<PAGE>
North American Funds
Variable Product Series II
(formerly American General Series Portfolio Company 3)
Annual Report
August 31, 2000
AMERICAN
GENERAL
FINANCIAL GROUP
<PAGE>
NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES II - ANNUAL REPORT AUGUST 31, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C>
Chairman's Letter........................................................... 1
Fund Information............................................................ 2
Schedule of Investments
International Growth Fund.................................................. 3
Goldman Sachs Large Cap Growth Fund........................................ 6
INVESCO Mid Cap Growth Fund................................................ 10
J.P. Morgan Small Cap Growth Fund.......................................... 13
International Value Fund................................................... 17
State Street Large Cap Value Fund.......................................... 21
Neuberger Berman Mid Cap Value Fund........................................ 24
Small Cap Value Fund....................................................... 27
Socially Responsible Fund.................................................. 40
Balanced Fund.............................................................. 45
High Yield Bond Fund....................................................... 49
Strategic Bond Fund........................................................ 53
Domestic Bond Fund......................................................... 57
Core Bond Fund............................................................. 59
Money Market Fund.......................................................... 62
Aggressive Growth Lifestyle Fund........................................... 64
Moderate Growth Lifestyle Fund............................................. 66
Conservative Growth Lifestyle Fund......................................... 68
Statements of Assets and Liabilities........................................ 70
Statements of Operations.................................................... 72
Statements of Changes in Net Assets......................................... 74
Notes to Financial Statements............................................... 78
Financial Highlights........................................................ 82
Report of Independent Auditors.............................................. 85
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES II CHAIRMAN'S LETTER 1
Dear Valued Investor:
Welcome to the new North American Funds Variable Product Series II Annual
Report. As you can see, this report looks different in many ways from the
report you received in 1999. In order to assist you in achieving your
financial goals, we are in the process of making a number of changes to our
variable product series.
NAME CHANGES
Effective October 1, 2000, the name of American General Series Portfolio
Company 3 was changed to North American Funds Variable Product Series II ("NAF
VPS II"). This is only a name change--you are still invested in the same fund.
The name change resulted from American General's recent acquisition of the
North American retail mutual funds--a multi-manager, sub-advised retail mutual
fund family. American General is using the North American name to create a
branded family of funds, which includes both retail mutual funds and variable
insurance funds. The names of the individual funds have also changed to
include the "North American" name and, for many of the funds, the names of the
sub-advisers for such funds.
FUND CHANGES
We believe that the North American name stands for a multi-manager investment
family supported by a rigorous sub-adviser selection and monitoring process.
We have a team of experienced investment research professionals that
continually monitor the funds in the portfolio. The investment research
professionals monitor quantitative factors for the funds, such as returns
relative to comparable benchmarks, as well as qualitative factors. Qualitative
factors with respect to a sub-adviser include: a change in the ownership of
the firm, a change in the portfolio management team, regulatory/compliance
problems, non-adherence to investment process, capacity issues, and other
factors.
In connection with the review of this series by our investment research
professionals, management recommended to the Board of Trustees that replacing
the sub-adviser for one of the funds would enhance the product offering. The
Board of Trustees approved management's recommendation. Effective October 1,
2000, INVESCO Funds Group, Inc. ("INVESCO") replaced Brown Capital Management
Inc. ("Brown Capital") as the sub-adviser for the Mid Cap Growth Fund. The
Brown Capital investment process was structured around a "Growth at a
Reasonable Price" philosophy, which was not consistent with the Russell Mid
Cap Growth Index, the fund's benchmark. The new portfolio management team is
the same team that manages the popular INVESCO Dynamics Fund. Their track
record and style are more closely aligned with the Russell Mid Cap Growth
Index.
The sub-adviser for another of the funds in the series has also changed.
Effective July 24, 2000, Thompson, Siegel & Walmsley, Inc. ("TS&W") replaced
Jacobs Asset Management, L.P. ("JAM") as the sub-adviser for the International
Growth Fund. Due to the retirement of JAM's president, Daniel Jacobs, the
parent company of JAM merged the assets and business of JAM into its
subsidiary TS&W. TS&W specializes in the management of international equities,
large-cap value equities, and fixed-income assets.
For those of you invested in the Variable Annuity Life Insurance Company's
Portfolio Director products, you will soon be receiving information in the
mail about additional enhancements to the series.
INVESTMENT RESEARCH PROFESSIONALS
We welcome this opportunity to introduce you to our team of investment
research professionals. This team brings extensive knowledge, depth and
experience to the sub-adviser selection and monitoring process. The average
industry experience for the four senior key members is over 18 years. Steven
Guterman, the chief investment officer for the series, leads the team. Mr.
Guterman's extensive portfolio management experience includes his previous
position as Managing Director and Head of U.S. Fixed Income Portfolio
Management with Salomon Brothers Asset Management. The other key members are a
chief economist and two mutual fund strategists. We believe this team adds
tremendous value to our product offering.
FORMAT CHANGES
We have revised the format of this report to make it easier to read and to
give you, our shareholder, important performance information for each fund. In
addition to this performance update, we are pleased to present the investment
viewpoints of the portfolio managers for each fund. We went to the source--the
person or team that makes day-to-day investment decisions for your fund--to
bring you insight on factors affecting the fund's performance and the outlook
for the asset class.
We are committed to providing you a diversified series of quality investment
options to meet your investment needs. Thank you for your continued confidence
in our ability to invest your assets wisely.
Sincerely,
/s/ Alice T. Kane
Alice T. Kane, Chairman
North American Funds Variable Product Series II
-------------------------------------------------------------------------------
<PAGE>
2 NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES II FUND INFORMATION
FUND RETURNS AND TRACKING DIFFERENCES*
For the Year Ended August 31, 2000
<TABLE>
<CAPTION>
(3) (4)
Fund Total
Performance Index
Before Return
(1) (2) Subtracting Including Tracking
NAFVPS II Fund/Relevant Fund Fund Expenses Reinvested Differences
Market Index Return(a) Expenses (1) + (2) Dividends (3) - (4)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International Growth
Fund / Salomon Brothers
Primary Market Index.... 37.31% 1.15% 38.46% 16.66% 21.80%
Goldman Sachs Large Cap
Growth Fund / Russell
1000 Growth Index....... 30.68 0.86 31.54 33.46 (1.92)
INVESCO Mid Cap Growth
Fund / Russell Mid Cap
Growth Index............ 46.25 0.79 47.04 67.18 (20.14)
J.P. Morgan Small Cap
Growth Fund / Russell
2000 Growth Index....... 68.91 1.16 70.07 39.08 30.99
International Value
Fund / Salomon Brothers
Primary Market Index.... 24.50 1.04 25.54 16.66 8.88
State Street Large Cap
Value Fund / Russell
1000 Value Index........ 7.35 0.81 8.16 4.15 4.01
Neuberger Berman Mid Cap
Value Fund / Russell Mid
Cap Value Index......... 29.31 1.05 30.36 6.26 24.10
Small Cap Value
Fund / Russell 2000
Value Index............. 17.53 0.98 18.51 13.70 4.81
Socially Responsible
Fund / S&P 500 Index.... 14.77 0.56 15.33 16.32 (0.99)
Balanced Fund / Balanced
Blend(b)................ 14.10 0.82 14.92 12.92 2.00
High Yield Bond
Fund / Salomon Brothers
High Yield Market
Index................... 6.01 0.99 7.00 1.35 5.65
Strategic Bond
Fund / Lehman Brothers
Aggregate Index......... 8.43 0.89 9.32 7.55 1.77
Domestic Bond
Fund / Lehman Brothers
Aggregate Index......... 6.27 0.78 7.05 7.55 (0.50)
Core Bond Fund / Lehman
Brothers Aggregate
Index................... 5.31 0.80 6.11 7.55 (1.44)
Money Market Fund / 30
Day Certificate of
Deposit Primary Offering
Rate by New York City
Banks (NYC 30 Day CD
Rate)................... 5.67 0.56 6.23 4.76 1.47
Aggressive Growth
Lifestyle Fund(c)....... 29.91 0.10 30.01 17.44 12.57
Moderate Growth
Lifestyle Fund(d)....... 23.29 0.10 23.39 15.67 7.72
Conservative Growth
Lifestyle Fund(e)....... 19.33 0.10 19.43 13.89 5.54
</TABLE>
-----------
(a) Fund Level Returns are net of investment management fees and other fund
expenses, but do not reflect charges specified in annuity contracts for
mortality and expense guarantees, administrative fees, or surrender
charges.
(b) Balanced Blend consists of 40% Lehman Brothers Government and Corporate
and 60% S&P 500 Index.
(c) Benchmark for Aggressive Growth Lifestyle consists of 25% EAFE, 10% Lehman
Aggregate, and 65% Wilshire 5000.
(d) Benchmark for Moderate Growth Lifestyle consists of 15% EAFE, 30% Lehman
Aggregate, and 55% Wilshire 5000.
(e) Benchmark for Conservative Growth Lifestyle consists of 8% EAFE, 50%
Lehman Aggregate, and 42% Wilshire 5000.
* The Fund's performance reflects the reinvestment of dividends and other
distributions. The returns represent past performance. The Fund's investment
return will fluctuate so that an investor's shares, when redeemed, may be
worth more of less than their original cost.
<TABLE>
<CAPTION>
Old Fund Name New Fund Name As shown in this annual report
------------- ------------- ------------------------------
<S> <C> <C>
American General International Growth Fund North American International Growth Fund International Growth Fund
American General Large Cap Growth Fund North American-Goldman Sachs Large Cap Growth Fund Goldman Sachs Large Cap Growth Fund
American General Mid Cap Growth Fund North American-INVESCO Mid Cap Growth Fund INVESCO Mid Cap Growth Fund
American General Small Cap Growth Fund North American-J.P. Morgan Small Cap Growth Fund J.P. Morgan Small Cap Growth Fund
American General International Value Fund No change International Value Fund
American General Large Cap Value Fund North American-State Street Large Cap Value Fund State Street Large Cap Value Fund
American General Mid Cap Value Fund North American-Neuberger Berman Mid Cap Value Fund Neuberger Berman Mid Cap Value Fund
American General Small Cap Value Fund North American-Small Cap Value Fund Small Cap Value Fund
American General Socially Responsible Fund North American-AG Socially Responsible Fund Socially Responsible Fund
American General Balanced Fund No change Balanced Fund
American General High Yield Bond Fund North American-AG High Yield Bond Fund High Yield Bond Fund
American General Strategic Bond Fund North American-AG Strategic Bond Fund Strategic Bond Fund
American General Domestic Bond Fund No change Domestic Bond Fund
American General Core Bond North American-AG Core Bond Fund Core Bond Fund
American General Money Market Fund North American-AG 2 Money Market Fund Money Market Fund
American General Aggressive Growth
Lifestyle Fund North American-AG Aggressive Growth Lifestyle Fund Aggressive Growth Lifestyle Fund
American General Moderate Growth
Lifestyle Fund North American-AG Moderate Growth Lifestyle Fund Moderate Growth Lifestyle Fund
American General Conservative Growth
Lifestyle Fund North American-AG Conservative Growth Lifestyle Fund Conservative Growth Lifestyle Fund
</TABLE>
SUMMARY OF NET ASSET VALUES PER SHARE
AND PER SHARE DISTRIBUTIONS
<TABLE>
<CAPTION>
Distributions from Net
Investment Income and
Net Realized Gains on
Net Asset Values (per share) Securities (per share)
---------------------------------- ----------------------
(unaudited)
August 31, February 29, August 31, 9/01/99 to 3/01/00 to
Fund 1999 2000 2000 2/29/00 8/31/00
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International Growth
Fund.................... $11.22 $15.53 $14.79 $ 0.64 $ --
Goldman Sachs Large Cap
Growth Fund............. 13.96 16.23 17.68 0.50 --
INVESCO Mid Cap Growth
Fund.................... 12.45 12.85 16.30 1.45 --
J.P. Morgan Small Cap
Growth Fund............. 14.86 27.70 23.24 1.57 --
International Value
Fund.................... 14.72 18.34 17.30 1.03 --
State Street Large Cap
Value Fund.............. 12.85 9.95 11.60 1.97 0.06
Neuberger Berman Mid Cap
Value Fund.............. 13.82 11.27 13.54 3.44 0.02
Small Cap Value Fund.... 10.48 10.46 11.73 0.42 0.08
Socially Responsible
Fund.................... 12.88 12.94 14.16 0.51 0.08
Balanced Fund........... 12.32 12.18 13.11 0.71 0.16
High Yield Bond Fund.... 9.69 9.49 9.28 0.46 0.50
Strategic Bond Fund..... 9.86 9.77 9.82 0.43 0.41
Domestic Bond Fund...... 9.43 9.27 9.45 0.27 0.28
Core Bond Fund.......... 9.58 9.43 9.46 0.30 0.31
Money Market Fund....... 1.00 1.00 1.00 0.03 0.03
Aggressive Growth
Lifestyle Fund.......... 12.77 14.15 14.89 1.52 0.04
Moderate Growth
Lifestyle Fund.......... 12.24 12.63 13.42 1.41 0.12
Conservative Growth
Lifestyle Fund.......... 11.73 10.69 11.33 2.29 0.16
</TABLE>
The change in net asset value of the funds will not be the same as the change
in the accumulation unit value of your annuity contract because (1) the change
in net asset value does not reflect the reinvestment of income and capital
gain distributions and (2) the mortality and expense charges described in your
annuity contract are not included.
[Graph Appears Here]
(1) Represents fund performance before subtracting expenses. See page three
for applicable fund expenses and fund level returns after expenses.
-------------------------------------------------------------------------------
<PAGE>
August 31, 2000 INTERNATIONAL GROWTH FUND 3
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
37.31% 28.86%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
International Salomon Bros
Growth Fund Primary Mkt Index
------------- ------------------
9/21/98 10,000 10,000
11/98 11,231 11,556
2/99 10,849 12,015
5/99 11,083 12,598
8/99 11,911 13,158
11/99 14,735 14,080
2/00 17,173 14,227
5/00 15,724 14,470
8/31/00 16,355 15,350
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $11,715,207
NAV on 08/31/00: $14.79
One year total return: 37.31%
Net expense ratio: 1.15%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with Thompson, Siegel & Walmsley, Inc.
How did the Fund perform relative to its benchmark?
The Fund returned 37.31% for the twelve months ending August 31, 2000 versus a
9.55% return for the MSCI EAFE index and a 16.66% return for the Salomon World
Primary Market Index.
How did market sectors perform over the last fiscal year?
Growth stocks on the whole outperformed value stocks through the end of March
of this year. The particular areas of strength were concentrated mainly in the
Telecommunications, Media and Technology sectors (TMT). Since the end of
March, TMT has underperformed the general market, although there have been
pockets of relative strength in areas such as telecommunications equipment and
software.
What were some of the dominant themes in the portfolio?
The dominant themes/sector weights during the year centered on the
telecommunication and digital media areas.
Telecommunications -- we were overweighted in both the fixed line and wireless
operators early in the fiscal year and were also present in the
telecommunications equipment suppliers.
Digital Media - we were overweighted in both the areas of electronic media and
manufacturers of digital consumer products.
These areas both contributed to performance.
Which portfolio holdings most enhanced the Fund's performance?
The top ten winners included telecommunications companies China Mobile,
China's largest mobile telephone operator, and Korea's SK Telecom. Alcatel,
the French telecommunications equipment manufacturer, also showed stellar
performance. Other outperformers included Amvescap, the fast growing asset
management company
Top 10 Holdings
1. Amvescap, Plc. .......... 3.00%
Cheung Kong Holdings,
2. Ltd. .................... 3.00%
Samsung Electronics -
3. GDR...................... 2.37%
4. Dresdner Bank............ 2.31%
5. Alstom................... 2.15%
6. Bnp Paribas.............. 2.04%
7. Akzo Nobel............... 2.04%
Ericsson LMTEL Co. - ADR
8. Series................... 2.01%
9. United Overseas Bank..... 1.99%
10. Aventis.................. 1.98%
Portfolio holdings are subject to change.
based in the U.K., and Aventis, the French pharmaceutical giant formed through
the merger of France's Rhone Poulenc and Germany's Hoescht.
Were there any disappointments in the Fund's portfolio?
A few stocks were disappointments during the year, including Dutch based
Getronics, the IT service company which recently merged with Wang of United
States. The expected upturn in revenue growth post the Y2K event failed to
materialize, causing a general slowdown in the sector. Other disappointments
included Sweden's Autoliv, which is the world leader in airbag and car safety
technology. Despite respectable operating performance the stock has continued
to underperform. We recently added BAe Systems (formerly British Aerospace) to
the portfolio, and although the company produced a record order book and has
good long-term earnings visibility, the stock has underperformed due to a
slightly disappointing first half earnings report. However, we remain
confident in the long-term fundamentals of these laggards and look for
outperformance in the months ahead.
What do you see ahead in the markets for the next fiscal year?
The international markets have been unsettled recently for two main reasons.
First, the historically high oil prices have led to fears of imported
inflation in both Europe and Asia. This in turn is forcing the European
Central Bank to take a fiscally tight stance. Higher interest rates will
ultimately lead to a slowing of growth in Europe, which will have a similar
effect in the rest of the world. The weak Euro is exacerbating the situation
and as long as the Euro continues to weaken versus the Dollar, the likelihood
of another rate hike for European Union countries increases.
Second, the anticipated slowing in the U.S. economy will likely lead to a
moderation of economic activity worldwide. While a soft landing in the U.S. is
expected, a more pronounced slowdown could lead to much weaker global growth
expectations especially in Latin America and Asia, which depend on the U.S. to
boost their export industries.
Our belief that oil prices are unlikely to remain at the current level for
long, and that while global economic growth is slowing, the slow down will be
moderate and not nearly as traumatic as the global emerging markets shock that
we witnessed in 1998. Despite the near term risks, we remain optimistic that
the recent period of volatility has created an excellent long-term buying
opportunity. We will continue to use our opportunistic bottom-up approach to
pick stocks which we believe are trading at a significant discount to their
intrinsic value, and expect that share prices will be higher in twelve months
than they are today.
-------------------------------------------------------------------------------
<PAGE>
4 INTERNATIONAL GROWTH FUND August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMON STOCK - 91.49%
AEROSPACE/DEFENSE - 1.91%
36,000 BAE Systems, Plc. ............................. $ 223,663
--------------
APPAREL & PRODUCTS - 2.65%
2,484 Christian Dior................................. 136,072
40,000 Li & Fung, Ltd. ............................... 174,375
--------------
310,447
--------------
AUTO - CARS - 1.92%
5,175 Renault, S.A. ................................. 224,585
--------------
AUTO - ORIGINAL EQUIPMENT - 1.67%
8,600 Autoliv, Inc. ................................. 195,941
--------------
BANKS - OTHER - 12.87%
3,200 Bank Austria AG................................ 171,040
77,400 Bank of East Asia Ltd. ........................ 180,616
2,600 Bnp Paribas.................................... 238,530
6,000 Dresdner Bank.................................. 270,175
43,000 Grupo Financiero Banamex Accival, S.A. de CV
(Banacci)...................................... 219,543
2,900 ING Groep NV................................... 193,820
29,784 United Overseas Bank........................... 233,593
--------------
1,507,317
--------------
BROADCASTING - 2.35%
56,500 Asia Satellite Telecom Holdings................ 165,169
1,700 * Grupo Televisa, S.A. .......................... 110,075
--------------
275,244
--------------
CHEMICAL - MISCELLANEOUS - 2.04%
5,402 Akzo Nobel..................................... 238,507
--------------
CONGLOMERATES - 3.61%
2,609 Lagardere S.C.A. .............................. 185,588
51,000 Marubeni Corp. ................................ 141,082
11,000 Sumitomo Corp. ................................ 95,930
--------------
422,600
--------------
CONSUMER FINANCE - 1.02%
1,400 Acom Co. ...................................... 119,336
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
DRUGS - 3.70%
4,400 Astrazeneca, Plc. ............................. $ 200,767
3,100 Aventis........................................ 232,192
--------------
432,959
--------------
ELECTRICAL EQUIPMENT - 1.95%
8,000 NEC Corp. ..................................... 228,807
--------------
ELECTRIC PRODUCTS -MISCELLANEOUS - 1.42%
14,000 Hitachi, Ltd. ................................. 165,810
--------------
ELECTRONIC EQUIPMENT - 6.32%
2,750 Alcatel SA - ADR............................... 227,906
11,500 Ericsson LMTEL Co. - ADR, Series B............. 235,750
2,200 * Samsung Electronics - GDR(/1/)
(Cost $256,675 purchased at 11/16/99, 01/04/00
& 08/31/00).................................... 277,200
--------------
740,856
--------------
FINANCE COMPANIES - 1.48%
1,300 Orix Corp. .................................... 173,105
--------------
FINANCIAL SERVICES - 4.64%
16,500 Amvescap, Plc. ................................ 351,710
13,500 Investor AB, Class B........................... 191,703
--------------
543,413
--------------
FOODS - 2.54%
3,000 Companhia de Brasileira - ADR.................. 111,938
136,400 Parmalat Finanziaria SPA....................... 185,589
--------------
297,527
--------------
HOUSEHOLD PRODUCTS - 1.65%
30,800 Unilever, Plc. ................................ 193,709
--------------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - 0.99%
10,100 Misys, Plc. ................................... 115,948
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INFORMATION PROCESSING -
COMPUTER SERVICES - 1.52%
7,300 Getronics NV...................................... $ 91,367
1,900 Pinkroccade NV.................................... 86,734
--------------
178,101
--------------
INSURANCE - MISCELLANEOUS - 0.37%
991 Scor.............................................. 43,570
--------------
INSURANCE - MULTILINE - 3.31%
10,600 Corporacion Mapfre................................ 168,185
31,400 Royal & Sun Alliance Insurance Group, Plc. ....... 219,983
--------------
388,168
--------------
MACHINERY -
INDUSTRIAL/SPECIALTY - 2.14%
11,228 Alstom............................................ 251,301
--------------
METALS - ALUMINUM - 1.31%
3,354 Pechiney, S.A., Class A........................... 153,109
--------------
METALS - STEEL - 2.41%
2,200 Boehler-Udeholm AG................................ 70,027
5,000 Pohang Iron & Steel, Ltd. - ADR................... 106,250
9,949 Usinor S.A. ...................................... 106,267
--------------
282,544
--------------
PAPER/FOREST PRODUCTS - 1.24%
20,100 Metsa Serla, Class B.............................. 145,206
--------------
PHOTOGRAPHY - 1.22%
4,000 Fuji Photo Film Co. .............................. 143,286
--------------
PUBLISHING - NEWS - 1.44%
15,500 News Corp, Ltd. .................................. 168,371
--------------
REAL ESTATE INVESTMENT TRUSTS - 3.00%
27,000 Cheung Kong Holdings, Ltd. ....................... 351,378
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 INTERNATIONAL GROWTH FUND - CONTINUED 5
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
TELECOMMUNICATIONS - 16.43%
9,200 British Telecommunications, Plc. .............. $ 117,127
24,000 China Mobile (Hong Kong)....................... 184,632
27 DDI Corp. ..................................... 212,678
4,900 Embratel Participacoes - ADR................... 107,187
12,200 * Global Telesystems, Inc. ...................... 105,225
14 NTT Corp. ..................................... 166,729
8,800 * SK Telecom Co., Ltd. - ADR..................... 225,500
11,748 Telefonica, S.A. .............................. 224,930
8,936 Telenorte Leste Partic - ADR................... 227,867
5,000 United Pan-Europe Communications NV............ 121,924
57,278 Vodafone Group, Plc. .......................... 231,476
--------------
1,925,275
--------------
UTILITIES - ELECTRIC - 0.98%
36,400 Hong Kong Electric Holdings, Ltd. ............. 115,277
--------------
UTILITIES - MISCELLANEOUS - 1.39%
3,400 E.ON AG........................................ 162,743
--------------
TOTAL COMMON STOCK
(Cost $9,275,511).............................. 10,718,103
--------------
<CAPTION>
PAR
VALUE
-----------
<C> <S> <C>
CORPORATE SHORT-TERM -
REPURCHASE AGREEMENT - 10.53%
BANKS OTHER - 10.53%
$ 1,234,000 State Street Bank, 6.42% dated 08/31/00, to be
repurchased at $1,234,220 on 09/01/00,
collateralized by U.S. Treasury Notes, 6.63%,
07/31/01, with a par value of $1,265,000
(Cost $1,234,000).............................. 1,234,000
--------------
TOTAL INVESTMENTS
(Cost $10,509,511) - 102.02%................... $ 11,952,103
--------------
* Non-income producing
</TABLE>
-----
(1) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be sold in transaction exempt from
registration, normally to qualified institutional buyers. At August 31,
2000, the aggregate value of this security was $277,200, representing 2.37%
of net assets.
--------------------------------------------------------------------------------
<PAGE>
6 GOLDMAN SACHS LARGE CAP GROWTH FUND August 31, 2000
Average Annual Total Return--Fund
<TABLE>
<S> <C>
1 Year Since Inception*
----------------------------------------------------------------------------
30.68% 35.57%
</TABLE>
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Goldman Sachs
Large Cap Russell 1000
Growth Fund Growth Index
------------- ------------------
9/21/98 10,000 10,000
11/98 11,242 11,584
2/99 12,488 12,759
5/99 12,990 13,035
8/99 13,811 13,726
11/99 15,067 15,232
2/00 16,568 16,811
5/00 15,976 16,293
8/31/00 18,048 18,318
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $35,982,877
NAV on 08/31/00: $17.68
One year total return: 30.68%
Net expense ratio: 0.86%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
Robert C. Jones
How did the Fund perform relative to the market and its benchmark?
For the one year average annual period ended August 31, 2000, the Fund
underperformed its benchmark, the Russell 1000 Growth Index/2/ (the "Index") by
278 basis points, returning 30.68% versus the Index's return of 33.46%. From
inception (9/21/98) through August 31, 2000, the Fund returned 35.57%,
annualized, underperforming the Index's return of 36.81% by 1.24%.
The Fund outperformed the market as measured by the S&P 500 Index. The S&P 500
Index returned 16.32% for the one year average annual and 24.17% from inception
through August 31, 2000.
How did the large-cap market perform over the past fiscal year?
Market Review: Increased Volatility and a Dramatic Correction--For the one-year
reporting period ended August 31, 2000, the U.S. stock market, as measured by
the S&P 500 Index, appreciated 16.27%. However, this masked the volatile nature
of the market. During the first half of the reporting period the markets rose,
however, the vast majority of the gains were generated by large growth and
technology-related stocks. Then, in mid-March, the markets abruptly corrected.
Continued strong economic growth, inflationary pressures and rising interest
rates were the main culprits.
While other types of stocks were dragged down during the correction, technology
issues experienced the brunt of the decline. At one point, the technology-heavy
NASDAQ composite was down 37% from its peak. While the Nasdaq posted a one-year
return of 53.37% for the period ended August 31, 2000, this was largely due to
the strong performance of technology stocks late in 1999 and in the summer of
2000. However, by the end of the reporting period, the Nasdaq was still off 19%
from its peak. In contrast, the S&P 500 Index, which also fell during the
middle of the period, recovered to the point that it was again nearing its
record high by the end of the August.
Indications of Slower Economic Growth--After a series of six short-term
interest rate hikes by the Federal Reserve Board (the "Fed") to slow economic
growth, the economy finally began to show signs of moderating during the
summer. As such, the Fed left rates unchanged during both its June and August
meetings. With the presidential race less than three months away it is unlikely
that the Fed will move to raise rates again before year-end.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. General Electric Co. .... 6.57%
2. Intel Corp. ............. 6.55%
3. Cisco Systems, Inc. ..... 6.11%
4. Pfizer, Inc. ............ 3.43%
5. Microsoft Corp. ......... 3.20%
6. EMC Corp. ............... 2.86%
7. Sun Microsystems, Inc. .. 2.75%
8. Oracle Corp. ............ 2.73%
9. Corning, Inc. ........... 2.10%
10. JDS Uniphase Corp........ 1.81%
</TABLE>
Portfolio holdings are subject to change.
What were some of the dominant themes in the portfolio?
The CORESM investment process analyzes each stock based upon its Value and
Momentum characteristics as well as a fundamental Research assessment. During
much of the reporting period, our themes produced erratic results, experiencing
some of the best and some of the worst months since inception. This was
typically the result of the dramatic shifts in investor preferences and the
extreme volatility in the financial markets. For example, during the second
quarter, the spread between the daily high and low prices for the NASDAQ
Composite index averaged 4.3%, versus the long-term average of 1.1%. In
addition, the monthly return dispersion (the spread between the best- and
worst-performing stocks) hit its highest level in over 20 years. However, in
July and August, market volatility decreased substantially and our themes
produced results that were closer to our expectations.
Which portfolio holdings most enhanced the Fund's performance?
The Fund's best performers were stocks in the technology and financial sectors.
Some examples of particularly strong contributors to relative return include:
. Technology holdings in Qualcomm, Apple Computer and Sun Microsystems up 27%,
92% and 173%, respectively;
. Financial holdings in Lehman Brothers Holdings, Inc up 178%.
Were there any disappointments in the Fund's portfolio?
The Fund's worst performers were stocks in the consumer cyclicals,
telecommunications and consumer non-cyclicals sectors. Some examples of
particularly weak contributors to relative return include:
. Consumer cyclicals holdings in Whirlpool Corp down 27%.
. Consumer non-cyclicals holdings in IBP Inc. down 35%.
. Telecommunication holdings in Nextel Communications down 25%.
What do you see ahead in the markets for the next fiscal period?
Using any number of measures, the market we've experienced during the last year
has been highly unusual. And while this year's high level of volatility was
difficult for novice and experienced investors alike, we believe it could serve
to be a positive for the long-term health of the financial markets, and it
created a number of investment opportunities. To a great extent, the very
speculative nature of the market that was driving returns has diminished, and
we are already beginning to see a return to more "normal" levels of volatility.
As always, the Fund remains fully invested in stocks. Our sector weightings and
distribution among size categories are targeted to stay close to those of the
Index, as do exposures to other risk factors (such as dividend yield). Based on
our extensive research, we continue to believe that cheaper stocks should
outpace more expensive ones, good momentum stocks should do better than poor
momentum stocks, high-earnings-quality stocks should perform better than those
with lower earnings quality as should those favored by research analysts. As
such, we anticipate remaining fully invested and expect that the value we add
over time will be due to exposures to our investment themes coupled with
careful management of portfolio risk.
----
/1/The Fund's performance reflects the reinvestment of dividends and
distributions
/2/The Index figures do not reflect any fees or expenses and assume
reinvestment of income. The Index is unmanaged.
CORESM is a service mark of Goldman, Sachs & Co.
Goldman, Sachs & Co., subadvisor to the Fund, is not a bank and Fund shares
subadvised by it are not deposits or obligations of, or guaranteed or endorsed
by any bank or other insured depository institution, and are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any
other government agency. Investment in the Fund involves risks, including
possible loss of principal.
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 GOLDMAN SACHS LARGE CAP GROWTH FUND 7
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMON STOCK - 98.89%
ADVERTISING - 0.36%
400 * Doubleclick, Inc. ................................. $ 16,276
1,100 Omnicom Group, Inc. ............................... 91,781
300 * TMP Worldwide, Inc. ............................... 20,756
-----------
128,813
-----------
AEROSPACE/DEFENSE - 0.64%
4,300 Boeing Co. ........................................ 230,588
-----------
APPAREL & PRODUCTS - 0.38%
1,900 Intimate Brands, Inc. ............................. 30,638
1,600 Talbots, Inc. ..................................... 107,100
-----------
137,738
-----------
AUTO - CARS - 0.83%
5,100 * General Motors Corp., Class H...................... 168,938
4,200 Hertz Corp., Class A............................... 128,625
-----------
297,563
-----------
BEVERAGE - SOFT DRINKS - 1.11%
2,800 Coca-Cola Co. ..................................... 147,350
3,100 Pepsi Bottling Group, Inc. (The)................... 98,425
3,600 PepsiCo, Inc. ..................................... 153,450
-----------
399,225
-----------
BROADCASTING - 0.24%
1,100 * Infinity Broadcasting Corp. ....................... 41,663
685 * Viacom, Inc., Class B.............................. 46,109
-----------
87,772
-----------
BUILDING MATERIALS - 1.39%
9,350 Home Depot, Inc. .................................. 449,384
1,100 Lowe's Companies, Inc. ............................ 49,294
-----------
498,678
-----------
CHEMICAL - MAJOR - 0.31%
4,200 Dow Chemical Co. .................................. 109,988
-----------
CHEMICAL - MISCELLANEOUS - 0.27%
2,200 Praxair, Inc. ..................................... 97,350
-----------
CONTAINERS - METAL/GLASS - 2.10%
2,300 Corning, Inc. ..................................... 754,256
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
DRUGS - 9.85%
3,200 Allergan, Inc. .................................... $ 234,000
2,000 ALPharma, Inc., Class A............................ 113,250
5,100 * Amgen, Inc. ....................................... 386,643
1,300 * Chiron Corp. ...................................... 70,280
5,000 Eli Lilly and Co. ................................. 365,000
1,700 * Forest Laboratories, Inc. ......................... 166,388
3,900 * IVAX Corp. ........................................ 135,038
8,400 Merck & Co., Inc. ................................. 586,950
1,000 * Millennium Pharmaceuticals, Inc. .................. 143,125
28,575 Pfizer, Inc. ...................................... 1,235,869
600 Pharmacia Corp. ................................... 35,138
1,800 Schering-Plough Corp. ............................. 72,225
-----------
3,543,906
-----------
ELECTRICAL EQUIPMENT - 0.18%
400 * Power-One, Inc. ................................... 63,375
-----------
ELECTRONIC EQUIPMENT - 7.48%
800 * American Power Conversion, Corp. .................. 19,049
1,500 * Amphenol Corp., Class A............................ 96,000
40,300 General Electric Co. .............................. 2,365,106
2,400 * Kemet Corp. ....................................... 72,000
1,400 Molex, Inc. ....................................... 73,938
1,000 * Teradyne, Inc. .................................... 64,813
-----------
2,690,906
-----------
ELECTRONIC INSTRUMENTS - 1.13%
900 * Arrow Electronics, Inc. ........................... 32,737
100 * Harmonic, Inc. .................................... 3,350
2,631 * Palm, Inc. ........................................ 115,764
800 Tektronix, Inc. ................................... 60,950
3,600 * Vishay Intertechnology, Inc. ...................... 145,125
600 * Waters Corp. ...................................... 47,738
-----------
405,664
-----------
ENTERTAINMENT - 1.75%
1,000 * Fox Entertainment Group, Inc. ..................... 28,938
4,200 Time Warner, Inc. ................................. 359,100
6,200 Walt Disney Co. ................................... 241,412
-----------
629,450
-----------
FINANCIAL SERVICES - 0.08%
100 * Ameritrade Holding Corp., Class A.................. 1,881
700 * Convergys Corp. ................................... 27,388
-----------
29,269
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
FOODS - 1.10%
8,500 ConAgra, Inc. ..................................... $ 155,655
4,200 Hormel Foods Corp. ................................ 64,838
6,600 IBP, Inc. ......................................... 106,013
3,000 Ralston Purina Co. ................................ 67,875
-----------
394,381
-----------
FOOTWEAR - 0.13%
1,200 NIKE, Inc., Class B................................ 47,475
-----------
HEALTHCARE - 0.75%
2,900 Cardinal Health, Inc. ............................. 237,256
600 * PacifiCare Health Systems, Inc., Class A........... 32,363
-----------
269,619
-----------
HOSPITAL SUPPLIES - 1.62%
3,700 Abbott Laboratories, Inc. ......................... 161,875
3,000 Johnson & Johnson.................................. 275,813
2,800 Medtronic, Inc. ................................... 143,500
-----------
581,188
-----------
HUMAN RESOURCES - 0.28%
3,200 * Robert Half International, Inc. ................... 101,800
-----------
INFORMATION PROCESSING - 2.13%
600 * Comverse Technology, Inc. ......................... 55,163
800 * Infospace, Inc. ................................... 31,200
5,240 * JDS Uniphase Corp. ................................ 653,035
400 * Lycos, Inc. ....................................... 28,400
-----------
767,798
-----------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - 9.04%
100 * Agile Software Corp. .............................. 6,944
300 * Art Technology Group, Inc. ........................ 30,581
700 * Broadcom Corp. .................................... 175,000
100 * E.pihpany, Inc. ................................... 10,400
500 * i2 Technologies, Inc. ............................. 84,594
400 * Inktomi Corp. ..................................... 52,150
200 * Internet Security Systems, Inc. ................... 16,200
300 * Kana Communications, Inc. ......................... 12,038
1,000 * Macrovision Corp. ................................. 106,625
16,500 * Microsoft Corp. ................................... 1,151,906
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
8 GOLDMAN SACHS LARGE CAP GROWTH FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - Continued
10,800 * Oracle Corp. ................................... $ 982,125
200 * Phone.com, Inc. ................................ 18,487
500 * Portal Software, Inc. .......................... 27,624
200 * Proxicom, Inc. ................................. 4,837
600 * TIBCO Software, Inc. ........................... 61,163
3,825 * Veritas Software Corp. ......................... 461,152
1,100 * Vignette Corp. ................................. 41,938
200 * Vitria Technology, Inc. ........................ 9,400
--------------
3,253,164
--------------
INFORMATION PROCESSING -
COMPUTER HARDWARE - 3.81%
2,600 * Apple Computer, Inc. ........................... 158,437
5,100 * Dell Computer Corp. ............................ 222,488
7,800 * Sun Microsystems, Inc. ......................... 990,113
--------------
1,371,038
--------------
INFORMATION PROCESSING -
COMPUTER SERVICES - 3.63%
100 * Alteon Websystems, Inc. ........................ 14,800
11,100 * America Online, Inc. ........................... 650,737
800 * Ariba, Inc. .................................... 125,900
700 Automatic Data Processing, Inc. ................ 41,738
100 * Checkfree Holdings Corp. ....................... 5,181
900 * CMGI, Inc. ..................................... 40,275
100 * Cnet Networks, Inc. ............................ 3,350
800 * Commerce One, Inc. ............................. 50,025
1,900 Electronic Data Systems Corp. .................. 94,644
200 * Internap Network Services Corp. ................ 7,200
500 * Rationale Software Corp. ....................... 64,344
100 * Scient Corp. ................................... 2,706
907 * VeriSign, Inc. ................................. 180,380
500 * Verticalnet, Inc. .............................. 26,625
--------------
1,307,905
--------------
INFORMATION PROCESSING -
CONSUMER SOFTWARE - 0.32%
1,000 * BroadVision Inc. ............................... 34,500
600 * Intuit, Inc. ................................... 35,925
300 * Macromedia, Inc. ............................... 20,733
300 * Networks Associates, Inc. ...................... 7,763
200 * Realnetworks, Inc. ............................. 9,738
200 * Red Hat, Inc. .................................. 5,024
--------------
113,683
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INFORMATION PROCESSING -
DATA SERVICES - 9.13%
1,000 Adobe Systems, Inc. ............................ $ 130,000
200 * At Home Corp. .................................. 2,912
1,900 * Bea Systems, Inc. .............................. 129,319
500 * Brocade Communication
Systems, Inc. .................................. 112,906
1,300 Comdisco, Inc. ................................. 31,200
1,200 * Computer Sciences Corp. ........................ 94,875
10,500 * EMC Corp. ...................................... 1,029,000
3,100 Hewlett Packard Co. ............................ 374,325
4,200 International Business
Machines Corp. ................................. 554,400
600 * Mercury Interactive Corp. ...................... 73,313
3,100 * Network Appliance, Inc. ........................ 362,700
400 * PSINet, Inc. ................................... 7,025
700 * Sandisk Corp. .................................. 58,450
400 * Sapient Corp. .................................. 21,000
800 * Siebel Systems, Inc. ........................... 157,600
1,200 * Yahoo!, Inc. ................................... 145,800
--------------
3,284,825
--------------
INFORMATION PROCESSING -
NETWORKING - 8.20%
1,300 3Com Corp. ..................................... 21,613
200 * Akamai Technologies, Inc. ...................... 15,113
32,100 * Cisco Systems, Inc. ............................ 2,198,850
100 * Digex, Inc. .................................... 8,468
1,900 * Exodus Communications, Inc. .................... 130,031
200 * Extreme Networks, Inc. ......................... 18,613
1,000 * Juniper Networks, Inc. ......................... 213,749
900 * PMC-Sierra, Inc. ............................... 212,400
600 * Redback Networks, Inc. ......................... 89,625
200 * RSA Security, Inc. ............................. 11,813
200 * Software.com, Inc. ............................. 29,113
--------------
2,949,388
--------------
MACHINERY - CONSTRUCTION &
CONTRACTS - 0.30%
1,100 * Calpine Corp. .................................. 108,900
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
MEDICAL TECHNOLOGY - 0.98%
600 * Cytyc Corp. .................................... $ 27,975
700 * Genentech, Inc. ................................ 133,349
500 * PE Corp. - Celera Genomics...................... 54,219
500 PE Corp. - PE Biosystems Group.................. 49,188
700 * Quest Diagnostics, Inc. ........................ 86,625
--------------
351,356
--------------
MERCHANDISE - DRUG - 0.35%
1,500 * Medimmune, Inc. ................................ 126,188
--------------
MERCHANDISE - SPECIALTY - 1.34%
800 * Amazon.com, Inc. ............................... 33,200
700 * Best Buy Co., Inc. ............................. 43,225
1,600 * Kohl's Corp. ................................... 89,600
8,000 Limited, Inc. .................................. 160,000
3,200 Tiffany & Co. .................................. 133,200
600 * Zale Corp. ..................................... 22,163
--------------
481,388
--------------
MERCHANDISING -
DEPARTMENT - 0.30%
1,200 * Federated Department Stores, Inc. .............. 33,150
3,200 Target Corp. ................................... 74,400
--------------
107,550
--------------
MERCHANDISING - FOOD - 0.16%
1,400 SYSCO Corp. .................................... 59,238
--------------
MERCHANDISING - MASS - 1.66%
800 * Dollar Tree Stores, Inc. ....................... 32,450
200 * Priceline.com, Inc. ............................ 5,437
4,600 Sears Roebuck and Co. .......................... 143,463
8,800 Wal-Mart Stores, Inc. .......................... 417,449
--------------
598,799
--------------
MISCELLANEOUS - 0.81%
1,082 * Agilent Technologies, Inc. ..................... 65,258
4,400 Avx Corp. ...................................... 131,725
500 * Ebay, Inc. ..................................... 31,000
173 * MarchFirst, Inc. ............................... 3,351
1,100 United Parcel Service, Inc., Class B............ 60,981
--------------
292,315
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 GOLDMAN SACHS LARGE CAP GROWTH FUND - CONTINUED 9
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
OIL - INTEGRATED DOMESTIC - 0.31%
1,800 Phillips Petroleum Co. ......................... $ 111,375
--------------
OIL - SERVICE - PRODUCTS - 0.24%
1,300 * BJ Services Co. ................................ 87,100
--------------
OIL - SERVICES - 0.36%
2,200 Devon Energy Corp. ............................. 128,838
--------------
OIL/GAS PRODUCERS - 0.23%
1,300 Apache Corp. ................................... 81,900
--------------
PUBLISHING - NEWS - 0.44%
800 Dow Jones & Co., Inc. .......................... 50,050
2,800 New York Times Co., Class A..................... 109,724
--------------
159,774
--------------
REAL ESTATE - 0.01%
100 * Homestore.com, Inc. ............................ 5,419
--------------
SECURITIES RELATED - 2.01%
2,000 A.G. Edwards, Inc. ............................. 104,000
5,000 Charles Schwab Corp. ........................... 190,937
500 * E*Trade Group, Inc. ............................ 8,875
1,800 Lehman Brothers Holdings, Inc. ................. 261,000
1,100 Merrill Lynch & Co., Inc. ...................... 159,500
--------------
724,312
--------------
SEMICONDUCTORS - 12.67%
4,600 * Advanced Micro Devices, Inc. ................... 173,074
1,400 * Altera Corp. ................................... 90,738
1,900 * Analog Devices, Inc. ........................... 190,950
1,600 * Applied Micro Circuits Corp. ................... 324,700
300 * Cree, Inc. ..................................... 41,325
500 * Integrated Device Technology, Inc. ............. 43,875
31,500 Intel Corp. .................................... 2,358,563
3,600 * Micron Technology, Inc. ........................ 294,300
3,600 Motorola, Inc. ................................. 129,825
800 * SDL, Inc. ...................................... 317,850
7,000 Texas Instruments, Inc. ........................ 468,563
1,400 * Xilinx, Inc. ................................... 124,424
--------------
4,558,187
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT - 1.10%
2,700 * Applied Materials, Inc. ........................ $ 233,043
200 * Globespan, Inc. ................................ 24,088
700 * KLA-Tencor Corp. ............................... 45,937
300 Newport Corp. .................................. 47,700
400 * QLogic Corp. ................................... 45,400
--------------
396,168
--------------
TELECOMMUNICATIONS - 6.84%
6,600 * ADC Telecommunications, Inc. ................... 270,187
900 * Advanced Fibre
Communications, Inc. ........................... 47,573
200 * Aether Systems, Inc. ........................... 27,700
900 * Allegiance Telecom, Inc. ....................... 44,831
3,465 AT&T Corp. ..................................... 109,147
7,200 * AT&T Corp. Wireless Group....................... 188,550
5,300 BCE, Inc. ...................................... 119,250
700 * CIENA Corp. .................................... 155,181
300 * Copper Mountain Networks, Inc. ................. 17,980
600 * Ditech Communications Corp. .................... 35,400
100 * Efficient Networks, Inc. ....................... 5,373
1,000 * Level 3 Communications, Inc. ................... 87,234
9,400 Lucent Technologies, Inc. ...................... 393,038
600 * Nextel Communications, Inc.,
Class A......................................... 33,263
1,000 * NEXTLINK Communications, Inc. .................. 35,063
1,242 Nortel Networks Corp. .......................... 101,301
900 * Powerwave Technologies, Inc. ................... 43,313
2,000 * QUALCOMM, Inc. ................................. 119,750
600 * RF Micro Devices, Inc. ......................... 26,775
900 * Sanmina Corp. .................................. 106,200
1,500 Scientific-Atlanta, Inc. ....................... 116,906
400 * Sycamore Networks, Inc. ........................ 54,800
1,100 * TeleTech Holdings, Inc. ........................ 35,888
600 * US Cellular Corp. .............................. 44,138
1,300 * West Teleservices Corp. ........................ 30,875
5,850 * Worldcom, Inc. ................................. 213,525
--------------
2,463,241
--------------
UTILITIES - COMMUNICATION - 0.37%
1,600 BellSouth Corp. ................................ 59,700
300 SBC Communications, Inc. ....................... 12,525
1,200 * Sprint Corp., PCS Group......................... 60,224
--------------
132,449
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
UTILITIES - ELECTRIC - 0.17%
1,400 Dynegy, Inc. .................................... $ 63,000
--------------
TOTAL COMMON STOCK
(Cost $27,720,712)............................... 35,584,302
--------------
<CAPTION>
PAR
VALUE
-----------
<C> <S> <C>
SHORT-TERM INVESTMENTS - 1.28%
U.S. TREASURY BILLS - 0.15%
$ 10,000 6.05% due 10/12/00.............................. 9,931
10,000 6.02% due 10/05/00.............................. 9,943
10,000 6.00% due 09/28/00.............................. 9,955
25,000 5.99% due 09/28/00.............................. 24,887
--------------
(Cost $54,716).................................. 54,716
--------------
REPURCHASE AGREEMENT -
BANKS - OTHER - 1.13%
406,000 State Street Bank,
6.42% dated 08/31/00, to be repurchased at
$406,072 on 09/01/00, collateralized by U.S.
Treasury Notes, 6.63%, 07/31/01, with a par value
of $420,000 (Cost $406,000)...................... 406,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $460,716).................................. 460,716
--------------
TOTAL INVESTMENTS
(Cost $28,181,428) - 100.17%..................... $ 36,045,018
--------------
* Non-income producing
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
<S> <C>
-------------------------------------------------------------------------------
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value at 08/31/00)
6(2) E-Mini S&P Futures
(September/$1,521)....................................... $ 5,223
--------------
</TABLE>
(1) U.S. Treasury Bills with a market value of approximately $55,000 were
maintained in a segregated account with a portion placed as collateral for
futures contracts.
(2) Per 50.
--------------------------------------------------------------------------------
<PAGE>
10 INVESCO MID CAP GROWTH FUND August 31, 2000
Average Annual Total Return--Fund
<TABLE>
<S> <C>
1 Year Since Inception*
----------------------------------------------------------------------------
46.25% 31.53%
</TABLE>
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Invesco
Mid Cap Russell Mid Cap
Growth Fund Growth Index
------------- ------------------
9/21/98 10,000 10,000
11/98 11,561 11,341
2/99 11,738 12,260
5/99 12,542 13,359
8/99 11,636 13,692
11/99 12,607 16,140
2/00 13,426 22,911
5/00 14,136 19,199
8/31/00 17,017 22,891
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $12,770,443
NAV on 08/31/00: $16.30
One year total return: 46.25%
Net expense ratio: 0.79%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
Eddie C. Brown
How did the Fund perform relative to its benchmark?
The fund underperformed its benchmark, the Russell Mid Cap Growth Index for the
year (through August 31, 2000). The account was up 46.25% vs. 67.18% for the
index.
How did the market sectors perform over the past fiscal year?
The Russell Mid Cap Growth Index was up 67.18% for the year, a very strong
performance. This was driven largely by a 150% return for the average
technology stock. Most of these were Internet-related companies.
What were some of the dominant themes in the portfolio?
There were heavy weights in Financials, Technology (though underweight the
benchmark due to valuation concerns), and Consumer Discretionary. The key
industries that we focused on were telecommunication equipment, business
software, semiconductors, and financial services.
What market sector or stocks enhanced the Fund's performance?
Cardinal Health, AES Corp., Health Management Associates, Amdocs, Kohl's,
Jabil, EMC Corp., Sanmina, Paychex, PE Biosystems, Altera, and ADC
Technologies.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. Cardinal Health, Inc. ... 3.65%
2. AES Corp. ............... 3.05%
3. Advent Software, Inc. ... 2.61%
4. Paychex, Inc. ........... 2.59%
5. Jabil Circuit, Inc. ..... 2.50%
6. Sanmina Corp. ........... 2.49%
7. Century Tel, Inc. ....... 2.48%
Flextronics
International, Ltd.
8. (Singapore).............. 2.48%
9. EMC Corp. ............... 2.46%
10. Altera Corp. ............ 2.44%
</TABLE>
Portfolio holdings are subject to change.
Which market sector or stocks were disappointing for the Fund?
Compuware, Quintile Transnational, Covance, Transaction Systems Architects,
Omnicare, Keane, Dial Corp., Sylvan Learning, and Newell Rubbermaid.
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 INVESCO MID CAP GROWTH FUND 11
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMON STOCK - 95.39%
ADVERTISING - 2.11%
6,300 * Catalina Marketing Corp. ....................... $ 268,931
--------------
APPAREL & PRODUCTS - 2.24%
6,900 Cintas Corp. ................................... 286,781
--------------
AUTO - ORIGINAL EQUIPMENT - 1.85%
4,200 Danaher Corp. .................................. 235,988
--------------
BUILDING MATERIALS - 1.75%
3,500 Fastenal Co. ................................... 223,563
--------------
CONSUMER FINANCE - 1.47%
7,400 Equifax, Inc. .................................. 188,238
--------------
DRUGS - 1.87%
1,700 * ALZA Corp. ..................................... 128,563
10,600 * Covance, Inc. .................................. 109,975
--------------
238,538
--------------
ELECTRONIC INSTRUMENTS - 2.48%
3,800 * Flextronics International,
Ltd. (Singapore)................................ 316,588
--------------
ENTERTAINMENT - 2.43%
15,600 Carnival Corp., Class A......................... 311,025
--------------
FINANCIAL SERVICES - 2.41%
6,800 T. Rowe Price Associates, Inc. ................. 307,700
--------------
GOVERNMENT SPONSORED - 1.50%
4,900 USA Education, Inc. ............................ 192,019
--------------
HEALTHCARE - 7.57%
5,700 Cardinal Health, Inc. .......................... 466,330
9,800 * HCR Manor Care, Inc. ........................... 131,075
17,000 * Health Management Association................... 277,313
6,600 * Quintiles Transnational Corp. .................. 91,988
--------------
966,706
--------------
HOUSEHOLD PRODUCTS - 0.99%
4,900 Newell Rubbermaid, Inc. ........................ 127,094
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
HUMAN RESOURCES - 0.85%
3,400 * Robert Half International, Inc. ................ $ 108,163
--------------
INFORMATION PROCESSING - 4.86%
6,400 * Acxiom Corp. ................................... 163,200
5,400 * Advent Software, Inc. .......................... 332,775
8,400 * Fritz Companies, Inc. .......................... 124,425
--------------
620,400
--------------
INFORMATION PROCESSING -
COMPUTER HARDWARE - 2.50%
5,000 * Jabil Circuit, Inc. ............................ 319,063
--------------
INFORMATION PROCESSING -
COMPUTER SERVICES - 4.51%
7,425 Paychex, Inc. .................................. 331,341
1,900 * Rationale Software Corp. ....................... 244,506
--------------
575,847
--------------
INFORMATION PROCESSING -
CONSUMER SOFTWARE - 0.89%
4,400 * Networks Associates, Inc. ...................... 113,850
--------------
INFORMATION PROCESSING -
DATA SERVICES - 11.49%
2,900 * BISYS Group, Inc. .............................. 218,407
18,900 * Compuware Corp. ................................ 199,631
3,200 * EMC Corp. ...................................... 313,600
5,100 * Fiserv, Inc. ................................... 276,356
6,800 * Solectron Corp. ................................ 308,125
8,200 * Transaction Systems Architects, Inc., Class A... 150,675
--------------
1,466,794
--------------
INSURANCE - MULTILINE - 1.61%
3,800 AFLAC, Inc. .................................... 205,200
--------------
LEISURE TIME - 1.68%
4,300 Harley-Davidson, Inc. .......................... 214,194
--------------
MEDICAL TECHNOLOGY - 4.04%
4,300 * Guidant Corp. .................................. 289,443
2,300 PE Corp. - PE Biosystems Group.................. 226,263
--------------
515,706
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
MERCHANDISE - SPECIALTY - 5.06%
10,096 Dollar General Corp. ........................... $ 207,599
2,700 * Kohl's Corp. ................................... 151,200
7,800 * Staples, Inc. .................................. 119,925
8,900 TJX Companies, Inc. ............................ 167,430
--------------
646,154
--------------
MERCHANDISING - MASS - 1.86%
5,850 * Dollar Tree Stores, Inc. ....................... 237,291
--------------
OIL - SERVICES - 1.43%
2,300 * Smith International, Inc. ...................... 182,850
--------------
SECURITIES RELATED - 4.18%
6,000 Franklin Resources, Inc. ....................... 228,000
5,800 Legg Mason, Inc. ............................... 305,949
--------------
533,949
--------------
SEMICONDUCTORS - 8.41%
4,800 * Altera Corp. ................................... 311,100
9,400 * Atmel Corp. .................................... 188,000
4,700 * Conexant Systems, Inc. ......................... 174,781
2,700 * Vitesse Semiconductor Corp. .................... 239,794
1,800 * Xilinx, Inc. ................................... 159,974
--------------
1,073,649
--------------
TELECOMMUNICATIONS - 8.79%
7,200 * ADC Telecommunications, Inc. ................... 294,750
2,700 * Amdocs, Ltd. ................................... 192,881
11,000 CenturyTel, Inc. ............................... 316,938
2,700 * Sanmina Corp. .................................. 318,599
--------------
1,123,168
--------------
UTILITIES - ELECTRIC - 4.56%
6,100 * AES Corp. ...................................... 388,875
4,300 Dynegy, Inc. ................................... 193,500
--------------
582,375
--------------
TOTAL COMMON STOCK
(Cost $9,346,795)............................... 12,181,824
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
12 INVESCO MID CAP GROWTH FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
CORPORATE SHORT-TERM
REPURCHASE AGREEMENT - 9.96%
BANKS - OTHER - 9.96%
$ 1,272,000 State Street Bank, 6.42% dated 08/31/00, to be
repurchased
at $1,272,227 on 09/01/00, collateralized by U.S.
Treasury Notes, 6.63%, 07/31/01, with
a par value of $1,305,000
(Cost $1,272,000)................................ $ 1,272,000
--------------
TOTAL INVESTMENTS
(Cost $10,618,795) - 105.35%..................... $ 13,453,824
--------------
* Non-income producing
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 J.P. MORGAN SMALL CAP GROWTH FUND 13
Average Annual Total Return--Fund
<TABLE>
<S> <C>
1 Year Since Inception*
----------------------------------------------------------------------------
68.91% 54.86%
</TABLE>
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
J.P. Morgan
Small Cap Russell 2000
Growth Fund Growth Index
------------- ------------------
9/21/98 10,000 10,000
11/98 11,403 11,391
2/99 12,105 11,793
5/99 12,702 13,312
8/99 13,831 13,072
11/99 17,962 15,111
2/00 27,845 21,706
5/00 17,511 15,934
8/31/00 23,362 18,181
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $33,999,514
NAV on 08/31/00: $23.24
One year total return: 68.91%
Net expense ratio: 1.16%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with J.P. Morgan
How did the Fund perform relative to its market and its benchmark?
The Fund (+68.91%) outperformed the Russell 2000 Growth Index (+39.08%) by
approximately 30% for the year as a result of very strong stock selection.
How did the small cap market perform over the past fiscal year?
The small cap market was one of the top performing asset classes for the
period, as the broad market Russell 2000 Index returned approximately 27.15%.
The Fund's benchmark, the Russell 2000 Growth Index, returned approximately
39.08% during the same period. Returns in the small-cap market as a whole are
still benefiting from the exceptional performance of technology-related stocks
from late 1999 into the beginning of 2000.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. Human Genome Sciences,
Inc. .................... 2.45%
2. Vertex Pharmaceuticals,
Inc. .................... 2.05%
3. Polycom, Inc. ........... 1.96%
4. Gilead Sciences, Inc. ... 1.80%
5. Exar Corp. .............. 1.80%
6. Mercury Interactive
Corp. ................... 1.75%
7. Abgenix, Inc. ........... 1.71%
8. Millennium
Pharmaceuticals, Inc. ... 1.59%
9. Catalina Marketing
Corp. ................... 1.56%
10. Smartforce Plc
(Ireland)................ 1.50%
</TABLE>
Portfolio holdings are subject to change.
What were some of the dominant themes in the portfolio?
Our focus in the pharmaceuticals sector has been biotechnology companies. On
balance, the market environment has been positive for biotech companies,
especially those with strong drug development pipelines. That environment
combined with very strong stock selection in the group has had a positive
impact on the Fund's performance. More recently, with respect to
telecommunications companies our focus has shifted from service providers to
equipment providers. Increasing competition and decreasing pricing power among
service providers represent a cause for concern in that group.
Which portfolio holdings most enhanced the Fund's performance?
Human Genome Sciences (pharmaceuticals), Vertex Pharmaceuticals
(pharmaceuticals) and Exar Corp (semiconductors) were among the stocks that
contributed most to the Fund's performance for the period.
Were there any disappointments in the Fund's portfolio?
Broadvision (software & services), Mediaplex (consumer cyclical), and Sandisk
Corp (technology hardware) were among the stocks that detracted most from the
Fund's performance for the period.
What do you see ahead in the markets for the next fiscal period?
If the Federal Reserve decides to lower rates next year, that could lead to a
rally in cyclical stocks, so one point of focus for us is controlling our
exposure in that area. In addition, we expect to see continued volatility and
have positioned the Fund to benefit from a broadening market. Individual
security selection and multi-sector exposure remain our primary means of
enhancing return and managing risk.
-------------------------------------------------------------------------------
<PAGE>
14 J.P. MORGAN SMALL CAP GROWTH FUND August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMON STOCK - 94.71%
ADVERTISING - 2.50%
12,400 * Catalina Marketing Corp. ....................... $ 529,325
3,875 * Getty Images, Inc. ............................. 162,750
6,500 * Ticket Master Online - City Search, Inc. ....... 156,406
--------------
848,481
--------------
AEROSPACE/DEFENSE - 0.15%
2,100 * The Titan Corp. ................................ 51,713
--------------
APPAREL & PRODUCTS - 1.12%
4,300 * Abercrombie and Fitch Co. ...................... 99,706
6,900 * Guess?, Inc. ................................... 156,544
9,250 * Pacific Sunwear of California, Inc. ............ 123,141
--------------
379,391
--------------
AUTO - REPLACEMENT PARTS - 0.41%
9,100 Gentek, Inc. ................................... 138,775
--------------
BANKS - REGIONAL - 0.49%
2,125 City National Corp. ............................ 83,008
4,300 National Commerce Bancorp. ..................... 83,044
--------------
166,052
--------------
BEVERAGE - BREWERS/DISTRIBUTORS - 0.69%
5,700 * Robert Mondavi Corp., Class A................... 233,700
--------------
BROADCASTING - 0.40%
5,975 * Insight Communications Co. ..................... 106,430
3,100 * Spanish Broadcasting Systems, Inc., Class A..... 31,193
--------------
137,623
--------------
CHEMICAL - MAJOR - 0.66%
9,000 Albemarle Corp. ................................ 223,313
--------------
CHEMICAL - MISCELLANEOUS - 2.03%
6,925 Geon Co. ....................................... 120,755
9,175 Georgia Gulf Corp. ............................. 119,275
4,875 Minerals Technologies, Inc. .................... 252,890
4,200 OM Group, Inc. ................................. 198,975
--------------
691,895
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
COMMERCIAL SERVICES - 0.29%
9,425 * NBC Internet, Inc., Class A.................... $ 98,963
--------------
DRUGS - 11.94%
1,510 * 3 Dimensional Pharmaceutical, Inc. ............ 58,701
7,750 * Abgenix, Inc. ................................. 582,582
5,550 Bindley Western Industries, Inc. .............. 159,909
3,150 * Charles River Laboratories International,
Inc. .......................................... 86,428
5,025 * Corixa Corp. .................................. 257,217
5,000 * Human Genome Sciences, Inc. ................... 834,688
2,575 * IDEC Pharmaceuticals Corp. .................... 359,534
1,975 * Ilex Oncology Inc. ............................ 65,175
17,800 * Ligand Pharmaceuticals, Inc., Class B.......... 231,400
3,775 * Millennium Pharmaceuticals, Inc. .............. 540,298
4,550 * Neurocrine Biosciences, Inc. .................. 188,256
8,200 * Vertex Pharmaceuticals, Inc. .................. 697,000
--------------
4,061,188
--------------
ELECTRICAL EQUIPMENT - 0.89%
1,600 * Active Power, Inc. ............................ 112,400
4,600 * August Technology Corp. ....................... 60,375
1,400 * Capstone Turbine Corp. ........................ 129,238
--------------
302,013
--------------
ELECTRONIC EQUIPMENT - 0.99%
6,625 * Electro Scientific Industries, Inc. ........... 272,867
3,500 * Genesis Microchip, Inc. ....................... 62,781
--------------
335,648
--------------
ELECTRONIC INSTRUMENTS - 1.53%
4,675 * Lattice Semiconductor Corp. ................... 364,066
1,875 * Molecular Devices Corp. ....................... 155,273
--------------
519,339
--------------
FINANCE COMPANIES - 0.36%
5,800 * Financial Federal Corp. ....................... 123,250
--------------
FINANCIAL SERVICES - 1.07%
4,700 * Ameritrade Holding Corp., Class A.............. 88,419
7,150 Heller Financial, Inc. ........................ 177,856
2,992 Southwest Securities Group, Inc. .............. 99,297
--------------
365,572
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
FOODS - 1.01%
4,275 Keebler Foods Co. ............................. $ 195,848
3,950 * Symx Technologies, Inc. ....................... 146,644
--------------
342,492
--------------
FOOTWEAR - 0.10%
1,900 * Skechers USA, Inc., Class A.................... 33,844
--------------
HEALTHCARE - 1.76%
3,825 * Accredo Health Inc. ........................... 165,670
1,950 * Diversa Corp. ................................. 55,575
8,250 Hooper Holmes, Inc. ........................... 96,422
4,875 * Kensey Nash Corp. ............................. 62,766
8,000 Omnicare, Inc. ................................ 109,500
1,430 * Rosetta Inpharmatics, Inc. .................... 50,586
3,500 * Staar Surgical Co. ............................ 58,406
--------------
598,925
--------------
HOUSEHOLD PRODUCTS - 0.40%
4,075 * Cost Plus, Inc. ............................... 137,022
--------------
INFORMATION PROCESSING - 0.17%
1,800 * Internet.Com Corp. ............................ 56,700
--------------
INFORMATION PROCESSING - BUSINESS SOFTWARE -
11.34%
5,900 * Agile Software Corp. .......................... 409,681
5,100 * Allaire Corp. ................................. 173,081
3,875 * Art Technology Group, Inc. .................... 395,008
3,900 * Aspen Technology, Inc. ........................ 179,156
2,300 * Clarent Corp. ................................. 109,825
6,450 * Corillian Corp. ............................... 50,391
1,550 * E.pihpany, Inc. ............................... 161,200
7,750 * Ibeam Broadcasting Corp. ...................... 82,344
4,125 * Informatica Corp. ............................. 412,500
4,050 * Internet Security Systems, Inc. ............... 328,050
540 * McData Corp. .................................. 58,084
325 * Nuance Communications, Inc. ................... 42,778
3,650 * Peregrine Systems, Inc. ....................... 116,572
5,650 * Quest Software, Inc. .......................... 291,681
7,000 * Quintus Corp. ................................. 91,438
5,775 * Retek, Inc. ................................... 198,877
2,600 * Sequoia Software Corp. ........................ 29,250
4,400 * Software Technologies Corp. ................... 85,800
4,275 * Sonic Foundry, Inc. ........................... 39,811
3,950 * Tumbleweed Communications Corp. ............... 247,369
6,700 * Webtrends Corp. ............................... 252,401
5,125 * Witness Systems, Inc. ......................... 101,859
--------------
3,857,156
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 J.P. MORGAN SMALL CAP GROWTH FUND - CONTINUED 15
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
INFORMATION PROCESSING - COMPUTER HARDWARE -
6.44%
1,900 * Caliper Technologies Corp. .................... $ 118,038
11,200 * Certicom Corp. (Canada)........................ 375,200
1,950 * DDI Corp. ..................................... 74,344
4,300 * Integrated Circuit Systems, Inc. .............. 118,250
4,425 * JNI Corp. ..................................... 297,028
4,875 * M-Systems Flash Disk Pioneers Ltd. ............ 381,469
3,000 * Optimal Robotics Corp. (Canada)................ 100,125
11,800 * Silicon Image, Inc. ........................... 433,650
4,225 * Virata Corp. .................................. 290,468
--------------
2,188,572
--------------
INFORMATION PROCESSING - COMPUTER SERVICES -
5.14%
2,300 * Alteon Websystems, Inc. ....................... 340,400
7,725 * Espeed, Inc. .................................. 237,544
6,875 * Keynote Systems, Inc. ......................... 207,969
5,625 * Netegrity, Inc. ............................... 495,000
1,200 * Netratings, Inc. .............................. 20,775
6,700 * Synquest, Inc. ................................ 52,553
4,150 * Vicinity Corp. ................................ 46,168
4,625 * Wireless Facilities, Inc. ..................... 346,874
--------------
1,747,283
--------------
INFORMATION PROCESSING - DATA SERVICES - 3.27%
200 * Excalibur Technologies Corp. .................. 9,500
4,875 * Mercury Interactive Corp. ..................... 595,664
9,775 * Smartforce, Plc. - ADR (Ireland)............... 508,300
--------------
1,113,464
--------------
INFORMATION PROCESSING -
NETWORKING - 5.67%
350 * Avici Systems, Inc. ........................... 52,434
4,200 * Digital Island, Inc. .......................... 124,688
5,650 * GoAmerica, Inc. ............................... 61,797
2,900 * Information Resource Engineer, Inc. ........... 104,400
4,225 * Metasolv Software, Inc. ....................... 172,697
1,500 * Metawave Communications Corp. ................. 30,938
4,225 * Net2phone, Inc. ............................... 124,902
4,725 * Netro Corp. ................................... 390,402
4,800 * Packeteer, Inc. ............................... 231,000
2,100 * Redback Networks, Inc. ........................ 313,688
4,300 * Turnstone Systems, Inc. ....................... 253,163
2,000 * U S Wireless Corp. ............................ 26,000
700 * Ulticom, Inc. ................................. 41,474
--------------
1,927,583
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
LEISURE TIME - 1.54%
7,325 * American Classic Voyages Co. .......... $ 124,525
3,625 * Anchor Gaming.......................... 265,531
5,600 * Meade Instruments Corp. ............... 134,400
--------------
524,456
--------------
MACHINERY - INDUSTRIAL/SPECIALTY -
0.14%
2,000 * GaSonics International Corp. .......... 48,000
--------------
MACHINE TOOLS - 2.59%
5,675 * Gilead Sciences, Inc. ................. 612,900
5,175 * PRI Automation, Inc. .................. 267,159
--------------
880,059
--------------
MEDICAL TECHNOLOGY - 3.61%
8,400 * Akorn, Inc. ........................... 85,575
1,290 * Arena Pharmaceuticals, Inc. ........... 59,663
1,170 * Brucker Daltronics, Inc. .............. 58,793
6,200 * Cyberonics, Inc. ...................... 101,913
4,040 * Deltagen, Inc. ........................ 116,655
8,900 * Eclipse Surgical Tech, Inc. ........... 35,044
4,800 * Enzon, Inc. ........................... 292,200
2,000 * Exelixis, Inc. ........................ 90,000
2,360 Fresenius Medical Care AG - ADR
(Germany).............................. 35,990
875 * Maxygen, Inc. ......................... 47,031
4,125 * Oratec Interventions, Inc. ............ 146,694
2,325 * Orchid Biosciences, Inc. .............. 104,480
2,500 * Transgenomic, Inc. .................... 52,500
--------------
1,226,538
--------------
MERCHANDISE - SPECIALTY - 0.32%
3,200 * BJ's Wholesale Club, Inc. ............. 108,400
--------------
MISCELLANEOUS - 1.96%
5,925 * Polycom, Inc. ......................... 665,822
--------------
NATURAL GAS - DIVERSIFIED - 0.16%
1,675 * Universal Compression Holdings, Inc. .. 55,066
--------------
OIL - SERVICE - PRODUCTS - 0.96%
2,150 * Cooper Cameron Corp. .................. 167,297
10,000 * Global Industries, Inc. ............... 124,375
1,825 * Gulf Island Fabrication, Inc. ......... 33,763
--------------
325,435
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
OIL - SERVICES - 1.46%
8,825 * Core Laboratories N.V. (Netherlands)............ $ 169,881
2,400 Devon Energy Corp. ............................. 140,550
5,750 * Global Marine, Inc. ............................ 185,797
--------------
496,228
--------------
OIL/GAS PRODUCERS - 1.15%
10,750 * Spinnaker Exploration Co. ...................... 391,031
--------------
PHOTOGRAPHY - 0.45%
5,300 * Lexar Media, Inc. .............................. 80,659
2,500 * Photronics, Inc. ............................... 73,281
--------------
153,940
--------------
PUBLISHING/PRINTING - 0.44%
5,125 * Valassis Communications, Inc. .................. 147,984
--------------
REAL ESTATE INVESTMENT TRUSTS - 0.62%
10,450 Allied Capital Corp. ........................... 211,613
--------------
RESTAURANTS - 0.07%
990 * California Pizza Kitchen, Inc. ................. 24,688
--------------
SECURITIES RELATED - 0.51%
1,950 Donaldson, Lufkin & Jenrette, Inc. ............. 172,575
--------------
SEMICONDUCTORS - 4.40%
19,250 C-Cube Microsystems, Inc. ...................... 447,563
5,075 * Exar Corp. ..................................... 612,172
1,010 * Newfocus, Inc. ................................. 139,443
2,300 * Silicon Laboratories, Inc. ..................... 138,863
2,650 * TranSwitch Corp. ............................... 159,496
--------------
1,497,537
--------------
SEMICONDUCTOR EQUIPMENT - 2.27%
6,800 * ATMI, Inc. ..................................... 182,219
2,900 * HI/FN, Inc. .................................... 184,150
8,400 * LAM Research Corp. ............................. 253,050
2,250 * Microchip Technology, Inc. ..................... 153,140
--------------
772,559
--------------
TELECOMMUNICATIONS - 9.36%
9,400 * Advanced Fibre Communications, Inc. ............ 496,878
2,225 * Anaren Microwave, Inc. ......................... 262,689
4,400 * Apropos Technology, Inc. ....................... 56,100
7,950 * Choice One Communications, Inc. ................ 127,200
5,425 * Diamond Tech Partners, Inc. .................... 346,183
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
16 J.P. MORGAN SMALL CAP GROWTH FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
TELECOMMUNICATIONS - Continued
1,475 * Ditech Communications Corp. ................... $ 87,025
6,300 * DSET Corp. .................................... 170,494
4,000 * Dycom Industries, Inc. ........................ 212,000
1,000 * Flag Telecom Holdings, Ltd. (Bermuda).......... 15,625
12,275 * Ibasis, Inc. .................................. 254,706
6,000 * ITC (Delta symbol) Deltacom, Inc............... 84,750
2,600 * MMC Networks, Inc. ............................ 316,713
3,550 * Motient Corp. ................................. 43,044
4,800 * Mpower Communications Corp. ................... 88,500
4,040 * SBA Communications Corp. ...................... 180,285
2,780 * Sunrise Telecom, Inc. ......................... 124,926
2,440 * Telecommunication Systems, Inc., Class A....... 69,997
3,000 * TeleCorp PCS, Inc. ............................ 105,750
4,000 * Vyyo, Inc. .................................... 138,000
--------------
3,180,865
--------------
TEXTILE - PRODUCTS - 0.78%
21,850 Wellman, Inc. ................................. 263,566
--------------
UTILITIES - GAS, DISTRIBUTION - 1.10%
10,775 * National-Oilwell, Inc. ........................ 373,758
--------------
TOTAL COMMON STOCK
(Cost $26,108,262)............................. 32,200,077
--------------
<CAPTION>
PAR
VALUE
-----------
<C> <S> <C>
CORPORATE SHORT-TERM -
REPURCHASE AGREEMENT - 4.59%
$ 1,562,000 BANKS - OTHER - 4.59%
State Street Bank, 6.42% dated 08/31/00, to be
repurchased
at $1,562,279 on 09/01/00, collateralized by
U.S. Treasury Notes, 6.63%, 07/31/01, with a
par value of $1,600,000
(Cost $1,562,000).............................. 1,562,000
--------------
TOTAL INVESTMENTS
(Cost $27,670,262) - 99.30%.................... $ 33,762,077
--------------
*Non-income producing
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 INTERNATIONAL VALUE FUND 17
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
24.50% 40.72%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
International Salomon Bros
Value Fund Primary Mkt Index
------------- ------------------
9/21/98 10,000 10,000
11/98 11,877 11,557
2/99 12,608 12,015
5/99 13,571 12,598
8/99 15,582 13,158
11/99 18,027 14,080
2/00 20,565 14,227
5/00 18,984 14,470
8/31/00 19,399 15,350
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $13,237,027
NAV on 08/31/00: $17.30
One year total return: 24.50%
Net expense ratio: 1.04%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with Capital Guardian Trust Co.
How did the Fund perform relative to its benchmark?
Over the one year period ended August 31, 2000, the Fund outperformed the
benchmark by 7.84%.
How did market sector perform over the last fiscal year?
World market performance for most of the past year were led by continental
European countries, particularly Finland, Sweden, Denmark and France. More
recently, however, the pacific region has begun to show signs of recovery
particularly in Japan where economic growth is beginning to improve. Non-US
markets in aggregate underperformed the US market as the S&P 500 Index
returned 16.32% while the MSCI EAFE, Emerging Markets Free, and World ex-US
Indexes returned 9.6%, 6.3% and 12.5%, respectively.
What were some of the dominant themes in the portfolio?
TMT or Technology, Media and Telecommunications companies have been the major
theme in the portfolio for some time now. This was beneficial through most of
the year with the exception of the second quarter of 2000. Fortunately, the
portfolio took advantage of some opportunities in the consumer foods and
beverages group earlier in the year which dampened the effect of the pull back
in technology that occurred in the second quarter.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. Vodafone Group Plc. ..... 3.66%
2. Nokia Oyj................ 2.62%
3. Sony Corp. .............. 2.61%
4. NEC Corporation.......... 2.38%
5. Tokyo Electron, Limited.. 2.12%
6. Taiwan Semiconductor -
ADR...................... 1.89%
7. Astrazeneca, Plc. (SEK).. 1.81%
8. NTT Docomo Inc. ......... 1.80%
9. Lloyds TSB Group, Plc.... 1.71%
10. ASM Lithography Holdings,
N.V. .................... 1.62%
</TABLE>
Portfolio holdings are subject to change.
What do you see ahead in the markets for the next fiscal year?
With the strong comeback in many of the consumer and financial companies we
favored, we are beginning to take profits in these sectors and look at some
more reasonable values in the TMT industries. We also plan to remain
positioned in European exporters from a variety of industries. The weakness in
the euro has allowed exporters to hedge forward their exposure to the dollar
and the yen. Should the euro remain range-bound, many of the exporters we
favor that already offer double-digit sales growth could show solid earnings
results for some time to come.
-------------------------------------------------------------------------------
<PAGE>
18 INTERNATIONAL VALUE FUND August 31, 2000
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMON STOCK - 93.34%
AEROSPACE/DEFENSE - 0.21%
4,510 BAE Systems, Plc. .................................. $ 28,020
-----------
AIRLINES - 0.27%
2,200 British Airways, Plc. .............................. 10,451
1,000 KLM-Konin Luchtvaart Mij NV......................... 24,952
-----------
35,403
-----------
APPAREL & PRODUCTS - 0.64%
1,200 Hagemeyer NV........................................ 34,283
4,000 Li & Fung, Ltd. .................................... 17,437
700 Societe BIC, S.A. .................................. 32,916
-----------
84,636
-----------
AUTO - CARS - 2.68%
1,300 Bayerische Motoren Werke AG......................... 41,945
600 Daimlerchrysler AG.................................. 30,901
400 Fiat SpA............................................ 9,885
2,670 Fiat SpA Private.................................... 40,257
2,528 * Hyundai Motor Co.(/1/)
(Cost $25,686 purchased at 09/16/99 & 11/29/99)..... 19,153
10,000 Mitsubishi Motors Corp. ............................ 31,883
13,000 Nissan Motor Co. ................................... 65,341
450 Peugeot, S.A. ...................................... 82,927
3,000 Suzuki Motor Corp. ................................. 31,817
-----------
354,109
-----------
AUTO - ORIGINAL EQUIPMENT - 0.20%
2,000 GKN, Plc. .......................................... 26,045
-----------
AUTO - REPLACEMENT PARTS - 0.27%
1,200 Michelin (CDGE), Class B............................ 35,101
-----------
BANKS - OTHER - 7.59%
4,791 ABN Amro Holding NV................................. 118,910
4,039 Allied Irish Banks, Plc. ........................... 33,224
10,407 Austrailia & New Zealand Banking Group, Ltd. ....... 78,352
4,000 Banco Bilboa Vizcaya................................ 59,247
2,500 Bank of Nova Scotia................................. 65,859
700 Dresdner Bank....................................... 31,520
4,150 Foreningssparbanken AB.............................. 61,789
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
BANKS - OTHER - Continued
24,007 Lloyds TSB Group, Plc. .............................. $ 225,998
3,000 Royal Bank of Scotland............................... 54,257
5,000 Sakura Bank, Ltd. ................................... 37,228
4,000 Sanwa Bank........................................... 37,847
3,200 Svenska Handelsbken.................................. 52,901
1,500 Toronto Dominion Bank................................ 42,876
344 UBS AG............................................... 50,042
7,473 Westpac Banking Corp. ............................... 54,617
-----------
1,004,667
-----------
BEVERAGE -
BREWERS/DISTRIBUTORS - 0.94%
2,000 Heineken NV.......................................... 101,404
700 Heinekin Holding NV, Class A......................... 23,423
-----------
124,827
-----------
BEVERAGE - SOFT DRINKS - 0.25%
1,000 CIA Cervejaria Brahma - ADR.......................... 20,750
1,140 Hellenic Bottling Co. SA............................. 12,412
-----------
33,162
-----------
BROADCASTING - 1.55%
600 Canal Plus........................................... 97,806
2,300 Granada Media, Plc. ................................. 21,702
1,002 News Corp, Ltd. ..................................... 13,099
1,000 Television Francaise................................. 72,773
-----------
205,380
-----------
BUILDING MATERIALS - 1.42%
350 Compagnie De Saint - Gobain.......................... 46,474
3,549 CRH, Plc. ........................................... 59,205
45 Holdrbank Finan Glarus, Class B...................... 53,119
200 Thyssen Krupp AG..................................... 3,049
1,000 Ushio, Inc. ......................................... 25,647
-----------
187,494
-----------
CHEMICAL - MAJOR - 0.52%
300 BOC Group, Plc. ..................................... 4,369
4,000 Laporte, Plc. ....................................... 28,373
7,000 Mitsui Chemicals, Inc. .............................. 35,512
-----------
68,254
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
CHEMICAL - MISCELLANEOUS - 0.30%
11,000 Toray Industries, Inc. .............................. $ 40,229
-----------
CONGLOMERATES - 3.39%
12,109 Broken Hill Proprietary Co. ......................... 132,703
2,000 Granada Compass, Plc. ............................... 24,691
8,500 Hutchison Whampoa.................................... 119,883
500 LVMH................................................. 38,736
400 Siemens AG........................................... 64,353
51,000 Singapore Technology Engineering,
Ltd. ................................................ 68,739
-----------
449,105
-----------
COSMETICS/TOILETRIES - 0.21%
1,000 Kao Corp. ........................................... 27,476
-----------
DRUGS - 5.31%
2,100 Astrazeneca, Plc. ................................... 95,820
5,324 Astrazeneca, Plc. - (SEK)............................ 239,217
200 Astrazeneca, Plc. - ADR.............................. 9,117
4,000 Chugai Pharmaceutical Co., Ltd. ..................... 71,268
868 DSM NV............................................... 26,467
80 Novartis AG.......................................... 120,923
4 Roche Holdings AG.................................... 35,809
3,000 Sankyo Co. .......................................... 69,486
2,000 Shionogi & Co., Ltd. ................................ 35,259
-----------
703,366
-----------
ELECTRIC PRODUCTS -
MISCELLANEOUS - 3.29%
5,700 ASM Lithography Holdings, NV ........................ 214,882
5,000 Hitachi, Ltd. ....................................... 59,218
1,000 Siemens Ag........................................... 160,882
-----------
434,982
-----------
ELECTRICAL EQUIPMENT - 8.97%
700 Hirose Electric Co., Ltd. ........................... 101,482
76,000 Johnson Electric Holdings, Ltd. ..................... 159,322
1,000 Murata Manufacturing Co., Ltd. ...................... 153,132
11,000 NEC Corp. ........................................... 314,610
1,000 Nichicon Corp. ...................................... 28,038
300 Rohm Co., Ltd. ...................................... 85,381
3,100 Sony Corp. .......................................... 345,930
-----------
1,187,895
-----------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 INTERNATIONAL VALUE FUND - CONTINUED 19
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT - 2.46%
1,690 Hon Hai Precision - GDR........................... $ 29,955
700 Mabuchi Motor Co., Ltd. .......................... 85,399
1,210 * Samsung Electronics(/1/)
(Total cost $217,568 purchased from 02/03/00
through 05/30/00)................................. 152,460
1,000 Taiyo Yuden Co., Ltd. ............................ 57,671
-----------
325,485
-----------
ELECTRONIC INSTRUMENTS - 1.81%
700 Advantest Corp. .................................. 142,770
200 Keyence Corp. .................................... 66,392
8,743 New Dixons Group, Plc. ........................... 30,308
-----------
239,470
-----------
ENTERTAINMENT - 0.84%
500 Nintendo Co., Ltd. ............................... 86,459
10,000 Rank Group, Plc. ................................. 24,917
-----------
111,376
-----------
FINANCE COMPANIES - 0.25%
2,756 Lend Lease Corp., Ltd. ........................... 32,567
-----------
FINANCIAL SERVICES - 1.32%
432 Aiful Corp. ...................................... 37,268
3,200 Clarica Life Insurance Co. ....................... 78,108
4,800 Halifax Group, Plc. .............................. 37,749
1,000 * Shinhan Bank GDR.................................. 21,827
-----------
174,952
-----------
FOODS - 2.12%
8,600 Cadbury Schweppes, Plc. .......................... 49,957
500 Carrefour Sa...................................... 36,387
600 Groupe Danone..................................... 81,797
30 Nestle, S.A. ..................................... 64,628
4,900 Tate & Lyle, Plc. ................................ 18,323
9,369 Tesco, Plc. ...................................... 29,479
-----------
280,571
-----------
HEAVY DUTY TRUCKS/PART - 0.89%
7,000 Bombardier Inc., Class B.......................... 117,155
-----------
HOSPITAL SUPPLIES - 0.81%
2,200 Sanofi-Synthelabo SA.............................. 107,059
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.26%
5,500 Unilever, Plc. .................................... $ 34,591
-----------
HUMAN RESOURCES - 0.20%
35 Adecco SA.......................................... 26,813
-----------
INFORMATION PROCESSING - 0.01%
200 PT Multimedia.Com.................................. 1,220
-----------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - 0.26%
600 Autonomy Corp., Plc. .............................. 34,050
-----------
INFORMATION PROCESSING -
COMPUTER HARDWARE - 1.60%
9,738 * Asustek Computer, Inc. ............................ 63,784
1,000 TDK Corp. ......................................... 147,787
-----------
211,571
-----------
INFORMATION PROCESSING -
COMPUTER SERVICES - 0.21%
200 Fujitsu Support and Service........................ 27,869
-----------
INFORMATION PROCESSING -
CONSUMER SOFTWARE - 1.03%
1,000 Creative Technology, Ltd. ......................... 21,727
1,000 Fuji Soft ABC, Inc. ............................... 76,613
425 Intershop Communications AG........................ 38,614
-----------
136,954
-----------
INSURANCE - CASUALTY - 0.34%
9,000 Mitsui Marine & Fire Insurance Co., Ltd. .......... 44,814
-----------
INSURANCE - MISCELLANEOUS - 0.42%
27 Schweizerische Ruckversicherungs................... 55,407
-----------
INSURANCE - MULTILINE - 1.83%
3,325 AEGON, N.V. ....................................... 129,386
100 Allianz AG Holding................................. 33,683
1,100 Assicurazioni Generali............................. 33,785
6,527 Royal & Sun Alliance Insurance Group............... 45,727
-----------
242,581
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
LODGING - 0.16%
500 Accor, S.A. ......................................... $ 21,495
-----------
MACHINE TOOLS - 1.07%
3,000 THK Co., Ltd. ....................................... 141,785
-----------
MACHINERY -
INDUSTRIAL/SPECIALTY - 1.56%
30,800 Invensys, Plc. ...................................... 120,774
14,000 Mitsubishi Heavy Industries, Ltd. ................... 49,231
7,400 TI Group, Plc. ...................................... 37,146
-----------
207,151
-----------
MERCHANDISING - DEPARTMENT - 0.18%
8,000 Mycal Corp. ......................................... 23,256
-----------
MERCHANDISING - MASS - 0.43%
3,000 Jusco Co., Ltd. ..................................... 56,405
-----------
METALS - ALUMINUM - 0.63%
1,000 Alcan Aluminium, Ltd. ............................... 33,031
1,100 Pechiney, S.A., Class A.............................. 50,215
-----------
83,246
-----------
METALS - MISCELLANEOUS - 0.46%
3,400 INCO, Ltd. .......................................... 60,597
-----------
METALS - STEEL - 0.27%
1,700 Pohang Iron & Steel, Ltd. - ADR...................... 36,125
-----------
MISCELLANEOUS - 1.30%
2,130 Bouygues SA.......................................... 133,579
1,200 Metallgesellschaft AG................................ 14,370
12 Societe Generale de Surveillance Holding, S.A. ...... 24,102
-----------
172,051
-----------
OIL - INTEGRATED
INTERNATIONAL - 2.03%
18,500 Eni, SpA............................................. 107,737
2,000 Norsk Hydro ASA...................................... 85,956
8,800 Shell Transport & Trading Co. ....................... 75,224
-----------
268,917
-----------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
20 INTERNATIONAL VALUE FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
OIL/GAS PRODUCERS - 0.48%
4,200 Enterprise Oil, Plc. ................................ $ 33,550
200 Total Fina Elf, S.A. ................................ 29,623
-----------
63,173
-----------
PAPER/FOREST PRODUCTS - 0.25%
1,300 UPM-Kymmene Oyj...................................... 32,784
-----------
PHOTOGRAPHY - 1.39%
6,000 Nikon Corp. ......................................... 183,984
-----------
PUBLISHING - NEWS - 2.42%
900 News Corp., Ltd. - ADR............................... 47,364
5,400 Reuters Group, Plc. ................................. 108,269
3,000 Singapore Press Holdings, Ltd. ...................... 48,277
3,000 Thomson Corp. ....................................... 116,611
-----------
320,521
-----------
REAL ESTATE - 0.43%
3,000 Land Securities, Plc. ............................... 35,989
2,000 Sekisui House, Ltd. ................................. 20,293
-----------
56,282
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.29%
3,000 Cheung Kong.......................................... 39,042
-----------
SEMICONDUCTOR EQUIPMENT - 3.13%
400 Aixtron.............................................. 53,893
1,200 Infineon Technologies AG - ADR....................... 79,125
2,000 Tokyo Electron, Ltd. ................................ 280,945
-----------
413,963
-----------
SEMICONDUCTORS - 5.31%
2,000 Chartered Semiconductor.............................. 16,732
1,000 Fujitsu, Ltd. ....................................... 28,976
2,500 Infineon Technologies AG............................. 165,646
2,800 STMicroelectronics, N.V. ............................ 171,252
7,165 Taiwan Semiconductor - ADR........................... 250,775
600 Tokyo Seimitsu Co., Ltd. ............................ 70,049
-----------
703,430
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
TELECOMMUNICATIONS - 7.19%
9,000 Cable & Wireless Optus, Ltd. ..................... $ 24,025
6,500 Dimension Data Holdings, Plc. .................... 63,885
5,700 Ericsson LM, Class B.............................. 115,069
1,400 Ericsson LMTEL Co. - ADR, Class B................. 28,700
200 Mitel Corp. ...................................... 4,889
300 Nokia Corp. - ADR, Class A........................ 13,481
7,940 Nokia Oyj......................................... 347,467
9 NTT Docomo, Inc. ................................. 237,997
5,786 Pacific Century Cyberworks........................ 10,757
2,900 Portugal Telecom SA............................... 30,127
500 PT Multimeda - Servicos de Telecommunicacoes e
Multimedia SGPS SA................................ 19,013
600 Telecel-Comunicacoes Pessoai...................... 7,882
300 * Telefonica S.A. .................................. 5,744
600 T-Online International AG......................... 15,982
1,100 United Pan-Europe Communications NV............... 26,823
-----------
951,841
-----------
TOBACCO - 0.83%
39 CIE Financ Richemont - UTS, Class A............... 110,402
-----------
UTILITIES - COMMUNICATION - 8.32%
4 DDI Corp. ........................................ 31,507
1,000 Deutsche Telekom AG............................... 38,558
4 NTT Corp. ........................................ 47,637
500 Portugal Telecom SA - ADR......................... 5,375
215 Swisscom AG....................................... 60,949
1,800 Telecom Italia, SpA............................... 22,082
5,000 Telecom Italia, SpA - Risp........................ 29,650
4,804 Telefonica S.A. .................................. 91,979
645 Telefonica S.A. - ADR............................. 36,967
3,800 Telefonos De Mexico - ADR......................... 206,863
9,000 TIM, SpA.......................................... 44,675
119,965 Vodafone Group, Plc. ............................. 484,810
-----------
1,101,052
-----------
UTILITIES - ELECTRIC - 0.24%
1,000 Furukawa Electric Co., Ltd. (The) ................ 32,164
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
WATER SERVICES - 0.30%
500 Vivendi (Ex-Gen Des Eaux)........................... $ 40,774
-----------
TOTAL COMMON STOCK
(Cost $9,237,919)................................... 12,355,096
-----------
PAR
VALUE
-----------
CORPORATE SHORT-TERM
REPURCHASE AGREEMENT - 5.97%
BANKS - OTHER - 5.97%
$ 791,000 State Street Bank, 6.42%, dated 08/31/00, to be
repurchased at $791,141 on 09/01/00, collateralized
by U.S. Treasury Notes, 7.50%, 11/15/01, with a par
value of $790,000 (Cost $791,000)................... 791,000
-----------
TOTAL INVESTMENTS
(Cost $10,028,919) - 99.31%......................... $13,146,096
-----------
* Non-income producing
</TABLE>
----
(1) Securities exempt from registration under rule 144A of the Securities Act
of 1933. These securities may be sold in transactions exempt from
registration, normally to qualified institutional buyers. At August 31,
2000, the aggregate value of these securities was $171,613, representing
1.30% of net assets.
FORWARD CURRENCY CONTRACTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Settlement Face Market Appreciation
Long/Short Date(s) Value Value (Depreciation)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
22,088 EUR/31,000 CAD 09/07/00 $ 20,909 $ 19,444 $ (1,465)
217,938 EUR/21,876,575 JPY 10/19/00 203,979 190,790 (13,189)
56,416 EUR/5,407,480 JPY 11/27/00 51,271 50,001 (1,270)
54,087 EUR/5,149,900 JPY 11/29/00 48,808 47,906 (902)
47,249 EUR/63,725 CAD 02/09/01 42,591 41,350 (1,241)
60,442 EUR/93,450 AUD 02/12/01 54,483 54,484 1
60,384 EUR/36,490 GBP 02/12/01 54,430 55,166 736
109,750 EUR/11,401,920 JPY 02/20/01 108,224 96,070 (12,154)
58,000 USD/6,000,390 JPY 02/28/01 58,000 57,908 (92)
---------------------------------
FORWARD CURRENCY CONTRACTS TOTAL..... $642,695 613,119 $(29,576)
---------------------------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 STATE STREET LARGE CAP VALUE FUND 21
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
7.35% 14.56%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
State Street
Large Cap Russell 1000
Value Fund Value Index
------------- ------------------
9/21/98 10,000 10,000
11/98 11,171 11,223
2/99 11,394 11,533
5/99 12,514 12,730
8/99 12,126 12,244
11/99 12,248 12,398
2/00 11,113 11,156
5/00 12,472 12,502
8/31/00 13,018 12,753
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $11,084,179
NAV on 08/31/00: $11.60
One year total return: 7.35%
Net expense ratio: 0.81%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with State Street Global Advisors
How did the Fund perform relative to its market and its benchmark?
For the year ended August 31, 2000, the Fund returned 7.35% versus the Russell
1000 Value Index, the Fund's benchmark, return of 4.15%--a difference of 320
basis points. The Russell 1000 Value Index is also representative of the
investable market for this Fund.
How did the large cap market perform over the past fiscal year?
For the year ended August 31, 2000, the large cap market performed well as
represented by the 16.32% and 20.14% returns of the S&P 500 Index and the
Russell 1000 Index, respectively. Growth stocks continued to dominate over
this period as the Russell 1000 Growth Index outperformed its value
counterpart by nearly 30%--the bulk of this came late in 1999 and has since
dissipated.
What were some of the dominant themes in the portfolio?
The Fund is designed to reflect the characteristics of the large cap value
segment of the market, specifically the Russell 1000 Value Index. To that end
the Fund's sector and industry weights as well as its cap are very similar to
those of the benchmark. Performance of the Fund was driven by stock selection
particularly in the Securities/Asset Management, Other Insurance, Computer
Hardware and Semiconductor segments of the market.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. Exxon Mobil Corp. ....... 4.58%
2. Citigroup, Inc. ......... 4.53%
3. SBC Communications,
Inc. .................... 2.62%
4. Morgan Stanley Dean
Witter & Co. ............ 2.33%
5. Johnson & Johnson........ 2.32%
6. American International
Group, Inc. ............. 2.17%
7. Merck & Co. Inc. ........ 2.14%
8. Bank of America Corp. ... 1.88%
9. Verizon Communications... 1.75%
10. FleetBoston Financial
Corp. ................... 1.69%
</TABLE>
Portfolio holdings are subject to change.
Which portfolio holdings most enhanced the Fund's performance?
Specifically, performance was enhanced by holdings of Lehman Brothers, AG
Edwards and Bear Stearns within the Securities/Asset Management industry,
Loews and PMI Group within Other Insurance, Apple Computer in the Hardware
segment and SDL Inc. and National Semiconductor within the Semiconductor
industry.
Were there any disappointments in the Fund's portfolio?
Stock selection in the Consumer Cyclicals sector was disappointing especially
within the Media, Publishing and Specialty Retail industries.
What do you see ahead in the markets for the next fiscal period?
Over the long term, we believe that there is inherent strength in the U.S.
economy based on technological spending and productivity gains. Productivity
has traditionally lagged by ten quarters and technological spending has
accelerated since 1996. Given our expectation that corporations will continue
to commit to technological expenditures, the outlook for productivity gains is
positive for the future. This will help corporations absorb margin squeezes
and continue to grow their bottom-line earnings.
One key issue to watch, however, is inflationary pressure. If the economy
refuses to slow, although there are indications that it is in the process of
slowing, further rate hikes may be ordered by the Fed which could impact
earnings and equity valuations. It is our belief that this scenario is
unlikely.
-------------------------------------------------------------------------------
<PAGE>
22 STATE STREET LARGE CAP VALUE FUND August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMON STOCK - 98.85%
AEROSPACE/DEFENSE - 1.77%
2,500 Boeing Co. ..................................... $ 134,062
800 Northrop Grumman Corp. ......................... 62,250
--------------
196,312
--------------
APPLIANCES/FURNISHINGS - 0.55%
1,600 Whirlpool Corp. ................................ 60,800
--------------
AUTO - CARS - 1.18%
5,418 Ford Motor Co. ................................. 131,048
--------------
BANKS - NEW YORK CITY - 0.19%
400 Bank of New York Co., Inc. ..................... 20,974
--------------
BANKS - OTHER - 4.77%
3,900 Bank of America Corp. .......................... 208,893
4,400 FleetBoston Financial Corp. .................... 187,825
2,900 UnionBanCal Corp. .............................. 71,956
1,400 Wells Fargo Co. ................................ 60,463
--------------
529,137
--------------
BANKS - REGIONAL - 2.36%
2,000 Chase Manhattan Corp. .......................... 111,749
1,300 Comerica, Inc. ................................. 73,206
6,100 Hibernia Corp., Class A......................... 76,631
--------------
261,586
--------------
BEVERAGE - SOFT DRINKS - 1.91%
2,900 Pepsi Bottling Group, Inc. (The)................ 92,074
2,800 PepsiCo, Inc. .................................. 119,350
--------------
211,424
--------------
BROADCASTING - 0.49%
800 * Viacom, Inc., Class B........................... 53,850
--------------
BUILDING MATERIALS - 0.49%
1,700 USG Corp. ...................................... 54,719
--------------
CHEMICAL - MAJOR - 0.42%
1,033 E.I. du Pont de Nemours and Co. ................ 46,356
--------------
CHEMICAL - MISCELLANEOUS - 1.73%
2,400 Eastman Chemical Co. ........................... 103,499
1,300 * FMC Corp. ...................................... 88,156
--------------
191,655
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
CONGLOMERATES - 0.88%
1,200 Loews Corp. ..................................... $ 97,125
--------------
CONSUMER FINANCE - 1.56%
2,700 * AmeriCredit Corp. ............................... 74,587
2,800 MBNA Corp. ...................................... 98,875
--------------
173,462
--------------
DRUGS - 3.48%
2,800 Bristol Myers Squibb Co. ........................ 148,399
3,400 Merck & Co., Inc. ............................... 237,575
--------------
385,974
--------------
ELECTRONIC EQUIPMENT - 0.53%
1,000 General Electric Co. ............................ 58,688
--------------
ELECTRONIC INSTRUMENTS - 0.38%
1,050 * Vishay Intertechnology, Inc. .................... 42,328
--------------
ENTERTAINMENT - 1.19%
3,400 Walt Disney Co. ................................ 132,388
--------------
FINANCIAL SERVICES - 6.05%
900 American Express Co. ............................ 53,212
8,600 Citigroup, Inc. ................................. 502,025
2,200 Heller Financial, Inc. .......................... 54,725
2,400 * John Hancock Financial
Service, Inc. ................................... 60,600
--------------
670,562
--------------
FOODS - 1.14%
1,600 McCormick & Co., Inc. ........................... 46,700
1,600 * Suiza Foods Corp. ............................... 80,000
--------------
126,700
--------------
GOVERNMENT SPONSORED - 0.81%
600 Federal Home Loan Mortgage Corp. ................ 25,275
1,200 Federal National Mortgage Association............ 64,500
--------------
89,775
--------------
HEALTHCARE - 3.12%
1,900 * PacifiCare Health Systems, Inc.,
Class A.......................................... 102,481
1,300 UnitedHealth Group, Inc. ........................ 122,850
1,400 * Wellpoint Health Networks, Inc. ................. 120,838
--------------
346,169
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
HOSPITAL MANAGEMENT - 0.53%
1,700 HCA -The Healthcare Company.................... $ 58,650
--------------
HOSPITAL SUPPLIES - 2.72%
1,000 Abbott Laboratories, Inc. ..................... 43,750
2,800 Johnson & Johnson.............................. 257,425
--------------
301,175
--------------
HOUSEHOLD PRODUCTS - 0.72%
1,300 Procter & Gamble Co. .......................... 80,356
--------------
INFORMATION PROCESSING - COMPUTER HARDWARE -
1.68%
2,600 * Apple Computer, Inc. .......................... 158,438
800 Compaq Computer Corp. ......................... 27,250
--------------
185,688
--------------
INFORMATION PROCESSING - COMPUTER SERVICES -
1.25%
2,900 First Data Corp. .............................. 138,294
--------------
INFORMATION PROCESSING - COMPUTER SOFTWARE -
0.28%
1,200 * Networks Associates, Inc. ..................... 31,050
--------------
INFORMATION PROCESSING - DATA SERVICES - 2.06%
800 Hewlett Packard Co............................. 96,600
1,000 International Business
Machines, Corp. ............................... 132,000
--------------
228,600
--------------
INSURANCE - LIFE - 0.70%
1,500 AXA Financial, Inc. ........................... 77,625
--------------
INSURANCE - MISCELLANEOUS - 3.13%
2,200 MGIC Investment Corp. ......................... 129,388
1,700 PMI Group, Inc. ............................... 105,400
1,800 Radian Group, Inc. ............................ 111,825
--------------
346,613
--------------
INSURANCE - MULTILINE - 3.39%
2,700 American International Group, Inc. ............ 240,638
800 CIGNA Corp. ................................... 77,800
2,400 Old Republic International Corp. .............. 57,450
--------------
375,888
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 STATE STREET LARGE CAP VALUE FUND - CONTINUED 23
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
MACHINERY -
INDUSTRIAL/SPECIALTY - 1.52%
2,600 Dover Corp. .................................... $ 127,075
900 Ingersoll-Rand Co. ............................. 41,006
--------------
168,081
--------------
MEDICAL TECHNOLOGY - 0.52%
300 * Genentech, Inc. ................................ 57,150
--------------
MERCHANDISE - SPECIALTY - 2.50%
1,800 * BJ's Wholesale Club, Inc. ...................... 60,975
2,800 Tiffany & Co. .................................. 116,550
2,700 * Zale Corp. ..................................... 99,731
--------------
277,256
--------------
MERCHANDISING - FOOD - 0.63%
3,100 * Kroger Co. ..................................... 70,331
--------------
MERCHANDISING - MASS - 1.16%
3,500 Sears Roebuck and Co. .......................... 109,156
400 Wal-Mart Stores, Inc. .......................... 18,975
--------------
128,131
--------------
METALS - MISCELLANEOUS - 0.95%
5,600 Engelhard Corp. ................................ 105,000
--------------
NATURAL GAS - DIVERSIFIED - 0.55%
2,800 Questar Corp. .................................. 60,725
--------------
OIL - INTEGRATED DOMESTIC - 3.25%
900 Amerada Hess Corp. ............................. 61,594
1,100 Kerr-McGee Corp. ............................... 69,506
3,400 Occidental Petroleum Corp. ..................... 73,525
1,400 Phillips Petroleum Co. ......................... 86,625
2,500 USX-Marathon Group.............................. 68,594
--------------
359,844
--------------
OIL - INTEGRATED INTERNATIONAL - 5.47%
1,100 Chevron Corp. .................................. 92,950
6,220 Exxon Mobil Corp. .............................. 507,708
100 Texaco, Inc. ................................... 5,150
--------------
605,808
--------------
OIL - SERVICE - PRODUCTS - 0.61%
1,400 * Noble Drilling Corp. ........................... 67,900
--------------
OIL/GAS PRODUCERS - 1.38%
1,400 Helmerich & Payne, Inc. ........................ 51,713
3,600 * Pioneer Natural Resources Corp. ................ 49,950
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
OIL/GAS PRODUCERS - Continued
1,700 Valero Energy Corp. ............................ $ 51,213
--------------
152,876
--------------
PUBLISHING - NEWS - 1.06%
3,000 New York Times Co., Class A..................... 117,563
--------------
RAILROAD - 0.72%
2,700 Burlington Northern Santa Fe, Corp. ............ 60,413
500 Union Pacific Corp. ............................ 19,875
--------------
80,288
--------------
RESTAURANTS - 0.19%
700 McDonald's Corp. ............................... 20,913
--------------
SAVINGS & LOAN - 0.30%
1,800 Dime Bancorp, Inc. ............................. 33,075
--------------
SECURITIES RELATED - 6.32%
700 A.G. Edwards, Inc. ............................. 36,400
1,100 Bear Stearns Co., Inc. ......................... 73,769
600 J. P. Morgan & Co., Inc. ....................... 100,313
600 Lehman Brothers Holdings, Inc. ................. 87,000
1,000 Merrill Lynch & Co., Inc. ...................... 145,000
2,400 Morgan Stanley Dean Witter & Co. ............... 258,150
--------------
700,632
--------------
SEMICONDUCTOR EQUIPMENT - 0.72%
1,300 * Novellus Systems, Inc. ......................... 80,031
--------------
SEMICONDUCTORS - 2.03%
2,200 * Cypress Semiconductor Corp. .................... 108,763
1,200 * Micron Technology, Inc. ........................ 98,100
500 Motorola, Inc. ................................. 18,031
--------------
224,894
--------------
TELECOMMUNICATIONS - 5.47%
5,506 AT&T Corp. ..................................... 173,439
4,300 * AT&T Corp. - Liberty Media Corp. ............... 91,913
900 * Qwest Communications
International, Inc. ............................ 46,463
4,440 Verizon Communications.......................... 193,695
2,750 * Worldcom, Inc. ................................. 100,375
--------------
605,885
--------------
TEXTILE - PRODUCTS - 1.19%
6,400 Shaw Industries, Inc. .......................... 79,600
2,300 V. F. Corp. .................................... 52,613
--------------
132,213
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
TOBACCO - 1.12%
4,200 Philip Morris Companies, Inc. ................... $ 124,425
--------------
UTILITIES - COMMUNICATION - 4.17%
4,600 BellSouth Corp. ................................. 171,638
6,963 SBC Communications, Inc. ........................ 290,705
--------------
462,343
--------------
UTILITIES - ELECTRIC - 3.92%
2,300 Entergy Corp. ................................... 70,006
2,700 FirstEnergy Corp. ............................... 66,825
1,300 FPL Group, Inc. ................................. 69,388
2,700 PG&E Corp. ...................................... 78,131
2,200 PPL Corp. ....................................... 73,700
2,100 Public Service Enterprise
Group, Inc. ..................................... 76,125
--------------
434,175
--------------
UTILITIES -
GAS, DISTRIBUTION - 1.08%
1,800 Keyspan Corp. ................................... 61,988
1,100 National Fuel Gas Co. ........................... 57,681
--------------
119,669
--------------
UTILITIES - GAS, PIPELINE - 0.56%
3,200 Sempra Energy.................................... 62,400
--------------
TOTAL COMMON STOCK
(Cost $10,011,545)............................... 10,956,579
--------------
<CAPTION>
PAR
VALUE
-----------
<C> <S> <C>
CORPORATE SHORT-TERM
REPURCHASE AGREEMENT - 1.67%
BANKS - OTHER - 1.67%
$ 185,000 State Street Bank,
6.42%, dated 08/31/00, to be repurchased at
$185,033 on 09/01/00, collateralized by U.S.
Treasury Notes, 6.63%, 07/31/01, with a par value
of $190,000 (Cost $185,000)...................... 185,000
--------------
TOTAL INVESTMENTS
(Cost $10,196,545) - 100.52%..................... $ 11,141,579
--------------
*Non-income producing
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
24 NEUBERGER BERMAN MID CAP VALUE FUND August 31, 2000
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
29.31% 33.57%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Neuberger Berman
Mid Cap Russell Mid Cap
Value Fund Value Index
------------- ------------------
9/21/98 10,000 10,000
11/98 11,719 10,979
2/99 12,094 10,806
5/99 14,146 12,049
8/99 13,560 11,471
11/99 13,334 11,006
2/00 14,555 10,180
5/00 15,732 11,657
8/31/00 17,534 12,189
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $17,410,695
NAV on 08/31/00: $13.54
One year total return: 29.31%
Net expense ratio: 1.05%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with Neuberger Berman
How did the Fund perform relative to its market and its benchmark?
The Fund returned 29.31% for the one-year period ending August 31, 2000. It
outperformed its benchmark, the Russell Mid Cap Value index, by an outstanding
23.05%.
How did the mid-cap market perform over the past fiscal year?
The mid-cap arena performed well for the one-year period ending August 31st.
After a period of time in which large-cap stocks dominated, mid-caps
demonstrated their worth and in fact, surpassed their large-cap brethren.
Among mid-cap stocks, growth-oriented shares were generally the standouts in
the first part of the one-year period, while value stocks gained strength in
the latter segment.
What were some of the dominant themes in the portfolio?
The following were a few dominant themes:
a.) Technology had the most favorable impact on the portfolio's total return
contributing 971 basis points. Technology is not exclusive to growth funds;
the portfolio managers were able to find attractive values during the period
and were overweight it versus the Russell Mid Cap Value index.
b.) While the portfolio managers mainly select stocks using a bottom-up
approach, they did trim back the portfolio's position in Financials as the
Federal Reserve began its stint of interest rate increases. The allocation was
then increased, as the market became confident that the tightening cycle was
nearing an end. This tactic served the fund well, as did strong stock
selection within the sector. Financials added 753 basis points to the
portfolio's total return.
c.) Energy holdings had an impact of 491 basis points on total return. The
fund held some strong performers and was slightly overweight the sector versus
its comparative index.
d.) The fund was roughly evenly-weighted in Consumer Cyclicals versus the
index, yet experienced far superior returns (21.54% vs. -15.68%). The sector
contributed 270 basis points to the portfolio's total return.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. Unicom Corp. ............ 2.47%
2. MetLife, Inc. ........... 2.19%
3. General Dynamics Corp. .. 2.10%
4. ChoicePoint Inc. ........ 2.05%
5. XL Capital, Ltd. ........ 1.74%
6. A.H. Belo Corp. ......... 1.72%
7. AES Corp. ............... 1.72%
8. Tenet Healthcare Corp. .. 1.67%
9. FMC Corp. ............... 1.48%
10. Southwest Airlines Co. .. 1.46%
</TABLE>
Portfolio holdings are subject to change.
Which portfolio holdings most enhanced the Fund's performance?
The top performer in terms of contribution to the portfolio's total return was
General Motors Class H, also known as Hughes Electronics. This satellite
producer and communication services provider returned 92.49% in the one-year
period ending 8-31-00 and added 187 basis points to total return. Comdisco
also made a positive contribution to total return. This company, which started
out leasing mainframe computers, has since expanded out into several business
segments and has thereby decreased the risk profile of the leasing business.
The portfolio managers like Comdisco's data storage / disaster recovery
segment, its plans to expand into the Web-hosting business, and its practice
of leasing equipment to financed start-up companies, in return for which it
receives warrants. Anadarko Petroleum and Transocean Sedco Forex were two
Energy holdings that did quite well. Anadarko Petroleum acquired Union Pacific
Resources earlier this year in a deal the portfolio managers saw as an
opportunity to add Union Pacific's expansive underdeveloped acreage to
Anadarko's strong history of locating oil and gas. The deal came to be well
received by investors and contributed to Anadarko's 107.23% one-year surge.
Transocean Sedco Forex also did well, with a 77.05% return due in part to the
resurgence in deep water drilling. Property and casualty insurer, ACE Limited
delivered a return of 67.71% and had an impact of 122 basis points on the
portfolio's total return. Dynegy, a provider of energy products and services
in North America and the UK, added 93.44% to its stock price and 148 basis
points to the fund's total return. Another contributor emerging from the
Utility sector was power-generating facilities operator AES Corp.
Disappointments in the Fund's portfolio?
Basic Materials was the sector that had the least favorable impact; holdings
detracted 343 basis points from the portfolio's total return. W.R. Grace,
which is one of the world's largest producers of specialty chemicals, lost
35.71% and took away 92 basis points from total return. AK Steel Holding Corp.
had a negative impact of 82 basis points while Smurfit-Stone Container Corp.
detracted 63 basis points. Lear Corp. and Galileo International were two poor
performers in what was otherwise a solid Consumer Cyclical sector. Lear
supplies automotive interior systems and Galileo provides travel services
using computerized systems. The holdings were the portfolio's bottom two
performers as relates to their contribution to total return.
What do you see ahead in the markets for the next fiscal period?
The portfolio managers are optimistic about the outlook for mid-cap stocks as
well as for value-oriented investments. They feel that value has never been
more important than it is today; especially in light of the readjustments in
valuations that have occurred since the spring. Rationality has reentered the
marketplace, which now again places greatest emphasis on sustainability of
earnings and earnings growth.
Market breadth has broadened, and mid-cap performance has demonstrated that
exceptional performance is not exclusive to large-cap issues. Technology is no
longer the dominant sector experiencing solid returns; more sectors and stocks
are making positive contributions. Even though some mid-caps have enjoyed a
solid run-up lately, good values continue to exist in the marketplace.
On a sector level, the managers believe that it will be essential to be
cautious in areas such as Energy. Oil prices may decline after increasing so
much this year; yet on the other hand, the upcoming earnings of companies
within this sector could be powerful. So although their fundamentals are
strong, many Energy stocks have already appreciated a great deal. The
portfolio managers also believe that selectivity is warranted in the Basic
Materials sector, which although could benefit from a soft landing, might be
further damaged by a hard landing or by investor fear of one.
Although the economy is still strong, it is showing signs of slowing and
investors are beginning to believe that the Fed has successfully engineered a
soft landing. As always, questions remain that need to be answered and the
market will assuredly continue to be an ever-changing place. Despite this, the
portfolio managers feel that their diversified portfolio will fare well in
this mercurial environment.
-------------------------------------------------------------------------------
<PAGE>
August 31, 2000 NEUBERGER BERMAN MID CAP VALUE FUND 25
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMON STOCK - 94.58%
ADVERTISING - 0.56%
1,400 * TMP Worldwide, Inc. ................................ $ 96,863
-----------
AEROSPACE/DEFENSE - 3.35%
8,700 Crane Co. .......................................... 218,587
5,800 General Dynamics Corp. ............................. 365,038
-----------
583,625
-----------
AIRLINES - 1.46%
11,200 Southwest Airlines Co. ............................. 253,400
-----------
AUTO - CARS - 0.93%
4,900 * General Motors Corp., Class H....................... 162,313
-----------
AUTO - ORIGINAL EQUIPMENT - 2.01%
2,400 Danaher Corp. ...................................... 134,850
10,000 * Lear Corp. ......................................... 215,625
-----------
350,475
-----------
AUTO - REPLACEMENT PARTS - 1.04%
1,100 * SPX Corp. .......................................... 180,400
-----------
BANKS - OTHER - 0.99%
1,500 Providian Financial Corp. .......................... 172,406
-----------
BANKS - REGIONAL - 1.11%
400 M&T Bank Corp. ..................................... 193,875
-----------
BROADCASTING - 2.44%
15,700 A.H. Belo Corp. .................................... 300,262
3,800 * Emmis Communications Corp., Class A................. 124,688
-----------
424,950
-----------
CHEMICAL - MISCELLANEOUS - 2.73%
3,800 * FMC Corp. .......................................... 257,688
4,900 Praxair, Inc. ...................................... 216,825
-----------
474,513
-----------
COMMERCIAL SERVICES - 1.33%
6,800 * Iron Mountian, Inc. ................................ 232,050
-----------
CONTAINERS - PAPER - 0.77%
2,600 * Sealed Air Corp. ................................... 133,413
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
DRUGS - 2.29%
7,700 * Charles River Laboratories International, Inc. ..... $ 211,269
5,400 * IVAX Corp. ......................................... 186,975
-----------
398,244
-----------
ELECTRONIC EQUIPMENT - 1.10%
5,100 * Cabletron Systems, Inc. ............................ 190,931
-----------
ELECTRONIC INSTRUMENTS - 0.67%
1,400 * Flextronics International, Ltd. (Singapore)......... 116,638
-----------
FINANCE COMPANIES - 1.27%
4,600 Household International, Inc. ...................... 220,800
-----------
FINANCIAL SERVICES - 2.11%
3,700 Countrywide Credit Industries, Inc. ................ 140,138
9,000 * John Hancock Financial Services, Inc. .............. 227,250
-----------
367,388
-----------
FOODS - 1.84%
4,200 Hershey Foods Corp. ................................ 179,287
1,900 WM. Wrigley Jr. Co. ................................ 140,719
-----------
320,006
-----------
HEALTHCARE - 3.65%
8,400 * Edwards LIfesciences Corp. ......................... 220,500
4,400 * Oxford Health Plans, Inc. .......................... 134,200
5,500 * VISX, Inc. ......................................... 151,594
1,500 * Wellpoint Health Networks, Inc. .................... 129,469
-----------
635,763
-----------
HEAVY DUTY TRUCKS/PARTS - 0.69%
1,800 Eaton Corp. ........................................ 119,475
-----------
HOSPITAL MANAGEMENT - 1.67%
9,400 Tenet Healthcare Corp. ............................. 291,400
-----------
HOSPITAL SUPPLIES - 3.00%
1,800 Beckman Coulter, Inc. .............................. 137,025
3,600 C.R. Bard, Inc. .................................... 175,725
3,200 DENTSPLY International, Inc. ....................... 106,800
2,300 Stryker Corp. ...................................... 103,069
-----------
522,619
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INFORMATION PROCESSING - 2.05%
7,600 * ChoicePoint, Inc. ................................. $ 356,250
-----------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - 1.05%
8,300 * Citrix Systems, Inc. .............................. 182,600
-----------
INFORMATION PROCESSING -
COMPUTER HARDWARE - 2.61%
4,100 * Apple Computer, Inc. .............................. 249,844
3,000 * Gateway, Inc. ..................................... 204,300
-----------
454,144
-----------
INFORMATION PROCESSING -
COMPUTER SERVICES - 2.21%
7,100 * Ceridian Corp. .................................... 171,731
5,900 * SunGard Data Systems, Inc. ........................ 212,400
-----------
384,131
-----------
INFORMATION PROCESSING - CONSUMER SOFTWARE - 1.44%
4,200 * Intuit, Inc. ...................................... 251,475
-----------
INFORMATION PROCESSING -
DATA SERVICES - 1.77%
7,200 Comdisco, Inc. .................................... 172,800
2,500 * Fiserv, Inc. ...................................... 135,469
-----------
308,269
-----------
INFORMATION PROCESSING - NETWORKING - 0.87%
9,100 3Com Corp. ........................................ 151,288
-----------
INSURANCE - CASUALTY - 1.45%
7,200 Ace, Ltd. ......................................... 252,900
-----------
INSURANCE - LIFE - 3.59%
15,700 * MetLife, Inc. ..................................... 381,706
6,100 Nationwide Financial Services, Inc., Class A....... 243,238
-----------
624,944
-----------
INSURANCE - MISCELLANEOUS - 2.06%
3,300 AMBAC Financial Group, Inc. ....................... 213,263
2,200 MBIA, Inc ......................................... 144,650
-----------
357,913
-----------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
26 NEUBERGER BERMAN MID CAP VALUE FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INSURANCE - MULTILINE - 2.83%
5,100 Aon Corp. .......................................... $ 190,294
4,400 XL Capital, Ltd. ................................... 303,325
-----------
493,619
-----------
LODGING - 0.64%
3,500 Starwood Hotels & Resorts Worldwide, Inc. .......... 112,000
-----------
MACHINERY -
CONSTRUCTION & CONTRACTS - 1.06%
6,700 Lennar Corp. ....................................... 185,088
-----------
MACHINERY -
INDUSTRIAL/SPECIALTY - 0.98%
3,700 * American Standard Companies, Inc. .................. 171,356
-----------
MERCHANDISE - SPECIALTY - 1.36%
9,700 * Consolidated Stores Corp. .......................... 132,162
2,500 Tiffany & Co. ...................................... 104,063
-----------
236,225
-----------
MERCHANDISING - FOOD - 1.42%
10,900 * Kroger Co. ......................................... 247,294
-----------
METALS - MISCELLANEOUS - 0.80%
7,400 Engelhard Corp. .................................... 138,750
-----------
NATURAL GAS - DIVERSIFIED - 2.12%
2,800 Coastal Corp. ...................................... 192,850
4,800 Kinder Morgan, Inc. ................................ 176,700
-----------
369,550
-----------
OIL - INTEGRATED DOMESTIC - 2.12%
800 Amerada Hess Corp. ................................. 54,750
4,000 EOG Resources, Inc. ................................ 153,000
5,900 USX - Marathon Group................................ 161,880
-----------
369,630
-----------
OIL - SERVICE - PRODUCTS - 1.00%
3,600 * Noble Drilling Corp. ............................... 174,599
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
OIL/GAS PRODUCERS - 4.59%
3,200 Anadarko Petroleum Corp. ........................... $ 210,464
2,500 Apache Corp. ....................................... 157,500
16,200 * Gulf Canada Resources Ltd. (Canada)................. 90,113
2,800 Transocean Sedco Forex, Inc. ....................... 167,300
4,400 Santa Fe International Corp. ....................... 172,974
-----------
798,351
-----------
POLLUTION CONTROL - 0.92%
10,900 * Republic Services, Inc., Class A.................... 159,413
-----------
PUBLISHING - NEWS - 1.25%
4,300 Scripps Co. ........................................ 217,956
-----------
PUBLISHING/PRINTING - 1.40%
7,400 Dun & Bradstreet Corp. ............................. 244,200
-----------
REAL ESTATE INVESTMENT TRUSTS - 4.40%
4,900 Boston Properties, Inc. ............................ 198,143
9,900 Indymac Mortgage Holdings, Inc. .................... 167,063
3,000 Spieker Properties, Inc. ........................... 163,875
6,400 Vornado Realty Trust................................ 236,799
-----------
765,880
-----------
RESTAURANTS - 0.43%
2,600 * Tricon Global Restaurants, Inc. .................... 75,725
-----------
SECURITIES RELATED - 2.05%
1,800 Bear Stearns Co., Inc. ............................. 120,713
3,400 Franklin Resources, Inc. ........................... 129,200
2,800 Charles Schwab Corp. ............................... 106,924
-----------
356,837
-----------
SEMICONDUCTORS - 1.02%
9,000 * Energizer Holdings, Inc. ........................... 177,750
-----------
TELECOMMUNICATIONS - 1.80%
5,100 * American Tower Corp., Class A....................... 185,194
5,500 * Spectrasite Holdings, Inc. ......................... 128,905
-----------
314,099
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
UTILITIES - ELECTRIC - 6.28%
4,700 * AES Corp. .......................................... $ 299,625
3,200 DPL, Inc. .......................................... 87,400
3,674 Dynegy, Inc. ....................................... 165,330
4,900 Northeast Utilities................................. 111,475
9,400 Unicom Corp. ....................................... 429,462
-----------
1,093,292
-----------
TOTAL COMMON STOCK
(Cost $14,435,544).................................. 16,467,075
-----------
<CAPTION>
PAR
VALUE
----------
<C> <S> <C>
CORPORATE SHORT-TERM
REPURCHASE AGREEMENT - 6.05%
BANKS - OTHER - 6.05%
$1,054,000 State Street Bank, 6.42%, dated
08/31/00, to be repurchased
at $1,054,188 on 09/01/00,
collateralized by U.S. Treasury
Notes, 6.63%, 07/31/01, with
a par value of $1,080,000
(Cost $1,054,000)................................... 1,054,000
-----------
TOTAL INVESTMENTS
(Cost $15,489,544) - 100.63%........................ $17,521,075
-----------
* Non-income producing
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 SMALL CAP VALUE FUND 27
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
17.53% 10.68%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Small Cap Russell 2000
Value Fund Value Index
------------- ------------------
9/21/98 10,000 10,000
11/98 10,959 10,611
2/99 9,984 9,965
5/99 10,538 11,116
8/99 10,361 10,834
11/99 10,179 10,459
2/00 10,779 11,140
5/00 11,130 11,087
8/31/00 12,176 12,318
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $5,420,728
NAV on 08/31/00: $11.73
One year total return: 17.53%
Net expense ratio: 0.98%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
Kathryn Magg Vorisek, Fiduciary Management Associates, Inc.
How did the Fund perform relative to its benchmark?
For the fiscal year ended August 31, 2000, the Fund gained 17.53%,
outperforming the Russell 2000 Value Index return of 13.70%. The strongest
sectors of the market included health care, technology, energy and producer
durables. While these four sectors represent approximately 25% of the Russell
Value Index, they represented the Index's entire gain. The Fund was overweight
each of these segments except for the producer durables segment, which was
slightly underweight.
Which portfolio holdings most enhanced the Fund's performance?
The Fund's strongest segments included health care, technology, energy,
financial services and producer durables. While technology, healthcare and
producer durables posted strong returns along with the market, financial
services and energy yielded results superior to the markets returns. Financial
services benefited from strong stock selection among fee-based financial
services firms rather than spread-based credit sensitive firms in a rising
rate environment. The energy segment benefited due to its strong stock
selection among offshore drillers rather than E&P companies as energy prices
increased throughout the year. The Fund also benefited from the acquisition of
the following firms: US Trust, National Computer Systems and Bank United.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. FirstFed Financial
Corp. ................... 1.51%
2. Cullen/Frost Bankers,
Inc. .................... 1.45%
3. Bank United Corp. ....... 1.43%
4. American Financial
Holdings, Inc. .......... 1.35%
5. MDU Resources Group,
Inc. .................... 1.33%
6. Invacare Corp. .......... 1.26%
7. StanCorp Financial Group,
Inc. .................... 1.23%
8. Metris Companies, Inc. .. 1.19%
9. Washington Federal,
Inc. .................... 1.15%
10. Texas Regional Bancshares,
Inc., Class A............ 1.12%
</TABLE>
Portfolio holdings are subject to change.
What do you see ahead in the markets for the next fiscal year?
Over the next fiscal year, the economy will likely respond to the Federal
Reserve's previous interest rates hikes by slowing to a growth rate of 3/4%.
As a result, the Federal Reserve will not continue to raise interest rates and
corporate earnings will slow. Energy prices are likely to remain at high
levels over the next few quarters as we enter higher consumption quarters with
low inventories. Therefore, the Fund will continue to emphasize financial
services, energy and health care stocks.
-------------------------------------------------------------------------------
<PAGE>
28 SMALL CAP VALUE FUND August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMON STOCK - 92.83%
ADVERTISING - 0.12%
50 * ADVO, Inc. ..................................... $ 2,047
218 * HA-LO Industries, Inc. ......................... 1,090
30 * Modem Media, Inc. .............................. 317
97 Penton Media, Inc. ............................. 3,037
--------------
6,491
--------------
AEROSPACE/DEFENSE - 1.06%
477 * Alliant Techsystems, Inc. ...................... 36,759
35 * Armor Holdings, Inc. ........................... 595
27 Curtiss-Wright Corp. ........................... 1,227
182 Gencorp, Inc. .................................. 1,331
44 HEICO Corp. .................................... 682
238 Lockheed Martin Corp. .......................... 6,753
40 * Moog, Inc. ..................................... 1,300
72 * Orbital Sciences Corp. ......................... 644
51 Primex Technologies, Inc. ...................... 1,237
33 * Sequa Corp., Class A............................ 1,526
154 Teleflex, Inc. ................................. 5,486
--------------
57,540
--------------
AIRLINES - 1.00%
150 * Airtran Holdings, Inc. ......................... 618
1,734 * Alaska Air Group, Inc. ......................... 45,084
192 * American West Holdings Corp.,
Class B......................................... 2,808
75 Circle International Group, Inc. ............... 2,686
94 * Mesa Airlines, Inc. ............................ 523
61 * Mesaba Holdings, Inc. .......................... 663
76 * Midwest Express Holdings, Inc. ................. 1,720
--------------
54,102
--------------
APPAREL & PRODUCTS - 1.40%
1,361 * Ann Taylor Stores Corp. ........................ 48,996
99 Brown Shoe Company, Inc. ....................... 1,064
44 * Buckle, Inc. ................................... 575
74 Cato Corp., Class A............................. 916
69 Claire's Stores, Inc. .......................... 1,358
81 * Dress Barn, Inc. ............................... 1,726
88 * Footstar, Inc. ................................. 2,618
48 Fred's, Inc. ................................... 1,152
134 Kellwood Co. ................................... 2,144
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
APPAREL & PRODUCTS - Continued
64 * Men's Wearhouse, Inc. .......................... $ 1,952
156 * Nautica Enterprises, Inc. ...................... 1,843
20 * Oakley, Inc. ................................... 339
114 Phillips-Van Heusen Corp. ...................... 1,040
280 * Polo Ralph Lauren Corp. ........................ 5,425
71 * Quicksilver, Inc. .............................. 1,056
28 Tanger Factory Outlet Centers, Inc. ............ 590
84 * Value City Department Stores, Inc. ............. 756
290 Warnaco Group Inc., Class A..................... 1,450
50 * Wilson's The Leather Experts, Inc. ............. 1,019
--------------
76,019
--------------
APPLIANCES/FURNISHINGS - 0.52%
95 Aaron Rents, Inc. .............................. 1,305
125 * Applica, Inc. .................................. 1,296
141 Ethan Allen Interiors, Inc. .................... 3,798
246 * Furniture Brands International, Inc. ........... 3,967
108 * Griffon Corp. .................................. 837
88 Haverty Furniture Companies, Inc. .............. 1,018
171 Kimball International, Inc., Class B............ 2,907
172 Lancaster Colony Corp. ......................... 3,967
284 La-Z-Boy Chair Co. ............................. 4,562
307 * Metromedia International Group, Inc. ........... 1,209
25 National Presto Industries, Inc. ............... 761
100 O'Sullivan Industries Holdings, Inc. ........... 50
67 Oneida, Ltd. ................................... 921
60 SLI, Inc. ...................................... 578
419 * Sunbeam Corp. .................................. 812
--------------
27,988
--------------
AUTO - CARS - 0.14%
112 * Avis Group Holdings, Inc. ...................... 3,443
61 * Group 1 Automotive, Inc. ....................... 671
65 Oshkosh Truck Corp., Class B.................... 2,308
26 * Rent-A-Center, Inc. ............................ 856
31 * United Auto Group, Inc. ........................ 262
--------------
7,540
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
AUTO - ORIGINAL EQUIPMENT - 0.82%
152 * Allen Telecom, Inc. ............................ $ 3,030
43 * American Axle & Manufacturing Holdings, Inc. ... 617
200 ArvinMeritor, Inc. ............................. 3,300
136 Carlisle Companies, Inc. ....................... 6,231
116 * Delco Remy International, Inc. ................. 914
122 Donaldson Co., Inc. ............................ 2,577
384 Federal-Mogul Corp. ............................ 3,960
89 * Hayes Lemmerz International, Inc. .............. 1,146
360 * Lear Corp. ..................................... 7,763
253 Mark IV Industries, Inc. ....................... 5,661
121 Modine Manufacturing Co. ....................... 3,403
102 Superior Industries International, Inc. ........ 3,309
219 * Tower Automotive, Inc. ......................... 2,491
--------------
44,402
--------------
AUTO - REPLACEMENT PARTS - 0.32%
258 * Collins & Aikman Corp. ......................... 1,339
350 Cooper Tire & Rubber Co. ....................... 4,222
66 * Dura Automotive System, Inc. ................... 710
164 Kaydon Corp. ................................... 3,618
89 Myers Industries, Inc. ......................... 1,247
133 * O'Reilly Automotive, Inc. ...................... 2,028
255 Pep Boys-Manny, Moe & Jack...................... 1,498
115 Smith, A.O. Corp. .............................. 1,811
65 * Sonic Automotive, Inc. ......................... 687
--------------
17,160
--------------
BANKS - OTHER - 0.50%
46 Alabama National Bancorp........................ 887
62 First Bancorp/Puerto Rico....................... 1,209
63 First Merchants Corp. .......................... 1,406
276 Husdon United Bancorp........................... 6,952
58 Irwin Financial Corp. .......................... 859
56 * Net.B@nk, Inc. ................................. 637
86 Premier National Bancorp, Inc. ................. 1,742
55 R&G Financial Co. .............................. 571
265 Republic Security Financial Co.................. 1,143
421 Sky Financial Group, Inc. ...................... 7,368
100 Sterling Bancshares, Inc. ...................... 1,417
44 UCBH Holdings, Inc. ............................ 1,331
150 W Holding Company, Inc. ........................ 1,416
--------------
26,938
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 SMALL CAP VALUE FUND - CONTINUED 29
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
BANKS - REGIONAL - 10.00%
63 1st Source Corp. .............................. $ 1,174
147 AMCORE Financial, Inc. ........................ 2,656
122 Anchor BanCorp Wisconsin, Inc. ................ 1,991
51 Area Bancshares Corp. ......................... 1,148
22 BancFirst Corp. ............................... 700
306 BancorpSouth, Inc. ............................ 4,475
59 Bank of Granite Corp. ......................... 1,350
1,727 Bank United Corp. ............................. 77,715
57 * BOK Financial Corp. ........................... 1,019
78 Brenton Banks, Inc. ........................... 954
50 BSB Bancorp, Inc. ............................. 1,100
91 BT Financial Corp. ............................ 1,638
22 Capital City Bank Group, Inc. ................. 440
35 Cathay Bancorp, Inc. .......................... 1,746
61 Century South Banks, Inc. ..................... 1,334
76 Chemical Financial Corp. ...................... 1,634
259 Citizens Banking Corp. ........................ 5,957
42 CityBank....................................... 1,202
524 Colonial BancGroup, Inc. ...................... 5,109
72 Commerce Bancorp, Inc. ........................ 3,722
307 Commercial Federal Corp. ...................... 5,545
274 Community First Bankshares..................... 4,932
50 Corus Bankshares, Inc. ........................ 1,650
100 CPB, Inc. ..................................... 2,588
2,544 Cullen/Frost Bankers, Inc. .................... 78,864
23 CVB Financial Corp. ........................... 368
2,822 East West Bancorp.............................. 48,150
135 F&M National Corp. ............................ 3,291
35 Farmers Capital Bank Corp. .................... 1,264
299 First American Corp., Class A.................. 4,934
171 First Charter Corp. ........................... 2,747
32 First Citizens BancShares, Inc., Class A....... 2,106
297 First Commonwealth Financial................... 2,840
81 First Federal Capital Corp. ................... 937
152 First Financial Bancorp........................ 2,565
54 First Financial Bankshares..................... 1,728
37 First Financial Corp. ......................... 1,147
202 First Midwest Bancorp, Inc. ................... 5,214
67 First Niagara Financial Group.................. 647
138 First United Bancshares, Inc. ................. 2,243
119 FNB Corp. ..................................... 2,624
130 * Friedman, Billings, Ramsey Group, Inc.,
Class A........................................ 967
74 Frontier Financial Corp. ...................... 1,425
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
BANKS - REGIONAL - Continued
247 Fulton Financial Corp. ......................... $ 5,187
32 GBC Bancorp..................................... 1,212
150 Gold Bank Corp., Inc. .......................... 804
800 Greater Bay Bancorp............................. 49,600
124 Harbor Florida Bancshares....................... 1,480
48 Harleysville National Corp. .................... 1,446
44 Harris Financial, Inc. ......................... 336
2,162 * Imperial Bancorp................................ 47,024
364 Independence Community Bank..................... 4,937
95 Integra Bank Corp. ............................. 1,829
73 International Bancshares Corp. ................. 2,240
75 InterWest Bancorp, Inc. ........................ 994
61 Mid State Bancshares............................ 1,815
46 Midamerica Bancorp.............................. 1,196
32 Mississippi Valley Bancshares, Inc. ............ 816
30 National Penn Bancshares, Inc. ................. 608
82 NBT Bancorp, Inc. .............................. 933
177 * Ocwen Financial Corp. .......................... 1,007
48 Omega Financial Corp. .......................... 1,332
72 PFF Bancorp, Inc. .............................. 1,440
119 Provident Financial Group....................... 3,131
104 Riggs National Corp. ........................... 1,242
345 Roslyn Bancorp, Inc. ........................... 6,835
135 S&T Bancorp, Inc. .............................. 2,664
52 Sandy Spring Bancorp, Inc. ..................... 1,131
45 Santander Bancorp............................... 529
64 * Silicon Valley Bancshares....................... 3,688
234 South Financial Group, Inc. .................... 3,042
97 * Southwest Bancorporation of Texas............... 2,819
214 Susquehanna Bancshares, Inc. ................... 3,063
2,371 Texas Regional Bancshares, Inc., Class A........ 60,461
50 Three Rivers Bancorp............................ 400
88 Trust Co. of New Jersey......................... 1,452
334 Trustmark Corp. ................................ 6,179
43 U.S.B. Holding Co., Inc. ....................... 575
87 UMB Financial Corp. ............................ 3,137
172 United Bankshares, Inc. ........................ 3,419
50 United National Bancorp......................... 875
274 Webster Financial Corp. ........................ 6,756
125 Westamerica Bankcorporation..................... 3,789
54 Westcorp........................................ 705
123 Whitney Holding Corp. .......................... 4,374
--------------
542,342
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
BEVERAGE - BREWERS/DISTRIBUTORS - 0.09%
55 * Canandaigua Brands, Inc., Class A............... $ 2,964
44 * Mondavi, Robert Corp., Class A.................. 1,804
53 * PepsiAmericas, Inc. ............................ 195
--------------
4,963
--------------
BROADCASTING - 0.19%
54 * Acme Communications, Inc. ...................... 763
26 * Crown Media Holdings, Inc., Class A............. 418
191 * Cumulus Media, Inc. ............................ 1,409
376 * Data Broadcasting Corp. ........................ 1,504
100 * Insight Communications Co. ..................... 1,781
24 * Regent Communications, Inc...................... 210
128 * Salem Communications Corp., Class A............. 1,488
229 * Sinclair Broadcast Group, Inc. ................. 2,762
--------------
10,335
--------------
BUILDING MATERIALS - 1.35%
205 Armstrong Holdings, Inc. ....................... 3,266
40 Centex Construction Products, Inc. ............. 1,032
158 * Comfort Systems USA, Inc. ...................... 869
135 Fedders Corp. .................................. 700
82 Florida Rock Industries, Inc. .................. 3,152
66 * Genlyte Group, Inc. ............................ 1,543
153 HON INDUSTRIES, Inc. ........................... 4,121
252 Interface, Inc., Class A........................ 1,748
221 Lennox International, Inc. ..................... 3,053
99 * NCI Building Systems, Inc. ..................... 1,745
52 * Nortek, Inc. ................................... 1,063
572 RPM, Inc. ...................................... 5,470
1,115 Texas Industries, Inc. ......................... 38,049
26 U. S. Aggregates, Inc. ......................... 449
445 US Industries, Inc. ............................ 5,674
94 Watsco, Inc. ................................... 1,199
--------------
73,133
--------------
CHEMICAL - MAJOR - 0.92%
130 Albemarle Corp. ................................ 3,225
1,133 Borg Warner, Inc. .............................. 38,947
49 Chemed Corp. ................................... 1,501
101 * Hexcel Corp. ................................... 1,395
113 Polymer Group, Inc. ............................ 791
283 Solutia, Inc. .................................. 4,263
--------------
50,122
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
30 SMALL CAP VALUE FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
CHEMICAL - MISCELLANEOUS - 3.37%
273 * Airgas, Inc. ................................... $ 1,809
102 Arch Chemicals, Inc. ........................... 1,855
33 Brady Corp. .................................... 955
27 Cambrex Corp. .................................. 1,267
87 ChemFirst, Inc. ................................ 2,006
191 CK Witco Corp. ................................. 1,719
1,625 * Cytec Industries, Inc. ......................... 54,234
110 Dexter Corp. ................................... 6,504
339 Ethyl Corp. .................................... 699
137 Ferro Corp. .................................... 2,826
113 * Fisher Scientific International, Inc. .......... 2,479
105 Geon Co. ....................................... 1,831
81 Georgia Gulf Corp. ............................. 1,053
281 * Grace, W.R. & Co. .............................. 2,230
259 Great Lakes Chemical Corp. ..................... 8,741
72 H.B. Fuller Co. ................................ 2,471
266 Hanna, M.A. Co. ................................ 2,211
292 Lubrizol Corp. ................................. 6,333
361 Millennium Chemicals, Inc. ..................... 5,957
112 Minerals Technologies, Inc. .................... 5,810
95 NL Industries, Inc. ............................ 2,215
3,376 Olin Corp. ..................................... 55,704
115 OM Group, Inc. ................................. 5,448
187 Omnova Solutions, Inc. ......................... 1,122
163 Schulman, A., Inc. ............................. 1,966
30 Stepan Co. ..................................... 626
80 Valspar Corp. .................................. 2,360
--------------
182,431
--------------
COAL - 0.04%
91 Arch Coal, Inc. ................................ 682
35 NACCO Industries, Inc., Class A................. 1,641
--------------
2,323
--------------
COMMERCIAL SERVICES - 0.12%
25 * 1-800-Flowers.com, Inc. ........................ 130
196 * Billing Concepts Corp. ......................... 637
126 * Homegrocer.com, Inc. ........................... 512
46 * Insurance Auto Auctions, Inc. .................. 759
163 * Integrated Electrical Services.................. 1,253
126 * Navigant Consulting Co. ........................ 504
189 * NBC Internet, Inc., Class A..................... 1,985
36 * Wackenhut Corp., Class A........................ 511
--------------
6,291
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
CONGLOMERATES - 0.28%
226 Alexander & Baldwin, Inc. ...................... $ 5,946
299 Dial Corp. ..................................... 3,065
269 * Ogden Corp. .................................... 4,674
185 Tenneco, Inc. .................................. 1,318
--------------
15,003
--------------
CONSUMER FINANCE - 1.71%
931 Chittenden Corp. ............................... 25,489
48 * E-LOAN, Inc. ................................... 169
1,800 Metris Companies, Inc. ......................... 64,690
105 WesBanco, Inc. ................................. 2,456
--------------
92,804
--------------
CONTAINERS - METAL/GLASS - 0.31%
185 AptarGroup, Inc. ............................... 4,312
162 Ball Corp. ..................................... 5,609
132 Clarcor, Inc. .................................. 2,723
32 * CSS Industries, Inc. ........................... 656
73 Greif Brothers Corp., Class A................... 2,108
277 Owens Corning................................... 1,437
--------------
16,845
--------------
CONTAINERS - PAPER - 0.27%
87 Chesapeake Corp. ............................... 2,076
134 * Gaylord Container Corp., Class A................ 369
35 * Ivex Packaging Corp. ........................... 385
91 * Packaging Corp. of America...................... 1,064
919 * Pactiv Corp. ................................... 10,109
67 Rock-Tenn Co., Class A.......................... 691
--------------
14,694
--------------
COSMETICS/TOILETRIES - 0.13%
185 Alberto-Culver Co., Class B..................... 5,238
108 * Playtex Products, Inc. ......................... 1,283
42 * Revlon, Inc., Class A........................... 299
--------------
6,820
--------------
DRUGS - 0.53%
41 * Amylin Pharmaceuticals, Inc. ................... 555
40 * Anesta Corp. ................................... 953
20 * Antigenics, Inc. ............................... 338
732 Bergen Brunswig Corp., Class A.................. 6,863
96 Bindley Western Industries, Inc. ............... 2,766
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
DRUGS - Continued
79 Carter-Wallace, Inc. ........................... $ 2,103
27 * Chirex, Inc. ................................... 840
277 * Covance, Inc. .................................. 2,874
37 * Cygnus, Inc. ................................... 451
125 * Dura Pharmaceuticals, Inc. ..................... 3,445
102 * Guilford Pharmaceuticals, Inc. ................. 2,729
70 Herbalife International, Inc., Class A.......... 678
41 * IntraBiotics Pharmaceuticals, Inc. ............. 861
38 * Ligand Pharmaceuticals, Inc., Class B........... 494
124 * Parexel International Corp. .................... 1,236
163 * Triangle Pharmaceuticals, Inc. ................. 1,467
--------------
28,653
--------------
ELECTRIC PRODUCTS -
MISCELLANEOUS - 0.11%
177 CMP Group, Inc. ................................ 5,200
53 * ESCO Electronics Corp........................... 977
--------------
6,177
--------------
ELECTRICAL EQUIPMENT - 1.03%
83 * APW, Ltd. ...................................... 3,651
256 Avista Corp. ................................... 4,720
3,100 * General Semiconductor, Inc. .................... 45,144
239 * Intergraph Corp. ............................... 1,434
20 * Intertan, Inc. ................................. 278
68 * Stoneridge, Inc. ............................... 706
--------------
55,933
--------------
ELECTRONIC EQUIPMENT - 1.21%
86 * Audiovox Corp. ................................. 1,559
123 Belden, Inc. ................................... 3,213
174 * Cable Design Technologies Corp. ................ 4,698
79 * Electro Rent Corp. ............................. 968
50 * EMCOR Group, Inc. .............................. 1,210
94 * Esterline Technologies Corp. ................... 1,821
164 General Cable Corp. ............................ 1,374
146 * GenRad, Inc. ................................... 1,287
1,140 * Kent Electronics Corp. ......................... 33,345
23 * Littelfuse, Inc. ............................... 835
196 * Mail-Well, Inc. ................................ 1,421
222 National Service Industries, Inc. .............. 4,426
62 Standex International Corp. .................... 1,151
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 SMALL CAP VALUE FUND - CONTINUED 31
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT - Continued
84 Thomas Industries, Inc. ........................ $ 1,696
63 * Triumph Group, Inc. ............................ 1,933
258 * UCAR International, Inc. ....................... 3,515
51 Woodhead Industries, Inc. ...................... 1,007
--------------
65,459
--------------
ELECTRONIC INSTRUMENTS - 1.59%
52 * ADE Corp. ...................................... 1,169
34 Analogic Corp. ................................. 1,274
56 * Arguss Communications, Inc. .................... 1,113
46 Bel Fuse, Inc., Class B......................... 1,604
156 * Checkpoint Systems, Inc. ....................... 1,248
107 Gerber Scientific, Inc. ........................ 1,043
66 Harman International Industries, Inc. .......... 5,066
194 * Imation Corp. .................................. 4,317
46 * Interlogix, Inc. ............................... 707
104 * MagnaTek, Inc. ................................. 1,105
29 Methode Electronics, Inc., Class A.............. 1,744
51 Park Electrochemical Corp. ..................... 2,050
1,373 * Performance Food Group Co. ..................... 50,973
172 Pioneer-Standard Electronics, Inc. ............. 2,354
282 Pittston Brink's Group.......................... 4,389
270 * Sensormatic Electronics Corp. .................. 4,489
76 * Standard Microsystems Corp. .................... 1,444
--------------
86,089
--------------
ENTERTAINMENT - 0.30%
164 * Aztar Corp. .................................... 2,389
20 Dover Downs Entertainment, Inc. ................ 201
151 * Florida Panthers Holdings, Inc. ................ 1,680
96 Gaylord Entertainment Co. ...................... 2,508
30 * GC Companies, Inc. ............................. 446
75 * GTECH Holdings Corp. ........................... 1,341
33 * Hollowood.com, Inc. ............................ 276
96 * Hollywood Entertainment Corp. .................. 672
114 * Midway Games, Inc. ............................. 983
104 * Playboy Enterprises, Inc. ...................... 1,528
78 * Take-Two Interactive Software, Inc. ............ 1,081
72 * THQ, Inc. ...................................... 1,539
149 * Trans World Entertainment Corp. ................ 1,443
--------------
16,087
--------------
FERTILIZERS - 0.01%
32 Delta & Pine Land Co. .......................... 782
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
FINANCE COMPANIES - 0.45%
112 Charter Municipal Mortgage Acceptance Co. ...... $ 1,519
92 * Credit Acceptance Corp. ........................ 552
172 Doral Financial Corp. .......................... 2,559
43 * Financial Federal Corp. ........................ 914
334 Finova Group, Inc. ............................. 2,317
266 Keystone Financial, Inc. ....................... 6,118
61 * Next Card, Inc. ................................ 501
58 Oriental Financial Group, Inc. ................. 761
241 Phoenix Investment Partners, Ltd. .............. 3,585
22 Student Loan Corp. ............................. 1,049
60 * Triad Guaranty, Inc. ........................... 1,474
89 Tucker Anthony Sutro Corp. ..................... 2,097
49 * WFS Financial, Inc. ............................ 726
--------------
24,172
--------------
FINANCIAL SERVICES - 1.57%
118 Advanta Corp. .................................. 1,533
65 * Affiliated Managers Group, Inc. ................ 3,624
107 American Capital Strategies, Ltd. .............. 2,555
38 * Ampal Amern Israel Corp., Class A............... 591
300 Associates First Capital Corp. ................. 10
41 * J.D. Edwards & Co. ............................. 1,017
133 Jefferies Group, Inc. .......................... 4,048
206 Leucadia National Corp. ........................ 5,382
33 * National Processing, Inc. ...................... 390
36 * NCO Group, Inc. ................................ 626
154 Richmond Count Financial Corp. ................. 3,099
1,781 Southwest Securities Group, Inc. ............... 59,107
135 United Asset Management Corp. .................. 3,308
--------------
85,290
--------------
FOODS - 2.76%
55 * Agribrands International, Inc. ................. 2,185
69 * American Italian Pasta Co., Class A............. 1,168
95 * Aurora Foods, Inc. ............................. 368
203 Chiquita Brands International, Inc. ............ 660
50 ConAgra, Inc. .................................. 911
191 Corn Products International, Inc. .............. 4,799
195 Dean Foods Co. ................................. 6,094
247 * Del Monte Foods Co. ............................ 1,621
249 Dole Food Co., Inc. ............................ 3,517
2,365 Earthgrains Co. ................................ 41,683
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
FOODS - Continued
1,250 Flowers Industries, Inc. ....................... $ 27,188
100 * Grand Union Co. ................................ 22
92 International Multifoods Corp. ................. 1,501
67 Interpool, Inc. ................................ 808
204 Interstate Bakeries Corp. ...................... 3,659
137 Lance, Inc. .................................... 1,276
74 Michael Foods, Inc. ............................ 1,758
1,000 Morrison Management Specialists, Inc. .......... 26,625
88 Pilgrims Pride Corp. ........................... 600
152 * Ralcorp Holdings, Inc. ......................... 2,052
38 Riviana Foods, Inc. ............................ 651
67 * Seminis, Inc., Class A.......................... 109
137 Smucker, J.M. Co. .............................. 2,629
158 * Suiza Foods Corp. .............................. 7,900
214 Trinity Industries, Inc. ....................... 4,146
249 Universal Foods Corp. .......................... 5,105
60 * Wild Oats Markets, Inc. ........................ 645
--------------
149,680
--------------
FOOTWEAR - 0.28%
121 * Payless ShoeSource, Inc. ....................... 6,459
242 * Reebok International, Ltd. ..................... 4,643
215 Stride Rite Corp. .............................. 1,290
24 * Vans, Inc. ..................................... 375
226 Wolverine World Wide, Inc. ..................... 2,472
--------------
15,239
--------------
FREIGHT - 0.97%
267 Airborne Freight Corp. ......................... 3,989
93 AMCOL International Corp. ...................... 308
60 Cascade Natural Gas Corp. ...................... 1,020
94 J.B. Hunt Transport Services, Inc. ............. 1,269
86 * Kirby Corp. .................................... 2,026
138 Overseas Shipholding Group, Inc. ............... 4,062
324 Ryder System, Inc. ............................. 6,217
742 * Seacor Smit, Inc. .............................. 33,807
--------------
52,698
--------------
FUNERAL SERVICES - 0.09%
1,480 Service Corp. International..................... 3,423
518 Stewart Enterprises, Inc. ...................... 1,651
--------------
5,074
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
32 SMALL CAP VALUE FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
HARDWARE & TOOLS - 0.23%
90 Barnes Group, Inc. ............................. $ 1,749
30 Lawson Products, Inc. .......................... 758
319 Snap-on, Inc. .................................. 9,829
--------------
12,336
--------------
HEALTHCARE - 3.37%
110 * AmeriPath, Inc. ................................ 1,498
22 * Apria Healthcare Group, Inc. ................... 326
52 Block Drug Co., Inc., Class A................... 2,106
258 * Edwards Lifesciences Corp. ..................... 6,773
563 * Foundation Health Systems, Inc., Class A........ 9,888
437 * HCR Manor Care, Inc. ........................... 5,845
124 * Henry Schein, Inc. ............................. 2,279
862 * Humana, Inc. ................................... 7,381
2,537 Invacare Corp. ................................. 68,340
20 * LTC Healthcare, Inc. ........................... 10
98 * Medical Manager Corp. .......................... 4,288
52 * Ocular Sciences, Inc. .......................... 559
373 Omnicare, Inc. ................................. 5,105
2,326 * Pharmaceutical Product Development, Inc. ....... 51,027
43 * Praecis Pharmaceuticals, Inc. .................. 1,884
384 * Quorum Health Group, Inc. ...................... 4,944
70 * Respironics, Inc. .............................. 1,326
367 * Steris Corp. ................................... 3,762
377 * Total Renal Care Holdings, Inc. ................ 2,639
392 * US Oncology, Inc. .............................. 2,193
28 Vital Signs, Inc. .............................. 509
--------------
182,682
--------------
HEAVY DUTY TRUCKS/PARTS - 0.37%
63 Bandag, Inc. ................................... 2,052
226 Cummins Engine Co., Inc. ....................... 8,023
43 Detroit Diesel Corp. ........................... 981
246 Federal Signal Corp. ........................... 5,304
141 * Terex Corp. .................................... 2,582
104 Wabash National Corp. .......................... 1,157
--------------
20,099
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
HOME BUILDERS - 0.91%
323 Centex Corp. ................................... $ 9,326
538 Clayton Homes, Inc. ............................ 5,245
40 * Crossmann Communities, Inc. .................... 733
249 D R Horton, Inc. ............................... 4,887
89 * Del Webb Corp. ................................. 1,991
149 * Fairfield Communities, Inc. .................... 1,192
262 Kaufman & Broad Home Corp. ..................... 6,501
117 M.D.C. Holdings, Inc. .......................... 2,932
25 * NVR, Inc. ...................................... 1,838
100 * Palm Harbor Homes, Inc. ........................ 1,463
167 Pulte Corp. .................................... 5,501
71 Ryland Group, Inc. ............................. 1,744
129 Standard Pacific Corp. ......................... 2,120
112 * Toll Brothers, Inc. ............................ 3,654
--------------
49,127
--------------
HOSPITAL MANAGEMENT - 0.25%
551 * Beverly Enterprises, Inc. ...................... 2,858
319 * Coventry Health Care, Inc. ..................... 5,104
53 * DVI, Inc. ...................................... 974
27 * Eclipsys Corp. ................................. 388
61 * Sunrise Assisted Living, Inc. .................. 1,212
74 * Triad Hospitals, Inc. .......................... 2,137
76 * Veterinary Centers of America, Inc. ............ 1,102
--------------
13,775
--------------
HOSPITAL SUPPLIES - 0.22%
113 * Acuson Corp. ................................... 1,623
55 Arrow International, Inc. ...................... 1,959
62 * CONMED Corp. ................................... 837
44 Diagnostic Products Corp. ...................... 1,865
26 * Isis Pharmaceuticals, Inc. ..................... 340
179 Owens & Minor, Inc. ............................ 2,741
386 * PSS World Medical, Inc. ........................ 2,413
52 * Theragenics Corp. .............................. 371
--------------
12,149
--------------
HOUSEHOLD PRODUCTS - 0.10%
45 Bush Industries, Inc. .......................... 585
47 Libbey, Inc. ................................... 1,542
150 Tupperware Corp. ............................... 3,028
--------------
5,155
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
HUMAN RESOURCES - 0.14%
93 Kelly Services, Inc., Class A................... $ 2,151
354 * Modis Professional Services, Inc. .............. 2,434
250 * Spherion Corp. ................................. 3,078
--------------
7,663
--------------
INFORMATION PROCESSING - 0.10%
45 * CACI International, Inc. ....................... 1,012
66 * Fritz Companies, Inc. .......................... 977
172 * High Speed Access............................... 989
74 * Indus International, Inc. ...................... 571
73 * InfoUSA Inc., Class B........................... 452
161 * Stamps.Com, Inc. ............................... 1,057
54 * Systemax, Inc. ................................. 233
--------------
5,291
--------------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - 0.63%
58 * 24/7 Media, Inc. ............................... 837
43 * Cerner Corp. ................................... 1,637
50 * CoStar Group, Inc. ............................. 1,381
34 * First Consulting Group, Inc. ................... 238
26 * Loudeye Technologies, Inc. ..................... 286
81 * Mail.Com, Inc. ................................. 511
1,350 * Multex.com, Inc. ............................... 29,363
39 * Opus360 Corp. .................................. 155
--------------
34,408
--------------
INFORMATION PROCESSING -
COMPUTER HARDWARE - 1.06%
1,000 * Artesyn Technologies, Inc. ..................... 41,562
21 CompX International, Inc. ...................... 476
27 * Emachines, Inc. ................................ 54
110 * Hutchinson Technology, Inc. .................... 2,613
300 * Iomega Corp. ................................... 1,238
103 * MEMC Electronic Materials, Inc. ................ 1,854
60 * Micron Electronics, Inc. ....................... 829
98 * Quantum Corp.................................... 956
1,005 Silicon Graphics, Inc. ......................... 4,711
525 * Western Digitial Corp. ......................... 3,084
--------------
57,377
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 SMALL CAP VALUE FUND - CONTINUED 33
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INFORMATION PROCESSING -
COMPUTER SERVICES - 0.24%
21 * Agency.Com, Ltd. ............................... $ 502
41 * Buy.com, Inc. .................................. 113
90 * Cambridge Technology Partner, Inc. ............. 553
136 * Computer Horizons Corp. ........................ 1,301
172 * FutureLink Corp. ............................... 925
68 * GlobalNet Financial.com, Inc. .................. 672
112 * IVillage, Inc. ................................. 749
152 National Data Corp. ............................ 4,465
21 * Netratings, Inc. ............................... 364
33 * Organic, Inc. .................................. 237
132 * Pegasus Solutions, Inc. ........................ 2,624
45 * Source Information Management Co. .............. 456
--------------
12,961
--------------
INFORMATION PROCESSING -
CONSUMER SOFTWARE - 0.49%
116 * 3DFX Interactive, Inc. ......................... 528
141 * Digital Courier Technologies, Inc. ............. 604
2,100 * IMRglobal Corp. ................................ 24,938
24 * Infogrames, Inc. ............................... 179
37 * Interact Commerce Corp. ........................ 384
41 * Lightspan, Inc. ................................ 145
--------------
26,778
--------------
INFORMATION PROCESSING -
DATA SERVICES - 1.85%
54 * ACNielson Corp. ................................ 1,298
66 * Advanced Digital Information Corp. ............. 1,122
100 Analysts International Corp. ................... 831
106 * Anixter International, Inc. .................... 3,710
35 * Avant! Corp. ................................... 510
60 * Dot Hill Systems Corp. ......................... 533
30 * IDX Systems Corp. .............................. 510
241 * Inprise Corp. .................................. 1,408
100 * JDA Software Group, Inc. ....................... 1,294
400 National Computer Systems, Inc. ................ 29,050
46 * NetManage, Inc. ................................ 131
214 * Paxar Corp. .................................... 2,354
194 * Policy Management Systems Corp. ................ 2,619
110 * Primark Corp. .................................. 4,070
651 * Radisys Corp. .................................. 36,387
40 * Sciquest.com, Inc. ............................. 385
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INFORMATION PROCESSING -
DATA SERVICES - Continued
511 * Storage Technology Corp. ....................... $ 8,080
196 * Structural Dynamic Research Corp. .............. 3,161
146 Technology Solutions Co. ....................... 452
62 * Transaction Systems Architects, Inc. Class A ... 1,139
44 * Volt Information Sciences, Inc. ................ 1,488
--------------
100,532
--------------
INFORMATION PROCESSING -
NETWORKING - 0.14%
127 * Banyan Systems, Inc. ........................... 952
69 * Hypercom Corp. ................................. 781
31 * Nucentrix Broadband Networks, Inc. ............. 810
35 * Osicom Technologies, Inc. ...................... 2,065
153 * Softnet Systems, Inc. .......................... 1,061
49 * VelocityHSI, Inc. .............................. 171
172 Ziff-Davis, Inc. ............................... 1,892
--------------
7,732
--------------
INSURANCE - CASUALTY - 0.50%
67 * Arch Capital Group, Ltd. ....................... 1,017
64 Baldwin & Lyons, Inc., Class B.................. 1,244
137 Commerce Group, Inc. ........................... 3,562
66 E.W. Blanch Holdings, Inc. ..................... 1,448
223 HCC Insurance Holdings, Inc. ................... 4,711
145 Mercury General Corp. .......................... 3,978
24 Midland Co. .................................... 618
34 * Philadelphia Consolidated Holding Co. .......... 561
72 * PICO Holdings, Inc. ............................ 995
93 PMA Capital Corp. .............................. 1,569
356 Reliance Group Holdings, Inc. .................. 78
43 RLI Corp. ...................................... 1,656
143 Selective Insurance Group, Inc. ................ 2,565
66 State Auto Financial Corp. ..................... 829
56 Stewart Information Services Corp. ............. 753
89 Trenwick Group, Inc. ........................... 1,685
--------------
27,269
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INSURANCE - LIFE - 1.36%
37 Kansas City Life Insurance Co. ................. $ 1,234
112 Presidential Life Corp. ........................ 1,694
1,673 StanCorp Financial Group, Inc. ................. 66,920
203 * UIC, Inc. ...................................... 1,345
95 W. R. Berkley Corp. ............................ 2,518
--------------
73,711
--------------
INSURANCE - MISCELLANEOUS - 0.99%
125 Crawford & Co., Class B......................... 1,555
289 Fidelity National Financial, Inc. .............. 5,762
316 Fremont General Corp. .......................... 1,007
596 Gallagher, Arthur J & Co. ...................... 29,204
72 Harleysville Group, Inc. ....................... 1,386
130 HSB Group, Inc. ................................ 5,192
85 Liberty Corp. .................................. 3,273
115 * Mid Atlantic Medical Services, Inc. ............ 1,854
327 Ohio Casualty Corp. ............................ 2,412
51 SCPIE Holdings, Inc. ........................... 1,109
50 Zenith National Insurance Corp. ................ 1,159
--------------
53,913
--------------
INSURANCE - MULTILINE - 0.58%
213 Alfa Corp. ..................................... 4,033
26 * Alleghany Corp. ................................ 4,535
56 American National Insurance Co. ................ 3,444
69 AmerUs Life Holdings, Inc. ..................... 1,703
95 Argonaut Group, Inc. ........................... 1,568
90 CNA Surety Corp. ............................... 1,041
81 * Delphi Financial Group, Inc., Class A........... 3,351
64 FBL Financial Group, Inc., Class A.............. 944
39 Great American Financial Resources, Inc. ....... 700
222 Horace Mann Educators Corp. .................... 3,386
54 LandAmerica Financial Group, Inc. .............. 1,374
29 * Markel Corp. ................................... 4,230
102 * Medical Assurance, Inc. ........................ 1,186
--------------
31,495
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
34 SMALL CAP VALUE FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
LEISURE TIME - 1.07%
38 * Anchor Gaming................................... $ 2,783
1,650 * Bally Total Fitness Holding Corp. .............. 40,734
206 * Boyd Gaming Corp. .............................. 953
79 * Callaway Golf Co. .............................. 1,141
44 * Cheap Tickets, Inc. ............................ 468
47 Churchill Downs, Inc. .......................... 1,110
131 * Dollar Thrifty Automotive Group, Inc. .......... 2,964
145 * Handleman Co. .................................. 1,794
41 * JAKKS Pacific, Inc. ............................ 728
24 * Scotts Co. ..................................... 744
32 * Travelocity.com, Inc. .......................... 440
75 * Vail Resorts, Inc. ............................. 1,378
75 Winnebago Industries, Inc. ..................... 961
104 * WMS Industries, Inc. ........................... 1,664
--------------
57,862
--------------
LODGING - 0.38%
51 Deltic Timber Corp. ............................ 1,020
332 * Extended Stay America, Inc. .................... 4,918
121 Marcus Corp. ................................... 1,490
192 Meristar Hospitality Corp. ..................... 4,248
91 * NS Group, Inc. ................................. 1,604
244 * Prime Hospitality Corp. ........................ 2,532
177 Sodexho Marriott Services, Inc. ................ 2,876
819 * Wyndham International, Inc. .................... 1,740
--------------
20,428
--------------
MACHINE TOOLS - 0.06%
195 Milacron, Inc. ................................. 3,010
--------------
MACHINERY - AGRICULTURE - 0.10%
324 AGCO Corp. ..................................... 3,402
61 Toro Co. ....................................... 1,845
--------------
5,247
--------------
MACHINERY - CONSTRUCTION &
CONTRACTS - 0.47%
60 * CDI Corp. ...................................... 1,110
68 Columbus McKinnon Corp. ........................ 995
209 Foster Wheeler Corp. ........................... 1,476
103 Granite Construction, Inc. ..................... 2,343
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
MACHINERY - CONSTRUCTION &
CONTRACTS - Continued
122 * Jacobs Engineering Group, Inc. ................. $ 4,636
122 Kaman Corp., Class A............................ 1,601
261 Lennar Corp. ................................... 7,210
177 * Morrison Knudsen Corp. ......................... 2,124
201 * NationsRent, Inc. .............................. 779
107 Sauer-Danfoss, Inc. ............................ 976
109 * United Rentals, Inc. ........................... 2,262
--------------
25,512
--------------
MACHINERY -
INDUSTRIAL/SPECIALTY - 2.65%
147 AAR Corp. ...................................... 1,653
95 * Albany International Corp., Class A............. 1,323
110 Applied Industrial Technologies, Inc. .......... 1,862
83 Applied Power, Inc., Class A.................... 410
130 Baldor Electric Co. ............................ 2,551
78 Briggs & Stratton Corp. ........................ 3,374
95 Burlington Coat Factory Warehouse Corp. ........ 1,158
900 Carbo Ceramics, Inc. ........................... 32,681
85 Exide Corp. .................................... 765
204 Flowserve Corp. ................................ 3,774
71 * Gardner Denver, Inc. ........................... 1,034
128 Hughes Supply, Inc. ............................ 2,726
119 IDEX Corp. ..................................... 3,615
88 * Ionics, Inc. ................................... 2,624
226 JLG Industries, Inc. ........................... 2,613
124 Lilly Industries, Inc., Class A................. 3,798
190 Lincoln Electric Holdings, Inc. ................ 2,779
36 Manitowoc Co., Inc. ............................ 826
1,190 Newport News Shipbuilding, Inc. ................ 50,575
48 Nordson Corp. .................................. 3,108
114 Regal-Beloit Corp. ............................. 1,967
43 Robbins & Myers, Inc. .......................... 1,027
59 * Speedfam-ipec, Inc. ............................ 1,099
69 * SPS Technologies, Inc. ......................... 3,247
152 Stewart & Stevenson Services, Inc. ............. 2,451
87 Tecumseh Products Co., Class A.................. 3,458
35 Tennant Co. .................................... 1,536
270 Timken Co. ..................................... 4,404
90 Watts Industries, Inc., Class A................. 1,013
--------------
143,451
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
MEDICAL TECHNOLOGY - 0.94%
44 * Bio-Rad Laboratories, Inc., Class A............. $ 1,084
182 * Cell Genesys, Inc. ............................. 5,608
47 * Haemonetics Corp. .............................. 1,184
75 * Res-Care, Inc. ................................. 363
35 * Techniclone Corp. .............................. 97
900 * Varian Medical Systems, Inc. ................... 41,344
57 West Pharmaceutical Services, Inc. ............. 1,186
--------------
50,866
--------------
MERCHANDISE - DRUG - 0.11%
24 * Allos Therapeutics, Inc. ....................... 281
169 Longs Drug Stores Corp. ........................ 3,190
336 * Perrigo Co. .................................... 2,489
--------------
5,960
--------------
MERCHANDISE - SPECIALTY - 1.57%
351 American Greetings Corp., Class A............... 6,537
160 * Ames Department Stores, Inc. ................... 810
99 Arctic Cat, Inc. ............................... 1,173
126 * Avid Technology, Inc. .......................... 1,772
215 * Barnes & Noble, Inc. ........................... 3,722
42 * Barnesandnoble.com, Inc. ....................... 168
33 * Bush Boake Allen, Inc. ......................... 1,448
211 Caseys General Stores, Inc. .................... 2,400
140 Cash America International, Inc. ............... 1,050
74 * Central Garden & Pet Co. ....................... 555
513 * Charming Shoppes, Inc. ......................... 2,789
50 Hancock Holding Co. ............................ 1,606
812 Ikon Office Solutions, Inc. .................... 4,060
79 * International Specialty Products, Inc. ......... 454
882 * Michaels Stores, Inc. .......................... 30,870
133 * Musicland Stores Corp. ......................... 948
246 * Nu Skin Asia Pacific, Inc., Class A............. 1,614
613 * OfficeMax, Inc. ................................ 3,180
97 * Petco Animal Supplies, Inc. .................... 2,037
345 * Petsmart, Inc. ................................. 1,596
28 * Rent-Way, Inc. ................................. 686
55 Russ Berrie and Co., Inc. ...................... 1,128
99 * Seitel, Inc. ................................... 1,553
20 * Sitel Corp. .................................... 115
106 Sotheby's Holdings, Inc., Class A............... 2,193
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 SMALL CAP VALUE FUND - CONTINUED 35
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
MERCHANDISE - SPECIALTY - Continued
62 South Jersey Industries, Inc. .................. $ 1,674
57 Spiegel, Inc., Class A.......................... 388
42 * SportsLine.com, Inc. ........................... 743
106 Sturm, Ruger & Co., Inc. ....................... 881
116 * Twinlab Corp. .................................. 573
73 * United Stationers, Inc. ........................ 2,368
111 * Zale Corp. ..................................... 4,100
--------------
85,191
--------------
MERCHANDISING - DEPARTMENT - 1.29%
374 * Borders Group, Inc. ............................ 4,978
509 Dillards, Inc., Class A......................... 6,522
204 * Neiman Marcus Group, Inc., Class A.............. 6,847
4,252 Pier 1 Imports, Inc. ........................... 49,961
119 * Stein Mart, Inc. ............................... 1,398
--------------
69,706
--------------
MERCHANDISING - FOOD - 0.19%
214 Fleming Companies, Inc. ........................ 3,303
94 Great Atlantic & Pacific Tea Co., Inc. ......... 1,316
54 Ingles Markets, Inc., Class A................... 533
164 Ruddick Corp. .................................. 2,009
65 * Smart & Final, Inc., ........................... 504
100 * Smithfield Foods, Inc. ......................... 2,656
--------------
10,321
--------------
MERCHANDISING - MASS - 0.23%
161 * ShopKo Stores, Inc. ............................ 1,841
749 * Venator Group, Inc. ............................ 10,486
--------------
12,327
--------------
METALS - ALUMINUM - 0.05%
67 Century Aluminum Co. ........................... 875
159 * Kaiser Aluminum Corp. .......................... 904
57 Tredegar Corp. ................................. 1,112
--------------
2,891
--------------
METALS - COPPER - 0.05%
138 Southern Peru Copper Corp. (Peru)............... 1,924
45 * Wolverine Tube, Inc. ........................... 748
--------------
2,672
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
METALS - MISCELLANEOUS - 0.42%
89 Brush Engineered Materials, Inc. ............... $ 2,081
77 Commercial Metals Co. .......................... 2,151
165 Kennametal, Inc. ............................... 4,228
26 Penn Engineering & Manufacturing Corp. ......... 866
133 Precision Castparts Corp. ...................... 10,108
102 * RTI International Metals, Inc. ................. 1,434
172 * Steel Dynamics, Inc. ........................... 2,086
--------------
22,954
--------------
METALS - STEEL - 0.66%
462 AK Steel Holding Corp. ......................... 5,024
717 * Bethlehem Steel Corp. .......................... 2,510
100 Carpenter Technology Corp. ..................... 3,250
58 Cleveland-Cliffs, Inc. ......................... 1,457
38 Gibraltar Steel Corp. .......................... 665
217 Harsco Corp. ................................... 6,035
544 LTV Corp. ...................................... 986
117 Metals USA, Inc. ............................... 563
178 * Mueller Industries, Inc. ....................... 5,618
110 National Steel Corp., Class B................... 447
78 Quanex Corp. ................................... 1,458
100 Reliance Steel & Aluminium Co. ................. 2,063
124 Ryerson Tull, Inc. ............................. 1,170
172 * Weirton Steel Corp. ............................ 548
385 Worthington Industries, Inc. ................... 4,018
--------------
35,812
--------------
MISCELLANEOUS - 0.24%
47 * AMERCO, Inc. ................................... 923
26 * Bacou U.S.A., Inc. ............................. 653
31 * Burns International Services Corp. ............. 667
98 * Drugstore.com, Inc. ............................ 600
86 * Key3Media Group, Inc. .......................... 650
111 * MP3.com, Inc. .................................. 916
107 * Protection One, Inc. ........................... 187
115 Regis Corp. .................................... 1,818
468 USEC, Inc. ..................................... 2,048
42 Valhi, Inc. .................................... 538
28 * Veritas DGC, Inc. .............................. 747
113 Wabtec Corp. ................................... 1,172
92 * Women.com Networks, Inc. ....................... 305
46 Woodward Governor Co. .......................... 1,823
--------------
13,047
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
MOBILE HOMES - 0.15%
257 * Champion Enterprises, Inc. ..................... $ 1,702
76 Coachmen Industries, Inc. ...................... 846
181 Fleetwood Enterprises, Inc. .................... 2,477
45 McGrath Rentcorp................................ 768
85 * Monaco Coach Corp. ............................. 1,488
38 Thor Industries, Inc. .......................... 886
--------------
8,167
--------------
MULTIMEDIA - 0.05%
93 Meredith Corp. ................................. 2,540
--------------
NATURAL GAS - DIVERSIFIED - 0.40%
172 Atmos Energy Corp. ............................. 3,569
103 Laclede Gas Co. ................................ 2,221
96 New Jersey Resources Corp. ..................... 3,840
170 * Southern Union Co. ............................. 3,040
170 Southwest Gas Corp. ............................ 3,209
148 UGI Corp. ...................................... 3,376
100 Western Gas Resources, Inc. .................... 2,194
--------------
21,449
--------------
OIL - INTEGRATED DOMESTIC - 0.18%
72 * Belco Oil and Gas Corp. ........................ 657
73 Cross Timbers Oil Co. .......................... 1,930
426 Pennzoil-Quaker State Co. ...................... 5,298
173 * Tesoro Petroleum Corp. ......................... 1,665
--------------
9,550
--------------
OIL - SERVICE - PRODUCTS - 1.12%
31 * Key Production Company, Inc. ................... 559
1,050 * Lone Star Technologies, Inc. ................... 52,764
356 * Parker Drilling Co. ............................ 2,560
64 RPC, Inc. ...................................... 705
98 SEMCO Energy, Inc. ............................. 1,470
143 * TransMontaigne, Inc. ........................... 635
122 * Trico Marine Services, Inc. .................... 1,769
--------------
60,462
--------------
OIL - SERVICES - 1.09%
151 * Friede Goldman Halter, Inc. .................... 848
1,475 * Marine Drilling Companies, Inc ................. 40,102
200 Mascotech, Inc. ................................ 3,313
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
36 SMALL CAP VALUE FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
OIL - SERVICES - Continued
86 * McMoRan Exploration Co. ........................ $ 892
104 * Oceaneering International, Inc. ................ 1,814
115 * Offshore Logistics, Inc. ....................... 1,998
31 Providence Energy Corp. ........................ 1,314
100 * Pure Resources, Inc. ........................... 1,931
233 * Unova, Inc. .................................... 1,748
207 York International Corp. ....................... 5,149
--------------
59,109
--------------
OIL/GAS PRODUCERS - 3.16%
700 * Atwood Oceanics, Inc. .......................... 31,762
37 * Basin Exploration, Inc. ........................ 739
150 * Brown, Tom, Inc. ............................... 3,262
79 Cabot Oil & Gas Corp., Class A.................. 1,580
21 * Callon Petroleum Co. ........................... 322
105 * Comstock Resources, Inc. ....................... 1,043
32 * Denbury Resources, Inc. ........................ 222
144 * EEX Corp. ...................................... 792
700 Equitable Resources, Inc. ...................... 39,419
24 * Evergree Resources, Inc. ....................... 701
59 * Forcenergy, Inc. ............................... 1,427
79 * Forest Oil Corp. ............................... 1,210
209 * Input/Output, Inc. ............................. 1,881
60 Midcoast Energy Resources, Inc. ................ 1,118
650 * Newfield Exploration Co. ....................... 28,113
83 * Nuevo Energy Co. ............................... 1,593
61 Patina Oil & Gas Corp. ......................... 1,296
542 * Pioneer Natural Resources Corp. ................ 7,520
1,500 * Swift Energy Co. ............................... 43,406
67 * Unit Corp. ..................................... 1,047
132 Vintage Petroleum, Inc. ........................ 2,772
--------------
171,225
--------------
PAPER/FOREST PRODUCTS - 1.15%
95 * Buckeye Technologies, Inc. ..................... 2,369
140 Caraustar Industries, Inc. ..................... 2,161
140 Glatfelter, P.H. Co. ........................... 1,470
281 Longview Fibre Co. ............................. 3,196
567 Louisiana Pacific Corp. ........................ 5,989
79 Pope & Talbot, Inc. ............................ 1,570
1,006 Potlatch Corp. ................................. 33,827
149 Rayonier, Inc. ................................. 6,193
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
PAPER/FOREST PRODUCTS - Continued
80 Schweitzer-Mauduit, Inc. ....................... $ 1,160
70 Standard Register Co. .......................... 897
24 * Thermo Fibertek, Inc. .......................... 99
59 Universal Forest Products, Inc. ................ 741
280 Wausau-Mosinee Paper Corp. ..................... 2,485
--------------
62,157
--------------
PHOTOGRAPHY - 0.09%
244 Polaroid Corp. ................................. 4,148
52 * Ultratech Stepper, Inc. ........................ 936
--------------
5,084
--------------
POLLUTION CONTROL - 0.09%
186 Calgon Carbon Corp. ............................ 1,581
30 * Cuno, Inc. ..................................... 855
51 Mine Safety Appliances Co. ..................... 1,046
24 * Newpark Resources, Inc. ........................ 246
70 * URS Corp. ...................................... 923
--------------
4,651
--------------
PUBLISHING - NEWS - 1.21%
209 Hollinger International, Inc. .................. 3,423
50 Lee Enterprises, Inc. .......................... 1,400
1,112 Media General, Inc., Class A.................... 57,268
117 * Network Equipment Technologies, Inc. ........... 1,411
47 Pulitzer, Inc. ................................. 2,024
--------------
65,526
--------------
PUBLISHING/PRINTING - 0.47%
137 Banta Corp. .................................... 3,022
192 Bowne & Co., Inc. .............................. 1,991
145 Harland, John H. Co. ........................... 2,121
65 Houghton Mifflin Co. ........................... 3,197
247 * Journal Register Co. ........................... 4,076
101 McClatchy Co., Class A.......................... 3,617
68 New England Business Service, Inc. ............. 1,339
32 * R.H. Donnelley Corp. ........................... 672
31 * Scholastic Corp. ............................... 1,990
41 * Scientific Games Holdings Corp. ................ 1,061
204 Wallace Computer Services, Inc. ................ 2,372
--------------
25,458
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
RAILROAD - 0.07%
279 * Wisconsin Central Transport Corp. .............. $ 3,732
--------------
REAL ESTATE - 0.34%
72 * Castle & Cooke, Inc. ........................... 1,386
209 * Catellus Development Corp. ..................... 3,736
111 CB Richard Ellis Services, Inc. ................ 1,166
20 Cousins Properties, Inc. ....................... 823
63 * Forest City Enterprises, Inc., Class A.......... 2,205
98 * Insignia Financial Group, Inc. ................. 925
121 LNR Property Corp. ............................. 2,571
246 Republic Bancorp, Inc. ......................... 2,183
118 SL Green Realty Corp. .......................... 3,164
--------------
18,159
--------------
REAL ESTATE INVESTMENT TRUSTS - 7.56%
59 Alexandria Real Estate Equities, Inc. .......... 2,064
377 Allied Capital Corp. ........................... 7,633
97 American Industrial Properties.................. 1,315
79 Amli Residential Properties Trust............... 1,954
323 Arden Realty, Inc. ............................. 8,235
101 Bedford Prpty Investors, Inc. .................. 1,962
93 Boykin Lodging Co. ............................. 924
121 Bradley Real Estate, Inc. ...................... 2,647
2,385 Brandywine Realty Trust......................... 48,891
244 BRE Properties, Inc., Class A................... 7,122
176 Burnham Pacific Properties, Inc. ............... 1,056
221 Cabot Industrial Trust.......................... 4,337
208 Camden Property Trust........................... 6,227
113 Capital Automotive REIT......................... 1,567
88 Capstead Mortgage Corp. ........................ 754
1,985 CBL & Associates Properties, Inc. .............. 47,392
113 CenterPoint Properties Corp. ................... 4,951
101 Chateau Communities, Inc. ...................... 2,626
82 Chelsea GCA Realty, Inc. ....................... 2,752
119 Colonial Properties Trust....................... 3,183
165 Commercial Net Lease Realty..................... 1,722
213 Cornerstone Realty Income Trust, Inc. .......... 2,237
81 * Crestline Capital Corp. ........................ 1,595
334 Developers Diversified Realty Corp. ............ 4,843
85 EastGroup Properties, Inc. ..................... 1,859
82 Entertainment Properties Trust.................. 892
200 Equity Inns, Inc. .............................. 1,275
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 SMALL CAP VALUE FUND - CONTINUED 37
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - Continued
98 Essex Property Trust, Inc. ..................... $ 4,820
176 Federal Realty Investment Trust................. 3,520
257 Felcor Lodging Trust, Inc. ..................... 5,718
211 First Industrial Realty Trust, Inc. ............ 6,264
44 First Washington Realty Trust, Inc. ............ 886
307 Franchise Finance Corp. ........................ 6,908
132 Gables Residential Trust........................ 3,663
160 Glenborough Realty Trust, Inc. ................. 2,980
129 Glimcher Realty Trust........................... 1,982
89 Great Lakes REIT, Inc. ......................... 1,708
242 Health Care Property Investors, Inc. ........... 6,368
155 Health Care REIT, Inc. ......................... 2,800
218 Healthcare Realty Trust, Inc. .................. 4,306
324 Highwoods Properties, Inc. ..................... 7,795
1,609 Home Properties of NY, Inc. .................... 47,767
275 Hospitality Properties Trust.................... 6,394
718 HRPT Properties Trust........................... 4,891
369 Indymac Mortgage Holdings, Inc. ................ 6,227
189 Innkeepers USA Trust............................ 1,960
173 IRT Property Co. ............................... 1,525
184 JDN Realty Corp. ............................... 1,897
145 * Jones Lang Lasalle, Inc. ....................... 2,112
67 JP Realty, Inc. ................................ 1,189
143 Kilroy Realty Corp. ............................ 3,557
145 Koger Equity, Inc. ............................. 2,483
58 LaSalle Hotel Properties........................ 834
93 Lexington Corp. Propertries..................... 1,058
171 Macerich Co. ................................... 3,580
37 Manufactured Home Communities, Inc. ............ 874
775 Meditrust Companies............................. 1,792
96 Mid-America Apartment Communities, Inc. ........ 2,322
73 National Golf Properties, Inc. ................. 1,496
133 National Health Investors, Inc. ................ 981
252 Nationwide Health Properties, Inc. ............. 3,638
477 New Plan Excel Realty Trust..................... 6,589
100 Pacific Gulf Properties, Inc. .................. 2,794
48 Pan Pacific Retail Properties, Inc. ............ 915
54 Parkway Properties, Inc. ....................... 1,715
67 Pennsylvania Real Estate Investment Trust....... 1,168
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - Continued
196 Prentiss Properties Trust....................... $ 4,765
52 Prime Group Realty Trust........................ 800
644 Prison Realty Trust............................. 1,530
127 PS Business Parks, Inc. ........................ 3,365
145 Realty Income Corp. ............................ 3,299
222 Reckson Associates Realty Corp. ................ 5,397
168 Regency Realty Corp. ........................... 3,800
133 RFS Hotel Investors, Inc. ...................... 1,663
54 Saul Centers, Inc. ............................. 854
166 * Security Capital Group, Inc. ................... 2,822
65 Senior Housing Property Trust................... 593
159 Shurgard Storage Centers, Inc., Class A......... 3,786
66 Sovran Self Storage, Inc. ...................... 1,283
151 Storage USA, Inc. .............................. 4,549
135 Summit Properties, Inc. ........................ 3,138
95 Sun Communities, Inc. .......................... 2,939
186 Taubman Centers, Inc. .......................... 2,034
133 * Trammell Crow Co. .............................. 1,845
561 United Dominion Realty Trust, Inc. ............. 6,066
56 Urban Shopping Centers, Inc. ................... 1,957
134 Washington Real Estate Investment Trust......... 2,571
146 Weingarten Realty Investors..................... 5,913
94 Western Properties Trust........................ 1,093
157 Westfield America, Inc. ........................ 2,345
--------------
409,898
--------------
RESTAURANTS - 1.14%
1,829 Applebees International, Inc. .................. 41,495
209 Bob Evans Farms, Inc. .......................... 3,553
226 * Buffets, Inc. .................................. 2,995
319 CBRL Group, Inc. ............................... 3,848
130 * Consolidated Products, Inc. .................... 1,194
108 * IHOP Corp. ..................................... 2,120
124 Landry's Seafood Restaurants, Inc. ............. 977
143 Lone Star Steakhouse & Saloon, Inc. ............ 1,207
122 Luby's, Inc. ................................... 671
43 * O'Charley's, Inc. .............................. 548
66 Ruby Tuesday, Inc. ............................. 825
177 * Ryan's Family Steak Houses, Inc. ............... 1,438
36 * Triarc Companies, Inc., Class A................. 819
--------------
61,690
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SAVINGS & LOAN - 4.80%
4,057 American Financial Holdings, Inc. .............. $ 73,025
35 Andover Bancorp................................. 1,023
251 Astoria Financial Corp. ........................ 8,815
153 Bay View Capital Corp. ......................... 1,492
71 Brookline Bancorp, Inc. ........................ 839
192 Capitol Federal Financial....................... 2,784
65 Dime Community Bancshares....................... 1,308
115 Downey Financial Corp. ......................... 3,853
48 F&M Bancorp. ................................... 1,014
73 First Financial Holdings, Inc. ................. 1,063
51 First Indiana Corp. ............................ 1,068
196 First Sentinel Bancorp, Inc. ................... 1,789
4,544 * FirstFed Financial Corp. ....................... 81,792
129 MAF Bancorp, Inc. .............................. 2,774
79 Northwest Bancorp, Inc. ........................ 672
65 OceanFirst Financial Corp. ..................... 1,341
150 People's Bank................................... 3,169
137 Provident Bankshares Corp. ..................... 1,952
70 Queens County Bancorp, Inc. .................... 1,846
139 Seacoast Financial Services Co. ................ 1,407
200 Staten Island Bancorp, Inc. .................... 3,688
164 United Community Financial Co. ................. 1,035
2,997 Washington Federal, Inc. ....................... 62,188
--------------
259,937
--------------
SCHOOLS - 0.10%
68 * Edison Schools, Inc. ........................... 2,108
55 * School Specialty, Inc. ......................... 993
152 * Sylvan Learning Systems, Inc. .................. 2,195
--------------
5,296
--------------
SECURITIES RELATED - 0.42%
66 Dain Rauscher Corp. ............................ 5,309
148 Enhance Financial Services Group, Inc. ......... 2,331
119 * LaBranche & Co., Inc. .......................... 3,585
74 Liberty Financial Companies, Inc. .............. 1,748
120 Morgan Keegan, Inc. ............................ 2,408
32 * National Discount Brokers Group, Inc. .......... 1,158
214 Raymond James Financial, Inc. .................. 6,099
--------------
22,638
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
38 SMALL CAP VALUE FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C> <C>
-------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT - 0.59%
1,200 * ATMI, Inc. ................................ $ 32,156
--------------
SEMICONDUCTORS - 1.11%
1,100 * Actel Corp. ............................... 48,401
241 C-Cube Microsystems, Inc. ................. 5,603
33 * Cirrus Logic, Inc. ........................ 998
51 * FSI International, Inc. ................... 905
161 * Silicon Valley Group, Inc. ................ 4,488
--------------
60,395
--------------
TELECOMMUNICATIONS - 0.90%
89 ABM Industries, Inc. ...................... 2,402
55 * Alaska Communication Systems Holdings,
Inc. ...................................... 444
284 * Allied Riser Commun. Corp. ................ 2,307
69 * American Telesource International, Inc. ... 207
26 * Anicom, Inc. .............................. 100
67 * Arch Communications Group, Inc. ........... 348
32 * AT&T Latin America Corp., Class A.......... 448
30 * Cypress Communications, Inc. .............. 158
64 * E. Spire Communication, Inc. .............. 260
227 * General Communication, Inc. ............... 1,816
323 * Glenayre Technologies, Inc. ............... 3,513
26 * Golden Telecom, Inc. (Russia).............. 800
39 Hickory Tech Corp. ........................ 780
23 * ICG Communications, Inc. .................. 137
61 * Intermedia Communications, Inc. ........... 1,266
400 * L-3 Communications Holdings, Inc. ......... 23,650
35 * Lodgenet Entertainment Corp. .............. 930
71 * Mediacom Communications Corp. ............. 1,011
54 * Medicalogic/Medscape, Inc. ................ 361
26 * Metricom, Inc. ............................ 1,058
92 * Metrocall, Inc. ........................... 385
41 * Motient Corp. ............................. 497
48 North Pittsburgh Systems, Inc. ............ 678
22 * Pac-West Telecomm, Inc. ................... 311
100 * Paging Network, Inc. ...................... 28
50 Superior Telecom, Inc. .................... 422
22 Superior Trust I, Class A (Pfd)............ 509
21 * Teligent, Inc. ............................ 358
62 * Viatel, Inc. .............................. 849
57 * Weblink Wireless, Inc. .................... 565
147 * World Access, Inc. ........................ 1,332
195 * Worldpages.com, Inc. ...................... 817
--------------
48,747
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
TEXTILE - PRODUCTS - 0.79%
103 G & K Services, Inc., Class A................... $ 2,987
212 * Mohawk Industries, Inc. ........................ 5,035
148 Russell Corp. .................................. 2,821
70 Springs Industries, Inc., Class A............... 2,091
309 * Unifi, Inc. .................................... 3,496
2,172 Wellman, Inc. .................................. 26,200
30 WestPoint Stevens, Inc., Class A................ 422
--------------
43,052
--------------
TOBACCO - 0.09%
47 Brooke Group, Ltd. ............................. 943
154 Universal Corp. ................................ 3,985
--------------
4,928
--------------
TRUCKERS - 1.04%
118 * American Freightways Corp. ..................... 1,941
111 Arnold Industries, Inc. ........................ 1,727
264 CNF Transportation, Inc. ....................... 6,468
70 * Heartland Express, Inc. ........................ 1,225
48 * M.S. Carriers, Inc. ............................ 885
68 Roadway Express, Inc. .......................... 1,564
259 Rollins Truck Leasing Corp. .................... 1,748
183 * Swift Transportation Co., Inc. ................. 3,122
145 USFreightways Corp. ............................ 4,522
2,102 Werner Enterprises, Inc. ....................... 28,377
66 * Xtra Corp. ..................................... 2,929
137 * Yellow Corp. ................................... 2,089
--------------
56,597
--------------
TRUCKING & LEASING - 0.02%
85 * Arkansas Best Corp. ............................ 1,280
--------------
UTILITIES - COMMUNICATION - 0.01%
21 * Commonwealth Telephone Enterprises, Inc. ....... 811
--------------
UTILITIES - ELECTRIC - 2.69%
78 Black Hills Corp. .............................. 1,989
122 Cleco Corp. .................................... 5,094
492 Conectiv, Inc. ................................. 8,733
298 * El Paso Electric Co. ........................... 4,004
95 Empire District Electric Co. ................... 2,464
176 Hawaiian Electric Industries, Inc. ............. 5,764
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
UTILITIES - ELECTRIC - Continued
205 Idacorp, Inc. .................................. $ 8,085
337 Kansas City Power & Light Co. .................. 9,057
88 Madison Gas & Electric Co. ..................... 1,749
402 Minnesota Power, Inc. .......................... 8,919
1,926 Northwestern Corp. ............................. 41,891
424 OGE Energy Corp. ............................... 9,063
119 Otter Tail Power Co. ........................... 2,484
190 Public Service Co. of New Mexico................ 4,061
193 RGS Energy Group, Inc. ......................... 4,801
427 Sierra Pacific Resources Corp. ................. 7,553
166 UniSource Energy Corp. ......................... 2,583
78 United Illuminating Co. ........................ 3,924
253 Washington Gas Light Co. ....................... 6,404
373 Western Resources, Inc. ........................ 7,460
--------------
146,082
--------------
UTILITIES - GAS, DISTRIBUTION - 0.49%
295 AGL Resources, Inc. ............................ 5,587
147 Energen Corp. .................................. 3,813
137 Northwest Natural Gas Co. ...................... 3,151
71 NUI Corp. ...................................... 2,134
169 Piedmont Natural Gas Co., Inc. ................. 4,679
136 Southwestern Energy Co. ........................ 1,054
334 Vectren Corp. .................................. 6,346
--------------
26,764
--------------
UTILITIES - GAS, PIPELINE - 0.21%
159 ONEOK, Inc. .................................... 5,078
192 Peoples Energy Corp. ........................... 6,240
--------------
11,318
--------------
UTILITIES - MISCELLANEOUS - 1.56%
76 * Casella Waste Systems, Inc. .................... 746
92 CH Energy Group, Inc. .......................... 3,473
318 * Encompass Services Corp. ....................... 1,749
2,883 MDU Resources Group, Inc. ...................... 72,075
180 Walter Industries, Inc. ........................ 1,485
25 * Waste Connections, Inc. ........................ 581
144 WPS Resources Corp. ............................ 4,330
--------------
84,439
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 SMALL CAP VALUE FUND - CONTINUED 39
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
WATER SERVICES - 0.17%
49 American States Water Co. ..................... $ 1,276
166 * Azurix Corp. .................................. 789
64 California Water Service Group................. 1,680
24 E'Town Corp. .................................. 1,613
167 Philadelphia Suburban Corp. ................... 3,915
--------------
9,273
--------------
TOTAL COMMON STOCK
(Cost $4,726,406).............................. 5,031,899
--------------
PAR
VALUE
-----------
SHORT-TERM INVESTMENTS - 6.76%
U. S. TREASURY BILLS - 0.73%
$ 40,000 6.00% due 09/28/00
(Cost $39,819)................................. 39,819
--------------
REPURCHASE AGREEMENT - 6.03%
BANKS - OTHER - 6.03%
327,000 State Street Bank, 6.42% dated 08/31/00, to be
repurchased at $327,058 on 09/01/00,
collaterlized by U.S. Treasury Notes,
6.63%, 07/31/01, with a par value of $340,000
(Cost $327,000)................................ 327,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $366,819)................................ 366,819
--------------
TOTAL INVESTMENTS
(Cost $5,093,225) - 99.59%..................... $ 5,398,718
--------------
* Non-income producing
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
<S> <C>
--------------------------------------------------------------------------------
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value at 08/31/00)
1(2) Russell 2000 Futures
(September/$537).......................................... $ 21,775
----------
</TABLE>
(1) U.S. Treasury Bills with a market value of approximately $40,000 were
maintained in a segregated account with a portion placed as collateral for
futures contracts.
(2) Per 500.
--------------------------------------------------------------------------------
<PAGE>
40 SOCIALLY RESPONSIBLE FUND August 31, 2000
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
14.77% 21.85%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Socially
Responsible
Fund S&P 500 Index
------------- ------------------
9/21/98 10,000 10,000
11/98 11,376 11,396
2/99 12,110 12,166
5/99 12,715 12,832
8/99 12,783 13,057
11/99 13,522 13,778
2/00 13,337 13,593
5/00 13,713 14,177
8/31/00 14,672 15,188
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $14,276,483
NAV on 08/31/00: $14.16
One year total return: 14.77%
Net expense ratio: 0.56%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
Magali Azema-Barac (VALIC)
How did the Fund perform relative to its market and its benchmark?
For the 12 month period ending August 31, 2000 the S&P 500 large cap index
returned a positive 16.3% while the mid capitalization index returned an
impressive 39.75%. The Fund had an average annual total return of 14.77%.
How did the market perform over the past fiscal year?
During this one year period, the Growth style and Technology sector were still
in favor; with Growth outperforming Value by about 29% coupled with the
Technology sector posting returns over the 70% range. Amid these returns, the
small capitalization sector did its part, returning about 27%.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. Intel Corp. ............. 3.53%
2. Cisco Systems, Inc. ..... 3.12%
3. Microsoft Corp. ......... 2.45%
4. Standard & Poor's
Depositary SPDR.......... 2.13%
5. Citigroup, Inc. ......... 2.13%
6. International Business
Machines Corp. .......... 1.94%
7. Oracle Corp. ............ 1.75%
8. American International
Group, Inc. ............. 1.70%
9. Nortel Networks Corp.
(Canada)................. 1.61%
10. Merck & Co., Inc. ....... 1.60%
</TABLE>
Portfolio holdings are subject to change.
What were some of the dominant themes in the portfolio?
The dominant theme for this Fund is to invest in socially "acceptable"
companies; i.e. companies which do not significantly engage in the production
of weapons, alcohol, tobacco, gambling, nuclear power and pollution. Once the
universe of "acceptable" companies has been determined, the dominant investing
theme is to identify companies with good growth earnings prospects combined
with reasonable valuations. This is achieved by analyzing historical growth
records and current cash flow valuation. The resulting portfolio is
constructed so as to be diversified across industry and capitalization ranges.
Which portfolio holdings most enhanced the Fund's performance?
During this one year period, the Fund overweighted some key names in the
financial and technology sectors. In the financial sector, JP Morgan was taken
over by Chase; Lehman Brothers, one of the remaining independent securities
brokers and AIG, the major insurance company, helped the performance. And for
the technology sector, GLW Corning, the fiber optic company and Micron
Technology, the semi-conductor company, contributed positively to the Fund's
performance.
Were there any disappointments in the Fund's portfolio?
The social mandate of this Fund creates an implicit underweight in the Energy
sector. During this fiscal year, the Fund suffered as oil prices and energy
prices in general climbed up. In terms of performance, a negative 1% impact to
the Fund is attributable to the underweight in the Energy sector.
What do you see ahead in the markets for the next fiscal period?
In these highly volatile markets, it is difficult to estimate what the next
fiscal period will bring. However, one could somewhat safely assume that the
Growth style and Technology sector will see some reversal and that the Value
style will come back into favor, at least temporarily.
-------------------------------------------------------------------------------
<PAGE>
August 31, 2000 SOCIALLY RESPONSIBLE FUND 41
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMON STOCK - 91.48%
ADVERTISING - 0.33%
150 Harte-Hanks, Inc. ................................ $ 3,769
200 Interpublic Group Corp. .......................... 7,650
350 Omnicom Group, Inc. .............................. 29,203
100 Young & Rubicam, Inc. ............................ 5,850
--------------
46,472
--------------
AIRLINES - 0.19%
550 Delta Air Lines, Inc. ............................ 27,225
--------------
APPLIANCES/FURNISHINGS - 0.03%
100 Whirlpool Corp. .................................. 3,800
--------------
AUTO - ORIGINAL EQUIPMENT - 0.03%
150 Superior Industries
International, Inc. .............................. 4,866
--------------
BANKS - NEW YORK CITY - 0.42%
1,150 Bank of New York Co., Inc. ....................... 60,303
--------------
BANKS - OTHER - 2.67%
2,172 Bank of America Corp. ............................ 116,338
1,210 First Union Corp. ................................ 35,014
1,836 FleetBoston Financial Corp. ...................... 78,374
850 Mellon Financial Corp. ........................... 38,463
270 Providian Financial Corp. ........................ 31,033
1,900 Wells Fargo Co. .................................. 82,056
--------------
381,278
--------------
BANKS - REGIONAL - 2.03%
550 BankOne Corp. .................................... 19,387
2,700 Chase Manhattan Corp. ............................ 150,862
300 Fifth Third Bancorp............................... 13,856
800 PNC Bank Corp. ................................... 47,150
150 State Street Corp. ............................... 17,663
550 SunTrust Banks, Inc. ............................. 27,156
50 TCF Financial Corp. .............................. 1,641
200 Wachovia Corp. ................................... 11,463
--------------
289,178
--------------
BEVERAGE - SOFT DRINKS - 1.75%
2,750 Coca-Cola Co. .................................... 144,719
2,450 PepsiCo, Inc. .................................... 104,431
--------------
249,150
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
BROADCASTING - 1.01%
440 * Clear Channel Communications, Inc. ............. $ 31,845
1,663 * Viacom, Inc., Class B........................... 111,941
--------------
143,786
--------------
BUILDING MATERIALS - 0.93%
2,400 Home Depot, Inc. ............................... 115,350
400 Lowe's Companies, Inc. ......................... 17,925
--------------
133,275
--------------
CHEMICAL - MAJOR - 0.24%
400 Albemarle Corp. ................................ 9,925
600 PPG Industries, Inc. ........................... 24,300
--------------
34,225
--------------
CHEMICAL - MISCELLANEOUS - 0.24%
1,100 * Grace, W.R. & Co. .............................. 8,731
350 Praxair, Inc. .................................. 15,487
350 Sigma Aldrich Corp. ............................ 10,172
--------------
34,390
--------------
CONGLOMERATES - 0.77%
300 ITT Industries, Inc. ........................... 10,088
1,750 Tyco International, Ltd. (Bermuda).............. 99,750
--------------
109,838
--------------
CONSUMER FINANCE - 0.42%
890 Associates First Capital Corp. ................. 25,031
1,000 MBNA Corp. ..................................... 35,313
--------------
60,344
--------------
CONTAINERS - METAL/GLASS - 0.80%
350 Corning, Inc. .................................. 114,778
--------------
COSMETICS/TOILETRIES - 0.25%
1,200 Gillette Co. ................................... 36,000
--------------
DRUGS - 5.34%
350 Allergan, Inc. ................................. 25,593
1,650 American Home Products Corp. ................... 89,409
1,150 * Amgen, Inc. .................................... 87,184
50 Bausch & Lomb, Inc. ............................ 1,788
3,000 Bristol Myers Squibb Co. ....................... 159,000
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
DRUGS - Continued
1,140 Eli Lilly and Co. .............................. $ 83,220
350 * IVAX Corp. ..................................... 12,119
3,260 Merck & Co., Inc. .............................. 227,793
1,910 Schering-Plough Corp. .......................... 76,639
--------------
762,745
--------------
ELECTRONIC EQUIPMENT - 0.83%
850 Emerson Electric Co. ........................... 56,259
312 Molex, Inc. .................................... 16,478
700 * Teradyne, Inc. ................................. 45,369
--------------
118,106
--------------
ELECTRONIC INSTRUMENTS - 0.14%
450 * Sensormatic Electronics Corp. .................. 7,481
325 * Vishay Intertechnology, Inc. ................... 13,102
--------------
20,583
--------------
ENTERTAINMENT - 1.74%
600 Carnival Corp., Class A......................... 11,962
150 Hasbro, Inc. ................................... 1,847
1,400 Time Warner, Inc. .............................. 119,700
2,980 Walt Disney Co. ................................ 116,034
--------------
249,543
--------------
FINANCE COMPANIES - 0.49%
1,450 Household International, Inc. .................. 69,600
--------------
FINANCIAL SERVICES - 3.17%
520 Allamerica Financial Corp. ..................... 31,654
1,950 American Express Co. ........................... 115,294
5,200 Citigroup, Inc. ................................ 303,550
100 Heller Financial, Inc. ......................... 2,488
--------------
452,986
--------------
FOODS - 1.64%
450 BestFoods....................................... 31,780
730 Campbell Soup Co. .............................. 18,524
1,200 ConAgra, Inc. .................................. 21,975
350 General Mills, Inc. ............................ 11,244
450 H J Heinz Co. .................................. 17,156
350 Hershey Foods Corp. ............................ 14,941
600 Kellogg Co. .................................... 13,913
510 Quaker Oats Co. ................................ 34,648
1,790 Ralston Purina Co. ............................. 40,499
1,620 Sara Lee Corp. ................................. 30,173
--------------
234,853
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
42 SOCIALLY RESPONSIBLE FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
FOOTWEAR - 0.10%
350 NIKE, Inc., Class B............................. $ 13,847
--------------
GOVERNMENT SPONSORED - 0.96%
1,050 Federal Home Loan Mortgage Corp. ............... 44,231
1,740 Federal National Mortgage Association........... 93,525
--------------
137,756
--------------
HEALTHCARE - 0.45%
1,050 IMS Health, Inc. ............................... 19,819
350 * Oxford Health Plans, Inc. ...................... 10,675
350 UnitedHealth Group, Inc. ....................... 33,075
--------------
63,569
--------------
HOSPITAL MANAGEMENT - 0.71%
1,700 Columbia/HCA Healthcare Corp. .................. 58,650
1,370 Tenet Healthcare Corp. ......................... 42,470
--------------
101,120
--------------
HOSPITAL SUPPLIES - 3.02%
2,620 Abbott Laboratories Inc. ....................... 114,624
930 Baxter International, Inc. ..................... 77,423
1,850 Johnson & Johnson............................... 170,084
1,350 Medtronic, Inc. ................................ 69,188
--------------
431,319
--------------
HOUSEHOLD PRODUCTS - 1.31%
750 Colgate-Palmolive Co. .......................... 38,203
1,700 Procter & Gamble Co. ........................... 105,081
914 Unilever NV - ADR (Netherland).................. 43,187
--------------
186,471
--------------
INFORMATION PROCESSING - 0.80%
900 * JDS Uniphase Corp. ............................. 112,162
100 * Sybase, Inc. ................................... 2,744
--------------
114,906
--------------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - 4.45%
5,020 * Microsoft Corp. ................................ 350,458
2,750 * Oracle Corp. ................................... 250,078
50 * Phone.com, Inc. ................................ 4,622
250 * Veritas Software Corp. ......................... 30,141
--------------
635,299
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INFORMATION PROCESSING -
COMPUTER HARDWARE - 3.06%
660 * Apple Computer, Inc. ........................... $ 40,219
1,790 Compaq Computer Corp. .......................... 60,972
2,250 * Dell Computer Corp. ............................ 98,156
300 * Gateway, Inc. .................................. 20,430
210 * Lexmark International Group, Inc. .............. 14,241
1,600 * Sun Microsystems, Inc. ......................... 203,100
--------------
437,118
--------------
INFORMATION PROCESSING -
COMPUTER SERVICES - 2.41%
2,100 * America Online, Inc. ........................... 123,112
50 * Ariba, Inc. .................................... 7,869
890 Automatic Data Processing, Inc. ................ 53,066
700 * Ceridian Corp. ................................. 16,931
50 * CMGI, Inc. ..................................... 2,238
50 * Critical Path, Inc. ............................ 3,863
1,390 Electronic Data Systems Corp. .................. 69,239
1,000 First Data Corp. ............................... 47,688
450 Paychex, Inc. .................................. 20,081
--------------
344,087
--------------
INFORMATION PROCESSING -
CONSUMER SOFTWARE - 0.04%
200 * Liberate Technologies, Inc. .................... 6,150
--------------
INFORMATION PROCESSING -
DATA SERVICES - 5.53%
50 * A.C. Nielson.................................... 1,202
250 * At Home Corp. .................................. 3,641
710 Computer Associates International, Inc. ........ 22,543
1,800 * EMC Corp. ...................................... 176,400
250 * Engage Technologies, Inc. ...................... 3,547
1,050 Hewlett Packard Co. ............................ 126,788
2,100 International Business Machines Corp. .......... 277,200
250 * Network Appliance, Inc. ........................ 29,250
660 Pitney Bowes, Inc. ............................. 24,131
510 * Seagate Technology, Inc. ....................... 30,281
500 * Solectron Corp. ................................ 22,656
1,080 Xerox Corp. .................................... 17,348
450 * Yahoo!, Inc. ................................... 54,675
--------------
789,662
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INFORMATION PROCESSING -
NETWORKING - 3.12%
6,500 * Cisco Systems, Inc. ............................ $ 445,250
--------------
INSURANCE - CASUALTY - 0.11%
200 Chubb Corp. .................................... 15,313
--------------
INSURANCE - LIFE - 0.30%
700 Lincoln National Corp. ......................... 37,800
150 Torchmark Corp. ................................ 4,209
--------------
42,009
--------------
INSURANCE - MULTILINE - 2.69%
300 AFLAC, Inc. .................................... 16,199
400 Allstate Corp. ................................. 11,625
2,720 American International Group, Inc. ............. 242,375
450 CIGNA Corp. .................................... 43,763
420 Hartford Financial Services Group, Inc. ........ 27,983
350 Marsh & McLennan Companies, Inc. ............... 41,563
--------------
383,508
--------------
LODGING - 0.11%
500 Host Marriott Corp. ............................ 5,344
250 Marriott International, Inc. ................... 9,875
--------------
15,219
--------------
MACHINERY - AGRICULTURE - 0.12%
500 Deere & Co. .................................... 16,469
--------------
MACHINERY - CONSTRUCTION &
CONTRACTS - 0.27%
1,060 Caterpillar, Inc. .............................. 38,955
--------------
MACHINERY -
INDUSTRIAL/SPECIALTY - 0.96%
300 Cooper Industries, Inc. ........................ 10,594
1,100 Dover Corp. .................................... 53,763
1,160 Tidewater, Inc. ................................ 46,835
1,550 Timken Co. ..................................... 25,284
--------------
136,476
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 SOCIALLY RESPONSIBLE FUND - CONTINUED 43
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
MEDICAL TECHNOLOGY - 0.12%
250 * Guidant Corp. .................................. $ 16,828
--------------
MERCHANDISE - DRUG - 0.20%
850 Walgreen Co. ................................... 27,944
--------------
MERCHANDISE - SPECIALTY - 0.41%
200 * Best Buy Co., Inc. ............................. 12,350
400 * Costco Wholesale Corp. ......................... 13,775
600 Gap, Inc. ...................................... 13,463
320 Radioshack Corp. ............................... 18,880
--------------
58,468
--------------
MERCHANDISING -
DEPARTMENT - 0.19%
1,140 Target Corp. ................................... 26,505
--------------
MERCHANDISING - FOOD - 0.38%
750 * Kroger Co. ..................................... 17,016
400 * Safeway, Inc. .................................. 19,725
400 SYSCO Corp. .................................... 16,925
--------------
53,666
--------------
MERCHANDISING - MASS - 1.75%
1,030 Sears Roebuck and Co. .......................... 32,123
4,600 Wal-Mart Stores, Inc. .......................... 218,213
--------------
250,336
--------------
METALS - ALUMINUM - 0.40%
1,760 Alcan Aluminium, Ltd. (Canada).................. 57,750
--------------
METALS - STEEL - 0.26%
100 Harsco Corp. ................................... 2,781
2,000 USX-US Steel Group, Inc. ....................... 34,750
--------------
37,531
--------------
MISCELLANEOUS - 0.17%
400 * Agilent Technologies, Inc. ..................... 24,125
--------------
NATURAL GAS - DIVERSIFIED - 0.14%
350 El Paso Energy Corp. ........................... 20,388
--------------
OIL - INTEGRATED DOMESTIC - 0.48%
1,930 Ashland Oil, Inc. .............................. 68,033
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
OIL - SERVICE - PRODUCTS - 0.18%
330 * Cooper Cameron Corp. ........................... $ 25,678
--------------
OIL - SERVICES - 1.16%
700 Baker Hughes, Inc. ............................. 25,594
800 Halliburton Co. ................................ 42,400
500 * Rowan Companies, Inc. .......................... 15,500
970 Schlumberger, Ltd. ............................. 82,753
--------------
166,247
--------------
OIL/GAS PRODUCERS - 0.80%
400 Equitable Resources, Inc. ...................... 22,525
1,600 Helmerich & Payne, Inc. ........................ 59,100
550 Transocean Sedco Forex, Inc. ................... 32,863
--------------
114,488
--------------
PAPER/FOREST PRODUCTS - 0.74%
300 Avery Dennison Corp. ........................... 16,219
100 Fort James Corp. ............................... 3,163
900 Kimberly-Clark Corp. ........................... 52,650
820 Rayonier, Inc. ................................. 34,081
--------------
106,113
--------------
PUBLISHING - NEWS - 0.84%
800 Dow Jones & Co., Inc. .......................... 50,050
560 Gannett Co., Inc. .............................. 31,710
600 Knight-Ridder, Inc. ............................ 32,775
150 New York Times Co., Class A..................... 5,878
--------------
120,413
--------------
PUBLISHING/PRINTING - 0.41%
1,200 Dun & Bradstreet Corp. ......................... 39,600
300 McGraw-Hill, Inc. .............................. 18,581
--------------
58,181
--------------
RAILROAD - 0.37%
1,320 Burlington Northern Santa Fe Corp. ............. 29,535
600 Union Pacific Corp. ............................ 23,850
--------------
53,385
--------------
RESTAURANTS - 0.56%
1,050 Darden Restaurants, Inc. ....................... 18,572
2,050 McDonald's Corp. ............................... 61,244
--------------
79,816
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SECURITIES RELATED - 5.79%
250 A.G. Edwards, Inc. ............................. $ 12,999
1,055 Charles Schwab Corp. ........................... 40,288
560 J. P. Morgan & Co., Inc. ....................... 93,625
580 Lehman Brothers Holdings, Inc. ................. 84,100
620 Merrill Lynch & Co., Inc. ...................... 89,900
1,400 Morgan Stanley Dean Witter & Co. ............... 150,588
710 Paine Webber Group, Inc. ....................... 50,765
2,000 Standard & Poor's Depositary Receipts........... 304,750
--------------
827,015
--------------
SEMICONDUCTOR EQUIPMENT - 0.58%
800 * Applied Materials, Inc. ........................ 69,050
200 * KLA-Tencor Corp. ............................... 13,125
--------------
82,175
--------------
SEMICONDUCTORS - 6.66%
1,000 * Advanced Micro Devices, Inc. ................... 37,624
400 * Analog Devices, Inc. ........................... 40,200
100 * Conexant Systems, Inc. ......................... 3,719
6,740 * Intel Corp...................................... 504,658
750 * Micron Technology, Inc. ........................ 61,313
2,550 Motorola, Inc. ................................. 91,959
250 * National Semiconductor Corp. ................... 11,125
900 Rockwell International Corp. ................... 36,394
2,000 Texas Instruments, Inc. ........................ 133,875
330 * Xilinx, Inc. ................................... 29,328
--------------
950,195
--------------
TELECOMMUNICATIONS - 6.65%
250 Alltel Corp. ................................... 12,640
4,297 AT&T Corp. ..................................... 135,355
655 * Global Crossing, Ltd. .......................... 19,690
3,170 Lucent Technologies, Inc. ...................... 132,546
600 * Nextel Communications, Inc., Class A............ 33,263
2,810 Nortel Networks Corp. (Canada).................. 229,191
650 * QUALCOMM, Inc. ................................. 38,919
951 * Qwest Communications International, Inc. ....... 49,102
250 * Scientific-Atlanta, Inc. ....................... 19,484
350 * Tellabs, Inc. .................................. 19,666
3,617 Verizon Communications, Inc. ................... 157,792
2,775 * Worldcom, Inc. ................................. 101,287
--------------
948,935
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
44 SOCIALLY RESPONSIBLE FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
TEXTILE - PRODUCTS - 0.18%
1,100 V. F. Corp. .................................... $ 25,163
--------------
UTILITIES - COMMUNICATION - 2.39%
2,540 BellSouth Corp. ................................ 94,774
3,576 SBC Communications, Inc. ....................... 149,298
1,710 Sprint Corp. FON Group.......................... 57,284
800 * Sprint Corp. PCS Group.......................... 40,150
--------------
341,506
--------------
UTILITIES - ELECTRIC - 1.51%
950 Allegheny Energy, Inc. ......................... 34,081
1,481 DPL, Inc. ...................................... 40,450
1,160 OGE Energy Corp. ............................... 24,795
750 Potomac Electric Power Co. ..................... 18,891
1,510 Puget Sound Energy, Inc. ....................... 35,296
406 Scottish Power, Plc. - ADR (Country)............ 12,231
1,984 Xcel Energy, Inc. .............................. 49,722
--------------
215,466
--------------
UTILITIES - GAS, DISTRIBUTION - 1.53%
4,500 AGL Resources, Inc. ............................ 85,218
1,350 National Fuel Gas Co. .......................... 70,791
1,180 NICOR, Inc. .................................... 43,512
1,000 Vectren Corp. .................................. 19,000
--------------
218,521
--------------
UTILITIES - GAS, PIPELINE - 0.65%
1,600 ONEOK, Inc. .................................... 51,100
1,300 Peoples Energy Corp. ........................... 42,250
--------------
93,350
--------------
TOTAL COMMON STOCK
(Cost $10,520,638).............................. 13,060,048
--------------
<CAPTION>
PAR
VALUE
-----------
<C> <S> <C>
SHORT-TERM INVESTMENTS - 8.58%
U.S. TREASURY BILLS - 0.59%
$10,000 6.06% due 10/12/00.............................. 9,931
75,000 6.05% due 10/19/00.............................. 74,394
--------------
(Cost $84,325).................................. 84,325
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 7.99%
BANKS - OTHER - 7.99%
$1,141,000 State Street Bank, 6.42%, dated 08/31/00, to be
repurchased at $1,141,203 on 09/01/00,
collateralized by U.S. Treasury Notes, 6.63%,
07/31/00, with a par value of $1,170,000
(Cost $1,141,000)................................... $ 1,141,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,225,325)................................... 1,225,325
-----------
TOTAL INVESTMENTS
(Cost $11,745,963) - 100.06%........................ $14,285,373
-----------
* Non-income producing
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
<S> <C>
------------------------------------------------------------------------------
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value at 08/31/00)
10(2) E-Mini S&P 500 Index Futures
(September/$1,521)................. $ 14,563
1(3) S&P 500 Index Futures (September/$1,521)................. 5,975
-----------
$ 20,538
-----------
</TABLE>
(1) U.S. Treasury Bills with a market value of approximately $84,000 were
maintained in a segregated account with a portion placed as collateral for
futures contracts.
(2) Per 50.
(3) Per 250.
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 BALANCED FUND 45
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
14.10% 19.47%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Balanced Balanced S&P 500 Lehman Gov
Fund Blend Index & Corp
------------- --------- -------- -----------
9/21/98 10,000 10,000 10,000 10,000
11/98 11,054 10,881 11,396 10,120
2/99 11,783 11,256 12,166 9,974
5/99 12,466 11,612 12,832 9,945
8/99 12,377 11,708 13,057 9,879
11/99 12,621 12,152 13,778 9,987
2/00 12,961 12,095 13,593 10,047
5/00 13,460 12,457 14,177 10,133
8/31/00 14,121 13,221 15,188 10,597
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $12,754,407
NAV on 08/31/00: $13.11
One year total return: 14.10%
Net expense ratio: 0.82%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with Capital Guardian Trust Company
How did the Fund perform relative to its benchmark?
For the one year period ended August 31, 2000, the Fund outperformed the
benchmark by 1.18%. The Fund remains overweight in equities relative to the
benchmark which has been positive for overall performance as equity holdings
outperformed the S&P 500 Index as well as fixed income returns.
Equity returns were led by stock selection in the Technology and Health Care
names particularly holdings such as Applied Materials and PE Corp, which had
140% and 180% plus returns for the period, respectively. Being underweight in
the technology sector helped in the second quarter of 2000 as the sector in
general went through a tough stretch. Some of the other bigger contributors
overall in the Fund were KLA Tencor (producer durables), AES Corp. (utilities)
and AT&T Corp (communication services).
The fixed-income portion of the Fund was helped by our cautious stance toward
interest rates. Our duration was lower than that of the index, which proved to
be beneficial as rates rose. Our overweighting in corporate securities was a
positive. Our position in high-yield corporate securities was beneficial as
they had a strong period.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. U.S. Treasury Notes 6.88%
due 05/15/06............. 6.12%
2. Federal National Mortgage
Association
6.00% due 05/15/08....... 2.97%
3. U.S. Treasury Notes 6.38%
due 08/15/02............. 2.36%
4. Government National
Mortgage Association
8.00% due 04/15/30....... 1.94%
5. Government National
Mortgage Association
6.50% due 06/15/29....... 1.81%
6. Federal National Mortgage
Association
6.25% due 05/15/29....... 1.81%
7. Government National
Mortgage Association
7.00% due 11/25/28....... 1.80%
8. Astrazeneca, Plc. - ADR
(United Kingdom)......... 1.63%
9. Government National
Mortgage Association
7.00% due 09/15/28....... 1.53%
10. Federal Home Loan Bank
5.13% due 09/15/03....... 1.50%
</TABLE>
Portfolio holdings are subject to change.
What do you see ahead in the markets for the next fiscal year?
Recent data suggest the Fed has succeeded in letting some steam out of the
economy. But it remains to be seen whether the recent pickup in inflation is
temporary or the beginning of a more enduring trend. While the Federal Reserve
may be nearing the end of its tightening cycle, additional rate hikes later in
the year are possible.
We believe increasing our equity weighting is appropriate now that stocks have
corrected. Within our U.S. equity portfolios, performance was helped in the
second quarter by underweighting technology stocks and by owning high-quality
names within our technology exposure. Now that valuations for many companies
have been knocked down, we are acquiring names that we had liked but thought
too expensive.
Within the fixed-income portion of the portfolio, we are gradually becoming
less defensive in terms of duration, and are now only slightly short of the
index. Widening credit spreads hurt our bond returns in the second quarter,
but we believe there is value on a selective basis among corporate securities
and we continue to have a larger-than-index weighting in that area. However,
we are likely to keep our exposure to Treasury securities high on the long end
of the yield curve, as Treasury bonds will become increasingly scarce if the
Federal budget surplus continues to swell.
-------------------------------------------------------------------------------
<PAGE>
46 BALANCED FUND August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMON STOCK - 66.94%
ADVERTISING - 0.54%
1,000 * Doubleclick, Inc. .............................. $ 40,688
400 * TMP Worldwide Inc. ............................. 27,675
--------------
68,363
--------------
AEROSPACE/DEFENSE - 2.17%
3,500 Lockheed Martin Corp. .......................... 99,313
1,200 Raytheon Co., Class B........................... 33,375
2,300 United Technologies Corp. ...................... 143,605
--------------
276,293
--------------
AUTO - CARS - 0.26%
613 * ANC Rental Co. ................................. 4,288
3,700 Autonation, Inc. ............................... 24,050
300 DelpHi Automotive Systems Corp. ................ 4,931
--------------
33,269
--------------
BANKS - OTHER - 1.45%
2,878 Bank of America Corp. .......................... 154,153
700 Wells Fargo Co. ................................ 30,231
--------------
184,384
--------------
BANKS - REGIONAL - 0.99%
3,600 BankOne Corp. .................................. 126,900
--------------
BEVERAGE - SOFT DRINKS - 0.47%
1,400 PepsiCo, Inc. .................................. 59,675
--------------
BROADCASTING - 2.89%
1,500 * Adelphia Communications Corp., Class A.......... 50,250
2,100 * Cablevision Systems Corp., Class A.............. 141,225
1,000 * Charter Communications, Inc., Class A........... 15,313
2,400 * Viacom, Inc., Class B........................... 161,550
--------------
368,338
--------------
BUILDING MATERIALS - 0.88%
2,500 Lowe's Companies, Inc. ......................... 112,031
--------------
CHEMICAL - MISCELLANEOUS - 0.30%
1,000 Ecolab, Inc. ................................... 38,938
--------------
CONGLOMERATES - 0.93%
1,000 Textron, Inc. .................................. 56,063
1,100 Tyco International, Ltd. (Bermuda).............. 62,700
--------------
118,763
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
CONSUMER FINANCE - 0.77%
3,500 Associates First Capital Corp. ................. $ 98,438
--------------
COSMETICS/TOILETRIES - 0.21%
700 Avon Products, Inc. ............................ 27,431
--------------
DRUGS - 4.10%
4,560 Astrazeneca, Plc. - ADR (United Kingdom)........ 207,858
1,500 * Forest Laboratories, Inc. ...................... 146,813
3,900 Pfizer, Inc. ................................... 168,675
--------------
523,346
--------------
ELECTRICAL EQUIPMENT - 0.85%
800 Sony Corp. (Japan).............................. 91,400
400 * Tycom Ltd. ..................................... 16,650
--------------
108,050
--------------
ELECTRONIC EQUIPMENT - 1.54%
800 Emerson Electric Co. ........................... 52,950
500 General Electric Co. ........................... 29,344
1,400 * Teradyne, Inc. ................................. 90,738
800 W. W. Grainger, Inc. ........................... 23,100
--------------
196,132
--------------
ENTERTAINMENT - 3.14%
3,600 Carnival Corp., Class A......................... 71,775
4,300 * Fox Entertainment Group, Inc. .................. 124,431
2,700 Hasbro, Inc. ................................... 33,244
2,000 Time Warner, Inc. .............................. 171,000
--------------
400,450
--------------
FERTLIIZERS - 0.17%
1,500 IMC Global, Inc. ............................... 22,031
--------------
FINANCE COMPANIES - 1.02%
1,567 Citigroup, Inc. ................................ 91,454
800 Household International, Inc. .................. 38,400
--------------
129,854
--------------
FOODS - 2.79%
3,600 Campbell Soup Co. .............................. 91,350
3,200 ConAgra, Inc. .................................. 58,600
1,900 General Mills, Inc. ............................ 61,038
700 H. J. Heinz Co. ................................ 26,687
5,100 Kellogg Co. .................................... 118,256
--------------
355,931
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
FOOTWEAR - 0.50%
1,600 NIKE, Inc., Class B............................. $ 63,300
--------------
GOVERNMENT SPONSORED - 0.83%
2,700 USA Education, Inc. ............................ 105,806
--------------
FUNERAL SERVICES - 0.07%
4,000 Service Corp. International..................... 9,250
--------------
HEALTHCARE - 0.51%
500 * PacifiCare Health Systems, Inc., Class A........ 26,969
2,700 * Quintiles Transnational Corp. .................. 37,631
--------------
64,600
--------------
HOSPITAL SUPPLIES - 1.00%
1,500 Becton, Dickinson and Co. ...................... 45,188
1,600 Medtronic, Inc. ................................ 82,000
--------------
127,188
--------------
HOUSEHOLD PRODUCTS - 0.54%
1,900 Clorox Co. ..................................... 68,756
--------------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - 0.86%
3,400 * Peoplesoft, Inc. ............................... 109,650
--------------
INFORMATION PROCESSING -
COMPUTER HARDWARE - 2.03%
4,500 Compaq Computer Corp. .......................... 153,281
1,700 * Dell Computer Corp. ............................ 74,163
100 * MIPS Technologies, Inc. ........................ 5,725
500 * MIPS Technologies, Inc., Class B................ 25,875
--------------
259,044
--------------
INFORMATION PROCESSING -
COMPUTER SERVICES - 0.49%
900 * Checkfree Holdings Corp. ....................... 46,631
1,900 * Genuity, Inc. .................................. 16,388
--------------
63,019
--------------
INFORMATION PROCESSING -
CONSUMER SOFTWARE - 0.32%
600 * Macromedia, Inc. ............................... 41,466
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 BALANCED FUND - CONTINUED 47
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INFORMATION PROCESSING -
DATA SERVICES - 1.46%
1,600 Autodesk, Inc. ................................. $ 45,000
1,500 Galileo International, Inc. .................... 27,938
500 Hewlett Packard Co. ............................ 60,375
400 International Business Machines Corp. .......... 52,800
--------------
186,113
--------------
INFORMATION PROCESSING -
NETWORKING - 1.37%
1,200 * Cisco Systems, Inc. ............................ 82,200
400 * Intersil Holding Corp. ......................... 21,600
300 * PMC-Sierra, Inc. ............................... 70,800
--------------
174,600
--------------
INSURANCE - CASUALTY - 0.22%
600 St. Paul Companies, Inc. ....................... 28,575
--------------
INSURANCE - LIFE - 0.46%
400 Jefferson-Pilot Corp. .......................... 26,475
600 Lincoln National Corp. ......................... 32,400
--------------
58,875
--------------
INSURANCE - MISCELLANEOUS - 1.41%
2 * Berkshire Hathaway, Inc. Class A................ 115,400
1,050 PMI Group, Inc. ................................ 65,100
--------------
180,500
--------------
INSURANCE - MULTILINE - 1.98%
1,000 Allstate Corp. ................................. 29,063
1,400 Cincinnati Financial Corp. ..................... 54,425
1,300 Hartford Financial Services Group............... 86,612
1,200 XL Capital, Ltd. ............................... 82,724
--------------
252,824
--------------
MACHINERY - INDUSTRIAL/SPECIALTY - 1.77%
2,200 Dover Corp. .................................... 107,525
2,100 Illinois Tool Works, Inc. ...................... 117,731
--------------
225,256
--------------
MEDICAL TECHNOLOGY - 1.81%
2,700 * Guidant Corp. .................................. 181,743
500 PE Corp - PE Biosystems Group................... 49,187
--------------
230,930
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
MERCHANDISING - MASS - 0.19%
500 Wal-Mart Stores, Inc. ......................... $ 23,719
--------------
MERCHANDISE - SPECIALTY - 0.50%
1,500 Dollar General Corp. .......................... 30,844
900 * Williams-Sonoma, Inc. ......................... 32,344
--------------
63,188
--------------
METALS - ALUMINUM - 0.26%
1,000 Alcoa, Inc. ................................... 33,250
--------------
MISCELLANEOUS - 0.81%
1,705 * Agilent Technologies, Inc. .................... 102,833
--------------
MULTIMEDIA - 0.55%
3,300 * Cadence Design Systems, Inc. .................. 70,125
--------------
OIL - INTEGRATED INTERNATIONAL - 1.47%
300 Chevron Corp. ................................. 25,350
1,728 Exxon Mobil Corp. ............................. 141,047
400 Texaco, Inc. .................................. 20,600
--------------
186,997
--------------
OIL - SERVICE - PRODUCTS - 0.87%
1,600 Shell Transport & Trading - ADR (United
Kingdom)....................................... 82,300
600 Weatherford International, Inc. ............... 28,163
--------------
110,463
--------------
OIL - SERVICES - 0.69%
2,400 Baker Hughes, Inc. ............................ 87,750
--------------
OIL/GAS PRODUCERS - 0.37%
800 Transocean Sedco Forex, Inc. .................. 47,800
--------------
PAPER/FOREST PRODUCTS - 0.23%
500 Kimberly-Clark Corp. .......................... 29,250
--------------
RAILROAD - 0.37%
800 Canadian National Railway Co. (Canada)......... 23,550
600 Union Pacific Corp. ........................... 23,850
--------------
47,400
--------------
REAL ESTATE INVESTMENT TRUSTS - 0.42%
3,200 Indymac Mortgage Holdings, Inc. ............... 54,000
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
RESTAURANTS - 0.58%
1,500 McDonald's Corp. ............................... $ 44,813
800 * Starbucks Corp. ................................ 29,300
--------------
74,113
--------------
SAVINGS & LOAN - 0.47%
1,708 Washington Mutual, Inc. ........................ 59,780
--------------
SEMICONDUCTOR EQUIPMENT - 2.18%
1,000 * Applied Materials, Inc. ........................ 86,313
1,300 * KLA-Tencor Corp. ............................... 85,313
1,500 * LAM Research Corp. ............................. 45,187
1,000 * Novellus Systems, Inc. ......................... 61,562
--------------
278,375
--------------
SEMICONDUCTORS - 4.82%
1,800 * Advanced Micro Devices, Inc. ................... 67,725
800 * Altera Corp. ................................... 51,850
600 * Applied Micro Circuits Corp. ................... 121,763
900 * Credence Systems Corp. ......................... 52,706
800 * Intel Corp. .................................... 59,900
500 * Maxim Integrated Products, Inc. ................ 43,844
800 * Micron Technology, Inc. ........................ 65,399
200 * Newfocus, Inc. ................................. 27,612
1,450 Texas Instruments, Inc. ........................ 97,059
300 * Xilinx, Inc. ................................... 26,662
--------------
614,520
--------------
TELECOMMUNICATIONS - 4.55%
850 AT&T Corp. ..................................... 26,775
6,000 * AT&T Corp. - Liberty Media Corp. ............... 128,250
1,500 Ericsson LM TEL Co. - ADR,
Series B (Sweden)............................... 30,750
500 Lucent Technologies, Inc. ...................... 20,906
3,700 Nokia Corp. - ADR,
Series A (Finland).............................. 166,268
1,019 * Qwest Communications International.............. 52,596
1,200 * RF Micro Devices, Inc. ......................... 53,550
300 * Voicestream Wireless Corp. ..................... 33,769
1,842 * Worldcom, Inc. ................................. 67,233
--------------
580,097
--------------
TEXTILE - PRODUCTS - 0.27%
1,500 V. F. Corp. .................................... 34,313
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
48 BALANCED FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
TOBACCO - 0.23%
1,000 Philip Morris Companies, Inc. .............. $ 29,625
--------------
UTILITIES - COMMUNICATION - 0.85%
2,200 Sprint Corp., FON Group..................... 73,700
700 * Sprint Corp., PCS Group..................... 35,131
--------------
108,831
--------------
UTILITIES - ELECTRIC - 2.04%
1,900 * AES Corp. .................................. 121,125
2,200 American Electric Power, Inc. .............. 77,550
2,100 Cinergy Corp. .............................. 61,688
--------------
260,363
--------------
UTILITIES - GAS, PIPELINE - 1.12%
3,100 Williams Companies, Inc. ................... 142,794
--------------
TOTAL COMMON STOCK
(Cost $7,077,673)........................... 8,537,955
--------------
<CAPTION>
PAR
VALUE
-----------
<C> <S> <C>
CORPORATE BONDS - 8.40%
AIRLINES - 0.72%
$ 97,955 Airplanes Pass-Thru Trust, Series I, Class C
8.15% due 03/15/11.......................... 91,625
--------------
BROADCASTING - 0.65%
100,000(1) Fox/Liberty Networks, LLC.,
9.75% due 08/15/07.......................... 83,000
--------------
ELECTRICAL EQUIPMENT - 0.76%
100,000 Philips Electronics NV, (Netherlands) 7.20%
due 06/01/26................................ 96,275
--------------
FINANCE COMPANIES - 0.60%
80,000 Discover Card Master Trust I,
5.60% due 05/16/06.......................... 76,552
--------------
FINANCIAL SERVICES - 2.08%
100,000 Ford Motor Credit Co.,
5.80% due 01/12/09.......................... 81,513
100,000 Charter Communications Holding, 8.25% due
04/01/07.................................... 91,500
100,000 Household Finance Corp.,
6.40% due 06/17/08.......................... 92,283
--------------
265,296
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
FOODS - 0.71%
$100,000 Nabisco, Inc., 7.55% due 06/15/15........... $ 90,610
--------------
MERCHANDISE - SPECIALTY - 0.35%
64,000 Amazon.com, Inc.,
4.75% due 02/01/09.......................... 44,880
--------------
POLLUTION CONTROL - 0.75%
100,000 WMX Technologies, Inc.,
7.10% due 08/01/26.......................... 95,950
--------------
TELECOMMUNICATIONS - 1.03%
100,000(1) Nextel Communications, Inc.,
9.95% due 02/15/08.......................... 76,000
50,000(2) Omnipoint Corp.,(Cost $53,375 purchased at
01/10/00)
11.50% due 09/15/09......................... 55,875
--------------
131,875
--------------
UTILITIES - COMMUNICATION - 0.75%
100,000 GTE Corp.,
7.90% due 02/01/27.......................... 95,855
--------------
TOTAL CORPORATE BONDS
(Cost $1,137,466)........................... 1,071,918
--------------
U.S. GOVERNMENT - 22.63%
FEDERAL AGENCIES - 13.36%
200,000 Federal Home Loan Bank,
5.13% due 09/15/03.......................... 191,374
Federal National Mortgage Association:
250,000 6.25% due 05/15/29.......................... 231,173
400,000 6.00% due 05/15/08.......................... 378,935
Government National Mortage Association:
242,962 8.00% due 04/15/30.......................... 246,303
233,813 7.00% due 11/25/28.......................... 229,429
199,057 7.00% due 09/15/28.......................... 195,325
241,037 6.50% due 06/15/29.......................... 231,396
--------------
1,703,935
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
U.S. TREASURY NOTES - 9.27%
$750,000 6.88% due 05/15/06............................... $ 780,818
300,000 6.38% due 08/15/02............................... 300,891
100,000 6.25% due 02/15/03............................... 100,233
--------------
1,181,942
--------------
TOTAL U.S. GOVERNMENT -
(Cost $2,885,753)................................ 2,885,877
--------------
CORPORATE SHORT-TERM -
REPURCHASE AGREEMENT - 1.73%
BANKS - OTHER - 1.73%
221,000 State Street Bank,
6.42% dated 08/31/00, to be repurchased at
$221,039 on 09/01/00, collateralized by U.S.
Treasury Notes, 6.63%, 07/31/01, with a par value
of $230,000
(Cost $221,000).................................. 221,000
--------------
TOTAL INVESTMENTS
(Cost $11,321,892) - 99.70%...................... $ 12,716,750
--------------
*Non-income producing
</TABLE>
---------------
(1) Security is a "step-up" bond where the coupon rate increases or steps up at
a predetermined date. Rate shown reflects the increased rate.
(2) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be sold in transaction exempt from
registration, normally to qualified institutional buyers. At August 31,
2000, the aggregate value of this security was $55,875 representing 0.44%
of net assets.
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 HIGH YIELD BOND FUND 49
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
6.01% 5.88%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
High Yield Salomon Bros
Bond Fund High Yield Index*
------------- ------------------
9/21/98 10,000 10,000
11/98 10,544 10,357
2/99 10,705 10,417
5/99 10,719 10,556
8/99 10,540 10,430
11/99 10,691 10,442
2/00 10,828 10,467
5/00 10,652 10,152
8/31/00 11,173 10,570
* Reflects returns from October 1, 1998 to August 31, 2000, because the
benchmark's value is only published at the end of the month.
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $5,829,576
NAV on 08/31/00: $9.28
One year total return: 6.01%
Net expense ratio: 0.99%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
Gordon Massie, American General Investment Management, L.P. ("AGIM")
How did the Fund perform relative to its benchmark?
For the year ending August 31, 2000, the Fund had a net return of 6.01%, or
4.66% greater then the index.
How did bonds in this category perform over the past fiscal year?
During this year ending August 31, 2000, high yield bonds returned 1.35%, as
measured by the Solomon Brothers High Yield Market Index.
What were the major developments in the fixed-income market that enhanced the
Fund's performance?
The key element of the Fund's out-performance was a very low default rate
relative to the high yield market. Also, the average credit quality of bonds
in the Fund was somewhat higher than the high yield market.
What events were disappointing for the Fund?
Rate increases throughout the last twelve months by the Federal Reserve have
caused downward pressure on prices of bonds in the Fund. The Fund also
incurred losses resulting from exposure to Theater companies.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. Hayes Wheels
International Inc.,
11.00% due 07/15/06...... 3.42%
2. Ono Finance Plc, 13.00%
due 05/01/09............. 3.26%
3. Energis, Plc. 9.97% due
06/15/2009............... 2.90%
4. ICN Pharmaceuticals,
Inc., 9.75% due
11/15/08................. 2.53%
5. Caithness Coso Fund Corp.
9.05% due 12/15/09....... 2.14%
6. Hollywood Casino
Shreveport 13.00% due
08/01/06................. 1.84%
7. Leviathan Gas Pipeline
Partner, Series B
10.38% due 06/01/09...... 1.79%
8. GT Group Telecom, 13.25%
due 02/01/10............. 1.77%
9. Exodus Communications,
Inc., 11.63% due
07/15/10................. 1.75%
10. Lyondell Chemical Co.,
11.63% due 07/15/10...... 1.74%
</TABLE>
Portfolio holdings are subject to change.
What do you see ahead in this segment of the fixed-income market for the next
fiscal period?
We expect to see stable interest rates and a continued strong domestic economy
over the next twelve months. A gradual decline in defaults should lead to
improving high yield returns.
-------------------------------------------------------------------------------
<PAGE>
50 HIGH YIELD BOND FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
CORPORATE BONDS - 88.38%
ADVERTISING - 3.40%
$ 50,000 Anvil Knitwear, Inc., Class B
10.88% due 03/15/07........................ $ 43,750
100,000 Bell Sports, Inc.,
11.00% due 08/15/08........................ 99,500
100,000 Galey & Lord, Inc.,
9.13% due 03/01/08......................... 55,000
--------------
198,250
--------------
AUTO - ORIGINAL EQUIPMENT - 0.38%
25,000 Stanadyne Automotive Corp.,
10.25% due 12/15/07........................ 22,125
--------------
AUTO - REPLACEMENT PARTS - 3.77%
200,000 Hayes Wheels International, Inc.,
11.00% due 07/15/06........................ 199,500
25,000 The Pep Boys-Manny, Moe & Jack,
6.52% due 07/16/07......................... 20,548
--------------
220,048
--------------
BROADCASTING - 5.62%
25,000 Coaxial Communication, Inc.,
10.00% due 08/15/06........................ 24,625
50,000 Cumulus Media, Inc.,
10.38% due 07/01/08........................ 45,500
50,000 Echostar DBS Corp.,
9.38% due 02/01/09......................... 49,375
100,000(1) Frontiervision Holdings LP,
11.88% due 09/15/07........................ 87,250
100,000(1) Golden Sky DBS, Inc.,
13.50% due 03/01/07........................ 71,000
50,000 Spanish Broadcasting System, Inc.,
9.63% due 11/0/09.......................... 49,750
--------------
327,500
--------------
BUILDING MATERIALS - 0.84%
100,000 * Uniforet, Inc.,
11.13% due 10/15/06........................ 49,000
--------------
CHEMICAL - MAJOR - 0.66%
50,000 Royster-Clark, Inc..
10.25 04/01/2009........................... 38,500
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
CHEMICAL - MISCELLANEOUS - 2.50%
$ 50,000 Borden Chemical & Plastics, Ltd.,
9.50% due 05/01/05......................... $ 43,875
100,000 Lyondell Chemical Co.,
9.63% due 05/01/07......................... 101,625
--------------
145,500
--------------
CONSUMER FINANCE - 0.84%
50,000 AmeriCredit Corp.,
9.25% due 02/01/04......................... 49,062
--------------
CONTAINERS - METAL/GLASS - 0.45%
50,000 Owens Corning,
7.50% due 05/01/05......................... 26,250
--------------
CONTAINERS - PAPER - 0.75%
50,000 Packaged Ice, Inc., Series B,
9.75% due 02/01/05......................... 44,000
--------------
DRUGS - 3.44%
150,000(2) ICN Pharmaceuticals, Inc.,
8.75% due 11/15/08 (Cost $147,157 purchased
at 12/09/99 - 08/04/00)..................... 147,563
50,000 King Pharmaceuticals, Inc.,
10.75% due 02/15/09........................ 53,000
--------------
200,563
--------------
ENTERTAINMENT - 5.56%
100,000 Aztar Corp.,
8.88% due 05/15/07......................... 97,250
100,000 Hollywood Casino Shreveport,
13.00% due 08/01/06........................ 107,250
50,000 Isle Of Capri Casinos,
8.75% due 04/15/09......................... 46,750
50,000 MTS, Inc.,
9.38% due 05/01/05......................... 21,750
50,000 Riviera Black Hawk, Inc.,
13.00% due 05/01/05........................ 51,000
--------------
324,000
--------------
FINANCE COMPANIES - 1.35%
100,000 Meditrust Companies,
7.51% due 09/26/03......................... 78,729
--------------
FINANCIAL SERVICES - 4.12%
50,000 Charter Communications Holding,
10.25% due 01/15/10........................ 50,000
200,000 Ono Finance Co., Plc,
13.00% due 05/01/09........................ 190,000
--------------
240,000
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
FOODS - 1.32%
$ 100,000 Agrilink Foods, Inc.,
11.88% due 11/01/08........................ $ 77,000
--------------
HEALTHCARE - 3.01%
50,000 Iasis Healthcare Corp,
13.00% due 10/15/09........................ 51,250
50,000 Unilab Finance Corp,
12.75% due 10/01/09........................ 54,000
100,000 Universal Hospital Services,
10.25% due 03/01/08........................ 70,000
--------------
175,250
--------------
HOME BUILDERS - 0.81%
50,000 Beazer Homes USA, Inc.,
8.88% due 04/01/08......................... 47,125
--------------
HOSPITAL MANAGEMENT - 0.90%
50,000 Lifepoint Hospitals Holding,
10.75% due 05/15/09........................ 52,500
--------------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - 1.25%
75,000 Northpoint Communication, Inc.,
12.88% due 02/15/10........................ 72,938
--------------
INFORMATION PROCESSING -
COMPUTER SERVICES - 1.43%
25,000 Globix Corp.,
12.50% due 02/01/10........................ 19,000
75,000 PSINET, Inc.,
11.00% due 08/01/09........................ 64,500
--------------
83,500
--------------
INFORMATION PROCESSING -
NETWORKING - 3.14%
125,000(2) Condor Systems, Inc.,
11.88% due 05/01/09 (Cost $110,000
purchased at 04/08/99 & 02/16/00)........... 81,250
100,000 Exodus Communications, Inc.,
11.63% due 07/15/10........................ 101,750
--------------
183,000
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 HIGH YIELD BOND FUND - CONTINUED 51
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
LEISURE TIME - 0.88%
$ 50,000 Hollywood Park, Inc., Series B
9.25% due 02/15/07......................... $ 51,125
--------------
LODGING - 3.91%
Crown Castle International Holding:
100,000(1) 10.63% due 11/15/07........................ 78,500
100,000(1) 10.38% due 05/15/11........................ 65,000
85,000 Prime Hospitality Corp.,
9.75% due 04/01/07......................... 84,575
--------------
228,075
--------------
MACHINERY - CONSTRUCTION &
CONTRACTS - 1.57%
50,000(2) Lennar Corp.,
9.95% due 05/01/10 (Cost $46,157 purchased
at 04/28/00)................................ 51,250
50,000 National Equipment Services,
10.00% due 11/30/04........................ 40,000
--------------
91,250
--------------
MACHINERY - INDUSTRIAL/SPECIALTY - 1.34%
100,000 General Binding Corp.,
9.38% due 06/01/08......................... 78,000
--------------
MEDICAL TECHNOLOGY - 1.22%
100,000 Pharmerica, Inc.,
8.38% due 04/01/08......................... 71,000
--------------
MERCHANDISE - DRUG - 0.43%
25,000 Express Scripts, Inc.,
9.63% due 06/15/09......................... 25,000
--------------
METALS - STEEL - 3.84%
100,000 Metals USA, Inc.,
8.63% due 02/15/08......................... 90,000
100,000 Renco Steel Holdings, Series B,
10.88% due 02/01/05........................ 86,000
50,000 WCI Steel, Inc.,
10.00% due 12/01/04........................ 48,000
--------------
224,000
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
MISCELLANEOUS - 0.39%
$ 25,000 Pierce Leahy,
8.13% due 05/15/08............................... $ 22,625
--------------
NATURAL GAS - DIVERSIFIED - 1.79%
100,000 Leviathan Gas Pipeline Partner Co., Series B,
10.38% due 06/01/09.............................. 104,500
--------------
OIL - SERVICE - PRODUCTS - 0.43%
25,000 Triton Energy, Ltd.,
9.25% due 04/15/05............................... 25,125
--------------
OIL - SERVICES - 1.25%
75,000 Grey Wolf, Inc.,
8.88% due 07/01/07............................... 73,125
--------------
OIL/GAS PRODUCERS - 2.62%
100,000 HS Resources, Inc.,
9.25% due 11/15/06............................... 101,000
50,000 Swift Energy Co.,
10.25% due 08/01/09.............................. 51,688
--------------
152,688
--------------
PAPER/FOREST PRODUCTS - 1.16%
75,000 Bear Island, LLC, Series B,
10.00% due 12/01/07.............................. 67,500
--------------
POLLUTION CONTROL - 0.77%
50,000 Allied Waste North America, Inc.,
10.00% due 08/01/09.............................. 44,688
--------------
PUBLISHING/PRINTING - 1.30%
25,000 Transwestern Publishing Co.,
9.63% due 11/15/07............................... 24,688
25,000 TV Guide, Inc., Class A
8.13% due 03/01/09............................... 25,219
25,000 Ziff Davis Media, Inc.,
12.00% due 07/15/10.............................. 25,906
--------------
75,813
--------------
REAL ESTATE INVESTMENT TRUSTS - 0.83%
55,000 Omega Healthcare Investors, Inc.,
6.95% due 06/15/02............................... 48,128
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-----------------------------------------------------------------------------
RESTAURANTS - 0.81%
$ 50,000 Perkins Family Restaurants,
10.13% due 12/15/07...................... $ 47,500
--------------
SAVINGS & LOAN - 0.94%
60,000 Western Financial Bank,
8.88% due 08/01/07....................... 54,600
--------------
SCHOOLS - 1.57%
100,000 Kindercare Learning Centers, Inc.,
9.50% due 02/15/09....................... 91,750
--------------
TELECOMMUNICATIONS - 12.19%
30,000 Amphenol Corp.,
9.88% due 05/15/07....................... 30,225
80,000(1) Benedek Communications,
13.25% due 05/15/06...................... 66,400
75,000 Covad Communications Group, Inc.,
12.00% due 02/15/10...................... 57,750
100,000 Global Crossing, Ltd.,
9.63% due 05/15/08....................... 101,000
200,000 GT Group Telecom,(1)(2)
13.25% due 02/01/10 (Cost $105,302
purchased at 01/27/00).................... 103,000
100,000 Level 3 Communications, Inc.,
12.88% due 03/15/10...................... 56,750
105,000(1) Microcell Telecommunications,
12.00% due 06/01/09...................... 76,125
Nextel Communications, Inc.,
100,000 10.75% due 06/01/09...................... 96,750
25,000 9.38% due 11/15/09....................... 24,406
75,000 * Orbcomm Global, Series B,
14.00% due 08/15/04...................... 11,250
50,000 Williams Communications Group,
10.88% due 10/01/09...................... 48,187
100,000 WinStar Communications, Inc.,(1)(2)
14.75% due 04/15/10 (Cost $47,750
purchased at 04/07/00).................... 39,500
--------------
711,343
--------------
TOBACCO - 1.46%
100,000 Standard Commercial Corp.,
8.88% due 08/01/05....................... 85,125
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
52 HIGH YIELD BOND FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
UTILITIES - ELECTRIC - 2.14%
$ 125,000 Caithness Coso Fund Corp.,
9.05% due 12/15/09......................... $ 124,531
--------------
TOTAL COPORATE BONDS
(Cost $5,499,746)........................... 5,152,331
--------------
FOREIGN CORPORATE BONDS - 6.92%
MISCELLANEOUS - 1.58%
200,000(1) United Pan - Europe Communications N.V.,
(Netherlands)
13.75% due 02/01/10........................ 92,000
--------------
TELECOMMUNICATIONS - 5.34%
170,000 Energis, Plc., (United Kingdom)
9.75% due 06/15/09......................... 169,150
50,000(1) British Telecom Group, Plc.,
(United Kingdom)
12.50% due 02/01/07........................ 47,750
25,000(1) Telewest Communications, Plc., (United
Kingdom)
11.00% due 10/01/07........................ 23,875
75,000 Versatel Telecom International,
(Netherlands)
13.25% due 05/15/08........................ 70,500
--------------
311,275
--------------
TOTAL FOREIGN CORPORATE BONDS
(Cost $315,124)............................. 403,275
--------------
<CAPTION>
NUMBER
OF SHARES
-----------
<C> <S> <C>
PREFERRED STOCK - 0.86%
FINANCIAL SERVICES - 0.86%
500(3) Adelphia Communications Corp.
(Cost $50,875)............................. 50,125
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
CORPORATE SHORT-TERM -
REPURCHASE AGREEMENT - 2.57%
BANKS - OTHER - 2.57%
$ 150,000 State Street Bank, 6.42% dated 08/31/00, to be
repurchased at $150,027 on 09/01/00,
collateralized by U.S. Treasury Notes,
6.63%, 07/31/01, with a par value
of $155,000
(Cost $150,000).................................. $ 150,000
--------------
TOTAL INVESTMENT
(Cost $6,015,745) - 98.73%....................... $ 5,755,731
--------------
</TABLE>
---------------
* Non-income producing. Issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payments.
(1) Security is a "step-up" bond where the coupon rate increases or steps up at
a predetermined date. Rate shown reflects the increased rate.
(2) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be sold in transaction exempt from
registration, normally to qualified institutional buyers. At August 31,
2000, the aggregate value of these securities was $422,563 representing
7.25% of net assets.
(3) Non-income producing.
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 STRATEGIC BOND FUND 53
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
8.43% 6.43%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Strategic Lehman Bros
Bond Fund Aggregate Index
------------- ------------------
9/21/98 10,000 10,000
11/98 10,344 10,115
2/99 10,424 10,038
5/99 10,451 10,037
8/99 10,409 9,958
11/99 10,721 10,109
2/00 10,767 10,149
5/00 10,692 10,248
8/31/00 11,286 10,709
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $5,869,592
NAV on 08/31/00: $9.82
One year total return: 8.43%
Net expense ratio: 0.89%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
Steven Guterman, AGIM
How did the Fund perform relative to its benchmark?
For the year ending August 31, 2000 the Fund returned 9.38% on a gross basis
and 8.43% after expenses. This compares favorable with the Fund's benchmark,
the Lehman Brothers Aggregate Bond Index, that returned 7.55% providing out-
performance of 0.88%.
How did bonds in this category perform over the past fiscal year?
The Fund invests in four groups of bonds; investment grade, high yield,
emerging market debt and non-dollar bonds, to take advantage of the low
correlation between these groups. True to the low correlations, over the past
12 months the range of returns recorded has been very diverse. Emerging market
debt was the star with returns over 30% (more like equity returns) followed by
investment grade that returned close to the coupon at 7.55%. Non-dollar bonds
was the Fund's smallest allocation and provided the worst returns at negative
5.69%. High yield bonds just managed to remain in positive territory returning
1.35%.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. Federal National Mtg.
Association,
8.00% due 08/01/29....... 6.09%
2. Federal National Mtg.
Association,
5.00% due 01/01/29....... 5.59%
3. Federal Home Loan Mtg.
Corp.,
6.00% due on 01/01/30.... 3.96%
4. United Mexico States,
Series W-B,
6.25% due 12/31/19....... 3.82%
5. Federal Home Loan Mtg.
Corp,
7.00% due 06/01/29....... 3.29%
6. Southwestern Bell
Telephone Co.,
6.55% due 10/07/08....... 3.22%
7. Hellenic Republic
(Greece), 8.80% due
06/19/07................. 2.57%
8. Argentina; Republic of
6.81% due 03/31/05....... 2.50%
9. Federal Home Loan Mtg.
Corp, 6.50% due
07/01/29................. 2.28%
10. ICN Pharmaceuticals,
Inc., 9.75% due
11/15/08................. 2.10%
</TABLE>
Portfolio holdings are subject to change.
What were the major developments in the fixed-income market that enhanced the
Fund's performance?
The key elements of the Fund's performance can be traced to the extraordinary
performance of emerging market debt. Emerging market counties recovered
significantly from the 1998 Asian and Russian monetary crisis significantly
pushing up bond prices in that sector. An additional contributor was the low
level of defaults in the portfolio relative to the high yield market, driven
by the slightly higher credit quality.
What events were disappointing for the Fund?
Fixed income markets have been hurt this last year by two forces. First, in an
attempt to slow down the U.S. economic growth rate the Federal Reserve raised
interest rates, which forces bond prices down. Second, the bond market has
seen a rising number of defaults on corporate debt which widened yield spreads
as investors demanded increased risk premiums.
What do you see ahead in this segment of the fixed-income market for the next
fiscal period?
The fixed income markets are now in a good position. The Fed has signaled the
market that they are back to a wait and see attitude as higher interest rates
along with volatile equity prices and high energy prices seems to have slowed
the U.S. economic growth rates back to sustainable non-inflationary levels.
Fed Chairman Alan Greenspan may go down in history as the smartest/luckiest
central banker in the history of the world, for steering the U.S. into the
longest continuous growth expansion. Despite the higher default levels in the
high yield and investment grade corporate markets the current higher yields
provide good compensation for the risk and the possibility for capital
appreciation if yields should drop.
-------------------------------------------------------------------------------
<PAGE>
54 STRATEGIC BOND FUND August 31, 2000
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C> <C> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
CORPORATE BONDS - 53.90%
APPAREL & PRODUCTS - 0.23%
$ 25,000 Galey & Lord, Inc.,
9.13% due 03/01/08................... $ 13,750
--------------
AUTO - ORIGINAL EQUIPMENT - 0.75%
50,000 Stanadyne Automotive Corp,
10.25% due 12/15/07.................. 44,250
--------------
AUTO - REPLACEMENT PARTS - 0.35%
25,000 The Pep Boys-Manny, Moe & Jack,
6.52% due 07/16/07................... 20,548
--------------
BROADCASTING - 3.56%
25,000 Coaxial Communication, Inc.,
10.00% due 08/15/06.................. 24,625
100,000 Cumulus Media, Inc.,
10.38% due 07/01/08.................. 91,000
50,000(1) Frontiervision Holdings LP,
11.88% due 09/15/07.................. 43,625
50,000 Spanish Broadcasting System, Inc.,
9.63% due 11/01/09................... 49,750
--------------
209,000
--------------
BUILDING MATERIALS - 0.42%
50,000 * Uniforet Inc.,
11.13% due 10/15/06.................. 24,500
--------------
CHEMICAL - MAJOR - 0.66%
50,000 Royster-Clark, Inc.,
10.25% due 04/01/09.................. 38,500
--------------
CHEMICAL - MISCELLANEOUS - 0.75%
50,000 Borden Chemical & Plastics, Ltd.,
9.50% due 05/01/05................... 43,875
--------------
CONSUMER FINANCE - 0.42%
25,000 AmeriCredit Corp.,
9.25% due 02/01/04................... 24,531
--------------
CONTAINERS - METAL/GLASS - 0.45%
50,000 Owens Corning,
7.50% due 05/01/05................... 26,250
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
DRUGS - 2.10%
$ 125,000(2) ICN Pharmaceuticals, Inc.,
8.75% due 11/15/08 (Cost $126,123,
purchased at 11/25/98 & 07/25/00).......... $ 122,969
--------------
ENTERTAINMENT - 4.29%
50,000 Aztar Corp.,
8.88% due 05/15/07......................... 48,625
100,000 Hollywood Casino Shreveport,
13.00% due 08/01/06........................ 107,250
25,000 Isle Of Capri Casinos,
8.75% due 04/15/09......................... 23,375
50,000 MTS, Inc.,
9.38% due 05/01/05......................... 21,750
50,000 Riviera Black Hawk, Inc.,
13.00% due 05/01/05........................ 51,000
--------------
252,000
--------------
FINANCIAL SERVICES - 2.47%
50,000 Charter Communications Holding,
10.25% due 01/15/10........................ 50,000
100,000 Ono Finance, Plc.,
13.00% due 05/01/09........................ 95,000
--------------
145,000
--------------
FOODS - 0.66%
50,000 Agrilink Foods, Inc.,
11.88% due 11/01/08........................ 38,500
--------------
HEALTHCARE - 1.51%
25,000 Iasis Healthcare Corp.,
13.00% due 10/15/09........................ 25,625
90,000 Universal Hospital Services, Inc.,
10.25% due 03/01/08........................ 63,000
--------------
88,625
--------------
HOME BUILDERS - 0.82%
Beazer Homes USA, Inc.,
25,000 9.00% due 03/01/04......................... 24,375
25,000 8.88% due 04/01/08......................... 23,563
--------------
47,938
--------------
HOSPITAL MANAGEMENT - 1.34%
75,000 Lifepoint Hospitals Holding, Series B,
10.75% due 05/15/09........................ 78,750
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C> <C> <C>
-------------------------------------------------------------------------------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - 0.83%
$ 50,000 Northpoint Communication Group, Inc.,
12.88% due 02/15/10................ $ 48,625
--------------
INFORMATION PROCESSING -
COMPUTER SERVICES - 1.06%
25,000 Globix Corp.,
12.50% due 02/01/10................ 19,000
50,000 PSInet, Inc.,
11.00% due 08/01/09................ 43,000
--------------
62,000
--------------
INFORMATION PROCESSING -
NETWORKING - 0.28%
25,000(2) Condor Systems, Inc.,
11.88% due 05/01/09 (Cost $10,915
purchased at 02/16/00).............. 16,250
--------------
LODGING - 1.40%
50,000 Crown Castle International Holding,
10.38% due 05/15/11................ 32,500
50,000 Prime Hospitality Corp.,
9.75% due 04/01/07................. 49,750
--------------
82,250
--------------
MACHINERY - CONSTRUCTION &
CONTRACTS - 1.93%
50,000 Calpine Corp.,
7.75% due 04/15/09................. 47,375
25,000(2) Lennar Corp.,
9.95% due 05/01/10 (Cost $23,078
purchased at 04/28/00).............. 25,625
50,000 National Equipment Services,
10.00% due 11/30/04................ 40,000
--------------
113,000
--------------
MEDICAL TECHNOLOGY - 0.60%
50,000 Pharmerica, Inc.,
8.38% due 04/01/08................. 35,500
--------------
MERCHANDISING - DEPARTMENT - 1.25%
75,000 True Temper Sports, Inc., Series B
10.88% due 12/01/08................ 73,125
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 STRATEGIC BOND FUND - CONTINUED 55
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
METALS - STEEL - 1.94%
$ 100,000 Metals USA, Inc.,
8.63% due 02/15/08......................... $ 90,000
25,000 WCI Steel, Inc.,
10.00% due 12/01/04........................ 24,000
--------------
114,000
--------------
MISCELLANEOUS - 0.76%
25,000 Pierce Leahy,
8.13% due 05/15/08......................... 22,625
25,000 United Pan - Europe Communications N.V.,
(Netherlands)
11.25% due 02/01/10........................ 21,844
--------------
44,469
--------------
NATURAL GAS - DIVERSIFIED - 0.89%
50,000 Leviathan Gas Pipeline Partner, Series B,
10.38% due 06/01/09........................ 52,250
--------------
OIL/GAS PRODUCERS - 2.16%
25,000 Grey Wolf, Inc.,
8.88% due 07/01/07......................... 24,375
50,000 HS Resources, Inc.,
9.25% due 11/15/06......................... 50,500
50,000 Swift Energy Co.,
10.25% due 08/01/09........................ 51,688
--------------
126,563
--------------
PAPER/FOREST PRODUCTS - 0.61%
40,000 Bear Island, LLC, Series B,
10.00% due 12/01/07........................ 36,000
--------------
POLLUTION CONTROL - 0.76%
50,000 Allied Waste North America, Inc.,
10.00% due 08/01/09........................ 44,688
--------------
PUBLISHING/PRINTING - 0.42%
25,000 Transwestern Publishing Co.,
9.63% due 11/15/07......................... 24,688
--------------
REAL ESTATE INVESTMENT TRUSTS - 1.21%
50,000(2) Meditrust,
7.11% due 08/15/04 (Cost $23,100 purchased
at 05/08/00)................................ 27,375
50,000 Omega Healthcare Investors, Inc.,
6.95% due 06/15/02......................... 43,753
--------------
71,128
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
RESTAURANTS - 0.40%
$ 25,000 Perkins Family Restaurants, LP,
10.13% due 12/15/07........................ $ 23,750
--------------
SAVINGS & LOAN - 0.47%
30,000 Western Financial Bank,
8.88% due 08/01/07......................... 27,300
--------------
TELECOMMUNICATIONS - 12.01%
30,000 Amphenol Corp.,
9.88% due 05/15/07......................... 30,225
80,000(1) Benedek Communications Corp.,
13.25% due 05/15/06........................ 66,400
50,000 Covad Communications Group, Inc.,
12.00% due 02/15/10........................ 38,500
50,000 Global Crossing,
9.63% due 05/15/08......................... 50,500
50,000 GT Group Telecom, (Canada)(1)(2)
13.25% due 02/01/10 (Cost $52,651 purchased
at 01/27/00)............................... 25,750
50,000(1) Level 3 Communications, Inc.,
12.88% due 03/15/10........................ 28,375
100,000 National Communications Corp., Series B,
11.50% due 10/01/08........................ 102,000
50,000 Netia Holdings II B.V., (Netherlands)
13.13% due 06/15/09........................ 47,874
25,000 Nextel Communications, Inc.,
9.38% due 11/15/09......................... 24,406
100,000(1) Spectrasite Holdings, Inc.,
12.88% due 03/15/10........................ 56,500
25,000(1) Telewest Communications, Plc.,
(United Kingdom)
11.00% due 10/01/07........................ 23,875
75,000 Versatel Telecom International - ADR,
(Netherlands)
13.25% due 05/15/08........................ 70,500
Voicestream Wireless Corp.,
50,000(1) 11.88% due 11/15/09........................ 36,250
50,000 10.38% due 11/15/09........................ 54,000
50,000(2) Williams Communications Group, Inc.,
11.70% due 08/01/08 (Cost $50,000 purchased
at 08/03/00)............................... 50,125
--------------
705,280
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
UTILITIES - COMMUNICATION - 3.22%
$ 200,000 Southwestern Bell Telephone Co.,
6.55% due 10/07/08......................... $ 189,138
--------------
UTILITIES - MISCELLANEOUS - 0.92%
60,000 ESI Tractebel Acq Corp.,
7.99% due 12/30/11......................... 54,159
--------------
TOTAL CORPORATE BONDS
(Cost $3,167,986)........................... 3,163,149
--------------
U.S. GOVERNMENT - 22.82%
GOVERNMENT SPONSORED - 22.82%
Federal Home Loan Mortgage Corp:
197,788 7.00% due 06/01/29......................... 193,027
139,759 6.50% due 07/01/29......................... 133,776
249,732 6.00% due 01/01/30......................... 232,251
Federal National Mortgage Association:
354,230 8.00% due 08/01/29......................... 357,440
104,438 5.50% due 05/01/29......................... 94,516
362,691 5.50% due 01/01/29......................... 328,235
--------------
TOTAL U.S. GOVERNMENT -
(Cost $1,361,730)........................... 1,339,245
--------------
FOREIGN GOVERNMENT BONDS - 18.41%
160,000 Argentina, Republic of,
7.63% due 03/31/05......................... 146,520
123,141 Brazil - Series C Bond,
8.00% due 04/15/14......................... 94,585
125,000 France Oat Bond,
5.50% due 04/25/29......................... 109,803
50,000,000 Hellenic Republic, (Greece)
8.80% due 06/19/07......................... 150,728
125,000(2) Government of Jamaica,
12.75% due 09/01/07 (Cost $122,895
purchased at 08/25/00)...................... 122,656
100,000 Poland, Republic Of,
6.00% due 10/27/14......................... 93,250
500,000 Republic of South Africa, Series 150,
12.00% due 02/28/05........................ 69,575
500,000 Republic of South Africa, Series 153,
13.00% due 08/31/10........................ 69,592
250,000 United Mexico States, Series W-B,
6.25% due 12/31/19......................... 224,063
--------------
TOTAL FOREIGN GOVERNMENT BONDS -
(Cost $1,102,362)........................... 1,080,772
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
56 STRATEGIC BOND FUND - CONTINUED August 31, 2000
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
PREFERRED STOCK - 0.85%
TELECOMMUNICATIONS - 0.85%
500(3) Adelphia Communications Corp.
(Cost $50,875).............................. $ 50,125
--------------
<CAPTION>
PAR
VALUE
-----------
<C> <S> <C>
CORPORATE SHORT-TERM -
REPURCHASE AGREEMENT - 2.91%
BANKS - OTHER - 2.91%
$ 171,000 State Street Bank, 6.42% dated 08/31/00, to
be repurchased at $171, 030 on 09/01/00,
collateralized by U.S. Treasury Notes,
6.63%, 07/31/01, with a par value of $175,000
(Cost $171,000)............................. 171,000
--------------
TOTAL INVESTMENTS
(Cost $5,853,953) - 98.89%.................. $ 5,804,291
--------------
</TABLE>
---------------
* Non-income producing. Issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payments.
(1) Security is a "step-up" bond where the coupon rate increases or steps up at
a predetermined date. Rate shown reflects the increased rate.
(2) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be sold in transaction exempt from
registration, normally to qualified institutional buyers. At August 31,
2000, the aggregate value of these securities was $365,000 representing
6.22% of net assets.
(3) Non-income producing.
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 DOMESTIC BOND FUND 57
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
6.27% 2.55%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Domestic Bond Lehman Bros
Fund Aggregate Index
------------- ------------------
9/21/98 10,000 10,000
11/98 10,246 10,115
2/99 10,089 10,038
5/99 10,096 10,037
8/99 9,881 9,958
11/99 10,034 10,109
2/00 10,000 10,149
5/00 10,043 10,248
8/31/00 10,501 10,709
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $14,557,157
NAV on 08/31/00: $9.45
One year total return: 6.27%
Net expense ratio: 0.78%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with Capital Guardian
How did the Fund perform relative to its benchmark?
For the one year period ended August 31, 2000 the Fund underperformed the
Lehman Aggregate Bond Index by 1.28%.
How did market sectors perform over the last fiscal year?
The economy continued to show signs of strength in the fourth quarter of 1999
and first quarter of 2000, resulting in higher yields in nearly all developed
markets. This year's higher commodity prices have also influenced investors to
nudge rates higher. But while interest rates reacted to a continuation of
strong growth in the U.S. and a pickup in growth elsewhere, there were few
signs of incipient inflation.
U.S. fixed-income markets had a wild ride in the first quarter. Despite two
rate hikes by the Federal Reserve amid signs of accelerating economic growth,
rising oil prices, and heightened inflation fears, bonds produced positive
returns. However, results varied greatly among securities and maturities.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. U.S. Treasury Notes
6.88% due 05/15/06...... 30.39%
2. Federal National
Mortgage Association
6.00% due 05/15/08...... 11.39%
3. Government National
Mortgage Association
8.00% due 04/15/30...... 8.46%
4. Federal National
Mortgage Association
6.25% due 05/15/29...... 6.35%
5. Federal National
Mortgage Association
6.50% due 04/01/29...... 6.07%
6. Federal Home Loan Bank
5.13% due 09/15/03...... 4.27%
7. Government National
Mortgage Association
7.00% due 09/18/28...... 4.03%
8. U.S. Treasury Notes
6.38% due 08/15/02...... 3.44%
9. Government National
Mortgage Association
6.50% due 06/15/29...... 3.18%
10. Nextel Communications,
Inc. 9.95% due
02/15/08................ 2.61%
</TABLE>
Portfolio holdings are subject to change.
Bond investors were shaken by the economy's unrelenting strength and
indications that inflation was creeping upward in the second and third
quarters of 2000. The market's bearish tone was reinforced by expectations
that the Federal Reserve would abandon its gradual approach to monetary
tightening. This proved true as the Fed lifted short rates by 50 basis points
at its May meeting, bringing the fed funds rate to its highest level since
January 1991. Investors were given a reprieve in the second half of the
quarter as softer economic data revealed that higher rates, higher oil prices,
and the stock market's decline may be slowing the economy's pace. This
resulted in bond prices regaining ground, ending the quarter modestly higher.
The portfolio was helped by our cautious stance toward interest rates. Our
duration was lower than that of the index, which proved to be beneficial as
rates rose. Our overweighting in corporate securities was a positive. Our
position in high-yield corporate securities was beneficial as they had a
strong period.
What do you see ahead in the markets for the next fiscal year?
We think there is value on a selective basis among corporate securities and we
continue to have a larger-than-index weighting in that area. However, we are
likely to keep our exposure to Treasury securities high on the long end of the
yield curve, as Treasury bonds will become increasingly scarce if the Federal
budget surplus continues to swell. Finally, we may increase our mortgage-
backed holdings if we become convinced that interest rates are range-bound for
the year.
-------------------------------------------------------------------------------
<PAGE>
58 DOMESTIC BOND FUND August 31, 2000
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
CORPORATE BONDS - 15.46%
AIRLINES - 2.43%
$237,890 Airplanes Pass-Thru Trust, Series I,
Class C,
8.15% due 03/15/11......................... $ 222,517
133,276 Continental Airlines, Inc.
7.08% due 11/01/04......................... 130,933
--------------
353,450
--------------
BROADCASTING - 0.86%
150,000(1) Fox/Liberty Networks, LLC.,
9.75% due 08/15/1/07....................... 124,500
--------------
ELECTRICAL EQUIPMENT - 0.99%
150,000 Philips Electronics NV,
7.20% due 06/01/26......................... 144,413
--------------
FINANCE COMPANIES - 1.64%
100,000 Discover Card Master Trust,
5.60% due 05/16/06......................... 95,690
150,000 Sears Credit Account Master Trust I,
5.25% due 10/16/08......................... 142,546
--------------
238,236
--------------
FINANCIAL SERVICES - 1.89%
150,000 Charter Communications Holdings LLC,
8.25% due 04/01/07......................... 137,250
150,000 Household Finance Corp.,
6.40% due 06/17/08......................... 138,425
--------------
275,675
--------------
FOODS - 0.93%
150,000 Nabisco, Inc.,
7.55% due 06/15/15......................... 135,915
--------------
POLLUTION CONTROL - 0.99%
150,000 WMX Technologies, Inc.,
7.10% due 08/01/26......................... 143,925
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
TELECOMMUNICATIONS - 3.76%
$ 500,000(1) Nextel Communications, Inc,
9.95% due 02/15/08........................... $ 380,000
150,000(2) Omnipoint Corp.,
11.50% due 09/15/09
(Cost $160,482, purchased
at 01/10/00)................................. 167,624
--------------
547,624
--------------
UTILITIES - COMMUNICATION - 0.99%
150,000 GTE Corp.,
7.90% due 02/01/27........................... 143,783
--------------
UTILITIES - GAS, PIPELINE - 0.98%
150,000 Williams Companies, Inc.,
6.50% due 08/01/06........................... 142,296
--------------
TOTAL CORPORATE BONDS
(Cost $2,328,404)............................ 2,249,817
--------------
U.S. GOVERNMENT - 77.59%
FEDERAL AGENCIES - 43.75%
650,000 Federal Home Loan Bank,
5.13% due 09/15/03........................... 621,965
Federal National Mortgage Association:
924,431 6.50% due 04/01/29........................... 883,405
1,000,000 6.25% due 05/15/29........................... 924,690
1,750,000 6.00% due 05/15/08........................... 1,657,845
Government National Mortgage Association:
1,214,809 8.00% due 4/15/30............................ 1,231,513
597,172 7.00% due 9/15/28............................ 585,975
482,074 6.50% due 6/15/29............................ 462,791
--------------
6,368,184
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
U.S. TREASURY NOTES - 33.84%
$4,250,000 6.88% due 05/15/06............................... $ 4,424,632
500,000 6.38% due 08/15/02............................... 501,485
--------------
4,926,117
--------------
TOTAL U.S. GOVERNMENT
(Cost $11,273,776)............................... 11,294,301
--------------
CORPORATE SHORT-TERM -
REPURCHASE AGREEMENT - 6.59%
BANKS - OTHER - 6.59%
960,000 State Street Bank,
6.42% dated 08/31/00, to be repurchased at
$960,171 on 09/01/00, collaterlized by U.S.
Treasury Notes, 6.63%, 07/31/01, with a par value
of $985,000
(Cost $960,000).................................. 960,000
--------------
TOTAL INVESTMENTS
(Cost $14,562,180) - 99.64%...................... $ 14,504,118
--------------
</TABLE>
---------------
(1) Security is a "step-up" bond where the coupon rate increases or steps up
at a predetermined date. Rate shown reflects the increased rate.
(2) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transaction exempt from registration,
normally to qualified institutional buyers. At August 31, 2000, the
aggregate value of these securities was $167,624 representing 1.15% of net
assets.
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 CORE BOND FUND 59
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
5.31% 2.61%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Core Bond Lehman Bros
Fund Aggregate Index
------------- ------------------
9/21/98 10,000 10,000
11/98 10,119 10,115
2/99 10,111 10,038
5/99 10,099 10,037
8/99 9,983 9,958
11/99 10,105 10,109
2/00 10,137 10,149
5/00 10,111 10,248
8/31/00 10,513 10,709
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $5,419,757
NAV on 08/31/00: $9.46
One year total return: 5.31%
Net expense ratio: 0.80%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
Robert N. Kase, CFA, AGIM
How did the Fund perform relative to its benchmark?
The Fund earned 5.31% net of expenses vs 7.55% for the index for the year
ending August 31, 2000. Obviously this was a disappointment especially after
the prior 12-month period where we outperformed the index.
What were the major developments in the fixed-income market that affected the
Fund's performance and what events were disappointing for the Fund?
The Fund's returns were negatively affected by our overweight position in
corporate bonds and a couple of credit problems. While we plan on these being
one-time events, nevertheless they had a negative impact on returns. These
events were by far the biggest disappointments for the Fund. The corporate
bond market as a whole produced very poor results causing disappointment for
many fixed income investors. One of the problems in today's market is if a
corporation misses its earnings the bonds are unmercifully punished. This
makes the environment very difficult in a sector that is very attractive on a
fundamental basis.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. Federal National Mortgage
Association,
6.50% due 09/01/30....... 7.05%
2. Federal National Mortgage
Association,
7.00% due 09/01/30....... 5.40%
3. Government National
Mortgage Association,
7.50% due 09/01/30....... 4.61%
4. Federal National Mortgage
Association,
6.50% due 09/01/15....... 4.49%
5. KFW International
Finance, 7.13% due
02/15/05................. 4.20%
6. Federal National Mortgage
Association,
7.13% due 06/15/10....... 3.85%
7. Federal Home Loan
Mortgage Corp.,
6.63% due 09/15/09....... 3.80%
8. Federal Home Loan
Mortgage Corp.,
8.00% due 09/01/30....... 2.70%
9. Tyco International Group,
6.88% due 09/05/02....... 1.82%
10. Lehman Brothers Holdings,
Inc.,
7.75% due 01/15/05....... 1.76%
</TABLE>
Portfolio holdings are subject to change.
What do you see ahead in this segment of the fixed-income market for the next
fiscal period?
For the next 12 months we believe the corporate bond market is very attractive
and should start to turn around as the market has discounted a lot of bad
news. It will not be an easy year for the fixed income markets because, as
previously stated, investors will not tolerate poor credit choices. Therefore
our job going forward is to step up our efforts to an even higher level to get
ahead of the curve and avoid these credit problems.
In conclusion, I want to thank you for your patience as we move towards
returning the Fund's performance back to where it belongs.
-------------------------------------------------------------------------------
<PAGE>
60 CORE BOND FUND August 31, 2000
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
CORPORATE BONDS - 41.32%
AIRLINES - 0.84%
$ 45,000 United Air Lines, Inc.,
7.73% due 07/01/10......................... $ 45,495
--------------
AUTO - CARS - 1.66%
45,000 Americredit Automobiles,
Series 2000 C, Class A,
7.05% due 02/12/05......................... 44,866
45,000 Daimler Chrysler NA Holdings,
7.13% due 04/10/03......................... 44,949
--------------
89,815
--------------
BANKS - OTHER - 2.68%
45,000 Bank of America Corp.,
7.80% due 02/15/10......................... 45,810
55,000 First Union Corp.,
6.95% due 11/01/04......................... 54,008
45,000 Inter-American Development Bank,
7.00% due 06/16/03......................... 45,278
--------------
145,096
--------------
BANKS - REGIONAL - 0.92%
50,000 First Union National Bank,
7.80% due 08/18/10......................... 49,865
--------------
CHEMICAL - MAJOR - 1.00%
55,000 Dow Chemical Co.,
7.38% due 11/01/29......................... 54,260
--------------
CONGLOMERATES - 1.82%
100,000(1) Tyco International Group, (Bermuda)
6.88% due 09/05/02 (Cost $20,133 purchased
at 12/28/99)............................... 98,665
--------------
CONSUMER FINANCE - 1.59%
95,000 Associates Corp. of North America.,
6.95% due 11/01/18......................... 86,332
--------------
CONTAINERS - METAL/GLASS - 0.64%
75,000 Owens Corning,
7.70% due 05/01/08......................... 34,500
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
FINANCE COMPANIES - 3.13%
Finova Capital Corp.:
$ 15,000 6.63% due 09/15/01......................... $ 11,700
45,000 6.25% due 11/01/02......................... 32,175
75,000 Ford Motor Credit Co.,
7.50% due 03/15/05......................... 75,045
50,000 Goldman Sachs Group Inc.,
7.80% due 01/28/10......................... 50,646
--------------
169,566
--------------
FINANCIAL SERVICES - 8.52%
70,000 CIT Group, Inc.,
7.13% due 10/15/04......................... 69,091
75,000 Countrywide Home, Inc.,
6.25% due 04/15/09......................... 67,415
40,000 Fleet Credit Card Master Trust,
Series 1999-C, Class A,
6.90% due 04/16/07......................... 39,961
Heller Financial, Inc.:
40,000 7.88% due 05/15/03......................... 40,475
50,000 7.38% due 11/01/09......................... 48,275
65,000 Household Finance Corp.,
8.00% due 05/09/05......................... 66,279
85,000(1) Potomac Capital Investment Corp.,
7.55% due 11/19/01 (Cost $85,000 purchased
at 11/12/99)................................ 85,364
45,000(1) Spear Leeds & Kellogg, LP,
8.25% due 08/15/05 (Cost $44,861 purchased
at 08/16/00)............................... 45,127
--------------
461,987
--------------
FOODS - 1.00%
55,000 IBP, Inc.,
7.95% due 02/01/10......................... 54,074
--------------
MERCHANDISE - DRUG - 0.64%
Rite Aid Corp.,
10,000 7.13% due 01/15/07......................... 4,100
75,000(1) 6.00% due 12/15/05 (Cost $74,765 purchased
at 12/17/98)............................... 30,750
--------------
34,850
--------------
OIL - INTEGRATED DOMESTIC - 0.30%
15,000 Pennzoil Co.,
10.25% due 11/01/05........................ 16,064
--------------
OIL/GAS PRODUCERS - 0.84%
45,000 Coastal Corp,
7.63% due 09/01/08......................... 45,288
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
SECURITIES RELATED - 1.76%
Lehman Brothers Holdings, Inc.,
$ 95,000 7.75% due 01/15/05......................... $ 95,633
--------------
TELECOMMUNICATIONS - 6.38%
85,000 AT&T Corp.,
6.50% due 03/15/29......................... 69,488
120,000 Bell Atlantic Pennsylvania, Inc.,
6.00% due 12/01/28......................... 94,493
60,000 Bellsouth Cap Funding,
7.88% due 02/15/30......................... 59,562
30,000 Northwestern Bell Telephone,
7.75% due 05/01/30......................... 30,212
45,000(1) QWest Capital Funding,
7.90% due 08/15/10 (Cost $45,041 purchased
08/28/00)................................... 45,130
45,000 Worldcom, Inc.,
8.25% due 05/15/10......................... 46,777
--------------
345,662
--------------
UTILITIES - ELECTRIC - 4.29%
50,000 Appalachian Power Co.,
8.00% due 06/01/25......................... 51,797
45,000 Cinergy Corp.,
6.13% due 04/15/04......................... 42,309
45,000 Edison International, Inc.,
6.88% due 09/15/04......................... 44,075
55,000 Pennsylvania Electric Co., Series C,
6.63% due 04/01/19......................... 49,515
45,000 PP&L Transition Bond Co, LLC, Series 1999-1,
Class A,
7.05% due 06/25/09......................... 45,042
--------------
232,738
--------------
UTILITIES - GAS, PIPELINE - 3.31%
55,000 Enron Corp.,
6.75% due 09/01/04......................... 54,057
55,000 Peco Energy Transition Trust,
6.13% due 03/01/09......................... 52,146
75,000 Williams Companies, Inc.,
7.63% due 07/15/19......................... 73,213
--------------
179,416
--------------
TOTAL CORPORATE BONDS
(Cost $2,351,666)........................... 2,239,306
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 CORE BOND FUND - CONTINUED 61
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
FOREIGN CORPORATE BONDS - 12.98%
BANKS - OTHER - 2.10%
Asian Development Bank:
$ 70,000 6.50% due 10/21/02......................... $ 69,631
45,000 6.38% due 10/01/28......................... 44,078
--------------
113,709
--------------
FINANCIAL SERVICES - 1.68%
Deutsche Telekom
International Finance:
45,000 8.25% due 06/15/30......................... 45,422
45,000 8.00% due 06/15/10......................... 45,566
--------------
90,988
--------------
FINANCE COMPANIES - 4.20%
225,000 KFW International Finance,
7.13% due 02/15/05......................... 227,673
--------------
INSURANCE - MULTILINE - 1.65%
Fairfax Financial Holdings, Ltd.:
45,000 8.25% due 10/01/15......................... 41,866
55,000 7.38% due 03/15/06......................... 47,770
--------------
89,636
--------------
SUPRANATIONAL - 1.88%
50,000 Corp Andina De Fomento,
8.88% due 06/01/05......................... 51,919
50,000 International Finance Corp.,
7.13% due 04/06/05......................... 49,996
--------------
101,915
--------------
TELECOMMUNICATIONS - 1.47%
60,000(2) MetroNet Communications Corp.,
9.95% due 06/15/08......................... 49,658
30,000(1) Vodafone Group, Plc,
7.88% due 02/15/30 (Cost $29,605 purchased
at 03/10/00)............................... 29,953
--------------
79,611
--------------
TOTAL FOREIGN CORPORATE BONDS
(Cost $706,616)............................. 703,532
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
U.S. GOVERNMENT - 41.86%
FEDERAL AGENCIES - 41.40%
$ 85,000 Federal Farm Credit Bank,
6.75% due 07/07/09............................... $ 83,552
Federal Home Loan Bank
75,000 5.32% due 12/23/08............................... 67,101
55,000 5.81% due 03/23/09............................... 50,797
60,000 7.22% due 02/25/03............................... 60,628
15,000 6.01% due 12/03/08............................... 13,852
Federal Home Loan Mortgage Corp.:
145,000 8.00% due 09/01/30............................... 146,450
210,000 6.63% due 09/15/09............................... 206,029
Federal National Mortgage Association:
50,000 7.50% due 09/01/15............................... 50,141
205,000 7.13% due 06/15/10............................... 208,715
300,000 7.00% due 09/01/30............................... 292,407
75,000 6.65% due 11/07/07............................... 73,184
400,000 6.50% due 09/01/30............................... 382,000
250,000 6.50% due 09/01/15............................... 243,437
65,000 6.37% due 01/30/08............................... 62,684
55,000 6.28% due 02/12/08............................... 52,860
250,000 Government National
Mortgage Association,
7.50% due 09/01/30............................... 249,845
--------------
2,243,682
--------------
U.S. TREASURY NOTES - 0.46%
25,000 U.S. Treasury Notes,
5.75% due 08/15/10............................... 25,020
--------------
TOTAL U.S. GOVERNMENT
(Cost $2,280,041)................................. 2,268,702
--------------
FOREIGN GOVERNMENT BONDS - 1.67%
CANADA -
90,000 Canada Mortgage & Housing,
7.20% due 02/01/05
(Cost $89,993)................................... 90,552
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
-------------------------------------------------------------------------------
CORPORATE SHORT-TERM -
REPURCHASE AGREEMENT - 27.45%
BANKS - OTHER - 27.45%
$ 1,488,000 State Street Bank, 6.42% dated 08/31/00, to be
repurchased at $1,488,265 on 09/01/00,
collateralized by U.S. Treasury Notes, 6.63%,
07/31/01, with a par value of $1,525,000
(Cost $1,488,000)................................ $ 1,488,000
--------------
TOTAL INVESTMENTS
(Cost $6,916,316) - 125.28%...................... $ 6,790,092
--------------
</TABLE>
---------------
(1) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be sold in transaction exempt from
registration, normally to qualified institutional buyers. At August 31,
2000, the aggregate value of these securities was $334,989 representing
6.18% of net asset.
(2) Security is a "step-up" bond where the coupon rate increases or steps up at
a predetermined date. Rate shown reflects the increased rate.
--------------------------------------------------------------------------------
<PAGE>
62 MONEY MARKET FUND August 31, 2000
Average Annual Total Return--Fund
1 Year Since Inception*
---------------------------------------------------------------------------
5.67% 5.33%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Money Market NYC 30 Day
Fund CD Rate
------------- ------------------
9/21/98 10,000 10,000
11/98 10,122 10,086
2/99 10,234 10,192
5/99 10,347 10,298
8/99 10,466 10,411
11/99 10,597 10,531
2/00 10,739 10,644
5/00 10,891 10,776
8/31/00 11,059 10,906
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $25,427,359
NAV on 08/31/00: $1.00
One year total return: 5.67%
Net expense ratio: 0.56%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
Teresa Moro (VALIC)
How did the Fund perform relative to its benchmark?
The Fund return for the year ended August 31, 2000 was 5.67%, compared to its
benchmark NY CD return 4.76%, outpacing the benchmark by 91 basis points.
What were the major developments in the fixed-income market that enhanced the
Fund's performance?
The greatest influence in the Money Market arena over the past year was the
incremental tightening policy executed by the Fed. The Fed raised the Federal
Funds rate from 4.75% to 6.50% or + 175 basis points during the year. Fund
performance was enhanced throughout the year by maintaining a short weighted
average maturity during this period of continued Fed tightening.
What events were disappointing for the Fund?
The biggest disappointing factor for the Fund was the absolute nonevent into
which Y2K evolved. Anticipating volatile balances, the Fund maintained a larger
cash position over year-end than it turned out was necessary. The decision was
made to be more prudent and maintain a greater liquidity position at year-end
than to risk needing bids to cover any unanticipated short position. Due to
high cash balances across the industry and very little product, repurchase
agreements traded as low as 1% during the last week of the year.
Top 10 Holdings
<TABLE>
<C> <S> <C>
1. United Technologies
Corp. ................... 3.79%
2. Ciesco L P............... 3.74%
3. Merrill Lynch & Co. ..... 3.73%
4. Ace Ina Holdings Inc .... 3.72%
5. Albertsons, Inc. ........ 3.72%
6. Aon Corp. ............... 3.70%
7. Eastman Kodak Co. ....... 3.63%
8. Delaware Funding Corp.... 3.52%
9. Govco Inc. .............. 3.51%
10. General Motors Acceptance
Corp..................... 3.49%
</TABLE>
Portfolio holdings are subject to change.
What do you see ahead in this segment of the fixed-income market for the next
fiscal period?
The gradual tightening of Fed policy is currently on hold due to slower growth
and a moderation in inflation pressures. Additionally, consumer demand is
beginning to show signs of losing some momentum and employment growth, while
continued strong, has also slowed in growth. However, as oil prices remain
stubbornly high, we will keep a watchful eye on the risks of this spreading
throughout the economy.
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 MONEY MARKET FUND 63
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
COMMERCIAL PAPER - 99.24%
AEROSPACE/DEFENSE - 3.79%
$966,000 United Technologies Corp.,
6.50% due 09/21/00...................................... $ 962,505
-----------
ASSET BACKED - 10.78%
Ciesco L P:
229,000 6.52% due 09/20/00...................................... 228,208
345,000 6.50% due 09/21/00...................................... 343,753
380,000 6.48% due 09/20/00...................................... 378,694
Delaware Funding Corp.:
650,000 6.52% due 09/22/00...................................... 647,503
250,000 6.50% due 10/12/00...................................... 248,146
Govco, Inc.:
650,000 6.55% due 10/06/00...................................... 645,818
250,000 6.52% due 10/18/00...................................... 247,868
-----------
2,739,990
-----------
AUTO - ORIGINAL EQUIPMENT - 2.75%
700,000 Harley-Davidson Funding,
6.52% due 09/07/00...................................... 699,236
-----------
BANKS - REGIONAL - 2.73%
700,000 BankOne Corp.,
6.52% due 10/10/00...................................... 695,009
-----------
BEVERAGE - SOFT DRINKS - 3.53%
500,000 Coca Cola Co.,
6.45% due 09/19/00...................................... 498,384
400,000 Coca Cola Enterprises, Inc.,
6.49% due 09/19/00...................................... 398,693
-----------
897,077
-----------
CHEMICAL - MAJOR - 2.11%
539,000 E.I. DuPont de Nemours & Co.,
6.47% due 09/13/00...................................... 537,835
-----------
CONGLOMERATES - 2.93%
750,000 Fortune Brands,
6.50% due 10/04/00...................................... 745,511
-----------
DRUGS - 2.74%
700,000 Schering Corp.,
6.48% due 09/27/00...................................... 696,707
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
FINANCE COMPANIES - 9.07%
$ 250,000 Dana Credit Corp.,
6.70% due 10/03/00............................... $ 248,503
200,000 General Electric Capital Corp.,
6.48% due 09/11/00............................... 199,639
General Motors Acceptance Corp.:
400,000 6.49% due 11/08/00............................... 395,090
493,000 6.48% due 09/01/00............................... 493,000
302,000 Household International, Inc.,
6.58% due 09/14/00............................... 301,280
675,000 Omnicom Finance, Inc.,
6.60% due 10/13/00............................... 669,786
--------------
2,307,298
--------------
FINANCIAL SERVICES - 3.41%
880,000 Textron Financial Corp.,
6.55% due 11/21/00............................... 866,998
--------------
FOODS - 2.74%
700,000 Archer Daniels Midland Co.,
6.51% due 09/18/00............................... 697,830
--------------
HARDWARE & TOOLS - 2.77%
707,000 Snap-on, Inc.,
6.47% due 09/27/00............................... 703,694
--------------
HEALTHCARE - 6.46%
800,000 Baxter International, Inc.,
6.52% due 11/07/00............................... 790,254
860,000 Cardinal Health, Inc.,
6.51% due 10/13/00............................... 853,452
--------------
1,643,706
--------------
HOUSEHOLD PRODUCTS - 3.37%
860,000 Colgate-Palmolive Co.,
6.47% due 09/26/00............................... 856,126
--------------
INFORMATION PROCESSING -
DATA SERVICES - 2.31%
587,000 Pitney Bowes, Inc.,
6.45% due 09/05/00............................... 586,578
--------------
INSURANCE - CASUALTY - 3.72%
950,000 Ace Ina Holdings, Inc.,
6.57% due 09/27/00............................... 945,490
--------------
INSURANCE - LIFE - 1.78%
454,000 Jefferson-Pilot Corp.,
6.56% due 09/13/00............................... 453,007
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
INSURANCE - MULTILINE - 3.70%
Aon Corp.:
$ 700,000 6.55% due 10/26/00................................ $ 692,990
250,000 6.54% due 09/25/00................................ 248,908
--------------
941,898
--------------
MACHINERY - INDUSTRIAL/SPECIALTY - 3.14%
Dover Corp.:
400,000 6.70% due 02/28/01................................ 400,000
400,000 6.50% due 09/11/00................................ 399,274
--------------
799,274
--------------
MERCHANDISING - FOOD - 3.72%
950,000 Albertson's, Inc.,
6.52% due 09/29/00................................ 945,181
--------------
OIL/GAS PRODUCERS - 2.75%
700,000 Duke Capital Corp.,
6.53% due 09/14/00................................ 698,342
--------------
PHOTOGRAPHY - 3.63%
Eastman Kodak Co.:
100,000 6.50% due 11/08/00................................ 98,767
832,000 6.47% due 10/24/00................................ 824,062
--------------
922,829
--------------
SECURITIES RELATED - 6.28%
Merrill Lynch & Co.:
475,000 6.52% due 09/18/00................................ 473,522
476,000 6.49% due 09/19/00................................ 474,453
650,000 Salomon Smith Barney Holdings,
6.53% due 09/15/00................................ 648,332
--------------
1,596,307
--------------
UTILITIES - COMMUNICATION - 3.14%
800,000 Bellsouth Telecom, Inc.,
6.50% due 09/08/00................................ 798,983
--------------
UTILITIES - ELECTRIC - 5.89%
800,000 Conectiv, Inc.,
6.70% due 09/12/00................................ 798,357
700,000 Southern California Edison Co.,
6.48% due 09/06/00................................ 699,367
--------------
1,497,724
--------------
TOTAL COMMERCIAL PAPER & INVESTMENTS
(Cost $25,235,135) - 99.24%....................... $ 25,235,135
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
64 AGGRESSIVE GROWTH LIFESTYLE FUND August 31, 2000
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
29.91% 29.12%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Aggressive Growth S&P 500
Lifestyle Fund Index Benchmark*
------------------- ----------- -------------
9/21/98 10,000 10,000
11/98 11,273 11,396 11,188
2/99 11,510 12,166 11,424
5/99 12,224 12,832 12,237
8/99 12,638 13,057 12,335
11/99 13,969 13,778 13,003
2/00 15,551 13,593 13,820
5/00 14,675 14,177 13,545
8/31/00 16,418 15,188 14,487
* Reflects returns from October 1, 1998 to August 31, 2000, because the
benchmark's value is only published at the end of the month.
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fundexpenses.
The Fund returns do not reflect charges included in theannuity contract
or variable life policy for mortality and expense guarantees,
administrative fees or surrender charges.
Portfolio at a Glance
Total net assets: $13,963,469
NAV on 08/31/00: $14.89
One year total return: 29.91%
Net expense ratio: 0.10%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
William Trimbur, Jr., CFA, CPA (VALIC)
How did the Fund perform relative to its market and its benchmark?
The Fund has a 90% equity and 10% fixed income allocation. In a complete
investment program, as this lifestyle fund is intended to be, VALIC believes
asset allocation is the significant driver of long term returns. The allocation
was not changed in the fiscal year. Management believes it is appropriate for
investors who desire high equity exposure.
How did the large cap market perform over the past fiscal year?
The Fund very substantially outperformed its blended benchmark as well as the
widely followed Standard & Poor's 500 index.
What were some of the dominant themes in the portfolio?
All holdings had positive total returns. As a group equities far outdistanced
fixed income.
Which portfolio holdings most enhanced the Fund's performance?
All equity holdings except Large Cap Value Fund had double digit positive
returns. Small Cap Growth Fund at + 68.91% and Mid Cap Growth Fund at + 46.25%
were particularly outstanding.
Were there any disappointments in the Fund's portfolio?
Value funds had an unusually wide performance gap when measured against growth
funds. For example, Large Cap Growth Fund advanced 30.68% while Large Cap Value
Fund returned + 7.35%.
What do you see ahead in the markets for the next fiscal period?
The equity, fixed income, and currency markets are likely to remain volatile
until investors reach a new consensus on corporate earnings versus equity
valuations, as well as slowing US domestic economic growth and accelerating
international growth. The technology and growth equity sectors are particularly
vulnerable to economic disappointments, foreign or domestic.
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 AGGRESSIVE GROWTH LIFESTYLE FUND 65
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
INVESTMENT COMPANIES -
AFFILIATED - 100.06%
BOND FUND - 10.01%
147,852 AGSPC 3 Domestic Bond Fund .......................... $ 1,397,201
-----------
INTERNATIONAL EQUITY FUNDS - 25.01%
122,811 AGSPC 3 International Growth Fund ................... 1,816,379
96,917 AGSPC 3 International Value Fund .................... 1,676,657
-----------
3,493,036
-----------
LARGE CAP EQUITY FUNDS - 30.02%
158,048 AGSPC 3 Large Cap Growth Fund ....................... 2,794,294
120,445 AGSPC 3 Large Cap Value Fund ........................ 1,397,167
-----------
4,191,461
-----------
MID CAP EQUITY FUNDS - 20.01%
42,858 AGSPC 3 Mid Cap Growth Fund ......................... 698,578
154,784 AGSPC 3 Mid Cap Value Fund .......................... 2,095,769
-----------
2,794,347
-----------
SMALL CAP EQUITY FUND - 15.01%
90,176 AGSPC 3 Small Cap Growth Fund ....................... 2,095,698
-----------
TOTAL INVESTMENT COMPANIES - AFFILIATED
(Cost $12,652,537) .................................. 13,971,743
-----------
TOTAL INVESTMENTS - 100.06%
(Cost $12,652,537) .................................. $13,971,743
-----------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
66 MODERATE GROWTH LIFESTYLE FUND August 31, 2000
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
23.29% 22.58%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Moderate Growth S&P 500
Lifestyle Fund Index Benchmark*
--------------- ----------- -------------
9/21/98 10,000 10,000 10,000
11/98 11,081 11,396 10,965
2/99 11,248 12,166 11,169
5/99 11,899 12,832 11,876
8/99 12,039 13,057 11,856
11/99 12,905 13,778 12,360
2/00 13,840 13,593 12,879
5/00 13,531 14,177 12,834
8/31/00 14,843 15,188 13,713
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $16,222,372
NAV on 08/31/00: $13.42
One year total return: 23.29%
Net expense ratio: 0.10%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
William Trimbur, Jr., CFA, CPA (VALIC)
How did the Fund perform relative to its market and its benchmark?
The Fund has a 70% equity and 30% fixed income allocation. In a complete
investment program, as this Lifestyle Fund is intended to be, VALIC believes
asset allocation is the significant driver of long term returns. The asset
allocation was changed one time, in May 2000, with a modest reduction in
equities and corresponding increase in fixed income. Management believes this
change was necessary as equity valuations and fixed income prospects had
reached an overly wide divergence.
How did the large cap market perform over the past fiscal year?
The Fund comfortably outperformed its blended benchmark as well as the widely
followed Standard & Poor's 500 index.
What were some of the dominant themes in the portfolio?
All holdings had positive total returns. As a group, equities far outdistanced
fixed income.
Which portfolio holdings most enhanced the Fund's performance?
All equity holdings except Large Cap Value Fund had double digit positive
returns. Small Cap Growth Fund at + 68.91% and Mid Cap Growth Fund at + 46.25%
were particularly outstanding.
Were there any disappointments in the Fund's portfolio?
Value funds had an unusually wide performance gap when measured against growth
funds. For example, Large Cap Growth Fund advanced 30.68% while Large Cap Value
Fund returned + 7.35%.
What do you see ahead in the markets for the next fiscal period?
The equity, fixed income, and currency markets are likely to remain volatile
until investors reach a new consensus on corporate earnings versus equity
valuations, as well as slowing US domestic economic growth and accelerating
international growth. The technology and growth equity sectors are particularly
vulnerable to economic disappointments, foreign or domestic.
--------------------------------------------------------------------------------
<PAGE>
August 31, 2000 MODERATE GROWTH LIFESTYLE FUND 67
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
INVESTMENT COMPANIES -
AFFILIATED - 100.06%
BOND FUND - 30.02%
515,310 AGSPC 3 Domestic Bond Fund........................... $ 4,869,677
-----------
INTERNATIONAL EQUITY FUNDS - 15.01%
82,314 AGSPC 3 International Growth Fund.................... 1,217,430
70,372 AGSPC 3 International Value Fund..................... 1,217,430
-----------
2,434,860
-----------
LARGE CAP EQUITY FUNDS - 30.02%
137,712 AGSPC 3 Large Cap Growth Fund........................ 2,434,755
209,895 AGSPC 3 Large Cap Value Fund......................... 2,434,786
-----------
4,869,541
-----------
MID CAP EQUITY FUNDS - 15.01%
29,875 AGSPC 3 Mid Cap Growth Fund.......................... 486,955
143,859 AGSPC 3 Mid Cap Value Fund........................... 1,947,845
-----------
2,434,800
-----------
SMALL CAP EQUITY FUND - 10.00%
69,843 AGSPC 3 Small Cap Growth Fund........................ 1,623,154
-----------
TOTAL INVESTMENT COMPANIES - AFFILIATED
(Cost $15,055,099)................................... 16,232,032
-----------
TOTAL INVESTMENTS
(Cost $15,055,099) - 100.06%......................... $16,232,032
-----------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
68 CONSERVATIVE GROWTH LIFESTYLE FUND August 31, 2000
Average Annual Total Return--Fund
1 Year Since Inception*
----------------------------------------------------------------------------
19.33% 18.24%
* September 21, 1998
GROWTH OF $10,000 INVESTMENT
Fiscal Year Ended August 31
Conservative Growth S&P 500
Lifestyle Fund Index Benchmark*
------------------- ----------- ------------
-
9/21/98 10,000 10,000 10,000
11/98 10,892 11,396 10,782
2/99 11,009 12,166 10,955
5/99 11,548 12,832 11,501
8/99 11,599 13,057 11,461
11/99 12,272 13,778 11,883
2/00 12,866 13,593 12,193
5/00 12,807 14,177 12,262
8/31/00 13,841 15,188 13,052
Past performance is not predictive of future performance.
The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract or
variable life policy for mortality and expense guarantees, administrative fees
or surrender charges.
Portfolio at a Glance
Total net assets: $12,267,622
NAV on 08/31/00: $11.33
One year total return: 19.33%
Net expense ratio: 0.10%
Inception date: 09/21/98
MANAGEMENT OVERVIEW
A discussion with portfolio manager
William Trimbur, Jr., CFA, CPA (VALIC)
How did the Fund perform relative to its market and its benchmark?
The Fund has a 50% equity and 50% fixed income asset allocation. In a complete
investment program, as this Lifestyle Fund is intended to be, VALIC believes
asset allocation is the significant driver of long term returns. The asset
allocation was changed one time, in May 2000, with a substantial reduction in
equities and corresponding increase in fixed income. Management believes this
change was necessary as equity valuations had reached unusual heights, while
fixed income offered positive total return and attractive volatility
diversification.
How did the large cap market perform over the past fiscal year?
The Fund strongly outperformed its blended benchmark as well as the widely
followed Standard & Poor's 500 index.
What were some of the dominant themes in the portfolio?
All holdings had positive total returns. As a group, equities far outdistanced
fixed income.
Which portfolio holdings most enhanced the Fund's performance?
All equity holdings had positive total returns for the year ended August 31,
2000. The Small Cap Growth Fund at + 68.91%, Mid Cap Growth Fund at + 46.25%,
and Large Cap Growth Fund at + 30.68% were significant contributors. On a year
to date basis through August 31, 2000, fixed income has been a significant
contributor as investment grade domestic bonds have a total return greater
than the Standard & Poor's 500 index.
Were there any disappointments in the Fund's portfolio?
Value funds had an unusually wide performance gap when measured against growth
funds. For example, Large Cap Growth Fund advanced 30.68% while Large Cap
Value Fund returned + 7.35%.
What do you see ahead in the markets for the next fiscal period?
The equity, fixed income, and currency markets are likely to remain volatile
until investors reach a new consensus on corporate earnings versus equity
valuations, as well as slowing US domestic economic growth and accelerating
international growth. The technology and growth equity sectors are
particularly vulnerable to economic disappointments, foreign or domestic.
-------------------------------------------------------------------------------
<PAGE>
August 31, 2000 CONSERVATIVE GROWTH LIFESTYLE FUND 69
<TABLE>
<CAPTION>
NUMBER
OF SHARES MARKET VALUE
<C> <S> <C>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
INVESTMENT COMPANIES - AFFILIATED - 100.06%
BOND FUND - 50.03%
649,460 AGSPC 3 Domestic Bond Fund........................ $ 6,137,397
--------------
INTERNATIONAL EQUITY FUNDS - 8.00%
33,198 AGSPC 3 International Growth Fund................. 490,995
28,381 AGSPC 3 International Value Fund.................. 490,994
--------------
981,989
--------------
LARGE CAP EQUITY FUNDS - 26.02%
90,254 AGSPC 3 Large Cap Growth Fund..................... 1,595,686
137,560 AGSPC 3 Large Cap Value Fund...................... 1,595,700
--------------
3,191,386
--------------
MID CAP EQUITY FUNDS - 10.01%
15,061 AGSPC 3 Mid Cap Growth Fund....................... 245,491
72,524 AGSPC 3 Mid Cap Value Fund........................ 981,975
--------------
1,227,466
--------------
SMALL CAP EQUITY FUND - 6.00%
31,690 AGSPC 3 Small Cap Growth Fund..................... 736,465
--------------
TOTAL INVESTMENT COMPANIES - AFFILIATED
(Cost $11,721,411)................................ 12,274,703
--------------
TOTAL INVESTMENTS
(Cost $11,721,411) - 100.06%...................... $ 12,274,703
--------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
70 August 31, 2000
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
STATE NEUBERGER
GOLDMAN SACHS INVESCO J.P. MORGAN STREET BERMAN
INTERNATIONAL LARGE CAP MID CAP SMALL CAP INTERNATIONAL LARGE CAP MID CAP SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at
cost............ $10,509,511 $28,181,428 $10,618,795 $27,670,262 $10,028,919 $10,196,545 $15,489,544 $5,093,225
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Investments, at
market.......... $11,952,103 $36,045,018 $13,453,824 $33,762,077 $13,146,096 $11,141,579 $17,521,075 $5,398,718
Cash
(overdraft)..... 744 455 119 (41,797) 154 871 188 --
Receivable for:
Investments
sold........... -- -- -- 351,848 136,234 245,377 -- 55,938
Fund shares
sold........... 71,488 83,693 43,138 230,547 82,002 15,516 27,411 3,141
Dividends and
interest....... 17,350 15,827 4,876 3,329 17,540 19,069 11,855 6,989
Daily variation
margin on
futures........ -- 4,298 -- -- -- -- -- 1,575
Unrealized gain
on forward
currency
exchange
contracts...... -- -- -- -- 737 -- -- --
Expenses
reimbursement.. 106,962 229,743 128,108 178,346 159,233 103,479 121,290 91,626
Other assets.... 2,073 400 152 12,001 442 158 224 1,253
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
TOTAL ASSETS.... 12,150,720 36,379,434 13,630,217 34,496,351 13,542,438 11,526,049 17,682,043 5,559,240
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
LIABILITIES:
Payable for:
Investments
purchased...... 281,052 -- 691,606 107,501 93,021 278,722 80,830 15,623
Fund shares
reacquired..... -- 32,678 11,442 101,935 -- 5,833 1,432 --
Custodian fee.. 47,018 110,438 48,506 84,961 54,050 49,277 57,533 38,573
Professional
fees........... 28,920 68,577 30,624 53,813 33,105 30,873 36,034 24,403
Report to
shareholders... 13,372 33,836 13,639 26,932 15,506 13,671 16,160 10,955
Unrealized loss
on forward
currency
exchange
contracts...... -- -- -- -- 30,313 -- -- --
Payable to
affiliates:
Advisory fees.. 8,623 15,674 6,351 21,716 10,808 4,510 10,561 3,332
Administrative
services....... 37,926 95,128 39,365 75,553 43,637 39,693 47,619 30,327
Accounting
services....... 4,551 11,415 4,724 9,066 5,236 4,763 5,714 3,639
Trustees' fee.. 8,686 18,868 9,229 15,360 9,929 9,282 10,519 7,624
Accrued expenses
and other
liabilities..... 5,365 9,943 4,288 -- 9,806 5,246 4,946 4,036
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
TOTAL
LIABILITIES..... 435,513 396,557 859,774 496,837 305,411 441,870 271,348 138,512
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
NET ASSETS...... $11,715,207 $35,982,877 $12,770,443 $33,999,514 $13,237,027 $11,084,179 $17,410,695 $5,420,728
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
REPRESENTED BY:
Shares of
beneficial
interest........ $ 7,919 $ 20,354 $ 7,833 $ 14,628 $ 7,651 $ 9,553 $ 12,857 $ 4,622
Additional paid
in capital...... 8,949,360 26,903,108 8,802,711 24,297,082 9,374,980 10,169,802 14,488,354 4,468,882
Undistributed/Accumulated
net realized
gain (loss) on
securities...... 1,371,405 1,190,602 1,124,870 3,595,989 951,210 (30,509) 877,493 619,956
Undistributed/Accumulated
net investment
income (loss)... (56,069) -- -- -- (183,990) (9,701) 460 --
Unrealized
appreciation
(depreciation)
of:
Investments.... 1,442,592 7,863,590 2,835,029 6,091,815 3,117,177 945,034 2,031,531 305,493
Futures........ -- 5,223 -- -- -- -- -- 21,775
Forward
currency
contracts...... -- -- -- -- (29,576) -- -- --
Foreign
currency
translations... -- -- -- -- (425) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
NET ASSETS
APPLICABLE TO
SHARES
OUTSTANDING..... $11,715,207 $35,982,877 $12,770,443 $33,999,514 $13,237,027 $11,084,179 $17,410,695 $5,420,728
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
---------------------------------------------------------------------------------------------------------------------------------
SHARES OF
BENEFICIAL
INTEREST:
(unlimited
shares
authorized)
Outstanding
(par value
$0.01 per
share)......... 791,949 2,035,360 783,271 1,462,846 765,066 955,347 1,285,697 462,181
NET ASSET
VALUE, OFFERING
AND REDEMPTION
PRICE PER
SHARE.......... $ 14.79 $ 17.68 $ 16.30 $ 23.24 $ 17.30 $ 11.60 $ 13.54 $ 11.73
<CAPTION>
SOCIALLY
RESPONSIBLE
FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at
cost............ $11,745,963
-----------
Investments, at
market.......... $14,285,373
Cash
(overdraft)..... 936
Receivable for:
Investments
sold........... 31,795
Fund shares
sold........... --
Dividends and
interest....... 14,225
Daily variation
margin on
futures........ 13,200
Unrealized gain
on forward
currency
exchange
contracts...... --
Expenses
reimbursement.. 126,136
Other assets.... 189
-----------
TOTAL ASSETS.... 14,471,854
-----------
LIABILITIES:
Payable for:
Investments
purchased...... --
Fund shares
reacquired..... 4,320
Custodian fee.. 60,738
Professional
fees........... 37,952
Report to
shareholders... 17,763
Unrealized loss
on forward
currency
exchange
contracts...... --
Payable to
affiliates:
Advisory fees.. 2,932
Administrative
services....... 49,680
Accounting
services....... 5,962
Trustees' fee.. 11,121
Accrued expenses
and other
liabilities..... 4,903
-----------
TOTAL
LIABILITIES..... 195,371
-----------
NET ASSETS...... $14,276,483
-----------
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
REPRESENTED BY:
Shares of
beneficial
interest........ $ 10,085
Additional paid
in capital...... 11,575,520
Undistributed/Accumulated
net realized
gain (loss) on
securities...... 126,969
Undistributed/Accumulated
net investment
income (loss)... 3,961
Unrealized
appreciation
(depreciation)
of:
Investments.... 2,539,410
Futures........ 20,538
Forward
currency
contracts...... --
Foreign
currency
translations... --
-----------
NET ASSETS
APPLICABLE TO
SHARES
OUTSTANDING..... $14,276,483
-----------
---------------------------------------------------------------------------------------------------------------------------------
SHARES OF
BENEFICIAL
INTEREST:
(unlimited
shares
authorized)
Outstanding
(par value
$0.01 per
share)......... 1,008,524
NET ASSET
VALUE, OFFERING
AND REDEMPTION
PRICE PER
SHARE.......... $ 14.16
SEE NOTES TO FINANCIAL STATEMENTS.
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
August 31, 2000 71
STATEMENTS OF ASSETS AND LIABILITIES - CONTINUED
<TABLE>
<CAPTION>
AGGRESSIVE MODERATE
BALANCED HIGH YIELD STRATEGIC DOMESTIC CORE MONEY GROWTH GROWTH
FUND BOND FUND BOND FUND BOND FUND BOND FUND MARKET FUND LIFESTYLE FUND LIFESTYLE FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at
cost............ $11,321,892 $6,015,745 $5,853,953 $14,562,180 $6,916,316 $25,235,135 $12,652,537 $15,055,099
----------- ---------- ---------- ----------- ---------- ----------- ----------- -----------
Investments, at
market.......... $12,716,750 $5,755,731 $5,804,291 $14,504,118 $6,790,092 $25,235,135 $13,971,743 $16,232,032
Cash
(overdraft)..... 512 490 123,654 358 793 406 8,707 22,003
Receivable for:
Investments
sold........... -- -- -- -- -- -- 59,916 52,897
Fund shares
sold........... -- 249 5,553 123,953 1,640 257,539 42,161 43,978
Dividends and
interest....... 64,875 131,794 117,181 200,979 76,640 296 24,850 76,370
Daily variation
margin on
futures........ -- -- -- -- -- -- -- --
Unrealized gain
on forward
currency
exchange
contracts...... -- -- -- -- -- -- -- --
Expenses
reimbursement.. 161,719 74,940 74,280 133,123 70,672 119,503 -- --
Other assets.... 157 90 91 167 88 174 -- --
----------- ---------- ---------- ----------- ---------- ----------- ----------- -----------
TOTAL ASSETS.... 12,944,013 5,963,294 6,125,050 14,962,698 6,939,925 25,613,053 14,107,377 16,427,280
----------- ---------- ---------- ----------- ---------- ----------- ----------- -----------
LIABILITIES:
Payable for:
Investments
purchased...... 13,312 23,844 146,739 234,277 1,416,051 -- 142,764 203,379
Fund shares
reacquired..... 2,375 -- -- -- -- -- 20 --
Custodian fee.. 53,620 34,963 34,674 52,141 33,478 58,392 -- --
Professional
fees........... 33,437 21,910 21,754 32,339 21,048 36,745 -- --
Report to
shareholders... 15,523 9,653 9,533 14,698 9,184 15,641 -- --
Unrealized loss
on forward
currency
exchange
contracts...... -- -- -- -- -- -- -- --
Payable to
affiliates:
Advisory fees.. 8,456 3,397 2,943 7,072 2,284 4,603 1,124 1,296
Administrative
services....... 43,747 27,090 26,867 42,753 25,875 49,559 -- --
Accounting
services....... 5,250 3,251 3,224 5,130 3,105 5,947 -- --
Trustees' fee.. 9,894 6,830 6,779 9,484 6,565 10,361 -- --
Accrued expenses
and other
liabilities..... 3,992 2,780 2,945 7,647 2,578 4,446 -- 233
----------- ---------- ---------- ----------- ---------- ----------- ----------- -----------
TOTAL
LIABILITIES..... 189,606 133,718 255,458 405,541 1,520,168 185,694 143,908 204,908
----------- ---------- ---------- ----------- ---------- ----------- ----------- -----------
NET ASSETS...... $12,754,407 $5,829,576 $5,869,592 $14,557,157 $5,419,757 $25,427,359 $13,963,469 $16,222,372
----------- ---------- ---------- ----------- ---------- ----------- ----------- -----------
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
REPRESENTED BY:
Shares of
beneficial
interest........ $ 9,731 $ 6,283 $ 5,979 $ 15,396 $ 5,730 $ 254,274 $ 9,380 $ 12,088
Additional paid
in capital...... 10,823,232 6,237,762 5,961,623 14,918,018 5,697,001 25,173,085 10,841,752 13,758,798
Undistributed/Accumulated
net realized
gain (loss) on
securities...... 523,490 (160,328) (60,266) (322,703) (161,709) -- 1,793,131 1,274,553
Undistributed/Accumulated
net investment
income (loss)... 3,096 5,903 11,918 4,508 4,959 -- -- --
Unrealized
appreciation
(depreciation)
of:
Investments.... 1,394,858 (260,014) (49,662) (58,062) (126,224) -- 1,319,206 1,176,933
Futures........ -- -- -- -- -- -- -- --
Forward
currency
contracts...... -- -- -- -- -- -- -- --
Foreign
currency
translations... -- (30) -- -- -- -- -- --
----------- ---------- ---------- ----------- ---------- ----------- ----------- -----------
NET ASSETS
APPLICABLE TO
SHARES
OUTSTANDING..... $12,754,407 $5,829,576 $5,869,592 $14,557,157 $5,419,757 $25,427,359 $13,963,469 $16,222,372
----------- ---------- ---------- ----------- ---------- ----------- ----------- -----------
---------------------------------------------------------------------------------------------------------------------------------
SHARES OF
BENEFICIAL
INTEREST:
(unlimited
shares
authorized)
Outstanding
(par value
$0.01 per
share)......... 973,112 628,278 597,911 1,539,647 573,000 25,427,359 938,006 1,208,848
NET ASSET
VALUE, OFFERING
AND REDEMPTION
PRICE PER
SHARE.......... $ 13.11 $ 9.28 $ 9.82 $ 9.45 $ 9.46 $ 1.00 $ 14.89 $ 13.42
<CAPTION>
CONSERVATIVE
GROWTH
LIFESTYLE FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at
cost............ $11,721,411
--------------
Investments, at
market.......... $12,274,703
Cash
(overdraft)..... (3,401)
Receivable for:
Investments
sold........... 38,606
Fund shares
sold........... 22,356
Dividends and
interest....... 91,870
Daily variation
margin on
futures........ --
Unrealized gain
on forward
currency
exchange
contracts...... --
Expenses
reimbursement.. --
Other assets.... --
--------------
TOTAL ASSETS.... 12,424,134
--------------
LIABILITIES:
Payable for:
Investments
purchased...... 155,502
Fund shares
reacquired..... 5
Custodian fee.. --
Professional
fees........... --
Report to
shareholders... --
Unrealized loss
on forward
currency
exchange
contracts...... --
Payable to
affiliates:
Advisory fees.. 1,005
Administrative
services....... --
Accounting
services....... --
Trustees' fee.. --
Accrued expenses
and other
liabilities..... --
--------------
TOTAL
LIABILITIES..... 156,512
--------------
NET ASSETS...... $12,267,622
--------------
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
REPRESENTED BY:
Shares of
beneficial
interest........ $ 10,827
Additional paid
in capital...... 11,361,329
Undistributed/Accumulated
net realized
gain (loss) on
securities...... 342,174
Undistributed/Accumulated
net investment
income (loss)... --
Unrealized
appreciation
(depreciation)
of:
Investments.... 553,292
Futures........ --
Forward
currency
contracts...... --
Foreign
currency
translations... --
--------------
NET ASSETS
APPLICABLE TO
SHARES
OUTSTANDING..... $12,267,622
--------------
---------------------------------------------------------------------------------------------------------------------------------
SHARES OF
BENEFICIAL
INTEREST:
(unlimited
shares
authorized)
Outstanding
(par value
$0.01 per
share)......... 1,082,658
NET ASSET
VALUE, OFFERING
AND REDEMPTION
PRICE PER
SHARE.......... $ 11.33
SEE NOTES TO FINANCIAL STATEMENTS.
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
72 For the Fiscal Year Ended August 31, 2000
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INVESCO NEUBERGER
GOLDMAN SACHS MID CAP J.P. MORGAN STATE STREET BERMAN
INTERNATIONAL LARGE CAP GROWTH SMALL CAP INTERNATIONAL LARGE CAP MID CAP SMALL CAP
GROWTH FUND GROWTH FUND FUND GROWTH FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of
foreign
withholding taxes
of $13,982 and
$16,169 for
International
Growth Fund and
International
Value Fund,
respectively)..... $ 114,640 $ 149,476 $ 30,452 $ 44,512 $ 119,652 $ 173,531 $ 126,931 $ 115,309
Interest.......... 23,712 51,011 23,739 70,855 27,337 7,140 45,124 33,452
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total investment
income........... 138,352 200,487 54,191 115,367 146,989 180,671 172,055 148,761
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Advisory fees..... 85,379 148,935 59,188 190,268 110,641 45,559 88,406 47,613
Custodian fees.... 24,832 69,623 22,462 55,015 29,230 22,873 29,615 16,082
Administrative
fee............... 23,716 67,699 22,766 55,961 27,618 22,779 29,469 15,871
Professional
fees.............. 15,287 44,072 14,736 35,499 17,891 14,741 18,903 10,445
Report to
shareholders...... 12,371 31,623 12,438 25,491 14,358 12,481 14,865 9,978
Trustees' fees and
expenses.......... 4,331 12,270 4,093 9,733 5,106 4,170 5,210 3,033
Accounting
services.......... 2,846 8,124 2,732 6,715 3,314 2,734 3,536 1,905
Miscellaneous..... 2,972 7,260 2,540 4,544 3,198 3,491 3,077 2,472
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses... 171,734 389,606 140,955 383,226 211,356 128,828 193,081 107,399
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Expense
reimbursement.... (62,647) (156,449) (68,937) (123,520) (96,255) (55,013) (69,311) (45,254)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT
INCOME (LOSS)..... 29,265 (32,670) (17,827) (144,339) 31,888 106,856 48,285 86,616
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
REALIZED AND
UNREALIZED GAIN
(LOSS) ON
SECURITIES:
Net realized gain
(loss) on
securities:
Investments...... 1,619,840 1,391,700 1,207,268 3,990,697 1,156,460 201,690 891,119 637,889
Capital gain
distribution..... -- -- -- -- -- -- -- --
Futures & options
contracts........ -- 11,094 -- -- -- -- -- 12,273
Forward currency
contracts........ -- -- -- -- (74,079) -- -- --
Foreign currency
transactions..... (178,616) -- -- -- (3,586) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1,441,224 1,402,794 1,207,268 3,990,697 1,078,795 201,690 891,119 650,162
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net unrealized
appreciation
(depreciation) of
securities during
the period:
Investments...... 1,014,330 5,715,524 2,510,021 4,433,309 965,096 514,937 2,463,897 247,642
Futures
contracts........ -- 7,568 -- -- -- -- -- 38,875
Forward currency
contracts........ -- -- -- -- (19,462) -- -- --
Foreign currency
translations..... 50 -- -- -- 60 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1,014,380 5,723,092 2,510,021 4,433,309 945,694 514,937 2,463,897 286,517
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain
on securities
during the
period.......... 2,455,604 7,125,886 3,717,289 8,424,006 2,024,489 716,627 3,355,016 936,679
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS.. $2,484,869 $7,093,216 $3,699,462 $8,279,667 $2,056,377 $ 823,483 $3,403,301 $1,023,295
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
SOCIALLY
RESPONSIBLE
FUND
<S> <C>
---------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of
foreign
withholding taxes
of $13,982 and
$16,169 for
International
Growth Fund and
International
Value Fund,
respectively)..... $ 140,662
Interest.......... 48,357
------------
Total investment
income........... 189,019
------------
EXPENSES:
Advisory fees..... 30,422
Custodian fees.... 31,161
Administrative
fee............... 30,422
Professional
fees.............. 19,889
Report to
shareholders...... 16,311
Trustees' fees and
expenses.......... 5,609
Accounting
services.......... 3,651
Miscellaneous..... 2,768
------------
Total expenses... 140,233
------------
Expense
reimbursement.... (72,068)
------------
NET INVESTMENT
INCOME (LOSS)..... 120,854
------------
REALIZED AND
UNREALIZED GAIN
(LOSS) ON
SECURITIES:
Net realized gain
(loss) on
securities:
Investments...... 38,788
Capital gain
distribution..... --
Futures & options
contracts........ 90,808
Forward currency
contracts........ --
Foreign currency
transactions..... --
------------
129,596
------------
Net unrealized
appreciation
(depreciation) of
securities during
the period:
Investments...... 1,444,269
Futures
contracts........ 17,838
Forward currency
contracts........ --
Foreign currency
translations..... --
------------
1,462,107
------------
Net realized and
unrealized gain
on securities
during the
period.......... 1,591,703
------------
INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS.. $1,712,557
------------
SEE NOTES TO FINANCIAL STATEMENTS.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
For the Fiscal Year Ended August 31, 2000 73
STATEMENTS OF OPERATIONS - CONTINUED
<TABLE>
<CAPTION>
AGGRESSIVE MODERATE CONSERVATIVE
MONEY GROWTH GROWTH GROWTH
BALANCED HIGH YIELD STRATEGIC DOMESTIC CORE BOND MARKET LIFESTYLE LIFESTYLE LIFESTYLE
FUND BOND FUND BOND FUND BOND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends......... $ 82,569 $ -- $ -- $ -- $ -- $ -- $ 127,015 $ 267,238 $ 293,066
Interest.......... 268,458 619,390 504,117 732,393 375,713 801,552 77 485 107
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total investment
income........... 351,027 619,390 504,117 732,393 375,713 801,552 127,092 267,723 293,173
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Advisory fees..... 85,297 38,715 33,027 64,005 26,117 32,252 10,862 12,732 9,495
Custodian fees.... 27,018 13,681 13,614 27,364 12,892 30,966 -- -- --
Administrative
fee............... 26,655 13,827 13,760 26,669 13,058 32,252 -- -- --
Professional
fees.............. 17,258 8,950 8,902 17,094 8,452 20,531 -- -- --
Report to
shareholders...... 14,249 8,678 8,574 13,546 8,254 14,429 -- -- --
Trustees' fees and
expenses.......... 4,883 2,606 2,591 4,835 2,467 5,468 -- -- --
Accounting
services.......... 3,199 1,659 1,651 3,200 1,567 3,870 -- -- --
Miscellaneous..... 2,228 1,332 1,258 5,940 1,171 2,649 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses... 180,787 89,448 83,377 162,653 73,978 142,417 10,862 12,732 9,495
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Expense
reimbursement.... (93,248) (34,694) (34,383) (79,286) (32,178) (70,172) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT
INCOME............ 263,488 564,636 455,123 649,026 333,913 729,307 116,230 254,991 283,678
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
REALIZED AND
UNREALIZED GAIN
(LOSS) ON
SECURITIES:
Net realized gain
(loss) on
securities:
Investments...... 523,842 (112,017) 10,060 (275,098) (117,216) -- 1,867,912 1,344,625 486,644
Capital gain
distribution..... -- -- -- -- -- -- 711,550 810,493 451,478
Futures & options
contracts........ -- -- (27,223) -- -- -- -- -- --
Forward currency
contracts........ -- -- -- -- -- -- -- -- --
Foreign currency
transactions..... -- -- (1,345) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
523,842 (112,017) (18,508) (275,098) (117,216) -- 2,579,462 2,155,118 938,122
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net unrealized
appreciation
(depreciation) of
securities during
the period:
Investments...... 671,236 (124,381) 9,679 355,277 57,812 -- 67,795 251,025 446,415
Futures
contracts........ -- -- -- -- -- -- -- -- --
Forward currency
contracts........ -- -- -- -- -- -- -- -- --
Foreign currency
translations..... -- (30) -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
671,236 (124,411) 9,679 355,277 57,812 -- 67,795 251,025 446,415
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain
(loss) on
securities
during the
period.......... 1,195,078 (236,428) (8,829) 80,179 (59,404) -- 2,647,257 2,406,143 1,384,537
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS.. $1,458,566 $ 328,208 $ 446,294 $ 729,205 $ 274,509 $ 729,307 $2,763,487 $2,661,134 $1,668,215
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
74 STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERNATIONAL GOLDMAN SACHS INVESCO J.P. MORGAN
GROWTH FUND LARGE CAP GROWTH FUND MID CAP GROWTH FUND SMALL CAP GROWTH FUND
----------------------- ------------------------- ----------------------- ------------------------
For the Fiscal Year For the Fiscal Year For the Fiscal Year For the Fiscal Year
Ended August 31, Ended August 31, Ended August 31, Ended August 31,
----------------------- ------------------------- ----------------------- ------------------------
2000 1999 2000 1999 2000 1999 2000 1999
----------------------- ------------------------- ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income (loss)... $ 29,265 $ 80,860 $ (32,670) $ 14,919 $ (17,827) $ (16,217) $ (144,339) $ (37,277)
Net realized gain
on securities... 1,441,224 167,651 1,402,794 591,864 1,207,268 867,584 3,990,697 1,104,850
Net unrealized
appreciation of
securities
during the
period.......... 1,014,380 428,212 5,723,092 2,145,721 2,510,021 325,008 4,433,309 1,658,506
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
Increase in net
assets
resulting from
operations..... 2,484,869 676,723 7,093,216 2,752,504 3,699,462 1,176,375 8,279,667 2,726,079
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM:
Net investment
income.......... (124,079) -- (2,763) (12,174) -- -- -- --
Net realized gain
on securities... (263,934) -- (771,386) -- (915,938) -- (1,294,227) (23,560)
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
Decrease in net
assets
resulting from
distributions
to
shareholders... (388,013) -- (774,149) (12,174) (915,938) -- (1,294,227) (23,560)
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
SHARE
TRANSACTIONS:
Proceeds from
shares sold..... 5,116,241 6,525,710 14,951,467 18,067,450 4,332,083 6,675,852 20,675,764 8,757,239
Proceeds from
shares issued
for
distributions
reinvested...... 388,013 -- 774,149 12,174 915,938 -- 1,294,227 23,560
Cost of shares
reacquired...... (2,701,134) (392,069) (5,370,934) (1,514,626) (2,655,563) (463,166) (5,799,255) (645,180)
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
Increase in net
assets
resulting from
shares
transactions... 2,803,120 6,133,641 10,354,682 16,564,998 2,592,458 6,212,686 16,170,736 8,135,619
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
TOTAL INCREASE IN
NET ASSETS...... 4,899,976 6,810,364 16,673,749 19,305,328 5,375,982 7,389,061 23,156,176 10,838,138
NET ASSETS:
Beginning of
period.......... 6,815,231 4,867 19,309,128 3,800 7,394,461 5,400 10,843,338 5,200
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
End of period.... $11,715,207 $6,815,231 $ 35,982,877 $19,309,128 $12,770,443 $7,394,461 $33,999,514 $10,843,338
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
Undistributed net
investment
income
(accumulated
loss) included
in net
assets at the
end of the
period.......... $ (56,069) $ 80,860 $ -- $ 2,745 $ -- $ -- $ -- $ --
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
CHANGE IN SHARES
OUTSTANDING:
Shares sold...... 343,676 642,435 935,327 1,493,550 305,086 627,713 952,777 772,300
Shares issued for
distributions
reinvested...... 25,167 -- 49,085 971 73,806 -- 64,008 1,746
Shares
reacquired...... (184,544) (35,272) (332,400) (111,553) (189,416) (34,458) (283,473) (45,032)
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
Increase in
shares
outstanding.... 184,299 607,163 652,012 1,382,968 189,476 593,255 733,312 729,014
Shares
outstanding:
Beginning of
period......... 607,650 487 1,383,348 380 593,795 540 729,534 520
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
End of period... 791,949 607,650 2,035,360 1,383,348 783,271 593,795 1,462,846 729,534
----------- ---------- ------------ ----------- ----------- ---------- ----------- -----------
<CAPTION>
INTERNATIONAL VALUE
FUND
------------------------
For the Fiscal Year
Ended August 31,
------------------------
2000 1999
<S> <C> <C>
------------------------
OPERATIONS:
Net investment
income (loss)... $ 31,888 $ 44,133
Net realized gain
on securities... 1,078,795 314,836
Net unrealized
appreciation of
securities
during the
period.......... 945,694 2,141,482
------------ -----------
Increase in net
assets
resulting from
operations..... 2,056,377 2,500,451
------------ -----------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM:
Net investment
income.......... (100,863) (8,000)
Net realized gain
on securities... (497,850) --
------------ -----------
Decrease in net
assets
resulting from
distributions
to
shareholders... (598,713) (8,000)
------------ -----------
SHARE
TRANSACTIONS:
Proceeds from
shares sold..... 5,530,864 6,221,423
Proceeds from
shares issued
for
distributions
reinvested...... 598,713 8,000
Cost of shares
reacquired...... (2,498,830) (578,058)
------------ -----------
Increase in net
assets
resulting from
shares
transactions... 3,630,747 5,651,365
------------ -----------
TOTAL INCREASE IN
NET ASSETS...... 5,088,411 8,143,816
NET ASSETS:
Beginning of
period.......... 8,148,616 4,800
------------ -----------
End of period.... $13,237,027 $8,148,616
------------ -----------
Undistributed net
investment
income
(accumulated
loss) included
in net
assets at the
end of the
period.......... $ (183,990) $ 36,133
------------ -----------
CHANGE IN SHARES
OUTSTANDING:
Shares sold...... 319,116 593,951
Shares issued for
distributions
reinvested...... 34,384 704
Shares
reacquired...... (142,190) (41,379)
------------ -----------
Increase in
shares
outstanding.... 211,310 553,276
Shares
outstanding:
Beginning of
period......... 553,756 480
------------ -----------
End of period... 765,066 553,756
------------ -----------
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED 75
<TABLE>
<CAPTION>
STATE STREET NEUBERGER BERMAN SOCIALLY RESPONSIBLE
LARGE CAP VALUE FUND MID CAP VALUE FUND SMALL CAP VALUE FUND FUND
----------------------- ----------------------- ---------------------- ------------------------
For the Fiscal Year For the Fiscal Year For the Fiscal Year For the Fiscal Year
Ended August 31, Ended August 31, Ended August 31, Ended August 31,
----------------------- ----------------------- ---------------------- ------------------------
2000 1999 2000 1999 2000 1999 2000 1999
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income........... $ 106,856 $ 75,213 $ 48,285 $ 53,719 $ 86,616 $ 75,368 $ 120,854 $ 86,901
Net realized gain
on securities.... 201,690 1,019,748 891,119 2,554,226 650,162 267,470 129,596 675,026
Net unrealized
appreciation
(depreciation) of
securities during
the period....... 514,937 430,097 2,463,897 (432,366) 286,517 40,751 1,462,107 1,097,841
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
Increase in net
assets resulting
from
operations...... 823,483 1,525,058 3,403,301 2,175,579 1,023,295 383,589 1,712,557 1,859,768
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM:
Net investment
income........... (102,781) (74,349) (49,332) (51,583) (87,688) (73,535) (118,219) (85,565)
Net realized gain
on securities.... (1,266,735) -- (2,428,048) (139,804) (224,839) (67,087) (391,923) (285,733)
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
Decrease in net
assets resulting
from
distributions to
shareholders.... (1,369,516) (74,349) (2,477,380) (191,387) (312,527) (140,622) (510,142) (371,298)
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
SHARE
TRANSACTIONS:
Proceeds from
shares sold...... 4,970,134 7,688,588 7,560,011 7,528,054 1,189,509 6,409,530 3,346,442 8,600,154
Proceeds from
shares issued for
distributions
reinvested....... 1,369,516 74,349 2,477,380 191,387 312,527 140,622 510,142 371,298
Cost of shares
reacquired....... (2,565,833) (1,361,118) (2,591,607) (669,910) (3,206,192) (384,136) (1,086,455) (162,650)
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
Increase
(decrease) in
net assets
resulting from
shares
transactions.... 3,773,817 6,401,819 7,445,784 7,049,531 (1,704,156) 6,166,016 2,770,129 8,808,802
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS........... 3,227,784 7,852,528 8,371,705 9,033,723 (993,388) 6,408,983 3,972,544 10,297,272
NET ASSETS:
Beginning of
period........... 7,856,395 3,867 9,038,990 5,267 6,414,116 5,133 10,303,939 6,667
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
End of period.... $11,084,179 $7,856,395 $17,410,695 $9,038,990 $5,420,728 $6,414,116 $14,276,483 $10,303,939
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
Undistributed net
investment income
included in net
assets at the end
of the period.... $ (9,701) $ 1,012 $ 460 $ 2,508 $ -- $ 2,005 $ 3,961 $ 1,336
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
CHANGE IN SHARES
OUTSTANDING:
Shares sold...... 448,103 705,711 610,303 684,711 114,312 634,189 249,363 781,747
Shares issued for
distributions
reinvested....... 126,460 5,876 228,066 15,395 31,026 12,732 37,876 30,223
Shares
reacquired....... (230,591) (100,599) (206,664) (46,641) (295,109) (35,482) (79,002) (12,350)
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
Increase
(decrease) in
shares
outstanding..... 343,972 610,988 631,705 653,465 (149,771) 611,439 208,237 799,620
Shares
outstanding:
Beginning of
period.......... 611,375 387 653,992 527 611,952 513 800,287 667
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
End of period... 955,347 611,375 1,285,697 653,992 462,181 611,952 1,008,524 800,287
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
<CAPTION>
BALANCED FUND
------------------------
For the Fiscal Year
Ended August 31,
------------------------
2000 1999
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment
income........... $ 263,488 $ 150,185
Net realized gain
on securities.... 523,842 466,887
Net unrealized
appreciation
(depreciation) of
securities during
the period....... 671,236 723,622
------------ -----------
Increase in net
assets resulting
from
operations...... 1,458,566 1,340,694
------------ -----------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM:
Net investment
income........... (261,834) (148,979)
Net realized gain
on securities.... (432,943) (34,051)
------------ -----------
Decrease in net
assets resulting
from
distributions to
shareholders.... (694,777) (183,030)
------------ -----------
SHARE
TRANSACTIONS:
Proceeds from
shares sold...... 3,234,946 7,231,067
Proceeds from
shares issued for
distributions
reinvested....... 694,777 183,030
Cost of shares
reacquired....... (476,440) (41,093)
------------ -----------
Increase
(decrease) in
net assets
resulting from
shares
transactions.... 3,453,283 7,373,004
------------ -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS........... 4,217,072 8,530,668
NET ASSETS:
Beginning of
period........... 8,537,335 6,667
------------ -----------
End of period.... $12,754,407 $8,537,335
------------ -----------
Undistributed net
investment income
included in net
assets at the end
of the period.... $ 3,096 $ 1,586
------------ -----------
CHANGE IN SHARES
OUTSTANDING:
Shares sold...... 261,102 680,625
Shares issued for
distributions
reinvested....... 56,791 15,285
Shares
reacquired....... (38,015) (3,343)
------------ -----------
Increase
(decrease) in
shares
outstanding..... 279,878 692,567
Shares
outstanding:
Beginning of
period.......... 693,234 667
------------ -----------
End of period... 973,112 693,234
------------ -----------
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
76 STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND STRATEGIC BOND FUND DOMESTIC BOND FUND CORE BOND FUND
---------------------- ---------------------- ----------------------- ----------------------
For the Fiscal Year For the Fiscal Year For the Fiscal Year For the Fiscal Year
Ended August 31, Ended August 31, Ended August 31, Ended August 31,
---------------------- ---------------------- ----------------------- ----------------------
2000 1999 2000 1999 2000 1999 2000 1999
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income (loss)... $ 564,636 $ 454,722 $ 455,123 $ 356,601 $ 649,026 $ 354,252 $ 333,913 $ 260,813
Net realized gain
on securities .. (112,017) (48,311) (18,508) (28,569) (275,098) 17,325 (117,216) (24,396)
Net unrealized
appreciation
(depreciation)
of securities
during the
period.......... (124,411) (135,633) 9,679 (59,341) 355,277 (413,339) 57,812 (184,036)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Increase
(decrease) in
net assets
resulting from
operations..... 328,208 270,778 446,294 268,691 729,205 (41,762) 274,509 52,381
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM:
Net investment
income.......... (562,080) (453,039) (468,261) (335,000) (648,895) (352,037) (334,812) (259,674)
Net realized gain
on securities... -- -- -- (11,064) (179) (63,635) -- (16,291)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Decrease in net
assets
resulting from
distributions
to
shareholders... (562,080) (453,039) (468,261) (346,064) (649,074) (415,672) (334,812) (275,965)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
SHARE
TRANSACTIONS:
Proceeds from
shares sold..... 132,575 5,137,206 178,386 5,021,496 9,692,501 10,859,615 47,686 5,060,442
Proceeds from
shares issued
for
distributions
reinvested...... 562,079 453,039 468,261 346,064 649,074 415,672 334,812 275,965
Cost of shares
reacquired...... (28,233) (17,624) (51,318) (624) (4,116,352) (2,567,717) (21,010) (918)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Increase in net
assets
resulting from
shares
transactions... 666,421 5,572,621 595,329 5,366,936 6,225,223 8,707,570 361,488 5,335,489
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
TOTAL INCREASE IN
NET ASSETS...... 432,549 5,390,360 573,362 5,289,563 6,305,354 8,250,136 301,185 5,111,905
NET ASSETS:
Beginning of
period.......... 5,397,027 6,667 5,296,230 6,667 8,251,803 1,667 5,118,572 6,667
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
End of period.... $5,829,576 $5,397,027 $5,869,592 $5,296,230 $14,557,157 $8,251,803 $5,419,757 $5,118,572
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Undistributed net
investment
income included
in net
assets at the
end of the
period.......... $ 5,903 $ 3,347 $ 11,918 $ 22,931 $ 4,508 $ 3,261 $ 4,959 $ 2,052
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
CHANGE IN SHARES
OUTSTANDING:
Shares sold...... 14,030 513,223 18,221 502,059 1,035,626 1,097,349 5,024 506,020
Shares issued for
distributions
reinvested...... 60,146 44,931 48,049 34,237 69,692 42,275 35,617 27,974
Shares
reacquired...... (2,977) (1,742) (5,260) (62) (440,511) (264,951) (2,209) (93)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
Increase in
shares
outstanding.... 71,199 556,412 61,010 536,234 664,807 874,673 38,432 533,901
Shares
outstanding:
Beginning of
period......... 557,079 667 536,901 667 874,840 167 534,568 667
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
End of period... 628,278 557,079 597,911 536,901 1,539,647 874,840 573,000 534,568
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
<CAPTION>
MONEY MARKET FUND
------------------------
For the Fiscal Year
Ended August 31,
------------------------
2000 1999
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment
income (loss)... $ 729,307 $ 316,040
Net realized gain
on securities .. -- --
Net unrealized
appreciation
(depreciation)
of securities
during the
period.......... -- --
------------ -----------
Increase
(decrease) in
net assets
resulting from
operations..... 729,307 (316,041)
------------ -----------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM:
Net investment
income.......... (729,307) (316,041)
Net realized gain
on securities... -- --
------------ -----------
Decrease in net
assets
resulting from
distributions
to
shareholders... (729,307) (316,041)
------------ -----------
SHARE
TRANSACTIONS:
Proceeds from
shares sold..... 22,053,186 10,673,613
Proceeds from
shares issued
for
distributions
reinvested...... 729,307 316,041
Cost of shares
reacquired...... (7,139,601) (1,211,854)
------------ -----------
Increase in net
assets
resulting from
shares
transactions... 15,642,892 9,777,800
------------ -----------
TOTAL INCREASE IN
NET ASSETS...... 15,642,892 9,777,800
NET ASSETS:
Beginning of
period.......... 9,784,467 6,667
------------ -----------
End of period.... $25,427,359 $9,784,467
------------ -----------
Undistributed net
investment
income included
in net
assets at the
end of the
period.......... $ -- $ --
------------ -----------
CHANGE IN SHARES
OUTSTANDING:
Shares sold...... 22,053,186 10,673,613
Shares issued for
distributions
reinvested...... 729,307 316,041
Shares
reacquired...... (7,139,601) (1,211,854)
------------ -----------
Increase in
shares
outstanding.... 15,642,892 9,777,800
Shares
outstanding:
Beginning of
period......... 9,784,467 6,667
------------ -----------
End of period... 25,427,359 9,784,467
------------ -----------
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS - CONTINUED 77
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH MODERATE GROWTH CONSERVATIVE GROWTH
LIFESTYLE FUND LIFESTYLE FUND LIFESTYLE FUND
----------------------- ------------------------ -----------------------
For the Fiscal Year For the Fiscal Year For the Fiscal Year
Ended August 31, Ended August 31, Ended August 31,
----------------------- ------------------------ -----------------------
2000 1999 2000 1999 2000 1999
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income... $ 116,230 $ 51,675 $ 254,991 $ 124,085 $ 283,678 $ 145,778
Net realized gain on
securities.............. 1,867,912 160,055 1,344,625 218,301 486,644 804,016
Capital gain
distributions........... 711,550 26,657 810,493 34,120 451,478 36,971
Net unrealized
appreciation of
securities during the
period.................. 67,795 1,251,411 251,025 925,908 446,415 106,877
----------- ---------- ----------- ----------- ----------- ----------
Increase in net assets
resulting from
operations............. 2,763,487 1,489,798 2,661,134 1,302,414 1,668,215 1,093,642
----------- ---------- ----------- ----------- ----------- ----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income... (785,165) (32,215) (1,045,937) (76,536) (744,287) (96,471)
Net realized gain on
securities.............. (323,568) -- (389,589) -- (1,025,633) --
----------- ---------- ----------- ----------- ----------- ----------
Decrease in net assets
resulting from
distributions to
shareholders........... (1,108,733) (32,215) (1,435,526) (76,536) (1,769,920) (96,471)
----------- ---------- ----------- ----------- ----------- ----------
SHARE TRANSACTIONS:
Proceeds from shares
sold.................... 3,942,027 7,135,612 4,603,983 9,333,933 3,506,229 11,680,520
Proceeds from shares
issued for distributions
reinvested.............. 1,108,733 32,215 1,435,526 76,536 1,769,919 96,471
Cost of shares
reacquired.............. (1,222,220) (151,902) (1,391,355) (294,404) (335,447) (5,352,203)
----------- ---------- ----------- ----------- ----------- ----------
Increase in net assets
resulting from shares
transactions........... 3,828,540 7,015,925 4,648,154 9,116,065 4,940,701 6,424,788
----------- ---------- ----------- ----------- ----------- ----------
TOTAL INCREASE IN NET
ASSETS.................. 5,483,294 8,473,508 5,873,762 10,341,943 4,838,996 7,421,959
NET ASSETS:
Beginning of period..... 8,480,175 6,667 10,348,610 6,667 7,428,626 6,667
----------- ---------- ----------- ----------- ----------- ----------
End of period........... $13,963,469 $8,480,175 $16,222,372 $10,348,610 $12,267,622 $7,428,626
----------- ---------- ----------- ----------- ----------- ----------
Undistributed net
investment income
(accumulated loss)
included
in net assets at the end
of the period........... $ -- $ 19,460 $ -- $ 47,549 $ -- $ 49,307
----------- ---------- ----------- ----------- ----------- ----------
CHANGE IN SHARES
OUTSTANDING:
Shares sold............. 284,017 672,676 362,941 862,163 319,603 1,071,050
Shares issued for
distributions
reinvested.............. 78,848 2,639 112,592 6,384 160,540 8,337
Shares reacquired....... (89,037) (11,804) (111,962) (23,937) (30,791) (446,748)
----------- ---------- ----------- ----------- ----------- ----------
Increase in shares
outstanding............ 273,828 663,511 363,571 844,610 449,352 632,639
Shares outstanding:
Beginning of period.... 664,178 667 845,277 667 633,306 667
----------- ---------- ----------- ----------- ----------- ----------
End of period.......... 938,006 664,178 1,208,848 845,277 1,082,658 633,306
----------- ---------- ----------- ----------- ----------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
78
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Organization
American General Series Portfolio Company 3 (the "Series" or "AGSPC 3") was
organized as a Delaware business trust on May 6, 1998, by The Variable Annuity
Life Insurance Company ("VALIC") and is registered under the Investment Company
Act of 1940, as amended, (the "1940 Act") as an open-end, management investment
company. On August 26, 1998, VALIC contributed $100,000 to the Series as its
initial funding. On September 21, 1998, VALIC Separate Account A, invested an
additional $74,900,000, and the Series commenced operations. The Series
consists of the following 18 separate investment portfolios or "funds", each of
which is, in effect, a separate mutual fund issuing its own separate class of
shares of beneficial interest. Effective October 1, 2000, American General
Series Portfolio Company 3 changed its name to North American Funds Variable
Product Series II ("NAFVPS II"). The funds that make up the Series have also
changed their name as shown below and on page 2:
International Growth Fund Balanced Fund
Goldman Sachs Large Cap Growth Fund High Yield Bond Fund
INVESCO Mid Cap Growth Fund Strategic Bond Fund
J.P. Morgan Small Cap Growth Fund Domestic Bond Fund
International Value Fund Core Bond Fund
State Street Large Cap Value Fund Money Market Fund
Neuberger Berman Mid Cap Value Fund Aggressive Growth Lifestyle Fund*
Small Cap Value Fund Moderate Growth Lifestyle Fund*
Socially Responsible Fund Conservative Growth Lifestyle Fund*
* The lifestyle funds represent "funds of funds" which invest in the underlying
NAFVPS I and II funds.
Note 2 -- Significant Accounting Policies
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("GAAP"). GAAP requires
accruals which occasionally are based upon management estimates. The following
is a summary of significant accounting policies consistently followed by each
Fund in the preparation of its financial statements.
A. Investment Valuation
Securities listed or traded on a national exchange are valued daily at their
last reported sale price. In the absence of any exchange sales on that day and
for unlisted issues, securities are valued at the last sale price on any
National Market System. In the absence of any National Market System sales on
that day, securities are valued at the last reported bid price. However,
options written for which other over-the-counter market quotations are readily
available are valued at the last reported asked price, in the absence of any
National Market System sales on that day. Futures contracts, options thereon,
and options on stock indexes are valued at the amount which would be received
upon a current disposition of such investments (i.e., their fair market value),
in the absence of any sales on that day. Short-term debt securities for which
market quotations are readily available are valued at the last reported bid
price. However, any short-term security with a remaining maturity of 60 days or
less and all investments of the Money Market Fund are valued by the amortized
cost method which approximates fair market value. Investments for which market
quotations are not readily available are valued at fair value as determined in
good faith by, or under authority delegated by, the Series' Board of Trustees.
Lifestyle fund securities are valued at the net asset value (market value) of
the underlying NAFVPS I and II funds.
B. Options, Futures, and Forward Currency Contracts
Call and Put Options. When a Fund writes a call or a put option, an amount
equal to the premium received is recorded as a liability. The liability is
"marked to market" daily to reflect the current market value of the option
written. When a written option expires, the Fund realizes a gain in the amount
of the premium originally received. If the Fund enters into a closing purchase
transaction, the Fund realizes a gain or loss in the amount of the original
premium less the cost of the closing transaction. If a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security, and the proceeds from such sale are increased by the premium
originally received. If a written put option is exercised, the amount of the
premium originally received reduces the cost of the security which the Fund
purchases upon exercise of the option.
Purchased options are recorded as investments. If a purchased option expires,
the Fund realizes a loss in the amount of the cost of the option. If the Fund
enters into a closing transaction, it realizes a gain or loss, to the extent
that the proceeds from the sale are greater or less than the cost of the
option. If the Fund exercises a put option, it realizes a gain or loss from the
sale of the underlying security by adjusting the proceeds from such sale by the
amount of the premium originally paid. If the Fund exercises a call option, the
cost of the security purchased upon exercise is increased by the premium
originally paid.
Futures Contracts. The initial margin deposit made upon entering into a
futures contract is held by the custodian bank, in a segregated account, in the
name of the broker (the Fund's agent in acquiring the futures position). During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marked to market" adjustments
on a daily basis to reflect the market value of the contract at the end of each
day's trading. Variation margin payments are received or made daily, as
unrealized gains or losses are incurred. When the contract is closed, the Fund
realizes a gain or loss in the amount of the cost of or proceeds from the
closing transaction less the Fund's basis in the contract.
Forward Currency Contracts. Certain Funds may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date. The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates supplied
by a quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. During the period the forward currency
contract is open, the contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract is
closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. The Fund could be exposed to risk if the value of the
currency changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts, or if the Fund is unable to enter into a
closing position.
C. Repurchase Agreements
A Fund may acquire securities subject to repurchase agreements. Under a
typical repurchase agreement, a fund would acquire a debt security for a
relatively short period (usually for one day and not more than one week)
subject to an obligation of the seller to repurchase and of the fund to resell
the debt security at an agreed-upon higher price, thereby establishing a fixed
investment return during the fund's holding period. Under each repurchase
agreement, the Fund receives, as collateral, securities whose market value is
at least equal to the repurchase price.
D. Foreign Currency Translation
The accounting records of each Fund are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in foreign currencies
("local currencies") are translated into U.S. dollars at prevailing exchange
rates at period end.
Net realized gains or losses on foreign currency transactions include exchange
rate gains and losses from disposition of foreign currencies, currency gains
and losses realized between trade and settlement dates of security
transactions, and currency gains and losses realized on settlement of other
assets and liabilities settled in local currencies.
In determining realized and unrealized gains or losses on foreign securities
for the period, the Funds do not isolate exchange rate fluctuations from local
security price fluctuations. Foreign currencies and other assets and
liabilities denominated in local currencies are "marked to market" daily to
reflect fluctuations in foreign exchange rates.
--------------------------------------------------------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED 79
E. Restricted Securities
Each Fund may purchase securities which, while privately placed, are eligible
for purchase and sale pursuant to Rule 144A under the Securities Act of 1933
(the "1933 Act"). This Rule permits certain institutional buyers, such as the
Funds, to trade in privately placed securities even though such securities are
not registered under the 1933 Act. Each Fund may invest in 144A securities (in
accordance with each Fund's investment restrictions as listed in the Statement
of Additional Information) that have been determined to be liquid. In making
this determination the Fund will consider the trading markets for the specific
security, taking into account the unregistered nature of a Rule 144A security.
In addition, the Fund could consider frequency of trading and available quotes,
number of dealers and potential purchasers, dealer undertakings to make a
market, and the potential limitations on the transfer of ownership.
F. Federal Income Taxes
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code and to distribute all of its taxable
net investment income and taxable net realized capital gains, in excess of any
available capital loss carryovers. Therefore no Federal income tax provision is
required.
G. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized gains
and losses on securities sold are determined on the basis of identified cost.
Dividend income and capital gain distributions received are recorded on the ex-
dividend date. Interest income on investments is accrued daily.
H. Distributions to Shareholders
Distributions to shareholders are recorded on the ex-dividend date. The Funds
declare distributions from net investment income quarterly, except for the
Money Market Fund, which declares daily. Capital gains distributions are
declared annually.
Investment income and capital gains and losses are recognized in accordance
with GAAP ("book"). Distributions from net investment income and realized
capital gains are based on earnings as determined in accordance with Federal
income tax regulations ("tax") which may differ from book basis earnings. These
differences are primarily due to differing treatments for capital loss
carryforwards, deferral of wash sales, post-October capital losses, net
operating losses, mortgage-backed securities and foreign currency transactions.
At the end of the year, offsetting adjustments to undistributed net investment
income, additional paid in capital and undistributed net realized gains
(losses) are made to eliminate permanent book/tax differences arising in the
current year.
Note 3 -- Advisory Fees and Other Transactions with Affiliates
VALIC (the "Adviser") serves as investment adviser to the Series. VALIC is an
indirect wholly-owned subsidiary of American General Corporation, Houston,
Texas. The Adviser entered into sub-advisory agreements with the following:
American General Investment Management, L.P. -- sub-adviser for the High
Yield Bond Fund, the Strategic Bond Fund, and the Core Bond Fund.
Capital Guardian Trust Company -- sub-adviser for the International Value
Fund, the Balanced Fund, and the Domestic Bond Fund.
Fiduciary Management Associates, Inc. -- sub-adviser for the actively managed
portion of the Small Cap Value Fund.
Goldman Sachs Asset Management -- sub-adviser for the Goldman Sachs Large Cap
Growth Fund.
INVESCO Funds Group, Inc. -- sub-adviser for the INVESCO Mid Cap Growth Fund.
Prior to September 28, 2000, Brown Capital Management, Inc. was the Fund's
sub-adviser.
J.P. Morgan Investment Management, Inc. -- sub-adviser for the J.P. Morgan
Small Cap Growth Fund.
Neuberger Berman Management Inc. -- sub-adviser for the Neuberger Berman Mid
Cap Value Fund.
State Street Global Advisors -- sub-adviser for the State Street Large Cap
Value Fund.
Thompson, Siegel & Walmsley, Inc. ("TS & W") -- sub-adviser for the
International Growth Fund. The former sub-adviser, Jacobs Asset Management,
merged into TS & W on July 24, 2000.
Sub-advisers are compensated for such services by the Adviser.
The Adviser receives from the Series a monthly fee based on each Fund's
average daily net asset value at the following annual rates:
<TABLE>
<C> <S>
International Growth Fund 0.90% on the first $100 million
0.80% on assets more than $100
million
--------------------------------------------------------------------------
Goldman Sachs Large Cap Growth Fund 0.55%
--------------------------------------------------------------------------
INVESCO Mid Cap Growth Fund 0.65% on the first $25 million
0.55% on the next $25 million
0.45% on assets more than $50 million
--------------------------------------------------------------------------
J.P. Morgan Small Cap Growth Fund 0.85%
--------------------------------------------------------------------------
International Value Fund 1.00% on the first $25 million
0.85% on the next $25 million
0.675% on the next $200 million
0.625% on assets more than $250
million
--------------------------------------------------------------------------
State Street Large Cap Value Fund 0.50%
--------------------------------------------------------------------------
Neuberger Berman Mid Cap Value Fund 0.75% on the first $100 million
0.725% on the next $150 million
0.70% on the next $250 million
0.675% on the next $250 million
0.65% on the assets more than $750
million
--------------------------------------------------------------------------
Small Cap Value Fund 0.75% on the first $50 million
0.65% on the assets more than $50
million
--------------------------------------------------------------------------
Socially Responsible Fund 0.25%
--------------------------------------------------------------------------
Balanced Fund 0.80% on the first $25 million
0.65% on the next $25 million
0.45% on assets more than $50 million
--------------------------------------------------------------------------
High Yield Bond Fund 0.70% on the first $200 million
0.60% on the next $300 million
0.55% on assets more than $500
million
--------------------------------------------------------------------------
Strategic Bond Fund 0.60% on the first $200 million
0.50% on the next $300 million
0.45% on assets more than $500
million
--------------------------------------------------------------------------
Domestic Bond Fund 0.60% on the first $50 million
0.45% on the next $50 million
0.43% on the next $200 million
0.40% on assets more than $300
million
--------------------------------------------------------------------------
Core Bond Fund 0.50% on the first $200 million
0.45% on the next $300 million
0.40% on assets more than $500
million
--------------------------------------------------------------------------
Money Market Fund 0.25%
--------------------------------------------------------------------------
Aggressive Growth Lifestyle Fund 0.10%
Moderate Growth Lifestyle Fund
Conservative Growth Lifestyle Fund
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
80 NOTES TO FINANCIAL STATEMENTS - CONTINUED
The Adviser has voluntarily agreed to waive a portion of its management fee
or to reimburse certain expenses of each Fund, other than the Lifestyle Funds,
through August 2001. The table below reflects total annual operating expenses
by Fund, as voluntarily limited by the Adviser, shown as a percentage of
average net assets:
<TABLE>
<CAPTION>
Total Fund Maximum
Expense After Expenses
Fund Name Reimbursement Limitation
-------------------------------------------------------------------------
<S> <C> <C>
International Growth Fund......................... 1.15% 1.15%
Goldman Sachs Large Cap Growth Fund............... 0.86% 0.86%
INVESCO Mid Cap Growth Fund....................... 0.79% 0.79%
J.P. Morgan Small Cap Growth Fund................. 1.16% 1.16%
International Value Fund.......................... 1.04% 1.04%
State Street Large Cap Value Fund................. 0.81% 0.81%
Neuberger Berman Mid Cap Value Fund............... 1.05% 1.05%
Small Cap Value Fund.............................. 0.98% 0.98%
Socially Responsible Fund......................... 0.56% 0.56%
Balanced Fund..................................... 0.82% 0.82%
High Yield Bond Fund.............................. 0.99% 0.99%
Strategic Bond Fund............................... 0.89% 0.89%
Domestic Bond Fund................................ 0.78% 0.78%
Core Bond Fund.................................... 0.80% 0.80%
Money Market Fund................................. 0.56% 0.56%
</TABLE>
On August 26, 1998, the Series entered into an Accounting Services Agreement
with VALIC which appointed VALIC as Accounting Services Agent. Under the
agreement VALIC provides certain accounting and administrative services to the
Series. VALIC receives from each Fund, other than the Lifestyle Funds, an
annual fee of 0.03% based on average daily net asset value of the fund.
At the end of the period, the Series owed to affiliates $1,023,014, including
fees payable from Advisory, Accounting Services, Administrative Services, and
Trustees' fees. The Series had expense reimbursements of $1,093,415 for the
period.
At August 31, 2000, VALIC Separate Account A (a registered separate account
of VALIC) owned, directly or indirectly, 100% of the outstanding shares of all
Funds. Certain officers and trustees of the Series are officers and directors
of VALIC or American General Corporation.
During the period ended August 31, 2000, the following security transactions
were affected among the NAFVPS II, North American Funds ("NAF"), USLIFE INCOME
or with ZC Resource Fund(s), for which VALIC is the investment adviser, at the
then current market price with no brokerage commission incurred:
<TABLE>
<CAPTION>
Cost to
Fund Selling Fund Buying Buyer Net gain (loss) to Seller
--------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Bond........... NAF Strategic Bond $127,592 $(2,910)
High Yield Bond........... Strategic Bond 63,510 7
High Yield Bond........... USLIFE INCOME 22,926 (1,250)
NAF High Yield Bond....... Strategic Bond 21,803 (1,937)
NAF Strategic Bond........ High Yield Bond 93,629 (2,708)
NAF Strategic Bond........ Strategic Bond 84,774 5,848
Strategic Bond............ NAF Strategic Bond 197,708 1,050
Strategic Bond............ USLIFE INCOME 49,713 (1,259)
ZC Resource............... Core Bond 4,731 (5,105)
</TABLE>
Note 4 -- Investment Activity
The information in the following table is presented on the basis of cost for
Federal income tax purposes at August 31, 2000.
<TABLE>
<CAPTION>
Identified
Cost of Gross Gross Net Unrealized
Investments Unrealized Unrealized Appreciation
Fund Owned Appreciation Depreciation (Depreciation)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Growth
Fund..................... $10,608,958 $2,106,853 $ 763,708 $1,343,145
Goldman Sachs Large Cap
Growth Fund.............. 28,197,693 9,296,994 1,449,669 7,847,325
INVESCO Mid Cap Growth
Fund..................... 10,618,795 3,617,194 782,165 2,835,029
J.P. Morgan Small Cap
Growth Fund.............. 27,764,737 8,251,900 2,254,560 5,997,340
International Value
Fund..................... 10,039,089 3,623,312 516,305 3,107,007
State Street Large Cap
Value Fund............... 10,227,054 1,296,493 381,968 914,525
Neuberger Berman Mid Cap
Value Fund............... 15,594,200 2,322,773 395,898 1,926,875
Small Cap Value Fund..... 5,095,895 681,729 378,906 302,823
Socially Responsible
Fund..................... 11,745,963 3,326,136 786,726 2,539,410
Balanced Fund............ 11,327,232 2,032,308 642,790 1,389,518
High Yield Bond Fund..... 6,017,866 94,656 356,791 (262,135)
Strategic Bond Fund...... 5,855,479 137,065 188,253 (51,188)
Domestic Bond Fund....... 14,595,365 136,500 227,747 (91,247)
Core Bond Fund........... 6,920,929 35,806 166,643 (130,837)
Money Market Fund........ 25,235,135 -- -- --
Aggressive Growth
Lifestyle Fund........... 12,731,043 1,319,206 78,506 1,240,700
Moderate Growth Lifestyle
Fund..................... 15,269,654 1,176,933 214,555 962,378
Conservative Growth
Lifestyle Fund........... 11,968,623 553,292 247,212 306,080
</TABLE>
The following net realized capital loss carryforwards at August 31, 2000, may
be utilized to offset future capital gains.
<TABLE>
<CAPTION>
Capital Loss Expiration
Fund Carryforward Through
--------------------------------------------------------------------------------
<S> <C> <C>
High Yield Bond Fund............................... $142,832 August 31, 2008
Strategic Bond Fund................................ $ 45,977 August 31, 2008
Core Bond Fund..................................... $ 79,723 August 31, 2008
Domestic Bond Fund................................. $128,145 August 31, 2008
</TABLE>
-------------------------------------------------------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED 81
During the period ended August 31, 2000, the cost of purchases and proceeds
from sales of securities, excluding short term securities were:
<TABLE>
<CAPTION>
Proceeds from
Cost of Securities
Securities Sold or
Fund Purchased Matured
--------------------------------------------------------------------------------
<S> <C> <C>
International Growth Fund............................. $ 8,883,632 $ 7,291,615
Goldman Sachs Large Cap Growth Fund................... 27,076,254 17,826,257
INVESCO Mid Cap Growth Fund........................... 5,890,557 4,521,162
J.P. Morgan Small Cap Growth Fund..................... 41,784,728 28,501,598
International Value Fund.............................. 5,551,581 3,368,885
State Street Large Cap Value Fund..................... 15,317,817 12,928,623
Neuberger Berman Mid Cap Value Fund................... 22,876,033 18,721,664
Small Cap Value Fund.................................. 5,630,182 7,224,943
Socially Responsible Fund............................. 6,218,922 4,538,716
Balanced Fund......................................... 5,395,350 3,229,672
High Yield Bond Fund.................................. 5,159,557 4,605,354
Strategic Bond Fund................................... 3,812,841 3,380,693
Domestic Bond Fund.................................... 5,454,194 1,253,911
Core Bond Fund........................................ 8,103,564 8,189,819
Aggressive Growth Lifestyle Fund...................... 12,166,151 8,616,634
Moderate Growth Lifestyle Fund........................ 13,471,174 9,191,008
Conservative Growth Lifestyle Fund.................... 9,924,088 6,017,013
Included in the cost of purchases and proceeds from sales amounts were
purchases and sales of U.S. government and government agency obligations of the
following:
Balanced Fund......................................... 2,183,324 1,153,836
Strategic Bond Fund................................... 1,758,486 1,672,468
Domestic Bond Fund.................................... 3,445,197 1,839,015
Core Bond Fund........................................ 15,973,332 15,553,538
</TABLE>
Note 5 -- Investment Holdings by Country
The following represents investment holdings by country held by the
International Growth Fund and International Value Fund as of August 31, 2000:
<TABLE>
<CAPTION>
International Growth International Value
Fund Fund
---------------------- ----------------------
Percent of Market Percent of Market
Country Net Assets Value Net Assets Value
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia........................ 1.44% $ 168,371 2.89% $ 382,727
Austria.......................... 2.06% 241,067 -- --
Brazil........................... 3.82% 446,992 0.16% 20,750
Canada........................... -- -- 3.92% 519,126
Finland.......................... 1.24% 145,206 2.97% 393,732
France........................... 15.36% 1,799,120 6.59% 872,561
Germany.......................... 3.70% 432,918 5.84% 772,521
Greece........................... -- -- 0.09% 12,412
Hong Kong........................ 10.00% 1,171,447 2.62% 346,441
Ireland.......................... -- -- 0.70% 92,429
Italy............................ 1.58% 185,589 2.18% 288,071
Japan............................ 12.34% 1,446,763 27.00% 3,574,056
Korea............................ 5.20% 608,950 1.73% 229,565
Mexico........................... 2.81% 329,618 1.56% 206,863
Netherlands...................... 6.25% 732,352 6.59% 871,782
Norway........................... -- -- 0.65% 85,956
Portugal......................... -- -- 0.48% 63,617
Singapore........................ 1.99% 233,593 1.17% 155,475
Spain............................ 3.36% 393,115 1.47% 193,937
Sweden........................... 5.32% 623,394 1.95% 258,459
Switzerland...................... -- -- 4.55% 602,194
Taiwan........................... -- -- 2.60% 344,514
United Kingdom................... 14.12% 1,654,383 15.36% 2,032,807
United States.................... 0.90% 105,225 0.27% 35,101
---------------------------------------------
Total investments................ 91.49% 10,718,103 93.34% 12,355,096
Other assets less liabilities.... 8.51% 997,104 6.66% 881,931
---------------------------------------------
Net assets....................... 100.00% $11,715,207 100.00% $13,237,027
---------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
82 FINANCIAL HIGHLIGHTS
Per share data is for a share of beneficial interest outstanding throughout the
period. Total return includes reinvestment of distributions on the reinvestment
date.
<TABLE>
<CAPTION>
Goldman Sachs J.P. Morgan
Large Cap Small Cap
Growth Fund Growth Fund
International ----------------- INVESCO -----------------
Growth Fund For the Mid Cap Growth Fund For the
---------------------- Fiscal Year ---------------------- Fiscal Year
For the Fiscal Year Ended For the Fiscal Year Ended
Ended August 31, August 31, Ended August 31, August 31,
---------------------- ----------------- ---------------------- -----------------
2000 1999 2000 1999 2000 1999 2000 1999
---------- --------- ------- ------- ---------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value
at beginning of
period........... $11.22 $ 10.00 $13.96 $10.00 $ 12.45 $ 10.00 $14.86 $10.00
-----------------------------------------------------------------------------------------
Income (loss)
from investment
operations:
Net investment
income (loss)... 0.05 0.13 (0.02) 0.01 (0.02) (0.03) (0.10) (0.05)
Net realized and
unrealized gain
(loss) on
securities...... 4.16 1.09 4.24 3.96 5.32 2.48 10.05 4.96
-----------------------------------------------------------------------------------------
Total income
from investment
operations...... 4.21 1.22 4.22 3.97 5.30 2.45 9.95 4.91
-----------------------------------------------------------------------------------------
Distributions:
Distributions
from net
investment
income.......... (0.20) - - (0.01) - - - -
Distributions
from net
realized gain on
securities...... (0.44) - (0.50) - (1.45) - (1.57) (0.05)
-----------------------------------------------------------------------------------------
Total
distributions... (0.64) - (0.50) (0.01) (1.45) - (1.57) (0.05)
-----------------------------------------------------------------------------------------
Net asset value
at end of
period........... $ 14.79 $ 11.22 $ 17.68 $ 13.96 $ 16.30 $ 12.45 $ 23.24 $14.86
-----------------------------------------------------------------------------------------
TOTAL RETURN..... 37.31 % 12.20 % 30.68 % 39.77 % 46.25 % 24.50 % 68.91 % 48.82 %
-----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA
Ratio of expenses
to average net
assets........... 1.15 % 1.13 % 0.86 % 0.81 % 0.79 % 0.77 % 1.16 % 1.11 %
Ratio of expenses
to average net
assets before
expense
reductions....... 1.81 % 1.90 % 1.44 % 1.44 % 1.55 % 1.64 % 1.71 % 1.78 %
Ratio of net
investment income
(loss) to average
net assets....... 0.31 % 1.40 % (0.12)% 0.13 % (0.20)% (0.24)% (0.64)% (0.45)%
Portfolio
turnover rate.... 81 % 87 % 68 % 76 % 51 % 38 % 133 % 126 %
Number of shares
outstanding at
end of period
(000's).......... 792 608 2,035 1,383 783 594 1,463 730
Net assets at the
end of period
(000's).......... $ 11,715 $ 6,815 $35,983 $19,309 $ 12,770 $ 7,394 $34,000 $10,843
<CAPTION>
State Street
International Large Cap
Value Fund Value Fund
------------------------ ------------------------
For the Fiscal Year For the Fiscal Year
Ended August 31, Ended August 31,
------------------------ ------------------------
2000 1999 2000 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value
at beginning of
period........... $14.72 $ 10.00 $ 12.85 $ 10.00
-------------------------------------------------
Income (loss)
from investment
operations:
Net investment
income (loss)... 0.06 0.09 0.13 0.13
Net realized and
unrealized gain
(loss) on
securities...... 3.55 4.65 0.65 2.85
-------------------------------------------------
Total income
from investment
operations...... 3.61 4.74 0.78 2.98
-------------------------------------------------
Distributions:
Distributions
from net
investment
income.......... (0.17) (0.02) (0.13) (0.13)
Distributions
from net
realized gain on
securities...... (0.86) - (1.90) -
-------------------------------------------------
Total
distributions... (1.03) (0.02) (2.03) (0.13)
-------------------------------------------------
Net asset value
at end of
period........... $ 17.30 $ 14.72 $ 11.60 $ 12.85
-------------------------------------------------
TOTAL RETURN..... 24.50 % 47.41 % 7.35 % 29.87 %
-------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA
Ratio of expenses
to average net
assets........... 1.04 % 1.01 % 0.81 % 0.80 %
Ratio of expenses
to average net
assets before
expense
reductions....... 1.91 % 1.97 % 1.41 % 1.51 %
Ratio of net
investment income
(loss) to average
net assets....... 0.29 % 0.67 % 1.17 % 1.10 %
Portfolio
turnover rate.... 32 % 60 % 142 % 93 %
Number of shares
outstanding at
end of period
(000's).......... 765 554 955 611
Net assets at the
end of period
(000's).......... $ 13,237 $ 8,148 $ 11,084 $ 7,856
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS - CONTINUED 83
Per share data is for a share of beneficial interest outstanding throughout the
period. Total return includes reinvestment of distributions on the reinvestment
date.
<TABLE>
<CAPTION>
Neuberger Berman Small Cap Socially
Mid Cap Value Fund Value Fund Responsible Fund Balanced Fund
---------------------- --------------------- ------------------- ----------------------
For the
For the Fiscal Year For the Fiscal Year Fiscal Year Ended For the Fiscal Year
Ended August 31, Ended August 31, August 31, Ended August 31,
---------------------- --------------------- ------------------- ----------------------
2000 1999 2000 1999 2000 1999 2000 1999
---------- --------- --------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value
at beginning of
period........... $ 13.82 $ 10.00 $ 10.48 $ 10.00 $ 12.88 $ 10.00 $ 12.32 $ 10.00
---------------------------------------------------------------------------------------------
Income (loss)
from investment
operations:
Net investment
income (loss)... 0.05 0.08 0.15 0.13 0.13 0.14 0.30 0.25
Net realized and
unrealized gain
(loss) on
securities...... 3.13 4.11 1.60 0.61 1.74 3.45 1.36 2.39
---------------------------------------------------------------------------------------------
Total income
from investment
operations...... 3.18 4.19 1.75 0.74 1.87 3.59 1.66 2.64
---------------------------------------------------------------------------------------------
Distributions:
Distributions
from net
investment
income.......... (0.05) (0.08) (0.15) (0.13) (0.13) (0.14) (0.30) (0.25)
Distributions
from net
realized gain on
securities...... (3.41) (0.29) (0.35) (0.13) (0.46) (0.57) (0.57) (0.07)
---------------------------------------------------------------------------------------------
Total
distributions... (3.46) (0.37) (0.50) (0.26) (0.59) (0.71) (0.87) (0.32)
---------------------------------------------------------------------------------------------
Net asset value
at end of
period........... $ 13.54 $ 13.82 $ 11.73 $ 10.48 $ 14.16 $ 12.88 $ 13.11 $ 12.32
---------------------------------------------------------------------------------------------
TOTAL RETURN..... 29.31 % 42.38 % 17.53 % 7.34 % 14.77 % 36.27 % 14.10 % 26.49 %
---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA
Ratio of expenses
to average net
assets........... 1.05 % 1.03 % 0.98 % 0.96 % 0.56 % 0.55 % 0.82 % 0.80 %
Ratio of expenses
to average net
assets before
expense
reductions....... 1.64 % 1.73 % 1.69 % 1.75 % 1.15 % 1.23 % 1.70 % 1.78 %
Ratio of net
investment income
(loss) to average
net assets....... 0.41 % 0.73 % 1.36 % 1.28 % 0.99 % 1.10 % 2.47 % 2.15 %
Portfolio
turnover rate.... 166 % 197 % 97 % 102 % 40 % 29 % 43 % 78 %
Number of shares
outstanding at
end of period
(000's).......... 1,286 654 462 612 1,009 800 973 693
Net assets at the
end of period
(000's).......... $ 17,411 $ 9,039 $ 5,421 $ 6,414 $ 14,276 $ 10,304 $ 12,754 $ 8,537
<CAPTION>
High Yield Bond Fund Strategic Bond Fund
------------------------- -------------------------
For the Fiscal Year For the Fiscal Year
Ended August 31, Ended August 31,
------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value
at beginning of
period........... $ 9.69 $ 10.00 $ 9.86 $ 10.00
---------------------------------------------------
Income (loss)
from investment
operations:
Net investment
income (loss)... 0.96 0.87 0.81 0.69
Net realized and
unrealized gain
(loss) on
securities...... (0.41) (0.31) (0.01) (0.16)
---------------------------------------------------
Total income
from investment
operations...... 0.55 0.56 0.80 0.53
---------------------------------------------------
Distributions:
Distributions
from net
investment
income.......... (0.96) (0.87) (0.84) (0.65)
Distributions
from net
realized gain on
securities...... - - - (0.02)
---------------------------------------------------
Total
distributions... (0.96) (0.87) (0.84) (0.67)
---------------------------------------------------
Net asset value
at end of
period........... $ 9.28 $ 9.69 $ 9.82 $ 9.86
---------------------------------------------------
TOTAL RETURN..... 6.01 % 5.50 % 8.43 % 5.33 %
---------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA
Ratio of expenses
to average net
assets........... 0.99 % 0.98 % 0.89 % 0.88 %
Ratio of expenses
to average net
assets before
expense
reductions....... 1.62 % 1.74 % 1.51 % 1.64 %
Ratio of net
investment income
(loss) to average
net assets....... 10.21 % 8.51 % 8.27 % 6.76 %
Portfolio
turnover rate.... 90 % 74 % 100 % 143 %
Number of shares
outstanding at
end of period
(000's).......... 628 557 598 537
Net assets at the
end of period
(000's).......... $ 5,830 $ 5,397 $ 5,870 $ 5,296
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
84 FINANCIAL HIGHLIGHTS - CONTINUED
Per share data is for a share of beneficial interest outstanding throughout the
period. Total return includes reinvestment of distributions on the reinvestment
date.
<TABLE>
<CAPTION>
Domestic Core Money Aggressive Growth
Bond Fund Bond Fund Market Fund Lifestyle Fund
---------------------- --------------------- ---------------------- ----------------------
For the Fiscal Year For the Fiscal Year For the Fiscal Year For the Fiscal Year
Ended August 31, Ended August 31, Ended August 31, Ended August 31,
---------------------- --------------------- ---------------------- ----------------------
2000 1999 2000 1999 2000 1999 2000 1999
---------- --------- --------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value
at beginning of
period........... $ 9.43 $ 10.00 $ 9.58 $ 10.00 $ 1.00 $ 1.00 $ 12.77 $ 10.00
------------------------------------------------------------------------------------------------
Income (loss)
from investment
operations:
Net investment
income (loss)... 0.55 0.52 0.61 0.50 0.06 0.05 0.37 0.08
Net realized and
unrealized gain
(loss) on
securities...... 0.02 (0.44) (0.12) (0.39) - - 3.31 2.74
------------------------------------------------------------------------------------------------
Total income
from investment
operations...... 0.57 0.08 0.49 0.11 0.06 0.05 3.68 2.82
------------------------------------------------------------------------------------------------
Distributions:
Distributions
from net
investment
income.......... (0.55) (0.52) (0.61) (0.50) (0.06) (0.05) (1.09) (0.05)
Distributions
from net
realized gain on
securities...... - (0.13) - (0.03) - - (0.47) -
------------------------------------------------------------------------------------------------
Total
distributions... (0.55) (0.65) (0.61) (0.53) (0.06) (0.05) (1.56) (0.05)
------------------------------------------------------------------------------------------------
Net asset value
at end of
period........... $ 9.45 $ 9.43 $ 9.46 $ 9.58 $ 1.00 $1.00 $ 14.89 $ 12.77
------------------------------------------------------------------------------------------------
TOTAL RETURN..... 6.27 % 0.59 % 5.31 % 1.12 % 5.67 % 4.66 % 29.91 % 28.28 %
------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA
Ratio of expenses
to average net
assets........... 0.78 % 0.77 % 0.80 % 0.80 % 0.56 % 0.54 % 0.10 % 0.10 %
Ratio of expenses
to average net
assets before
expense
reductions....... 1.52 % 1.59 % 1.42 % 1.54 % 1.10 % 1.23 % 0.10 % 0.10 %
Ratio of net
investment income
(loss) to average
net assets....... 6.08 % 5.41 % 6.39 % 5.06 % 5.65 % 4.43 % 1.07 % 0.76 %
Portfolio
turnover rate.... 31 % 156 % 476 % 489 % N/A N/A 79 % 9 %
Number of shares
outstanding at
end of period
(000's).......... 1,540 875 573 535 25,427 9,784 938 664
Net assets at the
end of period
(000's).......... $ 14,557 $ 8,252 $ 5,420 $ 5,119 $ 25,427 $ 9,784 $ 13,963 $ 8,480
<CAPTION>
Moderate Growth Conservative Growth
Lifestyle Fund Lifestyle Fund
----------------------- ------------------------
For the Fiscal Year For the Fiscal Year
Ended August 31, Ended August 31,
----------------------- ------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value
at beginning of
period........... $ 12.24 $ 10.00 $ 11.73 $ 10.00
------------------------------------------------
Income (loss)
from investment
operations:
Net investment
income (loss)... 0.43 0.17 0.46 0.25
Net realized and
unrealized gain
(loss) on
securities...... 2.28 2.18 1.59 1.65
------------------------------------------------
Total income
from investment
operations...... 2.71 2.35 2.05 1.90
------------------------------------------------
Distributions:
Distributions
from net
investment
income.......... (1.10) (0.11) (0.92) (0.17)
Distributions
from net
realized gain on
securities...... (0.43) - (1.53) -
------------------------------------------------
Total
distributions... (1.53) (0.11) (2.45) (0.17)
------------------------------------------------
Net asset value
at end of
period........... $ 13.42 $12.24 $ 11.33 $ 11.73
------------------------------------------------
TOTAL RETURN..... 23.29 % 23.52 % 19.33 % 19.00 %
------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA
Ratio of expenses
to average net
assets........... 0.10 % 0.10 % 0.10 % 0.10 %
Ratio of expenses
to average net
assets before
expense
reductions....... 0.10 % 0.10 % 0.10 % 0.10 %
Ratio of net
investment income
(loss) to average
net assets....... 2.00 % 1.60 % 2.99 % 2.29 %
Portfolio
turnover rate.... 72 % 13 % 63 % 94 %
Number of shares
outstanding at
end of period
(000's).......... 1,209 845 1,083 633
Net assets at the
end of period
(000's).......... $ 16,222 $ 10,349 $ 12,268 $ 7,429
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS 85
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES II
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of North American Funds Variable
Product Series II (comprising, respectively, the International Growth Fund,
Goldman Sachs Large Cap Growth Fund, INVESCO Mid Cap Growth Fund, J.P. Morgan
Small Cap Growth Fund, International Value Fund, State Street Large Cap Value
Fund, Neuberger Berman Mid Cap Value Fund, Small Cap Value Fund, Socially
Responsible Fund, Balanced Fund, High Yield Bond Fund, Strategic Bond Fund,
Domestic Bond Fund, Core Bond Fund, Money Market Fund, Growth Lifestyle Fund,
Moderate Growth Lifestyle Fund, and Conservative Growth Lifestyle Fund) as of
August 31, 2000, and the related statement of operations for the year then
ended, and the statement of changes in net assets and financial highlights for
each of the two years in the period then ended. These financial statements and
financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 August 31, 2000, 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 audits provide 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 respective Funds comprising the North American Funds Variable Product
Series II at August 31, 2000, the results of their operations for the year then
ended and the changes in their net assets and financial highlights for each of
the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
Houston, Texas
October 13, 2000
--------------------------------------------------------------------------------
<PAGE>
86
NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES II - (formerly known as American
General Series Portfolio Company 3)
SUPPLEMENT DATED OCTOBER 23, 2000
TO PROSPECTUS DATED JANUARY 3, 2000 (as revised January 19, 2000)
AND STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 3, 2000
Prospectus
Fund Name Changes (Prospectus page 1)
As of October 1, 2000, the name of the Series Company (American General Series
Portfolio Company 3, or AGSPC 3) has been changed to North American Funds
Variable Product Series II, or NAFVPS II. Therefore, all references to the
funds shall be changed from the "Old Fund Name" to the "New Fund Name" as shown
below.
<TABLE>
<CAPTION>
Old Fund Name New Fund Name
------------- -------------
<S> <C>
American General Core Bond Fund North American-AG Core Bond Fund
American General International Growth Fund North American International Growth Fund
American General Large Cap Growth Fund North American-Goldman Sachs Large Cap Growth Fund
American General Mid Cap Growth Fund North American-INVESCO Mid Cap Growth Fund
American General Small Cap Growth Fund North American-J.P. Morgan Small Cap Growth Fund
American General Large Cap Value Fund North American-State Street Large Cap Value Fund
American General Mid Cap Value Fund North American-Neuberger Berman Mid Cap Value Fund
American General Small Cap Value Fund North American-Small Cap Value Fund
American General Socially Responsible Fund North American-AG Socially Responsible Fund
American General High Yield Bond Fund North American-AG High Yield Bond Fund
American General Strategic Bond Fund North American-AG Strategic Bond Fund
American General Money Market Fund North American-AG 2 Money Market Fund
American General Aggressive Growth Lifestyle Fund North American-AG Aggressive Growth Lifestyle Fund
American General Moderate Growth Lifestyle Fund North American-AG Moderate Growth Lifestyle Fund
American General Conservative Growth Lifestyle Fund North American-AG Conservative Growth Lifestyle Fund
</TABLE>
North American-AG Aggressive Growth Lifestyle Fund, North American-AG
Conservative Growth Lifestyle Fund, and North American-AG Moderate Growth
Lifestyle Fund (Prospectus pages 4, 8, and 17):
Investment Strategy
Prior to May 3, 2000, the Lifestyle Funds invested solely in different
portfolios of NAFVPS II. As of that date, the Lifestyle Funds began investing
in the Series Company Funds of NAFVPS I and/or NAFVPS II. NAFVPS I and II are
related investment companies for purposes of investment and investors services,
and VALIC serves as investment adviser to both, although each offers a unique
selection of mutual funds. The Underlying Funds in which the Lifestyle Funds
invest shall be chosen in accordance with projected asset allocation ranges for
each particular Lifestyle Fund. These asset allocation ranges are shown below:
<TABLE>
<CAPTION>
Asset Allocation Ranges for the North American-AG Aggressive Growth Fund:
<S> <C>
International Equity Securities..................................... 15% - 35%
Domestic Equity Securities.......................................... 60% - 80%
Bonds............................................................... 5% - 15%
Asset Allocation Ranges for the North American-AG Conservative Growth Fund:
International Equity Securities..................................... 5% - 15%
Domestic Equity Securities.......................................... 20% - 50%
Bonds............................................................... 45% - 65%
Asset Allocation Ranges for the North American-AG Moderate Growth Fund:
International Equity Securities..................................... 10% - 20%
Domestic Equity Securities.......................................... 35% - 65%
Bonds............................................................... 25% - 45%
</TABLE>
Benchmark Information
Each Lifestyle Fund currently compares its performance to a blended benchmark,
calculated by including the pro rata portion of the respective indices for each
of the Underlying Funds, and the S&P 500(R) Index. In order to simplify
calculation and reflect a collective benchmark which is more representative of
the investment ranges and focus on equities, the benchmark for each Lifestyle
Fund has been changed to a combination of the Wilshire 5000, Morgan Stanley
Capital International(R) Europe, Australasia, Far East ("MSCI EAFE") Index, and
Lehman Brothers Aggregate Index.
North American International Growth Fund (Prospectus page 10)
Investment Sub-Adviser
Thompson, Siegel & Walmsley, Inc.
North American-INVESCO MidCap Growth Fund (Prospectus page 15)
Investment Sub-Adviser
INVESCO Funds Group, Inc.
Investment Objective
Seeks capital appreciation principally through investments in medium
capitalization equity securities, such as common and preferred stocks and
securities convertible into common stocks. This investment objective can be
changed by the Board of Trustees, without the approval of the Fund
shareholders.
Investment Strategy
Replace the second sentence with: Medium capitalization (mid-size) companies
generally have a value range between approximately $2 and $15 billion at the
time of purchase. The Fund may also purchase preferred stocks, convertible
securities, and bonds. The Fund may purchase American Depositary Receipts
("ADRs") but does not consider ADRs to be foreign securities. The Fund may
invest up to 25% in foreign securities.
How VALIC is paid for its services (Prospectus page 31)
Replace Mid Cap Growth Fund fees with the following:
0.80% of the first $50 million;
0.75% on the next $50 million
0.70% on the next $150 million;
0.65% on the next $250 million; and
0.60% on the assets over $500 million.
Brown Capital Management, Inc. (Prospectus page 33)
Delete the paragraph about Brown Capital Management, Inc.
Goldman Sachs Asset Management (Prospectus page 34)
Delete any references to Kent A. Clark. He is no longer a part of the Large Cap
Growth Fund portfolio management team.
J.P. Morgan Investment Management, Inc. (Prospectus page 34)
Replace the second paragraph under J.P. Morgan Investment Management, Inc. with
the following:
Investment decisions are made by a team that consists of portfolio managers and
analysts. The team meets regularly to review portfolio holdings and to discuss
purchase and sale activity.
Jacobs Asset Management (Prospectus page 34)
Delete the paragraph about Jacobs Asset Management
--------------------------------------------------------------------------------
<PAGE>
87
NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES II - (formerly known as American
General Series Portfolio Company 3)
INVESCO Funds Group, Inc. ("INVESCO") (add to page 34 of the Prospectus)
7800 East Union Avenue, Denver, Colorado, 80237
As of approximately September 29, 2000, INVESCO became the investment sub-
adviser for the North American-INVESCO MidCap Growth Fund. Timothy J. Miller
and Thomas Wald are primarily responsible for the day-to-day management of the
Fund's portfolio holdings. Both Mr. Miller and Mr. Wald are Chartered
Financial Analysts. Mr. Miller is the leader of INVESCO's growth team and the
lead portfolio manager. He is a director and senior vice president of INVESCO,
which he joined in 1992. Mr. Miller holds an M.B.A. from the University of
Missouri-St. Louis and a B.S.B.A. from St. Louis University.
Thomas Wald, co-portfolio manager, joined INVESCO in 1997 and is now a vice
president. Prior to joining INVESCO, Mr. Wald was employed by Munder Capital
Management. Mr. Wald holds an M.B.A. from the Wharton School at the University
of Pennsylvania and a B.A. from Tulane University.
INVESCO, the investment advisor for the INVESCO family of mutual funds, was
founded in 1932 and manages over $41.8 billion in 45 INVESCO mutual funds as
of March 31, 2000. INVESCO is an indirect wholly owned subsidiary of AMVESCAP
PLC, an international investment management company based in London, with
money managers located in Europe, North and South America, and the Far East.
Thompson, Siegel & Walmsley, Inc. ("TS&W") (add to page 34 of the Prospectus)
5000 Monument Avenue, Richmond, Virginia 23230
TS&W became the investment sub-adviser for the North American International
Growth Fund on July 24, 2000. Jacobs Asset Management, L.P. ("JAM") was the
sub-adviser for the Fund from September 1, 1998 through July 24, 2000. The
president of JAM, Daniel Jacobs, decided to retire. Therefore, effective July
24, 2000, JAM's parent company, United Asset Management Corporation ("UAM"),
merged the assets and business of JAM into another of its subsidiaries, TS&W,
located at 5000 Monument Avenue, Richmond, Virginia 23230.
TS&W specializes in the management of large-cap value equities, international
equities, and fixed-income assets. As of June 19, 2000, TS&W had approximately
$4.8 billion in assets under management. TS&W is the investment advisor for
several UAM Funds. UAM is being acquired by Old Mutual plc, a UK-based
financial services group, in a transaction that should be completed during the
fourth quarter, 2000.
Statement of Additional Information
North American-INVESCO MidCap Growth Fund Investment Restrictions (SAI pages
17 and 18)
Fundamental Investment Restrictions:
Add "With respect to 75% of the Fund's total assets, or as allowed by federal
law" to the beginning of fundamental investment restriction number 1.
Change fundamental investment restriction number 9 to: "The Fund may borrow
money, pledge assets, and enter into reverse repurchase agreements, or employ
similar investment techniques, as permitted by applicable law, provided the
borrowing does not exceed 33 1/3% of the Fund's total assets."
Non-Fundamental Investment Restrictions:
Delete non-fundamental investment restriction numbers 1 and 6.
Change the illiquid securities limitation from 10% to 15% in non-fundamental
investment restriction number 7.
Change the foreign securities limitation from 10% to 25% in non-fundamental
investment restriction number 8 and delete any reference to ADRs.
Administrative Service Agreement (add to page 56 of the SAI below Distribution
and Service Agreement)
The Series Company has entered into an Administrative Service Agreement
("Service Agreement") with VALIC for the provision of recordkeeping and
shareholder services to retirement and employee benefit plans. Under the terms
of the Service Agreement, the Series Company pays VALIC monthly, a fee equal
to 0.25% of the aggregate net asset value of each Fund, other than the
Lifestyle Funds, on an annual basis. Under the Service Agreement, VALIC
provides recordkeeping services, including the establishment and maintenance
of plan and participant accounts and records; participant services, including
the provision of customer service representatives to respond to participant
inquiries and process telephone transactions; and plan services, including the
production of plan documentation and summary plan descriptions.
Special Meeting of Shareholders
Proxy Voting Results
The Special Meeting of Shareholders of the MidCap Growth Fund of North
American Funds Variable Product Series II was held on October 20, 2000.
Shareholders of the Fund voted on proposals to approve: (i) approve a new
investment advisory agreement between The Variable Annuity Life Insurance
Company and the Fund with increased advisory fees; (ii) to approve an
amendment to the fundamental investment restriction regarding the
diversification policy of the Fund; and (iii) to approve an amendment to the
fundamental investment restriction regarding the borrowing policy of the Fund.
The results of the proposals voted on by shareholders of the Fund were as
follows:
Approval of a new investment advisory agreement between The Variable Annuity
Life Insurance Company and the Fund, with increased advisory fees.
For 567,711
Against 2,951
Abstain 1,545
Total Shares Voted 572,207
Approval of an amendment to the fundamental investment restriction regarding
the diversification policy of the Fund.
For 568,828
Against 1,903
Abstain 1,476
Total Shares Voted 572,207
Approval of an amendment to the fundamental investment restriction regarding
the borrowing policy of the Fund.
For 567,305
Against 2,709
Abstain 2,193
Total Shares Voted 572,207
-------------------------------------------------------------------------------
<PAGE>
88 NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES II
<TABLE>
<S> <C>
BOARD OF TRUSTEES State Street Global Advisors
Kent E. Barrett 2 International Place
Judith L. Craven Boston, Massachusetts 02110
Timothy J. Ebner
Gustavo E. Gonzales, Jr. Thompson, Siegel & Walmsley, Inc.
Norman Hackerman 5000 Monument Ave.
Alice T. Kane Richmond, Virginia 23230
John W. Lancaster
Ben H. Love INDEPENDENT AUDITORS
John E. Maupin, Jr. Ernst & Young LLP
F. Robert Paulsen 1221 McKinney Street
Houston, Texas 77010
DISTRIBUTOR
American General Distributors, Inc. TRANSFER AND SHAREHOLDER
2929 Allen Parkway SERVICE AGENT
Houston, Texas 77019 The Variable Annuity LIfe
Insurance Company (VALIC)
CUSTODIAN 2929 Allen Parkway
State Street Bank and Trust Company Houston, Texas 77019
225 Franklin Street
Boston, Massachusetts 02110 OFFICERS
Alice T. Kane,
INVESTMENT ADVISER Chairman
The Variable Annuity Life Kent E. Barrett,
Insurance Company (VALIC) Executive Vice President
2929 Allen Parkway Steven Guterman,
Houston, Texas 77019 Vice President and Senior Investment Officer
Teresa S. Moro,
INVESTMENT SUB-ADVISERS Vice President and Investment Officer
American General Pauletta P. Cohn,
Investment Management, L.P. Vice President
2929 Allen Parkway William Trimbur, Jr.,
Houston, Texas 77019 Vice President and Investment Officer
Charles H. Clines,
Capital Guardian Trust Company Vice President and Tax Officer
333 South Hope Street Nori L. Gabert,
Los Angeles, California 90071 Vice President and Secretary
Todd L. Spillane,
Fiduciary Management Chief Compliance Officer
Associates, Inc. Gregory R. Kingston,
55 West Monroe Street, Suite 2550 Treasurer
Chicago, Illinois 60603 Kathryn A. Pearce,
Assistant Controller
Goldman Sachs Asset Management Donald H. Guire,
32 Old Slip Assistant Treasurer
New York, New York 10005 Chris Bauman,
Assistant Controller
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, Colorado 80237
J. P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Neuberger Berman Management Inc.
605 Third Avenue, Second Floor
New York, New York 10158-0180
</TABLE>
This report is for the information of the shareholders and variable contract
owners participating in the North American Funds Variable Product Series II
(formerly American General Series Portfolio Company 3). It is authorized for
distribution to other persons only when preceded or accompanied by an effective
prospectus which contains information on how to purchase shares and other
pertinent information.
If you would like further information about this material or products issued
by VALIC or American General Life Insurance Company, please contact your
financial professional.
"Standard & Poor's(R)", and "S&P 500(R)" are trademarks of Standard & Poor's
Corporation. The Russell 2000(R) Index is a trademark/service mark of Frank
Russell Trust Company. Russell(TM) is a trademark of the Frank Russell Company.
--------------------------------------------------------------------------------
<PAGE>
NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES II
(formerly American General Series Portfolio Company 3)
P.O. Box 3206
Houston, Texas 77253-3206
AMERICAN
GENERAL
FINANCIAL GROUP
American General Financial Group is the marketing
name for American General Corporation and its subsidiaries.
VA 11666 VER 08/00
