<PAGE>
Annual Report
[LOGO APPEARS HERE]
Emerging Growth Equity Fund
Advised by: RS Investment Management, L.P.
Focused Equity Fund
Advised by: Morgan Stanley Asset Management
Growth Equity Fund
Advised by: Goldman Sachs Asset Management
Disciplined Equity Fund
Advised by: J.P. Morgan Investment Management Inc.
Value Equity Fund
Advised by: Salomon Brothers Asset Management Inc
Balanced Fund
Advised by: OpCap Advisors
DECEMBER 31, 1999 LSA Variable Series Trust
- --------------------------------------------------------------------------------
<PAGE>
LSA Variable Series Trust
President's Letter
February 15, 2000
Dear Shareholders:
We are pleased to present you the initial LSA Variable Series Trust Annual
Report dated December 31, 1999. We began operations on October 1, 1999, and as
of December 31st total assets under management were nearly $44.2 million,
including Allstate Life Insurance Company's initial start-up investment of $35
million.
The enclosed financial statements are for the six funds currently operating
within the LSA Variable Series Trust. Each of the six funds has its own
investment adviser. LSA Asset Management LLC is the investment adviser who
oversees each of the fund's advisers. The following are the six funds available
to insurance company separate accounts within the LSA Variable Series Trust:
Emerging Growth Equity Fund advised by RS Investment Management, L.P.
Focused Equity Fund advised by Morgan Stanley Asset Management
Growth Equity Fund advised by Goldman Sachs Asset Management
Disciplined Equity Fund advised by J.P. Morgan Investment Management Inc.
Value Equity Fund advised by Salomon Brothers Asset Management Inc
Balanced Fund advised by OpCap Advisers
The LSA Variable Series Trust is committed to adding value to our shareholders
and their contract owners.
Sincerely,
John Hunter
President
LSA Variable Series Trust
<PAGE>
Emerging Growth Equity Fund
Advised by: RS Investment Management, L.P.
PORTFOLIO OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
COMMON STOCKS - 95.3%
Advertising - 2.2%
2,000 24/7 Media, Inc.*......................................... $ 112,500
1,100 Lamar Advertising Co.*.................................... 66,619
200 MyPoints.com, Inc.*....................................... 14,800
200 Webstakes.com, Inc.*...................................... 3,950
----------
197,869
----------
Apparel Retailers - 1.0%
1,000 American Eagle Outfitters*................................ 45,000
1,600 Factory 2-U Stores, Inc.*................................. 45,400
----------
90,400
----------
Banking - 0.7%
1,600 Financial Federal Corp.*.................................. 36,500
1,000 NextCard, Inc.*........................................... 28,875
----------
65,375
----------
Building Materials - 1.4%
1,300 Caprock Communications Corp.*............................. 42,169
1,400 Cytyc Corp.*.............................................. 85,488
----------
127,657
----------
Chemicals - 0.8%
2,400 SurModics, Inc.*.......................................... 72,000
----------
Commercial Services - 1.6%
3,300 Autoweb.com, Inc.*........................................ 35,888
100 Ebenx, Inc.*.............................................. 4,525
400 HotJobs.com Ltd.*......................................... 17,475
900 Memberworks, Inc.*........................................ 29,869
400 Netcentives, Inc.*........................................ 24,925
1,000 On Assignment, Inc.*...................................... 29,875
----------
142,557
----------
Communications - 8.5%
3,000 American Tower Corp. - Class A*........................... 91,688
1,600 Copper Mountain Networks, Inc.*........................... 78,000
1,300 Crown Castle International Corp.*......................... 41,763
1,000 Digital Lightwave, Inc.*.................................. 64,000
550 Ditech Communications Corp.*.............................. 51,425
1,000 Echostar Communications Corp. -
Class A*................................................. 97,500
600 Efficient Networks, Inc.*................................. 40,800
700 Intraware, Inc.*.......................................... 55,956
1,400 McLeodUSA, Inc. - Class A*................................ 82,425
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
Communications (Continued)
<CAPTION>
<C> <S> <C>
600 Network Appliance, Inc.*.................................. $ 49,838
900 Panamsat Corp.*........................................... 53,438
1,000 Sawtek, Inc.*............................................. 66,563
100 XM Satellite Radio Holdings, Inc. -Class A*............... 3,813
----------
777,209
----------
Computer Integrated Systems Design - 6.3%
750 About.com, Inc.*.......................................... 67,313
500 Applied Theory Corp.*..................................... 13,875
1,300 Aware, Inc.*.............................................. 47,288
600 Broadvision, Inc.*........................................ 102,038
800 Clarent Corp.*............................................ 62,200
2,300 Exchange Applications, Inc.*.............................. 128,513
700 Filenet Corp.*............................................ 17,850
2,500 Netscout Systems, Inc.*................................... 77,500
400 Sapient Corp.*............................................ 56,375
----------
572,952
----------
Computer Programming Services - 7.9%
700 Business Objects SA - ADR*................................ 93,538
50 C-Bridge Internet Solutions, Inc.*........................ 2,431
1,400 Macromedia, Inc.*......................................... 102,375
700 Mercury Interactive Corp.*................................ 75,556
1,500 Network Solutions, Inc.*.................................. 326,329
700 PCOrder.com, Inc.*........................................ 35,700
500 Primus Knowledge Solutions, Inc.*......................... 22,656
500 RealNetworks, Inc.*....................................... 60,156
----------
718,741
----------
Computer Related Services - 3.2%
2,300 Acxiom Corp.*............................................. 55,200
50 El Sitio, Inc.*........................................... 1,838
200 Espeed, Inc. - Class A*................................... 7,113
50 Gric Communications, Inc.*................................ 1,269
400 Keynote Systems, Inc.*.................................... 29,500
750 Navisite, Inc.*........................................... 75,000
400 NBC Internet, Inc. - Class A*............................. 30,900
200 NetCreations, Inc.*....................................... 8,800
400 RSA Security, Inc.*....................................... 31,000
600 Scient Corp.*............................................. 51,863
----------
292,483
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Emerging Growth Equity Fund
Advised by: RS Investment Management, L.P.
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
COMMON STOCKS (Continued)
Computers & Information - 1.6%
300 Extended Systems, Inc.*................................... $ 14,363
600 Extreme Networks, Inc.*................................... 50,100
200 Foundry Networks, Inc.*................................... 60,338
150 Immersion Corp.*.......................................... 5,756
200 Sandisk Corp.*............................................ 19,250
----------
149,807
----------
Data Processing and Preparation - 2.2%
600 Bisys Group, Inc.*........................................ 39,150
400 Cybersource Corp.*........................................ 20,700
600 Fiserv, Inc.*............................................. 22,988
300 Internap Network Services*................................ 51,900
1,400 Verio, Inc.*.............................................. 64,663
----------
199,401
----------
Electronics - 5.2%
300 Applied Micro Circuits Corp.*............................. 38,175
1,300 Conexant Systems, Inc.*................................... 86,288
1,000 Cree Research, Inc.*...................................... 85,375
1,400 Integrated Device Technology, Inc.*....................... 40,600
600 Lattice Semiconductor Corp.*.............................. 28,275
1,000 MIPS Technologies, Inc. - Class A*........................ 52,000
1,200 Power Integrations, Inc.*................................. 57,525
300 RF Micro Devices, Inc.*................................... 20,531
1,500 Silicon Storage Technology, Inc.*......................... 61,875
100 Zoran Corp.*.............................................. 5,575
----------
476,219
----------
Entertainment & Leisure - 1.1%
600 Macrovision Corp.*........................................ 44,400
1,500 Ticketmaster Online-CitySearch -
Class B*................................................. 57,656
----------
102,056
----------
Financial Services - 1.9%
3,800 Knight/Trimark Group, Inc. -
Class A*................................................. 174,800
100 Web Street, Inc.*......................................... 1,238
----------
176,038
----------
Home Construction, Furnishings & Appliances - 0.5%
600 Gemstar International Group Ltd.*......................... 42,750
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
Information Retrieval Services - 4.2%
100 CMGI, Inc.*............................................. $ 27,688
600 Earthlink Network, Inc.*................................ 25,500
600 Infospace.com, Inc.*.................................... 128,400
100 Mothernature.com*....................................... 731
1,300 National Information Consortium, Inc.*.................. 41,600
800 Psinet, Inc.*........................................... 49,400
2,100 Sportsline USA, Inc.*................................... 105,263
----------
378,582
----------
Lodging - 0.7%
1,200 Four Seasons Hotels, Inc................................ 63,900
----------
Media - Broadcasting & Publishing - 8.6%
1,100 Allegiance Telecom, Inc.*............................... 101,475
800 AMFM, Inc.*............................................. 62,600
1,200 Citadel Communications Corp.*........................... 77,850
800 COX Radio, Inc. - Class A*.............................. 79,800
200 Cumulus Media, Inc. - Class A*.......................... 10,150
400 Emmis Communications Corp. -
Class A*............................................... 49,856
1,200 Entercom Communications Corp.*.......................... 79,200
700 Hispanic Broadcasting Corp.*............................ 64,553
3,350 Infinity Broadasting Corp. - Class A*................... 121,228
1,850 Spanish Broadcasting System -
Class A*............................................... 74,463
600 Univision Communications, Inc. -
Class A*............................................... 61,313
100 Wink Communications, Inc.*.............................. 6,006
----------
788,494
----------
Medical Supplies - 1.6%
1,700 Resmed, Inc.*........................................... 70,975
2,400 Visible Genetics, Inc.*................................. 72,000
----------
142,975
----------
Miscellaneous - 0.8%
3,100 Student Advantage, Inc.*................................ 68,781
----------
Pharmaceuticals - 2.6%
1,300 Medarex, Inc.*.......................................... 48,425
600 Medimmune, Inc.*........................................ 99,525
900 Pharmacyclics, Inc.*.................................... 37,125
700 Protein Design Labs, Inc.*.............................. 49,000
----------
234,075
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Emerging Growth Equity Fund
Advised by: RS Investment Management, L.P.
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
COMMON STOCKS (Continued)
Prepackaged Software - 23.3%
5,200 Activision, Inc.*......................................... $ 79,625
1,100 Aspect Development, Inc.*................................. 75,350
3,400 BEA Systems, Inc.*........................................ 237,788
800 Bluestone Software, Inc.*................................. 92,000
1,500 Brio Technology, Inc.*.................................... 63,000
800 Broadbase Software, Inc.*................................. 90,000
200 Check Point Software Technologies*........................ 39,750
1,300 Digex, Inc.*.............................................. 89,375
600 HNC Software*............................................. 63,450
600 Informatica Corp.*........................................ 63,825
1,300 Interactive Intelligence, Inc.*........................... 34,613
1,600 ISS Group, Inc.*.......................................... 113,800
1,000 Legato Systems, Inc.*..................................... 68,813
1,300 Liquid Audio*............................................. 34,125
2,600 NETIQ Corp.*.............................................. 135,363
500 Netopia, Inc.*............................................ 27,156
1,000 PC-Tel, Inc.*............................................. 52,500
1,200 Peregrine Systems, Inc.*.................................. 101,025
750 Proxicom, Inc.*........................................... 93,234
2,200 Ramp Networks, Inc.*...................................... 33,550
2,000 Sagent Technology, Inc.*.................................. 59,875
1,100 Scientific Learning Corp.*................................ 40,150
300 Segue Software, Inc.*..................................... 7,500
700 Siebel Systems, Inc.*..................................... 58,800
700 Silknet Software, Inc.*................................... 116,025
300 Tibco Software, Inc.*..................................... 45,900
1,200 TSI International Software Ltd.*.......................... 67,950
800 Veritas Software Corp.*................................... 114,500
250 Vignette Corp.*........................................... 40,750
----------
2,139,792
----------
Real Estate - 0.7%
1,400 Pinnacle Holdings, Inc.*.................................. 59,325
----------
Retailers - 1.4%
1,600 Bed Bath & Beyond, Inc.*.................................. 55,600
900 Valuevision International, Inc.*.......................... 51,581
1,900 Vitaminshoppe.com*........................................ 17,338
----------
124,519
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
Telephone Systems - 4.6%
2,400 Concentric Network Corp.*................................. $ 73,950
1,100 Covad Communications Group, Inc.*......................... 61,531
1,550 DSL.Net, Inc.*............................................ 22,378
2,700 Electric Lightwave, Inc. - Class A*....................... 50,625
100 Ibasis, Inc.*............................................. 2,875
1,300 ITXC Corp.*............................................... 43,713
900 Metromedia Fiber Network, Inc. -
Class A*................................................. 43,144
1,300 Primus Telecommunications Group, Inc.*.................... 49,725
350 Research In Motion Ltd.*.................................. 16,166
900 Viatel, Inc.*............................................. 48,263
250 Z-Tel Technologies, Inc.*................................. 10,094
----------
422,464
----------
Transportation - 0.7%
500 Expedia, Inc. - Class A*.................................. 17,500
1,100 Forward Air Corp.*........................................ 47,713
----------
65,213
----------
TOTAL INVESTMENTS - 95.3%
(Cost $5,384,025)........................................ 8,691,634
Other Assets and Liabilities
(net) - 4.7%............................................. 427,184
----------
TOTAL NET ASSETS - 100.0%................................. $9,118,818
==========
</TABLE>
Notes to the Portfolio of Investments:
ADR - American Depository Receipt
*Non-income producing security.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Focused Equity Fund
Advised by: Morgan Stanley Asset Management
PORTFOLIO OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
COMMON STOCKS - 96.5%
Aerospace & Defense - 2.3%
1,100 General Dynamics Corp. ................................... $ 58,025
1,200 Textron, Inc. ............................................ 92,025
----------
150,050
----------
Apparel Retailers - 1.1%
1,600 Intimate Brands, Inc. .................................... 69,000
----------
Banking - 3.3%
600 American Express Co. ..................................... 99,750
3,000 Bank of New York Co., Inc. ............................... 120,000
----------
219,750
----------
Beverages, Food & Tobacco - 0.7%
1,600 Keebler Foods Co.*........................................ 45,000
----------
Building Materials - 4.1%
3,900 Home Depot, Inc. ......................................... 267,394
----------
Communications - 14.3%
3,600 American Tower Corp. - Class A*........................... 110,025
3,100 Associated Group, Inc. - Class B*......................... 285,200
1,200 Lucent Technologies, Inc. ................................ 89,775
1,700 Motorola, Inc. ........................................... 250,325
2,100 Nortel Networks Corp. .................................... 212,100
----------
947,425
----------
Computer Integrated Systems Design - 1.3%
1,100 Sun Microsystems, Inc.*................................... 85,181
----------
Computers & Information - 5.4%
3,300 Cisco Systems, Inc.*...................................... 353,513
----------
Cosmetics & Personal Care - 1.8%
1,100 Procter & Gamble Co. ..................................... 120,519
----------
Electric Utilities - 1.9%
3,400 Montana Power Co. ........................................ 122,613
----------
Electronics - 6.3%
2,100 Intel Corp. .............................................. 172,856
3,700 Maxim Integrated Products*................................ 174,594
700 Texas Instruments, Inc. .................................. 67,813
----------
415,263
----------
Entertainment & Leisure - 3.2%
1,100 AT&T - Liberty Media Group -
Class A*................................................. 62,425
2,000 Time Warner, Inc. ........................................ 144,875
----------
207,300
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
Heavy Machinery - 5.5%
700 Applied Materials, Inc.*................................ $ 88,681
4,200 United Technologies Corp. .............................. 273,000
----------
361,681
----------
Home Construction, Furnishings & Appliances - 5.0%
2,100 General Electric Co. ................................... 324,975
----------
Industrial - Diversified - 5.8%
9,800 Tyco International Ltd. ................................ 380,972
----------
Information Retrieval Services - 1.3%
1,100 America Online, Inc. ................................... 82,981
----------
Media - Broadcasting & Publishing - 6.9%
1,100 AMFM, Inc.*............................................. 86,075
3,300 Clear Channel Communications*........................... 294,525
900 MediaOne Group, Inc.*................................... 69,131
----------
449,731
----------
Medical Supplies - 1.0%
400 JDS Uniphase Corp.*..................................... 64,525
----------
Pharmaceuticals - 10.8%
1,700 American Home Products Corp. ........................... 67,044
2,950 Bristol-Myers Squibb Co. ............................... 189,353
1,300 Merck & Co., Inc. ...................................... 87,181
3,800 Pfizer, Inc. ........................................... 123,263
3,000 Warner-Lambert Co. ..................................... 245,813
----------
712,654
----------
Prepackaged Software - 5.7%
3,200 Microsoft Corp.*........................................ 373,600
----------
Retailers - 2.5%
1,800 Costco Wholesale Corp.*................................. 164,250
----------
Telephone Systems - 6.3%
500 Associated Group, Inc. - Class A*....................... 45,625
3,000 Bell Atlantic Corp. .................................... 184,688
3,450 MCI Worldcom, Inc.*..................................... 183,066
----------
413,379
----------
TOTAL INVESTMENTS - 96.5%
(Cost $5,441,204)...................................... 6,331,756
Other Assets and Liabilities
(net) - 3.5%........................................... 232,301
----------
TOTAL NET ASSETS - 100.0%............................... $6,564,057
==========
</TABLE>
Notes to the Portfolio of Investments:
*Non-income producing security.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Growth Equity Fund
Advised by: Goldman Sachs Asset Management
PORTFOLIO OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
COMMON STOCKS - 99.3%
Automotive - 0.8%
600 Ford Motor Co. ........................................... $ 32,063
300 General Motors Corp. ..................................... 21,806
----------
53,869
----------
Banking - 7.7%
800 Bank of America Corp. .................................... 40,150
400 Bank of New York Co., Inc. ............................... 16,000
1,700 Citigroup, Inc. .......................................... 94,456
1,200 Fannie Mae................................................ 74,925
1,600 Freddie Mac............................................... 75,300
2,700 MBNA Corp. ............................................... 73,575
1,200 State Street Corp. ....................................... 87,675
800 Wells Fargo Co. .......................................... 32,350
----------
494,431
----------
Beverages, Food & Tobacco - 4.1%
1,600 Coca-Cola Co. ............................................ 93,200
1,600 Pepsico, Inc. ............................................ 56,400
900 Philip Morris Companies, Inc. ............................ 20,869
2,100 Ralston-Ralston Purina Group.............................. 58,538
400 Wrigley (Wm.) Jr. Co. .................................... 33,175
----------
262,182
----------
Building Materials - 1.8%
900 Home Depot, Inc. ......................................... 61,706
600 Johnson & Johnson......................................... 55,875
----------
117,581
----------
Chemicals - 1.0%
200 Dow Chemical Co........................................... 26,725
600 Du Pont (E.I.) de Nemours................................. 39,525
----------
66,250
----------
Commercial Services - 1.7%
1,800 Cendant Corp.*............................................ 47,813
2,000 Service Corp. International............................... 13,875
1,100 Valassis Communications, Inc.*............................ 46,475
----------
108,163
----------
Communications - 6.3%
1,500 Crown Castle International Corp.*......................... 48,188
500 Echostar Communications Corp. -
Class A*................................................. 48,750
400 General Instrument Corp.*................................. 34,000
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
Communications (Continued)
1,200 Lucent Technologies, Inc.................................. $ 89,775
700 Nortel Networks Corp...................................... 70,700
640 Qualcomm, Inc.*........................................... 112,720
----------
404,133
----------
Computer Integrated Systems Design - 1.8%
1,500 Sun Microsystems, Inc.*................................... 116,156
----------
Computer Programming Services - 1.2%
100 Network Solutions, Inc.*.................................. 21,756
300 VeriSign, Inc.*........................................... 57,281
----------
79,037
----------
Computer Related Services - 0.8%
500 Checkfree Holdings Corp.*................................. 52,250
----------
Computer Software & Processing
- 0.4%
600 At Home Corp. - Series A*................................. 25,725
----------
Computers & Information - 6.4%
1,800 Cisco Systems, Inc.*...................................... 192,825
600 Dell Computer Corp.*...................................... 30,600
800 EMC Corp.*................................................ 87,400
900 International Business Machines Corp...................... 97,200
----------
408,025
----------
Cosmetics & Personal Care - 3.7%
1,400 Avon Products............................................. 46,200
1,900 Colgate-Palmolive Co...................................... 123,500
600 Procter & Gamble Co....................................... 65,738
----------
235,438
----------
Data Processing and Preparation - 1.7%
600 Automatic Data Processing................................. 32,325
1,600 First Data Corp........................................... 78,900
----------
111,225
----------
Electric Utilities - 1.8%
1,500 AES Corp.*................................................ 112,125
----------
Electronics - 3.1%
1,900 Intel Corp. .............................................. 156,394
400 Texas Instruments, Inc. .................................. 38,750
----------
195,144
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Growth Equity Fund
Advised by: Goldman Sachs Asset Management
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
COMMON STOCKS (Continued)
Entertainment & Leisure - 5.3%
2,600 AT&T - Liberty Media Group -
Class A*............................................... $ 147,550
600 Disney (Walt) Co. ...................................... 17,550
1,000 Harrah's Entertainment, Inc.*........................... 26,438
700 Hasbro, Inc. ........................................... 13,344
1,800 Time Warner, Inc. ...................................... 130,388
----------
335,270
----------
Financial Services - 0.4%
600 Schwab (Charles) Corp. ................................. 23,025
----------
Forest Products & Paper - 0.5%
300 International Paper Co. ................................ 16,931
200 Weyerhaeuser Co. ....................................... 14,363
----------
31,294
----------
Home Construction, Furnishings & Appliances - 4.4%
1,800 General Electric Co. ................................... 278,550
----------
Household Products - 0.2%
100 Corning, Inc. .......................................... 12,894
----------
Information Retrieval Services - 2.1%
1,200 America Online, Inc. ................................... 90,525
100 Yahoo, Inc.*............................................ 43,269
----------
133,794
----------
Insurance - 1.8%
300 AMBAC Financial Group, Inc. ............................ 15,656
600 American International Group............................ 64,875
400 Hartford Life, Inc. - Class A........................... 17,600
500 Nationwide Financial Services -
Class A................................................ 13,969
----------
112,100
----------
Lodging - 1.1%
1,100 Marriott International, Inc. - Class A.................. 34,719
1,400 Starwood Hotels & Resorts World......................... 32,900
----------
67,619
----------
Manufacturing - 0.6%
400 Minnesota Mining & Manufacturing Co..................... 39,150
----------
Media - Broadcasting & Publishing - 8.8%
700 AMFM, Inc.*............................................. 54,775
2,200 Belo (A.H.) Corp. - Series A............................ 41,938
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
Media - Broadcasting & Publishing (Continued)
500 Cablevision Systems Corp. -
Class A*................................................. $ 37,750
1,100 CBS Corp.*................................................ 70,331
600 Central Newspapers, Inc. - Class A........................ 23,625
300 Clear Channel Communications*............................. 26,775
1,200 Comcast Corp. - Class A................................... 60,675
500 Gannett Co., Inc. ........................................ 40,781
1,100 Infinity Broadasting Corp. - Class A*..................... 39,806
1,200 MediaOne Group, Inc.*..................................... 92,175
800 New York Times Co. - Class A.............................. 39,300
400 Tribune Co. .............................................. 22,025
1,000 Ziff Davis, Inc.*......................................... 15,813
----------
565,769
----------
Metals - 0.3%
200 Alcoa, Inc. .............................................. 16,600
----------
Oil & Gas - 6.3%
200 Atlantic Richfield Co. ................................... 17,300
300 Chevron Corp. ............................................ 25,988
300 Enron Corp. .............................................. 13,313
1,960 Exxon Mobil Corp. ........................................ 157,903
2,300 Nabisco Group Holdings Corp. ............................. 24,438
1,100 Royal Dutch Petroleum Co. ................................ 66,481
1,100 Schlumberger Ltd. ........................................ 61,875
300 Texaco, Inc. ............................................. 16,294
213 Transocean Sedco Forex, Inc. ............................. 7,174
300 Unocal Corp. ............................................. 10,069
----------
400,835
----------
Pharmaceuticals - 7.6%
1,600 American Home Products Corp. ............................. 63,100
400 Amgen, Inc.*.............................................. 24,025
1,800 Bristol-Myers Squibb Co. ................................. 115,538
500 Lilly (Eli) & Co. ........................................ 33,250
800 Merck & Co., Inc. ........................................ 53,650
2,300 Pfizer, Inc. ............................................. 74,606
900 Schering-Plough Corp. .................................... 37,969
1,100 Warner-Lambert Co. ....................................... 90,131
----------
492,269
----------
Prepackaged Software - 6.2%
2,600 Microsoft Corp.*.......................................... 303,543
800 Oracle Corp.*............................................. 89,650
----------
393,193
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Growth Equity Fund
Advised by: Goldman Sachs Asset Management
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
COMMON STOCKS (Continued)
Restaurants - 0.4%
600 McDonald's Corp. ......................................... $ 24,188
----------
Retailers - 4.1%
400 CVS Corp. ................................................ 15,975
400 Tandy Corp. .............................................. 19,675
2,000 Walgreen Co. ............................................. 58,500
2,400 Wal-Mart Stores, Inc. .................................... 165,900
----------
260,050
----------
Telephone Systems - 4.7%
1,100 GTE Corp. ................................................ 77,619
2,100 MCI Worldcom, Inc.*....................................... 111,431
1,800 SBC Communications, Inc. ................................. 87,750
200 Sprint Corp. (PCS Group)*................................. 20,500
----------
297,300
----------
Transportation - 0.2%
500 Galileo International, Inc. .............................. 14,969
----------
TOTAL INVESTMENTS - 99.3%
(Cost $5,335,431)........................................ 6,340,603
Other Assets and Liabilities
(net) - 0.7%............................................ 42,960
----------
TOTAL NET ASSETS - 100.0%................................. $6,383,563
==========
</TABLE>
Notes to the Portfolio of Investments:
*Non-income producing security.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Disciplined Equity Fund
Advised by: J.P. Morgan Investment Management Inc.
PORTFOLIO OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
COMMON STOCKS - 98.4%
Advertising - 0.2%
100 Doubleclick, Inc.* ....................................... $ 25,306
----------
Aerospace & Defense - 0.6%
100 Goodrich (B.F.) Co. ...................................... 2,750
1,200 Honeywell International, Inc.............................. 69,225
5 Teledyne Technologies, Inc.*.............................. 47
----------
72,022
----------
Airlines - 0.2%
200 AMR Corp.*................................................ 13,400
100 Northwest Airlines Corp.*................................. 2,225
700 Southwest Airlines........................................ 11,331
----------
26,956
----------
Apparel Retailers - 0.9%
200 Abercrombie & Fitch Co. - Class A*........................ 5,338
2,000 Gap, Inc. ................................................ 92,000
300 Nordstrom, Inc. .......................................... 7,856
----------
105,194
----------
Automotive - 1.7%
400 Dana Corp. ............................................... 11,975
1,400 Delphi Automotive Systems................................. 22,050
2,200 Ford Motor Co. ........................................... 117,563
400 Genuine Parts Co. ........................................ 9,925
400 Goodyear Tire & Rubber Co. ............................... 11,275
400 ITT Industries, Inc. ..................................... 13,375
200 Paccar, Inc. ............................................. 8,863
----------
195,026
----------
Banking - 8.5%
800 Amsouth Bancorporation.................................... 15,450
100 Associated Banc-Corp. .................................... 3,425
1,400 Associates First Capital Corp. -
Class A.................................................. 38,413
3,200 Bank of America Corp. .................................... 160,600
2,200 Bank One Corp. ........................................... 70,538
400 Charter One Financial, Inc. .............................. 7,650
1,000 Citigroup, Inc. .......................................... 55,563
300 Comerica, Inc. ........................................... 14,006
100 Commerce Bancshares, Inc. ................................ 3,388
300 Compass Bancshares, Inc. ................................. 6,694
500 C.I.T. Group, Inc. - Class A.............................. 10,563
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
Banking (Continued)
400 Dime Bancorp, Inc. ....................................... $ 6,050
800 Fannie Mae................................................ 49,950
100 Finova Group, Inc. ....................................... 3,550
300 First Tennessee National Corp. ........................... 8,550
2,200 First Union Corp. ........................................ 72,188
1,900 Firstar Corp. ............................................ 40,138
200 FirstMerit Corp. ......................................... 4,600
1,400 Fleet Boston Corp. ....................................... 48,738
1,400 Freddie Mac............................................... 65,888
300 Golden West Financial Corp. .............................. 10,050
200 Greenpoint Financial Corp. ............................... 4,763
400 Hibernia Corp. - Class A.................................. 4,250
900 Household International, Inc. ............................ 33,525
400 Huntington Bancshares..................................... 9,550
1,000 Keycorp .................................................. 22,125
200 Mercantile Bankshares Corp. .............................. 6,388
1,200 National City Corp. ...................................... 28,425
300 North Fork Bancorporation................................. 5,250
700 PNC Bank Corp. ........................................... 31,150
500 Regions Financial Corp. .................................. 12,563
300 Southtrust Corp. ......................................... 11,344
400 Summit Bancorp............................................ 12,250
200 TCF Financial Corp. ...................................... 4,975
300 Union Planters Corp. ..................................... 11,831
1,400 U.S. Bancorp.............................................. 33,338
1,300 Washington Mutual, Inc. .................................. 33,800
----------
961,519
----------
Beverages, Food & Tobacco - 4.1%
2,500 Coca-Cola Co. ............................................ 145,625
600 General Mills, Inc. ...................................... 21,450
700 Heinz (H.J.) Co. ......................................... 27,869
300 Hershey Foods Corp. ...................................... 14,250
4,000 Philip Morris Companies, Inc. ............................ 92,750
1,200 Safeway, Inc.*............................................ 42,675
2,000 Seagram Co. Ltd. ......................................... 89,875
600 Unilever N.V. ............................................ 32,663
----------
467,157
----------
Building Materials - 1.0%
1,500 Home Depot, Inc. ......................................... 102,844
100 Johnson & Johnson......................................... 9,313
100 USG Corp. ................................................ 4,713
----------
116,870
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
Disciplined Equity Fund
Advised by: J.P. Morgan Investment Management Inc.
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
COMMON STOCKS (Continued)
Chemicals - 1.7%
1,000 Air Products & Chemicals, Inc. ........................ $ 33,563
100 Dow Chemical Co. ...................................... 13,363
2,000 Monsanto Co. .......................................... 71,250
300 PPG Industries, Inc. .................................. 18,769
200 Praxair, Inc. ......................................... 10,063
600 Solutia, Inc. ......................................... 9,263
600 Union Carbide Corp. ................................... 40,050
-----------
196,321
-----------
Commercial Services - 1.1%
3,400 Cendant Corp.*......................................... 90,313
300 Equifax, Inc. ......................................... 7,069
700 Service Corp. International............................ 4,856
1,600 Waste Management, Inc. ................................ 27,500
-----------
129,738
-----------
Communications - 3.9%
4,100 Lucent Technologies, Inc. ............................. 306,731
900 Motorola, Inc. ........................................ 132,525
-----------
439,256
-----------
Computer Integrated Systems Design - 2.1%
200 3Com Corp.*............................................ 9,400
3,000 Sun Microsystems, Inc.*................................ 232,313
-----------
241,713
-----------
Computer Software & Processing - 0.4%
600 Electronic Data Systems Corp. ......................... 40,163
-----------
Computers & Information - 6.8%
4,100 Cisco Systems, Inc.*................................... 439,213
1,500 Compaq Computer Corp. ................................. 40,594
1,600 EMC Corp.*............................................. 174,800
700 International Business Machines Corp. ................. 75,600
200 Lexmark International Group, Inc. -Class A*............ 18,100
200 Quantum Corp. - DLT & Storage Systems*................. 3,025
300 Seagate Technology, Inc.*.............................. 13,969
-----------
765,301
-----------
Cosmetics & Personal Care - 2.5%
500 Clorox Co. ............................................ 25,188
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
Cosmetics & Personal Care (Continued)
1,600 Gillette Co. ............................................ $ 65,900
1,800 Procter & Gamble Co. .................................... 197,213
-----------
288,301
-----------
Data Processing and Preparation - 0.6%
700 Automatic Data Processing................................ 37,713
600 First Data Corp. ........................................ 29,588
-----------
67,301
-----------
Electric Utilities - 2.1%
300 Allegheny Energy, Inc. .................................. 8,081
700 Carolina Power & Light .................................. 21,306
1,200 Central & South West Corp. .............................. 24,000
400 Cinergy Corp. ........................................... 9,650
300 CMS Energy Corp. ........................................ 9,356
800 Dominion Resources, Inc. ................................ 31,400
300 DTE Energy Co. .......................................... 9,413
400 FPL Group, Inc. ......................................... 17,125
300 GPU, Inc. ............................................... 8,981
300 NiSource, Inc. .......................................... 5,363
800 Northern States Power Co. ............................... 15,600
900 PG&E Corp. .............................................. 18,450
200 Pinnacle West Capital Corp. ............................. 6,113
300 PP&L Resources, Inc. .................................... 6,863
200 Reliant Energy, Inc. .................................... 4,575
300 Teco Energy, Inc. ....................................... 5,569
700 Texas Utilities Co. ..................................... 24,894
300 Wisconsin Energy Corp. .................................. 5,775
-----------
232,514
-----------
Electrical Equipment - 0.1%
200 Emerson Electric Co. .................................... 11,475
-----------
Electronics - 4.8%
4,400 Intel Corp. ............................................. 362,175
300 National Semiconductor Corp.*............................ 12,844
900 Raytheon Co. - Class B................................... 23,906
1,500 Texas Instruments, Inc. ................................. 145,313
-----------
544,238
-----------
Entertainment & Leisure - 2.4%
2,500 AT&T - Liberty Media Group -
Class A*................................................ 141,875
1,000 Eastman Kodak Co. ....................................... 66,250
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
Disciplined Equity Fund
Advised by: J.P. Morgan Investment Management Inc.
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
COMMON STOCKS (Continued)
Entertainment & Leisure (Continued)
400 Hasbro, Inc. ............................................ $ 7,625
900 Mattel, Inc. ............................................ 11,813
1,800 Xerox Corp. ............................................. 40,838
-----------
268,401
-----------
Financial Services - 1.5%
300 Bear Stearns Companies, Inc. ............................ 12,825
200 Countrywide Credit IND, Inc. ............................ 5,050
600 Goldman Sachs Group, Inc. ............................... 56,513
800 Merrill Lynch & Co. ..................................... 66,800
300 Paine Webber Group, Inc. ................................ 11,644
800 TD Waterhouse Group*..................................... 13,150
-----------
165,982
-----------
Food Retailers - 0.5%
600 Albertson's, Inc. ....................................... 19,350
1,900 Kroger Co.*.............................................. 35,863
-----------
55,213
-----------
Forest Products & Paper - 0.8%
100 Bowater, Inc. ........................................... 5,431
600 Fort James Corp. ........................................ 16,425
200 Georgia-Pacific Group ................................... 10,150
100 International Paper Co. ................................. 5,644
400 Kimberly-Clark Corp. .................................... 26,100
600 Smurfit-Stone Container Corp.*........................... 14,700
100 Temple-Inland, Inc. ..................................... 6,594
-----------
85,044
-----------
Health Care Providers - 0.4%
1,000 Columbia HCA Healthcare Corp. ........................... 29,313
800 Tenet Healthcare Corp.*.................................. 18,800
-----------
48,113
-----------
Heavy Machinery - 1.3%
400 Applied Materials, Inc.*................................. 50,675
300 Caterpillar, Inc. ....................................... 14,119
100 Cooper Cameron Corp.*.................................... 4,894
600 Deere & Co. ............................................. 26,025
300 Grainger (W.W.), Inc. ................................... 14,344
500 Ingersoll-Rand Co. ...................................... 27,531
100 Smith International, Inc.*............................... 4,969
-----------
142,557
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
Home Construction, Furnishings
& Appliances - 4.3%
3,000 General Electric Co. .................................... $ 464,250
200 Lear Corp.*.............................................. 6,400
500 Leggett & Platt, Inc. ................................... 10,719
200 Miller (Herman), Inc. ................................... 4,600
-----------
485,969
-----------
Household Products - 0.3%
700 Rohm & Haas Co. ......................................... 28,481
5 Water Pik Technologies, Inc.*............................ 48
-----------
28,529
-----------
Industrial - Diversified - 1.2%
3,400 Tyco International Ltd. ................................. 132,175
-----------
Information Retrieval Services - 2.6%
3,300 America Online, Inc. .................................... 248,944
100 Yahoo, Inc.*............................................. 43,269
-----------
292,213
-----------
Insurance - 3.2%
200 Aetna, Inc. ............................................. 16,744
2,800 Allstate Corp. .......................................... 67,200
300 AMBAC Financial Group, Inc. ............................. 15,656
400 American International Group............................. 43,250
900 AON Corp. ............................................... 36,000
300 AXA Financial, Inc. ..................................... 10,163
300 Cigna Corp. ............................................. 24,169
800 Hartford Financial Services Group........................ 37,900
300 MBIA, Inc. .............................................. 15,844
400 Safeco Corp. ............................................ 9,950
700 St. Paul Cos. ........................................... 23,581
400 Torchmark Corp. ......................................... 11,625
200 Travelers Property Casualty Corp. -Class A............... 6,850
100 United Healthcare Corp. ................................. 5,313
900 UnumProvident Corp. ..................................... 28,856
200 Wellpoint Health Networks*............................... 13,188
-----------
366,289
-----------
Lodging - 0.3%
400 Hilton Hotels Corp. ..................................... 3,850
400 Mandalay Resort Group*................................... 8,050
900 Mirage Resorts, Inc.*.................................... 13,781
500 Starwood Hotels & Resorts World.......................... 11,750
-----------
37,431
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
Disciplined Equity Fund
Advised by: J.P. Morgan Investment Management Inc.
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
COMMON STOCKS (Continued)
Media - Broadcasting & Publishing - 3.0%
1,200 Comcast Corp. - Class A.................................. $ 60,675
1,000 Gannett Co., Inc. ....................................... 81,563
400 Knight Ridder, Inc. ..................................... 23,800
1,700 MediaOne Group, Inc.*.................................... 130,581
500 New York Times Co. - Class A............................. 24,563
300 Times Mirror Co. - Class A............................... 20,100
-----------
341,282
-----------
Medical Supplies - 0.8%
600 Becton Dickinson & Co. .................................. 16,050
600 Boston Scientific Corp.*................................. 13,125
200 Eaton Corp. ............................................. 14,525
700 Medtronics, Inc. ........................................ 25,506
100 PE Corp. - PE Biosystems Group........................... 12,031
200 St. Jude Medical, Inc.*.................................. 6,138
-----------
87,375
-----------
Metals - 1.2%
400 Alcoa, Inc. ............................................. 33,200
200 Allegheny Technologies, Inc. ............................ 4,488
300 Cooper Industries, Inc. ................................. 12,131
500 Freeport-McMoran Copper & Gold -Class B*................. 10,563
1,200 Lockheed Martin Corp. ................................... 26,250
500 Reynolds Metals Co. ..................................... 38,313
200 USX-U.S. Steel Group, Inc. .............................. 6,600
-----------
131,545
-----------
Oil & Gas - 5.4%
600 Chevron Corp. ........................................... 51,975
700 Conoco, Inc. - Class B................................... 17,413
300 Ensco International, Inc. ............................... 6,863
4,100 Exxon Mobil Corp. ....................................... 330,306
300 Global Marine, Inc.*..................................... 4,988
300 Phillips Petroleum Co. .................................. 14,100
2,800 Royal Dutch Petroleum Co. ............................... 169,225
400 R&B Falcon Corp.*........................................ 5,300
300 Tosco Corp. ............................................. 8,156
200 Ultramar Diamond Shamrock Corp. ......................... 4,538
300 Union Pacific Resources Group ........................... 3,825
-----------
616,689
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
Pharmaceuticals - 7.1%
1,500 Abbott Laboratories...................................... $ 54,469
2,300 American Home Products Corp. ............................ 90,706
3,100 Bristol-Myers Squibb Co. ................................ 198,981
800 Forest Laboratories - Class A*........................... 49,150
500 Genzyme Corp.*........................................... 22,500
1,900 Lilly (Eli) & Co. ....................................... 126,350
700 Merck & Co., Inc. ....................................... 46,944
400 Pfizer, Inc. ............................................ 12,975
2,000 Schering-Plough Corp. ................................... 84,375
1,400 Warner-Lambert Co. ...................................... 114,713
100 Watson Pharmaceutical, Inc.*............................. 3,581
-----------
804,744
-----------
Prepackaged Software - 6.7%
200 Adobe Systems, Inc. ..................................... 13,450
400 BMC Software, Inc.*...................................... 31,975
100 Citrix Systems, Inc.*.................................... 12,300
5,700 Microsoft Corp.*......................................... 665,444
200 Network Associates, Inc.*................................ 5,338
500 Novell, Inc.*............................................ 19,969
100 Oracle Corp.*............................................ 11,206
-----------
759,682
-----------
Retailers - 4.0%
300 CVS Corp. ............................................... 11,981
1,000 Dayton-Hudson Corp. ..................................... 73,438
500 Federated Department Stores*............................. 25,281
1,200 K Mart Corp.*............................................ 12,075
800 MAY Department Stores Co. ............................... 25,800
300 Penney (J.C.) Co., Inc. ................................. 5,981
400 Sears, Roebuck & Co. .................................... 12,175
900 TJX Companies, Inc. ..................................... 18,394
3,800 Wal-Mart Stores, Inc. ................................... 262,675
-----------
447,800
-----------
Telephone Systems - 7.3%
1,700 AT&T Corp. .............................................. 86,275
900 Bell Atlantic Corp. ..................................... 55,406
200 Exodus Communications, Inc.*............................. 17,763
1,000 Global Crossing Ltd.*.................................... 50,000
1,500 GTE Corp. ............................................... 105,844
500 Level 3 Communications, Inc.*............................ 40,938
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
Disciplined Equity Fund
Advised by: J.P. Morgan Investment Management Inc.
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
COMMON STOCKS (Continued)
Telephone Systems (Continued)
4,200 MCI Worldcom, Inc.*...................................... $ 222,863
5,000 SBC Communications, Inc. ................................ 243,750
-----------
822,839
-----------
Textiles, Clothing & Fabrics - 0.4%
300 Jones Apparel Group, Inc.*............................... 8,138
1,800 Sara Lee Corp. .......................................... 39,713
-----------
47,851
-----------
Transportation - 0.4%
600 Burlington Northern Santa Fe Co. ........................ 14,550
300 CSX Corp. ............................................... 9,413
500 Norfolk Southern Corp. .................................. 10,250
300 Union Pacific Corp. ..................................... 13,088
-----------
47,301
-----------
TOTAL INVESTMENTS - 98.4%
(Cost $10,110,698)...................................... 11,141,395
Other Assets and Liabilities - 1.6%...................... 175,668
-----------
TOTAL NET ASSETS - 100.0%................................ $11,317,063
===========
</TABLE>
Notes to Portfolio of Investments
*Non-income producing security.
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
Value Equity Fund
Advised by: Salomon Brothers Asset Management Inc
PORTFOLIO OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
COMMON STOCKS - 92.6%
Aerospace & Defense - 1.7%
1,600 Honeywell International, Inc. ......................... $ 92,300
-----------
Banking - 11.8%
500 American Express Co. .................................. 83,125
1,700 Associates First Capital Corp. -
Class A............................................... 46,644
3,200 Bank of New York Co., Inc. ............................ 128,000
1,300 Chase Manhattan Corp. ................................. 100,994
1,800 Comerica, Inc. ........................................ 84,038
2,300 Fleet Boston Corp. .................................... 80,069
1,300 Freddie Mac............................................ 61,181
1,900 Household International, Inc. ......................... 70,775
-----------
654,826
-----------
Beverages, Food & Tobacco - 9.2%
2,300 Coca-Cola Enterprises.................................. 46,288
5,600 Pepsi Bottling Group, Inc. ............................ 92,750
2,800 Philip Morris Companies, Inc. ......................... 64,925
3,600 Ralston-Ralston Purina Group........................... 100,350
1,400 RJ Reynolds Tobacco Holdings, Inc. .................... 24,675
3,100 Safeway, Inc.*......................................... 110,244
4,500 Tyson Foods, Inc. - Class A............................ 73,125
-----------
512,357
-----------
Building Materials - 0.5%
700 Vulcan Materials Co. .................................. 27,956
-----------
Communications - 2.8%
2,700 Alcatel SA - ADR....................................... 121,500
600 Panamsat Corp.*........................................ 35,625
-----------
157,125
-----------
Computer Integrated Systems Design - 1.4%
1,600 3Com Corp.*............................................ 75,200
-----------
Computers & Information - 6.0%
1,000 Hewlett-Packard Co. ................................... 113,938
1,000 International Business Machines Corp. ................. 108,000
2,400 Seagate Technology, Inc.*.............................. 111,750
-----------
333,688
-----------
Electronics - 1.8%
300 General Motors Corp. - Class H*........................ 28,800
900 Intel Corp. ........................................... 74,081
-----------
102,881
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
Entertainment & Leisure - 4.2%
1,700 AT&T - Liberty Media Group -
Class A*................................................ $ 96,475
4,100 News Corp. Ltd. - ADR.................................... 137,094
-----------
233,569
-----------
Financial Services - 4.1%
900 Goldman Sachs Group, Inc. ............................... 84,769
1,000 Morgan Stanley Dean Witter & Co. ........................ 142,743
-----------
227,512
-----------
Food Retailers - 0.9%
600 Delhaize America, Inc. - Class A......................... 12,188
1,700 Delhaize America, Inc. - Class B......................... 35,488
-----------
47,676
-----------
Forest Products & Paper - 1.9%
1,900 International Paper Co. ................................. 107,231
-----------
Heavy Machinery - 1.4%
1,400 Ingersoll-Rand Co. ...................................... 77,088
-----------
Household Products - 1.6%
700 Corning, Inc. ........................................... 90,256
-----------
Industrial - Diversified - 1.1%
1,600 Tyco International Ltd. ................................. 62,200
-----------
Insurance - 2.2%
800 American General Corp. .................................. 60,700
1,900 UnumProvident Corp. ..................................... 60,919
-----------
121,619
-----------
Media - Broadcasting & Publishing - 1.0%
900 Viacom, Inc.*............................................ 54,394
-----------
Medical Supplies - 1.2%
2,400 Becton Dickinson & Co. .................................. 64,200
-----------
Metals - 1.6%
1,100 Alcoa, Inc. ............................................. 91,300
-----------
Oil & Gas - 13.5%
1,000 Amerada Hess Corp. ...................................... 56,750
800 Atlantic Richfield Co. .................................. 69,200
2,400 Burlington Resources, Inc. .............................. 79,350
1,400 Coastal Corp. ........................................... 49,613
3,300 Conoco, Inc. - Class A................................... 81,675
7,800 Nabisco Group Holdings Corp. ............................ 82,875
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
Value Equity Fund
Advised by: Salomon Brothers Asset Management Inc
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C>
COMMON STOCKS (Continued)
Oil & Gas (Continued)
1,400 Royal Dutch Petroleum Co. ............................... $ 84,613
1,500 Total Fina SA - ADR...................................... 103,875
1,600 Unocal Corp. ............................................ 53,700
2,000 USX-Marathon Group, Inc. ................................ 49,375
1,400 Williams Cos., Inc. ..................................... 42,788
-----------
753,814
-----------
Pharmaceuticals - 6.6%
1,500 Abbott Laboratories...................................... 54,469
1,300 American Home Products Corp. ............................ 51,269
1,400 Lilly (Eli) & Co. ....................................... 93,100
1,200 Merck & Co., Inc. ....................................... 80,475
2,000 Pharmacia & Upjohn, Inc. ................................ 90,000
-----------
369,313
-----------
Prepackaged Software - 1.3%
1,900 Compuware Corp.*......................................... 70,775
-----------
Retailers - 4.8%
900 Costco Wholesale Corp.*.................................. 82,125
1,200 Dayton-Hudson Corp. ..................................... 88,125
1,900 Federated Department Stores*............................. 96,069
-----------
266,319
-----------
Telephone Systems - 7.2%
1,800 Bell Atlantic Corp. ..................................... 110,813
1,500 GTE Corp. ............................................... 105,844
1,650 MCI Worldcom, Inc.*...................................... 87,553
2,000 SBC Communications, Inc. ................................ 97,500
-----------
401,710
-----------
Transportation - 2.8%
2,400 Canadian National Railway Co. ........................... 63,150
2,100 Canadian Pacific Ltd. ................................... 45,281
800 Union Pacific Corp. ..................................... 34,900
200 United Parcel Service, Inc. - Class B.................... 13,800
-----------
157,131
-----------
TOTAL COMMON STOCKS
(Cost $4,843,462)....................................... $ 5,152,440
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Par Value (Note 1)
--------- -----------
<C> <S> <C>
DEBT OBLIGATIONS - 0.5%
Corporate Debt - 0.5%
$25,000 NTL, Inc., 5.75%, due 12/15/2009 144A.................. $ 26,875
-----------
TOTAL DEBT OBLIGATIONS
(Cost $25,000)........................................ $ 26,875
-----------
<CAPTION>
Number of
Contracts
---------
<C> <S> <C>
PUT OPTIONS PURCHASED - 0.1%
Options on Equities - 0.1%
500 American Express Co.,
Expires 1/22/00, Strike 150........................... $ 563
1,000 Tyco International Ltd.,
Expires 1/22/00, Strike 40............................ 2,875
600 Tyco International Ltd.,
Expires 1/22/00, Strike 42.5.......................... 2,700
-----------
TOTAL PUT OPTIONS PURCHASED
(Cost $9,772)......................................... 6,138
-----------
TOTAL INVESTMENTS - 93.2%
(Cost $4,878,234)..................................... 5,185,453
Other Assets and Liabilities
(net) - 6.8%.......................................... 380,795
-----------
TOTAL NET ASSETS - 100.0%.............................. $ 5,566,248
===========
</TABLE>
Notes to the Portfolio of Investments:
*Non-income producing security.
ADR - American Depository Receipt
144A - Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
Balanced Fund
Advised by: OpCap Advisors
PORTFOLIO OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ----------
<C> <S> <C>
COMMON STOCKS - 53.0%
Airlines - 1.0%
800 AMR Corp.*................................................ $ 53,600
----------
Banking - 13.6%
8,500 Fleet Boston Corp. ....................................... 295,906
6,300 Freddie Mac............................................... 296,494
2,100 Household International, Inc. ............................ 78,225
1,100 Wells Fargo Co. .......................................... 44,481
----------
715,106
----------
Commercial Services - 2.1%
6,500 Waste Management, Inc. ................................... 111,719
----------
Communications - 1.8%
1,400 Ericsson (LM) Telephone - ADR............................. 91,963
----------
Electronics - 0.6%
2,100 General Semiconductor, Inc.*.............................. 29,794
----------
Food Retailers - 6.6%
18,400 Kroger Co.*............................................... 347,300
----------
Heavy Machinery - 1.1%
1,200 Caterpillar, Inc. ........................................ 56,475
----------
Insurance - 3.8%
1,100 Aetna, Inc. .............................................. 61,394
3,500 Conseco, Inc. ............................................ 62,563
1,500 XL Capital Ltd. - Class A................................. 77,813
----------
201,770
----------
Metals - 1.4%
3,400 Freeport-McMoran Copper & Gold -Class B*.................. 71,825
----------
Pharmaceuticals - 5.9%
6,400 American Home Products Corp. ............................. 252,400
1,200 Cardinal Health, Inc. .................................... 57,450
----------
309,850
----------
Prepackaged Software - 4.8%
3,600 Computer Associates
International, Inc. ..................................... 251,775
----------
Retailers - 2.8%
3,700 CVS Corp. ................................................ 147,769
----------
Telephone Systems - 6.1%
3,700 Bell Atlantic Corp. ...................................... 227,781
1,400 Sprint Corp. (FON Group).................................. 94,238
----------
322,019
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ ------------
<C> <S> <C>
Transportation - 1.4%
3,300 Canadian Pacific Ltd. ............................... $ 71,156
------------
TOTAL COMMON STOCKS
(Cost $2,726,059)................................... $ 2,782,121
------------
DEBT OBLIGATIONS - 33.4%
Corporate Debt - 15.2%
225,000 Conseco Finance Trust III,
8.796%, due 04/01/2027.............................. $ 204,336
200,000 Delta Air Lines,
7.70%, due 12/15/2005 144A.......................... 196,695
200,000 Electronic Data Systems Corp., 6.85%, due
12/15/2004.......................................... 197,565
200,000 Textron Financial Corp.,
7.125%, due 12/09/2004.............................. 197,592
------------
796,188
------------
U.S. Government - 18.2%
1,023,100 U.S. Treasury Inflation Indexed Note, 3.875%, due
4/15/2029........................................... 955,317
------------
TOTAL DEBT OBLIGATIONS
(Cost $1,783,946)................................... 1,751,505
------------
TOTAL INVESTMENTS - 86.4%
(Cost $4,510,005)................................... 4,533,626
Other Assets and Liabilities
(net) - 13.6%....................................... 714,571
------------
TOTAL NET ASSETS - 100.0%............................ $ 5,248,198
============
</TABLE>
Notes to the Portfolio of Investments:
*Non-income producing security.
ADR - American Depository Receipt
144A - Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
LSA Variable Series Trust
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
Emerging Focused Growth Disciplined Value
Growth Equity Equity Equity Equity Equity Balanced
Fund Fund Fund Fund Fund Fund
------------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments, at value
(Note 1)*............. $8,691,634 $6,331,756 $6,340,603 $11,141,395 $5,185,453 $4,533,626
Cash................... 446,046 250,825 43,026 180,962 384,949 712,610
Receivable from:
Securities sold...... -- -- 25,228 -- 10,164 --
Dividends and
interest............ 1,052 2,823 4,951 15,148 9,581 23,952
Manager (Note 2)..... 10,827 11,409 11,380 10,097 11,533 11,585
Prepaid insurance...... 3,052 3,052 3,052 3,052 3,052 3,052
---------- ---------- ---------- ----------- ---------- ----------
Total assets....... 9,152,611 6,599,865 6,428,240 11,350,654 5,604,732 5,284,825
---------- ---------- ---------- ----------- ---------- ----------
Liabilities:
Payable for:
Securities
purchased........... -- -- 8,766 -- -- --
Capital stock
redemptions......... 15 21 15 6 8 3
Written options
outstanding, at
value (Notes 1 and
5).................. -- -- -- -- 3,475 --
Accrued expenses:
Management fees (Note
2).................. 7,242 4,710 4,298 6,998 3,637 3,497
Other................ 26,536 31,077 31,598 26,587 31,364 33,127
---------- ---------- ---------- ----------- ---------- ----------
Total liabilities.. 33,793 35,808 44,677 33,591 38,484 36,627
---------- ---------- ---------- ----------- ---------- ----------
Net assets.............. $9,118,818 $6,564,057 $6,383,563 $11,317,063 $5,566,248 $5,248,198
========== ========== ========== =========== ========== ==========
Net assets consist of:
Paid-in capital........ $5,363,381 $5,520,584 $5,336,979 $10,187,396 $5,193,434 $5,106,912
Undistributed net
investment income..... -- -- -- 434 44 165
Accumulated net
realized gain on
investments and
written options....... 447,828 152,921 41,412 98,536 59,833 117,500
Net unrealized
appreciation on
investments and
written options....... 3,307,609 890,552 1,005,172 1,030,697 312,937 23,621
---------- ---------- ---------- ----------- ---------- ----------
Net assets.............. $9,118,818 $6,564,057 $6,383,563 $11,317,063 $5,566,248 $5,248,198
========== ========== ========== =========== ========== ==========
Shares outstanding...... 521,431 544,049 529,023 1,016,900 518,427 510,500
========== ========== ========== =========== ========== ==========
Net asset value,
offering price and
redemption price per
share.................. $ 17.49 $ 12.07 $ 12.07 $ 11.13 $ 10.74 $ 10.28
========== ========== ========== =========== ========== ==========
* Cost of investments.. $5,384,025 $5,441,204 $5,335,431 $10,110,698 $4,878,234 $4,510,005
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
LSA Variable Series Trust
STATEMENTS OF OPERATIONS
For the Period From October 1, 1999 (commencement of operations) through
December 31, 1999
<TABLE>
<CAPTION>
Emerging Focused Growth Disciplined Value
Growth Equity Equity Equity Equity Equity Balanced
Fund Fund Fund Fund Fund Fund
------------- ---------- ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest............... $ 5,227 $ 4,490 $ 4,395 $ 6,760 $ 6,275 $ 35,387
Dividends.............. 56 7,618 10,801 35,429 16,353 8,514
---------- ---------- ---------- ---------- -------- --------
Total investment
income............ 5,283 12,108 15,196 42,189 22,628 43,901
---------- ---------- ---------- ---------- -------- --------
Expenses:
Investment management
fee (Note 2).......... 17,635 12,934 11,766 19,857 10,401 10,297
Custody and
administration fees... 22,310 22,310 22,310 22,310 22,310 22,310
Audit fees............. 14,343 14,343 14,343 14,343 14,343 14,343
Legal fees............. 4,451 4,451 4,451 4,451 4,451 4,451
Trustees' fees......... 3,750 3,750 3,750 3,750 3,750 3,750
Printing fees.......... 1,978 1,978 1,978 1,978 1,978 1,978
Insurance.............. 1,081 1,081 1,081 1,081 1,081 1,081
Other.................. 935 935 935 935 935 935
---------- ---------- ---------- ---------- -------- --------
Total expenses..... 66,483 61,782 60,614 68,705 59,249 59,145
Less: Expenses
waived/reimbursed
by the Manager
(Note 2)............ (43,809) (44,763) (44,695) (40,905) (44,947) (44,987)
---------- ---------- ---------- ---------- -------- --------
Net operating
expenses.............. 22,674 17,019 15,919 27,800 14,302 14,158
---------- ---------- ---------- ---------- -------- --------
Net investment income
(loss)................. (17,391) (4,911) (723) 14,389 8,326 29,743
---------- ---------- ---------- ---------- -------- --------
Realized and unrealized
gain (loss):
Net realized gain
(loss) on:
Investment
transactions........ 465,219 157,832 47,116 128,268 57,403 118,122
Written options...... -- -- -- -- 2,430 --
---------- ---------- ---------- ---------- -------- --------
Net realized gain.... 465,219 157,832 47,116 128,268 59,833 118,122
---------- ---------- ---------- ---------- -------- --------
Net change in
unrealized
appreciation
(depreciation) on:
Investments.......... 3,307,609 890,552 1,005,172 1,030,697 307,219 23,621
Written options...... -- -- -- -- 5,718 --
---------- ---------- ---------- ---------- -------- --------
Net change in
unrealized
appreciation
(depreciation).... 3,307,609 890,552 1,005,172 1,030,697 312,937 23,621
---------- ---------- ---------- ---------- -------- --------
Net realized and
unrealized gain........ 3,772,828 1,048,384 1,052,288 1,158,965 372,770 141,743
---------- ---------- ---------- ---------- -------- --------
Net increase in net
assets resulting from
operations............. $3,755,437 $1,043,473 $1,051,565 $1,173,354 $381,096 $171,486
========== ========== ========== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
LSA Variable Series Trust
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Emerging
Growth Focused Growth Disciplined Value
Equity Equity Equity Equity Equity Balanced
Fund Fund Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------ ------------
Period Ended Period Ended Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999(a) 1999(a) 1999(a) 1999(a) 1999(a) 1999(a)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets from:
Operations:
Net investment income
(loss)................ $ (17,391) $ (4,911) $ (723) $ 14,389 $ 8,326 $ 29,743
Net realized gain
(loss)................ 465,219 157,832 47,116 128,268 59,833 118,122
Net change in
unrealized
appreciation
(depreciation)........ 3,307,609 890,552 1,005,172 1,030,697 312,937 23,621
---------- ---------- ---------- ----------- ---------- ----------
Net increase in net
assets resulting from
operations............ 3,755,437 1,043,473 1,051,565 1,173,354 381,096 171,486
---------- ---------- ---------- ----------- ---------- ----------
Distributions to
shareholders:
From net investment
income................ -- -- -- (13,955) (8,282) (29,578)
From net realized
capital gains......... -- -- (4,981) (29,732) -- (622)
---------- ---------- ---------- ----------- ---------- ----------
Total distributions
to shareholders..... -- -- (4,981) (43,687) (8,282) (30,200)
---------- ---------- ---------- ----------- ---------- ----------
Fund share transactions
(Note 4):
Proceeds from shares
sold.................. 5,363,475 5,520,713 5,332,263 10,143,759 5,185,333 5,076,740
Net asset value of
shares issued on
reinvestment of
distributions......... -- -- 4,981 43,687 8,282 30,200
Cost of shares
repurchased........... (94) (129) (265) (50) (181) (28)
---------- ---------- ---------- ----------- ---------- ----------
Net increase in net
assets resulting from
Fund share
transactions.......... 5,363,381 5,520,584 5,336,979 10,187,396 5,193,434 5,106,912
---------- ---------- ---------- ----------- ---------- ----------
Total change in net
assets................. 9,118,818 6,564,057 6,383,563 11,317,063 5,566,248 5,248,198
Net assets:
Beginning of period.... -- -- -- -- -- --
---------- ---------- ---------- ----------- ---------- ----------
End of period*......... $9,118,818 $6,564,057 $6,383,563 $11,317,063 $5,566,248 $5,248,198
---------- ---------- ---------- ----------- ---------- ----------
* Including
undistributed net
investment income
of:.................. $ -- $ -- $ -- $ 434 $ 44 $ 165
</TABLE>
(a) Fund commenced operations on October 1, 1999.
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
LSA Variable Series Trust
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Emerging
Growth Focused Growth Disciplined Value
Equity Equity Equity Equity Equity Balanced
Fund Fund Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------ ------------
Period Ended Period Ended Period Ended Period Ended Period Ended Period Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999(a) 1999(a) 1999(a) 1999(a) 1999(a) 1999(a)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $10.00 $10.00 $10.00 $ 10.00 $10.00 $10.00
------ ------ ------ ------- ------ ------
Income from investment
operations:
Net investment income
(loss)................ (0.03) (0.01) (0.00)(b) 0.01 0.02 0.06
Net realized and
unrealized gain
(loss)................ 7.52 2.08 2.08 1.16 0.74 0.28
------ ------ ------ ------- ------ ------
Total from investment
operations.......... 7.49 2.07 2.08 1.17 0.76 0.34
------ ------ ------ ------- ------ ------
Less distributions to
shareholders:
From net investment
income................ -- -- -- (0.01) (0.02) (0.06)
From net realized
capital gains......... -- -- (0.01) (0.03) -- (0.00)(c)
------ ------ ------ ------- ------ ------
Total distributions.. -- -- (0.01) (0.04) (0.02) (0.06)
------ ------ ------ ------- ------ ------
Net asset value, end of
period................. $17.49 $12.07 $12.07 $ 11.13 $10.74 $10.28
====== ====== ====== ======= ====== ======
Total Return*........... 74.90% 20.70% 20.80% 11.73% 7.56% 3.40%
Ratios/Supplemental
Data:
Net assets, end of
period (000's)........ $9,119 $6,564 $6,384 $11,317 $5,566 $5,248
Net expenses to
average daily net
assets**.............. 1.35% 1.25% 1.15% 1.05% 1.10% 1.10%
Net investment income
(loss) to average
daily net assets**.... (1.04)% (.36)% (.05)% 0.54% 0.64% 2.31%
Portfolio turnover
rate.................. 47% 26% 13% 17% 18% 35%
Without the
waiver/reimbursement
of expenses by the
Manager, the ratio of
net expenses and net
investment income
(loss) to average net
assets would have
been:
Expenses**........... 3.96% 4.54% 4.38% 2.59% 4.56% 4.60%
Net investment income
(loss)**............ (3.65)% (3.65)% (3.28)% (1.00)% (2.82)% (1.19)%
</TABLE>
(a) Fund commenced operations on October 1, 1999.
(b) Net investment loss was less than $0.01 per share.
(c) Distributions from net realized capital gains were less than $0.01 per
share.
* Not annualized.
** Annualized.
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
LSA Variable Series Trust
NOTES TO FINANCIAL STATEMENTS
LSA Variable Series Trust (the "Trust") was formed as a Delaware business
trust on March 2, 1999 and is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment
company. The Trust consists of six portfolios: the Emerging Growth Equity
Fund, the Focused Equity Fund, the Growth Equity Fund, the Disciplined Equity
Fund, the Value Equity Fund, and the Balanced Fund (each referred to as a
"Fund" and together as the "Funds"). Shares of the Funds are sold exclusively
to insurance company separate accounts as a funding vehicle for variable life
and/or variable annuity contracts. Each of the Funds commenced operations on
October 1, 1999.
The Emerging Growth Equity Fund's investment objective is capital appreciation
by investing in smaller (usually companies with a market capitalization of
$1.5 billion or less), rapidly growing emerging companies. The Focused Equity
Fund seeks to provide capital appreciation by investing primarily in equity
securities. The Growth Equity Fund seeks long-term growth of capital by
investing in a portfolio of equity securities (mainly common stocks). The
Disciplined Equity Fund seeks to provide a consistently high total return from
a broad portfolio of equity securities with risk characteristics similar to
the Standard & Poor's 500 (S&P 500) Composite Stock Price Index. The Value
Equity Fund seeks to provide long-term growth of capital by investing
primarily in common stocks of established U.S. companies. Current income is a
secondary objective of the Value Equity Fund. The Balanced Fund seeks to
provide a combination of growth of capital and investment income by investing
in a mix of debt and equity securities. Growth of capital is the Balanced
Fund's primary objective.
1. Significant Accounting Policies
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
The following is a summary of significant accounting policies for the Funds.
Such policies are in conformity with generally accepted accounting principles
for investment companies and are consistently followed by the Funds in the
preparation of the financial statements.
Portfolio Valuation
Equity securities are valued at the last sales price reported on principal
securities exchanges (domestic or foreign). If no sale took place on such day,
then such securities are valued at the mean between the bid and asked prices.
Debt securities (other than short-term obligations) are valued on the basis of
valuations furnished by an unaffiliated pricing service which determines
valuations for normal institutional size trading units of debt securities.
Short-term debt securities with a maturity of less than 60 days when purchased
are valued at amortized cost, which approximates market value, and the
interest payable at maturity is accrued as income, on a daily basis, over the
remaining life of the instrument. Neither the amount of daily income nor the
net asset value is affected by unrealized appreciation or depreciation of the
Fund's investments assuming the instrument's obligation is paid in full on
maturity. Short-term debt securities with a maturity of more than 60 days when
purchased are valued based on market quotations until the remaining days to
maturity become less than 61 days, from which time the investments are valued
at amortized cost. Options are valued at the last sales price; if no sales
took place on such day, then options are valued at the mean between the bid
and asked prices. Unlisted securities and securities for which market
quotations are not readily available and all other assets are valued in good
faith at fair value by, or under guidelines established by, the Funds' Board
of Trustees.
Foreign Currency Translation
The accounting records of the Funds are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign currencies
are translated at prevailing exchange rates when accrued or incurred. The Fund
does not isolate realized and unrealized gains and losses attributable to
changes in exchange rates from gains and losses that arise from changes in the
market value of
21
<PAGE>
LSA Variable Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
investments. Such fluctuations are included with net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign currencies
and forward foreign exchange contracts, currency gains and losses realized
between the trade and settlement dates on securities transactions, and the
difference between the amount of investment income and foreign withholding
taxes recorded on the Funds' books and the U.S. dollar equivalent amounts
actually received or paid.
Options
Each Fund may write call and put options on futures, securities or currencies
it owns or in which it may invest. Writing put options tends to increase a
Fund's exposure to the underlying instrument. Writing call options tends to
decrease a Fund's exposure to the underlying instrument. When a Fund writes a
call or put option, an amount equal to the premium received is recorded as a
liability and subsequently marked to market to reflect the current value of
the option written. Premiums received from writing options which expire are
treated as realized gains. Premiums received from writing options which are
exercised or closed are added to the proceeds or offset against the amounts
paid on the transaction to determine the realized gain or loss. A Fund as a
writer of an option has no control over whether the underlying securities may
be sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
There is the risk a Fund may not be able to enter into a closing transaction
because of an illiquid market. See Note 5 for a summary of open written option
contracts as of December 31, 1999.
Each Fund may also purchase put and call options. Purchasing call options
tends to increase a Fund's exposure to the underlying instrument. Purchasing
put options tends to decrease a Fund's exposure to the underlying instrument.
A Fund pays a premium which is included in the Fund's Statement of Assets and
Liabilities as an investment and subsequently marked to market to reflect the
current value of the option. Premiums paid from purchasing options which
expire are treated as realized losses. Premiums paid from purchasing options
which are exercised or closed are added to the amounts paid or offset against
the proceeds on the transaction to determine the realized gain or loss. The
risk associated with purchasing put and call options is limited to the premium
paid.
Securities Transactions, Investment Income and Expenses
Securities transactions are recorded as of the trade date. Realized gains or
losses from securities sold are recorded on the identified cost basis.
Interest income is recorded on the accrual basis and consists of interest
accrued and, if applicable, discount earned less premiums amortized. Interest
income on U.S. Treasury inflation indexed securities is accrued daily based
upon the inflation adjusted principal. Additionally, any increase in the
principal or face amount of the securities adjusted for inflation is recorded
as interest income. Dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
a Fund is informed of the ex-dividend date. The majority of expenses of the
Trust can be directly attributed to an individual Fund. Expenses which cannot
be directly attributed are allocated taking into consideration, among other
things, the nature and type of expense and the relative net assets of the
Funds.
Dividends and Distributions to Shareholders
Each Fund intends to distribute substantially all of its income and capital
gains each year. All dividend and capital gain distributions will
automatically be reinvested in additional shares of the Funds. Distributions
are recorded on the ex-dividend date.
Federal Income Taxes
Each Fund intends to elect to be treated, and intends to qualify for each
taxable year, as a separate "regulated investment company" under Subchapter M
of the Internal Revenue Code (the "Code"). As such, and by
22
<PAGE>
LSA Variable Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
complying with the applicable provisions of the Code regarding the sources of
its income, the timing of its distributions, and the diversification of its
assets, each Fund will not be subject to federal income tax on taxable income
(including net realized capital gains) which is distributed to shareholders in
accordance with the timing and other requirements of the Code. Therefore, no
provision for federal income or excise tax is necessary.
Income dividends and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for net operating losses. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Funds' financial statements
as a return of capital. Differences in the recognition of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of net
investment income or accumulated net realized gains.
2. Management fees and other transactions with affiliates
LSA Asset Management LLC (the "Manager") serves as investment manager to the
Funds pursuant to an Investment Management Agreement with the Trust. LSA Asset
Management LLC is a wholly owned subsidiary of Allstate Life Insurance
Company, which is wholly owned by Allstate Insurance Company, a wholly owned
subsidiary of The Allstate Corporation. The Manager is entitled to receive
from each Fund a management fee, payable monthly, at an annual rate as a
percentage of average daily net assets of each Fund as set forth in the table
below.
<TABLE>
<CAPTION>
Fund Management Fees
---------------------------------------------------------- ---------------
<S> <C>
Emerging Growth Equity Fund............................... 1.05%
Focused Equity Fund....................................... 0.95%
Growth Equity Fund........................................ 0.85%
Disciplined Equity Fund................................... 0.75%
Value Equity Fund......................................... 0.80%
Balanced Fund............................................. 0.80%
</TABLE>
The Manager has entered into an advisory agreement for each Fund pursuant to
which the Manager has appointed an Adviser to carry out the day-to-day
investment and reinvestment of the assets of the relevant Fund. The fees of
the Advisers are paid by the Manager. The following table lists the Adviser of
each Fund.
<TABLE>
<CAPTION>
Fund Adviser
----------------------------------- --------------------------------------
<S> <C>
Emerging Growth Equity Fund........ RS Investment Management, L.P.
Focused Equity Fund................ Morgan Stanley Asset Management
Growth Equity Fund................. Goldman Sachs Asset Management
Disciplined Equity Fund............ J.P. Morgan Investment Management Inc.
Value Equity Fund.................. Salomon Brothers Asset Management Inc
Balanced Fund...................... OpCap Advisors
</TABLE>
The Manager has currently agreed to reduce its fees or reimburse the Funds for
expenses above certain limits. Currently this limit is set so that no Fund
will incur expenses (not including interest, taxes, or brokerage commissions)
that exceed the amount of its management fee plus .30% of its assets. The
Manager is contractually obligated to continue this arrangement through
October 1, 2000.
The Funds pay no salaries or compensation to any officer or Trustee affiliated
with the Manager. The compensation of unaffiliated Trustees is borne by the
Funds.
At December 31, 1999, separate accounts of Allstate Life and its subsidiaries
owned 100% of the outstanding shares of the Funds.
23
<PAGE>
LSA Variable Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Purchases and Sales of Securities
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the period ended December 31, 1999, were as
follows:
<TABLE>
<CAPTION>
U.S.
Government Other Long-
Securities Term Securities
---------- ---------------
<S> <C> <C>
Purchases
Emerging Growth Equity Fund.................. $ -- $ 7,954,789
Focused Equity Fund.......................... -- 6,702,972
Growth Equity Fund........................... -- 6,004,444
Disciplined Equity Fund...................... -- 11,748,037
Value Equity Fund............................ -- 5,717,401
Balanced Fund................................ 980,871 4,718,818
<CAPTION>
U.S.
Government Other Long-
Securities Term Securities
---------- ---------------
<S> <C> <C>
Sales
Emerging Growth Equity Fund.................. $ -- $ 3,035,973
Focused Equity Fund.......................... -- 1,419,599
Growth Equity Fund........................... -- 716,130
Disciplined Equity Fund...................... -- 1,765,607
Value Equity Fund............................ -- 899,827
Balanced Fund................................ -- 1,313,610
</TABLE>
At December 31, 1999, aggregated gross unrealized appreciation for all
securities in which there is an excess of value over tax cost and aggregate
gross unrealized depreciation for all securities in which there is an excess
of tax cost over value were as follows:
<TABLE>
<CAPTION>
Federal Tax Basis Tax Basis
Income Tax Unrealized Unrealized Net Unrealized
Cost Appreciation Depreciation Appreciation
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Emerging Growth Equity
Fund................... $ 5,389,469 $3,353,226 $ (51,061) $3,302,165
Focused Equity Fund..... 5,442,720 1,073,385 (184,349) 889,036
Growth Equity Fund...... 5,335,431 1,110,287 (105,115) 1,005,172
Disciplined Equity
Fund................... 10,116,186 1,495,868 (470,659) 1,025,209
Value Equity Fund....... 4,880,736 560,259 (255,542) 304,717
Balanced Fund........... 4,510,376 169,698 (146,448) 23,250
</TABLE>
24
<PAGE>
LSA Variable Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Shares of Beneficial Interest
At December 31, 1999 an unlimited number of shares of beneficial interest
without par value were authorized. Changes in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
Emerging Growth Focused Equity Growth Equity
Equity Fund Fund Fund
------------------ -------------- -------------
Period Ended Period Ended Period Ended
December 31, December 31, December 31,
1999 1999 1999
------------------ -------------- -------------
<S> <C> <C> <C>
Shares sold............. 521,437 544,060 528,631
Shares repurchased...... (6) (11) (23)
Distributions
reinvested............. -- -- 415
--------- ------- -------
Net increase............ 521,431 544,049 529,023
Fund shares:
Beginning of year..... -- -- --
--------- ------- -------
End of year........... 521,431 544,049 529,023
========= ======= =======
<CAPTION>
Disciplined Equity Value Equity Balanced
Fund Fund Fund
------------------ -------------- -------------
Period Ended Period Ended Period Ended
December 31, December 31, December 31,
1999 1999 1999
------------------ -------------- -------------
<S> <C> <C> <C>
Shares sold............. 1,012,973 517,670 507,560
Shares repurchased...... (5) (17) (3)
Distributions
reinvested............. 3,932 774 2,943
--------- ------- -------
Net increase............ 1,016,900 518,427 510,500
Fund shares:
Beginning of year..... -- -- --
--------- ------- -------
End of year........... 1,016,900 518,427 510,500
========= ======= =======
</TABLE>
25
<PAGE>
LSA Variable Series Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Written options
Transactions in written call options for the Value Equity Fund during the
period ended December 31, 1999 are as follows:
Written option transactions
<TABLE>
<CAPTION>
Number of
Contracts Premiums
--------- --------
<S> <C> <C>
Outstanding, beginning of period....................... -- $ --
Options written........................................ 2,500 11,831
Options exercised...................................... -- --
Options expired........................................ -- --
Options sold........................................... (400) (2,638)
----- ------
Outstanding, end of period............................. 2,100 $9,193
===== ======
</TABLE>
Summary of written options outstanding
<TABLE>
<CAPTION>
Number of Expiration
Contracts Exercise Price Date Value
--------- -------------- ---------- ------
<S> <C> <C> <C> <C>
American Express Call 500 $170.00 1/22/00 $2,438
Tyco International Call 600 47.50 1/22/00 225
Tyco International Call 1,000 45.00 1/22/00 812
------
$3,475
======
</TABLE>
6. Federal Tax Information (Unaudited)
For corporate shareholders, a portion of the ordinary dividends paid during
the Funds' year ended December 31, 1999 qualified for the dividends received
deduction, as follows:
<TABLE>
<S> <C>
Growth Equity Fund................................................. 19.52%
Disciplined Equity Fund............................................ 19.14%
Value Equity Fund.................................................. 19.75%
Balanced Fund...................................................... 5.50%
</TABLE>
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of LSA Variable Series Trust
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of LSA Variable Series Trust,
including Emerging Growth Equity Fund, Focused Equity Fund, Growth Equity
Fund, Disciplined Equity Fund, Value Equity Fund and Balanced Fund
(collectively the "Funds"), as of December 31, 1999, and the related
statements of operations, statements of changes in net assets and the
financial highlights for the period from October 1, 1999 (commencement of
operations) through December 31, 1999. These financial statements and
financial highlights are the responsibility of the Funds' 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, by correspondence with the Funds' custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 the
Funds at December 31, 1999, the results of their operations, the changes in
their net assets, and the financial highlights for the period from October 1,
1999 (commencement of operations) through December 31, 1999, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 9, 2000
27