)................................. 26,310,748
Payable to investment adviser.............. 721,625
Accrued expenses........................... 150,054
Payable for capital stock repurchased...... 98,583
--------------
Total Liabilities........................ 61,221,513
--------------
NET ASSETS................................... $ 720,216,581
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 650,871
Paid-in capital, in excess of par........ 699,963,944
--------------
700,614,815
Undistributed net investment income........ 2,057,193
Accumulated net realized gains on
investments.............................. 3,130,661
Net unrealized appreciation on
investments.............................. 14,413,912
--------------
Net assets, December 31, 1996.............. $ 720,216,581
--------------
--------------
Net asset value and redemption price per
share of 65,087,090 outstanding shares of
common stock (authorized 200,000,000
shares).................................. $ 11.07
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 49,692,559
Dividends.................................. 89,819
---------------
49,782,378
---------------
EXPENSES
Investment advisory fee.................... 2,713,429
Shareholders' reports...................... 205,000
Accounting fees............................ 85,000
Custodian expense.......................... 43,000
Audit fees................................. 11,600
Directors' fees............................ 2,000
Legal fees................................. 500
Miscellaneous expenses..................... 332
---------------
Total expenses........................... 3,060,861
Less: custodian fee credit................. (5,308)
---------------
Net expenses............................. 3,055,553
---------------
NET INVESTMENT INCOME........................ 46,726,825
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 3,227,785
Net change in unrealized appreciation on:
Investments.............................. (19,084,958)
Short sales.............................. 235,930
---------------
(18,849,028)
---------------
NET LOSS ON INVESTMENTS...................... (15,621,243)
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 31,105,582
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 46,726,825 $ 41,106,435
Net realized gain on investments....................................................... 3,227,785 3,945,376
Net change in unrealized appreciation on investments and short sales................... (18,849,028) 65,195,088
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 31,105,582 110,246,899
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (44,766,756) (40,773,047)
Distributions from net realized capital gains.......................................... -- (1,426,845)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (44,766,756) (42,199,892)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [7,068,417 and 3,596,587 shares, respectively]...................... 78,594,183 39,971,262
Capital stock issued in reinvestment of dividends and distributions [4,117,675 and
3,793,654 shares, respectively]....................................................... 44,766,756 42,199,892
Capital stock repurchased [(4,070,327) and (3,376,822) shares, respectively]........... (45,319,610) (36,030,334)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 78,041,329 46,140,820
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 64,380,155 114,187,827
NET ASSETS:
Beginning of year...................................................................... 655,836,426 541,648,599
------------------ -------------------
End of year............................................................................ $ 720,216,581 $ 655,836,426
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
HIGH YIELD BOND PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$415,325,778)............................ $ 426,625,805
Interest and dividends receivable.......... 7,497,949
Receivable for investments sold............ 1,000,000
--------------
Total Assets............................. 435,123,754
--------------
LIABILITIES
Payable for investments purchased.......... 1,250,766
Payable to investment adviser.............. 584,614
Accrued expenses and other liabilities..... 421,499
--------------
Total Liabilities........................ 2,256,879
--------------
NET ASSETS................................... $ 432,866,875
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 550,197
Paid-in capital in excess of par......... 442,651,885
--------------
443,202,082
Accumulated net realized losses on
investments.............................. (21,635,234)
Net unrealized appreciation on
investments.............................. 11,300,027
--------------
Net assets, December 31, 1996.............. $ 432,866,875
--------------
--------------
Net asset value and redemption price per
share of 55,019,693 outstanding shares of
common stock (authorized 100,000,000
shares).................................. $ 7.87
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 41,382,142
Dividends.................................. 574,685
---------------
41,956,827
---------------
EXPENSES
Investment advisory fee.................... 2,192,765
Accounting fees............................ 166,000
Shareholders' reports...................... 141,000
Custodian expense.......................... 61,200
Audit fees................................. 6,800
Directors' fees............................ 2,000
Legal fees................................. 300
Miscellaneous expenses..................... 53
---------------
Total expenses........................... 2,570,118
Less: custodian fee credit................. (38,238)
---------------
Net expenses............................. 2,531,880
---------------
NET INVESTMENT INCOME........................ 39,424,947
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on investments........... (1,288,395)
Net change in unrealized appreciation on
investments.............................. 4,580,936
---------------
NET GAIN ON INVESTMENTS...................... 3,292,541
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 42,717,488
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 39,424,947 $ 34,801,907
Net realized loss on investments....................................................... (1,288,395) (14,399,977)
Net change in unrealized appreciation on investments................................... 4,580,936 33,692,744
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 42,717,488 54,094,674
------------------ -------------------
DIVIDENDS:
Dividends from net investment income................................................... (39,126,995) (36,032,307)
Dividends in excess of net investment income........................................... (495,859) --
------------------ -------------------
TOTAL DIVIDENDS........................................................................ (39,622,854) (36,032,307)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [5,685,336 and 4,596,182 shares, respectively]...................... 45,754,000 36,443,000
Capital stock issued in reinvestment of dividends [5,088,084 and 4,650,470 shares,
respectively]......................................................................... 39,622,854 36,032,307
Capital stock repurchased [(2,919,156) and (3,656,896) shares, respectively]........... (23,514,000) (28,853,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 61,862,854 43,622,307
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 64,957,488 61,684,674
NET ASSETS:
Beginning of year...................................................................... 367,909,387 306,224,713
------------------ -------------------
End of year............................................................................ $ 432,866,875 $ 367,909,387
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
A3
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
STOCK INDEX PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$1,054,471,251).......................... $1,587,648,210
Cash....................................... 1,473
Interest and dividends receivable.......... 2,655,364
Receivable for investments sold............ 1,824,157
--------------
Total Assets............................. 1,592,129,204
--------------
LIABILITIES
Payable for investments purchased.......... 8,163,338
Payable to investment adviser.............. 1,337,596
Due to broker -- variation margin.......... 937,100
Accrued expenses........................... 259,878
Payable for capital stock repurchased...... 50,985
--------------
Total Liabilities........................ 10,748,897
--------------
NET ASSETS................................... $1,581,380,307
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 665,994
Paid-in capital in excess of par......... 1,047,578,597
--------------
1,048,244,591
Distributions in excess of net realized
gains on investments..................... (757,443)
Net unrealized appreciation on
investments.............................. 533,893,159
--------------
Net assets, December 31, 1996.............. $1,581,380,307
--------------
--------------
Net asset value and redemption price per
share of 66,599,412 outstanding shares of
common stock (authorized 100,000,000
shares).................................. $ 23.74
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C>
INVESTMENT INCOME
Dividends (net of $136,635 foreign
withholding tax)......................... $ 27,163,285
Interest................................... 2,879,860
---------------
30,043,145
---------------
EXPENSES
Investment advisory fee.................... 4,488,042
Shareholders' reports...................... 445,000
Accounting fees............................ 73,000
Custodian expense.......................... 43,000
Audit fees................................. 21,700
Directors' fees............................ 2,000
Legal fees................................. 900
Miscellaneous expenses..................... 48
---------------
5,073,690
---------------
NET INVESTMENT INCOME........................ 24,969,455
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 6,152,350
Futures.................................. 6,312,835
---------------
12,465,185
---------------
Net change in unrealized appreciation on:
Investments.............................. 225,458,987
Futures.................................. 1,063,850
---------------
226,522,837
---------------
NET GAIN ON INVESTMENTS...................... 238,988,022
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 263,957,477
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 24,969,455 $ 18,865,378
Net realized gain on investments....................................................... 12,465,185 12,159,728
Net change in unrealized gain on investments........................................... 226,522,837 225,882,882
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 263,957,477 256,907,988
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (25,100,782) (18,734,051)
Distributions from net realized capital gains.......................................... (17,273,757) (7,293,493)
Distributions in excess of net realized capital gains.................................. (196,333) --
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (42,570,872) (26,027,544)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [14,156,009 and 7,147,197 shares, respectively]..................... 310,087,550 130,752,103
Capital stock issued in reinvestment of dividends and distributions [1,875,670 and
1,331,092 shares, respectively]....................................................... 42,570,872 26,027,544
Capital stock repurchased [(1,109,676) and (1,230,332) shares, respectively]........... (23,942,788) (20,916,230)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 328,715,634 135,863,417
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 550,102,239 366,743,861
NET ASSETS:
Beginning of year...................................................................... 1,031,278,068 664,534,207
------------------ -------------------
End of year............................................................................ $ 1,581,380,307 $ 1,031,278,068
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY INCOME PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$1,104,105,583).......................... $1,352,232,781
Receivable for investments sold............ 7,458,659
Interest and dividends receivable.......... 6,009,058
Other assets............................... 6,336
--------------
Total Assets............................. 1,365,706,834
--------------
LIABILITIES
Payable to investment adviser.............. 1,320,276
Bank overdraft............................. 591,012
Accrued expenses........................... 233,969
Payable for investments purchased.......... 86,962
--------------
Total Liabilities........................ 2,232,219
--------------
NET ASSETS................................... $1,363,474,615
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 736,622
Paid-in capital in excess of par......... 1,108,759,148
--------------
1,109,495,770
Undistributed net investment income........ 135,860
Accumulated net realized gains on
investments.............................. 5,715,787
Net unrealized appreciation on
investments.............................. 248,127,198
--------------
Net assets, December 31, 1996.............. $1,363,474,615
--------------
--------------
Net asset value and redemption price per
share of 73,662,222 outstanding shares of
common stock (authorized 100,000,000
shares).................................. $ 18.51
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $421,846 foreign
withholding tax)......................... $ 41,128,940
Interest................................... 5,218,900
---------------
46,347,840
---------------
EXPENSES
Investment advisory fee.................... 4,863,078
Shareholders' reports...................... 472,000
Accounting fees............................ 92,000
Audit fees................................. 20,000
Custodian expense.......................... 10,000
Directors' fees............................ 2,000
Legal fees................................. 800
Miscellaneous expenses..................... 356
---------------
Total expenses........................... 5,460,234
Less: custodian fee credit................. (1,112)
---------------
Net expenses............................. 5,459,122
---------------
NET INVESTMENT INCOME........................ 40,888,718
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments........... 35,305,154
Net change in unrealized appreciation on
investments.............................. 167,448,548
---------------
NET GAIN ON INVESTMENTS...................... 202,753,702
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 243,642,420
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 40,888,718 $ 39,916,318
Net realized gain on investments....................................................... 35,305,154 61,266,793
Net change in unrealized appreciation on investments................................... 167,448,548 90,522,832
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 243,642,420 191,705,943
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (49,702,706) (38,782,405)
Distributions from net realized capital gains.......................................... (35,958,853) (46,564,566)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (85,661,559) (85,346,971)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [3,768,657 and 4,803,598 shares, respectively]...................... 65,526,000 76,990,000
Capital stock issued in reinvestment of dividends and distributions [4,848,028 and
5,213,794 shares, respectively]....................................................... 85,661,559 85,346,971
Capital stock repurchased [(3,172,167) and (1,152,259) shares, respectively]........... (55,657,000) (18,404,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 95,530,559 143,932,971
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 253,511,420 250,291,943
NET ASSETS:
Beginning of year...................................................................... 1,109,963,195 859,671,252
------------------ -------------------
End of year............................................................................ $ 1,363,474,615 $ 1,109,963,195
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
A5
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$3,719,947,601).......................... $4,801,952,766
Cash....................................... 12,981
Interest and dividends receivable.......... 12,084,765
Receivable for investments sold............ 6,185,603
--------------
Total Assets............................. 4,820,236,115
--------------
LIABILITIES
Payable to investment adviser.............. 5,284,247
Accrued expenses........................... 815,009
Payable for capital stock repurchased...... 167,783
--------------
Total Liabilities........................ 6,267,039
--------------
NET ASSETS................................... $4,813,969,076
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,785,273
Paid-in capital in excess of par......... 3,694,408,950
--------------
3,696,194,223
Undistributed net investment income........ 3,240,354
Accumulated net realized gains on
investments.............................. 32,529,334
Net unrealized appreciation on
investments.............................. 1,082,005,165
--------------
Net assets, December 31, 1996.............. $4,813,969,076
--------------
--------------
Net asset value and redemption price per
share of 178,527,300 outstanding shares
of common stock (authorized 200,000,000
shares).................................. $ 26.96
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $912,241 foreign
withholding tax)......................... $ 71,930,568
Interest................................... 57,390,582
---------------
129,321,150
---------------
EXPENSES
Investment advisory fee.................... 19,216,733
Shareholders' reports...................... 1,485,000
Custodian expense.......................... 136,400
Accounting fees............................ 93,000
Audit fees................................. 71,800
Legal fees................................. 2,900
Directors' fees............................ 2,000
Miscellaneous expenses..................... 173
---------------
Total expenses........................... 21,008,006
Less: custodian fee credit................. (65,416)
---------------
Net expenses............................. 20,942,590
---------------
NET INVESTMENT INCOME........................ 108,378,560
---------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES
Net realized gain (loss) on:
Investments.............................. 344,166,641
Foreign currencies....................... (16,774)
---------------
344,149,867
---------------
Net change in unrealized appreciation on:
Investments.............................. 282,404,303
Foreign currencies....................... 6,569
---------------
282,410,872
---------------
NET GAIN ON INVESTMENTS...................... 626,560,739
---------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................... $ 734,939,299
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 108,378,560 $ 73,682,361
Net realized gain on investments and foreign currencies................................ 344,149,867 234,571,951
Net change in unrealized appreciation on investments and foreign currencies............ 282,410,872 553,122,748
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 734,939,299 861,377,060
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (107,745,221) (71,456,482)
Distributions from net realized capital gains.......................................... (422,203,368) (132,219,093)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (529,948,589) (203,675,575)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [13,547,538 and 15,687,254 shares, respectively].................... 368,210,773 374,478,697
Capital stock issued in reinvestment of dividends and distributions [20,011,095 and
8,038,373 shares, respectively]....................................................... 529,948,589 203,675,575
Capital stock repurchased [(3,776,507) and (1,673,110) shares, respectively]........... (102,985,123) (39,823,647)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 795,174,239 538,330,625
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 1,000,164,949 1,196,032,110
NET ASSETS:
Beginning of year...................................................................... 3,813,804,127 2,617,772,017
------------------ -------------------
End of year............................................................................ $ 4,813,969,076 $ 3,813,804,127
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
A6
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL JENNISON
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$204,769,558)............................ $ 230,427,402
Cash....................................... 397,490
Receivable for investments sold............ 646,413
Interest and dividends receivable.......... 189,641
--------------
Total Assets............................. 231,660,946
--------------
LIABILITIES
Payable for investments purchased.......... 4,759,087
Payable to investment adviser.............. 311,027
Accrued expenses........................... 47,684
--------------
Total Liabilities........................ 5,117,798
--------------
NET ASSETS................................... $ 226,543,148
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 158,165
Paid-in capital in excess of par......... 203,756,863
--------------
203,915,028
Undistributed net investment income........ 62,787
Accumulated net realized losses on
investments.............................. (3,092,511)
Net unrealized appreciation on
investments.............................. 25,657,844
--------------
Net assets, December 31, 1996.............. $ 226,543,148
--------------
--------------
Net asset value and redemption price per
share of 15,816,529 outstanding shares of
common stock (authorized 50,000,000
shares).................................. $ 14.32
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $22,553 foreign
withholding tax)......................... $ 922,433
Interest................................... 252,927
---------------
1,175,360
---------------
EXPENSES
Investment advisory fee.................... 821,423
Shareholders' reports...................... 40,000
Accounting fees............................ 28,000
Custodian expense.......................... 14,000
Audit fees................................. 2,700
Directors' fees............................ 2,000
Miscellaneous expenses..................... 1,143
Legal fees................................. 100
---------------
Total expenses........................... 909,366
Less: custodian fee credit................. (4,670)
---------------
Net expenses............................. 904,696
---------------
NET INVESTMENT INCOME........................ 270,664
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on investments........... (3,092,511)
Net change in unrealized appreciation on
investments.............................. 21,613,425
---------------
NET GAIN ON INVESTMENTS...................... 18,520,914
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 18,791,578
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
APRIL 25, 1995
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 270,664 $ 42,553
Net realized gain (loss) on investments................................................ (3,092,511) 130,598
Net change in unrealized appreciation on investments................................... 21,613,425 4,044,419
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 18,791,578 4,217,570
------------------ -------------------
DIVIDENDS:
Dividends from net investment income................................................... (373,490) (7,538)
------------------ -------------------
CAPITAL TRANSACTIONS:
Initial capitalization issued to The Prudential [-0- and 990,000 shares,
respectively]......................................................................... -- 9,900,000
Capital stock sold [11,292,685 and 4,215,890 shares, respectively]..................... 151,529,000 51,219,000
Capital stock issued in reinvestment of dividends [27,287 and 667 shares,
respectively]......................................................................... 373,490 7,538
Capital stock repurchased [(531,868) and (188,132) shares, respectively]............... (6,868,000) (2,346,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 145,034,490 58,780,538
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 163,452,578 62,990,570
NET ASSETS:
Beginning of period.................................................................... 63,090,570 100,000*
------------------ -------------------
End of period.......................................................................... $ 226,543,148 $ 63,090,570
------------------ -------------------
------------------ -------------------
<CAPTION>
*Prior to April 25, 1995 (commencement of operations), the Portfolio issued 10,000 shares to The Prudential for $100,000.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
A7
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GLOBAL PORTFOLIO
<TABLE>
<CAPTION>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
December 31, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$460,602,835)............................ $ 571,212,501
Foreign currency, at value (cost:
$14,787,117)............................. 14,798,221
Receivable for investments sold............ 4,069,896
Forward currency contracts -- amount
receivable from counterparties........... 692,778
Dividends and interest receivable.......... 483,593
Other assets............................... 320,523
--------------
Total Assets............................. 591,577,512
--------------
LIABILITIES
Payable for investments purchased.......... 9,399,505
Payable to investment adviser.............. 1,044,630
Accrued expenses and other liabilities..... 411,684
Payable for capital stock repurchased...... 91,654
--------------
Total Liabilities........................ 10,947,473
--------------
NET ASSETS................................... $ 580,630,039
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 325,197
Paid-in capital in excess of par......... 467,274,634
--------------
467,599,831
Undistributed net investment income........ 1,317,330
Accumulated net realized gains on
investments.............................. 489,279
Net unrealized appreciation on investments
and foreign currencies................... 111,223,599
--------------
Net assets, December 31, 1996.............. $ 580,630,039
--------------
--------------
Net asset value and redemption price per
share of 32,519,654 outstanding shares of
common stock (authorized 100,000,000
shares).................................. $ 17.85
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C>
INVESTMENT INCOME
Dividends (net of $555,343 foreign
withholding tax)......................... $ 6,536,733
Interest................................... 1,063,491
---------------
7,600,224
---------------
EXPENSES
Investment advisory fee.................... 3,671,568
Custodian expense.......................... 400,000
Shareholders' reports...................... 190,000
Accounting fees............................ 177,000
Audit fees................................. 41,000
Directors' fees............................ 2,000
Legal fees................................. 200
Miscellaneous expenses..................... 8,534
---------------
4,490,302
---------------
NET INVESTMENT INCOME........................ 3,109,922
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on:
Investments.............................. 15,872,383
Foreign currencies....................... 3,900,113
---------------
19,772,496
---------------
Net change in unrealized appreciation on:
Investments.............................. 67,917,996
Foreign currencies....................... (2,616,550)
---------------
65,301,446
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 85,073,942
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 88,183,864
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 3,109,922 $ 1,620,950
Net realized gain on investments and foreign currencies................................ 19,772,496 13,763,168
Net change in unrealized appreciation on investments and foreign currencies............ 65,301,446 39,034,318
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 88,183,864 54,418,436
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (3,109,922) (5,982,859)
Distributions from net realized capital gains.......................................... (19,019,488) (7,583,630)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (22,129,410) (13,566,489)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [7,307,979 and 2,817,622 shares, respectively]...................... 123,508,873 42,294,857
Capital stock issued in reinvestment of dividends and distributions [1,310,966 and
872,571 shares, respectively]......................................................... 22,129,410 13,566,489
Capital stock repurchased [1,820,909 and (2,794,423) shares, respectively]............. (30,587,232) (41,558,737)
Initial capitalization repurchased by The Prudential [(36,088) and (48,679) shares,
respectively]......................................................................... (575,000) (789,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 114,476,051 13,513,609
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 180,530,505 54,365,556
NET ASSETS:
Beginning of year...................................................................... 400,099,534 345,733,978
------------------ -------------------
End of year............................................................................ $ 580,630,039 $ 400,099,534
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
A8
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (NOTE 2)
------------- --------------
<S> <C> <C>
COMMERCIAL PAPER -- 52.9%
ABN-Amro Bank North America,
5.300%, 02/28/97.............................. $ 2,000 $ 1,983,217
American Brands, Inc.,
5.320%, 01/14/97.............................. 3,900 3,893,084
5.340%, 02/11/97-03/12/97..................... 2,000 1,983,832
6.000%, 01/22/97.............................. 1,000 996,667
American Express Credit Corp.,
5.300%, 02/28/97.............................. 14,482 14,360,472
Aristar, Inc.,
5.410%, 03/14/97.............................. 2,000 1,978,661
5.590%, 02/28/97.............................. 4,500 4,460,171
Avco Financial Services Inc,
5.600%, 03/06/97.............................. 5,000 4,951,000
Avco Financial Services Inc.,
5.440%, 02/28/97.............................. 6,000 5,948,320
Barton Capital Corp.,
5.360%, 01/15/97.............................. 1,300 1,297,484
5.370%, 01/10/97.............................. 13,000 12,984,487
5.400%, 02/21/97.............................. 2,000 1,985,000
5.600%, 02/28/97.............................. 1,000 991,133
BHF Finance, Inc.,
5.310%, 01/30/97.............................. 7,000 6,971,090
Bradford & Bingley Building Society,
5.350%, 01/15/97.............................. 5,000 4,990,340
Caterpillar Financial Services Corp.,
5.350%, 05/16/97-06/16/97..................... 5,000 4,886,610
Ciba-Geigy Corp.,
5.750%, 02/06/97.............................. 1,000 994,410
CIT Group Holdings, Inc.,
5.350%, 03/31/97.............................. 4,000 3,947,689
Coca Cola Enterprises, Inc.,
5.340%, 02/03/97.............................. 4,000 3,981,013
Colonial Pipeline Co.,
5.750%, 01/27/97.............................. 6,100 6,075,642
Countrywide Home Loan,
6.050%, 01/21/97.............................. 2,000 1,993,614
6.200%, 01/15/97.............................. 13,000 12,970,894
6.350%, 01/15/97-01/21/97..................... 18,000 17,956,603
CXC, Inc.,
7.000%, 01/02/97.............................. 21,862 21,862,000
Engelhard Corp.,
5.580%, 02/24/97.............................. 4,000 3,967,140
Enterprise Funding Corp.,
5.340%, 03/18/97.............................. 5,000 4,944,375
Falcon Asset Securitization Corp.,
5.450%, 01/22/97.............................. 2,975 2,965,992
First Data Corp.,
5.400%, 03/18/97-03/25/97..................... 3,000 2,965,200
5.460%, 03/25/97.............................. 10,000 9,875,633
Ford Motor Credit Co.,
5.350%, 03/03/97.............................. 3,000 2,973,250
General Electric Capital Corp.,
5.440%, 02/25/97.............................. 30,000 29,755,200
General Motors Acceptance Corp.,
5.390%, 03/31/97.............................. 1,000 986,824
General Signal Corp.,
5.800%, 02/06/97.............................. 6,300 6,264,475
5.900%, 02/05/97.............................. 3,500 3,480,497
GTE Corp.,
5.500%, 01/14/97.............................. 1,000 998,167
Heller Financial, Inc.,
5.570%, 01/13/97-01/14/97..................... 2,000 1,996,441
5.800%, 01/21/97.............................. 5,000 4,984,694
Indosuez N. A., Inc.,
5.500%, 02/14/97.............................. 5,000 4,967,153
ITT Hartford Group, Inc.,
5.320%, 02/18/97.............................. 2,000 1,986,109
5.500%, 01/21/97.............................. 2,000 1,994,194
Johnson Controls, Inc.,
5.390%, 01/24/97.............................. 5,000 4,983,531
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (NOTE 2)
------------- --------------
<S> <C> <C>
Kredietbank NA Financial Corp.,
5.320%, 01/16/97.............................. $ 3,000 $ 2,993,793
Lehman Brothers Holding, Inc.,
6.700%, 01/07/97.............................. 33,000 32,969,292
Merrill Lynch & Co., Inc.,
5.310%, 02/27/97.............................. 8,000 7,933,920
5.330%, 01/24/97.............................. 7,000 6,977,199
5.350%, 01/29/97.............................. 9,000 8,963,887
5.450%, 01/22/97.............................. 1,000 996,972
Mitsubishi International Corp.,
5.450%, 01/15/97.............................. 4,000 3,992,128
5.750%, 02/10/97.............................. 900 894,394
Morgan Stanley Group, Inc.,
5.320%, 01/21/97-01/29/97..................... 12,000 11,956,849
Nationwide Building Society,
5.310%, 02/19/97.............................. 4,000 3,971,680
5.375%, 02/26/97.............................. 1,000 991,788
5.550%, 02/26/97.............................. 5,000 4,957,604
NYNEX Corp.,
5.410%, 02/13/97.............................. 2,000 1,987,377
6.800%, 01/06/97.............................. 4,760 4,756,404
PNC Funding Corp.,
5.360%, 01/22/97.............................. 1,000 997,022
Preferred Receivables Funding Corp.,
5.320%, 02/06/97.............................. 3,000 2,984,483
5.370%, 03/20/97.............................. 1,000 988,514
5.450%, 01/14/97.............................. 1,000 998,183
5.600%, 02/25/97.............................. 5,000 4,958,000
Sears Roebuck Acceptance Corp.,
5.470%, 02/26/97.............................. 5,000 4,958,215
Triple-A One Funding Corp.,
5.400%, 02/14/97.............................. 2,000 1,987,100
5.500%, 01/24/97.............................. 1,208 1,203,940
Union Pacific Resources,
6.000%, 01/27/97.............................. 1,855 1,847,271
WCP Funding, Inc.,
5.400%, 02/20/97.............................. 4,000 3,970,600
--------------
353,768,923
--------------
OTHER CORPORATE OBLIGATIONS -- 22.5%
Abbey National Treasury Services, PLC,
5.500%, 11/26/97.............................. 10,000 9,990,924
Associates Corp. of North America,
9.700%, 05/01/97.............................. 3,450 3,491,185
Beneficial Corp.,
5.57%, 08/05/97 (a)........................... 9,000 9,003,377
7.250%, 06/09/97.............................. 750 753,620
9.050%, 03/14/97.............................. 1,100 1,106,958
Capital Equipment Receivable Trust,
5.600%, 10/15/97.............................. 9,268 9,268,366
Ford Motor Credit Co.,
5.625%, 03/03/97.............................. 1,000 999,287
6.300%, 04/23/97.............................. 1,000 1,000,733
6.450%, 07/21/97.............................. 500 500,812
General Electric Capital Corp.,
8.300%, 06/02/97.............................. 2,005 2,023,440
General Motors Acceptance Corp.,
5.520%, 02/02/97 (a).......................... 11,000 10,999,035
5.520%, 02/21/97 (a).......................... 1,000 999,963
5.650%, 06/02/97 (a).......................... 11,000 11,005,887
5.750%, 06/09/97.............................. 1,000 1,000,599
6.750%, 07/10/97.............................. 5,000 5,028,923
7.875%, 02/27/97-02/28/97..................... 2,250 2,259,052
Goldman Sachs Group, L.P.,
5.805%, 12/15/97 (a).......................... 30,000 30,000,000
International Lease Finance Corp.,
5.938%, 10/15/97 (a).......................... 3,000 3,009,300
</TABLE>
B1
<PAGE>
MONEY MARKET PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (NOTE 2)
------------- --------------
<S> <C> <C>
John Deere Capital Corp.,
7.200%, 05/15/97.............................. $ 250 $ 250,977
Merrill Lynch & Co., Inc.,
5.533%, 10/01/97 (a).......................... 5,000 4,998,912
Morgan Stanley Group, Inc.,
5.625%, 12/15/97 (a).......................... 4,000 4,000,000
5.688%, 01/15/98 (a).......................... 5,000 5,000,000
6.070%, 01/15/97 (a).......................... 2,000 2,000,000
Nationsbank Auto Owner,
5.776%, 08/15/97.............................. 1,681 1,680,604
Short Term Repack Asset,
6.000%, 12/15/97 (a).......................... 9,000 8,998,169
SMM Trust 1995-Q,
5.605%, 01/08/97 (a).......................... 19,000 18,999,971
Transamerica Financial Corp.,
6.750%, 08/15/97.............................. 1,750 1,756,207
--------------
150,126,301
--------------
CERTIFICATES OF DEPOSIT-DOMESTIC -- 2.4%
Chase Manhattan Bank (USA),
5.750%, 03/24/97.............................. 15,000 15,000,000
Mellon Bank, N.A.,
5.550%, 02/18/97.............................. 1,000 1,000,080
--------------
16,000,080
--------------
CERTIFICATES OF DEPOSIT-EURODOLLAR -- 5.2%
Abbey National Treasury Services, PLC,
5.410%, 01/30/97.............................. 5,000 5,000,093
Banco Bilbao Vizcaya S.A.,
5.410%, 03/05/97.............................. 1,000 1,000,017
Bank of Nova Scotia,
6.050%, 06/25/97.............................. 2,000 2,004,196
Bank of Scotland,
5.430%, 06/05/97.............................. 15,000 14,999,802
Bayerische Hypotheken,
5.740%, 05/27/97.............................. 11,000 11,004,501
Creditanstalt Bankverein,
5.430%, 04/07/97.............................. 1,000 1,000,017
--------------
35,008,626
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 10.6%
Abbey National, PLC,
5.420%, 05/27/97.............................. 10,000 9,998,273
Bank of Montreal,
5.450%, 01/07/97.............................. 5,000 5,000,000
Banque Nationale De Paris,
5.440%, 03/17/97.............................. 2,000 1,999,959
5.580%, 04/02/97.............................. 30,000 29,991,911
Landesbank Hessen-Thuringen,
6.050%, 06/13/97.............................. 3,000 3,006,041
Midland Bank, PLC,
5.500%, 04/10/97.............................. 1,000 999,920
National Bank of Canada,
5.438%, 03/10/97.............................. 5,000 5,000,000
Societe Generale Bank,
5.600%, 04/03/97.............................. 15,000 15,003,658
--------------
70,999,762
--------------
BANK NOTES -- 3.7%
American Express Centurian Bank,
5.532%, 10/09/97 (a).......................... 1,000 999,923
5.575%, 01/14/97 (a).......................... 2,000 1,999,932
5.575%, 04/15/97 (a).......................... 2,000 1,999,887
5.595%, 03/19/97 (a).......................... 3,000 2,999,879
5.595%, 12/22/97 (a).......................... 1,000 999,904
FCC National Bank,
5.770%, 04/15/97.............................. 4,000 3,999,351
First Bank N.A., Minneapolis,
5.518%, 10/24/97 (a).......................... 2,000 1,998,881
First National Bank of Seattle,
5.800%, 05/09/97.............................. 5,000 4,999,001
Morgan Guaranty Trust Co.,
5.375%, 11/14/97 (a).......................... 4,000 3,997,475
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) (NOTE 2)
------------- --------------
<S> <C> <C>
PNC Bank N.A.,
5.564%, 02/20/97 (a).......................... $ 1,000 $ 999,897
--------------
24,994,130
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 2.0%
Student Loan Marketing Association,
5.870%, 06/30/97.............................. 13,000 12,996,445
--------------
TOTAL INVESTMENTS -- 99.3%
(amortized cost: $663,894,267 (b))............................. 663,894,267
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.7%............................................ 4,873,854
--------------
TOTAL NET ASSETS -- 100%......................................... $ 668,768,121
--------------
--------------
The following abbreviations are used in portfolio descriptions:
PLC Public Limited Company (British Corporation)
S.A. Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Indicates a variable rate security. The maturity date presented
for these instruments is the later of the next date on which the
security can be redeemed at par or the next date on which the rate
of interest is adjusted.
(b) The cost of securities for federal income tax purposes is
substantially the same as for financial reporting purposes.
</TABLE>
<TABLE>
<S> <C>
The industry classification of portfolio holdings and other
assets in excess of liabilities shown as a percentage of net
assets as of December 31, 1996 was as follows:
Commercial Banks.................................... 31.2%
Security Brokers & Dealers.......................... 17.5
Asset Backed Securities............................. 12.7
Short-Term Business Credit.......................... 11.2
Mortgage Banks...................................... 4.9
Finance Lessors..................................... 4.8
Personal Credit Institutions........................ 4.7
Computer Rental & Leasing........................... 1.9
Federal Credit Agencies............................. 1.9
Electric Industry Apparatus......................... 1.5
Telephone & Communications.......................... 1.2
Tobacco............................................. 1.0
Gas Pipelines....................................... 0.9
Commodity Trading................................... 0.7
Regulating Controls................................. 0.7
Beverages........................................... 0.6
Fire & Marine Casualty Insurance.................... 0.6
Specialty Chemical.................................. 0.6
Equipment & Rental & Leasing........................ 0.4
Crude Petroleum & Natural Gas....................... 0.3
---------
99.3
Other assets in excess of liabilities............... 0.7
---------
100.0%
---------
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
B2
<PAGE>
DIVERSIFIED BOND PORTFOLIO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 99.0%
<S> <C> <C> <C>
MOODY'S PRINCIPAL
RATING AMOUNT
(UNAUDITED) (000) VALUE
LONG-TERM BONDS -- 98.7% (NOTE 2)
<CAPTION>
------------ --------- --------------
<S> <C> <C> <C>
DOMESTIC CORPORATE BONDS -- 62.8%
AGRICULTURAL EQUIPMENT -- 0.7%
Agco Corp.,
8.50%, 03/15/06............................... Ba3 $ 5,000 $ 5,059,000
--------------
AIRLINES -- 5.2%
Boeing Co.,
8.75%, 08/15/21............................... A1 6,250 7,356,125
Delta Air Lines, Inc.,
7.79%, 12/01/98............................... Baa3 1,000 1,020,710
8.38%, 06/12/98............................... Baa3 2,000 2,054,340
9.875%, 05/15/00.............................. Baa3 6,000 6,499,320
United Air Lines, Inc.,
9.75%, 08/15/21............................... Baa3 4,500 5,333,580
10.67%, 05/01/04.............................. Baa3 7,000 8,278,830
11.21%, 05/01/14.............................. Baa3 5,000 6,555,850
--------------
37,098,755
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.5%
Continental Cablevision, Inc.,
8.30%, 05/15/06............................... Baa2 3,500 3,728,445
Tele-Communications, Inc.,
10.125%, 04/15/22............................. Ba1 6,300 6,917,526
--------------
10,645,971
--------------
COMPUTERS -- 0.5%
Digital Equipment Corp.,
7.125%, 10/15/02.............................. Ba1 4,000 3,817,000
--------------
ENTERTAINMENT -- 0.7%
Royal Caribbean Cruises Ltd.,
11.375%, 05/15/02............................. Ba2 5,000 5,325,000
--------------
FINANCIAL SERVICES -- 27.7%
Advanta Mortgage Loan Trust, Series 1994-3
8.49%, 01/25/26............................... Aaa 8,500 8,802,812
Aristar, Inc.,
5.75%, 07/15/98............................... A3 2,000 1,987,160
7.50%, 07/01/99............................... Baa1 2,000 2,050,740
Associates Corp. of North America,
8.375%, 01/15/98.............................. Aa3 500 511,570
Bank of New York,
7.97%, 12/31/26............................... A1 5,000 5,049,700
BankAmerica Corp.,
6.031%, 05/17/99.............................. A 10,000 10,075,000
Chase Manhattan Corp.,
8.00%, 06/15/99............................... A2 2,000 2,071,620
Chemical Bank,
6.625%, 08/15/05.............................. A1 2,000 1,942,880
Chrysler Financial Corp.,
9.50%, 12/15/99............................... A3 5,000 5,406,550
Conseco, Inc.,
8.70%, 11/15/26............................... BBB 10,500 10,590,510
CoreStates Financial Corp.,
8.00%, 12/15/26............................... A1 10,000 10,000,600
Enterprise Rent-A-Car USA Finance Co.,
7.00%, 06/15/00............................... Baa3 9,000 9,108,900
7.875%, 03/15/98.............................. Baa2 5,000 5,111,250
8.75%, 12/15/99............................... Baa2 3,000 3,177,300
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
First Tennessee National Corp., B.A.,
8.07%, 01/06/27............................... A3 $ 4,500 $ 4,474,800
First Union Corp.,
7.85%, 01/01/27............................... A1 10,000 9,908,750
Ford Motor Credit Co.,
5.75%, 01/25/01............................... A1 4,000 3,872,240
6.25%, 02/26/98............................... A1 3,000 3,007,470
General Motors Acceptance Corp.,
8.40%, 10/15/99............................... A3 3,700 3,887,627
Lehman Brothers Holdings, Inc.,
6.84%, 09/25/98............................... Baa1 5,000 5,037,850
Liberty Mutual Insurance Co.,
8.20%, 05/04/07............................... A2 8,250 8,761,005
Mellon Bank Corp.,
7.995%, 01/15/27.............................. A2 10,000 9,875,000
Nationwide CSN Trust,
9.875%, 02/15/25.............................. A1 5,000 5,559,500
Principal Mutual Life Insurance,
7.875%, 03/01/24.............................. Aa3 5,000 4,901,550
Reliastar Financial Corp.,
6.625%, 09/15/03.............................. A3 5,000 4,912,500
Republic Bank of New York Corp.,
7.53%, 12/04/26............................... A1 5,000 4,900,615
Salomon, Inc.,
5.98%, 02/02/98............................... Baa1 10,000 9,995,100
7.00%, 05/15/99............................... Baa1 10,000 10,079,000
7.25%, 05/01/01............................... Baa1 2,250 2,271,285
State Street Capital Corp.,
7.94%, 12/30/26............................... A1 12,000 11,952,000
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 5,000 4,975,000
Union Planters Corp.,
8.20%, 12/15/26............................... BB+ 5,000 4,950,000
Wells Fargo & Co.,
7.96%, 12/15/26............................... A1 10,000 10,100,000
--------------
199,307,884
--------------
FOREST PRODUCTS -- 1.0%
Boise Cascade Corp.,
9.875%, 02/15/01.............................. Baa3 1,000 1,058,790
Westvaco Corp.,
9.75%, 06/15/20............................... A1 5,000 6,269,800
--------------
7,328,590
--------------
HEALTH CARE -- 2.9%
Columbia/HCA Healthcare Corp.,
7.69%, 06/15/25............................... A2 12,000 12,355,680
Tenet Healthcare Corp.,
8.625%, 12/01/03.............................. Ba1 6,500 6,857,500
9.625%, 09/01/02.............................. Ba1 1,500 1,642,500
--------------
20,855,680
--------------
MACHINERY & EQUIPMENT -- 0.4%
Crane Co.,
7.25%, 06/15/99............................... Baa2 3,000 3,028,560
--------------
</TABLE>
B3
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
MEDIA -- 7.8%
News America Holdings, Inc.,
7.50%, 03/01/00............................... Baa3 $ 6,000 $ 6,137,160
7.75%, 12/01/45............................... Baa3 7,000 6,518,330
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 5,000 4,995,850
Time Warner, Inc.,
7.75%, 06/15/05............................... Ba1 9,800 9,858,114
8.18%, 08/15/07............................... Ba1 4,000 4,104,280
8.375%, 07/15/33.............................. Baa3 6,000 6,021,540
Turner Broadcasting System, Inc.,
7.40%, 02/01/04............................... Ba1 13,500 13,374,855
Viacom, Inc.,
7.75%, 06/01/05............................... Ba2 5,000 4,923,350
--------------
55,933,479
--------------
MISCELLANEOUS-CONSUMER GROWTH -- 0.4%
Whitman Corp.,
7.50%, 08/15/01............................... Baa2 3,000 3,075,540
--------------
OIL & GAS -- 2.3%
Occidental Petroleum Corp.,
10.125%, 11/15/01............................. Baa2 5,000 5,695,150
11.125%, 08/01/10............................. Baa2 5,000 6,535,300
Parker & Parsley Petroleum Co.,
8.25%, 08/15/07............................... Baa3 4,000 4,300,600
--------------
16,531,050
--------------
OIL & GAS EQUIPMENT & SERVICES -- 1.1%
B.J. Services Co.,
7.00%, 02/01/06............................... Ba1 5,000 4,859,550
Noble Drilling Corp.,
9.125%, 07/01/06.............................. Ba2 3,000 3,225,000
--------------
8,084,550
--------------
RESTAURANTS -- 1.3%
Darden Restaurants, Inc.,
7.125%, 02/01/16.............................. Baa1 10,000 9,021,700
--------------
RETAIL -- 3.7%
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. Ba1 9,000 9,225,000
8.50%, 06/15/03............................... Ba1 11,000 11,440,000
Kmart Corp.,
9.80%, 06/15/98............................... Ba3 2,000 2,035,000
Rite Aid Corp.,
6.70%, 12/15/01............................... A3 4,000 3,986,000
--------------
26,686,000
--------------
TELECOMMUNICATIONS -- 2.6%
Impsat Corp.,
12.125%, 07/15/03............................. B2 3,000 3,180,000
MFS Communications Co., Inc., Sr. Disc. Notes,
Zero Coupon (until 01/15/99)
9.375%, 01/15/04.............................. B1 9,000 6,547,500
TCI Communications, Inc.,
6.875%, 02/15/06.............................. Ba1 10,000 9,087,400
--------------
18,814,900
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
UTILITIES -- 3.0%
Arkla, Inc.,
9.32%, 12/18/00............................... Ba3 $ 2,000 $ 2,136,280
El Paso Electric Company,
9.40%, 05/01/11............................... Ba3 4,000 4,240,000
Pennsylvania Power & Light Co.,
9.375%, 07/01/21.............................. A3 1,150 1,288,840
Texas Utilities Electric Co.,
5.875%, 04/01/98.............................. Baa2 4,000 3,991,560
Transco Energy Co.,
9.125%, 05/01/98.............................. Baa2 3,000 3,113,820
9.375%, 08/15/01.............................. Baa2 6,000 6,613,920
--------------
21,384,420
--------------
FOREIGN CORPORATE BONDS -- 8.1%
Australia & New Zealand Banking Group, Ltd.,
(Australia)
6.25%, 02/01/04............................... A1 3,000 2,889,780
Banco de Commercio Exterior de Colombia, SA,
(Colombia)
8.625%, 06/02/00.............................. Baa3 2,000 2,077,500
Banco Ganadero, SA, (Colombia)
9.75%, 08/26/99............................... Baa3 4,100 4,315,250
Canadian Pacific Forest Products Ltd., (Canada)
10.25%, 01/15/03.............................. Baa1 4,000 4,360,000
Compania Sud Americana de Vapores, SA, (Chile)
7.375%, 12/08/03.............................. BBB 3,000 2,955,000
Deutsche Bank, (Germany)
6.70%, 12/13/06............................... Aa1 4,350 4,280,248
Kansallis-Osake Pankki, N.Y., (Finland)
8.65%, 01/01/49............................... A3 5,000 5,220,750
10.00%, 05/01/02.............................. A3 5,000 5,674,500
National Australia Bank, Ltd., (Australia)
9.70%, 10/15/98............................... A1 1,700 1,801,609
National Power Corp., (Philipines)
8.40%, 12/15/16............................... Ba2 4,900 4,875,500
Ontario, Province of Canada, (Canada)
15.75%, 03/15/12.............................. Aa3 3,475 3,756,127
Polysindo Int'l Finance Co., (Netherlands)
11.375%, 06/15/06............................. Ba3 5,000 5,462,500
PT Alatief Freeport Financial Co., (Netherlands)
9.75%, 04/15/01............................... Ba1 5,750 6,286,187
Rogers Cablesystems, Inc., (Canada)
10.00%, 03/15/05.............................. Ba3 4,000 4,260,000
--------------
58,214,951
--------------
</TABLE>
B4
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 14.0%
Federal Farm Credit Bank,
8.65%, 10/01/99............................... $ 150 $ 159,258
International Bank for Reconstruction and
Development,
12.375%, 10/15/02............................. 750 956,708
Resolution Funding Corp.,
Zero Coupon, 10/15/15......................... 17,100 4,670,694
8.125%, 10/15/19.............................. 700 791,434
8.625%, 01/15/21.............................. 200 237,562
United States Treasury Bonds,
6.75%, 8/15/26 (b)............................ 940 947,050
11.25%, 02/15/15.............................. 4,000 5,906,880
12.00%, 08/15/13.............................. 20,000 28,609,400
United States Treasury Notes,
5.75%, 08/15/03............................... 10,450 10,136,500
5.875%, 11/30/01.............................. 3,600 3,547,692
6.50%, 10/15/06............................... 13,100 13,171,657
6.625%, 06/30/01.............................. 14,430 14,662,179
7.25%, 02/15/98............................... 5,000 5,082,050
7.75%, 12/31/99............................... 5,750 6,014,155
7.875%, 11/15/04.............................. 3,600 3,928,500
12.50%, 08/15/14.............................. 1,500 2,241,795
--------------
101,063,514
--------------
U.S. GOVERNMENT AGENCY MORTGAGE BACKED SECURITIES -- 4.6%
Federal National Mortgage Association,
Zero Coupon, 07/24/06......................... 9,000 4,748,940
9.00%, 10/01/16-09/01/21...................... 623 663,006
Government National Mortgage Association,
7.50%, 05/20/02-02/15/26...................... 27,222 27,613,035
--------------
33,024,981
--------------
FOREIGN GOVERNMENT BONDS -- 9.2%
Republic of Argentina, (Argentina)
6.625%, 03/31/05.............................. B1 4,900 4,293,625
Republic of Colombia, (Colombia)
8.00%, 06/14/01............................... Baa3 1,600 1,624,000
8.75%, 10/06/99............................... Baa3 3,500 3,657,500
Republic of Philippines, (The Philippines)
8.75%, 10/07/16............................... B1 4,675 4,819,925
Republic of Poland, (Poland)
4.00%, (until 10/27/98)
5.00%, (until 10/27/99)
6.00%, (until 10/27/02)
7.00%, 10/27/14............................... Baa3 16,000 13,540,000
Republic of Venezuela, (Venezuela)
6.50%, 12/18/07 (a)........................... Ba2 3,000 2,640,000
Rio de Janeiro, (Brazil)
10.375%, 07/12/99............................. B1 5,000 5,137,500
United Mexican States, (Mexico)
7.562%, 08/06/01 (a).......................... Baa3 25,000 25,058,750
11.50%, 05/15/26.............................. Ba2 5,000 5,287,500
--------------
66,058,800
--------------
TOTAL LONG-TERM BONDS
(cost $696,315,713)...................................................... 710,360,325
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S
RATING VALUE
PREFERRED STOCK -- 0.3% (UNAUDITED) SHARES (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
GAS PIPELINES -- 0.3%
TransCanada Pipelines, Ltd.
(cost $2,000,000 )............................ 80,000 $ 2,080,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $698,315,713)...................................................... 712,440,325
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 4.3% (000)
---------
CERTIFICATES OF DEPOSIT -- DOMESTIC -- 0.7%
Advanta National Bank, C.D.,
6.26%, 09/01/97............................... Baa $ 5,000 5,005,000
--------------
OTHER CORPORATE OBLIGATIONS -- 1.4%
Citicorp,
8.50%, 02/24/97............................... A1 3,000 3,010,410
General Motors Acceptance Corp.,
7.50%, 11/04/97............................... A3 2,000 2,027,180
Mellon Bank Corp.,
6.50%, 12/01/97............................... A2 2,000 2,007,580
Potomac Capital Investment Corp.,
6.19%, 04/28/97............................... A3 3,500 3,535,000
--------------
10,580,170
--------------
REPURCHASE AGREEMENT -- 2.2%
Joint Repurchase Agreement Account,
6.613%, 01/02/97 (Note 5)..................... 15,414 15,414,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $30,945,800)....................................................... 30,999,170
--------------
TOTAL INVESTMENTS BEFORE SHORT SALE -- 103.3%
(cost $729,261,513; Note 6).............................................. 743,439,495
--------------
INVESTMENT SOLD SHORT -- (3.6%)
United States Treasury Bond,
6.75%, 8/15/26
(proceeds $26,546,678; Note 2)................ 25,450 (26,310,748)
--------------
TOTAL INVESTMENTS, NET OF SHORT SALES -- 99.7%...................
717,128,747
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.3%............................................ 3,087,834
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 720,216,581
--------------
--------------
<FN>
The following abbreviations are used in portfolio descriptions:
B.A. Bankers' Acceptances
C.D. Certificates of Deposit
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme
(French Corporation)
(a) Indicates a variable rate security.
(b) Deposited with the custodian to cover an open short sale
transaction.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
B5
<PAGE>
HIGH YIELD BOND PORTFOLIO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LONG-TERM INVESTMENTS -- 90.8%
MOODY'S PRINCIPAL
RATING AMOUNT
(UNAUDITED) (000) VALUE
CORPORATE BONDS -- 87.8% (NOTE 2)
<CAPTION>
------------ --------- --------------
<S> <C> <C> <C>
AEROSPACE -- 1.1%
K & F Industries, Inc.,
Sr. Notes,
11.875%, 12/01/03............................. B1 $ 1,500 $ 1,616,250
Talley Manufacturing & Technology, Inc.,
Sr. Notes,
10.75%, 10/15/03.............................. B2 3,000 3,097,500
--------------
4,713,750
--------------
AUTOMOTIVE PARTS -- 2.1%
Foamex, L.P.,
Sr. Sub. Deb.,
11.875%, 10/01/04............................. B3 1,500 1,597,500
Sr. Notes,
11.25%, 10/01/02.............................. B1 1,500 1,590,000
11.125%, 06/15/01............................. B2 4,000 4,290,000
Foamex-JPS Automotive L.P.,
Sr. Disc. Notes,
Zero Coupon (until 07/1/99), 14.0%,
07/01/04.................................... NR 2,000 1,660,000
--------------
9,137,500
--------------
BROADCASTING & OTHER MEDIA -- 3.3%
Benedek Broadcasting Corp., Sr. Notes,
11.875%, 03/01/05............................. Ba3 2,910 3,171,900
Globo Communicacoes E Particip., Sr. Notes,
10.50%, 12/20/06.............................. NR 1,040 1,049,100
Outdoor Systems, Inc.,
Sr. Sub. Notes,
9.375%, 10/15/06.............................. B1 3,500 3,605,000
Paxson Communications Corp., Sr. Sub. Notes,
11.625%, 10/01/02............................. B3 4,500 4,691,250
Universal Outdoor, Inc.,
Sr. Sub. Notes,
9.75%, 10/15/06............................... B1 1,750 1,806,875
--------------
14,324,125
--------------
BUILDING & RELATED INDUSTRIES -- 1.9%
Building Materials Corp. of America, Sr. Notes,
Zero Coupon (until 07/1/99), 11.75%,
07/01/04.................................... Ba3 5,000 4,325,000
Nortek, Inc., Sr. Sub. Notes,
9.875%, 03/01/04.............................. B3 3,750 3,787,500
--------------
8,112,500
--------------
CABLE -- 18.6%
Adelphia Communications Corp., Sr. Notes, PIK,
9.50%, 02/15/04............................... B2 1,707 1,476,923
12.50%, 05/15/02.............................. B2 750 768,750
American Telecasting, Inc., Sr. Disc. Notes,
Zero Coupon, (until 08/15/00), 14.56%,
08/15/05.................................... Caa 6,500 2,470,000
Zero Coupon, (until 06/15/99), 14.5%,
06/15/04.................................... Caa 3,000 1,230,000
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
CAI Wireless Systems, Inc., Sr. Notes,
12.25%, 09/15/02.............................. Caa $ 5,550 $ 2,553,000
Cablevision Systems Corp., Sr. Sub. Deb.,
9.25%, 11/01/05............................... B3 4,825 4,776,750
Sr. Sub. Notes,
9.875%, 02/15/13.............................. B2 3,300 3,250,500
Century Communications Corp., Sr. Notes,
9.50%, 03/01/05............................... Ba3 3,500 3,587,500
Comcast Corp.,
Sr. Sub. Deb.,
9.375%, 05/15/05.............................. B1 5,000 5,187,500
Sr. Sub. Notes,
9.125%, 10/15/06.............................. B1 1,000 1,025,000
Continental Cablevision, Inc.,
Sr. Deb.,
9.50%, 08/01/13............................... Ba2 5,000 5,707,550
Diamond Cable Co.,
Sr. Disc. Notes,
Zero Coupon, (until 12/15/00), 11.75%,
12/15/05.................................... B3 1,250 900,000
Zero Coupon, (until 09/30/99), 13.25%,
09/30/04.................................... B3 2,000 1,640,000
Echostar Communications Corp., Sr. Disc. Notes,
Zero Coupon, (until 06/1/99), 12.875%,
06/01/04.................................... B2 5,000 4,125,000
Echostar Satellite,
Sr. Disc. Notes,
Zero Coupon, (until 03/15/00), 13.125%,
03/15/04.................................... Caa 3,000 2,265,000
Falcon Holdings Group, L.P., Series B, Sr. Sub.
Notes, PIK,
11.00%, 09/15/03.............................. NR 3,810 3,410,209
Intermedia Capital Partners, Sr. Notes,
11.25%, 08/01/06.............................. B 3,380 3,506,750
International Cabletel, Inc.,
Zero Coupon (until 10/15/98), 10.875%,
10/15/03.................................... B3 1,500 1,260,000
Zero Coupon (until 04/15/00), 12.75%,
04/15/05.................................... B3 4,350 3,262,500
Kabelmedia Holdings,
Sr. Disc. Notes,
Zero Coupon (until 08/1/01), 13.625%,
08/01/06.................................... B3 2,000 1,120,000
Lenfest Communications, Inc.,
Sr. Notes,
8.375%, 11/01/05.............................. Ba3 4,550 4,396,437
</TABLE>
B6
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Marcus Cable Operating Co., L.P.,
Sr. Sub. Disc. Notes,
Zero Coupon (until 08/1/99), 13.5%,
08/01/04.................................... Ba3 $ 5,750 $ 4,715,000
People's Choice TV Corp., Sr. Disc. Notes,
Zero Coupon (until 06/1/00), 13.125%,
06/01/04.................................... Caa 3,500 1,505,000
Rogers Cablesystems, Inc., Sr. Sec'd 2nd Deb.,
10.00%, 12/01/07.............................. Ba3 1,000 1,055,000
10.00%, 03/15/05.............................. Ba3 4,250 4,526,250
Tevecap S.A., Sr. Notes,
12.625%, 11/26/04............................. B2 1,500 1,533,750
United International Holdings, Inc.,
Sr. Disc. Notes,
Zero Coupon, 11/15/99......................... B3 4,800 3,417,000
Videotron Holdings, PLC,
Sr. Disc. Notes,
Zero Coupon (until 07/1/99), 11.125%,
07/01/04.................................... B3 4,175 3,632,250
Zero Coupon (until 08/15/00), 11.00%,
08/15/05.................................... B3 3,200 2,576,000
--------------
80,879,619
--------------
CASINOS -- 3.8%
Boomtown, Inc.,
First Mtge. Bonds,
11.50%, 11/01/03.............................. B1 1,500 1,578,750
Casino Magic Finance Corp., First Mtge. Bonds,
11.50%, 10/15/01.............................. B1 1,300 1,176,500
Colorado Gaming & Entertainment,
Sr. Notes, PIK,
12.00%, 06/01/03.............................. NR 2,645 2,539,200
Empress River Casino,
Sr. Notes,
10.75%, 04/01/02.............................. Ba3 4,500 4,882,500
Lady Luck Gaming,
First Mtge. Notes,
11.875%, 03/01/01............................. B2 2,000 1,940,000
Trump Atlantic City Assoc., First Mtge. Notes,
11.25%, 05/01/06.............................. B1 4,300 4,257,000
--------------
16,373,950
--------------
CHEMICALS -- 1.3%
ISP Holdings, Inc.,
Sr. Notes,
9.00%, 10/15/03............................... Ba3 2,000 2,030,000
9.75%, 02/15/02............................... Ba3 2,319 2,376,975
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Sterling Chemical Holdings, Inc., Sr. Disc.
Notes,
Zero Coupon (until 08/15/01), 13.5%,
08/15/08.................................... Caa $ 560 $ 327,600
Sr. Sub. Notes,
11.75%, 08/15/06.............................. B3 1,000 1,060,000
--------------
5,794,575
--------------
COMPUTER SERVICES -- 0.5%
Unisys Corp., Sr. Notes,
11.75%, 10/15/04.............................. B1 2,000 2,135,000
--------------
CONSUMER PRODUCTS -- 1.5%
Radnor Holdings Corp.,
Sr. Notes,
10.00%, 12/01/03.............................. B2 840 856,800
Revlon Worldwide Corp.,
Sr. Disc. Notes,
Zero Coupon, 03/15/98......................... NR 2,000 1,720,000
Sealy Corp., Sr. Sub. Notes,
9.50%, 05/01/03............................... B1 750 757,500
Twin Labs, Inc., Gtd. Notes,
10.25%, 05/15/06.............................. B3 3,000 3,090,000
--------------
6,424,300
--------------
DIVERSIFIED INDUSTRIES -- 0.4%
Newflo Corp., Sub. Notes,
13.25%, 11/15/02.............................. B3 1,500 1,655,625
--------------
DRUGS & HEALTHCARE -- 4.4%
Fresenius Med Care Capital Trust,
9.00%, 12/01/06............................... Ba3 1,600 1,628,000
Imed Corp., Sr. Sub. Notes,
9.75%, 12/01/06............................... B3 1,960 1,994,300
Owens & Minor, Inc.,
Sr. Sub. Notes,
10.875%, 06/01/06............................. B1 3,450 3,700,125
Paracelsus Health,
Sr. Sub. Notes,
10.00%, 08/15/06.............................. B1 2,250 2,115,000
Tenet Healthcare Corp.,
Sr. Sub. Notes,
10.125%, 03/01/05............................. Ba3 8,500 9,413,750
--------------
18,851,175
--------------
ENERGY -- 8.8%
Calenergy, Inc., Sr. Notes,
9.50%, 09/15/06............................... Ba2 1,500 1,552,500
California Energy Co., Inc., Disc. Notes,
Zero Coupon (until 01/15/97), 10.25%,
01/15/04.................................... Ba3 2,250 2,370,938
Falcon Drilling Co., Inc., L.P., Series B,
Sr. Notes,
9.75%, 01/15/01............................... B2 500 525,000
Sr. Sub. Notes,
12.50%, 03/15/05............................ NR 2,500 2,775,000
Gulf Canada Resources,
Ltd.,
9.625%, 07/01/05.............................. Ba3 3,600 3,897,000
KCS Energy, Inc., Sr. Notes,
11.00%, 01/15/03.............................. B1 5,000 5,400,000
</TABLE>
B7
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Long Island Lighting Co.,
Deb.,
7.05%, 03/15/03............................... B3 $ 1,500 $ 1,465,365
9.00%, 11/01/22............................... Ba3 4,000 4,210,000
Maxus Energy Corp.,
Sr. Notes,
9.375%, 11/01/03.............................. B1 1,250 1,268,750
M.T.N.,
10.83%, 09/01/04.............................. B1 3,600 3,816,000
McDermott J. Ray,
Sr. Sub. Notes,
9.375%, 07/15/06.............................. Ba3 2,750 2,887,500
Parker Drilling Co.,
Gtd. Notes,
9.75%, 11/15/06............................... B1 1,360 1,434,800
Petroleum Heat & Power, Inc.,
Sub. Deb.,
9.375%, 02/01/06.............................. B2 2,000 1,900,000
12.25%, 02/01/05.............................. B2 813 902,430
Transtexas Gas Corp.,
Sr. Sec'd Notes,
11.50%, 06/15/02.............................. B2 3,525 3,807,000
--------------
38,212,283
--------------
FINANCIAL SERVICES -- 0.5%
First Nationwide Holdings, Inc.,
Sr. Notes,
12.50%, 04/15/03.............................. Ba 450 504,000
Sr. Sub. Notes,
10.625%, 10/01/03............................. Ba3 1,600 1,728,000
--------------
2,232,000
--------------
FOOD & BEVERAGE -- 2.9%
Del Monte Corp.,
Sub. Notes, PIK,
12.25%, 09/01/02 (cost $2,041,800; purchased
09/10/96) (b)............................... B3 2,041 2,081,820
Fresh Del Monte Produce, N.V., Sr. Notes,
10.00%, 05/01/03.............................. Caa 5,500 5,307,500
PM Holdings Corp.,
Zero Coupon (until 09/01/00), 11.50%,
09/01/05.................................... B3 2,981 1,922,745
PSF Hldgs., LLC, PIK,
Sr. Sec'd Notes,
11.00%, 09/17/03 (cost $242,548; purchased
11/21/96) (b)............................... NR 243 251,037
Specialty Foods Corp.,
Sr. Notes,
11.125%, 10/01/02............................. B3 3,000 2,850,000
--------------
12,413,102
--------------
INDUSTRIAL -- 0.2%
Clark Material Handling Corp., Sr. Notes,
10.75%, 11/15/06.............................. B1 800 832,000
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
LEISURE & TOURISM -- 4.1%
HMC Acquisition, Sr. Notes,
9.00%, 12/15/07............................... Ba3 $ 3,000 $ 3,045,000
HMH Properties, Inc.,
Sr. Notes,
9.50%, 05/15/05............................... Ba3 5,550 5,772,000
Host Marriott Travel Plaza, Sr. Notes,
9.50%, 05/15/05............................... B1 4,600 4,801,250
Plitt Theaters, Inc.,
Sr. Sub. Notes,
10.875%, 06/15/04............................. B3 4,000 4,030,000
--------------
17,648,250
--------------
MEDIA -- 1.6%
NewCity Communications, Inc., Sr. Sub. Notes,
11.375%, 11/01/03............................. B3 3,250 3,599,375
Tele-Communications, Inc., Deb.,
9.80%, 02/01/12............................... B2 3,000 3,246,600
--------------
6,845,975
--------------
MISCELLANEOUS SERVICES -- 1.7%
Coinstar, Inc.,
Sr. Sub. Notes,
Zero Coupon (until 10/1/99), 13.0%, 10/01/06
(cost $621,351; purchased 10/17/96) (b)..... NR 900 639,000
Interact Systems Inc.,
Sr. Disc. Notes,
Zero Coupon (until 08/1/99), 14.0%,
08/01/03.................................... NR 4,400 2,200,000
United Stationer Supply Co., Sr. Sub. Notes,
12.75%, 05/01/05.............................. B3 4,000 4,420,000
--------------
7,259,000
--------------
PAPER & FOREST -- 2.8%
Gaylord Container Corp.,
Sr. Sub. Disc. Notes,
12.75%, 05/15/05.............................. Caa 4,365 4,823,325
Ivex Packaging Corp.,
Sr. Sub Notes,
12.50%, 12/15/02.............................. B3 740 801,050
Pacific Lumber Co.,
Sr. Notes,
10.50%, 03/01/03.............................. B3 2,750 2,791,250
Stone Consolidated, Inc.,
Sr. Notes,
10.25%, 12/15/00.............................. Ba1 3,500 3,727,500
--------------
12,143,125
--------------
PLASTIC PRODUCTS -- 0.4%
Applied Extrusion Technology, Inc.,
Sr. Notes,
11.50%, 04/01/02.............................. B2 1,700 1,785,000
--------------
</TABLE>
B8
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
PUBLISHING -- 0.5%
Petersen Publishing,
Sr. Sub. Notes,
11.125%, 11/15/06 (cost $2,064,063; purchased
11/20/96 & 12/05/96) (b).................... B3 $ 2,050 $ 2,137,125
--------------
RETAIL -- 2.4%
Cole National Group, Inc., Sr. Sub Notes,
9.875%, 12/31/06 (cost $1,916,100; purchased
11/13/96 & 11/22/96) (b).................... B2 1,920 1,977,600
Kmart Corp., Deb.,
8.25%, 01/01/22............................... Ba3 3,250 2,730,000
8.375%, 07/01/22.............................. Ba3 2,500 2,100,000
Phar-Mor, Inc., Sr. Notes,
11.72%, 09/11/02.............................. Ba3 3,400 3,570,000
--------------
10,377,600
--------------
STEEL & METAL -- 1.0%
Maxxam Group Holdings, Inc.,
Sr. Notes,
12.00%, 08/01/03.............................. B3 800 816,000
United States Can Corp.,
Sr. Sub. Notes,
10.125%, 10/15/06............................. B2 800 841,000
WCI Steel, Inc., Sr. Notes,
10.00%, 12/01/04.............................. B2 2,500 2,531,250
--------------
4,188,250
--------------
SUPERMARKETS -- 2.4%
Food 4 Less Holdings, Inc., Sr. Disc. Deb.,
Zero Coupon, (until 06/15/00), 13.625%,
07/15/05.................................... Caa 1,900 1,197,000
Jitney-Jungle Stores America, Inc.,
12.00%, 03/01/06.............................. B2 4,000 4,230,000
Pathmark Stores, Inc.,
Sub. Notes,
11.625%, 06/15/02............................. Caa 2,690 2,730,350
Smiths Food & Drug,
Sr. Sub. Notes,
11.25%, 05/15/07.............................. B3 2,250 2,486,250
--------------
10,643,600
--------------
TELECOMMUNICATIONS -- 16.4%
Brooks Fiber Properties, Inc., Sr. Disc. Notes,
Zero Coupon (until 11/01/01), 11.875%,
11/01/06.................................... NR 4,000 2,565,000
Zero Coupon (until 03/01/01), 10.875%,
03/01/06.................................... NR 2,250 1,440,000
CellNet Data Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 06/15/00), 13.00%, 06/15/05
(cost $2,286,598; purchased 06/06/95 &
11/17/95) (b)............................... NR 4,250 3,336,250
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Centennial Cellular Corp., Sr. Notes,
10.125%, 05/15/05............................. B1 $ 4,500 $ 4,533,750
Clearnet Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 12/15/00), 14.75%,
12/15/05.................................... B3 7,940 4,922,800
GST Telecommunications, Inc., Sr. Disc. Notes,
Zero Coupon (until 12/15/00), 13.875%,
12/15/05.................................... NR 7,200 4,410,000
Geotek Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 07/15/00), 15.00%,
07/15/05.................................... Caa 5,000 3,175,000
ICG Holdings, Inc.,
Sr. Sub. Notes,
Zero Coupon (until 09/15/00), 13.50%,
09/15/05.................................... NR 6,300 4,441,500
Impsat Corp., Sr. Notes,
12.125%, 07/15/03............................. B2 2,500 2,650,000
Intermedia Communications of Florida, Inc.,
Sr. Disc. Notes,
Zero Coupon (until 05/15/01), 12.50%,
05/15/06.................................... B3 2,000 1,360,000
Sr. Notes,
13.50%, 06/01/05.............................. B3 3,000 3,435,000
International Wireless Commerce,
Sr. Disc. Notes,
Zero Coupon, 08/15/01......................... NR 2,600 1,404,000
Ionica PLC, Sr. Notes,
13.50%, 08/15/06.............................. NR 4,000 4,080,000
MFS Communications Co., Inc., Sr. Disc. Notes,
Zero Coupon (until 01/15/99), 9.375%,
01/15/04.................................... B1 6,500 5,638,750
Metrocall, Inc.,
Sr. Sub. Notes,
10.375%, 10/01/07............................. B3 5,500 4,730,000
Omnipoint Corp., Sr. Notes,
11.625%, 08/15/06............................. B2 2,000 2,075,000
Pagemart, Inc.,
Zero Coupon (until 11/01/98), 12.25%,
11/01/03.................................... NR 2,000 1,600,000
Sr. Disc. Notes,
Zero Coupon (until 02/01/00), 15.00%,
02/01/05.................................... NR 6,500 4,468,750
Paging Network, Inc.,
Sr. Sub. Notes,
10.125%, 08/01/07............................. B2 5,250 5,355,000
</TABLE>
B9
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Rogers Cantel, Deb.,
9.375%, 06/01/08.............................. Ba3 $ 1,500 $ 1,575,000
Winstar Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/15/00), 14.00%,
10/15/05.................................... NR 5,850 3,583,125
--------------
70,778,925
--------------
TEXTILES -- 1.2%
Dominion Textile (USA), Inc., Notes,
9.25%, 04/01/06............................... Ba2 3,500 3,556,875
Polysindo Int'l Finance Co., Notes,
11.375%, 06/15/06............................. Ba3 1,500 1,638,750
--------------
5,195,625
--------------
TRANSPORTATION/AIRLINES -- 0.9%
US Air, Inc., Series 89-A2,
9.82%, 01/01/13............................... B1 4,000 3,900,000
--------------
TRANSPORTATION/TRUCKING/SHIPPING -- 0.4%
Ameritruck Distribution Corp., Sr. Sub. Notes,
12.25%, 11/15/05.............................. B-(c) 1,740 1,744,350
--------------
WASTE MANAGEMENT -- 0.7%
Allied Waste North America, Inc., Sr. Sub.
Notes,
10.25%, 12/01/06.............................. B3 3,000 3,155,625
--------------
TOTAL CORPORATE BONDS
(cost $370,615,827)...................................................... 379,893,954
--------------
CONVERTIBLE BONDS -- 0.9%
TELECOMMUNICATIONS -- 0.9%
Geotek Communications, Inc.,
12.00%, 02/15/01
(cost $2,000,000; purchased 03/05/96) (b)... Caa 2,000 2,030,000
GST Communications, Inc.,
Sr. Disc. Notes
Zero Coupon (until 12/15/00), 13.875%,
12/15/05.................................... NR 650 513,500
Winstar Communications, Inc.,
Sr. Disc. Notes,
Zero Coupon (until 10/15/00), 14.00%,
10/15/05.................................... NR 2,025 1,458,000
--------------
TOTAL CONVERTIBLE BONDS
(cost $3,413,622)........................................................ 4,001,500
--------------
PREFERRED STOCKS -- 1.6% SHARES
-------------
Cablevision Systems Corp., Series H, PIK........ 11,579 1,082,678
Series L, PIK................................. 299 2,683,166
Silgan Holdings, Inc., PIK...................... 28,870 3,089,090
--------------
TOTAL PREFERRED STOCKS
(cost $7,100,626).............................................. 6,854,934
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
VALUE
COMMON STOCKS (A) -- 0.1% SHARES (NOTE 2)
<CAPTION>
------------- --------------
<S> <C> <C>
Dr. Pepper Bottling Holdings, Inc., (Class 'B'
Stock)........................................ 5,807 $ 58,070
Loehmann's Holdings, Inc........................ 4,403 101,269
PM Holdings Corp................................ 1,103 386,050
Pagemart Nationwide, Inc........................ 13,125 91,875
--------------
TOTAL COMMON STOCKS
(cost $5,226).................................................. 637,264
--------------
COMMON TRUST UNITS -- 0.1% UNITS
-------------
PSF Hldgs., LLC, (cost $757,452; purchased
11/21/96) (b)................................. 22,025 594,675
--------------
WARRANTS (A) -- 0.3%
American Telecasting, Inc., expiring 08/10/00... 6,500 39,000
CellNet Data System, Inc., expiring 06/15/05
(cost $0; purchased 06/06/95 &
11/17/95) (b)................................. 17,000 170
Cellular Communications Int'l, Inc., expiring
08/15/03...................................... 4,375 0
Clearnet Communications, Inc., expiring
09/15/05...................................... 26,202 189,964
Coinstar, Inc., expiring 10/1/06 (cost $0;
purchased 10/17/96) (b)....................... 900 9
Foamex - JPS Automotive, expiring 07/1/99....... 2,000 50,000
ICG Communications, expiring 09/15/05........... 20,790 270,270
Interact Systems, Inc., expiring 08/1/03........ 4,400 0
Intercel, Inc., expiring 02/1/06................ 6,720 47,040
Intermedia Communications of Florida, Inc.,
expiring 06/1/00 (cost $0; purchased
05/25/95) (b)................................. 3,000 105,000
International Wireless Commerce, expiring
08/15/01...................................... 2,600 26
Ionica PLC, expiring 08/15/06................... 4,000 440,000
Nextel Comm,
expiring 12/15/98............................. 1,543 15
expiring 04/25/99............................. 2,250 23
Pagemart, Inc., expiring 11/1/03................ 9,200 46,000
People's Choice TV Corp., expiring 06/1/00...... 3,500 3,500
President Riverboat Casinos, expiring
09/30/99...................................... 22,075 221
Sterling Chemical Holdings, Inc., expiring
08/15/08...................................... 560 19,600
--------------
TOTAL WARRANTS................................................... 1,210,838
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $381,892,753)............................................ 393,193,165
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 7.8% (000)
-------------
REPURCHASE AGREEMENT -- 7.3%
Joint Repurchase Agreement Account,
6.613%, 01/02/97 (Note 5)..................... $ 31,450 31,450,000
--------------
</TABLE>
B10
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED) (000) (NOTE 2)
------------- --------------
<S> <C> <C>
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.5%
U.S. Treasury Bills,
4.85%, 03/06/97............................... $ 2,000 $ 1,982,640
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $33,433,025)............................................. 33,432,640
--------------
TOTAL INVESTMENTS -- 98.6%
(cost $415,325,778; Note 6).................................... 426,625,805
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.4%....................
6,241,070
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 432,866,875
--------------
--------------
The following abbreviations are used in portfolio descriptions:
LLC Limited Liability Company
L.P. Limited Partnership
M.T.N. Medium Term Note
NR Not Rated by Moody's or Standard & Poor's
PIK Payment in Kind securities
(a) PLC Non-income Public Limited Company (British Corporation)
producing security.
(b) Indicates a restricted security; the aggregate cost of such
securities is $11,929,912. The aggregate value is
$13,152,686 and is approximately 3.0% of net assets.
(c) Standard & Poor's Rating.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
B11
<PAGE>
STOCK INDEX PORTFOLIO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.8%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 2.4%
AlliedSignal, Inc............................... 77,300 $ 5,179,100
Boeing Co....................................... 98,028 10,427,728
General Dynamics Corp........................... 17,400 1,226,700
Lockheed Martin Corp............................ 54,149 4,954,633
McDonnell Douglas Corp.......................... 57,300 3,667,200
Northrop Grumman Corp........................... 15,300 1,266,075
Raytheon Co..................................... 62,800 3,022,250
Rockwell International Corp. (a)................ 59,000 3,591,625
United Technologies Corp........................ 65,800 4,342,800
--------------
37,678,111
--------------
AIRLINES -- 0.3%
AMR Corp. (a)................................... 25,000 2,203,125
Delta Air Lines, Inc............................ 20,900 1,481,287
Southwest Airlines Co........................... 39,600 876,150
USAir Group, Inc. (a)........................... 16,100 376,337
--------------
4,936,899
--------------
ALUMINUM -- 0.4%
Alcan Aluminum, Ltd............................. 62,050 2,086,431
Aluminum Co. of America......................... 46,500 2,964,375
Reynolds Metals Co.............................. 17,200 969,650
--------------
6,020,456
--------------
AUTOS - CARS & TRUCKS -- 2.1%
Chrysler Corp................................... 197,400 6,514,200
Cummins Engine Co., Inc......................... 11,200 515,200
Dana Corp....................................... 26,900 877,612
Echlin, Inc..................................... 16,600 524,975
Ford Motor Co................................... 322,100 10,266,937
General Motors Corp............................. 204,900 11,423,175
Genuine Parts Co................................ 33,150 1,475,175
Johnson Controls, Inc........................... 11,100 919,912
Navistar International Corp. (a)................ 20,500 187,062
Safety Kleen Corp............................... 17,450 285,744
--------------
32,989,992
--------------
BANKS AND SAVINGS & LOANS -- 7.3%
Banc One Corp................................... 117,694 5,060,842
Bank of Boston Corp............................. 40,600 2,608,550
Bank of New York Company, Inc................... 105,800 3,570,750
BankAmerica Corp................................ 97,448 9,720,438
Bankers Trust NY Corp........................... 22,000 1,897,500
Barnett Banks, Inc.............................. 52,900 2,175,512
Boatmen's Bancshares, Inc....................... 41,800 2,696,100
Chase Manhattan Corp............................ 119,147 10,633,870
Citicorp........................................ 129,500 13,338,500
Comerica, Inc................................... 30,700 1,607,912
CoreStates Financial Corp....................... 60,100 3,117,687
First Bank System, Inc.......................... 37,600 2,566,200
First Chicago NBD Corp.......................... 88,315 4,746,931
First Union Corp................................ 76,525 5,662,850
Fleet Financial Group, Inc...................... 71,100 3,546,112
Golden West Financial Corp...................... 15,000 946,875
Great Western Financial Corp.................... 37,100 1,075,900
H.F. Ahmanson & Co.............................. 29,400 955,500
J.P. Morgan & Co., Inc.......................... 50,250 4,905,656
KeyCorp......................................... 62,600 3,161,300
Mellon Bank Corp................................ 34,550 2,453,050
NationsBank Corp................................ 78,139 7,638,087
Norwest Corp.................................... 99,100 4,310,850
PNC Bank Corp................................... 90,800 3,416,350
Suntrust Banks, Inc............................. 59,500 2,930,375
U.S. Bancorp.................................... 42,100 1,891,869
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Wachovia Corp................................... 44,900 $ 2,536,850
Wells Fargo & Co................................ 25,266 6,815,503
--------------
115,987,919
--------------
BEVERAGES -- 3.7%
Adolph Coors Co. (Class 'B' Stock).............. 9,500 180,500
Anheuser-Busch Companies, Inc................... 135,800 5,432,000
Brown-Forman Corp. (Class 'B' Stock)............ 19,500 892,125
Coca-Cola Co.................................... 676,000 35,574,500
PepsiCo, Inc.................................... 423,200 12,378,600
Seagram Co., Ltd................................ 101,100 3,917,625
--------------
58,375,350
--------------
CHEMICALS -- 2.2%
Air Products & Chemicals, Inc................... 30,000 2,073,750
Dow Chemical Co................................. 65,700 5,149,237
E.I. du Pont de Nemours & Co.................... 152,600 14,401,625
Eastman Chemical Co............................. 20,600 1,138,150
FMC Corp. (a)................................... 10,600 743,325
Hercules, Inc................................... 28,400 1,228,300
Monsanto Co..................................... 160,500 6,239,437
Nalco Chemical Co............................... 17,500 632,187
Rohm & Haas Co.................................. 17,900 1,461,087
Sigma-Aldrich Corp.............................. 13,600 849,150
Union Carbide Corp.............................. 34,500 1,410,187
--------------
35,326,435
--------------
CHEMICALS - SPECIALTY -- 0.5%
Engelhard Corp.................................. 39,075 747,309
Great Lakes Chemical Corp....................... 17,400 813,450
Morton International, Inc....................... 39,500 1,609,625
Praxair, Inc.................................... 42,000 1,937,250
Raychem Corp.................................... 11,900 953,487
W.R. Grace & Co................................. 25,000 1,293,750
--------------
7,354,871
--------------
COMMERCIAL SERVICES -- 0.3%
CUC International, Inc. (a)..................... 108,925 2,586,969
Deluxe Corp..................................... 21,100 691,025
Dun & Bradstreet Corp........................... 47,460 1,127,175
John H. Harland Co.............................. 8,200 270,600
Moore Corp., Ltd................................ 26,800 546,050
--------------
5,221,819
--------------
COMPUTER SERVICES -- 5.2%
3Com Corp. (a).................................. 46,800 3,433,950
Amdahl Corp. (a)................................ 33,100 401,337
Autodesk, Inc................................... 13,900 389,200
Automatic Data Processing, Inc.................. 79,000 3,387,125
Bay Networks, Inc. (a).......................... 51,300 1,070,887
Cabletron Systems, Inc. (a)..................... 42,600 1,416,450
Ceridian Corp. (a).............................. 19,800 801,900
Cisco Systems, Inc. (a)......................... 176,200 11,210,725
COMPAQ Computer Corp. (a)....................... 73,400 5,449,950
Computer Associates International, Inc.......... 98,962 4,923,359
Computer Sciences Corp. (a)..................... 20,500 1,683,562
EMC Corp. (a)................................... 64,400 2,133,250
First Data Corp................................. 122,300 4,463,950
Intergraph Corp. (a)............................ 11,300 115,825
Microsoft Corp. (a)............................. 324,900 26,844,862
Novell, Inc. (a)................................ 92,500 875,859
Oracle Corp. (a)................................ 179,025 7,474,294
Seagate Technology, Inc. (a).................... 68,100 2,689,950
</TABLE>
B12
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Silicon Graphics, Inc. (a)...................... 47,600 $ 1,213,800
Sun Microsystems, Inc. (a)...................... 98,800 2,537,925
Tandem Computers, Inc. (a)...................... 32,900 452,375
--------------
82,970,535
--------------
CONSTRUCTION -- 0.2%
Fluor Corp...................................... 23,000 1,443,250
Foster Wheeler Corp............................. 10,400 386,100
Kaufman & Broad Home Corp....................... 8,366 107,712
Owens Corning................................... 13,200 562,650
Pulte Corp...................................... 5,900 181,425
--------------
2,681,137
--------------
CONTAINERS -- 0.2%
Ball Corp....................................... 8,100 210,600
Bemis Co., Inc.................................. 14,200 523,625
Crown Cork & Seal Co., Inc...................... 34,400 1,870,500
--------------
2,604,725
--------------
COSMETICS & SOAPS -- 2.4%
Alberto Culver Co. (Class 'B' Stock)............ 7,000 336,000
Avon Products, Inc.............................. 36,100 2,062,212
Clorox Co....................................... 13,900 1,395,212
Colgate Palmolive Co............................ 41,600 3,837,600
Gillette Co..................................... 121,000 9,407,750
International Flavors & Fragrances, Inc......... 30,300 1,363,500
Procter & Gamble Co............................. 185,252 19,914,590
--------------
38,316,864
--------------
DIVERSIFIED GAS -- 0.2%
Ashland, Inc.................................... 18,000 789,750
Coastal Corp.................................... 28,000 1,368,500
Eastern Enterprises............................. 5,100 180,412
ENSERCH Corp.................................... 19,000 437,000
NICOR, Inc...................................... 14,100 504,075
ONEOK, Inc...................................... 6,400 192,000
--------------
3,471,737
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 3.2%
Alco Standard Corp.............................. 36,176 1,867,586
Avery Dennison Corp............................. 29,200 1,032,950
Dell Computer Corp. (a)......................... 48,600 2,581,875
Hewlett-Packard Co.............................. 276,200 13,879,050
Honeywell, Inc.................................. 35,900 2,360,425
International Business Machines Corp............ 141,100 21,306,100
Pitney Bowes, Inc............................... 40,700 2,218,150
Unisys Corp. (a)................................ 46,100 311,175
Xerox Corp...................................... 88,246 4,643,946
--------------
50,201,257
--------------
DRUGS AND HOSPITAL SUPPLIES -- 9.1%
Abbott Laboratories............................. 210,700 10,693,025
Allergan, Inc................................... 18,600 662,625
ALZA Corp. (a).................................. 23,500 608,062
American Home Products Corp..................... 173,400 10,165,575
Amgen, Inc. (a)................................. 72,000 3,915,000
Bausch & Lomb, Inc.............................. 15,600 546,000
Baxter International, Inc....................... 74,200 3,042,200
Becton, Dickinson & Co.......................... 33,300 1,444,387
Biomet, Inc..................................... 29,900 452,237
Boston Scientific Corp. (a)..................... 48,700 2,922,000
Bristol-Myers Squibb Co......................... 135,840 14,772,600
C.R. Bard, Inc.................................. 14,400 403,200
Eli Lilly & Co.................................. 149,800 10,935,400
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Johnson & Johnson............................... 364,000 $ 18,109,000
Mallinckrodt, Inc............................... 20,600 908,975
Medtronic, Inc.................................. 65,100 4,426,800
Merck & Co., Inc................................ 327,750 25,974,187
Pfizer, Inc..................................... 176,800 14,652,300
Pharmacia & Upjohn, Inc......................... 138,225 5,477,166
Schering-Plough Corp............................ 100,300 6,494,425
St. Jude Medical, Inc. (a)...................... 22,600 963,325
United States Surgical Corp..................... 17,500 689,062
Warner-Lambert Co............................... 73,800 5,535,000
--------------
143,792,551
--------------
ELECTRICAL EQUIPMENT -- 0.3%
Applied Materials, Inc. (a)..................... 52,100 1,872,344
W.W. Grainger, Inc.............................. 14,600 1,171,650
Westinghouse Electric Corp...................... 113,200 2,249,850
--------------
5,293,844
--------------
ELECTRONICS -- 3.8%
Advanced Micro Devices, Inc. (a)................ 37,300 960,475
AMP, Inc........................................ 59,144 2,269,651
Apple Computer, Inc............................. 32,900 686,787
Data General Corp. (a).......................... 9,000 130,500
Digital Equipment Corp. (a)..................... 41,800 1,520,475
EG&G, Inc....................................... 11,800 237,475
Emerson Electric Co............................. 61,000 5,901,750
Harris Corp..................................... 10,900 748,012
Intel Corp...................................... 223,000 29,199,062
LSI Logic Corp. (a)............................. 35,600 952,300
Micron Technology, Inc.......................... 56,000 1,631,000
Motorola, Inc................................... 161,300 9,899,787
National Semiconductor Corp. (a)................ 37,100 904,312
Perkin-Elmer Corp............................... 11,400 671,175
Tandy Corp...................................... 16,665 733,260
Tektronix, Inc.................................. 8,600 440,750
Texas Instruments, Inc.......................... 51,300 3,270,375
Thomas & Betts Corp............................. 14,400 639,000
--------------
60,796,146
--------------
ENVIRONMENTAL SERVICES -- 0.1%
Laidlaw, Inc. (Class 'B' Stock)................. 84,400 970,600
--------------
FINANCIAL SERVICES -- 3.2%
American Express Co............................. 128,900 7,282,850
Beneficial Corp................................. 14,400 912,600
Dean Witter Discover & Co....................... 43,545 2,884,856
Federal Home Loan Mortgage Corp................. 48,750 5,368,594
Federal National Mortgage Association........... 296,000 11,026,000
Fifth Third Bancorp............................. 28,400 1,783,875
Green Tree Financial Corp....................... 36,800 1,421,400
H & R Block, Inc................................ 28,400 823,600
Household International , Inc................... 25,900 2,389,275
MBIA, Inc....................................... 11,700 1,184,625
MBNA Corp....................................... 60,250 2,500,375
Merrill Lynch & Co., Inc........................ 45,400 3,700,100
Morgan Stanley Group, Inc....................... 41,100 2,347,837
National City Corp.............................. 59,800 2,683,525
Republic New York Corp.......................... 15,000 1,224,375
Salomon, Inc.................................... 29,800 1,404,325
Transamerica Corp............................... 17,800 1,406,200
--------------
50,344,412
--------------
FOODS -- 4.1%
Archer-Daniels-Midland Co....................... 146,698 3,227,356
Campbell Soup Co................................ 60,500 4,855,125
</TABLE>
B13
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ConAgra, Inc.................................... 65,200 $ 3,243,700
CPC International, Inc.......................... 39,200 3,038,000
Fleming Companies, Inc.......................... 9,400 162,150
General Mills, Inc.............................. 42,100 2,668,087
Giant Food, Inc. (Class 'A' Stock).............. 15,500 534,750
H.J. Heinz & Co................................. 99,550 3,558,912
Hershey Foods Corp.............................. 42,600 1,863,750
Kellogg Co...................................... 56,800 3,727,500
Philip Morris Companies, Inc.................... 220,800 24,867,600
Pioneer Hi-Bred International, Inc.............. 22,500 1,575,000
Quaker Oats Co.................................. 37,000 1,410,625
Ralston Purina Company.......................... 29,340 2,152,822
Sara Lee Corp................................... 132,200 4,924,450
Sysco Corp...................................... 47,900 1,562,737
W. M. Wrigley, Jr. Co........................... 31,100 1,749,375
--------------
65,121,939
--------------
FOREST PRODUCTS -- 1.5%
Boise Cascade Corp.............................. 12,986 412,305
Champion International Corp..................... 26,600 1,150,450
Georgia-Pacific Corp............................ 24,600 1,771,200
International Paper Co.......................... 81,534 3,291,935
James River Corp. of Virginia................... 23,000 761,875
Kimberly-Clark Corp............................. 76,594 7,295,578
Louisiana-Pacific Corp.......................... 29,800 629,525
Mead Corp....................................... 13,700 796,312
Potlatch Corp................................... 8,700 374,100
Stone Container Corp............................ 28,566 424,919
Temple Inland, Inc.............................. 14,400 779,400
Union Camp Corp................................. 18,900 902,475
Westvaco Corp................................... 27,300 784,875
Weyerhaeuser Co................................. 54,000 2,558,250
Willamette Industries, Inc...................... 15,000 1,044,375
--------------
22,977,574
--------------
GAS PIPELINES -- 0.5%
Columbia Gas System, Inc........................ 15,300 973,462
Consolidated Natural Gas Co..................... 25,900 1,430,975
El Paso Natural Gas Co.......................... 4,259 215,100
Enron Corp...................................... 68,900 2,971,312
NorAm Energy Corp............................... 35,700 548,887
Peoples Energy Corp............................. 9,700 328,587
Williams Companies, Inc......................... 42,300 1,586,250
--------------
8,054,573
--------------
HOSPITAL MANAGEMENT -- 0.8%
Beverly Enterprises, Inc. (a)................... 24,200 308,550
Columbia/HCA Healthcare Corp.................... 182,698 7,444,943
Guidant Corp.................................... 13,000 741,000
Humana, Inc. (a)................................ 43,500 831,937
Manor Care, Inc................................. 15,850 427,950
Service Corp. International..................... 64,400 1,803,200
Shared Medical Systems Corp..................... 7,100 349,675
Tenet Healthcare Corp. (a)...................... 57,600 1,260,000
--------------
13,167,255
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc................. 10,900 757,550
Centex Corp..................................... 9,200 346,150
Fleetwood Enterprises, Inc...................... 9,500 261,250
Lowe's Companies, Inc........................... 47,700 1,693,350
Masco Corp...................................... 44,000 1,584,000
Maytag Corp..................................... 28,300 558,925
Stanley Works................................... 25,600 691,200
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Tupperware Corporation.......................... 16,300 $ 874,087
Whirlpool Corp.................................. 20,300 946,487
--------------
7,712,999
--------------
INSURANCE -- 4.0%
Aetna Inc....................................... 41,512 3,320,960
Alexander & Alexander Services, Inc............. 10,400 180,700
Allstate Corp................................... 120,994 7,002,528
American General Corp........................... 55,300 2,260,387
American International Group, Inc............... 127,337 13,784,230
Aon Corp........................................ 28,700 1,782,987
Chubb Corp...................................... 49,400 2,655,250
CIGNA Corp...................................... 20,500 2,800,812
General Re Corp................................. 22,250 3,509,937
ITT Hartford Group, Inc. (a).................... 32,300 2,180,250
Jefferson-Pilot Corp............................ 18,575 1,051,809
Lincoln National Corp........................... 27,600 1,449,000
Marsh & McLennan Companies, Inc................. 19,500 2,028,000
MGIC Investment Corp............................ 17,400 1,322,400
Providian Corp.................................. 25,800 1,325,475
SAFECO Corp..................................... 33,400 1,317,213
St. Paul Companies, Inc......................... 23,400 1,371,825
Torchmark Corp.................................. 18,700 944,350
Travelers Group, Inc............................ 174,594 7,922,203
United Healthcare Corp.......................... 50,600 2,277,000
UNUM Corp....................................... 20,000 1,445,000
USF&G Corp...................................... 32,400 676,350
USLIFE Corp..................................... 8,500 282,625
--------------
62,891,291
--------------
LEISURE -- 1.1%
Brunswick Corp.................................. 28,100 674,400
Harrah's Entertainment, Inc. (a)................ 26,650 529,669
Hasbro, Inc..................................... 23,600 917,450
King World Productions, Inc. (a)................ 10,550 389,031
Mattel, Inc..................................... 74,581 2,069,623
Walt Disney Co.................................. 184,267 12,829,590
--------------
17,409,763
--------------
LODGING -- 0.6%
HFS, Inc........................................ 35,900 2,145,025
Hilton Hotels Corp.............................. 74,700 1,951,538
Loews Corp...................................... 31,500 2,968,875
Marriott International, Inc..................... 35,300 1,950,325
--------------
9,015,763
--------------
MACHINERY -- 1.1%
Briggs & Stratton Corp.......................... 7,700 338,800
Case Corp....................................... 20,000 1,090,000
Caterpillar, Inc................................ 51,600 3,882,900
Cincinnati Milacron, Inc........................ 11,000 240,625
Cooper Industries, Inc.......................... 28,600 1,204,775
Deere & Co...................................... 69,500 2,823,438
Dover Corp...................................... 31,000 1,557,750
Eaton Corp...................................... 21,400 1,492,650
Giddings & Lewis, Inc........................... 6,900 88,838
Harnischfeger Industries, Inc................... 12,800 616,000
Ingersoll-Rand Co............................... 29,900 1,330,550
PACCAR, Inc..................................... 10,830 736,440
Parker-Hannifin Corp............................ 21,050 815,688
Snap-On, Inc.................................... 17,500 623,438
Timken Co....................................... 8,300 380,763
--------------
17,222,655
--------------
</TABLE>
B14
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MEDIA -- 1.8%
Comcast Corp. (Special Class 'A' Stock)......... 85,900 $ 1,530,094
Dow Jones & Co., Inc............................ 26,500 897,688
Gannett Co., Inc................................ 38,200 2,860,225
Interpublic Group of Companies, Inc............. 21,200 1,007,000
Knight-Ridder, Inc.............................. 25,800 986,850
McGraw-Hill, Inc................................ 27,200 1,254,600
Meredith Corp................................... 7,000 369,250
New York Times Co. (Class 'A' Stock)............ 26,800 1,018,400
R. R. Donnelley & Sons Co....................... 41,300 1,295,788
Tele-Communications, Inc. (Series 'A'
Stock) (a).................................... 176,800 2,309,450
Time Warner, Inc................................ 154,440 5,791,500
Times Mirror Co. (Class 'A' Stock).............. 28,200 1,402,950
Tribune Co...................................... 16,100 1,269,888
US West Media Group (a)......................... 169,300 3,132,050
Viacom, Inc. (Class 'B' Stock) (a).............. 95,967 3,346,849
--------------
28,472,582
--------------
MINERAL RESOURCES -- 0.9%
ASARCO, Inc..................................... 12,200 303,475
Barrick Gold Corporation........................ 96,400 2,771,500
Battle Mountain Gold Co......................... 59,000 405,625
Burlington Resources, Inc....................... 34,300 1,727,863
Cyprus Amax Minerals Co......................... 25,400 593,725
Echo Bay Mines, Ltd............................. 37,200 246,450
Freeport-McMoRan Copper & Gold, Inc. (Class 'B'
Stock)........................................ 51,700 1,544,538
Homestake Mining Co............................. 42,000 598,500
Inco, Ltd....................................... 46,100 1,469,438
Newmont Mining Corp............................. 27,300 1,221,675
Phelps Dodge Corp............................... 17,800 1,201,500
Placer Dome, Inc................................ 65,200 1,418,100
Sante Fe Pacific Gold Corp...................... 34,916 536,834
--------------
14,039,223
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 4.5%
Browning-Ferris Industries, Inc................. 58,800 1,543,500
Cognizant Corp.................................. 46,460 1,533,180
Crane Co........................................ 11,850 343,650
Ecolab, Inc..................................... 17,100 643,388
General Electric Co............................. 449,200 44,414,650
General Instrument Corp. (a).................... 36,900 797,963
General Signal Corp............................. 13,962 596,876
Illinois Tool Works, Inc........................ 33,800 2,699,775
ITT Corp. (a)................................... 31,200 1,353,300
ITT Industries, Inc............................. 31,900 781,550
Millipore Corp.................................. 11,000 455,125
NACCO Industries, Inc. (Class 'A' Stock)........ 2,500 133,750
Newport News Shipbuilding, Inc. (a)............. 9,160 137,400
Pall Corp....................................... 32,500 828,750
PPG Industries Inc.............................. 50,100 2,811,863
Textron, Inc.................................... 22,300 2,101,775
Thermo Electron Corp. (a)....................... 23,000 948,750
Trinova Corp.................................... 7,200 261,900
TRW, Inc........................................ 34,800 1,722,600
Tyco International, Ltd......................... 42,200 2,231,325
WMX Technologies, Inc........................... 132,300 4,316,288
--------------
70,657,358
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 2.0%
American Greetings Corp. (Class 'A' Stock)...... 20,600 $ 584,525
Black & Decker Corp............................. 23,500 707,938
Corning, Inc.................................... 62,800 2,904,500
Eastman Kodak Co................................ 91,000 7,302,750
Jostens, Inc.................................... 9,900 209,138
Minnesota Mining & Manufacturing Co............. 113,300 9,389,738
Polaroid Corp................................... 11,800 513,300
Rubbermaid, Inc................................. 40,900 930,475
Unilever N.V., ADR (United Kingdom)............. 44,300 7,763,575
Whitman Corp.................................... 28,300 647,363
--------------
30,953,302
--------------
PETROLEUM -- 8.0%
Amerada Hess Corp............................... 25,200 1,458,450
Amoco Corp...................................... 135,030 10,869,915
Atlantic Richfield Co........................... 43,785 5,801,513
Chevron Corp.................................... 178,000 11,570,000
Exxon Corp...................................... 337,400 33,065,200
Kerr-McGee Corp................................. 13,200 950,400
Louisiana Land & Exploration Co................. 9,300 498,713
Mobil Corp...................................... 106,900 13,068,525
Occidental Petroleum Corp....................... 89,000 2,080,375
PanEnergy Corp.................................. 40,290 1,813,050
Pennzoil Co..................................... 12,500 706,250
Phillips Petroleum Co........................... 71,900 3,181,575
Royal Dutch Petroleum Co., ADR (Netherlands).... 145,800 24,895,350
Santa Fe Energy Resources, Inc. (a)............. 22,970 318,709
Sun Co., Inc.................................... 19,000 463,125
Tenneco, Inc.................................... 45,800 2,066,725
Texaco, Inc..................................... 71,700 7,035,563
Union Pacific Resources Group, Inc.............. 67,756 1,981,863
Unocal Corp..................................... 67,500 2,742,188
USX-Marathon Group.............................. 78,100 1,864,638
--------------
126,432,127
--------------
PETROLEUM SERVICES -- 1.0%
Baker Hughes, Inc............................... 39,700 1,369,650
Dresser Industries, Inc......................... 47,700 1,478,700
Halliburton Co.................................. 34,200 2,060,550
Helmerich & Payne, Inc.......................... 6,600 344,025
McDermott International, Inc.................... 13,700 227,763
Oryx Energy Co. (a)............................. 29,100 720,225
Rowan Companies, Inc. (a)....................... 25,400 574,675
Schlumberger, Ltd............................... 67,200 6,711,600
Sonat, Inc...................................... 24,000 1,236,000
Western Atlas, Inc. (a)......................... 14,200 1,006,425
--------------
15,729,613
--------------
RAILROADS -- 0.9%
Burlington Northern, Inc........................ 42,142 3,640,015
Conrail Inc..................................... 16,534 1,647,200
CSX Corp........................................ 59,212 2,501,707
Norfolk Southern Corp........................... 33,800 2,957,500
Union Pacific Corp.............................. 66,300 3,986,288
--------------
14,732,710
--------------
</TABLE>
B15
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
RESTAURANTS -- 0.6%
Darden Restaurants, Inc......................... 44,000 $ 385,000
McDonald's Corp................................. 189,100 8,556,775
Wendy's International, Inc...................... 33,700 690,850
--------------
9,632,625
--------------
RETAIL -- 4.7%
Albertson's, Inc................................ 68,700 2,447,438
American Stores Co.............................. 40,100 1,639,088
AutoZone, Inc. (a).............................. 23,000 632,500
Charming Shoppes, Inc........................... 23,300 117,956
Circuit City Stores, Inc........................ 26,800 807,350
CVS Corp........................................ 28,700 1,187,463
Dayton-Hudson Corp.............................. 58,242 2,285,999
Dillard Department Stores, Inc. (Class 'A'
Stock)........................................ 31,050 958,669
Federated Department Stores, Inc. (a)........... 56,400 1,924,650
Great Atlantic & Pacific Tea Co., Inc........... 10,100 321,938
Harcourt General, Inc........................... 20,506 945,839
Home Depot, Inc................................. 130,749 6,553,794
J.C. Penney Co., Inc............................ 62,200 3,032,250
K mart Corp..................................... 128,900 1,337,338
Kroger Co. (a).................................. 34,000 1,581,000
Liz Claiborne, Inc.............................. 19,300 745,463
Longs Drug Stores, Inc.......................... 6,200 304,575
May Department Stores Co........................ 68,300 3,193,025
Mercantile Stores Co., Inc...................... 10,200 503,625
Newell Co....................................... 42,400 1,335,600
Nike, Inc. (Class 'B' Stock).................... 78,000 4,660,500
Nordstrom, Inc.................................. 21,200 751,275
Pep Boys-Manny, Moe & Jack...................... 16,600 510,450
Price/Costco, Inc. (a).......................... 53,666 1,348,358
Reebok International, Ltd....................... 14,600 613,200
Rite Aid Corp................................... 33,200 1,319,700
Sears, Roebuck & Co............................. 107,100 4,939,988
Sherwin-Williams Co............................. 23,400 1,310,400
Stride Rite Corp................................ 12,400 124,000
Supervalu, Inc.................................. 17,800 505,075
The Gap, Inc.................................... 76,700 2,310,588
The Limited, Inc................................ 72,448 1,331,232
TJX Companies, Inc.............................. 21,800 1,032,775
Toys 'R' Us, Inc. (a)........................... 74,550 2,236,500
Wal-Mart Stores, Inc............................ 622,400 14,237,400
Walgreen Co..................................... 67,600 2,704,000
Winn Dixie Stores, Inc.......................... 41,000 1,296,625
Woolworth Corp.................................. 34,900 763,438
--------------
73,851,064
--------------
RUBBER -- 0.2%
B.F. Goodrich Co................................ 13,800 558,900
Cooper Tire & Rubber Co......................... 23,200 458,200
Goodyear Tire & Rubber Co....................... 43,000 2,209,125
--------------
3,226,225
--------------
STEEL -- 0.3%
Allegheny Teledyne, Inc......................... 48,380 1,112,740
Armco, Inc. (a)................................. 26,700 110,138
Bethlehem Steel Corp. (a)....................... 31,600 284,400
Inland Steel Industries, Inc.................... 12,000 240,000
Nucor Corp...................................... 23,900 1,218,900
USX-U.S. Steel Group............................ 23,740 744,843
Worthington Industries, Inc..................... 23,600 427,750
--------------
4,138,771
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TELECOMMUNICATIONS -- 4.5%
Airtouch Communications, Inc. (a)............... 137,000 $ 3,459,250
Alltel Corp..................................... 51,400 1,612,675
Ameritech Corp.................................. 148,900 9,027,063
Andrew Corp. (a)................................ 15,975 847,673
AT&T Corp....................................... 439,573 19,121,426
DSC Communications Corp. (a).................... 32,000 572,000
Frontier Corp................................... 23,000 520,375
Lucent Technologies, Inc........................ 173,760 8,036,400
MCI Communications Corp......................... 187,000 6,112,563
Northern Telecom, Ltd........................... 70,300 4,349,813
SBC Communications, Inc......................... 163,600 8,466,300
Scientific-Atlanta, Inc......................... 19,500 292,500
Sprint Corp..................................... 117,200 4,673,350
Tci Satellite Entertainment, Inc. (Class 'A'
Stock) (a).................................... 17,080 168,665
Tellabs, Inc. (a)............................... 48,400 1,821,050
Worldcom Inc.................................... 111,600 2,908,575
--------------
71,989,678
--------------
TEXTILES -- 0.2%
Fruit of the Loom, Inc. (Class 'A' Stock) (a)... 20,200 765,075
National Service Industries, Inc................ 12,500 467,188
Russell Corp.................................... 10,600 315,350
Springs Industries, Inc......................... 6,400 275,200
V.F. Corp....................................... 17,918 1,209,465
--------------
3,032,278
--------------
TOBACCO -- 0.2%
American Brands, Inc............................ 46,700 2,317,488
UST, Inc........................................ 50,800 1,644,650
--------------
3,962,138
--------------
TRUCKING/SHIPPING -- 0.1%
Caliber System Inc.............................. 11,600 223,300
Consolidated Freightways, Inc. (a).............. 5,700 50,588
Federal Express Corp. (a)....................... 30,800 1,370,600
Ryder System, Inc............................... 21,700 610,313
--------------
2,254,801
--------------
UTILITY - COMMUNICATIONS -- 2.8%
Bell Atlantic Corp.............................. 119,100 7,711,725
BellSouth Corp.................................. 270,200 10,909,325
GTE Corp........................................ 260,520 11,853,660
NYNEX Corp...................................... 120,200 5,784,625
Pacific Telesis Group........................... 116,200 4,270,350
U S West Communications, Inc.................... 130,900 4,221,525
--------------
44,751,210
--------------
UTILITY - ELECTRIC -- 2.8%
American Electric Power Co., Inc................ 51,100 2,101,488
Baltimore Gas & Electric Co..................... 39,250 1,049,938
Carolina Power & Light Co....................... 41,400 1,511,100
Central & South West Corp....................... 58,300 1,493,938
CINergy Corp.................................... 43,739 1,459,789
Consolidated Edison Co. of NY, Inc.............. 64,100 1,874,925
Dominion Resources, Inc......................... 49,250 1,896,125
DTE Energy Company.............................. 38,500 1,246,438
Duke Power Co................................... 55,100 2,548,375
Edison International............................ 117,200 2,329,350
Entergy Corp.................................... 63,900 1,773,225
FPL Group, Inc.................................. 49,300 2,267,800
GPU, Inc........................................ 31,600 1,062,550
Houston Industries, Inc......................... 71,500 1,617,688
</TABLE>
B16
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Niagara Mohawk Power Corp....................... 35,700 $ 352,538
Northern States Power Co........................ 18,200 834,925
Ohio Edison Co.................................. 42,200 960,050
P P & L Resources, Inc.......................... 43,800 1,007,400
Pacific Enterprises............................. 23,800 722,925
Pacific Gas & Electric Co....................... 111,400 2,339,400
PacifiCorp...................................... 79,500 1,629,750
PECO Energy Co.................................. 60,800 1,535,200
Public Service Enterprise Group, Inc............ 66,000 1,798,500
Southern Co..................................... 181,600 4,108,700
Texas Utilities Co.............................. 60,129 2,450,257
Unicom Corp..................................... 57,600 1,562,400
Union Electric Company.......................... 27,600 1,062,600
--------------
44,597,374
--------------
TOTAL COMMON STOCKS
(cost $998,185,758)............................................ 1,531,362,551
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 3.6% (000)
-------------
U.S. GOVERNMENT OBLIGATION -- 0.2%
US Treasury Bills,
4.860%, 03/20/97 (b).......................... $ 2,550 2,523,659
REPURCHASE AGREEMENT -- 3.4%
Joint Repurchase Agreement Account,
6.613%, 01/02/97 (Note 5)..................... 53,762 53,762,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $56,285,493)............................................. 56,285,659
TOTAL INVESTMENTS -- 100.4%
(cost $1,054,471,251; Note 6).................................. 1,587,648,210
VARIATION MARGIN ON OPEN FUTURES CONTRACTS -- (0.1%) (C).........
(937,100)
OTHER LIABILITIES IN EXCESS OF
OTHER ASSETS -- (0.3%)......................................... (5,330,803)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $1,581,380,307
--------------
--------------
<FN>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts
(c) Open futures contracts as of December 31, 1996 are as
follows:
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1996 APPRECIATION
129 S&P 500 Index Mar 97 $47,304,050 $48,020,250 $716,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
B17
<PAGE>
EQUITY INCOME PORTFOLIO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
LONG-TERM INVESTMENTS -- 96.7%
VALUE
COMMON STOCKS -- 84.8% SHARES (NOTE 2)
<CAPTION>
------------- --------------
<S> <C> <C>
AEROSPACE/DEFENSE -- 3.9%
Newport News Shipbuilding, Inc. (a)............. 50,260 $ 753,900
Northrop Grumman Corp........................... 388,600 32,156,650
Thiokol Corp.................................... 462,000 20,674,500
United Industrial Corp.......................... 31,700 186,238
--------------
53,771,288
AIRLINES -- 2.4%
AMR Corp. (a)................................... 364,200 32,095,125
--------------
ALUMINUM -- 0.3%
Reynolds Metals Co.............................. 71,586 4,035,661
--------------
AUTOS - CARS & TRUCKS -- 3.3%
Chrysler Corp................................... 1,248,034 41,185,122
Ford Motor Co................................... 130,000 4,143,750
--------------
45,328,872
--------------
CHEMICALS -- 2.4%
Dow Chemical Co................................. 378,800 29,688,450
Millenium Chemicals, Inc. (a)................... 144,998 2,573,714
--------------
32,262,164
--------------
COMMERCIAL SERVICES -- 0.2%
IMO Industries, Inc. (a)........................ 434,600 1,358,125
John H. Harland Co.............................. 32,400 1,069,200
--------------
2,427,325
--------------
COMPUTER HARDWARE -- 7.1%
Amdahl Corp. (a)................................ 800,000 9,700,000
Digital Equipment Corp. (a)..................... 319,100 11,607,263
Intergraph Corp. (a)............................ 607,700 6,228,925
International Business Machines Corp............ 459,100 69,324,100
--------------
96,860,288
--------------
CONSUMER SERVICES -- 0.0%
Petroleum Heat and Power, Inc. (Class 'A'
Stock)........................................ 47,300 301,538
--------------
CONTAINERS -- 0.5%
Stone Container Corp............................ 435,400 6,476,575
--------------
ELECTRICAL EQUIPMENT -- 1.0%
Kuhlman Corp.................................... 560,000 10,850,000
Pacific Scientific Co........................... 185,700 2,089,125
--------------
12,939,125
--------------
ELECTRONICS -- 4.3%
Esterline Technologies Corp. (a)................ 275,700 7,202,662
Micron Technology, Inc.......................... 451,000 13,135,375
National Semiconductor Corp. (a)................ 320,000 7,800,000
Newport Corp.................................... 297,700 2,642,087
Texas Instruments, Inc.......................... 429,000 27,348,750
--------------
58,128,874
--------------
FINANCIAL SERVICES -- 10.2%
A.G. Edwards, Inc............................... 211,000 7,094,875
Bear Stearns Companies, Inc..................... 884,049 24,642,866
Lehman Brothers Holdings, Inc................... 1,759,100 55,191,762
Painewebber Group, Inc.......................... 904,000 25,425,000
Salomon, Inc.................................... 560,000 26,390,000
--------------
138,744,503
--------------
FOREST PRODUCTS -- 0.9%
Fletcher Challenge, Ltd., ADR (Canada).......... 62,400 1,037,400
Louisiana-Pacific Corp.......................... 71,700 1,514,662
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Potlatch Corp................................... 81,500 $ 3,504,500
Rayonier, Inc................................... 149,900 5,752,412
--------------
11,808,974
--------------
GAS DISTRIBUTION -- 0.8%
KN Energy, Inc.................................. 261,900 10,279,575
Yankee Energy System, Inc....................... 30,400 649,800
--------------
10,929,375
--------------
GAS PIPELINES -- 1.9%
El Paso Natural Gas Co.......................... 23,371 1,180,230
PanEnergy Corp.................................. 299,600 13,482,000
Sonat, Inc...................................... 206,300 10,624,450
--------------
25,286,680
--------------
HOUSEHOLD PRODUCTS -- 1.1%
Gibson Greetings, Inc. (a)...................... 778,600 15,280,025
--------------
HOUSING RELATED -- 1.0%
Hanson, PLC, ADR (United Kingdom)............... 2,030,000 13,702,500
--------------
INSURANCE -- 5.3%
Alexander & Alexander Services, Inc............. 812,000 14,108,500
Marsh & McLennan Companies, Inc................. 243,800 25,355,200
Ohio Casualty Corp.............................. 339,900 12,066,450
SAFECO Corp..................................... 350,200 13,811,012
Selective Insurance Group, Inc.................. 198,800 7,554,400
--------------
72,895,562
--------------
INTEGRATED PRODUCERS -- 4.0%
Elf Aquitaine, ADR (France)..................... 1,200,000 54,300,000
Mobil Corp...................................... 600 73,350
--------------
54,373,350
--------------
LODGING -- 0.1%
Homestead Village, Inc.......................... 66,245 1,192,410
--------------
MEDIA -- 3.4%
Dun & Bradstreet Corp........................... 195,600 4,645,500
Gannett Co., Inc................................ 120,000 8,985,000
Westinghouse Electric Corp...................... 1,669,500 33,181,312
--------------
46,811,812
--------------
MINERAL RESOURCES -- 0.4%
Coeur D'Alene Mines Corp........................ 194,678 2,944,505
Echo Bay Mines, Ltd............................. 298,499 1,977,556
--------------
4,922,061
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.8%
Tenneco, Inc.................................... 251,300 11,339,913
--------------
OIL SERVICES -- 1.9%
McDermott International, Inc.................... 1,571,400 26,124,525
--------------
PETROLEUM -- 0.4%
USX-Marathon Group.............................. 230,600 5,505,575
--------------
PETROLEUM SERVICES -- 0.3%
Crestar Energy, Inc. (a)........................ 200,000 4,304,998
--------------
REAL ESTATE DEVELOPMENT -- 17.1%
Alexander Haagen Properties, Inc................ 420,000 6,195,000
Amli Residential Properties Trust............... 208,300 4,869,012
Avalon Properties, Inc.......................... 265,000 7,618,750
Beacon Properties Corp.......................... 184,800 6,768,300
Bradley Real Estate, Inc........................ 240,000 4,320,000
CarrAmerica Realty Corp......................... 26,500 775,125
Crescent Real Estate Equities, Inc.............. 717,000 37,821,750
Crown American Realty Trust..................... 675,100 5,063,250
Equity Residential Properties Trust............. 1,188,800 49,038,000
</TABLE>
B18
<PAGE>
EQUITY INCOME PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Gables Residential Trust........................ 435,800 $ 12,638,200
Glimcher Realty Trust........................... 565,000 12,430,000
Irvine Apartment Communities, Inc............... 392,000 9,800,000
JDN Realty Corp................................. 293,200 8,099,650
JP Realty, Inc.................................. 84,000 2,173,500
Kimco Realty Corp............................... 56,250 1,961,719
Malan Realty Investors, Inc..................... 140,000 2,275,000
Manufactured Home Communities, Inc.............. 581,500 13,519,875
Patriot American Hospitality, Inc............... 181,900 7,844,437
Pennsylvania Real Estate Investment Trust....... 50,100 1,221,188
Security Capital Pacific Trust.................. 527,034 12,055,903
Simon Debartolo Group, Inc...................... 214,300 6,643,300
Sunstone Hotel Investors, Inc................... 240,000 3,150,000
Vornado Realty Trust............................ 278,800 14,637,000
Walden Residential Properties, Inc.............. 5,000 124,375
Weingarten Realty Investors..................... 62,500 2,539,063
--------------
233,582,397
--------------
RETAIL -- 2.2%
J.C. Penney Co., Inc............................ 549,800 26,802,750
K mart Corp. (a)................................ 299,200 3,104,200
--------------
29,906,950
--------------
STEEL -- 2.7%
LTV Corp........................................ 90,000 1,068,750
USX-U.S. Steel Group............................ 1,159,400 36,376,175
--------------
37,444,925
--------------
TELECOMMUNICATIONS -- 0.5%
Telefonos de Mexico SA (Class 'L' Stock), ADR
(Mexico)...................................... 198,000 6,534,000
--------------
TEXTILES -- 0.8%
Garan, Inc...................................... 2,900 56,188
Kellwood Co..................................... 518,900 10,378,000
Oxford Industries, Inc.......................... 34,500 828,000
--------------
11,262,188
--------------
TOBACCO -- 1.6%
RJR Nabisco Holdings Corp....................... 421,100 14,317,400
UST, Inc........................................ 218,600 7,077,175
--------------
21,394,575
--------------
TRUCKING/SHIPPING -- 0.8%
Alexander & Baldwin, Inc........................ 287,750 7,193,750
Yellow Corp..................................... 259,700 3,733,188
--------------
10,926,938
--------------
UTILITIES - ELECTRICAL & GAS -- 0.8%
British Gas, PLC, ADR (United Kingdom).......... 110,600 4,216,625
TransCanada Pipelines, Ltd...................... 389,600 6,818,000
--------------
11,034,625
--------------
UTILITY - ELECTRIC -- 0.4%
Centerior Energy Corp........................... 46,600 500,950
Central Louisiana Electric Co................... 6,100 168,513
Pacific Gas & Electric Co....................... 240,000 5,040,000
--------------
5,709,463
--------------
TOTAL COMMON STOCKS
(cost $912,402,158)............................................ 1,155,645,159
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
PREFERRED STOCKS -- 8.3% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ALUMINUM -- 0.3%
Kaiser Aluminum Corp. (Cum. Conv.).............. 319,900 $ 3,598,875
--------------
DRUGS & HOSPITAL SUPPLIES -- 0.6%
U.S. Surgical Corp. (Cum. Conv.)................ 208,300 7,967,475
--------------
EXPLORATION & PRODUCTION -- 0.6%
Parker & Parsley Capital, LLC (Cum. Conv.)...... 118,800 7,796,250
--------------
INSURANCE -- 0.4%
Alexander & Alexander Services, Inc. (Cum.
Conv.), Series A.............................. 100,000 5,212,500
USF&G Corp. (Conv. Ex.), Series A............... 10,900 555,900
--------------
5,768,400
--------------
INTEGRATED OIL & GAS PRODUCERS -- 0.1%
Unocal Corp. (Conv.) Series 6.25%............... 34,372 1,972,094
--------------
MEDIA -- 1.9%
Westinghouse Electric Corp. (Cum. Conv.), Series
C............................................. 1,457,000 26,226,000
--------------
NON-FERROUS METALS -- 0.2%
Hecla Mining Co. (Cum. Conv.), Series B......... 60,000 2,640,000
--------------
REAL ESTATE DEVELOPMENT -- 0.1%
Security Capital Pacific Trust (Cum. Conv.),
Series A...................................... 54,500 1,669,062
--------------
RETAIL -- 0.9%
Kmart Corp. (Cum. Conv.)........................ 247,300 12,055,875
--------------
STEEL & METALS -- 1.1%
Bethlehem Steel Corp. (Cum. Conv.).............. 264,000 10,098,000
USX Corp. (Cum. Conv.).......................... 114,600 5,085,375
--------------
15,183,375
--------------
TEXTILES/APPAREL -- 0.3%
Fieldcrest Cannon, Inc. (Cum. Conv.), Series
A............................................. 85,000 3,336,250
--------------
TOBACCO -- 1.5%
RJR Nabisco Holdings Corp. (Conv.), Ser. C...... 3,107,000 20,972,250
--------------
OIL SERVICES -- 0.3%
McDermott International, Inc. (Cum. Conv.),
Series C...................................... 88,000 3,388,000
--------------
TOTAL PREFERRED STOCKS
(cost $109,734,121)............................................ 112,573,906
--------------
WARRANTS
LODGING
Homestead Village, Inc.
(cost $191,545)................................. 44,442 361,091
--------------
PRINCIPAL
AMOUNT
CONVERTIBLE BONDS -- 1.4% (000)
-------------
EXPLORATION & PRODUCTION -- 0.2%
Cross Timbers Oil Co.,
5.250%, 11/01/03.............................. $ 1,174 1,276,725
Oryx Energy Co.,
7.500%, 05/15/14.............................. 1,760 1,707,200
--------------
2,983,925
--------------
</TABLE>
B19
<PAGE>
EQUITY INCOME PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CONVERTIBLE BONDS (CONTINUED) (000) (NOTE 2)
------------- --------------
<S> <C> <C>
OIL SERVICES -- 0.3%
Baker Hughes, Inc.,
Zero Coupon, 05/05/08......................... $ 5,940 $ 4,484,700
--------------
REAL ESTATE DEVELOPMENT -- 0.3%
Alexander Haagen Properties, Inc., Series A,
7.500%, 01/15/01.............................. 1,600 1,483,000
Malan Realty Investors, Inc.,
9.500%, 07/15/04.............................. 3,000 2,970,000
--------------
4,453,000
--------------
RETAIL -- 0.6%
Charming Shoppes, Inc.,
7.500%, 07/15/06.............................. 8,000 7,760,000
--------------
TOTAL CONVERTIBLE BONDS
(cost $19,020,457)............................................. 19,681,625
--------------
LONG-TERM BOND -- 2.2%
U.S. GOVERNMENT & AGENCY OBLIGATION
US Treasury Note,
6.750%, 08/15/26
(cost $29,011,302).............................. 30,000 30,225,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,070,359,583).......................................... 1,318,486,781
--------------
SHORT-TERM INVESTMENT -- 2.5%
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account,
6.613%, 01/02/97
(cost $33,746,000) (Note 5)................. 33,746 33,746,000
--------------
TOTAL INVESTMENTS -- 99.2%
(cost $1,104,105,583; Note 6).................................. 1,352,232,781
--------------
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.8%............................................ 11,241,834
--------------
TOTAL NET ASSETS -- 100%......................................... $1,363,474,615
--------------
--------------
<FN>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
LLC Limited Liability Company
PLC Public Limited Company (British Corporation)
(a) Non-income producing security.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
B20
<PAGE>
EQUITY PORTFOLIO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
LONG-TERM INVESTMENTS -- 75.9%
VALUE
COMMON STOCKS -- 75.3% SHARES (NOTE 2)
<CAPTION>
------------- --------------
<S> <C> <C>
AUTOMOBILES & TRUCKS -- 3.8%
Chrysler Corp................................... 3,927,820 $ 129,618,060
General Motors Corp............................. 700,000 39,025,000
Navistar International Corp. (a)................ 395,200 3,606,200
PACCAR Inc...................................... 139,700 9,499,600
--------------
181,748,860
--------------
BANKS & FINANCIAL SERVICES -- 13.6%
American Express Co............................. 2,200,000 124,300,000
Associates First Capital Corp. (a).............. 139,300 6,146,613
Bank of New York Co., Inc....................... 1,800,000 60,750,000
BankAmerica Corp................................ 550,000 54,862,500
Chase Manhattan Corp............................ 624,000 55,692,000
Dean Witter Discover & Co....................... 1,600,000 106,000,000
First America Bank Corp......................... 187,000 11,243,375
Great Western Financial Corp.................... 1,000,000 29,000,000
Lehman Brothers Holdings, Inc................... 900,000 28,237,500
Mellon Bank Corp................................ 276,398 19,624,258
Mercantile Bankshares Corp...................... 279,600 8,947,200
Morgan (J.P.) & Co., Inc........................ 395,400 38,600,925
NationsBank Corp................................ 600,000 58,650,000
Republic New York Corp.......................... 225,000 18,365,625
Salomon, Inc.................................... 700,000 32,987,500
--------------
653,407,496
--------------
CHEMICALS -- 1.0%
Eastman Chemical Co............................. 466,550 25,776,887
Wellman, Inc.................................... 798,200 13,669,175
Witco Corp...................................... 268,800 8,198,400
--------------
47,644,462
--------------
COMMERCIAL SERVICES -- 1.9%
AAR Corp........................................ 650,000 19,662,500
American Standard Co., Inc. (a)................. 1,050,000 40,162,500
TRW Inc......................................... 694,400 34,372,800
--------------
94,197,800
--------------
COMPUTER HARDWARE -- 5.1%
Amdahl Corp. (a)................................ 4,000,000 48,500,000
Comdisco, Inc................................... 1,297,207 41,186,322
Digital Equipment Corp. (a)..................... 2,900,000 105,487,500
Gerber Scientific, Inc.......................... 419,800 6,244,525
International Business Machines Corp............ 300,000 45,300,000
--------------
246,718,347
--------------
CONSTRUCTION & HOUSING -- 0.5%
Centex Corp..................................... 600,000 22,575,000
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 5.1%
Gibson Greetings Inc. (a)....................... 750,000 14,718,750
Loews Corp...................................... 1,600,000 150,800,000
RJR Nabisco Holdings Corp....................... 2,300,000 78,200,000
--------------
243,718,750
--------------
ELECTRICAL EQUIPMENT
Rexel, Inc. (a)................................. 107,199 1,701,784
--------------
ELECTRICAL POWER -- 1.2%
American Electric Power
Company Inc................................... 180,000 7,402,500
GPU, Inc........................................ 500,000 16,812,500
Long Island Lighting Co......................... 1,541,400 34,103,475
--------------
58,318,475
--------------
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ELECTRONICS -- 1.1%
Harris Corp..................................... 300,000 $ 20,587,500
Texas Instruments, Inc.......................... 500,000 31,875,000
--------------
52,462,500
--------------
ENERGY EQUIPMENT & SERVICES -- 0.4%
NorAm Energy Corp............................... 1,300,000 19,987,500
--------------
FOREST PRODUCTS -- 8.9%
Georgia-Pacific Corp............................ 900,000 64,800,000
International Paper Co.......................... 1,350,000 54,506,250
James River Corp. of Virginia................... 560,000 18,550,000
Kimberly-Clark Corp............................. 343,100 32,680,275
Mead Corp....................................... 900,000 52,312,500
Rayonier Inc.................................... 125,000 4,796,875
Temple-Inland Inc............................... 850,000 46,006,250
Weyerhaeuser Co................................. 1,421,400 67,338,825
Willamette Industries, Inc...................... 1,250,000 87,031,250
--------------
428,022,225
--------------
HOSPITALS -- 3.0%
Foundation Health Corp. (a)..................... 1,430,700 45,424,725
Tenet Healthcare Corp. (a)...................... 3,237,832 70,827,575
Wellpoint Health Networks Inc................... 799,700 27,489,688
--------------
143,741,988
--------------
INSURANCE -- 11.3%
Alexander & Alexander Services, Inc............. 1,050,000 18,243,750
American Financial Group Inc.................... 303,700 11,464,675
American General Corp........................... 1,000,000 40,875,000
Chubb Corp...................................... 2,206,400 118,594,000
Citizens Corp................................... 700,000 15,750,000
Old Republic International Corp................. 1,950,885 52,186,174
Providian Corp.................................. 340,500 17,493,187
SAFECO Corp..................................... 1,600,000 63,100,000
St. Paul Companies, Inc......................... 826,900 48,477,013
The Equitable Companies, Inc.................... 1,800,000 44,325,000
Travelers Corp.................................. 1,800,000 81,675,000
Western National Corp........................... 1,624,300 31,267,775
--------------
543,451,574
--------------
METALS-NON FERROUS -- 1.6%
Aluminum Company of America..................... 600,000 38,250,000
Amax Gold Inc. (a).............................. 131,342 837,305
Cyprus Amax Minerals Co......................... 1,533,200 35,838,550
Nord Resources Corp. (a)........................ 130,500 570,938
--------------
75,496,793
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.1%
American Water Works Co., Inc................... 270,000 5,568,750
Worldtex, Inc. (a).............................. 107,199 951,391
--------------
6,520,141
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 6.0%
Amerada Hess Corp............................... 325,000 18,809,375
Atlantic Richfield Co........................... 400,000 53,000,000
Elf Aquitaine, ADR (France)..................... 2,424,433 109,705,593
Occidental Petroleum Corp....................... 1,100,000 25,712,500
Oryx Energy Co. (a)............................. 1,600,000 39,600,000
Total S.A., ADR (France)........................ 738,365 29,719,191
Union Texas Petroleum
Holdings, Inc................................. 504,500 11,288,188
--------------
287,834,847
--------------
</TABLE>
B21
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
RESTAURANTS -- 0.4%
Darden Restaurants Inc.......................... 2,500,000 $ 21,875,000
--------------
RETAIL -- 5.9%
Dayton-Hudson Corp.............................. 358,800 14,082,900
Dillard Department Stores, Inc. (a)............. 2,550,000 78,731,250
K-Mart Corp. (a)................................ 6,500,000 67,437,500
Petrie Stores Corp.............................. 540,000 1,451,250
Tandy Corp...................................... 1,382,900 60,847,600
Toys 'R' Us Inc. (a)............................ 854,000 25,620,000
Waban, Inc. (a)................................. 1,300,000 33,800,000
--------------
281,970,500
--------------
STEEL -- 0.7%
Bethlehem Steel Corp. (a)....................... 500,000 4,500,000
Birmingham Steel Corp........................... 1,468,400 27,899,600
Carpenter Technology Corp....................... 100,000 3,662,500
--------------
36,062,100
--------------
TELECOMMUNICATIONS -- 3.3%
360 Communication Co............................ 96,066 2,221,526
AT&T Corp....................................... 1,600,000 69,600,000
Loral Corp...................................... 1,800,000 33,075,000
Telefonica de Espana, SA, ADR (Spain)........... 800,000 55,400,000
--------------
160,296,526
--------------
TRANSPORTATION -- 0.4%
OMI Corp. (a)................................... 1,000,000 8,750,000
Overseas Shipholding Group, Inc................. 600,000 10,200,000
--------------
18,950,000
--------------
TOTAL COMMON STOCKS
(cost $2,545,705,536).......................................... 3,626,702,668
--------------
PREFERRED STOCK -- 0.6%
DIVERSIFIED CONSUMER PRODUCTS -- 0.6%
RJR Nabisco Holdings Corp., Conv. Pfd. Stock
(cost $25,999,610)............................ 4,000,000 27,000,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $2,571,705,146).......................................... 3,653,702,668
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 23.8% (000)
-------------
CERTIFICATES OF DEPOSIT-YANKEE -- 2.7%
Bank of Montreal
5.45%, 01/07/97............................... $ 47,000 47,000,000
Canadian Imperial Bank of Commerce
5.41%, 01/31/97............................... 35,000 35,000,000
Deutsche Bank
5.37%, 01/21/97............................... 46,000 46,000,000
--------------
128,000,000
--------------
COMMERCIAL PAPER -- 4.5%
Aristar, Inc.,
5.59%, 02/21/97............................... 6,615 6,563,642
Ciba-Geigy Corp.,
5.75%, 02/06/97............................... 2,000 1,988,820
Countrywide Home Loan, Inc.,
6.20%, 01/15/97............................... 11,000 10,975,372
6.35%, 01/15/97............................... 18,000 17,958,725
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED) (000) (NOTE 2)
------------- --------------
<S> <C> <C>
Countrywide Home Loan, Inc.,
5.58%, 01/21/97............................... $ 12,636 $ 12,598,787
5.35%, 01/21/97............................... 6,000 5,983,058
Creditanstalt Finance Inc.,
5.40%, 02/11/97............................... 20,000 19,880,000
Engelhard Corp.,
5.34%, 01/17/97............................... 5,000 4,988,875
5.58%, 02/24/97............................... 1,000 991,785
Finova Capital Corp.,
5.55%, 01/13/97............................... 1,000 998,304
General Motors Accept Corp.,
5.72%, 01/31/97............................... 8,499 8,459,839
GTE Corp.,
5.50%, 01/14/97............................... 2,000 1,996,333
Heller Financial, Inc.,
5.57%, 01/13/97............................... 2,000 1,996,596
5.57%, 01/14/97............................... 4,000 3,992,574
5.75%, 01/16/97............................... 7,000 6,984,347
Lehman Brothers Holdings, Inc.,
6.70%, 01/07/97............................... 48,000 47,955,333
Mitsubishi International Corp.,
5.45%, 01/15/97............................... 3,000 2,994,096
5.35%, 01/24/97............................... 2,000 1,993,461
NYNEX Corp.,
6.80%, 01/06/97............................... 5,000 4,996,222
5.71%, 01/13/97............................... 5,000 4,991,276
Preferred Receivables Funding Corp.,
5.50%, 01/13/97............................... 2,990 2,984,975
5.45%, 01/14/97............................... 1,000 998,183
5.33%, 01/21/97............................... 2,639 2,631,576
5.55%, 01/22/97............................... 2,613 2,604,943
5.32%, 01/23/97............................... 7,800 7,775,794
Rank Xerox Capital (Europe) PLC,
5.65%, 01/16/97............................... 3,018 3,011,369
5.50%, 01/17/97............................... 15,161 15,126,256
5.35%, 01/21/97............................... 1,000 997,176
5.65%, 01/21/97............................... 6,043 6,024,980
Sonoco Products,
5.45%, 01/14/97............................... 6,564 6,552,076
--------------
217,994,773
--------------
REPURCHASE AGREEMENT -- 12.4%
Joint Repurchase Agreement Account,
6.613%, 01/02/97 (Note 5)..................... 599,921 599,921,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 4.2%
Federal Home Loan Mortgage Corp.,
5.24%, 02/14/97............................... 20,800 20,669,815
5.225%, 02/28/97.............................. 15,000 14,875,906
5.27%, 03/17/97............................... 13,000 12,859,174
5.26%, 06/20/97............................... 3,640 3,550,118
Federal National Mortgage Assoc.,
5.23%, 01/28/97............................... 14,040 13,986,968
5.22%, 02/18/97............................... 20,800 20,658,248
5.21%, 03/03/97............................... 21,205 21,020,870
5.30%, 03/27/97............................... 8,000 7,900,720
5.37%, 03/27/97............................... 8,320 8,215,751
5.50%, 03/27/97............................... 10,600 10,468,455
5.25%, 04/10/97............................... 22,000 21,685,583
5.30%, 04/04/97............................... 20,800 20,520,448
5.40%, 12/05/97............................... 10,000 9,986,992
</TABLE>
B22
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONTINUED) (000) (NOTE 2)
------------- --------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (CON'T)
United States Treasury Notes,
6.875%, 02/28/97.............................. $ 3,900 $ 3,909,750
5.75%, 09/30/97............................... 12,000 12,025,527
--------------
202,334,325
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,148,242,455).......................................... 1,148,250,098
--------------
TOTAL INVESTMENTS -- 99.7%
(cost $3,719,947,601: Note 6).................................. 4,801,952,766
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.3%............................................ 12,016,310
--------------
TOTAL NET ASSETS -- 100%......................................... $4,813,969,076
--------------
--------------
<FN>
The following abbreviation is used in portfolio descriptions:
ADR American Depository Receipt
(a) Non-income producing security.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
B23
<PAGE>
PRUDENTIAL JENNISON
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 97.0%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 3.2%
Boeing Co....................................... 68,600 $ 7,297,325
--------------
AIRLINES -- 2.2%
AMR Corp. (a)................................... 37,600 3,313,500
Continental Airlines, Inc. (a).................. 60,300 1,703,475
--------------
5,016,975
--------------
BANKS AND SAVINGS & LOANS -- 2.0%
Chase Manhattan Corp............................ 51,300 4,578,525
--------------
BUSINESS SERVICES -- 4.8%
Eagle River Interactive, Inc. (a)............... 84,600 666,225
Manpower, Inc................................... 53,700 1,745,250
Omnicom Group, Inc.............................. 76,200 3,486,150
Reuters Holdings PLC, ADR (United Kingdom)...... 64,400 4,926,600
--------------
10,824,225
--------------
COMMERCIAL SERVICES -- 1.7%
CUC International, Inc. (a)..................... 160,100 3,802,375
--------------
COMPUTER SERVICES -- 14.8%
3Com Corp. (a).................................. 74,100 5,437,087
America Online, Inc. (a)........................ 79,900 2,656,675
Cisco Systems, Inc. (a)......................... 86,200 5,484,475
Computer Associates International, Inc.......... 71,350 3,549,662
Electronic Data Systems Corp.................... 72,700 3,144,275
First Data Corp................................. 62,746 2,290,229
Microsoft Corp. (a)............................. 68,500 5,659,812
SAP AG, ADR (Germany)........................... 41,800 1,901,900
Seagate Technology, Inc. (a).................... 86,800 3,428,600
--------------
33,552,715
--------------
COMPUTER SYSTEMS -- 5.3%
Dell Computer Corp. (a)......................... 60,100 3,192,813
Hewlett-Packard Co.............................. 110,600 5,557,650
International Business Machines Corp............ 22,100 3,337,100
--------------
12,087,563
--------------
DRUGS AND HOSPITAL SUPPLIES -- 11.1%
Astra AB, ADR................................... 53,300 2,611,700
Bristol-Myers Squibb Co......................... 30,700 3,338,625
Chiron Corporation (a).......................... 29,800 555,025
Eli Lilly & Co.................................. 49,600 3,620,800
Johnson & Johnson............................... 64,500 3,208,875
Merck & Co., Inc................................ 48,100 3,811,925
Pfizer, Inc..................................... 53,700 4,450,387
Smithkline Beecham PLC, UTS, ADR (United
Kingdom)...................................... 51,500 3,502,000
--------------
25,099,337
--------------
ELECTRONICS -- 8.9%
Intel Corp...................................... 56,600 7,411,062
International Rectifier Corp. (a)............... 184,700 2,816,675
KLA Instruments Corp. (a)....................... 49,600 1,760,800
LSI Logic Corp. (a)............................. 106,800 2,856,900
Picturetel Corp. (a)............................ 43,600 1,133,600
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Symbol Technologies, Inc. (a)................... 68,800 $ 3,044,400
Texas Instruments, Inc.......................... 19,700 1,255,875
--------------
20,279,312
--------------
FINANCIAL SERVICES -- 1.7%
Federal National Mortgage Association........... 57,600 2,145,600
MBNA Corp....................................... 19,500 809,250
Schwab (Charles) Corp........................... 31,800 1,017,600
--------------
3,972,450
--------------
FOOD & BEVERAGES -- 1.0%
PepsiCo, Inc.................................... 80,800 2,363,400
--------------
FOREST PRODUCTS -- 1.7%
Kimberly-Clark Corp............................. 40,000 3,810,000
--------------
HOSPITAL MANAGEMENT -- 2.7%
Healthsouth Rehablilitation (a)................. 86,900 3,356,512
PhyCor, Inc. (a)................................ 99,900 2,834,662
--------------
6,191,174
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 2.4%
Gillette Co..................................... 68,900 5,356,975
--------------
INSURANCE -- 6.4%
CIGNA Corp...................................... 24,100 3,292,662
MGIC Investment Corp............................ 61,400 4,666,400
Mutual Risk Management, Ltd..................... 77,966 2,884,742
UNUM Corp....................................... 49,900 3,605,275
--------------
14,449,079
--------------
LEISURE -- 2.7%
Walt Disney Co.................................. 86,600 6,029,525
--------------
LODGING -- 1.6%
Hilton Hotels Corp.............................. 135,200 3,532,100
--------------
MACHINERY -- 1.2%
Harnischfeger Industries, Inc................... 57,100 2,747,938
--------------
MEDIA -- 2.5%
Clear Channel Communications, Inc. (a).......... 84,600 3,056,175
Scholastic Corp. (a)............................ 37,600 2,528,600
--------------
5,584,775
--------------
PETROLEUM -- 0.9%
Union Pacific Resources Group, Inc.............. 73,300 2,144,025
--------------
PETROLEUM SERVICES -- 1.7%
Schlumberger, Ltd............................... 37,900 3,785,263
--------------
RETAIL -- 7.9%
AutoZone, Inc. (a).............................. 87,100 2,395,250
Corporate Express, Inc. (a)..................... 78,100 2,299,069
Home Depot, Inc................................. 74,800 3,749,350
Kohl's Corp. (a)................................ 78,800 3,092,900
Nike, Inc. (Class 'B' Stock).................... 40,700 2,431,825
Saks Holdings, Inc. (a)......................... 64,300 1,736,100
The Gap, Inc.................................... 71,300 2,147,913
--------------
17,852,407
--------------
</TABLE>
B24
<PAGE>
PRUDENTIAL JENNISON (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
SOFTWARE -- 2.0%
Intuit, Inc. (a)................................ 93,600 $ 2,948,400
Macromedia Inc. (a)............................. 82,600 1,486,800
--------------
4,435,200
--------------
TELECOMMUNICATIONS -- 6.6%
Ascend Communications, Inc. (a)................. 39,100 2,429,088
L.M. Ericsson Telephone Co. (Class 'B' Stock),
ADR (Sweden).................................. 104,000 3,139,500
Nokia AB Corp., ADR (Japan)..................... 67,200 3,872,400
Tellabs, Inc. (a)............................... 87,500 3,292,188
Vodafone Group PLC, ADR (United Kingdom)........ 53,500 2,213,563
--------------
14,946,739
--------------
TOTAL COMMON STOCKS
(cost $194,081,558)............................................ 219,739,402
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT -- 4.7% (000)
-------------
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account,
6.613%, 01/02/97
(cost $10,688,000) (Note 5)................... $ 10,688 10,688,000
--------------
TOTAL INVESTMENTS -- 101.7%
(cost $204,769,558; Note 6).................................... 230,427,402
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.7%)..................
(3,884,254)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 226,543,148
--------------
--------------
<FN>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
PLC Public Limited Company (British Corporation)
UTS Unit Trust Shares
(a) Non-income producing security.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
B25
<PAGE>
GLOBAL PORTFOLIO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
LONG-TERM INVESTMENTS -- 93.9%
VALUE
COMMON STOCKS -- 93.8% SHARES (NOTE 2)
<CAPTION>
------------- --------------
<S> <C> <C>
ARGENTINA -- 0.7%
Banco Frances Del Rio De La Plata
(Banks and Savings & Loans)................... 453,195 $ 4,238,157
--------------
AUSTRALIA -- 3.9%
Brambles Industries, Ltd.
(Miscellaneous - Basic Industry).............. 552,500 10,783,281
Broken Hill Proprietary Co., Ltd.
(Metals - Diversified)........................ 472,231 6,727,592
Coca-Cola Amatil, Ltd.
(Foods)....................................... 371,832 3,975,907
Publishing and Broadcasting, Ltd.
(Media)....................................... 213,900 1,040,709
--------------
22,527,489
--------------
BELGIUM -- 0.3%
Bekaert, SA
(Miscellaneous - Basic Industry).............. 3,150 2,000,627
--------------
BRAZIL -- 0.7%
Basil De Distrub., ADR
(Retail) (a).................................. 219,400 3,839,500
--------------
FEDERAL REPUBLIC OF GERMANY -- 3.6%
Hoechst, AG
(Chemicals)................................... 177,900 8,398,266
Linde, AG
(Machinery)................................... 11,240 6,860,779
SAP, AG
(Computer Services) (a)....................... 40,400 5,495,974
--------------
20,755,019
--------------
FINLAND -- 1.6%
Nokia Corp. (Class 'A' Stock)
(Telecommunications).......................... 157,700 9,151,964
--------------
FRANCE -- 6.4%
Carrefour Supermarche, SA
(Retail)...................................... 18,000 11,708,671
Imetal
(Steel)....................................... 25,236 3,724,620
Legrand, SA
(Electrical Equipment)........................ 37,800 6,438,381
SGS Thomson Microelectronics, N.V., ADR
(Electronics) (a)............................. 101,600 7,112,000
SGS Thomson Microelectronics, N.V.,
(Electronics) (a)............................. 5,000 353,565
Valeo, SA
Autos - Cars & Trucks......................... 128,585 7,928,170
--------------
37,265,407
--------------
HONG KONG -- 7.3%
CDL Hotels International, Ltd.
(Real Estate Development)..................... 6,948,145 3,975,117
Citic Pacific, Ltd.
(Multi-industry) (c).......................... 1,652,000 9,590,122
Guoco Group, Ltd.
(Financial Services).......................... 1,944,000 10,883,082
Hung Hing Printing Group, Ltd.
(Miscellaneous - Basic Industry).............. 3,452,000 1,249,674
Hutchison Whampoa, Ltd.
(Multi-industry).............................. 749,000 5,882,959
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
New World Development Co., Ltd.
(Real Estate Development)..................... 1,597,000 $ 10,736,828
--------------
42,317,782
--------------
ITALY -- 2.7%
Gucci Group, ADR
(Textiles).................................... 94,100 6,010,637
Telecom Italia Mobile Spa
(Telecommunications).......................... 3,790,500 9,570,445
--------------
15,581,082
--------------
JAPAN -- 13.6%
Daibiru Corp.
(Real Estate Development)..................... 198,000 1,825,121
Eisai Co., Ltd.
(Drugs and Hospital Supplies)................. 288,000 5,656,788
Honda Motor Co.
(Autos - Cars & Trucks)....................... 368,000 10,493,453
Jgc Corp.
(Construction) (a)............................ 438,000 3,278,963
Keyence Corp.
(Electrical Equipment)........................ 37,800 4,656,616
Kokusai Denshin Denwa
(Telecommunications).......................... 49,000 3,368,539
Mitsui Fudosan
(Real Estate Development)..................... 673,000 6,725,362
Namco, Ltd.
(Leisure)..................................... 145,500 4,449,733
Nippon Television Network
(Media)....................................... 21,700 6,542,901
Nissan Chemicals Inds.
(Chemicals)................................... 663,000 3,141,368
Onward Kashiyama Co., Ltd.
(Textiles).................................... 528,000 7,414,197
Sony Corp.
(Electronics)................................. 169,000 11,050,224
Toyota Motor Corp.
(Autos - Cars & Trucks)....................... 352,000 10,097,864
--------------
78,701,129
--------------
MALAYSIA -- 2.6%
I.J.M. Corp. Berhad
(Construction)................................ 3,180,000 7,493,465
Renong Berhad
(Real Estate Development)..................... 1,637,000 2,904,459
Resorts World Berhad
(Leisure)..................................... 1,065,000 4,850,495
--------------
15,248,419
--------------
MEXICO -- 2.4%
Apasco, SA de CV
(Steel)....................................... 659,200 4,508,778
Cifra, SA de CV (Class 'B' Stock)
(Retail) (a).................................. 1,948,900 2,379,657
Fomento Economico Mexicano, SA de CV (Class 'B'
Stock)
(Beverage).................................... 935,400 3,198,961
Kimberly Clark (Series A)
(Paper Products).............................. 205,000 4,037,682
--------------
14,125,078
--------------
</TABLE>
B26
<PAGE>
GLOBAL PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
NETHERLANDS -- 2.9%
Heineken, N.V.
(Food & Beverages)............................ 21,625 $ 3,825,996
Nutricia Verenigde Bedrijven
(Healthcare).................................. 37,300 5,664,859
Royal Dutch Petroleum
(Petroleum)................................... 41,400 7,255,220
--------------
16,746,075
--------------
NEW ZEALAND -- 0.1%
Fletcher Challenge Forestry Division
(Forest Products)............................. 293,204 490,803
--------------
SINGAPORE -- 3.1%
Overseas Chinese Banking Corp., Ltd.
(Banks and Savings & Loans)................... 462,000 5,744,872
Overseas Union Bank, Ltd.
(Banks and Savings & Loans)................... 793,000 6,120,489
Sembawang Maritime, Ltd.
(Trucking/Shipping)........................... 883,500 2,525,548
Wing Tai Holdings, Ltd.
(Real Estate Development)..................... 1,239,250 3,542,486
--------------
17,933,395
--------------
SPAIN -- 2.8%
Banco Popular Espanol, SA
(Banks and Savings & Loans)................... 31,700 6,227,711
Centros Commerciales Pryca, SA
(Retail)...................................... 197,462 4,183,552
Telefonica De Espana
(Telecommunications) (a)...................... 253,700 5,893,004
--------------
16,304,267
--------------
SWEDEN -- 5.3%
Astra, AB (Series 'B' Free)
(Drugs and Hospital Supplies)................. 161,880 7,782,931
Hennes & Mauritz (Series 'B' Free)
(Retail)...................................... 86,000 11,863,820
Mo Och Domsjo, Ab (Series'B' Free)
(Forest Products)............................. 156,900 4,402,286
Skandinaviska Enskilda Bank (Series A)
(Banks & Savings & Loans)..................... 655,100 6,701,310
--------------
30,750,347
--------------
UNITED KINGDOM -- 13.3%
Bank Of Ireland
(Banks and Savings & Loans)................... 982,700 8,969,717
British Sky Broadcasting Group, PLC
(Media)....................................... 987,800 8,830,191
Dixons Group, PLC
(Retail)...................................... 795,800 7,400,045
Guest Kean & Nettlefolds, PLC
(Autos - Cars & Trucks)....................... 677,340 11,611,047
Hays, PLC
(Commercial Services)......................... 519,700 5,001,723
Reed International, PLC
(Miscellaneous - Basic Industry).............. 298,000 5,603,368
Siebe, PLC
(Machinery) (c)............................... 690,340 12,815,127
</TABLE>
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Standard Chartered, PLC
(Banks & Savings & Loans)..................... 580,000 $ 7,121,602
Vodafone Group, PLC
(Telecommunications).......................... 2,394,200 10,127,167
--------------
77,479,987
--------------
UNITED STATES -- 20.5%
Baker Hughes, Inc.
(Petroleum Services).......................... 163,800 5,651,100
Case Corp.
(Machinery)................................... 105,000 5,722,500
Cisco Systems, Inc.
(Computer Services) (a)....................... 154,800 9,849,150
Mattel, Inc.
(Leisure)..................................... 338,758 9,400,535
MCI Communications Corp.
(Telecommunications) (c)...................... 321,400 10,505,763
Microsoft Corp.
(Computer Services) (a), (c).................. 170,700 14,104,088
Mirage Resorts, Inc.
(Leisure) (a)................................. 211,500 4,573,688
Mobil Corp.
(Petroleum)................................... 81,300 9,938,925
Motorola, Inc.
(Electronics)................................. 67,400 4,136,675
Oracle Corp.
(Computer Services) (a)....................... 252,600 10,546,050
Texas Instruments, Inc.
(Electronics)................................. 106,900 6,814,875
Tiffany & Co.
(Retail)...................................... 133,800 4,900,425
Time Warner, Inc.
(Media)....................................... 173,400 6,502,500
Transocean Offshore, Inc.
(Petroleum Services).......................... 79,800 4,997,475
Viacom, Inc. (Class 'A' Stock)
(Media) (a)................................... 146,600 5,057,700
Walt Disney Co.
(Leisure)..................................... 92,500 6,440,313
--------------
119,141,762
--------------
TOTAL COMMON STOCKS
(cost $433,976,824)............................................ 544,598,289
--------------
WARRANTS (A) -- 0.1%
MALAYSIA
Renong Berhad, Expire 11/21/00,
(Miscellaneous - Basic Industry).............. 185,625 91,158
--------------
SINGAPORE
United Overseas Bank Ltd., Expire 6/17/97,
(Banks and Savings & Loans)................... 57,800 204,054
--------------
TOTAL WARRANTS
(cost $307,011)................................................ 295,212
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $434,283,835)............................................ 544,893,501
--------------
</TABLE>
B27
<PAGE>
GLOBAL PORTFOLIO (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT -- 4.5% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
UNITED STATES
Bear, Stearns & Co., Repurchase Agreement,
6.750%, 01/02/97 (cost $26,319,000) (b)....... $ 26,319 $ 26,319,000
--------------
TOTAL INVESTMENTS -- 98.4%
(cost $460,602,835; Note 6).................................... 571,212,501
FORWARD CURRENCY CONTRACTS --
AMOUNT RECEIVABLE FROM
COUNTERPARTIES (D) -- 0.1%..................................... 692,778
OTHER ASSETS IN EXCESS
OF LIABILITIES -- 1.5%......................................... 8,724,760
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 580,630,039
--------------
--------------
<FN>
The following abbreviations are used in portfolio descriptions:
AB Akiteboiag (Swedish Stock Company)
ADR American Depository Receipt
AG Aktiengesellschaft (West German Stock Company)
N.V. Naamloze Vennootschap (Dutch Corporation)
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)
(a) Non-income producing security.
(b) Bear Stearns & Co., repurchase price $26,328,870 due
1/02/97. The value of the collateral was $27,180,328.
(c) Securities with an aggregate market value of $13,568,943
have been segregated as collateral for forward currency
contracts.
(d) Outstanding forward currency contract to sell foreign
currency at December 31, 1996 is as follows:
VALUE AT
FOREIGN CURRENCY SETTLEMENT DATE CURRENCY
SALE CONTRACTS RECEIVABLE VALUE APPRECIATION
Japanese Yen, $42,507,276 $41,814,498 $692,778
expiring
1/6/97-1/14/97
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
B28
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
CERTAIN PORTFOLIOS OF
THE PRUDENTIAL SERIES FUND, INC.
NOTE 1: GENERAL
The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of fifteen Portfolios ("Portfolio" or "Portfolios"),
each with a separate series of capital stock. The information presented in these
financial statements pertains to only the eight Portfolios available for
investment by Discovery Select: Money Market Portfolio, Diversified Bond
Portfolio, High Yield Bond Portfolio, Stock Index Portfolio, Equity Income
Portfolio, Equity Portfolio, Prudential Jennison Portfolio and Global Portfolio.
Shares in the Series Fund are currently sold only to certain separate accounts
of The Prudential Insurance Company of America ("The Prudential"), Pruco Life
Insurance Company and Pruco Life Insurance Company of New Jersey (together
referred to as the "Companies") to fund benefits under certain variable life
insurance and variable annuity contracts ("contracts") issued by the Companies.
The accounts invest in shares of the Series Fund through subaccounts that
correspond to the portfolios. The accounts will redeem shares of the Series Fund
to the extent necessary to provide benefits under the contracts or for such
other purposes as may be consistent with the contracts.
NOTE 2: ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Series Fund in preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
SECURITIES VALUATION: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
Convertible debt securities are valued at the mean between the most recently
quoted bid and asked prices provided by principal market makers. High yield
bonds are valued either by quotes received from principal market makers or by an
independent pricing service which determine prices by analysis of quality,
coupon, maturity and other factors. Any security for which a reliable market
quotation is unavailable is valued at fair value as determined in good faith by
or under the direction of the Series Fund's Board of Directors.
The Money Market Portfolio uses amortized cost to value short-term securities.
Short-term securities that are held in the other Portfolios which mature in more
than 60 days are valued at current market quotations and those short-term
securities which mature in 60 days or less are valued at amortized cost.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements
with U.S. financial institutions, it is the Series Fund's policy that its
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, take possession of the underlying collateral securities,
the value of which exceeds the principal amount of the repurchase transaction
including accrued interest. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Series Fund may
be delayed or limited. (See Note 5).
FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and liabilities - at the
current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses -at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Series Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from changes
in the market prices of securities held at the end of the fiscal year.
Similarly, the Series Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of long-term portfolio securities sold during the fiscal year. Accordingly,
these realized foreign currency gains (losses) are included in the reported net
realized gains (losses) on investment transactions.
C1
<PAGE>
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at fiscal year end exchange rates are reflected as a component of
net unrealized appreciation (depreciation) on investments and foreign
currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
SHORT SALES: Certain portfolios of the Series Fund may sell a security it does
not own in anticipation of a decline in the market value of that security (short
sale). When the Portfolio makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
as collateral for its obligation to deliver the security upon conclusion of the
sale. The Portfolio may have to pay a fee to borrow the particular security and
may be obligated to remit any interest or dividends received on such borrowed
securities. A gain, limited to the price at which the Portfolio sold the
security short, or a loss, unlimited in magnitude, will be recognized upon the
termination of a short sale if the market price at termination is less than or
greater than, respectively, the proceeds originally received.
OPTIONS: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sale or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.
The Series Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Series Fund bears the market risk of an unfavorable change in the price of the
security underlying the written option. The Series Fund, as purchaser of an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.
FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the "initial margin". Subsequent payments, known as "variation
margin", are made or received by the Series Fund each day, depending on the
daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.
The Series Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series Fund intends to purchase,
against fluctuations in value. Under a variety of circumstances, the Series Fund
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts and the
underlying assets.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of three elements: stated
coupon, original issue discount and market discount, is recorded on the accrual
basis. Certain Portfolios own shares of real estate investment trusts ("REITs")
which report information on the source of their distributions annually. A
portion of distributions received from REITs during the year is estimated to be
a return of capital and is recorded as a reduction of their costs. Expenses are
recorded on the accrual basis which may require the use
C2
<PAGE>
of certain estimates by management. The Series Fund expenses are allocated to
the respective portfolios on the basis of relative net assets.
CUSTODY FEE CREDITS: The Series Fund, exclusive of the Global Portfolio, has an
arrangement with its custodian bank, whereby uninvested monies earn credits
which reduce the fees charged by the custodian. Such custody fee credits are
presented as a reduction of gross expenses in the accompanying Statements of
Operations.
TAXES: For federal income tax purposes, each portfolio in the Series Fund is
treated as a separate taxpaying entity. It is the intent of the Series Fund to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.
DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the Fund.
The Money Market Portfolio will declare and reinvest dividends from net
investment income and net realized capital gain (loss) daily. Each other
Portfolio will declare and distribute dividends from net investment income and
distributions from net realized gains, if any, twice a year. Dividends and
distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. As a result of this
statement, the Series Fund changed the classification of distributions to
shareholders to disclose the amounts of undistributed net investment income and
accumulated net realized gain (loss) on investments available for distributions
determined in accordance with income tax regulations. For the fiscal year ended
December 31, 1996, the application of this statement increased (decreased)
paid-in capital in excess of par ("PC"), undistributed net investment income
("UNI") and accumulated net realized gains (losses) on investments ("G/L") by
the following amounts:
<TABLE>
<CAPTION>
PC UNI G/L
----------- ----------- -----------
<S> <C> <C> <C>
Diversified Bond Portfolio.................. $(7,574,364) $ (617,274) $ 8,191,638
High Yield Portfolio........................ (3,589,971) 2,838,653 751,318
Stock Index Portfolio....................... (937,091) 448,481 488,610
Equity Income Portfolio..................... (3,889,621) 11,442,266 (7,552,645)
Equity Portfolio............................ (10,995,498) 6,099,985 4,895,513
Prudential Jennison Portfolio............... -- 130,598 (130,598)
Global Portfolio............................ (373,014) 5,985,915 (5,612,901)
</TABLE>
Net investment income, net realized gains and net assets were not affected by
these reclassifications.
NOTE 3: AGREEMENTS
The Series Fund has an investment advisory agreement with The Prudential.
Pursuant to this agreement The Prudential has responsibility for all investment
advisory services and supervises the subadvisers' performance of such services.
The Prudential has entered into a service agreement with The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under the investment advisory agreement with the
Series Fund. In addition, The Prudential has entered into a subadvisory
agreement with Jennison Capital Corp. ("Jennison"), under which Jennison
furnishes investment advisory services in connection with the management of the
Prudential Jennison Portfolio. The Prudential compensates Jennison for its
services as follows: 0.75% on the first $10 million of that Portfolio's average
daily net assets, 0.50% on the next $30 million, 0.35% on the next $25 million,
0.25% on the next $335 million, 0.22% on the next $600 million and 0.20%
thereafter. The Prudential pays for the cost of PIC's services, compensation of
officers of the Series Fund, occupancy and certain clerical and administrative
expenses of the Series Fund. The Series Fund bears all other costs and expenses.
C3
<PAGE>
The investment advisory fee paid The Prudential is computed daily and payable
quarterly, at the annual rates specified below of the value of each of the
Portfolios' average daily net assets:
<TABLE>
<CAPTION>
Fund Investment Advisory Fee
<S> <C>
Money Market Portfolio.............................. 0.40%
Diversified Bond Portfolio.......................... 0.40
High Yield Bond Portfolio........................... 0.55
Stock Index Portfolio............................... 0.35
Equity Income Portfolio............................. 0.40
Equity Portfolio.................................... 0.45
Prudential Jennison Portfolio....................... 0.60
Global Portfolio.................................... 0.75
</TABLE>
The Prudential has agreed to refund to a Portfolio (other than the Global
Portfolio), the portion of the investment advisory fee for that Portfolio equal
to the amount that the aggregate annual ordinary operating expenses (excluding
interest, taxes and brokerage commissions) exceeds 0.75% of the Portfolio's
average daily net assets. No refund was required for the fiscal year ended
December 31, 1996.
PIC and Jennison are indirect, wholly-owned subsidiaries of The Prudential.
NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES
For the fiscal year ended December 31, 1996, Prudential Securities Incorporated,
an indirect, wholly owned subsidiary of The Prudential, earned $251,623 in
brokerage commissions from transactions executed on behalf of the following
Portfolios:
<TABLE>
<CAPTION>
Fund Commission
<S> <C>
Equity Income Portfolio........................................ $ 66,311
Equity Portfolio............................................... 165,924
Global Portfolio............................................... 19,388
------------
$ 251,623
</TABLE>
As of December 31, 1996, The Prudential had an investment of $14,361,824 in the
Prudential Jennison Portfolio.
NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT
The portfolios of the Series Fund (excluding Global Portfolio) may transfer
uninvested cash balances into a single joint repurchase agreement account, the
daily aggregate balance of which is invested in one or more repurchase
agreements collateralized by U.S. Government obligations. The Series Fund's
undivided interest in the joint repurchase agreement account represented
$868,381,000 as of December 31, 1996. The Portfolios of the Series Fund with
cash invested in the joint account had the following principal amounts and
percentage participation in the account:
<TABLE>
<CAPTION>
Principal Percentage
Amount Interest
------------- ------------
<S> <C> <C>
Diversified Bond Portfolio........................... $ 15,414,000 1.78%
High Yield Bond Portfolio............................ 31,450,000 3.62
Stock Index Portfolio................................ 53,762,000 6.19
Equity Income Portfolio.............................. 33,746,000 3.89
Equity Portfolio..................................... 599,921,000 69.09
Prudential Jennison Portfolio........................ 10,688,000 1.23
All other portfolios (currently not available to
Discovery Select)................................... 123,400,000 14.20
------------- ------------
$ 868,381,000 100.00%
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Bear, Stearns & Co., Inc., 6.75%, in the principal amount of $265,000,000,
repurchase price $265,099,375, due 1/2/97. The value of the collateral including
accrued interest was $270,501,866.
C4
<PAGE>
Goldman, Sachs & Co., Inc., 5.85%, in the principal amount of $73,381,000,
repurchase price $73,404,849, due 1/2/97. The value of the collateral including
accrued interest was $75,883,443.
Smith Barney, Inc., 6.65%, in the principal amount of $265,000,000, repurchase
price $265,097,902, due 1/2/97. The value of the collateral including accrued
interest was $270,820,275.
UBS Securities Corp., 6.65%, in the principal amount of $265,000,000, repurchase
price $265,097,902, due 1/2/97. The value of the collateral including accrued
interest was $270,302,336.
The weighted average interest rate of these repurchase agreements was 6.613%.
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchase and the proceeds from the sales of securities
(excluding short-term issues) for the fiscal year ended December 31, 1996 were
as follows:
Cost of Purchases:
<TABLE>
<CAPTION>
HIGH
DIVERSIFIED YIELD STOCK EQUITY PRUDENTIAL
BOND BOND INDEX INCOME EQUITY JENNISON GLOBAL
------------ ------------ ----------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt Securities... $1,474,912,068 $343,629,174 0 $37,152,915 0 0 0
Equity
Securities...... 0 $ 10,633,778 $322,878,792 $282,895,367 $ 644,784,097 $ 203,871,305 $271,345,027
</TABLE>
Proceeds From Sales:
<TABLE>
<CAPTION>
HIGH
DIVERSIFIED YIELD STOCK EQUITY PRUDENTIAL
BOND BOND INDEX INCOME EQUITY JENNISON GLOBAL
------------ ------------ ----------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt Securities... $1,351,233,287 $319,599,876 0 $44,135,081 0 0 0
Equity
Securities...... 0 $ 8,018,168 $13,326,025 $197,334,087 $ 653,768,417 $ 61,951,658 $187,932,378
</TABLE>
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
HIGH
DIVERSIFIED YIELD STOCK EQUITY PRUDENTIAL
BOND BOND INDEX INCOME EQUITY JENNISON
------------- ------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gross Unrealized Appreciation... $16,153,798 $ 20,260,380 $546,264,662 $297,676,452 1$,153,620,111 $ 31,401,080
Gross Unrealized Depreciation... 1,997,928 8,960,353 13,128,946 53,301,876 71,614,946 6,675,173
Total Net Unrealized............ 14,155,870 11,300,027 533,135,716 244,374,576 1,082,005,165 24,725,907
Tax Basis....................... 729,283,625 415,325,778 1,054,512,494 1,107,858,205 3,719,947,601 205,701,495
<CAPTION>
GLOBAL
--------------
<S> <C>
Gross Unrealized Appreciation... $127,364,695
Gross Unrealized Depreciation... 16,756,986
Total Net Unrealized............ 110,607,709
Tax Basis....................... 460,604,792
</TABLE>
For federal income tax purposes, the following Porfolios had post-October
deferred losses during 1996 and capital loss carryforwards utilized during 1996
and available to offset future realized capital gains:
<TABLE>
<CAPTION>
CAPITAL
POST OCTOBER CAPITAL LOSSES LOSSES
LOSSES CARRYFORWARDS CARRYFORWARDS EXPIRATION
DEFERRED UTILIZED IN 1996 AVAILABLE DATE
-------------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
High Yield Bond
Portfolio............... $ 2,303,758 $ 818,030 $ 972,998 12/31/1999
3,273,984 12/31/2002
15,084,494 12/31/2003
------------
19,331,476
Prudential Jennison
Portfolio............... -- -- 2,160,575 12/31/2004
</TABLE>
C5
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A)
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
year............................. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- --------
Income From Investment Operations:
Net investment income and net
realized gains................... 0.51 0.56 0.40 0.29 0.37
Dividends and distributions........ (0.51) (0.56) (0.40) (0.29) (0.37)
-------- -------- -------- -------- --------
Net Asset Value, end of year....... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RATE OF
RETURN:(B)....................... 5.22% 5.80% 4.05% 2.95% 3.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)........................ $668.8 $613.3 $583.3 $474.7 $528.7
Ratios to average net assets:
Expenses......................... 0.44% 0.44% 0.47% 0.45% 0.47%
Net investment income............ 5.10% 5.64% 4.02% 2.90% 3.72%
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED BOND
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A)
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
year............................. $ 11.31 $ 10.04 $ 11.10 $ 10.83 $ 11.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.76 0.76 0.68 0.68 0.76
Net realized and unrealized gains
(losses) on investments.......... (0.27) 1.29 (1.04) 0.40 0.01
-------- -------- -------- -------- --------
Total from investment
operations..................... 0.49 2.05 (0.36) 1.08 0.77
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.73) (0.75) (0.68) (0.66) (0.72)
Distributions from net realized
gains............................ -- (0.03) (0.02) (0.15) (0.22)
-------- -------- -------- -------- --------
Total distributions............ (0.73) (0.78) (0.70) (0.81) (0.94)
-------- -------- -------- -------- --------
Net Asset Value, end of year....... $ 11.07 $ 11.31 $ 10.04 $ 11.10 $ 10.83
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(B)........ 4.40% 20.73% (3.23%) 10.13% 7.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)........................ $720.2 $655.8 $541.6 $576.2 $428.8
Ratios to average net assets:
Expenses......................... 0.45% 0.44% 0.45% 0.46% 0.47%
Net investment income............ 6.89% 7.00% 6.41% 6.05% 6.89%
Portfolio turnover rate............ 210% 199% 32% 41% 61%
</TABLE>
(a) Calculations are based on average month-end shares outstanding, where
applicable.
(b) Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
D1
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
HIGH YIELD BOND
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A)
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
year............................. $ 7.80 $ 7.37 $ 8.41 $ 7.72 $ 7.21
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.80 0.81 0.87 0.82 0.82
Net realized and unrealized gains
(losses) on investments.......... 0.06 0.46 (1.10) 0.63 0.42
-------- -------- -------- -------- --------
Total from investment
operations..................... 0.86 1.27 (0.23) 1.45 1.24
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income........................... (0.78) (0.84) (0.81) (0.76) (0.73)
Dividends in excess of net
investment income................ (0.01) -- -- -- --
-------- -------- -------- -------- --------
Total distributions............ (0.79) (0.84) (0.81) (0.76) (0.73)
-------- -------- -------- -------- --------
Net Asset Value, end of year....... $ 7.87 $ 7.80 $ 7.37 $ 8.41 $ 7.72
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(B)........ 11.39% 17.56% (2.72%) 19.27% 17.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)........................ $432.9 $367.9 $306.2 $282.9 $153.7
Ratios to average net assets:
Expenses......................... 0.63% 0.61% 0.65% 0.65% 0.70%
Net investment income............ 9.89% 10.34% 9.88% 9.91% 10.67%
Portfolio turnover rate............ 88% 139% 69% 96% 75%
</TABLE>
<TABLE>
<CAPTION>
STOCK INDEX
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A)
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
year............................. $ 19.96 $ 14.96 $ 15.20 $ 14.22 $ 13.61
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.40 0.40 0.38 0.36 0.35
Net realized and unrealized gains
(losses) on investments.......... 4.06 5.13 (0.23) 1.00 0.60
-------- -------- -------- -------- --------
Total from investment
operations..................... 4.46 5.53 0.15 1.36 0.95
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income........................... (0.40) (0.38) (0.37) (0.35) (0.33)
Distributions from net realized
gains............................ (0.28) (0.15) (0.02) (0.03) (0.01)
-------- -------- -------- -------- --------
Total distributions............ (0.68) (0.53) (0.39) (0.38) (0.34)
-------- -------- -------- -------- --------
Net Asset Value, end of year....... $ 23.74 $ 19.96 $ 14.96 $ 15.20 $ 14.22
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(B)........ 22.57% 37.06% 1.01% 9.66% 7.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)........................ $1,581.4 $1,031.3 $664.5 $615.1 $433.5
Ratios to average net assets:
Expenses......................... 0.40% 0.38% 0.42% 0.42% 0.46%
Net investment income............ 1.95% 2.27% 2.50% 2.43% 2.56%
Portfolio turnover rate............ 1% 1% 2% 1% 1%
Average commission rate paid per
share............................ $0.0250 N/A N/A N/A N/A
</TABLE>
(a) Calculations are based on average month-end shares outstanding, where
applicable.
(b) Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
D2
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EQUITY INCOME
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A)
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year $ 16.27 $ 14.48 $ 15.66 $ 13.67 $ 13.21
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.58 0.64 0.67 0.55 0.58
Net realized and unrealized gains
(losses) on investments.......... 2.88 2.50 (0.45) 2.46 0.72
-------- -------- -------- -------- --------
Total from investment
operations..................... 3.46 3.14 0.22 3.01 1.30
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income........................... (0.71) (0.62) (0.56) (0.50) (0.52)
Distributions from net realized
gains............................ (0.51) (0.73) (0.82) (0.52) (0.32)
-------- -------- -------- -------- --------
Total distributions............ (1.22) (1.35) (1.38) (1.02) (0.84)
-------- -------- -------- -------- --------
Net Asset Value, end of year....... $ 18.51 $ 16.27 $ 14.48 $ 15.66 $ 13.67
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(B)........ 21.74% 21.70% 1.44% 22.28% 10.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)........................ $1,363.5 $1,110.0 $859.7 $602.8 $234.4
Ratios to average net assets:
Expenses......................... 0.45% 0.43% 0.52% 0.54% 0.57%
Net investment income............ 3.36% 4.00% 3.92% 3.56% 4.32%
Portfolio turnover rate............ 21% 64% 63% 41% 40%
Average commission rate paid per
share............................ $0.0553 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
EQUITY
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A)
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
year............................. $ 25.64 $ 20.66 $ 21.49 $ 18.90 $ 17.91
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.71 0.55 0.51 0.42 0.44
Net realized and unrealized gains
(losses) on investments.......... 3.88 5.89 0.05 3.67 2.05
-------- -------- -------- -------- --------
Total from investment
operations..................... 4.59 6.44 0.56 4.09 2.49
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income........................... (0.67) (0.52) (0.49) (0.40) (0.44)
Distributions from net realized
gains............................ (2.60) (0.94) (0.90) (1.10) (1.06)
-------- -------- -------- -------- --------
Total distributions............ (3.27) (1.46) (1.39) (1.50) (1.50)
-------- -------- -------- -------- --------
Net Asset Value, end of year....... $ 26.96 $ 25.64 $ 20.66 $ 21.49 $ 18.90
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(B)........ 18.52% 31.29% 2.78% 21.87% 14.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)........................ $4,814.0 $3,813.8 $2,617.8 $2,186.5 $1,416.6
Ratios to average net assets:
Expenses......................... 0.50% 0.48% 0.55% 0.53% 0.53%
Net investment income............ 2.54% 2.28% 2.39% 1.99% 2.33%
Portfolio turnover rate............ 20% 18% 7% 13% 16%
Average commission rate paid per
share............................ $0.0524 N/A N/A N/A N/A
</TABLE>
(a) Calculations are based on average month-end shares outstanding, where
applicable.
(b) Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
D3
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRUDENTIAL JENNISON
-------------------
<S> <C> <C>
APRIL
25,
YEAR 1995(D)
ENDED TO
DECEMBER DECEMBER
31, 1996 31, 1995
-------- --------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
period $12.55 $10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.02 0.02
Net realized and unrealized gains
(losses) on investments.......... 1.78 2.54
-------- --------
Total from investment
operations..................... 1.80 2.56
-------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income........................... (0.03) (0.01)
Distributions from net realized
gains............................ -- --
-------- --------
Total distributions............ (0.03) (0.01)
-------- --------
Net Asset Value, end of period..... $14.32 $12.55
-------- --------
-------- --------
TOTAL INVESTMENT RETURN:(B)........ 14.41 % 24.2 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)........................ $226.5 $63.1
Ratios to average net assets:
Expenses......................... 0.66 % 0.79 %(c)
Net investment income............ 0.20 % 0.15 %(c)
Portfolio turnover rate............ 46 % 37 %
Average commission rate paid per
share............................ $0.0603 N/A
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995(A) 1994(A) 1993(A) 1992(A)
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year $ 15.53 $ 13.88 $ 14.64 $ 10.37 $ 10.79
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.11 0.06 0.02 0.02 0.05
Net realized and unrealized gains
(losses) on investments.......... 2.94 2.14 (0.74) 4.44 (0.42)
-------- -------- -------- -------- --------
Total from investment
operations..................... 3.05 2.20 (0.72) 4.46 (0.37)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income........................... (0.11) (0.24) (0.02) (0.08) (0.05)
Distributions from net realized
gains............................ (0.62) (0.31) (0.02) (0.11) --
-------- -------- -------- -------- --------
Total distributions............ (0.73) (0.55) (0.04) (0.19) (0.05)
-------- -------- -------- -------- --------
Net Asset Value, end of year....... $ 17.85 $ 15.53 $ 13.88 $ 14.64 $ 10.37
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(B)........ 19.97% 15.88% (4.89%) 43.14% (3.42%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)........................ $580.6 $400.1 $345.7 $129.1 $34.0
Ratios to average net assets:
Expenses......................... 0.92% 1.06% 1.23% 1.44% 1.87%
Net investment income............ 0.64% 0.44% 0.20% 0.18% 0.49%
Portfolio turnover rate............ 41% 59% 37% 55% 78%
Average commission rate paid per
share............................ $0.0358 N/A N/A N/A N/A
</TABLE>
(a) Calculations are based on average month-end shares outstanding, where
applicable.
(b) Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns. Total return for periods of
less than one year are not annualized.
(c) Annualized.
(d) Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 60 THROUGH 64.
D4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PRUDENTIAL SERIES FUND, INC.:
In our opinion, the accompanying Statements of Assets and Liabilities, including
the Schedules of Investments, and the related Statements of Operations and of
Changes in Net Assets and the Financial Highlights present fairly, in all
material respects, the financial position of each of Money Market, Diversified
Bond, High Yield Bond, Stock Index, Equity Income, Equity, Prudential Jennison
and Global (collectively the "Portfolios"), eight of the fifteen portfolios that
comprise The Prudential Series Fund, Inc. at December 31, 1996, the results of
each of their operations, the changes in each of their net assets, and each of
their financial highlights for the year ended December 31, 1996, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolios' management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above. The accompanying Statement
of Changes in Net Assets and Financial Highlights of the Prudential Jennison
Portfolio for the period April 25, 1995 through December 31, 1995, and the
accompanying Statements of Changes in Net Assets for the year ended December 31,
1995, and Financial Highlights for each of the four years in the period ended
December 31, 1995 for each of the other seven portfolios were audited by other
independent accountants, whose opinion dated February 15, 1996 was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
February 14, 1997
E1
<PAGE>
BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.
MENDEL A. MELZER W. SCOTT McDONALD, JR., E. MICHAEL CAULFIELD,
CHAIRMAN, PhD. CEO,
THE PRUDENTIAL SERIES EXECUTIVE VICE PRUDENTIAL INVESTMENTS
FUND, INC. PRESIDENT, PRESIDENT, THE
FAIRLEIGH DICKINSON PRUDENTIAL SERIES FUND,
UNIVERSITY INC.
SAUL K. FENSTER, PhD. JOSEPH WEBER, PhD.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)
TAX INFORMATION
Although we understand that the vast majority, if not all, of the
shareholders/contract holders of the Series Fund currently maintain a tax
deferred status, we are nevertheless required by the Internal Revenue Code to
advise you within 60 days of the Series Fund's fiscal year end (December 31,
1996) as to the federal tax status of dividends paid by the Fund during such
fiscal year. Accordingly, we are advising you that in 1996, the Fund paid
dividends as follows:
Ordinary Dividends
Short-Term Long-Term Total
Income Capital Gains Capital Gains Dividends
Money Market Portfolio $ 0.510 $ 0.510
Diversified Bond Portfolio 0.727 0.727
High Yield Bond Portfolio 0.793 0.793
Stock Index Portfolio 0.404 $ 0.066 $ 0.207 0.677
Equity Income Portfolio 0.711 0.121 0.384 1.216
Equity Portfolio 0.671 0.319 2.282 3.272
Prudential Jennison Portfolio 0.030 0.030
Global Portfolio 0.107 0.082 0.546 0.735
i
<PAGE>
We hereby incorporate by reference the following annual reports for the
underlying funds:
1. Filer/Entity: AIM V.I. Growth and Income Fund and AIM V.I. Value Fund
Registration No.: 811-07452
CIK No.: 0000896435
Accession No.: 0000899243-97-000334
Date of Filing: 03/05/97
2. Filer/Entity: Janus Aspen Series -- Growth Portfolio and
International Growth Portfolio
Registration No.: 811-07736
CIK No.: 0000906185
Accession No.: 0000919574-97-000242
Date of Filing: 02/28/97
3. Filer/Entity: MFS Emerging Growth Series
Registration No.: 811-08326
CIK No.: 0000918571
Accession No.: 0000950156-97-000220
Date of Filing: 03/03/97
4. Filer/Entity: MFS Research Series
Registration No.: 811-08326
CIK No.: 0000918571
Accession No.: 0000950156-97-000221
Date of Filing: 03/03/97
5. Filer/Entity: OCC Accumulation Trust -- Managed Portfolio and Small
Cap Portfolio
Registration No.: 811-08512
CIK No.: 0000923185
Accession No.: 0000950123-97-001972
Date of Filing: 03/06/97
6. Filer/Entity: T. Rowe Price Equity Income Portfolio
Registration No.: 811-07143
CIK No.: 0000918294
Accession No.: 0000918294-97-000022
Date of Filing: 02/21/97
7. Filer/Entity: T. Rowe Price International Stock Portfolio
Registration No.: 811-07145
CIK No.: 0000918292
Accession No.: 000098292-97-000002
Date of Filing: 02/18/97
ii
<PAGE>
8. Filer/Entity: Warburg Pincus Trust Post-Venture Capital Portfolio
Registration No.: 811-07261
CIK No.: 0000941568
Accession No.: 0000950117-97-001769
Date of Filing: 10/31/97
iii
<PAGE>
ON CALL TO HELP YOU GET THE MOST OUT OF YOUR ANNUITY.
At Prudential, we are committed to making it easy for you to take advantage
of the many benefits your DISCOVERY SELECT-SM- Variable Annuity offers.
So whenever you need assistance do not hesitate to call or write our
Prudential Annuity Service Center. Of course, your Registered
Representative or Financial Advisor is also available to assist you with
more complex matters such as helping you identify your goals, investment
time horizon and level of risk.
HOW TO REACH US BY PHONE
AUTOMATED SERVICE
For direct access to more standardized information about your contract or
to request service forms, you can call our automated service line -- 24
hours a day, 365 days a year. Simply:
1. Call 1-888-PRU-2888 toll-free from any touch-tone phone.
2. Press the number on your telephone keypad that corresponds to the type
of information you want.
Your owner's kit includes a detailed brochure on your automated service
options. Highlighted here is just a brief overview of the types of service
requests you can make through this line.
CUSTOMER SERVICE REPRESENTATIVES
For personalized annuity service, you can call one of our specially trained
Customer Service Representatives toll-free at: 1-888-PRU-2888, Press 0 *
Monday-Friday, 8:00 am to 9:00 pm ET.
TELEPHONE SERVICE OPTIONS
IF YOU WOULD LIKE THEN PRESS
To get an update on your annuity contract,
change your PIN, or order forms 1 *
To obtain general product information, e.g., unit values,
interest rates, and investment options 2 *
To speak to a Customer Service Representative 0 *
HOW TO REACH US BY MAIL
Any written requests or correspondence about your annuity should be
directed as follows:
REGULAR MAIL EXPRESS MAIL
Prudential Annuity Service Center Prudential Annuity Service Center
P.O. Box 14215 300 Columbus Circle
New Brunswick, NJ 08906-4215 Edison, NJ 08837
<PAGE>
- --------------------------------------------------------------------------------
Whether providing insurance protection
for home, family, and business,
providing for future education and
retirement expenses, or offering
innovations like our living Needs
Benefit-Registered Trademark- and
Critical Care Access, Prudential people
have always been able to deliver
something more: personal service,
quality, attention to detail, and the
financial strength of The Rock. Since
1875, Prudential has been helping
individuals and families meet their
financial needs.
P.O. Box 197 BULK RATE
Minneapolis, MN 55440-0197 U.S. POSTAGE
PAID
Address Service Requested PERMIT NO. 8048
NEW YORK, N.Y.
[LOGO]
ORD 96889 Printed in the U.S.A. on recycled
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ED. 12/96
