<PAGE> 1
1997 ANNUAL REPORTS
PACIFIC INNOVATIONS TRUST
SEPARATE ACCOUNT B OF
PACIFIC LIFE INSURANCE COMPANY
[LOGO]
PACIFIC LIFE
Pacific Life Insurance Company
is the issuer of Pacific Innovations variable annuity
----------------
Not FDIC Insured
----------------
<PAGE> 2
SHAREHOLDER LETTER
Dear Shareholders,
We are pleased to share with you the first annual report dated December 31,
1997, for the Pacific Innovations Trust which serves as the investment medium
for the Pacific Innovations Variable Annuity (both "Pacific Innovations.")
Pacific Innovations is a flexible premium deferred variable annuity contract
offered by Pacific Life Insurance Company, formerly known as Pacific Mutual Life
Insurance Company.
In addition to a Fixed Investment Option, seven Variable Investment Options
are currently available, each one investing in shares of a corresponding Fund of
the Pacific Innovations Trust. Bank of America is the manager for the following
five Funds: Money Market Fund, Capital Income Fund, Blue Chip Fund, Mid-Cap
Equity Fund and Aggressive Growth Fund. The other two Funds, the Managed Bond
Fund and International Fund, are sub-advised by Scudder Kemper Investments,
(formerly Scudder, Stevens & Clark, Inc.,) and Wellington Management Company,
LLP, respectively.
Thank you for your continued support of Pacific Innovations. During the
coming months, we will continue to monitor investment risk and explore
investment opportunities to help meet your long-term goals.
Sincerely,
/s/ Edward S. Bottum
Edward S. Bottum
Chairman
Pacific Innovations Trust
<PAGE> 3
PACIFIC INNOVATIONS TRUST
1997 ANNUAL REPORT
<PAGE> 4
PACIFIC INNOVATIONS TRUST
MONEY MARKET FUND
Q.
HOW WOULD YOU DESCRIBE THE ECONOMIC ENVIRONMENT FOR THE 12 MONTH PERIOD
ENDED 12/31/97?
A.
At Fund's inception date (March 1, 1997), we expected the Federal
Reserve Board to raise the targeted federal funds rate by 25 basis
points to 5.50%. This occurred on March 25, 1997. The economy was operating near
full capacity; the labor markets were tight and the Gross Domestic Product was
at a high level. However, the market discounted these traditionally bearish
signals and focused on actual inflation data. With inflation failing to
materialize, the Fed held rates steady through the summer. In October the Fed's
chairman, Alan Greenspan, publicly expressed fears of impending higher
inflation; his comments were interpreted as preparing the market for an imminent
tightening of credit. At the same time that the domestic economy performed
strongly, the currencies of several Asian nations, including Korea and
Indonesia, plummeted. This crisis spread to Japan where an already shaky banking
system held a significant amount of Southeast Asian debt. The severity of this
situation changed the market's perception of the global economy with the
prospect of significant deflation in Southeast Asia and Japan dampening global
growth. This, in turn, caused the market to virtually ignore economic data
released in the last quarter of the year as the fallout from the crisis in Asia
is expected to slow the economy to acceptable levels.
Q.
HOW DID THE FUND FARE IN THIS ENVIRONMENT?
A.
The size of this Fund proved beneficial as smaller lots of securities
are cheaply priced to be moved off the dealer's books. When tri-party
repo levels were well above the targeted Fed funds level, we increased our
overnight cash position to take advantage of the higher yields. We purchased
discount notes in the three to twelve month maturity range and agency coupons
whenever they out-yielded discount notes.
Q.
HOW IS THE FUND CURRENTLY STRUCTURED? (MATURITY SCHEDULE)
A.
We currently utilize a laddered structure in this portfolio. The
securities are distributed across the curve as follows: Overnight, 31%;
8-30 days, 21%; 31-90 days, 32%; 91-180 days, 15%; and 181-397 days, 1%. We will
maintain this laddered strategy until we have a clearer sense of the direction
of short-term interest rates.
Q.
WHAT IS YOUR 1998 ECONOMIC OUTLOOK?
A.
We believe that the domestic economy will slow from its torrid 1997
pace but remain at or slightly above trend in 1998. This will allow the
Federal Reserve to maintain a status quo monetary policy. The currency crisis in
Asia should dominate the news in the first half of the year and dampen growth
globally. However, as these problems become sorted out, attention will shift
back to the state of the domestic economy. It is likely that the factors causing
concern prior to the currency crisis in Asia (a tight labor market, robust
consumption, and an economy running near full capacity) will remain. Given this
scenario, inflation fears will again crop up and raise the risk premium for debt
securities.
A-1
<PAGE> 5
PACIFIC INNOVATIONS TRUST
MANAGED BOND FUND
Q.
WHAT WAS YOUR INVESTMENT STRATEGY DURING 1997?
A.
We maintained neutral duration stance in the portfolio during 1997
reflecting uncertainty over the direction of interest rates. We focused
our portfolio construction on maintaining current yield advantage over the
benchmark. As of December 31, 1997 the Fund's return was 6.59% as compared to
7.30% for Lehman Brothers Intermediate Government/Corporate Index.*
Q.
WHAT WAS THE IMPACT OF THE INVESTMENT STRATEGY ON THE FUND'S
PERFORMANCE FOR 1997?
A.
Although the neutral duration stance neither hurt nor helped the Fund's
performance, it minimized exposure to volatile interest rate movements. The
Fund's performance for the final quarter of 1997 was in line with the
benchmark's after trailing it slightly earlier in the year as appropriate
investments were identified and the strategy implemented. The orientation toward
current yield aided performance throughout the period, although spread widening
in the overweighted asset-backed and corporate sectors negatively affected the
comparison.
Q.
WHAT IS THE FUND'S INVESTMENT STRATEGY FOR 1998?
A.
We plan on maintaining a portfolio duration close to neutral with the
Lehman Brothers Intermediate Government/Corporate Index reflecting
cross-currents in economic fundamentals. We also plan to maintain our emphasis
on those mortgage, asset-backed, and corporate securities which have an
attractive yield advantage over Treasury securities.
- ---------------
* Return figures for the fund include change in share price, reinvestment of
dividends and capital gain distributions. The Lehman Brothers Intermediate
Government/Corporate Index is an unmanaged index used as a benchmark for
intermediate term investments and cannot be invested in directly.
A-2
<PAGE> 6
PACIFIC INNOVATIONS TRUST
CAPITAL INCOME FUND
Q.
HOW DID THE FUND PERFORM FOR THE PERIOD ENDED 12/31/97?
A.
We are quite pleased with the Fund's fine performance during this past
year. Its return was 14.75%, compared to 13.9% for the Fund's
benchmark, the First Boston Index.*
Q.
WHAT SECTORS IS THE FUND FAVORING CURRENTLY?
A.
We are favoring two sectors, finance (banks, savings and loans, and
insurance companies) and healthcare (assisted living companies and
pharmaceuticals). In the finance sector we believe that the current overcapacity
(more capital and more branches exist than are needed) will lead to a continued
series of mergers and consolidations. In healthcare the demographics are
favorable. That is, the general population is aging and living longer, so the
demand for more and better medications and for assisted living facilities will
continue to increase. We are underweighted in basics (metals, mining, and forest
products), since we believe that the lack of inflation will limit the pricing
power of those companies.
Q.
WHAT IS YOUR STRATEGY FOR 1998?
A.
We will continue focusing on companies of domestic issuers that are
positioned to take advantage of merger or acquisition activity and that
have a strong competitive advantage within that sector. We are also in the
process of upgrading the quality of the portfolio. We are replacing those
securities rated B and BB with ones rated BBB or above, by Standard and Poor's
rating agency.
- ---------------
* Return figures for the fund include change in share price, reinvestment of
dividends and capital gain distributions. The First Boston Index is a
widely-used, unmanaged index which measures the performance of convertible
securities and cannot be invested in directly.
A-3
<PAGE> 7
PACIFIC INNOVATIONS TRUST
BLUE CHIP FUND
Q.
HOW DID THE FUND PERFORM FOR THE PERIOD ENDED 12/31/97?
A.
Since its inception on March 1, 1997, the Blue Chip Fund posted a solid
return of 23.3% versus 23.8% for the S&P 500 Index and 22.6% for the
Lipper Growth Fund Average.*
Q.
WHAT WERE A FEW OF THE STOCKS THAT MADE A POSITIVE IMPACT ON RESULTS
FOR THE PERIOD ENDED 12/31/97?
A.
Some of the stocks that contributed to the portfolio's strong
performance were Dell Computer (1.52%), Microsoft (2.53%), Proctor and
Gamble (2.20%), General Electric (2.91%), Pfizer (1.35%) and Schering Plough
(1.72%). (Percentages shown are the percentages of net assets as of 12/31/97).
Q.
HOW HAVE YOU POSITIONED THE FUND FOR 1998?
A.
We seek to identify individual stocks with the greatest potential for
long-term growth. We emphasize stocks with large market
capitalizations, future growth potential, and a reasonable price. For 1998 we
will add value by choosing stocks of companies that offer a combination of
growth, value, and earnings momentum. We will not change our philosophy based on
short-term trends or conditions in the market, but we will remain focused on
meeting the goals of long-term investors while attempting to outperform the S&P
500 Index on a consistent basis.
- ---------------
* Return figures for the fund include change in share price, reinvestment of
dividends and capital gain distributions. The S&P 500 is representative of the
large capitalization U.S. equity market as a whole, and cannot be invested in
directly. The Lipper Growth Funds Average is an average of growth funds
tracked by Lipper Analytical Services, Inc. which measures the performance of
other funds with investment policies similar to the Blue Chip Fund.
A-4
<PAGE> 8
PACIFIC INNOVATIONS TRUST
MID-CAP EQUITY FUND
Q.
HOW DID THE FUND PERFORM FOR THE PERIOD ENDED 12/31/97?
A.
Since its inception on March 1, 1997, the Mid-Cap portfolio experienced
significant growth, returning 27.8% for the period versus 28.6% for the
Standard and Poor's Mid-Cap Index and 18.3% for the Lipper Mid-Cap Fund
Average.*
Q.
WHAT WERE A FEW OF THE STOCKS THAT MADE A POSITIVE IMPACT ON RESULTS
FOR THE PERIOD ENDED 12/31/97?
A.
Some of the stocks that contributed to the portfolio's strength were
TJX Companies 0.96%, Dean Foods 1.44%, King World 0.36%, Washington
Post 1.09%, First of America 2.21%, and Compuware 1.32%. (Percentages shown are
the percentage of net assets as of 12/31/97.)
Q.
HOW HAVE YOU POSITIONED THE FUND FOR 1998?
A.
We seek to identify individual stocks with the greatest potential for
long-term growth. We emphasize stocks with medium market
capitalizations, future growth potential, and a reasonable price. For 1998 we
will add value by choosing stocks of companies that offer a combination of
growth, value, and earnings momentum. We will not change our philosophy based on
short-term trends or conditions in the market, but we will remain focused on
meeting the goals of long-term investors while attempting to outperform the
Mid-Cap Index on a consistent basis.
- ---------------
* Return figures for the fund include change in share price, reinvestment of
dividends and capital gain distributions. The S&P 400 Mid-Cap Index is
representative of the Mid-Cap U.S. equity market as a whole, and cannot be
invested in directly. The Lipper Mid-Cap Funds Average is an average of growth
funds tracked by Lipper Analytical Services, Inc. which measures the
performance of other funds with investment policies similar to the Mid-Cap
Fund.
A-5
<PAGE> 9
PACIFIC INNOVATIONS TRUST
AGGRESSIVE GROWTH FUND
Q.
HOW DID THE FUND PERFORM FOR THE PERIOD ENDED 12/31/97?
A.
Since its inception, the portfolio has outperformed its benchmark
posting a total return of 17.7% versus 17.2% for the Russell 2000
Growth Index for the period ended December 31, 1997.*
Q.
WHAT WERE A FEW OF THE STOCKS THAT MADE A POSITIVE IMPACT ON RESULTS
FOR THE PERIOD ENDED 12/31/97?
A.
Some of the stocks that contributed to the portfolio's strong
performance were SEI Investments Co., 2.22%, Cablevision Systems Corp.,
1.68%, Volt Information Science, 1.49%, Mesaba Holdings, Inc., 1.64% and Nice
Systems Ltd., 1.89%. (Percentages shown are the percentage of net assets as of
December 31, 1997.)
Q.
HOW HAVE YOU POSITIONED THE FUND FOR 1998?
A.
The composition of the Pacific Innovations Aggressive Growth Fund
continues to change as we actively monitor the Fund holdings and
position the Fund to take advantage of the opportunities presented by the
marketplace. Our investment style continues to emphasize a high growth but risk
managed approach which maintains reasonable sector diversification relative to
the benchmark and controls position sizes in each company's stock to less than 3
percent. We are keeping sector weights reasonably diversified. Within the
consumer sector we are emphasizing specialty retailers, apparel, and services.
We continue to overweight business services (especially outsourcing). Our
technology overweight is moderate given less consistent earnings performance in
small-company technology stocks. We have reduced telecom equipment selectively
while adding to service providers and computer software. Our largest
underweights include finance due to fewer available growth stocks, and health
care where managed care stocks have experienced difficulty. The longer term
expected growth rate of our portfolio holdings is 26% with a price earnings
ratio of nineteen times the 1998 estimates.
- ---------------
Note: Small-company funds typically carry additional risks since smaller
companies generally have a higher company-specific risk, and historically,
their stocks have experienced a greater degree of market volatility than
larger company stocks on average.
* Return figures for the fund include change in share price, reinvestment of
dividends and capital gain distributions. The Russell 2000 Growth Index is a
widely used unmanaged index which measures the performance of small
capitalization stocks and cannot be invested in directly.
A-6
<PAGE> 10
PACIFIC INNOVATIONS TRUST
INTERNATIONAL FUND
Q.
HOW DID THE FUND PERFORM FOR THE PERIOD ENDED 12/31/97?
A.
The fund returned 0.56% for the nine month period ended 12/31/97,
compared to 2.1% for the Fund's benchmark the Morgan Stanley Capital
International (MSCI) All Country World Free ex-US Index.* The negative
performance was due largely to the well-publicized crisis in the Asian markets.
The hardest hit emerging markets of Asia (South Korea, Indonesia, Thailand, and
Malaysia) fell between 38.4% and 58%.
Q.
WHICH REGIONS OF THE INTERNATIONAL MARKETS FARED RELATIVELY WELL FOR
THE LAST NINE MONTHS?
A.
The strongest international markets for the fourth quarter of 1997 were
the peripheral European markets (Spain, Sweden, France & Switzerland,
etc.) The largest European markets remained essentially flat. The US dollar
remained strong against most major European currencies and the Japanese yen.
Q.
HOW WILL YOU POSITION THE FUND FOR 1998?
A.
Our portfolio strategy will concentrate on the core international
markets, primarily in Europe and Japan. We will keep a significant
portion of the portfolio's assets in Europe. We will take a more cautious
approach to the Japanese market, adding certain well-positioned exporters. In
developed Asia (Australia, Hong Kong, New Zealand, and Singapore), we see
potential for further downside developments and will maintain an underweighted
position in this region relative to our benchmark. The Latin American markets,
while stronger than the emerging Asian markets, will still be volatile in the
weeks ahead, so we will monitor them carefully.
- ---------------
Note: International funds typically carry a higher degree of risk than funds
that invest solely in U.S. securities, including a possible loss of
principal through currency fluctuations, political and economic
situations, differences in accounting standards and other unforeseen
events and factors.
* Return figures for the fund include change in share price, reinvestment of
dividends and capital gain distributions. The Morgan Stanley Capital
International (MSCI) All Country World Free ex-U.S. Index in an unmanaged
index used as a performance benchmark for international equity funds and
cannot be invested in directly.
A-7
<PAGE> 11
PACIFIC INNOVATIONS TRUST
MANAGED BOND FUND
(AS OF DECEMBER 31, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[CHART]
HOW PERFORMANCE COMPARES
The chart compares the performance of the Pacific Innovations Trust Bond Fund to
the Lehman Brothers Intermediate Government/Corporate Bond Index, which is an
unmanaged index typically used as a performance benchmark for intermediate term
investments.
An initial $10,000 investment in the Fund made on March 1, 1997, would now be
worth $10,659. The same investment in the Lehman Brothers Intermediate Bond
would now be worth $10,725.
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
AGGREGATE TOTAL RETURN
- ---------------------------------------------------
<S> <C>
Since Inception 6.59%
(3/01/1997)
</TABLE>
Performance quoted is not annualized.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The return for the Fund includes change in share
price, reinvestment of dividends, and capital gains distributions, if any. The
return does not include deductions at the separate account or contract level for
administrative fees and charges, premium tax charges, mortality and expense risk
charges, or other charges that may be incurred under a contract.
The Lehman Brothers Intermediate Government/Corporate Bond Index may not be
invested in directly. The hypothetical investment in the Lehman Brothers
Intermediate Government/Corporate Bond Index does not reflect any sales or
management fees that would be incurred if an investor were to actually purchase
individual securities or mutual funds, while the performance of the Fund
reflects all expenses and management fees and the effect of the maximum sales
charge.
A-8
<PAGE> 12
PACIFIC INNOVATIONS TRUST
CAPITAL INCOME FUND
(AS OF DECEMBER 31, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[CHART]
HOW PERFORMANCE COMPARES
As the chart indicates, the Pacific Innovations Trust Capital Income Fund has
out-performed the market, as compared to the CS First Boston Index, a
widely-used, unmanaged index which measures the performance of convertible
securities.
An initial $10,000 investment in the Fund made on March 1, 1997, would now be
worth $11,475. The same investment made in the First Boston Convertible Index,
would now be worth $11,390.
<TABLE>
<CAPTION>
CAPITAL INCOME FUND AGGREGATE TOTAL RETURN
- ---------------------------------------------------
<S> <C>
Since Inception 14.75%
(3/01/97)
</TABLE>
Performance quoted is not annualized.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The return for the Fund includes change in share
price, reinvestment or dividends, and capital gain distributions, if any. The
return does not include deductions at the separate account or contract level for
administrative fees and charges, premium tax charges, mortality and expense risk
charges, or other charges that may be incurred under a contract.
The First Boston Convertible Index may not be invested in directly. The
hypothetical investment in the First Boston Convertible Index does not reflect
any sales or management fees that would be incurred if an investor were to
actually purchase individual securities or mutual funds, while the performance
of the Fund reflects all expenses and management fees.
A-9
<PAGE> 13
PACIFIC INNOVATION TRUST
BLUE CHIP FUND
(AS OF DECEMBER 31, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[CHART]
HOW PERFORMANCE COMPARES
The chart compares the performance of the Pacific Innovations Trust Blue Chip
Fund to the S&P 500, which is an unmanaged index typically used as a performance
benchmark for equity investments.
An initial $10,000 investment in the Fund made on March 1, 1997, would now be
worth $12,327. The same investment made in the S&P 500 would now be worth
$12,381.
<TABLE>
<CAPTION>
BLUE CHIP FUND AGGREGATE TOTAL RETURN
- ---------------------------------------------------
<S> <C>
Since Inception 23.27%
(3/01/97)
</TABLE>
Performance quoted is not annualized.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The return for the Fund includes change in share
price, reinvestment of dividends, and capital gain distributions, if any. The
return does not include deductions at the separate account or contract level for
administrative fees and charges, premium tax charges, mortality and expense risk
charges, or other charges that may be incurred under a contract.
The S&P 500 may not be invested in directly. The hypothetical investment in the
S&P 500 does not reflect any sales or management fees that would be incurred if
an investor were to actually purchase individual securities or mutual funds,
while the performance of the Fund reflects all expenses and management fees.
A-10
<PAGE> 14
PACIFIC INNOVATIONS TRUST
MID-CAP EQUITY FUND
(AS OF DECEMBER 31, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[CHART]
HOW PERFORMANCE COMPARES
The chart compares the performance of
the Pacific Innovations Trust Mid-Cap
Fund to the S&P Mid-Cap 400 Index,
which is an unmanaged index typically
used as a performance benchmark for
equity investments.
An initial $10,000 investment in the
Fund made on March 1, 1997 would now
be worth $12,780. The same investment
made in the S&P Mid-Cap 400 Index,
would now be worth $12,858.
<TABLE>
<CAPTION>
MID-CAP EQUITY FUND
AGGREGATE TOTAL RETURN
- ---------------------------------------------------
<S> <C>
Since Inception 27.80%
(3/01/97)
</TABLE>
Performance quoted is not annualized.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The return for the Fund includes change in share
price, reinvestment of dividends, and capital gain distributions, if any. The
return does not include deductions at the separate account or contract level for
administrative fees and charges, premium tax charges, mortality and expense risk
charges, or other charges that may be incurred under a contract.
The S&P Mid-Cap 400 Index may not be invested in directly. The hypothetical
investment in the S&P Mid-Cap 400 Index does not reflect any sales or management
fees that would be incurred if an investor were to actually purchase individual
securities or mutual funds, while the performance of the Fund reflects all
expenses and management fees and the effect of the maximum sales charge.
A-11
<PAGE> 15
PACIFIC INNOVATIONS TRUST
AGGRESSIVE GROWTH FUND
(AS OF DECEMBER 31, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[CHART]
HOW PERFORMANCE COMPARES
As the chart indicates, the Pacific
Trust Aggressive Growth Fund has
outperformed the market, as measured
by the Russell 2000, a widely used
unmanaged index which measures the
performance of small capitalization
stocks. An initial $10,000 investment
made for the period commencing on
March 1, 1997 would now be worth
$11,765. The same investment made in
the Russell 2000, representing a
broader market, would now be worth
$11,720.
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
AGGREGATE TOTAL RETURN
- ---------------------------------------------------
<S> <C>
Since Inception 17.65%
(3/01/97)
</TABLE>
Performance quoted is not annualized.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The return for the Fund includes change in share
price, reinvestment of dividends, and capital gains distributions, if any. The
return does not include deductions at the separate account or contract level for
administrative fees and charges, premium tax charges, mortality and expense risk
charges, or other charges that may be incurred under a contract.
The Russell 2000 may not be invested in directly. The hypothetical investment in
the Russell 2000 Index does not reflect any sales or management fees that would
be incurred if an investor were to actually purchase individual securities or
mutual funds, while the performance of the Fund reflects all expenses and
management fees.
A-12
<PAGE> 16
PACIFIC INNOVATIONS TRUST
INTERNATIONAL FUND
(AS OF DECEMBER 31, 1997)
GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
[CHART]
HOW PERFORMANCE COMPARES
The chart compares the Pacific
Innovation Trust International Fund to
the Morgan Stanley Capital
International (MSCI) All Country World
Free ex-U.S. Index, which is an
unmanaged index typically used as a
performance benchmark for
international equity investments.
An initial $10,000 investment in the
Fund made on March 1, 1997 would now
be worth $10,056. The same investment
made in the MSCI All Country World
Free ex-U.S. Index would now be worth $10,208.
<TABLE>
<CAPTION>
INTERNATIONAL FUND
AGGREGATE TOTAL RETURN
- ---------------------------------------------------
<S> <C>
Since Inception 0.56%
(3/01/97)
</TABLE>
Performance quoted is not annualized.
SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.
The investment return and principal value are historical and will vary with
market conditions, so an investor's shares, when redeemed, may be worth more or
less than their original cost. The return for the Fund includes change in share
price, reinvestment of dividends, and capital gains distributions, if any. The
return does not include deductions at the separate account or contract level for
administrative fees and charges, premium tax charges, mortality and expense risk
charges, or other charges that may be incurred under a contract.
The Morgan Stanley Capital International (MSCI) All Country World Free ex-U.S.
Index may not be invested in directly. The hypothetical investment in the Morgan
Stanley Capital International (MSCI) All Country World Free ex-U.S. Index does
not reflect any sales or management fees that would be incurred if an investor
were to actually purchase individual securities or mutual funds, while the
performance of the Fund reflects all expenses and management fees.
A-13
<PAGE> 17
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PAR
DATE (000) VALUE
-------- ------ ----------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 68.4%
FEDERAL FARM CREDIT BANK -- 7.0%
Federal Farm Credit Bank
Discount Note 5.75%......... 01/15/98 $ 120 $ 119,732
Federal Farm Credit Bank Note
7.51%....................... 02/13/98 100 100,184
Federal Farm Credit Bank Note
7.31%....................... 02/27/98 100 100,242
Federal Farm Credit Bank Note
5.91%....................... 06/08/98 150 150,110
----------
TOTAL FEDERAL FARM CREDIT BANK.......... 470,268
----------
FEDERAL HOME LOAN BANK -- 9.4%
Federal Home Loan Bank
Discount Note
5.77%....................... 01/09/98 100 99,872
Federal Home Loan Bank
Discount Note
5.75%....................... 01/14/98 200 199,585
Federal Home Loan Bank
Discount Note
5.75%....................... 01/15/98 100 99,776
Federal Home Loan Bank Note
5.07%....................... 01/29/98 115 114,937
Federal Home Loan Bank Note
5.95%....................... 05/21/98 15 15,012
Federal Home Loan Bank Note
6.33%....................... 05/26/98 100 100,245
----------
TOTAL FEDERAL HOME LOAN BANK............ 629,427
----------
FEDERAL HOME LOAN MORTGAGE CORP. -- 13.5%
Federal Home Loan Mortgage
Corp. Discount Note
5.62%....................... 01/14/98 200 199,594
Federal Home Loan Mortgage
Corp. Discount Note
5.68%....................... 02/13/98 250 248,304
Federal Home Loan Mortgage
Corp. Discount Note
5.64%....................... 02/27/98 200 198,214
Federal Home Loan Mortgage
Corp. Note
5.72%....................... 03/17/98 115 114,996
Federal Home Loan Mortgage
Corp. Note
6.04%....................... 04/20/98 145 145,165
----------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORP.................................. 906,273
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 32.5%
Federal National Mortgage
Association Discount Note
5.55%....................... 01/23/98 100 99,661
Federal National Mortgage
Association Discount Note
5.70%....................... 01/29/98 250 248,892
Federal National Mortgage
Association Discount Note
5.68%....................... 02/25/98 100 99,132
Federal National Mortgage
Association Note
7.74%....................... 02/03/98 280 280,464
Federal National Mortgage
Association Note
5.50%....................... 02/18/98 500 499,730
Federal National Mortgage
Association Note
8.20%....................... 03/10/98 100 100,473
Federal National Mortgage
Association Note
5.25%....................... 03/25/98 210 209,723
Federal National Mortgage
Association Note
9.15%....................... 04/10/98 250 252,111
Federal National Mortgage
Association Note
6.08%....................... 05/06/98 160 160,201
Federal National Mortgage
Association Note
8.15%....................... 05/11/98 155 156,311
Federal National Mortgage
Association Note
5.10%....................... 07/22/98 70 69,754
----------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION........................... 2,176,452
----------
STUDENT LOAN MARKETING ASSOCIATION -- 6.0%
Student Loan Marketing
Association Note
5.75%....................... 01/23/98 200 199,971
Student Loan Marketing
Association Note
7.00%....................... 03/03/98 200 200,524
----------
TOTAL STUDENT LOAN MARKETING
ASSOCIATION........................... 400,495
----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $4,582,915)......................... 4,582,915
----------
REPURCHASE AGREEMENTS -- 30.8%
Dean Witter Reynolds, Inc.
6.80% dated 12/31/97,
repurchase price $500,189
(collateralized by $474,000
U.S. Treasury Note,
8.00%, 5/15/01, market
value $510,740)............... 01/02/98 500 500,000
Goldman Sachs & Co.
6.85% dated 12/31/97,
repurchase price $1,061,404
(collateralized by $4,788,537
Federal National Mortgage
Association, 5.50%-10.50%,
11/1/00-2/1/26, market value
$1,082,221)................... 01/02/98 1,061 1,061,000
HSBC Securities, Inc.
6.85% dated 12/31/97,
repurchase price $500,190
(collateralized by $520,000
various Municipal and U.S.
Government Obligations, 5.95%,
1/16/98-1/23/98, market value
$511,686, respectively)....... 01/02/98 500 500,000
----------
TOTAL REPURCHASE AGREEMENTS
(COST $2,061,000)......................... 2,061,000
----------
TOTAL INVESTMENTS -- 99.2%
(COST $6,643,915)......................... 6,643,915
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.8%....................... 54,622
----------
NET ASSETS -- 100.0%........................ $6,698,537
==========
</TABLE>
- --------------------------------------------------------------------------------
A-14
<PAGE> 18
MANAGED BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PAR
DATE (000) VALUE
-------- -------- -----------
<S> <C> <C> <C>
ASSET BACKED SECURITIES -- 16.8%
Advanta Series 1997-1
7.100%................... 04/25/20 $ 250 $ 253,281
CFAC Grantor Trust Series
1989-A
9.250%................... 05/15/98 54 55,297
CIT RV Trust Series 1996-A
5.400%................... 12/15/11 43 42,796
Carco Auto Loan Master
Trust Series 1997-1
6.689%................... 08/15/04 125 125,773
Green Tree Financial Corp.
Series 1995-8
7.300%................... 12/15/26 250 255,469
Green Tree Financial Corp.
Series 1996-2
7.900%................... 04/15/27 250 257,656
Green Tree Home Improvement
Loan Trust Series 1995-D
7.450%................... 09/15/25 40 39,750
Green Tree Home Improvement
Loan Trust Series 1997-A
6.750%................... 08/15/23 150 151,313
The Money Store Home Equity
Trust Series 1994-C
7.800%................... 10/15/21 300 311,174
UCFC Home Equity Loan
Series 1997-A1
6.975%................... 04/15/16 150 151,688
Union Acceptance Corp.
Series 1997-B
6.370%................... 04/10/01 180 180,023
Western Financial
Series 1997-A
6.500%................... 09/20/01 150 150,717
----------
TOTAL ASSET BACKED SECURITIES
(COST $1,937,258)...................... 1,974,937
----------
CORPORATE OBLIGATIONS -- 22.3%
BEVERAGES -- 2.2%
Coca-Cola Enterprises Notes
6.375%................... 08/01/01 250 251,875
----------
FINANCIAL -- BANK & TRUST -- 9.3%
Deutsche Bank Financial
Notes
7.500%................... 04/25/09 250 268,125
MBNA Capital Notes
8.278%................... 12/01/26 300 309,375
Royal Bank of Scotland
Notes
7.375%................... 04/29/49 350 362,250
Wells Fargo Global Notes
6.125%................... 11/01/03 150 148,500
----------
TOTAL FINANCIAL -- BANK & TRUST...... 1,088,250
----------
REAL ESTATE -- 6.9%
American Health Properties
Notes
7.050%................... 01/15/02 200 203,000
Avalon Properties Notes
7.375%................... 09/15/02 100 103,000
Simon Debartolo Group Notes
6.875%................... 11/15/06 300 306,000
Spieker Properties Notes
7.125%................... 12/01/06 100 101,500
Taubman Realty Group Medium
Term Notes
7.220%................... 06/15/01 100 101,875
----------
TOTAL REAL ESTATE.................... 815,375
----------
RETAIL & MERCHANDISING -- 3.9%
Federated Dept. Stores
Notes
6.790%................... 07/15/27 200 204,250
Penney J.C. & Co. Notes
7.250%................... 04/01/02 250 258,437
----------
TOTAL RETAIL & MERCHANDISING......... 462,687
----------
TOTAL CORPORATE OBLIGATIONS
(COST $2,530,641)...................... 2,618,187
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 9.1%
Merrill Lynch Trust Series
45
9.100%................... 09/20/14 100 102,309
Nomura Asset Securities
Corporation Series 1994-1
6.625%................... 01/25/09 355 355,264
Painewebber Mortgage Series
1993-6
6.900%................... 08/25/08 93 94,414
Residential Funding
Mortgage Series 1996-S15
7.750%................... 01/25/07 237 243,889
Residential Funding
Mortgage Series 1997-S19
6.500%................... 12/25/12 275 274,742
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $1,064,290)...................... 1,070,618
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 15.2%
Federal Home Loan Mortgage
Corp., Pool 200057
9.000%................... 11/01/01 22 22,732
Federal Home Loan Mortgage
Corp., Pool 218960
9.000%................... 10/01/02 45 46,436
Federal Home Loan Mortgage
Corp., Pool 380061
9.000%................... 12/01/04 47 49,044
Government National
Mortgage Assoc. Pool
286324
9.000%................... 02/15/20 352 382,159
Government National
Mortgage Assoc. Pool
286405
9.000%................... 04/15/20 88 95,390
Government National
Mortgage Assoc. Pool
780011
10.000%.................. 07/15/22 373 407,000
</TABLE>
A-15
<PAGE> 19
MANAGED BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PAR
DATE (000) VALUE
-------- -------- -----------
<S> <C> <C> <C>
Government National
Mortgage Assoc. Pool
780081
10.000%.................. 02/15/25 $ 363 $ 395,858
Government National
Mortgage Assoc. Pool
780657
8.000%................... 12/15/23 379 392,796
----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(COST $1,789,796).................. 1,791,415
----------
U.S. TREASURY OBLIGATIONS -- 33.3%
U.S. TREASURY BONDS -- 2.3%
U.S. Treasury Bond
6.375%................... 08/15/27 200 211,174
U.S. Treasury Bond
6.625%................... 02/15/27 50 54,273
----------
TOTAL U.S. TREASURY BONDS............ 265,447
----------
U.S. TREASURY NOTES -- 31.0%
U.S. Treasury Note
5.625%................... 11/30/99 900 899,379
U.S. Treasury Note
5.875%................... 02/28/99 500 501,360
U.S. Treasury Note
5.625%................... 10/31/99 750 749,482
U.S. Treasury Note
6.250%................... 08/31/02 750 765,690
U.S. Treasury Note
5.750%................... 10/31/02 735 735,853
----------
TOTAL U.S. TREASURY NOTES............ 3,651,764
----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $3,892,000)...................... 3,917,211
----------
<CAPTION>
SHARES
--------
<S> <C> <C>
SHORT TERM INVESTMENTS -- 2.2%
Temporary Investment Cash Fund....... 127,668 127,668
Temporary Investment Fund............ 127,667 127,667
----------
TOTAL SHORT TERM INVESTMENTS
(COST $255,335)........................ 255,335
----------
TOTAL INVESTMENTS -- 98.9%
(COST $11,469,320)..................... 11,627,703
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.1%.................... 130,689
----------
NET ASSETS -- 100.0%..................... $11,758,392
==========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
A-16
<PAGE> 20
CAPITAL INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PAR
DATE (000) VALUE
-------- ------- -----------
<S> <C> <C> <C>
CONVERTIBLE BONDS -- 41.5%
AUTOMOBILE MANUFACTURERS -- 1.0%
Mark IV Industries 144A
4.750%.................... 11/01/04 $ 185 $ 172,744
----------
BASICS -- 0.9%
Agnico Eagle Mines, Ltd.
3.500%.................... 01/27/04 65 38,594
Coeur D' Alene Mines Corp.
7.250%.................... 10/31/05 140 108,675
----------
TOTAL BASICS.......................... 147,269
----------
CAPITAL GOODS -- 3.6%
Thermo Electron Corp. 144A
4.250%.................... 01/01/03 165 203,775
United Waste Systems, Inc.
4.500%.................... 06/01/01 50 68,625
US Filter Corp.
4.500%.................... 12/15/01 175 179,594
US Waste Services, Inc.
4.000%.................... 02/01/02 165 183,356
----------
TOTAL CAPITAL GOODS................... 635,350
----------
CONSUMER CYCLICALS -- 10.2%
CUC International, Inc. 144A
3.000%.................... 02/15/02 140 175,700
Family Golf Centers, Inc.
5.750%.................... 10/15/04 140 148,400
Hilton Hotels
5.000%.................... 05/15/06 170 187,000
Home Depot, Inc.
3.250%.................... 10/01/01 115 155,825
Magna International, Inc.
5.000%.................... 10/15/02 70 85,925
Nine West Group, Inc. 144A
5.500%.................... 07/15/03 120 97,500
Personnel Group
5.750%.................... 07/01/04 120 132,600
Protection One Alarm
Monitoring
6.750%.................... 09/15/03 110 129,662
Omnicom Group, Inc.
2.250%.................... 01/06/13 180 188,775
Rite Aid Corp. 144A
5.250%.................... 09/15/02 190 203,062
Saks Holdings, Inc.
5.500%.................... 09/15/06 160 137,000
Tower Automotive, Inc.
5.000%.................... 08/01/04 170 174,250
----------
TOTAL CONSUMER CYCLICALS.............. 1,815,699
----------
ENERGY -- 5.5%
Halter Marine Group, Inc.
144A
4.500%.................... 09/15/04 120 133,200
Key Energy Group, Inc.
5.000%.................... 09/15/04 210 180,337
Loews Corp.
3.125%.................... 09/15/07 195 194,512
Parker Drilling Corp.
5.500%.................... 08/01/04 130 139,912
Pennzoil Co.
4.750%.................... 10/01/03 50 67,750
Seacor Holdings, Inc.
5.375%.................... 11/15/06 90 101,925
Seacor Holdings, Inc. 144A
5.375%.................... 11/15/06 50 56,625
Swift Energy Co.
6.250%.................... 11/15/06 100 99,000
----------
TOTAL ENERGY.......................... 973,261
----------
FINANCIAL SERVICES -- 3.0%
Bank Atlantic Bancorp, Inc.
5.625%.................... 12/01/07 180 195,525
Berkshire Hathaway, Inc.
1.000%.................... 12/02/01 100 159,375
Penn Treaty American Corp.
6.250%.................... 12/01/03 125 160,469
Penn Treaty American Corp.
144A
6.250%.................... 12/01/03 15 19,256
----------
TOTAL FINANCIAL SERVICES.............. 534,625
----------
HEALTH CARE -- 4.9%
Alza Corp.
5.000%.................... 05/01/06 180 187,650
Atria Communities, Inc.
5.000%.................... 10/15/02 140 143,150
Dura Pharmaceuticals
3.500%.................... 07/15/02 155 171,856
Phycor, Inc.
4.500%.................... 02/15/03 180 171,900
Tenet Healthcare Corp.
6.000%.................... 12/01/05 195 184,031
----------
TOTAL HEALTH CARE..................... 858,587
----------
HEALTHCARE SERVICES -- 7.1%
Alternative Living
7.000%.................... 06/01/04 70 108,500
American Retirement Corp.
5.750%.................... 10/01/02 145 148,987
ARV Assisted Living
6.750%.................... 04/01/06 130 132,600
Carematrix Corp.
6.250%.................... 08/15/04 160 179,600
FPA Medical Management 144A
6.500%.................... 12/15/01 75 76,219
NCS Healthcare, Inc.
5.750%.................... 08/15/04 140 142,450
Omnicare, Inc.
5.000%.................... 12/01/07 180 179,100
Sunrise Assisted Living,
Inc.
5.500%.................... 06/15/02 225 291,375
----------
TOTAL HEALTHCARE SERVICES............. 1,258,831
----------
TECHNOLOGY -- 5.3%
Adaptec, Inc.
4.750%.................... 02/01/04 60 61,950
Adaptec, Inc. 144A
4.750%.................... 02/01/04 75 77,438
Atmel Corp.[STEP]
3.250%.................... 06/01/02 105 95,025
EMC Corp.
3.250%.................... 03/15/02 20 27,125
EMC Corp. 144A
3.250%.................... 03/15/02 80 108,500
Itron, Inc.
6.750%.................... 03/31/04 100 99,125
</TABLE>
A-17
<PAGE> 21
CAPITAL INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PAR
DATE (000) VALUE
-------- ------- -----------
<S> <C> <C> <C>
Itron, Inc. 144A
6.750%.................... 03/31/04 $ 55 $ 54,244
Kent Electronics Corp.
4.500%.................... 09/01/04 130 108,063
Photronics, Inc.
6.000%.................... 06/01/04 75 86,156
Solectron Corp. 144A
6.000%.................... 03/01/06 75 100,500
Xilinx, Inc.
5.250%.................... 11/01/02 125 121,719
----------
TOTAL TECHNOLOGY...................... 939,845
----------
TOTAL CONVERTIBLE BONDS
(COST $7,146,977)....................... 7,336,211
----------
CONVERTIBLE ZERO COUPON BONDS -- 5.8%
CONSUMER CYCLICALS -- 0.9%
Pep Boys, Inc.
0.000%.................... 09/20/11 300 159,750
----------
ENERGY -- 0.5%
Baker Hughes, Inc.
0.000%.................... 05/05/08 100 84,375
----------
FINANCE -- 0.5%
USF & G Corp.
0.000%.................... 03/03/09 140 96,425
----------
HEALTH CARE -- 2.4%
Alza Corp.
0.000%.................... 07/14/14 400 183,500
Roche Holdings, Inc.
0.000%.................... 04/20/10 325 181,594
Roche Holdings, Inc. 144A
0.000%.................... 05/06/12 140 65,275
----------
TOTAL HEALTH CARE..................... 430,369
----------
TECHNOLOGY -- 0.5%
Motorola, Inc.
0.000%.................... 09/27/13 105 80,981
----------
UTILITIES -- 1.0%
U.S. Cellular Corp.
0.000%.................... 06/15/15 465 168,563
----------
TOTAL CONVERTIBLE ZERO COUPON BONDS
(COST $1,004,953)....................... 1,020,463
----------
<CAPTION>
SHARES
-------
<S> <C> <C>
COMMON STOCK -- 1.1%
BASICS -- 1.1%
W.R. Grace & Co.
(Cost $176,167) .................... 2,400 193,050
----------
CONVERTIBLE PREFERRED STOCK -- 28.0%
BASICS -- 2.7%
Cyprus AMAX Minerals.................. 1,500 72,000
Freeport -- Mcmoran, Inc. ............ 3,200 69,400
International Paper Co. .............. 3,200 153,600
Merrill Lynch & Co., Inc. ............ 2,700 93,150
Timet Capital Trust One............... 1,800 90,450
----------
TOTAL BASICS.......................... 478,600
----------
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
CAPITAL GOODS -- 1.9%
Elsag Baily........................... 4,100 $ 155,800
McDermott International, Inc.
Series C ........................... 3,400 189,550
----------
TOTAL CAPITAL GOODS................... 345,350
----------
CONSUMER CYCLICALS -- 2.4%
Houston Industries, Inc. ............. 3,100 176,894
Kmart Financing, Inc. ................ 2,000 103,250
Owens Corning Capital 144A............ 3,100 151,900
----------
TOTAL CONSUMER CYCLICALS.............. 432,044
----------
CONSUMER STAPLES -- 1.4%
AJL Peps Trust........................ 6,200 68,200
Ralston Purina Co. ................... 2,600 181,025
----------
TOTAL CONSUMER STAPLES................ 249,225
----------
ENERGY -- 3.4%
Evi, Inc. ............................ 4,000 184,000
MCN Corp. ............................ 5,200 178,100
MCN Energy Group, Inc. ............... 550 34,375
Occidental Petroleum Corp. 144A....... 1,400 90,650
Unocal Corp. ......................... 1,875 104,766
----------
TOTAL ENERGY.......................... 591,891
----------
FINANCIAL -- BANK & TRUST -- 7.9%
Ahmanson, H.F. ....................... 1,500 206,250
American Bankers Insurance Group...... 2,000 187,375
Frontier Insurance 144A............... 2,600 152,100
Golden State Bancorp.................. 2,000 182,250
Penncorp Financial 144A............... 2,400 140,700
Protective Life Corp. ................ 3,500 192,500
Sovereign Bancorp..................... 1,500 190,500
St. Paul Capital Corp. ............... 1,900 136,800
----------
TOTAL FINANCIAL -- BANK & TRUST....... 1,388,475
----------
HEALTH CARE -- 0.8%
Medpartners, Inc. .................... 6,500 143,000
----------
INSURANCE -- 1.0%
American Life Heritage................ 3,000 171,000
----------
TECHNOLOGY -- 0.7%
Microsoft Corp. ...................... 1,400 125,825
----------
TELECOMMUNICATIONS -- 1.1%
TCI Communications, Inc. ............. 3,000 195,375
----------
TRANSPORTATION -- 1.1%
CNF Transportation, Inc. ............. 3,400 198,900
----------
UTILITIES -- ELECTRIC -- 3.6%
Airtouch Communications Class C....... 2,900 180,706
Calenergy Capital Trust II 144A....... 2,500 112,188
Citizens Utilities Trust.............. 3,500 167,125
Sprint Corp. ......................... 4,000 179,000
----------
TOTAL UTILITIES -- ELECTRIC........... 639,019
----------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $4,698,891)....................... 4,958,704
----------
</TABLE>
A-18
<PAGE> 22
CAPITAL INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY PAR
DATE (000) VALUE
-------- ------- -----------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.8%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
Federal National Mortgage
Assoc. Discount Note
5.400% (Cost
$1,907,300)............... 11/06/98 $ 2,000 $ 1,907,000
----------
U.S. TREASURY OBLIGATIONS -- 2.8%
U.S. TREASURY BILLS
U.S. Treasury Bill
5.270% (Cost $494,364).... 03/19/98 500 494,291
----------
SHARES
-------
SHORT TERM INVESTMENTS -- 10.1%
Temporary Investment Cash Fund........ 890,435 890,435
Temporary Investment Fund............. 890,434 890,434
----------
TOTAL SHORT TERM INVESTMENTS
(COST $1,780,869)................... 1,780,869
----------
TOTAL INVESTMENTS -- 100.1%
(COST $17,209,521)...................... 17,690,588
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.1%)........................ (19,974)
----------
NET ASSETS -- 100.0%...................... $17,670,614
==========
</TABLE>
- --------------------------------------------------------------------------------
[STEP] -- Stepped Coupon Bond
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 12.4% of net assets.
See Notes to Financial Statements.
A-19
<PAGE> 23
BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCK -- 97.5%
AEROSPACE -- 1.5%
General Dynamics Corp. .............. 1,100 $ 95,081
Raytheon Co.*........................ 70 3,459
United Technologies Corp. ........... 2,800 203,875
-------
TOTAL AEROSPACE...................... 302,415
-------
AIRLINES -- 0.9%
AMR Corp.*........................... 800 102,800
UAL Corp.*........................... 800 74,000
-------
TOTAL AIRLINES....................... 176,800
-------
AUTOMOTIVE -- 2.4%
Dana Corp. .......................... 1,900 90,250
Ford Motor Co. ...................... 6,300 306,731
General Motors Corp. ................ 1,200 72,750
-------
TOTAL AUTOMOBILE MANUFACTURERS....... 469,731
-------
BEVERAGES -- 3.0%
Anheuser-Busch Cos., Inc. ........... 1,700 74,800
Coca-Cola Co. ....................... 5,200 346,450
PepsiCo, Inc. ....................... 4,900 178,544
-------
TOTAL BEVERAGES...................... 599,794
-------
BUILDING MATERIALS -- 0.4%
Centex Corp. ........................ 1,100 69,231
-------
CHEMICALS -- 2.9%
Dow Chemical Co. .................... 2,000 203,000
Dupont, (E.I.) de Nemours & Co. ..... 5,300 318,331
Goodrich (B.F.) Co. ................. 1,100 45,581
-------
TOTAL CHEMICALS...................... 566,912
-------
CLOTHING & APPAREL -- 0.3%
Tommy Hilfiger Corp.*................ 1,900 66,737
-------
COMPUTERS -- 3.1%
Compaq Computer Corp. ............... 5,000 282,187
EMC Corp.*........................... 2,800 76,825
International Business Machines
Corp. ............................. 2,500 261,406
-------
TOTAL COMPUTERS...................... 620,418
-------
COMPUTER SERVICES & SOFTWARE -- 3.7%
HBO & Co............................. 4,100 196,672
Microsoft Corp.*..................... 3,900 503,953
Oracle Corp.*........................ 1,250 27,852
-------
TOTAL COMPUTER SERVICES & SOFTWARE... 728,477
-------
COSMETICS & TOILETRIES -- 3.7%
Clorox Co............................ 2,500 197,656
Kimberly-Clark Corp. ................ 2,100 103,556
Procter & Gamble Co. ................ 5,500 438,969
-------
TOTAL COSMETICS & TOILETRIES......... 740,181
-------
ELECTRICAL EQUIPMENT -- 2.9%
General Electric Co. ................ 7,900 579,662
-------
ENERGY -- 1.1%
Tidewater, Inc. ..................... 3,900 214,987
-------
ENTERTAINMENT & LEISURE -- 2.2%
Callaway Golf Co. ................... 3,000 85,687
King World Productions, Inc. ........ 1,300 75,075
Walt Disney Co. ..................... 2,700 267,469
-------
TOTAL ENTERTAINMENT & LEISURE........ 428,231
-------
ENVIRONMENTAL SERVICES -- 0.7%
Browning-Ferris Industries, Inc. .... 3,900 144,300
-------
FINANCIAL -- BANK & TRUST -- 9.5%
Bankers Trust New York Corp. ........ 1,600 179,900
Barnett Banks, Inc. ................. 4,000 287,500
Chase Manhattan Corp. ............... 1,100 120,450
Citicorp............................. 1,200 151,725
Comerica, Inc. ...................... 1,600 144,400
First Chicago NBD Corp. ............. 1,800 150,300
First Union Corp. ................... 3,000 153,750
Fleet Financial Group, Inc. ......... 3,200 239,800
Mellon Bank Corp. ................... 4,400 266,750
State Street Corp. .................. 3,200 186,200
-------
TOTAL FINANCIAL -- BANK & TRUST...... 1,880,775
-------
FINANCIAL SERVICES -- 2.9%
Morgan Stanley Dean Witter Discover &
Co. ............................... 5,700 337,012
Travelers Group, Inc. ............... 4,600 247,825
-------
TOTAL FINANCIAL SERVICES............. 584,837
-------
FOOD -- 2.6%
Conagra, Inc. ....................... 5,800 190,312
Kellogg Co. ......................... 3,400 168,725
Quaker Oats Co. ..................... 3,000 158,250
-------
TOTAL FOOD........................... 517,287
-------
HEALTHCARE SERVICES -- 0.9%
Phycor, Inc.*........................ 3,500 94,609
Tenet Healthcare Corp.*.............. 2,600 86,125
-------
TOTAL HEALTHCARE SERVICES............ 180,734
-------
HOTELS & MOTELS -- 0.5%
Marriott International, Inc. ........ 1,300 90,025
-------
INSURANCE -- 3.9%
Allstate Corp. ...................... 2,600 236,275
American General Corp. .............. 2,900 156,781
Conseco, Inc. ....................... 4,100 186,294
Equitable Cos., Inc. ................ 4,000 199,000
-------
TOTAL INSURANCE...................... 778,350
-------
MACHINERY & EQUIPMENT -- 1.5%
Caterpillar, Inc. ................... 2,200 106,837
Ingersoll Rand Co. .................. 2,200 89,100
Parker Hannifin Corp. ............... 2,300 105,513
-------
TOTAL MACHINERY & EQUIPMENT.......... 301,450
-------
MEDICAL SUPPLIES & EQUIPMENT -- 2.7%
Abbott Laboratories.................. 3,000 196,688
Biomet, Inc. ........................ 3,900 99,938
Johnson & Johnson Co. ............... 3,700 243,738
-------
TOTAL MEDICAL SUPPLIES & EQUIPMENT... 540,364
-------
METALS & MINING -- 0.9%
Aluminum Company of America.......... 1,300 91,488
USX-U.S. Steel Group, Inc. .......... 3,000 93,750
-------
TOTAL METALS & MINING................ 185,238
-------
MULTI-INDUSTRY -- 2.2%
Dover Corp. ......................... 4,600 166,175
Tyco International Ltd. ............. 6,100 274,881
-------
TOTAL MULTI-INDUSTRY................. 441,056
-------
OIL (DOMESTIC) -- 1.7%
Phillips Petroleum Co. .............. 3,600 175,050
USX -- Marathon Group................ 5,100 172,125
-------
TOTAL OIL (DOMESTIC)................. 347,175
-------
</TABLE>
A-20
<PAGE> 24
BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
OIL (INTERNATIONAL) -- 5.3%
Chevron Corp. ....................... 3,200 $ 246,400
Exxon Corp. ......................... 6,500 397,719
Mobil Corp........................... 3,300 238,219
Royal Dutch Petroleum Co. ........... 3,300 178,819
-------
TOTAL OIL (INTERNATIONAL)............ 1,061,157
-------
PAPER & FOREST PRODUCTS -- 1.1%
Bowater, Inc. ....................... 1,900 84,431
Fort James Corp. .................... 3,700 141,525
-------
TOTAL PAPER & FOREST PRODUCTS........ 225,956
-------
PHARMACEUTICALS -- 7.8%
Bristol-Meyers Squibb Co. ........... 3,900 369,038
Lilly, (Eli) & Co. .................. 3,500 243,688
Merck & Co., Inc. ................... 3,100 329,375
Pfizer, Inc. ........................ 3,600 268,425
Schering-Plough Corp. ............... 5,500 341,688
-------
TOTAL PHARMACEUTICALS................ 1,552,214
-------
PRINTING & PUBLISHING -- 1.1%
McGraw-Hill Cos., Inc. .............. 1,400 103,600
New York Times Co. .................. 1,700 112,413
-------
TOTAL PRINTING & PUBLISHING.......... 216,013
-------
RESTAURANTS -- 0.3%
Tricon Global Restaurants, Inc.*..... 1,940 56,381
-------
RETAIL & MERCHANDISING -- 5.5%
Bed, Bath & Beyond, Inc.*............ 3,600 138,375
Cendant Corp.*....................... 4,300 147,812
Dayton Hudson Corp. ................. 2,600 175,500
Home Depot, Inc...................... 5,100 300,263
Safeway, Inc.*....................... 1,900 120,175
TJX Cos., Inc. ...................... 6,000 206,250
-------
TOTAL RETAIL & MERCHANDISING......... 1,088,375
-------
SEMI-CONDUCTORS/INSTRUMENTATION -- 3.5%
AMP, Inc. ........................... 1,700 71,400
Applied Materials, Inc.*............. 3,700 111,347
Dell Computer Corp.*................. 3,600 302,512
Harris Corp. ........................ 1,500 68,813
Linear Technology Corp. ............. 1,200 69,150
Maxim Integrated Products, Inc.*..... 2,400 82,800
-------
TOTAL
SEMI-CONDUCTORS/INSTRUMENTATION.... 706,022
-------
TELECOMMUNICATIONS -- 2.7%
Cisco Systems, Inc.*................. 3,750 209,297
Lucent Technologies, Inc. ........... 2,300 183,713
Tellabs, Inc.*....................... 2,800 147,788
-------
TOTAL TELECOMMUNICATIONS............. 540,798
-------
TOBACCO -- 1.7%
Philip Morris Cos., Inc. ............ 7,400 335,312
-------
TRANSPORTATION -- 0.4%
Burlington Northern Santa Fe......... 900 83,644
-------
UTILITIES -- ELECTRIC -- 2.8%
FPL Group, Inc. ..................... 5,500 325,531
GPU, Inc. ........................... 5,400 227,475
-------
TOTAL UTILITIES -- ELECTRIC.......... 553,006
-------
UTILITIES -- GAS -- 0.7%
Columbia Gas System, Inc. ........... 1,700 133,556
-------
UTILITIES -- TELEPHONE -- 6.5%
Ameritech Corp. ..................... 2,700 217,350
AT&T Corp. .......................... 4,300 263,375
Bell Atlantic Corp. ................. 3,000 273,000
BellSouth Corp. ..................... 4,500 253,406
U.S. WEST Communications Group....... 3,500 157,938
WorldCom, Inc.*...................... 4,500 136,266
-------
TOTAL UTILITIES -- TELEPHONE......... 1,301,335
-------
TOTAL COMMON STOCK (COST $17,537,410).... 19,408,936
-------
SHORT TERM INVESTMENTS -- 2.4%
Temporary Investment Cash Fund....... 242,615 242,615
Temporary Investment Fund............ 242,614 242,614
-------
TOTAL SHORT TERM INVESTMENTS (COST
$485,229).............................. 485,229
-------
TOTAL INVESTMENTS -- 99.9% (COST
$18,022,639)........................... 19,894,165
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.1%.................... 16,296
-------
NET ASSETS -- 100.0%..................... $19,910,461
=======
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
See Notes to Financial Statements.
A-21
<PAGE> 25
MID-CAP EQUITY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
COMMON STOCK -- 99.6%
AEROSPACE/DEFENSE -- 2.2%
Aeroquip-Vickers, Inc. ............... 1,300 $ 63,781
Crane Co. ............................ 2,100 91,088
Thiokol Corp. ........................ 1,100 89,375
-----------
TOTAL AEROSPACE....................... 244,244
-----------
AIRLINES -- 0.6%
Airborne Freight Corp. ............... 1,000 62,125
-----------
AUTOMOTIVE -- 1.2%
Arvin Industries, Inc. ............... 2,100 69,956
Lear Corp.*........................... 1,300 61,750
-----------
TOTAL AUTOMOTIVE...................... 131,706
-----------
BEVERAGES -- 1.2%
Coca-Cola Enterprises, Inc. .......... 2,100 74,681
Coors, (Adolph) Co. Cl-B.............. 1,700 56,419
-----------
TOTAL BEVERAGES....................... 131,100
-----------
BUILDING MATERIALS -- 4.9%
DQE, Inc. ............................ 3,700 129,963
Hon Industries, Inc. ................. 600 35,400
Miller (Herman), Inc. ................ 2,400 130,950
Southdown, Inc. ...................... 2,700 159,300
Timken Co. ........................... 2,700 92,812
-----------
TOTAL BUILDING MATERIALS.............. 548,425
-----------
CHEMICALS -- 4.1%
Cytec Industries, Inc.*............... 2,600 122,037
Lubrizol Corp. ....................... 3,700 136,437
Lyondell Petrochemical Co. ........... 3,800 100,700
Solutia, Inc. ........................ 3,500 93,406
-----------
TOTAL CHEMICALS....................... 452,580
-----------
COMMERCIAL SERVICES -- 4.3%
Accustaff, Inc.*...................... 2,700 62,100
ACNielsen Corp.*...................... 3,400 82,875
Omnicom Group, Inc. .................. 6,000 254,250
Pittston Brink's Group................ 2,000 80,500
-----------
TOTAL COMMERCIAL SERVICES............. 479,725
-----------
COMPUTER SERVICES & SOFTWARE -- 7.3%
Adaptec, Inc.*........................ 2,100 78,094
BMC Software, Inc.*................... 2,700 177,019
Cadence Design Systems, Inc.*......... 4,800 117,600
Compuware Corp.*...................... 4,600 147,344
HBO & Co. ............................ 1,900 91,141
Lexmark International Group, Inc.*.... 2,800 106,400
Network Associates, Inc.*............. 500 26,391
Parametric Technology Co.*............ 1,500 70,969
-----------
TOTAL COMPUTER SERVICES & SOFTWARE.... 814,958
-----------
COSMETICS & TOILETRIES -- 0.9%
Dial Corp. ........................... 5,100 106,144
-----------
ELECTRICAL EQUIPMENT -- 2.0%
CMS Energy Corp. ..................... 5,100 224,719
-----------
ENERGY SERVICES -- 3.1%
Camco International, Inc. ............ 1,400 89,162
Input/Output, Inc.*................... 1,500 44,531
Smith International, Inc.*............ 1,400 85,925
Tidewater, Inc. ...................... 2,300 126,787
-----------
TOTAL ENERGY SERVICES................. 346,405
-----------
ENTERTAINMENT & LEISURE -- 0.9%
King World Productions, Inc........... 700 40,425
Polaris Industries, Inc. ............. 2,100 64,181
-----------
TOTAL ENTERTAINMENT & LEISURE......... 104,606
-----------
FINANCIAL -- BANK & TRUST -- 10.4%
AmSouth Bancorporation................ 3,200 173,800
City National Corp. .................. 2,900 107,119
First of America Bank Corp. .......... 3,200 246,800
Marshall & Ilsley Corp. .............. 2,700 167,822
Mercantile Bankshares Corp. .......... 3,100 120,125
Northern Trust Corp. ................. 3,100 216,806
Regions Financial Corp. .............. 2,900 122,434
-----------
TOTAL FINANCIAL -- BANK & TRUST..... 1,154,906
-----------
FINANCIAL SERVICES -- 5.4%
Franklin Resources, Inc. ............. 1,400 121,712
Paine Webber Group Inc. .............. 5,400 186,637
Price (T. Rowe) Associates, Inc. ..... 1,800 113,400
Southtrust Corp. ..................... 2,800 177,450
-----------
TOTAL FINANCIAL SERVICES.............. 599,199
-----------
FOOD -- 2.8%
Dean Foods Co. ....................... 2,700 160,650
Interstate Bakeries Corp. ............ 2,600 97,175
Smithfield Foods, Inc.*............... 1,700 56,100
-----------
TOTAL FOOD............................ 313,925
-----------
HEALTHCARE SERVICES -- 1.5%
Health Care & Retirement Corp.*....... 2,700 108,675
Health Management Associates, Inc.*... 2,500 63,125
-----------
TOTAL HEALTHCARE SERVICES............. 171,800
-----------
HOTELS & MOTELS -- 0.5%
Promus Hotel Corp.*................... 1,387 58,254
-----------
INSURANCE -- 3.8%
AMBAC Financial Group................. 2,100 96,600
HealthCare COMPARE Corp.*............. 1,800 92,475
SunAmerica, Inc. ..................... 2,150 91,912
Torchmark Corp. ...................... 3,400 143,012
-----------
TOTAL INSURANCE....................... 423,999
-----------
MACHINERY & EQUIPMENT -- 2.2%
AGCO, Inc. ........................... 2,500 73,125
Kaydon Corp. ......................... 1,700 55,463
Precision Castparts Corp. ............ 1,900 114,594
-----------
TOTAL MACHINERY & EQUIPMENT........... 243,182
-----------
MEDICAL SUPPLIES & EQUIPMENT -- 1.7%
Biomet, Inc. ......................... 2,500 63,906
Hillenbrand Industries, Inc. ......... 1,000 51,188
Stryker Corp. ........................ 1,900 70,775
-----------
TOTAL MEDICAL SUPPLIES & EQUIPMENT.... 185,869
-----------
METALS -- 1.0%
Martin Marietta Materials............. 2,900 106,031
-----------
OIL (DOMESTIC) -- 0.6%
Murphy Oil Corp. ..................... 1,300 70,444
-----------
PAPER & FOREST PRODUCTS -- 1.4%
Bowater, Inc. ........................ 1,100 48,881
Owens-Illinois, Inc.*................. 2,900 110,019
-----------
TOTAL PAPER & FOREST PRODUCTS......... 158,900
-----------
</TABLE>
A-22
<PAGE> 26
MID-CAP EQUITY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
PHARMACEUTICALS -- 3.4%
Cardinal Health, Inc. ................ 1,700 $ 127,713
Dura Pharmaceuticals, Inc.*........... 1,300 59,638
Mylan Laboratories Inc. .............. 3,400 71,188
Watson Pharmaceuticals, Inc.*......... 3,700 120,019
-----------
TOTAL PHARMACEUTICALS................. 378,558
-----------
PRINTING & PUBLISHING -- 1.6%
Houghton Mifflin Co. ................. 1,600 61,400
Washington Post Co. .................. 250 121,625
-----------
TOTAL PRINTING & PUBLISHING........... 183,025
-----------
RESTAURANTS -- 1.1%
Bob Evans Farms, Inc. ................ 2,400 53,100
Papa John's International, Inc.*...... 2,000 69,875
-----------
TOTAL RESTAURANTS..................... 122,975
-----------
RETAIL & MERCHANDISING -- 7.0%
Best Buy Company, Inc.*............... 1,900 70,063
CompUSA, Inc.*........................ 2,600 80,600
Jones Apparel Group, Inc.*............ 2,400 103,200
OfficeMax, Inc.*...................... 7,700 109,725
Payless Shoesource, Inc.*............. 1,900 127,538
Ross Stores, Inc. .................... 2,700 98,381
TJX Companies, Inc. .................. 3,100 106,562
U.S. Office Products Co.*............. 4,200 81,900
-----------
TOTAL RETAIL & MERCHANDISING.......... 777,969
-----------
SEMI-CONDUCTORS/INSTRUMENTATION -- 5.8%
Harris Corp........................... 1,500 68,813
KLA -- Tencor Corp.*.................. 1,300 50,172
Linear Technology Corp................ 1,900 109,369
Maxim Integrated Products, Inc.*...... 3,400 117,512
SCI Systems, Inc.*.................... 1,800 78,412
Solectron Corp.*...................... 2,200 91,437
Storage Technology Corp.*............. 1,600 99,100
Teradyne, Inc.*....................... 900 28,800
-----------
TOTAL
SEMI-CONDUCTORS/INSTRUMENTATION..... 643,615
-----------
TELECOMMUNICATIONS -- 1.0%
ADC Telecommunications, Inc.*......... 2,700 112,894
-----------
TOBACCO -- 0.4%
Universal Corp........................ 1,200 49,350
-----------
TRANSPORTATION -- 1.4%
CNF Transportation, Inc............... 1,800 69,075
Trinity Industries, Inc............... 1,900 84,787
-----------
TOTAL TRANSPORTATION.................. 153,862
-----------
UTILITIES -- ELECTRIC -- 7.7%
Boston Edison Co...................... 4,600 174,225
Ensco International, Inc.............. 3,600 120,600
GPU, Inc.............................. 4,300 181,138
New York State Electric & Gas Corp.... 3,600 127,800
NIPSCO Industries, Inc................ 2,700 133,481
Public Service Co. of New Mexico...... 5,000 118,438
-----------
TOTAL UTILITIES -- ELECTRIC........... 855,682
-----------
UTILITIES -- GAS -- 3.4%
MCN Corp.............................. 3,200 129,200
NICOR, Inc............................ 2,500 105,469
Valero Energy Corp.................... 4,700 147,756
-----------
TOTAL UTILITIES -- GAS................ 382,425
-----------
UTILITIES -- TELEPHONE--2.8%
LCI International, Inc.*.............. 7,100 218,325
Southern New England
Telecommunications Corp. ........... 1,900 95,594
-----------
TOTAL UTILITIES -- TELEPHONE.......... 313,919
-----------
TOTAL COMMON STOCK
(COST $9,484,708)....................... 11,107,520
-----------
SHORT TERM INVESTMENTS -- 0.2%
Temporary Investment Cash Fund........ 12,050 12,050
Temporary Investment Fund............. 12,049 12,049
-----------
TOTAL SHORT TERM INVESTMENTS (COST
$24,099)................................ 24,099
-----------
TOTAL INVESTMENTS -- 99.8%
(COST $9,508,807)....................... 11,131,619
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.2%..................... 16,762
-----------
NET ASSETS -- 100.0%...................... $11,148,381
===========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
See Notes to Financial Statements.
A-23
<PAGE> 27
AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
COMMON STOCK -- 94.8%
AEROSPACE -- 0.4%
BE Aerospace, Inc.*.................... 1,500 $ 40,172
---------
AIRLINES -- 1.8%
Airtran Holdings, Inc.*................ 2,650 10,683
Mesaba Holdings, Inc.*................. 5,850 154,294
---------
TOTAL AIRLINES......................... 164,977
---------
BIOTECHNOLOGY -- 3.1%
Corixa Corp.*.......................... 11,950 107,923
Human Genome Sciences, Inc.*........... 1,950 77,756
Protein Design Lab, Inc.*.............. 2,700 107,494
---------
TOTAL BIOTECHNOLOGY.................... 293,173
---------
BROADCASTING -- 2.9%
Cablevision Systems Corp.*............. 1,650 157,987
United International Holdings, Inc.*... 10,150 114,822
---------
TOTAL BROADCASTING..................... 272,809
---------
BUILDING PRODUCTS -- 1.1%
Advance Lighting Technologies, Inc.*... 5,400 101,925
---------
BUSINESS SERVICES -- 5.9%
Accustaff, Inc.*....................... 3,000 69,000
Professional Staff PLC*................ 7,150 118,869
Select Appointments Holdings Public
Limited Co........................... 8,350 153,953
SOS Staffing Services, Inc.*........... 7,650 145,350
Tier Technologies, Inc.*............... 6,250 66,797
---------
TOTAL BUSINESS SERVICES................ 553,969
---------
CHEMICALS -- 2.4%
Nanophase Technologies Corp.*.......... 8,300 106,084
TETRA Technologies, Inc.*.............. 5,550 116,897
---------
TOTAL CHEMICALS........................ 222,981
---------
CLOTHING & APPAREL -- 1.6%
Novel Denim Holdings, Ltd.*............ 2,150 42,462
Quicksilver, Inc.*..................... 3,700 106,606
---------
TOTAL CLOTHING & APPAREL............... 149,068
---------
COMMERCIAL SERVICES -- 3.5%
NCO Group, Inc......................... 5,250 133,875
PMT Services, Inc.*.................... 13,750 192,070
---------
TOTAL COMMERCIAL SERVICES.............. 325,945
---------
COMPUTER SERVICES & SOFTWARE -- 7.3%
3D Labs, Inc., Ltd.*................... 5,650 133,481
Cimatron, Ltd.*........................ 18,050 103,787
DataWorks Corp.*....................... 2,500 50,000
Documentum, Inc.*...................... 2,650 111,631
Rogue Wave Software, Inc.*............. 8,400 92,925
Symantec Corp.*........................ 3,750 82,852
Visio Corp............................. 3,000 115,687
---------
TOTAL COMPUTER SERVICES & SOFTWARE..... 690,363
---------
COMPUTERS -- 1.4%
Cybex Computer Products Corp.*......... 5,600 135,800
---------
CONSUMER PRODUCTS & SERVICES -- 2.4%
Equity International Corp.*............ 6,800 157,250
Meade Instruments Corp.*............... 7,400 68,450
---------
TOTAL CONSUMER PRODUCTS & SERVICES..... 225,700
---------
DIVERSIFIED OPERATIONS -- 1.5%
Volt Information Sciences, Inc......... 2,600 140,075
---------
ELECTRONIC COMPONENTS & EQUIPMENT -- 6.2%
Actel Corp.*........................... 5,000 63,437
Anaren Microwave, Inc.*................ 4,950 77,653
EMCORE Corp.*.......................... 6,400 125,600
International Rectifier Corp.*......... 7,550 89,184
Photronics Labs, Inc................... 4,100 99,937
REMEC, Inc............................. 3,100 70,331
Ultrak, Inc.*.......................... 6,000 55,125
---------
TOTAL ELECTRONIC COMPONENTS &
EQUIPMENT............................ 581,267
---------
ENTERTAINMENT & LEISURE -- 5.8%
Family Golf Centers, Inc.*............. 5,350 168,525
Galoob Toys, Inc.*..................... 3,600 36,675
Gametech International, Inc.*.......... 6,150 66,497
Play By Play Toy & Novelties, Inc.*.... 6,150 110,700
WMS Industries, Inc.*.................. 7,600 160,550
---------
TOTAL ENTERTAINMENT & LEISURE.......... 542,947
---------
ENVIRONMENTAL SERVICES -- 1.9%
Culligan Water Technologies, Inc.*..... 1,550 77,887
Flanders Corp.*........................ 11,000 102,781
---------
TOTAL ENVIRONMENTAL SERVICES........... 180,668
---------
FINANCE LEASING CO. -- 0.8%
Willis Lease Finance Corp.*............ 4,350 75,581
---------
FINANCIAL SERVICES -- 5.1%
Franchise Mortgage Acceptance Co.*..... 4,100 75,594
Imperial Credit Industries, Inc.*...... 9,600 198,600
SEI Investments Co.*................... 4,950 209,138
---------
TOTAL FINANCIAL SERVICES............... 483,332
---------
FOOD -- 0.2%
Unimark Group, Inc.*................... 4,050 15,441
---------
HEALTHCARE SERVICES -- 4.6%
Emeritus Corp.*........................ 6,600 84,150
Envoy Corp.*........................... 5,200 152,425
ProMedeCo Management Co.*.............. 3,000 30,188
QuadraMed Corp.*....................... 6,100 167,941
---------
TOTAL HEALTHCARE SERVICES.............. 434,704
---------
INSTRUMENTS -- CONTROLS -- 0.6%
Metrika Systems Corp.*................. 3,900 59,475
---------
MACHINERY & EQUIPMENT -- 1.7%
ITEQ, Inc.*............................ 13,900 159,416
---------
MEDICAL SUPPLIES & EQUIPMENT -- 2.8%
SeaMed Corp.*.......................... 8,350 153,953
Sofamor Danek Group, Inc.*............. 1,600 104,100
---------
TOTAL MEDICAL SUPPLIES & EQUIPMENT..... 258,053
---------
METALS & MINING -- 0.8%
Titanium Metals Corp.*................. 2,650 77,181
---------
OIL & GAS -- 4.4%
Costilla Energy, Inc.*................. 8,450 94,534
Eagle Geophysical, Inc.*............... 2,650 34,781
Eastern Enterprises.................... 1,250 56,250
Meridian Resource Corp.*............... 8,600 82,238
Mitcham Industries, Inc.*.............. 3,650 66,613
Ocean Energy, Inc.*.................... 1,650 81,366
---------
TOTAL OIL & GAS........................ 415,782
---------
PERSONAL SERVICES -- 1.0%
Enamelon, Inc.*........................ 7,050 90,328
---------
PHARMACEUTICALS -- 1.9%
Algos Pharmaceutical Corp.*............ 6,050 181,122
---------
</TABLE>
A-24
<PAGE> 28
AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
RESTAURANTS -- 1.6%
Landry's Seafood Restaurants, Inc.*.... 6,400 $ 154,400
---------
RETAIL & MERCHANDISING -- 5.4%
Kenneth Cole Productions, Inc.*........ 6,850 110,028
Petco Animal Supplies, Inc.*........... 5,850 141,863
Stage Stores, Inc.*.................... 1,600 59,900
The Wet Seal, Inc.*.................... 6,550 193,634
---------
TOTAL RETAIL & MERCHANDISING........... 505,425
---------
TELECOMMUNICATIONS -- 13.4%
Boston Communications Group, Inc.*..... 8,950 96,772
Coherent Communications Systems
Corp.*............................... 1,300 36,644
GST Telecommunications, Inc.*.......... 12,450 147,844
Intermedia Communications, Inc.*....... 1,950 118,341
Iridium World Communications, Ltd.*.... 2,300 83,663
Lightbridge, Inc.*..................... 7,750 145,797
NICE Systems, Ltd.*.................... 4,250 177,703
NTL, Inc.*............................. 3,950 109,859
Omnipoint Corp.*....................... 6,000 139,875
Ortel Corp.*........................... 4,100 65,088
Smartalk Teleservices, Inc.*........... 6,150 140,489
---------
TOTAL TELECOMMUNICATIONS............... 1,262,075
---------
TRANSPORTATION -- 1.3%
Budget Group, Inc.*.................... 3,450 119,241
---------
TOTAL COMMON STOCK (COST $8,641,948)....... 8,913,395
---------
SHORT TERM INVESTMENTS -- 4.1%
Temporary Investment Cash Fund......... 195,254 195,254
Temporary Investment Fund.............. 195,253 195,253
---------
TOTAL SHORT TERM INVESTMENTS (COST
$390,507)................................ 390,507
---------
TOTAL INVESTMENTS -- 98.9%
(COST $9,032,455)........................ 9,303,902
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.1%...................... 101,431
---------
NET ASSETS -- 100.0%....................... $9,405,333
=========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
See Notes to Financial Statements.
A-25
<PAGE> 29
INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
COMMON STOCK -- 85.2%
ARGENTINA -- 0.8%
Banco de Galicia...................... 5,000 $ 32,006
Telefonica de Argentina SA ADR........ 1,200 44,700
----------
TOTAL ARGENTINA....................... 76,706
----------
AUSTRALIA -- 2.5%
Australia & New Zealand Banking Group
Ltd.* .............................. 9,000 59,462
Boral Ltd. ........................... 11,234 28,400
Broken Hill Proprietary Co. Ltd. ..... 4,341 40,305
Goodman Fielder Ltd. ................. 41,763 66,396
ICI Australia Ltd. 144A*.............. 2,518 17,637
News Corp. Ltd. ...................... 3,000 16,556
----------
TOTAL AUSTRALIA....................... 228,756
----------
AUSTRIA -- 0.7%
OMV AG................................ 450 62,249
----------
BRAZIL -- 1.9%
Aracruz Cellulose ADR................. 800 11,500
Centrais Electricas Brasileiras ADR... 950 23,622
Companhia Energetica de Minas
Gerais.............................. 133,000 5,779
Companhia Energetica de Minas Gerais
ADR*................................ 200 8,300
Compania Riograndense Telecom PFA*.... 11,100 13,676
Petroleo Brasiliero ADR............... 200 4,677
Petroleo Brasiliero S.A............... 78,000 18,242
Telebras ADR.......................... 501 58,335
Telecomunicacoes Brasilieras S.A. .... 66,000 6,712
Telecomunicacoes de Sao Paulo S.A. ... 68,000 18,096
----------
TOTAL BRAZIL.......................... 168,939
----------
CANADA -- 3.0%
Alcan Aluminium Ltd. ................. 1,500 41,299
Canadian Imperial Bank................ 600 18,658
Canadian Imperial Bank of Commerce.... 1,700 52,805
Canadian National Railway Co. ........ 600 28,350
Canadian Pacific, Ltd. ............... 3,800 103,550
CanWest Global Communications
Corp. .............................. 1,700 30,600
----------
TOTAL CANADA.......................... 275,262
----------
CHILE -- 0.2%
Embotelladora Andina S.A. Series B
ADR................................. 800 15,550
----------
CHINA -- 0.1%
China Southern Airlines Co., Ltd.
ADR*................................ 700 9,275
----------
DENMARK -- 1.8%
Unidanmark A/S........................ 2,200 161,613
----------
FINLAND -- 2.5%
Kesko................................. 3,900 61,736
Metsa Serla-B Shares.................. 9,000 70,242
Nokia Corp. ADR....................... 600 42,000
Oy Nokia AB........................... 400 28,427
Rauma Oy.............................. 1,500 23,414
----------
TOTAL FINLAND......................... 225,819
----------
FRANCE -- 8.4%
Assurances Generales de France........ 1,520 80,575
Banque Nationale de Paris............. 1,632 86,783
Compagnie de Saint Gobain............. 380 54,007
Credit Commercial de France........... 559 38,330
Elf Aquitaine......................... 860 100,069
Havas SA.............................. 1,521 109,476
PSA Peugeot Citroen................... 330 41,635
Rhone-Poulenc......................... 2,931 131,352
Societe Generale...................... 429 58,475
Total S.A. ........................... 510 55,528
----------
TOTAL FRANCE.......................... 756,230
----------
GERMANY -- 7.2%
Bayer AG.............................. 4,000 148,495
Degussa............................... 1,200 59,398
Deutsche Lufthansa AG................. 1,270 23,874
Hornbach Holdings AG.................. 666 46,115
Karstadt AG........................... 250 86,483
MAN AG................................ 270 78,010
Mannesmann AG......................... 200 100,443
Metallgesellschaft AG*................ 2,650 48,489
ProSieben Media AG 144A*.............. 1,250 57,354
----------
TOTAL GERMANY......................... 648,661
----------
HONG KONG -- 1.4%
Hutchinson Whampoa Ltd. .............. 9,000 56,451
Hysan Development Co. Ltd. ........... 7,000 13,958
New World Development Co. Ltd. ....... 7,000 24,212
Sun Hung Kai Properties............... 3,000 20,908
Tingyi (Cayman Islands) Holding
Co. ................................ 76,000 9,907
----------
TOTAL HONG KONG....................... 125,436
----------
INDIA -- 0.3%
Ranbaxy Laboratories, Ltd. ........... 500 8,981
State Bank of India................... 900 16,380
----------
TOTAL INDIA........................... 25,361
----------
INDONESIA -- 0.1%
Kalbe Farma........................... 34,000 6,033
----------
IRELAND -- 1.1%
Jefferson Smurfit Group PLC........... 36,000 102,016
----------
ITALY -- 2.6%
Istituto Bancario San Paolo di
Torino.............................. 3,600 34,412
Istituto Bancario San Paolo di Torino
144A................................ 1,800 17,206
Mondadori (Arnoldo) Editore SPA....... 2,500 19,655
Telecom Italia SPA.................... 26,000 166,177
----------
TOTAL ITALY........................... 237,450
----------
JAPAN -- 15.0%
Aisin Seiko Co., Ltd. ................ 8,000 83,063
Bank of Tokyo -- Mitsubishi, Ltd. .... 5,000 69,220
Daiwa Securities Co., Ltd. ........... 5,000 17,305
Eisai Co., Ltd. ...................... 5,000 76,526
Exedy Corp. .......................... 7,000 53,245
Fuji Machine Manufacturing Co. ....... 3,000 72,681
Fujisawa Pharmaceutical Co., Ltd. .... 2,000 17,536
Fukuda Denshi......................... 3,000 30,687
Hitachi Ltd. ......................... 4,000 28,611
JGC Corp. ............................ 19,000 40,186
Mabuchi Motor......................... 2,000 101,983
Maruichi Steel Tube................... 3,000 36,686
Matsumotokiyoshi...................... 1,000 38,455
Matsushita Electric Industrial Co.,
Ltd. ............................... 6,000 88,140
Mazda Motor Corp.*.................... 31,000 73,911
Murata Manufacturing Co., Ltd. ....... 2,000 50,453
Namco Ltd. ........................... 2,000 58,298
NGK Spark Plug Co. ................... 7,000 39,840
Nomura Securities..................... 1,000 13,382
Okumura............................... 9,000 21,458
Otsuka Kagu........................... 200 7,460
Sakura Bank Ltd....................... 15,000 43,032
Sanwa Bank............................ 3,000 30,457
Shimachu.............................. 900 14,190
Sony Music Entertainment, Inc. ....... 2,600 95,984
Square Co., Ltd....................... 1,600 44,547
Sumitomo Rubber Industries............ 15,000 63,567
</TABLE>
A-26
<PAGE> 30
INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
Toyo Ink Manufacturing................ 7,000 $ 12,383
Yamato Kogyo Co., Ltd. ............... 6,000 36,225
----------
TOTAL JAPAN........................... 1,359,511
----------
MALAYSIA -- 0.1%
Renong Berhad......................... 7,000 3,237
Sime Darby Berhad..................... 4,000 3,844
----------
TOTAL MALAYSIA........................ 7,081
----------
MEXICO -- 1.3%
Grupo Televisa S.A.*.................. 2,000 38,924
Kimberly Clark de Mexico, S.A. de
C.V. ............................... 13,500 63,968
Panamerican Beverages, Inc. ADR....... 500 16,000
----------
TOTAL MEXICO.......................... 118,892
----------
NETHERLANDS -- 2.9%
AKZO Nobel............................ 300 51,736
ING Groep NV.......................... 2,738 115,342
Polygram NV........................... 1,533 73,352
Unilever NV........................... 400 24,664
----------
TOTAL NETHERLANDS..................... 265,094
----------
NEW ZEALAND -- 0.7%
Air New Zealand Ltd. ................. 4,000 8,013
Brierley Investments Ltd. ............ 10,944 7,816
Carter Holt Harvey Ltd. .............. 9,000 13,901
Telecom Corp. New Zealand Ltd. ADR.... 800 31,000
----------
TOTAL NEW ZEALAND..................... 60,730
----------
NORWAY -- 1.1%
Saga Petroleum ASA.................... 5,950 102,500
----------
PHILIPPINES -- 0.5%
Manila Electric Co. .................. 9,000 30,226
Metropolitan Bank & Trust Co. ........ 2,400 16,391
----------
TOTAL PHILIPPINES..................... 46,617
----------
SINGAPORE -- 1.0%
Keppel Corp. Ltd. .................... 7,750 22,262
Keppel Fels Ltd. ..................... 3,000 8,368
Keppel Land Ltd. ..................... 8,000 11,015
Overseas Union Bank Ltd. ............. 12,000 45,936
----------
TOTAL SINGAPORE....................... 87,581
----------
SPAIN -- 1.9%
Banco Popular......................... 960 67,080
Empresa Nacional de Electricad,
S.A. ............................... 4,200 74,540
Telefonica de Espana ADR.............. 400 34,249
----------
TOTAL SPAIN........................... 175,869
----------
SWEDEN -- 3.8%
Nordbanken Holding AB................. 30,100 170,334
Pharmacia & Upjohn, Inc. ............. 3,700 136,167
Sparbanken Sverige AB, Swedbank....... 1,590 36,171
----------
TOTAL SWEDEN.......................... 342,672
----------
SWITZERLAND -- 4.9%
Ciba Specialty Chemicals AG*.......... 340 40,561
Holderbank Financiere Glarus AG....... 160 130,760
Nestle SA............................. 72 108,057
Roche Holdings AG..................... 16 159,117
----------
TOTAL SWITZERLAND..................... 438,495
----------
THAILAND -- 0.1%
Land & House Public Co., Ltd. ........ 9,463 1,887
Siam City Cement Public Co., Ltd. .... 563 585
Siam Commercial Bank & Public Co.,
Ltd. ............................... 200 228
Thai Farmers Bank Public Co., Ltd. ... 3,700 6,724
----------
TOTAL THAILAND........................ 9,424
----------
UNITED KINGDOM -- 17.3%
Associated British Foods PLC.......... 11,300 98,544
Bank of Scotland...................... 4,000 36,857
Bass PLC.............................. 6,300 97,908
Billiton PLC*......................... 13,500 34,652
BOC Group PLC......................... 5,737 94,492
British Petroleum Co. PLC............. 7,700 101,357
BTR PLC............................... 19,000 57,524
Burmah Castrol PLC.................... 6,500 113,048
Carlton Communications PLC............ 12,000 92,801
Cookson Group PLC..................... 16,430 52,852
Diageo PLC............................ 11,000 101,267
HSBC Holdings PLC..................... 4,100 101,328
Johnson Matthey PLC................... 6,000 53,460
PowerGen PLC.......................... 7,000 91,222
Rank Group PLC........................ 16,000 89,247
Reckitt & Colman PLC.................. 4,200 65,998
Royal & Sun Alliance Group PLC........ 5,000 50,432
Royal Bank of Scotland Group.......... 6,300 80,130
Zeneca Group PLC...................... 4,200 147,682
----------
TOTAL UNITED KINGDOM.................. 1,560,801
----------
TOTAL COMMON STOCKS
(COST $7,945,603)....................... 7,700,623
----------
OPTIONS -- 0.0%
Brazilian Option due 01/16/98 (Cost
$395)............................... 7 134
----------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000)
------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 14.3%
Lanston, Aubrey G. & Co., Inc.
6.50% dated 12/31/97, repurchase
price $1,287,465 (collateralized by
U.S. Treasury Notes, par value
$1,281,000, market value $1,309,823,
due 01/02/98) (Cost $1,287,000)...... $1,287 1,287,000
----------
</TABLE>
<TABLE>
<CAPTION>
MATURITY
DATE
--------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 0.2%
U.S. TREASURY BILLS
5.18%......................... 02/05/98 10 9,952
5.25%......................... 02/19/98 10 9,928
----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $19,880)............................ 19,880
----------
TOTAL INVESTMENTS -- 99.7%
(COST $9,252,878)......................... 9,007,637
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.3%....................... 28,394
----------
NET ASSETS -- 100.0%........................ $9,036,031
==========
Unless otherwise noted, all foreign
stocks are common stock.
</TABLE>
A-27
<PAGE> 31
INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997 (CONCLUDED)
- --------------------------------------------------------------------------------
Foreign currency exchange contracts outstanding at December 31, 1997:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CONTRACTED UNREALIZED
COVERED EXCHANGE EXPIRATION APPRECIATION
TYPE BY CONTRACT RATE MONTH (DEPRECIATION)
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Buy JPY 2,323 130.11024 1/98 $ 3
Buy DEM 15,201 1.78860 1/98 (76)
Buy AUD 13,473 1.52346 1/98 (99)
Buy AUD 6,056 1.51860 1/98 (63)
Buy AUD 16,863 1.53351 1/98 (11)
Buy SEK 62,248 7.75290 1/98 (1,399)
Buy GBP 17,533 0.60379 1/98 (124)
Buy GBP 216,173 0.60658 3/98 (1,793)
Buy ITL 18,991 1,758.43990 1/98 (99)
Buy ITL 137,067 1,738.92996 3/98 (2,139)
Buy DKK 7,640 6.75500 1/98 (103)
Buy DKK 15,159 6.81170 1/98 (75)
Buy ESP 9,283 150.09005 1/98 (142)
Buy ESP 47,518 149.88001 1/98 (720)
Buy ESP 9,283 150.09005 1/98 (142)
----
$ (6,982)
====
Sell HKD 1,964 7.74849 1/98 $ 0
Sell AUD 141 1.52789 1/98 0
Sell NZD 1,460 1.71939 1/98 3
Sell NZD 1,396 1.71880 1/98 3
Sell SGD 4,342 1.67000 1/98 39
Sell SGD 1,465 1.67850 1/98 5
Sell MALA 919 3.84199 1/98 12
Sell MALA 1,877 3.89599 1/98 (3)
Sell MALA 953 3.89800 1/98 (2)
----
$ 57
====
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing securities.
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers. At the end of the period, these securities
amounted to 1.0% of net assets.
ADR -- American Depository Receipt
Countries/Currencies:
AUD -- Australia/Australian Dollar
DEM -- Germany/German Mark
DKK -- Denmark/Danish Kroner
ESP -- Spain/Spanish Peseta
GBP -- United Kingdom/British Pound
HKD -- Hong Kong/Hong Kong Dollar
ITL -- Italy/Italian Lira
JPY -- Japan/Japanese Yen
MALA -- Malaysia/Malaysian Ringgit
NZD -- New Zealand/New Zealand Dollar
SEK -- Sweden/Swedish Krona
SGD -- Singapore/Singapore Dollar
See Notes to Financial Statements.
A-28
<PAGE> 32
THIS PAGE INTENTIONALLY LEFT BLANK
A-29
<PAGE> 33
PACIFIC INNOVATIONS TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET MANAGED
FUND BOND FUND
------------------------------
<S> <C> <C>
ASSETS
Investments in securities at value................................... $6,643,915 $11,627,703
Cash................................................................. 252 1
Receivable for:
Securities sold................................................... -- --
Dividends and interest............................................ 63,370 127,466
Fund shares sold.................................................. -- 18,904
Futures........................................................... -- --
Due from Pacific Mutual.............................................. 6,592 2,083
Prepaid expense...................................................... 815 747
---------- ----------
Total Assets................................................. 6,714,944 11,776,904
---------- ----------
LIABILITIES
Payable for:
Securities purchased.............................................. -- --
Accrued investment advisory fees.................................. 1,119 1,441
Accrued shareholder servicing and transfer agent fees............. 1,169 2,017
Accrued expenses.................................................. 13,101 15,054
Accrued dividends................................................. 1,018 --
Unrealized depreciation on foreign currency exchange contracts....... -- --
---------- ----------
Total Liabilities............................................ 16,407 18,512
---------- ----------
Net Assets............................................................. $6,698,537 $11,758,392
========== ==========
COMPONENTS OF NET ASSETS
Common stock (unlimited number of shares authorized, $.001 par value
per share)........................................................... $ 6,699 $ 1,159
Additional paid-in capital............................................. 6,691,838 11,652,191
Undistributed net investment income (loss)............................. -- --
Accumulated net realized loss on investments, futures, and foreign
currency transactions................................................ -- (53,341)
Accumulated net unrealized appreciation(depreciation) on investments,
futures, foreign currency transactions, and forward currency
contracts............................................................ -- 158,383
---------- ----------
Net Assets............................................................. $6,698,537 $11,758,392
========== ==========
Shares outstanding..................................................... 6,698,537 1,158,791
Net asset value, offering and redemption price per share............... $ 1.00 $ 10.15
========== ==========
Investments at cost.................................................... $6,643,915 $11,469,320
========== ==========
</TABLE>
See Notes to Financial Statements.
A-30
<PAGE> 34
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL
INCOME BLUE CHIP MID-CAP AGGRESSIVE INTERNATIONAL
FUND FUND EQUITY FUND GROWTH FUND FUND
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$17,690,588 $19,894,165 $11,131,619 $9,303,902 $ 9,007,637
60,008 400 7,183 1,180 957
-- -- 27,934 97,505 81,682
110,527 27,666 13,832 3,571 24,945
15,769 11,336 9,585 10,761 16,676
-- -- -- -- 46,059
539 -- 1,252 1,134 47,304
734 694 714 647 734
----------- ----------- ----------- ---------- ----------
17,878,165 19,934,261 11,192,119 9,418,700 9,225,994
----------- ----------- ----------- ---------- ----------
182,100 -- 26,393 -- 163,823
6,533 8,111 4,578 4,510 4,817
2,982 3,340 1,885 1,605 1,581
15,936 12,349 10,882 7,252 12,817
-- -- -- -- --
-- -- -- -- 6,925
----------- ----------- ----------- ---------- ----------
207,551 23,800 43,738 13,367 189,963
----------- ----------- ----------- ---------- ----------
$17,670,614 $19,910,461 $11,148,381 $9,405,333 $ 9,036,031
=========== =========== =========== ========== ==========
$ 1,598 $ 1,626 $ 882 $ 878 $ 923
17,335,757 18,153,850 9,538,847 9,208,913 9,495,780
-- 4 6 -- 335
(147,808) (116,545) (14,166) (75,905) (219,546)
481,067 1,871,526 1,622,812 271,447 (241,461)
----------- ----------- ----------- ---------- ----------
$17,670,614 $19,910,461 $11,148,381 $9,405,333 $ 9,036,031
=========== =========== =========== ========== ==========
1,597,902 1,626,191 881,515 878,360 922,505
$ 11.06 $ 12.24 $ 12.65 $ 10.71 $ 9.80
=========== =========== =========== ========== ==========
$17,209,521 $18,022,639 $9,508,807 $9,032,455 $ 9,252,878
=========== =========== =========== ========== ==========
</TABLE>
A-31
<PAGE> 35
PACIFIC INNOVATIONS TRUST
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM MARCH 1, 1997(1) TO
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET MANAGED
FUND BOND FUND
----------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest............................................................... $272,005 $421,867
Dividends.............................................................. -- --
Less Foreign withholding taxes...................................... -- --
------------ ---------
Total Investment Income........................................ 272,005 421,867
------------ ---------
EXPENSES
Investment advisory fees............................................... 10,690 22,724
Shareholder servicing fees............................................. 7,774 9,827
Accounting fees........................................................ 6,921 7,289
Custodian fees......................................................... 10,669 4,509
Professional fees...................................................... 15,032 17,897
Reports to shareholders................................................ 5,423 6,358
Trustees' fees and expenses............................................ 5,864 6,900
Insurance fees......................................................... 3,789 3,809
Miscellaneous expenses................................................. 5,236 6,331
------------ ---------
Total Expenses................................................. 71,398 85,644
Less: Advisory fee waivers and expense reimbursements.......... (42,245) (39,582)
------------ ---------
Net Expenses................................................... 29,153 46,062
------------ ---------
Net Investment Income (Loss)............................................. 242,852 375,805
------------ ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investments, futures, and foreign currency transactions............. -- (53,341)
Net change in unrealized appreciation (depreciation) on investments,
futures, foreign currency transactions, and forward currency
contracts.............................................................. -- 158,383
------------ ---------
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions.................................................. -- 105,042
------------ ---------
Net Increase(decrease) in Net Assets from Operations................... $242,852 $480,847
=========== ========
</TABLE>
- --------------------------------------------------------------------------------
(1) Commenced operations on March 1, 1997.
See Notes to Financial Statements.
A-32
<PAGE> 36
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL
INCOME BLUE CHIP MID-CAP AGGRESSIVE INTERNATIONAL
FUND FUND EQUITY FUND GROWTH FUND FUND
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$202,708 $ 31,772 $ 21,980 $ 25,041 $ 36,624
139,663 142,387 78,518 4,227 128,628
-- (147) (19) -- (15,046)
-------- ---------- ----------- ----------- -------------
342,371 174,012 100,479 29,268 150,206
-------- ---------- ----------- ----------- -------------
40,004 47,469 33,233 35,507 37,725
13,335 14,330 10,033 9,313 9,145
12,332 9,755 7,807 6,973 18,442
7,344 8,846 7,621 8,378 77,383
23,781 25,206 18,560 17,505 17,237
8,397 8,925 6,629 6,259 6,172
9,081 9,618 7,162 6,761 6,683
3,774 3,727 3,750 3,672 3,774
8,328 8,877 6,538 6,164 6,077
-------- ---------- ----------- ----------- -------------
126,376 136,753 101,333 100,532 182,638
(53,868) (52,563) (42,391) (40,577) (111,761)
-------- ---------- ----------- ----------- -------------
72,508 84,190 58,942 59,955 70,877
-------- ---------- ----------- ----------- -------------
269,863 89,822 41,537 (30,687) 79,329
-------- ---------- ----------- ----------- -------------
201,215 (70,076) 52,690 713,648 (54,792)
481,067 1,871,526 1,622,812 271,447 (241,461)
-------- ---------- ----------- ----------- -------------
682,282 1,801,450 1,675,502 985,095 (296,253)
-------- ---------- ----------- ----------- -------------
$952,145 $1,891,272 $ 1,717,039 $ 954,408 $(216,924)
======== ========= ========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
A-33
<PAGE> 37
PACIFIC INNOVATIONS TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM MARCH 1, 1997(1) TO DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET MANAGED
FUND BOND FUND
------------------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)......................................... $ 242,852 $ 375,805
Net realized gain (loss) on investments, futures, and foreign
currency transactions............................................. -- (53,341)
Net change in unrealized appreciation (depreciation) on investments,
futures, foreign exchange transactions, and forward currency
contracts......................................................... -- 158,383
----------- -----------
Net Increase (Decrease) in Net Assets from Operations............. 242,852 480,847
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment income................. (242,852) (375,805)
Distributions to shareholders from net capital gains................. -- --
Distributions to shareholders in excess of net capital gains......... -- --
----------- -----------
Total Dividends and Distributions to Shareholders................. (242,852) (375,805)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................................ 8,826,079 11,287,631
Net asset value of shares issued in reinvestment of dividends and
distributions..................................................... 241,833 375,804
Cost of shares redeemed.............................................. (2,469,315) (10,095)
----------- -----------
Increase in Net Assets from Capital Share Transactions............ 6,598,597 11,653,340
----------- -----------
Total Increase in Net Assets.................................... 6,598,597 11,758,382
NET ASSETS
Beginning of Period.................................................. 99,940 10
----------- -----------
End of Period........................................................ $6,698,537 $11,758,392
=========== ===========
SHARES ISSUED AND REDEEMED
Shares sold.......................................................... 8,826,079 1,122,477
Shares issued in reinvestment of dividends and distributions......... 241,833 37,311
Shares redeemed...................................................... (2,469,315) (998)
----------- -----------
Net Increase in Shares Outstanding................................ 6,598,597 1,158,790
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(1) Commenced operations on March 1, 1997.
See Notes to Financial Statements.
A-34
<PAGE> 38
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL
INCOME BLUE CHIP MID-CAP AGGRESSIVE INTERNATIONAL
FUND FUND EQUITY FUND GROWTH FUND FUND
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 269,863 $ 89,822 $ 41,537 $ (30,687) $ 79,329
201,215 (70,076) 52,690 713,648 (54,792)
481,067 1,871,526 1,622,812 271,447 (241,461)
----------- ----------- ----------- ---------- ----------
952,145 1,891,272 1,717,039 954,408 (216,924)
----------- ----------- ----------- ---------- ----------
(269,863) (89,818) (41,531) -- (78,994)
(201,215) -- (52,690) (713,648) --
(147,808) (46,469) (14,166) (75,905) (164,754)
----------- ----------- ----------- ---------- ----------
(618,886) (136,287) (108,387) (789,553) (243,748)
----------- ----------- ----------- ---------- ----------
16,728,404 18,044,143 9,438,459 8,472,849 9,263,921
618,884 136,293 108,384 789,552 243,745
(9,943) (24,970) (7,124) (21,933) (10,973)
----------- ----------- ----------- ---------- ----------
17,337,345 18,155,466 9,539,719 9,240,468 9,496,693
----------- ----------- ----------- ---------- ----------
17,670,604 19,910,451 11,148,371 9,405,323 9,036,021
10 10 10 10 10
----------- ----------- ----------- ---------- ----------
$17,670,614 $19,910,461 $11,148,381 $9,405,333 $ 9,036,031
=========== =========== =========== ========== ==========
1,542,652 1,617,145 873,294 803,673 898,502
56,129 11,153 8,794 76,507 25,045
(880) (2,108) (574) (1,821) (1,043)
----------- ----------- ----------- ---------- ----------
1,597,901 1,626,190 881,514 878,359 922,504
=========== =========== =========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
A-35
<PAGE> 39
PACIFIC INNOVATIONS TRUST
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM MARCH 1, 1997(1) TO DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET MANAGED
FUND BOND FUND
----------------------------
<S> <C> <C>
Net Asset Value, beginning of period................................. $ 1.00 $ 10.00
------- --------
Net investment income (loss)......................................... 0.04 0.49
Net realized and unrealized gain (loss) on investments and foreign
currency transactions.............................................. 0.00 0.15
------- --------
Total from investment operations..................................... 0.04 0.64
------- --------
Dividends from net investment income................................. (0.04) (0.49)
Distributions from net capital gains................................. -- --
Distributions in excess of net capital gains......................... -- --
------- --------
Total distributions.................................................. (0.04) (0.49)
------- --------
Net Asset Value, end of period....................................... $ 1.00 $ 10.15
======= ========
Total return......................................................... 4.22% 6.59%
======= ========
Net assets, end of period (in thousands)............................. $ 6,699 $ 11,758
======= ========
Ratio of expenses to average net assets:
After fee waivers and reimbursements............................... 0.60%* 0.75%*
======= ========
Before fee waivers and reimbursements.............................. 1.47%* 1.39%*
======= ========
Ratio of net investment income to average net assets:
After fee waivers and reimbursements............................... 5.00%* 6.12%*
======= ========
Before fee waivers and reimbursements.............................. 4.13%* 5.48%*
======= ========
Average Commission Rate Paid(2)...................................... -- --
======= ========
Portfolio turnover rate.............................................. -- 104.36%
======= ========
</TABLE>
- --------------------------------------------------------------------------------
(1) Commenced operations on March 1, 1997.
(2) Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions are charged.
* Annualized.
See Notes to Financial Statements.
A-36
<PAGE> 40
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL
INCOME BLUE CHIP MID-CAP AGGRESSIVE INTERNATIONAL
FUND FUND EQUITY FUND GROWTH FUND FUND
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ------- ------- ------- -------
0.17 0.06 0.05 (0.03) 0.09
1.30 2.27 2.73 1.76 (0.01)
------- ------- ------- ------- -------
1.47 2.33 2.78 1.73 0.08
------- ------- ------- ------- -------
(0.17) (0.06) (0.05) -- (0.09)
(0.14) -- (0.06) (0.92) --
(0.10) (0.03) (0.02) (0.10) (0.19)
------- ------- ------- ------- -------
(0.41) (0.09) (0.13) (1.02) (0.28)
------- ------- ------- ------- -------
$ 11.06 $ 12.24 $ 12.65 $ 10.71 $ 9.80
======= ======= ======= ======= =======
14.75% 23.27% 27.80% 17.65% 0.56%
======= ======= ======= ======= =======
$17,671 $ 19,910 $11,148 $ 9,405 $ 9,036
======= ======= ======= ======= =======
0.87%* 0.94%* 0.94%* 1.03%* 1.24%*
======= ======= ======= ======= =======
1.52* 1.53%* 1.62%* 1.73%* 3.19%*
======= ======= ======= ======= =======
3.24%* 1.00%* 0.66%* (0.53%)* 1.39%*
======= ======= ======= ======= =======
2.59%* 0.41%* (0.02%)* (1.23%)* (0.56%)*
======= ======= ======= ======= =======
-- $ 0.0359 $0.0419 $0.0456 $0.0203
======= ======= ======= ======= =======
44.98% 44.93% 55.74% 99.05% 53.23%
======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
A-37
<PAGE> 41
PACIFIC INNOVATIONS TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Pacific Innovations Trust (the "Trust"), was organized under the laws of the
State of Delaware on September 25, 1996, as a "Delaware Business Trust". The
Trust is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Trust commenced operations on March
1, 1997 and operates as a series company comprising seven funds: the Money
Market Fund, Managed Bond Fund, Capital Income Fund, Blue Chip Fund, Mid-Cap
Equity Fund, Aggressive Growth Fund and International Fund.
The Trust is the funding vehicle for variable annuity contracts offered by
Pacific Life Insurance Company (formerly named Pacific Mutual Life Insurance
Company). Bank of America National Trust and Savings Association, a subsidiary
of BankAmerica Corporation, serves as the Funds' investment advisor. Scudder
Kemper Investments, Inc. and Wellington Management Company, LLP serve as
sub-advisors to the Managed Bond Fund and the International Fund, respectively.
Pursuant to consent received from the California Department of Insurance on
September 1, 1997, Pacific Mutual Life Insurance Company ("Pacific Mutual")
implemented a plan of conversion to form a mutual holding company structure (the
"Conversion"). The Conversion created Pacific Mutual Holding Company ("PMHC"), a
mutual holding company and Pacific LifeCorp, an intermediate stock holding
company. Pacific Mutual was converted to a stock life insurance company and
renamed Pacific Life Insurance Company ("Pacific Life"). Under their respective
charters, PMHC must always own at least 51% of the outstanding voting stock of
Pacific LifeCorp, and Pacific LifeCorp must always own 100% of the voting stock
of Pacific Life. Owners of Pacific Life's annuity contracts and life insurance
policies have certain membership interests in PMHC, consisting principally of
the right to vote on the election of the Board of Directors of PMHC and on other
matters, and certain rights upon liquidation or dissolution of PMHC.
The following is a summary of the significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principals.
Security Valuation
Portfolio securities listed on an exchange and over the counter securities
quoted on the NASDAQ system are valued at the close of regular trading on each
business day the New York Stock Exchange ("NYSE") is open. Securities are valued
at the last sale price on the securities exchange or securities market in which
such securities are primarily traded. Securities not listed on an exchange or
securities market, or securities for which there were no transactions, are
valued at the mean between the current bid and asked prices. Fixed income
securities are valued by using market quotations, are independent pricing
services, approved by the board of directors. Any securities or other assets for
which recent market quotations are not readily available are valued as
determined in good faith by or at the direction of the Board of Trustees.
Short Term obligations which mature in sixty days or less are valued at
amortized cost. Short Term obligations with more than sixty days to maturity are
valued at current market value until the sixtieth day prior to maturity, and
thereafter are valued on an amortized cost basis based on the value on such
date.
The Money Market Fund values investments utilizing the amortized cost valuation
technique permitted in accordance with Rule 2a-7 under the Investment Company
Act of 1940, which requires the Fund to comply with certain conditions. This
technique involves valuing a portfolio security initially at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium.
Investment Transactions and Investment Income
Security transactions are accounted for on the trade date. Realized gains and
losses from security transactions are recognized on the specific identification
basis. Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Corporate actions, including dividends, on
foreign securities are recorded as soon as reliable information is available
from the Trust's sources. All premium and discount amortization/accretions are
determined by the effective yield method.
A-38
<PAGE> 42
- --------------------------------------------------------------------------------
Foreign Currency Translation and Foreign Currency Exchange Contracts
The books and records of the Funds are maintained in U.S. dollars. All assets
and liabilities of a Fund that are initially expressed in foreign currencies are
translated into U.S. dollars each business day using the current exchange rates
determined prior to the close of the NYSE. Purchases and sales of foreign
securities and income and expenses relating to the foreign securities are
converted into U.S. dollars based upon currency exchange rates prevailing on the
respective date of such transactions. Gains and losses attributable to changes
in foreign currency exchange rates are included for financial statement purposes
in the net realized gains and losses on investments and foreign currency
transactions.
A forward foreign currency exchange contract ("forward contract") is a
commitment to purchase or sell a foreign currency at a future date, at a
negotiated rate. The International Fund generally enters into forward contracts
as a hedge, in connection with the purchase or sale of a security denominated in
a foreign currency. Forward contracts are valued daily based on the effective
exchange rate and unrealized appreciation or depreciation is recorded. The Fund
will realize a gain or loss upon the closing or settlement of the forward
transaction. Risks of entering into forward contracts include the potential
inability of the counter party to meet the terms of the contract, and the Fund
giving up opportunity for profit.
There are certain additional risks involved when investing in foreign securities
that are not inherent in domestic securities. These risks involve foreign
currency exchange rate fluctuations, adverse political and economic
developments, and the imposition of unfavorable foreign governmental laws and
regulations.
Futures
A futures contract is an agreement to purchase or sell a specified quantity of
an underlying instrument at a specified future date, or to make or receive a
cash payment based on the value of a securities index. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking to market" such contract on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Such unrealized gains and losses are included in the caption "Accumulated net
unrealized appreciation (depreciation) on investment foreign futures, foreign
currency transactions, and forward currency contracts" in the Statement of
Assets and Liabilities. A Fund agrees to receive from or pay to the broker an
amount of "variation margin" which is included as a payable or receivable in the
Statement of Assets and Liabilities. When the futures contract is closed, the
Fund records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the closing transaction and the Fund's basis in the
contract. The International Fund has entered into futures contracts to hedge a
portion of its portfolio.
The use of futures contracts involves, to varying degrees, elements of market
risk. Risks arise from the possible imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets, and
the possible inability of counterparties to meet the terms of their contracts.
However, the Fund's activities in futures contracts are conducted through
regulated exchanges which minimize counterparty credit risks.
The International Fund had the following open futures contracts at December 31,
1997:
<TABLE>
<CAPTION>
NUMBER OF CONTRACT EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
------------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Purchased:
FTSE 100 Index (U.K.).... 25 $213,204 03/20/98 $(1,115)
Milan MIB30 Index
(Italy)................. 10,000 142,184 03/20/98 7,437
Madrid IBEX Index
(Spain)................. 1,000 48,007 03/20/98 1,086
OMX Index (Sweden)....... 200 60,723 01/23/98 595
</TABLE>
Dividends and Distributions to Shareholders
The Funds record dividends and distributions to shareholders on the ex-date.
Each Fund, with the exception of the Money Market Fund and the Managed Bond
Fund, declare and pay dividends arising from net investment income gains on an
annual basis. Dividends from net investment income are declared and paid daily
by the Money Market Fund, and declared and paid monthly by the Managed Bond
Fund. Distributions from net realized capital gains, if any, are declared and
paid on an annual basis for each of the Funds.
The amount of distributions from net investment income and net realized capital
gains, if any, is determined in accordance with federal income tax regulations,
which may differ from generally accepted accounting princi-
A-39
<PAGE> 43
- --------------------------------------------------------------------------------
ples. Key differences include the treatment of short-term capital gains, the
deferral of Post October losses, wash sales, and the treatment of foreign
currencies. To the extent that these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment. Distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax purposes
are reported as distributions in excess of net investment income or net realized
capital gains. To the extent they exceed net investment income and net realized
capital gains for tax purposes, they are reported as distributions of paid-in-
capital. Permanent differences in the Aggressive Growth Fund which amount to
$30,687 were reclassified from undistributed net investment income to additional
Paid-in capital in accordance with these policies.
Repurchase Agreements
Under a repurchase agreement a Fund may acquire securities from financial
institutions, subject to the sellers agreement to repurchase such securities at
a mutually agreed upon time and price. The resale price is in excess of the
purchase price and reflects an agreed upon interest rate for the period of time
the agreement is outstanding. The Funds' custodian takes possession of the
collateral pledged for investments in repurchase agreements on behalf of the
Funds. It is the policy of the Funds to value the underlying collateral daily on
a mark to market basis to determine that the value, including accrued interest,
is at least equal to the repurchase price. If the counter party to the agreement
defaults, a Fund might incur a loss or delay in the realization of proceeds if
the value of the collateral securing the repurchase agreement declines or incur
disposition costs in liquidating the collateral.
Use of Estimates
Management of the Funds has made certain estimates and assumptions relating to
the reporting of assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.
2. INVESTMENT MANAGEMENT AGREEMENTS,
INVESTMENT SUB-ADVISORY AGREEMENTS
AND TRANSACTIONS WITH AFFILIATES
The Trust has entered into a Management Agreement with Bank of America National
Trust and Savings Association ("Manager") which provide that the Manager will
furnish each Fund with investment advisory and administrative services. The
Manager receives a fee computed daily and paid monthly based on annual rates of
0.22%, 0.37%, 0.48%, 0.53%, 0.53%, 0.61%, and 0.66% of the average daily net
assets of the Money Market Fund, Managed Bond Fund, Capital Income Fund, Blue
Chip Fund, Mid-Cap Equity Fund, Aggressive Growth Fund, and International Fund,
respectively.
The Manager has engaged Scudder Kemper Investments, Inc. and Wellington
Management Company, LLP to serve as sub-advisors for the Managed Bond Fund and
International Fund, respectively. The sub-advisors receive a fee from the
Manager computed daily and paid monthly based on an annual rate of 0.20% and
0.40% of the average daily net assets of the Managed Bond Fund and International
Fund, respectively.
The Manager and Pacific Life have voluntarily agreed to waive fees and reimburse
Fund expenses, excluding interest, taxes, brokerage, and other portfolio
transactions costs, so that the expenses will not exceed 0.60%, 0.75%, 0.87%,
0.94%, 0.94%, 1.03%, and 1.24% of the average net assets based on annual basis
of the Money Market Fund, Managed Bond Fund, Capital Income Fund, Blue Chip
Fund, Mid-Cap Equity Fund, Aggressive Growth Fund, and International Fund,
respectively.
The Management Agreement provides that the Manager will reimburse each Portfolio
to prevent its expenses from exceeding a specific percentage limit. During the
period ended December 31, 1997, the Manager reimbursed all of the Portfolios for
expenses pursuant to those provisions.
PNC Bank, N.A. ("PNC Bank") serves as custodian for the Funds. As custodian of
the Trust's assets, PNC Bank performs a variety of custodial services including
maintaining a separate account for each Fund, holding and disbursing portfolio
securities, receiving and disbursing money, and collecting income and other
payments and distributions on account of the portfolio securities.
A-40
<PAGE> 44
- --------------------------------------------------------------------------------
PFPC serves as accounting agent for the Funds. Under the Sub-Administration and
Accounting Services Agreement, PFPC has agreed to provide certain accounting,
bookkeeping, pricing, dividend distribution calculation, and disbursing services
with respect to the Trust. PNC Bank and PFPC are affiliates of PNC Bank Corp.
Pacific Life is the transfer agent for the Trust and also provides shareholder
support services.
Certain officers and/or Trustees of the Trust are also officers and/or directors
of the sub-administrator and accounting agent. During the period ended December
31, 1997, the Trust made no direct payments to its officers or Trustees, who
were affiliates of the Manager.
3. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and proceeds from securities sold, excluding
short-term obligations and U.S. Government obligations, during the period ended
December 31, 1997 were: $7,213,463 and $1,922,501 for Managed Bond Fund;
$17,034,308 and $4,186,359 for Capital Income Fund; $22,468,028 and $4,860,591
for Blue Chip Fund; $13,547,834 and $4,115,878 for Mid-Cap Equity Fund;
$14,477,840 and $6,549,539 for Aggressive Growth Fund; and $11,327,597 and
$3,378,056 for International Fund, respectively.
4. TAX MATTERS
It is the Trust's policy to comply with the requirements of the Internal Revenue
Code pertaining to regulated investment companies and to distribute all of its
taxable income, as well as any net realized gains, to its shareholders.
Therefore, no federal income or excise tax provision has been made. Foreign
taxes have been provided for on dividend and interest income earned on foreign
investments in accordance with the applicable country's tax rates and, to the
extent unrecoverable, are recorded as a reduction of investment income.
Tax Cost of Investments
At December 31, 1997, the net unrealized appreciation or depreciation based on
the cost of investments for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
TAX GROSS GROSS NET UNREALIZED
COST OF UNREALIZED UNREALIZED APPRECIATION
INVESTMENTS APPRECIATION DEPRECIATION (DEPRECIATION)
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Money Market Fund..... $ 6,643,915 $ -- $ -- $ --
Managed Bond Fund..... 11,469,320 168,138 (9,755) 158,383
Capital Income Fund... 17,212,121 935,847 (457,380) 478,467
Blue Chip Fund........ 18,029,622 1,997,452 (132,909) 1,864,543
Mid-Cap Equity Fund... 9,508,807 1,745,438 (122,626) 1,622,812
Aggressive Growth
Fund................. 9,055,319 793,735 (545,151) 248,584
International Fund.... 9,265,507 496,085 (753,955) (257,870)
</TABLE>
At December 31, 1997, the Managed Bond Fund had a capital loss carryover of
$47,381 which is scheduled to expire at December 31, 2006. It is the policy of
the Funds not to declare any distributions from net realized capital gains until
any capital loss carryover has been utilized.
A-41
<PAGE> 45
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
The Pacific Innovations Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of the Money Market Fund, Managed Bond
Fund, Capital Income Fund, Blue Chip Fund, Mid-Cap Equity Fund, Aggressive
Growth Fund, and International Fund as of December 31, 1997, and the related
statements of operations, changes in net assets, and financial highlights for
the period from March 1, 1997 (commencement of operations) to December 31, 1997.
All such funds constitute the Pacific Innovations Trust. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds constituting the Pacific Innovations Trust as of December 31, 1997,
and the results of their operations, changes in net assets, and financial
highlights for the period from March 1, 1997 to December 31, 1997, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
February 6, 1998
<PAGE> 46
1997 ANNUAL REPORTS
PACIFIC INNOVATIONS TRUST
SEPARATE ACCOUNT B OF
PACIFIC LIFE INSURANCE
COMPANY
Pacific Life Insurance Company ------------
Variable Annuity Department FIRST CLASS
P.O. Box 7187 U.S. POSTAGE
Pasadena, California 91109-7187 PAID
PACIFIC LIFE
Address Service Requested 92799
------------
480-8A 2/98
