<PAGE> 1
HOTCHKIS AND WILEY VARIABLE TRUST
725 SOUTH FIGUEROA STREET
SUITE 4000
LOS ANGELES, CALIFORNIA 90017-5400
800-236-4479
INVESTMENT ADVISOR
HOTCHKIS AND WILEY
725 SOUTH FIGUEROA STREET
SUITE 4000
LOS ANGELES, CALIFORNIA 90017-5400
LEGAL COUNSEL
GARDNER, CARTON & DOUGLAS
321 NORTH CLARK STREET
CHICAGO, ILLINOIS 60610
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
100 EAST WISCONSIN AVENUE
MILWAUKEE, WI 53202
DISTRIBUTOR
PRINCETON FUNDS DISTRIBUTOR, INC.
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
ADMINISTRATOR
AND TRANSFER AGENT
FIRSTAR MUTUAL FUND SERVICES, LLC
615 EAST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53202
CUSTODIAN
FIRSTAR BANK MILWAUKEE, N.A.
615 EAST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53202
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
SEMI-ANNUAL
REPORT
JUNE 30, 1999
[HOTCHKIS AND WILEY VARIABLE TRUST LOGO]
EQUITY INCOME VIP PORTFOLIO
-------------------------------------------------------
Seeks to provide current income and long-term growth of income, accompanied by
growth of capital. The Fund invests primarily in domestic equity securities.
HOTCHKIS AND WILEY: INVESTMENT ADVISOR
<PAGE> 2
[HOTCHKIS AND WILEY FUNDS LOGO]
DEAR SHAREHOLDERS:
The first quarter of 1999 represented a replay of the prior calendar year as
equity investors continued to ignore value and, instead, focused their
preference on the more growth-oriented areas of the market. Technology issues
led the charge (+14.1%), as this already highly priced sector extended its
earnings multiples to ever higher levels. Meanwhile, the S&P 500 Index managed
to post another impressive gain of 5.0% for the quarter.
As a disciplined value investor, the Equity Income VIP Portfolio did not
participate in this momentum-driven euphoria. Our lack of exposure to the
volatile technology sector, a sector that we see as becoming greatly overvalued,
hurt our relative performance. Our fundamental research and value orientation
dictated that we remain invested in the cheapest areas of the market. History
tells us that fundamental underlying valuation is ultimately recognized by
investors, and as such, we remained heavily committed to many of the overlooked
manufacturing cyclicals and utility stocks.
We were rewarded in the second quarter of 1999 as value-oriented investors
enjoyed a bullish move in the equity market, particularly during the nine weeks
from the second week of April to mid-June. Strong economic activity in the U.S.,
along with signs of earlier-than-expected recoveries in Asia and Latin America,
spurred investor interest in industrial stocks. The basic industry sector of the
S&P 500 rose a healthy 20.2% for the quarter. Although the initial catalyst
behind the abrupt shift in investor preference appeared to have been economic
strength, exceptional valuation opportunities attracted general investor
interest into other value areas of the market in April and May. At the same time
many growth stock issues began to falter; for example, the healthcare sector of
the S&P 500 fell 5.0% during these two months.
For the six months ended June 30, 1999, returns in the Portfolio came
predominantly from the basic material sector of the market. Alcoa,
Georgia-Pacific and Dow Chemicals were up 66.0%, 61.8% and 39.5%, respectively.
Browning-Ferris and Rockwell were also strong performers, posting gains of 51.2%
and 50.6%, respectively. Returns were hampered by our holdings in Philip Morris
(-24.9%) and a number of electric utility stocks.
Given the prolonged dynamics favoring momentum and growth stocks in 1998 and the
first quarter of 1999, we believe the opportunity for value investing is
considerable. Although we began to see a significant broadening of performance
and rotation into value (value indices outpaced the growth indices an average of
over 9% in April), we believe this recent trend has captured only a small
portion of the opportunity for value investors.
The roaring bull market has produced phenomenal performance during the past 5
years, with an average annualized return of 27.5% for the large cap-weighted S&P
500. The cost of this phenomena, however, is historic high-price valuations and
an increased risk profile for the capitalization-weighted indices and
<PAGE> 3
similarly structured equity portfolios. By comparison, we believe the valuation
profile of our portfolio is reasonable and in line with earnings and growth
prospects. Furthermore, we believe that we are particularly well positioned to
take advantage of a continued rebound of value securities in the equity market.
TOTAL RETURNS FOR PERIODS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Equity Income
VIP Portfolio S&P 500
- -------------------------------------------------------------
<S> <C> <C>
Six Months......................... 10.96% 12.22%
One Year........................... 7.76 22.71
Since Inception (3/18/98)+......... 3.28 23.00
</TABLE>
+ Average annual total return. Past performance is no guarantee of future
performance.
As always, we appreciate the trust you place in us. We thank you for your
continued support and look forward to reporting to you again in six months.
Sincerely,
/s/ NANCY D. CELICK
Nancy D. Celick
President
HOTCHKIS AND WILEY VARIABLE TRUST
The above reflects opinions of portfolio managers as of June 30, 1999. They are
subject to change and any forecasts made cannot be guaranteed. The Portfolio
might not continue to hold any securities mentioned and has no obligation to
disclose purchases or sales in these securities.
Total returns and average annual total returns are net of all charges and fees
and assume reinvestment of capital gains distributions and shareholder dividends
at net asset value. Insurance related fees and expenses are not reflected in
these returns and, if they were, returns would be lower. Please see the
prospectus for details. The investment advisor pays annual operating expenses in
excess of 1.15% of average net assets. Were it not to pay such expenses, net
returns would be lower. Investment return and principal will vary so that
shares, when redeemed, may be worth more or less than their original cost. Past
performance is no guarantee of future performance.
The S&P 500 Index is an unmanaged index representing the aggregate market value
of the common equity of 500 stocks primarily traded on the New York Stock
Exchange. The Index does not reflect the payment of transaction costs, fees and
expenses associated with an investment in the Portfolio. The Portfolio is not
identical in composition to the Index; the securities and weightings among
securities in the Portfolio differ from those in the Index. It is not possible
to invest directly in an index.
<PAGE> 4
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SCHEDULE OF INVESTMENTS................................ 1
STATEMENT OF ASSETS AND LIABILITIES.................... 3
STATEMENT OF OPERATIONS................................ 4
STATEMENT OF CHANGES IN NET ASSETS..................... 5
NOTES TO FINANCIAL STATEMENTS.......................... 6
FINANCIAL HIGHLIGHTS................................... 8
</TABLE>
[HOTCHKIS AND WILEY VARIABLE TRUST LOGO]
<PAGE> 5
SCHEDULE OF INVESTMENTS -- JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
EQUITY INCOME VIP PORTFOLIO
<TABLE>
<CAPTION>
COMMON STOCKS -- 97.6% Shares Value
- --------------------------------------------------------------
<S> <C> <C>
AEROSPACE -- 6.1%
..............................................................
Lockheed Martin Corporation 630 $ 23,468
..............................................................
Northrop Grumman Corporation 400 26,525
..............................................................
Rockwell International Corporation 340 20,655
....................... ........................ ---------
70,648
- --------------------------------------------------------------
APPAREL & TEXTILES -- 0.7%
..............................................................
Russell Corporation 430 8,385
- --------------------------------------------------------------
AUTO PARTS -- 3.7%
..............................................................
Dana Corporation 410 18,886
..............................................................
Delphi Automotive Systems
Corporation 230 4,269
..............................................................
Meritor Automotive, Inc. 100 2,550
..............................................................
TRW Inc. 310 17,011
....................... ........................ ---------
42,716
- --------------------------------------------------------------
AUTOS & TRUCKS -- 4.3%
..............................................................
Ford Motor Company 500 28,219
..............................................................
General Motors Corporation 330 21,780
....................... ........................ ---------
49,999
- --------------------------------------------------------------
BANKS -- 5.5%
..............................................................
Bank One Corporation 424 25,255
..............................................................
First Security Corporation 300 8,175
..............................................................
First Union Corporation 320 15,040
..............................................................
KeyCorp 370 11,886
..............................................................
UnionBanCal Corporation 100 3,613
....................... ........................ ---------
63,969
- --------------------------------------------------------------
BEVERAGES -- 1.2%
..............................................................
Anheuser-Busch Companies, Inc. 200 14,187
- --------------------------------------------------------------
BUILDING & FOREST PRODUCTS -- 2.7%
..............................................................
Georgia-Pacific Corporation (Timber
Group) 400 10,100
..............................................................
Weyerhaeuser Company 310 21,312
....................... ........................ ---------
31,412
- --------------------------------------------------------------
CHEMICALS -- 3.2%
..............................................................
The Dow Chemical Company 150 19,031
..............................................................
Millennium Chemicals Inc. 60 1,414
..............................................................
Union Carbide Corporation 350 17,063
....................... ........................ ---------
37,508
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Shares Value
<S> <C> <C>
CONGLOMERATES -- 1.7%
..............................................................
Tenneco, Inc. 840 $ 20,055
- --------------------------------------------------------------
CONSUMER PRODUCTS -- 1.0%
..............................................................
Fortune Brands, Inc. 270 11,171
- --------------------------------------------------------------
ENGINEERING & CONSTRUCTION -- 0.7%
..............................................................
Harsco Corporation 260 8,320
- --------------------------------------------------------------
FINANCIAL SERVICES -- 4.5%
..............................................................
Associates First Capital
Corporation -- Class A 142 6,292
..............................................................
Fannie Mae 270 18,461
..............................................................
Household International, Inc. 280 13,265
..............................................................
Transamerica Corporation 200 15,000
....................... ........................ ---------
53,018
- --------------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES -- 1.9%
..............................................................
Whirlpool Corporation 300 22,200
- --------------------------------------------------------------
INSURANCE -- 6.4%
..............................................................
American General Corporation 200 15,075
..............................................................
Lincoln National Corporation 300 15,694
..............................................................
Ohio Casualty Corporation 100 3,612
..............................................................
Safeco Corporation 500 22,063
..............................................................
St. Paul Companies, Inc. 560 17,815
....................... ........................ ---------
74,259
- --------------------------------------------------------------
MACHINERY -- 2.2%
..............................................................
Deere & Company 125 4,953
..............................................................
New Holland N.V. 1,230 21,064
....................... ........................ ---------
26,017
- --------------------------------------------------------------
METALS & MINING -- 4.9%
..............................................................
Alcoa, Inc. 360 22,275
..............................................................
Phelps Dodge Corporation 200 12,387
..............................................................
Reynolds Metals Company 370 21,830
....................... ........................ ---------
56,492
- --------------------------------------------------------------
NATURAL GAS -- 0.8%
..............................................................
Eastern Enterprises 220 8,745
- --------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements
1
<PAGE> 6
SCHEDULE OF INVESTMENTS -- JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
EQUITY INCOME VIP PORTFOLIO
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------
<S> <C> <C>
OIL -- DOMESTIC -- 8.1%
..............................................................
Atlantic Richfield Company 130 $ 10,863
..............................................................
Occidental Petroleum Corporation 1,200 25,350
..............................................................
Phillips Petroleum Company 500 25,156
..............................................................
Texaco Inc. 100 6,250
..............................................................
USX-Marathon Group, Inc. 590 19,212
..............................................................
Ultramar Diamond Shamrock
Corporation 360 7,853
....................... ........................ ---------
94,684
- --------------------------------------------------------------
PAPER -- 3.6%
..............................................................
Georgia-Pacific Group 260 12,317
..............................................................
International Paper Company 597 30,149
....................... ........................ ---------
42,466
- --------------------------------------------------------------
PHOTOGRAPHY & OPTICAL -- 1.7%
..............................................................
Eastman Kodak Company 290 19,648
- --------------------------------------------------------------
POLLUTION CONTROL -- 2.8%
..............................................................
Browning-Ferris Industries, Inc. 550 23,650
..............................................................
Waste Management, Inc. 175 9,406
....................... ........................ ---------
33,056
- --------------------------------------------------------------
RAILROADS -- 2.5%
..............................................................
CSX Corporation 260 11,781
..............................................................
Norfolk Southern Corporation 570 17,171
....................... ........................ ---------
28,952
- --------------------------------------------------------------
RETAIL -- 3.8%
..............................................................
Intimate Brands, Inc. 42 1,990
..............................................................
J.C. Penney Company, Inc. 400 19,425
..............................................................
May Department Stores Company 330 13,489
..............................................................
Sears, Roebuck & Company 200 8,912
....................... ........................ ---------
43,816
- --------------------------------------------------------------
SAVINGS & LOANS -- 1.7%
..............................................................
Washington Mutual, Inc. 550 19,456
- --------------------------------------------------------------
STEEL -- 1.4%
..............................................................
USX-U.S. Steel Group, Inc. 600 16,200
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Shares Value
<S> <C> <C>
TOBACCO -- 3.9%
..............................................................
Philip Morris Companies, Inc. 1,120 $ 45,010
- --------------------------------------------------------------
UTILITY -- ELECTRIC -- 9.0%
..............................................................
CMS Energy Corporation 400 16,750
..............................................................
Edison International 730 19,528
..............................................................
GPU, Inc. 120 5,063
..............................................................
Illinova Corporation 465 12,671
..............................................................
P P & L Resources, Inc. 493 15,160
..............................................................
PacifiCorp 200 3,675
..............................................................
Public Service Enterprises Group,
Inc. 295 12,058
..............................................................
SCANA Corporation 440 10,285
..............................................................
Texas Utilities Company 230 9,487
....................... ........................ ---------
104,677
- --------------------------------------------------------------
UTILITY -- TELEPHONE -- 7.6%
..............................................................
AT&T Corporation 450 25,116
..............................................................
ALLTEL Corporation 250 17,875
..............................................................
Bell Atlantic Corporation 205 13,402
..............................................................
GTE Corporation 120 9,090
..............................................................
SBC Communications, Inc. 400 23,200
....................... ........................ ---------
88,683
....................... ........................ ---------
Total common stocks (cost 1,135,749
$1,110,468)
- --------------------------------------------------------------
VARIABLE RATE Principal
DEMAND NOTES* -- 2.9% Amount
- --------------------------------------------------------------
Pitney Bowes, Inc., 4.8250%
(cost $33,685) $33,685 33,685
- --------------------------------------------------------------
Total investments -- 100.5% (cost
$1,144,153) 1,169,434
..............................................................
Liabilities in excess of other
assets -- (0.5%) (5,446)
....................... ........................ ---------
$1,163,988
Total net assets -- 100.0%
- --------------------------------------------------------------
</TABLE>
* Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates. The
rate listed is as of June 30, 1999.
See Notes to the Financial Statements
2
<PAGE> 7
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1999
EQUITY INCOME VIP PORTFOLIO (Unaudited)
- ---------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value*.................................... $1,169,434
Receivable for investments sold........................... 946
Dividends and interest receivable......................... 2,856
Organizational expenses, net of accumulated
amortization............................................ 14,183
----------
Total assets.......................................... 1,187,419
----------
LIABILITIES:
Payable to Advisor........................................ 67
Accrued expenses and other liabilities.................... 23,364
----------
Total liabilities..................................... 23,431
----------
Net assets............................................ $1,163,988
==========
NET ASSETS CONSIST OF:
Paid in capital........................................... $1,136,815
Undistributed net investment income....................... 481
Undistributed net realized gain on securities............. 1,411
Net unrealized appreciation of securities................. 25,281
----------
Net assets............................................ $1,163,988
==========
CALCULATION OF NET ASSET VALUE PER SHARE:
Shares outstanding (unlimited shares of no par value
authorized)............................................. 114,329
Net asset value per share (offering and redemption
price).................................................. $ 10.18
==========
*Cost of Investments....................................... $1,144,153
==========
</TABLE>
See Notes to the Financial Statements
3
<PAGE> 8
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
EQUITY INCOME VIP PORTFOLIO (Unaudited)
- ------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income*
Dividends............................................... $ 15,330
Interest................................................ 682
--------
Total income........................................ 16,012
--------
Expenses
Advisory fee............................................ 3,902
Legal and auditing fees................................. 2,069
Custodian fees and expenses............................. 2,168
Accounting and transfer agent fees and expenses......... 18,747
Administration fee...................................... 181
Trustees' fees and expenses............................. 150
Reports to shareholders................................. 109
Registration fees....................................... 109
Amortization of organizational expenses................. 2,000
Other expenses.......................................... 288
--------
Total expenses...................................... 29,723
Less, expense reimbursement............................. (23,656)
--------
Net expenses........................................ 6,067
--------
Net investment income................................... 9,945
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on securities......................... 4,976
Net change in unrealized appreciation of securities..... 95,951
--------
Net gain on investments................................... 100,927
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $110,872
========
*Net of Foreign Taxes Withheld.............................. $ 101
========
</TABLE>
See Notes to the Financial Statements
4
<PAGE> 9
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended March 18, 1998**
June 30, 1999 through
EQUITY INCOME VIP PORTFOLIO (Unaudited) December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income................................... $ 9,945 $ 12,890
Net realized gain (loss) on securities.................. 4,976 (3,564)
Net change in unrealized appreciation (depreciation) of
securities............................................. 95,951 (70,670)
---------- ----------
Net increase (decrease) in net assets resulting from
operations.......................................... 110,872 (61,344)
---------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income................................... (11,011) (12,711)
---------- ----------
FUND SHARE TRANSACTIONS:
Net proceeds from shares sold........................... 75,069 1,070,974
Shares issued in connection with payment of dividends
and distributions...................................... 11,011 12,711
Cost of shares redeemed................................. (10,257) (21,326)
---------- ----------
Net increase in net assets from Fund share
transactions........................................ 75,823 1,062,359
---------- ----------
Total increase in net assets................................ 175,684 988,304
NET ASSETS:
Beginning of period..................................... 988,304 --
---------- ----------
End of period*.......................................... $1,163,988 $ 988,304
========== ==========
*Including undistributed net investment income of: $ 481 $ 1,547
========== ==========
CHANGES IN SHARES OUTSTANDING:
Shares sold............................................. 7,689 107,647
Shares issued in connection with payment of dividends
and distributions...................................... 1,143 1,390
Shares redeemed......................................... (1,138) (2,402)
---------- ----------
Net increase........................................ 7,694 106,635
========== ==========
**Commencement of operations.
</TABLE>
See Notes to the Financial Statements
5
<PAGE> 10
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999 (UNAUDITED)
NOTE 1.
ACCOUNTING POLICIES. The Equity Income VIP Portfolio (the "Fund") is a series of
Hotchkis and Wiley Variable Trust (the "Trust"), an open-end, management
investment company organized as a Massachusetts business trust on February 4,
1997 and registered under the Investment Company Act of 1940. The Fund commenced
operations on March 18, 1998. The Fund seeks to provide current income and
long-term growth of income, accompanied by growth of capital. Shares of the Fund
are not offered to the general public but may only be purchased by the separate
accounts of participating insurance companies for the purpose of funding
variable annuity contracts and/or variable life insurance contracts. In addition
to the Fund, the Trust offers the International VIP Portfolio, the Low Duration
VIP Portfolio and the Total Return Bond VIP Portfolio (collectively, the
"Funds"). The assets of each series are invested in separate, independently
managed portfolios. The following is a summary of significant accounting
policies followed by the Fund in the preparation of the financial statements.
ORGANIZATIONAL EXPENSES: Expenses incurred by the Trust in connection with the
organization, registration and the initial public offering of shares are being
deferred and amortized over the period of benefit, but not to exceed sixty
months from the Trust's commencement of operations. The proceeds of any
redemption of the initial shares by the original shareholder will be reduced by
a pro-rata portion of any then unamortized organization expenses in the same
proportion as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of such redemption.
SECURITY VALUATION: Portfolio securities that are listed on a securities
exchange (whether domestic or foreign) or The Nasdaq Stock Market ("NSM") are
valued at the last sale price as of 4:00 p.m., Eastern time, or, in the absence
of recorded sales, at the average of readily available closing bid and asked
prices on such exchange or NSM. Unlisted securities that are not included in NSM
are valued at the average of the quoted bid and asked price in the over-the-
counter market. Securities for which market quotations are not otherwise
available are valued at fair value as determined in good faith by Hotchkis and
Wiley (the "Advisor") under procedures established by the Board of Trustees.
Short-term investments which mature in less than 60 days are valued at amortized
cost (unless the Board of Trustees determines that this method does not
represent fair value), if their original maturity was 60 days or less, or by
amortizing the values as of the 61st day prior to maturity, if their original
term to maturity exceeded 60 days.
FEDERAL INCOME TAXES: It is the Fund's intent to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and the Fund
intends to distribute investment company net taxable income and net capital
gains to shareholders. Therefore, no federal income tax provision is required.
EXPENSE ALLOCATION: Common expenses incurred by the Trust are allocated among
the Funds based upon (i) relative average net assets, (ii) as incurred on a
specific identification basis, or (iii) evenly among the Funds, depending on the
nature of the expenditure.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6
<PAGE> 11
DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income are declared
and paid quarterly. Distributions of net realized capital gains, if any, will be
declared and paid at least annually.
OTHER: Security and shareholder transactions are recorded on trade date.
Realized gains and losses on sales of investments are calculated on the
identified cost basis. Dividend income and dividends and distributions to
shareholders are recorded on the ex-dividend date. Interest income is recognized
on the accrual basis. Generally accepted accounting principles require that
permanent financial reporting and tax differences relating to shareholder
distributions be reclassified to paid in capital.
NOTE 2.
INVESTMENT ADVISORY AGREEMENT. The Fund has an investment advisory agreement
with the Advisor, with whom certain officers and Trustees of the Trust are
affiliated. The Advisor is a division of Merrill Lynch Asset Management, L.P.,
an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. The Advisor
receives a fee, computed daily and payable monthly, at the annual rate of 0.75%
as applied to the Fund's daily net assets. The Advisor has agreed to pay all
operating expenses in excess of 1.15% as applied to the Fund's daily net assets.
For the six months ended June 30, 1999, the Adviser paid $23,656 of operating
expenses on behalf of the Fund.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the Board
of Trustees of the Trust has adopted procedures which allow the Fund, under
certain conditions described in the Rule, to acquire newly-issued securities
from a member of an underwriting group in which an affiliated underwriter
participates.
NOTE 3.
SECURITIES TRANSACTIONS. Purchases and sales of investment securities, other
than short-term investments, for the six months ended June 30, 1999 were
$154,087 and $80,713, respectively.
As of June 30, 1999, unrealized appreciation (depreciation) for federal income
tax purposes was as follows:
<TABLE>
<CAPTION>
Net Appreciated Depreciated
Fund Appreciation Securities Securities
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Income VIP Portfolio................................. $25,281 $125,865 $(100,584)
</TABLE>
At June 30, 1999, the cost of investments for federal income tax purposes was
$1,144,153. Any differences between book and tax are due primarily to wash sale
losses.
As June 30, 1999, the Fund had accumulated net realized capital loss carryovers
of $3,564, expiring in 2006. To the extent that the Fund realizes future net
capital gains, those gains will be offset by any unused capital loss carryover.
7
<PAGE> 12
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended March 18, 1998*
June 30, 1999 through
EQUITY INCOME VIP PORTFOLIO (Unaudited) December 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period........................ $ 9.27 $ 10.00
Income from Investment Operations:
Net investment income................................... 0.09 0.14
Net realized and unrealized gain (loss) on
investments............................................ 0.92 (0.75)
---------- --------
Total from investment operations........................ 1.01 (0.61)
---------- --------
Less Distributions:
Dividends (from net investment income).................. (0.10) (0.12)
---------- --------
Net Asset Value, End of Period.............................. $ 10.18 $ 9.27
========== ========
Total Return(1)............................................. 10.96% (6.04)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period................................... $1,163,988 $988,304
Ratio of expenses to average net assets(2):
Before expense reimbursement............................ 5.69% 7.81%
After expense reimbursement............................. 1.15% 1.15%
Ratio of net investment income to average net assets(2):
Before expense reimbursement............................ (2.64)% (4.95)%
After expense reimbursement............................. 1.90% 1.71%
Portfolio turnover rate(1).................................. 8% 12%
</TABLE>
* Commencement of operations.
(1) Not annualized.
(2) Annualized.
See Notes to the Financial Statements
8
