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April 30, 1999
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Farmers
Mutual Fund
Portfolios
Annual Report
Includes reports for:
Income Portfolio
Income with Growth Portfolio
Balanced Portfolio
Growth with Income Portfolio
Growth Portfolio
Offering a broad range of investment opportunities by investing in a select
mix of established mutual funds.
(logo) FARMERS^(R)
FINANCIAL SERVICES
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(BLANK INSIDE FRONT COVER)
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Farmers Mutual Fund Portfolios
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Date of Portfolios' Inception: 3/9/99
Income Portfolio Total Net Assets as of 4/30/99: $153,913
Income with Growth Portfolio Total Net Assets as of 4/30/99: $110,332
Balanced Portfolio Total Net Assets as of 4/30/99: $132,164
Growth with Income Portfolio Total Net Assets as of 4/30/99: $352,824
Growth Portfolio Total Net Assets as of 4/30/99: $146,933
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o Stocks have benefited in recent months from strong domestic growth and low
inflation. Bonds have posted weaker performance, however, as the improving
health of the overseas economies sparked concerns that the favorable conditions
in the U.S. would give way to a more inflationary environment.
o Each Portfolio seeks to provide total returns in excess of its benchmark
index, with a similar level of risk. To accomplish this objective, each
Portfolio diversifies among several established mutual funds from leading
investment management firms.
Table of Contents
Letter from the President............................. 4
Portfolio Management Discussion ...................... 5
Glossary of Investment Terms ......................... 18
Farmers Income Portfolio
Portfolio Highlights.................................. 8
Portfolio Summary .................................... 9
Investment Portfolio ................................. 19
Financial Highlights ................................. 30
2
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Farmers Income with Growth Portfolio
Portfolio Highlights.................................. 10
Portfolio Summary..................................... 11
Investment Portfolio.................................. 20
Financial Highlights.................................. 30
Farmers Balanced Portfolio
Portfolio Highlights.................................. 12
Portfolio Summary..................................... 13
Investment Portfolio.................................. 21
Financial Highlights.................................. 31
Farmers Growth with Income Portfolio
Portfolio Highlights.................................. 14
Portfolio Summary .................................... 15
Investment Portfolio.................................. 22
Financial Highlights.................................. 31
Farmers Growth Portfolio
Portfolio Highlights.................................. 16
Portfolio Summary..................................... 17
Investment Portfolio.................................. 23
Financial Highlights.................................. 31
All Portfolios
Financial Statements.................................. 24
Notes to Financial Statements......................... 34
Report of Independent Accountants .................... 37
Officers and Trustees................................. 38
3
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Letter from the President
Dear Shareholders,
We are pleased to present the first annual report of the Farmers Mutual Fund
Portfolios, a key ingredient in the Financial Solutions Program offered by
Farmers, Scudder Kemper Investments, and Investors Brokerage Services, Inc. The
Program has been designed to make mutual fund investing simple and convenient
for you, our customers. It is likely that many of you face evolving situations,
changing goals, and tough decisions. With thousands of mutual funds available,
it can be difficult to make the right investment choices to meet your needs.
That's why the Farmers Portfolios were created. Partnering with Scudder Kemper
Investments Inc., one of the world's leading investment management
organizations, we have established five portfolios that invest in established
stock, bond, and money market mutual funds from several top money management
firms. In this way, shareholders can benefit from an appropriate asset
allocation consistent with their risk tolerance, and can gain access to a larger
number of securities than they likely could if they were to invest on their own.
The program's primary goal is to generate favorable risk-adjusted returns by
emphasizing portfolio diversification, which spreads risk and provides access to
a wider range of investment opportunities. Investors who allocate their assets
among a variety of investments will lessen the impact of weakness in a single
company, industry, or region. With this in mind, management employs a consistent
methodology for selecting, monitoring, and gradually adjusting what they believe
to be the optimal mix of mutual funds based on long term trends. This approach
is designed to provide superior risk-adjusted performance of each Portfolio over
time.
Thank you for your investment in the Farmers Mutual Fund Portfolios. For more
information on the recent market environment, please turn to the Portfolio
Management Discussion with lead portfolio manager Philip Fortuna beginning on
page 5. We have also provided a synopsis on each of the individual Portfolios,
explaining how its investments are designed to help you meet your long term
investment objectives. If you have any questions about your investment, please
contact your Farmers agent.
Sincerely,
/s/Paul Secord
Paul Secord
President,
Farmers Investment Trust
4
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Portfolio Management Discussion
In the following interview, Philip Fortuna, lead portfolio manager of the
Farmers Mutual Fund Portfolios, discusses the recent market environment and the
Portfolios' current investment strategy.
Q: The stock market, as measured by the Dow Jones Industrial Average, has soared
recently, passing 10,000 in early April then 11,000 just weeks later. What does
this mean for investors?
A: Although the Dow contains only thirty companies, it has long been used as the
bellwether indicator for the health of the U.S. stock market. The numbers
themselves don't carry a great deal of meaning, but they do show that investors
are enthusiastic about the prospects of the U.S. economy. Growth has remained
strong, even as various crises have taken their toll on a number of countries
overseas. Unemployment is low, which means that more people have money to spend
in the nation's shopping malls and car dealerships. More important, interest
rates have remained at low levels for much of the past year, making it easier
for people to buy new homes and for businesses to invest in new projects. The
domestic economy has been hitting on all cylinders for quite some time now.
Taken together, these factors have provided an ideal backdrop for the rise in
stock prices.
Q: What role has the explosive proliferation of technology had on economic
growth?
A: We believe that the importance of technology cannot be overstated. The
complex of innovations that includes software, biotechnology, broadband
communications and the Internet is changing the way people live and work, much
as electricity, automobiles, railroads and the telegraph did earlier in our
history. In addition to fostering the growth of new products and new companies,
technology has contributed to improved productivity and lower prices for many of
the products we use every day.
Q: Despite the existence of these positive factors in the U.S. economy, the
strongest stock price gains have generally been limited to a narrow group of the
largest companies in the last year and a half. Why is this?
A: Even when the economy is doing well here in the U.S., it is important to
remember that we are becoming increasingly interconnected with the rest of the
world. As a consequence, difficulties overseas have the ability to impact our
5
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financial markets even when they occur in relatively remote areas. During the
past year, investors have had to assess the impact of a wide variety of problems
that cropped up in the international markets, such as the slowdown in Asia, the
recession in Japan, and the currency crises in Russia and Brazil, just to name a
few. Although the U.S. economy has so far been virtually immune to these
difficulties, market participants have been worried that they may eventually
spread to our shores. In order to gain shelter from a potential slowdown in our
economy, investors sought cover in stocks of large, well-known companies that
they believe have the ability to generate steady earnings growth in both good
times and bad. While this has been a distinct positive for companies such as
Home Depot, McDonald's, and IBM, many smaller companies have been negatively
impacted over the past year despite attractive fundamentals. Similarly, stocks
that fall in the "value" category -- concentrating primarily on future, rather
than current earnings growth -- have generally posted meager returns. The good
news for investors who have maintained exposure to these areas is that in April
small caps and value stocks took over as the market leaders, while large growth
companies lagged. This demonstrates the importance of diversification among
multiple asset classes and investment styles.
Q: You mentioned earlier that the economy has been helped by lower interest
rates. How has this affected bond investors?
A: At present, U.S. government bond yields remain low based on recent history.
However, yields (which move in the opposite direction of bond prices) have risen
substantially since the depths of the emerging markets crisis last fall, during
which investors snapped up Treasuries in a "flight to quality." The bellwether
30-year Treasury bond, which yielded 4.72% at its low on October 5, 1998,
subsequently rose to 5.66% by April 30, 1999. Bond yields tend to rise (and
prices fall) when the economy is doing well, since inflation is sometimes a
negative side effect of strong growth. As evidence has mounted that the global
economy is increasingly robust, government bond prices have suffered
accordingly. On the other hand, the improved economic outlook has generally been
beneficial for domestic corporate bonds, whose prices tend to respond favorably
when the economy is exhibiting steady upward growth. This divergence between two
sectors of the bond market again shows that diversification is an essential
component of prudent investing.
6
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Q: The underlying funds in the Farmers Portfolios have exposure to both large
and small company stocks, and hold both corporate and government bonds. What
selection process do you use to achieve this high level of diversification?
A: Our primary objective in managing the Portfolios is to deliver superior
returns to our benchmark indices over three or more years, while maintaining a
similar level of risk. In order to achieve this objective, we identify
established funds that have developed a strong track record and displayed
management stability, style consistency, and above-average three-year
performance. To determine what weightings we give each fund within the
Portfolios, we use a computer model to seek an optimal combination of
investments. The purpose of this model is to manage risk by measuring how the
individual mutual funds we hold in the Portfolios have performed against each
other in a variety of market conditions. If two funds tend to respond in
different ways to a similar investment environment, the overall volatility of
the Portfolio may decrease if a portion of assets is invested in each one.
To ensure that the computer analysis is helping us meet our investment
objectives, we review it monthly and whenever there are significant market
events. Since the Portfolios' asset allocations are designed to be long term in
nature, any changes we do make are likely to be incremental. We believe that
this approach is well suited to meet the needs of investors who are seeking
diversification and professional risk management over a long-term time horizon.
Q: What would you tell investors who will be watching the markets in the months
ahead?
A: As always, we would like to encourage investors to stay focused on their
long-term objectives regardless of how the markets are performing at any given
time. While periodic fluctuations can be nerve-wracking, it is important to keep
in mind that downturns and rallies are regular, natural occurrences in the
financial markets. Whether the markets are rising or falling, however, we intend
to manage the Portfolios with the same patient style and long term view. We urge
shareholders to take a similar approach with their investments.
7
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Portfolio Highlights
Farmers Income Portfolio
Our objective in managing the Income Portfolio is to provide higher returns than
the Portfolio's benchmark, the Lehman Brothers Aggregate Bond Index.^1 At the
same time, we strive to keep the risk level of the Portfolio similar to that of
the Index. We believe that this favorable balance of risk and reward can be
achieved through diversification among multiple types of bond funds. With this
goal in mind, we have divided the Portfolio among five different fixed income
funds, each of which invests in a different sector of the bond market. Since
each individual sector tends to respond in a different way to changes in the
broader economic environment, the rise of one may offset a drop in another,
reducing the overall volatility of the portfolio.
We have invested 25% of the Portfolio's assets in each of three funds: Scudder
Income Fund, Kemper High Yield Fund -- Class I, and PIMCO Foreign Bond Fund --
Institutional Shares. Scudder Income Fund invests primarily in government issues
and investment-grade corporate bonds with intermediate (5-10 year) maturities.
We feel that Scudder Income Fund's exposure to sectors that are generally
considered to be more conservative will provide stability to the Portfolio over
time. Kemper High Yield Fund -- Class I carries a higher level of risk than
Scudder Income Fund, but, it also generates more income. High yield corporate
bonds, such as those held by the Kemper High Yield Fund -- Class I, are issued
by companies that must pay a higher coupon to attract investors because the
companies' creditworthiness is less certain than issuers of investment-grade
corporate bonds. Since high yield issues tend to benefit from a favorable
economic backdrop, they provide an excellent complement to government bonds,
which tend to benefit from less favorable conditions. PIMCO Foreign Bond Fund --
Institutional Shares provides an added level of diversification through its
exposure to bonds in established overseas economies such as the U.K., Germany,
and Japan. Even in an increasingly global economy, foreign issues can balance
the performance of domestic bonds. To increase overall Portfolio stability, we
also have established small positions in PIMCO Low Duration Fund --
Institutional Shares (5% of total assets), which invests in short-term bonds,
and Kemper U.S. Government Securities Fund -- Class I (15%), which holds
Treasuries and mortgage-backed securities.
We believe that over time, a carefully constructed portfolio that includes a
wide variety of bonds will provide shareholders with an optimal combination of
portfolio stability and high current income.
^1 The Lehman Brothers Aggregate Bond Index is a market value-weighted measure
of Treasury Issues, Agency Issues, corporate bond issues, and
mortgage-backed securities. The Index is commonly used as a performance
benchmark for bond funds.
8
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Portfolio Summary
Farmers Income Portfolio
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Asset Allocation
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THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
WITH THE FOLLOWING DATA:
Money Market 5% The Portfolio will remain
Fixed Income 95% fully invested in bond
----- funds and money market
100% funds.
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Asset Class Ranges
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Money Market 0-20% Asset class allocations
Fixed Income 80-100% are derived from the risk
profile of the Portfolio;
changes are expected to be
modest and infrequent.
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Portfolio Holdings
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Kemper High Yield Fund-- Class I 25% Management is seeking to
Scudder Income Fund 25% achieve high current
PIMCO Foreign Bond Fund-- income and portfolio
Institutional Shares 25% stability by diversifying
Kemper U.S. Government Securities Fund -- among multiple sectors of
Class I 15% the bond market.
PIMCO Low Duration Fund--
Institutional Shares 5%
Zurich Money Market Fund 5%
-----
100%
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9
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Portfolio Highlights
Farmers Income with Growth Portfolio
Our objective in managing the Income with Growth Portfolio is to provide higher
returns than its unmanaged benchmark, which is a blend of the Lehman Brothers
Aggregate Bond Index^1 (70%) and the S&P 500 Index^2 (30%). At the same time, we
seek to maintain a level of risk similar to that of the benchmark. We have
divided the Portfolio's investments among three fixed income funds and two
equity funds, each of which invests in a distinct sector of the financial
markets. Since each sector may respond in a different way to changes in the
broader economic environment, strength in one may offset weakness in another. In
this way, overall portfolio volatility may be reduced over time.
The mix of investments reflects the Portfolio's strategy. Within the equity
portion of the Portfolio, we have divided assets between Janus Twenty Fund and
Scudder Growth and Income Fund. While both invest in the U.S. stock market, each
takes a different approach: Janus Twenty Fund focuses on finding companies with
high rates of earnings growth, while Scudder Growth and Income Fund employs a
more value-oriented strategy to find strong, established companies with
above-average dividend yields. We feel that these funds complement each other
well since growth stocks and value stocks often provide divergent performance.
For the same reason, we have invested the fixed income portion of the
Portfolio's investments in an array of funds that invest in short-term bonds
(PIMCO Low Duration Fund -- Institutional Shares), Treasuries and
mortgage-backed securities (Kemper U.S. Government Securities Fund -- Class I),
and international bonds (PIMCO Foreign Bond Fund -- Institutional Shares). As is
the case with the Portfolio's equity position, the purpose of this allocation is
to try to provide shareholders with portfolio diversification to help achieve an
optimal combination of long-term total return and ongoing principal stability.
It is reasonable to expect that the Income with Growth Portfolio will provide
greater long-term growth potential than a fund with a strategy that focuses
entirely on bonds. While on a day-to-day basis the presence of equities may also
result in greater share price fluctuation, risk is a natural component of a
strategy that seeks higher returns. We believe that over time, a carefully
constructed portfolio that includes exposure to a number of areas within the
stock and bond markets will produce favorable risk-adjusted returns.
^1 The Lehman Brothers Aggregate Bond Index is a market value-weighted measure
of Treasury Issues, Agency Issues, corporate bond issues, and
mortgage-backed securities. The Index is commonly used as a performance
benchmark for bond funds.
^2 The Standard and Poor's 500 Composite Price Stock Index is a
capitalization-weighted index of 500 stocks. The Index is designed to
measure the performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
It is commonly used as a performance benchmark for stock funds.
10
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Portfolio Summary
Farmers Income with Growth Portfolio
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Asset Allocation
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THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
WITH THE FOLLOWING DATA:
Money Market 1% Consistent with the
Fixed Income 72% Portfolio's emphasis on
Equity 27% current income, the
----- majority of assets are
100% invested in bond funds.
=====
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Asset Class Ranges
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Money Market 0-15% Asset class allocations
Fixed Income 60-80% are derived from the risk
Equity 20-40% profile of the Portfolio;
changes are expected to be
modest and infrequent.
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Portfolio Holdings
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PIMCO Foreign Bond Fund -- The Portfolio holdings
Institutional Shares 25% provide diversified
PIMCO Low Duration Fund-- exposure to bonds issued
Institutional Shares 25% both in the U.S. and
Kemper U.S. Government Securities Fund -- abroad, as well as
Class I 22% domestic growth stocks,
Janus Twenty Fund 21% and to a lesser extent,
Scudder Growth and Income Fund 6% value stocks.
Zurich Money Market Fund 1%
-----
100%
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11
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Portfolio Highlights
Farmers Balanced Portfolio
Our objective in managing the Balanced Portfolio is to provide higher returns
than the Portfolio's unmanaged benchmark, in which the Lehman Brothers Aggregate
Bond Index^1 and the S&P 500 Index^2 are weighted equally. We also seek to
maintain a level of risk similar to that of the benchmark. In pursuit of this
objective, we have allocated the Portfolio's investments among three fixed
income funds and three equity funds, each of which invests in a distinct sector
of the markets. Since each sector may respond in a different way to similar
developments in the broader economic environment, strength in one may offset
weakness in another under a given set of conditions. In this way,
diversification can reduce overall portfolio volatility over time.
Slightly over half of the Portfolio's assets are invested in fixed income funds,
with the majority of the weighting split fairly evenly between Kemper U.S.
Government Securities Fund -- Class I, which invests in Treasuries and
mortgage-backed securities, and PIMCO Foreign Bond Fund -- Institutional Shares,
which invests primarily in bonds issued in developed overseas countries. Since
the performance of bonds is tied closely to the economic performance of the
country in which they have been issued, a strategy that incorporates bonds from
numerous geographic areas can provide investors with a high level of
diversification. We also hold a small position in Scudder Income Fund, which
invests in government bonds and investment-grade corporate issues. Within the
equity portion of the Portfolio, we have invested slightly over half of the
position in Janus Twenty Fund, which seeks to invest in large companies with
strong earnings and favorable growth potential. We have complemented this
position with holdings in two value-oriented funds, Scudder Growth and Income
Fund and Kemper-Dreman High Return Equity Fund -- Class I. As is the case with
our fixed income allocation, these weightings are designed to help achieve an
optimal combination of total return and portfolio stability through
diversification.
The Portfolio is designed to provide a higher level of growth potential than
would likely be achieved by investing 100% of assets in bonds, and a greater
level of stability than would likely result from investing the entire portfolio
in stocks. We believe that over time, a carefully constructed portfolio that
offers exposure to a variety of different asset classes will produce competitive
total returns and provide a cushion against the fluctuations of the financial
markets.
^1 The Lehman Brothers Aggregate Bond Index is a market value-weighted measure
of Treasury Issues, Agency Issues, corporate bond issues, and
mortgage-backed securities. The Index is commonly used as a performance
benchmark for bond funds.
^2 The Standard and Poor's 500 Composite Price Stock Index is a
capitalization-weighted index of 500 stocks. The Index is designed to
measure the performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
It is commonly used as a performance benchmark for stock funds.
12
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Portfolio Summary
Farmers Balanced Portfolio
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Asset Allocation
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THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
WITH THE FOLLOWING DATA:
Money Market 1% As its name would suggest,
Fixed Income 53% the Balanced Portfolio
Equity 46% seeks to provide exposure
----- to both stocks and bonds.
100%
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Asset Class Ranges
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Money Market 0-10% Asset class allocations
Fixed Income 40-60% are derived from the risk
Equity 40-60% profile of the Portfolio;
changes are expected to be
modest and infrequent.
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Portfolio Holdings
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Janus Twenty Fund 24% Diversification is
PIMCO Foreign Bond Fund-- achieved by investing in
Institutional Shares 24% funds that provide
Kemper U.S. Government Securities Fund -- exposure to both growth
Class I 22% stocks and value stocks,
Scudder Growth and Income Fund 11% as well as domestic and
Kemper-Dreman High Return Equity Fund-- foreign bonds.
Class I 11%
Scudder Income Fund 7%
Zurich Money Market Fund 1%
-----
100%
=====
13
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Portfolio Highlights
Farmers Growth with Income Portfolio
Our goal in managing the Growth with Income Portfolio is to outperform its
unmanaged benchmark, which is a blend made of the S&P 500 Index^1 (70%) and the
Lehman Brothers Aggregate Bond Index^2 (30%). At the same time, we strive to
maintain a level of risk similar to that of the benchmark. We have allocated the
Portfolio's investments among three equity funds and two fixed income funds,
each of which invests in a distinct sector of the markets. Since each sector may
perform differently under the same set of market conditions, strength in one may
offset weakness in another, thereby reducing overall portfolio volatility.
Consistent with the Portfolio's investment objective, we have invested the
majority of its assets in three established stock mutual funds. Janus Twenty
Fund, which invests in large, well-known U.S. companies with rising earnings and
the potential for strong future growth, made up the bulk of the Portfolio's
assets at the close of the period, with a weighting of 25%. We sought to
diversify the Portfolio's equity position by investing in two value-oriented
funds, Scudder Growth and Income Fund and Kemper-Dreman High Return Equity Fund
- -- Class I. Both seek to invest in reasonably valued companies that possess
dividend yields higher than the market average. While all three of these funds
focus on stocks of large companies, we expect that exposure to the sometimes
divergent performance of growth stocks and value stocks will provide the
Portfolio with a high degree of balance over time. In the fixed income sector,
we have placed 11% of total assets in Kemper U.S. Government Securities Fund --
Class I, which invests primarily in Treasuries and mortgage-backed securities,
and 25% in PIMCO Foreign Bond Fund -- Institutional Shares, which invests in
bonds issued overseas. Since bond returns are often tied to the performance of
the economy in the country in which they were issued, allocating assets among
numerous countries can provide investors with a high level of diversification.
The Growth with Income Portfolio is designed to provide investors with exposure
to the significant long-term growth potential of the stock market, but with a
lesser degree of volatility than a portfolio invested entirely in equities. We
believe that over time, this approach is likely to generate strong total returns
while minimizing the risks inherent in the financial markets.
^1 The Standard and Poor's 500 Composite Price Stock Index is a
capitalization-weighted index of 500 stocks. The Index is designed to
measure the performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
It is commonly used as a performance benchmark for stock funds.
^2 The Lehman Brothers Aggregate Bond Index is a market value-weighted measure
of Treasury Issues, Agency Issues, corporate bond issues, and
mortgage-backed securities. The Index is commonly used as a performance
benchmark for bond funds.
14
<PAGE>
Portfolio Summary
Farmers Growth with Income Portfolio
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Asset Allocation
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THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
WITH THE FOLLOWING DATA:
Money Market 1% The Portfolio's weighting
Fixed Income 36% in equity funds reflects
Equity 63% its emphasis on long-term
----- growth.
100%
=====
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Asset Class Ranges
- --------------------------------------------------------------------------------
Money Market 0-10% Asset class allocations
Fixed Income 20-40% are derived from the risk
Equity 60-80% profile of the Portfolio;
changes are expected to be
modest and infrequent.
- --------------------------------------------------------------------------------
Portfolio Holdings
- --------------------------------------------------------------------------------
Janus Twenty Fund 25% The Portfolio holdings
PIMCO Foreign Bond Fund-- provide diversification
Institutional Shares 25% through their exposure to
Kemper-Dreman High Return Equity Fund-- both growth and value
Class I 21% stocks, as well as bonds
Scudder Growth and Income Fund 17% issued both in the U.S.
Kemper U.S. Government Securities Fund -- and abroad.
Class I 11%
Zurich Money Market Fund 1%
-----
100%
=====
15
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Portfolio Highlights
Farmers Growth Portfolio
The objective of the Growth Portfolio is to produce higher returns than its
unmanaged benchmark, the S&P 500 Index^1, with a similar level of risk. We have
allocated the Portfolio's assets among five equity funds in order to gain
exposure to large-cap, small-cap, and international stocks. We believe that over
the long term, an approach that includes a variety of sectors and investment
styles is likely to provide favorable risk-adjusted returns.
The vast majority of the Fund's assets -- 80% -- is allocated in almost equal
fashion among three funds: Janus Twenty Fund, Scudder Growth and Income Fund,
and Kemper-Dreman High Return Equity Fund -- Class I. Although these funds
choose their holdings from the same universe -- large-cap U.S. equities -- their
investment styles are different. Janus Twenty Fund tends to invest in stocks of
large companies with strong earnings and favorable growth potential. Scudder
Growth and Income Fund and Kemper-Dreman High Return Equity Fund -- Class I
focus on high quality stocks with above-average dividend yields. Since a high
relative yield is often indicative of a stock whose price may be temporarily
depressed, this strategy naturally leads both of these funds to invest in
"value" stocks. Because growth and value often produce widely disparate returns,
a strategy that provides exposure to both styles should produce more consistent
performance than a strategy that provides exposure to one or the other.
The Portfolio holds a position in two funds that are not held in the other
Farmers Portfolios: Scudder Small Company Value Fund and Scudder International
Fund -- International Shares. By themselves, the sectors represented by these
two funds tend to have a higher level of risk than the broader market.
International stocks are subject to factors not usually present in the U.S.
market -- such as political and currency risk -- while smaller companies, due to
their size, are generally more vulnerable to fluctuations in the economy. Over
time, however, the higher level of risk can also translate into greater
potential for total return. When combined with other equity investments, these
asset classes can also make a substantial contribution to overall portfolio
diversification.
The Growth Portfolio is designed to provide investors with exposure to the
significant long-term growth potential of the stock market, but with a higher
level of stability than a less diversified portfolio. We believe that allocation
of assets across a variety of sectors is likely to produce competitive long-term
total returns, and at the same time minimize risk.
^1 The Standard and Poor's 500 Composite Price Stock Index is a
capitalization-weighted index of 500 stocks. The Index is designed to
measure the performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
It is commonly used as a performance benchmark for stock funds.
16
<PAGE>
Portfolio Summary
Farmers Growth Portfolio
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Asset Allocation
- --------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE
WITH THE FOLLOWING DATA:
Money Market 1% The Portfolio is likely to
Equity 99% remain fully invested in
----- equity funds at all times.
100%
=====
- --------------------------------------------------------------------------------
Asset Class Ranges
- --------------------------------------------------------------------------------
Money Market 0-5% Asset class allocations
Equity 95-100% are derived from the risk
profile of the Portfolio;
changes are expected to be
modest and infrequent.
- --------------------------------------------------------------------------------
Portfolio Holdings
- --------------------------------------------------------------------------------
Janus Twenty Fund 27% Diversification among the
Kemper-Dreman High Return Equity Fund-- Portfolio holdings is
Class I 27% designed to provide
Scudder Growth and Income Fund 26% exposure to a wide variety
Scudder Small Company Value Fund 14% of the stock market's
Scudder International Fund -- International many subsectors.
Shares 5%
Zurich Money Market Fund 1%
-----
100%
=====
17
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Glossary of Investment Terms
DIVERSIFICATION The spreading of risk by investing
in several asset categories,
industry sectors, or individual
securities. An investor with a
broadly diversified portfolio will
likely receive some protection from
the price declines of an individual
asset class.
DIVIDEND YIELD With stocks, a company's payment
out of earnings to shareholders
divided by its share price. For
example, a stock that sells for $10
and pays annual dividends totaling
$1 has a yield of 10%; if the stock
price goes up to $20 and the
dividend were to remain at $1, the
yield would fall to 5%.
GROWTH FUND A fund that invests primarily in
companies that have displayed above
average earnings growth and are
expected to continue to increase
profits faster than the overall
market. Stocks of such companies
usually trade at higher valuations
and experience more price
volatility than the market as a
whole.
MARKET The market value of a company's
CAPITALIZATION outstanding shares of common stock,
determined by multiplying the number
of shares outstanding by the share price
(number of shares outstanding x price =
market capitalization). The universe of
publicly traded companies is frequently
divided into large-, mid-, and small-
capitalization. "Large-cap" stocks tend
to be more liquid.
VALUE FUND A fund that invests primarily in
companies whose stock prices do not
fully reflect their intrinsic
value, as indicated by
price/earnings ratio, price/book
value ratio, dividend yield, or
some other valuation measure,
relative to their industries or the
market overall. Value stocks tend
to display less price volatility
and may carry higher dividend
yields.
(Sources: Scudder Kemper Investments, Inc., Barron's Dictionary of Finance and
Investment Terms)
18
<PAGE>
Investment Portfolio as of April 30, 1999
Farmers Income Portfolio
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market 5.3%
- ---------------------------------------------------------------------------------------------------
-------
Zurich Money Market Fund (Cost $8,205) ...................................... 8,205 8,205
-------
Fixed Income 94.7%
- ---------------------------------------------------------------------------------------------------
Kemper U.S. Government Securities Fund-- Class I ............................ 2,662 23,024
Kemper High Yield Fund-- Class I ............................................ 4,922 38,792
PIMCO Foreign Bond Fund-- Institutional Shares .............................. 3,560 38,161
PIMCO Low Duration Fund-- Institutional Shares .............................. 759 7,663
Scudder Income Fund ......................................................... 2,939 38,321
- ---------------------------------------------------------------------------------------------------
Total Fixed Income (Cost $144,935) .......................................... 145,961
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $153,140) (a) ...................... 154,166
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a)The cost for federal income tax purposes was $153,140. At April 30, 1999,
net unrealized appreciation for all securities based on tax cost was
$1,026. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$1,174 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $148.
During the period from March 9, 1999 (commencement of operations) to April
30, 1999, purchases of Underlying Funds' shares (excluding money market
investments) aggregated $144,935. There were no sales during the period.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Investment Portfolio as of April 30, 1999
Farmers Income with Growth Portfolio
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Money Market 0.9%
- --------------------------------------------------------------------------------
-------
Zurich Money Market Fund (Cost $1,048) ............... 1,048 1,048
-------
Fixed Income 72.1%
- --------------------------------------------------------------------------------
Kemper U.S. Government Securities Fund-- Class I ..... 2,895 25,045
PIMCO Foreign Bond Fund-- Institutional Shares ....... 2,553 27,364
PIMCO Low Duration Fund-- Institutional Shares ....... 2,698 27,254
- --------------------------------------------------------------------------------
Total Fixed Income (Cost $79,376) .................... 79,663
- --------------------------------------------------------------------------------
Equity 27.0%
- --------------------------------------------------------------------------------
Janus Twenty Fund .................................... 364 23,344
Scudder Growth and Income Fund ....................... 227 6,505
- --------------------------------------------------------------------------------
Total Equity (Cost $28,041) .......................... 29,849
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $108,465) (a) 110,560
- --------------------------------------------------------------------------------
(a)The cost for federal income tax purposes was $108,465. At April 30, 1999,
net unrealized appreciation for all securities based on tax cost was
$2,095. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$2,206 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $111.
During the period from March 9, 1999 (commencement of operations) to April
30, 1999, purchases of Underlying Funds' shares (excluding money market
investments) aggregated $107,417. There were no sales during the period.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Investment Portfolio as of April 30, 1999
Farmers Balanced Portfolio
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Money Market 1.0%
- --------------------------------------------------------------------------------
-------
Zurich Money Market Fund (Cost $1,371) ............... 1,371 1,371
-------
Fixed Income 53.3%
Kemper U.S. Government Securities Fund-- Class I ..... 3,451 29,850
PIMCO Foreign Bond Fund-- Institutional Shares ....... 2,938 31,495
Scudder Income Fund .................................. 701 9,141
- --------------------------------------------------------------------------------
Total Fixed Income (Cost $70,262) .................... 70,486
- --------------------------------------------------------------------------------
Equity 45.7%
- --------------------------------------------------------------------------------
Janus Twenty Fund .................................... 497 31,884
Kemper-Dreman High Return Equity Fund-- Class I ...... 401 14,124
Scudder Growth and Income Fund ....................... 507 14,516
- --------------------------------------------------------------------------------
Total Equity (Cost $57,447) .......................... 60,524
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $129,080) (a) 132,381
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $129,080. At April 30, 1999,
net unrealized appreciation for all securities based on tax cost was
$3,301. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$3,474 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $173.
During the period from March 9, 1999 (commencement of operations) to April
30, 1999, purchases of Underlying Funds' shares (excluding money market
investments) aggregated $127,709. There were no sales during the period.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Investment Portfolio as of April 30, 1999
Farmers Growth with Income Portfolio
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Money Market 1.0%
- --------------------------------------------------------------------------------
-------
Zurich Money Market Fund (Cost $3,503) ............... 3,503 3,503
-------
Fixed Income 35.6%
- --------------------------------------------------------------------------------
Kemper U.S. Government Securities Fund-- Class I ..... 4,454 38,525
PIMCO Foreign Bond Fund-- Institutional Shares ....... 8,121 87,054
- --------------------------------------------------------------------------------
Total Fixed Income (Cost $125,106) 125,579
- --------------------------------------------------------------------------------
Equity 63.4%
- --------------------------------------------------------------------------------
Janus Twenty Fund .................................... 1,359 87,206
Kemper-Dreman High Return Equity Fund-- Class I ...... 2,135 75,122
Scudder Growth and Income Fund ....................... 2,137 61,256
- --------------------------------------------------------------------------------
Total Equity (Cost $219,786) 223,584
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $348,395) (a) 352,666
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $348,395. At April 30, 1999,
net unrealized appreciation for all securities based on tax cost was
$4,271. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$4,397 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $126.
During the period from March 9, 1999 (commencement of operations) to April
30, 1999, purchases of Underlying Funds' shares (excluding money market
investments) aggregated $344,893. There were no sales during the period.
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Investment Portfolio as of April 30, 1999
Farmers Growth Portfolio
Market
Shares Value ($)
- --------------------------------------------------------------------------------
Money Market 0.9%
- --------------------------------------------------------------------------------
-------
Zurich Money Market Fund (Cost $1,280) ............... 1,280 1,280
-------
Equity 99.1%
- --------------------------------------------------------------------------------
Janus Twenty Fund .................................... 615 39,504
Kemper-Dreman High Return Equity Fund-- Class I ...... 1,113 39,154
Scudder Growth and Income Fund ....................... 1,352 38,739
Scudder International Fund-- International Shares .... 128 6,802
Scudder Small Company Value Fund ..................... 1,126 20,727
- --------------------------------------------------------------------------------
Total Equity (Cost $137,866) ......................... 144,926
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $139,146) (a) 146,206
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $139,146. At April 30, 1999,
gross and net unrealized appreciation for all securities in which there
was an excess of market value over tax cost was $7,060.
During the period from March 9, 1999 (commencement of operations) to April
30, 1999, purchases of Underlying Funds' shares (excluding money market
investments) aggregated $137,866. There were no sales during the period.
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of April 30, 1999
<TABLE>
<CAPTION>
Income with
Income Growth
Assets Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments, at market (for identified cost, see
accompanying investment portfolios) .................................. $154,166 $110,560
Income receivable ....................................................... 196 220
Receivable for Portfolio shares sold .................................... -- --
-------- --------
Total assets ............................................................ 154,362 110,780
Liabilities
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased ....................................... 210 250
Accrued management fee .................................................. 140 108
Accrued distribution services fee ....................................... 53 54
Accrued administrative services fee ..................................... 46 36
-------- --------
Total liabilities ....................................................... 449 448
-----------------------------------------------------------------------------------------------
Net assets, at market value ............................................. $153,913 $110,332
-----------------------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed (overdistributed) net investment
income ............................................................... 1,238 493
Net unrealized appreciation (depreciation)
on investments ....................................................... 1,026 2,095
Accumulated net realized gain (loss) .................................... -- 15
Paid-in capital ......................................................... 151,649 107,729
-----------------------------------------------------------------------------------------------
Net assets, at market value ............................................. $153,913 $110,332
-----------------------------------------------------------------------------------------------
Net Asset Value
- -------------------------------------------------------------------------------------------------------
Class A
Net assets applicable to shares outstanding ............................. 103,027 52,077
Shares of beneficial interest outstanding ............................... 8,439 4,223
Net Asset Value, redemption price per share (net assets
/shares outstanding of beneficial interest, $.01 par ----------------------
value, unlimited number of shares authorized)......................... $ 12.21 $ 12.33
----------------------
Maximum offering price per share (net asset value plus
5.26% of net asset value or 5.00% of offering price
for Income Portfolio, 5.54% of net asset value or
5.25% of offering price for Income with Growth
Portfolio, and 6.10% of net asset value or 5.75% of
offering price for Balanced, Growth with Income, ----------------------
and Growth Portfolios) ............................................... $ 12.85 $ 13.01
----------------------
Class B
Net assets applicable to shares outstanding ............................. 50,886 58,255
Shares of beneficial interest outstanding ............................... 4,173 4,730
Net Asset Value, offering and redemption price (subject
to contingent deferred sales charge) per share (net
assets / shares outstanding of beneficial interest, $.01 ----------------------
par value, unlimited number of shares authorized)..................... $ 12.19 $ 12.32
----------------------
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Growth with
Balanced Income Growth
Portfolio Portfolio Portfolio
- -----------------------------------------------
$ 132,381 $ 352,666 $ 146,206
118 183 1
-- 391 941
- ---------------- -------------- --------------
132,499 353,240 147,148
- -----------------------------------------------
125 182 --
114 134 120
58 55 55
38 45 40
- ---------------- -------------- --------------
335 416 215
- -----------------------------------------------
$ 132,164 $ 352,824 $ 146,933
- -----------------------------------------------
- -----------------------------------------------
483 429 99
4,271 7,060
3,301
31 54 77
128,349 348,070 139,697
- -----------------------------------------------
$ 132,164 $ 352,824 $ 146,933
- -----------------------------------------------
- -----------------------------------------------
64,141 298,156 92,189
5,153 23,615 7,200
- -----------------------------------------------
$12.45 $12.63 $12.80
- -----------------------------------------------
- -----------------------------------------------
$13.21 $13.40 $13.58
- -----------------------------------------------
68,023 54,668 54,744
5,471 4,334 4,281
- -----------------------------------------------
$12.43 $12.61 $12.79
- -----------------------------------------------
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Financial Statements (continued)
Statement of Operations
for the period March 9, 1999 (commencement of operations) to
April 30, 1999
Income with
Income Growth
Investment Income Portfolio Portfolio
Income:
Income distributions from Underlying Funds .............................. $1,477 $ 691
------ ------
Expenses:
Management fee .......................................................... 140 108
Distribution fees-- Class B ............................................. 53 54
Administrative fees-- Class A ........................................... 28 18
Administrative fees-- Class B ........................................... 18 18
------ ------
239 198
-------------------------------------------------------------------------------------------
Net investment income ................................................... 1,238 493
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ---------------------------------------------------------------------------------------------------
Capital gain distribution from Underlying Funds ......................... -- 15
Net unrealized appreciation (depreciation) on
investments during the period ........................................ 1,026 2,095
-------------------------------------------------------------------------------------------
Net gain (loss) on investments .......................................... 1,026 2,110
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations............................................. $2,264 $2,603
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
Balanced Growth with Growth
Portfolio Income Portfolio
Portfolio
$ 693 $ 663 $ 314
- ---------------- -------------- --------------
114 134 120
58 55 55
19 26 22
19 19 18
- ---------------- -------------- --------------
210 234 215
- -----------------------------------------------
483 429 99
- -----------------------------------------------
- -----------------------------------------------
31 54 77
3,301 4,271 7,060
- -----------------------------------------------
3,332 4,325 7,137
- -----------------------------------------------
- -----------------------------------------------
$ 3,815 $ 4,754 $ 7,236
- -----------------------------------------------
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
Financial Statements (continued)
Statement of Changes in Net Assets
for the period March 9, 1999 (commencement of operations) to
April 30, 1999
Income with
Income Growth
Increase (Decrease) in Net Assets Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------
Operations:
Net investment income ................................................... $ 1,238 $ 493
Net realized gain (loss) ................................................ -- 15
Net unrealized appreciation (depreciation) on
investments during the period ......................................... 1,026 2,095
-------- --------
Net increase in net assets resulting from
operations............................................................ 2,264 2,603
Portfolio share transactions:
Class A
Proceeds from shares sold ............................................... 91,574 40,711
Class B
Proceeds from shares sold ............................................... 40,075 47,018
-------- --------
Net increase in net assets from Portfolio
share transactions ................................................... 131,649 87,729
Increase in net assets .................................................. 133,913 90,332
Net assets at beginning of period ....................................... 20,000 20,000
----------------------
Net assets at end of period (a) ......................................... $153,913 $110,332
----------------------
Other Information
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ............................... 833 833
-------- --------
Shares sold ............................................................ 7,606 3,390
-------- --------
Net increase in Portfolio shares ........................................ 7,606 3,390
----------------------
Shares outstanding at end of period ..................................... 8,439 4,223
----------------------
Class B
Shares outstanding at beginning of period ............................... 833 833
-------- --------
Shares sold ............................................................. 3,340 3,897
Net increase in Portfolio shares ....................................... 3,340 3,897
----------------------
Shares outstanding at end of period ..................................... 4,173 4,730
----------------------
(a) Includes undistributed (overdistributed)
net investment income ............................................... $ 1,238 $ 493
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
Balanced Growth with Growth
Portfolio Income Portfolio
Portfolio
- -----------------------------------------------
$ 483 $ 429 $ 99
31 54 77
3,301 4,271 7,060
- ---------------- -------------- --------------
3,815 4,754 7,236
- ---------------- -------------- --------------
52,062 285,996 78,322
- ---------------- -------------- --------------
56,287 42,074 41,375
- ---------------- -------------- --------------
328,070 119,697
108,349
- ---------------- -------------- --------------
112,164 332,824 126,933
20,000 20,000 20,000
- -----------------------------------------------
$ 132,164 $ 352,824 $ 146,933
- -----------------------------------------------
- -----------------------------------------------
833 833 833
- ---------------- -------------- --------------
4,320 22,782 6,367
- ---------------- -------------- --------------
4,320 22,782 6,367
- -----------------------------------------------
5,153 23,615 7,200
- -----------------------------------------------
833 833 833
- ---------------- -------------- --------------
4,638 3,501 3,448
- ---------------- -------------- --------------
4,638 3,501 3,448
- -----------------------------------------------
5,471 4,334 4,281
- -----------------------------------------------
$ 483 $ 429 $ 99
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
Financial Highlights
The tables on these two pages include selected data for a share outstanding
(a) throughout the period and other performance information derived from the
financial statements.
For the period March 9, 1999 (commencement of operations) to April 30, 1999
<TABLE>
<CAPTION>
Income with
Income Growth
Class A Portfolio Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C>
------------------------
Net asset value, beginning of period ................... $ 12.00 $ 12.00
------------------------
Income from investment operations:
Net investment income .................................. .11 .07
Net realized and unrealized gain (loss) on ............. .10 .26
investment transactions
------------------------
Total from investment operations ....................... .21 .33
------------------------
Net asset value, end of period ......................... $ 12.21 $ 12.33
------------------------
- ---------------------------------------------------------------------------------
Total Return (%) (c) ................................... 1.75** 2.75**
Ratios and Supplemental Data
Net assets, end of period ($ thousands) ................ 103 52
Ratio of operating expenses to average daily net
assets (%) ......................................... 1.00* 1.00*
Ratio of net investment income to average daily net
assets (%) (b) ..................................... .93** .55**
Portfolio turnover rate (%) ............................ -- --
(a) Based on average shares outstanding during the period.
(b) Due to the short period of operations, these ratios are not indicative of
future earnings.
(c) Total return would have been lower if the investment adviser to some of the
Underlying Funds had not maintained some of the Underlying Funds' expenses.
* Annualized
** Not annualized
</TABLE>
30
<PAGE>
Growth with
Balanced Income Growth
Portfolio Portfolio Portfolio
- --------------------------------------------
$ 12.00 $ 12.00 $ 12.00
- --------------------------------------------
.06 .04 .01
.39 .59 .79
- --------------------------------------------
.45 .63 .80
- --------------------------------------------
- --------------------------------------------
$12.45 $12.63 $12.80
- --------------------------------------------
3.75** 5.25** 6.67**
64 298 92
1.00* 1.00* 1.00*
.52** .37** .12**
-- -- --
31
<PAGE>
Financial Highlights (continued)
The tables on these two pages include selected data for a share outstanding
(a) throughout the period and other performance information derived from the
financial statements.
For the period March 9, 1999 (commencement of operations) to April 30, 1999
<TABLE>
<CAPTION>
Income with
Income Growth
Class B Portfolio Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------------------------------
Net asset value, beginning of period .................... $ 12.00 $ 12.00
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income ................................... .12 .05
Net realized and unrealized gain (loss) on
investment transactions............................... .07 .27
- ---------------------------------------------------------------------------------
Total from investment operations ........................ .19 .32
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net asset value, end of period .......................... $ 12.19 $ 12.32
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Return (%) (c) .................................... 1.58** 2.67**
Ratios and Supplemental Data
Net assets, end of period ($ thousands) ................. 51 58
Ratio of operating expenses to average daily net
assets (%) ............................................ 1.75* 1.75*
Ratio of net investment income to average daily net
assets (%) (b)........................................ 1.01** .44**
Portfolio turnover rate (%) ............................. -- --
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Due to the short period of operations, these ratios are not indicative of
future earnings.
(c) Total return would have been lower if the investment adviser to some of the
Underlying Funds had not maintained some of the Underlying Funds' expenses.
* Annualized
** Not annualized
32
<PAGE>
Growth with
Balanced Income Growth
Portfolio Portfolio Portfolio
- --------------------------------------------
$ 12.00 $ 12.00 $ 12.00
- --------------------------------------------
.05 .04 .01
.38 .57 .78
- --------------------------------------------
.43 .61 .79
- --------------------------------------------
- --------------------------------------------
$ 12.43 $ 12.61 $ 12.79
- --------------------------------------------
3.58** 5.08** 6.58**
68 55 55
1.75* 1.75* 1.75*
.40** .31** .06**
-- -- --
33
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Farmers Investment Trust (the "Trust") is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The Trust is composed of five
separate diversified portfolios: Income, Income with Growth, Balanced, Growth
with Income and Growth Portfolios (the "Portfolios"). These Portfolios invest
primarily in existing mutual funds (the "Underlying Funds") that are either
affiliated with Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser") or are unaffiliated.
Each Portfolio consists of two classes of shares -- Class A and Class B. Class A
shares are sold to investors subject to an initial sales charge. Class B shares
are sold without an initial sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically convert to Class A shares six
years after issuance.
Investment income, realized and unrealized capital gains and losses, and certain
Portfolio-level expenses and expense reductions if any, are borne pro rata on
the basis of relative net assets by the holders of all classes of shares except
that each Class bears expenses unique to that class. Class B shares differ from
Class A shares only with respect to the 12b-1 distribution expenses borne by
Class B shares. All shares of the Portfolio have equal rights with respect to
voting.
These financial statements are prepared in accordance with generally accepted
accounting principles which require the use of management estimates. The
policies described below are followed by each Portfolio in the preparation of
its financial statements.
Security Valuation. Investments in the Underlying Funds are valued at the net
asset value per share of each Underlying Fund as of the close of regular trading
on the New York Stock Exchange. Short-term securities purchased with an original
maturity of sixty days or less are valued at amortized cost.
Federal Income Taxes. Each Portfolio is treated as a single corporate taxpayer,
as provided for in the Internal Revenue Code of 1986, as amended. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
which are applicable to regulated investment companies and to distribute all of
its taxable income to its shareholders. Accordingly, the Portfolios paid no
federal income taxes and no provision for federal income taxes was required.
Distribution of Income and Gains. Distributions from net investment income from
the Income, Income with Growth, and Balanced Portfolios are declared and paid
34
<PAGE>
quarterly, and distributions of net realized gains are made annually.
Distributions of net investment income and net realized gains from the Growth
with Income and Growth Portfolio are made annually. During any particular year
net realized gains, in excess of available capital loss carryforwards, would be
taxable to each such Portfolio if not distributed and, therefore, will be
distributed to shareholders annually. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, each Portfolio may periodically make reclassifications
among certain of its capital accounts without impacting the net asset value of
the Portfolio.
The Portfolios use the identified cost method for determining realized gain or
loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment security transactions are accounted for on a trade date basis.
Distributions of income and capital gains from the Underlying Funds and
distributions to shareholders are recorded on the ex-dividend date. Income is
recorded on the accrual basis.
B. Related Parties
Management Agreement. Under the Management Agreement (the "Agreement"), each
Portfolio pays the Adviser an annual fee of .75% of average daily net assets of
that Portfolio. The Agreements between each Portfolio and the Adviser require
that the Adviser provide investment management services and pay all ordinary
expenses of the Portfolios, except distribution fees, administrative fees,
interest, taxes, brokerage commissions, all compensation and expenses of
Trustees (other than those affiliated with the Adviser) and extraordinary
expenses.
The Adviser also receives management fees from managing the affiliated
Underlying Funds in which each Portfolio invests. Each affiliated Underlying
Fund pays the Adviser a management fee as determined by the Investment Agreement
between each Underlying Fund and the Adviser.
The Portfolios do not invest in the Underlying Funds for the purpose of
exercising management or control; however, investments within the set limits may
represent a significant portion of an Underlying Fund's net assets. At April 30,
1999, none of the Portfolios held more than 5% of an Underlying Fund's
outstanding shares.
Distribution Service Agreement: In accordance with Rule 12b-1 under the
Investment Act of 1940, as amended, Kemper Distributors, Inc. ("KDI"), a
subsidiary of the Adviser, receives a fee of .75% of average daily net assets of
35
<PAGE>
Class B. Pursuant to the agreement, KDI enters into related selling group
agreements with various firms at various rates for sales of Class B shares of
each Portfolio. In addition, KDI receives any contingent deferred sales charge
(CDSC) from redemptions of Class B shares of each Portfolio. For the period
ended April 30, 1999, there was no CDSC incurred by Class B shareholders of each
Portfolio payable to KDI and the distribution fees were as follows:
Distribution
fees received
by KDI
Portfolio ($)
-------------------------------------------------
Income 53
Income with Growth 54
Balanced 58
Growth with Income 55
Growth 55
Administrative Service Fees: The Trust has an administrative services agreement
with KDI. For providing information and administrative services to Classes A and
B shareholders, each Portfolio pays KDI a fee at an annual rate of up to .25% of
average daily net assets for each such class. KDI in turn has various agreements
with other firms to provide these services and pays each such firm a fee based
upon the assets for Class A and Class B shares maintained and serviced by the
firm. Firms to which service fees may be paid include broker-dealers affiliated
with the KDI. During the period ended April 30, 1999, the administrative service
fees (ASF) were as follows:
ASF incurred
by the
Portfolio Fund ($)
-------------------------------------------------
Income 46
Income with Growth 36
Balanced 38
Growth with Income 45
Growth 40
36
<PAGE>
Report of Independent Accountants
To the Trustees of Farmers Investment Trust and the
Shareholders of Farmers Investment Trust: Income,
Income with Growth, Balanced, Growth with Income, and
Growth Portfolios:
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolios, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Farmers Investment Trust: Income,
Income with Growth, Balanced, Growth with Income, and Growth Portfolios (the
"Portfolios") at April 30, 1999, the results of their operations, the changes in
their net assets, and the financial highlights for the period indicated therein,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolios' management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at April
30, 1999 by correspondence with the transfer agents, provides a reasonable basis
for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
June 9, 1999
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Officers and Trustees
Kathryn L. Quirk*
Chairperson and Trustee
Dr. Rosita P. Chang
Trustee; Professor of Finance,
University of Rhode Island
Edgar R. Fiedler
Trustee; Senior Fellow and Economic Counsellor,
The Conference Board, Inc.
Dr. J. D. Hammond
Trustee; Dean, Smeal College of Business
Administration,
Pennsylvania State University
Richard M. Hunt
Trustee; University Marshal and Senior Lecturer,
Harvard University
Paul Secord
President, Farmers Investment Trust
Philip Fortuna*
Vice President
Thomas W. Joseph*
Vice President
Ann M. McCreary*
Vice President
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
Elizabeth C. Werth*
Assistant Secretary
* Scudder Kemper Investments, Inc.
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Farmers Financial Solutions --
helping you get to where you want to be.
Working with your Farmers agent*
to better understand your financial
needs, clarify your goals, and
develop steps you can take towards
those goals.
*The securities are offered through your agent, a registered representative of
Investors Brokerage Services, Inc.
Scudder Kemper Investments is the adviser to Farmers Money Market Portfolio.
Scudder Kemper Investments has 80 years of money management experience and
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined long-term
investment strategies. Scudder Kemper Investments manages more than $280 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
This information must be preceded or
accompanied by a current prospectus.
Portfolio changes should not be considered
recommendations for action by individual
investors.
Kemper Distributors, Inc. is the principal
underwriter of Farmers Money Market
Portfolio.
Farmers Financial Services is not a separate
entity and neither it nor Farmers is engaged in
the business of providing investment advice and
is not registered as an investment adviser or
broker/dealer under the federal securities laws.
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FINANCIAL SERVICES
