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DISCOVERY SELECT(R)
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VARIABLE ANNUITY
ANNUAL REPORT TO CONTRACTOWNERS
DECEMBER 31, 1998
[GRAPHIC]
AS INDIVIDUAL AS YOU
Prudential o American Century o AIM Advisors o Franklin Templeton o Janus
o MFS o OpCap Advisors o T. Rowe Price o Warburg Pincus
[LOGO] Prudential
DISCOVERY SELECT(R) 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 by
Prudential Investment
Management Services LLC. All
are subsidiaries of The
Prudential Insurance Company
of America.
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[LOGO]
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This Annual Report includes the financial statements of the variable investment
options in the DISCOVERY SELECT(R) 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.
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Important Note
This Report may be used with the public only when preceded or accompanied by the
current prospectus for the DISCOVERY SELECT Variable Annuity and the current
Quarterly Performance Updates. The Quarterly Performance Updates reflect the
reinvestment of all dividends and capital gains, and the deduction of investment
management fees, expenses and product-related insurance charges. It also
provides returns that are net of all contract charges, including applicable
surrender or withdrawal charges.
The prospectus contains complete details on risks, charges and expenses for the
DISCOVERY SELECT Variable Annuity and the variable investment options. Read the
prospectus carefully prior to investing or sending money. Annuities have
limitations. For costs and complete details of coverage, call your Prudential
Securities Financial Advisor or Pruco Securities Registered Representative.
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 issued by Pruco Life Insurance Company (in
New York, issued by Pruco Life Insurance Company of New Jersey) and is offered
by Prudential Investment Management Services LLC. All are subsidiaries of The
Prudential Insurance Company of America, 751 Broad Street, Newark, NJ
07102-3777.
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Table of Contents
Letter to Contractowners.......................................................2
Discovery Select Now Offers Two New Investment Options
1998 Market Commentary
1999 Investment Outlook
The Prudential Series Fund, Inc. Portfolios...................................12
Money Market Portfolio
Diversified Bond Portfolio
High Yield Bond Portfolio
Stock Index Portfolio
Equity Income Portfolio
Equity Portfolio
Prudential Jennison Portfolio
Small Capitalization Stock Portfolio
Global Portfolio
The Prudential Series Fund, Inc...............................................30
Financial Statements
Schedule of Investments
Notes to Financial Statements
Financial Highlights
Board of Directors
AIM Management Group, Inc.....................................................79
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
American Century.............................................................105
American Century VP Value Fund
Franklin Templeton...........................................................133
Franklin Small Cap Investments Fund-Class 2
Janus........................................................................157
Janus Aspen Series - Growth Portfolio
Janus Aspen Series - International Growth Portfolio
MFS Investment Management....................................................195
MFS Emerging Growth Series
MFS Research Series
OpCap Advisors...............................................................241
OCC Accumulation Trust - Managed Portfolio
OCC Accumulation Trust - Small Cap Portfolio
T. Rowe Price Associates, Inc................................................271
Equity Income Portfolio
International Stock Portfolio
Warburg Pincus Asset Management..............................................309
Warburg Pincus Post-Venture Capital Portfolio
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Great News!
DISCOVERY SELECT(R) Variable Annuity plans to add two new investment options on
May 1. See page 4 for more details.
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Year Ended December 31, 1998
Letter To Contractowners
[PHOTO]
John V. Scicutella
Chief Executive Officer
Dear Contractowner:
This Annual Report presents the investment performance of the portfolios that
underlie your DISCOVERY SELECT(R) Variable Annuity contract.
Last year, the stock market registered double-digit returns for an unprecedented
fourth consecutive year. However, the global financial crisis drove many
investors to focus on only the largest and most marketable securities. As a
result, companies with the most predictable earnings and largest market
capitalization generated the lion's share of the stock market gains while
small-company and value stocks lagged dramatically.
This flight to quality also drove the yield on the 30-year Treasury bond down to
4.71%, its lowest level since April 1967, which made virtually all other debt
securities very unattractive.
The turning point for the financial markets came in the fall when a round of
interest rate cuts by central banks around the world, including the U.S. Federal
Reserve, fueled investor confidence and prompted investors to move money back
into riskier investments with higher potential total returns. (Total return is
interest or dividends plus capital appreciation.) Forecasts that there would be
a huge rise in on-line business also helped the bull market regain its footing
by sparking a fourth-quarter rally in technology stocks.
How Did Discovery Select Perform?
Consistent with the market, large-capitalization growth stock portfolios posted
unusually high returns for the year. On the other hand, most of the
small-capitalization and value-oriented portfolios lagged the growth-oriented
average. Many of the other portfolios finished with solid results.
Keep the Markets in Perspective.
As we begin the new year, the U.S. stock market is at historic highs in terms of
the price placed on companies' earning powers. We expect markets eventually to
bring prices in line with earnings performance. We have already begun to see
fixed-income investors shift money back into investment-grade and high yield
corporate bonds, as well as into emerging market, mortgage-backed and
asset-backed securities. Furthermore, growth and value styles of investing tend
to alternate in superior performance, often making it unwise to chase last
year's market winners.
We continue to believe that diversification and a long-term perspective are the
keys to a successful investment strategy and can help you receive more
consistent returns over time. It is also a good practice to rebalance your
holdings, when necessary, to keep your asset allocation consistent with your
objectives and risk tolerance.
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It's Long-Term Performance That Counts.
Since most people buy variable annuity products to finance long-term goals such
as retirement, our objective for DISCOVERY SELECT is to achieve above-average
investment performance over time. Therefore, when you consider how to allocate
either new or existing assets among our available investment options, we
encourage you to think about your time horizon and risk tolerance. As always,
remember that past performance is not necessarily indicative of future results.
Your financial representative will be happy to help you review and structure a
program to meet your long-term financial needs.
All of us at Prudential thank you for your business and look forward to helping
you plan for your future financial security.
/s/ John V. Scicutella
John V. Scicutella
Chief Executive Officer
January 29, 1999
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Important Note
The rates of return quoted on the following pages reflect the deduction of
investment management fees and investment-related expenses, but not product
charges. They also 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 their 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 Prudential Securities Financial Advisor/Pruco Securities Registered
Representative can provide you with actual rates of return for your type of
variable life insurance or annuity contract and can show you a personalized
illustration of how insurance charges affect the returns you experience.
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GREAT NEWS DISCOVERY SELECT(R)
Two New Investment Options on the Way.
Building on our commitment to provide you with the choices you need to save for
retirement, we are pleased to announce that on May 1, DISCOVERY SELECT(R)
Variable Annuity plans to add two new investment options to its underlying
family of portfolios.
With the addition of these investment options, DISCOVERY SELECT will offer a
choice of 24 variable investment options, as well as two interest rate options.1
After a careful review of potential candidates, our research team selected two
investment options because they complement the existing portfolios in DISCOVERY
SELECT. The new investment options are:
[LOGO] Prudential
Prudential 20/20 Focus Portfolio: This investment option will
combine both the value and growth investment styles in a
concentrated portfolio of up to 40 stocks believed to offer
strong potential for long-term growth.
Prudential Diversified Conservative Growth Portfolio: This
investment option will normally maintain a 60% weighting in
fixed-income securities for relative stability, while seeking
long-term growth potential from equities. The fixed-income
portion is broken down into a strategic mix of core
fixed-income (higherrated bonds) and high yield fixed-income
securities to enhance long-term total return.
More detailed information on these new investment options, including their
objectives, risks, fees, and expenses, will be sent to you with the May 1, 1999
DISCOVERY SELECT prospectus.
1 The 7-Year Market Value Adjustment option is not available to residents or
Maryland, Oregon, and Washington.
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1998 Market Commentary
Market Overview
o The Asian economic and financial crises, which culminated in the Russian
default, drove down the price of stocks throughout that region and then
throughout the world in the third quarter.
o Despite this volatility, most stock markets around the world posted
double-digit gains for the year. Interest rate cuts by the U.S. Federal
Reserve in September, October and November restored investor-confidence in
the markets.
o However, the performance of the average stock was below historical levels.
In the U.S., most of the gains were driven by the largest stocks with the
strongest franchises. Substantial performance disparities developed
between large-capitalization companies and small-capitalization companies
and between value and growth stocks.
o The prospect that the Internet will transform society led to an almost
unbelievable speculation in Internet-related stocks.
o Investor uncertainty also manifested itself in the bond markets. Pursuit
of the safest government bonds resulted in a significant rise in the
yields of riskier bonds.
U.S. Stocks
Diverging Markets
Normally, the way to make money is to buy low and sell high. But looking at last
year's performance of stocks and bonds, it appears that the strategy that worked
best in 1998 was "momentum investing"--buying more of the most popular, most
expensive securities. Companies with the most predictable earnings and largest
market capitalization, which already were expensive at the beginning of 1998,
generated most of the year's stock market gains while small-company and value
stocks lagged dramatically.
Why did investors decide to buy high? The trouble began when the government of
Thailand devalued the baht in 1997. The currencies of several neighboring
countries also weakened and investors grew increasingly concerned about the
impact of an Asian economic slowdown.
This prompted many investors to focus on a few large, well-known companies,
which were expected to have more predictable earnings and marketable stocks.
When the Russian turmoil erupted last August, the focus on security intensified.
Since investors were willing to pay a premium for these well-known companies,
they boosted the return of these few firms above all others. Conversely,
small-company stocks, which generally are more vulnerable to negative financial
and economic news than large-company stocks, had a sharp price-drop in 1998.
The views expressed are as of 1/22/99 and are subject to change based on market
and other conditions.
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How the Markets Compared1
[GRAPHIC]
Average Return Over
Past 20 Years
1998 (Annualized)
Money Markets 4.8% 7.6%
Bonds 9.5% 10.2%
Foreign Stock 24.8% 15.3%
U.S. Stocks 28.6% 17.8%
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This chart compares the 12-month return as of 12/31/98 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: Lipper Analytical Services, Inc. For purposes of comparison only.
U.S. money markets as measured by Lipper Money Market Average. Bonds as
measured by the Lehman Brothers Gov't. Corp. Index. Foreign stocks as
measured by the Morgan Stanley Capital International World Index. U.S.
stocks as measured by the S&P 500 Composite Stock Price Index.
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In addition, value stocks--those that are inexpensive in terms of price-to-cash
flow, earnings and book value--also lagged large growth stocks dramatically.
This divergence in the market is reflected in the year-end returns of the major
equity indexes.
The Standard & Poor's 500 Composite Stock Price Index (the S&P 500 Index), which
represents the broad market to many investors, plunged in the third quarter but
ended 1998 with a total return of 28.6%. The stocks of companies with the
largest capitalization, measured by the Russell Top 200 Index (published by the
Frank Russell Company), gained a substantial 33.4% over the year.
However, the small-cap Russell 2000 Index actually fell by 2.6%. (Market
capitalization, frequently referred to as market cap or market value, is the
price that the stock market puts on an entire enterprise. It is calculated by
multiplying the current market price by the number of shares outstanding.)
As for the performances of growth and value stocks in the S&P 500, the S&P/Barra
Growth Index returned 42.1% for the year, versus the S&P/Barra Value Index, up
only 14.7%--an unusually wide 27-percentage-point difference.
In many cases, however, the earnings of the most popular companies did not rise
as much as their share prices. Investors paid more and more for each dollar of
these firms' profits in 1998. Many of the market leaders' stocks reached prices
60 to 70 times their annual earnings, compared with historical average
price-to-earnings (P/E) ratios of less than 20 times earnings.
1998 Winners and Losers
Technology Stocks Big Winners in 1998
The Technology sector, driven by new low-cost computers and the prospect that
Internet commerce will transform the way we do business, led the market in 1998
with a 67.4% growth. Dell Computer was a large contributor to the sector's
performance, up 249%. Software giants Microsoft and Apple were other major
contributors, rising 118% and 212%, respectively. The return of co-founder Steve
Jobs and the introduction of new low-priced iMac computers helped Apple come
back after languishing among the worst performers on the S&P 500 Index just one
year ago. It was the second-best performing stock in the Index. EMC Corp., the
world's largest maker of data-storage devices, claimed the 3 spot on the "S&P
500 Index Top 10" list, up 210% for the year. Inspired by expectations more than
by current earnings, the prices of companies of Internet-related stocks shot up
to unprecedented levels.
Consumer Cyclicals Finished Second
The Consumer Cyclicals sector came in a distant second for the year, but still
averaged an impressive 45.0% gain. Gap Inc. was the best name in the sector by
far, up 138%. Gap was the 10th best-performing company in the S&P 500 Index in
1998 as its line of khaki pants and casual clothes rode the trend toward less
formal work attire. Lowes Corp., up 115%, Home Depot, up 108%, and Wal-Mart, up
108%, were the other companies in the sector that doubled their prices for the
year.
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Technology Led the Market in 1998
Tech. 67.4%
Cons. Cycl. 45.0%
Utilities 39.7%
Cons. Growth 27.4%
Indust. 12.6%
Finance 11.4%
Energy 0.94%
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Source: Standard & Poor's as of 12/31/98. Past performance is not indicative of
future results.
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1998 Market Commentary continued
Industrials Lagged
In our view, the Industrial sector of the U.S. economy suffered a brief
recession in mid 1998, due to the consequences of Asia's economic contraction.
The Far East is a major user of industrial products, such as machinery and
metals. Overbuilding and the declining cost of production in that region were
largely responsible for the sector's poor showing in the stock market. Within
the industrial sector of the S&P 500, machinery and nonferrous metals companies
were among the worst performers, losing 20% and 28%, respectively. Stronger
performances by office equipment and supplies companies and commercial services
helped the sector as a whole return just under 13%.
Energy Demand Was Low
The Energy sector, plagued by low demand throughout 1998 and a steep decline in
oil prices toward the end of the year, eked out a return of only 0.9%. Rowan,
down 68%, was among the worst performers in the sector. This oil service company
suffered as major oil producers reduced exploration and drilling operations and
crude oil prices plunged to 12-year lows. Baker Hughes, the fourth-largest U.S.
oil field services and equipment company, was down 59% for the year. It has
announced plans to eliminate 2,000 jobs.
The World
A Tumultuous Twelve Months
In 1998, the European stock markets took investors on a tumultuous
roller-coaster ride. They staged an incredible rally in the first half of the
year, returning 27%, as measured by the Morgan Stanley Capital International
(MSCI) Europe Index in U.S. dollars. But investor anxiety hit Europe hard in
August. Double-digit declines were almost universal and many of the stock
markets gave up almost half of the gains made earlier in the year.
The decline was partly in reaction to the falling U.S. market, but it also
reflected fears of exposure to economic turmoil in Russia. Then in the last
quarter of the year, as central banks around the world lowered interest rates
and enthusiasm built in Europe for the year-end monetary union, the MSCI Europe
Index regained momentum and recouped what it had lost over the summer to end the
year up 29%.
Finland's stock market alone returned 123% in 1998, thanks in part to its strong
telecommunications and electronics industries. The worst market in Europe was
Norway. Hammered by sagging oil prices, the Oslo Stock Exchange fell 30%.
Asian returns were dominated by the contraction of the region's economy.
Japanese stocks had a positive return to U.S. investors only because the yen
appreciated against the dollar.
The weakening dollar, aided by signs of economic stabilization, also pushed
Thailand into positive territory. Only the Australian, Korean and Philippine
markets rose in their own currencies.
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Global Stock Market Performance1 (U.S. $) in 1998
MSCI Europe Index 28.9%
MSCI World Free Index 24.8%
MSCI EAFE Free Index 20.3%
MSCI Japan Index 5.3%
MSCI Pacific (Ex-Japan) Free Index -5.1%
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1 Source: Morgan Stanley Capital International as of 12/31/98.
The Morgan Stanley Capital International (MSCI) World Free Index is a weighted,
unmanaged index of the performance of 1,472 securities listed on the stock
exchanges of the U.S., Europe, Canada, Australia, New Zealand and the Far East.
Morgan Stanley country indexes [Europe, Asia, Far East (EAFE), Pacific and
Japan] are unmanaged indexes that include 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 indexes.
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Bonds
Flight-to-Quality Investing Breeds Illiquidity
What did fixed-income investors want most in 1998? In two words, Quality and
Liquidity. During the volatile market conditions that characterized much of the
year, they fled to the highest-quality government securities--U.S.
Treasuries--even if it meant paying more and receiving lower returns.
The U.S. Treasury is the world's largest issuer of debt. Moreover, that debt is
backed by the full faith and credit of the federal government. Treasuries were
therefore an ideal "safe haven" investment. Major European government bond
markets were another safe port amid last year's global financial storm.
As a result of this "flight to quality," bond markets in late summer and early
October were plagued by illiquidity, or difficulty buying and selling all but
the most sought-after Treasuries. Growing demand for Treasuries fueled such a
strong rally that the yield on the 30-year Treasury bond fell to 4.71% on
October 5, its lowest level since April 1967. (Bond yields move in the opposite
direction of prices.) Yields on Treasury notes and bills also sank as a huge
inflow of cash into money market funds prompted portfolio managers to buy
short-term government securities.
These sharp drops meant that the spread, or difference in yield, between
Treasuries and other debt securities, such as investment-grade corporate bonds,
widened significantly, indicating investors were less willing to take a chance
on the relatively more risky bonds.
An even more dramatic indication of illiquidity was investors' strong preference
for "on the run," or the most recently auctioned, Treasuries versus "off the
run," or older, less-frequently traded issues. Both offer the same credit
quality. Yet the spread between yields of "on the run" and "off the run"
Treasuries, which might normally be a few basis points, rose to as much as 40
basis points in some cases. (A basis point is 1/100th of a percentage point.)
This wide gap reflected investors' willingness to pay more and accept lower
returns for greater liquidity.
This stampede away from both risky and safe bonds was one of the major factors
that spurred the Federal Reserve to action. Had the trend been allowed to
continue, it might have threatened the U.S. economic expansion. The Federal
Reserve cut the Federal funds rate (what banks charge each other to borrow
overnight) by a quarter percentage point on September 29, October 15 and
November 17. The reductions left the key short-term rate at 4.75%. The
mid-October move did the most to restore liquidity to the bond markets, as this
marked the first time in four and a half years that monetary policy was changed
between the central bank's regularly scheduled meetings. The unusual timing of
this move encouraged investors and spurred lenders to provide businesses with
money and should help foster U.S. economic growth in the future.
By the end of the year, the battered bond markets had staged a respectable
recovery. Investors had begun to shift money out of Treasuries back into
investment-grade and high yield corporate bonds as well as emerging market,
mortgage-backed and asset-backed securities.
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Global Bonds Deliver Attractive Returns in 1998
Global (U.S. dollar) 15.3%
U.S. Treasuries 10.0%
Aggregate Index 8.7%
Corporates 8.6%
Mortgages 7.0%
High Yield 1.6%
Emerging Markets -11.6%
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Source: Lehman Brothers, as of 12/31/98. Past performance is not indicative of
future results.
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1999 Investment Outlook
Economic Outlook
Slow Growth and Tame Inflation
Our economists at Prudential expect the economy to slow to a 2% pace in the
first half of 1999, but they do not expect the deceleration to be sharp. First,
the U.S. economy has more momentum than expected. This growth has come from
solid sources such as consumer expenditures, not from short-term factors such as
fluctuations in inventories. Second, a sharp increase in bank lending, narrowing
credit spreads and a rebound in the stock market have for the most part silenced
talk of a severe credit crunch. Lastly, recent employment reports and vehicle
sales indicate that above-trend growth still continues. Our economists are also
calling for growth to increase to 3% in the second half of the year as
businesses stock up on inventories in anticipation of Year 2000 computer
problems.
We believe inflation will remain tame in 1999. Inflation, as measured by the
Consumer Price Index, is expected to level out at 2.25%. The Consumer Price
Index, which climbed 2% in the second half of 1998, is expected to rise by 2.4%
in the first half of 1999 and settle at 2.2% in the latter half. Oil prices
remain the biggest wild card in our inflation forecast. According to our
economists and most Wall Street firms, as Asia recovers and more seasonable
colder weather descends upon the United States and Japan, oil prices should
rise.
These projections imply that the Federal Reserve is not likely to tinker with
U.S. monetary policy in 1999 through further cuts in interest rates.
Stock Market Outlook
Reconsider Expectations
Markets generally bring prices in line with earnings performance sooner or
later. Although the market may rise in 1999, the likelihood that it will match
the phenomenal gains of the last four years is not very high. Since the stock
market leaders have become very expensive relative to their earnings prospects,
investors may want to consider directing some assets to the underpriced sectors
of the market.
Time to Rebalance
The disparity in returns (and valuations) among market sectors, investment
styles and capitalization groupings reminds us of the importance of
diversification and a long-term view. Rarely does the top-performing sector of
the market remain the same over time.
Investors interested in rebalancing should consider value stocks, which in
general are selling at significant discounts to the market, as well as small-
and mid-cap growth stocks. Many of these companies have strong pricing power. In
addition, given their strong performance in the fourth quarter of last year,
emerging markets and Asia may be starting their recovery at very inexpensive
levels. One place we believe investors should stay put is Europe, where the bull
market has yet to run its course. The advent of the new currency, the Euro, is
expected to lead to a large-scale restructuring of investment portfolios, which
may favor the larger, more familiar European companies.
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A Reality Check
Since 1925, the U.S. stock market's average return has been 11.2% as measured by
the S&P 500 Index. Yet in recent years, returns have been much higher, as the
chart below shows.
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Returns of the U.S. Stock Market
Average
Annual
Return
-------
1925-1998 11.2%
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Source: Ibbotson Associates.
Last Four Years
1995 37.5%
1996 23.0%
1997 33.4%
1998 28.6%
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Source: Lipper Analytical Services, Inc.
With the highest valuation levels in history at a time when corporate profits
are slowing, we believe it is prudent to remember that recent rates of return
are unlikely to continue.
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U.S. Bond Markets
Guarded Optimism
While last summer's wariness will not easily be forgotten, many investors are
once again embracing fixed-income markets with guarded optimism. Much will
depend on how the U.S. economy fares. The manufacturing arm is coming out of a
recession and service-sector growth could continue at a brisk, if somewhat
slower, pace than last year. Some Asian economies have begun to improve,
pointing toward stronger demand for American-made machinery and other industrial
goods.
These and other signs indicate that the U.S. economy is on course to make a soft
landing in 1999. In other words, the economy should grow at a slower pace but
avoid sliding into a recession. The three Federal funds rate cuts enacted late
last year could act as a safety net, encouraging economic growth through lower
borrowing costs. But it usually takes between nine months and a year for an
interest rate cut to work its way through the economy. This leaves plenty of
time for the economy to lose steam.
By some measures, the average spread, or difference in yield, between junk bonds
and Treasuries was just over 600 basis points at year-end (according to the
Chase High Yield Index). Although this spread is down from the more than 700
basis points of last summer, it is still much higher than the 400 to 500 basis
points that would be expected with the junk bond default rate currently at its
historical average of 3.0%. In short, we believe junk bonds are somewhat
undervalued right now considering the level of risk involved.
If the economy behaves as expected, the yield on the 30-year U.S. Treasury bond
should fluctuate in a fairly narrow range between 4.75% and 5.75% this year.
Investment-grade and high yield corporate bonds should perform better than
federal government securities as investors seek securities that provide
incremental yield over Treasuries. In fact, demand for junk bonds and
investment-grade corporate bonds has already increased in the new year because
they are viewed as beneficial additions to a portfolio in the low-rate
environment.
Prices of investment-grade corporate bonds have recovered roughly half of their
losses from last year, depending on which sector of the market is considered.
For example, financial services bonds bounced back solidly, but energy bonds
have gained only modestly amid continued concern about the impact of low oil
prices. Overall, corporate balance sheets are still in good shape as debt as a
percentage of equity is still at manageable levels.
Bargain hunters should also look to the municipal bond market, where the average
insured, triple-A-rated bond maturing in 30 years was yielding approximately 95%
as much as comparable Treasuries at year-end. Historically, these bonds have
yielded roughly 87% of what Treasuries yield, because their interest income is
exempt from federal income taxes and, in some cases, state and local taxes as
well.
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Prudential
Money Market Portfolio
Performance Summary.
Your Portfolio returned 5.39% during 1998 and beat the 5.10% return on the
average money market fund as tracked by Lipper Analytical Services, Inc. On
December 29, 1998, the Portfolio's seven-day yield was 4.96%, down from 5.28% on
June 30, 1998.
Money market interest rates fluctuated in a narrow range, then declined sharply
in midsummer as the global financial crisis led the Federal Reserve to lower
short-term interest rates. Your Portfolio provided an above-average return by
investing in shorter- and longer-term money market securities that allowed it to
lock in higher yields in the first half of 1998 and to weather the period of
lower interest rates that occurred during the second half of 1998.
An investment in the Prudential Series Fund 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.
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Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
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Money Market Portfolio1 2.66% 5.39% 5.35% 5.18% 5.61%
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Lipper (VIP) Money Market Avg.2 2.49% 5.10% 5.08% 4.92% 5.32%
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Money Market Portfolio inception date: 5/13/83.
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Seven Day Current Net Yields During the Past 12 Months
[GRAPHIC]
Money Market Portfolio1 Average Money Market Fund2
----------------------- --------------------------
"Jan '98" 5.44 4.99
5.37 4.99
5.35 4.96
5.33 4.95
"Feb" 5.36 4.95
5.36 4.96
5.32 4.94
5.31 4.92
5.3 4.92
"Mar" 5.32 4.93
5.32 4.92
5.3 4.92
5.29 4.92
"Apr" 5.28 4.9
5.28 4.91
5.26 4.91
5.27 4.92
"May" 5.26 4.91
5.25 4.92
5.25 4.91
5.26 4.92
5.26 4.91
"Jun" 5.28 4.94
5.31 4.92
5.3 4.91
5.31 4.91
"Jul" 5.28 4.92
5.28 4.92
5.28 4.91
5.28 4.92
"Aug" 5.26 4.91
5.27 4.93
5.26 4.9
5.26 4.92
5.26 4.9
"Sept" 5.24 4.88
5.18 4.84
5.18 4.76
5.1 4.71
"Oct" 5.02 4.64
4.99 4.67
4.95 4.63
4.95 4.63
"Nov" 4.94 4.55
4.92 4.57
4.94 4.54
4.94 4.55
4.95 4.54
"Dec" 4.96 4.53
Weekly seven day current net yields of the Money Market Portfolio and the IBC
Taxable General Purpose, First and Second Tier Money Market Fund.
- --------------------------------------------------------------------------------
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 Source: IBC Financial Data, Inc. As of 12/29/98, based on 303 funds in the
IBC Taxable General Purpose, First and Second Tier Money Market Fund.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
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 Certificates of Deposit (CDs), Commercial
Paper and Bankers' Acceptances, U.S. Treasury bills (T-bills) and other
instruments issued by or guaranteed by the U.S. government or its agencies.
- --------------------------------------------------------------------------------
Performance Review.
Rates Tumbled. After holding fairly steady in the first half of 1998, interest
rates began to tumble in August as financial market turmoil spread from Asia to
Russia and Latin America.
Investors fled to the relative safety of U.S. Treasuries. As a result, the
difference in yield between Treasuries and other debt securities widened
significantly.
To protect the U.S. economy from the disarray in the financial markets, the
Federal funds rate (the rate banks charge each other for overnight loans) was
lowered three times in quarter-percentage-point increments to 4.75%.
The decline in the Portfolio's seven-day yield reflects these changes in
monetary policy.
12
<PAGE>
Strategy Session.
U.S. Economy Sent Mixed Signals
The outlook for U.S. monetary policy changed several times during 1998 as
investors revised their predictions about how much the Asian financial crisis
would hurt U.S. economic growth.
Grappling with signs of economic weakness and strength early in the year,
investors initially thought the economy would slow enough to require a cut in
the Federal funds rate to stimulate growth. Instead, the economy raced ahead in
early 1998, fueling speculation that a short-term rate increase was necessary to
curb the expansion. However, this view faded in the spring amid renewed fears
that Asian financial woes would sap U.S. economic vigor.
These concerns deepened in August as the financial crisis hit Russia and Latin
America. Investors sought refuge in U.S. Treasuries, causing them to become
overvalued relative to investment-grade and lower-quality debt securities. The
Federal Reserve responded by cutting the Federal funds rate a quarter
percentage point on September 29, October 15 and November 17, leaving the key
short-term rate at 4.75%.
The unusual timing of the second move, which occurred between the central bank's
regularly scheduled meetings, reassured investors that monetary policy would be
reduced as often as needed to soften a potential economic slowdown.
For the year, the best buying opportunities occurred at the end of the first,
second and fourth quarters, when seasonal borrowing needs of corporations
briefly boosted yields so that money market securities traded at "fire sale"
prices.
Once it became clear in late summer that the Federal funds rate was headed
lower, we advantageously positioned the Portfolio to beat the anticipated
decline in interest rates. The Portfolio ended the year positioned in a neutral
fashion versus its competition.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
Manolita Brasil
Federal Reserve Seen on Hold.
"We believe the Federal Reserve will hold monetary policy steady for now because
the U.S. economy remains quite strong and thus far, Brazilian economic woes have
inflicted far less damage on global financial markets than was originally
expected."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
Manolita Brasil
- --------------------------------------------------------------------------------
Portfolio Composition
as of 12/31/98
--------------
Other Commercial Paper 33.8%
Foreign Bank Obligations 21.5%
Other Corporate Obligations 18.9%
Yankee Commercial Paper 13.2%
U.S. Bank Obligations 9.4%
U.S. Government & Agencies 1.7%
Loan Participations 1.5%
- --------------------------------------------------------------------------------
Source: Prudential. 26% of the portfolio holdings are adjustable rate
securities. Holdings are subject to change.
13
<PAGE>
Prudential
Diversified Bond Portfolio
Performance Summary.
Corporate bonds performed better than U.S. Treasuries early in the year as U.S.
economic conditions remained favorable and financial turmoil in Asia appeared to
have eased. However, the Asian financial crisis deepened and spread to other
regions, prompting investors to buy Treasuries for their relative safety and
sell other debt securities. Treasuries therefore gained more than corporate
bonds and emerging market debt securities in 1998.
While your Portfolio's exposure to Treasuries increased, its corporate debt
holdings included energy sector bonds that declined in value as well as Conti
Financial Corp. bonds that hurt the Portfolio's relative performance. As a
result, the Portfolio's 7.15% annual return trailed the 7.44% return on the
Lipper (VIP) Corporate Debt BBB Average.
- --------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Diversified Bond Portfolio1 12.60% 7.15% 6.70% 7.25% 9.14%
- --------------------------------------------------------------------------------
Lipper (VIP) Corp. Debt BBB Avg.2 3.26% 7.44% 7.11% 7.13% 8.97%
- --------------------------------------------------------------------------------
Lehman Aggregate Index3 4.58% 8.69% 7.29% 7.27% 9.26%
- --------------------------------------------------------------------------------
Diversified Bond Portfolio inception date: 5/13/83.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
[GRAPHIC]
$23,975 Diversified $23,672 Lipper (VIP) $24,240 Lehman
Bond Portfolio1 Corp. Debt BBB Avg.2 Aggregate Index3
--------------- -------------------- ----------------
"88" 10000 10000 10000
10896.5 10866.5 10919.5
"89" 11348.6 11187 11453
11598.3 11463.2 11777
"90" 12293 11898.2 12479.1
12845.4 12539.7 13037.1
"91" 14313.9 13916.9 14476.2
14701.3 14331.6 14867.8
"92" 15342.4 14973.1 15547.7
16452.1 16189 16619.8
"93" 16896.9 16744.3 17063.5
16252.8 15912.5 16403.5
"94" 16350.7 16025.2 16565.9
18326.2 18014.7 18461.7
"95" 19740.6 19271.3 19626.3
19437.5 18902.3 19387.9
"96" 20608.7 19929.1 20338.8
21455.2 20546.8 20968
"97" 22374.4 21944.2 22302.5
23367.1 22874.7 23178.4
"98" 23975.2 23671.6 24239.8
- --------------------------------------------------------------------------------
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.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) Corporate Debt 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 more than 5,000
government and corporate bonds. The LAI is an unmanaged index that
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 indexes may portray different comparative performance.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
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.
What a Rally! The Portfolio's performance benefited as U.S. Treasuries comprised
roughly 30% of its total investments when the rally in Treasuries peaked in
early October.
At that time, prices of Treasuries soared so high that the 30-year Treasury bond
yield, which falls as prices rise, slid to its lowest level in more than 30
years.
Disappointment over a modest change in U.S. monetary policy on September 29 had
boosted demand for "safe haven" securities such as Treasuries relative to stocks
and corporate bonds.
This trend fueled strong gains in the prices of Treasuries during the first week
of October.
14
<PAGE>
Strategy Session.
A Confident Beginning. Early in the year, a nearly ideal combination of subdued
inflation, solid U.S. economic growth and low interest rates enhanced the appeal
of securities such as corporate bonds that offered incremental yield over U.S.
Treasuries. Belief that some Asian nations were making progress toward resolving
their financial difficulties also heightened investor confidence. Thus,
investment-grade corporate bonds performed better than Treasuries during the
first five months of the year, based on Lehman Brothers indexes.
This trend reversed as the Asian financial contagion deepened and infected
Russia and Latin America in August. To make matters worse, the Federal Reserve
had to arrange a rescue of hedge fund Long-Term Capital Management, which nearly
collapsed in September. Investors responded by purchasing Treasuries and dumping
assets that carried greater risk. We were in this camp, increasing Treasuries to
30% of the Portfolio's total investments as of September 30, 1998, up from 2.0%
from December 31, 1997.
The global financial crisis posed a potential threat to the U.S. economy because
many investors were reluctant to buy the stocks and bonds of corporations. The
Federal Reserve came to the rescue again, protecting the economy with a series
of three quarter-percentage-point cuts in the Federal funds rate (what banks
charge each other for overnight loans). The first reduction on September 29 left
the rate at 5.25%. Investors expressed their dissatisfaction with this modest
change by purchasing Treasuries, which pushed down the 30-year Treasury bond
yield to 4.71% in early October, its lowest level since April 1967.
The Federal funds rate was lowered again to 5.00% on October 15 and 4.75% on
November 17. The unusual timing of the second move, which occurred between the
Federal Reserve's regularly scheduled meetings, seemed to indicate that monetary
policy would be eased as often as needed to aid U.S. economic growth. Reassured,
investors began to reverse the "flight to quality" trend.
As prices of our U.S. dollar-denominated bonds of the cities of Moscow and St.
Petersburg, Russia, edged higher, we sold them at a loss on the view that
difficult economic and financial conditions would continue in Russia. The
Portfolio's performance was also hurt because its energy bonds sold off amid
concern that low oil prices would continue to hurt corporate balance sheets. In
addition, we owned Conti Financial Corp. bonds that performed poorly as major
U.S. credit rating agencies down-graded their ratings.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
Barbara Kenworthy
Economy Expected to Moderate.
"We believe the U.S. economic expansion could moderate in 1999. In other words,
the economy could grow at a slower pace but not slide into a recession. If the
economy behaves as expected, the 30-year Treasury bond yield could fluctuate
this year in a range of 4.75% to 5.75%. Therefore, debt securities that offer
incremental yield over Treasuries stand a good chance of performing better than
federal government securities in 1999."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
Barbara Kenworthy
- --------------------------------------------------------------------------------
Portfolio Composition
as of 12/31/98
--------------
Corporate Bonds 81.1%
U.S. Treasuries 12.0%
Other/Cash 4.1%
Asset-Backed 1.2%
U.S. Government & Agencies 0.9%
Mortgages 0.7%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Credit Quality
as of 12/31/98
--------------
U.S. Government 14.3%
AAA 2.9%
AA 6.0%
A 17.0%
BBB 41.6%
BB 14.0%
B 1.3%
Short-Term/Cash 2.9%
Average Credit Quality A
Duration 5.70 years
Average Maturity 10.56 years
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
15
<PAGE>
Prudential
High Yield Bond Portfolio
Performance Summary.
High yield bonds (commonly referred to as junk bonds) went on a roller-coaster
ride in 1998. Prices climbed earlier in the year, only to tumble later on as
deepening turmoil in global financial markets prompted investors to purchase
U.S. Treasuries for their relative safety and sell assets that carried greater
risk. High yield bonds rallied again later in the year as the Federal Reserve
eased monetary policy three times to protect the U.S. economic expansion.
Your Portfolio returned -2.36% for the year and lagged the 0.10% gain on the
average high yield fund tracked by Lipper Analytical Services, Inc., because
some of its lower-rated bonds sold off more sharply than its higher-quality debt
securities.
- --------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
High Yield Bond Portfolio1 -7.18% -2.36% 7.37% 7.20% 9.07%
- --------------------------------------------------------------------------------
Lipper (VIP) High Current Yield Avg.2 -4.31% 0.10% 8.79% 7.87% 9.92%
- --------------------------------------------------------------------------------
Lehman High Yield Index3 -2.77% 1.60% 8.46% 8.52% 10.52%
- --------------------------------------------------------------------------------
High Yield Bond Portfolio inception date: 2/23/87.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
$23,811 High Yield $25,861 Lipper (VIP) $27,226 Lehman High
Bond Portfolio1 High Current Yield Avg.2 Yield Index3
--------------- ------------------------ ------------
"88" 10000 10000 10000
10449.6 10549.3 10487.2
"89" 9794.83 10185.5 10083.3
9906.68 10349.2 10334.8
"90" 8634.73 9584.83 9116.51
10817.1 11540.7 11815.3
"91" 12001.6 12864.8 13326.7
13290 14167.1 14706.1
"92" 14105.9 14932.2 15426
15708.4 16628.8 17051.8
"93" 16823.6 17721.1 18066.4
16639 17289.1 17656.9
"94" 16365.8 17182.6 17880.4
17926.1 19048.8 20099.6
"95" 19240.2 20371.1 21308.8
20160.8 21308.8 22045.5
"96" 21431.6 23067.6 23727.6
22690.8 24418.3 25108
"97" 24385.7 26045.4 26756.1
25653.5 27144.7 27960.2
"98" 23811 25861.5 27225.6
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) High Current 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 that 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 indexes
may portray different comparative performance.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
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.
A Bumpy Ride. In the first seven months of the year, high yield bonds led all
other sectors of the taxable bond markets, according to Lehman Brothers indexes.
However, that period was followed by one of the most difficult three months in
the history of junk bonds. Many investors shunned all types of risky securities
(including high yield bonds) after a financial crisis spread beyond Asia to
Russia and Latin America in August.
Your Portfolio's performance over the past year generally reflected these ups
and downs of the high yield market.
16
<PAGE>
Strategy Session.
A Strong Start. A resilient U.S. economy grew rapidly for most of the year,
despite a marked decline in manufacturing exports to Asia. Inflation remained
subdued as the economy expanded and long-term interest rates in the U.S.
lingered at low levels. These nearly ideal economic conditions spurred demand
for high yield bonds earlier in the year as investors wanted debt securities
that provided incremental yield over U.S. Treasuries. As a result, junk bonds
performed better than Treasuries during the first seven months of 1998.
However, demand for high yield bonds began to dry up in the eighth month. The
financial whirlwind that first struck Asia slammed into Russia and Latin America
in August, sending global financial markets reeling. Investors purchased super-
safe U.S. Treasuries and sold riskier assets such as high yield bonds.
Junk bonds had been the leading fixed-income asset class in July, but they
ranked second-lowest in August, based on Lehman Brothers indexes. The largest
declines occurred in lower quality junk bonds such as those rated single-B,
which accounted for approximately 50% of your Portfolio's total investments as
of August 31, 1998.
Financial markets deteriorated further in September as the Federal Reserve had
to arrange the rescue of Long-Term Capital Management. This giant hedge fund's
near-collapse, left some investors even more reluctant to buy nongovernment
bonds. Had this trend continued it could have endangered the U.S. economic
expansion because of a lack of willingness to provide businesses with money.
To protect the U.S. economy, the Federal Reserve cut the Federal funds rate
(what banks charge each other for overnight loans) by a quarter percentage point
on September 29, October 15 and November 17, leaving it at 4.75%.
Investors began to return to the junk bond market in earnest during November.
Bonds rated single-B rallied strongly, because they had been oversold. These
gains benefited your Portfolio, which returned 2.56% for the fourth quarter of
1998. However, the Portfolio's annual return was negative, because about 29% of
its total investments were in nonrated and Caa-rated bonds that only partially
recouped their earlier losses.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
George W. Edwards, CFA
High Yield Market Shows Promise.
"The credit quality of the high yield bond market will likely remain
fundamentally sound as long as the U.S. economy continues to expand. Meanwhile,
the difference between yields of lower- to middle-quality junk bonds and
comparable U.S. Treasuries is at wide levels typically characteristic of a
weaker economy."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
George W. Edwards, CFA
- --------------------------------------------------------------------------------
Top Industries
as of 12/31/98
--------------
Telecommunications 15.3%
Industrial 6.2%
Retail 5.6%
Broadcasting & Other Media 5.2%
Cable 5.2%
Top Issuers
as of 12/31/98
--------------
Allied Waste 1.3%
Adelphia Communications 1.0%
Maxxam Group 1.0%
New Sassco, Inc. 0.9%
Paxson Communications 0.6%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Credit Quality
as of 12/31/98
--------------
Baa 1.2%
Ba 8.8%
B 48.6%
Caa 15.0%
Nonrated 14.2%
Equity 7.6%
Cash 4.6%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
17
<PAGE>
Prudential
Stock Index Portfolio
Performance Summary.
Your Portfolio returned 9.32% for the second half of 1998 and gained 28.42% over
the course of the year. Despite a 19% drop early in the second half, the
Portfolio rebounded sharply in the latter part of the year. Last year, we
reported that the three-year run of above 20% returns was unprecedented. Now we
have added a fourth year to the run.
The global financial crisis, triggered by events in Asia and Russia, led to the
initial drop in the market when investors became uneasy with the financial
situation in emerging markets. However, the growing U.S. economy and subsiding
fears of a global financial meltdown, led investors to feel more confident. In
turn, the S&P 500 Index's return was well above historical standards.
Standard & Poor's neither sponsors nor endorses the Stock Index Portfolio.
Investors cannot directly invest in any index, including the S&P 500 Index.
- --------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Stock Index Portfolio1 9.32% 28.42% 27.89% 23.70% 18.74%
- --------------------------------------------------------------------------------
Lipper (VIP) S&P 500 Index Avg.2 9.24% 28.25% 27.81% 23.58% 18.62%
- --------------------------------------------------------------------------------
S&P 500 Index3 9.24% 28.60% 28.23% 24.05% 19.19%
- --------------------------------------------------------------------------------
Stock Index Portfolio inception date: 10/19/87.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
[GRAPHIC]
$55,665 Stock $55,145 Lipper (VIP) $57,864 S&P 500
Index Portfolio1 S&P 500 Index Avg.2 Index3
---------------- ------------------- ------
"88" 10000 10000 10000
11615.1 11541.6 11652.2
"89" 13093 12971.9 13163.1
13443 13253.6 13568.4
"90" 12617.3 12415.9 12753.9
14376.7 14257.5 14568.6
"91" 16367.4 16190.9 16631.1
16222.3 16038.7 16519.4
"92" 17535.2 17382.8 17896.5
18349.5 18309.1 18767
"93" 19229.8 19193.8 19696.3
18549.9 18523.4 19029.9
"94" 19423.7 19360 19955
23302.1 23209.7 23983.1
"95" 26623.6 26485.8 27444.9
29271.7 29106.4 30213.8
"96" 32631.3 32500.6 33742.1
39260.4 38993.2 40692.1
"97" 43344.8 43022.8 44995.4
50919.4 50518.9 52969.5
"98" 55664.8 55145.1 57927.6
- --------------------------------------------------------------------------------
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
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 Index 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 that 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.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
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
The Portfolio attempts to hold the same stocks as the S&P 500 Index, in
approximately the same proportions. The Portfolio thus tends to reflect the
general trends of the overall U.S. equity market.
- --------------------------------------------------------------------------------
S&P 500 Index--Total Return by Sector
as of 12/31/98
--------------
Technology 72.9%
Communication Services 52.3%
Health Care 44.2%
Consumer Cyclicals 36.3%
Consumer Staples 22.2%
Utilities 14.7%
Capital Goods 14.1%
Financials 11.4%
Energy 0.5%
Transportation -1.9%
Basic Materials -6.1%
S&P 500 Index 28.6%
- --------------------------------------------------------------------------------
Source: Standard & Poor's
18
<PAGE>
Performance Review.
The Stock Index Portfolio attempts to hold all 500 stocks included in the S&P
500 Index and to duplicate its performance. Portfolio manager John W.
Moschberger manages the Portfolio by investing funds received while trying to
minimize commissions and transaction costs.
Technology Led the Way. The Index was led by the technology sector, which
returned almost 73% for the year. Stock prices of companies on or associated
with the Internet rose to unparalleled highs in the latter half of 1998. The
demand for computer systems and software was strong, driving prices of these
stocks higher as well. Communications services, wireless, long distance and
local telephone service had the second-highest return for the year at about 52%.
The Internet explosion propelled returns in both the technology and
communications services sectors.
Health Care and Consumer Cyclicals Had a Strong Year. The S&P 500 Index's health
care stocks returned 44% for the year. Stocks of drug retailers and drug
companies were the best-performing areas of the health care sector. Consumer
cyclicals, companies that perform better when an economy is growing, produced a
36% return. Furthermore, consumer staple stocks, such as restaurants and
pharmaceuticals, achieved a 22% gain.
Moreover, the Index's heavily weighted financial sector, rebounding from
investor fears about emerging markets, returned 11%. The utility sector also
bounced back from a slow end to the first half of the year to post an overall
15% return.
Energy Stocks Were Weak Again. The energy sector, hurt by oil prices dropping to
a 12-year low, returned only 0.5%. However, this was not the Index's
worst-performing sector. Basic material stocks were pulled down by commodity
prices at a 10-year low--copper prices dropped to their lowest average of the
century. This sector was down more than 6% for the year.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
John W. Moschberger
Keep Your Expectations Realistic.
"For the fourth successive year the S&P 500 Index exceeded a 20% return. Last
year, we warned that a third year was unprecedented. The year was very unusual
in another way: the Index did not reflect the performance of most stocks listed
on it. The S&P 500 Index is weighted by market capitalization--the largest
companies count for more. This year, the largest 10% of companies in the Index
accounted for much of its performance. An equally weighted index would have
gained only 11% instead of 29%. Typically, the gap is only a few percentage
points. It has not been this large in 40 years. Because of this, most
actively-managed mutual funds trailed our fund. These are unusual times, and it
is particularly important to keep in mind that past performance is no guarantee
of future behavior."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
John W. Moschberger
- --------------------------------------------------------------------------------
S&P 500 Index Composition
as of 12/31/98
--------------
Technology 18.5%
Financials 15.4%
Consumer Staples 14.9%
Health Care 12.1%
Consumer Cyclicals 9.2%
Communication Services 8.4%
Capital Goods 8.1%
Energy 6.2%
Basic Materials 3.2%
Utilities 3.1%
Transportation 0.9%
- --------------------------------------------------------------------------------
Source: Standard & Poor's. Holdings are subject to change.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of 12/31/98
--------------
Microsoft Corp. 3.4%
General Electric Co. 3.2%
Intel Corp. 2.0%
Wal-Mart Stores, Inc. 1.8%
Exxon Corp. 1.7%
Merck & Co., Inc. 1.7%
International Business
Machines Corp. 1.7%
Coca-Cola Co. 1.6%
Pfizer, Inc. 1.6%
Lucent Technologies, Inc. 1.4%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
19
<PAGE>
Prudential
Equity Income Portfolio
Performance Summary.
Over the past year, your Portfolio returned -2.38%, while the Lipper (VIP)
Equity Income Average gained 16.21%.
Investors, afraid of the global consequences of the recession in Asia, showed a
strong preference for the stocks of a few large growth companies. Because the
Equity Income Portfolio adheres to a disciplined value investing style, we owned
smaller companies. In contrast with 1997, these smaller-company stocks performed
poorly, pulling our return slightly negative. In particular, we had substantial
holdings of Real Estate Investment Trusts (REITs), and the market became very
unfavorable to this sector.
Our financial stocks--particularly Lehman Brothers (an investment bank) and our
Real Estate Investment Trusts--contributed to both last year's strong
performance and this year's weak one.
- --------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Equity Income Portfolio1 -11.17% -2.38% 17.54% 14.93% 15.06%
- --------------------------------------------------------------------------------
Lipper (VIP) Equity Income Avg.2 4.67% 16.21% 20.63% 18.50% 15.23%
- --------------------------------------------------------------------------------
S&P 500 Index3 9.24% 28.60% 28.23% 24.05% 19.19%
- --------------------------------------------------------------------------------
Equity Income Portfolio inception date: 2/19/88.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
[GRAPHIC]
$40,638 Equity Income $41,490 Lipper (VIP) $57,864 S&P 500
Portfolio1 Equity Income Avg.2 Index3
---------- ------------------- ------
"88" 10000 10000 10000
11449.1 11221.9 11652.2
"89" 12266.5 11861.1 13163.1
12188.5 11925.1 13568.4
"90" 11809.4 10942.4 12753.9
13430.2 12297.6 14568.6
"91" 15057.6 13801.2 16631.1
15257 13935.5 16519.4
"92" 16584.5 15185.4 17896.5
19169.5 16480.2 18767
"93" 20280 17440.6 19696.3
20071.6 16938.9 19029.9
"94" 20571.4 17493.6 19955
23474.7 20621.7 23983.1
"95" 25036.1 23040.7 27444.9
26801 24570 30213.8
"96" 30478.4 27444.8 33742.1
35803.3 32546.6 40692.1
"97" 41635.8 36200.4 44995.4
45756.2 40566.9 52969.5
"98" 40638.4 41489.6 57864
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
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 and rankings are net of investment fees
and fund expenses but not product charges.
3 The S&P 500 Index 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 that 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.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
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 Index.3
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.
Size Counted. Although the stock market rebounded, the largest 10% of the S&P
500 Index gained substantially more than smaller companies. We had avoided these
stocks because they have been expensive for some time. The less-expensive
mid-sized companies that we thought were better values lost favor.
Financials Suffered. These stocks have strong prospects for earnings-growth but
are undervalued, in our opinion.
Basic Industry Lagged. Our industrial and energy holdings generally lagged the
strong market, and Pioneer Natural Resources, an independent exploration and
production company, suffered because its production was below prior estimates.
With the current surplus of oil supply over demand, we don't consider that a
problem.
20
<PAGE>
Strategy Session.
We remain focused on industrials, financials, and consumer cyclicals. We believe
that today, Real Estate Investment Trusts (REIT) offer the best combination of
current dividend yield and long-term dividend growth, because further
securitization of real estate should allow substantial cash flow growth
potential.
Not only are there economies of scale in purchasing furnishings, materials,
etc., but the REIT mechanism provides the funding for superior managers to
leverage their abilities by acquiring additional property. Ease in buying and
selling (liquidity) also makes real estate investment trusts more attractive.
Although short-term fears pushed the price of REIT shares below the value of
their underlying properties, we think well-managed companies eventually will
trade at a premium because of the added value of the REIT structure.
Our industrials and our consumer cyclicals (such as autos, retailers and
housing-related companies) reflect our confidence that the U.S. economy will
continue to expand. Despite some Asia-induced slowing in 1998, the economy is
fundamentally strong.
However, companies that tend to do well in a growing economy--the industrial
issues in particular--were priced in 1998 as though a recession was imminent.
This makes them very inexpensive in terms of what we must pay for a dollar of
their earnings.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
Warren E. Spitz
Value Investing for the Long-term.
"In 1997, several of our investment themes paid off strongly. We believe that
investors saw the value in several of our holdings, but their favorable opinions
were swamped this year in a widespread fear-driven movement to the stocks of a
very few large and well-known companies. Investors behaved in an unusual way
this year. They tended to move toward stocks that already were expensive,
instead of toward better value. We believe this was a panic reaction, not
typical of investor behavior. In recent years, my value style has led me away
from stocks of the largest firms. The market-leading stocks reached record
levels of price-to-earnings ratios--60 to 70 times annual earnings per share and
more. I don't believe those are conservative investments over the long term."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
Warren E. Spitz
- --------------------------------------------------------------------------------
Portfolio Composition
as of 12/31/98
--------------
Industrials 27.9%
Financial Services 24.7%
Consumer Cyclicals 19.9%
Consumer Growth & Staples 11.7%
Energy 8.1%
Utilities 3.6%
Technology 1.0%
Cash 3.1%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of 12/31/98
--------------
Dow Chemical Co. 4.4%
Aluminum Company
of America 4.2%
Hanson, PLC, ADR
(United Kingdom) 3.8%
RJR Nabisco Holdings Corp. 3.4%
Lehman Brothers
Holdings, Inc. 3.3%
McDermott International, Inc. 3.1%
DaimlerChrysler A.G 3.0%
Equity Residential
Properties Trust 3.0%
Reynolds Metals Co. 2.7%
AMR Corp. 2.6%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
21
<PAGE>
Prudential
Equity Portfolio
Performance Summary.
Your Portfolio returned 9.34% in 1998, trailing the Lipper (VIP) Growth Fund
Average of 24.94% for the period. In this fourth year of S&P 500 Index returns
above 20%, gains were particularly concentrated in a few large growth stocks
that had already become expensive when the year began.
Our value discipline steered us away from such stocks. Our return also was held
back by poor returns on our retailers, by our substantial cash holding over the
year, and by our relatively small participation in the high-performing
technology sector.
Despite our defensive cash holdings and a market that was unfavorable to our
investment style, our return was near the historical average for the S&P 500
Index.
- --------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Equity Portfolio1 -2.78% 9.34% 17.35% 16.88% 16.74%
- --------------------------------------------------------------------------------
Lipper (VIP) Growth Fund Avg.2 6.90% 24.94% 23.77% 20.25% 17.83%
- --------------------------------------------------------------------------------
S&P 500 Index3 9.24% 28.60% 28.23% 24.05% 19.19%
- --------------------------------------------------------------------------------
Equity Portfolio inception date: 5/13/83.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
[GRAPHIC]
$47,000 Equity $52,463 Lipper (VIP) $57,864 S&P
Portfolio1 Growth Fund Avg.2 500 Index3
---------- ----------------- ----------
"88" 10000 10000 10000
11542.7 11675.6 11652.2
"89" 12973 12942.3 13163.1
13028.2 13470 13568.4
"90" 12296.8 12302.8 12754
14827.8 14188.6 14568.6
"91" 15495.2 16705.1 16631.2
16518.9 16124.5 16519.4
"92" 17691.5 18090.1 17896.5
19933.5 19133.2 18767.1
"93" 21560.3 20600.9 19696.3
21144.7 19316.9 19029.9
"94" 22159.3 20273 19955.1
25834.3 24099.6 23983.2
"95" 29093 27161.6 27445
31220.7 29873.8 30213.9
"96" 34480.9 32834.2 33742.2
39054.4 37895.9 40692.2
"97" 42983.2 41709.2 44995.6
48343.3 48636.4 52969.7
"98" 46999.8 52463.4 57864
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) Growth Fund 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 Index 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 that 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.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
Investment Goal
Capital appreciation.
Types of Investments
Primarily stocks of major, established companies.
Investment Style
The Portfolio uses a "deep value" investment approach to invest in stocks
believed to be temporarily undervalued relative to the companies' sales,
earnings, book value and cash flow.
- --------------------------------------------------------------------------------
Performance Review.
Size Counted. Concerned about the impact of the Asian recession, investors
focused strongly on the largest growth companies. We avoided these stocks,
because they have been expensive for some time.
Retailers Were Mixed. In the retail industry, we held inexpensive stocks, such
as Dillards, Tandy and Toys R Us. They performed poorly, while popular stocks
such as Wal-Mart and Home Depot rose even farther.
Not Enough Tech. When Compaq bought Digital Equipment, we benefited both from
the sale and afterward from the return on the Compaq stock we acquired.
Nonetheless, our relatively small holdings in the technology sector constrained
our performance.
And Too Much Cash. Our average cash balance of about 14% held back our return.
However, we reduced our cash sharply over the year, acquiring some
bargain-priced stock after the market fell.
22
<PAGE>
Strategy Session.
We Are Disciplined Deep Value Investors. The S&P 500 Index has had an
unprecedented four successive years of gains above 20%. This year, these gains
were particularly concentrated in a few large growth stocks that had already
become expensive when the year began, but our value discipline steered us away
from such stocks--we avoid stocks that are priced well above the market average
for comparable earnings.
Over the long run, value stocks have performed quite well. However, there have
been other multi-year periods that favored growth stocks. The two investment
styles have alternated in superior performance, so we believe investors should
have exposure to both.
We Still Like Financial Companies. Morgan Stanley Dean Witter was among the
largest contributors to last year's return. We also liked financial firms that
were less favorably treated last year, as investors worried about emerging
market exposure and natural disaster damage claims. Loews, Chubb, Safeco and
Citi-group are among our larger holdings. Financial companies have been leaders
in applying technology to drive down costs and improve services while
consolidating to increase productivity.
Consumers Still Going Strong. Consumer spending has kept the U.S. economy strong
recently, when exports and investment flagged. Chrysler made a substantial
contribution to our 1998 return. We continue to have a focus on retailers and
housing-related firms.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
Thomas R. Jackson
Staying the Course.
"Value and growth investing styles historically have alternated in periods of
superior performance. The growth style has had the advantage for several years
now, bringing the differences in stock value to extraordinary levels. In 1998,
S&P 500 Index growth stocks rose more than 27 percentage points above the return
on S&P 500 value stocks. The entire Index, pulled up by large growth stocks,
returned 16 percentage points more than the average stock. That is the largest
discrepancy in 40 years. Chasing the strategy that worked last year is a
well-known investing fallacy. Portfolio managers do best over the long run when
they stick to one investment style. That's what we're doing--consistent value
investing so when the current imbalances correct themselves, we'll be there to
reap the rewards."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
Thomas R. Jackson
- --------------------------------------------------------------------------------
Portfolio Composition
as of 12/31/98
--------------
Financial Services 24.0%
Consumer Growth & Staples 18.0%
Industrial 16.4%
Consumer Cyclicals 11.5%
Technology 11.1%
Utilities 6.0%
Energy 4.8%
Cash 8.2%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of 12/31/98
--------------
Wellpoint Health 2.9%
Loews Corp. 2.8%
Morgan Stanley, Dean
Witter & Co. 2.7%
Compaq Computer 2.5%
Columbia HCA Healthcare 2.3%
Chubb Corp. 2.3%
Darden Restaurants 2.3%
Elf Aquitaine ADR 2.2%
Tenet Healthcare 2.1%
SAFECO Corp. 2.0%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
23
<PAGE>
Prudential
Prudential Jennison Portfolio
Performance Summary.
With the stock market rising strongly for the fourth straight year, your
Portfolio returned 37.46%, almost thirteen percentage points ahead of the 24.94%
Lipper (VIP) Growth Average and almost nine percentage points ahead of the
28.60% S&P 500 Index.
The largest contributors to your Portfolio's return in 1998 were technology,
financial services, pharmaceuticals and retail stocks. We had focused on these
sectors, which also were market favorites in 1998.
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, 1998
Six One Three Since
Months Year Years Inception*
- --------------------------------------------------------------------------------
Prudential Jennison Portfolio1 13.84% 37.46% 27.48% 29.60%
- --------------------------------------------------------------------------------
Lipper (VIP) Growth Avg.2 6.90% 24.94% 23.77% 25.38%
- --------------------------------------------------------------------------------
S&P 500 Index3 9.24% 28.60% 28.23% 29.32%
- --------------------------------------------------------------------------------
Prudential Jennison Portfolio inception date: 4/25/95.
- --------------------------------------------------------------------------------
$10,000 Invested Since Inception*
[GRAPHIC]
$26,002 Prudential $23,199 Lipper
Jennison Portfolio1 $25,671 S&P 500 Index3 (VIP) Growth Avg.2
------------------- ---------------------- ------------------
"5/95" 11275.7 10640.2 10782.2
12556.3 12176 12099.3
13494.4 13404.5 13363.1
"96" 14361.8 14969.8 14574.8
16801 18053.2 16697.9
"97" 18916.1 19962.4 18425.4
22840.8 23500.2 21538.6
"98" 26001.6 25671 23199.1
- --------------------------------------------------------------------------------
* Lipper provides data on a monthly basis, so for comparative purposes the
Lipper Average and Index since inception returns reflect the Portfolio's
closest calendar month-end performance of 4/30/95.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
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 Index 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 that 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.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
Investment Goal
Long-term growth of capital.
Types of Investments
Primarily common stocks of established companies with above-average growth
prospects.
Investment Style
The Portfolio uses a "growth" investment style to invest in the common stocks of
both mid-sized and large companies.
- --------------------------------------------------------------------------------
Performance Review.
Technology. Our technology stocks were the foundation of our strong performance,
led in large measure by the impact of the Internet on the demand for personal
computers, networking equipment and semiconductors.
Our fairly large positions in Cisco Systems, Microsoft and Oracle made strong
contributions.
Telecommunications services companies such as MCI WorldCom, Airtouch
Communications, and Qwest Communications were also helped by the explosion of
Internet traffic.
Financials. Financial companies were hurt in midyear by fears of exposure to
emerging markets, but our holdings bounced back, spurred by Federal Reserve cuts
in interest rates and the easing of the world financial crisis.
24
<PAGE>
Strategy Session.
Earnings Are Important. The pace of earnings growth for U.S. companies has been
dropping steadily over the past year. Investors have focused on companies that
continue to deliver rapid growth through the current difficulties.
If a wider range of companies resume rapid earnings growth, investor interest
may broaden and is likely then to favor stocks that are considerably less
expensive than today's market leaders.
We Have a Two-Pronged Strategy for This Environment. On the one-hand, we own
companies that are currently high-priced and rising, because of their strong
earnings: our drug companies, retail companies, some of our technology stocks
and telecommunications companies. We also own companies that are relatively
inexpensive now because they are in the early stages of what we believe will be
a profit recovery.
Our Largest Sectors. Technology, financial services, pharmaceuticals and
retailing remain our largest sectors. They should continue to benefit from lower
interest rates. Moreover, the health care and technology sectors are growing
strongly, while the retail sector is reducing its costs. The market's emphasis
on earnings should sustain its focus on these groups.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
David T. Poiesz
Price-sensitive Growth Investing.
"We buy the best growth companies we can find at prices that don't fully reflect
their future prospects. We aim at a portfolio that captures faster growth than
the market overall, but at an attractive price. We are watching the world
economic situation carefully with an eye on how it can affect the businesses of
specific companies. For example, we are trying to avoid excess exposure to banks
that may be affected by a Latin America slowdown."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
David T. Poiesz
- --------------------------------------------------------------------------------
Portfolio Composition
as of 12/31/98
--------------
Technology 33.4%
Financial Services 19.7%
Consumer Staples 18.7%
Health Care 12.0%
Intermediate Goods & Servs. 8.6%
Capital Spending 4.0%
Cash 3.6%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of 12/31/98
--------------
MCI WorldCom, Inc. 4.6%
Microsoft Corp. 3.2%
Home Depot, Inc. 3.0%
General Electric Co. 2.8%
Chase Manhattan Corp. 2.7%
Cisco Systems, Inc. 2.7%
Citigroup Inc. 2.5%
CBS Corp. 2.5%
Schering-Plough Corp. 2.4%
Oracle Corp. 2.4%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
25
<PAGE>
Prudential
Small Capitalization Stock Portfolio
Performance Summary.
Your Portfolio returned -0.76% in 1998 because of a deep market decline in the
second half of the year. The S&P SmallCap 600 Index, whose performance the
Portfolio is designed to mirror, returned -1.31% for the year.
Stock investors, concerned about the financial situation in emerging markets,
focused on large, growth-oriented stocks. The stocks of smaller companies did
not recover as rapidly in the market rebound at the end of the year. The gap
between large-cap and small-cap performance over the last three years is the
widest since World War II, generally making small-company stocks excellent
values. However, many large-company stocks are overvalued in today's market,
with prices reaching 60 to 70 times 1998 earnings.
Standard & Poor's neither sponsors nor endorses the Small Capitalization Stock
Portfolio. Investors cannot directly invest in any index, including the S&P
SmallCap 600 Index.
- --------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1998
Six One Three Since
Months Year Years Inception*
- --------------------------------------------------------------------------------
Small Capitalization Stock Portfolio1 -6.26% -0.76% 14.17% 17.04%
- --------------------------------------------------------------------------------
Lipper (VIP) Small Cap. Avg.2 -5.28% 1.48% 13.64% 16.61%
- --------------------------------------------------------------------------------
S&P SmallCap 600 Index3 -6.98% -1.31% 14.56% 17.83%
- --------------------------------------------------------------------------------
Small Capitalization Stock Portfolio inception date: 4/25/95.
- --------------------------------------------------------------------------------
$10,000 Invested Since Inception*
[GRAPHIC]
$17,814 Small Capitalization $17,803 Lipper (VIP) $18,251 S&P SmallCap
Stock Portfolio1 Small Cap Avg.2 600 Index3
---------------- --------------- ----------
"5/95" 10661.9 10638.2 10713.4
11973.8 11975.1 12138.4
"96" 13199.8 13650 13500.7
14341.3 14306.9 14726.1
15992.6 15555.7 16427.9
"97" 17950.8 17139.5 18493.6
19002.6 18442.6 19621.6
"98" 17813.5 17803.4 18251.2
- --------------------------------------------------------------------------------
* Lipper provides data on a monthly basis, so for comparative purposes the
Lipper Average and the Index since inception returns reflect the
Portfolio's closest calendar month-end performance of 4/30/95.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) Small Cap 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 SmallCap 600 Index is a capital-weighted index representing the
aggregate market value of the common equity of 600 small-company stocks.
The S&P SmallCap 600 Index is an unmanaged index that 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 SmallCap 600 Index is not the only index that may be
used to characterize performance of this Portfolio, and other indexes may
portray different comparative performance.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
Investment Goal
Seeks long-term growth of capital that corresponds to the price and yield
performance of the S&P SmallCap 600 Index.3
Types of Investments
Primarily stocks of the S&P SmallCap 600 Index.
Investment Style
The Portfolio attempts to hold stocks comprising the S&P SmallCap 600 Index in
approximately the same proportions. The S&P SmallCap 600 Index contains stocks
of small companies with market capitalizations generally less than $1.2 billion.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S&P SmallCap 600 Index--Total Return by Sector
as of 12/31/98
--------------
Utilities 12.8%
Basic Materials 5.0%
Transportation 4.4%
Health Care 3.2%
Technology 2.9%
Financial Services 2.0%
Consumer Cyclicals 0.2%
Consumer Staples -2.2%
Capital Goods -7.0%
Communication Services -25.8%
Energy -46.8%
S&P SmallCap 600 Index -1.3%
- --------------------------------------------------------------------------------
Source: Standard & Poor's.
26
<PAGE>
Performance Review.
The Small Capitalization Stock Portfolio attempts to hold the 600 stocks
included in the S&P SmallCap 600 Index and to duplicate its performance. These
are stocks of companies with an average market value of about $1 billion.
Such stocks are more volatile than the shares of large, more-established
companies. Portfolio manager Wai C. Chiang manages the Portfolio by investing
funds received while trying to minimize commission and transaction costs.
The Best-Performing Sectors. The utility sector was the Index's top performer of
1998, returning nearly13%. Electric and water companies were the best-performing
industries within that sector. The utility sector tends to hold up well in an
economic downturn, because its earnings growth is more stable than that of most
industries.
Basic materials, posting a modest 5% return, followed utilities as the Index's
next best performer. Within the sector, agricultural products and construction
performed well, while commodities and chemical companies lost ground.
The year was so difficult for small-company stocks that even the 4% return by
transportation stocks and the 3% return by both technology and health care
stocks were among the top-performing groups.
The Worst-Performing Sectors. Energy and communications services companies'
stocks fell the most over the year. The negative 47% return in the energy sector
was primarily due to the fall of oil prices to a 12-year low. Communications
services, represented in the Index by only two long-distance companies, lost
26%. The Index's largest sector, consumer cyclicals at 19.6%, had a flat return
of 0.2%.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
Wai C. Chiang
A Proven Long-term Approach.
"Your Portfolio is meeting its performance objective as an index fund for its
benchmark, the S&P SmallCap 600 Index. Although your Portfolio declined slightly
for the year, it performed better than the index it is designed to emulate. The
aim of your portfolio is to stay close to the performance of our asset class in
both rising and falling markets. This long-term strategy, short-term
fluctuations aside, has proven to be rewarding. Prior to this past year,
small-cap stocks had three consecutive years of returns above 20%. Over the past
three years, including 1998, your Portfolio has gained 48.77% after transaction
costs and management fees."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
Wai C. Chiang
- --------------------------------------------------------------------------------
S&P SmallCap 600 Index Composition
as of 12/31/98
--------------
Consumer Cyclicals 19.6%
Technology 16.5%
Financial Services 16.2%
Capital Goods 12.3%
Health Care 10.6%
Consumer Staples 9.6%
Utilities 4.7%
Basic Materials 4.5%
Transportation 3.2%
Energy 2.5%
Communication Services 0.3%
- --------------------------------------------------------------------------------
Source: Standard & Poor's. Holdings are subject to change.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of 12/31/98
--------------
Vitesse Semiconductor Corp. 0.9%
Sanmina Corp. 0.9%
Medimmune Inc. 0.7%
E*Trade Group, Inc. 0.7%
Astoria Financial Corp. 0.7%
Mohawk Ind. 0.7%
Acxiom Corp. 0.6%
Express Scripts 0.6%
Williams-Sonoma Inc. 0.6%
Comair Holdings Inc. 0.6%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
27
<PAGE>
Prudential
Global Portfolio
Performance Summary.
Your Portfolio returned 25.08% in 1998, almost nine percentage points above the
16.19% gain of the Lipper (VIP) Global Average. We had a substantial focus on
continental Europe, the best-performing region over our reporting period, and
our stocks there performed well.
We benefited from having very little invested in emerging markets, such as
eastern Europe, and relatively little in any Asian market. Our
large-capitalization U.S. growth stocks had above-average returns.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation, political and social risks and
illiquidity.
- --------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Global Portfolio1 4.81% 25.08% 17.01% 12.04% 10.90%
- --------------------------------------------------------------------------------
Lipper (VIP) Global Avg.2 0.60% 16.19% 15.50% 12.31% 11.04%
- --------------------------------------------------------------------------------
Morgan Stanley World Index3 6.80% 24.80% 18.25% 16.19% 11.21%
- --------------------------------------------------------------------------------
Global Portfolio inception date: 9/19/88.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
[GRAPHIC]
$28,940 Lipper (VIP) $28,938 Morgan Stanley
$28,128 Global Portfolio1 Global Avg.2 World Index3
------------------------- ------------ ------------
"88" 10000 10000 10000
10478.3 10622.3 10104.9
"89" 11882.4 12090.2 11719.4
11445.2 12456.4 10878.6
"90" 10348.6 11366.6 9783.61
10790.9 11971.5 10409.6
"91" 11526.8 13278.2 11639.3
11516.6 13468.6 10912.1
"92" 11132.5 13332.5 11096.9
12655.6 15133.3 12813.2
"93" 15935.1 17602.9 13663.5
15316.6 17212 14193
"94" 15156.5 17410.6 14426.2
16589 18521.2 15785.3
"95" 17563 19959.5 17501.3
19363.1 21635.6 18784
"96" 21021.7 23233.7 19950.8
23646.1 26246.9 23067.9
"97" 22488.3 26045.6 23188.3
26837 29540.8 27096.5
"98" 28127.9 28939.7 28937.8
- --------------------------------------------------------------------------------
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
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 that
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 indexes may portray different comparative
performance.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
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
The 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.
Europe and the U.S. We had a substantial focus on continental Europe, and this
region was the best-performing region in 1998. Except for about 7% of our assets
invested in Asia, our assets were invested in Europe and the United States,
where economies were growing the fastest.
Continental Banks. Our largest industry is banking. An Italian bank, Credito
Italiano, bounced back strongly and had an excellent annual return.
Technology. Our focus was on technology stocks, particularly telecommunications
services and equipment companies--such as Nokia, and Cisco Systems.
These companies served us well over the past year. Software companies, notably
the global giant Microsoft, also made large contributions to our strong annual
performance.
28
<PAGE>
Strategy Session.
Location: Europe. We have allocated almost half of our assets to Europe and more
than a third to the United States. We believe currency unification in Europe
will boost their markets. In addition to introducing a strong incentive to
improve productivity and growth, it should reduce trade and financing costs. It
also is improving consumer morale.
Europe is seeing many private companies restructure to improve their
productivity and governments selling businesses they own. Simultaneously, low
interest rates and new bank-managed mutual funds are attracting savings to the
stock market. As in the U.S. a decade ago, these trends are good for stock
prices.
The global economic picture is too uncertain to give us confidence in the growth
prospects of companies based in emerging markets. We are waiting for more
stability before we increase our investments there.
Industries: For some time, we have liked the telecommunications
industry--including Nokia and Vodafone--and the financial services industry in
Europe. European bank stocks were hurt during the summer panic about exposure to
the debt of emerging market countries, including Russia. Most of our bank
holdings had little or no exposure, but even these stocks declined. They bounced
back as investors recovered their perspective.
The United States. In recent years, our Portfolio has had significantly less
U.S. investment than the size of the U.S. stock market would warrant, because
large growth stocks in the U.S. stock market have been relatively expensive.
Since the economic crisis in emerging markets, however, we own more in the U.S.
than we usually would because economic growth is most secure at home. Our
domestic stocks include Safeway, Microsoft, Time Warner and PMC--Sierra, all of
which have been performing well.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGERS
Daniel J. Duane, Ingrid Holm, Michelle Picker
Still Cautious.
"Investors' reaction to Brazil's devaluation shows that they are still reacting
strongly to any threat to economic growth. Stocks whose earnings depend on
expanding economies (cyclicals) or to emerging markets tended to drop sharply.
We prefer companies that have great growth prospects within Europe or the United
States. Certain basic services, such as communications and banking, are changing
dramatically, whatever happens to the global economy. We try to benefit from
those trends."
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
[PHOTO]
Daniel J. Duane
[PHOTO]
Ingrid Holm
[PHOTO]
Michelle Picker
- --------------------------------------------------------------------------------
Geographic Allocation
as of 12/31/98
--------------
United States 39.0%
Continental Europe 37.2%
United Kingdom 10.4%
Japan 5.2%
Australia 1.4%
Cash 6.8%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of 12/31/98
--------------
Vodafone Group, PLC 3.5%
Nokia Corp. 3.4%
Safeway, Inc. 3.4%
Credito Italiano 3.4%
Time Warner, Inc. 3.1%
Bank of Ireland 2.4%
Telefonica de Espana 2.4%
Texas Instruments, Inc. 2.2%
Microsoft Corp. 2.2%
PMC--Sierra, Inc. 2.2%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
29
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments (amortized cost $900,703,505).. $ 900,703,505
Cash....................................... 9,189
Receivable for capital stock sold.......... 13,716,886
Interest receivable........................ 7,056,910
--------------
Total Assets............................. 921,486,490
--------------
LIABILITIES
Payable to investment adviser.............. 912,487
Payable for capital stock repurchased...... 305,381
Accrued expenses........................... 76,634
--------------
Total Liabilities........................ 1,294,502
--------------
NET ASSETS................................... $ 920,191,988
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 920,192
Paid-in capital, in excess of par........ 919,271,796
--------------
Net assets, December 31, 1998.............. $ 920,191,988
==============
Net asset value and redemption price per
share, 92,019,199 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 10.00
==============
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Interest................................... $ 45,708,673
---------------
EXPENSES
Investment advisory fee.................... 3,246,494
Accounting fees............................ 55,000
Shareholders' reports...................... 50,000
Audit fees and expenses.................... 8,500
Custodian expense.......................... 4,000
Directors' fees............................ 3,000
Legal fees................................. 800
Miscellaneous expenses..................... 4,800
---------------
Total expenses........................... 3,372,594
Less: custodian fee credit................. (7,309)
---------------
Net expenses............................. 3,365,285
---------------
NET INVESTMENT INCOME...................... 42,343,388
NET REALIZED GAIN ON INVESTMENTS............. 16,489
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 42,359,877
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 42,343,388 $ 35,214,538
Net realized gain on investments....................................................... 16,489 13,511
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 42,359,877 35,228,049
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (42,343,388) (35,214,538)
Distributions from net realized capital gains.......................................... (16,489) (13,511)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (42,359,877) (35,228,049)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [76,618,642 and 22,888,771 shares, respectively].................... 766,186,419 228,887,710
Capital stock issued in reinvestment of dividends and distributions [4,235,988 and
3,522,805 shares, respectively]....................................................... 42,359,877 35,228,049
Capital stock repurchased [(54,581,645) and (27,542,174) shares, respectively]......... (545,816,448) (275,421,740)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. 262,729,848 (11,305,981)
------------------ -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. 262,729,848 (11,305,981)
NET ASSETS:
Beginning of year...................................................................... 657,462,140 668,768,121
------------------ -------------------
End of year............................................................................ $ 920,191,988 $ 657,462,140
================== ===================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
DIVERSIFIED BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS
Investments, at value (cost:
$1,093,359,976).......................... $1,107,781,086
Cash....................................... 384
Interest receivable........................ 15,816,923
Receivable for capital stock sold.......... 556,662
--------------
Total Assets............................. 1,124,155,055
--------------
LIABILITIES
Payable to investment adviser.............. 1,074,849
Payable for capital stock sold............. 398,036
Accrued expenses........................... 108,467
--------------
Total Liabilities........................ 1,581,352
--------------
NET ASSETS................................... $1,122,573,703
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,015,413
Paid-in capital, in excess of par........ 1,105,810,493
--------------
1,106,825,906
Accumulated net realized gains on
investments.............................. 1,326,687
Net unrealized appreciation on
investments.............................. 14,421,110
--------------
Net assets, December 31, 1998.............. $1,122,573,703
==============
Net asset value and redemption price per
share, 101,541,324 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 11.06
==============
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Interest................................... $ 64,715,464
---------------
EXPENSES
Investment advisory fee.................... 3,782,116
Accounting fees............................ 86,000
Shareholders' reports...................... 85,000
Custodian expense.......................... 38,000
Audit fees................................. 12,000
Legal fees and expenses.................... 4,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 5,700
---------------
Total expenses........................... 4,015,816
Less custodian fee credit.................. (11,022)
---------------
Net expenses............................. 4,004,794
---------------
NET INVESTMENT INCOME........................ 60,710,670
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 2,828,534
Futures.................................. (1,344,416)
---------------
1,484,118
---------------
Net change in unrealized appreciation on:
Investments.............................. 1,774,509
Futures contracts........................ 463,469
---------------
2,237,978
---------------
NET GAIN ON INVESTMENTS...................... 3,722,096
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 64,432,766
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 60,710,670 $ 53,531,495
Net realized gain on investments....................................................... 1,484,118 9,194,921
Net change in unrealized appreciation (depreciation) on investments.................... 2,237,978 (2,230,780)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 64,432,766 60,495,636
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (60,939,829) (55,359,529)
Distributions from net realized capital gains.......................................... (3,466,261) (9,016,752)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (64,406,090) (64,376,281)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [29,994,210 and 11,468,488 shares, respectively].................... 334,707,738 127,691,138
Capital stock issued in investment of dividends and distributions [5,809,428 and
5,812,573 shares, respectively]....................................................... 64,406,090 64,376,281
Capital stock repurchased [(8,361,173) and (8,269,292) shares, respectively]........... (93,273,532) (91,696,624)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS..................... 305,840,296 100,370,795
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 305,866,972 96,490,150
NET ASSETS:
Beginning of year...................................................................... 816,706,731 720,216,581
------------------ -------------------
End of year(a)......................................................................... $ 1,122,573,703 $ 816,706,731
================== ===================
(a) Includes undistributed net investment income of:................................... $ -- $ 229,159
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
HIGH YIELD BOND PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$854,146,463)............................ $ 774,702,884
Cash....................................... 584
Interest and dividends receivable.......... 16,618,373
Receivable for investments sold............ 227,009
--------------
Total Assets............................. 791,548,850
--------------
LIABILITIES
Payable to investment adviser.............. 1,042,407
Payable for investments purchased.......... 814,187
Payable for capital stock repurchased...... 293,998
Accrued expenses........................... 77,287
--------------
Total Liabilities........................ 2,227,879
--------------
NET ASSETS................................... $ 789,320,971
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,095,439
Paid-in capital, in excess of par........ 873,911,034
--------------
875,006,473
Undistributed net investment income........ 2,179,668
Accumulated net realized loss on
investments.............................. (8,421,591)
Net unrealized depreciation on
investments.............................. (79,443,579)
--------------
Net assets, December 31, 1998.............. $ 789,320,971
==============
Net asset value and redemption price per
share, 109,543,936 outstanding shares of
common stock (authorized 125,000,000
shares).................................. $ 7.21
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Interest................................... $ 69,885,220
Dividends.................................. 5,241,487
---------------
75,126,707
---------------
EXPENSES
Investment advisory fee.................... 3,782,134
Accounting fees............................ 145,000
Shareholders' reports...................... 70,000
Custodian expense.......................... 12,000
Audit fees................................. 9,000
Directors' fees............................ 3,000
Legal fees................................. 1,000
Miscellaneous expenses..................... 5,200
---------------
Total expenses........................... 4,027,334
Less: custodian fee credit................. (60,989)
---------------
Net expenses............................. 3,966,345
---------------
NET INVESTMENT INCOME........................ 71,160,362
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on investments........... (2,031,112)
Net change in unrealized depreciation on
investments.............................. (90,371,730)
---------------
NET LOSS ON INVESTMENTS...................... (92,402,842)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (21,242,480)
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 71,160,362 $ 47,675,767
Net realized gain (loss) on investments................................................ (2,031,112) 15,354,840
Net change in unrealized depreciation on investments................................... (90,371,730) (144,633)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (21,242,480) 62,885,974
------------------ -------------------
DIVIDENDS
Dividends from net investment income................................................... (69,715,948) (47,277,841)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [42,524,544 and 18,324,520 shares, respectively].................... 336,104,252 149,154,244
Capital stock issued in reinvestment of dividends and distributions [9,210,712 and
5,847,594 shares, respectively]....................................................... 69,715,948 47,277,841
Capital stock repurchased [(12,010,426) and (9,372,701) shares, respectively].......... (94,215,879) (76,232,015)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 311,604,321 120,200,070
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 220,645,893 135,808,203
NET ASSETS:
Beginning of year...................................................................... 568,675,078 432,866,875
------------------ -------------------
End of year (a)........................................................................ $ 789,320,971 $ 568,675,078
================== ===================
(a) Includes undistributed net investment income of:................................... $ 2,179,668 $ 735,254
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
STOCK INDEX PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$1,918,971,738).......................... $3,544,514,168
Cash....................................... 509
Receivable for capital stock sold.......... 6,715,386
Interest and dividends receivable.......... 3,677,152
Receivable for investments sold............ 551,105
Due from broker -- variation margin........ 246,890
--------------
Total Assets............................. 3,555,705,210
--------------
LIABILITIES
Payable for investments purchased.......... 3,914,541
Payable to investment adviser.............. 2,807,611
Payable for capital stock repurchased...... 630,555
Accrued expenses........................... 263,513
--------------
Total Liabilities........................ 7,616,220
--------------
NET ASSETS................................... $3,548,088,990
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 940,173
Paid-in capital, in excess of par........ 1,907,227,882
--------------
1,908,168,055
Accumulated net realized gain on
investments.............................. 9,773,130
Net unrealized appreciation on
investments.............................. 1,630,147,805
--------------
Net assets, December 31, 1998.............. $3,548,088,990
==============
Net asset value and redemption price per
share, 94,017,271 outstanding shares of
common stock (authorized 125,000,000
shares).................................. $ 37.74
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $250,942 foreign
withholding tax)......................... $ 42,313,155
Interest................................... 5,376,488
---------------
47,689,643
---------------
EXPENSES
Investment advisory fee.................... 10,279,903
Shareholders' reports...................... 335,000
Custodian expense.......................... 142,000
Accounting fees............................ 107,000
Audit fees and expenses.................... 40,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 14,000
---------------
Total expenses........................... 10,920,903
Less: custodian fee credit................. (2,914)
---------------
Net expenses............................. 10,917,989
---------------
NET INVESTMENT INCOME........................ 36,771,654
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 52,786,455
Futures contracts........................ 4,678,758
---------------
57,465,213
---------------
Net change in unrealized appreciation on:
Investments.............................. 640,594,646
Futures contracts........................ 4,097,025
---------------
644,691,671
---------------
NET GAIN ON INVESTMENTS...................... 702,156,884
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 738,928,538
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 36,771,654 $ 31,459,576
Net realized gain on investments....................................................... 57,465,213 74,021,385
Net change in unrealized appreciation on investments................................... 644,691,671 451,562,975
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 738,928,538 557,043,936
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (37,075,916) (31,155,314)
Distributions from net realized capital gains.......................................... (53,566,202) (67,389,823)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (90,642,118) (98,545,137)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [21,945,962 and 17,248,797 shares, respectively].................... 739,810,425 484,303,403
Capital stock issued in reinvestment of dividends and distributions [2,541,175 and
3,309,920 shares, respectively]....................................................... 90,642,118 98,545,137
Capital stock repurchased [(11,483,263) and (6,144,732) shares, respectively].......... (378,841,199) (174,536,420)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 451,611,344 408,312,120
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 1,099,897,764 866,810,919
NET ASSETS:
Beginning of year...................................................................... 2,448,191,226 1,581,380,307
------------------ -------------------
End of year (a)........................................................................ $ 3,548,088,990 $ 2,448,191,226
================== ===================
(a) Includes undistributed net investment income of:................................... $ -- $ 304,262
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY INCOME PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$1,945,300,102).......................... $2,185,867,351
Cash....................................... 5,397
Interest and dividends receivable.......... 6,371,174
Receivable for investments sold............ 3,349,741
Receivable for capital stock sold.......... 162,523
Receivable for securities lending, net..... 5,590
--------------
Total Assets............................. 2,195,761,776
--------------
LIABILITIES
Collateral for securities on loan.......... 49,079,500
Payable to investment adviser.............. 2,120,498
Payable for capital stock repurchased...... 2,050,465
Accrued expenses........................... 190,498
--------------
Total Liabilities........................ 53,440,961
--------------
NET ASSETS................................... $2,142,320,815
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,069,398
Paid-in capital, in excess of par........ 1,863,673,204
--------------
1,864,742,602
Undistributed net investment income........ 1,987,561
Accumulated net realized gains on
investments.............................. 35,023,403
Net unrealized appreciation on
investments.............................. 240,567,249
--------------
Net assets, December 31, 1998.............. $2,142,320,815
==============
Net asset value and redemption price per
share, 106,939,774 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 20.03
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $907,584 foreign
withholding tax)......................... $ 60,602,958
Interest................................... 4,893,474
Income from securities loaned, net......... 14,493
---------------
65,510,925
---------------
EXPENSES
Investment advisory fee.................... 8,830,161
Shareholders' reports...................... 222,000
Custodian expense.......................... 110,000
Accounting fees............................ 100,000
Audit fees................................. 26,300
Directors' fees............................ 3,000
Legal fees................................. 100
Miscellaneous expenses..................... 11,800
---------------
Total expenses........................... 9,303,361
Less: custodian fee credit................. (4,923)
---------------
Net expenses............................. 9,298,438
---------------
NET INVESTMENT INCOME........................ 56,212,487
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 129,490,381
Net change in unrealized appreciation on
investments.............................. (258,928,963)
---------------
NET LOSS ON INVESTMENTS...................... (129,438,582)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (73,226,095)
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 56,212,487 $ 47,850,376
Net realized gain on investments....................................................... 129,490,381 209,283,667
Net change in unrealized appreciation on investments................................... (258,928,963) 251,369,014
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (73,226,095) 508,503,057
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (58,670,537) (43,537,704)
Distributions from net realized capital gains.......................................... (129,895,659) (179,961,221)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (188,566,196) (223,498,925)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [17,968,538 and 11,266,195 shares, respectively].................... 414,994,376 253,831,217
Capital stock issued in reinvestment of dividends and distributions [8,899,832 and
10,153,692 shares, respectively]...................................................... 188,566,196 223,498,925
Capital stock repurchased [(10,593,789) and (4,416,916) shares, respectively].......... (229,203,355) (96,053,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 374,357,217 381,277,142
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 112,564,926 666,281,274
NET ASSETS:
Beginning of year...................................................................... 2,029,755,889 1,363,474,615
------------------ -------------------
End of year (a)........................................................................ $ 2,142,320,815 $ 2,029,755,889
================== ===================
(a) Includes undistributed net investment income of:................................... $ 1,987,561 $ 4,445,611
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$4,767,976,521).......................... $6,250,695,797
Interest and dividends receivable.......... 12,414,416
Receivable for capital stock sold.......... 128,574
--------------
Total Assets............................. 6,263,238,787
--------------
LIABILITIES
Bank overdraft............................. 319
Payable for capital stock repurchased...... 8,881,940
Payable to investment adviser.............. 6,806,202
Accrued expenses........................... 503,692
--------------
Total Liabilities........................ 16,192,153
--------------
NET ASSETS................................... $6,247,046,634
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,107,865
Paid-in capital, in excess of par........ 4,649,464,292
--------------
4,651,572,157
Undistributed net investment income........ 109,952
Accumulated net realized gains on
investments.............................. 112,645,380
Net unrealized appreciation on investments
and foreign currencies................... 1,482,719,145
--------------
Net assets, December 31, 1998.............. $6,247,046,634
==============
Net asset value and redemption price per
share, 210,786,528 outstanding shares of
common stock (authorized 250,000,000
shares).................................. $ 29.64
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $1,413,190 foreign
withholding tax)......................... $ 92,432,542
Interest................................... 51,526,104
---------------
143,958,646
---------------
EXPENSES
Investment advisory fee.................... 28,389,539
Shareholders' reports...................... 492,000
Custodian expense.......................... 380,000
Accounting fees............................ 122,000
Audit fees and expenses.................... 85,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 30,800
---------------
Total expenses........................... 29,502,339
Less: custodian fee credit................. (23,575)
---------------
Net expenses............................. 29,478,764
---------------
NET INVESTMENT INCOME........................ 114,479,882
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on:
Investments.............................. 766,376,440
Foreign currencies....................... 105,151
---------------
766,481,591
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. (344,088,795)
Foreign currencies....................... 13,886
---------------
(344,074,909)
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 422,406,682
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 536,886,564
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 114,479,882 $ 125,326,195
Net realized gain on investments and foreign currencies................................ 766,481,591 320,958,795
Net change in unrealized appreciation (depreciation) on investments and foreign
currencies............................................................................ (344,074,909) 744,788,889
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 536,886,564 1,191,073,879
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (115,394,083) (127,895,464)
Distributions from net realized capital gains.......................................... (684,800,016) (322,171,256)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (800,194,099) (450,066,720)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [12,676,785 and 12,471,611 shares, respectively].................... 418,548,498 381,942,219
Capital stock issued in reinvestment of dividends and distributions [27,106,415 and
14,665,432 shares, respectively]...................................................... 800,194,099 450,066,720
Capital stock repurchased [(22,886,073) and (11,771,942) shares, respectively]......... (732,368,459) (363,005,143)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 486,374,138 469,003,796
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 223,066,603 1,210,010,955
NET ASSETS:
Beginning of year...................................................................... 6,023,980,031 4,813,969,076
------------------ -------------------
End of year (a)........................................................................ $ 6,247,046,634 $ 6,023,980,031
================== ===================
(a) Includes undistributed net investment income of:................................... $ 109,952 $ 919,002
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL JENNISON PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$886,742,260)............................ $1,204,377,523
Receivable for capital stock sold.......... 2,113,426
Receivable for investments sold............ 1,677,844
Interest and dividends receivable.......... 517,449
--------------
Total Assets............................. 1,208,686,242
--------------
LIABILITIES
Payable for investments purchased.......... 1,812,726
Payable to investment adviser.............. 1,459,546
Accrued expenses........................... 96,554
Payable for capital stock repurchased...... 6,588,081
--------------
Total Liabilities........................ 9,956,907
--------------
NET ASSETS................................... $1,198,729,335
==============
Net assets were comprised of:
Common stock, at $.01 par value.......... $ 501,398
Paid-in capital, in excess of par........ 870,373,753
--------------
870,875,151
Accumulated net realized gains on
investments.............................. 10,218,921
Net unrealized appreciation on
investments.............................. 317,635,263
--------------
Net assets, December 31, 1998.............. $1,198,729,335
==============
Net asset value and redemption price per
share, 50,139,795 outstanding shares of
common stock (authorized 75,000,000
shares).................................. $ 23.91
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $38,690 foreign
withholding tax)......................... $ 5,032,093
Interest................................... 1,399,831
---------------
6,431,924
---------------
EXPENSES
Investment advisory fee.................... 4,662,187
Shareholders' reports...................... 125,000
Accounting fees............................ 81,000
Custodian expense.......................... 20,000
Audit fees and expenses.................... 14,000
Directors' fees............................ 3,000
Legal fees................................. 1,000
Miscellaneous expenses..................... 5,200
---------------
Total expenses........................... 4,911,387
Less: custodian fee credit................. (7,533)
---------------
Net expenses............................. 4,903,854
---------------
NET INVESTMENT INCOME........................ 1,528,070
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 24,429,896
Net change in unrealized appreciation on
investments.............................. 237,742,766
---------------
NET GAIN ON INVESTMENTS...................... 262,172,662
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 263,700,732
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 1,528,070 $ 871,876
Net realized gain on investments....................................................... 24,429,896 33,000,406
Net change in unrealized appreciation on investments................................... 237,742,766 54,234,653
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 263,700,732 88,106,935
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (1,629,850) (832,883)
Distributions from net realized capital gains.......................................... (17,069,906) (27,048,964)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (18,699,756) (27,881,847)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [30,113,536 and 12,593,772 shares, respectively].................... 619,908,140 218,245,522
Capital stock issued in reinvestment of dividends and distributions [849,914 and
1,607,079 shares, respectively]....................................................... 18,699,756 27,881,847
Capital stock repurchased [(8,792,029) and (1,044,246) shares, respectively]........... (180,816,656) (17,547,320)
Initial capitalization repurchased [-0- and (1,004,760) shares, respectively].......... -- (19,411,166)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 457,791,240 209,168,883
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 702,792,216 269,393,971
NET ASSETS:
Beginning of year...................................................................... 495,937,119 226,543,148
------------------ -------------------
End of year(a)......................................................................... $ 1,198,729,335 $ 495,937,119
================== ===================
(a) Includes undistributed net investment income of:................................... $ -- $ 101,780
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
SMALL CAPITALIZATION STOCK PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$345,829,551)............................ $ 359,367,407
Cash....................................... 4,712
Receivable for capital stock sold.......... 685,591
Due from broker -- variation margin........ 613,350
Interest and dividends receivable.......... 203,638
--------------
Total Assets............................. 360,874,698
--------------
LIABILITIES
Payable to investment adviser.............. 310,730
Accrued expenses........................... 162,126
Payable for capital stock repurchased...... 12,131
Payable for investments purchased.......... 4,073
--------------
Total Liabilities........................ 489,060
--------------
NET ASSETS................................... $ 360,385,638
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 244,980
Paid-in capital, in excess of par........ 340,517,863
--------------
340,762,843
Accumulated net realized gains on
investments.............................. 4,054,989
Net unrealized appreciation on
investments.............................. 15,567,806
--------------
Net assets, December 31, 1998.............. $ 360,385,638
==============
Net asset value and redemption price per
share, 24,498,003 outstanding shares of
common stock (authorized 50,000,000
shares).................................. $ 14.71
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $719 foreign withholding
tax)..................................... $ 2,484,688
Interest................................... 750,247
---------------
3,234,935
---------------
EXPENSES
Investment advisory fee.................... 1,243,051
Accounting fees............................ 140,000
Shareholders' reports...................... 44,000
Custodian expense.......................... 10,000
Audit fees................................. 4,000
Directors' fees............................ 3,000
Legal fees................................. 1,000
Miscellaneous expenses..................... 30,401
---------------
Total expenses........................... 1,475,452
Less: custodian fee credit................. (4,956)
---------------
Net expenses............................. 1,470,496
---------------
NET INVESTMENT INCOME........................ 1,764,439
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments.............................. 21,360,757
Futures contracts........................ 1,513,163
---------------
22,873,920
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. (26,519,869)
Futures contracts........................ 1,702,000
---------------
(24,817,869)
---------------
NET LOSS ON INVESTMENTS...................... (1,943,949)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (179,510)
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 1,764,439 $ 1,507,646
Net realized gain on investments....................................................... 22,873,920 21,586,971
Net change in unrealized appreciation (depreciation) on investments.................... (24,817,869) 25,139,005
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (179,510) 48,233,622
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (1,831,259) (1,440,826)
Distributions from net realized capital gains.......................................... (21,572,922) (19,469,768)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (23,404,181) (20,910,594)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [7,528,693 and 8,135,914 shares, respectively]...................... 113,481,559 128,260,999
Capital stock issued in reinvestment of dividends and distributions [1,637,984 and
1,354,381 shares, respectively]....................................................... 23,404,181 20,910,594
Capital stock repurchased [(2,891,548) and (941,823) shares, respectively]............. (43,226,325) (15,480,999)
Initial capitalization repurchased [-0- and (1,049,184) shares, respectively].......... -- (18,602,031)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 93,659,415 115,088,563
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 70,075,724 142,411,591
NET ASSETS:
Beginning of year...................................................................... 290,309,914 147,898,323
------------------ -------------------
End of year (a)........................................................................ $ 360,385,638 $ 290,309,914
================== ===================
(a) Includes undistributed net investment income of:................................... $ -- $ 66,820
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GLOBAL PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$589,592,454)............................ $ 831,023,491
Foreign currency, at value (cost:
$17,499,873)............................. 17,371,833
Receivable for investments sold............ 4,254,046
Dividends and interest receivable.......... 552,684
Receivable for capital stock sold.......... 40,732
--------------
Total Assets............................. 853,242,786
--------------
LIABILITIES
Forward currency contracts -- amount
payable to counterparties................ 3,828,254
Payable for investments purchased.......... 2,897,332
Payable to investment adviser.............. 1,418,703
Payable for capital stock repurchased...... 327,774
Accrued expenses and other liabilities..... 226,668
Bank overdraft............................. 2,096
--------------
Total Liabilities........................ 8,700,827
--------------
NET ASSETS................................... $ 844,541,959
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 399,149
Paid-in capital, in excess of par........ 610,100,715
--------------
610,499,864
Distributions in excess of net investment
income................................... (8,644,128)
Accumulated net realized gains on
investments.............................. 5,209,641
Net unrealized appreciation on investments
and foreign currencies................... 237,476,582
--------------
Net assets, December 31, 1998.............. $ 844,541,959
==============
Net asset value and redemption price per
share of 39,914,867 outstanding shares of
common stock (authorized 75,000,000
shares).................................. $ 21.16
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $541,282 foreign
withholding tax)......................... $ 6,673,826
Interest................................... 1,452,097
---------------
8,125,923
---------------
EXPENSES
Investment advisory fee.................... 5,342,945
Custodian expense.......................... 446,000
Accounting fees............................ 244,000
Shareholders' reports...................... 37,000
Audit fees and expenses.................... 6,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 3,761
---------------
Total expenses........................... 6,082,706
---------------
NET INVESTMENT INCOME........................ 2,043,217
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on:......................
Investments.............................. 40,877,802
Foreign currencies....................... 219,287
---------------
41,097,089
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 125,305,318
Foreign currencies....................... (4,159,978)
---------------
121,145,340
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 162,242,429
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 164,285,646
===============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 2,043,217 $ 3,060,617
Net realized gain on investments and foreign currencies................................ 41,097,089 31,027,057
Net change in unrealized appreciation on investments and foreign currencies............ 121,145,340 5,107,643
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 164,285,646 39,195,317
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (5,559,015) (4,377,947)
Distributions in excess of net investment income....................................... (4,481,373) (3,434,778)
Distributions from net realized capital gains.......................................... (35,181,433) (30,337,530)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (45,221,821) (38,150,255)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [9,626,530 and 5,853,862 shares, respectively]...................... 191,039,953 111,692,563
Capital stock issued in reinvestment of dividends and distributions [2,231,010 and
2,115,902 shares, respectively]....................................................... 45,221,821 38,150,255
Capital stock repurchased [(7,562,638) and (4,869,453) shares, respectively]........... (149,184,992) (93,116,567)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 87,076,782 56,726,251
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 206,140,607 57,771,313
NET ASSETS:
Beginning of year...................................................................... 638,401,352 580,630,039
------------------ -------------------
End of year (a)........................................................................ $ 844,541,959 $ 638,401,352
================== ===================
(a) Includes undistributed net investment income of:................................... $ -- $ 3,515,798
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<S> <C> <C> <C> <C>
BANK NOTES -- 6.0%
FCC National Bank (a)........................... 5.19% 01/15/99 $ 5,000 $ 5,000,000
Key Bank, N.A. (a).............................. 5.33% 01/13/99 1,000 1,000,018
Key Bank, N.A. (a).............................. 4.67% 01/29/99 3,000 2,999,878
Key Bank, N.A. (a).............................. 4.65% 03/18/99 9,000 8,998,914
Nationsbank Corp. (a)........................... 5.05% 02/16/99 29,000 29,000,000
Nationsbank Corp. (a)........................... 5.27% 07/01/99 8,000 7,997,416
--------------
54,996,226
--------------
CERTIFICATE OF DEPOSIT-DOMESTIC -- 3.3%
Chase Manhattan Bank (U.S.A.) Delaware.......... 5.25% 02/08/99 30,000 30,000,000
--------------
30,000,000
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 21.0%
Abbey National Treasury Services, PLC........... 5.25% 01/20/99 25,000 25,000,000
Barclays Bank PLC............................... 5.56% 02/25/99 5,000 4,999,566
Barclays Bank PLC (a)........................... 5.49% 06/02/99 21,000 20,993,088
Bayerische Hypo Und Wechsel Bank................ 5.68% 03/03/99 3,000 2,999,784
Bayerische Landesbank Girozentrale (a).......... 5.09% 03/23/99 20,000 19,996,337
Bayerische Landesbank Girozentrale (a).......... 5.49% 06/30/99 20,000 19,992,110
Canadian Imperial Bank of Commerce.............. 5.55% 2/10/99 15,000 14,999,211
Canadian Imperial Bank of Commerce.............. 5.69% 3/10/99 7,000 6,999,066
Canadian Imperial Bank of Commerce.............. 5.71% 3/30/99 4,000 3,999,123
Commerzbank, AG................................. 5.67% 03/05/99 4,000 4,001,966
Credit Agricole Indosuez........................ 5.74% 04/26/99 3,000 2,999,457
Deutsche Bank................................... 5.55% 02/25/99 10,000 9,999,278
Deutsche Bank................................... 5.66% 03/03/99 5,000 4,999,600
Deutsche Bank................................... 5.64% 03/22/99 5,000 4,999,370
Rabobank Nederland.............................. 5.50% 02/09/99 13,000 12,998,934
Royal Bank of Canada (a)........................ 5.47% 08/06/99 14,000 13,994,339
Swiss Bank Corp................................. 5.74% 06/11/99 20,000 19,994,931
--------------
193,966,161
--------------
COMMERCIAL PAPER -- 45.5%
Aetna Services, Inc............................. 5.50% 01/15/99 4,000 3,991,444
American General Finance Corp................... 5.22% 02/17/99 6,000 5,959,110
American Honda Finance Corp..................... 5.25% 02/10/99 2,852 2,835,363
American Honda Finance Corp..................... 5.27% 02/11/99 27,366 27,201,751
Aon Corp........................................ 5.30% 02/23/99 3,000 2,976,592
Aon Corp........................................ 5.28% 02/26/99 16,000 15,868,587
Aristar, Inc.................................... 5.25% 02/05/99 7,194 7,157,281
Association Corp. of North America.............. 5.03% 02/02/99 24,020 23,912,604
Association Corp. of North America.............. 5.05% 02/10/99 12,955 12,882,308
Association Corp. of North America.............. 5.11% 03/09/99 5,000 4,952,449
Bank of Montreal................................ 5.12% 2/18/99 10,000 9,931,707
Bank of New York Co., Inc....................... 5.10% 01/14/99 3,000 2,994,475
BBL North America............................... 5.33% 01/29/99 15,000 14,937,817
Bradford & Bingley Building Society............. 5.20% 02/02/99 23,257 23,149,501
Centric Capital Corp............................ 5.35% 01/27/99 2,100 2,091,886
Centric Capital Corp............................ 5.20% 03/02/99 3,398 3,368,551
Chrysler Financial Corp......................... 5.09% 01/29/99 32,000 31,873,316
Cregem North America............................ 4.90% 03/29/99 15,000 14,822,375
Falcon Asset Securitization Corp................ 5.43% 02/17/99 4,000 3,971,643
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
MONEY MARKET PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<S> <C> <C> <C> <C>
Ford Motor Credit Corp.......................... 5.40% 01/14/99 $ 10,000 $ 10,000,000
Ford Motor Credit Corp.......................... 5.20% 02/19/99 2,000 1,985,844
General Electric Capital Corp................... 5.10% 02/19/99 15,000 14,895,875
General Motors Acceptance Corp.................. 5.19% 01/26/99 5,000 4,981,979
General Motors Acceptance Corp.................. 5.06% 01/29/99 20,000 19,921,289
General Motors Acceptance Corp.................. 5.12% 03/19/99 9,000 8,901,440
Monte Rosa Capital Corp......................... 5.40% 01/29/99 2,531 2,520,370
Monte Rosa Capital Corp......................... 5.46% 02/19/99 19,000 18,858,798
Monte Rosa Capital Corp......................... 5.30% 02/22/99 6,530 6,480,009
Nationwide Building Society..................... 5.06% 03/01/99 3,000 2,975,122
Nationwide Building Society..................... 5.11% 03/09/99 2,000 1,980,979
Norwest Financial, Inc.......................... 5.23% 03/04/99 5,000 4,954,964
Old Line Funding Corp........................... 5.40% 01/14/99 10,000 9,980,500
Old Line Funding Corp........................... 5.37% 01/29/99 4,000 3,983,293
Old Line Funding Corp........................... 5.40% 02/25/99 6,000 5,950,500
Petrofina Delaware, Inc......................... 5.05% 01/29/99 8,220 8,187,714
PNC Funding Corp................................ 5.20% 02/22/99 1,000 992,489
Preferred Receivables Funding Corp.............. 5.40% 02/16/99 2,000 1,986,200
Salomon Smith Barney Holdings, Inc.............. 5.31% 02/16/99 17,048 16,932,329
Toronto Dominion Holdings....................... 4.90% 06/08/99 10,000 9,784,944
UBS Finance (Delaware).......................... 5.22% 01/15/99 10,000 9,979,704
UBS Finance (Delaware).......................... 5.07% 01/28/99 13,840 13,787,342
Unifunding, Inc................................. 5.23% 02/05/99 4,000 3,979,661
Windmill Funding Corp........................... 5.40% 01/28/99 10,000 9,959,500
Windmill Funding Corp........................... 5.75% 01/29/99 9,930 9,885,591
--------------
418,725,196
--------------
DISCOUNT NOTE -- 1.6%
Federal Home Loan Mortgage Association.......... 4.93% 03/26/99 15,152 14,977,701
--------------
14,977,701
--------------
LOAN PARTICIPATIONS -- 1.5%
Baker Hughes, Inc............................... 5.70% 01/29/99 8,000 8,000,000
Marsh & Mclennan Co............................. 5.38% 02/24/99 5,716 5,716,000
--------------
13,716,000
--------------
OTHER CORPORATE OBLIGATIONS -- 19.0%
Abbey National Treasury Services, PLC........... 5.50% 02/05/99 3,000 2,999,776
Abbey National Treasury Services, PLC........... 5.72% 06/11/99 14,000 13,995,269
Bishops Gate Residential Mortgage (a)........... 5.75% 11/22/99 6,000 6,000,000
Chrysler Financial Corp. (a).................... 5.53% 03/11/99 15,000 15,000,409
General Electric Capital Corp. (a).............. 5.50% 06/04/99 15,000 14,992,456
General Motors Acceptance Corp. (a)............. 5.20% 02/02/99 10,000 9,999,745
Goldman Sachs Group L.P. (a).................... 5.07% 06/04/01 30,000 30,000,000
Liquid Asset Backed Security Trust 1998-1 (a)... 5.63% 02/26/99 4,335 4,334,658
Morgan (J.P.) & Co., Inc. (a)................... 5.21% 04/05/99 1,000 999,908
Restructured Asset Securities Enhanced Return
(a)........................................... 5.63% 03/31/99 2,000 2,000,000
Restructured Asset Securities Enhanced Return
(a)........................................... 5.61% 09/02/99 19,000 19,000,000
Restructured Asset Securities Enhanced Return
(a)........................................... 5.68% 01/21/00 16,000 16,000,000
SMM Trust Notes 1995-Q (a)...................... 5.32% 12/15/99 27,000 27,000,000
Short Term Restructured Assets.................. 5.55% 08/18/99 12,000 12,000,000
--------------
174,322,221
--------------
TOTAL INVESTMENTS -- 97.9%
(amortized cost $900,703,505; (b))............................................ 900,703,505
--------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.1%................................... 19,488,483
--------------
TOTAL NET ASSETS -- 100.0%...................................................... $ 920,191,988
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
MONEY MARKET PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
The following abbreviations are used in portfolio descriptions:
AG Aktiengesellschaft (German Stock Company)
PLC Public Limited Company (British 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.
The interest rate shown reflects the rate in effect at December 31, 1998.
(b) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
The industry classification of portfolio holdings and other
assets in excess of liabilities shown as a percentage of net
assets as of December 31, 1998 was as follows:
Commercial Banks 48.0%
Motor Vehicle Parts 14.3%
Asset Backed Securities 10.5%
Personal Credit 6.4%
Security Brokers & Dealers 5.0%
Short-Term Business Credit 4.9%
Accidental/Health Insurance 2.5%
Bank Holding Company U.S. 2.0%
Federal Credit Agencies 1.5%
Crude Petroleum & Natural Gas 0.8%
Construction 0.9%
Insurance 0.6%
Surety Insurance 0.5%
---------
97.9%
Other assets in excess of liabilities 2.1%
---------
100.0%
=========
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
DIVERSIFIED BOND PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 95.9% MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS -- 95.0% (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ -------- ----------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 2.5%
Boeing Co.,..................................... Aa3 8.75% 08/15/21 $ 6,250 $ 7,910,250
Raytheon Co.,................................... Baa1 5.95% 03/15/01 6,500 6,557,070
Raytheon Co.,................................... Baa1 6.40% 12/15/18 9,500 9,428,750
Raytheon Co.,................................... Baa1 7.00% 11/01/28 3,550 3,737,511
--------------
27,633,581
--------------
AIRLINES -- 2.6%
Continental Airlines, Inc.,..................... Ba2 8.00% 12/15/05 8,000 7,904,800
Delta Air Lines, Inc.,.......................... Ba1 9.875% 05/15/00 6,000 6,298,320
United Airlines, Inc.,.......................... Baa3 10.67% 05/01/04 7,000 8,282,400
United Airlines, Inc.,.......................... Baa3 11.21% 05/01/14 5,000 6,566,000
--------------
29,051,520
--------------
ASSET-BACKED SECURITIES -- 1.7%
Advanta Mortgage Loan Trust, Series 1994-3,..... Aaa 8.49% 01/25/26 8,500 8,728,091
Airplanes Pass Through Trust,................... Ba2 10.875% 03/15/19 6,000 6,300,000
California Infrastructure PG&E, Series
1997-1,....................................... NR 6.32% 09/25/05 4,000 4,117,500
--------------
19,145,591
--------------
AUTO-CARS & TRUCKS -- 0.7%
Navistar International Corp.,................... Ba1 7.00% 02/01/03 3,500 3,500,547
Navistar International Corp.,................... Ba3 8.00% 02/01/08 4,500 4,578,750
--------------
8,079,297
--------------
BANKS AND SAVINGS & LOANS -- 4.5%
Banco de Commercio Exterior de Columbia, SA,
M.T.N., (Colombia)............................ NR 8.625% 06/02/00 2,000 1,960,000
Banco Ganadero, SA, M.T.N., (Colombia).......... NR 9.75% 08/26/99 4,100 4,079,500
Bayerische Landesbank Girozentrale, (Germany)... Aaa 5.875% 12/01/08 10,000 10,224,000
Capital One Bank,............................... Baa3 7.08% 10/30/01 5,000 5,027,850
Chase Manhattan Corp.,.......................... A2 8.00% 06/15/99 2,000 2,023,940
Chase Manhattan Corp............................ A2 6.625% 08/15/05 2,000 2,083,040
Compass Trust Bank,............................. A3 8.23% 01/15/27 4,500 4,820,625
International Bank for Reconstruction and
Development, (Supranational).................. Aaa 12.375% 10/15/02 750 938,527
Kansallis-Osake Pankki, (Finland)............... Baa1 8.65% 01/01/49 5,000 5,073,600
Kansallis-Osake Pankki, (Finland)............... Baa1 10.00% 05/01/02 5,000 5,621,000
National Australia Bank, (Australia)............ A1 6.40% 12/10/07 3,700 3,774,000
Skandinaviska Enskilda Bank, (Sweden)........... Baa1 7.50% 03/29/49 5,000 4,941,400
--------------
50,567,482
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.4%
Cable & Wire Communications PLC (United
Kingdom)...................................... Baa1 6.75% 12/01/08 6,400 6,524,160
Rogers Cablesystems, Inc., (Canada)............. Ba3 10.00% 03/15/05 4,000 4,480,000
Tele-Communications, Inc.,...................... Ba1 6.34% 02/01/02 3,500 3,584,875
Tele-Communications, Inc.,...................... Ba1 6.375% 09/15/99 2,750 2,769,332
Tele-Communications, Inc.,...................... Baa3 10.125% 04/15/22 6,300 9,114,021
--------------
26,472,388
--------------
COMPUTER SOFTWARE & SERVICES -- 0.5%
Computer Associates International, Inc.,........ Baa1 6.375% 04/15/05 5,300 5,245,092
--------------
DIVERSIFIED CONSUMER PRODUCT -- 1.3%
Owens-Illinois, Inc.,........................... Ba1 7.50% 05/15/10 5,000 5,095,100
Philip Morris Cos., Inc.,....................... A2 6.15% 03/15/10 10,000 10,083,000
--------------
15,178,100
--------------
DRUGS & MEDICAL SUPPLIES -- 0.3%
Mallinckrodt, Inc............................... Baa2 6.30% 03/15/11 3,500 3,445,969
--------------
FINANCIAL SERVICES -- 14.3%
Advanta Corp., M.T.N............................ Ba2 7.25% 08/16/99 10,000 9,920,500
Aristar, Inc.,.................................. Baa1 7.50% 07/01/99 2,000 2,021,040
Arkwright Corp.,................................ Baa3 9.625% 08/15/26 5,000 5,980,500
Associates Corp.,............................... Aa3 6.95% 11/01/18 8,000 8,524,640
AT&T Capital Corp,.............................. Baa3 7.50% 11/15/00 10,000 10,122,400
Calair Capital Corp.,........................... Ba2 8.125% 04/01/08 3,000 2,933,850
Chrysler Financial Corp.,....................... A3 9.50% 12/15/99 5,000 5,196,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ -------- ----------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
FINANCIAL SERVICES (CONT'D.)
Comdisco Inc.,.................................. Baa1 6.32% 11/27/00 $ 10,000 $ $10,046,600
Conseco Inc.,................................... Baa2 6.40% 06/15/01 10,000 9,589,000
Conseco, Inc.,.................................. Ba2 8.70% 11/15/26 1,600 1,461,808
Conseco, Inc.,.................................. Ba2 8.796% 04/01/27 8,350 7,634,405
ContiFinancial Corp.,........................... Ba1 7.50% 03/15/02 12,900 9,030,000
ContiFinancial Corp.,........................... Ba1 8.125% 04/01/08 1,800 1,224,000
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa3 7.00% 06/15/00 9,000 9,038,430
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa3 8.75% 12/15/99 3,000 3,072,210
Ford Motor Credit Co.,.......................... A1 5.75% 01/25/01 4,000 4,034,640
General Motors Acceptance Corp.,................ A2 5.75% 11/10/03 10,000 10,077,600
General Motors Acceptance Corp.,................ Baa1 8.40% 10/15/99 3,700 3,790,613
Household Finance,.............................. A2 6.50% 11/15/08 23,000 23,805,000
Interpool Capital Trust,........................ Ba2 9.875% 02/15/27 7,000 5,740,000
Nationwide CSN Trust,........................... Aa3 9.875% 02/15/25 5,000 6,267,200
PT Alatief Freeport Financial Co.,
(Netherlands)................................. Ba2 9.75% 04/15/01 5,750 4,140,000
Reliastar Financial Corp.,...................... A3 6.625% 09/15/03 5,000 5,031,000
Tokai Pfd Capital,.............................. Baa3 9.98% 12/29/49 2,300 1,932,000
--------------
160,613,536
--------------
FOOD & BEVERAGE -- 0.3%
Whitman Corp.,.................................. Baa2 7.50% 08/15/01 3,000 3,133,320
--------------
FOREST PRODUCTS -- 2.4%
Fort James Corp.,............................... Baa3 6.234% 03/15/01 5,000 5,047,050
Scotia Pacific Co.,............................. NR 7.11% 01/20/14 4,100 3,902,216
Scotia Pacific Co.,............................. NR 7.71% 01/20/14 12,200 10,929,736
Westvaco Corp.,................................. A1 9.75% 06/15/20 5,000 6,703,950
--------------
26,582,952
--------------
HOUSING RELATED -- 0.6%
American Standard Cos. Inc.,.................... Ba3 7.375% 04/15/05 2,100 2,069,319
Owens Corning,.................................. Baa3 7.50% 05/01/05 5,000 5,111,050
--------------
7,180,369
--------------
INDUSTRIAL -- 1.6%
Cendant Corp.,.................................. Baa1 7.75% 12/01/03 15,000 15,160,050
Compania Sud Americana de Vapores, SA,
(Chile)....................................... NR 7.375% 12/08/03 3,000 2,692,500
--------------
17,852,550
--------------
INVESTMENT BANKERS -- 5.3%
Lehman Brothers Holdings, Inc.,................. Baa1 6.40% 08/30/00 6,450 6,451,612
Merrill Lynch, Pierce, Fenner & Smith, Inc.,.... NR 5.40% 06/24/03 15,000 14,850,000
Merrill Lynch, Pierce, Fenner & Smith, Inc.,.... Aa3 6.875% 11/15/18 9,800 10,159,170
Morgan Stanley, Dean Witter Discover & Co.,
M.T.N......................................... A1 6.09% 03/09/11 6,500 6,586,775
Salomon, Inc.,.................................. Baa1 6.25% 10/01/99 8,000 8,054,320
Salomon, Inc.,.................................. NR 6.65% 07/15/01 7,000 7,166,320
Salomon, Inc., M.T.N............................ Baa1 6.59% 02/21/01 3,500 3,567,200
Salomon, Inc.,.................................. Baa1 7.25% 05/01/01 2,250 2,330,460
--------------
59,165,857
--------------
LEISURE & TOURISM -- 1.2%
Royal Caribbean Cruises Ltd.,................... Baa3 7.00% 10/15/07 8,000 8,011,120
Royal Caribbean Cruises Ltd.,................... Baa3 7.25% 08/15/06 5,000 5,081,900
--------------
13,093,020
--------------
LODGING -- 1.2%
ITT Corp.,...................................... Baa2 6.25% 11/15/00 7,000 6,753,180
ITT Corp.,...................................... Baa2 6.75% 11/15/03 7,000 6,445,810
--------------
13,198,990
--------------
MEDIA -- 7.7%
News America Holdings, Inc.,.................... Baa3 6.703% 05/21/04 36,000 36,697,320
Paramount Communications, Inc.,................. Ba2 7.50% 01/15/02 5,000 5,217,650
Time Warner, Inc.,.............................. Baa3 6.625% 05/15/29 19,000 19,331,740
Time Warner, Inc.,.............................. Ba1 8.11% 08/15/06 7,800 8,892,390
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ -------- ----------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
MEDIA (CONT'D.)
Turner Broadcasting System, Inc.,............... Ba1 7.40% 02/01/04 $ 13,500 $ $14,477,130
Viacom, Inc.,................................... Ba2 7.75% 06/01/05 1,450 1,573,004
--------------
86,189,234
--------------
OIL & GAS -- 1.5%
B.J. Services Co.,.............................. Ba1 7.00% 02/01/06 5,000 5,174,850
Occidental Petroleum Corp.,..................... Baa3 10.125% 11/15/01 5,000 5,466,800
Occidental Petroleum Corp.,..................... Baa3 11.125% 08/01/10 5,000 6,526,550
--------------
17,168,200
--------------
OIL & GAS SERVICES -- 3.0%
K N Energy, Inc.,............................... Baa2 6.30% 03/01/21 15,000 15,042,150
R&B Falcon Corp.,............................... Ba1 6.50% 04/15/03 8,600 7,811,552
R&B Falcon Corp.,............................... Ba1 6.75% 04/15/05 7,300 6,278,000
R&B Falcon Corp.,............................... Ba1 7.375% 04/15/18 5,750 4,435,493
--------------
33,567,195
--------------
REAL ESTATE INVESTMENT TRUST -- 3.1%
Camden Property Trust,.......................... Baa2 7.23% 10/30/00 5,000 5,012,000
Colonial Realty,................................ Baa3 7.00% 07/14/07 1,350 1,294,529
Equity Residentia,.............................. A3 6.15% 09/15/00 15,000 14,901,000
ERP Operating, L.P.,............................ A3 6.63% 04/13/05 6,500 6,413,940
Felcor Suite Hotels, Inc.,...................... Ba1 7.625% 10/01/07 7,900 7,524,750
--------------
35,146,219
--------------
RESTAURANTS -- 0.8%
Darden Restaurants, Inc.,....................... A3 7.125% 02/01/16 10,000 9,465,300
--------------
RETAIL -- 7.2%
Federated Department Stores, Inc.,.............. Ba1 8.125% 10/15/02 5,250 5,659,133
Federated Department Stores, Inc.,.............. Ba1 8.50% 06/15/03 10,200 11,250,396
Kmart Corp.,.................................... Ba2 9.35% 01/02/20 2,000 2,080,000
Kmart Corp.,.................................... Ba2 9.78% 01/05/20 3,850 4,210,476
Kroger Co., (The)............................... Baa3 6.375% 03/01/08 6,600 6,710,220
Meyer, (Fred) Inc.,............................. Ba2 7.15% 03/01/03 550 572,209
Meyer, (Fred) Inc.,............................. Ba2 7.375% 03/01/05 5,000 5,289,200
Rite Aid Corp.,................................. A3 6.70% 12/15/01 4,000 4,102,400
Saks Inc.,...................................... Baa3 7.25% 12/01/04 11,600 11,641,180
Saks Inc.,...................................... Baa3 7.50% 12/01/10 8,000 7,999,440
Saks Inc.,...................................... Baa3 8.25% 11/15/08 11,200 11,872,000
Sears Roebuk & Co.,............................. A2 6.50% 12/01/28 10,000 9,815,300
--------------
81,201,954
--------------
TELECOMMUNICATIONS -- 4.5%
LCI International, Inc.,........................ Ba1 7.25% 06/15/07 10,125 10,251,765
Qwest Communications International Inc.,........ Ba1 7.50% 11/01/08 5,000 5,200,000
Sprint Corp.,................................... Baa1 5.70% 11/15/03 17,000 17,060,690
Sprint Corp.,................................... Baa1 6.875% 11/15/28 14,000 14,550,200
Worldcom Inc,................................... Baa2 6.125% 08/15/01 3,300 3,352,734
--------------
50,415,389
--------------
UTILITIES -- 8.1%
Arkla, Inc., M.T.N.,............................ Ba2 9.32% 12/18/00 2,000 2,136,000
Calenergy Co., Inc.,............................ Ba1 6.96% 09/15/03 8,000 8,142,640
Calenergy Co., Inc.,............................ BA1 7.23% 09/15/05 5,000 5,151,300
Calenergy Co., Inc.,............................ Ba1 8.48% 09/15/28 10,000 11,055,300
Cogentrix Energy, Inc.,......................... Ba1 8.75% 10/15/08 10,000 10,625,000
Commonwealth Edison Co.,........................ Baa3 7.625% 01/15/07 7,525 8,313,846
Connecticut Light & Power Company,.............. Ba2 7.75% 06/01/02 5,685 5,897,164
El Paso Electric Company,....................... Ba2 7.75% 05/01/01 5,850 6,070,487
El Paso Electric Company,....................... Ba3 9.40% 05/01/11 4,000 4,588,240
Niagara Mohawk Power,........................... Ba3 6.875% 04/01/03 4,000 4,138,800
Niagara Mohawk Power,........................... Ba2 7.375% 08/01/03 8,000 8,455,280
Niagara Mohawk Power,........................... Baa2 8.00% 06/01/04 5,000 5,459,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ -------- ----------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
UTILITIES (CONT'D.)
Pennsylvania Power & Light Co.,................. A2 9.375% 07/01/21 $ 1,150 $ 1,286,781
Texas Utilities,................................ Baa3 5.94% 10/15/01 10,000 10,058,300
--------------
91,378,438
--------------
WASTE MANAGEMENT -- 0.2%
USA Waste Service,.............................. Baa3 6.125% 07/15/01 2,000 2,012,400
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 14.1%
Federal Farm Credit Bank,....................... 8.65% 10/01/99 150 154,008
Resolution Funding Corp.,....................... Zero 10/15/15 17,100 6,621,120
Resolution Funding Corp.,....................... 8.125% 10/15/19 700 914,263
Resolution Funding Corp.,....................... 8.625% 01/15/21 200 275,718
Small Business Administration Participation
Certicates,................................... 6.00% 09/01/18 15,000 15,305,550
United States Treasury Bond,.................... 5.375% 07/31/00 5,200 5,256,888
United States Treasury Note,.................... 4.75% 11/15/08 1,500 1,511,715
United States Treasury Note,.................... 5.375% 02/15/01 3,200 3,248,992
United States Treasury Note,.................... 5.50% 08/15/28 2,000 2,093,440
United States Treasury Note,.................... 5.75% 08/15/03 4,000 4,176,880
United States Treasury Note,.................... 5.875% 11/15/05 5,400 5,760,288
United States Treasury Note,.................... 6.00% 08/15/00 6,600 6,736,092
United States Treasury Note,.................... 6.50% 05/15/05 3,600 3,945,384
United States Treasury Note,.................... 6.50% 11/15/26 80,000 93,024,800
United States Treasury Note,.................... 6.625% 07/31/01 4,200 4,400,802
United States Treasury Note,.................... 7.125% 09/30/99 3,500 3,562,335
United States Treasury Note,.................... 7.50% 02/15/05 1,300 1,488,500
--------------
158,476,775
--------------
U.S. GOVERNMENT MORTGAGE- BACKED SECURITIES -- 0.7%
Federal National Mortgage Association,.......... 9.00% 10/01/16-09/01/21 388 410,024
Government National Mortgage Association,....... 7.50% 05/20/02-02/15/26 7,091 7,308,344
--------------
7,718,368
--------------
FOREIGN GOVERNMENT BONDS -- 0.7%
Republic of Panama, (Panama).................... NR 7.875% 02/13/02 8,000 7,720,000
--------------
TOTAL LONG-TERM BONDS (COST $1,052,032,111)............................................................... 1,066,099,086
--------------
<CAPTION>
SHARES
----------
<S> <C> <C> <C> <C> <C>
PREFERRED STOCK -- 0.9%
Centaur Funding (cost $10,022,865).......................................................... 75,000 10,377,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,062,054,976)................................................................................... 1,076,476,086
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 2.8% (000)
----------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account
(cost $31,305,000; Note 5).................... 4.693% 01/04/99 31,305 31,305,000
--------------
TOTAL INVESTMENTS -- 98.7%
(cost $1,093,359,976; Note 6)........................................................................... 1,107,781,086
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.3%............................................................. 14,792,617
--------------
NET ASSETS -- 100.0%...................................................................................... $1,122,573,703
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Coporation) or Societe Anonyme (French
Corporation)
NR Not Rated by Moody's or Standard & Poors
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
HIGH YIELD BOND PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.9% MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS -- 86.1% (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ -------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 0.8%
BE Aerospace, Sr. Sub. Notes.................... B1 9.50% 11/01/08 $ 1,000 $ 1,055,000
Compass Aerospace Corp., Sr. Sub. Notes......... Caa1 10.125% 04/15/05 1,500 1,447,500
Sequa Corp., Sr. Sub. Notes..................... B3 9.375% 12/15/03 2,000 2,070,000
Stellex Industries, Inc., Sr. Sub. Notes........ B3 9.50% 11/01/07 1,000 870,000
Transdigm, Inc., Sr. Sub. Notes................. B3 10.375% 12/01/08 1,000 1,002,500
--------------
6,445,000
--------------
AUTOMOTIVE PARTS -- 2.0%
AM General Corp., Sr. Notes..................... B3 12.875% 05/01/02 3,700 2,960,000
Hayes Wheels Int'l., Inc., Sr. Sub. Notes....... B2 9.125% 07/15/07 1,000 1,044,062
JPS Automotive Products Corp., L.P., Sr.
Notes......................................... B2 11.125% 06/15/01 4,000 4,200,000
Paragon Corp Holdings, Sr. Notes................ B3 9.625% 04/01/08 2,000 1,680,000
Stanadyne Automotive, Sr. Sub. Notes............ Caa 10.25% 12/15/07 3,000 3,000,000
Venture Holdings Trust, Sr. Notes............... NR 9.50% 07/01/05 2,700 2,686,500
--------------
15,570,562
--------------
BROADCASTING & OTHER MEDIA -- 5.6%
Ackerley Group, Sr. Sub. Notes.................. B2 9.00% 01/15/09 3,000 3,056,250
American Lawyer Media Holdings, Inc., Sr. Disc.
Notes, Zero Coupon
(until 12/15/02).............................. B3 12.25% 12/15/08 5,000 3,100,000
CD Radio, Inc., Sr. Disc. Notes, Zero Coupon
(until 12/01/02).............................. Caa 15.00% 12/01/07 4,245 2,589,450
Chancellor Media Corp., Sr. Sub. Notes.......... Ba3 9.00% 10/01/08 3,500 3,696,875
Globo Communicacoes E Particip., Sr. Notes
(Brazil)...................................... NR 10.50% 12/20/06 1,300 832,000
Grupo Televisa, Sr. Notes (Mexico).............. Ba2 13.25% 05/15/08 3,000 2,227,500
Liberty Group Publishing, Sr. Disc. Notes, Zero
Coupon (until 2/01/03)........................ Caa1 11.625% 02/01/09 550 302,500
Lin Holdings Corp., Sr. Disc. Notes, Zero Coupon
(until 3/01/03)............................... B3 10.00% 03/01/08 500 351,250
Mail-Well Corp, Sr. Sub. Notes.................. B1 8.75% 12/15/08 4,750 4,797,500
NTL, Inc., Sr. Notes, Zero Coupon (until
10/01/03)..................................... B3 12.375% 10/01/08 2,500 1,562,500
NTL, Inc., Sr. Notes, Zero Coupon (until
4/01/03)...................................... B3 9.75% 04/01/08 2,000 1,235,000
Paxson Communications Corp., Sr. Sub. Notes..... B3 11.625% 10/01/02 2,500 2,537,500
Radio Unica, Sr. Disc. Note, Zero Coupon (until
8/01/02)...................................... NR 11.75% 08/01/06 4,750 2,565,000
SFX Entertainment, Sr. Sub. Notes............... B3 9.125% 12/01/08 4,000 3,980,000
Shop At Home, Inc., Sr. Sec'd. Notes............ B1 11.00% 04/01/05 1,250 1,275,000
Transwestern Publishing, Sr. Disc. Notes, Zero
Coupon (until 11/15/02)....................... B3 11.875% 11/15/08 3,650 2,418,125
TV Azteca SA de CV, Sr. Notes (Mexico).......... NR 10.50% 02/15/07 2,850 2,322,750
TVN Enterainment Corp., Sr. Notes............... NR 14.00% 08/01/08 3,750 3,187,500
Von Hoffman, Sub. Debs.......................... NR 13.50% 05/15/09 609 626,897
World Color Press, Sr. Sub. Notes............... B1 8.375% 11/15/08 1,750 1,758,750
--------------
44,422,347
--------------
BUILDING & RELATED INDUSTRIES -- 2.7%
Ainsworth Lumber Co., Ltd., Bonds............... B3 12.50% 07/15/07 5,125 5,073,750
Engle Homes, Inc., Sr. Notes.................... B1 9.25% 02/01/08 4,400 4,400,000
Falcon Building Products, Inc., Sr. Sub. Disc.
Notes, Zero Coupon
(until 6/15/02)............................... NR 10.50% 06/15/07 1,900 1,092,500
New Millenium Homes, Sr. Notes, Zero Coupon
(until 6/01/99)............................... NR 13.00% 09/03/04 3,000 2,910,000
Presley Co., Sr. Sub. Notes..................... B2 12.50% 07/01/01 6,157 5,202,665
Webb (Del E.), Sr. Sub. Deb..................... B2 9.375% 05/01/09 1,000 960,000
Wickes Lumber Co., Sr. Notes.................... B3 11.625% 12/15/03 2,000 1,690,000
--------------
21,328,915
--------------
CABLE -- 4.5%
Adelphia Communications Corp., Sr. Notes........ B2 10.50% 07/15/04 500 547,500
Adelphia Communications Co., PIK, Sr. Notes..... B3 9.50% 02/15/04 250 265,625
Avalon Cable Holding, Sr. Disc. Notes........... Caa 11.875% 12/01/08 6,000 3,360,000
Avalon Cable Holding, Sr. Sub. Notes............ B3 9.375% 12/01/08 2,000 2,040,000
Diamond Cable Communications, Sr. Disc. Notes,
Zero Coupon (until 2/15/02) (United
Kingdom)...................................... NR 12.75% 02/15/07 4,000 2,840,000
Diva Systems Corp., Sr. Disc. Notes, Zero Coupon
(until 3/01/03)............................... NR 12.625% 03/01/08 1,000 372,000
Echostar Satellite, Sr. Disc. Notes, Zero Coupon
(until 3/15/00)............................... B3 13.125% 03/15/04 1,500 1,496,250
Falcon Holding Group, Sr. Disc. Deb., Zero
Coupon (until 4/15/03)........................ B2 9.285% 04/15/10 2,000 1,350,000
Intermedia Capital Partners, Sr. Notes.......... B2 11.25% 08/01/06 3,380 3,802,500
International Cabletel, Inc., Sr. Disc. Notes,
Zero Coupon (until 4/15/00)................... B3 12.75% 04/15/05 6,100 5,551,000
Renaissance Media, Sr. Disc. Notes, Zero Coupon
(until 4/15/03)............................... B3 10.00% 04/15/08 1,000 675,000
Rogers Cablesystems, Inc., Sr. Sec'd. Deb.,
(Canada)...................................... Ba3 10.00% 12/01/07 1,000 1,125,000
Rogers Cablesystems, Inc., Sr. Sec'd Notes,
(Canada)...................................... Ba3 10.00% 03/15/05 1,175 1,960,000
Scott Cable Communications, Jr. Sub. PIK........ NR 16.00% 07/18/02 108 21,600
Scott Cable Communications, Dep. Rec., PIK...... NR 15.00% 03/18/02 908 1,016,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ -------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Star Choice Communications, Inc., Sr. Notes,
(Canada)...................................... NR 13.00% 12/15/05 $ 3,000 $ 3,015,000
Telewest Communications PLC, Sr. Disc. Deb.,
Zero Coupon (until 10/01/00) (United
Kingdom)...................................... B1 11.00% 10/01/07 1,000 832,500
United International Holdings, Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B3 10.75% 02/15/08 9,750 5,216,250
--------------
35,486,975
--------------
CHEMICALS -- 0.8%
GNI Group, Inc., Sr. Notes...................... B2 10.875% 07/15/05 4,000 3,520,000
Sterling Chemical Holdings, Inc., Sr. Disc.
Notes, Zero Coupon (until 8/15/01)............ Caa 13.50% 08/15/08 4,060 1,542,800
Sterling Chemical Holdings, Inc., Sr. Sub.
Notes......................................... B3 11.75% 08/15/06 1,000 850,000
--------------
5,912,800
--------------
CONSUMER PRODUCTS -- 3.7%
CB Richard Ellis Services, Inc., Bonds.......... Ba3 8.875% 06/01/06 2,000 1,960,000
Coinstar Inc., Sr. Disc. Notes, Zero Coupon
(until 10/01/99).............................. NR 13.00% 10/01/06 5,025 4,271,250
Corning Consumer Products, Sr. Sub. Notes....... B3 9.625% 05/01/08 3,250 2,275,000
Edison Brothers Corp., Sr. Notes................ NR 11.00% 09/26/07 3,680 1,104,000
Electronic Retailing Systems, Sr. Disc. Notes,
Zero Coupon (until 2/01/00)................... NR 13.25% 02/01/04 2,000 700,000
Hedstrom Corp., Sr. Sub. Notes.................. B3 10.00% 06/01/07 900 765,000
Hedstrom Holding, Inc., Sr. Disc. Notes, Zero
Coupon (until 6/01/02)........................ Caa 12.00% 06/01/09 400 180,000
Icon Health & Fitness, Sr. Sub. Notes........... Caa 13.00% 07/15/02 3,000 1,800,000
IHF Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 11/15/99).............................. NR 15.00% 11/15/04 2,250 247,500
Interact Systems, Inc., Sr. Disc. Notes, Zero
Coupon (until 8/1/99)(b) (cost $4,070,320;
purchased 7/30/96)............................ NR 14.00% 08/01/03 4,400 1,760,000
La Petite Holding, Sr. Notes.................... B3 10.00% 05/15/08 750 742,500
Loewen Group, Inc., Sr. Gtd. Notes.............. Ba1 8.25% 10/15/03 3,000 2,542,500
Packaging Resources Group, Sr. Notes, PIK....... NR 13.00% 06/30/03 2,114 1,775,685
Revlon Consumer Prod. Corp., Sr. Notes, PIK..... B2 9.00% 11/01/06 2,250 2,227,500
Sealy Mattress Co., Sr. Sub. Disc. Notes, Zero
Coupon (until 12/15/02)....................... B3 10.875% 12/15/07 2,500 1,500,000
Syratech Corp., Sr. Notes....................... B1 11.00% 04/15/07 2,500 2,025,000
Waste System International, Sr. Sub. Notes...... Caa1 7.00% 05/13/05 2,000 1,930,000
Windmere-Durable Holdings, Inc., Sr. Notes...... B3 10.00% 07/31/08 2,000 1,870,000
--------------
29,675,935
--------------
CONTAINERS -- 0.7%
Ball Corp., Sr. Sub. Notes...................... B1 8.25% 08/01/08 250 261,250
Consumers Intl, Inc., Sr. Sec'd. Notes.......... Ba3 10.25% 04/01/05 3,850 4,042,500
Radnor Holdings, Sr. Notes...................... B2 10.00% 12/01/03 1,500 1,507,500
--------------
5,811,250
--------------
DRUGS & HEALTHCARE -- 4.7%
Abbey Healthcare Group, Inc., Bonds............. B1 9.50% 11/01/02 500 485,000
Dade International, Inc., Sr. Sub. Notes........ B3 11.125% 05/01/06 6,250 6,875,000
Fresenius Medical Co., Gtd. Notes............... Ba3 7.875% 02/01/08 2,100 2,079,000
Fresenius Med. Core Capital Trust, Gtd. Notes... Ba3 9.00% 12/01/06 1,500 1,569,375
Graham-Field Health Products, Inc., Sr. Sub.
Notes......................................... B3 9.75% 08/15/07 5,000 3,300,000
Harborside Healthcare, Zero Coupon (until
08/01/03)..................................... B3 11.00% 08/01/08 2,500 1,200,000
ICN Pharmaceuticals, Inc., Sr. Notes............ Ba3 8.75% 11/15/08 4,750 4,773,750
Integrated Health Services, Inc., Sr. Sub.
Notes......................................... B2 9.25% 01/15/08 3,250 3,055,000
Magellan Health Services, Bonds................. B3 9.00% 02/15/08 7,000 6,160,000
Mariner Post Acute Network, Inc., Sr. Sub. Disc.
Notes, Zero Coupon (until 11/ 01/02).......... B3 10.50% 11/01/07 3,000 1,455,000
Medaphis Corp., Sr. Notes....................... B2 9.50% 02/15/05 350 269,500
Mediq, Inc., Sr. Sub. Notes..................... B3 11.00% 06/01/08 1,000 960,000
Sun Healthcare, Sr. Notes....................... B2 9.50% 07/01/07 3,750 3,000,000
Vencor Inc., Sr. Sub. Notes..................... B3 9.875% 05/01/05 2,500 2,050,000
--------------
37,231,625
--------------
ENERGY -- 5.0%
Anker Coal Group Inc., Sr. Notes................ B3 9.75% 10/01/07 3,000 1,590,000
Bayard Drilling Technologies, Inc., Sr. Notes... B2 11.00% 06/30/05 1,500 1,650,000
Chesapeake Energy Corp., Sr. Notes.............. B1 9.625% 05/01/05 2,500 1,875,000
Chiles Offshore, Sr. Notes...................... B3 10.00% 05/01/08 1,000 800,000
Clark USA, Inc., Sr. Notes...................... B3 10.875% 12/01/05 1,250 1,162,500
Gothic Production Corp., Sr. Notes.............. B3 11.125% 05/01/05 1,250 975,000
Grant Geophysical, Inc., Sr. Notes.............. B3 9.75% 02/15/08 4,000 2,720,000
Great Lakes Carbon Corp., Sr. Sub. Notes........ B3 10.25% 05/15/08 2,000 2,015,000
Grey Wolf, Sr. Notes............................ B1 8.875% 07/01/07 2,000 1,450,000
Ocean Rig Norway Co., Gtd. Notes................ B3 10.25% 06/01/08 2,000 1,600,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ -------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
P & L Coal Holding, Sr. Notes................... NR 8.875% 05/15/08 $ 2,000 $ 2,040,000
P & L Coal Holding, Sr. Sub. Notes.............. NR 9.625% 05/15/08 3,750 3,815,625
Parker Drilling Corp., Sr. Notes................ B1 9.75% 11/15/06 850 760,750
Petroleum Mexicanos, Gtd. Notes (Mexico)........ Ba2 9.375% 12/02/08 1,500 1,477,500
Petroleum Heat & Power, Inc., Sub. Deb.(b) (cost
$2,779,064; purchased on various dates:
1/27/94 through 1/31/97)...................... B2 9.375% 02/01/06 3,000 2,730,000
Petroleum Heat & Power, Inc., Sub. Deb.(b) (cost
$832,534; purchased
3/16/95)...................................... B2 12.25% 02/01/05 813 796,740
R & B Falcon Corp., Sr. Notes................... Ba1 9.50% 12/15/08 3,000 3,000,000
Seven Seas Petroleum, Inc., Sr. Notes........... Caa1 12.50% 05/15/05 1,500 1,012,500
Tesoro Petroleum Corp., Sr. Sub. Notes.......... B1 9.00% 07/01/08 3,000 2,910,000
Transamerican Energy Corp., Sr. Disc. Notes..... NR 11.50% 06/15/02 900 261,000
Universal Compression Holdings, Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B2 9.875% 02/15/08 1,750 1,050,000
Universal Compression Holdings, Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B3 11.375% 02/15/09 700 399,000
York Power Funding, Sr. Sec'd. Notes (Cayman
Islands)...................................... Ba3 12.00% 10/30/07 3,000 2,940,000
--------------
39,030,615
--------------
FINANCIAL SERVICES -- 2.1%
AmeriCredit Corp., Sr. Notes.................... B1 9.25% 02/01/04 1,350 1,299,375
Amresco, Inc., Sr. Sub. Notes(b) (cost
$4,310,000; purchased 2/24/98 and
11/25/98)..................................... B2 9.875% 03/15/05 4,600 3,220,000
BF Saul Corp., Sr. Notes........................ B3 9.75% 04/01/08 1,750 1,610,000
Delta Financial Corp., Sr. Notes................ B1 9.50% 08/01/04 1,075 903,000
Fuji LLC, Bonds, Zero Coupon (until 06/30/08)... Baa2 9.87% 12/31/49 2,000 1,430,000
Korea Development Bank, Bonds (Korea)........... Ba1 7.90% 02/01/02 3,000 2,851,800
SB Treasury Co., Bonds, Zero Coupon (until
06/30/08)..................................... A2 9.40% 12/29/49 5,000 4,650,000
Nationwide Credit, Sr. Notes.................... B3 10.25% 01/15/08 850 688,500
--------------
16,652,675
--------------
FOOD & BEVERAGE -- 2.9%
Advantica Restaurant Group, Sr. Notes........... NR 11.25% 01/15/08 5,762 5,834,501
Carrols Corp., Sr. Sub. Notes................... B2 9.50% 12/01/08 2,500 2,518,750
Favorite Brands, Sr. Notes...................... B3 10.75% 05/15/06 550 451,000
Fresh Foods, Inc., Bonds........................ B3 10.75% 06/01/06 2,500 2,300,000
FRI-MRD Corp., Sr. Disc. Notes, Zero Coupon
(until 8/01/99)............................... NR 15.00% 01/24/02 3,000 2,711,250
Grupo Azucarero, Sr. Notes (Mexico)............. B3 11.50% 01/15/05 4,000 1,400,000
Packaged Ice, Inc., Sr. Notes................... B3 9.75% 02/01/05 4,000 4,000,000
Premium Standard Farms, Sr. Sec'd. Notes, PIK
(b) (cost $255,739; purchased 9/17/96 and
3/03/97)...................................... NR 11.00% 09/17/03 256 268,526
Specialty Foods Acquisition Corp., Sr. Notes,
PIK........................................... B2 10.25% 08/15/01 2,765 2,543,800
Specialty Foods Corp., Sr. Sub. Notes........... Caa 11.25% 08/15/03 1,850 795,500
--------------
22,823,327
--------------
GAMING -- 4.8%
Alliance Gaming Corp., Gtd. Notes............... B3 10.00% 08/01/07 1,000 915,000
Aztar Corp., Sr. Sub. Notes..................... B2 13.75% 10/01/04 1,500 1,665,000
Blue Chip Casino, Sr. Sub. Notes................ NR 9.50% 09/15/02 6,749 5,567,925
Casino America, Sr. Notes....................... B1 12.50% 08/01/03 2,000 2,210,000
Casino Magic Finance Corp., First Mtge. Bonds... B3 13.00% 08/15/03 3,750 4,237,500
Colorado Gaming & Entertainment, Sr. Notes,
PIK........................................... NR 12.00% 06/01/03 3,590 3,841,264
Fitzgeralds Gaming, Sr. Notes................... B3 12.25% 12/15/04 2,375 1,282,500
Grand Casinos, Inc., Sr. Notes.................. B2 9.00% 10/15/04 1,000 1,125,000
Isle of Capri Black Hawk, LLC, First Mtg.
Notes......................................... B3 13.00% 08/31/04 4,000 4,400,000
Lady Luck Gaming, First Mtge. Notes............. B3 11.875% 03/01/01 2,500 2,525,000
Louisiana Casino Cruises, Inc., Sr. Notes, Zero
Coupon (until 03/01/99)....................... NR 12.25% 12/01/01 4,000 4,000,000
Majestic Star Casino, Sr. Notes................. B2 12.75% 05/15/03 1,150 1,207,500
Santa Fe Hotel, Inc., Sr. Notes................. B2 11.00% 12/15/00 2,750 2,612,500
Trump Atlantic City Assoc., First Mtge. Notes... B1 11.25% 05/01/06 1,500 1,320,000
Trump Atlantic City Assoc., First Mtge. Notes... Caa 11.75% 11/15/03 2,100 1,680,000
--------------
38,589,189
--------------
INDUSTRIAL -- 6.2%
Allied Waste Industries, Inc. Sr. Disc. Notes... Ba2 7.625% 01/01/06 3,250 3,290,625
Allied Waste Industries, Inc. Sr. Disc. Notes... Ba2 7.875% 01/01/09 10,000 10,125,000
Clean Harbors, Inc., Sr. Notes.................. B2 12.50% 05/15/01 1,500 1,275,000
Continental Global Group, Sr. Notes............. B2 11.00% 04/01/07 4,120 3,522,600
Eagle-Picher Industries, Sr. Sub. Notes......... B3 9.375% 03/01/08 1,250 1,181,250
ICF Kaiser International, Inc., Sr. Sub.
Notes......................................... B3 13.00% 12/31/03 4,450 2,225,000
Interlake Corp., Sr. Sub. Notes................. B3 12.125% 03/01/02 1,500 1,515,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ -------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
International Wireless Group, Sr. Sub. Notes.... NR 11.75% 06/01/05 $ 3,000 $ 3,157,500
Kaiser Aluminum & Chemical Corp., Sr. Sub.
Notes......................................... B2 12.75% 02/01/03 4,000 3,920,000
Moll Industries, Sr. Sub. Notes................. B3 10.50% 07/01/08 1,000 970,000
Motors & Gears, Inc., Sr. Notes................. B3 10.75% 11/15/06 3,500 3,570,000
Neenah Corp., Sr. Sub. Notes.................... B3 11.125% 05/01/07 750 770,625
RBX Corp., Sr. Notes............................ B2 12.00% 01/15/03 3,650 2,956,500
Thermadyne Holdings, Deb., Zero Coupon (until
6/01/03)...................................... Caa1 12.50% 06/01/08 2,375 1,045,000
Thermadyne Manufacturing, Sr. Sub. Notes........ B3 9.875% 06/01/08 2,500 2,275,000
UCAR Global Enterprises, Sr. Sub. Notes......... B1 12.00% 01/15/05 3,000 3,150,000
Viasystems, Inc., Sr. Sub. Notes................ B3 9.75% 06/01/07 4,000 3,980,000
--------------
48,929,100
--------------
LEISURE & TOURISM -- 1.1%
Bally Health & Tennis Corp., Sr. Sub. Notes..... B3 9.875% 10/15/07 5,000 4,900,000
Loews Cineplex, Sr. Notes....................... B3 8.875% 08/01/08 500 516,250
Premier Cruises Ltd., Sr. Notes, PIK............ B3 11.00% 03/15/08 1,000 500,000
Outboard Marine Corp., Sr. Notes................ B3 10.75% 06/01/08 2,500 2,437,500
--------------
8,353,750
--------------
LODGING -- 1.0%
Hilton Hotels, Sr. Notes........................ Baa1 7.50% 12/15/17 1,000 956,250
HMH Properties, Inc., Sr. Notes................. Ba2 8.45% 12/01/08 4,250 4,250,000
--------------
5,206,250
--------------
OIL & GAS -- 0.8%
Empire Gas Corp., Sr. Notes, Zero Coupon (until
07/15/99)..................................... Caa 7.00% 07/15/04 5,300 4,147,250
Gulf Canada Resources, Ltd., Sr. Sub. Notes..... B2 9.25% 01/15/04 1,000 1,024,680
Gulf Canada Resources, Ltd., Sub. Deb........... Ba3 9.625% 07/01/05 1,000 1,045,000
--------------
6,216,930
--------------
PAPER/PACKAGING -- 5.1%
AMM Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 7/01/03)............................... Caa 13.50% 07/01/09 6,000 2,640,000
APP International Finance, Sr. Sec'd. Notes..... Ba3 11.75% 10/01/05 2,600 1,716,000
Envirodyne Industries, Inc., Sr. Disc. Notes.... B1 12.00% 06/15/00 721 722,802
Envirodyne Industries, Inc., Sr. Notes.......... B3 10.25% 12/01/01 2,325 1,860,000
Gaylord Container Corp., Sr. Notes.............. B 9.75% 06/15/07 2,100 1,806,000
Gaylord Container Corp., Sr. Sub. Notes......... Caa1 9.875% 02/15/08 1,300 949,000
Graham Packaging, Sr. Disc. Notes, Zero Coupon
(until 1/15/03)............................... Caa1 10.75% 01/15/09 1,100 759,000
Maxxam Group Holdings, Inc., Sr. Notes.......... NR 12.00% 08/01/03 7,550 7,757,625
Millar Western Forest, Sr. Notes................ B3 9.875% 05/15/08 2,250 1,687,500
Repap New Brunswick, Inc., Sr. Sec'd. Notes..... B3 10.625% 04/15/05 3,000 2,010,000
SD Warren Co., Sr. Sub. Notes................... B1 12.00% 12/15/04 3,000 3,255,000
Silgan Holdings, Inc., Sub. Debs................ NR 13.25% 07/15/06 3,149 3,463,900
Stone Container Corp., Sr. Sub. Deb............. B2 12.58% 08/01/16 250 264,375
Stone Container Corp., Sr. Sub. Notes........... B3 12.25% 04/01/02 6,150 6,150,000
Tekni-Plex Inc., Sr. Sub. Notes................. B3 11.25% 04/01/07 750 832,500
U.S. Timberlands Klamath Fall, LLC, Sr. Notes... B1 9.625% 11/15/07 2,250 2,261,250
United Stationer Supply Co., Sr. Sub. Notes..... B3 12.75% 05/01/05 2,200 2,453,000
--------------
40,587,952
--------------
PUBLISHING -- 0.6%
Sullivan Graphics, Inc., Sr. Sub. Notes......... Caa 12.75% 08/01/05 4,500 4,567,500
--------------
RETAIL -- 5.6%
County Seat Stores, Inc., Sr. Notes............. NR 12.75% 11/01/04 3,750 1,875,000
Duane Reade, Inc., Sr. Sub. Notes............... B3 9.25% 02/15/08 400 412,000
Frank's Nursery & Crafts, Sr. Sub. Notes........ B3 10.25% 03/01/08 2,100 2,079,000
French Fragrances, Inc.......................... B2 10.375% 05/15/07 470 462,950
Hechinger Co., Sr. Notes........................ B2 6.95% 10/15/03 5,025 3,115,500
Merisel Inc., Sr. Notes......................... Ca 12.50% 12/31/04 5,250 5,407,500
Musicland Stores, Sr. Sub. Notes................ B1 9.00% 06/15/03 4,600 4,393,000
New Sassco, Inc., Sr. Notes..................... NR 12.75% 03/31/04 7,171 7,099,290
Pamida, Inc., Sr. Notes......................... B3 11.75% 03/15/03 5,374 5,159,040
Phar-Mor, Inc., Sr. Notes....................... B3 11.72% 09/11/02 4,564 4,769,380
Phillips Van-Heusen, Corp., Sr. Notes........... B1 9.50% 05/01/08 1,250 1,250,000
Saks, Inc., Gtd. Sr. Sub. Notes................. Baa3 8.25% 11/15/08 2,500 2,650,000
Speedy Muffler King, Inc., Bonds................ B1 10.875% 10/01/06 4,500 4,635,000
US Office Products, Sr. Sub. Notes.............. B3 9.75% 06/15/08 1,250 787,500
--------------
44,095,160
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ -------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
STEEL & METAL -- 2.5%
AK Steel Corp., Sr. Notes....................... Ba2 9.125% 12/15/06 $ 500 $ 523,750
Doe Run Resources Corp., Sr. Notes.............. B3 11.25% 03/15/05 2,000 1,600,000
Northwestern Steel & Wire, Sr. Notes............ B3 9.50% 06/15/01 1,000 600,000
Pohang Iron & Steel, Notes...................... Ba1 7.125% 07/15/04 5,000 4,311,000
Pohang Iron & Steel, Sr. Notes.................. Ba1 6.625% 07/01/03 2,000 1,767,000
Renco Steel Holdings, Sr. Notes................. NR 10.875% 02/01/05 500 430,000
Sheffield Steel Corp., First Mtg. Notes......... NR 11.50% 12/01/05 3,500 2,975,000
WCI Steel, Inc., Sr. Notes...................... B2 10.00% 12/01/04 2,000 1,985,000
Wheeling-Pittsburgh Corp., Sr. Notes............ B2 9.25% 11/15/07 3,325 3,125,500
WHX Corp., Sr. Notes............................ B3 10.50% 04/15/05 2,350 2,138,500
--------------
19,455,750
--------------
SUPERMARKETS -- 1.5%
Homeland Stores, Inc., Notes.................... NR 10.00% 08/01/03 5,760 5,011,200
Pantry, Inc., Sr. Sub. Notes.................... B3 10.25% 10/15/07 3,500 3,657,500
Pathmark Stores, Sr. Sub. Notes................. B2 9.625% 05/01/03 3,500 3,430,000
--------------
12,098,700
--------------
TECHNOLOGY -- 2.2%
Ampex, Sr. Notes................................ NR 12.00% 03/15/03 5,000 5,200,000
Anacomp, Inc., Sr. Sub. Notes................... B3 10.875% 04/01/04 4,000 4,120,000
Decisionone Corp., Sr. Sub. Notes............... B3 9.75% 08/01/07 4,000 1,840,000
Details Holdings Corp., Sr. Disc. Notes, Zero
Coupon (until 11/15/02)....................... NR 12.50% 11/15/07 1,300 715,000
Details, Inc., Sr. Sub. Notes................... B3 10.00% 11/15/05 1,000 950,000
DII Group, Sr. Sub. Notes....................... B1 8.50% 09/15/07 2,000 1,980,000
Jordan Telecommunication Products, Inc., Sr.
Notes......................................... NR 9.875% 08/01/07 2,900 2,900,000
--------------
17,705,000
--------------
TELECOMMUNICATIONS -- 15.8%
21st Century Telecom Group, Inc., Sr. Disc.
Notes, Zero Coupon (until 2/15/03)............ NR 12.25% 02/15/08 1,500 630,000
Allegiance Telecommunications, Inc., Sr. Disc.
Notes, Zero Coupon
(until 2/15/03)............................... NR 11.75% 02/15/08 3,800 1,748,000
Allegiance Telecommunications, Inc., Sr.
Notes......................................... NR 12.875% 05/15/08 1,750 1,706,250
American Communication Lines, Bonds............. B1 10.25% 06/30/08 3,000 3,060,000
AMSC Acquisition Co., Inc., Sr. Notes........... NR 12.25% 04/01/08 2,100 1,302,000
Arch Communications, Inc., Sr. Notes............ Caa 12.75% 07/01/07 500 492,500
Bestel, SA, Sr. Disc. Notes, Zero Coupon (until
5/15/01)...................................... NR 12.75% 05/15/05 2,500 1,450,000
Birch Telecommunications, Inc., Sr. Notes....... NR 14.00% 06/15/08 2,500 2,300,000
Caprock Communications Sr. Notes................ Caa 12.00% 07/15/08 2,500 2,400,000
CCPR Services, Inc., Gtd. Notes................. B2 10.00% 02/01/07 1,500 1,485,000
Cellnet Data Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/01/02)(b) (cost
$177,691; purchased 6/9/98)................... NR 14.00% 10/01/07 6,000 1,320,000
Classic Communications, Inc. Sr. Disc. Notes,
Zero Coupon (until 08/01/03).................. Caa 13.250% 08/01/09 2,000 1,230,000
Coaxial Communications, Inc., Sr. Disc. Notes... B3 10.00% 08/15/06 1,250 1,287,500
Crown Castle International, Sr. Disc. Notes,
Zero Coupon (until 11/15/02).................. B3 10.625% 11/15/07 500 345,000
DTI Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 3/01/03)............................... NR 12.50% 03/01/08 1,000 255,000
E. Spire Communication, Sr. Disc. Notes, Zero
Coupon (until 07/01/03)....................... NR 10.625% 07/01/08 2,850 1,140,000
Echostar Communication Sr. Disc. Notes, Zero
Coupon (until 06/01/99)....................... Caa 12.875% 06/01/04 1,000 1,025,000
Econophone, Inc., Sr. Disc. Notes, Zero Coupon
(until 2/15/03)............................... NR 11.00% 02/15/08 3,500 1,662,500
First World Communications, Inc., Sr. Disc.
Notes, Zero Coupon (until 4/15/03)............ NR 13.00% 04/15/08 3,000 915,000
Focal Communications Corp., Zero Coupon (until
2/15/03)...................................... NR 12.125% 02/15/08 2,850 1,510,500
Geotek Communication, Inc., Sr. Disc. Notes,
Zero Coupon (until 7/15/00)(d)................ Caa 15.00% 07/15/05 4,512 1,534,080
Global Telesystems, Sr. Notes................... Caa2 9.875% 02/15/05 1,200 1,140,000
Globix Corp., Sr. Notes......................... NR 13.00% 05/01/05 1,250 1,025,000
GST Telecommunications, Inc., Sr. Disc. Notes,
Zero Coupon
(until 12/15/00).............................. NR 13.875% 12/15/05 650 533,000
GST Telecommunications, Inc., Sr. Notes, Zero
Coupon (until 12/15/00)....................... NR 13.875% 12/15/05 5,950 4,254,250
GST Telecommunications, Inc., Sr. Disc. Notes,
Zero Coupon (until 5/01/03)................... NR 10.50% 05/01/08 1,250 575,000
Hyperion Telecommunications, Inc., Sr. Disc.
Notes, Zero Coupon
(until 04/15/01)(b) (cost $2,226,875;
purchased on various dates: 2/23/98 through
6/26/98)...................................... NR 13.00% 04/15/03 1,350 972,000
ICG Holdings Inc., Sr. Sub. Notes, Zero Coupon
(until 9/15/00)............................... NR 13.50% 09/15/05 2,000 1,660,000
ICG Services, Inc., Sr. Disc. Notes, Zero Coupon
(until 5/01/03)............................... NR 9.875% 05/01/08 2,000 1,030,000
ICO Global Communications Sr. Sub. Notes........ B3 15.00% 08/01/05 2,950 2,212,500
Impsat Corp., Sr. Notes......................... B2 12.375% 06/15/08 2,000 1,620,000
Impsat Corp., Gtd. Sr. Notes.................... B2 12.125% 07/15/03 3,150 2,772,000
IPC Information Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 5/01/01)................... B3 10.85% 05/01/08 2,250 1,406,250
Iridium, LLC, Gtd. Notes........................ B3 10.875% 07/15/05 1,000 855,000
Iridium, LLC, Gtd. Notes........................ B3 14.00% 07/15/05 2,500 2,375,000
Level 3 Communications, Sr. Disc. Notes, Zero
Coupon (until 12/01/03)....................... B3 10.50% 12/01/08 5,750 3,342,187
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ -------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Level 3 Communications, Sr. Notes............... B3 9.125% 05/01/08 $ 1,250 $ 1,239,063
Long Distance International, Inc., Sr. Notes.... NR 12.25% 04/15/08 2,000 1,600,000
Mastec, Inc., Sr. Notes......................... Ba3 7.75% 02/01/08 1,000 965,000
McCaw Int'l. Ltd., Sr. Disc. Notes, Zero Coupon
(until 4/15/02)............................... NR 13.00% 04/15/07 2,000 1,090,000
Metronet Communications Corp., Zero Coupon
(until 6/15/03)............................... B3 9.95% 06/15/08 4,000 2,450,000
Netia Holdings, Sr. Disc. Notes, Zero Coupon
(until 11/01/01).............................. B3 11.25% 11/01/07 3,000 1,695,000
Netia Holdings, Sr. Notes....................... B 10.25% 11/01/07 850 726,750
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 09/15/02).................. B2 10.65% 09/15/07 600 385,500
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B2 9.95% 02/15/08 5,900 3,540,000
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 8/15/99)................... B2 9.75% 08/15/04 2,500 2,425,000
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/31/02).................. B3 9.75% 10/31/07 1,000 610,000
Northeast Optic, Sr. Notes...................... NR 12.75% 08/15/08 2,000 1,940,000
Omnipoint Corp., Sr. Notes, Series A............ B3 11.625% 08/15/06 5,875 4,112,500
Pagemart Nationwide, Inc., Sr. Disc. Notes,
Series H, Zero Coupon
(until 2/01/00)............................... NR 15.00% 02/01/05 7,500 6,600,000
Pagemart Wireless, Inc., Sr. Disc. Notes, Zero
Coupon (until 2/01/03)........................ NR 11.25% 02/01/08 2,500 1,150,000
Price Communications Wireless, Inc., Sr. Sub.
Notes......................................... NR 11.75% 07/15/07 5,000 5,275,000
PTC International Finance Corp., Gtd. Notes,
Zero Coupon (until 7/01/02)................... NR 10.75% 07/01/07 1,750 1,207,500
RCN Corp., Sr. Disc. Notes, Zero Coupon (until
10/15/02)..................................... B3 11.125% 10/15/07 1,250 725,000
Rogers Cantel, Inc., Sr. Sub. Notes, Zero Coupon
(until 11/30/02).............................. B2 8.80% 10/01/07 3,400 3,425,500
RSL Communications PLC, Sr. Sec'd Notes......... B3 12.00% 11/01/08 1,500 1,552,500
Splitrock Service, Inc., Sr. Notes.............. NR 11.75% 07/15/08 1,750 1,522,500
Telegroup, Inc., Sr. Disc. Notes, Zero Coupon
(until 11/01/01).............................. NR 10.50% 11/01/04 4,000 2,040,000
Time Warner Telecom LLC., Sr. Notes............. B2 9.75% 07/15/08 2,750 2,873,750
Unisite, Inc., Sr. Disc. Notes.................. NR 13.00% 12/15/04 4,000 4,562,800
US Xchange, LLC, Sr. Notes...................... NR 15.00% 07/01/08 2,250 2,295,000
USA Mobile Communications, Sr. Notes............ B2 9.50% 02/01/04 5,000 4,500,000
Versatel Telecommunications, Sr. Notes.......... NR 13.25% 05/15/08 2,000 1,980,000
Viatel, Inc., Sr. Disc. Notes, Zero Coupon
(until 4/15/03)............................... NR 12.50% 04/15/08 1,100 627,000
Viatel, Inc., Sr. Notes......................... Caa1 11.25% 04/15/08 1,500 1,507,500
WamNet, Inc., Sr. Disc. Notes, Zero Coupon
(until 3/01/02)............................... NR 13.25% 03/01/05 1,000 550,000
Winstar Communications, Sr. Notes............... Caa1 14.00% 10/15/05 1,500 1,085,625
Worldwide Fiber, Inc., Sr. Notes................ B3 12.50% 12/15/05 4,000 4,000,000
--------------
124,829,005
--------------
TEXTILES -- 1.2%
Cluett American Corp., Sr. Sub. Notes........... NR 10.125% 05/15/08 3,560 3,364,200
Foamex, L.P., Sr. Sub. Notes.................... B3 9.875% 06/15/07 2,950 3,186,000
Steel Heddle Manufacturing, Sr. Sub. Notes...... B3 10.625% 06/01/08 2,000 1,400,000
Worldtex, Inc., Gtd. Notes...................... B1 9.625% 12/15/07 2,000 1,780,000
--------------
9,730,200
--------------
TRANSPORTATION -- 2.2%
Aircraft Funding, Sr. Sub. Notes, PIK........... NR 12.00% 07/15/99 1,051 1,008,970
Airplanes Pass-through Trust, Sr. Notes......... Ba2 10.875% 3/15/19 1,000 1,050,000
Airtran Airlines, Inc., Gtd. Notes.............. NR 10.50% 04/15/01 3,000 2,580,000
Canadian Airlines, Sr. Notes.................... NR 12.25% 08/01/06 750 525,000
Continental Airlines, Inc., Sr. Notes........... Ba2 8.00% 12/15/05 3,000 2,964,300
Holt Group, Sr. Notes........................... Caa1 9.75% 01/15/06 800 552,000
Kitty Hawk, Inc., Sr. Notes..................... B1 9.95% 11/15/04 2,000 1,970,000
Stena Line AB, Sr. Notes........................ B1 10.625% 06/01/08 2,000 1,800,000
Trans World Airlines, Sr. Notes................. NR 11.50% 12/15/04 1,750 1,487,500
Trism, Inc., Bonds.............................. B2 10.75% 12/15/00 3,750 2,118,750
Valuejet, Inc., Sr. Notes....................... B3 10.25% 04/15/01 2,500 1,412,500
--------------
17,469,020
--------------
UTILITIES -- 0.1%
Korea Electric Power, Notes..................... Ba1 7.00% 10/01/02 1,185 1,066,382
--------------
TOTAL CORPORATE BONDS
(cost $749,262,856)............................................................................ 679,291,914
--------------
CONVERTIBLE BONDS -- 0.2%
OIL & GAS SERVICES -- 0.2%
Key Energy Group, Inc., Sub. Notes.............. NR 5.00% 09/15/04 4,000 1,800,000
--------------
TELECOMMUNICATIONS
Geotek Communications, Inc., Sr. Conv. Notes.... NR 12.00% 02/15/01 2,000 10,000
--------------
TOTAL CONVERTIBLE BONDS
(cost $4,969,713).............................................................................. 1,810,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (a) -- 0.5% SHARES (NOTE 2)
-------------- --------------
<S> <C> <C>
Cellnet Data Systems, Inc. (b) (cost $170; purchased 6/23/97)................. 34,000 $ 170,000
Coinstar, Inc................................................................. 6,300 67,725
Dr. Pepper Bottling Holdings, Inc., (Class 'B' Stock)......................... 5,807 185,824
Hedstrom Holding Co........................................................... 24,261 24,261
Intermedia Communications, PIK................................................ 8,514 146,867
Loehmann's Holdings, Inc.(b) (cost $0; purchased 9/28/98)..................... 4,403 8,393
Pagemart Nationwide, Inc...................................................... 13,125 73,828
Premium Standard Farms(b)(c) (cost $870,000; purchased 1/8/98)................ 22,025 356,149
Samuels Jewelers, Inc......................................................... 37,500 318,750
Scott Cable Communications, (Class 'C' Stock)................................. 875 0
Waste Systems International................................................... 513,351 2,823,431
--------------
TOTAL COMMON STOCKS
(cost $2,885,749)............................................................................. 4,175,228
--------------
PREFERRED STOCKS -- 6.8%
21st Century Telecommunications Group, Inc., PIK.............................. 443 287,919
Adelphia Communications, Inc., PIK............................................ 65,250 7,601,625
AmeriKing, Inc................................................................ 22,716 579,258
California Federal Bancorp, Inc............................................... 100,000 2,531,250
Cendant Corp.................................................................. 91,100 3,040,462
Century Maintenance Supplies.................................................. 42,547 4,403,610
Chesapeake Energy Corp.(a).................................................... 20,000 213,750
Clark USA, Inc., PIK.......................................................... 531 424,693
Cluett American Corp.......................................................... 37,805 3,542,623
Concentric Network Corp....................................................... 1,278 1,092,690
CSC Holdings, Inc., PIK....................................................... 327 3,644,545
Eagle-Picher Holdings, Inc. (a)............................................... 170 858,500
EchoStar Communications, Inc., PIK............................................ 4,002 4,627,335
Fitzgerald Gaming, Inc. (a)................................................... 50,000 500,000
Geneva Steel, Inc............................................................. 22,000 66,000
GPA Group PLC................................................................. 1,550,000 775,000
Harborside Healthcare Corp.................................................... 1,034 904,750
ICG Communications, Inc., PIK................................................. 1,273 1,247,059
Intermedia Communications, Inc., Series 144................................... 90,000 1,338,750
Intermedia Communications, Inc., Series D..................................... 90,000 2,103,750
Intermedia Communications, Inc., PIK.......................................... 3,151 3,175,053
International Utility Structures, Inc......................................... 16 14,240
Kelley Oil & Gas Corp......................................................... 38,400 345,600
Nextel Communications, Inc.................................................... 922 839,020
NEXTLINK Communications, Inc.................................................. 39,500 1,659,000
Paxson Communications, Inc.................................................... 5,511 5,015,181
Petroleum Heat & Power, Inc., Conv. Pfd. (a)(b) (cost $49,022, purchased
9/9/98)..................................................................... 19,609 39,218
Petroleum Heat & Power, Inc., Series C (b) (cost $2,000,000, purchased
2/12/97).................................................................... 80,000 1,600,000
Rural Cellular Corp., PIK..................................................... 529 486,328
Viasystems, Inc. (a).......................................................... 43,297 649,459
Viatel Inc., Sr. Notes........................................................ 1,363 149,944
--------------
TOTAL PREFERRED STOCKS
(cost $62,519,868)............................................................................ 53,756,612
--------------
EXPIRATION
WARRANTS (a) -- 0.2% DATE UNITS
------------- -------------
21st Century Telecom Group, Inc................................. 02/15/10 400 12,000
Allegiance Telecommunications, Inc.............................. 02/03/08 3,800 30,400
American Banknote Corp.......................................... 12/01/02 2,500 312
American Mobile Satelite Corp................................... 04/01/08 2,100 8,148
Ampex Corp...................................................... 03/15/03 170,000 127,500
Bell Technology Group Ltd....................................... 01/23/01 1,250 12
Bestel SA....................................................... 01/01/04 2,500 5,000
Birch Telecomm, Inc............................................. 06/15/00 2,500 0
Cellnet Data Systems, Inc....................................... 01/01/49 7,010 42,060
Classic Communicatons, Inc...................................... 08/01/09 6,000 0
Clearnet Communications, Inc.................................... 09/15/05 26,202 131,010
Diva Systems Corp............................................... 01/01/05 3,000 48,000
DTI Holdings, Inc............................................... 01/01/04 5,000 250
Electronic Retailing Systems.................................... 01/01/49 2,000 10,000
Ermis Maritime Holdings, Inc.................................... 01/01/07 2,000 2,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EXPIRATION VALUE
WARRANTS (a) (CONTINUED) DATE UNITS (NOTE 2)
------------- ------------- --------------
<S> <C> <C> <C>
First World Communications...................................... 01/01/04 3,000 $ 0
Foamex - JPS Automotive LLC..................................... 07/01/99 2,000 42,000
Globalstar Capital Co........................................... 02/15/04 1,200 72,000
Hyperion Telecommunications Corp................................ 04/15/01 4,250 318,623
ICG Communications, Inc......................................... 09/15/05 20,790 270,270
ICO Global Communications....................................... 08/01/05 2,950 0
Interact Systems, Inc........................................... 08/01/03 4,400 550
Intermedia Communications of Florida, Inc....................... 06/01/00 3,000 128,220
Long Distance Int'l., Inc....................................... 05/01/05 2,000 20
McCaw Int'l. Ltd................................................ 01/01/49 1,650 8,250
MGC Communications, Inc......................................... 01/01/49 1,950 60,138
Nextel Communications, Inc...................................... 01/01/49 2,250 0
Pagemart, Inc................................................... 11/01/03 9,200 27,600
Powertel, Inc................................................... 02/01/06 6,720 13,440
President Riverboat Casinos, Inc................................ 09/30/99 22,075 0
Price Communications Cellular Holdings.......................... 08/01/07 6,880 301,860
Primus Telecommunications Group................................. 08/01/07 1,500 18,750
Splitrock Service, Inc.......................................... 07/15/08 1,750 19,250
Star Choice Communications, Inc................................. 12/15/05 69,480 26,805
Sterling Chemical Holdings, Inc................................. 08/15/08 560 8,400
TVN Entertainment Corp.......................................... 08/01/08 3,750 38
Unisite, Inc.................................................... 12/15/04 1,943 0
USN Communications, Inc......................................... 01/01/49 10,590 2,224
Versatel Telecommunications..................................... 05/15/08 2,000 20,000
Wam!net, Inc.................................................... 01/01/08 3,000 24,000
--------------
TOTAL WARRANTS
(cost $618,277)............................................................................... 1,779,130
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $820,256,463)........................................................................... 740,812,884
--------------
PRINCIPAL
INTEREST MATURITY AMOUNT
SHORT-TERM INVESTMENT -- 4.3% RATE DATE (000)
------------ -------- --------
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account.......................... 4.693% 01/04/99 $33,890 33,890,000
--------------
(cost $33,890,000 Note 5)
TOTAL INVESTMENTS -- 98.2%
(cost $854,146,463; Note 6)................................................................... 774,702,884
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.8%................................................... 14,618,087
--------------
TOTAL NET ASSETS -- 100.0%...................................................................... $ 789,320,971
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
LLC Limited Liability Company
LP Limited Partnership
NR Not Rated by Moody's or Standard & Poors
PIK Payment in Kind Securities
PLC Public Limited Company
(a) Non-income producing security.
(b) Indicates a restricted security; the aggregate cost of the restricted
securities is $13,501,095. The aggregate value, $13,241,026 is
approximately 1.7% of net assets.
(c) Indiciates a fair valued security.
(d) Represents issuer in default on interest payments, non-income producing
security.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
STOCK INDEX PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 97.3%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.3%
Aeroquip-Vickers, Inc........................... 9,700 $ 290,394
AlliedSignal, Inc............................... 195,400 8,658,662
Boeing Co....................................... 343,536 11,207,862
General Dynamics Corp........................... 44,400 2,602,950
Goodrich (B.F.) Co.............................. 25,600 918,400
Lockheed Martin Corp............................ 68,049 5,767,153
Northrop Grumman Corp........................... 24,200 1,769,625
Parker-Hannifin Corp............................ 38,225 1,251,869
Raytheon Co. (Class "B" Stock).................. 118,018 6,284,458
United Technologies Corp........................ 79,700 8,667,375
--------------
47,418,748
--------------
AIRLINES -- 0.3%
AMR Corp. (a)................................... 63,900 3,794,062
Delta Air Lines, Inc............................ 53,200 2,766,400
Southwest Airlines Co........................... 117,150 2,628,553
US Airways Group, Inc. (a)...................... 34,900 1,814,800
--------------
11,003,815
--------------
APPAREL -- 0.1%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 25,200 348,075
Nike, Inc. (Class "B" Stock).................... 101,100 4,100,869
Reebok International Ltd........................ 19,000 282,625
--------------
4,731,569
--------------
AUTOS - CARS & TRUCKS -- 1.4%
Cummins Engine Co., Inc......................... 12,400 440,200
Dana Corp....................................... 57,094 2,333,717
Ford Motor Co................................... 420,500 24,678,094
General Motors Corp............................. 224,400 16,058,625
Genuine Parts Co................................ 61,925 2,070,617
Johnson Controls, Inc........................... 29,300 1,728,700
Navistar International Corp. (a)................ 23,900 681,150
PACCAR, Inc..................................... 27,160 1,116,955
TRW, Inc........................................ 42,000 2,359,875
--------------
51,467,933
--------------
BANKS AND SAVINGS & LOANS -- 6.5%
Banc One Corp................................... 404,445 20,651,973
Bank of New York Co., Inc....................... 261,100 10,509,275
BankAmerica Corp................................ 600,844 36,125,745
BankBoston Corp................................. 102,600 3,994,987
Bankers Trust Corp.............................. 34,200 2,921,962
BB&T Corp....................................... 98,700 3,978,844
Chase Manhattan Corp............................ 295,094 20,084,835
Comerica, Inc................................... 54,150 3,692,353
First Union Corp................................ 334,578 20,346,525
Fleet Financial Group, Inc...................... 198,400 8,866,000
Golden West Financial Corp...................... 20,100 1,842,919
Huntington Bancshares, Inc...................... 73,500 2,209,594
KeyCorp......................................... 152,900 4,892,800
Mellon Bank Corp................................ 91,200 6,270,000
Mercantile Bancorporation, Inc.................. 53,400 2,463,075
Morgan (J.P.) & Co., Inc........................ 61,950 6,508,622
National City Corp.............................. 114,700 8,315,750
Northern Trust Corp............................. 38,300 3,344,069
PNC Bank Corp................................... 104,600 5,661,475
Providian Financial Corp........................ 48,750 3,656,250
Regions Financial Corp.......................... 75,100 3,027,469
Republic New York Corp.......................... 37,100 1,690,369
Summit Bancorp.................................. 60,900 2,660,569
Suntrust Banks, Inc............................. 72,800 5,569,200
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
Synovus Financial Corp.......................... 91,500 $ 2,230,312
U.S. Bancorp.................................... 259,426 9,209,623
Union Planters Corp............................. 43,800 1,984,687
Wachovia Corp................................... 71,900 6,286,756
Wells Fargo & Co................................ 565,260 22,575,071
--------------
231,571,109
--------------
BUSINESS SERVICES -- 0.1%
Equifax, Inc.................................... 52,300 1,788,006
Omnicom Group, Inc.............................. 58,400 3,387,200
--------------
5,175,206
--------------
CHEMICALS -- 1.6%
Air Products & Chemicals, Inc................... 81,100 3,244,000
Dow Chemical Co................................. 77,900 7,084,031
Du Pont (E.I.) de Nemours & Co.................. 394,400 20,927,850
Eastman Chemical Co............................. 27,600 1,235,100
Engelhard Corp.................................. 49,875 972,562
FMC Corp. (a)................................... 12,300 688,800
Grace (W.R.) & Co............................... 24,400 382,775
Great Lakes Chemical Corp....................... 20,600 824,000
Hercules, Inc................................... 32,400 886,950
Monsanto Co..................................... 209,300 9,941,750
Morton International, Inc....................... 46,100 1,129,450
Nalco Chemical Co............................... 23,100 716,100
Praxair, Inc.................................... 55,600 1,959,900
Raychem Corp.................................... 30,200 975,837
Rohm & Haas Co.................................. 61,800 1,861,725
Sigma-Aldrich Corp.............................. 34,000 998,750
Union Carbide Corp.............................. 47,000 1,997,500
--------------
55,827,080
--------------
COMMERCIAL SERVICES -- 0.2%
Cendant Corp. (a)............................... 299,618 5,711,468
Deluxe Corp..................................... 27,000 987,187
Moore Corp. Ltd................................. 28,500 313,500
--------------
7,012,155
--------------
COMPUTER SERVICES -- 7.2%
3Com Corp. (a).................................. 124,000 5,556,750
Adobe Systems, Inc.............................. 23,600 1,103,300
America Online, Inc. (a)........................ 24,000 3,840,000
Autodesk, Inc................................... 15,800 674,462
Automatic Data Processing, Inc.................. 104,700 8,395,631
BMC Software, Inc. (a).......................... 71,100 3,168,394
Cabletron Systems, Inc. (a)..................... 53,500 448,062
Ceridian Corp. (a).............................. 24,600 1,717,387
Cisco Systems, Inc. (a)......................... 537,450 49,882,078
Computer Associates International, Inc.......... 195,143 8,317,970
Computer Sciences Corp. (a)..................... 55,200 3,556,950
Electronic Data Systems Corp.................... 170,100 8,547,525
EMC Corp. (a)................................... 173,300 14,730,500
First Data Corp................................. 154,300 4,889,381
Microsoft Corp. (a)............................. 858,300 119,035,481
Novell, Inc. (a)................................ 120,100 2,176,812
Oracle Corp. (a)................................ 336,687 14,519,627
Parametric Technology Corp. (a)................. 93,000 1,522,875
Peoplesoft, Inc................................. 70,000 1,325,625
Silicon Graphics, Inc. (a)...................... 61,800 795,675
Unisys Corp..................................... 85,900 2,958,181
--------------
257,162,666
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
COMPUTERS -- 4.5%
Apple Computer, Inc. (a)........................ 45,700 $ 1,870,844
Compaq Computer Corp............................ 580,769 24,356,000
Data General Corp. (a).......................... 15,800 259,712
Dell Computer Corp. (a)......................... 440,200 32,217,137
Gateway 2000, Inc. (a).......................... 54,200 2,774,362
Hewlett-Packard Co.............................. 361,400 24,688,137
International Business Machines Corp............ 323,800 59,822,050
Seagate Technology, Inc. (a).................... 83,100 2,513,775
Sun Microsystems, Inc. (a)...................... 131,000 11,216,875
--------------
159,718,892
--------------
CONSTRUCTION -- 0.1%
Centex Corp..................................... 21,600 973,350
Fluor Corp...................................... 28,300 1,204,519
Foster Wheeler Corp............................. 13,300 175,394
Pulte Corp...................................... 14,500 403,281
--------------
2,756,544
--------------
CONTAINERS -- 0.2%
Ball Corp....................................... 10,900 498,675
Bemis Co., Inc.................................. 18,100 686,669
Crown Cork & Seal Co., Inc...................... 44,200 1,361,912
Owens-Illinois, Inc. (a)........................ 54,700 1,675,187
Sealed Air Corp................................. 29,510 1,506,854
--------------
5,729,297
--------------
COSMETICS & SOAPS -- 2.2%
Alberto Culver Co. (Class "B" Stock)............ 19,100 509,731
Avon Products, Inc.............................. 92,000 4,071,000
Colgate-Palmolive Co............................ 102,700 9,538,262
Gillette Co..................................... 391,700 18,924,006
International Flavors & Fragrances, Inc......... 36,400 1,608,425
Procter & Gamble Co............................. 463,504 42,323,709
--------------
76,975,133
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.6%
Avery Dennison Corp............................. 40,800 1,838,550
Pitney Bowes, Inc............................... 98,100 6,480,731
Xerox Corp...................................... 113,446 13,386,628
--------------
21,705,909
--------------
DIVERSIFIED OPERATIONS -- 3.3%
Fortune Brands, Inc............................. 61,300 1,938,612
General Electric Co............................. 1,124,600 114,779,487
--------------
116,718,099
--------------
DRUGS AND MEDICAL SUPPLIES -- 11.3%
Abbott Laboratories............................. 534,900 26,210,100
Allergan, Inc................................... 23,300 1,508,675
ALZA Corp. (a).................................. 30,600 1,598,850
American Home Products Corp..................... 457,400 25,757,337
Amgen, Inc. (a)................................. 88,700 9,274,694
Bard (C.R.), Inc................................ 19,000 940,500
Bausch & Lomb, Inc.............................. 20,100 1,206,000
Baxter International, Inc....................... 99,900 6,424,819
Becton, Dickinson & Co.......................... 86,600 3,696,737
Biomet, Inc..................................... 39,100 1,573,775
Boston Scientific Corp. (a)..................... 136,600 3,662,587
Bristol-Myers Squibb Co......................... 343,780 46,002,061
Cardinal Health, Inc............................ 69,450 5,269,519
Guidant Corp.................................... 52,900 5,832,225
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
DRUGS AND MEDICAL SUPPLIES (CONT'D.)
Johnson & Johnson............................... 464,800 $ 38,985,100
Lilly (Eli) & Co................................ 381,400 33,896,925
Mallinckrodt, Inc............................... 23,800 733,337
Medtronic, Inc.................................. 163,500 12,139,875
Merck & Co., Inc................................ 411,650 60,795,559
Pfizer, Inc..................................... 453,600 56,898,450
Pharmacia & Upjohn, Inc......................... 177,425 10,046,691
Schering-Plough Corp............................ 509,400 28,144,350
St. Jude Medical, Inc. (a)...................... 30,300 838,931
Warner-Lambert Co............................... 281,500 21,165,281
--------------
402,602,378
--------------
ELECTRONICS -- 3.8%
Advanced Micro Devices, Inc. (a)................ 48,100 1,391,894
AMP Inc......................................... 76,044 3,959,041
Applied Materials, Inc. (a)..................... 127,600 5,446,925
EG&G, Inc....................................... 15,000 417,187
Emerson Electric Co............................. 154,100 9,640,881
Grainger (W.W.), Inc............................ 33,400 1,390,275
Harris Corp..................................... 27,100 992,537
Honeywell, Inc.................................. 44,000 3,313,750
Intel Corp...................................... 582,500 69,062,656
KLA-Tencor Corp. (a)............................ 29,700 1,288,237
LSI Logic Corp. (a)............................. 47,500 765,937
Micron Technology, Inc.......................... 74,900 3,787,131
Motorola, Inc................................... 207,100 12,646,044
National Semiconductor Corp. (a)................ 58,000 783,000
Perkin-Elmer Corp............................... 17,200 1,678,075
Rockwell International Corp..................... 68,500 3,326,531
Solectron Corp.................................. 11,600 1,078,075
Tektronix, Inc.................................. 17,500 526,094
Texas Instruments, Inc.......................... 136,000 11,636,500
Thomas & Betts Corp............................. 19,800 857,587
--------------
133,988,357
--------------
ENVIRONMENTAL SERVICES -- 0.1%
Browning-Ferris Industries, Inc................. 66,200 1,882,562
--------------
FINANCIAL SERVICES -- 5.6%
American Express Co............................. 159,900 16,349,775
Associates First Capital Corp................... 240,066 10,172,797
Bear Stearns Companies, Inc..................... 40,100 1,498,737
Block (H.R.), Inc............................... 36,700 1,651,500
Capital One Financial Corp...................... 22,800 2,622,000
Citigroup, Inc.................................. 791,209 39,164,845
Countrywide Credit Industries, Inc.............. 38,800 1,947,275
Dun & Bradstreet Corp........................... 58,360 1,841,987
Federal Home Loan Mortgage Corp................. 233,000 15,013,937
Federal National Mortgage Association........... 360,100 26,647,400
Fifth Third Bancorp............................. 93,800 6,689,112
Franklin Resources, Inc......................... 88,400 2,828,800
Household International, Inc.................... 171,258 6,786,098
Lehman Brothers Holdings, Inc................... 40,200 1,771,312
MBNA Corp....................................... 258,768 6,453,027
Merrill Lynch & Co., Inc........................ 120,400 8,036,700
Morgan Stanley Dean Witter & Co................. 200,905 14,264,255
Paychex, Inc.................................... 52,000 2,674,750
Schwab (Charles) Corp........................... 139,200 7,821,300
SLM Holding Corp................................ 59,600 2,860,800
State Street Corp............................... 55,800 3,881,587
SunAmerica, Inc................................. 71,700 5,816,662
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES (CONT'D.)
Transamerica Corp............................... 21,600 $ 2,494,800
Washington Mutual, Inc.......................... 206,248 7,876,095
--------------
197,165,551
--------------
FOOD & BEVERAGES -- 4.7%
Anheuser-Busch Companies, Inc................... 168,500 11,057,812
Archer-Daniels-Midland Co....................... 206,173 3,543,598
Bestfoods....................................... 100,700 5,362,275
Brown-Forman Corp. (Class "B" Stock)............ 24,500 1,854,344
Campbell Soup Co................................ 152,400 8,382,000
Coca-Cola Co.................................... 852,900 57,037,687
Coca-Cola Enterprises, Inc...................... 139,000 4,969,250
ConAgra, Inc.................................... 169,100 5,326,650
Coors (Adolph) Co. (Class "B" Stock)............ 12,800 722,400
General Mills, Inc.............................. 54,400 4,229,600
Heinz (H.J.) & Co............................... 127,850 7,239,506
Hershey Foods Corp.............................. 49,800 3,096,937
Kellogg Co...................................... 141,700 4,835,512
PepsiCo, Inc.................................... 510,000 20,878,125
Pioneer Hi-Bred International, Inc.............. 84,900 2,292,300
Quaker Oats Co.................................. 48,200 2,867,900
Ralston-Ralston Purina Group.................... 109,220 3,535,997
Sara Lee Corp................................... 323,400 9,115,837
Seagram Co., Ltd................................ 130,200 4,947,600
Sysco Corp...................................... 117,500 3,223,906
Wrigley (William) Jr. Co........................ 39,900 3,573,544
--------------
168,092,780
--------------
FOREST PRODUCTS -- 0.6%
Boise Cascade Corp.............................. 18,886 585,466
Champion International Corp..................... 33,000 1,336,500
Fort James Corp................................. 76,000 3,040,000
Georgia-Pacific Corp............................ 31,400 1,838,862
International Paper Co.......................... 107,434 4,814,386
Louisiana-Pacific Corp.......................... 38,900 712,356
Mead Corp....................................... 35,400 1,037,662
Potlatch Corp................................... 10,000 368,750
Temple-Inland, Inc.............................. 19,000 1,126,937
Union Camp Corp................................. 25,100 1,694,250
Westvaco Corp................................... 35,700 957,206
Weyerhaeuser Co................................. 68,900 3,500,981
Willamette Industries, Inc...................... 40,100 1,343,350
--------------
22,356,706
--------------
GAS PIPELINES -- 0.3%
Columbia Energy Group........................... 28,250 1,631,437
Consolidated Natural Gas Co..................... 33,700 1,819,800
Peoples Energy Corp............................. 11,400 454,575
Sempra Energy................................... 84,104 2,134,139
Sonat, Inc...................................... 36,900 998,606
Williams Companies, Inc......................... 146,300 4,562,731
--------------
11,601,288
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.7%
Columbia/HCA Healthcare Corp.................... 226,298 5,600,875
HBO & Co........................................ 151,100 4,334,681
Healthsouth Corp. (a)........................... 146,500 2,261,594
Humana, Inc. (a)................................ 58,100 1,034,906
IMS Health, Inc................................. 57,560 4,342,183
Manor Care, Inc................................. 30,850 906,219
Service Corp. International..................... 89,500 3,406,594
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
HOSPITALS/ HOSPITAL MANAGEMENT (CONT'D.)
Shared Medical Systems Corp..................... 9,000 $ 448,875
Tenet Healthcare Corp. (a)...................... 107,100 2,811,375
--------------
25,147,302
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.4%
Clorox Co....................................... 36,600 4,275,338
Kimberly-Clark Corp............................. 186,988 10,190,846
--------------
14,466,184
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc................. 13,700 826,281
Fleetwood Enterprises, Inc...................... 12,600 437,850
Kaufman & Broad Home Corp....................... 13,166 378,523
Lowe's Companies, Inc........................... 122,900 6,290,944
Masco Corp...................................... 118,200 3,398,250
Maytag Corp..................................... 32,700 2,035,575
Owens Corning................................... 19,100 676,856
Stanley Works................................... 32,300 896,325
Tupperware Corp................................. 22,300 366,556
Whirlpool Corp.................................. 27,300 1,511,738
--------------
16,818,898
--------------
INSURANCE -- 3.4%
Aetna, Inc...................................... 50,912 4,002,956
Allstate Corp................................... 283,988 10,969,037
American General Corp........................... 88,686 6,917,508
American International Group, Inc............... 363,532 35,126,280
Aon Corp........................................ 58,150 3,220,056
Berkshire Hathaway, Inc. (Class "B" Stock)...... 982 2,307,113
Chubb Corp...................................... 58,400 3,788,700
CIGNA Corp...................................... 71,100 5,496,919
Cincinnati Financial Corp....................... 58,500 2,142,563
Conseco, Inc.................................... 108,259 3,308,666
Hartford Financial Services Group, Inc.......... 81,300 4,461,338
Jefferson-Pilot Corp............................ 37,012 2,775,900
Lincoln National Corp........................... 35,100 2,871,619
Loews Corp...................................... 39,700 3,900,525
Marsh & McLennan Companies, Inc................. 88,400 5,165,875
MBIA, Inc....................................... 34,300 2,248,794
MGIC Investment Corp............................ 40,200 1,600,463
Progressive Corp................................ 25,100 4,251,313
Provident Companies, Inc........................ 47,200 1,958,800
SAFECO Corp..................................... 48,300 2,073,881
St. Paul Companies, Inc......................... 82,410 2,863,748
Torchmark Corp.................................. 48,000 1,695,000
United Healthcare Corp.......................... 67,500 2,906,719
UNUM Corp....................................... 48,500 2,831,188
--------------
118,884,961
--------------
LEISURE -- 1.1%
Brunswick Corp.................................. 33,400 826,650
Carnival Corp. (Class "A" Stock)................ 181,000 8,688,000
Disney (Walt) Co................................ 712,601 21,378,030
Harrah's Entertainment, Inc. (a)................ 35,350 554,553
Hilton Hotels Corp.............................. 87,800 1,679,175
King World Productions, Inc..................... 25,600 753,600
Marriott International, Inc. (Class "A"
Stock)........................................ 90,200 2,615,800
Mirage Resorts, Inc. (a)........................ 61,900 924,631
--------------
37,420,439
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MACHINERY -- 0.6%
Briggs & Stratton Corp.......................... 7,800 $ 389,025
Case Corp....................................... 25,400 554,038
Caterpillar, Inc................................ 127,700 5,874,200
Cooper Industries, Inc.......................... 42,600 2,031,488
Deere & Co...................................... 85,200 2,822,250
Dover Corp...................................... 78,100 2,860,413
Eaton Corp...................................... 25,500 1,802,531
Harnischfeger Industries, Inc................... 16,100 164,019
Ingersoll-Rand Co............................... 57,550 2,701,253
Milacron, Inc................................... 12,600 242,550
Snap-On, Inc.................................... 20,800 724,100
Timken Co....................................... 21,500 405,813
--------------
20,571,680
--------------
MANUFACTURING -- 0.6%
Illinois Tool Works, Inc........................ 87,200 5,057,600
Tyco International Ltd.......................... 224,608 16,943,866
--------------
22,001,466
--------------
MEDIA -- 2.9%
CBS Corp........................................ 248,100 8,125,275
Clear Channel Communications, Inc. (a).......... 86,200 4,697,900
Comcast Corp. (Special Class "A" Stock)......... 128,200 7,523,738
Donnelley (R.R.) & Sons Co...................... 49,500 2,168,719
Dow Jones & Co., Inc............................ 32,200 1,549,625
Gannett Co., Inc................................ 99,400 6,579,038
Interpublic Group of Companies, Inc............. 47,900 3,820,025
Knight-Ridder, Inc.............................. 27,600 1,411,050
McGraw-Hill, Inc................................ 34,700 3,535,063
Mediaone Group, Inc............................. 212,200 9,973,400
Meredith Corp................................... 17,800 674,175
New York Times Co. (Class "A" Stock)............ 65,200 2,261,625
Tele-Communications, Inc. (Series "A"
Stock) (a).................................... 182,800 10,111,125
Time Warner, Inc................................ 411,080 25,512,653
Times Mirror Co. (Class "A" Stock).............. 30,600 1,713,600
Tribune Co...................................... 42,600 2,811,600
Viacom, Inc. (Class "B" Stock) (a).............. 125,367 9,277,158
--------------
101,745,769
--------------
METALS-FERROUS -- 0.1%
Allegheny Teledyne, Inc......................... 69,880 1,428,173
Bethlehem Steel Corp. (a)....................... 47,300 396,138
Nucor Corp...................................... 30,800 1,332,100
USX-U.S. Steel Group, Inc....................... 31,540 725,420
Worthington Industries, Inc..................... 34,000 425,000
--------------
4,306,831
--------------
METALS-NON FERROUS -- 0.3%
Alcan Aluminum Ltd.............................. 79,350 2,147,409
Aluminum Company of America..................... 65,500 4,883,844
Cyprus Amax Minerals Co......................... 32,700 327,000
Inco Ltd........................................ 56,200 593,613
Reynolds Metals Co.............................. 25,600 1,348,800
--------------
9,300,666
--------------
MINERAL RESOURCES -- 0.1%
ASARCO, Inc..................................... 14,500 218,406
Burlington Resources, Inc....................... 60,917 2,181,590
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MINERAL RESOURCES (CONT'D.)
Homestake Mining Co............................. 72,700 $ 667,931
Phelps Dodge Corp............................... 20,300 1,032,763
--------------
4,100,690
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.6%
AES Corp........................................ 63,300 2,998,838
Crane Co........................................ 23,625 713,180
Danaher Corp.................................... 43,100 2,340,869
Ecolab, Inc..................................... 46,000 1,664,625
ITT Industries, Inc............................. 41,900 1,665,525
Laidlaw, Inc.................................... 112,400 1,131,025
Millipore Corp.................................. 14,200 403,813
NACCO Industries, Inc. (Class "A" Stock)........ 2,800 257,600
Pall Corp....................................... 42,000 1,063,125
PPG Industries, Inc............................. 62,200 3,623,150
Textron, Inc.................................... 57,200 4,343,625
Thermo Electron Corp. (a)....................... 57,000 965,438
--------------
21,170,813
--------------
MISCELLANEOUS - CONSUMER GROWTH/STAPLE -- 1.2%
American Greetings Corp. (Class "A" Stock)...... 24,800 1,018,350
Black & Decker Corp............................. 32,900 1,844,456
Corning, Inc.................................... 80,600 3,627,000
Eastman Kodak Co................................ 113,100 8,143,200
Jostens, Inc.................................... 12,400 324,725
Minnesota Mining & Manufacturing Co............. 137,300 9,765,463
Polaroid Corp................................... 15,400 287,788
Rubbermaid, Inc................................. 52,200 1,641,038
Unilever N.V., ADR, (United Kingdom)............ 221,700 18,387,244
--------------
45,039,264
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.1%
Tenneco, Inc.................................... 58,900 2,006,281
--------------
OIL & GAS -- 5.5%
Amerada Hess Corp............................... 32,500 1,616,875
Amoco Corp...................................... 327,260 19,758,323
Anadarko Petroleum Corp......................... 41,600 1,284,400
Ashland, Inc.................................... 26,600 1,286,775
Atlantic Richfield Co........................... 112,270 7,325,618
Chevron Corp.................................... 227,700 18,884,869
Coastal Corp.................................... 72,700 2,539,956
Eastern Enterprises............................. 6,500 284,375
Exxon Corp...................................... 843,600 61,688,250
Kerr-McGee Corp................................. 16,200 619,650
Mobil Corp...................................... 272,000 23,698,000
NICOR, Inc...................................... 16,200 684,450
Phillips Petroleum Co........................... 90,300 3,849,038
Royal Dutch Petroleum Co........................ 745,300 35,681,238
Sunoco, Inc..................................... 33,200 1,197,275
Texaco, Inc..................................... 183,782 9,717,473
Union Pacific Resources Group, Inc.............. 86,056 779,883
Unocal Corp..................................... 84,600 2,469,263
USX-Marathon Group.............................. 100,000 3,012,500
--------------
196,378,211
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Occidental Petroleum Corp....................... 128,000 2,160,000
Oryx Energy Co. (a)............................. 37,200 499,875
--------------
2,659,875
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS SERVICES -- 0.7%
Apache Corp..................................... 34,100 $ 863,156
Baker Hughes, Inc............................... 112,130 1,983,299
Enron Corp...................................... 114,200 6,516,538
Halliburton Co.................................. 152,700 4,523,738
Helmerich & Payne, Inc.......................... 18,100 350,688
McDermott International, Inc.................... 20,700 511,031
ONEOK, Inc...................................... 10,000 361,250
Rowan Companies, Inc. (a)....................... 28,700 287,000
Schlumberger Ltd................................ 189,100 8,722,238
--------------
24,118,938
--------------
PRECIOUS METALS -- 0.2%
Barrick Gold Corp............................... 129,300 2,521,350
Battle Mountain Gold Co......................... 81,000 334,125
Freeport-McMoRan Copper & Gold, Inc. (Class "B"
Stock)........................................ 66,200 690,963
Newmont Mining Corp............................. 54,503 984,460
Placer Dome, Inc................................ 86,000 989,000
--------------
5,519,898
--------------
RAILROADS -- 0.5%
Burlington Northern Santa Fe Corp............... 163,626 5,522,378
CSX Corp........................................ 76,612 3,179,398
Norfolk Southern Corp........................... 132,300 4,192,256
Union Pacific Corp.............................. 86,800 3,911,425
--------------
16,805,457
--------------
RESTAURANTS -- 0.6%
Darden Restaurants, Inc......................... 50,300 905,400
McDonald's Corp................................. 238,800 18,298,050
Tricon Global Restaurants, Inc. (a)............. 53,850 2,699,231
Wendy's International, Inc...................... 44,800 977,200
--------------
22,879,881
--------------
RETAIL -- 6.4%
Albertson's, Inc................................ 85,800 5,464,388
American Stores Co.............................. 95,800 3,538,613
AutoZone, Inc. (a).............................. 51,900 1,709,456
Circuit City Stores, Inc........................ 33,800 1,687,888
Consolidated Stores Corp........................ 37,200 750,975
Costco Companies, Inc. (a)...................... 75,466 5,447,702
CVS Corp........................................ 134,800 7,414,000
Dayton-Hudson Corp.............................. 152,284 8,261,407
Dillard's, Inc.................................. 37,750 1,071,156
Dollar General Corporation...................... 63,875 1,509,047
Federated Department Stores, Inc. (a)........... 73,500 3,201,844
Fred Meyer, Inc................................. 54,100 3,259,525
Great Atlantic & Pacific Tea Co., Inc........... 12,400 367,350
Harcourt General, Inc........................... 25,006 1,330,007
Home Depot, Inc................................. 519,446 31,783,602
IKON Office Solutions, Inc...................... 46,476 397,951
J.C. Penney Co., Inc............................ 88,800 4,162,500
Kmart Corp. (a)................................. 168,400 2,578,625
Kohl's Corp. (a)................................ 55,600 3,415,925
Kroger Co. (a).................................. 88,700 5,366,350
Liz Claiborne, Inc.............................. 23,400 738,563
Longs Drug Stores, Inc.......................... 13,700 513,750
May Department Stores Co........................ 80,600 4,866,225
Newell Co....................................... 55,000 2,268,750
Nordstrom, Inc.................................. 52,300 1,814,156
Pep Boys-Manny, Moe & Jack...................... 21,700 340,419
Rite Aid Corp................................... 90,600 4,490,363
Safeway, Inc. (a)............................... 166,100 10,121,719
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
RETAIL (CONT'D.)
Sears, Roebuck & Co............................. 130,400 $ 5,542,000
Sherwin-Williams Co............................. 59,700 1,753,688
Staples, Inc. (a)............................... 105,200 4,595,925
Supervalu, Inc.................................. 40,800 1,142,400
Tandy Corp...................................... 34,530 1,422,204
The Gap, Inc.................................... 201,525 11,335,781
The Limited, Inc................................ 82,048 2,389,648
TJX Companies, Inc.............................. 109,400 3,172,600
Toys 'R' Us, Inc. (a)........................... 98,450 1,661,344
Wal-Mart Stores, Inc............................ 774,000 63,032,625
Walgreen Co..................................... 172,900 10,125,456
Winn-Dixie Stores, Inc.......................... 51,900 2,329,013
--------------
226,374,940
--------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co......................... 28,800 588,600
Goodyear Tire & Rubber Co....................... 54,300 2,738,756
--------------
3,327,356
--------------
TELECOMMUNICATIONS -- 10.3%
Airtouch Communications, Inc. (a)............... 198,900 14,345,663
Alltel Corp..................................... 94,700 5,664,244
Ameritech Corp.................................. 383,400 24,297,975
Andrew Corp. (a)................................ 29,112 480,348
Ascend Communications, Inc. (a)................. 74,800 4,918,100
AT&T Corp....................................... 624,473 46,991,593
Bell Atlantic Corp.............................. 538,390 30,587,282
BellSouth Corp.................................. 682,000 34,014,750
Frontier Corp................................... 60,400 2,053,600
General Instrument Corp......................... 51,300 1,740,994
GTE Corp........................................ 330,320 22,275,955
Lucent Technologies, Inc........................ 454,620 50,008,200
MCI WorldCom, Inc............................... 620,572 44,526,041
Nextel Communications, Inc. (Class "A"
Stock) (a).................................... 99,800 2,357,775
Northern Telecom Ltd............................ 226,720 11,364,340
SBC Communications, Inc......................... 675,286 36,212,212
Scientific-Atlanta, Inc......................... 27,200 620,500
Sprint Corp..................................... 149,700 12,593,513
Sprint Corp. (PCS Group)........................ 123,850 2,864,031
Tellabs, Inc. (a)............................... 67,600 4,634,825
US West, Inc.................................... 179,622 11,608,072
--------------
364,160,013
--------------
TEXTILES -- 0.1%
National Service Industries, Inc................ 14,700 558,600
Russell Corp.................................... 12,700 257,969
Springs Industries, Inc......................... 6,700 277,631
VF Corp......................................... 42,836 2,007,938
--------------
3,102,138
--------------
TOBACCO -- 1.4%
Philip Morris Co., Inc.......................... 843,000 45,100,500
RJR Nabisco Holdings Corp....................... 111,900 3,322,031
UST, Inc........................................ 66,100 2,305,238
--------------
50,727,769
--------------
TOYS -- 0.1%
Hasbro, Inc..................................... 45,700 1,650,913
Mattel, Inc..................................... 102,381 2,335,567
--------------
3,986,480
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (a)....................... 50,620 $ 4,505,180
Ryder System, Inc............................... 25,800 670,800
--------------
5,175,980
--------------
UTILITY - ELECTRIC -- 2.3%
Ameren Corp..................................... 47,200 2,014,850
American Electric Power Co., Inc................ 66,500 3,129,656
Baltimore Gas & Electric Co..................... 50,550 1,560,731
Carolina Power & Light Co....................... 52,000 2,447,250
Central & South West Corp....................... 73,400 2,013,913
CINergy Corp.................................... 55,739 1,916,028
Consolidated Edison, Inc........................ 81,800 4,325,175
Dominion Resources, Inc......................... 67,950 3,176,663
DTE Energy Co................................... 50,600 2,169,475
Duke Energy Corp................................ 125,131 8,016,205
Edison International............................ 120,800 3,367,300
Entergy Corp.................................... 86,300 2,686,088
FirstEnergy Corp. (a)........................... 82,200 2,676,638
FPL Group, Inc.................................. 63,100 3,888,538
GPU, Inc........................................ 44,200 1,953,088
Houston Industries, Inc......................... 103,410 3,322,046
New Century Energies, Inc....................... 40,900 1,993,875
Niagara Mohawk Power Corp. (a).................. 64,600 1,041,675
Northern States Power Co........................ 50,900 1,412,475
Pacific Gas & Electric Co....................... 131,000 4,126,500
PacifiCorp...................................... 102,300 2,154,694
PECO Energy Co.................................. 77,500 3,225,938
PP&L Resources, Inc............................. 49,000 1,365,875
Public Service Enterprise Group, Inc............ 80,400 3,216,000
Southern Co..................................... 240,800 6,998,250
Texas Utilities Co.............................. 97,506 4,552,311
Unicom Corp..................................... 75,100 2,896,044
--------------
81,647,281
--------------
WASTE MANAGEMENT -- 0.3%
Waste Management, Inc........................... 199,530 9,303,086
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,826,272,044).......................................... 3,451,812,324
--------------
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 2.6% (000) (NOTE 2)
------------- --------------
REPURCHASE AGREEMENT -- 2.4%
Joint Repurchase Agreement Account,
4.693%, 01/04/99 (Note 5)..................... $ 86,854 $ 86,854,000
--------------
U. S. GOVERNMENT OBLIGATION -- 0.2%
United States Treasury Bill,
4.36%, 03/18/99 (b)........................... 5,900 5,847,844
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $92,699,694)............................................. 92,701,844
--------------
TOTAL INVESTMENTS -- 99.9%
(cost $1,918,971,738; Note 6) 3,544,514,168
VARIATION MARGIN ON OPEN FUTURES CONTRACTS(c).................... 246,890
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1%.................... 3,327,932
--------------
TOTAL NET ASSETS -- 100.0%....................................... $3,548,088,990
==============
</TABLE>
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, 1998 are as follows:
<TABLE>
<C> <S> <C> <C> <C> <C>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1998 APPRECIATION
Long Position:
288 S&P 500 Index Mar 99 $85,070,625 $89,676,000 $4,605,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
EQUITY INCOME PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.9%
VALUE
COMMON STOCKS -- 91.4% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE
United Industrial Corp.......................... 32,300 $ 316,944
--------------
AIRLINES -- 3.1%
AMR Corp. (a)................................... 947,000 56,228,125
Trans World Airlines, Inc....................... 1,224,700(b) 5,893,869
US Airways Group, Inc........................... 63,600 3,307,200
--------------
65,429,194
--------------
AUTOS - CARS & TRUCKS -- 7.5%
DaimlerChrysler AG.............................. 673,986 64,744,780
Ford Motor Co................................... 762,600 44,755,087
General Motors Corp............................. 724,000 51,811,250
--------------
161,311,117
--------------
CHEMICALS -- 5.1%
Dow Chemical Co................................. 1,029,600 93,629,250
Millennium Chemicals, Inc....................... 841,498 16,724,773
--------------
110,354,023
--------------
CONSUMER SERVICES
Petroleum Heat and Power, Inc. (Class "A"
Stock)........................................ 48,200 36,150
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 1.1%
Eastman Kodak Co................................ 222,300 16,005,600
Gibson Greetings, Inc. (a)...................... 724,000 8,597,500
--------------
24,603,100
--------------
ELECTRICAL EQUIPMENT -- 1.0%
Kuhlman Corp.................................... 559,600 21,194,850
--------------
ELECTRONICS -- 0.9%
Esterline Technologies Corp. (a)................ 562,400 12,232,200
Instron Corp.................................... 157,900 2,723,775
Newport Corp.................................... 313,000 5,281,875
--------------
20,237,850
--------------
FINANCIAL SERVICES -- 7.8%
A.G. Edwards, Inc............................... 322,800 12,024,300
Bear Stearns Companies, Inc..................... 946,851 35,388,556
Lehman Brothers Holdings, Inc................... 1,596,100 70,328,156
PaineWebber Group, Inc.......................... 1,294,700 50,007,787
--------------
167,748,799
--------------
FOREST PRODUCTS -- 4.6%
Fletcher Challenge Ltd., ADR, (Canada).......... 63,600 198,750
Georgia-Pacific Corp............................ 392,500 22,985,781
Longview Fibre Co............................... 1,345,700 15,559,656
Louisiana-Pacific Corp.......................... 1,311,900 24,024,169
Potlatch Corp................................... 209,300 7,717,937
Rayonier, Inc................................... 404,600 18,586,312
Weyerhaeuser Co................................. 200,000 10,162,500
--------------
99,235,105
--------------
GAS DISTRIBUTION -- 0.7%
TransCanada Pipelines, Ltd...................... 970,944(b) 14,321,424
--------------
GAS PIPELINES -- 0.3%
Sonat, Inc...................................... 210,400 5,693,950
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 1.6%
Columbia/HCA Healthcare Corp.................... 800,000 19,800,000
PhyCor, Inc. (a)................................ 2,000,000 13,625,000
--------------
33,425,000
--------------
HOUSING RELATED -- 5.7%
Hanson, PLC, ADR, (United Kingdom).............. 2,089,150 81,476,850
Kaufman & Broad Home Corp....................... 701,500 20,168,125
Ryland Group, Inc............................... 732,300 21,145,162
--------------
122,790,137
--------------
INSURANCE -- 3.4%
Marsh & McLennan Companies, Inc................. 822,600 48,070,687
Ohio Casualty Corp.............................. 387,500(b) 15,935,937
Selective Insurance Group, Inc.................. 405,600 8,162,700
--------------
72,169,324
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
LEISURE -- 1.9%
Hilton Hotels Corp.............................. 1,045,600 $ 19,997,100
Prime Hospitality Corp. (a)..................... 354,900 3,748,631
Starwood Hotels & Resorts (a)................... 747,200 16,952,100
--------------
40,697,831
--------------
MEDIA -- 2.4%
CBS Corp........................................ 1,548,845 50,724,674
--------------
METALS-FERROUS -- 3.7%
AK Steel Holding Corp........................... 1,395,000 32,782,500
USX-U.S. Steel Group............................ 2,048,000 47,104,000
--------------
79,886,500
--------------
METALS-NON FERROUS -- 7.0%
Aluminum Company of America..................... 1,217,300 90,764,931
Kaiser Aluminum Corp. (a)....................... 271,872 1,325,376
Reynolds Metals Co.............................. 1,084,186 57,123,050
--------------
149,213,357
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.4%
Tenneco, Inc.................................... 232,300 7,912,719
--------------
OIL & GAS -- 3.8%
Crestar Energy, Inc., ADR, (Canada) (a)......... 204,000 1,732,428
Elf Aquitaine SA, ADR, (France)................. 693,600 39,275,100
Occidental Petroleum Corp....................... 1,020,000 17,212,500
Pioneer Natural Resources Co.................... 1,866,717 16,333,774
USX-Marathon Group.............................. 235,200 7,085,400
--------------
81,639,202
--------------
OIL & GAS SERVICES -- 3.9%
McDermott International, Inc.................... 2,661,200 65,698,375
Pennzoil-Quaker State Co........................ 1,247,008 18,471,306
--------------
84,169,681
--------------
PRECIOUS METALS -- 0.4%
Ashanti Goldfields Co., Ltd..................... 715,131 6,704,353
Coeur d'Alene Mines Corp........................ 198,578(b) 918,423
Echo Bay Mines, Ltd............................. 304,499 532,873
--------------
8,155,649
--------------
REAL ESTATE DEVELOPMENT -- 12.4%
Amli Residential Properties Trust............... 212,500 4,728,125
Archstone Communities Trust..................... 32,200 652,050
Bradley Real Estate, Inc........................ 109,800 2,250,900
Capital Automotive.............................. 590,000 8,776,250
CCA Prison Realty Trust......................... 637,900(b) 13,076,950
Centertrust Retail Properties, Inc.............. 428,400 5,247,900
Crescent Operating, Inc. (a).................... 155,150 736,963
Crescent Real Estate Equities Co................ 2,300,200 52,904,600
Crown American Realty Trust..................... 1,129,000 8,749,750
Equity Inns, Inc................................ 22,300 214,638
Equity Office Properties Trust.................. 555,278 13,326,672
Equity Residential Properties Trust............. 1,604,200 64,869,838
Gables Residential Trust........................ 425,900 9,875,556
Glimcher Realty Trust........................... 522,700 8,199,856
JP Realty, Inc.................................. 85,700 1,681,863
Kimco Realty Corp............................... 57,350 2,276,078
Malan Realty Investors, Inc..................... 136,200 2,162,175
Manufactured Home Communities, Inc.............. 417,800 10,471,113
Pennsylvania Real Estate Investment Trust....... 51,100 993,256
Sunstone Hotel Investors, Inc................... 162,300 1,531,706
TriNet Corporate Realty Trust, Inc.............. 170,000 4,547,500
Vornado Operating, Inc.......................... 40,400 325,725
Vornado Realty Trust............................ 1,260,100 42,528,375
Walden Residential Properties, Inc.............. 362,100 7,400,419
--------------
267,528,258
--------------
RETAIL -- 3.9%
Heilig-Meyers Co................................ 1,396,300 9,337,756
J.C. Penney Co., Inc............................ 608,100 28,504,688
The Limited, Inc................................ 1,534,700 44,698,138
--------------
82,540,582
--------------
TELECOMMUNICATIONS -- 1.1%
Telefonos de Mexico SA, (Class "L" Stock), ADR,
(Mexico)...................................... 469,700(b) 22,868,519
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
EQUITY INCOME PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TEXTILES -- 0.6%
Garan, Inc...................................... 3,000 $ 84,375
Kellwood Co..................................... 529,300 13,232,500
--------------
13,316,875
--------------
TOBACCO -- 5.5%
Philip Morris Co., Inc.......................... 850,000 45,475,000
RJR Nabisco Holdings Corp....................... 2,452,880 72,819,875
--------------
118,294,875
--------------
TRUCKING/SHIPPING -- 0.5%
Yellow Corp. (a)................................ 561,000 10,729,125
--------------
UTILITY - ELECTRIC -- 0.4%
Cleco Corp...................................... 6,200 212,738
First Energy Corp. (a).......................... 24,965 812,923
Pacific Gas & Electric, Co...................... 244,800 7,711,200
--------------
8,736,861
--------------
WASTE MANAGEMENT -- 0.7%
Waste Management, Inc........................... 320,442 14,940,608
--------------
TOTAL COMMON STOCKS
(cost $1,702,255,422).......................................... 1,960,222,283
--------------
PREFERRED STOCKS -- 4.7%
INTEGRATED PRODUCERS -- 0.1%
Unocal Corp. (Conv.) Series 6.25%............... 35,072 1,709,760
--------------
METALS-FERROUS -- 0.8%
Bethlehem Steel Corp. (Cum. Conv.), $3.50....... 264,000 10,197,000
Rouge Steel, 7.25%.............................. 267,700 2,476,225
USX Capital Trust (Cum. Conv.), 6.75%........... 116,900 4,902,494
--------------
17,575,719
--------------
METALS-NON FERROUS -- 0.1%
Hecla Mining Co. (Cum. Conv.), 7.00%, Series
B............................................. 61,200 2,325,600
--------------
REAL ESTATE DEVELOPMENT -- 0.6%
Archstone Communities Trust, $1.75.............. 55,600 1,487,300
Union Pacific Capital Trust, 6.25%.............. 243,900 11,219,400
--------------
12,706,700
--------------
RETAIL -- 1.9%
Kmart Corp. (Cum. Conv.), 7.75%................. 685,300 39,704,569
--------------
TELECOMMUNICATIONS -- 1.2%
Telecomunicacoes Brasileiras S.A., ADR, Series
B, (Brazil)................................... 358,300 26,043,931
--------------
TOTAL PREFERRED STOCKS
(cost $116,629,674)............................................ 100,066,279
--------------
WARRANT(a) UNITS
-------------
CONSTRUCTION
Morrison Knudsen Corp.,
expiring 03/11/03............................. 5,689 17,778
--------------
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CONVERTIBLE BONDS -- 0.8% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
EXPLORATION & PRODUCTION -- 0.1%
Oryx Energy Co.,
7.50%, 05/15/14..................... B2 $ 1,800 $ 1,795,500
--------------
OIL & GAS SERVICES -- 0.2%
Baker Hughes, Inc.,
Zero Coupon, 05/05/08............... A2 6,060 3,976,875
--------------
REAL ESTATE DEVELOPMENT -- 0.2%
Centertrust Retail Properties Inc.,
7.50%, 01/15/01..................... NR 1,020 963,900
7.50%, 01/15/01..................... B2 610 576,450
Malan Realty Investors, Inc.,
9.50%, 07/15/04..................... NR 3,000 2,895,000
--------------
4,435,350
--------------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CONVERTIBLE BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
RETAIL -- 0.3%
Charming Shoppes, Inc.,
7.50%, 07/15/06..................... B2 $ 8,160 $ 7,550,530
--------------
TOTAL CONVERTIBLE BONDS
(cost $18,612,250)............................................. 17,758,255
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,837,497,346).......................................... 2,078,064,595
--------------
SHORT-TERM INVESTMENTS -- 5.0%
LOAN PARTICIPATION NOTE -- 1.6%
Alltel Corp.,
5.75%, 01/04/99..................... P1 35,000(c) 35,000,000
--------------
COMMERCIAL PAPER -- 0.7%
Countrywide Home Loan, Inc.,
6.75%, 01/04/99..................... P1 8,000(c) 7,995,500
5.40%, 01/04/99..................... P1 6,098(c) 6,095,256
--------------
14,090,756
--------------
REPURCHASE AGREEMENT -- 2.7%
Joint Repurchase Agreement Account,
4.693%, 01/04/99
(Note 5).......................... 58,712 58,712,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $107,802,756)............................................ 107,802,756
--------------
TOTAL INVESTMENTS -- 101.9%
(cost $1,945,300,102; Note 6).................................. 2,185,867,351
LIABILITIES IN EXCESS OF OTHER ASSETS --
(1.9%)......................................................... (43,546,536)
--------------
NET ASSETS -- 100.0%............................................. $2,142,320,815
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
NR Not Rated by Moody's or Standard & Poor's
AG Aktiengesellschaft (German Stock Company)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Portion of securities on loan with an aggregate market value of
$46,303,663; cash collateral of $49,079,500 was received with which the
portfolio purchased securities.
(c) Represents security purchased with cash collateral received for securities
on loan.
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
EQUITY PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 92.0%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE
Raytheon Co..................................... 44,639 $ 2,307,278
--------------
AUTOS - CARS & TRUCKS -- 2.8%
General Motors Corp............................. 700,000 50,093,750
LucasVarity PLC (United Kingdom)................ 29,951,922 99,787,075
Navistar International Corp. (a)................ 395,200 11,263,200
PACCAR, Inc..................................... 279,400 11,490,325
--------------
172,634,350
--------------
BANKS AND SAVINGS & LOANS -- 6.1%
Bank of New York Co., Inc....................... 2,400,000 96,600,000
BankAmerica Corp................................ 1,789,856 107,615,092
Chase Manhattan Corp............................ 1,216,800 82,818,450
Mellon Bank Corp................................ 270,100 18,569,375
Mercantile Bankshares Corp...................... 419,400 16,146,900
Morgan (J.P.) & Co., Inc........................ 327,900 34,449,994
National City Corp.............................. 61,560 4,463,100
Republic New York Corp.......................... 450,000 20,503,125
--------------
381,166,036
--------------
CHEMICALS -- 2.4%
BOC Group, PLC ADR (United Kingdom)............. 800,000 21,800,000
Dow Chemical Co................................. 556,300 50,588,531
Eastman Chemical Co............................. 941,550 42,134,362
Potash Corp. of Saskatchewan Inc., (Canada)..... 380,000 24,272,500
Wellman, Inc.................................... 798,200 8,131,662
Witco Corp...................................... 268,800 4,284,000
--------------
151,211,055
--------------
COMPUTERS -- 5.3%
Compaq Computer Corp............................ 3,669,250 153,879,172
Gerber Scientific, Inc.......................... 419,800 9,996,487
Hewlett-Packard Co.............................. 1,100,000 75,143,750
NCR Corp........................................ 100,000 4,175,000
Seagate Technology, Inc. (a).................... 2,975,800 90,017,950
--------------
333,212,359
--------------
CONSTRUCTION & HOUSING -- 1.5%
American Standard Co., Inc. (a)................. 1,050,000 37,734,375
Centex Corp..................................... 1,200,000 54,075,000
--------------
91,809,375
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 1.2%
Eastman Kodak Co................................ 889,800 64,065,600
Gibson Greeting, Inc. (a)....................... 750,000 8,906,250
--------------
72,971,850
--------------
ELECTRONICS -- 5.3%
AMP Inc......................................... 1,644,191 85,600,694
Arrow Electronics, Inc. (a)..................... 2,145,500 57,258,031
Avnet, Inc...................................... 887,600 53,699,800
Harris Corp..................................... 2,884,000 105,626,500
Hitachi Ltd. ADR................................ 515,000 31,125,312
--------------
333,310,337
--------------
FINANCIAL SERVICES -- 5.4%
American Express Co............................. 350,000 35,787,500
Citigroup, Inc.................................. 1,941,601 96,109,249
Lehman Brothers Holdings, Inc................... 849,800 37,444,312
Morgan Stanley Dean Witter & Co................. 2,335,000 165,785,000
--------------
335,126,061
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOREST PRODUCTS -- 9.2%
Fort James Corp................................. 664,000 $ 26,560,000
Georgia-Pacific Corp............................ 1,724,000 100,961,750
Georgia-Pacific Timber Group.................... 1,158,000 27,574,875
International Paper Co.......................... 1,820,000 81,558,750
Mead Corp....................................... 2,306,000 67,594,625
Rayonier Inc.................................... 830,400 38,146,500
Temple-Inland, Inc.............................. 1,240,500 73,577,156
Weyerhaeuser Co................................. 1,522,500 77,362,031
Willamette Industries, Inc...................... 2,500,000 83,750,000
--------------
577,085,687
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 9.4%
Columbia/HCA Healthcare Corp.................... 5,790,100 143,304,975
Foundation Health Systems, Inc. (a)............. 4,724,610 56,400,032
PacifiCare Health Systems, Inc. (a)............. 838,800 66,684,600
Tenet Healthcare Corp. (a)...................... 5,122,832 134,474,340
Wellpoint Health Networks Inc................... 2,120,300 184,466,100
--------------
585,330,047
--------------
INSURANCE -- 13.1%
American Financial Group, Inc................... 552,700 24,249,712
American General Corp........................... 879,704 68,616,912
Chubb Corp...................................... 2,206,400 143,140,200
Equitable Companies, Inc........................ 1,466,900 84,896,837
Loews Corp...................................... 1,775,000 174,393,750
Old Republic International Corp................. 2,926,327 65,842,358
SAFECO Corp..................................... 2,855,800 122,620,913
St. Paul Companies, Inc......................... 1,653,800 57,469,550
Tokio Marine & Fire Insurance Co. Ltd., ADR
(Japan)....................................... 656,400 39,876,300
United Healthcare Corp.......................... 928,000 39,962,000
--------------
821,068,532
--------------
LEISURE -- 1.1%
Hilton Hotels Corp.............................. 3,470,600 66,375,225
--------------
METALS-FERROUS -- 0.2%
Birmingham Steel Corp........................... 1,492,400 6,249,425
Carpenter Technology Corp....................... 100,000 3,393,750
--------------
9,643,175
--------------
METALS-NON FERROUS -- 1.4%
Aluminum Company of America..................... 941,000 70,163,313
Cyprus Amax Minerals Co......................... 1,490,400 14,904,000
Nord Resources Corp. (a)........................ 130,500 130,500
--------------
85,197,813
--------------
OIL & GAS -- 2.7%
Amerada Hess Corp............................... 325,000 16,168,750
Atlantic Richfield Co........................... 1,100,000 71,775,000
Keyspan Energy Co............................... 1,356,432 42,049,392
Total SA, ADR, (France)......................... 738,365 36,733,659
--------------
166,726,801
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 2.8%
Elf Aquitaine SA, ADR, (France)................. 2,424,433 137,283,519
Occidental Petroleum Corp....................... 1,100,000 18,562,500
Oryx Energy Co. (a)............................. 1,600,000 21,500,000
--------------
177,346,019
--------------
PRECIOUS METALS -- 1.5%
Freeport-McMoRan Copper & Gold, Inc. (Class
"A").......................................... 3,853,300 37,328,844
Freeport-McMoRan Copper & Gold, Inc. (Class
"B").......................................... 319,600 3,335,825
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
PRECIOUS METALS (CONT'D.)
Kinross Gold Corp. (a).......................... 105,126 $ 243,104
Newmont Mining Corp............................. 3,057,000 55,217,063
--------------
96,124,836
--------------
RESTAURANTS -- 2.3%
Darden Restaurants, Inc......................... 7,922,700 142,608,600
--------------
RETAIL -- 7.9%
Dillards, Inc................................... 3,649,000 103,540,375
HomeBase, Inc. (a).............................. 1,300,000 8,287,500
IKON Office Solutions, Inc...................... 5,193,000 44,465,063
Kmart Corp. (a)................................. 6,500,000 99,531,250
Nine West Group Inc. (a)........................ 1,430,800 22,266,825
Pep Boys - Manny, Moe & Jack.................... 2,025,000 31,767,188
Sears, Roebuck and Co........................... 690,000 29,325,000
Tandy Corp...................................... 2,784,900 114,703,069
Toys 'R' Us, Inc. (a)........................... 2,350,000 39,656,250
--------------
493,542,520
--------------
SEMICONDUCTORS -- 0.4%
National Semiconductor Corp. (a)................ 1,905,600 25,725,600
--------------
TELECOMMUNICATIONS -- 3.6%
Alltel Corp..................................... 1,255,088 75,069,951
AT&T Corp....................................... 1,100,000 82,775,000
Loral Corp...................................... 2,600,000 46,312,500
Portugal Telecom SA, ADR, (Portugal)............ 409,900 18,291,788
--------------
222,449,239
--------------
TEXTILES
Worldtex, Inc. (a).............................. 107,199 388,596
--------------
TOBACCO -- 3.5%
Philip Morris Co., Inc.......................... 2,025,000 108,337,500
RJR Nabisco Holdings Corp....................... 3,710,000 110,140,625
--------------
218,478,125
--------------
TRANSPORTATION -- 0.2%
Marine Transport Corp. (a)...................... 100,000 225,000
OMI Corp. (a)................................... 1,000,000 3,250,000
Overseas Shipholding Group, Inc................. 600,000 9,637,500
--------------
13,112,500
--------------
UTILITY - ELECTRIC -- 1.7%
American Electric Power, Inc.................... 180,000 8,471,250
GPU, Inc........................................ 500,000 22,093,750
Houston Industries, Inc......................... 974,519 31,306,423
Unicom Corp..................................... 1,112,900 42,916,206
--------------
104,787,629
--------------
UTILITY - WATER -- 0.1%
American Water Works Co., Inc................... 270,000 9,112,500
--------------
WASTE MANAGEMENT -- 0.9%
Waste Management, Inc........................... 1,176,892 54,872,590
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,261,005,459).......................................... 5,743,724,735
--------------
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 8.1% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
COMMERCIAL PAPER -- 7.0%
Barton Capital Corp.,
5.60%, 01/14/99............................... P1 $ 60,000 $ 59,878,667
Clipper Receivables Corp.,
5.42%, 01/22/99............................... P1 38,000 37,879,857
Countrywide Home Loan,
5.10%, 01/04/99............................... P1 33,850 33,835,614
Falcon Asset Securitization Corp.,
5.68%, 01/21/99............................... P1 21,332 21,264,686
Four Winds Funding Corp.,
5.70%, 01/29/99............................... P1 50,000 49,778,333
Old Line Funding Corp.,
5.40%, 01/27/99............................... P1 42,000 41,836,200
Thunder Bay Funding Inc.,
5.60%, 01/15/99............................... P1 27,447 27,387,226
5.70%, 01/20/99............................... P1 30,000 29,909,750
Triple-A One Funding Corp.,
5.55%, 01/19/99............................... P1 30,000 29,916,750
Wells Fargo & Co.,
5.70%, 01/22/99............................... P1 50,000 49,833,750
Windmill Funding Corp.,
5.57%, 01/22/99............................... P1 23,000 22,925,269
5.57%, 01/25/99............................... P1 37,000 36,862,606
--------------
441,308,708
--------------
REPURCHASE AGREEMENT -- 1.0%
Joint Repurchase Agreement Account,
4.693%, 01/04/99 (Note 5)..................... 60,667 60,667,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
Federal National Mortgage Association,
4.94%, 02/23/99............................... 5,000 4,995,354
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $506,971,062)...................................................... 506,971,062
--------------
TOTAL INVESTMENTS -- 100.1%
(cost $4,767,976,521; Note 6)............................................ 6,250,695,797
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.1%)......................................................... (3,649,163)
--------------
NET ASSETS -- 100.0%....................................................... $6,247,046,634
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt.
PLC Public Limited Company (British Corporation).
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation).
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE>
PRUDENTIAL JENNISON PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.9%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.2%
Raytheon Co. (Class "A" Stock).................. 118,400 $ 6,119,800
Raytheon Co. (Class "B" Stock).................. 156,100 8,312,325
--------------
14,432,125
--------------
BANKS AND SAVINGS & LOANS -- 2.7%
Chase Manhattan Corp............................ 477,500 32,499,844
--------------
BROADCASTING SERVICES -- 1.1%
Infinity Broadcasting Corp. (a)................. 462,300 12,655,462
--------------
BUSINESS SERVICES -- 1.4%
Omnicom Group, Inc.............................. 288,700 16,744,600
--------------
COMPUTER SERVICES -- 13.0%
3Com Corp. (a).................................. 275,700 12,354,806
Cadence Design Systems, Inc. (a)................ 529,400 15,749,650
Cisco Systems, Inc. (a)......................... 349,875 32,472,773
HBO & Co........................................ 551,500 15,821,156
Microsoft Corp. (a)............................. 281,500 39,040,531
Oracle Corp. (a)................................ 661,500 28,527,187
PLATINUM Technology, Inc. (a)................... 659,708 12,616,915
--------------
156,583,018
--------------
COMPUTERS -- 6.8%
Compaq Computer Corp............................ 495,600 20,784,225
Dell Computer Corp. (a)......................... 258,100 18,889,694
Hewlett-Packard Co.............................. 292,000 19,947,250
International Business Machines Corp............ 115,500 21,338,625
--------------
80,959,794
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 1.5%
Xerox Corp...................................... 153,100 18,065,800
--------------
DIVERSIFIED OPERATIONS -- 2.8%
General Electric Co............................. 330,900 33,772,481
--------------
DRUGS AND MEDICAL SUPPLIES -- 12.1%
American Home Products Corp..................... 431,700 24,310,106
Eli Lilly & Co.................................. 169,200 15,037,650
Merck & Co., Inc................................ 154,400 22,802,950
Pfizer, Inc..................................... 181,300 22,741,819
Pharmacia & Upjohn, Inc......................... 213,000 12,061,125
Schering-Plough Corp............................ 517,800 28,608,450
Warner-Lambert Co............................... 257,000 19,323,188
--------------
144,885,288
--------------
ELECTRONICS -- 8.4%
Applied Materials, Inc. (a)..................... 320,500 13,681,344
Intel Corp...................................... 206,100 24,435,731
KLA-Tencor Corp. (a)............................ 350,600 15,207,275
Symbol Technologies, Inc........................ 368,125 23,536,992
Texas Instruments, Inc.......................... 281,500 24,085,844
--------------
100,947,186
--------------
FINANCIAL SERVICES -- 11.0%
Associates First Capital Corp................... 506,000 21,441,750
Citigroup, Inc.................................. 617,700 30,576,150
MBNA Corp....................................... 929,037 23,167,860
Morgan Stanley Dean Witter & Co................. 384,020 27,265,420
Schwab (Charles) Corp. (a)...................... 308,250 17,319,797
Washington Mutual, Inc.......................... 322,100 12,300,194
--------------
132,071,171
--------------
INSURANCE -- 6.1%
Ace Ltd......................................... 456,500 15,720,719
American International Group, Inc............... 216,800 20,948,300
Mutual Risk Management, Ltd..................... 383,332 14,997,865
Provident Companies, Inc........................ 252,400 10,474,600
UNUM Corp....................................... 178,200 10,402,425
--------------
72,543,909
--------------
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
LEISURE -- 0.9%
Promus Hotel Corp. (a).......................... 334,700 $ 10,835,913
--------------
MEDIA -- 4.1%
CBS Corp. (a)................................... 901,600 29,527,400
Clear Channel Communications, Inc. (a).......... 362,100 19,734,450
--------------
49,261,850
--------------
RETAIL - RESTAURANTS -- 1.9%
McDonald's Corp................................. 299,900 22,979,838
--------------
RETAIL -- 10.3%
Home Depot, Inc................................. 585,300 35,813,044
Kohl's Corp. (a)................................ 371,500 22,824,031
Rite Aid Corp................................... 283,100 14,031,144
Staples, Inc. (a)............................... 483,900 21,140,381
The Gap, Inc.................................... 359,700 20,233,125
Wal-Mart Stores, Inc............................ 110,300 8,982,556
--------------
123,024,281
--------------
SOFTWARE -- 1.2%
Intuit, Inc. (a)................................ 203,000 14,717,500
--------------
TELECOMMUNICATIONS -- 10.4%
Airtouch Communications, Inc. (a)............... 307,200 22,156,800
Ascend Communications, Inc. (a)................. 202,000 13,281,500
MCI Wordcom, Inc. (a)........................... 778,200 55,835,850
Nokia AB Corp., (Japan), ADR.................... 147,000 17,704,313
Qwest Communications International (a).......... 302,700 15,135,000
--------------
124,113,463
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $843,458,260)............................................ 1,161,093,523
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT -- 3.6% (000)
-------------
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account,
4.693%, 01/04/99
(cost $43,284,000; Note 5).................. $ 43,284 43,284,000
--------------
TOTAL INVESTMENTS -- 100.5%
(cost $886,742,260; Note 5).................................... 1,204,377,523
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.5%)............................................... (5,648,188)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $1,198,729,335
==============
</TABLE>
The following abbreviation is used in portfolio descriptions:
ADR American Depository Receipt
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
64
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.1%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ADVERTISING -- 0.3%
HA-LO Industries, Inc........................... 27,600 $ 1,038,450
--------------
AEROSPACE -- 0.8%
BE Aerospace, Inc. (a).......................... 23,100 485,100
Kaman Corp. (Class "A" Stock)................... 23,500 377,469
Orbital Sciences Corp. (a)...................... 35,800 1,584,150
Trimble Navigation, Ltd. (a).................... 22,600 163,850
Watkins-Johnson Co.............................. 8,200 167,075
--------------
2,777,644
--------------
AGRICULTURAL PRODUCTS & SERVICES -- 0.4%
Delta & Pine Land Co............................ 38,100 1,409,700
--------------
AIRLINES -- 0.9%
Comair Holdings, Inc............................ 66,037 2,228,749
Mesa Air Group, Inc. (a)........................ 28,100 219,531
SkyWest, Inc.................................... 24,000 784,500
--------------
3,232,780
--------------
APPAREL -- 0.1%
Phillips-Van Heusen Corp........................ 27,000 194,062
--------------
AUTOS - CARS & TRUCKS -- 0.8%
Breed Technologies, Inc......................... 35,275 288,814
Myers Industries, Inc........................... 17,822 510,155
Simpson Industries, Inc......................... 18,200 176,312
Spartan Motors, Inc............................. 11,900 68,425
Standard Motor Products, Inc.................... 13,000 315,250
Standard Products Co............................ 16,700 340,262
TBC Corp. (a)................................... 21,000 149,625
Titan International, Inc........................ 21,600 205,200
Wabash National Corp............................ 21,300 432,656
Wynn's International, Inc....................... 18,625 412,078
--------------
2,898,777
--------------
BANKS AND SAVINGS & LOANS -- 6.2%
Anchor Bancorp Wisconsin, Inc................... 17,700 424,800
Astoria Financial Corp. (a)..................... 54,100 2,475,075
Banknorth Group, Inc............................ 15,200 571,900
Carolina First Corp............................. 17,600 445,500
Centura Banks, Inc.............................. 25,200 1,874,250
Commercial Federal Corp. (a).................... 55,525 1,287,486
Cullen/Frost Bankers, Inc....................... 21,600 1,185,300
Downey Financial Corp........................... 26,444 672,669
First Bancorp/Puerto Rico (a)................... 28,300 854,306
First Merit Corp................................ 71,800 1,929,625
First Midwest Bancorp, Inc...................... 29,600 1,126,650
HUBCO, Inc...................................... 42,983 1,294,863
JSB Financial, Inc.............................. 9,400 511,125
Premier Bancshares, Inc......................... 16,900 442,569
Queens County Bancorp, Inc...................... 22,050 655,987
Riggs National Corp............................. 30,500 621,437
Silicon Valley Bancshares....................... 20,500 349,141
St. Paul Bancorp, Inc........................... 40,300 1,096,916
Susquehanna Bancshares, Inc..................... 32,500 665,234
TrustCo Bank Corp............................... 26,710 801,300
United Bankshares, Inc.......................... 42,500 1,126,250
UST Corp........................................ 41,000 966,062
Whitney Holding Corp............................ 22,500 843,750
--------------
22,222,195
--------------
BROADCASTING SERVICES -- 0.6%
Harman International............................ 18,500 705,312
Metro Networks, Inc............................. 15,800 673,475
Westwood One, Inc............................... 29,900 911,950
--------------
2,290,737
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
BUSINESS SERVICES -- 0.1%
Franklin Covey Co............................... 21,700 $ 363,475
--------------
CHEMICALS -- 1.6%
Cambrex Corp.................................... 24,100 578,400
Chemed Corp..................................... 9,900 331,650
Chemfirst, Inc. (a)............................. 18,400 363,400
Hauser Chemical Research, Inc. (a).............. 10,100 44,819
Lilly Industries, Inc. (Class "A" Stock)........ 22,000 438,625
MacDermid, Inc.................................. 26,100 1,021,162
McWhorter Technologies, Inc. (a)................ 10,300 235,612
Mississippi Chemical Corp. (a).................. 26,072 365,008
OM Group, Inc................................... 23,700 865,050
Penford Corp.................................... 7,300 116,800
Quaker Chemical Corp............................ 8,200 147,600
Scotts Co. (Class "A" Stock) (a)................ 17,700 680,344
WD-40 Co........................................ 15,600 446,550
--------------
5,635,020
--------------
COMMERCIAL SERVICES -- 3.5%
AAR Corp........................................ 27,550 657,756
ABM Industries, Inc............................. 20,100 695,962
ADVO, Inc....................................... 21,200 559,150
Billing Information Concepts Corp............... 33,600 369,600
Bowne & Co...................................... 35,500 634,562
CDI Corp. (a)................................... 19,400 391,637
Central Parking Corp............................ 27,950 906,628
Consolidated Graphics, Inc...................... 12,900 871,556
Hadco Corp...................................... 13,200 462,000
Insurance Auto Auction, Inc. (a)................ 11,200 133,000
Interim Services, Inc. (a)...................... 46,700 1,091,612
John H. Harland Co.............................. 30,800 487,025
LSB Industries, Inc............................. 11,500 38,094
Merrill Corp.................................... 16,300 314,794
NFO Worldwide, Inc.............................. 20,075 230,862
Norrell Corp.................................... 27,200 401,200
Pharmaceutical Marketing Services, Inc. (a)..... 12,200 175,375
Primark Corp. (a)............................... 21,420 581,017
Superior Services, Inc.......................... 28,800 577,800
Thomas Nelson, Inc.............................. 14,850 200,475
True North Communications, Inc.................. 44,400 1,193,250
Vantive Corp.................................... 25,900 207,200
Volt Information Sciences, Inc.................. 14,300 322,644
World Color Press, Inc.......................... 38,300 1,165,756
--------------
12,668,955
--------------
COMPUTER SERVICES -- 6.8%
Acxiom Corp. (a)................................ 73,000 2,263,000
American Management Systems, Inc. (a)........... 42,250 1,690,000
Analysts International Corp..................... 22,100 425,425
Auspex Systems, Inc. (a)........................ 25,300 109,502
Avid Technology................................. 24,800 579,700
BancTec, Inc. (a)............................... 20,200 253,762
BISYS Group, Inc. (a)........................... 26,500 1,368,062
Boole & Babbage, Inc............................ 28,100 827,194
Cerner Corp. (a)................................ 32,600 872,050
Ciber, Inc...................................... 53,300 1,489,069
Computer Task Group, Inc........................ 20,200 547,925
Fair Issac & Co., Inc........................... 13,200 609,675
FileNet Corp. (a)............................... 31,300 358,972
Harbinger Corp.................................. 41,900 335,200
Henry (Jack) & Associates, Inc.................. 18,850 937,787
Hutchinson Technology, Inc. (a)................. 19,700 701,812
Insight Enterprises Inc. (a).................... 14,700 747,862
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
65
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
COMPUTER SERVICES (CONT'D.)
Inter-Tel, Inc.................................. 27,000 $ 631,125
Komag, Inc. (a)................................. 53,100 550,912
Midway Games, Inc............................... 36,430 400,730
National Computer Systems, Inc.................. 31,000 1,147,000
National Data Corp.............................. 33,625 1,637,117
Platinum Software Corp. (a)..................... 25,200 322,875
Progress Software Corp. (a)..................... 17,250 582,187
Read-Rite Corp. (a)............................. 48,400 715,412
Standard Microsystems Corp. (a)................. 15,800 123,437
System Software Associates, Inc................. 47,200 331,875
Technology Solutions Co......................... 39,400 422,319
Telxon Corp..................................... 16,000 222,000
Wall Data, Inc. (a)............................. 9,400 225,600
Whittman-Hart, Inc.............................. 50,900 1,406,112
Xircom, Inc. (a)................................ 22,900 778,600
Zebra Technologies Corp. (Class "A"
Stock) (a).................................... 31,100 894,125
--------------
24,508,423
--------------
COMPUTERS -- 0.5%
Applied Magnetics Corp.......................... 23,900 147,881
Exabyte Corp.................................... 22,400 123,200
Gerber Scientific, Inc.......................... 22,500 535,781
MICROS Systems, Inc............................. 15,200 499,700
Vanstar Corp.................................... 43,000 397,750
--------------
1,704,312
--------------
CONSTRUCTION -- 1.2%
Florida Rock Industries, Inc.................... 17,200 533,200
Halter Marine Group............................. 28,600 139,425
Insituform Technologies, Inc. (Class "A"
Stock) (a).................................... 25,600 371,200
Lone Star Industries, Inc....................... 19,200 706,800
M.D.C. Holdings, Inc............................ 18,100 386,887
Morrison Knudsen Corp. (a)...................... 53,700 523,575
Oakwood Homes Corp.............................. 46,300 703,181
Republic Group, Inc............................. 11,070 222,092
Southern Energy Homes, Inc. (a)................. 13,312 81,536
Standard Pacific Corp........................... 29,550 417,394
Stone & Webster, Inc............................ 12,400 412,300
--------------
4,497,590
--------------
CONSUMER SERVICES -- 0.2%
Pre-Paid Legal Services, Inc.................... 22,300 735,900
--------------
CONTAINERS -- 0.4%
Aptar Group, Inc................................ 35,800 1,004,637
Shorewood Packaging Corp. (a)................... 25,650 525,825
--------------
1,530,462
--------------
COSMETICS & SOAPS -- 0.1%
Nature's Sunshine Products, Inc................. 17,400 265,350
USA Detergent, Inc. (a)......................... 13,700 99,325
--------------
364,675
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.1%
Gibson Greetings, Inc. (a)...................... 16,300 193,562
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.2%
Nashua Corp..................................... 6,700 89,194
New England Business Service, Inc............... 13,100 512,537
--------------
601,731
--------------
DRUGS AND MEDICAL SUPPLIES -- 6.8%
ADAC Laboratories............................... 19,900 397,378
Advanced Tissue Sciences, Inc. (a).............. 39,000 101,156
Alliance Pharmaceutical Corp.................... 31,800 104,344
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
DRUGS AND MEDICAL SUPPLIES (CONT'D.)
Alpharma, Inc. (Class "A" Stock)................ 25,300 $ 893,406
Ballard Medical Products........................ 30,300 736,669
Barr Laboratories, Inc.......................... 21,300 1,022,400
Bindley Western Industries, Inc................. 21,900 1,078,575
Cephalon, Inc. (a).............................. 28,400 255,600
Circon Corp. (a)................................ 13,300 199,500
Coherent, Inc. (a).............................. 22,400 278,600
COR Therapeutics, Inc. (a)...................... 23,900 316,675
Cygnus, Inc. (a)................................ 20,100 97,987
Diagnostic Products............................. 13,200 410,850
Enzo Biochem, Inc. (a).......................... 24,318 250,779
IDEXX Laboratories, Inc. (a).................... 38,400 1,033,200
The Immune Response Corp. (a)................... 23,000 250,125
Incyte Pharmacueticals, Inc..................... 26,500 990,437
Invacare Corp................................... 29,800 715,200
Jones Medical Industries, Inc................... 28,600 1,043,900
Liposome Co., Inc. (a).......................... 37,500 578,906
Medimmune, Inc. (a)............................. 26,400 2,625,150
Mentor Corp..................................... 24,600 576,562
Molecular Biosystems, Inc. (a).................. 18,450 54,197
NBTY, Inc. (a).................................. 67,300 479,512
North American Vaccine, Inc. (a)................ 31,000 275,125
Noven Pharmaceuticals, Inc. (a)................. 20,300 110,381
Organogenesis Inc (a)........................... 16,900 190,125
Owens & Minor, Inc.............................. 32,300 508,725
Patterson Dental Co. (a)........................ 32,100 1,396,350
Protein Design Labs, Inc. (a)................... 18,400 427,800
Regeneron Pharmaceuticals, Inc. (a)............. 30,800 227,150
Resound Corp. (a)............................... 20,400 76,500
Respironics, Inc. (a)........................... 32,300 647,009
Roberts Pharmaceutical Corp. (a)................ 29,600 643,800
Safeskin Corp. (a).............................. 54,100 1,305,162
Sequus Pharmaceuticals, Inc. (a)................ 31,400 635,850
SpaceLabs Medical, Inc. (a)..................... 8,900 204,700
Summit Technology, Inc. (a)..................... 31,100 136,062
Sunrise Medical, Inc. (a)....................... 22,000 273,625
Syncor International Corp. (a).................. 10,400 283,400
TheraTech, Inc. (a)............................. 21,050 342,062
US Bioscience, Inc. (a)......................... 24,150 173,578
Vertex Pharmaceuticals, Inc. (a)................ 25,200 749,700
VISX, Inc. (a).................................. 15,200 1,329,050
Vital Signs, Inc................................ 12,100 211,750
--------------
24,639,012
--------------
ELECTRICAL EQUIPMENT -- 1.4%
Anixter International, Inc. (a)................. 44,300 899,844
Baldor Electric Co.............................. 36,166 732,361
C-Cube Microsystems, Inc........................ 37,200 1,009,050
KEMET Corp. (a)................................. 38,900 437,625
Kent Electronics Corp. (a)...................... 27,100 345,525
Kuhlman Corp.................................... 16,000 606,000
Kulicke & Soffa Industries, Inc................. 23,100 410,025
Valence Technology, Inc. (a).................... 25,200 182,700
Vicor Corp. (a)................................. 41,800 376,200
--------------
4,999,330
--------------
ELECTRONICS -- 5.5%
Analogic Corp................................... 12,600 474,075
Belden, Inc..................................... 25,700 544,519
Bell Industries, Inc............................ 8,525 96,972
Benchmark Electronics, Inc. (a)................. 11,200 410,200
BMC Industries, Inc............................. 26,700 166,875
Burr-Brown Corp. (a)............................ 36,500 855,469
C-COR Electronics, Inc. (a)..................... 9,100 125,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ELECTRONICS (CONT'D.)
Cable Design Technologies....................... 29,900 $ 553,150
Checkpoint Systems, Inc. (a).................... 31,000 383,625
CTS Corp........................................ 13,600 591,600
Dallas Semiconductor Corp....................... 27,100 1,104,325
Dionex Corp. (a)................................ 20,700 758,137
Electro Scientific Industries, Inc.............. 11,300 512,031
Electroglas, Inc................................ 19,600 230,300
Etec Sysytems, Inc.............................. 22,000 880,000
General Semiconductor, Inc...................... 35,900 293,931
Helix Technology Corp........................... 22,000 286,000
Innovex, Inc.................................... 14,700 201,666
Integrated Circuit Systems, Inc. (a)............ 11,700 206,212
Intermagnetics General Corp. (a)................ 12,683 77,685
International Rectifier Corp. (a)............... 51,000 497,250
Itron, Inc. (a)................................. 14,500 104,219
Lattice Semiconductor Corp. (a)................. 23,400 1,074,206
Marshall Industries (a)......................... 16,500 404,250
Methode Electronics, Inc. (Class "A" Stock)..... 35,300 551,562
Oak Industries, Inc. (a)........................ 18,000 630,000
Park Electrochemical Corp....................... 10,300 294,837
Photronics, Inc. (a)............................ 24,300 582,441
Picturetel Corp. (a)............................ 38,100 252,412
Pioneer Standard Electronics, Inc............... 26,100 244,687
Plexus Corp. (a)................................ 14,700 497,962
S3, Inc. (a).................................... 50,800 373,856
Sanmina Corp. (a)............................... 48,900 3,056,250
SpeedFam International, Inc..................... 15,800 270,575
Technitrol, Inc................................. 15,600 497,250
Three-Five Systems, Inc. (a).................... 7,875 107,789
Ultratech Stepper, Inc. (a)..................... 20,900 334,400
Unitrode Corp................................... 30,400 532,000
VLSI Technology, Inc. (a)....................... 46,200 505,312
X-Rite, Inc..................................... 20,000 155,000
--------------
19,718,155
--------------
ENVIRONMENTAL SERVICES -- 0.2%
Dames & Moore, Inc.............................. 17,400 224,025
Ionics, Inc. (a)................................ 15,500 464,031
TETRA Technologies, Inc. (a).................... 13,500 147,656
--------------
835,712
--------------
EXPLORATION & PRODUCTION -- 0.2%
Newfield Exploration Co. (a).................... 34,350 717,056
--------------
FINANCIAL SERVICES -- 3.9%
AmeriCredit Corp................................ 60,700 838,419
AMRESCO, Inc. (a)............................... 44,000 385,000
Commerce Bancorp, Inc........................... 21,175 1,111,687
Dain Rauscher Corp.............................. 11,800 348,100
E*TRADE Group, Inc. (a)......................... 54,600 2,554,256
Eaton Vance Corp................................ 35,700 745,237
Envoy Corp. (a)................................. 21,100 1,229,075
Legg Mason, Inc................................. 53,132 1,676,979
MAF Bancorp, Inc................................ 21,400 567,100
Pioneer Group, Inc.............................. 25,000 493,750
Raymond James Financial, Inc.................... 48,118 1,016,493
SEI Corp........................................ 17,700 1,758,937
U.S. Trust Corp................................. 18,800 1,428,800
--------------
14,153,833
--------------
FOOD & BEVERAGES -- 2.3%
Canandaigua Wine Co............................. 17,800 1,029,062
Chiquita Brands International, Inc.............. 64,775 619,411
Coca-Cola Bottling Co........................... 8,300 477,250
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOOD & BEVERAGES (CONT'D.)
Corn Products International, Inc................ 35,400 $ 1,075,275
Earthgrains Co.................................. 42,700 1,321,031
Fleming Companies, Inc.......................... 38,100 395,287
J & J Snack Foods Corp. (a)..................... 9,000 201,375
Nash-Finch Co................................... 11,200 159,600
Ralcorp Holdings, Inc........................... 32,300 589,475
Richfood Holdings, Inc.......................... 46,200 958,650
Smithfield Foods, Inc. (a)...................... 37,300 1,263,537
--------------
8,089,953
--------------
FOREST PRODUCTS -- 0.3%
Caraustar Industries, Inc....................... 24,100 688,356
Pope & Talbot, Inc.............................. 13,325 111,597
Universal Forest Products, Inc.................. 18,900 379,181
--------------
1,179,134
--------------
FURNITURE -- 0.9%
Ethan Allen Interiors, Inc. (a)................. 28,600 1,172,600
Interface, Inc. (Class "A" Stock)............... 52,100 483,553
Juno Lighting, Inc.............................. 18,500 432,437
La-Z-Boy Chair Co............................... 52,900 942,281
Thomas Industries, Inc.......................... 15,550 305,169
--------------
3,336,040
--------------
HEALTHCARE -- 2.1%
American Oncology Resources, Inc................ 32,400 471,825
Bio-Technology General Corp..................... 47,900 332,306
Biomatrix, Inc.................................. 10,800 629,100
Coventry Corp................................... 58,100 512,006
The Cooper Companies, Inc....................... 14,800 306,175
Datascope Corp.................................. 15,500 356,500
MedQuist, Inc................................... 22,900 904,550
NCS Healthcare, Inc. (Class "A" Stock).......... 18,800 446,500
Pharmaceutical Product Development, Inc......... 23,100 694,444
Renal Care Group, Inc........................... 39,650 1,142,416
Sierra Health Services, Inc. (a)................ 27,525 579,745
Smith (A.O.) Corp............................... 23,500 577,219
Sola International, Inc. (a).................... 24,600 424,350
--------------
7,377,136
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 2.6%
Curative Health Services, Inc................... 12,700 425,450
Express Scripts, Inc. (Class "A" Stock) (a)..... 33,400 2,241,975
Genesis Health Ventures, Inc. (a)............... 35,000 306,250
HBO & Co........................................ 34,075 977,527
Integrated Health Services, Inc................. 53,660 757,947
Magellan Health Services, Inc. (a).............. 31,400 262,975
Mariner Post-Acute Network, Inc................. 70,605 322,135
Orthodontic Centers of America, Inc............. 46,700 907,731
Pediatrix Medical Group, Inc.................... 15,200 911,050
PhyCor, Inc. (a)................................ 77,775 529,842
Universal Health Services, Inc. (Class "B"
Stock) (a).................................... 32,575 1,689,828
--------------
9,332,710
--------------
HOUSING RELATED -- 1.3%
Champion Enterprises, Inc. (a).................. 47,700 1,305,787
D.R. Horton, Inc................................ 55,325 1,272,475
Fedders Corp.................................... 37,700 219,131
National Presto Industries, Inc................. 7,000 298,375
Ryland Group, Inc............................... 14,625 422,297
Skyline Corp.................................... 9,400 305,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
67
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
HOUSING RELATED (CONT'D.)
TJ International, Inc........................... 16,000 $ 411,000
U.S. Home Corp. (a)............................. 13,600 452,200
--------------
4,686,765
--------------
INSURANCE -- 4.7%
American Bankers Insurance Group, Inc........... 42,400 2,051,100
Arthur J. Gallagher & Co........................ 17,200 758,950
Capital Re Corp................................. 31,700 635,981
CMAC Investment Corp............................ 22,600 1,038,187
Compdent Corp. (a).............................. 9,500 98,562
Delphi Financial Group, Inc..................... 19,280 1,010,995
Enhance Financial Services Group, Inc........... 37,200 1,116,000
Executive Risk, Inc............................. 10,900 598,819
Fidelity National Financial, Inc................ 27,361 834,523
First American Financial Corp................... 57,000 1,831,125
Fremont General Corp............................ 67,740 1,676,565
Frontier Insurance Group, Inc................... 37,252 479,619
Hilb, Rogal and Hamilton Co..................... 12,100 240,487
Mutual Risk Management, Ltd..................... 38,100 1,490,662
NAC Re Corp..................................... 17,500 821,406
Orion Capital Corp.............................. 27,400 1,090,862
Selective Insurance Group, Inc.................. 28,900 581,612
Trenwick Group, Inc............................. 10,050 327,881
Zenith National Insurance Corp.................. 16,900 390,812
--------------
17,074,148
--------------
LEISURE -- 1.7%
Anchor Gaming................................... 12,400 699,050
Aztar Corp. (a)................................. 44,900 227,306
Carmike Cinemas, Inc. (Class "A" Stock) (a)..... 11,000 223,438
Family Golf Centers, Inc........................ 25,400 501,650
GC Companies, Inc. (a).......................... 7,300 303,863
Grand Casinos, Inc. (a)......................... 41,650 335,803
Hollywood Park, Inc. (a)........................ 26,100 216,956
Huffy Corp...................................... 12,100 199,650
K2, Inc. (a).................................... 16,400 169,125
Marcus Corp..................................... 28,625 465,156
Players International, Inc. (a)................. 31,700 196,144
Polaris Industries, Inc......................... 25,800 1,011,038
Primadonna Resorts, Inc......................... 28,400 250,275
Prime Hospitality Corp. (a)..................... 52,000 549,250
Sturm Ruger & Co., Inc.......................... 25,700 306,794
Thor Industries, Inc............................ 11,600 295,800
Winnebago Industries, Inc....................... 21,800 329,725
--------------
6,281,023
--------------
MACHINERY -- 2.7%
Applied Industrial Technologies, Inc............ 21,900 303,863
Applied Power, Inc. (Class "A" Stock)........... 38,295 1,445,636
Astec Industries, Inc. (a)...................... 9,400 522,875
Cognex Corp. (a)................................ 40,600 812,000
Gardner Denver Machinery, Inc. (a).............. 15,900 234,525
Global Industrial Technologies, Inc. (a)........ 21,900 234,056
Graco, Inc...................................... 19,300 569,350
JLG Industries, Inc............................. 43,800 684,375
Lindsay Manufacturing Co. (a)................... 13,612 201,628
Manitowoc Co., Inc.............................. 17,175 762,141
Novellus Systems, Inc. (a)...................... 33,900 1,678,050
Paxar Corp...................................... 48,352 432,146
Regal Beloit Corp............................... 20,800 478,400
Robbins & Myers, Inc............................ 11,000 243,375
Roper Industries, Inc........................... 31,100 633,663
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MACHINERY (CONT'D.)
Royal Appliance Manufacturing Co. (a)........... 20,400 $ 75,225
Toro Co......................................... 12,700 361,950
--------------
9,673,258
--------------
MEDIA -- 0.3%
Catalina Marketing Corp. (a).................... 17,800 1,217,075
--------------
METALS-FERROUS -- 0.3%
Birmingham Steel Corp........................... 24,600 103,013
Commercial Metals Co............................ 14,200 394,050
Material Sciences Corp. (a)..................... 15,225 129,413
Northwestern Steel and Wire Co. (a)............. 24,300 15,188
Quanex Corp..................................... 14,025 316,439
Steel Technologies, Inc......................... 11,800 79,650
WHX Corp. (a)................................... 18,300 184,144
--------------
1,221,897
--------------
METALS-NON FERROUS -- 0.5%
Amcast Industrial Corp.......................... 9,100 174,038
AMCOL International Corp........................ 26,050 257,244
Brush Wellman, Inc.............................. 16,000 279,000
Castle (A.M.) & Co.............................. 13,800 207,000
Commonwealth Industries, Inc.................... 15,800 148,125
Hecla Mining Co. (a)............................ 54,700 198,288
IMCO Recycling, Inc. (a)........................ 16,600 256,263
RTI International Metals, Inc................... 20,400 285,600
--------------
1,805,558
--------------
MINERAL RESOURCES -- 0.1%
Kronos, Inc. (a)................................ 7,900 350,069
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 6.5%
Air Express International Corp.................. 34,400 748,200
Alliant Techsystems, Inc........................ 9,300 766,669
Apogee Enterprises, Inc......................... 26,900 302,625
Aquarion Co..................................... 7,450 305,450
Barnes Group, Inc............................... 18,400 540,500
Bassett Furniture Industries, Inc............... 13,000 313,625
Blout International, Inc........................ 37,300 930,169
Brightpoint, Inc................................ 51,700 710,875
Butler Manufacturing Co......................... 7,600 170,050
Clarcor, Inc.................................... 24,300 486,000
Consumers Water Co.............................. 8,600 270,363
CPI Corp........................................ 9,900 262,350
Cross (A.T.) Co. (Class "A" Stock).............. 16,400 88,150
Cyrk, Inc. (a).................................. 14,900 111,750
Expeditors International of Washington, Inc..... 24,500 1,029,000
Flow International Corp. (a).................... 14,000 135,625
Gentex Corp. (a)................................ 71,400 1,428,000
Geon Co. (a).................................... 23,100 531,300
Griffon Corp. (a)............................... 29,300 311,313
Harmon Industries, Inc.......................... 10,000 230,625
Hologic, Inc.................................... 13,200 160,050
Insteel Industries, Inc......................... 8,300 40,463
Intermet Corp. (a).............................. 24,700 322,644
Justin Industries, Inc.......................... 26,200 343,875
K-Swiss, Inc. (Class "A" Stock)................. 5,200 139,750
Lawson Products, Inc............................ 10,600 243,800
Libbey, Inc..................................... 17,500 506,406
Lydall, Inc. (a)................................ 15,600 185,250
Mohawk Industries, Inc. (a)..................... 57,000 2,397,563
Mueller Industries, Inc. (a).................... 35,400 719,063
O'Sullivan Corp................................. 15,200 150,100
PAREXEL International Corp...................... 24,400 610,000
Reliance Steel & Aluminum Co.................... 18,400 508,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MISCELLANEOUS - BASIC INDUSTRY (CONT'D.)
Scott Technologies.............................. 17,000 $ 281,031
Service Experts, Inc............................ 16,500 482,625
SPS Technologies, Inc. (a)...................... 12,600 713,475
Standex International Corp...................... 13,000 341,250
Tera Tech Inc. (a).............................. 28,400 768,575
Texas Industries, Inc........................... 21,000 565,688
The Rival Co.................................... 9,300 124,969
Timberland Co. (Class "A" Stock) (a)............ 11,400 519,413
Tredegar Industries, Inc........................ 35,850 806,625
Valmont Industries, Inc......................... 25,400 352,425
Walbro Corp..................................... 8,600 54,825
Watsco, Inc..................................... 24,400 408,700
Whittaker Corp. (a)............................. 11,100 187,313
Wolverine Tube, Inc. (a)........................ 14,000 294,000
Wolverine World Wide, Inc....................... 43,512 576,534
Xylan Corp...................................... 43,200 758,700
--------------
23,236,051
--------------
MISCELLANEOUS - CONSUMER GROWTH/STAPLE -- 1.5%
DeVRY, Inc. (a)................................. 67,750 2,074,844
Hughes Supply, Inc.............................. 22,950 671,288
Philadelphia Suburban Corp...................... 27,400 810,013
Valassis Communications, Inc. (a)............... 36,700 1,894,638
--------------
5,450,783
--------------
OIL & GAS -- 1.5%
Benton Oil & Gas Co. (a)........................ 29,400 88,200
Cabot Oil & Gas Corp. (Class "A" Stock)......... 24,700 370,500
Cascade Natural Gas Corp........................ 10,422 188,899
Cross Timbers Oil Co............................ 44,575 334,313
Northwest Natural Gas Co........................ 23,500 608,063
Piedmont Natural Gas Co., Inc................... 30,300 1,094,588
Remington Oil & Gas Corp. (a)................... 19,300 61,519
Santa Fe Energy Resources, Inc. (a)............. 102,000 752,250
Snyder Oil Corp................................. 33,300 443,306
Southwest Gas Corp.............................. 30,000 806,250
Vintage Petroleum, Inc.......................... 51,300 442,463
Wiser Oil Co.................................... 8,800 17,600
--------------
5,207,951
--------------
OIL & GAS SERVICES -- 2.6%
Atmos Energy Corp............................... 28,600 922,350
Barrett Resources Corp. (a)..................... 31,510 756,240
Connecticut Energy Corp......................... 10,200 311,100
Customtracks Corp............................... 14,800 158,175
Daniel Industries............................... 16,900 204,913
Devon Energy Corp............................... 32,100 985,069
Energen Corp.................................... 27,900 544,050
HS Resources, Inc. (a).......................... 18,800 142,175
Input/Output, Inc. (a).......................... 50,000 365,625
KCS Energy, Inc................................. 28,500 87,281
New Jersey Resources Corp....................... 17,400 687,300
Oceaneering International, Inc. (a)............. 22,800 342,000
Offshore Logistics, Inc. (a).................... 21,700 257,688
Pennsylvania Enterprises, Inc................... 9,500 242,250
Plains Resources, Inc. (a)...................... 16,000 230,000
Pogo Producing Co............................... 39,800 517,400
Pool Energy Services Co. (a).................... 20,900 225,981
Pride Petroleum Services, Inc................... 49,700 351,006
Public Service Company of North Carolina,
Inc........................................... 18,775 488,150
Seitel, Inc. (a)................................ 21,894 272,307
Southwestern Energy Co.......................... 24,700 185,250
St. Mary Land & Exploration Co.................. 10,900 201,650
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS SERVICES (CONT'D.)
Tuboscope Vetco International, Inc. (a)......... 45,100 $ 366,438
WICOR, Inc...................................... 35,500 774,344
--------------
9,618,742
--------------
PAPER AND RELATED PRODUCTS -- 0.4%
Buckeye Technologies, Inc....................... 36,600 546,713
Schweitzer-Mauduit International, Inc........... 16,000 247,000
W.H. Brady Co................................... 22,400 603,400
--------------
1,397,113
--------------
PRECIOUS METALS -- 0.5%
Coeur d'Alene Mines Corp. (a)................... 21,700 100,363
Getchell Gold Co. (a)........................... 30,600 833,850
Glamis Gold, Ltd................................ 37,700 70,688
Stillwater Mining Co. (a)....................... 22,400 918,400
--------------
1,923,301
--------------
RAILROADS
RailTex, Inc. (a)............................... 9,100 102,944
--------------
REAL ESTATE DEVELOPMENT -- 0.2%
Toll Brothers, Inc. (a)......................... 36,800 830,300
--------------
RESTAURANTS -- 2.1%
Applebee's International, Inc................... 30,100 620,813
Au Bon Pain, Inc. (Class "A" Stock) (a)......... 11,800 79,650
CEC Entertainment, Inc.......................... 18,150 503,663
Cheesecake Factory (a).......................... 19,950 591,642
CKE Restaurants, Inc............................ 51,013 1,501,680
Foodmaker, Inc. (a)............................. 37,100 818,519
IHOP Corp. (a).................................. 9,800 391,388
Landry's Seafood Restaurants, Inc............... 30,100 225,750
Luby's Cafeterias, Inc.......................... 22,300 344,256
Ruby Tuesday, Inc............................... 31,200 663,000
Ryan's Family Steak Houses, Inc. (a)............ 41,400 512,325
Shoney's, Inc. (a).............................. 48,200 63,263
Sonic Corp. (a)................................. 18,025 448,372
Taco Cabana (Class "A" Stock) (a)............... 14,100 109,275
TCBY Enterprises, Inc........................... 22,900 160,300
Triarc Companies, Inc. (Class "A" Stock) (a).... 30,400 486,400
--------------
7,520,296
--------------
RETAIL -- 6.1%
AnnTaylor Stores Corp........................... 25,500 1,005,656
Arctic Cat, Inc................................. 27,700 282,194
Bombay Co., Inc. (a)............................ 37,600 209,150
Books-A-Million, Inc. (a)....................... 17,300 224,900
Brown Group, Inc................................ 17,550 308,222
Building Materials Holding Corp................. 11,700 141,863
Casey's General Stores, Inc..................... 52,300 681,534
Cash America International, Inc................. 24,843 377,303
Cato Corp. (Class "A" Stock).................... 27,400 269,719
Consolidated Products, Inc...................... 26,094 538,184
Damark International, Inc. (a).................. 7,200 58,500
Discount Auto Parts, Inc. (a)................... 16,300 357,581
Dress Barn, Inc. (a)............................ 23,000 349,313
Eagle Hardware & Garden, Inc. (a)............... 28,900 939,250
Filene's Basement Corp. (a)..................... 20,800 49,400
Footstar, Inc................................... 24,400 610,000
Goody's Family Clothing (a)..................... 33,100 332,034
Gottschalks, Inc. (a)........................... 12,500 95,313
Gymboree Corp................................... 24,000 153,000
J. Baker, Inc................................... 13,800 79,350
Jan Bell Marketing, Inc. (a).................... 28,500 183,469
Jo-Ann Stores, Inc.(Class "A" Stock)............ 18,000 290,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
69
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
RETAIL (CONT'D.)
Just For Feet, Inc.............................. 30,000 $ 521,250
Lechters, Inc. (a).............................. 17,000 41,969
Lillian Vernon Corp............................. 9,200 151,800
Linens 'n Things, Inc........................... 38,000 1,505,750
The Men's Wearhouse, Inc........................ 33,050 1,049,338
Michaels Stores, Inc. (a)....................... 29,400 531,956
MicroAge, Inc. (a).............................. 19,500 299,813
O'Reilly Automotive, Inc. (a)................... 21,100 996,975
Oshkosh B' Gosh, Inc. (Class "A" Stock)......... 18,000 363,375
Pacific Sunwear of California, Inc.............. 20,900 342,237
Pier 1 Imports, Inc............................. 97,950 948,891
Regis Corp...................................... 22,600 904,000
Russ Berrie & Co., Inc.......................... 22,200 521,700
Shopko Stores, Inc.............................. 25,200 837,900
Sports Authority, Inc........................... 31,550 165,638
Stein Mart, Inc. (a)............................ 45,400 316,381
Stride Rite Corp................................ 46,200 404,250
Swiss Army Brands, Inc. (a)..................... 7,700 74,113
Whole Foods Market, Inc. (a).................... 26,200 1,267,425
Williams-Sonoma, Inc. (a)....................... 51,700 2,084,156
Zale Corp....................................... 35,000 1,128,750
--------------
21,993,852
--------------
SAFETY
Rural/Metro Corp................................ 14,000 153,125
--------------
SOFTWARE -- 1.4%
HNC Software, Inc............................... 25,500 1,031,156
Hyperion Solutions Corp......................... 29,370 528,660
Macromedia Inc. (a)............................. 39,400 1,327,288
Mercury Interactive Corp........................ 17,200 1,087,900
National Instruments Corp....................... 32,300 1,102,238
--------------
5,077,242
--------------
TELECOMMUNICATIONS -- 2.4%
Allen Telecom, Inc.............................. 27,200 181,900
Aspect Telecommunications Corp. (a)............. 50,100 864,225
California Microwave, Inc. (a).................. 16,100 150,938
Centigram Communications Corp. (a).............. 6,800 67,150
CommScope, Inc.................................. 48,900 822,131
Dialogic Corp................................... 15,900 312,534
Digi International, Inc. (a).................... 13,800 153,525
Digital Microwave Corp. (a)..................... 61,000 417,469
General Communication, Inc...................... 49,100 199,469
InterVoice, Inc. (a)............................ 13,800 476,100
Network Equipment Technologies, Inc. (a)........ 20,500 211,406
P-COM, Inc...................................... 43,200 172,125
Symmetricom, Inc. (a)........................... 15,700 104,994
TCSI Corp. (a).................................. 22,100 46,272
Tel-Save Holdings, Inc.......................... 64,100 1,073,675
Vitesse Semicondutor Corp. (a).................. 72,800 3,321,500
--------------
8,575,413
--------------
TEXTILES -- 1.5%
Angelica Corp................................... 8,800 163,900
Ashworth, Inc. (a).............................. 14,600 80,756
Authentic Fitness Corp.......................... 22,400 408,800
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TEXTILES (CONT'D.)
Cone Mills Corp. (a)............................ 26,000 $ 146,250
Delta Woodside Industries, Inc.................. 24,400 146,400
Dixie Group, Inc................................ 10,700 86,938
G & K Services, Inc. (Class "A" Stock).......... 20,400 1,086,300
Galey & Lord, Inc. (a).......................... 11,300 97,463
Guilford Mills, Inc............................. 24,337 406,124
Haggar Corp..................................... 7,800 89,213
Hancock Fabrics................................. 20,800 174,200
Hartmarx Corp. (a).............................. 33,100 186,188
Johnston Industries, Inc........................ 10,600 33,125
Kellwood Co..................................... 21,375 534,375
Nautica Enterprises, Inc. (a)................... 37,000 555,000
Oxford Industries, Inc.......................... 8,800 248,600
Pillowtex Corp. (a)............................. 14,009 374,741
St. John Knits, Inc............................. 16,650 432,900
Tultex Corp. (a)................................ 28,300 24,763
--------------
5,276,036
--------------
TOBACCO -- 0.1%
DIMON, Inc...................................... 44,175 328,552
--------------
TRUCKING/SHIPPING -- 1.6%
American Freightways, Inc....................... 31,400 362,081
Arkansas Best Corp.............................. 18,500 108,109
Fritz Companies, Inc. (a)....................... 33,900 366,544
Frozen Food Express Industries, Inc............. 16,000 126,000
Heartland Express, Inc. (a)..................... 29,749 520,608
Kirby Corp. (a)................................. 20,000 398,750
Landstar Systems, Inc. (a)...................... 10,300 419,725
M.S. Carriers, Inc. (a)......................... 12,200 401,838
Pittston Burlington Group....................... 19,975 222,222
Rollins Truck Leasing Corp...................... 54,100 797,975
USFreightways Corp.............................. 26,100 760,163
Werner Enterprises, Inc......................... 47,512 840,369
Yellow Corp. (a)................................ 25,900 495,338
--------------
5,819,722
--------------
UTILITY - ELECTRIC -- 1.8%
Bangor Hydro-Electric Co........................ 6,975 89,367
Central Hudson Gas & Electric................... 16,900 756,275
Central Vermont Public Service.................. 11,300 117,238
CILCORP, Inc.................................... 13,400 819,913
Commonwealth Energy System...................... 21,475 869,738
Eastern Utilities Associates.................... 19,400 548,050
Green Mountain Power Corp....................... 5,200 54,600
Orange & Rockland Utilities, Inc................ 13,500 769,500
Sierra Pacific Resources........................ 30,400 1,155,200
TNP Enterprises, Inc............................ 12,600 478,013
United Illuminating Co.......................... 13,625 701,688
--------------
6,359,582
--------------
UTILITY - WATER -- 0.3%
American States Water Co........................ 8,200 223,450
United Water Resources, Inc..................... 37,000 885,688
--------------
1,109,138
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $321,999,044)............................................ 335,536,457
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
70
<PAGE>
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 6.6% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 6.3%
Joint Repurchase Agreement
Account, 4.693%, 01/04/99 (Note 5)............ $ 22,592 $ 22,592,000
--------------
U. S. GOVERNMENT OBLIGATIONS -- 0.3%
United States Treasury Bills,
4.30%, 03/18/99 (b)........................... 150 148,674
4.36%, 03/18/99 (b)........................... 1,100 1,090,276
--------------
1,238,950
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $23,830,507)............................................. 23,830,950
--------------
TOTAL INVESTMENTS -- 99.7%
(cost $345,829,551; Note 6).................................... 359,367,407
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (c) -- 0.2%.......................................... 613,350
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1%....................
404,881
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 360,385,638
==============
</TABLE>
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
(c) Open futures contracts as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT UNREALIZED
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1998 APPRECIATION
<S> <C> <C> <C> <C> <C>
Long Position:
120 MidCap 400 Index Mar 99 $ 21,475,050 $ 23,505,000 $ 2,029,950
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
71
<PAGE>
GLOBAL PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.2%
VALUE
COMMON STOCKS -- 92.4% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AUSTRALIA -- 1.4%
AMP Limited..................................... 326,000 $ 4,120,529
Brambles Industries, Ltd........................ 298,600 7,256,327
FXF Trust....................................... 224,600 41,193
--------------
11,418,049
--------------
FEDERAL REPUBLIC OF GERMANY -- 1.8%
Mannesmann, AG.................................. 106,659 12,229,114
SAP, AG......................................... 6,580 2,843,954
--------------
15,073,068
--------------
FINLAND -- 3.4%
Nokia Corp. (Class "A" Stock)................... 236,662 28,974,152
--------------
FRANCE -- 9.7%
Casino Guichard Perrachon, SA................... 90,463 9,421,543
Elf Aquitaine, SA............................... 109,633 12,673,655
Legrand, SA..................................... 55,861 14,804,434
Pinault Printemps Redoute, SA................... 33,785 6,456,888
Suez Lyonnaise Des Eaux......................... 62,868 12,915,154
Thomson CSF..................................... 328,820 14,122,043
Valeo, SA....................................... 149,290 11,765,383
--------------
82,159,100
--------------
IRELAND -- 2.4%
Bank of Ireland................................. 917,988 20,058,961
--------------
ITALY -- 5.0%
Unicredito Italiano SpA......................... 4,786,492 28,426,851
Telecom Italia SpA.............................. 1,574,398 13,459,862
--------------
41,886,713
--------------
JAPAN -- 5.2%
Honda Motor Co.................................. 157,000 5,135,288
Nippon Telephone and Telegraph Corp............. 1,086 8,349,059
NTT Mobile Communication Network, Inc........... 216 8,855,191
Olympus Optical Co., Ltd........................ 1,070,000 12,254,177
Takefuji Corp................................... 131,700 9,579,237
--------------
44,172,952
--------------
NETHERLANDS -- 3.3%
ING Groep, N.V.................................. 242,234 14,776,328
Koninklijke Numico, N.V......................... 273,036 13,018,738
--------------
27,795,066
--------------
SPAIN -- 4.0%
Banco Central Hispanoamericano, SA.............. 1,155,224 13,735,794
Telefonica De Espana............................ 453,545 20,194,700
--------------
33,930,494
--------------
SWEDEN -- 4.3%
Drott, AB (Class "B" Shares).................... 182,794 1,681,558
Hennes & Mauritz, AB............................ 190,023 15,533,093
Nordbanken Holdings, AB......................... 2,193,279 14,082,865
Skanska, AB (Class "B" Shares).................. 195,773 5,439,126
--------------
36,736,642
--------------
SWITZERLAND -- 2.5%
Novartis, AG.................................... 7,831 15,388,428
UBS, AG......................................... 18,858 5,791,904
--------------
21,180,332
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
UNITED KINGDOM -- 10.4%
Bank of Scotland................................ 1,037,063 $ 12,388,630
Glaxo Wellcome PLC.............................. 351,881 12,114,335
Guest, Kean & Nettlefolds, PLC.................. 881,861 11,705,117
Hays, PLC....................................... 1,555,994 13,682,625
Siebe, PLC...................................... 2,275,337 8,928,172
Vodafone Group, PLC............................. 1,806,063 29,306,058
--------------
88,124,937
--------------
UNITED STATES -- 39.0%
Belo (A.H.) Corp. (Class "A" Stock)............. 514,900 10,265,819
Cisco Systems, Inc. (a)......................... 169,000 15,685,312
Citigroup, Inc.................................. 203,100 10,053,450
Computer Sciences Corp.......................... 199,000 12,823,062
Disney (Walt) Co................................ 300,600 9,018,000
Electronic Arts, Inc............................ 295,400 16,579,325
Fox Entertainment Group, Inc. (Class "A"
Stock)........................................ 418,600 10,543,487
Healthsouth Corp. (a)........................... 506,500 7,819,094
MCI WorldCom, Inc............................... 251,400 18,037,950
Microsoft Corp. (a)............................. 134,600 18,667,337
Office Depot, Inc............................... 304,700 11,254,856
Pfizer, Inc..................................... 48,100 6,033,544
PMC-Sierra, Inc................................. 289,900 18,299,938
Safeway, Inc. (a)............................... 468,800 28,567,500
SCI Systems, Inc. (a)........................... 189,200 10,926,300
Solectron Corp.................................. 129,200 12,007,525
Tenet Healthcare Corp. (a)...................... 341,800 8,972,250
Texas Instruments, Inc.......................... 218,400 18,686,850
The Limited, Inc................................ 175,800 5,120,175
Time Warner, Inc................................ 428,600 26,599,988
Transocean Offshore, Inc........................ 226,800 6,081,075
USA Networks, Inc............................... 404,300 13,392,438
Warner-Lambert Co............................... 66,800 5,022,525
Waste Management, Inc........................... 301,100 14,038,788
Wells Fargo & Co................................ 374,800 14,968,575
--------------
329,465,163
--------------
TOTAL COMMON STOCKS
(cost $539,856,453)............................................ 780,975,629
--------------
PREFERRED STOCKS -- 0.7%
FEDERAL REPUBLIC OF GERMANY
Wella, AG, 1.57%................................ 6,609 5,514,608
--------------
(cost $5,349,125)
RIGHTS(a) -- 0.1%
SPAIN
Telefonica, SA.................................. 453,545 403,254
--------------
(cost $256,876)
TOTAL LONG-TERM INVESTMENTS
(cost $545,462,454)............................................ 786,893,491
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE>
GLOBAL PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT -- 5.2% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT
UNITED STATES
Bear, Stearns & Co. Inc., 4.73%,
01/04/99 (cost $44,130,000)(b)................ $ 44,130 $ 44,130,000
--------------
TOTAL INVESTMENTS -- 98.4%
(cost $589,592,454; Note 6).................................... 831,023,491
--------------
FORWARD CURRENCY CONTRACTS -- AMOUNT PAYABLE TO COUNTERPARTIES
(c) -- (0.5%).................................................. (3,828,254)
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES -- 2.1%..............
17,346,722
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 844,541,959
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
AB Aktiebolag (Swedish Stock Company)
AG Aktiengesellschaft (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. Inc., repurchase price $44,153,193, due
1/4/99. The value of the collateral was $45,098,734
(c) Outstanding forward currency contracts at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
VALUE AT
FOREIGN CURRENCY SETTLEMENT CURRENT
CONTRACTS DATE VALUE DEPRECIATION
- -------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Sale:
Japanese Yen,
expiring 2/16/99 $ 2,200,000 $ 2,774,219 $ (574,219)
expiring 2/17/99 $ 2,450,000 $ 3,083,306 $ (633,306)
expiring 3/17/99 $ 1,775,000 $ 2,053,545 $ (278,545)
expiring 3/17/99 $ 5,925,000 $ 6,851,612 $ (926,612)
expiring 4/17/99 $ 6,259,542 $ 7,345,432 $(1,085,890)
expiring 6/24/99 $ 5,479,224 $ 5,632,213 $ (152,989)
expiring 6/28/99 $ 5,458,538 $ 5,635,231 $ (176,693)
-------------
$(3,828,254)
=============
</TABLE>
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of December 31, 1998 were as
follows:
<TABLE>
<S> <C>
Commercial Banks 17.1%
Telecommunications 15.2%
Electronics 10.2%
Retail 9.0%
Computer Services 7.9%
Media 7.2%
Drugs & Medical Supplies 4.6%
Automobiles 3.4%
Machinery 2.5%
Construction 2.1%
Hospitals 2.0%
Electrical Equipment 1.7%
Environmental Services 1.7%
Commercial Services 1.6%
Chemicals 1.5%
Foods & Beverages 1.5%
Leisure 1.1%
Diversified Operations 0.9%
Oil & Gas Services 0.7%
Cosmetics & Soaps 0.6%
Insurance 0.5%
Real Estate Investment Trust 0.2%
Repurchase Agreement 5.2%
---------
98.4%
Forward currency contracts (0.5)%
Other assets in excess of liabilities 2.1%
---------
100.0%
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
73
<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 nine 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, Small Capitalization Stock 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 or at the bid price on such day
in the absence of an asked price. 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 High Yield Bond Portfolio may hold up to 15% of its net assets in
illiquid securities, including those which are restricted as to
disposition under securities law ("restricted securities"). Certain
issues of restricted securities held by the High Yield Bond Portfolio
at December 31, 1998, include registration rights, some of which are
currently under contract to be registered. Restricted securities,
sometimes referred to as private placements, are valued pursuant to the
valuation procedures noted above.
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 by 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 investments 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.
74
<PAGE>
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 and unrealized foreign currency gains (losses) are included in
the reported net realized gains (losses) on investment transactions.
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.
FORWARD CURRENCY CONTRACTS: A forward currency contract is a commitment
to purchase or sell a foreign currency at a future date at a negotiated
forward rate. Certain portfolios of the Series Fund enter into forward
currency contracts in order to hedge their exposure to changes in
foreign currency exchange rates on their foreign portfolio holdings or
on specific receivables and payables denominated in a foreign currency.
The contracts are valued daily at current exchange rates and any
unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments. Gain or loss is realized on the settlement
date of the contract equal to the difference between the settlement
value of the original and renegotiated forward contracts. This gain or
loss, if any, is included in net realized gain (loss) on foreign
currencies. Risks may arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their
contracts.
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 buyer. The
proceeds of the short sale will be retained by 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 sales 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
75
<PAGE>
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 LENDING: The Series Fund (excluding the Money Market
Portfolio) may lend its portfolio securities to broker-dealers,
qualified banks and certain institutional investors. The loans are
secured by collateral in an amount equal to at least the market value
at all times of the loaned securities plus any accrued interest and
dividends. During the time the securities are on loan, the Series Fund
will continue to receive the interest and dividends or amounts
equivalent thereto, on the loaned securities while receiving a fee from
the borrower or earning interest on the investment of the cash
collateral. Loans are subject to termination at the option of the
borrower or the Series Fund. Upon termination of the loan, the borrower
will return to the lender securities identical to the loaned
securities. The Series Fund may pay reasonable finders', administrative
and custodial fees in connection with a loan of its securities and may
share the interest earned on the collateral with the borrower. The
Series Fund bears the risk of delay in recovery of, or even loss of
rights in, the securities loaned should the borrower of the securities
fail financially.
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 four elements: stated coupon, original issue discount,
market discount and market premium 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 of certain estimates by management. The
Series Fund expenses are allocated to the respective Portfolios on the
basis of relative net assets except for expenses that are charged
directly at a Portfolio level.
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 Statement 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,if any, quarterly and
net capital gains, if any, at least annually. 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 year
ended December 31, 1998, the application of this statement increased
75A
<PAGE>
(decreased) undistributed net investment income ("UNI") and accumulated
net realized gains (losses) on investments ("GL") by the following
amounts:
<TABLE>
<CAPTION>
UNI G/L
------------ -----------
<S> <C> <C>
Equity Portfolio....................... $ 105,151 $ (105,151)
Global Portfolio....................... (4,162,755) 4,162,755
</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 Associates LLC ("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.
The investment advisory fee paid to The Prudential is computed daily
and payable quarterly, at the annual rates specified below, of the
value of each of the Portfolio's 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
Small Capitalization Stock Portfolio... 0.40
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 year ended December 31, 1998.
PIC and Jennison are indirect, wholly-owned subsidiaries of The
Prudential.
The Series Fund has a credit agreement (the "Agreement") with an
unaffiliated lender. The maximum commitment under the Agreement is
$250,000,000. The Agreement expired on December 18, 1998 and has been
extended through February 28, 1999 under the same terms. Interest on
any such borrowings outstanding will be at market rates. The purpose of
the Agreement is to serve as an alternative source of funding for
capital share redemptions. The Series Fund did not borrow any amounts
pursuant to the Agreement during the year ended December 31, 1998. The
Series Fund pays a commitment fee at an annual rate of .055 of 1% on
the unused portion of the credit facility. The commitment fee is
accrued and paid quarterly by the Series Fund.
75B
<PAGE>
NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES
For the fiscal year ended December 31, 1998, Prudential Securities
Incorporated, an indirect, wholly-owned subsidiary of The Prudential,
earned $526,708 in brokerage commissions from transactions executed on
behalf of the following Portfolios:
<TABLE>
<CAPTION>
Fund Commission
--------------------------------------- -----------
<S> <C>
Equity Income Portfolio................ $ 160,840
Equity Portfolio....................... 294,641
Global Portfolio....................... 14,247
Prudential Jennison Portfolio.......... 56,980
-----------
$ 526,708
</TABLE>
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 $932,710,000 as of December
31, 1998. The Portfolios of the Series Fund with cash invested in the
joint accounts had the following principal amounts and percentage
participation in the account:
<TABLE>
<CAPTION>
Principal Percentage
Amount Interest
------------- ----------
<S> <C> <C>
Diversified Bond Portfolio............. $ 31,305,000 3.36%
High Yield Bond Portfolio.............. 33,890,000 3.63
Stock Index Portfolio.................. 86,854,000 9.31
Equity Income Portfolio................ 58,712,000 6.30
Equity Portfolio....................... 60,667,000 6.50
Prudential Jennison Portfolio.......... 43,284,000 4.64
Small Capitalization Stock Portfolio... 22,592,000 2.42
All other portfolios (currently not
available to Discovery Select)....... 595,406,000 63.84
------------- ----------
$ 932,710,000 100.00%
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Bear, Stearns & Co., Inc., 4.75%, in the principal amount of
$255,000,000, repurchase price $255,134,583, due 1/4/99. The value of
the collateral including accrued interest was $260,454,041.
Credit Suisse First Boston Corp., 4.88%, in the principal amount of
$50,000,000, repurchase price $50,027,111, due 1/4/99. The value of the
collateral including accrued interest was $52,533,163.
CIBC Oppenheimer, 4.75%, in the principal amount of $255,000,000,
repurchase price $255,134,583, due . The value of the collateral
including accrued interest was $260,553,672.
SBC Warburg Dillon Reed Inc., 4.70%, in the principal amount of
$255,000,000, repurchase price $255,133,167, due 1/4/99. The value of
the collateral including accrued interest was $261,037,802.
Morgan (JP) Securities, Inc., 4.35%, in the principal amount of
$117,710,000, repurchase price $117,766,893, due 1/4/99. The value of
the collateral including accrued interest was $120,272,486.
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, 1998 were as follows:
Cost of Purchases:
<TABLE>
<CAPTION>
HIGH SMALL
DIVERSIFIED YIELD STOCK EQUITY PRUDENTIAL CAPITALIZATION
BOND BOND INDEX INCOME EQUITY JENNISON STOCK
-------------- ------------ ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Government Securities.... $1,084,548,820 0 0 0 0 0 0
Non-Government
Securities............. $1,014,377,393 $678,466,256 $506,725,666 $701,633,702 $1,642,979,141 $819,680,050 $ 146,819,579
<CAPTION>
GLOBAL
------------
<S> <C>
Government Securities.... 0
Non-Government
Securities............. $515,000,344
</TABLE>
75C
<PAGE>
Proceeds from Sales:
<TABLE>
<CAPTION>
HIGH SMALL
DIVERSIFIED YIELD STOCK EQUITY PRUDENTIAL CAPITALIZATION
BOND BOND INDEX INCOME EQUITY JENNISON STOCK
------------ ------------ ----------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Government Securities.... $981,769,931 0 0 0 0 0 0
Non-Government
Securities............. $800,302,342 $413,571,009 $98,694,085 $424,595,936 $1,341,760,073 $399,687,941 $ 78,305,913
<CAPTION>
GLOBAL
------------
<S> <C>
Government Securities.... 0
Non-Government
Securities............. $488,859,228
</TABLE>
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of December 31, 1998 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........... $ 29,099,718 $ 14,026,170 $1,665,560,555 $ 416,426,863 $1,763,010,854 $327,887,751
Gross Unrealized
Depreciation........... 16,654,189 93,507,623 40,647,788 175,859,614 280,291,578 10,960,715
Total Net Unrealized..... 12,445,529 (79,481,453) 1,624,912,767 240,567,249 1,482,719,276 316,927,036
Tax Basis................ 1,095,335,557 854,184,337 1,919,601,401 1,945,300,102 4,767,976,521 887,450,487
<CAPTION>
SMALL
CAPITALIZATION
STOCK GLOBAL
-------------- ------------
<S> <C> <C>
Gross Unrealized
Appreciation........... $ 63,376,056 $239,116,983
Gross Unrealized
Depreciation........... 50,650,473 12,753,049
Total Net Unrealized..... 12,725,583 226,363,934
Tax Basis................ 346,641,824 604,659,557
</TABLE>
For federal income tax purposes, the following Portfolios had post-October
losses deferred and capital loss carryforwards as of December 31, 1998.
Accordingly no capital gain distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amounts:
<TABLE>
<CAPTION>
CAPITAL LOSSES CAPITAL LOSSES
POST OCTOBER CARRYFORWARDS CARRYFORWARDS
LOSSES DEFERRED UTILIZED IN 1998 AVAILABLE EXPIRATION YEAR
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
High Yield Bond Portfolio.............. $ 5,542,044 $ 3,548,806 $ 2,841,673 2003
</TABLE>
75D
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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 realized and
unrealized gains..................... 0.52 0.54 0.51 0.56 0.40
Dividends and distributions............ (0.52) (0.54) (0.51) (0.56) (0.40)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 5.39% 5.41% 5.22% 5.80% 4.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $920.2 $657.5 $668.8 $613.3 $583.3
Ratios to average net assets:
Expenses............................. 0.41% 0.43% 0.44% 0.44% 0.47%
Net investment income................ 5.20% 5.28% 5.10% 5.64% 4.02%
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED BOND
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 11.02 $ 11.07 $ 11.31 $ 10.04 $ 11.10
--------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.69 0.80 0.76 0.76 0.68
Net realized and unrealized gains
(losses) on investments.............. 0.08 0.11 (0.27) 1.29 (1.04)
--------- -------- -------- -------- --------
Total from investment operations... 0.77 0.91 0.49 2.05 (0.36)
--------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.69) (0.83) (0.73) (0.75) (0.68)
Distributions from net realized
gains................................ (0.04) (0.13) -- (0.03) (0.02)
--------- -------- -------- -------- --------
Total distributions................ (0.73) (0.96) (0.73) (0.78) (0.70)
--------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 11.06 $ 11.02 $ 11.07 $ 11.31 $ 10.04
========= ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 7.15% 8.57% 4.40% 20.73% (3.23)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,122.6 $816.7 $720.2 $655.8 $541.6
Ratios to average net assets:
Expenses............................. 0.42% 0.43% 0.45% 0.44% 0.45%
Net investment income................ 6.40% 7.18% 6.89% 7.00% 6.41%
Portfolio turnover rate................ 199% 224% 210% 199% 32%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
HIGH YIELD BOND
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 8.14 $ 7.87 $ 7.80 $ 7.37 $ 8.41
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.77 0.78 0.80 0.81 0.87
Net realized and unrealized gains
(losses) on investments.............. (0.94) 0.26 0.06 0.46 (1.10)
-------- -------- -------- -------- --------
Total from investment operations... (0.17) 1.04 0.86 1.27 (0.23)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.76) (0.77) (0.78) (0.84) (0.81)
Dividends in excess of net investment
income............................... -- -- (0.01) -- --
-------- -------- -------- -------- --------
Total distributions................ (0.76) (0.77) (0.79) (0.84) (0.81)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 7.21 $ 8.14 $ 7.87 $ 7.80 $ 7.37
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ (2.36)% 13.78% 11.39% 17.56% (2.72)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $789.3 $568.7 $432.9 $367.9 $306.2
Ratios to average net assets:
Expenses............................. 0.58% 0.57% 0.63% 0.61% 0.65%
Net investment income................ 10.31% 9.78% 9.89% 10.34% 9.88%
Portfolio turnover rate................ 63% 106% 88% 139% 69%
</TABLE>
<TABLE>
<CAPTION>
STOCK INDEX
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 30.22 $ 23.74 $ 19.96 $ 14.96 $ 15.20
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.42 0.43 0.40 0.40 0.38
Net realized and unrealized gains
(losses) on investments.............. 8.11 7.34 4.06 5.13 (0.23)
--------- --------- --------- --------- --------
Total from investment operations... 8.53 7.77 4.46 5.53 0.15
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.42) (0.42) (0.40) (0.38) (0.37)
Distributions from net realized
gains................................ (0.59) (0.87) (0.28) (0.15) (0.02)
--------- --------- --------- --------- --------
Total distributions................ (1.01) (1.29) (0.68) (0.53) (0.39)
--------- --------- --------- --------- --------
Net Asset Value, end of year........... $ 37.74 $ 30.22 $ 23.74 $ 19.96 $ 14.96
========= ========= ========= ========= ========
TOTAL INVESTMENT RETURN:(b)............ 28.42% 32.83% 22.57% 37.06% 1.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $3,548.1 $2,448.2 $1,581.4 $1,031.3 $664.5
Ratios to average net assets:
Expenses............................. 0.37% 0.37% 0.40% 0.38% 0.42%
Net investment income................ 1.25% 1.55% 1.95% 2.27% 2.50%
Portfolio turnover rate................ 3% 5% 1% 1% 2%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
76A
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EQUITY INCOME
------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 22.39 $ 18.51 $ 16.27 $ 14.48 $ 15.66
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.56 0.61 0.58 0.64 0.66
Net realized and unrealized gains
(losses) on investments.............. (1.03) 6.06 2.88 2.50 (0.46)
--------- --------- --------- --------- ---------
Total from investment operations... (0.47) 6.67 3.46 3.14 0.20
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.59) (0.57) (0.71) (0.62) (0.56)
Distributions from net realized
gains................................ (1.30) (2.22) (0.51) (0.73) (0.82)
--------- --------- --------- --------- ---------
Total distributions................ (1.89) (2.79) (1.22) (1.35) (1.38)
--------- --------- --------- --------- ---------
Net Asset Value, end of year........... $ 20.03 $ 22.39 $ 18.51 $ 16.27 $ 14.48
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:(b)............ (2.38)% 36.61% 21.74% 21.70% 1.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $2,142.3 $2,029.8 $1,363.5 $1,110.0 $859.7
Ratios to average net assets:
Expenses............................. 0.42% 0.41% 0.45% 0.43% 0.52%
Net investment income................ 2.54% 2.90% 3.36% 4.00% 3.92%
Portfolio turnover rate................ 20% 38% 21% 64% 63%
</TABLE>
<TABLE>
<CAPTION>
EQUITY
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 21.49
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.60 0.69 0.71 0.55 0.51
Net realized and unrealized gains on
investments.......................... 2.21 5.88 3.88 5.89 0.05
--------- --------- --------- --------- ---------
Total from investment operations... 2.81 6.57 4.59 6.44 0.56
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.60) (0.70) (0.67) (0.52) (0.49)
Distributions from net realized
gains................................ (3.64) (1.76) (2.60) (0.94) (0.90)
--------- --------- --------- --------- ---------
Total distributions................ (4.24) (2.46) (3.27) (1.46) (1.39)
--------- --------- --------- --------- ---------
Net Asset Value, end of year........... $ 29.64 $ 31.07 $ 26.96 $ 25.64 $ 20.66
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:(b)............ 9.34% 24.66% 18.52% 31.29% 2.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $6,247.0 $6,024.0 $4,814.0 $3,813.8 $2,617.8
Ratios to average net assets:
Expenses............................. 0.47% 0.46% 0.50% 0.48% 0.55%
Net investment income................ 1.81% 2.27% 2.54% 2.28% 2.39%
Portfolio turnover rate................ 25% 13% 20% 18% 7%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
76B
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRUDENTIAL JENNISON
------------------------------------------------
YEAR ENDED APRIL 25,
DECEMBER 31, 1995(d)(a)
----------------------------- TO
1998 1997 1996 DECEMBER 31, 1995
--------- -------- -------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 17.73 $ 14.32 $ 12.55 $ 10.00
--------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.04 0.04 0.02 0.02
Net realized and unrealized gains on
investments.......................... 6.56 4.48 1.78 2.54
--------- -------- -------- --------
Total from investment operations... 6.60 4.52 1.80 2.56
--------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.04) (0.04) (0.03) (0.01)
Distributions from net realized
gains................................ (0.38) (1.07) -- --
--------- -------- -------- --------
Total distributions................ (0.42) (1.11) (0.03) (0.01)
--------- -------- -------- --------
Net Asset Value, end of period......... $ 23.91 $ 17.73 $ 14.32 $ 12.55
========= ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 37.46% 31.71% 14.41% 24.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $1,198.7 $495.9 $226.5 $63.1
Ratios to average net assets:
Expenses............................. 0.63% 0.64% 0.66% 0.79%(c)
Net investment income................ 0.20% 0.25% 0.20% 0.15%(c)
Portfolio turnover rate................ 54% 60% 46% 37%
</TABLE>
<TABLE>
<CAPTION>
SMALL CAPITALIZATION STOCK
----------------------------------------------------
YEAR ENDED
DECEMBER 31, APRIL 25, 1995(d)
----------------------------- TO
1998 1997 1996 DECEMBER 31, 1995(a)
-------- -------- -------- ---------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 15.93 $ 13.79 $ 11.83 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.09 0.10 0.09 0.08
Net realized and unrealized gains
(losses) on investments.............. (0.25) 3.32 2.23 1.91
-------- -------- -------- --------
Total from investment operations... (0.16) 3.42 2.32 1.99
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.09) (0.10) (0.09) (0.04)
Distributions from net realized
gains................................ (0.97) (1.18) (0.27) (0.12)
-------- -------- -------- --------
Total distributions................ (1.06) (1.28) (0.36) (0.16)
-------- -------- -------- --------
Net Asset Value, end of period......... $ 14.71 $ 15.93 $ 13.79 $ 11.83
======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ (0.76)% 25.17% 19.77% 19.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $360.4 $290.3 $147.9 $47.5
Ratios to average net assets:
Expenses............................. 0.47% 0.50% 0.56% 0.60%(c)
Net investment income................ 0.57% 0.69% 0.87% 0.68%(c)
Portfolio turnover rate................ 26% 31% 13% 32%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized
(d) Commencement of operations.
76C
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GLOBAL
-------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 17.92 $ 17.85 $ 15.53 $ 13.88 $ 14.64
--------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.07 0.09 0.11 0.06 0.02
Net realized and unrealized gains
(losses) on investments.............. 4.38 1.11 2.94 2.14 (0.74)
--------- -------- -------- -------- --------
Total from investment operations... 4.45 1.20 3.05 2.20 (0.72)
--------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.16) (0.13) (0.11) (0.24) (0.02)
Dividends in excess of net investment
income............................... (0.12) (0.10) -- -- --
Distributions from net realized
gains................................ (0.93) (0.90) (0.62) (0.31) (0.02)
--------- -------- -------- -------- --------
Total distributions................ (1.21) (1.13) (0.73) (0.55) (0.04)
--------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 21.16 $ 17.92 $ 17.85 $ 15.53 $ 13.88
========= ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 25.08% 6.98% 19.97% 15.88% (4.89)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $844.5 $638.4 $580.6 $400.1 $345.7
Ratios to average net assets:
Expenses............................. 0.86% 0.85% 0.92% 1.06% 1.23%
Net investment income................ 0.29% 0.47% 0.64% 0.44% 0.20%
Portfolio turnover rate................ 73% 70% 41% 59% 37%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
76D
<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 portfolios 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 the Money Market, Diversified Bond,
High Yield Bond, Stock Index, Equity Income, Equity, Prudential Jennison, Small
Capitalization Stock Portfolio and Global Portfolios (nine of the fifteen
portfolios that constitute The Prudential Series Fund, Inc.; the "Portfolios")
at December 31, 1998, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended, 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, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above. The accompanying financial highlights of the Prudential Jennison
Portfolio for the period April 25, 1995 through December 31, 1995 and the
financial highlights for each of the two 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.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
February 12, 1999
TAX INFORMATION (UNAUDITED)
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,
1998) as to the federal tax status of dividends paid by the Series Fund during
such fiscal year. Accordingly, we are advising you that in 1998, the Series Fund
paid dividends as follows:
<TABLE>
<CAPTION>
ORDINARY DIVIDENDS
------------------
SHORT-TERM LONG-TERM TOTAL
INCOME CAPITAL GAINS CAPITAL GAINS DIVIDENDS
------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Money Market Porfolio $0.460 -- -- $0.460
Diversified Bond Portfolio 0.692 $0.041 -- 0.733
High Yield Bond Portfolio 0.761 -- -- 0.761
Stock Index Portfolio 0.420 0.029 $0.559 1.008
Equity Income Portfolio 0.586 0.125 1.173 1.884
Equity Portfolio 0.606 0.094 3.544 4.244
Prudential Jennison Portfolio 0.044 -- 0.380 0.424
Small Capitalization Stock Portfolio 0.091 0.199 0.771 1.061
Global Portfolio 0.277 -- 0.928 1.205
</TABLE>
77
<PAGE>
BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.
<TABLE>
<S> <C> <C>
MENDEL A. MELZER, CFA W. SCOTT McDONALD, JR., Ph.D. E. MICHAEL CAULFIELD
CHAIRMAN, VICE PRESIDENT, EXECUTIVE VICE PRESIDENT,
THE PRUDENTIAL SERIES FUND, INC. KALUDIS CONSULTING GROUP PRUDENTIAL FINANCIAL MANAGEMENT
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
</TABLE>
<TABLE>
<S> <C>
SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
PRESIDENT, VICE PRESIDENT,
NEW JERSEY INSTITUTE OF TECHNOLOGY INTERCLASS (INTERNATIONAL CORPORATE LEARNING)
</TABLE>
78
<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(R) 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 (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 Monday to Friday, 8:00 a.m. to 9:00
p.m. ET. Call (888) PRU-2888, Press 0 *.
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>
[LOGO]
- --------------------------------------------------------------------------------
Whether providing insurance protection for home, family, and business, providing
for future education and retirement expenses, or offering innovations like
Critical Care Access, Prudential has always been able to deliver something more:
personal service, quality, attention to detail and the financial strength of The
Rock(R). Since 1875, Prudential has been helping individuals and families meet
their financial needs.
Like most insurance policies and annuity contracts, Prudential's policies and
contracts contain exclusions, limitations, reductions of benefits and terms for
keeping them in force. Your Prudential Securities Financial Advisor/Pruco
Securities Registered Representative will be glad to provide you with costs and
complete details.
P.O. Box 197 ------------
Minneapolis, MN 55440-0197 Bulk Rate
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Address Service Requested PAID
Prudential
------------
[GRAPHIC]
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