DISCOVERY PREMIER(R)
--------------
GROUP RETIREMENT ANNUITY
SEMI-ANNUAL REPORT TO PARTICIPANTS
JUNE 30, 2000
[GRAPHIC OMITTED]
PRUDENTIAL |X| AIM ADVISORS |X| ALLIANCE |X| AMERICAN CENTURY |X| DAVIS
|X| DREYFUS |X| FRANKLIN TEMPLETON |X| INVESCO |X| JANUS |X| JOHN HANCOCK
|X| MFS |X| WARBURG PINCUS
DISCOVERY PREMIER GROUP Retirement Annuity is a group annuity insurance product
issued by The Prudential Insurance Company of America, Newark, NJ. DISCOVERY
PREMIER is offered through Pruco Securities Corporation, Prudential Securities,
Inc., and Prudential Investment Management Services LLC. All are subsidiaries of
The Prudential Insurance Company of America.
[PRUDENTIAL LOGO]
<PAGE>
TABLE OF CONTANTS
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Letter to Contract Owner.......................................................1
Commentary and Outlook.......................................................2-5
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THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
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Money Market Portfolio.................................................6-7
Diversified Bond Portfolio.............................................8-9
Government Income Portfolio..........................................10-11
Conservative Balanced Portfolio......................................12-13
Flexible Managed Portfolio...........................................14-15
High Yield Bond Portfolio............................................16-17
Stock Index Portfolio ...............................................18-19
Equity Income Portfolio..............................................20-21
Equity Portfolio.....................................................22-23
Prudential Jennison Portfolio........................................24-25
20/20 Focus Portfolio ...............................................26-27
Small Capitalization Stock Portfolio ................................28-29
Global Portfolio.....................................................26-27
FINANCIAL REPORTS
Financial Statements....................................................A1
Schedule of Investments.................................................B2
Notes to Financial Statements...........................................C1
Financial Highlights....................................................D1
AIM Variable Insurance Funds, Inc.
AIM V.I. Government Securities Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Premier Growth Portfolio
Growth and Income Portfolio
Quasar Portfolio
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Income and Growth
DAVIS VARIABLE ACCOUNT FUND, INC.
Davis Value Portfolio
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
Dreyfus Socially Responsible Growth Fund
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
VIP Franklin Small Cap Fund - Class 1
Templeton International Securities Fund - Class 1
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - Dynamics Fund
JANUS
Janus Aspen Series - Aggressive Growth Portfolio
Janus Aspen Series - Growth and Income Portfolio
Janus Aspen Series - World Wide Growth Portfolio
JOHN HANCOCK DECLARATION TRUST
V.A. Bond Fund
MFS VARIABLE INSURANCE TRUST
MFS Bond Series
MFS Emerging Growth Series
MFS Growth Series
MFS Growth With Income Series
MFS Total Return Series
WARBERG PINCUS TRUST
Emerging Growth Portfolio
This report is not authorized for
distribution to prospective investors
unless preceded or accompanied by a
current prospectus. It is for the
information of persons participating in
the DISCOVERY PREMIER(SM) Group Retirement
Annuity Contracts. This report describes the
DISCOVERY PREMIER(SM) Group Variable
Annuity Contracts*, group variable
annuity contracts offered by The
Prudential Insurance Company of America
("Prudential"), a mutual life insurance
company, in connection with retirement
arrangements that qualify for federal
tax benefits under sections 401, 403(b),
408 or 457 of the Internal Revenue Code
of 1986 and with non-qualified annuity
arrangements.
<PAGE>
LETTER TO CONTRACT OWNERS
--------------------------------------------------------------------------------
Six Months Ended June 30, 2000
CHAIRMAN
JOHN R. STRANGFELD
"The first six months of the new century were among the most tumultuous in
recent market history."
DEAR CONTRACT OWNER:
This Semiannual Report reviews the investment strategies and performance of the
portfolios in your variable life insurance or variable annuity contract
available through Prudential.
LOOKING BACK
The first six months of the new century were among the most tumultuous in recent
market history. The seemingly endless upward trajectory of new economy
stocks--those in the technology, media and telecommunications industries--came
to an abrupt halt in late March. Signs that inflation might be rising in the
U.S., continued interest rate hikes, and high stock valuations caused investors
to flee the technology-laden Nasdaq market in droves. A long-anticipated U.S.
market correction was underway, and its impact was felt across the global
marketplace.
MAINTAIN A LONG-TERM OUTLOOK
In summary, it was an eventful period in the financial markets--one that we
believe magnifies the value of several time-tested investment fundamentals.
First, maintaining a long-term outlook for your investments is vital. Market
fluctuations will occur, and reacting to short-term events is often ill-advised.
As a case in point, we've already seen a rebound in several sectors that
performed poorly during the second quarter of the year.
DIVERSIFICATION IS KEY
Second, the financial markets are a moving target. As such, many investors find
themselves buying at market highs when they gravitate to the
strongest-performing sectors. A more sound approach is to diversify your
portfolio across a wide variety of investments. And take special care to
rebalance your portfolio should your asset allocation strategy veer from its
original course.
RELY ON YOUR FINANCIAL PROFESSIONAL
Third, if you find yourself tempted to react to the latest market gyrations,
turn to your financial professional for guidance. He or she can review your
overall goals and determine if changes to your portfolio are necessary. This is
particularly important during periods of extreme market volatility.
Sincerely,
/s/ John R. Strangfeld
John R. Strangfeld
Chairman,
The Prudential Series Fund, Inc. July 17, 2000
1
<PAGE>
EQUITY COMMENTARY
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June 30, 2000
Turbulence and change in equity market
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Not only did the first half of 2000 include some of the most turbulent days in
U.S. stock market history, there were dramatic reversals of fortune at other
time scales as well--by quarter and by month. Many of these reversals canceled
each other out, so that by the end of June the S&P 500 had only a small net loss
and the Russell 2000 Index of small-cap stocks only a modest gain.
The main market stories over this period were the net correction (downward) of
extended telecommunications stocks and the see saw like rise of health care,
power utilities and energy stocks. The technology sector skyrocketed up,
corrected, then moved ahead again in a sharp June advance. Cyclical
stocks--basic materials (such as paper and forest products and metals), consumer
cyclicals (such as retail, autos and hotels), and capital goods (such as
engineering and construction)--had steep declines. These trends were global in
scope (except for capital goods, which had a moderately good local currency
return in Europe that translated into a marginally positive return for
dollar-based investors).
The result was a net advantage over the six months for growth over value
investing except among small caps, where the most speculative technology stocks
fell so much in March through May that they couldn't catch up in their June
surge. Small-cap (the Russell 2000 sectors) energy (excluding integrated oil
companies) and healthcare stocks had excellent catch-up returns of 52% and 36%,
respectively. Overall, midcap stocks had the best performance of any market
capitalization class, with midcap growth stocks the only equity market
capitalization range with strong returns.
Performance of Key Stock Market Indexes
Through June 30, 2000
[GRAPH]
S&P/ S&P/ Russel Russell MSCI MSCI MSCI
S&P BARRA BARRA 2000 2000 World Free Europe Japan
500 Value Growth Value Growth Index* Index* Index*
-0.43% -4.07% 2.63% 5.85% 1.23% -2.56% -3.08% -5.37%
Strong economic growth creates fears and opportunities
--------------------------------------------------------------------------------
This pattern was driven by rapid U.S. economic growth, which led the Federal
Reserve to continue to raise interest rates. Rising interest rates hurt the
stocks of rapidly growing companies whose value lies in their future earnings:
The present value of such future earnings is reduced in a rising interest rate
environment. Moreover, the fear that rising interest rates would cut off
economic growth hurt both growth and cyclical stocks. Moreover, a growing global
imbalance of supply and demand for oil created a turnaround in energy. Oil
service companies performed quite well. A shortage of electricity generating
capacity in the United States, as well as low inventories of the natural gas
that is burned by many new generation plants, strengthened the domestic utility
sector stocks overall, although some companies remained vulnerable to rising
fuel prices.
A global downturn
--------------------------------------------------------------------------------
Only the Nordic region provided moderately good returns, led by Sweden. Other
than that, the picture was generally bleak except for a few scattered individual
countries with good returns: Canada, France, Malaysia, Israel, Venezuela and the
Czech Republic.
*In U.S. currency.
Sources: Morgan Stanley Capital International, Standard & Poor's, Frank Russell
Company, and Prudential as of June 30, 2000. All indexes are unmanaged and
provide an indication of stock price movements. Past performance is not
indicative of future results. Investors cannot invest directly in an index.
Standard & Poor's 500 Index comprises 500 large, established, publicly traded
stocks. Morgan Stanley Capital International Europe Index comprises
approximately 620 European companies. Morgan Stanley Capital International
Europe, Australia, Far East Index is a weighted, unmanaged index of performance
that reflects stock price movements in Europe, Australasia, and the Far East.
S&P/Barra Value Index contains companies within the S&P 500 with lower
price-to-book ratios. S&P/Barra Growth Index contains companies within the S&P
500 with higher price-to-book ratios. Russell 2000 Value Index measures the
performance of those Russell 2000 companies with lower price-to-book ratios.
Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios. Morgan Stanley Capital International
World Free Index contains those companies in the MSCI World Index that reflect
actual buyable opportunities for the nondomestic investor by taking into account
local market restrictions on share ownership by foreigners. These indexes are
calculated in U.S. dollars, without dividends reinvested. Morgan Stanley Capital
International Japan Index measures the performance of Japan's stock market.
The views expressed are as of July 17, 2000, and are subject to change based on
market and other conditions.
IFS-200001-A050472
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<PAGE>
EQUITY OUTLOOK
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June 30, 2000
Stocks are at a fair value
--------------------------------------------------------------------------------
Our models show that overall stock prices are at about fair value on the basis
of today's earnings growth and interest rates. That means the markets should be
able to sustain ordinary rates of equity return (not the historically abnormal
returns of recent years) as long as earnings continue to grow and if interest
rates stabilize. One good sign is that downward revisions of earnings estimates
are less common this year than usual. Value investors are benefiting from the
recent trends toward stocks that are more defensive than most, but that also
have good growth prospects--such as drugs and utilities. Growth investors are
focused on long-term structural changes in the economy: wireless and broadband
telecommunications and the growth of the Internet companies. They tend to avoid
companies whose earnings are tied to the business cycle.
Internationally, the European economic recovery is also creating opportunities.
Moreover, the signs that China is serious about opening its economy bode well
for the industrialized countries in northern Asia that can export there: Korea,
Japan, Hong Kong, and Taiwan.
Stock selection key
--------------------------------------------------------------------------------
The discrepancies in pricing between value and growth stocks are smaller than
previously, and stock selection is likely to become more important than sector
differences. Technology companies will find investment capital more expensive.
Companies with strong balance sheets, positive cash flows, or access to cash
should still be able to grow. In sectors dependent upon commodity prices, there
may be substantial differences between firms exposed to rising prices and those
whose supplies are locked in. Investment opportunities generally are likely to
be more scattered than in the sector-focused markets we have had recently.
NOTE: Past performance is not a guarantee of future results. There is no
assurance that any of the forecasts discussed will be attained.
Performance of U.S. Market Sectors Through June 30, 2000
Year to Date
<TABLE>
<CAPTION>
[GRAPH]
Capital Communication Basic Consumer Consumer
Technology Energy Goods Utilities Services Materials Cyclicals Healthcare Staples Financials Transportation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3.0% 4.7% -1.2% 15.3% -15.1% -24.8% -18.9% 23.7% -2.4% -0.5% 5.0%
</TABLE>
S&P 500 Index Sector Weightings
[GRAPH]
Technology 32.8%
Financials 12.7%
Healthcare 11.6%
Consumer Staples 10.3%
Consumer Cyclicals 7.4%
Capital Goods 8.0%
Communication Services 6.8%
Energy 5.4%
Basic Materials 1.9%
Utilities 2.5%
Transportation 0.6%
Source: Standard & Poor's as of June 30, 2000. The S&P 500 Index is an unmanaged
index of stocks that provides an indication of stock price movements. Past
performance is not indicative of future results. Investors cannot invest
directly in an index.
IFS-200001-A050472
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<PAGE>
BOND COMMENTARY
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June 30, 2000
A good first half for U.S. Treasuries
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Prices of most U.S. Treasury securities climbed during the first half of 2000,
leaving prices of other U.S. fixed-income securities far behind. Favorable
technical factors and moderating economic growth sparked a rally primarily in
longer-term Treasuries.
Initially, though, Treasuries began 2000 on a weak note. The U.S. economy had
expanded rapidly in late 1999. Investors therefore feared the Federal Reserve
might repeatedly increase short-term interest rates to prevent the economy from
exceeding what the central bank believes to be its speed limit. In anticipation,
investors required higher bond yields, which forced bond prices lower.
However, the sell-off soon turned into a rally, at least for longer-term
Treasuries. The U.S. Treasury Department cut back issuance of its securities
because a growing federal budget surplus has reduced its borrowing needs. It
also commenced a program to buy back up to $30 billion of older, mostly
longer-term Treasuries by the end of 2000. Taken together, these two
developments set off a stampede to buy longer-term Treasuries.
The enthusiasm for longer-term Treasuries faded as it became clear the Fed's
quarter-point rate hikes in February and March would be followed by a half-point
increase in mid May. Some investors worried the Fed might prove too heavy handed
and trigger an economic downturn that would sap corporate earnings. Not
surprisingly, prices of investment-grade and high-yield U.S. corporate bonds got
hit even harder than Treasuries during this time. High-yield (junk) bonds also
suffered, because a growing number of companies failed to make interest and
principal payments on their junk bonds in May.
Not until reports began to show that the economy was gradually losing steam did
prices of U.S. fixed-income securities once again turn higher. Signs of
moderating economic growth might mean the Fed would soon be finished increasing
rates. Amid this change in market sentiment, prices in U.S. debt securities
markets gained in June. Nevertheless, among U.S. bond markets, the Treasury
market finished in first place for the six-month period, helped by the strong
performance of its longer-term securities earlier in the year.
But an even better first half for emerging market bonds
--------------------------------------------------------------------------------
Although Treasuries performed impressively, the top fixed-income market for the
first half of 2000 was emerging market bonds, based on Lehman Brothers indexes.
They returned a solid 7.59% as economic fundamentals in several developing
countries proved stronger than expected. Rising prices of oil, gas, and other
natural resources strengthened the economies of some developing nations that
export these commodities. Improving economic conditions in turn boosted their
foreign currency reserves. Moreover, some countries cut their financing costs by
swapping new bonds for older debt securities. These positive developments and
others attracted investors to emerging market bonds.
Among nations with developed economies, the government bond markets of
Australia, Canada and the United Kingdom posted attractive returns on a local
currency basis but lower returns when expressed in U.S. dollars. Their central
banks, which have repeatedly increased short-term rates to keep their respective
economies from overheating, are widely believed to be near the end of their
current tightening cycles.
Performance of Fixed-Income Market Indexes Through June 30, 2000
<TABLE>
<CAPTION>
Global U.S. Mortgage- Emerging U.S. Aggregate U.S. Corp. U.S. Corporate
(U.S. dollar) Index Backed Securities Markets U.S. Treasuries Index Invest. Grade U.S. Municipals High Yield
<S> <C> <C> <C> <C> <C> <C> <C>
-0.08% 3.67% 7.59% 5.37% 3.99% 2.68% 4.48% -1.21%
</TABLE>
Source: Lehman Brothers as of June 30, 2000. The Lehman Brothers indexes are
unmanaged indexes of bonds that provide an indication of bond price movements.
Past performance is not indicative of future results. Investors cannot invest
directly in an index.
IFS-200001-A050472
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<PAGE>
BOND OUTLOOK 2000
--------------------------------------------------------------------------------
June 30, 2000
Current cycle of Fed rate hikes may be nearly over
--------------------------------------------------------------------------------
The commonly accepted wisdom holds that increases in short-term interest rates
hurt bonds. However, the Federal Reserve's unusually large half-point rate hike
in May 2000 might benefit U.S. fixed-income markets--at least in the long run.
This could prove true if the Fed's largest rate increase in more than five years
proves to be a signal that it has nearly completed its current round of
tightening monetary policy.
Since June 1999, the U.S. central bank has raised rates six times. The first
five were quarter-point rate hikes and the sixth was for half of a percentage
point. Taken together, these moves lifted the federal funds rate (the rate U.S.
banks charge each other for overnight loans) to 6.50%, its highest level since
January 1991.
While rates remained unchanged after its latest meeting in June 2000, the U.S.
central bank warned more rate hikes could follow, because it is not convinced
that recent indications of an economic slowdown will last. The implied yield on
federal funds futures contracts indicates the Fed is expected to raise
short-term rates by another quarter of a percentage point later this year.
We too believe the central bank's current series of rate hikes is just about
over. We expect inflation to taper off as U.S. economic activity continues to
moderate in coming months, lessening the need for further moves by the Fed.
We see good value in the U.S. high-yield bond market
--------------------------------------------------------------------------------
Historically, bond returns have been strong in the 12-month period following the
completion of a Fed tightening cycle. An examination of 12-month returns as
measured by the Lehman Aggregate Index shows U.S. bonds posted double-digit
returns after the end of each of the last six Fed tightening cycles. Although we
do not expect U.S. bond markets to perform as strongly this time around, we
nonetheless see room for improvement, particularly in the market for high-yield
(junk) corporate bonds.
Compared with the yield on 10-year U.S. Treasuries, junk bond yields earlier in
the year rose to their highest levels in nearly a decade. The huge difference in
yields partly reflects the scarcity value of Treasuries. The supply of
Treasuries is shrinking because growing federal budget surpluses have reduced
the government's need to borrow.
But the large gap in yields also occurred because volatile stock prices and an
increase in the junk bond default rate hurt demand for high-yield bonds.
Bond investors were more cautious about lending money to companies whose market
values were fluctuating wildly. Like stock investors, they were concerned about
the impact of a slowdown on corporate earnings. However, the economy is not
expected to slip into a recession, and investor cash flows into junk bond mutual
funds turned positive in the last two weeks of June. This may herald a change in
trend.
The trend had been downhill as net flows into bond mutual funds turned strongly
negative early in the year. Looking back, retail investors left bond funds in
droves in 1987 and 1994 before substantial bull markets began, according to data
by International Strategy and Investment (ISI) and Lehman Brothers. In the same
vein, an ISI survey showed institutional investors have not been this bearish on
bonds since the end of the 1994 and 1996 bear markets.
Investors that return to the junk bond market will find yields at very
attractive levels. Both the nominal yield and the real yield (yield minus the
inflation rate) have been at such high levels only once or twice in the past ten
years, based on data from Lehman Brothers.
Municipal bond yields are also attractive. Thirty-year insured munis rated AAA
are yielding roughly 97% as much as 30-year Treasury bonds. Although prices of
municipal bonds have already gained this year, we believe they will rise further
if a continued light supply of tax-exempt securities meets with strong demand
from investors.
Note: Past performance is not a guarantee of future results. There is no
assurance that any of the forecasts discussed will be attained.
IFS-200001-A050472
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<PAGE>
PRUDENTIAL SERIES FUND
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------
June 30, 2000
INVESTMENT GOAL
Current income, stability of capital and maintenance of liquidity.
TYPES OF INVESTMENTS
Short-term money market securities that generally mature in 13 months or less.
These securities primarily consist of Certificates of Deposit (CDs), Commercial
Paper and Bankers' Acceptances, U.S. Treasury bills (T-bills) and other
instruments issued by or guaranteed by the U.S. government or its agencies.
Seven-Day Current Net Yields
Money Market Portfolio(1) Average Money Market Fund(3)
4.63 4.28
July|99 4.73 4.33
4.73 4.35
4.77 4.38
4.84 4.4
Aug|99 4.82 4.42
4.83 4.42
4.85 4.47
4.88 4.5
4.9 4.55
Sept|99 4.95 4.59
4.96 4.61
4.98 4.65
5.03 4.67
Oct|99 5.09 4.68
5.11 4.71
5.11 4.74
5.14 4.77
Nov|99 5.16 4.81
5.19 4.81
5.24 4.87
5.28 4.92
5.29 4.98
Dec|99 5.38 5.01
5.46 5.07
5.56 5.13
5.65 5.16
Jan|00 5.56 5.07
5.7 5.17
5.67 5.14
5.72 5.11
Feb|00 5.58 5.12
5.6 5.13
5.6 5.16
5.6 5.17
5.63 5.19
March|00 5.62 5.19
5.61 5.2
5.62 5.24
5.68 5.29
April|00 5.72 5.36
5.74 5.35
5.73 5.38
5.75 5.39
May|00 5.76 5.4
5.74 5.42
5.84 5.49
5.97 5.61
6.11 5.69
June|00 6.14 5.74
6.15 5.78
6.17 5.81
6.12 5.86
Weekly seven-day current net yields of the Money Market Portfolio and the
iMoneyNet First and Second Tier General Purpose Retail as of 6/27/2000.
Performance Summary
<TABLE>
<CAPTION>
Six 7-day
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year Current Net Yield(1)
---------------------- ------ ------ ------ ------ ------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio(1) 2.94% 5.65% 5.38% 5.37% 5.07% 6.12%
---------------------------------------------------------------------------------------------------------------
Lipper (VIP) Money Market Avg.(2) 2.80% 5.34% 5.13% 5.14% 4.82% N/A
</TABLE>
Money Market Portfolio inception date: 5/13/83. The yield quotation more closely
reflects the current earnings of the money market portfolio than the total
return quotation.
The six months that ended on June 30, 2000, were ripe with attractive
opportunities to invest in money market securities. The Federal Reserve
repeatedly increased short-term interest rates, which pushed money market yields
sharply higher. Our investment strategy enabled the Portfolio to benefit from
this trend.
The Prudential Series Fund Money Market Portfolio returned 2.94% for the six
months, compared with a 2.80% return reported by the average money market fund
as tracked by Lipper, Inc. On June 27, 2000, the Portfolio's seven-day yield was
6.12%, up from 5.65% on December 28, 1999.
(An investment in the Prudential Series Fund Money Market Portfolio is neither
insured nor guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $10.00 per share, it is possible to lose money by investing in the
Portfolio.)
Performance Review
--------------------------------------------------------------------------------
The Fed's short-term rate hikes have led to higher yields on money market funds,
but yields on long-term U.S. Treasuries have fallen amid a shrinking supply of
these securities. Therefore, yields on money market funds have generally reached
levels that are comparable with yields on long-term Treasuries.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
(2) The Lipper Variable Insurance Products (VIP) Money Market Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns are
net of investment fees and fund expenses, but not product charges.
(3) Source: iMoneyNet, Inc. As of 6/27/2000, based on 316 funds in the
iMoneyNet General Purpose Universe.
6
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
As we discussed in our previous letter to shareholders, the Portfolio has
sizable holdings of adjustable-rate securities, most of which carry interest
rates that adjust periodically based on London Interbank Offered Rates (LIBORs).
These adjustable-rate securities were issued in 1999 with unusually wide yield
spreads by banks and corporations rushing to complete their year-end borrowing
early. The companies wanted to minimize any problems that might occur if
computers malfunctioned when switching their internal dates from 1999 to 2000.
After the change of year proceeded relatively smoothly in the financial markets,
yield spreads on adjustable-rate securities began to narrow toward historical
norms. This trend enhanced the Portfolio's relative performance.
In early 2000, the Federal Reserve was expected to increase short-term interest
rates to curb U.S. economic growth and check inflation. Investors began to push
money market yields higher in anticipation of this change in monetary policy.
Our Portfolio positioning allowed us the flexibility to avoid purchasing
longer-term money market securities and to essentially wait for short-term rates
to rise to levels commensurate with our expectations for tighter monetary
policy. Specifically, the Portfolio's weighted average maturity (WAM), which had
begun the quarter significantly longer than that of its competition, gradually
shortened. (WAM is a measurement tool that determines a Portfolio's sensitivity
to changes in the level of interest rates. It takes into account the maturity
level of each security held by a Portfolio.) Having our WAM shorten enabled the
Portfolio to have plenty of money to buy money market securities when sharply
higher yields became available later in the spring of 2000.
In light of the Fed's short-term rate increases in February, March and May,
yields on one-year bank and corporate securities nearly rose to 7.50% in May and
June. Although these yields were attractive, we bought six-month securities
because we believed the Fed would continue to raise rates aggressively. Our
purchases lengthened the Portfolio's WAM until it was once again longer than
that of its competitive average. It is always tough to predict when rates will
peak, and in hindsight we should have bought one-year securities in the last
week of May and early June, because money market yields seem to have crested
during that time.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGERS MANOLITA BRASIL AND JOSEPH TULLY
[PHOTO OF MANOLITA BRASIL]
[PHOTO OF JOSEPH TULLY]
"We believe the Fed's unusually large half-point rate hike in May could signal
that its current round of tightening monetary policy is nearly over. We expect
economic activity to continue to moderate this year, decreasing the amount of
additional Fed rate hikes that might be necessary."
Portfolio Composition
as of 6/30/2000
---------------
Other Commercial Paper 26.9%
Other Corporate Obligations 21.8%
Yankee Commercial Paper 14.8%
U.S. Bank Obligations (Domestic) 13.8%
Foreign Bank Obligations 10.1%
Bank Holding Company Obligations 6.7%
Loan Participations 3.0%
Funding Agreements 1.6%
U.S. Government & Agencies 1.3%
Source: Prudential. Holdings are subject to change.
7
<PAGE>
PRUDENTIAL SERIES FUND
DIVERSIFIED BOND PORTFOLIO
June 30, 2000
--------------------------------------------------------------------------------
INVESTMENT GOAL
High level of income over the long term while providing reasonable safety of
capital.
TYPES OF INVESTMENTS
U.S. government securities, mortgage-backed bonds, both investment-grade and
high-yield ("junk bond") corporate debt and foreign securities (dollar and
non-dollar denominated).
INVESTMENT STYLE
This Portfolio seeks the highest yield while maintaining safety of capital, by
strategically allocating Portfolio assets among the above classes of bonds.
$10,000 Invested Over Ten Years
Diversified Bond Lipper (VIP) Corp. Lehman Aggregate
Portfolio(1) Debt BBB Avg.(2) Bond Index(3)
June 90 10,000 10,000 10,000
10,599 10,364 10,596
June 91 11,075 10,923 11,070
12,341 12,136 12,292
June 92 12,676 12,512 12,624
13,228 13,091 13,202
June 93 14,185 14,184 14,112
14,569 14,691 14,489
June 94 14,013 13,968 13,928
14,098 14,068 14,066
June 95 15,801 15,806 15,676
17,020 16,919 16,665
June 96 16,759 16,654 16,462
17,769 17,592 17,270
June 97 18,499 18,158 17,804
19,291 19,370 18,937
June 98 20,147 20,156 19,681
20,671 20,744 20,582
June 99 20,332 20,330 20,300
20,519 20,408 20,413
June 2000 21,095 20,996 21,227
Performance Summary
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
--------------------------------------------------------------------------------
Diversified Bond Portfolio(1) 2.80% 3.75% 4.47% 5.95% 7.75%
--------------------------------------------------------------------------------
Lipper (VIP) Corp. Debt BBB Avg.(2) 3.08% 3.48% 5.08% 5.95% 7.68%
--------------------------------------------------------------------------------
Lehman Aggregate Bond Index(3) 3.99% 4.56% 6.04% 6.25% 7.82%
--------------------------------------------------------------------------------
Diversified Bond Portfolio inception date: 5/13/83.
Prices of investment-grade U.S. corporate bonds could not keep up with gains in
the prices of longer-term U.S. Treasuries during the six months that ended on
June 30, 2000. Corporate bonds underperformed as that market sold off, because
the Federal Reserve repeatedly increased short-term interest rates, and strong
investor demand for a shrinking supply of longer-term Treasuries caused their
prices to rally.
Within the corporate bond market, BBB-rated debt securities did not perform as
well as higher-rated bonds because many market participants favored the more
conservative investments. The Portfolio's holdings of BBB-rated corporate bonds
were therefore a drag on its relative performance.
The Prudential Series Fund Diversified Bond Portfolio returned 2.80% for the six
months compared with 3.08% for the Lipper (VIP) Corporate Debt BBB Average.
Performance Review
--------------------------------------------------------------------------------
U.S. high-yield corporate bonds, or junk bonds, also underperformed Treasuries
during the six months. Besides the rise in short-term rates, the high-yield bond
market was hurt by a record level of redemptions from mutual funds that invest
in high-yield bonds. We reduced our exposure to these below-investment-grade
debt securities.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
(2) The Lipper Variable Insurance Products (VIP) Corporate Debt BBB Average is
calculated by Lipper, Inc., and reflects the investment returns of certain
portfolios underlying variable life and annuity products. These returns are
net of investment fees and fund expenses, but not product charges.
(3) The Lehman Aggregate Bond Index (LAI) is comprised of more than 5,000
government and corporate bonds. The LAI is an unmanaged index that includes
the reinvestment of all interest, but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the LAI may differ substantially
from the securities in the Portfolio. The LAI is not the only index that
may be used to characterize performance of income funds, and other indexes
may portray different comparative performance.
8
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
During most of the first half of 2000, the difference between the yields of
investment-grade U.S. corporate bonds and comparable U.S. Treasury securities
widened dramatically. Two major developments drove this trend.
First, investors pushed corporate bond yields higher (and their prices lower) as
the Federal Reserve raised short-term rates three times to cool off the U.S.
economy and dampen inflation. Fear that an economic slowdown could sap corporate
profits also hurt corporate bonds.
Second, yields on longer-term Treasuries fell (and their prices rose) as
investors rushed to buy a dwindling supply of these securities. The U.S.
Treasury Department reduced issuance of its securities and began to buy back up
to $30 billion of mostly longer-term Treasuries by the end of the year. Growing
federal budget surpluses have lowered the government's borrowing needs and
allowed it to pay off some of its publicly held debt.
We adopted a more defensive investment strategy reflecting the trend toward
tighter monetary policy. We sold some of our longer-term corporate bonds and
purchased shorter-term corporate bonds to maintain yield while reducing price
risk and volatility. We also took profits on some of the Portfolio's emerging
market bonds, which had performed well in the first three months of 2000. We
used some of the proceeds to buy longer-term Treasuries, which increased the
Portfolio's overall holdings of Treasuries to 15% of its total investments as of
June 30, 2000, from 10% as of December 31, 1999.
From a credit quality perspective, our high-yield bonds consisted mostly of
BB-rated securities that performed relatively well versus the high-yield market.
We sold some of our BB-rated bonds, which fell to 7% of the Portfolio's total
investments from 11%. BBB-rated corporate bonds accounted for roughly 40% of the
Portfolio's total investments throughout the six months. Despite their strong
performance in June, BBB was the worst-performing ratings category among
investment-grade corporate bonds for the period ending June 30, 2000. Therefore,
our large BBB exposure hurt the Portfolio's relative performance, as did losses
on our Conseco bonds, whose rating was downgraded by major credit rating
agencies.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGER STEVEN KELLNER
[PHOTO OF STEVEN KELLNER]
"Prices of investment-grade U.S. corporate bonds rallied in June as signs of
slower U.S. economic growth fueled hope that the Fed may be nearly finished
tightening monetary policy for this interest rate cycle. If this turns out to be
true, we believe corporate bond prices will continue to gain in the second half
of the year."
Portfolio Composition
as of 6/30/2000
---------------
Corporate Bonds 66.7%
U.S. Treasuries 15.6%
Short-Term 12.2%
Asset-Backed 3.2%
Mortgages 2.0%
Equity Securities 0.3%
Credit Quality
as of 6/30/2000
---------------
U.S. Government & Agencies 17.6%
AAA 5.5%
AA 8.0%
A 17.3%
BBB 32.0%
BB 7.0%
B 1.1%
Short-Term/Cash 11.5%
Average Credit Quality A
Duration 5.1 years
Average Maturity 9.6 years
Source: Prudential. Holdings are subject to change.
9
<PAGE>
PRUDENTIAL SERIES FUND
GOVERNMENT INCOME PORTFOLIO
June 30, 2000
INVESTMENT GOAL
High level of income over the long term consistent with the preservation of
capital.
TYPES OF INVESTMENTS
Primarily intermediate and longer-term U.S. government bonds, including U.S.
Treasuries and agencies and mortgage-backed securities such as GNMA, FNMA and
FHLMC bonds and foreign government securities.
INVESTMENT STYLE
The Portfolio seeks high current return by selecting bonds that offer an
attractive combination of current income and price appreciation. The Portfolio
Manager's goal is to select bonds believed to offer the best value in a given
market climate.
$10,000 Invested Over Ten Years
[GRAPH]
Government Income Lipper (VIP) General Lehman Gov't.
Portfolio(1) U.S. Gov't. Avg.(2) Bond Index(3)
----------------- -------------------- -------------
June|90 10,000 10,000 10,000
10,512 10,588 10,637
June|91 10,735 10,967 11,014
12,205 12,255 12,266
June|92 12,293 12,526 12,528
12,919 13,111 13,152
June|93 14,092 14,091 14,144
14,542 14,412 14,554
June|94 13,727 13,715 13,955
13,791 13,821 14,063
June|95 15,442 15,381 15,638
16,477 16,364 16,642
June|96 16,076 16,031 16,343
16,842 16,787 17,103
June|97 17,285 17,253 17,552
18,470 18,312 18,743
June|98 19,199 18,998 19,527
20,148 19,860 20,589
June|99 19,621 19,445 20,122
19,604 19,480 20,129
June|2000 20,473 20,267 21,129
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risk of currency fluctuation and the impact of social,
political and economic change.
Performance Summary
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
--------------------------------------------------------------------------------
Government Income Portfolio(1) 4.43% 4.34% 5.80% 5.80% 7.43%
--------------------------------------------------------------------------------
Lipper (VIP) General U.S. Gov't. Avg.(2) 4.28% 4.22% 5.43% 5.51% 7.32%
--------------------------------------------------------------------------------
Lehman Gov't. Bond Index(3) 4.97% 5.01% 6.38% 6.20% 7.77%
--------------------------------------------------------------------------------
Government Income portfolio inception date: 5/1/89.
The first half of 2000 proved to be a bullish period for the U.S. Treasury
market, which outperformed all other U.S. fixed-income markets, according to
Lehman Brothers indexes. Favorable technical factors and moderating economic
growth sparked a strong rally primarily in the prices of longer-term Treasuries.
The Prudential Series Fund Government Income Portfolio posted a 4.43% return
that surpassed the 4.28% return of the Lipper (VIP) General U.S. Government
Average during the first six month of 2000. The Portfolio had sizable positions
in longer-term Treasuries, the strongest-performing sector of the Treasury
market during our six-month review period.
The guarantee on U.S. Treasuries applies only to the underlying securities of
the Portfolio and not to the value of the Portfolio's shares. Mortgage-backed
securities entail additional prepayment and extension risks.
Performance Review
--------------------------------------------------------------------------------
Although we sold some of our U.S. Treasuries, they remained about 20% of the
Portfolio's total investments throughout our six-month review period.
Maintaining considerable positions in Treasuries, particularly longer-dated
ones, helped the Portfolio's relative performance. A look at the Lehman Brothers
U.S. Treasury Index shows Treasuries maturing in 20 years or longer, posted the
strongest returns of the six-month period in the Treasury market.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
(2) The Lipper Variable Insurance Products (VIP) General U.S. Government Average
is calculated by Lipper, Inc., and reflects the investment returns of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses, but not product
charges.
(3) The Lehman Government Bond Index (LGI) is a weighted index comprised of
securities issued or backed by the U.S. government, its agencies and
instrumentalities with a remaining maturity of one to 30 years. The LGI is
an unmanaged index that includes the reinvestment of all interest, but does
not reflect the payment of transaction costs and advisory fees associated
with an investment in the Portfolio. The securities that comprise the LGI
may differ substantially from the securities in the Portfolio. The LGI is
not the only index that may be used to characterize performance of income
funds, and other indexes may portray different comparative performance.
10
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
The Federal Reserve raised short-term interest rates three times, which drove up
borrowing costs for consumers and businesses. The Fed hoped that by raising
rates and thereby increasing the cost of borrowing vehicles such as mortgages
and credit cards, it could curb economic activity and prevent rising inflation.
As the Fed tightened monetary policy, yields on shorter-term Treasuries also
rose, pushing their prices lower.
Meanwhile, the U.S. Treasury Department began to buy back up to $30 billion of
mostly longer-term Treasuries, and it also reduced issuance of Treasuries.
Growing federal budget surpluses have lowered governmental borrowing needs. The
prospect of a decreased supply and increased demand for Treasuries drove their
yields lower (and prices higher), especially among longer-term Treasuries.
The combined effect of the Fed rate hikes pushing yields on shorter-dated
Treasuries higher and the buyback program driving yields on longer-term
Treasuries lower caused an inversion of the Treasury yield curve, which is a
graph that depicts yields on the shortest to the longest bonds. Normally,
longer-dated bonds provide higher yields to compensate for the greater risk
associated with investing for a longer time. But on June 30, 2000, yields on
two- and 30-year Treasuries stood at 6.36% and 5.89%, respectively.
Prices of both mortgage-backed securities and federal agency securities lagged
gains in the prices of Treasuries, which caused the difference between their
yields and yields on Treasuries to increase significantly. We took advantage of
this trend by selling some of our Treasuries to buy mortgage-related
investments. We increased our holdings in several types of mortgage-related
investments, especially 30-year Ginnie Mae pass-through securities, 15-year
Fannie Mae pass-through securities, commercial mortgage-backed securities and
collateralized mortgage obligations. In total, mortgage-related investments
accounted for 31% of the Portfolio's total investments as of June 30, 2000, up
from 18% at the beginning of our review period. By contrast, Treasury holdings
fell to 20% from 31%.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGER MICHAEL LILLARD
[PHOTO]
"While some signs of slower U.S. economic growth have emerged, we believe that
more increases in short-term rates may be necessary later in the year to keep
the resilient economy from overheating. We continue to find mortgage-backed
securities and federal agency securities attractive, because their yields remain
unusually high relative to yields on comparable Treasuries."
Portfolio Composition
as of 6/30/2000
---------------
U.S. Government Agencies 38.4%
Mortgages 26.6%
U.S. Treasuries 18.8%
CMOs 3.2%
Asset-Backed 3.2%
Short-Term/Cash 9.8%
Credit Quality
as of 6/30/2000
---------------
U.S. Government Agencies 83.8%
AAA 6.4%
Short-Term/Cash 9.8%
Average Credit Quality AAA
Duration 5.3 years
Average Maturity 8.4 years
Source: Prudential. Holdings are subject to change.
11
<PAGE>
Prudential Series Fund
Conservative Balanced Portfolio
June 30, 2000
INVESTMENT GOAL
Favorable total return consistent with a more conservatively managed diversified
portfolio.
TYPES OF INVESTMENTS
Money market instruments, bonds and common stocks of both established and
smaller companies.
INVESTMENT STYLE
The Portfolio management team holds a baseline allocation of 35% stocks and 65%
debt obligations and money market securities.
$10,000 Invested Over Ten Years
[GRAPH]
Conservative Lipper (VIP) Lehman
Balanced Balanced S&P 500 Gov't./Corp.
Portfolio(1) Funds Avg.(2) Index(3) Bond Index(4)
June|90 10,000 10,000 10,000 10,000
10,185 9,904 9,400 10,573
June|91 11,016 10,778 10,737 11,022
12,127 12,096 12,257 12,278
June|92 12,236 12,136 12,175 12,584
12,971 13,026 13,190 13,209
June|93 13,986 13,793 13,831 14,238
14,553 14,509 14,516 14,666
June|94 14,213 13,785 14,025 14,030
14,412 14,010 14,707 14,151
June|95 15,830 15,983 17,676 15,821
16,901 17,422 20,227 16,874
June|96 17,753 18,238 22,268 16,557
19,035 19,680 24,868 17,364
June|97 20,519 21,703 29,990 17,841
21,596 23,361 33,162 19,059
June|98 23,328 25,694 39,039 19,854
24,130 26,880 42,646 20,864
June|99 25,105 28,648 47,925 20,389
25,745 29,952 51,616 20,416
June|2000 26,104 30,706 51,395 21,269
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risk of currency fluctuation and the impact of social,
political and economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
2 The Lipper Variable Insurance Products (VIP) Balanced Funds Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns are
net of investment fees and fund expenses, but not product charges.
3 The S&P 500 Composite Stock Price Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The S&P 500 is an unmanaged
index that includes the reinvestment of all dividends, but does not reflect
the payment of transaction costs and advisory fees associated with an
investment in the Portfolio. The securities that comprise the S&P 500 may
differ substantially from the securities in the Portfolio.
4 The Lehman Government/Corporate Bond Index is comprised of government and
corporate bonds. The Index is an unmanaged index that includes the
reinvestment of all interest, but does not reflect the payment of transaction
costs and advisory fees associated with an investment in the Portfolio. The
securities that comprise the index may differ substantially from the
securities in the Portfolio. The Lehman Gov't./Corp. Bond Index is not the
only Index that may be used to characterize performance of income funds, and
other indexes may portray different comparative performance.
Performance Summary
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
--------------------------------------------------------------------------------
Conservative Balanced Portfolio(1) 1.39% 3.98% 8.36% 10.52% 10.07%
--------------------------------------------------------------------------------
Lipper (VIP) Balanced Funds Avg.(2) 1.26% 3.88% 11.18% 13.29% 11.82%
--------------------------------------------------------------------------------
S&P 500 Index(3) -0.43% 7.24% 19.67% 23.80% 17.79%
--------------------------------------------------------------------------------
Lehman Gov't./Corp. Bond Index(4) 4.18% 4.32% 6.03% 6.10% 7.84%
--------------------------------------------------------------------------------
Conservative Balanced Portfolio inception date: 5/13/83.
The Prudential Series Fund Conservative Balanced Portfolio--which invests in a
conservative mix of bonds, stocks and money market securities--returned 1.39% in
the first half of 2000, in line with the 1.26% return of the Lipper (VIP)
Balanced Funds Average. The Portfolio's conservative mandate requires us to hold
a smaller position in equities than the typical balanced portfolio, and this
served the Portfolio well in a declining stock market. The equity allocation
approximated 40% for much of the first half of the period. The Portfolio's
substantial allocation to bonds did well, because inflationary expectations fell
in response to continued Federal Reserve tightening.
Performance Review
--------------------------------------------------------------------------------
The normal allocation of the Conservative Balanced Portfolio has been
approximately equal holdings of stocks, bonds and money market instruments. This
mix was intended to provide better performance than a portfolio consisting only
of bonds, but with less annual volatility than a portfolio consisting only of
stocks. The Portfolio's equity allocation has been shared between a portion
managed to mirror the S&P 500 Index and a portion actively managed in a value
style. Over the past several years, most of the money market allocation has been
shifted to intermediate-term bonds to improve the Portfolio's return.
We made two important changes to the Portfolio in the second quarter: 1) we
increased the target equity allocation from 35% to 50%, the bond target from 35%
to 40% and reduced the short-term money market allocation to 10%, and 2) we
shifted assets from the value-style portion of the equity portfolio toward the
portion that attempts to match the performance of the S&P 500 Index. This
conversion had a modestly positive impact on performance during the reporting
period, since value stocks were near a market high. Conversely, we bought
depressed growth stocks, which rose in June's growth stock rebound. To finance
the equity increase, we eliminated a number of intermediate-term bonds that we
had held for several years as a cash substitute.
12
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
Our decision to increase the Portfolio's allocation to equities, while intended
to reduce differences in the Portfolio's performance relative to its peers, may
also increase its volatility. In the past, we had sacrificed long-term average
performance for lower volatility in absolute terms. However, the changes we made
to our style of stock management should reduce volatility in the actively
managed portion of the equity sleeve. We expect to be less exposed to swings in
market favor from one investment style to another.
The Portfolio still maintains a somewhat more conservative asset mix relative to
the average balanced fund (which has between 55% and 60% of its assets invested
in stocks). Nonetheless, we have confidence that the changes we have made will
improve the long-term performance of the Portfolio.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGER MARK STUMPP
[PHOTO]
"Our models show that the overall stock market is fairly valued in light of
current earnings growth and interest rates. This means the markets should be
able to sustain normal rates of equity return (not the historically abnormal
returns of recent years) as long as earnings continue to grow and if interest
rates stabilize. If, as many expect, the U.S. has a "soft landing" (slows from
the very rapid growth it exhibited early in the year to a pace that is
sustainable), these conditions ought to be satisfied."
Portfolio Composition (Long Term)
as of 6/30/2000
---------------
Stocks 60.3%
Bonds 39.7%
Sector Breakdown--Stock
as of 6/30/2000
---------------
Technology 32.4%
Consumer Growth & Staples 23.0%
Finance 13.4%
Industrials 10.3%
Utilities 9.0%
Consumer Cyclicals 6.3%
Energy 5.6%
Sector Breakdown--Bond
as of 6/30/2000
---------------
Corporate Bonds 65.2%
U.S. Treasuries 26.6%
Asset-Backed 5.9%
Equity Securities 2.1%
Short-Term/Cash 0.2%
Source: Prudential. Holdings subject to change.
13
<PAGE>
PRUDENTIAL SERIES FUND
FLEXIBLE MANAGED PORTFOLIO
June 30, 2000
INVESTMENT GOAL
High total return consistent with a more aggressively managed diversified
portfolio.
TYPES OF INVESTMENTS
Money market instruments, bonds and common stocks of both established and
smaller companies.
INVESTMENT STYLE
The Portfolio management team holds a baseline allocation of 60% stocks and 40%
bonds.
$10,000 Invested Over Ten Years
[GRAPH]
Flexible Lipper (VIP) S&P 50 Lehman Gov't./Corp.0
Managed Portfolio(1) Flexible Avg.(2) Index(3) Bond Index(4)
June|90 10,000 10,000 10,000 10,000
9,994 9,827 9,400 10,573
June|91 10,863 10,922 10,737 11,022
12,535 12,363 12,257 12,278
June|92 12,264 12,382 12,175 12,584
13,489 13,347 13,190 13,209
June|93 14,691 14,176 13,831 14,238
15,590 14,952 14,516 14,666
June|94 14,740 14,341 14,025 14,030
15,097 14,695 14,707 14,151
June|95 16,933 16,760 17,676 15,821
18,741 18,445 20,227 16,874
June|96 19,697 19,503 22,268 16,557
21,295 21,148 24,868 17,364
June|97 23,452 23,445 29,990 17,841
25,121 25,346 33,162 19,059
June|98 27,528 28,071 39,039 19,854
27,692 29,301 42,646 20,864
June|99 29,507 31,211 47,925 20,389
29,845 33,135 51,616 20,416
June|2000 30,037 33,762 51,395 21,269
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
Performance Summary
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
--------------------------------------------------------------------------------
Flexible Managed Portfolio1 0.64% 1.80% 8.60% 12.15% 11.63%
--------------------------------------------------------------------------------
Lipper (VIP) Flexible Avg.2 1.91% 7.59% 11.62% 14.27% 12.68%
--------------------------------------------------------------------------------
S&P 500 Index3 -0.43% 7.24% 19.67% 23.80% 17.79%
--------------------------------------------------------------------------------
Lehman Gov't./Corp. Bond Index4 4.18% 4.32% 6.03% 6.10% 7.84%
--------------------------------------------------------------------------------
Flexible Managed Portfolio inception date: 5/13/83.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
(2) The Lipper Variable Insurance Products (VIP) Flexible Average is calculated
by Lipper, Inc., and reflects the investment return of certain portfolios
underlying variable life and annuity products. These returns are net of
investment fees and fund expenses, but not product charges.
(3) The S&P 500 Composite Stock Price Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The S&P 500 is an unmanaged
index that includes the reinvestment of all dividends, but does not reflect
the payment of transaction costs and advisory fees associated with an
investment in the Portfolio. The securities that comprise the S&P 500 may
differ substantially from the securities in the Portfolio.
(4) The Lehman Government/Corporate Bond Index is comprised of government and
corporate bonds. The Index is an unmanaged index that includes the
reinvestment of all interest, but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the Index may differ substantially
from the securities in the Portfolio. The Lehman Gov't./Corp. Bond Index is
not the only index that may be used to characterize performance of income
funds, and other indexes may portray different comparative performance.
The Prudential Series Fund Flexible Managed Portfolio--which invests in an
actively managed mix of bonds, stocks and money market securities--had an
overall return of 0.64% over the reporting period. The Portfolio trailed the
1.91% Lipper (VIP) Flexible Fund Average primarily because, early in the period,
half of its equity portfolio was managed in the value style. During this time,
value stocks experienced a sharp decline.
Factors that had a positive impact on performance included our active management
of asset allocation. We de-emphasized stocks in the early months of the year
when the markets were undergoing a correction but increased our equity
allocation later in the period, in time to catch an eventual upswing in the
market. The Portfolio also benefited from its exposure to mid-cap value stocks,
an asset class that finally rallied in the second quarter after an extended
period of underperformance. Finally, a change in strategy in the second quarter
(described below) led us to increase our growth-style holdings just as growth
stocks rebounded.
Performance Review
--------------------------------------------------------------------------------
The Portfolio had an excellent finish to a fair six-month reporting period. We
made major changes to the Portfolio in the second quarter that improved its
performance. In the past, half of our equity holdings were managed to mirror the
behavior of the S&P 500 Index. The other half had been in an actively managed
portfolio emphasizing stocks of mid-sized companies that were trading at
relatively attractive prices. We changed the way our stocks are managed: They
are now in a single portfolio that offers more evenly balanced exposure to
growth, value and different market capitalizations. We characterize the new
style as structured equity. It is intended to reduce the impact that shifts in
market favor between investing styles have on our return.
The timing of the conversion couldn't have been better. At the start of the
period, the Portfolio was overweighted in small to mid-sized value stocks. When
we restructured, we generally sold these stocks at a peak and simultaneously
bought larger capitalization growth stocks at bargain prices. The Portfolio
performed reasonably well as growth rebounded in late May and June. However, the
transition was not perfect, and some temporary cash investments accrued during
trading. This detracted slightly from performance.
With regard to specific holdings, we overweighted Nabisco Holdings, which rose
more than 140%, and Pioneer Natural Resources, which moved up sharply with
energy prices. Among the biggest losers were Qualcomm and Citrix Systems, which
fell on investor concerns about their ability to generate future earnings.
14
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
We use a mathematical model to compare the expected return on the entire stock
market (determined primarily by prices and estimated earnings) to interest rates
on bonds. We try to increase the proportion of the asset class (e.g., stocks or
bonds) that offers the best value at any time. Since asset class has a greater
impact on returns over the long term than does the selection of individual
securities, these shifts in allocation may affect your return significantly.
We call our new approach structured equity because it involves a rigid
discipline that strives to limit deviations in a Portfolio's return from its
benchmark return--in this case, the S&P 500 Index. The portfolio is designed to
beat the market benchmark, but it also employs sophisticated mathematical
techniques intended to limit its performance deviations from the S&P 500 to
within a few percentage points.
The strategy for reaching both goals--limited deviations and deviating on the
upside--involves overweighting stocks that we like and underweighting those that
we view as unattractive. In both instances, deviations from S&P weightings are
relatively small. We also believe in taking risks in individual stocks that we
feel justify the risk, but then we attempt to limit deviations of the overall
portfolio from the benchmark in sector weights, industry weights, and style
exposure (in other words, growth or value).
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGER MARK STUMPP
[PHOTO]
"Our models show that the overall stock market is fairly valued in light of
current earnings growth and interest rates. That means the markets should be
able to sustain normal rates of equity return (not the historically abnormal
returns of recent years) as long as earnings continue to grow and if interest
rates stabilize. If, as many expect, the U.S. has a "soft landing" (slows from
the very rapid growth early in the year to a pace that is sustainable), these
conditions ought to be satisfied."
Portfolio Composition (Long Term)
as of 6/30/2000
---------------
Stocks 65.0%
Bonds 35.0%
Sector Breakdown--Stock
as of 6/30/2000
---------------
Technology 32.0%
Consumer Growth & Staples 20.5%
Finance 14.3%
Industrials 11.2%
Utilities 8.0%
Consumer Cyclicals 7.4%
Energy 6.6%
Sector Breakdown--Bond
as of 6/30/2000
---------------
Corporate Bonds 65.2%
U.S. Treasuries 32.3%
Asset-Backed 2.5%
Source: Prudential. Holdings subject to change.
15
<PAGE>
PRUDENTIAL SERIES FUND
HIGH YIELD BOND PORTFOLIO
June 30, 2000
INVESTMENT GOAL
High total return.
TYPES OF INVESTMENTS
Primarily noninvestment-grade bonds. These bonds have speculative
characteristics and are subject to greater credit and market risk than
higher-quality securities.
INVESTMENT STYLE
Concentrates primarily on junk bonds that appear to offer an attractive
combination of high current income and attractive total return.
$10,000 Invested Over Ten Years
High Yield Lipper (VIP) High Lehman Corporate
Bond Portfolio(1) Current Yield Avg.(2) High Yield Index(3)
June 90 10,000 10,000 10,000
8,716 9,183 8,821
June 91 10,919 11,172 11,433
12,115 12,450 12,895
June 92 13,415 13,792 14,230
14,239 14,539 14,926
June 93 15,856 16,205 16,499
16,982 17,293 17,481
June 94 16,796 16,883 17,085
16,520 16,751 17,301
June 95 18,095 18,556 19,448
19,422 19,821 20,618
June 96 20,351 20,759 21,331
21,634 22,462 22,959
June 97 22,905 23,807 24,295
24,615 25,408 25,889
June 98 25,895 26,522 27,054
24,035 25,109 26,373
June 99 24,876 25,851 26,953
25,143 25,990 27,003
June 2000 24,666 25,494 26,676
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risk of currency fluctuation and the impact of social,
political and economic change.
<TABLE>
<CAPTION>
Performance Summary
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
-----------------------------------------------------------------------------------------
High Yield Bond Portfolio(1) -1.90% -0.84% 2.50% 6.39% 9.45%
-----------------------------------------------------------------------------------------
Lipper (VIP) High Current Yield Avg.(2) -1.15% -0.42% 3.19% 6.97% 9.76%
-----------------------------------------------------------------------------------------
Lehman Corporate High Yield Index(3) -1.21% -1.03% 3.17% 6.52% 10.31%
-----------------------------------------------------------------------------------------
</TABLE>
High Yield Bond Portfolio inception date: 2/23/87.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
(2) The Lipper Variable Insurance Products (VIP) High Current Yield Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns are
net of investment fees and fund expenses, but not product charges.
(3) The Lehman Corporate High Yield Index (LHYI) is comprised of over 700
noninvestment-grade bonds. The LHYI is an unmanaged index that includes the
reinvestment of all interest, but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the LHYI may differ substantially
from the securities in the Portfolio. The LHYI is not the only index that
may be used to characterize performance of income funds, and other indexes
may portray different comparative performance.
During the six months that ended on June 30, 2000, some investors shunned the
U.S. high-yield (junk) bond market because rising interest rates tend to make
fixed-income securities less attractive and because an increasing number of
companies failed to make interest payment on their junk bonds.
The Prudential Series Fund High Yield Bond Portfolio slightly underperformed its
benchmark during the six-month period ending June 30, 2000. The Portfolio posted
a negative return of 1.90% compared with a negative 1.15% return for the Lipper
(VIP) High Current Yield Average.
Performance Review
--------------------------------------------------------------------------------
We improved the Portfolio's risk profile by increasing its holding of debt
securities rated Ba, the highest junk bond ratings category. However, bonds in
the single-B ratings category still accounted for more than half of the
Portfolio's total investments because they provide attractive current yields and
solid credit quality.
16
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
Several factors conspired to make the first half of 2000 a troublesome period
for the high-yield bond market. The Federal Reserve worked to slow economic
growth and head off inflation by increasing short-term interest rates three
times. A growing number of companies defaulted or missed interest payments on
their junk bonds. And last but not least, many investors redeemed their shares
of high-yield mutual funds and redeployed their money in less risky investments.
In anticipation of the Fed rate hikes, investors drove yields on most bonds
higher (and their prices lower), including junk bonds. The U.S. Treasury market
weathered this trend better than other U.S. bond markets as investors hurried to
buy a shrinking supply of longer-term Treasuries. Therefore, the difference
between yields on junk bonds and 10-year Treasuries widened significantly.
Amid the growing concern about defaults, it is not surprising that the
best-performing credit tier of the Lehman High Yield Index was bonds rated BB
(or its equivalent Ba), which is the highest ratings category in the junk bond
market. Many investors were simply not interested in buying debt securities with
ratings below BB or Ba.
Companies whose bonds were rated BB or Ba comprised a select group that could
issue new junk bonds during the six months. We bought attractively priced, newly
issued bonds of such companies, including home builder Lennar and Williams Corp.
These purchases helped to increase bonds in the Ba ratings category to 11% of
the Portfolio's total investments as of June 30, 2000, up from 8% as of December
31, 1999. Nevertheless, the Portfolio's exposure to the highest junk bond
ratings category is still considerably less than the 27% of the Lehman High
Yield Index, a factor that hurt the Portfolio's relative performance. In
addition, the Portfolio experienced credit quality problems in the food and food
service sector with bonds of Ameriserve and Vlasic declining in price.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGERS CASEY WALSH AND GEORGE W. EDWARDS, CFA
[PHOTO OF CASEY WALSH]
[PHOTO OF GEORGE W. EDWARDS]
"After five difficult months, prices of junk bonds gained strongly in June,
because some data indicated the U.S. economic expansion is starting to slow to a
more sustainable pace. As a result, there was talk that the Fed's current round
of rate hikes may be nearly finished. Should this prove true, we believe junk
bond prices could continue to gain during the remainder of the year."
Top Industries
as of 6/30/2000
---------------
Telecommunications 21.9%
Cable 12.4%
Media 5.8%
Energy 5.7%
Capital Goods 4.7%
Top Issuers
as of 6/30/2000
---------------
Level 3 Communications 2.3%
Nextel Communications, Inc. 2.0%
Adelphia Communications 1.8%
United Pan-Europe 1.6%
CSC Holdings, Inc. 1.4%
Credit Quality
as of 6/30/2000
---------------
Baa 0.4%
Ba 11.4%
B 58.1%
Caa 9.7%
Ca 0.5%
Not-Rated 7.5%
Equity* 8.5%
Cash 3.9%
Source: Prudential. Holdings are subject to change.
*(Preferred & Common)
17
<PAGE>
Prudential Series Fund
Stock Index Portfolio
June 30, 2000
INVESTMENT GOAL
Seeks results that correspond to the price and yield performance of the S&P 500
Index.3
TYPES OF INVESTMENTS
Primarily stocks in the S&P 500 Index.
INVESTMENT STYLE
The Portfolio attempts to hold the same stocks as the S&P 500 Index, in
approximately the same proportions. The Portfolio thus tends to reflect the
general trends of the overall U.S. equity market.
<TABLE>
<CAPTION>
$10,000 INVESTED OVER TEN YEARS
<S> <C> <C> <C>
Stock Index Lipper (VIP) S&P
Portfolio1 500 Index Avg.2 S&P 500 Index3
Jun-90 10,000 10,000 10,000
9,386 9,369 9,400
Jun-91 10,695 10,754 10,737
12,176 12,215 12,257
Jun-92 12,068 12,100 12,175
13,044 13,112 13,190
Jun-93 13,650 13,801 13,831
14,305 14,465 14,516
Jun-94 13,799 13,960 14,025
14,449 14,589 14,707
Jun-95 17,334 17,489 17,676
19,805 19,958 20,227
Jun-96 21,775 21,934 22,268
24,274 24,489 24,868
Jun-97 29,205 29,391 29,990
32,244 32,430 33,162
Jun-98 37,878 38,084 39,039
41,408 41,569 42,646
Jun-99 46,416 46,598 47,925
49,915 50,094 51,616
Jun-00 49,644 49,832 51,395
</TABLE>
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
2 The Lipper Variable Insurance Products (VIP) S&P 500 Index Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns are
net of investment fees and fund expenses, but not product charges.
3 The S&P 500 Composite Stock Price Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The S&P 500 is an
unmanaged index that includes the reinvestment of all dividends, but does
not reflect the payment of transaction costs and advisory fees associated
with an investment in the Portfolio.
<TABLE>
<CAPTION>
Performance Summary
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Six
AVERAGE ANNUAL RETURNS Months 1-Year 3-Year 5-Year 10-Year
------------------------------------------------------------------------------------------
Stock Index Portfolio1 -0.54% 6.95% 19.34% 23.42% 17.38%
-------------------------------------------------------------------------------------------
Lipper (VIP) S&P 500 Index Avg.2 -0.59% 6.85% 19.29% 23.37% 17.39%
-------------------------------------------------------------------------------------------
S&P 500 Index3 -0.43% 7.24% 19.67% 23.80% 17.79%
-------------------------------------------------------------------------------------------
</TABLE>
Stock Index Portfolio inception date: 10/19/87.
The Prudential Series Fund Stock Index Portfolio returned -0.54%, just 11 basis
points (hundredths of a percentage point) below the S&P 500 Index, reflecting
the inclusion of transaction costs and fees for the Portfolio.
Over the first six months of 2000, the S&P 500 Index reversed many of the trends
established in 1999. The leading sectors in 2000 to date have been healthcare
and utilities, both of which had negative returns for 1999. Conversely,
telecommunications services, one of the leading sectors in 1999, had a
substantial decline, with long-distance services among the worst-performing
groups in the market.
The trend reversals didn't apply to value sectors that are particularly
susceptible to the economic cycle: basic materials, consumer cyclicals and
capital goods all had negative returns. Miscellaneous metals, metal and glass
containers, paper and forest products, and steel were among the worst-performing
groups of the period, with average losses of 35% or more.
The Standard & Poor's 500 Index is an unmanaged index. Standard & Poor's neither
sponsors nor endorses the Stock Index Portfolio. Investors cannot directly
invest in any index, including the S&P 500 Index.
Performance Review
--------------------------------------------------------------------------------
The S&P 500 reversed course often during the first half of 2000. The Stock Index
Portfolio, because it is a broadly diversified portfolio, was not as vulnerable
to these fluctuations as high growth or value funds. Given the rising interest
rate environment, an obvious trend emerged: Companies whose businesses are
sensitive to rising interest rates performed more poorly than others. This
included many of the high growth groups, such as telecommunications, whose stock
prices reflect the expectations of future earnings. Cyclical stocks--those that
perform better when an economy is expanding--also were hurt, because investors
feared that rising interest rates would choke off economic growth and possibly
even cause a recession.
Taking into account both return and sector size, almost all the good news over
this reporting period was in healthcare, with technology--despite its
volatility--making the next largest positive contribution, albeit a
significantly smaller one (less than one percentage point). The utility sector,
although performing well, was too small to have much of an impact on the overall
index return. In the end, however, the negative impact of consumer cyclicals and
communications services together outweighed the healthcare contribution.
18
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
The Stock Index Portfolio attempts to hold all 500 stocks included in the S&P
500 Index and to duplicate its performance. Portfolio Manager John W.
Moschberger manages the Portfolio by investing funds received while trying to
minimize commissions and transaction costs.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGER JOHN W. MOSCHBERGER
[PHOTO OF JOHN W. MOSCHBERGER]
"The volatility of the S&P 500 from January through May was well above normal.
The market quieted down somewhat in June, although it still was more unsettled
than normal on many measures. For example, between 1978 and 2000 the S&P 500
moved up 1% or more on 12.5% of the days, and had a downward move of that size
on 10.1% of the days. In contrast, during the first six months of 2000, upward
moves of 1% or more occurred on 23.7% of the days, and similar downward moves
occurred on 19.9% of the days. Moreover, market favor shifted between sectors,
dramatically and often. The momentum investing strategies that would have
produced excellent results in the previous year would have produced sizable
losses during this time.
"In fact, any recent successes that involved chasing after market leaders could
be considered unusual. The Economist, a highly respected weekly news magazine,
calculated the result if an individual--`Henry Hindsight'--had invested $1 at
the beginning of the 20th century and each year shifted all the proceeds into
the asset class that had done best the previous year. The study permitted
investments in any established market in the world. At the end of the century,
the portfolio was worth only $290 (after trading costs). In contrast, investing
only in U.S. large-company stocks over the same period (starting well before the
S&P 500 Index was developed) would be worth thousands of dollars.
"The Stock Index Portfolio doesn't try to anticipate changes in market favor
from asset class to asset class, from sector to sector, or from investment style
to investment style. It is our opinion that mistakes in such judgments can be
costly. Rather, the Portfolio gives you the opportunity to participate in the
growth of the U.S. economy as a whole. Right now, in our opinion, the outlook
for the U.S. economy seems good. When the economy grows too fast, it threatens
to create bottlenecks that cause inflation and rising interest rates, which in
turn can choke off growth. Moderate but steady growth is best for investors, and
we believe this is where the economy is headed."
S&P 500 Index--
Total Return by Sector
as of 6/30/2000
---------------
Health Care 23.7%
Utilities 15.3%
Energy 4.7%
Technology 3.0%
Financials -0.5%
Capital Goods -1.2%
Consumer Staples -2.4%
Transportation -5.0%
Communication Services -15.1%
Consumer Cyclicals -18.9%
Basic Materials -24.8%
S&P 500 Index -0.4%
Source: Standard & Poor's.
S&P 500 Index Composition
as of 6/30/2000
---------------
Technology 32.8%
Financials 12.7%
Health Care 11.6%
Consumer Staples 10.3%
Capital Goods 8.0%
Consumer Cyclicals 7.4%
Communication Services 6.8%
Energy 5.4%
Utilities 2.5%
Basic Materials 1.9%
Transportation 0.6%
Source: Standard & Poor's. Holdings are subject to change.
Top Ten Holdings (% of Portfolio)
as of 6/30/2000
---------------
General Electric Co. 4.1%
Intel Corp. 3.5%
Cisco Systems, Inc. 3.5%
Microsoft Corp. 3.3%
Pfizer, Inc. 2.4%
Exxon Mobil Corp. 2.2%
Wal-Mart Stores, Inc. 2.0%
Oracle Corp. 1.9%
Citigroup, Inc. 1.6%
Nortel Networks Corp. 1.6%
Source: Prudential. Holdings are subject to change.
19
<PAGE>
Prudential Series Fund
Equity Income Portfolio
June 30, 2000
INVESTMENT GOAL
Current income and capital appreciation.
TYPES OF INVESTMENTS
Primarily stocks and convertible securities with prospects for income returns
above those of the S&P 500 Index.3
INVESTMENT STYLE
The Portfolio uses a "value" investment approach to companies that are
attractively priced relative to book value, earnings, discretionary cash flow,
sales and other measures of value.
$10,000 INVESTED OVER TEN YEARS
[NO PLOT POINTS]
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risk of currency fluctuation and the impact of social,
political and economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
2 The Lipper Variable Insurance Products (VIP) Equity Income Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns and
rankings are net of investment fees and fund expenses, but not product
charges.
3 The S&P 500 Composite Stock Price Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The S&P 500 is an
unmanaged index that includes the reinvestment of all dividends, but does
not reflect the payment of transaction costs and advisory fees associated
with an investment in the Portfolio. The securities that comprise the S&P
500 may differ substantially from the securities in the Portfolio.
Performance Summary
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
--------------------------------------------------------------------------------
Equity Income Portfolio1 -5.31% -9.91% 6.55% 13.03% 13.52%
--------------------------------------------------------------------------------
Lipper (VIP) Equity Income Avg.2 -1.64% -2.98% 11.33% 15.86% 13.87%
--------------------------------------------------------------------------------
S&P 500 Index3 -0.43% 7.24% 19.67% 23.80% 17.79%
--------------------------------------------------------------------------------
Equity Income Portfolio inception date: 2/19/88.
The Prudential Series Fund Equity Income Portfolio returned -5.31% over the six
months ended June 30, 2000, while the Lipper (VIP) Equity Income Average was
-1.64%. The Portfolio's underperformance is attributable to the poor showing of
value stocks in the first quarter. Subsequently, the environment for value
stocks improved. Moreover, the management team began to refocus the holdings. As
a result, the Portfolio had a stronger second quarter, declining only 0.73%
compared with a 1.32% drop for the Lipper Average.
The largest negative impact on the Portfolio's return was the poor performance
of its industrial stocks--paper, aluminum and steel companies. Also contributing
to underperformance--albeit slightly--was the Portfolio's very low weighting in
technology. In contrast, the Portfolio benefited from its energy-related and
financial holdings.
Performance Review
--------------------------------------------------------------------------------
As investors began to fear that rising interest rates would cut off economic
growth, economically sensitive industrial stocks, such as metals, chemicals, and
forest products, became vulnerable. They were also hurt by rising energy prices,
which not only add to inflation but increase the operating costs of industrial
companies. Although we had reduced our focus on the sector significantly, their
stock decline still pulled down our return.
We owned energy exploration and production companies such as Noble Affiliates
(natural gas) and Pioneer Natural Resources. These saw substantial gains over
the period.
We overweighted and had good stock selection in financials, highlighted by our
brokerage stocks, specialty finance companies and real estate investment trusts
(REITs). Our brokerage positions, such as Lehman Brothers Holdings and
PaineWebber Group are benefiting from the active merger and acquisitions
business and an improving bond underwriting environment. Moreover, they are
themselves attractive acquisition candidates. (PaineWebber was bought at a
premium after the end of our reporting period.) Our holdings in Associates First
Capital, Countrywide Credit and Washington Mutual, which were bought
opportunistically, performed very well. Our REITs, which are well positioned to
benefit from strong rental markets, finally began to recover.
Carl Icahn's hostile bid for Nabisco Group Holdings set in motion a series of
transactions that resulted in significant advances for our Nabisco, R.J.
Reynolds and Philip Morris stocks. Our healthcare stocks had mixed results.
Tenet Healthcare, HCA--The Healthcare Company, and Aetna, our largest positions,
made positive contributions to our return, but some of our smaller holdings did
particularly poorly and offset the benefits.
20
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
The Portfolio had substantial weightings in financial services, real estate
investment trusts (REITs), housing-related stocks, healthcare, forest products
and metals. Going forward, we expect to: reduce our emphasis on industrials by
adding some technology and telecommunications stocks, trim some of our larger
positions and move the average market capitalization of our holdings from a
mid-cap to a large-cap range. Our goal is to construct a more broadly
diversified portfolio that is likely to be less volatile.
Although we will continue to manage in the value style, we expanded our range.
We are looking at stocks that are inexpensive relative to their peers but
possess a catalyst that we believe will close the pricing gap--for example, a
company that is repurchasing its shares or restructuring its business. This
broader view of value investing has enabled us to find undervalued companies
with growth prospects in areas such as wireless telecommunications.
Within the financial sector, we are reducing the size of our largest holdings
and purchasing some bank stocks, such as Chase Manhattan Bank and Bank One. In
technology, volatile stock returns in the first half of 2000 did not appreciably
hurt our performance because of our low weighting in the sector. However, it did
create value investment opportunities for us. Consequently, our technology
weighting is rising.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGER THOMAS KOLEFAS
[PHOTO OF THOMAS KOLEFAS]
"Since 1995, U.S. stock markets have favored growth investing. For much of this
period, stocks of firms with larger market capitalizations performed best. A
value style that focused on a few traditional measures of value was at a
disadvantage. We are now using a larger number of ways to measure investment
value, in part to permit us to construct a more diverse portfolio. Our goal is
to reduce the deviations in performance from our benchmarks and from our
competition while outperforming them over the long term. We will focus not only
on quantitative measures of value, but on indications that a firm's management
has the willingness and ability to close the market's misperception of the
stock's true value."
Portfolio Composition
as of 6/30/2000
---------------
Finance 32.3%
Consumer Growth & Staples 18.1%
Industrials 17.9%
Consumer Cyclicals 10.7%
Utilities 7.4%
Energy 6.9%
Technology 4.7%
Cash & Equivalents 2.0%
Top Ten Holdings (% of Portfolio)
as of 6/30/2000
---------------
Lehman Brothers Holdings, Inc. 5.7
PaineWebber Group, Inc. 3.2
Alcoa, Inc. 3.2
Nabisco Group Holdings Corp. 2.8
Equity Residential Properties Trust 2.6
Eastman Kodak Co. 2.6
Hanson PLC ADR (United Kingdom) 2.6
Bear, Stearns & Co., Inc. 2.5
GTE Corp. 2.3
Tenet Healthcare Corp. 2.3
Source: Prudential. Holdings are subject to change.
21
<PAGE>
Prudential Series Fund
Equity Portfolio
June 30, 2000
INVESTMENT GOAL
Capital appreciation.
TYPES OF INVESTMENTS
Primarily stocks of major, established companies.
INVESTMENT STYLE
The Portfolio uses a "deep value" investment approach to invest in stocks
believed to be temporarily undervalued relative to the companies' sales,
earnings, book value and cash flow.
$10,000 INVESTED OVER TEN YEARS
Equity Class Lipper (VIP)
I Portfolio Growth Fund Avg.2 S&P 500 Index3
June 90 10,000 10,000 10,000
9,439 9,152 9,400
June 91 11,381 10,586 10,737
11,894 12,456 12,257
June 92 12,679 12,000 12,175
13,579 13,490 13,190
June 93 15,300 14,240 13,831
16,549 15,388 14,516
June 94 16,230 14,415 14,025
17,009 15,154 14,707
June 95 19,830 18,034 17,676
22,331 20,296 20,227
June 96 23,964 22,308 22,268
26,466 24,455 24,868
June 97 29,977 28,236 29,990
32,992 31,087 33,162
June 98 37,107 36,319 39,039
36,075 39,060 42,646
June 99 41,656 43,883 47,925
40,580 51,016 51,616
June 2000 38,361 53,018 51,395
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risk of currency fluctuation and the impact of social,
political and economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
2 The Lipper Variable Insurance Products (VIP) Growth Fund Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns are
net of investment fees and fund expenses, but not product charges.
3 The S&P 500 Composite Stock Price Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The S&P 500 is an
unmanaged index that includes the reinvestment of all dividends, but does
not reflect the payment of transaction costs and advisory fees associated
with an investment in the Portfolio. The securities that comprise the S&P
500 may differ substantially from the securities in the Portfolio.
Performance Summary
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
--------------------------------------------------------------------------------
Equity Portfolio Class I1 -5.47% -7.91% 8.57% 14.11% 14.39%
--------------------------------------------------------------------------------
Lipper (VIP) Growth Fund Avg.2 3.27% 20.98% 23.33% 23.21% 17.73%
--------------------------------------------------------------------------------
S&P 500 Index3 -0.43% 7.24% 19.67% 23.80% 17.79%
--------------------------------------------------------------------------------
Equity Portfolio Class I inception date: 5/13/83.
The Prudential Series Fund Equity Portfolio Class I returned -5.47% in the first
half of 2000, trailing the Lipper (VIP) Growth Fund Average return of 3.27%.
During the period, the Federal Reserve implemented a series of rate hikes aimed
at slowing the economy. However, our value style led us to invest heavily in
cyclical companies, which do best in an expanding economy. Therefore, our
emphasis on value hurt performance. The fact that the Lipper Average includes
many growth portfolios further added to the return differential.
Performance Review
--------------------------------------------------------------------------------
Our paper and metals holdings suffered when the Federal Reserve began to raise
interest rates, generating fears that economic growth would cease. In an
investing climate marked by extreme investor skittishness, the stocks of some
well-managed and profitable industrial companies--such as Georgia Pacific,
International Paper and Alcoa, Inc.--steeply declined. At period end, some of
these companies released better-than-expected second-quarter earnings reports
and their stocks rallied.
Consolidation activity in the food and tobacco industries drove the sector's
performance over the period. In particular, Carl Icahn's hostile bid for Nabisco
Group Holdings set in motion a series of ownership shifts that resulted in
significant advances for our shares of Nabisco Group Holdings, R.J. Reynolds and
Philip Morris.
Healthcare companies' earnings generally are improving, and their stock prices
are beginning to reflect this. A large contributor to Portfolio performance came
from UnitedHealth Group, whose shares rose 62% over the period.
An imbalance of supply and demand for oil is helping our oil stocks: Total Fina,
BP Amoco and Amerada Hess.
22
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
We are restructuring our Portfolio with the aims of 1) reducing the impact of
the growth/value cycle on our return; 2) approximating the sector weightings of
the S&P 500; and 3) broadening our focus beyond stocks that are inexpensive on
an absolute basis to include those that are priced below their historical range
or below others in their industry. We expect the average market capitalization
of our holdings to become somewhat larger, again moving closer to the overall
market.
In the wake of price appreciation in the insurance industry, we have seen the
stock of some of our larger holdings appreciate. These include Chubb, our
largest insurance holding. However, several of our smaller companies have yet to
benefit. Overall, our insurance holdings had little impact on our return, but
the trend is positive.
Despite the fact that the basic materials businesses represented in our
Portfolio did well over the period, their stocks still declined. In our opinion,
this is due to investor uncertainty about the economy. This uncertainty is
likely to abate by year-end.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGERS THOMAS R. JACKSON AND PHIL SCHETTEWI
[PHOTO OF THOMAS R. JACKSON]
[PHOTO OF PHIL SCHETTEWI]
"We believe investors are gaining confidence that the Federal Reserve will
accept that the U.S. economy has slowed to a sustainable pace. As a result,
investors are beginning to focus more on current earnings. We feel that
optimistic projections will be less likely to drive stock prices, and that
investors will seek out companies with visible earnings growth. This scenario
could revive the rally in cyclical stocks that began in 1999, and also benefit
our insurance and healthcare positions."
--------------------------------------------------------------------------------
Portfolio Composition
as of 6/30/2000
---------------
Consumer Growth & Staples 22.0%
Industrials 19.0%
Finance 16.8%
Consumer Cyclicals 8.2%
Technology 7.1%
Energy 7.0%
Utilities 4.1%
Cash & Equivalents 15.8%
Top Ten Holdings (% of Portfolio)
as of 6/30/2000
---------------
Eastman Kodak Co. 3.7%
Tenet Healthcare 3.6%
WellPoint Health Networks, Inc. 3.4%
HCA--The Healthcare Company 3.2%
UnitedHealth Group, Inc. 3.0%
Total Fina Elf S.A., ADR 2.9%
Chubb Corp. 2.5%
Darden Restaurants, Inc. 2.4%
Compaq Computer Corp. 2.1%
Alcoa, Inc. 2.0%
Source: Prudential. Holdings are subject to change.
23
<PAGE>
Prudential Series Fund
Prudential Jennison Portfolio
June 30, 2000
INVESTMENT GOAL
Long-term growth of capital.
TYPES OF INVESTMENTS
Primarily common stocks of established companies with above-average growth
prospects.
INVESTMENT STYLE
The Portfolio uses a "growth" investment style to invest in the common stocks of
both mid-sized and large companies.
$10,000 INVESTED SINCE INCEPTION*
Prudential Jennison
Portfolio1 Lipper (VIP) Growth Avg.2 S&P 500 Index3
April 95 10,000 10,000 10,000
June 95 11,276 10,794 10,640
12,556 12,136 12,176
June 96 13,494 13,406 13,405
14,362 14,627 14,970
June 97 16,801 16,802 18,053
18,916 18,570 19,962
June 98 22,841 21,722 23,500
26,002 23,243 25,671
June 99 29,972 26,044 28,849
36,975 30,188 31,071
June 2000 38,447 31,234 30,938
* Lipper provides data on a monthly basis, so for comparative purposes, the
Lipper Average and S&P 500 Index since inception returns reflect the
Portfolio's closest calendar month-end performance of 4/30/95.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
2 The Lipper Variable Insurance Products (VIP) Growth Average is calculated
by Lipper, Inc., and reflects the investment return of certain portfolios
underlying variable life and annuity products. These returns are net of
investment fees and fund expenses, but not product charges.
3 The S&P 500 Composite Stock Price Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The S&P 500 is an
unmanaged index that includes the reinvestment of all dividends, but does
not reflect the payment of transaction costs and advisory fees associated
with an investment in the Portfolio. The securities that comprise the S&P
500 may differ substantially from the securities in the Portfolio.
<TABLE>
<CAPTION>
Performance Summary
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Six Since
Average Annual Returns Months 1-Year 3-Year 5-Year Inception*
Prudential Jennison Portfolio Class I1 3.98% 28.27% 31.78% 27.80% 29.67%
--------------------------------------------------------------------------------------------
Lipper (VIP) Growth Avg.2 3.27% 20.98% 23.33% 23.21% 24.07%
--------------------------------------------------------------------------------------------
S&P 500 Index3 -0.43% 7.24% 19.67% 23.80% 24.43%
--------------------------------------------------------------------------------------------
</TABLE>
Prudential Jennison Portfolio Class I inception date: 4/25/95.
The high-growth areas that are the focuses of this Portfolio all experienced
extraordinary volatility in the first six months of 2000. The net result was a
strong gain for its drug, technology and financial holdings, but losses in
communication services and retailers. Overall, The Prudential Series Fund
Prudential Jennison Portfolio Class I 3.98% return was slightly above the 3.27%
Lipper (VIP) Growth Average.
Performance Review
--------------------------------------------------------------------------------
Our largest focus is in technology. We had significant positive contributions to
our return from several holdings, including Intel, Hewlett-Packard, Texas
Instruments and Cisco Systems. Our semiconductor companies (such as Intel and
Texas Instruments) benefited from increasing demand for computer chips. On the
other hand, our position in Microsoft declined in value, primarily because of
the antitrust suit it faces. Motorola shares corrected after reporting
tightening margins and after a very strong climb in 1999. We think its
underlying businesses still have strong growth potential.
Some sectors that had been lagging in 1999 benefited when investors searched
more broadly for growth opportunities that were not as expensive as the
technology and telecommunication stocks. We owned Warner-Lambert, which was
acquired by Pfizer. Our shares, helped by enthusiasm about the combination, made
the largest single contribution to our return. Our financial holdings continued
to benefit from the merger and acquisition activity accompanying global
consolidation in several industries.
In the communications sector, we owned CBS Corporation, which was acquired by
Viacom. The CBS shares had been falling, but the Viacom shares we received in
exchange more than offset the loss. Our return also was hurt by our holdings in
Vodafone AirTouch and America OnLine. We think both are strong companies and the
correction is temporary because companies that own bandwidth, such as these, are
at the heart of the telecommunications expansion.
Fear of rising interest rates and a slowing economy hurt the consumer sector. We
felt the impact particularly in our holdings of Home Depot and Gap.
24
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
We are reducing our commitment to technology and telecommunications, and adding
in growth sectors that are selling at lower premiums to the overall market, such
as pharmaceuticals and financials. Nonetheless, four of our five largest
holdings on June 30 were technology stocks: Intel, Hewlett-Packard, Cisco
Systems and Nokia. These are dominant players in their respective core markets.
During this half-year, we added Corning and Nortel, both because of their
strength in optical computing, and Hewlett-Packard.
Although we increased our drug holdings, we sold our positions in Bristol-Myers
Squibb and Glaxo Wellcome because of product disappointments, as well as our
Schering-Plough shares. We added Pharmacia and Merck, and acquired Pfizer shares
for our Warner-Lambert holdings.
We added Schlumberger to our Portfolio. As the dominant oil service supplier, it
is well positioned to benefit from the increase in drilling inspired by the
current energy shortage. This upswing in drilling is likely to last several
years.
The pace of merger and acquisitions is continuing to be very high as several
global industries consolidate. Our financial holdings are focused on the
dominant firms in this business: Merrill Lynch, Morgan Stanley Dean Witter and
Citigroup. We sold our shares in Chase Manhattan, which we expected to suffer
because a recent change in accounting standards is likely to add volatility to
their reported earnings.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGERS MICHAEL DEL BALSO, KATHLEEN MCCARRAGHER AND SPIROS SEGALAS
[PHOTO OF MICHAEL DEL BALSO]
[PHOTO OF KATHLEEN MCCARRAGHER]
[PHOTO OF SPIROS SEGALAS]
"We think the U.S. economy will slow to a sustainable pace, and equity investors
will regain their confidence by the fourth quarter of 2000. We expect to see the
new electronic- and telecommunications-based economy outperform the old basic
industry sectors in both profit growth and stock price performance. Unless the
upward movement in interest rates continues longer than we expect, we think the
current high price/earnings multiples can be sustained, so stock prices will be
able to rise in line with earnings growth. We are moving toward market sectors
with above-average earnings growth rates, but where share prices are not so high
as to reduce the likelihood we will benefit fully from that growth.
Second-quarter earnings announcements from our holdings have generally been very
strong."
Portfolio Composition
as of 6/30/2000
---------------
Technology 35.4%
Health Care 12.8%
Financials 12.1%
Communication Services 11.8%
Consumer Cyclicals 10.8%
Consumer Staples 9.9%
Cash 4.2%
Capital Goods 2.0%
Energy 1.0%
Top Ten Holdings (% of Portfolio)
as of 6/30/2000
---------------
Pfizer, Inc. 3.9%
Intel Corp. 3.7%
Hewlett-Packard Co. 3.5%
Cisco Systems, Inc. 3.4%
Nokia Corp. 3.4%
Citigroup, Inc. 3.3%
Home Depot, Inc. 3.3%
Vodafone AirTouch Group PLC 3.1%
Viacom, Inc. 2.9%
Qwest Communications Int'l., Inc. 2.7%
Source: Prudential. Holdings are subject to change.
25
<PAGE>
Prudential Series Fund
20/20 Focus Portfolio
June 30, 2000
INVESTMENT GOAL
Long-term growth of capital.
TYPES OF INVESTMENTS
Primarily U.S. companies having strong capital appreciation potential.
INVESTMENT STYLE
A "value" approach of identifying strong companies selling at discount from
their perceived true value and a "growth" approach of seeking companies that
exhibit higher-than-average earnings growth.
$10,000 INVESTED SINCE INCEPTION*
20/20 Focus Lipper (VIP) Growth
Portfolio Class1 Funds Average2 S&P 500 Index3
April|1999 10,000 10,000 10,000
June|1999 10,550 10,424 10,306
December|1999 11,895 12,209 11,099
June|2000 11,240 12,686 11,052
* Lipper provides data on a monthly basis, so for comparative purposes, the
Lipper Average and Index since inception returns reflect the Portfolio's
closest calendar month-end performance of 4/30/99. Performance less than
one year is cumulative. The Portfolio may invest in foreign securities.
Foreign investments are subject to the risk of currency fluctuation and the
impact of social, political and economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Since inception returns not annualized.
2 The Lipper Variable Insurance Products (VIP) Growth Funds Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns are
net of investment fees and fund expenses, but not product charges.
3 The S&P 500 Index is a capital-weighted index representing the aggregate
market value of the common equity of 500 stocks primarily traded on the New
York Stock Exchange. The S&P 500 is an unmanaged index that includes the
reinvestment of all dividends, but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio.
Performance Summary
----------------------------------------------------------------------
Six Since
Average Annual Returns Months 1-Year Inception*
----------------------------------------------------------------------
20/20 Focus Portfolio Class I1 -5.50% 6.54% 10.59%
----------------------------------------------------------------------
Lipper (VIP) Growth Funds Avg.2 3.27% 20.98% 22.38%
----------------------------------------------------------------------
S&P 500 Index3 -0.43% 7.24% 8.95%
----------------------------------------------------------------------
20/20 Focus Portfolio Class I inception date: 5/3/99.
The Prudential Series Fund 20/20 Focus Portfolio declined 5.50% in the first
half of 2000, while the Lipper (VIP) Growth Average returned 3.27%. The markets
were extremely volatile during this period, and both growth and value styles had
periods of strong outperformance, but overall, it was a weak market. Investors
feared that rising interest rates would halt economic growth and reduce the
current value of future earnings, so stocks that are particularly dependent on
economic growth suffered sharp declines--cyclical stocks such as Mead (paper),
Temple Inland (paper), Freeport McMoran Copper & Gold, and Dillards (department
stores). Telecommunication stocks such as NTL (U.K., cable), Loral Space &
Communications, and Vodafone also fell. However, some of our technology holdings
continued to show strong price appreciation.
Performance Review
--------------------------------------------------------------------------------
Paper and metal companies were strongly out of favor, despite strong and
improving business fundamentals. Our holdings in these industries had a
substantial negative impact on our return.
We are well into an upswing in HMO pricing. As HMOs become more profitable, they
can afford to give hospitals better deals and reduce pricing pressures on drug
companies. Healthcare earnings generally are improving, and their stock prices
are beginning to reflect this improvement. Our drug holdings are benefiting from
industry consolidation, while their relatively low share prices and steadier
growth are attracting investors away from more expensive growth stocks. Pfizer,
Tenet Healthcare, and American Home Products were among the positive
contributors to our return.
Not all telecommunications and technology stocks declined during the period. We
had very strong returns from Texas Instruments, Hewlett-Packard, EMC, Cisco
Systems, and Harris.
26
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
Both Tom Jackson and Sig Segalas look for individual companies that are strongly
attractive to their investment disciplines.
Tom Jackson looks for bargains. He employs a strict value investment style to
buy stocks whose prices he believes are too low, given their underlying
earnings, sales, cash flow, or book value.
Sig Segalas employs a growth investment style, concentrating on stocks of
established companies that he believes will have superior absolute and relative
earnings growth.
We took advantage of the buying opportunity presented by the correction in
technology and telecommunications stock prices to add Hewlett-Packard, AT&T
Liberty Media Group, Nokia, and Ericsson, among others.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGERS THOMAS R. JACKSON AND SPIROS SEGALAS
[PHOTO OF THOMAS R. JACKSON]
[PHOTO OF SPIROS SEGALAS]
"We believe investors are becoming more confident that the Federal Reserve will
accept that the U.S. economy has slowed to a sustainable pace. In a moderately
expanding economy, investors are more likely to focus on a company's earnings
profile. Fewer stocks will be carried by optimistic projections. These
conditions could revive the cyclical stock rally of 1999 and also help our drug,
insurance, and healthcare companies. However, we believe the new electronic- and
telecommunications-based economy will continue to show strong profit growth and
stock price performance. Unless the upward movement in interest rates continues
longer than we expect, we think the current high price/earnings multiples of
these companies can be sustained. As a result, stock prices will be able to rise
in line with earnings growth."
Sector Breakdown (% of Assets)
Consumer Growth & Staples 30.3%
Technology 24.7%
Finance 10.6%
Utilities 9.6%
Industrials 8.3%
Consumer Cyclicals 6.8%
Cash & Equivalents 9.7%
Largest Stock Industries (% of Assets)
Computer Services 15.0%
Telecommunications 13.9%
Hospital/Healthcare 10.8%
Retail 6.8%
Financial Services 6.7%
Top 5 Growth Holdings (% of Assets)
Hewlett-Packard Co. 3.9%
Citigroup, Inc. 3.5%
Pfizer, Inc. 3.4%
EMC Corp. 3.3%
Merrill Lynch & Co. 3.2%
Top 5 Value Holdings (% of Assets)
Tenet Healthcare 4.2%
HCA - The Healthcare Company 4.1%
Eastman Kodak Co. 3.4%
Philip Morris 3.2%
Loews Corp. 3.1%
Source: Prudential. Holdings are subject to change.
27
<PAGE>
Prudential Series Fund
Small Capitalization Stock Portfolio
June 30, 2000
INVESTMENT GOAL
Seeks long-term growth of capital that corresponds to the price and yield
performance of the S&P SmallCap 600 Index./3/
TYPES OF INVESTMENTS
Primarily stocks of the S&P SmallCap 600 Index.
INVESTMENT STYLE
The Portfolio attempts to hold stocks comprising the S&P SmallCap 600 Index in
approximately the same proportions. The S&P SmallCap 600 Index contains stocks
of small companies with market capitalizations generally less than $1.2
billion.
$10,000 INVESTED SINCE INCEPTION*
Small Capitalization Lipper (VIP) Small S&P SmallCap
Stock Portfolio1 Cap Avg.2 600 Index3
April|95 10,000 10,000 10,000
June|95 10,681 10,648 10,713
11,996 12,023 12,138
June|96 13,224 13,735 13,501
14,367 14,359 14,726
June|97 16,022 15,585 16,428
17,983 17,178 18,494
June|98 19,037 18,492 19,622
17,846 17,828 18,251
June|99 18,773 19,721 19,171
20,109 25,209 20,516
June|2000 21,613 27,350 21,937
* Lipper provides data on a monthly basis, so for comparative purposes, the
Lipper Average and the S&P SmallCap 600 Index since inception returns
reflect the Portfolio's closest calendar month-end performance of 4/30/95.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
2 The Lipper Variable Insurance Products (VIP) Small Cap Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns are
net of investment fees and fund expenses, but not product charges.
3 The S&P Small Capitalization 600 Index is a capital-weighted index
representing the aggregate market value of the common equity of 600
small-company stocks. The S&P SmallCap 600 Index is an unmanaged index that
includes the reinvestment of all dividends, but does not reflect the
payment of transaction costs and advisory fees associated with an
investment in the Portfolio. The S&P SmallCap 600 Index is not the only
index that may be used to characterize performance of this Portfolio, and
other indexes may portray different comparative performance.
<TABLE>
<CAPTION>
Performance Summary
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Six Since
Average Annual Returns Months 1-Year 3-Year 5-Year Inception*
--------------------------------------------------------------------------------------------
Small Capitalization Stock Portfolio1 7.48% 15.13% 10.49% 15.14% 16.03%
--------------------------------------------------------------------------------------------
Lipper (VIP) Small Cap. Avg.2 6.79% 34.61% 18.09% 18.91% 19.57%
--------------------------------------------------------------------------------------------
S&P SmallCap 600 Index3 6.93% 14.43% 10.12% 15.41% 16.41%
--------------------------------------------------------------------------------------------
</TABLE>
Small Capitalization Stock Portfolio inception date: 4/25/95.
The Prudential Series Fund Small Capitalization Stock Portfolio returned 7.48%,
slightly more than the index, even after the inclusion of transaction costs and
fees for the Portfolio.
In a very volatile year, small- and mid-cap stocks were the best-performing
capitalization sectors of the U.S. equity market. However, returns on different
economic sectors varied widely. The best performing sectors, by a large margin,
were healthcare and energy, with average returns above 40%. Consumer cyclicals
sector was the most significant drag on the Index. The sector's 7% decline was
exceeded only by the tiny communication services, basic materials, and
transportation groups. The giant technology sector averaged a mediocre return
that reflected a wide dispersion of individual industry performances.
The Standard & Poor's Small Capitalization 600 Index is an unmanaged index.
Standard & Poor's neither sponsors nor endorses the Small Capitalization Stock
Portfolio. Investors cannot directly invest in any index, including the S&P 600
SmallCap Index.
Performance Review
--------------------------------------------------------------------------------
The strong return of the S&P SmallCap 600 in a generally declining market for
equity was due primarily to healthcare stocks. Hospital managers, drug
companies, and managed care firms were all among the leading industries, with
returns above 45%. Improved healthcare pricing and the attractive value of
healthcare stocks when compared to technology shares combined to their
advantage. Oil and gas producers also had strong returns. Energy prices rose as
OPEC constrained production, non-OPEC suppliers neared their production
capacities and demand increased.
Almost a quarter of the index consists of technology stocks. Consequently, the
modestly positive return of the sector was an important contributor to the
index's performance. Some industries--such as electronic instruments,
biotechnology, and semiconductors--were among the period's strongest performers,
with returns above 65%. Others--such as computer services and computer
peripherals--were among the worst, with steep declines in share prices. This
diversity of returns suggests that investors are becoming more selective.
The steepest negative returns came from industries in the small communications
services group. Long distance telephone companies had a terrible half-year, and
basic materials--such as aluminum and iron and steel--also lost considerable
ground. However, the consumer cyclicals group--including leisure, home
furnishings and personal care companies, among others--had a much larger impact
on the Index because it is the second-largest group in the S&P 600 (at 17%). Its
7% decline was a significant factor in keeping the overall index from posting an
even better return.
28
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
The Small Capitalization Stock Portfolio attempts to hold the 600 stocks
included in the S&P SmallCap 600 Index and to duplicate its performance. These
are stocks of companies with an average market value of about $1.1 billion. Such
stocks are more volatile than the shares of large, more established companies.
The Portfolio management team invests funds received while trying to minimize
commission and transaction costs.
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGER WAI C. CHIANG
[PHOTO OF WAI C. CHIANG]
"The tremendous variability in the fortunes of the biotechnology smallcap sector
is a good illustration of the advantages of indexing. The S&P SmallCap
Biotechnology Index shot up 244% between the beginning of the year and its peak
on March 6. Then it dropped 59%, giving up almost all those gains, by April 17.
By the end of the half-year, it had regained 75%. Over time, it has been an
excellent investment, but it took a strong stomach to weather the ups and downs.
If you had bought at the wrong time, you could have had substantial losses.
Because it is diversified over many economic sectors, the Small Capitalization
Stock Portfolio avoided such extreme performances.
"Diversification over market capitalization sectors also can even out your
return over time. Over this half-year, the small-cap stocks beat large caps by a
respectable margin, but for several prior years the S&P SmallCap 600 has trailed
the large-cap S&P 500 Index. Because these two market capitalization sectors
don't always move in the same direction, combining investments in both large-
and small-cap portfolios can provide the benefits of diversification."
S&P SmallCap 600 Index
Total Return by Sector
as of 6/30/2000
---------------
Health Care 45.9%
Energy 42.9%
Capital Goods 7.2%
Financials 6.1%
Technology 4.0%
Consumer Staples 2.0%
Utilities -0.0%
Consumer Cyclicals -7.0%
Transportation -7.6%
Basic Materials -9.6%
Communication Services -26.9%
S&P SmallCap 600 Index 6.9%
Source: Standard & Poor's.
S&P SmallCap 600 Index Composition
as of 6/30/2000
---------------
Technology 22.9%
Consumer Cyclicals 17.5%
Capital Goods 14.1%
Health Care 12.3%
Financials 10.7%
Consumer Staples 8.1%
Energy 4.7%
Basic Materials 3.7%
Transportation 2.9%
Utilities 2.9%
Communication Services 0.2%
Source: Standard & Poor's. Holdings are subject to change.
Top Ten Holdings (% of Portfolio)
as of 6/30/2000
---------------
Mercury Interactive Corp. 1.8%
IDEC Pharmaceuticals Corp. 1.2%
International Rectifier Corp. 0.8%
Lattice Semiconductor Corp. 0.8%
Charles Schwab Corp. 0.8%
Protein Design Labs, Inc. 0.7%
Vertex Pharmaceuticals, Inc. 0.7%
RSA Security, Inc. 0.6%
Digital Microwave Corp. 0.6%
Techne Corp. 0.6%
Source: Prudential. Holdings are subject to change.
29
<PAGE>
Prudential Series Fund
Global Portfolio
June 30, 2000
INVESTMENT GOAL
Long-term growth of capital.
TYPES OF INVESTMENTS
Primarily common stock and common stock equivalents of U.S. and foreign
corporations.
INVESTMENT STYLE
The Portfolio uses a "growth" investment approach, coupled with a theme-oriented
view of the markets, to identify companies that seem best positioned to take
advantage of global changes.
$10,000 INVESTED OVER TEN YEARS
Lipper (VIP) Morgan Stanley
Global Portfolio/1/ Global Avg./2/ World Index/3/
June|90 10,000 10,000 10,000
9,042 9,188 8,965
June|91 9,428 9,625 9,510
10,071 10,590 10,604
June|92 10,062 10,699 9,912
9,727 10,531 10,050
June|93 11,058 11,931 11,573
13,923 13,875 12,311
June|94 13,383 13,587 12,758
13,243 13,754 12,936
June|95 14,494 14,468 14,119
15,345 15,607 15,616
June|96 16,918 16,898 16,722
18,367 18,046 17,721
June|97 20,660 20,412 20,447
19,649 20,277 20,515
June|98 23,448 23,301 23,929
24,576 23,351 25,507
June|99 26,970 25,284 27,678
36,439 31,603 31,868
June|2000 36,079 30,536 31,053
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
2 The Lipper Variable Insurance Products (VIP) Global Average is calculated
by Lipper, Inc., and reflects the investment return of certain portfolios
underlying variable life and annuity products. These returns are net of
investment fees and fund expenses, but not product charges.
3 The Morgan Stanley World Index is a weighted index comprised of
approximately 1,500 companies listed on the stock exchanges of the United
States, Europe, Canada, Australia, New Zealand and the Far East. The
combined market capitalization of these companies represents approximately
60% of the aggregate market value of the stock exchanges in the countries
comprising the World Index. The World Index is an unmanaged index that
includes the reinvestment of all dividends, but does not reflect the
payment of transaction costs and advisory fees associated with an
investment in the Portfolio. The securities that comprise the World Index
may differ substantially from the securities in the Portfolio. The World
Index is not the only index that may be used to characterize performance of
global funds, and other indexes may portray different comparative
performance.
Performance Summary
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
--------------------------------------------------------------------------------
Global Portfolio1 -0.99% 33.77% 20.42% 20.01% 13.69%
--------------------------------------------------------------------------------
Lipper (VIP) Global Avg.2 -0.25% 28.06% 18.74% 18.88% 11.80%
--------------------------------------------------------------------------------
Morgan Stanley World Index3 -2.56% 12.19% 14.95% 17.07% 12.00%
--------------------------------------------------------------------------------
Global Portfolio inception date: 9/19/88.
The Prudential Series Fund Global Portfolio's 0.99% loss over the first half of
2000 slightly trailed the 0.25% decline of the Lipper (VIP) Global Average, but
both were more modest than the 2.56% decline of the MSCI World Index. Over the
past 12 months, the Portfolio remained well ahead of the Lipper Average. A sharp
and deep turnaround in global stock markets produced negative six-month returns
in most markets. The Portfolio's U.S. holdings had a strong positive return, but
the poor performance of its investments in Japan, Sweden, and the United Kingdom
offset the benefit. Software and telecommunications services stocks, focuses of
the Portfolio, peaked and gave back some of their earlier gains.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation, political and social risks and
illiquidity.
Performance Review
--------------------------------------------------------------------------------
The leading equipment and services companies in technology, media and
telecommunications (TMT) have enormous growth prospects. However, the wide
recognition of their potential led to a global explosive upward movement in
their shares--to very expensive levels even for their huge profit potential.
Prices corrected in March, April and May 2000, then recovered somewhat. Among
our holdings, our Internet-related companies and Japanese stocks hurt our return
most. However, our U.S. technology companies were among the largest contributors
to our return, including a semiconductor design company, PMC-Sierra (U.S.); a
software company, Oracle (U.S.); and a semiconductor company, Texas Instruments
(U.S.). We also did well on Thomson Multimedia (Fr.), a consumer electronics
firm. We took some profits on these stocks, as well as on other companies in
these groups, but they still are among our largest holdings. Recent acquisitions
Juniper Networks (U.S.) and Micron Technology (U.S.) helped our return. We added
Micron in mid April, after the bear market in TMT stocks brought down their
price.
Our position in USA Networks reduced our return. Its shares suffered from fears
that higher interest rates would slow consumer spending and hurt its Home
Shopping Network. So far there is no sign of this.
We owned several banks that were hurt by the global fear of rising interest
rates as well as by the attraction of investors to the greater sizzle of TMT.
Bank of Scotland and Barclays Bank (both U.K.), Wells Fargo (U.S.), Unicredito
Italiano (Italy), Bank of Ireland (Ireland), and Fuji Bank (Japan) were among
the drags on our return.
30
<PAGE>
Strategy Session
--------------------------------------------------------------------------------
We sold most of our shares of Softbank, a large Japanese conglomerate of
Internet-related businesses. We bought Ericsson (Sweden), which is a leader in
telecommunications infrastructure equipment and also a major handset
manufacturer. We think the greatest growth potential now is to be found in
companies that build the information network that powers the new services.
We added JDS Uniphase and Micron Technology in mid April, after the bear market
in TMT stocks brought down their price. JDS Uniphase is a leader in the use of
light waves (instead of electricity) to carry information, while Micron is among
the world's largest manufacturers of DRAMs (computer memory chips).
We added Barclays (U.K.), Banca Intesa (Italy), and Citigroup (U.S.).
Outlook
--------------------------------------------------------------------------------
PORTFOLIO MANAGERS DANIEL J. DUANE AND MICHELLE PICKER
[PHOTO OF DANIEL J. DUANE]
[PHOTO OF MICHELLE PICKER]
"The large issue now is how to deal with the fact that TMT stocks still offer
the best earnings growth prospects on the market, but also are very expensive
compared with other sectors even after the correction in March and April. Since
investors are becoming more sensitive to how much they pay for growth, trimming
higher-priced positions and shopping for good value when purchasing are key. We
are gradually taking profits in some of our appreciated TMT holdings, and are
building our portfolio in other economic sectors. We expect to find better
values outside the United States, where the stock markets already have had large
gains in the past five years."
Geographic Allocation
as of 6/30/2000
---------------
United States 41.5%
Continental Europe 28.3%
Cash & Equivalents 15.0%
Japan 6.3%
Asia 4.1%
Latin America 2.5%
Pacific Basin 2.3%
Top Ten Holdings (% of Portfolio)
as of 6/30/2000
---------------
U.S. Treasury Bill 09/14/00 4.7%
Time-Warner, Inc. 3.6%
Solectron Corp. 3.4%
Vodafone AirTouch 3.1%
Oracle Corp. 3.0%
Citigroup, Inc. 2.8%
Electronics Arts Inc. 2.4%
Nokia (AB) oyj 2.3%
USA Networks Inc. 2.2%
PMC-Sierra, Inc. 2.1%
Source: Prudential. Holdings are subject to change.
31
<PAGE> 1
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost: $1,166,676,459).... $1,166,676,459
Cash............................................ 720,516
Interest receivable............................. 8,409,323
Receivable for capital stock sold............... 1,047,232
--------------
Total Assets.................................. 1,176,853,530
--------------
LIABILITIES
Payable for capital stock repurchased........... 8,798,835
Payable to investment adviser................... 1,149,342
Accrued expenses................................ 104,965
--------------
Total Liabilities............................. 10,053,142
--------------
NET ASSETS........................................ $1,166,800,388
==============
Net assets were comprised of:
Common stock, at $0.01 par value.............. $ 1,166,800
Paid-in capital, in excess of par............. 1,165,633,588
--------------
Net Assets, June 30, 2000....................... $1,166,800,388
==============
Net asset value, and redemption price per share,
116,680,039 outstanding shares of common stock
(authorized 170,000,000 shares)................. $ 10.00
==============
STATEMENT OF OPERATIONS (UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Interest........................................ $ 37,694,169
--------------
EXPENSES
Investment advisory fee......................... 2,426,185
Shareholders' reports........................... 91,000
Accounting fees................................. 25,000
Custodian's fees and expenses................... 21,000
Audit fee and expenses.......................... 8,000
Commitment fee on syndicated credit agreement... 6,000
Transfer agent's fees and expenses.............. 5,000
Legal fees and expenses......................... 3,000
Directors' fees................................. 2,000
Miscellaneous................................... 3,384
--------------
Total expenses................................ 2,590,569
Less: custodian fee credit...................... (4,604)
--------------
Net expenses.................................. 2,585,965
--------------
NET INVESTMENT INCOME............................. 35,108,204
--------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ $ 35,108,204
==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 35,108,204 $ 54,005,446
Net realized gain on investments........................ -- 10,627
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... 35,108,204 54,016,073
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... (35,108,204) (54,005,446)
Distributions from net realized capital gains........... -- (10,627)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (35,108,204) (54,016,073)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [55,031,773 and 122,718,909 shares,
respectively].......................................... 550,317,734 1,227,189,093
Capital stock issued in reinvestment of dividends and
distributions [3,510,820 and 5,401,607 shares,
respectively].......................................... 35,108,204 54,016,073
Capital stock repurchased [(75,409,978) and (86,592,293)
shares, respectively].................................. (754,099,772) (865,922,932)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL STOCK TRANSACTIONS.............................. (168,673,834) 415,282,234
-------------- --------------
TOTAL INCREASE IN NET ASSETS.............................. (168,673,834) 415,282,234
NET ASSETS:
Beginning of period..................................... 1,335,474,222 920,191,988
-------------- --------------
End of period........................................... $1,166,800,388 $1,335,474,222
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A1
<PAGE> 2
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
DIVERSIFIED BOND PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost:
$1,250,401,002).......................... $1,215,763,266
Cash....................................... 772
Interest and dividends receivable.......... 20,777,674
Receivable for investments sold............ 16,042,755
Receivable for investments sold short (Note
2)....................................... 8,329,133
Receivable for capital stock sold.......... 218,479
--------------
Total Assets............................. 1,261,132,079
--------------
LIABILITIES
Payable for investments purchased.......... 39,907,192
Investments sold short at value (proceeds
$8,251,875 including accrued interest)
(Note 2)................................. 8,288,568
Payable to investment adviser.............. 1,191,170
Payable for capital stock repurchased...... 770,526
Accrued expenses and other liabilities..... 85,283
Interest payable........................... 78,520
Due to broker -- variation margin.......... 27,344
--------------
Total Liabilities........................ 50,348,603
--------------
NET ASSETS................................... $1,210,783,476
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... 1,093,136
Paid-in capital, in excess of par........ 1,191,279,365
--------------
1,192,372,501
Undistributed net investment income........ 98,545,756
Accumulated net realized loss on
investments.............................. (45,454,883)
Net unrealized depreciation on
investments.............................. (34,679,898)
--------------
Net assets, June 30, 2000.................. $1,210,783,476
==============
Net asset value and redemption price per
share, 109,313,639 outstanding shares of
common stock (authorized 170,000,000
shares).................................. $ 11.08
==============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Interest................................... $ 44,025,610
--------------
EXPENSES
Investment advisory fee.................... 2,420,616
Shareholders' reports...................... 86,000
Accounting fees............................ 52,000
Custodian's fees and expenses.............. 21,000
Audit fee and expenses..................... 7,000
Commitment fee on syndicated credit
agreement................................ 6,000
Transfer agent's fees and expenses......... 5,000
Legal fees and expenses.................... 3,000
Directors' fees............................ 2,000
Miscellaneous.............................. 2,373
--------------
Total expenses........................... 2,604,989
--------------
Less: custodian fee credit................. (12,648)
--------------
Net expenses............................. 2,592,341
--------------
NET INVESTMENT INCOME........................ 41,433,269
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. (17,985,534)
Futures.................................. 728,377
--------------
(17,257,157)
--------------
Net change in unrealized appreciation:
Investments.............................. 9,118,160
Futures.................................. 541,375
Short sale............................... (36,693)
--------------
9,622,842
--------------
NET LOSS ON INVESTMENTS...................... (7,634,315)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 33,798,954
==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 41,433,269 $ 76,304,703
Net realized loss on investments........................ (17,257,157) (26,222,144)
Net change in unrealized appreciation (depreciation) on
investments............................................ 9,622,842 (58,723,850)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. 33,798,954 (8,641,291)
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income.................... (19,037,496) --
Distributions from net realized capital gains........... (154,720) (3,302,269)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS....................... (19,192,216) (3,302,269)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [2,893,878 and 26,987,966 shares,
respectively].......................................... 31,830,011 296,061,460
Capital stock issued in reinvestment of dividends and
distributions [1,738,425 and 298,578 shares,
respectively].......................................... 19,192,216 3,302,269
Capital stock repurchased [(9,873,656) and (14,272,876)
shares, respectively].................................. (108,677,439) (156,161,922)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL STOCK TRANSACTIONS.............................. (57,655,212) 143,201,807
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... (43,048,474) 131,258,247
NET ASSETS:
Beginning of period..................................... 1,253,831,950 1,122,573,703
-------------- --------------
End of period(a)........................................ $1,210,783,476 $1,253,831,950
============== ==============
(a) Includes undistributed net investment income of:.... $ 98,545,756 $ 76,304,703
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A2
<PAGE> 3
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GOVERNMENT INCOME PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost: $313,671,938) ........ $307,031,935
Interest .......................................... 3,690,240
Receivable for capital stock sold ................. 147,928
------------
Total Assets .................................... 310,870,103
------------
LIABILITIES
Payable for investments purchased ................. 24,533,802
Payable to investment adviser ..................... 284,553
Payable for capital stock repurchased ............. 241,110
Due to broker -- variation margin ................. 64,328
Accrued expenses and other liabilities ............ 61,509
------------
Total Liabilities ............................... 25,185,302
------------
NET ASSETS .......................................... $285,684,801
============
Net assets were comprised of:
Common stock, at $0.01 par value ................ $ 241,979
Paid-in capital, in excess of par ............... 271,336,699
------------
271,578,678
Undistributed net investment income ............... 25,815,480
Accumulated net realized loss on investments ...... (5,119,518)
Net unrealized depreciation on investments ........ (6,589,839)
------------
Net assets, June 30, 2000. ....................... $285,684,801
============
Net asset value and redemption price per
share, 24,197,886 outstanding shares of
common stock (authorized 65,000,000
shares) ........................................... $ 11.81
============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Interest .......................................... $ 9,931,266
------------
EXPENSES
Investment advisory fee ........................... 609,152
Accounting fees ................................... 49,000
Shareholders' reports ............................. 23,000
Custodian's fees and expenses ..................... 6,000
Transfer agent's fees and expenses ................ 4,000
Commitment fee on syndicated credit agreement ..... 2,000
Audit fees and expenses ........................... 2,000
Directors' fees ................................... 2,000
Legal fees and expenses ........................... 600
Miscellaneous ..................................... 80
------------
Total expenses .................................. 697,832
Less: custodian fee credit ........................ (8,010)
------------
Net expenses .................................... 689,822
------------
NET INVESTMENT INCOME ............................... 9,241,444
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on:
Investments ..................................... (3,738,143)
Futures ......................................... (1,084,972)
------------
(4,823,115)
------------
Net change in unrealized appreciation
(depreciation) on:
Investments ..................................... 8,810,079
Futures ......................................... (226,008)
------------
8,584,071
------------
NET GAIN ON INVESTMENTS ............................. 3,760,956
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS .......................................... $ 13,002,400
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ................................... $ 9,241,444 $ 22,098,715
Net realized gain (loss) on investments ................. (4,823,115) 626,818
Net change in unrealized appreciation (depreciation) on
investments ........................................... 8,584,071 (33,763,076)
------------ --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ............................................ 13,002,400 (11,037,543)
------------ --------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income .................. (5,524,679) --
Distributions from net realized capital gains ......... (865,700) --
------------ --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ..................... (6,390,379) --
------------ --------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [380,066 and 1,551,024 shares,
respectively] ......................................... 4,763,627 18,087,112
Capital stock issued in reinvestment of dividends and
distributions [545,254 and-0-shares, respectively] .... 6,390,379 --
Capital stock repurchased [(5,771,781) and (9,880,838)
shares, respectively] ................................. (67,562,117) (114,780,632)
------------ --------------
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS ............................................ (56,408,111) (96,693,520)
------------ --------------
TOTAL DECREASE IN NET ASSETS .............................. (49,796,090) (107,731,063)
NET ASSETS:
Beginning of period ..................................... 335,480,891 443,211,954
------------ --------------
End of period (a) ....................................... $285,684,801 $ 335,480,891
============ ==============
(a) Includes undistributed net investment income of: .... $ 25,815,480 $ 22,098,715
------------ --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A3
<PAGE> 6
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost: $4,223,653,578).... $4,531,594,222
Cash............................................ 1,114,092
Receivable for investments sold................. 80,377,762
Interest and dividends receivable............... 26,123,530
Receivable for securities lending income........ 8,039,638
Due from broker -- variation margin............. 336,413
Receivable for capital stock sold............... 282,322
--------------
Total Assets.................................. 4,647,867,979
--------------
LIABILITIES
Collateral for securities on loan............... 549,263,308
Payable for investments purchased............... 85,802,351
Securities lending rebate payable............... 6,494,516
Payable to investment adviser................... 5,424,651
Payable for capital stock repurchased........... 2,361,382
Accrued expenses and other liabilities.......... 335,335
Interest payable for short positions............ 1,984
--------------
Total Liabilities............................. 649,683,527
--------------
NET ASSETS........................................ $3,998,184,452
==============
Net assets were comprised of:
Common stock, at $0.01 par value.............. $ 2,597,442
Paid-in capital, in excess of par............. 3,619,831,557
--------------
3,622,428,999
Undistributed net investment income............. 40,136,790
Accumulated net realized gain on investments.... 27,135,156
Net unrealized appreciation on investments...... 308,483,507
--------------
Net assets, June 30, 2000....................... $3,998,184,452
==============
Net asset value and redemption price per share,
259,744,181 outstanding shares of common stock
(authorized 370,000,000 shares)................. $ 15.39
==============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Dividends (net of $113,693 foreign withholding
tax).......................................... $ 12,292,960
Interest........................................ 83,210,207
Income from securities loaned, net.............. 928,244
--------------
96,431,411
--------------
EXPENSES
Investment advisory fee......................... 11,317,778
Shareholders' reports........................... 300,000
Accounting fees................................. 117,000
Custodian's fees and expenses................... 87,000
Audit fee and expenses.......................... 27,000
Commitment fee on syndicated credit agreement... 21,000
Legal fees and expenses......................... 9,000
Transfer agent's fees and expenses.............. 5,000
Directors' fees................................. 2,000
Miscellaneous................................... 7,950
--------------
Total expenses................................ 11,893,728
Less: custodian fee credit...................... (30,558)
--------------
Net expenses.................................. 11,863,170
--------------
NET INVESTMENT INCOME............................. 84,568,241
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments................................... 37,048,475
Futures....................................... 14,717
--------------
37,063,192
--------------
Net change in unrealized appreciation
(depreciation) on:
Investments................................... (72,515,152)
Futures....................................... 1,064,445
--------------
(71,450,707)
--------------
NET LOSS ON INVESTMENTS........................... (34,387,515)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ $ 50,180,726
==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................... $ 84,568,241 $ 184,232,537
Net realized gain on investments......................... 37,063,192 444,194
Net change in unrealized appreciation (depreciation) on
investments............................................ (71,450,707) 111,038,163
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... 50,180,726 295,714,894
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income..................... (44,823,492) (183,840,496)
Distributions from net realized capital gains............ (308,721) (16,406,123)
Distributions in excess of net realized capital gains.... -- (9,619,315)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (45,132,213) (209,865,934)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [1,114,890 and 3,595,334 shares,
respectively].......................................... 16,968,248 54,694,876
Capital stock issued in reinvestment of dividends and
distributions [3,018,877 and 13,845,674 shares,
respectively].......................................... 45,132,213 209,865,934
Capital stock repurchased [(30,014,439) and (49,920,477)
shares, respectively].................................. (456,104,753) (759,229,309)
-------------- --------------
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS............................................. (394,004,292) (494,668,499)
-------------- --------------
TOTAL DECREASE IN NET ASSETS............................... (388,955,779) (408,819,539)
NET ASSETS:
Beginning of period...................................... 4,387,140,231 4,795,959,770
-------------- --------------
End of period(a)......................................... $3,998,184,452 $4,387,140,231
============== ==============
(a) Includes undistributed net investment income of:..... $ 40,136,790 $ 392,041
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A4
<PAGE> 7
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost:
$5,082,760,902).......................... $5,397,889,319
Cash....................................... 112,043
Receivable for investments sold short...... 169,123,840
Interest and dividends receivable.......... 30,015,221
Receivable for investments sold short...... 3,254,533
Due from broker -- variation margin........ 1,592,491
Receivable for capital stock sold.......... 647,871
Receivable for securities lending income... 514,378
--------------
Total Assets............................. 5,603,149,696
--------------
LIABILITIES
Collateral for securities on loan.......... 648,016,591
Payable for investments purchased.......... 180,841,097
Payable to investment adviser.............. 7,011,441
Securities lending rebate payable.......... 6,472,530
Investments sold short, at value (proceeds
received $3,224,344) (Note 2)............ 3,238,681
Payable for capital stock repurchased...... 2,663,480
Accrued expenses and other liabilities..... 542,510
Interest payable for short position........ 30,188
--------------
Total Liabilities........................ 848,816,518
--------------
NET ASSETS................................... $4,754,333,178
==============
Net assets were comprised of:
Common stock, at $0.01 par value......... 2,741,036
Paid-in capital, in excess of par........ 4,209,322,145
--------------
4,212,063,181
Undistributed net investment income........ 207,728,336
Accumulated net realized gain on
investments.............................. 22,549,997
Net unrealized appreciation on
investments.............................. 311,991,664
--------------
Net assets, June 30, 2000.................. $4,754,333,178
==============
Net asset value and redemption price per
share, 274,103,632 outstanding shares of
common stock (authorized 370,000,000
shares).................................... $ 17.35
==============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Dividends (net of $256,421 foreign
withholding tax)......................... $ 22,040,465
Income from securities loaned, net......... 251,212
Interest................................... 74,421,789
--------------
96,713,466
--------------
EXPENSES
Investment advisory fee.................... 14,443,923
Shareholders' reports...................... 348,000
Accounting fees............................ 109,000
Custodian's fees and expenses.............. 99,000
Audit fee and expenses..................... 20,000
Commitment fee on syndicated credit
agreement................................ 25,000
Legal fees and expenses.................... 10,000
Transfer agent's fees and expenses......... 5,000
Directors' fees............................ 2,000
Miscellaneous.............................. 21,823
--------------
Total expenses........................... 15,083,746
Less: custodian fee credit................. (25,151)
--------------
Net expenses............................. 15,058,595
--------------
NET INVESTMENT INCOME........................ 81,654,871
--------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments................................ 28,005,905
Futures.................................... 11,964,917
--------------
39,970,822
--------------
Net change in unrealized appreciation on:
Investments................................ (96,364,001)
Futures.................................... (1,605,638)
--------------
(97,969,639)
--------------
NET LOSS ON INVESTMENTS...................... (57,998,817)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 23,656,054
==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................... $ 81,654,871 $ 168,147,775
Net realized gain on investments......................... 39,970,822 67,028,322
Net change in unrealized appreciation (depreciation) on
investments............................................ (97,969,639) 158,247,390
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... 23,656,054 393,423,487
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................... (42,004,729) (240,137)
Distributions from net realized capital gains.......... (67,504,778) (60,930,102)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (109,509,507) (61,170,239)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [1,200,247 and 3,138,333 shares,
respectively].......................................... 20,681,448 53,348,688
Capital stock issued in reinvestment of dividends and
distributions [6,573,200 and 3,554,343 shares,
respectively].......................................... 109,509,507 61,170,239
Capital stock repurchased [(24,158,046) and (42,922,625)
shares, respectively].................................. (415,268,619) (731,489,268)
-------------- --------------
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... (285,077,664) (616,970,341)
-------------- --------------
TOTAL DECREASE IN NET ASSETS............................... (370,931,117) (284,717,093)
NET ASSETS:
Beginning of period...................................... 5,125,264,295 5,409,981,388
-------------- --------------
End of period (a)........................................ $4,754,333,178 $5,125,264,295
============== ==============
(a) Includes undistributed net investment income of:..... $ 207,728,336 $ 168,078,194
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A5
<PAGE> 4
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
HIGH YIELD BOND PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost:
$873,842,613)............................. $ 758,276,387
Interest and dividends receivable........... 17,103,516
Due from manager............................ 941,736
Receivable for investments sold............. 722,238
Receivable for capital stock sold........... 152,020
Receivable for securities lending income.... 97,177
-------------
Total Assets.............................. 777,293,074
-------------
LIABILITIES
Bank overdraft.............................. 92,635
Collateral for securities on loan........... 22,897,220
Payable for investments purchased........... 16,328,173
Payable to investment adviser............... 990,518
Payable for capital stock repurchased....... 260,583
Securities lending rebate payable........... 220,922
Accrued expenses and other liabilities...... 96,138
-------------
Total Liabilities......................... 40,886,189
-------------
NET ASSETS.................................... $ 736,406,885
=============
Net assets were comprised of:
Common stock, at $0.01 par value.......... $ 1,027,257
Paid-in capital, in excess of par......... 822,779,544
-------------
823,806,801
Undistributed net investment income......... 102,584,514
Accumulated net realized loss on
investments............................... (75,359,940)
Net unrealized depreciation on
investments............................... (114,624,490)
-------------
Net assets, June 30, 2000................... $ 736,406,885
=============
Net asset value and redemption price per
share, 102,725,876 outstanding shares of
common stock (authorized 195,000,000
shares)..................................... $ 7.17
=============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Interest.................................... $ 38,975,412
Dividends................................... 2,606,232
Income from securities loaned, net.......... 42,765
-------------
41,624,409
-------------
EXPENSES
Investment advisory fee..................... 2,086,750
Accounting fees............................. 72,600
Shareholders' reports....................... 44,700
Custodian's fee and expenses................ 22,000
Audit fee and expenses...................... 5,000
Transfer agent's fees and expenses.......... 5,000
Commitment fee on syndicated credit
agreement................................. 4,000
Directors' fees............................. 2,000
Legal fees and expenses..................... 2,000
Miscellaneous............................... 1,240
-------------
Total expenses............................ 2,245,290
Less: custodian fee credit.................. (12,137)
-------------
Net expenses.............................. 2,233,153
-------------
NET INVESTMENT INCOME......................... 39,391,256
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments............................... (24,021,874)
Options written........................... 68,000
-------------
(23,953,874)
-------------
Net change in unrealized depreciation on
investments............................... (29,872,990)
-------------
NET LOSS ON INVESTMENTS....................... (53,826,864)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... $ (14,435,608)
=============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income................................... $ 39,391,256 $ 84,257,678
Net realized loss on investments........................ (23,953,874) (42,984,475)
Net change in unrealized depreciation on investments.... (29,872,990) (5,307,921)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. (14,435,608) 35,965,282
------------- -------------
DIVIDENDS
Dividends from net investment income.................. (21,064,420) (2,179,668)
------------- -------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [3,084,426 and 17,182,804 shares,
respectively].......................................... 22,712,941 127,100,943
Capital stock issued in reinvestment of dividends
[2,933,763 and 291,010 shares, respectively]........... 21,064,420 2,179,668
Capital stock repurchased [(10,003,033) and (20,307,030)
shares, respectively].................................. (74,070,995) (150,186,649)
------------- -------------
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... (30,293,634) (20,906,038)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................... (65,793,662) 12,879,576
NET ASSETS:
Beginning of period..................................... 802,200,547 789,320,971
------------- -------------
End of period(a)........................................ $ 736,406,885 $ 802,200,547
============= =============
(a) Includes undistributed net investment income of:.... $ 102,584,514 $ 84,257,678
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A6
<PAGE> 5
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
STOCK INDEX PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost: $2,421,693,015)........ $4,632,248,585
Cash................................................ 82,577
Receivable for capital stock sold................... 5,217,430
Interest and dividends receivable................... 3,559,711
Due from broker -- variation margin................. 417,311
Receivable for securities lending income............ 26,971
--------------
Total Assets...................................... 4,641,552,585
--------------
LIABILITIES
Payable for investments purchased................... 5,350,790
Payable for capital stock repurchased............... 3,574,620
Payable to investment adviser....................... 3,384,373
Accrued expenses and other liabilities.............. 308,973
Payable for securities lending rebate............... 6,743
--------------
Total Liabilities................................. 12,625,499
--------------
NET ASSETS............................................ $4,628,927,086
==============
Net assets were comprised of:
Common stock, at $0.01 par value.................. 1,050,526
Paid-in capital, in excess of par................. 2,352,018,287
--------------
2,353,068,813
Undistributed net investment income................. 9,567,144
Accumulated net realized gain on investments........ 56,864,541
Net unrealized appreciation on investments.......... 2,209,426,588
--------------
Net assets, June 30, 2000........................... $4,628,927,086
==============
Net asset value and redemption price per share,
105,052,556 outstanding shares of common stock
(authorized 170,000,000 shares)..................... $ 44.06
==============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Dividends (net of $140,415 foreign withholding
tax).............................................. $ 25,750,240
Interest............................................ 1,854,610
Income from securities loaned, net.................. 20,228
--------------
27,625,078
--------------
EXPENSES
Investment advisory fee............................. 7,945,377
Shareholders' reports............................... 317,000
Custodian's fees and expenses....................... 67,000
Accounting fee...................................... 56,000
Audit fee and expenses.............................. 28,000
Commitment fee on syndicated credit agreement....... 22,000
Directors' fees..................................... 9,800
Legal fees and expenses............................. 9,000
Transfer agent's fees and expenses.................. 5,000
Miscellaneous....................................... 2,403
--------------
Total expenses.................................... 8,461,580
Less: custodian fee credit.......................... (3,416)
--------------
Net expenses........................................ 8,458,164
--------------
NET INVESTMENT INCOME................................. 19,166,914
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on:
Investments....................................... 58,723,760
Futures........................................... 1,178,443
--------------
59,902,203
--------------
Net change in unrealized appreciation on:
Investments....................................... (100,120,922)
Futures........................................... (3,553,245)
--------------
(103,674,167)
--------------
NET LOSS ON INVESTMENTS............................... (43,771,964)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................................ $ (24,605,050)
==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................... $ 19,166,914 $ 44,408,380
Net realized gain on investments......................... 59,902,203 46,195,228
Net change in unrealized appreciation -- depreciation on
investments............................................ (103,674,167) 682,952,950
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. (24,605,050) 773,556,558
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................... (9,915,562) (44,092,588)
Distributions from net realized capital gains.......... (4,659,010) (54,347,010)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (14,574,572) (98,439,598)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [5,464,147 and 19,061,602 shares,
respectively].......................................... 236,393,149 768,257,840
Capital stock issued in reinvestment of dividends and
distributions [355,044 and 2,357,499 shares,
respectively].......................................... 14,574,572 98,439,598
Capital stock repurchased [(5,490,744) and (10,712,263)
shares, respectively].................................. (237,878,533) (434,885,868)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... 13,089,188 431,811,570
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................... (26,090,434) 1,106,928,530
NET ASSETS:
Beginning of period...................................... 4,655,017,520 3,548,088,990
-------------- --------------
End of period (a)........................................ $4,628,927,086 $4,655,017,520
============== ==============
(a) Includes undistributed net investment income of:..... $ 9,567,144 $ 315,792
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A7
<PAGE> 6
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY INCOME PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost: $1,738,740,135).... $1,755,879,262
Foreign currency, at value (cost: $3,174,975)... 3,156,501
Cash............................................ 3,228,223
Receivable for investments sold................. 16,769,324
Interest and dividends receivable............... 5,595,603
Receivable for securities lending income........ 482,757
Receivable for capital stock sold............... 40,043
Deferred expenses and other assets.............. 2,712
--------------
Total Assets.................................. 1,785,154,425
--------------
LIABILITIES
Collateral for securities on loan............... 53,524,300
Securities lending rebate payable............... 3,878,871
Payable for investments purchased............... 2,374,016
Payable to investment adviser................... 1,710,226
Payable for capital stock repurchased........... 1,276,810
Accrued expenses and other liabilities.......... 234,961
--------------
Total Liabilities............................. 62,999,184
--------------
NET ASSETS........................................ $1,722,155,241
==============
Net assets were comprised of:
Common stock, at $0.01 par value.............. 942,079
Paid-in capital, in excess of par............. 1,602,326,343
--------------
1,603,268,422
Undistributed net investment income........... 11,597,212
Accumulated net realized gain on
investments................................. 90,168,954
Net unrealized appreciation on investments.... 17,120,653
--------------
Net assets, June 30, 2000................... $1,722,155,241
==============
Net asset value and redemption price per
share, 94,207,874 outstanding shares of
common stock (authorized 170,000,000
shares)..................................... $ 18.28
==============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Dividends (net of $260,766 foreign withholding
tax).......................................... $ 25,903,447
Interest........................................ 1,235,907
Income from securities loaned, net.............. 163,687
--------------
27,303,041
--------------
EXPENSES
Investment advisory fee......................... 3,576,368
Shareholders' reports........................... 128,000
Accounting fees................................. 49,000
Custodian's fees and expenses................... 36,000
Audit fee and expenses.......................... 12,000
Commitment fee on syndicated credit agreement... 8,000
Transfer agent's fees and expenses.............. 5,000
Legal fees and expenses......................... 4,000
Directors' fees................................. 4,000
Miscellaneous................................... 531
--------------
Total expenses................................ 3,822,899
Less: custodian fee credit...................... (23,884)
--------------
Net expenses.................................. 3,799,015
--------------
NET INVESTMENT INCOME............................. 23,504,026
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments................................... 90,896,506
Foreign currencies............................ (689)
--------------
90,895,817
--------------
Net change in unrealized appreciation on:
Investments................................... (225,104,316)
Foreign currencies............................ (18,474)
--------------
(225,122,790)
--------------
NET LOSS ON INVESTMENTS........................... (134,226,973)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................ $ (110,722,947)
==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................... $ 23,504,026 $ 49,197,688
Net realized gain on investments......................... 90,895,817 196,991,597
Net change in unrealized appreciation/depreciation on
investments............................................ (225,122,790) 1,676,194
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. (110,722,947) 247,865,479
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................... (15,228,194) (47,863,180)
Distributions from net realized capital gains.......... (3,969,841) (228,772,711)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (19,198,035) (276,635,891)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [2,505,161 and 4,932,597 shares,
respectively].......................................... 45,103,356 106,031,268
Capital stock issued in reinvestment of dividends and
distributions [1,076,726 and 14,298,341 shares,
respectively].......................................... 19,198,035 276,635,891
Capital stock repurchased [(13,069,113) and (22,475,612)
shares, respectively].................................. (236,264,528) (472,178,202)
-------------- --------------
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... (171,963,137) (89,511,043)
-------------- --------------
TOTAL DECREASE IN NET ASSETS............................... (301,884,119) (118,281,455)
NET ASSETS:
Beginning of period...................................... 2,024,039,360 2,142,320,815
-------------- --------------
End of period (a)........................................ $1,722,155,241 $2,024,039,360
============== ==============
(a) Includes undistributed net investment income of:..... $ 11,597,212 $ 3,322,069
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A8
<PAGE> 7
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost: $4,965,052,251)........ $5,457,618,332
Cash................................................ 11,923
Dividends and interest receivable................... 10,908,592
Receivable for investments sold..................... 5,194,729
Receivable for capital stock sold................... 1,881,810
--------------
Total Assets...................................... 5,475,615,386
--------------
LIABILITIES
Payable to investment adviser....................... 6,252,193
Payable for capital stock repurchased............... 4,605,407
Accrued expenses and other liabilities.............. 616,776
Withholding Tax Payable............................. 96,189
Distribution fee payable............................ 310
Administration fee payable.......................... 186
--------------
Total Liabilities................................. 11,571,061
--------------
NET ASSETS............................................ $5,464,044,325
==============
Net assets were comprised of:
Common stock, at $0.01 par value.................. $ 2,061,844
Paid-in capital, in excess of par................. 4,479,964,367
--------------
4,482,026,211
Undistributed net investment income............... 32,189,572
Accumulated net realized gain on investments...... 457,266,189
Net unrealized appreciation on investments and
foreign currencies.............................. 492,562,353
--------------
Net assets, June 30, 2000........................... $5,464,044,325
==============
CLASS I:
Net asset value and redemption price per share,
$5,463,447,836/206,161,922 outstanding shares of
common stock (authorized 295,000,000 shares)...... $ 26.50
==============
CLASS II:
Net asset value and redemption price per share,
$596,489/22,517 outstanding shares of common stock
(authorized 5,000,000 shares)..................... $ 26.49
==============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Dividends (net of $184,221 foreign withholding
tax).............................................. $ 43,271,717
Interest............................................ 26,006,743
--------------
69,278,460
--------------
EXPENSES
Investment advisory fee............................. 12,723,445
Distribution Fee -- Class II........................ 494
Administration Fee -- Class II...................... 296
Shareholders' reports............................... 414,000
Custodian expense................................... 95,000
Accounting fees..................................... 50,000
Commitment fee on syndicated credit agreement....... 37,000
Audit fee and expenses.............................. 30,000
Transfer agent's fees and expenses.................. 12,000
Legal fees and expenses............................. 5,000
Directors' fees..................................... 2,000
Miscellaneous expenses.............................. 9,991
--------------
Total expenses.................................... 13,379,226
Less: custodian fee credit.......................... (29,635)
--------------
Net expenses...................................... 13,349,591
--------------
NET INVESTMENT INCOME................................. 55,928,869
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES
Net realized gain on:
Investments....................................... 457,237,724
Foreign currencies................................ 2,338,357
--------------
459,576,081
--------------
Net change in unrealized appreciation (depreciation)
on:
Investments....................................... (857,460,809)
Foreign currencies................................ 136,271
--------------
(857,324,538)
--------------
NET LOSS ON INVESTMENTS AND FOREIGN CURRENCIES........ (397,748,457)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................................ $ (341,819,588)
==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................... $ 55,928,869 $ 108,030,872
Net realized gain on investments and foreign
currencies............................................. 459,576,081 762,123,248
Net change in unrealized depreciation on investments and
foreign currencies..................................... (857,324,538) (132,832,254)
-------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. (341,819,588) 737,321,866
-------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income
Class I................................................ (29,016,687) (105,053,778)
Class II............................................... (4,581) (2,550)
-------------- ---------------
(29,021,268) (105,056,328)
-------------- ---------------
Distributions from net realized capital gains
Class I................................................ (136,935,527) (737,903,685)
Class II............................................... (10,872) (30,961)
-------------- ---------------
(136,946,399) (737,934,646)
-------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (165,967,667) (842,990,974)
-------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [3,187,694 and 8,685,422 shares,
respectively].......................................... 87,731,444 269,993,500
Capital stock issued in reinvestment of dividends and
distributions
[6,358,914 and 29,304,589 shares, respectively]........ 165,967,667 842,990,974
Capital stock repurchased [(19,095,484) and (33,043,224)
shares, respectively].................................. (517,163,773) (1,019,065,758)
-------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL STOCK TRANSACTIONS............................... (263,464,662) 93,918,716
-------------- ---------------
TOTAL DECREASE IN NET ASSETS............................... (771,251,917) (11,750,392)
NET ASSETS:
Beginning of period...................................... 6,235,296,242 6,247,046,634
-------------- ---------------
End of period(a)......................................... $5,464,044,325 $ 6,235,296,242
============== ===============
(a) Includes undistributed net investment income of:..... $ 32,189,572 $ 2,943,614
-------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A9
<PAGE> 8
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL JENNISON PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost: $2,719,430,030).... $3,478,239,086
Cash............................................ 749
Receivable for investments sold................. 8,349,032
Receivable for capital stock sold............... 1,519,254
Interest and dividends receivable............... 1,228,980
Receivable for securities lending, net.......... 436,026
--------------
Total Assets.................................. 3,489,773,127
--------------
LIABILITIES
Payable to investment adviser................... 4,845,097
Payable for investments purchased............... 11,274,047
Payable for capital stock repurchased........... 349,577
Distribution fee payable........................ 465
Administration fee payable...................... 279
Accrued expenses and other liabilities.......... 173,711
--------------
Total Liabilities............................. 16,643,176
--------------
NET ASSETS........................................ $3,473,129,951
==============
Net assets were comprised of:
Common stock, at $0.01 par value.............. $ 1,048,296
Paid-in capital, in excess of par............. 2,473,158,889
--------------
2,474,207,185
Undistributed net investment income........... 923,669
Accumulated net realized gain on
investments................................. 239,190,019
Net unrealized appreciation on investments and
foreign currencies.......................... 758,809,078
--------------
Net assets, June 30, 2000................... $3,473,129,951
==============
Class I:
Net asset value and redemption price per
share, 3,470,354,015/104,745,716 outstanding
shares of common stock (authorized
110,000,000 shares)......................... $ 33.13
==============
Class II:
Net asset value and redemption price per
share, 2,775,935/83,915 outstanding shares
of common stock (authorized 5,000,000
shares)..................................... $ 33.08
==============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Dividends (net of $189,126 foreign withholding
tax).......................................... $ 6,178,414
Interest........................................ 3,995,743
Income from securities loaned, net.............. 565,833
--------------
10,739,990
--------------
EXPENSES
Investment advisory fee......................... 9,532,134
Administration fee -- Class II.................. 285
Distribution fee -- Class II.................... 476
Shareholders' reports........................... 186,000
Accounting fee.................................. 40,000
Custodian's fees and expenses................... 35,000
Audit fees and expenses......................... 17,000
Commitment fee on syndicated credit agreement... 13,000
Legal fees and expenses......................... 5,000
Transfer agent's fees and expenses.............. 5,000
Directors' fees................................. 2,000
Miscellaneous................................... 4,616
--------------
Total expenses................................ 9,840,511
Less: custodian fee credit...................... (24,190)
--------------
Net expenses.................................. 9,816,321
--------------
NET INVESTMENT INCOME............................. 923,669
--------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain on investments................ 240,205,243
--------------
Net change in unrealized appreciation
(depreciation) on:
Investments................................... (133,489,787)
Foreign currencies............................ 22
--------------
(133,489,765)
--------------
NET GAIN ON INVESTMENTS........................... 106,715,478
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......................... $ 107,639,147
==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................... $ 923,669 $ 3,100,657
Net realized gain on investments......................... 240,205,243 147,534,996
Net change in unrealized appreciation (depreciation) on
investments............................................ (133,489,765) 574,663,580
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... 107,639,147 725,299,233
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income -- Class I.......... -- (3,100,657)
Distributions from net realized capital gains
Class I.................................................. (49,620,027) (109,146,897)
Class II................................................. (2,217) --
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS........................ (49,622,244) (112,247,554)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [22,430,665 and 46,076,803 shares,
respectively].......................................... 752,106,237 1,238,109,549
Capital stock issued in reinvestment of dividends and
distributions [1,630,701 and 3,815,423 shares,
respectively].......................................... 49,622,244 112,247,554
Capital stock repurchased [(4,763,710) and (14,500,046)
shares, respectively].................................. (157,283,294) (391,470,256)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS............................................. 644,445,187 958,886,847
-------------- --------------
TOTAL DECREASE IN NET ASSETS............................... 702,462,090 1,571,938,526
NET ASSETS:
Beginning of period...................................... 2,770,667,861 1,198,729,335
-------------- --------------
End of period(a)......................................... $3,473,129,951 $2,770,667,861
============== ==============
(a) Includes undistributed net investment income of:..... $ 923,669 $ --
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A10
<PAGE> 9
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
20/20 FOCUS PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost: $96,619,803).......... $95,829,894
Cash............................................... 1,290
Interest and dividends receivable.................. 119,069
Receivable for capital stock sold.................. 110,102
-----------
Total Assets..................................... 96,060,355
-----------
LIABILITIES
Payable for investments purchased.................. 214,667
Payable to investment adviser...................... 167,659
Payable for capital stock repurchased.............. 67,911
Distribution fee payable........................... 28
Administration fee payable......................... 17
Accrued expenses and other liabilities............. 33,457
-----------
Total Liabilities................................ 483,739
-----------
NET ASSETS........................................... $95,576,616
===========
Net assets were comprised of:
Common stock, at $0.01 par value................. 85,864
Paid-in capital, in excess of par................ 92,331,556
-----------
92,417,420
Undistributed net investment income................ 131,812
Accumulated net realized gain on investments....... 3,817,293
Net unrealized depreciation on investments......... (789,909)
-----------
Net assets, June 30, 2000.......................... $95,576,616
===========
CLASS I:
Net asset value and redemption price per share,
$95,284,415/8,560,167 outstanding shares of
common stock (authorized 70,000,000 shares).... $ 11.13
===========
CLASS II:
Net asset value and redemption price per share,
$292,201/26,254 outstanding shares of common
stock (authorized 5,000,000 shares)............ $ 11.13
===========
</TABLE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Dividends (net of $1,747 foreign withholding tax).... $ 377,705
Interest............................................. 204,855
-----------
582,560
-----------
EXPENSES
Investment advisory fee............................ 309,287
Distribution fee -- Class II....................... 120
Administration Fee -- Class II..................... 70
Accounting fees.................................... 48,000
Shareholders' reports.............................. 4,000
Directors' fees.................................... 2,100
Transfer agent's fees and expenses................. 800
Custodian's fees and expenses...................... 700
Audit fee and expenses............................. 400
Commitment fee on syndicated credit agreement...... 400
Legal fees and expenses............................ 100
Miscellaneous...................................... 95
-----------
Total expenses................................... 366,072
Less: custodian fee credit......................... (670)
-----------
Net expenses..................................... 365,402
-----------
NET INVESTMENT INCOME................................ 217,158
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments................... 4,087,788
Net change in unrealized depreciation on
investments...................................... (8,572,493)
-----------
NET LOSS ON INVESTMENTS.............................. (4,484,705)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS...................................... $(4,267,547)
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 3, 1999(b)
SIX MONTHS THROUGH
ENDED DECEMBER 31,
JUNE 30, 2000 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................... $ 217,158 $ 67,001
Net realized gain on investments......................... 4,087,788 301,857
Net change in unrealized appreciation (depreciation) on
investments............................................ (8,572,493) 7,782,584
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. (4,267,547) 8,151,442
----------- ------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income
Class I.................................................. (85,340) (67,001)
Class II................................................. (6) --
----------- ------------
(85,346) (67,001)
----------- ------------
Distributions from net realized capital gains
Class I.................................................. (546,407) (25,509)
Class II................................................. (436) --
----------- ------------
(546,843) (25,509)
----------- ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (632,189) (92,510)
------------- --------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [3,156,855 and 6,498,615 shares,
respectively].......................................... 36,024,949 67,624,775
Capital stock issued in reinvestment of dividends and
distributions [59,697 and 8,586 shares,
respectively].......................................... 632,189 92,510
Capital stock repurchased [(107,820) and (1,029,512)
shares, respectively].................................. (1,228,408) (10,728,595)
----------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... 35,428,730 56,988,690
----------- ------------
TOTAL INCREASE IN NET ASSETS............................... 30,528,994 65,047,622
NET ASSETS:
Beginning of period...................................... 65,047,622 --
----------- ------------
End of period (a)........................................ $95,576,616 $ 65,047,622
=========== ============
(a) Includes undistributed net investment income of:..... $ 131,812 $ --
----------- ------------
(b) Commencement of investment operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A11
<PAGE> 10
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
SMALL CAPITALIZATION STOCK PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost: $464,914,277)....... $515,241,971
Cash............................................. 8,953,247
Receivable for investments sold.................. 294,766
Interest and dividends receivable................ 201,869
Receivable for securities lending income......... 151,243
Receivable for capital stock sold................ 101,871
Deferred expenses and other assets............... 4,657
------------
Total Assets................................... 524,949,624
------------
LIABILITIES
Collateral for securities on loan................ 16,596,400
Securities lending rebate payable................ 9,189,077
Payable for investments purchased................ 735,627
Payable to investment adviser.................... 459,624
Due to broker--variation margin.................. 297,000
Payable for capital stock repurchased............ 203,831
Accrued expenses and other liabilities........... 67,317
------------
Total Liabilities.............................. 27,548,876
------------
NET ASSETS......................................... $497,400,748
============
Net assets were comprised of:
Common stock, at $.01 par value................ $ 303,981
Paid-in capital, in excess of par.............. 427,418,284
------------
427,722,265
Undistributed net investment income.............. 3,302,693
Accumulated net realized gain on investments..... 16,644,096
Net unrealized appreciation on investments....... 49,731,694
------------
Net assets, June 30, 2000........................ $497,400,748
============
Net asset value and redemption price per
share (30,398,086 outstanding shares of common
stock, authorized 70,000,000 shares)............. $ 16.36
============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Dividends (net of $596 foreign withholding
tax)........................................... $ 1,463,806
Interest......................................... 860,727
Income from securities loaned, net............... 58,617
------------
2,383,150
------------
EXPENSES
Investment advisory fee.......................... 931,467
Accounting fees.................................. 67,000
Shareholders' reports............................ 29,000
Custodian's fees and expenses.................... 17,000
Transfer agent's fees and expenses............... 4,000
Audit fees and expenses.......................... 3,000
Commitment fee on syndicated credit agreement.... 2,000
Directors' fees.................................. 1,850
Legal fees and expenses.......................... 1,000
Miscellaneous.................................... 18,268
------------
Total expenses................................. 1,074,585
Less: custodian fee credit....................... (8,500)
------------
Net expenses................................... 1,066,085
------------
NET INVESTMENT INCOME.............................. 1,317,065
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on:
Investments.................................... 16,265,175
Futures........................................ 3,343,518
------------
19,608,693
------------
Net change in unrealized
appreciation/depreciation on:
Investments.................................... 13,820,036
Futures........................................ (1,400,650)
------------
12,419,386
------------
NET GAIN ON INVESTMENTS............................ 32,028,079
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.......................... $ 33,345,144
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS:
Net investment income.................................... $ 1,317,065 $ 2,620,452
Net realized gain on investments......................... 19,608,693 26,223,683
Net change in unrealized appreciation on investments..... 12,419,386 21,744,502
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... 33,345,144 50,588,637
------------ ------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................... (634,824) --
Distributions from net realized capital gains.......... (26,346,057) (6,897,212)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (26,980,881) (6,897,212)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [3,569,625 and 8,615,063 shares,
respectively].......................................... 59,343,445 122,618,563
Capital stock issued in reinvestment of dividends and
distributions [1,889,417 and 506,032 shares,
respectively].......................................... 26,980,881 6,897,212
Capital stock repurchased [(1,977,434) and (6,702,620)
shares, respectively].................................. (32,781,530) (96,099,149)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS........................................... 53,542,796 33,416,626
------------ ------------
TOTAL INCREASE IN NET ASSETS............................... 59,907,059 77,108,051
NET ASSETS:
Beginning of period...................................... 437,493,689 360,385,638
------------ ------------
End of period(a)......................................... $497,400,748 $437,493,689
============ ============
(a) Includes undistributed net investment income of:..... $ 3,302,693 $ 2,620,452
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A12
<PAGE> 11
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GLOBAL PORTFOLIO
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
ASSETS
Investments, at value (cost: $1,146,960,150)........ $1,436,414,240
Foreign currency, at value (cost: $102,805,522)..... 104,845,050
Receivable for capital stock sold................... 2,758,588
Receivable for investments sold..................... 2,116,815
Dividends and interest receivable................... 1,550,070
Receivable for securities lending................... 966,735
--------------
Total Assets...................................... 1,548,651,498
--------------
LIABILITIES
Bank overdraft...................................... 314,406
Collateral for securities on loan................... 103,874,453
Unrealized depreciation on interest rate swap....... 2,919,014
Payable to investment adviser....................... 2,624,532
Securities lending rebate payable................... 1,246,671
Payable for capital stock repurchased............... 419,268
Forward currency contracts payable.................. 418,608
Accrued expenses and other liabilities.............. 296,001
--------------
Total Liabilities................................. 112,112,953
--------------
NET ASSETS............................................ $1,436,538,545
==============
Net assets were comprised of:
Common stock, at $0.01 par value.................. $ 502,927
Paid-in capital, in excess of par................. 897,870,258
--------------
898,373,185
Undistributed net investment income................. 4,345,469
Accumulated net realized gain on investments........ 245,654,456
Net unrealized appreciation on investments and
foreign currencies................................ 288,165,435
--------------
Net assets, June 30, 2000........................... $1,436,538,545
==============
Net asset value and redemption price per
share, 50,292,663 outstanding shares of common stock
(authorized 70,000,000 shares)...................... $ 28.56
==============
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
INVESTMENT INCOME
Dividends (net of $698,547 foreign withholding
tax).............................................. $ 4,649,364
Interest............................................ 3,309,843
Income from securities loaned, net.................. 260,853
--------------
8,220,060
--------------
EXPENSES
Investment advisory fee............................. 5,207,848
Custodian fees and expenses......................... 301,000
Shareholders' reports............................... 87,000
Accounting fees..................................... 58,000
Audit fee and expenses.............................. 8,000
Commitment fee on syndicated credit agreement....... 6,000
Transfer agent's fees and expenses.................. 5,000
Legal fees and expenses............................. 2,000
Directors' fees..................................... 2,000
Miscellaneous expenses.............................. 1,123
--------------
Total expenses.................................... 5,677,971
Less: custodian fee credit.......................... (32,581)
--------------
Net expenses...................................... 5,645,390
--------------
NET INVESTMENT INCOME................................. 2,574,670
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES
Net realized gain on:
Investments......................................... 235,305,816
Interest rate swaps................................. 6,476,461
Foreign currencies.................................. 4,528,544
--------------
246,310,821
--------------
Net change in unrealized appreciation (depreciation)
on:
Investments......................................... (262,044,493)
Interest rate swaps................................. (4,306,266)
Foreign currencies.................................. 1,783,792
--------------
(264,566,967)
--------------
NET LOSS ON INVESTMENTS AND FOREIGN CURRENCIES........ (18,256,146)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................................ $ (15,681,476)
==============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................... $ 2,574,670 $ 2,125,578
Net realized gain on investments and foreign
currencies............................................. 246,310,821 105,889,653
Net change in unrealized appreciation (depreciation) on
investments and foreign currencies..................... (264,566,967) 315,255,820
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. (15,681,476) 423,271,051
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................... (2,463,844) --
Distributions in excess of net investment income....... -- (4,140,269)
Distributions from net realized capital gains.......... (89,602,571) (7,259,626)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (92,066,415) (11,399,895)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [11,656,638 and 12,980,789 shares,
respectively].......................................... 353,741,716 303,934,195
Capital stock issued in reinvestment of dividends and
distributions [3,409,867 and 520,780 shares,
respectively].......................................... 92,066,415 11,399,895
Capital stock repurchased [(6,686,931) and (11,503,347)
shares, respectively].................................. (199,835,783) (273,433,117)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS............................................. 245,972,348 41,900,973
-------------- --------------
TOTAL INCREASE IN NET ASSETS............................... 138,224,457 453,772,129
NET ASSETS:
Beginning of period...................................... 1,298,314,088 844,541,959
-------------- --------------
End of period (a)........................................ $1,436,538,545 $1,298,314,088
============== ==============
(a) Includes undistributed net investment income of:..... $ 4,345,469 $ --
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A13
<PAGE> 12
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
-------- -------- --------- --------------
<S> <C> <C> <C> <C>
BANK NOTES -- 9.7%
Amex Centurion Bank....................................... 7.01% 07/10/00 $ 6,000 $ 6,000,000
Bank of America, N.A...................................... 6.73% 09/11/00 31,000 31,000,000
Comerica Bank, N.A. (a)................................... 6.66% 07/03/00 6,000 5,999,286
Comerica Bank, N.A. (a)................................... 6.66% 07/06/00 6,000 6,000,343
Comerica Bank, N.A. (a)................................... 6.57% 07/07/00 5,000 4,998,599
Comerica Bank, N.A. (a)................................... 6.61% 07/19/00 26,000 25,992,627
First Union National Bank (a)............................. 6.28% 07/21/00 24,000 24,000,000
Keybank, N.A. (a)......................................... 6.05% 07/17/00 4,000 4,000,129
National City Bank of Cleveland........................... 6.73% 02/09/01 5,000 4,998,551
--------------
112,989,535
--------------
CERTIFICATES OF DEPOSIT-DOMESTIC -- 4.1%
First Union National Bank................................. 7.09% 12/22/00 32,000 32,000,000
Morgan Guaranty Trust Co.................................. 5.70% 07/19/00 16,000 16,000,000
--------------
48,000,000
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 10.0%
Bank of Nova Scotia....................................... 6.65% 02/01/01 10,000 9,997,204
Dexia Bank Grand Cayman................................... 7.13% 07/03/00 8,171 8,171,000
National Westminster Bank PLC............................. 6.10% 11/27/00 50,000 49,957,463
Rabobank Nederland........................................ 5.66% 07/13/00 34,000 33,999,552
Westpac Banking Corp...................................... 6.52% 01/29/01 15,000 14,995,861
--------------
117,121,080
COMMERCIAL PAPER -- 51.6%
Alcoa, Inc................................................ 6.62% 07/18/00 10,000 10,000,000
Alcoa, Inc................................................ 6.75% 07/20/00 25,000 25,000,000
Alliance & Leicester PLC.................................. 6.14% 07/10/00 10,000 9,984,650
Alliance & Leicester PLC.................................. 6.58% 08/22/00 3,800 3,763,883
Aon Corp.................................................. 6.65% 07/13/00 1,500 1,496,675
Aon Corp.................................................. 6.61% 07/14/00 2,892 2,885,097
B.B.V. Finance, Inc....................................... 6.57% 08/09/00 3,572 3,546,576
Bank One Corp............................................. 6.86% 08/21/00 10,000 10,000,000
Bank One Corp............................................. 6.86% 08/17/00 3,100 3,100,000
Bank One Corp. (a)........................................ 6.87% 09/13/00 14,000 14,001,164
Banc One Financial Corp................................... 6.07% 08/03/00 10,000 9,944,404
Bank of Scotland Treasury Services PLC.................... 6.62% 09/11/00 5,000 4,933,800
Barton Capital Corp....................................... 6.85% 07/03/00 12,401 12,396,281
Barton Capital Corp....................................... 6.84% 07/14/00 8,207 8,186,729
Barton Capital Corp....................................... 6.77% 07/21/00 36,488 36,350,765
BASF AG................................................... 6.60% 08/28/00 19,000 18,797,967
BBL North America......................................... 6.58% 08/18/00 3,821 3,787,477
Bell Atlantic Financial Services, Inc..................... 6.66% 08/16/00 9,463 9,382,470
Bradford & Bingley Building Society....................... 6.58% 08/07/00 6,000 5,959,424
Bradford & Bingley Building Society....................... 6.65% 09/08/00 24,028 23,721,743
Brahms Funding Corp....................................... 6.71% 07/28/00 15,000 14,924,569
Centric Capital Corp...................................... 6.65% 08/23/00 6,500 6,436,363
Centric Capital Corp...................................... 6.65% 09/13/00 6,250 6,164,566
CIT Group, Inc............................................ 6.62% 08/22/00 18,000 17,827,880
Citicorp (a).............................................. 6.68% 07/03/00 2,000 2,000,000
Citicorp.................................................. 6.60% 08/17/00 25,000 24,784,584
First Union Corp.......................................... 5.63% 02/12/01 2,400 2,386,206
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B1
<PAGE> 13
MONEY MARKET PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
-------- -------- --------- --------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONT'D.)
Corporate Asset Funding Co., Inc.......................... 6.63% 08/24/00 $ 8,000 $ 7,920,440
Countrywide Home Loan..................................... 6.71% 07/31/00 17,800 17,700,468
CXC, Inc.................................................. 6.73% 11/15/00 25,000 24,359,715
Delaware Funding Corp..................................... 6.65% 07/25/00 12,676 12,619,803
Duke Capital Corp......................................... 7.25% 07/05/00 10,000 9,991,945
Edison Asset Securitization LLC........................... 6.65% 08/14/00 14,305 14,188,732
Falcon Asset Securitization Corp.......................... 6.60% 08/08/00 662 657,388
Falcon Asset Securitization Corp.......................... 6.62% 08/14/00 9,955 9,874,453
Forrestal Funding Master Trust............................ 6.63% 09/15/00 18,286 18,030,057
Fortis Funding LLC........................................ 6.75% 10/06/00 21,450 21,059,878
General Electric Capital Corp............................. 6.55% 07/17/00 2,300 2,293,304
General Electric Capital Corp............................. 6.55% 07/18/00 1,000 996,907
General Electric Capital Corp............................. 6.65% 09/07/00 1,300 1,283,671
GTE Corp.................................................. 6.62% 07/05/00 20,000 19,985,289
GTE Corp.................................................. 6.62% 08/02/00 11,000 10,935,271
Hartford Financial Service Group, Inc..................... 6.65% 07/14/00 4,000 3,990,395
Hartford Financial Service Group, Inc..................... 6.62% 07/31/00 4,000 3,977,933
Homeside Lending.......................................... 6.60% 08/02/00 7,000 6,958,933
Invensys PLC.............................................. 7.30% 07/05/00 10,000 9,991,889
Salomon Smith Barney Holdings, Inc........................ 6.62% 09/11/00 11,378 11,227,355
Santander Finance, Inc.................................... 6.71% 11/14/00 34,000 33,138,138
Santander Finance, Inc.................................... 6.71% 11/15/00 20,000 19,489,294
SBC Communications, Inc................................... 6.55% 07/12/00 2,700 2,694,596
Sonoco Products Co........................................ 7.05% 07/05/00 19,000 18,985,117
Southern Co............................................... 6.75% 07/31/00 2,750 2,734,531
Sweetwater Capita Corp.................................... 6.67% 09/13/00 5,276 5,203,663
Sweetwater Capita Corp.................................... 6.67% 09/14/00 2,482 2,447,511
Sweetwater Capita Corp.................................... 6.67% 09/18/00 4,068 4,008,457
Wells Fargo & Co.......................................... 6.60% 07/18/00 13,500 13,457,925
--------------
601,966,331
--------------
OTHER CORPORATE OBLIGATIONS -- 23.3%
Abbey National Treasury Services, PLC..................... 6.24% 07/24/00 20,000 19,999,261
Centex Home Mortgage (a)(b)............................... 6.79% 07/20/00 5,000 5,000,000
CIT Group, Inc. (a)....................................... 6.68% 10/16/00 4,000 3,994,236
Commercial Credit Co...................................... 5.75% 07/15/00 2,000 1,999,855
Conseco Finance Vehicle Trust (a)(b)...................... 6.81% 07/17/00 7,360 7,359,781
Daimler Chrysler.......................................... 6.53% 07/06/00 29,000 28,999,483
Ford Motor Credit Corp. (a)............................... 6.73% 08/18/00 35,000 34,996,281
Ford Motor Credit Corp. (a)............................... 6.77% 10/02/00 28,000 27,993,051
Goldman Sachs Group L.P. (a).............................. 6.92% 09/15/00 45,000 45,000,000
Restructured Asset Securities Enhanced Return (a)(b)...... 6.74% 07/06/00 24,000 24,000,000
Security Life of Denver (a)(b)............................ 6.35% 07/12/00 15,000 15,000,000
Short Term Repackaged Asset Trust (a)(b).................. 6.75% 07/18/00 12,000 12,000,000
Strategic MM Tr 99-A (a).................................. 6.40% 07/13/00 27,000 27,000,000
Travelers Group, Inc. (a)(b).............................. 6.30% 07/06/00 4,000 4,000,000
US Bancorp (a)............................................ 6.72% 07/20/00 14,265 14,263,445
--------------
271,605,393
--------------
U.S. GOVERNMENT OBLIGATIONS -- 1.3%
Federal Home Loan Bank (a)................................ 6.19% 07/19/00 15,000 14,994,120
--------------
TOTAL INVESTMENTS -- 100.0%
(amortized cost $1,166,676,459; (c))....................................................... 1,166,676,459
--------------
ASSETS IN EXCESS OF OTHER LIABILITIES........................................................ 123,929
--------------
TOTAL NET ASSETS -- 100.0%................................................................... $1,166,800,388
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B2
<PAGE> 14
MONEY MARKET PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
The following abbreviations are used in portfolio descriptions:
AG Aktiengesellschaft (German Stock Company)
PLC Public Limited Company (British Corporation)
(a) Indicates a variable rate security. The maturity date presented for these
instruments is the later of the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
The interest rate shown reflects the rate in effect at June 30, 2000.
(b) Indicates a restricted security and deemed illiquid. The Aggregate cost and
value of restricted securities $67,359,781 represents 5.8% of net assets.
(c) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
The industry classification of portfolio holdings and other assets in excess
of liabilities shown as a percentage of net assets as of June 30, 2000 was as
follows:
<TABLE>
<S> <C>
Commercial Banks............................................ 43.8%
Asset Backed Securities..................................... 15.0%
Motor Vehicle Parts......................................... 7.9%
Bank Holding Company U.S.................................... 6.9%
Security Brokers & Dealers.................................. 4.8%
Phone Company Communications................................ 3.7%
Metals...................................................... 3.0%
Life Insurance.............................................. 2.5%
Short Term Business Credit.................................. 2.3%
Mortgage Bankers............................................ 2.1%
Paperboard Mills............................................ 1.6%
Chemicals & Allied Products................................. 1.6%
Federal Credit Agencies..................................... 1.3%
Electrical Services......................................... 1.1%
Fire & Marine Casualty Insurance............................ 1.0%
Electric & Equipment, Computer.............................. 0.8%
Accidental/Health Insurance................................. 0.4%
Personal Credit Institution................................. 0.2%
-----
100.0%
Other assets in excess of liabilities....................... 0.0%
-----
100.0%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B3
<PAGE> 15
DIVERSIFIED BOND PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 88.2% PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
LONG-TERM BONDS -- 87.9% ------- ----------- ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 1.8%
Boeing Co. ........................................... A1 8.75% 08/15/21 $ 6,250 $ 6,882,562
Northrop Grumman Corp. ............................... Baa3 7.875% 03/01/26 3,400 3,222,826
Raytheon Co. ......................................... Baa2 6.45% 08/15/02 5,000 4,871,300
Raytheon Co. ......................................... Baa2 6.50% 07/15/05 4,200 3,986,934
United Technologies Corp. ............................ A2 7.50% 09/15/29 3,200 3,150,000
--------------
22,113,622
--------------
AIRLINES -- 1.4%
Continental Airlines, Inc. ........................... Aa3 7.461% 04/01/15 5,104 4,886,677
United Airlines, Inc. ................................ Baa3 10.67% 05/01/04 7,000 7,120,330
United Airlines, Inc. ................................ Baa3 11.21% 05/01/14 5,000 5,154,400
--------------
17,161,407
--------------
ASSET BACKED SECURITIES -- 3.2%
Advanta Mortgage Loan Trust, Series 1994-3............ Aaa 8.49% 01/25/26 7,014 7,010,719
California Infrastructure PG&E, Series 1997-1......... Aaa 6.32% 09/25/05 4,000 3,908,125
Citibank Credit Card Master Trust..................... Aaa 6.10% 05/15/08 12,500 11,703,125
MBNA Corp., Series 1999-B ............................ Aaa 5.90% 08/15/11 17,900 16,201,614
--------------
38,823,583
--------------
AUTO/EQUIPMENT RENTAL -- 0.1%
Hertz Corp. .......................................... A3 8.25% 06/01/05 750 765,600
--------------
AUTOMOBILES & TRUCKS -- 0.6%
Ford Motor Co. ....................................... A2 7.45% 07/16/31 2,300 2,175,179
Navistar International Corp. ......................... Baa3 7.00% 02/01/03 3,500 3,342,500
Navistar International Corp. ......................... Ba2 8.00% 02/01/08 1,350 1,238,625
--------------
6,756,304
--------------
BANKS & FINANCIAL SERVICES -- 5.2%
Bayerische Landesbank Girozentrale, (Germany)......... Aaa 5.875% 12/01/08 7,800 6,938,568
Chase Manhattan Corp. ................................ A1 7.875% 06/15/10 1,000 998,000
Chase Manhattan Corp. ................................ A1 6.375% 04/01/08 5,770 5,335,461
International Bank for Reconstruction & Development
(Supranational) .................................... Aaa 12.375% 10/15/02 750 834,540
Lehman Brothers Holdings, Inc. ....................... A3 6.625% 04/01/04 13,245 12,640,895
Lehman Brothers Holdings, Inc. ....................... A3 6.375% 05/07/02 560 546,829
Lehman Brothers Holdings, Inc. ....................... A3 6.625% 02/05/06 3,685 3,443,227
Merrill Lynch, Pierce, Fenner & Smith, Inc. .......... Aa3 6.922% 06/24/03 15,000 14,985,000
Okobank (Japan)....................................... A2 7.2975% 09/29/49 5,000 4,935,000
PaineWebber Group, Inc. .............................. Baa1 6.45% 12/01/03 5,000 4,763,400
Salomon, Inc. ........................................ Aa3 6.65% 07/15/01 7,000 6,945,120
Salomon, Inc. ........................................ Aa3 6.125% 01/15/03 500 483,305
--------------
62,849,345
--------------
BANKS AND SAVINGS & LOANS -- 4.6%
Cho Hung Bank......................................... B1 11.50% 04/01/10 3,250 3,128,125
Cho Hung Bank......................................... B1 11.875% 04/01/10 3,250 3,128,125
Compass Bancshares, Inc. ............................. A1 8.10% 08/15/09 4,800 4,642,512
Dresdner Funding Trust................................ A1 8.151% 06/30/31 7,600 6,634,800
Hanvit Bank........................................... B1 12.75% 03/01/10 6,550 6,484,500
Kansallis-Osake-Pankki (Finland)...................... A1 10.00% 05/01/02 5,000 5,205,650
KBC Bank Funding...................................... A1 9.86% 11/29/49 5,000 5,116,000
National Australia Bank, (Australia).................. A1 6.40% 12/10/07 3,700 3,649,125
Sanwa Finance Aruba A.E.C............................. Baa1 8.35% 07/15/09 4,640 4,619,399
Sovereign Bancorp..................................... Ba3 10.25% 05/15/04 1,325 1,306,569
Sovereign Bancorp..................................... Ba3 10.50% 11/15/06 2,295 2,295,000
Washington Mutual, Inc. .............................. A3 7.50% 08/15/06 10,000 9,703,800
--------------
55,913,605
--------------
BEVERAGES -- 0.1%
Embotelladora Andina S A.............................. Baa1 7.875% 10/01/97 1,250 963,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B4
<PAGE> 16
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
LONG-TERM BONDS (CONTINUED) ------- ----------- ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
CABLE & PAY TELEVISION SYSTEMS -- 1.4%
British Sky Broadcasting, Inc. ....................... Baa3 6.875% 02/23/09 $ 1,975 $ 1,735,057
Cox Enterprises, Inc. ................................ Baa1 6.625% 06/14/02 3,200 3,146,720
CSC Holdings, Inc. ................................... Ba1 7.25% 07/15/08 3,400 3,143,130
CSC Holdings, Inc. ................................... Ba1 7.875% 12/15/07 1,490 1,441,620
Rogers Cablesystems, Inc. (Canada).................... Ba1 10.00% 03/15/05 4,000 4,090,000
Tele-Communications, Inc.............................. A2 6.34% 02/01/12 3,500 3,443,650
--------------
17,000,177
--------------
COMPUTERS -- 1.0%
Hewlett Packard Company............................... Aa2 7.15% 06/15/05 5,000 5,000,000
International Business Machine Corp. ................. A1 5.50% 01/15/09 5,000 4,457,850
International Business Machine Corp. ................. A1 5.625% 04/12/04 3,000 2,854,830
--------------
12,312,680
--------------
CONSUMER PRODUCTS -- 0.1%
Fortune Brands........................................ A2 7.125% 11/01/04 1,050 1,019,235
--------------
CONTAINERS & PACKAGING -- 0.6%
Owen-Illinois, Inc. .................................. Ba1 7.85% 05/15/04 5,244 5,020,239
Pactiv Corp. ......................................... Baa3 7.95% 12/15/25 2,000 1,794,060
--------------
6,814,299
--------------
DIVERSIFIED OPERATIONS -- 0.6%
Tyco Int'l Group SA................................... Baa1 6.875% 01/15/29 3,350 2,829,980
Xerox Cap Europe PLC.................................. A3 5.75% 05/15/02 4,960 4,776,480
--------------
7,606,460
--------------
DRUGS & MEDICAL SUPPLIES -- 0.5%
Mallinckrod, Inc. .................................... Baa2 6.30% 03/15/11 3,500 3,447,500
Monsanto Corp. ....................................... A1 6.50% 12/01/18 1,015 894,743
Monsanto Corp. ....................................... A1 6.75% 12/15/27 2,415 2,166,424
--------------
6,508,667
--------------
FINANCIAL SERVICES -- 6.0%
Bombardier Capital, Inc. M.T.N........................ A3 7.30% 12/15/02 5,000 4,955,000
Calair Capital Corp. ................................. Ba2 8.125% 04/01/08 2,700 2,322,000
Capital One Financial Corp. .......................... Baa2 7.08% 10/30/01 5,000 4,924,650
Capital One Financial Corp. .......................... Baa3 7.25% 05/01/06 2,100 1,921,500
Chrysler Financial Corp. ............................. A1 5.25% 10/22/01 10,400 10,116,392
Ford Motor Credit Co. ................................ A2 7.375% 10/28/09 1,600 1,547,632
Gatx Capital Corp..................................... Baa2 7.75% 12/01/06 3,000 2,805,000
General Motors Acceptance Corp. ...................... A2 5.75% 11/10/03 10,000 9,468,500
Heller Financial, Inc. ............................... A3 6.000% 03/19/04 2,900 2,713,936
HSBC Capital Funding LP............................... A1 10.176% 12/31/49 6,000 6,450,000
HVB Funding Trust..................................... NR 9.000% 10/22/31 6,000 5,694,600
International Lease Finance Corp. .................... A1 5.900% 03/12/03 6,000 5,760,000
RBF Finance Co. ...................................... Ba3 11.375% 03/15/09 1,270 1,371,600
Sakura Cap Funding Cayman............................. Ba2 7.040% 09/29/49 5,000 4,850,000
The CIT Group, Inc. .................................. A1 5.500% 10/15/01 8,045 7,843,231
--------------
72,744,041
--------------
FOOD & BEVERAGE -- 0.4%
Archer-Daniels-Midland Co. ........................... A1 6.625% 05/01/29 4,700 3,938,365
Comunidad Andaluic.................................... Aa3 7.250% 10/01/29 540 519,048
--------------
4,457,413
--------------
FOREST PRODUCTS -- 2.0%
International Paper Co. .............................. Baa1 8.00% 07/08/03 16,000 16,083,680
Scotia Pacific Co. ................................... Baa2 7.710% 01/20/14 12,200 8,357,000
--------------
24,440,680
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B5
<PAGE> 17
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
LONG-TERM BONDS (CONTINUED) ------- ----------- ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
HOSPITAL MANAGEMENT -- 0.3%
Columbia/HCA Healthcare Corp. ........................ Ba2 6.910% 06/15/05 $ 2,435 $ 2,209,762
Tenet Healthcare Corp. ............................... Ba1 7.875% 01/15/03 1,825 1,774,813
--------------
3,984,575
--------------
INDUSTRIALS -- 0.5%
Compania Sud Americana De Vapores..................... NR 7.375% 12/08/03 2,000 1,920,000
Rockwell International Corp. ......................... A1 5.200% 01/15/98 6,500 4,071,990
--------------
5,991,990
--------------
INSURANCE -- 1.3%
Allstate Corp. ....................................... A1 7.200% 12/01/09 900 860,328
Conseco, Inc. ........................................ Ba1 8.500% 10/15/02 6,875 5,087,500
Nationwide CSN Trust.................................. A1 9.875% 02/15/25 5,000 4,990,000
Reliaster Financial Corp. ............................ A3 6.625% 09/15/03 5,000 4,844,000
--------------
15,781,828
--------------
INVESTMENT BANKING -- 1.1%
Morgan Stanley Dean Witter & Co. ..................... Aa3 5.625% 04/12/02 5,450 5,293,149
Morgan Stanley Dean Witter & Co. ..................... Aa3 7.125% 01/15/03 2,830 2,811,860
Morgan Stanley Dean Witter & Co. ..................... Aa3 7.75% 06/15/05 5,000 4,999,500
--------------
13,104,509
--------------
LEISURE -- 1.9%
Harrahs Operating Co., Inc. .......................... Ba2 7.875% 12/15/05 290 272,600
HMH Properties........................................ Ba2 7.875% 08/01/05 1,970 1,861,650
ITT Corp. ............................................ Ba1 6.75% 11/15/03 7,000 6,568,870
Park Place Entertainment.............................. Ba2 7.875% 12/15/05 2,265 2,129,100
Park Place Entertainment.............................. Ba2 9.375% 02/15/07 740 740,000
Royal Caribbean Cruises Ltd. ......................... Baa2 7.00% 10/15/07 8,000 6,752,480
Royal Caribbean Cruises Ltd. ......................... Baa2 7.25% 08/15/06 5,000 4,425,050
--------------
22,749,750
--------------
MEDIA -- 3.9%
Liberty Media Group................................... Baa3 8.25% 02/01/30 5,000 4,604,050
News America Holding, Inc. ........................... Baa3 6.703% 05/21/34 22,000 20,934,760
Paramount Communications, Inc. ....................... Baa1 7.50% 01/15/02 5,000 4,983,650
Turner Broadcasting Systems Inc. ..................... Baa3 7.40% 02/01/04 13,500 13,086,090
United News & Media PLC............................... Baa2 7.25% 07/01/04 2,000 1,931,200
United News & Media PLC............................... Baa2 7.75% 07/01/09 1,000 947,700
--------------
46,487,450
--------------
OIL & GAS -- 3.9%
Amerada Hess Corp. ................................... Baa1 7.375% 10/01/09 600 583,134
Amerada Hess Corp. ................................... Baa1 7.875% 10/01/29 1,600 1,564,496
Atlantic Richfield Co. ............................... Aa2 5.55% 04/15/03 3,700 3,567,096
Atlantic Richfield Co. ............................... Aa2 5.90% 04/15/09 6,770 6,173,089
B.J. Services Co. .................................... Baa2 7.00% 02/01/06 5,000 4,795,950
Eott Energy Partners LP............................... Ba2 11.00% 10/01/09 1,960 1,989,400
K N Energy, Inc. ..................................... Baa2 6.30% 03/01/21 15,000 14,883,900
K N Energy, Inc. ..................................... Baa2 6.45% 11/30/01 4,500 4,407,300
Limestone Electron Trust.............................. Baa3 8.625% 03/15/03 6,000 6,058,080
Phillips Petroleum Company............................ Baa2 8.50% 05/25/05 2,550 2,634,354
--------------
46,656,799
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.3%
Parker & Parsley Petroleum Co. ....................... Ba2 8.875% 04/15/05 1,505 1,468,143
Seagull Energy Corp. ................................. Ba1 7.875% 08/01/03 1,830 1,775,100
--------------
3,243,243
--------------
PHOTOGRAPHY -- 0.2%
Eastman Kodak Company M.T.N........................... A2 7.25% 06/15/05 2,500 2,490,750
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B6
<PAGE> 18
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
LONG-TERM BONDS (CONTINUED) ------- ----------- ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
PRINTING & PUBLISHING -- 0.2%
World Color Press, Inc. .............................. Baa3 7.75% 02/15/09 $ 2,075 $ 1,893,438
World Color Press, Inc. .............................. Baa3 8.375% 11/15/08 1,000 940,000
--------------
2,833,438
--------------
RAILROADS -- 0.3%
Norfolk Southern Corp. ............................... Baa1 6.95% 05/01/02 1,650 1,627,148
Union Pacific Corp. .................................. Baa3 7.95% 04/15/29 2,100 2,082,696
--------------
3,709,844
--------------
REAL ESTATE INVESTMENT TRUST -- 0.8%
ERP Operating L.P. ................................... A3 6.63% 04/13/15 3,900 3,666,234
ERP Operating L.P. ................................... A3 7.10% 06/23/04 1,500 1,454,640
HRPT Properties Trust................................. Baa2 7.521% 07/09/07 5,000 5,000,000
--------------
10,120,874
--------------
RETAIL -- 2.1%
Federated Department Stores, Inc. .................... Baa1 8.125% 10/15/02 5,250 5,302,605
Federated Department Stores, Inc. .................... Baa1 8.50% 06/15/03 10,200 10,293,534
Kmart Corp. .......................................... Baa3 9.78% 01/05/20 3,850 3,557,169
Kroger Co., (The)..................................... Baa3 6.375% 03/01/08 6,600 5,941,980
--------------
25,095,288
--------------
TELECOMMUNICATIONS -- 7.9%
AT&T Canada, Inc. (Canada)............................ Baa3 7.65% 09/15/06 1,600 1,590,960
TeleCommunications, Inc. ............................. Ba1 10.125% 04/15/22 6,300 7,608,447
Deutsche Telekom International........................ Aa2 7.75% 06/15/05 8,100 8,140,500
Deutsche Telekom International........................ Aa2 8.00% 06/15/10 5,000 5,035,000
Deutsche Telekom International........................ Aa2 8.25% 06/15/30 7,500 7,575,750
Electric Lightwave, Inc. ............................. A2 6.05% 05/15/04 3,300 3,073,125
Global Crossing Holdings, Ltd. ....................... Ba2 9.125% 11/15/06 4,400 4,235,000
LCI International, Inc. .............................. Baa1 7.25% 06/15/07 11,125 10,533,484
Qwest Communications, Inc............................. Baa1 7.50% 11/01/08 3,150 3,039,750
Rogers Cantel, Inc. .................................. Baa3 9.375% 06/01/08 2,350 2,420,500
Sprint Corp. ......................................... Baa1 5.70% 11/15/03 12,000 11,319,360
Sprint Corp. ......................................... Baa1 6.875% 11/15/28 2,500 2,173,175
Sprint Corp. ......................................... Baa2 7.625% 06/10/02 5,000 5,005,500
Telecom De Puerto Rico................................ Baa2 6.65% 05/15/06 6,800 6,315,500
Telecom De Puerto Rico................................ Baa2 6.80% 05/15/09 5,700 5,208,375
U.S. West Cap. Funding, Inc. ......................... Baa1 6.875% 08/15/01 5,000 4,974,000
Williams Communications Group, Inc. .................. B2 10.70% 10/01/07 2,000 1,990,000
Worldcom, Inc. ....................................... A3 6.95% 08/15/28 6,300 5,549,670
--------------
95,788,096
--------------
UTILITIES -- 11.3%
AES Corp. ............................................ Ba1 9.50% 06/01/09 4,905 4,806,900
Calenergy Co., Inc. .................................. Baa3 6.96% 09/15/03 8,000 7,802,640
Calenergy Co., Inc. .................................. Baa3 7.23% 09/15/05 5,000 4,862,250
Calpine Corp. ........................................ Ba1 10.50% 05/15/06 4,060 4,242,700
CMS Energy Corp....................................... Ba3 6.75% 01/15/04 4,500 4,185,000
CMS Energy Corp. ..................................... Ba3 8.00% 07/01/11 4,500 4,417,200
Cogentrix Energy, Inc. ............................... Ba1 8.75% 10/15/08 10,000 9,650,000
Commonwealth Edison Co. .............................. Baa2 7.625% 01/15/07 7,525 7,342,218
Connecticut Light & Power Co. ........................ Baa3 7.75% 06/01/02 5,685 5,703,078
Edison Mission Energy................................. A3 7.73% 06/15/09 3,200 3,120,512
El Paso Electric Company.............................. Baa3 9.40% 05/01/11 4,000 4,244,560
El Paso Energy Corp. ................................. Baa2 6.625% 07/15/01 3,800 3,766,636
Hydro-Quebec.......................................... A2 8.00% 02/01/13 1,850 1,923,963
Hydro-Quebec.......................................... A2 7.500% 04/01/16 500 497,680
Hydro-Quebec.......................................... A2 9.400% 02/01/21 3,925 4,631,147
Illinois Power Co. ................................... Aaa 5.38% 06/25/07 15,000 14,001,450
Niagara Mohawk Power.................................. Baa2 6.875% 04/01/03 4,000 3,909,080
Niagara Mohawk Power.................................. Baa2 7.375% 08/01/03 8,000 7,888,240
Niagara Mohawk Power.................................. Baa2 8.00% 06/01/04 5,000 5,025,350
Osprey Trust.......................................... Baa2 8.31% 01/15/03 16,000 16,054,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B7
<PAGE> 19
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
LONG-TERM BONDS (CONTINUED) ------- ----------- ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
UTILITIES (CONT'D.)
PSEG Energy Holdings, Inc. ........................... Ba1 10.00% 10/01/09 $ 2,605 $ 2,637,563
Sonat, Inc. .......................................... Baa2 7.625% 07/15/11 5,100 4,981,425
Texas Utilities....................................... Baa3 5.94% 10/15/01 10,000 9,784,600
Utilicorp United Inc. ................................ Baa3 7.00% 07/15/04 1,280 1,222,566
Utilicorp United, Inc. ............................... Baa3 7.625% 11/15/09 700 660,009
--------------
137,361,167
--------------
WASTE MANAGEMENT -- 0.7%
Allied Waste Industries, Inc. ........................ Ba3 7.625% 01/01/06 1,540 1,347,500
Waste Management, Inc. ............................... Ba1 6.125% 07/15/01 7,000 6,760,040
--------------
8,107,540
--------------
U.S. GOVERNMENT AGENCY AND OBLIGATIONS -- 15.4%
United States Treasury Bond (a)....................... 8.125% 08/15/21 66,700 81,488,724
United States Treasury Bond........................... 9.00% 11/15/18 7,300 9,479,707
United States Treasury Bond........................... 6.125% 08/15/29 22,714 22,941,140
United States Treasury Bond........................... 6.75% 08/15/26 9,800 10,545,682
United States Treasury Bond........................... 13.875% 05/15/11 4,150 5,629,101
United States Treasury Note........................... 6.50% 02/15/10 31,445 32,521,048
United States Treasury Note........................... 6.50% 05/31/02 4,715 4,720,893
United States Treasury Note........................... 6.50% 10/15/06 1,825 1,846,955
United States Treasury Strips......................... zero coupon 05/15/20 36,500 10,819,695
United States Treasury Strips......................... zero coupon 11/15/15 16,446 6,378,088
--------------
186,371,033
--------------
U.S. GOVERNMENT MORTGAGE BACKED SECURITIES -- 2.0%
Federal National Mortgage Association................. 6.50% 12/31/99 20,000 19,279,600
Federal National Mortgage Association................. 9.00% 05/01/17-09/01/21 237 193,572
Government National Mortgage Association.............. 7.50% 05/20/02-01/15/26 4,987 4,959,455
--------------
24,432,627
--------------
FOREIGN GOVERNMENT BONDS -- 4.2%
Province of Saskatchewan (Canada)..................... A2 9.125% 02/15/21 3,000 3,468,090
Quebec Province (Canada).............................. A2 7.125% 02/09/24 2,650 2,503,137
Republic of Argentina (Argentina)..................... BBB (b) 0.010% 10/15/01 5,000 4,300,000
Republic of Panama (Panama)........................... Ba1 7.875% 02/13/02 8,000 7,840,000
Republic of Philippines (Philippines)................. Ba1 8.875% 04/15/08 3,200 2,880,000
United Mexican States (Mexico)........................ Baa3 7.312% 12/31/19 2,100 2,063,250
United Mexican States (Mexico)........................ Baa3 7.602% 12/31/19 4,200 4,126,500
United Mexican States (Mexico)........................ Baa3 7.800% 12/31/19 5,900 5,796,750
United Mexican States (Mexico)........................ Baa3 9.875% 02/01/10 7,500 7,762,500
United Mexican States (Mexico)........................ Baa3 10.375% 02/17/09 9,500 10,212,500
--------------
50,952,727
--------------
TOTAL LONG-TERM BONDS
(cost $1,096,849,061)......................................................................................... 1,063,513,646
--------------
<CAPTION>
SHARES
---------
<S> <C> <C> <C> <C> <C>
PREFERRED STOCK -- 0.3%
Centaur Funding Corp. (cost $4,323,180) .......................................................... 4.323 3,997,350
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,101,172,241)......................................................................................... 1,067,510,996
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B8
<PAGE> 20
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
------- ----------- ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 12.2%
OTHER CORPORATE OBLIGATIONS -- 9.4%
Arkla Inc., M.T.N. ................................... Baa1 9.32% 12/18/00 $ 2,000 $ 2,013,380
Burlington Northern Santa Fe Corp. ................... Baa2 6.05% 03/15/01 8,000 7,958,640
Camden Property Trust................................. Baa2 7.23% 10/30/00 5,000 4,991,000
Comdisco, Inc. ....................................... Baa1 6.32% 11/27/00 10,000 9,954,400
El Paso Electric Company.............................. Baa3 7.75% 05/01/01 5,850 5,840,581
ERP Operating L.P. ................................... BBB (b) 6.15% 09/15/00 15,000 14,962,500
Ford Motor Credit Co. ................................ A2 5.75% 01/25/01 4,000 3,964,880
Fort James Corp. ..................................... Baa2 6.234% 03/15/01 5,000 4,954,650
Goldman Sachs Group, Inc. ............................ A1 5.56% 01/11/01 4,200 4,164,720
GTE Corp. ............................................ A2 9.375% 12/01/00 6,250 6,308,437
ICI Wilmington, Inc. ................................. Baa1 9.50% 11/15/00 3,500 3,522,435
ITT Corp. ............................................ Ba1 6.25% 11/15/00 4,250 4,210,942
Kroger Co., (The) .................................... Baa3 6.34% 06/01/01 6,500 6,386,250
Norfolk Southern Corp. ............................... Baa1 6.875% 05/01/01 4,500 4,469,355
Raytheon Co. ......................................... Baa2 5.95% 03/15/01 6,500 6,424,145
Salomon, Inc. ........................................ Aa3 6.59% 02/21/01 3,500 3,484,355
Seagram (J.) & Sons................................... Baa3 5.79% 04/15/01 11,500 11,343,600
TRW, Inc. ............................................ Baa1 6.45% 06/15/01 9,200 9,062,000
--------------
(cost $114,992,761)........................................................................................... 114,016,270
--------------
REPURCHASE AGREEMENT -- 2.8%
Joint Repurchase Agreement Account (cost $34,236,000)
(Note 5)...................................................... 6.492% 07/03/00 34,236 34,236,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $149,228,761)........................................................................................... 148,252,270
--------------
TOTAL INVESTMENTS BEFORE INVESTMENT SOLD SHORT -- 100.4%
(cost $1,250,401,002; Note 6)................................................................................. 1,215,763,266
--------------
INVESTMENT SOLD SHORT -- (0.7%)
United States Treasury Note (proceeds
$8,251,875 -- Note 2)............................... Aaa 6.75% 05/15/05 (8,100) (8,288,568)
--------------
TOTAL INVESTMENTS, NET OF INVESTMENT SOLD SHORT -- 99.7%...................................................... 1,207,474,698
Variation margin on open futures contracts (c)................................................................ (27,344)
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.3%................................................................... 3,336,122
--------------
TOTAL NET ASSETS -- 100.0%...................................................................................... $1,210,783,476
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
<TABLE>
<S> <C>
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
S.A. Sociedad Anonime (Spanish Corporation) or Societe Anonyme
(French Corporation)
NR Not Rated by Moody's or Standard & Poor's
</TABLE>
(a) Security, or portion thereof, segregated as collateral for futures contracts
(b) Standard & Poor's Rating.
(c) Open Futures contracts as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 2000 DEPRECIATION
<S> <C> <C> <C> <C> <C>
Long position:
175 U.S. Treasury Bond Sep 00 $17,040,625 $17,035,156 $(5,469)
=======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B9
<PAGE> 25
GOVERNMENT INCOME PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
LONG-TERM INVESTMENTS -- 95.6% -------- ----------------- --------- ------------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES -- 3.5%
Team Fleet Financing Corp. ............................... 7.35% 05/15/03 $ 10,000 $ 9,950,000
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 6.5%
Bear Stearns Commercial Mortgage.......................... 7.64% 02/15/32 2,962 2,989,303
Federal Home Loan Mortgage Corp. ......................... 6.00% 12/15/08 5,273 5,068,239
Federal National Mortgage Association..................... 6.00% 06/25/08 3,156 2,962,297
Federal National Mortgage Association..................... 6.25% 11/25/21 5,000 4,818,750
Mortgage Capital Funding, Inc. ........................... 6.33% 10/18/07 2,931 2,815,508
------------
18,654,097
------------
MORTGAGE PASS-THROUGHS -- 24.2%
Federal National Mortgage Association..................... 6.50% 12/31/99 18,000 17,351,640
Federal National Mortgage Association..................... 7.50% 02/01/02-10/01/12 10,271 10,270,434
Federal National Mortgage Association..................... 8.00% 03/01/22-05/01/26 641 645,688
Federal National Mortgage Association..................... 9.00% 02/01/25-04/01/25 3,102 3,193,958
Government National Mortgage Association.................. 7.00% 03/15/23-12/15/23 9,810 9,574,032
Government National Mortgage Association.................. 7.50% 12/15/25-02/15/26 10,435 10,378,886
Government National Mortgage Association.................. 8.00% 05/15/22-12/15/24 10,403 10,549,610
Government National Mortgage Association.................. 8.50% 09/15/24-04/15/25 6,905 7,077,934
------------
69,042,182
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 61.4%
Federal Farm Credit Bank.................................. 5.90% 01/10/05 5,000 4,779,700
Federal Home Loan Bank.................................... 5.75% 10/15/07 15,000 14,671,875
Federal Home Loan Mortgage Corp. ......................... 7.36% 06/05/07 15,000 14,653,050
Federal National Mortgage Association..................... Zero 02/15/06 15,364 10,716,390
Federal National Mortgage Association..................... 6.06% 05/21/03 30,000 29,118,600
Small Business Administration Participation
Certificates............................................ 6.00% 09/01/18 7,384 6,780,976
Small Business Administration Participation
Certificates............................................ 6.85% 07/01/17 4,323 4,164,393
Small Business Administration Participation
Certificates............................................ 7.15% 01/01/17 16,019 15,695,102
Small Business Administration Participation
Certificates............................................ 7.20% 10/01/16 17,167 16,863,294
United States Treasury Bonds.............................. Zero 05/15/17 13,100 4,650,762
United States Treasury Bonds(b)........................... 8.125% 08/15/19 43,500 52,587,585
United States Treasury Notes.............................. 6.75% 05/15/05 715 731,645
------------
175,413,372
------------
TOTAL LONG-TERM INVESTMENTS
(cost $279,699,654)................................................................................. 273,059,651
------------
SHORT-TERM INVESTMENTS -- 11.9%
ASSET BACKED SECURITIES -- 1.4%
Westpac Securitisation Trust, Ser. 1998-1G (Australia).... 6.42% 07/19/00 3,969(a) 3,959,436
------------
COMMERCIAL PAPER -- 5.3%
Black Forest Corp. ....................................... 6.58% 07/17/00 2,600 2,592,397
Centric Capital Corp. .................................... 6.57% 07/17/00 2,800 2,791,824
Clipper Receivables Corp. ................................ 6.57% 07/17/00 2,800 2,791,824
Old Line Funding Corp. ................................... 6.60% 07/13/00 1,293 1,290,155
Sweetwater Capital........................................ 6.58% 07/17/00 2,800 2,791,812
Wood Street Funding Corp. ................................ 6.56% 07/17/00 2,800 2,791,836
------------
15,049,848
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B10
<PAGE> 26
GOVERNMENT INCOME PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
SHORT-TERM INVESTMENTS (CONTINUED) -------- ----------------- --------- ------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- 5.2%
Joint Repurchase Agreement Account........................ 6.49% 07/03/00 $ 14,963 $ 14,963,000
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $33,972,284).................................................................................. 33,972,284
------------
TOTAL INVESTMENTS -- 107.5%
(amortized cost $313,671,938; Note 6)............................................................... 307,031,935
------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (c)........................................................ (64,328)
LIABILITIES IN EXCESS OF OTHER ASSETS -- (7.5)%....................................................... (21,282,806)
------------
TOTAL NET ASSETS -- 100.0%............................................................................ $285,684,801
============
</TABLE>
(a) US$ Denominated Foreign Bonds
(b) Security segregated as collateral for futures contracts
(c) Open futures contracts as of June 30, 2000 were as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 2000 DEPRECIATION
<S> <C> <C> <C> <C> <C>
Long Position:
250 U.S. Treasury 30yr Sep 00 24,277,563 24,335,938 $58,375
Short Position:
231 U.S. Treasury 30yr Sep 00 22,741,680 22,749,891 $(8,211)
-------
$50,164
=======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B11
<PAGE> 28
CONSERVATIVE BALANCED PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 82.2% VALUE
SHARES (NOTE 2)
COMMON STOCKS -- 48.8% ---------- --------------
<S> <C> <C>
ADVERTISING
Young & Rubicam, Inc. ............. 10,800 $ 617,625
--------------
AEROSPACE -- 0.5%
Boeing Co. ........................ 135,000 5,644,688
GenCorp, Inc. ..................... 30,100 240,800
General Dynamics Corp.(b) ......... 30,700 1,604,075
Goodrich (B.F.) Co. ............... 16,200 551,813
Honeywell Inc. .................... 122,912 4,140,598
Lockheed Martin Corp. ............. 60,200 1,493,713
Northrop Grumman Corp. ............ 11,200 742,000
Parker-Hannifin Corp. ............. 20,010 685,343
Raytheon Co. (Class "B" Stock) .... 52,300 1,006,775
United Technologies Corp. ......... 71,400 4,203,675
--------------
20,313,480
--------------
AIRLINES -- 0.1%
AMR Corp. ......................... 24,000 634,500
Delta Air Lines, Inc. ............. 20,600 1,041,588
Southwest Airlines Co. ............ 78,200 1,480,912
US Airways Group, Inc.(a) ......... 11,100 432,900
--------------
3,589,900
--------------
APPAREL
Nike, Inc. (Class "B" Stock) ...... 41,800 1,664,162
Reebok International Ltd.(a) ...... 10,200 162,563
--------------
1,826,725
--------------
AUTOS - CARS & TRUCKS -- 0.4%
Cummins Engine Co., Inc. .......... 7,200 196,200
Dana Corp. ........................ 25,000 529,688
Delphi Automotive Systems Corp. ... 86,252 1,256,045
Ford Motor Co. .................... 189,500 8,148,500
General Motors Corp. .............. 80,191 4,656,090
Genuine Parts Co. ................. 30,700 614,000
Navistar International Corp.(a) ... 8,800 273,350
PACCAR, Inc. ...................... 13,900 551,656
Titan International, Inc. ......... 48,650 258,453
TRW, Inc. ......................... 20,500 889,187
Visteon Corp.(a) .................. 24,812 300,843
--------------
17,674,012
--------------
BANKS AND SAVINGS & LOANS -- 1.8%
AmSouth Bancorporation ............ 58,100 915,075
Banc One Corp. .................... 174,082 4,624,053
Bank of New York Co., Inc. ........ 114,200 5,310,300
BankAmerica Corp. ................. 263,061 11,311,623
BB&T Corp. ........................ 54,200 1,294,025
Charter One Financial, Inc. ....... 5,000 115,000
Chase Manhattan Corp. ............. 192,200 8,853,212
Comerica, Inc. .................... 26,100 1,171,237
First Union Corp. ................. 153,500 3,808,719
Firstar Corp. ..................... 147,438 3,105,413
Golden West Financial Corp. ....... 27,900 1,138,669
Huntington Bancshares, Inc. ....... 40,760 644,518
KeyCorp ........................... 68,300 1,203,787
Mellon Financial Corp. ............ 79,100 2,882,206
National City Corp. ............... 89,500 1,527,094
Northern Trust Corp. .............. 32,400 2,108,025
Old Kent Financial Corp. .......... 24,150 646,013
PNC Bank Corp. .................... 44,300 2,076,562
Providian Financial Corp. ......... 21,550 1,939,500
SouthTrust Corp. .................. 28,400 642,550
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
Summit Bancorp(b) ................. 29,600 $ 728,900
SunTrust Banks, Inc. .............. 45,900 2,097,056
U.S. Bancorp ...................... 110,400 2,125,200
Union Planters Corp. .............. 23,800 664,913
Wachovia Corp.(b) ................. 30,900 1,676,325
Wells Fargo & Co. ................. 256,500 9,939,375
--------------
72,549,350
--------------
BUSINESS SERVICES -- 0.1%
Equifax, Inc. ..................... 24,500 643,125
Lexmark International Group,
Inc. ............................ 19,433 1,306,869
Molex, Inc. ....................... 30,800 1,482,250
Omnicom Group, Inc. ............... 27,200 2,422,500
--------------
5,854,744
--------------
CHEMICALS -- 0.5%
Air Products & Chemicals, Inc. .... 34,400 1,059,950
Dow Chemical Co. .................. 102,700 3,100,256
Du Pont (E.I.) de Nemours & Co. ... 162,120 7,092,750
Eastman Chemical Co. .............. 11,400 544,350
Engelhard Corp. ................... 18,100 308,831
FMC Corp.(a) ...................... 6,000 348,000
Grace (W.R.) & Co. ................ 15,400 186,725
Great Lakes Chemical Corp. ........ 9,700 305,550
Hercules, Inc. .................... 21,500 302,344
OM Group, Inc. .................... 28,400 1,249,600
Praxair, Inc. ..................... 26,000 973,375
Rohm & Haas Co. ................... 33,511 1,156,130
Sigma-Aldrich Corp. ............... 14,900 435,825
Union Carbide Corp. ............... 21,000 1,039,500
--------------
18,103,186
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp.(a) .................. 109,510 1,533,140
Convergys Corp.(a) ................ 14,000 726,250
Deluxe Corp. ...................... 15,000 353,437
Quintiles Transnational Corp. ..... 17,300 244,363
--------------
2,857,190
--------------
COMPUTER SERVICES -- 6.8%
3Com Corp.(a) ..................... 53,700 3,094,462
Adaptec, Inc.(a) .................. 17,400 395,850
Adobe Systems, Inc. ............... 18,600 2,418,000
America Online, Inc.(a) ........... 354,000 18,673,500
Autodesk, Inc. .................... 12,200 423,188
Automatic Data Processing, Inc. ... 97,800 5,238,412
BMC Software, Inc.(a) ............. 37,900 1,382,758
Cabletron Systems, Inc.(a) ........ 30,200 762,550
Ceridian Corp.(a) ................. 25,500 613,594
Cisco Systems, Inc.(a)(b) ......... 1,060,900 67,433,456
Citrix Systems, Inc. .............. 31,600 598,425
Computer Associates International, Inc. 84,500 4,325,344
Computer Sciences Corp.(a)(b) ..... 25,600 1,912,000
Compuware Corp.(a) ................ 59,000 612,125
Comverse Technology, Inc.(a) ...... 23,500 2,185,500
Electronic Data Systems Corp. ..... 68,900 2,842,125
EMC Corp.(a) ...................... 323,150 24,862,353
First Data Corp. .................. 61,300 3,042,012
Mercury Interactive Corp.(a) ...... 3,000 290,250
Microsoft Corp.(a) ................ 805,800 64,464,000
Network Appliance, Inc.(a) ........ 45,400 3,654,700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B12
<PAGE> 29
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
COMPUTER SERVICES (CONT'D.)
Novell, Inc.(a)(b) ................ 55,200 $ 510,600
Oracle Corp.(a)(b) ................ 436,700 36,710,094
Parametric Technology Corp.(a) .... 49,200 541,200
Peoplesoft, Inc. .................. 44,200 740,350
Sapient Corp.(a) .................. 9,600 1,026,600
Siebel Systems, Inc.(a) ........... 28,700 4,694,244
Silicon Graphics, Inc.(a) ......... 4,600 17,250
Unisys Corp. ...................... 49,200 716,475
VERITAS Software Corp.(a)(b) ...... 60,600 6,848,747
Yahoo!, Inc.(a)(b) ................ 81,800 10,132,975
--------------
271,163,139
--------------
COMPUTERS -- 2.7%
Apple Computer, Inc.(a) ........... 48,300 2,529,713
Compaq Computer Corp. ............. 257,039 6,570,559
Dell Computer Corp.(a)(b) ......... 397,200 19,586,925
Gateway, Inc. ..................... 48,800 2,769,400
Hewlett-Packard Co. ............... 155,900 19,468,012
International Business Machines Corp. 276,800 30,326,900
NCR Corp.(a) ...................... 14,700 572,381
Seagate Technology, Inc.(a) ....... 33,400 1,837,000
Sun Microsystems, Inc.(a) ......... 244,500 22,234,219
--------------
105,895,109
--------------
CONSTRUCTION -- 0.1%
Centex Corp. ...................... 8,100 190,350
Fluor Corp. ....................... 11,300 357,363
Pulte Corp. ....................... 7,600 164,350
Standard Pacific Corp. ............ 99,100 991,000
Vulcan Materials Co. .............. 16,400 700,075
--------------
2,403,138
--------------
CONTAINERS -- 0.1%
Ball Corp. ........................ 4,400 141,625
Bemis Co., Inc. ................... 10,300 346,338
Crown Cork & Seal Co., Inc. ....... 18,300 274,500
Owens-Illinois, Inc.(a) ........... 28,000 327,250
Pactiv Corp.(a) ................... 26,200 206,325
Sealed Air Corp.(a) ............... 12,500 654,687
--------------
1,950,725
--------------
COSMETICS & SOAPS -- 0.6%
Alberto-Culver Co. (Class "B"
Stock) .......................... 9,100 278,119
Avon Products, Inc. ............... 37,900 1,686,550
Colgate-Palmolive Co. ............. 90,600 5,424,675
Gillette Co. ...................... 166,400 5,813,600
International Flavors & Fragrances,
Inc. ............................ 17,100 516,206
Procter & Gamble Co. .............. 197,800 11,311,688
--------------
25,030,838
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.3%
Eastman Kodak Co. ................. 47,800 2,844,100
Fortune Brands, Inc. .............. 27,700 638,831
Philip Morris Companies Inc. ...... 369,100 9,804,219
--------------
13,287,150
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.1%
Avery Dennison Corp. .............. 18,100 1,214,963
Pitney Bowes, Inc. ................ 43,100 1,724,000
Xerox Corp. ....................... 102,400 2,124,800
--------------
5,063,763
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
DIVERSIFIED OPERATIONS -- 2.0%
General Electric Co. .............. 1,530,100 $ 81,095,300
--------------
DRUGS & MEDICAL SUPPLIES -- 5.4%
Abbott Laboratories ............... 238,700 10,637,069
Allergan, Inc. .................... 21,500 1,601,750
ALZA Corp.(a) ..................... 16,300 963,737
American Home Products Corp. ...... 203,200 11,938,000
Amgen, Inc.(a) .................... 158,600 11,141,650
Bard (C.R.), Inc. ................. 9,400 452,375
Bausch & Lomb, Inc. ............... 8,900 688,637
Baxter International, Inc. ........ 43,200 3,037,500
Becton, Dickinson & Co. ........... 40,900 1,173,319
Biogen, Inc.(a) ................... 20,600 1,328,700
Biomet, Inc. ...................... 19,600 753,375
Boston Scientific Corp.(a) ........ 63,600 1,395,225
Bristol-Myers Squibb Co.(b) ....... 308,400 17,964,300
Cardinal Health, Inc.(b) .......... 41,200 3,048,800
Guidant Corp.(b) .................. 46,200 2,286,900
Johnson & Johnson ................. 216,200 22,025,375
Lilly (Eli) & Co.(b) .............. 169,100 16,888,862
Mallinckrodt, Inc. ................ 10,900 473,469
MedImmune, Inc.(a) ................ 16,000 1,184,000
Medtronic, Inc. ................... 180,300 8,981,194
Merck & Co., Inc. ................. 360,100 27,592,662
Pfizer, Inc. ...................... 962,700 46,209,600
Pharmacia & Upjohn, Inc.(b) ....... 196,362 10,149,461
Schering-Plough Corp. ............. 227,900 11,508,950
St. Jude Medical, Inc.(a) ......... 14,100 646,838
Watson Pharmaceuticals, Inc.(a) ... 15,900 854,625
--------------
214,926,373
--------------
ELECTRONICS -- 3.6%
Advanced Micro Devices, Inc.(a) ... 22,700 1,753,575
Altera Corp.(a) ................... 29,000 2,956,187
Analog Devices, Inc.(a) ........... 54,400 4,134,400
Applied Materials, Inc.(a) ........ 118,900 10,775,312
Broadcom Corp. (Class "A"
Stock)(a)........................ 4,000 799,930
Conexant Systems, Inc.(a) ......... 30,700 1,492,788
Emerson Electric Co. .............. 63,200 3,815,700
Intel Corp. ....................... 517,400 69,169,912
KLA-Tencor Corp.(a) ............... 29,100 1,704,169
Linear Technology Corp. ........... 46,500 2,973,094
LSI Logic Corp.(a)(b) ............. 45,000 2,435,625
Maxim Integrated Products,
Inc.(a) ......................... 39,000 2,649,563
Micron Technology, Inc. ........... 81,500 7,177,094
MIPS Technologies, Inc. (Class "B"
Stock) (a) ...................... 3,492 134,450
National Semiconductor Corp.(a) ... 27,000 1,532,250
Novellus Systems, Inc.(a) ......... 5,000 282,813
Rockwell International Corp. ...... 29,100 916,650
Sanmina Corp.(a) .................. 8,000 684,000
Solectron Corp.(a) ................ 88,900 3,722,687
Tektronix, Inc. ................... 10,800 799,200
Teradyne, Inc.(a) ................. 24,100 1,771,350
Texas Instruments, Inc. ........... 252,400 17,336,725
Thomas & Betts Corp. .............. 12,700 242,888
Xilinx Inc. (a) ................... 47,700 3,938,231
--------------
143,198,593
--------------
FINANCIAL SERVICES -- 3.1%
American Express Co. .............. 208,400 10,862,850
Associates First Capital Corp. .... 105,344 2,350,488
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B13
<PAGE> 30
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
FINANCIAL SERVICES (CONT'D.)
Bear Stearns Companies, Inc. ...... 20,416 $ 849,816
Block (H.R.), Inc. ................ 17,800 576,275
Capital One Financial Corp. ....... 32,100 1,432,463
Citigroup, Inc. ................... 528,250 31,827,062
Countrywide Credit Industries,
Inc. ............................ 20,100 609,281
Dun & Bradstreet Corp. ............ 27,500 787,188
Federal Home Loan Mortgage Corp. .. 107,800 4,365,900
Federal National Mortgage
Association ..................... 159,100 8,303,031
Fifth Third Bancorp ............... 48,500 3,067,625
Fleet Boston Financial Corp. ...... 142,412 4,842,008
Franklin Resource, Inc. ........... 39,900 1,211,963
Household International, Inc. ..... 73,052 3,036,224
Lehman Brothers Holdings, Inc. .... 18,900 1,787,231
MBNA Corp. ........................ 124,850 3,386,556
Merrill Lynch & Co., Inc.(b) ...... 58,100 6,681,500
Morgan (J.P.) & Co., Inc. ......... 25,500 2,808,187
Morgan Stanley Dean Witter &
Co. ............................. 178,680 14,875,110
PaineWebber Group, Inc. ........... 23,300 1,060,150
Paychex, Inc. ..................... 57,700 2,423,400
Price (T. Rowe) Associates,
Inc. ............................ 16,100 684,250
Regions Financial Corp. ........... 37,700 749,288
Schwab (Charles) Corp.(a) ......... 194,250 6,531,656
SLM Holding Corp. ................. 25,700 962,144
State Street Corp. ................ 23,700 2,513,681
Synovus Financial Corp. ........... 48,250 850,406
Washington Mutual, Inc. ........... 87,878 2,537,477
--------------
121,973,210
--------------
FOOD & BEVERAGE -- 1.8%
Anheuser-Busch Companies,
Inc.(b) ......................... 72,400 5,407,375
Archer-Daniels-Midland Co. ........ 103,098 1,011,649
Bestfoods ......................... 40,400 2,797,700
Brown-Forman Corp. (Class "B"
Stock) .......................... 10,500 564,375
Campbell Soup Co. ................. 64,200 1,869,825
Coca-Cola Co. ..................... 383,700 22,038,769
Coca-Cola Enterprises, Inc.(b) .... 72,100 1,176,131
ConAgra, Inc. ..................... 79,400 1,513,563
Coors (Adolph) Co. (Class "B" Stock) 6,600 399,300
General Mills, Inc.(b) ............ 46,780 1,789,335
Heinz (H.J.) & Co. ................ 53,030 2,320,062
Hershey Foods Corp. ............... 22,300 1,081,550
Kellogg Co.(b) .................... 63,200 1,880,200
Nabisco Group Holdings Corp. ...... 54,100 1,403,219
PepsiCo, Inc. ..................... 225,900 10,038,431
Quaker Oats Co. ................... 21,100 1,585,138
Ralston-Ralston Purina Group(b) ... 49,600 988,900
Sara Lee Corp. .................... 132,500 2,558,906
Seagram Co., Ltd. ................. 67,400 3,909,200
Sysco Corp. ....................... 50,100 2,110,462
Unilever NV ....................... 88,517 3,806,231
Wrigley (William) Jr. Co. ......... 18,000 1,443,375
--------------
71,693,696
--------------
FOREST PRODUCTS -- 0.2%
Boise Cascade Corp. ............... 8,100 209,587
Fort James Corp. .................. 34,400 795,500
Georgia-Pacific Corp. ............. 28,000 735,000
International Paper Co. ........... 71,373 2,127,808
Louisiana-Pacific Corp. ........... 14,500 157,688
Mead Corp. ........................ 17,100 431,775
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
FOREST PRODUCTS (CONT'D.)
Potlatch Corp. .................... 4,200 $ 139,125
Temple-Inland, Inc. ............... 10,500 441,000
Westvaco Corp. .................... 16,200 401,962
Weyerhaeuser Co. .................. 35,100 1,509,300
Willamette Industries, Inc. ....... 20,100 547,725
--------------
7,496,470
--------------
GAS PIPELINES -- 0.2%
Columbia Energy Group ............. 12,500 820,313
El Paso Energy Corp. .............. 35,200 1,793,000
Peoples Energy Corp. .............. 6,400 207,200
Sempra Energy ..................... 31,919 542,623
Williams Companies, Inc. .......... 64,700 2,697,181
--------------
6,060,317
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 0.2%
Columbia/HCA Healthcare Corp. ..... 84,100 2,554,537
Healthsouth Corp.(a) .............. 66,200 475,812
Humana, Inc.(a) ................... 71,900 350,513
IMS Health, Inc. .................. 56,200 1,011,600
Manor Care, Inc. .................. 17,000 119,000
McKesson HBOC Inc.(b) ............. 44,530 932,347
Shared Medical Systems Corp. ...... 3,000 218,813
Tenet Healthcare Corp.(a) ......... 52,500 1,417,500
UnitedHealth Group Inc. ........... 26,900 2,306,675
Wellpoint Health Networks Inc. .... 6,000 434,625
--------------
9,821,422
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.2%
Clorox Co. ........................ 36,100 1,617,731
Kimberly-Clark Corp. .............. 86,400 4,957,200
Leggett & Platt, Inc. ............. 30,400 501,600
--------------
7,076,531
--------------
HOUSING RELATED -- 0.2%
Armstrong Holdings Inc. ........... 7,100 108,719
Kaufman & Broad Home Corp. ........ 7,200 142,650
Lowe's Companies, Inc. ............ 56,900 2,336,456
Masco Corp. ....................... 70,600 1,275,212
Maytag Corp. ...................... 13,600 501,500
Newell Rubbermaid Inc. ............ 44,614 1,148,811
Owens Corning ..................... 9,700 89,725
Stanley Works ..................... 13,200 313,500
Tupperware Corp. .................. 7,000 154,000
Whirlpool Corp. ................... 11,400 531,525
--------------
6,602,098
--------------
INSTRUMENTS -- CONTROLS -- 0.2%
Agilent Technologies, Inc.(a) ..... 57,593 4,247,497
Johnson Controls, Inc. ............ 13,500 692,719
PE Corp-PE Biosystems Group ....... 32,600 2,147,525
PerkinElmer, Inc. ................. 12,100 800,112
Thermo Electron Corp.(a) .......... 36,700 772,994
--------------
8,660,847
--------------
INSURANCE -- 1.6%
Aetna, Inc. ....................... 23,100 1,482,731
AFLAC Inc. ........................ 41,100 1,888,031
Allstate Corp. .................... 120,400 2,678,900
American General Corp. ............ 37,100 2,263,100
American International Group,
Inc. ............................ 239,853 28,182,727
Aon Corp. ......................... 38,600 1,199,013
Chubb Corp. ....................... 26,700 1,642,050
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B14
<PAGE> 31
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
INSURANCE (CONT'D.)
CIGNA Corp. ....................... 25,400 $ 2,374,900
Cincinnati Financial Corp. ........ 27,000 848,813
Conseco, Inc.(b) .................. 54,821 534,505
Hartford Financial Services Group, Inc. 34,400 1,924,250
Jefferson-Pilot Corp. ............. 16,000 903,000
Lincoln National Corp. ............ 30,600 1,105,425
Loews Corp. ....................... 17,800 1,068,000
Marsh & McLennan Companies, Inc. .. 41,900 4,375,931
MBIA, Inc. ........................ 15,500 746,906
MGIC Investment Corp. ............. 16,900 768,950
Progressive Corp. ................. 12,500 925,000
Reinsurance Group of America,
Inc. ............................ 156,425 4,712,303
SAFECO Corp. ...................... 23,900 475,013
St. Paul Companies, Inc. .......... 37,200 1,269,450
Torchmark Corp. ................... 20,300 501,156
UnumProvident Corp. ............... 39,010 782,638
--------------
62,652,792
--------------
LEISURE -- 0.4%
Brunswick Corp. ................... 16,900 279,906
Carnival Corp. (Class "A"
Stock) .......................... 90,900 1,772,550
Disney (Walt) Co.(b) .............. 321,500 12,478,219
Harrah's Entertainment, Inc.(a) ... 23,800 498,313
Hilton Hotels Corp. ............... 57,500 539,062
Marriott International, Inc. (Class
"A" Stock) ...................... 38,300 1,381,194
--------------
16,949,244
--------------
MACHINERY -- 0.3%
American Power Conversion
Corp.(a) ........................ 19,000 775,437
Briggs & Stratton Corp. ........... 5,400 184,950
Caterpillar, Inc. ................. 54,600 1,849,575
Cooper Industries, Inc. ........... 15,900 517,744
Deere & Co. ....................... 36,600 1,354,200
Dover Corp. ....................... 31,300 1,269,606
Eaton Corp. ....................... 11,500 770,500
Ingersoll-Rand Co. ................ 26,600 1,070,650
Milacron, Inc. .................... 7,200 104,400
Snap-On, Inc. ..................... 8,900 236,963
Timken Co. ........................ 11,500 214,188
United Dominion Industries Ltd. ... 116,100 1,973,700
--------------
10,321,913
--------------
MANUFACTURING -- 0.4%
Illinois Tool Works, Inc. ......... 43,400 2,473,800
Smith (A.O.) Corp.(a) ............. 105,450 2,207,859
Tyco International Ltd. ........... 265,222 12,564,892
--------------
17,246,551
--------------
MEDIA -- 1.5%
Clear Channel Communications,
Inc.(a)(b) ...................... 53,100 3,982,500
Comcast Corp. (Special Class "A"
Stock) .......................... 144,000 5,832,000
Donnelley (R.R.) & Sons Co. ....... 64,900 1,464,306
Dow Jones & Co., Inc. ............. 14,400 1,054,800
Gannett Co., Inc. ................. 42,000 2,512,125
Interpublic Group of Companies,
Inc. ............................ 43,200 1,857,600
Knight-Ridder, Inc. ............... 13,600 723,350
McGraw-Hill Companies, Inc. ....... 30,900 1,668,600
Mediaone Group, Inc.(b) ........... 82,500 5,455,312
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
MEDIA (CONT'D.)
Meredith Corp. .................... 10,200 $ 344,250
New York Times Co. (Class "A"
Stock) .......................... 25,500 1,007,250
Time Warner, Inc.(b) .............. 199,600 15,169,600
Tribune Co. ....................... 51,050 1,786,750
Viacom, Inc., (Class "B" Stock)
(a) ............................. 238,169 16,240,149
--------------
59,098,592
--------------
METALS-FERROUS
Allegheny Technologies, Inc. ...... 14,200 255,600
Bethlehem Steel Corp.(a) .......... 26,200 93,338
Material Sciences Corp.(a) ........ 19,000 190,000
Nucor Corp. ....................... 12,700 421,481
USX Corp.-U.S. Steel Group,
Inc. ............................ 12,200 226,462
Worthington Industries, Inc. ...... 11,400 119,700
--------------
1,306,581
--------------
METALS-NON FERROUS -- 0.1%
Alcan Aluminum Ltd.(b) ............ 33,700 1,044,700
Alcoa, Inc. ....................... 136,440 3,956,760
Inco Ltd. ......................... 33,800 519,675
--------------
5,521,135
--------------
MINERAL RESOURCES
Homestake Mining Co. .............. 39,600 272,250
Phelps Dodge Corp. ................ 12,893 479,458
--------------
751,708
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.3%
AES Corp. ......................... 68,200 3,111,625
Crane Co. ......................... 10,800 262,575
Danaher Corp. ..................... 23,800 1,176,613
Ecolab, Inc. ...................... 23,300 910,156
Grainger (W.W.), Inc. ............. 15,500 477,594
IDEX Corp. ........................ 57,200 1,805,375
ITT Industries, Inc. .............. 19,600 595,350
Millipore Corp. ................... 8,200 618,075
NACCO Industries, Inc. (Class "A"
Stock) .......................... 200 7,025
Pall Corp. ........................ 22,000 407,000
PPG Industries, Inc. .............. 26,100 1,156,556
Textron, Inc. ..................... 24,000 1,303,500
--------------
11,831,444
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.4%
American Greetings Corp. (Class "A"
Stock) .......................... 9,800 186,200
Black & Decker Corp. .............. 15,500 609,344
Corning, Inc. ..................... 43,300 11,685,587
Energizer Holdings, Inc.(a) ....... 1 22
Minnesota Mining & Manufacturing Co. 62,000 5,115,000
Polaroid Corp. .................... 9,100 164,369
--------------
17,760,522
--------------
MOTORCYCLES
Harley-Davidson, Inc. ............. 47,300 1,821,050
--------------
OIL & GAS -- 2.2%
Amerada Hess Corp. ................ 15,100 932,425
Anadarko Petroleum Corp.(b) ....... 20,300 1,001,044
Ashland, Inc. ..................... 12,600 441,788
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B15
<PAGE> 32
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
OIL & GAS (CONT'D.)
Chevron Corp. ..................... 102,000 $ 8,650,875
Coastal Corp. ..................... 32,900 2,002,787
Eastern Enterprises ............... 5,600 352,800
Exxon Mobil Corp. ................. 537,970 42,230,645
Kerr-McGee Corp. .................. 16,525 973,942
NICOR, Inc. ....................... 7,100 231,638
Phillips Petroleum Co. ............ 39,700 2,012,294
Pioneer Natural Resources Co. ..... 212,744 2,712,486
Royal Dutch Petroleum Co. ......... 333,300 20,518,781
Sunoco, Inc. ...................... 15,600 459,225
Texaco, Inc.(b) ................... 85,900 4,574,175
Unocal Corp. ...................... 40,100 1,328,312
USX-Marathon Group ................ 48,500 1,215,531
--------------
89,638,748
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.2%
Baker Hughes, Inc. ................ 51,950 1,662,400
Burlington Resources Inc. ......... 34,100 1,304,325
Conoco, Inc. (Class "B" Stock) .... 91,394 2,244,865
Occidental Petroleum Corp. ........ 55,900 1,177,394
Transocean Sedco Forex, Inc. ...... 28,997 1,549,527
Union Pacific Resources Group,
Inc. ............................ 40,500 891,000
--------------
8,829,511
--------------
OIL & GAS SERVICES -- 0.6%
Apache Corp. ...................... 17,800 1,046,863
Enron Corp. ....................... 111,700 7,204,650
Halliburton Co. ................... 65,500 3,090,781
McDermott International, Inc. ..... 361,800 3,188,363
ONEOK, Inc. ....................... 4,700 121,906
Rowan Companies, Inc.(a) .......... 15,400 467,775
Schlumberger Ltd. ................. 85,400 6,372,975
Tosco Corp. ....................... 21,700 614,381
--------------
22,107,694
--------------
PRECIOUS METALS -- 0.1%
Barrick Gold Corp. ................ 59,600 1,083,975
Freeport-McMoRan Copper & Gold,
Inc. (Class "B" Stock) .......... 21,800 201,650
Newmont Mining Corp. .............. 29,400 635,775
Placer Dome, Inc. ................. 48,800 466,650
--------------
2,388,050
--------------
RAILROADS -- 0.2%
Burlington Northern Santa Fe
Corp. ........................... 72,500 1,662,969
CSX Corp. ......................... 34,800 737,325
Kansas City Southern Industries,
Inc. ............................ 17,700 1,569,769
Norfolk Southern Corp. ............ 64,200 954,975
Union Pacific Corp. ............... 37,800 1,405,687
--------------
6,330,725
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc. .......... 22,100 359,125
McDonald's Corp.(b) ............... 209,800 6,910,288
Starbucks Corp.(a) ................ 18,000 687,375
Tricon Global Restaurants, Inc.
(a) ............................. 23,900 675,175
Wendy's International, Inc. ....... 18,400 327,750
--------------
8,959,713
--------------
RETAIL -- 2.7%
Albertson's, Inc. ................. 61,366 2,040,419
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
RETAIL (CONT'D.)
AutoZone, Inc.(a) ................. 23,500 $ 517,000
Bed Bath & Beyond, Inc. ........... 18,000 652,500
Best Buy Co., Inc.(a) ............. 30,200 1,910,150
Circuit City Stores, Inc. ......... 33,100 1,098,506
Consolidated Stores Corp. ......... 20,100 241,200
Costco Wholesale Corp. ............ 68,100 2,247,300
CVS Corp. ......................... 59,300 2,372,000
Dillard's, Inc. ................... 22,000 269,500
Dollar General Corp. .............. 56,756 1,106,742
Federated Department Stores,
Inc.(a)(b) ...................... 36,100 1,218,375
Gap, Inc., (The)(b) ............... 128,990 4,030,937
Great Atlantic & Pacific Tea Co.,
Inc. ............................ 8,900 147,963
Harcourt General, Inc. ............ 9,800 532,875
Home Depot, Inc. .................. 357,950 17,875,128
IKON Office Solutions, Inc. ....... 26,800 103,850
J.C. Penney Co., Inc. ............. 40,900 754,094
Kmart Corp.(a)(b) ................. 78,200 532,738
Kohl's Corp.(a) ................... 47,700 2,653,312
Kroger Co.(a) ..................... 121,116 2,672,122
Liz Claiborne, Inc. ............... 8,400 296,100
Longs Drug Stores, Inc. ........... 7,000 152,250
May Department Stores Co. ......... 51,900 1,245,600
Nordstrom, Inc. ................... 21,800 525,925
Office Depot, Inc.(a) ............. 59,700 373,125
RadioShack Corp. .................. 32,000 1,516,000
Rite Aid Corp.(b) ................. 43,800 287,438
Safeway, Inc.(a) .................. 79,800 3,600,975
Sears, Roebuck & Co.(b) ........... 57,700 1,882,462
Sherwin-Williams Co. .............. 25,400 538,163
Staples, Inc.(a) .................. 74,900 1,151,588
SUPERVALU Inc. .................... 28,000 533,750
Target Corp. ...................... 68,100 3,949,800
The Limited, Inc. ................. 125,506 2,714,067
Tiffany & Co. ..................... 1,000 67,500
TJX Companies, Inc. ............... 48,500 909,375
Toys 'R' Us, Inc.(a) .............. 41,900 610,169
Wal-Mart Stores, Inc. ............. 689,500 39,732,437
Walgreen Co. ...................... 152,000 4,892,500
Winn-Dixie Stores, Inc. ........... 25,100 359,244
--------------
108,315,179
--------------
RUBBER
Cooper Tire & Rubber Co. .......... 11,200 124,600
Goodyear Tire & Rubber Co. ........ 24,500 490,000
--------------
614,600
--------------
TELECOMMUNICATIONS -- 5.4%
ADC Telecommunications, Inc.(a) ... 44,600 3,740,825
ALLTEL Corp. ...................... 47,400 2,935,838
Andrew Corp.(a) ................... 17,600 590,700
AT&T Corp. ........................ 496,548 15,703,330
Bell Atlantic Corp.(b) ............ 241,100 12,250,894
BellSouth Corp. ................... 292,600 12,472,075
CenturyTel, Inc. .................. 22,400 644,000
General Motors Corp. (Class "H"
Stock)(a) ....................... 7,145 626,974
Global Crossing Ltd.(a) ........... 117,190 3,083,562
GTE Corp. ......................... 150,800 9,387,300
Lucent Technologies, Inc.(b) ...... 495,155 29,337,934
Motorola, Inc. .................... 330,525 9,605,883
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B16
<PAGE> 33
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
TELECOMMUNICATIONS (CONT'D.)
Nextel Communications, Inc. (Class
"A" Stock) (a) .................. 114,400 $ 6,999,850
Nortel Networks Corp.(b) .......... 448,960 30,641,520
QUALCOMM, Inc. .................... 115,700 6,942,000
SBC Communications, Inc. .......... 530,608 22,948,796
Scientific-Atlanta, Inc. .......... 24,100 1,795,450
Sprint Corp. ...................... 135,200 6,895,200
Sprint Corp. (PCS Group)(b) ....... 129,400 7,699,300
Tellabs, Inc.(a) .................. 60,600 4,147,312
US West, Inc. ..................... 75,960 6,513,570
WorldCom, Inc.(a) ................. 441,821 20,268,538
--------------
215,230,851
--------------
TEXTILES
National Service Industries,
Inc. ............................ 6,000 117,000
Russell Corp. ..................... 6,500 130,000
Springs Industries, Inc. .......... 3,200 102,400
VF Corp. .......................... 19,100 454,819
--------------
804,219
--------------
TOBACCO
UST, Inc. ......................... 26,100 383,344
--------------
TOYS
Hasbro, Inc. ...................... 30,700 462,419
Mattel, Inc. ...................... 64,951 856,541
--------------
1,318,960
--------------
TRAVEL SERVICES
Sabre Holdings Corp.(a) ........... 23,526 670,491
--------------
TRUCKING/SHIPPING -- 0.1%
FedEx Corp.(a) .................... 44,900 1,706,200
Ryder System, Inc. ................ 11,500 217,781
--------------
1,923,981
--------------
UTILITY - ELECTRIC & GAS -- 0.7%
Ameren Corp. ...................... 21,200 715,500
American Electric Power Co.,
Inc.(b) ......................... 52,160 1,545,240
CINergy Corp. ..................... 23,500 597,781
CMS Energy Corp. .................. 21,000 464,625
Consolidated Edison, Inc. ......... 34,100 1,010,212
Constellation Energy Group ........ 22,400 729,400
CP&L, Inc. ........................ 24,600 785,663
Dominion Resources, Inc. .......... 38,116 1,634,223
DTE Energy Co.(b) ................. 22,700 693,769
Duke Energy Co. ................... 56,800 3,202,100
Edison International .............. 55,500 1,137,750
Entergy Corp. ..................... 39,400 1,071,187
FirstEnergy Corp.(a) .............. 36,900 862,537
Florida Progress Corp. ............ 14,100 660,938
FPL Group, Inc. ................... 27,700 1,371,150
GPU, Inc. ......................... 19,900 538,544
New Century Energies, Inc. ........ 18,200 546,000
Niagara Mohawk Holdings Inc.
(a) ............................. 27,000 376,313
Northern States Power Co. ......... 26,900 543,044
Pacific Gas & Electric Co. ........ 61,300 1,509,512
PECO Energy Co. ................... 30,800 1,241,625
Pinnacle West Capital Corp. ....... 11,400 386,175
PPL Corp. ......................... 24,100 528,694
Public Service Enterprise Group,
Inc. ............................ 34,600 1,198,025
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
UTILITY - ELECTRIC & GAS (CONT'D.)
Reliant Energy, Inc. .............. 46,200 $ 1,365,787
Southern Co. ...................... 101,200 2,359,225
TXU Corp. ......................... 43,500 1,283,250
Unicom Corp. ...................... 35,300 1,365,669
--------------
29,723,938
--------------
WASTE MANAGEMENT -- 0.1%
Allied Waste Industries, Inc. ..... 29,700 297,000
Waste Management, Inc. ............ 96,142 1,826,698
--------------
2,123,698
--------------
TOTAL COMMON STOCKS
(cost $1,603,369,037).......................... 1,951,410,165
--------------
PREFERRED STOCKS -- 0.8%
FINANCIAL SERVICES
BCH Capital Ltd., Series B......... 225,900 5,732,212
Central Hispano Capital Corp.,
Series A......................... 1,000,000 25,000,000
--------------
TOTAL PREFERRED STOCKS
(cost $31,236,594)............................. 30,732,212
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT
LONG-TERM RATING (000)
BONDS -- 32.6% ------- -----------
<S> <C> <C> <C>
AEROSPACE -- 0.2%
Litton Industries, Inc.,
8.00%, 10/15/09....... Baa2 $ 2,100 2,107,770
Northrop-Grumman Corp.,
7.875%, 03/01/26...... Baa3 4,500 4,265,505
--------------
6,373,275
--------------
AIRLINES -- 1.6%
Continental Airlines,
Inc.,
8.00%, 12/15/05....... Ba2 1,680 1,554,269
7.461%, 04/01/15...... Aa3 7,239 6,930,197
Delta Air Lines, Inc.,
7.90%, 12/15/09....... Baa3 19,300 18,037,780
United Airlines, Inc.,
10.67%, 05/01/04...... Baa3 19,865 20,206,479
11.21%, 05/01/14...... Baa3 18,433 19,002,211
--------------
65,730,936
--------------
ASSET BACKED-SECURITIES -- 1.9%
Citibank Credit Card Master
Trust, Series 1999-5,
6.10%, 05/15/08....... Aaa 39,000 36,513,750
MBNA Master Credit Card
Trust, Series 1999-B,
5.90%, 08/15/11....... Aaa 26,300 23,804,605
Standard Credit Card
Master Trust,
5.95%, 10/07/04....... Aaa 4,650 4,484,321
Team Fleet Financing Corp.,
7.35%, 05/15/03....... Aa3 11,000 10,945,000
--------------
75,747,676
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B17
<PAGE> 34
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
RATING (000) (NOTE 2)
------- ----------- --------------
<S> <C> <C> <C>
AUTO - CARS & TRUCKS -- 0.3%
Hertz Corp.,
8.25%, 06/01/05....... A3 $ 1,500 $ 1,531,200
Lear Corp.,
8.25%, 02/01/02....... Ba3 2,775 2,720,638
7.96%, 05/15/05....... Ba1 7,050 6,556,500
Navistar International
Corp.,
8.00%, 02/01/08(b).... Ba2 1,455 1,334,963
--------------
12,143,301
--------------
BANKS AND SAVINGS & LOANS -- 1.5%
National Australia Bank Ltd.,
6.40%, 12/10/07....... A1 8,400 8,284,500
Capital One Bank,
6.97%, 02/04/02....... Baa2 25,000 24,611,500
6.76%, 07/23/02....... Baa2 2,500 2,429,625
Chase Manhattan Corp.,
7.875%, 06/15/10...... A1 1,000 998,000
Key Bank NA,
5.80%, 04/01/04....... Aa3 5,000 4,725,000
Sanwa Finance Aruba,
A.E.C.,
8.35%, 07/15/09....... Baa1 5,970 5,943,493
Sovereign Bancorp, Sr. Notes,
10.25%, 05/15/04...... Ba3 605 596,584
10.50%, 11/15/06...... Ba3 1,045 1,045,000
Washington Mutual, Inc.,
8.25%, 10/01/02....... A3 5,200 5,239,728
7.50%, 08/15/06....... A3 5,000 4,851,900
--------------
58,725,330
--------------
BUILDING PRODUCTS -- 0.4%
Hanson Overseas B.V.,
7.375%, 01/15/03...... A3 14,751 14,657,036
--------------
CABLE & PAY TELEVISION SYSTEMS -- 0.8%
Cox Communications,
Inc.,
6.94%, 10/01/01....... Baa2 4,000 3,988,840
CSC Holdings, Inc.,
7.875%, 12/15/07...... Ba1 1,740 1,683,502
7.25%, 07/15/08....... Ba1 3,100 2,865,795
Rogers Cablesystems Ltd.,
(Canada),
11.00%, 12/01/15...... Ba3 4,010 4,330,800
Tele-Communications,
Inc.,
8.25%, 01/15/03....... A2 2,000 2,055,980
9.875%, 06/15/22...... A2 12,900 15,256,959
--------------
30,181,876
--------------
CHEMICALS -- 0.1%
Lyondell Chemical,
9.625%, 05/01/07...... Ba3 320 316,800
Monsanto Co.,
6.50%, 12/01/18....... A1 1,145 1,009,340
6.75%, 12/15/27....... A1 2,735 2,453,486
6.60%, 12/01/28....... A1 1,150 1,017,359
--------------
4,796,985
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
RATING (000) (NOTE 2)
------- ----------- --------------
<S> <C> <C> <C>
CONSULTING -- 0.7%
Comdisco, Inc.,
6.00%, 01/30/02....... Baa1 $ 30,000 $ 28,912,500
--------------
CONTAINERS -- 0.5%
Owens-Illinois, Inc.,
7.15%, 05/15/05(b).... Ba1 13,000 11,883,560
Pactiv Corp.,
7.95%, 12/15/25....... Baa3 7,250 6,503,468
--------------
18,387,028
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.1%
Eastman Kodak Co.,
M.T.N.,
7.25%, 06/15/05....... A2 2,500 2,490,750
--------------
DIVERSIFIED OPERATIONS
Corning Inc.,
6.85%, 03/01/29....... A2 2,180 1,856,248
--------------
FINANCIAL SERVICES -- 2.9%
Capital One Financial
Corp.,
7.25%, 05/01/06....... Baa3 2,950 2,699,250
Enterprise Rent-A-Car
USA Finance Co.,
6.95%, 03/01/04....... Baa1 7,500 7,221,750
7.50%, 06/15/03,
M.T.N. ............. Baa1 5,000 4,981,500
Finova Capital Corp.,
6.125%, 03/15/04...... Baa2 21,000 18,060,000
Ford Motor Credit Corp.,
7.375%, 10/28/09...... A2 2,000 1,934,540
7.875%, 06/15/10...... A2 4,700 4,735,250
Gatx Capital Corp.,
7.75%, 12/01/06....... Baa2 6,000 5,610,000
General Motors
Acceptance Corp.,
5.95%, 03/14/03....... A2 27,000 25,967,250
HVB Funding Trust,
9.00%, 10/22/31....... Aa3 1,200 1,138,920
International Lease
Finance Corp.,
5.90%, 03/12/03....... A1 5,000 4,800,000
Osprey Trust,
8.31%, 01/15/03....... Baa2 26,000 26,088,400
Pemex Finance Ltd.,
(Cayman Islands),
9.14%, 08/15/04....... Baa1 6,500 6,650,150
RBF Finance Co.,
11.375%, 03/15/09..... Ba3 2,280 2,462,400
Textron Financial Corp.,
6.05%, 03/16/09....... Aaa 5,029 5,000,810
--------------
117,350,220
--------------
FOOD & BEVERAGE -- 0.1%
Coca-Cola Bottling Co.,
6.375%, 05/01/09...... Baa2 3,000 2,744,010
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B18
<PAGE> 35
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
RATING (000) (NOTE 2)
------- ----------- --------------
<S> <C> <C> <C>
FOOD & BEVERAGE (CONT'D.)
Embotelladora Andina, S.A.,
7.875%, 10/01/97...... Baa1 $ 1,250 $ 963,000
--------------
3,707,010
--------------
FOREST PRODUCTS -- 1.0%
International Paper Co.,
8.00%, 07/08/03(b).... Baa1 26,000 26,135,980
Scotia Pacific Co.
7.71%, 01/20/14....... Baa2 18,800 12,878,000
--------------
39,013,980
--------------
INDUSTRIAL -- 0.2%
Cendant Corp.,
7.75%, 12/01/03....... Baa1 2,000 1,922,600
Compania Sud Americana
de Vapores, S.A., (Chile),
7.375%, 12/08/03...... NR 4,600 4,416,000
--------------
6,338,600
--------------
INSURANCE -- 0.2%
Aon Corp.,
8.65%, 05/15/05(b).... A3 4,000 4,082,000
Conseco, Inc.,
8.50%, 10/15/02....... Ba1 4,050 2,997,000
--------------
7,079,000
--------------
INVESTMENT BANKERS -- 0.9%
Goldman Sachs Group, Inc.,
7.80%, 01/28/10(b).... A1 2,500 2,456,250
Lehman Brothers
Holdings, Inc.,
6.625%, 04/01/04...... A3 18,550 17,703,935
6.625%, 02/05/06...... A3 5,780 5,400,774
Morgan Stanley Dean
Witter & Co.,
7.125%, 01/15/03...... Aa3 4,360 4,332,052
PaineWebber Group, Inc.,
7.015%, 02/10/04...... Baa1 6,000 5,775,900
--------------
35,668,911
--------------
LEISURE -- 0.5%
ITT Corp.,
6.75%, 11/15/03....... Ba1 21,500 20,175,815
Park Place Entertainment
Corp.,
9.375%, 02/15/07...... Ba2 1,960 1,960,000
--------------
22,135,815
--------------
MEDIA -- 0.2%
Clear Channel
Communications, Inc.
7.875%, 06/15/05...... Baa3 1,600 1,608,512
Cox Enterprises, Inc.,
6.625%, 06/14/02...... Baa1 4,500 4,425,075
United News & Media PLC,
7.25%, 07/01/04....... Baa2 2,900 2,800,240
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
RATING (000) (NOTE 2)
------- ----------- --------------
<S> <C> <C> <C>
MEDIA (CONT'D.)
World Color Press Inc.,
8.375%, 11/15/08...... Baa3 $ 1,340 $ 1,259,600
--------------
10,093,427
--------------
MISCELLANEOUS - BASIC INDUSTRY
AES Corp.,
9.50%, 06/01/09(b).... Ba1 2,350 2,303,000
--------------
OIL & GAS -- 0.5%
Amerada Hess Corp.,
7.875%, 10/01/29...... Baa1 2,020 1,975,176
B.J. Services Co.,
7.00%, 02/01/06....... Baa2 4,000 3,836,760
Limestone Electron
Trust,
8.625%, 03/15/03...... Baa3 8,750 8,834,700
Phillips Petroleum Co.,
8.50%, 05/25/05(b).... Baa2 3,750 3,874,050
--------------
18,520,686
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Parker & Parsley Petroleum Co.,
8.875%, 04/15/05...... Ba2 1,375 1,341,326
Union Pacific Resources
Group Inc.,
7.95%, 04/15/29....... Baa3 3,400 3,371,984
--------------
4,713,310
--------------
REAL ESTATE INVESTMENT TRUST -- 1.4%
Duke Realty, L.P.,
7.30%, 06/30/03....... Baa1 3,850 3,778,775
EOP Operating, L.P.,
6.375%, 01/15/02...... Baa1 4,500 4,403,250
6.50%, 06/15/04....... Baa1 6,000 5,708,520
6.625%, 02/15/05(b)... Baa1 17,938 16,946,746
ERP Operating, L.P.,
7.10%, 06/23/04....... A3 2,000 1,939,520
6.63%, 4/13/05(e)..... A3 8,300 7,802,498
Simon Debartolo Group, Inc.,
6.75%, 06/15/05....... Baa1 17,500 16,395,050
--------------
56,974,359
--------------
RETAIL -- 1.2%
Federated Department
Stores, Inc.,
8.125%, 10/15/02...... Baa1 25,850 26,109,017
8.50%, 06/15/03(b).... Baa1 5,000 5,045,850
Kroger Co., (The),
7.25%, 06/01/09....... Baa3 5,100 4,692,000
Safeway Stores Inc.,
6.05%, 11/15/03....... Baa2 12,000 11,458,680
--------------
47,305,547
--------------
TELECOMMUNICATIONS -- 3.5%
360 Communication Co.,
7.125%, 03/01/03(b)... A2 22,550 22,191,906
7.60%, 04/01/09....... A2 7,000 6,793,150
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B19
<PAGE> 36
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
RATING (000) (NOTE 2)
------- ----------- --------------
<S> <C> <C> <C>
TELECOMMUNICATIONS (CONT'D.)
Airtouch Communications,
Inc.,
7.00%, 10/01/03....... A2 $ 4,100 $ 4,030,300
Deutsche Telekom
International Finance B.V.,
7.75%, 06/15/05....... Aa2 15,000 15,075,000
8.00%, 06/15/10....... Aa2 10,000 10,070,000
8.25%, 06/15/30....... Aa2 15,000 15,151,500
Electric Lightwave,
Inc.,
6.05%, 05/15/04....... A2 4,700 4,376,875
Global Crossing
Holdings, Ltd.,
9.125%, 11/15/06...... Ba2 1,765 1,698,813
Rogers Cantel Inc.,
9.375%, 06/01/08...... Baa3 1,055 1,086,650
Sprint Capital Corp.,
6.125%, 11/15/08...... Baa1 18,500 16,490,345
Telecom De Puerto Rico,
6.65%, 05/15/06....... Baa2 9,500 8,823,125
6.80%, 05/15/09....... Baa2 7,900 7,218,625
U.S. West Capital
Funding Inc.,
6.875%, 08/15/01...... Baa1 15,000 14,922,000
Williams Communications
Group, Inc.,
10.875%, 10/01/09..... B2 1,460 1,430,800
Worldcom Inc.,
7.875%, 05/15/03...... A3 3,000 3,030,000
8.00%, 05/15/06(b) A3 5,000 5,056,250
8.25%, 05/15/10....... A3 1,000 1,025,810
--------------
138,471,149
--------------
UTILITIES -- 1.1%
Calpine Corp.,
10.50%, 05/15/06...... Ba1 4,500 4,702,500
Cogentrix Energy, Inc.,
8.75%, 10/15/08....... Ba1 2,940 2,837,100
Edison Mission Energy,
7.73%, 06/15/09....... A3 4,300 4,193,188
Entergy Louisiana, Inc.,
8.50%, 06/01/03....... Baa2 5,000 5,044,000
Hydro-Quebec,
8.00%, 02/01/13....... A2 1,900 1,975,962
Niagara Mohawk Power Co.,
7.375%, 08/01/03(b)... Baa2 10,000 9,860,300
Peco Energy Transition Trust,
5.80%, 03/01/07....... Aaa 7,500 7,087,500
PSEG Energy Holdings, Inc.,
10.00%, 10/01/09...... Ba1 2,385 2,414,813
Sonat, Inc.,
7.625%, 07/15/11...... Baa2 6,700 6,544,225
--------------
44,659,588
--------------
WASTE MANAGEMENT
Allied Waste Industries, Inc.,
7.625%, 01/01/06...... Ba3 970 848,750
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
RATING (000) (NOTE 2)
------- ----------- --------------
<S> <C> <C> <C>
FOREIGN GOVERNMENT BONDS -- 0.7%
Junta de Andalucia, (Spain),
7.25%, 10/01/29....... Aa3 $ 720 $ 692,064
Province of Saskatchewan,
(Canada),
9.125%, 02/15/21...... A2 1,800 2,080,854
Quebec Province, (Canada),
7.125%, 02/09/24(b)... A2 2,700 2,550,366
Republic of Philippines,
8.875%, 04/15/08...... Ba1 4,700 4,230,000
United Mexican States,
10.375%, 02/17/09..... Baa3 18,600 19,995,000
--------------
29,548,284
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 10.0%
United States Treasury Bonds,
13.875%, 05/15/11(d)........... 3,350 4,543,974
7.50%, 11/15/16................ 13,750 15,528,838
8.75%, 05/15/17(b)............. 53,391 67,247,566
8.125%, 05/15/21(b)............ 57,900 70,647,264
8.125%, 08/15/21(b)............ 28,800 35,185,536
7.625%, 11/15/22(b)............ 35,600 41,652,000
7.125%, 02/15/23(b)............ 20,300 22,561,623
6.75%, 08/15/26(b)............. 12,050 12,966,885
6.125%, 08/15/29(b)............ 12,540 12,665,400
6.25%, 05/15/30(b)............. 5,750 6,033,015
United States Treasury Notes,
6.625%, 05/31/02(b)............ 13,500 13,550,625
5.50%, 03/31/03................ 150 146,672
7.50%, 02/15/05(d)............. 185 193,902
6.875%, 05/15/06............... 1,915 1,970,956
6.50%, 10/15/06................ 1,100 1,113,233
6.25%, 02/15/07................ 5,250 5,254,095
6.625%, 05/15/07(b)............ 37,250 38,030,015
6.50%, 02/15/10(b)............. 49,684 51,384,186
--------------
400,675,785
--------------
TOTAL LONG-TERM BONDS
(cost $1,343,500,689).......................... 1,305,410,362
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $2,978,106,320).......................... 3,287,552,739
--------------
SHORT-TERM INVESTMENTS -- 31.1%
COMMERCIAL PAPER -- 22.6%
Abbott Laboratories,
7.00%, 07/06/00....... P1 1,200 1,198,833
Alltel Corp.,
6.55%, 07/12/00....... P1 11,900 11,876,183
American Electric Power Co.,
6.83%, 07/21/00(c).... P2 40,000 39,848,222
Aon Corp.,
6.60%, 07/20/00(c).... P2 46,013 45,852,721
Associates Corp. of
North America,
6.80%, 07/13/00....... P1 16,800 16,761,920
Bank One Corp.,
6.78%, 8/18/00........ P1 2,000 2,013,563
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B20
<PAGE> 37
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
RATING (000) (NOTE 2)
------- ----------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONT'D.)
Barton Capital Corp.,
6.60%, 07/21/00....... NR $ 7,419 $ 7,391,797
Baus Funding LLC,
6.77%, 07/14/00....... P1 23,600 23,542,305
Bishops Gate Residential
Mortgage,
6.60%, 07/17/00....... P1 10,400 10,369,493
Blue Ridge Asset Funding,
6.60%, 07/25/00....... P1 2,000 1,991,200
Bombardier Capital,
Inc.,
6.84%, 07/28/00(c).... P2 10,000 9,948,700
6.90%, 08/18/00(c).... P2 10,000 9,908,000
6.90%, 08/23/00(c).... P2 15,000 14,847,625
Bradford & Bingley
Building Society,
6.65%, 09/08/00....... P1 22,249 21,965,418
Citicorp,
6.55%, 07/10/00(c).... P1 15,000 14,975,438
6.55%, 07/27/00(c).... P1 25,176 25,056,904
6.60%, 08/10/00....... P1 23,000 22,831,333
Cooper Industries, Inc.,
7.05%, 07/05/00....... P1 23,600 23,581,513
Dexia CLF Finance Co.,
6.58%, 07/20/00....... P1 4,000 3,986,109
Dow Chemical Co., Inc.,
7.00%, 07/03/00....... P1 6,500 6,497,472
Dresdner U.S. Finance, Inc.,
6.75%, 07/12/00....... P1 1,100 1,097,731
Du Pont (E. I.) De
Nemours & Co., Inc.,
7.00%, 07/05/00....... P1 4,675 4,671,364
Duke Capital Corp.,
7.25%, 07/05/00(c).... P2 40,000 39,967,776
Enterprise Funding
Corp.,
6.60%, 07/19/00....... P1 9,000 8,970,300
6.61%, 08/23/00....... P1 14,000 13,863,761
Equitable Resources, Inc.,
6.57%, 07/17/00....... P1 10,000 9,970,800
6.62%, 07/21/00....... P1 13,500 13,450,350
Falcon Asset
Securitization Corp.,
6.72%, 07/21/00(c).... P1 20,000 19,925,333
First National Bank
Chicago,
5.70%, 07/12/00....... P1 3,000 2,997,604
Ford Motor Credit Corp.,
6.55%, 07/12/00....... P1 3,100 3,093,796
Fortis Funding LLC,
6.70%, 07/13/00....... P1 15,257 15,222,926
Fortune Brands, Inc.,
6.57%, 07/11/00....... P1 11,900 11,878,283
GE International Funding
Corp.,
6.52%, 07/17/00(c).... P1 20,000 19,942,044
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
RATING (000) (NOTE 2)
------- ----------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONT'D.)
General Electric Capital
Corp.,
6.60%, 07/12/00....... P1 $ 3,100 $ 3,093,748
6.75%, 07/12/00....... P1 4,000 3,991,750
6.63%, 07/13/00....... P1 12,100 12,073,259
Goldman Sachs Group, Inc.,
6.57%, 07/26/00....... 24,000 23,890,500
GTE Corp.,
6.62%, 07/06/00....... P1 1,293 1,291,811
6.62%, 07/13/00....... P1 9,662 9,640,679
6.62%, 07/27/00....... P1 2,400 2,388,525
6.62%, 07/28/00....... P1 1,600 1,592,056
6.63%, 08/09/00(c).... P1 10,000 9,928,172
Heller Financial, Inc.
6.75%, 07/21/00(c).... P2 35,000 34,868,750
Hertz Corp.,
7.15%, 07/06/00....... P1 1,200 1,198,808
Homeside Lending, Inc.,
6.55%, 07/18/00....... P1 11,900 11,863,192
6.62%, 07/27/00....... P1 12,000 11,942,627
ING America Insurance
Holdings, Inc.,
6.57%, 07/11/00....... P1 11,900 11,878,283
Invensys PLC,
7.30%, 07/05/00(c).... P1 15,900 15,887,102
Keyspan Corp.,
6.83%, 07/31/00(c).... P2 30,000 29,829,250
Morgan Stanley Dean
Witter & Co.,
6.58%, 07/27/00....... P1 24,000 23,885,947
Nike Inc.,
6.60%, 07/28/00....... P1 6,373 6,341,454
6.60%, 08/04/00....... P1 2,263 2,248,894
Northern Rock PLC,
6.60%, 07/14/00....... P1 24,000 23,942,800
Old Line Funding Corp.,
6.62%, 08/01/00....... P1 2,753 2,737,306
Phillips Petroleum Co.,
6.83%, 07/31/00(c).... P2 40,000 39,772,333
PNC Funding Corp.,
6.63%, 07/24/00....... P1 10,000 9,957,642
Potomac Electric Power Co.,
6.62%, 08/01/00....... P1 2,900 2,883,468
Preferred Receivables
Funding Corp.,
6.62%, 08/03/00....... P1 1,900 1,888,470
PSE&G Fuel Corp.,
7.30%, 07/06/00(c).... P2 40,000 40,000,000
Santander Finance
Delaware Inc.,
6.62%, 09/05/00....... P1 1,000 987,863
Scotiabanc Inc.,
6.62%, 07/26/00....... P1 14,000 13,935,639
Sweetwater Capital
Corp.,
6.63%, 07/24/00....... P1 4,965 4,943,969
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B21
<PAGE> 38
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
RATING (000) (NOTE 2)
------- ----------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONT'D.)
Target Corp.,
7.50%, 07/05/00....... P1 $ 1,746 $ 1,744,545
6.64%, 08/07/00....... P1 16,333 16,221,536
Thunder Bay Funding,
Inc.,
6.60%, 07/06/00....... P1 8,627 8,619,092
6.60%, 07/07/00....... P1 1,322 1,320,546
6.60%, 07/10/00....... P1 1,935 1,931,807
6.60%, 07/17/00....... P1 2,562 2,554,485
6.60%, 07/24/00....... P1 2,980 2,967,434
6.62%, 08/03/00....... P1 2,365 2,350,649
TRW, Inc.,
6.88%, 08/15/00(c).... P2 17,000 16,853,800
Triple-A-One Funding
Corp.,
7.00%, 07/07/00(c).... P1 6,312 6,304,630
United Technologies
Corp.,
6.60%, 07/27/00....... P1 5,765 5,737,520
--------------
904,987,159
--------------
OTHER CORPORATE OBLIGATIONS -- 4.1%
Advanta Corp.,
7.50%, 08/28/00....... B1 35,000 34,928,250
Camden Property Trust,
7.23%, 10/30/00....... Baa2 22,000 21,960,400
El Paso Energy Corp.,
6.625%, 07/15/01...... Baa2 5,100 5,055,222
Fort James Corp.,
6.234%, 03/15/01(e)... Baa2 10,000 9,909,300
HRPT Properties Trust,
7.521%, 07/10/00(e)... Baa2 750 750,000
ITT Corp.,
6.25%, 11/15/00....... Ba1 5,253 5,204,725
KN Energy, Inc.,
6.30, 03/01/01(e)..... Baa2 20,000 19,845,200
Kroger Co., (The),
6.34%, 06/01/01....... Baa3 8,700 8,547,750
Mallinckrodt, Inc.,
6.30%, 03/15/01(e).... Baa2 7,000 6,895,000
MCN Investment Corp.,
6.30%, 04/02/01(e).... Baa3 8,250 8,119,650
Raytheon Co.,
5.95%, 03/15/01....... Baa2 7,400 7,313,642
Seagram (J.) & Sons,
Inc.,
5.79%, 04/15/01....... Baa3 13,300 13,119,120
Sovereign Bancorp,
Sr. Notes,
6.625%, 03/15/01...... Ba3 4,000 3,940,000
TRW, Inc.,
6.45%, 06/15/01....... Baa1 9,700 9,554,500
Waste Management, Inc.,
6.125%, 07/15/01...... Ba1 8,000 7,725,760
--------------
162,868,519
--------------
REPURCHASE AGREEMENT -- 1.4%
Joint Repurchase Agreement
Account,
6.49%, 07/03/00 (Note 5)....... 57,017 57,017,000
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
RATING (000) (NOTE 2)
------- ----------- --------------
<S> <C> <C> <C>
TIME DEPOSIT - EURODOLLAR -- 2.9%
Dexia Bank, S.A.,
(Cayman Islands)
7.125%, 07/03/00(c)... P1 $ 66,000 $ 66,000,000
Suntrust Bank,
7.00%, 07/13/00(c).... P1 48,210 48,210,000
Westdeutsche Landesbank
Girozentrale,
7.06%, 07/03/00....... P1 1,800 1,800,000
--------------
116,010,000
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
United States Treasury Bills,
5.64%, 09/21/00(d)............. 1,700 1,678,161
5.67%, 09/21/00(d)............. 1,500 1,480,644
--------------
3,158,805
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,245,547,258).......................... 1,244,041,483
--------------
TOTAL INVESTMENTS -- 113.3%
(cost $4,223,653,578; Note 6).................. 4,531,594,222
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (f)...
336,413
--------------
LIABILITIES IN EXCESS OF OTHER ASSETS --
(13.3%)........................................ (533,746,183)
--------------
TOTAL NET ASSETS -- 100.0%....................... $3,998,184,452
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
<TABLE>
<S> <C>
AG Aktiengesellschaft (German Stock Company)
ADR American Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anomia (Spanish Corporation) or Societe
Anonyme (French Corporation)
</TABLE>
(a) Non-income producing security.
(b) Portion of securities on loan with an aggregate market value of
$547,926,800; cash collateral of $549,263,308 was received with which the
portfolio purchased securities.
(c) Represents securities purchased with cash collateral received for securities
on loan.
(d) Security segregated as collateral for futures contracts.
(e) Mandatory put/call.
(f) Open futures contracts as of June 30, 2000 were as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 2000 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
83 U.S. T-Bond Sept 00 $8,082,125 $ 8,079,531 $ (2,594)
28 S&P 500 Index Sept 00 10,464,000 10,276,700 (187,300)
220 U.S. Treasury 5yr Sept 00 21,505,313 21,783,438 278,125
81 S&P 500 Index Sept 00 29,837,875 29,729,025 (108,850)
458 U.S. Treasury 5yr Sept 00 44,785,688 45,349,157 563,469
---------
$ 542,850
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B22
<PAGE> 39
FLEXIBLE MANAGED PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 88.7% VALUE
SHARES (NOTE 2)
COMMON STOCKS -- 57.1% ----------- --------------
<S> <C> <C>
ADVERTISING -- 0.1%
Omnicom Group, Inc. ............. 31,200 $ 2,778,750
--------------
AEROSPACE/DEFENSE -- 0.4%
Boeing Co. ...................... 214,500 8,968,781
GenCorp, Inc. ................... 140,000 1,120,000
General Dynamics Corp.(d) ....... 68,700 3,589,575
Lockheed Martin Corp. ........... 48,900 1,213,331
Northrop Grumman Corp. .......... 8,500 563,125
Raytheon Co. (Class "B" Stock)... 40,600 781,550
Titan Corp. ..................... 3,900 174,525
United Technologies Corp. ....... 58,100 3,420,638
--------------
19,831,525
--------------
AIRLINES -- 0.1%
AMR Corp. ....................... 164,600 4,351,612
Delta Airlines, Inc. ............ 15,800 798,888
Southwest Airlines Co. .......... 61,800 1,170,338
US Airways Group, Inc.(a)........ 8,700 339,300
--------------
6,660,138
--------------
AUTOS - CARS & TRUCKS -- 0.8%
Borg-Warner Automotive, Inc. .... 77,800 2,732,725
Cummins Engine Co., Inc. ........ 4,700 128,075
Dana Corp. ...................... 83,650 1,772,334
Delphi Automotive Systems
Corp. ......................... 253,054 3,685,099
Ford Motor Co. .................. 321,700 13,833,100
General Motors Corp. ............ 176,234 10,232,587
Genuine Parts Co................. 21,600 432,000
Johnson Controls, Inc. .......... 10,000 513,125
Navistar International
Corp.(a)....................... 9,000 279,562
PACCAR, Inc. .................... 10,000 396,875
Titan International, Inc. ....... 200,000 1,062,500
TRW, Inc. ....................... 14,800 641,950
Visteon Corp. ................... 42,121 510,719
--------------
36,220,651
--------------
BANKS AND SAVINGS & LOANS -- 2.1%
AmSouth Bancorp.................. 41,500 653,625
Associates First Capital
Corp. ......................... 137,390 3,065,514
Banc One Corp. .................. 140,064 3,720,450
Bank of New York Co., Inc. ...... 164,900 7,667,850
BankAmerica Corp. ............... 288,041 12,385,763
BB&T Corp. ...................... 43,400 1,036,175
Capital One Financial............ 24,900 1,111,163
Charter One Financial, Inc. ..... 3,000 69,000
Chase Manhattan Corp. ........... 291,900 13,445,644
Comerica, Inc. .................. 19,200 861,600
Fifth Third Bancorp.............. 36,000 2,277,000
First Union Corp. ............... 119,700 2,970,056
Firstar Corp. ................... 195,847 4,125,027
Golden West Financial Corp. ..... 28,500 1,163,156
Huntington Bancshares, Inc. ..... 29,392 464,761
KeyCorp.......................... 55,200 972,900
Mellon Financial Corp. .......... 61,400 2,237,262
National City Corp. ............. 73,100 1,247,269
Northern Trust Corp. ............ 39,100 2,543,944
PNC Bank Corp. .................. 137,400 6,440,625
Providian Financial Corp. ....... 95,400 8,586,000
SouthTrust Corp. ................ 19,000 429,875
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
State Street Corp. .............. 36,000 $ 3,818,250
Summit Bancorp(b)(d)............. 21,300 524,513
Suntrust Banks, Inc. ............ 47,100 2,151,881
U.S. Bancorp..................... 145,300 2,797,025
Union Planters Corp. ............ 18,000 502,875
Wells Fargo & Co. ............... 357,900 13,868,625
--------------
101,137,828
--------------
CHEMICALS -- 0.7%
Air Products & Chemicals,
Inc. .......................... 83,400 2,569,763
Dow Chemical Co. ................ 147,600 4,455,675
Du Pont (E.I.) de Nemours &
Co. ........................... 213,549 9,342,769
Eastman Chemical Co. ............ 9,800 467,950
Engelhard Corp. ................. 15,600 266,175
FMC Corp.(a)..................... 3,500 203,000
Grace (W.R.) & Co.(a)............ 8,000 97,000
Great Lakes Chemical Corp. ...... 6,400 201,600
Hercules, Inc. .................. 11,700 164,531
Material Sciences Corp.(a)....... 255,600 2,556,000
OM Group, Inc. .................. 223,200 9,820,800
Praxair, Inc. ................... 57,100 2,137,681
Rohm & Haas Co. ................. 27,158 936,951
Sigma-Aldrich Corp. ............. 11,300 330,525
Union Carbide Corp. ............. 15,600 772,200
--------------
34,322,620
--------------
COMMERCIAL SERVICES -- 0.2%
Cendant Corp.(a)................. 84,000 1,176,000
Convergys Corp. ................. 42,500 2,204,687
Deluxe Corp. .................... 9,000 212,063
Electronic Data Systems Corp. ... 98,500 4,063,125
Quintiles Transnational Corp. ... 13,100 185,038
--------------
7,840,913
--------------
COMPUTERS -- 3.6%
Apple Computer, Inc.(a)(b)....... 92,700 4,855,163
Citrix Systems, Inc.(a).......... 19,900 376,856
Compaq Computer Corp. ........... 208,361 5,326,228
Dell Computer Corp.(a)........... 438,500 21,623,531
EMC Corp.(a)(b).................. 470,736 36,217,251
Gateway, Inc. ................... 38,500 2,184,875
Hewlett-Packard Co.(d) .......... 230,600 28,796,175
International Business Machines
Corp.(d) ...................... 308,100 33,756,206
Network Appliance, Inc.(a)....... 34,400 2,769,200
Seagate Technology, Inc.(a)...... 66,400 3,652,000
Sun Microsystems, Inc.(a)........ 355,600 32,337,375
--------------
171,894,860
--------------
COMPUTER SERVICES -- 7.2%
3Com Corp.(a).................... 42,200 2,431,775
Adaptec, Inc.(a)................. 11,500 261,625
Adobe Systems, Inc. ............. 34,000 4,420,000
America Online, Inc.(a)(d)....... 519,800 27,419,450
Autodesk, Inc. .................. 7,600 263,625
Automatic Data Processing,
Inc. .......................... 137,100 7,343,419
BMC Software, Inc.(a)............ 29,200 1,065,344
Cabletron Systems, Inc.(a)....... 25,600 646,400
Cadence Design Systems,
Inc.(a)........................ 2,100 42,788
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B23
<PAGE> 40
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
COMPUTER SERVICES (CONT'D.)
Ceridian Corp.(a)................ 18,600 $ 447,563
Cisco Systems, Inc.(a)........... 1,499,000 95,280,187
Computer Associates
International, Inc. ........... 71,700 3,670,144
Computer Sciences Corp.(a)(d).... 20,000 1,493,750
Compuware Corp.(a)............... 48,000 498,000
Comverse Technology, Inc.(a)..... 44,100 4,101,300
First Data Corp. ................ 89,000 4,416,625
Fiserv, Inc. .................... 30,000 1,297,500
Intuit, Inc.(a).................. 50,200 2,077,025
Jabil Circuit, Inc.(a)........... 35,000 1,736,875
Lexmark International Group,
Inc.(a)........................ 15,984 1,074,924
Mercury Interactive Corp. ....... 2,000 193,500
Microchip Technology, Inc. ...... 26,100 1,520,733
Micron Technology, Inc. ......... 108,400 9,545,975
Microsoft Corp.(a)............... 1,005,800 80,464,000
NCR Corp.(a)..................... 7,600 295,925
Networks Associates, Inc. ....... 49,200 1,002,450
Novell, Inc.(a)(d)............... 38,500 356,125
Oracle Corp.(a)(d)............... 624,800 52,522,250
Parametric Technology Corp.(a)... 31,500 346,500
Peoplesoft, Inc.(a).............. 294,900 4,939,575
Rational Software Corp.(a)....... 17,900 1,663,581
Sapient Corp. ................... 4,000 427,750
Siebel Systems, Inc.(a).......... 19,000 3,107,687
Symantec Corp. .................. 29,000 1,564,187
VERITAS Software Corp.(a)(d)..... 78,700 8,894,330
Yahoo, Inc.(d) .................. 127,700 15,818,837
--------------
342,651,724
--------------
CONSTRUCTION -- 0.2%
Armstrong Holdings, Inc. ........ 5,800 88,813
Centex Corp. .................... 7,000 164,500
Fluor Corp. ..................... 9,800 309,925
Kaufman & Broad Home Corp. ...... 6,400 126,800
Pulte Corp. ..................... 6,900 149,212
Standard Pacific Corp. .......... 597,500 5,975,000
Vulcan Materials Co. ............ 11,200 478,100
Webb (Del E.) Corp. ............. 189,200 2,897,125
--------------
10,189,475
--------------
CONTAINERS -- 0.1%
Ball Corp. ...................... 2,700 86,906
Bemis Co., Inc. ................. 6,600 221,925
Crown Cork & Seal Co., Inc. ..... 100,400 1,506,000
Owens-Illinois, Inc. ............ 144,200 1,685,337
Pactiv Corp. .................... 21,500 169,313
Sealed Air Corp. ................ 10,900 570,888
--------------
4,240,369
--------------
COSMETICS & SOAPS -- 0.6%
Alberto Culver Co. (Class "B"
Stock)......................... 6,200 189,488
Avon Products, Inc. ............. 28,700 1,277,150
Colgate-Palmolive Co. ........... 136,700 8,184,913
Gillette Co. .................... 262,200 9,160,612
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
COSMETICS & SOAPS (CONT'D.)
International Flavors &
Fragrances, Inc. .............. 10,300 $ 310,931
Procter & Gamble Co.............. 159,900 9,144,281
--------------
28,267,375
--------------
DIVERSIFIED OPERATIONS -- 2.9%
Corning, Inc. ................... 34,000 9,175,750
Fortune Brands, Inc. ............ 18,300 422,044
General Electric Co.(d) ......... 2,149,100 113,902,300
Perkinelmer, Inc. ............... 6,100 403,362
Smith (A.O.) Corp. .............. 433,350 9,073,266
Unilever N. V.................... 95,042 4,086,806
--------------
137,063,528
--------------
DRUGS & MEDICAL SUPPLIES -- 5.2%
Abbott Laboratories.............. 284,000 12,655,750
Allergan, Inc. .................. 16,100 1,199,450
ALZA Corp.(a).................... 12,500 739,063
Amgen, Inc.(a)................... 240,800 16,916,200
Bard (C.R.), Inc. ............... 5,900 283,938
Bausch & Lomb, Inc. ............. 7,200 557,100
Baxter International, Inc. ...... 35,400 2,489,063
Becton Dickinson & Co. .......... 31,500 903,656
Biogen, Inc.(a).................. 16,000 1,032,000
Biomet, Inc.(a).................. 14,500 557,344
Boston Scientific Corp.(a)....... 52,700 1,156,106
Cardinal Health, Inc.(b)(d)...... 142,850 10,570,900
Forest Laboratories, Inc. ....... 28,700 2,898,700
Guidant Corp.(d) ................ 37,800 1,871,100
Johnson & Johnson................ 320,900 32,691,687
Lilly (Eli) & Co.(d) ............ 250,600 25,028,675
Mallinckrodt, Inc. .............. 7,500 325,781
Medimmune, Inc.(a)............... 11,000 814,000
Medtronic, Inc. ................. 146,000 7,272,625
Merck & Co., Inc. ............... 516,700 39,592,137
Minimed, Inc. ................... 9,600 1,132,800
PE Corp. ........................ 64,100 4,222,588
Pfizer, Inc. .................... 1,251,925 60,092,400
Pharmacia & Upjohn, Inc.(d) ..... 155,004 8,011,769
Schering-Plough Corp. ........... 279,300 14,104,650
St. Jude Medical, Inc.(a)........ 9,500 435,813
Watson Pharmaceuticals,
Inc.(a)........................ 11,200 602,000
--------------
248,157,295
--------------
ELECTRICAL EQUIPMENT
American Power Conversion Co. ... 3,000 122,438
--------------
ELECTRONICS -- 1.9%
Advanced Micro Devices,
Inc.(a)........................ 45,800 3,538,050
Agilent Technologies, Inc. ...... 46,931 3,461,161
Altera Corp.(a).................. 49,200 5,015,325
Analog Devices, Inc.(a).......... 87,300 6,634,800
Atmel Corp.(a)................... 88,000 3,245,000
Belden, Inc. .................... 199,900 5,122,437
Emerson Electric Co. ............ 96,300 5,814,112
Florida Progress Corp. .......... 9,100 426,563
Litton Industries, Inc. ......... 6,700 281,400
LSI Logic Corp.(a)(d)............ 127,400 6,895,525
Maxim Integrated Products,
Inc.(a)........................ 22,000 1,494,625
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B24
<PAGE> 41
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
ELECTRONICS (CONT'D.)
Molex, Inc. ..................... 22,600 $ 1,087,625
Novellus Systems, Inc.(a)........ 96,900 5,480,906
Pinnacle West Capital Corp. ..... 6,400 216,800
PPL Corp. ....................... 16,600 364,163
Rockwell International Corp. .... 21,600 680,400
Sanmina Corp. ................... 71,000 6,070,500
Sawtek, Inc.(a).................. 37,100 2,135,569
Solectron Corp.(a)(d)............ 69,700 2,918,687
Tektronix, Inc. ................. 6,600 488,400
Teradyne, Inc.(a)................ 53,600 3,939,600
Texas Instruments, Inc. ......... 344,500 23,662,844
Thomas & Betts Corp. ............ 5,900 112,838
--------------
89,087,330
--------------
FINANCIAL SERVICES -- 3.7%
American Express Co. ............ 306,200 15,960,675
Bear Stearns Companies, Inc. .... 14,458 601,814
Charles Schwab Corp.(d) ......... 150,750 5,068,969
Citigroup, Inc. ................. 752,276 45,324,629
Countrywide Mortgage Investments,
Inc. .......................... 13,900 421,344
Dun & Bradstreet Corp. .......... 20,100 575,363
Equifax, Inc. ................... 17,100 448,875
Federal Home Loan Mortgage
Corp. ......................... 159,200 6,447,600
Federal National Mortgage
Association.................... 233,000 12,159,687
Fleetboston Financial Corp. ..... 203,551 6,920,734
Franklin Resource, Inc. ......... 30,700 932,512
Goldman Sachs Group, Inc. ....... 20,400 1,935,450
H&R Block, Inc. ................. 11,400 369,075
Household International, Inc. ... 97,792 4,064,480
Lehman Brothers Holdings,
Inc. .......................... 71,500 6,761,219
MBNA Corp. ...................... 316,000 8,571,500
Merrill Lynch & Co., Inc.(d) .... 117,000 13,455,000
Morgan (J.P.) & Co., Inc. ....... 73,000 8,039,125
Morgan Stanley Dean Witter &
Co. ........................... 292,590 24,358,117
Old Kent Financial Corp. ........ 10,920 292,110
PaineWebber Group, Inc. ......... 52,400 2,384,200
Paychex, Inc. ................... 45,075 1,893,150
Regions Financial Corp. ......... 23,900 475,013
SLM Holding Corp. ............... 18,900 707,569
Synovus Financial Corp. ......... 35,300 622,163
T. Rowe Price & Associates,
Inc. .......................... 11,000 467,500
Washington Mutual, Inc. ......... 247,636 7,150,489
--------------
176,408,362
--------------
FOOD & BEVERAGE -- 1.7%
Anheuser-Busch Companies,
Inc.(d)........................ 111,700 8,342,594
Archer-Daniels-Midland Co. ...... 69,460 681,576
Bestfoods........................ 33,500 2,319,875
Brown-Forman Corp. (Class "B"
Stock)......................... 8,500 456,875
Campbell Soup Co. ............... 51,300 1,494,112
Coca-Cola Co. ................... 438,700 25,197,831
Coca-Cola Enterprises,
Inc.(d) ....................... 50,600 825,413
ConAgra, Inc. ................... 60,900 1,160,906
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
FOOD & BEVERAGE (CONT'D.)
Coors (Adolph) Co. (Class "B"
Stock)......................... 5,000 $ 302,500
General Mills, Inc.(d) .......... 50,300 1,923,975
Heinz (H.J.) & Co. .............. 48,200 2,108,750
Hershey Foods Corp. ............. 16,500 800,250
Kellogg Co.(d) .................. 50,700 1,508,325
Nabisco Group Holding Corp. ..... 143,700 3,727,219
PepsiCo, Inc. ................... 346,700 15,406,481
Quaker Oats Co. ................. 16,000 1,202,000
Ralston-Ralston Purina
Group(d)....................... 38,600 769,588
Sara Lee Corp. .................. 109,200 2,108,925
Seagram Co., Ltd. ............... 92,900 5,388,200
Starbucks Corp. ................. 3,000 114,563
Sysco Corp. ..................... 46,100 1,941,962
Whitman Corp. ................... 26,300 325,463
Wrigley (William) Jr. Co. ....... 13,900 1,114,606
--------------
79,221,989
--------------
FOREST PRODUCTS -- 0.5%
Boise Cascade Corp. ............. 57,900 1,498,162
Fort James Corp. ................ 27,100 626,688
Georgia-Pacific Corp.(d) ........ 84,000 2,205,000
International Paper Co. ......... 130,981 3,904,871
Kimberly-Clark Corp. ............ 120,300 6,902,212
Louisiana-Pacific Corp. ......... 245,600 2,670,900
Mead Corp. ...................... 13,200 333,300
Potlatch Corp. .................. 3,700 122,563
Temple-Inland, Inc. ............. 7,100 298,200
Westvaco Corp. .................. 11,900 295,269
Weyerhaeuser Co. ................ 34,400 1,479,200
Willamette Industries, Inc. ..... 60,600 1,651,350
--------------
21,987,715
--------------
GAS PIPELINES -- 0.2%
Cinergy Corp. ................... 20,700 526,556
Columbia Gas System, Inc.(a)..... 10,500 689,062
El Paso Energy Corp. ............ 64,500 3,285,469
Peoples Energy Corp. ............ 5,700 184,538
Sempra Energy.................... 27,573 468,741
Williams Companies, Inc. ........ 52,300 2,180,256
--------------
7,334,622
--------------
HOSPITAL MANAGEMENT -- 0.4%
Columbia/HCA Healthcare Co. ..... 68,700 2,086,763
Healthsouth Corp.(a)............. 55,000 395,313
Humana, Inc.(a).................. 211,600 1,031,550
IMS Health, Inc. ................ 36,900 664,200
Manor Care, Inc. ................ 13,300 93,100
Mckesson HBOC, Inc.(d) .......... 33,881 709,383
Service Corp. International...... 1,001,500 3,192,281
Shared Medical Systems Corp. .... 3,200 233,400
Tenet Healthcare Corp.(a)........ 113,200 3,056,400
UnitedHealth Group, Inc.(d) ..... 107,200 9,192,400
Wellpoint Health Networks,
Inc. .......................... 6,000 434,625
--------------
21,089,415
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B25
<PAGE> 42
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
HOUSEHOLD & PERSONAL CARE PRODUCTS
Clorox Co. ...................... 28,300 $ 1,268,194
Leggett & Platt, Inc. ........... 15,800 260,700
--------------
1,528,894
--------------
HOUSING RELATED -- 0.3%
Lowe's Companies, Inc. .......... 209,200 8,590,275
Masco Corp. ..................... 52,300 944,669
Maytag Corp. .................... 13,500 497,812
Newell Rubbermaid, Inc........... 36,155 930,991
Owens Corning.................... 117,500 1,086,875
Stanley Works.................... 13,600 323,000
Tupperware Corp. ................ 9,900 217,800
Whirlpool Corp. ................. 9,900 461,588
--------------
13,053,010
--------------
INSURANCE -- 2.1%
Aetna, Inc. ..................... 49,800 3,196,537
Allstate Corp. .................. 306,200 6,812,950
American General Corp.(d) ....... 44,300 2,702,300
American International Group,
Inc. .......................... 342,778 40,276,415
Aon Corp.(d)..................... 29,650 921,003
Berkley (W.R.) Corp. ............ 75,000 1,406,250
Chubb Corp. ..................... 88,800 5,461,200
CIGNA Corp. ..................... 20,700 1,935,450
Cincinnati Financial Corp. ...... 20,200 635,038
Conseco, Inc.(d) ................ 41,587 405,473
ITT Hartford Group, Inc. ........ 37,600 2,103,250
Jefferson-Pilot Corp. ........... 13,400 756,263
Lincoln National Corp. .......... 22,300 805,588
Marsh & McLennan Companies,
Inc. .......................... 34,100 3,561,319
MBIA, Inc. ...................... 12,100 583,069
MGIC Investment Corp............. 13,300 605,150
Progressive Corp. ............... 9,400 695,600
Reinsurance Group of America,
Inc. .......................... 642,800 19,364,350
SAFECO Corp. .................... 79,900 1,588,012
St. Paul Companies, Inc. ........ 25,900 883,837
Torchmark Corp. ................. 74,800 1,846,625
UnumProvident Corp. ............. 27,270 547,104
Wachovia Corp.(d) ............... 23,800 1,291,150
--------------
98,383,933
--------------
LEISURE -- 0.2%
Brunswick Corp. ................. 11,200 185,500
Carnival Corp. (Class "A"
Stock)......................... 75,700 1,476,150
Harrah's Entertainment,
Inc.(a)........................ 16,400 343,375
Hasbro, Inc. .................... 23,500 353,969
Hilton Hotels Corp. ............. 44,600 418,125
Loews Corp. ..................... 41,900 2,514,000
Marriott International, Inc.
(Class "A" Stock).............. 31,200 1,125,150
Mattel, Inc. .................... 53,400 704,212
--------------
7,120,481
--------------
MACHINERY -- 0.7%
Briggs & Stratton Corp. ......... 3,300 113,025
Caterpillar, Inc. ............... 60,700 2,056,212
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
MACHINERY (CONT'D.)
Cooper Industries, Inc. ......... 12,900 $ 420,056
Deere & Co. ..................... 164,200 6,075,400
Dover Corp. ..................... 25,800 1,046,513
Eaton Corp. ..................... 9,300 623,100
Harley-Davidson, Inc. ........... 38,000 1,463,000
IDEX Corp. ...................... 234,900 7,414,031
Ingersoll-Rand Co. .............. 61,400 2,471,350
Milacron, Inc. .................. 6,400 92,800
Parker Hannifin Corp. ........... 78,400 2,685,209
Snap-On, Inc. ................... 7,100 189,038
Thermo Electron Corp.(a)......... 17,600 370,700
Timken Co. ...................... 10,200 189,975
United Dominion Industries Ltd.
(Canada)....................... 468,100 7,957,700
--------------
33,168,109
--------------
MANUFACTURING -- 0.5%
Danaher Corp. ................... 18,100 894,819
Donaldson Co., Inc. ............. 173,100 3,418,725
Honeywell, Inc. ................. 187,512 6,316,810
Illinois Tool Works, Inc. ....... 34,500 1,966,500
Southdown, Inc. ................. 100 5,775
Tyco International Ltd. ......... 209,866 9,942,402
York International Corp. ........ 300 7,575
--------------
22,552,606
--------------
MEDIA -- 1.9%
Clear Channel Communications,
Inc.(a)(d)..................... 41,700 3,127,500
Comcast Corp. (Special Class "A"
Stock)......................... 225,500 9,132,750
Dow Jones & Co., Inc. ........... 10,700 783,775
Gannett Co., Inc. ............... 44,000 2,631,750
Interpublic Group of Companies,
Inc. .......................... 34,600 1,487,800
Knight-Ridder, Inc............... 40,600 2,159,413
McGraw-Hill, Inc. ............... 23,400 1,263,600
Mediaone Group, Inc.(d).......... 75,400 4,985,825
Meredith Corp. .................. 4,600 155,250
New York Times Co. (Class "A"
Stock)......................... 22,600 892,700
R.R. Donnelley & Sons, Co. ...... 219,400 4,950,212
Time Warner, Inc.(d) ............ 291,900 22,184,400
Tribune Co. ..................... 41,500 1,452,500
Viacom, Inc. (Class "B"
Stock)(a)...................... 248,438 16,940,366
Walt Disney Co.(d) .............. 464,500 18,028,406
--------------
90,176,247
--------------
METAL - STEEL -- 0.1%
Allegheny Teldyne, Inc. ......... 12,650 227,700
Bethlehem Steel Corp.(a)......... 20,700 73,744
Nucor Corp. ..................... 11,800 391,613
USX Corp. -- U.S. Steel Group.... 121,000 2,246,062
Worthington Industries, Inc. .... 9,700 101,850
--------------
3,040,969
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B26
<PAGE> 43
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
METALS-NON FERROUS -- 0.2%
Alcan Aluminum Ltd.(d) .......... 26,100 $ 809,100
Alcoa, Inc. ..................... 293,488 8,511,152
I Ltd. .......................... 23,000 353,625
--------------
9,673,877
--------------
MINERAL RESOURCES
Homestake Mining Co. ............ 34,300 235,812
Phelps Dodge Corp. .............. 10,953 407,315
--------------
643,127
--------------
MISCELLANEOUS BASIC INDUSTRY -- 0.1%
Crane Co. ....................... 7,600 184,775
Ecolab, Inc. .................... 14,500 566,406
ITT Industries, Inc. ............ 11,300 343,238
Millipore Corp. ................. 6,000 452,250
Pall Corp. ...................... 17,200 318,200
PPG Industries, Inc. ............ 20,400 903,975
Textron, Inc. ................... 18,600 1,010,212
W.W. Grainger, Inc. ............. 11,200 345,100
Wolverine Tube, Inc.(a).......... 2,300 39,100
--------------
4,163,256
--------------
MISCELLANEOUS CONSUMER GROWTH -- 0.2%
American Greetings Corp. (Class
"A" Stock)..................... 7,300 138,700
Black & Decker Corp. ............ 11,100 436,369
Minnesota Mining & Manufacturing
Co.(d)......................... 90,500 7,466,250
SMM Trust........................ 5,600 320,250
--------------
8,361,569
--------------
OFFICE EQUIPMENT & SUPPLIES -- 0.1%
Avery Dennison Corp. ............ 13,600 912,900
Office Depot, Inc.(a)............ 44,700 279,375
Pitney Bowes, Inc. .............. 33,600 1,344,000
Staples, Inc.(a)................. 60,000 922,500
Unisys Corp.(a).................. 36,600 532,988
Xerox Corp. ..................... 80,900 1,678,675
--------------
5,670,438
--------------
OIL & GAS -- 3.5%
Amerada Hess Corp. .............. 10,400 642,200
Anadarko Petroleum Corp.(d) ..... 15,300 754,481
Ashland Oil, Inc. ............... 8,700 305,044
Burlington Resources, Inc. ...... 24,500 937,125
Chevron Corp. ................... 150,500 12,764,281
Coastal Corp. ................... 55,200 3,360,300
Conoco, Inc. (Class "B" Stock)... 106,224 2,609,127
Eastern Enterprises, Inc. ....... 3,300 207,900
Exxon Mobil Corp. ............... 763,158 59,907,903
Kerr-McGee Corp. ................ 12,409 731,355
McDermott International, Inc. ... 1,475,600 13,003,725
NICOR, Inc. ..................... 5,000 163,125
Occidental Petroleum Corp. ...... 44,100 928,856
PG&E Corp. ...................... 110,900 2,730,913
Phillips Petroleum Co. .......... 133,000 6,741,438
Pioneer Natural Resources
Co.(a)......................... 686,431 8,751,995
Royal Dutch Petroleum Co. ....... 476,400 29,328,375
Sunoco, Inc. .................... 11,100 326,756
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
OIL & GAS (CONT'D.)
Texaco, Inc.(d) ................. 218,800 $ 11,651,100
Transocean Sedco Forex, Inc. .... 26,235 1,401,933
Union Pacific Resources Group,
Inc. .......................... 32,200 708,400
Unocal Corp. .................... 30,800 1,020,250
USX- Marathon Corp. ............. 132,100 3,310,756
Western Gas Resources, Inc. ..... 262,800 5,518,800
--------------
167,806,138
--------------
OIL & GAS DRILLING -- 0.1%
Global Marine, Inc.(a)........... 67,600 1,905,475
Nabors Industries, Inc. ......... 42,100 1,749,781
--------------
3,655,256
--------------
OIL & GAS SERVICES -- 0.6%
Apache Corp. .................... 59,100 3,475,819
Baker Hughes, Inc. .............. 79,140 2,532,480
BJ Services Co. ................. 42,300 2,643,750
Enron Corp. ..................... 126,800 8,178,600
ENSCO International, Inc. ....... 39,500 1,414,594
Halliburton Co. ................. 55,300 2,609,469
ONEOK, Inc. ..................... 5,000 129,688
Rowan Companies, Inc.(a)......... 13,900 422,212
Schlumberger Ltd................. 71,600 5,343,150
Smith International, Inc.(a)..... 36,500 2,657,656
Tosco Corp. ..................... 12,200 345,412
--------------
29,752,830
--------------
PHARMACEUTICALS -- 0.8%
American Home Products Corp. .... 159,400 9,364,750
Bristol-Myers Squibb Co. ........ 449,600 26,189,200
--------------
35,553,950
--------------
PHOTOGRAPHY -- 0.1%
Eastman Kodak Co. ............... 62,800 3,736,600
Polaroid Corp. .................. 3,700 66,831
--------------
3,803,431
--------------
PRECIOUS METALS
Barrick Gold Corp. (ADR)
(Canada)....................... 46,900 852,994
Freeport-McMoRan Copper & Gold,
Inc. (Class "B" Stock)(a)...... 22,100 204,425
Newmont Mining Corp. ............ 20,600 445,475
Placer Dome, Inc. ............... 39,600 378,675
--------------
1,881,569
--------------
PROFESSIONAL SERVICES
CSG Systems International,
Inc. .......................... 12,500 700,781
--------------
PUBLISHING
Houghton Mifflin Co. ............ 300 14,006
--------------
RAILROADS -- 0.2%
Burlington Northern Santa Fe
Corp. ......................... 56,500 1,295,969
CSX Corp. ....................... 25,900 548,756
Kansas City Southern Industries,
Inc. .......................... 61,800 5,480,887
Norfolk Southern Corp. .......... 48,900 727,388
Union Pacific Corp. ............. 29,400 1,093,312
--------------
9,146,312
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B27
<PAGE> 44
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
RESTAURANTS -- 0.1%
Darden Restaurants, Inc. ........ 13,400 $ 217,750
McDonald's Corp.(d) ............. 164,800 5,428,100
Tricon Global Restaurants,
Inc.(a)........................ 20,100 567,825
Wendy's International, Inc. ..... 15,700 279,656
--------------
6,493,331
--------------
RETAIL -- 3.0%
Albertson's, Inc. ............... 55,361 1,840,753
AutoZone, Inc.(a)................ 16,000 352,000
Bed Bath & Beyond, Inc.(a)....... 116,000 4,205,000
Best Buy Co., Inc.(a)............ 133,900 8,469,175
Charming Shoppes, Inc.(a)........ 144,200 734,519
Circuit City Stores, Inc. ....... 25,200 836,325
Consolidated Stores Corp.(a)..... 13,100 157,200
Costco Wholesale Corp.(b)........ 53,400 1,762,200
CVS Corp. ....................... 48,500 1,940,000
Dillard's, Inc. ................. 75,900 929,775
Dollar General Corp. ............ 41,500 809,250
Dollar Tree Stores, Inc.(a)...... 4,500 178,031
Federated Department Stores,
Inc.(a)(d)..................... 25,700 867,375
Great Atlantic & Pacific Tea Co.,
Inc. .......................... 5,200 86,450
Harcourt General, Inc. .......... 8,100 440,438
Home Depot, Inc. ................ 375,950 18,774,003
IKON Office Solutions, Inc. ..... 21,800 84,475
J.C. Penney Co., Inc. ........... 33,800 623,188
Kmart Corp.(a)(d)................ 271,800 1,851,637
Kohl's Corp.(a).................. 152,100 8,460,562
Kroger Co.(a).................... 103,500 2,283,469
Liz Claiborne, Inc. ............. 8,000 282,000
Longs Drug Stores, Inc. ......... 4,300 93,525
May Department Stores Co. ....... 40,050 961,200
Nike, Inc. ...................... 44,600 1,775,637
Nordstrom, Inc. ................. 17,400 419,775
Radioshack Corp. ................ 23,800 1,127,525
Reebok International Ltd. ....... 9,100 145,031
Rite Aid Corp.(d) ............... 31,600 207,375
Safeway, Inc.(a)................. 61,400 2,770,675
Sears, Roebuck & Co.(d) ......... 139,400 4,547,925
Sherwin-Williams Co. ............ 22,500 476,719
Supervalu, Inc. ................. 15,300 291,656
Target Corp. .................... 95,200 5,521,600
The Gap, Inc. ................... 102,900 3,215,625
The Limited, Inc. ............... 188,680 4,080,205
Tiffany & Co. ................... 1,000 67,500
TJX Companies, Inc. ............. 35,800 671,250
Toys 'R' Us, Inc.(a)............. 128,700 1,874,194
Wal-Mart Stores, Inc............. 970,800 55,942,350
Walgreen Co. .................... 122,800 3,952,625
Winn-Dixie Stores, Inc. ......... 19,500 279,094
--------------
144,389,311
--------------
RUBBER -- 0.1%
B.F. Goodrich Co. ............... 14,000 476,875
Cooper Tire & Rubber Co. ........ 8,600 95,675
Goodyear Tire & Rubber Co. ...... 80,000 1,600,000
--------------
2,172,550
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
SEMICONDUCTORS -- 2.9%
Applied Materials, Inc.(a)(d).... 235,200 $ 21,315,000
Conexant Systems, Inc. .......... 23,200 1,128,100
Intel Corp. ..................... 715,700 95,680,144
KLA Instruments Corp.(a)......... 22,000 1,288,375
Linear Technology Corp. ......... 75,500 4,827,281
MIPS Technologies, Inc. ......... 4,351 167,529
National Semiconductor
Corp.(a)....................... 35,900 2,037,325
Semtech Corp.(a)................. 14,700 1,124,320
Vitesse Semiconductor Corp.(a)... 64,300 4,730,069
Xilinx, Inc.(a).................. 80,400 6,638,025
--------------
138,936,168
--------------
TELECOMMUNICATIONS -- 5.5%
ADC Telecommunications,
Inc.(a)(d)..................... 79,600 6,676,450
AFLAC, Inc. ..................... 33,200 1,525,125
Alltel Corp. .................... 49,900 3,090,681
Andrew Corp.(a).................. 12,300 412,819
AT&T Corp. ...................... 625,072 19,767,902
Bell Atlantic Corp.(d) .......... 369,700 18,785,381
BellSouth Corp. ................. 439,200 18,720,900
Broadcom Corp.(a)................ 4,000 799,930
CenturyTel, Inc. ................ 14,500 416,875
Global Crossing Ltd. ............ 90,960 2,393,385
GTE Corp. ....................... 120,400 7,494,900
Lucent Technologies, Inc. ....... 542,630 32,150,828
MCI Worldcom, Inc. .............. 391,255 17,948,823
Motorola, Inc.(d) ............... 360,205 10,468,458
Nextel Communications, Inc.
(Class "A" Stock)(a)(b)........ 88,800 5,433,450
Nortel Networks Corp............. 649,200 44,307,900
Polycom, Inc. ................... 16,400 1,543,138
Powerwave Technologies, Inc. .... 51,300 2,257,200
Qualcomm, Inc.................... 91,500 5,490,000
SBC Communications, Inc. ........ 783,350 33,879,887
Scientific-Atlanta, Inc. ........ 28,300 2,108,350
Sprint Corp. .................... 219,000 11,169,000
Sprint Corp. (PCS Group)(d)...... 105,300 6,265,350
Tellabs, Inc.(a)................. 50,100 3,428,719
US West, Inc. ................... 62,641 5,371,466
--------------
261,906,917
--------------
TEXTILES
National Service Industries,
Inc. .......................... 4,900 95,550
Russell Corp. ................... 5,900 118,000
Springs Industries, Inc. ........ 3,300 105,600
VF Corp. ........................ 16,700 397,669
--------------
716,819
--------------
TOBACCO -- 0.3%
Philip Morris Companies, Inc. ... 369,200 9,806,875
R.J. Reynolds Tobacco Holdings,
Inc. .......................... 127,233 3,554,572
UST, Inc. ....................... 21,800 320,187
--------------
13,681,634
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B28
<PAGE> 45
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ----------- --------------
<S> <C> <C>
TRUCKING & SHIPPING -- 0.1%
Federal Express Corp.(a)......... 36,100 $ 1,371,800
Ryder System, Inc. .............. 4,700 89,006
Sabre Group Holdings, Inc. ...... 73,547 2,096,090
Yellow Corp.(a).................. 153,500 2,264,125
--------------
5,821,021
--------------
UTILITIES - ELECTRIC -- 0.8%
AES Corp.(a)(d).................. 50,200 2,290,375
Ameren Corp...................... 15,500 523,125
American Electric Power Co.,
Inc.(d)........................ 40,980 1,214,032
Calpine Corp.(a)................. 43,900 2,886,425
CMS Energy Corp. ................ 16,200 358,425
Consolidated Edison, Inc. ....... 25,900 767,288
Constellation Energy Group....... 18,800 612,175
CP&L Energy, Inc. ............... 18,400 587,650
Dominion Resources, Inc. ........ 29,018 1,244,147
DTE Energy Co.(d) ............... 17,000 519,563
Duke Energy Corp. ............... 177,700 10,017,837
Edison International............. 42,800 877,400
Entergy Corp. ................... 117,110 3,183,928
FirstEnergy Corp.(a)............. 29,000 677,875
FPL Group, Inc. ................. 22,100 1,093,950
GPU, Inc. ....................... 13,400 362,638
New Century Energies, Inc. ...... 15,000 450,000
Niagara Mohawk Holdings,
Inc.(a)........................ 24,300 338,681
Northern States Power Co. ....... 19,900 401,731
PECO Energy Co. ................. 87,500 3,527,344
Public Service Enterprise Group,
Inc. .......................... 27,100 938,338
Reliant Energy, Inc. ............ 37,400 1,105,637
Southern Co...................... 136,100 3,172,831
TXU Corp. ....................... 35,900 1,059,050
Unicom Corp. .................... 25,800 998,137
--------------
39,208,582
--------------
WASTE MANAGEMENT
Allied Waste Industries,
Inc.(a)........................ 19,000 190,000
Waste Management, Inc. .......... 70,535 1,340,165
--------------
1,530,165
--------------
TOTAL COMMON STOCKS
(cost $2,353,527,383)......................... 2,711,216,209
--------------
<CAPTION>
PREFERRED STOCK -- 0.5%
<S> <C> <C>
FINANCIAL SERVICES
Central Hispano Eurocapital (cost
$25,440,000),.................. 1,000 25,000,000
--------------
<CAPTION>
WARRANT
<S> <C> <C>
Mexico Debenture (cost $0)....... 31,074 0
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM RATING (000) (NOTE 2)
BONDS -- 31.1% ----------- ----------- --------------
<S> <C> <C> <C>
AEROSPACE -- 0.1%
Northrop Grumman Corp.,
7.88%, 03/01/26...... Baa3 $ 5,300 $ 5,023,817
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM MOODY'S AMOUNT VALUE
BONDS RATING (000) (NOTE 2)
(CONTINUED) ----------- ----------- --------------
<S> <C> <C> <C>
AIRLINES -- 1.4%
Continental Airlines,
Inc.,
7.46%, 04/01/15...... Aa3 $ 8,260 $ 7,907,532
Delta Airlines, Inc.,
7.90%, 12/15/09(d)... Baa3 23,800 22,243,480
United Airlines, Inc.,
10.67%, 05/01/04..... Baa3 19,500 19,835,205
11.21%, 05/01/14..... Baa3 17,500 18,040,400
--------------
68,026,617
--------------
AUTOMOBILES & TRUCKS -- 0.5%
Lear Corp.,
7.96%, 05/15/05(d)... Ba1 11,740 10,918,200
Navistar International
Corp.,
7.00%, 02/01/03...... Baa3 11,500 10,982,500
8.00%, 02/01/08(d)... Ba2 2,360 2,165,300
--------------
24,066,000
--------------
BANKS AND SAVINGS & LOANS -- 1.1%
Bank of Nova Scotia,
(Canada),
6.50%, 07/15/07...... A1 5,400 5,103,000
Bank Tokyo Mitsubishi
Ltd.,
8.40%, 04/15/10...... A3 2,500 2,525,750
Chase Manhattan Corp.,
7.88%, 06/15/10...... A1 1,000 998,000
Key Bank NA,
5.80%, 04/01/04...... Aa3 20,000 18,900,000
National Australia
Bank,
6.40%, 12/10/07...... A1 8,700 8,580,375
Sanwa Finance Aruba,
8.35%, 07/15/09...... Baa1 7,120 7,088,387
Sovereign Bancorp,
10.25%,
05/15/04(d).......... Ba3 2,670 2,632,861
10.50%,
11/15/06(d)........ Ba3 3,955 3,955,000
--------------
49,783,373
--------------
CONSULTING -- 0.5%
Comdisco, Inc.,
6.32%, 11/27/00...... Baa1 19,000 18,913,360
6.38%, 11/30/01...... Baa1 2,700 2,612,493
--------------
21,525,853
--------------
CABLE & PAY TELEVISION SYSTEMS -- 0.3%
British Sky
Broadcasting, Inc.,
6.88%, 02/23/09...... Baa3 2,090 1,836,086
Cox Communications,
Inc.,
6.94%, 10/01/01...... Baa2 4,000 3,988,840
CSC Holdings, Inc.,
7.88%, 12/15/07...... Ba1 3,025 2,926,778
7.25%, 07/15/08...... Ba1 5,500 5,084,475
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B29
<PAGE> 46
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM MOODY'S AMOUNT VALUE
BONDS RATING (000) (NOTE 2)
(CONTINUED) ----------- ----------- --------------
<S> <C> <C> <C>
CABLE & PAY TELEVISION SYSTEMS (CONT'D.)
Rogers Cablesystems,
Inc., (Canada),
10.00%, 03/15/05.... Ba1 $ 2,000 $ 2,045,000
--------------
15,881,179
--------------
CHEMICALS -- 0.1%
Lyondell Chemical,
9.63%, 05/01/07..... Ba3 1,625 1,608,750
Monsanto Co.,
6.50%, 12/01/18..... A2 1,550 1,366,356
6.75%, 12/15/27..... A1 3,715 3,332,615
--------------
6,307,721
--------------
CONTAINERS -- 0.6%
Owens-Illinois, Inc.,
7.15%, 05/15/05...... Ba1 26,250 23,995,650
Pactiv Corp.,
7.95%, 12/15/25...... Baa3 7,050 6,324,062
--------------
30,319,712
--------------
DIVERSIFIED OPERATIONS -- 0.2%
Corning, Inc.,
6.85%, 03/01/29 A2 5,000 4,257,450
Cox Enterprises, Inc.,
6.63%, 06/14/02...... Baa1 5,200 5,113,420
--------------
9,370,870
--------------
DRUGS & MEDICAL SUPPLIES -- 0.3%
Columbia/HCA Healthcare
Corp.,
6.91%, 06/15/05(d)... Ba2 4,990 4,528,425
Mallinckrodt, Inc.,
6.30%, 03/15/11...... Baa2 8,000 7,880,000
Tenet Healthcare Corp.,
7.88%, 01/15/03...... Ba1 3,805 3,700,363
--------------
16,108,788
--------------
FINANCIAL SERVICES -- 3.5%
AT&T Capital Corp.,
6.60%, 05/15/05...... A1 16,000 15,057,120
Calair Capital Corp.,
8.13%, 04/01/08...... Ba2 4,920 4,231,200
Capital One Bank Corp.,
6.76%, 07/23/02...... Baa2 7,500 7,288,875
Capital One Financial
Corp.,
7.25%, 05/01/06...... Baa3 3,400 3,111,000
Citibank Credit Card
Master Trust I
6.10%, 05/15/08...... Aaa 11,000 10,298,750
ERAC USA Finance Co.,
6.95%, 03/01/04...... Baa1 7,500 7,221,750
Ford Motor Credit
Corp.,
7.38%, 10/28/09...... A2 2,500 2,418,175
6.70%, 07/16/04...... A2 3,450 3,342,567
7.50%, 03/15/05(d)... A2 5,700 5,671,785
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM MOODY'S AMOUNT VALUE
BONDS RATING (000) (NOTE 2)
(CONTINUED) ----------- ----------- --------------
<S> <C> <C> <C>
FINANCIAL SERVICES (CONT'D)
General Motors
Acceptance Corp.,
5.95%, 03/14/03...... A2 $ 21,500 $ 20,677,625
Heller Financial, Inc.,
6.00%, 03/19/04(d)... A3 4,900 4,585,616
HVB Funding Trust,
9.00%, 10/22/31...... Aa3 1,400 1,328,740
KBC Bank Funding Trust
III,
9.86%, 11/29/49...... A1 2,500 2,558,000
Lehman Brothers
Holdings, Inc.,
6.38%, 05/07/02...... A3 2,100 2,050,608
6.63%, 04/01/04...... A3 10,000 9,543,900
MBNA Master Credit Card
Trust,
5.90%, 08/15/11...... Aaa 29,800 26,972,518
Osprey Trust,
8.31%, 01/15/03...... Baa2 20,000 20,068,000
RBF Finance Co.,
11.38%, 03/15/09..... Ba3 2,615 2,824,200
Sakura Capital Funding
(Cayman Islands),
7.04%, 09/29/49...... Ba1 5,000 4,850,000
Salomon Smith Barney,
Inc.,
6.13%, 01/15/03...... Aa3 1,000 966,610
Textron Financial
Corp.,
6.05%, 03/16/09...... Aaa 3,370 3,351,505
Washington Mutual,
Inc.,
7.50%, 08/15/06...... A3 7,000 6,792,660
--------------
165,211,204
--------------
FOOD & BEVERAGE -- 0.1%
Coca-Cola Bottling Co.,
6.38%, 05/01/09...... Baa2 3,500 3,201,345
--------------
FOREST PRODUCTS -- 0.7%
Fort James Corp.,
6.23%, 03/15/11...... Baa2 11,000 10,900,230
Scotia Pacific Co.,
7.71%, 01/20/14...... Baa2 29,500 20,207,500
--------------
31,107,730
--------------
HOUSING RELATED -- 0.4%
Hanson, PLC, ADR,
(United Kingdom),
7.375%, 01/15/03..... A3 17,400,000 17,289,162
--------------
INDUSTRIAL -- 0.2%
Allied Waste North
America, Inc.,
7.63%, 01/01/06...... Ba3 2,840 2,485,000
Cendant Corp.,
7.75%, 12/01/03...... Baa1 2,000 1,922,600
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B30
<PAGE> 47
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM MOODY'S AMOUNT VALUE
BONDS RATING (000) (NOTE 2)
(CONTINUED) ----------- ----------- --------------
<S> <C> <C> <C>
INDUSTRIAL (CONT'D.)
Compania Sud Americana
de Vapores, S.A.,
(Chile),
7.38%, 12/08/03...... NA $ 3,650 $ 3,504,000
--------------
7,911,600
--------------
INSURANCE -- 0.1%
Conseco, Inc.,
8.50%, 10/15/02...... Ba1 1,500 1,110,000
8.70%, 11/15/26...... Ba3 4,100 1,783,500
--------------
2,893,500
--------------
LEISURE & TOURISM -- 0.5%
Harrahs Operating Co.,
Inc.,
7.88%, 12/15/05...... Ba2 600 564,000
HMH Properties, Inc.,
7.88%, 08/01/05(d)... Ba2 6,560 6,199,200
ITT Corp.,
6.75%, 11/15/03...... Ba1 14,000 13,137,740
Park Place
Entertainment Corp.,
7.88%, 12/15/05(d)... Ba2 5,030 4,728,200
9.38%, 02/15/07...... Ba2 1,360 1,360,000
--------------
25,989,140
--------------
MEDIA -- 0.3%
Paramount
Communications, Inc.,
7.50%, 01/15/02...... Baa1 9,100 9,070,243
United News & Media
PLC,
7.25%, 07/01/04...... Baa2 3,180 3,070,608
--------------
12,140,851
--------------
OIL & GAS -- 0.3%
Amerada Hess Corp.,
7.38%, 10/01/09(d)... Baa1 900 874,701
7.88%, 10/01/29...... Baa1 2,500 2,444,525
B.J. Services Co.,
7.00%, 02/01/06...... Baa2 4,000 3,836,760
Eott Energy Partners,
11.00%, 10/01/09..... Ba2 3,935 3,994,025
Phillips Petroleum Co.,
8.50%, 05/25/05(d)... Baa2 4,750 4,907,130
--------------
16,057,141
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Parker & Parsley
Petroleum Co.,
8.88%, 04/15/05...... Ba2 3,100 3,024,081
--------------
OIL & GAS SERVICES -- 0.7%
KN Energy, Inc.,
6.30%, 03/01/21...... Baa2 30,000 29,767,800
Seagull Energy Co.,
7.88%, 08/01/03...... Ba1 3,750 3,637,500
--------------
33,405,300
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM MOODY'S AMOUNT VALUE
BONDS RATING (000) (NOTE 2)
(CONTINUED) ----------- ----------- --------------
<S> <C> <C> <C>
PAPER -- 0.6%
International Paper
Co.,
8.00%, 07/08/03...... Baa1 $ 30,000 $ 30,156,900
--------------
PRINTING -- 0.1%
World Color Press,
Inc.,
8.38%, 11/15/08...... Baa3 1,500 1,410,000
7.75%, 02/15/09...... Baa3 4,960 4,526,000
--------------
5,936,000
--------------
RAILROADS -- 0.1%
Union Pacific Corp.,
7.95%, 04/15/29...... Baa3 3,700 3,669,512
--------------
REAL ESTATE INVESTMENT TRUST -- 1.5%
Duke Realty L.P.,
7.30%, 06/30/03...... Baa1 4,350 4,269,525
EOP Operating, L.P.,
6.38%, 01/15/02...... NA 5,000 4,892,500
6.50%, 06/15/04...... Baa1 6,000 5,708,520
6.63%, 02/15/05...... Baa1 18,187 17,181,986
ERP Operating, L.P.,
7.10%, 06/23/04...... NA 2,375 2,303,180
Felcor Suites L.P.,
7.38%, 10/01/04...... Ba2 24,200 21,659,000
Simon Debartolo Group,
Inc.,
6.75%, 06/15/05...... Baa1 17,500 16,395,050
--------------
72,409,761
--------------
RETAIL -- 0.1%
Kroger Co.,
7.25%, 06/01/09...... Baa3 6,000 5,520,000
--------------
TELECOMMUNICATIONS -- 3.8%
360 Communication Co.,
7.13%, 03/01/03...... A2 23,776 23,398,437
7.60%, 04/01/09...... A2 12,885 12,504,248
Airtouch
Communications, Inc.,
7.00%, 10/01/03...... A2 16,800 16,514,400
Clear Channel
Communications,
7.88%, 06/15/05(d)... Baa3 1,600 1,608,512
Deutsche Telekom
International,
7.75%, 06/15/05...... Aa2 5,000 5,025,000
8.00%, 06/15/10...... Aa2 10,000 10,070,000
8.25%, 06/15/30...... Aa2 8,475 8,560,598
Electric Lightwave,
Inc.,
6.05%, 05/15/04...... A2 5,300 4,935,625
Global Crossing
Holdings Ltd.,
9.13%, 11/15/06...... Ba2 8,970 8,633,625
LCI International,
Inc.,
7.25%, 06/15/07...... Ba1 18,030 17,071,345
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B31
<PAGE> 48
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM MOODY'S AMOUNT VALUE
BONDS RATING (000) (NOTE 2)
(CONTINUED) ----------- ----------- --------------
<S> <C> <C> <C>
TELECOMMUNICATIONS (CONT'D.)
Qwest Communications
International, Inc.,
7.50%, 11/01/08...... Baa1 $ 14,500 $ 13,992,500
Rogers Cantel, Inc.,
(Canada),
9.38%, 06/01/08...... Baa3 4,830 4,974,900
Tele-Communications,
Inc.,
6.34%, 02/01/12 A2 8,500 8,363,150
Telecom De Puerto Rico,
6.15%, 05/15/02...... Baa2 10,500 10,185,000
6.65%, 05/15/06(d)... Baa2 10,700 9,937,625
6.80%, 05/15/09...... NA 9,000 8,223,750
Williams Communications
Group, Inc.,
10.70%, 10/01/07..... B2 4,100 4,079,500
Worldcom, Inc.,
7.88%, 05/15/03(d)... A3 4,000 4,040,000
8.00%, 05/15/06...... A3 5,000 5,056,250
8.25%, 05/15/10...... A3 1,600 1,641,296
--------------
178,815,761
--------------
UTILITIES -- 1.4%
AES Corp.,
9.50%, 06/01/09...... Ba1 9,080 8,898,400
Calenergy Co., Inc.,
6.96%, 09/15/03...... Baa3 15,000 14,629,950
Calpine Corp.,
10.50%, 05/15/06..... Ba1 8,330 8,704,850
CMS Energy Corp.,
8.00%, 07/01/11...... Ba3 7,200 7,067,520
Cogentrix, Inc.,
8.10%, 03/15/04...... Ba1 5,775 5,567,331
El Paso Energy,
6.63%, 07/15/01...... Baa2 6,000 5,947,320
Entergy Louisiana,
Inc.,
8.50%, 06/01/03...... Baa2 5,000 5,044,000
Hydro-Quebec,
8.00%, 02/01/13 A2 1,500 1,559,970
PSEG Energy Holdings,
Inc.,
10.00%, 10/01/09..... Ba1 5,370 5,437,125
Utilicorp United, Inc.,
7.00%, 07/15/04...... Baa3 5,000 4,775,650
7.63%, 11/15/09...... Baa3 650 612,866
--------------
68,244,982
--------------
WASTE MANAGEMENT -- 0.3%
Waste Management, Inc.,
6.13%, 07/15/01...... Ba1 15,695 15,156,975
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
LONG-TERM MOODY'S AMOUNT VALUE
BONDS RATING (000) (NOTE 2)
(CONTINUED) ----------- ----------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 10.0%
United States Treasury
Bonds,
8.75%, 05/15/17(d)... $ 72,848 $ 91,754,241
8.75%, 05/15/20(d)... 24,000 30,806,160
8.13%, 08/15/21(d)... 45,000 54,977,400
7.63%, 11/15/22(d)... 60,400 70,668,000
7.13%, 02/15/23(d)... 50,700 56,348,487
7.50%, 11/15/24(d)... 38,800 45,214,028
6.13%, 08/15/29(d)... 990 999,900
6.25%, 05/15/30(d)... 2,450 2,579,008
United States Treasury
Notes,
6.88%, 05/15/06(d)... 2,400 2,470,128
6.63%, 05/15/07(d)... 84,500 86,269,430
6.00%, 08/15/09(d)... 1,980 1,964,219
6.50%, 02/15/10(d)... 28,936 29,926,190
United States Treasury
Strips,
zero, 02/15/19(d).... 10,500 3,353,700
--------------
477,330,891
--------------
FOREIGN GOVERNMENT BONDS -- 1.2%
Comunidad Autonoma De
Andalucia,
7.25%, 10/01/29...... Aa3 840 807,408
Quebec Hydro, (Canada),
7.50%, 04/01/16...... A2 800 796,288
Quebec Province,
(Canada),
7.00%, 01/30/07...... A2 1,200 1,176,624
Republic of Argentina,
zero, 10/15/01....... B1 7,625 6,557,500
Republic of
Philippines,
8.88%, 04/15/08...... Ba1 5,400 4,860,000
Saskatchewan Province,
(Canada),
9.13%, 02/15/21 A1 2,300 2,658,869
United Mexican States,
10.38%,
02/17/09(d).......... Baa3 15,500 16,662,500
9.88%, 02/01/10(d)... Baa3 4,000 4,140,000
6.93%, 12/31/19...... Baa3 3,550 3,487,875
6.94%, 12/31/19...... Baa3 6,900 6,779,250
5.87%, 12/31/19...... Baa3 9,750 9,579,375
--------------
57,505,689
--------------
TOTAL LONG-TERM BONDS
(cost $1,510,867,563),............................. 1,479,391,455
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $3,889,834,946),............................. 4,215,607,664
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B32
<PAGE> 49
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM MOODY'S AMOUNT VALUE
INVESTMENTS -- RATING (000) (NOTE 2)
24.9% ----------- ----------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 19.4%
Abbey National Treasury
Services PLC,
5.67%, 07/13/00...... P1 $ 7,000 $ 7,365,590
Alcoa, Inc.,
7.30%, 07/05/00...... P1 500 499,595
Allianz of America
Finance(c),
6.60%, 07/18/00...... P1 10,000 9,972,500
American Electric
Power(c),
6.83%, 07/21/00...... P1 40,000 39,863,400
American Express Co.,
6.80%, 07/06/00...... P1 1,900 1,898,205
6.68%, 07/07/00...... P1 700 699,221
6.60%, 07/10/00...... P1 900 898,515
Aon Corp.,
6.60%, 07/06/00...... P1 7,133 7,126,462
Associates Corp. of
North America,
6.80%, 07/12/00...... P1 3,000 2,993,767
6.80%, 08/25/00...... P1 450 450,259
AT&T Corp.,
6.55%, 07/13/00...... P1 1,000 997,817
6.62%, 07/20/00...... P1 1,200 1,195,807
Barton Capital Corp.,
6.73%, 07/14/00...... P1 10,000 9,975,697
6.77%, 07/14/00...... P1 20,000 19,951,106
6.62%, 07/26/00...... P1 3,700 3,682,990
Baus Funding LLC,
6.82%, 07/07/00...... P1 20,000 19,977,267
6.77%, 07/14/00...... P1 5,400 5,386,798
BCI Funding Corp,
6.54%, 07/10/00...... P1 5,000 4,991,825
Black Forest Corp.,
6.57%, 07/05/00...... P1 3,200 3,197,664
6.58%, 07/05/00...... P1 2,500 2,498,172
Bombardier Capital,
Inc.,
6.84%, 07/28/00(c)... P1 29,000 28,862,250
6.90%, 08/23/00(c)... P1 15,000 14,853,375
Canadian Imperial Bank
of Commerce,
6.58%, 07/12/00...... P1 49,077 49,077,000
Citicorp,
6.55%, 07/10/00(c)... P1 15,000 14,980,895
6.55%, 07/27/00(c)... P1 20,000 19,912,666
6.60%, 08/10/00...... P1 2,000 1,985,333
Comdisco, Inc,
6.80%, 07/28/00(c)... P1 8,000 7,962,222
Conagra, Inc.,
6.85%, 07/07/00(c)... P1 16,000 15,987,822
Cooper Industries,
Inc.,
7.05%, 07/05/00...... P1 5,400 5,395,770
Countrywide Funding
Corp.,
6.92%, 07/05/00...... P1 1,200 1,199,077
Dexia Bank Grand
Cayman,
7.13%, 07/03/00...... P1 3,736 3,736,000
7.125%, 07/03/00(c).. P1 90,000 90,000,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM MOODY'S AMOUNT VALUE
INVESTMENTS RATING (000) (NOTE 2)
(CONTINUED) ----------- ----------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONT'D.)
Dow Chemical & Company,
Inc.,
7.00%, 07/03/00...... P1 $ 5,114 $ 5,112,010
Duke Capital Corp.,
7.25%, 07/05/00(c)... P1 38,216 38,200,608
Enterprise Funding
Corp.,
6.70%, 07/21/00...... P1 2,582 2,572,389
Ford Motor Credit
Corp.,
6.63%, 07/10/00...... P1 1,600 1,597,349
6.70%, 07/10/00...... P1 1,600 1,597,320
Forrestal Funding
Master,
6.62%, 08/04/00...... P1 4,280 4,253,241
G.E. Capital Intl.
Funding,
6.52%, 07/17/00(c)... P1 30,000 29,923,935
General Electric
Capital Corp.,
6.55%, 07/05/00...... P1 1,556 1,554,867
6.60%, 07/13/00...... P1 1,700 1,696,260
6.70%, 07/18/00...... P1 1,754 1,748,450
General Motors
Acceptance Corp.,
6.55%, 07/18/00...... P1 328 326,986
Goldman Sachs Group
L.P.,
6.54%, 07/13/00(b)... P1 5,000 4,989,100
GTE Corp.,
6.65%, 07/10/00...... P1 20,600 20,565,752
6.62%, 07/13/00...... P1 2,754 2,747,923
6.63%, 08/09/00(c)... P1 10,000 9,931,859
6.65%, 08/11/00...... P1 5,000 4,962,132
Halliburton Corp.,
6.55%, 07/05/00...... P1 100 99,927
Heinz Co.,
6.65%, 07/20/00...... P1 1,000 996,490
Heller Financial, Inc.,
6.75%, 07/18/00(c)... P1 50,000 49,859,376
6.75%, 07/21/00(c)... P1 40,000 39,865,000
Homeside Lending,
6.65%, 07/25/00...... P1 3,593 3,577,071
International Business
Machines Corp.,
6.58%, 07/07/00...... P1 1,350 1,348,520
6.90%, 07/07/00...... P1 2,700 2,696,895
Keyspan Corp.,
6.82%, 07/28/00(c)... P1 25,800 25,677,808
Morgan Stanley Dean
Witter,
6.58%, 07/27/00...... P1 3,052 3,037,496
National Rural
Utilities Cooperative
Finance,
6.80%, 07/11/00...... P1 1,242 1,239,654
Nike, Inc.,
6.55%, 07/17/00...... P1 2,200 2,193,595
6.68%, 07/17/00...... P1 1,595 1,590,265
Northern Rock PLC,
6.60%, 07/14/00...... P1 14,000 13,966,633
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B33
<PAGE> 50
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM MOODY'S AMOUNT VALUE
INVESTMENTS RATING (000) (NOTE 2)
(CONTINUED) ----------- ----------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONT'D.)
Novartis Finance Corp.,
6.83%, 07/14/00...... P1 $ 2,800 $ 2,793,094
Old Line Funding Corp.,
6.57%, 07/17/00(c)... P1 9,875 9,849,769
Phillips Petroleum Co.,
6.83%, 07/31/00(c)... P1 48,000 47,745,013
Procter & Gamble Co.,
6.85%, 07/06/00...... P1 1,500 1,498,573
PSE&G Fuel Corp.,
7.30%, 07/06/00(c)... P1 43,000 43,000,000
Scotiabanc, Inc.,
6.62%, 07/26/00...... P1 2,751 2,738,353
Southern Co.,
6.65%, 07/19/00(c)... P1 9,360 9,332,336
Sprint Capital Corp.,
7.00%, 07/28/00(c)... P1 15,000 14,927,083
Suntrust Grand Cayman,
7.00%, 07/03/00(c)... P1 45,607 45,607,000
Sweetwater Capital,
6.55%, 07/05/00...... P1 4,928 4,924,414
Target Corp.,
7.10%, 07/05/00(c)... P1 35,000 34,986,194
Thunder Bay Funding,
Inc.,
6.56%, 07/06/00...... P1 6,916 6,909,699
6.60%, 07/06/00...... P1 3,100 3,097,158
Transamerica Fin.
Corp.,
6.60%, 07/17/00(c)... P1 13,000 12,966,633
Triple-A One Plus
Funding,
6.70%, 07/24/00...... P1 4,921 4,899,936
Westdeutsche
Landesbank,
7.06%, 07/03/00...... P1 3,200 3,200,000
--------------
923,979,233
--------------
OTHER CORPORATE
OBLIGATIONS -- 3.1%
Donaldson, Lufkin &
Jenrette,
5.74%, 05/01/01...... A3 10,000 9,884,500
ERAC USA Finance Co.,
6.35%, 01/15/01...... Baa1 21,000 20,821,500
ERP Operating, L.P.,
6.63%, 10/13/00...... A3 9,200 8,648,552
HRPT Properties Trust,
7.52%, 07/10/00...... NA 2,000 2,000,000
ITT Corp.,
6.25%, 11/15/00...... Ba1 5,183 5,135,368
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM MOODY'S AMOUNT VALUE
INVESTMENTS RATING (000) (NOTE 2)
(CONTINUED) ----------- ----------- --------------
<S> <C> <C> <C>
OTHER CORPORATE OBLI-
GATIONS (CONT'D.)
Kroger Co.,
6.34%, 06/01/01...... Baa3 $ 10,450 $ 10,267,125
Lockheed Martin Corp.,
6.85%, 05/15/01...... Baa3 400 398,016
MCN Investment Corp.,
6.30%, 10/02/00...... Baa3 8,250 8,119,650
Niagara Mohawk Power
Corp.,
7.00%, 10/01/00...... Ba2 18,902 18,877,115
Raytheon Co.,
5.95%, 03/15/01...... Baa2 12,000 11,859,960
Seagram (J.) & Sons,
5.79%, 04/15/01...... Baa3 20,000 19,728,000
TRW, Inc.,
6.45%, 06/15/01...... Baa1 32,800 32,308,000
--------------
148,047,786
--------------
REPURCHASE AGREEMENT -- 2.1%
Joint Repurchase
Agreement Account
6.49%, 07/03/00 (Note
5)................... 97,471 97,471,000
--------------
U.S. GOVERNMENT OBLIGATIONS -- 0.3%
United States Treasury
Bill
5.64%, 09/21/00...... 12,950 12,783,636
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,192,925,956).............................. 1,182,281,655
--------------
TOTAL INVESTMENTS BEFORE INVESTMENT SOLD
SHORT -- 113.6%
(cost $5,082,760,902; Note 6)...................... 5,397,889,319
--------------
INVESTMENT SOLD SHORT -- (.1%)
United States Treasury Note, 6.75%,
05/15/05 (proceeds $3,224,344)....... (3,165) (3,238,681)
--------------
TOTAL INVESTMENTS, NET OF INVESTMENT SOLD
SHORT -- 113.5% (cost $5,079,536,558; Note 6)...... 5,394,650,638
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS(e).......
1,592,491
--------------
OTHER LIABILITIES IN EXCESS OF OTHER
ASSETS -- (13.5)%.................................. (641,909,951)
--------------
TOTAL NET ASSETS -- 100.0%.......................... $4,754,333,178
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B34
<PAGE> 51
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
The following abbreviations are used in portfolio descriptions:
<TABLE>
<S> <C>
AG Aktiengesellschaft (German Stock Company)
ADR American Depository Receipt
L.P. Limited Partnership
PLC Public Limited Company
SA Sociedad Anomia (Spanish Corporation) or Societe
Anonyme (French Corporation)
</TABLE>
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
(c) Represents security purchased with cash collateral received for securities
on loan.
(d) Portion of securities on loan with an aggregate market value of
$648,016,591; cash collateral of $654,267,744 was received with which the
portfolio purchased securities.
(e) Open Future Contracts as of June 30, 2000 were as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 2000 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
39 U.S. 5 yr Treasury Note Sep 00 $ 3,783,000 $ 3,861,609 $ 78,609
40 S&P 500 Index Sep 00 14,977,000 14,681,000 (296,000)
589 S&P 500 Index Sep 00 219,082,750 216,177,725 (2,905,025)
-----------
$(3,122,416)
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B35
<PAGE> 36
HIGH YIELD BOND PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 90.7% PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
CORPORATE BONDS -- 77.6% ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 0.9%
American Commercial Lines LLC, Sr. Notes.................. B1 10.25% 06/30/08 $ 3,000 $ 2,460,000
BE Aerospace, Inc., Sr. Sub. Notes, AB.................... B1 9.50% 11/01/08 1,000 920,000
Compass Aerospace Corp., Sr. Sub. Notes................... Caa3 10.125% 04/15/05 750 112,500
Continental Airlines, Inc., Sr. Notes..................... Ba2 8.00% 12/15/05 1,850 1,711,546
Delta Air Lines, Inc., Sr. Notes.......................... Baa3 8.30% 12/15/29 700 612,045
Stellex Industries, Inc. Sr. Sub. Notes(d)................ B3 9.50% 11/01/07 4,000 800,000
United Air Lines, Inc., Sr. Notes......................... Baa3 9.75% 08/15/21 185 180,373
------------
6,796,464
------------
AUTOMOTIVE PARTS -- 1.5%
AM General Corp., Sr. Notes............................... B3 12.875% 05/01/02 3,375 2,970,000
Collins & Aikman Products, Sr. Sub. Notes................. B2 11.50% 04/15/06 720 689,400
Eagle Picher Holdings, Inc., Sr. Sub. Notes............... B3 9.375% 03/01/08 1,750 1,470,000
Hayes Lemmerz Int'l., Inc., Sr. Sub. Notes................ B2 8.25% 12/15/08 800 672,000
Hayes Wheels Int'l., Inc., Sr. Sub. Notes, Ser. B......... B2 9.125% 07/15/07 1,000 897,187
Standyne Automotive Corp., Sr. Sub. Notes, Ser. B......... Caa1 10.25% 12/15/07 2,000 1,680,000
Tenneco Automotive, Inc., Sr. Sub. Notes.................. B2 11.625% 10/15/09 1,860 1,655,400
United Rentals, Inc., Sr. Sub. Notes...................... B1 8.80% 08/15/08 1,370 1,198,750
------------
11,232,737
------------
BANKS -- 0.4%
Sovereign Bancorp, Sr. Notes.............................. Ba3 10.25% 05/15/04 1,235 1,217,821
Sovereign Bancorp, Sr. Notes.............................. Ba3 6.625% 03/15/01 795 783,075
Sovereign Bancorp, Sr. Notes.............................. Ba3 10.50% 11/15/06 1,265 1,265,000
------------
3,265,896
------------
BROADCASTING & OTHER MEDIA -- 4.6%
Ackerley Group, Inc., Sr. Sub. Notes, Ser. B ............. B2 9.00% 01/15/09 3,000 2,730,000
Alliance Atlantis Communications, Inc., Sr. Sub. Notes ... B2 13.00% 12/15/09 1,670 1,711,750
American Lawyer Media Holdings, Inc., Sr. Disc. Notes,
Zero Coupon
(until 12/15/02)........................................ B3 12.25% 12/15/08 3,000 1,920,000
Capstar Broadcasting Partners, Inc., Sr. Sub. Notes....... B1 9.25% 07/01/07 875 872,813
Globo Communicacoes, Sr. Notes (Brazil)................... B2 10.50% 12/20/06 1,300 1,131,000
Imax Corp., Sr. Notes .................................... Ba2 7.875% 12/01/05 325 300,625
Liberty Group Publishing, Inc., Sr. Disc. Notes, Zero
Coupon (until 02/01/03)................................. Caa1 11.625% 02/01/09 240 117,600
Lin Holdings Corp., Sr. Disc. Notes Zero Coupon (until
03/01/03)............................................... B3 10.00% 03/01/08 1,950 1,282,125
Mail-Well I Corp., Sr. Sub. Notes ........................ B1 8.75% 12/15/08 4,750 4,037,500
Phoenix Color Corp., Sr. Sub. Notes ...................... B3 10.375% 02/01/09 4,000 3,590,000
Radio Unica, Sr. Disc. Notes, Zero Coupon (until
08/01/02)............................................... NR 11.75% 08/01/06 2,750 1,773,750
Spectrasite Holdings, Inc., Sr. Sub. Notes................ B1 8.50% 05/15/09 1,900 1,021,250
Spectrasite Holdings, Inc., Sr. Disc. Notes Zero Coupon
(until 04/15/04)........................................ B3 11.25% 04/15/09 900 511,875
Sullivan Graphics Inc., Sr. Sub. Notes ................... Caa 12.75% 08/01/05 4,500 4,567,500
Susquehanna Media Co., Sr. Sub. Notes .................... B1 8.50% 05/15/09 1,800 1,710,000
TV Azteca S.A. De CV, Sr. Notes, (Mexico)................. B1 10.50% 02/15/07 2,850 2,515,125
XM Satellite Radio Holdings Inc., Sr. Notes............... NR 14.00% 03/15/10 4,505 3,964,400
------------
33,757,313
------------
BUILDING & RELATED INDUSTRIES -- 2.0%
Ainsworth Lumber Ltd., Bonds, PIK......................... B2 12.50% 07/15/07 4,625 4,625,000
Building Materials Corp., Sr. Sub., Notes................. Ba3 7.75% 07/15/05 265 218,625
Collins & Aikman Floorcovering Sr. Sub. Notes............. B3 10.00% 01/15/07 500 490,000
Engle Homes, Inc., Sr. Notes.............................. B1 9.25% 02/01/08 2,300 1,932,000
ICF Kaiser Int'l., Inc., Sr. Sub. Notes(d)................ B3 13.00% 12/31/03 4,450 2,047,000
Lennar Corp., Sr. Notes................................... Ba1 9.95% 05/01/10 345 340,688
New Millenium Homes, Sr. Notes(d)......................... NR 13.50% 09/03/04 3,000 2,340,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B36
<PAGE> 37
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
CORPORATE BONDS (CONTINUED) ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
BUILDING & RELATED INDUSTRIES (CONT'D.)
Nortek, Inc. Sr. Notes, Ser. B............................ B1 9.125% 09/01/07 $ 2,770 $ 2,562,250
Webb (Del E.) Sr. Sub. Deb................................ B2 9.375% 05/01/09 425 355,937
------------
14,911,500
------------
CABLE -- 7.6%
Adelphia Communications Corp., Sr. Notes, PIK............. B3 9.50% 02/15/04 43 39,784
Adelphia Communications Corp., Sr. Notes.................. B2 9.25% 10/01/02 6,000 5,880,000
Adelphia Communications Corp., Sr. Notes.................. B2 10.50% 07/15/04 500 500,000
Avalon Cable Holdings Sr. Disc. Notes Zero Coupon (until
12/01/03)............................................... Caa 11.875% 12/01/08 6,000 3,900,000
Century Communications Corp., Sr. Notes................... B1 9.50% 03/01/05 8,500 8,138,750
Charter Communications Holdings LLC, Sr. Notes............ B2 8.625% 04/01/04 4,855 2,755,212
Classic Cable Inc., Sr. Sub. Notes........................ B3 10.50% 03/01/10 1,390 1,278,800
Classic Cable, Inc., Sr. Sub. Notes....................... B3 9.375% 08/01/09 1,095 952,650
Coaxial Communications, Inc. Sr. Notes.................... B3 10.00% 08/15/06 1,250 1,193,750
Diamond Cable Communications, Sr. Disc. Notes Zero Coupon
(until 02/15/02) (United Kingdom)....................... B3 6.75% 02/15/07 4,000 3,080,000
International Cabletel, Inc. Sr. Disc. Notes.............. B3 12.75% 04/15/05 6,100 6,237,250
Mediacom LLC., Sr. Notes.................................. Ba2 7.875% 02/15/11 2,000 1,750,000
Multicanal S.A., Bonds.................................... Ba3 13.125% 04/15/09 2,400(e) 2,304,000
NTL, Inc., Sr. Notes, Zero Coupon (until 10/01/03) ....... B3 12.375% 10/01/08 3,750 2,418,750
NTL, Inc., Sr. Notes, Zero Coupon (until 04/01/03)........ B3 9.75% 04/01/08 2,000 1,240,000
Northeast Optic Sr. Notes................................. NR 12.75% 08/15/08 2,005 1,864,650
Rogers Cablesystems Ltd. Gtd. Notes....................... B2 11.00% 12/01/15 235 253,800
Scott Cable Communications, Inc. Jr. Sub., PIK............ NR 16.00% 07/18/02 108 32,400
Star Choice Communications, Sr. Sec'd. Notes (Canada)..... B3 13.00% 12/15/05 3,000 3,075,000
Telewest Communications PLC, Sr. Disc. Deb., Zero Coupon
(until 2/01/05) (United Kingdom)........................ B1 9.25% 02/1/10 3,570 1,953,500
United International Holdings, Inc., Sr. Disc. Notes, Zero
Coupon (until 02/15/03)................................. B3 10.75% 02/15/08 4,750 3,313,125
United Pan Europe Communications, Sr. Disc. Notes......... B2 11.25% 11/01/09 4,125 3,568,125
------------
55,729,546
------------
CHEMICALS -- 1.8%
Avecia Group Plc, Sr. Notes............................... B2 11.00% 07/01/09 2,595 2,543,100
Huntsman ICI Chemical, Sr. Sub Notes...................... B2 10.13% 07/1/09 3,265 3,281,325
Lyondell Chemical Co. Sr. Sub Notes....................... Ba3 10.875% 05/01/09 2,625 2,605,312
NL Industries, Inc., Sr. Notes............................ B1 11.75% 10/15/03 885 902,700
Sterling Chemicals, Inc., Sr. Sub Notes................... B3 12.375% 07/15/06 690 707,250
Sterling Chemicals, Inc., Sr. Sub Notes................... B3 11.75% 08/15/06 2,630 2,130,300
Texas Petrochemicals Corp., Sr. Sub Notes................. B3 11.125% 07/01/06 1,460 1,219,100
------------
13,389,087
------------
CONSUMER PRODUCTS -- 0.8%
Consumers International, Inc., Sr. Notes.................. B3 10.25% 04/01/05 3,125 1,593,750
Electronic Retailing Systems Int'l., Sr. Disc. Notes (b)
(cost $1,868,753; purchased 2/29/00).................... NR 13.25% 02/01/04 2,000 420,000
Radnor Holdings, Inc., Sr. Notes.......................... B2 10.00% 12/01/03 1,750 1,526,875
Windmere-Durable Holdings, Inc., Sr. Notes................ B3 10.00% 07/31/08 2,000 1,960,000
------------
5,500,625
------------
CONTAINERS -- 2.5%
Ball Corp., Sr. Sub. Notes ............................... B2 8.25% 08/01/08 500 468,125
Gaylord Container Corp. Sr. Notes ........................ B 9.75% 06/15/07 2,100 1,638,000
Owens Illinois Inc. Sr. Deb Notes ........................ Ba1 7.50% 05/15/10 340 294,868
Owens-Illinois, Inc., Sr., Notes.......................... Ba1 7.85% 05/15/04 2,000 1,914,660
Packaged Ice, Inc. Sr. Notes.............................. B3 9.75% 02/01/05 3,130 2,597,900
Silgan Holdings Inc. Sr. Sub Notes........................ NR 13.25% 07/15/06 3,149 3,369,430
Stone Container Corp., Sr. Sub Notes ..................... B2 11.50% 08/15/06 555 571,650
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B37
<PAGE> 38
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
CORPORATE BONDS (CONTINUED) ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
CONTAINERS (CONT'D.)
Stone Container Corp., Sr. Sub Notes...................... B2 10.75% 10/01/02 $ 490 $ 494,900
Stone Container Corp., Sr. Sub. Notes..................... B2 12.58% 08/01/16 250 260,000
Stone Container Corp., Sr. Sub. Notes .................... B3 12.25% 04/01/02 6,800 6,851,000
------------
18,460,533
------------
DRUGS & HEALTH CARE -- 3.9%
Abbey Healthcare Group, Inc. Sr. Notes.................... B3 9.50% 11/01/02 1,890 1,833,300
BIO Rad Laboratories, Inc., Sr. Sub Notes ................ B2 11.625% 02/15/07 1,070 1,103,438
Columbia/HCA Healthcare Corp., Sr. Notes ................. Ba2 8.36% 04/15/24 2,000 1,770,000
Columbia/HCA Healthcare Corp. Sr. Notes................... Ba2 7.50% 11/15/95 2,570 1,959,625
Columbia/HCA Healthcare Corp., Sr. Notes ................. Ba2 6.63% 07/15/45 1,000 952,210
Concentra Operating Corp., Sr. Sub. Notes................. B3 13.00% 08/15/09 1,936 1,635,075
Dade Int'l., Inc. Sr. Sub Notes........................... B2 11.125% 05/01/06 3,845 2,114,750
Fresnius Medical Care, Sr. Notes.......................... NR 7.875% 02/01/08 2,250 2,013,750
Harborside Healthcare Corp., Sr. Sub Disc. Notes Zero
Coupon
(until 08/01/03)........................................ B3 11.00% 08/01/08 2,500 500,000
Healthsouth Corp., Sr. Notes.............................. Baa3 6.875% 06/15/05 1,905 1,652,949
ICN Pharmaceuticals, Inc. Sr. Sub. Notes.................. Ba3 6.875% 11/15/08 3,250 3,152,500
Integrated Health Svcs., Inc. Sr. Sub. Notes(d)........... C 9.25% 01/15/08 3,250 65,000
Lifepoint Hospitals Holdings, Inc. Sr. Sub. Notes......... B3 10.75% 05/15/09 675 693,563
Magellan Health Services, Inc. Sr. Sub. Notes............. Caa1 9.00% 02/15/08 7,000 3,570,000
Mariner Post Acute Network, Inc. Sr. Sub Disc. Notes(d)
Zero Coupon
(until 11/01/02)........................................ C 10.50% 11/01/07 5,520 34,500
Team Health Inc., Sr. Sub. Notes.......................... B3 12.00% 03/15/09 3,250(e) 2,713,750
Tenet Healthcare Corp., Sr. Sub. Notes, Ser. B............ Ba3 8.125% 12/01/08 430 392,375
Triad Hospitals Holding Sr. Sub. Notes.................... B3 11.00% 05/15/09 2,555 2,615,681
------------
28,772,466
------------
ENERGY -- 3.7%
Applied Power, Inc., Sr. Sub. Notes....................... B1 8.75% 04/01/09 1,450 1,500,750
CMS Energy Corp. Sr. Notes................................ Ba3 7.50% 01/15/09 1,125 1,009,687
DI Industries, Inc. Sr. Notes............................. B1 8.875% 07/01/07 2,020 1,908,900
Eott Energy Partners LP, Sr. Notes........................ Ba2 11.00% 10/01/09 710 720,650
Gothic Production Corp., Sr. Notes........................ B3 11.125% 05/01/05 1,045 982,300
Great Lakes Carbon Corp. Sr. Sub. Notes................... B3 10.25% 05/15/08 2,000 1,600,000
Key Energy Group, Inc. Ser. D............................. NR 5.00% 09/15/04 3,500 2,756,250
Parker Drilling Co., Sr. Notes, Ser. D.................... B1 9.75% 11/15/06 3,005 2,987,337
RBF Finance Co., Sr. Sec'd. Notes......................... Ba3 11.375% 03/15/09 2,600 2,808,000
RBF Finance Co., Sr. Sec'd Notes dates: 08/23/99 through
10/06/99)............................................... Ba3 11.00% 03/15/06 2,410 2,584,725
R & B Falcon Corp., Sr. Notes............................. Ba3 12.25% 03/15/06 935 1,023,825
Seven Seas Petroleum, Inc. Sr. Sub. Notes, Ser. B......... Caa1 12.50% 05/15/05 1,500 375,000
Tesoro Petroleum Corp. Sr. Sub Notes...................... B1 9.00% 07/01/08 3,000 2,857,500
Universal Compression Holdings, Sr. Disc. Notes Zero
Coupon (until 02/15/03)................................. B2 9.875% 02/15/08 1,750 1,251,250
York Power Funding, Sr. Sec'd. Notes (Cayman Islands)..... Ba3 12.00% 10/30/07 3,000 2,940,000
------------
27,306,174
------------
ENTERTAINMENT -- 1.1%
Alliance Atlantis Sr. Sub Notes........................... NR 13.00% 12/15/09 1,000 1,025,000
Circus Enterprises, Inc. Sr. Notes........................ Baa3 6.45% 02/01/06 1,220 1,051,445
Circus Enterprises, Inc. Sr. Notes........................ Baa3 6.70% 11/15/96 1,680 1,540,341
Harrahs Entertainment, Inc. Sr. Sub. Gtd., Notes.......... Ba2 7.875% 12/15/05 250 235,000
Park Place Entertainment Corp. Sr. Sub. Notes............. Ba2 9.375% 02/15/07 485 485,000
SFX Entertainment Inc. Sr. Sub. Notes..................... B3 9.125% 12/01/08 3,500 3,535,000
TVN Entertainment Corp. Sr. Notes......................... NR 14.00% 08/01/08 1,135 454,000
------------
8,325,786
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B38
<PAGE> 39
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
CORPORATE BONDS (CONTINUED) ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
FINANCIAL SERVICES -- 1.4%
AmeriCredit Corp., Sr. Notes.............................. B1 9.25% 02/01/04 $ 1,350(e) $ 1,309,500
AmeriCredit Corp., Sr. Notes.............................. B1 9.875% 04/15/06 3,000 2,940,000
Calair Capital Corp., Sr. Notes........................... Ba2 8.125% 04/01/08 400 344,000
Delta Financial Corp., Sr. Notes.......................... Caa2 9.50% 08/01/04 1,075 483,750
Hanvit Bank, Sr. Sub Notes................................ B1 12.75% 03/01/10 2,000 1,980,000
Metris Companies, Inc., Gtd. Notes........................ Ba3 10.125% 07/15/06 3,000 2,850,000
------------
9,907,250
------------
FOOD & BEVERAGE -- 3.0%
Advantica Restaurant Group, Inc. Sr. Notes ............... B3 11.25% 01/15/08 4,342 2,909,455
Agrilink Foods, Inc. Sr., Gtd. Notes...................... B3 11.875% 11/01/08 2,260 1,808,000
Ameriking, Inc. Sr. Notes................................. B3 10.75% 12/01/06 1,000 830,000
Aurora Foods, Inc. Sr. Sub. Notes......................... Caa1 9.875% 02/15/07 1,310 759,800
Carrols Corp. Sr. Notes .................................. B2 9.50% 12/01/08 2,885 2,394,550
CKE Restaurants, Inc., Gtd. Notes......................... B1 9.125% 05/01/09 2,250 1,552,500
Del Monte Foods Co., Sr. Disc. Notes, Zero Coupon (until
12/15/02)............................................... Caa1 12.50% 12/15/07 456 344,280
Fresh Foods, Inc., Bonds.................................. B3 10.75% 06/01/06 2,300 1,426,000
Grupo Azucarero, Sr. Notes (Mexico)(d).................... B3 11.50% 01/15/05 2,900 783,000
Premium Standard Farms, Sr. Sec'd. Notes, PIK(b) (cost
$284,644, purchased 02/25/99)........................... NR 11.00% 09/17/03 285 289,626
Pilgrim's Pride Corp. Sr. Sub Notes....................... B1 10.875% 08/01/03 1,919 1,933,393
Purina Mills, Inc. Sr. Sub. Notes(b)(d)
(cost $3,489,680; purchased 01/07/99 and 01/08/99)...... Ca 9.00% 03/15/10 3,500 1,015,000
Sbarro, Inc., Sr. Notes................................... Ba3 11.00% 09/15/09 1,260 1,282,050
SFC New Holdings, Inc. Sr. Notes, PIK..................... Ba3 11.25% 08/15/01 2,096 2,033,120
SFC Sub, Inc. Deb Notes, Zero Coupon (until 06/15/05)..... NR 11.00% 12/15/09 465 470,000
Stater Brothers Holdings, Sr. Notes....................... B2 10.75% 08/15/06 2,020 1,777,600
Vlasic Foods Int'l, Inc., Sr. Sub Notes................... Caa1 10.25% 07/01/09 1,875 693,750
------------
22,302,124
------------
GAMING -- 2.8%
Alliance Gaming Corp., Sr. Sub. Notes, Ser. B............. Caa1 10.00% 08/01/07 1,350 526,500
Aztar Corp., Sr. Sub. Notes............................... B2 8.875% 05/15/07 1,250 1,168,750
Boyd Gaming Corp., Sr. Sub. Notes......................... B1 9.50% 07/15/07 1,085 1,041,600
Casino Magic Corp., First Mtge. Bonds..................... B1 13.00% 08/15/03 3,750 3,993,750
Coast Hotels & Casinos, Inc., Sr. Sub. Notes.............. B3 9.50% 04/01/09 600 573,000
Fitzgeralds Gaming Corp., Sr. Notes(d) (b) (cost
$2,271,503; purchased 12/22/97)......................... B3 12.25% 12/15/04 2,375 1,306,250
Hollywood Park, Inc. Sr. Sub Notes........................ B2 9.25% 02/15/07 3,500 3,491,250
Harveys Casino Resorts Sr. Sub. Notes..................... B2 10.625% 06/01/06 2,960 3,019,200
Station Casinos, Inc., Sr. Sub. Notes..................... B1 10.125% 03/15/06 260 261,300
Station Casinos, Inc., Sr. Sub. Notes..................... B1 9.875% 07/01/10 1,605 1,613,025
Trump Atlantic City Assoc., First Mtge. Notes............. B3 11.25% 05/01/06 630 441,000
Venetian Casino Resort LLC, Gtd. Notes.................... NR 12.25% 11/15/04 2,880 2,908,800
------------
20,344,425
------------
INDUSTRIAL -- 1.4%
International Wireless Group, Inc. Sr. Sub Notes.......... NR 11.75% 06/01/05 700 703,500
International Wireless Group, Inc. Sr. Sub Notes(c)....... B3 11.75% 06/01/05 3,000 3,015,000
Kaiser Aluminum & Chemical Corp., Sr. Sub Notes........... NR 9.88% 02/15/02 250 240,000
Motors & Gears, Inc., Sr. Notes........................... B3 10.75% 11/15/06 3,500 3,395,000
Neenah Corp. Sr. Sub Notes................................ B3 11.125% 05/01/07 250 191,250
Thermadyne Holdings Sr. Disc. Notes Zero Coupon (until
06/01/03)............................................... Caa1 12.50% 06/01/08 2,375 855,000
Thermadyne Manufacturing Sr. Sub. Notes................... B3 9.875% 06/01/08 2,500 1,925,000
------------
10,324,750
------------
LEISURE -- 0.9%
Bally Health & Tennis Corp., Sr. Sub. Notes............... B3 9.875% 10/15/07 3,855 3,527,325
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B39
<PAGE> 40
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
CORPORATE BONDS (CONTINUED) ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
LEISURE (CONT'D.)
ITT Corp. Sr. Sub. Notes, Ser. B.......................... Ba1 7.375% 11/15/15 $ 1,250 $ 1,035,700
Premier Parks, Inc. Sr. Notes............................. B3 9.75% 06/15/07 2,000 1,925,000
------------
6,488,025
------------
LODGING -- 0.4%
Hilton Hotels, Sr. Notes.................................. Baa1 7.50% 12/15/17 285 240,115
HMH Properties, Inc. Sr. Notes Ser. C .................... Ba2 8.45% 12/01/08 3,350 3,082,000
------------
3,322,115
------------
MANUFACTURING -- 1.0%
Corning Consumer Prod. Co. Sr. Sub Notes.................. B3 9.625% 05/01/08 4,250 2,826,250
Gentek, Inc. Sr. Sub Notes................................ B2 11.00% 08/01/09 1,620 1,644,300
Polymer Group Inc., Sr. Sub Notes, Ser. B ................ B2 9.00% 07/01/07 570 484,500
Polymer Group, Inc., Sr. Sub Notes, Ser. B ............... B2 8.75% 03/01/08 855 718,200
Venture Holdings, Inc., Sr. Notes, Ser. B ................ B2 9.50% 07/01/05 2,270 1,657,100
------------
7,330,350
------------
MISCELLANEOUS -- 0.9%
Continental Global Group, Inc., Sr. Notes ................ B3 11.00% 04/01/07 2,320 580,000
Intersil Corp., Sr. Sub Notes............................. B3 13.25% 08/15/09 909 1,027,170
It Group, Inc., Sr. Sub Notes ............................ B3 11.25% 04/01/09 2,080 1,872,000
La Petite Academy, Inc., Sr. Notes ....................... B3 10.00% 05/15/08 1,250 737,500
MSX International, Inc., Gtd. Notes....................... B3 11.38% 01/15/08 1,750 1,653,750
Sun World International, Gtd. Notes ...................... B2 11.25% 04/15/04 270 251,100
USEC, Inc., Sr. Notes..................................... Ba1 6.75% 01/20/09 1,000 692,300
------------
6,813,820
------------
OIL & GAS -- 2.2%
Canadian First Oil, Ltd., Sr. Sub Notes .................. B2 8.75% 09/15/07 1,610 1,513,400
Clark USA, Inc., Sr. Notes................................ B3 10.875% 12/01/05 1,250 687,500
Comstock Resources, Inc., Sr. Notes ...................... B2 11.25% 05/01/07 4,500 4,556,250
Houston Exploration Co., Sr. Sub Notes.................... B2 8.625% 01/01/08 815 757,950
Leviathan Gas, Sr. Sub. Notes............................. Ba2 10.375% 06/01/09 2,000 2,035,000
Plains Resources, Inc., Sr. Sub. Notes ................... B2 10.25% 03/15/06 870 863,475
Snyder Oil Corp., Sr. Notes............................... Ba3 8.75% 06/15/07 1,000 990,000
Swift Energy Co., Sr. Sub. Notes ......................... B2 10.25% 08/01/09 2,015 2,035,150
Vintage Petroleum, Inc., Sr. Sub Notes ................... B1 9.75% 06/30/09 3,125 3,156,250
------------
16,594,975
------------
PAPER & PACKAGING -- 2.3%
AMM Holdings, Inc., Sr. Disc. Notes, Zero Coupon (until
07/01/03)............................................... Caa1 13.50% 07/01/09 6,000 300,000
APP International, Sr. Sec'd Notes........................ Ba3 11.75% 10/01/05 1,296 828,800
APP Int'l., Gtd. Notes ................................... B3 11.75% 10/01/05 2,600 1,820,000
Doman Industries Ltd., Sr. Notes ......................... Caa1 9.25% 11/15/07 270 199,800
Doman Industries Ltd., Sr. Notes ......................... Caa1 8.75% 03/15/04 2,915 2,244,550
Graham Packaging, Sr. Disc. Notes Zero Coupon (until
01/15/03) .............................................. Caa 10.75% 01/15/09 1,100 616,000
Maxxam Group, Inc., Sr. Notes............................. B3 12.00% 08/01/03 4,300 3,956,000
Repap New Brunswick, Inc. Sr. Sec'd Notes ................ B3 10.625% 04/15/05 4,805(e) 4,228,400
Riverwood Int'l., Corp., Gtd. Notes ...................... B3 10.25% 04/01/06 495(e) 470,250
Riverwood Int'l., Corp., Gtd. Notes ...................... B3 10.625% 08/01/07 455 443,625
Riverwood Int'l., Corp., Gtd. Notes ...................... Caa 10.875% 04/01/08 455 395,850
Sligan Holdings, Inc. Sub. Debs. PIK...................... NR 13.25% 07/15/06 1,250 1,185,250
------------
16,688,525
------------
REAL ESTATE -- 0.6%
CB Richards Ellis Svcs., Inc. Sr. Sub Notes .............. B1 8.875% 06/01/06 1,600 1,370,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B40
<PAGE> 41
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
CORPORATE BONDS (CONTINUED) ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
REAL ESTATE (CONT'D.)
Intrawest Corp., Sr. Notes................................ B1 10.50% 02/01/10 $ 1,275 $ 1,300,500
Saul B F Real Estate Investment Trust Sr. Sec'd Note...... NR 9.75% 04/01/08 1,750 1,518,125
------------
4,188,625
------------
RETAIL -- 2.5%
Big 5 Holdings Corp. Sr. Disc Notes, Zero Coupon (until
11/30/02) .............................................. NR 13.45% 11/30/08 1,500 735,000
Duane Reade, Inc., Sr. Sub Notes ......................... B3 9.25% 02/15/08 270 244,013
Franks Nursery & Crafts, Sr. Sub. Notes .................. Caa1 10.25% 03/01/08 2,100 756,000
French Fragrances, Inc., Sr. Notes, Ser. B ............... B2 10.375% 05/15/07 470 453,550
Kasper A.S.L Ltd., Sr. Notes.............................. NR 13.00% 03/31/04 7,171 4,876,280
Musicland Group, Inc., Gtd. Notes......................... B3 9.88% 03/15/08 4,600 4,186,000
Phar-Mor, Inc., Sr. Notes ................................ B3 11.72% 09/11/02 3,429 2,777,490
Phillips Van Heusen Corp., Sr. Sub. Notes................. B1 9.50% 05/01/08 1,250 1,137,500
Specialty Retailers, Inc., Gtd. Notes(d).................. Ca 8.50% 07/15/05 1,615 80,750
TNP Enterprises, Inc., Sr. Notes.......................... Ba3 10.25% 04/01/10 3,000 3,082,500
------------
18,329,083
------------
STEEL & METALS -- 1.9%
Alaska Steel Corp., Gtd. Notes............................ Ba2 7.875% 02/15/09 500 443,750
Algoma Steel, Inc., First Mtge. Notes..................... B2 12.375% 07/15/05 1,765 1,535,550
Golden Northwest Alum., Inc., First Mtge. Notes........... B2 9.00% 07/01/07 570 410,850
Kaiser Aluminum & Chemical Corp. Sr. Sub Notes............ B3 12.75% 02/01/03 4,000 3,670,000
LTV Corp. Sr. Notes....................................... Ba3 11.75% 11/15/09 1,450 1,232,500
National Steel Corp. Gtd. Sec'd First Mtge. Notes......... Ba3 9.875% 03/01/09 340 289,000
Renco Steel Holdings, Sr. Notes........................... NR 10.875% 02/01/05 500 410,000
Sheffield Steel Corp., First Mtge. Notes.................. NR 11.50% 12/01/05 3,500 2,450,000
Wheeling-Pittsburgh Corp., Sr. Notes...................... B2 9.25% 11/15/07 2,600 1,690,000
WHX Corp., Sr. Notes...................................... B3 10.50% 04/15/05 3,015 2,261,250
------------
14,392,900
------------
SUPERMARKETS -- 1.1%
Homeland Stores, Inc., Sr. Notes.......................... NR 10.00% 08/01/03 4,260 2,896,800
Pantry, Inc., Sr. Notes................................... B3 10.25% 10/15/07 2,615 2,471,175
Pathmark Stores, Inc. Sr. Sub Notes(d).................... B3 9.625% 05/01/03 4,215 2,950,500
------------
8,318,475
------------
TECHNOLOGY -- 0.8%
Ampex Corp., Sr. Notes.................................... NR 12.00% 03/15/03 5,000 5,025,000
Details Holding Corp., Sr. Disc. Notes, Zero Coupon (until
11/15/02)............................................... NR 12.50% 11/15/07 1,000 660,000
------------
5,685,000
------------
TEXTILES -- 1.4%
Burlington Inds., Inc. Sr. Notes.......................... Ba2 7.25% 08/01/27 1,000 660,000
Cluett American Corp., Sr. Sub Notes ..................... B3 10.125% 05/15/08 3,060 2,264,400
Foamex L.P., Sr. Sub Notes ............................... B3 9.875% 06/15/07 2,950 2,212,500
Simmons Co. Sr. Sub Notes, Ser. B......................... B3 10.25% 03/15/09 4,000 3,500,000
Steel Heddle Manufacturing Co., Sr. Sub. Notes............ Caa1 10.625% 06/01/06 2,000 700,000
Worldtex, Inc. Sr. Notes, Ser. B ......................... B1 9.625% 12/15/07 1,900 712,500
------------
10,049,400
------------
TELECOMMUNICATIONS -- 20%
Allegiance Telecommunications, Inc., Sr. Disc. Notes, Zero
Coupon
(until 02/15/03)........................................ NR 11.75% 02/15/08 3,300 2,392,500
Allegiance Telecommunications, Inc., Sr. Notes............ NR 12.875% 05/15/08 1,750 1,890,000
Birch Telecommunications, Inc., Sr. Notes................. NR 14.00% 06/15/08 2,500 2,425,000
Caprock Communications, Sr. Notes......................... Caa 12.00% 07/15/08 1,500 1,395,000
Cellnet Data Systems, Inc., Sr. Disc. Notes, Zero Coupon
(until 10/01/02)(b) (cost $2,566,560; purchased
01/26/99)............................................... NR 14.00% 10/01/07 3,680 257,600
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B41
<PAGE> 42
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
CORPORATE BONDS (CONTINUED) ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS (CONT'D.)
Charter Communications Int'l., Sr. Notes.................. B2 10.25% 01/15/10 $ 2,235 $ 2,156,775
Charter Communications Int'l., Sr. Notes.................. B2 10.00% 01/15/10 4,000 2,270,000
Charter Communications Int'l., Sr. Notes.................. B2 10.00% 04/01/09 1,000 972,500
DTI Holdings, Inc. Sr. Disc. Notes Zero Coupon (until
03/01/03)............................................... NR 12.50% 03/01/08 1,000 421,250
Exodus Communications, Inc. Sr. Notes..................... NR 10.75% 12/15/09 1,680 1,621,200
Exodus Communications, Inc. Sr. Notes..................... NR 11.625% 07/15/10 4,280 4,301,400
Fairpoint Commerce Sr. Sub Notes.......................... B3 12.50% 05/01/10 2,120 2,141,200
Focal Communications Corp. Sr. Notes...................... B3 11.875% 01/15/10 650 654,875
Geotek Communications, Inc., Sr. Disc. Notes(d)........... Ca 15.00% 07/15/05 5,000 2,391,360
Global Crossing Holdings, Ltd. Sr. Notes.................. Ba2 9.13% 11/15/06 3,520 3,381,750
Globix Corp., Sr. Notes................................... NR 12.50% 02/01/10 3,400 2,805,000
GT Group Telecom Inc. Sr. Notes........................... Caa1 13.25% 02/01/05 6,725 3,698,750
Hyperion Telecommunications Inc., Sr. Disc Notes.......... B3 13.00% 04/15/03 2,205 2,028,600
Hyperion Telecommunications, Inc. Sr. Sec'd............... B3 12.25% 09/01/04 1,150 1,167,250
Impsat Corp. Gtd. Sr. Notes............................... B2 12.125% 07/15/03 2,235 1,989,150
Impsat Corp. Sr. Notes.................................... B3 12.375% 06/15/08 3,000 2,370,000
IPC Information Systems, Inc. Sr. Disc. Notes, Zero Coupon
(until 05/01/01)........................................ B3 10.875% 05/01/08 2,250 2,030,625
KMC Telecom Holdings Inc. Sr. Notes....................... NR 13.50% 05/15/09 1,985 1,707,100
Level 3 Communications, Inc. Sr. Disc Notes, Zero Coupon
(until 12/01/03) ....................................... B3 10.50% 12/01/08 4,760 2,903,600
Level 3 Communications, Inc. Sr. Notes.................... NR 10.50% 03/15/05 25,000 13,750,000
Level 3 Communications, Inc. Sr. Notes.................... B3 11.00% 03/15/08 615 608,850
Mcleodusa, Inc., Sr. Sub Notes Zero Coupon (until
03/01/02)............................................... B1 10.50% 03/01/07 2,765 2,231,625
McLeodusa, Inc., Sr. Sub Notes............................ B1 8.375% 03/15/08 150 136,500
Mcleodusa, Inc., Sr. Sub Notes............................ B1 8.125% 02/15/09 200 180,000
Metromedia Fiber Network, Inc., Sr. Notes ................ B2 10.00% 12/15/09 1,645 1,628,550
Microcell Telecommunications, Zero Coupon (until
06/01/04)............................................... B3 12.00% 06/01/09 5,500 3,616,250
Millicom International Cellular S.A Sr. Sub Disc. Notes... B3 12.00% 06/30/01 4,245 3,650,700
Netia Holdings Sr. Disc. Notes Zero Coupon (until
11/01/01)............................................... B2 11.25% 11/01/07 3,480 2,340,300
Netia Holdings Sr. Notes.................................. B2 10.25% 11/01/07 2,350 1,938,750
Nextel Communications, Inc. Sr. Sub Notes................. B1 9.375% 11/15/09 5,065 4,862,400
Nextel Communications, Inc. Sr. Sub Notes, Zero Coupon
(until 09/15/02)........................................ B1 10.65% 09/15/07 11,515 9,039,275
Nextel Partners, Inc. Sr. Disc. Notes, Zero Coupon (until
02/01/04)............................................... B3 14.00% 02/01/09 1,661 1,137,785
Nextlink Communications, Inc. Sr. Disc. Notes............. B2 10.75% 06/01/09 2,340 2,316,600
Nextlink Communications Inc. Sr. Notes ................... B2 10.50% 12/01/09 2,140 2,097,200
Price Communications Wireless, Inc. Sr. Sub Notes......... B2 11.75% 07/15/07 1,750 1,876,875
Primus Telecommunications Group, Sr. Notes ............... B3 12.75% 10/15/09 2,465 1,972,000
PSINet, Inc. Sr. Notes.................................... B3 11.00% 08/01/09 5,345 4,944,125
PTC Int'l. Corp., Gtd. Notes, Zero Coupon (until
07/01/02)............................................... B2 10.75% 07/01/07 1,250 887,500
RCN Corp. Sr. Notes....................................... B3 10.00% 10/05/07 17 435,765
RCN Corp. Sr. Notes ...................................... B3 10.125% 01/15/10 1,235 1,037,400
RSL Communications Plc, Sec'd Notes....................... B2 12.00% 11/01/08 1,000 730,000
RSL Communications Plc, Sr. Notes......................... B2 12.25% 11/15/06 1,500 1,230,000
SF Holdings Group, Inc. Sr. Notes......................... NR 10.25% 08/15/03 22 242,275
Telegroup Inc. Sr. Disc Notes(d) ......................... NR 10.50% 11/01/04 4,000 2,140,000
Tritel PCS, Inc., Sr. Disc. Notes, Zero Coupon (until
05/15/04)............................................... B3 12.75% 05/15/09 4,000 2,640,000
US Unwired Inc. Sr. Disc. Notes, Zero Coupon (until
11/01/04)............................................... Caa1 13.375% 11/01/09 7,340 3,981,950
US Xchange LLC. Sr. Notes................................. NR 15.00% 07/01/08 2,250 2,452,500
Verio, Inc. Sr. Notes..................................... B3 11.25% 12/01/08 210 235,725
Versatel Telecom Sr. Notes................................ Caa1 11.875% 07/15/09 625 615,625
Versatel Telecom Sr. Notes................................ Caa1 13.25% 05/15/08 2,000 2,040,000
Viasystems, Inc., Sr. Sub. Notes.......................... B3 9.75% 06/01/07 3,705 3,223,350
Viatel, Inc. Sr. Disc. Notes Zero Coupon (until
04/15/03)............................................... NR 12.50% 04/15/08 1,100 506,000
Viatel, Inc. Sr. Notes ................................... Caa1 11.25% 04/15/08 1,500 1,125,000
Viatel, Inc., Sr. Notes .................................. B3 11.50% 03/15/09 2,401 1,824,760
VoiceStream Wireless Corp. Sr. Disc. Notes................ B2 11.875% 11/15/09 10,515 6,992,475
VoiceStream Wireless Corp. Sr. Disc. Notes................ B2 10.375% 11/15/09 1,840 1,922,800
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B42
<PAGE> 43
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
CORPORATE BONDS (CONTINUED) ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS (CONT'D.)
WamNet, Inc., Sr. Disc Notes, Zero Coupon (until
03/01/02)............................................... NR 13.25% 03/01/05 $ 500 $ 280,000
Williams Communications Group, Inc., Sr. Notes............ B2 10.875% 10/01/09 5,080 4,978,400
------------
147,221,795
------------
TRANSPORTATION -- 0.2%
Holt Group, Inc. Sr. Notes ............................... Caa3 9.75% 01/15/06 800 80,000
Kitty Hawk, Inc. Sr. Notes(d)............................. B1 9.95% 11/15/04 2,000 800,000
Trism, Inc., Sr. Notes ................................... NR 12.00% 02/15/05 83 59,389
Trism, Inc., Sr. Notes ................................... NR 12.00% 02/04/05 1,305 874,115
------------
1,813,504
------------
UTILITIES -- 0.7%
AES Corp., Sr. Sub Notes.................................. Ba1 9.50% 06/01/09 5,000 4,900,000
AES Corp., Sr. Sub. Notes................................. Ba1 8.875% 11/01/27 50 41,000
------------
4,941,000
------------
WASTE MANAGEMENT -- 1.3%
Allied Waste of North America, Inc., Sr. Sub Notes ....... Ba3 10.00% 08/01/09 1,310 1,100,400
Allied Waste of North America, Inc., Sr. Notes............ Ba3 7.875% 01/01/09 4,560 3,876,000
Allied Waste of North America, Inc., Sr. Notes............ Ba3 7.625% 01/01/06 3,250 2,843,750
GNI Group, Inc. Sr. Notes................................. Caa3 10.875% 07/15/05 4,000 800,000
Waste Management, Inc., Sr. Notes(b) (cost $912,342;
purchased 2/29/00)...................................... Ba1 6.375% 12/01/03 1,000 925,710
------------
9,545,860
------------
TOTAL CORPORATE BONDS
(cost $669,502,566)..................................................................................... 572,050,128
------------
CONVERTIBLE BONDS -- 0.4%
OIL/GAS
Key Energy Group, Inc. (cost $2,759,048).................. NR 5.00% 09/15/04 3,500 2,756,250
------------
<CAPTION>
SHARES
COMMON STOCK -- 5.1% ---------
<S> <C> <C> <C> <C> <C>
Callahan Nordrhein Westfalen.............................. 11,500 7,743,125
CD Radio, Inc............................................. 4,245 2,377,200
Classic Communications, Inc.(a)........................... 6,000 51,000
Dr. Pepper Bottling Holdings, Inc. (Class B)(a)(b) (cost
$5,226; purchased 10/21/88)............................. 5,807 145,175
Federal Mogul Corp. ...................................... 2,475 1,737,250
Flextronics International Ltd............................. 3,000 3,030,000
Fox Family Worldwide, Inc................................. 425 380,375
Intermediate Act Operating Co., Inc. ..................... 2,354 1,082,840
Lodgian Financing Corp.................................... 400 312,000
Maxcom Telecommunications................................. 245 215,600
Mcleodusa, Inc., (b) (cost 130,705; purchased at
06/26/00)............................................... 16 336,039
Midland Funding Corp. .................................... 170 190,301
Norampac Inc. ............................................ 350 337,750
Orion Power Holdings Inc.................................. 4,900 5,047,000
Packaging Resources, Inc.(a).............................. 2,251 900,526
Premier Cruises, Ltd. (a)(b) (cost $0; purchased
09/15/99)............................................... 74,058 203,660
Samuels Jewelers Inc.(a) ................................. 38 168,750
South Carolina Holding Corp. ............................. 1,596 1,703,730
Star Gas Partners L. P.................................... 2,561 39,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B43
<PAGE> 44
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
COMMON STOCK (CONTINUED) --------- ------------
<S> <C> <C> <C> <C> <C>
United Pan Europe Commerce................................ 13,495 $ 8,252,550
Waste Systems International, Inc.(a)(b) (cost $1,970,169;
purchased 02/01/99)..................................... 503 880,864
YankeeNets LLC(b) (cost $2,100,000; purchased 03/09/00)... 2,100 2,021,250
------------
TOTAL COMMON STOCKS
(cost $42,333,756)...................................................................................... 37,156,360
------------
<CAPTION>
PREFERRED STOCKS -- 6.7%
<S> <C> <C> <C> <C> <C>
Adelphia Communications, Inc., PIK........................ 65,250 6,851,250
AmeriKing, Inc., Sr. Notes PIK............................ 27,505 220,040
California Federal Bancorp, Inc. ......................... 100,000 2,118,750
CSC Holdings, Inc., PIK................................... 38,533 4,055,566
Century Maintenance Supplies, PIK......................... 48,369 3,627,675
Clark USA, Inc., PIK...................................... 626 125,250
Cluett American Corp., PIK................................ 44,746 907,105
Contour Energy Co.(a)..................................... 38,400 254,400
Dobson Communications, PIK................................ 4,833 4,978,614
Eagle-Picher Holdings, Inc.(a)............................ 170 510,000
Fitzgeralds Gaming, Inc.(a)............................... 50,000 50,000
Geneva Steel, Inc.(a)..................................... 22,000 2,200
Global Crossing Holdings, Ltd., PIK....................... 16,250 1,576,250
GPA Group Plc(a).......................................... 1,550,000 744,000
ICG Communications, Inc., PIK............................. 1,567 1,316,272
Intermedia Communications, Inc., PIK...................... 129 298,151
Isle Capri Black Hawk LLC ................................ 4,000 4,360,000
Nextel Communications, Inc., PIK.......................... 1,084 1,051,480
Paxson Communications Inc., PIK........................... 591 5,664,750
Primedia, Inc............................................. 44,668 4,154,124
R&B Falcon Corp., PIK..................................... 3,305 3,751,719
Rural Cellular Corp., PIK................................. 12 11,280
Supermarkets General Holdings Corp., PIK(a)............... 25,000 4,062
Viasystems, Inc., PIK(a).................................. 47,804 860,467
Waste Systems International Inc.(b) (cost 4,000,000;
purchased 2/29/00)...................................... 4,038 1,070,070
World Access Inc.(b) (cost $2,000,000; purchased
02/11/00)............................................... 1,332 852,480
------------
TOTAL PREFERRED STOCKS
(cost $65,810,623)...................................................................................... 49,415,955
------------
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION
DATE UNITS
WARRANTS(a) -- 0.9% ---------- ---------
<S> <C> <C> <C> <C> <C>
21st Century Telecom Group, Inc. ......................... 02/15/10 400 4,900
Allegiance Telecommunications, Inc. ...................... 02/03/08 3,800 444,600
American Banknote Corp. .................................. 12/01/02 2,500 25
Ampex Corp. .............................................. 03/15/03 170,000 1,700
Asia Pulp & Paper Ltd.(b) (cost $0; purchased 3/09/00).... 03/15/05 1,295 13
Bell Technology Group, Ltd. .............................. 03/15/03 1,250 51,250
Bestel S.A................................................ 05/01/05 2,500 30,000
Birch Telecomm, Inc. ..................................... 06/15/08 2,500 13,750
Cellnet Data Systems, Inc. ............................... 09/15/07 7,010 70
Clearnet Communications, Inc. ............................ 09/15/05 26,202 628,848
DTI Holdings, Inc. ....................................... 03/01/08 5,000 50
Electronic Retailing Systems.............................. 02/01/04 2,000 2,000
First World Communications................................ 04/15/08 1,175 82,250
GT Group Telecommunication, Inc. ......................... 02/01/10 6,725 0
HFI Icon Health........................................... 09/27/09 18,093 27,140
Intelcom Group, Inc. ..................................... 09/15/05 20,790 353,430
Interact Systems, Inc. ................................... 12/15/09 4,400 44
Intermediate Act Electronic Mktg. Inc..................... 12/15/09 4,400 22,000
Maxcom Telecommunications................................. 04/01/07 245 0
McCaw Int'l., Ltd. ....................................... 01/01/49 1,650 6,600
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B44
<PAGE> 45
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
EXPIRATION VALUE
DATE UNITS (NOTE 2)
WARRANTS (CONTINUED) ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
MGC Communications, Inc. ................................. 01/01/49 2 $ 585,000
Pagemart, Inc. ........................................... 12/31/03 9,200 59,800
Powertel, Inc. ........................................... 02/01/06 6,720 342,720
Price Communications Cellular Holdings.................... 08/01/07 6,880 1,148,960
Primus Telecommunications Group........................... 05/01/07 1,500 46,125
R & B Falcon ............................................. 05/01/09 2,875 1,437,500
Star Choice Communications, Inc. ......................... 12/15/05 69,480 451,620
Sterling Chemical Holdings, Inc. ......................... 08/15/08 560 5,040
TVN Entertainment Corp. .................................. 08/01/08 1,135 0
USN Communications, Inc. ................................. 10/15/04 10,590 0
Versatel Telecommunications............................... 05/15/08 2,000 1,040,000
WamNet, Inc. ............................................. 08/01/08 3,000 36,000
Waste Systems International............................... 11/15/06 60,000 30,000
XM Satellite Radio Inc. .................................. 03/03/10 4,505 0
------------
TOTAL WARRANTS
(cost $2,071,260)....................................................................................... 6,851,435
------------
TOTAL LONG-TERM INVESTMENTS
(cost $782,477,253)..................................................................................... 668,230,128
------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS -- 12.2% PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
CORPORATE BONDS -- 3.3% ------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 0.4%
Aircraft Funding, Sr. Notes............................... NR 12.00% 07/16/00 $ 1,024 870,731
United States Air, Inc., Sr. Notes........................ B3 9.63% 02/01/01 2,000 1,977,600
------------
2,848,331
------------
CABLE
Century Communications Corp............................... B1 9.50% 08/15/00 100 99,500
------------
CONSUMER PRODUCTS -- 0.4%
Coinstar, Inc., Sr. Disc. Notes........................... NR 13.00% 06/30/00 3,275 3,307,750
------------
LEISURE -- 0.4%
Santa Fe Hotel, Inc., Gtd. First Mtge. Notes.............. Caa 11.00% 12/15/00 2,750 2,667,600
------------
RETAIL -- 0.4%
Family Restaurants, Inc., Sr. Notes....................... NR 15.00% 06/30/00 3,000 3,000,000
------------
TELECOMMUNICATIONS -- 1.6%
Bestel S.A., Sr. Disc. Notes.............................. NR 12.75% 05/15/01 2,500 1,775,000
GST Telecommunications, Inc., Sr. Sub. Notes(d)........... NR 13.88% 12/15/00 650 130,000
ICG Holdings, Inc., Sr. Sub. Notes........................ B3 13.50% 09/15/00 850 822,376
Millicom Intl. Cellular S.A., Sr. Sub. Notes.............. B3 12.00% 06/30/01 4,245 3,650,700
Pagemart Nationwide, Inc., Sr. Disc. Notes................ B3 15.00% 06/30/00 2,550 2,435,250
Telewest PLC, Sr. Disc. Notes............................. B1 9.25% 10/01/00 2,850 2,714,625
------------
11,527,951
------------
WASTE MANAGEMENT -- 0.1%
Clean Harbors, Inc., Sr. Notes............................ B2 12.50% 5/15/01 1,250 975,000
------------
TOTAL CORPORATE BONDS
(cost $26,765,233)...................................................................................... 24,426,132
------------
<CAPTION>
EXPIRATION
DATE UNITS
WARRANTS(a) -- 0.1% ---------- ---------
<S> <C> <C> <C> <C> <C>
Adelphia Business Solutions
(cost $127,500)......................................... 4/15/01 4,250 1,147,500
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B45
<PAGE> 46
HIGH YIELD BOND PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
COMMERCIAL PAPER -- 2.5% -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
American Electric Power Co. .............................. 6.85% 7/20/00 $ 3,000(f) $ 2,990,296
American Electric Power Co. .............................. 6.83% 7/21/00 5,000(f) 4,982,925
Comdisco, Inc. ........................................... 7.00% 7/10/00 1,000(f) 998,639
GPU Capital, Inc. ........................................ 6.88% 7/31/00 1,197(f) 1,190,595
PSE&G Fuel Corp. ......................................... 6.82% 7/20/00 5,000(f) 4,983,897
TRW, Inc. ................................................ 6.90% 8/15/00 3,000(f) 2,975,275
------------
TOTAL COMMERCIAL PAPER
(cost $18,121,627)...................................................................................... 18,121,627
------------
TIME DEPOSIT -- 0.7%
Deutsche Bank AG
(cost $4,914,000)....................................... 7.125% 07/03/00 4,914(f) 4,914,000
------------
REPURCHASE AGREEMENT -- 5.6%
Joint Repurchase Agreement Account
(cost $41,437,000; Note 5)................................ 6.493% 07/03/00 41,437 41,437,000
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $91,365,360)...................................................................................... 90,046,259
------------
TOTAL INVESTMENTS -- 102.9%
(cost $873,842,613; Note 6)............................................................................. 758,276,387
LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.9)%........................................................... (21,869,502)
------------
TOTAL NET ASSETS -- 100.0%................................................................................ $736,406,885
============
</TABLE>
The following abbreviations are used in portfolio descriptions:
<TABLE>
<S> <C>
LLC Limited Liability Company
LP Limited Partnership
NR Not Rated by Moody's or Standard & Poors
PIK Payment in Kind Securities
PLC Public Limited Company
</TABLE>
(a) Non-income producing security.
(b) Indicates a restricted security; the aggregate cost of the restricted
securities is $25,043,821. The aggregate value, $10,518,737 is approximately
1.4% of net assets.
(c) Indicates a fair valued security. The aggregate value, $3,304,625 is
approximately .45% of net assets.
(d) Represents issuer in default on interest payments, non-income producing
security.
(e) Portion of securities on loan with an aggregate market value of $21,880,778,
cash collateral of $22,897,220 was received with which the portfolio
purchased securities.
(f) Represents security purchased with cash collateral received for securities
on loan.
SEE NOTES TO FINANCIAL STATEMENTS.
B46
<PAGE> 47
STOCK INDEX PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 98.7% VALUE
SHARES (NOTE 2)
COMMON STOCKS ---------- --------------
<S> <C> <C>
ADVERTISING -- 0.2%
Omnicom Group, Inc. ............... 65,700 $ 5,851,406
Young & Rubicam, Inc............... 24,000 1,372,500
--------------
7,223,906
--------------
AEROSPACE -- 0.8%
Boeing Co. ........................ 321,936 13,460,949
General Dynamics Corp. ............ 74,700 3,903,075
Lockheed Martin Corp. ............. 148,298 3,679,644
Northrop Grumman Corp. ............ 24,200 1,603,250
Raytheon Co. (Class "B" Stock)..... 123,018 2,368,097
Rockwell International Corp. ...... 71,900 2,264,850
United Technologies Corp. ......... 173,500 10,214,812
--------------
37,494,677
--------------
AIRLINES -- 0.2%
AMR Corp. ......................... 55,300 1,461,994
Delta Airlines, Inc. .............. 48,300 2,442,169
Southwest Airlines Co. ............ 181,725 3,441,417
US Airways Group, Inc.(a).......... 30,900 1,205,100
--------------
8,550,680
--------------
APPAREL -- 0.1%
Nike, Inc. (Class "B" Shares) ..... 102,200 4,068,837
Reebok International Ltd. ......... 19,000 302,813
--------------
4,371,650
--------------
AUTOS - CARS & TRUCKS -- 0.9%
Cummins Engine Co., Inc. .......... 14,400 392,400
Dana Corp. ........................ 63,594 1,347,398
Delphi Automotive Systems Corp. ... 206,044 3,000,516
Ford Motor Co. .................... 442,700 19,036,100
General Motors Corp. .............. 199,700 11,595,081
Genuine Parts Co. ................. 65,925 1,318,500
Johnson Controls, Inc. ............ 32,000 1,642,000
Navistar International Corp.(a).... 23,900 742,394
PACCAR Inc. ....................... 29,160 1,157,287
TRW, Inc. ......................... 44,200 1,917,175
Visteon Corp.(a)................... 57,964 702,814
--------------
42,851,665
--------------
BANKS AND SAVINGS & LOANS -- 4.0%
AmSouth Bancorporation............. 134,900 2,124,675
Associates First Capital Corp. .... 274,266 6,119,560
Bank of New York Co., Inc. ........ 270,900 12,596,850
Bank One Corp. .................... 427,045 11,343,383
BankAmerica Corp. ................. 615,044 26,446,892
Capital One Financial.............. 74,400 3,320,100
Charter One Financial, Inc.(a)..... 34,000 782,000
Chase Manhattan Corp. ............. 453,241 20,877,414
Comerica, Inc. .................... 58,450 2,622,944
Fifth Third Bancorp................ 109,600 6,932,200
First Union Corp. ................. 362,978 9,006,392
Firstar Corp. ..................... 361,460 7,613,251
Golden West Financial Corp. ....... 61,900 2,526,294
Huntington Bancshares, Inc. ....... 85,250 1,348,016
KeyCorp............................ 169,700 2,990,962
Mellon Financial Corp. ............ 180,300 6,569,681
National City Corp. ............... 232,400 3,965,325
Northern Trust Corp. .............. 82,000 5,335,125
PNC Bank Corp. .................... 109,200 5,118,750
Providian Financial Corp. ......... 52,550 4,729,500
SouthTrust Corp. .................. 59,400 1,343,925
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
State Street Corp. ................ 58,800 $ 6,236,475
Summit Bancorp..................... 63,900 1,573,538
Suntrust Banks, Inc. .............. 112,200 5,126,137
U.S. Bancorp....................... 268,926 5,176,825
Union Planters Corp. .............. 53,200 1,486,275
Wells Fargo & Co. ................. 596,560 23,116,700
--------------
186,429,189
--------------
CHEMICALS -- 0.9%
Air Products & Chemicals, Inc. .... 85,300 2,628,306
Dow Chemical Co. .................. 243,600 7,353,675
Du Pont (E.I.) de Nemours & Co. ... 386,291 16,900,231
Eastman Chemical Co. .............. 27,600 1,317,900
Engelhard Corp. ................... 49,875 850,992
FMC Corp.(a)....................... 12,300 713,400
Grace (W.R.) & Co.(a).............. 24,400 295,850
Great Lakes Chemical Corp. ........ 20,600 648,900
Hercules, Inc. .................... 37,400 525,938
Praxair, Inc. ..................... 59,100 2,212,556
Rohm & Haas Co. ................... 79,100 2,728,950
Sigma-Aldrich Corp. ............... 38,000 1,111,500
Union Carbide Corp. ............... 50,600 2,504,700
--------------
39,792,898
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp.(a)................... 267,618 3,746,652
Convergys Corp. ................... 34,000 1,763,750
Deluxe Corp. ...................... 29,000 683,312
Quintiles Transnational,
Corp.(a)......................... 36,000 508,500
--------------
6,702,214
--------------
COMPUTERS -- 5.4%
Apple Computer, Inc.(a) ........... 121,200 6,347,850
Citrix Systems, Inc.(a)............ 64,800 1,227,150
Compaq Computer Corp. ............. 629,069 16,080,576
Comverse Technology, Inc.(a)....... 52,000 4,836,000
Dell Computer Corp.(a)............. 944,200 46,560,863
Hewlett-Packard Co. ............... 369,300 46,116,338
International Business Machines
Corp. ........................... 651,400 71,369,012
Seagate Technology, Inc.(a)........ 81,200 4,466,000
Sun Microsystems, Inc.(a).......... 579,700 52,716,469
--------------
249,720,258
--------------
COMPUTER SERVICES -- 14.2%
3Com Corp. ........................ 127,600 7,352,950
Adaptec, Inc.(a)................... 37,500 853,125
Adobe Systems, Inc. ............... 44,900 5,837,000
America Online, Inc.(a)............ 839,600 44,288,900
Autodesk, Inc. .................... 19,800 686,813
Automatic Data Processing, Inc. ... 232,900 12,474,706
BMC Software, Inc.(a).............. 90,300 3,294,539
Cabletron Systems, Inc.(a)......... 63,500 1,603,375
Ceridian Corp.(a).................. 53,200 1,280,125
Cisco Systems, Inc.(a)............. 2,526,000 160,558,875
Computer Associates International,
Inc. ............................ 204,543 10,470,045
Computer Sciences Corp.(a)......... 60,700 4,533,531
Compuware Corp.(a)................. 133,600 1,386,100
EMC Corp.(a)....................... 776,174 59,716,887
First Data Corp. .................. 155,400 7,711,725
Gateway, Inc. ..................... 114,800 6,514,900
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B47
<PAGE> 48
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
COMPUTER SERVICES (CONT'D.)
Lexmark International Group,
Inc.(a).......................... 48,414 $ 3,255,841
Mercury Interactive Corp. ......... 9,000 870,750
Micron Technology, Inc. ........... 199,400 17,559,662
Microsoft Corp. ................... 1,913,500 153,080,000
NCR Corp.(a)....................... 31,300 1,218,744
Network Appliance, Inc.(a)......... 110,400 8,887,200
Novell, Inc.(a).................... 126,100 1,166,425
Oracle Corp.(a).................... 1,038,460 87,295,544
Parametric Technology Corp.(a)..... 97,000 1,067,000
Peoplesoft, Inc.(a)................ 96,000 1,608,000
Sapient Corp. ..................... 15,000 1,604,063
Siebel Systems Inc.(a)............. 67,000 10,958,688
Unisys Corp.(a).................... 111,000 1,616,438
VERITAS Software Corp.(a).......... 138,000 15,596,156
Yahoo!, Inc. ...................... 194,400 24,081,300
--------------
658,429,407
--------------
CONSTRUCTION -- 0.1%
Armstrong Holdings Inc. ........... 14,700 225,094
Centex Corp. ...................... 21,600 507,600
Fluor Corp. ....................... 28,300 894,988
Kaufman & Broad Home Corp. ........ 16,166 320,289
Pulte Corp. ....................... 14,500 313,562
Vulcan Materials Co. .............. 37,600 1,605,050
--------------
3,866,583
--------------
CONSUMER PRODUCTS
Tupperware Corp. .................. 22,300 490,600
--------------
CONTAINERS -- 0.1%
Ball Corp. ........................ 10,900 350,844
Bemis Co., Inc. ................... 18,100 608,612
Crown Cork & Seal Co., Inc.(a)..... 44,200 663,000
Owens-Illinois, Inc.(a)............ 59,700 697,744
Pactiv Corp.(a).................... 58,900 463,838
--------------
2,784,038
--------------
COSMETICS & SOAPS -- 1.4%
Alberto-Culver Co. (Class "B"
Stock)........................... 19,100 583,744
Avon Products, Inc. ............... 91,000 4,049,500
Clorox Co. ........................ 86,500 3,876,281
Colgate-Palmolive Co. ............. 214,900 12,867,137
Gillette Co. ...................... 387,500 13,538,281
International Flavors & Fragrances,
Inc. ............................ 39,400 1,189,388
Procter & Gamble Co. .............. 480,704 27,490,260
--------------
63,594,591
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.6%
Eastman Kodak Co. ................. 117,900 7,015,050
Philip Morris Companies, Inc. ..... 843,200 22,397,500
Polaroid Corp. .................... 15,400 278,163
--------------
29,690,713
--------------
DIVERSIFIED MANUFACTURING -- 4.1%
General Electric Co. .............. 3,615,800 191,637,400
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.3%
Avery Dennison Corp. .............. 43,900 2,946,787
Pitney Bowes, Inc. ................ 100,900 4,036,000
Xerox Corp. ....................... 245,792 5,100,184
--------------
12,082,971
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
DRUGS & MEDICAL SUPPLIES -- 10.3%
Abbott Laboratories................ 566,700 $ 25,253,569
Allergan, Inc. .................... 50,600 3,769,700
ALZA Corp.(a)...................... 35,700 2,110,762
American Home Products Corp. ...... 480,100 28,205,875
Bausch & Lomb, Inc. ............... 20,100 1,555,237
Baxter International, Inc. ........ 109,500 7,699,219
Becton, Dickinson & Co. ........... 93,100 2,670,806
Biogen, Inc. ...................... 52,000 3,354,000
Biomet, Inc........................ 42,100 1,618,219
Boston Scientific Corp.(a)......... 151,800 3,330,112
Bristol-Myers Squibb Co. .......... 725,760 42,275,520
Bard, (C.R.), Inc. ................ 19,000 914,375
Cardinal Health, Inc. ............. 101,650 7,522,100
Guidant Corp.(a)................... 113,100 5,598,450
Johnson & Johnson.................. 508,900 51,844,187
Lilly (Eli) & Co. ................. 401,200 40,069,850
Mallinckrodt, Inc. ................ 25,800 1,120,688
Medtronic, Inc. ................... 442,700 22,051,994
Merck & Co., Inc. ................. 843,800 64,656,175
Pfizer, Inc. ...................... 2,292,750 110,052,000
Pharmacia Corporation.............. 461,456 23,851,507
Schering-Plough Corp. ............. 536,300 27,083,150
St. Jude Medical, Inc. ............ 30,300 1,390,013
Watson Pharmaceuticals, Inc.(a).... 35,000 1,881,250
--------------
479,878,758
--------------
ELECTRICAL SERVICES -- 0.2%
American Power Conversion.......... 53,000 2,163,063
CP&L Energy, Inc.(a)............... 59,900 1,913,056
TXU Corp. ......................... 103,506 3,053,427
--------------
7,129,546
--------------
ELECTRONICS -- 7.4%
Advanced Micro Devices, Inc.(a).... 54,100 4,179,225
Altera Corp.(a).................... 67,000 6,829,812
Analog Devices, Inc.(a)............ 128,900 9,796,400
Applied Materials, Inc.(a)......... 282,200 25,574,375
Broadcom Corp. .................... 16,000 3,199,722
Conexant Systems Inc. ............. 72,000 3,501,000
Electronic Data Systems Corp. ..... 173,900 7,173,375
Emerson Electric Co.(a)............ 157,500 9,509,062
Intel Corp. ....................... 1,227,600 164,114,775
KLA-Tencor Corp.(a)................ 67,400 3,947,113
Linear Technology Corp. ........... 105,000 6,713,437
LSI Logic Corp.(a)................. 110,800 5,997,050
Maxim Integrated Products,
Inc.(a).......................... 92,000 6,250,250
MIPS Technologies, Inc. (Class "B"
Stock)........................... 9,396 361,735
Molex Inc. ........................ 70,000 3,368,750
National Semiconductor Corp.(a).... 65,400 3,711,450
Novellus Systems, Inc. ............ 28,000 1,583,750
Perkin Elmer, Inc. ................ 18,000 1,190,250
Pinnacle West Capital Corp. ....... 29,000 982,375
PPL Corp. ......................... 57,000 1,250,438
RadioShack Corp.(a)................ 70,660 3,347,518
Sanmina Corp. ..................... 31,000 2,650,500
Solectron Corp.(a)................. 218,000 9,128,750
Tektronix, Inc. ................... 17,500 1,295,000
Teradyne, Inc. (United
States)(a)....................... 63,900 4,696,650
Texas Instruments, Inc. ........... 596,600 40,978,962
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B48
<PAGE> 49
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
ELECTRONICS (CONT'D.)
Thomas & Betts Corp. .............. 23,800 $ 455,175
Xilinx Inc.(a)..................... 118,400 9,775,400
--------------
341,562,299
--------------
FINANCIAL SERVICES -- 5.8%
American Express Co. .............. 493,100 25,702,837
Bear Stearns Companies, Inc. ...... 44,210 1,840,241
Schwab (Charles) Corp. ............ 468,800 15,763,400
Citigroup, Inc. ................... 1,235,213 74,421,583
Countrywide Credit Industries,
Inc. ............................ 40,800 1,236,750
Dun & Bradstreet Corp. ............ 62,360 1,785,055
Equifax, Inc. ..................... 52,300 1,372,875
Federal Home Loan Mortgage Corp. .. 257,700 10,436,850
Federal National Mortgage
Association...................... 372,700 19,450,281
Fleetboston Financial Corp. ....... 334,488 11,372,592
Franklin Resource, Inc. ........... 92,400 2,806,650
H&R Block, Inc. ................... 36,700 1,188,163
Household International, Inc. ..... 175,458 7,292,473
Lehman Brothers Holdings, Inc. .... 43,700 4,132,381
MBNA Corp. ........................ 296,768 8,049,832
Merrill Lynch & Co., Inc. ......... 136,900 15,743,500
Morgan (J.P.) & Co., Inc. ......... 61,150 6,734,144
Morgan Stanley Dean Witter &
Co. ............................. 416,910 34,707,757
Old Kent Financial Corp. .......... 32,550 870,713
PaineWebber Group, Inc. ........... 54,000 2,457,000
Paychex, Inc. ..................... 137,250 5,764,500
Price (T.Rowe) Associates, Inc. ... 36,000 1,530,000
Regions Financial Corp. ........... 83,100 1,651,613
SLM Holding Corp. ................. 59,600 2,231,275
Synovus Financial Corp. ........... 97,500 1,718,438
Washington Mutual, Inc. ........... 205,648 5,938,086
--------------
266,198,989
--------------
FOOD & BEVERAGE -- 3.7%
Anheuser-Busch Companies, Inc. .... 169,300 12,644,594
Archer-Daniels-Midland Co. ........ 225,931 2,216,948
Bestfoods.......................... 100,100 6,931,925
Brown-Forman Corp. (Class "B"
Stock)........................... 23,800 1,279,250
Campbell Soup Co. ................. 157,100 4,575,537
Coca-Cola Co. ..................... 907,100 52,101,556
Coca-Cola Enterprises Inc. ........ 159,000 2,593,688
ConAgra, Inc. ..................... 179,100 3,414,094
Coors (Adolph) Co. (Class "B"
Stock)........................... 12,800 774,400
General Mills, Inc. ............... 113,800 4,352,850
Heinz (H.J.) & Co. ................ 132,350 5,790,312
Hershey Foods Corp. ............... 49,500 2,400,750
Kellogg Co. ....................... 148,900 4,429,775
Nabisco Group Holdings Corp.(a).... 119,900 3,109,906
PepsiCo, Inc. ..................... 530,100 23,556,319
Quaker Oats Co. ................... 47,600 3,575,950
Ralston-Ralston Purina Group....... 113,620 2,265,299
Sara Lee Corp. .................... 328,400 6,342,225
Seagram Co., Ltd. ................. 161,800 9,384,400
Sysco Corp. ....................... 121,500 5,118,187
Unilever NV, ADR (Netherlands)..... 210,432 9,048,576
Wrigley (William) Jr. Co. ......... 42,600 3,415,988
--------------
169,322,529
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
FOREST PRODUCTS -- 0.4%
Boise Cascade Corp. ............... 19,886 $ 514,550
Fort James Corp. .................. 81,000 1,873,125
Georgia-Pacific Corp. ............. 66,800 1,753,500
International Paper Co. ........... 179,968 5,365,281
Louisiana-Pacific Corp. ........... 38,900 423,038
Mead Corp. ........................ 37,400 944,350
Potlatch Corp. .................... 10,000 331,250
Temple-Inland, Inc. ............... 20,000 840,000
Westvaco Corp. .................... 35,700 885,806
Weyerhaeuser Co. .................. 87,100 3,745,300
Willamette Industries, Inc. ....... 44,200 1,204,450
--------------
17,880,650
--------------
GAS PIPELINES -- 0.6%
Cinergy Corp. ..................... 58,739 1,494,174
Columbia Energy Group.............. 30,250 1,985,156
Enron Corp. ....................... 265,700 17,137,650
Peoples Energy Corp. .............. 11,400 369,075
Sempra Energy...................... 74,154 1,260,618
Williams Companies, Inc. .......... 162,300 6,765,881
--------------
29,012,554
--------------
HOSPITALS/HEALTHCARE MANAGEMENT -- 1.4%
Agilent Technologies, Inc. ........ 155,613 11,476,459
Amgen, Inc.(a)..................... 376,900 26,477,225
Columbia/HCA Healthcare Corp....... 206,398 6,269,339
HEALTHSOUTH Corp.(a)............... 154,500 1,110,469
Humana, Inc.(a).................... 58,100 283,238
IMS Health, Inc. .................. 119,120 2,144,160
Manor Care, Inc. .................. 40,850 285,950
McKesson HBOC, Inc. ............... 101,107 2,116,928
MedImmune, Inc. ................... 57,000 4,218,000
Shared Medical Systems Corp. ...... 9,000 656,437
Tenet Healthcare Corp.(a).......... 111,100 2,999,700
UnitedHealth Group, Inc. .......... 62,200 5,333,650
Wellpoint Health Networks,
Inc.(a).......................... 25,100 1,818,181
--------------
65,189,736
--------------
HOUSEHOLD PRODUCTS & PERSONAL
CARE -- 0.3%
Kimberly-Clark Corp. .............. 200,788 11,520,212
Leggett & Platt, Inc. ............. 64,000 1,056,000
--------------
12,576,212
--------------
HOUSING RELATED -- 0.4%
Lowe's Companies, Inc. ............ 37,800 2,268,000
Lowe's Companies, Inc. ............ 143,000 5,871,937
Masco Corp. ....................... 161,200 2,911,675
Maytag Corp. ...................... 32,700 1,205,813
Newell Rubbermaid, Inc. ........... 107,049 2,756,512
Owens Corning...................... 21,100 195,175
Stanley Works...................... 32,300 767,125
Whirlpool Corp. ................... 27,300 1,272,862
--------------
17,249,099
--------------
INSTRUMENT - CONTROLS -- 0.1%
PE Corp. - PE Biosystems Group..... 77,400 5,098,725
--------------
INSURANCE -- 3.0%
Aetna, Inc. ....................... 53,312 3,421,964
AFLAC, Inc. ....................... 97,400 4,474,313
Allstate Corp. .................... 283,688 6,312,058
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B49
<PAGE> 50
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
INSURANCE (CONT'D.)
American General Corp. ............ 92,286 $ 5,629,446
American International Group,
Inc. ............................ 565,943 66,498,302
Aon Corp. ......................... 94,125 2,923,758
Chubb Corp. ....................... 64,600 3,972,900
CIGNA Corp. ....................... 60,100 5,619,350
Cincinnati Financial Corp. ........ 62,500 1,964,844
Conseco, Inc. ..................... 118,259 1,153,025
Hartford Financial Services Group,
Inc. ............................ 81,200 4,542,125
Jefferson-Pilot Corp. ............. 39,912 2,252,533
Lincoln National Corp. ............ 68,800 2,485,400
Marsh & McLennan Companies,
Inc. ............................ 98,000 10,234,875
MBIA, Inc. ........................ 36,300 1,749,206
MGIC Investment Corp. ............. 40,200 1,829,100
Progressive Corp. ................. 27,000 1,998,000
SAFECO Corp. ...................... 48,300 959,963
St. Paul Companies, Inc. .......... 83,110 2,836,129
Torchmark Corp. ................... 51,000 1,259,063
UnumProvident Corp. ............... 86,656 1,738,536
Wachovia Corp. .................... 74,200 4,025,350
--------------
137,880,240
--------------
LEISURE -- 1.0%
Brunswick Corp. ................... 33,400 553,188
Carnival Corp. (Class "A" Stock)... 229,700 4,479,150
Disney (Walt) Co. ................. 760,001 29,497,539
Harley-Davidson Inc. .............. 100,000 3,850,000
Harrah's Entertainment, Inc.(a).... 46,350 970,453
Hilton Hotels Corp. ............... 104,800 982,500
Marriott International, Inc. (Class
"A" Stock)....................... 93,200 3,361,025
Sabre Group Holdings, Inc. (Class
"A" Stock)....................... 42,419 1,208,941
--------------
44,902,796
--------------
MACHINERY -- 0.4%
Briggs & Stratton Corp. ........... 7,800 267,150
Caterpillar, Inc. ................. 134,300 4,549,412
Cooper Industries, Inc. ........... 37,000 1,204,812
Deere & Co. ....................... 85,200 3,152,400
Dover Corp. ....................... 75,900 3,078,694
Eaton Corp. ....................... 27,600 1,849,200
Ingersoll-Rand Co. ................ 62,750 2,525,687
Milacron, Inc. .................... 6,600 95,700
Parker Hannifin Corp. ............. 41,225 1,411,956
Snap-On, Inc. ..................... 22,800 607,050
Thermo Electron Corp.(a)........... 57,000 1,200,563
Timken Co. ........................ 21,500 400,438
--------------
20,343,062
--------------
MEDIA -- 3.0%
Clear Channel Communications,
Inc.(a).......................... 124,200 9,315,000
Comcast Corp. (Special Class "A"
Stock)........................... 330,400 13,381,200
Dow Jones & Co., Inc. ............. 32,700 2,395,275
Gannett Co., Inc. ................. 99,700 5,963,306
Interpublic Group of Companies,
Inc. ............................ 105,100 4,519,300
Knight-Ridder, Inc. ............... 31,100 1,654,131
McGraw Hill, Inc. ................. 72,900 3,936,600
Mediaone Group, Inc.(a)............ 226,300 14,964,087
Meredith Corp. .................... 17,800 600,750
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
MEDIA (CONT'D.)
New York Times Co. (Class "A"
Stock)........................... 65,200 $ 2,575,400
R.R. Donnelley & Sons, Co. ........ 49,500 1,116,844
Time Warner, Inc. ................. 473,180 35,961,680
Tribune Co. ....................... 124,400 4,354,000
Viacom, Inc. (Class "B"
Stock)(a)........................ 560,436 38,214,730
--------------
138,952,303
--------------
METALS - FERROUS -- 0.1%
Allegheny Technologies, Inc. ...... 34,940 628,920
Bethlehem Steel Corp.(a)........... 47,300 168,506
Nucor Corp. ....................... 31,200 1,035,450
USX -- U.S. Steel Group, Inc. ..... 31,540 585,462
Worthington Industries, Inc. ...... 34,000 357,000
--------------
2,775,338
--------------
METALS - NON FERROUS -- 0.3%
Alcan Aluminum Ltd. ............... 83,350 2,583,850
Alcoa, Inc. ....................... 320,476 9,293,804
INCO Ltd. ......................... 67,200 1,033,200
--------------
12,910,854
--------------
MINERAL RESOURCES -- 0.1%
Burlington Resources, Inc. ........ 75,817 2,900,000
Homestake Mining Co. .............. 93,700 644,188
Phelps Dodge Corp. ................ 27,528 1,023,698
--------------
4,567,886
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 1.6%
AES Corp.(a)....................... 150,400 6,862,000
BB&T Corp. ........................ 114,300 2,728,912
Crane Co. ......................... 25,625 623,008
Danaher Corp. ..................... 51,400 2,541,087
Ecolab, Inc. ...................... 48,000 1,875,000
Fortune Brands, Inc. .............. 56,500 1,303,031
Honeywell Inc. .................... 293,250 9,878,859
Illinois Tool Works, Inc. ......... 106,900 6,093,300
ITT Industries, Inc. .............. 37,900 1,151,213
Millipore Corp. ................... 16,200 1,221,075
Pall Corp. ........................ 44,000 814,000
PPG Industries, Inc. .............. 65,800 2,915,762
Sealed Air Corp. .................. 30,810 1,613,674
Textron, Inc. ..................... 55,600 3,019,775
Tyco International Ltd. ........... 625,114 29,614,776
W.W. Grainger, Inc. ............... 33,400 1,029,138
--------------
73,284,610
--------------
MISCELLANEOUS - CONSUMER
GROWTH/STABLE -- 0.9%
American Greetings Corp. (Class "A"
Stock)........................... 24,800 471,200
Black & Decker Corp. .............. 32,900 1,293,381
Corning, Inc. ..................... 99,000 26,717,625
Energizer Holdings Inc. ........... 1 18
Minnesota Mining & Manufacturing
Co. ............................. 144,900 11,954,250
--------------
40,436,474
--------------
OIL & GAS -- 4.4%
Amerada Hess Corp. ................ 34,200 2,111,850
Anadarko Petroleum Corp. .......... 47,600 2,347,275
Ashland Oil, Inc. ................. 23,100 809,944
Chevron Corp. ..................... 241,600 20,490,700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B50
<PAGE> 51
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
OIL & GAS (CONT'D.)
Coastal Corp. ..................... 78,800 $ 4,796,950
Eastern Enterprises, Inc. ......... 9,500 598,500
Exxon Mobil Corp. ................. 1,268,235 99,556,447
Kerr-McGee Corp. .................. 31,926 1,881,639
NICOR, Inc. ....................... 16,200 528,525
Phillips Petroleum Co. ............ 91,700 4,648,044
Royal Dutch Petroleum Co........... 785,300 48,345,031
Sunoco, Inc. ...................... 29,200 859,575
Texaco, Inc. ...................... 204,982 10,915,291
Union Pacific Resources Group,
Inc. ............................ 83,656 1,840,432
Unocal Corp. ...................... 87,100 2,885,188
USX-Marathon Corp. ................ 112,000 2,807,000
--------------
205,422,391
--------------
OIL & GAS EXPLORATION/PRODUCTION
-- 0.1%
Occidental Petroleum Corp. ........ 136,000 2,864,500
--------------
OIL - EXPLORATION/PRODUCTION -- 0.1%
Conoco, Inc. (Class "B" Stock)..... 229,757 5,643,406
--------------
OIL & GAS SERVICES -- 0.9%
Apache Corp. ...................... 42,100 2,476,006
Baker Hughes, Inc. ................ 122,130 3,908,160
Halliburton Co. ................... 164,100 7,743,469
McDermott International, Inc. ..... 20,700 182,419
ONEOK, Inc. ....................... 13,000 337,188
PG&E Corp. ........................ 140,000 3,447,500
Rowan Companies, Inc.(a)........... 28,700 871,762
Schlumberger, Ltd. ................ 204,300 15,245,887
Tosco Corp. ....................... 49,000 1,387,312
Transocean Sedco Forex Inc. ....... 70,333 3,758,420
--------------
39,358,123
--------------
PRECIOUS METALS -- 0.1%
Barrick Gold Corp. ................ 145,300 2,642,644
Freeport-McMoRan Copper & Gold,
Inc. (Class "B" Stock)(a)........ 66,200 612,350
Newmont Mining Corp. .............. 61,503 1,330,002
Placer Dome, Inc. ................. 121,000 1,157,062
--------------
5,742,058
--------------
RAILROADS -- 0.3%
Burlington Northern Sante Fe
Corp. ........................... 167,226 3,835,746
CSX Corp. ......................... 80,612 1,707,967
Kansas City Southern Industries,
Inc. ............................ 40,200 3,565,237
Norfolk Southern Corp. ............ 141,300 2,101,838
Union Pacific Corp. ............... 92,100 3,424,969
--------------
14,635,757
--------------
RESTAURANTS -- 0.4%
Darden Restaurants, Inc. .......... 50,300 817,375
McDonald's Corp. .................. 491,200 16,178,900
Tricon Global Restaurants,
Inc.(a).......................... 56,650 1,600,362
Wendy's International, Inc. ....... 44,800 798,000
--------------
19,394,637
--------------
RETAIL -- 5.3%
Albertson's, Inc. ................. 156,644 5,208,413
AutoZone, Inc.(a).................. 51,900 1,141,800
Bed Bath & Beyond, Inc.(a)......... 49,000 1,776,250
Best Buy Co., Inc.(a).............. 75,000 4,743,750
Circuit City Stores, Inc. ......... 75,200 2,495,700
Consolidated Stores Corp.(a)....... 40,200 482,400
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
RETAIL (CONT'D.)
Costco Wholesale Corp.(a).......... 164,432 $ 5,426,256
CVS Corp. ......................... 145,800 5,832,000
Dillard's, Inc. ................... 37,750 462,438
Dollar General Corp. .............. 109,803 2,141,158
Federated Department Stores,
Inc.(a).......................... 76,500 2,581,875
Great Atlantic & Pacific Tea Co.,
Inc. ............................ 12,400 206,150
Harcourt General, Inc. ............ 27,006 1,468,451
Home Depot, Inc. .................. 845,919 42,243,080
IKON Office Solutions, Inc. ....... 52,476 203,345
J.C. Penney Co., Inc. ............. 100,500 1,852,969
Kmart Corp.(a)..................... 181,400 1,235,788
Kohl's Corp.(a).................... 121,600 6,764,000
Kroger Co.(a)...................... 308,000 6,795,250
Liz Claiborne, Inc. ............... 23,400 824,850
Longs Drug Stores, Inc. ........... 13,700 297,975
May Department Stores Co. ......... 119,700 2,872,800
Nordstrom, Inc. ................... 52,300 1,261,738
Office Depot, Inc.(a).............. 124,000 775,000
RiteAid Corp. ..................... 94,600 620,813
Safeway,Inc.(a).................... 183,100 8,262,387
Sears, Roebuck & Co. .............. 132,200 4,313,025
Sherwin-Williams Co. .............. 64,700 1,370,831
Staples, Inc.(a)................... 171,200 2,632,200
Starbucks Corp. ................... 44,000 1,680,250
Supervalu, Inc. ................... 46,800 892,125
Target Corp. ...................... 161,184 9,348,672
The Gap, Inc. ..................... 316,587 9,893,344
The Limited, Inc. ................. 159,896 3,457,751
Tiffany & Co.(a)................... 11,000 742,500
TJX Companies, Inc. ............... 116,400 2,182,500
Toys 'R' Us, Inc.(a)............... 90,450 1,317,178
Wal-Mart Stores, Inc. ............. 1,632,900 94,095,862
Walgreen Co. ...................... 373,000 12,005,937
Winn-Dixie Stores, Inc. ........... 54,900 785,756
--------------
252,694,567
--------------
RUBBER -- 0.1%
B.F. Goodrich Co. ................. 38,600 1,314,813
Cooper Tire & Rubber Co. .......... 28,800 320,400
Goodyear Tire & Rubber Co. ........ 58,000 1,160,000
--------------
2,795,213
--------------
TELECOMMUNICATIONS -- 11.0%
ADC Telecommunications, Inc.(a).... 113,400 9,511,425
Alltel Corp. ...................... 114,000 7,060,875
Andrew Corp.(a).................... 29,112 977,072
AT&T Corp. ........................ 1,175,321 37,169,527
Bell Atlantic Corp. ............... 569,690 28,947,373
BellSouth Corp. ................... 691,000 29,453,875
CenturyTel, Inc. .................. 51,200 1,472,000
Global Crossing Ltd.(a)............ 289,105 7,607,075
GTE Corp. ......................... 354,220 22,050,195
Lucent Technologies, Inc. ......... 1,175,905 69,672,371
Motorola, Inc. .................... 786,795 22,866,230
Nextel Communications, Inc. (Class
"A" Stock) ...................... 270,000 16,520,625
Nortel Networks Corp. ............. 1,066,480 72,787,260
Qualcomm, Inc.(a).................. 270,100 16,206,000
SBC Communications, Inc. .......... 1,247,277 53,944,730
Scientific-Atlanta, Inc. .......... 60,600 4,514,700
Sprint Corp. ...................... 322,900 16,467,900
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B51
<PAGE> 52
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
TELECOMMUNICATIONS (CONT'D.)
Sprint Corp. (PCS Group)(a)........ 319,000 $ 18,980,500
Tellabs, Inc.(a)................... 149,400 10,224,562
US West, Inc. ..................... 186,922 16,028,561
Worldcom Inc. ..................... 1,046,958 48,029,198
--------------
510,492,054
--------------
TEXTILES
National Service Industries,
Inc. ............................ 14,700 286,650
Russell Corp. ..................... 6,700 134,000
Springs Industries, Inc. .......... 8,700 278,400
VF Corp. .......................... 42,836 1,020,032
--------------
1,719,082
--------------
TOBACCO
UST, Inc. ......................... 59,100 868,031
--------------
TOY MANUFACTURER -- 0.1%
Hasbro, Inc. ...................... 64,150 966,259
Mattel, Inc. ...................... 152,381 2,009,525
--------------
2,975,784
--------------
TRUCKING & SHIPPING -- 0.1%
Federal Express Corp. ............. 106,640 4,052,320
Ryder System, Inc. ................ 20,600 390,113
--------------
4,442,433
--------------
UTILITIES - ELECTRIC & GAS
Florida Progress Corp. ............ 36,000 1,687,500
--------------
UTILITIES - ELECTRIC -- 1.3%
Ameren Corp. ...................... 53,900 1,819,125
American Electric Power Co.,
Inc. ............................ 118,940 3,523,597
CMS Energy Corp. .................. 43,100 953,588
Consolidated Edison, Inc. ......... 80,400 2,381,850
Constellation Energy Group......... 53,550 1,743,722
Dominion Resources, Inc. .......... 90,742 3,890,563
DTE Energy Co. .................... 53,600 1,638,150
Duke Energy Corp. ................. 136,531 7,696,935
Edison International............... 129,800 2,660,900
El Paso Energy Corp. .............. 80,900 4,120,844
Entergy Corp. ..................... 90,300 2,455,031
FirstEnergy Corp.(a)............... 87,200 2,038,300
FPL Group, Inc. ................... 68,100 3,370,950
GPU, Inc. ......................... 46,200 1,250,288
New Century Energies, Inc. ........ 40,900 1,227,000
Niagara Mohawk Holdings, Inc.(a)... 64,600 900,363
Northern States Power Co. ......... 53,900 1,088,106
PECO Energy Co. ................... 67,500 2,721,094
Public Service Enterprise Group,
Inc. ............................ 80,400 2,783,850
Reliant Energy, Inc. .............. 107,410 3,175,308
Southern Co. ...................... 239,400 5,581,012
Unicom Corp. ...................... 71,000 2,746,813
--------------
59,767,389
--------------
WASTE MANAGEMENT -- 0.1%
Allied Waste Industries, Inc.(a)... 68,000 680,000
Waste Management, Inc.(a).......... 230,230 4,374,370
--------------
5,054,370
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $2,357,867,825).......................... 4,568,423,395
--------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM (000) (NOTE 2)
INVESTMENTS -- 1.4% ---------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 1.3%
Joint Repurchase Agreement Account,
6.49%, 07/03/00 (Note 5)......... $ 59,383 $ 59,383,000
--------------
U.S. GOVERNMENT OBLIGATIONS -- 0.1%
United States Treasury Bill,
5.64%, 09/21/00(b)............... 4,500 4,442,190
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $63,825,190)............................. 63,825,190
--------------
TOTAL INVESTMENTS -- 100.1%
(cost $2,421,693,015; Note 6).................. 4,632,248,585
VARIATION MARGIN ON OPEN FUTURES CONTRACTS(C)....
417,311
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (0.1)%......................... (3,738,810)
--------------
NET ASSETS -- 100.0%............................. $4,628,927,086
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
<TABLE>
<S> <C>
ADR American Depository Receipt.
NV Naamloze Vennootschap (Dutch Corporation).
PLC Public Limited Company (British Corporation).
SA Sociedad Anomia (Spanish Corporation) or Societe
Anonyme (French Corporation).
</TABLE>
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
(c) Open futures contracts as of June 30, 2000, are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1999 DEPRECIATION
<C> <S> <C> <C> <C> <C>
187 S&P 500 Index Sept.00 $60,954,057 $59,825,075 $(1.128,982)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B52
<PAGE> 53
EQUITY INCOME PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 97.6% VALUE
SHARES (NOTE 2)
COMMON STOCKS -- 95.8% --------- --------------
<S> <C> <C>
AIRLINES -- 1.4%
AMR Corp.(a) ........................ 912,100 $ 24,113,644
--------------
APPAREL -- 0.9%
Kellwood Co. ........................ 731,300 15,448,713
--------------
AUTOMOBILES & TRUCKS -- 2.5%
Borg-Warner Automotive, Inc. ........ 116,700 4,099,087
Dana Corp. .......................... 244,300 5,176,106
Ford Motor Co. ...................... 333,100 14,323,300
General Motors Corp. ................ 295,667 18,270,175
Visteon Corp. ....................... 43,614 528,817
--------------
42,397,485
--------------
BANKING -- 5.7%
BankAmerica Corp. ................... 553,500 23,800,500
Bank One Corp. ...................... 443,500 11,780,469
Chase Manhattan Corp. ............... 584,000 26,900,500
Comerica, Inc. ...................... 425,200 19,080,850
PNC Bank Corp. ...................... 356,000 16,687,500
--------------
98,249,819
--------------
CHEMICALS -- 2.7%
Dow Chemical Co. .................... 658,500 19,878,469
Lyondell Chemical Co. ............... 707,100 11,843,925
Millennium Chemicals, Inc. .......... 833,798 14,174,566
--------------
45,896,960
--------------
COMPUTERS -- 2.4%
Compaq Computer Corp. ............... 343,900 8,790,944
International Business Machines
Corp. ............................. 298,400 32,693,450
--------------
41,484,394
--------------
COMPUTER SOFTWARE & SERVICES -- 1.5%
Computer Associates International,
Inc. .............................. 502,900 25,742,194
--------------
CONSTRUCTION -- 0.8%
Centex Corp. ........................ 627,200(b) 14,739,200
--------------
CONTAINERS -- 0.5%
Crown Cork & Seal Co., Inc. ......... 529,700 7,945,500
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 4.1%
Eastman Kodak Co. ................... 762,200 45,350,900
Philip Morris Co., Inc. ............. 926,400 24,607,500
--------------
69,958,400
--------------
DRUGS & MEDICAL SUPPLIES -- 0.6%
Merck & Co., Inc. ................... 129,400 9,915,275
--------------
ELECTRONICS -- 0.1%
Esterline Technologies Corp.(a) ..... 129,900 1,932,263
--------------
FINANCIAL SERVICES -- 16.6%
A.G. Edwards, Inc. .................. 768,000 29,952,000
Associates First Capital Corp. ...... 918,900 20,502,956
Bear, Stearns & Co., Inc. ........... 1,034,434 43,058,315
Countrywide Mortgage Investments,
Inc. .............................. 539,900 16,365,719
Lehman Brothers Holdings, Inc. ...... 1,038,200 98,174,787
PaineWebber Group, Inc. ............. 1,220,800 55,546,400
Washington Mutual, Inc. ............. 766,400 22,129,800
--------------
285,729,977
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- --------------
<S> <C> <C>
FOOD & BEVERAGE -- 2.8%
Nabisco Group Holdings Corp. ........ 1,853,380 $ 48,072,044
--------------
FOREST PRODUCTS -- 4.0%
Georgia-Pacific Corp. ............... 972,200(b) 25,520,250
Longview Fibre Co. .................. 1,333,500 14,751,844
Louisiana-Pacific Corp. ............. 1,299,900 14,136,413
Rayonier, Inc. ...................... 401,000 14,385,875
--------------
68,794,382
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 5.4%
Columbia/HCA Healthcare Corp. ....... 1,287,000 39,092,625
Humana, Inc.(a)...................... 3,064,600 14,939,925
Tenet Healthcare Corp. (a)........... 1,461,300 39,455,100
--------------
93,487,650
--------------
HOUSING RELATED -- 4.6%
Hanson, PLC, ADR (United Kingdom).... 1,265,050 44,593,012
Kaufman & Broad Home Corp. .......... 940,000(b) 18,623,750
Ryland Group, Inc. .................. 693,100 15,334,838
--------------
78,551,600
--------------
INSURANCE -- 3.2%
Aetna, Inc. ......................... 324,200 20,809,587
Allstate Corp. ...................... 604,900 13,459,025
SAFECO Corp. ........................ 704,500 14,001,938
Selective Insurance Group, Inc. ..... 401,900 7,636,100
--------------
55,906,650
--------------
MACHINERY -- 1.7%
Cascade Corp. ....................... 115,900 1,383,556
Ingersoll-Rand Co. .................. 200,000 8,050,000
Snap-On, Inc. ....................... 722,800 19,244,550
--------------
28,678,106
--------------
MEDIA -- 1.1%
Donnelley (R.R.) & Sons Co. ......... 860,800 19,421,800
--------------
METALS - FERROUS -- 2.5%
AK Steel Holding Corp. .............. 789,200 6,313,600
USX -- U.S. Steel Group.............. 1,975,400 36,668,362
--------------
42,981,962
--------------
METALS - NON FERROUS -- 3.2%
ALCOA, Inc. ......................... 1,905,206 55,250,974
--------------
OIL & GAS -- 5.1%
Anadarko Petroleum Corp. ............ 245,100(b) 12,086,494
ENSCO International, Inc............. 188,600 6,754,237
Noble Affiliates, Inc. .............. 824,000 30,694,000
Pioneer Natural Resources Co. ....... 2,582,617 32,928,367
USX-Marathon Corp. .................. 233,100 5,842,069
--------------
88,305,167
--------------
OIL & GAS SERVICES -- 1.5%
McDermott International, Inc. ....... 2,938,100 25,892,006
--------------
PRECIOUS METALS -- 1.1%
Stillwater Mining Co. (a)............ 712,500 19,860,937
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B53
<PAGE> 54
EQUITY INCOME PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- --------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUST -- 7.9%
Crescent Real Estate Equities Co. ... 1,738,000 $ 35,629,000
Equity Office Properties Trust....... 550,178 15,164,281
Equity Residential Properties
Trust.............................. 987,800 45,438,800
Manufactured Home Communities,
Inc. .............................. 220,200 5,271,038
Vornado Realty Trust................. 1,002,500 34,836,875
--------------
136,339,994
--------------
RETAIL -- 1.2%
CVS Corp. ........................... 110,900 4,436,000
Heilig-Meyers Co. ................... 550,100 653,244
The Limited, Inc. ................... 726,432 15,709,092
--------------
20,798,336
--------------
TELECOMMUNICATIONS -- 5.9%
AT&T Corp. .......................... 635,900(b) 20,110,337
CenturyTel, Inc. .................... 81,800 2,374,016
GTE Corp. ........................... 639,500 39,808,875
Motorola, Inc. ...................... 267,600 7,777,125
SBC Communications, Inc. ............ 203,400 8,797,050
Sprint Corp. ........................ 446,100 22,751,100
--------------
101,618,503
--------------
TOBACCO -- 1.4%
R.J. Reynolds Tobacco Holdings,
Inc. .............................. 851,560 23,790,457
--------------
TRANSPORTATION -- 1.3%
Sabre Group Holdings, Inc. (Class "A"
Stock)............................. 770,967 21,972,559
--------------
UTILITIES -- 2.1%
Nisource Incorporated................ 925,800 17,243,025
PECO Energy Co. ..................... 450,200 18,148,687
--------------
35,391,712
--------------
TOTAL COMMON STOCKS
(cost $1,610,355,556)........................... 1,648,668,663
--------------
<CAPTION>
PREFERRED
STOCKS -- 1.4%
<S> <C> <C>
METALS - NON FERROUS -- 0.3%
Bethlehem Steel Corp., (Cum. Conv.),
$3.50.............................. 256,500 4,488,750
Hecla Mining Co. (Cum. Conv.),
7.00%, Ser. B...................... 60,600 1,166,550
--------------
5,655,300
--------------
RETAIL -- 1.1%
Kmart Corp. (Cum. Conv.), 7.75%...... 523,700 19,082,319
--------------
REAL ESTATE DEVELOPMENT
Union Pacific Capital Trust, 6.25%... 4,900 194,775
--------------
TOTAL PREFERRED STOCKS
(cost $46,106,438).............................. 24,932,394
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
CONVERTIBLE RATING (000) (NOTE 2)
BONDS -- 0.4% ------- --------- --------------
<S> <C> <C> <C>
OIL & GAS SERVICES -- 0.3%
Baker Hughes, Inc.,
Zero Coupon 05/05/08..... A3 $ 5,900 $ 4,527,188
--------------
REAL ESTATE INVESTMENT
TRUST -- 0.1%
Malan Realty Investors,
Inc., 9.50%, 07/15/04.... A2 2,930 2,658,975
--------------
TOTAL CONVERTIBLE BONDS
(cost $7,186,099)............................... 7,186,163
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,663,648,093)........................... 1,680,787,220
--------------
SHORT-TERM INVESTMENTS -- 4.3%
COMMERCIAL PAPER -- 1.4%
Keyspan Corp., 7.00%
07/28/00................. P2 3,240(c) 3,224,250
Phillips Pete Co., 7.30%
07/03/00................. P2 16,000(c) 16,000,000
TRW, Inc., 6.90% 08/15/00.. P2 5,000(c) 4,958,792
--------------
24,183,042
--------------
TIME DEPOSIT -- 1.7%
Deutsche Bank AG, 7.125%
07/03/00................. P1 3,611(c) 3,611,000
Dexia Bank, 7.062%
07/03/00................. P1 26,000(c) 26,000,000
--------------
29,611,000
--------------
REPURCHASE AGREEMENT -- 1.2%
Joint Repurchase
Agreement Account,
6.49%, 07/03/00
(cost $21,298,000; Note
5)....................... 21,298 21,298,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $75,092,042).............................. 75,092,042
--------------
TOTAL INVESTMENTS -- 101.9%
(cost $1,738,797,093; Note 6)....... 1,755,879,262
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (1.9)%.................... (33,724,021)
--------------
NET ASSETS -- 100.0%.................. $1,722,155,241
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt.
PLC Public Limited Company (British Corporation).
SA Sociedad Anomia (Spanish Corporation) or Societe Anonyme (French
Corporation).
(a) Non-income producing security.
(b) Portion of securities on loan with an aggregate market value of $50,735,826;
cash collateral of $53,524,300 was received with which the portfolio
purchased securities.
(c) Represents security purchased with cash collateral received for securities
on loan.
SEE NOTES TO FINANCIAL STATEMENTS.
B54
<PAGE> 55
EQUITY PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 84.1% VALUE
SHARES (NOTE 2)
COMMON STOCKS ---------- --------------
<S> <C> <C>
AUTOMOBILES & TRUCKS -- 1.1%
Delphi Automotive Systems Corp. ... 440,325 $ 6,412,233
General Motors Corp. .............. 473,826 27,511,522
Navistar International Corp. (a)... 395,200 12,275,900
PACCAR Inc. ....................... 279,400 11,088,687
--------------
57,288,342
--------------
CHEMICALS -- 1.4%
Eastman Chemical Co. .............. 941,550 44,959,012
Potash Corp. of Saskatchewan, Inc.
(Canada)......................... 380,000 20,971,250
Wellman, Inc. ..................... 798,200 12,920,863
--------------
78,851,125
--------------
CONSTRUCTION & HOUSING -- 0.5%
Centex Corp. ...................... 1,200,000 28,200,000
--------------
CONSUMER SERVICES -- 3.7%
CKE Restaurants, Inc. ............. 1,933,700 5,801,100
Darden Restaurants, Inc. .......... 7,922,700 128,743,875
Hilton Hotels Corp. ............... 3,470,600 32,536,875
Waste Management, Inc. ............ 1,882,292 35,763,548
--------------
202,845,398
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 8.2%
Eastman Kodak Co. ................. 3,368,600 200,431,700
Nabisco Group Holdings Corp. ...... 3,710,000 96,228,125
Philip Morris Co., Inc. ........... 2,025,000 53,789,063
R.J. Reynolds Tobacco Holdings,
Inc. ............................ 1,236,666 34,549,356
Sara Lee Corp. .................... 2,497,500 48,232,969
Service Corp. International (a).... 3,712,100 11,832,319
--------------
445,063,532
--------------
DIVERSIFIED MANUFACTURING -- 0.8%
American Standard Co., Inc.(a)..... 1,050,000 43,050,000
--------------
FINANCIAL SERVICES -- 13.8%
American Financial Group, Inc. .... 552,700 13,713,869
American General Corp. ............ 879,704 53,661,944
AXA Financial, Inc. ............... 2,373,800 79,009,200
Bank of America Corp. ............. 1,789,856 76,963,808
Bank of New York Co., Inc. ........ 1,265,600 58,850,400
Chubb Corp. ....................... 2,206,400 135,693,600
John Hancock Financial Services,
Inc.(a).......................... 1,748,100 41,408,119
Loews Corp. ....................... 1,775,000 106,500,000
Mellon Financial Corp. ............ 540,200 19,683,537
Mercantile Bankshares Corp. ....... 419,400 12,503,363
Old Republic International
Corp. ........................... 3,198,327 52,772,395
SAFECO Corp. ...................... 2,855,800 56,759,025
St. Paul Companies, Inc. .......... 1,320,100 45,048,412
--------------
752,567,672
--------------
HEALTHCARE SERVICE -- 16.4%
Foundation Health Systems,
Inc.(a).......................... 4,724,610 61,419,930
HCA - The Healthcare Company....... 5,790,100 175,874,287
HEALTHSOUTH Corp.(a)............... 5,787,800 41,599,813
PacifiCare Health Systems,
Inc.(a).......................... 1,143,900 68,848,481
Tenet Healthcare Corp.(a).......... 7,321,732 197,686,764
UnitedHealth Group, Inc. .......... 1,914,900 164,202,675
Wellpoint Health Networks,
Inc.(a).......................... 2,570,900 186,229,569
--------------
895,861,519
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
HEALTHCARE SERVICE (CONT'D.)
INDUSTRIAL TECHNOLOGY -- 0.1%
Gerber Scientific, Inc............. 419,800 $ 4,827,700
--------------
METAL & MINERALS -- 4.9%
Alcoa, Inc. ....................... 3,764,000 109,156,000
Birmingham Steel Corp. (a)......... 1,492,400 5,783,050
Freeport-McMoRan Copper & Gold,
Inc. (Class "A" Stock)(a)........ 3,853,300 35,161,362
Freeport-McMoRan Copper & Gold,
Inc. (Class "B" Stock)(a)........ 319,600 2,956,300
Newmont Mining Corp. .............. 3,057,000 66,107,625
Phelps Dodge Corp. ................ 1,263,900 47,001,281
--------------
266,165,618
--------------
OIL & GAS -- 6.2%
Amerada Hess Corp. ................ 325,000 20,068,750
BP Amoco PLC, ADR (United
Kingdom)......................... 1,804,000 102,038,750
Kerr-McGee Corp. .................. 590,400 34,796,700
Occidental Petroleum Corp. ........ 1,100,000 23,168,750
Total Fina Elf SA, ADR (France).... 2,075,275 159,407,061
--------------
339,480,011
--------------
PAPER & FOREST PRODUCTS -- 9.2%
Fort James Corp. .................. 664,000 15,355,000
Georgia-Pacific Corp. (Timber
Group)........................... 1,158,000 25,041,750
Georgia-Pacific Group.............. 3,875,800 101,739,750
International Paper Co. ........... 2,261,200 67,412,025
Mead Corp. ........................ 2,690,300 67,930,075
Rayonier, Inc. .................... 830,400 29,790,600
Temple-Inland, Inc. ............... 1,516,600 63,697,200
Weyerhaeuser Co. .................. 1,522,500 65,467,500
Willamette Industries, Inc. ....... 2,500,000 68,125,000
--------------
504,558,900
--------------
RETAIL -- 5.9%
Consolidated Stores Corp.(a)....... 2,023,800 24,285,600
Dillard's, Inc. ................... 3,649,000 44,700,250
IKON Office Solutions, Inc. ....... 5,193,000 20,122,875
J.C. Penney Co., Inc. ............. 1,098,800 20,259,125
Jones Apparel Group, Inc.(a)....... 716,973 16,848,866
Kmart Corp.(a)..................... 6,500,000 44,281,250
Pep Boys - Manny, Moe & Jack....... 1,594,900 9,569,400
RadioShack Corp. .................. 2,166,900 102,656,887
Sears, Roebuck & Co. .............. 138,900 4,531,613
Toys 'R' Us, Inc.(a)............... 2,350,000 34,221,875
--------------
321,477,741
--------------
TECHNOLOGY -- 5.1%
Arrow Electronics, Inc.(a)......... 2,145,500 66,510,500
Avnet, Inc......................... 887,600 52,590,300
Compaq Computer Corp............... 4,533,150 115,878,647
Computer Associates International,
Inc.............................. 791,300 40,504,669
Lanier Worldwide, Inc.(a).......... 2,884,000 2,884,000
--------------
278,368,116
--------------
TELECOMMUNICATIONS -- 4.4%
ALLTEL Corp. (a)................... 1,129,588 69,963,857
AT&T Corp. ........................ 1,448,700 45,815,137
General Motors Corp. (Class "H"
Stock)(a)........................ 166,325 14,595,019
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B55
<PAGE> 56
EQUITY PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
TELECOMMUNICATIONS (CONT'D.)
Harris Corp. ...................... 2,884,000 $ 94,451,000
Loral Space & Communications, Ltd.
(a).............................. 2,600,000 18,037,500
--------------
242,862,513
--------------
UTILITY -- ELECTRIC -- 2.4%
American Electric Power Co,
Inc. ............................ 180,000 5,332,500
GPU, Inc. ......................... 500,000 13,531,250
KeySpan Corp....................... 1,356,432 41,710,284
Reliant Energy, Inc. .............. 974,519 28,809,218
Unicom Corp. ...................... 1,112,900 43,055,319
--------------
132,438,571
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,101,340,677).......................... 4,593,906,758
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM MOODY'S AMOUNT
INVESTMENTS -- RATING (000)
15.8% ------- ----------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 14.6%
American Express Co.,
6.63%, 07/11/00........ P1 $ 5,350 5,340,147
Bank of Montreal,
6.58%, 07/17/00........ P2 26,537 26,537,000
Barton Capital Corp.,
6.58%, 07/25/00........ P1 25,194 25,083,482
6.60%, 08/07/00........ P1 28,308 28,115,978
BCI Funding Corp.,
6.58%, 07/11/00........ P1 14,963 14,935,651
Black Forest Corp.,
6.57%, 07/05/00........ P1 20,800 20,784,816
6.56%, 07/10/00........ P1 35,000 34,942,600
Blue Ridge Asset,
6.58%, 07/19/00........ P1 25,000 24,917,750
Canadian Imperial Bank of
Commerce,
6.58%, 07/12/00........ P2 56,000 56,000,000
Centric Capital Corp.,
6.65%, 08/08/00........ P1 4,800 4,766,307
Citicorp,
6.62%, 08/14/00........ P1 27,000 26,781,540
Dexia Bank,
7.13%, 07/03/00........ P2 30,000 30,000,000
Edison Asset
Securitization LLC,
6.65%, 08/10/00........ P1 50,000 49,630,555
Enterprise Funding Corp.,
6.60%, 07/19/00........ P1 31,000 30,897,700
6.55%, 07/28/00........ P1 25,000 24,877,187
Falcon Asset
Securitization Corp.,
6.55%, 07/25/00........ P1 57,000 56,751,100
General Motors Acceptance
Corp.,
6.63%, 07/12/00........ P1 4,500 4,490,884
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM MOODY'S AMOUNT VALUE
INVESTMENTS RATING (000) (NOTE 2)
(CONTINUED) ------- ---------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONT'D.)
GTE Corp.,
6.62%, 07/26/00........ P1 $ 5,600 $ 5,574,255
Hartford Financial
Services,
6.60%, 08/18/00........ P1 55,000 54,516,000
Kimberly Clark Corp.,
6.54%, 07/28/00........ P1 13,000 12,936,235
Morgan Stanley Dean
Witter & Co.,
6.58%, 07/27/00........ P1 20,000 19,904,956
Old Line Funding Corp.,
6.57%, 07/17/00........ P1 50,000 49,854,000
Salomon Smith Barney
Holdings, Inc.,
6.54%, 07/28/00........ P1 28,000 27,862,660
Sony Capital Corp.,
6.60%, 07/07/00........ P1 50,000 49,945,000
Target Corp.,
6.64%, 08/07/00........ P1 20,000 19,863,511
Thunder Bay Funding,
Inc.,
6.58%, 07/17/00........ P1 7,000 6,979,529
6.56%, 07/18/00........ P1 32,981 32,878,832
6.56%, 07/20/00........ P1 16,300 16,243,566
TransAmerica Financial
Corp.,
6.60%, 07/17/00........ P1 15,000 14,956,000
Windmill Funding Corp.,
6.60%, 07/26/00........ P1 20,000 19,908,333
--------------
796,275,574
--------------
<CAPTION>
PRINCIPAL
SHORT-TERM AMOUNT VALUE
INVESTMENTS (000) (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 1.2%
Joint Repurchase Agreement Account
6.49%, 07/03/00 (Note 5)........ 67,436 67,436,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $863,711,574)............................ 863,711,574
--------------
TOTAL INVESTMENTS -- 99.9%
(cost $4,965,052,251; Note 6).................. 5,457,618,332
ASSETS IN EXCESS OF OTHER
LIABILITIES -- 0.1%............................ 6,425,993
--------------
NET ASSETS -- 100.0%............................. $5,464,044,325
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt.
PLC Public Limited Company (British Corporation).
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation).
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
B56
<PAGE> 57
JENNISON PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 95.9% VALUE
SHARES (NOTE 2)
COMMON STOCKS ---------- --------------
<S> <C> <C>
ADVERTISING -- 1.1%
Omnicom Group Inc. ................ 420,200 $ 37,424,063
--------------
COMPUTERS -- 8.9%
Compaq Computer Corp. ............. 1,348,100 34,460,806
Dell Computer Corp.(a)............. 775,300 38,231,981
EMC Corp.(a)....................... 968,000 74,475,500
Hewlett-Packard Co. ............... 965,500 120,566,812
Sun Microsystems, Inc.(a).......... 471,800 42,904,313
--------------
310,639,412
--------------
COMPUTER SOFTWARE & SERVICES -- 7.2%
ASM Lithography Holding N.V.(a).... 555,100 24,493,787
Cisco Systems, Inc.(a)............. 1,854,000 117,844,875
Juniper Networks, Inc.(a).......... 142,200 20,698,988
Microsoft Corp.(a)................. 758,600 60,688,000
VERITAS Software Corp.(a).......... 229,050 25,886,229
--------------
249,611,879
--------------
COSMETICS & SOAPS -- 0.6%
Estee Lauder Companies (Class
"A")............................. 414,500 20,491,844
--------------
DIVERSIFIED OPERATIONS -- 3.2%
Corning, Inc. ..................... 154,200 41,614,725
General Electric Co. .............. 1,330,000 70,490,000
--------------
112,104,725
--------------
DRUGS & MEDICAL SUPPLIES -- 12.8%
American Home Products Corp. ...... 1,061,300 62,351,375
Amgen, Inc.(a)..................... 744,300 52,287,075
Genetech, Inc.(a).................. 232,800 40,041,600
Lilly (Eli) & Co. ................. 270,200 26,986,225
Merck & Co., Inc. ................. 714,200 54,725,575
Pfizer, Inc. ...................... 2,819,300 135,326,400
Pharmacia Corp. ................... 1,373,994 71,018,315
--------------
442,736,565
--------------
ELECTRONICS -- 8.5%
Applied Materials, Inc.(a)......... 532,600 48,266,875
Applied Micro Circuits Corp.(a).... 232,800 22,989,000
Broadcom Corp.(a).................. 90,200 19,748,162
Intel Corp. ....................... 954,800 127,644,825
Texas Instruments, Inc. ........... 1,122,100 77,074,244
--------------
295,723,106
--------------
FINANCIAL SERVICES -- 10.0%
American Express Co. .............. 1,278,600 66,647,025
Citigroup, Inc. ................... 1,927,200 116,113,800
Merrill Lynch & Co., Inc. ......... 638,600 73,439,000
Morgan Stanley Dean Witter &
Co. ............................. 1,111,340 92,519,055
--------------
348,718,880
--------------
INSURANCE -- 2.2%
American International Group,
Inc. ............................ 636,425 74,779,937
--------------
INTERNET SOFTWARE -- 1.7%
America Online, Inc.(a)............ 706,600 37,273,150
Verisign, Inc. .................... 128,000 22,592,000
--------------
59,865,150
--------------
MEDIA -- 8.2%
AT&T Corp. -- Liberty Media Group
(Class "A" Stock)................ 2,239,000 54,295,750
Clear Channel Communications,
Inc.(a).......................... 779,100 58,432,500
Time Warner, Inc. ................. 476,900 36,244,400
Univision Communications Inc(a).... 338,300 35,014,050
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
MEDIA (CONT'D.)
Viacom, Inc.(a).................... 1,477,119 $ 100,721,052
--------------
284,707,752
--------------
OIL & GAS SERVICES -- 1.0%
Schlumberger, Ltd. ................ 479,600 35,790,150
--------------
RETAIL -- 9.7%
Costco Wholesale Corp.(a).......... 137,500 4,537,500
Gap, Inc. (The).................... 1,228,850 38,401,562
Home Depot, Inc. .................. 2,269,700 113,343,144
Kohl's Corp.(a).................... 1,277,200 71,044,250
Tiffany & Co. ..................... 525,900 35,498,250
Wal-Mart Stores, Inc. ............. 1,273,400 73,379,675
--------------
336,204,381
--------------
TELECOMMUNICATIONS -- 20.8%
Allegiance Telecom, Inc.(a)........ 475,150 30,409,600
Ericsson (L.M.) Telephone Co., Inc.
(ADR) (Sweden)................... 2,318,900 46,378,000
General Motors Corp (Class "H"
Stock)........................... 508,300 44,603,325
Global Crossing Ltd.(a)............ 1,580,000 41,573,750
JDS Uniphase Corp.(a).............. 307,800 36,897,525
Level 3 Communications, Inc.(a).... 173,300 15,250,400
Metromedia Fiber Network, Inc. .... 709,200 28,146,375
Motorola, Inc. .................... 1,026,100 29,821,031
Nextel Communications, Inc. ....... 502,400 30,740,600
Nextlink Communications(a)......... 501,600 19,029,450
Nokia Corp. (ADR) (Finland)(a)..... 2,331,500 116,429,281
Nortel Networks Corp............... 576,100 39,318,825
NTL, Inc.(a)(b).................... 740,850 44,358,394
Qwest Communications International,
Inc.(a)(b)....................... 1,896,100 94,212,469
Vodafone AirTouch Group PLC, ADR
(United Kingdom)................. 2,574,581 106,684,217
--------------
723,853,242
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $2,573,842,030).......................... 3,332,651,086
--------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM (000) (NOTE 2)
INVESTMENTS -- 4.2% ---------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT
Joint Repurchase Agreement
Account 6.49%, 07/03/00
(cost $145,588,000; Note 5)...... $ 145,588 $ 145,588,000
--------------
TOTAL INVESTMENTS -- 100.1%
(cost $2,719,430,030; Note 6).................. 3,478,239,086
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.1%)............................... (5,109,135)
--------------
NET ASSETS -- 100.0%............................. $3,473,129,951
==============
</TABLE>
<TABLE>
<S> <C>
The following abbreviations are used in portfolio
descriptions:
ADR American Depository Receipt
PLC Public Limited Company (British Corporation)
NV Naamloze Vennootschap (Dutch Corporation)
</TABLE>
(a) Non-income producing security.
(b) Portion of the security on loans: As of June 30, 2000, the Fund had
securities on loan with an aggregate market value of $113,899,238. As of this
date, the collateral held for securities on loan was comprised of U.S.
government securities with an aggregate market value of $119,174,485.
SEE NOTES TO FINANCIAL STATEMENTS.
B57
<PAGE> 58
20/20 FOCUS PORTFOLIO
JUNE 30, 2000
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 90.2% VALUE
SHARES (NOTE 2)
COMMON STOCKS --------- -----------
<S> <C> <C>
CHEMICALS -- 1.9%
Eastman Chemical Co. .................. 37,400 $ 1,785,850
-----------
COMPUTER SERVICES -- 15.0%
America Online, Inc.(a)................ 40,300 2,125,825
Cisco Systems, Inc.(a)................. 47,300 3,006,506
Compaq Computer Corp. ................. 92,100 2,354,306
EMC Corp.(a)........................... 40,500 3,115,969
Hewlett-Packard Co. ................... 30,000 3,746,250
-----------
14,348,856
-----------
DIVERSIFIED CONSUMER PRODUCTS -- 6.6%
Eastman Kodak Co. ..................... 54,400 3,236,800
Philip Morris Co., Inc. ............... 116,600 3,097,187
-----------
6,333,987
-----------
DRUGS & MEDICAL SUPPLIES -- 5.1%
American Home Products Corp. .......... 27,900 1,639,125
Pfizer, Inc. .......................... 68,200 3,273,600
-----------
4,912,725
-----------
ELECTRONICS -- 5.4%
Harris Corp. .......................... 88,700 2,904,925
Texas Instruments, Inc. ............... 32,300 2,218,606
-----------
5,123,531
-----------
FINANCIAL SERVICES -- 6.7%
Citigroup, Inc. ....................... 55,800 3,361,950
Merrill Lynch & Co., Inc. ............. 26,300 3,024,500
-----------
6,386,450
-----------
FOREST PRODUCTS -- 4.7%
Mead Corp. ............................ 89,500 2,259,875
Temple-Inland, Inc. ................... 53,300 2,238,600
-----------
4,498,475
-----------
HOSPITALS/HEALTHCARE -- 10.8%
HCA-The Healthcare Co. ................ 130,100 3,951,788
Tenet Healthcare Corp.(a).............. 149,900 4,047,300
Wellpoint Health Networks, Inc.(a)..... 31,900 2,310,756
-----------
10,309,844
-----------
INSURANCE -- 3.9%
Loews Corp. ........................... 49,800 2,988,000
SAFECO Corp. .......................... 36,300 721,463
-----------
3,709,463
-----------
LEISURE -- 3.0%
Hilton Hotels Corp. ................... 308,000 2,887,500
-----------
MEDIA -- 4.6%
AT&T Corp. Liberty Media(a)............ 105,700 2,563,225
Univision Communications, Inc.(a)...... 18,200 1,883,700
-----------
4,446,925
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- -----------
<S> <C> <C>
OFFICE EQUIPMENT & SUPPLIES -- 0.1%
Lanier Worldwide, Inc.(a) ............. 74,200 $ 74,200
-----------
PRECIOUS METALS -- 1.7%
Freeport-McMoRan Copper & Gold,
Inc.(a).............................. 176,100 1,606,913
-----------
RETAIL -- 6.8%
Dillard's, Inc. ....................... 100,900 1,236,025
Kohl's Corp.(a)........................ 42,800 2,380,750
RadioShack Corporation................. 33,000 1,563,375
Tiffany & Co. ......................... 20,000 1,350,000
-----------
6,530,150
-----------
TELECOMMUNICATIONS -- 13.9%
Ericsson (L.M.) Telephone Co., Inc.
(ADR)................................ 91,100 1,822,000
Global Crossing Ltd.(a)................ 56,500 1,486,656
Loral Space & Communications Ltd.(a)... 175,000 1,214,063
Nokia Corp. (ADR)(a)................... 46,500 2,322,094
NTL Inc.(a)............................ 27,850 1,667,519
Qwest Communications Int'l, Inc.(a).... 43,900 2,181,281
Vodafone Airtouch Group PLC (ADR)
(United Kingdom)(a).................. 62,200 2,577,412
-----------
13,271,025
-----------
TOTAL LONG-TERM INVESTMENTS
(cost $87,015,803)................................ 86,225,894
-----------
<CAPTION>
PRINCIPAL
AMOUNT
SHORT-TERM (000)
INVESTMENT -- 10.1% ---------
<S> <C> <C>
REPURCHASE AGREEMENT
Joint Repurchase Agreement,
6.49%, 07/03/00
(cost $9,604,000; Note 5)............ $ 9,604 9,604,000
-----------
TOTAL INVESTMENTS -- 100.3%
(cost $96,619,803; Note 6)........................ 95,829,894
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.3%).................................. (253,278)
-----------
NET ASSETS -- 100.0%................................ $95,576,616
===========
</TABLE>
The following abbreviations are used in portfolio descriptions:
<TABLE>
<S> <C>
ADR American Depository Receipt.
PLC Public Limited Company (British Corporation).
</TABLE>
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
B58
<PAGE> 59
SMALL CAPITALIZATION STOCK PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM
INVESTMENTS -- 95.3%
VALUE
SHARES (NOTE 2)
COMMON STOCKS --------- ------------
<S> <C> <C>
ADVERTISING -- 1.3%
Cyrk, Inc. ......................... 19,200 $ 96,000
HA-LO Industries, Inc. ............. 59,500 334,687
Penton Media Inc. .................. 38,800 1,358,000
Snyder Communications, Inc.(a)...... 87,500 2,078,125
True North Communications, Inc. .... 59,000 2,596,000
------------
6,462,812
------------
AEROSPACE -- 0.7%
Alliant Techsystems, Inc.(a)........ 11,500 775,531
BE Aerospace, Inc.(a)............... 30,400 209,000
GenCorp Inc. ....................... 51,100 408,800
Kaman Corp. (Class "A" Stock)....... 27,800 297,112
Orbital Sciences Corp.(a)........... 45,700 556,969
Trimble Navigation, Ltd.(a)......... 27,600 1,347,225
------------
3,594,637
------------
AGRICULTURAL PRODUCTS & SERVICES -- 0.3%
Agribrands International, Inc.(a)... 12,500 524,219
Delta & Pine Land Co................ 47,300 1,185,456
------------
1,709,675
------------
AIRLINES -- 0.5%
Atlantic Coast Airlines Holdings,
Inc.(a)........................... 22,700 720,725
Mesa Air Group, Inc.(a)............. 41,800 231,206
Midwest Express Holdings, Inc.(a)... 17,300 371,950
SkyWest, Inc. ...................... 30,100 1,115,581
------------
2,439,462
------------
APPAREL -- 0.4%
K-Swiss, Inc. (Class "A" Stock)..... 13,100 208,781
Pacific Sunwear of California,
Inc.(a)........................... 38,300 718,125
Phillips-Van Heusen Corp. .......... 33,300 316,350
Wolverine World Wide, Inc. ......... 50,412 497,819
------------
1,741,075
------------
APPLIANCES & HOME FURNISHINGS -- 0.2%
Applica, Inc........................ 27,600 312,225
Salton, Inc. ....................... 13,800(c) 508,875
------------
821,100
------------
AUTOS - CARS & TRUCKS -- 0.6%
Action Performance Cos., Inc. ...... 20,000(c) 145,000
Midas, Inc. ........................ 19,900 398,000
Myers Industries, Inc. ............. 24,394 262,235
Simpson Industries, Inc. ........... 22,000 165,688
Spartan Motors, Inc. ............... 15,300 64,069
Standard Motor Products, Inc. ...... 15,800 134,300
TBC Corp.(a)........................ 25,800 119,325
Tenneco Automotive, Inc. ........... 41,100 215,775
Titan International, Inc. .......... 25,200 133,875
Tower Automotive, Inc. ............. 57,300 716,250
Wabash National Corp. .............. 28,100 335,444
Wynn's International, Inc. ......... 22,725 515,573
------------
3,205,534
------------
BANKS AND SAVINGS & LOANS -- 4.3%
Anchor Bancorp Wisconsin, Inc. ..... 30,300 463,969
Banknorth Group, Inc. .............. 50,917 779,667
Centura Banks, Inc. ................ 48,200 1,635,787
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
SHARES (NOTE 2)
COMMON STOCKS --------- ------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
Chittenden Corp. ................... 34,600 $ 845,538
Commercial Federal Corp.(a)......... 70,425 1,095,989
Community First Bankshares, Inc. ... 61,000 995,062
Cullen/Frost Bankers, Inc. ......... 64,900 1,707,681
Downey Financial Corp. ............. 34,444 998,876
First Bancorp/Puerto Rico........... 34,800 645,975
First Midwest Bancorp, Inc. ........ 50,300 1,169,475
Investors Financial Services
Corp. ............................ 35,600 1,412,875
Provident Bankshares Corp. ......... 32,751 442,139
Queens County Bancorp, Inc. ........ 25,850 476,609
Riggs National Corp.(a)............. 34,600 436,825
Silicon Valley Bancshares........... 54,600 2,327,325
Silicon Valley Group, Inc.(a)....... 40,800 1,055,700
Southwest Bancorp(a)................ 34,200 709,650
Staten Islands Bancorp Inc. ........ 48,400 853,050
Susquehanna Bancshares, Inc. ....... 45,200 644,100
TrustCo Bank Corp. ................. 65,420 817,750
United Bankshares, Inc. ............ 52,200 949,387
Whitney Holding Corp. .............. 27,600 943,575
------------
21,407,004
------------
CHEMICALS -- 1.9%
Arch Chemicals Inc. ................ 27,500 601,562
AVT Corp. .......................... 38,600 284,675
Cambrex Corp. ...................... 30,100 1,354,500
Chemed Corp. ....................... 12,800 360,800
Chemfirst, Inc.(a).................. 20,000 482,500
Geon Co............................. 29,000 536,500
Lilly Industries, Inc., (Class "A"
Stock)............................ 28,400 853,775
MacDermid, Inc. .................... 38,100 895,350
McWhorter Technologies, Inc.(a)..... 12,200 237,137
Mississippi Chemical Corp.(a)....... 31,872 151,392
OM Group, Inc. ..................... 29,100 1,280,400
Omnova Solutions, Inc. ............. 51,100 319,375
Penford Corp. ...................... 9,100 195,650
Quaker Chemical Corp. .............. 10,900 189,388
Scotts Co. (Class "A" Stock)(a)..... 34,200 1,248,300
TETRA Technologies, Inc. ........... 16,500 234,094
WD-40 Co............................ 18,900 392,175
------------
9,617,573
------------
COLLECTIBLES & GIFTS -- 2.5%
Department 56, Inc. ................ 21,200 233,200
Enesco Group, Inc. ................. 16,400 77,900
Lennox International Inc. .......... 69,900 926,175
------------
1,237,275
------------
COMMERCIAL SERVICES -- 4.1%
AAR Corp. .......................... 33,150 397,800
ABM Industries, Inc. ............... 27,400 630,200
Administaff Inc. ................... 8,200 520,700
ADVO, Inc. ......................... 25,100 1,054,200
Billing Information Concepts
Corp. ............................ 51,800 229,863
Bowne & Co., Inc. .................. 45,100 453,819
CDI Corp.(a)........................ 23,300 474,738
Central Parking Corp. .............. 45,050(c) 1,067,122
Central Vermont Public Service
Corp. ............................ 14,000 154,000
ChoicePoint, Inc.(a)................ 48,370 2,152,465
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B59
<PAGE> 60
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
COMMERCIAL SERVICES (CONT'D.)
Consolidated Graphics, Inc. ........ 17,400 $ 163,125
Dentrite International, Inc. ....... 47,850 1,594,003
Eloyalty Corp....................... 52,400 668,100
Franklin Covey Co................... 24,700 171,356
F Y I Inc. ......................... 17,800 599,638
Hooper Holmes, Inc. ................ 79,000 632,000
Information Resources, Inc.(a)...... 34,400 135,450
Insurance Auto Auctions, Inc.(a).... 14,100 297,863
Interim Services, Inc.(a)........... 77,600 1,377,400
John H. Harland Co.................. 37,000 552,688
Labor Ready, Inc. .................. 52,250 346,156
Lason, Inc. ........................ 23,100 57,750
MAXIMUS, Inc.(a).................... 25,700 568,612
Memberworks, Inc.................... 18,200 611,975
Nelson Thomas, Inc. ................ 17,350 148,559
On Assignment, Inc.................. 25,600 780,800
PAREXEL International Corp.(a)...... 30,400 290,700
Pre-Paid Legal Services, Inc. ...... 27,600 824,550
Primark Corp.(a).................... 24,420 909,645
Profit Recovery Group Int'l.,
Inc. ............................. 59,500 989,187
StaffMark, Inc.(a).................. 35,900 240,081
Startek, Inc........................ 17,100 861,412
Volt Information Sciences, Inc. .... 18,400 606,050
------------
20,562,007
------------
COMPUTER SOFTWARE & SERVICES -- 0.7%
Actel Corp. ........................ 26,800 1,222,750
Davox Corp.......................... 16,600 214,763
Epresence, Inc...................... 8,100 58,725
Foster Wheeler Corp. ............... 49,800 429,525
Great Plains Software Inc. ......... 21,300 418,012
Phoenix Technology Limited.......... 30,400 495,900
Saga Systems Inc. .................. 34,979 435,051
------------
3,274,726
------------
COMPUTER SERVICES -- 6.4%
American Management Systems,
Inc.(a)........................... 49,950 1,639,765
Analysts International Corp. ....... 27,600 257,025
Aspen Technology, Inc. ............. 31,000 1,193,500
Auspex System, Inc.(a).............. 33,600 165,900
Avid Technology, Inc. .............. 29,100 349,200
BISYS Group, Inc.(a)................ 33,800(c) 2,078,700
Black Box Corp.(a).................. 24,000 1,900,125
Cerner Corp.(a)..................... 41,100 1,119,975
Ciber, Inc. ........................ 72,300(c) 957,975
Computer Task Group, Inc. .......... 25,500 129,094
Epicor Software Corp. .............. 49,900 124,750
Factset Research Systems, Inc. ..... 38,700 1,093,275
Fair Issac & Co., Inc. ............. 17,100 752,400
FileNet Corp.(a).................... 39,600 727,650
Henry (Jack) & Associates, Inc. .... 49,500 2,481,187
Hutchinson Technology, Inc. ........ 30,200 430,350
Insight Enterprises, Inc. .......... 31,600 1,874,275
Komag, Inc.(a)...................... 66,800(c) 116,900
Kroll O'Gara Co. ................... 27,100 181,231
Mercury Computer Systems, Inc. ..... 25,800 833,662
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
COMPUTER SERVICES (CONT'D.)
Midway Games, Inc. ................. 46,430 $ 374,342
National Data Corp. ................ 40,225 925,175
Pinnacle Systems Inc. .............. 59,300 1,333,323
Progress Software Corp.(a).......... 42,700 765,931
QRS Corp.(a)........................ 16,500 405,281
Radisys Corp. ...................... 20,100 1,140,675
Read-Rite Corp.(a).................. 61,000(c) 135,344
RSA Security, Inc.(a)............... 47,200 3,268,600
Scott Technologies, Inc. ........... 21,800 374,688
Standard Microsystems Corp.(a)...... 19,000 292,125
Teledyne Technologies Inc. ......... 33,000 552,750
Telxon Corp. ....................... 19,900 355,713
Xircom, Inc.(a)..................... 36,300 1,724,250
Zebra Technologies Corp. (Class "A"
Stock)(a)......................... 38,300 1,697,169
------------
31,752,305
------------
COMPUTERS -- 0.6%
Apex, Inc.(a)....................... 25,400 1,111,250
Cybex Computer Products Corp.(a).... 23,550 1,012,650
Exabyte Corp. ...................... 27,800 125,100
Gerber Scientific, Inc. ............ 27,100 311,650
Micros.............................. 20,300 376,819
------------
2,937,469
------------
CONSTRUCTION -- 1.8%
Butler Manufacturing Co. ........... 8,600 146,200
Coachmen Industries, Inc. .......... 19,200 220,800
Dycom Industries, Inc. ............. 47,250 2,173,500
Elcor Corp. ........................ 24,000 552,000
Florida Rock Industries, Inc. ...... 22,600 805,125
Insituform Technologies, Inc. (Class
"A" Stock)(a)..................... 30,100 816,462
M.D.C. Holdings, Inc. .............. 27,300 508,463
Morrison Knudsen Corp.(a)........... 64,000 464,000
NVR, Inc.(a)........................ 11,500 655,500
Oakwood Homes Corp. ................ 57,600 104,400
Republic Group, Inc. ............... 14,370 129,330
Shaw Group Inc. .................... 18,700 881,237
Simpson Manufacturing Co., Inc. .... 14,700 702,844
Standard Pacific Corp. ............. 36,050 360,500
Stone & Webster, Inc. .............. 15,600 11,700
Thomas Industries, Inc.(a).......... 19,350 342,253
------------
8,874,314
------------
CONSUMER CYCLICAL -- 0.1%
Jakks Pacific Inc. ................. 23,100 340,725
------------
CONTAINERS -- 0.2%
Aptar Group, Inc. .................. 44,600 1,204,200
------------
COSMETICS & SOAPS
Nature's Sunshine Products, Inc. ... 20,900 146,300
------------
DISTRIBUTION/ WHOLESALERS -- 0.4%
Castle (A.M.) & Co.................. 17,100 142,144
SCP Pool Corporation................ 20,700 486,450
United Stationers, Inc. ............ 41,600 1,346,800
------------
1,975,394
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B60
<PAGE> 61
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
DIVERSIFIED MANUFACTURING OPERATIONS -- 1.1%
Barnes Group, Inc. ................. 23,200 $ 378,450
CLARCOR, Inc. ...................... 29,300 582,337
Cuno, Inc. ......................... 20,000 462,500
Griffon Corp.(a).................... 36,400 202,475
Insteel Industries, Inc. ........... 10,300 63,731
Intermet Corp.(a)................... 28,300 194,563
Justin Industries, Inc. ............ 31,100 680,312
Lydall, Inc.(a)..................... 19,100 202,938
Mueller Industries, Inc.(a)......... 42,800 1,198,400
SPS Technologies, Inc.(a)........... 15,400 632,362
Standex International Corp. ........ 15,600 247,650
Valmont Industries, Inc. ........... 28,700 570,413
------------
5,416,131
------------
DRUGS & MEDICAL SUPPLIES -- 9.3%
ADAC Laboratories................... 25,200 604,800
Advanced Tissue Sciences, Inc.(a)... 69,200 555,762
Alliance Pharmaceutical Corp. ...... 57,400 645,750
Barr Laboratories, Inc.(a).......... 42,150 1,888,847
Baxter International, Inc. ......... 4,094 287,874
Cephalon, Inc.(a)................... 39,600(c) 2,371,050
Coherent, Inc.(a)................... 30,400 2,549,800
Conmed Corp. ....................... 18,700 483,863
COR Therapeutics, Inc.(a)........... 30,800(c) 2,627,625
Cygnus, Inc.(a)..................... 30,200 430,350
Diagnostic Products................. 16,700 534,400
Dura Pharmaceuticals, Inc........... 54,000 776,250
Enzo Biochem, Inc. ................. 30,718(c) 2,119,542
Hanger Orthopedic Group, Inc........ 23,300 115,044
Hologic, Inc.(a).................... 18,700(c) 126,225
IDEC Pharmaceuticals Corp.(a)....... 51,800 6,076,787
IDEXX Laboratories, Inc.(a)......... 44,700 1,022,512
Immune Response Corp. .............. 31,600 343,650
Invacare Corp. ..................... 36,700 963,375
Jones Pharmaceutical, Inc. ......... 79,550 3,177,028
Medicis Pharmaceutical Corp. (Class
"A" Stock)(a)..................... 35,700 2,034,900
NBTY, Inc.(a)....................... 80,800 515,100
Noven Pharmaceuticals, Inc.(a)...... 26,300 790,644
Osteotech, Inc. .................... 17,300 181,650
Owens & Minor, Inc. ................ 39,900 685,781
Priority Healthcare Corp. .......... 26,766 1,989,048
Protein Design Labs, Inc.(a)........ 22,900 3,777,427
Regeneron Pharmaceuticals,
Inc.(a)........................... 41,500 1,237,219
Resmed, Inc. ....................... 36,700 981,725
Respironics, Inc.(a)................ 35,800 644,400
SpaceLabs Medical, Inc.(a).......... 11,500 129,375
Summit Technology, Inc.(a).......... 57,100 1,077,762
Sunrise Medical, Inc.(a)............ 27,100 132,113
Syncor International Corp.(a)....... 14,500 1,044,000
Techne Corp. ....................... 24,800 3,224,000
Vital Signs, Inc. .................. 15,100 273,688
------------
46,419,366
------------
ELECTRICAL EQUIPMENT -- 3.5%
Anixter International, Inc.(a)...... 44,200 1,171,300
Baldor Electric Co.................. 43,866 817,004
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (CONT'D.)
C-Cube Microsystems, Inc............ 49,000 $ 961,625
C&D Technologies.................... 31,800 1,796,700
Gentex Corp.(a)..................... 89,600 2,251,200
Harmon Industries, Inc. ............ 13,800 182,850
KEMET Corp.(a)...................... 106,200 2,661,637
Kent Electronics Corp.(a)........... 34,400 1,025,550
Kulicke & Soffa Industries, Inc..... 28,900 1,715,938
SLI, Inc. .......................... 43,700 529,863
Technitrol, Inc. ................... 19,900 1,927,812
Valence Technology, Inc.(a)......... 42,100 776,219
Vicor Corp.(a)...................... 50,400 1,754,550
------------
17,572,248
------------
ELECTRONICS -- 5.6%
Alpha Industries, Inc............... 48,600 2,141,437
Analogic Corp. ..................... 15,700 628,000
Artesyn Technologies, Inc. ......... 45,500 1,265,469
Audiovox Corp. ..................... 26,300 580,244
Belden, Inc. ....................... 29,800 763,625
Benchmark Electronics, Inc.(a)...... 19,800 723,937
BMC Industries, Inc. ............... 33,400 135,688
Cable Design Technologies........... 34,500 1,155,750
Checkpoint Systems, Inc. ........... 36,800 276,000
Cohu, Inc. ......................... 24,300 655,341
CTS Corp. .......................... 33,700 1,516,500
Dionex Corp.(a)..................... 27,000 722,250
Electro Scientific Industries,
Inc. ............................. 32,300 1,422,209
Electroglas, Inc.................... 24,400 524,600
Esterline Technologies Corp.(a)..... 21,200 315,350
Helix Technology Corp. ............. 27,300 1,064,700
Innovex, Inc. ...................... 18,100 176,475
Intermagnetics General Corp. ....... 15,783 298,891
International Rectifier Corp.(a).... 74,700 4,183,200
Itron, Inc.(a)...................... 18,200(c) 150,150
Methode Eletronics, Inc. (Class "A"
Stock)............................ 43,100 1,664,737
Park Electrochemical Corp. ......... 12,800 461,600
Photronics, Inc.(a)................. 29,300 831,387
Pioneer Standard Electronics,
Inc. ............................. 33,300(c) 491,175
Plexus Corp.(a)..................... 21,300 2,406,900
S3, Inc.(a)......................... 93,000 1,371,750
Three-Five Systems, Inc.(a)......... 22,150 1,306,850
Ultratech Stepper, Inc.(a).......... 26,100 388,238
X-Rite, Inc. ....................... 25,900 236,338
------------
27,858,791
------------
ELECTRONIC COMPONENTS -- 0.4%
Sanmina Corp. ...................... 23,380 1,998,990
------------
ENERGY -- 0.4%
UGI Corp. .......................... 33,300 682,650
Unisource Energy Corp............... 39,800 597,000
Veritas DGC, Inc.(a)................ 31,600 821,600
------------
2,101,250
------------
ENGINEERING -- 0.1%
URS Corp. .......................... 19,400 295,850
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B61
<PAGE> 62
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
ENVIRONMENTAL SERVICES -- 0.3%
Ionics, Inc.(a)..................... 19,800 $ 606,375
Tetra Tech, Inc.(a)................. 47,050 1,076,269
------------
1,682,644
------------
FINANCIAL SERVICES -- 4.4%
AmeriCredit Corp. .................. 91,500 1,555,500
Charles Schwab Corp. ............... 117,717 3,958,249
Commerce Bancorp, Inc. ............. 35,994 1,655,724
Dain Rauscher Corp. ................ 15,300 1,009,800
Eaton Vance Corp. .................. 43,100 1,993,375
HUBCO, Inc. ........................ 61,702 1,384,439
Jeffries Group, Inc. ............... 29,300 591,494
MAF Bancorp, Inc. .................. 29,400 534,712
Morgan Keegan, Inc. ................ 35,500 523,625
National Discount Brokers Group..... 20,800 663,000
Pioneer Group, Inc. ................ 32,400 1,372,950
Radian Group, Inc. ................. 45,500 2,354,625
Raymond James Financial, Inc. ...... 56,218 1,264,905
SEI Corp. .......................... 65,100 2,591,794
South Financial Group Inc. ......... 31,400 455,300
------------
21,909,492
------------
FOOD & BEVERAGE -- 2.2%
American Italian Pasta Co. (Class
"A" Stock)........................ 22,400 463,400
Beringer Wine Estates Holdings,
Inc. ............................. 24,000 847,500
Canandaigua Wine Co. ............... 22,100 1,114,669
Chiquita Brands International,
Inc. ............................. 80,475 316,870
Coca-Cola Bottling Co............... 10,700 460,267
Corn Products International,
Inc. ............................. 45,500 1,205,750
Earthgrains Co...................... 51,800 1,006,862
Fleming Companies, Inc. ............ 47,400 619,163
Hain Celestial Group Incorporated... 22,200 814,463
J & J Snack Foods Corp.(a).......... 11,000 196,625
Michael Foods, Inc. ................ 24,800 607,600
Nash-Finch Co....................... 13,800 113,850
Performance Food Group Co.(a)....... 17,300 553,600
Ralcorp Holdings, Inc. ............. 37,300 456,925
Smithfield Foods, Inc.(a)........... 71,000 1,992,437
United Natural Foods, Inc. ......... 22,300 306,625
------------
11,076,606
------------
FURNITURE -- 0.6%
Aaron Rents, Inc. .................. 24,300 305,269
Bassett Furniture Industries,
Inc. ............................. 14,900 188,112
Ethan Allen Interiors, Inc.(a)...... 49,950 1,198,800
Interface, Inc. (Class "A" Stock)... 62,900 239,806
La-Z-Boy Chair Co. ................. 75,000 1,050,000
------------
2,981,987
------------
HEALTHCARE -- 2.9%
Bio-Technology General Corp.(a)..... 64,600 851,912
Biomatrix, Inc.(a).................. 28,100(c) 635,763
Cooper Companies, Inc. (The) ....... 17,100 622,013
Coventry Corp....................... 72,300 963,623
Datascope Corp...................... 18,400 662,400
Laser Vision Ctrs, Inc. ............ 30,800 190,575
MedQuist, Inc....................... 43,900 1,492,600
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
HEALTHCARE (CONT'D.)
Mentor Corp. ....................... 29,700 $ 807,469
Organogenesis, Inc.(a).............. 37,200 425,475
Patterson Dental Co.(a)............. 41,200 2,101,200
Pharmaceutical Product Development,
Inc. ............................. 30,100 632,100
Renal Care Group, Inc.(a)........... 54,650 1,336,363
Sierra Health Services, Inc.(a)..... 32,825 104,630
Smith (A.O.) Corp. ................. 28,600 598,813
Sola International, Inc.(a)......... 30,400 148,200
Theragenics Corp. .................. 36,000 308,250
US Oncology, Inc. .................. 105,000 525,000
Varian Med Systems, Inc. ........... 37,800 1,478,925
Wesley Jessen Visioncare, Inc. ..... 21,400 803,837
------------
14,689,148
------------
HOSPITALS/HEALTHCARE MANAGEMENT -- 0.9%
Advance Paradigm, Inc.(a)........... 26,200 537,100
Curative Health Services, Inc. ..... 12,300 74,184
Magellan Health Services, Inc.(a)... 39,100 48,875
Orthodontic Centers of America,
Inc............................... 58,800 1,330,350
Pediatrix Medical Group, Inc.(a).... 19,000(c) 220,875
Universal Health Services, Inc.
(Class "B" Stock)(a).............. 37,475 2,454,612
------------
4,665,996
------------
HOUSING RELATED -- 0.8%
Champion Enterprises, Inc.(a)....... 58,200 283,725
D.R.Horton, Inc. ................... 75,425 1,022,951
Fedders Corp. ...................... 43,900 255,169
Fleetwood Enterprises, Inc. ........ 39,900 568,575
National Presto Industries, Inc. ... 9,000 276,750
Ryland Group, Inc. ................. 17,425 385,528
Skyline Corp. ...................... 10,700 230,050
Toll Brothers, Inc.(a).............. 44,600 914,300
------------
3,937,048
------------
INDUSTRIALS -- 0.1%
Circle Int'l Group Inc. ............ 21,200 532,650
------------
INSURANCE -- 2.1%
Arthur J. Gallagher & Co............ 44,900 1,885,800
Delphi Financial Group, Inc.(a)..... 25,279 857,906
E.W. Blanch Holdings, Inc. ......... 16,100 327,031
Enhance Financial Services Group,
Inc. ............................. 46,500 668,438
Fidelity National Financial,
Inc. ............................. 82,061 1,502,742
First American Financial Corp. ..... 79,700 1,140,706
Fremont General Corp. .............. 85,540 336,814
Hilb, Rogal & Hamilton Co........... 16,100 558,469
Mutual Risk Management, Ltd......... 53,400 924,487
RLI Corp............................ 12,100 420,475
SCPIE Holdings Inc. ................ 14,800 303,400
Selective Insurance Group, Inc. .... 33,600 638,400
Trenwick Group, Inc. ............... 20,750 302,172
Zenith National Insurance Corp. .... 21,000 446,250
------------
10,313,090
------------
LEISURE -- 1.1%
Anchor Gaming....................... 14,700 704,681
Aztar Corp.(a)...................... 53,400 827,700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B62
<PAGE> 63
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
LEISURE (CONT'D.)
Carmike Cinemas, Inc. (Class "A"
Stock)(a)......................... 13,900 $ 53,863
GC Companies, Inc.(a)............... 9,500 212,562
Huffy Corp. ........................ 12,400 53,475
K2, Inc.(a)......................... 21,800 181,213
Marcus Corp. ....................... 36,525 442,866
Pinnacle Entertainment Inc. ........ 31,900 620,056
Polaris Industries, Inc. ........... 29,800 953,600
Prime Hospitality Corp.(a).......... 59,700 563,419
Sturm Ruger & Co., Inc. ............ 32,900 291,987
Thor Industries, Inc. .............. 14,800 310,800
Winnebago Industries, Inc. ......... 26,600 347,462
------------
5,563,684
------------
MACHINERY -- 3.0%
Applied Industrial Technologies,
Inc. ............................. 25,400 415,925
Applied Power, Inc. (Class "A"
Stock)............................ 47,795 1,601,132
Astec Industries, Inc.(a)........... 23,400 593,775
Cognex Corp.(a)..................... 50,700 2,623,725
Dril-Quip, Inc. .................... 21,100 986,425
Flow International Corp.(a)......... 18,000 180,000
Gardner Denver Machinery, Inc.(a)... 18,300 327,113
Graco, Inc. ........................ 25,000 812,500
IDEX Corp. ......................... 36,200 1,142,563
JLG Industries, Inc. ............... 54,200 643,625
Lindsay Manufacturing Co.(a)........ 15,112 296,573
Manitowoc Co., Inc. ................ 31,812 850,971
Paxar Corp. ........................ 57,052 681,058
Regal Beloit Corp. ................. 25,600 411,200
Robbins & Myers, Inc. .............. 13,400 305,688
Roper Industries, Inc. ............. 37,000 948,125
Royal Appliance Manufacturing
Co.(a)............................ 21,100 120,006
Specialty Equipment Co., Inc. ...... 23,400 634,725
Speedfam-IPEC, Inc. ................ 36,000 654,750
Toro Co............................. 15,500 510,531
------------
14,740,410
------------
MEDIA -- 0.8%
Catalina Marketing Corp.(a)......... 22,400(c) 2,284,800
Harman International................ 21,000 1,281,000
Interpublic Group of Cos., Inc. .... 12,588 521,620
------------
4,087,420
------------
METALS - FERROUS -- 0.6%
Birmingham Steel Corp. ............. 24,600 95,325
Commercial Metals Co................ 17,600 484,000
Mascotech, Inc. .................... 54,400 588,200
Material Sciences Corp.(a).......... 18,725 187,250
Quanex Corp. ....................... 17,425 259,197
Reliance Steel & Aluminum Co........ 34,000 650,250
Steel Dynamics, Inc. ............... 58,600 531,062
Steel Technologies, Inc. ........... 13,300 94,763
WHX Corp.(a)........................ 17,500(c) 96,250
------------
2,986,297
------------
METALS - NON FERROUS -- 0.3%
Amcast Industrial Corp. ............ 10,900 95,375
AMCOL International Corp. .......... 32,750 540,375
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
METALS - NON FERROUS (CONT'D.)
Brush Wellman, Inc. ................ 19,900 $ 310,937
Commonwealth Industries, Inc. ...... 20,300 119,263
IMCO Recycling, Inc.(a)............. 20,200 109,838
RTI International Metals, Inc.(a)... 25,400 288,925
Wolverine Tube, Inc.(a)............. 15,500 263,500
------------
1,728,213
------------
MINERAL RESOURCES -- 0.2%
SEACOR Holdings, Inc.(a)............ 20,700 800,831
------------
MISCELLANEOUS - BASIC INDUSTRY -- 1.0%
Apogee Enterprises, Inc. ........... 33,900 119,709
Brightpoint, Inc. .................. 65,200 564,387
CPI Corp. .......................... 11,000 232,375
Fossil, Inc.(a)..................... 39,200 761,950
Lawson Products, Inc. .............. 12,700 312,738
Libbey, Inc. ....................... 19,600 629,650
Texas Industries, Inc. ............. 25,700 742,087
Tredegar Industries, Inc. .......... 45,550 865,450
Watsco, Inc. ....................... 35,600 445,000
Watts Industries, Inc. (Class "A"
Stock)............................ 32,300 407,788
------------
5,081,134
------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.1%
Dimon, Inc. ........................ 54,375 115,547
Hughes Supply, Inc. ................ 28,750 567,813
------------
683,360
------------
NETWORKING -- 0.2%
C-Cor.Net Corp. .................... 39,200 1,058,400
------------
OFFICE EQUIPMENT & SUPPLIES -- 0.1%
Nashua Corp. ....................... 7,200 59,400
New England Business Service,
Inc. ............................. 16,500 268,125
------------
327,525
------------
OIL & GAS -- 2.0%
Cabot Oil & Gas Corp. (Class "A"
Stock)............................ 34,800 737,325
Cascade Natural Gas Corp. .......... 13,522 225,648
Cross (A.T.) Co. (Class "A"
Stock)............................ 17,900 88,381
Cross Timbers Oil Co................ 59,575 1,318,097
Laclede Gas Co...................... 13,900 267,575
Newfield Exploration Co.(a)......... 50,850 1,989,506
Northwest Natural Gas Co............ 30,600 684,675
Piedmont Natural Gas Company,
Inc. ............................. 38,300 1,017,344
Remington Oil and Gas Corp. ........ 26,000 195,000
Southern Union Co.(a)............... 59,261 937,064
Southwest Gas Corp. ................ 37,700 659,750
Vintage Petroleum, Inc. ............ 76,300 1,721,519
------------
9,841,884
------------
OIL & GAS SERVICES -- 3.1%
Atwood Oceanics, Inc. .............. 16,800 745,500
Barrett Resources Corp.(a).......... 39,810 1,211,717
Cal Dive International, Inc. ....... 19,000 1,029,563
Eagle Geophysical, Inc. ............ 1,651 8
Energen Corp. ...................... 36,800 802,700
Friede Goldman Halter, Inc. ........ 48,713 435,372
HS Resources, Inc.(a)............... 23,000 690,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B63
<PAGE> 64
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
OIL & GAS SERVICES (CONT'D.)
Input/Output, Inc.(a)............... 61,900 $ 522,281
Louis Dreyfus Natural Gas
Corp.(a).......................... 49,200 1,540,575
New Jersey Resources Corp. ......... 21,800 829,763
Oceaneering International,
Inc.(a)........................... 27,800 528,200
Offshore Logistics, Inc.(a)......... 25,800 370,875
Plains Resources, Inc.(a)........... 21,900 350,400
Pogo Producing Co................... 49,200 1,088,550
Pride International, Inc. .......... 73,900 1,829,025
Seitel, Inc.(a)..................... 29,594 240,451
Southwestern Energy Co.............. 30,400 190,000
St. Mary Land & Exploration Co...... 13,600 572,050
Stone Energy Corp.(a)............... 22,400 1,338,400
Varco Int'l., Inc. ................. 54,600 1,269,450
------------
15,584,880
------------
PAPER & FOREST PRODUCTS -- 0.6%
Brady (W.H.) Co. (Class "A"
Stock)............................ 27,700 900,250
Buckeye Technologies, Inc.(a)....... 42,800 938,925
Caraustar Industries, Inc. ......... 31,100 470,388
Pope & Talbot, Inc. ................ 18,325 293,200
Schweitzer-Mauduit Int'l., Inc. .... 19,200 240,000
Universal Forest Products, Inc. .... 24,800 341,000
------------
3,183,763
------------
PHARMACEUTICALS -- 1.4%
Alpharma, Inc. ..................... 42,300 2,633,175
Bindley Western, Inc. .............. 41,266 1,090,970
Vertex Pharmaceuticals, Inc. ....... 31,400 3,308,775
------------
7,032,920
------------
PRECIOUS METALS -- 0.3%
Coeur D'Alene Mines Corp. .......... 35,600(c) 86,775
Stillwater Mining Co.(a)............ 46,300 1,290,613
------------
1,377,388
------------
REAL ESTATE -- 0.1%
Lennar Corp. ....................... 14,976 303,264
------------
RESTAURANTS -- 1.6%
Applebee's Int'l., Inc. ............ 33,300 1,009,406
CEC Entertainment, Inc. ............ 33,275 852,672
Cheesecake Factory(a)............... 36,825 1,012,687
CKE Restaurants, Inc. .............. 61,712 185,136
IHOP Corp.(a)....................... 24,600 412,050
Jack In the Box, Inc.(a)............ 46,800 1,152,450
Landry's Seafood Restaurants,
Inc. ............................. 30,300 257,550
Luby's Cafeterias, Inc. ............ 27,400 219,200
Ruby Tuesday, Inc.(a)............... 75,800 952,237
Ryan's Family Steak Houses,
Inc.(a)........................... 44,200 372,938
Sonic Corp.(a)...................... 22,325 655,797
Taco Cabana, Inc. (Class "A"
Stock)(a)......................... 16,000 106,000
Triarc Companies, Inc. (Class "A"
Stock)(a)......................... 28,900 592,450
------------
7,780,573
------------
RETAIL -- 5.4%
99 Cents Only Stores................ 40,900 1,630,888
Ames Department Stores, Inc. ....... 35,600 275,900
AnnTaylor Stores Corp.(a)........... 38,600 1,278,625
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
RETAIL (CONT'D.)
Arctic Cat, Inc. ................... 30,500 $ 362,188
Bombay Company, Inc.(a)............. 44,300 130,131
Books-A-Million, Inc.(a)............ 22,100 102,213
Brown Shoe Co., Inc. ............... 22,850 297,050
Building Materials Holdings Corp.... 15,400 135,713
Caseys General Stores, Inc. ........ 64,400 668,150
Cash America International, Inc. ... 30,943 228,205
Cato Corp. (Class "A" Stock)........ 31,600 367,350
Consolidated Products, Inc. ........ 35,882 322,938
Copart, Inc.(a) .................... 65,600 1,049,600
Cost Plus, Inc...................... 25,100 720,056
Damark International, Inc.(a)....... 6,700 144,050
Discount Auto Parts, Inc.(a)........ 20,400 204,000
Dress Barn, Inc.(a)................. 22,300 493,388
Footstar, Inc.(a)................... 25,500 847,875
Goody's Family Clothing, Inc. ...... 40,400 222,200
Gottschalks, Inc.(a)................ 15,300 96,581
Group 1 Automotive, Inc.(a)......... 25,900 310,800
Hancock Fabrics, Inc. .............. 23,200 98,600
J. Baker, Inc.(a)................... 17,100 99,394
Jan Bell Marketing, Inc.(a)......... 27,500 65,312
Jo-Ann Stores, Inc. (Class "A"
Stock) ........................... 21,800 152,600
Just For Feet, Inc. ................ 34,000 797
Lillian Vernon Corp. ............... 10,900 114,450
Linens 'n Things, Inc. ............. 48,200 1,307,425
Michaels Stores, Inc.(a)............ 37,800 1,731,712
MicroAge, Inc.(a)................... 39,200 1,930,600
O'Reilly Automotive, Inc.(a)........ 61,900 858,862
Panera Bread Company -- (Class "A"
Stock)............................ 14,800 149,850
Pep Boys -- Manny, Moe & Jack,
Inc. ............................. 62,600 375,600
Pier 1 Imports, Inc. ............... 121,850 1,188,037
Quiksilver, Inc. ................... 27,300 424,856
Regis Corp. ........................ 49,700 621,250
Russ Berrie & Company, Inc. ........ 25,100 483,175
Shopko Stores, Inc. ................ 37,100 570,412
Sports Authority, Inc. ............. 39,150 44,044
Stein Mart, Inc.(a)................. 54,400 557,600
Stride Rite Corp. .................. 54,500 333,813
Swiss Army Brands, Inc.(a).......... 9,600 49,200
The Men's Wearhouse, Inc. .......... 51,250 1,143,516
Timberland Co. (Class "A" Stock).... 25,600 1,812,800
Wet Seal, Inc.(a)................... 16,600 217,875
Whole Foods Market, Inc.(a)......... 31,800(c) 1,313,737
Zale Corp. ......................... 42,900 1,565,850
------------
27,099,268
------------
SEMICONDUCTORS -- 1.9%
American Xtal Technology, Inc.(a)... 22,900 990,425
Dallas Semiconductor Corp. ......... 70,600 2,876,950
ESS Technology, Inc. ............... 49,800 722,100
General Semiconductor, Inc. ........ 45,000 663,750
Lattice Semiconductor Corp.(a)...... 58,600 4,050,725
------------
9,303,950
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B64
<PAGE> 65
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
SOFTWARE -- 4.6%
BARRA, Inc.(a)*..................... 17,200 $ 852,475
Concord Communications, Inc.(a) .... 17,500 697,812
HNC Software, Inc. ................. 30,000 1,852,500
Hyperion Solutions Corp. ........... 39,170 1,270,577
Mercury Interactive Corp. .......... 93,800 9,075,150
National Instruments Corp. ......... 61,200 2,669,850
Peregrine Systems Incorporated...... 35,475 1,230,539
Project Software & Development,
Inc.(a)........................... 26,300 473,400
Remedy Corp.(a)..................... 35,500 1,979,125
THQ, Inc.(a)........................ 22,550 274,828
Verity, Inc.(a)..................... 38,000 1,444,000
Zixit Corp. ........................ 18,700 861,369
------------
22,681,625
------------
SUPERMARKETS -- 0.1%
Kronos, Inc.(a)..................... 15,300 397,800
------------
TECHNOLOGY -- 0.2%
Systems & Computer Technology
Corp. ............................ 39,400 788,000
------------
TELECOMMUNICATIONS -- 2.9%
Adaptive Broadband Corp. ........... 45,800 1,683,150
Allen Telecom, Inc. ................ 33,800 597,837
Aspect Telecommunications
Corp.(a).......................... 59,500 2,339,094
Centigram Communications Corp.(a)... 7,400 189,163
Digi International, Inc.(a)......... 18,400 119,600
Digital Microwave Corp.(a).......... 85,100 3,244,437
General Communication, Inc. ........ 60,500 310,063
Intermediate Telephone, Inc. ....... 31,700 509,181
InterVoice, Inc.(a)................. 39,200 257,250
Network Equipment Technologies,
Inc.(a)........................... 26,200 263,638
P-COM, Inc. ........................ 88,000 500,500
Plantronics, Inc. .................. 19,800 2,286,900
Proxim, Inc.(a)..................... 14,400 1,425,150
Symmetricom, Inc.(a)................ 18,300 462,075
Talk.com, Inc. ..................... 79,000 459,187
------------
14,647,225
------------
TEXTILES -- 0.6%
Angelica Corp. ..................... 10,600 84,800
Ashworth, Inc.(a)................... 17,200 76,863
Cone Mills Corp.(a)................. 31,100 192,431
Dixie Group, Inc. .................. 14,200 55,025
G & K Services, Inc. (Class "A"
Stock)............................ 24,800 621,550
Guilford Mills, Inc. ............... 23,437 99,607
Gymboree Corp.(a)................... 29,700 89,100
Haggar Corp. ....................... 8,400 98,700
Hartmarx Corp.(a)................... 35,900 91,994
Kellwood Co......................... 33,975 717,722
Nautica Enterprises, Inc.(a)........ 42,300 452,081
Oshkosh B'Gosh, Inc. (Class"A"
Stock)............................ 15,500 253,813
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) --------- ------------
<S> <C> <C>
TEXTILES (CONT'D.)
Oxford Industries, Inc. ............ 9,300 $ 167,400
Pillowtex Corp.(a).................. 17,409(c) 73,988
------------
3,075,074
------------
TIMBER -- 0.1%
Deltic Timber Corp. ................ 15,100 322,763
------------
TRANSPORTATION -- 0.2%
Pegasus Systems, Inc. .............. 21,800 237,075
------------
TRUCKING/SHIPPING -- 2.0%
American Freightways, Inc. ......... 39,200 568,400
Arkansas Best Corp. ................ 24,100 239,494
EGL Inc. ........................... 35,200 1,082,400
Expeditors International of
Washington, Inc. ................. 61,700 2,930,750
Fritz Companies, Inc.(a)............ 44,800 462,000
Frozen Food Express Industries,
Inc. ............................. 19,900 59,700
Heartland Express, Inc.(a).......... 36,649 611,580
Kirby Corp.(a)...................... 30,000 637,500
Landstar Systems, Inc.(a)........... 11,700 696,881
M.S. Carriers, Inc.(a).............. 15,000 264,375
Monaco Coach Corp. ................. 23,000 313,375
Oshkosh Truck Corp. ................ 8,700 311,025
Rollins Truck Leasing Corp. ........ 69,300 480,769
USFreightways Corp. ................ 32,400 795,825
Werner Enterprises, Inc. ........... 58,012 670,764
Yellow Corp. (b).................... 30,400 448,400
------------
10,573,238
------------
UTILITY -- ELECTRIC -- 0.8%
Atmos Energy Corp. ................. 38,500 673,750
Bangor Hydro-Electric Co. .......... 8,975 210,352
CH Energy Group, Inc. .............. 20,600 699,112
Green Mountain Power Corp. ......... 6,500 53,625
NorthWestern Corp. ................. 28,300 654,438
Philadelphia Suburban Corp. ........ 50,031 1,025,635
United Illuminating Co. ............ 17,525 766,719
------------
4,083,631
------------
UTILITY -- WATER -- 0.4%
American States Water Co. .......... 11,000 327,250
United Water Resources, Inc. ....... 47,500 1,656,563
------------
1,983,813
------------
TOTAL COMMON STOCKS
(cost $423,805,988)............................ 474,110,282
------------
<CAPTION>
RIGHTS
<S> <C> <C>
Elan Corporation PLC (cost $0)...... 46,800 23,400
------------
TOTAL LONG-TERM INVESTMENTS
(cost $423,805,988)............................ 474,133,682
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B65
<PAGE> 66
SMALL CAPITALIZATION STOCK PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM (000) (NOTE 2)
INVESTMENTS -- 8.3% --------- ------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 0.4%
United States Treasury Bills,
5.64%, 09/21/00................... $ 1,800 $ 1,776,876
------------
COMMERCIAL PAPER -- 1.6%
American Electric Power
6.83%, 07/21/00................... 3,500 3,488,048
Keyspan Corp.
6.83%, 07/21/00................... 1,600 1,597,268
TRW Inc.
6.85%, 07/20/00................... 1,750 1,744,339
6.90%, 08/15/00................... 1,000 991,758
------------
7,821,413
------------
REPURCHASE AGREEMENT -- 4.5%
Joint Repurchase Agreement Account
6.49%, 07/03/00 (Note 5).......... 22,651 22,651,000
------------
TIME DEPOSIT -- YANKEE -- 1.8%
Deutsche Bank AG(d) 7.125%,
7/03/00........................... 8,859 8,859,000
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $41,108,289)............................. 41,108,289
------------
TOTAL INVESTMENTS -- 103.6%
(cost $464,914,277; Note 6).................... 515,241,971
------------
VARIATION MARGIN ON OPEN FUTURES
CONTRACT(e) -- (0.1)%.......................... (297,000)
OTHER LIABILITIES IN EXCESS
OF OTHER ASSETS -- (3.5)%...................... (17,544,223)
------------
TOTAL NET ASSETS -- 100.0%....................... $497,400,748
============
</TABLE>
The following abbreviations are used in portfolio descriptions:
<TABLE>
<S> <C>
AG Aktiengesellschaft (German Stock Company)
NA Not Applicable
NR Not Rated by Moody's or Standard & Poor's
PLC Public Limited Company (British Corporation)
</TABLE>
(a) Non-income producing security.
(b) Security segregrated as collateral for futures contracts.
(c) Portion or all of securities on loan with an aggregate market value of
$15,506,731; cash collateral of $16,596,400 was received with which the
portfolio purchased securities.
(d) Represents security, or portion thereof, purchased with cash collateral
received for securities on loan.
(e) Open futures contract as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 2000 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Positions:
MidCap 400
87 Index Sep 00 $21,840,950 $21,241,050 $ (599,900)
Russell 2000
6 Index Sep 00 1,563,900 1,567,800 3,900
----------
$ (596,000)
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B66
<PAGE> 67
GLOBAL PORTFOLIO
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 85.0% VALUE
SHARES (NOTE 2)
COMMON STOCKS ---------- --------------
<S> <C> <C>
AUSTRALIA -- 2.3%
Broken Hill Proprietary Co.,
Ltd.............................. 1,524,500 $ 18,009,628
Commonwealth Bank of Australia
(c).............................. 922,600 15,280,819
--------------
33,290,447
--------------
FINLAND -- 2.3%
Nokia Oy........................... 651,200 33,269,935
--------------
FRANCE -- 7.1%
Havas Advertising SA (c)........... 545,940 12,497,993
Lafarge SA......................... 97,931 7,619,640
Legrand SA......................... 64,200 14,420,912
Publicis SA(a) (c)................. 15,489 6,084,923
Thomson Multimedia................. 291,562 18,895,155
Total Fina SA...................... 192,938 29,617,825
Vivendi SA......................... 143,700 12,698,533
--------------
101,834,981
--------------
REPUBLIC OF GERMANY -- 1.3%
Infineon Technologies AG(a)........ 40,600 3,203,561
Siemens AG......................... 99,400 15,011,819
--------------
18,215,380
--------------
HONG KONG -- 2.1%
China Merchants Holdings
International Co., Ltd........... 11,010,400 7,556,268
China Mobile, Ltd.(a).............. 1,765,400 15,569,199
Guangzhou Investment Co.,
Ltd.(a).......................... 85,621,100 6,370,291
--------------
29,495,758
--------------
ITALY -- 1.2%
Banca Intesa SpA................... 3,806,500 17,064,302
--------------
JAPAN -- 6.2%
Canon, Inc......................... 304,000 15,119,107
Nippon Telegraph & Telephone
Corp.(a)......................... 1,958 26,004,615
NTT Mobile Communications Network,
Inc.............................. 870 23,519,050
Softbank Corp...................... 36,400 4,937,220
Sony Corp. (c)..................... 217,100 20,244,808
--------------
89,824,800
--------------
MEXICO -- 2.5%
Grupo Televisa SA (GDR)(a)......... 219,100 15,104,206
Telefonos de Mexico, SA
(Class "L" Shares) (ADR)......... 355,300 20,296,513
--------------
35,400,719
--------------
NETHERLANDS -- 1.5%
ING Groep N.V...................... 328,800 22,251,276
--------------
SINGAPORE -- 0.9%
Singapore Airlines, Ltd............ 1,251,700 12,383,031
--------------
SOUTH KOREA -- 1.3%
Samsung Electronics Co., Ltd....... 55,070 18,224,551
--------------
SPAIN -- 3.2%
Banco Santander SA(a).............. 1,881,000 19,867,395
Telefonica SA...................... 1,191,808 25,631,774
--------------
45,499,169
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS SHARES (NOTE 2)
(CONTINUED) ---------- --------------
<S> <C> <C>
SWEDEN -- 3.7%
Hennes & Mauritz AB................ 788,400 $ 16,503,951
Skanska AB (Class "B" Shares)...... 435,200 15,472,567
Telefonaktiebolaget LM Ericsson
AB............................... 1,094,400 21,726,761
--------------
53,703,279
--------------
UNITED KINGDOM -- 7.9%
Bank of Scotland................... 1,407,200 13,410,094
Canary Wharf Finance PLC........... 1,601,000 8,993,946
GKN PLC............................ 1,084,800 13,865,897
Hays PLC........................... 2,026,045 11,320,283
Vodafone AirTouch PLC.............. 10,986,851 44,479,020
Barclays PLC....................... 887,991 22,121,615
--------------
114,190,855
--------------
UNITED STATES -- 41.5%
American Home Products Corp........ 221,000 12,983,750
AT&T Corp.......................... 363,500 10,132,563
Atmel Corp.(a) (c)................. 408,000 15,045,000
Cablevision Systems Corp.
(Class "A" Shares)(a)............ 132,000 8,959,500
Citigroup Inc...................... 664,600 40,042,150
Clear Channel Communications,
Inc.(a).......................... 196,200 14,715,000
Comcast Corp. (Class "A"
Shares)(a)....................... 315,700 12,785,850
Electronic Arts, Inc.(a)........... 464,200 33,857,587
Fox Entertainment Group, Inc.
(Class "A" Stock)(a)............. 564,800 17,155,800
Intertrust Technologies Corp....... 215,100 4,422,994
JDS Uniphase Corp.(a).............. 162,200 19,443,725
Juniper Networks, Inc.(a).......... 130,600 19,010,462
Mediaone Group, Inc. (c)........... 97,500 6,447,188
Micron Technology, Inc............. 306,200 26,964,737
Omnicom Group, Inc................. 238,500 21,241,406
Ondisplay, Inc..................... 73,800 6,010,088
Oracle Systems Corp.(a)............ 517,600 43,510,750
Pharmacia Corp..................... 388,200 20,065,087
PMC-Sierra, Inc.(a)................ 166,700 29,620,506
Portal Software, Inc............... 207,300 13,241,288
Quest Software, Inc. (c)........... 83,600 4,629,350
SCI Systems, Inc.(a)............... 488,400 19,139,175
Solectron Corp.(a) (c)............. 1,147,400 48,047,375
Target Corp........................ 316,800 18,374,400
Texas Instruments, Inc............. 311,200 21,375,550
Time Warner, Inc. (c).............. 681,400 51,786,400
USA Networks, Inc.(a).............. 1,440,300 31,146,487
Wal-Mart Stores, Inc............... 192,500 11,092,813
Williams-Sonoma, Inc.(a)........... 472,900 15,339,694
--------------
596,586,675
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $931,781,068)................ 1,221,235,158
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B67
<PAGE> 68
GLOBAL PORTFOLIO (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM RATING (000) (NOTE 2)
INVESTMENTS -- 15.0% ----------- --------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 7.3%
American Electric Power
6.83%, 07/21/00(b)....... P1 $ 8,000 $ 7,969,644
Bombardier Capital, Inc.
6.82, 07/21/00(b)........ P1 4,200 4,184,087
CitiCorp 6.55%,
07/10/00(b).............. P1 20,000 19,967,250
Conagra, Inc. 6.85%,
07/7/00(b)............... P1 8,600 8,590,182
General Electric Capital
International 6.52%,
07/14/00(b).............. P1 24,000 23,943,493
GPU Capital, Inc. 6.89%,
07/14/00(b).............. P1 8,900 8,877,856
Hartford Financial Services
6.60%, 08/18/00(b)....... P1 3,041 3,014,239
Keyspan Corp. 6.82%,
07/19/00(b).............. P1 6,124 6,103,117
Suntrust Grand Cayman
7.00%, 07/03/00(b)....... P1 13,782 13,782,000
TRW, Inc. 6.90%,
08/15/00(b).............. P1 8,000 7,931,000
--------------
104,362,868
--------------
U.S. GOVERNMENT OBLIGATIONS -- 5.9%
United States Treasury Bills,
5.61%, 08/17/00....................... 11,800 11,713,575
5.59%, 08/17/00....................... 5,310 5,271,420
5.74%, 09/14/00....................... 68,804 67,981,219
--------------
84,966,214
--------------
REPURCHASE AGREEMENT -- 1.8%
Joint Repurchase Agreement Account,
6.49%, 07/03/00
(cost $25,850,000; Note 5)............ 25,850 25,850,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $215,179,082)................................. 215,179,082
--------------
TOTAL INVESTMENTS -- 100.0%
(cost $1,146,960,150; Note 6)....................... 1,436,414,240
FORWARD CURRENCY CONTRACTS -- AMOUNT
PAYABLE TO COUNTERPARTIES(d)........................ (418,608)
ASSETS IN EXCESS OF OTHER
LIABILITIES......................................... 542,913
--------------
TOTAL NET ASSETS -- 100.0%............................ $1,436,538,545
==============
</TABLE>
The following abbreviations are used in portfolio descriptions:
AB Aktiebolag (Swedish Stock Company)
AG Aktiengesellschaft (German Stock Company)
N.V. Naamloze Vennootschap (Dutch Corporation)
Oy Osokehio (Finnish Corporation)
PLC Public Limited Company (British Corporation)
SA Sociedad Anomia (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Represents security purchased with cash collateral received for securities
on loan.
(c) Portion of securities on loan with an aggregate market value of
$101,658,341; cash collateral of $103,874,453 was received with which the
portfolio purchased securities.
(d) Outstanding forward currency contract as of June 30, 2000 was as follows:
<TABLE>
<CAPTION>
FOREIGN CURRENCY VALUE AT CURRENT APPRECIATION
CONTRACT SETTLEMENT DATE VALUE (DEPRECIATION)
---------------- --------------- ----------- --------------
<S> <C> <C> <C>
Purchase Contract:
Japanese Yen,
expiring 8/15/00 $17,611,196 $17,629,352 $ 18,156
Sale Contract:
Japanese Yen,
expiring 8/15/00 $17,192,588 $17,629,352 $(436,764)
---------
$(418,608)
=========
</TABLE>
The industry classification of portfolio of holdings shown as a percentage of
net assets as of June 30, 2000 were as follows:
<TABLE>
<S> <C>
Telecommunications 20.0%
Electronics 15.1%
Media 9.5%
Computer Software & Services 5.7%
Commercial Banking 4.9%
Financial Services 4.8%
Retail 4.3%
Diversified Operations 2.9%
Advertising 2.8%
Pharmaceuticals 2.3%
Oil & Gas Services 2.1%
Telephones 1.4%
Manufacturing 1.3%
Banks 1.2%
Construction 1.1%
Diversified Manufacturing 1.1%
Automobiles & Manufacturing 1.0%
Electrical Equipment 1.0%
Airlines 0.9%
Real Estate-Development 0.6%
Building Materials & Components 0.5%
Materials 0.5%
Commercial Paper 7.3%
U.S. Government Securities 5.9%
Repurchase Agreement 1.8%
------
100.0%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B68
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
(UNAUDITED)
NOTE 1: GENERAL
The Prudential Series Fund, Inc. ("Series Fund"), a Maryland
corporation, organized on November 15, 1982, is a diversified open-end
management investment company registered under the Investment Company
Act of 1940, as amended. The Series Fund is composed of seventeen
Portfolios ("Portfolio" or "Portfolios"), each with a separate series of
capital stock. The information presented in these financial statements
pertains to only eleven Portfolios: Money Market Portfolio, Diversi-fied
Bond Portfolio, Government Income Portfolio, Conservative Balanced
Portfolio, Flexible Managed Portfolio, High Yield Bond Portfolio, Stock
Index Portfolio, Equity Income Portfolio, Equity Portfolio, Prudential
Jennison Portfolio, 20/20 Focus Portfolio, Small Capitalization Stock
Portfolio and Global Portfolio.
The Portfolios of the Series Fund have the following as investment
objectives:
MONEY MARKET PORTFOLIO: Current income, stability of capital and
maintenance of liquidity by investing in short-term money market
securities that generally mature in 13 months or less. The ability of
the issuers of the securities held by the Money Market Portfolio to meet
their obligations may be affected by economic developments in a specific
industry or region.
DIVERSIFIED BOND PORTFOLIO: High level of income over the long term by
investing in U.S. government securities, mortgage-backed bonds, both
investment-grade and high yield corporate debt, and foreign securities.
GOVERNMENT INCOME PORTFOLIO: High level of income over the long term by
investing primarily in intermediate and longer-term U.S. government
bonds, including U.S. Treasuries and agencies, mortgage-backed
securities and foreign government securities.
CONSERVATIVE BALANCED PORTFOLIO: Favorable total return consistent with
a more conservatively managed diversified portfolio by investing in
money market instruments, bonds and common stocks of both established
and smaller companies.
FLEXIBLE MANAGED PORTFOLIO: High total return by investing in money
market instruments, bonds and common stocks.
HIGH YIELD BOND PORTFOLIO: High total return by investing primarily in
noninvestment-grade bonds.
STOCK INDEX PORTFOLIO: Results that correspond to the price and yield
performance of the S&P 500 Index by investing primarily in stocks in the
S&P 500 Index.
EQUITY INCOME PORTFOLIO: Current income and capital appreciation by
investing primarily in stocks and convertible securities with prospects
for income returns above those of the S&P 500 Index.
EQUITY PORTFOLIO: Capital appreciation by investing primarily in stocks
of major, established companies.
PRUDENTIAL JENNISON PORTFOLIO: Long-term growth of capital by investing
primarily in common stocks of established compa-nies with above-average
growth prospects.
20/20 FOCUS PORTFOLIO: Long-term growth of capital by investing
primarily in securities of U.S. companies.
SMALL CAPITALIZATION STOCK PORTFOLIO: Long-term growth of capital that
corresponds to the price and yield performance of the S&P SmallCap 600
Index by investing primarily in stocks of the S&P SmallCap 600 Index.
GLOBAL PORTFOLIO: Long-term growth of capital by investing primarily in
common stock and common stock equivalents of U.S. and foreign companies.
NOTE 2: ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Series Fund and the Portfolios in preparation of their financial
statements. These policies are in conformity with generally accepted
accounting principles.
SECURITIES VALUATION: Equity securities traded on an exchange or NASDAQ
(whether domestic or foreign) are valued at the last reported sales
price on the primary exchange on which they are traded, or if there is
not a sale, at the mean of the last reported bid and asked prices or at
the bid price on such day in the absence of an asked price. Equity
securities that are not sold on an exchange or NASDAQ are valued by an
independent pricing agent or a principal market maker. Debt securities,
in general, are valued using an independent pricing service or a
principal market maker. Options on stock or stock indices are valued at
the average of the last reported bid and asked prices on the exchange on
which they are traded. Futures contracts and options on futures
contracts are valued at the last reported sale price, or if there is not
a sale, at the mean between the last reported bid and asked prices on
the commodity exchange or the board of trade on which they are traded.
Any security for which a reliable market quotation is unavailable is
valued at fair value by The Prudential Insurance Company of America
("The Prudential") under the direction of the Series Fund's Board of
Directors.
The Money Market, Conservative Balanced and Flexible Managed Portfolios
use amortized cost to value short-term securities. Short-term securities
that are held in the other Portfolios which mature in more than 60 days
are valued at current market quotations and those short-term securities
which mature in 60 days or less are valued at amortized cost.
The High Yield Bond Portfolio may hold up to 15% of its net assets in
illiquid securities, including those which are restricted as to
disposition under securities law ("restricted securities"). Certain
issues of restricted securities held by the High Yield Bond Portfolio at
June 30, 2000 include registration rights, none of which are currently
under contract to be registered.
C1
<PAGE>
Restricted securities, sometimes referred to as private placements, are
valued pursuant to the valuation procedures noted above.
Repurchase Agreements: In connection with transactions in repurchase
agreements with U.S. financial institutions, it is the Series Fund's
policy that its custodian or designated subcustodians, as the case may
be under triparty repurchase agreements, take possession of the
underlying collateral securities, the value of which exceeds the
principal amount of the repurchase transaction including accrued
interest. If the seller defaults and the value of the collateral
declines or if bankruptcy proceedings are commenced with respect to the
seller of the security, realization of the collateral by the Series Fund
may by delayed or limited.
FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund
are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities
-- at the current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses
-- at the rate of exchange prevailing on the respective dates of such
transactions.
Although the net assets of the Series Fund are presented at the foreign
exchange rates and market values at the close of the fiscal period, the
Series Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the
fluctuations arising from changes in the market prices of securities
held at the end of the fiscal period. Similarly, the Series Fund does
not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term
portfolio securities sold during the fiscal period. Accordingly, these
realized and unrealized foreign currency gains (losses) are included in
the reported net realized gains (losses) on investment transactions.
Net realized gains (losses) on foreign currency transactions represent
net foreign exchange gains or losses from holdings of foreign
currencies, currency gains or losses realized between the trade and
settlement dates on security transactions, and the difference between
the amounts of dividends, interest and foreign taxes recorded on the
Series Fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net unrealized currency gains or losses from valuing
foreign currency denominated assets and liabilities (other than
investments) at fiscal period end exchange rates are reflected as a
component of net unrealized appreciation (depreciation) on investments
and foreign currencies.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic
origin as a result of, among other factors, the possibility of political
and economic instability and the level of governmental supervision and
regulation of foreign securities markets.
FORWARD CURRENCY CONTRACTS: A forward currency contract is a commitment
to purchase or sell a foreign currency at a future date at a negotiated
forward rate. Certain portfolios of the Series Fund may enter into
forward currency contracts in order to hedge their exposure to changes
in foreign currency exchange rates on their foreign portfolio holdings
or on specific receivables and payables denominated in a foreign
currency. The contracts are valued daily at current exchange rates and
any unrealized gain or loss is included in net unrealized appreciation
or depreciation on investments and foreign currencies. Gain or loss is
realized on the settlement date of the contract equal to the difference
between the settlement value of the original and renegotiated forward
contracts. This gain or loss, if any, is included in net realized gain
(loss) on foreign currencies. Risks may arise upon entering into these
contracts from the potential inability of the counterparties to meet the
terms of their contracts.
SHORT SALES: Certain portfolios of the Series Fund may sell a security
it does not own in anticipation of a decline in the market value of that
security (short sale). When a Portfolio makes a short sale, it must
borrow the security sold short and deliver it to the buyer. The proceeds
of the short sale will be retained by the broker-dealer through which it
made the short sale as collateral for its obligation to deliver the
security upon conclusion of the sale. The Portfolio may have to pay a
fee to borrow the particular security and may be obligated to remit any
interest or dividends received on such borrowed securities. A gain,
limited to the price at which the Portfolio sold the security short, or
a loss, unlimited in magnitude, will be recognized upon the termination
of a short sale if the market price at termination is less than or
greater than, respectively, the proceeds originally received.
OPTIONS: The Series Fund may either purchase or write options in order
to hedge against adverse market movements or fluctuations in value with
respect to securities which the Series Fund currently owns or intends to
purchase. The Se-ries Fund's principal reason for writing options is to
realize, through receipts of premiums, a greater current return than
would be realized on the underlying security alone. When the Series Fund
purchases an option, it pays a premium and an amount equal to that
premium is recorded as an investment. When the Series Fund writes an
option, it receives a premium and an amount equal to that premium is
recorded as a liability. The investment or liability is adjusted daily
to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of
the premium received or paid. If an option is exercised, the premium
received or paid is an adjustment to the proceeds from the sales or the
cost of the purchase in determining whether the Series Fund has realized
a gain or loss. The difference between the premium and the amount
received or paid on effecting a closing purchase or sale transaction is
also treated as a realized gain or loss. Gain or loss on purchased
options is included in net realized gain (loss) on investment
transactions. Gain or loss on written options is presented separately as
net realized gain (loss) on written option transactions.
The Series Fund, as writer of an option, may have no control over
whether the underlying securities may be sold (called) or purchased
(put). As a result, the Series Fund bears the market risk of an
unfavorable change in the price of the security underlying the written
option. The Series Fund, as purchaser of an option, bears the risk of
the potential inability of the counterparties to meet the terms of their
contracts.
C2
<PAGE>
FINANCIAL FUTURES CONTRACTS: A financial futures contract is an
agreement to purchase (long) or sell (short) an agreed amount of
securities at a set price for delivery on a future date. Upon entering
into a financial futures contract, the Series Fund is required to pledge
to the broker an amount of cash and/or other assets equal to a certain
percentage of the contract amount. This amount is known as the "initial
margin". Subsequent payments, known as "variation margin", are made or
received by the Series Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the
gain or loss is realized and is presented in the statement of operations
as net realized gain (loss) on financial futures contracts.
The Series Fund invests in financial futures contracts in order to hedge
its existing portfolio securities or securities the Series Fund intends
to purchase, against fluctuations in value. Under a variety of
circumstances, the Series Fund may not achieve the anticipated benefits
of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts and the underlying assets.
SECURITIES LENDING: The Series Fund (excluding the Money Market
Portfolio) may lend its portfolio securities to broker-dealers,
qualified banks and certain institutional investors. The loans are
secured by collateral in an amount equal to at least the market value at
all times of the loaned securities plus any accrued interest and
dividends. During the time the securities are on loan, the Series Fund
will continue to receive the interest and dividends or amounts
equivalent thereto, on the loaned securities while receiving a fee from
the borrower or earning interest on the investment of the cash
collateral. Loans are subject to termination at the option of the
borrower or the Series Fund. Upon termination of the loan, the borrower
will return to the lender securities identical to the loaned securities.
The Series Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan of its securities and may share
the interest earned on the collateral with the borrower. The Series Fund
bears the risk of delay in recovery of, or even loss of rights in, the
securities loaned should the borrower of the securities fail
financially. Prudential Securities Incorporated ("PSI") is the
securities lending agent for the Series Fund. PSI is an indirect, wholly
owned subsidiary of The Prudential. For the six months ended June 30,
2000, PSI has been compensated by the following amounts:
Conservative Balanced Portfolio ............. $ 313,795
Flexible Managed Portfolio .................. 359,455
High Yield Bond Portfolio ................... 12,876
Stock Index Portfolio ....................... 6,743
Equity Income Portfolio ..................... 56,215
Prudential Jennison Portfolio ............... 175,958
Small Capitalization Stock Portfolio ........ 20,405
Global Portfolio ............................ 91,526
----------
$1,036,973
==========
SWAPS: Certain portfolios of the Series Fund may enter into swap
agreements. A swap agreement is an agreement between two parties to
exchange a series of cash flows at specified intervals. Based on a
notional amount, each party pays an interest rate or the change in the
value of a security. Dividends and interest on the securities in the
swap are included in the value of the exchange. The swaps are valued
daily at current market value and any unrealized gain or loss is
included in net unrealized appreciation or depreciation on investments.
Gain or loss is realized on the termination date of the swap and is
equal to the difference between a Portfolio's basis in the swap and the
proceeds of the closing transaction, including any fees. During the
period that the swap agreement is open, the Portfolio may be subject to
risk from the potential inability of the counterparty to meet the terms
of the agreement.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions
are recorded on the trade date. Realized gains and losses on sales of
securities are calculated on the identified cost basis. Dividend income
is recorded on the ex-dividend date; interest income, which is comprised
of four elements: stated coupon, original issue discount, market
discount and market premium is recorded on the accrual basis. Certain
portfolios own shares of real estate investment trusts ("REITs") which
report information on the source of their distributions annually. A
portion of distributions received from REITs during the year is
estimated to be a return of capital and is recorded as a reduction of
their costs. These estimates are adjusted when the actual source of the
distributions is disclosed. Expenses are recorded on the accrual basis
which may require the use of certain estimates by management. The Series
Fund's expenses are allocated to the respective Portfolios on the basis
of relative net assets except for Portfolio specific expenses, which are
attributable directly at a Portfolio or class level.
For Portfolio's with multiple classes and shares, net investment income,
other than administration and distribution fees, and unrealized and
realized gains or losses are allocated daily to each class of shares
based upon the relative proportion of net assets of each class at the
beginning of the day.
CUSTODY FEE CREDITS: The Series Fund has an arrangement with its
custodian bank, whereby uninvested monies earn credits, which reduce the
fees charged by the custodian. Such custody fee credits are presented as
a reduction of gross expenses in the accompanying statements of
operations.
TAXES: For federal income tax purposes, each portfolio in the Series
Fund is treated as a separate taxpaying entity. It is the intent of each
Portfolio of the Series Fund to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and
to distribute all of its net income to shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends, interest and capital gains have
been provided for in accordance with the Se-ries Fund's understanding of
the applicable country's tax rules and regulations.
C3
<PAGE>
DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each
Portfolio are declared in cash and automatically reinvested in
additional shares of the same Portfolio. The Money Market Portfolio will
declare and reinvest dividends from net investment income and net
realized capital gain (loss) daily. Each other Portfolio will declare
and distribute dividends from net investment income, if any, quarterly
and distributions from net capital gains, if any, at least annually.
Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and
reports distributions to shareholders in accordance with the American
Institute of Certified Public Accountants' Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gains, and Return of Capital Distributions by Investment
Companies. As a result of this statement, the Series Fund changed the
classification of distributions to shareholders to disclose the amounts
of undistributed net investment income and accumulated net realized gain
(loss) on investments available for distributions determined in
accordance with income tax regulations. For the six months ended June
30, 2000, the application of this statement increased (decreased)
undistributed net investment income ("UNI") and accumulated net realized
gain (loss) on investments ("G/L") by the following amounts:
UNI G/L
---------- ------------
Equity Income Portfolio(a) .... $ 50 $ (50)
Equity Portfolio(a) ........... 2,338,357 (2,338,357)
Global Portfolio(a) ........... 363,522 (363,522)
(a) Reclassification of net foreign currency gain (loss).
Net investment income, net realized gains and net assets were not
affected by these reclassifications.
NOTE 3: AGREEMENTS
The Series Fund has an investment advisory agreement with The
Prudential. Pursuant to this agreement The Prudential has responsibility
for all investment advisory services and supervises the subadvisers'
performance of such services. The Prudential has entered into a service
agreement with The Prudential Investment Corporation ("PIC"), which
provides that PIC will furnish to The Prudential such services as The
Prudential may require in connection with the performance of its
obligations under the investment advisory agreement with the Series
Fund. In addition, The Prudential has entered into a subadvisory
agreement with Jennison Associates LLC ("Jennison"), under which
Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison and 20/20 Focus Portfolios. The
Prudential pays for the services of PIC and Jennison, compensation of
officers of the Series Fund, occupancy and certain clerical and
administrative expenses of the Series Fund. The Series Fund bears all
other costs and expenses.
The investment advisory fee paid to The Prudential is computed daily and
payable quarterly, at the annual rates specified below, of the value of
each of the Portfolio's average daily net assets.
Investment Advisory Fee
-----------------------
Money Market Portfolio ...................... 0.40%
Diversified Bond Portfolio .................. 0.40
Government Income Portfolio ................. 0.40
Conservative Balanced Portfolio ............. 0.55
Flexible Managed Portfolio .................. 0.60
High Yield Bond Portfolio ................... 0.55
Stock Index Portfolio ....................... 0.35
Equity Income Portfolio ..................... 0.40
Equity Portfolio ............................ 0.45
Prudential Jennison Portfolio ............... 0.60
20/20 Focus Portfolio ....................... 0.75
Small Capitalization Stock Portfolio ........ 0.40
Global Portfolio ............................ 0.75
The Prudential compensates Jennison for its services at the annual rates
specified below based on the average daily net assets of the Prudential
Jennison Portfolio and based on the segment of the 20/20 Focus Portfolio
that it manages as follows. The fees are accrued daily and paid
quarterly.
Fee Paid by Prudential to Jennison
----------------------------------
Prudential Jennison Portfolio ... 0.75% on the first $10 million
0.50% on the next $30 million
0.35% on the next $25 million
0.25% on the next $335 million
0.22% on the next $600 million
0.20% thereafter
20/20 Focus Portfolio ........... 0.30% on the first $300 million
0.25% thereafter
C4
<PAGE>
The Series Fund has a distribution agreement with Prudential Investment
Management Services LLC ("PIMS") which acts as the distributor of the
Class I and Class II shares of the Series Fund. The Series Fund
compensates PIMS for distributing and servicing the Series Fund's Class
II shares pursuant to a plan of distribution (the "Class II Plan"),
regardless of expenses actually incurred by PIMS. The distribution fees
are accrued daily and payable quarterly. No distribution or service fees
are paid to PIMS as distributor of the Class I shares of the Series
Fund. Pursuant to the Class II Plan, the Class II shares of each
Portfolio compensate PIMS for distribution-related activities at an
annual rate of 0.25% of the average daily net assets of the Class II
shares.
The Series Fund has an administration agreement with Prudential
Investments Fund Management LLC ("PIFM") which acts as the administrator
of the Class II shares of the Series Fund. The administration fee paid
to PIFM is accrued daily and payable quarterly, at the annual rate of
0.15% of the average daily net assets of the Class II shares.
The Prudential has agreed to reimburse each Portfolio (other than the
Global Portfolio), the portion of the investment advisory fee for that
Portfolio equal to the amount that the aggregate annual ordinary
operating expenses (excluding interest, taxes and brokerage commissions)
exceeds 0.75% of the Portfolio's average daily net assets. No
reimbursement was required for the six months ended June 30, 2000.
PIC, PIMS, PIFM and Jennison are wholly-owned subsidiaries of The
Prudential.
The Series Fund, along with other affiliated registered investment
companies (the "Funds"), entered into a syndicated credit agreement
("SCA") with an unaffiliated lender. The maximum commitment under the
SCA is $1 billion. Interest on any such borrowings outstanding will be
at market rates. The purpose of the agreement is to serve as an
alternative source of funding for capital share redemptions. The Funds
pays a commitment fee at an annual rate of 0.080 of 1% on the unused
portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro rata basis by the Funds. The expiration date of the
SCA is March 9, 2001. Prior to March 9, 2000, the commitment fee was
0.065 of 1% of the unused portion of the facility. The Series Fund did
not borrow any amounts pursuant to the SCA during the six months ended
June 30, 2000.
NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary
of PIFM, serves as the Series Fund's transfer agent. Transfer agent fees
and expenses in the statements of operations include certain
out-of-pocket expense paid to nonaffiliates. During the six months ended
June 30, 2000, the Series Fund incurred fees for the services of PMFS
and as of June 30, 2000 fees were due to PMFS as follows:
Amount Incurred
for the Amount Due
Six Months Ended as of
June 30, 2000 June 30, 2000
---------------- -------------
Money Market Portfolio ................ $4,800 $800
Diversified Bond Portfolio ............ 4,900 800
Government Income Portfolio ........... 3,400 600
Conservative Balanced Portfolio ....... 4,000 700
Flexible Managed portfolio ............ 5,000 800
High Yield Bond Portfolio ............. 4,800 800
Stock Index Portfolio ................. 5,000 800
Equity Income Portfolio ............... 4,600 800
Equity Portfolio ...................... 5,000 900
Prudential Jennison Portfolio ......... 5,100 900
20/20 Focus Portfolio ................. 800 100
Small Capitalization Stock Portfolio .. 4,000 700
Global Portfolio ...................... 4,700 800
------- ------
$56,100 $9,500
======= ======
For the six months ended June 30, 2000, PSI, earned $315,929 in
brokerage commissions from transactions executed on behalf of the
following Portfolios:
Commission
----------
Conservative Balanced Portfolio .......... $ 3,837
Flexible Managed portfolio ............... 20,378
Equity Income Portfolio .................. 54,004
Equity Portfolio ......................... 99,440
Prudential Jennison Portfolio ............ 138,270
--------
$315,929
========
NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT
The Series Fund may transfer uninvested cash balances into a single
joint repurchase agreement account, the daily aggregate balance of which
is invested in one or more repurchase agreements collateralized by U.S.
Government obliga-tions. The Series Fund's undivided interest in the
joint repurchase agreement account represented $631,671,000 as of
C5
<PAGE>
June 30, 2000. The Portfolios of the Series Fund with cash invested in
the joint accounts had the following principal amounts and percentage
participation in the account:
Principal Percentage
Amount Interest
------------ ----------
Diversified Bond Portfolio ........... $ 34,236,000 5.42%
Government Income Portfolio .......... 14,963,000 2.37
Conservative Balanced Portfolio ...... 57,017,000 9.03
Flexible Managed Portfolio ........... 97,471,000 15.43
High Yield Bond Portfolio ............ 41,437,000 6.56
Stock Index Portfolio ................ 59,383,000 9.40
Equity Income Portfolio .............. 21,298,000 3.37
Equity Portfolio ..................... 67,436,000 10.67
Prudential Jennison Portfolio ........ 145,588,000 23.05
20/20 Focus Portfolio ................ 9,604,000 1.52
Small Capitalization Stock Portfolio.. 22,651,000 3.59
Global Portfolio ..................... 25,850,000 4.09
All other Portfolios ................. 34,737,000 5.50
------------ ------
$631,671,000 100.00%
============ ======
ABN AMRO Inc., 6.60%, in the principal amount of $130,000,000,
repurchase price $130,071,500, due 7/3/00. The value of the collateral
including accrued interest was $132,600,710.
ABN AMRO Inc., 6.20%, in the principal amount of $76,455,000, repurchase
price $76,494,502, due 7/3/00. The value of the collateral including
accrued interest was $77,984,334.
Bear, Stearns & Co., Inc., 6.55%, in the principal amount of
$125,000,000, repurchase price $125,068,229, due 7/3/00. The value of
the collateral including accrued interest was $127,935,940.
Credit Suisse First Boston Corp., 6.65%, in the principal amount of
$125,000,000, repurchase price $125,069,271, due 7/3/00. The value of
the collateral including accrued interest was $130,618,178.
UBS Warburg, 6.55%, in the principal amount of $100,000,000, repurchase
price $100,054,583, due 7/3/00. The value of the collateral including
accrued interest was $102,001,028.
UBS Warburg, 6.25%, in the principal amount of $75,216,000, repurchase
price $75,255,175, due 7/3/00. The value of the collateral including
accrued interest was $76,721,755.
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchase and proceeds from sales of securities
(excluding short-term issues) for the six months ended June 30, 2000
were as follows:
Cost of Purchases:
Government Non-Government
Securities Securities
------------ --------------
Diversified Bond Portfolio .......... $341,777,415 $ 247,515,370
Government Income Portfolio ......... 350,848,552 0
Conservative Balanced Portfolio ..... 794,806,228 1,096,759,509
Flexible Managed Portfolio .......... 669,592,038 1,674,359,362
High Yield Bond Portfolio ........... 0 288,699,800
Stock Index Portfolio ............... 0 133,703,961
Equity Income Portfolio ............. 0 765,025,163
Equity Portfolio .................... 0 251,721,501
Prudential Jennison Portfolio ....... 0 1,842,685,398
20/20 Focus Portfolio ............... 0 57,193,517
Small Capitalization Stock Portfolio. 0 101,591,481
Global Portfolio .................... 0 376,923,599
C6
<PAGE>
Proceeds from Sales:
Government Non-Government
Securities Securities
-------------- --------------
Diversified Bond Portfolio .......... $ 273,669,937 $ 332,157,325
Government Income Portfolio ......... 393,492,453 0
Conservative Balanced Portfolio ..... 1,078,594,082 1,478,115,288
Flexible Managed Portfolio .......... 340,750,236 2,274,589,749
High Yield Bond Portfolio ........... 0 263,848,234
Stock Index Portfolio ............... 0 105,636,662
Equity Income Portfolio ............. 0 887,894,500
Equity Portfolio .................... 0 842,655,641
Prudential Jennison Portfolio ....... 0 1,266,685,655
20/20 Focus Portfolio ............... 0 28,302,083
Small Capitalization Stock Portfolio. 0 71,366,594
Global Portfolio .................... 0 355,097,058
The federal income tax basis and unrealized appreciation (depreciation)
of the Series Fund's investments as of June 30, 2000 were as follows:
<TABLE>
<CAPTION>
Total Net
Unrealized Gross Gross
Tax Appreciation Unrealized Unrealized
Basis (Depreciation) Appreciation Depreciation
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Diversified Bond Portfolio ........... $1,251,783,832 $ (36,057,203) $ 5,834,834 $ 41,892,037
Government income Portfolio .......... 313,671,938 (6,640,003) 434,284 7,074,287
Conservative Balanced Portfolio ...... 4,224,893,396 306,700,826 513,043,451 206,342,625
Flexible Managed Portfolio ........... 5,087,503,758 307,146,880 594,772,598 287,625,718
High Yield Bond Portfolio ............ 874,482,573 (116,206,186) 15,876,945 132,083,131
Stock Index Portfolio ................ 2,421,693,015 2,210,555,510 2,370,266,248 159,710,678
Equity Income Portfolio .............. 1,738,740,135 17,139,127 253,827,943 236,688,816
Equity Portfolio ..................... 4,965,052,251 492,566,081 1,138,419,652 645,853,571
Prudential Jennison Portfolio ........ 2,724,954,392 753,284,694 852,783,794 99,499,100
20/20 Focus Portfolio ................ 96,619,813 (789,909) 8,302,101 9,092,010
Small Capitalization Stock Portfolio.. 465,038,384 50,203,587 216,241,857 76,038,270
Global Portfolio ..................... 1,147,863,512 288,550,728 320,547,370 31,996,642
</TABLE>
The Global Portfolio entered into 3 swap agreements with Merrill Lynch
International. The Portfolio receives the change in the market value of
shares of Taiwan Semiconductor including dividends and the Global
Portfolio pays 3 month LIBOR plus 0.75% based on the value of the shares
of Taiwan Semiconductor on the date the contract was entered into. In
addition, the Global Portfolio will pay a fee at termination of the swap
equal to the number of shares of Taiwan Semiconductor times the market
price on termination date times 0.0075. Details of the swap agreements
are as follows:
<TABLE>
<CAPTION>
Appreciation
Open Date Termination Date Shares Current Value Current Basis (Depreciation)
--------- ---------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
8/16/99 8/18/00 1,874,689 $ 8,828,956 $10,165,688 $(1,336,732)
11/16/99 8/18/00 1,253,632 5,904,053 6,797,945 (893,892)
11/16/99 8/18/00 1,367,896 6,442,186 7,417,553 (975,367)
----------- ----------- -----------
$21,175,195 $24,381,186 $(3,205,991)
=========== =========== ===========
</TABLE>
The Global Portfolio also entered into a future swap agreement with
Merrill Lynch International having the following description. The Global
Portfolio receives the positive change in the market value of Dow Jones
Euro Stoxx 50 Sept '00 future and pays the negative change in the market
value of the Dow Jones Euro Stoxx 50 Sept '00. The Global Portfolio paid
a transaction fee for the agreement. The Portfolio will pay a fee at
termination of the swap. Details of the swap are as follows:
<TABLE>
<CAPTION>
Open Date Termination Date Contracts Current Value Current Basis Appreciation
--------- ---------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
6/1/00 9/20/00 1,350 $67,061,974 $66,774,997 $286,977
</TABLE>
C7
<PAGE>
For federal income tax purposes, the following Portfolios had
post-October losses deferred and capital loss carryforwards as of
December 31, 1999. Accordingly no capital gain distributions are
expected to be paid to shareholders until net gains have been realized
in excess of such amounts:
<TABLE>
<CAPTION>
Post-October Post-October Capital Loss
Currency Capital Carryforwards
Losses Deferred Losses Deferred Available Expiration Date
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Conservative Balanced Portfolio .. -- $ 8,302,364 -- --
Flexible Managed Portfolio ....... -- 16,235,978 -- --
High Yield Bond Portfolio ........ -- 4,418,508 $ (2,841,700) 2003
(43,467,300) 2007
------------
(46,309,000)
Global Portfolio $262,338 -- -- --
</TABLE>
NOTE 7: CAPITAL
The Series Fund offers Class I and Class II shares. Both Class I and
Class II shares of a Portfolio are not subject to any sales charge or
redemption charge and are sold at the net asset value of the Portfolio.
Class I shares are sold only to certain separate accounts of The
Prudential to fund benefits under certain variable life insurance and
variable annuity contracts ("contracts"). Class II shares are sold only
to separate accounts of non-Prudential insurance companies as investment
options under certain contracts. The accounts invest in shares of the
Series Fund through subaccounts that correspond to the portfolios. The
accounts will redeem shares of the Series Fund to the extent necessary
to provide benefits under the contracts or for such other purposes as
may be consistent with the contracts. As of June 30, 2000, the Equity,
Prudential Jennison and 20/20 Focus Portfolios have Class II shares
outstanding.
Transactions in shares of common stock of the Equity, Prudential
Jennison and 20/20 Focus Portfolios were as follows:
<TABLE>
<CAPTION>
EQUITY PORTFOLIO:
Class I Shares Amount
------- ----------- ---------------
<S> <C> <C>
Six months ended June 30, 2000:
Capital stock sold ........................................................... 3,146,069 $ 86,587,014
Capital stock issued in reinvestment of dividends and distributions .......... 6,358,428 165,952,214
Capital stock repurchased .................................................... (19,064,840 (516,323,539)
----------- ---------------
Net decrease in shares outstanding ........................................... (9,560,343) $ (263,784,311)
=========== ===============
Shares Amount
----------- ---------------
Year ended December 31, 1999:
Capital stock sold ........................................................... 8,671,360 $ 269,536,387
Capital stock issued in reinvestment of dividends and distributions .......... 29,303,403 742,957,463
Capital stock repurchased .................................................... (33,039,026) (1,018,930,728)
----------- ---------------
Net increase in shares outstanding ........................................... 4,935,737 $ 93,563,122
=========== ===============
Class II Shares Amount
-------- ----------- ---------------
Six months ended June 30, 2000:
Capital stock sold ........................................................... 41,625 $ 1,144,430
Capital stock issued in reinvestment of dividends and distributions .......... 486 15,453
Capital stock repurchased .................................................... (30,644) (840,234)
----------- ---------------
Net increase in shares outstanding ........................................... 11,467 $ 319,649
=========== ===============
Shares Amount
----------- ---------------
May 3, 1999(a) through December 31, 1999:
Capital stock sold ........................................................... 14,063 $ 457,113
Capital stock issued in reinvestment of dividends and distributions .......... 1,186 33,511
Capital stock repurchased .................................................... (4,199) (135,030)
----------- ---------------
Net increase in shares outstanding ........................................... 11,050 $ 355,594
=========== ===============
(a) Commencement of offering of Equity Portfolio Class II shares
</TABLE>
C8
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL JENNISON PORTFOLIO:
Class I Shares Amount
------- ----------- ---------------
<S> <C> <C>
Six months ended June 30, 2000:
Capital stock sold ........................................................... 22,342,715 $ 749,265,516
Capital stock issued in reinvestment of dividends and distributions .......... 1,630,628 49,620,027
Capital stock repurchased .................................................... (4,759,602) (157,150,860)
----------- ---------------
Net increase in shares outstanding ........................................... 19,213,741 $ 641,734,683
=========== ===============
Class II Shares Amount
-------- ----------- ---------------
February 10, 2000(b) through June 30, 2000:
Capital stock sold ........................................................... 87,950 $ 2,840,721
Capital stock issued in reinvestment of dividends and distributions .......... 73 2,217
Capital stock repurchased .................................................... (4,108) (132,434)
----------- ---------------
Net increase in shares outstanding ........................................... 83,915 $ 2,710,504
=========== ===============
(b) Commencement of offering of Prudential Jennison Portfolio Class II shares.
20/20 FOCUS PORTFOLIO:
Class I Shares Amount
------- ----------- ---------------
Six months ended June 30, 2000:
Capital stock sold ........................................................... 3,124,768 $ 35,666,146
Capital stock issued in reinvestment of dividends and distributions .......... 59,656 631,747
Capital stock repurchased .................................................... (101,794) (1,164,891)
----------- ---------------
Net increase in shares outstanding ........................................... 3,082,478 $ 35,133,002
=========== ===============
Class II Shares Amount
-------- ----------- ---------------
February 14, 2000(c) through June 30, 2000:
Capital stock sold ........................................................... 32,087 $ 358,803
Capital stock issued in reinvestment of dividends and distributions .......... 41 442
Capital stock repurchased .................................................... (5,874) (63,517)
----------- ---------------
Net increase in shares outstanding ........................................... 26,254 $ 295,728
=========== ===============
(c) Commencement of offering of 20/20 Focus Portfolio Class II shares.
</TABLE>
C9
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------
SIX
MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
2000 1999 1998 1997 1996 1995(c)
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
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 and realized and
unrealized gains........................ 0.29 0.49 0.52 0.54 0.51 0.56
Dividends and distributions............... (0.29) (0.49) (0.52) (0.54) (0.51) (0.56)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of period............ $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(a)................ 2.94% 4.97% 5.39% 5.41% 5.22% 5.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $1,166.8 $1,335.5 $ 920.2 $ 657.5 $ 668.8 $ 613.3
Ratios to average net assets:
Expenses................................ 0.43%(b) 0.42% 0.41% 0.43% 0.44% 0.44%
Net investment income................... 5.79%(b) 4.90% 5.20% 5.28% 5.10% 5.64%
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED BOND
-----------------------------------------------------------------------
SIX
MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
2000 1999 1998 1997 1996 1995(c)
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period...... $ 10.95 $ 11.06 $ 11.02 $ 11.07 $ 11.31 $ 10.04
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.41 0.67 0.69 0.80 0.76 0.76
Net realized and unrealized gains (losses)
on investments.......................... (0.11) (0.75) 0.08 0.11 (0.27) 1.29
-------- -------- -------- -------- -------- --------
Total from investment operations...... 0.30 (0.08) 0.77 0.91 0.49 2.05
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.17) -- (0.69) (0.83) (0.73) (0.75)
Distributions from net realized gains..... --(d) (0.03) (0.04) (0.13) -- (0.03)
-------- -------- -------- -------- -------- --------
Total distributions................... (0.17) (0.03) (0.73) (0.96) (0.73) (0.78)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of period............ $ 11.08 $ 10.95 $ 11.06 $ 11.02 $ 11.07 $ 11.31
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(a)................ 2.80% (0.74)% 7.15% 8.57% 4.40% 20.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $1,210.7 $1,253.8 $1,122.6 $ 816.7 $ 720.2 $ 655.8
Ratios to average net assets:
Expenses................................ 0.43%(b) 0.43% 0.42% 0.43% 0.45% 0.44%
Net investment income................... 6.85%(b) 6.25% 6.40% 7.18% 6.89% 7.00%
Portfolio turnover rate................... 51% 171% 199% 224% 210% 199%
</TABLE>
(a) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(b) Annualized.
(c) Calculations are based on average month-end shares outstanding.
(d) Less than $0.002 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
D1
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
GOVERNMENT INCOME PORTFOLIO
---------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995(C)
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period...... $ 11.55 $ 11.87 $ 11.52 $ 11.22 $ 11.72 $ 10.46
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.52 0.76 0.67 0.75 0.75 0.74
Net realized and unrealized gains (losses)
on investments.......................... (0.01) (1.08) 0.36 0.30 (0.51) 1.28
-------- -------- -------- -------- -------- --------
Total from investment operations...... 0.51 (0.32) 1.03 1.05 0.24 2.02
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.22) -- (0.68) (0.75) (0.74) (0.76)
Distributions from net realized gains..... (0.03) -- --(d) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions................... (0.25) -- (0.68) (0.75) (0.74) (0.76)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of period............ $ 11.81 $ 11.55 $ 11.87 $ 11.52 $ 11.22 $ 11.72
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(a)................ 4.43% (2.70)% 9.09% 9.67% 2.22% 19.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $ 285.7 $ 335.5 $ 443.2 $ 429.6 $ 482.0 $ 501.8
Ratios to average net assets:
Expenses................................ 0.45%(b) 0.44% 0.43% 0.44% 0.46% 0.45%
Net investment income................... 6.07%(b) 5.72% 5.71% 6.40% 6.38% 6.55%
Portfolio turnover rate................... 116% 106% 109% 88% 95% 195%
</TABLE>
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED PORTFOLIO
--------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995(c)
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period...... $ 15.36 $ 15.08 $ 14.97 $ 15.52 $ 15.31 $ 14.10
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.32 0.62 0.66 0.76 0.66 0.63
Net realized and unrealized gains (losses)
on investments.......................... (0.12) 0.37 1.05 1.26 1.24 1.78
-------- -------- -------- -------- -------- --------
Total from investment operations...... 0.20 0.99 1.71 2.02 1.90 2.41
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.17) (0.62) (0.66) (0.76) (0.66) (0.64)
Distributions from net realized gains..... -- (0.06) (0.94) (1.81) (1.03) (0.56)
Distributions in excess from net realized
gains................................... -- (0.03) -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions................... (0.17) (0.71) (1.60) (2.57) (1.69) (1.20)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of period............ $ 15.39 $ 15.36 $ 15.08 $ 14.97 $ 15.52 $ 15.31
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(a)................ 1.39% 6.69% 11.74% 13.45% 12.63% 17.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $3,998.2 $4,387.1 $4,796.0 $4,744.2 $4,478.8 $3,940.8
Ratios to average net assets:
Expenses................................ 0.58%(b) 0.57% 0.57% 0.56% 0.59% 0.58%
Net investment income................... 4.11%(b) 4.02% 4.19% 4.48% 4.13% 4.19%
Portfolio turnover rate................... 48% 109% 167% 295% 295% 201%
</TABLE>
(a) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(b) Annualized.
(c) Calculations are based on average month-end shares outstanding.
(d) Less than $0.005 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
D2
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
FLEXIBLE MANAGED PORTFOLIO
--------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995(c)
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period...... $ 17.64 $ 16.56 $ 17.28 $ 17.79 $ 17.86 $ 15.50
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.33 0.58 0.58 0.59 0.57 0.56
Net realized and unrealized gains (losses)
on investments.......................... (0.23) 0.69 1.14 2.52 1.79 3.15
-------- -------- -------- -------- -------- --------
Total from investment operations...... 0.10 1.27 1.72 3.11 2.36 3.71
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.15) -- (0.59) (0.58) (0.58) (0.56)
Distributions from net realized gains..... (0.24) (0.19) (1.85) (3.04) (1.85) (0.79)
-------- -------- -------- -------- -------- --------
Total distributions................... (0.39) (0.19) (2.44) (3.62) (2.43) (1.35)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of period............ $ 17.35 $ 17.64 $ 16.56 $ 17.28 $ 17.79 $ 17.86
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(a)................ 0.64% 7.78% 10.24% 17.96% 13.64% 24.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $4,754.3 $5,125.3 $5,410.0 $5,490.1 $4,896.9 $4,261.2
Ratios to average net assets:
Expenses................................ 0.63%(b) 0.62% 0.61% 0.62% 0.64% 0.63%
Net investment income................... 3.39%(b) 3.20% 3.21% 3.02% 3.07% 3.30%
Portfolio turnover rate................... 52% 76% 138% 227% 233% 173%
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD BOND PORTFOLIO
--------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995(c)
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period...... $ 7.52 $ 7.21 $ 8.14 $ 7.87 $ 7.80 $ 7.37
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.42 0.79 0.77 0.78 0.80 0.81
Net realized and unrealized gains (losses)
on investments.......................... (0.56) (0.46) (0.94) 0.26 0.06 0.46
-------- -------- -------- -------- -------- --------
Total from investment operations...... (0.14) 0.33 (0.17) 1.04 0.86 1.27
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.21) (0.02) (0.76) (0.77) (0.78) (0.84)
Dividends in excess of net investment
income.................................. -- -- -- -- (0.01) --
-------- -------- -------- -------- -------- --------
Total distributions................... (0.21) (0.02) (0.76) (0.77) (0.79) (0.84)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of period............ $ 7.17 $ 7.52 $ 7.21 $ 8.14 $ 7.87 $ 7.80
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(a)................ (1.90)% 4.61% (2.36)% 13.78% 11.39% 17.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $ 736.4 $ 802.2 $ 789.3 $ 568.7 $ 432.9 $ 367.9
Ratios to average net assets:
Expenses................................ 0.59%(b) 0.60% 0.58% 0.57% 0.63% 0.61%
Net investment income................... 10.38%(b) 10.48% 10.31% 9.78% 9.89% 10.34%
Portfolio turnover rate................... 37% 58% 63% 106% 88% 139%
</TABLE>
(a) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(b) Annualized.
(c) Calculations are based on average month-end shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS.
D3
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
STOCK INDEX PORTFOLIO
--------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995(c)
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period...... $ 44.45 $ 37.74 $ 30.22 $ 23.74 $ 19.96 $ 14.96
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.18 0.44 0.42 0.43 0.40 0.40
Net realized and unrealized gains (losses)
on investments.......................... (0.43) 7.23 8.11 7.34 4.06 5.13
-------- -------- -------- -------- -------- --------
Total from investment operations...... (0.25) 7.67 8.53 7.77 4.46 5.53
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.10) (0.43) (0.42) (0.42) (0.40) (0.38)
Distributions from net realized gains..... (0.04) (0.53) (0.59) (0.87) (0.28) (0.15)
-------- -------- -------- -------- -------- --------
Total distributions................... (0.14) (0.96) (1.01) (1.29) (0.68) (0.53)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of period............ $ 44.06 $ 44.45 $ 37.74 $ 30.22 $ 23.74 $ 19.96
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(a)................ (0.54)% 20.54% 28.42% 32.83% 22.57% 37.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $4,628.9 $4,655.0 $3,548.1 $2,448.2 $1,581.4 $1,031.3
Ratios to average net assets:
Expenses................................ 0.38%(b) 0.39% 0.37% 0.37% 0.40% 0.38%
Net investment income................... 0.84%(b) 1.09% 1.25% 1.55% 1.95% 2.27%
Portfolio turnover rate................... 2% 2% 3% 5% 1% 1%
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO
--------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995(c)
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period...... $ 19.52 $ 20.03 $ 22.39 $ 18.51 $ 16.27 $ 14.48
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.25 0.51 0.56 0.61 0.58 0.64
Net realized and unrealized gains (losses)
on investments.......................... (1.29) 1.89 (1.03) 6.06 2.88 2.50
-------- -------- -------- -------- -------- --------
Total from investment operations...... (1.04) 2.40 (0.47) 6.67 3.46 3.14
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.16) (0.50) (0.59) (0.57) (0.71) (0.62)
Distributions from net realized gains..... (0.04) (2.41) (1.30) (2.22) (0.51) (0.73)
-------- -------- -------- -------- -------- --------
Total distributions................... (0.20) (2.91) (1.89) (2.79) (1.22) (1.35)
-------- -------- -------- -------- -------- --------
Net Asset Value, end of period............ $ 18.28 $ 19.52 $ 20.03 $ 22.39 $ 18.51 $ 16.27
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(a)................ (5.31)% 12.52% (2.38)% 36.61% 21.74% 21.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $1,722.2 $2,024.0 $2,142.3 $2,029.8 $1,363.5 $1,110.0
Ratios to average net assets:
Expenses................................ 0.42%(b) 0.42% 0.42% 0.41% 0.45% 0.43%
Net investment income................... 2.63%(b) 2.34% 2.54% 2.90% 3.36% 4.00%
Portfolio turnover rate................... 43% 16% 20% 38% 21% 64%
</TABLE>
(a) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(b) Annualized.
(c) Calculations are based on average month-end shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS.
D4
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
---------------------------------------------------------------------------------
CLASS I CLASS II
-------------------------------------------------------------------- ----------
SIX SIX
MONTHS YEAR ENDED MONTHS
ENDED DECEMBER 31, ENDED
JUNE 30, ---------------------------------------------------- JUNE 30,
2000 1999 1998 1997 1996 1995(c) 2000
---------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
period............................. $ 28.90 $ 29.64 $ 31.07 $ 26.96 $ 25.64 $ 20.66 $28.92
-------- -------- -------- -------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................ 0.27 0.54 0.60 0.69 0.71 0.55 0.15
Net realized and unrealized gains
(losses) on investments............ (1.86) 3.02 2.21 5.88 3.88 5.89 (1.80)
-------- -------- -------- -------- -------- -------- ------
Total from investment
operations..................... (1.61) 3.56 2.81 6.57 4.59 6.44 (1.65)
-------- -------- -------- -------- -------- -------- ------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................. (0.14) (0.63) (0.60) (0.70) (0.67) (0.52) (0.11)
Distributions from net realized
gains.............................. (0.67) (3.77) (3.64) (1.76) (2.60) (0.94) (0.67)
-------- -------- -------- -------- -------- -------- ------
Total distributions.............. (0.81) (4.30) (4.24) (2.46) (3.27) (1.46) (0.78)
-------- -------- -------- -------- -------- -------- ------
Net Asset Value, end of period....... $ 26.50 $ 28.90 $ 29.64 $ 31.07 $ 26.96 $ 25.64 $26.49
======== ======== ======== ======== ======== ======== ======
TOTAL INVESTMENT RETURN(a)........... (5.47)% 12.49% 9.34% 24.66% 18.52% 31.29% (5.67)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions).......................... $5,463.4 $6,235.0 $6,247.0 $6,024.0 $4,814.0 $3,813.8 $ 0.6
Ratios to average net assets:
Expenses........................... 0.47%(b) 0.47% 0.47% 0.46% 0.50% 0.48% 0.87%(b)
Net investment income.............. 1.98%(b) 1.72% 1.81% 2.27% 2.54% 2.28% 1.65%(b)
Portfolio turnover rate.............. 5% 9% 25% 13% 20% 18% 5%
<CAPTION>
EQUITY PORTFOLIO
-----------------
CLASS II
-----------------
MAY 3, 1999(e)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
period............................. $32.79
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................ 0.28
Net realized and unrealized gains
(losses) on investments............ (0.60)
------
Total from investment
operations..................... (0.32)
------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................. (0.34)
Distributions from net realized
gains.............................. (3.21)
------
Total distributions.............. (3.55)
------
Net Asset Value, end of period....... $28.92
======
TOTAL INVESTMENT RETURN(a)........... (0.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions).......................... $ 0.3
Ratios to average net assets:
Expenses........................... 0.87%(b)
Net investment income.............. 1.33%(b)
Portfolio turnover rate.............. 9%
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL JENNISON PORTFOLIO
-------------------------------------------------------------------------------------------
CLASS I CLASS II
--------------------------------------------------------------------------- ------------
SIX APRIL 25, FEBRUARY 10,
MONTHS YEAR ENDED 1995(d) 2000(e)
ENDED DECEMBER 31, THROUGH THROUGH
JUNE 30, ---------------------------------------- DECEMBER 31, JUNE 30,
2000 1999 1998 1997 1996 1995(c) 2000
---------- -------- -------- ------ ------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
period............................ $ 32.39 $ 23.91 $ 17.73 $14.32 $12.55 $10.00 $ 34.25
-------- -------- -------- ------ ------ ------ --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............... 0.01 0.05 0.04 0.04 0.02 0.02 --(f)
Net realized and unrealized gains
(losses) on investments........... 1.23 9.88 6.56 4.48 1.78 2.54 (0.68)
-------- -------- -------- ------ ------ ------ --------
Total from investment
operations.................... 1.24 9.93 6.60 4.52 1.80 2.56 (0.68)
-------- -------- -------- ------ ------ ------ --------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................ -- (0.05) (0.04) (0.04) (0.03) (0.01) --
Distributions from net realized
gains............................. (0.50) (1.40) (0.38) (1.07) -- -- (0.50)
-------- -------- -------- ------ ------ ------ --------
Total distributions............. (0.50) (1.45) (0.42) (1.11) (0.03) (0.01) (0.50)
-------- -------- -------- ------ ------ ------ --------
Net Asset Value, end of period...... $ 33.13 $ 32.39 $ 23.91 $17.73 $14.32 $12.55 $ 33.08
======== ======== ======== ====== ====== ====== ========
TOTAL INVESTMENT RETURN(a).......... 3.98% 41.76% 37.46% 31.71% 14.41% 24.20% (1.81)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)......................... $3,470.3 $2,770.7 $1,198.7 $495.9 $226.5 $ 63.1 $2,775.9
Ratios to average net assets:
Expenses.......................... 0.62%(b) 0.63% 0.63% 0.64% 0.66% 0.79%(c) 1.02%(b)
Net investment income............. 0.06%(b) 0.17% 0.20% 0.25% 0.20% 0.15%(c) (0.34)%(b)
Portfolio turnover rate............. 41% 58% 54% 60% 46% 37% 41%
</TABLE>
(a) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(b) Annualized.
(c) Calculations are based on average month-end shares outstanding.
(d) Commencement of offering of Class I shares.
(e) Commencement of offering of Class II shares.
(f) Less than ($0.003) per share.
SEE NOTES TO FINANCIAL STATEMENTS.
D5
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
20/20 FOCUS PORTFOLIO
----------------------------------------------------------
CLASS I CLASS II
---------------------------------- --------------------
SIX MONTHS MAY 3, 1999(d) FEBRUARY 17,
ENDED THROUGH 2000(e)
JUNE 30, DECEMBER 31, THROUGH
2000 1999 JUNE 30, 2000
------------- ----------------- --------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period...................... $11.88 $10.00 $11.31
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.02 0.02 --
Net realized and unrealized gains (losses) on
investments............................................. (0.69) 1.88 (.11)
------ ------ ------
Total from investment operations...................... (0.67) 1.90 (.11)
------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income...................... (0.01) (0.02) --(f)
Dividends in excess of net investment income.............. -- -- --
Distributions from net realized gains..................... (0.07) --(f) (0.07)
------ ------ ------
Total distributions................................... (0.08) (0.02) (0.07)
------ ------ ------
Net Asset Value, end of period............................ $11.13 $11.88 $11.13
====== ====== ======
TOTAL INVESTMENT RETURN(a)................................ (5.50)% 18.95% (1.18)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)................... $ 95.0 $ 65.0 $ 1.0
Ratios to average net assets(b):
Expenses................................................ 0.89% 1.09% 1.29%
Net investment income................................... 0.53% 0.33% 0.16%
Portfolio turnover rate................................... 37% 64% 37%
</TABLE>
<TABLE>
<CAPTION>
SMALL CAPITALIZATION STOCK PORTFOLIO
------------------------------------------------------------------
SIX APRIL 25,
MONTHS YEAR ENDED 1995(d)
ENDED DECEMBER 31, THROUGH
JUNE 30, --------------------------------- DECEMBER 31,
2000 1999 1998 1997 1996 1995(c)
---------- ------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period...... $16.25 $14.71 $15.93 $13.79 $11.83 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.03 0.10 0.09 0.10 0.09 0.08
Net realized and unrealized gains (losses)
on investments.......................... 1.04 1.71 (0.25) 3.32 2.23 1.91
------ ------ ------ ------ ------ ------
Total from investment operations...... 1.07 1.81 (0.16) 3.42 2.32 1.99
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.02) (0.09) (0.10) (0.09) (0.04)
Distributions from net realized gains..... (0.94) (0.27) (0.97) (1.18) (0.27) (0.12)
------ ------ ------ ------ ------ ------
Total distributions................... (0.96) (0.27) (1.06) (1.28) (0.36) (0.16)
------ ------ ------ ------ ------ ------
Net Asset Value, end of period............ $16.36 $16.25 $14.71 $15.93 $13.79 $11.83
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN(a)................ 7.48% 12.68% (0.76)% 25.17% 19.77% 19.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $497.4 $437.5 $360.4 $290.3 $147.9 $ 47.5
Ratios to average net assets:
Expenses................................ 0.46%(b) 0.45% 0.47% 0.50% 0.56% 0.60%(b)
Net investment income................... 0.57%(b) 0.70% 0.57% 0.69% 0.87% 0.68%(b)
Portfolio turnover rate................... 16% 31% 26% 31% 13% 32%
</TABLE>
(a) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(b) Annualized.
(c) Calculations are based on average month-end shares outstanding.
(d) Commencement of offering of Class I shares.
(e) Commencement of offering of Class II shares.
(f) Less than $0.005 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
D6
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL PORTFOLIO
----------------------------------------------------------
SIX
MONTHS YEAR ENDED
ENDED DECEMBER 31,
June 30, ---------------------------------------------
2000 1999 1998 1997 1996 1995(c)
---------- -------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period...... $ 30.98 $ 21.16 $17.92 $17.85 $15.53 $13.88
-------- -------- ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.06 0.06 0.07 0.09 0.11 0.06
Net realized and unrealized gains (losses)
on investments.......................... (0.49) 10.04 4.38 1.11 2.94 2.14
-------- -------- ------ ------ ------ ------
Total from investment operations...... (0.43) 10.10 4.45 1.20 3.05 2.20
-------- -------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income...... (0.05) -- (0.16) (0.13) (0.11) (0.24)
Dividends in excess of net investment
income.................................. -- (0.10) (0.12) (0.10) -- --
Distributions from net realized gains..... (1.94) (0.18) (0.93) (0.90) (0.62) (0.31)
-------- -------- ------ ------ ------ ------
Total distributions................... (1.99) (0.28) (1.21) (1.13) (0.73) (0.55)
-------- -------- ------ ------ ------ ------
Net Asset Value, end of period............ $ 28.56 $ 30.98 $21.16 $17.92 $17.85 $15.53
======== ======== ====== ====== ====== ======
TOTAL INVESTMENT RETURN(a)................ (0.99)% 48.27% 25.08% 6.98% 19.97% 15.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions)... $1,436.5 $1,298.3 $844.5 $638.4 $580.6 $400.1
Ratios to average net assets:
Expenses................................ 0.81%(b) 0.84% 0.86% 0.85% 0.92% 1.06%
Net investment income................... 0.37%(b) 0.21% 0.29% 0.47% 0.64% 0.44%
Portfolio turnover rate................... 56% 76% 73% 70% 41% 59%
</TABLE>
(a) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(b) Annualized.
(c) Calculations are based on average month-end shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS.
D7
<PAGE>
SEMIANNUAL REPORT / JUNE 20 2000
AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. GOVERNMENT SECURITIES FUND SEEKS A HIGH LEVEL OF
CURRENT INCOME CONSISTENT WITH REASONABLE CONCERN FOR
SAFETY OF PRINCIPAL BY INVESTING IN DEBT SECURITIES ISSUED,
GUARANTEED OR OTHERWISE BACKED BY THE U.S. GOVERNMENT.
132
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SEMIANNUAL REPORT/MANAGERS' OVERVIEW
AIM V.I. GOVERNMENT SECURITIES FUND
FUND PROVIDES INCOME, SAFE HAVEN FROM
VOLATILE MARKET CONDITIONS
THUS FAR, 2000 HAS BEEN A CHALLENGING U.S. TREASURY ISSUES HANDILY OUT- | term yields. With an inverted curve,
AND VOLATILE YEAR IN THE MARKETS. HOW PACED CREDIT ISSUES, PARTICULARLY | however, short-term Treasuries actually
DID AIM V.I. GOVERNMENT SECURITIES FUND HIGH-YIELD BONDS, ON A TOTAL-RETURN | yield more than longer-term ones.
PERFORM IN THESE CONDITIONS? BASIS FOR THE FIRST QUARTER OF | In this atypical inversion of the
Rising interest rates, coupled with some- THE YEAR AND FOR THE SIX-MONTH | curve, long-maturity bonds significantly
times extreme day-to-day stock-market REPORTING PERIOD. | outperformed shorter- and intermediate-
volatility, increased investor interest _________________________________________| maturity issues during the first quarter.
in government bonds. For the six months For instance, during the first quarter,
ended June 30, 2000, AIM V.I. Government (a basis point is one one-hundredth of a the yield on the 30-year Treasury bond
Securities Fund posted an impressive percentage point) and raised rates again fell 64 basis points, whereas the yield in
return of 3.48%, tracking that of its in May another 50 basis points. The May the intermediate section of the curve fell
benchmark, the Lehman Intermediate increase was the sixth since last summer only 20 to 30 basis points.
Government Bond Index, which returned and the largest in more than five years. Through the first half of the second
3.49%. By contrast, equity securities as Market observers, however, blew a quarter, Treasury yields started to
represented by the S&P 500 Index returned collective sigh of relief when the Fed, increase and yield spreads between
-0.43% for the same period--evidence, seeing some signs that the economy had mortgages and Treasuries narrowed. In
once again, that a well-diversified started to slow, decided not to raise June, with signs that the economy might
portfolio is important. interest rates again in June. be slowing and the possibility that the
Fed wouldn't increase rates again at its
WHAT WERE THE MAJOR FACTORS INFLUENCING HOW DID GOVERNMENT MARKETS FARE DURING end-of-June meeting, Treasury yields fell
FIXED-INCOME SECURITIES DURING THE THE PERIOD? across most maturity spectrums. The most
REPORTING PERIOD? U.S. Treasury issues handily outpaced dramatic drops were in shorter to
In an effort to prevent inflation in a credit issues, particularly high-yield intermediate maturities.
rapidly growing economy, the Federal bonds, on a total-return basis for the Falling yields, of course, mean higher
Reserve Board (the Fed) raised interest first quarter of the year and for the bond prices. Obviously, this environment
rates three times in the first two six-month reporting period. The 30-year was very beneficial for the fund. And as a
quarters of this year. The Fed hiked Treasury bond in particular had a double bonus, yields on agency bonds fell
interest rates twice in the first quarter stellar first quarter, providing one of even more than those on comparable
for a total increase of 50 basis points the strongest total returns of any Treasuries. (Agencies generally carry a
security. higher coupon than Treasuries.)
------------------------------------------ Beyond investor flight from a volatile
FUND PERFORMANCE stock market, the government bond market WHAT OTHER EVENTS INFLUENCED
was buoyed by a unique situation. In GOVERNMENT MARKETS?
AVERAGE ANNUAL TOTAL RETURNS January, the Treasury announced its Government-Sponsored Enterprises (GSEs),
intention to buy back $30 billion in organizations like the Federal National
As of 6/30/00 Treasury securities and perhaps to cease Mortgage Association (Fannie Mae) and the
issuing 30-year Treasury bonds in the not- Federal Home Loan Mortgage Corporation
- ---------------------------------------- too-distant future. This (among other (Freddie Mac), made headlines this spring.
Inception (5/5/93) 4.84% factors) literally turned the Treasury Despite being shareholder-owned, Freddie
- ---------------------------------------- market upside down, or in bond parlance, and Fannie operate under federal charters
5 years 5.10 inverted the Treasury yield curve. The that exempt them from state and local
- ---------------------------------------- yield curve--a graph of Treasury security corporate income taxes and give them a
1 year 4.26 yields from three months to 30 years-- $2.25 billion line of credit with the
under normal conditions slopes upward, Treasury. This "implied government
with short-term yields lower than longer- guarantee" has been
Past performance cannot guarantee
comparable future results. MARKET
VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-
TERM PERFORMANCE. RESULTS OF AN INVESTMENT
MADE TODAY MAY DIFFER SUBSTANTIALLY FROM
THE HISTORICAL PERFORMANCE SHOWN.
------------------------------------------
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
133
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SEMIANNUAL REPORT/MANAGERS' OVERVIEW
PORTFOLIO COMPOSITION course, drove down prices, leading to
some attractive agency-bond buying
As of 6/30/00, based on total net assets opportunities for the fund in the second
quarter.
Cash Equivalents 8%
--------------------| WHAT IS YOUR OUTLOOK FOR THE NEAR TERM?
| As we begin the second half of the year,
the outlook for fixed-income markets
U.S. AGENCY MORTGAGE depends largely on what the economy does
OBLIGATIONS OBLIGATIONS in the coming months. Has the Fed with
28% 52% its string of rate hikes orchestrated the
proverbial "soft landing"--a gradual
[PIE CHART] slowing of the economy, which would
prevent inflation and avoid economic
U.S. Treasury distress? A string of recent statistical
Obligations 12% releases suggests that the pace of
____________________ economic activity is indeed slowing.
Beyond interest-rate speculation,
The fund's portfolio composition is subject to change, and there is no assurance government-security weighted funds will
that the fund will continue to hold any particular security. have to wait and see if legislative
changes might affect the regulatory
treatment of government-sponsored
called into question and has had an effect WHILE WE CERTAINLY WOULD NOT | agencies.
on the agency market. This resulted in SUGGEST THAT GOVERNMENT BONDS | Thus far, Y2K has proven to be very
considerable yield-spread volatility COULD CONTINUE TO OUTPERFORM MAJOR | favorable for government markets. While we
between agency and Treasury debt. MARKET INDEXES LIKE THE S&P 500, | certainly would not suggest that
After the Treasury's buyback IT DOES REINFORCE THE | government bonds could continue to
announcment in January, investors sought ARGUMENT THAT BONDS BELONG IN A | outperform major market indexes like the
high-quality liquid alternatives to WELL-DIVERSIFIED PORTFOLIO. | S&P 500, it does reinforce the argument
Treasuries and bought agencies. So in late _________________________________________| that bonds belong in a well-diversified
January and February, the spread between portfolio. Going forward, we believe the
agencies and comparable-maturity obligations, mortgage-backed securities fund is positioned to provide shareholders
Treasuries narrowed. For instance, the and cash equivalents. with the stability and income they have
10-year agency note traded at only 53 As the year began, the fund increased come to expect.
basis points to Treasuries. In March, its allocation in mortgage bonds. Once
however, the Treasury announced that it falling Treasury yields were reflected in ------------------------------------------
may limit backing of GSEs--this sent the market, the yield spread widened The performance figures shown here, which
spreads the other direction to near between Treasuries and mortgages. We represent AIM V.I. Government Securities
historic wides. In early April, 10-year viewed this widening as an opportunity to Fund, are not intended to reflect actual
agency notes were trading at more than move assets into higher-yielding issues annuity values, and they do not reflect
124 basis points to their Treasury that would also provide relative changes at the separate-account level
counterparts. By June, however, agency stability. This proved quite positive for which (if applied) would lower them.
debenture yields started to decline, the fund as mortgage-backed securities AIM V.I. Government Securities Fund's
narrowing somewhat their spread over were one of the best-performing sectors performance figures are historical, and
Treasuries. during the reporting period. they reflect the reinvestment of
Also, as the GSE issue became news, distributions and changes in net asset
WHAT IS THE FUND'S STRATEGY AND PRESENT yields in the agency market increased value. The fund's investment return and
ASSET ALLOCATION? dramatically. This yield increase, of principal value will fluctuate, so an
Our objective is to provide price investor's shares, when redeemed, may be
stability and income through a combination worth more or less than their original
of Treasuries, government agency cost.
Government securities (such as U.S.
Treasury bills, notes and bonds) offer a
high degree of safety, and they guarantee
the timely payment of principal and
interest if held to maturity. Fund shares
are not insured, and their value will vary
with market conditions.
The unmanaged Lehman Intermediate
Government Bond Index, which represents
the performance of intermediate-and long-
term U.S. Treasury and U.S. government
agency securities, is compiled by Lehman
Brothers, a well-known global investment
bank.
The unmanaged Standard & Poor's
Composite Index of 500 Stocks (the S&P
500) represents the performance of the
stock market.
An investment cannot be made in an
index. Unless otherwise indicated, index
results include reinvested dividends.
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
134
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 78.61%
FEDERAL FARM CREDIT BANK - 2.91%
Medium term notes,
5.96%, 07/14/03 $ 200,000 $ 194,366
-----------------------------------------------------------------
5.80%, 06/17/05 1,000,000 945,620
-----------------------------------------------------------------
6.22%, 06/17/08 1,000,000 937,750
-----------------------------------------------------------------
2,077,736
-----------------------------------------------------------------
FEDERAL HOME LOAN BANK - 11.29%
Debentures,
5.97%, 12/11/00 1,000,000 997,910
-----------------------------------------------------------------
7.31%, 07/06/01 500,000 500,895
-----------------------------------------------------------------
7.13%, 11/15/01 1,500,000 1,499,685
-----------------------------------------------------------------
8.17%, 12/16/04 400,000 416,224
-----------------------------------------------------------------
8.00%, 05/24/05 1,860,000 1,879,177
-----------------------------------------------------------------
8.10%, 05/24/05 2,720,000 2,754,136
-----------------------------------------------------------------
8,048,027
-----------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.
("FHLMC") - 18.06%
Pass through certificates,
6.00%, 11/01/08 to 09/01/13 983,829 942,166
-----------------------------------------------------------------
6.50%, 12/01/08 to 08/01/28 3,877,571 3,693,115
-----------------------------------------------------------------
7.00%, 11/01/10 to 01/01/26 888,430 873,074
-----------------------------------------------------------------
10.50%, 08/01/19 92,000 99,273
-----------------------------------------------------------------
8.50%, 09/01/20 to 12/01/26 1,846,319 1,899,697
-----------------------------------------------------------------
8.00%, 11/01/29 to 02/01/30 5,329,785 5,364,555
-----------------------------------------------------------------
12,871,880
-----------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
("FNMA") - 30.74%
Debentures,
8.25%, 12/18/00 500,000 503,980
-----------------------------------------------------------------
7.50%, 02/11/02 1,350,000 1,360,368
-----------------------------------------------------------------
7.55%, 04/22/02 400,000 403,732
-----------------------------------------------------------------
6.80%, 01/10/03 1,605,000 1,600,779
-----------------------------------------------------------------
Medium term notes,
6.69%, 08/07/01 500,000 497,705
-----------------------------------------------------------------
7.57%, 04/06/04 1,000,000 1,000,020
-----------------------------------------------------------------
7.38%, 03/28/05 300,000 302,976
-----------------------------------------------------------------
Pass through certificates,
7.00%, 03/01/04 to 01/01/28 3,468,210 3,390,994
-----------------------------------------------------------------
7.50%, 11/01/09 to 07/01/27 1,524,502 1,516,180
-----------------------------------------------------------------
6.50%, 10/01/10 to 09/01/27 1,422,000 1,376,239
-----------------------------------------------------------------
8.00%, 10/01/14 to 03/01/30 8,557,545 8,614,929
-----------------------------------------------------------------
8.50%, 09/01/24 to 02/01/25 858,883 883,066
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
("FNMA") - CONTINUED
STRIPS(a),
7.37%, 10/09/19 $1,800,000 $ 462,114
----------------------------------------------------------------------------
21,913,082
----------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
("GNMA") - 11.69%
Pass through certificates,
9.50%, 08/15/03 to 09/15/16 45,267 47,520
----------------------------------------------------------------------------
7.50%, 03/15/08 to 08/15/28 1,931,761 1,924,537
----------------------------------------------------------------------------
9.00%, 09/15/08 to 10/15/16 74,483 77,483
----------------------------------------------------------------------------
11.00%, 10/15/15 25,294 27,681
----------------------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19 20,045 21,818
----------------------------------------------------------------------------
10.00%, 06/15/19 554,173 592,095
----------------------------------------------------------------------------
6.50%, 12/15/23 356,914 342,637
----------------------------------------------------------------------------
8.00%, 07/15/24 to 07/15/26 2,241,712 2,278,451
----------------------------------------------------------------------------
7.00%, 04/15/28 to 06/15/28 3,090,228 3,017,277
----------------------------------------------------------------------------
8,329,499
----------------------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY - 0.42%
Debentures,
7.30%, 01/31/02 300,000 302,685
----------------------------------------------------------------------------
STUDENT LOAN MARKETING ASSOCIATION - 0.21%
Debentures,
6.50%, 08/01/02 150,000 148,467
----------------------------------------------------------------------------
TENNESSEE VALLEY AUTHORITY - 3.29%
Debentures,
6.38%, 06/15/05 2,400,000 2,343,792
----------------------------------------------------------------------------
Total U.S. Government Agency Securities
(Cost $56,873,664) 56,035,168
----------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 11.90%
U.S. TREASURY NOTES - 5.83%
6.00%, 08/15/04 3,000,000 2,973,570
----------------------------------------------------------------------------
7.88%, 11/15/07 1,150,000 1,182,062
----------------------------------------------------------------------------
4,155,632
- ---------------------------------------------------------------------------
U.S. TREASURY BONDS - 4.77%
9.25%, 02/15/16 550,000 712,569
----------------------------------------------------------------------------
7.63%, 02/15/25 550,000 649,033
----------------------------------------------------------------------------
6.88%, 08/15/25 500,000 543,665
----------------------------------------------------------------------------
6.13%, 11/15/27 1,500,000 1,496,190
----------------------------------------------------------------------------
3,401,457
----------------------------------------------------------------------------
U.S. TREASURY STRIPS - 1.30%(a)
5.38%, 05/15/06 750,000 524,580
----------------------------------------------------------------------------
6.80%, 11/15/18 1,250,000 401,138
----------------------------------------------------------------------------
925,718
----------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $8,613,675) 8,482,807
----------------------------------------------------------------------------
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
135
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS & NOTES - 0.86%
CONSUMER FINANCE - 0.86%
Asian Development Bank (Multi-National), Yankee
Deb., 8.00%, 04/30/01 $ 200,000 $ 201,404
----------------------------------------------------------------------------
Financial Assistance Corp., Bonds, 9.38%, 07/21/03 75,000 79,892
----------------------------------------------------------------------------
International Bank for Reconstruction & Development
(Multi-National), Unsub. Unsec. Notes,
5.25%, 09/16/03 350,000 332,668
----------------------------------------------------------------------------
Total Corporate Bonds & Notes
(Cost $615,673) 613,964
----------------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.06%(B)
UBS Warburg, 6.85%, 07/03/00
(Cost $5,742,914)(c) 5,742,914 5,742,914
----------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.43%
(Cost $71,845,926) 70,874,853
----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.57% 404,236
----------------------------------------------------------------------------
NET ASSETS - 100.00% $71,279,089
===========================================================================
</TABLE>
Investment Abbreviations:
Deb. - Debentures
STRIPS - Separately Traded Registered Interest and Principal Security
Unsec. - Unsecured
Unsub. - Unsubordinated
Notes to Schedule of Investments:
(a) STRIPS are traded on a discount basis. In such cases, the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 06/30/00 with maturing value of
$250,142,708 and collateralized by U.S. Government obligations.
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
136
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $71,845,926) $70,874,853
----------------------------------------------------------------------
Receivables for:
Fund shares sold 26,194
----------------------------------------------------------------------
Interest 626,344
----------------------------------------------------------------------
Principal paydowns 597
----------------------------------------------------------------------
Investment for deferred compensation plan 29,200
----------------------------------------------------------------------
Other assets 382
----------------------------------------------------------------------
Total assets 71,557,570
----------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 158,778
----------------------------------------------------------------------
Deferred compensation plan 29,200
----------------------------------------------------------------------
Accrued advisory fees 29,223
----------------------------------------------------------------------
Accrued administrative services fees 49,847
----------------------------------------------------------------------
Accrued trustees' fees 1,492
----------------------------------------------------------------------
Accrued operating expenses 9,941
----------------------------------------------------------------------
Total liabilities 278,481
----------------------------------------------------------------------
Net assets applicable to shares outstanding $71,279,089
======================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Outstanding 6,481,597
======================================================================
Net asset value, offering and redemption price per share $ 11.00
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $2,174,096
----------------------------------------------------------------------------
Dividends 239,515
----------------------------------------------------------------------------
Total investment income 2,413,611
----------------------------------------------------------------------------
EXPENSES:
Advisory fees 173,997
----------------------------------------------------------------------------
Administrative services fee 65,724
----------------------------------------------------------------------------
Custodian fees 11,867
----------------------------------------------------------------------------
Interest 37,222
----------------------------------------------------------------------------
Trustees' fees 3,436
----------------------------------------------------------------------------
Other 25,720
----------------------------------------------------------------------------
Total expenses 317,966
----------------------------------------------------------------------------
Net investment income 2,095,645
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES:
Net realized gain (loss) from investment securities (858,623)
----------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities 1,160,616
----------------------------------------------------------------------------
Net gain on investment securities 301,993
----------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,397,638
============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
137
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2000 and the year ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,095,645 $ 3,628,296
-------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (858,623) (1,304,878)
-------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities 1,160,616 (3,043,863)
-------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 2,397,638 (720,445)
-------------------------------------------------------------------------------
Distributions to shareholders from net investment
income -- (2,511,433)
-------------------------------------------------------------------------------
Share transactions-net (1,879,771) 15,808,419
-------------------------------------------------------------------------------
Net increase in net assets 517,867 12,576,541
-------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 70,761,222 58,184,681
-------------------------------------------------------------------------------
End of period $71,279,089 $70,761,222
===============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $68,984,989 $70,864,760
-------------------------------------------------------------------------------
Undistributed net investment income 5,698,047 3,602,402
-------------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (2,432,874) (1,574,251)
-------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (971,073) (2,131,689)
-------------------------------------------------------------------------------
$71,279,089 $70,761,222
===============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Government Securities Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
seventeen separate portfolios. At a meeting held on February 3, 2000, the
Board of Directors of AIM Variable Insurance Funds, Inc. approved an Agreement
and Plan of Reorganization which was approved by shareholders of the Fund on
April 10, 2000. Effective May 1, 2000, pursuant to the Agreement and Plan of
Reorganization, AIM Variable Insurance Funds, Inc. was reorganized from a
Maryland Corporation to a Delaware business trust. Matters affecting each
portfolio will be voted on exclusively by the shareholders of such portfolio.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the Fund. Currently, shares of the Fund are sold only to insurance company
separate accounts to fund the benefits of variable annuity contracts and
variable life insurance policies. The Fund's investment objective is to
achieve a high level of current income consistent with reasonable concern for
safety of principal.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of the significant accounting policies
followed by the Fund in the preparation of its financial statements.
A. Security Valuations - Debt obligations that are issued or guaranteed by the
U.S. Treasury are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as yield, type of issue, coupon rate, maturity and seasoning
differential. Securities for which market prices are not provided by the
above method are valued based upon quotes furnished by independent sources
and are valued at the mean between the last bid and asked prices.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers in a manner specifically
authorized by the Board of Trustees. Short-term obligations having 60 days
or less to maturity are valued at amortized cost which approximates market
value.
B. Securities Transactions and Investment Income - Securities transactions are
accounted for on a trade date basis. The Fund may engage in dollar roll
transactions with respect to mortgage backed securities issued by GNMA,
FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage
backed security held in the Fund to a financial institution such as a bank
or broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at a
later date at an agreed upon price. The mortgage backed securities that are
repurchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with varying
prepayment histories. During the period between the sale
AIM V.I. GOVERNMENT SECURITIES FUND
138
<PAGE>
and repurchase, the Fund will not be entitled to receive interest and
principal payments on securities sold. Proceeds of the sale will be invested
in short-term instruments, and the income from these investments, together
with any additional fee income received on the sale, could generate income
for the Fund exceeding the yield on the security sold.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities in a dollar roll transaction
files for bankruptcy or becomes insolvent, the Fund's use of the proceeds
from the sale of the securities may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
Realized gains or losses on sales are computed on the basis of specific
identification of the securities sold. Interest income is recorded on the
accrual basis from settlement date. Dividend income is recorded on the ex-
dividend date.
C. Distributions - Distributions from income and net realized capital gains,
if any, are generally paid annually and recorded on ex-dividend date.
D. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
The Fund has a capital loss carryforward of $1,524,195 which may be
carried forward to offset future taxable gains, if any, which expires in
varying increments, if not previously utilized, in the year 2007.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.50% on
the first $200 million of the Fund's average daily net assets, plus 0.45% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement with AIM, the Fund
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the Fund. For the six months ended June 30,
2000, the Fund paid AIM $65,724 of which AIM retained $24,863 for accounting
services provided.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and trustees of the Trust are officers of AIM and AIM
Distributors.
During the six months ended June 30, 2000, the Fund paid legal fees of
$1,750 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3 - TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by
a trustee, in mutual fund shares in accordance with a deferred compensation
plan.
NOTE 4 - BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an agreed-
upon price and date. The Fund will use the proceeds of a reverse repurchase
agreement (which are considered to be borrowings under the 1940 Act) to
purchase other permitted securities either maturing, or under an agreement to
resell, at a date simultaneous with or prior to the expiration of the reverse
repurchase agreement. The Fund will enter into a reverse repurchase agreement
only when the interest income to be earned from the investment of proceeds of
the transaction is greater than the interest expense of the transaction. The
agreements are collateralized by the underlying securities and are carried at
the amount at which the securities will subsequently be repurchased as
specified in the agreements. The maximum amount outstanding during the six
months ended June 30, 2000 was $13,737,500 while borrowings averaged
$1,402,396 per day with a weighted average interest rate of 5.26%.
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A.. The Fund may borrow up to the lesser
of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings.
The Fund and other funds advised by AIM which are parties to the line of credit
may borrow on a first come, first served basis. During the six months ended June
30, 2000, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the six months ended June
30, 2000 was $29,521,027 and $24,025,233, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of June 30, 2000 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 198,103
---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,205,427)
---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities $(1,007,324)
===========================================================================
</TABLE>
Cost of investments for tax purposes is $71,882,177.
AIM V.I. GOVERNMENT SECURITIES FUND
139
<PAGE>
NOTE 6 - SHARE INFORMATION
Changes in shares outstanding during the six months ended June 30, 2000 and the
year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 841,768 $ 9,058,422 3,277,124 $ 36,037,021
-------------------------------------------------------------------------------
Issued as reinvestment of
dividends -- -- 235,153 2,511,433
-------------------------------------------------------------------------------
Issued in connection with
acquisitions* -- -- 465,003 5,110,012
-------------------------------------------------------------------------------
Reacquired (1,019,984) (10,938,193) (2,523,037) (27,850,047)
-------------------------------------------------------------------------------
(178,216) $ (1,879,771) 1,454,243 $ 15,808,419
===============================================================================
</TABLE>
* As of the close of business on October 15, 1999, the Fund acquired all the
net assets of GT Global Variable U.S. Government Income Fund (Variable U.S.
Government Income Fund) pursuant to a plan of reorganization approved by
variable U.S. Government Income Fund's shareholders on August 25, 1999. The
acquisition was accomplished by a tax-free exchange of 465,003 shares of the
Fund for 482,118 shares of Variable U.S. Government Income Fund outstanding
as of the close of business on October, 15, 1999. Variable U.S. Government
Income Fund's net assets at that date were $5,110,012, including ($270,877)
of unrealized depreciation, were combined with those of the Fund. The
aggregate net assets of the Fund immediately before the acquisition were
$65,275,738.
NOTE 7 - FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
JUNE 30, ----------------------------------- DECEMBER 31, JANUARY 31,
2000 1999(a) 1998(a) 1997 1996 1995 1995
---------- ------- ------- ------- ------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.63 $ 11.18 $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24
-------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.34 0.63 0.63 0.59 0.58 0.54 0.53
-------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 0.03 (0.78) 0.20 0.22 (0.35) 0.74 (0.88)
-------------------------------------------------------------------------------------------------------
Total from investment
operations 0.37 (0.15) 0.83 0.81 0.23 1.28 (0.35)
-------------------------------------------------------------------------------------------------------
Less distributions from
net investment income -- (0.40) (0.32) (0.01) (0.53) (0.50) (0.50)
-------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 11.00 $ 10.63 $ 11.18 $ 10.67 $ 9.87 $ 10.17 $ 9.39
=======================================================================================================
Total return(b) 3.48% (1.32)% 7.73% 8.16% 2.29% 13.84% (3.42)%
=======================================================================================================
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $71,279 $70,761 $58,185 $33,800 $24,527 $19,545 $12,887
=======================================================================================================
Ratio of expenses to
average net assets
(including interest
expense) 0.92%(c) 0.90% 0.76% 0.87% 0.91% 1.19%(d) 0.95%
=======================================================================================================
Ratio of expenses to
average net assets
(excluding interest
expense) 0.81%(c) 0.80% 0.76% 0.87% 0.91% 1.19%(d) 0.95%
=======================================================================================================
Ratio of net investment
income to average net
assets 6.04%(c) 5.75% 5.70% 5.85% 5.80% 5.78%(d) 5.51%
=======================================================================================================
Ratio of interest
expense to average net
assets 0.11%(c) 0.10% -- -- -- -- --
=======================================================================================================
Portfolio turnover rate 39% 41% 78% 66% 32% 41% 29%
=======================================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $69,789,667.
(d) Annualized.
AIM V.I. GOVERNMENT SECURITIES FUND
140
<PAGE>
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Government Securities Fund (the
"Fund"), a portfolio of AIM Variable Insurance Funds, Inc. (the "Company"),
reorganized as AIM Variable Insurance Funds, a Delaware business trust (the
"Trust"), was held on April 10, 2000. The meeting was held for the following
purposes:
(1)* To elect ten directors as follows: Charles T. Bauer, Bruce L. Crockett,
Owen Daly II, Edward K. Dunn, Jr., Jack M. Fields, Carl Frischling,
Robert H. Graham, Prema Mathai-Davis, Lewis F. Pennock and Louis S.
Sklar.
(2)* To approve an Agreement and Plan of Reorganization which provided for the
reorganization of the company as a Delaware business trust.
(3) To approve a new Master Investment Advisory Agreement with A I M Advisors,
Inc.
(4) To approve changing the fundamental investment restrictions of the Fund.
(5) To approve changing the investment objective of the Fund and making it
non-fundamental.
(6) To ratify the selection of Tait, Weller & Baker as independent accountants
of the Fund for the fiscal year ending in 2000.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES VOTES WITHHELD/
DIRECTORS/MATTER FOR AGAINST ABSTENTIONS
------------------------------------- ----------- --------- -----------
<C> <S> <C> <C> <C>
(1)* Charles T. Bauer................... 336,558,177 N/A 9,129,703
Bruce L. Crockett.................. 337,513,648 N/A 8,174,232
Owen Daly II....................... 336,754,219 N/A 8,933,661
Edward K. Dunn, Jr. ............... 337,481,093 N/A 8,206,787
Jack M. Fields..................... 337,574,973 N/A 8,112,907
Carl Frischling.................... 337,177,860 N/A 8,510,020
Robert H. Graham................... 337,319,248 N/A 8,368,632
Prema Mathai-Davis................. 337,262,043 N/A 8,425,837
Lewis F. Pennock................... 337,440,897 N/A 8,246,983
Louis S. Sklar..................... 337,447,894 N/A 8,239,986
(2)* Approval of an Agreement and Plan
of Reorganization which provided
for the reorganization of AIM
Variable Insurance Funds, Inc. as a
Delaware business trust............ 318,213,444 8,412,798 19,061,638
(3) Approval of a new Investment
Advisory Agreement................. 5,980,940 200,395 258,891
(4)(a) Change to Fundamental Restriction
on Issuer Diversification.......... 5,755,363 263,463 421,400
(4)(b) Change to Fundamental Restriction
on Borrowing Money and Issuing
Senior Securities.................. 5,674,032 299,553 466,641
(4)(c) Change to Fundamental Restriction
on Underwriting Securities......... 5,782,563 282,728 374,935
(4)(d) Change to Fundamental Restriction
on Industry Concentration.......... 5,783,441 259,288 397,497
(4)(e) Change to Fundamental Restriction
on Purchasing or Selling Real
Estate............................. 5,657,406 330,427 452,393
(4)(f) Change to Fundamental Restriction
on Purchasing or Selling
Commodities........................ 5,684,149 349,659 406,418
(4)(g) Change to Fundamental Restriction
on Making Loans.................... 5,676,732 382,266 381,228
(4)(h) Elimination of Fundamental
Restriction on Investing for the
Purpose of Control................. 5,670,887 354,128 415,211
(5) Approval of changing the Investment
Objective and Making it Non-
Fundamental........................ 5,598,889 387,476 453,861
(6) Ratification of the selection of
Tait, Weller & Baker as Independent
Accountants of the Fund............ 5,987,478 134,780 317,968
</TABLE>
-------
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds, Inc.
AIM V.I. GOVERNMENT SECURITIES FUND
141
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TRUSTEES, OFFICERS, AND BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
OTHER SERVICE PROVIDERS Charles T. Bauer
OF AIM VARIABLE INSURANCE Director and Chairman Charles T. Bauer 11 Greenway Plaza
FUNDS, INC. A I M Management Group Inc. Chairman Suite 100
Houston, TX 77046
Bruce L. Crockett Robert H. Graham (800) 347-1919
Director President
ACE Limited; INVESTMENT ADVISOR
Formerly Director, President, and Carol F. Relihan
Chief Executive Officer Senior Vice President and A I M Advisors, Inc.
COMSAT Corporation Secretary 11 Greenway Plaza
Suite 100
Owen Daly II Gary T. Crum Houston, TX 77046
Formerly Director Senior Vice President
Cortland Trust Inc. TRANSFER AGENT AND CUSTODIAN
Dana R. Sutton
Edward K. Dunn Jr. Vice President and State Street Bank and Trust Company
Chairman, Mercantile Mortgage Corp.; Treasurer 225 Franklin Street
Formerly Vice Chairman, President Boston, MA 02110
and Chief Operating Officer, Robert G. Alley
Mercantile-Safe Deposit & Trust Co.; Vice President COUNSEL TO THE FUNDS
and President, Mercantile Bankshares
Stuart W. Coco Freedman, Levy, Kroll &
Jack Fields Vice President Simonds
Chief Executive Officer 1050 Conn. Avenue, N.W.
Texana Global Inc. and Twenty First Melville B. Cox Washington, D.C. 20036
Century Group, Inc.; Vice President
Formerly, Member of the COUNSEL TO THE TRUSTEES
U.S. House of Representatives Karen Dunn Kelley
Vice President Kramer, Levin, Naftalis & Frankel LLP
Carl Frischling 919 Third Avenue
Partner Edgar M. Larsen New York, NY 10022
Kramer, Levin, Naftalis & Frankel LLP Vice President
DISTRIBUTOR
Robert H. Graham Mary J. Benson
Director, President and Chief Assistant Vice President A I M Distributors, Inc.
Executive Officer and Assistant Treasurer 11 Greenway Plaza
A I M Management Group Inc. Suite 100
Sheri Morris Houston, TX 77046
Prema Mathai-Davis Assistant Vice President
Formerly, Chief Executive Officer, and Assistant Treasurer
YMCA of the U.S.A.
Renee A. Friedli
Lewis F. Pennock Assistant Secretary
Attorney
P. Michelle Grace
Louis S. Sklar Assistant Secretary
Executive Vice President, Development
and Operations, Nancy L. Martin
Hines Interests Assistant Secretary
Limited Partnership
Ofelia M. Mayo
Assistant Secretary
Lisa A. Moss
Assistant Secretary
Kathleen J. Pflueger
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
</TABLE>
142
<PAGE>
(This page left intentionally blank)
143
<PAGE>
SEMIANNUAL REPORT / JUNE 30 2000
AIM V.I. INTERNATIONAL EQUITY FUND
AIM V.I. INTERNATIONAL EQUITY FUND SEEKS LONG-TERM
CAPITAL GROWTH BY INVESTING IN INTERNATIONAL EQUITY
SECURITIES WHOSE ISSUERS ARE CONSIDERED TO HAVE STRONG
EARNINGS MOMENTUM.
[LOGO]
144
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SEMIANNUAL REPORT/MANAGERS' OVERVIEW
AIM V.I. INTERNATIONAL EQUITY FUND
INTERNATIONAL MARKETS SUFFER VOLATILITY
HOW DID AIM V.I. INTERNATIONAL EQUITY THE FUND WILL CONTINUE TO FAVOR | WHAT HAPPENED IN EUROPE?
FUND PERFORM OVER THE REPORTING PERIOD? INTERNATIONAL MARKET LEADERS WITH A | European equity markets suffered a
Intense volatility in international CAPACITY FOR INNOVATION, SALES-VOLUME | correction near the end of the reporting
markets hurt fund performance over the EXPANSION, PRICING FLEXIBILITY AND HIGH | period. Our holdings mainly consisted
six-month reporting period ended PRODUCTIVITY. | of major technology, media and
June 30, 2000. The fund reported a ________________________________________ telecommunications companies (commonly
-10.86% return, compared to its known as TMTs), which hurt the fund's
benchmark, the MSCI EAFE(R) Index, HOW DID YOU MANAGE THE FUND IN THIS performance somewhat. Despite this
which produced a -4.06% six-month ENVIRONMENT? recent dip, we remain bullish on the
return. Recent volatility has not changed our region for a number of reasons:
investment strategy. We focus on o Earnings appear strong for many
WHAT HAPPENED IN INTERNATIONAL MARKETS high-quality companies that produce European companies; in fact, earnings
OVER THE PAST SIX MONTHS? earnings. Over the past six months, are forecasted to grow by 24% in 2000,
International markets saw intense our analysis has led us to stocks in according to Morgan Stanley.
day-to-day volatility during the the technology infrastructure, bandwidth o European merger-and-acquisition
reporting period as several factors and storage areas. We have steered away activity is booming. Year-to-date, 40%
combined to shake investor confidence. from Internet stocks, such as Internet of all global deals announced involve
Concerns intensified about the service providers and Web-portal a European company as an acquirer.
valuation of technology stocks, and companies, because they don't meet our o The European equity culture is growing
sentiment shifted away from riskier earnings criteria. This strategy has as initial public offerings outpace
growth stocks to more traditional helped the fund reduce risk. those of the United States. Europe's
value-oriented equities. In addition, stock exchanges are also gaining
rising interest rates in the United JAPAN IS YOUR TOP COUNTRY ALLOCATION. strength.
States and Europe contributed to WHAT WERE THE MAJOR TRENDS THERE? o Europe currently lags behind the United
world market volatility. Japan's technology stocks reached new States in technology and communications
Japanese stocks weakened in the heights in late 1999, only to suffer a spending, but we expect the region to
second quarter, hurt by lower-than- major correction in 2000. We mitigated catch up. In fact, Europe's Internet
expected gross domestic product the effects on the fund by reducing our and mobile-communications growth is
numbers. Asian stocks mirrored the Japanese holdings by almost 40%, from faster than that of the United States.
choppy performance of U.S. markets 26.88% of the portfolio as of
because of their heavy weightings in December 31, 1999, to 16.39% as of IN WHAT OTHER COUNTRIES DID THE FUND
technology stocks. Meanwhile, Latin June 30, 2000. INVEST?
American markets dipped on concerns Meanwhile, Japan's economic recovery We had holdings in Asia, including Hong
about the U.S. economy and local remains questionable. Its gross domestic Kong, Singapore, Thailand and Taiwan--
political issues. product declined for two consecutive markets where technology and
-------------------------------------- quarters, officially signaling recession. telecommunications sectors were strong.
FUND PERFORMANCE But many analysts predict that the worst Our favorite emerging economy outside
may be over. Information technology, Asia and Europe was Mexico. The country
AVERAGE ANNUAL TOTAL RETURNS especially wireless communications, has benefited from lowered trade
As of 6/30/00 could help jump-start economic growth. barriers and growing demand from U.S.
For instance, the number of mobile consumers. We expect economic conditions
-------------------------------------- phones in Japan now surpasses the to remain favorable, and we anticipate a
Inception (5/5/93) 15.54% number of fixed-line phones, and one smooth transition when President-elect
-------------------------------------- in 20 Japanese uses a mobile phone to Vicente Fox takes office in December.
5 years 17.27 access the Internet.
--------------------------------------
1 year 32.34
Past performance cannot guarantee
comparable future results.
MARKET VOLATILITY CAN SIGNIFICANTLY
IMPACT SHORT-TERM PERFORMANCE. RESULTS
OF AN INVESTMENT MADE TODAY MAY DIFFER
SUBSTANTIALLY FROM THE HISTORICAL
PERFORMANCE SHOWN.
---------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
145
<PAGE>
SEMIANNUAL REPORT/MANAGERS' OVERVIEW
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
As of 6/30/00, based on total net assets
<S> <C> <C>
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES TOP 10 COUNTRIES
1. Nortel Networks Corp. (Canada) 3.01% 1. Communications Equipment 11.20% 1. Japan 16.39%
2. Nokia Oyj (Finland) 2.93 2. Electronics (Component 2. France 13.65
Distributors) 7.54
3. Koninklijke (Royal) Philips 3. United Kingdom 9.29
Electronics N.V. (Netherlands) 1.97 3. Telecommunications
(Cellular/Wireless) 6.86 4. Canada 8.73
4. China Telecom Ltd. (Hong Kong) 1.93
4. Electronics (Semiconductors) 6.72 5. Switzerland 6.77
5. Telefonaktiebolaget LM Ericsson
A.B.--Class B (Sweden) 1.87 5. Telephone 4.92 6. Germany 4.57
6. Total Fina Elf S.A. (France) 1.71 6. Electrical Equipment 4.63 7. Sweden 4.30
7. BNP Paribas (France) 1.63 7. Services (Commercial & Consumer) 4.52 8. Netherlands 3.50
8. SANYO Electric Co., Ltd. (Japan) 1.60 8. Oil (International Integrated) 4.01 9. Mexico 3.50
9. NEC Corp. (Japan) 1.56 9. Computers (Software & Services) 2.81 10. Hong Kong 3.14
10. STMicroelectronics N.V. (France) 1.54 10. Insurance (Multi-Line) 2.67
The fund's portfolio composition is subject to change, and there is no assurance that the fund will continue to hold
any particular security.
--------------------------------------------------------------------------------------------------------------------
WHAT WERE YOUR TOP HOLDINGS? bulbs, electric shavers, appliances, country's economic situation.
We invested in international leaders in components, PC monitors and semicon- In general, the fund will continue to
wireless communications, the Internet and ductors. Its brand names include favor international market leaders with a
electronics: Marantz, Norelco and Magnavox. capacity for innovation, sales-volume
o Nortel Networks--Canadian-based Nor- expansion, pricing flexibility and high
tel beat analysts' estimates in the WHAT'S YOUR OUTLOOK FOR THE REST productivity. We regard dips in the share
first quarter of 2000, reflecting the OF THE YEAR? prices of solid companies as buying
strength of its optical networking, We expect the markets to remain volatile, opportunities.
wireless Internet and high-speed but we believe that the long-term prospects
Internet access businesses. The for international growth investing are ------------------------------------------
second-largest communications strong, especially in the technology and The performance figures shown here, which
company in North America, Nortel telecommunications sectors. represent AIM V.I. International Equity
has increased its forecast for The outlook for Europe remains bright. Fund, are not intended to reflect actual
revenue and earnings growth in 2000. In the future, we expect Europe to resem- annuity values, and they do not reflect
o Nokia--The Finnish company, which ble the United States more closely in terms charges at the separate-account level
controls more than a quarter of the of Internet usage, connectivity and broad- which (if applied) would lower them. AIM
world's mobile-phone market, continues band access. As Internet penetration in V.I. International Equity Fund's per-
to post significant earnings increases. Europe is only half that of the United formance figures are historical, and they
The company has high hopes for its next States (Finland and Sweden are notable reflect the reinvestment of distributions
generation of mobile phones, which give exceptions), enthusiasm for technology and changes in net asset value. The
handsets access to the Internet. should remain strong. fund's investment return and principal
o Philips Electronics--The Netherlands- In Japan, technology is gaining momen- value will fluctuate, so an investor's
based company makes TVs, VCRs, CD tum, but the economy is still struggling. shares, when redeemed, may be worth more
and DVD players, phones, pagers, and We search for individual Japanese stocks or less than their original cost.
other electronic devices, plus light that may perform well regardless of the International investing presents
certain risks not associated with investing
solely in the United States. These include
risks relating to fluctuations in the
value of the U.S. dollar relative to other
currencies, the custodial arrangements
made for the fund's foreign holdings,
accounting differences, political risks
and the lesser degree of public information
required to be provided by non-U.S.
companies.
The unmanaged MSCI EAFE --Registered
Trademark-- (Europe, Australasia and the
Far East) Index is a group of foreign
securities tracked by Morgan Stanley
Capital International.
An investment cannot be made in an
index. Unless otherwise indicated, index
results include reinvested dividends.
AIM V.I. INTERNATIONAL EQUITY FUND
</TABLE>
146
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 87.78%
AUSTRALIA - 0.91%
AMP Ltd. (Insurance - Life/Health) 120,800 $ 1,226,615
-------------------------------------------------------------------------------
Brambles Industries Ltd. (Air Freight) 37,700 1,155,995
-------------------------------------------------------------------------------
Cable & Wireless Optus Ltd. (Telephone)(a) 268,000 797,180
-------------------------------------------------------------------------------
Telstra Corp. Ltd. (Telephone) 26,200 106,102
-------------------------------------------------------------------------------
Telstra Corp. Ltd. - Installment Receipts (Telephone) 466,800 1,059,515
-------------------------------------------------------------------------------
4,345,407
-------------------------------------------------------------------------------
BRAZIL - 0.98%
Embratel Participacoes S.A. - ADR (Telephone) 45,100 1,065,488
-------------------------------------------------------------------------------
Petroleo Brasileiro S.A. - Petrobras-Pfd.
(Oil & Gas - Exploration & Production) 74,739 2,259,160
-------------------------------------------------------------------------------
Tele Centro Sul Participacoes S.A. - ADR (Telephone) 11,971 874,569
-------------------------------------------------------------------------------
Telesp - Telecomunicacoes de Sao Paulo S.A. - ADR
(Telephone) 27,200 503,200
-------------------------------------------------------------------------------
4,702,417
-------------------------------------------------------------------------------
CANADA - 8.73%
360networks Inc. (Telecommunications - Long
Distance)(a) 58,800 896,700
-------------------------------------------------------------------------------
Bombardier Inc. - Class B (Aerospace/Defense) 255,500 6,943,686
-------------------------------------------------------------------------------
C-MAC Industries, Inc. (Electronics - Component
Distributors)(a) 90,500 4,282,720
-------------------------------------------------------------------------------
Celestica Inc. (Electronics - Semiconductors)(a) 94,400 4,601,298
-------------------------------------------------------------------------------
Mitel Corp. (Communications Equipment)(a) 95,800 2,001,230
-------------------------------------------------------------------------------
Nortel Networks Corp. (Communications Equipment) 210,468 14,364,448
-------------------------------------------------------------------------------
Rogers Communications, Inc. - Class B
(Telecommunications - Cellular/Wireless)(a) 158,300 4,489,376
-------------------------------------------------------------------------------
Shaw Communications Inc. - Class B
(Broadcasting - Television, Radio & Cable) 167,200 4,125,744
-------------------------------------------------------------------------------
41,705,202
-------------------------------------------------------------------------------
DENMARK - 1.50%
Novo Nordisk A/S. - Class B (Health Care -
Drugs - Major Pharmaceuticals)(a) 28,575 4,853,364
-------------------------------------------------------------------------------
Vestas Wind Systems A/S
(Manufacturing - Specialized) 63,500 2,327,344
-------------------------------------------------------------------------------
7,180,708
-------------------------------------------------------------------------------
FINLAND - 2.93%
Nokia Oyj (Communications Equipment) 274,672 13,988,999
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE - 13.65%
Alcatel (Communications Equipment) 82,500 $ 5,400,516
------------------------------------------------------------------------------
Altran Technologies S.A. (Services - Commercial &
Consumer) 33,013 6,451,715
------------------------------------------------------------------------------
AXA (Insurance - Multi-Line) 45,032 7,079,942
------------------------------------------------------------------------------
BNP Paribas (Banks - Major Regional) 81,100 7,789,434
------------------------------------------------------------------------------
Legrand S.A. (Housewares) 20,275 4,539,973
------------------------------------------------------------------------------
M6 Metropole Television (Broadcasting -
Television, Radio & Cable) 20,900 1,266,566
------------------------------------------------------------------------------
Pinault - Printemps - Redoute S.A. (Retail - General
Merchandise) 19,400 4,301,527
------------------------------------------------------------------------------
PSA Peugeot Citroen (Automobiles) 16,600 3,324,799
------------------------------------------------------------------------------
Societe Generale (Banks - Major Regional) 76,500 4,592,261
------------------------------------------------------------------------------
Societe Television Francaise 1 (Broadcasting -
Television, Radio & Cable) 71,050 4,942,099
------------------------------------------------------------------------------
STMicroelectronics N.V.
(Electronics - Seminconductors) 116,850 7,348,474
------------------------------------------------------------------------------
Total Fina Elf S.A. (Oil - International Integrated) 53,525 8,190,808
------------------------------------------------------------------------------
65,228,114
------------------------------------------------------------------------------
GERMANY - 4.57%
Epcos A.G. (Electronics - Component Distributors)(a) 49,000 4,921,089
------------------------------------------------------------------------------
Infineon Technologies A.G.
(Electronics - Semiconductors)(a) 54,100 4,278,582
------------------------------------------------------------------------------
Intershop Communications A.G.
(Computers - Software & Services)(a) 2,900 1,307,024
------------------------------------------------------------------------------
Marschollek, Lautenschlaeger und Partner A.G.
(Services - Commercial & Consumer) 2,200 1,098,445
------------------------------------------------------------------------------
Porsche A.G.-Pfd. (Automobiles) 1,135 3,082,232
------------------------------------------------------------------------------
Siemens A.G. (Manufacturing - Diversified) 47,500 7,128,509
------------------------------------------------------------------------------
21,815,881
------------------------------------------------------------------------------
HONG KONG - 3.14%
China Telecom Ltd. (Telecommunications -
Cellular/Wireless)(a) 1,046,000 9,224,873
------------------------------------------------------------------------------
Dao Heng Bank Group Ltd. (Banks - Regional) 374,000 1,655,186
------------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Retail - Food Chains) 328,900 4,134,719
------------------------------------------------------------------------------
15,014,778
------------------------------------------------------------------------------
INDONESIA - 0.19%
Gulf Indonesia Resources Ltd. (Oil - International
Integrated)(a) 111,400 891,200
------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
147
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ITALY - 1.04%
Gruppo Editoriale L'Espresso (Publishing) 61,000 $ 778,278
-------------------------------------------------------------------------------
Telecom Italia Mobile S.p.A. (Telecommunications -
Cellular/Wireless) 409,000 4,169,957
-------------------------------------------------------------------------------
4,948,235
-------------------------------------------------------------------------------
JAPAN - 16.39%
Advantest Corp. (Electronics - Instrumentation) 27,500 6,126,077
-------------------------------------------------------------------------------
Crayfish Co. Ltd. - ADR (Computers - Software &
Services)(a) 98,000 686,000
-------------------------------------------------------------------------------
DDI Corp. (Telephone) 400 3,843,074
-------------------------------------------------------------------------------
Fast Retailing Co. Ltd. (Retail - Specialty Apparel) 44 18,402
-------------------------------------------------------------------------------
Hirose Electric Co. Ltd. (Electronics - Component
Distributors) 27,800 4,323,252
-------------------------------------------------------------------------------
Hoya Corp. (Manufacturing - Specialized) 32,000 2,863,467
-------------------------------------------------------------------------------
Matsushita Communication Industrial Co., Ltd.
(Telephone) 23,000 2,682,052
-------------------------------------------------------------------------------
Murata Manufacturing Co., Ltd.
(Electronics - Component Distributors) 30,000 4,300,852
-------------------------------------------------------------------------------
NEC Corp. (Computers - Hardware) 238,000 7,465,172
-------------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp.
(Telecommunications - Long Distance) 292 3,878,114
-------------------------------------------------------------------------------
NTT Data Corp. (Computers - Software & Services)(a) 228 2,340,884
-------------------------------------------------------------------------------
NTT DoCoMo, Inc. (Telecommunications -
Cellular/Wireless) 171 4,622,710
-------------------------------------------------------------------------------
Ricoh Co., Ltd. (Office Equipment & Supplies) 132,000 2,791,315
-------------------------------------------------------------------------------
Rohm Co. Ltd. (Electronics - Component Distributors) 12,600 3,679,179
-------------------------------------------------------------------------------
Sanix Inc. (Services - Commercial & Consumer) 30,450 1,606,179
-------------------------------------------------------------------------------
Sanyo Electric Co., Ltd. (Electronics - Component
Distributors)(a) 852,000 7,656,083
-------------------------------------------------------------------------------
Sharp Corp. (Electrical Equipment) 106,000 1,872,086
-------------------------------------------------------------------------------
Sony Corp. (Electrical Equipment) 38,200 3,562,191
-------------------------------------------------------------------------------
Takeda Chemical Industries Ltd. (Health
Care - Drugs - Generic & Other) 73,000 4,785,758
-------------------------------------------------------------------------------
Tokyo Electron Ltd. (Electronics - Semiconductors) 41,000 5,607,498
-------------------------------------------------------------------------------
Trend Micro Inc. (Computers - Software & Services)(a) 21,900 3,609,947
-------------------------------------------------------------------------------
78,320,292
- ------------------------------------------------------------------------------
MEXICO - 3.50%
Coca-Cola Femsa S.A. - ADR (Beverages -
Non-Alcoholic) 95,200 1,796,900
-------------------------------------------------------------------------------
Fomento Economico Mexicano, S.A. de C.V. - ADR
(Beverages - Alcoholic) 74,709 3,217,156
-------------------------------------------------------------------------------
Grupo Modelo S.A. de C.V. - Series C
(Beverages - Alcoholic) 523,000 1,213,993
-------------------------------------------------------------------------------
Grupo Televisa S.A. - GDR (Entertainment)(a) 60,160 4,147,280
-------------------------------------------------------------------------------
Kimberly-Clark de Mexico, S.A. de C.V.-Class A (Paper
& Forest Products) 226,000 642,828
-------------------------------------------------------------------------------
Telefonos de Mexico S.A. de C.V. - Class L - ADR
(Telephone) 58,936 3,366,719
-------------------------------------------------------------------------------
Wal-Mart de Mexico S.A. de C.V. - Series C (Retail -
General Merchandise)(a) 1,014,000 2,338,257
-------------------------------------------------------------------------------
16,723,133
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NETHERLANDS - 3.50%
ASM Lithography Holding N.V.
(Machinery - Diversified)(a) 80,700 $ 3,461,813
-----------------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics N.V.
(Electrical Equipment) 200,440 9,434,869
-----------------------------------------------------------------------------
VNU N.V. (Publishing) 74,400 3,835,259
-----------------------------------------------------------------------------
16,731,941
-----------------------------------------------------------------------------
SINGAPORE - 1.34%
Chartered Semiconductor Manufacturing Ltd. - ADR
(Electronics - Semiconductors)(a) 13,700 1,233,000
-----------------------------------------------------------------------------
Datacraft Asia Ltd. (Communications Equipment) 139,360 1,226,368
-----------------------------------------------------------------------------
DBS Group Holdings Ltd. (Banks - Money Center) 143,979 1,850,266
-----------------------------------------------------------------------------
Keppel Corp. Ltd. (Engineering & Construction) 331,000 716,608
-----------------------------------------------------------------------------
Singapore Press Holdings Ltd. (Publishing -
Newspapers) 87,563 1,368,559
-----------------------------------------------------------------------------
6,394,801
-----------------------------------------------------------------------------
SOUTH KOREA - 2.34%
Korea Telecom Corp. - ADR (Telephone) 53,530 2,589,514
-----------------------------------------------------------------------------
L.G. Chemical Ltd. (Chemicals - Diversified) 58,000 1,159,974
-----------------------------------------------------------------------------
Pohang Iron & Steel Co. Ltd. - ADR (Iron & Steel) 85,815 2,059,560
-----------------------------------------------------------------------------
Samsung Electronics N.V. (Electronics - Component
Distributors)(a) 16,200 5,361,135
-----------------------------------------------------------------------------
11,170,183
-----------------------------------------------------------------------------
SPAIN - 1.38%
Telefonica S.A. (Telephone)(a) 308,743 6,619,180
-----------------------------------------------------------------------------
SWEDEN - 4.30%
NetCom A.B. - Class B (Telecommunications -
Cellular/Wireless)(a) 77,200 5,691,127
-----------------------------------------------------------------------------
OM Grupppen A.B. (Investment Banking/Brokerage) 45,000 2,007,746
-----------------------------------------------------------------------------
Skandia Forsakrings A.B. (Insurance Brokers) 147,900 3,902,330
-----------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson A.B. - B Shares
(Communications Equipment) 453,200 8,955,406
-----------------------------------------------------------------------------
20,556,609
-----------------------------------------------------------------------------
SWITZERLAND - 6.77%
ABB Ltd. (Electrical Equipment) 60,600 7,235,904
-----------------------------------------------------------------------------
Adecco S.A. (Services - Commercial & Consumer) 8,395 7,115,625
-----------------------------------------------------------------------------
Compagnie Financiere Richemont A.G. (Tobacco) 2,375 6,383,393
-----------------------------------------------------------------------------
Kudelski S.A. (Electronics - Component
Distributors)(a) 120 1,505,871
-----------------------------------------------------------------------------
Serono S.A. (Health Care - Drugs - Generic & Other) 5,280 4,391,389
-----------------------------------------------------------------------------
Zurich Allied A.G. (Insurance - Multi-Line) 11,550 5,693,065
-----------------------------------------------------------------------------
32,325,247
-----------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
148
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TAIWAN - 1.22%
Far Eastern Textile Ltd. - GDR (Textiles-Apparel)(a) 26,400 $ 333,300
-------------------------------------------------------------------------------
Far Eastern Textile Ltd. - GDR (Textiles-Apparel)
(Acquired 11/11/99-04/19/00;
Cost $2,460,764)(a)(b) 151,600 1,913,950
-------------------------------------------------------------------------------
GT Taiwan Fund (Investment Management)(a)(c)(d) 15,291 248,483
-------------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co. Ltd. - ADR
(Electronics - Semiconductors) 85,760 3,323,200
-------------------------------------------------------------------------------
5,818,933
-------------------------------------------------------------------------------
THAILAND - 0.11%
Siam Commercial Bank Public Co. Ltd.
(Banks - Regional)(a) 32,800 18,420
-------------------------------------------------------------------------------
Siam Commercial Bank Public Co. Ltd. - $1.37 Conv.
Pfd. (Banks - Regional) (Acquired 04/29/99; Cost
$593,771)(a)(b) 846,000 431,908
-------------------------------------------------------------------------------
Siam Commercial Bank Public Co. Ltd. - Wts., expiring
05/10/02 (Banks - Regional)(d) 846,000 99,339
-------------------------------------------------------------------------------
549,667
-------------------------------------------------------------------------------
UNITED KINGDOM - 9.29%
ARM Holdings PLC (Electronics - Semiconductors)(a) 459,500 4,921,857
-------------------------------------------------------------------------------
BP Amoco PLC (Oil - International Integrated)(a) 346,000 3,318,758
-------------------------------------------------------------------------------
Capita Group PLC (Services - Commercial & Consumer) 216,800 5,303,707
-------------------------------------------------------------------------------
CMG PLC (Computers - Software & Services) 256,200 3,612,979
-------------------------------------------------------------------------------
Dialog Semiconductor PLC (Electronics -
Semiconductors)(a) 16,000 808,017
-------------------------------------------------------------------------------
Logica PLC (Computers - Software & Services) 78,600 1,859,814
-------------------------------------------------------------------------------
Marconi PLC (Communications Equipment) 378,940 4,930,366
-------------------------------------------------------------------------------
Pace Micro Technology PLC (Communications Equipment) 181,900 2,619,871
-------------------------------------------------------------------------------
Shell Transport & Trading Co. (Oil - International
Integrated) 810,000 6,758,351
-------------------------------------------------------------------------------
Vodafone AirTouch PLC (Telecommunications -
Cellular/Wireless) 1,113,655 4,498,546
-------------------------------------------------------------------------------
Vodafone AirTouch PLC - ADR (Telecommunications -
Cellular/Wireless) 1,750 72,516
-------------------------------------------------------------------------------
WPP Group PLC (Services - Advertising/Marketing) 387,000 5,650,001
-------------------------------------------------------------------------------
44,354,783
-------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$307,144,951) 419,385,710
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MONEY MARKET FUNDS - 10.87%
STIC Liquid Assets Portfolio(e) 25,966,176 $ 25,966,176
----------------------------------------------------------------------
STIC Prime Portfolio(e) 25,966,176 25,966,176
----------------------------------------------------------------------
Total Money Market Funds (Cost $51,932,352) 51,932,352
----------------------------------------------------------------------
TOTAL INVESTMENTS - 98.65%
(Cost $359,077,303) 471,318,062
----------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.35% 6,436,520
----------------------------------------------------------------------
NET ASSETS - 100.00% $477,754,582
======================================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
GDR - Global Depositary Receipt
Pfd. - Preferred
Wts. - Warrants
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
market value of these securities at 06/30/00 was $2,345,858 which
represented 0.49% of the Fund's net assets.
(c) The security is managed by an affiliate of the advisor. The security is in
the process of being liquidated to its shareholders at a price of $16.25 a
share.
(d) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(e) The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
149
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $359,077,303) $471,318,062
-----------------------------------------------------------------------
Foreign currencies, at value (cost $2,886,778) 2,908,269
-----------------------------------------------------------------------
Receivables for:
Investments sold 2,627,006
-----------------------------------------------------------------------
Fund shares sold 3,207,901
-----------------------------------------------------------------------
Dividends and Interest 1,006,690
-----------------------------------------------------------------------
Due from advisor 8,510
-----------------------------------------------------------------------
Investment for deferred compensation plan 31,405
-----------------------------------------------------------------------
Total assets 481,107,843
-----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,699,739
-----------------------------------------------------------------------
Fund shares reacquired 83,513
-----------------------------------------------------------------------
Deferred compensation plan 31,405
-----------------------------------------------------------------------
Accrued advisory fees 282,348
-----------------------------------------------------------------------
Accrued administrative services fees 250,780
-----------------------------------------------------------------------
Accrued trustees' fees 1,800
-----------------------------------------------------------------------
Accrued operating expenses 3,676
-----------------------------------------------------------------------
Total liabilities 3,353,261
-----------------------------------------------------------------------
Net assets applicable to shares outstanding $477,754,582
=======================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Outstanding 18,294,817
=======================================================================
Net asset value, offering and redemption price per share $ 26.11
=======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax $268,775) $ 6,339,074
-------------------------------------------------------------------------------
Interest 22,238
-------------------------------------------------------------------------------
Total investment income 6,361,312
-------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,676,489
-------------------------------------------------------------------------------
Administrative services fee 318,164
-------------------------------------------------------------------------------
Custodian fees 173,279
-------------------------------------------------------------------------------
Trustees' fees 3,345
-------------------------------------------------------------------------------
Other 79,041
-------------------------------------------------------------------------------
Total expenses 2,250,318
-------------------------------------------------------------------------------
Less: Expenses paid indirectly (778)
-------------------------------------------------------------------------------
Net expenses 2,249,540
-------------------------------------------------------------------------------
Net investment income 4,111,772
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES
AND FOREIGN CURRENCIES
Net realized gain (loss) from:
Investment securities 22,597,932
-------------------------------------------------------------------------------
Foreign currencies (919,402)
-------------------------------------------------------------------------------
21,678,530
-------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (74,650,490)
-------------------------------------------------------------------------------
Foreign currencies 56,978
-------------------------------------------------------------------------------
(74,593,512)
-------------------------------------------------------------------------------
Net gain (loss) on investment securities and foreign currencies (52,914,982)
-------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(48,803,210)
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
150
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2000 and the year ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,111,772 $ 1,052,906
-------------------------------------------------------------------------------
Net realized gain from investment securities and
foreign currencies 21,678,530 28,410,687
-------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities and
foreign currencies (74,593,512) 127,549,239
-------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (48,803,210) 157,012,832
-------------------------------------------------------------------------------
Distributions to shareholders from net investment
income -- (2,918,487)
-------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains -- (12,247,382)
-------------------------------------------------------------------------------
Share transactions - net 72,498,241 71,898,276
-------------------------------------------------------------------------------
Net increase in net assets 23,695,031 213,745,239
-------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 454,059,551 240,314,312
-------------------------------------------------------------------------------
End of period $477,754,582 $454,059,551
===============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $329,234,295 $256,736,054
-------------------------------------------------------------------------------
Undistributed net investment income (loss) 4,027,674 (84,098)
-------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 32,285,170 10,606,640
-------------------------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currencies 112,207,443 186,800,955
-------------------------------------------------------------------------------
$477,754,582 $454,059,551
===============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. International Equity Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
seventeen separate portfolios. At a meeting held on February 3, 2000, the
Board of Directors of AIM Variable Insurance Funds, Inc. approved an Agreement
and Plan of Reorganization which was approved by shareholders of the Fund on
April 10, 2000. Effective May 1, 2000, pursuant to the Agreement and Plan of
Reorganization, AIM Variable Insurance Funds, Inc. was reorganized from a
Maryland Corporation to a Delaware business trust. Matters affecting each
portfolio will be voted on exclusively by the shareholders of such portfolio.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the Fund. Currently, shares of the Fund are sold only to insurance company
separate accounts to fund the benefits of variable annuity contracts and
variable life insurance policies. The Fund's investment objective is to
provide long-term growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price as of the close of the
customary trading session on the exchange where the security is principally
traded, or lacking any sales on a particular day, the security is valued at
the closing bid price on that day. Each security reported on the NASDAQ
National Market System is valued at the last sales price as of the close of
the customary trading session on the valuation date or absent a last sales
price, at the closing bid price. Debt obligations (including convertible
bonds) are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors
such as yield, type of issue, coupon rate and maturity date. Securities for
which market prices are not provided by any of the above methods are valued
based upon quotes furnished by independent sources and are valued at the
last bid price in the case of equity securities and in the case of debt
obligations, the mean between the last bid and asked prices. Securities for
which market quotations are not readily available or are questionable are
valued at fair value as determined in good faith by or under the
supervision of the Trust's officers in a manner specifically authorized by
the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
AIM V.I. INTERNATIONAL EQUITY FUND
151
<PAGE>
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the customary
trading session of the NYSE which would not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
B. Securities Transactions and Investment Income - Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
C. Distributions - Distributions from income and net realized capital gains,
if any, are generally paid annually and recorded on ex-dividend date.
D. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. Foreign Currency Contracts - A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the first $250 million of the Fund's average daily net assets, plus 0.70% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement with AIM, the Fund has
agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the Fund. For the six months ended June 30,
2000, the Fund paid AIM $318,164 of which AIM retained $45,674 for accounting
services provided.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and trustees of the Trust are officers of AIM and AIM
Distributors.
During the six months ended June 30, 2000, the Fund paid legal fees of $2,049
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3 - INDIRECT EXPENSES
For the six months ended June 30, 2000, the Fund received reductions in
custodian fees of $778 under an expense offset arrangement which resulted in a
reduction of the Fund's total expenses of $778.
NOTE 4 - TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by
a trustee, in mutual fund shares in accordance with a deferred compensation
plan.
NOTE 5 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A.. The Fund may borrow up to the lesser
of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings.
The Fund and other funds advised by AIM which are parties to the line of
credit may borrow on a first come, first served basis. During the six months
ended June 30, 2000, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the six months ended June
30, 2000 was $235,496,511 and $190,680,300, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of June 30, 2000 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $124,043,655
----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (12,140,233)
----------------------------------------------------------------------------
Net unrealized appreciation of investment securities $111,903,422
============================================================================
</TABLE>
Cost of investments for tax purposes is $359,414,640.
AIM V.I. INTERNATIONAL EQUITY FUND
152
<PAGE>
NOTE 7 - SHARE INFORMATION
Changes in shares outstanding during the six months ended June 30, 2000 and
the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Sold 11,595,395 $ 316,051,378 6,613,497 $ 145,638,150
------------------------------------------------------------------------------
Issued as reinvestment
of dividends -- -- 582,183 15,165,869
------------------------------------------------------------------------------
Issued in connection
with acquisitions* -- -- 2,243,929 49,699,501
------------------------------------------------------------------------------
Reacquired (8,804,011) (243,553,137) (6,185,749) (138,605,244)
------------------------------------------------------------------------------
2,791,384 $ 72,498,241 3,253,860 $ 71,898,276
==============================================================================
</TABLE>
* As of the close of business on October 22, 1999, the Fund acquired all the
net assets of the following funds: GT Global Variable International Fund, GT
Global Variable Europe Fund, GT Global Variable Natural Resources Fund, GT
Global Variable Infrastructure Fund, GT Global Variable New Pacific Fund, GT
Global Variable Latin America Fund and GT Global Variable Emerging Markets
Fund, collectively (the "Variable Funds"), pursuant to a plan of
reorganization approved by the Variable Funds shareholders on August 25,
1999. The acquisitions were accomplished by a tax-free exchange of 2,243,929
shares of the Fund for the respective shares of each of the Variable Funds
outstanding as of the close of business October 22, 1999 (see following
table) and by combining the net assets of the Fund as of that date with
those of the respective Variable Funds outlined in the following table:
<TABLE>
<CAPTION>
NET ASSETS
IMMEDIATELY APPRECIATION/
SHARES BEFORE (DEPRECIATION)
VARIABLE FUNDS: EXCHANGED ACQUISITIONS INCLUDED
------------------------- --------- ------------ --------------
<S> <C> <C> <C>
GT Global Variable
International Fund 398,165 $ 4,159,686 $ 591,925
------------------------------------------------------------------------------
GT Global Variable
Europe Fund 2,101,240 16,722,795 1,876,631
------------------------------------------------------------------------------
GT Global Variable
Natural Resources Fund 426,574 5,000,655 167,642
------------------------------------------------------------------------------
GT Global Variable
Infrastructure Fund 253,110 3,837,109 609,331
------------------------------------------------------------------------------
GT Global Variable New
Pacific Fund 857,885 7,747,489 1,306,187
------------------------------------------------------------------------------
GT Global Variable Latin
America Fund 731,544 7,915,791 (1,572,891)
------------------------------------------------------------------------------
GT Global Variable
Emerging Markets Funds 544,479 4,315,976 117,775
------------------------------------------------------------------------------
</TABLE>
The net assets of the Fund immediately before the acquisitions were
$285,111,544.
AIM V.I. INTERNATIONAL EQUITY FUND
153
<PAGE>
NOTE 8 - FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
SIX
MONTHS ELEVEN
ENDED YEAR ENDED DECEMBER 31, MONTHS ENDED YEAR ENDED
JUNE 30, -------------------------------------- DECEMBER 31, JANUARY 31,
2000 1999(a) 1998 1997 1996 1995 1995
-------- -------- -------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 29.29 $ 19.62 $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49
------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.23 0.08 0.15 0.10 0.07 0.07 0.06
------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) (3.41) 10.59 2.50 1.03 2.67 2.58 (1.49)
------------------------------------------------------------------------------------------------------------
Total from investment
operations (3.18) 10.67 2.65 1.13 2.74 2.65 (1.43)
------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (0.19) (0.16) (0.08) (0.04) (0.02) (0.03)
------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- (0.81) -- (0.28) -- -- --
------------------------------------------------------------------------------------------------------------
Total distributions -- (1.00) (0.16) (0.36) (0.04) (0.02) (0.03)
------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 26.11 $ 29.29 $ 19.62 $ 17.13 $ 16.36 $ 13.66 $ 11.03
============================================================================================================
Total return(b) (10.86)% 55.04% 15.49% 6.94% 20.05% 24.04% (11.48)%
============================================================================================================
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $477,755 $454,060 $240,314 $211,023 $165,738 $82,257 $55,019
============================================================================================================
Ratio of expenses to
average net assets 0.98%(c) 0.97% 0.91% 0.93% 0.96% 1.15%(d) 1.27%(e)
============================================================================================================
Ratio of net investment
income to average net
assets 1.79%(c) 0.38% 0.80% 0.68% 0.78% 0.75%(d) 0.60%
============================================================================================================
Portfolio turnover rate 45% 97% 76% 57% 59% 67% 64%
============================================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $462,674,876.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.28%.
AIM V.I. INTERNATIONAL EQUITY FUND
154
<PAGE>
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. International Equity Fund (the
"Fund"), a portfolio of AIM Variable Insurance Funds, Inc. (the "Company"),
reorganized as AIM Variable Insurance Funds, a Delaware business trust (the
"Trust"), was held on April 10, 2000. The meeting was held for the following
purposes:
(1)* To elect ten directors as follows: Charles T. Bauer, Bruce L. Crockett,
Owen Daly II, Edward K. Dunn, Jr., Jack M. Fields, Carl Frischling,
Robert H. Graham, Prema Mathai-Davis, Lewis F. Pennock and Louis S.
Sklar.
(2)* To approve an Agreement and Plan of Reorganization which provided for the
reorganization of the company as a Delaware business trust.
(3) To approve a new Master Investment Advisory Agreement with A I M Advisors,
Inc.
(4) To approve changing the fundamental investment restrictions of the Fund.
(5) To approve changing the investment objective of the Fund and making it
non-fundamental.
(6) To ratify the selection of Tait, Weller & Baker as independent accountants
of the Fund for the fiscal year ending in 2000.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES VOTES WITHHELD/
DIRECTORS/MATTER FOR AGAINST ABSTENTIONS
------------------------------------- ----------- --------- -----------
<C> <S> <C> <C> <C>
(1)* Charles T. Bauer................... 336,558,177 N/A 9,129,703
Bruce L. Crockett.................. 337,513,648 N/A 8,174,232
Owen Daly II....................... 336,754,219 N/A 8,933,661
Edward K. Dunn, Jr. ............... 337,481,093 N/A 8,206,787
Jack M. Fields..................... 337,574,973 N/A 8,112,907
Carl Frischling.................... 337,177,860 N/A 8,510,020
Robert H. Graham................... 337,319,248 N/A 8,368,632
Prema Mathai-Davis................. 337,262,043 N/A 8,425,837
Lewis F. Pennock................... 337,440,897 N/A 8,246,983
Louis S. Sklar..................... 337,447,894 N/A 8,239,986
(2)* Approval of an Agreement and Plan
of Reorganization which provided
for the reorganization of AIM
Variable Insurance Funds, Inc. as a
Delaware business trust............ 318,213,444 8,412,798 19,061,638
(3) Approval of a new Investment
Advisory Agreement................. 13,967,686 350,596 1,070,735
(4)(a) Change to Fundamental Restriction
on Issuer Diversification.......... 13,625,093 475,137 1,288,787
(4)(b) Change to Fundamental Restriction
on Borrowing Money and Issuing
Senior Securities.................. 13,476,309 582,138 1,330,570
(4)(c) Change to Fundamental Restriction
on Underwriting Securities......... 13,715,114 491,764 1,182,139
(4)(d) Change to Fundamental Restriction
on Industry Concentration.......... 13,762,202 451,275 1,175,540
(4)(e) Change to Fundamental Restriction
on Purchasing or Selling Real
Estate............................. 13,647,715 543,142 1,198,160
(4)(f) Change to Fundamental Restriction
on Purchasing or Selling
Commodities........................ 13,618,516 550,377 1,220,124
(4)(g) Change to Fundamental Restriction
on Making Loans.................... 13,508,317 612,651 1,268,049
(4)(h) Elimination of Fundamental
Restriction on Investing for the
Purpose of Control................. 13,480,994 619,196 1,288,827
(5) Approval of changing the Investment
Objective and Making it Non-
Fundamental........................ 13,314,762 688,330 1,385,925
(6) Ratification of the selection of
Tait, Weller & Baker as Independent
Accountants of the Fund............ 13,314,762 197,956 922,149
</TABLE>
- ------
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds, Inc.
AIM V.I. INTERNATIONAL EQUITY FUND
155
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
o TRUSTEES, OFFICERS, AND BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
OTHER SERVICE PROVIDERS Charles T. Bauer
OF AIM VARIABLE INSURANCE Director and Chairman Charles T. Bauer 11 Greenway Plaza
FUNDS, INC. A I M Management Group Inc. Chairman Suite 100
Houston, TX 77046
Bruce L. Crockett Robert H. Graham (800) 347-1919
Director President
ACE Limited; INVESTMENT ADVISOR
Formerly Director, President, and Carol F. Relihan
Chief Executive Officer Senior Vice President and A I M Advisors, Inc.
COMSAT Corporation Secretary 11 Greenway Plaza
Suite 100
Owen Daly II Gary T. Crum Houston, TX 77046
Formerly Director Senior Vice President
Cortland Trust Inc. TRANSFER AGENT AND CUSTODIAN
Dana R. Sutton
Edward K. Dunn Jr. Vice President and State Street Bank and Trust Company
Chairman, Mercantile Mortgage Corp.; Treasurer 225 Franklin Street
Formerly Vice Chairman, President Boston, MA 02110
and Chief Operating Officer, Robert G. Alley
Mercantile-Safe Deposit & Trust Co.; Vice President COUNSEL TO THE FUNDS
and President, Mercantile Bankshares
Stuart W. Coco Freedman, Levy, Kroll &
Jack Fields Vice President Simonds
Chief Executive Officer 1050 Conn. Avenue, N.W.
Texana Global Inc. and Twenty First Melville B. Cox Washington, D.C. 20036
Century Group, Inc.; Vice President
Formerly, Member of the COUNSEL TO THE TRUSTEES
U.S. House of Representatives Karen Dunn Kelley
Vice President Kramer, Levin, Naftalis & Frankel LLP
Carl Frischling 919 Third Avenue
Partner Edgar M. Larsen New York, NY 10022
Kramer, Levin, Naftalis & Frankel LLP Vice President
DISTRIBUTOR
Robert H. Graham Mary J. Benson
Director, President and Chief Assistant Vice President A I M Distributors, Inc.
Executive Officer and Assistant Treasurer 11 Greenway Plaza
A I M Management Group Inc. Suite 100
Sheri Morris Houston, TX 77046
Prema Mathai-Davis Assistant Vice President
Formerly, Chief Executive Officer, and Assistant Treasurer
YMCA of the U.S.A.
Renee A. Friedli
Lewis F. Pennock Assistant Secretary
Attorney
P. Michelle Grace
Louis S. Sklar Assistant Secretary
Executive Vice President, Development
and Operations, Nancy L. Martin
Hines Interests Assistant Secretary
Limited Partnership
Ofelia M. Mayo
Assistant Secretary
Lisa A. Moss
Assistant Secretary
Kathleen J. Pflueger
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
</TABLE>
156
<PAGE>
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157
<PAGE>
SEMIANNUAL REPORT / JUNE 30 2000
AIM V.I. VALUE FUND
AIM V.I. VALUE FUND SEEKS LONG-TERM CAPITAL GROWTH BY
INVESTING PRIMARILY IN UNDERVALUE STOCKS. INCOME IS A
SECONDARY OBJECTIVE.
[LOGO]
158
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SEMIANNUAL REPORT/MANAGERS' OVERVIEW
AIM V.I. VALUE FUND
FUND WEATHERS VOLATILE MARKET
HOW DID AIM V.I. VALUE FUND PERFORM OVER IN THIS ENVIRONMENT, | at good prices were difficult to find over
THE REPORTING PERIOD? WE TENDED TO FOCUS MORE ON | the past few months. In this environment,
AIM V.I. Value Fund reported flat results EARNINGS GROWTH. | we tended to focus more on earnings
for the six months ended June 30, 2000, _________________________________________| growth.
with a -0.27% return. The fund's To concentrate on our best-performing
performance was in line with that of its WHAT WERE MARKET CONDITIONS LIKE companies, we kept the number of holdings
benchmark, the S&P 500, which produced a DURING THE PAST SIX MONTHS? at about 50. The fund's major sectors
return of -0.43% during the same time The past six months saw extreme market continued to be broadcasting, technology,
frame. volatility. During the first three months retail and finance.
While the fund and its benchmark were of 2000, market indexes such as the Dow
both relatively flat on a six-month basis, and the Nasdaq rose to new heights in a BESIDES MARKET VOLATILITY, WHAT OTHER
AIM V.I. Value Fund beat the S&P 500's rally dominated by technology stocks. But FACTORS AFFECTED FUND PERFORMANCE?
performance over the year ended June 30, near the end of March, market sentiment Our holdings in cable TV hurt performance
2000. The fund reported average annual soured as investors worried whether tech in the second quarter of 2000. Cable-TV
total returns of 13.20%, compared to the stocks were overpriced. A sharp sell-off stocks such as fund holdings Comcast and
7.24% return of the S&P 500. in the technology sector ensued, Cox Communications took a hit near the end
particularly for Internet companies with of the reporting period because of
no earnings. concerns over cash-flow growth and
------------------------------------------ Interest-rate concerns also roiled the competition from satellite companies.
FUND PERFORMANCE markets during the reporting period. The Even though short-term performance
Federal Reserve Board (the Fed) continued disappointed, we believe that the long-
AVERAGE ANNUAL TOTAL RETURNS to raise interest rates in an effort to term prospects for these firms and cable
slow the economy and prevent inflation. stocks in general are strong, especially
As of 6/30/00 In May, the Fed raised the federal funds as cable companies enter the telephone
rate to 6.50%, its highest level in nine business.
------------------------------------------ years. Since June 1999, the Fed has In addition, the fund was under-
Inception (5/5/93) 21.26% increased interest rates six times for a weighted in health-care stocks,
------------------------------------------ total of 1.75%. At its June 2000 meeting, particularly drug manufacturers, an area
5 years 21.82 the Fed chose to leave rates unchanged but that performed well during the past six
------------------------------------------ hinted that more increases may occur later months. We were cautious about this
1 year 13.20 in the summer. industry because of political risks:
For all the intense market activity of Congress and President Clinton continue
RESULTS OF A $10,000 INVESTMENT the past six months, the S&P 500 ended the to dicker over how to inject a Medicare
period flat, with the Dow down 8.44% and drug benefit into the current system. In
5/5/93-6/30/00 the Nasdaq down 2.54%. addition, drug companies face increasing
pressure from consumers to lower costs.
AIM V.I. Value Fund......... $39,718 HOW DID YOU MANAGE THE FUND DURING
S&P 500 Index............... $38,261 THESE CONDITIONS? WHAT STOCKS PERFORMED WELL FOR
Volatility hurt the fund's performance THE FUND?
Index's performance figures are for the during the second quarter of 2000. The Our semiconductor holdings such as Analog
period 4/30/93 through 6/30/00. Past fund invests in companies with strong Devices and Applied Materials benefited
performance cannot guarantee comparable earnings growth and reasonable stock from strong demand for computer chips,
future results. MARKET VOLATILITY CAN prices; however, good companies selling increased earnings and rising stock
SIGNIFICANTLY IMPACT SHORT-TERM prices. Cellular-phone maker Nokia and
PERFORMANCE. RESULTS OF AN INVESTMENT mobile-phone service provider Nextel also
MADE TODAY MAY DIFFER SUBSTANTIALLY reported excellent earnings,
FROM THE HISTORICAL PERFORMANCE SHOWN.
------------------------------------------
AIM V.I. Value Fund
</TABLE>
159
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SEMIANNUAL REPORT/MANAGERS' OVERVIEW
-----------------------------------------------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
As of 6/30/00, based on total net assets
TOP 10 INDUSTRIES
TOP 10 HOLDINGS ------------------------------------------
------------------------------------------- 1. Broadcasting (Television, Radio
1. Comcast Corp.-Class A 5.95% & Cable) 10.16%
------------------------------------------- ------------------------------------------
2. Nextel Communications, Inc.- 2. Computers (Hardware) 8.19
Class A 5.60 ------------------------------------------
------------------------------------------- 3. Communications Equipment 7.12
3. Nokia Oyj-ADR (Finland) 4.89 ------------------------------------------
------------------------------------------- 4. Retail (General Merchandise) 6.35
4. Target Corp. 4.38 ------------------------------------------
------------------------------------------- 5. Telecommunications (Cellular/
5. Cox Communications, Inc.-Class A 4.21 Wireless) 5.60
------------------------------------------- ------------------------------------------
6. Tyco International Ltd. (Bermuda) 3.89 6. Electronics (Semiconductors) 4.61
------------------------------------------- ------------------------------------------
7. Morgan Stanley Dean Witter & Co. 3.47 7. Investment Banking/Brokerage 4.21
------------------------------------------- ------------------------------------------
8. Apple Computer, Inc. 3.45 8. Equipment (Semiconductor) 4.03
------------------------------------------- ------------------------------------------
9. Analog Devices, Inc. 2.93 9. Manufacturing (Diversified) 3.89
------------------------------------------- ------------------------------------------
10. First Data Corp. 2.92 10. Services (Data Processing) 3.68
------------------------------------------- ------------------------------------------
The fund's portfolio composition is subject to change, and there is no assurance that the fund will continue to hold any
particular security.
-----------------------------------------------------------------------------------------------------------------------
THE NEAR-TERM OUTLOOK FOR STOCKS | vindicating the company. The diversified ------------------------------------------
COULD DEPEND TO A LARGE EXTENT | corporation has interests in electronics,
ON THE FED'S ABILITY TO BRING THE | plastics, valves and pipes, and fire and The performance figures shown represent
ECONOMY TO A "SOFT LANDING." | security products. AIM V.I. Value Fund; they are not intended
________________________________________| to reflect actual annuity values, and they
WHAT IS YOUR OUTLOOK FOR THE NEAR TERM? do not reflect charges at the separate-
The near-term outlook for stocks could account level which (if applied) would
depend to a large extent on the Fed's lower the performance results.
propelled by the explosive growth of the ability to bring the economy to a "soft
wireless-telecommunications market. landing." There are signs that the economy The fund's performance figures are
We also continued to hold Target could be slowing. Consequently, the Fed historical, and they reflect the
because the company shows strong earnings may wind down its tightening cycle, reinvestment of distributions and changes
growth, and its stock is selling at a although the central bank could approve in net asset value.
reasonable price. Formerly Dayton Hudson, one or two more rate hikes in the months
the company changed its name in January to ahead. If the Fed succeeds in slowing The fund's investment return and principal
Target. We anticipate that the name change economic growth to a more sustainable rate value will fluctuate, so fund shares, when
will benefit the stock as more investors and in keeping inflation under control, it redeemed, may be worth more or less than
connect the stock name with the successful could prolong the current record economic their original cost.
retailer. expansion. Such an environment could prove
Another long-time fund holding, Tyco favorable for stocks. The unmanaged Dow Jones Industrial Average
International, continues to show earnings However, uncertainty over the Fed's (the Dow) is a price-weighted average of
growth. After the end of the reporting actions and other factors could perpetuate 30 actively traded primarily industrial
period, its stock price jumped on news the volatility that has characterized stocks.
that the Securities and Exchange markets in recent months. In such an
Commission had dropped its inquiry into environment, investors would be well The unmanaged National Association of
Tyco's accounting practices, essentially advised to take a long-term perspective Securities Dealers Automated Quotation
on their investment. System Composite Index (the Nasdaq) is a
market-value-weighted index comprising all
domestic and non-U.S. based common stocks
listed on the Nasdaq system. It includes
more than 5,000 companies, and it is often
considered representative of the small and
medium-sized company stock universe. While
it includes many small and mid-sized
company stocks, large capitalization
companies tend to dominate the index.
The unmanaged Standard & Poor's Composite
Index of 500 Stocks (the S&P 500)
represents the performance of the stock
market.
An investment cannot be made in an index.
Index results include reinvested dividends.
</TABLE>
AIM V.I. VALUE FUND
160
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 75.46%
BANKS (MONEY CENTER) - 1.73%
Chase Manhattan Corp. (The) 1,065,000 $ 49,056,562
---------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 10.16%
Comcast Corp. - Class A(a) 4,170,000 168,885,000
---------------------------------------------------------------------------
Cox Communications, Inc. - Class A(a) 2,624,000 119,556,000
---------------------------------------------------------------------------
288,441,000
---------------------------------------------------------------------------
COMPUTERS (HARDWARE) - 8.19%
Apple Computer, Inc.(a) 1,870,000 97,941,250
---------------------------------------------------------------------------
Dell Computer Corp.(a) 1,191,700 58,765,706
---------------------------------------------------------------------------
Gateway, Inc.(a) 693,100 39,333,425
---------------------------------------------------------------------------
Sun Microsystems, Inc.(a) 401,000 36,465,937
---------------------------------------------------------------------------
232,506,318
---------------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 2.35%
EMC Corp.(a) 107,000 8,232,312
---------------------------------------------------------------------------
Lexmark International Group, Inc. - Class A(a) 871,700 58,621,825
---------------------------------------------------------------------------
66,854,137
---------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 1.87%
At Home Corp. - Series A(a) 1,500,000 31,125,000
---------------------------------------------------------------------------
Citrix Systems, Inc.(a) 188,000 3,560,250
---------------------------------------------------------------------------
Oracle Corp.(a) 145,000 12,189,062
---------------------------------------------------------------------------
Unisys Corp.(a) 428,000 6,232,750
---------------------------------------------------------------------------
53,107,062
---------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.74%
Solectron Corp.(a) 505,000 21,146,875
---------------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 3.39%
Analog Devices, Inc.(a) 1,096,200 83,311,200
---------------------------------------------------------------------------
Texas Instruments Inc. 187,000 12,844,562
---------------------------------------------------------------------------
96,155,762
---------------------------------------------------------------------------
ENTERTAINMENT - 0.12%
Time Warner Inc. 45,700 3,473,200
---------------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 4.03%
Applied Materials, Inc.(a) 807,100 73,143,438
---------------------------------------------------------------------------
Teradyne, Inc.(a) 562,300 41,329,050
---------------------------------------------------------------------------
114,472,488
---------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 2.77%
American Express Co. 753,000 39,250,125
---------------------------------------------------------------------------
Citigroup Inc. 652,000 39,283,000
---------------------------------------------------------------------------
78,533,125
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DIVERSIFIED) - 1.41%
Johnson & Johnson 393,300 $ 40,067,438
------------------------------------------------------------------------------
HEALTH CARE (DRUGS - MAJOR
PHARMACEUTICALS) - 2.29%
Pfizer Inc. 1,356,600 65,116,800
------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES) - 1.97%
Guidant Corp.(a) 1,133,000 56,083,500
------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.11%
Colgate-Palmolive Co. 110,000 6,586,250
------------------------------------------------------------------------------
Kimberly-Clark Corp. 434,000 24,900,750
------------------------------------------------------------------------------
31,487,000
------------------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 2.78%
American International Group, Inc. 632,000 74,260,000
------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 85,000 4,754,688
------------------------------------------------------------------------------
79,014,688
------------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 4.21%
Merrill Lynch & Co., Inc. 184,000 21,160,000
------------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co. 1,183,000 98,484,750
------------------------------------------------------------------------------
119,644,750
------------------------------------------------------------------------------
NATURAL GAS - 1.52%
Williams Cos., Inc. (The) 1,038,000 43,271,625
------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.38%
Schlumberger Ltd. 145,000 10,820,625
------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.25%
Weyerhaeuser Co. 162,000 6,966,000
------------------------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 0.36%
Eastman Kodak Co. 172,600 10,269,700
------------------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.06%
Lowe's Cos., Inc. 39,500 1,621,969
------------------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 2.11%
Best Buy Co., Inc.(a) 946,000 59,834,500
------------------------------------------------------------------------------
RETAIL (DRUG STORES) - 1.83%
Walgreen Co. 1,618,000 52,079,375
------------------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 2.38%
Kroger Co. (The)(a) 1,108,000 24,445,250
------------------------------------------------------------------------------
Safeway Inc.(a) 956,000 43,139,500
------------------------------------------------------------------------------
67,584,750
- -----------------------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
161
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (GENERAL MERCHANDISE) - 6.35%
Costco Wholesale Corp.(a) 1,700,000 $ 56,100,000
--------------------------------------------------------------------------------
Target Corp. 2,144,000 124,352,000
--------------------------------------------------------------------------------
180,452,000
--------------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 1.82%
Omnicom Group Inc. 581,000 51,745,313
--------------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 3.68%
Automatic Data Processing, Inc. 400,000 21,425,000
--------------------------------------------------------------------------------
First Data Corp. 1,672,000 82,973,000
--------------------------------------------------------------------------------
104,398,000
--------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 5.60%
Nextel Communications, Inc. - Class A(a) 2,600,000 159,087,500
--------------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $1,742,846,294) 2,143,292,062
--------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER
EQUITY INTERESTS - 12.32%
BERMUDA - 3.89%
Tyco International Ltd. (Manufacturing - Diversified) 2,330,000 110,383,750
--------------------------------------------------------------------------------
CANADA - 3.54%
360networks Inc. (Telecommunications - Long
Distance)(a) 162,300 2,475,075
--------------------------------------------------------------------------------
Celestica Inc. (Electronics - Semiconductors)(a) 701,000 34,787,125
--------------------------------------------------------------------------------
Nortel Networks Corp. (Communications Equipment) 927,500 63,301,875
--------------------------------------------------------------------------------
100,564,075
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINLAND - 4.89%
Nokia Oyj - ADR (Communications Equipment) 2,783,000 $ 138,976,063
---------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $195,746,424) 349,923,888
---------------------------------------------------------------------------
MONEY MARKET FUNDS - 12.62%
STIC Liquid Assets Portfolio(b) 179,242,405 179,242,405
---------------------------------------------------------------------------
STIC Prime Portfolio(b) 179,242,405 179,242,405
---------------------------------------------------------------------------
Total Money Market Funds
(Cost $358,484,810) 358,484,810
---------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.40%
(Cost $2,297,077,528) 2,851,700,760
---------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (0.40%) (11,533,376)
---------------------------------------------------------------------------
NET ASSETS - 100.00% $2,840,167,384
===========================================================================
</TABLE>
Investment Abbreviation:
ADR - American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
AIM V.I. VALUE FUND
162
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $2,297,077,528) $2,851,700,760
-------------------------------------------------------------------------
Receivables for:
Investments sold 50,005,091
-------------------------------------------------------------------------
Fund shares sold 4,117,476
-------------------------------------------------------------------------
Dividends 1,937,380
-------------------------------------------------------------------------
Investment for deferred compensation plan 39,724
-------------------------------------------------------------------------
Other assets 124,235
-------------------------------------------------------------------------
Total assets 2,907,924,666
-------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 60,570,394
-------------------------------------------------------------------------
Fund shares reacquired 485,515
-------------------------------------------------------------------------
Foreign currency contracts - closed 1,877,130
-------------------------------------------------------------------------
Foreign currency contracts outstanding 1,519,487
-------------------------------------------------------------------------
Deferred compensation plan 39,724
-------------------------------------------------------------------------
Accrued advisory fees 1,394,233
-------------------------------------------------------------------------
Accrued administrative services fees 1,782,203
-------------------------------------------------------------------------
Accrued trustees' fees 3,119
-------------------------------------------------------------------------
Accrued operating expenses 85,477
-------------------------------------------------------------------------
Total liabilities 67,757,282
-------------------------------------------------------------------------
Net assets applicable to shares outstanding $2,840,167,384
=========================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Outstanding 85,000,452
=========================================================================
Net asset value, offering and redemption price per share $ 33.41
=========================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $103,785) $ 11,496,234
------------------------------------------------------------------------------
EXPENSES:
Advisory fees 7,923,757
------------------------------------------------------------------------------
Administrative services fee 2,581,721
------------------------------------------------------------------------------
Custodian fees 119,068
------------------------------------------------------------------------------
Trustees' fees 3,840
------------------------------------------------------------------------------
Other 292,912
------------------------------------------------------------------------------
Total expenses 10,921,298
------------------------------------------------------------------------------
Less: Expenses paid indirectly (4,380)
------------------------------------------------------------------------------
Net expenses 10,916,918
------------------------------------------------------------------------------
Net investment income 579,316
------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FOREIGN CURRENCY CONTRACTS AND OPTION
CONTRACTS
Net realized gain from:
Investment securities 112,298,575
------------------------------------------------------------------------------
Foreign currency contracts 14,369,233
------------------------------------------------------------------------------
Option contracts written 184,917
------------------------------------------------------------------------------
126,852,725
------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (131,660,860)
------------------------------------------------------------------------------
Foreign currencies (69)
------------------------------------------------------------------------------
Foreign currency contracts (7,198,624)
------------------------------------------------------------------------------
(138,859,553)
------------------------------------------------------------------------------
Net gain (loss) on investment securities, foreign currencies,
foreign currency contracts and option contracts (12,006,828)
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ (11,427,512)
==============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. VALUE FUND
163
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2000 and the year ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 579,316 $ 3,440,737
-------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, foreign currency
contracts and option contracts 126,852,725 111,811,218
-------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities,
foreign currencies, foreign currency
contracts and option contracts (138,859,553) 360,547,238
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (11,427,512) 475,799,193
-------------------------------------------------------------------------------
Distributions to shareholders from net
investment income -- (6,235,364)
-------------------------------------------------------------------------------
Distributions to shareholders from net
realized gains -- (32,606,763)
-------------------------------------------------------------------------------
Share transactions - net 468,228,325 725,025,960
-------------------------------------------------------------------------------
Net increase in net assets 456,800,813 1,161,983,026
-------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,383,366,571 1,221,383,545
-------------------------------------------------------------------------------
End of period $2,840,167,384 $2,383,366,571
===============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,048,218,292 $1,579,989,967
-------------------------------------------------------------------------------
Undistributed net investment income 3,962,918 3,383,602
-------------------------------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies,
foreign currency contracts and option
contracts 234,882,834 108,030,109
-------------------------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, foreign
currency contracts and option contracts 553,103,340 691,962,893
-------------------------------------------------------------------------------
$2,840,167,384 $2,383,366,571
===============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Value Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of
seventeen separate portfolios. At a meeting held on February 3, 2000, the
Board of Directors of AIM Variable Insurance Funds, Inc. approved an Agreement
and Plan of Reorganization which was approved by shareholders of the Fund on
April 10, 2000. Effective May 1, 2000, pursuant to the Agreement and Plan of
Reorganization, AIM Variable Insurance Funds, Inc. was reorganized from a
Maryland Corporation to a Delaware business trust. Matters affecting each
portfolio will be voted on exclusively by the shareholders of such portfolio.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the Fund. Currently, shares of the Fund are sold only to insurance company
separate accounts to fund the benefits of variable annuity contracts and
variable life insurance policies. The Fund's investment objective is to
achieve long-term growth of capital. Income is a secondary objective.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the
above methods are valued based upon quotes furnished by independent
sources and are valued at the last bid price in the case of equity
securities and in the case of debt obligations, the mean between the last
bid and asked prices. Securities for which market quotations are not
readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Trust's
officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. For purposes of
determining net asset value per share, futures and option contracts
generally will be valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
AIM V.I. VALUE FUND
164
<PAGE>
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the
customary trading session of the NYSE which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or under
the supervision of the Board of Trustees.
B. Securities Transactions and Investment Income - Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
C. Distributions - Distributions from income and net realized capital gains,
if any, are generally paid annually and recorded on ex-dividend date.
D. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
Outstanding foreign currency contracts at June 30, 2000 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
SETTLEMENT CONTRACT TO APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
---------- -------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
09/29/00 CAD 92,300,000 $ 62,369,475 $ 62,542,020 $ (172,545)
08/28/00 EUR 97,850,000 92,326,752 93,583,251 (1,256,499)
10/03/00 EUR 54,500,000 52,148,700 52,239,143 (90,443)
-----------------------------------------------------------------------------
244,650,000 $206,844,927 $208,364,414 $(1,519,487)
=============================================================================
</TABLE>
G. Covered Call Options - The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. Options written
by the Fund normally will have expiration dates between three and nine
months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium
received when the option was written) without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. If a written option is exercised, the Fund
realizes a gain or a loss from the sale of the underlying security and the
proceeds of the sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at such
earlier time at which the Fund effects a closing purchase transaction by
purchasing (at a price which may be higher than that received when the call
option was written) a call option identical to the one originally written.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement with AIM, the Fund has
agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the Fund. For the six months ended June 30,
2000, the Fund paid AIM $2,581,721 of which AIM retained $81,468 for
accounting services provided.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and trustees of the Trust are officers of AIM and AIM
Distributors.
During the six months ended June 30, 2000, the Fund paid legal fees of $3,464
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Board of Trustees. A member of that firm is a trustee of the Trust.
AIM V.I. VALUE FUND
165
<PAGE>
NOTE 3 - INDIRECT EXPENSES
For the six months ended June 30, 2000, the Fund received reductions in
custodian fees of $4,380 under an expense offset arrangement which resulted in
a reduction of the Fund's total expenses of $4,380.
NOTE 4 - TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by
a trustee, in mutual fund shares in accordance with a deferred compensation
plan.
NOTE 5 - BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A.. The Fund may borrow up to the lesser
of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings.
The Fund and other funds advised by AIM which are parties to the line of
credit may borrow on a first come, first served basis. During the six months
ended June 30, 2000, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the six months ended June
30, 2000 was $1,163,996,153 and $776,686,706, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of June 30, 2000 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $607,448,954
----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (54,997,717)
----------------------------------------------------------------------------
Net unrealized appreciation of investment securities $552,451,237
============================================================================
</TABLE>
Cost of investments for tax purposes is $2,299,249,523.
NOTE 7 - CALL OPTION CONTRACTS
Transactions in call options written during the six months ended June 30, 2000
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
--------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Beginning of period -- $ --
-----------------------------------------------------------------------------
Written 900 184,917
-----------------------------------------------------------------------------
Expired (900) (184,917)
=============================================================================
End of period -- $ --
=============================================================================
</TABLE>
NOTE 8 - SHARE INFORMATION
Changes in shares outstanding during the six months ended June 30, 2000 and
the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Sold 17,185,455 $ 581,596,937 30,095,501 $ 884,324,432
------------------------------------------------------------------------------
Issued as reinvestment
of dividends -- -- 1,227,239 38,842,126
------------------------------------------------------------------------------
Reacquired (3,330,806) (113,368,612) (6,712,560) (198,140,598)
------------------------------------------------------------------------------
13,854,649 $ 468,228,325 24,610,180 $ 725,025,960
==============================================================================
</TABLE>
NOTE 9 - FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
JUNE 30, ------------------------------------------ DECEMBER 31, JANUARY 31,
2000(a) 1999(a) 1998 1997 1996 1995 1995
---------- ---------- ---------- -------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 33.50 $ 26.25 $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17
----------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.01 0.06 0.09 0.08 0.30 0.11 0.10
----------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) (0.10) 7.76 6.59 4.05 2.09 4.18 (0.35)
----------------------------------------------------------------------------------------------------------------
Total from investment
operations (0.09) 7.82 6.68 4.13 2.39 4.29 (0.25)
----------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (0.09) (0.13) (0.19) (0.10) (0.01) (0.09)
----------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- (0.48) (1.13) (0.59) (0.92) -- --
----------------------------------------------------------------------------------------------------------------
Total distributions -- (0.57) (1.26) (0.78) (1.02) (0.01) (0.09)
----------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 33.41 $ 33.50 $ 26.25 $ 20.83 $ 17.48 $ 16.11 $ 11.83
================================================================================================================
Total return(b) (0.27)% 29.90% 32.41% 23.69% 15.02% 36.25% (2.03)%
================================================================================================================
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $2,840,167 $2,383,367 $1,221,384 $690,841 $369,735 $257,212 $109,257
================================================================================================================
Ratio of expenses to
average net assets 0.84%(c) 0.76% 0.66% 0.70% 0.73% 0.75%(d) 0.82%
================================================================================================================
Ratio of net investment
income to average net
assets 0.04%(c) 0.20% 0.68% 1.05% 2.00% 1.11%(d) 1.17%
================================================================================================================
Portfolio turnover rate 32% 62% 100% 127% 129% 145% 143%
================================================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $2,629,984,948.
(d) Annualized.
AIM V.I. VALUE FUND
166
<PAGE>
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM V.I. Value Fund (the "Fund"), a
portfolio of AIM Variable Insurance Funds, Inc. (the "Company"), reorganized
as AIM Variable Insurance Funds, a Delaware business trust (the "Trust"), was
held on April 10, 2000. The meeting was held for the following purposes:
(1)* To elect ten directors as follows: Charles T. Bauer, Bruce L. Crockett,
Owen Daly II, Edward K. Dunn, Jr., Jack M. Fields, Carl Frischling,
Robert H. Graham, Prema Mathai-Davis, Lewis F. Pennock and Louis S.
Sklar.
(2)* To approve an Agreement and Plan of Reorganization which provided for the
reorganization of the company as a Delaware business trust.
(3) To approve a new Master Investment Advisory Agreement with A I M Advisors,
Inc.
(4) To approve changing the fundamental investment restrictions of the Fund.
(5) To approve changing the investment objective of the Fund and making it
non-fundamental.
(6) To ratify the selection of Tait, Weller & Baker as independent accountants
of the Fund for the fiscal year ending in 2000.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES VOTES WITHHELD/
DIRECTORS/MATTER FOR AGAINST ABSTENTIONS
------------------------------------- ----------- --------- -----------
<C> <S> <C> <C> <C>
(1)* Charles T. Bauer................... 336,558,177 N/A 9,129,703
Bruce L. Crockett.................. 337,513,648 N/A 8,174,232
Owen Daly II....................... 336,754,219 N/A 8,933,661
Edward K. Dunn, Jr. ............... 337,481,093 N/A 8,206,787
Jack M. Fields..................... 337,574,973 N/A 8,112,907
Carl Frischling.................... 337,177,860 N/A 8,510,020
Robert H. Graham................... 337,319,248 N/A 8,368,632
Prema Mathai-Davis................. 337,262,043 N/A 8,425,837
Lewis F. Pennock................... 337,440,897 N/A 8,246,983
Louis S. Sklar..................... 337,447,894 N/A 8,239,986
(2)* Approval of an Agreement and Plan
of Reorganization which provided
for the reorganization of AIM
Variable Insurance Funds, Inc. as a
Delaware business trust............ 318,213,444 8,412,798 19,061,638
(3) Approval of a new Investment
Advisory Agreement................. 64,733,758 2,205,729 5,113,810
(4)(a) Change to Fundamental Restriction
on Issuer Diversification.......... 62,782,614 2,813,455 6,457,228
(4)(b) Change to Fundamental Restriction
on Borrowing Money and Issuing
Senior Securities.................. 62,191,461 3,539,461 6,322,375
(4)(c) Change to Fundamental Restriction
on Underwriting Securities......... 63,471,362 2,702,293 5,879,642
(4)(d) Change to Fundamental Restriction
on Industry Concentration.......... 63,583,770 2,670,769 5,798,758
(4)(e) Change to Fundamental Restriction
on Purchasing or Selling Real
Estate............................. 62,652,287 3,322,826 6,078,184
(4)(f) Change to Fundamental Restriction
on Purchasing or Selling
Commodities........................ 62,555,004 3,535,659 5,962,634
(4)(g) Change to Fundamental Restriction
on Making Loans.................... 62,377,925 3,654,650 6,020,722
(4)(h) Elimination of Fundamental
Restriction on Investing for the
Purpose of Control................. 62,190,684 3,602,146 6,260,467
(5) Approval of changing the Investment
Objective and Making it Non-
Fundamental........................ 61,885,484 3,747,177 6,420,636
(6) Ratification of the selection of
Tait, Weller & Baker as Independent
Accountants of the Fund............ 66,486,391 986,590 4,580,316
</TABLE>
-------
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds, Inc.
AIM V.I. VALUE FUND
167
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
o TRUSTEES, OFFICERS, AND BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
OTHER SERVICE PROVIDERS Charles T. Bauer
OF AIM VARIABLE INSURANCE Director and Chairman Charles T. Bauer 11 Greenway Plaza
FUNDS, INC. A I M Management Group Inc. Chairman Suite 100
Houston, TX 77046
Bruce L. Crockett Robert H. Graham (800) 347-1919
Director President
ACE Limited; INVESTMENT ADVISOR
Formerly Director, President, and Carol F. Relihan
Chief Executive Officer Senior Vice President and A I M Advisors, Inc.
COMSAT Corporation Secretary 11 Greenway Plaza
Suite 100
Owen Daly II Gary T. Crum Houston, TX 77046
Formerly Director Senior Vice President
Cortland Trust Inc. TRANSFER AGENT AND CUSTODIAN
Dana R. Sutton
Edward K. Dunn Jr. Vice President and State Street Bank and Trust Company
Chairman, Mercantile Mortgage Corp.; Treasurer 225 Franklin Street
Formerly Vice Chairman, President Boston, MA 02110
and Chief Operating Officer, Robert G. Alley
Mercantile-Safe Deposit & Trust Co.; Vice President COUNSEL TO THE FUNDS
and President, Mercantile Bankshares
Stuart W. Coco Freedman, Levy, Kroll &
Jack Fields Vice President Simonds
Chief Executive Officer 1050 Conn. Avenue, N.W.
Texana Global Inc. and Twenty First Melville B. Cox Washington, D.C. 20036
Century Group, Inc.; Vice President
Formerly, Member of the COUNSEL TO THE TRUSTEES
U.S. House of Representatives Karen Dunn Kelley
Vice President Kramer, Levin, Naftalis & Frankel LLP
Carl Frischling 919 Third Avenue
Partner Edgar M. Larsen New York, NY 10022
Kramer, Levin, Naftalis & Frankel LLP Vice President
DISTRIBUTOR
Robert H. Graham Mary J. Benson
Director, President and Chief Assistant Vice President A I M Distributors, Inc.
Executive Officer and Assistant Treasurer 11 Greenway Plaza
A I M Management Group Inc. Suite 100
Sheri Morris Houston, TX 77046
Prema Mathai-Davis Assistant Vice President
Formerly, Chief Executive Officer, and Assistant Treasurer
YMCA of the U.S.A.
Renee A. Friedli
Lewis F. Pennock Assistant Secretary
Attorney
P. Michelle Grace
Louis S. Sklar Assistant Secretary
Executive Vice President, Development
and Operations, Nancy L. Martin
Hines Interests Assistant Secretary
Limited Partnership
Ofelia M. Mayo
Assistant Secretary
Lisa A. Moss
Assistant Secretary
Kathleen J. Pflueger
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
</TABLE>
168
<PAGE>
This page left intentionally blank
<PAGE>
ALLIANCE
------------------------------
VARIABLE PRODUCTS
------------------------------
SERIES FUND
------------------------------
PREMIER GROWTH PORTFOLIO
------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2000
(UNAUDITED)
<PAGE>
Investment Products Offered
----------------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
----------------------------------
<PAGE>
PREMIER GROWTH PORTFOLIO
TEN LARGEST HOLDINGS
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
PERCENT OF
COMPANY U.S. $ VALUE NET ASSETS
--------------------------------------------------------------------------------
Pfizer, Inc. $ 160,428,000 5.8%
Nokia Corp. (ADR) 141,003,525 5.1
Intel Corp. 139,115,212 5.0
Cisco Systems, Inc. 123,260,400 4.5
Dell Computer Corp. 101,144,869 3.7
Tyco International, Ltd. 99,190,174 3.6
Citigroup, Inc. 92,536,469 3.3
Home Depot, Inc. 89,914,816 3.2
Morgan Stanley Dean Witter & Co. 88,362,382 3.2
Applied Materials, Inc. 84,263,125 3.0
$1,119,218,972 40.4%
1
<PAGE>
PREMIER GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
_______________________________________________________________________________
COMPANY SHARES U.S. $ VALUE
--------------------------------------------------------------------------------
COMMON STOCKS-98.4%
TECHNOLOGY-38.3%
COMMUNICATIONS EQUIPMENT-13.0%
Corning, Inc. ......................... 198,100 $ 53,462,238
EMC Corp. (a) ......................... 930,200 71,567,262
Lucent Technologies, Inc. ............. 215,284 12,755,577
Nokia Corp. (ADR) (Finland) ........... 2,823,600 141,003,525
Nortel Networks Corp. ................. 1,187,000 81,012,750
--------------
359,801,352
--------------
COMPUTER HARDWARE-5.3%
Dell Computer Corp. (a) ............... 2,051,100 101,144,869
International Business Machines Corp. . 51,600 5,653,425
Sun Microsystems, Inc. (a) ............ 443,000 40,285,312
--------------
147,083,606
--------------
COMPUTER SOFTWARE-3.6%
Amdocs, Ltd. (a) ...................... 175,750 13,488,812
Microsoft Corp. (a) ................... 614,500 49,160,000
Oracle Corp. (a) ...................... 446,000 37,491,875
--------------
100,140,687
--------------
CONTRACT MANUFACTURING-0.5%
Solectron Corp. (a) ................... 323,200 13,534,000
--------------
INTERNET-0.6%
America Online, Inc. (a) .............. 176,900 9,331,475
eBay, Inc. (a) ........................ 68,800 3,736,700
Yahoo!, Inc. (a) ...................... 34,200 4,236,525
--------------
17,304,700
--------------
NETWORKING SOFTWARE-4.8%
3Com Corp. (a) ........................ 144,200 8,309,525
Cisco Systems, Inc. (a) ............... 1,939,200 123,260,400
--------------
131,569,925
--------------
SEMI-CONDUCTOR CAPITAL EQUIPMENT-3.0%
Applied Materials, Inc. (a) ........... 929,800 84,263,125
--------------
SEMI-CONDUCTOR COMPONENTS-7.5%
Intel Corp. ........................... 1,040,600 139,115,212
Micron Technology, Inc. (a) ........... 292,600 25,767,088
PMC-Sierra, Inc. (a) .................. 107,300 19,065,869
Texas Instruments, Inc. ............... 326,400 22,419,600
--------------
206,367,769
--------------
1,060,065,164
--------------
CONSUMER SERVICES-21.2%
AIRLINES-1.5%
Continental Airlines, Inc. Cl.B (a) ... 331,500 15,580,500
Delta Air Lines, Inc. ................. 58,000 2,932,625
KLM Royal Dutch Air (Netherlands) ..... 141,063 3,746,986
Northwest Airlines Corp. Cl.A (a) ..... 251,260 7,647,726
UAL Corp. (a) ......................... 188,000 10,939,250
--------------
40,847,087
--------------
BROADCASTING & CABLE-4.8%
AMFM, Inc. (a) ........................ 414,100 28,572,900
AT&T Corp.-Liberty Media Cl.A (a) ..... 2,265,220 54,931,585
Clear Channel Communications (a) ...... 175,400 13,155,000
Viacom, Inc. (a) ...................... 535,745 36,531,112
--------------
133,190,597
--------------
CELLULAR COMMUNICATIONS-4.6%
AT&T Wireless Group (a) ............... 1,921,000 53,547,875
Vodafone AirTouch Plc (ADR)
(United Kingdom) .................... 1,785,800 73,999,087
--------------
127,546,962
--------------
ENTERTAINMENT & LEISURE-2.2%
Time Warner, Inc. ..................... 514,300 39,086,800
Walt Disney Co. ....................... 532,700 20,675,419
--------------
59,762,219
--------------
RETAIL- GENERAL MERCHANDISE-8.1%
Costco Wholesale Corp. (a) ............ 221,600 7,312,800
Gap, Inc. ............................. 914,550 28,579,687
Home Depot, Inc. ...................... 1,800,547 89,914,816
Kohl's Corp. (a) ...................... 549,800 30,582,625
Lowes Cos., Inc. ...................... 695,400 28,554,863
Target Corp. .......................... 178,800 10,370,400
Tommy Hilfiger Corp. (a) .............. 403,200 3,024,000
Wal-Mart Stores, Inc. ................. 464,600 26,772,575
--------------
225,111,766
--------------
586,458,631
--------------
FINANCE-15.3%
BANKING-MONEY CENTERS-4.0%
Chase Manhattan Corp. ................. 367,700 16,937,181
Citigroup, Inc. ....................... 1,535,875 92,536,469
--------------
109,473,650
--------------
BANKING- REGIONAL-0.5%
Bank of America Corp. ................. 193,896 8,337,528
Fifth Third Bancorp ................... 84,200 5,325,650
--------------
13,663,178
--------------
BROKERAGE & MONEY MANAGEMENT-4.7%
Goldman Sachs Group, Inc. ............. 193,600 18,367,800
Merrill Lynch & Co., Inc. ............. 199,900 22,988,500
Morgan Stanley Dean Witter & Co. ...... 1,061,410 88,362,382
--------------
129,718,682
--------------
2
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
--------------------------------------------------------------------------------
INSURANCE-0.6%
American International Group, Inc. .... 150,855 $ 17,725,463
MORTGAGE BANKING-1.9%
Federal Home Loan Mortgage Corp. ...... 986,800 39,965,400
Federal National Mortgage Assn. ....... 226,000 11,794,375
---------------
51,759,775
---------------
MISCELLANEOUS-3.6%
Associates First Capital Corp. Cl.A ... 1,166,556 26,028,781
MBNA Corp. ............................ 2,346,062 63,636,932
The CIT Group, Inc. Cl.A .............. 681,840 11,079,900
---------------
100,745,613
---------------
423,086,361
---------------
HEALTH CARE-10.9%
DRUGS-10.3%
Merck & Co., Inc. ..................... 175,500 13,447,687
Pfizer, Inc. .......................... 3,342,250 160,428,000
Pharmacia Corp. ....................... 576,704 29,808,388
Schering-Plough Corp. ................. 1,634,200 82,527,100
---------------
286,211,175
---------------
MEDICAL PRODUCTS-0.3%
Medtronic, Inc. ....................... 155,000 7,720,938
---------------
MEDICAL SERVICES-0.3%
IMS Health, Inc. ...................... 432,400 7,783,200
---------------
301,715,313
---------------
MULTI-INDUSTRY COMPANIES-4.1%
Honeywell International, Inc. ......... 402,237 13,550,359
Tyco International, Ltd. .............. 2,093,724 99,190,174
---------------
112,740,533
---------------
UTILITIES-3.6%
TELEPHONE UTILITIES-3.6%
MediaOne Group, Inc. (a) .............. 1,029,400 68,263,374
Sprint Corp. .......................... 250,000 12,750,000
WorldCom, Inc. (a) .................... 383,978 17,614,991
---------------
98,628,365
---------------
CONSUMER STAPLES-1.6%
HOUSEHOLD PRODUCTS-0.6%
Colgate-Palmolive Co. ................. 257,300 15,405,837
---------------
RETAIL - FOOD & DRUGS-0.7%
Kroger Co. (a) ........................ 620,300 13,685,369
Walgreen Co. .......................... 200,000 6,437,500
---------------
20,122,869
---------------
TOBACCO-0.3%
Philip Morris Cos., Inc. .............. 366,473 9,734,439
---------------
45,263,145
---------------
ENERGY-1.6%
INTERNATIONAL-1.6%
BP Amoco Plc (ADR) (United Kingdom) ... 765,088 43,275,290
---------------
CAPITAL GOODS-1.4%
ELECTRICAL EQUIPMENT-0.7%
General Electric Co. .................. 334,500 17,728,500
---------------
MISCELLANEOUS-0.7%
United Technologies Corp. ............. 346,500 20,400,188
---------------
38,128,688
---------------
AEROSPACE & DEFENSE-0.3%
AEROSPACE-0.3%
General Motors Corp. Cl.H (a) ......... 109,200 9,582,300
---------------
BASIC INDUSTRY-0.1%
PAPER & FOREST PRODUCTS-0.1%
International Paper Co. ............... 103,200 3,076,650
---------------
Total Common Stocks
(cost $1,964,279,375) ............... 2,722,020,440
---------------
SHORT-TERM INVESTMENTS-1.5%
COMMERCIAL PAPER-1.4%
General Electric Capital Corp.
6.80%, 7/03/00 ...................... $38,883 38,868,311
---------------
TIME DEPOSIT-0.1%
State Street Cayman Islands
6.00%, 7/03/00 ...................... 3,528 3,528,000
---------------
Total Short-Term Investments
(amortized cost $42,396,311) ........ 42,396,311
---------------
TOTAL INVESTMENTS-99.9%
(cost $2,006,675,686) ............... 2,764,416,751
Other assets less liabilities-0.1% .... 3,171,088
---------------
NET ASSETS-100% ....................... $2,767,587,839
==============
--------------------------------------------------------------------------------
(a) Non-income producing security.
Glossary:
ADR - American Depositary Receipt
See Notes to Financial Statements.
3
<PAGE>
PREMIER GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at value
(cost $2,006,675,686) ................................ $2,764,416,751
Cash ................................................... 479
Receivable for investment securities sold .............. 4,893,487
Dividends and interest receivable ...................... 777,355
--------------
Total assets ........................................... 2,770,088,072
--------------
LIABILITIES
Advisory fee payable ................................... 2,234,783
Accrued expenses ....................................... 265,450
--------------
Total liabilities ...................................... 2,500,233
--------------
NET ASSETS ............................................... $2,767,587,839
==============
COMPOSITION OF NET ASSETS
Capital stock, at par .................................. $ 69,903
Additional paid-in capital ............................. 1,921,235,717
Accumulated net investment loss ........................ (4,132,736)
Accumulated net realized gain on investments and
foreign currency transactions ....................... 92,673,890
Net unrealized appreciation of investments ............. 757,741,065
--------------
$2,767,587,839
==============
CLASS A SHARES
Net assets ............................................. $2,618,007,905
==============
Shares of capital stock outstanding .................... 66,116,169
==============
Net asset value per share .............................. $ 39.60
CLASS B SHARES
Net assets ............................................. $ 149,579,934
==============
Shares of capital stock outstanding .................... 3,787,312
==============
Net asset value per share .............................. $ 39.50
==============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
4
<PAGE>
PREMIER GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $115,101) ........ $ 7,349,327
Interest ................................................... 1,555,119
------------
Total investment income .................................... 8,904,446
------------
EXPENSES
Advisory fee ............................................... 12,527,000
Distribution fee - Class B ................................. 83,611
Printing ................................................... 137,066
Custodian .................................................. 125,210
Audit and legal ............................................ 116,397
Administrative ............................................. 31,500
Directors' fees ............................................ 679
Transfer agency ............................................ 488
Miscellaneous .............................................. 15,231
------------
Total expenses ............................................. 13,037,182
------------
Net investment loss ........................................ (4,132,736)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment transactions ............... 93,157,880
Net change in unrealized appreciation/depreciation of
investments .............................................. (5,535,926)
------------
Net gain on investments .................................... 87,621,954
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................... $ 83,489,218
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
5
<PAGE>
PREMIER GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
---------------- ---------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment loss ..................... $ (4,132,736) $ (4,671,127)
Net realized gain on investments and
foreign currency transactions ......... 93,157,880 136,966,342
Net change in unrealized
appreciation/depreciation of
investments ........................... (5,535,926) 381,569,586
-------------- --------------
Net increase in net assets from
operations ............................ 83,489,218 513,864,801
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments
Class A ............................... (131,184,766) (23,280,324)
Class B ............................... (5,912,426) -0-
CAPITAL STOCK TRANSACTIONS
Net increase ............................ 448,508,832 634,848,234
-------------- --------------
Total increase .......................... 394,900,858 1,125,432,711
NET ASSETS
Beginning of period ..................... 2,372,686,981 1,247,254,270
-------------- --------------
End of period ........................... $2,767,587,839 $2,372,686,981
============== ==============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
6
<PAGE>
PREMIER GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
The Premier Growth Portfolio (the "Portfolio") is a series of Alliance Variable
Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is
to seek growth of capital by pursuing aggressive investment policies. The Fund
was incorporated in the State of Maryland on November 17, 1987, as an open-end
series investment company. The Fund had no operations prior to November 28,
1990. The Fund offers nineteen separately managed pools of assets which have
differing investment objectives and policies. The Fund currently issues shares
of the Conservative Investors Portfolio, Growth Investors Portfolio, Total
Return Portfolio, Growth and Income Portfolio, Growth Portfolio, International
Portfolio, Premier Growth Portfolio, Quasar Portfolio, Real Estate Investment
Portfolio, Technology Portfolio, Utility Income Portfolio, Worldwide
Privatization Portfolio, Global Bond Portfolio, Global Dollar Government
Portfolio, High-Yield Portfolio, North American Government Income Portfolio,
Short-Term Multi-Market Portfolio, U.S. Government/High Grade Securities
Portfolio and Money Market Portfolio (the "Portfolios"). On January 5, 1999, the
creation of a second class of shares, Class B shares, was approved by the Board
of Directors. The Fund offers Class A and Class B shares. Both classes of shares
have identical voting, dividend, liquidating and other rights, except that Class
B shares bear a distribution expense and have exclusive voting rights with
respect to the Class B distribution plan. As of June 30, 2000, the following
Portfolios had Class B shares issued and outstanding: Growth and Income
Portfolio, Growth Portfolio, Premier Growth Portfolio, Technology Portfolio,
Global Bond Portfolio, U.S. Government/High Grade Securities Portfolio and Money
Market Portfolio.
The Fund offers and sells its shares only to separate accounts of certain life
insurance companies for the purpose of funding variable annuity contracts and
variable life insurance policies. Sales are made without a sales charge at each
Portfolio's net asset value per share.
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States, which require management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) or on The
Nasdaq Stock Market, Inc., are generally valued at the last reported sales price
or if no sale occurred, at the mean of the closing bid and asked price on that
day. Readily marketable securities traded in the over-the-counter market,
securities listed on a foreign securities exchange whose operations are similar
to the U.S. over-the-counter market, and securities listed on a national
securities exchange whose primary market is believed to be over-the-counter (but
excluding securities traded on The Nasdaq Stock Market, Inc.), are valued at the
mean of the current bid and asked price. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of prices
obtained from a pricing service when such prices are believed to reflect the
fair market value of such securities.
Securities in which the Money Market Portfolio invests are valued at amortized
cost which approximates fair value, under which method a portfolio instrument
is valued at cost and any premium or discount is amortized on a straight-line
basis to maturity.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked price of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated at the rates of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when accrued.
The Portfolios isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held.
Net realized gains and losses on foreign currency transactions represent foreign
exchange gains and losses from sales and maturities of securities and forward
exchange currency contracts, holdings of foreign currencies, exchange gains and
losses realized between the trade and settlement dates on investment
transactions, and the difference between the amounts of interest, dividends and
foreign witholding tax reclaims recorded on the Port-
7
<PAGE>
PREMIER GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
folio's books and the U.S. dollar equivalent amounts actually received or paid.
Net currency gains and losses from valuing foreign currency denominated assets
and liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation (depreciation) of investments and foreign currency
denominated assets and liabilities.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. The Fund accretes discounts as adjustments to interest income
and in the case of the Money Market Portfolio, amortizes premium as well.
Investment gains and losses are determined on the identified cost basis.
5. DIVIDENDS AND DISTRIBUTIONS
Each Portfolio declares and distributes dividends and distributions from net
investment income and net realized gains, respectively, if any, at least
annually, except for dividends on the Money Market Portfolio, which are declared
daily and paid monthly. Income dividends and capital gains distributions to
shareholders are recorded on the ex-dividend date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with accounting principles generally accepted in the United States. To the
extent these differences are permanent, such amounts are reclassified within the
capital accounts based on their federal tax basis treatment; temporary
differences do not require such reclassification.
--------------------------------------------------------------------------------
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Portfolio pays Alliance
Capital Management L.P. (the "Adviser"), an investment advisory fee at an
annualized rate of 1% of the Portfolio's average daily net assets.
Pursuant to the advisory agreement, the Portfolio paid $31,500 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the six months ended June 30, 2000.
Brokerage commissions paid by the Portfolio on investment transactions for the
six months ended June 30, 2000, amounted to $897,843, none of which was paid to
brokers utilizing the services of the Pershing Division of Donaldson, Lufkin &
Jenrette Securities Corp. ("DLJ"), an affiliate of the Adviser, nor to DLJ
directly.
The Fund compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. For the six months
ended June 30, 2000, the Fund paid a total of $9,000 which was allocated evenly
among the Portfolios.
--------------------------------------------------------------------------------
NOTE C: DISTRIBUTION PLAN
The Portfolios have each adopted a Plan for Class B shares of the Fund pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (each a "Plan" and
collectively the "Plans"). Under the Plans, the Portfolios pay distribution and
servicing fees to the Distributor at an annual rate of up to .50% of each
portfolio's average daily net assets attributable to the Class B shares. The
fees are accrued daily and paid monthly. The Board of Directors currently limit
payments under the Plan to .25% of each Portfolio's average daily net assets
attributable to Class B shares. The Plans provide that the Distributor will use
such payments in their entirety for distribution assistance and promotional
activities.
The Portfolios are not obligated under the Plans to pay any distribution
services fee in excess of the amounts set forth above. The purpose of the
payments to the Distributor under the Plans is to compensate the Distributor for
its distribution services with respect to the sale of each Portfolio's shares.
Since the Distributor's compensation is not directly tied to its expenses, the
amount of compensation received by it under the Plan during any year may be more
or less than its actual expenses. For this reason, the Plans are characterized
by the staff of the Commission as being of the "compensation" variety.
In the event that a Plan is terminated or not continued, no distribution
services fees (other than current amounts
8
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
accrued but not yet paid) would be owed by the Portfolios to the Distributor
with respect to the relevant Plan.
The Plan also provides that the Adviser may use its own resources to finance
the distribution of each Portfolio's shares.
--------------------------------------------------------------------------------
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments)
for the six months ended June 30, 2000, were as follows:
PURCHASES:
Stocks and debt obligations ................... $ 785,955,412
U.S. government and agencies .................. -0-
SALES:
Stocks and debt obligations ................... $ 447,328,194
U.S. government and agencies .................. -0-
At June 30, 2000, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation and unrealized depreciation are as
follows:
Gross unrealized appreciation ................. $ 888,415,830
Gross unrealized depreciation ................. (130,674,765)
-------------
Net unrealized appreciation ................... $ 757,741,065
=============
1. FORWARD EXCHANGE CURRENCY CONTRACTS
All Portfolios (except for the Global Dollar Government Portfolio, U.S.
Government/High Grade Securities Portfolio and Money Market Portfolio) may enter
into forward exchange currency contracts to hedge exposure to changes in foreign
currency exchange rates on foreign portfolio holdings, to hedge certain firm
purchase and sales commitments denominated in foreign currencies and for
investment purposes. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate.
The Portfolios may enter into contracts to deliver or receive foreign currency
it will receive from or require for its normal investment activities. It may
also use contracts in a manner intended to protect foreign currency denominated
securities from declines in value due to unfavorable exchange rate movements.
The gain or loss arising from the difference between the original contracts and
the closing of such contracts is included in realized gains or losses from
foreign currency transactions. Fluctuations in the value of forward exchange
currency contracts are recorded for financial reporting purposes as unrealized
gains or losses by the Portfolio.
Each Portfolio's custodian will place and maintain cash not available for
investment or other liquid assets in a separate account of the Portfolio having
an approximate value equal to the aggregate amount of the respective portfolio's
commitments under forward exchange currency contracts entered into with respect
to position hedges.
Risks may arise from the potential inability of a counterparty to meet the terms
of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, reflects the total exposure each Portfolio has in that particular
currency contract.
At June 30, 2000, the Portfolio had no outstanding forward exchange currency
contracts.
2. OPTION TRANSACTIONS
For hedging and investment purposes, all Portfolios (except for the Money Market
Portfolio) may purchase and write call options and purchase put options on U.S.
securities that are traded on U.S. securities exchanges and over-the-counter
markets.
The risk associated with purchasing an option is that the Portfolio pays a
premium whether or not the option is exercised. Additionally, the Portfolio
bears the risk of loss of premium and change in market value should the
counterparty not perform under the contract. Put and call options purchased are
accounted for in the same manner as portfolio securities. The cost of securities
acquired through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is
recorded as a liability and is subsequently adjusted to the current market value
of the option written. Premiums received from which written
9
<PAGE>
PREMIER GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
options expire unexercised are recorded by the Portfolio on the expiration date
as realized gains from written options. The difference between the premium
received and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain, or if the
premium received is less than the amount paid for the closing purchase
transaction, as a realized loss. If a call option is exercised, the premium
received is added to the proceeds from the sale of the underlying security or
currency in determining whether the Portfolio has realized a gain or loss. In
writing an option, the Portfolio bears the market risk of an unfavorable change
in the price of the security or currency underlying the written option. Exercise
of an option written by the Portfolio could result in the Portfolio selling or
buying a security or currency at a price different from the current market
value.
The Portfolio had no transactions in options written for the six months ended
June 30, 2000.
--------------------------------------------------------------------------------
NOTE E: CAPITAL STOCK
There are 20,000,000,000 shares of capital stock, $.001 par value per share of
the Fund authorized divided into two classes, designated Class A and Class B.
Each class consists of 10,000,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------ ------------ -------------- --------------
CLASS A
Shares sold 7,473,200 22,731,430 $299,506,927 $777,611,880
Shares issued in
reinvestment of
dividends and
distributions 3,294,444 743,305 131,184,767 23,280,324
Shares redeemed (2,643,766) (5,672,425) (106,962,516) (190,852,826)
---------- ---------- ------------ ------------
Net increase 8,123,878 17,802,310 $323,729,178 $610,039,378
========== ========== ============ ============
SIX MONTHS JULY 14, SIX MONTHS JULY 14,
ENDED 1999* TO ENDED 1999* TO
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------ ------------ -------------- --------------
CLASS B
Shares sold 2,992,679 678,946 $119,869,345 $25,084,578
Shares issued in
reinvestment of
dividends and
distributions 148,815 -0- 5,912,426 -0-
Shares redeemed (25,640) (7,488) (1,002,117) (275,722)
---------- ---------- ------------ ------------
Net increase 3,115,854 671,458 $124,779,654 $24,808,856
========== ========== ============ ============
--------------------------------------------------------------------------------
NOTE F: CONCENTRATION OF RISK
Investing in securities of foreign companies or foreign governments involves
special risks which include changes in foreign exchange rates and the
possibility of future political and economic developments which could adversely
affect the value of such securities. Moreover, securities of many foreign
companies or foreign governments and their markets may be less liquid and their
prices more volatile than those of comparable United States companies or of the
United States government.
NOTE G: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility")
intended to provide short-term financing if necessary, subject to certain
restrictions in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
the miscellaneous expenses in the statement of operations. The Fund did not
utilize the Facility during the six months ended June 30, 2000.
--------------------------------------------------------------------------------
* Commencement of distribution.
10
<PAGE>
PREMIER GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, 2000 ---------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $40.45 $31.03 $20.99 $15.70 $17.80 $12.37
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (a) ........ (.06) (.09) (.01)(b) .04(b) .08(b) .09(b)
Net realized and unrealized gain on
investment transactions ............... 1.32 9.98 10.08 5.27 3.29 5.44
------ ------ ------ ------ ------ ------
Net increase in net asset value from
operations ............................ 1.26 9.89 10.07 5.31 3.37 5.53
------ ------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income .... -0- -0- (.03) (.02) (.10) (.03)
Distributions from net realized gains ... (2.11) (.47) -0- -0- (5.37) (.07)
------ ------ ------ ------ ------ ------
Total dividends and distributions ....... (2.11) (.47) (.03) (.02) (5.47) (.10)
------ ------ ------ ------ ------ ------
Net asset value, end of period .......... $39.60 $40.45 $31.03 $20.99 $15.70 $17.80
====== ====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net
asset value (c) ....................... 3.08% 32.32% 47.97% 33.86% 22.70% 44.85%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) ....................... $2,618,008 $2,345,563 $1,247,254 $472,326 $96,434 $29,278
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements ...................... 1.03%(d) 1.05% 1.06% .95% .95% .95%
Expenses, before waivers and
reimbursements ...................... 1.03%(d) 1.05% 1.09% 1.10% 1.23% 1.19%
Net investment income (loss) .......... (.32)%(d) (.27)% (.04)%(b) .21%(b) .52%(b) .55%(b)
Portfolio turnover rate ................. 18% 26% 31% 27% 32% 97%
</TABLE>
--------------------------------------------------------------------------------
See footnote summary on page 12.
11
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B
-----------------------
SIX MONTHS JULY 14, 1999(E)
ENDED TO
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
---------- ----------
Net asset value, beginning of period ......... $40.40 $35.72
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (a) ...................... (.12) (.07)
Net realized and unrealized gain on
investment transactions .................... 1.33 4.75
------ ------
Net increase in net asset value from
operations ................................. 1.21 4.68
------ ------
LESS: DISTRIBUTIONS
Distributions from net realized gains ........ (2.11) -0-
------ ------
Net asset value, end of period ............... $39.50 $40.40
------ ------
TOTAL RETURN
Total investment return based
on net asset value (c) ..................... 2.95% 13.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) .... $149,580 $27,124
Ratios to average net assets of:
Expenses (d) ............................... 1.30% 1.29%
Net investment loss (d) .................... (.62)% (.53)%
Portfolio turnover rate ...................... 18% 26%
--------------------------------------------------------------------------------
(a) Based on average shares outstanding.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return
calculated for a period of less than one year is not annualized.
(d) Annualized.
(e) Commencement of distribution.
12
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
BOARD OF DIRECTORS
JOHN D. CARIFA, Chairman and President
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
DONALD J. ROBINSON (1)
OFFICERS
ANDREW ARAN, SENIOR VICE PRESIDENT
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
GREGORY DUBE, SENIOR VICE PRESIDENT
ALFRED L. HARRISON, SENIOR VICE PRESIDENT
NELSON JANTZEN, SENIOR VICE PRESIDENT
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
RAYMOND J. PAPERA, SENIOR VICE PRESIDENT
PETER ANASTOS, VICE PRESIDENT
BRUCE K. ARONOW, VICE PRESIDENT
EDWARD BAKER, VICE PRESIDENT
THOMAS J. BARDONG, VICE PRESIDENT
MATTHEW BLOOM, VICE PRESIDENT
MARK H. BREEDON, VICE PRESIDENT
RUSSELL BRODY, VICE PRESIDENT
NICHOLAS D.P. CARN, VICE PRESIDENT
PAUL J. DENOON, VICE PRESIDENT
JOSEPH C. DONA, VICE PRESIDENT
VICKI L. FULLER, VICE PRESIDENT
F. JEANNE GOETZ, VICE PRESIDENT
GERALD T. MALONE, VICE PRESIDENT
MICHAEL MON, VICE PRESIDENT
DOUGLAS J. PEEBLES, VICE PRESIDENT
DANIEL G. PINE, VICE PRESIDENT
PAUL C. RISSMAN, VICE PRESIDENT
TYLER J. SMITH, VICE PRESIDENT
JEAN VAN DE WALLE, VICE PRESIDENT
SANDRA YEAGER, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
THOMAS MANLEY, CONTROLLER
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
DISTRIBUTOR
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-free 1-(800) 221-5672
--------------------------------------------------------------------------------
(1) Member of the Audit Committee.
13
<PAGE>
This page left intentionally blank
<PAGE>
ALLIANCE
---------------------------
VARIABLE PRODUCTS
---------------------------
SERIES FUND
---------------------------
GROWTH AND INCOME PORTFOLIO
---------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2000
(UNAUDITED)
<PAGE>
Investment Products Offered
-----------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
-----------------------------
<PAGE>
GROWTH AND INCOME PORTFOLIO
TEN LARGEST HOLDINGS
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
PERCENT OF
COMPANY U.S. $ VALUE NET ASSETS
--------------------------------------------------------------------------------
United Technologies Corp. $ 22,996,575 4.1%
Kroger Co. 22,397,850 4.0
Household International, Inc. 21,965,781 3.9
Pepsi Bottling Group, Inc. 21,131,750 3.7
First Data Corp. 20,132,862 3.6
Tenet Healthcare Corp. 19,793,700 3.5
Tyco International, Ltd. 19,774,325 3.5
Chase Manhattan Corp. 19,475,225 3.4
Schering-Plough Corp. 15,251,000 2.7
BankAmerica Corp. 14,658,700 2.6
$197,577,768 35.0%
1
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
COMPANY SHARES U.S. $ VALUE
--------------------------------------------------------------------------------
COMMON STOCKS-97.5%
FINANCE-18.9%
BANKING-MONEY CENTERS-5.4%
Chase Manhattan Corp. ................... 422,800 $ 19,475,225
Citigroup, Inc. ......................... 185,150 11,155,287
------------
30,630,512
------------
BANKING-REGIONAL-3.9%
Bank One Corp. .......................... 172,000 4,568,750
BankAmerica Corp. ....................... 340,900 14,658,700
FleetBoston Financial Corp. ............. 75,000 2,550,000
------------
21,777,450
------------
INSURANCE-2.1%
AFLAC, Inc. ............................. 121,000 5,558,438
PMI Group, Inc. ......................... 88,350 4,196,625
The Hartford Financial
Services Group, Inc. .................. 36,000 2,013,750
------------
11,768,813
------------
REAL ESTATE-0.1%
ProLogis Trust .......................... 37,090 790,481
------------
MISCELLANEOUS-7.4%
Associates First Capital Corp. Cl.A ..... 552,300 12,323,194
Household International, Inc. ........... 528,500 21,965,781
MBNA Corp. .............................. 113,850 3,088,181
MGIC Investment Corp. ................... 55,000 2,502,500
The CIT Group, Inc. Cl.A ................ 119,600 1,943,500
------------
41,823,156
------------
106,790,412
------------
TECHNOLOGY-13.0%
COMPUTER HARDWARE-1.7%
Compaq Computer Corp. ................... 181,700 4,644,706
Gateway, Inc. (a) ....................... 92,000 5,221,000
------------
9,865,706
------------
COMPUTER SERVICES-5.2%
Computer Sciences Corp. (a) ............. 61,200 4,570,875
Electronic Data Systems Corp. ........... 115,000 4,743,750
First Data Corp. ........................ 405,700 20,132,862
------------
29,447,487
------------
CONTRACT MANUFACTURING-3.0%
Sanmina Corp. (a) ....................... 144,000 12,312,000
Solectron Corp. (a) ..................... 104,800 4,388,500
------------
16,700,500
------------
SEMI-CONDUCTOR COMPONENTS-3.1%
Altera Corp. (a) ........................ 54,000 5,504,625
Fairchild Semiconductor Corp. (a) ....... 60,200 2,438,100
Micron Technology, Inc. (a) ............. 107,000 9,422,688
------------
17,365,413
------------
73,379,106
------------
CONSUMER STAPLES-11.9%
BEVERAGES-3.7%
Pepsi Bottling Group, Inc. .............. 724,000 21,131,750
------------
COSMETICS-0.7%
Avon Products, Inc. ..................... 92,000 4,094,000
------------
FOOD-1.7%
General Mills, Inc. ..................... 79,000 3,021,750
Heinz (H.J.) Co. ........................ 43,000 1,881,250
Nabisco Group Holding Corp. ............. 181,800 4,715,438
------------
9,618,438
------------
RETAIL-FOOD & DRUG-4.0%
Kroger Co. (a) .......................... 1,015,200 22,397,850
------------
TOBACCO-1.8%
Philip Morris Cos., Inc. ................ 374,000 9,934,375
------------
67,176,413
------------
UTILITIES-10.7%
ELECTRIC & GAS UTILITIES-2.4%
Allegheny Energy, Inc. .................. 51,900 1,420,763
CMS Energy Corp. ........................ 88,400 1,955,850
Duke Power Energy Corp. ................. 20,600 1,161,325
FPL Group, Inc. ......................... 47,900 2,371,050
GPU, Inc. ............................... 143,700 3,888,881
Pinnacle West Capital Corp. ............. 88,600 3,001,325
------------
13,799,194
------------
TELEPHONE UTILITIES-7.3%
AT&T Corp. .............................. 148,241 4,688,121
BellSouth Corp. ......................... 215,000 9,164,375
MediaOne Group, Inc. (a) ................ 52,000 3,448,315
Sprint Corp. ............................ 188,000 9,588,000
U.S. WEST, Inc. ......................... 68,500 5,873,875
WorldCom, Inc. (a) ...................... 181,752 8,337,873
------------
41,100,559
------------
MISCELLANEOUS-1.0%
AES Corp. (a) ........................... 120,600 5,502,375
------------
60,402,128
------------
CONSUMER SERVICES-9.1%
AIRLINES-1.5%
Continental Airlines, Inc. Cl.B (a) ..... 180,000 8,460,000
------------
BROADCASTING & CABLE-2.7%
A.H. Belo Corp. Series A ................ 199,000 3,445,187
Clear Channel Communications, Inc. (a) .. 74,000 5,550,000
Comcast Corp. Cl.A (a) .................. 155,000 6,277,500
------------
15,272,687
------------
ENTERTAINMENT & LEISURE-0.5%
Royal Caribbean Cruises, Ltd. ........... 138,600 2,564,100
------------
2
<PAGE>
Alliance Variable Products Series Fund
--------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
--------------------------------------------------------------------------------
PRINTING & PUBLISHING-1.2%
Gannett Co., Inc. ........................ 112,000 $ 6,699,000
------------
RETAIL - GENERAL MERCHANDISE-2.7%
Circuit City Stores-Circuit City Group ... 156,000 5,177,250
Limited, Inc. ............................ 307,000 6,638,875
Saks, Inc. (a) ........................... 342,500 3,596,250
------------
15,412,375
------------
TOYS-0.5%
Mattel, Inc. ............................. 209,000 2,756,188
------------
51,164,350
------------
ENERGY-9.0%
DOMESTIC INTEGRATED-3.2%
Kerr-Mcgee Corp. ......................... 108,500 6,394,719
USX-Marathon Group ....................... 470,500 11,791,906
------------
18,186,625
------------
DOMESTIC PRODUCERS-0.3%
Murphy Oil Corp. ......................... 25,550 1,518,628
------------
INTERNATIONAL-2.8%
BP Amoco Plc (ADR) ....................... 116,440 6,586,137
Repsol, SA (ADR) ......................... 169,000 3,348,313
Total Fina, SA (ADR) ..................... 74,000 5,684,125
------------
15,618,575
------------
OIL SERVICE-1.0%
Noble Drilling Corp. (a) ................. 140,200 5,774,488
------------
MISCELLANEOUS-1.7%
Dynegy, Inc. ............................. 140,000 9,563,750
------------
50,662,066
------------
HEALTH CARE-7.7%
DRUGS-2.7%
Schering-Plough Corp. .................... 302,000 15,251,000
------------
MEDICAL PRODUCTS-1.5%
Abbott Laboratories ...................... 190,000 8,466,875
------------
MEDICAL SERVICES-3.5%
Tenet Healthcare Corp. ................... 733,100 19,793,700
------------
43,511,575
------------
MULTI-INDUSTRY COMPANIES-6.4%
Honeywell International, Inc. ............ 392,493 13,222,108
Tyco International, Ltd. ................. 417,400 19,774,325
U.S. Industries, Inc. .................... 269,100 3,262,837
------------
36,259,270
------------
BASIC INDUSTRIES-4.2%
CHEMICALS-2.8%
Eastman Chemical Co. ..................... 47,000 2,244,250
Lyondell Chemical Co. .................... 605,000 10,133,750
Solutia, Inc. ............................ 265,000 3,643,750
------------
16,021,750
------------
MINING & METALS-1.4%
Alcoa, Inc. .............................. 274,700 7,966,300
------------
23,988,050
------------
CAPITAL GOODS-4.1%
MISCELLANEOUS-4.1%
United Technologies Corp. ................ 390,600 22,996,575
------------
CONSUMER MANUFACTURING-1.3%
BUILDING & RELATED-1.3%
Masco Corp. .............................. 413,000 7,459,813
------------
TRANSPORTATION-1.2%
RAILROADS-0.9%
Burlington Northern Santa Fe Corp. ....... 220,000 5,046,250
------------
MISCELLANEOUS-0.3%
Wisconsin Central Transport Corp. (a) .... 120,000 1,560,000
------------
6,606,250
------------
Total Common Stocks
(cost $503,786,947) .................... 550,396,008
------------
SHORT-TERM INVESTMENT-3.1%
TIME DEPOSIT-3.1%
State Street Euro Dollar
6.00%, 7/03/00
(amortized cost $17,529,000) ........... 17,529 17,529,000
------------
TOTAL INVESTMENTS-100.6%
(cost $521,315,947) .................... 567,925,008
Other assets less liabilities-(0.6%) ..... (3,292,876)
------------
NET ASSETS-100% .......................... $564,632,132
============
--------------------------------------------------------------------------------
(a) Non-income producing security.
Glossary:
ADR - American Depositary Receipt
See Notes to Financial Statements.
3
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $521,315,947) ... $567,925,008
Cash ...................................................... 157
Receivable for investment securities sold ................. 3,364,195
Dividends and interest receivable ......................... 823,082
------------
Total assets .............................................. 572,112,442
------------
LIABILITIES
Payable for investment securities purchased ............... 7,067,831
Advisory fee payable ...................................... 293,737
Accrued expenses .......................................... 118,742
------------
Total liabilities ......................................... 7,480,310
------------
NET ASSETS .................................................. $564,632,132
============
COMPOSITION OF NET ASSETS
Capital stock, at par ..................................... $ 26,427
Additional paid-in capital ................................ 489,485,417
Undistributed net investment income ....................... 2,566,748
Accumulated net realized gain on investments .............. 25,944,479
Net unrealized appreciation of investments ................ 46,609,061
------------
$564,632,132
============
CLASS A SHARES
Net assets ................................................ $540,213,818
============
Shares of capital stock outstanding ....................... 25,281,034
============
Net asset value per share ................................. $ 21.37
============
CLASS B SHARES
Net assets ................................................ $ 24,418,314
============
Shares of capital stock outstanding ....................... 1,145,899
============
Net asset value per share ................................. $ 21.31
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
4
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (unaudited)
Alliance Variable Products Series Fund
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $13,034) ....... $ 4,060,286
Interest ................................................. 408,141
------------
Total investment income .................................. 4,468,427
------------
EXPENSES
Advisory fee ............................................. 1,655,655
Distribution fee - Class B ............................... 16,505
Custodian ................................................ 65,800
Audit and legal .......................................... 42,192
Administrative ........................................... 31,472
Printing ................................................. 28,382
Directors' fees .......................................... 578
Transfer agency .......................................... 496
Miscellaneous ............................................ 8,898
------------
Total expenses ........................................... 1,849,978
------------
Net investment income .................................... 2,618,449
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment transactions ............. 26,103,667
Net change in unrealized appreciation/depreciation
of investments ......................................... (1,900,510)
------------
Net gain on investments .................................. 24,203,157
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................. $ 26,821,606
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
5
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
---------------- -------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income ....................... $ 2,618,449 $ 3,401,733
Net realized gain on investments ............ 26,103,667 35,901,080
Net change in unrealized
appreciation/depreciation of investments .. (1,900,510) 7,123,872
------------ ------------
Net increase in net assets from operations .. 26,821,606 46,426,685
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A ................................... (3,288,670) (3,318,107)
Class B ................................... (113,881) -0-
Net realized gain on investments
Class A ................................... (34,576,976) (42,704,228)
Class B ................................... (1,241,725) -0-
CAPITAL STOCK TRANSACTIONS
Net increase ................................ 46,876,159 148,136,928
------------ ------------
Total increase .............................. 34,476,513 148,541,278
NET ASSETS
Beginning of period ......................... 530,155,619 381,614,341
------------ ------------
End of period (including undistributed net
investment income of $2,566,748 and
$3,350,850, respectively) ................. $564,632,132 $530,155,619
============ ============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
6
<PAGE>
GROWTH AND INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
The Growth and Income Portfolio (the "Portfolio") is a series of Alliance
Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment
objective is to seek reasonable current income and reasonable opportunity for
appreciation through investments primarily in dividend-paying, common stocks of
good quality. The Fund was incorporated in the State of Maryland on November 17,
1987, as an open-end series investment company. The Fund had no operations prior
to November 28, 1990. The Fund offers nineteen separately managed pools of
assets which have differing investment objectives and policies. The Fund
currently issues shares of the Conservative Investors Portfolio, Growth
Investors Portfolio, Total Return Portfolio, Growth and Income Portfolio, Growth
Portfolio, International Portfolio, Premier Growth Portfolio, Quasar Portfolio,
Real Estate Investment Portfolio, Technology Portfolio, Utility Income
Portfolio, Worldwide Privatization Portfolio, Global Bond Portfolio, Global
Dollar Government Portfolio, High-Yield Portfolio, North American Government
Income Portfolio, Short-Term Multi-Market Portfolio, U.S. Government/High Grade
Securities Portfolio and Money Market Portfolio (the "Portfolios"). On January
5, 1999, the creation of a second class of shares, Class B shares, was approved
by the Board of Directors. The Fund offers Class A and Class B shares. Both
classes of shares have identical voting, dividend, liquidating and other rights,
except that Class B shares bear a distribution expense and have exclusive voting
rights with respect to the Class B distribution plan. As of June 30, 2000, the
following Portfolios had Class B shares issued and outstanding: Growth and
Income Portfolio, Growth Portfolio, Premier Growth Portfolio, Technology
Portfolio, Global Bond Portfolio, U.S. Government/High Grade Securities
Portfolio and Money Market Portfolio.
The Fund offers and sells its shares only to separate accounts of certain life
insurance companies for the purpose of funding variable annuity contracts and
variable life insurance policies. Sales are made without a sales charge at each
Portfolio's net asset value per share.
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States, which require management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) or on The
Nasdaq Stock Market, Inc., are generally valued at the last reported sales price
or if no sale occurred, at the mean of the closing bid and asked price on that
day. Readily marketable securities traded in the over-the-counter market,
securities listed on a foreign securities exchange whose operations are similar
to the U.S. over-the-counter market, and securities listed on a national
securities exchange whose primary market is believed to be over-the-counter (but
excluding securities traded on The Nasdaq Stock Market, Inc.), are valued at the
mean of the current bid and asked price. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of prices
obtained from a pricing service when such prices are believed to reflect the
fair market value of such securities.
Securities in which the Money Market Portfolio invests are valued at amortized
cost which approximates fair value, under which method a portfolio instrument is
valued at cost and any premium or discount is amortized on a straight-line basis
to maturity.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked price of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated at the rates of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when accrued.
The Portfolios isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held.
Net realized gains and losses on foreign currency transactions represent foreign
exchange gains and losses from sales and maturities of securities and forward
exchange currency contracts, holdings of foreign currencies, exchange gains and
losses realized between the trade and
7
<PAGE>
GROWTH AND INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
settlement dates on investment transactions, and the difference between the
amounts of interest, dividends and foreign witholding tax reclaims recorded on
the Portfolio's books and the U.S. dollar equivalent amounts actually received
or paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at period end exchange rates are reflected as a component
of net unrealized appreciation (depreciation) of investments and foreign
currency denominated assets and liabilities.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. The Fund accretes discounts as adjustments to interest income
and in the case of the Money Market Portfolio, amortizes premium as well.
Investment gains and losses are determined on the identified cost basis.
5. DIVIDENDS AND DISTRIBUTIONS
Each Portfolio declares and distributes dividends and distributions from net
investment income and net realized gains, respectively, if any, at least
annually, except for dividends on the Money Market Portfolio, which are declared
daily and paid monthly. Income dividends and capital gains distributions to
shareholders are recorded on the ex-dividend date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with accounting principles generally accepted in the United States. To the
extent these differences are permanent, such amounts are reclassified within the
capital accounts based on their federal tax basis treatment; temporary
differences do not require such reclassification.
--------------------------------------------------------------------------------
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Portfolio pays Alliance
Capital Management L.P. (the "Adviser"), an investment advisory fee at an
annualized rate of .625% of the Portfolio's average daily net assets.
Pursuant to the advisory agreement, the Portfolio paid $31,472 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the six months ended June 30, 2000.
During the six months ended June 30, 2000, the Adviser agreed to waive its fee
and to reimburse the additional operating expenses to the extent necessary to
limit total operating expenses on an annual basis to .95% and 1.20% of the
average daily net assets for Class A and Class B shares, respectively. Expense
waivers/reimbursements, if any, are accrued daily and paid monthly. For the six
months ended June 30, 2000, the Portfolio received no such
waivers/reimbursements.
Brokerage commissions paid on investment transactions for the six months ended
June 30, 2000, amounted to $463,702 , none of which was paid to brokers
utilizing the services of the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corp. ("DLJ"), an affiliate of the Adviser, and of which $34,043 was
paid to DLJ directly.
The Fund compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. For the six months
ended June 30, 2000, the Fund paid a total of $9,000 which was allocated evenly
among the Portfolios.
--------------------------------------------------------------------------------
NOTE C: DISTRIBUTION PLAN
The Portfolios have each adopted a Plan for Class B shares of the Fund pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (each a "Plan" and
collectively the "Plans"). Under the Plans, the Portfolios pay distribution and
servicing fees to the Distributor at an annual rate of up to .50% of each
portfolio's average daily net assets attributable to the Class B shares. The
fees are accrued daily and paid monthly. The Board of Directors currently limit
payments under the Plan to .25% of each Portfolio's average daily net assets
attributable to Class B shares. The Plans provide that the Distributor will use
such payments in their entirety for distribution assistance and promotional
activities.
The Portfolios are not obligated under the Plans to pay any distribution
services fee in excess of the amounts set forth above. The purpose of the
payments to the Distributor under the Plans is to compensate the Distributor for
8
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
its distribution services with respect to the sale of each Portfolio's shares.
Since the Distributor's compensation is not directly tied to its expenses, the
amount of compensation received by it under the Plan during any year may be more
or less than its actual expenses. For this reason, the Plans are characterized
by the staff of the Commission as being of the "compensation" variety.
In the event that a Plan is terminated or not continued, no distribution
services fees (other than current amounts accrued but not yet paid) would be
owed by the Portfolios to the Distributor with respect to the relevant Plan.
The Plan also provides that the Adviser may use its own resources to finance the
distribution of each Portfolio's shares.
--------------------------------------------------------------------------------
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
for the six months ended June 30, 2000, were as follows:
PURCHASES:
Stocks and debt obligations ............................... $183,196,783
U.S. government and agencies .............................. -0-
SALES:
Stocks and debt obligations ............................... $161,602,889
U.S. government and agencies .............................. -0-
At June 30, 2000, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation and unrealized depreciation are as
follows:
Gross unrealized appreciation ............................. $ 89,184,997
Gross unrealized depreciation ............................. (42,575,936)
------------
Net unrealized appreciation ............................... $ 46,609,061
============
1. FORWARD EXCHANGE CURRENCY CONTRACTS
All Portfolios (except for the Global Dollar Government Portfolio, U.S.
Government/High Grade Securities Portfolio and Money Market Portfolio) may enter
into forward exchange currency contracts to hedge exposure to changes in foreign
currency exchange rates on foreign portfolio holdings, to hedge certain firm
purchase and sales commitments denominated in foreign currencies and for
investment purposes. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate.
The Portfolios may enter into contracts to deliver or receive foreign currency
it will receive from or require for its normal investment activities. It may
also use contracts in a manner intended to protect foreign currency denominated
securities from declines in value due to unfavorable exchange rate movements.
The gain or loss arising from the difference between the original contracts and
the closing of such contracts is included in realized gains or losses from
foreign currency transactions. Fluctuations in the value of forward exchange
currency contracts are recorded for financial reporting purposes as unrealized
gains or losses by the Portfolio.
Each Portfolio's custodian will place and maintain cash not available for
investment or other liquid assets in a separate account of the Portfolio having
an approximate value equal to the aggregate amount of the respective portfolio's
commitments under forward exchange currency contracts entered into with respect
to position hedges.
Risks may arise from the potential inability of a counterparty to meet the terms
of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, reflects the total exposure each Portfolio has in that particular
currency contract.
At June 30, 2000, the Portfolio had no outstanding forward exchange currency
contracts.
2. OPTION TRANSACTIONS
For hedging and investment purposes, all Portfolios (except for the Money Market
Portfolio) may purchase and write call options and purchase put options on U.S.
securities that are traded on U.S. securities exchanges and over-the-counter
markets.
The risk associated with purchasing an option is that the Portfolio pays a
premium whether or not the option is
9
<PAGE>
GROWTH AND INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
exercised. Additionally, the Portfolio bears the risk of loss of premium and
change in market value should the counterparty not perform under the contract.
Put and call options purchased are accounted for in the same manner as portfolio
securities. The cost of securities acquired through the exercise of call options
is increased by premiums paid. The proceeds from securities sold through the
exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is
recorded as a liability and is subsequently adjusted to the current market value
of the option written. Premiums received from which written options expire
unexercised are recorded by the Portfolio on the expiration date as realized
gains from written options. The difference between the premium received and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium received is
less than the amount paid for the closing purchase transaction, as a realized
loss. If a call option is exercised, the premium received is added to the
proceeds from the sale of the underlying security or currency in determining
whether the Portfolio has realized a gain or loss. In writing an option, the
Portfolio bears the market risk of an unfavorable change in the price of the
security or currency underlying the written option. Exercise of an option
written by the Portfolio could result in the Portfolio selling or buying a
security or currency at a price different from the current market value.
The Portfolio had no transactions in options written for the six months ended
June 30, 2000.
--------------------------------------------------------------------------------
NOTE E: CAPITAL STOCK
There are 20,000,000,000 shares of capital stock, $.001 par value per share of
the Fund authorized divided into two classes, designated Class A and Class B.
Each lass consists of 10,000,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------ ------------ -------------- --------------
CLASS A
Shares sold ........ 4,501,343 7,229,780 $ 98,404,411 $158,338,431
Shares issued in
reinvestment of
dividends and
distributions .... 1,690,431 2,179,088 37,865,646 46,022,335
Shares redeemed .... (4,879,594) (2,910,169) (106,582,090) (64,051,586)
---------- --------- ------------ ------------
Net increase ....... 1,312,180 6,498,699 $ 29,687,967 $140,309,180
========== ========= ============ ============
SIX MONTHS JUNE 1, SIX MONTHS JUNE 1,
ENDED 1999* TO ENDED 1999* TO
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------ ------------ -------------- --------------
CLASS B
Shares sold ........ 799,588 384,785 $ 17,586,074 $ 8,209,638
Shares issued in
reinvestment of
dividends and
distributions .... 60,654 -0- 1,355,606 -0-
Shares redeemed .... (81,651) (17,477) (1,753,488) (381,890)
---------- --------- ------------ ------------
Net increase ....... 778,591 367,308 $ 17,188,192 $ 7,827,748
========== ========= ============ ============
--------------------------------------------------------------------------------
NOTE F: CONCENTRATION OF RISK
Investing in securities of foreign companies or foreign governments involves
special risks which include changes in foreign exchange rates and the
possibility of future political and economic developments which could adversely
affect the value of such securities. Moreover, securities of many foreign
companies or foreign governments and their markets may be less liquid and their
prices more volatile than those of comparable United States companies or of the
United States government.
--------------------------------------------------------------------------------
* Commencement of distribution.
10
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
NOTE G: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility")
intended to provide short-term financing if necessary, subject to certain
restrictions in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
the miscellaneous expenses in the statement of operations. The Fund did not
utilize the Facility during the six months ended June 30, 2000.
11
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 ---------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $21.79 $21.84 $19.93 $16.40 $15.79 $11.85
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) ................ .11 .16 .22 .21(b) .24(b) .27(b)
Net realized and unrealized gain on
investment transactions ................ 1.08 2.25 3.81 4.39 3.18 3.94
------ ------ ------ ------ ------ ------
Net increase in net asset value from
operations ............................. 1.19 2.41 4.03 4.60 3.42 4.21
------ ------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income ..... (.14) (.18) (.16) (.13) (.25) (.13)
Distributions from net realized gains .... (1.47) (2.28) (1.96) (.94) (2.56) (.14)
------ ------ ------ ------ ------ ------
Total dividends and distributions ........ (1.61) (2.46) (2.12) (1.07) (2.81) (.27)
------ ------ ------ ------ ------ ------
Net asset value, end of period ........... $21.37 $21.79 $21.84 $19.93 $16.40 $15.79
====== ====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net
asset value (c) ........................ 5.13% 11.37% 20.89% 28.80% 24.09% 35.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) ........................ $540,214 $522,163 $381,614 $250,202 $126,729 $41,993
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements ....................... .69%(d) .71% .73% .72% .82% .79%
Expenses, before waivers and
reimbursements ....................... .69%(d) .71% .73% .72% .82% .79%
Net investment income .................. .99%(d) .75% 1.07% 1.16%(b) 1.58%(b) 1.95%(b)
Portfolio turnover rate .................. 31% 46% 79% 86% 87% 150%
</TABLE>
--------------------------------------------------------------------------------
See footnote summary on page 13.
12
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B
---------------------------
Six Months June 1, 1999(e)
Ended to
June 30, 2000 December 31,
(unaudited) 1999
------------- ------------
Net asset value, beginning of period .... $21.76 $21.37
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) ............... .10 .07
Net realized and unrealized gain on
investment transactions ............... 1.06 .32
------ ------
Net increase in net asset value from
operations ............................ 1.16 .39
------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income .... (.14) -0-
Distributions from net realized gains ... (1.47) -0-
------ ------
Total dividends and distributions ....... (1.61) -0-
------ ------
Net asset value, end of period .......... $21.31 $21.76
====== ======
TOTAL RETURN
Total investment return based on net
asset value (c) ....................... 4.97% 1.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) ....................... $24,418 $7,993
Ratios to average net assets of:
Expenses (d) .......................... .95% .97%
Net investment income (d) ............. .81% .55%
Portfolio turnover rate ................. 31% 46%
--------------------------------------------------------------------------------
(a) Based on average shares outstanding.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return
calculated for a period of less than one year is not annualized.
(d) Annualized.
(e) Commencement of distribution.
13
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
DONALD J. ROBINSON (1)
OFFICERS
ANDREW ARAN, SENIOR VICE PRESIDENT
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
GREGORY DUBE, SENIOR VICE PRESIDENT
ALFRED L. HARRISON, SENIOR VICE PRESIDENT
NELSON JANTZEN, SENIOR VICE PRESIDENT
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
RAYMOND J. PAPERA, SENIOR VICE PRESIDENT
PETER ANASTOS, VICE PRESIDENT
BRUCE K. ARONOW, VICE PRESIDENT
EDWARD BAKER, VICE PRESIDENT
THOMAS J. BARDONG, VICE PRESIDENT
MATTHEW BLOOM, VICE PRESIDENT
MARK H. BREEDON, VICE PRESIDENT
RUSSELL BRODY, VICE PRESIDENT
NICHOLAS D.P. CARN, VICE PRESIDENT
PAUL J. DENOON, VICE PRESIDENT
JOSEPH C. DONA, VICE PRESIDENT
VICKI L. FULLER, VICE PRESIDENT
F. JEANNE GOETZ, VICE PRESIDENT
GERALD T. MALONE, VICE PRESIDENT
MICHAEL MON, VICE PRESIDENT
DOUGLAS J. PEEBLES, VICE PRESIDENT
DANIEL G. PINE, VICE PRESIDENT
PAUL C. RISSMAN, VICE PRESIDENT
TYLER J. SMITH, VICE PRESIDENT
JEAN VAN DE WALLE, VICE PRESIDENT
SANDRA YEAGER, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
THOMAS MANLEY, CONTROLLER
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
DISTRIBUTOR
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-free 1-(800) 221-5672
--------------------------------------------------------------------------------
(1) Member of the Audit Committee.
14
<PAGE>
ALLIANCE
-------------------------------
VARIABLE PRODUCTS
-------------------------------
SERIES FUND
-------------------------------
QUASAR PORTFOLIO
-------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2000
(UNAUDITED)
<PAGE>
Investment Products Offered
------------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
------------------------------
<PAGE>
QUASAR PORTFOLIO
TEN LARGEST HOLDINGS
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
PERCENT OF
COMPANY U.S. $ VALUE NET ASSETS
--------------------------------------------------------------------------------
Exar Corp. $ 3,147,469 1.5%
Dycom Industries, Inc. 3,123,400 1.5
Documentum, Inc. 2,949,375 1.5
Black Box Corp. 2,945,194 1.4
SonicWALL, Inc. 2,835,612 1.4
MasTec, Inc. 2,770,503 1.4
LifePoint Hospitals, Inc. 2,636,625 1.3
Alpharma, Inc. 2,595,825 1.3
Iron Mountain, Inc. 2,563,600 1.3
Fairchild Semiconductor Corp. 2,527,200 1.2
$28,094,803 13.8%
1
<PAGE>
QUASAR PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
COMPANY SHARES U.S. $ VALUE
--------------------------------------------------------------------------------
COMMON STOCKS-91.5%
TECHNOLOGY-32.4%
COMMUNICATIONS EQUIPMENT-2.0%
Digital Microwave Corp. (a) ................ 34,000 $ 1,296,250
Exfo Electro-Optical Engineering, Inc. ..... 2,700 118,463
New Focus, Inc. (a) ........................ 10,600 870,525
Stanford Microdevices, Inc. (a) ............ 17,000 738,438
Westell Technologies, Inc. (a) ............. 66,200 993,000
------------
4,016,676
------------
COMPUTER PERIPHERALS-1.1%
Informatica Corp. (a) ...................... 26,900 2,204,119
------------
COMPUTER SOFTWARE & SERVICES-10.1%
Active Software, Inc. (a) .................. 19,200 1,491,600
Actuate Software Corp. (a) ................. 35,000 1,868,125
BackWeb Technologies, Ltd. (Israel) (a) .... 66,200 1,514,325
Business Objects, SA (ADR) (France) (a) .... 19,400 1,709,625
Documentum, Inc. (a) ....................... 33,000 2,949,375
eLoyalty Corp. (a) ......................... 69,200 882,300
Interwoven, Inc. (a) ....................... 15,000 1,649,766
Macrovision Corp. (a) ...................... 37,100 2,371,502
Micromuse, Inc. (a) ........................ 8,900 1,472,811
NetIQ Corp. (a) ............................ 25,700 1,532,362
Pivotal Corp. (a) .......................... 49,800 1,170,300
Precise Software Solutions, Ltd. ........... 400 9,600
Watchguard Technologies, Inc. (a) .......... 36,200 1,988,737
------------
20,610,428
------------
CONTRACT MANUFACTURING-1.2%
DDi Corp. (a) .............................. 83,400 2,376,900
------------
INTERNET-1.6%
DigitalThink, Inc. (a) ..................... 19,800 710,325
Excalibur Technologies Corp. (a) ........... 24,400 974,475
NetRatings, Inc. (a) ....................... 4,500 115,312
Niku Corp. (a) ............................. 22,400 756,000
Selectica, Inc. (a) ........................ 6,000 420,375
Virage, Inc. (a) ........................... 15,500 279,969
------------
3,256,456
------------
NETWORKING SOFTWARE-2.5%
PC-Tel, Inc. (a) ........................... 25,100 953,800
Predictive Systems, Inc. (a) ............... 31,400 1,128,438
SonicWALL, Inc. (a) ........................ 32,200 2,835,612
Stratos Lightwave, Inc. (a) ................ 4,500 125,438
------------
5,043,288
------------
SEMI-CONDUCTOR CAPITAL EQUIPMENT-4.7%
Credence Systems Corp. (a) ................. 41,500 2,290,281
Intersil Holding Corp. (a) ................. 40,700 2,200,344
ISS Group, Inc. (a) ........................ 21,900 2,162,283
MKS Instruments, Inc. (a) .................. 32,700 1,279,388
Varian Semiconductor
Equipment Associates, Inc. (a) ........... 25,000 1,570,312
------------
9,502,608
------------
SEMI-CONDUCTOR COMPONENTS-5.6%
Elantec Semiconductor, Inc. (a) ............ 23,700 1,650,112
Fairchild Semiconductor Corp. (a) .......... 62,400 2,527,200
International Rectifier Corp. (a) .......... 39,100 2,189,600
Marvell Technology Group Ltd. (a) .......... 4,500 256,500
Metron Tech NV (a) ......................... 23,700 298,842
SCG Holding Corp. (a) ...................... 44,000 962,500
Semtech Corp. (a) .......................... 27,600 2,110,969
TelCom Semiconductor, Inc. (a) ............. 36,400 1,469,650
------------
11,465,373
------------
MISCELLANEOUS-3.6%
Aeroflex, Inc. (a) ......................... 21,000 1,043,437
Amphenol Corp. Cl.A (a) .................... 23,500 1,555,406
Exar Corp. (a) ............................. 36,100 3,147,469
PRI Automation, Inc. (a) ................... 22,900 1,497,445
StorageNetworks, Inc. (a) .................. 1,300 117,325
------------
7,361,082
------------
65,836,930
------------
CONSUMER PRODUCTS & SERVICES-23.0%
AIRLINES-0.9%
Expeditores International of
Washington, Inc. ......................... 40,100 1,904,750
------------
APPAREL-0.5%
Mens Wearhouse, Inc. (a) ................... 40,050 893,615
------------
BROADCASTING & CABLE-1.1%
Classic Communications, Inc. Cl.A (a) ...... 29,500 263,656
Westwood One, Inc. (a) ..................... 58,700 2,003,138
------------
2,266,794
------------
2
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
COMPANY SHARES U.S. $ VALUE
--------------------------------------------------------------------------------
CELLULAR COMMUNICATIONS-1.8%
Pinnacle Holdings, Inc. (a) ................. 30,500 $ 1,647,000
SBA Communcations Corp. Cl.A (a) ............ 39,700 2,061,919
-------------
3,708,919
-------------
ENTERTAINMENT & LEISURE-2.0%
Ackerley Group, Inc. ........................ 62,900 739,075
Cinar Corp. Cl.B (ADR) (Canada) (a) (b) ..... 40,100 280,700
Imax Corp. (a) .............................. 46,300 1,053,325
Penton Media, Inc. .......................... 55,100 1,928,500
-------------
4,001,600
-------------
GAMING-0.7%
Station Casinos, Inc. (a) ................... 56,900 1,422,500
-------------
RETAIL - GENERAL MERCHANDISE-3.9%
BJ's Wholesale Club, Inc. (a) ............... 66,900 2,207,700
Freds, Inc. Class A ......................... 21,300 383,400
Group 1 Automotive, Inc. (a) ................ 108,900 1,306,800
Michaels Stores, Inc. (a) ................... 27,300 1,250,681
MSC Industrial Direct Co., Inc. Cl.A, (a) ... 72,600 1,520,063
Venator Group, Inc. (a) ..................... 119,200 1,221,800
-------------
7,890,444
-------------
MISCELLANEOUS-12.1%
Black Box Corp. (a) ......................... 37,200 2,945,194
Career Education Corp. (a) .................. 28,400 1,377,400
CDW Computer Centers, Inc. (a) .............. 34,200 2,137,500
ChoicePoint, Inc. (a) ....................... 33,232 1,478,824
Dycom Industries, Inc. (a) .................. 67,900 3,123,400
FirstService Corp. (Canada) (a) ............. 65,400 784,800
Insight Enterprises, Inc. (a) ............... 40,200 2,384,362
Iron Mountain, Inc. (a) ..................... 75,400 2,563,600
MasTec, Inc. (a) ............................ 72,550 2,770,503
PC Connection, Inc. (a) ..................... 8,000 456,000
Rent-Way, Inc. (a) .......................... 45,700 1,333,869
TeleSpectrum Worldwide, Inc. (a) ............ 282,400 1,288,450
West TeleServices Corp. (a) ................. 76,400 1,933,875
-------------
24,577,777
-------------
46,666,399
-------------
HEALTH CARE-18.2%
BIOTECHNOLOGY-6.6%
Abgenix, Inc. (a) ........................... 7,600 910,931
Aviron (a) .................................. 54,500 1,682,687
Exelixis, Inc. (a) .......................... 8,000 267,000
Genomic Solutions, Inc. (a) ................. 63,700 931,613
IDEC Pharmaceuticals Corp. (a) .............. 17,400 2,041,237
Intermune Pharmaceuticals, Inc. (a) ......... 28,700 1,185,669
Orchid Biosciences, Inc. (a) ................ 26,600 1,009,969
PRAECIS Pharmaceuticals, Inc. (a) ........... 18,700 521,263
Tanox, Inc. (a) ............................. 26,200 1,239,588
Trimeris, Inc. (a) .......................... 18,200 1,272,862
United Therapeutics Corp. (a) ............... 21,700 2,351,737
-------------
13,414,556
-------------
DRUGS-3.9%
Alpharma, Inc. Cl.A ......................... 41,700 2,595,825
Jones Pharma, Inc. .......................... 39,800 1,589,512
King Pharmaceuticals, Inc. (a) .............. 54,000 2,369,250
Matrix Pharmaceutical, Inc. (a) ............. 33,100 432,369
Shire Pharmaceuticals Group PLC (ADR)
(United Kingdom) (a) ...................... 18,700 970,063
-------------
7,957,019
-------------
MEDICAL PRODUCTS-1.2%
INAMED Corp. (a) ............................ 40,000 1,465,000
InfoCure Corp. (a) .......................... 63,700 358,313
Physiometrix, Inc. (a) ...................... 29,400 650,475
-------------
2,473,788
-------------
MEDICAL SERVICES-5.5%
AmeriSource Health Corp. (a) ................ 48,200 1,494,200
Bindley Western Industries, Inc. ............ 58,900 1,557,169
Hooper Holmes, Inc. ......................... 103,100 824,800
LifePoint Hospitals, Inc. (a) ............... 118,500 2,636,625
Orthodontic Centers of America, Inc. (a) .... 65,000 1,470,625
Quest Diagnostics, Inc. (a) ................. 27,900 1,996,593
ResMed, Inc. (a) ............................ 39,600 1,059,300
-------------
11,039,312
-------------
MISCELLANEOUS-1.0%
Tektronix, Inc. ............................. 26,600 1,968,400
-------------
36,853,075
-------------
ENERGY-4.7%
DOMESTIC PRODUCERS-1.8%
Barrett Resources Corp. (a) ................. 52,800 1,607,100
Capstone Turbine Corp. (a) .................. 14,500 653,406
Murphy Oil Corp. ............................ 23,500 1,396,781
-------------
3,657,287
-------------
OIL SERVICE-0.8%
Core Laboratories NV (a) .................... 12,700 368,300
Santa Fe International Corp. ................ 36,200 1,264,737
-------------
1,633,037
-------------
PIPELINES-1.6%
Kinder Morgan, Inc. ......................... 44,100 1,524,206
Maverick Tube Corp. (a) ..................... 27,100 789,288
Patterson Energy, Inc. (a) .................. 28,700 817,950
-------------
3,131,444
-------------
MISCELLANEOUS-0.5%
Newfield Exploration Co. (a) ................ 26,900 1,052,463
-------------
9,474,231
-------------
3
<PAGE>
QUASAR PORTFOLIO
PORTFOLIO OF INVESTMENTS
(CONTINUED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) U.S. $ VALUE
--------------------------------------------------------------------------------
UTILITIES-3.9%
TELEPHONE UTILITY-1.2%
MGC Communications, Inc. (a) ................ 14,800 $ 887,075
Millicom International Cellular, SA
(Luxembourg) (a) .......................... 43,900 1,536,500
-------------
2,423,575
-------------
MISCELLANEOUS-2.7%
Covad Communications Group, Inc. ............ 37,000 596,625
Digital Lightwave, Inc. (a) ................. 3,500 351,750
Dobson Communications Corp. Cl.A (a) ........ 33,900 652,575
GT Group Telecom, Inc. Cl.B (a) ............. 52,900 836,481
Net2000 Communication, Inc. (a) ............. 95,700 1,567,088
Rural Celluar Corp. Cl.A (a) ................ 20,400 1,561,875
-------------
5,566,394
-------------
7,989,969
-------------
CAPITAL GOODS-3.8%
ELECTRICAL EQUIPMENT-1.2%
American Superconductor Corp. (a) ........... 23,200 1,119,400
C&D Technologies, Inc. ...................... 23,400 1,322,100
-------------
2,441,500
-------------
POLLUTION CONTROL-0.7%
Tetra Tech, Inc. (a) ........................ 64,500 1,475,438
-------------
MISCELLANEOUS-1.9%
Carlisle Cos., Inc. ......................... 22,900 1,030,500
L-3 Communications Holding, Inc. (a) ........ 27,300 1,557,806
Mohawk Industries, Inc. (a) ................. 18,850 409,988
Roper Industries, Inc. ...................... 31,700 812,312
-------------
3,810,606
-------------
7,727,544
-------------
FINANCE-3.6%
BANKING-REGIONAL-0.7%
Silicon Valley Bancshares (a) ............... 32,000 1,364,000
-------------
BROKERAGE & MONEY MANAGEMENT-1.1%
Legg Mason, Inc. ............................ 46,400 2,320,000
-------------
INSURANCE-0.8%
Reinsurance Group of America, Inc. .......... 57,000 1,717,125
-------------
MISCELLANEOUS-1.0%
CompuCredit Corp. (a) ....................... 66,500 1,995,000
-------------
7,396,125
-------------
BASIC INDUSTRIES-1.7%
CHEMICALS-1.0%
OM Group, Inc. .............................. 45,300 1,993,200
-------------
CONTAINERS-0.6%
Packaging Corp. of America (a) .............. 118,300 1,197,787
-------------
MINING & METALS-0.1%
Ispat International NV Cl.A (ADR)
(Netherlands) ............................. 26,700 253,650
-------------
3,444,637
-------------
CONSUMER MANUFACTURING-0.2%
AUTO & RELATED-0.2%
Tower Automotive, Inc. (a) .................. 37,600 470,000
-------------
Total Common Stocks
(cost $159,112,202) ....................... 185,858,910
-------------
SHORT-TERM INVESTMENT-10.4%
TIME DEPOSIT-10.4%
State Street Euro Dollar
6.00%, 7/03/00
(amortized cost $21,187,000) .............. $21,187 21,187,000
-------------
TOTAL INVESTMENTS-101.9%
(cost $180,299,202) ....................... 207,045,910
Other assets less liabilities-(1.9%) ........ (3,936,101)
-------------
NET ASSETS-100% ............................. $203,109,809
============
--------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Illiquid security valued at fair market value (see Note A).
Glossary:
ADR - American Depositary Receipts
See Notes to Financial Statements.
4
<PAGE>
QUASAR PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $180,299,202) .. $207,045,910
Cash ..................................................... 710
Receivable for investment securities sold ................ 1,208,158
Dividends and interest receivable ........................ 11,297
Deferred organization expenses ........................... 5,877
------------
Total assets ............................................. 208,271,952
------------
LIABILITIES
Payable for investment securities purchased .............. 5,007,158
Advisory fee payable ..................................... 108,914
Accrued expenses ......................................... 46,071
------------
Total liabilities ........................................ 5,162,143
------------
NET ASSETS ................................................. $203,109,809
============
COMPOSITION OF NET ASSETS
Capital stock, at par .................................... $ 15,007
Additional paid-in capital ............................... 175,164,336
Accumulated net investment loss .......................... (186,978)
Accumulated net realized gain on investments ............. 1,370,736
Net unrealized appreciation of investments ............... 26,746,708
------------
$203,109,809
============
CLASS A SHARES
Net assets ............................................... $203,109,809
============
Shares of capital stock outstanding ...................... 15,007,231
============
Net asset value per share ................................ $ 13.53
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
5
<PAGE>
QUASAR PORTFOLIO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest ................................................... $ 363,139
Dividends (net of foreign tax withheld of $7,408) .......... 124,121
-----------
Total investment income .................................... 487,260
-----------
EXPENSES
Advisory fee ............................................... 861,624
Custodian .................................................. 58,372
Administrative ............................................. 31,500
Audit and legal ............................................ 11,983
Printing ................................................... 8,034
Amortization of organization expenses ...................... 2,548
Directors' fees ............................................ 702
Transfer agency ............................................ 520
Miscellaneous .............................................. 3,227
-----------
Total expenses ............................................. 978,510
Less: expenses waived and reimbursed ....................... (159,967)
-----------
Net expenses ............................................... 818,543
-----------
Net investment loss ........................................ (331,283)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions ............... 3,426,368
Net change in unrealized appreciation of investments ....... 12,300,280
-----------
Net gain on investments .................................... 15,726,648
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................... $15,395,365
===========
--------------------------------------------------------------------------------
See Notes to Financial Statements.
6
<PAGE>
QUASAR PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (331,283) $ 861,387
Net realized gain on investments 3,426,368 6,765,798
Net change in unrealized appreciation/
depreciation of investments 12,300,280 16,149,753
------------ ------------
Net increase in net assets from
operations 15,395,365 23,776,938
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (657,364) (312,237)
Net realized gain on investments
Class A (4,601,546) -0-
CAPITAL STOCK TRANSACTIONS
Net increase 23,362,020 55,276,395
------------ ------------
Total increase 33,498,475 78,741,096
NET ASSETS
Beginning of period 169,611,334 90,870,238
------------ ------------
End of period (including
undistributed net investment income
of $801,669 at December 31, 1999) $203,109,809 $169,611,334
============ ============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
QUASAR PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
NOTE A: Significant Accounting Policies
The Quasar Portfolio (the "Portfolio") is a series of Alliance Variable Products
Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek
growth of capital by pursuing aggressive investment policies. Current income is
incidental to the Portfolio's objective. The Fund was incorporated in the State
of Maryland on November 17, 1987, as an open-end series investment company. The
Fund had no operations prior to November 28, 1990. The Fund offers nineteen
separately managed pools of assets which have differing investment objectives
and policies. The Fund currently issues shares of the Conservative Investors
Portfolio, Growth Investors Portfolio, Total Return Portfolio, Growth and Income
Portfolio, Growth Portfolio, International Portfolio, Premier Growth Portfolio,
Quasar Portfolio, Real Estate Investment Portfolio, Technology Portfolio,
Utility Income Portfolio, Worldwide Privatization Portfolio, Global Bond
Portfolio, Global Dollar Government Portfolio, High-Yield Portfolio, North
American Government Income Portfolio, Short-Term Multi-Market Portfolio, U.S.
Government/High Grade Securities Portfolio and Money Market Portfolio (the
"Portfolios"). On January 5, 1999, the creation of a second class of shares,
Class B shares, was approved by the Board of Directors. The Fund offers Class A
and Class B shares. Both classes of shares have identical voting, dividend,
liquidating and other rights, except that Class B shares bear a distribution
expense and have exclusive voting rights with respect to the Class B
distribution plan. As of June 30, 2000, the following Portfolios had Class B
shares issued and outstanding: Growth and Income Portfolio, Growth Portfolio,
Premier Growth Portfolio, Technology Portfolio, Global Bond Portfolio, U.S.
Government/High Grade Securities Portfolio and Money Market Portfolio.
The Fund offers and sells its shares only to separate accounts of certain life
insurance companies for the purpose of funding variable annuity contracts and
variable life insurance policies. Sales are made without a sales charge at each
Portfolio's net asset value per share.
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States, which require management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) or on The
Nasdaq Stock Market, Inc., are generally valued at the last reported sales price
or if no sale occurred, at the mean of the closing bid and asked price on that
day. Readily marketable securities traded in the over-the-counter market,
securities listed on a foreign securities exchange whose operations are similar
to the U.S. over-the-counter market, and securities listed on a national
securities exchange whose primary market is believed to be over-the-counter (but
excluding securities traded on The Nasdaq Stock Market, Inc.), are valued at the
mean of the current bid and asked price. U.S. government and fixed income
securities which mature in 60 days or less are valued at amortized cost, unless
this method does not represent fair value. Securities for which current market
quotations are not readily available are valued at their fair value as
determined in good faith by, or in accordance with procedures adopted by, the
Board of Directors. Fixed income securities may be valued on the basis of prices
obtained from a pricing service when such prices are believed to reflect the
fair market value of such securities.
Securities in which the Money Market Portfolio invests are valued at amortized
cost which approximates fair value, under which method a portfolio instrument is
valued at cost and any premium or discount is amortized on a straight-line basis
to maturity.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked price of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated at the rates of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when accrued.
The Portfolios isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held.
Net realized gains and losses on foreign currency transactions represent foreign
exchange gains and losses from sales and maturities of securities and forward
exchange currency contracts, holdings of foreign currencies, exchange gains and
losses realized between the trade and
8
<PAGE>
Alliance Variable Products Series Fund
--------------------------------------------------------------------------------
settlement dates on investment transactions, and the difference between the
amounts of interest, dividends and foreign witholding tax reclaims recorded on
the Portfolio's books and the U.S. dollar equivalent amounts actually received
or paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at period end exchange rates are reflected as a component
of net unrealized appreciation (depreciation) of investments and foreign
currency denominated assets and liabilities.
3. ORGANIZATION EXPENSES
Organization expenses of $26,098 have been deferred and are being amortized on a
straight line basis through August 2001.
4. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. The Fund accretes discounts as adjustments to interest income
and in the case of the Money Market Portfolio, amortizes premium as well.
Investment gains and losses are determined on the identified cost basis.
6. DIVIDENDS AND DISTRIBUTIONS
Each Portfolio declares and distributes dividends and distributions from net
investment income and net realized gains, respectively, if any, at least
annually, except for dividends on the Money Market Portfolio, which are declared
daily and paid monthly. Income dividends and capital gains distributions to
shareholders are recorded on the ex-dividend date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with accounting principles generally accepted in the United States. To the
extent these differences are permanent, such amounts are reclassified within the
capital accounts based on their federal tax basis treatment; temporary
differences do not require such reclassification.
--------------------------------------------------------------------------------
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Portfolio pays Alliance
Capital Management L.P. (the "Adviser"), an investment advisory fee at an
annualized rate of 1% of the Portfolio's average daily net assets.
During the six months ended June 30, 2000, the Adviser agreed to waive its fee
and to reimburse the additional operating expenses to the extent necessary to
limit total operating expenses on an annual basis to .95% and 1.20% of the
average daily net assets for Class A and Class B shares, respectively. Expense
waivers/reimbursements, if any, are accrued daily and paid monthly. For the six
months ended June 30, 2000, such waivers/reimbursements amounted to $159,967.
Brokerage commissions paid on investment transactions for the six months ended
June 30, 2000, amounted to $289,791, none of which was paid to brokers utilizing
the services of the Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corp. ("DLJ"), an affiliate of the Adviser, and of which $4,060 was paid to DLJ
directly.
The Fund compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. For the six months
ended June 30, 2000, the Fund paid a total of $9,000 which was allocated evenly
among the Portfolios.
--------------------------------------------------------------------------------
NOTE C: DISTRIBUTION PLAN
The Portfolios have each adopted a Plan for Class B shares of the Fund pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (each a "Plan" and
collectively the "Plans"). Under the Plans, the Portfolios pay distribution and
servicing fees to the Distributor at an annual rate of up to .50% of each
portfolio's average daily net assets attributable to the Class B shares. The
fees are accrued daily and paid monthly. The Board of Directors currently limit
payments under the Plan to .25% of each Portfolio's average daily net assets
attributable to Class B shares. The Plans provide that the Distributor will use
such payments in their entirety for distribution assistance and promotional
activities.
The Portfolios are not obligated under the Plans to pay any distribution
services fee in excess of the amounts set forth above. The purpose of the
payments to the Distribu-
9
<PAGE>
QUASAR PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
tor under the Plans is to compensate the Distributor for its distribution
services with respect to the sale of each Portfolio's shares. Since the
Distributor's compensation is not directly tied to its expenses, the amount of
compensation received by it under the Plan during any year may be more or less
than its actual expenses. For this reason, the Plans are characterized by the
staff of the Commission as being of the "compensation" variety.
In the event that a Plan is terminated or not continued, no distribution
services fees (other than current amounts accrued but not yet paid) would be
owed by the Portfolios to the Distributor with respect to the relevant Plan.
The Plan also provides that the Adviser may use its own resources to finance the
distribution of each Portfolio's shares.
--------------------------------------------------------------------------------
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
for the six months ended June 30, 2000, were as follows:
PURCHASES:
Stocks and debt obligations .............................. $186,332,239
U.S. government and agencies ............................. -0-
SALES:
Stocks and debt obligations .............................. $171,990,082
U.S. government and agencies ............................. -0-
At June 30, 2000, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation and unrealized depreciation are as
follows:
Gross unrealized appreciation ............................ $ 37,737,539
Gross unrealized depreciation ............................ (10,990,831)
------------
Net unrealized appreciation .............................. $ 26,746,708
============
1. FORWARD EXCHANGE CURRENCY CONTRACTS
All Portfolios (except for the Global Dollar Government Portfolio, U.S.
Government/High Grade Securities Portfolio and Money Market Portfolio) may enter
into forward exchange currency contracts to hedge exposure to changes in foreign
currency exchange rates on foreign portfolio holdings, to hedge certain firm
purchase and sales commitments denominated in foreign currencies and for
investment purposes. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate.
The Portfolios may enter into contracts to deliver or receive foreign currency
it will receive from or require for its normal investment activities. It may
also use contracts in a manner intended to protect foreign currency denominated
securities from declines in value due to unfavorable exchange rate movements.
The gain or loss arising from the difference between the original contracts and
the closing of such contracts is included in realized gains or losses from
foreign currency transactions. Fluctuations in the value of forward exchange
currency contracts are recorded for financial reporting purposes as unrealized
gains or losses by the Portfolio.
Each Portfolio's custodian will place and maintain cash not available for
investment or other liquid assets in a separate account of the Portfolio having
an approximate value equal to the aggregate amount of the respective portfolio's
commitments under forward exchange currency contracts entered into with respect
to position hedges.
Risks may arise from the potential inability of a counterparty to meet the terms
of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, reflects the total exposure each Portfolio has in that particular
currency contract.
At June 30, 2000, the Portfolio had no outstanding forward exchange currency
contracts.
2. OPTION TRANSACTIONS
For hedging and investment purposes, all Portfolios (except for the Money Market
Portfolio) may purchase and write call options and purchase put options on U.S.
securities that are traded on U.S. securities exchanges and over-the-counter
markets.
The risk associated with purchasing an option is that the Portfolio pays a
premium whether or not the option is
10
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
exercised. Additionally, the Portfolio bears the risk of loss of premium and
change in market value should the counterparty not perform under the contract.
Put and call options purchased are accounted for in the same manner as portfolio
securities. The cost of securities acquired through the exercise of call options
is increased by premiums paid. The proceeds from securities sold through the
exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is
recorded as a liability and is subsequently adjusted to the current market value
of the option written. Premiums received from which written options expire
unexercised are recorded by the Portfolio on the expiration date as realized
gains from written options. The difference between the premium received and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium received is
less than the amount paid for the closing purchase transaction, as a realized
loss. If a call option is exercised, the premium received is added to the
proceeds from the sale of the underlying security or currency in determining
whether the Portfolio has realized a gain or loss. In writing an option, the
Portfolio bears the market risk of an unfavorable change in the price of the
security or currency underlying the written option. Exercise of an option
written by the Portfolio could result in the Portfolio selling or buying a
security or currency at a price different from the current market value.
The Portfolio had no transactions in options written for the six months ended
June 30, 2000.
--------------------------------------------------------------------------------
NOTE E: CAPITAL STOCK
There are 20,000,000,000 shares of capital stock, $.001 par value per share of
the Fund authorized divided into two classes, designated Class A and Class B.
Each class consists of 10,000,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------ ------------- -------------- --------------
CLASS A
Shares sold ....... 23,465,759 18,952,076 $ 297,628,968 $ 218,586,174
Shares issued in
reinvestment of
dividends and
distributions ... 417,374 27,705 5,258,910 312,238
Shares redeemed ... (21,918,106) (14,096,710) (279,525,858) (163,622,017)
----------- ----------- ------------- -------------
Net increase ...... 1,965,027 4,883,071 $ 23,362,020 $ 55,276,395
=========== =========== ============= =============
--------------------------------------------------------------------------------
NOTE F: CONCENTRATION OF RISK
Investing in securities of foreign companies or foreign governments involves
special risks which include changes in foreign exchange rates and the
possibility of future political and economic developments which could adversely
affect the value of such securities. Moreover, securities of many foreign
companies or foreign governments and their markets may be less liquid and their
prices more volatile than those of comparable United States companies or of the
United States government.
--------------------------------------------------------------------------------
NOTE G: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility")
intended to provide short-term financing if necessary, subject to certain
restrictions in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
the miscellaneous expenses in the statement of operations. The Fund did not
utilize the Facility during the six months ended June 30, 2000.
11
<PAGE>
QUASAR PORTFOLIO
FINANCIAL HIGHLIGHTS ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
SIX MONTHS AUGUST 5,
ENDED YEAR ENDED DECEMBER 31, 1996(A) TO
JUNE 30, 2000 ------------------------------------- DECEMBER 31,
(UNAUDITED) 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $13.00 $11.14 $12.61 $10.64 $10.00
------ ------ ------ ------ ------
Income From Investment Operations
Net investment income (loss) (b)(c) ...... (.02) .08 .07 .02 .04
Net realized and unrealized gain (loss)
on investment transactions ............. .94 1.82 (.49) 1.96 .60
------ ------ ------ ------ ------
Net increase (decrease) in net asset
value from operations .................. .92 1.90 (.42) 1.98 .64
------ ------ ------ ------ ------
Less: Dividends and Distributions
Dividends from net investment income ..... (.05) (.04) (.01) (.01) -0-
Distributions from net realized gains .... (.34) -0- (1.04) -0- -0-
------ ------ ------ ------ ------
Total dividends and distributions ........ (.39) (.04) (1.05) (.01) -0-
------ ------ ------ ------ ------
Net asset value, end of period ........... $13.53 $13.00 $11.14 $12.61 $10.64
====== ====== ====== ====== ======
Total Return
Total investment return based on
net asset value (d) .................... 7.32% 17.08% (4.49)% 18.60% 6.40%
Ratios/Supplemental Data
Net assets, end of period (000's omitted). $203,110 $169,611 $90,870 $59,277 $8,842
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements ....................... .95%(e) .95% .95% .95% .95%(e)
Expenses, before waivers and
reimbursements ....................... 1.14%(e) 1.19% 1.30% 1.37% 4.44%(e)
Net investment income (b) .............. (.38)%(e) .72% .55% .17% .93%(e)
Portfolio turnover rate .................. 104% 110% 107% 210% 40%
</TABLE>
--------------------------------------------------------------------------------
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Based on average shares outstanding.
(d) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return
calculated for a period of less than one year is not annualized.
(e) Annualized.
12
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
--------------------------------------------------------------------------------
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
DONALD J. ROBINSON (1)
OFFICERS
ANDREW ARAN, SENIOR VICE PRESIDENT
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
GREGORY DUBE, SENIOR VICE PRESIDENT
ALFRED L. HARRISON, SENIOR VICE PRESIDENT
NELSON JANTZEN, SENIOR VICE PRESIDENT
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
RAYMOND J. PAPERA, SENIOR VICE PRESIDENT
PETER ANASTOS, VICE PRESIDENT
BRUCE K. ARONOW, VICE PRESIDENT
EDWARD BAKER, VICE PRESIDENT
THOMAS J. BARDONG, VICE PRESIDENT
MATTHEW BLOOM, VICE PRESIDENT
MARK H. BREEDON, VICE PRESIDENT
RUSSELL BRODY, VICE PRESIDENT
NICHOLAS D.P. CARN, VICE PRESIDENT
PAUL J. DENOON, VICE PRESIDENT
JOSEPH C. DONA, VICE PRESIDENT
VICKI L. FULLER, VICE PRESIDENT
F. JEANNE GOETZ, VICE PRESIDENT
GERALD T. MALONE, VICE PRESIDENT
MICHAEL MON, VICE PRESIDENT
DOUGLAS J. PEEBLES, VICE PRESIDENT
DANIEL G. PINE, VICE PRESIDENT
PAUL C. RISSMAN, VICE PRESIDENT
TYLER J. SMITH, VICE PRESIDENT
JEAN VAN DE WALLE, VICE PRESIDENT
SANDRA YEAGER, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
THOMAS MANLEY, CONTROLLER
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
DISTRIBUTOR
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-free 1-(800) 221-5672
--------------------------------------------------------------------------------
(1) Member of the Audit Committee.
13
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<PAGE>
[front cover]
June 30, 2000
AMERICAN CENTURY(R)
VARIABLE PORTFOLIOS
Semiannual Report
[graphic of runners]
VP Income & Growth
[american century logo and text logo]
American
Century
<PAGE>
VARIABLE PORTFOLIOS
VP INCOME & GROWTH
-------------------------------------------------------------------------------
<PAGE>
OUR MESSAGE TO YOU
--------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
James E. Stowers III, seated, with James E. Stowers, Jr.
The first half of 2000 was an extraordinary period for the U.S. stock
market. Several major shifts in investor sentiment led to unprecedented levels
of volatility.
One factor was the strong U.S. economy, which sparked concerns about higher
inflation. The Federal Reserve raised short-term interest rates three times to
slow the economy, and evidence that the Fed's efforts were successful began to
emerge by the end of June.
Then there was the so-called "New Economy"--the burgeoning technology and
telecommunications industries. Investors began to question the high valuations
of many New Economy stocks, casting doubt on their profitability and long-term
potential for success.
As a result, the stock market grew increasingly volatile. For example, the
tech-heavy Nasdaq Composite Index lost more than 25% in a single week in early
April, then enjoyed one of its best months ever in June.
In this unusual and rapidly changing environment, VP Income & Growth's
performance reflected the overall decline among large-company stocks and the
continued weakness of value stocks in particular. Our investment professionals
review the period and the fund's performance in more detail beginning on page 3.
We're proud to announce that American Century's fund performance reports,
like this one, earned the Communications Seal from DALBAR, Inc., an independent
financial services research firm. They commended us for meeting investors' needs
with an attractive document that's easy to read and understand.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Vice Chairman of the Board and
Chief Executive Officer
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
VP INCOME & GROWTH
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Top Ten Holdings ....................................................... 6
Top Five Overweights and
Underweights ........................................................ 7
Schedule of Investments ................................................ 8
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 13
Statement of Operations ................................................ 14
Statements of Changes
in Net Assets ....................................................... 15
Notes to Financial
Statements .......................................................... 16
Financial Highlights ................................................... 18
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 19
Comparative Indices ................................................. 19
Investment Team
Leaders .......................................................... 19
Glossary ............................................................... 20
www.americancentury.com 1
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REPORT HIGHLIGHTS
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MARKET PERSPECTIVE
* U.S. stocks posted mixed returns in a volatile first half of 2000.
* Small- and mid-cap stocks performed well, while large-cap stocks fell
slightly.
* New Economy stocks (technology and telecommunications) soared early in the
year, plunged in April and May, and then rebounded in June.
* During the tech sell-off, investors shifted into undervalued sectors of the
market that had been languishing earlier in the year.
* Economic uncertainty and the speculative fervor surrounding New Economy
stocks caused greater day-to-day volatility.
MANAGEMENT Q&A
* VP Income & Growth produced a negative return in the first half of 2000 and
trailed its benchmark index, the S&P 500.
* The fund underperformed the S&P 500 because of weakness in large-cap value
stocks and poor stock selection in several industries.
* The fund's semiconductor and computer hardware stocks posted strong returns,
but stock selection within these industries hurt fund performance relative
to the S&P 500.
* VP Income & Growth benefited from stock selection among health care,
computer software, and defense/ aerospace companies.
* Telephone, home products, and retail stocks contributed negatively to fund
performance.
VP INCOME & GROWTH
TOTAL RETURNS: AS OF 6/30/00
6 Months -3.58%*
1 Year 3.68%
INCEPTION DATE: 10/30/97
NET ASSETS: $614.3 million
* Not annualized.
See Total Returns on page 4.
Investment terms are defined in the Glossary on pages 20-21.
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MARKET PERSPECTIVE FROM MARK MALLON
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[photo of Mark Mallon]
Mark Mallon, head of growth and income equity, specialty, and asset allocation
funds at American Century
OVERVIEW
Volatility was the watchword in the U.S. stock market during the first half
of 2000. Uncertainty about the economy, inflation, and interest rates--along
with the mood swings symptomatic of "dot-com fever"--led to wide fluctuations in
the major stock indexes.
Large-cap stocks posted slightly negative returns, while small- and mid-cap
stocks fared better (see the table at right).
RUNNING WITH THE PACK
After finishing 1999 at record highs, the major stock indexes stumbled out
of the gate in 2000. However, technology and telecommunications stocks--also
known as "New Economy" companies-- continued to soar, extending their phenomenal
1999 performance. Investors discarded "Old Economy" stocks and snapped up shares
of dot-coms and other tech-oriented firms.
This herd-like behavior pushed the Nasdaq Composite Index, which is
dominated by tech stocks, up by nearly 25% from the end of 1999 to its peak on
March 10, 2000. In contrast, the S&P 500 declined by 5%.
But the speculative fervor surrounding New Economy stocks contributed to
greater market volatility. Day-to-day swings of 2% or more in the major stock
indexes became increasingly common as investors scurried from dot-com to
dot-com, trying to latch on to the next Yahoo! or Amazon.
SHIFTING GEARS
By March, disillusionment brought a sudden change in market sentiment. A
series of interest rate increases by the Federal Reserve threatened to cool off
the hot U.S. economy, which grew at its fastest rate in almost 16 years in the
fourth quarter of 1999. In addition, concerns surfaced about sustainability and
profitability in the New Economy, especially among electronic-commerce and other
Internet-related companies.
As a result, many investors began to turn away from high-flying growth
stocks, seeking out opportunities in undervalued sectors of the market or
sitting on the sidelines entirely. Between mid-March and late May, the Nasdaq
fell 37%, including a record 25% plunge in the second week of April, while the
S&P 500 edged 1% lower.
After this deflation of the New Economy balloon, growth stocks staged a
solid comeback in June. However, the market remained volatile amid mixed signals
about the economy's strength and future Fed interest rate policy.
SMALL WONDERS
After being left behind in 1998 and 1999, small- and mid-cap stocks
attracted more attention during the first half of 2000, outperforming
large-company stocks. Aggressive investors were especially fond of mid-cap
stocks because they had the high growth potential of smaller companies and the
ease of trading associated with larger stocks.
"DAY-TO-DAY SWINGS OF 2% OR MORE IN THE MAJOR STOCK INDEXES BECAME INCREASINGLY
COMMON."
STOCK MARKET RETURNS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
S&P 500 -0.42%
S&P MIDCAP 400 9.06%
S&P SMALLCAP 600 6.93%
These indices represent the performance of large-, medium-, and
small-capitalization stocks.
[line graph - data below]
STOCK MARKET PERFORMANCE (GROWTH OF $1.00)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
S&P 500 S&P MidCap 400 S&P SmallCap 600
12/31/99 $1.00 $1.00 $1.00
1/31/00 $0.95 $0.97 $0.97
2/29/00 $0.93 $1.04 $1.10
3/31/00 $1.02 $1.13 $1.06
4/30/00 $0.99 $1.09 $1.04
5/31/00 $0.97 $1.07 $1.01
6/30/00 $1.00 $1.09 $1.07
Source: Lipper Inc.
www.americancentury.com 3
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VP INCOME & GROWTH--PERFORMANCE
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TOTAL RETURNS AS OF JUNE 30, 2000
VP INCOME & GROWTH S&P 500
================================================================================
6 MONTHS(1) ............................ -3.58% -0.42%
1 YEAR ................................. 3.68% 7.24%
================================================================================
AVERAGE ANNUAL RETURNS
================================================================================
LIFE OF FUND ........................... 18.05% 21.16%
The fund's inception date was 10/30/97.
(1) Returns for periods less than one year are not annualized.
See pages 19-20 for information about returns and the comparative index.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity or
variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the separate account prospectus
for a discussion of the charges related to the insurance contracts.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 6/30/00
S&P 500 $16,697
VP Income & Growth $15,563
VP Income & Growth S&P 500
DATE VALUE VALUE
10/30/97 $10,000 $10,000
11/30/97 $10,540 $10,590
12/31/97 $10,780 $10,772
1/31/98 $10,801 $10,892
2/28/98 $11,761 $11,677
3/31/98 $12,403 $12,275
4/30/98 $12,443 $12,399
5/31/98 $12,242 $12,186
6/30/98 $12,664 $12,680
7/31/98 $12,483 $12,545
8/31/98 $10,636 $10,733
9/30/98 $11,238 $11,418
10/31/98 $12,181 $12,347
11/30/98 $12,904 $13,097
12/31/98 $13,675 $13,851
1/31/99 $14,139 $14,430
2/28/99 $13,554 $13,981
3/31/99 $13,940 $14,541
4/30/99 $14,444 $15,103
5/31/99 $14,161 $14,747
6/30/99 $15,008 $15,567
7/31/99 $14,666 $15,080
8/31/99 $14,585 $15,006
9/30/99 $14,181 $14,595
10/31/99 $14,968 $15,518
11/30/99 $15,230 $15,837
12/31/99 $16,138 $16,766
1/31/00 $15,210 $15,925
2/29/00 $14,766 $15,624
3/31/00 $16,231 $17,152
4/30/00 $15,844 $16,635
5/31/00 $15,439 $16,294
6/30/00 $15,563 $16,697
$10,000 investment made 10/30/97
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The S&P
500 is provided for comparison in each graph. VP Income & Growth's total returns
include operating expenses (such as transaction costs and management fees) that
reduce returns, while the returns of the index do not. Past performance does not
guarantee future results. Investment return and principal value will fluctuate,
and redemption value may be more or less than original cost.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED JUNE 30)
VP Income & Growth S&P 500
DATE RETURN RETURN
6/30/98* 26.63% 26.79%
6/30/99 18.54% 22.75%
6/30/00 3.68% 7.24%
* From 10/30/97 (the fund's inception date) to 6/30/98.
4 1-800-345-6488
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VP INCOME & GROWTH--Q&A
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[photo of John Schniedwind] [photo of Kurt Borgwardt]
An interview with John Schniedwind and Kurt Borgwardt, portfolio managers
on the VP Income & Growth fund investment team.
HOW DID VP INCOME & GROWTH PERFORM DURING THE FIRST HALF OF 2000?
The fund's six-month return of -3.58% reflected the general weakness of
large-cap stocks. VP Income & Growth's performance benchmark, the S&P 500,
returned -0.42%. (See the previous page for other fund performance comparisons.)
WHY DID THE FUND UNDERPERFORM THE S&P 500?
Part of the reason was the outperformance of growth stocks over value
stocks in the large-cap market. We incorporate both growth and value measures
into our stock selection process, but with a slight tilt toward value. This
value bias hurt fund performance relative to the S&P 500--the S&P/BARRA Growth
Index returned 2.63% in the first half of 2000, while the S&P/BARRA Value Index
returned -4.07%.
But the main reason we underperformed the index was stock selection. Our
industry-neutral approach puts a heavy emphasis on the stock picking of our
quantitative models, and unfortunately this worked against us during the
six-month period.
CAN YOU TALK A LITTLE MORE ABOUT YOUR INDUSTRY-NEUTRAL APPROACH AND STOCK
SELECTION PROCESS?
"Industry neutral" means the fund's industry weightings typically match or
come close to the industry weightings of the S&P 500. In other words, we're not
making significant bets on technology, financials, or any other sector of the
market.
This approach increases the importance of our stock selection. We try to
outperform the index by investing in the best-performing companies within each
industry. We use a quantitative analytical model--basically a sophisticated
computer program--that evaluates stocks and ranks them based on their growth
prospects and their relative value.
Ultimately, we try to own as many high-ranking stocks as we can, within
limitations. These limitations include our industry-neutral positioning, as well
as some controls that keep the fund's risk profile close to that of the S&P 500.
WERE THERE ANY SPECIFIC AREAS WHERE YOUR STOCK SELECTION WAS PROBLEMATIC?
Some of the areas where our stock selection struggled the most were
actually ones that contributed positively to the fund's overall return.
Semiconductor stocks are a good example. As a group, the fund's
semiconductor holdings returned about 50% in the first half of this year--the
best industry return in the portfolio. This performance was driven by strong
demand for personal computers, cellular phones, and other electronic devices
requiring computer chips. The stock prices of several fund holdings, including
Integrated Device Technology and Micron, more than doubled.
"THE FUND'S SIX-MONTH RETURN REFLECTED THE GENERAL WEAKNESS OF LARGE-CAP
STOCKS."
PORTFOLIO AT A GLANCE
6/30/00 12/31/99
------- --------
NO. OF COMPANIES 284 279
MEDIAN P/E RATIO 27.4 23.5
PORTFOLIO TURNOVER 29%(1) 50%(2)
(1) Six months ended 6/30/00.
(2) Year ended 12/31/99.
Investment terms are defined in the Glossary on pages 20-21.
www.americancentury.com 5
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VP INCOME & GROWTH--Q&A
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(Continued)
However, the semiconductor stocks in the S&P 500 returned almost 60% as a
group. VP Income & Growth's underweights in the two largest semiconductor
companies, Intel (up 62% during the period) and Texas Instruments (up 42%), hurt
fund performance relative to the index. Our models downgraded these two stocks
because of their extremely high prices.
HOW DID THE FUND FARE IN THE REST OF THE TECHNOLOGY SECTOR?
Electrical equipment stocks produced solid returns, especially in the first
quarter. Our best performers included Scientific-Atlanta (up 166%), which was a
fund overweight for most of the period, and Corning (up 110%).
Scientific-Atlanta makes set-top boxes that connect digital cable and the
Internet to a TV or computer, while Corning manufactures glass components for
fiber-optic telecommunications networks.
Computer hardware stocks also performed well thanks to increased PC demand,
but our stock selection hurt us in this area. Although we made some good
decisions among the larger computer makers--overweights in Hewlett-Packard (up
38%) and Apple (up 2%), underweights in Gateway (down 21%) and Dell Computer
(down 3%)--these were overshadowed by heavy weightings in Adaptec (down 54%) and
Electronics For Imaging (down 56%).
The opposite occurred in the fund's computer software holdings--overall
performance was weak, but our stock selection was favorable. We were overweight
Adobe (up 93%), which produces the leading desktop-publishing and photography
software, and we were underweight BMC Software (down 54%) and Parametric
Technology (down 59%), both of which reported disappointing earnings.
The anti-trust trial and proposed break-up of the biggest software company
of all, Microsoft (down 31%), weighed heavily on its stock price and the fund's
performance. We shifted to an underweight position in Microsoft relative to the
S&P 500, but it remained one of the fund's largest holdings.
WHAT OTHER SECTORS OF THE MARKET HAD THE BIGGEST IMPACT ON FUND PERFORMANCE?
On the positive side, health care was VP Income & Growth's best sector,
especially in the second quarter. This included our holdings among drug, medical
products, and medical services stocks.
Evidence of a slower U.S. economy boosted demand for drug stocks, which
tend to produce steady profit growth regardless of economic conditions. The
large drug stocks were also considered a safety play for investors as they
rotated out of technology stocks in the second quarter.
Among pharmaceutical firms, the fund benefited from an overweight in Pfizer
(up 50%). The company completed the acquisition of one of its biggest
competitors, Warner-Lambert, creating the world's largest pharmaceuticals
company.
Our stock selection among defense and aerospace stocks was significantly
positive. The fund was overweight in Northrop Grumman (up 25%), which sold many
of its low-profit businesses and saw increased orders for its airplanes. In
addition, we were underweight in Honeywell (down 41%) and Raytheon (down 27%).
[left margin]
"WE SHIFTED TO AN UNDERWEIGHT POSITION IN MICROSOFT RELATIVE TO THE S&P 500, BUT
IT REMAINED ONE OF THE FUND'S LARGEST HOLDINGS."
TOP TEN HOLDINGS
% OF FUND INVESTMENTS
AS OF AS OF
6/30/00 12/31/99
GENERAL ELECTRIC CO.
(U.S.) 4.2% 3.2%
CISCO SYSTEMS INC. 3.3% 2.5%
PFIZER, INC. 3.2% 1.3%
INTEL CORP. 3.0% 1.3%
MICROSOFT CORP. 2.9% 4.8%
CITIGROUP INC. 2.4% 1.5%
ORACLE CORP. 1.9% 1.0%
JOHNSON & JOHNSON 1.7% 1.1%
MERCK & CO., INC. 1.7% 1.1%
EXXON MOBIL CORP. 1.6% 1.3%
6 1-800-345-6488
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VP INCOME & GROWTH--Q&A
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(Continued)
WHAT ABOUT HOLDINGS THAT DETRACTED FROM FUND PERFORMANCE?
Telephone stocks declined across the board. They went through a sizable
correction after a huge run-up in 1999. The good news is that we were
underweight in two of the worst performers, AT&T (down 37%) and Global Crossing
(down 47%).
In addition, home products companies contributed negatively to fund
performance. The biggest damage was done by Procter & Gamble (down 47%), which
posted disappointing earnings in two consecutive quarters.
Retailers, from department stores to home improvement warehouses, were also
weak performers. Clothing stores like Abercrombie & Fitch (down 54%) and
American Eagle Outfitters (down 69%) were trounced because of concerns about
declining popularity and market share among teenagers. Fortunately, these stocks
were a fairly small part of the portfolio.
LOOKING AHEAD, WHAT DO YOU SEE IN STORE FOR THE U.S. STOCK MARKET FOR THE REST
OF THE YEAR?
The performance of the stock market during the second half of 2000 will
hinge on how successful the Federal Reserve is in achieving a "soft landing" --
slowing the economy to a moderate, sustainable growth rate while keeping a lid
on inflation.
So far, the economy has remained healthy, but we're finally starting to see
some evidence that the Fed's six interest rate increases in the past year are
slowing things down.
If the Fed pulls this off successfully, as it did in 1995, it would be
positive for the stock market. If the Fed is unsuccessful--either by failing to
stay ahead of the inflation curve or tightening the screws too hard, causing a
recession--stocks could weaken along with corporate earnings.
We're not likely to see greater market volatility than in the first half of
the year--that would be hard to imagine--but we don't think it will go away any
time soon, either.
WHAT ARE YOUR PLANS FOR VP INCOME & GROWTH IN THE COMING MONTHS?
We'll keep following the same disciplined, quantitative approach, seeking
out what our models indicate are the best companies in each industry of the
market.
Although the fund mainly focuses on large-company stocks, our models pick
from a universe of more than 1,500 companies, so we typically hold a number of
smaller-cap stocks. In general, small-cap stocks performed better than
large-caps in the first half of the year, and we still like the prospects for
small-caps going forward.
"THE PERFORMANCE OF THE STOCK MARKET DURING THE SECOND HALF OF 2000 WILL HINGE
ON HOW SUCCESSFUL THE FEDERAL RESERVE IS IN ACHIEVING A 'SOFT LANDING.'"
5 LARGEST OVERWEIGHTS
COMPARED WITH THE S&P 500 (AS OF 6/30/00)
% OF % OF
FUND'S S&P
STOCKS 500
SEARS, ROEBUCK & CO. 1.08% 0.09%
OCCIDENTAL PETROLEUM
CORP. 1.04% 0.06%
KERR-MCGEE CORP. 1.01% 0.04%
FLEET BOSTON FINANCIAL
CORP. 1.11% 0.25%
CITIGROUP INC. 2.44% 1.63%
5 LARGEST UNDERWEIGHTS
COMPARED WITH THE S&P 500 (AS OF 6/30/00)
% OF % OF
FUND'S S&P
STOCKS 500
LUCENT TECHNOLOGIES
INC. 0.12% 1.54%
AMERICAN
INTERNATIONAL GROUP,
INC. 0.31% 1.45%
COCA-COLA CO. 0.05% 1.14%
WAL-MART STORES, INC. 1.28% 2.06%
AMERICAN HOME
PRODUCTS CORP. 0% 0.61%
www.americancentury.com 7
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VP INCOME & GROWTH--SCHEDULE OF INVESTMENTS
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JUNE 30, 2000 (UNAUDITED)
Shares Value
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COMMON STOCKS -- 98.1%
AIRLINES -- 0.1%
5,400 AMR Corp.(1) $ 142,762
5,800 Delta Air Lines Inc. 293,262
------------
436,024
------------
ALCOHOL -- 0.4%
29,700 Anheuser-Busch Companies, Inc. 2,218,219
------------
APPAREL & TEXTILES -- 0.1%
18,800 Liz Claiborne, Inc. 662,700
8,400 Reebok International Ltd.(1) 133,875
------------
796,575
------------
BANKS -- 6.1%
174,000 Bank of America Corp. 7,482,000
104,750 Chase Manhattan Corp. 4,825,047
248,700 Citigroup Inc. 14,984,175
3,600 City National Corp. 127,800
21,700 First Union Corp. 538,431
199,700 Fleet Boston Financial Corp. 6,789,800
19,400 PNC Bank Corp. 909,375
23,000 Silicon Valley Bancshares(1) 981,094
54,100 UnionBanCal Corp. 1,004,231
------------
37,641,953
------------
CHEMICALS -- 1.7%
142,500 Dow Chemical Co. 4,301,719
8,700 du Pont (E.I.) de Nemours & Co. 380,625
31,500 Engelhard Corp. 537,469
45,600 Minnesota Mining & Manufacturing Co. 3,762,000
57,200 Sherwin-Williams Co. 1,211,925
------------
10,193,738
------------
CLOTHING STORES -- 0.5%
106,800 Limited, Inc. (The) 2,309,550
11,800 Talbots, Inc. 648,262
------------
2,957,812
------------
COMPUTER HARDWARE &
BUSINESS MACHINES -- 5.3%
20,500 Adaptec, Inc.(1) 467,016
11,400 Advanced Digital Information Corp.(1) 181,331
69,000 Apple Computer, Inc.(1) 3,611,719
3,500 Compaq Computer Corp. 89,469
104,900 Dell Computer Corp.(1) 5,176,159
19,600 Diebold, Inc. 546,350
10,000 Electronics for Imaging, Inc.(1) 252,500
60,900 EMC Corp. (Mass.)(1) 4,685,494
4,400 Gateway Inc.(1) 249,700
54,100 Hewlett-Packard Co. 6,755,738
13,500 Network Appliances, Inc.(1) 1,086,328
24,200 Pitney Bowes Inc. 968,000
5,800 Seagate Technology, Inc.(1) 319,000
Shares Value
--------------------------------------------------------------------------------
84,400 Sun Microsystems, Inc.(1) $ 7,677,762
7,500 Xerox Corp. 155,625
------------
32,222,191
------------
COMPUTER SOFTWARE -- 6.9%
7,400 Adobe Systems Inc. 961,306
2,700 BEA Systems, Inc.(1) 133,397
36,400 Computer Associates International, Inc. 1,863,225
68,000 International Business Machines Corp. 7,450,250
219,100 Microsoft Corp.(1) 17,521,153
137,700 Oracle Corp.(1) 11,571,103
4,900 Siebel Systems, Inc.(1) 801,609
19,200 Sybase, Inc.(1) 442,200
13,300 Veritas Software Corp.(1) 1,502,484
------------
42,246,727
------------
CONSTRUCTION & REAL PROPERTY -- 0.1%
3,100 Centex Corp. 72,850
3,200 Mastec, Inc.(1) 122,200
14,000 USG Corp. 425,250
------------
620,300
------------
CONSUMER DURABLES -- 0.3%
35,100 Whirlpool Corp. 1,636,538
------------
DEFENSE/AEROSPACE -- 1.3%
82,800 Boeing Co. 3,462,075
72,900 Northrop Grumman Corp. 4,829,625
------------
8,291,700
------------
DEPARTMENT STORES -- 2.9%
93,400 Federated Department Stores, Inc.(1) 3,152,250
204,100 Sears, Roebuck & Co. 6,658,762
136,700 Wal-Mart Stores, Inc. 7,877,338
------------
17,688,350
------------
DRUGS -- 7.9%
9,400 Allergan, Inc. 700,300
2,500 Andrx Corp.(1) 159,766
102,700 Bristol-Myers Squibb Co. 5,982,275
6,100 Cardinal Health, Inc. 451,400
7,100 Elan Corp., plc ADR(1) 343,906
19,900 Jones Pharma Inc. 794,134
37,100 Lilly (Eli) & Co. 3,705,362
135,400 Merck & Co., Inc. 10,375,025
408,300 Pfizer, Inc. 19,598,400
121,300 Schering-Plough Corp. 6,125,650
------------
48,236,218
------------
ELECTRICAL EQUIPMENT -- 7.5%
40,500 AVX Corp. 928,969
8,200 Cabletron Systems, Inc.(1) 207,050
322,000 Cisco Systems Inc.(1) 20,457,061
11,600 Corning Inc. 3,130,550
24,900 Credence Systems Corp.(1) 1,373,391
8 1-800-345-6488 See Notes to Financial Statements
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VP INCOME & GROWTH--SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
JUNE 30, 2000 (UNAUDITED)
Shares Value
--------------------------------------------------------------------------------
29,200 Eaton Corp. $ 1,956,400
55,400 KEMET Corp.(1) 1,388,462
28,200 KLA-Tencor Corp.(1) 1,652,344
13,400 LTX Corp.(1) 468,581
12,100 Lucent Technologies Inc. 716,925
76,000 Motorola, Inc. 2,208,750
5,600 Nokia Corp. Cl A ADR 279,650
116,800 Nortel Networks Corp. 7,971,600
21,900 Scientific-Atlanta, Inc. 1,631,550
28,900 Sensormatic Electronics Corp.(1) 456,981
1,300 Technitrol, Inc. 125,938
30,400 Vishay Intertechnology, Inc.(1) 1,153,300
------------
46,107,502
------------
ELECTRICAL UTILITIES -- 2.6%
20,800 Ameren Corp. 702,000
9,600 Calpine Corp.(1) 631,200
2,125 Conectiv, Inc. Cl A 51,797
3,000 Consolidated Edison, Inc. 88,875
9,200 Constellation Energy Group 299,575
26,800 Duke Energy Corp. 1,510,850
17,900 Edison International 366,950
32,800 GPU Inc. 887,650
48,700 Minnesota Power & Light Co. 843,119
82,500 PG&E Corp. 2,031,562
6,200 PP&L Resources, Inc. 136,012
69,700 Public Service Enterprise Group
Inc. 2,413,362
118,900 Reliant Energy, Inc. 3,514,981
23,868 Sempra Energy 405,756
30,700 Texas Utilities Co. 905,650
29,400 Unicom Corp. 1,137,412
------------
15,926,751
------------
ENERGY RESERVES & PRODUCTION -- 5.7%
8,900 Amerada Hess Corp. 549,575
77,600 Chevron Corp. 6,581,450
126,200 Exxon Mobil Corp. 9,906,700
105,500 Kerr-McGee Corp. 6,217,906
303,900 Occidental Petroleum Corp. 6,400,894
17,500 Phillips Petroleum Co. 887,031
72,200 Royal Dutch Petroleum Co.
New York Shares 4,444,812
------------
34,988,368
------------
ENTERTAINMENT -- 0.3%
12,500 Pixar, Inc.(1) 441,016
25,000 Viacom, Inc. Cl B(1) 1,704,688
------------
2,145,704
------------
EQUITY REAL ESTATE
INVESTMENT TRUST -- 0.2%
33,700 CarrAmerica Realty Corp. 893,050
5,500 Spieker Properties, Inc. 259,875
------------
1,152,925
------------
Shares Value
--------------------------------------------------------------------------------
FINANCIAL SERVICES -- 6.6%
8,100 AmeriCredit Corp.(1) $ 137,700
13,500 Block (H & R), Inc. 437,062
93,700 Fannie Mae 4,889,969
17,200 Gallagher (Arthur J.) & Co. 722,400
480,200 General Electric Co. (U.S.) 25,450,600
7,500 Marsh & McLennan Companies, Inc. 783,281
12,200 MBNA Corp. 330,925
44,250 Metris Companies Inc. 1,111,781
10,100 Providian Financial Corp. 909,000
37,300 Standard and Poor's 500
Depositary Receipt 5,418,991
------------
40,191,709
------------
FOOD & BEVERAGE -- 2.9%
10,300 Archer-Daniels-Midland Co. 101,069
2,100 Bestfoods 145,425
5,200 Coca-Cola Company (The) 298,675
179,600 ConAgra, Inc. 3,423,625
3,100 Heinz (H.J.) Co. 135,625
17,200 Hormel Foods Corp. 289,175
46,500 IBP, Inc. 717,844
13,100 Keebler Foods Co. 486,338
35,000 Kellogg Co. 1,041,250
69,000 PepsiCo, Inc. 3,066,188
62,800 Quaker Oats Co. (The) 4,717,850
146,100 Supervalu Inc. 2,785,031
6,400 SYSCO Corp. 269,600
8,567 Unilever N.V. New York Shares 368,381
------------
17,846,076
------------
FOREST PRODUCTS & PAPER -- 0.7%
34,609 International Paper Co. 1,031,781
24,300 Temple-Inland Inc. 1,020,600
38,900 Westvaco Corp. 965,206
27,500 Weyerhaeuser Co. 1,182,500
------------
4,200,087
------------
GAS & WATER UTILITIES -- 0.1%
14,400 Keyspan Energy Corp. 442,800
------------
GOLD -- 0.1%
24,500 Barrick Gold Corp. 445,594
28,300 Placer Dome Inc. 270,619
------------
716,213
------------
GROCERY STORES -- 0.2%
19,100 Great Atlantic & Pacific Tea Co.,
Inc. (The) 317,538
20,800 Safeway Inc.(1) 938,600
------------
1,256,138
------------
HEAVY ELECTRICAL EQUIPMENT -- 1.0%
13,200 Cooper Industries, Inc. 429,825
59,600 Cummins Engine Company, Inc. 1,624,100
See Notes to Financial Statements www.americancentury.com 9
<PAGE>
VP INCOME & GROWTH--SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
JUNE 30, 2000 (UNAUDITED)
Shares Value
--------------------------------------------------------------------------------
86,200 Dover Corp. $ 3,496,488
17,100 Rockwell International Corp. 538,650
------------
6,089,063
------------
HOME PRODUCTS -- 1.6%
4,700 Alberto-Culver Company Cl B 143,644
11,700 Avon Products, Inc. 520,650
14,400 Church & Dwight Co., Inc. 259,200
33,300 Colgate-Palmolive Co. 1,993,838
9,400 Fortune Brands, Inc. 216,788
12,800 International Flavors & Fragrances Inc. 386,400
40,900 National Service Industries, Inc. 797,550
54,700 Procter & Gamble Co. (The) 3,131,575
26,400 Ralston Purina Co. 526,350
70,800 Tupperware Corp. 1,557,600
------------
9,533,595
------------
HOTELS(2)
4,400 Anchor Gaming(1) 211,062
------------
INDUSTRIAL PARTS -- 0.6%
18,800 Briggs & Stratton Corp. 643,900
6,600 Caterpillar Inc. 223,575
19,900 Illinois Tool Works Inc. 1,134,300
17,600 ITT Industries, Inc. 534,600
46,400 Pall Corp. 858,400
20,300 Stanley Works (The) 482,125
------------
3,876,900
------------
INDUSTRIAL SERVICES -- 0.4%
37,200 Hertz Corp. Cl A 1,043,925
9,600 Manpower Inc. 307,200
48,100 Viad Corp 1,310,725
------------
2,661,850
------------
INFORMATION SERVICES -- 1.1%
6,400 Automatic Data Processing, Inc. 342,800
3,400 Diamond Technology Partners Inc.(1) 299,094
3,500 Dun & Bradstreet Corp. (The) 100,188
52,400 Electronic Data Systems Corp. 2,161,500
10,000 Galileo International, Inc. 208,750
56,100 MarchFirst, Inc.(1) 1,025,578
6,400 Omnicom Group Inc. 570,000
2,600 Proxicom, Inc.(1) 124,394
9,400 TMP Worldwide Inc.(1) 693,544
27,600 True North Communications Inc. 1,214,400
------------
6,740,248
------------
INTERNET -- 1.5%
110,700 America Online Inc.(1) 5,839,425
2,600 InfoSpace, Inc.(1) 143,731
24,500 Yahoo! Inc.(1) 3,035,703
------------
9,018,859
------------
Shares Value
--------------------------------------------------------------------------------
LEISURE -- 0.4%
46,800 Brunswick Corp. $ 775,125
25,700 Eastman Kodak Co. 1,529,150
------------
2,304,275
------------
LIFE & HEALTH INSURANCE -- 1.5%
2,100 American General Corp. 128,100
51,100 CIGNA Corp. 4,777,850
100,400 Lincoln National Corp. 3,626,950
31,900 MetLife, Inc.(1) 671,894
4,200 Torchmark Corp. 103,688
------------
9,308,482
------------
MEDIA -- 2.6%
71,400 Comcast Corp. Cl A(1) 2,893,931
175,400 Disney (Walt) Co. 6,807,712
22,800 Gannett Co., Inc. 1,363,725
7,800 Hispanic Broadcasting Corp.(1) 258,375
22,100 MediaOne Group Inc.(1) 1,465,534
19,900 Time Warner Inc. 1,512,400
50,300 Tribune Co. 1,760,500
------------
16,062,177
------------
MEDICAL PRODUCTS & SUPPLIES -- 2.9%
22,100 Bard (C.R.), Inc. 1,063,562
27,200 Bausch & Lomb Inc. Cl A 2,104,600
20,400 Baxter International, Inc. 1,434,375
3,200 Beckman Coulter Inc. 186,800
8,000 Cytyc Corp.(1) 426,750
103,000 Johnson & Johnson 10,493,125
53,900 Mallinckrodt Inc. 2,341,281
------------
18,050,493
------------
MEDICAL PROVIDERS & SERVICES -- 0.6%
38,600 Oxford Health Plans, Inc.(1) 919,162
4,200 PacifiCare Health Systems, Inc.(1) 252,656
28,100 United HealthCare Corp. 2,409,575
------------
3,581,393
------------
MINING & METALS -- 0.4%
14,500 Alcan Aluminium Ltd. 449,500
4,000 Alcoa Inc. 116,000
19,400 Ball Corp. 624,438
19,000 Nucor Corp. 630,562
4,400 USX-U.S. Steel Group 81,675
33,400 Worthington Industries, Inc. 350,700
------------
2,252,875
------------
MOTOR VEHICLES & PARTS -- 1.3%
104,500 Ford Motor Co. 4,493,500
39,600 General Motors Corp. 2,299,275
6,600 Johnson Controls, Inc. 338,662
14,600 PACCAR Inc. 579,438
13,682 Visteon Corp.(1) 165,894
------------
7,876,769
------------
10 1-800-345-6488 See Notes to Financial Statements
<PAGE>
VP INCOME & GROWTH--SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
JUNE 30, 2000 (UNAUDITED)
Shares Value
--------------------------------------------------------------------------------
MULTI-INDUSTRY -- 0.4%
46,900 Tyco International Ltd. $ 2,221,888
------------
OIL REFINING -- 0.6%
7,700 Texaco Inc. 410,025
131,100 Ultramar Diamond Shamrock Corp. 3,252,919
------------
3,662,944
------------
OIL SERVICES -- 0.5%
18,500 BJ Services Co.(1) 1,156,250
9,500 Ensco International Inc. 340,219
11,600 Noble Drilling Corp.(1) 477,775
32,400 Tidewater Inc. 1,166,400
------------
3,140,644
------------
PROPERTY & CASUALTY INSURANCE -- 1.3%
22,800 Ambac Financial Group, Inc. 1,249,725
16,200 American International Group, Inc. 1,903,500
2,600 Hartford Financial Services Group
Inc. (The) 145,438
27,700 MGIC Investment Corp. 1,260,350
37,500 PMI Group, Inc. (The) 1,781,250
34,400 Radian Group Inc. 1,780,200
------------
8,120,463
------------
PUBLISHING -- 0.3%
55,600 Deluxe Corp. 1,310,075
11,100 Knight-Ridder, Inc. 590,381
------------
1,900,456
------------
RAILROADS -- 0.1%
19,400 Burlington Northern Santa Fe Corp. 444,988
9,500 Union Pacific Corp. 353,281
------------
798,269
------------
RESTAURANTS -- 0.3%
13,100 Brinker International, Inc.(1) 383,175
60,100 Darden Restaurants, Inc. 976,625
26,800 Tricon Global Restaurants Inc.(1) 757,100
------------
2,116,900
------------
SECURITIES & ASSET MANAGEMENT -- 1.8%
5,400 AXA Financial, Inc. 183,600
26,700 Lehman Brothers Holdings Inc. 2,524,819
12,800 Merrill Lynch & Co., Inc. 1,472,000
84,200 Morgan Stanley Dean Witter & Co. 7,009,650
------------
11,190,069
------------
SEMICONDUCTOR -- 6.5%
4,444 Advanced Energy Industries, Inc.(1) 261,918
11,500 Advanced Micro Devices, Inc.(1) 888,375
15,070 Agilent Technologies, Inc.(1) 1,111,412
15,800 Analog Devices, Inc.(1) 1,200,800
45,600 Applied Materials, Inc.(1) 4,133,925
17,000 Asyst Technologies, Inc.(1) 579,062
15,400 Conexant Systems, Inc.(1) 750,269
12,000 Cypress Semiconductor Corp.(1) 507,000
Shares Value
--------------------------------------------------------------------------------
33,800 Integrated Device Technology, Inc.(1) $ 2,028,000
139,500 Intel Corp. 18,645,047
6,000 International Rectifier Corp.(1) 336,000
26,600 Kulicke & Soffa Industries, Inc.(1) 1,575,219
28,700 Lam Research Corp.(1) 1,077,147
11,800 National Semiconductor Corp.(1) 669,650
8,600 PerkinElmer, Inc. 568,675
5,700 SanDisk Corp.(1) 348,947
20,400 Teradyne, Inc.(1) 1,499,400
54,400 Texas Instruments Inc. 3,736,600
1,500 Varian Semiconductor Equipment
Associates, Inc.(1) 94,266
------------
40,011,712
------------
SPECIALTY STORES -- 1.7%
12,300 Best Buy Co., Inc.(1) 777,975
28,500 Circuit City Stores-Circuit City Group 945,844
92,000 Home Depot, Inc. 4,594,250
1,800 Insight Enterprises, Inc.(1) 106,819
18,600 Lowe's Companies, Inc. 763,762
12,900 Michaels Stores, Inc.(1) 591,384
7,700 RadioShack Corp. 364,788
15,000 Tiffany & Co. 1,012,500
34,600 Zale Corp.(1) 1,262,900
------------
10,420,222
------------
TELEPHONE -- 6.2%
104,300 AT&T Corp. 3,298,488
105,800 Bell Atlantic Corp. 5,375,963
167,200 BellSouth Corp. 7,126,900
7,700 Dycom Industries, Inc.(1) 354,200
56,200 GTE Corp. 3,498,450
166,900 SBC Communications Inc. 7,218,425
71,900 Sprint Corp. 3,666,900
23,700 U S WEST, Inc. 2,032,275
121,000 WorldCom, Inc.(1) 5,554,656
------------
38,126,257
------------
THRIFTS -- 0.2%
50,700 GreenPoint Financial Corp. 950,625
------------
TOBACCO -- 0.5%
102,000 Philip Morris Companies Inc. 2,709,375
48,600 UST Inc. 713,812
------------
3,423,187
------------
TRUCKING, SHIPPING & AIR FREIGHT -- 0.1%
8,200 FDX Corp.(1) 311,600
3,300 United Parcel Service, Inc. Cl B 194,700
------------
506,300
------------
WIRELESS TELECOMMUNICATIONS -- 1.2%
13,300 ALLTEL Corp. 823,769
42,400 Nextel Communications, Inc.(1) 2,593,025
35,300 QUALCOMM Inc.(1) 2,116,897
See Notes to Financial Statements www.americancentury.com 11
<PAGE>
VP INCOME & GROWTH--SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
JUNE 30, 2000 (UNAUDITED)
Shares Value
--------------------------------------------------------------------------------
24,700 Sprint PCS(1) $ 1,469,650
3,700 Telephone & Data Systems, Inc. 370,925
------------
7,374,266
------------
TOTAL COMMON STOCKS 601,692,861
------------
(Cost $545,765,855)
EQUITY-LINKED DEBT SECURITIES -- 0.1%
SECURITIES & ASSET MANAGEMENT
6,793 Morgan Stanley Group, 8.00%,
4/30/02, EMC Corp. (Mass.),
PERQS 173,222
29,800 Morgan Stanley Group, 6.00%,
5/30/02 Home Depot, Inc.,
PERQS 379,950
------------
TOTAL EQUITY-LINKED DEBT SECURITIES 553,172
------------
(Cost $575,830)
TEMPORARY CASH INVESTMENTS -- 1.8%*
Repurchase Agreement, Morgan Stanley Group,
Inc., (U.S. Treasury obligations), in a joint
trading account at 6.40%, dated 6/30/00,
due 7/3/00 (Delivery value $10,805,760) 10,800,000
------------
(Cost $10,800,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $613,046,033
============
(Cost $557,141,685)
FUTURES CONTRACTS
Expiration Underlying Face Unrealized
Purchased Date Amount at Value Loss
--------------------------------------------------------------------------------
20 S&P 500 September
Futures 2000 $7,357,500 $(41,725)
==========================================
NOTES TO SCHEDULE OF INVESTMENTS
ADR = American Depositary Receipt
PERQS = Performance Equity-Linked Redemption Quarterly-Pay Securities
(1) Non-income producing.
(2) Industry is less than 0.05% of total investment securities.
* FUTURES CONTRACTS typically are based on a stock index, such as the S&P 500,
and tend to track the performance of the index while remaining very liquid
(easy to buy and sell). By investing its cash assets in index futures, the
fund can have full exposure to stocks and have easy access to the money.
Temporary cash investments, less the required reserves for futures contracts,
are 0.6%.
12 1-800-345-6488 See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
JUNE 30, 2000 (UNAUDITED)
ASSETS
Investment securities, at value
(identified cost of $557,141,685)
(Note 3) ............................................... $ 613,046,033
Cash ..................................................... 915,418
Receivable for investments sold .......................... 574,747
Receivable for variation margin
on futures contracts ................................... 66,710
Dividends and interest receivable ........................ 629,325
-------------
615,232,233
-------------
LIABILITIES
Payable for investments purchased ........................ 629,195
Accrued management fees (Note 2) ......................... 350,706
Payable for directors' fees and expenses ................. 248
-------------
980,149
-------------
Net Assets ............................................... $ 614,252,084
=============
CAPITAL SHARES, $0.01 PAR VALUE
Authorized ............................................... 200,000,000
=============
Outstanding .............................................. 80,060,209
=============
Net Asset Value Per Share ................................ $ 7.67
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) .................. $ 572,329,934
Undistributed net investment income ...................... 2,520,967
Accumulated net realized loss
on investment transactions ............................. (16,461,440)
Net unrealized appreciation
on investments (Note 3) ................................ 55,862,623
-------------
$ 614,252,084
=============
See Notes to Financial Statements www.americancentury.com 13
<PAGE>
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes
withheld of $10,564) ................................. $ 3,698,761
Interest ............................................... 693,016
------------
4,391,777
------------
Expenses (Note 2):
Management fees ........................................ 1,859,001
Directors' fees and expenses ........................... 1,692
------------
1,860,693
------------
Net investment income .................................. 2,531,084
------------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (NOTE 3)
Net realized loss on investments ....................... (6,447,805)
Change in net unrealized
appreciation on investments .......................... (12,609,025)
------------
Net realized and unrealized
loss on investments .................................. (19,056,830)
------------
Net Decrease in Net Assets
Resulting from Operations ............................ $(16,525,746)
============
14 1-800-345-6488 See Notes to Financial Statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
This statement shows how the fund's net assets changed over the past two
reporting periods. It details how much a fund grew or shrank as a result of
operations (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 1999
Increase in Net Assets 2000 1999
---- ----
OPERATIONS
Net investment income ...................... $ 2,531,084 $ 2,869,694
Net realized loss on investments ........... (6,447,805) (8,621,094)
Change in net unrealized
appreciation on investments .............. (12,609,025) 57,270,882
------------- -------------
Net increase (decrease) in net assets
resulting from operations ................ (16,525,746) 51,519,482
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................. (2,863,132) (33,729)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................. 722,255,995 351,738,457
Proceeds from reinvestment
of distributions ......................... 2,863,132 33,729
Payments for shares redeemed ............... (550,588,607) (53,773,369)
------------- -------------
Net increase in net assets from
capital share transactions ............... 174,530,520 297,998,817
------------- -------------
Net increase in net assets ................. 155,141,642 349,484,570
NET ASSETS
Beginning of period ........................ 459,110,442 109,625,872
------------- -------------
End of period .............................. $ 614,252,084 $ 459,110,442
============= =============
Undistributed net investment income ........ $ 2,520,967 $ 2,856,827
============= =============
TRANSACTIONS IN SHARES OF THE FUNDS
Sold ....................................... 93,924,031 48,627,922
Issued in reinvestment of distributions .... 384,313 4,853
Redeemed ................................... (71,648,766) (7,390,601)
------------- -------------
Net increase ............................... 22,659,578 41,242,174
============= =============
See Notes to Financial Statements www.americancentury.com 15
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Income & Growth Fund (the fund) is
one of the six series of funds issued by the corporation. The fund is
diversified under the 1940 Act. The fund's investment objective is dividend
growth, current income and capital appreciation through investment in common
stocks. The following significant accounting policies are in accordance with
generally accepted accounting principles; these policies may require the use of
estimates by fund management.
SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities exchange are valued at the last reported sales price, or at the mean
of the latest bid and asked prices where no last sales price is available.
Securities traded over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price, depending on local convention or regulation. Debt securities not
traded on a principal securities exchange are valued through a commercial
pricing service or at the mean of the most recent bid and asked prices. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Directors.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into stock index futures contracts
in order to manage the fund's exposure to changes in market conditions. One of
the risks of entering into futures contracts is the possibility that the changes
in value of the contract may not correlate with the changes in value of the
underlying securities. Upon entering into a futures contract, the fund is
required to deposit either cash or securities in an amount equal to a certain
percentage of the contract value (initial margin). Subsequent payments
(variation margin) are made or received daily, in cash, by the fund. The
variation margin is equal to the daily change in the contract value and is
recorded as an unrealized gain or loss. The fund recognizes a realized gain or
loss when the contract is closed or expires. Net realized and unrealized gains
or losses occurring during the holding period of futures contracts are a
component of realized gain (loss) on investments and unrealized appreciation
(depreciation) on investments, respectively.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that the fund's investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities, received
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the fund to obtain those securities in the event of a
default under the repurchase agreement. ACIM monitors, on a daily basis, the
securities transferred to ensure the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury or Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded
on the ex-dividend date. Distributions from net investment income and net
realized gains are expected to be declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
At December 31, 1999, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $5,056,016 (expiring in 2006
through 2007) which may be used to offset future taxable gains.
For the two-month period ended December 31, 1999, the fund incurred net
capital losses of $1,636,287. The fund has elected to treat such losses as
having been incurred in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is a distributor of
the corporation. Certain officers of FDI are also officers of the corporation.
16 1-800-345-6488
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The corporation has entered into a Management Agreement with ACIM, under
which ACIM provides the fund with investment advisory and management services in
exchange for a single, unified fee. The Agreement provides that all expenses of
the fund, except brokerage commissions, taxes, interest, fees and expenses of
those directors who are not considered "interested persons" as defined in the
1940 Act (including counsel fees) and extraordinary expenses, will be paid by
ACIM. The fee is computed daily and paid monthly based on the fund's average
daily closing net assets during the previous month. The annual management fee
for the fund is 0.70%.
Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the corporation.
Certain officers and directors of the corporation are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the corporation's investment manager, ACIM, a
distributor of the corporation, ACIS, and the corporation's transfer agent,
American Century Services Corporation.
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six monthes ended June 30, 2000, were $335,552,791 and
$150,998,080, respectively.
As of June 30, 2000, accumulated net unrealized appreciation was $53,365,149
based on the aggregate cost of investments for federal income tax purposes of
$559,680,884, which consisted of unrealized appreciation of $87,803,712 and
unrealized depreciation of $34,438,563.
--------------------------------------------------------------------------------
4. BANK LOANS
The fund, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The fund did not borrow from the line during the
six months ended June 30, 2000.
www.americancentury.com 17
<PAGE>
VP INCOME & GROWTH--FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years (or less,
if the fund is not five years old). It also includes several key statistics for
each reporting period, including TOTAL RETURN, INCOME RATIO (net investment
income as a percentage of average net assets), EXPENSE RATIO (operating expenses
as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the
fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED DECEMBER 31 (EXCEPT AS NOTED)
2000(1) 1999 1998 1997(2)
------- ---- ---- -------
PER-SHARE DATA
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 8.00 $ 6.78 $ 5.39 $ 5.00
----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ................ 0.02 0.08(3) 0.03 0.02
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .... (0.31) 1.14 1.41 0.37
----------- ----------- ----------- -----------
Total From Investment Operations ..... (0.29) 1.22 1.44 0.39
----------- ----------- ----------- -----------
Distributions
From Net Investment Income ........... (0.04) --(4) (0.04) --
From Net Realized Gains on
Investment Transactions .............. -- -- (0.01) --
----------- ----------- ----------- -----------
Total Distributions .................. (0.04) --(4) (0.05) --
----------- ----------- ----------- -----------
Net Asset Value, End of Period ......... $ 7.67 $ 8.00 $ 6.78 $ 5.39
=========== =========== =========== ===========
Total Return(5) ...................... (3.58)% 18.02% 26.87% 7.80%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 0.70%(6) 0.70% 0.70% 0.70%(6)
Ratio of Net Investment Income
to Average Net Assets .................. 0.95%(6) 1.09% 1.43% 1.94%(6)
Portfolio Turnover Rate ................ 29% 50% 55% 10%
Net Assets, End of Period
(in thousands) ....................... $ 614,252 $ 459,110 $ 109,626 $ 1,230
</TABLE>
(1) Six months ended June 30, 2000 (unaudited).
(2) October 30, 1997 (inception) through December 31, 1997.
(3) Computed using average shares outstanding throughout the period.
(4) Per share amount was less than $0.005.
(5) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(6) Annualized.
18 1-800-345-6488 See Notes to Financial Statements
<PAGE>
BACKGROUND INFORMATION
--------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
AMERICAN CENTURY VP INCOME & GROWTH seeks current income and capital
appreciation by investing in a diversified portfolio of common stocks. Its goal
is to achieve a total return that exceeds the total return of the S&P 500. The
fund's management team also targets a dividend yield that is higher than the
yield of the S&P 500.
Computer models are used as key tools in the management team's investment
decisions. A stock-ranking model analyzes a sizable universe of stocks based on
their expected return. The model looks at both growth and value measures such as
cash flow, earnings growth, and price/earnings ratio. Once the stocks are
ranked, another model creates a portfolio that balances high-ranking stocks with
an overall risk level that is comparable to the fund's benchmark index.
COMPARATIVE INDICES
The following indices are used in the report for fund performance
comparisons. They are not investment products available for purchase.
The S&P 500 is composed of 500 large-capitalization stocks traded on
domestic exchanges. It is considered a broad measure of U.S. stock performance.
The S&P 500/BARRA VALUE INDEX and the S&P 500/BARRA GROWTH INDEX are
capitalization-weighted indices made up of the stocks from the S&P 500. The
value index contains firms with lower price-to-book ratios; conversely, the
growth index has firms with higher price-to-book ratios.
The S&P MIDCAP 400 is composed of 400 mid-capitalization stocks traded on
domestic exchanges. It is considered a broad measure of mid-sized stock
performance.
The S&P SMALLCAP 600 is composed of 600 small-capitalization stocks traded
on domestic exchanges. It is considered a broad measure of small-company stock
performance.
INVESTMENT TEAM LEADERS
Portfolio Managers
KURT BORGWARDT
JOHN SCHNIEDWIND
www.americancentury.com 19
<PAGE>
GLOSSARY
--------------------------------------------------------------------------------
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year total returns, please refer to the "Financial
Highlights" on page 18.
PORTFOLIO STATISTICS
* NUMBER OF COMPANIES -- the number of different companies held by the fund on a
given date.
* PRICE/EARNINGS (P/E) RATIO -- a stock value measurement calculated by dividing
a company's stock price by its earnings per share, with the result expressed as
a multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
* PORTFOLIO TURNOVER -- the percentage of the fund's investment portfolio that
is replaced during a given time period, usually a year. Actively managed
portfolios tend to have higher turnover than passively managed portfolios such
as index funds.
TYPES OF STOCKS
* BLUE CHIP STOCKS -- stocks of the most established companies in American
industry. They are generally large, fairly stable companies that have
demonstrated consistent earnings and usually have long-term growth potential.
Examples include General Electric and Coca-Cola.
* CYCLICAL STOCKS -- generally considered to be stocks whose price and earnings
fluctuations tend to follow the ups and downs of the business cycle. Examples
include the stocks of automobile manufacturers, steel producers, and textile
operators.
* GROWTH STOCKS -- stocks of companies that have experienced above-average
earnings growth and appear likely to continue such growth. These stocks often
sell at high P/E ratios. Examples can include the stocks of high-tech, health
care, and consumer staple companies.
* LARGE-CAPITALIZATION ("LARGE-CAP") STOCKS -- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of more
than $8.7 billion. This is Lipper's market-capitalization breakpoint as of June
30, 2000, although it may be subject to change based on market fluctuations. The
Dow Jones Industrial Average and the S&P 500 are representative indexes of
large-cap stock performance.
* MEDIUM-CAPITALIZATION ("MID-CAP") STOCKS -- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) between
$2.3 billion and $8.7 billion. This is Lipper's market-capitalization breakpoint
as of June 30, 2000, although it may be subject to change based on market
fluctuations. The S&P 400 and Russell 2500 are representative of mid-cap stock
performance.
* SMALL-CAPITALIZATION ("SMALL-CAP") STOCKS -- the stocks of companies with a
market capitalization (the total value of a company's outstanding stock) of less
than $2.3 billion. This is Lipper's market-capitalization breakpoint as of June
30, 2000, although it may be subject to change based on market fluctuations. The
S&P 600 and the Russell 2000 are representative of small-cap stock performance.
* VALUE STOCKS -- generally considered to be stocks that are purchased because
they are relatively inexpensive. These stocks are typically characterized by low
P/E ratios.
EQUITY TERMS
* DIVIDEND YIELD --a percentage return calculated by dividing a company's annual
cash dividend by the current market value of the company's stock.
* PRICE/BOOK RATIO -- a stock value measurement calculated by dividing a
company's stock price by its book value per share, with the result expressed as
a multiple instead of as a percentage. (Book value per share is calculated by
subtracting a company's liabilities from its assets, then dividing that value by
the number of outstanding shares.)
20 1-800-345-6488
<PAGE>
GLOSSARY
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
Please be aware that the fund's category may change over time. Therefore, it
is important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies, and risk potential are consistent
with your needs.
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in
its prospectus or fund profile, or the fund's categorization by independent
rating organizations based on its management style.
* CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for
relative stability of principal and liquidity.
* INCOME -- offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME -- offers funds that emphasize both growth and income provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* GROWTH -- offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high
price-fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative
historical measures as well as qualitative prospective measures. It is not
intended to be a precise indicator of future risk or return levels. The degree
of risk within each category can vary significantly, and some fund returns have
historically been higher than more aggressive funds or lower than more
conservative funds.
* CONSERVATIVE -- these funds generally provide lower return potential with
either low or minimal price-fluctuation risk.
* MODERATE -- these funds generally provide moderate return potential with
moderate price-fluctuation risk.
* AGGRESSIVE -- these funds generally provide high return potential with
corresponding high price-fluctuation risk.
www.americancentury.com 21
<PAGE>
NOTES
--------------------------------------------------------------------------------
22 1-800-345-6488
<PAGE>
NOTES
--------------------------------------------------------------------------------
www.americancentury.com 23
<PAGE>
NOTES
--------------------------------------------------------------------------------
24 1-800-345-6488
<PAGE>
This page left intentionally blank
<PAGE>
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[american century logo and text logo]
American
Century
P.O. BOX 419385
KANSAS CITY, MISSOURI 64141-6385
WWW.AMERICANCENTURY.COM
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES
1-800-345-6488
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-4360
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
0008 American Century Investment Services, Inc.
SH-SAN-21703 (c)2000 American Century Services Corporation
<PAGE>
DAVIS VALUE PORTFOLIO
(PORTFOLIO OF DAVIS VARIABLE ACCOUNT FUND, INC.)
June 30, 2000
SEMI-ANNUAL REPORT
[DAVIS LOGO]
<PAGE>
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
================================================================================
Dear Shareholder,
We are optimists at heart and we believe that stocks offer the best means of
creating wealth over the long term. Historically, stocks have won over time
because they represent claims on growth, not a fixed promise to pay a fixed
amount, which is the case with bonds.(1) As gross domestic product (GDP) and
corporate profits grow, so does the valuation floor for stocks.
With that as a backdrop, every day when we come to work we try to do four
things. First, we seek out businesses that will grow, preferably ones that need
little new capital because that means they are the most self-sufficient.
Second, we evaluate the judgment, vision and integrity of management. We want to
get a good feel for what management plans to do with the free cash flows
generated by the business--be it making new investments, acquiring other
businesses or increasing dividends.
Third, we value those businesses against the alternatives, seeking to determine
what "mystery" coupon or rate of return the business will produce for its
stockowners. In other words, we determine what we would be willing to pay for
the business in order to provide us with a better projected rate of return than
the coupon rate on risk-free alternatives such as 10-year Treasury bonds, and we
try to buy the companies when they are attractively valued.
Fourth, we consider this analysis within the context of where we are in the
stock market cycle. We know we are on a long journey. If equities will grow at a
rate of around 7% a year over the next 30 years, which is a little less than
their long term average, that would take the Dow Jones Industrial Average from
around 10,000 to 80,000 by 2030.(2) At the same time, we are mindful that road
conditions will not always be favorable and that there will be checkpoints along
the way because different eras create different risk profiles.
Looking ahead over the next few years, we recognize that we are unlikely to
continue enjoying the big drivers of stock performance that we have had over the
past 15 to 20 years--namely, dramatically rising corporate profits, steeply
falling interest rates and sharply higher price/earnings (P/E) valuations.
Inflation and interest rates have plateaued at best and may be increasing, which
means caution lights are flashing on the road ahead. If inflation keeps
climbing, the Federal Reserve will take concerted action after the presidential
election, raising interest rates even further and therefore the risk-free hurdle
rate against which all stocks have to compete. As for corporate profits, they
still have a green light, but they have been inflated by various accounting
practices and cannot keep growing their share of GDP forever.
All of this leads us to believe that the market could be in a 30% to 50% trading
range over the next 5 to 10 years before there is a big break out again. That is
a lot of movement in points, but not much in percentage terms, particularly when
you consider the market went up tenfold (from 1,000 to 10,000) over the past 20
years. Although the rate of growth may be slowing, we still anticipate a fairly
favorable environment for stocks. The Federal Reserve is doing its job right by
trying to prolong the cycle, deflate a bubble and prevent a boom/bust scenario.
Even if we stay in a trading-range market for some time, there should always be
opportunities for stock picking.
We think multinationals may be a fertile area to investigate whether they are in
the technology, drug or financial sector. For several years, these companies
have been fighting headwinds related to various financial crises around the
world, the strength of the dollar and the market's fixation on Internet
companies. Now high-quality multinationals with proven management teams may move
into the spotlight because they have flexibility to allocate capital around the
globe to wherever it may earn the best return, and with a world population of
around six billion, their potential customer base is huge.
2
<PAGE>
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
===============================================================================
Contrary to what some people may believe, we are not against technology.
Particularly in a difficult market when you have to be a good stock picker, it
is useful to identify a theme. Over the next decade, technology is almost
certain to be a key investment trend, whether it be the inventors of technology
or traditional companies that successfully apply technology in their business
models. American Express(3) is one example of a company that is likely to
benefit as consumers buy more and more over the Internet, charging purchases on
their credit cards. In addition, there are a number of financial and other
companies that will use the Internet to drive down their costs or to leverage
their brand power and broaden their marketing reach. If these companies are also
multinational, so much the better because they can do this all over the world.
Of course, no one knows for sure exactly what the next few years will bring. But
regardless of election results, inflation, interest rates or profit trends, we
will continue to manage money according to the same generational philosophy we
have applied for decades in all types of markets. Investing is a batting average
business, full of strikeouts and mistakes as well as home runs. Rest assured
that we will try to do sensible things every day when we come to work and do the
best we can because our money is invested side by side with our fellow
shareholders. We continue to believe that stocks are the best way to build
long-term wealth. Staying invested puts time on our side and gives compounding
the opportunity to work for us all.(4)
Sincerely,
/s/ Shelby M.C. Davis
- ------------------------
Shelby M.C. Davis
Senior Research Adviser
August 4, 2000
3
<PAGE>
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
DAVIS VALUE PORTFOLIO
PERFORMANCE OVERVIEW
The Davis Value Portfolio delivered a total return of 7.02% for the six-month
period and 9.85% for the one-year period from July 1, 1999 (commencement of
operations) to June 30, 2000,(5) outpacing the performance of the Lipper
Large-Cap Value Index(6) and the Standard & Poor's 500 Index.(6) The Lipper
Large-Cap Value Index provided a return of (1.99)% and (2.38)%, respectively,
over the latest six-month and one-year periods while the S&P 500 returned
(0.43)% and 7.25%, respectively, over the same time frames.
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS
Q. How would you describe the performance of the Portfolio so far this year?
A. As Ken and I have often said, performance over any half-year, one-year or
even two-year period is often unpredictable and rarely significant. Thus, we are
reluctant to read too much into the strong relative results of the Davis Value
Portfolio in the first six months of the year 2000.
That said, with regard to individual holdings, we have been very pleased with
the performance of several companies that were relatively recent additions to
the portfolio. In general, these companies were purchased while their stock
prices languished under clouds of uncertainty or even scandal. In such cases,
Ken and I believe that while we are taking what might be called "headline" risk,
the fact that we are buying the companies after bad news has been disclosed
often limits our economic risk.
Our purchase of American Home Products,(3) for example, came at a time when the
company was facing litigation concerning unforeseen side effects with one of its
drugs. While there was always a risk that the consequences of this litigation
could have been much worse than we anticipated, we believed that the stock price
more than discounted the likely outcome and that, as the clouds of uncertainty
lifted, investors would again recognize the powerful new products and strong
position of this company. Our colleague Danton Goei was an important resource in
the Portfolio's opportunistic purchase of this company at significantly lower
prices.
Similarly, our purchase of Tyco came at a time when the company was undergoing
SEC scrutiny regarding its accounting for a number of mergers and acquisitions.
Ken led an incredibly thorough research effort on this complex company and was
ably assisted by Adam Seessel in reconstructing all of the company's recent
acquisitions.
Although these companies could still prove to be disappointing investments if
bad news subsequently comes to light, we think both are illustrative of our
willingness to purchase companies opportunistically while others are anxiously
selling. Such decisions can only be made with conviction based on thorough and
independent research and on the recognition that short-term movements in stock
prices often reflect changes in psychology rather than changes in economics.
4
<PAGE>
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
Q. Could you comment on the overall market environment this year and its impact
on the Portfolio's investments?
A. Turning from those specifics of the portfolio to the market in general, the
year 2000 has proven to be another period of enormous stock price volatility.
The relative flatness of the market averages masks enormous underlying gyrations
in the prices of individual issues. The best way to demonstrate this is by
examining the portfolio holdings of the Portfolio.
Over the past 12 months, 32 of our top 40 holdings--representing more than 70%
of the portfolio--had a range of more than 50% between their lowest low and
their highest high. Even more telling, 15 of the Portfolio's top 40 positions
had a range of more than 100%, five a range of more than 150% and two a range of
more than 200% between their lowest and highest price for the period.
Given that we generally own more established companies, as opposed to Internet
start-ups, these sorts of ranges are remarkable. A natural consequence of such
volatility, other factors being equal, is a tendency toward higher turnover.
These enormous price swings mean companies are more likely to advance from a
range of fair value to levels at which Ken and I would consider them overvalued
and therefore candidates for sale, or conversely to decline to such prices that
we would consider adding to our positions.
Another recent characteristic of the market has been a constant lowering of the
quality of reported earnings. As anyone who runs a business can attest,
perfectly predictable and consistent results can rarely be achieved in precise
12-week intervals. Yet Wall Street has come to place such a premium on
consistent results that increasingly corporate America is torturing accounting
policies to create the illusion of predictability and consistency in these short
quarterly periods. As a result, earnings are frequently not what they seem, and
reported results often include nonrecurring items such as favorable changes in
pension fund assumptions, gains on sales of operations or securities, expense
reductions from previously incurred restructuring charges and other financial
gimmicks. Thus, most companies' quarterly earnings must be scrutinized much more
intensively than ever before.
While we hope not to own many of the most flagrant offenders in the Davis Value
Portfolio, we would expect that over the next several years the newspapers will
be full of companies forced to come clean when their bag of accounting tricks is
empty. Once a company starts down this path, it is difficult to stop as inflated
results in the current quarter become increasingly difficult comparisons for
future quarters.
Q. What final thoughts would you like to leave with your fellow shareholders?
A. While these observations may sound pessimistic, I am reminded of my father's
comment last year that our goal is to be neither optimistic nor pessimistic, but
to do our best to be realistic. As we have said in the past, the reality is that
returns in the next decade are unlikely to be near the levels enjoyed in the
last two decades. The danger is that as investors move from a position of almost
universal optimism to a more realistic stance equity valuations could suffer
significantly. It is the tendency of markets, like pendulums, not to move to the
middle ground and stop, but instead to swing markedly to the other side. While
such a significant correction would create many buying opportunities, it is
unlikely that investors would have the stomach to pursue them. Therein lies the
biggest danger facing investors.
5
<PAGE>
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
AN INTERVIEW WITH CHRISTOPHER C. DAVIS AND KENNETH CHARLES FEINBERG, PORTFOLIO
MANAGERS - CONTINUED
This danger was illustrated in the March issue of Mutual Funds magazine, which
featured the following statistic. According to the magazine, "Between 1984 and
the end of 1998, the average stock fund gained 509%, or 12.8% per year over 15
years. Meanwhile, the typical mutual fund investor, whose average holding period
was less than three years, earned just 186% or 7.25% a year." This staggering
underperformance of the average fund investor was self-inflicted as it came from
money flowing into the funds with great short-term performance and then flowing
out of those funds when future results were disappointing.
If Ken and I can leave any message with our fellow shareholders, it is to fight
the very human tendency to feel elated and optimistic when prices are high (as
they are today) and discouraged and pessimistic when prices are low. Now when
times are good is the right time to sound the cautious note. In doing so, we
hope that we will all be better positioned to be optimistic and opportunistic
when times look more bleak.(4)
---------------------------
This Semi-Annual Report is authorized for distribution only when accompanied or
preceded by a current prospectus of Davis Value Portfolio which contains more
information about risks, fees and expenses. Please read the prospectus carefully
before investing or sending money.
(1) Historically, common stocks have outperformed both bonds and cash. There is
no assurance that this will continue to be true in the future.
(2) This hypothetical example illustrates the power of compounding over a
30-year period, and is not intended to be indicative of future investment
results which may be higher or lower than the assumed 7% rate.
(3) See Davis Value Portfolio's Schedule of Investments for a detailed list of
portfolio holdings.
(4) This report reflects the professional opinions of Shelby M.C. Davis,
Christopher Davis, and Kenneth Feinberg. All investments involve some degree of
risk, there can be no assurance that Davis Value Portfolio's investment
strategies will be successful. Prices of shares will vary, so that when
redeemed, an investor's shares could be worth more or less than their original
cost.
(5) Total return assumes reinvestment of dividends and capital gain
distributions. Past performance is not a guarantee of future results. Investment
return and principal value will vary so that, when redeemed, an investor's
shares may be worth more or less than when purchased. The following table lists
the average annual total return for the period from July 1, 1999 (commencement
of operations) through June 30, 2000.
-------------------------------- ------------------------------
FUND NAME INCEPTION
July 1, 1999
-------------------------------- ------------------------------
Davis Value Portfolio 9.85%
-------------------------------- ------------------------------
6
<PAGE>
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
(6) The definitions of indices quoted in this annual report appear below.
Investments cannot be made directly in any of these indices.
I. The S&P 500 Index is an unmanaged index of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The index is adjusted for
dividends, weighted towards stocks with large market capitalizations, and
represents approximately two-thirds of the total market value of all domestic
common stocks.
II. The Lipper Large-Cap Value Index is an equally weighted index of 30
large-cap value mutual funds. Returns are adjusted for the reinvestment of
capital gain distributions and income dividends.
An investment in Davis Value Portfolio is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
7
<PAGE>
DAVIS VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
============================================================================================================
<S> <C> <C>
COMMON STOCK - (88.64%)
ADVERTISING AGENCIES - (0.06%)
300 WPP Group PLC ............................................................. $ 21,703
-------------
BANKS AND SAVINGS & LOAN ASSOCIATIONS - (5.14%)
19,000 Golden West Financial Corp................................................... 775,438
29,300 Wells Fargo & Co............................................................. 1,135,375
-------------
1,910,813
-------------
BUILDING MATERIALS - (3.73%)
7,600 Martin Marietta Materials, Inc............................................... 307,325
42,000 Masco Corp................................................................... 758,625
7,500 Vulcan Materials Co.......................................................... 320,157
-------------
1,386,107
-------------
CONSUMER PRODUCTS - (1.37%)
3,100 Gillette Co.................................................................. 108,306
15,100 Philip Morris Cos., Inc. .................................................... 401,094
-------------
509,400
-------------
DIVERSIFIED - (1.79%)
11 Berkshire Hathaway Inc., Class A*............................................ 591,800
42 Berkshire Hathaway Inc., Class B*............................................ 73,920
-------------
665,720
-------------
DIVERSIFIED MANUFACTURING - (3.23%)
25,400 Tyco International Ltd....................................................... 1,203,325
-------------
ELECTRONICS - (4.44%)
1,800 Applied Materials, Inc.*..................................................... 163,181
4,000 Koninklijke Philips Electronics N.V.......................................... 190,000
5,700 Molex Inc.................................................................... 274,669
14,900 Texas Instruments Inc........................................................ 1,023,444
-------------
1,651,294
-------------
ENERGY - (1.54%)
3,500 Devon Energy Corp............................................................ 196,656
9,300 Dover Corp................................................................... 377,231
-------------
573,887
-------------
FINANCIAL - (15.25%)
35,500 American Express Co.......................................................... 1,850,438
25,000 Citigroup, Inc............................................................... 1,506,250
12,600 Freddie Mac.................................................................. 510,300
30,900 Household International, Inc................................................. 1,284,281
5,800 Providian Financial Corp. ................................................... 522,000
-------------
5,673,269
-------------
FOOD/BEVERAGE & RESTAURANT - (2.57%)
29,000 McDonald's Corp.............................................................. 955,188
-------------
</TABLE>
8
<PAGE>
DAVIS VALUE PORTFOLIO - CONTINUED
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES SECURITY (NOTE 1)
==============================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
HOTELS & MOTELS - (0.77%)
8,000 Marriott International, Inc.................................................. $ 288,500
-------------
INDUSTRIAL - (1.42%)
10,100 Sealed Air Corp.*............................................................ 528,988
-------------
INVESTMENT FIRMS - (2.95%)
2,500 Donaldson, Lufkin & Jenrette, Inc............................................ 106,094
11,900 Morgan Stanley Dean Witter & Co.............................................. 990,674
-------------
1,096,768
-------------
LIFE INSURANCE - (0.15%)
3,400 Sun Life Financial Services of Canada*....................................... 57,375
-------------
PHARMACEUTICAL AND HEALTH CARE - (8.63%)
23,600 American Home Products Corp.................................................. 1,386,500
14,900 Bristol-Myers Squibb Co...................................................... 867,925
2,500 Eli Lilly & Co............................................................... 249,688
1,800 Merck & Co., Inc............................................................. 137,925
1,800 Pharmacia Corp............................................................... 93,038
7,300 SmithKline Beecham PLC - ADR................................................. 475,869
-------------
3,210,945
-------------
PROPERTY/CASUALTY INSURANCE - (6.70%)
12,425 American International Group, Inc. .......................................... 1,459,937
2,500 Chubb Corp................................................................... 153,750
5,100 Progressive Corp. (Ohio)..................................................... 377,400
6,000 Transatlantic Holdings, Inc.................................................. 502,500
-------------
2,493,587
-------------
PUBLISHING - (1.48%)
1,400 Dow Jones & Co., Inc. ....................................................... 102,550
4,000 Gannett Co., Inc............................................................. 239,250
6,000 Tribune Co................................................................... 210,000
-------------
551,800
-------------
REAL ESTATE - (1.45%)
600 Avalonbay Communities, Inc................................................... 25,050
12,600 Centerpoint Properties Corp. ................................................ 513,450
-------------
538,500
-------------
TECHNOLOGY - (13.52%)
10,600 BMC Software, Inc.*.......................................................... 386,568
13,600 Hewlett-Packard Co........................................................... 1,698,300
5,700 Intel Corp................................................................... 761,841
11,500 International Business Machines Corp......................................... 1,259,969
11,100 Lexmark International Group, Inc., Class A*.................................. 746,475
</TABLE>
9
<PAGE>
DAVIS VALUE PORTFOLIO - CONTINUED
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
VALUE
SHARES/PRINCIPAL SECURITY (NOTE 1)
============================================================================================================
<S> <C> <C>
COMMON STOCK - CONTINUED
TECHNOLOGY - CONTINUED
9,700 Novell, Inc.*................................................................ $ 89,877
1,900 SAP AG ...................................................................... 89,181
-------------
5,032,211
-------------
TELECOMMUNICATIONS - (9.90%)
5,380 Agilent Technologies, Inc.*.................................................. 396,775
14,990 AT&T Corp.................................................................... 474,058
3,900 AT&T Wireless Group*......................................................... 108,712
3,500 Globalstar Telecommunications Limited* ...................................... 31,281
9,500 Loral Space & Communications, Ltd.*.......................................... 65,906
13,400 Lucent Technologies Inc...................................................... 793,950
22,700 Motorola, Inc................................................................ 659,719
1,500 Sprint Corp.................................................................. 76,500
14,500 Tellabs, Inc.*............................................................... 992,797
1,800 WorldCom, Inc.*.............................................................. 82,631
-------------
3,682,329
-------------
TRANSPORTATION - (0.12%)
500 Kansas City Southern Industries, Inc......................................... 44,344
-------------
WHOLESALE - (2.43%)
27,400 Costco Wholesale Corp.*...................................................... 905,056
-------------
Total Common Stock - (identified cost $31,935,501)........................... 32,981,109
-------------
SHORT TERM INVESTMENTS - (12.71%)
$ 4,729,000 State Street Corporation Repurchase Agreement, 6.60%, 07/03/00, dated
06/30/00, repurchase value $4,731,601 (collateralized by $4,780,000 par
value Federal Home Loan Bank, 7.00%, 08/28/01, market value $4,875,600)
- (identified cost $4,729,000)............................................ 4,729,000
-------------
Total Investments - (101.35%) - (identified cost $36,664,501) - (a).......... 37,710,109
Liabilities Less Other Assets - (1.35%)...................................... (501,846)
-------------
Net Assets - (100%).......................................................... $ 37,208,263
=============
*Non-Income Producing Security
(a) Aggregate cost for Federal Income Tax purposes is $36,680,647. At June 30,
2000 unrealized appreciation (depreciation) of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation...................................................... $ 2,443,959
Unrealized depreciation...................................................... (1,414,497)
-------------
Net unrealized appreciation ................................................. $ 1,029,462
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
DAVIS VALUE PORTFOLIO
STATEMENTS OF ASSETS AND LIABILITIES
At June 30, 2000 (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
* (see accompanying Schedules of Investments)................................................... $ 37,710,109
Cash.............................................................................................. 10,220
Receivables:
Dividends and interest.......................................................................... 22,174
Capital stock sold.............................................................................. 826,636
Investments sold................................................................................ 442,494
Due from adviser................................................................................ 11,595
Prepaid expenses.................................................................................. 6,025
---------------
Total assets...................................................................................... 39,029,253
---------------
LIABILITIES:
Payables:
Investment securities purchased................................................................ 1,778,482
Capital stock required.......................................................................... 4,070
Accrued expenses................................................................................ 38,438
---------------
Total liabilities................................................................................. 1,820,990
---------------
NET ASSETS .......................................................................................... $ 37,208,263
===============
SHARES OUTSTANDING (NOTE 4).......................................................................... 3,391,368
===============
NET ASSET VALUE, offering and
redemption price per share (Net Assets (divided by) shares outstanding)......................... $ 10.97
===========
NET ASSETS CONSIST OF:
Undistributed net investment income............................................................... $ 34,344
Par value of shares of capital stock.............................................................. 3,391
Additional paid-in capital........................................................................ 35,531,791
Accumulated net realized gain..................................................................... 593,129
Net unrealized appreciation on investments........................................................ 1,045,608
---------------
$ 37,208,263
===============
</TABLE>
* Including a repurchase agreement of $4,729,000 and cost of $36,664,501.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
DAVIS VALUE PORTFOLIO
STATEMENTS OF OPERATIONS
For the six months ended June 30, 2000 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends..................................................................................... $ 73,591
Interest...................................................................................... 52,018
---------------
Total income.............................................................................. 125,609
---------------
Expenses:
Management fees (Note 2)...................................................................... 68,449
Custodian fees................................................................................ 20,023
Transfer agent fees........................................................................... 4,803
Audit fees.................................................................................... 4,025
Accounting fees (Note 2)...................................................................... 3,000
Legal fees.................................................................................... 9,801
Reports to shareholders....................................................................... 1,746
Directors fees and expenses................................................................... 10,730
Registration and filing fees.................................................................. 1,935
Miscellaneous................................................................................. 2,524
---------------
Total expenses............................................................................ 127,036
Expenses paid indirectly (Note 5)......................................................... (72)
Reimbursement of expenses by adviser (Note 2)............................................. (35,699)
---------------
Net expenses.............................................................................. 91,265
---------------
Net investment income..................................................................... 34,344
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions................................................ 651,730
Net increase in unrealized appreciation of investments during the period..................... 105,627
---------------
Net realized and unrealized gain on investments........................................... 757,357
---------------
Net increase in net assets resulting from operations...................................... $ 791,701
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
DAVIS VALUE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
===============================================================================
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, PERIOD ENDED
2000 DECEMBER 31,
(UNAUDITED) 1999
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income ......................................... $ 34,344 $ 14,023
Net realized gain (loss) from investment transactions ......... 651,730 (58,601)
Net increase in unrealized appreciation of investments ........ 105,627 939,981
------------ ------------
Net increase in net assets resulting from operations .......... 791,701 895,403
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ......................................... -- (14,023)
Return of capital ............................................. -- (2,540)
CAPITAL SHARE TRANSACTIONS (NOTE 4) ............................... 23,748,678 11,789,044
------------ ------------
Total increase in net assets ...................................... 24,540,379 12,667,884
NET ASSETS:
Beginning of period ........................................... 12,667,884 --
------------ ------------
End of Period (Including undistributed net investment income of
$34,344 in 2000) ............................................ $ 37,208,263 $ 12,667,884
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
DAVIS VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
===============================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a separate series of Davis Variable Account Fund, Inc., which is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment companies. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of financial statements.
Davis Value Portfolio is a diversified, professionally managed stock-
oriented fund.
A. VALUATION OF SECURITIES - Securities listed on national securities exchanges
are valued at the last reported sales price on the day of valuation. Securities
traded in the over the counter market and listed securities for which no sale
was reported on that date are stated at the last quoted bid price. Securities
for which market quotations are not readily available are valued at fair value
as determined by the Board of Directors. Short-term obligations are valued at
amortized cost which approximates fair value as determined by the Board of
Directors. These valuation procedures are reviewed and subject to approval by
the Board of Directors.
B. CURRENCY TRANSLATION - The market values of all assets and liabilities
denomination in foreign currencies are recorded in the financial statements
after translation to the U.S. dollar based upon the mean between the bid and
offered quotations of the currencies against U.S. dollars on the date of
valuation. The cost basis of such assets and liabilities is determined based
upon historical exchange rates. Income and expenses are translated at average
exchange rates in effect as accrued or incurred.
C. FORWARD CURRENCY CONTRACTS - The Fund may enter into forward purchases or
sales of foreign currencies to hedge certain foreign currency denominated assets
and liabilities against declines in market value relative to the U.S. dollar.
Forward currency contracts are marked-to-market daily and the change in market
value is recorded by the Fund as an unrealized gain or loss. When the forward
currency contract is closed, the Fund record a realized gain or loss equal to
the difference between the value of the forward currency contract at the time it
was opened and value at the time it was closed. Investments in forward currency
contracts may expose the Fund to risks resulting from unanticipated movements in
foreign currency exchange rates or failure of the counter-party to the agreement
to perform in accordance with the terms of the contract.
Reported net realized foreign exchange gains or losses arise from the sales and
maturities of short-term sales of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest and foreign withholding
taxes recorded on the Fund's books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities other than
investments in securities at fiscal year end, resulting from changes in the
exchange rate.
D. FEDERAL INCOME TAXES - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to
shareholders. Therefore, no provision for federal income or excise tax is
required. At June 30, 2000, the Fund had approximately $31,000 of capital loss
carryovers available to offset future capital gains, if any, which expire in
2007.
14
<PAGE>
DAVIS VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2000 (Unaudited)
===============================================================================
E. USE OF ESTIMATES IN FINANCIAL STATEMENTS - In preparing financial statements
in conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of income and expenses
during the reporting period. Actual results may differ from these estimates.
F. SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME - Securities
transactions are accounted for on the trade date (date the order to buy or sell
is executed) with realized gain or loss on the sale of securities being
determined based upon identified cost. Interest income is recorded on the
accrual basis and dividend income is recorded on the ex-dividend date. Discounts
and premiums on debt securities (excluding convertible bonds) purchased are
amortized over the lives of the respective securities in accordance with the
requirements of the Internal Revenue Code.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions to
shareholders are recorded on the ex-dividend date. The character of the
distributions made during the year from net investment income may differ from
its ultimate characterization for federal income tax purposes. Also, due to the
timing of distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which income or gain was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders to reflect
the differences between financial statement amounts and distributions determined
in accordance with income tax regulations.
NOTE 2 - INVESTMENT ADVISORY FEES
Advisory fees are paid to Davis Selected Advisers, L.P. (the "Adviser") at
an annual rate of 0.75% of the average annual net assets.
State Street Bank is the Fund's primary transfer agent. The Adviser is also
paid for certain transfer agent services. The fee paid to the Adviser for the
six months ended June 30, 2000 was $21. State Street Bank & Trust Company
("State Street Bank") is the Fund's primary accounting provider. Fees for such
services are included in the custodian fee as State Street also serves as the
Fund's custodian. The Adviser is also paid for certain accounting services. The
fee for the six months ended June 30, 2000 amounted to $3,000. The Adviser has
agreed to reimburse the Fund for certain expenses incurred in the current fiscal
period, which amounted to $35,699. Certain directors and officers of the Fund
are also directors and officers of the general partner of the Adviser.
Davis Selected Advisers - NY, Inc. ("DSA-NY"), a wholly-owned subsidiary of
the Adviser, acts as sub-adviser to the Fund. The Fund pays no fees directly to
DSA-NY.
The Fund has adopted procedures to treat Shelby Cullom Davis & Co. ("SCD")
as an affiliate of the Adviser. During the six months ended June 30, 2000, SCD
received $110 in commissions on the purchase and sales of portfolio securities
in the Davis Value Portfolio.
NOTE 3 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities (excluding short-term
securities) during the six months ended June 30, 2000 were $22,818,721 and
$2,164,212, respectively.
15
<PAGE>
DAVIS VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - (Continued)
June 30, 2000 (Unaudited)
===============================================================================
NOTE 4 - CAPITAL STOCK
At June 30, 2000, there were 5 billion shares of capital stock ($0.001 par
value per share) authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS JULY 1, 1999
ENDED (COMMENCEMENT OF
JUNE 30, 2000 OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1999
--------------- -------------------
<S> <C> <C>
Shares sold............................................... 2,252,968 1,328,411
Shares issued in reinvestment of distributions............ - 1,624
--------------- ------------
2,252,968 1,330,035
Shares redeemed........................................... (97,799) (93,836)
--------------- ------------
Net increase........................................ 2,155,169 1,236,199
=============== ============
Proceeds from shares sold................................. $ 24,784,061 $ 12,681,981
Proceeds from shares issued in
reinvestment of distributions......................... - 16,563
--------------- ------------
24,784,061 12,698,544
Cost of shares redeemed................................... (1,035,383) (909,500)
--------------- -------------
Net increase........................................ $ 23,748,678 $ 11,789,044
=============== ===============
</TABLE>
NOTE 5 - CUSTODIAN FEES
Under an agreement with the custodian bank, custodian fees are reduced for
earnings on cash balances maintained at the custodian by the Fund. Such
reductions amounted to $72 for the six months ended June 30, 2000.
16
<PAGE>
DAVIS VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
===============================================================================
The following financial information represents data for each share of capital
stock outstanding throughout each period:
<TABLE>
<CAPTION>
JULY 1, 1999
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS)
JUNE 30, 2000 THROUGH
(UNAUDITED) DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period............... $ 10.25 $ 10.00
---------- ----------
Income From Investment Operations
- ---------------------------------
Net Investment Income............................. 0.01 0.01
Net Realized and Unrealized Gains (Losses)........ 0.71 0.25
---------- ----------
Total From Investment Operations............... 0.72 0.26
Dividends and Distributions
- ----------------------------
Dividends from Net Investment Income.............. - (0.01)
Return of Capital................................. - -(3)
---------- ----------
Total Dividends and Distributions.............. - (0.01)
---------- ----------
Net Asset Value, End of Period..................... $ 10.97 $ 10.25
========== ==========
Total Return(1).................................... 7.02% 2.64%
--------------
Ratios/Supplemental Data
------------------------
Net Assets, End of Period (000 omitted)........... $37,208 $12,668
Ratio of Expenses to Average Net Assets........... 1.00%*(4) 1.00%*(4)
Ratio of Net Investment Income to
Average Net Assets............................. 0.38%* 0.43%*
Portfolio Turnover Rate(2)........................ 12% 5%
</TABLE>
1 Assumes hypothetical initial investment on the business day before the first
day of the fiscal period, with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Total
returns are not annualized for periods of less than one year.
2 The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
3 Less than $0.005 per share.
4 Had the Adviser not absorbed certain expenses the ratio of expenses to
average net assets would have been 1.39% and 2.29% for the six months ended
June 30, 2000 and the year ended December 31, 1999, respectively.
* Annualized
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
DAVIS VALUE PORTFOLIO
2949 East Elvira Road, Suite 101, Tucson, Arizona 85706
===============================================================================
DIRECTORS OFFICERS
Wesley E. Bass, Jr. Jeremy H. Biggs
Jeremy H. Biggs Chairman
Marc P. Blum Christopher C. Davis
Andrew A. Davis President
Christopher C. Davis Kenneth C. Eich
Jerry D. Geist Vice President
D. James Guzy Sharra L. Reed
G. Bernard Hamilton Vice President,
Laurence W. Levine Treasurer & Assistant Secretary
Christian R. Sonne Thomas D. Tays
Marsha Williams Vice President Secretary
Andrew A. Davis
Vice President
INVESTMENT ADVISER
Davis Selected Advisers, L.P.
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
(800) 279-0279
DISTRIBUTOR
Davis Distributors, LLC
2949 East Elvira Road, Suite 101
Tucson, Arizona 85706
TRANSFER AGENT & CUSTODIAN
State Street Bank and Trust Company
c/o The Davis Funds
P.O. Box 8406
Boston, Massachusetts 02266-8406
COUNSEL
D'Ancona & Pflaum
111 E. Wacker Drive, Suite 2800
Chicago, Illinois 60601-4205
AUDITORS
KPMG LLP
707 Seventeenth Street
Suite 2300
Denver, Colorado 80202
================================================================================
FOR MORE INFORMATION ABOUT THE DAVIS VALUE PORTFOLIO, INCLUDING MANAGEMENT FEE,
CHARGES AND EXPENSES SEE THE CURRENT PROSPECTUS, WHICH MUST PRECEDE OR ACCOMPANY
THIS REPORT.
================================================================================
18
<PAGE>
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
SEMIANNUAL REPORT
June 30, 2000
[DREYFUS LOGO]
<PAGE>
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured
* Not Bank-Guaranteed
* May Lose Value
<PAGE>
CONTENTS
THE FUND
- --------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Statement of Investments
9 Statement of Assets and Liabilities
10 Statement of Operations
11 Statement of Changes in Net Assets
12 Financial Highlights
13 Notes to Financial Statements
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
Back Cover
<PAGE>
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC. THE FUND
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this semiannual report for The Dreyfus Socially
Responsible Growth Fund, Inc., covering the six-month period from January 1,
2000 through June 30, 2000. Inside, you'll find valuable information about how
the fund was managed during the reporting period, including a discussion with
the fund's portfolio managers, Paul Hilton, Clifford Mpare and Maceo Sloan.
While stock prices were little changed on average over the past six months, the
period was marked by high levels of volatility and dramatic shifts in investor
sentiment. Between January and mid-March, large-cap stocks generally continued
to advance, led by fast-growing technology stocks that, many investors believed,
would benefit most from the "new economy." Subsequently, however, technology
stocks corrected sharply over concerns about rising interest rates and extremely
high valuations. Other sectors of the large-cap stock market also declined,
erasing the gains achieved earlier in the year.
Also, primarily because of the precipitous drop in technology stock prices,
value-oriented stocks generally outperformed growth stocks during the reporting
period, a reversal of the trend established over the past several years. In
addition, small-capitalization stocks generally outperformed large-cap stocks,
particularly in the value-oriented segment of the market. In our view, these
short-term swings in investor sentiment highlight once again the importance of
broad diversification and a long-term perspective for most investors.
We appreciate your confidence over the past six months, and we look forward to
your continued participation in The Dreyfus Socially Responsible Growth Fund,
Inc.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
July 17, 2000
2
<PAGE>
DISCUSSION OF FUND PERFORMANCE
Paul A. Hilton, Clifford Mpare and Maceo Sloan,
Portfolio Managers
HOW DID THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
PERFORM RELATIVE TO ITS BENCHMARK?
For the six-month period ended June 30, 2000, The Dreyfus Socially Responsible
Growth Fund, Inc. produced a total return of 2.55%.(1) In contrast, the fund's
benchmark, the Standard & Poor' s 500 Composite Stock Price Index ("S&P 500
Index" ) produced a total return of -0.43% and the Dow Jones Industrial Average
produced a total return of -8.44%, for the same period.(2)
WHAT IS THE FUND'S INVESTMENT APPROACH?
The fund seeks to provide capital growth with growth-oriented companies that
generally exhibit three characteristics: improving profitability measurements, a
pattern of consistent earnings and reasonable prices. The fund looks for current
income as a secondary objective. To pursue these goals, the fund invests
primarily in the common stock of companies that, in the opinion of the fund's
management, meet traditional investment standards while simultaneously
conducting their businesses in a manner that contributes to the enhancement of
the quality of life in America.
WHAT FACTORS INFLUENCED THE FUND'S PERFORMANCE?
Three primary factors influenced the fund's performance over the past six
months: heightened volatility within the stock market, specifically within the
technology sector; continued strength of the U.S. economy; and three short-term
interest-rate hikes by the Federal Reserve Board (the "Fed"). There was a total
increase of 1.00 percentage points in short-term interest rates during the
reporting period as a result of the Fed's attempts to slow economic growth and
forestall the buildup of inflationary pressures. The uncertainty caused by these
interest-rate hikes created volatility for both the market and the fund.
The Fund 3
<PAGE>
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
From the beginning of the reporting period until mid-March 2000, the U.S. stock
market advanced sharply, driven primarily by strong gains within the technology
group. The fund benefited from maintaining above-average exposure to this area.
By mid-March, however, that trend had reversed itself when many technology
stocks, especially those related to the Internet, quickly fell out of favor.
In response, we trimmed our technology exposure, choosing instead to deploy
those assets primarily to diversified financial services companies. That move
proved to be beneficial for the fund. With our financial holdings already a
significant contributor to the fund's overall performance, we concentrated these
holdings in global, diversified financial services companies that we believed
were less likely to be affected by rising interest rates. Examples include
Citigroup, Merrill Lynch and State Street.
WHAT IS THE FUND'S CURRENT STRATEGY?
We have continued to concentrate on financial companies that have global
subdivisions and franchises. In addition, we have begun to increase our exposure
to health care companies. In our view, many of these companies are very
reasonably valued and offer predictable and consistent earnings.
We are also pleased that the Fed left short-term interest rates unchanged at its
June 28th meeting. In our opinion, the Fed's decision not to raise interest
rates signaled a belief that domestic economic growth may have slowed enough to
warrant no further action.
CAN YOU GIVE US AN UPDATE ON THE FUND'S SOCIALLY RESPONSIBLE INVESTING
ACTIVITIES?
Over the past six months, fund management has hosted two meetings with the
management of Coca-Cola in an effort to encourage them to increase the amount of
recycled polyethylene terepthalate (PET) content in their plastic soft drink
containers. While recycled content in aluminum beverage containers and glass
bottles is roughly about 50% and 25%, respectively, currently there is almost no
recycled content in most plastic bottles.
4
<PAGE>
We are very pleased to inform shareholders that Coca-Cola is working toward a
new goal of increasing the amount of recycled PET to 10% in one-quarter of the
plastic bottles they produce this year. Coca-Cola is the first soft drink
company to make such an effort across its complete product line. Currently, the
company spends over $2 billion annually on recycled content materials in the
U.S. alone and over $5 billion worldwide.
July 17, 2000
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE, YIELD AND
INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, FUND SHARES MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE FUND'S PERFORMANCE DOES
NOT REFLECT THE DEDUCTION OF ADDITIONAL CHARGES AND EXPENSES IMPOSED IN
CONNECTION WITH INVESTING IN VARIABLE INSURANCE CONTRACTS, WHICH WILL
REDUCE RETURNS.
(2) SOURCE: LIPPER INC. -- REFLECTS THE REINVESTMENT OF DIVIDENDS AND, WHERE
APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. BOTH THE STANDARD & POOR'S 500
COMPOSITE STOCK PRICE INDEX AND THE DOW JONES INDUSTRIAL AVERAGE ARE WIDELY
ACCEPTED, UNMANAGED INDICES OF U.S. STOCK MARKET PERFORMANCE.
The Fund 5
<PAGE>
STATEMENT OF INVESTMENTS
June 30, 2000 (Unaudited)
================================================================================
COMMON STOCKS--98.2% Shares Value ($)
--------------------------------------------------------------------------------
COMMERCIAL SERVICES--1.4%
Omnicom Group 175,200 15,603,750
CONSUMER NON-DURABLES--3.5%
Clorox 284,800 12,762,600
Coca-Cola 304,800 17,506,950
Kimberly-Clark 150,000 8,606,250
38,875,800
CONSUMER SERVICES--2.2%
McDonald's 196,000 6,455,750
Time Warner 237,300 18,034,800
24,490,550
ELECTRONIC TECHNOLOGY--22.6%
Applied Materials 94,000 (a) 8,518,750
Cisco Systems 603,200 (a) 38,340,900
Cree 100,800 (a) 13,456,800
EMC 312,000 (a) 24,004,500
Flextronics International 200,000 (a) 13,737,500
International Business Machines 161,000 17,639,562
Lexmark International Group, Cl. A 147,200 (a) 9,899,200
Lucent Technologies 270,000 15,997,500
Nokia, ADS 243,600 12,164,775
Nortel Networks 347,897 23,743,970
Sanmina 140,000 (a) 11,970,000
Solectron 345,800 (a) 14,480,375
Sun Microsystems 315,600 (a) 28,699,875
Tellabs 212,800 (a) 14,563,500
Vishay Intertechnology 207,000 (a) 7,853,062
255,070,269
ENERGY MINERALS--1.7%
Royal Dutch Petroleum (New York Shares) 306,000 18,838,125
FINANCE--17.6%
AFLAC 389,100 17,874,281
American Express 377,400 19,671,975
American International Group 224,250 26,349,375
Capital One Financial 289,200 12,905,550
Citigroup 383,700 23,117,925
Fannie Mae 541,800 28,275,187
Marsh & McLennan Cos. 100,000 10,443,750
6
<PAGE>
================================================================================
COMMON STOCKS (CONTINUED) Shares Value ($)
--------------------------------------------------------------------------------
FINANCE (CONTINUED)
Merrill Lynch 229,300 26,369,500
Providian Financial 149,500 13,455,000
State Street 100,000 10,606,250
Wells Fargo 230,000 8,912,500
197,981,293
HEALTH SERVICES--1.9%
Cardinal Health 296,000 21,904,000
HEALTH TECHNOLOGY--15.5%
Amgen 324,800 (a) 22,817,200
Guidant 266,600 (a) 13,196,700
Johnson & Johnson 264,900 26,986,687
Merck & Co. 581,500 44,557,438
Pfizer 723,500 34,728,000
Schering-Plough 630,500 31,840,250
174,126,275
INDUSTRIAL SERVICES--1.0%
Halliburton 241,000 11,372,187
PROCESS INDUSTRIES--1.6%
Avery Dennison 117,300 7,873,763
Ecolab 266,000 10,390,625
18,264,388
PRODUCER MANUFACTURING--2.1%
Miller (Herman) 240,000 6,210,000
Tyco International 378,000 17,907,750
24,117,750
RETAIL TRADE--4.2%
Dollar General 375,000 7,312,500
Gap 272,800 8,525,000
Home Depot 226,550 11,313,341
Safeway 209,400 (a) 9,449,175
Wal-Mart Stores 193,400 11,144,675
47,744,691
SEMICONDUCTORS--4.5%
Altera 120,000 (a) 12,232,500
Intel 189,400 25,320,413
Linear Technology 209,600 13,401,300
50,954,213
The Fund 7
<PAGE>
STATEMENT OF INVESTMENTS (Unaudited) (CONTINUED)
-------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) Shares Value ($)
-------------------------------------------------------------------------------
TECHNOLOGY SERVICES--9.3%
America Online 299,300 (a) 15,788,075
Microsoft 547,000 (a) 43,760,000
Oracle 531,000 (a) 44,637,188
104,185,263
UTILITIES--9.1%
AES 298,800 (a) 13,632,750
AT&T--Liberty Media, Cl. A 653,600 (a) 15,849,800
Bell Atlantic 245,000 12,449,063
Broadwing 350,000 9,078,125
Calpine 140,000 (a) 9,205,000
Global Crossing 276,000 (a) 7,262,250
Sprint (FON Group) 178,000 9,078,000
Vodafone AirTouch, ADR 223,250 9,250,922
WorldCom 366,700 (a) 16,822,363
102,628,273
TOTAL COMMON STOCKS
(cost $795,646,937) 1,106,156,827
--------------------------------------------------------------------------------
Principal
SHORT-TERM INVESTMENTS--2.0% Amount($) Value ($)
--------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--.0%
Self Help Credit Union,
5.92%, 9/21/2000 100,000 100,000
U.S. TREASURY BILLS--2.0%
5.85%, 9/14/2000 4,440,000 4,389,206
5.67%, 10/5/2000 12,961,000 12,767,752
5.69%, 10/12/2000 4,635,000 4,560,608
21,717,566
TOTAL SHORT-TERM INVESTMENTS
(cost $21,810,252) 21,817,566
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $817,457,189) 100.2% 1,127,974,393
LIABILITIES, LESS CASH AND RECEIVABLES (.2%) (1,721,022)
NET ASSETS 100.0% 1,126,253,371
A Non-income producing.
See notes to financial statements.
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Cost Value
--------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 817,457,189 1,127,974,393
Cash 4,353,330
Dividends and interest receivable 356,999
Receivable for shares of Common Stock subscribed 561,709
Prepaid expenses 10,640
1,133,257,071
--------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 719,326
Payable for investment securities purchased 4,284,614
Payable for shares of Common Stock redeemed 1,908,798
Accrued expenses 90,962
7,003,700
--------------------------------------------------------------------------------
NET ASSETS ($) 1,126,253,371
--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 824,044,561
Accumulated undistributed investment income--net 8,983,173
Accumulated net realized gain (loss) on investments (17,291,567)
Accumulated net unrealized appreciation (depreciation)
on investments--Note 4 310,517,204
-------------------------------------------------------------------------------
NET ASSETS ($) 1,126,253,371
-------------------------------------------------------------------------------
SHARES OUTSTANDING
(150 million shares of $.001 par value Common Stock authorized) 28,117,332
NET ASSET VALUE, offering and redemption price per share ($) 40.06
See notes to financial statements.
The Fund 9
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000 (Unaudited)
================================================================================
--------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INCOME:
Cash dividends (net of $45,045 foreign taxes withheld at source) 12,050,893
Interest 805,323
TOTAL INCOME 12,856,216
EXPENSES:
Investment advisory fee--Note 3(a) 3,719,302
Registration fees 52,466
Custodian fees--Note 3(b) 40,952
Professional fees 23,513
Prospectus and shareholders' reports 20,928
Shareholder servicing costs--Note 3(b) 6,437
Directors' fees and expenses--Note 3(c) 4,997
Loan commitment fees--Note 2 2,890
Miscellaneous 1,714
TOTAL EXPENSES 3,873,199
INVESTMENT INCOME--NET 8,983,017
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (17,124,640)
Net unrealized appreciation (depreciation) on investments 38,275,327
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 21,150,687
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 30,133,704
See notes to financial statements.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
Six Months Ended
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
--------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 8,983,017 265,584
Net realized gain (loss) on investments (17,124,640) 30,035,205
Net unrealized appreciation (depreciation)
on investments 38,275,327 152,921,846
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 30,133,704 183,222,635
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net (154,649) (110,779)
Net realized gain on investments -- (29,821,669)
TOTAL DIVIDENDS (154,649) (29,932,448)
CAPITAL STOCK TRANSACTIONS ($):
Net proceeds from shares sold 257,846,037 420,752,466
Dividends reinvested 154,649 29,932,448
Cost of shares redeemed (59,264,874) (184,233,771)
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 198,735,812 266,451,143
TOTAL INCREASE (DECREASE) IN NET ASSETS 228,714,867 419,741,330
NET ASSETS ($):
Beginning of Period 897,538,504 477,797,174
END OF PERIOD 1,126,253,371 897,538,504
Undistributed investment income--net 8,983,173 154,805
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 6,684,878 12,274,415
Shares issued for dividends reinvested 3,916 770,462
Shares redeemed (1,544,426) (5,444,636)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 5,144,368 7,600,241
See notes to financial statements.
The Fund 11
<PAGE>
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
<TABLE>
<CAPTION>
====================================================================================================================================
Year Ended December 31,
Six Months Ended -----------------------------------------------------------------
June 30, 2000
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA ($):
Net asset value,
beginning of period 39.07 31.08 24.97 20.09 17.31 13.23
Investment Operations:
Investment income--net .35(a) .01(a) .05 .09 .05 .08
Net realized and unrealized
gain (loss) on investments .65 9.34 7.28 5.63 3.63 4.49
Total from Investment Operations 1.00 9.35 7.33 5.72 3.68 4.57
Distributions:
Dividends from investment
income--net (.01) (.01) (.05) (.10) (.05) (.08)
Dividends from net realized
gain on investments -- (1.35) (1.17) (.74) (.85) (.41)
Total Distributions (.01) (1.36) (1.22) (.84) (.90) (.49)
Net asset value, end of period 40.06 39.07 31.08 24.97 20.09 17.31
TOTAL RETURN (%) 2.55(b) 30.08 29.38 28.44 21.23 34.56
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to
average net assets .39(b) .79 .80 .82 .95 1.27
Ratio of interest expense and
loan commitment fees
to average net assets .00(b),(c) .00(c) .00(c) .00(c) .01 --
Ratio of net investment income
to average net assets .90(b) .04 .20 .46 .42 .70
Decrease reflected in above
expense ratios due to
undertakings by
The Dreyfus Corporation -- -- -- -- .03 .06
Portfolio Turnover Rate 33.49(b) 70.84 67.60 58.50 126.41 88.52
Net Assets, end of period
($ x 1,000) 1,126,253 897,539 477,797 275,887 114,570 31,657
</TABLE>
(a) Based on average shares outstanding at each month end.
(b) Not annualized.
(c) Amount represents less than .01%.
See notes to financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Significant Accounting Policies:
The Dreyfus Socially Responsible Growth Fund, Inc. (the "fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified open-end management investment company. The fund's investment
objective is to provide capital growth through equity investments in companies
that not only meet traditional investment standards but which also show evidence
that they conduct their business in a manner that contributes to the enhancement
of the quality of life in America. The fund is intended to be a funding vehicle
for variable annuity contracts and variable life insurance policies to be
offered by the separate accounts of life insurance companies. The Dreyfus
Corporation ("Dreyfus" ) serves as the fund's investment adviser. Dreyfus is a
direct subsidiary of Mellon Bank, N.A. ("Mellon"), which is a wholly-owned
subsidiary of Mellon Financial Corporation. NCM Capital Management Group, Inc.
("NCM" ) serves as the fund's sub-investment adviser. Effective March 22, 2000,
Dreyfus Service Corporation ("DSC" ), a wholly-owned subsidiary of Dreyfus,
became the distributor of the fund's shares, which are sold to the public
without a sales charge. Prior to March 22, 2000, Premier Mutual Fund Services,
Inc. was the distributor.
The fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(A) PORTFOLIO VALUATION: Investments in securities are valued at the last sales
price on the securities exchange on which such securities are primarily traded
or at the last sales price on the national securities market. Securities not
listed on an exchange or the national securities market, or securities for which
there were no transactions, are valued at the average of the most recent bid and
asked prices. Bid price is used when no asked price is available. Securities for
which there are no such valuations are valued at fair value as determined in
good faith under the direction of the Board of Directors.
The Fund 13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Dividend income is
recognized on the ex-dividend date and interest income, including, where
applicable, amortization of discount on investments, is recognized on the
accrual basis. Under the terms of the custody agreement, the fund receives net
earnings credits based on available cash balances left on deposit.
(C) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend date.
Dividends from investment income-net and dividends from net realized capital
gain are normally declared and paid annually, but the fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code of 1986, as amended (the "Code"). To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the fund to continue to qualify as
a regulated investment company, if such qualification is in the best interests
of its shareholders, by complying with the applicable provisions of the Code,
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes.
NOTE 2--Bank Line of Credit:
The fund participates with other Dreyfus-managed funds in a $500 million
redemption credit facility (the "Facility" ) to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the fund at rates based on prevailing
market rates in effect at the time of borrowings. During the period ended June
30, 2000, the fund did not borrow under the Facility.
14
<PAGE>
NOTE 3--Investment Advisory Fee, Sub-Investment Advisory Fee and Other
Transactions with Affiliates:
(A) Pursuant to an Investment Advisory Agreement with Dreyfus, the investment
advisory fee is computed at the annual rate of .75 of 1% of the value of the
fund's average daily net assets and is payable monthly.
Pursuant to a Sub-Investment Advisory Agreement with NCM, the sub-investment
advisory fee is payable monthly by Dreyfus, and is based upon the value of the
fund's average daily net assets, computed at the following annual rates:
AVERAGE NET ASSETS
0 to $32 million. . . . . . . . . . . . . . . . . . . .10 of 1%
In excess of $32 million to $150 million. . . . . . . .15 of 1%
In excess of $150 million to $300 million . . . . . . .20 of 1%
In excess of $300 million . . . . . . . . . . . . . . .25 of 1%
(B) Under the Shareholder Services Plan, the fund reimburses DSC an amount not
to exceed an annual rate of .25 of 1% of the value of the fund's average daily
net assets for certain allocated expenses with respect to servicing and/or
maintaining shareholder accounts. During the period ended June 30, 2000, the
fund was charged $3,900 pursuant to the Shareholder Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of
Dreyfus, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the fund. During the period
ended June 30, 2000, the fund was charged $232 pursuant to the transfer agency
agreement.
The fund compensates Mellon under a custody agreement for providing custodial
services for the fund. During the period ended June 30, 2000, the fund was
charged $40,952 pursuant to the custody agreement.
The Fund 15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
(C) Each Board member also serves as a Board member of other funds within the
Dreyfus complex (collectively, the "Fund Group"). Effective April 13, 2000, each
Board member who is not an "affiliated person" as defined in the Act receives an
annual fee of $25,000 and an attendance fee of $4,000 for each in person meeting
and $500 for telephone meetings. These fees are allocated among the funds in the
Fund Group. The Chairman of the Board receives an additional 25% of such
compensation. Prior to April 13, 2000, each Board member who was not an
"affiliated person" as defined in the Act received from the fund an annual fee
of $2,500. The Chairman of the Board received an additional 25% of such
compensation. Subject to the fund's Director Emeritus Program Guidelines,
Emeritus Board members, if any, receive 50% of the fund's annual retainer fee
and per meeting fee paid at the time the Board member achieves emeritus status.
(D) During the period ended June 30, 2000, the fund incurred total brokerage
commissions of $685,454, of which $30,592 was paid to Dreyfus Brokerage
Services, a wholly-owned subsidiary of Mellon Financial Corporation.
NOTE 4--SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities, excluding
short-term securities, during the period ended June 30, 2000, amounted to
$552,739,371 and $325,825,359, respectively.
At June 30, 2000, accumulated net unrealized appreciation on investments was
$310,517,204, consisting of $334,108,466 gross unrealized appreciation and
$23,591,262 gross unrealized depreciation.
At June 30, 2000, the cost of investments for Federal income tax purposes was
substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
16
<PAGE>
The Fund 17
<PAGE>
FOR MORE INFORMATION
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
200 Park Avenue
New York, NY 10166
INVESTMENT ADVISER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
SUB-INVESTMENT ADVISER
NCM Capital Management Group, Inc.
103 West Main Street
Durham, NC 22705
CUSTODIAN
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
DISTRIBUTOR
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166
To obtain information:
BY TELEPHONE Call 1-800-554-4611 or
516-338-3300
BY MAIL Write to:
The Dreyfus Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
Attn: Institutional Servicing
Printed on recycled paper.
50% post-consumer
Process chlorine free.
Vegetable-based ink.
Printed in U.S.A.
(c) 2000 Dreyfus Service Corporation 111SA006
<PAGE>
SEMI-ANNUAL REPORT
[GRAPHIC OMITTED]
June 30, 2000
FRANKLIN TEMPLETON
VARIABLE INSURANCE
PRODUCTS TRUST
[LOGO]
FRANKLIN(?) TEMPLETON(R)
INVESTMENTS
<PAGE>
A WORD ABOUT RISK
All of the funds are subject to certain risks, which will cause investment
returns and the value of your principal to increase or decrease. Generally,
investments offering the potential for higher returns are accompanied by a
higher degree of risk. Stocks and other equities, representing an ownership
interest in an individual company, historically have outperformed other asset
classes over the long term, but tend to fluctuate more dramatically over the
shorter term. Securities of smaller companies, and companies involved in
reorganization or bankruptcy, may have greater price swings and greater credit
and other risks.
Bonds and other debt obligations are affected by the creditworthiness of their
issuers, and changes in interest rates, with prices declining as interest rates
increase. High yield, lower-rated ("junk") bonds generally have greater price
swings and higher default risks than investment grade bonds. An investment in
Franklin Money Market Fund is neither insured nor guaranteed by the U.S.
government. The Fund attempts to maintain a stable net asset value of $1.00 per
share, but there can be no assurance that it will.
Foreign investing, especially in emerging market countries, has additional
risks such as changes in currency values, market price swings, and economic,
political or social instability. These, and other risks pertaining to specific
funds, such as specialized industry or geographical sectors or use of complex
securities, are discussed in the Franklin Templeton Variable Insurance Products
Trust prospectus. Your investment representative can help you determine which
funds may be right for you.
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST SEMIANNUAL REPORT
TABLE OF CONTENTS [GRAPHIC OMITTED]
LETTER TO CONTRACT OWNERS ........................................ 2
FUND SUMMARIES
FUNDS SEEKING CAPITAL GROWTH
Franklin Small Cap Fund ......................................... FS-1
Templeton International Securities Fund
(formerly Templeton International Fund) ...................... TI-1
Thank you for investing with Franklin Templeton Variable Insurance Products
Trust. We encourage our investors to maintain a long-term perspective, and
remember that all securities markets move both up and down, as do fund unit
prices. We appreciate your past support and look forward to serving your
investment needs in the years ahead.
PRU1 S00 08/00
<PAGE>
LETTER TO CONTRACT OWNERS
Dear Contract Owners:
We are pleased to bring you Franklin Templeton Variable Insurance Products
Trust's semiannual report for the period ended June 30, 2000.
During the first six months of 2000, many of the world's economies strengthened,
in contrast to the U.S. economy, which began to show the first signs of slowing
toward the period's end. Abroad, those countries in the European Union were able
to take advantage of the euro's weakness to bolster exports and create jobs,
pushing the region's unemployment to its lowest level in seven years. Many Asian
and Latin American emerging countries' economies also enjoyed brisk growth
during the period, with steadier consumer consumption replacing exports and
government spending as the principal foundation for growth. The Japanese economy
recently reported a 2.4% annualized increase in its gross domestic product (GDP)
for the first quarter of 2000, the highest in four years.
It was a different story in the U.S., as the Federal Reserve Board (the Fed)
continued to raise short-term interest rates in an effort to stem what they
apparently believed was a rising inflation threat as a result of the
super-heated economy. The first signs of a slowdown appeared in March, when
retail sales, new vehicle sales and housing starts fell, and this trend
continued into June, reinforcing the possibility that the economy was indeed
decelerating.
In spite of the generally strong economic backdrop, most stock markets around
the globe ended the period in negative territory, weighed down by rising
interest rates. However, this environment affected various stocks differently,
and the end result does not tell the entire story.
For the stock markets, the beginning of the period witnessed the continuance of
many investors' ravenous appetites for "new economy" stocks -- technology,
biotechnology, telecommunications and Internet-related companies -- seemingly at
the expense of "old economy" stocks, which meant almost everything else. Taking
a cue from the end of 1999 and apparently fueled by a rapidly increasing money
supply and central bank reluctance to raise rates in anticipation of potential
Y2K problems, investors jumped into these new economy stocks, and many rocketed
in the first two months of 2000. This was most obvious
2
<PAGE>
in the U.S., where at its peak on March 10, 2000, the technology-heavy Nasdaq(R)
had increased 24.1% since the start of the year, but this "tech mania" also
included technology companies in Europe and Japan, which saw the prices of some
of their hottest stocks double, triple and more.(1) However, many of these
stocks ran out of gas in March with the Nasdaq falling 37.3% from its high, as
investor confidence waned following recurrent Fed interest-rate increases. For
the period, the Nasdaq returned -2.02%.
While new economy stocks were grabbing headlines, it was some of the old economy
stocks that were the best performers in the period. Supported by oil prices
hovering around $29 a barrel and natural gas prices at three-year highs, many
energy-related company stocks increased significantly. Likewise, pharmaceutical
stocks rose strongly, as investors seemed to feel that an aging world population
would likely increase the demand for such companies' products regardless of the
level of economic growth or interest rates.
U.S. Treasury and corporate bond prices were volatile in this rising
interest-rate environment, partially due to investor uncertainty over the U.S.
economy's strength. Surprisingly, many emerging market bonds posted solid
performances, bolstered by these countries' improving financial conditions.
It is important to remember, of course, that securities markets always have
been, and always will be, subject to volatility. No one can predict exactly how
they will perform in the future. For this reason, we urge you to exercise
patience and focus not on day-to-day market movements, but on your long-term
retirement and investment goals. As always, we appreciate your support, welcome
your questions and comments, and look forward to serving your investment needs
in the years ahead.
Sincerely,
/s/ RUPERT H. JOHNSON, JR.
Rupert H. Johnson, Jr.
Vice President
Franklin Templeton Variable Insurance Products Trust
1. The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based
common stocks listed on the Nasdaq Stock Market(R). The Index is market-value
weighted and includes over 5,000 companies (as of 6/30/00).
3
<PAGE>
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
<PAGE>
FRANKLIN SMALL CAP FUND
--------------------------------------------------------------------------------
FUND GOAL AND PRIMARY INVESTMENTS: FRANKLIN SMALL CAP FUND SEEKS LONG-TERM
CAPITAL GROWTH. THE FUND INVESTS PRIMARILY IN EQUITY SECURITIES OF U.S. SMALL
CAPITALIZATION COMPANIES, WHICH FOR THIS FUND ARE THOSE COMPANIES WITH MARKET
CAPITALIZATION VALUES NOT EXCEEDING (I) $1.5 BILLION; OR (II) THE HIGHEST MARKET
CAPITALIZATION VALUE IN THE RUSSELL 2000 INDEX, WHICHEVER IS GREATER, AT THE
TIME OF PURCHASE.
--------------------------------------------------------------------------------
TOP 10 SECTOR BREAKDOWN
FRANKLIN SMALL CAP FUND
6/30/00
% OF TOTAL
SECTOR NET ASSETS
--------------------------------------
Electronic Technology 30.0%
Technology Services 23.6%
Telecommunications 6.1%
Finance 4.8%
Industrial Services 3.1%
Real Estate 2.6%
Transportation 2.2%
Energy Minerals 2.1%
Consumer Services 1.8%
Health Technology 1.6%
During the first six months of 2000, U.S. economic growth was fueled by strong
global demand, solid consumer confidence, and increased manufacturing
productivity. In fact, growth was so strong that inflation threatened to rear
its head. The apparent concern in equity markets was the prospect of frequent
Federal Reserve rate hikes throughout 2000, following three 0.25% rate increases
in 1999. While the nation's economy was expanding, U.S. equity markets were in
turmoil, first rising steeply and then falling sharply. Within the first 10
weeks of the year, the Russell 2000 Growth Index, a leading indicator of
growth-oriented domestic small-cap stock performance, rose 30.65%. In the
following 10 weeks, it gave up all of that gain -- and then some -- before
rebounding slightly to end the period up just 1.23% for the year-to-date through
June 30, 2000.(1)
Although no industry sector was a completely safe haven, the most volatile
issues were technology and Internet-related stocks. The market appeared to swing
from late 1999's fear of not owning these stocks to a fear of owning them,
followed by a wholesale dumping of shares of Internet-related companies, some of
which had been managing themselves towards sales but not earnings growth.
Unfortunately, in our opinion, shares of some good companies were, like the
proverbial baby, thrown out with the bath water.
Ironically, this decline occurred in an environment of aggressive buying by
individual investors and healthy cash flows into technology and growth funds.
However, for the first time in many years, "buying on the dip" did not seem to
rescue the market as half-hearted rallies were followed by sharp corrections to
lower lows. Faced with the prospect of higher interest rates, and the belief
that many stocks were finally being fairly valued, some investors turned towards
value stocks, restraining the upside in the technology market and making it
resistant
1. Source: Standard & Poor's Micropal. The Russell 2000 Growth Index measures
the performance of those Russell 2000 companies with higher price-to-book ratios
and higher forecasted growth values.
FS-1
<PAGE>
TOP 10 HOLDINGS
FRANKLIN SMALL CAP FUND
6/30/00
COMPANY % OF TOTAL
SECTOR, COUNTRY NET ASSETS
---------------------------------------
JDS Uniphase Corp. 5.9%
Electronic Technology,
United States
PMC-Sierra Inc. 4.3%
Electronic Technology,
Canada
i2Technologies Inc. 2.4%
Technology Services,
United States
VERITAS Software Corp. 2.3%
Technology Services,
United States
Micromuse Inc. 2.0%
Technology Services,
United States
BroadVision Inc. 1.6%
Technology Services,
United States
VoiceStream Wireless
Corp. 1.5%
Telecommunications,
United States
RSA Security Inc. 1.3%
Electronic Technology,
United States
Coherent Inc. 1.3%
Electronic Technology,
United States
Waters Corp. 1.2%
Electronic Technology,
United States
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments.
to rallies. Toward the end of the reporting period, news that the U.S. economy
might be beginning to cool contributed to a revival in the technology sector
during late May and June amid sharply declining trading volumes.
During the reporting period, the Fund's share price rose and fell with the
general market, but outperformed the Russell 2000, its benchmark index, which
returned 3.04%. We used the early part of the year to cut back the number of our
positions, especially those relating to the Internet. Although we were not
completely successful in this effort, we had converted many of them to cash by
the April correction in the overall market. Fortunately, we also held real
estate investment trusts and energy stocks, both of which moderated the
performance swings in our tech investments.
As the market stabilized toward the end of the reporting period, we began
initiating new positions and adding to existing holdings in all sectors.
Although we focused on the technology and technology services areas, where we
think valuations are now more rational than they were in January and February,
we also added selectively to the energy and professional services sectors. We
believe that as investors increasingly understand the merits of diversification
beyond technology, the many non-technology stocks owned by the Fund will be
recognized as high-quality growth stocks.
Looking forward, we remain optimistic about growth prospects in the small-cap
universe. Although a weak dollar brought on by equity market turbulence could
exacerbate inflationary pressures, and low liquidity can pose problems in the
sale of small-cap stocks, we are often able to purchase shares of what we
believe are great companies at fire-sale prices. Global economies are currently
strong, and we will continue searching for companies that we believe possess
competitive advantages such as intellectual property, barriers to market entry
for competitors or a faster-than-average growth trend.
FS-2
<PAGE>
We think it is wise to maintain a healthy respect for the past history of the
U.S. economy's business cycles, and for realistic limits to uninterrupted growth
of America's fastest growing companies. Last year's strong portfolio gains
reflect an extended period of unusually high earnings growth and returns on
capital of leading technology companies. Some investors expect this to continue.
However, one thing is certain: This rate of growth may not be attainable for
many companies in the future, and we can not realistically rely on such
performance results to continue indefinitely. We will try our hardest to deliver
the past year's performance every time, but no one should expect that to be the
case for this, or any, Fund.
--------------------------------------------------------------------------------
THIS DISCUSSION REFLECTS OUR VIEWS, OPINIONS AND PORTFOLIO HOLDINGS AS OF JUNE
30, 2000, THE END OF THE REPORTING PERIOD. THE INFORMATION PROVIDED IS NOT A
COMPLETE ANALYSIS OF EVERY ASPECT OF ANY COUNTRY, INDUSTRY, SECURITY OR THE
FUND. OUR STRATEGIES AND THE FUND'S PORTFOLIO COMPOSITION WILL CHANGE DEPENDING
ON MARKET AND ECONOMIC CONDITIONS. ALTHOUGH HISTORICAL PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT AND MANAGEMENT PHILOSOPHY.
FRANKLIN SMALL CAP FUND BUYS SMALL CAP STOCKS THAT THE MANAGERS BELIEVE WILL
APPRECIATE IN VALUE. WHEN OUR STRATEGY IS SUCCESSFUL, OUR SMALL CAP HOLDINGS
GROW TO BE MID- AND SOMETIMES LARGE-CAP STOCKS. FOR THIS REASON, THE FUND'S
AVERAGE MARKET CAP HAS TENDED TO GROW AS MANY HOLDINGS IN EXCELLENT SMALL CAP
COMPANIES HAVE GROWN, SOMETIMES DRAMATICALLY. GIVEN THE FUND'S STRATEGY, THE
MANAGERS BELIEVE THE FUND'S AVERAGE MARKET CAP HAS, AND LIKELY WILL CONTINUE
TO, RANGE FROM SMALL TO MID CAP.
--------------------------------------------------------------------------------
FS-3
<PAGE>
FRANKLIN SMALL CAP FUND
CLASS 1
--------------------------------------------------------------------------------
PERFORMANCE REFLECTS THE FUND'S CLASS 1 OPERATING EXPENSES, BUT DOES NOT
INCLUDE ANY CONTRACT FEES, EXPENSES, OR SALES CHARGES. IF THEY HAD BEEN
INCLUDED, PERFORMANCE WOULD BE LOWER. THESE CHARGES AND DEDUCTIONS,
PARTICULARLY FOR VARIABLE LIFE POLICIES, CAN HAVE A SIGNIFICANT EFFECT ON
CONTRACT VALUES AND INSURANCE BENEFITS. SEE THE CONTRACT PROSPECTUS FOR A
COMPLETE DESCRIPTION OF THESE EXPENSES, INCLUDING SALES CHARGES.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND THE VALUE OF
YOUR PRINCIPAL WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 6/30/00
FRANKLIN SMALL CAP FUND - CLASS 1 DELIVERED A +6.58% CUMULATIVE TOTAL RETURN FOR
THE SIX-MONTH PERIOD ENDED 6/30/00. Total return of Class 1 shares represents
the cumulative or average annual change in value, assuming reinvestment of
dividends and capital gains. Average returns smooth out variations in returns,
which can be significant; they are not the same as year-by-year results.
FRANKLIN SMALL CAP FUND - CLASS 1
PERIODS ENDED 6/30/00
SINCE
INCEPTION
1-YEAR 3-YEAR (11/1/95)
--------------------------------------------------------------------
Average Annual Total Return +80.21% +31.20% +28.51%
Cumulative Total Return +80.21% +125.85% +222.26%
Value of $10,000 Investment $18,021 $22,585 $32,226
THESE RETURNS REFLECT PERIODS OF RAPIDLY RISING STOCK MARKETS AND SUCH GAINS MAY
NOT CONTINUE. ONGOING STOCK MARKET VOLATILITY, PARTICULARLY IN THE TECHNOLOGY
SECTOR, CAN DRAMATICALLY CHANGE THE FUND'S SHORT-TERM PERFORMANCE; CURRENT
RESULTS MAY BE LOWER.
Past performance does not guarantee future results.
FS-4
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS 1
----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 ---------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995(d)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $26.87 $13.72 $15.05 $13.20 $10.24 $10.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(c) .............. .02 (.01) .07 .01 .02 .03
Net realized and unrealized gains (losses) ... 1.55 13.25 (.20) 2.24 2.95 .21
----------------------------------------------------------------------------------
Total from investment operations .............. 1.57 13.24 (.13) 2.25 2.97 .24
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ -- (.08) (.01) (.03) (.01) --
Net realized gains ........................... (1.92) (.01) (1.19) (.37) -- --
----------------------------------------------------------------------------------
Total distributions ........................... (1.92) (.09) (1.20) (.40) (.01) --
----------------------------------------------------------------------------------
Net asset value, end of period ................ $26.52 $26.87 $13.72 $ 15.05 $13.20 $10.24
==================================================================================
Total return(a) ............................... 6.58% 96.94% (.98%) 17.42% 28.95% 2.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $510,752 $488,062 $315,460 $313,462 $170,969 $13,301
Ratios to average net assets:
Expenses ..................................... .76%(b) .77% .77% .77% .77% .90%(b)
Net investment income (loss) ................. .14%(b) (.05%) .51% .06% .63% 2.70%(b)
Portfolio turnover rate ....................... 8.54% 39.49% 53.01% 64.07% 63.72% 16.04%
</TABLE>
(a)Total return does not include any fees, charges or expenses imposed by the
variable annuity and life insurance contracts for which the Franklin
Templeton Variable Insurance Products Trust serves as an underlying
investment vehicle. Total return is not annualized for periods less than one
year.
(b)Annualized
(c)Based on average shares outstanding effective year ended December 31, 1999.
(d)For the period November 1, 1995 (effective date) to December 31, 1995.
FS-5
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS 2
---------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999(d)
---------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $26.80 $14.25
---------------------------------------
Income from investment operations:
Net investment income (loss)(c) .............. .05 (.04)
Net realized and unrealized gains ............ 1.49 12.68
---------------------------------------
Total from investment operations .............. 1.54 12.64
---------------------------------------
Less distributions from:
Net investment income ........................ -- (.08)
Net realized gains ........................... (1.92) (.01)
---------------------------------------
Total distributions ........................... (1.92) (.09)
---------------------------------------
Net asset value, end of period ................ $26.42 $26.80
=======================================
Total return(a) ............................... 6.48% 89.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $203,158 $6,156
Ratios to average net assets:
Expenses ..................................... 1.01%(b) 1.02%(b)
Net investment income (loss) ................. .36%(b) (.18%)(b)
Portfolio turnover rate ....................... 8.54% 39.49%
</TABLE>
(a)Total return does not include any fees, charges or expenses imposed by the
variable annuity and life insurance contracts for which the Franklin
Templeton Variable Insurance Products Trust serves as an underlying
investment vehicle. Total return is not annualized for periods less than one
year.
(b)Annualized
(c)Based on average shares outstanding.
(d)For the period January 6, 1999 (effective date) to December 31, 1999.
See notes to financial statements.
FS-6
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 84.1%
COMMERCIAL SERVICES 1.6%
(a) Aether Systems Inc. ......................... United States 4,600 $ 943,000
(a) Answerthink Inc. ............................ United States 118,900 1,976,713
(a) Careerbuilder Inc. .......................... United States 37,200 123,225
(a) Corporate Executive Board Co. ............... United States 14,700 880,163
(a) DigitalThink Inc. ........................... United States 3,400 121,975
FactSet Research Systems Inc. ............... United States 25,000 706,250
(a) GetThere.com Inc. ........................... United States 3,300 34,856
(a) Hotjobs.com Ltd. ............................ United States 26,100 360,506
(a) Interep National Radio Sales Inc. ........... United States 26,200 139,188
(a) Internet Pictures Corp. ..................... United States 54,830 829,304
(a) Netcentives Inc. ............................ United States 4,800 89,400
(a) NOVA Corp. .................................. United States 60,900 1,701,394
(a) ProBusiness Services Inc. ................... United States 3,000 79,688
(a) Smith-Gardner & Associates Inc. ............. United States 7,400 35,613
(a) SOS Staffing Services Inc. .................. United States 37,900 116,069
(a) Stamps.com Inc. ............................. United States 28,300 206,944
(a) Ventro Corp. ................................ United States 10,400 196,300
Viad Corp. .................................. United States 94,100 2,564,225
(a) Wink Communications Inc. .................... United States 200 6,100
-----------
11,110,913
-----------
CONSUMER DURABLES
D.R. Horton Inc. ............................ United States 16,000 217,000
Ethan Allen Interiors Inc. .................. United States 3,000 72,000
-----------
289,000
-----------
CONSUMER NON-DURABLES .3%
(a) Tommy Hilfiger Corp. ........................ United States 128,600 964,500
Wolverine World Wide Inc. ................... United States 84,800 837,400
-----------
1,801,900
-----------
(a) CONSUMER SERVICES 1.8%
Acme Communications Inc. .................... United States 11,700 213,525
ARTISTdirect Inc. ........................... United States 3,300 10,313
Classic Communications Inc., A .............. United States 4,500 40,219
Cumulus Media Inc., A ....................... United States 71,900 656,088
DeVry Inc. .................................. United States 67,800 1,792,463
Entercom Communications Corp. ............... United States 2,300 112,125
Insight Communications Co. Inc., A .......... United States 100,400 1,568,750
Jack in the Box Inc. ........................ United States 72,200 1,777,925
MeriStar Hotels & Resorts Inc. .............. United States 120,000 345,000
Quokka Sports Inc. .......................... United States 1,800 14,456
Quotesmith.com Inc. ......................... United States 34,100 73,528
Radio One Inc. .............................. United States 15,800 467,088
Radio One Inc., D ........................... United States 31,600 697,175
SFX Entertainment Inc. ...................... United States 70,275 3,184,336
Spanish Broadcasting Systems Inc. ........... United States 19,400 398,913
Vail Resorts Inc. ........................... United States 33,700 549,731
XM Satellite Radio Holdings Inc. ............ United States 24,700 924,706
-----------
12,826,341
-----------
</TABLE>
FS-7
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC TECHNOLOGY 30.0%
(a) Accelerated Networks Inc. ................... United States 9,200 $ 388,125
(a) Adaptec Inc. ................................ United States 13,300 302,575
(a) Advanced Energy Industries Inc. ............. United States 52,600 3,100,113
(a) Aeroflex Inc. ............................... United States 12,600 626,063
(a) Alpha Industries Inc. ....................... United States 40,000 1,762,500
(a) Alteon Websystems Inc. ...................... United States 12,800 1,280,800
(a) Anaren Microwave Inc. ....................... United States 2,100 275,592
(a) Apex Inc. ................................... United States 12,700 555,625
(a) Applied Materials Inc. ...................... United States 46,968 4,256,475
(a) Applied Science & Technology Inc. ........... United States 3,000 77,625
(a) AVT Corp. ................................... United States 78,900 581,888
(a) Carrier Access Corp. ........................ United States 24,600 1,300,725
(a) Catapult Communications Corp. ............... United States 38,600 388,413
(a) C-COR.net Corp. ............................. United States 24,800 669,600
(a) Celeritek Inc. .............................. United States 6,000 244,875
(a) Celestica Inc. .............................. Canada 6,900 342,413
(a) Cobalt Networks Inc. ........................ United States 35,800 2,071,925
(a) Coherent Inc. ............................... United States 106,400 8,924,300
(a) Com21 Inc. .................................. United States 40,000 1,000,000
(a) Conexant Systems Inc. ....................... United States 6,534 317,716
(a) Copper Mountain Networks Inc. ............... United States 5,500 484,688
CTS Corp. ................................... United States 11,200 504,000
(a) DDi Corp. ................................... United States 12,200 347,700
(a) Digital Microwave Corp. ..................... United States 61,100 2,329,438
(a) Ditech Communications Corp. ................. United States 49,700 4,699,756
Elcoteq Network Corp., A .................... Finland 7,000 153,991
(a) Electro Scientific Industries Inc. .......... United States 9,700 427,103
(a) eMachines Inc. .............................. United States 7,600 20,425
(a) EMCORE Corp. ................................ United States 30,200 3,624,000
(a) Flextronics International Ltd. .............. Singapore 105,236 7,228,398
(a) FLIR Systems Inc. ........................... United States 101,500 659,750
(a) Foundry Networks Inc. ....................... United States 15,800 1,745,900
(a) FVC.COM Inc. ................................ United States 12,600 97,650
(a) Gemstar International Group Ltd. ............ United States 120,000 7,374,375
(a) Handspring Inc. ............................. United States 11,200 302,400
(a) Harmonic Inc. ............................... United States 28,000 693,000
(a) Integral Systems Inc. ....................... United States 14,600 244,550
(a) Integrated Circuit Systems Inc. ............. United States 48,500 830,563
(a) Jabil Circuit Inc. .......................... United States 81,600 4,049,400
(a) JDS Uniphase Corp. .......................... United States 351,108 42,089,072
(a) Juniper Networks Inc. ....................... United States 2,400 349,350
Keithley Instruments Inc. ................... United States 30,000 2,613,750
(a) Komag Inc. .................................. United States 262,000 458,500
(a) Kopin Corp. ................................. United States 4,800 332,400
(a) Lam Research Corp. .......................... United States 16,000 600,000
(a) Lattice Semiconductor Corp. ................. United States 27,000 1,866,375
(a) MCK Communications Inc. ..................... United States 12,300 284,438
(a) Mettler-Toledo International Inc. ........... Switzerland 160,300 6,412,000
(a) Micrel Inc. ................................. United States 36,000 1,563,750
(a) MMC Networks Inc. ........................... United States 11,300 603,844
(a) Nanometrics Inc. ............................ United States 8,000 329,500
(a) Natural MicroSystems Corp. .................. United States 7,200 809,550
(a) Netopia Inc. ................................ United States 1,000 40,250
(a) Netro Corp. ................................. United States 6,800 390,150
(a) NICE Systems Ltd., ADR ...................... Israel 12,300 949,406
</TABLE>
FS-8
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC TECHNOLOGY (CONT.)
(a) Novellus Systems Inc. ................................... United States 57,000 $ 3,224,063
(a) Numerical Technologies Inc. ............................. United States 2,700 131,288
(a) Paradyne Networks Inc. .................................. United States 2,400 78,150
(a) P-Com Inc. .............................................. United States 600 3,188
(a) PC-Tel Inc. ............................................. United States 22,800 866,400
(a) Perceptron Inc. ......................................... United States 62,100 211,528
PerkinElmer Inc. ........................................ United States 1,000 66,125
(a) Photronics Inc. ......................................... United States 28,400 805,850
(a) Pinnacle Systems Inc. ................................... United States 23,400 526,134
(a) Pixelworks Inc. ......................................... United States 6,000 136,500
(a) PLX Technology Inc. ..................................... United States 22,800 946,200
(a) PMC-Sierra Inc. ......................................... Canada 172,000 30,562,250
(a) Polycom Inc. ............................................ United States 53,700 5,052,834
(a) Power Integrations Inc. ................................. United States 15,000 353,438
(a) Powerwave Technologies Inc. ............................. United States 13,800 607,200
(a) Proxim Inc. ............................................. United States 24,800 2,454,425
(a) PSi Technologies Holdings Inc., ADR ..................... Philippines 2,100 43,575
(a) QLogic Corp. ............................................ United States 6,800 449,225
(a) Quantum Effect Devices Inc. ............................. United States 6,500 370,500
(a) QuickLogic Corp. ........................................ United States 49,800 1,108,050
(a) Radiant Systems Inc. .................................... United States 1,350 32,400
(a) Redback Networks Inc. ................................... United States 8,300 1,477,400
(a) RSA Security Inc. ....................................... United States 133,700 9,258,725
(a) Sanmina Corp. ........................................... United States 37,600 3,214,800
(a) Semtech Corp. ........................................... United States 21,000 1,606,172
(a) Sierra Wireless Inc. .................................... Canada 24,800 1,334,550
(a) Silicon Laboratories Inc. ............................... United States 300 15,938
(a) Stanford Microdevices Inc. .............................. United States 7,400 321,438
(a) Synopsys Inc. ........................................... United States 67,600 2,336,425
(a) Tekelec ................................................. United States 101,000 4,866,938
(a) Tektronix Inc. .......................................... United States 17,800 1,317,200
(a) Telaxis Communications Corp. ............................ United States 600 18,750
(a) Triquint Semiconductor Inc. ............................. United States 18,100 1,731,944
(a) Varian Inc. ............................................. United States 37,300 1,720,463
(a) Varian Semiconductor Equipment Associates Inc. .......... United States 25,400 1,595,438
(a) Veeco Instruments Inc. .................................. United States 28,560 2,092,020
(a) Visual Networks Inc. .................................... United States 11,000 313,500
(a) Waters Corp. ............................................ United States 68,000 8,487,250
(a) Westell Technologies Inc. ............................... United States 10,500 157,500
(a) Western Digital Corp. ................................... United States 66,500 332,500
(a) Xircom Inc. ............................................. United States 2,400 114,000
------------
214,319,044
------------
ENERGY MINERALS 2.1%
(a) Barrett Resources Corp. ................................. United States 90,400 2,751,550
(a) Basin Exploration Inc. .................................. United States 41,800 747,175
Cabot Oil & Gas Corp., A ................................ United States 16,500 349,594
(a) Chesapeake Energy Corp. ................................. United States 101,300 785,075
(a) Denbury Resources Inc. .................................. United States 83,500 433,156
(a) Forest Oil Corp. ........................................ United States 46,400 739,500
(a) Louis Dreyfus Natural Gas Corp. ......................... United States 15,500 485,344
(a) Newfield Exploration Co. ................................ United States 80,900 3,165,213
(a) Pennaco Energy Inc. ..................................... United States 93,000 1,522,875
(a) Pure Resources Inc. ..................................... United States 52,057 930,519
Range Resources Corp. ................................... United States 173,400 541,875
</TABLE>
FS-9
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY MINERALS (CONT.)
(a) Santa Fe Snyder Corp. ............................... United States 66,210 $ 753,139
(a) Tom Brown Inc. ...................................... United States 80,300 1,851,919
-----------
15,056,934
-----------
FINANCE 4.8%
(a) Affiliated Managers Group Inc. ...................... United States 46,800 2,129,400
Allied Capital Corp. ................................ United States 89,000 1,513,000
(a) Arch Capital Group Ltd. ............................. United States 49,500 739,406
Bank United Corp., A ................................ United States 53,200 1,871,975
(a) Catellus Development Corp. .......................... United States 30,300 454,500
City National Corp. ................................. United States 36,500 1,268,375
Commerce Bancorp Inc. ............................... United States 21,420 985,320
(a) DLJdirect ........................................... United States 34,100 242,963
(a) eSPEED Inc., A ...................................... United States 8,400 364,875
Federated Investors Inc., B ......................... United States 128,600 4,509,038
Financial Security Assurance Holdings Ltd. .......... United States 67,000 5,083,625
(a) Golden State Bancorp Inc. ........................... United States 109,000 1,962,000
Greater Bay Bancorp Inc. ............................ United States 1,700 79,475
HCC Insurance Holdings Inc. ......................... United States 35,300 666,288
(a) Knight Trading Group Inc. ........................... United States 26,200 781,088
(a) LaBranche & Co. Inc. ................................ United States 8,500 122,188
Metris Cos. Inc. .................................... United States 9,300 233,663
(a) Mortgage.com Inc. ................................... United States 1,800 2,700
Mutual Risk Management Ltd. ......................... Bermuda 49,700 860,431
(a) National Discount Brokers Group Inc. ................ United States 1,000 31,875
Protective Life Corp. ............................... United States 13,100 348,788
Radian Group Inc. ................................... United States 31,038 1,606,217
Reinsurance Group of America Inc. ................... United States 78,000 2,349,750
(a) Silicon Valley Bancshares ........................... United States 138,400 5,899,300
Tucker Anthony Sutro Corp. .......................... United States 26,300 473,400
Westamerica Bancorp. ................................ United States 200 5,225
-----------
34,584,865
-----------
(a) HEALTH SERVICES 1.1%
American Dental Partners Inc. ....................... United States 20,300 142,100
Beverly Enterprises Inc. ............................ United States 146,900 413,156
Oxford Health Plans Inc. ............................ United States 96,500 2,297,906
PAREXEL International Corp. ......................... United States 68,000 650,250
Pharmaceutical Product Development Inc. ............. United States 91,700 1,925,700
Renal Care Group Inc. ............................... United States 97,350 2,380,512
SciQuest.com Inc. ................................... United States 7,400 84,638
-----------
7,894,262
-----------
(a) HEALTH TECHNOLOGY 1.6%
Alexion Pharmaceuticals Inc. ........................ United States 19,100 1,365,650
Epoch Pharmaceuticals Inc. .......................... United States 54,000 479,250
Heska Corp. ......................................... United States 39,300 83,513
ImClone Systems Inc. ................................ United States 6,100 466,269
INAMED Corp. ........................................ United States 14,200 520,075
Inhale Therapeutic Systems Inc. ..................... United States 47,600 4,829,913
Intermune Pharmaceuticals Inc. ...................... United States 1,000 41,313
Luminex Corp. ....................................... United States 2,800 116,550
Packard BioScience Co. .............................. United States 20,500 348,500
Serologicals Corp. .................................. United States 155,750 778,750
St. Jude Medical Inc. ............................... United States 5,000 229,375
Summit Technology Inc. .............................. United States 9,300 175,538
</TABLE>
FS-10
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
(a) HEALTH TECHNOLOGY (CONT.)
SuperGen Inc. ................................. United States 20,000 $ 725,000
Texas Biotechnology Corp. ..................... United States 8,900 169,100
Thoratec Laboratories Corp. ................... United States 4,700 76,081
Varian Medical Systems Inc. ................... United States 4,000 156,500
Ventana Medical Systems Inc. .................. United States 22,700 533,450
Visible Genetics Inc. ......................... Canada 8,400 379,050
Wesley Jessen Visioncare Inc. ................. United States 5,300 199,081
-----------
11,672,958
-----------
(a) INDUSTRIAL SERVICES 3.1%
Atwood Oceanics Inc. .......................... United States 9,400 417,125
Casella Waste Systems Inc., A ................. United States 4,500 48,375
Catalytica Inc. ............................... United States 123,733 1,361,063
Core Laboratories NV .......................... Netherlands 83,400 2,418,600
Dycom Industries Inc. ......................... United States 24,150 1,110,900
Grey Wolf Inc. ................................ United States 321,100 1,605,500
Marine Drilling Cos. Inc. ..................... United States 81,000 2,268,000
Pride International Inc. ...................... United States 8,900 220,275
Rowan Cos. Inc. ............................... United States 56,500 1,716,188
Superior Energy Services Inc. ................. United States 125,000 1,296,875
Trico Marine Services Inc. .................... United States 115,700 1,475,175
US Liquids Inc. ............................... United States 52,200 287,100
Varco International Inc. ...................... United States 325,645 7,571,246
-----------
21,796,422
-----------
NON-ENERGY MINERALS
Reliance Steel & Aluminum Co. ................. United States 13,500 258,188
-----------
PROCESS INDUSTRIES .5%
(a) Cabot Microelectronics Corp. .................. United States 1,700 77,775
ChemFirst Inc. ................................ United States 85,100 2,053,038
(a) CUNO Inc. ..................................... United States 36,600 846,375
(a) Packaging Corp. of America .................... United States 41,700 422,213
(a) Symyx Technologies Inc. ....................... United States 4,200 178,959
-----------
3,578,360
-----------
PRODUCER MANUFACTURING 1.2%
(a) American Power Conversion Corp. ............... United States 45,600 1,861,050
(a) Gentex Corp. .................................. United States 148,100 3,721,013
Gibraltar Steel Corp. ......................... United States 52,800 739,200
Roper Industries Inc. ......................... United States 62,000 1,588,750
(a) Tower Automotive Inc. ......................... United States 30,000 375,000
-----------
8,285,013
-----------
REAL ESTATE 2.6%
Alexandria Real Estate Equities Inc. .......... United States 18,600 638,213
Arden Realty Inc. ............................. United States 82,100 1,929,350
Brandywine Realty Trust ....................... United States 16,100 307,913
Camden Property Trust ......................... United States 70,600 2,073,875
CBL & Associates Properties Inc. .............. United States 13,300 331,669
Colonial Properties Trust ..................... United States 15,400 421,575
Developers Diversified Realty Corp. ........... United States 57,600 860,400
FelCor Lodging Trust Inc. ..................... United States 50,800 939,800
General Growth Properties Inc. ................ United States 67,600 2,146,300
Glenborough Realty Trust Inc. ................. United States 54,500 950,344
Health Care Property Investors Inc. ........... United States 44,500 1,212,625
Healthcare Realty Trust Inc. .................. United States 10,400 177,450
Innkeepers USA Trust .......................... United States 98,900 902,463
</TABLE>
FS-11
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE (CONT.)
Liberty Property Trust .......................... United States 2,700 $ 70,031
MeriStar Hospitality Corp. ...................... United States 138,000 2,898,000
Reckson Associates Realty Corp. ................. United States 46,200 1,097,250
SL Green Realty Corp. ........................... United States 42,700 1,142,225
Urban Shopping Centers Inc. ..................... United States 7,100 239,181
-----------
18,338,664
-----------
RETAIL TRADE 1.5%
(a) 1-800-FLOWERS.COM Inc. .......................... United States 62,600 320,825
(a) BJ's Wholesale Club Inc. ........................ United States 44,600 1,471,800
Dollar General Corp. ............................ United States 310,000 6,045,000
(a) Drugstore.com Inc. .............................. United States 7,000 52,719
Family Dollar Stores Inc. ....................... United States 141,100 2,760,269
(a) HomeGrocer.Com. ................................. United States 27,300 164,653
(a) The Men's Wearhouse Inc. ........................ United States 8,000 178,500
-----------
10,993,766
-----------
(a) TECHNOLOGY SERVICES 23.6%
724 Solutions Inc. .............................. Canada 7,100 311,513
About.com Inc. .................................. United States 12,600 396,900
Accrue Software Inc. ............................ United States 22,300 791,650
Active Software Inc. ............................ United States 6,600 512,738
Actuate Corp. ................................... United States 7,000 373,625
Affiliated Computer Services Inc., A ............ United States 167,900 5,551,194
Allaire Corp. ................................... United States 13,800 507,150
AppNet Inc. ..................................... United States 32,200 1,159,200
Art Technology Group Inc. ....................... United States 23,100 2,331,656
Aspect Communications Corp. ..................... United States 62,600 2,460,963
Aspen Technology Inc. ........................... United States 27,000 1,039,500
BEA Systems Inc. ................................ United States 11,600 573,475
BindView Development Corp. ...................... United States 50,000 600,000
Brightpoint Inc. ................................ United States 11,500 99,547
Brio Technology Inc. ............................ United States 36,600 775,463
BroadVision Inc. ................................ United States 231,000 11,737,688
Check Point Software Technologies Ltd. .......... Israel 23,400 4,954,950
Citrix Systems Inc. ............................. United States 78,400 1,484,700
Clarus Corp. .................................... United States 23,800 925,225
Complete Business Solutions Inc. ................ United States 119,600 2,100,475
Concord Communications Inc. ..................... United States 31,000 1,236,125
Critical Path Inc. .............................. United States 11,500 670,594
CyberSource Corp. ............................... United States 51,200 707,200
Cysive Inc. ..................................... United States 29,000 692,375
Deltek Systems Inc. ............................. United States 6,700 39,572
Digital Island Inc. ............................. United States 1,000 48,625
Documentum Inc. ................................. United States 29,300 2,618,688
eFunds Corp. .................................... United States 27,100 315,038
Embarcadero Technologies Inc. ................... United States 2,000 58,750
Entrust Technologies Inc. ....................... United States 62,200 5,147,050
Exodus Communications Inc. ...................... United States 4,000 184,250
FirstWorld Communications Inc., B ............... United States 1,200 12,600
H.T.E. Inc. ..................................... United States 38,500 50,531
High Speed Access Corp. ......................... United States 10,200 66,938
HNC Software Inc. ............................... United States 99,000 6,113,250
i2 Technologies Inc. ............................ United States 166,600 17,370,653
Inet Technologies Inc. .......................... United States 2,800 151,900
Inforte Corp. ................................... United States 81,000 2,916,000
</TABLE>
FS-12
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
(a) TECHNOLOGY SERVICES (CONT.)
Internap Network Services Corp. ............... United States 5,800 $ 240,791
Intertrust Technologies Corp. ................. United States 6,700 137,769
Interwoven Inc ................................ United States 1,800 197,972
Intuit Inc. ................................... United States 67,800 2,805,225
ISS Group Inc. ................................ United States 8,400 829,369
ITXC Corp. .................................... United States 9,500 336,359
Keane Inc. .................................... United States 31,600 683,350
Keynote Systems Inc. .......................... United States 5,600 395,150
Liberate Technologies Inc. .................... United States 41,200 1,207,675
Lightspan Inc. ................................ United States 21,400 117,700
Liquid Audio Inc. ............................. United States 47,700 451,659
Luminant Worldwide Corp. ...................... United States 9,200 82,225
MarchFirst Inc. ............................... United States 62,100 1,133,325
McAfee.com Corp. .............................. United States 2,900 75,581
Mercury Interactive Corp. ..................... United States 13,100 1,267,425
Micromuse Inc. ................................ United States 87,680 14,509,670
N2H2 Inc. ..................................... United States 28,100 140,500
National Information Consortium Inc. .......... United States 15,700 178,588
National Instruments Corp. .................... United States 150 6,544
Navisite Inc. ................................. United States 9,800 409,763
NBC Internet Inc., A .......................... United States 20,000 250,000
Netegrity Inc. ................................ United States 15,000 1,129,688
Netiq Corp. ................................... United States 20,749 1,237,158
NetSolve Inc. ................................. United States 40,600 1,055,600
Predictive Systems Inc. ....................... United States 53,000 1,904,687
Proxicom Inc. ................................. United States 34,200 1,637,324
PSINet Inc. ................................... United States 121,560 3,054,194
Quest Software Inc. ........................... United States 200 11,074
Rare Medium Group Inc. ........................ United States 36,300 573,993
Rational Software Corp. ....................... United States 9,000 836,437
Sapient Corp. ................................. United States 56,800 6,074,050
Selectica Inc. ................................ United States 200 14,012
Serena Software Inc. .......................... United States 34,050 1,546,082
Software.com Inc. ............................. United States 2,500 324,687
Sonic Foundry Inc. ............................ United States 3,000 60,000
SonicWALL Inc. ................................ United States 1,500 132,093
StarMedia Network Inc. ........................ United States 24,800 468,100
Tanning Technology Corp. ...................... United States 209,500 4,032,874
TenFold Corp. ................................. United States 3,500 57,530
Tumbleweed Communications Corp. ............... United States 25,900 1,317,662
U.S. Interactive Inc. ......................... United States 19,900 257,455
Verio Inc. .................................... United States 97,600 5,415,274
VERITAS Software Corp. ........................ United States 143,550 16,223,392
Verity Inc. ................................... United States 91,400 3,473,200
Versata Inc. .................................. United States 1,200 48,374
Viant Corp. ................................... United States 9,200 272,550
Vicinity Corp. ................................ United States 19,800 388,574
Vignette Corp. ................................ United States 91,800 4,775,033
Vitria Technology Inc. ........................ United States 11,200 684,600
Wind River Systems Inc. ....................... United States 215,092 8,146,610
Xpedior Inc. .................................. United States 48,100 664,380
------------
168,361,078
------------
</TABLE>
FS-13
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
(a) TELECOMMUNICATIONS 6.1%
Alaska Communications Systems Holdings Inc. .............................. United States 86,900 $ 901,587
AT&T Canada Inc., B ...................................................... Canada 15,000 497,812
Choice One Communications Inc. ........................................... United States 3,300 134,680
Clearnet Communications Inc., A .......................................... Canada 39,000 1,082,858
DSL.net Inc. ............................................................. United States 32,200 332,062
Efficient Networks Inc. .................................................. United States 9,000 662,062
ICG Communications Inc. .................................................. United States 131,000 2,890,187
Intermedia Communications Inc. ........................................... United States 49,500 1,472,624
ITC Deltacom Inc. ........................................................ United States 19,400 432,862
MGC Communications Inc. .................................................. United States 24,600 1,474,462
Millicom International Cellular SA ....................................... Luxembourg 42,400 1,484,000
Pinnacle Holdings Inc. ................................................... United States 95,300 5,146,200
Primus Telecommunications Group Inc. ..................................... United States 139,600 3,472,550
Rural Cellular Corp., A .................................................. United States 88,900 6,806,405
Time Warner Telecom Inc., A .............................................. United States 11,600 746,750
Triton PCS Holdings Inc., A .............................................. United States 1,700 98,174
VoiceStream Wireless Corp. ............................................... United States 89,100 10,362,051
WebLink Wireless Inc., A ................................................. United States 50,000 662,500
Western Wireless Corp., A ................................................ United States 86,100 4,692,450
------------
43,352,276
------------
TRANSPORTATION 2.2%
(a) Alaska Air Group Inc. .................................................... United States 18,200 493,674
(a) Atlantic Coast Airlines Holdings Inc. .................................... United States 124,000 3,937,000
C.H. Robinson Worldwide Inc. ............................................. United States 98,400 4,870,800
Expeditors International of Washington Inc. .............................. United States 136,300 6,474,250
------------
15,775,724
------------
TOTAL COMMON STOCKS (COST $320,151,623)................................... 600,295,708
------------
CONVERTIBLE PREFERRED STOCKS .1%
Bank United Corp., 8.00%, cvt. pfd. (COST $1,000,000)..................... United States 20,000 930,000
------------
TOTAL LONG TERM INVESTMENTS (COST $321,151,623)........................... 601,225,708
------------
SHORT TERM INVESTMENTS 16.6%
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio
(COST $118,615,801)....................................................... United States 118,615,801 118,615,801
------------
TOTAL INVESTMENTS (COST $439,767,424) 100.8%.............................. 719,841,509
OTHER ASSETS, LESS LIABILITIES (.8%) ..................................... (5,930,823)
------------
NET ASSETS 100.0% ........................................................ $713,910,686
============
</TABLE>
(a)Non-income producing
(b)See Note 3 regarding investments in the "Sweep Money Fund."
See notes to financial statements.
FS-14
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
Assets:
Investments in securities:
Cost ................................................ $439,767,424
============
Value ............................................... 719,841,509
Receivables:
Investment securities sold .......................... 283,293
Capital shares sold ................................. 734,815
Dividends ........................................... 195,120
------------
Total assets ....................................... 721,054,737
------------
Liabilities:
Payables:
Investment securities purchased ..................... 5,955,208
Capital shares redeemed ............................. 610,858
Affiliates .......................................... 519,386
Other liabilities .................................... 58,599
------------
Total liabilities .................................. 7,144,051
------------
Net assets, at value .............................. $713,910,686
============
Net assets consist of:
Undistributed net investment income .................. $ 479,833
Net unrealized appreciation .......................... 280,074,085
Accumulated net realized loss ........................ (5,596,021)
Capital shares ....................................... 438,952,789
------------
Net assets, at value .............................. $713,910,686
============
CLASS 1:
Net assets, at value ................................. $510,752,400
============
Shares outstanding ................................... 19,256,477
============
Net asset value and offering price per share ......... $ 26.52
============
CLASS 2:
Net assets, at value ................................. $203,158,286
============
Shares outstanding ................................... 7,690,910
============
Net asset value and offering price per share ......... $ 26.42
============
See notes to financial statements.
FS-15
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
Investment income:
Dividends ................................................... $ 2,054,683
Interest .................................................... 722,683
------------
Total investment income .................................... 2,777,366
------------
Expenses:
Management fees (Note 3) .................................... 1,849,324
Administration fees (Note 3) ................................ 271,734
Distribution fees - Class 2 (Note 3) ........................ 82,528
Custodian fees .............................................. 2,066
Reports to shareholders ..................................... 12,262
Professional fees (Note 3) .................................. 14,589
Trustees' fees and expenses ................................. 1,907
Other ....................................................... 63,020
------------
Total expenses ............................................. 2,297,430
------------
Net investment income ..................................... 479,936
------------
Realized and unrealized losses:
Net realized loss from:
Investments ................................................ (5,416,616)
Foreign currency transactions .............................. (3,813)
------------
Net realized loss ......................................... (5,420,429)
Net unrealized appreciation on investments .................. 46,549,010
------------
Net realized and unrealized gain ............................. 41,128,581
------------
Net increase in net assets resulting from operations ......... $ 41,608,517
============
See notes to financial statements.
FS-16
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Financial Statements (continued)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 1999
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .................................................. $ 479,936 $ (161,672)
Net realized gain (loss) from investments and foreign currency transactions ... (5,420,429) 36,534,411
Net unrealized appreciation on investments .................................... 46,549,010 205,811,890
----------------------------------
Net increase in net assets resulting from operations ......................... 41,608,517 242,184,629
Distributions to shareholders from:
Net investment income:
Class 1 ...................................................................... -- (1,492,353)
Class 2 ...................................................................... -- (619)
Net realized gains:
Class 1 ...................................................................... (34,605,736) (208,580)
Class 2 ...................................................................... (1,438,764) (53)
----------------------------------
Total distributions to shareholders ............................................ (36,044,500) (1,701,605)
Capital share transactions: (Note 2)
Class 1 ...................................................................... 26,862,962 (66,396,634)
Class 2 ...................................................................... 187,264,845 4,672,614
----------------------------------
Total capital share transactions ............................................... 214,127,807 (61,724,020)
Net increase in net assets ................................................... 219,691,824 178,759,004
Net assets:
Beginning of period ............................................................ 494,218,862 315,459,858
----------------------------------
End of period .................................................................. $ 713,910,686 $ 494,218,862
==================================
Undistributed net investment income (accumulated net operating loss)
included in net assets:
End of period .................................................................. $ 479,833 $ (103)
==================================
</TABLE>
See notes to financial statements.
FS-17
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Franklin Small Cap Fund (the Fund) is a separate, diversified series of the
Franklin Templeton Variable Insurance Products Trust (the Trust), which is an
open-end investment company registered under the Investment Company Act of 1940.
Shares of the Fund are sold only to insurance company separate accounts to fund
the benefits of variable life insurance policies or variable annuity contracts.
As of June 30, 2000, 68% of the Fund's shares were sold through one insurance
company. The Fund seeks long-term capital growth.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the recorded
amounts of dividends, interest, and foreign withholding taxes and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in foreign exchange rates
on foreign denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
C. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Common expenses incurred by the Trust are allocated among the funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.
Distributions received by the Trust from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
FS-18
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
E. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
The Fund offers two classes of shares: Class 1 and Class 2. Each class of shares
differs by its distribution fees, voting rights on matters affecting a single
class, and its exchange privilege.
At June 30, 2000, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999(a)
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 3,597,900 $ 100,098,343 5,623,402 $ 95,075,835
Shares issued on merger (Note 6) ................... 162,686 4,046,010 -- --
Shares issued in reinvestment of distributions ..... 1,438,908 34,605,736 106,977 1,700,933
Shares redeemed .................................... (4,108,032) (111,887,127) (10,564,693) (163,173,402)
---------------------------------------------------------------
Net increase (decrease) ............................ 1,091,462 $ 26,862,962 (4,834,314) $ (66,396,634)
===============================================================
CLASS 2 SHARES:
Shares sold ........................................ 4,746,737 $ 124,321,476 237,253 $ 4,844,539
Shares issued on merger (Note 6) ................... 5,283,033 130,913,570 -- --
Shares issued in reinvestment of distributions ..... 60,049 1,438,764 42 673
Shares redeemed .................................... (2,628,621) (69,408,965) (7,583) (172,598)
---------------------------------------------------------------
Net increase ....................................... 7,461,198 $ 187,264,845 229,712 $ 4,672,614
===============================================================
</TABLE>
(a)For the period January 6, 1999 (effective date) to December 31, 1999, for
Class 2.
FS-19
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
<TABLE>
<CAPTION>
ENTITY AFFILIATION
----------------------------------------------------------------------------------------
<S> <C>
Franklin Templeton Services, Inc. (FT Services) Administrative manager
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund) which is managed by Advisers.
The Fund earned dividend income of $1,148,631 from the investment in the Sweep
Money Fund.
The Fund pays an investment management fee to Advisers based on the average net
assets of the Fund as follows:
ANNUALIZED FEE RATE DAILY NET ASSETS
------------------------------------------------------------------------
.55% First $500 million
.45% Over $500 million, up to and including $1 billion
.40% Over $1 billion, up to and including $1.5 billion
Fees are further reduced on net assets over $1.5 billion.
Effective May 1, 2000, the Fund's annualized fee rate was reduced from .75%,
.625%, and .50% to .55%, .45%, and .40%, respectively.
Effective May 1, 2000, the Fund pays an administrative fee to FT Services of
.25% per year of the average daily net assets of the Fund.
Management fees were reduced on assets invested in Sweep Money Fund.
The Fund reimburses Distributors up to .25% per year of its average daily net
assets of Class 2, for costs incurred in marketing the Fund's shares.
Investor Services, under terms of an agreement, performs shareholder servicing
for the Fund and is not paid by the Fund for the services.
Included in professional fees are legal fees of $1,101 that were paid to a law
firm in which a partner of that firm was an officer of the Fund.
4. INCOME TAXES
At December 31, 1999, the Fund had deferred currency losses occurring subsequent
to October 31, 1999 of $103. For tax purposes, such losses will be reflected in
the year ending December 31, 2000.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments for foreign currency transactions, and merger
related expenses.
Net realized capital gains (losses) differ for financial statements and tax
purposes primarily due to differing treatments of wash sales and foreign
currency transactions.
FS-20
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP FUND
Notes to Financial Statements (unaudited) (continued)
4. INCOME TAXES (cont.)
At June 30, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes of $439,832,899 was as follows:
Unrealized appreciation ............. $ 325,651,502
Unrealized depreciation ............. (45,642,892)
-------------
Net unrealized appreciation ......... $ 280,008,610
=============
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 2000 aggregated $65,534,902 and $43,719,164, respectively.
6. MERGERS
On May 1, 2000, the Franklin Templeton Variable Insurance Products Trust
(FTVIPT) - Franklin Small Cap Fund acquired the net assets of the Templeton
Variable Products Series Fund (TVP) - Franklin Small Cap Investments Fund
pursuant to a plan of reorganization approved by TVP - Franklin Small Cap
Investments Fund's shareholders. The merger was accomplished by a tax-free
exchange of 162,686 Class 1 shares and 5,283,033 Class 2 shares of the FTVIPT -
Franklin Small Cap Fund (valued at $24.87 per share and $24.78 per share,
respectively) for the net assets of the TVP - Franklin Small Cap Investments
Fund which aggregated $134,959,580, including $11,452,838 of unrealized
appreciation. The merger was accounted for as a pooling-of-interests without
restatement for financial reporting purposes. The combined net assets of the
FTVIPT - Franklin Small Cap Fund immediately after the merger were $640,938,780.
FS-21
<PAGE>
TEMPLETON INTERNATIONAL SECURITIES FUND
--------------------------------------------------------------------------------
FUND GOAL AND PRIMARY INVESTMENTS: TEMPLETON INTERNATIONAL SECURITIES FUND
(FORMERLY TEMPLETON INTERNATIONAL FUND) SEEKS LONG-TERM CAPITAL GROWTH. THE
FUND INVESTS PRIMARILY IN EQUITY SECURITIES OF COMPANIES LOCATED OUTSIDE THE
U.S., INCLUDING THOSE IN EMERGING MARKETS.
--------------------------------------------------------------------------------
GEOGRAPHIC DISTRIBUTION
TEMPLETON INTERNATIONAL SECURITIES FUND
BASED ON TOTAL NET ASSETS
6/30/00
[This chart in pie format shows the geographic distribution of Templeton
International Securities Fund as a percentage of total net assets on 6/30/00.]
Europe 60.1%
Asia 17.8%
Latin America 7.2%
Australia/New Zealand 4.4%
North America 3.8%
Mid-East/Africa 1.7%
Short-Term Investments & Other Net Assets 5.0%
During the six months under review, global economies appeared to be improving,
although most trailed the U.S. economy's growth rate. In our view, Europe
displayed slow but steady improvement in manufacturing output, unemployment
rates slightly declined and consumer confidence increased. The euro has fallen
significantly since its introduction, but a more positive economic outlook for
Europe should help benefit the currency. The U.K. was the exception to the
European recovery, where the strong pound negatively impacted the manufacturing
sector, as it made exports more expensive. However, we believe U.K. interest
rate hikes are near an end because of its sluggish economy.
It was hard to find evidence of Japan's recovery as economists and strategists
argued whether the Japanese economy was actually recovering after a 10-year
slumber. Latin American countries, particularly Brazil, made steady gains but
seemed to remain closely tied to U.S. interest-rate cycles, making them
vulnerable to further interest-rate hikes.
Extreme market volatility characterized the first half of 2000. Statistics
indicate that 1998 and 1999 were the worst two years since 1975 for value
investors like us.(1) The first quarter of 2000 continued this trend, with high
growth stocks significantly outperforming value stocks regardless of valuation.
This trend appeared to moderate near the end of the quarter as many investors
seemed to assess the varying impacts of accelerating global economic growth,
higher commodity prices and global central bank tightening. The resultant market
broadening to include more economically sensitive stocks benefited the Fund in
the second quarter of 2000.
(1) Source: Morgan Stanley Capital International.
TI-1
<PAGE>
TOP 10 HOLDINGS
TEMPLETON INTERNATIONAL
SECURITIES FUND
6/30/00
COMPANY % OF TOTAL
SECTOR, COUNTRY NET ASSETS
----------------------------------------
Cheung Kong
Holdings Ltd. 2.3%
Multi-Industry,
Hong Kong
Total Fina Elf SA, B 2.1%
Energy Sources, France
AXA SA 2.0%
Financial Services, France
Nomura Securities Co. Ltd. 1.9%
Financial Services, Japan
Nordic Baltic Holding AB 1.9%
Banking, Sweden
Elan Corp., PLC, ADR 1.9%
Health & Personal Care,
Irish Republic
Aventis SA 1.9%
Health & Personal Care,
France
Nippon Telegraph &
Telephone Corp. 1.8%
Telecommunications,
Japan
Koninklijke Philips
Electronics NV 1.8%
Electrical & Electronics,
Netherlands
Muenchener
Rueckversicherungs- 1.7%
Gesellschaft
Insurance, Germany
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments.
During the period, especially in the first three months, the Fund sought to take
advantage of the extreme market conditions to decrease our telecommunications
and technology positions. We reduced our holdings in Portugal Telecom, while
eliminating our holdings in Nintendo and Telefonica de Argentina. As a result of
these changes, our telecommunications weighting declined slightly from 8.9% of
total net assets on January 1, 2000, to 8.3% at the end of the period. We
reinvested proceeds from the sale of these securities in a number of what we
consider to be out-of-favor sectors with solid growth expectations, including
pharmaceuticals (Elan Corp. and Merck KGAA), aerospace (BAE Systems), energy
(Eni SpA and Repsol), transportation (Stagecoach Holdings) and machinery and
engineering (Komatsu).
We also benefited from corporate merger activity during the six months under
review, as Alcatel acquired Fund position Newbridge Networks, and three of our
Latin American telecommunications holdings -- Telefonica de Argentina,
Telefonica del Peru and Telecomunicacoes de Sao Paulo -- were acquired by
Spain's Telefonica SA. Our exposure to Latin America will likely decline as
Telefonica SA consumes these stocks, and we were recently unable to identify
bargains in the region and reinvest the proceeds. We continue to believe that if
valuation gaps between growth and value stocks remain at historically high
levels, the consequence will be increased merger, acquisition and buyout
activity.
Looking forward, we expect global markets to remain volatile due to questions
surrounding the direction of interest rates, the U.S. economy's health and the
sustainability of growth rates needed to maintain historically high valuations
in the technology, media and telecommunications sectors. We see tremendous value
opportunities in the U.K. market's utilities, engineering and retail sectors.
Furthermore, we do not hedge our currency exposure and stand to benefit from any
recovery in the euro. In Japan, ongoing market uncertainty created opportunities
to purchase economically sensitive stocks while providing us the ability to
reduce our holdings in highly valued, "new economy" stocks.
TI-2
<PAGE>
We are primarily invested in what we view as low price-to-earnings (P/E)
multiple stocks and feel well-positioned to take advantage of any declines in
the high P/E sectors, as our long-term outlook allows us to purchase growth
stocks at low valuations. In our opinion, the historically high valuation levels
placed on growth companies represent a potential risk. If the global economic
trends turn unfavorable, it would potentially limit corporate earnings growth or
lead to higher interest rates. As always, the Templeton research team will scour
the world seeking those shares selling at the lowest value in relation to their
long-term earnings potential, since such shares can help reduce risk while
offering the potential for attractive, long-term returns.
--------------------------------------------------------------------------------
THIS DISCUSSION REFLECTS OUR VIEWS, OPINIONS AND PORTFOLIO HOLDINGS AS OF JUNE
30, 2000, THE END OF THE REPORTING PERIOD. THE INFORMATION PROVIDED IS NOT A
COMPLETE ANALYSIS OF EVERY ASPECT OF ANY COUNTRY, INDUSTRY, SECURITY OR THE
FUND. OUR STRATEGIES AND THE FUND'S PORTFOLIO COMPOSITION WILL CHANGE DEPENDING
ON MARKET AND ECONOMIC CONDITIONS. ALTHOUGH HISTORICAL PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT AND MANAGEMENT PHILOSOPHY.
--------------------------------------------------------------------------------
TI-3
<PAGE>
TEMPLETON INTERNATIONAL
SECURITIES FUND
CLASS 1
--------------------------------------------------------------------------------
PERFORMANCE REFLECTS THE FUND'S CLASS 1 OPERATING EXPENSES, BUT DOES NOT
INCLUDE ANY CONTRACT FEES, EXPENSES OR SALES CHARGES. IF THEY HAD BEEN
INCLUDED, PERFORMANCE WOULD BE LOWER. THESE CHARGES AND DEDUCTIONS,
PARTICULARLY FOR VARIABLE LIFE POLICIES, CAN HAVE A SIGNIFICANT EFFECT ON
CONTRACT VALUES AND INSURANCE BENEFITS. SEE THE CONTRACT PROSPECTUS FOR A
COMPLETE DESCRIPTION OF THESE EXPENSES, INCLUDING SALES CHARGES.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND THE VALUE OF
YOUR PRINCIPAL WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES.
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 6/30/00
TEMPLETON INTERNATIONAL SECURITIES FUND - CLASS 1 DELIVERED A +0.57% CUMULATIVE
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED 6/30/00. Total return of Class 1
shares represents the cumulative or average annual change in value, assuming
reinvestment of dividends and capital gains. Average returns smooth out
variations in returns, which can be significant; they are not the same as
year-by-year results.
TEMPLETON INTERNATIONAL SECURITIES FUND - CLASS 1*
PERIODS ENDED 6/30/00
SINCE
INCEPTION
1-YEAR 5-YEAR (5/1/92)
----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +12.73% +15.54% +14.44%
CUMULATIVE TOTAL RETURN +12.73% +105.87% +200.80%
VALUE OF $10,000 INVESTMENT $11,273 $20,587 $30,080
*Performance prior to the 5/1/00 merger reflects the historical performance of
Templeton International Fund.
ONGOING STOCK MARKET VOLATILITY CAN DRAMATICALLY CHANGE THE FUND'S SHORT-TERM
PERFORMANCE; CURRENT RESULTS MAY BE LOWER.
Past performance does not guarantee future results.
TI-4
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 -------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $22.25 $20.69 $20.18 $18.40 $15.13 $13.22
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(c) ..................... .25 .33 .60 .49 .43 .23
Net realized and unrealized gains (losses) ... (.27) 3.78 1.29 2.01 3.15 1.83
-------------------------------------------------------------------------------------
Total from investment operations .............. (.02) 4.11 1.89 2.50 3.58 2.06
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.43) (.57) (.49) (.51) (.24) (.10)
Net realized gains ........................... (2.49) (1.98) (.89) (.21) (.07) (.05)
-------------------------------------------------------------------------------------
Total distributions ........................... (2.92) (2.55) (1.38) (.72) (.31) (.15)
-------------------------------------------------------------------------------------
Net asset value, end of period ................ $19.31 $22.25 $20.69 $20.18 $18.40 $15.13
=====================================================================================
Total return(b) ............................... .57% 23.61% 9.33% 13.95% 24.04% 15.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $1,652,815 $1,056,798 $980,470 $938,410 $682,984 $353,141
Ratios to average net assets:
Expenses ..................................... .84%(a) .85% .86% .81% .65% .71%
Net investment income ........................ 2.57%(a) 1.69% 2.81% 2.70% 3.23% 2.36%
Portfolio turnover rate ....................... 21.83% 30.04% 29.56% 16.63% 9.46% 5.19%
</TABLE>
(a)Annualized
(b)Total return does not include any fees, charges or expenses imposed by the
variable annuity and life insurance contracts for which the Franklin
Templeton Variable Insurance Products Trust serves as an underlying
investment vehicle. Total return is not annualized for periods less than one
year.
(c)Based on average shares outstanding effective year ended December 31, 1999.
TI-5
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS 2
-------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2000 ----------------------------------------
(UNAUDITED) 1999 1998 1997(c)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................ $22.13 $20.61 $20.14 $18.40
-------------------------------------------------------------
Income from investment operations:
Net investment income(d) ........................... .22 .25 .59 .07
Net realized and unrealized gains (losses) ......... (.26) 3.78 1.25 1.67
-------------------------------------------------------------
Total from investment operations .................... (.04) 4.03 1.84 1.74
-------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.38) (.53) (.48) --
Net realized gains ................................. (2.49) (1.98) (.89) --
-------------------------------------------------------------
Total distributions ................................. (2.87) (2.51) (1.37) --
-------------------------------------------------------------
Net asset value, end of period ...................... $19.22 $22.13 $20.61 $20.14
=============================================================
Total return(b) ..................................... .50% 23.23% 9.08% 9.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................... $157,908 $101,365 $39,886 $17,606
Ratios to average net assets:
Expenses ........................................... 1.09%(a) 1.10% 1.11% 1.13%(a)
Net investment income .............................. 2.30%(a) 1.26% 2.69% 1.14%(a)
Portfolio turnover rate ............................. 21.83% 30.04% 29.56% 16.63%
</TABLE>
(a)Annualized
(b)Total return does not include any fees, charges or expenses imposed by the
variable annuity and life insurance contracts for which the Franklin
Templeton Variable Insurance Products Trust serves as an underlying
investment vehicle. Total return is not annualized for periods less than one
year.
(c)For the period May 1, 1997 (effective date) to December 31, 1997.
(d)Based on average shares outstanding effective year ended December 31,1999.
See notes to financial statements.
TI-6
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 91.2%
AEROSPACE & MILITARY TECHNOLOGY 2.1%
BAE Systems PLC ............................................ United Kingdom 4,744,725 $ 29,377,546
Hong Kong Aircraft Engineering Co. Ltd. .................... Hong Kong 947,080 1,822,406
Saab AB, B ................................................. Sweden 726,900 6,132,778
------------
37,332,730
------------
AUTOMOBILES 2.6%
Autoliv Inc., SDR .......................................... Sweden 675,450 16,634,044
Volkswagen AG .............................................. Germany 312,000 12,052,452
Volvo AB, B ................................................ Sweden 843,780 18,422,514
------------
47,109,010
------------
BANKING 8.5%
Australia & New Zealand Banking Group Ltd. ................. Australia 2,938,850 22,603,010
Banca Nazionale del Lavoro SpA ............................. Italy 5,635,000 19,823,291
Banco Popular Espanol SA ................................... Spain 124,800 3,875,925
Bank Austria AG ............................................ Austria 96,320 4,710,562
Bank Austria AG, 144A ...................................... Austria 230,146 11,255,367
BPI Socieda de Gestora de Participacoes Socias SA .......... Portugal 1,609,890 5,709,705
Credicorp Ltd. ............................................. Peru 292,160 2,629,440
Foreningssparbanken AB, A .................................. Sweden 472,500 6,949,322
HSBC Holdings PLC .......................................... Hong Kong 636,400 7,265,865
HSBC Holdings PLC, ADR ..................................... Hong Kong 180,600 10,463,513
National Bank of Canada .................................... Canada 897,620 13,388,272
Nordic Baltic Holding AB, FDR .............................. Sweden 4,763,875 34,796,142
Unibanco Uniao de Bancos Brasileiros SA, GDR ............... Brazil 358,700 10,312,625
------------
153,783,039
------------
BROADCASTING & PUBLISHING 1.5%
Wolters Kluwer NV .......................................... Netherlands 1,030,100 27,548,589
------------
BUILDING MATERIALS & COMPONENTS .6%
Caradon PLC ................................................ United Kingdom 3,265,240 7,464,027
Hepworth PLC ............................................... United Kingdom 1,330,100 3,795,568
------------
11,259,595
------------
CHEMICALS 4.2%
Akzo Nobel NV .............................................. Netherlands 564,580 24,082,483
BASF AG .................................................... Germany 474,430 19,327,552
Clariant AG ................................................ Switzerland 54,500 20,310,559
Imperial Chemical Industries PLC ........................... United Kingdom 857,000 6,584,124
Kemira OY .................................................. Finland 1,088,632 5,321,904
------------
75,626,622
------------
CONSTRUCTION & HOUSING .4%
Fletcher Challenge Building Ltd. ........................... New Zealand 6,285,000 6,686,579
------------
ELECTRICAL & ELECTRONICS 8.5%
ABB Ltd. ................................................... Switzerland 64,840 7,785,505
Alcatel SA ................................................. France 245,175 16,145,396
Alcatel SA, ADR ............................................ France 338,791 22,529,575
Hitachi Ltd. ............................................... Japan 1,850,000 26,752,044
(a) Hyundai Electronics Industries Co. ......................... South Korea 875,000 17,264,187
Koninklijke Philips Electronics NV ......................... Netherlands 694,974 32,908,742
Nokia Corp., A ............................................. Finland 153,800 7,879,884
Sony Corp. ................................................. Japan 237,900 22,259,912
------------
153,525,245
------------
</TABLE>
TI-7
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC COMPONENTS & INSTRUMENTS 1.5%
Williams PLC ........................................ United Kingdom 4,674,600 $ 27,209,589
------------
ENERGY SOURCES 6.3%
Eni SpA ............................................. Italy 3,631,060 21,022,586
PC Holdings SA, ADR ................................. Argentina 316,142 5,789,350
Repsol SA, Br. ...................................... Spain 1,253,400 25,050,219
Shell Transport & Trading Co. PLC ................... United Kingdom 2,882,342 24,413,315
Total Fina Elf SA, B ................................ France 243,338 37,460,299
------------
113,735,769
------------
FINANCIAL SERVICES 6.4%
AXA SA .............................................. France 208,400 32,960,776
AXA SA, 144A ........................................ France 17,366 2,746,626
ING Groep NV ........................................ Netherlands 386,631 26,238,905
Nomura Securities Co. Ltd. .......................... Japan 1,432,425 35,132,015
(a) Royal Bank of Scotland Group PLC .................... United Kingdom 1,118,729 18,612,451
------------
115,690,773
------------
FOOD & HOUSEHOLD PRODUCTS 1.5%
Northern Foods PLC .................................. United Kingdom 3,278,607 5,943,552
Panamerican Beverages Inc., A ....................... Mexico 290,000 4,331,875
Tate & Lyle PLC ..................................... United Kingdom 3,303,500 16,778,301
------------
27,053,728
------------
FOREST PRODUCTS & PAPER 1.0%
Stora Enso OYJ, R ................................... Finland 1,002,730 9,203,029
UPM-Kymmene Corporation ............................. Finland 351,000 8,747,747
------------
17,950,776
------------
HEALTH & PERSONAL CARE 9.0%
Aventis SA .......................................... France 464,880 34,067,018
(a) CellTech Group PLC .................................. United Kingdom 1,003,271 19,319,084
(a) Elan Corp. PLC, ADR ................................. Irish Republic 718,225 34,789,023
Internatio-Muller NV ................................ Netherlands 240,308 4,146,260
Mayne Nickless Ltd., A .............................. Australia 5,353,320 11,024,453
Merck KGAA .......................................... Germany 636,150 19,513,055
Nycomed Amersham PLC ................................ United Kingdom 1,575,700 15,300,385
Teva Pharmaceutical Industries Ltd., ADR ............ Israel 462,545 25,642,338
------------
163,801,616
------------
INSURANCE 5.9%
Ace Ltd. ............................................ Bermuda 853,045 23,885,260
Muenchener Rueckversicherungs-Gesellschaft .......... Germany 95,520 30,031,977
Scor ................................................ France 250,000 10,929,891
XL Capital Ltd., A .................................. Bermuda 170,450 9,225,606
Zurich Allied AG .................................... Switzerland 44,800 22,205,768
Zurich Allied PLC ................................... United Kingdom 920,100 10,822,739
------------
107,101,241
------------
MACHINERY & ENGINEERING 2.4%
IHC Caland NV ....................................... Netherlands 187,500 9,166,155
Invensys PLC ........................................ United Kingdom 3,139,529 11,763,075
Komatsu Ltd. ........................................ Japan 3,191,000 22,498,804
------------
43,428,034
------------
</TABLE>
TI-8
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING 2.4%
Hudsons Bay Co. ...................................... Canada 360,774 $ 3,822,739
Marks & Spencer PLC .................................. United Kingdom 4,772,000 16,723,708
Safeway PLC .......................................... United Kingdom 4,943,186 19,231,857
Storehouse ........................................... United Kingdom 6,812,781 4,486,367
------------
44,264,671
------------
METALS & MINING 3.7%
Anglo American Platinum Corp. Ltd. ................... South Africa 145,609 4,196,460
Barrick Gold Corp. ................................... Canada 1,042,900 18,828,086
Boehler-Uddeholm AG .................................. Austria 64,505 2,266,121
Boehler-Uddeholm AG, 144A ............................ Austria 60,855 2,137,894
Corus Group PLC ...................................... United Kingdom 8,123,200 11,836,111
Industrias Penoles SA ................................ Mexico 1,893,000 3,057,723
Ispat International NV, A ............................ Netherlands 227,600 2,162,200
Pohang Iron & Steel Co. Ltd. ......................... South Korea 128,901 11,209,511
WMC Ltd. ............................................. Australia 2,399,500 10,766,027
------------
66,460,133
------------
MULTI-INDUSTRY 4.4%
Broken Hill Proprietary Co. Ltd. ..................... Australia 945,543 11,212,129
Cheung Kong Holdings Ltd. ............................ Hong Kong 3,792,825 41,965,179
Elementis PLC ........................................ United Kingdom 5,428,174 6,450,666
Hanson PLC ........................................... United Kingdom 446,211 3,147,802
Next PLC ............................................. United Kingdom 775,500 6,814,989
Swire Pacific Ltd., B ................................ Hong Kong 13,622,100 11,096,473
------------
80,687,238
------------
TELECOMMUNICATIONS 8.3%
Cia de Telecomunicaciones de Chile SA, ADR ........... Chile 431,500 7,820,938
Korea Telecom Corp., ADR ............................. South Korea 163,020 7,886,093
Nippon Telegraph & Telephone Corp. ................... Japan 2,510 33,449,270
Philippine Long Distance Telephone Co., ADR .......... Philippines 722,400 12,822,600
Portugal Telecom SA .................................. Portugal 808,010 9,108,352
Smartone Telecommunications Holdings Ltd. ............ Hong Kong 7,652,000 16,932,895
Telecom Corp. of New Zealand Ltd. .................... New Zealand 5,087,400 17,841,955
Telecom Italia SpA, di Risp .......................... Italy 1,887,750 12,545,311
Telefonica del Peru SA, ADR .......................... Peru 267,700 3,045,088
Telefonica del Peru SA, B ............................ Peru 5,365,602 7,722,836
Telefonos de Mexico SA (Telmex), L, ADR .............. Mexico 360,760 20,608,415
------------
149,783,753
------------
TRANSPORTATION 2.9%
British Airways PLC .................................. United Kingdom 2,575,000 14,803,219
Koninklijke Nedlloyd Groep NV ........................ Netherlands 216,300 4,206,824
Peninsular & Oriental Steam Navigation Co. ........... United Kingdom 1,355,414 11,552,115
Seino Transportation Co. Ltd. ........................ Japan 552,000 2,785,955
Stagecoach Holdings PLC .............................. United Kingdom 16,914,690 18,756,544
------------
52,104,657
------------
</TABLE>
TI-9
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS 7.1%
CLP Holdings Ltd. ......................................................... Hong Kong 4,081,000 $ 19,003,797
E.On AG ................................................................... Germany 465,650 22,540,667
Evn AG .................................................................... Austria 23,475 877,579
Gener SA, ADR ............................................................. Chile 303,800 4,462,063
Hong Kong Electric Holdings Ltd. .......................................... Hong Kong 4,062,365 13,080,364
Iberdrola SA, Br. ......................................................... Spain 1,575,700 20,390,275
Korea Electric Power Corp. ................................................ South Korea 250,000 7,757,674
National Power PLC ........................................................ United Kingdom 1,972,900 12,558,918
Thames Water Group PLC .................................................... United Kingdom 2,223,811 28,598,444
--------------
129,269,781
--------------
TOTAL COMMON STOCKS (COST $1,444,014,133).................................. 1,651,413,168
--------------
PREFERRED STOCKS 3.8%
Cia Vale do Rio Doce, A, ADR, pfd. ........................................ Brazil 350,400 9,898,800
Embratel Participacoes SA, ADR, pfd. ...................................... Brazil 420,490 9,934,076
Petroleo Brasileiro SA, pfd. .............................................. Brazil 300,000 9,063,193
Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..................... Brazil 221,950 21,556,894
Telecomunicacoes de Sao Paulo SA, ADR, pfd. ............................... Brazil 556,750 10,299,875
Telemig Celular SA, C, pfd. ............................................... Brazil 1,705,000 43,476
Tele Norte Leste Participacoes SA, ADR, pfd. .............................. Brazil 11,702 276,460
Volkswagen AG, pfd. ....................................................... Germany 275,000 6,563,686
--------------
TOTAL PREFERRED STOCKS (COST $57,239,299).................................. 67,636,460
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $1,501,253,432)....... 1,719,049,628
--------------
PRINCIPAL
AMOUNT
---------
(b) REPURCHASE AGREEMENTS 4.4%
Dresdner Bank AG, 6.40%, 7/03/00 (Maturity Value $20,111,721)
Collateralized by U.S. Treasury Notes and Bonds ......................... United States 20,101,000 20,101,000
Paribas Corp., 6.85%, 7/03/00 (Maturity Value $60,034,250)
Collateralized by U.S. Treasury Notes and Bonds ......................... United States 60,000,000 60,000,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST $80,101,000)............................. 80,101,000
--------------
TOTAL INVESTMENTS (COST $1,581,354,432) 99.4%.............................. 1,799,150,628
OTHER ASSETS, LESS LIABILITIES .6% ........................................ 11,571,531
--------------
TOTAL NET ASSETS 100.0% ................................................... $1,810,722,159
==============
</TABLE>
(a)Non-income producing
(b)At June 30, 2000, all repurchase agreements held by the Fund had been entered
into on that date.
See notes to financial statements.
TI-10
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
Assets:
Investments in securities:
Cost ................................................ $1,581,354,432
==============
Value ............................................... 1,799,150,628
Receivables:
Investment securities sold .......................... 2,267,482
Capital shares sold ................................. 6,717,850
Dividends and interest .............................. 6,526,687
--------------
Total assets ....................................... 1,814,662,647
--------------
Liabilities:
Payables:
Investment securities purchased ..................... 437,841
Capital shares redeemed ............................. 1,933,327
Affiliates .......................................... 1,193,236
Funds advanced by custodian .......................... 30,240
Other liabilities .................................... 345,844
--------------
Total liabilities .................................. 3,940,488
--------------
Net assets, at value .............................. $1,810,722,159
==============
Net assets consist of:
Undistributed net investment income .................. $ 11,204,261
Net unrealized appreciation .......................... 217,796,196
Accumulated net realized gain ........................ 30,262,822
Capital shares ....................................... 1,551,458,880
--------------
Net assets, at value .............................. $1,810,722,159
==============
CLASS 1:
Net assets, at value ................................. $1,652,814,646
==============
Shares outstanding ................................... 85,603,213
==============
Net asset value and offering price per share ......... $ 19.31
==============
CLASS 2:
Net assets, at value ................................. $ 157,907,513
==============
Shares outstanding ................................... 8,217,632
==============
Net asset value and offering price per share ......... $ 19.22
==============
See notes to financial statements.
TI-11
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
Investment Income:
(net of foreign taxes of $2,589,021)
Dividends ................................................... $ 20,559,326
Interest .................................................... 2,063,681
-------------
Total investment income .................................... 22,623,007
-------------
Expenses:
Management fees (Note 3) .................................... 4,489,442
Administrative fees (Note 3) ................................ 665,140
Distribution fees - Class 2 (Note 3) ........................ 153,708
Custodian fees .............................................. 263,000
Reports to shareholders ..................................... 124,000
Professional fees (Note 3) .................................. 35,400
Trustees' fees and expenses ................................. 6,500
Other ....................................................... 3,227
-------------
Total expenses ............................................. 5,740,417
-------------
Net investment income ..................................... 16,882,590
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................... 79,041,160
Foreign currency transactions ............................. (1,372,970)
-------------
Net realized gain ......................................... 77,668,190
Net unrealized depreciation on investments ................ (47,373,112)
-------------
Net realized and unrealized gain ............................. 30,295,078
-------------
Net increase in net assets resulting from operations ......... $ 47,177,668
=============
See notes to financial statements.
TI-12
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
Financial Statements (continued)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 1999
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................... $ 16,882,590 $ 17,320,878
Net realized gain from investments and foreign currency transactions 77,668,190 84,997,543
Net unrealized appreciation (depreciation) on investments ........... (47,373,112) 128,046,409
---------------------------------------
Net increase in net assets resulting from operations ............... 47,177,668 230,364,830
Distributions to shareholders from:
Net investment income:
Class 1 ........................................................... (20,195,709) (26,406,410)
Class 2 ........................................................... (2,255,259) (1,047,921)
Net realized gains:
Class 1 ........................................................... (118,600,706) (91,727,528)
Class 2 ........................................................... (14,798,195) (3,898,692)
---------------------------------------
Total distributions to shareholders .................................. (155,849,869) (123,080,551)
Capital share transactions: (Note 2)
Class 1 ........................................................... 692,644,895 (14,797,710)
Class 2 ........................................................... 68,586,998 45,319,734
---------------------------------------
Total capital share transactions ..................................... 761,231,893 30,522,024
Net increase in net assets ....................................... 652,559,692 137,806,303
Net assets:
Beginning of period .................................................. 1,158,162,467 1,020,356,164
---------------------------------------
End of period ........................................................ $1,810,722,159 $1,158,162,467
=======================================
Undistributed net investment income included in net assets:
End of period ........................................................ $ 11,204,261 $ 16,772,639
=======================================
</TABLE>
See notes to financial statements.
TI-13
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Templeton International Securities Fund (the Fund) is a separate,
diversified series of the Franklin Templeton Variable Insurance Products Trust
(the Trust), which is an open-end investment company registered under the
Investment Company Act of 1940. Shares of the Fund are sold only to insurance
company separate accounts to fund the benefits of variable life insurance
policies or variable annuity contracts. The Fund seeks long-term capital growth.
The portfolio invests primarily in equity securities of smaller companies
outside the U.S., including emerging markets.
Effective May 1, 2000, the name of the Templeton International Equity Fund
changed to Templeton International Securities Fund, as a result of fund mergers,
as discussed in Note 6. The Fund's investment objectives and other policies did
not change as a result of the name change.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities, the Fund will customarily enter
into a foreign exchange contract to minimize foreign exchange risk from the
trade date to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
TI-14
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
Common expenses incurred by the Trust are allocated among the funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
E. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
The Fund offers two classes of shares: Class 1 and Class 2. Each class of shares
differs by its distribution fees, voting rights on matters affecting a single
class, and its exchange privilege.
At June 30, 2000, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 6,115,864 $ 117,487,707 4,898,075 $ 98,598,572
Shares issued on merger (Note 6) ................... 35,794,416 651,458,377 -- --
Shares issued on reinvestment of distributions ..... 7,326,842 138,796,415 6,924,615 118,133,938
Shares redeemed .................................... (11,133,746) (215,097,604) (11,722,543) (231,530,220)
------------------------------------------------------------------
Net increase (decrease) ............................ 38,103,376 $ 692,644,895 100,147 $ (14,797,710)
==================================================================
CLASS 2 SHARES:
Shares sold ........................................ 21,038,739 $ 409,844,354 57,320,488 $ 1,117,974,227
Shares issued on merger (Note 6) ................... 177,521 3,216,683 -- --
Shares issued on reinvestment of distributions ..... 904,695 17,053,454 290,806 4,946,613
Shares redeemed .................................... (18,483,041) (361,527,493) (54,967,087) (1,077,601,106)
------------------------------------------------------------------
Net increase ....................................... 3,637,914 $ 68,586,998 2,644,207 $ 45,319,734
==================================================================
</TABLE>
TI-15
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
<TABLE>
<CAPTION>
ENTITY AFFILIATION
---------------------------------------------------------------------------------------------
<S> <C>
Franklin Templeton Services, Inc. (FT Services) Administrative manager
Templeton Investment Counsel, Inc. (TICI) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>
The Fund pays an investment management fee to TICI based on the average net
assets of the Fund as follows:
ANNUALIZED FEE RATE DAILY NET ASSETS
-------------------------------------------------------------------------
.75% First $200 million
.675% Over $200 million, up to and including $1.3 billion
.60% Over $1.3 billion
The Fund pays administrative fees to FT Services based on the average net assets
of the fund as follows:
ANNUALIZED FEE RATE DAILY NET ASSETS
-------------------------------------------------------------------------
.15% First $200 million
.135% Over $200 million, up to and including $700 million
.10% Over $700 million, up to and including $1.2 billion
Fees are further reduced on net assets over $1.2 billion.
The Fund reimburses Distributors up to .25% per year of its average daily net
assets of Class 2, for costs incurred in marketing the Fund's shares.
Investor Services, under terms of an agreement, performs shareholder servicing
for the Funds and is not paid by the Fund for the services.
Included in professional fees are legal fees of $97 that were paid to a law firm
in which a partner of that firm was an officer of the Fund.
4. INCOME TAXES
At December 31, 1999, the Fund had deferred capital losses and/or deferred
currency losses of $1,004,292 occurring subsequent to October 31, 1999. For tax
purposes, such losses will be reflected in the year ending December 31, 2000.
Net investment income and net realized capital gains (losses) differ for
financial statement and tax purposes primarily due to differing treatments of
wash sales, foreign currency transactions, passive foreign investment company
shares, and merger related expenses.
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At June 30, 2000, the net unrealized appreciation
based on the cost of investments for income tax purposes was as follows:
Unrealized appreciation ............. $ 399,857,380
Unrealized depreciation ............. (182,061,184)
--------------
Net unrealized appreciation ......... $ 217,796,196
==============
TI-16
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
Notes to Financial Statements (unaudited) (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 2000 aggregated $267,634,383 and $325,183,049,
respectively.
6. MERGERS
On May 1, 2000, the Franklin Templeton Variable Insurance Products Trust
(FTVIPT) - Templeton International Securities Fund acquired the net assets of
Templeton Variable Products Series Fund (TVP) - Templeton International Fund
pursuant to a plan of reorganization approved by the TVP - Templeton
International Fund's shareholders. The merger was accounted for by the method of
accounting for tax-free business combinations of investment companies. The
financial statements of TVP - Templeton International Fund survived the
reorganization; therefore, the financial statements of FTVIPT - Templeton
International Securities Fund reflect the financial statements of TVP -
Templeton International Fund. Immediately preceding the merger, FTVIPT -
Templeton International Securities Fund completed a reverse split of its shares
in the ratio of one new Class 1 share for each .6496 existing Class 1 share and
one new Class 2 share for each .6496 existing Class 2 share. As a result, the
FTVIPT - Templeton International Securities Fund net asset value per share was
$18.20 for Class 1 and $18.12 for Class 2 on May 1, 2000. TVP - Templeton
International Fund's shareholders contributed net assets having an aggregate
value of $1,071,394,151 (including $137,586,448 of unrealized appreciation) in
exchange for 35,794,416 Class 1 shares and 177,521 Class 2 shares (post-split)
of the FTVIPT - Templeton International Securities Fund. Immediately prior to
the merger, FTVIPT - Templeton International Securities Fund had net assets of
$654,675,060 (including unrealized appreciation of $16,819,111). Upon completion
of the merger, the combined net assets of the FTVIPT - Templeton International
Securities Fund were $1,726,069,211.
TI-17
<PAGE>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
TEMPLETON INTERNATIONAL SECURITIES FUND
Tax Designation
At December 31, 1999, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from dividends paid to the Fund on these investments. The Fund intends to make
an election under Section 853 of the Internal Revenue Code. This election will
allow shareholders to treat their proportionate share of foreign taxes paid by
the Fund as having been paid directly by them.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid, as designated by the Fund, to Class 1 and Class 2
shareholders of record on December 29, 1999.
<TABLE>
<CAPTION>
CLASS 1 CLASS 2
----------------------------------------------------------
FOREIGN TAX FOREIGN FOREIGN TAX FOREIGN
PAID SOURCE INCOME PAID SOURCE INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina ................... 0.0000 0.0137 0.0000 0.0130
Australia ................... 0.0016 0.0290 0.0016 0.0276
Austria ..................... 0.0007 0.0034 0.0007 0.0033
Bermuda ..................... 0.0000 0.0039 0.0000 0.0037
Brazil ...................... 0.0047 0.0386 0.0047 0.0367
Canada ...................... 0.0011 0.0059 0.0011 0.0056
China ....................... 0.0000 0.0030 0.0000 0.0029
Czech Republic .............. 0.0004 0.0000 0.0004 0.0000
Finland ..................... 0.0032 0.0169 0.0032 0.0161
France ...................... 0.0025 0.0175 0.0025 0.0166
Germany ..................... 0.0001 0.0006 0.0001 0.0006
Hong Kong ................... 0.0000 0.0256 0.0000 0.0243
Italy ....................... 0.0036 0.0187 0.0036 0.0179
Japan ....................... 0.0001 0.0006 0.0001 0.0005
Mexico ...................... 0.0004 0.0044 0.0004 0.0042
Netherlands ................. 0.0060 0.0490 0.0060 0.0467
New Zealand ................. 0.0021 0.0108 0.0021 0.0103
Norway ...................... 0.0016 0.0088 0.0016 0.0084
Peru ........................ 0.0000 0.0035 0.0000 0.0033
Portugal .................... 0.0007 0.0035 0.0007 0.0033
South Africa ................ 0.0000 0.0059 0.0000 0.0056
South Korea ................. 0.0006 0.0027 0.0006 0.0026
Spain ....................... 0.0036 0.0206 0.0036 0.0197
Sweden ...................... 0.0032 0.0202 0.0032 0.0192
Switzerland ................. 0.0023 0.0141 0.0023 0.0134
United Kingdom .............. 0.0178 0.1568 0.0178 0.1497
---------------------------------------------------------
TOTAL ....................... $0.0563 $0.4777 $0.0563 $0.4552
=========================================================
</TABLE>
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
TI-18
<PAGE>
[LOGO]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777
SEMIANNUAL REPORT
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
INVESTMENT MANAGERS
Franklin Advisers, Inc.
Franklin Advisory Services, LLC
Franklin Mutual Advisers, LLC
Templeton Asset Management, Ltd., Singapore
Templeton Global Advisors Limited
Templeton Investment Counsel, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
Franklin Templeton Variable Insurance Products Trust (VIP) shares are generally
sold only to insurance company separate accounts ("Separate Accounts") to serve
as the investment vehicles for both variable annuity and variable life insurance
contracts. This report must be preceded or accompanied by the current prospectus
for the applicable contract, which includes the Separate Account and the VIP
prospectuses, which contain more detailed information, including sales charges,
risks and advantages. Please read the prospectuses carefully before investing or
sending money. These reports and prospectuses do not constitute an offering in
any jurisdiction in which such offering may not lawfully be made.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls may be
identified by the presence of a regular beeping tone.
VIP15 S00 08/00 [Logo] Printed on recycled paper
<PAGE>
KNOWLEDGE o DISCIPLINE o SERVICE o CHOICE
--------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (R)
--------------------------------------------------------------------------------
INVESCO VARIABLE
INVESTMENT FUNDS
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
VIF-DYNAMICS FUND
SEMI
ANNUAL
SEMIANNUAL REPORT | June 30, 2000 [INVESCO ICON] INVESCO FUNDS
<PAGE>
MARKET OVERVIEW July 2000(2)
Equity markets were extremely volatile in the second quarter as investors
weighed the threat of higher interest rates against the risks of slowing
economic growth. Early in the period, interest rate fears dominated investors'
attention amid signs that the "virtuous economy" -- neither too hot nor too cold
-- was finally starting to heat up. Labor markets remained tight, wage pressures
were simmering and consumers were studying the impressive balances on their
investment statements and spending like never before. Meanwhile, economies in
Europe and Asia continued to pick up steam, and oil prices surged to new highs.
Against this backdrop, interest rate fears led investors to question the lofty
valuations on many growth shares. The result was a sharp rotation out of growth
stocks into many defensive and value-oriented names. The technology-driven
Nasdaq Composite endured a spring sell-off of historic proportions. Downward
pressure was aggravated in mid-May by the Federal Reserve's decision to raise
interest rates by a half percentage point -- more than expected -- in their
sixth rate increase in a year. Yet, not long after the May rate increase,
investors welcomed signs that the credit tightening was starting to cool
economic growth. Job growth slowed in May, while vehicle and home sales
softened. Equity and bond markets rallied at month-end on hopes that the economy
was achieving the desired "soft landing," or gradual deceleration in growth.
These gains extended into June, as economists began to lower their growth
estimates for the remainder of the year. Investors also took heart from June
inflation figures, which showed moderating price pressures. In a widely
anticipated move, the Fed left interest rates unchanged in June, fueling
investor speculation that its campaign of credit tightening might be nearing an
end. Growth company stocks made a comeback, as investors recognized their strong
earnings outlooks and attractive post-correction valuations. By quarter-end, the
Nasdaq was down only marginally from its level at the start of the year.
The recent market rebound has been encouraging; however, we caution that
uncertainty over interest rates will likely persist. While the Federal Reserve
has no desire to trigger a recession, they will remain vigilant as long as
inflation remains a risk. Nonetheless, from what we know of the trends in
technology spending, we believe that productivity gains should help temper
inflation going forward. Earnings forecasts also remain robust, despite
predictions for a slowing economy. In any case, we are confident that this type
of environment will provide opportunities for investors, such as ourselves, who
rely on bottom-up research to identify solid companies that can perform well in
any kind of economy.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
The line graph below illustrates, for the period from inception through 6/30/00,
the value of a $10,000 investment in the fund, plus reinvested dividends and
capital gain distributions. The charts and other total return figures cited
reflect the fund's operating expenses, but the index does not have expenses,
which would, of course, have lowered its performance. (Past performance is not a
guarantee of future results.)(1),(2)
VIF-DYNAMICS FUND
-------------------------------------
VIF-DYNAMICS FUND
AVERAGE ANNUAL TOTAL RETURN
AS OF 6/30/00 (1)
1 year 46.96%
-------------------------------------
Since inception (8/97) 31.51%
-------------------------------------
For the six-month period ended June 30, 2000, the value of your shares rose
13.65%. This is comparable to the return of the S&P Midcap 400 Index, which rose
9.06% during the same period. (Of course, past performance is not a guarantee of
future results.)(1),(2)
Graph: VIF-Dynamics Fund Total Return Since Inception vs S&P MidCap 400 Index
This line graph compares the value of a $10,000 investment in INVESCO
VIF-Dynamics Fund to the value of a $10,000 investment in the S&P
MidCap 400 Index, assuming in each case reinvestment of all dividends
and capital gain distributions, for the period from inception (8/97)
through June 30, 2000.
1
<PAGE>
After two months of downward pressure, the markets recovered in June, gaining
back some ground lost earlier in the quarter. Inflation concerns led to the
period's volatility, spawned by a series of higher reported inflation figures as
well as the central bank's negative statements at its May meeting, when it
raised short-term interest rates 50 basis points. The June producer and consumer
inflation figures showed moderating inflation following the earlier oil price
surge, followed by June's purchasing managers' prices paid index, which declined
for the third month in a row. As a result, equity markets recovered somewhat,
with the Nasdaq Composite up strongly after a dramatic pullback that reached
bottom in late May.
The fund's investments in three of the economy's fastest-growing segments --
biotechnology, technology and communications -- hurt our performance in April
and May, but provided a positive tailwind as the market appeared to right itself
in June. Inflation scares, a federal ruling against Microsoft Corp, and other
factors caused investors to flee many higher-priced companies. Still, business
fundamentals remained quite strong for many of these leading firms.
The fund's investments in smaller technology stocks were hit particularly hard
in the market downdraft. Peregrine Systems, which markets infrastructure
management software, confused Wall Street by merging with Harbinger Corp, a
marketer of business-to-business e-commerce software. Redback Networks, a maker
of networking systems, and Gemstar International Group Ltd, a developer of
electronic program guides, also gave ground as investors became more focused on
current earnings rather than future growth.
But many of these same technology and biotechnology stocks proved particularly
strong in June. Two of our top-performing networking stocks included Extreme
Networks and Redback Networks. Software firms Vignette Corp and Art Technology
Group also performed well, based on evidence that large enterprises are stepping
up investment in Web-based software. These mid-cap companies have been more
aggressive than larger rivals in serving the needs of companies adapting to the
Internet. Our biotechnology holdings also gained ground in June, with Human
Genome Sciences, Celgene Corp, and Abgenix Inc all moving higher.
On the other hand, our energy holdings, which provided some welcome returns to
the fund during the technology sector retreat, lost ground at the end of the
period. Still, we remain enthusiastic about the prospects for service firms, in
particular, which should enjoy real growth prospects as oil and gas producers
scramble to add reserves in response to tight supply and demand conditions.
Going forward, we intend to maintain our focus on companies that should prosper
even as the economy slows, particularly on firms that are closely involved in
the digital communications "buildout." We have reduced our exposure to the
retail sector, however, with our recent sale of Circuit City Stores-Circuit City
Group.
FUND MANAGEMENT
[Photo of Timothy J. Miller]
[Photo of Thomas R. Wald]
VIF-Dynamics Fund is managed by INVESCO Chief Investment Officer Timothy J.
Miller and Vice President Thomas R. Wald. Tim received his MBA from the
University of Missouri, and a BSBA from St. Louis University. A 19-year veteran
of the investment business, he is a Chartered Financial Analyst. Before joining
INVESCO in 1992, Tim was an analyst and portfolio manager with Mississippi
Valley Advisors.
Thomas R. Wald assumed responsibilities of co-manager in 1997. He received his
MBA from The Wharton School, University of Pennsylvania, and a BA from Tulane
University. Before joining INVESCO in 1997, Tom was the senior health care
analyst at Munder Capital Management.
(1) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS FOR THE PERIODS INDICATED. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY BE WORTH MORE OR
LESS THAN WHEN PURCHASED.
(2) THE S&P MIDCAP 400 IS AN UNMANAGED INDEX INDICATIVE OF DOMESTIC
MID-CAPITALIZATION STOCKS. THE NASDAQ IS AN UNMANAGED INDEX OF STOCKS TRADED
OVER-THE-COUNTER.
2
<PAGE>
STATEMENT OF INVESTMENT SECURITIES
INVESCO VARIABLE INVESTMENT FUNDS, INC.
JUNE 30, 2000
UNAUDITED
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
--------------------------------------------------------------------------------
DYNAMICS FUND
90.53 COMMON STOCKS
0.38 BANKS
Northern Trust 8,280 $ 538,717
================================================================================
7.92 BIOTECHNOLOGY--HEALTH CARE
Abgenix Inc(a) 11,800 1,414,341
Affymetrix Inc(a) 7,850 1,296,231
Celgene Corp(a) 26,150 1,539,581
COR Therapeutics(a) 17,400 1,484,437
ImClone Systems(a) 11,925 911,517
Medarex Inc(a) 5,600 473,200
MedImmune Inc(a) 18,100 1,339,400
Protein Design Labs(a) 9,400 1,550,559
Sepracor Inc(a) 10,100 1,218,313
================================================================================
11,227,579
3.35 BROADCASTING
AMFM Inc(a) 14,150 976,350
Citadel Communications(a) 9,550 333,653
EchoStar Communications Class A Shrs(a) 34,380 1,138,300
Entercom Communications(a) 17,000 828,750
General Motors Class H Shrs(a) 7,300 640,575
Hispanic Broadcasting(a) 12,440 412,075
Westwood One(a) 12,300 419,738
================================================================================
4,749,441
1.53 CABLE
CableVision Systems Class A Shrs(a) 13,970 948,214
NTL Inc(a) 6,987 418,347
USA Networks(a) 36,820 796,233
================================================================================
2,162,794
3.07 COMMUNICATIONS--EQUIPMENT & MANUFACTURING
CIENA Corp(a) 8,865 1,477,685
Comverse Technology(a) 12,900 1,199,700
Copper Mountain Networks(a) 5,300 467,062
E-Tek Dynamics(a) 3,800 1,002,488
Metasolv Software(a) 4,700 206,800
================================================================================
4,353,735
3
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
--------------------------------------------------------------------------------
18.01 COMPUTER RELATED
Adobe Systems 7,700 $1,001,000
Art Technology Group(a) 17,100 1,726,031
BEA Systems(a) 19,600 968,975
BroadVision Inc(a) 20,620 1,047,754
Brocade Communications Systems(a) 10,280 1,886,219
Entrust Technologies(a) 7,400 612,350
Exodus Communications(a) 28,160 1,297,120
Extreme Networks(a) 8,180 862,990
InfoSpace Inc(a) 12,600 696,150
Inktomi Corp(a) 9,350 $1,105,637
Internap Network Services(a) 13,790 572,500
Intuit Inc(a) 12,120 501,465
i2 Technologies(a) 11,745 1,224,600
Macromedia Inc(a) 6,400 618,800
Mercury Interactive(a) 14,520 1,404,810
Network Appliance(a) 15,380 1,238,090
Peregrine Systems(a) 24,800 860,250
Portal Software(a) 12,300 785,663
RealNetworks Inc(a) 11,000 556,188
Redback Networks(a) 11,460 2,039,880
Siebel Systems(a) 14,070 2,301,324
Software.com Inc(a) 900 116,888
Symantec Corp(a) 11,050 596,009
TIBCO Software(a) 3,000 321,703
Vignette Corp(a) 14,600 759,428
Vitria Technology(a) 7,100 433,988
================================================================================
25,535,812
2.72 ELECTRICAL EQUIPMENT
Flextronics International Ltd(a) 17,240 1,184,173
Jabil Circuit(a) 8,540 423,797
Molex Inc 20,037 964,281
Sanmina Corp(a) 15,060 1,287,630
================================================================================
3,859,881
11.05 ELECTRONICS--SEMICONDUCTOR
Altera Corp(a) 11,390 1,161,068
Applied Micro Circuits(a) 10,900 1,076,375
Conexant Systems(a) 8,660 421,092
Linear Technology 15,480 989,752
LSI Logic(a) 21,180 1,146,367
Maxim Integrated Products(a) 19,860 1,349,239
Microchip Technology(a) 13,570 790,665
4
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
--------------------------------------------------------------------------------
PMC-Sierra Inc(a) 10,440 $1,855,058
RF Micro Devices(a) 10,190 892,899
SDL Inc(a) 8,460 2,412,686
TranSwitch Corp(a) 15,200 1,173,250
Vitesse Semiconductor(a) 10,820 795,946
Xilinx Inc(a) 19,490 1,609,143
================================================================================
15,673,540
0.71 ENTERTAINMENT
Gemstar International Group Ltd(a) 16,440 1,010,289
================================================================================
0.90 EQUIPMENT--SEMICONDUCTOR
KLA-Tencor Corp(a) 10,230 599,094
Novellus Systems(a) 3,600 203,625
Teradyne Inc(a) 6,510 478,485
================================================================================
1,281,204
1.33 FINANCIAL
Ambac Financial Group 13,000 712,562
Edwards (A G) Inc 14,400 561,600
Providian Financial 6,800 612,000
================================================================================
1,886,162
1.66 GAMING
Harrah's Entertainment(a) 57,940 $1,213,119
MGM Grand 35,420 1,137,867
================================================================================
2,350,986
7.57 HEALTH CARE DRUGS--PHARMACEUTICALS
Allergan Inc 18,400 1,370,800
ALZA Corp(a) 25,100 1,484,037
Forest Laboratories(a) 25,950 2,620,950
Human Genome Sciences(a) 9,200 1,227,050
ICN Pharmaceuticals 16,400 456,125
Inhale Therapeutic Systems(a) 12,700 1,288,653
IVAX Corp 18,400 763,600
Millennium Pharmaceuticals(a) 13,640 1,525,975
================================================================================
10,737,190
0.50 HEALTH CARE RELATED
PE Corp-PE Biosystems Group 10,800 711,450
================================================================================
1.74 INVESTMENT BANK/BROKER FIRM
Paine Webber Group 8,900 404,950
Price (T Rowe) Associates 14,200 603,500
Waddell & Reed Financial
Class A Shrs 23,513 771,520
Class B Shrs 23,429 680,905
================================================================================
2,460,875
5
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
--------------------------------------------------------------------------------
10.22 OIL & GAS RELATED
Anadarko Petroleum 13,120 $ 646,980
Apache Corp 23,765 1,397,679
BJ Services(a) 19,250 1,203,125
Canadian Natural Resources(a) 9,700 281,501
Coflexip SA Sponsored ADR
Representing 1/2 Ord Shr 5,700 344,850
Cooper Cameron(a) 19,575 1,291,950
Diamond Offshore Drilling 7,900 277,487
ENSCO International 13,900 497,794
EOG Resources 3,000 100,500
Global Industries Ltd(a) 12,760 240,845
Global Marine(a) 19,850 559,522
Grant Prideco(a) 22,090 552,250
Kerr-McGee Corp 5,350 315,316
Nabors Industries(a) 25,025 1,040,102
Noble Drilling(a) 28,490 1,173,432
Santa Fe International 35,880 1,253,558
Smith International(a) 19,150 1,394,359
Transocean Sedco Forex 7,700 411,469
Varco International(a) 12,286 285,650
Vastar Resources 2,650 217,631
Weatherford International(a) 25,290 1,006,858
================================================================================
14,492,858
0.21 PERSONAL CARE
Estee Lauder Class A Shrs 6,020 297,614
================================================================================
0.81 PUBLISHING
New York Times Class A Shrs 11,730 463,335
Valassis Communications(a) 17,640 672,525
================================================================================
1,135,860
0.75 RAILROADS
Kansas City Southern Industries 11,900 1,055,381
================================================================================
1.38 RETAIL
Best Buy(a) 6,250 395,312
Kohl's Corp(a) 19,100 1,062,437
RadioShack Corp 10,390 492,226
================================================================================
1,949,975
8.96 SERVICES
Ariba Inc(a) 11,000 1,078,516
Computer Sciences(a) 3,750 280,078
CSG Systems International(a) 15,300 857,756
DoubleClick Inc(a) 12,650 482,281
Go2Net Inc(a) 9,580 481,994
Lamar Advertising Class A Shrs(a) 6,300 272,869
Omnicom Group 9,930 884,391
Palm Inc(a) 3,900 130,163
6
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
--------------------------------------------------------------------------------
Paychex Inc 33,075 $ 1,389,150
Proxicom Inc(a) 13,900 665,463
Robert Half International(a) 19,200 547,200
Safeguard Scientifics(a) 7,500 240,469
Sapient Corp(a) 6,580 703,649
SEI Investments 8,560 340,795
SunGard Data Systems(a) 11,300 350,300
TMP Worldwide(a) 16,700 1,232,669
VeriSign Inc(a) 9,360 1,652,040
WPP Group PLC 34,340 501,678
Young & Rubicam 10,820 618,769
================================================================================
12,710,230
1.25 TELECOMMUNICATIONS--CELLULAR & WIRELESS
Crown Castle International(a) 15,220 555,530
VoiceStream Wireless(a) 5,610 652,425
Western Wireless Class A Shrs(a) 10,380 565,710
================================================================================
1,773,665
1.21 TELECOMMUNICATIONS--LONG DISTANCE
Allegiance Telecom(a) 12,150 777,600
ITC DeltaCom(a) 7,450 166,228
Nextel Partners Class A Shrs(a) 21,100 687,069
Viatel Inc(a) 3,100 88,544
================================================================================
1,719,441
3.30 TELEPHONE
Amdocs Ltd(a) 19,250 1,477,438
AT&T Canada Class B Depository Receipts(a) 14,430 478,896
Citizens Communications Class B Shrs(a) 24,900 429,525
COLT Telecom Group PLC Sponsored ADR
Representing 4 Ord Shrs(a) 5,320 721,525
McLeodUSA Inc Class A Shrs(a) 40,780 843,636
RCN Corp(a) 7,100 180,163
Time Warner Telecom Class A Shrs(a) 8,600 553,625
================================================================================
4,684,808
TOTAL COMMON STOCKS (Cost $112,312,460) 128,359,487
================================================================================
9.47 SHORT-TERM INVESTMENTS
4.73 COMMERCIAL PAPER
4.73 CONSUMER FINANCE
Ford Motor Credit, 6.720%, 7/3/2000
(Cost $6,700,000) $6,700,000 6,700,000
================================================================================
4.74 REPURCHASE AGREEMENTS
Repurchase Agreement with State
Street dated 6/30/2000 due 7/3/2000
at 6.400%, repurchased at $6,730,588
(Collateralized by US Treasury
Inflationary Index Bonds, due
2/15/2026 at 6.000%, value $6,848,542)
(Cost $6,727,000) $6,727,000 6,727,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS (Cost $13,427,000) 13,427,000
================================================================================
7
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
--------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $125,739,460)
(Cost for Income Tax Purposes $126,162,434) $141,786,487
================================================================================
(a) Security is non-income producing.
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
INVESCO VARIABLE INVESTMENT FUNDS, INC.
JUNE 30, 2000
UNAUDITED
DYNAMICS
FUND
--------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $125,739,460
================================================================================
At Value(a) $141,786,487
Cash 200
Receivables:
Investment Securities Sold 335,075
Fund Shares Sold 2,173,777
Dividends and Interest 16,409
Appreciation on Forward Foreign Currency Contracts 983
Prepaid Expenses and Other Assets 8,292
================================================================================
TOTAL ASSETS 144,321,223
================================================================================
LIABILITIES
Payables:
Investment Securities Purchased 1,164,890
Fund Shares Repurchased 1,603,194
Accrued Expenses and Other Payables 3,836
================================================================================
TOTAL LIABILITIES 2,771,920
================================================================================
NET ASSETS AT VALUE $141,549,303
================================================================================
NET ASSETS
Paid-in Capital(b) $129,994,240
Accumulated Undistributed Net Investment Loss (5,942)
Accumulated Undistributed Net Realized Loss on Investment
Securities and Foreign Currency Transactions (4,486,024)
Net Appreciation of Investment Securities and
Foreign Currency Transactions 16,047,029
================================================================================
NET ASSETS AT VALUE $141,549,303
================================================================================
Shares Outstanding 6,590,711
NET ASSET VALUE, Offering and Redemption Price per Share $ 21.48
================================================================================
(a) Investment securities at cost and value at June 30, 2000 includes a
repurchase agreement of $6,727,000.
(b) The Fund has 1.5 billion authorized shares of common stock, par value of
$0.01 per share. Of such shares, 100 million have been allocated to
Dynamics Fund.
See Notes to Financial Statements
9
<PAGE>
STATEMENT OF OPERATIONS
INVESCO VARIABLE INVESTMENT FUNDS, INC.
SIX MONTHS ENDED JUNE 30, 2000
UNAUDITED
DYNAMICS
FUND
--------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 35,701
Dividends from Affiliated Investment Companies 48,731
Interest 276,337
Foreign Taxes Withheld (708)
================================================================================
TOTAL INCOME 360,061
================================================================================
EXPENSES
Investment Advisory Fees 246,350
Transfer Agent Fees 2,500
Administrative Services Fees 92,044
Custodian Fees and Expenses 17,835
Directors' Fees and Expenses 4,920
Professional Fees and Expenses 8,836
Registration Fees and Expenses 119
Reports to Shareholders 11,649
Other Expenses 493
================================================================================
TOTAL EXPENSES 384,746
Fees and Expenses Absorbed by Investment Adviser (1,028)
Fees and Expenses Paid Indirectly (17,731)
================================================================================
NET EXPENSES 365,987
================================================================================
NET INVESTMENT LOSS (5,926)
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES
Net Realized Loss on Investment Securities
and Foreign Currency Transactions (4,411,487)
================================================================================
Change in Net Appreciation (Depreciation) of:
Investment Securities 11,162,211
Foreign Currency Transactions (6,691)
================================================================================
Total Net Appreciation 11,155,520
================================================================================
NET GAIN ON INVESTMENT SECURITIES AND
FOREIGN CURRENCY TRANSACTIONS 6,744,033
================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 6,738,107
================================================================================
See Notes to Financial Statements
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
DYNAMICS FUND
SIX MONTHS YEAR
ENDED ENDED
JUNE 30 DECEMBER 31
--------------------------------------------------------------------------------
2000 1999
UNAUDITED
OPERATIONS
Net Investment Income (Loss) $ (5,926) $ 1,732
Net Realized Loss on Investment Securities
and Foreign Currency Transactions (4,411,487) (66,357)
Change in Net Appreciation of Investment
Securities and Foreign Currency Transactions 11,155,520 4,831,517
================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS 6,738,107 4,766,892
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income 0 (1,730)
In Excess of Net Investment Income 0 (4,078)
================================================================================
TOTAL DISTRIBUTIONS 0 (5,808)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 164,851,301 34,477,477
Reinvestment of Distributions 0 5,808
================================================================================
164,851,301 34,483,285
Amounts Paid for Repurchases of Shares (59,707,112) (9,885,578)
================================================================================
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 105,144,189 24,597,707
================================================================================
TOTAL INCREASE IN NET ASSETS 111,882,296 29,358,791
NET ASSETS
Beginning of Period 29,667,007 308,216
================================================================================
End of Period (Including Accumulated Undistributed
(Distributions in Excess of) Net Investment
Loss of ($5,942) and ($16), respectively) $ 141,549,303 $ 29,667,007
================================================================================
-----------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 7,970,318 2,115,404
Shares Issued from Reinvestment of Distributions 0 350
================================================================================
7,970,318 2,115,754
Shares Repurchased (2,949,651) (571,073)
================================================================================
NET INCREASE IN FUND SHARES 5,020,667 1,544,681
================================================================================
See Notes to Financial Statements
11
<PAGE>
INVESCO Notes to financial statements - INVESCO Variable Investment Funds, Inc.
UNAUDITED
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Variable
Investment Funds, Inc. is incorporated in Maryland and presently consists of
thirteen separate Funds: Blue Chip Growth Fund, Dynamics Fund (the "Fund",
presented herein), Equity Income Fund, Financial Services Fund, Health Sciences
Fund, High Yield Fund, Market Neutral Fund, Real Estate Opportunity Fund, Small
Company Growth Fund, Technology Fund, Telecommunications Fund, Total Return Fund
and Utilities Fund. The investment objective of the Fund is to seek appreciation
of capital. The INVESCO Variable Investment Funds, Inc. is registered under the
Investment Company Act of 1940 (the "Act") as a diversified, open-end management
investment company. The Fund's shares are not offered directly to the public but
are sold exclusively to life insurance companies ("Participating Insurance
Companies") as a pooled funding vehicle for variable annuity and variable life
insurance contracts issued by separate accounts of the Participating Insurance
Companies.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities traded on national securities
exchanges or in the over-the-counter market are valued at the last sales price
at the close of the regular trading day on that exchange (generally 4:00 p.m.
Eastern time) in the market where such securities are primarily traded. If last
sales prices are not available, securities are valued at the highest closing bid
prices at the close of the regular trading day and obtained from one or more
dealers making a market for such securities or by a pricing service approved by
the Fund's board of directors.
Foreign securities are valued at the closing price on the principal stock
exchange on which they are traded. In the event that closing prices are not
available for foreign securities, prices will be obtained from the principal
stock exchange at or prior to the close of the New York Stock Exchange. Foreign
currency exchange rates are determined daily prior to the close of the New York
Stock Exchange.
Investments in shares of investment companies are valued at the net asset value
of the respective mutual fund as calculated each day.
If market quotations or pricing service valuations are not readily available,
securities are valued at fair value as determined in good faith under procedures
established by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the date of valuation.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in the
possession of the Fund's custodian. The collateral is evaluated daily to ensure
its market value exceeds the current market value of the repurchase agreements
including accrued interest. In the event of default on the obligation to
repurchase, the Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Certain dividends from foreign securities will be recorded as
soon as the Fund is informed of the dividend if such information is obtained
subsequent to the ex-dividend date. Interest income, which may be comprised of
stated coupon rate, market discount, original issue discount and amortized
premium, is recorded on the accrual basis. Income and expenses on foreign
securities are translated into U.S dollars at rates of exchange prevailing when
accrued. Cost is determined on the specific identification basis. The cost of
foreign securities is translated into U.S. dollars at the rates of exchange
prevailing when such securities are acquired.
The Fund may invest in securities issued by other INVESCO Investment Companies
that invest in short-term debt securities and seek to maintain a net asset value
of one dollar per share.
12
<PAGE>
The Fund may have elements of risk due to concentrated investments in specific
industries or foreign issuers located in a specific country. Such concentrations
may subject the Fund to additional risks resulting from future political or
economic conditions and/or possible impositions of adverse foreign governmental
laws or currency exchange restrictions. Net realized and unrealized gain or loss
from investment securities includes fluctuations from currency exchange rates
and fluctuations in market value.
The Fund's use of short-term forward foreign currency contracts may subject it
to certain risks as a result of unanticipated movements in foreign exchange
rates. The Fund does not hold short-term forward foreign currency contracts for
trading purposes. The Fund may hold foreign currency in anticipation of settling
foreign security transactions and not for investment purposes.
D. FEDERAL AND STATE TAXES -- The Fund has complied, and continues to comply,
with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make sufficient
distributions of net investment income and net realized capital gains, if any,
to relieve it from all federal and state income taxes and federal excise taxes.
The Fund incurred and elected to defer post-October 31 net capital losses of
$250,619 to the year ended December 31, 2000. To the extent future capital gains
and income are offset by capital loss carryovers and deferred post-October 31
losses, such gains will not be distributed to shareholders.
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders.
Investment income received from foreign sources may be subject to foreign
withholding taxes. Dividend and interest income is shown gross of foreign
withholding taxes in the accompanying financial statements.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded by the Fund on the ex-dividend/distribution date. The
Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from accounting principles generally accepted in
the United States. These differences are primarily due to differing treatments
for market discounts, amortized premiums, foreign currency transactions,
nontaxable dividends, net operating losses and expired capital loss
carryforwards.
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund enters into short-term forward
foreign currency contracts in connection with planned purchases or sales of
securities as a hedge against fluctuations in foreign exchange rates pending the
settlement of transactions in foreign securities. A forward foreign currency
contract is an agreement between contracting parties to exchange an amount of
currency at some future time at an agreed upon rate. These contracts are
marked-to-market daily and the related appreciation or depreciation of the
contracts is presented in the Statement of Assets and Liabilities. Any realized
gain or loss incurred by the Fund upon the sale of securities is included in the
Statement of Operations.
G. EXPENSES -- The Fund bears expenses incurred specifically on its behalf and,
in addition, the Fund bears a portion of general expenses, based on the relative
net assets of the Fund.
Under an agreement between the Fund and the Fund's Custodian, agreed upon
Custodian Fees and Expenses are reduced by credits granted by the Custodian from
any temporarily uninvested cash. Such credits are included in Fees and Expenses
Paid Indirectly in the Statement of Operations.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group, Inc.
("IFG") serves as the Fund's investment adviser. As compensation for its
services to the Fund, IFG receives an investment advisory fee which is accrued
daily at the applicable rate and paid monthly. The fee for the Fund is based on
the annual rate of 0.75% on the first $1 billion of average net assets; reduced
to 0.60% on the next $1 billion of average net assets; reduced to 0.45% of
average net assets in excess of $2 billion; reduced to 0.40% of average net
assets in excess of $4 billion; reduced to 0.375% of average net assets in
excess of $6 billion and 0.35% of average net assets in excess of $8 billion.
IFG receives a transfer agent fee of $5,000 per year. The fee is paid monthly at
one-twelfth of the annual fee.
In accordance with an Administrative Services Agreement, the Fund pays IFG an
annual fee of $10,000 (the "Base Fee"), plus an additional amount computed at an
annual rate of 0.265% of average net assets (the "Incremental Fee") to provide
administrative, accounting and clerical services. The fee is accrued daily and
paid monthly. IFG may pay all or a portion of the Base Fee and the Incremental
Fee to other companies that assist in providing the services.
13
<PAGE>
IFG has voluntarily agreed to absorb certain fees and expenses incurred by the
Fund for the six months ended June 30, 2000.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months ended
June 30, 2000, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were $113,210,064 and $17,098,067, respectively. There were no
purchases or sales of U.S. Government securities.
NOTE 4 -- APPRECIATION AND DEPRECIATION. At June 30, 2000, the gross
appreciation of securities in which there was an excess of value over tax cost
amounted to $18,407,815 and the gross depreciation of securities in which there
was an excess of tax cost over value amounted to $2,783,762, resulting in net
appreciation of $15,624,053.
NOTE 5 -- TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG.
The Fund has adopted an unfunded defined benefit deferred compensation plan
covering all independent directors of the Fund who will have served as an
independent director for at least five years at the time of retirement. Benefits
under this plan are based on an annual rate equal to 50% of the sum of the
retainer fee at the time of retirement plus the meeting attendance fees.
Pension expenses for the six months ended June 30, 2000 included in Directors'
Fees and Expenses in the Statement of Operations were $25. Unfunded accrued
pension costs of $0 and pension liability of $40 are included in Prepaid
Expenses and Accrued Expenses, respectively, in the Statement of Assets and
Liabilities.
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
NOTE 6 -- INTERFUND BORROWING AND LENDING. The Fund is party to an interfund
lending agreement between the Fund and other INVESCO sponsored mutual funds,
which permit it to borrow or lend cash, at rates beneficial to both the
borrowing and lending funds. Loans totaling 10% or more of a borrowing fund's
total assets are collateralized at 102% of the value of the loan; loans of less
than 10% are unsecured. Pursuant to the Fund's prospectus, the Fund may borrow
up to 33 1/3% of its total assets for temporary or emergency purposes. During
the six months ended June 30, 2000, there were no such borrowings and/or
lendings.
NOTE 7 -- LINE OF CREDIT. The Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the net assets at value of the Fund. The Fund
agrees to pay annual fees and interest on the unpaid principal balance based on
prevailing market rates as defined in the agreement. At June 30, 2000, there
were no such borrowings.
14
<PAGE>
FINANCIAL HIGHLIGHTS
DYNAMICS FUND
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS PERIOD
ENDED ENDED
JUNE 30 YEAR ENDED DECEMBER 31 DECEMBER 31
---------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997(a)
UNAUDITED
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value--Beginning of Period $ 18.90 $ 12.15 $ 10.34 $ 10.00
===========================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)(b) (0.00) 0.00 (0.00) 0.02
Net Gains on Securities (Both Realized and Unrealized) 2.58 6.75 1.98 0.32
===========================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 2.58 6.75 1.98 0.34
===========================================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income(c) 0.00 0.00 0.02 0.00
In Excess of Net Investment Income(c) 0.00 0.00 0.00 0.00
Distributions from Capital Gains 0.00 0.00 0.15 0.00
===========================================================================================================================
TOTAL DISTRIBUTIONS 0.00 0.00 0.17 0.00
===========================================================================================================================
Net Asset Value--End of Period $ 21.48 $ 18.90 $ 12.15 $ 10.34
===========================================================================================================================
TOTAL RETURN(d) 13.65%(e) 55.60% 19.35% 3.40%(e)
RATIOS
Net Assets-- End of Period ($000 Omitted) $ 141,549 $ 29,667 $ 308 $ 257
Ratio of Expenses to Average Net Assets(f)(g) 0.56%(e) 1.26% 1.45% 0.52%(h)
Ratio of Net Investment Income (Loss) to Average Net Assets(f) (0.01%)(e) 0.04% (0.64%) 0.63%(h)
Portfolio Turnover Rate 28%(e) 70% 55% 28%(e)
</TABLE>
(a) From August 25, 1997, commencement of investment operations, through
December 31, 1997.
(b) Net Investment Income (Loss) aggregated less than $0.01 on a per share
basis for the six months ended June 30, 2000 and for the years ended
December 31, 1999 and 1998.
(c) Distributions from net investment income and in excess of net investment
income for the year ended December 31, 1999, aggregated less than $0.01 on
a per share basis.
(d) Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return
figures for the periods shown.
(e) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(f) Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended June 30, 2000, the years ended December 31, 1999 and 1998, and
all of expenses of the Fund were voluntarily absorbed by IFG for the period
ended December 31, 1997. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 0.58%,
2.25%, 14.76% and 34.18% (annualized), respectively, and ratio of net
investment loss to average net assets would have been (0.03%), (0.95%),
(13.95%) and (33.03%) (annualized), respectively.
(g) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(h) Annualized
15
<PAGE>
YOU SHOULD
KNOW WHAT
INVESCO KNOWS(R)
[INVESCO ICON] INVESCO FUNDS
We're easy to stay in touch with:
1-800-6-INVESCO
On the World Wide Web: invescofunds.com
INVESCO Distributors, Inc.(SM), Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied by a current prospectus.
Printed on recycled paper.
S11 9183 8/00
<PAGE>
This page left intentionally blank
<PAGE>
--------------------------------------------------------------------------------
Janus|Aspen Series
--------------------------------------------------------------------------------
2000 SEMIANNUAL REPORT
Janus Aspen Aggressive Growth Portfolio
[LOGO] JANUS
--------------------------------------------------------------------------------
<PAGE>
Janus|Aspen Aggressive Growth Portfolio
[PHOTO]
Jim Goff
portfolio manager
For the six months ended June 30, 2000, Janus Aspen Aggressive Growth Portfolio
returned 1.57% for its Institutional Shares, 1.27% for its Retirement Shares and
1.79% for its Service Shares, underperforming the 9.06% gain posted by our
benchmark, the S&P MidCap 400 Index.(1)
During the early months of 2000, investors continued to reward a select core of
fast-growing companies in some of the market's most dynamic segments. By April,
however, the tide had turned. Intense volatility reared its ugly head as markets
grappled with an uncertain interest rate environment and profit-taking in
several high-profile areas, most notably technology and telecommunications. The
irony of it all is that we experienced an exceptional earnings season. Still,
many of our stocks dropped dramatically, albeit indiscriminately. Although a
number of them deserved better, we were not alone. In fact, from the March high
to the May low, the technology-focused Nasdaq Composite Index corrected by some
38%.
Even so, my confidence remains intact. Now that the six short-term interest
rates hikes initiated by the Federal Reserve have begun to produce signs of a
slowing economy, it's possible that the tightening cycle may be nearing its
completion. This would be a positive development for the high-growth companies
we favor as interest rates are important to valuing future cash flows.
That said, we approached this challenging period as we always do, focusing on
individual companies capable of performing well regardless of the market's
overall tone. One example was optical-equipment manufacturer SDL, our largest
position. Demand for the company's more than 200 products has been so strong
that first-quarter 2000 earnings outpaced comparable 1999 earnings by 175%,
easily surpassing analyst estimates. Powerful industry growth and market share
gains should continue to fuel impressive growth for some time to come.
In the services arena, payroll-processing and tax-preparation company Paychex
continued to execute on its business model, which focuses on serving small
businesses. Consistency is a hallmark of this company, with annual revenue and
earnings growth over the past 10 years of 20% and 31%, respectively. Paychex's
client list currently numbers more than 300,000 nationwide, and its move into
new services, such as 401(k) plan management and benefits administration, should
position the company for continued success.
Biotech is another area that performed nicely, having bounced back from the
mid-period sell-off. Our holdings in Sepracor, a biotech company that develops
improved versions of widely prescribed drugs, advanced following the successful
completion of Phase II trials for (S)-oxybutynin, a treatment for urge urinary
incontinence. This condition represents a large and growing market that has
traditionally been underserved by the pharmaceutical industry but represents a
compelling opportunity for Sepracor.
As you might expect, a period as volatile as this is bound to produce some
disappointments. Radio station operator AMFM slipped on concerns that the Fed's
efforts to cool the economy would result in reduced advertising expenditures.
Furthermore, questions surrounding the sustainability of recent increases in
dot-com ad spending pressured the entire media industry, impacting AMFM.
Nonetheless, we have maintained our position given the company's 48% rise in
first-quarter earnings, as well as its market power and diverse group of premier
assets. Cellular service providers VoiceStream and Western Wireless also fell
victim to the tech sell-off, despite both companies reporting outstanding growth
during the period. With worldwide cellular penetration rates growing by more
than 50% in 1999 and further increases expected as wireless data gains momentum,
we are undeterred by this near-term setback.
The key to surviving through and prospering beyond sharp market declines is to
own the tennis balls and avoid the eggs. Ultimately, investors should be
attracted to companies with rapid earnings growth and superior profitability
regardless of the labels assigned to them by the investment community and the
popular media. Therefore, we remain steadfast in our strategy of investing
across the entire market, emphasizing those companies capable of providing
20%-plus earnings growth over a three- to five-year period. And no matter which
direction the market turns in the short term, we will continue to meet face to
face with the people running our companies, always leveraging the firsthand
information that allows us to invest with confidence.
As always, thank you for your investment and confidence in Janus Aggressive
Growth Portfolio.
Portfolio Asset Mix (% of Assets) June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
Equities 96.2% 97.8%
Foreign 3.1% 3.9%
Top 10 Equities 37.8% 31.9%
Number of Stocks 67 70
Cash & Cash Equivalents 3.8% 2.2%
--------------------------------------------------------------------------------
(1) All returns include reinvested dividends.
Past performance does not guarantee future results.
Janus Aspen Series / June 30, 2000 1
<PAGE>
AVERAGE ANNUAL TOTAL RETURN(1)
For the Periods Ended June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
Institutional Shares (Inception Date 9/13/93)
1 Year 75.12%
5 Year 34.93%
From Inception 31.85%
--------------------------------------------------------------------------------
S&P MidCap 400 Index
1 Year 17.07%
5 Year 21.20%
From Inception Date of Institutional Shares 16.65%
--------------------------------------------------------------------------------
Retirement Shares (Inception Date 5/1/97)
1 Year 74.18%
5 Year 34.12%
From Portfolio Inception 30.98%
--------------------------------------------------------------------------------
Service Shares (Inception Date 12/31/99)
1 Year 74.10%
5 Year 34.61%
From Portfolio Inception 31.50%
--------------------------------------------------------------------------------
Returns shown for Retirement and Service Shares for periods prior to their
inception are derived from the historical performance of Institutional Shares,
adjusted to reflect the higher operating expenses of Retirement and Service
Shares.
The Portfolio's returns may have been positively impacted by buying technology
companies in a period favorable for these stocks.
(1) All returns reflect reinvested dividends. The Portfolio's securities may
differ significantly from the securities in the Index. Index returns do not
include taxes or operating expenses necessary to maintain a portfolio
consisting of the same securities that are in the Index. These returns do
not reflect the charges and expenses of any particular insurance product or
qualified plan. Investment return and principal value will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost. The adviser voluntarily waived a portion of the Portfolio's expenses
during certain periods. Without such waiver, the Portfolio's total returns
for each class would have been lower. Past performance does not guarantee
future results.
SCHEDULE OF INVESTMENTS (unaudited)
SHARES OR PRINCIPAL AMOUNT MARKET VALUE
--------------------------------------------------------------------------------
Common Stock - 96.2%
Advertising Sales - 1.2%
1,445,640 Lamar Advertising Co.* ......................... $ 62,614,283
Advertising Services - 1.9%
1,330,165 TMP Worldwide, Inc.* ........................... 98,182,804
Applications Software - 0%
68,400 TenFold Corp.* ................................. 1,124,325
Cellular Telecommunications - 7.9%
3,685,055 Crown Castle International Corp.* .............. 134,504,508
90,415 Millicom International Cellular S.A.* .......... 3,164,525
863,065 Powertel, Inc.* ................................ 61,223,673
870,105 VoiceStream Wireless Corp.* .................... 101,190,492
1,858,890 Western Wireless Corp. - Class A* .............. 101,309,505
401,392,703
Circuit Boards - 0.4%
1,169,200 Viasystems Group, Inc.* ........................ 18,926,425
Circuits - 2.5%
1,749,265 Vitesse Semiconductor Corp.* ................... 128,680,307
Commercial Services - 5.0%
5,994,190 Paychex, Inc. .................................. 251,755,980
Computer Data Security - 4.5%
1,285,418 VeriSign, Inc.* ................................ 226,876,277
Computers - Integrated Systems - 1.7%
462,855 Brocade Communications Systems, Inc.* .......... 84,926,660
Computers - Memory Devices - 0.1%
77,335 StorageNetworks, Inc.* ......................... 6,979,484
Drug Delivery Systems - 1.4%
1,128,555 Andrx Corp.* ................................... 72,139,352
E-Commerce - 2.6%
974,560 eBay, Inc.* .................................... 52,930,790
2,113,960 Priceline.com, Inc.* ........................... 80,297,449
133,228,239
Electronic Components - Semiconductors - 6.7%
842,725 Applied Micro Circuits Corp.* .................. 83,219,094
271,605 Cree, Inc.* .................................... 36,259,267
1,070,490 Intersil Holding Corp.* ........................ 57,873,366
691,915 TriQuint Semiconductor, Inc.* .................. 66,207,616
1,156,930 Xilinx, Inc.* .................................. 95,519,033
339,078,376
Fiber Optics - 10.5%
5,504,385 Metromedia Fiber Network, Inc. - Class A* ...... 218,455,280
711,510 MRV Communications, Inc.* ...................... 47,849,048
902,175 SDL, Inc.* ..................................... 257,289,033
67,075 Sycamore Networks, Inc.* ....................... 7,403,403
530,996,764
Finance - Investment Bankers/Brokers - 0.1%
367,550 E*TRADE Group, Inc.* ........................... 6,064,575
Internet Content - 1.0%
1,269,740 DoubleClick, Inc.* ............................. 48,408,837
See Notes to Schedules of Investments.
2 Janus Aspen Series / June 30, 2000
<PAGE>
Janus|Aspen Aggressive Growth Portfolio
SCHEDULE OF INVESTMENTS (unaudited)
SHARES OR PRINCIPAL AMOUNT MARKET VALUE
--------------------------------------------------------------------------------
Internet Software - 9.9%
3,836,250 Exodus Communications, Inc.* ................... $ 176,707,266
1,109,835 Inktomi Corp.* ................................. 131,237,989
1,017,475 Liberate Technologies, Inc.* ................... 29,824,736
1,114,585 Portal Software, Inc.* ......................... 71,194,117
3,740,260 PSINet, Inc.* .................................. 93,974,032
502,938,140
Medical - Biomedical and Genetic - 5.3%
539,620 CuraGen Corp.* ................................. 20,539,286
547,535 Human Genome Sciences, Inc.* ................... 73,027,481
204,140 Incyte Genomics, Inc.*,ss.,+ ................... 15,729,146
552,785 Maxygen, Inc.* ................................. 31,379,186
1,165,705 Millennium Pharmaceuticals, Inc.* .............. 130,413,247
271,088,346
Medical - Drugs - 5.6%
1,504,687 King Pharmaceuticals, Inc.* .................... 66,018,142
931,260 MedImmune, Inc.* ............................... 68,913,240
1,241,320 Sepracor, Inc.* ................................ 149,734,225
284,665,607
Medical Products - 0.8%
326,165 MiniMed, Inc.* ................................. 38,487,470
Music/Clubs - 1.0%
1,104,647 SFX Entertainment, Inc.* ....................... 50,054,317
Oil - Field Services - 0.8%
178,590 Hanover Compressor Co.* ........................ 6,786,420
896,250 Hanover Compressor Co.*,ss.,+ .................. 31,435,073
38,221,493
Radio - 8.0%
3,548,685 AMFM, Inc.* .................................... 244,859,265
713,035 Citadel Communications Corp.* .................. 24,911,660
1,177,995 Cox Radio, Inc. - Class A* ..................... 32,983,860
798,685 Entercom Communications Corp.* ................. 38,935,894
1,781,690 Hispanic Broadcasting Corp.* ................... 59,018,481
130,865 Radio One, Inc. - Class A* ..................... 3,868,697
158,730 Radio One, Inc. - Class D* ..................... 3,501,981
408,079,838
Real Estate Investment Trusts - 0.6%
594,495 Pinnacle Holdings, Inc.* ....................... 32,102,730
Resorts and Theme Parks - 1.0%
2,186,075 Premier Parks, Inc.* ........................... 49,733,206
Schools - 1.3%
2,441,271 Apollo Group, Inc. - Class A* .................. 68,355,588
Telecommunication Services - 6.7%
2,218,415 AT&T Canada, Inc.* ............................. 73,623,648
1,518,370 Clearnet Communications, Inc. - Class A* ....... 42,158,492
502,930 Level 3 Communications, Inc.* .................. 44,257,840
6,040,230 McLeodUSA, Inc. - Class A* ..................... 124,957,258
1,051,322 Microcell Telecommunications, Inc.* ............ 37,979,007
529,355 Net2Phone, Inc.* ............................... 18,891,357
341,867,602
Telephone - Integrated - 0.8%
1,033,290 NEXTLINK Communications, Inc. - Class A* ....... 39,200,439
Television - 0.6%
313,783 Univision Communications, Inc. - Class A* ...... 32,476,540
Therapeutics - 3.5%
862,890 Abgenix, Inc.* ................................. 103,425,456
888,565 Medarex, Inc.* ................................. 75,083,742
178,509,198
Wireless Equipment - 2.8%
2,588,865 American Tower Corp.* .......................... 107,923,310
407,185 RF Micro Devices, Inc.* ........................ 35,679,586
143,602,896
--------------------------------------------------------------------------------
Total Common Stock (cost $3,671,834,259) ..................... 4,890,758,801
--------------------------------------------------------------------------------
Repurchase Agreement - 1.9%
$ 95,100,000 Morgan Stanley Dean Witter & Co., 6.75%
dated 6/30/00, maturing 7/3/00, to be
repurchased at $95,153,494 collateralized
by $108,511,562 in Fannie Mae, 0.65%-
10.25%, 1/1/06-6/1/30; $131,371,965
in Freddie Mac, 0%-8.40%, 7/15/10-
12/1/29; with respective values of
$35,788,620 and $61,250,175
(cost $95,100,000) .......................... 95,100,000
--------------------------------------------------------------------------------
U.S. Government Agencies - 1.4%
Federal Home Loan Bank System:
20,000,000 5.94%, 7/21/00 .............................. 19,934,000
50,000,000 6.36%, 8/18/00 .............................. 49,576,000
--------------------------------------------------------------------------------
Total U.S. Government Agencies (amortized cost $69,510,000) .. 69,510,000
--------------------------------------------------------------------------------
Total Investments (total cost $3,836,444,259) - 99.5% ........ 5,055,368,801
--------------------------------------------------------------------------------
Cash, Receivables and Other Assets, net of Liablilities - 0.5% 26,785,273
--------------------------------------------------------------------------------
Net Assets - 100% ............................................ $ 5,082,154,074
--------------------------------------------------------------------------------
SUMMARY OF INVESTMENTS BY COUNTRY, JUNE 30, 2000
COUNTRY % OF INVESTMENT SECURITIES MARKET VALUE
--------------------------------------------------------------------------------
Canada 3.0% $ 153,761,147
Luxembourg 0.1% 3,164,525
United States++ 96.9% 4,898,443,129
--------------------------------------------------------------------------------
Total 100.0% $ 5,055,368,801
++ Includes Short-Term Securities (93.6% excluding Short-Term Securities)
See Notes to Schedules of Investments.
Janus Aspen Series / June 30, 2000 3
<PAGE>
Statements of|Operations
<TABLE>
<CAPTION>
Janus Aspen
Aggressive
For the six months or period ended June 30, 2000 (unaudited) Growth
(all numbers in thousands) Portfolio
------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $ 4,648
Dividends 691
Foreign tax withheld --
------------------------------------------------------------------------------------
Total Investment Income 5,339
------------------------------------------------------------------------------------
Expenses:
Advisory fees 14,520
Transfer agent expenses 1
Registration fees 202
System fees 9
Custodian fees 119
Insurance expense --
Audit fees 13
Distribution fees - Retirement Shares 173
Distribution fees - Service Shares 5
Administrative fees - Retirement Shares 173
Other expenses 9
------------------------------------------------------------------------------------
Total Expenses 15,224
------------------------------------------------------------------------------------
Expense and Fee Offsets (29)
------------------------------------------------------------------------------------
Net Expenses 15,195
------------------------------------------------------------------------------------
Excess Expense Reimbursement --
------------------------------------------------------------------------------------
Net Expenses After Reimbursement 15,195
------------------------------------------------------------------------------------
Net Investment Income/(Loss) (9,856)
------------------------------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) from securities transactions 148,412
Net realized gain/(loss) from foreign currency transactions --
Net realized gain/(loss) from futures contracts --
Change in net unrealized appreciation or depreciation of
investments and foreign currency (177,003)
------------------------------------------------------------------------------------
Net Gain/(Loss) on Investments (28,591)
------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ (38,447)
------------------------------------------------------------------------------------
</TABLE>
(1) Period May 1, 2000 (inception) to June 30, 2000.
(2) Period January 18, 2000 (inception) to June 30, 2000.
See Notes to Financial Statements.
4 Janus Aspen Series / June 30, 2000
<PAGE>
Statements of|Assets & Liabilities
<TABLE>
<CAPTION>
Janus Aspen
Aggressive
As of June 30, 2000 (unaudited) (all numbers in thousands Growth
except net asset value per share) Portfolio
---------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at cost $3,836,444
Investments at value: $5,055,369
Cash 6,227
Receivables:
Investments sold 19,139
Portfolio shares sold 15,145
Dividends 8
Interest 17
Due from Advisor --
Other assets 6
Variation margin --
Forward currency contracts --
---------------------------------------------------------------------------------------
Total Assets 5,095,911
---------------------------------------------------------------------------------------
Liabilities:
Payables:
Investments purchased 4,044
Portfolio shares repurchased 6,899
Advisory fees 2,625
Accrued expenses 189
---------------------------------------------------------------------------------------
Total Liabilities 13,757
---------------------------------------------------------------------------------------
Net Assets $5,082,154
---------------------------------------------------------------------------------------
Net Assets - Institutional Shares $4,789,625
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) 85,845
---------------------------------------------------------------------------------------
Net Asset Value Per Share $ 55.79
---------------------------------------------------------------------------------------
Net Assets - Retirement Shares $ 264,389
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) 4,822
---------------------------------------------------------------------------------------
Net Asset Value Per Share $ 54.83
---------------------------------------------------------------------------------------
Net Assets - Service Shares $ 28,140
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) 508
---------------------------------------------------------------------------------------
Net Asset Value Per Share $ 55.38
---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Janus Aspen Series / June 30, 2000 5
<PAGE>
Statements of|Changes in Net Assets
<TABLE>
<CAPTION>
Janus Aspen
For the six months or period ended June 30 (unaudited) Aggressive Growth
and for the fiscal year ended December 31 Portfolio
(all numbers in thousands) 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income/(loss) $ (9,856) $ (7,523)
Net realized gain/(loss) from investment transactions 148,412 392,796
Change in unrealized net appreciation or depreciation
of investments and foreign currency (177,003) 1,148,333
------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations (38,447) 1,533,606
------------------------------------------------------------------------------------------------
Dividends and Distributions to Shareholders:
Net investment income* -- --
Net realized gain from investment transactions* (394,160) (52,162)
Distributions (in excess of realized gains)* -- --
------------------------------------------------------------------------------------------------
Net Decrease from Dividends and Distributions (394,160) (52,162)
------------------------------------------------------------------------------------------------
Capital Share Transactions:
Shares sold
Institutional Shares 1,912,935 1,695,094
Retirement Shares 255,105 34,652
Service Shares 26,661 --
Reinvested dividends and distributions
Institutional Shares 371,828 52,029
Retirement Shares 20,369 133
Service Shares 1,963 --
Shares repurchased
Institutional Shares (408,229) (665,828)
Retirement Shares (33,403) (2,937)
Service Shares (15) --
------------------------------------------------------------------------------------------------
Net Increase/(Decrease) from Capital Share Transactions 2,147,214 1,113,143
------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets 1,714,607 2,594,587
Net Assets:
Beginning of period 3,367,547 772,960
------------------------------------------------------------------------------------------------
End of period $ 5,082,154 $ 3,367,547
------------------------------------------------------------------------------------------------
Net Assets Consist of:
Capital (par value and paid-in surplus)* $ 3,735,612 $ 1,588,397
Undistributed net investment income/(loss)* (9,858) (2)
Undistributed net realized gain/(loss) from investments* 137,478 383,226
Unrealized appreciation/(depreciation) of investments
and foreign currency 1,218,922 1,395,926
------------------------------------------------------------------------------------------------
$ 5,082,154 $ 3,367,547
------------------------------------------------------------------------------------------------
Transactions in Portfolio Shares - Institutional Shares
Shares sold 30,014 45,266
Reinvested dividends and distributions 6,826 1,555
------------------------------------------------------------------------------------------------
Total 36,840 46,821
------------------------------------------------------------------------------------------------
Shares Repurchased (6,603) (19,177)
Net Increase/(Decrease) in Portfolio Shares 30,237 27,644
Shares Outstanding, Beginning of Period 55,608 27,964
------------------------------------------------------------------------------------------------
Shares Outstanding, End of Period 85,845 55,608
------------------------------------------------------------------------------------------------
Transactions in Portfolio Shares - Retirement Shares(2)
Shares sold 4,179,391 872,484
Reinvested dividends and distributions 380,437 4,023
------------------------------------------------------------------------------------------------
Total 4,559,828 876,507
------------------------------------------------------------------------------------------------
Shares Repurchased (551,726) (63,544)
Net Increase/(Decrease) in Portfolio Shares 4,008,102 812,963
Shares Outstanding, Beginning of Period 813,583 620
------------------------------------------------------------------------------------------------
Shares Outstanding, End of Period 4,821,685 813,583
------------------------------------------------------------------------------------------------
Transactions in Portfolio Shares - Service Shares(2)
Shares sold 472,051 --
Reinvested dividends and distributions 36,313 --
------------------------------------------------------------------------------------------------
Total 508,364 --
------------------------------------------------------------------------------------------------
Shares Repurchased (247) --
Net Increase/(Decrease) in Portfolio Shares 508,117 --
Shares Outstanding, Beginning of Period -- --
------------------------------------------------------------------------------------------------
Shares Outstanding, End of Period 508,117 --
------------------------------------------------------------------------------------------------
Purchases and Sales of Investment Securities:
(excluding short-term securities)
Purchases of securities $ 3,650,546 $ 2,594,856
Proceeds from sales of securities 2,021,203 1,580,979
Purchases of long-term U.S. government obligations -- --
Proceeds from sales of long-term U.S. government obligations -- --
* See Note 3 in Notes to Financial Statements..
See Notes to Financial Statements. (1) Transactions in Portfolio Shares--Retirement and Service
Shares numbers are not in thousands.
</TABLE>
6 Janus Aspen Series / June 30, 2000
<PAGE>
Financial|Highlights - Institutional Shares
<TABLE>
<CAPTION>
For a share outstanding during the six months ended June 30 (unaudited) Janus Aspen Aggressive Growth Portfolio
or through each fiscal year ended December 31 2000 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 59.70 $ 27.64 $ 20.55 $ 18.24 $ 17.08 $ 13.62
------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income/(loss) (.11) -- -- -- -- .24
Net gains/(losses) on securities
(both realized and unrealized) .91 33.46 7.09 2.31 1.36 3.47
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations .80 33.46 7.09 2.31 1.36 3.71
------------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) -- -- -- -- -- (.25)
Distributions (from capital gains) (4.71) (1.40) -- -- (.19) --
Tax return of capital -- -- -- -- (.01) --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (4.71) (1.40) -- -- (.20) (.25)
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 55.79 $ 59.70 $ 27.64 $ 20.55 $ 18.24 $ 17.08
------------------------------------------------------------------------------------------------------------------------------------
Total Return* 1.57% 125.40% 34.26% 12.66% 7.95% 27.48%
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 4,789,625 $ 3,319,619 $ 772,943 $ 508,198 $ 383,693 $ 185,911
Average Net Assets for the Period (in thousands) $ 4,341,937 $ 1,476,445 $ 576,444 $ 418,464 $ 290,629 $ 107,582
Ratio of Gross Expenses to Average Net Assets**(1) 0.67% 0.70% 0.75% 0.76% 0.76% 0.86%
Ratio of Net Expenses to Average Net Assets**(1) 0.67% 0.69% 0.75% 0.76% 0.76% 0.84%
Ratio of Net Investment Income to Average Net Assets** (0.42%) (0.50)% (0.36)% (0.10)% (0.27)% 0.58%
Portfolio Turnover Rate** 94% 105% 132% 130% 88% 155%
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) See footnote #5 in Notes to Financial Statements.
See Notes to Financial Statements.
Janus Aspen Series / June 30, 2000 7
<PAGE>
Financial|Highlights - Retirement Shares
<TABLE>
<CAPTION>
Janus Aspen
For a share outstanding during the six months Aggressive Growth Portfolio
ended June 30 (unaudited) or through
each fiscal year or period ended December 31 2000 1999 1998 1997(1)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 58.91 $ 27.42 $ 20.49 $ 16.12
---------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income/(loss) (.16) .19 (.12) (.06)
Net gains/(losses) on securities (both realized and unrealized) .79 32.70 7.05 4.43
---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations .63 32.89 6.93 4.37
---------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) -- -- -- --
Distributions (from capital gains) (4.71) (1.40) -- --
---------------------------------------------------------------------------------------------------------------------
Total Distributions (4.71) (1.40) -- --
---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 54.83 $ 58.91 $ 27.42 $ 20.49
---------------------------------------------------------------------------------------------------------------------
Total Return* 1.27% 124.34% 33.58% 27.11%
---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 264,389 $ 47,928 $ 17 $ 13
Average Net Assets for the Period (in thousands) $ 139,343 $ 9,786 $ 14 $ 11
Ratio of Gross Expenses to Average Net Assets**(2) 1.17% 1.19% 1.26% 1.32%
Ratio of Net Expenses to Average Net Assets**(2) 1.17% 1.19% 1.26% 1.32%
Ratio of Net Investment Income/(Loss) to Average Net Assets** (1.06%) (1.00)% (0.86)% (0.62)%
Portfolio Turnover Rate** 94% 105% 132% 130%
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) Period May 1, 1997 (inception) to December 31, 1997.
(2) See footnote #5 in Notes to Financial Statements.
(3) Period May 1, 1998 (inception) to December 31, 1998.
See Notes to Financial Statements.
8 Janus Aspen Series / June 30, 2000
<PAGE>
Financial|Highlights - Service Shares
<TABLE>
<CAPTION>
Janus Aspen
For a share outstanding during the six months Aggressive Growth Portfolio
ended June 30 (unaudited) 2000
-------------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period $ 59.16
-------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income/(loss) (.03)
Net gains/(losses) on securities (both realized and unrealized) .96
-------------------------------------------------------------------------------------------------
Total from Investment Operations .93
-------------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) --
Distributions (from capital gains) (4.71)
-------------------------------------------------------------------------------------------------
Total Distributions (4.71)
-------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 55.38
-------------------------------------------------------------------------------------------------
Total Return* 1.79%
-------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 28,140
Average Net Assets for the Period (in thousands) $ 4,063
Ratio of Gross Expenses to Average Net Assets**(1) 0.93%
Ratio of Net Expenses to Average Net Assets**(1) 0.93%
Ratio of Net Investment Income/(Loss) to Average Net Assets** (0.76%)
Portfolio Turnover Rate** 94%
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) See footnote #5 in Notes to Financial Statements.
See Notes to Financial Statements.
Janus Aspen Series / June 30, 2000 9
<PAGE>
Notes to|Schedules of Investments
ADR - American Depository Receipt
EUR - Euro
GBP - British Pound
GDR - Global Depository Receipt
* Non-income-producing security
** A portion of this security has been segregated to cover margin or
segregation requirements on open futures contracts and/or forward currency
contracts.
+ Securities are registered pursuant to Rule 144A and may be deemed to be
restricted for resale.
Variable Rate Notes. The interest rate, which is based on specific, or an index
of, market interest rates, is subject to change. Rates in the security
description are as of June 30, 2000.
Money market funds may hold securities with stated maturities of greater than
397 days when those securities have features that allow a fund to "put" back the
security to the issuer or to a third party within 397 days of acquisition. The
maturity dates shown in the security descriptions are the stated maturity dates.
Repurchase Agreements held by a Portfolio are fully collateralized, and such
collateral is in the possession of the Portfolio's custodian. The collateral is
evaluated daily to ensure its market value equals or exceeds the current market
value of the repurchase agreements including accrued interest. In the event of
default on the obligation to repurchase, the Portfolio has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
10 Janus Aspen Series / June 30, 2000
<PAGE>
Notes to|Financial Statements
The following section describes the organization and significant accounting
policies of the Portfolios and provides more detailed information about the
schedules and tables that appear throughout this report. In addition, the Notes
explain how the Portfolios operate and the methods used in preparing and
presenting this report.
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Janus Aspen Series (the "Trust") was organized as a Delaware Trust on May
20, 1993, and is registered under the Investment Company Act of 1940 (the
"1940 Act") as a no-load, open-end management investment company. The Trust
offers fourteen Portfolios or series of shares with differing investment
objectives and policies. Eleven Portfolios invest primarily in equity
securities: Janus Aspen Growth Portfolio, Janus Aspen Aggressive Growth
Portfolio, Janus Aspen Capital Appreciation Portfolio, Janus Aspen Balanced
Portfolio, Janus Aspen Equity Income Portfolio, Janus Aspen Growth and
Income Portfolio, Janus Aspen Strategic Value Portfolio, Janus Aspen
International Growth Portfolio, Janus Aspen Worldwide Growth Portfolio,
Janus Aspen Global Life Sciences Portfolio and Janus Aspen Global
Technology Portfolio. Two Portfolios invest primarily in income-producing
securities: Janus Aspen Flexible Income Portfolio and Janus Aspen
High-Yield Portfolio. Janus Aspen Money Market Portfolio invests in
short-term money market securities. Each Portfolio is diversified as
defined in the 1940 Act, with the exception of the Aggressive Growth
Portfolio, Capital Appreciation Portfolio, Global Life Sciences Portfolio,
Global Technology Portfolio and Strategic Value Portfolio, which are
nondiversified.
Institutional Shares of the Trust are issued and redeemed only in
connection with investment in and payments under variable annuity contracts
and variable life insurance contracts (collectively "variable insurance
contracts"), as well as certain qualified retirement plans. Effective May
1, 1997, the Trust issued the Retirement Shares. Retirement Shares of the
Trust are issued and redeemed only in connection with certain qualified
retirement plans.
A Special Meeting of Shareholders of the Retirement Shares class (the
"Retirement Shares") of each portfolio other than High-Yield Portfolio will
be held on July 20, 2000 to approve a reorganization that would transfer
the assets relating to the Retirement Shares class of each Janus Aspen
Series Portfolio to a corresponding Fund of Janus Adviser Series.
Effective December 31, 1999, the Trust issued a new class of shares, the
Service Shares. Service Shares of the Trust are issued and redeemed only in
connection with investment in and payments under variable annuity contracts
and variable life insurance contracts (collectively "variable insurance
contracts"), as well as certain qualified retirement plans.
The following accounting policies have been consistently followed by the
Trust and are in conformity with accounting principles generally accepted
in the investment company industry.
INVESTMENT VALUATION
Securities are valued at the closing price for securities traded on a
principal securities exchange (U.S. or foreign) and on the NASDAQ National
Market. Securities traded on over-the-counter markets and listed securities
for which no sales are reported are valued at the latest bid price (or
yield equivalent thereof) obtained from one or more dealers making a market
for such securities or by a pricing service approved by the Trustees.
Short-term investments maturing within 60 days and all money market
securities in the Money Market Portfolio are valued at amortized cost,
which approximates market value. Foreign securities are converted to U.S.
dollars using exchange rates at the close of the New York Stock Exchange.
When market quotations are not readily available, securities are valued at
fair value as determined in good faith under procedures established by the
Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for as of the date purchased or sold.
Dividend income is recorded on the ex-dividend date. Certain dividends from
foreign securities will be recorded as soon as the Trust is informed of the
dividend if such information is obtained subsequent to the ex-dividend
date. Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums. Gains and losses are determined on
the identified cost basis, which is the same basis used for federal income
tax purposes. Income and gains and losses are allocated daily to each class
of shares based upon the ratio of net assets represented by each class as a
percentage of total net assets.
FORWARD CURRENCY TRANSACTIONS
AND FUTURES CONTRACTS
The Portfolios enter into forward currency contracts in order to hedge
their exposure to changes in foreign currency exchange rates on their
foreign portfolio holdings and to lock in the U.S. dollar cost of firm
purchase and sales commitments denominated in foreign currencies. A forward
currency contract is a commitment to purchase or sell a foreign currency at
a future date at a negotiated forward rate. The gain or loss arising from
the difference between the U.S. dollar cost of the original contract and
the value of the foreign currency in U.S. dollars upon closing such a
contract is included in net realized gain or loss on foreign currency
transactions. Forward currency contracts held by the Portfolios are fully
collateralized by other securities, in possession at the Portfolio's
custodian, which are denoted in the accompanying Schedule of Investments.
The market value of these securities is evaluated daily to ensure that it
is equal to or exceeds the current market value of the corresponding
forward currency contract.
Currency gain and loss are also calculated on payables and receivables that
are denominated in foreign currencies. The payables and receivables are
generally related to security transactions and income.
Janus Aspen Series / June 30, 2000 11
<PAGE>
Notes to|Financial Statements (continued)
Futures contracts are marked to market daily, and the variation margin is
recorded as an unrealized gain or loss. When a contract is closed, a
realized gain or loss is recorded equal to the difference between the
opening and closing value of the contract. Generally, open forward and
futures contracts are marked to market (i.e., treated as realized and
subject to distribution) for federal income tax purposes at fiscal
year-end.
Foreign-denominated assets and forward currency contracts may involve more
risks than domestic transactions, including: currency risk, political and
economic risk, regulatory risk and market risk. Risks may arise from the
potential inability of a counterparty to meet the terms of a contract and
from unanticipated movements in the value of foreign currencies relative to
the U.S. dollar.
The Portfolios may enter into futures contracts and options on securities,
financial indexes and foreign currencies, forward contracts and
interest-rate swaps and swap-related products. The Portfolios intend to use
such derivative instruments primarily to hedge or protect from adverse
movements in securities prices, currency rates or interest rates. The use
of futures contracts and options may involve risks such as the possibility
of illiquid markets or imperfect correlation between the value of the
contracts and the underlying securities or that the counterparty will fail
to perform its obligations.
INITIAL PUBLIC OFFERINGS
The Portfolios may invest in initial public offerings (IPOs). IPOs and
other investment techniques may have a magnified performance impact on a
fund with a small asset base. The Portfolios may not experience similar
performance as its assets grow.
ADDITIONAL INVESTMENT RISK
A portion of the Flexible Income and High-Yield Portfolios may be invested
in lower-rated debt securities that have a higher risk of default or loss
of value because of changes in the economy or in their respective industry.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
DIVIDEND DISTRIBUTIONS AND EXPENSES
Each Portfolio, except the Money Market Portfolio, makes at least
semiannual distributions of substantially all of its investment income and
at least an annual distribution of its net realized capital gains, if any.
The Money Market Portfolio makes daily distributions of its income. All
dividends and capital gains distributions from a Portfolio will be
automatically reinvested into additional shares of that Portfolio.
Expenses are allocated daily to each class of shares based upon the ratio
of net assets represented by each class as a percentage of total net
assets. Expenses directly attributable to a specific class of shares are
charged against the operations of such class.
FEDERAL INCOME TAXES
No provision for income taxes is included in the accompanying financial
statements as the Portfolios intend to distribute to shareholders all
taxable investment income and realized gains and otherwise comply with the
Internal Revenue Code applicable to regulated investment companies.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
The management fee for each equity Portfolio decreased to an annual rate of
.65% of average net assets, effective May 1, 2000. The management fee for
the corresponding Janus retail fund corresponding to each equity Portfolio
also decreased to this rate, effective January 31, 2000. Due to the fee
reductions described above, this had the effect of lowering each equity
Portfolio's management fee on January 31, 2000, also.
Prior to May 1, 2000, investment advisory fees for eight of the Portfolios
were payable to Janus Capital based upon annual rates of .75% of the first
$300 million of average net assets, .70% of the next $200 million of
average net assets, and .65% of the average net assets in excess of $500
million. However, Janus Capital had voluntarily agreed to reduce each
Portfolio's advisory fee to the extent that such fee exceeded the effective
rate of the Janus retail fund corresponding to such Portfolio. The
effective rate is the advisory fee calculated by the corresponding retail
fund as of the last day of each calendar quarter (expressed as an annual
rate). Janus Aspen Growth Portfolio, Janus Aspen Aggressive Growth
Portfolio, Janus Aspen Capital Appreciation Portfolio, Janus Aspen
International Growth Portfolio, Janus Aspen Worldwide Growth Portfolio,
Janus Aspen Balanced Portfolio, Janus Aspen Equity Income Portfolio and
Janus Aspen Growth and Income Portfolio advisory fees were reduced to the
effective rates of Janus Fund, Janus Enterprise Fund, Janus Twenty Fund,
Janus
12 Janus Aspen Series / June 30, 2000
<PAGE>
Overseas Fund, Janus Worldwide Fund, Janus Balanced Fund, Janus Equity
Income Fund and Janus Growth and Income Fund, respectively. The effective
rate for each Portfolio for the period ended December 31, 1999, was .65%,
.66%, .65%, .65%, .65%, .66%, .69% and .65%, respectively. The Flexible
Income Portfolio is subject to advisory fees payable to Janus Capital based
upon annual rates of .65% of the first $300 million of average net assets
plus .55% of average net assets in excess of $300 million. The High-Yield
Portfolio's advisory fee rate is payable at rates of .75% of the first $300
million of average net assets plus .65% of average net assets in excess of
$300 million. The Money Market Portfolio's advisory fee rate is .25% of
average net assets. For additional information on the specific fees for the
Retirement Shares, please refer to note 4 of the financial statements.
Janus Capital has agreed to reduce its fee to the extent normal operating
expenses exceed 1% of the average net assets of the Flexible Income and
High-Yield Portfolios and .50% of the average net assets of the Money
Market Portfolio for a fiscal year.
Janus Capital has agreed to continue these fee waivers and reductions until
at least the next annual renewal of the advisory contracts. The participant
administration fee and distribution fee applicable to the Retirement
Shares, as well as the distribution fee applicable to the Service Shares,
are not included in these expense limits.
Officers and certain trustees of the Trust are also officers and/or
directors of Janus Capital; however, they receive no compensation from the
Trust.
Janus Service Corporation ("Janus Service"), a wholly owned subsidiary of
Janus Capital, receives certain out-of-pocket expenses for transfer agent
services. Janus Service also receives an administrative fee at an annual
rate of up to .25% of the average daily net assets of the Retirement Shares
of each Portfolio for providing or procurring recordkeeping, subaccounting
and other administrative services to plan participants who invest in the
Retirement Shares.
Janus Distributors, Inc., a wholly owned subsidiary of Janus Capital, is a
distributor of the Portfolios. The Retirement and Service Shares have
adopted a Distribution and Shareholder Servicing Plan (The "Plan") pursuant
to Rule 12b-1 under The 1940 Act. The Plan authorizes payments by the
Portfolios in connection with the distribution of the Retirement and
Service Shares at an annual rate, as determined from time to time by the
Board of Trustees, of up to .25% of the Retirement and Service Shares'
average daily net assets.
DST Systems, Inc. (DST), an affiliate of Janus Capital through a degree of
common ownership, provides accounting systems to the Portfolios. DST
Securities, Inc., a wholly owned subsidiary of DST, provides brokerage
services on certain portfolio transactions. Brokerage commissions paid to
DST Securities, Inc. serve to reduce fees and expenses. Brokerage
commissions paid, fees reduced and the net fees paid to DST for the period
ended June 30, 2000, are noted below:
<TABLE>
<CAPTION>
DST Securities, Inc. Portfolio Expense DST Systems
Portfolio Commissions Paid* Reduction* Costs
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Janus Aspen Aggressive Growth Portfolio -- -- 10,832
------------------------------------------------------------------------------------------------------
</TABLE>
* The difference between commissions paid to DST Securities, Inc. and
expenses reduced constituted commissions paid to an unaffiliated clearing
broker.
3. FEDERAL INCOME TAX
The Portfolios have elected to treat gains and losses on forward foreign
currency contracts as capital gains and losses. Other foreign currency
gains and losses on debt instruments are treated as ordinary income for
federal income tax purposes pursuant to Section 988 of the Internal Revenue
Code. As of June 30, 2000, the net capital loss carryovers noted below are
available to offset future realized capital gains and thereby reduce future
taxable gains distributions. These carryovers expire between December 31,
2006, and December 31, 2007.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investments for federal income tax
purposes as of June 30, 2000, are also noted below.
<TABLE>
<CAPTION>
Post-October
Net Capital Loss Capital Currency Federal Tax Unrealized
Portfolio Carryovers Losses Losses Cost Appreciation
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus Aspen Aggressive Growth
Portfolio -- -- (1,984) 3,879,364,415 1,597,624,786
<CAPTION>
Unrealized Net Appreciation/
Portfolio (Depreciation) (Depreciation)
---------------------------------------------------------------------------
<S> <C> <C>
Janus Aspen Aggressive Growth
Portfolio (421,620,400) 1,176,004,386
</TABLE>
Janus Aspen Series / June 30, 2000 13
<PAGE>
Notes to|Financial Statements (continued)
4. EXPENSES
The Portfolios' expenses may be reduced through expense reduction
arrangements. Those arrangements include the use of broker commissions paid
to DST Securities, Inc. and uninvested cash balances earning interest with
the Portfolios' custodian. The Statements of Operations reflect the total
expenses before any offset, the amount of the offset and the net expenses.
The expense ratios listed in the Financial Highlights reflect expenses
prior to any expense offset (gross expense ratio) and after expense offsets
(net expense ratio).
Janus Aspen Series Retirement Shares incur a pro rata share of operating
expenses. In addition, the Retirement Shares pay a distribution fee of up
to .25% of average net assets and a participant administration fee of up to
.25% of average net assets.
Janus Aspen Series Service Shares incur a pro rata share of operating
expenses. In addition, the Service Shares pay a distribution fee of up to
.25% of average net assets.
5. EXPENSE RATIOS
Listed below are the gross expense ratios for the various Portfolios that
would be in effect, absent the waiver of certain fees, offsets and/or
voluntary reduction of the adviser's fee to the effective rate of the
corresponding Janus retail fund. Expense ratios are annualized for all
periods less than one year.
<TABLE>
<CAPTION>
Service
Institutional Shares Retirement Shares Shares
Portfolio 2000 1999 1998 1997 1996 1995 2000 1999 1998 1997(1) 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Janus Aspen Aggressive Growth
Portfolio 0.67% 0.70% 0.75% 0.78% 0.83% 0.93% 1.17% 1.19% 1.29% 1.34% 0.93%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Period May 1, 1997, (inception) to December 31, 1997.
14 Janus Aspen Series / June 30, 2000
<PAGE>
Explanations of|Charts, Tables and Financial Statements
1. PERFORMANCE OVERVIEWS
When comparing the performance of a Portfolio with an index, keep in mind
that market indexes do not include brokerage commissions that would be
incurred if you purchased the individual securities in the index. They also
do not include taxes payable on dividends and interest or operating
expenses incurred if you maintained a Portfolio invested in the index.
Average annual total returns are also quoted for each class of Portfolio.
Average annual total return is calculated by taking the growth or decline
in value of an investment over a period of time, including reinvestment of
dividends and distributions, then calculating the annual compounded
percentage rate that would have produced the same result had the rate of
growth been constant throughout the period.
2. SCHEDULES OF INVESTMENTS
Following the performance overview section is each Portfolio's Schedule of
Investments. This schedule reports the industry concentrations and types of
securities held in each Portfolio on the last day of the reporting period.
Securities are usually listed by type (common stock, corporate bonds, U.S.
government obligations, etc.) and by industry classification (banking,
communications, insurance, etc.).
The market value of each security is quoted as of the last day of the
reporting period. The value of securities denominated in foreign currencies
is converted into U.S. dollars.
Portfolios that invest in foreign securities also provide a summary of
investments by country. This summary reports the Portfolio's exposure to
different countries by providing the percentage of securities invested in
each country.
2a. FORWARD CURRENCY CONTRACTS
A table listing forward currency contracts follows each Portfolio's
Schedule of Investments (if applicable). Forward currency contracts are
agreements to deliver or receive a preset amount of currency at a future
date. Forward currency contracts are used to hedge against foreign currency
risk in the Portfolio's long-term holdings.
The table provides the name of the foreign currency, the settlement date of
the contract, the amount of the contract, the value of the currency in U.S.
dollars and the amount of unrealized gain or loss. The amount of unrealized
gain or loss reflects the change in currency exchange rates from the time
the contract was opened to the last day of the reporting period.
3. STATEMENT OF OPERATIONS
This statement details the Portfolios' income, expenses, gains and losses
on securities and currency transactions, and appreciation or depreciation
of current Portfolio holdings.
The first section in this statement, titled "Investment Income," reports
the dividends earned from stocks and interest earned from interest-bearing
securities in the Portfolio.
The next section reports the expenses and expense offsets incurred by the
Portfolios, including the advisory fee paid to the investment adviser,
transfer agent fees, shareholder servicing expenses, and printing and
postage for mailing statements, financial reports and prospectuses.
The last section lists the increase or decrease in the value of securities
held in the Portfolios. Portfolios realize a gain (or loss) when they sell
their position in a particular security. An unrealized gain (or loss)
refers to the change in net appreciation or depreciation of the Portfolios
during the period. "Net Gain/(Loss) on Investments" is affected both by
changes in the market value of Portfolio holdings and by gains (or losses)
realized during the reporting period.
Janus Aspen Series / June 30, 2000 15
<PAGE>
Explanations of|Charts, Tables and Financial Statements (continued)
4. STATEMENT OF ASSETS AND LIABILITIES
This statement is often referred to as the "balance sheet." It lists the
assets and liabilities of the Portfolios on the last day of the reporting
period.
The Portfolios' assets are calculated by adding the value of the securities
owned, the receivable for securities sold but not yet settled, the
receivable for dividends declared but not yet received on stocks owned and
the receivable for Portfolio shares sold to investors but not yet settled.
The Portfolios' liabilities include payables for securities purchased but
not yet settled, Portfolio shares redeemed but not yet paid and expenses
owed but not yet paid. Additionally, there may be other assets and
liabilities such as forward currency contracts.
The last section of this statement reports the net asset value (NAV) per
share on the last day of the reporting period for each class of the
Portfolio. The NAV is calculated by dividing the Portfolios' net assets
(assets minus liabilities) by the number of shares outstanding.
5. STATEMENT OF CHANGES IN NET ASSETS
This statement reports the increase or decrease in the Portfolios' net
assets during the reporting period. Changes in the Portfolios' net assets
are attributable to investment operations, dividends, distributions and
capital share transactions. This is important to investors because it shows
exactly what caused the Portfolios' net asset size to change during the
period.
The first section summarizes the information from the Statement of
Operations regarding changes in net assets due to the Portfolios'
investment performance. The Portfolios' net assets may also change as a
result of dividend and capital gains distributions to investors. If
investors receive their dividends in cash, money is taken out of the
Portfolio to pay the distribution. If investors reinvest their dividends,
the Portfolios' net assets will not be affected. If you compare each
Portfolio's "Net Decrease from Dividends and Distributions" to the
"Reinvested dividends and distributions," you'll notice that dividend
distributions had little effect on each Portfolio's net assets. This is
because all of Janus investors reinvest their distributions.
The reinvestment of dividends is included under "Capital Share
Transactions." "Capital Shares" refers to the money investors contribute to
the Portfolios through purchases or withdrawal via redemptions. Each
Portfolio's net assets will increase and decrease in value as investors
purchase and redeem shares from a Portfolio.
The section entitled "Net Assets Consist of" breaks down the components of
the Portfolios' net assets. Because Portfolios must distribute
substantially all earnings, you'll notice that a significant portion of net
assets is shareholder capital.
16 Janus Aspen Series / June 30, 2000
<PAGE>
6. FINANCIAL HIGHLIGHTS
This schedule provides a per-share breakdown of the components that affect
the net asset value (NAV) for current and past reporting periods for each
class of the Portfolio. Not only does this table provide you with total
return, it also reports total distributions, asset size, expense ratios and
portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of
the reporting period. The next line reports the net investment income per
share, which comprises dividends and interest income earned on securities
held by the Portfolios. Following is the total of gains, realized and
unrealized. Dividends and distributions are then subtracted to arrive at
the NAV per share at the end of the period.
Also included are the expense ratios, or the percentage of net assets that
was used to cover operating expenses during the period. Expense ratios vary
across the Portfolios for a number of reasons, including the differences in
management fees, average shareholder account size, the frequency of
dividend payments and the extent of foreign investments, which entail
greater transaction costs.
The Portfolios' expenses may be reduced through expense-reduction
arrangements. These arrangements include the use of brokerage commissions,
uninvested cash balances earning interest or balance credits. The Statement
of Operations reflects total expenses before any such offset, the amount of
offset and the net expenses. The expense ratios listed in the Financial
Highlights reflect total expenses both prior to any expense offset and
after the offsets.
The ratio of net investment income summarizes the income earned divided by
the average net assets of a Portfolio during the reporting period. Don't
confuse this ratio with a Portfolio's yield. The net investment income
ratio is not a true measure of a Portfolio's yield because it doesn't take
into account the dividends distributed to the Portfolio's investors.
The next ratio is the portfolio turnover rate, which measures the buying
and selling activity in a Portfolio. Portfolio turnover is affected by
market conditions, changes in the size of a Portfolio, the nature of the
Portfolio's investments and the investment style of the portfolio manager.
A 100% rate implies that an amount equal to the value of the entire
Portfolio is turned over in a year; a 50% rate means that an amount equal
to the value of half the Portfolio is traded in a year; and a 200% rate
means that an amount equal to the value of the Portfolio is sold every six
months.
Janus Aspen Series / June 30, 2000 17
<PAGE>
--------------------------------------------------------------------------------
Janus|Aspen Series
--------------------------------------------------------------------------------
2000 SEMIANNUAL REPORT
Janus Aspen Growth and Income Portfolio
[LOGO] JANUS
--------------------------------------------------------------------------------
<PAGE>
Janus|Aspen Growth and Income Portfolio
[PHOTO]
David Corkins
portfolio manager
For the six months ended June 30, 2000, your investment in Janus Aspen Growth
and Income Portfolio declined (3.55%) for its Institutional Shares, (3.86%) for
its Retirement Shares and (3.73%) for its Service Shares - trailing the (0.44%)
negative return posted by the S&P 500 Index, the Portfolio's benchmark.
The subpar performance can be traced in part to the general cooling the market
experienced during the second quarter. Tech stocks stormed into 2000 riding the
momentum built through the final quarter of 1999, but three successive interest
rate increases, including a sizeable half-point hike in mid-May, halted the
rally. While some money rotated out of the tech and into previously unpopular
sectors like energy, the threat of an overheated economy and its byproduct,
inflation, continued to weigh heavily on the market. At its late-June meeting,
the Federal Reserve decided its aggressive stance had paid off and left rates
alone, although concerns subsequently expanded over steeper oil prices.
In spite of the rising cost of borrowing money, we have been pleased with the
performance of Citigroup. With franchises that include Citibank, Travelers
Insurance and Salomon Smith Barney, Citigroup's strengths extend overseas, where
we believe it has exceptional growth opportunities. For example, its retail
banking business in Asia earns three times as much money as its retail banking
operations in the U.S. Ultimately, we believe the market will reward financial
companies that show strength and that a select group of regional banks will reap
some of those rewards as well. We continue to like midwestern regional thrift
Firstar, which has been a poor performer despite strong fundamentals and is
successfully and smoothly moving forward with its merger with Mercantile Bank.
Other longer-term holdings include Nokia and EMC, which earned solid gains
during the period. As the top wireless handset company in the world, Nokia is in
a prime position to capitalize on market consolidation between Europe and the
U.S., as well as the huge opportunities in China. EMC's business has boomed as
the surge in information on the Internet has translated into increased demand
for data storage. Moving forward, the company is complementing its traditional
storage system business with a push into the storage area network market, and
we'll be monitoring that transition into a new line of business carefully.
A relatively new holding in the Portfolio is Corning. Long known for consumer
products such as Corningware, Corning exited that business in 1998 and turned
its focus to fiber optics, where it has emerged as a top player. The company is
also gaining market share with laser and multiplex products, in which margins
are high and sales are strong. We've done a lot of work on this company and feel
we've really uncovered the value behind the fundamentals.
When we find fundamentally strong companies, we stick with them, even during
slower stretches. That's why we're standing by two holdings that disappointed
over the last six months - Liberty Media Group and Comcast. Liberty Media, an
AT&T tracking stock, is doing extremely well, but its stock pulled back in
sympathy with some of AT&T's other holdings. Comcast, a cable communications
company, also owns the home shopping channel QVC, which had a bit of a hiccup as
it expanded into Europe.
On the other hand, Costco was an unforced error. Despite our detailed research
at the company-store level, as well as recent meetings with management, we were
surprised by Costco's recent announcement of weaker short-term results. We
consequently liquidated our position in the company.
As we move into the second half of the year, I think it is important to keep in
mind that it's dangerous to look at any one period of time. A given period will
have an upside and a downside, and it can be misleading. For example, technology
and more aggressive stocks certainly pulled back in the second quarter, but
that's after several years of outstanding performance.
But what makes me feel good about our companies is that even though some have
pulled back, the fundamentals remain strong. Backed by our thorough research
practices, we strongly believe in the companies we hold in this Portfolio.
Thank you for investing in Janus Aspen Growth and Income Portfolio.
Portfolio Asset Mix (% of Assets) June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
Equities 76.9% 77.7%
Top Ten Equities 27.0% 27.7%
Number of Stocks 87 94
Fixed-Income Securities 3.7% 4.7%
Cash and Cash Equivalents 19.4% 17.6%
--------------------------------------------------------------------------------
(1) All returns include reinvested dividends.
Past performance does not guarantee future results.
Janus Aspen Series / June 30, 2000 1
<PAGE>
AVERAGE ANNUAL TOTAL RETURN(1)
For the Periods Ended June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
Institutional Shares (Inception Date 5/1/98)
1 Year 39.22%
From Inception 38.09%
--------------------------------------------------------------------------------
S&P 500 Index
1 Year 7.24%
From Portfolio Inception 14.72%
--------------------------------------------------------------------------------
Retirement Shares (Inception Date 5/1/98)
1 Year 38.45%
From Inception 37.37%
--------------------------------------------------------------------------------
Service Shares (Inception Date 12/31/99)
1 Year 38.12%
From Portfolio Inception 37.70%
--------------------------------------------------------------------------------
Returns shown for Service Shares for periods to their inception are derived from
the historical performance of Institutional Shares, adjusted to reflect the
higher operating expenses of Service Shares.
(1) All returns reflect reinvested dividends. The Portfolio's securities may
differ significantly from the securities in the Index. Index returns do not
include taxes or operating expenses necessary to maintain a portfolio
consisting of the same securities that are in the Index. These returns do
not reflect the charges and expenses of any particular insurance product or
qualified plan. Investment return and principal value will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost. The adviser voluntarily waived a portion of the Portfolio's expenses
for certain periods. Without such waiver, the Portfolio's total returns for
each class would have been lower. Past performance does not guarantee
future results.
The Portfolio's returns may have been positively impacted by buying technology
companies in a period favorable for these stocks.
This Portfolio may invest in initial public offerings (IPO's). IPO's and other
investment techniques may have a magnified performance impact on a portfolio
with a small asset base. The Portfolio may not experience similar performance as
its assets grow.
SCHEDULE OF INVESTMENTS (unaudited)
SHARES OR PRINCIPAL AMOUNT MARKET VALUE
--------------------------------------------------------------------------------
Common Stock - 74.6%
Advertising Agencies - 0.1%
1,420 Omnicom Group, Inc. ............................ $ 126,469
Advertising Services - 0.4%
39,260 Avenue A, Inc.* ................................ 345,979
4,000 TMP Worldwide, Inc.* ........................... 295,250
641,229
Audio and Video Products - 1.0%
9,800 Sony Corp. ..................................... 917,000
6,000 Sony Corp. (ADR) ............................... 565,875
1,482,875
Automotive - Cars and Light Trucks - 0.4%
14,600 Ford Motor Co. ................................. 627,800
1,911 Visteon Corp.* ................................. 23,171
650,971
Brewery - 1.1%
23,000 Anheuser-Busch Companies, Inc. ................. 1,717,812
Broadcast Services and Programming - 3.6%
188,660 AT&T Corp./Liberty Media Group - Class A* ...... 4,575,005
9,500 Clear Channel Communications, Inc. ............. 712,500
19,145 TCI Satellite Entertainment, Inc. - Class A* ... 166,322
5,453,827
Cable Television - 2.3%
86,000 Comcast Corp. - Special Class A* ............... 3,483,000
Casino Hotels - 0.7%
82,190 Park Place Entertainment Corp.* ................ 1,001,691
Cellular Telecommunications - 5.4%
11,000 Crown Castle International Corp.* .............. 401,500
30,000 Nextel Communications, Inc. - Class A* ......... 1,835,625
36,000 Sprint Corp./PCS Group* ........................ 2,142,000
329,218 Vodafone AirTouch PLC .......................... 1,317,080
20,910 VoiceStream Wireless Corp.* .................... 2,431,768
8,127,973
Chemicals - Diversified - 0.6%
11,510 E.I. du Pont de Nemours and Co. ................ 503,562
30,000 Solutia, Inc. .................................. 412,500
916,062
Circuits - 0.7%
14,780 Maxim Integrated Products, Inc.* ............... 1,004,116
Commercial Services - 1.1%
38,025 Paychex, Inc. .................................. 1,597,050
Computer Data Security - 2.1%
18,277 VeriSign, Inc.* ................................ 3,225,891
Computers - Memory Devices - 2.9%
50,000 EMC Corp.* ..................................... 3,846,875
4,500 VERITAS Software Corp.* ........................ 508,570
4,355,445
Computers - Micro - 2.4%
40,000 Sun Microsystems, Inc.* ........................ 3,637,500
Cruise Lines - 0.5%
40,600 Royal Caribbean Cruises, Ltd. .................. 751,100
Distribution and Wholesale - 0.5%
95,000 Brightpoint, Inc.* ............................. 822,344
See Notes to Schedules of Investments.
2 Janus Aspen Series / June 30, 2000
<PAGE>
Janus|Aspen Growth and Income Portfolio
SCHEDULE OF INVESTMENTS (unaudited)
SHARES OR PRINCIPAL AMOUNT MARKET VALUE
--------------------------------------------------------------------------------
Diversified Financial Services - 2.3%
41,090 Associates First Capital Corp. - Class A ....... $ 916,821
35,270 Citigroup, Inc. ................................ 2,125,018
11,290 Household International, Inc. .................. 469,241
3,511,080
Diversified Operations - 2.9%
83,510 General Electric Co. ........................... 4,426,030
E-Commerce - 0.1%
2,000 eBay, Inc.* .................................... 108,625
Electronic Components - Semiconductors - 3.4%
3,645 Advanced Micro Devices, Inc.* .................. 281,576
7,885 Intel Corp. .................................... 1,054,126
56,000 Texas Instruments, Inc. ........................ 3,846,500
5,182,202
Enterprise Software and Services - 0.9%
16,500 Oracle Corp.* .................................. 1,387,031
Entertainment Software - 0.2%
5,000 Electronic Arts, Inc.* ......................... 364,687
Fiber Optics - 3.9%
7,000 Corning, Inc. .................................. 1,889,125
26,000 JDS Uniphase Corp.* ............................ 3,116,750
8,000 Metromedia Fiber Network, Inc. - Class A* ...... 317,500
2,250 SDL, Inc.* ..................................... 641,672
5,965,047
Finance - Credit Card - 1.5%
45,000 American Express Co. ........................... 2,345,625
Finance - Investment Bankers/Brokers - 0.5%
22,235 Charles Schwab Corp. ........................... 747,652
Food - Distribution - 0.1%
2,140 Bestfoods ...................................... 148,195
Instruments - Scientific - 0.2%
4,000 PE Corp./PE Biosystems Group ................... 263,500
Internet Content - 0.6%
3,500 Critical Path, Inc.* ........................... 204,094
20,000 DoubleClick, Inc.* ............................. 762,500
966,594
Internet Software - 2.1%
4,000 Inktomi Corp.* ................................. 473,000
20,000 Liberate Technologies, Inc.* ................... 586,250
9,000 Macromedia, Inc.* .............................. 870,187
27,700 PSINet, Inc.* .................................. 695,962
21,210 Register.com, Inc.* ............................ 648,231
3,273,630
Life and Health Insurance - 0.8%
38,295 John Hancock Financial Services, Inc.* ......... 907,113
5,000 ReliaStar Financial Corp. ...................... 262,188
1,169,301
Medical - Drugs - 1.4%
43,595 Pfizer, Inc. ................................... 2,092,560
Medical Instruments - 0.7%
20,500 Medtronic, Inc. ................................ 1,021,156
Motorcycle and Motor Scooter Manufacturing 0.3%
11,085 Harley-Davidson, Inc. .......................... 426,772
Multi-Line Insurance - 0.6%
8,000 American International Group, Inc. ............. 940,000
Multimedia - 3.8%
51,064 Time Warner, Inc. .............................. 3,880,864
28,200 Viacom, Inc. - Class B* ........................ 1,922,888
5,803,752
Music/Clubs - 0.5%
16,000 SFX Entertainment, Inc.* ....................... 725,000
Networking Products - 2.8%
66,500 Cisco Systems, Inc.* ........................... 4,226,906
Oil Companies - Integrated - 0.2%
5,670 Coastal Corp. .................................. 345,161
Optical Supplies - 1.0%
20,000 Allergan, Inc. ................................. 1,490,000
Pipelines - 2.5%
57,000 Enron Corp. .................................... 3,676,500
3,040 Kinder Morgan, Inc. ............................ 105,070
3,781,570
Printing - Commercial - 0.8%
30,000 Valassis Communications, Inc.* ................. 1,143,750
Radio - 1.2%
3,000 AMFM, Inc.* .................................... 207,000
6,200 Hispanic Broadcasting Corp.* ................... 205,375
39,600 Infinity Broadcasting Corp. - Class A* ......... 1,442,925
1,855,300
Retail - Building Products - 0.7%
20,000 Home Depot, Inc. ............................... 998,750
Retail - Office Supplies - 0.5%
50,500 Staples, Inc.* ................................. 776,437
Super-Regional Banks - 1.2%
83,185 Firstar Corp. .................................. 1,752,084
Telecommunication Equipment - 5.8%
108,000 Nokia Oyj (ADR) ................................ 5,393,250
26,000 Nortel Networks Corp. - New York Shares ........ 1,774,500
81,000 Telefonaktiebolaget L.M. Ericsson A.B. (ADR) ... 1,620,000
8,787,750
Telecommunication Services - 3.0%
10,000 Allegiance Telecom, Inc.* ...................... 640,000
37,695 Cox Communications, Inc. - Class A* ............ 1,717,478
110,000 McLeodUSA, Inc. - Class A* ..................... 2,275,625
4,633,103
Telephone - Integrated - 2.1%
101,612 Telefonica S.A.* ............................... 2,191,593
18,000 Telefonos de Mexico S.A. (ADR) ................. 1,028,250
3,219,843
Toys - 0.2%
20,000 Mattel, Inc. ................................... 263,750
--------------------------------------------------------------------------------
Total Common Stock (cost $94,631,108) ........................ 113,138,198
--------------------------------------------------------------------------------
Corporate Bonds - 3.7%
Broadcast Services and Programming - 0.2%
$ 250,000 Clear Channel Communications, Inc., 1.50%
senior notes, due 12/1/02 ................... 243,438
Cable Television - 0.1%
5,000 Adelphia Communications Corp., 7.75%
senior notes, due 1/15/09 ................... 4,200
200,000 Telewest Communications PLC, 9.875%
senior notes, due 2/1/10+ ................... 186,000
190,200
See Notes to Schedules of Investments.
Janus Aspen Series / June 30, 2000 3
<PAGE>
Janus|Aspen Growth and Income Portfolio
SCHEDULES OF INVESTMENTS (unaudited)
SHARES OR PRINCIPAL AMOUNT MARKET VALUE
--------------------------------------------------------------------------------
Cellular Telecommunications - 0.1%
$ 100,000 VoiceStream Wireless Corp., 10.375%
senior notes, due 11/15/09 .................. $ 103,500
Computers - Micro - 0.1%
200,000 Sun Microsystems, Inc., 7.50%
senior notes, due 8/15/06 ................... 199,500
Diversified Financial Services - 0.7%
General Electric Capital Corp.:
250,000 7.00%, notes, due 3/1/02 .................... 249,375
75,000 6.52%, notes, due 10/8/02 ................... 73,969
250,000 7.00%, notes, due 2/3/03 .................... 249,063
500,000 6.81%, notes, due 11/3/03 ................... 494,375
1,066,782
Enterprise Software and Services - 1.3%
844,000 BEA Systems, Inc., 4.00%
convertible subordinated notes
due 12/15/06+ ............................... 1,311,365
393,000 i2 Technologies, Inc., 5.25%
convertible subordinated notes
due 12/15/06+ ............................... 599,816
1,911,181
Internet Software - 0%
30,000 Exodus Communications, Inc., 11.25%
senior notes, due 7/1/08 .................... 29,700
Super-Regional Banks - 0.3%
500,000 Firstar Bank N.A., 7.125%
subordinated notes, due 12/1/09 ............. 474,375
Telecommunication Services - 0.5%
25,000 Allegiance Telecom, Inc., 12.875%
senior notes, due 5/15/08 ................... 27,062
NTL, Inc.:
83,000 7.00%, convertible subordinated notes
due 12/15/08 ................................ 132,800
750,000 5.75%, convertible subordinated notes
due 12/15/09+ ............................... 588,750
748,612
Wireless Equipment - 0.4%
600,000 American Tower Corp., 5.00%
convertible notes, due 2/15/10+ ............. 607,500
--------------------------------------------------------------------------------
Total Corporate Bonds (cost $5,166,255) ...................... 5,574,788
--------------------------------------------------------------------------------
Preferred Stock - 2.3%
Automotive - Cars and Light Trucks - 0.8%
442 Porsche A.G. ................................... 1,207,535
Cable Television - 1.1%
7,000 Comcast Corp., convertible, 2.00%
(Sprint Corp./PCS Group) .................... 770,000
10,000 MediaOne Group, Inc.
convertible, 6.25% .......................... 899,375
1,669,375
Internet Software - 0.4%
20,000 PSINet, Inc.
convertible, 7.00%+ ......................... 677,500
--------------------------------------------------------------------------------
Total Preferred Stock (cost $4,110,130) ...................... 3,554,410
--------------------------------------------------------------------------------
Repurchase Agreement - 19.2%
$ 29,200,000 ABN AMRO Securities, Inc., 6.85%
dated 6/30/00, maturing 7/3/00, to be
repurchased at $29,216,668 collateralized
by $14,892,465 in Fannie Mae, 5.9142%-
7.6562%, 2/25/24-4/18/28; $7,708,664
in Freddie Mac, 7.1512%-7.5875%,
2/15/24-11/15/28; $21,755,498 in
Ginnie Mae, 6.40%-7.50%, 4/20/22-
2/16/30; with respective values of
$7,313,202, $3,417,233 and
$19,053,565 (cost $29,200,000) .............. $ 29,200,000
--------------------------------------------------------------------------------
Total Investments (total cost $133,107,493) - 99.9% .......... 151,467,396
--------------------------------------------------------------------------------
Cash, Receivables and Other Assets, net of Liabilities - 0.1% 221,877
--------------------------------------------------------------------------------
Net Assets - 100% ............................................ $ 151,689,273
--------------------------------------------------------------------------------
SUMMARY OF INVESTMENTS BY COUNTRY, JUNE 30, 2000
COUNTRY % OF INVESTMENT SECURITIES MARKET VALUE
--------------------------------------------------------------------------------
Canada 1.2% $ 1,774,500
Finland 3.5% 5,393,250
Germany 0.8% 1,207,535
Japan 1.0% 1,482,875
Mexico 0.7% 1,028,250
Spain 1.4% 2,191,593
Sweden 1.1% 1,620,000
United Kingdom 1.0% 1,503,080
United States++ 89.3% 135,266,313
--------------------------------------------------------------------------------
Total 100.0% $ 151,467,396
++ Includes Short-Term Securities (70.0% excluding Short-Term Securities)
See Notes to Schedules of Investments.
4 Janus Aspen Series / June 30, 2000
<PAGE>
Statements of|Operations
<TABLE>
<CAPTION>
Janus Aspen
Growth and
For the six months or period ended June 30, 2000 (unaudited) Income
(all numbers in thousands) Portfolio
-------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $ 754
Dividends 224
Foreign tax withheld (5)
-------------------------------------------------------------------------------------
Total Investment Income 973
-------------------------------------------------------------------------------------
Expenses:
Advisory fees 407
Transfer agent expenses 1
Registration fees 25
System fees 7
Custodian fees 24
Insurance expense --
Audit fees 4
Distribution fees - Retirement Shares 14
Distribution fees - Service Shares --
Administrative fees - Retirement Shares 14
Other expenses 1
-------------------------------------------------------------------------------------
Total Expenses 497
-------------------------------------------------------------------------------------
Expense and Fee Offsets (2)
-------------------------------------------------------------------------------------
Net Expenses 495
-------------------------------------------------------------------------------------
Excess Expense Reimbursement --
-------------------------------------------------------------------------------------
Net Expenses After Reimbursement 495
-------------------------------------------------------------------------------------
Net Investment Income/(Loss) 478
-------------------------------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) from securities transactions (1,096)
Net realized gain/(loss) from foreign currency transactions (1)
Net realized gain/(loss) from futures contracts --
Change in net unrealized appreciation or depreciation of
investments and foreign currency (5,222)
-------------------------------------------------------------------------------------
Net Gain/(Loss) on Investments (6,319)
-------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ (5,841)
-------------------------------------------------------------------------------------
</TABLE>
(1) Period May 1, 2000 (inception) to June 30, 2000.
(2) Period January 18, 2000 (inception) to June 30, 2000.
See Notes to Financial Statements.
Janus Aspen Series / June 30, 2000 5
<PAGE>
Statements of|Assets & Liabilities
<TABLE>
<CAPTION>
Janus Aspen
Growth and
As of June 30, 2000 (unaudited) (all numbers in thousands Income
except net asset value per share) Portfolio
--------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at cost $ 133,107
Investments at value: $ 151,467
Cash 30
Receivables:
Investments sold 668
Portfolio shares sold 462
Dividends 34
Interest 67
Due from Advisor --
Other assets --
Variation margin --
Forward currency contracts --
--------------------------------------------------------------------------------------
Total Assets 152,728
--------------------------------------------------------------------------------------
Liabilities:
Payables:
Investments purchased 902
Portfolio shares repurchased 38
Advisory fees 79
Accrued expenses 20
--------------------------------------------------------------------------------------
Total Liabilities 1,039
--------------------------------------------------------------------------------------
Net Assets $ 151,689
--------------------------------------------------------------------------------------
Net Assets - Institutional Shares $ 134,665
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) 6,841
--------------------------------------------------------------------------------------
Net Asset Value Per Share $ 19.68
--------------------------------------------------------------------------------------
Net Assets - Retirement Shares $ 13,463
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) 688
--------------------------------------------------------------------------------------
Net Asset Value Per Share $ 19.57
--------------------------------------------------------------------------------------
Net Assets - Service Shares $ 3,561
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) 182
--------------------------------------------------------------------------------------
Net Asset Value Per Share $ 19.55
--------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
6 Janus Aspen Series / June 30, 2000
<PAGE>
Statements of|Changes in Net Assets
<TABLE>
<CAPTION>
Janus Aspen
For the six months ended June 30 (unaudited) Growth and Income
and for the fiscal year ended December 31 Portfolio
(all numbers in thousands) 2000 1999
---------------------------------------------------------------------------------------------------
<S> <S> <C>
Operations:
Net investment income/(loss) $ 478 $ 165
Net realized gain/(loss) from investment transactions (1,097) 2,395
Change in unrealized net appreciation or depreciation
of investments and foreign currency (5,222) 22,577
---------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations (5,841) 25,137
---------------------------------------------------------------------------------------------------
Dividends and Distributions to Shareholders:
Net investment income* (202) (137)
Net realized gain from investment transactions* (2,330) --
Distributions (in excess of realized gains)* -- --
---------------------------------------------------------------------------------------------------
Net Decrease from Dividends and Distributions (2,532) (137)
---------------------------------------------------------------------------------------------------
Capital Share Transactions:
Shares sold
Institutional Shares 61,104 59,997
Retirement Shares 8,870 6,207
Service Shares 3,552 --
Reinvested dividends and distributions
Institutional Shares 2,274 137
Retirement Shares 208 --
Service Shares 50 --
Shares repurchased
Institutional Shares (5,609) (5,500)
Retirement Shares (1,834) (804)
Service Shares (15) --
---------------------------------------------------------------------------------------------------
Net Increase/(Decrease) from Capital Share Transactions 68,600 60,037
---------------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets 60,227 85,037
Net Assets:
Beginning of period 91,462 6,425
---------------------------------------------------------------------------------------------------
End of period $ 151,689 $ 91,462
---------------------------------------------------------------------------------------------------
Net Assets Consist of:
Capital (par value and paid-in surplus)* $ 134,174 $ 65,574
Undistributed net investment income/(loss)* 306 30
Undistributed net realized gain/(loss) from investments* (1,151) 2,276
Unrealized appreciation/(depreciation) of investments
and foreign currency 18,360 23,582
---------------------------------------------------------------------------------------------------
$ 151,689 $ 91,462
---------------------------------------------------------------------------------------------------
Transactions in Portfolio Shares - Institutional Shares
Shares sold 2,928 3,889
Reinvested dividends and distributions 117 7
---------------------------------------------------------------------------------------------------
Total 3,045 3,896
---------------------------------------------------------------------------------------------------
Shares Repurchased (271) (365)
Net Increase/(Decrease) in Portfolio Shares 2,774 3,531
Shares Outstanding, Beginning of Period 4,067 536
---------------------------------------------------------------------------------------------------
Shares Outstanding, End of Period 6,841 4,067
---------------------------------------------------------------------------------------------------
Transactions in Portfolio Shares - Retirement Shares(2)
Shares sold 427,229 392,132
Reinvested dividends and distributions 10,762 --
---------------------------------------------------------------------------------------------------
Total 437,991 392,132
---------------------------------------------------------------------------------------------------
Shares Repurchased (87,799) (55,446)
Net Increase/(Decrease) in Portfolio Shares 350,192 336,686
Shares Outstanding, Beginning of Period 337,686 1,000
---------------------------------------------------------------------------------------------------
Shares Outstanding, End of Period 687,878 337,686
---------------------------------------------------------------------------------------------------
Transactions in Portfolio Shares - Service Shares(2)
Shares sold 180,224 --
Reinvested dividends and distributions 2,604 --
---------------------------------------------------------------------------------------------------
Total 182,828 --
---------------------------------------------------------------------------------------------------
Shares Repurchased (725) --
Net Increase/(Decrease) in Portfolio Shares 182,103 --
Shares Outstanding, Beginning of Period -- --
---------------------------------------------------------------------------------------------------
Shares Outstanding, End of Period 182,103 --
---------------------------------------------------------------------------------------------------
Purchases and Sales of Investment Securities:
(excluding short-term securities)
Purchases of securities $ 69,747 $ 60,532
Proceeds from sales of securities 16,485 15,498
Purchases of long-term U.S. government obligations -- --
Proceeds from sales of long-term U.S. government obligations -- --
* See Note 3 in Notes to Financial Statements..
See Notes to Financial Statements. (1) Transactions in Portfolio Shares--Retirement and Service
Shares numbers are not in thousands.
</TABLE>
Janus Aspen Series / June 30, 2000 7
<PAGE>
Financial|Highlights - Institutional Shares
<TABLE>
<CAPTION>
For a share outstanding during the six months ended June 30 (unaudited) Janus Aspen Growth and Income Portfolio
or through each fiscal year or period ended December 31 2000 1999 1998(1)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 20.77 $ 11.96 $ 10.00
--------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income/(loss) .06 .04 .02
Net gains/(losses) on securities
(both realized and unrealized) (.81) 8.81 1.96
--------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (.75) 8.85 1.98
--------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) (.03) (.04) (.02)
Distributions (from capital gains) (.31) -- --
--------------------------------------------------------------------------------------------------------------------
Total Distributions (.34) (.04) (.02)
--------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 19.68 $ 20.77 $ 11.96
--------------------------------------------------------------------------------------------------------------------
Total Return* (3.55%) 74.04% 19.80%
--------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 134,665 $ 84,480 $ 6,413
Average Net Assets for the Period (in thousands) $ 114,533 $ 28,838 $ 2,883
Ratio of Gross Expenses to Average Net Assets**(2) 0.75% 1.06% 1.25%
Ratio of Net Expenses to Average Net Assets**(2) 0.75% 1.05% 1.25%
Ratio of Net Investment Income to Average Net Assets** 0.81% 0.56% 0.66%
Portfolio Turnover Rate** 31% 59% 62%
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) Period May 1, 1997 (inception) to December 31, 1998.
(2) See footnote #5 in Notes to Financial Statements.
See Notes to Financial Statements.
8 Janus Aspen Series / June 30, 2000
<PAGE>
Financial|Highlights - Retirement Shares
<TABLE>
<CAPTION>
For a share outstanding during the six months Janus Aspen Growth and
ended June 30 (unaudited) or through Income Portfolio
each fiscal year or period ended December 31 2000 1999 1998(1)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 20.68 $ 11.94 $ 10.00
--------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income/(loss) .02 (.01) .01
Net gains/(losses) on securities (both realized and unrealized) (.82) 8.75 1.93
--------------------------------------------------------------------------------------------------------
Total from Investment Operations (.80) 8.74 1.94
--------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) -- -- --
Distributions (from capital gains) (.31) -- --
--------------------------------------------------------------------------------------------------------
Total Distributions (.31) -- --
--------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 19.57 $ 20.68 $ 11.94
--------------------------------------------------------------------------------------------------------
Total Return* (3.86%) 73.20% 19.40%
--------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 13,464 $ 6,982 $ 12
Average Net Assets for the Period (in thousands) $ 10,894 $ 1,826 $ 10
Ratio of Gross Expenses to Average Net Assets**(2) 1.25% 1.53% 1.72%
Ratio of Net Expenses to Average Net Assets**(2) 1.25% 1.53% 1.72%
Ratio of Net Investment Income/(Loss) to Average Net Assets** 0.32% 0.11% 0.21%
Portfolio Turnover Rate** 31% 59% 62%
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) Period May 1, 1998 (inception) to December 31, 1998.
(2) See footnote #5 in Notes to Financial Statements.
See Notes to Financial Statements.
Janus Aspen Series / June 30, 2000 9
<PAGE>
Financial|Highlights - Service Shares
<TABLE>
<CAPTION>
Janus Aspen Growth and
For a share outstanding during the six months Income Portfolio
ended June 30 (unaudited) 2000
----------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period $ 20.63
----------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income/(loss) .01
Net gains/(losses) on securities (both realized and unrealized) (.78)
----------------------------------------------------------------------------------------------
Total from Investment Operations (.77)
----------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) --
Distributions (from capital gains) (.31)
----------------------------------------------------------------------------------------------
Total Distributions (.31)
----------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 19.55
----------------------------------------------------------------------------------------------
Total Return* (3.73%)
----------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 3,561
Average Net Assets for the Period (in thousands) $ 432
Ratio of Gross Expenses to Average Net Assets**(1) 0.96%
Ratio of Net Expenses to Average Net Assets**(1) 0.96%
Ratio of Net Investment Income/(Loss) to Average Net Assets** 0.87%
Portfolio Turnover Rate** 31%
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) See footnote #5 in Notes to Financial Statements.
See Notes to Financial Statements.
10 Janus Aspen Series / June 30, 2000
<PAGE>
Notes to|Schedules of Investments
ADR - American Depository Receipt
EUR - Euro
GBP - British Pound
GDR - Global Depository Receipt
* Non-income-producing security
** A portion of this security has been segregated to cover margin or
segregation requirements on open futures contracts and/or forward currency
contracts.
+ Securities are registered pursuant to Rule 144A and may be deemed to be
restricted for resale.
Variable Rate Notes. The interest rate, which is based on specific, or an index
of, market interest rates, is subject to change. Rates in the security
description are as of June 30, 2000.
Money market funds may hold securities with stated maturities of greater than
397 days when those securities have features that allow a fund to "put" back the
security to the issuer or to a third party within 397 days of acquisition. The
maturity dates shown in the security descriptions are the stated maturity dates.
Repurchase Agreements held by a Portfolio are fully collateralized, and such
collateral is in the possession of the Portfolio's custodian. The collateral is
evaluated daily to ensure its market value equals or exceeds the current market
value of the repurchase agreements including accrued interest. In the event of
default on the obligation to repurchase, the Portfolio has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
Janus Aspen Series / June 30, 2000 11
<PAGE>
Notes to|Financial Statements
The following section describes the organization and significant accounting
policies of the Portfolios and provides more detailed information about the
schedules and tables that appear throughout this report. In addition, the Notes
explain how the Portfolios operate and the methods used in preparing and
presenting this report.
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Janus Aspen Series (the "Trust") was organized as a Delaware Trust on May
20, 1993, and is registered under the Investment Company Act of 1940 (the
"1940 Act") as a no-load, open-end management investment company. The Trust
offers fourteen Portfolios or series of shares with differing investment
objectives and policies. Eleven Portfolios invest primarily in equity
securities: Janus Aspen Growth Portfolio, Janus Aspen Aggressive Growth
Portfolio, Janus Aspen Capital Appreciation Portfolio, Janus Aspen Balanced
Portfolio, Janus Aspen Equity Income Portfolio, Janus Aspen Growth and
Income Portfolio, Janus Aspen Strategic Value Portfolio, Janus Aspen
International Growth Portfolio, Janus Aspen Worldwide Growth Portfolio,
Janus Aspen Global Life Sciences Portfolio and Janus Aspen Global
Technology Portfolio. Two Portfolios invest primarily in income-producing
securities: Janus Aspen Flexible Income Portfolio and Janus Aspen
High-Yield Portfolio. Janus Aspen Money Market Portfolio invests in
short-term money market securities. Each Portfolio is diversified as
defined in the 1940 Act, with the exception of the Aggressive Growth
Portfolio, Capital Appreciation Portfolio, Global Life Sciences Portfolio,
Global Technology Portfolio and Strategic Value Portfolio, which are
nondiversified.
Institutional Shares of the Trust are issued and redeemed only in
connection with investment in and payments under variable annuity contracts
and variable life insurance contracts (collectively "variable insurance
contracts"), as well as certain qualified retirement plans. Effective May
1, 1997, the Trust issued the Retirement Shares. Retirement Shares of the
Trust are issued and redeemed only in connection with certain qualified
retirement plans.
A Special Meeting of Shareholders of the Retirement Shares class (the
"Retirement Shares") of each portfolio other than High-Yield Portfolio will
be held on July 20, 2000 to approve a reorganization that would transfer
the assets relating to the Retirement Shares class of each Janus Aspen
Series Portfolio to a corresponding Fund of Janus Adviser Series.
Effective December 31, 1999, the Trust issued a new class of shares, the
Service Shares. Service Shares of the Trust are issued and redeemed only in
connection with investment in and payments under variable annuity contracts
and variable life insurance contracts (collectively "variable insurance
contracts"), as well as certain qualified retirement plans.
The following accounting policies have been consistently followed by the
Trust and are in conformity with accounting principles generally accepted
in the investment company industry.
INVESTMENT VALUATION
Securities are valued at the closing price for securities traded on a
principal securities exchange (U.S. or foreign) and on the NASDAQ National
Market. Securities traded on over-the-counter markets and listed securities
for which no sales are reported are valued at the latest bid price (or
yield equivalent thereof) obtained from one or more dealers making a market
for such securities or by a pricing service approved by the Trustees.
Short-term investments maturing within 60 days and all money market
securities in the Money Market Portfolio are valued at amortized cost,
which approximates market value. Foreign securities are converted to U.S.
dollars using exchange rates at the close of the New York Stock Exchange.
When market quotations are not readily available, securities are valued at
fair value as determined in good faith under procedures established by the
Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for as of the date purchased or sold.
Dividend income is recorded on the ex-dividend date. Certain dividends from
foreign securities will be recorded as soon as the Trust is informed of the
dividend if such information is obtained subsequent to the ex-dividend
date. Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums. Gains and losses are determined on
the identified cost basis, which is the same basis used for federal income
tax purposes. Income and gains and losses are allocated daily to each class
of shares based upon the ratio of net assets represented by each class as a
percentage of total net assets.
FORWARD CURRENCY TRANSACTIONS AND FUTURES CONTRACTS
The Portfolios enter into forward currency contracts in order to hedge
their exposure to changes in foreign currency exchange rates on their
foreign portfolio holdings and to lock in the U.S. dollar cost of firm
purchase and sales commitments denominated in foreign currencies. A forward
currency contract is a commitment to purchase or sell a foreign currency at
a future date at a negotiated forward rate. The gain or loss arising from
the difference between the U.S. dollar cost of the original contract and
the value of the foreign currency in U.S. dollars upon closing such a
contract is included in net realized gain or loss on foreign currency
transactions. Forward currency contracts held by the Portfolios are fully
collateralized by other securities, in possession at the Portfolio's
custodian, which are denoted in the accompanying Schedule of Investments.
The market value of these securities is evaluated daily to ensure that it
is equal to or exceeds the current market value of the corresponding
forward currency contract.
Currency gain and loss are also calculated on payables and receivables that
are denominated in foreign currencies. The payables and receivables are
generally related to security transactions and income.
12 Janus Aspen Series / June 30, 2000
<PAGE>
Futures contracts are marked to market daily, and the variation margin is
recorded as an unrealized gain or loss. When a contract is closed, a
realized gain or loss is recorded equal to the difference between the
opening and closing value of the contract. Generally, open forward and
futures contracts are marked to market (i.e., treated as realized and
subject to distribution) for federal income tax purposes at fiscal
year-end.
Foreign-denominated assets and forward currency contracts may involve more
risks than domestic transactions, including: currency risk, political and
economic risk, regulatory risk and market risk. Risks may arise from the
potential inability of a counterparty to meet the terms of a contract and
from unanticipated movements in the value of foreign currencies relative to
the U.S. dollar.
The Portfolios may enter into futures contracts and options on securities,
financial indexes and foreign currencies, forward contracts and
interest-rate swaps and swap-related products. The Portfolios intend to use
such derivative instruments primarily to hedge or protect from adverse
movements in securities prices, currency rates or interest rates. The use
of futures contracts and options may involve risks such as the possibility
of illiquid markets or imperfect correlation between the value of the
contracts and the underlying securities or that the counterparty will fail
to perform its obligations.
INITIAL PUBLIC OFFERINGS
The Portfolios may invest in initial public offerings (IPOs). IPOs and
other investment techniques may have a magnified performance impact on a
fund with a small asset base. The Portfolios may not experience similar
performance as its assets grow.
ADDITIONAL INVESTMENT RISK
A portion of the Flexible Income and High-Yield Portfolios may be invested
in lower-rated debt securities that have a higher risk of default or loss
of value because of changes in the economy or in their respective industry.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
DIVIDEND DISTRIBUTIONS AND EXPENSES
Each Portfolio, except the Money Market Portfolio, makes at least
semiannual distributions of substantially all of its investment income and
at least an annual distribution of its net realized capital gains, if any.
The Money Market Portfolio makes daily distributions of its income. All
dividends and capital gains distributions from a Portfolio will be
automatically reinvested into additional shares of that Portfolio.
Expenses are allocated daily to each class of shares based upon the ratio
of net assets represented by each class as a percentage of total net
assets. Expenses directly attributable to a specific class of shares are
charged against the operations of such class.
FEDERAL INCOME TAXES
No provision for income taxes is included in the accompanying financial
statements as the Portfolios intend to distribute to shareholders all
taxable investment income and realized gains and otherwise comply with the
Internal Revenue Code applicable to regulated investment companies.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
The management fee for each equity Portfolio decreased to an annual rate of
.65% of average net assets, effective May 1, 2000. The management fee for
the corresponding Janus retail fund corresponding to each equity Portfolio
also decreased to this rate, effective January 31, 2000. Due to the fee
reductions described above, this had the effect of lowering each equity
Portfolio's management fee on January 31, 2000, also.
Prior to May 1, 2000, investment advisory fees for eight of the Portfolios
were payable to Janus Capital based upon annual rates of .75% of the first
$300 million of average net assets, .70% of the next $200 million of
average net assets, and .65% of the average net assets in excess of $500
million. However, Janus Capital had voluntarily agreed to reduce each
Portfolio's advisory fee to the extent that such fee exceeded the effective
rate of the Janus retail fund corresponding to such Portfolio. The
effective rate is the advisory fee calculated by the corresponding retail
fund as of the last day of each calendar quarter (expressed as an annual
rate). Janus Aspen Growth Portfolio, Janus Aspen Aggressive Growth
Portfolio, Janus Aspen Capital Appreciation Portfolio, Janus Aspen
International Growth Portfolio, Janus Aspen Worldwide Growth Portfolio,
Janus Aspen Balanced Portfolio, Janus Aspen Equity Income Portfolio and
Janus Aspen Growth and Income Portfolio advisory fees were reduced to the
effective rates of Janus Fund, Janus Enterprise Fund, Janus Twenty Fund,
Janus
Janus Aspen Series / June 30, 2000 13
<PAGE>
Notes to|Financial Statements (continued)
Overseas Fund, Janus Worldwide Fund, Janus Balanced Fund, Janus Equity
Income Fund and Janus Growth and Income Fund, respectively. The effective
rate for each Portfolio for the period ended December 31, 1999, was .65%,
.66%, .65%, .65%, .65%, .66%, .69% and .65%, respectively. The Flexible
Income Portfolio is subject to advisory fees payable to Janus Capital based
upon annual rates of .65% of the first $300 million of average net assets
plus .55% of average net assets in excess of $300 million. The High-Yield
Portfolio's advisory fee rate is payable at rates of .75% of the first $300
million of average net assets plus .65% of average net assets in excess of
$300 million. The Money Market Portfolio's advisory fee rate is .25% of
average net assets. For additional information on the specific fees for the
Retirement Shares, please refer to note 4 of the financial statements.
Janus Capital has agreed to reduce its fee to the extent normal operating
expenses exceed 1% of the average net assets of the Flexible Income and
High-Yield Portfolios and .50% of the average net assets of the Money
Market Portfolio for a fiscal year.
Janus Capital has agreed to continue these fee waivers and reductions until
at least the next annual renewal of the advisory contracts. The participant
administration fee and distribution fee applicable to the Retirement
Shares, as well as the distribution fee applicable to the Service Shares,
are not included in these expense limits.
Officers and certain trustees of the Trust are also officers and/or
directors of Janus Capital; however, they receive no compensation from the
Trust.
Janus Service Corporation ("Janus Service"), a wholly owned subsidiary of
Janus Capital, receives certain out-of-pocket expenses for transfer agent
services. Janus Service also receives an administrative fee at an annual
rate of up to .25% of the average daily net assets of the Retirement Shares
of each Portfolio for providing or procurring recordkeeping, subaccounting
and other administrative services to plan participants who invest in the
Retirement Shares.
Janus Distributors, Inc., a wholly owned subsidiary of Janus Capital, is a
distributor of the Portfolios. The Retirement and Service Shares have
adopted a Distribution and Shareholder Servicing Plan (The "Plan") pursuant
to Rule 12b-1 under The 1940 Act. The Plan authorizes payments by the
Portfolios in connection with the distribution of the Retirement and
Service Shares at an annual rate, as determined from time to time by the
Board of Trustees, of up to .25% of the Retirement and Service Shares'
average daily net assets.
DST Systems, Inc. (DST), an affiliate of Janus Capital through a degree of
common ownership, provides accounting systems to the Portfolios. DST
Securities, Inc., a wholly owned subsidiary of DST, provides brokerage
services on certain portfolio transactions. Brokerage commissions paid to
DST Securities, Inc. serve to reduce fees and expenses. Brokerage
commissions paid, fees reduced and the net fees paid to DST for the period
ended June 30, 2000, are noted below:
<TABLE>
<CAPTION>
DST Securities, Inc. Portfolio Expense DST Systems
Portfolio Commissions Paid* Reduction* Costs
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Janus Aspen Growth and Income Portfolio $ 305 $ 229 $ 7,505
------------------------------------------------------------------------------------------------------
</TABLE>
* The difference between commissions paid to DST Securities, Inc. and
expenses reduced constituted commissions paid to an unaffiliated clearing
broker.
14 Janus Aspen Series / June 30, 2000
<PAGE>
3. FEDERAL INCOME TAX
The Portfolios have elected to treat gains and losses on forward foreign
currency contracts as capital gains and losses. Other foreign currency
gains and losses on debt instruments are treated as ordinary income for
federal income tax purposes pursuant to Section 988 of the Internal Revenue
Code. As of June 30, 2000, the net capital loss carryovers noted below are
available to offset future realized capital gains and thereby reduce future
taxable gains distributions. These carryovers expire between December 31,
2006, and December 31, 2007.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investments for federal income tax
purposes as of June 30, 2000, are also noted below.
<TABLE>
<CAPTION>
Post-October
Net Capital Loss Capital Currency Federal Tax Unrealized
Portfolio Carryovers Losses Losses Cost Appreciation
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus Aspen Growth and Income
Portfolio -- $(11,710) -- $133,136,590 $27,100,892
<CAPTION>
Unrealized Net Appreciation/
Portfolio (Depreciation) (Depreciation)
---------------------------------------------------------------------------
<S> <C> <C>
Janus Aspen Growth and Income
Portfolio $(8,770,086) $18,330,806
</TABLE>
4. EXPENSES
The Portfolios' expenses may be reduced through expense reduction
arrangements. Those arrangements include the use of broker commissions paid
to DST Securities, Inc. and uninvested cash balances earning interest with
the Portfolios' custodian. The Statements of Operations reflect the total
expenses before any offset, the amount of the offset and the net expenses.
The expense ratios listed in the Financial Highlights reflect expenses
prior to any expense offset (gross expense ratio) and after expense offsets
(net expense ratio).
Janus Aspen Series Retirement Shares incur a pro rata share of operating
expenses. In addition, the Retirement Shares pay a distribution fee of up
to .25% of average net assets and a participant administration fee of up to
.25% of average net assets.
Janus Aspen Series Service Shares incur a pro rata share of operating
expenses. In addition, the Service Shares pay a distribution fee of up to
.25% of average net assets.
5. EXPENSE RATIOS
Listed below are the gross expense ratios for the various Portfolios that
would be in effect, absent the waiver of certain fees, offsets and/or
voluntary reduction of the adviser's fee to the effective rate of the
corresponding Janus retail fund. Expense ratios are annualized for all
periods less than one year.
<TABLE>
<CAPTION>
Service
Institutional Shares Retirement Shares Shares
Portfolio 2000 1999 1998 1997 1996 1995 2000 1999 1998 1997(1) 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Janus Aspen Growth and Income
Portfolio 0.75% 1.15% 3.06% N/A N/A N/A 1.25% 1.62% 3.53% N/A 0.96%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Period May 1, 1997, (inception) to December 31, 1997.
Janus Aspen Series / June 30, 2000 15
<PAGE>
Explanations of|Charts, Tables and Financial Statements
1. PERFORMANCE OVERVIEWS
When comparing the performance of a Portfolio with an index, keep in mind
that market indexes do not include brokerage commissions that would be
incurred if you purchased the individual securities in the index. They also
do not include taxes payable on dividends and interest or operating
expenses incurred if you maintained a Portfolio invested in the index.
Average annual total returns are also quoted for each class of Portfolio.
Average annual total return is calculated by taking the growth or decline
in value of an investment over a period of time, including reinvestment of
dividends and distributions, then calculating the annual compounded
percentage rate that would have produced the same result had the rate of
growth been constant throughout the period.
2. SCHEDULES OF INVESTMENTS
Following the performance overview section is each Portfolio's Schedule of
Investments. This schedule reports the industry concentrations and types of
securities held in each Portfolio on the last day of the reporting period.
Securities are usually listed by type (common stock, corporate bonds, U.S.
government obligations, etc.) and by industry classification (banking,
communications, insurance, etc.).
The market value of each security is quoted as of the last day of the
reporting period. The value of securities denominated in foreign currencies
is converted into U.S. dollars.
Portfolios that invest in foreign securities also provide a summary of
investments by country. This summary reports the Portfolio's exposure to
different countries by providing the percentage of securities invested in
each country.
2A. FORWARD CURRENCY CONTRACTS
A table listing forward currency contracts follows each Portfolio's
Schedule of Investments (if applicable). Forward currency contracts are
agreements to deliver or receive a preset amount of currency at a future
date. Forward currency contracts are used to hedge against foreign currency
risk in the Portfolio's long-term holdings.
The table provides the name of the foreign currency, the settlement date of
the contract, the amount of the contract, the value of the currency in U.S.
dollars and the amount of unrealized gain or loss. The amount of unrealized
gain or loss reflects the change in currency exchange rates from the time
the contract was opened to the last day of the reporting period.
3. STATEMENT OF OPERATIONS
This statement details the Portfolios' income, expenses, gains and losses
on securities and currency transactions, and appreciation or depreciation
of current Portfolio holdings.
The first section in this statement, titled "Investment Income," reports
the dividends earned from stocks and interest earned from interest-bearing
securities in the Portfolio.
The next section reports the expenses and expense offsets incurred by the
Portfolios, including the advisory fee paid to the investment adviser,
transfer agent fees, shareholder servicing expenses, and printing and
postage for mailing statements, financial reports and prospectuses.
The last section lists the increase or decrease in the value of securities
held in the Portfolios. Portfolios realize a gain (or loss) when they sell
their position in a particular security. An unrealized gain (or loss)
refers to the change in net appreciation or depreciation of the Portfolios
during the period. "Net Gain/(Loss) on Investments" is affected both by
changes in the market value of Portfolio holdings and by gains (or losses)
realized during the reporting period.
16 Janus Aspen Series / June 30, 2000
<PAGE>
4. STATEMENT OF ASSETS AND LIABILITIES
This statement is often referred to as the "balance sheet." It lists the
assets and liabilities of the Portfolios on the last day of the reporting
period.
The Portfolios' assets are calculated by adding the value of the securities
owned, the receivable for securities sold but not yet settled, the
receivable for dividends declared but not yet received on stocks owned and
the receivable for Portfolio shares sold to investors but not yet settled.
The Portfolios' liabilities include payables for securities purchased but
not yet settled, Portfolio shares redeemed but not yet paid and expenses
owed but not yet paid. Additionally, there may be other assets and
liabilities such as forward currency contracts.
The last section of this statement reports the net asset value (NAV) per
share on the last day of the reporting period for each class of the
Portfolio. The NAV is calculated by dividing the Portfolios' net assets
(assets minus liabilities) by the number of shares outstanding.
5. STATEMENT OF CHANGES IN NET ASSETS
This statement reports the increase or decrease in the Portfolios' net
assets during the reporting period. Changes in the Portfolios' net assets
are attributable to investment operations, dividends, distributions and
capital share transactions. This is important to investors because it shows
exactly what caused the Portfolios' net asset size to change during the
period.
The first section summarizes the information from the Statement of
Operations regarding changes in net assets due to the Portfolios'
investment performance. The Portfolios' net assets may also change as a
result of dividend and capital gains distributions to investors. If
investors receive their dividends in cash, money is taken out of the
Portfolio to pay the distribution. If investors reinvest their dividends,
the Portfolios' net assets will not be affected. If you compare each
Portfolio's "Net Decrease from Dividends and Distributions" to the
"Reinvested dividends and distributions," you'll notice that dividend
distributions had little effect on each Portfolio's net assets. This is
because all of Janus investors reinvest their distributions.
The reinvestment of dividends is included under "Capital Share
Transactions." "Capital Shares" refers to the money investors contribute to
the Portfolios through purchases or withdrawal via redemptions. Each
Portfolio's net assets will increase and decrease in value as investors
purchase and redeem shares from a Portfolio.
The section entitled "Net Assets Consist of" breaks down the components of
the Portfolios' net assets. Because Portfolios must distribute
substantially all earnings, you'll notice that a significant portion of net
assets is shareholder capital.
Janus Aspen Series / June 30, 2000 17
<PAGE>
Explanations of|Charts, Tables and Financial Statements (continued)
6. FINANCIAL HIGHLIGHTS
This schedule provides a per-share breakdown of the components that affect
the net asset value (NAV) for current and past reporting periods for each
class of the Portfolio. Not only does this table provide you with total
return, it also reports total distributions, asset size, expense ratios and
portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of
the reporting period. The next line reports the net investment income per
share, which comprises dividends and interest income earned on securities
held by the Portfolios. Following is the total of gains, realized and
unrealized. Dividends and distributions are then subtracted to arrive at
the NAV per share at the end of the period.
Also included are the expense ratios, or the percentage of net assets that
was used to cover operating expenses during the period. Expense ratios vary
across the Portfolios for a number of reasons, including the differences in
management fees, average shareholder account size, the frequency of
dividend payments and the extent of foreign investments, which entail
greater transaction costs.
The Portfolios' expenses may be reduced through expense-reduction
arrangements. These arrangements include the use of brokerage commissions,
uninvested cash balances earning interest or balance credits. The Statement
of Operations reflects total expenses before any such offset, the amount of
offset and the net expenses. The expense ratios listed in the Financial
Highlights reflect total expenses both prior to any expense offset and
after the offsets.
The ratio of net investment income summarizes the income earned divided by
the average net assets of a Portfolio during the reporting period. Don't
confuse this ratio with a Portfolio's yield. The net investment income
ratio is not a true measure of a Portfolio's yield because it doesn't take
into account the dividends distributed to the Portfolio's investors.
The next ratio is the portfolio turnover rate, which measures the buying
and selling activity in a Portfolio. Portfolio turnover is affected by
market conditions, changes in the size of a Portfolio, the nature of the
Portfolio's investments and the investment style of the portfolio manager.
A 100% rate implies that an amount equal to the value of the entire
Portfolio is turned over in a year; a 50% rate means that an amount equal
to the value of half the Portfolio is traded in a year; and a 200% rate
means that an amount equal to the value of the Portfolio is sold every six
months.
18 Janus Aspen Series / June 30, 2000
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<PAGE>
--------------------------------------------------------------------------------
Janus|Aspen Series
--------------------------------------------------------------------------------
2000 SEMIANNUAL REPORT
Janus Aspen Worldwide Growth Portfolio
[LOGO] JANUS
--------------------------------------------------------------------------------
<PAGE>
Janus|Aspen Worldwide Growth Portfolio
[PHOTO]
Helen Young Hayes
portfolio manager
[PHOTO]
Laurence Chang
portfolio manager
For the six months ended June 30, 2000, Janus Aspen Worldwide Growth Portfolio
gained 2.06% for its Institutional Shares, 1.82% for its Retirement Shares and
1.95% for its Service Shares. This compares with a (3.73%) decline posted by the
Morgan Stanley Capital International World Index.(1)
Judging by our modest gains, the environment for global equities proved
increasingly challenging. In the U.S., growing inflation concerns prompted the
Federal Reserve to raise short-term interest rates on three separate occasions.
Although the effects of monetary tightening were slow in coming, signs of an
economic pullback appeared late in the period. At the same time, European
markets struggled with uneven economic growth and weakness in the euro currency,
also fueling inflation fears. Meanwhile, the emerging markets of Asia and Latin
America fared better, bolstered by improving economic fundamentals. In contrast,
Japanese equities, particularly technology and telecommunications stocks, were
pressured by a growing budget deficit and lackluster economy.
Against this backdrop, the market volatility increased dramatically. During the
first half of the period, demand for a narrow group of technology,
telecommunications and other so-called "new economy" stocks drove a number of
indices to all-time highs. Beginning in March, a broad market sell-off took
hold, brought on largely by profit-taking in technology issues. Investors then
redirected their attention to "old economy" companies including pharmaceuticals
and financials. In reality, though, the markets seemed to have no clear
direction, experiencing abrupt swings on an almost daily basis.
Macroeconomic and market events aside, we stood by our strategy of identifying
individual companies that combine dominant franchises, compelling products and
services, and visionary management. In particular, we continued to pursue
opportunities with the potential to transcend short-term fluctuations, such as
optical networking. In this area, Canada's Nortel Networks remained one of our
favorites. The company has successfully transformed itself from a telecom
equipment supplier to a leading player in Internet infrastructure. As a dominant
force in photonics, which increases the capacity of existing fiber-optic lines,
Nortel's optical revenues are growing at an impressive 150% annually. Recent
acquisitions, focused on next-generation technology, could ensure that Nortel
maintains or even extends its franchise.
As the Internet becomes more of a marketing and procurement tool in the
business-to-business space, safeguarding communications and e-commerce
transactions takes on even greater importance. Israel's Check Point Software
Technologies, which has assumed a first-mover advantage in firewall software,
recently announced the introduction of new systems that secure a number of
integrated applications from one central location. Superior fundamentals pushed
Check Point substantially higher during the period despite the dramatic declines
of many Internet-related companies.
The rapid growth of the Internet is also driving demand for data storage.
U.S.-based EMC, the leader in high-end computer storage software, benefited from
its new line of network-attached storage systems aimed at the middle market.
EMC's technological edge is impressive and has resulted in substantial pricing
power over its competition.
These successes aside, market volatility took its toll on several of our
holdings. Japanese telecom giant NTT DoCoMo declined even as its wireless
Internet service experienced rapid growth. Sony, the Japanese consumer
electronics bellwether, fell significantly despite its dominance in the popular
video-game console business. In either case, profit-taking may have contributed
to much of the selling. At this writing, our research reflects improving
fundamentals, and, as a result, we have maintained both positions.
Going forward, we remain generally optimistic regarding the future of the global
economy. Prospects for Asia and emerging markets appear considerably brighter.
In the near term, however, lingering economic uncertainty, particularly with
regard to nascent inflationary pressures and the interest rate environment
globally, will likely lead to further volatility. The same goes for the U.S.,
even though it may be nearing the end of its tightening cycle. Therefore, we
have let our cash position build slightly, allowing us to revisit companies that
provide compelling buying opportunities. Still, we will stay focused on the
fundamentals of individual companies, carefully watching valuation levels and
investing in businesses we believe can generate strong results in any economic
environment.
In closing, we would like to thank you for your investment and confidence in
Janus Aspen Worldwide Growth Portfolio.
Portfolio Asset Mix (% of Assets) June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
Equities 86.3% 90.4%
Foreign 58.8% 61.2%
Top 10 Equities 30.4% 34.3%
Number of Stocks 146 130
Cash, Cash Equivalents
& Fixed-Income Securities 13.7% 9.6%
--------------------------------------------------------------------------------
(1) All returns include reinvested dividends. Net dividends reinvested are the
dividends that remain to be reinvested after foreign tax obligations have
been met. Such obligations vary from country to country.
Past performance does not guarantee future results.
Janus Aspen Series / June 30, 2000 1
<PAGE>
AVERAGE ANNUAL TOTAL RETURN(1)
For the Periods Ended June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
Institutional Shares (Inception Date 9/13/93)
1 Year 48.85%
5 Year 31.84%
From Inception 27.65%
--------------------------------------------------------------------------------
Morgan Stanley Capital International World Index(2)
1 Year 12.19%
5 Year 17.07%
From Inception Date of Institutional Shares 15.11%
--------------------------------------------------------------------------------
Retirement Shares (Inception Date 5/1/97)
1 Year 48.09%
5 Year 31.01%
From Portfolio Inception 26.77%
--------------------------------------------------------------------------------
Service Shares (Inception Date 12/31/99)
1 Year 47.92%
5 Year 31.50%
From Portfolio Inception 27.31%
--------------------------------------------------------------------------------
Returns shown for Retirement and Service Shares for periods prior to their
inception are derived from the historical performance of Institutional Shares,
adjusted to reflect the higher operating expenses of Retirement and Service
Shares.
(1) All returns reflect reinvested dividends. The Portfolio's securities may
differ significantly from the securities in the Index. Index returns do not
include taxes or operating expenses necessary to maintain a portfolio
consisting of the same securities that are in the Index. These returns do
not reflect the charges and expenses of any particular insurance product or
qualified plan. Investment return and principal value will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost. The adviser voluntarily waived a portion of the Portfolio's expenses
for certain periods. Without such waiver, the Portfolio's total returns for
each class would have been lower. Net dividends reinvested are the
dividends that remain to be reinvested after foreign tax obligations have
been met. Such obligations vary from country to country. Foreign investing
involves special risks such as currency fluctuation and political
uncertainty. Past performance does not guarantee future results.
The Portfolio's returns may have been positively impacted by buying technology
companies in a period favorable for these stocks.
SCHEDULE OF INVESTMENTS (unaudited)
SHARES OR PRINCIPAL AMOUNT MARKET VALUE
--------------------------------------------------------------------------------
Common Stock - 85.3%
Aerospace and Defense - 0.1%
7,580,000 Finmeccanica S.p.A.*,** ........................ $ 10,419,594
Agricultural Biotechnology - 0.6%
991,440 Pharmacia Corp. ................................ 51,245,055
Applications Software - 0.5%
222,485 Microsoft Corp.* ............................... 17,798,800
3,560,125 Sage Group PLC** ............................... 28,619,165
46,417,965
Audio and Video Products - 1.3%
1,240,800 Sony Corp.** ................................... 116,103,451
Broadcast Services and Programming - 2.9%
4,083,320 AT&T Corp./Liberty Media Group - Class A* ...... 99,020,510
463,570 Clear Channel Communications, Inc.* ............ 34,767,750
575,713 EM.TV & Merchandising A.G.** ................... 34,050,512
1,439,960 Grupo Televisa S.A. (GDR)* ..................... 99,267,243
267,106,015
Cable Television - 1.2%
1,379,760 Comcast Corp. - Special Class A* ............... 55,880,280
187,455 Globo Cabo S.A. (ADR) .......................... 2,600,938
129,480 Le Groupe Videotron ltee.** .................... 3,006,143
941,834 Rogers Communications, Inc. - Class B*,** ...... 26,665,814
209,740 Rogers Communications, Inc. - Class B
- New York Shares*,** ....................... 5,977,590
3,614,691 Telewest Communications PLC*,** ................ 12,628,278
106,759,043
Cellular Telecommunications - 11.3%
8,598,000 China Mobile, Ltd.*,** ......................... 75,831,943
1,967,180 China Telecom, Ltd. (ADR)*,** .................. 349,789,194
334,429 Egyptian Mobile Service Co.* ................... 10,884,066
10,629 NTT DoCoMo, Inc.** ............................. 288,325,102
64,421,001 Vodafone AirTouch PLC** ........................ 257,724,727
1,129,825 Vodafone AirTouch PLC (ADR)** .................. 46,817,123
1,029,372,155
Commercial Services - 0.3%
639,435 Paychex, Inc. .................................. 26,856,270
Computer Data Security - 1.6%
533,225 Check Point Software Technologies, Ltd.* ....... 112,910,394
191,645 VeriSign, Inc.* ................................ 33,825,343
146,735,737
Computer Services - 1.1%
131,228 Atos S.A.*,** .................................. 12,327,784
161,445 Cap Gemini S.A.** .............................. 28,553,110
2,149,764 Getronics N.V.** ............................... 33,280,953
1,174,742 Logica PLC** ................................... 27,814,832
101,976,679
Computer Software - 0.3%
78,063 Software A.G.** ................................ 7,221,127
731,101 Tietoenator Oyj** .............................. 24,493,847
31,714,974
Computers - Integrated Systems - 1.7%
521,949 ASM Lithography Holding N.V.*,** ............... 22,525,062
205,635 ASM Lithography Holding N.V. (ADR)*,** ......... 9,073,644
8,803,100 Dimension Data Holdings, Ltd. .................. 72,842,238
963,000 Fujitsu, Ltd.** ................................ 33,404,156
1,034,991 SEMA Group PLC** ............................... 14,728,605
152,573,705
Computers - Memory Devices - 1.3%
1,275,080 EMC Corp.* ..................................... 98,101,468
177,390 VERITAS Software Corp.* ........................ 20,047,842
118,149,310
Computers - Micro - 1.0%
15,592,000 Legend Holdings, Ltd.** ........................ 15,101,873
818,740 Sun Microsystems, Inc.* ........................ 74,454,169
89,556,042
See Notes to Schedules of Investments.
2 Janus Aspen Series / June 30, 2000
<PAGE>
Janus|Aspen Worldwide Growth Portfolio
SCHEDULE OF INVESTMENTS (unaudited)
SHARES OR PRINCIPAL AMOUNT MARKET VALUE
--------------------------------------------------------------------------------
Data Processing and Management - 0.2%
47,856 Autonomy Corp. PLC*,** ......................... $ 5,742,720
85,585 Autonomy Corp. PLC (ADR)*,** ................... 10,526,955
16,269,675
Diversified Operations - 1.9%
12,700,000 Citic Pacific, Ltd.** .......................... 66,473,099
1,687,155 General Electric Co. ........................... 89,419,215
2,473,907 Hays PLC** ..................................... 13,843,301
169,735,615
E-Commerce - 0.2%
474,720 Amazon.com, Inc.* .............................. 17,238,270
Electric Products - 1.7%
456,110 Samsung Electronics** .......................... 150,947,412
Electronic Components - 4.9%
50,654 Celestica, Inc.*,** ............................ 2,464,890
1,303,315 Celestica, Inc. - New York Shares*,** .......... 64,677,007
129,520 Flextronics International, Ltd.* ............... 8,896,405
2,629,971 Koninklijke (Royal) Philips Electronics N.V.** . 124,540,427
1,584,774 Koninklijke (Royal) Philips Electronics N.V.
- New York Shares** ......................... 75,276,765
267,550 Lattice Semiconductor Corp.* ................... 18,494,394
400,000 Murata Manufacturing Company, Ltd.** ........... 57,541,714
3,175,000 NEC Corp.** .................................... 99,930,052
451,821,654
Electronic Components - Semiconductors - 2.1%
200,360 Applied Materials, Inc.* ....................... 18,157,625
569,585 Conexant Systems, Inc.* ........................ 27,696,071
38,900 Rohm Company, Ltd.** ........................... 11,397,758
1,104,368 STMicroelectronics N.V.** ...................... 69,869,911
156,105 STMicroelectronics N.V.
- New York Shares** ......................... 10,019,990
820,580 Texas Instruments, Inc. ........................ 56,363,589
193,504,944
Electronic Connectors - 0.1%
58,000 Hirose Electric Company, Ltd.** ................ 9,050,722
Enterprise Software and Services - 0.3%
305,830 BEA Systems, Inc.* ............................. 15,119,471
160,540 i2 Technologies, Inc.* ......................... 16,738,803
31,858,274
Fiber Optics - 1.9%
276,605 Corning, Inc. .................................. 74,648,774
49,220 E-Tek Dynamics, Inc.* .......................... 12,984,851
727,910 JDS Uniphase Corp.* ............................ 87,258,211
174,891,836
Finance - Credit Card - 0.6%
1,075,725 American Express Co. ........................... 56,072,166
Food - Catering - 0.3%
1,902,740 Compass Group PLC** ............................ 25,075,258
Food - Dairy Products - 0.1%
264,029 Koninklijke Numico N.V.** ...................... 12,578,836
Food - Diversified - 0.2%
447,442 Unilever N.V.** ................................ 20,609,328
Human Resources - 0.4%
1,531,133 Capita Group PLC** ............................. 37,481,773
Instruments - Scientific - 0.2%
302,720 PE Corp./PE Biosystems Group ................... 19,941,680
Internet Content - 0.4%
284,300 Softbank Corp.** ............................... 38,694,345
Internet Software - 0.7%
731,610 America Online, Inc.* .......................... 38,592,428
28,394 Intershop Communications A.G.*,** .............. 12,874,197
257,700 Phone.com, Inc.* ............................... 16,782,713
68,249,338
Life and Health Insurance - 0.7%
4,083,580 Prudential PLC** ............................... 59,843,035
Machinery - Electrical - 0.3%
387,319 Schneider Electric S.A.** ...................... 27,103,421
Medical - Biomedical and Genetic - 0.6%
133,830 Genentech, Inc.* ............................... 23,018,760
74,440 Human Genome Sciences, Inc. .................... 9,928,435
25,570 Incyte Genomics, Inc. .......................... 2,101,534
101,215 Incyte Genomics, Inc.*,ss.,+ ................... 7,798,695
12,905 Millennium Pharmaceuticals, Inc.* .............. 1,443,747
124,245 PE Corp./Celera Genomics Group ................. 11,616,908
55,908,079
Medical - Drugs - 3.8%
1,800,168 AstraZeneca Group PLC** ........................ 84,074,713
14,695 AstraZeneca Group PLC (ADR)** .................. 683,318
2,607,704 Pfizer, Inc. ................................... 125,169,792
399,385 Schering-Plough Corp. .......................... 20,168,942
309,320 Sepracor, Inc.* ................................ 37,311,725
949,000 Takeda Chemical Industries, Ltd.** ............. 62,428,601
317,000 Yamanouchi Pharmaceutical Company, Ltd.** ...... 17,347,863
347,184,954
Medical Instruments - 0.7%
1,364,140 Medtronic, Inc. ................................ 67,951,224
Medical Products - 1.2%
798,115 Johnson & Johnson .............................. 81,307,966
51,851 Synthes-Stratec, Inc.*,+ ....................... 23,592,205
104,900,171
Metal Processors and Fabricators - 0.8%
3,505,541 Assa Abloy A.B. - Class B ...................... 70,744,523
Money Center Banks - 2.4%
9,770,430 Banco Bilbao Vizcaya Argentaria S.A.** ......... 146,575,188
867,885 Chase Manhattan Corp. .......................... 39,976,953
4,205,000 Fuji Bank, Ltd.** .............................. 32,033,854
218,585,995
Multimedia - 3.9%
63,360 News Corporation, Ltd. (ADR) ................... 3,453,120
1,870,517 Shaw Communications, Inc. - Class B** .......... 46,078,999
2,712,145 Time Warner, Inc. .............................. 206,123,020
1,536,570 Viacom, Inc. - Class B* ........................ 104,774,867
360,430,006
Networking Products - 4.1%
743,610 3Com Corp.* .................................... 42,850,526
5,198,535 Cisco Systems, Inc.* ........................... 330,431,881
373,282,407
Oil Companies - Integrated - 2.3%
3,187,210 Petroleo Brasileiro S.A. (ADR) ................. 94,020,145
760,302 Total Fina Elf S.A.** .......................... 117,048,032
211,068,177
See Notes to Schedules of Investments.
Janus Aspen Series / June 30, 2000 3
<PAGE>
Janus|Aspen Worldwide Growth Portfolio
SCHEDULE OF INVESTMENTS (unaudited)
SHARES OR PRINCIPAL AMOUNT MARKET VALUE
--------------------------------------------------------------------------------
Petrochemicals - 0.6%
5,958,180 Reliance Industries, Ltd. ...................... $ 45,468,903
393,795 Reliance Industries, Ltd. (GDR)+ ............... 8,368,144
53,837,047
Pipelines - 0.4%
561,590 Enron Corp. .................................... 36,222,555
Property and Casualty Insurance - 0.2%
1,643,000 Tokio Marine & Fire Insurance
Company, Ltd.** ............................. 19,007,593
Radio - 0.2%
190,300 AMFM, Inc.* .................................... 13,130,700
154,760 Infinity Broadcasting Corp. - Class A* ......... 5,639,068
18,769,768
Retail - Apparel and Shoe - 0.2%
698,965 Gap, Inc. ...................................... 21,842,656
Retail - Diversified - 0.2%
271,000 Ito-Yokado Company, Ltd.** ..................... 16,341,733
Retail - Office Supplies - 0.1%
508,940 Staples, Inc.* ................................. 7,824,953
Security Services - 0.7%
3,070,394 Securitas A.B. - Class B ....................... 65,463,651
Telecommunication Equipment - 9.9%
1,165,155 Alcatel S.A.** ................................. 76,731,357
367,019 Alcatel S.A. (ADR)** ........................... 24,406,763
468,090 Comverse Technology, Inc.* ..................... 43,532,370
4,798,909 Nokia Oyj** .................................... 245,879,695
3,802,560 Nokia Oyj (ADR)** .............................. 189,890,340
2,363,640 Nortel Networks Corp. - New York Shares** ...... 161,318,430
137,800 QUALCOMM, Inc.* ................................ 8,268,000
3,468,508 Telefonaktiebolaget L.M. Ericsson A.B. (ADR) ... 69,370,160
4,335,688 Telefonaktiebolaget L.M. Ericsson A.B
- Class B ................................... 86,261,689
905,658,804
Telecommunication Services - 4.4%
1,251,515 Amdocs, Ltd.* .................................. 96,053,776
186,578 Carrier 1 International S.A.* .................. 10,552,245
1,017,155 China Unicom, Ltd. (ADR)*,** ................... 21,614,544
2,467,131 COLT Telecom Group PLC*,** ..................... 82,169,772
65,150 Dacom Corp.** .................................. 9,436,624
1,294,866 Energis PLC*,** ................................ 48,576,175
1,535,670 Infonet Services Corp. - Class B* .............. 18,332,061
310,635 Level 3 Communications, Inc.* .................. 27,335,880
393,413 NTL, Inc.* ..................................... 23,555,603
1,665,790 SK Telecom Company, Ltd. (ADR)** ............... 60,488,999
398,115,679
Telephone - Integrated - 5.0%
242,675 AT&T Corp. ..................................... 7,674,597
1,157 Nippon Telegraph & Telephone Corp.** ........... 15,419,157
8,733,004 Telefonica S.A.*,** ............................ 188,355,635
508,916 Telefonica S.A. (ADR)*,** ...................... 32,602,431
3,558,810 Telefonos de Mexico S.A. (ADR) ................. 203,297,021
313,130 Viatel, Inc.* .................................. 8,943,776
456,292,617
Television - 0.2%
101,843 Canal Plus S.A.** .............................. 17,182,102
Wire and Cable Products - 1.0%
4,356,000 Furukawa Electric Company, Ltd.** .............. 91,194,732
--------------------------------------------------------------------------------
Total Common Stock (cost $5,400,069,132) ..................... 7,793,763,003
--------------------------------------------------------------------------------
Corporate Bond - 0%
Cable Television - 0%
$ 2,750,000 United Pan-Europe Communications N.V.
11.25%, senior notes, due 2/1/10
(cost $2,729,994)** ......................... 2,447,500
--------------------------------------------------------------------------------
Preferred Stock - 1.0%
Automotive - Cars and Light Trucks - 0.3%
11,997 Porsche A.G.** ................................. 32,775,548
Multimedia - 0.1%
135,785 News Corporation, Ltd. (ADR) ................... 6,449,787
Telephone - Integrated - 0.6%
561,295 Telecomunicacoes Brasileiras S.A. (ADR) ........ 54,515,777
--------------------------------------------------------------------------------
Total Preferred Stock (cost $72,285,337 ) .................... 93,741,112
--------------------------------------------------------------------------------
Repurchase Agreement - 0.2%
$ 20,100,000 Morgan Stanley Dean Witter & Co., 6.75%
dated 6/30/00, maturing 7/3/00, to be
repurchased at $20,111,390 collateralized
by $22,934,620 in Fannie Mae, 0.65%-
10.25%, 1/1/06-6/1/30; $27,766,314 in
Freddie Mac, 0%-8.40%, 7/15/10-
12/1/29; with respective values of
$7,564,156 and $12,945,621
(cost $20,100,000) .......................... 20,100,000
--------------------------------------------------------------------------------
Short-Term Corporate Notes - 4.4%
240,000,000 Associates Corp. N.A.
6.85%, 7/3/00 ............................... 239,908,667
160,000,000 UBS Financial Corp.
7.10%, 7/5/00 ............................... 159,873,778
--------------------------------------------------------------------------------
Total Short-Term Corporate Notes
(amortized cost $399,782,445) ............................. 399,782,445
--------------------------------------------------------------------------------
U.S. Government Agencies - 8.6%
Fannie Mae:
50,000,000 6.41%, 8/21/00 .............................. 49,545,958
50,000,000 6.40%, 10/5/00 .............................. 49,129,222
Federal Home Loan Bank System:
50,000,000 5.78%, 7/19/00 .............................. 49,855,500
60,000,000 5.94%, 7/21/00 .............................. 59,802,000
30,000,000 5.97%, 7/28/00 .............................. 29,865,675
50,000,000 5.84%, 8/14/00 .............................. 49,643,111
50,000,000 5.92%, 8/18/00 .............................. 49,605,333
50,000,000 5.86%, 8/31/00 .............................. 49,449,222
50,000,000 5.87%, 9/8/00 ............................... 49,381,194
50,000,000 6.45%, 9/13/00 .............................. 49,335,083
50,000,000 5.89%, 9/15/00 .............................. 49,318,639
50,000,000 6.40%, 9/18/00 .............................. 49,290,222
50,000,000 6.46%, 9/27/00 .............................. 49,209,056
50,000,000 6.53%, 11/10/00 ............................. 48,802,361
Freddie Mac:
50,000,000 6.42%, 7/7/00 ............................... 49,946,500
50,000,000 6.40%, 10/6/00 .............................. 49,120,222
--------------------------------------------------------------------------------
Total U.S. Government Agencies (cost $781,515,925) ........... 781,299,298
--------------------------------------------------------------------------------
Total Investments (total cost $6,676,482,833) - 99.5% ........ 9,091,133,358
--------------------------------------------------------------------------------
Cash, Receivables and Other Assets, net of Liabilities - 0.5% 41,041,261
--------------------------------------------------------------------------------
Net Assets - 100% ............................................ $ 9,132,174,619
--------------------------------------------------------------------------------
See Notes to Schedules of Investments.
4 Janus Aspen Series / June 30, 2000
<PAGE>
SUMMARY OF INVESTMENTS BY COUNTRY, JUNE 30, 2000
COUNTRY % OF INVESTMENT SECURITIES MARKET VALUE
--------------------------------------------------------------------------------
Australia 0.1% $ 9,902,907
Brazil 1.7% 151,136,860
Canada 3.4% 310,188,873
Egypt 0.1% 10,884,066
Finland 5.1% 460,263,882
France 4.2% 383,242,470
Germany 1.0% 86,921,384
Hong Kong 5.8% 528,810,653
India 0.6% 53,837,047
Israel 1.3% 112,910,394
Italy 0.1% 10,419,594
Japan 10.0% 908,220,833
Mexico 3.3% 302,564,264
Netherlands 3.3% 300,332,515
South Africa 0.8% 72,842,238
South Korea 2.4% 220,873,035
Spain 4.0% 367,533,254
Sweden 3.2% 291,840,023
Switzerland 0.4% 34,144,450
United Kingdom 8.3% 756,349,750
United States++ 40.9% 3,717,914,866
--------------------------------------------------------------------------------
Total 100.0% $ 9,091,133,358
++ Includes Short-Term Securities (27.7% excluding Short-Term Securities)
FORWARD CURRENCY CONTRACTS, OPEN AT JUNE 30, 2000
CURRENCY SOLD AND CURRENCY CURRENCY UNREALIZED
SETTLEMENT DATE UNITS SOLD VALUE IN $ U.S. GAIN/(LOSS)
--------------------------------------------------------------------------------
British Pound 9/8/00 43,700,000 $ 66,389,040 $ 2,680,599
British Pound 9/22/00 27,000,000 41,029,200 1,982,475
British Pound 9/29/00 37,000,000 56,232,600 2,508,600
British Pound 1/26/01 62,900,000 95,847,020 421,430
Canadian Dollar 9/22/00 10,400,000 7,044,161 121,729
Canadian Dollar 11/17/00 10,800,000 7,326,504 (21,804)
Euro 9/8/00 18,500,000 17,730,400 84,760
Euro 9/22/00 53,800,000 51,604,960 312,578
Euro 9/29/00 150,100,000 144,035,960 1,313,375
Euro 10/5/00 36,200,000 34,748,380 39,820
Euro 11/17/00 75,000,000 72,172,500 (3,549,000)
Euro 1/19/01 26,300,000 25,400,540 (543,884)
Euro 1/26/01 40,300,000 38,933,830 297,830
Hong Kong Dollar
3/16/01 1,116,500,000 143,297,183 1,215
Hong Kong Dollar
5/7/01 1,047,000,000 134,403,081 (1,055,959)
Hong Kong Dollar
5/10/01 1,046,000,000 134,274,711 (568,705)
Hong Kong Dollar
6/27/01 427,000,000 54,817,382 (6,686)
Japanese Yen 9/1/00 11,900,000,000 113,635,496 (1,245,064)
Japanese Yen 9/8/00 14,860,000,000 142,077,098 1,547,139
Japanese Yen 9/14/00 3,900,000,000 37,327,754 239,795
Japanese Yen 9/29/00 2,300,000,000 22,072,619 322,707
Japanese Yen 10/5/00 550,000,000 5,284,153 150,630
Japanese Yen 11/17/00 6,050,000,000 58,596,379 (1,488,583)
Japanese Yen 1/19/01 2,700,000,000 26,459,252 (156,281)
South Korean Won
1/26/01 1,700,000,000 1,519,485 (4,334)
South Korean Won
2/8/01 4,960,000,000 4,432,925 (3,806)
South Korean Won
2/15/01 7,000,000,000 6,255,586 1,398
South Korean Won
7/16/01 2,750,000,000 2,456,455 (160,961)
--------------------------------------------------------------------------------
Total $1,545,404,654 $ 3,221,013
See Notes to Schedules of Investments.
Janus Aspen Series / June 30, 2000 5
<PAGE>
Statements of|Operations
<TABLE>
<CAPTION>
Janus Aspen
Worldwide
For the six months ended June 30, 2000 (unaudited) Growth
(all numbers in thousands) Portfolio
------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $ 34,005
Dividends 17,832
Foreign tax withheld (2,035)
------------------------------------------------------------------------------------
Total Investment Income 49,802
------------------------------------------------------------------------------------
Expenses:
Advisory fees 26,820
Transfer agent expenses 2
Registration fees 265
System fees 11
Custodian fees 1,565
Insurance expense 7
Audit fees 14
Distribution fees - Retirement Shares 372
Distribution fees - Service Shares 3
Administrative fees - Retirement Shares 372
Other expenses 20
------------------------------------------------------------------------------------
Total Expenses 29,451
------------------------------------------------------------------------------------
Expense and Fee Offsets (49)
------------------------------------------------------------------------------------
Net Expenses 29,402
------------------------------------------------------------------------------------
Excess Expense Reimbursement --
------------------------------------------------------------------------------------
Net Expenses After Reimbursement 29,402
------------------------------------------------------------------------------------
Net Investment Income/(Loss) 20,400
------------------------------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) from securities transactions 513,714
Net realized gain/(loss) from foreign currency transactions 90,931
Net realized gain/(loss) from futures contracts --
Change in net unrealized appreciation or depreciation of
investments and foreign currency (539,640)
------------------------------------------------------------------------------------
Net Gain/(Loss) on Investments 65,005
------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets Resulting from Operations $ 85,405
------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
6 Janus Aspen Series / June 30, 2000
<PAGE>
Statements of|Assets & Liabilities
<TABLE>
<CAPTION>
Janus Aspen
Worldwide
As of June 30, 2000 (unaudited) (all numbers in thousands Growth
except net asset value per share) Portfolio
-------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at cost $6,676,483
Investments at value: $9,091,133
Cash 9,927
Receivables:
Investments sold 53,476
Portfolio shares sold 24,835
Dividends 4,965
Interest 142
Due from Advisor --
Other assets 5
Variation margin --
Forward currency contracts 3,221
-------------------------------------------------------------------------------------
Total Assets 9,187,704
-------------------------------------------------------------------------------------
Liabilities:
Payables:
Investments purchased 44,567
Portfolio shares repurchased 5,635
Advisory fees 4,810
Accrued expenses 517
-------------------------------------------------------------------------------------
Total Liabilities 55,529
-------------------------------------------------------------------------------------
Net Assets $9,132,175
-------------------------------------------------------------------------------------
Net Assets - Institutional Shares $8,729,092
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) 181,741
-------------------------------------------------------------------------------------
Net Asset Value Per Share $ 48.03
-------------------------------------------------------------------------------------
Net Assets - Retirement Shares $ 388,881
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) 8,139
-------------------------------------------------------------------------------------
Net Asset Value Per Share $ 47.48
-------------------------------------------------------------------------------------
Net Assets - Service Shares $ 14,202
Shares Outstanding, $0.001 Par Value (unlimited shares authorized) 297
-------------------------------------------------------------------------------------
Net Asset Value Per Share $ 47.76
-------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Janus Aspen Series / June 30, 2000 7
<PAGE>
Statements of|Changes in Net Assets
<TABLE>
<CAPTION>
Janus Aspen
For the six months or period ended June 30 (unaudited) Worldwide Growth
and for the fiscal year ended December 31 Portfolio
(all numbers in thousands) 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income/(loss) $ 20,400 $ 7,750
Net realized gain/(loss) from investment transactions 604,645 191,001
Change in unrealized net appreciation or depreciation
of investments and foreign currency (539,640) 2,184,175
----------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations 85,405 2,382,926
----------------------------------------------------------------------------------------------
Dividends and Distributions to Shareholders:
Net investment income* (10,729) (6,818)
Net realized gain from investment transactions* (118,826) --
Distributions (in excess of realized gains)* -- --
----------------------------------------------------------------------------------------------
Net Decrease from Dividends and Distributions (129,555) (6,818)
----------------------------------------------------------------------------------------------
Capital Share Transactions:
Shares sold
Institutional Shares 2,768,939 2,167,550
Retirement Shares 290,161 137,824
Service Shares 14,325 --
Reinvested dividends and distributions
Institutional Shares 124,421 6,818
Retirement Shares 4,963 --
Service Shares 171 --
Shares repurchased
Institutional Shares (624,094) (898,433)
Retirement Shares (73,303) (14,907)
Service Shares (430) --
----------------------------------------------------------------------------------------------
Net Increase/(Decrease) from Capital Share Transactions 2,505,153 1,398,852
----------------------------------------------------------------------------------------------
Net Increase/(Decrease) in Net Assets 2,461,003 3,774,960
Net Assets:
Beginning of period 6,671,172 2,896,212
----------------------------------------------------------------------------------------------
End of period $ 9,132,175 $ 6,671,172
----------------------------------------------------------------------------------------------
Net Assets Consist of:
Capital (par value and paid-in surplus)* $ 6,113,345 $ 3,608,193
Undistributed net investment income/(loss)* 10,743 1,072
Undistributed net realized gain/(loss) from investments* 590,289 104,470
Unrealized appreciation/(depreciation) of investments
and foreign currency 2,417,798 2,957,437
----------------------------------------------------------------------------------------------
$ 9,132,175 $ 6,671,172
----------------------------------------------------------------------------------------------
Transactions in Portfolio Shares - Institutional Shares
Shares sold 55,679 62,563
Reinvested dividends and distributions 2,625 209
----------------------------------------------------------------------------------------------
Total 58,304 62,772
----------------------------------------------------------------------------------------------
Shares Repurchased (12,612) (26,096)
Net Increase/(Decrease) in Portfolio Shares 45,692 36,676
Shares Outstanding, Beginning of Period 136,049 99,373
----------------------------------------------------------------------------------------------
Shares Outstanding, End of Period 181,741 136,049
----------------------------------------------------------------------------------------------
Transactions in Portfolio Shares - Retirement Shares(2)
Shares sold 5,850,674 3,868,907
Reinvested dividends and distributions 105,249 --
----------------------------------------------------------------------------------------------
Total 5,955,923 3,868,907
----------------------------------------------------------------------------------------------
Shares Repurchased (1,483,200) (403,114)
Net Increase/(Decrease) in Portfolio Shares 4,472,723 3,465,793
Shares Outstanding, Beginning of Period 3,666,659 200,866
----------------------------------------------------------------------------------------------
Shares Outstanding, End of Period 8,139,382 3,666,659
----------------------------------------------------------------------------------------------
Transactions in Portfolio Shares - Service Shares(2)
Shares sold 303,032 --
Reinvested dividends and distributions 3,621 --
----------------------------------------------------------------------------------------------
Total 306,653 --
----------------------------------------------------------------------------------------------
Shares Repurchased (9,320) --
Net Increase/(Decrease) in Portfolio Shares 297,333 --
Shares Outstanding, Beginning of Period -- --
----------------------------------------------------------------------------------------------
Shares Outstanding, End of Period 297,333 --
----------------------------------------------------------------------------------------------
Purchases and Sales of Investment Securities:
(excluding short-term securities)
Purchases of securities $ 3,653,837 $ 3,549,960
Proceeds from sales of securities 1,774,477 2,490,945
Purchases of long-term U.S. government obligations -- --
Proceeds from sales of long-term U.S. government obligations -- --
* See Note 3 in Notes to Financial Statements. (1) Transactions in Portfolio Shares--Retirement and
Service Shares numbers are not in thousands
</TABLE>
See Notes to Financial Statements.
8 Janus Aspen Series / June 30, 2000
<PAGE>
Financial|Highlights - Institutional Shares
<TABLE>
<CAPTION>
For a share outstanding during the six months ended June 30 (unaudited) Janus Aspen Worldwide Growth Portfolio
or through each fiscal year ended December 31 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 47.75 $ 29.09 $ 23.39 $ 19.44 $ 15.31 $ 12.07
------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income/(loss) .11 .07 .16 .16 .16 .11
Net gains/(losses) on securities
(both realized and unrealized) .87 18.65 6.59 4.14 4.27 3.19
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations .98 18.72 6.75 4.30 4.43 3.30
------------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) (.06) (.06) (.18) (.17) (.17) (.06)
Dividends (in excess of net investment income) -- -- -- (.02) -- --
Distributions (from capital gains) (.64) -- -- (.16) (.13) --
Distributions (in excess of realized gains) -- -- (.87) -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (.70) (.06) (1.05) (.35) (.30) (.06)
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 48.03 $ 47.75 $ 29.09 $ 23.39 $ 19.44 $ 15.31
------------------------------------------------------------------------------------------------------------------------------------
Total Return* 2.06% 64.45% 28.92% 22.15% 29.04% 27.37%
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 8,729,092 $ 6,496,773 $ 2,890,375 $ 1,576,548 $ 582,603 $ 108,563
Average Net Assets for the Period (in thousands) $ 7,997,185 $ 3,862,773 $ 2,217,695 $ 1,148,951 $ 304,111 $ 59,440
Ratio of Gross Expenses to Average Net Assets**(1) 0.70% 0.71% 0.72% 0.74% 0.80% 0.90%
Ratio of Net Expenses to Average Net Assets**(1) 0.69% 0.71% 0.72% 0.74% 0.80% 0.87%
Ratio of Net Investment Income to Average Net Assets** 0.51% 0.20% 0.64% 0.67% 0.83% 0.95%
Portfolio Turnover Rate** 50% 67% 77% 80% 62% 113%
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) See footnote #5 in Notes to Financial Statements.
See Notes to Financial Statements.
Janus Aspen Series / June 30, 2000 9
<PAGE>
Financial|Highlights - Retirement Shares
<TABLE>
<CAPTION>
For a share outstanding during the six months Janus Aspen Worldwide
ended June 30 (unaudited) or through Growth Portfolio
each fiscal year or period ended December 31 2000 1999 1998 1997(1)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 47.56 $ 29.06 $ 23.36 $ 20.72
--------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income/(loss) .03 (.04) .02 .14
Net gains/(losses) on securities (both realized and unrealized) .83 18.54 6.57 2.80
--------------------------------------------------------------------------------------------------------------------
Total from Investment Operations .86 18.50 6.59 2.94
--------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) -- -- (.02) (.14)
Distributions (from capital gains) (.64) -- (.87) (.16)
--------------------------------------------------------------------------------------------------------------------
Total Distributions (.64) -- (.89) (.30)
--------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 47.78 $ 47.56 $ 29.06 $ 23.36
--------------------------------------------------------------------------------------------------------------------
Total Return* 1.82% 63.66% 28.25% 14.22%
--------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 388,881 $ 174,399 $ 5,837 $ 403
Average Net Assets for the Period (in thousands) $ 49,424 $ 49,424 $ 1,742 $ 11
Ratio of Gross Expenses to Average Net Assets**(2) 1.20% 1.21% 1.22% 1.26%
Ratio of Net Expenses to Average Net Assets**(2) 1.20% 1.21% 1.22% 1.26%
Ratio of Net Investment Income/(Loss) to Average Net Assets** 0.04% (0.34)% (0.02)% 0.16%
Portfolio Turnover Rate** 50% 67% 77% 80%
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) Period May 1, 1997 (inception) to December 31, 1997.
(2) See footnote #5 in Notes to Financial Statements.
See Notes to Financial Statements.
10 Janus Aspen Series / June 30, 2000
<PAGE>
Financial|Highlights - Service Shares
<TABLE>
<CAPTION>
Janus Aspen Worldwide
For a share outstanding during the six months Growth Portfolio
ended June 30 (unaudited) 2000
-------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period $ 47.49
-------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income/(loss) .01
Net gains/(losses) on securities (both realized and unrealized) .90
-------------------------------------------------------------------------------------------
Total from Investment Operations .91
-------------------------------------------------------------------------------------------
Less Distributions:
Dividends (from net investment income) --
Distributions (from capital gains) (.64)
-------------------------------------------------------------------------------------------
Total Distributions (.64)
-------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 47.76
-------------------------------------------------------------------------------------------
Total Return* 1.95%
-------------------------------------------------------------------------------------------
Net Assets, End of Period (in thousands) $ 14,202
Average Net Assets for the Period (in thousands) $ 1,952
Ratio of Gross Expenses to Average Net Assets**(1) 0.97%
Ratio of Net Expenses to Average Net Assets**(1) 0.97%
Ratio of Net Investment Income to Average Net Assets** 0.44%
Portfolio Turnover Rate** 50%
</TABLE>
* Total return not annualized for periods of less than one full year.
** Annualized for periods of less than one full year.
(1) See footnote #5 in Notes to Financial Statements.
See Notes to Financial Statements.
Janus Aspen Series / June 30, 2000 11
<PAGE>
Notes to|Schedules of Investments
ADR - American Depository Receipt
EUR - Euro
GBP - British Pound
GDR - Global Depository Receipt
* Non-income-producing security
** A portion of this security has been segregated to cover margin or
segregation requirements on open futures contracts and/or forward currency
contracts.
+ Securities are registered pursuant to Rule 144A and may be deemed to be
restricted for resale.
Variable Rate Notes. The interest rate, which is based on specific, or an index
of, market interest rates, is subject to change. Rates in the security
description are as of June 30, 2000.
Money market funds may hold securities with stated maturities of greater than
397 days when those securities have features that allow a fund to "put" back the
security to the issuer or to a third party within 397 days of acquisition. The
maturity dates shown in the security descriptions are the stated maturity dates.
Repurchase Agreements held by a Portfolio are fully collateralized, and such
collateral is in the possession of the Portfolio's custodian. The collateral is
evaluated daily to ensure its market value equals or exceeds the current market
value of the repurchase agreements including accrued interest. In the event of
default on the obligation to repurchase, the Portfolio has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
12 Janus Aspen Series / June 30, 2000
<PAGE>
Notes to|Financial Statements
The following section describes the organization and significant accounting
policies of the Portfolios and provides more detailed information about the
schedules and tables that appear throughout this report. In addition, the Notes
explain how the Portfolios operate and the methods used in preparing and
presenting this report.
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Janus Aspen Series (the "Trust") was organized as a Delaware Trust on May
20, 1993, and is registered under the Investment Company Act of 1940 (the
"1940 Act") as a no-load, open-end management investment company. The Trust
offers fourteen Portfolios or series of shares with differing investment
objectives and policies. Eleven Portfolios invest primarily in equity
securities: Janus Aspen Growth Portfolio, Janus Aspen Aggressive Growth
Portfolio, Janus Aspen Capital Appreciation Portfolio, Janus Aspen Balanced
Portfolio, Janus Aspen Equity Income Portfolio, Janus Aspen Growth and
Income Portfolio, Janus Aspen Strategic Value Portfolio, Janus Aspen
International Growth Portfolio, Janus Aspen Worldwide Growth Portfolio,
Janus Aspen Global Life Sciences Portfolio and Janus Aspen Global
Technology Portfolio. Two Portfolios invest primarily in income-producing
securities: Janus Aspen Flexible Income Portfolio and Janus Aspen
High-Yield Portfolio. Janus Aspen Money Market Portfolio invests in
short-term money market securities. Each Portfolio is diversified as
defined in the 1940 Act, with the exception of the Aggressive Growth
Portfolio, Capital Appreciation Portfolio, Global Life Sciences Portfolio,
Global Technology Portfolio and Strategic Value Portfolio, which are
nondiversified.
Institutional Shares of the Trust are issued and redeemed only in
connection with investment in and payments under variable annuity contracts
and variable life insurance contracts (collectively "variable insurance
contracts"), as well as certain qualified retirement plans. Effective May
1, 1997, the Trust issued the Retirement Shares. Retirement Shares of the
Trust are issued and redeemed only in connection with certain qualified
retirement plans.
A Special Meeting of Shareholders of the Retirement Shares class (the
"Retirement Shares") of each portfolio other than High-Yield Portfolio will
be held on July 20, 2000 to approve a reorganization that would transfer
the assets relating to the Retirement Shares class of each Janus Aspen
Series Portfolio to a corresponding Fund of Janus Adviser Series.
Effective December 31, 1999, the Trust issued a new class of shares, the
Service Shares. Service Shares of the Trust are issued and redeemed only in
connection with investment in and payments under variable annuity contracts
and variable life insurance contracts (collectively "variable insurance
contracts"), as well as certain qualified retirement plans.
The following accounting policies have been consistently followed by the
Trust and are in conformity with accounting principles generally accepted
in the investment company industry.
INVESTMENT VALUATION
Securities are valued at the closing price for securities traded on a
principal securities exchange (U.S. or foreign) and on the NASDAQ National
Market. Securities traded on over-the-counter markets and listed securities
for which no sales are reported are valued at the latest bid price (or
yield equivalent thereof) obtained from one or more dealers making a market
for such securities or by a pricing service approved by the Trustees.
Short-term investments maturing within 60 days and all money market
securities in the Money Market Portfolio are valued at amortized cost,
which approximates market value. Foreign securities are converted to U.S.
dollars using exchange rates at the close of the New York Stock Exchange.
When market quotations are not readily available, securities are valued at
fair value as determined in good faith under procedures established by the
Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for as of the date purchased or sold.
Dividend income is recorded on the ex-dividend date. Certain dividends from
foreign securities will be recorded as soon as the Trust is informed of the
dividend if such information is obtained subsequent to the ex-dividend
date. Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums. Gains and losses are determined on
the identified cost basis, which is the same basis used for federal income
tax purposes. Income and gains and losses are allocated daily to each class
of shares based upon the ratio of net assets represented by each class as a
percentage of total net assets.
FORWARD CURRENCY TRANSACTIONS AND FUTURES CONTRACTS
The Portfolios enter into forward currency contracts in order to hedge
their exposure to changes in foreign currency exchange rates on their
foreign portfolio holdings and to lock in the U.S. dollar cost of firm
purchase and sales commitments denominated in foreign currencies. A forward
currency contract is a commitment to purchase or sell a foreign currency at
a future date at a negotiated forward rate. The gain or loss arising from
the difference between the U.S. dollar cost of the original contract and
the value of the foreign currency in U.S. dollars upon closing such a
contract is included in net realized gain or loss on foreign currency
transactions. Forward currency contracts held by the Portfolios are fully
collateralized by other securities, in possession at the Portfolio's
custodian, which are denoted in the accompanying Schedule of Investments.
The market value of these securities is evaluated daily to ensure that it
is equal to or exceeds the current market value of the corresponding
forward currency contract.
Currency gain and loss are also calculated on payables and receivables that
are denominated in foreign currencies. The payables and receivables are
generally related to security transactions and income.
Janus Aspen Series / June 30, 2000 13
<PAGE>
Notes to|Financial Statements (continued)
Futures contracts are marked to market daily, and the variation margin is
recorded as an unrealized gain or loss. When a contract is closed, a
realized gain or loss is recorded equal to the difference between the
opening and closing value of the contract. Generally, open forward and
futures contracts are marked to market (i.e., treated as realized and
subject to distribution) for federal income tax purposes at fiscal
year-end.
Foreign-denominated assets and forward currency contracts may involve more
risks than domestic transactions, including: currency risk, political and
economic risk, regulatory risk and market risk. Risks may arise from the
potential inability of a counterparty to meet the terms of a contract and
from unanticipated movements in the value of foreign currencies relative to
the U.S. dollar.
The Portfolios may enter into futures contracts and options on securities,
financial indexes and foreign currencies, forward contracts and
interest-rate swaps and swap-related products. The Portfolios intend to use
such derivative instruments primarily to hedge or protect from adverse
movements in securities prices, currency rates or interest rates. The use
of futures contracts and options may involve risks such as the possibility
of illiquid markets or imperfect correlation between the value of the
contracts and the underlying securities or that the counterparty will fail
to perform its obligations.
INITIAL PUBLIC OFFERINGS
The Portfolios may invest in initial public offerings (IPOs). IPOs and
other investment techniques may have a magnified performance impact on a
fund with a small asset base. The Portfolios may not experience similar
performance as its assets grow.
ADDITIONAL INVESTMENT RISK
A portion of the Flexible Income and High-Yield Portfolios may be invested
in lower-rated debt securities that have a higher risk of default or loss
of value because of changes in the economy or in their respective industry.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
DIVIDEND DISTRIBUTIONS AND EXPENSES
Each Portfolio, except the Money Market Portfolio, makes at least
semiannual distributions of substantially all of its investment income and
at least an annual distribution of its net realized capital gains, if any.
The Money Market Portfolio makes daily distributions of its income. All
dividends and capital gains distributions from a Portfolio will be
automatically reinvested into additional shares of that Portfolio.
Expenses are allocated daily to each class of shares based upon the ratio
of net assets represented by each class as a percentage of total net
assets. Expenses directly attributable to a specific class of shares are
charged against the operations of such class.
FEDERAL INCOME TAXES
No provision for income taxes is included in the accompanying financial
statements as the Portfolios intend to distribute to shareholders all
taxable investment income and realized gains and otherwise comply with the
Internal Revenue Code applicable to regulated investment companies.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
The management fee for each equity Portfolio decreased to an annual rate of
.65% of average net assets, effective May 1, 2000. The management fee for
the corresponding Janus retail fund corresponding to each equity Portfolio
also decreased to this rate, effective January 31, 2000. Due to the fee
reductions described above, this had the effect of lowering each equity
Portfolio's management fee on January 31, 2000, also.
Prior to May 1, 2000, investment advisory fees for eight of the Portfolios
were payable to Janus Capital based upon annual rates of .75% of the first
$300 million of average net assets, .70% of the next $200 million of
average net assets, and .65% of the average net assets in excess of $500
million. However, Janus Capital had voluntarily agreed to reduce each
Portfolio's advisory fee to the extent that such fee exceeded the effective
rate of the Janus retail fund corresponding to such Portfolio. The
effective rate is the advisory fee calculated by the corresponding retail
fund as of the last day of each calendar quarter (expressed as an annual
rate). Janus Aspen Growth Portfolio, Janus Aspen Aggressive Growth
Portfolio, Janus Aspen Capital Appreciation Portfolio, Janus Aspen
International Growth Portfolio, Janus Aspen Worldwide Growth Portfolio,
Janus Aspen Balanced Portfolio, Janus Aspen Equity Income Portfolio and
Janus Aspen Growth and Income Portfolio advisory fees were reduced to the
effective rates of Janus Fund, Janus Enterprise Fund, Janus Twenty Fund,
Janus
14 Janus Aspen Series / June 30, 2000
<PAGE>
Overseas Fund, Janus Worldwide Fund, Janus Balanced Fund, Janus Equity
Income Fund and Janus Growth and Income Fund, respectively. The effective
rate for each Portfolio for the period ended December 31, 1999, was .65%,
.66%, .65%, .65%, .65%, .66%, .69% and .65%, respectively. The Flexible
Income Portfolio is subject to advisory fees payable to Janus Capital based
upon annual rates of .65% of the first $300 million of average net assets
plus .55% of average net assets in excess of $300 million. The High-Yield
Portfolio's advisory fee rate is payable at rates of .75% of the first $300
million of average net assets plus .65% of average net assets in excess of
$300 million. The Money Market Portfolio's advisory fee rate is .25% of
average net assets. For additional information on the specific fees for the
Retirement Shares, please refer to note 4 of the financial statements.
Janus Capital has agreed to reduce its fee to the extent normal operating
expenses exceed 1% of the average net assets of the Flexible Income and
High-Yield Portfolios and .50% of the average net assets of the Money
Market Portfolio for a fiscal year.
Janus Capital has agreed to continue these fee waivers and reductions until
at least the next annual renewal of the advisory contracts. The participant
administration fee and distribution fee applicable to the Retirement
Shares, as well as the distribution fee applicable to the Service Shares,
are not included in these expense limits.
Officers and certain trustees of the Trust are also officers and/or
directors of Janus Capital; however, they receive no compensation from the
Trust.
Janus Service Corporation ("Janus Service"), a wholly owned subsidiary of
Janus Capital, receives certain out-of-pocket expenses for transfer agent
services. Janus Service also receives an administrative fee at an annual
rate of up to .25% of the average daily net assets of the Retirement Shares
of each Portfolio for providing or procurring recordkeeping, subaccounting
and other administrative services to plan participants who invest in the
Retirement Shares.
Janus Distributors, Inc., a wholly owned subsidiary of Janus Capital, is a
distributor of the Portfolios. The Retirement and Service Shares have
adopted a Distribution and Shareholder Servicing Plan (The "Plan") pursuant
to Rule 12b-1 under The 1940 Act. The Plan authorizes payments by the
Portfolios in connection with the distribution of the Retirement and
Service Shares at an annual rate, as determined from time to time by the
Board of Trustees, of up to .25% of the Retirement and Service Shares'
average daily net assets.
DST Systems, Inc. (DST), an affiliate of Janus Capital through a degree of
common ownership, provides accounting systems to the Portfolios. DST
Securities, Inc., a wholly owned subsidiary of DST, provides brokerage
services on certain portfolio transactions. Brokerage commissions paid to
DST Securities, Inc. serve to reduce fees and expenses. Brokerage
commissions paid, fees reduced and the net fees paid to DST for the period
ended June 30, 2000, are noted below:
<TABLE>
<CAPTION>
DST Securities, Inc. Portfolio Expense DST Systems
Portfolio Commissions Paid* Reduction* Costs
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Janus Aspen Worldwide Growth Portfolio $16,745 $12,559 $10,955
------------------------------------------------------------------------------------------------------
</TABLE>
* The difference between commissions paid to DST Securities, Inc. and
expenses reduced constituted commissions paid to an unaffiliated clearing
broker.
3. FEDERAL INCOME TAX
The Portfolios have elected to treat gains and losses on forward foreign
currency contracts as capital gains and losses. Other foreign currency
gains and losses on debt instruments are treated as ordinary income for
federal income tax purposes pursuant to Section 988 of the Internal Revenue
Code. As of June 30, 2000, the net capital loss carryovers noted below are
available to offset future realized capital gains and thereby reduce future
taxable gains distributions. These carryovers expire between December 31,
2006, and December 31, 2007.
The aggregate cost of investments and the composition of unrealized
appreciation and depreciation of investments for federal income tax
purposes as of June 30, 2000, are also noted below.
<TABLE>
<CAPTION>
Post-October
Net Capital Loss Capital Currency Federal Tax Unrealized
Portfolio Carryovers Losses Losses Cost Appreciation
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus Aspen Worldwide Growth
Portfolio -- -- $(8,857) $6,682,957,035 $2,841,313,196
<CAPTION>
Unrealized Net Appreciation/
Portfolio (Depreciation) (Depreciation)
---------------------------------------------------------------------------
<S> <C> <C>
Janus Aspen Worldwide Growth
Portfolio $(433,136,873) $2,408,176,323
</TABLE>
Janus Aspen Series / June 30, 2000 15
<PAGE>
Notes to|Financial Statements (continued)
4. EXPENSES
The Portfolios' expenses may be reduced through expense reduction
arrangements. Those arrangements include the use of broker commissions paid
to DST Securities, Inc. and uninvested cash balances earning interest with
the Portfolios' custodian. The Statements of Operations reflect the total
expenses before any offset, the amount of the offset and the net expenses.
The expense ratios listed in the Financial Highlights reflect expenses
prior to any expense offset (gross expense ratio) and after expense offsets
(net expense ratio).
Janus Aspen Series Retirement Shares incur a pro rata share of operating
expenses. In addition, the Retirement Shares pay a distribution fee of up
to .25% of average net assets and a participant administration fee of up to
.25% of average net assets.
Janus Aspen Series Service Shares incur a pro rata share of operating
expenses. In addition, the Service Shares pay a distribution fee of up to
.25% of average net assets.
5. EXPENSE RATIOS
Listed below are the gross expense ratios for the various Portfolios that
would be in effect, absent the waiver of certain fees, offsets and/or
voluntary reduction of the adviser's fee to the effective rate of the
corresponding Janus retail fund. Expense ratios are annualized for all
periods less than one year.
<TABLE>
<CAPTION>
Service
Institutional Shares Retirement Shares Shares
Portfolio 2000 1999 1998 1997 1996 1995 2000 1999 1998 1997(1) 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Janus Aspen Worldwide Growth
Portfolio 0.70% 0.71% 0.74% 0.81% 0.91% 1.09% 1.20% 1.21% 1.32% 1.32% 0.97%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Period May 1, 1997, (inception) to December 31, 1997.
16 Janus Aspen Series / June 30, 2000
<PAGE>
Explanations of|Charts, Tables and Financial Statements
1. PERFORMANCE OVERVIEWS
When comparing the performance of a Portfolio with an index, keep in mind
that market indexes do not include brokerage commissions that would be
incurred if you purchased the individual securities in the index. They also
do not include taxes payable on dividends and interest or operating
expenses incurred if you maintained a Portfolio invested in the index.
Average annual total returns are also quoted for each class of Portfolio.
Average annual total return is calculated by taking the growth or decline
in value of an investment over a period of time, including reinvestment of
dividends and distributions, then calculating the annual compounded
percentage rate that would have produced the same result had the rate of
growth been constant throughout the period.
2. SCHEDULES OF INVESTMENTS
Following the performance overview section is each Portfolio's Schedule of
Investments. This schedule reports the industry concentrations and types of
securities held in each Portfolio on the last day of the reporting period.
Securities are usually listed by type (common stock, corporate bonds, U.S.
government obligations, etc.) and by industry classification (banking,
communications, insurance, etc.).
The market value of each security is quoted as of the last day of the
reporting period. The value of securities denominated in foreign currencies
is converted into U.S. dollars.
Portfolios that invest in foreign securities also provide a summary of
investments by country. This summary reports the Portfolio's exposure to
different countries by providing the percentage of securities invested in
each country.
2A. FORWARD CURRENCY CONTRACTS
A table listing forward currency contracts follows each Portfolio's
Schedule of Investments (if applicable). Forward currency contracts are
agreements to deliver or receive a preset amount of currency at a future
date. Forward currency contracts are used to hedge against foreign currency
risk in the Portfolio's long-term holdings.
The table provides the name of the foreign currency, the settlement date of
the contract, the amount of the contract, the value of the currency in U.S.
dollars and the amount of unrealized gain or loss. The amount of unrealized
gain or loss reflects the change in currency exchange rates from the time
the contract was opened to the last day of the reporting period.
3. STATEMENT OF OPERATIONS
This statement details the Portfolios' income, expenses, gains and losses
on securities and currency transactions, and appreciation or depreciation
of current Portfolio holdings.
The first section in this statement, titled "Investment Income," reports
the dividends earned from stocks and interest earned from interest-bearing
securities in the Portfolio.
The next section reports the expenses and expense offsets incurred by the
Portfolios, including the advisory fee paid to the investment adviser,
transfer agent fees, shareholder servicing expenses, and printing and
postage for mailing statements, financial reports and prospectuses.
The last section lists the increase or decrease in the value of securities
held in the Portfolios. Portfolios realize a gain (or loss) when they sell
their position in a particular security. An unrealized gain (or loss)
refers to the change in net appreciation or depreciation of the Portfolios
during the period. "Net Gain/(Loss) on Investments" is affected both by
changes in the market value of Portfolio holdings and by gains (or losses)
realized during the reporting period.
Janus Aspen Series / June 30, 2000 17
<PAGE>
Explanations of|Charts, Tables and Financial Statements (continued)
4. STATEMENT OF ASSETS AND LIABILITIES
This statement is often referred to as the "balance sheet." It lists the
assets and liabilities of the Portfolios on the last day of the reporting
period.
The Portfolios' assets are calculated by adding the value of the securities
owned, the receivable for securities sold but not yet settled, the
receivable for dividends declared but not yet received on stocks owned and
the receivable for Portfolio shares sold to investors but not yet settled.
The Portfolios' liabilities include payables for securities purchased but
not yet settled, Portfolio shares redeemed but not yet paid and expenses
owed but not yet paid. Additionally, there may be other assets and
liabilities such as forward currency contracts.
The last section of this statement reports the net asset value (NAV) per
share on the last day of the reporting period for each class of the
Portfolio. The NAV is calculated by dividing the Portfolios' net assets
(assets minus liabilities) by the number of shares outstanding.
5. STATEMENT OF CHANGES IN NET ASSETS
This statement reports the increase or decrease in the Portfolios' net
assets during the reporting period. Changes in the Portfolios' net assets
are attributable to investment operations, dividends, distributions and
capital share transactions. This is important to investors because it shows
exactly what caused the Portfolios' net asset size to change during the
period.
The first section summarizes the information from the Statement of
Operations regarding changes in net assets due to the Portfolios'
investment performance. The Portfolios' net assets may also change as a
result of dividend and capital gains distributions to investors. If
investors receive their dividends in cash, money is taken out of the
Portfolio to pay the distribution. If investors reinvest their dividends,
the Portfolios' net assets will not be affected. If you compare each
Portfolio's "Net Decrease from Dividends and Distributions" to the
"Reinvested dividends and distributions," you'll notice that dividend
distributions had little effect on each Portfolio's net assets. This is
because all of Janus investors reinvest their distributions.
The reinvestment of dividends is included under "Capital Share
Transactions." "Capital Shares" refers to the money investors contribute to
the Portfolios through purchases or withdrawal via redemptions. Each
Portfolio's net assets will increase and decrease in value as investors
purchase and redeem shares from a Portfolio.
The section entitled "Net Assets Consist of" breaks down the components of
the Portfolios' net assets. Because Portfolios must distribute
substantially all earnings, you'll notice that a significant portion of net
assets is shareholder capital.
18 Janus Aspen Series / June 30, 2000
<PAGE>
6. FINANCIAL HIGHLIGHTS
This schedule provides a per-share breakdown of the components that affect
the net asset value (NAV) for current and past reporting periods for each
class of the Portfolio. Not only does this table provide you with total
return, it also reports total distributions, asset size, expense ratios and
portfolio turnover rate.
The first line in the table reflects the NAV per share at the beginning of
the reporting period. The next line reports the net investment income per
share, which comprises dividends and interest income earned on securities
held by the Portfolios. Following is the total of gains, realized and
unrealized. Dividends and distributions are then subtracted to arrive at
the NAV per share at the end of the period.
Also included are the expense ratios, or the percentage of net assets that
was used to cover operating expenses during the period. Expense ratios vary
across the Portfolios for a number of reasons, including the differences in
management fees, average shareholder account size, the frequency of
dividend payments and the extent of foreign investments, which entail
greater transaction costs.
The Portfolios' expenses may be reduced through expense-reduction
arrangements. These arrangements include the use of brokerage commissions,
uninvested cash balances earning interest or balance credits. The Statement
of Operations reflects total expenses before any such offset, the amount of
offset and the net expenses. The expense ratios listed in the Financial
Highlights reflect total expenses both prior to any expense offset and
after the offsets.
The ratio of net investment income summarizes the income earned divided by
the average net assets of a Portfolio during the reporting period. Don't
confuse this ratio with a Portfolio's yield. The net investment income
ratio is not a true measure of a Portfolio's yield because it doesn't take
into account the dividends distributed to the Portfolio's investors.
The next ratio is the portfolio turnover rate, which measures the buying
and selling activity in a Portfolio. Portfolio turnover is affected by
market conditions, changes in the size of a Portfolio, the nature of the
Portfolio's investments and the investment style of the portfolio manager.
A 100% rate implies that an amount equal to the value of the entire
Portfolio is turned over in a year; a 50% rate means that an amount equal
to the value of half the Portfolio is traded in a year; and a 200% rate
means that an amount equal to the value of the Portfolio is sold every six
months.
Janus Aspen Series / June 30, 2000 19
<PAGE>
This page left intentionally blank
<PAGE>
Please note that some of the portfolios described in the John Hancock
Declaration Trust Semi-Annual Report are not available under this Contract. Only
the John Hancock Declaration Trust VA Bond Fund portfolio is available under
this Contract. For this reason, only pages relevant to the John Hancock
Declaration Trust VA Bond Fund are being included in this report.
<PAGE>
The latest report from your
Fund's management team
SEMIANNUAL REPORT
DECLARATION TRUST
Equity V.A. Core Equity Fund
V.A. 500 Index Fund
V.A. Large Cap Growth Fund
V.A. Mid Cap Growth Fund
V.A. Relative Value Fund
(formerly V.A. Large Cap Value Fund)
V.A. Small Cap Growth Fund
V.A. Sovereign Investors Fund
------------------------------------------------------
International V.A. International Fund
------------------------------------------------------
Sector V.A. Financial Industries Fund
V.A. Regional Bank Fund
V.A. Technology Fund
------------------------------------------------------
Income V.A. Bond Fund
V.A. High Yield Bond Fund
V.A. Money Market Fund
V.A. Strategic Income Fund
J U N E 3 0, 2 0 0 0
[LOGO] John Hancock Funds
A Global Investment Management Form
<PAGE>
John Hancock Funds -- Declaration Trust
Table of Contents
Page
1) CEO Corner ...................................................... 3
2) Portfolio Manager Commentary
This commentary reflects the views of the portfolio managers or portfolio
management teams through the end of the period discussed in this report. Of
course, the managers' or team's views are subject to change as market and other
conditions warrant.
Equity
V.A. Core Equity Fund .............................................. 4
V.A. 500 Index Fund ................................................ 7
V.A. Large Cap Growth Fund ......................................... 10
V.A. Mid Cap Growth Fund ........................................... 13
V.A. Relative Value Fund ........................................... 16
V.A. Small Cap Growth Fund ......................................... 19
V.A. Sovereign Investors Fund ...................................... 22
International
V.A. International Fund ............................................ 25
Sector
V.A. Financial Industries Fund ..................................... 28
V.A. Regional Bank Fund ............................................ 31
V.A. Technology Fund ............................................... 34
Income
V.A. Bond Fund ..................................................... 37
V.A. High Yield Bond Fund .......................................... 40
V.A. Money Market Fund ............................................. 43
V.A. Strategic Income Fund ......................................... 45
3) Financial Statements ............................................ 48
4) Notes to Financial Statements ................................... 121
TRUSTEES
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.
William J. Cosgrove*
Leland O. Erdahl
Richard A. Farrell
Maureen R. Ford
Gail D. Fosler
William F. Glavin
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
Richard S. Scipione
* Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
William L. Braman
Executive Vice President and
Chief Investment Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIANS
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
V.A. Bond Fund
V.A. Core Equity Fund
V.A. Financial Industries Fund
V.A. High Yield Bond Fund
V.A. Large Cap Growth Fund
V.A. Mid Cap Growth Fund
V.A. Regional Bank Fund
V.A. Relative Value Fund
V.A. Small Cap Growth Fund
V.A. Sovereign Investors Fund
V.A. Strategic Income Fund
V.A. Technology Fund
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
V.A. 500 Index Fund
V.A. International Fund
V.A. Money Market Fund
TRANSFER AGENT
John Hancock Annuity Servicing Office
529 Main Street (X-4)
Charlestown, Massachusetts 02129
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISERS
American Fund Advisors, Inc.
1415 Kellum Place
Garden City, New York 11530
V.A. Technology Fund
Indocam International Investment Services
90 Boulevard Pasteur
Paris, France 75015
V.A. International Fund
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
V.A. Core Equity Fund
ISSUER
John Hancock Life Insurance Company
John Hancock Variable
Life Insurance Company*
200 Clarendon Street
Boston, Massachusetts 02117
*Not Licensed in New York
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
2
<PAGE>
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
DEAR SHAREHOLDERS:
After four years of spectacular returns, the stock market succumbed in the first
six months of 2000 largely to the pressures of rising interest rates, as the
Federal Reserve kept up its campaign to fight inflation. The red-hot economy has
begun to show signs of slowing, and investors are no longer blind to the real
possibility that rising rates could slow corporate profits. The result was
flat-to- negative results for the three main stock-market indexes through June.
Bonds also suffered during this period, since their prices generally move in the
opposite direction of rates.
But there was good news, too. The Treasury market, where shrinking supply
bolstered prices thanks to the government's efforts to retire some of its debt,
performed well. And the Fed appears closer to the end of its tightening cycle,
which will be a strong positive if it can slow the economy to a level that
supports corporate earnings growth but keeps inflation at bay. The picture on
the global economy is brighter and technology continues to dominate as the
driver of ever-improving corporate productivity.
No matter what happens next in the financial markets, these past several months
only served to reinforce some of the important lessons for investors: Diversify,
invest in line with your tolerance for risk and maintain a long-term
perspective.
Since not all parts of your portfolio will perform equally well all the time, it
is important to allocate your assets among different types of investments and
funds that target a variety of stock- and bond-market segments. This strategy,
executed under the guidance of a seasoned investment professional, could provide
you with a better chance of both realizing longer-term results and weathering
the market's changing conditions.
Sincerely,
/s/ MAUREEN R. FORD
-------------------
Maureen R. Ford
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
BY JAMES K. HO, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
BENJAMIN A.MATTHEWS, PORTFOLIO MANAGER
[A 2" x 3" photo at bottom right side of page of John Hancock
V.A. Bond Fund. Caption below reads "James Ho."]
JOHN HANCOCK
V.A. BOND FUND
Fund weathers market's challenges, posts gains
----------------------------------------------
The six months ended June 30, 2000 was a difficult time for corporate bond
investors, although the broad fixed-income market showed considerable
improvement in the final weeks of the period. The Federal Reserve Board's
commitment to reining in inflation in the face of strong economic growth caused
investors to worry about the effect such a slowdown might have on corporate
earnings. This, in turn, led to concern about the future creditworthiness of
corporate issuers, driving prices down and yields up. The Treasury's
announcement that it would buy back millions of dollars in debt, along with the
stock market's volatility, further exacerbated corporate-bond price declines as
investors flocked to long-term Treasury bonds. Other fixed-income sectors
suffered as well. The yield curve inverted for the first time since 1990.
Corporate bond spreads, the difference in yield between bonds of different
credit quality, reached levels as wide as in the 1990 recession.
MARKET SETTLES DOWN
The market's choppiness lasted through mid-May. At that time, a series of
economic reports suggested that the Fed's actions were having an effect on
moderating economic growth. Investors took that to mean the Fed may be near the
end of its tightening cycle, giving them reason to feel more comfortable owning
credit-sensitive securities, such as corporate bonds -- both investment-grade
and high-yield -- and mortgage-backed issues. In the final month of the period,
these sectors rebounded and credit spreads began to narrow.
---------------
"FOR DEFENSIVE
REASONS, WE
CHOSE TO
UPGRADE THE
PORTFOLIO EARLY
IN THE
YEAR..."
-----------------
FUND'S FLEXIBILITY HELPS IT OUTPERFORM
For the six months ended June 30, 2000, John Hancock V.A. Bond Fund produced a
total return of 4.19% at net asset value. This compares favorably with the 3.23%
return of the average variable annuity corporate debt A-rated fund, according to
Lipper, Inc. We believe the Fund's outperformance was due, in large part, to the
portfolio's flexible sector strategy and our timely shifts in duration and
yield-curve positioning. For historical performance information, please turn to
page 39.
UPGRADING TAKES PLACE
For defensive reasons, we chose to upgrade the portfolio early in the year,
trimming back positions in the high-yield arena and moving into the shorter-term
maturity debt of companies in which we already owned 30-year issues. For
example, in anticipation of credit spread widening we rotated out of the
longer-term bonds of
----------------------------------------------------
TOP FIVE BOND SECTORS.
1. U.S. GOVERNMENT & AGENCIES 52%,
2. UTILITIES 7%,
3. MORTGAGE BANKING 6%,
4. TELECOMMUNICATIONS 5%
5. MEDIA 4%.
"As a percentage of net assets on June 30, 2000."
----------------------------------------------------
37
<PAGE>
JOHN HANCOCK V.A. BOND FUND
[Bar chart at the top of left hand column with heading "Fund Performance." Under
the heading is a note that reads "For the six months ended June 30, 2000." The
chart is scaled in increments of 1% with 0% at the bottom and 5% at the top. The
first bar represents the 4.19% total return for John Hancock V.A. Bond Fund. The
second bar represents the 3.23% total return for Average variable annuity
corporate debt A-rated fund. A note below the chart reads "THE TOTAL RETURN FOR
JOHN HANCOCK V.A. BOND FUND IS AT NET ASSET VALUE WITH ALL DISTRIBUTIONS
REINVESTED. THE AVERAGE VARIABLE ANNUITY CORPORATE DEBT A-RATED FUND IS TRACKED
BY LIPPER, INC. SEE THE FOLLOWING PAGE FOR HISTORICAL PERFORMANCE INFORMATION."]
General Motors, CalEnergy and Lockheed Martin in favor of their five-year debt.
This strategy proved advantageous as longer-term issues suffered the most from
investors' credit fears. By the end of the period, the improved investment
environment had prompted us to begin selectively adding back to longer-term
corporate issues, taking advantage of their attractive valuations.
----------------
"...WE ARE
CAUTIOUSLY
OPTIMISTIC..."
----------------
The other leg of our upgrade strategy involved bolstering the Fund's stake
in AAA-rated mortgage-backed issues, primarily Ginnie Maes, and limiting the
portfolio's exposure to emerging-market bonds. We also moved out of some Fannie
Mae positions and bank holdings quickly, thereby avoiding the brunt of the price
declines. First Union, Liberty Mutual and Fairfax Financial were a few of the
finance holdings we sold. Late in the period, we began adding back to some of
the Fannie Mae securities because their prices had become quite compelling.
PARTAKING IN THE "NEW ECONOMY"
We believe telecommunications, media/cable and wireless companies are among the
more dynamic sectors of the corporate bond market. Their astounding growth
potential makes them attractive to investors in all stages of a market's cycle.
For this reason, they continue to be one of our main focuses in the corporate
arena. Noteworthy holdings include Continental Cablevision, Metromedia Fiber
Network, EchoStar, Verio, Nextel Com munications, Clearnet Communications, SFX
Entertainment and VoiceStream Wireless.
Other sectors that worked well for the Fund this period include utilities,
because of their predictable income stream, and energy-related issues, because
of the rise in oil prices and growth in exploration. Niagara Mohawk Power,
Midland Funding, Apache Finance Canada, Occidental Petroleum and Tosco Corp.
were several holdings that produced solid results.
DURATION AND YIELD CURVE TACTICS
Active duration management and careful positioning of the Fund's Treasury
holdings along the yield curve contributed to the portfolio's outperformance
this period. We modified our strategy from being defensive early in the fiscal
year to somewhat opportunistic at period's end. We began with an average
duration that was shorter than our peers' and later moved it out to neutral. The
shorter duration helped cushion the portfolio's share price when interest rates
were rising. Moving it out to neutral means that we are making no major
interest-rate bets just yet.
The Fund's Treasury holdings were aligned at the short and long end of the yield
curve. (The yield curve is a plotting of yields across the maturity spectrum.)
As the yield curve flattened and then inverted, longer-term Treasury bond prices
rose and the Fund benefited. In late May, we began moving into intermediate-term
securities, preparing for what we believe will be a steepening of the curve as
the Fed winds down on raising rates. By the period's end, the yield curve had
begun to steepen slightly and the intermediate-term issues were performing well.
FURTHER UNCERTAINTY A POSSIBILITY
Going forward, we are cautiously optimistic, recognizing there still exists the
potential for stronger economic growth, which could lead to further
interest-rate hikes. As always, we shall continue to fully utilize the Fund's
sector flexibility to tap into the possibilities that any market uncertainty
might produce.
38
<PAGE>
JOHN HANCOCK V.A. BOND FUND
A LOOK AT PERFORMANCE
FOR THE PERIOD ENDED JUNE 30, 2000
SINCE
ONE INCEPTION
YEAR (8/29/96)
---------- ----------
Cumulative Total Returns 5.01% 29.45%
Average Annual Total Returns(1) 5.01% 6.96%
YIELD
FOR THE PERIOD ENDED JUNE 30, 2000
SEC 30-DAY
YIELD
----------
John Hancock V.A. Bond Fund(1) 6.63%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
NOTE TO PERFORMANCE
(1) THE ADVISER HAS AGREED TO LIMIT THE FUND'S EXPENSES TO 0.25% (NOT INCLUDING
MANAGEMENT FEE) OF THE FUND'S DAILY AVERAGE NET ASSETS. WITHOUT THE
LIMITATION OF EXPENSES, THE AVERAGE ANNUAL TOTAL RETURN FOR THE ONE-YEAR
PERIOD AND SINCE INCEPTION WOULD HAVE BEEN 4.82% AND 5.96%, RESPECTIVELY.
WITHOUT THE LIMITATION OF EXPENSES, THE YIELD WOULD HAVE BEEN 6.50%.
WHAT HAPPENED TO A $10,000 INVESTMENT . . .
The chart below shows how much a $10,000 investment in the JOHN HANCOCK V.A.
BOND FUND would be worth, assuming all distributions were reinvested for the
period indicated. For comparison, we've shown the same $10,000 investment in the
Lehman Brothers Corporate Bond Index -- an unmanaged index that measures the
investment objectives and characteristics of the Fund. It is not possible to
invest in an index.
[GRAPHICS OMITTED]
JOHN HANCOCK V.A. BOND FUND
8/29/96-6/30/00
Line chart with the heading John Hancock V.A. Bond Fund, representing the growth
of a hypothetical $10,000 investment over the life of the fund. Within the chart
are two lines. The first line represents the value of the hypothetical $10,000
investment made in the John Hancock V.A. Bond Fund on August 29, 1996 and is
equal to $12,940 as of June 30, 2000. The second line represents the Lehman
Brothers Corporate Bond Index and is equal to $12,635 as of June 30, 2000.
[ ] John Hancock V.A. Bond Fund
[ ] Lehman Brothers Corporate Bond Index
39
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A.
BOND HIGH YIELD MONEY MARKET STRATEGIC
FUND BOND FUND FUND INCOME FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments at value - Note D:
Common stocks (cost - none, $892,488,
none and $157,714, respectively) ................................ -- $ 723,082 -- $ 277,942
Preferred stocks and warrants (cost -
$51, $1,017,120, none and $153,513, respectively) ............... $ 650 913,825 -- 145,529
Bonds (cost - $13,968,213, $8,538,570, none
and $25,309,001, respectively) .................................. 13,823,386 6,777,046 -- 23,699,115
Short-term investments (cost - none, none,
$29,723,278 and none, respectively) ............................. -- -- $ 29,723,278 --
Joint repurchase agreements (cost - $1,467,000,
$320,000, $5,852,000 and $2,747,000, respectively) .............. 1,467,000 320,000 5,852,000 2,747,000
Corporate savings account ......................................... 688 165 -- 857
------------ ------------ ------------ ------------
15,291,724 8,734,118 35,575,278 26,870,443
Cash .............................................................. -- -- 434 --
Foreign currency, at value (cost - none,
$23,259, none and $187,380, respectively) ....................... -- 23,982 -- 191,150
Receivable for investments sold ................................... 1,011,727 79,228 -- 308,378
Receivable for forward foreign currency
exchange contracts purchased - Note B ........................... 1,542 1,509 -- --
Receivable for forward foreign currency
exchange contracts sold - Note B ................................ -- -- -- 35,138
Dividends and interest receivable ................................. 257,987 249,413 173,662 583,102
Foreign tax receivable ............................................ -- 1,425 -- --
Deferred organization expenses - Note B ........................... 2,490 -- 2,490 2,490
Other assets ...................................................... 73 19 2,527 1,302
------------ ------------ ------------ ------------
Total Assets .................................................. 16,565,543 9,089,694 35,754,391 27,992,003
-----------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased ................................. 1,266,586 193,178 -- 479,660
Payable for shares repurchased .................................... -- -- 63,996 --
Payable for forward foreign currency
exchange contracts purchased - Note B ........................... 1,558 -- -- 2,397
Payable for forward foreign currency
exchange contracts sold - Note B ................................ -- 4,652 -- --
Distributions payable ............................................. 2,765 3,063 5,936 6,795
Due to custodian .................................................. 275 -- -- --
Payable to John Hancock Advisers, Inc. ............................
and affiliates - Note C ......................................... 5,084 2,433 14,624 14,551
Accounts payable and accrued expenses ............................. 11,900 278 12,111 17,927
------------ ------------ ------------ ------------
Total Liabilities ............................................. 1,288,168 203,604 96,667 521,330
-----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Capital paid-in ................................................... 15,834,061 10,707,471 35,657,672 29,272,923
Accumulated net realized gain (loss)
on investments, financial futures
contracts and foreign currency transactions ..................... (434,044) 197,740 -- (285,085)
Net unrealized appreciation (depreciation)
of investments, financial futures contracts
and foreign currency transactions ............................... (144,232) (2,039,216) -- (1,469,996)
Undistributed net investment income
(distributions in excess of net
investment income) ................................................ 21,590 20,095 52 (47,169)
------------ ------------ ------------ ------------
Net Assets .................................................... $ 15,277,375 $ 8,886,090 $ 35,657,724 $ 27,470,673
=============================================================================================================================
NET ASSET VALUE PER SHARE:
(Based on 1,544,389, 1,137,688, 35,657,724 and 2,900,601 shares, respectively,
of beneficial interest outstanding - unlimited number of
shares authorized with no par value) ............................. $ 9.89 $ 7.81 $ 1.00 $ 9.47
=================================================================================================================================
See notes to financial
statements.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS -- DECLARATION TRUST
STATEMENTS OF OPERATIONS (continued)
Six months ended June 30, 2000 (Unaudited)
----------------------------------------------------------------------------------------------------------------------------
V.A V.A. V.A. V.A.
BOND HIGH YIELD MONEY MARKET STRATEGIC
FUND BOND FUND FUND INCOME FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of none,
$2,266, none and none, respectively) ....................... -- $ 64,099 -- $ 12,549
Interest ..................................................... $ 488,977 512,277 $ 870,459 1,157,412
----------- ----------- ----------- -----------
488,977 576,376 870,459 1,169,961
----------- ----------- ----------- -----------
Expenses:
Investment management fee - Note C ......................... 33,023 27,159 70,153 73,149
Custodian fee .............................................. 20,619 7,703 8,971 14,372
Auditing fee ............................................... 6,049 7,294 5,725 7,374
Accounting and legal services fee - Note C ................. 1,190 816 2,528 2,197
Printing ................................................... 1,662 1,619 810 1,339
Organization expense - Note B .............................. 1,064 -- 1,064 1,064
Trustees' fees ............................................. 345 255 1,015 767
Miscellaneous .............................................. 235 195 331 463
Legal fees ................................................. 68 10,399 169 226
Registration and filing fees ............................... 387 16 9 9
----------- ----------- ----------- -----------
Total Expenses ........................................... 64,642 55,456 90,775 100,960
------------------------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note C ......................... (15,108) (16,980) -- --
------------------------------------------------------------------------------------------------------------------------
Net Expenses ............................................. 49,534 38,476 90,775 100,960
------------------------------------------------------------------------------------------------------------------------
Net Investment Income .................................... 439,443 537,900 779,684 1,069,001
------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on investments sold ............... (195,067) 253,067 -- (282,574)
Net realized gain on foreign currency transactions ......... 991 73,412 -- 146,807
Change in net unrealized appreciation/
depreciation of investments .............................. 321,177 (854,973) -- (589,563)
Change in net unrealized appreciation/
depreciation of foreign currency transactions ............ (913) (38,192) -- (12,468)
----------- ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions .......................... 126,188 (566,686) -- (737,798)
------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ................................ $ 565,631 ($ 28,786) $ 779,684 $ 331,203
========================================================================================================================
See notes to financial
statements.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS -- DECLARATION TRUST
STATEMENTS OF CHANGES IN NET ASSETS (continued)
-----------------------------------------------------------------------------------------------------------------------------------
V.A.
V.A. REGIONAL BANK FUND TECHNOLOGY FUND V.A. BOND FUND
------------------------------- -------------- ------------------------------
YEAR ENDED SIX MONTHS ENDED PERIOD ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 2000 JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000
1999 (UNAUDITED) (UNAUDITED)(1) 1999 (UNAUDITED)
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income .......................... $ 281,620 $ 153,954 $ 2,568 $ 740,529 $ 439,443
Net realized gain (loss) on
investments sold and foreign
currency transactions ......................... 232,178 (1,934,307) 68,991 (216,376) (194,076)
Change in net unrealized
appreciation/depreciation of investments
and foreign currency transactions ............. (1,578,109) (252,449) 136,084 (583,796) 320,264
------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) in Net
Assets Resulting from Operations ............... (1,064,311) (2,032,802) 207,643 (59,643) 565,631
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS: *
Dividends from net investment
income ........................................ (281,482) (153,506) -- (740,530) (439,347)
Distributions from net realized gain on
investments sold, financial futures contracts
and foreign currency transactions ............. (347,453) -- -- -- --
------------ ------------ ------------ ------------ ------------
Total Distributions to Shareholders ........... (628,935) (153,506) -- (740,530) (439,347)
------------ ------------ ------------ ------------ ------------
FROM FUND SHARE TRANSACTIONS: **
Shares sold .................................... 7,383,736 968,882 2,793,865 5,640,516 4,485,603
Shares issued to shareholders in reinvestment
of distributions .............................. 628,935 153,506 -- 740,530 436,582
------------ ------------ ------------ ------------ ------------
8,012,671 1,122,388 2,793,865 6,381,046 4,922,185
Less shares repurchased .......................... (6,280,747) (6,041,839) (148,475) (3,719,713) (2,301,682)
------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) .......................... 1,731,924 (4,919,451) 2,645,390 2,661,333 2,620,503
------------ ------------ ------------ ------------ ------------
NET ASSETS:
Beginning of period ............................ 20,256,417 20,295,095 -- 10,669,428 12,530,588
------------ ------------ ------------ ------------ ------------
End of period (including
undistributed net investment income of $3,154,
$3,602, $2,658, $21,494 and $21,590,
respectively) .................................. $ 20,295,095 $ 13,189,336 $ 2,853,033 $ 12,530,588 $ 15,277,375
============ ============ ============ ============ ============
* DISTRIBUTIONS TO SHAREHOLDERS:
Per share dividends from net investment
income ......................................... $ 0.1190 $ 0.0872 -- $ 0.6448 $ 0.3223
------------ ------------ ------------ ------------ ------------
Per share distributions from net
realized gain on investments sold
and foreign currency transactions .............. $ 0.1489 -- -- -- --
------------ ------------ ------------ ------------ ------------
** ANALYSIS OF FUND SHARE TRANSACTIONS:
Shares sold ................................... 798,204 124,147 272,901 556,313 457,191
Shares issued to shareholders in
reinvestment of distributions ............... 73,089 20,052 -- 73,574 44,485
------------ ------------ ------------ ------------ ------------
871,293 144,199 272,901 629,887 501,676
Less shares repurchased ....................... (683,009) (796,560) (14,648) (367,396) (234,531)
------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) ...................... 188,284 (652,361) 258,253 262,491 267,145
============ ============ ============ ============ ============
(1) Commenced operations on May 1, 2000.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS -- DECLARATION TRUST
FINANCIAL HIGHLIGHTS (continued)
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
---------------------------------------------------------------------------------------------------------------------------------
V.A. BOND FUND
----------------------------------------------------------------------------
PERIOD SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ------------------------------------------- JUNE 30, 2000
1996(1) 1997 1998 1999 (UNAUDITED)
------------- ------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............ $ 10.00 $ 10.19 $ 10.36 $ 10.51 $ 9.81
--------- --------- ---------- ---------- ----------
Net Investment Income(2) ........................ 0.23 0.68 0.63 0.64 0.32
Net Realized and Unrealized Gain
(Loss) on Investments .......................... 0.21 0.24 0.32 (0.70) 0.08
--------- --------- ---------- ---------- ----------
Total from Investment Operations .............. 0.44 0.92 0.95 (0.06) 0.40
--------- --------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income ............ (0.23) (0.68) (0.63) (0.64) (0.32)
Distributions from Net Realized Gain on
Investments Sold ............................... (0.02) (0.07) (0.17) -- --
--------- --------- ---------- ---------- ----------
Total Distributions ........................... (0.25) (0.75) (0.80) (0.64) (0.32)
--------- --------- ---------- ---------- ----------
Net Asset Value, End of Period .................. $ 10.19 $ 10.36 $ 10.51 $ 9.81 $ 9.89
========= ========= ========== ========== ==========
Total Investment Return at Net Asset Value(3) ... 4.42%(4) 9.30% 9.41% (0.51%) 4.19%(4)
Total Adjusted Investment Return at Net Asset
Value(3,5) .................................... 3.25%(4) 7.52% 8.82% (0.77%) 4.08%(4)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s omitted) ........ $ 1,056 $ 3,682 $ 10,669 $ 12,531 $ 15,277
Ratio of Expenses to Average
Net Assets .................................... 0.75%(6) 0.75% 0.75% 0.75% 0.75%(6)
Ratio of Adjusted Expenses
to Average Net Assets(7) ...................... 4.15%(6) 2.53% 1.34% 1.01% 0.98%(6)
Ratio of Net Investment Income
to Average Net Assets ......................... 6.69%(6) 6.57% 5.93% 6.39% 6.65%(6)
Ratio of Adjusted Net Investment Income
to Average Net Assets(7) ...................... 3.29%(6) 4.79% 5.34% 6.13% 6.42%(6)
Portfolio Turnover Rate ......................... 45% 193% 367% 307% 149%
Fee Reduction Per Share(2) ........................ $ 0.12 $ 0.18 $ 0.06 $ 0.03 $ 0.01
(1) COMMENCED OPERATIONS ON AUGUST 29, 1996.
(2) BASED ON THE AVERAGE OF THE SHARES OUTSTANDING AT THE END OF EACH MONTH.
(3) ASSUMES DIVIDEND REINVESTMENT.
(4) NOT ANNUALIZED.
(5) AN ESTIMATED TOTAL RETURN CALCULATION WHICH DOES NOT TAKE INTO CONSIDERATION
FEE REDUCTIONS BY THE ADVISER DURING THE PERIODS SHOWN.
(6) ANNUALIZED.
(7) UNREIMBURSED, WITHOUT FEE REDUCTION.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - DECLARATION TRUST - V.A. BOND FUND
SCHEDULE OF INVESTMENTS
December 31, 1999
-------------------------------------------------------------------------------------------------------------------
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
------------------- ---- ------- -------------- -----
<S> <C> <C> <C> <C>
BONDS
AEROSPACE (0.69%)
Lockheed Martin Corp.,
Bond 12-01-29 ................................ 8.500% BBB- $ 35 $ 35,342
Note 12-01-05 ................................ 7.950 BBB- 30 30,171
Raytheon Co.,
Note 03-01-03 (R) ............................ 7.900 BBB- 40 40,239
--------
105,752
--------
AUTOMOBILE/TRUCKS (1.42%)
DaimlerChrysler AG, Deb 03-01-27 ............... 7.450 A+ 35 33,584
DaimlerChrysler North America
Holding Corp., Note 01-20-05 ................. 7.400 A+ 40 39,684
ERAC USA Finance Co.,
Note 02-15-05 (R) ............................ 6.625 BBB+ 49 45,948
Ford Capital B.V.,
Gtd Deb (Netherlands)
05-15-02 (Y) ................................. 9.875 A 50 51,889
Ford Motor Co., Deb 02-01-29 ................... 6.375 A 55 45,106
--------
216,211
--------
BANKS - FOREIGN (1.06%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom)
10-15-04 (Y) ................................. 8.200 AA- 30 30,732
Royal Bank of Scotland Plc,
Bond (United Kingdom) 03-31-05 (Y) ........... 8.817 A- 30 30,906
Scotland International Finance
No. 2, B.V., Gtd Sub Note
(Netherlands) 11-01-06 (R) (Y) ............... 8.850 A 95 100,514
--------
162,152
--------
BANKS - UNITED STATES (1.05%)
Bank of New York,
Cap Security 12-01-26 (R) ..................... 7.780 A- 50 46,057
FleetBoston Financial Corp.,
Sub Note 12-01-05 ............................. 6.625 A- 35 33,122
National Westminster Bank
Plc - New York Branch,
Sub Note 05-01-01 ............................. 9.450 A+ 5 5,090
NB Capital Trust IV,
Gtd Cap Security 04-15-27 ..................... 8.250 A- 20 18,581
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 ......................... 10.125 A 15 16,120
Security Pacific Corp.,
Sub Note 03-01-01 ............................. 11.000 A 40 40,890
--------
159,860
--------
BEVERAGES (0.19%)
Canandaigua Brands, Inc.,
Sr Sub Note Ser C 12-15-03 ................... 8.750 B+ 30 28,800
--------
BROKER SERVICES (0.19%)
Goldman Sachs Group, Inc.,
Med Term Note Ser B 10-01-09 ................. 7.350 A+ 30 28,823
--------
<CAPTION>
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE V.A. BOND FUND ON DECEMBER 31, 1999.
IT IS DIVIDED INTO THREE MAIN CATEGORIES: BONDS, WARRANTS AND SHORT-TERM INVESTMENTS. BONDS AND WARRANTS ARE
FURTHER BROKEN DOWN BY INDUSTRY GROUP. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE
LISTED LAST.
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
------------------- ---- ------- -------------- -----
<S> <C> <C> <C> <C>
CHEMICALS (0.54%)
Akzo Nobel, Inc.,
Bond 11-15-03 (R) ........................... 6.000 A- 45 42,683
Equistar Chemicals L.P.,
Sr Note 02-15-04 ............................ 8.500 BBB- 40 39,200
-------
81,883
-------
COMPUTERS (0.97%)
Ceridian Corp.,
Sr Note 06-01-04 ............................ 7.250 BBB 30 28,792
Exodus Communications, Inc.,
Sr Note 12-15-09 ............................ 10.750 B 30 28,950
International Business Machines
Corp., Med Term Note 09-22-03 .............. 5.370 A+ 35 33,335
PSINet, Inc.,
Sr Note 11-01-08 ............................ 11.500 B- 15 14,100
Verio, Inc.,
Sr Note 04-01-05 ............................ 10.375 B- 40 42,600
-------
147,777
-------
ELECTRONICS (0.03%)
Amkor Technologies, Inc.,
Sr Sub Note 05-01-09 ......................... 10.500 B 5 4,987
-------
ENERGY (0.60%)
MidAmerican Energy Holdings Co.,
Sr Bond 09-15-28 ............................. 8.480 BBB- 40 40,326
Sr Note 09-15-05 ............................. 7.230 BBB- 25 24,311
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 ................... 9.625 B 30 27,750
-------
92,387
-------
FIBER OPTICS (0.22%)
Williams Communications
Group, Inc., Sr Note 10-01-09 ................ 10.875 BB- 35 34,300
-------
FINANCE (2.73%)
Bombardier Capital, Inc.,
Note 01-15-02 (R) ............................ 6.000 A- 30 29,250
Commercial Credit Co.,
Note 07-01-02 ................................ 6.450 AA- 45 44,251
EES Coke Battery Co., Inc.,
Sr Sec Note 04-15-02 (R) ..................... 7.125 BBB 4 4,141
Ford Motor Credit Co.,
Note 04-28-03 ................................ 6.125 A 35 33,723
Note 10-28-09 ................................ 7.375 A 35 33,854
General Motors Acceptance Corp.,
Note 01-19-10 ................................ 7.750 A 30 29,824
Household Finance Corp.,
Note 11-01-02 ................................ 5.875 A 70 67,255
Sr Note 09-25-04 ............................. 5.875 A 55 51,295
Sr Unsub Note 02-01-09 ....................... 5.875 A 30 26,091
Marlin Water Trust & Marlin
Water Capital Corp.,
Sr Sec Note 12-15-01 (R) ..................... 7.090 BBB 30 29,644
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
105
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds -- Declaration Trust -- V.A. Bond Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
------------------- ---- ------- -------------- -----
<S> <C> <C> <C> <C>
FINANCE (CONTINUED)
Midland Funding Corp. I,
Deb Ser C-94 07-23-02 ..................... 10.33% BBB- 8 8,348
Sec Deb Ser C-91 07-23-02 ................. 10.33 BBB- 11 11,629
Midland Funding Corp. II,
Deb Ser A 07-23-05 ........................ 11.75 BB+ 40 44,777
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A
06-15-04 (R) .............................. 8.40 BBB- 3 3,021
---------
417,103
---------
GOVERNMENT - FOREIGN (0.14%)
Nova Scotia, Province of,
Deb (Canada) 11-15-19 (Y) ................. 8.25 A- 20 21,124
---------
GOVERNMENT - U.S. (35.47%)
United States Treasury,
Bond 08-15-17 ............................ 8.87 AAA 532 678,135
Bond 02-15-23 ............................ 7.12 AAA 1,170 1,300,350
Note 05-15-02 ............................ 7.50 AAA 69 70,272
Note 08-15-03 ............................ 5.75 AAA 230 226,083
Note 02-15-05 ............................ 7.50 AAA 1,075 1,126,729
Note 07-15-06 ............................ 7.00 AAA 662 685,998
Note 05-15-08 ............................ 5.62 AAA 1,380 1,331,272
---------
5,418,839
---------
GOVERNMENT - U.S. AGENCIES (16.04%)
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 03-01-02*** .......... 7.00 AAA 55 53,952
15 Yr Pass Thru Ctf 12-01-12 ............. 6.50 AAA 34 32,575
30 Yr Pass Thru Ctf 06-01-29 ............. 6.00 AAA 19 17,644
Bond 02-15-05 ............................ 7.12 AAA 180 180,731
Note 04-15-03 ............................ 5.75 AAA 310 300,179
Note 09-15-09 ............................ 6.62 AAA 380 367,114
Note 01-15-30 ............................ 7.12 AAA 215 216,578
Pass Thru Ctf Ser 1997- M8
Class A-1 01-25-22 ....................... 6.94 AAA 3 2,632
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 07-15-26 ............. 8.00 AAA 23 23,545
30 Yr Pass Thru Ctf 04-15-28 to
07-01-29*** .............................. 6.50 AAA 505 479,033
30 Yr Pass Thru Ctf 06-15-28 to
07-01-30*** .............................. 7.00 AAA 769 747,507
30 Yr Pass Thru Ctf 10-15-29 ............. 7.50 AAA 30 29,714
---------
2,451,204
---------
INSURANCE (0.44%)
Equitable Life Assurance Society
of the United States,
Surplus Note 12-01-05 (R) ................ 6.95 A+ 15 14,723
Massachusetts Mutual Life Insurance
Co., Surplus Note 11-15-23 (R) ........... 7.62 AA 5 4,714
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ................ 7.50 AA- 5 4,349
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) ................ 6.62 AA- 20 18,680
URC Holdings Corp.,
Sr Note 06-30-06 (R) ..................... 7.87 A- 25 25,483
---------
67,949
---------
LEASING COMPANIES (0.12%)
United Rentals, Inc.,
Sr Sub Note Ser B 04-01-09 ............... 9.00 BB- 20 17,700
---------
LEISURE (0.59%)
Harrah's Operating Co., Inc.,
Sr Note 01-15-09 ......................... 7.50 BBB- 25 23,198
HMH Properties, Inc.,
Gtd Sr Sec Note Ser A 08-01-05 ........... 7.87 BB 30 28,350
Premier Parks, Inc.,
Sr Note 06-15-07 ......................... 9.75 B- 20 19,250
Waterford Gaming LLC,
Sr Note 03-15-10 (R) ..................... 9.50 B+ 20 19,400
---------
90,198
---------
MANUFACTURING (0.09%)
AXIA, Inc.,
Gtd Sr Sub Note 07-15-08 ................. 10.75 B- 17 13,260
---------
MEDIA (3.96%)
Adelphia Communications Corp.,
Sr Note 11-15-09 ......................... 9.37 B+ 15 13,912
Sr Note Ser B 10-01-02 ................... 9.25 B+ 17 16,660
Sr Note Ser B 07-15-03 ................... 8.12 B+ 15 14,025
AMFM, Inc.,
Sr Sub Note 10-01-08 ....................... 9.00 B 25 25,437
Clear Channel Communications, Inc.,
Note 06-15-05 ............................ 7.87 BBB- 45 45,056
Comcast Cable Communications, Inc.,
Note 11-15-08 ............................ 6.20 BBB 45 40,623
Comcast Corp.,
Sr Note 04-15-08 ......................... 7.62 BBB 35 33,708
Continental Cablevision, Inc.,
Sr Note 05-15-06 ......................... 8.30 AA- 60 61,871
CSC Holdings, Inc.,
Sr Note Ser B 07-15-09 ................... 8.12 BB+ 45 43,425
Sr Sub Deb 05-15-16 ...................... 10.50 BB- 20 21,350
EchoStar DBS Corp.,
Sr Note 02-01-09 ......................... 9.37 B 35 33,775
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 ..................... 8.62 B+ 45 39,600
J Seagram & Sons, Inc., Gtd
Sr Note 12-15-18*** ...................... 7.50 BBB- 20 19,132
Mediacom LLC/Mediacom Capital Corp.,
Sr Note Ser B 04-15-08 ................... 8.50 B+ 20 18,400
News America Holdings, Inc., Gtd
Sr Deb 08-10-18 .......................... 8.25 BBB- 20 19,269
TCI Communications, Inc.,
Sr Deb 02-15-26 .......................... 7.87 AA- 40 39,020
Telewest Communications Plc,
Sr Note (United Kingdom)
02-01-10 (R) (Y) ......................... 9.87 B+ 20 18,600
Time Warner, Inc.,
Deb 01-15-13 ............................. 9.12 BBB 58 63,562
TV Guide, Inc.,
Sr Sub Note Ser B 03-01-09 ............... 8.12 BB- 25 24,688
United Pan-Europe Communications
N.V., Sr Note (Netherlands)
11-01-09 (Y) ............................. 11.25 B 15 13,200
---------
605,313
---------
MEDICAL (0.72%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) ............ 10.75 B+ 37 33,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
106
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds -- Declaration Trust -- V.A. Bond Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
------------------- --------- ------- -------------- ------
<S> <C> <C> <C> <C>
MEDICAL (CONTINUED)
Fresenius Medical Care Capital
Trust II, Gtd Trust Preferred
Security 02-01-08 ............................ 7.875% B+ 10 $ 8,950
IASIS Healthcare Corp.,
Gtd Sr Sub Note 10-15-09 ..................... 13.000 B- 20 19,850
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ......................... 10.750 B+ 23 23,805
Tenet Healthcare Corp.,
Sr Note 01-15-05 ............................. 8.000 BB+ 25 23,938
--------
109,843
--------
METAL (0.51%)
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 ........................ 12.000 BB- 15 15,000
WMC Finance (USA) Ltd.,
Gtd Note (Australia)
11-15-03 (Y) ................................. 6.500 A 65 62,642
------
77,642
------
MORTGAGE BANKING (5.83%)
Citibank Credit Card Master Trust I,
Class A Credit Card Part Cert
Ser 1997-2 02-15-04 .......................... 6.550 AAA 130 128,821
Commercial Mortgage Acceptance
Corp., Pass Thru Ctf Ser 1999-C1
Class A-1 08-15-08 ........................... 6.790 Aaa 76 73,797
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2
Class A-5 08-15-25 ........................... 8.100 AAA 10 10,048
Credit Suisse First Boston Mortgage
Securities Corp., Commercial Mtg
Pass Thru Ctf Ser 1998-C1
Class A-1A 12-17-07 .......................... 6.260 AAA 21 20,333
EQCC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-3
Class A-9 02-15-29 ........................... 6.570 AAA 50 47,179
GMAC Commercial Mortgage
Securities, Inc.,
Pass Thru Ctf Ser 1997-C1
Class A-2 09-15-06 ........................... 6.853 Aaa 50 48,859
Pass Thru Ctf Ser 1997-C2
Class A-3 11-15-07 ........................... 6.566 Aaa 25 23,516
HomeSide Lending, Inc.,
Med Term Sr Note 05-15-03 .................... 6.200 A+ 65 62,304
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1998-1
Class A-4 03-20-25 ........................... 6.600 AAA 15 14,442
LB Commercial Conduit Mortgage
Trust, Pass Thru Ctf Ser 1999-C1
Class A-1 08-15-07 ........................... 6.410 Aaa 53 50,742
Money Store Home Equity Trust (The),
Pass Thru Ctf Ser 1997-D
Class AF-7 12-15-38 .......................... 6.485 AAA 16 15,475
Morgan Stanley Capital I, Inc.,
Pass Thru Ctf Ser 1997-WF1
Class A-1 10-15-06 (R) ....................... 6.830 AAA 81 79,762
Pass Thru Ctf Ser 1999-CAM1
Class A-3 11-15-08 ........................... 6.920 AAA 140 136,544
Salomon Brothers Mortgage
Securities VII, Inc., Mtg Pass Thru
Ctf Ser 1997-HUD2
Class A-2 07-25-24 ........................... 6.750 Aaa 6 5,994
Saxon Asset Securities Trust,
Pass Thru Ctf Ser 2000-2
Class AF-2 06-25-15 .......................... 7.965 AAA 105 105,263
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-A1
Class A-8 06-15-28 ........................... 7.220 AAA 10 9,380
Pass Thru Ctf Ser 1997-B
Class A-6 10-15-28 ........................... 6.900 AAA 60 58,560
-------
891,019
--------
OIL & GAS (2.31%)
Apache Finance Canada Corp.,
Note (Canada) 12-15-29 (Y) ................... 7.750 BBB+ 35 34,275
Coastal Corp.,
Note 06-15-10 ................................ 7.750 BBB 35 34,603
Occidental Petroleum Corp.,
Sr Note 02-15-29 ............................. 8.450 BBB- 50 51,185
Ocean Energy, Inc.,
Sr Sub Note Ser B 07-15-07 ................... 8.875 BB- 20 19,900
Panhandle East Pipe Line Co.,
Sr Note 04-01-10 (R) ......................... 8.250 BBB- 30 29,906
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08 (Y) ................ 6.625 BBB 30 27,215
Phillips Petroleum Co.,
Note 05-25-10 ................................ 8.750 BBB 30 31,603
Santa Fe Snyder Corp., Gtd Sub
Note 06-15-07 ................................ 8.750 BB+ 20 19,800
Tosco Corp.,
Note 02-15-30 ................................ 8.125 BBB 35 34,891
Triton Energy Ltd.,
Sr Note 04-15-02 ............................. 8.750 BB- 35 34,738
Valero Energy Corp.,
Bond 06-15-30 ................................ 8.750 BBB- 35 34,709
-------
352,825
-------
PAPER & PAPER PRODUCTS (0.42%)
Abitibi-Consolidated, Inc.,
Deb (Canada) 08-01-29 (Y) .................... 8.500 BBB- 15 14,009
Fort James Corp.,
Sr Note 09-15-02 ............................. 6.500 BBB 5 4,884
International Paper Co.,
Note 07-08-05 (R) ............................ 8.125 BBB+ 45 45,329
-------
64,222
-------
REAL ESTATE INVESTMENT TRUST (0.90%)
American Health Properties, Inc.,
Note 01-15-07 ................................ 7.500 BBB- 20 17,800
Cabot Industrial Properties, L.P.,
Note 05-01-04 ................................ 7.125 BBB- 25 24,044
Camden Property Trust,
Sr Note 04-15-04 ............................. 7.000 BBB 30 28,672
Liberty Property L.P.,
Med Term Note 06-05-02 ....................... 6.600 BBB- 40 38,875
ProLogis Trust,
Sr Note 04-15-04 ............................. 6.700 BBB+ 25 23,932
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 ................................ 7.300 BB 5 4,886
-------
138,209
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
107
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - DECLARATION TRUST - V.A. BOND FUND
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
------------------- --------- ------- -------------- ------
<S> <C> <C> <C> <C>
Telecommunications (4.58%)
Clearnet Communications, Inc.,
Sr Disc Note, Step Coupon
(10.125%, 05-01-04) (Canada)
05-01-09 (A) (Y) ................................ Zero B3 $35 $ 20,825
Sr Disc Note, Step Coupon
(14.750%, 12-15-00) (Canada)
12-15-05 (A) (Y) ................................ Zero B3 15 15,356
Crown Castle International Corp.,
Sr Note 05-15-11 ................................ 9.000% B 30 27,600
Deutsche Telekom International
Finance B.V., Gtd Note
(Netherlands) 06-15-30 (Y)** .................... 8.250 AA- 40 40,404
Dominion Resources, Inc.,
Sr Note 06-15-10 ................................ 8.125 BBB+ 25 24,975
Focal Communications Corp.,
Sr Note 01-15-10 (R) ............................ 11.875 B 10 10,250
Global Crossing Holdings Ltd.,
Gtd Sr Note (Bermuda)
11-15-09 (Y) .................................... 9.500 BB 40 38,800
GTE North, Inc.,
Deb Ser H 11-15-08 .............................. 5.650 A+ 40 34,894
LCI International, Inc.,
Sr Note 06-15-07 ................................ 7.250 BBB+ 30 28,405
Level 3 Communications, Inc.,
Sr Note 03-15-08 (R) ............................ 11.000 B 20 19,700
McLeodUSA, Inc.,
Sr Note 11-01-08 ................................ 9.500 B+ 25 24,250
Metromedia Fiber Network, Inc.,
Sr Note Ser B 11-15-08 .......................... 10.000 B+ 35 34,563
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ................... 12.000 BBB 15 16,950
Nextel Communications, Inc.,
Sr Note 11-15-09 ................................ 9.375 B 35 33,425
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 ................................ 10.750 B 20 19,700
NTL Communications Corp.,
Sr Note Ser B 10-01-08 .......................... 11.500 B- 35 35,175
Sprint Capital Corp.,
Gtd Note 05-01-04 ............................... 5.875 BBB+ 65 61,020
Gtd Note 05-01-19 ............................... 6.900 BBB+ 40 35,566
TeleCorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon
(11.625%, 04-15-04)
04-15-09 (A) .................................... Zero B3 25 16,375
Triton PCS, Inc.,
Gtd Sr Sub Disc Note, Step
Coupon (11.000%, 05-01-03)
05-01-08 (A) .................................... Zero CCC+ 10 7,200
US WEST Capital Funding, Inc.,
Gtd Note 07-15-28 ............................... 6.875 BBB+ 50 42,948
Vodafone AirTouch Plc,
Unsub Note (United Kingdom)
02-15-10 (R) (Y) ................................ 7.750 A- 35 34,141
VoiceStream Wireless Corp.,
Sr Note 09-15-09 ................................ 11.500 CCC+ 20 21,800
Sr Note 11-15-09 ................................ 10.375 B- 15 15,563
WorldCom, Inc.,
Note 05-15-06 ................................... 8.000 A- 40 40,420
--------
700,305
--------
TRANSPORTATION (1.91%)
America West Airlines,
Pass Thru Ctf Ser 1996-1B
01-02-08 ........................................ 6.930% A- 3 3,194
Continental Airlines,
Pass Thru Ctf Ser 1999-1A
08-02-20 ........................................ 6.545 AA+ 58 52,621
Pass Thru Ctf Ser 1997-2C
06-30-04 ........................................ 7.206 BBB 17 16,880
Fine Air Services, Inc.,
Gtd Sr Sub Note 06-01-08 ........................ 9.875 CC 16 7,083
Northwest Airlines, Inc.,
Gtd Note 03-15-04 ............................... 8.375 BB 25 23,632
Pass Thru Ctf Ser 1996-1D
01-02-15 ........................................ 8.970 BBB- 5 4,564
NWA Trust,
Sr Note Ser A 12-21-12 .......................... 9.250 AA 38 40,238
Railcar Trust No. 1992-1,
Pass Thru Ser 1992-1
Class A 06-01-04 ................................ 7.750 AAA 66 66,555
US Airways, Inc.,
Pass Thru Ctf Ser 1989-A2
01-01-13 ........................................ 9.820 BB- 40 34,250
Pass Thru Ctf Ser 1990-A1
03-19-05 ........................................ 11.200 BB- 36 35,574
Wisconsin Central Transportation
Corp., Note 04-15-08 .............................. 6.625 BBB- 8 7,106
-------
291,697
-------
UTILITIES (6.76%)
AES Corp.,
Sr Note 06-01-09 ................................ 9.500 BB 15 14,700
Sr Sub Note 07-15-06 ............................ 10.250 B+ 10 9,950
AES Eastern Energy,
Pass Thru Trust Ctf Ser 1999-A
01-02-17 ........................................ 9.000 BBB- 25 24,103
Avon Energy Partners Holdings,
Sr Note (United Kingdom)
12-11-02 (R) (Y) ................................ 6.730 BBB+ 40 38,970
Beaver Valley Funding Corp.,
Deb 06-01-07 .................................... 8.625 BB- 60 60,127
Sec Lease Oblig Bond 06-01-17 ................... 9.000 BB- 23 23,259
BVPS II Funding Corp.,
Collateralized Lease Bond
06-01-17 ........................................ 8.890 BB- 5 5,062
Calpine Corp.,
Sr Note 04-01-08 ................................ 7.875 BB+ 15 13,875
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 .......................... 9.500 BB+ 45 46,294
Sr Sec Note Ser D 11-01-17 ...................... 7.880 BB+ 20 18,820
CMS Energy Corp.,
Sr Note 05-15-02 ................................ 8.125 BB 25 24,698
Sr Note 01-15-09 ................................ 7.500 BB 20 17,700
Sr Note Ser B 01-15-04 .......................... 6.750 BB 55 50,462
Connecticut Light & Power Co.,
1st Mtg Ser C 06-01-02 .......................... 7.750 BBB- 45 45,143
East Coast Power LLC,
Sr Sec Note 03-31-08 ............................ 6.737 BBB- 46 43,687
Sr Sec Note 03-31-12 ............................ 7.066 BBB- 30 27,309
EIP Funding-PNM,
Sec Fac Bond 10-01-12 ........................... 10.250 BBB- 38 41,409
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
108
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - DECLARATION TRUST - V.A. BOND FUND
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
------------------- --------- ------- -------------- ------
<S> <C> <C> <C> <C>
<CAPTION>
UTILITIES (CONTINUED)
GG1B Funding Corp.,
Deb 01-15-11 .......................... 7.430% BBB- $ 25 $ 23,572
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) ........ 9.400 A+ 30 34,950
Gtd Bond (Canada) 01-15-22 (Y) ........ 8.400 A+ 20 21,538
Iberdrola International B.V.,
Note 10-01-02 ......................... 7.500 AA- 35 35,236
Long Island Lighting Co.,
Deb 03-15-23 .......................... 8.200 A- 40 38,000
Niagara Mohawk Power Corp.,
Sec Fac Deb Bond 01-01-18 ............. 8.770 BBB 44 45,323
North Atlantic Energy Corp.,
1st Mtg Ser A 06-01-02 ................ 9.050 BB+ 15 15,110
Northeast Utilities,
Note Ser A 12-01-06 ................... 8.580 BB+ 7 7,124
PECO Energy Transition Trust,
Pass Thru Ctf Ser 1999-A
Class A6 03-01-09 ..................... 6.050 AAA 35 32,585
Pass Thru Ctf Ser 2000-A
Class A3 03-01-10 ..................... 7.625 AAA 125 125,888
PNPP II Funding Corp.,
Deb 05-30-16 .......................... 9.120 BB- 40 40,846
Sierra Pacific Resources,
Note 05-15-05 ......................... 8.750 BBB 45 45,594
Waterford 3 Funding Corp.,
Sec Lease Oblig Bond 01-02-17 ......... 8.090 BBB- 61 60,668
----------
1,032,002
----------
TOTAL BONDS
(Cost $13,968,213) (90.48%) 13,823,386
---------- ----------
NUMBER
OF WARRANTS
-----------
WARRANTS
TELECOMMUNICATIONS (0.00%)
MetroNet Communications Corp.
(Canada) (R) (Y) # ...................... 5 650
----------
TOTAL WARRANTS
(Cost $51) (0.00%) 650
--------- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
------------------- --------- -------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS Joint Repurchase
Agreement (9.61%) Investment in a joint
repurchase agreement transaction with
UBS Warburg, Inc. - Dated 06-30-00, due
07-03-00 (Secured by U.S. Treasury Bonds
6.250% thru 7.500% due 08-15-22 thru
08-15-27) - Note B ................. 6.550% $1,467 $ 1,467,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate 5.20% 688
------------
TOTAL SHORT-TERM INVESTMENTS (9.61%) 1,467,688
--------- ------------
TOTAL INVESTMENTS (100.09%) 15,291,724
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.09%) (14,349)
--------- ------------
TOTAL NET ASSETS (100.00%) $15,277,375
========= ============
</TABLE>
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $706,154 or 4.62% of net assets as of June 30, 2000.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer, however, security is U.S. dollar
denominated.
* Credit ratings are unaudited and rated by Standard & Poor's where available,
or Moody's Investors Service or John Hancock Advisers, Inc, where Standard &
Poor's ratings are not available.
** All or a portion of these securities, having an aggregate value of $40,404
or 0.26% of the Fund's net assets, has been purchased on a when issued
basis. The purchase price and the interest rate of these securities is fixed
at trade date, although the Fund does not earn any interest on these
securities until settlement date. The Fund has instructed its Custodian Bank
to segregate assets with a current value at least equal to the amount of its
when issued commitment. Accordingly, the market value of $40,789 of United
States Treasury Bond, 7.125%, 02-15-23, has been segregated to cover the
when issued commitment.
*** All or a portion of these securities, having an aggregate value of $404,069
or 2.64% of the Fund's net assets, have been purchased as forward
commitments - that is, the Fund has agreed on trade date, to take delivery
of and to make payment for these securities on a delayed basis subsequent to
the date of this schedule. The purchase price and interest rate of these
securities are fixed at trade date, although the Fund does not earn any
interest on these securities until settlement date. The Fund has instructed
its Custodian Bank to segregate assets with a current value at least equal
to the amount of the forward commitments. Accordingly, the market value of
$412,555 of United States Treasury Bond, 7.125%, 02-15-23, has been
segregated to cover the forward commitments.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
# Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
109
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - DECLARATION TRUST
(UNAUDITED)
NOTE A -
ORGANIZATION
John Hancock V.A. Core Equity Fund ("V.A. Core Equity Fund"), John Hancock V.A.
500 Index Fund ("V.A. 500 Index Fund"), John Hancock V.A. Large Cap Growth Fund
("V.A. Large Cap Growth Fund"), John Hancock V.A. Mid Cap Growth Fund ("V.A. Mid
Cap Growth Fund"), John Hancock V.A. Relative Value Fund ("V.A. Relative Value
Fund"), John Hancock V.A. Small Cap Growth Fund ("V.A. Small Cap Growth Fund"),
John Hancock V.A. Sovereign Investors Fund ("V.A. Sovereign Investors Fund"),
John Hancock V.A. International Fund ("V.A. International Fund), John Hancock
V.A. Financial Industries Fund ("V.A. Financial Industries Fund"), John Hancock
V.A. Regional Bank Fund ("V.A. Regional Bank Fund"), John Hancock V.A.
Technology Fund ("V.A. Technology Fund"), John Hancock V.A. Bond Fund ("V.A.
Bond Fund"), John Hancock V.A. High Yield Bond Fund ("V.A. High Yield Bond
Fund), John Hancock V.A. Money Market Fund ("V.A. Money Market Fund") and John
Hancock V.A. Strategic Income Fund ("V.A. Strategic Income Fund"), (each a
"Fund," collectively, the "Funds"), are separate series of John Hancock
Declaration Trust (the "Trust"), an open-end management investment company,
registered under the Investment Company Act of 1940. Prior to May 1, 2000, V.A.
Relative Value Fund was known as John Hancock V.A. Large Cap Value Fund. Each
Fund currently has one class of shares with equal rights as to voting,
redemption, dividends and liquidation within its respective Fund. The Trustees
may authorize the creation of additional series from time to time to satisfy
various investment objectives. An insurance company issuing a Variable Contract
that participates in the Trust will vote shares of the Funds held by the
insurance company's separate accounts as required by law. In accordance with
current law and interpretations thereof, participating insurance companies are
required to request voting instructions from policy owners and must vote shares
of the Funds in proportion to the voting instructions received.
The investment objective of the V.A. Core Equity Fund is to seek
above-average total return, consisting of capital appreciation and income. The
investment objective of the V.A. 500 Index Fund is to provide investment results
that correspond with the total return performance of the Standard & Poor's 500
Stock Price Index (the "S&P 500 Index"). The investment objective of the V.A.
Large Cap Growth Fund and V.A. Mid Cap Growth Fund is to seek long-term capital
appreciation. The investment objective of the V.A. Relative Value Fund is to
seek the highest total return (capital appreciation plus current income) that is
consistent with reasonable safety of capital. The investment objective of the
V.A. Small Cap Growth Fund is to seek long-term capital appreciation. The
investment objective of the V.A. Sovereign Investors Fund is to seek long-term
growth of capital and income without assuming undue market risks. The investment
objective of the V.A. International Fund is to seek long-term growth of capital.
The investment objective of the V.A. Financial Industries Fund is to seek
capital appreciation. The investment objective of the V.A. Regional Bank Fund is
to seek long-term capital appreciation. The investment objective of the V.A.
Technology Fund is to seek long-term growth of capital. The investment objective
of the V.A. Bond Fund is to seek a high level of current income consistent with
prudent investment risk. The investment objective of the V.A. High Yield Bond
Fund is to seek maximum current income without assuming undue risk. The
investment objective of the V.A. Money Market Fund is to seek maximum current
income consistent with capital preservation and liquidity. The investment
objective of the V.A. Strategic Income Fund is to seek a high level of current
income.
NOTE B -
ACCOUNTING POLICIES
VALUATION OF INVESTMENTS Securities in the Funds' portfolios (except for the
V.A. Money Market Fund) are valued on the basis of market quotations, valuations
provided by independent pricing services or at fair value as determined in good
faith in accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost, which
approximates market value. All portfolio transactions initially expressed in
terms of foreign currencies have been translated into U.S. dollars as described
in "Foreign Currency Translation." The Funds may invest in indexed securities
whose value is linked either directly or inversely to changes in foreign
currencies, interest rates, indices or other reference instruments. Indexed
securities may be more volatile than the reference instrument itself, but any
loss is limited to the amount of the original investment.
The V.A. Money Market Fund's portfolio of securities is valued at amortized
cost, in accordance with Rule 2a-7 of the Investment Company Act of 1940, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and the cost of the security to the Fund. Interest income on certain
portfolio securities such as negotiable bank certificates of deposit and
interest-bearing notes is accrued daily and included in interest receivable.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in joint repurchase agreement transactions. Aggregate cash
balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Funds' custodian bank receives delivery of the underlying
securities for the joint account on the Funds' behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
121
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS -- DECLARATION TRUST
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date
of purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes, which are accrued, as
applicable.
FEDERAL INCOME TAXES The Funds' policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investment
companies and will not be subject to federal income tax on taxable earnings
which are distributed to shareholders. For federal income tax purposes, net
currency exchange gains and losses from sales of foreign debt securities may be
treated as ordinary income even though such items are capital gains and losses
for accounting purposes.
For federal income tax purposes, the following funds had capital loss
carryforwards available. To the extent such carryforwards are used by the Funds,
no capital gain distributions will be made. Capital loss carryforwards in the
amount of $4,130, which were acquired by the V.A. Strategic Income Fund from the
merger of the V.A. World Bond Fund on March 26, 1999, may be limited in a given
year.
Expired capital loss carryforwards are reclassified to capital paid-in, in
the year of expiration.
CAPITAL LOSS CAPITAL LOSS
CARRYFORWARD CARRYFORWARD
FUND EXPIRING 12/31/2006 EXPIRING 12/31/2007
---- ------------------- -------------------
V.A. Core Equity Fund ................. -- --
V.A. 500 Index Fund ................... -- --
V.A. Large Cap Growth Fund ............ -- --
V.A. Mid Cap Growth Fund .............. -- --
V.A. Relative Value Fund .............. -- --
V.A. Small Cap Growth Fund ............ -- --
V.A. Sovereign Investors Fund ......... $ 157,877 $ 101,159
V.A. International Fund ............... -- --
V.A. Financial Industries Fund ........ -- 2,140,648
V.A. Regional Bank Fund ............... -- --
V.A. Technology Fund .................. -- --
V.A. Bond Fund ........................ -- 67,593
V.A. High Yield Bond Fund ............. 122,097 --
V.A. Money Market Fund ................ -- --
V.A. Strategic Income Fund ............ 4,130 136,493
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some foreign
securities, on the date thereafter when the Funds are notified of the dividend.
Foreign income may be subject to foreign withholding taxes, which are accrued as
applicable. Interest income on investment securities is recorded on the accrual
basis. The Fund may place a debt obligation on non-accrual status and reduce
related interest income by ceasing current accruals and writing off interest
receivables when the collection of all or a portion of interest has become
doubtful.
The Funds record all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual Fund. Expenses which are not readily identifiable
to a specific Fund are allocated in such a manner as deemed equitable, taking
into consideration, among other things, the nature and type of expense and the
relative size of the Funds.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates estimates
made by management in determining the reported amounts of assets, liabilities,
revenues and expenses of the Funds. Actual results could differ from these
estimates.
ORGANIZATION EXPENSES Any expenses incurred in connection with the
organization of the Funds have been capitalized and are being charged to the
Funds' operations ratably over a five-year period that commenced with the
investment operations of each applicable Fund.
BANK BORROWINGS The Funds (except V.A. Money Market Fund) are permitted to
have bank borrowings for temporary or emergency purposes, including the meeting
of redemption requests that otherwise might require the untimely disposition of
securities. The Funds entered into a syndicated line of credit agreement with
various banks that enable the Funds to participate with other funds managed by
the Adviser in an unsecured line of credit with banks which permit borrowings up
to $500 million, collectively. Interest is charged to each fund, based on its
borrowings. In addition, a commitment fee is charged based on the average daily
unused portion of the line of credit and is allocated among the participating
funds. The Funds had no borrowing activity for the period ended June 30, 2000.
SECURITIES LENDING The Funds may lend their securities to certain qualified
brokers who pay the Funds negotiated lender fees. These fees are included in
interest income. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Funds may bear the
risk of delay in recovery of the loaned securities, or even loss of rights in
the collateral should the borrower of the securities fail financially. At June
30, 2000, V.A. Core Equity Fund loaned securities having a market value of
$541,450 collateralized by securities in the amount of $552,279, V.A. Large Cap
Growth Fund loaned securities having a market value of $440,300 collateralized
by securities in the amount of $449,106, V.A. Relative Value Fund loaned
securities having a market value of $1,047,988 collateralized by securities in
the amount of $1,068,947, V.A. Small Cap Growth loaned securities having a
market value of $2,265,269 collateralized by securities in the amount of
$2,310,574, V.A. Financial Industries Fund loaned securities having a market
value of $940,500 collateralized by securities in the amount of $959,310 and
V.A. Technology Fund loaned securities having a market value of $40,119
collateralized by securities in the amount of $40,921.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed
in terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Funds.
122
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS -- DECLARATION TRUST
Transactions affecting statement of operations accounts and net realized
gain/(loss) on investments are translated at the rates prevailing at the dates
of the transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Funds (except for the V.A.
Core Equity Fund, V.A. 500 Index Fund, V.A. Sovereign Investors Fund and V.A.
Money Market Fund) may enter into forward foreign currency exchange contracts as
a hedge against the effect of fluctuations in currency exchange rates. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date at a set price. The aggregate principal
amounts of the contracts are marked to market daily at the applicable foreign
currency exchange rates. Any resulting unrealized gains and losses are included
in the determination of each Fund's daily net assets. The Funds record realized
gains and losses at the time the forward foreign currency contract is closed out
or offset by a matching contract. Risks may arise upon entering these contracts
from potential inability of counterparties to meet the terms of the contract and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. These contracts involve market or credit risk in excess of the
unrealized gain or loss reflected in the Funds' Statements of Assets and
Liabilities. The Funds may also purchase and sell forward contracts to
facilitate the settlement of foreign currency denominated portfolio
transactions, under which they intend to take delivery of the foreign currency.
Such contracts normally involve no market risk if they are offset by the
currency amount of the underlying transaction.
Open forward foreign currency exchange contracts for the Funds at June 30,
2000, were as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
-------- ------------------- ---------- ------------
V.A. INTERNATIONAL FUND
Buys
Euro Currency 23,735 July 00 $111
Polish Zloty 40,733 July 00 55
Singapore Dollar 1,905 July 00 7
-------
$173
=======
Sells
Euro Currency 22,114 July 00 ($187)
Pound Sterling 37,782 July 00 104
-------
($83)
=======
V.A. BOND FUND
Buys
Euro Currency 180,000 July 00 $1,542
=======
Sells
Euro Currency 180,975 July 00 ($1,558)
=======
V.A. HIGH YIELD BOND FUND
Buys
Euro Currency 99,380 July 00 $1,286
Euro Currency 24,937 Aug 00 223
-------
$1,509
=======
Sells
Canadian Dollar 16,500 Aug 00 $42
Euro Currency 66,750 July 00 138
Euro Currency 140,772 Aug 00 (5,225)
Euro Currency 154,618 Sept 00 (1,791)
Euro Currency 128,529 Oct 00 (1,583)
Pound Sterling 14,625 July 00 1,079
Pound Sterling 64,775 Aug 00 2,688
-------
($4,652)
=======
V.A. STRATEGIC INCOME FUND
Buys
Pound Sterling 51,427 Aug 00 ($2,397)
=======
Sells
Euro Currency 397,650 July 00 $1,734
Pound Sterling 232,494 July 00 17,152
Pound Sterling 471,051 Aug 00 19,547
Pound Sterling 697,526 Sept 00 (3,295)
-------
$35,138
=======
FINANCIAL FUTURES CONTRACTS The Funds (except V.A. Money Market Fund) may buy
and sell financial futures contracts to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. Buying futures tends to increase the Funds' exposure to the
underlying instrument. Selling futures tends to decrease the Funds' exposure to
the underlying instrument or hedge other Funds instruments. At the time each
Fund enters into a financial futures contract, it will be required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin," equal to a certain per
123
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS -- DECLARATION TRUST
centage of the value of the financial futures contract being traded. Each day,
the futures contract is valued at the official settlement price on the board of
trade or U.S. commodities exchange on which it trades. Subsequent payments,
known as "variation margin," to and from the broker are made on a daily basis as
the market price of the financial futures contracts fluctuates. Daily variation
margin adjustments, arising from this "mark to market," will be recorded by the
Funds as unrealized gains or losses.
When the contracts are closed, the Funds recognize a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Funds could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Funds' gains and/or losses can be affected as a result of futures contracts.
Open financial futures contracts for the Funds at June 30, 2000 were as
follows:
UNREALIZED
OPEN APPRECIATION
EXPIRATION CONTRACTS POSITION (DEPRECIATION)
---------- --------- -------- ------------
V.A. 500 INDEX FUND
Sept 00 .............. 2 S&P 500 Long ($5,258)
=======
At June 30, 2000, the V.A. 500 Index Fund had deposited $18,750 in a
segregated account to cover margin requirements on open financial futures
contracts.
NOTE C -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, each Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis as follows:
RATE AS A PERCENTAGE OF
FUND AVERAGE DAILY NET ASSETS
---- ------------------------
V.A. Core Equity Fund ................................ 0.70
V.A. 500 Index Fund .................................. 0.35
V.A. Large Cap Growth Fund ........................... 0.75
V.A. Mid Cap Growth Fund ............................. 0.75
V.A. Relative Value Fund ............................. 0.60
V.A. Small Cap Growth Fund ........................... 0.75
V.A. Sovereign Investors Fund ........................ 0.60
V.A. International Fund .............................. 0.90
V.A. Financial Industries Fund ....................... 0.80
V.A. Regional Bank Fund .............................. 0.80
V.A. Technology Fund ................................. 0.80
V.A. Bond Fund ....................................... 0.50
V.A. High Yield Bond Fund ............................ 0.60
V.A. Money Market Fund ............................... 0.50
V.A. Strategic Income Fund ........................... 0.60
Effective February 10, 1997, the Adviser agreed to limit its management fee
on the V.A. 500 Index Fund to 0.10% of the Fund's average daily net assets. The
Adviser may terminate this limitation in the future. For the period ended June
30, 2000, the management fee waived by the Adviser amounted to $43,770.
Independence Investment Associates, Inc. ("IIA"), a wholly owned indirect
subsidiary of John Hancock Life Insurance Company ("JHLICo"), serves as the
sub-adviser to the V.A. Core Equity Fund pursuant to a separate sub-advisory
agreement among the Fund, the Adviser, and IIA. IIA provides investment advice
and advisory services to investment companies and institutional accounts. The
Adviser pays a portion of its advisory fee from the V.A. Core Equity Fund to IIA
at the following rate: 55% of the advisory fee payable by the Fund.
Indocam International Investment Services ("IIIS") serves as sub-adviser to
the V.A. International Fund, effective January 1, 2000. From January 1, 2000
until March 1, 2000, IIIS acted as co-subadviser with the V.A. International
Fund's original subadviser, John Hancock Advisers International Limited
("JHAI"), subject to the review of the Trustees and overall supervision of the
Adviser. Both JHAI and IIIS provided the Fund with investment management
services and advice. As of March 1, 2000 the Adviser terminated its contract
with JHAI so that currently IIIS is the Fund's sole subadviser. The Adviser pays
a portion of its advisory fee from V.A. International Fund to IIIS at the
following rate: 55% of the advisory fee payable by the Fund. Prior to March 1,
2000 the Adviser paid JHAI a fee equivalent of, on an annual basis, to the sum
of (a) 0.70% of the first $200,000,000 of the V.A. International Fund's average
daily net asset value and (b) 0.6375% of the Fund's average daily net asset
value in excess of $200,000,000. JHAI waived all but 0.05% of its fee from
January 1, 2000 through February 29, 2000.
American Fund Advisors, Inc. ("AFA") serves as the sub-adviser to V.A.
Technology Fund pursuant to a separate subadvisory agreement among the Fund, the
Adviser and AFA. The Adviser pays a portion of its advisory fee from V.A.
Technology Fund to AFA at the following rate: 0.10% of V.A. Technology Fund's
average daily net assets.
The Funds have an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Funds. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Funds.
The Adviser has voluntarily agreed to limit each Fund's expenses, excluding
the management fee, to 0.25% of each Fund's average daily net assets.
Accordingly, the reductions in expenses for the period ended June 30, 2000 were
as follows:
FUND FEE REDUCTION
---- -------------
V.A. Core Equity Fund ........................... --
V.A. 500 Index Fund ............................. $45,257
V.A. Large Cap Growth Fund ...................... --
V.A. Mid Cap Growth Fund ........................ 10,002
V.A. Relative Value Fund ........................ --
V.A. Small Cap Growth Fund ...................... 18,891
V.A. Sovereign Investors Fund ................... --
124
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS -- DECLARATION TRUST
V.A. International Fund ......................... 80,928
V.A. Financial Industries Fund .................. --
V.A. Regional Bank Fund ......................... --
V.A. Technology Fund ............................ 4,995
V.A. Bond Fund .................................. 15,108
V.A. High Yield Bond Fund ....................... 16,980
V.A. Money Market Fund .......................... --
V.A. Strategic Income Fund ...................... --
The Adviser reserves the right to terminate this limitation in the future.
The V.A. 500 Index Fund has an agreement with Standard & Poor's ("S&P") to
license certain trademarks and trade names of S&P and of the S&P 500 Index,
which is determined, composed and calculated by S&P without regard to the
Adviser or the V.A. 500 Index Fund. (Requisite disclosure regarding the use of
the Standard & Poor's name is included in the Funds' prospectus.)
Mr. Stephen L. Brown, Ms. Maureen R. Ford and Mr. Richard S. Scipione are
directors and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Funds. The compensation of unaffiliated Trustees is borne by the
Funds. The unaffiliated Trustees may elect to defer, for tax purposes, their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Funds make investments into other John Hancock funds, as
applicable, to cover their liability for the deferred compensation. Investments
to cover the Funds' deferred compensation liability are recorded on the Funds'
books as other assets. The deferred compensation liability and the related other
asset are always equal and are marked to market on a periodic basis to reflect
any income earned by the investment as well as any unrealized gains or losses.
The Adviser and other subsidiaries of JHLICo owned the following shares of
beneficial interest of the Funds as of June 30, 2000:
FUND SHARES OF BENEFICIAL INTEREST
---- -----------------------------
V.A. Core Equity Fund .......................... --
V.A. 500 Index Fund ............................ --
V.A. Large Cap Growth Fund ..................... 102,341
V.A. Mid Cap Growth Fund ....................... 50,071
V.A. Relative Value Fund ....................... --
V.A. Small Cap Growth Fund ..................... 102,547
V.A. Sovereign Investors Fund .................. --
V.A. International Fund ........................ 222,987
V.A. Financial Industries Fund ................. --
V.A. Regional Bank Fund ........................ 51,995
V.A. Technology Fund ........................... 50,000
V.A. Bond Fund ................................. 125,908
V.A. High Yield Bond Fund ...................... 244,286
V.A. Money Market Fund ......................... 115,864
V.A. Strategic Income Fund ..................... 494,232
NOTE D -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities for the Funds, excluding
short-term securities, during the period ended June 30, 2000, were as follows:
FUND PURCHASES SALES
---- ----------- -----------
V.A. Core Equity Fund ........................... $21,826,966 $22,468,467
V.A. 500 Index Fund ............................. 1,017,925 4,461,241
V.A. Large Cap Growth Fund ...................... 20,347,333 20,110,682
V.A. Mid Cap Growth Fund ........................ 14,677,695 7,378,003
V.A. Relative Value Fund ........................ 33,373,932 30,399,533
V.A. Small Cap Growth Fund ...................... 23,808,171 12,384,085
V.A. Sovereign Investors Fund
U.S. Government Securities .................... -- 1,766,484
Other Investments ............................. 8,390,083 6,253,343
V.A. International Fund ......................... 9,374,775 7,813,286
V.A. Financial Industries Fund .................. 14,342,238 14,334,597
V.A. Regional Bank Fund ......................... 2,496,179 7,429,810
V.A. Technology Fund ............................ 4,404,467 2,296,213
V.A. Bond Fund
U.S. Government Securities .................... 11,357,280 8,849,106
Other Investments ............................. 9,208,897 9,258,716
V.A. High Yield Bond Fund
U.S. Government Securities -- --
Other Investments ............................. 2,988,563 3,079,114
V.A. Strategic Income Fund
U.S. Government Securities .................... 4,291,691 --
Other Investments ............................. 5,636,189 6,604,331
At June 30, 2000, the cost (excluding the corporate savings account) and
gross unrealized appreciation and depreciation in value of investments owned by
the Funds, as computed on a federal income tax basis, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
AGGREGATE UNREALIZED UNREALIZED APPRECIATION/
FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
---- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
V.A. Core Equity
Fund ................. $ 37,156,963 $ 9,408,292 $ 2,536,264 $ 6,872,028
V.A. 500 Index
Fund ................. 23,594,272 13,147,114 2,313,677 10,833,437
V.A. Large Cap Growth
Fund ................. 17,419,506 4,690,938 657,362 4,033,576
V.A. Mid Cap Growth
Fund ................. 12,468,716 3,264,649 1,203,266 2,061,383
V.A. Relative Value
Fund ................. 39,125,093 8,832,093 3,817,659 5,014,434
V.A. Small Cap Growth
Fund ................. 25,670,566 10,517,695 2,560,532 7,957,163
V.A. Sovereign Investors
Fund ................. 43,935,815 7,038,379 3,093,326 3,945,053
V.A. International
Fund ................. 9,105,119 1,565,791 447,751 1,118,040
V.A. Financial Industries
Fund ................. 40,929,583 11,155,334 1,831,748 9,323,586
V.A. Regional Bank
Fund ................. 15,346,653 283,140 2,558,410 (2,275,270)
V.A. Technology
Fund ................. 3,043,777 244,442 108,358 136,084
V.A. Bond
Fund ................. 15,491,726 143,051 343,741 (200,690)
V.A. High Yield Bond
Fund ................. 10,772,466 248,773 2,287,286 (2,038,513)
V.A. Money Market
Fund ................. 35,575,278 -- -- --
V.A. Strategic Income
Fund ................. 28,367,228 416,606 1,914,248 (1,497,642)
</TABLE>
125
<PAGE>
--------------------------------------------------------------------------------
[LOGO] JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603
1-800-824-0335
--------------------------------------------------------------------------------
This report is for the information os shareholders of the John Hancock
Declaration trust. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
DECSA 6/00
8/00
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT SEMIANNUAL REPORT
We invented the mutual fund(R) JUNE 30, 2000
[Graphic Omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) BOND SERIES
<PAGE>
<TABLE>
MFS(R) BOND SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* - Chairman and Chief Executive Massachusetts Financial Services Company
Officer, MFS Investment Management(R) 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.+ - Private investor and
trustee DISTRIBUTOR
MFS Fund Distributors, Inc.
William R. Gutow+ - Private investor and real 500 Boylston Street
estate consultant; Vice Chairman, Capitol Boston, MA 02116-3741
Entertainment Management Company (video franchise)
INVESTOR SERVICE
CHAIRMAN AND PRESIDENT MFS Service Center, Inc.
Jeffrey L. Shames* P.O. Box 2281
Boston, MA 02107-9906
PORTFOLIO MANAGER
Geoffrey L. Kurinsky* For additional information,
contact your investment professional.
TREASURER
James O. Yost* CUSTODIAN
State Street Bank and Trust Company
ASSISTANT TREASURERS
Mark E. Bradley* WORLD WIDE WEB
Ellen Moynihan* www.mfs.com
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
-------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
-------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large
decline, as they did this past spring, there's a flurry of information on "how
to deal with market volatility" -- both in the popular press and from those of
us in the investment business. Our own thinking on this is that, first, for
long-term investors volatility is not necessarily something to be feared;
occasional volatility may in fact be healthy for the markets.
Second, our experience has been that when markets begin to fall, it's often
too late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market
volatility in stride, here are some points you may want to consider the next
time you talk with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with very
high stock prices, relative to their earnings, or with business concepts that
looked great in the euphoria of a booming market but in the end appeared to have
no fundamental backing. It has always been our view that one of the best
protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask how
they fared in previous periods of volatility, as well as in the good times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over
nearly all long-term periods -- 5, 10, 20 years, and more -- stock and bond
returns, as represented by most common indices, have been positive and have
considerably outpaced inflation. Investing is the best way we know of to make
your money work for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading.
In our view, traders who buy securities with the intention of selling them at
a profit in a matter of hours, days, or weeks are gambling. We believe this
seldom turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy,
because only in retrospect do we know when that right time really was. Periods
of volatility are probably the worst times to make an investment decision.
Faced with turmoil in the markets, many investors have opted to simply stay on
the sidelines.
On the other hand, we think one of the best techniques for investing is
through automatic monthly or quarterly deductions from a checking or savings
account. This approach has at least three major benefits. First, you can
formulate a long-term plan -- how much to invest, how often, and into which
portfolios -- in a calm, rational manner, working with your investment
professional. Second, with this approach you invest regularly without
agonizing over the decision each time you buy shares. And, third, if you
invest equal amounts of money at regular intervals, you'll be taking advantage
of a strategy called dollar-cost averaging: by investing a fixed amount while
the share cost fluctuates, you end up with an average share cost to you that
is lower than the average share price over your investment period.(1) If all
this sounds familiar, it's probably because you're already taking advantage of
dollar-cost averaging by investing regularly for retirement through a 401(k)
or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, by moving money into whatever asset class appears
to be outperforming at the moment --
1
<PAGE>
LETTER FROM THE CHAIRMAN - continued
small, mid, or large cap; growth or value; United States or international;
stocks or bonds. The problem with this approach is that by the time a particular
area is generally recognized as "hot," you may have already missed some of the
best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out
of 10 years.(2) For the decade, the MSCI EAFE's average annual performance was
23%, compared to 18% for the S&P 500. Going into the 1990s, then, an investor
looking only at recent performance might have favored international
investments over U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We would
suggest that one way to potentially profit from swings in the market -- to
potentially be invested in various asset classes before the market shifts in
their favor -- is with a diversified portfolio covering several asset classes.
If you haven't already done so, we encourage you to discuss these thoughts
with your investment professional and factor them into your long-range
financial planning. Hopefully, the next time the markets appear to be going
wild, you'll feel confident enough in your plan to view periods of volatility
as a time of potential opportunity -- or perhaps just a time to sit back and
do nothing.
As always, we appreciate your confidence and welcome any questions or comments
you may have.
Respectfully,
/s/ Jeffrey Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 17, 2000
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your investment professional for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
2
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended June 30, 2000, the series' Initial Class shares
provided a total return of 2.65%, and Service Class shares 2.56%. These returns
include the reinvestment of any distributions and compare to a 4.18% return over
the same period for the Lehman Brothers Government/Corporate Bond Index (the
Lehman Index). The Lehman Index is an unmanaged, market-value-weighted index of
U.S. Treasury and government-agency securities (excluding mortgage- backed
securities) and investment-grade debt obligations of domestic corporations.
The recent period was historically tumultuous for the investment-grade
corporate bond market. Most of the problems were the result of company-
specific issues. There has also been much less liquidity in the corporate
market over the past few years, a residual effect of the credit problems that
plagued corporate bonds starting in 1998 when Russia surprisingly defaulted on
its debt obligations. Historically, vulture investors on Wall Street provided
buyers for the debt of companies that hit a hard patch, but that hasn't been
the case recently. In addition, the high-yield market has experienced net
outflows, so there hasn't been capital available to absorb some of these
credit problems from that traditional source.
The overall credit quality of the corporate market has been deteriorating as
well. While we've seen stock price growth in the technology sector, tech
companies have been carrying very little debt. Elsewhere, despite strong
economic growth in the United States, the stocks of many companies --
especially those in cyclical sectors -- have been distressed to the point
where company managements have come under increasing pressure to enhance value
for shareholders. Consequently, we have found that many have issued more debt
to finance mergers and acquisitions or share buyback programs -- all of which
help the shareholder but hurt the bondholder. We think these kinds of moves
have weakened many companies' credit fundamentals and caused a number of
credit downgrades.
In response to this difficult climate, we increased the overall credit quality
of the portfolio. In addition, we reduced investments in domestic corporate
industrial bonds because they remain vulnerable to weakening credit
fundamentals. Instead, we focused on sectors that are not as prone to the risk
that management will issue more debt to finance leveraged buyouts or share
buybacks. That has translated into increased exposure to sectors like media
and telecommunications. For example, we retained our investment in Time
Warner, whose merger with America Online is creating a powerful conglomerate
that we believe should eventually experience a credit upgrade. We found other
opportunities in British Sky Broadcasting, a satellite network in Europe that
we think has tremendous growth prospects, and Seagram, which is making a
transition from a spirits company to an entertainment conglomerate. We also
invested about 8% of the series in Yankee bonds, which are dollar-denominated
bonds issued in the United States by foreign countries that have investment-
grade credit ratings, such as Israel.
Investments that worked out well for the series included a number of our
higher-quality junk bonds, such as Comcast Corporation, which crossed over
into investment-grade status and appreciated significantly in the process. The
credit upgrades enjoyed by emerging market countries South Korea and Mexico
also helped the series' performance.
We restructured the series' holdings in U.S. Treasuries in response to the
Federal Reserve Board's (the Fed's) program of interest-rate hikes. (Principal
value and interest on Treasury securities are guaranteed by the U.S. government
if held to maturity.) The Fed's actions caused short-term rates to back up
significantly, while longer-term rates remained relatively stable. As a result,
the yield curve -- a representation of the difference between short- and
long-term rates -- flattened, then inverted, with short-term rates actually
reaching higher levels than long-term yields. We felt the best way to take
advantage of this situation was to pursue a barbell strategy by investing some
of our Treasury holdings on the long end of the curve, some on the short, and
very little in between. As a result, the series was not affected by the sharpest
price declines that occurred in the intermediate part of the yield curve.
Looking ahead, we believe recent indicators may be pointing to a slowing
economy in response to the Fed's program of interest rate increases. In this
kind of environment, we think interest rates could begin trending downward as
soon as late 2000. There appears to be very little evidence of a protracted
struggle
3
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK - continued
against inflation. That opinion is further strengthened by our discussions with
company managements who say that they have very little pricing power. For our
part, we intend to continue moving our corporate holdings to bonds with shorter
maturities because they are less prone to price volatility. At the same time, we
anticipate extending the Treasury duration in the portfolio (duration is an
indicator of interest-rate sensitivity) to try to take advantage of potential
declines in long-term interest rates.
Respectfully,
/s/ Geoffrey Kurinsky
Geoffrey L. Kurinsky
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. The manager's views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
4
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Geoffrey L. Kurinsky is Senior Vice President of MFS Investment Management(R).
He is portfolio manager of MFS(R) Bond Fund, MFS(R) Bond Series (part of
MFS(R) Variable Insurance Trust(SM)), and the Bond Series offered through
MFS(R)/Sun Life annuity products. Mr. Kurinsky is also a portfolio manager of
MFS(R) Total Return Fund, MFS(R) Total Return Series (part of MFS(R) Variable
Insurance Trust(SM)), and the Total Return Series offered through MFS(R)/Sun
Life annuity products.
He joined the MFS Fixed Income Department in 1987 and was named portfolio
manager in 1989, Vice President in 1989, and Senior Vice President in 1993.
Mr. Kurinsky is a graduate of the University of Massachusetts and earned an
M.B.A. degree in finance from Boston University.
All portfolio managers at MFS Investment Management(R) are supported by an
investment staff of over 100 professionals utilizing MFS Original Research(R), a
global, issuer- oriented, bottom-up process of selecting securities.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including all charges and expenses, for any MFS product is available from your
investment professional, or by calling MFS at 1-800-225-2606. Please read it
carefully before investing or sending money.
5
<PAGE>
SERIES FACTS
Objective: Seeks primarily to provide as high a level of current income as is
believed to be consistent with prudent investment risk and secondarily to
protect shareholders' capital.
Commencement of investment operations: October 24, 1995
Class Inception: Initial Class October 24, 1995
Service Class May 1, 2000
Size: $25.2 million net assets as of June 30, 2000
PERFORMANCE SUMMARY
Because the series is designed for investors with long-term goals, we have
provided the cumulative as well as the average annual total returns for the
applicable time periods. Investment results reflect the percentage change in
net asset value, including the reinvestment of dividends. (See Notes to
Performance Summary.)
TOTAL RATES OF RETURN THROUGH JUNE 30, 2000
INITIAL CLASS
6 Months 1 Year 3 Years Life*
-------------------------------------------------------------------------------
Cumulative Total Return +2.65% +2.28% +15.52% +24.99%
-------------------------------------------------------------------------------
Average Annual Total Return -- +2.28% + 4.93% + 4.88%
-------------------------------------------------------------------------------
SERVICE CLASS
6 Months 1 Year 3 Years Life*
-------------------------------------------------------------------------------
Cumulative Total Return +2.56% +2.18% +15.42% +24.87%
-------------------------------------------------------------------------------
Average Annual Total Return -- +2.18% + 4.90% + 4.86%
-------------------------------------------------------------------------------
* For the period from the commencement of the series' investment operations,
October 24, 1995, through June 30, 2000.
NOTES TO PERFORMANCE SUMMARY
Initial Class and Service Class shares have no sales charge; however, Service
Class shares carry a 0.20% annual Rule 12b-1 fee. Service Class share
performance includes the performance of the series' Initial Class shares for
periods prior to the inception of Service Class shares (blended performance).
These blended performance figures have not been adjusted to take into account
differences in the class-specific operating expenses (such as Rule 12b-1
fees). Because operating expenses of Service Class shares are higher than
those of Initial Class shares, the blended Service Class share performance is
higher than it would have been had Service Class shares been offered for the
entire period.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and capital
gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the variable product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
6
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 2000
<CAPTION>
Bonds - 97.9%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 80.3%
Airlines - 1.8%
American Airlines Pass-Through Trust, 7.024s, 2009 $ 109 $ 103,553
Atlas Air, Inc., 7.2s, 2019 57 52,898
Continental Airlines Pass-Through Trust, Inc., 9.5s, 2013 4 4,502
Continental Airlines Pass-Through Trust, Inc., 6.648s, 2017 3 2,611
Continental Airlines Pass-Through Trust, Inc., 6.545s, 2019 97 87,702
Continental Airlines Pass-Through Trust, Inc., 7.256s, 2020 198 184,337
Jet Equipment Trust, 9.41s, 2010## 5 5,266
Jet Equipment Trust, 8.64s, 2012## 4 4,322
-----------
$ 445,191
-----------------------------------------------------------------------------------------------------
Automotive - 1.3%
Daimler Chrysler North America, 7.75s, 2005 $ 318 $ 320,767
-----------------------------------------------------------------------------------------------------
Banks and Finance - 13.3%
Associates Corp., 5.75s, 2003 $ 252 $ 239,438
Associates Corp., 5.5s, 2004 148 137,422
Bank United, 8s, 2009 169 147,243
Capital One Financial Corp., 7.25s, 2003 261 254,836
Chase Manhattan Corp., 7.875s, 2010 84 84,124
Ford Motor Credit Co., 6.7s, 2004 358 346,852
Ford Motor Credit Co., 7.75s, 2007 177 175,488
Ford Motor Credit Co., 5.8s, 2009 62 53,939
Ford Motor Credit Co., 7.875s, 2010 191 190,966
General Electric Capital Corp., 8.7s, 2007 40 43,024
General Motors Acceptance Corp., 5.95s, 2003 67 64,502
Goldman Sachs Group LP, 5.9s, 2003 160 153,986
GS Escrow Corp., 6.75s, 2001 83 80,633
MBNA America Bank National Assoc., 6.875s, 2004 108 102,524
Morgan Stanley Dean Witter, 7.125s, 2003 500 496,795
Morgan Stanley Group, Inc., 8s, 2010 339 342,570
Natexis Ambs Co. LLC, 8.44s, 2049## 170 159,376
Providian Capital I, 9.525s, 2027## 42 32,954
Socgen Real Estate Co., 7.64s, 2049## 226 206,837
Washington Mutual Capital I, 8.375s, 2027 38 33,692
-----------
$ 3,347,201
-----------------------------------------------------------------------------------------------------
Building - 1.1%
Building Materials Corp., 8s, 2008 $ 340 $ 266,900
Nortek, Inc., 9.25s, 2007 20 18,700
-----------
$ 285,600
-----------------------------------------------------------------------------------------------------
Chemicals - 1.5%
Lyondell Chemical Co., 9.625s, 2007 $ 340 $ 336,600
Lyondell Chemical Co., 9.875s, 2007 36 35,640
-----------
$ 372,240
-----------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 0.5%
Seagate Technology, Inc., 7.45s, 2037 $ 149 $ 131,023
-----------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Bonds - continued
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - continued
Consumer Goods and Services - 1.1%
Hasbro, Inc., 7.95s, 2003 $ 120 $ 118,734
Hertz Corp., 8.25s, 2005 127 129,644
Kindercare Learning Centers, Inc., 9.5s, 2009 25 23,000
Nabisco Holdings, 6.375s, 2035 10 8,941
-----------
$ 280,319
-----------------------------------------------------------------------------------------------------
Corporate Asset Backed - 3.4%
Amresco Residential Securities Mortgage Loan, 5.94s, 2015 $ 61 $ 59,999
Commercial Mortgage Asset Trust, 7.41s, 2020 (Interest only) 3,879 126,366
Contimortgage Home Equity Loan Trust, 6.19s, 2014 125 122,813
Criimi Mae Commercial Mortgage Trust, 7s, 2011 250 216,875
Morgan Stanley Capital I, 6.86s, 2010 145 114,414
Morgan Stanley Capital I, 7.748s, 2010 160 118,781
Morgan Stanley Capital I, 6.01s, 2030 99 94,359
-----------
$ 853,607
-----------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.4%
Coca-Cola Bottling Co., 6.375s, 2009 $ 119 $ 108,846
-----------------------------------------------------------------------------------------------------
Forest and Paper Products - 2.1%
Georgia Pacific Corp., 9.95s, 2002 $ 411 $ 425,533
Georgia Pacific Corp., 9.5s, 2022 50 52,093
Riverwood International Corp., 10.25s, 2006 35 33,250
U.S. Timberlands, 9.625s, 2007 10 8,800
-----------
$ 519,676
-----------------------------------------------------------------------------------------------------
Government National Mortgage Association - 3.7%
GNMA, 8s, 2022 $ 368 $ 371,697
GNMA, 7.5s, 2025 65 64,444
GNMA, 8s, 2025 4 4,472
GNMA, 7.5s, 2026 50 49,394
GNMA, 7.5s, 2027 191 190,124
GNMA, 8s, 2029 76 76,436
GNMA, TBA, 7.5s, 2026 176 175,202
-----------
$ 931,769
-----------------------------------------------------------------------------------------------------
Insurance - 1.1%
Aflac, Inc., 6.5s, 2009 $ 123 $ 111,311
Atlantic Mutual Insurance Co., 8.15s, 2028## 24 18,917
GE Global Insurance Holding Corp., 7.75s, 2030 62 61,628
The Mony Group, Inc., 8.35s, 2010 100 98,516
-----------
$ 290,372
-----------------------------------------------------------------------------------------------------
Internet - 0.2%
PSINET, Inc., 11s, 2009 $ 50 $ 46,500
-----------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Bonds - continued
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - continued
Media/Entertainment - 6.7%
Adelphia Communications Corp., 0s, 2008 $ 200 $ 81,000
Belo AH Corp., 7.75s, 2027 54 45,763
Chancellor Media Corp., 8.75s, 2007 10 10,012
Clear Channel Communications, 7.875s, 2005 118 118,339
Comcast Corp., 9.125s, 2006 54 56,533
Frontiervision Operating Partnership LP, 11s, 2006 20 20,200
Harrahs Operating Co., Inc., 7.5s, 2009 135 125,269
Hearst Argyle Television, Inc., 7.5s, 2027 4 3,374
J Seagram & Sons, Inc., 7.5s, 2018 162 154,966
Liberty Media Corp., 8.25s, 2030## 171 157,023
News America Holdings, Inc., 6.625s, 2008 74 67,851
Outdoor Systems, Inc., 8.875s, 2007 10 9,812
Time Warner Entertainment Co., 10.15s, 2012 435 499,223
Time Warner Entertainment Co., 8.375s, 2033 307 309,502
Time Warner, Inc., 6.625s, 2029 51 42,097
-----------
$ 1,700,964
-----------------------------------------------------------------------------------------------------
Metals and Minerals - 0.1%
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 $ 25 $ 23,750
-----------------------------------------------------------------------------------------------------
Oil Services - 0.3%
Occidental Petroleum Corp., 6.4s, 2003 $ 84 $ 81,126
Ultramar Diamond Shamrock Corp., 7.2s, 2017 5 4,374
-----------
$ 85,500
-----------------------------------------------------------------------------------------------------
Oils - 2.7%
Apache Corp., 7.95s, 2026 $ 211 $ 210,456
Coastal Corp., 7.75s, 2010 152 150,977
Phillips Petroleum Co., 8.75s, 2010 265 279,156
Pioneer Natural Resources Co., 9.625s, 2010 35 36,050
-----------
$ 676,639
-----------------------------------------------------------------------------------------------------
Railroads - 0.6%
Union Pacific Corp., 6.34s, 2003 $ 56 $ 53,694
Union Pacific Corp., 6.39s, 2004 106 100,837
-----------
$ 154,531
-----------------------------------------------------------------------------------------------------
Retail - 0.8%
J Crew Operating Corp., 10.375s, 2007 $ 90 $ 78,300
Kohl's Corp., 7.25s, 2029 134 122,056
-----------
$ 200,356
-----------------------------------------------------------------------------------------------------
Supermarkets - 1.6%
Safeway, Inc., 5.875s, 2001 $ 400 $ 391,812
-----------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Bonds - continued
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - continued
Telecommunications - 6.4%
Bellsouth Capital Funding Corp., 7.75s, 2010 $ 56 $ 56,002
Charter Communications Holdings LLC, 8.25s, 2007 500 442,500
Sprint Capital Corp., 7.625s, 2002 445 444,684
Sprint Capital Corp., 6.9s, 2019 193 171,608
TCI Communications Financing III, 9.65s, 2027 280 309,344
Telecom de Puerto Rico, 6.65s, 2006 45 42,583
Telecom de Puerto Rico, 6.8s, 2009 138 127,803
WorldCom, Inc., 8.875s, 2006 5 5,185
-----------
$ 1,599,709
-----------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 3.0%
Federal Home Loan Banks, 5.7s, 2009 $ 165 $ 150,305
Federal National Mortgage Association, 6.625s, 2009 135 130,422
Federal National Mortgage Association, 7s, 2029 199 192,142
Federal National Mortgage Association, 7s, 2030 50 47,810
Federal National Mortgage Association TBA, 7.5s, 2029 250 246,482
-----------
$ 767,161
-----------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 16.1%
U.S. Treasury Bonds, 6.125s, 2029 $2,367 $ 2,390,670
U.S. Treasury Notes, 5.875s, 2004 112 110,372
U.S. Treasury Notes, 7.875s, 2004 15 15,884
U.S. Treasury Notes, 6s, 2009 124 123,012
U.S. Treasury Notes, 4.25s, 2010 168 170,307
U.S. Treasury Notes, 6.5s, 2010 1,216 1,257,611
-----------
$ 4,067,856
-----------------------------------------------------------------------------------------------------
Utilities - Electric - 8.7%
AEP Generating, 9.81s, 2022 $ 200 $ 223,103
Beaver Valley Funding Corp. II, 9s, 2017 236 240,666
CE Generation LLC, 7.416s, 2018 91 81,309
Cleveland Electric Illuminating Co., 7.67s, 2004 25 24,634
Cleveland Electric Illuminating Co., 7.88s, 2017 14 13,174
Cleveland Electric Illuminating Co., 9s, 2023 216 218,387
CMS Energy Corp., 8.375s, 2003 205 198,182
CMS Energy Corp., 6.75s, 2004 120 110,100
Commonwealth Edison Co., 8.5s, 2022 39 38,799
Connecticut Light & Power Co., 7.875s, 2001 46 46,148
Connecticut Light & Power Co., 8.59s, 2003 100 99,304
Connecticut Light & Power Co., 7.875s, 2024 55 54,982
Entergy Mississippi, Inc., 6.2s, 2004 48 45,525
GGIB Funding Corp., 7.43s, 2011 28 26,598
Gulf States Utilities Co., 8.21s, 2002 83 83,680
Gulf States Utilities Co., 8.25s, 2004 23 23,202
Midland Funding Corp., 10.33s, 2002 8 7,753
Niagara Mohawk Power Corp., 8.5s, 2023 10 9,948
Northeast Utilities, 8.58s, 2006 54 54,142
</TABLE>
10
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Bonds - continued
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - continued
Utilities - Electric - continued
NRG Energy, Inc., 8.7s, 2005## 55 55,075
NRG Energy, Inc., 8.962s, 2016 76 76,266
Salton Sea Funding Corp., 7.84s, 2010 145 141,578
Toledo Edison Co., 7.875s, 2004 161 157,278
Utilicorp United, Inc., 7s, 2004 34 32,474
Valero Energy Corp., 8.75s, 2030 41 41,873
Waterford 3 Funding Corp., 8.09s, 2017 89 84,864
-----------
$ 2,189,044
-----------------------------------------------------------------------------------------------------
Utilities - Gas - 1.8%
Northern Natural Gas Co., 7s, 2011## $ 280 $ 265,280
Texas Gas Transmission Corp., 7.25s, 2027 202 185,663
-----------
$ 450,943
-----------------------------------------------------------------------------------------------------
Total U.S. Bonds $20,241,376
-----------------------------------------------------------------------------------------------------
Foreign Bonds - 17.6%
Argentina - 1.0%
Republic of Argentina, 0s, 2001 $ 270 $ 251,775
-----------------------------------------------------------------------------------------------------
Australia - 1.8%
Cable & Wireless Optus Finance, 8s, 2010 (Telecommunications) $ 147 $ 146,093
Cable & Wireless Optus Ltd., 8.125s, 2009 (Telecommunications)## 322 325,111
-----------
$ 471,204
-----------------------------------------------------------------------------------------------------
Bermuda - 1.6%
Global Crossing Holdings Ltd., 9.625s, 2008 (Telecommunications) $ 411 $ 400,725
-----------------------------------------------------------------------------------------------------
Brazil - 1.1%
Banco Nacional de Desenvolvi, 12.554s, 2008 (Banks and Finance)## $ 170 $ 159,200
Federal Republic of Brazil, 5s, 2014 49 36,267
Federal Republic of Brazil, 12.75s, 2020 25 23,850
Federal Republic of Brazil, 12.25s, 2030 55 50,600
-----------
$ 269,917
-----------------------------------------------------------------------------------------------------
Canada - 1.2%
Apache Finance Canada Corp, 7.75s, 2029 (Oils) $ 212 $ 207,611
Province of Quebec, 7.5s, 2029 104 102,171
-----------
$ 309,782
-----------------------------------------------------------------------------------------------------
Chile - 2.1%
Empresa Electric Guacolda S.A., 7.6s, 2001 (Utilities - Electric)## $ 250 $ 245,875
Empresa Nacional de Electric, 7.75s, 2008 (Utilities - Electric) 193 179,340
Empresa Nacional de Electric, 8.5s, 2009 (Utilities - Electric)## 97 94,501
Empresa Nacional de Electric, 7.325s, 2037 (Utilities - Electric) 5 4,506
-----------
$ 524,222
-----------------------------------------------------------------------------------------------------
Germany - 1.7%
Deutsche Telekom International, 7.75s, 2005 (Telecommunications) $ 299 $ 299,022
Deutsche Telekom International, 8s, 2010 (Telecommunications) 131 132,149
-----------
$ 431,171
-----------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Bonds - continued
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Bonds - continued
Israel - 1.0%
Israel Electric Corp. Ltd., 8.1s, 2096 (Utilities - Electric) $ 211 $ 179,227
State of Israel, 7.75s, 2010 72 71,089
-----------
$ 250,316
-----------------------------------------------------------------------------------------------------
Mexico - 0.7%
Nuevo Grupo Iusacell S.A., 14.25s, 2006 (Telecommunications)## $ 50 $ 52,250
United Mexican States, 11.375s, 2016 30 34,575
United Mexican States, 11.5s, 2026 75 90,750
-----------
$ 177,575
-----------------------------------------------------------------------------------------------------
Morocco - 0.3%
Kingdom of Morocco, 7.75s, 2009+ $ 85 $ 76,075
-----------------------------------------------------------------------------------------------------
Netherlands - 0.3%
Hermes Europe Railtel BV, 10.375s, 2009 (Telecommunications) $ 90 $ 75,600
-----------------------------------------------------------------------------------------------------
Qatar - 0.2%
State of Qatar, 9.75s, 2030 $ 50 $ 49,125
-----------------------------------------------------------------------------------------------------
South Korea - 1.7%
Cho Hung Bank, 11.5s, 2010 (Banks and Finance)## $ 60 $ 57,750
Export-Import Bank Korea, 7.1s, 2007 (Banks and Finance) 190 188,105
Hanvit Bank, 12.75s, 2010 (Banks and Finance)## 75 74,531
Korea Development Bank, 6.625s, 2003 (Banks and Finance) 105 100,853
-----------
$ 421,239
-----------------------------------------------------------------------------------------------------
Sweden - 0.9%
AB Spintab, 6.8s, 2049 (Banks and Finance)## $ 239 $ 230,886
-----------------------------------------------------------------------------------------------------
Turkey
Republic of Turkey, 11.875s, 2030 $ 2 $ 2,128
-----------------------------------------------------------------------------------------------------
United Kingdom - 2.0%
British Sky Broadcasting Group, 6.875s, 2009 (Telecommunications) $ 581 $ 510,414
-----------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 4,452,154
-----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $25,378,437) $24,693,530
-----------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.0%
-----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/03/00, at Amortized Cost $ 243 $ 242,911
-----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $25,621,348) $24,936,441
Other Assets, Less Liabilities - 1.1% 275,316
-----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $25,211,757
-----------------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
+ Restricted security.
See notes to financial statements.
</TABLE>
12
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
------------------------------------------------------------------------------
JUNE 30, 2000
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $25,621,348) $24,936,441
Receivable for investments sold 756,960
Receivable for series shares sold 86,110
Interest receivable 416,600
Deferred organization expenses 587
Other assets 448
-----------
Total assets $26,197,146
-----------
Liabilities:
Payable to custodian $ 3,827
Payable for investments purchased 922,562
Payable for series shares reacquired 58,481
Payable to affiliates -
Management fee 415
Reimbursement fee 104
-----------
Total liabilities $ 985,389
-----------
Net assets $25,211,757
===========
Net assets consist of:
Paid-in capital $26,135,385
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (684,907)
Accumulated net realized loss on investments and foreign
currency transactions (1,089,961)
Accumulated undistributed net investment income 851,240
-----------
Total $25,211,757
===========
Shares of beneficial interest outstanding 2,369,645
=========
Initial Class shares:
Net asset value per share
(net assets of $25,211,553 / 2,369,626 shares of
beneficial interest outstanding) $10.64
======
Service Class shares:
Net asset value per share
(net assets of $203.58 / 19.157 shares of beneficial
interest outstanding) $10.63
======
See notes to financial statements.
13
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
-------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------------
Net investment income:
Interest income $ 968,998
---------
Expenses -
Management fee $ 73,977
Trustees' compensation 1,189
Shareholder servicing agent fee 4,315
Distribution fee (Service Class) 0*
Administrative fee 2,007
Auditing fees 20,900
Custodian fee 9,349
Printing 4,593
Legal fees 977
Amortization of organization expenses 911
Miscellaneous 787
---------
Total expenses $ 119,005
Fees paid indirectly (588)
Reduction of expenses by investment adviser (5,501)
---------
Net expenses $ 112,916
---------
Net investment income $ 856,082
---------
Realized and unrealized gain (loss) on investments:
Realized loss on investment transactions (identified cost basis) $(515,777)
---------
Change in unrealized depreciation on investments $ 304,029
---------
Net realized and unrealized loss on investments $(211,748)
---------
Increase in net assets from operations $ 644,334
=========
* Distribution fee (Service Class) was less than $1.
See notes to financial statements.
14
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 856,082 $ 1,288,843
Net realized loss on investments and foreign currency transactions (515,777) (572,286)
Net unrealized gain (loss) on investments and foreign currency translation 304,029 (1,083,839)
----------- -----------
Increase (decrease) in net assets from operations $ 644,334 $ (367,282)
----------- -----------
Distributions declared to shareholders -
From net investment income $(1,291,453) $ (424,158)
From net realized gain on investments and foreign currency transactions -- (29,276)
In excess of net realized gain on investments and foreign currency transactions -- (2,637)
----------- -----------
Total distributions declared to shareholders $(1,291,453) $ (456,071)
----------- -----------
Net increase in net assets from series share transactions $ 1,567,869 $12,949,839
----------- -----------
Total increase in net assets $ 920,750 $12,126,486
Net assets:
At beginning of period 24,291,007 12,164,521
----------- -----------
At end of period (including accumulated undistributed net investment income
of $851,240 and $1,286,611, respectively) $25,211,757 $24,291,007
=========== ===========
See notes to financial statements.
</TABLE>
15
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
SIX MONTHS ENDED ------------------------------------------------------------- DECEMBER 31,
JUNE 30, 2000 1999 1998 1997 1996 1995*
(UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------
INITIAL CLASS SHARES
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $10.93 $11.38 $11.08 $10.06 $10.19 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.37 $ 0.70 $ 0.64 $ 0.64 $ 0.58 $ 0.09
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.09) (0.87) 0.09 0.38 (0.36) 0.21
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.28 $(0.17) $ 0.73 $ 1.02 $ 0.22 $ 0.30
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.57) $(0.26) $(0.29) $ -- $(0.35) $(0.09)
From net realized gain on
investments and foreign
currency transactions -- (0.02) (0.14) -- -- (0.02)
In excess of net realized gain
on investments and foreign
currency transactions -- (0.00)+++ -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.57) $(0.28) $(0.43) $ -- $(0.35) $(0.11)
------ ------ ------ ------ ------ ------
Net asset value - end of period $10.64 $10.93 $11.38 $11.08 $10.06 $10.19
====== ====== ====== ====== ====== ======
Total return 2.65%++ (1.56)% 6.79% 10.14% 2.09% 3.02%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.92%+ 1.01% 1.02% 1.01% 1.03% 1.00%+
Net investment income 6.96%+ 6.26% 5.76% 6.04% 5.84% 4.89%+
Portfolio turnover 171% 283% 244% 219% 231% 55%
Net assets at end of period
(000 Omitted) $25,212 $24,291 $12,165 $4,004 $853 $228
(S) Subject to reimbursement by the series, the investment adviser voluntary agreed under a temporary expense reimbursement
agreement to pay all of the series' operating expenses exclusive of management fees. In consideration, the series pays the
investment adviser a reimbursement fee not greater than 0.15% of average daily net assets. Prior to May 1, 2000, the
series paid the investment adviser a reimbursement fee not greater than 0.40% of average daily net assets. To the extent
actual expenses were over this limitation, the net investment income per share and ratios would have been:
Net investment income
(loss) $ 0.37 $ 0.69 $ 0.61 $ 0.37 $(0.26) $(0.70)
Ratios (to average net assets):
Expenses## 0.96%+ 1.06% 1.23% 3.58% 9.45% 43.85%+
Net investment income
(loss) 6.92%+ 6.21% 5.55% 3.46% (2.61)% (37.96)%+
* For the period from the commencement of the series' investment operations, October 24, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
16
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
----------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 2000*
(UNAUDITED)
----------------------------------------------------------------------------
SERVICE CLASS SHARES
----------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.43
------
Income from investment operations# -
Net investment income(S) $ 0.12
Net realized and unrealized gain on investments and foreign
currency 0.08**
------
Total from investment operations $ 0.20
------
Net asset value - end of period $10.63
======
Total return 1.92%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.95%+
Net investment income 7.19%+
Portfolio turnover 171%
Net assets at end of period (000 Omitted) 0***
(S) Subject to reimbursement by the series, the investment adviser voluntarily
agreed under a temporary expense reimbursement agreement to pay all of the
series' operating expenses, exclusive of management and distribution fees.
In consideration, the series pays the investment adviser a reimbursement
fee not greater than 0.15% of the average daily net assets. To the extent
actual expenses were over this limitation, the net investment loss per
share and the ratios would have been:
Net investment income $ 0.12
Ratios (to average net assets):
Expenses## 0.99%+
Net investment income 7.15%+
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
** The per share data is not in accord with the net realized and unrealized
loss for the period because of the timing of sales of series shares and
the amount of per share realized and unrealized gains and losses at such
time.
*** Net assets for the period were less than $1,000.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset
arrangements.
See notes to financial statements.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Bond Series (the series), is a diversified series of MFS Variable
Insurance Trust (the trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of
each series of the trust are separate accounts of insurance companies which
offer variable annuity and/or life insurance products. As of June 30, 2000,
there were 19 shareholders of the series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The series
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues and forward
contracts are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics, and other market data,
without exclusive reliance upon exchange or over-the-counter prices. Short-
term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Securities for which there are no such
quotations or valuations are valued in good faith, at fair value, by the
Trustees.
Deferred Organization Expenses - Costs incurred by the series in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period beginning on the date of
commencement of series operations.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Interest payments received in additional
securities are recorded on the ex-interest date in an amount equal to the
value of the security on such date. The series uses the effective interest
method for reporting interest income on payment-in-kind (PIK) bonds.
Fees Paid Indirectly - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the series. This amount is shown as a reduction of total expenses on the
Statement of Operations.
Tax Matters and Distributions - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits be reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits, which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or net realized gains.
At December 31, 1999, the series, for federal income tax purposes, had a
capital loss carryforward of $498,667 which may be applied against any net
taxable realized gains of each succeeding year until the earlier of its
utilization or expiration on December 31, 2007.
Multiple Classes of Shares of Beneficial Interest - The series offers multiple
classes of shares that differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on the daily
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
net assets of each class, without distinction between share classes. Dividends
are declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60%
of the series' average daily net assets. The series has a temporary expense
reimbursement agreement whereby MFS has voluntarily agreed to pay all of the
series' operating expenses, exclusive of management and distribution fees. The
series in turn will pay MFS an expense reimbursement fee not greater than
0.15% of average daily net assets. Prior to May 1, 2000, the series paid MFS
an expense reimbursement fee not greater than 0.40% of average daily net
assets. To the extent that the expense reimbursement fee exceeds the series
actual expenses, the excess will be applied to amounts paid by MFS in prior
years. At June 30, 2000, aggregate unreimbursed expenses amounted to $149,204.
Each series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the series, all of whom receive
remuneration for their services to the series from MFS. Certain officers and
Trustees of the series are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
Administrator - The series has an administrative services agreement with MFS
to provide the series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the series incurs an administrative fee
at the following annual percentages of the series' average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - The Trustees have adopted a distribution plan for the Service
Class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The series' distribution plan provides that the series will pay MFD a
distribution fee up to 0.25% per annum of its average daily net assets
attributable to Service Class shares in order that MFD may pay expenses on
behalf of the series related to the distribution of its shares. A portion of
this distribution fee is currently being paid by the series; payment of the
remaining 0.05% per annum of the Service Class distribution fee will become
payable on such a date as the Trustees of the trust may determine. Fees
incurred under the distribution plan during the period ended June 30, 2000,
were 0.20% of average daily net assets attributable to Service Class shares on
an annualized basis.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the series' average daily net assets at an annual rate of
0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
-------------------------------------------------------------------------------
U.S. government securities $26,942,689 $25,912,868
----------- -----------
Investments (non-U.S. government securities) $15,258,422 $15,091,342
----------- -----------
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $25,696,865
-----------
Gross unrealized depreciation $ (876,854)
Gross unrealized appreciation 116,430
-----------
Net unrealized depreciation $ (760,424)
===========
(5) Shares of Beneficial Interest
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
<TABLE>
<CAPTION>
Initial Class Shares
SIX MONTHS ENDED JUNE 30, 2000 YEAR ENDED DECEMBER 31, 1999
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 389,295 $4,248,685 1,640,010 $18,298,783
Shares issued to shareholders in
reinvestment of distributions 123,702 1,291,450 40,575 456,070
Shares reacquired (365,023) (3,972,466) (527,405) (5,805,014)
-------- ---------- -------- -----------
Net increase 147,974 $1,567,669 1,153,180 $12,949,839
======== ========== ========= ===========
<CAPTION>
Service Class Shares
PERIOD ENDED JUNE 30, 2000*
---------------------------
SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C>
Shares sold 19 $ 200
Shares issued to shareholders in
reinvestment of distributions -- --
Shares reacquired -- --
-------- ----------
Net increase 19 $ 200
======== ==========
* For the period from the inception of Service Class shares, May 1, 2000, through June 30, 2000
</TABLE>
(6) Line of Credit
The series and other affiliated funds participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at
the end of each quarter. The commitment fee allocated to the series for the
six months ended June 30, 2000, was $74. The series had no borrowings during
the period.
(7) Restricted Securities
The series may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At June 30, 2000,
the series owned the following restricted securities, excluding securities
issued under Rule 144A, constituting 0.30% of net assets which may not be
publicly sold without registration under the Securities Act of 1933. The
series does not have the right to demand that such securities be registered.
The value of these securities is determined by valuations furnished by dealers
or by a pricing service, or if not available, in good faith, at fair value, by
the Trustees.
DATE OF SHARE/PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
-------------------------------------------------------------------------------
Kingdom of Morocco, 7.75s, 2009 4/27/00 85,000 $76,084 $76,075
------- -------
20
<PAGE>
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<PAGE>
(c)2000 MFS Investment Management(R).
<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT SEMIANNUAL REPORT
We invented the mutual fund(R) JUNE 30, 2000
[Graphic Omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) EMERGING
GROWTH SERIES
<PAGE>
<TABLE>
MFS(R) EMERGING GROWTH SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* - Chairman and Chief Executive Massachusetts Financial Services Company
Officer, MFS Investment Management(R) 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.+ - Private investor and
trustee DISTRIBUTOR
MFS Fund Distributors, Inc.
William R. Gutow+ - Private investor and real 500 Boylston Street
estate consultant; Vice Chairman, Capitol Boston, MA 02116-3741
Entertainment Management Company (video franchise)
INVESTOR SERVICE
CHAIRMAN AND PRESIDENT MFS Service Center, Inc.
Jeffrey L. Shames* P.O. Box 2281
Boston, MA 02107-9906
PORTFOLIO MANAGERS
John W. Ballen* For additional information,
Toni Y. Shimura* contact your investment professional.
TREASURER CUSTODIAN
James O. Yost* State Street Bank and Trust Company
ASSISTANT TREASURERS WORLD WIDE WEB
Mark E. Bradley* www.mfs.com
Ellen Moynihan*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
</TABLE>
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large
decline, as they did this past spring, there's a flurry of information on "how
to deal with market volatility" -- both in the popular press and from those of
us in the investment business. Our own thinking on this is that, first, for
long-term investors volatility is not necessarily something to be feared;
occasional volatility may in fact be healthy for the markets.
Second, our experience has been that when markets begin to fall, it's often
too late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market
volatility in stride, here are some points you may want to consider the next
time you talk with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with
very high stock prices, relative to their earnings, or with business concepts
that looked great in the euphoria of a booming market but in the end appeared
to have no fundamental backing. It has always been our view that one of the
best protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask
how they fared in previous periods of volatility, as well as in the good
times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over
nearly all long-term periods -- 5, 10, 20 years, and more -- stock and bond
returns, as represented by most common indices, have been positive and have
considerably outpaced inflation. Investing is the best way we know of to make
your money work for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading.
In our view, traders who buy securities with the intention of selling them at
a profit in a matter of hours, days, or weeks are gambling. We believe this
seldom turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy,
because only in retrospect do we know when that right time really was. Periods
of volatility are probably the worst times to make an investment decision.
Faced with turmoil in the markets, many investors have opted to simply stay on
the sidelines.
On the other hand, we think one of the best techniques for investing is
through automatic monthly or quarterly deductions from a checking or savings
account. This approach has at least three major benefits. First, you can
formulate a long-term plan -- how much to invest, how often, and into which
portfolios -- in a calm, rational manner, working with your investment
professional. Second, with this approach you invest regularly without
agonizing over the decision each time you buy shares. And, third, if you
invest equal amounts of money at regular intervals, you'll be taking advantage
of a strategy called dollar-cost averaging: by investing a fixed amount while
the share cost fluctuates, you end up with an average share cost to you that
is lower than the average share price over your investment period.(1) If all
this sounds familiar, it's probably because you're already taking advantage of
dollar-cost averaging by investing regularly for retirement through a 401(k)
or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, by moving money into whatever asset class appears
to be outperforming at the moment --
1
<PAGE>
LETTER FROM THE CHAIRMAN--continued
small, mid, or large cap; growth or value; United States or international;
stocks or bonds. The problem with this approach is that by the time a particular
area is generally recognized as "hot," you may have already missed some of the
best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out
of 10 years.(2) For the decade, the MSCI EAFE's average annual performance was
23%, compared to 18% for the S&P 500. Going into the 1990s, then, an investor
looking only at recent performance might have favored international
investments over U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We
would suggest that one way to potentially profit from swings in the market --
to potentially be invested in various asset classes before the market shifts
in their favor -- is with a diversified portfolio covering several asset
classes.
If you haven't already done so, we encourage you to discuss these thoughts
with your investment professional and factor them into your long-range
financial planning. Hopefully, the next time the markets appear to be going
wild, you'll feel confident enough in your plan to view periods of volatility
as a time of potential opportunity -- or perhaps just a time to sit back and
do nothing.
As always, we appreciate your confidence and welcome any questions or comments
you may have.
Respectfully,
/s/ Jeffrey L. Shames
-------------------------------------
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 17, 2000
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your investment professional for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
2
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended June 30, 2000, the series' Initial Class and Service
Class shares each provided total returns of -2.29%, including the reinvestment
of any distributions. This compares to returns of -0.42% and 3.04%,
respectively, over the same period for the series' benchmarks, the Standard &
Poor's 500 Composite Index (the S&P 500) and the Russell 2000 Total Return Index
(the Russell 2000). The S&P 500 is a popular, unmanaged index of common stock
total return performance. The Russell 2000 is an unmanaged index comprised of
2,000 of the smallest U.S.-domiciled company common stocks that are traded on
the New York Stock Exchange, the American Stock Exchange, and NASDAQ.
Late in the first quarter, there was a global correction in the high-growth
segments of the market in which we invest. Fueled by investor concerns over
further Federal Reserve Board (Fed) interest rate increases, this correction
in the valuations of technology, media, telecommunications, and biotechnology
stocks continued into the first two months of the second quarter.
In early June, we began to see some signs that the Fed's six interest rate
increases since last summer may have begun to slow the economy. Some key
economic indicators, including a modest rise in unemployment, a slowing in
housing starts, and lower-than-expected wage gains, gave us hope that there
will be fewer or no increases going forward. We have also seen more attractive
valuations in the high-growth areas of the market, and we believe we may have
seen the lows in the NASDAQ Composite Index (an unmanaged, market-weighted
index of all over-the-counter common stocks traded on the National Association
of Securities Dealers Automated Quotation System) following the correction
earlier this year. While we anticipate further market volatility as investors
adjust to the latest news on the economy and interest rates, we believe we may
be entering a more favorable investment environment.
In light of the rising interest rate environment we had earlier this year, we
reduced our positions in some of our highest-valuation stocks that we felt had
limited upside potential, and selectively added more defensive holdings such
as generic drug and pharmaceutical companies, as well as food and drug
retailers. However, we still expect to find our best investment ideas in
technology, telecommunications, and health care. Particularly in an
environment where interest rates stabilize or drop, these high-growth segments
of the market could continue to deliver superior revenue and earnings growth.
We continue to focus on technology as our core sector because we believe these
companies offer the most attractive growth characteristics that we can
identify across a range of industries. Although we have shifted our technology
weightings from time to time, we believe we are well positioned to take
advantage of what we expect to be much narrower leadership than we've seen in
the past. We expect to see certain core, high-quality technology companies
emerge as leaders in their respective markets, and we hope to own those
companies that are first to market with new products and services.
Among our technology holdings are several companies that enable e-commerce,
both business to business and business to consumer. We believe the most
successful will be those with the scale to meet the demands of corporations
eagerly buying the latest business technologies in order to stay competitive.
Our technology holdings also include select Internet infrastructure and
software companies such as VeriSign and Check Point, in addition to
semiconductor companies such as Micron Technology and Intel.
With respect to telecommunications, we have reduced our holdings in telecom
service providers because changes taking place in the industry -- most
notably, the cost of doing business, particularly in terms of licensing and
capital spending -- are expected to go higher and make these companies less
profitable. Our largest telecom holdings currently are in equipment companies
such as Nortel Networks, Corning, CIENA, and ADC Telecom. Despite some good
investment opportunities, we probably won't see significant upside earnings
surprises among the handset delivery companies.
In health care, we have targeted quality names like the emerging
pharmaceutical company Sepracor and companies like PE Biosystems that make
equipment used in genetics research. Among the thousands of health care
companies available, we're focusing on the biotechnology and emerging
pharmaceutical companies that we believe have the best intellectual property
and product pipelines, both of which should
3
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK--continued
help them better meet shareholder expectations. Finally, we're somewhat cautious
on retail because rising interest rates tend to dampen consumer confidence and
slow the pace of consumer spending.
We are in a volatile period where we need to see how much further interest
rates must rise in order to cool off the economy. We remain optimistic on the
long-term outlook for growth stocks, and believe the market leadership will
continue to be in technology, telecommunications, and health care. Within
these sectors, we are working to build positions in companies that we think
can become leaders in their industries and deliver growth over long periods of
time, thus creating value for shareholders.
Respectfully,
/s/ John W. Ballen /s/ Toni Y. Shimura
--------------------------- ----------------------------
John W. Ballen Toni Y. Shimura
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. The managers' views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
4
<PAGE>
PORTFOLIO MANAGERS' PROFILES
John W. Ballen is President, Chief Investment Officer, and a member of the
Management Committee and Board of Directors of MFS Investment Management(R).
He is a portfolio manager of MFS(R) Emerging Growth Fund, MFS(R) Emerging
Growth Series (part of MFS(R) Variable Insurance Trust(SM)), the Emerging
Growth Series offered through MFS(R)/Sun Life annuity products, MFS(R) Global
Growth Fund, and the Global Growth Series offered through MFS(R)/Sun Life
annuity products. In addition, Mr. Ballen oversees the portfolio management of
MFS(R) Institutional Mid Cap Growth Fund and MFS(R) Institutional Emerging
Equities Fund. He joined the MFS Research Department in 1984 as a research
analyst. He was named Investment Officer and portfolio manager in 1986, Vice
President in 1987, Director of Research in 1988, Senior Vice President in
1990, Director of Equity Portfolio Management in 1993, Chief Equity Officer in
1995, Executive Vice President in 1997, and President, Chief Investment
Officer, and a member of the Board in 1998. Mr. Ballen is a graduate of
Harvard College and earned a Master of Commerce degree from the University of
New South Wales in Australia and an M.B.A. degree from Stanford University.
Toni Y. Shimura is Senior Vice President of MFS Investment Management(R) and
portfolio manager of MFS(R) Managed Sectors Fund and the Managed Sectors
Series offered through MFS(R)/Sun Life annuity products. She is also a
portfolio manager of MFS(R) Global Growth Fund, MFS(R) Emerging Growth Series
(part of MFS(R) Variable Insurance Trust(SM)), and the Global Growth Series
and the Emerging Growth Series, both offered through MFS(R)/Sun Life annuity
products. Ms. Shimura joined MFS in 1987 as a research analyst. She was named
Investment Officer in 1990, Assistant Vice President in 1991, Vice President
in 1992, portfolio manager in 1993, and Senior Vice President in 1999. Ms.
Shimura is a graduate of Wellesley College and the Sloan School of Management
of the Massachusetts Institute of Technology.
All equity portfolio managers began their careers at MFS Investment
Management(R) as research analysts. Our portfolio managers are supported by an
investment staff of over 100 professionals utilizing MFS Original Research(R),
a global, company-oriented, bottom-up process of selecting securities.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including all charges and expenses, for any MFS product is available from your
investment professional, or by calling MFS at 1-800-225-2606. Please read it
carefully before investing or sending money.
5
<PAGE>
SERIES FACTS
Objective: Seeks long-term growth of capital.
Commencement of investment operations: July 24, 1995
Class inception: Initial Class July 24, 1995
Service Class May 1, 2000
Size: $2.6 billion as of June 30, 2000
PERFORMANCE SUMMARY
Because the series is designed for investors with long-term goals, we have
provided the cumulative as well as the average annual total returns for the
applicable time periods. Investment results reflect the percentage change in
net asset value, including the reinvestment of dividends. (See Notes to
Performance Summary.)
<TABLE>
TOTAL RATES OF RETURN THROUGH JUNE 30, 2000
INITIAL CLASS
<CAPTION>
6 Months 1 Year 3 Years Life*
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return -2.29% +53.05% +154.85% +287.97%
---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +53.05% + 36.59% + 31.60%
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
SERVICE CLASS
6 Months 1 Year 3 Years Life*
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return -2.29% +53.05% +154.85% +287.97%
---------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +53.05% + 36.59% + 31.60%
---------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the series' investment operations, July 24, 1995, through June 30, 2000.
</TABLE>
NOTES TO PERFORMANCE SUMMARY
Initial Class and Service Class shares have no sales charge; however, Service
Class shares carry a 0.20% annual Rule 12b-1 fee. Service Class share
performance includes the performance of the series' Initial Class shares for
periods prior to the inception of Service Class shares (blended performance).
These blended performance figures have not been adjusted to take into account
differences in the class-specific operating expenses (such as Rule 12b-1
fees). Because operating expenses of Service Class shares are higher than
those of Initial Class shares, the blended Service Class share performance is
higher than it would have been had Service Class shares been offered for the
entire period.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and capital
gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the variable product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
Investing in small or emerging growth companies involves greater risk than is
customarily associated with more-established companies. These risks may
increase share price volatility. See the prospectus for details.
6
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 2000
<CAPTION>
Stocks - 95.7%
--------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 85.1%
Banks and Credit Companies - 0.4%
Comerica, Inc. 21,900 $ 982,763
First Tennessee National Corp. 1,600 26,500
PNC Bank Corp. 92,600 4,340,625
Providian Financial Corp. 45,300 4,077,000
--------------
$ 9,426,888
--------------------------------------------------------------------------------------------------------
Biotechnology - 1.4%
Abbott Laboratories, Inc. 286,100 $ 12,749,331
Abgenix, Inc.* 12,700 1,522,214
Alkermes, Inc.* 5,000 235,625
Genentech, Inc.* 84,700 14,568,400
Pharmacia Corp. 49,600 2,563,700
Waters Corp.* 27,100 3,382,419
--------------
$ 35,021,689
--------------------------------------------------------------------------------------------------------
Business Machines - 1.6%
Seagate Technology, Inc.* 60,300 $ 3,316,500
Sun Microsystems, Inc.* 386,400 35,138,250
Texas Instruments, Inc. 28,700 1,971,331
--------------
$ 40,426,081
--------------------------------------------------------------------------------------------------------
Business Services - 2.5%
Amgen, Inc.* 255,400 $ 17,941,850
Automatic Data Processing, Inc. 315,200 16,882,900
Bea Systems, Inc.* 12,400 613,025
Computer Sciences Corp.* 180,100 13,451,219
First Data Corp. 168,900 8,381,663
Fiserv, Inc.* 29,900 1,293,175
IMRglobal Corp.* 13,300 173,731
Insight Enterprises, Inc.* 1,550 91,934
Learning Tree International, Inc.* 92,600 5,671,750
Pegasus Systems, Inc.* 2,250 24,469
--------------
$ 64,525,716
--------------------------------------------------------------------------------------------------------
Cellular Telephones - 2.3%
Motorola, Inc. 33,150 $ 963,422
Sprint Corp. (PCS Group)* 469,900 27,959,050
Voicestream Wireless Corp.* 257,490 29,945,282
--------------
$ 58,867,754
--------------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 0.5%
Compaq Computer Corp. 129,200 $ 3,302,675
Dell Computer Corp.* 174,100 8,585,306
--------------
$ 11,887,981
--------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 3.8%
Mercury Interactive Corp.* 45,300 $ 4,382,775
Microsoft Corp.* 1,159,400 92,752,000
--------------
$ 97,134,775
--------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Stocks - continued
--------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Computer Software - Services - 1.8%
EMC Corp.* 592,100 $ 45,554,694
Internet Commerce Corp.* 5,800 84,100
Lightspan, Inc.* 3,440 18,920
--------------
$ 45,657,714
--------------------------------------------------------------------------------------------------------
Computer Software - Systems - 15.1%
Ariba, Inc.* 15,000 $ 1,470,703
BMC Software, Inc.* 502,480 18,332,669
Brocade Communications Systems, Inc.* 35,100 6,440,302
Cadence Design Systems, Inc.* 130,200 2,652,825
Computer Associates International, Inc. 232,600 11,906,212
Comverse Technology, Inc.* 72,600 6,751,800
E.piphany, Inc.* 16,200 1,736,437
Foundry Networks, Inc.* 15,500 1,705,000
I2 Technologies, Inc.* 33,900 3,534,605
Oracle Corp.* 3,345,150 281,201,672
Redback Networks, Inc.* 17,400 3,097,200
Siebel Systems, Inc.* 93,600 15,309,450
StorageNetworks, Inc.* 4,260 384,465
Sycamore Networks, Inc.* 121,300 13,388,487
VERITAS Software Corp.* 190,000 21,472,969
--------------
$ 389,384,796
--------------------------------------------------------------------------------------------------------
Conglomerates - 3.2%
Tyco International Ltd. 1,756,958 $ 83,235,885
--------------------------------------------------------------------------------------------------------
Consumer Goods and Services
Philip Morris Cos., Inc. 32,100 $ 852,656
Carson, Inc.,"A"* 65,300 293,850
--------------
$ 1,146,506
--------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.6%
Capstone Turbine Corp.* 2,770 $ 124,823
Emerson Electric Co. 22,100 1,334,288
General Electric Co. 255,800 13,557,400
Jabil Circuit, Inc.* 31,500 1,563,187
Micrel, Inc.* 4,600 199,813
--------------
$ 16,779,511
--------------------------------------------------------------------------------------------------------
Electronics - 17.0%
Altera Corp.* 653,100 $ 66,575,381
Analog Devices, Inc.* 492,200 37,407,200
Applied Materials, Inc.* 93,900 8,509,687
Atmel Corp.* 143,300 5,284,188
ATMI, Inc.* 2,200 102,300
Burr-Brown Corp.* 2,850 247,059
Conductus, Inc.* 8,400 165,900
Credence Systems Corp.* 4,600 253,863
Flextronics International Ltd.* 208,600 14,328,212
Intel Corp. 569,400 76,121,662
Lam Research Corp.* 186,700 7,001,250
Linear Technology Corp. 232,500 14,865,469
LSI Logic Corp.* 313,700 16,979,012
</TABLE>
8
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Stocks - continued
--------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Electronics - continued
LTX Corp.* 5,900 206,131
Marvell Technology Group Ltd.* 2,300 131,100
Maxim Integrated Products, Inc.* 2,200 149,463
Microchip Technology, Inc.* 2,100 122,358
Micron Technology, Inc.* 968,800 85,314,950
National Semiconductor Corp.* 277,800 15,765,150
Novellus Systems, Inc.* 26,700 1,510,219
Photronics, Inc.* 2,300 65,263
PMC-Sierra, Inc.* 39,100 6,947,581
Quanta Services, Inc.* 3,600 198,000
Sanmina Corp.* 135,040 11,545,920
SDL, Inc.* 8,600 2,452,613
SIPEX Corp.* 13,400 371,013
Solectron Corp.* 177,300 7,424,437
Teradyne, Inc.* 144,400 10,613,400
Xilinx, Inc.* 548,500 45,285,531
--------------
$ 435,944,312
--------------------------------------------------------------------------------------------------------
Energy - 0.4%
Devon Energy Corp. 60,300 $ 3,388,106
Dynegy, Inc. 102,600 7,008,863
--------------
$ 10,396,969
--------------------------------------------------------------------------------------------------------
Entertainment - 1.0%
Clear Channel Communications, Inc.* 88,500 $ 6,637,500
International Speedway Corp. 3,079 127,394
USA Networks, Inc.* 220,200 4,761,825
Viacom, Inc., "B"* 215,600 14,701,225
--------------
$ 26,227,944
--------------------------------------------------------------------------------------------------------
Financial Institutions - 1.8%
American Express Co. 82,800 $ 4,315,950
Charter One Financial, Inc. 52,400 1,205,200
Citigroup, Inc. 256,300 15,442,075
Golden West Financial Corp. 108,600 4,432,237
Household International, Inc. 90,800 3,773,875
Merrill Lynch & Co., Inc. 134,700 15,490,500
State Street Corp. 13,200 1,400,025
Waddell & Reed Financial, Inc., "A" 3,000 98,438
--------------
$ 46,158,300
--------------------------------------------------------------------------------------------------------
Financial Services - 0.4%
AXA Financial, Inc. 141,600 $ 4,814,400
Mellon Financial Corp. 117,100 4,266,831
--------------
$ 9,081,231
--------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.4%
Anheuser-Busch Cos., Inc. 63,500 $ 4,742,656
Coca-Cola Co. 94,200 5,410,613
--------------
$ 10,153,269
--------------------------------------------------------------------------------------------------------
</TABLE>
9
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VBF-3 8/00 4M
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
Stocks - continued
<CAPTION>
-------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Insurance - 0.5%
American International Group, Inc. 75,600 $ 8,883,000
Hartford Financial Services Group, Inc. 68,400 3,826,125
--------------
$ 12,709,125
-------------------------------------------------------------------------------------------------------
Internet - 2.2%
Art Technology Group, Inc.* 7,000 $ 706,563
Juniper Networks, Inc.* 87,200 12,693,050
VeriSign, Inc.* 245,387 43,310,805
--------------
$ 56,710,418
-------------------------------------------------------------------------------------------------------
Medical and Health Products - 2.0%
Allergan, Inc. 49,900 $ 3,717,550
Alza Corp.* 23,600 1,395,350
American Home Products Corp. 49,100 2,884,625
Bausch & Lomb, Inc. 61,800 4,781,775
Bristol-Myers Squibb Co. 120,100 6,995,825
Immunex Corp.* 147,400 7,287,087
Pfizer, Inc. 526,475 25,270,800
--------------
$ 52,333,012
-------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 1.5%
Allscripts, Inc.* 3,650 $ 83,950
BioSource International, Inc.* 26,700 594,075
BioSphere Medical, Inc.* 9,800 137,200
Cardinal Health, Inc. 86,100 6,371,400
Human Genome Sciences, Inc.* 3,800 506,825
MedImmune, Inc. 52,600 3,892,400
Merrill Lynch HOLDRs Trust* 55,400 9,861,200
PE Corp-PE Biosystems Group 245,000 16,139,375
Quest Diagnostics, Inc.* 18,500 1,382,875
--------------
$ 38,969,300
-------------------------------------------------------------------------------------------------------
Office Equipment
United Stationers, Inc.* 3,400 $ 110,075
-------------------------------------------------------------------------------------------------------
Oil Services - 1.0%
Baker Hughes, Inc. 298,600 $ 9,555,200
Global Marine, Inc.* 144,000 4,059,000
Halliburton Co. 83,600 3,944,875
Noble Affiliates, Inc. 27,800 1,035,550
Noble Drilling Corp.* 137,600 5,667,400
Weatherford International, Inc.* 51,000 2,030,438
--------------
$ 26,292,463
-------------------------------------------------------------------------------------------------------
Oils - 1.8%
Anadarko Petroleum Corp. 131,200 $ 6,469,800
Apache Corp. 77,400 4,552,087
Coastal Corp. 194,700 11,852,362
EOG Resources, Inc. 547,200 18,331,200
Grant Pride Co., Inc.* 51,000 1,275,000
Transocean Sedco Forex, Inc. 61,800 3,302,438
--------------
$ 45,782,887
-------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
Stocks - continued
<CAPTION>
-------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Pharmaceuticals - 1.5%
Andrx Corp.* 11,000 $ 703,141
Sepracor, Inc.* 274,300 33,087,437
Teva Pharmaceutical Industries Ltd. 83,000 4,601,313
--------------
$ 38,391,891
-------------------------------------------------------------------------------------------------------
Restaurants and Lodging
Cendant Corp.* 68,679 $ 961,506
-------------------------------------------------------------------------------------------------------
Retail - 1.4%
CVS Corp. 176,000 $ 7,040,000
Kohl's Corp.* 23,600 1,312,750
RadioShack Corp.* 224,600 10,640,425
Wal-Mart Stores, Inc. 287,700 16,578,713
--------------
$ 35,571,888
-------------------------------------------------------------------------------------------------------
Special Products and Services
Newport News Shipbuilding, Inc. 500 $ 18,375
-------------------------------------------------------------------------------------------------------
Supermarkets - 1.5%
Albertsons, Inc. 150,700 $ 5,010,775
Kroger Co.* 123,000 2,713,687
Safeway, Inc.* 672,600 30,351,075
--------------
$ 38,075,537
-------------------------------------------------------------------------------------------------------
Telecommunications - 15.6%
ADC Telecommunications, Inc.* 253,804 $ 21,287,810
Amdocs Ltd.* 6,900 529,575
AT&T Corp., "A"* 412,400 10,000,700
Cabletron Systems, Inc.* 119,900 3,027,475
CIENA Corp.* 307,400 51,239,737
Cisco Systems, Inc.* 2,100,812 133,532,863
Corning, Inc. 246,200 66,443,225
Emulex Corp.* 20,600 1,353,162
Intermedia Communications, Inc.* 4,500 133,875
ITC Deltacom, Inc.* 3,500 78,094
JDS Uniphase Corp.* 143,042 17,147,160
Lucent Technologies, Inc. 22,100 1,309,425
Metromedia Fiber Network, Inc., "A"* 804,970 31,947,247
MGC Communications, Inc.* 39,200 2,349,550
MRV Communications, Inc.* 21,600 1,452,600
New Focus, Inc.* 1,710 140,434
NEXTEL Communications, Inc.* 102,000 6,241,125
Nextlink Communications, Inc., "A"* 14,000 531,125
ONI Systems Corp.* 3,560 417,243
Scientific-Atlanta, Inc. 3,500 260,750
Sprint Corp.* 182,500 9,307,500
Tellabs, Inc.* 288,300 19,730,531
WorldCom, Inc.* 490,531 22,503,110
--------------
$ 400,964,316
-------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
Stocks - continued
<CAPTION>
-------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Utilities - Electric - 1.6%
AES Corp.* 194,600 $ 8,878,625
Calpine Corp.* 508,600 33,440,450
--------------
$ 42,319,075
-------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.3%
Enron Corp. 112,600 $ 7,262,700
-------------------------------------------------------------------------------------------------------
Total U.S. Stocks $2,187,929,889
-------------------------------------------------------------------------------------------------------
Foreign Stocks - 10.6%
Bermuda - 0.3%
Global Crossing Ltd. (Telecommunications)* 288,300 $ 7,585,894
-------------------------------------------------------------------------------------------------------
Canada - 3.8%
Call-Net Enterprises, Inc. (Telecommunications)* 5,000 $ 12,188
Nortel Networks Corp. (Telecommunications) 1,429,240 97,545,630
--------------
$ 97,557,818
-------------------------------------------------------------------------------------------------------
Finland - 1.8%
Nokia Corp., ADR (Telecommunications) 730,900 $ 36,499,319
Sonera Oyj (Telecommunications) 195,800 8,924,986
--------------
$ 45,424,305
-------------------------------------------------------------------------------------------------------
France - 1.0%
Alcatel Alsthom Compagnie, ADR (Telecommunications) 85,900 $ 5,712,350
Bouygues S.A. (Telecommunications) 31,198 20,847,131
--------------
$ 26,559,481
-------------------------------------------------------------------------------------------------------
Germany
Medigene AG (Pharmaceuticals)* 3,350 $ 217,458
SAP AG, ADR (Computer Software - Systems) 9,700 455,294
--------------
$ 672,752
-------------------------------------------------------------------------------------------------------
Hong Kong
China Telecom Ltd. (Telecommunications) 1,000 $ 8,820
-------------------------------------------------------------------------------------------------------
Israel - 0.8%
Check Point Software Technologies Ltd.
(Computer Software - Services)* 100,600 $ 21,302,050
-------------------------------------------------------------------------------------------------------
Sweden - 0.9%
Ericsson LM, ADR (Telecommunications) 1,211,100 $ 24,222,000
-------------------------------------------------------------------------------------------------------
United Kingdom - 2.0%
ARM Holdings PLC (Electronics)* 138,500 $ 1,483,226
ARM Holdings PLC, ADR (Electronics)* 769,200 25,287,450
Vodafone AirTouch PLC (Telecommunications)* 3,511,253 14,180,700
Vodafone AirTouch PLC, ADR (Telecommunications) 218,500 9,054,094
--------------
$ 50,005,470
-------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 273,338,590
-------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,848,396,806) $2,461,268,479
-------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Short-Term Obligations - 4.6%
-------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
American Express Credit Corp., due 7/03/00 $ 100,000 $ 99,961,778
Federal Home Loan Mortgage Corp., due 7/03/00 18,297 18,290,321
-------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 118,252,099
-------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,966,648,905) $2,579,520,578
Other Assets, Less Liabilities - (0.3)% (8,524,354)
-------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $2,570,996,224
-------------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
</TABLE>
13
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
--------------------------------------------------------------------------------
JUNE 30, 2000
--------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,966,648,905) $2,579,520,578
Investments of cash collateral for securities loaned,
at identified cost and value 21,699,106
Cash 715,130
Receivable for series shares sold 5,452,840
Receivable for investments sold 50,238,827
Interest and dividends receivable 494,558
Deferred organization expenses 121
Other assets 6,736
--------------
Total assets $2,658,127,896
--------------
Liabilities:
Payable for series shares reacquired $ 1,506,578
Payable for investments purchased 63,620,432
Collateral for securities loaned, at value 21,699,106
Payable to affiliates -
Management fee 51,979
Shareholder servicing agent fee 2,426
Administrative fee 1,148
Accrued expenses and other liabilities 250,003
--------------
Total liabilities $ 87,131,672
--------------
Net assets $2,570,996,224
==============
Net assets consist of:
Paid-in capital $1,680,911,518
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 612,867,823
Accumulated net realized gain on investments and foreign
currency transactions 278,738,592
Accumulated net investment loss (1,521,709)
--------------
Total $2,570,996,224
==============
Shares of beneficial interest outstanding 73,340,864
==========
Initial Class shares:
Net asset value, offering price, and redemption price
per share (net assets of $2,570,238,070 / 73,319,232
shares of beneficial interest outstanding) $35.06
======
Service Class shares:
Net asset value, offering price, and redemption price
per share (net assets of $758,154 / 21,632 shares of
beneficial interest outstanding) $35.05
======
See notes to financial statements.
14
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
--------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
Net investment income (loss):
Income -
Interest $ 6,917,791
Dividends 1,724,955
Foreign taxes withheld (117,703)
--------------
Total investment income $ 8,525,043
--------------
Expenses -
Management fee $ 8,968,014
Trustees' compensation 11,100
Shareholder servicing agent fee 418,508
Distribution fee (Service Class) 105
Administrative fee 179,190
Custodian fee 371,718
Printing 92,722
Auditing fee 18,850
Legal fees 906
Amortization of organization expenses 916
Miscellaneous 84,934
--------------
Total expenses $ 10,146,963
Fees paid indirectly (100,211)
--------------
Net expenses $ 10,046,752
--------------
Net investment loss $ (1,521,709)
--------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 284,806,766
Foreign currency transactions (302,467)
--------------
Net realized gain on investments and foreign currency
transactions $ 284,504,299
--------------
Change in unrealized appreciation (depreciation) -
Investments $ (350,274,012)
Translation of assets and liabilities in foreign currency (12,722)
--------------
Net unrealized loss on investments and foreign currency
translation $ (350,286,734)
--------------
Net realized and unrealized loss on investments and
foreign currency $ (65,782,435)
--------------
Decrease in net assets from operations $ (67,304,144)
==============
See notes to financial statements.
15
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (1,521,709) $ (2,876,317)
Net realized gain on investments and foreign
currency transactions 284,504,299 175,149,671
Net unrealized gain (loss) on investments and
foreign currency translation (350,286,734) 712,931,920
-------------- --------------
Increase (decrease) in net assets from operations $ (67,304,144) $ 885,205,274
-------------- --------------
Distributions declared to shareholders from net
realized gain on investments and foreign currency
transactions (Initial Class) $ (131,948,496) $ --
-------------- --------------
Net increase in net assets from series share
transactions $ 637,720,760 $ 338,336,291
-------------- --------------
Total increase in net assets $ 438,468,120 $1,223,541,565
Net assets:
At beginning of period 2,132,528,104 908,986,539
-------------- --------------
At end of period (including accumulated net
investment loss of $1,521,709 and $0,
respectively) $2,570,996,224 $2,132,528,104
============== ==============
See notes to financial statements.
</TABLE>
16
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
SIX MONTHS ENDED --------------------------------------------------------- DECEMBER 31,
JUNE 30, 2000 1999 1998 1997 1996 1995*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
INITIAL CLASS SHARES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $37.94 $21.47 $16.13 $13.24 $11.41 $10.00
------ ------ ------ ------ ------ ------
Income (loss) from investment operations# -
Net investment income (loss) $(0.02) $(0.06) $(0.05) $(0.06) $(0.01) $ 0.01
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.85) 16.53 5.55 2.95 1.95 1.74
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.87) $16.47 $ 5.50 $ 2.89 $ 1.94 $ 1.75
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ -- $ -- $ -- $(0.01)
From net realized gain on
investments and foreign
currency transactions (2.01) -- (0.05) -- (0.06) (0.26)
In excess of net realized gain
on investments and foreign
currency transactions -- -- (0.11) -- (0.05) --
From paid-in capital -- -- -- -- -- (0.07)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(2.01) $ -- $(0.16) $ -- $(0.11) $(0.34)
------ ------ ------ ------ ------ ------
Net asset value - end of
period $35.06 $37.94 $21.47 $16.13 $13.24 $11.41
====== ====== ====== ====== ====== ======
Total return (2.29)%++ 76.71% 34.16% 21.90% 17.02% 17.41%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.85%+ 0.84% 0.85% 0.90% 1.00% 1.00%+
Net investment income
(loss) (0.13)%+ (0.23)% (0.29)% (0.38)% (0.08)% 0.10%+
Portfolio turnover 101% 176% 71% 112% 96% 73%
Net assets at end of period
(000 Omitted) $2,570,239 $2,132,528 $908,987 $384,480 $104,956 $3,869
(S) Prior to January 1, 1998, subject to reimbursement by the series, the investment adviser voluntarily agreed to maintain the
expenses of the series at not more than 1.00% of average daily net assets. To the extent actual expenses were over or under
this limitation, the net investment loss per share and the ratios would have been:
Net investment loss# $(0.05) $(0.03) $(0.18)
Ratios (to average net assets):
Expenses## 0.87% 1.16% 2.91%+
Net investment loss (0.35)% (0.23)% (1.78)%+
* For the period from the commencement of the series' investment operations, July 24, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
17
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- ------------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 2000*
(UNAUDITED)
- ------------------------------------------------------------------------------
SERVICE CLASS SHARES
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $35.70
------
Income (loss) from investment operations# -
Net investment loss $(0.02)
Net realized and unrealized loss on investments and foreign
currency (0.63)
------
Total from investment operations $(0.65)
------
Net asset value - end of period $35.05
======
Total return (1.82)%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.05%+
Net investment loss (0.42)%+
Portfolio turnover 101%
Net assets at end of period (000 Omitted) $758
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset
arrangements.
See notes to financial statements.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Emerging Growth Series (the series) is a diversified series of MFS
Variable Insurance Trust (the trust). The trust is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
shareholders of the series are separate accounts of insurance companies which
offer variable annuity and/or life insurance products. As of June 30, 2000,
there were 124 shareholders of the series.
(2) SIGNIFICANT ACCOUNTING POLICIES
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The series
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued in good faith, at
fair value, by the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the series in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period beginning on the date of
commencement of series operations.
Security Loans - State Street Bank and Trust Company ("State Street") and
Chase Manhattan Bank ("Chase"), as lending agents, may loan the securities of
the series to certain qualified institutions (the "Borrowers") approved by the
series. The loans are collateralized at all times by cash and/or U.S. Treasury
securities in an amount at least equal to the market value of the securities
loaned. State Street and Chase provide the series with indemnification against
Borrower default.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the series and the lending agents. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the series and the lending agents. Income
from securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income.
At June 30, 2000, the value of securities loaned was $70,879,659. These loans
were collateralized by U.S. Treasury securities of $50,233,799 and cash of
$21,699,106, which was invested in the following short-term obligations:
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
AMORTIZED COST
SHARES AND VALUE
--------------------------------------------------------------------------------
Bayerische- und Vereinsbank, 6.26%, due 7/20/00 $ 1,000,000 $ 999,813
Salomon Smith Barney, Inc., 7.13%, due 7/3/00 10,699,293 10,699,293
Salomon Smith Barney, Inc., 6.85%, due 7/3/00 10,000,000 10,000,000
----------- -----------
Total investments of cash collateral for
securities loaned $21,699,293 $21,699,106
=========== ===========
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend payments received in additional securities are
recorded on the ex-dividend date in an amount equal to the value of the
security on such date.
Fees Paid Indirectly - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the series. This amount is shown as a reduction of total expenses on the
Statement of Operations.
Tax Matters and Distributions - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes are classified, as
distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest - The series offers multiple
classes of shares that differ in their respective distribution and service
fees. All shareholders bear the common expenses of the series based on daily
net assets of each class, without distinction between share classes. Dividends
are declared separately for each class. Differences in per share dividend
rates are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the series' average daily net assets.
The trust pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the series, all of whom receive
remuneration for their services to the series from MFS. Certain officers and
Trustees of the series are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
Administrator - The series has an administrative services agreement with MFS
to provide the series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the series incurs an administrative fee
at the following annual percentages of the series' average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - The Trustees have adopted a distribution plan for the Service
Class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
The series' distribution plan provides that the series will pay MFD up to
0.25% per annum of its average daily net assets attributable to Service Class
shares in order that MFD may pay expenses on behalf of the series related to
the distribution of its shares. A portion of this distribution fee is
currently being paid by the series; payment of the remaining 0.05% per annum
of the Service Class distribution fee will become payable on such date as the
Trustees of the trust may determine. Fees incurred under the distribution plan
during the six months ended June 30, 2000, were 0.20% of average daily net
assets attributable to Service Class shares on an annualized basis.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the series' average daily net assets at an annual rate of
0.035%.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
- ------------------------------------------------------------------------------
U.S. government securities $ 9,218,134 $ 8,359,927
-------------- --------------
Investments (non-U.S. government securities) $2,624,632,882 $2,180,628,133
-------------- --------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $1,966,648,905
--------------
Gross unrealized appreciation $ 687,426,324
Gross unrealized depreciation (74,554,651)
--------------
Net unrealized appreciation $ 612,871,673
==============
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
<TABLE>
Initial Class shares
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 YEAR ENDED DECEMBER 31, 1999
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 19,715,743 $ 742,653,169 30,176,209 $ 743,064,297
Shares issued to shareholders
in reinvestment of
distributions 3,782,927 131,948,486 -- --
Shares reacquired (6,387,180) (237,618,437) (16,305,783) (404,728,006)
---------- -------------- ---------- --------------
Net increase 17,111,490 $ 636,983,218 13,870,426 $ 338,336,291
========== ============== ========== ==============
Service Class shares
<CAPTION>
PERIOD ENDED JUNE 30, 2000*
--------------------------------
SHARES AMOUNT
- ------------------------------------------------------------------
<S> <C> <C>
Shares sold 22,118 $ 753,813
Shares reacquired (486) (16,271)
---------- --------------
Net increase 21,632 $ 737,542
========== ==============
* For the period from the inception of Service Class shares, May 1, 2000, through June 30, 2000.
</TABLE>
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at
the end of each quarter. The commitment fee allocated to the series for the
six months ended June 30, 2000, was $9,462. The series had no borrowings
during the period.
21
<PAGE>
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VEG-3 8/00 114M
<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT SEMIANNUAL REPORT
We invented the mutual fund(R) JUNE 30, 2000
[Graphic Omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) GROWTH SERIES
<PAGE>
<TABLE>
MFS(R) GROWTH SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Massachusetts Financial Services Company
Jeffrey L. Shames* - Chairman and Chief Executive 500 Boylston Street
Officer, MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr.+ - Private investor and DISTRIBUTOR
trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow+ - Private investor and real Boston, MA 02116-3741
estate consultant; Vice Chairman, Capitol
Entertainment Management Company (video franchise) INVESTOR SERVICE
MFS Service Center, Inc.
CHAIRMAN AND PRESIDENT P.O. Box 2281
Jeffrey L. Shames* Boston, MA 02107-9906
PORTFOLIO MANAGER For additional information,
Stephen Pesek* contact your investment professional.
TREASURER CUSTODIAN
James O. Yost* State Street Bank and Trust Company
ASSISTANT TREASURERS WORLD WIDE WEB
Mark E. Bradley* www.mfs.com
Ellen Moynihan*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
</TABLE>
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large
decline, as they did this past spring, there's a flurry of information on "how
to deal with market volatility" -- both in the popular press and from those of
us in the investment business. Our own thinking on this is that, first, for
long-term investors volatility is not necessarily something to be feared;
occasional volatility may in fact be healthy for the markets.
Second, our experience has been that when markets begin to fall, it's often
too late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market
volatility in stride, here are some points you may want to consider the next
time you talk with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with very
high stock prices, relative to their earnings, or with business concepts that
looked great in the euphoria of a booming market but in the end appeared to have
no fundamental backing. It has always been our view that one of the best
protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask how
they fared in previous periods of volatility, as well as in the good times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over
nearly all long-term periods -- 5, 10, 20 years, and more -- stock and bond
returns, as represented by most common indices, have been positive and have
considerably outpaced inflation. Investing is the best way we know of to make
your money work for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading.
In our view, traders who buy securities with the intention of selling them at
a profit in a matter of hours, days, or weeks are gambling. We believe this
seldom turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy,
because only in retrospect do we know when that right time really was. Periods
of volatility are probably the worst times to make an investment decision.
Faced with turmoil in the markets, many investors have opted to simply stay on
the sidelines.
On the other hand, we think one of the best techniques for investing is
through automatic monthly or quarterly deductions from a checking or savings
account. This approach has at least three major benefits. First, you can
formulate a long-term plan -- how much to invest, how often, and into which
portfolios -- in a calm, rational manner, working with your investment
professional. Second, with this approach you invest regularly without
agonizing over the decision each time you buy shares. And, third, if you
invest equal amounts of money at regular intervals, you'll be taking advantage
of a strategy called dollar-cost averaging: by investing a fixed amount while
the share cost fluctuates, you end up with an average share cost to you that
is lower than the average share price over your investment period.(1) If all
this sounds familiar, it's probably because you're already taking advantage of
dollar-cost averaging by investing regularly for retirement through a 401(k)
or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, by moving money into whatever asset class appears
to be outperforming at the moment --
1
<PAGE>
LETTER FROM THE CHAIRMAN - continued
small, mid, or large cap; growth or value; United States or international;
stocks or bonds. The problem with this approach is that by the time a particular
area is generally recognized as "hot," you may have already missed some of the
best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out
of 10 years.(2) For the decade, the MSCI EAFE's average annual performance was
23%, compared to 18% for the S&P 500. Going into the 1990s, then, an investor
looking only at recent performance might have favored international
investments over U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We would
suggest that one way to potentially profit from swings in the market -- to
potentially be invested in various asset classes before the market shifts in
their favor -- is with a diversified portfolio covering several asset classes.
If you haven't already done so, we encourage you to discuss these thoughts
with your investment professional and factor them into your long-range
financial planning. Hopefully, the next time the markets appear to be going
wild, you'll feel confident enough in your plan to view periods of volatility
as a time of potential opportunity -- or perhaps just a time to sit back and
do nothing.
As always, we appreciate your confidence and welcome any questions or comments
you may have.
Respectfully,
/s/ Jeffrey L. Shames
-----------------------------------
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 17, 2000
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your investment professional for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
2
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended June 30, 2000, the series' Initial Class and Service
Class shares each provided a total return of 3.51%, including the reinvestment
of any dividends. This compares to a -0.42% return over the same period for
the series' benchmark, the Standard & Poor's 500 Composite Index (the S&P
500). The S&P 500 is a popular, unmanaged index of common stock performance.
The series' return also compares to a 2.36% return for the average growth fund
tracked by Lipper Inc., an independent firm that reports performance.
During a period that included dramatic market volatility, the series
outperformed both its benchmark and a majority of its peers. We attribute that
to several factors. First, we tend to be well diversified across both
companies and sectors; we avoid taking very big positions in any individual
holding. In our experience, that mitigates some of the volatility in a down
market. Second, we cut back our technology holdings early in the first quarter
of 2000 because some of these stocks reached the price targets we had set for
them and others, we felt, had risen to overly high valuations. That helped us
weather a correction that largely affected technology stocks. Third, we used
the correction as an opportunity to add to our positions in what we view as
some very good companies at bargain prices. Cisco Systems is one example.
Over the past six months, we think the likelihood of a slowdown in corporate
earnings has risen with the Federal Reserve Board's (the Fed's) increases in
interest rates. This has led us to increase the portfolio's diversification
into sectors we believe may be less exposed to the economic cycle. Two
examples are health care and business services.
We increased our weighting in health care stocks mainly by adding
pharmaceutical holdings such as Pharmacia and Warner-Lambert. The portfolio
profited handsomely when Warner-Lambert's stock rose on the news of its
pending acquisition by Pfizer, which was completed in June, and Pfizer
continues to be a significant holding. Short term, we expect there will
continue to be a lot of rhetoric out of Washington regarding health care
regulation, but in the long term we don't think that will seriously impact
what our research indicates are strong earnings outlooks for our
pharmaceutical holdings.
Business services companies provide services that enable larger companies to
become more efficient by downsizing and outsourcing. Two examples are Computer
Sciences, an information technology consulting firm, and Automatic Data
Processing, which we feel is the market leader in payroll processing. In
addition to their strong growth prospects, we think many business services
companies offer relatively predictable, consistent revenues because much of
their work tends to come from long-term contracts.
We continue to have a bullish long-term outlook for the portfolio's technology
and telecommunications holdings, although in the short term we feel some of
these companies could be sensitive to an economic slowdown. A look at current
spending patterns around the world offers a reason for optimism. According to
our research, spending on information technology is increasing in every area of
the world, and in the United States spending this year is estimated to reach
nearly 5% of gross domestic product. By comparison, however, Europe will spend
about half of that figure, while Japan and other Asian countries will spend even
less. We believe that in the long term these foreign economies will need to
dramatically increase their technology spending in order to remain competitive
with the United States -- and that a significant portion of that spending may go
to companies in our portfolio that are already leaders of the communications and
technology revolution, such as Cisco, Nortel, Corning, and Intel.
In describing our overall investment style and strategy, two phrases we often
use are "sustainable competitive advantage" and "flexible and opportunistic."
What we try to find for the portfolio are good businesses selling at reasonable
valuations, and one of our definitions of a good business is one that exhibits a
sustainable competitive advantage. Often that's a large market share; we tend to
invest in businesses with very few competitors. A patented product is another
form of competitive advantage; an example would be a pharmaceutical company with
the most effective drug for a certain disease or condition. Lowest cost may be
another form of sustainable competitive advantage.
3
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK - continued
Micron Technology, which became one of our top holdings during the period,
offers an example. We believe the company has become a dominant global
manufacturer of dynamic random access memory (DRAM) computer chips, which are
essential components of computer hard drives, wireless phones, and other
devices. According to our research, Micron's market share was about 8% in 1997
and is expected to reach nearly 20% this year; globally, it is one of the two
lowest-cost producers. It is also the only DRAM manufacturer that has added
significant production capacity since 1996, by acquiring a chip factory from
Texas Instruments. Currently, demand for DRAM chips is outstripping supply; we
feel this situation could continue for some time and lead to dramatic price
increases. So we believe Micron has a sustainable competitive advantage as a
result of being one of the lowest-cost producers and having a dominant market
share of a product experiencing high demand.
Flexible and opportunistic are really two aspects of the same strategy. As
long-term investors, we try to buy stocks we believe we can hold for three
years or more. But we also recognize that the investing landscape changes
daily and has become increasingly volatile in recent years, due largely to the
instantaneous flow of large amounts of information. We try to be flexible and
take advantage of the opportunities that the market presents, in part by
purchasing stocks we believe have strong growth prospects over the long term
but are undervalued over the short term -- perhaps because of some negative
announcement or what we believe is a false rumor. Everything continues to be
driven by our Original Research(SM); in many cases our analysts have
identified companies we would like to invest in when a drop in their stock
prices presents us with an opportunity.
Respectfully,
/s/ Stephen Pesek
-----------------------------
Stephen Pesek
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. The manager's views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
4
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Stephen Pesek is Senior Vice President of MFS Investment Management(R) and
portfolio manager of Massachusetts Investors Growth Stock Fund, MFS(R) Core
Growth Fund, and the Massachusetts Investors Growth Stock Series offered
through MFS(R)/Sun Life annuity products. He is also a portfolio manager of
MFS(R) Institutional Large Cap Growth Fund and MFS(R) Growth Series (part of
MFS(R) Variable Insurance Trust(SM)).
Mr. Pesek joined MFS in 1994 as a research analyst following the
pharmaceutical, biotechnology, and electronics industries. He became a
portfolio manager in 1996 and Senior Vice President in 1999. Prior to joining
MFS, he worked for seven years at a major investment management firm as an
equity analyst. He is a graduate of the University of Pennsylvania and has an
M.B.A. degree from Columbia University. He is a Chartered Financial Analyst.
All equity portfolio managers began their careers at MFS Investment
Management(R) as research analysts. Our portfolio managers are supported by an
investment staff of over 100 professionals utilizing MFS Original Research(R),
a global, company-oriented, bottom-up process of selecting securities.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including all charges and expenses, for any MFS product is available from your
investment professional, or by calling MFS at 1-800-225-2606. Please read it
carefully before investing or sending money.
5
<PAGE>
SERIES FACTS
Objective: Seeks to provide long-term growth of capital and future income
rather than current income.
Commencement of investment operations: May 3, 1999
Class inception: Initial Class May 3, 1999
Service Class May 1, 2000
Size: $61.9 million net assets as of June 30, 2000
PERFORMANCE SUMMARY
Because the series is designed for investors with long-term goals, we have
provided the cumulative as well as the average annual total returns for the
applicable time periods. Investment results reflect the percentage change in
net asset value, including the reinvestment of dividends. (See Notes to
Performance Summary.)
TOTAL RATES OF RETURN THROUGH JUNE 30, 2000
INITIAL CLASS
6 Months 1 Year Life*
-----------------------------------------------------------------------------
Cumulative Total Return +3.51% +26.34% +44.92%
-----------------------------------------------------------------------------
Average Annual Total Return -- +26.34% +37.73%
-----------------------------------------------------------------------------
SERVICE CLASS
6 Months 1 Year Life*
-----------------------------------------------------------------------------
Cumulative Total Return +3.51% +26.34% +44.92%
-----------------------------------------------------------------------------
Average Annual Total Return -- +26.34% +37.73%
-----------------------------------------------------------------------------
* For the period from the commencement of the series' investment operations,
May 3, 1999, through June 30, 2000.
NOTES TO PERFORMANCE SUMMARY
Initial Class and Service Class shares have no sales charge; however, Service
Class shares carry a 0.20% annual Rule 12b-1 fee. Service Class share
performance includes the performance of the series' Initial Class shares for
periods prior to the inception of Service Class shares (blended performance).
These blended performance figures have not been adjusted to take into account
differences in the class-specific operating expenses (such as Rule 12b-1
fees). Because operating expenses of Service Class shares are higher than
those of Initial Class shares, the blended Service Class share performance is
higher than it would have been had Service Class shares been offered for the
entire period.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and capital
gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the variable product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
6
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 2000
<CAPTION>
Stocks - 92.1%
-------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 83.9%
Banks and Credit Companies - 0.5%
Providian Financial Corp. 3,535 $ 318,150
-------------------------------------------------------------------------------------------------------
Biotechnology - 1.7%
Abbott Laboratories, Inc. 15,700 $ 699,631
Waters Corp.* 3,090 385,671
------------
$ 1,085,302
-------------------------------------------------------------------------------------------------------
Business Machines - 2.1%
Seagate Technology, Inc.* 10,300 $ 566,500
Sun Microsystems, Inc.* 8,300 754,781
------------
$ 1,321,281
-------------------------------------------------------------------------------------------------------
Business Services - 3.8%
Automatic Data Processing, Inc. 14,000 $ 749,875
Bea Systems, Inc.* 1,840 90,965
BISYS Group, Inc.* 3,000 184,500
Computer Sciences Corp.* 10,020 748,369
First Data Corp. 9,810 486,821
Fiserv, Inc.* 2,580 111,585
Predictive Systems, Inc.* 35 1,258
------------
$ 2,373,373
-------------------------------------------------------------------------------------------------------
Cellular Telephones - 2.2%
AirGate PCS, Inc.* 25 $ 1,314
Motorola, Inc. 10,106 293,706
Sprint Corp. (PCS Group)* 15,260 907,970
Voicestream Wireless Corp.* 1,200 139,556
------------
$ 1,342,546
-------------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 1.7%
Compaq Computer Corp. 6,800 $ 173,825
Dell Computer Corp.* 17,300 853,106
------------
$ 1,026,931
-------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 3.3%
Mercury Interactive Corp.* 1,500 $ 145,125
Microsoft Corp.* 23,990 1,919,200
------------
$ 2,064,325
-------------------------------------------------------------------------------------------------------
Computer Software - Services - 1.4%
EMC Corp.* 11,080 $ 852,468
Metasolv Software, Inc.* 10 440
------------
$ 852,908
-------------------------------------------------------------------------------------------------------
Computer Software - Systems - 5.8%
BMC Software, Inc.* 9,150 $ 333,832
Cadence Design Systems, Inc.* 19,630 399,961
Commerce One, Inc.* 1,300 58,988
Computer Associates International, Inc. 9,910 507,268
Comverse Technology, Inc.* 4,100 381,300
E.piphany, Inc.* 1,200 128,625
Foundry Networks, Inc.* 800 88,000
I2 Technologies, Inc.* 300 31,280
Oracle Corp.* 9,430 792,709
Rational Software Corp.* 6,400 594,800
Siebel Systems, Inc.* 1,320 215,902
</TABLE>
7
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Stocks - continued
--------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Computer Software - Systems - continued
StorageNetworks, Inc.* 80 80
VERITAS Software Corp.* 300 33,905
------------
$ 3,573,790
--------------------------------------------------------------------------------------------------------
Conglomerates - 2.5%
Tyco International Ltd. 32,700 $ 1,549,162
--------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.6%
Philip Morris Cos., Inc. 7,700 $ 204,531
Clorox Co. 3,700 165,806
Gillette Co. 10 350
------------
$ 370,687
--------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.9%
Capstone Turbine Corp.* 70 $ 3,154
Emerson Electric Co. 2,600 156,975
General Electric Co. 18,990 1,006,470
Jabil Circuit, Inc.* 100 4,963
------------
$ 1,171,562
--------------------------------------------------------------------------------------------------------
Electronics - 9.9%
Altera Corp.* 3,140 $ 320,084
Analog Devices, Inc.* 3,660 278,160
Applied Materials, Inc.* 1,500 135,938
Atmel Corp.* 3,960 146,025
Flextronics International Ltd.* 9,662 663,659
Intel Corp. 11,480 1,534,732
Lam Research Corp.* 10,660 399,750
LSI Logic Corp.* 10,460 566,147
Marvell Technology Group Ltd.* 100 5,700
Micron Technology, Inc.* 17,700 1,558,706
National Semiconductor Corp.* 8,850 502,238
------------
$ 6,111,139
--------------------------------------------------------------------------------------------------------
Energy - 0.3%
Dynegy, Inc. 2,600 $ 177,613
--------------------------------------------------------------------------------------------------------
Entertainment - 3.3%
Gemstar International Group Ltd.* 160 $ 9,832
Harrah's Entertainment, Inc.* 210 4,397
Infinity Broadcasting Corp., "A"* 7,210 262,714
Radio Unica Communications Co.* 25 175
Time Warner, Inc. 6,270 476,520
Univision Communications, Inc., "A"* 1,790 185,265
USA Networks, Inc.* 15,600 337,350
Viacom, Inc., "B"* 11,635 793,362
------------
$ 2,069,615
--------------------------------------------------------------------------------------------------------
Financial Institutions - 3.2%
American Express Co. 3,140 $ 163,672
Associates First Capital Corp., "A" 12,300 274,444
Citigroup, Inc. 9,980 601,295
Freddie Mac Corp. 12,900 522,450
</TABLE>
8
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Stocks - continued
--------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Financial Institutions - continued
Morgan Stanley Dean Witter & Co. 400 33,300
State Street Corp. 3,740 396,674
------------
$ 1,991,835
--------------------------------------------------------------------------------------------------------
Financial Services - 0.7%
AXA Financial, Inc. 13,300 $ 452,200
--------------------------------------------------------------------------------------------------------
Food and Beverage Products - 1.9%
Anheuser-Busch Cos., Inc. 7,600 $ 567,625
Coca-Cola Co. 10,900 626,069
------------
$ 1,193,694
--------------------------------------------------------------------------------------------------------
Healthcare - 0.5%
HCA Healthcare Co.* 11,200 $ 340,200
--------------------------------------------------------------------------------------------------------
Insurance - 3.0%
American International Group, Inc. 7,377 $ 866,797
Hartford Financial Services Group, Inc. 9,900 553,781
Lincoln National Corp. 3,760 135,830
Marsh & McLennan Cos., Inc. 2,900 302,869
------------
$ 1,859,277
--------------------------------------------------------------------------------------------------------
Internet - 2.4%
Art Technology Group, Inc.* 1,000 $ 100,937
Cobalt Networks, Inc.* 10 579
Data Return Corp.* 25 725
Juniper Networks, Inc.* 700 101,894
Lifeminders, Inc.* 10 296
Retek, Inc.* 10 320
VeriSign, Inc.* 7,340 1,295,510
------------
$ 1,500,261
--------------------------------------------------------------------------------------------------------
Machinery - 0.4%
Deere & Co., Inc. 6,090 $ 225,330
--------------------------------------------------------------------------------------------------------
Medical and Health Products - 3.5%
Alza Corp.* 2,600 $ 153,725
American Home Products Corp. 18,095 1,063,081
Bausch & Lomb, Inc. 4,450 344,319
Baxter International, Inc. 85 5,977
Bristol-Myers Squibb Co. 10,380 604,635
------------
$ 2,171,737
--------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.8%
Cardinal Health, Inc. 270 $ 19,980
Edwards Lifesciences Corp.* 17 315
Genzyme Corp.* 1,000 59,438
PE Corp. - PE Biosystems Group 5,900 388,662
------------
$ 468,395
--------------------------------------------------------------------------------------------------------
Oil Services - 2.5%
Baker Hughes, Inc. 17,100 $ 547,200
Global Marine, Inc.* 9,900 279,056
Halliburton Co. 9,330 440,259
Noble Drilling Corp.* 6,430 264,836
------------
$ 1,531,351
--------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Stocks - continued
--------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Oils - 1.5%
Apache Corp. 1,320 $ 77,633
Coastal Corp. 6,300 383,512
Transocean Sedco Forex, Inc. 8,290 442,997
------------
$ 904,142
--------------------------------------------------------------------------------------------------------
Pharmaceuticals - 4.0%
Pfizer, Inc. 25,390 $ 1,218,720
Pharmacia Corp. 20,379 1,053,339
Sepracor, Inc.* 1,600 193,000
------------
$ 2,465,059
--------------------------------------------------------------------------------------------------------
Retail - 2.2%
CVS Corp. 19,955 $ 798,200
Office Depot, Inc.* 4,620 28,875
RadioShack Corp. 8,540 404,582
Wal-Mart Stores, Inc. 2,600 149,825
------------
$ 1,381,482
--------------------------------------------------------------------------------------------------------
Supermarkets - 2.2%
Kroger Co.* 12,200 $ 269,163
Safeway, Inc.* 24,060 1,085,707
------------
$ 1,354,870
--------------------------------------------------------------------------------------------------------
Telecommunications - 11.4%
Alltel Corp. 2,300 $ 142,456
Amdocs Ltd.* 2,550 195,713
American Tower Corp., "A"* 13,390 558,196
AT&T Corp., "A"* 12,120 293,910
Cabletron Systems, Inc.* 4,360 110,090
Cisco Systems, Inc.* 27,180 1,727,629
Corning, Inc. 4,575 1,234,678
Metromedia Fiber Network, Inc., "A"* 17,440 692,150
NEXTEL Communications, Inc.* 6,100 373,244
Nextlink Communications, Inc., "A"* 8,700 330,056
NTL, Inc.* 6,500 389,187
Tellabs, Inc.* 4,500 307,969
UnitedGlobalCom, Inc.* 2,840 132,770
Vignette Corp.* 600 31,209
WorldCom, Inc.* 11,100 509,212
------------
$ 7,028,469
--------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.9%
Comcast Corp., "A"* 13,890 $ 562,545
--------------------------------------------------------------------------------------------------------
Utilities - Electric - 1.7%
AES Corp.* 22,600 $ 1,031,125
--------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
Enron Corp. 660 $ 42,570
--------------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 51,912,926
--------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Stocks - continued
--------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - 8.2%
Bermuda - 0.9%
Global Crossing Ltd. (Telecommunications)* 21,850 $ 574,928
--------------------------------------------------------------------------------------------------------
Canada - 2.8%
Nortel Networks Corp. (Telecommunications) 25,160 $ 1,717,170
--------------------------------------------------------------------------------------------------------
Germany
SAP AG, ADR (Computer Software - Systems) 30 $ 1,408
--------------------------------------------------------------------------------------------------------
Israel - 0.9%
Check Point Software Technologies Ltd.
(Computer Software - Services)* 2,500 $ 529,375
--------------------------------------------------------------------------------------------------------
Japan - 0.6%
Fast Retailing Co. (Retail) 800 $ 334,842
--------------------------------------------------------------------------------------------------------
Netherlands - 1.4%
Royal Dutch Petroleum Co. (Oils) 13,700 $ 851,379
--------------------------------------------------------------------------------------------------------
Sweden - 0.1%
Telefonaktiebolaget LM Ericsson AB (Telecommunications) 4,220 $ 83,539
--------------------------------------------------------------------------------------------------------
United Kingdom - 1.5%
HSBC Holdings PLC (Banks and Credit Cos.)* 12,300 $ 140,561
Vodafone AirTouch PLC (Telecommunications)* 198,825 802,983
------------
$ 943,544
--------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 5,036,185
- -------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $53,887,709) $ 56,949,111
--------------------------------------------------------------------------------------------------------
Short-Term Obligations - 8.2%
-
-------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/03/00, at Amortized
Cost $ 5,071 $ 5,069,149
- -------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $58,956,858) $ 62,018,260
Other Assets, Less Liabilities - (0.3)% (156,123)
- -------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 61,862,137
- -------------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
</TABLE>
11
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
JUNE 30, 2000
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $58,956,858) $ 62,018,260
Investments of cash collateral for securities loaned, at
identified cost and value 9,055,374
Cash 545
Foreign currency, at value (identified cost, $86) 80
Receivable for series shares sold 695,346
Receivable for investments sold 712,030
Dividends receivable 18,505
------------
Total assets $ 72,500,140
------------
Liabilities:
Payable for series shares reacquired $ 1,376
Payable for investments purchased 1,579,726
Collateral for securities loaned, at value 9,055,374
Payable to affiliates -
Management fee 1,247
Reimbursement fee 249
Distribution fee 31
------------
Total liabilities $ 10,638,003
------------
Net assets $ 61,862,137
============
Net assets consist of:
Paid-in capital $ 58,314,685
Unrealized appreciation on investments and translation of
assets and liabilities in
foreign currencies 3,060,848
Accumulated undistributed net realized gain on investments and
foreign currency transactions 448,223
Accumulated undistributed net investment income 38,381
------------
Total $ 61,862,137
============
Shares of beneficial interest outstanding 4,314,996
=========
Initial Class:
Net asset value per share
(net assets of $55,891,107 / 3,898,303 shares of beneficial
interest outstanding) $14.34
======
Service Class:
Net asset value per share
(net asset of $5,971,030 / 416,693 shares of beneficial
interest outstanding) $14.33
======
See notes to financial statements.
12
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 142,003
Dividends 72,759
Foreign taxes withheld (972)
------------
Total investment income $ 213,790
------------
Expenses -
Management fee $ 138,255
Trustees' compensation 1,090
Shareholder servicing agent fee 6,452
Distribution fee (Service Class) 772
Administrative fee 3,054
Custodian fee 12,139
Printing 4,237
Auditing fees 15,400
Legal fees 967
Miscellaneous 869
------------
Total expenses $ 183,235
Fees paid indirectly (698)
Reduction of expenses by investment adviser (5,725)
------------
Net expenses $ 176,812
------------
Net investment income $ 36,978
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 575,996
Foreign currency transactions (7,907)
------------
Net realized gain on investments and foreign currency
transactions $ 568,089
------------
Change in unrealized appreciation (depreciation) -
Investments $ 650,304
Translation of assets and liabilities in foreign currencies (553)
------------
Net unrealized gain on investments and foreign currency
translation $ 649,751
------------
Net realized and unrealized gain on investments and
foreign currency $ 1,217,840
------------
Increase in net assets from operations $ 1,254,818
============
See notes to financial statements.
13
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Statement of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED*
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 36,978 $ 25,464
Net realized gain on investments and foreign currency
transactions 568,089 203,087
Net unrealized gain on investments and foreign
currency translation 649,751 2,411,097
------------ ------------
Increase in net assets from operations $ 1,254,818 $ 2,639,648
------------ ------------
Distributions declared to shareholders -
From net investment income (Initial Class) -- (25,464)
Net realized gain on investments and foreign currency
transactions (Initial Class) (282,095) (36,772)
In excess of net investment income (Initial Class) -- (2,683)
------------ ------------
Total distributions declared to shareholders $ (282,095) $ (64,919)
------------ ------------
Net increase in net assets from series share
transactions $ 42,000,186 $ 16,314,499
------------ ------------
Total increase in net assets $ 42,972,909 $ 18,889,228
Net assets:
At beginning of period 18,889,228 --
------------ ------------
At end of period (including accumulated undistributed
net investment income of $38,381 and $1,403,
respectively) $ 61,862,137 $ 18,889,228
============ ============
* For the period from the commencement of the series' investment operations, May 3, 1999, through
December 31, 1999.
See notes to financial statements.
</TABLE>
14
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
-------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999*
-------------------------------------------------------------------------------
INITIAL CLASS
-------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $13.95 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.01 $ 0.06
Net realized and unrealized gain on investments
and foreign currency 0.48 3.94
------ ------
Total from investment operations $ 0.49 $ 4.00
------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.02)
From net realized gain on investments and foreign
currency transactions (0.10) (0.03)
In excess of net investment income -- -- +++
------ ------
Total distributions declared to shareholders $(0.10) $(0.05)
------ ------
Net asset value - end of period $14.34 $13.95
====== ======
Total return 3.51%++ 40.01%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.95%+ 1.01%+
Net investment income 0.20%+ 0.71%+
Portfolio turnover 103% 73%
Net assets at end of period (000 omitted) 55,891 $18,889
(S) Subject to reimbursement by the series, the investment adviser voluntarily
agreed under a temporary expense reimbursement agreement to pay all of the
series' operating expenses, exclusive of management fees. In
consideration, the series pays the investment adviser a reimbursement fee
not greater than 0.15% of the average daily net assets. Prior to May 1,
2000, this fee was not greater than 0.25% of the average net assets. To
the extent actual expenses were over this limitation, the net investment
income per share and the ratios would have been:
Net investment income $ 0.01 $ 0.02
Ratios (to average net assets):
Expenses## 0.98%+ 1.47%+
Net investment income 0.17%+ 0.25%+
* For the period from the commencement of the series' investment operations,
May 3, 1999, through December 31, 1999.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and
certain expense offset arrangements.
See notes to financial statements.
15
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
--------------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 2000*
(UNAUDITED)
--------------------------------------------------------------------------------
SERVICE CLASS
--------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $14.27
------
Income from investment operations# -
Net investment income $ -- +++
Net realized and unrealized gain on investments and foreign
currency 0.06
------
Total from investment operations $ 0.06
------
Net asset value - end of period $14.33
======
Total return 3.51%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.15%+
Net investment income 0.01%+
Portfolio turnover 103%
Net assets at end of period (000 omitted) $5,971
(S) Subject to reimbursement by the series, the investment adviser voluntarily
agreed under a temporary expense reimbursement agreement to pay all of the
series' operating expenses, exclusive of management and distribution fees.
In consideration, the series pays the investment adviser a reimbursement
fee not greater than 0.15% of the average daily net assets. To the extent
actual expenses were over this limitation, the net investment loss per
share and the ratios would have been:
Net investment loss $ -- +++
Ratios (to average net assets):
Expenses## 1.18%+
Net investment loss (0.02)%+
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and
certain expense offset arrangements.
See notes to financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Growth Series (the series) is a diversified series of MFS Variable
Insurance Trust (the trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of
each series of the trust are separate accounts of insurance companies which
offer variable annuity and/or life insurance products. As of June 30, 2000,
there were 24 shareholders in the series.
(2) SIGNIFICANT ACCOUNTING POLICIES
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The series
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued in good faith, at
fair value, by the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Security Loans - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the series to certain qualified
institutions (the "Borrowers") approved by the series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the series with indemnification against Borrower default. The
series bears the risk of loss with respect to the investment of cash
collateral.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the series and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the series and the lending agent. Income
from securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income.
At June 30, 2000, the value of securities loaned was $8,810,447. These loans
were collateralized by U.S. Treasury securities of $18,308 and cash of
$9,055,374 which was invested in the following short-term obligation:
IDENTIFIED COST
SHARES AND VALUE
- ------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 9,055,374 $9,055,374
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the series. During the period, the series' custodian fees were reduced by $328
under this arrangement. This series has entered into a directed brokerage
agreement, under which the broker will credit the series a portion of the
commissions generated, to offset certain expenses of this series. For the
period, the series custodian fees were reduced by $370 under this agreement.
These amounts are shown as a reduction of total expenses on the Statement of
Operations.
Tax Matters and Distributions - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits be reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits, which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest - The series offers multiple
classes of shares that differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
Investment Adviser - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the series' average daily net assets. The series has a temporary expense
reimbursement agreement whereby MFS has voluntarily agreed to pay all of the
series' operating expenses, exclusive of management and distribution fees. The
series in turn will pay MFS an expense reimbursement fee not greater than
0.15% of average daily net assets. Prior to May 1, 2000, the series paid MFS
an expense reimbursement fee was not greater than 0.25% of the daily net
assets. To the extent that the expense reimbursement fee exceeds the series'
actual expenses, the excess will be applied to amounts paid by MFS in prior
years. At June 30, 2000, aggregate unreimbursed expenses owed to MFS by the
series amounted to $22,093.
The series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the series, all of whom receive
remuneration for their services to the series from MFS. Certain officers and
Trustees of the series are officers or directors of MFS and MFS Service
Center, Inc. (MFSC).
Administrator - The series has an administrative services agreement with MFS
to provide the series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the series incurs an administrative fee
at the following annual percentages of the series' average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - The Trustees have adopted a distribution plan relating to
Service Class shares pursuant to Rule 12b-1 of the Investment Company Act of
1940 as follows:
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
The series' distribution plan provides that the series will pay MFD a
distribution fee of 0.25% per annum of the its average daily net assets
attributable to the Service Class shares in order that MFD may pay expenses on
behalf of the series related to the distribution of its shares. A portion of
this distribution fee is currently being paid by the series; payment of the
remaining 0.05% per annum of the Service Class distribution fee will become
payable on such a date as the Trustees of the trust may determine. Fees
incurred under the distribution plan during the period ended June 30, 2000,
were 0.20% of average daily assets attributable to Service Class shares on an
annualized basis.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the series' average daily net assets at an annual rate of
0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
- -----------------------------------------------------------------------------
U.S. government securities $ 761,010 $ 165,679
----------- -----------
Investments (non-U.S. government securities) $75,190,237 $33,964,472
----------- -----------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $58,956,858
-----------
Gross unrealized appreciation $ 4,515,116
Gross unrealized depreciation (1,453,714)
-----------
Net unrealized appreciation $ 3,061,402
===========
(5) Shares of Beneficial Interest
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
<TABLE>
<CAPTION>
Initial Class
SIX MONTHS ENDED JUNE 30, 2000 PERIOD ENDED DECEMBER 31, 1999*
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,740,769 $38,963,381 1,306,924 $17,118,606
Shares issued to shareholders in
reinvestment of distributions 19,838 282,092 18,737 311,327
Shares reacquired (216,086) (3,111,682) (387,890) (5,004,681)
--------- ----------- --------- -----------
Net increase 2,544,521 $36,133,791 937,771 $12,425,252
========= =========== ========= ===========
<CAPTION>
Service Class
PERIOD ENDED JUNE 30, 2000**
----------------------------
SHARES AMOUNT
- ---------------------------------------------------------------------
<S> <C> <C>
Shares sold 417,948 $ 5,884,745
Shares reacquired (1,255) (18,350)
--------- -----------
Net increase 416,693 $ 5,866,395
========= ===========
* For the period from the commencement of the series' investment operations, May 3, 1999, through
December 31, 1999.
** For the period from the inception of Service Class shares, May 1, 2000, through June 30, 2000.
</TABLE>
(6) Line of Credit
The series and other affiliated funds participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each series, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at
the end of each quarter. The commitment fee allocated to the series for the
six months ended June 30, 2000, was $10. The series had no significant
borrowings during the period.
<PAGE>
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VGS-3 8/00 19.5M
<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT SEMIANNUAL REPORT
We invented the mutual fund(R) June 30, 2000
[graphic omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) GROWTH WITH
INCOME SERIES
<PAGE>
<TABLE>
MFS(R) GROWTH WITH INCOME SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S>
TRUSTEES <C>
Jeffrey L. Shames* - Chairman and Chief Executive INVESTMENT ADVISER
Officer, MFS Investment Management(R) Massachusetts Financial Services Company
500 Boylston Street
Nelson J. Darling, Jr.+ - Private investor and Boston, MA 02116-3741
trustee
DISTRIBUTOR
William R. Gutow+ - Private investor and real MFS Fund Distributors, Inc.
estate consultant; Vice Chairman, Capitol 500 Boylston Street
Entertainment Management Company (video franchise) Boston, MA 02116-3741
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames* INVESTOR SERVICE
MFS Service Center, Inc.
PORTFOLIO MANAGER P.O. Box 2281
John D. Laupheimer, Jr.* Boston, MA 02107-9906
TREASURER For additional information,
James O. Yost* contact your investment professional.
ASSISTANT TREASURERS CUSTODIAN
Mark E. Bradley* State Street Bank and Trust Company
Ellen Moynihan*
WORLD WIDE WEB
SECRETARY www.mfs.com
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
</TABLE>
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large decline,
as they did this past spring, there's a flurry of information on "how to deal
with market volatility" -- both in the popular press and from those of us in the
investment business. Our own thinking on this is that, first, for long-term
investors volatility is not necessarily something to be feared; occasional
volatility may in fact be healthy for the markets.
Second, our experience has been that when markets begin to fall, it's often too
late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market volatility
in stride, here are some points you may want to consider the next time you talk
with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with very
high stock prices, relative to their earnings, or with business concepts that
looked great in the euphoria of a booming market but in the end appeared to have
no fundamental backing. It has always been our view that one of the best
protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask how
they fared in previous periods of volatility, as well as in the good times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over nearly
all long-term periods -- 5, 10, 20 years, and more -- stock and bond returns, as
represented by most common indices, have been positive and have considerably
outpaced inflation. Investing is the best way we know of to make your money work
for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading. In
our view, traders who buy securities with the intention of selling them at a
profit in a matter of hours, days, or weeks are gambling. We believe this seldom
turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy, because
only in retrospect do we know when that right time really was. Periods of
volatility are probably the worst times to make an investment decision. Faced
with turmoil in the markets, many investors have opted to simply stay on the
sidelines.
On the other hand, we think one of the best techniques for investing is through
automatic monthly or quarterly deductions from a checking or savings account.
This approach has at least three major benefits. First, you can formulate a
long-term plan -- how much to invest, how often, and into which portfolios -- in
a calm, rational manner, working with your investment professional. Second, with
this approach you invest regularly without agonizing over the decision each time
you buy shares. And, third, if you invest equal amounts of money at regular
intervals, you'll be taking advantage of a strategy called dollar-cost
averaging: by investing a fixed amount while the share cost fluctuates, you end
up with an average share cost to you that is lower than the average share price
over your investment period.(1) If all this sounds familiar, it's probably
because you're already taking advantage of dollar-cost averaging by investing
regularly for retirement through a 401(k) or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, by moving money into whatever asset class appears
to be outperforming at the moment --
1
<PAGE>
LETTER FROM THE CHAIRMAN - continued
small, mid, or large cap; growth or value; United States or international;
stocks or bonds. The problem with this approach is that by the time a particular
area is generally recognized as "hot," you may have already missed some of the
best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out of
10 years.(2) For the decade, the MSCI EAFE's average annual performance was 23%,
compared to 18% for the S&P 500. Going into the 1990s, then, an investor looking
only at recent performance might have favored international investments over
U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We would
suggest that one way to potentially profit from swings in the market -- to
potentially be invested in various asset classes before the market shifts in
their favor -- is with a diversified portfolio covering several asset classes.
If you haven't already done so, we encourage you to discuss these thoughts with
your investment professional and factor them into your long-range financial
planning. Hopefully, the next time the markets appear to be going wild, you'll
feel confident enough in your plan to view periods of volatility as a time of
potential opportunity -- or perhaps just a time to sit back and do nothing.
As always, we appreciate your confidence and welcome any questions or comments
you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 17, 2000
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your investment professional for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
2
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended June 30, 2000, the series' Initial Class and Service
Class shares each provided total returns of 0.52%, including the reinvestment of
any distributions. This compares to a -0.42% return for the series' benchmark,
the Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged
index of common stock total return performance.
During a difficult period for stocks the series managed to outperform the S&P
500, primarily because we kept a close eye on valuations in the portfolio. As a
result, we were underweighted in technology stocks relative to the S&P 500,
which has been a big advantage in this volatile environment. At the same time,
we're not simply value investors; we also try to seek out growth at the right
price. Our broad stock selection expresses this philosophy and proved to be a
significant contributor to performance. Our well-diversified portfolio includes
Hartford Financial Services, State Street Corp., Pharmacia, Pfizer, Safeway, and
BP Amoco, which are all great examples of stocks that we believe offer favorable
growth opportunities at reasonable valuations.
In the technology sector, we think there are a lot of opportunities and the
potential for large profits. Some of the fastest-growing and most innovative
companies in the world are the ones that create new technologies. However, we
recently decreased the portfolio's exposure to this sector because we could not
ignore their valuations. If stock prices get too far ahead, which we felt they
did in the first quarter of 2000, the stocks have to tread water until the
companies' growth rates can catch up. Very few industries can grow 30% per year
over the long term, but we had a period over the last year where many tech
stocks were up well over 100%, and we felt that was just too far too fast. With
that in mind, while the portfolio has remained underweighted in technology
versus the S&P 500, it is still the largest sector weighting in the portfolio
because we continue to see great opportunities for long-term growth.
Early in the year, we were buying pharmaceutical stocks when most investors
shunned that sector. There were several reasons why we were bullish on these
stocks. First, we believe many of the issues surrounding the industry's decline
in 1999 have subsided, including the threat of onerous government pricing
regulation and Medicare reform. Second, many drug stocks maintained strong
growth rates in 1999 and 2000 but were hurt last year by somewhat exaggerated
concerns about fading product pipelines. Today, we see plenty of new products in
the pipeline, and, with quicker FDA approval rates, there is always the
possibility that a new blockbuster drug could be right around the corner.
Finally, health care and pharmaceutical stocks historically have held up well in
a weakening economy. If the Federal Reserve Board's rate hikes succeed in
slowing the economy, we believe traditionally stable, steady growers such as
health care stocks could outperform the overall market.
Despite the market selloff in March and April, some investors feel the market is
still expensive. From our standpoint, however, no matter what direction the
market is headed, it usually provides opportunities to those investors who do
their homework. While there are pockets of the market that still appear pricey,
we see strong potential for the market to head higher given what we view as an
environment of healthy economic growth, reasonable interest rates, and a
favorable outlook for corporate earnings growth. We also have found that it's
very difficult to predict what the market will do in the short term. As a
result, we continue to focus on finding companies that we believe offer the best
fundamental business prospects and the potential for superior long-term
performance.
Respectfully,
/s/ John D. Laupheimer, Jr.
John D. Laupheimer, Jr.
Portfolio Manager
3
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK - continued
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO MANAGER'S PROFILE
John D. Laupheimer, Jr., is Senior Vice President and Director of Equity
Research of MFS Investment Management(R). He is also lead portfolio manager of
Massachusetts Investors Trust, America's oldest mutual fund. He also manages
MFS(R) Institutional Core Equity Fund, the Massachusetts Investors Trust Series
offered through MFS(R)/Sun Life annuity products, and MFS(R) Growth with Income
Series (part of MFS(R) Variable Insurance Trust(SM)).
Mr. Laupheimer joined the MFS Research Department in 1981 as a research analyst.
He was named Investment Officer in 1983, Assistant Vice President in 1984, Vice
President in 1986, portfolio manager in 1987, Senior Vice President in 1995, and
Director of Equity Research in 1999. Mr. Laupheimer is a graduate of Boston
University and the Sloan School of Management of Massachusetts Institute of
Technology. He is a Chartered Financial Analyst and a member of The Boston
Security Analysts Society, Inc.
All equity portfolio managers began their careers at MFS Investment
Management(R) as research analysts. Our portfolio managers are supported by an
investment staff of over 100 professionals utilizing MFS Original Research(R), a
global, company-oriented, bottom-up process of selecting securities.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including all charges and expenses, for any MFS product is available from your
investment professional, or by calling MFS at 1-800-225-2606. Please read it
carefully before investing or sending money.
4
<PAGE>
SERIES FACTS
Objective: Seeks reasonable current income and long-term growth of capital and
income.
Commencement of investment operations: October 9, 1995
Class inception: Initial Class October 9, 1995
Service Class May 1, 2000
Size: $438.2 million as of June 30, 2000
PERFORMANCE SUMMARY
Because the series is designed for investors with long-term goals, we have
provided the cumulative as well as the average annual total returns for the
applicable time periods. Investment results reflect the percentage change in net
asset value, including the reinvestment of dividends. (See Notes to Performance
Summary.)
TOTAL RATES OF RETURN THROUGH JUNE 30, 2000
<TABLE>
<CAPTION>
INITIAL CLASS
6 Months 1 Year 3 Years Life*
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +0.52% +1.33% +44.35% +125.97%
--------------------------------------------------------------------------------
Average Annual Total Return -- +1.33% +13.02% + 18.83%
--------------------------------------------------------------------------------
<CAPTION>
SERVICE CLASS
6 Months 1 Year 3 Years Life*
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +0.52% +1.33% +44.35% +125.97%
--------------------------------------------------------------------------------
Average Annual Total Return -- +1.33% +13.02% + 18.83%
--------------------------------------------------------------------------------
</TABLE>
*For the period from the commencement of the series' investment operations,
October 9, 1995, through June 30, 2000.
NOTES TO PERFORMANCE SUMMARY
Initial Class and Service Class shares have no sales charge; however, Service
Class shares carry a 0.20% annual Rule 12b-1 fee. Service Class share
performance includes the performance of the series' Initial Class shares for
periods prior to the inception of Service Class shares (blended performance).
These blended performance figures have not been adjusted to take into account
differences in the class-specific operating expenses (such as Rule 12b-1 fees).
Because operating expenses of Service Class shares are higher than those of
Initial Class shares, the blended Service Class share performance is higher than
it would have been had Service Class shares been offered for the entire period.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details. All results are
historical and assume the reinvestment of dividends and capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT RESULTS MAY BE
MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the variable product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
5
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 2000
<TABLE>
<CAPTION>
Stocks - 89.3%
--------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 79.5%
Aerospace - 3.1%
Boeing Co. 82,200 $ 3,436,988
General Dynamics Corp. 32,808 1,714,218
TRW, Inc. 23,800 1,032,325
United Technologies Corp. 126,710 7,460,051
------------
$ 13,643,582
--------------------------------------------------------------------------------
Auto Parts - 0.2%
Delphi Automotive Systems Corp. 47,600 $ 693,175
--------------------------------------------------------------------------------
Banks and Credit Companies - 1.7%
Capital One Financial Corp. 21,500 $ 959,437
Chase Manhattan Corp. 10,650 490,566
Providian Financial Corp. 8,200 738,000
U.S. Bancorp 122,964 2,367,057
Wells Fargo Co. 72,677 2,816,234
------------
$ 7,371,294
--------------------------------------------------------------------------------
Biotechnology - 2.4%
Abbott Laboratories, Inc. 25,800 $ 1,149,713
PE Corp. - PE Biosystems Group 5,000 329,375
Pharmacia Corp. 178,213 9,211,384
------------
$ 10,690,472
--------------------------------------------------------------------------------
Business Machines - 3.9%
Hewlett-Packard Co. 78,300 $ 9,777,712
International Business Machines Corp. 17,100 1,873,519
Sun Microsystems, Inc.* 60,102 5,465,526
------------
$ 17,116,757
--------------------------------------------------------------------------------
Business Services - 2.8%
Automatic Data Processing, Inc. 91,500 $ 4,900,969
Computer Sciences Corp.* 37,600 2,808,250
DST Systems, Inc.* 7,285 554,571
First Data Corp. 83,500 4,143,687
------------
$ 12,407,477
--------------------------------------------------------------------------------
Cellular Telephones - 1.6%
Motorola, Inc. 163,716 $ 4,757,996
Sprint Corp. (PCS Group)* 40,974 2,437,953
------------
$ 7,195,949
--------------------------------------------------------------------------------
Chemicals - 1.0%
Air Products & Chemicals, Inc. 51,400 $ 1,583,762
Dow Chemical Co. 5,400 163,013
E.I. du Pont de Nemours & Co., Inc. 10,049 439,644
Rohm & Haas Co. 58,300 2,011,350
------------
$ 4,197,769
--------------------------------------------------------------------------------
Computer Hardware - Systems - 1.1%
Compaq Computer Corp. 48,000 $ 1,227,000
Dell Computer Corp.* 72,200 3,560,363
------------
$ 4,787,363
--------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<TABLE>
<CAPTION>
Stocks - continued
--------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Computer Software - Personal Computers - 2.4%
Microsoft Corp.* 133,004 $ 10,640,320
--------------------------------------------------------------------------------
Computer Software - Systems - 2.4%
BMC Software, Inc.* 16,322 $ 595,498
Computer Associates International, Inc. 37,788 1,934,273
EMC Corp.* 32,400 2,492,775
Oracle Corp.* 46,282 3,890,581
Rational Software Corp.* 11,000 1,022,312
VERITAS Software Corp.* 6,700 757,205
------------
$ 10,692,644
--------------------------------------------------------------------------------
Conglomerates - 1.0%
Tyco International Ltd. 87,554 $ 4,147,871
--------------------------------------------------------------------------------
Consumer Goods and Services - 1.3%
Cintas Corp. 12,800 $ 469,600
Clorox Co. 14,162 634,635
Colgate-Palmolive Co. 48,364 2,895,794
Gillette Co. 14,004 489,265
Philip Morris Cos., Inc. 29,100 772,969
Procter & Gamble Co. 4,273 244,629
------------
$ 5,506,892
--------------------------------------------------------------------------------
Electrical Equipment - 4.0%
Emerson Electric Co. 41,450 $ 2,502,544
General Electric Co. 283,173 15,008,169
------------
$ 17,510,713
--------------------------------------------------------------------------------
Electronics - 4.6%
Agilent Technologies, Inc.* 5,161 $ 380,624
Analog Devices, Inc.* 6,200 471,200
Flextronics International Ltd.* 600 41,213
Intel Corp. 107,600 14,384,775
LSI Logic Corp.* 7,500 405,938
Micron Technology, Inc.* 12,600 1,109,587
National Semiconductor Corp.* 36,100 2,048,675
Solectron Corp.* 21,100 883,562
Texas Instruments, Inc. 7,400 508,287
------------
$ 20,233,861
--------------------------------------------------------------------------------
Energy - 0.4%
TXU Corp. 53,317 $ 1,572,852
--------------------------------------------------------------------------------
Entertainment - 1.7%
Infinity Broadcasting Corp., "A"* 31,300 $ 1,140,494
Time Warner, Inc. 62,530 4,752,280
Viacom, Inc., "B"* 25,100 1,711,506
------------
$ 7,604,280
--------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<TABLE>
<CAPTION>
Stocks - continued
--------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Financial Institutions - 4.4%
American Express Co. 52,500 $ 2,736,562
Bank of New York Co., Inc. 14,900 692,850
Citigroup, Inc. 47,050 2,834,762
Federal Home Loan Mortgage Corp. 122,138 4,946,589
Federal National Mortgage Assn. 38,100 1,988,344
Merrill Lynch & Co., Inc. 2,700 310,500
State Street Corp. 53,882 5,714,860
------------
$ 19,224,467
--------------------------------------------------------------------------------
Financial Services - 0.7%
AXA Financial, Inc. 87,200 $ 2,964,800
--------------------------------------------------------------------------------
Food and Beverage Products - 2.3%
Anheuser-Busch Cos., Inc. 43,000 $ 3,211,563
Coca-Cola Co. 51,732 2,971,357
PepsiCo., Inc. 14,060 624,791
Quaker Oats Co. 43,300 3,252,912
------------
$ 10,060,623
--------------------------------------------------------------------------------
Insurance - 3.3%
American International Group, Inc. 38,312 $ 4,501,660
CIGNA Corp. 18,688 1,747,328
Hartford Financial Services Group, Inc. 109,320 6,115,087
Lincoln National Corp. 12,394 447,733
Marsh & McLennan Cos., Inc. 10,100 1,054,819
St. Paul Cos., Inc. 22,000 750,750
------------
$ 14,617,377
--------------------------------------------------------------------------------
Internet - 0.1%
America Online, Inc.* 7,900 $ 416,725
--------------------------------------------------------------------------------
Machinery - 1.5%
Deere & Co., Inc. 115,700 $ 4,280,900
Ingersoll Rand Co. 39,900 1,605,975
W.W. Grainger, Inc. 22,900 705,606
------------
$ 6,592,481
--------------------------------------------------------------------------------
Medical and Health Products - 6.6%
American Home Products Corp. 42,426 $ 2,492,527
Bausch & Lomb, Inc. 22,700 1,756,413
Bristol-Myers Squibb Co. 128,402 7,479,416
Johnson & Johnson Co. 5,723 583,031
Pfizer, Inc. 285,752 13,716,096
Schering Plough Corp. 29,300 1,479,650
UnitedHealth Group, Inc.* 14,435 1,237,801
------------
$ 28,744,934
--------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.9%
Fresenius National Medical Care, Inc.* 100 $ 3
Medtronic, Inc. 78,040 3,887,367
------------
$ 3,887,370
--------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<TABLE>
<CAPTION>
Stocks - continued
--------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Oil Services - 0.7%
Baker Hughes, Inc. 77,500 $ 2,480,000
Global Marine, Inc.* 22,500 634,219
------------
$ 3,114,219
--------------------------------------------------------------------------------
Oils - 4.6%
Chevron Corp. 14,390 $ 1,220,452
Coastal Corp. 76,300 4,644,762
Conoco, Inc. 136,700 3,357,694
Exxon Mobil Corp. 119,232 9,359,712
Transocean Sedco Forex, Inc. 29,700 1,587,094
------------
$ 20,169,714
--------------------------------------------------------------------------------
Printing and Publishing - 1.9%
Gannett Co., Inc. 54,469 $ 3,257,927
New York Times Co. 76,300 3,013,850
Tribune Co. 63,502 2,222,570
------------
$ 8,494,347
--------------------------------------------------------------------------------
Restaurants and Lodging - 0.2%
McDonald's Corp. 28,120 $ 926,203
--------------------------------------------------------------------------------
Retail - 2.5%
CVS Corp. 123,476 $ 4,939,040
Wal-Mart Stores, Inc. 105,864 6,100,413
------------
$ 11,039,453
--------------------------------------------------------------------------------
Supermarkets - 2.6%
Kroger Co.* 84,904 $ 1,873,194
Safeway, Inc.* 213,390 9,629,224
------------
$ 11,502,418
--------------------------------------------------------------------------------
Telecommunications - 9.9%
Alltel Corp. 58,070 $ 3,596,711
Bell Atlantic Corp. 116,440 5,916,607
BroadWing, Inc. 41,800 1,084,188
Cabletron Systems, Inc.* 58,300 1,472,075
Cisco Systems, Inc.* 148,512 9,439,794
Comcast Corp., "A"* 4,000 162,000
Corning, Inc. 32,700 8,824,912
Qwest Communications International, Inc.* 12,600 626,063
SBC Communications, Inc. 81,069 3,506,234
Sprint Corp.* 47,628 2,429,028
Tellabs, Inc.* 37,900 2,593,781
WorldCom, Inc.* 80,541 3,694,818
------------
$ 43,346,211
--------------------------------------------------------------------------------
Utilities - Electric - 0.8%
Peco Energy Co. 67,210 $ 2,709,403
Unicom Corp. 15,209 588,398
------------
$ 3,297,801
--------------------------------------------------------------------------------
Utilities - Gas - 0.7%
Enron Corp. 15,100 $ 973,950
Williams Cos., Inc. 46,900 1,955,144
------------
$ 2,929,094
--------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<TABLE>
<CAPTION>
Stocks - continued
--------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Utilities - Telephone - 0.2%
BellSouth Corp. 19,504 $ 831,358
--------------------------------------------------------------------------------
Total U.S. Stocks 348,172,866
--------------------------------------------------------------------------------
Foreign Stocks - 9.8%
Bermuda - 0.4%
Global Crossing Ltd. (Telecommunications)* 59,000 $ 1,552,437
--------------------------------------------------------------------------------
Canada - 2.4%
Canadian National Railway Co. (Railroads) 29,316 $ 855,661
Nortel Networks Corp. (Telecommunications) 141,900 9,684,675
------------
$ 10,540,336
--------------------------------------------------------------------------------
Finland - 0.4%
Nokia Corp., ADR (Telecommunications) 31,500 $ 1,573,031
--------------------------------------------------------------------------------
Japan - 0.5%
Fast Retailing Co. (Retail) 3,000 $ 1,255,656
Nippon Telegraph & Telephone Co.
(Utilities - Telephone) 79 1,050,057
------------
$ 2,305,713
--------------------------------------------------------------------------------
Netherlands - 1.8%
Akzo Nobel N.V. (Chemicals) 30,100 $ 1,278,639
ING Groep N.V. (Financial Services)* 14,200 959,717
KPN N.V. (Telecommunications)* 26,350 1,178,451
Royal Dutch Petroleum Co. (Oils) 73,800 4,586,262
------------
$ 8,003,069
--------------------------------------------------------------------------------
Switzerland - 0.5%
Nestle S.A. (Food and Beverage Products) 1,213 $ 2,428,529
--------------------------------------------------------------------------------
United Kingdom - 3.8%
AstraZeneca Group PLC
(Medical and Health Products) 32,600 $ 1,521,238
BP Amoco PLC, ADR (Oils) 196,584 11,119,282
HSBC Holdings PLC (Banks and Credit Cos.)* 71,400 815,938
Reuters Group PLC, ADR (Business Services) 13,790 1,378,138
Vodafone AirTouch PLC (Telecommunications)* 418,648 1,690,770
------------
$ 16,525,366
--------------------------------------------------------------------------------
Total Foreign Stocks $ 42,928,481
--------------------------------------------------------------------------------
Total Stocks (Identified Cost, $354,603,776) $391,101,347
--------------------------------------------------------------------------------
Convertible Preferred Stock - 0.3%
--------------------------------------------------------------------------------
Bermuda - 0.3%
Global Crossing Ltd., 6.75% (Telecommunications)
(Identified Cost, $1,700,000) 6,800 $ 1,490,900
--------------------------------------------------------------------------------
Preferred Stock - 0.1%
--------------------------------------------------------------------------------
Energy - 0.1%
TXU Corp.* (Identified Cost, $331,880) 8,200 $ 284,950
--------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<TABLE>
<CAPTION>
Convertible Bonds - 0.3%
--------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT
(000 OMITTED) VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
Financial Services - 0.1%
Bell Atlantic Financial Services, Inc.,
4.25s, 2005## $ 475 $ 577,368
--------------------------------------------------------------------------------
Oils - 0.1%
Transocean Sedco Forex Inc., 0s, 2020 $
$ 440 265,364
--------------------------------------------------------------------------------
Telecommunications - 0.1%
NTL, Inc., 5.75s, 2009## $ 744 $ 584,040
--------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $1,530,405) $ 1,426,772
--------------------------------------------------------------------------------
Short-Term Obligations - 9.9%
--------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/03/00 $ 4,373 $ 4,371,404
General Electric Capital Corp., due 7/03/00 5,000 4,998,070
Morgan Stanley Dean Witter, due 7/05/00 19,000 18,985,539
Salomon Smith Barney Holdings, Inc., due 7/03/00 15,000 14,994,333
--------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 43,349,346
--------------------------------------------------------------------------------
Total Investments (Identified Cost, $401,515,407) $437,653,315
Other Assets, Less Liabilities - 0.1% 565,869
--------------------------------------------------------------------------------
Net Assets - 100.0% $438,219,184
--------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
11
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities (Unaudited)
--------------------------------------------------------------------------------
JUNE 30, 2000
--------------------------------------------------------------------------------
Assets:
<S> <C>
Investments, at value (identified cost, $401,515,407) $437,653,315
Investments of cash collateral for securities loaned,
at value (identified cost, $6,601,576) 6,601,576
Cash 2,860
Foreign currency, at value (identified cost, $457) 458
Receivable for investments sold 2,554,060
Receivable for series shares sold 742,343
Dividends and interest receivable 363,662
Deferred organization expenses 505
Other assets 1,537
------------
Total assets $447,920,316
------------
Liabilities:
Payable for investments purchased $ 2,735,924
Payable for series shares reacquired 280,694
Collateral for securities loaned, at value 6,601,576
Payable to affiliates -
Management fee 8,948
Shareholder servicing agent fee 418
Distribution fee 2
Administrative fee 209
Accrued expenses and other liabilities 73,361
------------
Total liabilities $ 9,701,132
------------
Net assets $438,219,184
============
Net assets consist of:
Paid-in capital $393,443,217
Unrealized appreciation on investments and
translation of assets and liabilities in
foreign currencies 36,138,636
Accumulated undistributed net realized gain on
investments and foreign currency transactions 7,449,582
Accumulated undistributed net investment income 1,187,749
------------
Total $438,219,184
============
Shares of beneficial interest outstanding 20,716,562
==========
Initial Class of shares:
Net asset value per share
(net assets of $437,742,825 / 20,694,038 shares
of beneficial interest outstanding) $21.15
======
Service Class of shares:
Net asset value per share
(net assets of $476,359 / 22,524 shares of
beneficial interest outstanding) $21.15
======
</TABLE>
See notes to financial statements.
12
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Operations (Unaudited)
--------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
<S> <C>
Net investment income (loss):
Income -
Dividends $ 2,147,501
Interest 754,123
Foreign taxes withheld (26,412)
------------
Total investment income $ 2,875,212
------------
Expenses -
Management fee $ 1,493,257
Trustees' compensation 4,500
Shareholder servicing agent fee 69,919
Distribution fee (Service Class) 63
Administrative fee 32,481
Custodian fee 76,989
Printing 20,590
Postage 19
Auditing fees 17,400
Legal fees 468
Amortization of organization expenses 916
Miscellaneous 3,681
------------
Total expenses $ 1,720,283
Fees paid indirectly (33,127)
------------
Net expenses $ 1,687,156
------------
Net investment income $ 1,188,056
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 8,298,691
Foreign currency transactions (28,159)
------------
Net realized gain on investments and foreign
currency transactions $ 8,270,532
------------
Change in unrealized appreciation (depreciation) -
Investments $ (6,872,466)
Translation of assets and liabilities in
foreign currencies 921
------------
Net unrealized loss on investments and foreign
currency translation $ (6,871,545)
------------
Net realized and unrealized gain on investments
and foreign currency $ 1,398,987
------------
Increase in net assets from operations $ 2,587,043
============
See notes to financial statements.
</TABLE>
13
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
--------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,188,056 $ 1,874,666
Net realized gain on investments and foreign currency
transactions 8,270,532 9,483,705
Net unrealized gain (loss) on investments and foreign
currency translation (6,871,545) 11,147,548
------------ ------------
Increase in net assets from operations $ 2,587,043 $ 22,505,919
------------ ------------
Distributions declared to shareholders -
From net investment income (Initial Class) $ (1,847,140) $ (1,007,248)
From net realized gain on investments and foreign
currency transactions (Initial Class) (3,354,074) (1,209,007)
------------ ------------
Total distributions declared to shareholders $ (5,201,214) $ (2,216,255)
------------ ------------
Net increase in net assets from series share transactions $ 50,070,889 $126,162,535
------------ ------------
Total increase in net assets $ 47,456,718 $146,452,199
Net assets:
At beginning of period 390,762,466 244,310,267
------------ ------------
At end of period (including accumulated undistributed
net investment income of $1,187,749 and $1,846,833,
respectively) $438,219,184 $390,762,466
============ ============
</TABLE>
See notes to financial statements.
14
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
SIX MONTHS ENDED ------------------------------------------------------- DECEMBER 31,
JUNE 30, 2000 1999 1998 1997 1996 1995*
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------
INITIAL CLASS SHARES
-----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of
period $21.31 $20.11 $16.44 $12.98 $10.61 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.06 $ 0.12 $ 0.13 $ 0.16 $ 0.18 $ 0.05
Net realized and unrealized
gain on investments and
foreign currency 0.05 1.22 3.54 3.70 2.42 0.61
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.11 $ 1.34 $ 3.67 $ 3.86 $ 2.60 $ 0.66
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.10) $(0.06) $ -- $(0.07) $(0.09) $(0.05)
From net realized gain on
investments and foreign
currency transactions (0.17) (0.08) -- (0.29) (0.13) --
In excess of net realized
gain on investments and
foreign currency transactions -- -- -- (0.04) (0.01) --
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.27) $(0.14) $ -- $(0.40) $(0.23) $(0.05)
------ ------ ------ ------ ------ ------
Net asset value - end of period $21.15 $21.31 $20.11 $16.44 $12.98 $10.61
====== ====== ====== ====== ====== ======
Total return 0.52%++ 6.69% 22.32% 29.78% 24.46% 6.64%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.87%+ 0.88% 0.95% 1.00% 1.01% 1.00%+
Net investment income 0.54%+ 0.56% 0.73% 0.93% 1.52% 2.20%+
Portfolio turnover 42% 72% 57% 42% 41% 2%
Net assets at end of period
(000 Omitted) $437,743 $390,762 $244,310 $58,045 $9,174 $ 365
(S) Prior to October 2, 1998, subject to reimbursement by the series, the investment adviser voluntarily agreed under a temporary
expense reimbursement agreement to pay all of the series' operating expenses, exclusive of management fees. In consideration,
the series paid the investment adviser a fee not greater than 0.25% of average daily net assets. To the extent actual expenses
were over/under this limitation, the net investment income (loss) per share and ratios would have been:
Net investment income (loss) -- -- $ 0.14 $ 0.13 $ 0.05 $ (0.41)
Ratios (to average net assets):
Expenses## -- -- 0.88% 1.10% 2.07% 21.44%+
Net investment income (loss) -- -- 0.80% 0.82% 0.46% (18.24)%+
</TABLE>
* For the period from the commencement of the series' investment operations,
October 9, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain
expense offset arrangements.
See notes to financial statements.
15
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
-------------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 2000*
(UNAUDITED)
-------------------------------------------------------------------------------
SERVICE CLASS SHARES
-------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $20.90
------
Income from investment operations# -
Net investment income $ 0.02
Net realized and unrealized gain on investments and
foreign currency 0.23
------
Total from investment operations $ 0.25
------
Net asset value - end of period $21.15
======
Total return 0.52%++
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.05%+
Net investment income 0.30%+
Portfolio turnover 42%
Net assets at end of period (000 Omitted) $476
</TABLE>
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain
expense offset arrangements.
See notes to financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Growth with Income Series (the series) is a diversified series of MFS
Variable Insurance Trust (the trust). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of each
series of the trust are separate accounts of insurance companies which offer
variable annuity and/or life insurance products. As of June 30, 2000, there were
83 shareholders in the series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The series
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. Debt securities (other than short-term obligations which mature in 60
days or less), including listed issues, are valued on the basis of valuations
furnished by dealers or by a pricing service with consideration to factors such
as institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Securities for which there are no such
quotations or valuations are valued in good faith, at fair value, by the
Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Deferred Organization Expenses - Costs incurred by the series in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of series
operations.
Security Loans - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the series to certain qualified
institutions (the "Borrowers") approved by the series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned. State Street
provides the series with indemnification against Borrower default. The series
bears the risk of loss with respect to the investment of cash collateral.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the series and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the Borrower,
and is allocated between the series and the lending agent. Income from
securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned is
accounted for in the same manner as other dividend and interest income.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
At June 30, 2000, the value of securities loaned was $6,532,668. These loans
were collateralized by U.S. Treasury securities of $102,495 and cash of
$6,601,576 which was invested in the following short-term obligations:
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Navigator Securities Lending Prime Portfolio 6,601,576 $6,601,576
---------
</TABLE>
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the period, the series' custodian fees were reduced by $15,258
under this arrangement. The series has entered into a directed brokerage
agreement, under which the broker will credit the series a portion of the
commissions generated, to offset certain expenses of the series. For the period,
the series' custodian fees were reduced by $17,869 under this agreement. These
amounts are shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits be reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest - The series offers multiple
classes of shares that differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets of
each class, without distinction between share classes. Dividends are declared
separately for each class. Differences in per share dividend rates are generally
due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
the series' average daily net assets.
Each series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the series, all of whom receive
remuneration for their services to the series from MFS. Certain officers and
Trustees of the series are officers or directors of MFS and MFS Service Center,
Inc. (MFSC).
Administrator - The series has an administrative services agreement with MFS to
provide the series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the series incurs an administrative fee at
the following annual percentages of the series' average daily net assets:
<TABLE>
<S> <C>
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
Distributor - The Trustees have adopted a distribution plan for the service
class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The series' distribution plan provides that the series will pay MFD up to 0.25%
per annum of its average daily net assets attributable to service class shares
in order that MFD may pay expenses on behalf of the series related to the
distribution of its shares. A portion of this distribution fee is currently
being paid by the series; payment of the remaining 0.05% per annum service class
distribution fee will become payable on such date as the Trustees of the Trust
may determine. Fees incurred under the distribution plan during the six months
ended June 30, 2000, were 0.20% of average daily net assets attributable to
Service Class shares on an annualized basis.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the series' average daily net assets at an annual rate of 0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities $ 5,234,516 $ --
------------ ------------
Investments (non-U.S. government securities) $181,233,693 $158,401,620
------------ ------------
</TABLE>
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis, are
as follows:
<TABLE>
<S> <C>
Aggregate cost $401,515,407
------------
Gross unrealized appreciation $ 54,584,482
Gross unrealized depreciation (18,446,574)
------------
Net unrealized appreciation $ 36,137,908
============
</TABLE>
(5) Shares of Beneficial Interest
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
<TABLE>
<CAPTION>
Initial Class Shares
SIX MONTHS ENDED JUNE 30, 2000 YEAR ENDED DECEMBER 31, 1999
---------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,686,603 $ 97,726,372 12,094,104 $ 245,884,679
Shares issued to shareholders
in reinvestment of
distributions 246,387 5,201,237 106,154 2,216,255
Shares reacquired (2,574,968) (53,329,640) (6,010,291) (121,938,399)
---------- ------------ ---------- -------------
Net increase 2,358,022 $ 49,597,969 6,189,967 $ 126,162,535
========== ============ ========== =============
</TABLE>
19
<PAGE>
Service Class Shares
PERIOD ENDED JUNE 30, 2000*
----------------------------------
SHARES AMOUNT
--------------- ----------------
Shares sold 22,531 $ 473,078
Shares reacquired (7) (158)
---------- -------------
Net increase 22,524 $ 472,920
========== =============
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
(6) Line of Credit
The series and other affiliated funds participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at the
end of each quarter. The commitment fee allocated to the series for the six
months ended June 30, 2000, was $1,421. The series had no borrowings during the
period.
20
<PAGE>
(C) 2000 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
VGI-3 8/00 44M
<PAGE>
This page left intentionally blank
<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT SEMIANNUAL REPORT
We invented the mutual fund(R) JUNE 30, 2000
[Graphic Omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) TOTAL
RETURN SERIES
<PAGE>
<TABLE>
MFS(R) TOTAL RETURN SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* - Chairman and Chief Executive Massachusetts Financial Services Company
Officer, MFS Investment Management(R) 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.+ - Private investor and
trustee DISTRIBUTOR
MFS Fund Distributors, Inc.
William R. Gutow+ - Private investor and real 500 Boylston Street
estate consultant; Vice Chairman, Capitol Boston, MA 02116-3741
Entertainment Management Company (video franchise)
INVESTOR SERVICE
CHAIRMAN AND PRESIDENT MFS Service Center, Inc.
Jeffrey L. Shames* P.O. Box 2281
Boston, MA 02107-9906
PORTFOLIO MANAGERS
David M. Calabro* For additional information,
Kenneth J. Enright* contact your investment professional.
Geoffrey L. Kurinsky*
Constantinos Mokas* CUSTODIAN
Lisa B. Nurme* State Street Bank and Trust Company
TREASURER WORLD WIDE WEB
James O. Yost* www.mfs.com
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* MFS Investment Management
+ Independent Trustee
</TABLE>
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large
decline, as they did this past spring, there's a flurry of information on "how
to deal with market volatility" -- both in the popular press and from those of
us in the investment business. Our own thinking on this is that, first, for
long-term investors volatility is not necessarily something to be feared;
occasional volatility may in fact be healthy for the markets.
Second, our experience has been that when markets begin to fall, it's often
too late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market
volatility in stride, here are some points you may want to consider the next
time you talk with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with very
high stock prices, relative to their earnings, or with business concepts that
looked great in the euphoria of a booming market but in the end appeared to have
no fundamental backing. It has always been our view that one of the best
protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask how
they fared in previous periods of volatility, as well as in the good times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over
nearly all long-term periods -- 5, 10, 20 years, and more -- stock and bond
returns, as represented by most common indices, have been positive and have
considerably outpaced inflation. Investing is the best way we know of to make
your money work for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading.
In our view, traders who buy securities with the intention of selling them at
a profit in a matter of hours, days, or weeks are gambling. We believe this
seldom turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy,
because only in retrospect do we know when that right time really was. Periods
of volatility are probably the worst times to make an investment decision.
Faced with turmoil in the markets, many investors have opted to simply stay on
the sidelines.
On the other hand, we think one of the best techniques for investing is
through automatic monthly or quarterly deductions from a checking or savings
account. This approach has at least three major benefits. First, you can
formulate a long-term plan -- how much to invest, how often, and into which
portfolios -- in a calm, rational manner, working with your investment
professional. Second, with this approach you invest regularly without
agonizing over the decision each time you buy shares. And, third, if you
invest equal amounts of money at regular intervals, you'll be taking advantage
of a strategy called dollar-cost averaging: by investing a fixed amount while
the share cost fluctuates, you end up with an average share cost to you that
is lower than the average share price over your investment period.(1) If all
this sounds familiar, it's probably because you're already taking advantage of
dollar-cost averaging by investing regularly for retirement through a 401(k)
or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, by moving money into whatever asset class appears
to be outperforming at the moment --
1
<PAGE>
LETTER FROM THE CHAIRMAN - continued
small, mid, or large cap; growth or value; United States or international;
stocks or bonds. The problem with this approach is that by the time a particular
area is generally recognized as "hot," you may have already missed some of the
best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out
of 10 years.(2) For the decade, the MSCI EAFE's average annual performance was
23%, compared to 18% for the S&P 500. Going into the 1990s, then, an investor
looking only at recent performance might have favored international
investments over U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We would
suggest that one way to potentially profit from swings in the market -- to
potentially be invested in various asset classes before the market shifts in
their favor -- is with a diversified portfolio covering several asset classes.
If you haven't already done so, we encourage you to discuss these thoughts
with your investment professional and factor them into your long-range
financial planning. Hopefully, the next time the markets appear to be going
wild, you'll feel confident enough in your plan to view periods of volatility
as a time of potential opportunity -- or perhaps just a time to sit back and
do nothing.
As always, we appreciate your confidence and welcome any questions or comments
you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 17, 2000
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Investments in variable products will fluctuate and may be worth more or less
upon redemption. Please see your investment professional for more information.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
2
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders,
For the six months ended June 30, 2000, the series' Initial Class shares
provided a total return of 2.63% and Service Class shares 2.57%. These results
include the reinvestment of any distributions and compare to returns of -0.42%
and 4.18%, respectively, for the series' benchmarks, the Standard & Poor's 500
Composite Index (the S&P 500) and the Lehman Brothers Government/Corporate
Bond Index (the Lehman Index). The S&P 500 is a popular, unmanaged index of
common stocks. The Lehman Index is an unmanaged, market-value-weighted index
of U.S. Treasuries, government-agency securities (excluding mortgage-backed
securities), and investment-grade domestic corporate debt. Over the same
period, the average balanced fund tracked by Lipper Inc., an independent firm
that reports performance, returned 1.34%.
Among energy stocks, oil services as well as exploration and production
companies provided a boost to performance. These stocks are typically very
sensitive to oil and natural gas price changes and benefited immensely from
rising prices. We've anticipated this favorable business environment for some
time now and it has worked very well in recent months. In the insurance
sector, a few of the portfolio's holdings produced exceptional performance.
Recently, the Dutch financial services company ING Groep agreed to buy
ReliaStar Financial Corp., which caused our position in ReliaStar to nearly
double in price. This news sparked a rally in the insurance industry, as
investors began to recognize the strong fundamental business outlooks and the
potential for further consolidation among insurance companies.
We also took advantage of some weakness in pharmaceutical stock prices in the
early part of the year to increase our positions in high-quality companies
with strong long-term track records. Stocks such as Pharmacia and Abbott
Laboratories came back strong in the second quarter, and we think they still
offer attractive growth opportunities at compelling valuations.
While value stocks have rallied recently, it's difficult to predict whether
this trend will continue. But our feeling is that there is still plenty of
upside for more reasonably priced stocks with good fundamental growth
prospects, especially if interest rates and the economic backdrop remain
uncertain. We think more defensive stocks in noncyclical sectors of the
economy, such as consumer nondurables and health care stocks, have the
potential to outperform aggressive growth stocks in this environment.
With regard to our bond holdings during the period, as corporate bonds and
mortgage-backed securities recovered in the first quarter of 2000, we decided to
secure some profits and decrease our positions in these sectors. At the same
time, we shifted some assets into U.S. Treasuries as the outlook for government
securities appeared to brighten. We felt this strategy worked well, especially
following the government's announced plans to buy back nearly $30 billion of
longer-maturity Treasuries during the year. (Principal value and interest on
Treasury securities are guaranteed by the U.S. government if held to maturity.)
With corporate bonds, we also found ourselves in the right areas of the market.
Our positioning in various telecommunications and media issues proved
particularly beneficial.
What makes this portfolio different from other balanced portfolios is the fact
that we remain committed to our disciplined approach to asset allocation,
unlike managers of many balanced portfolios who often take on additional risks
by increasing their exposure to aggressive growth stocks. We maintain a
roughly 60% equity and 40% fixed-income and cash investment mix because we
believe this is what investors expect from a balanced portfolio. We believe
this strategy provides the right balance of growth and income potential.
Looking forward, while certain pockets of the market remain overvalued in our
view, we are still finding some quality companies at what we think are
attractive prices. In addition, we feel there is potential for strong corporate
earnings across a wide range of industries. However, we intend to proceed with
some
3
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK - continued
caution given the Federal Reserve Board's determination to slow down the
economy. In light of the current economic uncertainty, the market is beginning
to behave as we would expect -- defensive, value-oriented stocks have been
rebounding, while growth stocks have suffered. Whether this current trend will
persist is difficult to determine. As a result, we believe it makes sense for
investors to maintain a well-diversified portfolio.
Respectfully,
/s/ David M. Calabro
David M. Calabro
Lead Portfolio Manager
(on behalf of the MFS Total Return Team)
The opinions expressed in this report are those of the lead portfolio manager
and are current only through the end of the period of the report as stated on
the cover. The manager's views are subject to change at any time based on
market and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO MANAGERS' PROFILES
David M. Calabro, Senior Vice President; Kenneth J. Enright, Senior Vice
President; Geoffrey L. Kurinsky, Senior Vice President; Constantinos Mokas, Vice
President; and Lisa B. Nurme, Senior Vice President, are the series' portfolio
managers. Mr. Calabro is the head of the portfolio management team and a manager
of the equity portion of the series' portfolio. Mr. Calabro has been employed by
MFS since 1992. Mr. Enright, a manager of the equity portion of the series'
portfolio, has been employed by MFS since 1986. Mr. Kurinsky, the manager of the
series' fixed-income securities, has been employed by MFS since 1987. Mr. Mokas,
a manager of the equity portion of the series' portfolio, has been employed by
MFS since 1990. Ms. Nurme, a manager of the equity portion of the series'
portfolio, has been employed by MFS since 1987.
All portfolio managers at MFS Investment Management(R) are supported by an
investment staff of over 100 professionals utilizing MFS(R) Original
Research(SM), a company-oriented, bottom-up process of selecting securities.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including all charges and expenses, for any MFS product is available from your
investment professional, or by calling MFS at 1-800-225-2606. Please read it
carefully before investing or sending money.
4
<PAGE>
SERIES FACTS
Objective: Seeks primarily to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital, and secondarily to provide a reasonable opportunity for
growth of capital and income.
Commencement of investment operations: January 3, 1995
Class inception: Initial Class January 3, 1995
Service Class May 1, 2000
Size: $273.4 million net assets as of June 30, 2000
PERFORMANCE SUMMARY
Because the series is designed for investors with long-term goals, we have
provided the cumulative as well as the average annual total returns for the
applicable time periods. Investment results reflect the percentage change in
net asset value, including the reinvestment of dividends. (See Notes to
Performance Summary.)
<TABLE>
TOTAL RATES OF RETURN THROUGH JUNE 30, 2000
<CAPTION>
INITIAL CLASS
6 Months 1 Year 3 Years 5 Years Life*
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.63% +0.65% +29.43% +85.31% +109.95%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +0.65% + 8.98% +13.13% + 14.47%
--------------------------------------------------------------------------------------------------------
<CAPTION>
SERVICE CLASS
6 Months 1 Year 3 Years 5 Years Life*
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +2.57% +0.59% +29.36% +85.20% +109.83%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +0.59% + 8.96% +13.12% + 14.46%
--------------------------------------------------------------------------------------------------------
</TABLE>
* For the period from the commencement of the series' investment operations,
January 3, 1995, through June 30, 2000.
NOTES TO PERFORMANCE SUMMARY
Initial Class and Service Class shares have no sales charge; however, Service
Class shares carry a 0.20% annual Rule 12b-1 fee. Service Class share
performance includes the performance of the series' Initial Class shares for
periods prior to the inception of Service Class shares (blended performance).
These blended performance figures have not been adjusted to take into account
differences in the class-specific operating expenses (such as Rule 12b-1
fees). Because operating expenses of Service Class shares are higher than
those of Initial Class shares, the blended Service Class share performance is
higher than it would have been had Service Class shares been offered for the
entire period.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and capital
gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the variable product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
5
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 2000
<CAPTION>
Stocks - 51.9%
------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 45.1%
Aerospace - 1.9%
Boeing Co. 39,200 $ 1,639,050
Honeywell International, Inc. 23,300 784,919
TRW, Inc. 36,491 1,582,797
United Technologies Corp. 19,360 1,139,820
------------
$ 5,146,586
------------------------------------------------------------------------------------------------------
Automotive - 0.6%
Delphi Automotive Systems Corp. 88,400 $ 1,287,325
Ford Motor Co. 10,300 442,900
Visteon Corp.* 1,348 16,345
------------
$ 1,746,570
------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.4%
Bank America Corp. 33,000 $ 1,419,000
Bank of New York Co., Inc. 14,520 675,180
Bank One Corp. 6,000 159,375
PNC Bank Corp. 33,900 1,589,062
------------
$ 3,842,617
------------------------------------------------------------------------------------------------------
Biotechnology - 1.7%
Abbott Laboratories, Inc. 50,900 $ 2,268,231
Pharmacia Corp. 43,645 2,255,901
------------
$ 4,524,132
------------------------------------------------------------------------------------------------------
Business Machines - 0.3%
Hewlett-Packard Co. 1,800 $ 224,775
International Business Machines Corp. 2,540 278,289
Xerox Corp. 15,300 317,475
------------
$ 820,539
------------------------------------------------------------------------------------------------------
Business Services - 0.5%
Automatic Data Processing, Inc. 22,400 $ 1,199,800
United Parcel Service, Inc. 4,190 247,210
------------
$ 1,447,010
------------------------------------------------------------------------------------------------------
Cellular Telephones - 0.8%
Motorola, Inc. 36,400 $ 1,057,875
Telephone & Data Systems, Inc. 10,000 1,002,500
------------
$ 2,060,375
------------------------------------------------------------------------------------------------------
Chemicals - 1.1%
Air Products & Chemicals, Inc. 29,100 $ 896,644
Rohm & Haas Co. 59,800 2,063,100
------------
$ 2,959,744
------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 0.2%
Microsoft Corp.* 8,000 $ 640,000
------------------------------------------------------------------------------------------------------
Conglomerates - 0.4%
Eastern Enterprises Co. 15,000 $ 945,000
Tyco International Ltd. 3,002 142,220
------------
$ 1,087,220
------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Stocks - continued
------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Consumer Goods and Services - 0.5%
Fortune Brands, Inc. 36,000 $ 830,250
Kimberly-Clark Corp. 9,900 568,013
------------
$ 1,398,263
------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.3%
Emerson Electric Co. 56,300 $ 3,399,112
General Electric Co. 1,800 95,400
------------
$ 3,494,512
------------------------------------------------------------------------------------------------------
Electronics
Agilent Technologies, Inc.* 686 $ 50,593
------------------------------------------------------------------------------------------------------
Energy - 0.9%
Devon Energy Corp. 38,900 $ 2,185,694
Sierra Pacific Resources Co. 21,600 271,350
------------
$ 2,457,044
------------------------------------------------------------------------------------------------------
Entertainment - 1.2%
Disney (Walt) Co. 4,500 $ 174,656
Harrah's Entertainment, Inc.* 67,000 1,402,812
Time Warner, Inc. 17,440 1,325,440
Viacom, Inc., "B"* 6,835 466,062
------------
$ 3,368,970
------------------------------------------------------------------------------------------------------
Financial Institutions - 1.8%
Citigroup, Inc. 30,250 $ 1,822,562
Edwards (A.G.), Inc. 31,950 1,246,050
Freddie Mac Corp. 18,940 767,070
Merrill Lynch & Co., Inc. 8,500 977,500
------------
$ 4,813,182
------------------------------------------------------------------------------------------------------
Financial Services - 1.7%
AXA Financial, Inc. 65,300 $ 2,220,200
Mellon Financial Corp. 66,100 2,408,519
------------
$ 4,628,719
------------------------------------------------------------------------------------------------------
Food and Beverage Products - 1.8%
Anheuser-Busch Cos., Inc. 11,000 $ 821,563
Archer-Daniels-Midland Co. 70,389 690,692
General Mills, Inc. 21,600 826,200
Hershey Foods Corp. 8,700 421,950
McCormick & Co., Inc. 8,500 276,250
Quaker Oats Co. 23,300 1,750,412
------------
$ 4,787,067
------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.2%
Bowater, Inc. 10,100 $ 445,663
------------------------------------------------------------------------------------------------------
Gas - 0.3%
Sunoco, Inc. 31,300 $ 921,394
------------------------------------------------------------------------------------------------------
Healthcare - 0.2%
HCA Healthcare Co.* 18,000 $ 546,750
------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Stocks - continued
------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Insurance - 5.5%
Allstate Corp. 10,900 $ 242,525
American International Group, Inc. 1,575 185,063
Chubb Corp. 11,600 713,400
CIGNA Corp. 10,200 953,700
Hartford Financial Services Group, Inc. 66,900 3,742,219
Jefferson Pilot Corp. 12,000 677,250
Lincoln National Corp. 56,600 2,044,675
Marsh & McLennan Cos., Inc. 21,400 2,234,962
MetLife, Inc.* 23,620 497,496
ReliaStar Financial Corp. 26,600 1,394,837
St. Paul Cos., Inc. 66,400 2,265,900
------------
$ 14,952,027
------------------------------------------------------------------------------------------------------
Machinery - 1.2%
Deere & Co., Inc. 51,900 $ 1,920,300
Ingersoll Rand Co. 23,100 929,775
W.W. Grainger, Inc. 14,200 437,537
------------
$ 3,287,612
------------------------------------------------------------------------------------------------------
Medical and Health Products - 1.5%
American Home Products Corp. 37,060 $ 2,177,275
Baxter International, Inc. 2,480 174,375
Bristol-Myers Squibb Co. 28,400 1,654,300
------------
$ 4,005,950
------------------------------------------------------------------------------------------------------
Metals and Minerals - 0.1%
Alcoa, Inc. 11,400 $ 330,600
------------------------------------------------------------------------------------------------------
Oil Services - 2.5%
Halliburton Co. 67,600 $ 3,189,875
Noble Drilling Corp.* 90,100 3,710,994
------------
$ 6,900,869
------------------------------------------------------------------------------------------------------
Oils - 4.4%
Apache Corp. 20,500 $ 1,205,656
Chevron Corp. 4,900 415,581
Coastal Corp. 79,360 4,831,040
Conoco, Inc., "A" 62,600 1,377,200
Exxon Mobil Corp. 43,511 3,415,613
Transocean Sedco Forex, Inc. 17,000 908,438
------------
$ 12,153,528
------------------------------------------------------------------------------------------------------
Photographic Products
Eastman Kodak Co. 1,000 $ 59,500
------------------------------------------------------------------------------------------------------
Printing and Publishing - 1.8%
Gannett Co., Inc. 33,600 $ 2,009,700
New York Times Co. 44,700 1,765,650
Tribune Co. 28,700 1,004,500
------------
$ 4,779,850
------------------------------------------------------------------------------------------------------
Railroads - 0.3%
Burlington Northern Santa Fe Railway Co. 35,100 $ 805,106
------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Stocks - continued
------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Real Estate Investment Trusts - 0.4%
Equity Residential Properties Trust 26,400 $ 1,214,400
------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.2%
McDonald's Corp. 12,998 $ 428,122
------------------------------------------------------------------------------------------------------
Supermarkets - 1.1%
Kroger Co.* 65,900 $ 1,453,919
Safeway, Inc.* 35,100 1,583,887
------------
$ 3,037,806
------------------------------------------------------------------------------------------------------
Telecommunications - 3.1%
Alltel Corp. 10,600 $ 656,537
AT&T Corp. 15,750 498,094
Bell Atlantic Corp. 4,700 238,819
GTE Corp. 65,750 4,092,937
SBC Communications, Inc. 60,744 2,627,178
Sprint Corp. 9,600 489,600
------------
$ 8,603,165
------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.3%
Comcast Corp., "A"* 17,600 $ 712,800
------------------------------------------------------------------------------------------------------
Utilities - Electric - 1.6%
CMS Energy Corp. 10,200 $ 225,675
CP&L Energy, Inc.* 24,700 788,856
Duke Energy Corp. 26,600 1,499,575
NiSource, Inc. 40,000 745,000
Peco Energy Co. 9,000 362,813
Pinnacle West Capital Corp. 24,400 826,550
------------
$ 4,448,469
------------------------------------------------------------------------------------------------------
Utilities - Gas - 2.3%
Columbia Energy Group 13,000 $ 853,125
El Paso Energy Corp. 10,500 534,844
National Fuel Gas Co. 37,000 1,803,750
Washington Gas Light Co. 23,300 560,656
Williams Cos., Inc. 61,600 2,567,950
------------
$ 6,320,325
------------------------------------------------------------------------------------------------------
Total U.S. Stocks $123,227,079
------------------------------------------------------------------------------------------------------
Foreign Stocks - 6.8%
France - 0.1%
Axa (Insurance) 1,900 $ 299,267
------------------------------------------------------------------------------------------------------
Japan - 0.3%
Nippon Telegraph & Telephone Corp., ADR (Utilities - Telephone) 10,700 $ 731,613
------------------------------------------------------------------------------------------------------
Netherlands - 3.2%
Akzo Nobel N.V. (Chemicals) 71,600 $ 3,041,547
ING Groep N.V. (Financial Services)* 36,402 2,460,255
Royal Dutch Petroleum Co., ADR (Oils) 51,680 3,181,550
------------
$ 8,683,352
------------------------------------------------------------------------------------------------------
Switzerland - 0.6%
Nestle S.A. (Food and Beverage Products) 815 $ 1,631,699
------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Stocks - continued
------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - continued
United Kingdom - 2.6%
BP Amoco PLC, ADR (Oils) 71,676 $ 4,054,174
Diageo PLC (Food and Beverage Products)* 159,059 1,426,715
HSBC Holdings PLC (Banks and Credit Cos.)* 108,200 1,236,477
SmithKline-Beecham PLC, ADR (Medical and Health Products) 7,560 492,817
------------
$ 7,210,183
------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 18,556,114
------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $135,826,247) $141,783,193
------------------------------------------------------------------------------------------------------
<CAPTION>
Bonds - 38.7%
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 38.4%
Automotive - 2.6%
DaimlerChrysler, 6.63s, 2001 $ 1,946 $ 1,932,884
DaimlerChrysler, 7.75s, 2003 415 418,357
DaimlerChrysler, 7.4s, 2005 672 666,685
Ford Credit Auto Owner Trust, 6.2s, 2002 427 424,677
Ford Motor Credit Co., 6.7s, 2004 1,348 1,306,023
Ford Motor Credit Co., 7.75s, 2007 952 943,870
Ford Motor Credit Co., 5.8s, 2009 333 289,707
Ford Motor Credit Co., 7.875s, 2010 1,019 1,018,816
General Motors Corp., 9.4s, 2021 124 141,304
------------
$ 7,142,323
------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.5%
Beaver Valley Funding Corp. II, 9s, 2017 $ 559 $ 570,051
Capital One Financial Corp., 7.25s, 2003 50 48,819
Chase Manhattan Corp., 6.75s, 2004 495 482,219
Fleet National Bank, 5.75s, 2009 198 171,116
Midamerican Funding LLC, 5.85s, 2001 275 272,021
Midamerican Funding LLC, 6.927s, 2029 414 344,556
Midland Cogeneration Venture Corp., 10.33s, 2002 28 29,072
Midland Funding Corp., 10.33s, 2002 27 27,131
Riggs National Corp., 9.65s, 2009 650 643,500
Socgen Real Estate Co., 7.64s, 2049## 151 138,197
State Street Corp., 7.65s, 2010 138 137,757
Washington Mutual Capital I, 8.375s, 2027 157 139,203
Wells Fargo Bank N A, 7.8s, 2010 1,226 1,235,232
------------
$ 4,238,874
------------------------------------------------------------------------------------------------------
Chemicals - 0.3%
Lyondell Chemical Co., 9.625s, 2007 $ 777 $ 769,230
------------------------------------------------------------------------------------------------------
Conglomerates - 0.2%
Eaton Corp., 6.95s, 2004 $ 164 $ 160,484
News America Holdings, Inc., 6.625s, 2008 29 26,590
News America Holdings, Inc., 6.703s, 2034 378 359,697
------------
$ 546,771
------------------------------------------------------------------------------------------------------
Consumer Goods and Services
Kindercare Learning Centers, Inc., 9.5s, 2009 $ 150 $ 138,000
------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Bonds - continued
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - continued
Corporate Asset Backed - 2.7%
American Airlines Pass-Through Trust, 6.855s, 2009 $ 210 $ 204,623
Bear Stearns Commercial Mortgage Securities, Inc., 6.8s, 2008 474 464,579
Beneficial Home Equity Loan Trust, 6.731s, 2037 146 145,753
Chase Commercial Mortgage Securities Corp., 6.39s, 2008 328 306,557
Chase Commercial Mortgage Securities Corp., 7.543s, 2032 155 155,178
Commerce 2000, 6.93s, 2011 502 502,000
Commerce 2000, 6.95s, 2011 288 288,509
Continental Airlines Pass-Through Trust, Inc., 9.5s, 2013 22 22,512
Continental Airlines Pass-Through Trust, Inc., 6.648s, 2017 65 59,181
Continental Airlines Pass-Through Trust, Inc., 6.545s, 2019 85 76,301
Continental Airlines Pass-Through Trust, Inc., 7.256s, 2020 794 737,349
Criimi Mae Commercial Mortgage Trust, 7s, 2011 100 86,750
Criimi Mae Corp., 6.701s, 2008 169 151,413
CWMBS, Inc. Pass-Through Trust, 8s, 2030 817 812,660
GS Mortgage Securities Corp. II, 6.06s, 2030 815 779,416
Northwest Airlines Pass-Through Trust, 8.072s, 2019 348 349,274
Residential Accredit Loans, Inc., 6.75s, 2028 615 579,059
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 1,712 1,679,318
------------
$ 7,400,432
------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.2%
American Tower Corp., 5s, 2010 $ 410 $ 415,125
------------------------------------------------------------------------------------------------------
Entertainment - 0.8%
Hearst Argyle Television, Inc., 7.5s, 2027 $ 1,099 $ 927,106
Time Warner Entertainment Co. LP, 8.375s, 2033 300 302,445
Time Warner, Inc., 10.15s, 2012 591 678,255
Time Warner, Inc., 6.625s, 2029 209 172,515
------------
$ 2,080,321
------------------------------------------------------------------------------------------------------
Finance - 0.1%
Countrywide Funding Corp., 6.25s, 2009 $ 190 $ 165,764
------------------------------------------------------------------------------------------------------
Financial Institutions - 2.3%
Associates Corp., 5.75s, 2003 $ 1,210 $ 1,149,681
Associates Corp., 5.5s, 2004 1,207 1,120,736
AT&T Capital Corp., 6.25s, 2001 120 118,608
General Motors Acceptance Corp., 6.75s, 2002 485 476,750
General Motors Acceptance Corp., 5.95s, 2003 257 247,419
General Motors Acceptance Corp., 7.625s, 2004 967 969,040
Goldman Sachs Group LP, 5.9s, 2003 1,300 1,251,133
GS Escrow Corp., 6.75s, 2001 461 447,855
Salton Sea Funding Corp., 7.84s, 2010 325 317,330
Sunamerica Institutional, 5.75s, 2009 295 257,296
------------
$ 6,355,848
------------------------------------------------------------------------------------------------------
Financial Services - 2.8%
AIG Sunamerica Global Financing I, 7.4s, 2003 $ 639 $ 640,489
AIG Sunamerica Global Financing II, 7.6s, 2005 1,000 1,010,440
Bellsouth Capital Funding Corp., 7.75s, 2010 482 482,019
Deere (John) Capital Corp., 7s, 2002 232 230,476
</TABLE>
11
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Bonds - continued
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - continued
Financial Services - continued
General Electric Capital Corp., 7.5s, 2005 $ 504 $ 509,171
General Electric Capital Corp., 8.7s, 2007 358 385,063
General Electric Capital Corp., 8.75s, 2007 128 138,862
General Electric Capital Corp., 8.85s, 2007 169 183,874
General Electric Capital Corp., 8.5s, 2008 211 227,880
General Electric Capital Corp., 7.375s, 2010 406 410,897
Morgan (JP) Commercial Mortgage Finance Corp., 6.931s, 2010 275 275,183
Morgan (JP) Commercial Mortgage Finance Corp., 6.613s, 2030 162 153,933
Morgan Stanley Dean Witter, 7.75s, 2005 322 324,225
Morgan Stanley Group, Inc., 7.125s, 2003 426 423,269
Sprint Capital Corp., 6.5s, 2001 970 957,535
Sprint Capital Corp., 5.875s, 2004 729 684,363
Sprint Capital Corp., 6.9s, 2019 835 742,449
------------
$ 7,780,128
------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.5%
Nabisco, Inc., 6.375s, 2035 $ 70 $ 62,586
Seagram (Joseph E) & Sons, Inc., 5.79s, 2001 388 382,548
Seagram (Joseph E) & Sons, Inc., 6.4s, 2003 505 483,356
Seagram (Joseph E) & Sons, Inc., 7.5s, 2018 386 369,240
------------
$ 1,297,730
------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.4%
Georgia-Pacific Corp., 9.95s, 2002 $ 658 $ 681,267
Georgia-Pacific Corp., 9.5s, 2022 500 520,930
U.S. Timberlands, 9.625s, 2007 30 26,400
------------
$ 1,228,597
------------------------------------------------------------------------------------------------------
Housing - 0.1%
Residential Funding Mortgage Securities, Inc., 7.66s, 2012 $ 142 $ 141,678
------------------------------------------------------------------------------------------------------
Insurance - 0.3%
Aflac, Inc., 6.5s, 2009 $ 675 $ 610,855
Atlantic Mutual Insurance Co., 8.15s, 2028 149 117,443
Providian Capital I, 9.525s, 2027 109 85,524
------------
$ 813,822
------------------------------------------------------------------------------------------------------
Oil Services - 0.1%
Phillips Petroleum Co., 8.5s, 2005 $ 303 $ 313,023
Ultramar Diamond Shamrock Corp., 7.2s, 2017 20 17,498
------------
$ 330,521
------------------------------------------------------------------------------------------------------
Oils - 0.2%
Occidental Petroleum Corp., 6.75s, 2002 $ 341 $ 334,054
Occidental Petroleum Corp., 6.4s, 2003 357 344,783
------------
$ 678,837
------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.1%
News America Holdings, Inc., 7.3s, 2028 $ 339 $ 289,431
------------------------------------------------------------------------------------------------------
Railroads - 0.4%
Union Pacific Corp., 5.78s, 2001 $ 157 $ 153,365
Union Pacific Corp., 6.34s, 2003 935 896,497
------------
$ 1,049,862
------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Bonds - continued
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - continued
Retail - 0.3%
Federated Department Stores, Inc., 8.5s, 2003 $ 571 $ 576,236
Federated Department Stores, Inc., 6.3s, 2009 375 329,513
------------
$ 905,749
------------------------------------------------------------------------------------------------------
Telecommunications - 0.5%
TCI Communications Financing III, 9.65s, 2027 $ 1,102 $ 1,217,490
WorldCom, Inc., 8.875s, 2006 20 20,737
------------
$ 1,238,227
------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.1%
Belo Ah Corp., 7.75s, 2027 $ 202 $ 171,189
------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 6.4%
Federal Home Loan Bank - 0.5%
Federal Home Loan Bank, 5.7s, 2009 $ 720 $ 655,877
Federal Home Loan Bank, 6.5s, 2028 573 540,639
------------
$ 1,196,516
------------------------------------------------------------------------------------------------------
Federal National Mortgage Association - 5.9%
FNMA, 5.722s, 2009 $ 465 $ 416,902
FNMA, 6.5s, 2028 - 2029 3,494 3,294,421
FNMA, 6.625s, 2009 600 579,654
FNMA, 7s, 2029 5,285 5,102,743
FNMA, 7.125s, 2010 2,308 2,317,024
FNMA, 7.25s, 2010 1,689 1,706,008
FNMA, 7.5s, 2029 2,750 2,711,307
------------
$ 16,128,059
------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 17,324,575
------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 11.0%
Government National Mortgage Association - 3.8%
GNMA, 7s, 2028 $ 1,356 $ 1,318,401
GNMA, 7.5s, 2025 - 2027 2,737 2,718,246
GNMA, 8s, 2022 - 2030 6,257 6,333,843
------------
$ 10,370,490
------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 7.2%
U.S. Treasury Notes, 6.5s, 2005 - 2010 $ 6,497 $ 6,717,056
U.S. Treasury Notes, 4.25s, 2010 2,544 2,580,405
U.S. Treasury Bonds, 9.875s, 2015 1,628 2,207,470
U.S. Treasury Bonds, 6.125s, 2029 8,192 8,273,920
------------
$ 19,778,851
------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 30,149,341
------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.5%
CalEnergy Co., Inc., 7.23s, 2005 $ 15 $ 14,587
Cleveland Electric Illuminating Co., 7.67s, 2004 1,997 1,967,744
Cleveland Electric Illuminating Co., 7.88s, 2017 81 76,222
CMS Energy Corp., 8.375s, 2003 928 897,137
CMS Energy Corp., 6.75s, 2004 600 550,500
CMS Energy Corp., 8s, 2011 235 231,409
Commonwealth Edison Company, 8.5s, 2022 511 508,363
</TABLE>
13
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<CAPTION>
Bonds - continued
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - continued
Utilities - Electric - continued
Connecticut Light & Power Co., 7.875s, 2001 $ 58 $ 58,186
Connecticut Light & Power Co., 8.59s, 2003 400 397,216
Connecticut Light & Power Co., 7.875s, 2024 70 69,978
Entergy Mississippi, Inc., 6.2s, 2004 169 160,285
GGIB Funding Corp., 7.43s, 2011 84 79,459
Gulf States Utilities Co., 8.25s, 2004 84 84,737
Illinois Power Special Purpose Trust, 5.26s, 2003 98 96,953
Niagara Mohawk Power Corp., 7.25s, 2002 289 285,409
Niagara Mohawk Power Corp., 7.375s, 2003 77 75,924
Niagara Mohawk Power Corp., 7.75s, 2006 762 759,737
Niagara Mohawk Power Corp., 8.77s, 2018 124 127,728
Niagara Mohawk Power Corp., 8.5s, 2023 50 49,739
Northeast Utilities, 8.58s, 2006 239 240,790
NRG Energy South Central, 8.962s, 2016 284 284,994
NRG Energy, Inc., 8.7s, 2005 195 195,266
NSTAR Co., 8s, 2010 240 241,164
Telecomunicaciones de Puerto Rico, Inc., 6.65s, 2006 182 172,225
Texas Utilities Co., 5.94s, 2001 194 189,821
Toledo Edison Co., 7.875s, 2004 400 390,752
TXU Eastern Funding Co., 6.15s, 2002 137 132,741
Utilicorp United, Inc., 7s, 2004 131 125,122
Waterford 3 Funding Entergy Corp., 8.09s, 2017 353 335,416
Wisconsin Electric Power Co., 6.625s, 2002 805 791,597
------------
$ 9,591,201
------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.8%
Coastal Corp., 6.2s, 2004 $ 468 $ 446,266
Coastal Corp., 7.75s, 2010 639 634,700
Enron Corp., 7.875s, 2003 218 219,323
Tennessee Gas Pipeline Co., 7.625s, 2037 260 242,726
Texas Gas Transmission Corp., 7.25s, 2027 600 551,472
Williams Gas Pipelines Central, Inc., 7.375s, 2006 140 136,293
------------
$ 2,230,780
------------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.2%
U. S. West Communications, Inc., 7.625s, 2003 $ 474 $ 472,739
------------------------------------------------------------------------------------------------------
Total U.S. Bonds $104,947,095
------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.3%
Canada
AT&T Canada, Inc., 0s to 2003, 9.95s to 2008 (Telecommunications) $ 88 $ 71,379
------------------------------------------------------------------------------------------------------
Chile - 0.3%
Empresa Electric Guacolda S.A., 7.6s, 2001
(Utilities - Electric)## $ 760 $ 747,460
------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 818,839
------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $107,519,228) $105,765,934
------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - continued
<TABLE>
<CAPTION>
Convertible Preferred Stocks - 1.0%
------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Containers - 0.1%
Owens-Illinois, Inc., 4.75% 10,100 $ 224,725
------------------------------------------------------------------------------------------------------
Insurance - 0.2%
Lincoln National Corp., 7.75% 31,600 $ 639,900
------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.4%
CMS Energy Corp., 8.75% 20,800 $ 582,400
NiSource, Inc., 7.75% 13,000 514,312
------------
$ 1,096,712
------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.3%
El Paso Energy Capital Trust I, 4.75% 12,300 $ 791,813
------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $3,122,908) $ 2,753,150
------------------------------------------------------------------------------------------------------
Preferred Stock - 0.2%
------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.2%
TXU Corp.* (Identified Cost, $699,463) 13,300 $ 517,037
------------------------------------------------------------------------------------------------------
Convertible Bonds - 0.7%
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
------------------------------------------------------------------------------------------------------
Business Machines - 0.1%
Xerox Corp., 0s, 2018 $ 630 $ 327,600
------------------------------------------------------------------------------------------------------
Conglomerates - 0.6%
Loews Corp., 3.125s, 2007 $ 1,880 $ 1,565,100
------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $1,987,857) $ 1,892,700
------------------------------------------------------------------------------------------------------
Rights - 0.2%
------------------------------------------------------------------------------------------------------
SHARES
------------------------------------------------------------------------------------------------------
CVS Corp. (Identified Cost, $743,268) 10,000 $ 708,125
------------------------------------------------------------------------------------------------------
Short-Term Obligations - 7.4%
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
------------------------------------------------------------------------------------------------------
Associates First Capital Corp., due 7/03/00 $ 8,527 $ 8,523,732
Federal Home Loan Mortgage Corp., due 7/03/00 6,641 6,638,576
Federal Home Loan Mortgage Corp., due 7/05/00 5,000 4,996,472
------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 20,158,780
------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $270,057,751) $273,578,919
Other Assets, Less Liabilities - (0.1)% (214,948)
------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $273,363,971
------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
15
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities (Unaudited)
--------------------------------------------------------------------------------
JUNE 30, 2000
--------------------------------------------------------------------------------
Assets:
<S> <C>
Investments, at value (identified cost, $270,057,751) $273,578,919
Investment of cash collateral for securities loaned, at
identified cost and value 4,854,144
Cash 24,802
Receivable for series shares sold 435,197
Receivable for investments sold 5,132,010
Interest and dividends receivable 1,776,385
Other assets 1,394
------------
Total assets $285,802,851
------------
Liabilities:
Payable for series shares reacquired $ 164,261
Payable for investments purchased 7,347,718
Collateral for securities loaned, at value 4,854,144
Payable to affiliates -
Management fee 5,658
Shareholder servicing agent fee 264
Administrative fee 132
Accrued expenses and other liabilities 66,703
------------
Total liabilities $ 12,438,880
------------
Net assets $273,363,971
============
Net assets consist of:
Paid-in capital $263,555,970
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 3,523,376
Accumulated undistributed net realized gain on investments
and foreign currency transactions 1,807,139
Accumulated undistributed net investment income 4,477,486
------------
Total $273,363,971
============
Shares of beneficial interest outstanding 15,774,902
==========
Initial Class shares:
Net asset value per share
(net assets of $273,333,523 / 15,773,144 shares of
beneficial interest outstanding) $17.33
======
Service Class shares:
Net asset value per share
(net assets of $30,448 / 1,758 shares of beneficial
interest outstanding) $17.32
======
</TABLE>
See notes to financial statements.
16
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Operations (Unaudited)
--------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Interest $4,071,107
Dividends 1,539,645
Foreign taxes withheld (23,464)
----------
Total investment income $5,587,288
----------
Expenses -
Management fee $ 960,858
Trustees' compensation 4,500
Shareholder servicing agent fee 44,840
Distribution fee (Service Class) 3
Administrative fee 20,896
Custodian fee 51,526
Printing 31,170
Postage 14
Auditing fees 26,650
Legal fees 819
Miscellaneous 3,520
----------
Total expenses $1,144,796
Fees paid indirectly (13,850)
----------
Net expenses $1,130,946
----------
Net investment income $4,456,342
----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $2,575,558
Foreign currency transactions 105
----------
Net realized gain on investments and foreign currency
transactions $2,575,663
----------
Change in unrealized appreciation (depreciation) -
Investments $ (264,648)
Translation of assets and liabilities in foreign currencies 2,402
----------
Net unrealized loss on investments and foreign currency
translation $ (262,246)
----------
Net realized and unrealized gain on investments and
foreign currency $2,313,417
----------
Increase in net assets from operations $6,769,759
==========
</TABLE>
See notes to financial statements.
17
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
<CAPTION>
Statement of Changes in Net Assets
-------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 4,456,342 $ 6,464,323
Net realized gain on investments and foreign currency
transactions 2,575,663 5,493,766
Net unrealized loss on investments and foreign currency
translation (262,246) (5,937,181)
------------ ------------
Increase in net assets from operations $ 6,769,759 $ 6,020,908
------------ ------------
Distributions declared to shareholders -
From net investment income (Initial Class) $ (6,442,824) $ (3,664,354)
From net realized gain on investments and foreign
currency transactions (Initial Class) (6,203,873) (6,795,201)
------------ ------------
Total distributions declared to shareholders $(12,646,697) $(10,459,555)
------------ ------------
Net increase in net assets from series share transactions $ 23,112,931 $ 89,384,826
------------ ------------
Total increase in net assets $ 17,235,993 $ 84,946,179
Net assets:
At beginning of period 256,127,978 171,181,799
------------ ------------
At end of period (including accumulated undistributed
net investment income of $4,477,486 and $6,463,968,
respectively) $273,363,971 $256,127,978
============ ============
</TABLE>
See notes to financial statements.
18
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
-----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
SIX MONTHS ENDED -------------------------------------------------------- DECEMBER 31,
JUNE 30, 2000 1999 1998 1997 1996 1995*
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------
INITIAL CLASS SHARES
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $17.75 $18.12 $16.63 $13.71 $12.25 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.30 $ 0.53 $ 0.53 $ 0.52 $ 0.46 $ 0.41
Net realized and unrealized
gain on investments and
foreign currency 0.15 0.05 1.49 2.40 1.30 2.32
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.45 $ 0.58 $ 2.02 $ 2.92 $ 1.76 $ 2.73
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.44) $(0.33) $(0.24) $ -- $(0.21) $(0.25)
From net realized gain on
investments and foreign
currency transactions (0.43) (0.62) (0.29) -- (0.09) (0.23)
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.87) $(0.95) $(0.53) $ -- $(0.30) $(0.48)
------ ------ ------ ------ ------ ------
Net asset value - end of
period $17.33 $17.75 $18.12 $16.63 $13.71 $12.25
====== ====== ====== ====== ====== ======
Total return 2.63%++ 3.08% 12.33% 21.30% 14.37% 27.34%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.90%+ 0.90% 1.00% 1.00% 1.00% 1.00%+
Net investment income 3.46%+ 2.97% 3.05% 3.25% 3.59% 3.83%+
Portfolio turnover 54% 112% 100% 93% 76% 16%
Net assets at end of period
(000 omitted) $273,333 $256,128 $171,182 $75,612 $19,250 $2,797
(S) Subject to reimbursement by the series, the investment adviser voluntary agreed under a temporary expense reimbursement
agreement to pay all of the series' operating expenses, exclusive of management fees. In consideration, the series pays
the investment adviser a reimbursement fee of not greater than 0.25% of average daily net assets for certain of the
periods indicated. To the extent actual expenses were over/under this limitation, the net investment income per share
and ratios would have been:
Net investment income $ -- $ -- $ 0.54 $ 0.52 $ 0.32 $ 0.22
Ratios (to average net
assets):
Expenses## -- -- 0.91% 1.02% 2.10% 2.49%+
Net investment income -- -- 3.14% 3.23% 2.49% 2.09%+
</TABLE>
* For the period from the commencement of the series' investment operations,
January 3, 1995, through December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain
expense offset arrangements.
See notes to financial statements.
19
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
--------------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 2000*
(UNAUDITED)
--------------------------------------------------------------------------------
SERVICE CLASS SHARES
--------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout
the period):
Net asset value - beginning of period $17.07
------
Income from investment operations# -
Net investment income $ 0.11
Net realized and unrealized gain on investments and
foreign currency 0.14
------
Total from investment operations $ 0.25
------
Net asset value - end of period $17.32
======
Total return 2.57%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.13%+
Net investment income 3.35%+
Portfolio turnover 54%
Net assets at end of period (000 omitted) $30
</TABLE>
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain
expense offset arrangements.
See notes to financial statements.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Total Return Series (the series) is a diversified series of MFS(R)
Variable Insurance Trust(SM) (the trust). The trust is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
shareholders of each series of the trust are separate accounts of insurance
companies which offer variable annuity and/or life insurance products. As of
June 30, 2000, there were 71 shareholders of the series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The series
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis
of valuations furnished by dealers or by a pricing service with consideration
to factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or over-the-
counter prices. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued in good faith, at
fair value, by the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Security Loans - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the series to certain qualified
institutions (the "Borrowers") approved by the series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the series with indemnification against Borrower default. The
series bears the risk of loss with respect to the investment of cash
collateral.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the series and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the series and the lending agent. Income
from securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
At June 30, 2000, the value of securities loaned was $4,725,561. These loans
were collateralized by cash of $4,854,144 which was invested in the following
short-term obligation:
<TABLE>
<CAPTION>
IDENTIFIED COST
SHARES AND VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
Navigator Securities Lending Prime Portfolio 4,854,144 $4,854,144
</TABLE>
Forward Foreign Currency Exchange Contracts - The series may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
series may enter into forward contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the series may enter into
contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The series may also use
contracts in a manner intended to protect foreign currency-denominated
securities from declines in value due to unfavorable exchange rate movements.
For non-hedging purposes, the series may enter into contracts with the intent
of changing the relative exposure of the series' portfolio of securities to
different currencies to take advantage of anticipated changes. The forward
foreign currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded as unrealized
until the contract settlement date. On contract settlement date, the gains or
losses are recorded as realized gains or losses on foreign currency
transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date. The series uses the effective
interest method for reporting interest income on payment-in-kind (PIK) bonds.
Some securities may be purchased on a "when-issued" or "forward delivery"
basis, which means that the securities will be delivered to the series at a
future date, usually beyond customary settlement time.
Fees Paid Indirectly - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the series. During the period the series' custodian fees were reduced by
$13,675 under this arrangement. The series has entered into a directed
brokerage agreement, under which the broker will credit the series a portion
of the commissions generated, to offset certain expenses of the series. For
the period, the series custodian fees were reduced by $175 under this
agreement. These amounts are shown as a reduction of total expenses on the
Statement of Operations.
Tax Matters and Distributions - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits be reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits, which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest - The series offers multiple
classes of shares that differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued
(3) Transactions with Affiliates
Investment Adviser - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at an annual rate of
0.75% of the series' average daily net assets.
The series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the series, all of whom receive
remuneration for their services to the series from MFS. Certain officers and
Trustees of the series are officers or directors of MFS and MFS Service
Center, Inc. (MFSC).
Administrator - The series has an administrative services agreement with MFS
to provide the series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the series incurs an administrative fee
at the following annual percentages of the series' average daily net assets:
<TABLE>
<S> <C>
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
</TABLE>
Distributor - The Trustees have adopted a distribution plan for the Service
Class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The series' distribution plan provides that the series will pay MFD a
distribution fee up to 0.25% per annum of its average daily net assets
attributable to Service Class shares in order that MFD may pay expenses on
behalf of the series related to the distribution of its shares. A portion of
this distribution fee is currently being paid by the series; payment of the
remaining 0.05% per annum of the Service Class distribution fee will become
payable on such a date as the Trustees of the trust may determine. Fees
incurred under the distribution plan during the period ended June 30, 2000,
were 0.20% of average daily net assets attributable to Service Class shares on
an annualized basis.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the series' average daily net assets at an annual rate of
0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities $61,731,966 $47,969,075
----------- -----------
Investments (non-U.S. government securities) $74,189,798 $83,211,853
----------- -----------
</TABLE>
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
<TABLE>
<S> <C>
Aggregate cost $270,057,751
------------
Gross unrealized appreciation $ 15,754,491
Gross unrealized depreciation (12,233,323)
------------
Net unrealized appreciation $ 3,521,168
============
</TABLE>
23
<PAGE>
(5) Shares of Beneficial Interest
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
<TABLE>
<CAPTION>
Initial Class Shares
SIX MONTHS ENDED JUNE 30, 2000 YEAR ENDED DECEMBER 31, 1999
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,651,188 $45,954,251 6,249,799 $111,763,471
Shares issued to shareholders in
reinvestment of distributions 741,742 12,646,694 577,557 10,459,550
Shares reacquired (2,051,926) (35,518,835) (1,840,037) (32,838,195)
---------- ----------- ---------- -----------
Net increase 1,341,004 $23,082,110 4,987,319 $89,384,826
========== =========== ========== ===========
<CAPTION>
Service Class Shares
PERIOD ENDED JUNE 30, 2000*
---------------------------
SHARES AMOUNT
--------------------------------------------------------------------
<S> <C> <C>
Shares sold 1,834 $32,157
Shares reacquired (76) (1,336)
---------- -----------
Net increase 1,758 $30,821
========== ===========
</TABLE>
* For the period from the inception of Service Class shares, May 1, 2000,
through June 30, 2000.
(6) Line of Credit
The series and other affiliated series participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each series, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating series at
the end of each quarter. The commitment fee allocated to the series for the
six months ended June 30, 2000, was $878. The series had no borrowings during
the period.
24
<PAGE>
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VTR-3 8/00 25M
<PAGE>
This page left intentionally blank
<PAGE>
SEMIANNUAL
REPORT
JUNE 30, 2000
(UNAUDITED)
WARBURG PINCUS TRUST
(BULLET) EMERGING GROWTH PORTFOLIO
Warburg Pincus Trust (the "Trust") shares are not available directly to
individual investors, but may be offered only through certain insurance products
and pension and retirement plans.
More complete information about the Trust, including charges and expenses and,
when applicable, the special considerations and risks associated with
international investing, is provided in the PROSPECTUS, which must precede or
accompany this document and which should be read carefully before investing. You
may obtain additional copies by calling 800-222-8977 or by writing to Warburg
Pincus Funds, P.O. Box 9030, Boston, MA 02205-9030.
Credit Suisse Asset Management Securities, Inc., Distributor to the Trust, is
located at 466 Lexington Ave., New York, NY 10017-3147. The Trust is advised by
Credit Suisse Asset Management, LLC.
[GRAPHIC OMITTED]
WARBURG PINCUS FUNDS
PART OF CREDIT SUISSE ASSET MANAGEMENT
<PAGE>
FROM TIME TO TIME, THE PORTFOLIOS' INVESTMENT ADVISER AND CO-ADMINISTRATORS MAY
WAIVE SOME FEES AND/OR REIMBURSE SOME EXPENSES, WITHOUT WHICH PERFORMANCE WOULD
BE LOWER. WAIVERS AND/OR REIMBURSEMENTS ARE SUBJECT TO CHANGE.
RETURNS ARE HISTORICAL AND INCLUDE CHANGE IN SHARE PRICE AND REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS.
RETURNS AND SHARE PRICE WILL FLUCTUATE, AND REDEMPTION VALUE MAY BE MORE OR LESS
THAN ORIGINAL COST.
INTERNATIONAL INVESTING ENTAILS SPECIAL RISK CONSIDERATIONS, INCLUDING CURRENCY
FLUCTUATIONS, LOWER LIQUIDITY, ECONOMIC AND POLITICAL RISKS, AND DIFFERENCES IN
ACCOUNTING METHODS.
THE VIEWS OF THE PORTFOLIOS' MANAGEMENT ARE AS OF THE DATE OF THE LETTERS, AND
PORTFOLIO HOLDINGS DESCRIBED IN THIS DOCUMENT ARE AS OF JUNE 30, 2000; THESE
VIEWS AND PORTFOLIO HOLDINGS MAY HAVE CHANGED SUBSEQUENT TO THESE DATES. NOTHING
IN THIS DOCUMENT IS A RECOMMENDATION TO PURCHASE OR SELL SECURITIES.
PORTFOLIO SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF CREDIT SUISSE ASSET
MANAGEMENT, LLC ("CSAM") OR ANY AFFILIATE, ARE NOT FDIC INSURED AND ARE NOT
GUARANTEED BY CSAMOR ANY AFFILIATE. PORTFOLIO INVESTMENTS ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING LOSS OF YOUR INVESTMENT.
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
SEMIANNUAL INVESTMENT ADVISER'S REPORT -- JUNE 30, 2000
--------------------------------------------------------------------------------
August 4, 2000
Dear Shareholder:
For the six months ended June 30, 2000, Warburg Pincus Trust--Emerging Growth
Portfolio (the "Portfolio") had a gain of 12.39% vs. gains of 1.22% and 7.19%,
respectively, for the Russell 2000 Growth Index* and the Russell 2500 Growth
Index.** The Portfolio's since-inception (on September 13, 1999) cumulative
total return through June 30, 2000 was 48.31%.
The period was a volatile, though ultimately positive, one for the small- and
mid-cap stocks targeted by the Portfolio. After rising early on, the group fell
back sharply in April and May, hampered by interest-rate worries. Also weighing
on these stocks were concerns over valuations on technology stocks and other
factors, including the government's antitrust suit against Microsoft and
deteriorating business models within specific "dot com" companies. Small- and
mid-cap stocks ended the quarter on a positive note, however, recovering some of
their April and May losses in June. All told, the group finished the year's
halfway point in positive territory and ahead of large caps.
The Portfolio had a good showing for the period, both in absolute terms and
compared to its benchmarks. Aiding the Portfolio were solid showings from a
number of its technology stocks, despite the turbulence in this sector. Also
contributing positively to the Portfolio's return were its health-care and
oil-services holdings.
We made no material changes to the Portfolio during the period with respect
to basic strategy, remaining focused on well-managed companies with significant
long-term growth potential. We continued to find a large number of such
companies within the technology area, broadly defined. Our positive view on
these companies remained based on several compelling forces, not the least of
which is the Internet's expanding use as a productivity-enhancing tool and as a
means of commerce. Specific software, electronic-component and
communications-services providers are well-positioned to benefit from this
trend, as are certain business-services companies, which remained
well-represented in the Portfolio. Elsewhere of note, we maintained significant
exposure to the energy and pharmaceutical sectors, where we continued to see
compelling growth stories and attractive valuations.
Looking ahead, we have a positive view on the prospects for small- and
mid-cap stocks, notwithstanding their typically high short-term volatility.
Barring a material slowdown in the U.S. economy, the group's profit backdrop
should remain, at minimum, supportive, given these companies' domestically
biased customer bases. Other factors that stand to benefit emerging-growth
stocks include a strong ongoing outsourcing trend, with large companies
delegating non-core functions to smaller, niche-type companies. Set within this
environment, our focus will remain on innovative, rapidly growing companies we
deem to have the best long-term prospects.
Elizabeth B. Dater Stephen J. Lurito
Co-Portfolio Manager Co-Portfolio Manager
Investing in small companies entails special risk considerations. These are
detailed in the Prospectus, which should be read carefully before investing.
-------------
* The Russell 2000 Growth Index is an unmanaged index (with no defined
investment objective) of those securities in the Russell 2000 Index with a
greater-than-average growth orientation. The Russell 2000 Growth Index
includes reinvestment of dividends, and is compiled by Frank Russell
Company.
** The Russell 2500 Growth Index measures the performance of those companies in
the Russell 2500 Index with higher price-to-book values and higher
forecasted growth rates. The Russell 2500 Index is composed of the 2,500
smallest companies in the Russell 3000 Index, which measures the performance
of the 3,000 largest U.S. companies based on total market capitalization.
The Russell 2500 Index represents approximately 22% of the total market
capitalization of the Russell 3000 Index.
1
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS -- JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (94.5%)
AEROSPACE & DEFENSE (0.7%)
Litton Industries, Inc.+ 6,000 $ 252,000
-----------
BUILDING & BUILDING MATERIALS (1.0%)
Lennar Corp. 18,000 364,500
-----------
BUSINESS SERVICES (8.4%)
BISYS Group, Inc.+ 4,500 276,750
Equifax, Inc. 16,100 423,631
Express Scripts, Inc. Class A+ 5,800 360,325
Forrester Research, Inc.+ 4,000 291,250
INSpire Insurance Solutions, Inc.+ 80,000 240,000
On Assignment, Inc.+ 16,000 488,000
QRS Corp.+ 8,100 198,956
SunGard Data Systems, Inc.+ 2,600 80,600
TeleTech Holdings, Inc.+ 10,000 310,625
TMP Worldwide, Inc.+ 4,500 332,156
West Teleservices Corp. 9,000 227,812
-----------
3,230,105
-----------
COMMUNICATIONS & MEDIA (1.9%)
Cox Radio, Inc. 4,700 131,600
InfoSpace.com, Inc.+ 6,100 337,025
SeaChange International, Inc.+ 9,500 274,312
-----------
742,937
-----------
COMPUTERS (7.3%)
Amdocs, Ltd. + 6,000 460,500
BackWeb Technologies, Ltd.+ 15,400 352,275
Mercator Software Inc.+ 7,400 508,750
Mercury Interactive Corp.+ 2,600 251,550
National Instruments Corp.+ 6,700 292,287
NVIDIA Corp.+ 6,000 381,375
Phone.com, Inc.+ 4,000 260,500
Scitex Corp., Ltd.+ 11,500 127,219
Telxon Corp.+ 8,334 148,970
-----------
2,783,426
-----------
CONSUMER SERVICES (2.3%)
DeVry, Inc.+ 11,000 290,812
ITT Educational Services, Inc.+ 19,900 349,494
Sylvan Learning Systems, Inc.+ 16,500 226,875
-----------
867,181
-----------
ELECTRONICS (18.9%)
Altera Corp.+ 3,500 356,781
Amkor Technology, Inc.+ 10,900 384,906
Burr-Brown Corp.+ 5,600 485,450
Celestica, Inc. ADR+ 7,200 357,300
Cognex Corp.+ 5,900 305,325
DSP Group, Inc.+ 6,000 336,000
Intersil Holding Corp.+ 7,000 378,437
Lattice Semiconductor Corp.+ 5,100 352,537
Maxim Integrated Products, Inc.+ 5,400 366,862
Metalink, Ltd.+ 10,000 296,250
Microsemi Corp.+ 12,100 410,644
Novellus Systems, Inc.+ 6,000 339,375
Orbotech, Ltd.+ 4,000 371,500
Power-One, Inc.+ 4,800 546,900
Sawtek Inc.+ 5,600 322,350
Semtech Corp.+ 4,700 359,477
Symbol Technologies, Inc. 5,650 314,634
</TABLE>
See Accompanying Notes to Financial Statements.
2
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D) -- JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONT'D)
ELECTRONICS (CONT'D)
Telcom Semiconductor, Inc.+ 8,500 $ 343,187
Varian Semiconductor Equipment Associates, Inc.+ 5,700 358,031
Vishay Intertechnology, Inc.+ 6,700 254,181
-----------
7,240,127
-----------
ENERGY (2.6%)
Apache Corp. 6,000 352,875
EOG Resources, Inc. 9,200 308,200
Noble Affiliates, Inc. 9,000 335,250
-----------
996,325
-----------
FINANCIAL SERVICES (3.7%)
Ambac Financial Group, Inc. 7,000 383,687
IndyMac Mortgage Holdings, Inc. 20,400 276,675
Investment Technology Group, Inc. 5,800 246,862
PartnerRe Ltd. 7,000 248,063
Trenwick Group, Inc. 17,500 254,844
-----------
1,410,131
-----------
HEALTHCARE (7.1%)
Caremark Rx, Inc.+ 55,000 374,688
Coherent, Inc.+ 5,500 461,313
Community Health Systems, Inc.+ 20,000 323,750
Cytyc Corp.+ 5,500 293,563
Foundation Health Systems, Inc. Class A+ 20,000 260,000
IVAX Corp.+ 7,600 315,400
Mid Atlantic Medical Services, Inc.+ 25,200 340,200
Tenet Healthcare Corp.+ 12,300 332,100
-----------
2,701,014
-----------
LODGING & RESTAURANTS (0.4%)
Park Place Entertainment Corp.+ 12,100 147,469
-----------
OIL SERVICES (8.3%)
BJ Services Co.+ 5,500 343,750
CARBO Ceramics, Inc. 15,100 530,388
Cooper Cameron Corp.+ 4,400 290,400
Ensco International, Inc. 10,000 358,125
Nabors Industries, Inc.+ 9,100 378,219
Noble Drilling Corp.+ 7,200 296,550
Pogo Producing Co. 16,000 354,000
Pride International, Inc.+ 13,000 321,750
Smith International, Inc.+ 4,000 291,250
-----------
3,164,432
-----------
PHARMACEUTICALS (9.5%)
Aclara Biosciences Inc.+ 7,500 382,031
ALPHARMA , Inc. Class A 5,500 342,375
Biovail Corp.+ 6,800 376,975
Elan Corp. PLC ADR+ 8,000 387,500
Gene Logic, Inc.+ 7,600 271,225
ILEX Oncology, Inc.+ 9,000 317,250
Jones Pharma, Inc. 10,000 399,375
Kos Pharmaceuticals, Inc.+ 21,500 345,344
Pharmacopeia, Inc.+ 10,100 468,388
QLT PhotoTherapeutics, Inc.+ 4,500 347,906
-----------
3,638,369
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
3
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D) -- JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCKS (CONT'D)
REAL ESTATE (2.4%)
AMB Property Corp. 15,000 $ 342,188
Boston Properties, Inc. 8,000 305,500
Prologis Trust 13,500 287,719
-----------
935,407
-----------
RETAIL (2.5%)
Linens `n Things, Inc.+ 11,400 309,225
Office Depot, Inc.+ 17,000 106,250
Too, Inc.+ 12,800 325,600
Ultimate Electronics, Inc.+ 8,000 214,375
-----------
955,450
-----------
ELECOMMUNICATIONS & EQUIPMENT (16.8%)
Advanced Fibre Communications, Inc.+ 7,000 317,188
Aeroflex, Inc.+ 6,500 322,969
Andrew Corp.+ 10,000 335,625
Antec Corp.+ 9,000 374,063
Audiocodes, Ltd.+ 3,200 384,000
Clarent Corp.+ 6,000 429,000
DSET Corp.+ 11,200 340,200
Harris Corp. 13,000 425,750
McLeodUSA, Inc. Class A+ 12,300 254,456
Natural Microsystems Corp.+ 3,300 371,044
Polycom, Inc.+ 5,900 555,153
Scientific-Atlanta, Inc. 4,000 298,000
Spectrasite Holdings, Inc.+ 15,200 431,300
SymmetriCom, Inc.+ 17,600 444,400
Tekelec+ 8,700 419,231
TTI Team Telecom International, Ltd.+ 9,200 331,200
Turnstone Systems, Inc.+ 2,400 397,613
-----------
6,431,192
-----------
UTILITIES - GAS (0.7%)
Kinder Morgan, Inc. 8,200 283,413
-----------
TOTAL COMMON STOCKS (Cost $30,900,397) 36,143,478
-----------
SHORT TERM INVESTMENTS (7.8%)
Institutional Money Market Trust 1,171,153 1,171,153
RBB Money Market Portfolio 1,819,274 1,819,274
-----------
TOTAL SHORT TERM INVESTMENTS (Cost $2,990,427) 2,990,427
-----------
TOTAL INVESTMENTS AT VALUE (102.3%)
(Cost $33,890,824*) 39,133,905
LIABILITIES IN EXCESS OF OTHER ASSETS (2.3%) (892,491)
-----------
NET ASSETS (100%) $38,241,414
===========
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
--------------------------------------------------------------------------------
+ Non-income producing security
* Also cost for federal income tax purposes.
See Accompanying Notes to Financial Statements.
4
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments, at value (Cost-$33,890,824) $39,133,905
Receivable for investments sold 957,539
Dividends and interest receivable 20,638
Prepaid expenses and other assets 11,978
-----------
Total Assets 40,124,060
-----------
LIABILITIES
Advisory fee payable 28,988
Administrative services fee payable 2,938
Payable for investments purchased 1,797,289
Accrued expenses payable 52,991
Other liabilities 440
-----------
Total Liabilities 1,882,646
-----------
NET ASSETS
Capital Stock, $.001 par value 2,604
Paid-in capital 35,840,260
Accumulated undistributed net investment income (27,083)
Accumulated net realized loss from investments (2,817,448)
Net unrealized appreciation from investments 5,243,081
-----------
Net Assets $38,241,414
===========
NET ASSET VALUE
Net assets $38,241,414
-----------
Shares outstanding 2,603,617
-----------
Net asset value, offering price and redemption
price per share $14.69
======
</TABLE>
See Accompanying Notes to Financial Statements.
5
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest $ 81,477
Dividends 19,102
----------
Total investment income 100,579
----------
EXPENSES:
Investment Advisory Fees 91,917
Custodian/Sub-custodian Fees 23,974
Administrative Services Fees 20,855
Offering/Organizational costs 14,625
Printing Fees 8,737
Legal Fees 5,794
Audit Fees 2,250
Transfer Agent Fees 1,700
Directors Fees 1,299
Interest Expense 59
Miscellaneous Expenses 849
----------
172,059
----------
Less: fees waived, expenses reimbursed and
transfer agent fee offsets (44,397)
----------
Total expenses 127,662
----------
Net investment income loss (27,083)
----------
NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized loss from investments (2,861,252)
Net change in unrealized appreciation from investments 4,316,068
----------
Net realized and unrealized gain from investments 1,454,816
----------
Net increase in net assets resulting from operations $1,427,733
==========
</TABLE>
See Accompanying Notes to Financial Statements.
6
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
SIX MONTHS SEPTEMBER 13, 1999
ENDED (COMMENCEMNET OF
JUNE 30, 2000 OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1999
------------- -------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ (27,083) $ 66
Net realized gain (loss) from investments (2,861,252) 44,291
Net change in unrealized appreciation
from investments 4,316,068 927,013
----------- ----------
Net increase in net assets resulting
from operations 1,427,733 971,370
----------- ----------
FROM DIVIDENDS:
Dividends from net investment income 0 (35,553)
----------- ----------
Net decrease in net assets from dividends 0 (35,553)
----------- ----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 31,309,978 5,704,415
Reinvestment from dividends 0 35,553
Net asset value of shares redeemed (1,120,529) (51,553)
----------- ----------
Net increase in net assets from
capital share transactions 30,189,449 5,688,415
----------- ----------
Net increase in net assets 31,617,182 6,624,232
NET ASSETS:
Beginning of period 6,624,232 0
----------- ----------
End of period $38,241,414 $6,624,232
=========== ==========
UNDISTRIBUTED NET INVESTMENT LOSS $ (27,083) $ 0
=========== ==========
</TABLE>
See Accompanying Notes to Financial Statements.
7
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout the Period)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX SEPTEMBER 13, 1999
MONTHS ENDED (COMMENCEMENT OF
JUNE 30, 2000 OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1999
------------- -------------------
<S> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 13.07 $10.00
------- ------
INVESTMENT ACTIVITIES:
Net investment income 0.04 0.04
Net gains from investments (both realized and
unrealized) 1.58 3.14
------- ------
Total from investment activities 1.62 3.18
------- ------
LESS DIVIDENDS:
Dividends from net investment income 0.00 (0.11)
------- ------
NET ASSET VALUE, END OF PERIOD $ 14.69 $13.07
======= ======
Total return 12.39%(1) 31.95%(1)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $38,241 $6,624
Ratio of expenses to average net assets 1.26%(2)(3) 1.25%(2)(3)
Ratio of net income to average net assets (.27)%(2) .01%(2)
Decrease reflected in above operating expense
ratios due to waivers/reimbursements. .43%(2) 9.91%(2)
Portfolio turnover rate 74.41% 31.21%
--------------------------------------------------------------------------------
<FN>
(1) Non-annualized.
(2) Annualized.
(3) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements resulted in a reduction to
the Portfolio's net expense ratio by .01% for the six months ended June 30,
2000 and had no effect for the period ended December 31, 1999. The
Portfolio's operating expense ratio after reflecting these arrangements was
1.25% for the six months ended June 30, 2000 and 1.25% for the period ended
December 31, 1999.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
8
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Warburg Pincus Trust (the "Trust"), a Massachusetts Business Trust, is an
open-end management investment company registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, and currently offers six investment
Portfolios (the "Portfolios"). The accompanying financial statements and notes
thereto relate to the Emerging Growth Portfolio (the "Portfolio").
The Portfolio is non-diversified with an investment objective that seeks
maximum capital appreciation. Shares of the Portfolio are not available directly
to individual investors but may be offered only through (a) variable-annuity
contracts and variable life insurance contracts offered by separate accounts of
certain insurance companies and (b) tax-qualified pension and retirement plans.
The Portfolio may not be available in connection with a particular contract or
plan.
The net asset value ("NAV") of the Portfolio is determined daily as of the
close of regular trading on the New York Stock Exchange. The Portfolio's
investments are valued at market value, which is generally determined using the
last reported sales price. If no sales are reported, investments are generally
valued at the mean between the last reported bid and asked prices. If market
quotations are not readily available, securities and other assets are valued by
another method that the Board of Trustees believes accurately reflects fair
value. Debt that will mature in 60 days or less is valued on the basis of
amortized cost, which approximates market value, unless the Board determines
that using this method would not reflect an investment's value.
Security transactions are accounted for on a trade basis. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
The cost of investments sold is determined by use of the specific identification
method for both financial reporting and income tax purposes.
Dividends from net investment income and distributions of net realized
capital gains, if any, are declared and paid at least annually. However, to the
extent that a net realized capital gain can be reduced by a capital loss
carryover, such gain will not be distributed. Income and capital gain
distributions are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles.
No provision is made for federal income taxes as it is the Trust's intention
to have the Portfolio continue to qualify for and elect the tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986, as amended (the "Code"), and make the requisite distributions to its
shareholders which will be sufficient to relieve it from federal income and
excise taxes.
Costs incurred by the Trust in connection with its organization have been
deferred and are being amortized over a period of five years from the date the
Trust commenced its operations. Costs incurred by the Portfolios in connection
with the offering of their shares have been deferred and are being amortized
over a one year period from the date the Portfolio commenced its operations.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Portfolio, along with other Funds managed by Credit Suisse Asset
Management LLC ("CSAM"), can transfer uninvested cash balances to a pooled cash
account, which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by the Portfolios' custodian bank until the agreements mature. Each agreement
requires that the market value of the collateral be sufficient to cover payments
of interest and principal; however, in the event of default or bankruptcy by the
other party to the agreement, retention of the collateral may be subject to
legal proceedings. At June 30, 2000, the Portfolio had investments in repurchase
agreements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statement and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
9
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONT'D)
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONT'D)
The Portfolio has an arrangement with their transfer agent whereby interest
earned on uninvested cash balances is used to offset a portion of their transfer
agent expense. For the six months ended June 30, 2000, the Portfolio received
credits or reimbursements in the amount of $746.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
CSAM, which is an indirect wholly-owned U.S. subsidiary of Credit Suisse
Group, serves as the Portfolio's investment adviser. For its investment advisory
services, CSAM receives a fee of 0.90% of the Portfolio's average daily net
assets:
For the period ended June 30, 2000, investment advisory fees, voluntary
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
------------ -------- ------------- --------------
<S> <C> <C> <C>
$91,917 $(9,492) $82,425 $(23,946)
</TABLE>
Credit Suisse Asset Management Securities, Inc. ("CSAMSI"), a wholly-owned
subsidiary of CSAM, and PFPC Inc. ("PFPC"), an indirect subsidiary of PNC
Financial Services Group, Inc. ("PNC"), also serve as each Portfolio's
co-administrator. For its administrative services, CSAMSI receives a fee
calculated at an annual rate of .10% of each Portfolios' average daily net
assets.
For the six months ended June 30, 2000, co-administrative services fees
earned by CSAMSI amounted to $10,213.
For its administrative services to the Portfolio, PFPC currently receives a
fee, exclusive of out-of-pocket expenses, based on the following fee structure:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ ---------------------------------
<S> <C>
First $500 million .100% of average daily net assets
Next $1 billion .075% of average daily net assets
Over $1.5 billion .050% of average daily net assets
</TABLE>
For the six months ended June 30, 2000, administrative services fees earned
and voluntarily waived by PFPC (including out-of-pocket expenses) were as
follows:
<TABLE>
<CAPTION>
GROSS NET
CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
--------------------- -------- ---------------------
<S> <C> <C>
$10,642 $(10,213) $429
</TABLE>
Provident Distributors, Inc. serves as distributor of the Portfolio's shares
without compensation. Effective August 1, 2000, Credit Suisse Asset Management
Securities, Inc. will become distributor to the Trust without compensation.
10
<PAGE>
WARBURG PINCUS TRUST -- EMERGING GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONT'D)
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
3. LINE OF CREDIT
The Portfolio, together with other Funds advised by CSAM, have established a
$350 million committed, unsecured, line of credit facility ("Credit Facility")
with Deutche Bank, AG as administrative agent, State Street Bank and Trust
Company as operations agent, Bank of Nova Scotia as syndication agent and
certain other lenders, for temporary or emergency purposes primarily relating to
unanticipated Fund share redemptions. Under the terms of the Credit Facility,
the Funds with access to the Credit Facility pay an aggregate commitment fee at
a rate of .075% per annum on the entire amount of the Credit Facility, which is
allocated among the participating Funds in such manner as is determined by the
governing Boards of the various Funds. In addition, the participating Funds will
pay interest on borrowing at the Federal funds rate plus .50%. At June 30, 2000,
there were no loans outstanding for the Portfolio.
4. INVESTMENTS IN SECURITIES
For the six months ended June 30, 2000, purchases and sales of investment
securities (excluding short-term investments) were $43,664,378 and $14,177,002,
respectively.
At June 30, 2000, the net unrealized appreciation from investments for those
securities having an excess of value over cost and net unrealized depreciation
from investments for those securities having an excess of cost over value (based
on cost for federal income tax purposes) were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
------------ -------------- -------------
<S> <C> <C>
$6,406,158 $(1,163,077) $5,243,081
</TABLE>
5. CAPITAL SHARE TRANSACTIONS
The Portfolio is authorized to issue an unlimited number of full and
fractional shares of beneficial interest, par value $.001 per share.
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR
JUNE 30, ENDED
2000 DECEMBER 31,
(UNAUDITED) 1999*
----------- -----------
<S> <C> <C>
Shares sold 2,168,827 508,976
Shares issued to shareholders on reinvestment
of dividends and distributions 0 3,097
Shares redeemed (72,068) (5,215)
--------- -------
Net increase in shares outstanding 2,096,759 506,858
========= =======
<FN>
----------
* Inception date September 13, 1999.
</FN>
</TABLE>
11
<PAGE>
[GRAPHIC OMITTED]
WARBURG PINCUS FUNDS
PART OF CREDIT SUISSE ASSET MANAGEMENT
P.O. BOX 9030, BOSTON, MA 02205-9030
800-222-8977 (BULLET) www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. TREMG-3-0600
<PAGE>
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<PAGE>
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<PAGE>
<PAGE>
================================================================================
Whether providing insurance protection for home, family and business or
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attention to detail and the financial strength of The Rock(r). Since 1875,
Prudential has been helping individuals and families meet their financial needs.
================================================================================
In the past, Contract Owners who held several variable contracts at the same
address received multiple copies of annual and semi-annual reports. In a effort
to lessen waste and reduce your fund's expenses of postage and printing, we will
attempt to mail only one copy of this report for the contracts listed on the
cover, based on our current records for Contract Owners with the same last name
and same address. No action on your part is necessary. Upon request, we will
furnish you with additional reports. The toll-free numbers listed on the inside
back cover of this report should be used to request any additional copies. Proxy
material and tax information will continue to be sent to each account of record.
?Prudential Insurance Company of America PRSRT.STD
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333 SUMMIT NJ
Permit # 657
[GRAPHIC OMITTED]
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