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[LOGO]
HARTFORD LIFE
SEMI ANNUAL REPORT
JUNE 30, 2000
- MANAGER DISCUSSIONS
- FINANCIALS
[GRAPHIC]
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The Director
Table of Contents
Investment Review
Performance Summary of Hartford Mutual Funds
<TABLE>
<CAPTION>
Page
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<S> <C>
Hartford HLS Mutual Funds Financial Statements for:.........
Hartford Global Health HLS Fund.
Hartford Global Technology HLS Fund.
Hartford Small Company HLS Fund, Inc.
Hartford Capital Appreciation HLS Fund, Inc.
Hartford MidCap HLS Fund, Inc.
Hartford International Opportunities HLS Fund, Inc.
Hartford Global Leaders HLS Fund.
Hartford Stock HLS Fund, Inc.
Hartford Growth and Income HLS Fund.
Hartford Dividend and Growth HLS Fund, Inc.
Hartford Index HLS Fund, Inc.
Hartford International Advisors HLS Fund, Inc.
Hartford Advisers HLS Fund, Inc.
Hartford High Yield Bond HLS Fund
Hartford Bond HLS Fund, Inc.
Hartford Mortgage Securities HLS Fund, Inc.
Hartford Money Market HLS Fund, Inc.
AmSouth Mutual Fund Financial Statements for:..............
AmSouth Select Equity Fund
AmSouth Equity Income Fund
BB&T Mutual Fund Financial Statements for:.................
BB&T Growth & Income Fund
Huntington Mutual Fund Financial Statements for:...........
Huntington Income Equity Fund
Armada Mutual Fund Financial Statements for:...............
Armada Advantage Equity Growth Fund
Armada Advantage International Equity Fund
Armada Advantage Mid Cap Growth Fund
Evergreen Mutual Fund Financial Statements for:............
Evergreen VIP Capital Growth Fund
Evergreen VIP Foundation Fund
Evergreen VIP Growth Fund
Evergreen VIP Omega Fund
Evergreen VIP Perpetual International Fund
Evergreen VIP Special Equity Fund
First American Mutual Fund Financial Statements for:.......
First American Large Cap Growth Portfolio
First American Technology Portfolio
First American International Portfolio
Merrill Lynch Mutual Fund Financial Statements for:........
Merrill Lynch Mercury VI U.S. Large Cap
Merrill Lynch Mercury Global Growth
Mitchell Hutchins Mutual Fund Financial Statements for:....
Strategic Income Fund
Tactical Allocation Fund
Growth and Income Fund
Prudential Mutual Fund Financial Statements for:...........
Prudential Jennison Portfolio
Salomon Brothers Mutual Fund Financial Statements..........
Salomon Brothers VA Capital Fund
Salomon Brothers VA Investors Fund
Salomon Brothers VA Total Return Fund
Salomon Brothers VA High Yield Bond Fund
</TABLE>
Contract owners should refer to the prospectus provided to them at the time
of purchase of their contract for a description of investment alternatives
available in the Separate Accounts. This prospectus, along with the
financial information contained in this report, provides them with complete
and up-to-date financial information regarding the Separate Account.
This report is prepared for the general information of contract owners and is
not an offer of contracts. It should not be used in connection with any
offer, except in conjunction with the appropriate prospectus which contains
all pertinent information including the applicable sales, administrative and
other charges.
<PAGE>
HARTFORD
GLOBAL HEALTH HLS FUND
PORTFOLIO MANAGER
JOSEPH H. SCHWARTZ, CFA
Senior Vice President
Wellington Management Company, LLP
ANN C. GALLO
Vice President
Wellington Management Company, LLP
JEAN H. HYNES, CFA
Vice President
Wellington Management Company, LLP
KIRK J. MAYER
Assistant Vice President
Wellington Management Company, LLP
PERFORMANCE OVERVIEW
[CHART]
5/1/00 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Global Health Goldman Sachs
Fund IA Health Care Index
------------------ -----------------
<S> <C> <C>
5/00 $10,000 $10,000
6/00 $11,908 $11,456
</TABLE>
Returns (Inception 5/1/00)
<TABLE>
<CAPTION>
Cumulative Returns
as of June 30, 2000
SINCE INCEPTION
<S> <C>
Global Health IA 19.08%
Goldman Sachs Health Care Index 14.56%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE GLOBAL HEALTH HLS FUND.
(THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE
VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 5/1/00
WOULD HAVE BEEN VALUED AT $11,905 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
Hartford Global Health HLS Fund returned 19.1% (net of mutual fund fees but
excluding insurance fees) since inception (May 1, 2000) through the period
ending June 30, 2000. The Fund's return exceeded that of the Goldman Sachs
Health Care Index of 14.6%.
Q. WHY DID THE FUND PERFORM THIS WAY?
During the second quarter, strength was exhibited throughout the healthcare
sector, with meaningful contributions from essentially all of the
sub-sectors. Health care as a sector significantly outperformed the general
stock market during the second quarter. The Portfolio's current sub-sector
emphasis reflects our opinion as to where growth opportunities are not
adequately reflected in current stock prices.
The Portfolio's sub-sector weightings were in line with the Goldman Sachs
Health Care Index. The analysts remained comparatively optimistic about
health care services and medical product stocks as indicated by the
overweight positions. The pharmaceuticals & biotech sub-sector weighting was
moderately below average, given our view that the recent strong rebound in
biotech stocks more than adequately reflects their bright growth prospects.
Finally, the genomics & life science weighting was essentially in line with
the benchmark.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
We believe all of these sub-sectors benefit from aging demographics,
technology breakthroughs, internet and information technology developments,
and geographic expansion. Given future changes in absolute and relative price
performance for stocks in the different sub-sectors, the Portfolio's weights
will change accordingly to exploit developing investment opportunities. There
are many fundamentally attractive companies within the global healthcare
sector that are candidates for future investment. We are very optimistic
about the health care sector's growth outlook.
<PAGE>
HARTFORD
GLOBAL TECHNOLOGY HLS FUND
PORTFOLIO MANAGER
SCOTT E. SIMPSON
Vice President
Wellington Management Company, LLP
JOHN F. AVERILL, CFA
Vice President
Wellington Management Company, LLP
BRUCE L. GLAZER
Assistant Vice President
Wellington Management Company, LLP
PAUL D. JACKSON
Assistant Vice President
Wellington Management Company, LLP
ERIC STROMQUIST
Senior Vice President & Partner
Wellington Management Company, LLP
PERFORMANCE OVERVIEW
[CHART]
5/1/00 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Global Tech Goldman Sachs
Fund IA Tech Index
----------- -------------
<S> <C> <C>
5/00 $10,000 $10,000
6/00 $10,278 $ 9,860
</TABLE>
Returns (Inception 5/1/00)
<TABLE>
<CAPTION>
Cumulative Returns
as of June 30, 2000
SINCE INCEPTION
<S> <C>
Global Tech IA 2.78%
Goldman Sachs Tech Index -1.40%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE GLOBAL TECHNOLOGY HLS
FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE
THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 5/1/00
WOULD HAVE BEEN VALUED AT $10,274 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
Hartford Global Technology HLS Fund returned 2.8% since inception (May 1, 2000)
through the period ending June 30, 2000. The Fund's return exceeded that of the
Goldman Sachs Technology Composite Index, which returned -1.4%.
Q. WHY DID THE FUND PERFORM THIS WAY?
Over the last three months, all sectors of technology experienced weakness.
However, the software and internet stocks fared the worst. After severa months
of strong gains, our investments in the networking & telecommunications
sub-sector also weakened and our holdings in the PC hardware & semiconductors
sub-sector declined modestly. Seeing some incremental opportunities, the team
took advantage of the weakness to add to positions in the telecommunications
equipment, software and internet sectors given their superior growth
characteristics.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
While we continue to believe this positioning is appropriate, and our long-term
favorable outlook is unwavering, we are concerned about the near-term and expect
that the recent volatility will continue. In particular, we remain concerned
that rates may need to increase further and that valuations for some leading
technology companies continue to look stretched. In addition, we are seeing some
signs of weakness in the consumer markets and at the margin some easing of
demand for wireless technologies. As a result, we continue to focus our
attention on infrastructure plays where demand remains robust and valuations
look much more attractive.
<PAGE>
HARTFORD
SMALL COMPANY HLS FUND
PORTFOLIO MANAGER
[PHOTO]
STEVE ANGELI, CFA
Vice President
Wellington Management Company, LLP
PERFORMANCE OVERVIEW
[CHART]
8/9/96 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Small Company
Fund IA Russell 2000
<S> <C> <C>
8/96 $10,000 $10,000
12/96
12/97
12/98
12/99
6/00 $24,333 $16,608
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
<S> <C> <C>
Small Co. IA 40.83% 25.66%
Russell 2000 14.32% 13.92%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE SMALL COMPANY HLS FUND.
(THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE
VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 8/9/96
WOULD HAVE BEEN VALUED AT $24,160 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
Hartford Small Company HLS Fund returned 3.6% for the 6-month period ending June
30, 2000, underperforming the Lipper Small Cap VA-UF Average return of 7.1% but
outperforming the Russell 2000 Index return of 3.0% over the period.
Q. WHY DID THE FUND PERFORM THIS WAY?
The first 6-months of the year have been extremely volatile for investors. Until
halfway through March it looked as though we were headed for a down first
quarter in the market in spite of excellent earnings prospects and continued low
inflation. The only game in town seemed to be technology with little or no
attention paid to any other sector of the market. While we had been "cautious
about excessive and unprecedented valuations," the market initially pushed
higher even into the headwind of a tight monetary policy. But in April,
investors woke up to the reality of rising rates and escalating inflation and
the bursting technology bubble that sent stocks spiraling downward.
While we reduced the fund's exposure by trimming positions in the technology
sector, we could not escape the market's turmoil. The Portfolio was
negatively impacted by a correction in technology stocks combined with a few
fundamental disappointments. During the correction, we took advantage of
cheaper valuations to increase or establish positions in fundamentally sound
companies. The Portfolio benefited from an overweight position in the energy
sector resulting from a sustainable rise in oil and natural gas prices. Our
underweight position in retail, relative to the Russell 2000, benefited the
Portfolio as the Fed's rate increases had a damaging effect on consumer
spending and retail stocks.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
We believe the major rate increases are history that consumer spending should
stabilize, and most retail stocks are at attractive entry points. In such an
environment we would expect consistent growth companies found in such sectors as
consumer staples, financial services and technology to perform quite well.
Cyclicals, both consumer and industrial, may continue to struggle with little
pricing power and continued excess capacity. We remain cautiously optimistic
about the outlook for the equity markets.
<PAGE>
HARTFORD
CAPITAL APPRECIATION HLS FUND
PORTFOLIO MANAGER
[PHOTO]
SAUL J. PANNELL, CFA
Senior Vice President and Partner
Wellington Management Company, LLP
PERFORMANCE OVERVIEW
[CHART]
12/31/89 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Capital Appreciation
Fund IA S&P 500
<S> <C> <C>
12/89 $10,000 $10,000
'90
'91
'92
'93
'94
'95
'96
'97
'98
12/99
6/00 $64,172 $51,394
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Cap App IA 32.34% 23.74% 20.43%
S&P 500 7.24% 23.80% 17.79%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE CAPITAL APPRECIATION
HLS FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT
EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT
MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 4/2/84
WOULD HAVE BEEN VALUED AT $63,062 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
The Hartford Capital Appreciation HLS Fund returned 12.7% for the 6-month period
ending June 30, 2000, versus a return of 3.2% for the Lipper Capital
Appreciation Average.
Q. WHY DID THE FUND PERFORM THIS WAY?
The first half of 2000 has proven to be interesting for investors in equities as
the market rotated out of what had been working in the past into some laggard
sectors. We used the overall turmoil in the market to upgrade the portfolio,
which led to strong returns in June. The Fund's performance was helped primarily
by a diverse group of companies within several macroeconomic sectors.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Our overall strategy for the Fund remains dual faceted: an emphasis on
smaller companies with dynamic earnings growth prospects, and an
opportunistic trading approach to larger-cap stocks where we typically see a
catalyst for outperformance. We will continue to roam off the beaten path
where we believe the most upside potential resides. This approach, if
executed well, should provide positive absolute and relative results over a
reasonable time frame.
<PAGE>
HARTFORD
MIDCAP HLS FUND
PORTFOLIO MANAGER
[PHOTO]
PHILLIP H. PERELMUTER
Senior Vice President and Partner
Wellington Management Company, LLP
PERFORMANCE OVERVIEW
[CHART]
7/15/97 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
MidCap Fund IA S&P 400
<S> <C> <C>
7/97 $10,000 $10,000
12/97
12/98
12/99
6/00 $26,357 $16,598
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
<S> <C> <C>
MidCap IA 47.45% 38.67%
S&P 400 16.98% 18.64%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE MIDCAP HLS FUND. (THE
ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.THE VALUE OF THE
CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN
THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 7/30/97
WOULD HAVE BEEN VALUED AT $26,216 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
Hartford MidCap HLS Fund returned 20.5% for the 6-month period ending June
30, 2000. The Fund's return exceeded that of the Lipper MidCap VA-UF Average
by 12% and the S&P Midcap 400 Index by 11.5% over the period.
Q. WHY DID THE FUND PERFORM THIS WAY?
Midcap stocks as measured by the S&P Midcap 400 Index continue to outperform
large-cap stocks (S&P 500 Index) and small-cap stocks (Russell 2000 Index)
over the trailing 1, 2, 3 and 10-year time periods. Year-to-date, the S&P
Midcap 400 Index significantly outperformed both the S&P 500 and the Russell
2000 Indices, 9.0%, -0.4%, 3.0%, respectively.
The two strongest sectors were energy and health care. High natural gas and
crude oil prices helped all energy stocks. Health care stocks continued to
remain strong with no cyclical risk due to a slowing economy. During the
6-month period, we increased our health care positions from 12% to 15%
participating in all segments within health care: biotechnology, medical
devices, health care services and medical products. As of the end of the
period, we had the smallest sector bets vs. the S&P Midcap 400 Index than at
any other time during the Portfolio's life. We do not currently see any areas
of the market that are significantly undervalued across the board.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
For the remainder of the year we expect the economy to continue to slow, the
inflation news to improve as energy prices cool off, and the Fed to hold off on
further interest rate increases. In such an environment we would expect
consistent growth companies found in such sectors as consumer staples, financial
services and technology to perform quite well. Cyclicals, both consumer and
industrial, may continue to struggle with little pricing power and continued
excess capacity. We remain cautiously optimistic about the outlook for the
equity markets.
<PAGE>
HARTFORD
INTERNATIONAL OPPORTUNITIES HLS FUND
LEAD PORTFOLIO MANAGER
[PHOTO]
TROND SKRAMSTAD
Senior Vice President and Partner
Wellington Management Company, LLP
PERFORMANCE OVERVIEW
[CHART]
7/2/90 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
International
Opportunities IA EAFE GDP
<S> <C> <C>
7/90 $10,000 $10,000
12/90
'91
'92
'93
'94
'95
'96
'97
'98
'99
6/00 $24,140 $24,758
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR 5 YEAR SINCE INCEP.
<S> <C> <C> <C>
Int'l. Opp. IA 19.08% 13.20% 9.21%
EAFE GDP* 19.76% 14.28% 9.49%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE INTERNATIONAL
OPPORTUNITIES HLS FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL
EXPENSES, BUT EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT
WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 7/2/90
WOULD HAVE BEEN VALUED AT $23,723 ON 6/30/00.
* THE MORGAN STANLEY EUROPE AUSTRALIA FAR EAST GDP-NET INDEX.
Q. HOW DID THE FUND PERFORM?
Hartford International Opportunities HLS Fund returned -5.7% for the first half
of 2000 versus a return of -3.5% for the Lipper VA-UF International Average over
the same time period.
Q. WHY DID THE FUND PERFORM THIS WAY?
We believe that global economic growth will slow down somewhat as financial
markets are more interested in the directions and rate of change in the economy
rather than its level. Throughout the first half of 2000, we increased our
position in the UK, which is now close to showing an upward inflection point in
its economy. We also consistently added to our holdings in technology and health
care. In the beginning of 2000, we were more optimistic about the prospects of
the Japanese economy and had increased our exposure in that region. However, we
have become a bit more cautious in this area and have reduced our weightings
accordingly.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
As global economic growth is expected to slow from its current pace, we view
health care, as the largest sector overweight, a good defensive play during
the next several months as valuations are still attractive relative to
expected earnings growth rates. In contrast, we expect economically sensitive
consumer areas to fare poorly as economic growth slows, and we thus have our
largest underweight in the consumer discretionary sector. In Europe, the
continent is experiencing a volatile market environment and we increased our
exposure to the UK market, as we believe it to be less exposed to this
current environment. In addition, we expect UK profits to grow better
relative to most other markets over the next year.
<PAGE>
HARTFORD
GLOBAL LEADERS HLS FUND
PORTFOLIO MANAGERS
[PHOTO]
RAND L. ALEXANDER, CFA
Senior Vice President
and Partner
Wellington Management
Company, LLP
[PHOTO]
ANDREW S. OFFIT
Vice President
Wellington Management
Company, LLP
PERFORMANCE OVERVIEW
[CHART]
9/30/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Global Leaders IA MSCI World
<S> <C> <C>
9/98 $10,000 $10,000
12/98
6/99
9/99
12/99
6/00 $20,429 $14,751
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
<S> <C> <C>
Global Leaders IA 36.44% 50.39%
MSCI World 12.21% 24.86%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE GLOBAL LEADERS HLS FUND.
(THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.THE VALUE
OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR
LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 10/1/98
WOULD HAVE BEEN VALUED AT $20,365 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
The Hartford Global Leaders HLS Fund returned 3.0% for the 6-month period ending
June 30, 2000, versus -0.2% for the Lipper Global Average over the same time
period.
Q. WHY DID THE FUND PERFORM THIS WAY?
Throughout this period, the markets were subject to exceptional volatility,
particularly in technology, media and telecommunications sectors. However, the
Fund remained focused on its themes and sector weightings, and continued to
emphasize growth in both sectors and individual companies. This strategy
contributed to the Fund's outperformance. The best performing sectors were
health care and consumer staples, two areas that do better when there is a
period of economic slowdown.We continue to remain committed to our research and
sector strategy by investing in what we believe to be the best companies,
regardless of where they are located.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
The market environment continues to be both interesting and challenging for
global investors. While volatility can cause periods of dislocation, overall
this is good news for The Hartford Global Leaders portfolio. By their very
nature, global leaders have superior products, market share and management,
making them desirable investments, especially in turbulent times. Over the long
term, so long as we continue to identify the winning sectors and companies, the
Fund should succeed and outperform.
<PAGE>
HARTFORD
STOCK HLS FUND
PORTFOLIO MANAGER
[PHOTO]
RAND L. ALEXANDER, CFA
Senior Vice President and Partner
Wellington Management Company, LLP
PERFORMANCE OVERVIEW
[CHART]
12/31/89 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Stock Fund IA S&P 500
<S> <C> <C>
12/89 $10,000 $10,000
'90
'91
'92
'93
'94
'95
'96
'97
'98
'99
6/00 $48,980 $51,371
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Stock IA 4.93% 24.01% 17.22%
S&P 500 7.24% 23.78% 17.78%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE STOCK HLS FUND. (THE
ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.THE VALUE OF THE
CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN
THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 8/31/77
WOULD HAVE BEEN VALUED AT $48,109 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
The Hartford Stock HLS Fund returned -1.0% for the 6-month period ended June 30,
2000.The Fund's return underperformed the S&P 500 Index return of -0.4% and the
Lipper Large-Cap Core Average return of 3.2%.
Q. WHY DID THE FUND PERFORM THIS WAY?
Federal Reserve tightening has been a source of volatility and recurrent
corrections in the US equity market over the last year. Many equity sectors
underperformed during this period with the exception of health care, energy and
technology. The Fund's performance was enhanced through accurate sector
weighting, overweights in health care and energy, and above average stock
selection, particularly in the finance sector. Finally, decreased exposure to
the consumer discretionary spending sector in line with the slowing economy and
increased exposure to consumer staples, financials and technology benefited the
portfolio.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
With expectations for a soft economic landing and continued S&P 500 profit
growth, our outlook on the market overall remains positive. The slowing economy,
and possible end of Federal interest rate hikes bode well for interest sensitive
stock and consistent growth companies. Continued robust growth in technology
investment has favorable consequences for the US economy that will be enduring.
<PAGE>
HARTFORD
GROWTH AND INCOME HLS FUND
PORTFOLIO MANAGER
[PHOTO]
JAMES A. RULLO, CFA
Senior Vice President and Partner
Wellington Management Company, LLP
PERFORMANCE OVERVIEW
[CHART]
6/1/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Growth and Income Fund IA S&P 500
<S> <C> <C>
6/98 $10,000 $10,000
9/98
12/98
6/99
9/99
12/99
6/00 $14,747 $13,695
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
<S> <C> <C>
Growth and Income IA 10.27% 20.42%
S&P 500 7.24% 16.23%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE GROWTH AND INCOME HLS
FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.THE VALUE
OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR
LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 5/29/98
WOULD HAVE BEEN VALUED AT $48,109 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
Hartford Growth and Income HLS Fund returned 1.7% for the first half of 2000.
The Fund's return exceeded that of the Lipper Growth & Income VA-UF Average of
-1.1% over the same time period.
Q. WHY DID THE FUND PERFORM THIS WAY?
Stock selection in the food, beverage, and tobacco sector positively contributed
to portfolio performance due to recent consolidation activity. We believe this
activity to continue going forward and are therefore slightly overweight in this
area. For the retail sector, our underweight positioning benefited performance
as these stocks have been under pressure due to rising interest rates and
investors' concerns over wage and fuel costs. Stock selection coupled with an
underweight position in banks boosted relative portfolio performance as this
sector suffered due to concerns regarding loan quality. The Fund's holdings in
the technology sector also contributed strongly to performance.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
The end of Federal Reserve interest rate rises will limit the magnitude of the
slowing in the US economy and provide positive support to US financial markets.
In addition, we anticipate deterioration in the fundamentals of the oil market
going forward as evidenced in the moderation for oil demand. Increased OPEC
production should eventually bring lower energy prices and we therefore have
reduced our overweight positioning in energy sources.
<PAGE>
HARTFORD
DIVIDEND AND GROWTH HLS FUND
PORTFOLIO MANAGER
[PHOTO]
LAURIE A. GABRIEL, CFA
Senior Vice President and Managing Partner
Wellington Management Company, LLP
PERFORMANCE OVERVIEW
[CHART]
3/9/94 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Dividend and Growth
Fund IA S&P 500
<S> <C> <C>
3/94 $10,000 $10,000
12/94
12/95
12/96
12/97
12/98
12/99
6/00 $27,215 $35,200
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR 5 YEAR SINCE INCEPTION
<S> <C> <C> <C>
Div. and Grow. IA -3.26% 18.13% 17.18%
S&P 500 7.24% 23.80% 22.05%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE DIVIDEND AND GROWTH HLS
FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE
THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS.THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT
MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 3/9/94
WOULD HAVE BEEN VALUED AT $26,909 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
Hartford Dividend and Growth HLS Fund returned -1.5% for the first half of 2000.
The Fund's return exceeded that of the Lipper Equity Income VA-UF Average of
-1.7% over the same time period.
Q. WHY DID THE FUND PERFORM THIS WAY?
Federal Reserve tightening has been a source of volatility and recurrent
corrections in the US equity market over the last year with continued robust
growth in technology investment. In line with our dividend-oriented value style,
we continue to be underweight in the information technology sector. Strong stock
selection, particularly in the health care sector, was the key to outperforming
the benchmark for the first half of 2000.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Going forward, we expect a deceleration in economic growth and an end to
interest rate tightening. Strong technology spending and gains in productivity
will continue to provide support in the US, moderating the impact of such rate
increases. We continue to search for investment opportunities that produce a
high level of current income coupled with growth of capital to maintain
reasonable investment risk.
<PAGE>
HARTFORD
INTERNATIONAL ADVISERS HLS FUND
PORTFOLIO MANAGERS
[PHOTO]
ROBERT EVANS
Senior Vice President
and Partner
Wellington Management
Company, LLP
[PHOTO]
TROND SKRAMSTAD
Senior Vice President
and Partner
Wellington Management
Company, LLP
PERFORMANCE OVERVIEW
[CHART]
3/1/95 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
International Advisers Salomon World Government
Fund IA EAFE GDP Bond ex-U.S. Index
<S> <C> <C> <C>
3/95 $10,000 $10,000 $10,000
12/95
12/96
12/97
12/98
12/99
6/00 $18,781 $20,848 $13,235
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR 5 YEAR SINCE INCEPTION
<S> <C> <C> <C>
Int'l Advisers IA 13.73% 11.90% 12.53%
EAFE GDP 19.76% 14.28% 14.06%
Salomon World
Govt. Bond 5.65% 8.64% 9.27%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE INTERNATIONAL ADVISERS
HLS FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT
EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT
MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 5/1/00
WOULD HAVE BEEN VALUED AT $18,599 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
Hartford International Advisers HLS Fund returned -1.6% for the first half of
2000 versus a return of -0.1% for the Fund's Composite Index (55% MSCI EAFE,
35% SB Non-US World Government Bond - hedged, and 10% T-Bill) over the same
time period.
Q. WHY DID THE FUND PERFORM THIS WAY?
The major equity markets experienced a volatile time during the first half of
2000 as single digit gains (Paris CAC 40 index +3.9%) and losses (Frankfurt's
DAX 30 index -9.2%) were the norm. We reduced our country weightings in Japan
and emerging markets and increased our weight in the UK. For sectors, we
reduced our holdings in selected telecom and technology stocks because they
looked fully valued. This resulted in a lowering of the Fund's equity
holdings to 54% from a previous 57% when compared to the beginning of the
year.
As equity markets corrected, bonds outperformed in general with the US and UK
prospering. The Fund continues to be underweight in Canadian government bonds
and neutral on the currency. Due to the improving economic cycle in Australia
and an undervalued Australian dollar, we are slightly overweight in this
area. We ended the portfolio neutral to European bonds overall with an
overweight in Germany, Greece, and Norway and an underweight in the UK and
the other Euro-11 countries. We adjusted the portfolio's bond portion to 35%,
up from 15% at the beginning of the year and cash has been reduced to 11% of
the fund, from 28% over the same time period.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
We expect double-digit earnings growth in the US, Europe, and Japan in 2000
and 2001. In addition, the prospect of more stable central bank interest rates
over the next 12 months should help equity market performance. As the UK
economy is closer to the end of interest rate increase, we believe that UK
profit growth should fare better relative to most other markets over the next
year. Although economic fundamentals are still negative for the global bond
markets, valuations are now attractive and we have therefore began the process
of reducing aggregate European interest exposure as we expect the Euro to
appreciate.
<PAGE>
HARTFORD
ADVISERS HLS FUND
PORTFOLIO MANAGERS
[PHOTO]
RAND L. ALEXANDER, CFA
Senior Vice President
and Partner
Wellington Management
Company, LLP
[PHOTO]
PAUL D. KAPLAN
Senior Vice President
and Partner
Wellington Management
Company, LLP
PERFORMANCE OVERVIEW
[CHART]
12/31/89 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Advisers Fund IA S&P 500 Lehman Govt./Corp.
<S> <C> <C> <C>
12/89 $10,000 $10,000 $10,000
'90
'91
'92
'93
'94
'95
'96
'97
'98
12/99
6/00 $36,045 $51,414 $21,271
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Advisers IA 3.96% 17.42% 13.68%
S&P 500 7.24% 23.80% 17.79%
Lehman Govt./Corp. 4.32% 6.10% 7.84%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE ADVISERS HLS FUND. (THE
ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR
LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 3/31/83
WOULD HAVE BEEN VALUED AT $35,415 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
The Hartford Advisers HLS Fund returned 0.5%, underperforming the Lipper
Flexible VA- UF Average return of 1.9%. Since inception (7/31/1984), the Fund
has returned 14.5% versus the 12.8% return of its Lipper peer group.
Q. WHY DID THE FUND PERFORM THIS WAY?
Relative performance has been below the historical trend reflecting substantial
turmoil in the equity markets. Interest rate fears and continuing valuation
concerns, particularly in growth stocks, hampered most equity markets. The
equity portion of the Fund's performance benefited from sector weightings and
stock selection, through increased exposure to consumer staples, financials and
technology. In the bond market, we continued to find bond yields attractive
given our outlook for economic growth and inflation.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Federal Reserve tightening has been a source of volatility and recurrent
corrections in the US equity market over the last year. The rise in short-term
interest rates that began one year ago is expected to bring some slowing in US
economic activity during the remainder of 2000. We believe that the Fed rate
cycle and the prospect for stable interest rates will bring improved equity
market performance in the year ahead. From a cyclical standpoint, the end of Fed
tightening, slower US growth and receding inflation pressures should also
provide a positive underpinning to the US bond market.
<PAGE>
HARTFORD
HIGH YIELD HLS FUND
PORTFOLIO MANAGER
[PHOTO]
ALISON D. GRANGER, CFA
Senior Vice President
Hartford Investment
Management Company
PERFORMANCE OVERVIEW
[CHART]
9/30/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
High Yield Fund IA Lehman High Yield
<S> <C> <C>
9/98 $10,000 $10,000
12/98
6/99
12/99
6/00 $10,839 $10,329
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
<S> <C> <C>
High Yield IA 1.28% 4.71%
Lehman High Yield -1.03% 1.86%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE HIGH YIELD HLS FUND. (THE
ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE
CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN
THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 10/1/98
WOULD HAVE BEEN VALUED AT $10,806 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
The Fund's Class IA shares placed in the 23rd percentile of its Lipper peer
group for the six months ended June 30, 2000, producing a total return of -0.15%
versus the -1.15% return of the Lipper High Current Yield Fixed Income Variable
Annuity Underlying Fund average.
Q. WHY DID THE FUND PERFORM THIS WAY?
There were three major factors that contributed to the Fund's performance in the
first half of this year. First, the Fund's overweight position in BB-rated
issuers, which dramatically outperformed all lower rated securities, boosted
performance. The Fund's overweight of energy-related securities continued to
contribute to the Fund's performance, as the price of oil reached a high toward
the end of June and credit fundamentals improved.. Lastly, the Fund's
performance benefited from exposure to euro-denominated high yield securities
purchased in late May. These securities had lagged their dollar-denominated
counterparts as the euro-currency reached a low in early May, but rebounded in
June as the currency gained 7% from its lows. The Fund's underweight position in
the gaming sector, however, hindered the Fund's performance, as these issuers
prove resilient to the rate tightening environment.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Looking forward, we are emphasizing three themes in the Fund. The first theme is
to maintain our above average exposure to higher quality issuers, given
heightened default risk and decreased issuer-access to capital markets. The
second theme is to maintain overweight position in energy-related issuers and
acute health providers, believing credit fundamentals will remain positive for
energy-related issuers as they reduce leverage and shore up balance sheets, and
for acute healthcare providers which are beginning to emerge from under
governmental scrutiny. The final theme is remain cautious on consumer-sensitive
sectors including retailers, consumer products and financial institutions given
the recent Fed action and the signs of slower growth that are beginning to
emerge in the economic data,
<PAGE>
HARTFORD
BOND HLS FUND
PORTFOLIO MANAGER
[PHOTO]
ALISON D. GRANGER, CFA
Senior Vice President
Hartford Investment
Management Company
PERFORMANCE OVERVIEW
[PHOTO]
12/31/89 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Bond IA Lehman Govt/Corp
<S> <C> <C>
12/89
'90
'91
'92
'93
'94
'95
'96
'97
'98
12/99
6/00 $20,919 $21,271
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Bond IA 5.41% 6.38% 7.66%
Lehman Govt./Corp. 4.32% 6.10% 7.84%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE BOND HLS FUND. (THE
ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR
LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 8/31/77
WOULD HAVE BEEN VALUED AT $20,534 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
The Hartford Bond HLS Fund Class IA shares placed in the 7th percentile of its
Lipper peer group for the six-months ended June 2000, producing a total return
of 4.82% versus the 3.08% return of the Lipper Corporate Debt "BBB" rated
Variable Annuity Underlying Fund Universe.
Q. WHY DID THE FUND PERFORM THIS WAY?
There were three major factors that contributed to the Fund's performance in the
first half of the year. The first factor was the Fund's position in U.S.Treasury
securities where we continued to benefit from positive supply/demand factors.
Our holdings in Treasury-Inflation-Protected Securities also performed well
during the early spring. The second contributor to positive performance was the
Fund's overweight in mortgage passthroughs, particularly in GNMA issues.
This sector provided a positive contribution relative to its peer group that we
enjoyed throughout the first half of the year. Lastly, we were allowed to invest
in non-US denominated securities as of May 1, 2000. We quickly established the
Fund's positions in German and French government short-term obligations
denominated in Euro (established in mid-May) which contributed to Fund returns
as the Euro rallied off its lows relative to the dollar.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Given that the Fed has raised interest rates six times in the last 13 months, we
expect to see signs of slowdown in the economy over the coming months. We are
not convinced, however, that the Fed is entirely done with its rate increases
and will remain watchful for signs that indicate the need to slow the economy
further.
Looking ahead, we expect to maintain an overweight in mortgage passthrough
securities for two reasons: the large percentage of the market which is trading
at a discount to par value and the favorable supply/demand balance which our
traders forecast. We favor GNMA issues, as they carry the full faith and credit
of the U.S. government.
While Treasuries do not yield much relative to other fixed income
alternatives, we continue to see opportunity in the Treasury market
securities due to the U.S. government's positive fiscal position and
continued focus on debt reduction. We also expect to be active investors in
Treasury-Inflation-Protected Securities, as we believe that these securities
offer attractive real return potential relative to other U.S. fixed income
alternatives. Although yields on corporate issues are historically high
relative to Treasuries, we remain cautious and selective in our holdings. On
average, we favor investment grade over high yield issues, as we believe that
the yield compensation for investing in fundamentally stable high yield
issues is insufficient relative to that offered in higher-quality issues. We
will monitor market offerings for attractive purchase candidates among
stable, large investment-grade companies. Among specific industries, we favor
energy and the acute care providers within the healthcare sector.
<PAGE>
HARTFORD
MORTGAGE SECURITIES HLS FUND
PORTFOLIO MANAGER
[PHOTO]
PETER PERROTTI
Vice President
Hartford Investment
Management Company (HIMCO)
PERFORMANCE OVERVIEW
[CHART]
12/31/89 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Mortgage Securities Lehman Mortgage
Fund IA Backed Securities
<S> <C> <C>
12/89 $10,000 $10,000
'90
'91
'92
'93
'94
'95
'96
'97
'98
12/99
6/00 $19,930 $21,093
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
Mort. Sec. IA 4.69% 6.17% 7.14%
Lehman Mort. 5.03% 6.56% 7.75%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE MORTGAGE SECURITIES HLS
FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE
THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
A $10,000 INVESTMENT IN THE CLASS IB SHARES AT THE FUND'S INCEPTION OF 1/1/85
WOULD HAVE BEEN VALUED AT $19,561 ON 6/30/00.
Q. HOW DID THE FUND PERFORM?
The Hartford Mortgage HLS Fund Class IA shares placed in the 58th percentile of
its Lipper peer group for the six-months ended June, 2000, producing a total
return of 3.35% versus the 3.51% return of the Lipper Mortgage Annuity
Underlying Fund Universe.
Q. WHY DID THE FUND PERFORM THIS WAY?
The mortgage market in 2000 has been driven by several strong themes. The
question of creditworthiness weighed heavily on the mortgage market over the
first half of the year. GNMA securities are backed directly by the full faith
and credit of the US government whereas FNMA and FHLMC securities have an
implied full faith and credit backing. The increased scrutiny in Washington on
the FNMA and FHLMC agencies caused their securities to underperform GNMA
mortgage backed securities. Although GNMAs have cheapened in the second quarter,
they still have outperformed their conventional counterparts by over half a
point for the year. The fund's performance also benefited from a significant
underweight in 15year mortgage backed securities as they lagged their 30 year
counterparts by a quarter of a point. The Fund's overweight in higher coupon
mortgages versus the lower coupon (deeper discount) securities hindered
performance.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Looking forward, we believe mortgages offer very attractive risk adjusted
returns. With most outstanding mortgages having rates below what is currently
available, refinancing activity should remain low. We will continue to maintain
a significant overweight in the higher coupon and higher yielding mortgage
securities, as we continue to believe they offer excellent relative value. With
the cheapening in Ginnie Mae's, we have brought the weighting to neutral in the
Fund and will look for opportunities to increase our exposure. We expect that
the Government's relationship with Fannie Mae and Freddie Mac will continue to
make headlines and probably will not be resolved until early next year.
<PAGE>
BB&T
GROWTH & INCOME FUND
PORTFOLIO MANAGER
[PHOTO]
RICK B. JONES, CFA
Vice President
Branch Banking & Trust Co.
PERFORMANCE OVERVIEW
[CHART]
6/3/97 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
BB&T Growth and Income S&P 500
<S> <C> <C>
6/97 $10,000 $10,000
12/97
6/98
12/98
6/99
9/99
12/99
6/00 $13,081 $17,907
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
<S> <C> <C>
BB&T G&I -9.36% 9.13%
S&P 500 7.25% 20.80%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE BB&T GROWTH AND INCOME
FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE
THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
The BB&T Growth & Income Variable Annuity Fund provided a total return of
0.04% for the six-month period ended June 30, 2000. In comparison, the Lipper
Growth & Income Variable Annuity-Underlying Fund Index lost 1.67%; the S&P 500
Index fell 0.42% and the Russell 1000 Value Index declined by 4.23%.
Q. WHY DID THE FUND PERFORM THIS WAY?
On a performance basis, the Fund was relatively flat for the six months. With
the market's extreme volatility disconcerting to many investors, being flat
wasn't necessarily a bad thing. During the first two-and-a-half months of the
year, when growth stocks (especially in the technology sector) continued their
sharp climb, our value-oriented style fell behind on a relative basis. The
second quarter of the year, however, definitely was a time when the type of
value stocks we favor remained steady in the face of a furious sell-off in
growth issues. During those months, our slight overweighting in energy, basic
materials and consumer staples served us well, and protected shareholders'
capital. The strong second quarter allowed us to overcome our relatively slow
start to the year.
As of June 30, 2000, the portfolio's five largest holdings were: Johnson &
Johnson, Hewlett Packard, Emerson Electric, Kimberly Clark and AT&T.
Consistent with our objective, we continued to provide an above-average yield to
shareholders. As of June 30, our yield was 2.5%, versus 1.1% for the S&P 500.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
We're not market-timers, so in that respect, we're not going to make large bets
on specific sectors or individual securities based on guesses as to which way
the market will run. We will continue to do what we always do: carefully hunt
for financially strong companies, with solid fundamentals, which are selling at
attractive prices. We aren't concerned with short-term market gyrations; we are
committed to providing long-term value. And we believe that value investing,
which is our strong point, will continue to be a productive investment strategy.
<PAGE>
AMSOUTH
EQUITY INCOME FUND
PORTFOLIO MANAGER
CHRISTOPHER WILES, CFA
President
Rockhaven Asset Management
PERFORMANCE OVERVIEW
[CHART]
10/23/97 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
AmSouth Equity Income S&P 500
<S> <C> <C>
10/97 $10,000 $10,000
12/97
6/98
12/98
6/99
9/99
12/99
6/00 $15,204 $15,873
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
<S> <C> <C>
Equity Income 20.48% 18.69%
S&P 500 7.25% 19.20%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE AMSOUTH EQUITY INCOME
FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE
THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
The AmSouth Equity Income Variable Annuity Fund provided a total return of
5.56% for the six-month period ended June 30, 2000. In comparison, the Lipper
Equity Income Variable Annuity-Underlying Fund Index lost -1.62%.
Q. WHY DID THE FUND PERFORM THIS WAY?
The volatile market fluctuations of the six-month period went a long way toward
justifying our investment philosophy of being fully invested and remaining
sector-neutral to the S&P 500 Index. During the first half of the period, we
witnessed an explosion in the prices of many technology issues, and because we
held a 30-35 percent weighting in technology (consistent with the S&P 500's
allocation), we profited handsomely. When the tech rally sputtered, the fact
that we weren't as overexposed to technology as some of our peers meant that the
drop in prices didn't damage us as grievously as it did many other funds.
What sets us apart from most of our competitors in the equity income arena is
our focus on flexible security selection. We are flexible in how we value
securities. We are not wed to any particular valuation parameters, though we
insist that the companies we buy have strong industry positions, and are run by
managers who have proven they can make money for their shareholders. This
disciplined portfolio construction continued to provide value to our
shareholders during the period.
As of June 30, 2000, the portfolio's five largest holdings were: Amdox
(convertible shares), Quaker Oaks (common shares), Calpine (convertible shares),
Burr-Brown (convertible bond) and Citigroup (common shares).*
It always is our intent to provide a yield that is significantly higher than
the benchmark's, and we once again achieved this objective. As of June 30, our
yield was 2.6% versus 1.03% for the S&P 500 Index.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Being sector neutral, we don't spend time trying to predict which area of the
market will do best going forward; we dedicate our resources to picking the
best stocks in each sector, and avoiding the worst names. We will say that, in
the current environment, it does appear that the economy has begun to slow a
bit. We look for a pretty benign second half of 2000, with regard to both
interest rates and inflation. Certain areas in the technology area are still
showing strong growth and we anticipate that selected tech stocks will offer
outstanding growth opportunities.
* The Funds portfolio composition is subject to change.
<PAGE>
AMSOUTH
SELECT EQUITY FUND
PORTFOLIO MANAGERS
[PHOTO]
NEIL WRIGHT
OakBrook Investments
[PHOTO]
JANNA SAMPSON
OakBrook Investments
[PHOTO]
PETER JANKOVSKIS
OakBrook Investments
PERFORMANCE OVERVIEW
[CHART]
5/3/99 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
AmSouth Select Equity S&P 500
<S> <C> <C>
5/99 $10,000 $10,000
6/99
9/99
12/99
6/00 $ 7,870 $10,894
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual
as of June 30, 2000
1 YEAR SINCE INCEPTION
<S> <C> <C>
Select Equity -20.80% -18.67%
S&P 500 7.25% 7.65%
</TABLE>
* Annualized Returns
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE AMSOUTH SELECT EQUITY
FUND. (THE CUMULATIVE RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE
THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
The AmSouth Select Equity Variable Annuity Fund provided a total return of
-7.94% for the six-month period ended June 30, 2000. In comparison, the S&P 500
Stock Index fell -0.43%.
Q. WHY DID THE FUND PERFORM THIS WAY?
For much of the first quarter of this year, particularly in February, the
Fund was handicapped by its emphasis on stable growth stocks (which we define
as the stocks of companies with stable earnings growth). These stocks were at
a severe disadvantage, as investors continued to clamor for technology and
small-cap issues. Conditions began to change when the market grew more
volatile at the end of the first quarter. As volatility continued to increase
during the second quarter, investors began to abandon technology and
small-cap stocks in favor of stable stocks, which can offer a safe haven in a
stormy market. This rotation helped the Fund deliver a positive return during
the second quarter, while the overall market (as measured by the S&P 500
Index) declined. However, our strong second quarter was not enough to fully
overcome our losses earlier in the year.
As of June 30, 2000, the portfolio's five largest holdings were: Emerson
Electric, General Mills, Automatic Data Processing, Sysco and Gannett.*
Emerson Electric, Automatic Data Processing and Sysco delivered particularly
strong returns during the second quarter, with each stock gaining more than 10
percent. This performance demonstrates how investors were lured to stocks with
earnings stability during this difficult period; all three companies have
well-deserved reputations for delivering consistent earnings growth.
During the six-month period, the Fund produced an above-average dividend yield.
As of June 30, the Fund's yield was 2.3%, versus 1.03% for the S&P 500 Index.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
We expect the equity markets to remain volatile over the next six months; the
factors which contributed to the market's choppiness during the first half of
the year - richly valued technology shares and uncertainty regarding the future
direction of the Federal Reserve's interest-rate policy - remain in place. Given
the market's ongoing volatility, we remain confident that the Fund, and the
stable growth stocks in which it invests, will be positioned to deliver strong
relative returns in the coming months.
* The Fund's portfolio composition is subject to change.
<PAGE>
HUNTINGTON
VA INCOME EQUITY FUND
PORTFOLIO MANAGER
[PHOTO]
JAMES BUSKIRK, CFA
Chief Investment Officer and
Senior Vice President
Huntington Funds
PERFORMANCE OVERVIEW
[CHART]
10/19/99 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Huntington
Income Equity S&P 500
------------- -------
<S> <C> <C>
10/99 $10,000 $10,000
11/99
12/99
6/00 $ 9,539 $10,758
</TABLE>
Returns
<TABLE>
<CAPTION>
Cumulative Return
as of June 30, 2000
SINCE INCEPTION
---------------
<S> <C>
Income Equity -2.68%
S&P 500 14.39%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE HUNTINGTON VA INCOME
EQUITY FUND. (THE CUMULATIVE RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT
EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT
MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
For the six-month period through June 30, the Huntington VA Income Equity
Fund posted a total return of -1.97%. Since the Fund's inception in October
1999, its total return has been -2.68%.
Q. WHY DID THE FUND PERFORM THIS WAY?
The VA Income Equity Fund's negative return can be summed up in one word:
dividends. In short, no one seems to want to own stocks that pay out high and
rising dividends, preferring to own stocks that offer a greater probability
of capital appreciation. As a case in point, during the second quarter which
ended June 30, those stocks in the S&P 500 which yielded 2% and above
returned -7.8%, while those issues in the same broad 500-stock index with
dividend yields of 0 to 1.0% returned -0.6%. In fact, for the past six
quarters going back to the end of 1998, this same trend of high-yielding
stocks being poor performers has been in place. Among the high yielding
sectors coming under the greatest selling pressure (i.e. the poorer
performers) during the past six months would include the banks and the
industrial cyclicals, while relatively good returns were posted by the Fund's
electric utilities and energy holdings.
Q. WHAT IS YOUR OUTLOOK FOR THE
REMAINDER OF 2000?
While offering market outlooks are something of expectation from investment
professionals, I tend to view them as so much guesswork. The only commitment
I'll make to what the market will do in the future is that the long-term
return from stocks will, in my opinion, revert to 10-11% per year and that
dividend income will account form 40-50% of that return. Our VA Income Equity
Fund is well positioned to take good advantage of such an outcome.
<PAGE>
EVERGREEN
CAPITAL GROWTH FUND
PORTFOLIO MANAGERS
JOHN DAVENPORT, CFA
Chief Financial Officer (Managing Director)
Mentor Investment Advisors, LLC
RICHARD SKEPPSTROM
Senior Vice President & Portfolio Manager
Mentor Investment Advisors, LLC
STEVE CERTO
Vice President & Portfolio Manager
Mentor Investment Advisors, LLC
CRAIG DAUER
Vice President & Portfolio Manager
Mentor Investment Advisors, LLC
JOHN JORDAN
Vice President & Portfolio Manager
Mentor Investment Advisors, LLC
PERFORMANCE OVERVIEW
[CHART]
3/3/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Capital Growth S&P 500
-------------- -------
<S> <C> <C>
3/98 $10,000 $10,000
6/98
12/98
6/99
9/99
12/99
6/00 $12,066 $14,298
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
Capital Growth 1.50% 8.41%
S&P 500 10.70% 16.56%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE EVERGREEN CAPITAL
GROWTH FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT
EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT
MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
Evergreen VA Capital Growth Fund returned 4.30% for the six-month period
ended June 30, 2000, surpassing its benchmark, the S&P 500 Index, which
returned -0.42% for the same period. We attribute the stronger relative
performance to the Fund's conservative investment philosophy, its bias toward
quality and lower exposure to the technology sector particularly during March
2000 through May 2000 when the technology sector experienced a sharp
correction.
Q. WHY DID THE FUND PERFORM THIS WAY?
The stock market was filled with emotion and volatility in the first half of
2000. As the year opened, investor speculation that began in 1999 sent stock
prices soaring and many valuations to unprecedented levels. The ensuing
"wealth effect" of the stock market's rise had fueled both unsustainably
strong economic growth and concerns about future inflation. Interest rates
were rising; and investors believed the Federal Reserve Board - which began
pushing interest rates higher in June 1999 - would continue the trend until
inflationary pressures were sufficiently cooled.
The roller coaster ride intensified, mid-way through the Fund's fiscal period.
Concerns that higher interest rates and slower economic growth would dampen
corporate earnings replaced the euphoria that had driven valuations to
elevated levels. Investors began to unwind many speculative trades, causing
some stock prices to plummet. Technology issues, in particular, corrected
sharply. As the period closed, market sentiment had once again reversed
course. Signs of slower economic growth caused investors to be optimistic
that the Fed might end its string of interest rate hikes and adopt a more
neutral monetary policy. With new and growing confidence, the market regained
an emotionally charged, highly speculative nature; and technology stocks -
with their continued high valuations - resumed market leadership.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
We think the environment will be similar to that of the last six months, a
lot of volatility with little net change. In our opinion, the Federal Reserve
Board is in a "catch-22" position. Clearly, the economy's growth is directly
tied to the level of the stock market. We expect stocks to move higher again
when investors are convinced the Fed is done raising rates. However, if
stocks surge, the Fed will be forced to tighten policy further, which could
bring prices down.
Also, investors are anticipating the annual earnings of S&P 500 companies to
continue to grow in the 15% to 20% range like they have during the past
several quarters. Expectations are exceptionally high for technology
companies. We think these expectations are too aggressive and believe
earnings could come in lower, especially if the economy slows. That leaves
considerable downside risk for some stocks, since many valuations still range
from 80 to 100 times earnings. In our opinion, the situation underscores the
importance of selecting companies with sound financial fundamentals and
reasonable valuations - we think the Fund's more conservative investment
strategy will continue to serve its investors well.
<PAGE>
EVERGREEN
PERPETUAL INTERNATIONAL FUND
PORTFOLIO MANAGERS
SCOTT MCGLASHAN
Far East Team Leader
Mentor Perpetual Advisors, LLC
KATHRYN LANGRIDGE
Southeast Asia Team Leader
Mentor Perpetual Advisors, LLC
STEPHEN WHITTAKER
UK Team Leader
Mentor Perpetual Advisors, LLC
MARGARET RODDAN
Europe Team Leader
Mentor Perpetual Advisors, LLC
MARK TURNER
Latin America Team Leader
Mentor Perpetual Advisors, LLC
PERFORMANCE OVERVIEW
[CHART]
3/3/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Perpetual International MSCI EAFE
----------------------- ---------
<S> <C> <C>
3/98 $10,000 $10,000
6/98
12/98
6/99
9/99
12/99
6/00 $15,761 $13,215
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
Perpetual International 25.89% 21.60%
MSCI EAFE 14.03% 12.69%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE EVERGREEN PERPETUAL
INTERNATIONAL FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES,
BUT EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
It was a turbulent time for international investors, as most overseas markets
experienced broad-based declines. For the period, the Fund returned 0.46%,
and the Fund's benchmark, the MSCI EAFE Index, returned 3.95%.
Q. WHY DID THE FUND PERFORM THIS WAY?
There were remarkable similarities in the performance of the world's
financial markets. Early in the period, investors favored technology, media
and telecommunications stocks at the expense of virtually everything else. In
mid-March, however, a number of factors combined to trigger declines in most
financial markets. Not only were investors growing uneasy about the
relatively high valuations of technology stocks, but concerns about higher
U.S. interest rates and a potential decline in U.S. economic growth and
corporate profits had a negative effect on the markets. In most markets,
sell-offs occurred first in technology stocks and then expanded to the
broader market. As the period drew to a close, volatility was the order of
the day, and most overseas markets finished the six-month period in negative
territory.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
While the U.S. market tries to reconcile the prospect of rising interest
rises, if the economy does not cool quickly, with downward earnings estimate
revisions, or if it cools too quickly, international markets will be
influenced by factors in their own economies. The U.S. is in the late stages
of an economic cycle. Europe is in mid-cycle, with monetary policy and
inflation under control, and Japan is early in its economic recovery, with no
inflation and interest rates at zero. Similar events affect the various
economies differently. For example, growth in consumer demand and higher
interest rates in Japan during the next three months would probably be viewed
as a sign of confidence in the economy. The same developments in the U.S.
might not be as well received. We believe being exposed to world markets and
economies at different stages of their economic cycle has particular value.
Such a strategy not only provides shareholders with wider opportunities, it
also helps to moderate risk.
<PAGE>
EVERGREEN
GROWTH FUND
PORTFOLIO MANAGERS
TED PRICE, CFA
Managing Director
Mentor Investment Group
LINDA ZIGLAR, CFA
Managing Director
Mentor Investment Group
JEFF DRUMMOND, CFA
Senior Vice President
Mentor Investment Group
PERFORMANCE OVERVIEW
3/3/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
VIP Growth Russell 2000
---------- ------------
<S> <C> <C>
3/98 $10,000 $10,000
6/98
12/98
6/99
9/99
12/99
6/00 $13,941 $11,519
</TABLE>
Returns
<TABLE>
<CAPTION>
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
VIP Growth 60.91% 15.35%
Russell 2000 14.32% 6.25%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE EVERGREEN GROWTH FUND.
(THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE
VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
For the six-month period ended June 30, 2000, Evergreen Variable Annuity
Growth Fund had a return of 25.45%, outperforming its benchmark, the Russell
2000 Index, which returned 3.04% for the same period. Returns are before the
deduction of any applicable sales charges.
Q. WHY DID THE FUND PERFORM THIS WAY?
Unlike 1999, when momentum drove the market, the first half of 2000 has been
more of a stock-pickers market. The Fund advanced very strongly in the first
quarter, surpassing the Russell 2000, and declined less than its benchmark in
the second quarter. Aiding our performance were good picks in technology,
especially telecommunications equipment, and also in health care.
After the first quarter strength in technology stocks, we trimmed our
position fairly substantially. At the highest point, 48% of the portfolio was
invested in technology, including telecommunications. We cut back that
percentage to the high-30% level. This action worked to the Fund's benefit as
the sector subsequently collapsed. We used that opportunity to increase
technology holdings. At the end of the second quarter, technology stocks had
accelerated, and we reduced the Fund's position again. These moves positively
impacted the total return performance. Several concerns have arisen in the
technology sector. The business-to-business industry has collapsed, and there
has been a significant slowing in the rate of growth of cellular handsets.
This points to the importance of careful stock selection in the months ahead.
One of the top holdings in the sector is Benchmark Electronics, a good
performer. Benchmark is a technology outsourcer that provides manufacturing
services to original equipment manufacturers in the telecommunications,
computer and peripheral businesses, as well as high-end audio-visual
businesses. We also like Parlax Assembly, which makes a unique product to
connect semiconductors and other components with flexible printed circuits.
Sales and earnings have accelerated rapidly, and a soaring backlog points to
continuing rapid gains.
There were no fundamental changes in the health care industry from 1999, when
the Fund's holdings detracted from performance. Yet the sector turned up
sharply this year following positive comments from the Administration. We are
over-weighted in health care, and within that broad category, are
over-weighted in pharmaceuticals and health care services. However, we are
under-weighted in biotechnology relative to the Russell 2000 because it is
difficult to find good companies that meet our criteria. Including Affymetrix
and Alkermes, we doown about ten biotechnology companies, but they constitute
only 3% of the portfolio, while the Index has about 9%.
The portfolio is also over-weighted in capital goods companies. This sector
includes telecommunications equipment companies that install the services. On
the energy side, these firms build piping, compressors, etc.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
It appears that the Federal Reserve has been successful in slowing the
economy. We do not expect a slowdown to impact our holdings much, mainly
because they are growth companies that do not need to rely on price increases
to generate sales.
<PAGE>
EVERGREEN
OMEGA FUND
PORTFOLIO MANAGER
[PHOTO]
MAUREEN E. CULLINANE, CFA
Senior Vice President and
Senior Portfolio Manager
Evergreen Investment
Management Company
PERFORMANCE OVERVIEW
[CHART]
<TABLE>
<CAPTION>
Omega Russell 1000
----- ------------
<S> <C> <C>
2/97 $10,000 $10,000
12/97
12/98
12/99
6/00 $23,050 $19,302
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
Omega 50.56% 28.62%
Russell 1000 29.77% 29.43%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE EVERGREEN OMEGA FUND.
(THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.THE
VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
The Evergreen VA Omega Fund performed very well. For the six-month period
ended June 30, 2000, the Fund had a return of 15.37%. During the same period,
the Russell 1000 Growth Index and the S&P 500 returned 4.23% and -0.42%,
respectively. Fund performance benefited both from a high technology
weighting early in the period and a decision to reduce that weighting later
in the period and invest in energy stocks.
Q. WHY DID THE FUND PERFORM THIS WAY?
For most of the period, stock market investors appeared to be fixated on
interest rates and the policies of the U.S. Federal Reserve Board, which was
raising short-term rates to slow the economy's rapid growth. The market was
volatile as investors rotated from sector to sector. Technology stocks led
the market in performance early in the period, but suffered a sharp
correction in April and May when the market became concerned about high
valuations in technology stocks as well as the effects of rising interest
rates. During that time, rising energy prices encouraged investments in oil
services and natural gas companies, and the energy sector performed well.
Pharmaceutical stocks also advanced after having disappointed investors for
much of 1999. By June, we began to see signs of more moderate economic
growth, which led investors to believe the end of the interest rate increases
might be at hand. This perception seemed to stabilize the market.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
We think the market will become increasingly focused on corporate earnings
during the next six months, in contrast to the past six months which was
dominated by concern about interest rates. If the Federal Reserve is
successful in slowing economic growth to an annual rate of 3.5% of Gross
Domestic Product (GDP), a natural outgrowth would be a slowing of corporate
earnings growth. With slower earnings growth as a backdrop, it would not be
surprising to see greater volatility in the market as investors react to
announcements about disappointing earnings by corporations. Slower economic
growth, high interest rates, and moderately higher prices will pressure
corporate earnings.While the remainder of 2000 might be relatively stable,
market volatility could increase in early 2001 because of concerns about the
effects of the new president's economic policies as well as worries about
corporate earnings.
In this environment, we will look for companies with continued growth
potential. We expect this will continue to lead to technology because of the
need of corporations in general to use new tools to enhance their
productivity. We also believe pharmaceutical companies should have a
continued flow of new products to generate sustained earnings growth.
While we do not think the economy will fall into a recession, we expect
investors will become increasingly selective. While the past several months
have presented a challenging environment in the stock market, we don't think
the challenges will become any easier in the coming months.
<PAGE>
EVERGREEN
SPECIAL EQUITY FUND
PORTFOLIO MANAGERS
[PHOTO]
TIM STEVENSON, CFA, CMT
Chief Financial Officer
Meridian Investment Company
[PHOTO]
ERIC TEAL
Vice President
Meridian Investment Company
PERFORMANCE OVERVIEW
[CHART]
9/29/99 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Special Equity Russell 2000
-------------- ------------
<S> <C> <C>
9/99 $10,000 $10,000
12/99
6/00 $12,395 $12,203
</TABLE>
<TABLE>
<CAPTION>
Returns
Cumulative Returns
as of June 30, 2000
SINCE INCEPTION
---------------
<S> <C>
Special Equity 23.95%
Russell 2000 22.03%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE EVERGREEN SPECIAL
EQUITY FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT
EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS.THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT
MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
Evergreen VA Special Equity Fund returned 4.27% for the six-month period
ended June 30, 2000, outperforming the Russell 2000 Index, which returned
3.04%. We attribute the Fund's strong relative performance to its holdings in
the technology and brokerage services sectors.
Q. WHY DID THE FUND PERFORM THIS WAY?
Expectations of strong earnings growth and increasing opportunities within
certain industries drove prices higher, while investors' concerns that a
tighter Federal Reserve policy would interrupt the quarterly progression of
positive earnings surprises - particularly in light of some extraordinarily
high stock valuations - pushed prices lower. Many of the big winners over the
past several quarters were the big losers in the market's retreat. "New
Economy" stocks such as internet and software companies provided much of the
fireworks. Biotechnology stocks also captured headlines, as investor optimism
soared over the prospects for human gene mapping. Some of the "Old Economy"
stocks were not immune to the market's gyrations, either, as some industries
experienced spectacular rallies in response to strong earnings growth. The
energy sector, in particular, stood out as steadily rising oil and gas prices
drove many of these stocks to new highs before succumbing to concerns about a
slowdown in global demand in response to expectations of higher interest
rates.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
We think an improved earnings outlook and the ongoing boom in information
technology will drive prices higher. We do not anticipate a significant
economic slowdown in the third quarter of 2000 - therefore, we do not believe
investors will redirect their assets to larger, more liquid stocks.
We think technology stocks could continue to achieve exceptional earnings
growth, despite their high valuations. The productivity enhancing benefits of
today's technology products compel many businesses to invest heavily in
technology in order to remain competitive in the global marketplace. We
expect demand for faster and better technology to remain solid. Other sectors
also are poised for success, in our opinion. Many smaller companies have
carved out profitable niches within their industries that may ultimately
translate into higher stock prices. We expect a number of these companies to
benefit from merger and acquisition activity as larger competitors view
smaller companies as important sources of future earnings growth.
<PAGE>
EVERGREEN
FOUNDATION FUND
PORTFOLIO MANAGERS
[PHOTO]
JEAN C. LEDFORD, CFA
President & CEO
Evergreen Asset
Management Corp.
[PHOTO]
RICHARD WELSH
Senior Vice President
Evergreen Asset
Management Corp.
PERFORMANCE OVERVIEW
[CHART]
2/28/93 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
Foundation Fund S&P 500
--------------- -------
<S> <C> <C>
2/96 $10,000 $10,000
12/96
12/97
12/98
12/99
6/00 $17,855 $24,351
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
Foundation 4.08% 14.32%
S&P 500 10.70% 22.80%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE EVERGREEN FOUNDATION
FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT EXCLUDE
THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
Evergreen Foundation Fund had a total return of -0.99% for the six-month
period ended June 30, 2000.
Q. WHY DID THE FUND PERFORM THIS WAY?
In the equity portion of the portfolio, holdings in technology, healthcare
and energy were the largest positive contributors. In technology, where we
had a slight over-weighting relative to the S&P 500 Index, we continued to
take advantage of increased spending on infrastructure development. Many of
our larger technology holdings are global leaders in these areas, and were
major contributors to performance. At the end of the fiscal period, on June
30, 2000, information technology was the largest single industry weighting in
the portfolio, at 19.2% of total net assets.
The Fund's equity weighting in healthcare was about even with that of the
benchmark S&P 500. Our healthcare investments did very well. One of our top
contributors was Pfizer, the result of the merger of two powerful
pharmaceutical companies, Warner Lambert and Pfizer. This combined company is
benefiting both from strong revenue and earnings growth from an excellent
flow of new products into the market. The Fund's healthcare weighting at the
end of the fiscal period totaled 9.0% of net assets.
We substantially increased our investments in energy during the six-month
period, and these holdings were strong contributors to performance. This
sector benefited from increasing economic growth rates throughout the world
and rising oil prices. Our investments in oil service companies such as
Schlumberger, Halliburton and Baker Hughes all performed well, as did Exxon
Mobil, the world's largest integrated energy company and a top holding of the
Fund throughout the period. During the six-month period, our emphasis on
energy went from an under-weighted position to a significant over-weighted
position relative to the S&P 500. On June 30, energy accounted for 6.8% of
total net assets.
Lastly, the fixed income portion of the portfolio tended to increase the
stability of the overall fund, as we concentrated on those areas of the
market where we could find relatively attractive yields without taking undue
price risk.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
We intend to remain consistent in our approach to managing this balanced
fund. In the equity portion of the portfolio, we plan to concentrate on
large-cap companies with growth, or the potential for growth, in both
revenues and earnings. In the fixed income portion of the portfolio, we
intend to maintain an emphasis on capital preservation and income through
high quality investments.
We expect a continuation of the more recent trends that have favored the
technology, healthcare and energy industries. Each of these areas has
surpassed even the most optimistic forecasts of a year ago, as they have
shown remarkable resilience in their earnings as the U.S. economy has shown
continued strength and the foreign markets have accelerated in growth.
In the second half of the year, market opportunities will depend upon
corporate profitability and the level of interest rates. We believe we are
experiencing a long-term, secular increase in economic productivity,
corporate profitability and improving returns on financial assets.
Investments in companies with sustainable underlying earnings and revenue
growth should continue to be rewarded.
<PAGE>
MITCHELL HUTCHINS
GROWTH AND INCOME PORTFOLIO
PORTFOLIO MANAGER
MARK A. TINCHER, CFA
Managing Director and Chief Investment
Officer of Equities
Mitchell Hutchins Asset Management, Inc.
PERFORMANCE OVERVIEW
[CHART]
1/2/92 - 6/30/00
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
Growth & Income S&P 500
--------------- -------
<S> <C> <C>
1/92 $10,000 $10,000
12/92
12/94
12/96
12/98
6/00 $25,707 $46,670
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR 5 YEAR SINCE INCEP.
------ ------ ------------
<S> <C> <C> <C>
Growth & Income -2.44% 17.94% 11.42%
S&P 500 7.24% 23.80% 19.88%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE MITCHELL HUTCHINS
GROWTH & INCOME PORTFOLIO. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL
EXPENSES, BUT EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT
WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
For the three months ended June 30, 2000 the Portfolio returned -6.9%,
trailing the overall U.S. stock market, as measured by the benchmark Standard
& Poor's 500 Index (S&P 500), which returned -2.7%.
In the second quarter, the "new economy" remained the hot theme, with
investors interested mostly in "dot-com" and other high-technology companies.
During the period, however, uncertainty increased as the Federal Reserve
continued to raise short-term interest rates, giving rise to worries that
higher rates might weaken corporate earnings. Stock prices showed periods of
extreme volatility, and the technology sector gave back much of its
recently-achieved gains.The U.S. economy continued to grow, but showed signs
of slowing late in the period, indications that the Fed's policy of
tightening money to ward off inflation might be working. Although the economy
remained solid and corporate earnings finished the period strongly, all major
U.S. stock indices fell during the three-month period. The NASDAQ Composite,
which is heavily weighted toward technology companies, lost 13.3% for the
three months ended June 30, 2000, the S&P 500 lost 2.7%, and the Dow Jones
Industrial Average (Dow), fell 4.0% for the period.
Q. WHY DID THE FUND PERFORM THIS WAY?
The primary cause of the Portfolio's underperformance was its continued
reliance on a value-oriented investment methodology during a period when the
market persisted in rewarding aggressive growth investors.
Portfolio management is considering opportunities in the energy, technology
and healthcare sectors. Fund management believes analysts may be
underestimating projected earnings for these sectors. Such underestimates
could potentially be reflected in upward estimate revisions and positive
earnings surprises in these sectors in periods to come.
The Portfolio continues to underweight many of the traditionally defensive
sectors, including consumer staples, traditional electric utilities and
financials,due to concerns about near-term interest rates and their effect on
earnings. However, management believes that the financial sector may
represent an opportunity if it is perceived that the Fed is near the end of
its money-tightening cycle.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Our outlook for the rest of the year is positive. While uncertainty remains
over whether the Fed can engineer a "soft" landing for the economy, or
whether it will overshoot the target and create a "hard" landing, we think
the Fed's policy is taking effect, and that a soft landing is the most likely
scenario.
Accordingly, we believe that corporate profits should fare reasonably well in
the second half of 2000 and into the first half of 2001; we expect corporate
earnings to range from 17-18% for the S&P 500 in 2000 and 9-10% for the year
2001. As year-end approaches, we expect those strong earnings to provide a
positive tilt to the market.
With the prospect for continued growth, moderate inflation and a stable bond
market, we believe that the more economically sensitive sectors will exhibit
stronger relative earnings growth than some of the more defensive sectors. We
believe that the Fed may tighten one more time during the third quarter,
however, we think this last rise has already been reflected in prices.
Given our expectation for strong corporate growth, we see opportunity in the
capital goods sector and in the financial sector, particularly in larger
financial companies that are not bound by a regional focus. In general, we
favor stocks and sectors that can prosper in a still-growing economy and that
can tolerate a modest rise in inflation.
The views expressed are as of June 30, 2000 and are those of Mitchell
Hutchins Asset Management Inc. These views are subject to change at any time
in response to changing circumstances in the markets and are not intended to
predict or guarantee the future performance of the Portfolio.
<PAGE>
MITCHELL HUTCHINS
STRATEGIC INCOME PORTFOLIO
PORTFOLIO MANAGER
DENNIS L. MCCAULEY
Managing Director and Chief
Investment Officer of Fixed
Income Investments
Mitchell Hutchins Asset Management, Inc.
PERFORMANCE OVERVIEW
[CHART]
9/28/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
Strategic Income ML High Yld. Master Lehman Govt. Bond SB World Govt. Bond
---------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
9/98 $10,000 $10,000 $10,000 $10,000
12/98
12/99
6/00 $10,136 $10,323 $10,345 $10,396
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
Strategic Income 1.91% 3.79%
ML High Yld. Master 1.57% 3.57%
Lehman Govt. Bond -1.86% -2.23%
SB World Govt. Bond -4.27% -0.70%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE MITCHELL HUTCHINS
STRATEGIC INCOME PORTFOLIO. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL
EXPENSES, BUT EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS.THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT
WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
For the three-month period ended June 30, 2000, the Portfolio outperformed
its global benchmark and its high yield benchmark, while trailing its
broad-market benchmark (see table below).
During the three-month period ended June 30, 2000, the Federal Reserve
continued to raise short-term interest rates in response to a strong economy,
falling unemployment and a booming stock market. Rising rates created
difficult conditions for all sectors of the fixed income market.
U.S.Treasurys fared the best, gaining 1.57% as measured by the Lehman
Brothers Government Bond Index. The broad market, as measured by Lehman
Brothers Aggregate Bond Index, gained 1.74% for the quarter. Corporate bonds
and mortgage-backed securities all lost ground.The high-yield sector made a
slight gain of 0.63% as measured by the Merrill Lynch High Yield Master Index.
Q. WHY DID THE FUND PERFORM THIS WAY?
This underperformance was due to the Portfolio's high exposure to spread
sectors in the United States, and within its global allocation, to the euro.
We had weighted the Portfolio heavily toward high-yield bonds early in the
reporting period in anticipation of a first-quarter rally--a generally
predictable occurrence. The rally did not occur this year, and the
Portfolio's high-yield exposure detracted from performance. The Portfolio's
exposure to the euro impacted absolute performance over the semiannual
period. Prospects for euro appreciation looked promising to us last fall. We
believed the euro would appreciate based on an outlook for accelerating
cyclical growth in Europe, a deteriorating U.S. current-account deficit and
increasing volatility in the U.S. equity markets. Although each of these
trends did develop in the first quarter, the euro weakened nevertheless.
We expect pressures on the euro to abate. Cyclically, Europe is recovering -
its economy does not appear vunerable to financial shocks nor does it have a
current-account deficit. Based on many traditional measures, the euro is
undervalued and we believe it will recover.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Although the Fed did not raise rates at its meeting on June 28, it did note
that inflation remained a concern. The economy appears to be slowing,
although it is unclear whether the slowdown will be sufficient to prevent
another rate increase. However, we believe that any further Fed actions will
impact the equities more seriously than bonds.While we think the economy will
slow, we do not expect it to slip into recession. In such an environment we
think the spread sectors stand a good chance to recover--particularly the
mortgage-backed sector, and to a lesser extent, the corporate sector.
The spread sectors have had to cope with a triple whammy of reduced Treasury
supply, equity-market volatility and rising interest rates. We believe
current valuations are extremely attractive, and these sectors are now
displaying signs of stability. We remain hopeful that spreads can narrow in
the periods ahead, which could benefit the Portfolio's holdings.
Looking to 2000 and beyond, we believe the next big opportunity for the
Portfolio may be in the global markets, where we expect rates to rise and
become more attractive relative to rates in the U.S. If this occurs, we
anticipate increasing our global allocation. We believe that over time the
euro will strengthen against the dollar. For now, we are keeping the
Portfolio's exposure to the euro about the same.
The views expressed are as of June 30, 2000 and are those of Mitchell
Hutchins Asset Management Inc. These views are subject to change at any time
in response to changing circumstances in the markets and are not intended to
predict or guarantee the future performance of the Portfolio.
<PAGE>
PRUDENTIAL JENNISON PORTFOLIO
PORTFOLIO MANAGER
[PHOTO]
SPIROS "SIG" SIGALAS
President and Chief
Investment Officer
Jennison Associates, LLC
[PHOTO]
MICHAEL DELBALSO
Director and Executive
Vice President
Jennison Associates, LLC
[PHOTO]
KATHLEEN MCCARRAGHER
Director and Executive
Vice President
Jennison Associates, LLC
PERFORMANCE OVERVIEW
[CHART]
2/10/2000 - 6/30/00
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
Prudential Jennison S&P 500
------------------- -------
<S> <C> <C>
1/00 $10,000 $10,000
3/00
6/00 $9,819 $10,484
</TABLE>
<TABLE>
<CAPTION>
Returns
Cumulative Returns
as of June 30, 2000
SINCE INCEPTION
---------------
<S> <C>
Prudential Jennison -1.81%
S&P 500 4.84%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE PRUDENTIAL JENNISON
PORTFOLIO. (THE ANNUALIZED RETURNS INCLUDE THE PORTFOLIO LEVEL EXPENSES, BUT
EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT
MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
The high-growth areas that are the focuses of this portfolio all experienced
extraordinary volatility between the inception of Class II shares on February
10 and June 30, 2000. The net result was a strong gain for its drug and
financial holdings, but losses in communication services, technology, and
retailers. Overall, the Portfolio returned -1.81% over that period.
Q. WHY DID THE FUND PERFORM THIS WAY?
Our largest focus is in technology, which peaked in March, then corrected
sharply, recovering somewhat in June. We had significant positive
contributions to our return from several holdings, including Hewlett-Packard,
Intel, Cisco Systems, and Juniper Networks. 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. Our Pfizer shares, helped by
enthusiasm about its acquisition of Warner Lambert, 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 two U.K.
holdings, Vodafone AirTouch (wireless telephones service) and NTL (cable TV).
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.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
"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."
<PAGE>
SALOMON BROTHERS
VARIABLE HIGH YIELD
PORTFOLIO MANAGER
[PHOTO]
PETER J. WILBY, CFA
Managing Director and Senior
Portfolio Manager
Salomon Brothers Asset Management Inc.
PERFORMANCE OVERVIEW
[CHART]
2/17/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
<S> <C> <C>
2/98 $10,000 $10,000
12/98
12/99
6/00 $9,932 $10,507
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
Variable High Yield 1.64% 2.31%
Salomon Smith Barney
High Yield Market Index -1.44% -0.31%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE SALOMON BROTHERS
VARIABLE HIGH YIELD. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES,
BUT EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE RESULTS.THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
For the six months ended June 30, 2000, the Fund returned a negative 0.54%
versus a negative 1.42% return for the Salomon Smith Barney High Yield Market
Index1 over the same period.
Q. WHY DID THE FUND PERFORM THIS WAY?
The Fund benefited from overweightings in energy and gaming. It was also
helped by an underweighting in supermarkets/drugstores. Performance was hurt,
however, by overweightings in steel/metals and capital goods and
under-weightings in telecommunications, technology and utilities. During the
course of the period, the Fund responded to market conditions by increasing
its positions in energy and gaming and reducing its positions in steel/metals
and leisure/lodging.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Going forward, we expect the high-yield market to continue to experience
volatility over the course of the year primarily as a result of several
technical factors, including:
- mutual fund flows;
- decreased Collateralized Bond Obligations ("CBO") demand;
- reduced secondary market liquidity; and
- continuing cyclical concerns.
In light of these conditions, we are pursuing a more conservative investment
strategy geared to overweighting BB credit and aggressively pursuing
selective opportunities in undervalued B and CCC credits.
Past performance is not a guarantee of future results.
(1) The Salomon Smith Barney High Yield Market Index covers a significant
portion the below-investment-grade U.S. corporate bond market. An investor
cannot invest directly in an index.
<PAGE>
SALOMON BROTHERS
VARIABLE CAPITAL FUND
PORTFOLIO MANAGERS
[PHOTO]
ROSS S. MARGOLIES
Managing Director and Portfolio Manager
Salomon Brothers Asset Management Inc.
[PHOTO]
ROBERT M. DONAHUE JR.
Director and Portfolio Manager
Salomon Brothers Asset Management Inc
PERFORMANCE OVERVIEW
[CHART]
2/17/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
SB Variable
Capital Fund Russell 3000
------------ ------------
<S> <C> <C>
2/98 $10,000 $10,000
12/98
12/99
6/00 $16,420 $14,066
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
Variable Capital 25.59% 23.31%
Russell 3000 9.59% 15.50%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE SALOMON BROTHERS
VARIABLE CAPITAL YIELD. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL
EXPENSES, BUT EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS.THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT
WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
The Salomon Brothers Variable Capital Fund's shares returned 16.47% for the
six-month period ended June 30, 2000. In comparison, the Russell 3000 Index
returned 0.95% and the Standard and Poor's 500 Index ("S&P 500") declined
0.43% for the same time period.
Q. WHY DID THE FUND PERFORM THIS WAY?
The Salomon Brothers Variable Capital Fund's multi-capitalization investment
strategy worked exceptionally well throughout the six-month period. When the
market was rising our broad, diversified equity exposure allowed us to
participate even though much of what we liked was out of favor. The declines
in less speculative stock provided us with opportunities as well. For the
first time in over two years, we were given an attractive opportunity to
start building position in drug stocks, a sector that we think should exhibit
above-average growth well into the future due to favorable demographic and
technological trends.
Later in the period, during the NASDAQ-led market decline, the Salomon
Brothers Variable Capital Fund appreciated as money flowed to companies that
could be more easily valued, most of which had been materially oversold in
the previous few months. The rotation favored drug stocks as well as
companies we previously owned such as Safeway, Nabisco Group Holdings and
Devon Energy while giving us the opportunity to add to undervalued technology
stocks like 3Com and Seagate. Going forward, we expect to continue to hold
many of these stocks although there have been tender offers announced for
Nabisco and Seagate.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
It is our strong belief that over time the leading established companies that
embrace today's new technologies should emerge as the dominate and most
profitable companies in the economy. Their stocks should recognize this over
time. On the other hand, we believe the stock market will continue to lose
patience with those traditional Internet companies that cannot transform
themselves into growth companies with enough profits to support their stock
price.
We expect the Salomon Brothers Variable Capital Fund to consistently apply
its investment strategy in the future. We will invest in both users and
manufacturers of technology when we believe their risk reward ratios are
favorable. Most of all, we will look for the best opportunities that we can
find, regardless of the part of the market they currently reside in.
Past performance is not a guarantee of future results.
(1) The Standard & Poor's 500 Index ("S&P 500") is a market
capitalization-weighted measure of 500 widely held common stocks. An investor
cannot invest directly in an index.
<PAGE>
SALOMON BROTHERS
VARIABLE TOTAL RETURN
PORTFOLIO MANAGERS
[PHOTO]
GEORGE J. WILLIAMSON
Director and Portfolio Manager
Salomon Brothers Asset Management Inc.
PERFORMANCE OVERVIEW
[CHART]
2/17/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
SB Variable
Capital Fund Russell 3000
------------ ------------
<S> <C> <C>
2/98 $10,000 $10,000
12/98
12/99
6/00 $10,967 $12,701
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
Variable Total Return 0.83% 3.98%
S&P 500 6.15% 10.63%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE SALOMON BROTHERS
VARIABLE TOTAL RETURN. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL
EXPENSES, BUT EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT
WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
For the six months ended June 30, 2000, the Salomon Brothers Variable Total
Return Fund generated a return of 3.13%. In comparison, the Standard & Poor's
500 Index ("S&P 500")(1) returned a negative 0.43% for the period. In
addition, a hypothetical index consisting of a 50% weighting of the Salomon
Smith Barney Broad Investment Grade ("BIG") Bond Index(2) and 50% weighting
of the S&P 5001 returned 1.87% for the same time period.
Q. WHY DID THE FUND PERFORM THIS WAY?
The Fund outperformed its index due to an underweight position in the large
NASDAQ technology names, which posted mixed results over the six-month
period. An overweight position in Consumer Brands and Pharmaceuticals also
served as a positive contributor to performance. Names that contributed
include: Anheuser Busch, Pepsico, Avon Products, Pfizer, American Home
Products and Pharmacia Corp.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
As the Federal Reserve ("Fed") moves to slow the economy, we anticipate
moderate growth in the U.S. and continuing improvement in most of the major
overseas countries. Earnings for U.S. companies should be restrained somewhat
during the coming year.
Past performance is not a guarantee of future results.
(1) The S&P 500 is a market capitalization-weighted measure of 500 widely
held common stocks. An investor cannot invest directly in an index.
(2) The 50% Salomon Smith Barney BIG Bond Index and 50% S&P 500 consists of
domestic corporate, government and agency securities and 500 widely held
common stocks. An investor cannot invest directly in an index.
<PAGE>
SALOMON BROTHERS
VARIABLE INVESTORS FUND
PORTFOLIO MANAGERS
[PHOTO]
JOHN B. CUNNUINGHAM, CFA
Director and Portfolio Manager
Salomon Brothers
Asset Management Inc
[PHOTO]
ROSS S. MARGOLIES
Managing Director and
Portfolio Manager
Salomon Brothers Asset
Management Inc.
PERFORMANCE OVERVIEW
[CHART]
2/17/98 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
SB Variable
Investor Fund S&P 500
------------- -------
<S> <C> <C>
2/98 $10,000 $10,000
12/98
12/99
6/00 $13,148 $14,295
</TABLE>
<TABLE>
<CAPTION>
Returns
Average Annual Returns
as of June 30, 2000
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
Variable Investors 5.67% 12.26%
S&P 500 7.26% 16.30%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE SALOMON BROTHERS
VARIABLE INVESTOR FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL
EXPENSES, BUT EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS.THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT
WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
The Fund's shares returned 9.16% for the six-month period ended June 30,
2000. In comparison, the Standard & Poor's 500 Index ("S&P 500") returned a
negative 0.43% and the Lipper Inc.'s peer group of large cap value funds
returned a negative 1.65% for the same period.(1)
Q. WHY DID THE FUND PERFORM THIS WAY?
The Fund performed quite well in the first six months, significantly
outpacing both its large-cap value peer group and the S&P 500. During the
first quarter, we continued to trim most of our technology holdings due to
valuation concerns. We redeployed those proceeds into other sectors of the
market that offered much more attractive valuations. In particular, we added
consumer staples, financials and pharmaceuticals, all of which rebounded as
investors rotated out of technology. Since the correction in technology in
mid-March, we have been adding to selected tech stocks on weakness in the
sector. We plan to continue increasing our weighting in technology as we see
opportunities to do so.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
Recent economic data suggest that the economy may be slowing; however,
inflationary concerns are likely to keep the Fed on guard. We expect recent
stock market volatility to persist. Uncertainty over economic growth and
prospective Federal Reserve actions will continue to result in market swings.
Fortunately, market breadth remains favorable.
Past performance is not a guarantee of future results.
(1) The Standard & Poor's 500 Index ("S&P 500") is a market
capitalization-weighted measure of 500 widely held common stocks. Lipper,
Inc. is a nationally recognized organization that reports on total return
performance and calculates rankings based on total returns. Total returns are
calculated based on changes in NAV including the reinvestment of dividends
and capital gains. An investor cannot invest directly in an index.
<PAGE>
FIRST AMERICAN
INTERNATIONAL FUND
PORTFOLIO MANAGERS
[PHOTO]
DAVID F. MARVIN
Team Leader
Chairman and CEO of Marvin &
Palmer Associates, Inc.
[PHOTO]
STANLEY PALMER
Team Leader
President of Marvin & Palmer
Associates, Inc.
PERFORMANCE OVERVIEW
[CHART]
5/1/00 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
FA International
Fund MSCI EAFE
---------------- ---------
<S> <C> <C>
5/00 $10,000 $10,000
6/00 $ 9,100 $10,084
</TABLE>
<TABLE>
<CAPTION>
Returns
Cumulative Returns
as of June 30, 2000
SINCE INCEPTION
---------------
<S> <C>
International -0.91%
MSCI EAFE 3.93%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE FIRST AMERICAN
INTERNATIONAL FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES,
BUT EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE RESULTS.THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
The First American International Fund was down 9% since the Fund's inception.
The MSCI EAFE Index returned 3.93% during the same period.
Q. WHY DID THE FUND PERFORM THIS WAY?
The underperformance for the period can be attributed to dramatic shifts in
market leadership. On a sector basis, the Fund's overweighting in technology,
media and telecom (TMT) sectors, which had been last year's leaders, suffered
rapid declines as investors questioned their growth potential in a slowing
economic environment. Geographically, Japan, which comprised the Fund's
largest country allocation and had underperformed for nearly 18 months,
suffered negative returns as investors questioned the pace at which
restructuring and reform were occurring.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
June confirmed that new leadership is emerging in the financial,
pharmaceutical and energy areas and we continued to increase exposure,
especially to financials and pharmaceuticals. We have reduced our exposure
dramatically in the telecom operators, but maintained significant positions
in semiconductors, an area that continues to offer good growth prospects. The
Japanese election doesn't appear to have changed anything in Japan. The
consumption sector of the economy remains weak and restructuring continues to
progress very slowly compared to the U.S. and Europe. We have reduced our
exposure and are now underweight in Japan. Our increased European presence is
mainly in the euro block.
<PAGE>
FIRST AMERICAN
LARGE CAP FUND
PORTFOLIO MANAGERS
[PHOTO]
STEVE B. MARKUSEN, CFA
Team Leader First American Funds
[PHOTO]
GERALD C. BREN, CFA
Team Leader
First American Funds
PERFORMANCE OVERVIEW
[CHART]
5/1/00 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
FA Large
Cap Fund MSCI EAFE
-------- ---------
<S> <C> <C>
5/00 $10,000 $10,000
6/00 $10,068 $ 9,677
</TABLE>
<TABLE>
<CAPTION>
Returns
Cumulative Returns
as of June 30, 2000
SINCE INCEPTION
---------------
<S> <C>
Large Cap Fund 2.90%
MSCI EAFE 0.29%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE FIRST AMERICAN LARGE
CAP FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT
EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS.THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT
MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
The First American Large Cap Fund returned 2.90% since the Fund's inception.
This compared favorably to the performance of the S&P 500 Index, which
returned 0.29% during the same period.
Q. WHY DID THE FUND PERFORM THIS WAY?
Driven by its broad diversification and stock selection in the financial and
health science sectors, the Fund was able to capitalize on the market rebound
that took place in June. Large pharmaceutical stocks such as Pfizer and
Johnson & Johnson provided strong positive performance for the Fund while
software giants Microsoft and Cisco were detractors.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
We expect the economy to slow a bit and the Federal Reserve to adopt a
neutral monetary policy, although when this will occur is subject to ongoing
debate. In the absence of slower economic growth, there is little reason to
expect the Federal Reserve to back away from tighter monetary policy. Easier
monetary policy should lead to broader sector participation in the market,
but slower growth may mean more difficult profit comparisons for many
companies. Although the current economic and policy environment is unlikely
to support a large gain in the stock market, there will be opportunities to
upgrade portfolios in market pullbacks and to acquire attractively valued
equities that seem forgotten in today's market.
<PAGE>
FIRST AMERICAN
TECHNOLOGY FUND
PORTFOLIO MANAGER
[PHOTO]
ROLAND P. WHITCOMB
Director and Portfolio Manager
Salomon Brothers Asset Management Inc
PERFORMANCE OVERVIEW
[CHART]
5/1/00 - 6/30/00
GROWTH OF A $10,000 INVESTMENT.
<TABLE>
<CAPTION>
S&P
FA Technology Technology
Fund Composite Index
------------- ---------------
<S> <C> <C>
5/00 $10,000 $10,000
6/00 $10,517 $ 9,842
</TABLE>
<TABLE>
<CAPTION>
Returns
Cumulative Returns
as of June 30, 2000
SINCE INCEPTION
---------------
<S> <C>
Technology Fund 11.80%
S&P Technology
Composite Index 7.12%
</TABLE>
THE CHART REPRESENTS A HYPOTHETICAL INVESTMENT IN THE FIRST AMERICAN
TECHNOLOGY FUND. (THE ANNUALIZED RETURNS INCLUDE THE FUND LEVEL EXPENSES, BUT
EXCLUDE THE INSURANCE CHARGES). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS.THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT
MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT.
Q. HOW DID THE FUND PERFORM?
The First American Technology Fund returned 11.80%% since the Fund's
inception. This compared favorably to the performance of both the S&P
Technology Composite Index and the Nasdaq Composite, which returned 7.12% and
9.96%, respectively, during the same period.
Q. WHY DID THE FUND PERFORM THIS WAY?
Strong revenue growth in business-to-business e-commerce and semi-conductors
helped drive performance for the period. The early part of the quarter saw
dramatic market declines as uncertainty of rate hikes, Microsoft litigation
and changing investor sentiment of .com companies cascaded the market from
euphoric optimism to an irrational sell-off.
Q. WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2000?
The team's outlook remains very favorable as fundamentals continue to remain
compelling and the Asian economies continue to rebound with accelerating
demand for technology products and services. In addition to an expected
robust business environment, tech stocks are more attractively priced due to
the recent sell-off. The sector provides an abundance of well managed
companies with strong earnings.
<PAGE>
HARTFORD GLOBAL HEALTH HLS FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCKS -- 96.1%
CHEMICALS -- 11.7%
10,700 Aventis S.A. ADR........................ $ 776,419
37,400 Pharmacia Corp.......................... 1,933,113
-----------
2,709,532
-----------
CONSUMER NON-DURABLES -- 4.3%
5,900 Cardinal Health, Inc.................... 436,600
26,900 McKesson HBOC, Inc...................... 563,219
-----------
999,819
-----------
DRUGS -- 48.3%
18,700 Abbott Laboratories..................... 833,319
24,100 American Home Products Corp............. 1,415,868
37,000 AstraZeneca Group PLC ADR............... 1,720,500
15,000 Banyu Pharmaceutical Co., Ltd........... 367,906
*16,500 BioChem Pharma, Inc..................... 406,313
4,500 Bristol-Myers Squibb Co................. 262,125
*15,000 Connetics Corp.......................... 220,313
12,000 Eisai Co., Ltd.......................... 385,628
*4,100 Forest Laboratories, Inc................ 414,100
*8,700 Genzyme Corp............................ 517,106
*5,100 Gilead Sciences, Inc.................... 362,738
*1,800 IDEC Pharmaceuticals Corp............... 211,163
*15,000 Immunex Corp............................ 741,563
6,400 Nycomed Amersham PLC ADR................ 313,600
*7,600 Regeneron Pharmacy, Inc................. 226,575
14,800 SmithKline Beecham PLC ADR, Class A..... 964,775
9,000 Takeda Chemical Industries Ltd.......... 592,052
35,000 Tanabe Seiyaku Co., Ltd................. 268,285
*21,700 Triangle Pharmaceuticals, Inc........... 196,656
*1,500 Vertex Pharmaceuticals, Inc............. 158,063
*10,400 ViroPharma, Inc......................... 162,500
*9,000 Watson Pharmaceuticals, Inc............. 483,750
-----------
11,224,898
-----------
HEALTH SERVICES -- 10.1%
*10,200 Biovail Corp............................ 565,463
*9,400 Exelixis, Inc........................... 313,725
10,300 HCA Healthcare Corp..................... 312,863
*8,700 Laboratory Corp. of America Holdings.... 670,988
*17,600 Tenet Healthcare Corp................... 475,200
-----------
2,338,239
-----------
MEDICAL INSTRUMENTS & SUPPLIES -- 16.1%
6,300 Bausch & Lomb, Inc...................... 487,463
9,700 Baxter International, Inc............... 682,031
12,900 Becton, Dickinson & Co.................. 370,069
15,200 Biomet, Inc............................. 584,250
*16,300 Boston Scientific Corp.................. 357,581
40,760 Gambro AB, Class B...................... 325,309
6,800 Guidant Corp............................ 336,600
82,384 Smith & Nephew PLC ADR.................. 299,331
*6,600 St. Jude Medical, Inc................... 302,775
-----------
3,745,409
-----------
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<C> <S> <C>
RESEARCH & TESTING FACILITIES -- 4.2%
*3,800 CV Therapeutics, Inc.................... $ 263,388
*30,300 Quintiles Transnational Corp............ 427,988
*6,500 Sequenom, Inc........................... 294,938
-----------
986,314
-----------
SOFTWARE & SERVICES -- 1.4%
18,000 IMS Health, Inc......................... 324,000
-----------
Total common stocks..................... $22,328,211
===========
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
SHORT-TERM SECURITIES -- 4.0%
REPURCHASE AGREEMENT -- 4.0%
$937,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $937,515 (Collateralized
by $125,835,832 U.S. Treasury Notes
5.50% - 7.875% due 08/31/01 - 11/15/04,
$1,943,730,718 U.S. Treasury Bonds 5.25%
-10.625% due 08/15/15 - 02/15/29)....... $ 937,000
-----------
Total short-term securities............. $ 937,000
===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
ASSETS
Investment in securities, at value (total
cost $20,730,267) - see accompanying portfolio... $23,265,211
Receivable for securities sold.................... 211,076
Receivable for fund shares sold................... 1,026,255
Receivable for dividends and interest............. 9,403
Securities lending collateral..................... 5,219,902
Cash and other assets............................. 1,164
----------
Total assets...................................... 29,733,011
----------
LIABILITIES
Payable for securities purchased.................. 1,254,653
Securities lending collateral payable to
brokers.......................................... 5,219,902
Other liabilities................................. 5,918
----------
Total liabilities................................. 6,480,473
----------
Net assets........................................ $23,252,538
==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-1 _____________________________________
<PAGE>
HARTFORD GLOBAL HEALTH HLS FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.001 per share;
800,000,000 shares authorized; 19,541,591 shares
outstanding...................................... $ 19,542
Capital surplus................................... 20,289,862
Accumulated undistributed net investment income... 13,666
Accumulated undistributed net realized gain on
investments...................................... 393,818
Unrealized appreciation of investments............ 2,534,944
Unrealized appreciation of forward foreign
currency contracts (See Note 2)w................. 171
Unrealized appreciation of other assets and
liabilities in foreign currencies................ 535
----------
Net assets........................................ $23,252,538
==========
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share
($21,731,647 DIVIDED BY 18,263,058 shares
outstanding) (600,000,000 shares authorized)..... $1.19
====
Class IB
Net asset value per share
($1,520,891 DIVIDED BY 1,278,533 shares
outstanding) (200,000,000 shares authorized)..... $1.19
====
</TABLE>
* Non-income producing during the period.
wFORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT JUNE 30, 2000
<TABLE>
<CAPTION>
TOTAL CONTRACT DELIVERY UNREALIZED
DESCRIPTION MARKET VALUE AMOUNT DATE APPRECIATION
----------- ------------ -------- -------- -------------
<S> <C> <C> <C> <C>
Japanese Yen (Buy) $65,721 $65,550 07/05/00 $171
====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-2 _____________________________________
<PAGE>
HARTFORD GLOBAL TECHNOLOGY HLS FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------- -----------
<C> <S> <C>
COMMON STOCKS -- 95.9%
BUSINESS SERVICES -- 1.8%
*10,000 eBay, Inc............................... $ 543,125
*300 StorageNetworks, Inc.................... 27,075
-----------
570,200
-----------
COMMUNICATIONS -- 10.3%
10,000 Comverse Technology, Inc................ 930,000
*17,800 Digital Microwave Corp.................. 678,625
*16,100 Exodus Communications, Inc.............. 741,606
10,700 Lucent Technologies, Inc................ 633,975
*4,600 Phone.com, Inc.......................... 299,575
-----------
3,283,781
-----------
COMPUTERS & OFFICE
EQUIPMENT -- 25.9%
*45,900 Cisco Systems, Inc...................... 2,917,519
*32,900 Dell Computer Corp...................... 1,622,381
*14,900 EMC Corp................................ 1,146,369
9,400 Hewlett-Packard Co...................... 1,173,825
12,500 International Business Machines Corp.... 1,369,531
-----------
8,229,625
-----------
ELECTRICAL EQUIPMENT -- 1.6%
*9,400 Credence Systems Corp................... 518,763
-----------
ELECTRONICS -- 18.9%
*14,300 Analog Devices, Inc..................... 1,086,800
*12,000 Cypress Semiconductor Corp.............. 507,000
5,300 Intel Corp.............................. 708,544
*13,100 JDS Uniphase Corp....................... 1,570,363
*34,100 MEMC Electronic Materials, Inc.......... 613,800
*14,600 Micron Technology, Inc.................. 1,285,713
*5,600 REMEC, Inc.............................. 234,500
-----------
6,006,720
-----------
MACHINERY -- 2.9%
*5,800 Applied Materials, Inc.................. 525,625
*6,100 Brooks Automation, Inc.................. 390,019
-----------
915,644
-----------
SOFTWARE & SERVICES -- 34.5%
*11,400 3Com Corp............................... 656,925
*10,400 America Online, Inc..................... 548,600
*22,900 Answerthink, Inc........................ 380,713
*6,600 BMC Software, Inc....................... 240,797
*41,300 Ceridian Corp........................... 993,781
*12,800 Cognos, Inc............................. 529,600
15,000 Electronic Data Systems Corp............ 618,750
*21,700 Informix Corp........................... 161,394
*9,400 LookSmart, Ltd.......................... 173,900
*6,600 Macromedia, Inc......................... 638,138
*23,600 Microsoft Corp.......................... 1,888,000
*80,300 Quantum Hard Disk Drive Corp............ 888,316
*10,500 Rational Software Corp.................. 975,844
*6,908 VeriSign, Inc........................... 1,219,174
*12,100 Verity, Inc............................. 459,800
*11,400 Vignette Corp........................... 592,978
-----------
10,966,710
-----------
Total common stocks..................... $30,491,443
===========
<CAPTION>
MARKET
SHARES VALUE
---------- -----------
<C> <S> <C>
PREFERRED STOCKS -- 0.6%
COMMUNICATIONS -- 0.6%
3,900 Nokia Corp.............................. $ 194,754
-----------
Total preferred stocks.................. $ 194,754
===========
<CAPTION>
PRINCIPAL
AMOUNT
----------
<C> <S> <C>
SHORT-TERM SECURITIES -- 8.0%
REPURCHASE AGREEMENT -- 8.0%
$2,546,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $2,547,400
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718 U.S.
Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29).................... $ 2,546,000
-----------
Total short-term securities............. $ 2,546,000
===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
ASSETS
Investment in securities, at value (total
cost $31,893,883) - see accompanying portfolio... $33,232,197
Receivable for securities sold.................... 1,456,641
Receivable for fund shares sold................... 492,935
Receivable for dividends and interest............. 2,616
Securities lending collateral..................... 4,646,169
Cash and other assets............................. 786
----------
Total assets...................................... 39,831,344
----------
LIABILITIES
Payable for securities purchased.................. 3,375,072
Securities lending collateral payable to
brokers.......................................... 4,646,169
Other liabilities................................. 7,597
----------
Total liabilities................................. 8,028,838
----------
Net assets........................................ $31,802,506
==========
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.001 per share;
800,000,000 shares authorized; 30,421,463 shares
outstanding...................................... $ 30,421
Capital surplus................................... 30,171,870
Accumulated net investment loss................... (10,338)
Accumulated undistributed net realized gain on
investments...................................... 272,239
Unrealized appreciation of investments............ 1,338,314
----------
Net assets........................................ $31,802,506
==========
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share
($29,501,636 DIVIDED BY 28,219,859 shares
outstanding) (600,000,000 shares authorized)..... $1.05
====
Class IB
Net asset value per share
($2,300,870 DIVIDED BY 2,201,604 shares
outstanding) (200,000,000 shares authorized)..... $1.05
====
</TABLE>
* Non-income producing during the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-3 _____________________________________
<PAGE>
HARTFORD SMALL COMPANY HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- --------------
<C> <S> <C>
COMMON STOCKS -- 91.4%
APPAREL & TEXTILE -- 0.1%
*176,300 Steven Madden Ltd....................... $ 1,156,969
--------------
BUSINESS SERVICES -- 5.6%
*589,500 APAC Customer Services, Inc............. 6,521,344
*706,500 Iron Mountain, Inc...................... 24,021,000
516,700 Manpower, Inc........................... 16,534,400
*595,100 NCO Group, Inc.......................... 13,761,688
*11,200 StorageNetworks, Inc.................... 1,010,800
--------------
61,849,232
--------------
COMMUNICATIONS -- 12.0%
*297,200 AirGate PCS, Inc........................ 15,621,575
*493,400 Andrew Corp............................. 16,559,738
*109,600 Carrier Access Corp..................... 5,795,100
*473,500 Digital Microwave Corp.................. 18,052,188
*383,600 MGC Communications, Inc................. 22,992,025
*304,100 Primus Telecommunications Group, Inc.... 7,564,488
*171,900 Rural Cellular Corp., Class A........... 13,161,094
*127,300 SBA Communications Corp................. 6,611,644
*67,000 SonicWall, Inc.......................... 5,900,188
*372,900 Spectrasite Holdings, Inc............... 10,581,038
*-92,900 Tecnomen Oyj............................ 801,476
*600,800 US Unwired Inc., Class A................ 7,810,400
*18,600 Westell Technologies, Inc., Class A..... 279,000
--------------
131,729,954
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 1.4%
*836,000 Splash Technology Holdings, Inc......... 6,583,500
*291,200 Visual Networks, Inc.................... 8,299,200
--------------
14,882,700
--------------
CONSTRUCTION -- 1.2%
*241,500 Quanta Services, Inc.................... 13,282,500
--------------
DRUGS -- 3.1%
*249,503 Gilead Sciences, Inc.................... 17,745,901
*122,700 Lynx Therapeutics, Inc.................. 5,835,919
*8,340 MediGene AG............................. 543,635
*50,100 Myriad Genetics, Inc.................... 7,418,714
*45,200 Visible Genetics, Inc................... 2,039,650
--------------
33,583,819
--------------
ELECTRICAL EQUIPMENT -- 3.0%
*41,800 Capstone Turbine Corp................... 1,883,613
*112,000 Newport Corp............................ 12,026,000
257,600 Veeco Instruments, Inc.................. 18,869,200
--------------
32,778,813
--------------
ELECTRONICS -- 11.2%
*74,800 Alliance Semiconductor Corp............. 1,837,275
*376,000 ASM International N.V................... 9,964,000
*153,000 Burr-Brown Corp......................... 13,263,175
*164,600 Emcore Corp............................. 19,752,000
*160,100 GSI Lumonics, Inc....................... 5,623,513
*310,000 International Rectifier Corp............ 17,360,000
210,500 Methode Electronics, Inc., Class A...... 8,130,563
*177,700 Plexus Corp............................. 20,080,100
*255,200 REMEC, Inc.............................. 10,686,500
*154,900 Supertex, Inc........................... 7,783,725
<CAPTION>
MARKET
SHARES VALUE
----------- --------------
<C> <S> <C>
</TABLE>
ELECTRONICS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- --------------
<C> <S> <C>
*217,400 Telcom Semiconductors, Inc.............. $ 8,709,588
--------------
123,190,439
--------------
ENERGY & SERVICES -- 4.0%
770,500 Cross Timbers Oil Co.................... 17,047,313
*439,900 Hanover Compressor Co................... 16,716,200
*429,875 Varco International, Inc................ 9,994,594
--------------
43,758,107
--------------
FINANCIAL SERVICES -- 4.8%
393,200 Annuity & Life Re (Holdings), Ltd....... 9,633,400
*338,900 Investment Technology Group, Inc........ 13,386,550
313,400 Legg Mason, Inc......................... 15,670,000
302,700 People's Bank........................... 5,562,113
*156,500 Trigon Healthcare, Inc.................. 8,069,531
--------------
52,321,594
--------------
HEALTH SERVICES -- 3.1%
*1,625,100 Caremark Rx, Inc........................ 11,070,994
*203,900 Express Scripts, Inc., Class A.......... 12,667,288
*816,100 Foundation Health Systems, Inc.,
Class A................................ 10,609,300
--------------
34,347,582
--------------
MACHINERY -- 1.9%
*335,200 Brooks Automation, Inc.................. 21,431,851
--------------
MEDIA & ENTERTAINMENT -- 2.2%
*503,300 Cumulus Media, Inc., Class A............ 4,592,613
248,000 Pegasus Communications Corp., Class A.. 12,167,500
*839,100 Regent Communications, Inc.............. 7,211,016
--------------
23,971,129
--------------
MEDICAL INSTRUMENTS &
SUPPLIES -- 0.2%
360,400 Omnicare, Inc........................... 3,266,125
--------------
METALS, MINERALS & MINING -- 2.6%
872,000 Minas Buenaventura ADR, Class B......... 15,096,500
*479,500 Stillwater Mining Co.................... 13,366,063
--------------
28,462,563
--------------
REAL ESTATE -- 1.7%
365,600 Liberty Property Trust (REIT)........... 9,482,750
386,600 Reckson Associates Realty Corp. (REIT).. 9,181,750
--------------
18,664,500
--------------
RESEARCH & TESTING FACILITIES -- 5.1%
*80,100 Aurora Biosciences Corp................. 5,461,819
*297,600 Gene Logic, Inc......................... 10,620,600
*434,500 Quest Diagnostics, Inc.................. 32,478,875
*159,600 Sequenom, Inc........................... 7,241,850
--------------
55,803,144
--------------
RETAIL -- 4.2%
321,600 Applebee's International, Inc........... 9,748,500
*397,050 Cheesecake Factory, Inc. (The).......... 10,918,875
*445,250 Pacific Sunwear of California, Inc...... 8,348,438
*257,500 Whole Foods Market, Inc................. 10,637,969
*217,200 Williams-Sonoma, Inc.................... 7,045,425
--------------
46,699,207
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-4 _____________________________________
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- --------------
<C> <S> <C>
SOFTWARE & SERVICES -- 17.4%
*551,900 Affiliated Computer Services, Inc.,
Class A................................ $ 18,247,194
*880,000 Brio Technology, Inc.................... 18,645,000
*389,200 Cognos, Inc............................. 16,103,150
*296,100 Documentum, Inc......................... 26,463,938
*230,000 Macromedia, Inc......................... 22,238,125
*317,200 Mercator Software, Inc.................. 21,807,500
*483,000 Novadigm, Inc........................... 9,539,250
*531,800 Peregrine Systems, Inc.................. 18,446,813
*336,300 Remedy Corp............................. 18,748,725
*429,400 Verity, Inc............................. 16,317,200
*88,700 WatchGuard Technologies, Inc............ 4,872,956
--------------
191,429,851
--------------
TRANSPORTATION -- 6.6%
*484,100 Atlas Air, Inc.......................... 17,367,088
142,800 Robinson (C.H.) Worldwide, Inc.......... 7,068,600
*379,300 Ryanair Holdings PLC ADR................ 13,844,450
506,700 SkyWest, Inc............................ 18,779,569
*1,134,000 Swift Transportation Co., Inc........... 15,876,000
--------------
72,935,707
--------------
Total common stocks..................... $1,005,545,786
==============
<CAPTION>
PRINCIPAL
AMOUNT
---------------------------------------------------------------------
SHORT-TERM SECURITIES -- 7.3%
<C> <S> <C>
REPURCHASE AGREEMENT -- 7.3%
$80,624,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $80,668,330
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718 U.S.
Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29).................... $ 80,624,000
--------------
Total short-term securities............. $ 80,624,000
--------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks
(cost $892,170,011).................... 91.4% $1,005,545,786
Total short-term securities
(cost $80,624,000)..................... 7.3 80,624,000
----- -------------
Total investment in securities
(total cost $972,794,011).............. 98.7 1,086,169,786
Cash, receivables and other assets...... 3.6 39,531,670
Securities lending collateral........... 18.2 199,894,731
Payable for securities purchased........ (2.2) (24,290,926)
Payable for fund shares redeemed........ (0.1) (544,307)
Securities lending collateral payable to
brokers................................ (18.2) (199,894,731)
Other liabilities....................... (0.0) (1,807)
----- -------------
Net assets.............................. 100.0% $1,100,864,416
===== =============
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
1,500,000,000 shares authorized; 547,503,658
shares outstanding............................ $ 54,750,366
Capital surplus................................ 844,745,938
Accumulated net investment loss................ (1,029,598)
Accumulated undistributed net realized gain on
investments................................... 89,018,325
Unrealized appreciation of investments......... 113,375,766
Unrealized appreciation of forward foreign
currency contracts (See Note 2)w.............. 17,873
Unrealized depreciation of other assets and
liabilities in foreign currencies............. (14,254)
-------------
Net assets..................................... $1,100,864,416
=============
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share
($1,073,047,826 DIVIDED BY 533,648,115 shares
outstanding) (1,125,000,000 shares authorized)....... $2.01
====
Class IB
Net asset value per share ($27,816,590 DIVIDED BY
13,855,543 shares outstanding) (375,000,000 shares
authorized).......................................... $2.01
====
</TABLE>
* Non-income producing during the period.
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
2000, the market value of these securities amounted to $801,476 or 0.1% of
net assets.
wFORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT JUNE 30, 2000
<TABLE>
<CAPTION>
TOTAL CONTRACT DELIVERY UNREALIZED
DESCRIPTION MARKET VALUE AMOUNT DATE APPRECIATION
----------- ------------ -------- -------- -------------
<S> <C> <C> <C> <C>
EURO (Buy) $335,774 $334,475 07/03/00 $ 1,299
EURO (Buy) 756,949 740,375 07/03/00 16,574
-------
$17,873
=======
</TABLE>
_____________________________________ MF-5 _____________________________________
<PAGE>
HARTFORD CAPITAL APPRECIATION HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
COMMON STOCKS -- 89.3%
APPAREL & TEXTILE -- 0.4%
374,200 Gucci Group NV.......................... $ 35,455,450
--------------
BUSINESS SERVICES -- 2.6%
*1,390,750 Concord EFS, Inc........................ 36,159,500
*985,000 Critical Path, Inc...................... 57,437,813
*821,200 eBay, Inc............................... 44,601,425
2,550,000 Manpower, Inc........................... 81,600,000
*1,500,000 United Rentals (North America), Inc..... 25,687,500
--------------
245,486,238
--------------
CHEMICALS -- 3.6%
2,589,300 Dow Chemical Co. (The).................. 78,164,494
5,100,000 Pharmacia Corp.......................... 263,606,250
--------------
341,770,744
--------------
COMMUNICATIONS -- 6.4%
*2,000,000 American Tower Corp., Class A........... 83,375,000
1,300,000 AT&T Corp............................... 41,112,500
2,225,600 Broadwing, Inc.......................... 57,726,500
*825,000 Crown Castle International Corp......... 30,112,500
*2,534,800 Global Crossing Ltd..................... 66,696,923
*2,000,000 Intermedia Communications, Inc.......... 59,500,000
*1,617,500 Phone.com, Inc.......................... 105,339,688
4,000,000 Portugal Telecom S.A. ADR............... 45,000,000
*1,000,000 Teligent, Inc., Class A................. 23,625,000
*1,900,000 Worldcom, Inc........................... 87,162,500
--------------
599,650,611
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 3.6%
*900,000 Cisco Systems, Inc...................... 57,206,250
*3,000,000 Maxtor Corp............................. 31,687,500
*2,500,000 Solectron Corp.......................... 104,687,500
2,700,000 Symbol Technologies, Inc................ 145,800,000
--------------
339,381,250
--------------
CONSUMER DURABLES -- 0.5%
1,650,000 Grainger (W.W.), Inc.................... 50,840,625
--------------
CONSUMER NON-DURABLES -- 3.0%
4,100,000 McKesson HBOC, Inc...................... 85,843,750
2,314,100 Procter & Gamble Co. (The).............. 132,482,225
*5,100,000 Smurfit-Stone Container Corp............ 65,662,500
--------------
283,988,475
--------------
DRUGS -- 5.6%
1,600,000 American Home Products Corp............. 94,000,000
2,865,700 AstraZeneca Group PLC................... 133,882,428
37,000 Fujisawa Pharmaceutical Co.............. 1,500,262
*2,000,000 Genzyme Corp............................ 118,875,000
*990,000 Gilead Sciences, Inc.................... 70,413,750
*2,130,800 Immunex Corp............................ 105,341,425
--------------
524,012,865
--------------
ELECTRICAL EQUIPMENT -- 1.2%
*1,500,000 Credence Systems Corp................... 82,781,250
*934,900 Ionics, Inc............................. 28,631,313
--------------
111,412,563
--------------
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
ELECTRONICS -- 8.5%
*1,700,000 Analog Devices, Inc..................... $ 129,200,000
*843,600 JDS Uniphase Corp....................... 101,126,550
3,600,000 Koninklijke Philips Electronics N.V.
ADR, NY Shares......................... 171,000,000
*2,350,000 Micron Technology, Inc.................. 206,946,875
136,670 Samsung Electronics..................... 45,230,280
550,000 Siemens AG.............................. 82,668,715
*1,600,000 UCAR International, Inc................. 20,900,000
*1,216,300 Vishay Intertechnology, Inc............. 46,143,381
--------------
803,215,801
--------------
ENERGY & SERVICES -- 5.0%
1,765,600 Exxon Mobil Corp........................ 138,599,600
*541,800 R&B Falcon Corp......................... 12,766,163
1,094,500 Repsol YPF S.A. ADR..................... 21,684,781
6,200,000 Suncor Energy, Inc...................... 144,537,500
1,691,570 Transocean Sedco Forex, Inc............. 90,393,272
2,891,300 Union Pacific Resources Group, Inc...... 63,608,600
--------------
471,589,916
--------------
FINANCIAL SERVICES -- 9.5%
3,564,200 Ace Ltd................................. 99,797,600
1,500,000 Bank One Corp........................... 39,843,750
1,573,900 Citigroup, Inc.......................... 94,827,475
1,436,440 Fleet Boston Financial Corp............. 48,838,960
2,900,000 Heller Financial, Inc., Class A......... 59,450,000
1,065,500 Legg Mason, Inc......................... 53,275,000
900,000 Marsh & McLennan Cos., Inc.............. 93,993,750
2,200,000 MBIA, Inc............................... 106,012,500
*2,645,900 MetLife, Inc............................ 55,729,269
1,700,000 Morgan Stanley Dean Witter & Co......... 141,525,000
1,300,000 UnitedHealth Group, Inc................. 111,475,000
--------------
904,768,304
--------------
FOOD, BEVERAGE & TOBACCO -- 2.0%
1,905,000 Philip Morris Co., Inc.................. 50,601,563
963,000 Reynolds (R.J) Tobacco Holdings, Inc.... 26,903,813
5,584,800 Sara Lee Corp........................... 107,856,450
--------------
185,361,826
--------------
HEALTH SERVICES -- 0.7%
2,100,000 HCA Healthcare Corp..................... 63,787,500
--------------
HOTELS & GAMING -- 0.7%
2,028,100 Starwood Hotels & Resorts
Worldwide, Inc......................... 66,040,006
--------------
MACHINERY -- 0.3%
*2,000,000 Terex Corp.............................. 28,250,000
--------------
MEDIA & ENTERTAINMENT -- 4.5%
*1,000,000 AMFM, Inc............................... 69,000,000
*1,084,300 AT&T - Liberty Media Group, Class A..... 26,294,275
3,000,000 Dai Nippon Printing Co., Ltd............ 52,995,465
*4,084,300 Rogers Communications, Inc., Class B.... 116,402,550
900,000 Seagram Company Ltd. (The).............. 52,200,000
*1,251,200 SFX Entertainment, Inc., Class A........ 56,695,000
*1,600,000 TV Guide, Inc........................... 54,800,000
--------------
428,387,290
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-6 _____________________________________
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
MEDICAL INSTRUMENTS &
SUPPLIES -- 2.5%
910,200 Bausch & Lomb, Inc...................... $ 70,426,725
4,500,000 Becton, Dickinson & Co.................. 129,093,750
*1,500,000 Boston Scientific Corp.................. 32,906,250
--------------
232,426,725
--------------
METALS, MINERALS &
MINING -- 3.1%
2,785,900 Alcan Aluminum Ltd...................... 86,362,900
2,501,000 AngloGold Ltd. ADR...................... 51,426,813
1,500,000 Engelhard Corp.......................... 25,593,750
*4,600,000 Freeport-McMoRan Copper & Gold, Inc.,
Class B................................ 42,550,000
2,204,800 General Cable Corp...................... 17,914,000
1,550,200 Precision Castparts Corp................ 70,146,550
--------------
293,994,013
--------------
REAL ESTATE -- 1.1%
*1,315,000 Beacon Capital Partners, Inc. (REIT).... 17,095,000
1,000,000 Boston Properties, Inc. (REIT).......... 38,625,000
*2,794,400 Security Capital Group, Inc.,
Class B................................ 47,504,800
--------------
103,224,800
--------------
RESEARCH & TESTING
FACILITIES -- 0.2%
*1,633,300 Quintiles Transnational Corp............ 23,070,363
--------------
RETAIL -- 0.8%
*1,500,000 Cheesecake Factory, Inc. (The).......... 41,250,000
1,853,190 Hennes & Mauritz AB..................... 38,877,853
--------------
80,127,853
--------------
RUBBER & PLASTICS PRODUCTS -- 0.3%
711,500 NIKE, Inc., Class B..................... 28,326,594
--------------
SOFTWARE & SERVICES -- 14.5%
*2,400,000 3Com Corp............................... 138,300,000
*1,850,000 America Online, Inc..................... 97,587,500
*1,476,400 Avant! Corp............................. 27,659,431
*1,800,000 BMC Software, Inc....................... 65,671,875
*2,500,000 Cabletron Systems, Inc.................. 63,125,000
*1,589,200 China Unicom Ltd. ADR................... 33,770,500
*1,055,000 Cognex Corp............................. 54,596,250
*2,000,000 Cognos, Inc............................. 82,750,000
1,200,300 Comdisco, Inc........................... 26,781,694
765,400 Electronic Data Systems Corp............ 31,572,750
2,300,000 First Data Corp......................... 114,137,500
*350,000 Genuity, Inc............................ 3,204,688
*420,000 Healtheon/WebMD Corp.................... 6,221,250
*799,100 Intuit, Inc............................. 33,062,763
*1,300,000 LookSmart, Ltd.......................... 24,050,000
*1,900,000 Rational Software Corp.................. 176,581,250
*1,476,400 VeriSign, Inc........................... 260,584,600
*2,599,400 Vignette Corp........................... 135,209,412
--------------
1,374,866,463
--------------
TRANSPORTATION -- 3.5%
*2,633,000 AMR Corp................................ 69,609,938
1,600,000 Canadian Pacific Ltd.................... 41,900,000
3,000,000 Delphi Automotive Systems Corp.......... 43,687,500
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
TRANSPORTATION -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
1,781,200 Northrop Grumman Corp................... $ 118,004,500
1,140,000 USFreightways Corp...................... 28,001,250
2,154,000 Werner Enterprises, Inc................. 24,905,625
--------------
326,108,813
--------------
UTILITIES -- 5.1%
*5,325,900 Calpine Corp............................ 350,177,925
2,091,900 CMS Energy Corp......................... 46,283,288
4,200,000 Waste Management, Inc................... 79,800,000
--------------
476,261,213
--------------
Total common stocks..................... $8,421,806,301
==============
CONVERTIBLE PREFERRED STOCKS -- 0.1%
HOTELS & GAMING -- 0.1%
-62,427 Wyndham International, Inc., Class B.... $ 6,116,315
--------------
Total convertible preferred stocks...... $ 6,116,315
==============
VOTING TRUSTS -- 0.0%
COMMUNICATIONS -- 0.0%
*-234,525 Cypress Communications, Inc............. $ 1,530,273
--------------
SOFTWARE & SERVICES -- 0.0%
*-72,315 Internap Network Services Corp.......... 2,701,978
--------------
Total voting trusts..................... $ 4,232,251
==============
<CAPTION>
PRINCIPAL
AMOUNT
----------------------------------------------------------------------
SHORT-TERM SECURITIES -- 9.3%
<C> <S> <C>
REPURCHASE AGREEMENT -- 9.3%
$879,472,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $879,955,570
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718 U.S.
Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29).................... $ 879,472,000
--------------
Total short-term securities............. $ 879,472,000
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost $6,784,936,353).... 89.3% $8,421,806,301
Total convertible preferred stocks (cost
$5,711,961)................................. 0.1 6,116,315
Total voting trusts (cost $1,432,036)........ 0.0 4,232,251
Total short-term securities (cost
$879,472,000)............................... 9.3 879,472,000
------ -------------
Total investment in securities (total cost
$7,671,552,350)............................. 98.7 9,311,626,867
Cash, receivables and other assets........... 2.3 219,181,562
Securities lending collateral................ 8.4 790,421,193
Payable for securities purchased............. (1.0) (99,323,694)
Payable for fund shares redeemed............. (0.0) (1,679,031)
Securities lending collateral payable to
brokers..................................... (8.4) (790,421,193)
Other liabilities............................ (0.0) (301,766)
------ -------------
Net assets................................... 100.0% $9,429,503,938
====== =============
</TABLE>
_____________________________________ MF-7 _____________________________________
<PAGE>
HARTFORD CAPITAL APPRECIATION HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
3,000,000,000 shares authorized; 1,587,054,220
shares outstanding................................. $ 158,705,422
Capital surplus..................................... 6,086,243,577
Accumulated undistributed net investment income..... 28,097,122
Accumulated undistributed net realized gain on
investments........................................ 1,516,523,055
Unrealized appreciation of investments.............. 1,640,075,682
Unrealized appreciation of forward foreign currency
contracts (See Note 2)w............................ 28,861
Unrealized depreciation of other assets and
liabilities in foreign currencies.................. (169,781)
-------------
Net assets.......................................... $9,429,503,938
=============
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($9,370,818,719 DIVIDED BY
1,577,172,355 shares outstanding) (2,250,000,000 shares
authorized).................................................. $5.94
====
Class IB
Net asset value per share ($58,685,219 DIVIDED BY 9,881,865
shares outstanding) (750,000,000 shares authorized).......... $5.94
====
</TABLE>
* Non-income producing during the period.
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
2000, the market value of these securities amounted to $10,348,566 or 0.1%
of net assets.
wFORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT JUNE 30, 2000
<TABLE>
<CAPTION>
UNREALIZED
TOTAL CONTRACT DELIVERY APPRECIATION
DESCRIPTION MARKET VALUE AMOUNT DATE (DEPRECIATION)
----------- ------------ ---------- -------- --------------
<S> <C> <C> <C> <C>
Japanese Yen (Sell) $4,038,913 $4,072,497 07/05/00 $ 33,584
Japanese Yen (Sell) 7,101,489 7,083,012 07/05/00 (18,477)
Japanese Yen (Sell) 5,961,935 5,975,689 07/03/00 13,754
--------
$ 28,861
========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-8 _____________________________________
<PAGE>
HARTFORD MIDCAP HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- --------------
<C> <S> <C>
COMMON STOCKS -- 98.6%
AEROSPACE & DEFENSE -- 0.8%
*280,100 SCI Systems, Inc........................ $ 10,976,419
--------------
APPAREL & TEXTILE -- 0.3%
121,100 Liz Claiborne, Inc...................... 4,268,775
--------------
BUSINESS SERVICES -- 6.4%
167,700 Cintas Corp............................. 6,152,494
*409,300 Convergys Corp.......................... 21,232,438
*83,800 Critical Path, Inc...................... 4,886,588
*476,050 Iron Mountain, Inc...................... 16,185,700
*185,600 Lamar Advertising Co., Class A.......... 8,038,800
899,500 Manpower, Inc........................... 28,784,000
--------------
85,280,020
--------------
CHEMICALS -- 0.9%
251,900 Eastman Chemical Co..................... 12,028,225
--------------
COMMUNICATIONS -- 7.3%
*830,200 American Tower Corp., Class A........... 34,608,963
*58,600 Crown Castle International Corp......... 2,138,900
*1,017,900 McLeodUSA, Inc., Class A................ 21,057,806
*440,900 Nextel Partners, Inc.................... 14,356,806
*197,200 RCN Corp................................ 5,003,950
*251,000 TeleCorp PCS, Inc....................... 10,118,438
*181,800 Western Wireless Corp., Class A......... 9,908,100
--------------
97,192,963
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 2.1%
*320,300 Handspring, Inc......................... 8,648,100
*404,100 Jabil Circuit, Inc...................... 20,053,463
--------------
28,701,563
--------------
CONSUMER DURABLES -- 1.1%
545,900 Herman Miller, Inc...................... 14,125,163
--------------
CONSUMER NON-DURABLES -- 0.8%
536,000 McKesson HBOC, Inc...................... 11,222,500
--------------
DRUGS -- 5.2%
*173,200 Forest Laboratories, Inc................ 17,493,200
*214,200 Gilead Sciences, Inc.................... 15,234,975
*102,900 IDEC Pharmaceuticals Corp............... 12,071,456
*503,100 Immunex Corp............................ 24,872,006
--------------
69,671,637
--------------
EDUCATION -- 0.9%
*465,800 DeVry, Inc.............................. 12,314,588
--------------
ELECTRICAL EQUIPMENT -- 5.2%
259,500 Danaher Corp............................ 12,829,031
211,900 Tektronix, Inc.......................... 15,680,600
*177,400 Teradyne, Inc........................... 13,038,900
*125,100 Waters Corp............................. 15,614,041
268,000 White Electronic Designs Corp........... 11,825,500
--------------
68,988,072
--------------
ELECTRONICS -- 8.1%
*176,820 Analog Devices, Inc..................... 13,438,320
*360,000 Flextronics International Ltd........... 24,727,500
*93,200 Lattice Semiconductor Corp.............. 6,442,450
70,900 Molex, Inc., Class A.................... 2,481,500
<CAPTION>
MARKET
SHARES VALUE
----------- --------------
<C> <S> <C>
</TABLE>
ELECTRONICS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- --------------
<C> <S> <C>
*271,000 Novellus Systems, Inc................... $ 15,328,438
*85,600 Rambus, Inc............................. 8,816,800
*348,200 Sanmina Corp............................ 29,771,100
*98,700 Vitesse Semiconductor Corp.............. 7,260,619
--------------
108,266,727
--------------
ENERGY & SERVICES -- 8.5%
432,900 Anadarko Petroleum Corp................. 21,347,381
*456,400 Global Marine, Inc...................... 12,864,775
*224,200 Nabors Industries, Inc.................. 9,318,313
*1,223,800 R&B Falcon Corp......................... 28,835,781
625,900 Suncor Energy, Inc...................... 14,591,294
495,700 Transocean Sedco Forex, Inc............. 26,488,969
--------------
113,446,513
--------------
FINANCIAL SERVICES -- 5.8%
1,056,900 Ace Ltd................................. 29,593,200
247,096 Legg Mason, Inc......................... 12,354,800
284,000 MBIA, Inc............................... 13,685,250
204,100 State Street Corp....................... 21,647,356
--------------
77,280,606
--------------
FOREST & PAPER PRODUCTS -- 1.0%
1,418,500 Abitibi-Consolidated, Inc............... 13,298,438
--------------
HEALTH SERVICES -- 3.2%
*1,008,500 Health Management Associates, Inc., 13,173,531
Class A................................
*108,100 Human Genome Sciences, Inc.............. 14,417,838
*565,300 Tenet Healthcare Corp................... 15,263,100
--------------
42,854,469
--------------
HOTELS & GAMING -- 0.9%
361,400 Starwood Hotels & Resorts 11,768,088
Worldwide, Inc.........................
--------------
MACHINERY -- 2.0%
*258,700 Grant Prideco, Inc...................... 6,467,500
60,300 Harris Corp............................. 1,974,825
*310,000 Lam Research Corp....................... 11,625,000
*85,800 Smith International, Inc................ 6,247,313
--------------
26,314,638
--------------
MEDIA & ENTERTAINMENT -- 4.9%
*343,000 Adelphia Communications Corp., 16,078,125
Class A................................
*152,500 Allegiance Telecom, Inc................. 9,760,000
370,400 Pegasus Communications Corp., Class A.. 18,172,750
289,800 Scripps (E.W.) Co. (The), Class A....... 14,272,650
*69,700 Univision Communications, Inc., 7,213,950
Class A................................
--------------
65,497,475
--------------
MEDICAL INSTRUMENTS &
SUPPLIES -- 3.2%
227,600 Becton, Dickinson & Co.................. 6,529,275
567,700 Biomet, Inc............................. 21,820,969
*319,600 St. Jude Medical, Inc................... 14,661,650
--------------
43,011,894
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-9 _____________________________________
<PAGE>
HARTFORD MIDCAP HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- --------------
<C> <S> <C>
METALS, MINERALS & MINING -- 0.9%
279,000 Vulcan Materials Co..................... $ 11,909,813
--------------
RESEARCH & TESTING FACILITIES -- 1.2%
*209,200 Quest Diagnostics, Inc.................. 15,637,700
--------------
RETAIL -- 6.8%
1,617,568 Dollar General Corp..................... 31,542,576
556,700 Family Dollar Stores, Inc............... 10,890,444
1,105,040 Intimate Brands, Inc., Class A.......... 21,824,540
351,100 RadioShack Corp......................... 16,633,363
*272,300 Starbucks Corp.......................... 10,398,456
--------------
91,289,379
--------------
RUBBER & PLASTICS PRODUCTS -- 1.9%
*356,600 Sealed Air Corp......................... 18,676,925
*160,700 Weatherford International, Inc.......... 6,397,869
--------------
25,074,794
--------------
SOFTWARE & SERVICES -- 16.1%
*264,900 Affiliated Computer Services, Inc., 8,758,256
Class A................................
*1,080,200 Cabletron Systems, Inc.................. 27,275,050
*1,160,700 Cadence Design Systems, Inc............. 23,649,263
*1,318,910 Ceridian Corp........................... 31,736,272
*1,379,000 Gartner Group, Inc., Class A............ 16,548,000
*220,400 HomeStore.com, Inc...................... 6,432,925
*444,200 Intuit, Inc............................. 18,378,775
*363,800 Keane, Inc.............................. 7,867,175
*52,100 Macromedia, Inc......................... 5,037,419
*331,700 Rational Software Corp.................. 30,827,369
*126,840 VeriSign, Inc........................... 22,387,260
*299,300 Vignette Corp........................... 15,568,277
--------------
214,466,041
--------------
TRANSPORTATION -- 2.3%
*336,000 Ryanair Holdings PLC ADR................ 12,264,000
991,127 Southwest Airlines Co................... 18,769,468
--------------
31,033,468
--------------
UTILITIES -- 0.8%
*171,200 Calpine Corp............................ 11,256,400
--------------
Total common stocks..................... $1,317,176,368
==============
<CAPTION>
PRINCIPAL
AMOUNT
---------------------------------------------------------------------
SHORT-TERM SECURITIES -- 3.0%
<C> <S> <C>
REPURCHASE AGREEMENT -- 3.0%
$39,950,000 Interest in $2,066,447,000 joint $ 39,950,000
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $39,971,966
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718 U.S.
Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29)....................
--------------
Total short-term securities............. $ 39,950,000
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<CAPTION>
DIVERSIFICATION OF NET ASSETS:
<S> <C> <C>
Total common stocks (cost
$1,158,647,824)........................ 98.6% $1,317,176,368
Total short-term securities (cost
$39,950,000)........................... 3.0 39,950,000
------ -------------
Total investment in securities (total
cost $1,198,597,824)................... 101.6 1,357,126,368
Cash, receivables and other assets...... 0.7 9,789,643
Securities lending collateral........... 25.3 338,262,039
Payable for securities purchased........ (2.3) (30,959,053)
Payable for fund shares redeemed........ (0.0) (138,148)
Securities lending collateral payable to
brokers................................ (25.3) (338,262,039)
Other liabilities....................... (0.0) (28,712)
------ -------------
Net assets.............................. 100.0% $1,335,790,098
====== =============
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per
share; 2,000,000,000 shares authorized;
562,307,024 shares outstanding......... $ 56,230,702
Capital surplus......................... 1,006,306,941
Accumulated net investment loss......... (1,047,402)
Accumulated undistributed net realized
gain on investments.................... 115,771,313
Unrealized appreciation of
investments............................ 158,528,544
-------------
Net assets.............................. $1,335,790,098
=============
</TABLE>
<TABLE>
<S> <C> <C>
Class IA
Net asset value per share
($1,325,025,406 DIVIDED BY
557,770,343 shares outstanding)
(1,500,000,000 shares authorized).... $2.38
====
Class IB
Net asset value per share
($10,764,692 DIVIDED BY 4,536,681
shares outstanding) (500,000,000
shares authorized)................... $2.37
====
</TABLE>
* Non-income producing during the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-10 ____________________________________
<PAGE>
HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
COMMON STOCKS -- 91.8%
AUSTRALIA -- 1.0%
300,900 News Corp., Ltd. ADR (Media &
Entertainment)......................... $ 16,399,050
--------------
BELGIUM -- 1.0%
13,000 Compagnie Luxembourgeoise pour
l'Audio-Visuel et la Finance
(Audiofina) (Media & Entertainment).... 1,682,324
303,600 Lernout & Hauspie Speech Products N.V.
(Electronics).......................... 13,377,375
--------------
15,059,699
--------------
CANADA -- 2.0%
382,000 Alcan Aluminum Ltd. (Metals, Minerals &
Mining)................................ 11,859,591
39,000 Nortel Networks Corp.
(Communications)....................... 2,703,234
240,600 Nortel Networks Holdings Corp.
(Communications)....................... 16,420,950
--------------
30,983,775
--------------
CHINA -- 1.3%
32,700 China Mobile (Hong Kong) Ltd.
(Communications)....................... 5,814,469
367,300 China Unicom Ltd. ADR (Software &
Services).............................. 7,805,125
311,500 PetroChina Co., Ltd. (Energy &
Services).............................. 6,522,031
--------------
20,141,625
--------------
FINLAND -- 2.2%
521,588 Nokia Oyj (Communications).............. 26,724,386
291,934 UPM-Kymmene Group (Forest & Paper
Products).............................. 7,275,963
--------------
34,000,349
--------------
FRANCE -- 13.0%
93,940 Air Liquids S.A. (Chemicals)............ 12,300,810
314,300 Alcatel (Communications)................ 20,698,247
478,592 Aventis S.A. (Drugs).................... 35,073,198
134,300 AXA (Financial Services)................ 21,241,853
172,871 BNP Paribas (Financial Services)........ 16,703,794
34,852 Canal Plus (Media & Entertainment)...... 5,879,939
32,200 Castorama Dubois Investissement S.A.
(Retail)............................... 7,994,441
47,600 France Telecom S.A. (Communications).... 6,680,062
10,100 L'Oreal (Consumer Non-Durables)......... 8,781,346
89,600 Pinault-Printemps - Redoute S.A.
(Retail)............................... 19,986,504
33,796 Thomson Multimedia (Media &
Entertainment)......................... 2,196,481
228,930 Total Fina S.A., B Shares (Energy &
Services).............................. 35,243,635
135,600 Vivendi S.A. (Media & Entertainment).... 12,017,083
--------------
204,797,393
--------------
GERMANY -- 6.8%
363,369 BASF AG (Chemicals)..................... 14,803,665
368,000 Bayerische Motoren Werke (BMW) AG
(Transportation)....................... 11,253,068
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
GERMANY -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
158,000 Deutsche Bank AG (Financial Services)... $ 13,260,066
89,700 Infineon Technologies AG (Software &
Services).............................. 7,343,156
163,192 Linde AG (Machinery).................... 6,617,161
340,600 RWE AG (Utilities)...................... 11,606,912
15,234 SAP AG (Software & Services)............ 2,859,296
265,491 Siemens AG (Electronics)................ 39,905,091
--------------
107,648,415
--------------
HONG KONG -- 1.6%
1,099,000 Cheung Kong (Holdings) Ltd. (Real
Estate)................................ 12,160,147
3,240,000 Hong Kong Telecommunications
(Communications)....................... 7,128,385
825,000 Sun Hung Kai Properties (Real Estate)... 5,926,851
--------------
25,215,383
--------------
INDIA -- 0.6%
222,900 ICICI Ltd. (Financial Services)......... 4,179,375
-304,700 Videsh Sanchar Nigam Ltd.
(Communications)....................... 4,760,938
--------------
8,940,313
--------------
IRELAND -- 0.3%
593,944 Allied Irish Banks PLC (Financial
Services).............................. 5,351,873
--------------
ITALY -- 3.1%
491,570 Mediaset S.p.A. (Media &
Entertainment)......................... 7,539,418
822,800 San Paolo - IMI S.p.A. (Financial
Services).............................. 14,662,435
1,788,600 Telecom Italia Mobile S.p.A.
(Communications)....................... 18,345,495
570,700 Telecom Italia S.p.A. (Communications).. 7,877,761
--------------
48,425,109
--------------
JAPAN -- 18.7%
1,070,000 Asahi Glass Co., Ltd. (Consumer
Durables).............................. 11,984,234
260,000 Canon, Inc. (Computers & Office
Equipment)............................. 12,975,241
652,000 Dai Nippon Printing Co., Ltd. (Media &
Entertainment)......................... 11,517,681
453,000 Fujisawa Pharmaceutical Co. (Drugs)..... 18,368,075
178,000 Hoya Corp. (Medical Instruments &
Supplies).............................. 15,982,750
170,500 Matsumotokiyoshi Co., Ltd. (Retail)..... 17,919,972
54,000 Matsushita Communication Industrial Co.,
Ltd. (Communications).................. 6,318,625
504,000 Minebea Co., Ltd. (Electronics)......... 6,335,638
769,000 Mitsubishi Electric Corp.
(Electronics).......................... 8,344,040
33,000 Murata Manufacturing Co., Ltd.
(Electronics).......................... 4,747,191
586,000 NEC Corp. (Electronics)................. 18,443,783
843,000 Nikko Securities Co., Ltd. (Financial
Services).............................. 8,366,138
1,588 Nippon Telegraph & Telephone Corp.
(Communications)....................... 21,163,026
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-11 ____________________________________
<PAGE>
HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
JAPAN -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
276 NTT Mobile Communication Network, Inc.
(Media & Entertainment)................ $ 7,486,850
540,000 Omron Corp. (Electrical Equipment)...... 14,699,224
122,900 Promise Co., Ltd. (Financial Services).. 9,734,285
832,000 Ricoh Co., Ltd. (Media &
Entertainment)......................... 17,654,191
78,400 Softbank Corp. (Software & Services).... 10,670,548
97,900 Sony Corp. (Media & Entertainment)...... 9,160,645
343,000 Takeda Chemical Industries Ltd.
(Drugs)................................ 22,563,762
1,050,000 Tokyo Style Co., Ltd. (Apparel &
Textile)............................... 9,924,244
1,394,000 Toshiba Corp. (Computers & Office
Equipment)............................. 15,771,212
102,100 Uni-Charm Corp. (Consumer Non-
Durables).............................. 6,195,394
174,000 Yamanouchi Pharmaceuticals Co., Ltd.
(Drugs)................................ 9,522,171
--------------
295,848,920
--------------
MEXICO -- 1.2%
4,744,200 Cifra S.A. de CV (Retail)............... 11,133,694
158,300 Fomento Economico Mexicano S.A. de C.V.
(Food, Beverage & Tobacco)............. 6,816,794
95,800 Grupo Financiero - Banacci (Financial
Services).............................. 408,770
--------------
18,359,258
--------------
NETHERLANDS -- 6.6%
409,500 Aegon N.V. (Financial Services)......... 14,630,048
43,229 Heineken N.V. (Food, Beverage &
Tobacco)............................... 2,641,726
258,657 ING Groep N.V. (Financial Services)..... 17,554,559
99,200 Koninklijke KPN N.V. (Communications)... 4,455,062
525,204 Koninklijke Philips Electronics N.V.
(Electronics).......................... 24,870,666
59,800 Royal Dutch Petroleum Co. (NY)
(Energy & Services).................... 3,681,438
422,200 Royal Dutch Petroleum Co. (Energy &
Services).............................. 26,347,030
95,900 STMicroelectronics N.V. (Electronics)... 6,067,293
150,000 United Pan-Europe Communications N.V.
(Media & Entertainment)................ 4,050,000
--------------
104,297,822
--------------
SINGAPORE -- 0.6%
894,600 Overseas-Chinese Banking Corp., Ltd.
(Financial Services)................... 6,157,244
722,886 Overseas Union Bank Ltd. (Financial
Services).............................. 2,801,271
--------------
8,958,515
--------------
SOUTH KOREA -- 2.0%
53,160 Korea Telecom Corp. (Communications).... 4,681,944
82,520 Korea Telecom Corp. ADR
(Communications)....................... 3,991,905
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
SOUTH KOREA -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
68,410 Samsung Electronics (Electronics)....... $ 22,639,961
--------------
31,313,810
--------------
SPAIN -- 5.6%
353,500 Banco Popular Espanol S.A. (Financial
Services).............................. 10,979,103
1,972,400 Banco Santander Central Hispano S.A.
(Financial Services)................... 20,892,466
999,100 Endesa S.A. (Utilities)................. 19,432,266
150,900 Endesa S.A. ADR (Utilities)............. 2,942,550
-35,961 Groupo Prisa S.A. (Media &
Entertainment)......................... 837,665
671,400 Repsol YPF S.A. (Energy & Services)..... 13,418,990
317,640 Telefonica S.A. (Communications)........ 20,348,813
--------------
88,851,853
--------------
SWEDEN -- 2.5%
1,955,520 Skandinaviska Enskilda, Class A
(Financial Services)................... 23,299,310
811,440 Telefonaktiebolaet LM Ericsson AB
(Communications)....................... 16,144,193
--------------
39,443,503
--------------
SWITZERLAND -- 3.1%
4,840 Holderbank Financiere Glarus AG (Bearer)
(Consumer Durables).................... 5,953,022
17,879 Nestle S.A. (Food, Beverage &
Tobacco)............................... 35,899,509
4,900 Novartis AG (Drugs)..................... 7,786,651
--------------
49,639,182
--------------
THAILAND -- 0.4%
115,500 Siam Cement Co. (Consumer Durables)..... 2,167,260
5,249,567 Siam Commercial Bank (Financial
Services).............................. 615,479
3,303,400 Thai Farmers Bank (Financial Services).. 2,779,241
--------------
5,561,980
--------------
UNITED KINGDOM -- 18.1%
984,800 Abbey National PLC (Financial
Services).............................. 11,778,014
549,300 AstraZeneca Group PLC ADR (Drugs)....... 25,662,706
587,000 Barclays PLC (Financial Services)....... 14,574,004
3,233,122 BP Amoco PLC (Energy & Services)........ 31,031,894
3,248,311 British Airways PLC (Transportation).... 18,699,232
1,572,300 British American Tobacco PLC (Food,
Beverage & Tobacco).................... 10,520,942
1,045,827 Cable & Wireless PLC (Utilities)........ 17,764,363
374,779 COLT Telecom Group PLC
(Communications)....................... 12,453,938
371,000 III Group PLC (Financial Services)...... 7,616,063
2,303,000 Invensys PLC (Electrical Equipment)..... 8,637,828
402,672 Lloyds TSB Group PLC (Financial
Services).............................. 3,816,126
752,500 Marconi PLC (Communications)............ 9,780,110
1,091,946 Prudential Corp. PLC (Financial
Services).............................. 16,001,970
825,045 Psion PLC GBP (Software & Services)..... 7,950,107
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-12 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
UNITED KINGDOM -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
4,005,500 Smith & Nephew PLC ADR (Medical
Instruments & Supplies)................ $ 14,553,415
455,700 SmithKline Beecham PLC (Drugs).......... 5,988,192
176,000 SmithKline Beecham PLC ADR, Class A
(Drugs)................................ 11,473,000
1,317,370 Standard Chartered PLC (Financial
Services).............................. 16,383,711
1,699,700 Tomkins PLC (Food, Beverage &
Tobacco)............................... 5,480,861
7,687,555 Vodafone AirTouch PLC
(Communications)....................... 31,190,331
789,400 Williams PLC (Business Services)........ 4,571,150
--------------
285,927,957
--------------
UNITED STATES OF AMERICA -- 0.3%
85,100 Telefonos de Mexico S.A. ADR
(Communications)....................... 4,861,338
--------------
Total common stocks..................... $1,450,027,122
==============
<CAPTION>
PRINCIPAL
AMOUNT
------------
<C> <S> <C>
FOREIGN/YANKEE BONDS & NOTES -- 2.4%
FOREIGN GOVERNMENTS -- 2.4%
$ 39,210,000 Bundesschatzanweisungen
3.25% due 09/15/00..................... $ 37,482,912
--------------
Total foreign/yankee bonds & notes...... $ 37,482,912
==============
SHORT-TERM SECURITIES -- 6.5%
REPURCHASE AGREEMENT -- 6.5%
$102,711,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $102,767,475
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718
U.S.Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29).................... $ 102,711,000
--------------
Total short-term securities............. $ 102,711,000
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost $1,284,826,807)...... 91.8% $1,450,027,122
Total foreign/yankee bonds & notes (cost
$35,451,385).................................. 2.4 37,482,912
Total short-term securities (cost
$102,711,000)................................. 6.5 102,711,000
------ -------------
Total investment in securities (total cost
$1,422,989,192)............................... 100.7 1,590,221,034
Cash, receivables and other assets............. 4.3 67,232,929
Securities lending collateral.................. 9.1 144,256,076
Payable for securities purchased............... (1.8) (28,818,180)
Payable for fund shares redeemed............... (3.1) (48,790,923)
Securities lending collateral payable to
brokers....................................... (9.1) (144,256,076)
Other liabilities.............................. (0.1) (1,108,727)
------ -------------
Net assets..................................... 100.0% $1,578,736,133
====== =============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
</TABLE>
<TABLE>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
2,500,000,000 shares authorized; 1,009,100,177
shares outstanding............................ $ 100,910,018
<CAPTION>
<S> <C>
Capital surplus................................ 1,171,109,090
Accumulated undistributed net investment
income........................................ 6,140,661
Accumulated undistributed net realized gain on
investments................................... 133,752,617
Unrealized appreciation of investments......... 167,231,842
Unrealized depreciation of forward foreign
currency contracts (See Note 2)w.............. (313,270)
Unrealized depreciation of other assets and
liabilities in foreign currencies............. (94,825)
-------------
Net assets..................................... $1,578,736,133
=============
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($1,567,313,276 DIVIDED BY
1,001,794,038 shares outstanding) (1,875,000,000 shares
authorized)............................................ $1.56
====
Class IB
Net asset value per share ($11,422,857 DIVIDED BY
7,306,139 shares outstanding) (625,000,000 shares
authorized)............................................ $1.56
====
</TABLE>
<TABLE>
<S> <C> <C>
DIVERSIFICATION BY INDUSTRY:
Apparel & Textile............................ 0.6% $ 9,924,244
Business Services............................ 0.3 4,571,150
Chemicals.................................... 1.7 27,104,474
Communications............................... 16.0 252,543,209
Computers & Office Equipment................. 1.8 28,746,453
Consumer Durables............................ 1.3 20,104,515
Consumer Non-Durables........................ 0.9 14,976,740
Drugs........................................ 8.6 136,437,754
Electrical Equipment......................... 1.5 23,337,051
Electronics.................................. 9.2 144,731,038
Energy & Services............................ 7.4 116,245,017
Financial Services........................... 16.7 263,787,199
Food, Beverage & Tobacco..................... 3.9 61,359,832
Forest & Paper Products...................... 0.5 7,275,963
Machinery.................................... 0.4 6,617,161
Media & Entertainment........................ 6.1 96,421,326
Medical Instruments & Supplies............... 1.9 30,536,174
Metals, Minerals & Mining.................... 0.8 11,859,591
Real Estate.................................. 1.1 18,086,998
Retail....................................... 3.6 57,034,610
Software & Services.......................... 2.3 36,628,231
Transportation............................... 1.9 29,952,300
Utilities.................................... 3.3 51,746,092
------ -------------
Total common stocks.......................... 91.8% $1,450,027,122
====== =============
</TABLE>
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 2000,
the market value of these securities amounted to $5,598,603 or 0.3% of net
assets.
_____________________________________ MF-13 ____________________________________
<PAGE>
HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
wFORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT JUNE 30, 2000
<TABLE>
<CAPTION>
UNREALIZED
TOTAL CONTRACT DELIVERY APPRECIATION
DESCRIPTION MARKET VALUE AMOUNT DATE (DEPRECIATION)
----------- ------------ ---------- -------- --------------
<S> <C> <C> <C> <C>
British Pounds (Buy) $1,993,994 $1,992,086 07/05/00 $ 1,908
British Pounds (Buy) 9,301,903 9,335,702 07/06/00 (33,799)
British Pounds (Sell) 2,132,126 2,110,580 07/03/00 (21,546)
British Pounds (Sell) 1,684,549 1,687,843 07/07/00 3,294
EURO (Buy) 3,142,898 3,136,213 07/31/00 6,685
EURO (Sell) 5,962,716 5,834,646 07/31/00 (128,070)
EURO (Sell) 6,029,201 5,916,056 07/03/00 (113,145)
EURO (Sell) 5,945,596 5,909,814 07/05/00 (35,782)
Japanese Yen (Buy) 187,677 188,110 07/03/00 (433)
Japanese Yen (Sell) 7,500,255 7,562,622 07/05/00 62,367
Swedish Krona (Sell) 9,806,063 9,705,284 07/05/00 (100,779)
Swiss Franc (Buy) 8,321,477 8,276,002 07/03/00 45,475
Swiss Franc (Buy) 230,074 229,519 07/05/00 555
---------
$(313,270)
=========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-14 ____________________________________
<PAGE>
HARTFORD GLOBAL LEADERS HLS FUND
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
COMMON STOCKS -- 94.3%
AUSTRALIA -- 1.5%
130,600 News Corp., Ltd. ADR (Media &
Entertainment)......................... $ 7,117,700
------------
FINLAND -- 0.9%
82,180 Nokia Oyj (Communications).............. 4,210,622
------------
FRANCE -- 11.4%
80,300 Alcatel (Communications)................ 5,288,162
141,600 Aventis S.A. (Drugs).................... 10,377,033
63,300 AXA (Financial Services)................ 10,011,983
34,300 Pinault-Printemps - Redoute S.A.
(Retail)............................... 7,651,084
*118,118 Thomson Multimedia (Media &
Entertainment)......................... 7,676,765
46,610 Total Fina S.A., B Shares (Energy &
Services).............................. 7,175,581
80,800 Vivendi S.A. (Media & Entertainment).... 7,160,621
------------
55,341,229
------------
GERMANY -- 4.0%
203,400 Bayerische Motoren Werke (BMW) AG
(Transportation)....................... 6,219,766
*41,900 Infineon Technologies AG (Software &
Services).............................. 3,430,081
65,200 Siemens AG (Electronics)................ 9,800,000
------------
19,449,847
------------
ITALY -- 1.2%
314,400 San Paolo - IMI S.p.A. (Financial
Services).............................. 5,602,661
------------
JAPAN -- 6.8%
122,000 Fujisawa Pharmaceutical Co. (Drugs)..... 4,946,810
72,000 Fujitsu Ltd. (Electronics).............. 2,497,507
604,000 Mitsubishi Electric Corp.
(Electronics).......................... 6,553,706
115,000 Ricoh Co., Ltd. (Media &
Entertainment)......................... 2,440,183
23,800 Softbank Corp. (Software & Services).... 3,239,273
97,000 Takeda Chemical Industries Ltd.
(Drugs)................................ 6,381,006
591,000 Toshiba Corp. (Computers & Office
Equipment)............................. 6,686,360
------------
32,744,845
------------
NETHERLANDS -- 5.0%
82,500 ING Groep N.V. (Financial Services)..... 5,599,118
152,888 Koninklijke Philips Electronics N.V.
(Electronics).......................... 7,239,904
184,400 Royal Dutch Petroleum Co. (Energy &
Services).............................. 11,507,324
------------
24,346,346
------------
SOUTH KOREA -- 0.9%
-21,300 Samsung Electronics GDR (Electronics)... 4,174,800
------------
SPAIN -- 2.1%
70,900 Banco Popular Espanol S.A. (Financial
Services).............................. 2,202,032
265,800 Banco Santander Central Hispano S.A.
(Financial Services)................... 2,815,462
*-11,138 Groupo Prisa S.A. (Media &
Entertainment)......................... 259,445
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
</TABLE>
SPAIN -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
*221,300 Telefonica S.A. (Communications)........ $ 4,773,054
------------
10,049,993
------------
SWEDEN -- 0.8%
320,260 Skandinaviska Enskilda, Class A
(Financial Services)................... 3,815,781
------------
SWITZERLAND -- 3.3%
17,810 Credit Suisse Group (Financial
Services).............................. 3,554,191
6,100 Nestle S.A. (Food, Beverage & Tobacco).. 12,248,280
------------
15,802,471
------------
UNITED KINGDOM -- 10.9%
173,100 AstraZeneca Group PLC ADR (Drugs)....... 8,087,046
817,420 BP Amoco PLC (Energy & Services)........ 7,845,696
916,000 British Airways PLC (Transportation).... 5,273,047
348,700 Cable & Wireless PLC (Utilities)........ 5,923,000
82,400 III Group PLC (Financial Services)...... 1,691,546
432,600 Marconi PLC (Communications)............ 5,622,426
663,100 Psion PLC GBP (Software & Services)..... 6,389,610
663,000 SmithKline Beecham PLC ADR, Class A
(Drugs)................................ 8,712,247
819,745 Vodafone AirTouch PLC
(Communications)....................... 3,325,910
------------
52,870,528
------------
UNITED STATES OF AMERICA -- 45.5%
*110,700 3Com Corp. (Software & Services)........ 6,379,086
135,400 Abbott Laboratories (Drugs)............. 6,033,763
*73,500 Akamai Technologies, Inc. (Software &
Services).............................. 8,726,977
134,100 American Home Products Corp. (Drugs).... 7,878,375
95,200 Automatic Data Processing, Inc.
(Software & Services).................. 5,099,150
67,600 Baxter International, Inc. (Medical
Instruments & Supplies)................ 4,753,125
*84,400 Biogen, Inc. (Drugs).................... 5,443,800
*310,700 Boston Scientific Corp. (Medical
Instruments & Supplies)................ 6,815,981
43,500 Cardinal Health, Inc. (Consumer Non-
Durables).............................. 3,219,000
*133,880 Cisco Systems, Inc. (Computers & Office
Equipment)............................. 8,509,748
121,685 Citigroup, Inc. (Financial Services).... 7,331,521
*145,400 Echostar Communications Corp.
(Communications)....................... 4,814,103
128,800 Exxon Mobil Corp. (Energy & Services)... 10,110,800
*163,800 FedEx Corp. (Transportation)............ 6,224,400
142,680 General Electric Co. (Electronics)...... 7,562,040
*132,300 Genzyme Corp. (Drugs)................... 7,863,581
87,300 Gillette Co. (The)...................... 3,050,044
66,000 Goldman Sachs Group, Inc. (The)
(Financial Services)................... 6,261,750
*132,900 Immunex Corp. (Drugs)................... 6,570,244
16,480 Intel Corp. (Electronics)............... 2,203,170
*47,000 Intuit, Inc. (Software & Services)...... 1,944,625
*47,300 JDS Uniphase Corp. (Electronics)........ 5,670,088
*206,000 Lernout & Hauspie Speech Products N.V.
(Electronics).......................... 9,076,875
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-15 ____________________________________
<PAGE>
HARTFORD GLOBAL LEADERS HLS FUND
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
UNITED STATES OF AMERICA -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
*88,700 Micron Technology, Inc. (Electronics)... $ 7,811,144
*125,200 Microsoft Corp. (Software & Services)... 10,016,000
*82,100 NTL, Inc. (Media & Entertainment)....... 4,915,738
84,000 PepsiCo, Inc. (Food, Beverage &
Tobacco)............................... 3,732,750
153,742 Pharmacia Corp. (Chemicals)............. 7,946,540
281,800 Philip Morris Co., Inc. (Food,
Beverage & Tobacco).................... 7,485,313
*71,400 Red Hat, Inc. (Software & Services)..... 1,932,263
68,300 Schlumberger Ltd. (Energy & Services)... 5,096,888
90,900 Sprint Corp. (Communications)........... 4,635,900
*15,500 Sycamore Networks, Inc.
(Communications)....................... 1,710,813
101,200 Transocean Sedco Forex, Inc. (Energy &
Services).............................. 5,407,875
*30,400 VeriSign, Inc. (Software & Services).... 5,365,600
158,400 Walt Disney Co. (The) (Media &
Entertainment)......................... 6,147,900
398,000 Waste Management, Inc. (Utilities)...... 7,562,000
------------
221,308,970
------------
Total common stocks..................... $456,835,793
============
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<C> <S> <C>
SHORT-TERM SECURITIES -- 9.6%
REPURCHASE AGREEMENT -- 9.6%
$46,560,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $46,585,601
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718 U.S.
Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29).................... $ 46,560,000
------------
Total short-term securities............. $ 46,560,000
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost
$427,335,432).......................... 94.3% $456,835,793
Total short-term securities (cost
$46,560,000)........................... 9.6 46,560,000
------ -----------
Total investment in securities (total
cost $473,895,432)..................... 103.9 503,395,793
Cash, receivables and other assets...... 4.0 19,585,179
Securities lending collateral........... 8.4 40,600,358
Payable for securities purchased........ (7.4) (35,953,208)
Payable for fund shares redeemed........ (0.5) (1,922,612)
Securities lending collateral payable to
brokers................................ (8.4) (40,600,358)
Other liabilities....................... 0.0 (31,156)
------ -----------
Net assets.............................. 100.0% $485,073,996
====== ===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
</TABLE>
<TABLE>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.001 per share;
800,000,000 shares authorized; 247,516,986
shares outstanding............................ $ 247,517
<CAPTION>
<S> <C>
Capital surplus................................ 443,753,125
Accumulated undistributed net investment
income........................................ 1,794,497
Accumulated undistributed net realized gain on
investments................................... 9,776,896
Unrealized appreciation of investments......... 29,500,361
Unrealized appreciation of forward foreign
currencies contracts (See Note 2)w............ 52,414
Unrealized depreciation of other assets and
liabilities in foreign currencies............. (50,814)
-----------
Net assets..................................... $485,073,996
===========
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($477,909,619 DIVIDED BY
243,856,983 shares outstanding) (600,000,000 shares
authorized)............................................ $1.96
====
Class IB
Net asset value per share ($7,164,377 DIVIDED BY
3,660,003 shares outstanding) (200,000,000 shares
authorized)............................................ $1.96
====
</TABLE>
<TABLE>
<S> <C> <C>
DIVERSIFICATION BY INDUSTRY:
Chemicals.................................... 1.6% $ 7,946,540
Communications............................... 7.1 34,380,990
Computers & Office Equipment................. 3.1 15,196,108
Consumer Non-Durables........................ 1.3 6,269,044
Drugs........................................ 14.9 72,293,905
Electronics.................................. 12.9 62,589,234
Energy & Services............................ 9.7 47,144,163
Financial Services........................... 10.2 48,886,046
Food, Beverage & Tobacco..................... 4.8 23,466,343
Media & Entertainment........................ 7.4 35,718,352
Medical Instruments & Supplies............... 2.4 11,569,106
Retail....................................... 1.6 7,651,084
Software & Services.......................... 10.8 52,522,665
Transportation............................... 3.7 17,717,213
Utilities.................................... 2.8 13,485,000
------ -----------
Total common stocks.......................... 94.3% $456,835,793
====== ===========
</TABLE>
* Non-income producing during the period.
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
2000, the market value of these securities amounted to $4,434,245 or 0.9%
of net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-16 ____________________________________
<PAGE>
wFORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT JUNE 30, 2000
<TABLE>
<CAPTION>
UNREALIZED
TOTAL CONTRACT DELIVERY APPRECIATION
DESCRIPTION MARKET VALUE AMOUNT DATE (DEPRECIATION)
----------- ------------ ---------- -------- --------------
<S> <C> <C> <C> <C>
British Pounds (Buy) $3,157,082 $3,125,178 07/03/00 $ 31,904
British Pounds (Buy) 979,573 974,753 07/03/00 4,820
British Pounds (Sell) 43,792 43,952 07/06/00 160
EURO (Buy) 410,666 406,237 07/31/00 4,429
EURO (Buy) 557,591 550,152 07/31/00 7,439
EURO (Sell) 1,787,856 1,777,096 07/05/00 (10,760)
EURO (Sell) 1,200,810 1,195,563 07/31/00 (5,247)
Japanese Yen (Sell) 1,077,815 1,086,778 07/05/00 8,963
Swiss Franc (Buy) 1,959,286 1,948,580 07/03/00 10,706
---------
$ 52,414
=========
</TABLE>
_____________________________________ MF-17 ____________________________________
<PAGE>
HARTFORD STOCK HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
COMMON STOCKS -- 98.3%
AEROSPACE & DEFENSE -- 1.8%
*450,000 General Motors, Class H................. $ 39,487,500
629,000 Honeywell International, Inc............ 21,189,438
1,900,000 United Technologies Corp................ 111,862,500
--------------
172,539,438
--------------
BUSINESS SERVICES -- 0.2%
1,302,350 ServiceMaster Co. (The)................. 14,814,231
--------------
CHEMICALS -- 3.1%
2,700,000 Dow Chemical Co. (The).................. 81,506,250
384,700 du Pont (E.I.) de Nemours & Co.......... 16,830,625
2,742,000 Pharmacia Corp.......................... 141,727,125
1,550,000 Praxair, Inc............................ 58,028,125
--------------
298,092,125
--------------
COMMUNICATIONS -- 12.5%
2,810,000 AT&T Corp............................... 88,866,250
*50,000 COLT Telecom Group PLC.................. 1,661,504
*2,688,800 Global Crossing Ltd..................... 70,749,050
2,600,000 Lucent Technologies, Inc................ 154,050,000
2,650,000 Motorola, Inc........................... 77,015,625
20,000 Nippon Telegraph & Telephone Corp.
ADR.................................... 13,675,000
3,400,000 Nokia Corp. ADR......................... 169,787,500
500,000 Nortel Networks Holdings Corp........... 34,125,000
4,300,000 SBC Communications, Inc................. 185,975,000
*700,000 Sprint PCS Group........................ 41,650,000
*300,000 Tellabs, Inc............................ 20,531,250
2,300,000 Verizon Communications.................. 116,868,750
4,607,925 Worldcom, Inc........................... 211,388,558
--------------
1,186,343,487
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 9.5%
*5,046,500 Cisco Systems, Inc...................... 320,768,156
*1,750,000 Dell Computer Corp...................... 86,296,875
*1,800,000 EMC Corp................................ 138,487,500
850,000 Hewlett-Packard Co...................... 106,143,750
1,500,000 International Business Machines Corp.... 164,343,750
*2,200,000 Solectron Corp.......................... 92,125,000
--------------
908,165,031
--------------
CONSUMER NON-DURABLES -- 6.0%
2,200,000 Cardinal Health, Inc.................... 162,800,000
1,600,000 Gillette Co. (The)...................... 55,900,000
1,430,000 Procter & Gamble Co. (The).............. 81,867,500
*4,000,000 Safeway, Inc............................ 180,500,000
2,000,000 Tyco International Ltd.................. 94,750,000
--------------
575,817,500
--------------
DRUGS -- 7.6%
2,610,000 Abbott Laboratories..................... 116,308,125
3,050,000 American Home Products Corp............. 179,187,500
1,150,000 Bristol-Myers Squibb Co................. 66,987,500
2,300,000 Merck & Co., Inc........................ 176,237,500
3,791,125 Pfizer, Inc............................. 181,974,000
--------------
720,694,625
--------------
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
ELECTRICAL EQUIPMENT -- 1.2%
*1,592,700 Teradyne, Inc........................... $ 117,063,450
--------------
ELECTRONICS -- 9.1%
6,090,000 General Electric Co..................... 322,770,000
2,107,000 Intel Corp.............................. 281,679,563
*1,300,000 Micron Technology, Inc.................. 114,481,250
1,800,000 Texas Instruments, Inc.................. 123,637,500
*337,200 Vitesse Semiconductor Corp.............. 24,805,275
--------------
867,373,588
--------------
ENERGY & SERVICES -- 5.9%
100,000 Conoco, Inc., Class B................... 2,456,250
3,100,000 Exxon Mobil Corp........................ 243,350,000
1,500,000 Royal Dutch Petroleum Co................ 92,343,750
1,250,800 Schlumberger Ltd........................ 93,340,950
1,500,000 Texaco, Inc............................. 79,875,000
1,500,000 Unocal Corp............................. 49,687,500
--------------
561,053,450
--------------
FINANCIAL SERVICES -- 12.7%
1,381,250 American International Group, Inc....... 162,296,875
5,857,000 Associates First Capital Corp.,
Class A................................ 130,684,313
3,079,500 Citigroup, Inc.......................... 185,539,875
1,900,000 Fleet Boston Financial Corp............. 64,600,000
3,050,000 Franklin Resources, Inc................. 92,643,750
250,000 Goldman Sachs Group, Inc. (The)......... 23,718,750
2,200,000 Marsh & McLennan Cos., Inc.............. 229,762,500
1,100,000 Merrill Lynch & Co., Inc................ 126,500,000
1,850,000 State Street Corp....................... 196,215,625
--------------
1,211,961,688
--------------
FOOD, BEVERAGE & TOBACCO -- 2.0%
600,000 Coca-Cola Co. (The)..................... 34,462,500
3,600,000 PepsiCo, Inc............................ 159,975,000
--------------
194,437,500
--------------
FOREST & PAPER PRODUCTS -- 2.1%
1,800,000 Kimberly-Clark Corp..................... 103,275,000
2,150,000 Weyerhaeuser Co......................... 92,450,000
--------------
195,725,000
--------------
MACHINERY -- 0.7%
2,000,000 Caterpillar, Inc........................ 67,750,000
--------------
MEDIA & ENTERTAINMENT -- 4.6%
*5,446,000 AT&T - Liberty Media Group, Class A..... 132,065,500
2,838,900 Gannett Co., Inc........................ 169,801,706
*2,039,800 Viacom, Inc., Class B................... 139,088,863
--------------
440,956,069
--------------
MEDICAL INSTRUMENTS &
SUPPLIES -- 2.1%
1,000,000 Guidant Corp............................ 49,500,000
1,450,000 Johnson & Johnson Co.................... 147,718,750
--------------
197,218,750
--------------
METALS, MINERALS &
MINING -- 1.9%
3,600,000 Alcoa, Inc.............................. 104,400,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-18 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
METALS, MINERALS &
MINING -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
1,350,000 Illinois Tool Works, Inc................ $ 76,950,000
--------------
181,350,000
--------------
REAL ESTATE -- 0.1%
*6,150 Security Capital Group, Inc.,
Class A................................ 5,082,975
--------------
RETAIL -- 5.9%
2,100,000 CVS Corp................................ 84,000,000
2,407,500 Home Depot, Inc. (The).................. 120,224,531
5,300,000 McDonald's Corp......................... 174,568,750
3,200,000 Wal-Mart Stores, Inc.................... 184,400,000
--------------
563,193,281
--------------
SOFTWARE & SERVICES -- 9.0%
*350,000 3Com Corp............................... 20,168,750
*1,750,000 America Online, Inc..................... 92,312,500
2,251,000 Automatic Data Processing, Inc.......... 120,569,188
*1,638,400 China Unicom Ltd. ADR................... 34,816,000
*1,300,000 Computer Sciences Corp.................. 97,093,750
1,516,600 Electronic Data Systems Corp............ 62,559,750
*4,700,000 Microsoft Corp.......................... 376,000,000
*289,150 VeriSign, Inc........................... 51,034,975
--------------
854,554,913
--------------
TRANSPORTATION -- 0.3%
*1,068,154 Sabre Group Corp........................ 30,442,389
--------------
Total common stocks..................... $9,364,629,490
==============
<CAPTION>
PRINCIPAL
AMOUNT
------------
<C> <S> <C>
SHORT-TERM SECURITIES -- 1.5%
REPURCHASE AGREEMENT -- 1.5%
$138,497,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $138,573,151
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718 U.S.
Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29).................... $ 138,497,000
--------------
Total short-term securities............. $ 138,497,000
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<CAPTION>
DIVERSIFICATION OF NET ASSETS:
<S> <C> <C>
Total common stocks (cost $6,860,642,369)...... 98.3% $9,364,629,490
Total short-term securities (cost
$138,497,000)................................. 1.5 138,497,000
------ -------------
Total investment in securities (total cost
$6,999,139,369)............................... 99.8 9,503,126,490
Cash, receivables and other assets............. 0.3 24,754,714
Securities lending collateral.................. 1.9 178,727,476
Payable for fund shares redeemed............... (0.1) (1,751,210)
Securities lending collateral payable to
brokers....................................... (1.9) (178,727,476)
------ -------------
Net assets..................................... 100.0% $9,526,129,994
====== =============
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
3,000,000,000 shares authorized; 1,506,295,782
shares outstanding............................ $ 150,629,578
Capital surplus................................ 6,564,457,632
Accumulated undistributed net investment
income........................................ 31,316,736
Accumulated undistributed net realized gain on
investments................................... 275,738,927
Unrealized appreciation of investments......... 2,503,987,121
-------------
Net assets..................................... $9,526,129,994
=============
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($9,446,867,680
DIVIDED BY 1,493,757,418 shares outstanding)
(2,250,000,000 shares authorized)............. $6.32
====
Class IB
Net asset value per share ($79,262,314
DIVIDED BY 12,538,364 shares outstanding)
(750,000,000 shares authorized)............... $6.32
====
</TABLE>
* Non-income producing during the period.
_____________________________________ MF-19 ____________________________________
<PAGE>
HARTFORD GROWTH AND INCOME HLS FUND
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
COMMON STOCKS -- 97.6%
AEROSPACE & DEFENSE -- 2.2%
*15,983 General Motors, Class H................. $ 1,402,469
34,800 Honeywell International, Inc............ 1,172,325
87,600 United Technologies Corp................ 5,157,450
------------
7,732,244
------------
BUSINESS SERVICES -- 0.5%
*32,896 eBay, Inc............................... 1,786,664
------------
CHEMICALS -- 2.7%
34,900 du Pont (E.I.) de Nemours & Co.......... 1,526,875
*111,100 Grace (W.R.) & Co....................... 1,347,088
125,509 Pharmacia Corp.......................... 6,487,246
------------
9,361,209
------------
COMMUNICATIONS -- 10.6%
*29,800 American Tower Corp., Class A........... 1,242,288
69,200 AT&T Corp............................... 2,188,450
*33,500 Comverse Technology, Inc................ 3,115,500
*30,900 Echostar Communications Corp.,
Class A................................ 1,023,080
*37,800 Global Crossing Ltd..................... 994,613
76,100 Lucent Technologies, Inc................ 4,508,925
67,200 Nortel Networks Holdings Corp........... 4,586,400
*22,700 Phone.com, Inc.......................... 1,478,338
59,786 SBC Communications, Inc................. 2,585,745
78,700 Sprint Corp............................. 4,013,700
*34,400 Sprint PCS Group........................ 2,046,800
95,200 Verizon Communications.................. 4,837,350
*12,100 VoiceStream Wireless Corp............... 1,407,192
*67,050 Worldcom, Inc........................... 3,075,919
------------
37,104,300
------------
COMPUTERS & OFFICE
EQUIPMENT -- 11.2%
*199,700 Cisco Systems, Inc...................... 12,693,431
*112,100 Dell Computer Corp...................... 5,527,931
*56,000 EMC Corp................................ 4,308,500
*37,600 Handspring, Inc......................... 1,015,200
42,800 Hewlett-Packard Co...................... 5,344,650
64,800 International Business Machines Corp.... 7,099,650
*70,100 Solectron Corp.......................... 2,935,438
------------
38,924,800
------------
CONSUMER DURABLES -- 0.8%
9,800 Corning, Inc............................ 2,644,775
------------
CONSUMER NON-DURABLES -- 2.7%
32,300 Cardinal Health, Inc.................... 2,390,200
25,300 Procter & Gamble Co. (The).............. 1,448,425
*38,100 Safeway, Inc............................ 1,719,263
78,600 Tyco International Ltd.................. 3,723,675
------------
9,281,563
------------
DRUGS -- 7.3%
82,300 Abbott Laboratories..................... 3,667,494
54,800 American Home Products Corp............. 3,219,500
29,400 Bristol-Myers Squibb Co................. 1,712,550
*25,200 Forest Laboratories, Inc................ 2,545,200
*63,100 Genzyme Corp............................ 3,750,506
*47,300 Immunex Corp............................ 2,338,394
46,800 Merck & Co., Inc........................ 3,586,050
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
</TABLE>
DRUGS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
98,900 Pfizer, Inc............................. $ 4,747,200
------------
25,566,894
------------
ELECTRICAL EQUIPMENT -- 0.7%
*32,800 Teradyne, Inc........................... 2,410,800
------------
ELECTRONICS -- 10.5%
*24,900 Analog Devices, Inc..................... 1,892,400
19,400 Eaton Corp.............................. 1,299,800
258,300 General Electric Co..................... 13,689,900
97,700 Intel Corp.............................. 13,061,269
*13,700 JDS Uniphase Corp....................... 1,642,288
*48,900 Micron Technology, Inc.................. 4,306,256
*10,200 RF Micro Devices, Inc................... 893,775
------------
36,785,688
------------
ENERGY & SERVICES -- 5.2%
111,000 Conoco, Inc., Class B................... 2,726,438
16,600 Enron Corp.............................. 1,070,700
112,700 Exxon Mobil Corp........................ 8,846,950
42,800 Helmerich & Payne, Inc.................. 1,599,650
31,900 Kerr-McGee Corp......................... 1,880,106
92,800 Union Pacific Resources Group, Inc...... 2,041,600
------------
18,165,444
------------
FINANCIAL SERVICES -- 13.2%
58,200 American International Group, Inc....... 6,838,500
22,400 CIGNA Corp.............................. 2,094,400
136,450 Citigroup, Inc.......................... 8,221,113
72,200 Cullen/Frost Bankers, Inc............... 1,899,763
66,600 Edwards (A.G.) & Sons, Inc.............. 2,597,400
40,900 Fannie Mae.............................. 2,134,469
16,600 Goldman Sachs Group, Inc. (The)......... 1,574,925
136,400 KeyCorp................................. 2,404,050
36,000 Marsh & McLennan Cos., Inc.............. 3,759,750
53,600 Merrill Lynch & Co., Inc................ 6,164,000
41,700 Morgan Stanley Dean Witter & Co......... 3,471,525
135,200 Pacific Century Financial Corp.......... 1,977,300
52,100 Wachovia Corp........................... 2,826,425
------------
45,963,620
------------
FOOD, BEVERAGE & TOBACCO -- 3.9%
35,500 Anheuser-Busch Cos., Inc................ 2,651,406
19,900 Coca-Cola Co. (The)..................... 1,143,006
69,200 Nabisco Group Holding Corp.............. 1,794,875
100,300 PepsiCo, Inc............................ 4,457,081
131,200 Philip Morris Co., Inc.................. 3,485,000
------------
13,531,368
------------
FOREST & PAPER PRODUCTS -- 1.6%
74,400 Kimberly-Clark Corp..................... 4,268,700
31,500 Temple-Inland, Inc...................... 1,323,000
------------
5,591,700
------------
HEALTH SERVICES -- 0.4%
*56,000 Tenet Healthcare Corp................... 1,512,000
------------
MACHINERY -- 0.6%
29,000 Black & Decker Corp..................... 1,140,063
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-20 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
MACHINERY -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
48,600 Pall Corp............................... $ 899,100
------------
2,039,163
------------
MEDIA & ENTERTAINMENT -- 1.8%
*120,400 AT&T - Liberty Media Group, Class A..... 2,919,700
41,300 Gannett Co., Inc........................ 2,470,256
15,400 Pegasus Communications Corp.,
Class A................................ 755,563
------------
6,145,519
------------
MEDICAL INSTRUMENTS &
SUPPLIES -- 1.5%
88,000 Becton, Dickinson & Co.................. 2,524,500
*54,700 Boston Scientific Corp.................. 1,199,981
14,900 Johnson & Johnson Co.................... 1,517,938
------------
5,242,419
------------
METALS, MINERALS & MINING -- 1.4%
34,600 Alcoa, Inc.............................. 1,003,400
104,700 Engelhard Corp.......................... 1,786,444
117,700 Freeport-McMoRan Copper & Gold, Inc.,
Class A................................ 1,074,013
16,900 Illinois Tool Works, Inc................ 963,300
------------
4,827,157
------------
RETAIL -- 3.9%
*19,400 Best Buy Co., Inc....................... 1,227,050
61,800 Dollar General Corp..................... 1,205,100
24,850 Home Depot, Inc. (The).................. 1,240,947
41,800 Target Corp............................. 2,424,400
130,300 Wal-Mart Stores, Inc.................... 7,508,538
------------
13,606,035
------------
SOFTWARE & SERVICES -- 10.8%
*26,800 3Com Corp............................... 1,544,350
*67,600 America Online, Inc..................... 3,565,900
*28,300 BMC Software, Inc....................... 1,032,508
*70,800 Cabletron Systems, Inc.................. 1,787,700
24,400 Computer Associates
International, Inc..................... 1,248,975
50,500 First Data Corp......................... 2,506,063
114,300 IMS Health, Inc......................... 2,057,400
*171,200 Microsoft Corp.......................... 13,696,000
*55,600 Oracle Corp............................. 4,672,866
*38,400 Sun Microsystems, Inc................... 3,492,000
*10,858 VeriSign, Inc........................... 1,916,349
------------
37,520,111
------------
TRANSPORTATION -- 1.6%
*41,700 AMR Corp................................ 1,103,444
82,377 Delphi Automotive Systems Corp.......... 1,199,615
*56,700 Ford Motor Co........................... 2,438,100
33,200 USFreightways Corp...................... 815,475
7,424 Visteon Corp............................ 90,015
------------
5,646,649
------------
UTILITIES -- 2.6%
*26,500 Calpine Corp............................ 1,742,375
44,200 El Paso Energy Corp..................... 2,251,438
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
</TABLE>
UTILITIES -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
----------- ------------
<C> <S> <C>
48,600 Pinnacle West Capital Corp.............. $ 1,646,325
87,300 Unicom Corp............................. 3,377,419
------------
9,017,557
------------
Total common stocks..................... $340,407,679
============
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<C> <S> <C>
SHORT-TERM SECURITIES -- 4.0%
REPURCHASE AGREEMENT -- 4.0%
$14,046,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $14,053,723
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718 U.S.
Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29).................... $ 14,046,000
------------
Total short-term securities............. $ 14,046,000
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost $324,693,945)...... 97.6% $340,407,679
Total short-term securities (cost
$14,046,000)................................ 4.0 14,046,000
------ -----------
Total investment in securities (total cost
$338,739,945)............................... 101.6 354,453,679
Cash, receivables and other assets........... 5.0 17,320,445
Payable for securities purchased............. (6.5) (22,803,919)
Other liabilities............................ (0.1) (15,010)
------ -----------
Net assets................................... 100.0% $348,955,195
====== ===========
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.001 per share;
800,000,000 shares authorized; 242,068,683 shares
outstanding......................................... $ 242,069
Capital surplus...................................... 320,258,243
Accumulated undistributed net investment income...... 595,793
Accumulated undistributed net realized gain on
investments......................................... 12,153,097
Unrealized appreciation of investments............... 15,713,734
Unrealized depreciation of futures contracts ++...... (7,741)
-----------
Net assets........................................... $348,955,195
===========
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($345,650,750 DIVIDED BY
239,771,491 shares outstanding) (600,000,000 shares
authorized)............................................... $1.44
====
Class IB
Net asset value per share ($3,304,445 DIVIDED BY 2,297,192
shares outstanding) (200,000,000 shares authorized)....... $1.44
====
</TABLE>
* Non-income producing during the period.
++ The Fund had 9 Standard & Poor's 500 September 2000 Futures contracts open
as of June 30, 2000. These contracts had a value of $3,303,225 as of
June 30, 2000 and were collateralized by $168,750 of cash.
_____________________________________ MF-21 ____________________________________
<PAGE>
HARTFORD DIVIDEND AND GROWTH HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-------------------- --------------
<C> <S> <C>
COMMON STOCKS -- 96.8%
AEROSPACE & DEFENSE -- 4.2%
403,500 Honeywell International, Inc............ $ 13,592,906
1,878,200 United Technologies Corp................ 110,579,025
--------------
124,171,931
--------------
CHEMICALS -- 3.8%
165,400 Akzo Nobel N.V. ADR..................... 6,957,138
450,928 du Pont (E.I.) de Nemours & Co.......... 19,728,100
105,700 Eastman Chemical Co..................... 5,047,175
1,289,363 Pharmacia Corp.......................... 66,643,950
114,400 PPG Industries, Inc..................... 5,069,350
223,500 Rohm & Haas Co.......................... 7,710,750
--------------
111,156,463
--------------
COMMUNICATIONS -- 10.0%
2,549,800 AT&T Corp............................... 80,637,425
470,300 Broadwing, Inc.......................... 12,198,406
725,300 Lucent Technologies, Inc................ 42,974,025
728,526 SBC Communications, Inc................. 31,508,750
1,863,246 Verizon Communications.................. 94,676,187
375,100 US West, Inc............................ 32,164,825
--------------
294,159,618
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 1.1%
140,800 International Business Machines Corp.... 15,426,400
218,400 Minnesota Mining &
Manufacturing Co....................... 18,018,000
--------------
33,444,400
--------------
CONSUMER DURABLES -- 2.6%
286,500 Corning, Inc............................ 77,319,188
--------------
CONSUMER NON-DURABLES -- 3.7%
412,000 Cardinal Health, Inc.................... 30,488,000
328,400 Clorox Co. (The)........................ 14,716,425
122,300 Eastman Kodak Co........................ 7,276,850
415,600 Gillette Co. (The)...................... 14,520,025
716,000 Procter & Gamble Co. (The).............. 40,991,000
--------------
107,992,300
--------------
DRUGS -- 7.0%
547,200 Abbott Laboratories..................... 24,384,600
672,200 American Home Products Corp............. 39,491,750
867,300 AstraZeneca Group PLC ADR............... 40,329,450
392,000 Bristol-Myers Squibb Co................. 22,834,000
373,500 Eli Lilly & Co.......................... 37,303,313
524,900 Merck & Co., Inc........................ 40,220,463
--------------
204,563,576
--------------
ELECTRICAL EQUIPMENT -- 0.2%
154,700 White Electronic Designs Corp........... 6,826,138
--------------
ELECTRONICS -- 5.4%
273,700 Eaton Corp.............................. 18,337,900
2,126,580 General Electric Co..................... 112,708,740
199,600 Intel Corp.............................. 26,684,025
--------------
157,730,665
--------------
ENERGY & SERVICES -- 10.4%
463,000 Ashland, Inc............................ 16,233,938
866,817 Conoco, Inc., Class B................... 21,291,193
394,100 Enron Corp.............................. 25,419,450
1,339,983 Exxon Mobil Corp........................ 105,188,666
3,780,000 Repsol YPF S.A. ADR..................... 74,891,250
2,661,800 Suncor Energy, Inc...................... 62,053,213
--------------
305,077,710
--------------
<CAPTION>
MARKET
SHARES VALUE
-------------------- --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-------------------- --------------
<C> <S> <C>
FINANCIAL SERVICES -- 17.3%
888,000 Associates First Capital Corp.,
Class A................................ $ 19,813,500
202,500 CIGNA Corp.............................. 18,933,750
1,423,050 Citigroup, Inc.......................... 85,738,763
575,300 Fannie Mae.............................. 30,023,469
578,650 Marsh & McLennan Cos., Inc.............. 60,432,759
375,000 MBIA, Inc............................... 18,070,302
439,600 Merrill Lynch & Co., Inc................ 50,554,000
184,800 Morgan Stanley Dean Witter & Co......... 15,384,600
149,000 National Commerce Bancorporation........ 2,393,313
1,375,700 Pacific Century Financial Corp.......... 20,119,613
1,323,700 People's Bank........................... 24,322,988
2,397,800 U.S. Bancorp............................ 46,157,650
522,200 UnionBanCal Corp........................ 9,693,338
953,100 Wachovia Corp........................... 51,705,675
1,174,100 Washington Mutual, Inc.................. 33,902,138
364,700 XL Capital Ltd., Class A................ 19,739,388
--------------
506,985,246
--------------
FOOD, BEVERAGE &
TOBACCO -- 7.2%
251,700 Coca-Cola Co. (The)..................... 14,457,019
1,751,500 McCormick & Co., Inc.................... 56,923,750
906,600 PepsiCo, Inc............................ 40,287,038
966,700 Philip Morris Co., Inc.................. 25,677,969
486,900 Reynolds (R.J.) Tobacco
Holdings, Inc.......................... 13,602,769
3,140,100 Sara Lee Corp........................... 60,643,181
--------------
211,591,726
--------------
FOREST & PAPER PRODUCTS -- 2.7%
852,600 Abitibi-Consolidated, Inc............... 7,993,125
693,600 Kimberly-Clark Corp..................... 39,795,300
339,300 Temple-Inland, Inc...................... 14,250,600
367,000 Weyerhaeuser Co......................... 15,781,000
--------------
77,820,025
--------------
HOTELS & GAMING -- 0.3%
253,748 Starwood Hotels & Resorts
Worldwide, Inc......................... 8,262,669
--------------
MACHINERY -- 0.5%
367,100 Caterpillar, Inc........................ 12,435,513
125,000 CNH Global N.V.......................... 1,156,250
--------------
13,591,763
--------------
MEDIA & ENTERTAINMENT -- 1.8%
608,800 Gannett Co., Inc........................ 36,413,850
285,100 Knight-Ridder, Inc...................... 15,163,756
--------------
51,577,606
--------------
MEDICAL INSTRUMENTS &
SUPPLIES -- 1.8%
748,000 Baxter International, Inc............... 52,593,750
--------------
METALS, MINERALS &
MINING -- 0.9%
862,000 Alcoa, Inc.............................. 24,998,000
--------------
REAL ESTATE -- 2.6%
734,500 Archstone Communities Trust (REIT)...... 15,470,406
620,100 Equity Office Properties Trust (REIT)... 17,091,506
375,700 Kimco Realty Corp. (REIT)............... 15,403,700
662,300 Liberty Property Trust (REIT)........... 17,178,406
231,100 Spieker Properties, Inc. (REIT)......... 10,630,600
--------------
75,774,618
--------------
RETAIL -- 2.8%
883,900 Family Dollar Stores, Inc............... 17,291,294
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-22 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-------------------- --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
RETAIL -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-------------------- --------------
<C> <S> <C>
2,712,060 Intimate Brands, Inc., Class A.......... $ 53,563,185
461,400 May Department Stores Co................ 11,073,600
--------------
81,928,079
--------------
SOFTWARE & SERVICES -- 1.9%
569,100 Electronic Data Systems Corp............ 23,475,375
552,500 First Data Corp......................... 27,417,813
*55,801 Microsoft Corp.......................... 4,464,080
--------------
55,357,268
--------------
TRANSPORTATION -- 2.0%
569,500 Ford Motor Co........................... 24,488,500
612,000 Genuine Parts Co........................ 12,240,000
186,100 TRW, Inc................................ 8,072,088
497,400 USFreightways Corp...................... 12,217,388
*74,566 Visteon Corp............................ 904,117
--------------
57,922,093
--------------
UTILITIES -- 6.6%
279,400 Dominion Resources, Inc................. 11,979,275
718,600 DQE, Inc................................ 28,384,700
243,100 Duke Energy Corp........................ 13,704,763
251,200 Edison International.................... 5,149,600
694,100 El Paso Energy Corp..................... 35,355,719
635,900 Endesa S.A.............................. 12,400,050
410,400 Montana Power Co. (The)................. 14,492,250
487,600 PECO Energy Co.......................... 19,656,375
766,300 Pinnacle West Capital Corp.............. 25,958,413
647,900 Unicom Corp............................. 25,065,631
242,850 UtiliCorp United, Inc................... 4,826,644
--------------
196,973,420
--------------
Total common stocks..................... $2,837,818,252
==============
<CAPTION>
PRINCIPAL
AMOUNT
--------------------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- 1.3%
COMMUNICATIONS -- 0.6%
$ -9,200,000 American Tower Corp.
9.25% due 08/16/02..................... $ 16,939,500
--------------
MEDIA & ENTERTAINMENT -- 0.6%
160,000 Tribune Co.
2.00% due 05/15/29..................... 18,440,000
--------------
UTILITIES -- 0.1%
65,400 Texas Utilities Co.
6.25% due 10/15/09..................... 2,542,425
--------------
Total convertible preferred stocks...... $ 37,921,925
==============
<CAPTION>
MARKET
SHARES VALUE
-------------------- --------------
<C> <S> <C>
EQUITY LINKED SECURITIES -- 0.7%
FINANCIAL SERVICES -- 0.7%
160,000 Salomon Smith Barney Holdings, Inc.
(ELKS)
3.25% due 10/06/00................... $ 21,073,600
--------------
Total equity linked securities.......... $ 21,073,600
==============
<CAPTION>
PRINCIPAL
AMOUNT
--------------------
<C> <S> <C>
SHORT-TERM SECURITIES -- 1.5%
REPURCHASE AGREEMENT -- 1.5%
$ 43,043,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $43,066,667
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718 U.S.
Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29).................... $ 43,043,000
--------------
Total short-term securities............. $ 43,043,000
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost $2,653,056,046)...... 96.7% $2,837,818,252
Total convertible preferred stocks (cost
$37,626,591).................................. 1.3 37,921,925
Total equity linked securities (cost
$15,272,800).................................. 0.7 21,073,600
Total short-term securities (cost
$43,043,000).................................. 1.5 43,043,000
----- -------------
Total investment in securities (total cost
$2,748,998,437)............................... 100.2 2,939,856,777
Cash, receivables and other assets............. 0.7 21,311,895
Securities lending collateral.................. 5.4 158,547,001
Payable for securities purchased............... (0.8) (24,960,032)
Payable for fund shares redeemed............... (0.1) (2,094,969)
Securities lending collateral payable to
brokers....................................... (5.4) (158,547,001)
Other liabilities.............................. (0.0) (416,520)
----- -------------
Net assets..................................... 100.0% $2,933,697,151
===== =============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
4,000,000,000 shares authorized; 1,525,652,564 shares
outstanding.......................................... $ 152,565,256
Capital surplus....................................... 2,408,487,290
Accumulated undistributed net investment income....... 23,091,974
Accumulated undistributed net realized gain on
investments.......................................... 158,694,755
Unrealized appreciation of investments................ 190,858,340
Unrealized depreciation of other assets and
liabilities in foreign currencies.................... (464)
-------------
Net assets............................................ $2,933,697,151
=============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Class IA
Net asset value per share ($2,914,866,706 DIVIDED BY
1,515,860,716 shares outstanding) (3,500,000,000 shares
authorized)................................................... $1.92
====
Class IB
Net asset value per share ($18,830,445 DIVIDED BY 9,791,848
shares outstanding) (500,000,000 shares authorized)........... $1.92
====
</TABLE>
* Non-income producing during the period.
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
2000, the market value of these securities amounted to $16,939,500 or 0.6%
of net assets.
_____________________________________ MF-23 ____________________________________
<PAGE>
HARTFORD INDEX HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
COMMON STOCKS -- 99.7%
AEROSPACE & DEFENSE -- 0.4%
166,496 Honeywell International, Inc............ $ 5,608,834
98,069 United Technologies Corp................ 5,773,812
--------------
11,382,646
--------------
APPAREL & TEXTILE -- 0.0%
11,400 Liz Claiborne, Inc...................... 401,850
6,809 Russell Corp............................ 136,180
3,758 Springs Industries, Inc................. 120,256
23,787 V. F. Corp.............................. 566,428
--------------
1,224,714
--------------
BUSINESS SERVICES -- 0.6%
*150,392 Cendant Corp............................ 2,105,488
*32,100 Convergys Corp.......................... 1,665,188
29,468 Equifax, Inc............................ 773,535
16,147 Fluor Corp.............................. 510,649
63,019 Interpublic Group of Companies, Inc.
(The).................................. 2,709,817
37,078 Omnicom Group, Inc...................... 3,302,259
77,501 Paychex, Inc............................ 3,255,042
10,149 PerkinElmer, Inc........................ 671,103
15,100 Young & Rubicam, Inc.................... 863,531
--------------
15,856,612
--------------
CHEMICALS -- 1.5%
47,847 Air Products & Chemicals, Inc........... 1,474,286
23,370 Avery Dennison Corp..................... 1,568,711
140,851 Dow Chemical Co. (The).................. 4,251,940
218,400 du Pont (E.I.) de Nemours & Co.......... 9,555,000
16,155 Eastman Chemical Co..................... 771,401
*6,404 FMC Corp................................ 371,432
*13,932 Grace (W.R.) & Co....................... 168,926
11,400 Great Lakes Chemical Corp............... 359,100
21,646 International Flavors &
Fragrances, Inc........................ 653,439
264,807 Pharmacia Corp.......................... 13,687,196
36,366 PPG Industries, Inc..................... 1,611,468
33,019 Praxair, Inc............................ 1,236,149
45,397 Rohm & Haas Co.......................... 1,566,197
28,034 Union Carbide Corp...................... 1,387,683
--------------
38,662,928
--------------
COMMUNICATIONS -- 11.5%
*70,274 ADC Telecommunications, Inc............. 5,894,232
65,794 ALLTEL Corp............................. 4,075,116
*17,017 Andrew Corp............................. 571,133
661,835 AT&T Corp............................... 20,930,511
392,642 BellSouth Corp.......................... 16,736,365
29,304 CenturyTel, Inc......................... 842,490
*31,856 Comverse Technology, Inc................ 2,962,608
*183,883 Global Crossing Ltd..................... 4,838,421
200,896 GTE Corp................................ 12,505,776
679,200 Lucent Technologies, Inc................ 40,242,600
449,045 Motorola, Inc........................... 13,050,370
*63,660 Network Appliance, Inc.................. 5,124,630
*158,156 NEXTEL Communications, Inc.............. 9,677,170
618,008 Nortel Networks Holdings Corp........... 42,179,046
*154,592 QUALCOMM, Inc........................... 9,275,520
709,794 SBC Communications, Inc................. 30,698,591
33,298 Scientific-Atlanta, Inc................. 2,480,701
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183,026 Sprint Corp............................. $ 9,334,326
*190,866 Sprint PCS Group........................ 11,356,527
*85,476 Tellabs, Inc............................ 5,849,764
105,887 US West, Inc............................ 9,079,810
322,620 Verizon Communications.................. 16,393,129
*597,251 Worldcom, Inc........................... 27,398,890
--------------
301,497,726
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 9.7%
*67,648 Apple Computer, Inc..................... 3,543,064
*1,451,782 Cisco Systems, Inc...................... 92,278,893
354,335 Compaq Computer Corp.................... 9,057,688
*537,378 Dell Computer Corp...................... 26,499,453
*452,902 EMC Corp................................ 34,845,148
*67,220 Gateway, Inc............................ 3,814,735
208,700 Hewlett-Packard Co...................... 26,061,413
369,894 International Business Machines Corp.... 40,526,511
*27,020 Lexmark International, Inc.............. 1,817,095
82,612 Minnesota Mining & Manufacturing Co..... 6,815,490
53,772 Pitney Bowes, Inc....................... 2,150,880
*47,579 Seagate Technology, Inc................. 2,616,845
*124,408 Solectron Corp.......................... 5,209,585
--------------
255,236,800
--------------
CONSTRUCTION -- 0.2%
12,394 Centex Corp............................. 291,259
92,737 Halliburton Co.......................... 4,376,027
10,056 Kaufman & Broad Home Corp............... 199,235
12,593 McDermott International, Inc............ 110,976
8,741 Pulte Corp.............................. 189,024
--------------
5,166,521
--------------
CONSUMER DURABLES -- 0.7%
57,697 Corning, Inc............................ 15,570,978
19,804 Grainger (W.W.), Inc.................... 610,211
17,978 Johnson Controls, Inc................... 922,496
41,041 Leggett & Platt, Inc.................... 677,177
55,805 Newell Rubbermaid, Inc.................. 1,436,979
11,679 Owens Corning........................... 108,031
*30,508 Owens-Illinois, Inc..................... 356,562
--------------
19,682,434
--------------
CONSUMER NON-DURABLES -- 3.1%
11,682 Alberto-Culver Co., Class B............. 357,031
*8,531 Armstrong Holdings, Inc................. 130,631
49,450 Avon Products, Inc...................... 2,200,525
14,323 Brown-Forman Corp., Class B............. 769,861
57,639 Cardinal Health, Inc.................... 4,265,286
48,969 Clorox Co. (The)........................ 2,194,423
120,399 Colgate-Palmolive Co.................... 7,208,890
64,531 Eastman Kodak Co........................ 3,839,595
27,222 Ecolab, Inc............................. 1,063,359
217,835 Gillette Co. (The)...................... 7,610,610
36,100 Hasbro, Inc............................. 543,756
88,869 Mattel, Inc............................. 1,171,960
58,925 McKesson HBOC, Inc...................... 1,233,742
9,345 Polaroid Corp........................... 168,794
273,028 Procter & Gamble Co. (The).............. 15,630,853
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
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*103,362 Safeway, Inc............................ $ 4,664,210
27,452 SuperValu, Inc.......................... 523,304
69,678 SYSCO Corp.............................. 2,935,186
352,171 Tyco International Ltd.................. 16,684,101
119,254 Unilever N.V............................ 5,127,922
139,160 Xerox Corp.............................. 2,887,570
--------------
81,211,609
--------------
CONSUMER SERVICES -- 0.0%
20,618 H&R Block, Inc.......................... 667,508
12,509 Ryder System, Inc....................... 236,889
--------------
904,397
--------------
DRUGS -- 8.2%
323,156 Abbott Laboratories..................... 14,400,639
*21,431 ALZA Corp............................... 1,267,108
272,157 American Home Products Corp............. 15,989,224
*214,223 Amgen, Inc.............................. 15,049,166
*31,000 Biogen, Inc............................. 1,999,500
411,570 Bristol-Myers Squibb Co................. 23,973,953
235,560 Eli Lilly & Co.......................... 23,526,555
*43,500 MedImmune, Inc.......................... 3,219,000
479,741 Merck & Co., Inc........................ 36,760,154
1,313,730 Pfizer, Inc............................. 63,059,040
305,483 Schering-Plough Corp.................... 15,426,892
17,929 Sigma-Aldrich Corp...................... 524,423
*20,312 Watson Pharmaceuticals, Inc............. 1,091,770
--------------
216,287,424
--------------
ELECTRICAL EQUIPMENT -- 0.6%
27,030 Allergan, Inc........................... 2,013,735
*40,500 American Power Conversion............... 1,652,906
29,563 Danaher Corp............................ 1,461,521
*38,874 KLA-Tencor Corp......................... 2,276,559
14,031 Mallinckrodt, Inc....................... 609,472
9,747 Millipore Corp.......................... 734,680
43,564 PE Corp - PE Bidsystems Group........... 2,869,779
10,053 Tektronix, Inc.......................... 743,922
*36,158 Teradyne, Inc........................... 2,657,613
*32,614 Thermo Electron Corp.................... 686,932
--------------
15,707,119
--------------
ELECTRONICS -- 11.5%
*21,737 Adaptec, Inc............................ 494,517
*31,980 Advanced Micro Devices, Inc............. 2,470,455
*94,112 Agilent Technologies, Inc............... 6,940,760
*41,600 Altera Corp............................. 4,240,600
*73,826 Analog Devices, Inc..................... 5,610,776
*44,900 Broadcom Corp........................... 9,830,294
*45,400 Conexant Systems, Inc................... 2,207,575
15,335 Eaton Corp.............................. 1,027,445
89,116 Emerson Electric Co..................... 5,380,379
2,064,758 General Electric Co..................... 109,432,174
698,977 Intel Corp.............................. 93,444,488
64,900 Linear Technology Corp.................. 4,149,544
*64,060 LSI Logic Corp.......................... 3,467,248
*59,000 Maxim Integrated Products, Inc.......... 4,008,313
16,384 Maytag Corp............................. 604,160
*115,732 Micron Technology, Inc.................. 10,191,649
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41,031 Molex, Inc.............................. $ 1,974,617
*37,147 National Semiconductor Corp............. 2,108,092
8,632 National Service Industries, Inc........ 168,324
*27,400 Novellus Systems, Inc................... 1,549,813
71,023 Ryanair Holdings PLC ADR................ 1,367,193
*30,900 Sanmina Corp............................ 2,641,950
341,320 Texas Instruments, Inc.................. 23,444,418
11,985 Thomas & Betts Corp..................... 229,213
15,446 Whirlpool Corp.......................... 720,170
*67,230 Xilinx, Inc............................. 5,550,677
--------------
303,254,844
--------------
ENERGY & SERVICES -- 5.6%
18,995 Amerada Hess Corp....................... 1,172,941
26,815 Anadarko Petroleum Corp................. 1,322,315
23,671 Apache Corp............................. 1,392,151
14,735 Ashland, Inc............................ 516,646
44,929 Burlington Resources, Inc............... 1,718,534
136,137 Chevron Corp............................ 11,546,119
44,595 Coastal Corp. (The)..................... 2,714,721
130,543 Conoco, Inc., Class B................... 3,206,462
152,825 Enron Corp.............................. 9,857,213
726,221 Exxon Mobil Corp........................ 57,008,349
19,800 Kerr-McGee Corp......................... 1,166,963
77,036 Occidental Petroleum Corp............... 1,622,571
53,025 Phillips Petroleum Co................... 2,687,705
*19,700 Rowan Companies, Inc.................... 598,388
447,386 Royal Dutch Petroleum Co................ 27,542,201
118,683 Schlumberger Ltd........................ 8,856,719
18,695 Sunoco, Inc............................. 550,334
115,101 Texaco, Inc............................. 6,129,128
30,096 Tosco Corp.............................. 852,093
44,044 Transocean Sedco Forex, Inc............. 2,353,601
52,621 Union Pacific Resources Group, Inc...... 1,157,662
50,590 Unocal Corp............................. 1,675,794
65,006 USX-Marathon Group...................... 1,629,213
--------------
147,277,823
--------------
FINANCIAL SERVICES -- 12.8%
30,988 Aetna, Inc.............................. 1,989,042
58,666 AFLAC, Inc.............................. 2,694,969
160,301 Allstate Corp. (The).................... 3,566,697
278,392 American Express Co..................... 14,511,183
54,614 American General Corp................... 3,331,454
331,366 American International Group, Inc....... 38,935,505
81,982 AmSouth Bancorporation.................. 1,291,217
53,410 Aon Corp................................ 1,659,048
151,998 Associates First Capital Corp........... 3,391,455
345,770 Bank of America Corp.................... 14,868,110
153,895 Bank of New York Co., Inc. (The)........ 7,156,118
238,977 Bank One Corp........................... 6,347,827
72,741 BB&T Corp............................... 1,736,691
23,340 Bear Stearns Cos., Inc. (The)........... 971,528
40,943 Capital One Financial Corp.............. 1,827,081
284,171 Charles Schwab Corp. (The).............. 9,555,250
44,000 Charter One Financial................... 1,012,000
257,818 Chase Manhattan Corp. (The)............. 11,875,742
37,574 Chubb Corp. (The)....................... 2,310,801
</TABLE>
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JUNE 30, 2000 (UNAUDITED)
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35,606 CIGNA Corp.............................. $ 3,329,161
34,738 Cincinnati Financial Corp............... 1,092,076
704,109 Citigroup, Inc.......................... 42,422,567
32,559 Comerica, Inc........................... 1,461,085
71,727 Conseco, Inc............................ 699,338
23,668 Countrywide Credit Industries, Inc...... 717,436
210,239 Fannie Mae.............................. 10,971,848
64,559 Fifth Third Bancorp..................... 4,083,357
204,647 First Union Corp........................ 5,077,804
202,365 Firstar Corp............................ 4,262,313
188,068 Fleet Boston Financial Corp............. 6,394,312
50,921 Franklin Resources, Inc................. 1,546,725
145,065 Freddie Mac............................. 5,875,133
32,938 Golden West Financial Corp.............. 1,344,282
98,658 Household International, Inc............ 4,100,473
*34,946 Humana, Inc............................. 170,362
46,406 Huntington Bancshares, Inc.............. 733,795
22,143 Jefferson-Pilot Corp.................... 1,249,696
90,662 KeyCorp................................. 1,597,918
25,190 Lehman Brothers Holdings, Inc........... 2,382,029
42,248 Lincoln National Corp................... 1,526,209
21,050 Loews Corp.............................. 1,263,000
56,210 Marsh & McLennan Cos., Inc.............. 5,870,432
20,626 MBIA, Inc............................... 993,915
167,287 MBNA Corp............................... 4,537,660
102,475 Mellon Financial Corp................... 3,733,933
81,004 Merrill Lynch & Co., Inc................ 9,315,460
22,156 MGIC Investment Corp.................... 1,008,098
33,872 Morgan (J.P.) & Co., Inc................ 3,730,154
236,068 Morgan Stanley Dean Witter & Co......... 19,652,661
126,514 National City Corp...................... 2,158,645
46,526 Northern Trust Corp..................... 3,027,098
28,756 Old Kent Financial Corp................. 769,232
30,374 Paine Webber Group, Inc................. 1,382,017
60,690 PNC Financial Services Group............ 2,844,844
15,838 Progressive Corp. (The)................. 1,172,012
29,712 Providian Financial Corp................ 2,674,080
46,129 Regions Financial Corp.................. 916,814
27,728 SAFECO Corp............................. 551,094
32,724 SLM Holding Corp........................ 1,225,105
35,146 SouthTrust Corp......................... 795,178
45,518 St. Paul Companies, Inc. (The).......... 1,553,302
33,625 State Street Corp....................... 3,566,352
36,877 Summit Bancorp.......................... 908,096
63,448 SunTrust Banks, Inc..................... 2,898,781
58,934 Synovus Financial Corp.................. 1,038,712
25,195 T. Rowe Price Associates, Inc........... 1,070,788
28,433 Torchmark Corp.......................... 701,940
156,802 U.S. Bancorp............................ 3,018,439
28,166 Union Planters Corp..................... 786,888
33,665 UnitedHealth Group, Inc................. 2,886,774
52,899 UNUMProvident Corp...................... 1,061,286
42,359 Wachovia Corp........................... 2,297,976
114,543 Washington Mutual, Inc.................. 3,307,429
*12,914 Wellpoint Health Networks, Inc.......... 935,458
336,273 Wells Fargo & Co........................ 13,030,579
--------------
336,753,869
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FOOD, BEVERAGE & TOBACCO -- 3.6%
7,720 Adolph Coors Co., Class B............... $ 467,060
94,423 Anheuser-Busch Cos., Inc................ 7,052,218
125,649 Archer-Daniels-Midland Co............... 1,232,931
57,309 Bestfoods............................... 3,968,648
88,214 Campbell Soup Co........................ 2,569,233
516,444 Coca-Cola Co. (The)..................... 29,663,252
87,884 Coca-Cola Enterprises, Inc.............. 1,433,608
102,590 ConAgra, Inc............................ 1,955,622
60,796 General Mills, Inc...................... 2,325,447
73,468 Heinz (H.J.) Co......................... 3,214,225
22,546 Hercules, Inc........................... 317,053
28,655 Hershey Foods Corp...................... 1,389,768
84,720 Kellogg Co.............................. 2,520,420
68,262 Nabisco Group Holding Corp.............. 1,770,546
300,664 PepsiCo, Inc............................ 13,360,757
477,186 Philip Morris Co., Inc.................. 12,675,253
27,436 Quaker Oats Co. (The)................... 2,061,130
63,900 Ralston Purina Co....................... 1,274,006
181,543 Sara Lee Corp........................... 3,506,049
34,067 UST, Inc................................ 500,359
23,779 Wrigley, (Wm.) Jr. Co................... 1,906,779
--------------
95,164,364
--------------
FOREST & PAPER PRODUCTS -- 0.7%
11,170 Bemis Co., Inc.......................... 375,591
11,886 Boise Cascade Corp...................... 307,550
43,020 Fort James Corp......................... 994,838
35,659 Georgia-Pacific Corp.................... 936,049
100,799 International Paper Co.................. 3,005,070
116,036 Kimberly-Clark Corp..................... 6,657,566
21,650 Louisiana-Pacific Corp.................. 235,444
21,433 Mead Corp. (The)........................ 541,183
*35,255 Pactiv Corp............................. 277,633
6,194 Potlatch Corp........................... 205,176
11,082 Temple-Inland, Inc...................... 465,444
21,126 Westvaco Corp........................... 524,189
48,568 Weyerhaeuser Co......................... 2,088,424
23,263 Willamette Industries, Inc.............. 633,917
--------------
17,248,074
--------------
HEALTH SERVICES -- 0.2%
116,538 HCA Healthcare Corp..................... 3,539,842
*80,452 HEALTHSOUTH Corp........................ 578,249
*21,249 Manor Care, Inc......................... 148,743
*65,312 Tenet Healthcare Corp................... 1,763,424
--------------
6,030,258
--------------
HOTELS & GAMING -- 0.1%
76,902 Hilton Hotels Corp...................... 720,956
50,010 Marriott International, Inc............. 1,803,486
--------------
2,524,442
--------------
MACHINERY -- 1.1%
*168,446 Applied Materials, Inc.................. 15,265,419
68,981 Baker Hughes, Inc....................... 2,207,392
17,984 Black & Decker Corp..................... 706,996
4,676 Briggs & Stratton Corp.................. 160,153
72,658 Caterpillar, Inc........................ 2,461,290
8,737 Cummins Engine Co., Inc................. 238,083
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
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48,961 Deere & Co.............................. $ 1,811,557
42,579 Dover Corp.............................. 1,727,111
33,688 Ingersoll-Rand Co....................... 1,355,942
25,904 Pall Corp............................... 479,224
23,604 Parker-Hannifin Corp.................... 808,437
18,390 Stanley Works (The)..................... 436,763
12,802 Timken Co. (The)........................ 238,437
--------------
27,896,804
--------------
MEDIA & ENTERTAINMENT -- 3.9%
13,520 American Greetings Corp................. 256,880
*70,900 Clear Channel Communications, Inc....... 5,317,500
*187,400 Comcast Corp., Class A.................. 7,589,700
25,516 Donnelly (R.R.) & Sons Co............... 575,705
18,596 Dow Jones & Company, Inc................ 1,362,157
55,611 Gannett Co., Inc........................ 3,326,233
15,032 Harcourt General, Inc................... 817,365
*25,518 Harrah's Entertainment, Inc............. 534,283
16,164 Knight-Ridder, Inc...................... 859,723
40,741 McGraw-Hill Cos., Inc. (The)............ 2,200,014
127,276 MediaOne Group, Inc..................... 8,416,126
10,569 Meredith Corp........................... 356,704
35,467 New York Times Co. (The)................ 1,400,947
39,423 Rockwell International Corp............. 1,241,825
91,209 Seagram Company Ltd. (The).............. 5,290,122
274,514 Time Warner, Inc........................ 20,863,064
64,572 Tribune Co.............................. 2,260,020
*318,470 Viacom, Inc., Class B................... 21,715,697
433,419 Walt Disney Co. (The)................... 16,822,075
--------------
101,206,140
--------------
MEDICAL INSTRUMENTS &
SUPPLIES -- 2.1%
10,467 Bard (C.R.), Inc........................ 503,724
10,887 Bausch & Lomb, Inc...................... 842,382
60,648 Baxter International, Inc............... 4,264,313
52,515 Becton, Dickinson & Co.................. 1,506,524
24,666 Biomet, Inc............................. 948,099
*85,147 Boston Scientific Corp.................. 1,867,912
63,984 Guidant Corp............................ 3,167,208
290,180 Johnson & Johnson Co.................... 29,562,088
249,623 Medtronic, Inc.......................... 12,434,346
*17,676 St. Jude Medical, Inc................... 810,887
--------------
55,907,483
--------------
METALS, MINERALS &
MINING -- 0.9%
45,836 Alcan Aluminum Ltd...................... 1,420,916
180,172 Alcoa, Inc.............................. 5,224,988
17,460 Allegheny Technologies, Inc............. 314,280
6,399 Ball Corp............................... 205,968
82,570 Barrick Gold Corp....................... 1,501,742
*27,626 Bethlehem Steel Corp.................... 98,418
19,708 Cooper Industries, Inc.................. 641,742
12,720 Crane Co................................ 309,255
26,799 Crown Cork & Seal Co., Inc.............. 401,985
26,710 Engelhard Corp.......................... 455,739
33,042 Fortune Brands, Inc..................... 762,031
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*33,533 Freeport-McMoRan Copper &
Gold, Inc.............................. $ 310,180
54,348 Homestake Mining Co..................... 373,643
62,942 Illinois Tool Works, Inc................ 3,587,694
37,925 Inco Ltd................................ 583,097
83,487 Lockheed Martin Corp.................... 2,071,521
93,743 Masco Corp.............................. 1,693,233
35,239 Newmont Mining Corp..................... 762,043
17,784 Nucor Corp.............................. 590,207
16,564 Phelps Dodge Corp....................... 615,974
68,361 Placer Dome, Inc........................ 653,702
12,314 Snap-On, Inc............................ 327,860
18,688 USX Corp................................ 346,896
21,126 Vulcan Materials Co..................... 901,816
17,999 Worthington Industries, Inc............. 188,990
--------------
24,343,920
--------------
RESEARCH & TESTING
FACILITIES -- 0.0%
33,925 Dun & Bradstreet Corp. (The)............ 971,103
*24,074 Quintiles Transnational Corp............ 340,045
--------------
1,311,148
--------------
RETAIL -- 5.9%
88,545 Albertson's, Inc........................ 2,944,121
*27,885 AutoZone, Inc........................... 613,470
*29,355 Bed Bath & Beyond, Inc.................. 1,064,119
*42,664 Best Buy Co., Inc....................... 2,698,498
42,355 Circuit City Stores Group............... 1,405,657
*23,159 Consolidated Stores Corp................ 277,908
*93,238 Costco Wholesale Corp................... 3,076,854
81,376 CVS Corp................................ 3,255,040
26,030 Darden Restaurants, Inc................. 422,988
19,548 Dillard's, Inc.......................... 239,463
68,715 Dollar General Corp..................... 1,339,943
*44,679 Federated Department Stores, Inc........ 1,507,916
177,506 Gap, Inc. (The)......................... 5,547,063
8,125 Great Atlantic & Pacific Tea Co., Inc.
(The).................................. 135,078
482,546 Home Depot, Inc. (The).................. 24,097,141
*100,408 Kmart Corp.............................. 684,030
*68,160 Kohl's Corp............................. 3,791,400
*174,102 Kroger Co. (The)........................ 3,841,125
89,494 Limited, Inc. (The)..................... 1,935,308
8,328 Longs Drug Store Corp................... 181,134
79,943 Lowe's Cos., Inc........................ 3,282,659
69,539 May Department Stores Co................ 1,668,936
278,913 McDonald's Corp......................... 9,186,697
28,157 Nordstrom, Inc.......................... 679,288
*66,121 Office Depot, Inc....................... 413,256
54,459 Penney (J.C.) Co., Inc.................. 1,004,088
39,030 RadioShack Corp......................... 1,849,046
54,143 Rite Aid Corp........................... 355,313
73,639 Sears Roebuck & Co...................... 2,402,472
34,151 Sherman-Williams Co. (The).............. 723,574
*101,114 Staples, Inc............................ 1,554,628
*37,900 Starbucks Corp.......................... 1,447,306
</TABLE>
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STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
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95,040 Target Corp............................. $ 5,512,320
15,400 Tiffany & Co............................ 1,039,500
62,735 TJX Cos., Inc. (The).................... 1,176,281
*45,207 Toys R Us, Inc.......................... 658,320
*30,930 Tricon Global Restaurants, Inc.......... 873,773
929,797 Wal-Mart Stores, Inc.................... 53,579,552
210,269 Walgreen Co............................. 6,768,033
23,596 Wendy's International, Inc.............. 420,304
30,284 Winn-Dixie Stores, Inc.................. 433,440
--------------
154,087,042
--------------
RUBBER & PLASTICS
PRODUCTS -- 0.2%
15,547 Cooper Tire & Rubber Co................. 172,960
32,709 Goodyear Tire & Rubber Co. (The)........ 654,180
57,016 NIKE, Inc., Class B..................... 2,269,950
*11,883 Reebok International Ltd................ 189,385
*17,696 Sealed Air Corp......................... 926,828
12,188 Tupperware Corp......................... 268,136
--------------
4,481,439
--------------
SOFTWARE & SERVICES -- 10.2%
*73,165 3Com Corp............................... 4,216,133
24,998 Adobe Systems, Inc...................... 3,249,740
*479,320 America Online, Inc..................... 25,284,130
12,192 Autodesk, Inc........................... 422,910
130,916 Automatic Data Processing, Inc.......... 7,012,188
*50,779 BMC Software, Inc....................... 1,852,640
*38,067 Cabletron Systems, Inc.................. 961,192
*30,372 Ceridian Corp........................... 730,826
*38,772 Citrix Systems, Inc..................... 734,245
122,701 Computer Associates
International, Inc..................... 6,280,757
*34,821 Computer Sciences Corp.................. 2,600,693
*75,163 Compuware Corp.......................... 779,816
15,247 Deluxe Corp............................. 359,257
97,206 Electronic Data Systems Corp............ 4,009,748
86,098 First Data Corp......................... 4,272,613
62,119 IMS Health, Inc......................... 1,118,142
*16,500 Mercury Interactive Corp................ 1,596,375
*1,098,300 Microsoft Corp.......................... 87,864,000
*20,000 NCR Corp................................ 778,750
*68,791 Novell, Inc............................. 636,317
*592,228 Oracle Corp............................. 49,784,166
*57,677 Parametric Technology Corp.............. 634,447
*57,492 PeopleSoft, Inc......................... 962,991
*12,300 Sapient Corp............................ 1,315,331
*41,800 Siebel Systems, Inc..................... 6,836,913
*331,042 Sun Microsystems, Inc................... 30,104,132
*65,097 Unisys Corp............................. 947,975
*81,600 VERITAS Software, Corp.................. 9,222,075
*113,316 Yahoo!, Inc............................. 14,037,020
--------------
268,605,522
--------------
TRANSPORTATION -- 2.2%
*31,390 AMR Corp................................ 829,873
189,327 Boeing Co. (The)........................ 7,916,235
18,600 Brunswick Corp.......................... 308,063
89,415 Burlington Northern Santa Fe Corp....... 2,050,957
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
TRANSPORTATION -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
126,198 Carnival Corp........................... $ 2,460,861
45,609 CSX Corp................................ 966,341
31,676 Dana Corp............................... 671,135
117,478 Delphi Automotive Systems Corp.......... 1,710,773
25,557 Delta Air Lines, Inc.................... 1,292,226
*60,389 FedEx Corp.............................. 2,294,782
251,541 Ford Motor Co........................... 10,816,263
41,949 General Dynamics Corp................... 2,191,835
111,300 General Motors Corp..................... 6,462,356
37,033 Genuine Parts Co........................ 740,660
22,558 Goodrich (B.F.) Co. (The)............... 768,382
63,500 Harley-Davidson, Inc.................... 2,444,750
18,586 ITT Industries, Inc..................... 564,550
23,360 Kansas City Southern
Industries, Inc........................ 2,071,740
*12,916 Navistar International Corp............. 401,203
79,940 Norfolk Southern Corp................... 1,189,108
14,526 Northrop Grumman Corp................... 962,348
16,155 PACCAR, Inc............................. 641,152
*26,922 Sabre Group Corp........................ 767,277
103,542 Southwest Airlines Co................... 1,960,827
30,089 Textron, Inc............................ 1,634,209
25,595 TRW, Inc................................ 1,110,183
51,807 Union Pacific Corp...................... 1,926,573
*13,933 US Airways Group, Inc................... 543,387
*27,135 Visteon Corp............................ 329,012
--------------
58,027,061
--------------
UTILITIES -- 2.0%
*88,642 AES Corp. (The)......................... 4,044,291
*39,414 Allied Waste Industries, Inc............ 394,140
28,747 Ameren Corp............................. 970,211
67,145 American Electric Power Co., Inc........ 1,989,171
*33,520 C P & L Energy, Inc..................... 1,070,545
33,318 CINergy Corp............................ 847,527
22,885 CMS Energy Corp......................... 506,331
16,967 Columbia Energy Group................... 1,113,459
44,520 Consolidated Edison, Inc................ 1,318,905
31,287 Constellation Energy Group, Inc......... 1,018,783
49,553 Dominion Resources, Inc................. 2,124,585
29,873 DTE Energy Co........................... 912,994
76,641 Duke Energy Corp........................ 4,320,636
5,687 Eastern Enterprises..................... 358,281
69,431 Edison International.................... 1,423,336
48,242 El Paso Energy Corp..................... 2,457,327
48,004 Entergy Corp............................ 1,305,109
48,262 FirstEnergy Corp........................ 1,128,124
20,620 Florida Progress Corp................... 966,563
37,384 FPL Group, Inc.......................... 1,850,508
25,509 GPU, Inc................................ 690,337
24,275 New Century Energies, Inc............... 728,250
*36,100 Niagara Mohawk Power Corp............... 503,144
9,754 NICOR, Inc.............................. 318,224
32,702 Northern States Power Co................ 660,172
6,203 ONEOK, Inc.............................. 160,890
35,408 PECO Energy Co.......................... 1,427,385
7,416 Peoples Energy Corp..................... 240,093
80,351 PG&E Corp............................... 1,978,643
17,776 Pinnacle West Capital Corp.............. 602,162
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-28 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
UTILITIES -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------------ --------------
<C> <S> <C>
30,214 PPL Corp................................ $ 662,820
45,214 Public Service Enterprise
Group, Inc............................. 1,565,535
61,656 Reliant Energy, Inc..................... 1,822,706
42,600 Sempra Energy........................... 724,200
135,426 Southern Co............................. 3,157,119
55,115 Texas Utilities Co...................... 1,625,893
37,108 Unicom Corp............................. 1,435,616
129,499 Waste Management, Inc................... 2,460,481
92,314 Williams Cos., Inc. (The)............... 3,848,340
--------------
54,732,836
--------------
Total common stocks..................... $2,621,673,999
==============
<CAPTION>
PRINCIPAL
AMOUNT
------------
<C> <S> <C>
SHORT-TERM SECURITIES -- 0.5%
U.S. TREASURY BILLS -- 0.0%
$ 1,000,000 5.82% due 09/07/00...................... $ 989,330
--------------
REPURCHASE AGREEMENT -- 0.5%
12,681,000 Interest in $320,669,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.436% due 07/03/00;
maturity amount $12,687,802
(Collateralized by $151,504,351 U.S.
Treasury Bonds 8.125% due 05/15/21,
$171,295,551 U.S. Treasury Inflation-
Indexed Securities 3.625% due
05/15/02)............................... 12,681,000
--------------
Total short-term securities............. $ 13,670,330
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<CAPTION>
DIVERSIFICATION OF NET ASSETS:
<S> <C> <C>
Total common stocks (cost
$1,659,749,410)........................... 99.7% $2,621,673,999
Total short-term securities (cost
$13,670,330).............................. 0.5 13,670,330
----- --------------
Total investment in securities (total cost
$1,673,419,740)........................... 100.2 2,635,344,329
Cash, receivables and other assets......... 0.1 3,874,276
Securities lending collateral.............. 2.1 54,357,458
Payable for securities purchased........... (0.3) (11,932,888)
Payable for fund shares redeemed........... (0.0) (809,683)
Securities lending collateral payable to
brokers................................... (2.1) (54,357,458)
Other liabilities.......................... (0.0) (13,523)
----- --------------
Net assets................................. 100.0% $2,626,462,511
===== ==============
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
2,000,000,000 shares authorized; 637,304,857
shares outstanding............................... $ 63,730,486
Capital surplus................................... 1,595,695,950
Accumulated undistributed net investment income... 9,767,523
Accumulated net realized loss on investments...... (4,620,493)
Unrealized appreciation of investments............ 961,924,589
Unrealized depreciation of futures
contracts ++..................................... (35,544)
-------------
Net assets........................................ $2,626,462,511
=============
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($2,622,420,196 DIVIDED BY
636,323,098 shares outstanding) (1,500,000,000 shares
authorized).............................................. $4.12
====
Class IB
Net asset value per share ($4,042,315 DIVIDED BY 981,759
shares outstanding) (500,000,000 shares authorized)...... $4.12
====
</TABLE>
* Non-income producing during the period.
++ The Fund had 12 Standard & Poor's 500 September 2000 Futures contracts open
as of June 30, 2000. These contracts had a value of $4,404,300 as of
June 30, 2000 and were collateralized by various U.S. Treasury Bills with a
market value of $989,330.
_____________________________________ MF-29 ____________________________________
<PAGE>
HARTFORD INTERNATIONAL ADVISERS HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------------- ------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 1.0%
$ -1,020,000 AESOP Funding II LLC, Series 1997-1A, $ 1,018,878
Class A1
6.22% due 10/20/01....................
500,000 Capital Auto Receivables Asset Trust, 496,095
Series 1999-2, Class A3
6.25% due 03/15/03....................
6,170 Daimler-Benz Vehicle Owner Trust, 6,170
Series 1998-A, Class A2
5.23% due 12/20/01....................
173,305 Ford Credit Auto Owner Trust, 172,778
Series 1999-B, Class A3
5.47% due 09/15/01....................
1,149,043 Ford Credit Auto Owner Trust, 1,145,090
Series 1999-D, Class A3
6.20% due 04/15/02....................
1,000,000 SLM Student Loan Trust, Series 2000-2, 999,390
Class A1L
6.406% due 07/25/08...................
532,085 USAA Auto Loan Grantor Trust, 525,339
Series 1999-1, Class A
6.10% due 02/15/06....................
------------
Total asset-backed securities........... $ 4,363,740
============
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.8%
200,000 Chase Manhattan Auto Trust, $ 199,128
Series 1997-B, Class A5
6.60% due 03/15/02....................
1,500,000 Chase Manhattan Credit Card Master 1,497,420
Trust, Series 1996-3, Class A
7.04% due 02/15/05....................
-660,000 GS Mortgage Security Corp. II, 660,000
Series 2000-GSFL, Class A
6.80% due 08/15/04....................
660,000 Honda Auto Lease Trust, Series 1999-A, 655,354
Class A5
6.65% due 07/15/05....................
159,025 NewCourt Equipment Trust Securities, 158,883
Series 1999-1, Class A2
6.31% due 08/20/01....................
-351,001 SASCO Floating Rate Commercial Mortgage, 351,344
Series 1999-C3, Class A
7.008% due 11/20/01...................
------------
Total collateralized mortgage $ 3,522,129
obligations.............................
============
</TABLE>
<TABLE>
<CAPTION>
SHARES
----------------
<C> <S> <C>
COMMON STOCKS -- 50.7%
AUSTRALIA -- 0.6%
42,103 News Corp., Ltd. ADR (Media &
Entertainment)......................... $ 2,294,455
BELGIUM -- 0.5%
1,900 Compagnie Luxembourgeoise pour
l'Audio-Visuel et la Finance
(Audiofina) (Media & Entertainment).... 245,878
42,800 Lernout & Hauspie Speech Products N.V.
(Electronics).......................... 1,885,875
------------
2,131,753
------------
<CAPTION>
MARKET
SHARES VALUE
---------------- ------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------------- ------------
<C> <S> <C>
CANADA -- 1.1%
56,200 Alcan Aluminum Ltd. (Metals, Minerals &
Mining)................................ $ 1,744,788
5,400 Nortel Networks Corp.
(Communications)....................... 374,294
34,600 Nortel Networks Holdings Corp.
(Communications)....................... 2,361,450
------------
4,480,532
------------
CHINA -- 0.7%
*4,700 China Mobile (Hong Kong) Ltd. ADR
(Communications)....................... 835,719
*52,800 China Unicom Ltd. ADR (Software &
Services).............................. 1,122,000
*43,700 PetroChina Co., Ltd. (Energy &
Services).............................. 914,969
------------
2,872,688
------------
CZECH REPUBLIC -- 0.1%
36,300 Cesky Telecom (Communications).......... 610,766
------------
FINLAND -- 1.2%
74,972 Nokia Oyj (Communications).............. 3,841,309
42,199 UPM-Kymmene Group (Forest & Paper
Products).............................. 1,051,739
------------
4,893,048
------------
FRANCE -- 6.9%
13,640 Air Liquids S.A. (Chemicals)............ 1,786,067
44,100 Alcatel (Communications)................ 2,904,208
71,857 Aventis S.A. (Drugs).................... 5,265,978
18,840 AXA (Financial Services)................ 2,979,870
23,240 BNP Paribas (Financial Services)........ 2,245,583
4,579 Canal Plus S.A. (Media &
Entertainment)......................... 772,531
4,500 Castorama Dubois Investissement S.A.
(Retail)............................... 1,117,235
6,500 France Telecom S.A. (Communications).... 912,193
1,400 L'Oreal (Consumer Non-Durables)......... 1,217,216
11,500 Pinault-Printemps - Redoute S.A.
(Retail)............................... 2,565,232
4,782 Thomson Multimedia (Media &
Entertainment)......................... 310,793
33,966 Total Fina S.A., B Shares (Energy &
Services).............................. 5,229,045
17,500 Vivendi S.A. (Media & Entertainment).... 1,550,877
------------
28,856,828
------------
GERMANY -- 4.0%
52,941 BASF AG (Chemicals)..................... 2,156,817
106,200 Bayerische Motoren Werke (BMW) AG
(Transportation)....................... 3,247,489
21,200 Deutsche Bank AG (Financial Services)... 1,779,199
*12,000 Infineon Technologies AG (Software &
Services).............................. 982,362
23,647 Linde AG (Machinery).................... 958,846
45,700 RWE AG (Utilities)...................... 1,557,357
2,457 SAP AG (Software & Services)............ 461,159
37,316 Siemens AG (Electronics)................ 5,608,847
------------
16,752,076
------------
HONG KONG -- 1.2%
271,000 Cheung Kong (Holdings) Ltd. (Real
Estate)................................ 2,998,544
454,800 Hong Kong Telecommunications
(Communications)....................... 1,000,614
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-30 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------------- ------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
HONG KONG -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------------- ------------
<C> <S> <C>
116,000 Sun Hung Kai Properties (Real Estate)... $ 833,351
------------
4,832,509
------------
INDIA -- 0.3%
29,900 ICICI Ltd. (Financial Services)......... 560,625
-39,200 Videsh Sanchar Nigam Ltd.
(Communications)....................... 612,500
------------
1,173,125
------------
IRELAND -- 0.2%
87,014 Allied Irish Banks PLC (Financial
Services).............................. 784,060
------------
ITALY -- 1.8%
70,370 Mediaset S.p.A. (Media &
Entertainment)......................... 1,079,295
119,900 San Paolo - IMI S.p.A. (Financial
Services).............................. 2,136,638
262,500 Telecom Italia Mobile S.p.A.
(Communications)....................... 2,692,437
105,444 Telecom Italia S.p.A. (Communications).. 1,455,515
------------
7,363,885
------------
JAPAN -- 10.2%
144,000 Asahi Glass Co., Ltd. (Consumer
Durables).............................. 1,612,831
37,000 Canon, Inc. (Computers & Office
Equipment)............................. 1,846,476
92,000 Dai Nippon Printing Co., Ltd. (Media &
Entertainment)......................... 1,625,194
64,000 Fujisawa Pharmaceutical Co. (Drugs)..... 2,595,048
25,000 Hoya Corp. (Medical Instruments &
Supplies).............................. 2,244,770
33,400 Matsumotokiyoshi Co., Ltd. (Retail)..... 3,510,423
7,000 Matsushita Communication Industrial Co.,
Ltd. (Communications).................. 819,081
53,000 Minebea Co., Ltd. (Electronics)......... 666,248
108,000 Mitsubishi Electric Corp.
(Electronics).......................... 1,171,855
83,000 NEC Corp. (Electronics)................. 2,612,345
147,000 Nikko Securities Co., Ltd. (Financial
Services).............................. 1,458,864
217 Nippon Telegraph & Telephone Corp.
(Communications)....................... 2,891,925
39 NTT Mobile Communication Network, Inc.
(Media & Entertainment)................ 1,057,924
78,000 Omron Corp. (Electrical Equipment)...... 2,123,221
21,000 Promise Co., Ltd. (Financial
Services).............................. 1,663,303
106,000 Ricoh Co., Ltd. (Media &
Entertainment)......................... 2,249,212
11,000 Softbank Corp. (Software & Services).... 1,497,143
13,800 Sony Corp. (Media & Entertainment)...... 1,291,286
46,000 Takeda Chemical Industries Ltd.
(Drugs)................................ 3,026,044
135,000 Tokyo Style Co., Ltd. (Apparel &
Textile)............................... 1,275,974
195,000 Toshiba Corp. (Computers & Office
Equipment)............................. 2,206,160
14,400 Uni-Charm Corp. (Consumer Non-
Durables).............................. 873,787
36,000 Yamanouchi Pharmaceuticals Co., Ltd.
(Drugs)................................ 1,970,104
------------
42,289,218
------------
MEXICO -- 0.8%
*681,200 Cifra S.A. de CV (Retail)............... $ 1,598,641
<CAPTION>
MARKET
SHARES VALUE
---------------- ------------
<C> <S> <C>
</TABLE>
MEXICO -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------------- ------------
<C> <S> <C>
22,700 Fomento Economico Mexicano S.A. de C.V.
(Food, Beverage & Tobacco)............. 977,519
*13,800 Grupo Financiero - Banacci (Financial
Services).............................. 58,883
12,200 Telefonos de Mexico S.A. ADR
(Communications)....................... 696,925
------------
3,331,968
------------
NETHERLANDS -- 3.8%
*64,500 Aegon N.V. (Financial Services)......... 2,304,366
6,157 Heineken N.V. (Food, Beverage &
Tobacco)............................... 376,255
42,191 ING Groep N.V. (Financial Services)..... 2,863,423
24,600 Koninklijke KPN N.V. (Communications)... 1,104,783
74,240 Koninklijke Philips Electronics N.V.
(Electronics).......................... 3,515,583
62,500 Royal Dutch Petroleum Co. (Energy &
Services).............................. 3,900,259
8,600 Royal Dutch Petroleum Co. ADR (Energy &
Services).............................. 529,438
12,600 STMicroelectronics N.V. (Electronics)... 797,163
22,200 United Pan-Europe Communications N.V.
ADR (Media & Entertainment)............ 599,400
------------
15,990,670
------------
SINGAPORE -- 0.3%
131,250 Overseas-Chinese Banking Corp., Ltd.
(Financial Services)................... 903,352
103,922 Overseas Union Bank Ltd. (Financial
Services).............................. 402,710
------------
1,306,062
------------
SOUTH KOREA -- 1.0%
6,940 Korea Telecom Corp.(Communications)..... 611,225
11,880 Korea Telecom Corp. ADR
(Communications)....................... 574,695
8,810 Samsung Electronics (Electronics)....... 2,915,627
------------
4,101,547
------------
SPAIN -- 3.0%
47,500 Banco Popular Espanol S.A. (Financial
Services).............................. 1,475,268
264,900 Banco Santander Central Hispano S.A.
(Financial Services)................... 2,805,929
139,900 Endesa S.A. (Utilities)................. 2,721,023
20,200 Endesa S.A. ADR (Utilities)............. 393,900
*-5,167 Groupo Prisa S.A. (Media &
Entertainment)......................... 120,359
108,200 Repsol YPF S.A. (Energy & Services)..... 2,162,548
46,561 Telefonica S.A. (Communications)........ 2,982,814
------------
12,661,841
------------
SWEDEN -- 1.3%
273,430 Skandinaviska Enskilda, Class A
(Financial Services)................... 3,257,819
111,240 Telefonaktiebolaget LM Ericsson AB
(Communications)....................... 2,213,201
------------
5,471,020
------------
SWITZERLAND -- 1.7%
690 Holderbank Financiere Glarus AG (Bearer)
(Consumer Durables).................... 848,675
2,565 Nestle S.A. (Food, Beverage & Tobacco).. $ 5,150,301
</TABLE>
_____________________________________ MF-31 ____________________________________
<PAGE>
HARTFORD INTERNATIONAL ADVISERS HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------------- ------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
SWITZERLAND -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
---------------- ------------
<C> <S> <C>
690 Novartis AG (Drugs)..................... 1,096,488
------------
7,095,464
------------
THAILAND -- 0.2%
*17,000 Siam Cement Co. (Consumer Durables)..... 318,991
*747,367 Siam Commercial Bank (Financial
Services).............................. 87,636
*478,600 Thai Farmers Bank (Financial Services).. 402,659
------------
809,286
------------
UNITED KINGDOM -- 9.8%
132,300 Abbey National PLC (Financial
Services).............................. 1,582,281
78,900 AstraZeneca Group PLC ADR (Drugs)....... 3,686,123
82,400 Barclays PLC (Financial Services)....... 2,045,823
464,980 BP Amoco PLC (Energy & Services)........ 4,462,934
468,636 British Airways PLC (Transportation).... 2,697,751
267,900 British American Tobacco PLC (Food,
Beverage & Tobacco).................... 1,792,635
146,844 Cable & Wireless PLC (Utilities)........ 2,494,285
*49,446 COLT Telecom Group PLC
(Communications)....................... 1,643,095
51,200 III Group PLC (Financial Services)...... 1,051,058
348,800 Invensys PLC (Electrical Equipment)..... 1,308,239
56,533 Lloyds TSB Group PLC (Financial
Services).............................. 535,764
107,300 Marconi PLC (Communications)............ 1,394,559
174,215 Prudential Corp. PLC (Financial
Services).............................. 2,553,040
108,370 Psion PLC GBP (Software & Services)..... 1,044,250
587,600 Smith & Nephew PLC (Medical
Instruments & Supplies)................ 2,134,961
64,400 SmithKline Beecham PLC (Drugs).......... 846,257
24,700 SmithKline Beecham PLC ADR, Class A
(Drugs)................................ 1,610,131
176,880 Standard Chartered PLC (Financial
Services).............................. 2,199,800
244,200 Tomkins PLC (Food, Beverage &
Tobacco)............................... 787,449
1,059,264 Vodafone AirTouch PLC
(Communications)....................... 4,297,699
109,900 Williams PLC (Business Services)........ 636,394
------------
40,804,528
------------
Total common stocks..................... $210,907,329
============
<CAPTION>
PRINCIPAL
AMOUNT
(IN LOCAL
CURRENCY)
----------------
<C> <S> <C>
CORPORATE NOTES -- 5.5%
AUSTRALIA -- 0.2%
$ 1,000,000 National Australia Bank (Financial
Services)
6.098% due 02/12/02................... $ 997,651
GERMANY -- 0.6%
$ 1,500,000 Bayerische Hypo Vereinsbank AG
(Financial Services)
7.25% due 05/14/01.................... 1,500,900
<CAPTION>
PRINCIPAL
AMOUNT
(IN LOCAL MARKET
CURRENCY) VALUE
---------------- ------------
<C> <S> <C>
CORPORATE NOTES -- (CONTINUED)
GERMANY -- (CONTINUED)
- 1,900,000 Toyota Motor Credit Corp. (Financial
Services)
5.375% due 12/28/01................... $ 930,525
------------
2,431,425
------------
JAPAN -- 1.0%
- 460,000,000 KFW International Finance, Inc.
(Financial Services)
1.00% due 12/20/04.................... 4,368,199
------------
NETHERLANDS -- 0.2%
$ 750,000 Bank Nederlandse Gemeenten N.V.
(Financial Services)
3.25% due 07/16/01.................... 721,268
------------
SWEDEN -- 0.4%
$ 1,500,000 Svenska Handelsbanken (Financial
Services)
6.60% due 03/07/01.................... 1,494,062
------------
UNITED KINGDOM -- 0.6%
- 525,000 British Gas PLC (Energy & Services)
5.3.75% due 12/07/09.................. 707,814
- 1,100,000 European Investment Bank (Financial
Services)
7.625% due 12/07/06................... 1,760,910
------------
2,468,724
------------
UNITED STATES OF AMERICA -- 2.5%
$ 700,000 American General Finance Corp.
(Financial Services)
6.875% due 12/14/01................... 694,655
- 500,000 Federal Home Loan Bank (Financial
Services)
5.625% due 06/10/03................... 738,669
- 1,300,000 Federal Home Loan Mortgage Association
(Financial Services)
5.50% due 12/07/03.................... 1,906,468
- 705,000 General Electric Capital Corp.
(Financial Services)
5.125% due 01/12/04................... 1,015,210
$ 341,000 General Electric Capital Corp.
(Financial Services)
7.375% due 05/09/01................... 341,273
$ 1,000,000 General Electric Capital Corp.
(Financial Services)
7.38% due 05/23/01.................... 1,001,525
- 350,000 General Motors Acceptance Corp.
(Financial Services)
6.875% due 09/09/04................... 531,109
$ 1,550,000 International Bank for Reconstruction &
Development (Financial Services)
5.625% due 04/23/01................... 1,531,555
$ 816,000 Morgan Guaranty Trust (Financial
Services)
6.375% due 03/26/01................... 810,737
$ 800,000 Wells Fargo & Co. (Financial Services)
6.35% due 09/15/01.................... 801,139
$ 1,230,000 Worldcom, Inc. (Communications)
6.125% due 08/15/01................... 1,214,418
------------
10,586,758
------------
Total corporate notes................... $ 23,068,086
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-32 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------------- ------------
<C> <S> <C>
ENHANCED EQUIPMENT TRUST CERTIFICATES -- 0.2%
$ 750,000 Daimler Chrysler Auto Trust,
Series 2000-A, Class A2
6.76% due 01/06/03.................... $ 747,435
------------
Total enhanced equipment trust
certificates............................ $ 747,435
============
<CAPTION>
PRINCIPAL
AMOUNT
(IN LOCAL
CURRENCY)
----------------
<C> <S> <C>
FOREIGN GOVERNMENT BONDS -- 20.4%
- 17,800,000 Denmark Kingdom
7.00% due 07/15/04.................... $ 2,387,925
- 4,000,000 Deutschland Republic
4.50% due 07/04/09.................... 3,639,187
- 4,000,000 Deutschland Republic
6.00% due 02/16/06.................... 3,988,497
- 3,200,000 Deutschland Republic
6.25% due 01/04/24.................... 3,325,154
- 5,000,000 Deutschland Republic
6.875% due 05/12/05................... 5,146,665
- 4,000,000 Finland Republic
5.75% due 02/23/11.................... 3,935,966
- 3,000,000 France BTAN
3.00% due 07/12/01.................... 2,821,127
- 6,000,000 France BTAN
4.50% due 07/12/03.................... 5,663,536
- 7,000,000 France BTAN
5.75% due 02/23/11.................... 6,325,968
- 5,750,000 France O.A.T.
6.00% due 10/25/25.................... 5,726,851
- 750,000,000 Hellenic Republic
6.50% due 01/11/14.................... 2,190,231
- 381,000 Iceland Republic
8.75% due 05/12/03.................... 604,684
- 5,700,000 Italy BTPS
4.00% due 07/15/04.................... 5,216,986
- 1,750,000 Italy BTPS
4.50% due 05/01/09.................... 1,558,762
- 7,500,000 Italy BTPS
4.75% due 07/01/05.................... 7,016,871
- 568,102 Italy BTPS
6.50% due 11/01/27.................... 585,201
- 473,900,000 JAPAN #213
1.40% due 06/22/09.................... 4,334,466
- 310,000,000 JAPAN #215
1.90% due 09/21/09.................... 2,977,481
- 260,000,000 JAPAN #184
2.90% due 12/20/05.................... 2,665,576
- 12,200,000 Norway Kingdom
5.50% due 05/15/09.................... 1,362,381
- 4,290,000 Republic of South Africa
13.00% due 08/31/10................... 592,496
- 9,000,000 Spanish Kingdom
4.25% due 07/30/02.................... 8,484,951
- 10,500,000 Sweden Kingdom #1034
9.00% due 04/20/09.................... 1,503,627
- 900,000 U.K. Treasury Gilt
5.75% due 12/07/09.................... 1,422,460
- 800,000 U.K. Treasury Gilt
7.75% due 09/08/06.................... 1,346,038
------------
Total foreign government bonds.......... $ 84,823,087
============
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------------- ------------
<C> <S> <C>
U.S. TREASURIES & FEDERAL AGENCIES -- 1.8%
FEDERAL HOME LOAN MORTGAGE ASSOCIATION
-- 0.9%
$ 1,099,950 7.00% due 09/01/29 - 01/01/30......... $ 1,062,971
2,744,619 7.11% due 10/15/29.................... 2,808,374
------------
3,871,345
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
-- 0.6%
2,368,062 7.50% due 10/15/29.................... 2,352,898
------------
U.S. TREASURY BONDS -- 0.1%
575,000 6.50% due 02/15/10.................... 594,586
------------
U.S. TREASURY NOTES -- 0.2%
910,000 5.50% due 01/31/03.................... 890,947
------------
Total U.S. treasuries & federal
agencies................................ $ 7,709,776
============
SHORT-TERM SECURITIES -- 21.3%
COMMERCIAL PAPER -- 4.4%
4,500,000 British Telecommunications
6.18% due 11/15/00.................... $ 4,395,712
1,500,000 Delaware Funding
6.744% due 07/24/00................... 1,494,208
1,500,000 du Pont (E.I.) de Nemours & Co.
6.53% due 07/17/00.................... 1,496,118
2,200,000 Falcon Asset Security
6.746% due 07/14/00................... 2,195,563
1,450,000 Falcon Asset Security
6.795% due 08/25/00................... 1,435,847
2,000,000 France Telecom S.A.
6.716% due 07/12/00................... 1,996,710
1,500,000 Halifax PLC
6.803% due 09/06/00................... 1,482,125
1,500,000 Island Finance
6.769% due 07/24/00................... 1,494,216
2,200,000 Scripps (E.W.) Co. (The)
6.16% due 07/18/00.................... 2,194,353
------------
18,184,852
------------
CORPORATE BONDS -- 2.5%
670,000 Bayerische Hypo Vereinsbank AG
6.375% due 09/06/00................... 668,398
1,000,000 Columbia/HCA Healthcare Corp.
5.89% due 12/15/00.................... 995,888
2,000,000 General Motors Acceptance Corp.
6.90% due 07/05/00.................... 2,000,000
1,734,000 Inter-American Development Bank
6.375% due 08/01/09................... 1,732,476
844,000 International Bank for Reconstruction &
Development
6.00% due 08/22/00.................... 842,734
1,000,000 KFW International Finance, Inc.
5.75% due 12/01/00.................... 993,315
3,000,000 Prudential Funding Corp.
6.13% due 12/21/00.................... 2,998,500
300,000 Statoil
6.25% due 10/10/00.................... 299,311
------------
10,530,622
------------
U.S. TREASURY BILLS -- 0.4%
1,800,000 5.57% due 07/27/00.................... 1,793,316
------------
</TABLE>
_____________________________________ MF-33 ____________________________________
<PAGE>
HARTFORD INTERNATIONAL ADVISERS HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------------- ------------
<C> <S> <C>
</TABLE>
SHORT-TERM SECURITIES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------------- ------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 14.0%
$ 58,138,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $58,169,967
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718 U.S.
Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29).................... $ 58,138,000
------------
Total short-term securities............. $ 88,646,790
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total asset-backed securitities (cost
$4,375,885)................................. 1.0% $ 4,363,740
Total collateralized mortgage obligations
(cost $3,518,080)........................... 0.8 3,522,129
Total common stocks (cost $186,246,407)...... 50.7 210,907,329
Total corporate notes (cost $23,850,678)..... 5.5 23,068,086
Total enhanced equipment trust certificates
(cost $747,736)............................. 0.2 747,435
Total foreign government bonds (cost
$86,443,074)................................ 20.4 84,823,087
Total U.S. treasuries & federal agencies
(cost $7,654,083)........................... 1.8 7,709,776
Total short-term securities (cost
$88,651,404)................................ 21.3 88,646,790
----- -----------
Total investment in securities (total cost
$401,487,347)............................... 101.7 423,788,372
Cash, receivables and other assets........... 3.7 15,534,136
Securities lending collateral................ 2.7 11,048,701
Payable for securities purchased............. (4.3) (18,309,045)
Payable for fund shares redeemed............. (0.9) (3,658,025)
Securities lending collateral payable to
brokers..................................... (2.7) (11,048,701)
Other liabilities............................ (0.2) (1,323,865)
----- -----------
Net assets................................... 100.0% $416,031,573
===== ===========
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value 0.10 per share;
750,000,000 shares authorized; 327,683,375
shares outstanding.......................... $32,768,338
Capital surplus.............................. 336,472,756
Accumulated undistributed net investment
income...................................... 4,010,344
Accumulated undistributed net realized gain
on investments.............................. 23,850,123
Unrealized appreciation of investments....... 22,301,024
Unrealized depreciation of futures
contracts -................................. (111,273)
Unrealized depreciation of forward foreign
currency contracts (See Note 2)w............ (3,263,767)
Unrealized appreciation of other assets and
liabilities in foreign currencies........... 4,028
-----------
Net assets, applicable to shares
outstanding................................. $416,031,573
===========
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($414,486,740 DIVIDED BY
326,465,403 shares outstanding) (562,500,000 shares
authorized)............................................... $1.27
====
Class IB
Net asset value per share ($1,544,833 DIVIDED BY 1,217,972
shares outstanding) (187,500,000 shares authorized)....... $1.27
====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION BY INDUSTRY:
Apparel & Textile............................ 0.3% $ 1,275,974
Business Services............................ 0.2 636,394
Chemicals.................................... 0.9 3,942,884
Communications............................... 8.9 36,831,008
Computers & Office Equipment................. 1.0 4,052,636
Consumer Durables............................ 0.7 2,780,497
Consumer Non-Durables........................ 0.5 2,091,003
Drugs........................................ 4.8 20,096,174
Electrical Equipment......................... 0.8 3,431,460
Electronics.................................. 4.6 19,173,542
Energy & Services............................ 4.1 17,199,192
Financial Services........................... 9.2 38,137,955
Food, Beverage & Tobacco..................... 2.2 9,084,159
Forest & Paper Products...................... 0.3 1,051,739
Machinery.................................... 0.2 958,846
Media & Entertainment........................ 3.2 13,197,204
Medical Instruments & Supplies............... 1.1 4,379,731
Metals, Minerals & Mining.................... 0.4 1,744,788
Real Estate.................................. 0.9 3,831,895
Retail....................................... 2.1 8,791,531
Software & Services.......................... 1.2 5,106,914
Transportation............................... 1.4 5,945,239
Utilities.................................... 1.7 7,166,564
----- -----------
Total common stocks.......................... 50.7% $210,907,329
===== ===========
Communications............................... 0.3% $ 1,214,418
Energy & Services............................ 0.2 707,814
Financial Services........................... 5.0 21,145,854
----- -----------
Total corporate notes........................ 5.5% $23,068,086
===== ===========
</TABLE>
* Non-income producing during the period.
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
2000, the market value of these securities amounted to $2,763,081 or 0.7%
of net assets.
- German Mark
- Danish Krone
- Euro
- British Pound
- Greek Drachma
- Japanese Yen
- Norwegian Kroner
- Swedish Krona
- South African Rand
- U.S. Dollars
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-34 ____________________________________
<PAGE>
- The Fund had 28 September 2000 NEW FTSE 100 Index future contracts, 1
September 2000 S&P/Toronto Stock Exchange 60 Index futures contracts, 3
September 2000 ASX All Ordinaries Share Price Index futures contracts, 5
September 2000 TSE 5 year JGB Index futures contracts, 16 September 2000 TSE
10 year JGB Index futures contracts, 23 September 2000 TSE Tokyo Price Index
futures contracts, 68 July 2000 OMX Index futures contracts, 125
September 2000 Dow Jones Euro STOXX 50 Index futures contracts open as of
June 30, 2000. These contracts had a market value of $39,099,183 as of
June 30, 2000, and were collateralized by various U.S. Treasury obligations
with a market value of $1,793,316.
wFORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT JUNE 30, 2000
<TABLE>
<CAPTION>
UNREALIZED
TOTAL AGGREGATE DELIVERY APPRECIATION
DESCRIPTION MARKET VALUE FACE VALUE DATE (DEPRECIATION)
----------- ------------ ----------- -------- --------------
<S> <C> <C> <C> <C>
Australian Dollar (Buy) $ 135,541 $ 135,536 09/29/00 $ 5
Australian Dollar (Buy) 1,111,576 1,121,506 09/29/00 (9,930)
British Pounds (Buy) 2,770,011 2,762,390 09/15/00 7,621
British Pounds (Buy) 533,155 532,645 07/05/00 510
British Pounds (Buy) 1,048,267 1,052,076 07/06/00 (3,809)
British Pounds (Sell) 10,254,553 9,968,610 11/30/00 (285,943)
British Pounds (Sell) 226,385 226,828 07/07/00 443
British Pounds (Sell) 342,479 339,018 07/03/00 (3,461)
Canadian Dollars (Buy) 81,088 81,331 09/15/00 (243)
Danish Krone (Sell) 2,434,327 2,443,427 08/14/00 9,100
EURO (Buy) 1,554,917 1,497,779 07/18/00 57,138
EURO (Buy) 467,372 445,415 07/18/00 21,957
EURO (Buy) 1,431 1,401 07/17/00 30
EURO (Buy) 1,173,125 1,161,858 07/17/00 11,267
EURO (Buy) 2,009,572 2,002,577 07/17/00 6,995
EURO (Buy) 663,340 659,682 07/17/00 3,658
EURO (Buy) 2,753,282 2,749,461 10/03/00 3,821
EURO (Buy) 445,450 444,503 07/31/00 947
EURO (Sell) 6,512,273 6,188,216 07/17/00 (324,057)
EURO (Sell) 54,556,503 52,152,896 07/17/00 (2,403,607)
EURO (Sell) 591,331 565,279 07/17/00 (26,052)
EURO (Sell) 1,146,420 1,081,487 07/17/00 (64,933)
EURO (Sell) 2,431,134 2,378,141 07/17/00 (52,993)
EURO (Sell) 11,481,960 11,245,800 09/08/00 (236,160)
EURO (Sell) 4,006,746 4,015,484 07/17/00 8,738
EURO (Sell) 1,468,883 1,481,326 07/18/00 12,443
EURO (Sell) 878,182 859,320 07/31/00 (18,862)
EURO (Sell) 794,066 789,287 07/05/00 (4,779)
EURO (Sell) 1,368,966 1,377,481 09/05/00 8,515
EURO (Sell) 805,221 790,112 07/03/00 (15,109)
Hong Kong Dollar (Sell) 305,090 305,071 07/03/00 (19)
Israeli Shekel (Buy) 681,846 683,093 09/22/00 (1,247)
Israeli Shekel (Buy) 730,549 727,096 09/22/00 3,453
Israeli Shekel (Sell) 754,901 751,479 09/22/00 (3,422)
Isreali Shekel (Buy) 673,079 688,247 09/22/00 (15,168)
Japanese Yen (Buy) 3,373,509 3,307,541 09/07/00 65,968
Japanese Yen (Buy) 42,155 42,252 07/03/00 (97)
Japanese Yen (Sell) 883,786 890,975 08/09/00 7,189
Japanese Yen (Sell) 952,155 958,186 08/09/00 6,031
Japanese Yen (Sell) 666,414 669,234 08/09/00 2,820
Japanese Yen (Sell) 1,108,007 1,117,220 07/05/00 9,213
Japanese Yen (Sell) 5,374,778 5,417,673 09/05/00 42,895
Japanese Yen (Sell) 1,071,853 1,069,065 07/05/00 (2,788)
South African Rand (Buy) 20,258 20,163 07/03/00 95
Swedish Krona (Buy) 1,059,325 1,071,808 07/28/00 (12,483)
Swedish Krona (Sell) 1,554,978 1,495,087 07/19/00 (59,891)
Swedish Krona (Sell) 1,407,229 1,392,766 07/05/00 (14,463)
Swiss Franc (Buy) 19,878 19,830 07/05/00 48
Swiss Franc (Buy) 970,304 965,001 07/03/00 5,303
Thai Baht (Sell) 741,195 740,741 08/22/00 (454)
-----------
$(3,263,767)
===========
</TABLE>
_____________________________________ MF-35 ____________________________________
<PAGE>
HARTFORD ADVISERS HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 0.3%
$ -43,000,000 AESOP Funding II LLC, Series 1998-1,
Class A
6.14% due 05/20/06.................... $ 40,739,920
--------------
Total asset-backed securities........... $ 40,739,920
==============
COMMERCIAL MORTGAGE BACKED SECURITIES -- 0.5%
18,000,000 Asset Securitization Corp.,
Series 1997-D4, Class A1D
7.49% due 04/14/29.................... $ 18,016,272
10,000,000 Asset Securitization Corp.,
Series 1997-D5, Class A1E
6.93% due 02/14/41.................... 9,368,660
25,000,000 Chase Commercial Mortgage Securities
Corp., Series 1997-1, Class A2
7.37% due 02/19/07.................... 24,967,075
17,225,000 First Union - Lehman Brothers Commercial
Mortgage Trust, Series 1997-C1,
Class A3
7.38% due 04/18/07.................... 17,232,596
--------------
Total commercial mortgage backed
securities.............................. $ 69,584,603
==============
<CAPTION>
SHARES
---------------------
<C> <S> <C>
COMMON STOCKS -- 61.0%
AEROSPACE & DEFENSE -- 1.0%
*450,000 General Motors, Class H................. $ 39,487,500
1,650,000 United Technologies Corp................ 97,143,750
--------------
136,631,250
--------------
BUSINESS SERVICES -- 0.1%
1,256,050 ServiceMaster Co. (The)................. 14,287,569
--------------
CHEMICALS -- 2.0%
2,550,000 Dow Chemical Co. (The).................. 76,978,125
520,500 du Pont (E.I.) de Nemours & Co.......... 22,771,875
2,404,000 Pharmacia Corp.......................... 124,256,750
1,400,000 Praxair, Inc............................ 52,412,500
--------------
276,419,250
--------------
COMMUNICATIONS -- 6.6%
2,780,000 AT&T Corp............................... 87,917,500
*50,000 COLT Telecom Group PLC.................. 1,661,504
*2,385,900 Global Crossing Ltd..................... 62,778,994
2,400,000 Lucent Technologies, Inc................ 142,200,000
2,200,000 Motorola, Inc........................... 63,937,500
20,000 Nippon Telegraph & Telephone Corp.
ADR.................................... 13,675,000
500,000 Nortel Networks Holdings Corp........... 34,125,000
4,125,000 SBC Communications, Inc................. 178,406,250
*400,000 Sprint PCS Group........................ 23,800,000
*300,000 Tellabs, Inc............................ 20,531,250
1,800,000 Verizon Communications.................. 91,462,500
*4,300,000 Worldcom, Inc........................... 197,262,500
--------------
917,757,998
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 6.1%
*4,551,300 Cisco Systems, Inc...................... 289,292,006
*1,750,000 Dell Computer Corp...................... 86,296,875
<CAPTION>
MARKET
SHARES VALUE
--------------------- --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
COMPUTERS & OFFICE
EQUIPMENT -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------------------- --------------
<C> <S> <C>
*1,600,000 EMC Corp................................ $ 123,100,000
750,000 Hewlett-Packard Co...................... 93,656,250
1,540,000 International Business Machines Corp.... 168,726,250
*2,000,000 Solectron Corp.......................... 83,750,000
--------------
844,821,381
--------------
CONSUMER NON-DURABLES -- 3.7%
1,700,000 Cardinal Health, Inc.................... 125,800,000
1,400,000 Gillette Co. (The)...................... 48,912,500
1,375,000 Procter & Gamble Co. (The).............. 78,718,750
*3,614,000 Safeway, Inc............................ 163,081,750
2,000,000 Tyco International Ltd.................. 94,750,000
--------------
511,263,000
--------------
DRUGS -- 4.8%
2,410,000 Abbott Laboratories..................... 107,395,625
3,100,000 American Home Products Corp............. 182,125,000
1,050,000 Bristol-Myers Squibb Co................. 61,162,500
2,320,000 Merck & Co., Inc........................ 177,770,000
3,024,925 Pfizer, Inc............................. 145,196,400
--------------
673,649,525
--------------
ELECTRICAL EQUIPMENT -- 0.8%
*1,444,100 Teradyne, Inc........................... 106,141,350
--------------
ELECTRONICS -- 5.7%
5,400,000 General Electric Co..................... 286,200,000
1,933,900 Intel Corp.............................. 258,538,256
*1,100,000 Micron Technology, Inc.................. 96,868,750
1,800,000 Texas Instruments, Inc.................. 123,637,500
*305,800 Vitesse Semiconductor Corp.............. 22,495,413
--------------
787,739,919
--------------
ENERGY & SERVICES -- 3.6%
100,000 Conoco, Inc., Class B................... 2,456,250
2,700,000 Exxon Mobil Corp........................ 211,950,000
1,300,000 Royal Dutch Petroleum Co................ 80,031,250
1,134,100 Schlumberger Ltd........................ 84,632,213
1,550,000 Texaco, Inc............................. 82,537,500
1,375,000 Unocal Corp............................. 45,546,875
--------------
507,154,088
--------------
FINANCIAL SERVICES -- 8.4%
1,375,000 American International Group, Inc....... 161,562,500
5,305,400 Associates First Capital Corp.,
Class A................................ 118,376,737
2,700,000 Citigroup, Inc.......................... 162,675,000
1,900,000 Fleet Boston Financial Corp............. 64,600,000
3,150,000 Franklin Resources, Inc................. 95,681,250
250,000 Goldman Sachs Group, Inc. (The)......... 23,718,750
2,195,000 Marsh & McLennan Cos., Inc.............. 229,240,313
1,100,000 Merrill Lynch & Co., Inc................ 126,500,000
1,750,000 State Street Corp....................... 185,609,375
--------------
1,167,963,925
--------------
FOOD, BEVERAGE &
TOBACCO -- 1.2%
600,000 Coca-Cola Co. (The)..................... 34,462,500
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-36 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------------------- --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
FOOD, BEVERAGE &
TOBACCO -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------------------- --------------
<C> <S> <C>
3,100,000 PepsiCo, Inc............................ $ 137,756,250
--------------
172,218,750
--------------
FOREST & PAPER PRODUCTS -- 1.3%
1,700,000 Kimberly-Clark Corp..................... 97,537,500
1,950,000 Weyerhaeuser Co......................... 83,850,000
--------------
181,387,500
--------------
MACHINERY -- 0.4%
1,700,000 Caterpillar, Inc........................ 57,587,500
--------------
MEDIA & ENTERTAINMENT -- 3.1%
*5,546,000 AT&T - Liberty Media Group, Class A..... 134,490,500
2,700,000 Gannett Co., Inc........................ 161,493,750
*1,953,000 Viacom, Inc., Class B................... 133,170,188
--------------
429,154,438
--------------
MEDICAL INSTRUMENTS & SUPPLIES -- 1.5%
900,000 Guidant Corp............................ 44,550,000
1,670,000 Johnson & Johnson Co.................... 170,131,250
--------------
214,681,250
--------------
METALS, MINERALS &
MINING -- 1.1%
3,200,000 Alcoa, Inc.............................. 92,800,000
1,050,000 Illinois Tool Works, Inc................ 59,850,000
--------------
152,650,000
--------------
REAL ESTATE -- 0.0%
*6,150 Security Capital Group, Inc., Class A.. 5,082,974
--------------
RETAIL -- 3.9%
2,219,600 CVS Corp................................ 88,784,000
2,400,000 Home Depot, Inc. (The).................. 119,850,000
5,000,000 McDonald's Corp......................... 164,687,500
3,000,000 Wal-Mart Stores, Inc.................... 172,875,000
--------------
546,196,500
--------------
SOFTWARE & SERVICES -- 5.5%
*350,000 3Com Corp............................... 20,168,750
*1,450,000 America Online, Inc..................... 76,487,500
2,000,000 Automatic Data Processing, Inc.......... 107,125,000
*1,476,100 China Unicom Ltd. ADR................... 31,367,125
*1,200,000 Computer Sciences Corp.................. 89,625,000
1,483,400 Electronic Data Systems Corp............ 61,190,250
*4,200,000 Microsoft Corp.......................... 336,000,000
*262,150 VeriSign, Inc........................... 46,269,475
--------------
768,233,100
--------------
TRANSPORTATION -- 0.2%
*1,181,436 Sabre Group Corp........................ 33,670,926
--------------
Total common stocks..................... $8,504,692,193
==============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
CORPORATE NOTES -- 16.8%
AEROSPACE & DEFENSE -- 0.1%
$ 13,135,000 Honeywell International, Inc.
6.60% due 04/15/01.................... $ 13,084,613
--------------
CHEMICALS -- 0.6%
20,000,000 ICI Wilmington, Inc.
6.95% due 09/15/04.................... 19,285,320
25,000,000 Praxair, Inc.
6.15% due 04/15/03.................... 24,011,625
40,000,000 Rohm & Haas Co.
7.40% due 07/15/09.................... 39,777,240
--------------
83,074,185
--------------
COMMUNICATIONS -- 0.2%
40,000,000 AT&T Corp.
6.50% due 03/15/29.................... 33,500,360
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 0.7%
50,000,000 Hewlett-Packard Co.
7.15% due 06/15/05.................... 50,182,100
30,000,000 International Business Machines Corp.
6.50% due 01/15/28.................... 27,095,700
18,000,000 Pitney Bowes, Inc.
5.50% due 04/15/04.................... 17,175,762
--------------
94,453,562
--------------
CONSUMER NON-DURABLES -- 0.5%
25,000,000 Alberto Culver Co.
8.25% due 11/01/05.................... 25,205,450
18,000,000 Colgate-Palmolive Co.
5.58% due 11/06/08.................... 16,242,282
-30,000,000 Tyco International Ltd.
6.875% due 09/05/02................... 29,692,230
--------------
71,139,962
--------------
DRUGS -- 0.2%
26,000,000 American Home Products Corp.
7.25% due 03/01/23.................... 24,792,040
10,000,000 Zeneca Wilmington, Inc.
6.30% due 06/15/03.................... 9,889,820
--------------
34,681,860
--------------
EDUCATION -- 0.1%
10,900,000 Harvard University
8.125% due 04/15/2007................. 11,244,985
--------------
ELECTRICAL EQUIPMENT -- 0.2%
30,000,000 Danaher Corp.
6.00% due 10/15/08.................... 26,998,860
--------------
ELECTRONICS -- 0.5%
50,000,000 Eaton Corp.
6.95% due 11/15/04.................... 48,573,050
21,000,000 Motorola, Inc.
7.60% due 01/01/07.................... 21,478,842
--------------
70,051,892
--------------
ENERGY & SERVICES -- 0.5%
12,250,000 BP Amoco PLC
6.50% due 08/01/07.................... 11,782,650
</TABLE>
_____________________________________ MF-37 ____________________________________
<PAGE>
HARTFORD ADVISERS HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
ENERGY & SERVICES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
$ 15,000,000 Husky Oil Ltd.
6.875% due 11/15/03................... $ 14,480,955
15,000,000 Hydro-Quebec
7.375% due 02/01/03................... 15,014,700
17,285,000 Northern Border Pipeline
7.75% due 09/01/09.................... 16,596,245
10,000,000 Southern California Gas Co.
5.75% due 11/15/03.................... 9,627,070
--------------
67,501,620
--------------
FINANCIAL SERVICES -- 8.0%
40,000,000 ACE INA Holdings
8.30% due 08/15/06.................... 40,288,160
30,000,000 Allmerica Financial Corp.
7.625% due 10/15/25................... 26,118,480
24,000,000 Allstate Corp. (The)
6.75% due 06/15/03.................... 23,482,176
26,485,000 Amerus Life Holdings
6.95% due 06/15/05.................... 24,234,358
21,670,000 Amvescap PLC
6.60% due 05/15/05.................... 20,377,558
30,000,000 Apache Finance Property Ltd.
7.00% due 03/15/09.................... 28,503,510
25,000,000 Associates Corp. of North America
6.00% due 07/15/05.................... 23,219,675
15,000,000 Associates Corp. of North America
6.50% due 10/15/02.................... 14,700,270
10,000,000 Bank of Boston Corp.
6.625% due 02/01/04................... 9,700,020
40,000,000 Bank One Corp.
6.875% due 08/01/06................... 38,333,160
20,000,000 BankAmerica Corp.
5.875% due 02/15/09................... 17,664,220
14,825,000 Banponce Corp.
6.75% due 12/15/05.................... 13,855,875
15,000,000 Bayerische Landesbank Girozentrale (NY)
5.625% due 02/26/01................... 14,853,045
25,000,000 Bayerische Landesbank Girozentrale (NY)
5.65% due 02/01/09.................... 22,052,875
10,000,000 Chase Manhattan Corp. (The)
8.50% due 02/15/02.................... 10,166,800
15,740,000 CIGNA Corp.
7.40% due 05/15/07.................... 14,968,047
30,000,000 Cincinnati Financial Corp.
6.90% due 05/15/28.................... 25,311,870
20,000,000 CIT Group, Inc. (The)
6.75% due 05/14/01.................... 19,906,260
20,000,000 Citigroup, Inc.
5.625% due 02/15/01................... 19,809,240
10,000,000 Citigroup, Inc.
6.25% due 12/01/05.................... 9,473,710
24,000,000 Credit National
7.00% due 11/14/05.................... 23,169,504
-28,715,000 Development Bank of Singapore
7.875% due 08/10/09................... 28,488,238
30,000,000 Equitable Cos., Inc.
7.00% due 04/01/28.................... 26,311,890
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
</TABLE>
FINANCIAL SERVICES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
$ 10,000,000 Fairfax Financial Holdings
7.75% due 12/15/03.................... $ 9,425,620
100,000,000 Fannie Mae
7.25% due 01/15/10.................... 100,816,400
18,000,000 Finova Capital Corp.
6.39% due 10/08/02.................... 15,821,766
25,000,000 First Union National Bank
5.80% due 12/01/08.................... 21,397,825
20,000,000 Fleet Financial Group, Inc.
6.875% due 01/15/28................... 17,050,020
20,000,000 Heller Financial, Inc.
6.382% due 11/10/20................... 19,954,180
15,000,000 Home Savings of America
6.00% due 11/01/00.................... 14,937,600
-27,000,000 Jackson National Life Insurance Co.
8.15% due 03/15/27.................... 24,951,969
36,745,000 Key Bank N.A.
5.80% due 04/01/04.................... 34,778,959
11,400,000 Liberty Financial Co.
6.75% due 11/15/08.................... 10,409,203
-30,000,000 Liberty Mutual Insurance
8.20% due 05/04/07.................... 29,494,290
-10,000,000 Lumbermens Mutual Casualty
9.15% due 07/01/26.................... 8,927,740
20,000,000 Nationsbank Corp.
7.80% due 09/15/16.................... 19,387,580
-30,000,000 New England Mutual Life Insurance
7.875% due 02/15/24................... 29,457,480
40,296,742 Postal Square LP
8.95% due 06/15/22.................... 45,878,647
27,600,000 Torchmark Corp.
8.25% due 08/15/09.................... 27,811,664
30,000,000 Toyota Motor Credit Corp.
5.50% due 12/15/08.................... 26,401,140
25,000,000 Transamerica Financial Corp.
6.125% due 11/01/01................... 24,596,625
10,000,000 Travelers Property & Casualty
6.75% due 04/15/01.................... 9,970,070
43,000,000 TXU Eastern Funding Co.
6.45% due 05/15/05.................... 40,091,265
-40,000,000 USAA Capital Corp.
6.90% due 11/01/02.................... 39,450,560
50,000,000 Wells Fargo & Co.
6.50% due 09/03/02.................... 49,284,500
--------------
1,115,284,044
--------------
FOOD, BEVERAGE &
TOBACCO -- 0.4%
30,000,000 Coca-Cola Enterprises, Inc.
6.75% due 09/15/28.................... 25,783,770
35,000,000 Whitman Corp.
6.375% due 05/01/09................... 32,208,400
--------------
57,992,170
--------------
FOREST & PAPER PRODUCTS -- 0.2%
25,000,000 Boise Cascade Office
7.05% due 05/15/05.................... 23,730,600
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-38 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
HEALTH SERVICES -- 0.2%
$ 29,000,000 United Healthcare Corp.
6.60% due 12/01/03.................... $ 27,672,380
--------------
MACHINERY -- 0.2%
25,000,000 Parker Hannifin Corp.
5.65% due 09/15/03.................... 23,811,175
--------------
MEDIA & ENTERTAINMENT -- 0.4%
30,000,000 Rockwell International Corp.
6.70% due 01/15/28.................... 26,320,170
19,420,000 Scripps (E.W.) Co. (The)
6.375% due 10/15/02................... 19,173,793
10,400,000 Times Mirror Co.
7.50% due 07/01/23.................... 9,753,588
--------------
55,247,551
--------------
MEDICAL INSTRUMENTS & SUPPLIES -- 0.1%
22,000,000 Becton, Dickinson & Co.
6.70% due 08/01/28.................... 19,265,994
--------------
METALS, MINERALS &
MINING -- 0.2%
30,000,000 Alcan Aluminum Ltd.
7.25% due 11/01/28.................... 28,400,430
--------------
REAL ESTATE -- 0.1%
20,000,000 Liberty Property Trust (REIT)
7.25% due 08/15/07.................... 18,535,420
--------------
RETAIL -- 1.1%
40,000,000 Albertson's, Inc.
6.55% due 08/01/04.................... 38,662,040
20,200,000 Dayton Hudson Corp.
5.875% due 11/01/08................... 17,912,855
50,000,000 Home Depot, Inc. (The)
6.50% due 09/15/04.................... 49,532,150
50,000,000 Wal-Mart Stores, Inc.
6.875% due 08/10/09................... 48,893,000
--------------
155,000,045
--------------
SOFTWARE & SERVICES -- 0.2%
25,000,000 Computer Associates International, Inc.
6.50% due 04/15/08.................... 22,540,950
--------------
TRANSPORTATION -- 1.0%
22,551,578 Continental Airlines
6.90% due 01/02/18.................... 20,947,936
30,000,000 DaimlerChrysler North America Holding
Corp.
7.125% due 04/10/03................... 29,857,860
30,000,000 DaimlerChrysler North America Holding
Corp.
7.75% due 05/27/03.................... 30,222,810
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
</TABLE>
TRANSPORTATION -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------- --------------
<C> <S> <C>
$ 35,000,000 Ford Motor Co.
6.625% due 10/01/28................... $ 29,544,970
35,000,000 General Motors Corp.
6.75% due 05/01/28.................... 30,385,145
--------------
140,958,721
--------------
UTILITIES -- 1.1%
45,000,000 Alabama Power Co.
7.125% due 08/15/04................... 44,600,355
10,000,000 Bellsouth Telecommunications, Inc.
6.375% due 06/01/28................... 8,250,840
21,350,000 Duke Energy Corp.
6.00% due 12/01/28.................... 16,910,097
30,000,000 MCI WorldCom, Inc.
6.40% due 08/15/05.................... 28,436,250
29,000,000 Monsanto Co.
6.85% due 12/01/28.................... 25,662,187
11,000,000 Pacific Gas & Electric Co.
7.875% due 03/01/02................... 11,117,579
20,000,000 Williams Cos., Inc. (The)
6.50% due 11/15/02.................... 19,636,760
--------------
154,614,068
--------------
Total corporate notes................... $2,348,785,447
==============
FOREIGN GOVERNMENT AGENCIES -- 0.1%
-20,000,000 Santiago Air
6.95% due 07/01/12.................... $ 18,413,000
--------------
Total foreign government agencies....... $ 18,413,000
==============
FOREIGN GOVERNMENT BONDS -- 0.1%
13,000,000 City of Naples Italy
7.52% due 07/15/06.................... $ 12,954,630
--------------
Total foreign government bonds.......... $ 12,954,630
==============
MUNICIPAL BONDS -- 0.1%
7,000,000 Miami Beach, Florida
8.80% due 12/01/15.................... $ 7,139,440
13,070,000 Mount Sinai School of Medicine NY
6.00% due 07/01/03.................... 12,619,216
--------------
Total municipal bonds................... $ 19,758,656
==============
<CAPTION>
SHARES
---------------------
<C> <S> <C>
PREFERRED STOCKS -- 1.2%
COMMUNICATIONS -- 1.2%
3,400,000 Nokia Corp.............................. $ 169,787,500
--------------
Total preferred stocks.................. $ 169,787,500
==============
</TABLE>
_____________________________________ MF-39 ____________________________________
<PAGE>
HARTFORD ADVISERS HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------------
U.S. TREASURIES & FEDERAL AGENCIES -- 17.4%
<C> <S> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
-- 3.3%
$ 242,859,824 6.00% due 06/15/24 - 08/15/29........... $ 223,681,521
170,963,720 6.50% due 03/15/26 - 08/15/29........... 162,243,827
70,931,648 7.00% due 11/15/23 - 11/15/24........... 69,222,441
759,967 9.00% due 06/20/16 - 07/20/16........... 784,079
--------------
455,931,868
--------------
U.S. GOVERNMENT
AGENCIES -- 0.3%
50,000,000 Tennesse Valley Authority
6.00% due 03/15/2013.................. 44,910,050
--------------
U.S. TREASURY BONDS -- 9.9%
165,000,000 4.625% due 12/31/00................... 163,504,770
350,000,000 5.75% due 10/31/02 - 04/30/03......... 344,703,300
531,750,000 6.25% due 08/15/23.................... 535,073,438
132,000,000 6.375% due 08/15/02................... 131,793,816
107,000,000 7.25% due 08/15/04.................... 110,577,866
100,000,000 7.50% due 11/15/01.................... 101,281,300
--------------
1,386,934,490
--------------
U.S. TREASURY NOTES -- 3.9%
268,000,000 5.75% due 06/30/01.................... 266,073,884
275,000,000 5.875% due 10/31/01 - 11/30/01........ 272,687,500
--------------
538,761,384
--------------
$2,426,537,792
Total U.S. treasuries & federal
agencies................................
==============
SHORT-TERM SECURITIES -- 1.7%
REPURCHASE AGREEMENT -- 1.7%
237,926,000 Interest in $2,066,447,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.598% due 07/03/00;
maturity amount $238,056,821
(Collateralized by $125,835,832 U.S.
Treasury Notes 5.50% - 7.875% due
08/31/01 - 11/15/04, $1,943,730,718 U.S.
Treasury Bonds 5.25% - 10.625% due
08/15/15 - 02/15/29).................... $ 237,926,000
--------------
Total short-term securities............. $ 237,926,000
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<CAPTION>
DIVERSIFICATION OF NET ASSETS:
<S> <C> <C>
Total asset-backed securities
(cost $42,834,289)..................... 0.3% $ 40,739,920
Total commercial mortgage-backed
securities (cost $71,124,641).......... 0.5 69,584,603
Total common stocks (cost
$6,016,090,228)........................ 61.0 8,504,692,193
Total corporate notes (cost
$2,495,440,801)........................ 16.8 2,348,785,447
Total foreign government agencies
(cost $19,988,800)..................... 0.1 18,413,000
Total government bonds (cost
$13,000,000)........................... 0.1 12,954,630
Total municipal bonds (cost
$20,261,589)........................... 0.1 19,758,656
Total preferred stocks (cost
$63,971,370)........................... 1.2 169,787,500
Total U.S. treasuries & federal agencies
(cost $2,463,266,432).................. 17.4 2,426,537,792
Total short-term securities (cost
$237,926,000).......................... 1.7 237,926,000
----- --------------
Total investment in securities (total
cost $11,443,904,150).................. 99.2 13,849,179,741
Cash, receivables and other assets...... 0.8 103,600,455
Securities lending collateral........... 4.6 647,144,941
Payable for fund shares redeemed........ (0.0) (10,646,763)
Securities lending collateral payable to
brokers................................ (4.6) (647,144,941)
Other liabilities....................... (0.0) (94,748)
----- --------------
Net assets.............................. 100.0% $13,942,038,685
===== ==============
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
7,000,000,000 shares authorized; 5,134,852,908
shares outstanding............................... $ 513,485,291
Capital surplus................................... 10,598,575,260
Accumulated undistributed net investment income... 175,123,306
Accumulated undistributed net realized gain on
investments...................................... 249,579,237
Unrealized appreciation of investments............ 2,405,275,591
--------------
Net assets........................................ $13,942,038,685
==============
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($13,759,228,031
DIVIDED BY 5,067,501,214 shares outstanding)
(6,500,000,000 shares authorized)................ $2.72
====
Class IB
Net asset value per share ($182,810,654
DIVIDED BY 67,351,694 shares outstanding)
(500,000,000 shares authorized).................. $2.71
====
</TABLE>
* Non-income producing during the period.
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
2000, the market value of these securities amounted to $249,615,427 or 1.8%
of net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-40 ____________________________________
<PAGE>
HARTFORD HIGH YIELD HLS FUND
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.2%
$ 150,000 DLJ Commercial Mortgage Corp.,
Series 1998-CF1, Class B2
7.33% due 01/15/10.................... $ 133,081
-----------
Total collateralized mortgage
obligations............................. $ 133,081
===========
CORPORATE NOTES -- 82.2%
APPAREL & TEXTILE -- 0.4%
266,000 Levi Straus & Co.
7.00% due 11/01/06.................... $ 202,160
-----------
CHEMICALS -- 3.4%
225,000 ARCO Chemical Co.
9.80% due 02/01/20.................... 207,956
450,000 Equistar Chemicals L.P.
8.50% due 02/15/04.................... 443,340
150,000 General Chemical Industrial
Products, Inc.
10.625% due 05/01/09.................. 130,500
60,000 Georgia Gulf Corp.
10.375% due 11/01/07.................. 62,400
-500,000 Huntsman Corp.
9.50% due 07/01/07.................... 455,000
-300,000 Huntsman Corp.
13.00% due 06/01/10................... 309,000
210,000 Huntsman ICI Chemicals LLC
10.125% due 07/01/09.................. 211,575
75,000 Lyondell Chemical Co.
9.625% due 05/01/07................... 73,875
-----------
1,893,646
-----------
COMMUNICATIONS -- 13.1%
300,000 Centennial Communications
10.75% due 12/15/08................... 291,374
108,000 Global Crossing Holdings Ltd.
9.50% due 11/15/09.................... 104,220
800,000 Global Crossing Holdings Ltd.
9.625% due 05/15/08................... 776,000
-875,000 Level 3 Communications
11.25% due 03/15/10................... 784,886
350,000 Loral Space & Communications Ltd.
9.50% due 01/15/06.................... 253,750
100,000 McLeodUSA, Inc.
8.125% due 02/15/09................... 90,250
100,000 McLeodUSA, Inc.
9.25% due 07/15/07.................... 96,500
400,000 McLeodUSA, Inc.
9.50% due 11/01/08.................... 391,000
450,000 Metromedia Fiber Network, Inc.
10.00% due 11/15/08................... 443,250
1,000,000 NEXTEL Communications, Inc.
9.375% due 11/15/09................... 955,000
600,000 NEXTLINK Communications, Inc.
10.75% due 11/15/08................... 591,000
150,000 NEXTLINK Communications, Inc.
12.50% due 04/15/06................... 156,750
850,000 Primus Telecommunications Group, Inc.
11.25% due 01/15/09................... 663,000
-250,000 Rhythms Netconnections, Inc.
14.00% due 02/15/10................... 181,250
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
COMMUNICATIONS -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
$ 120,000 Teligent, Inc.
11.50% due 12/01/07................... $ 93,000
590,000 Time Warner Telecom, Inc.
9.75% due 07/15/08.................... 570,825
875,000 Williams Communications Group, Inc.
10.875% due 10/01/09.................. 855,313
-120,000 Winstar Communications, Inc.
12.75% due 04/15/10................... 111,900
-----------
7,409,268
-----------
CONSTRUCTION -- 1.6%
150,000 Del Webb Corp.
9.375% due 05/01/09................... 124,500
100,000 Del Webb Corp.
10.25% due 02/15/10................... 86,750
250,000 Kaufman & Broad Home Corp.
9.625% due 11/15/06................... 238,125
100,000 MDC Holdings, Inc.
8.375% due 02/01/08................... 88,500
150,000 Newport News Shipbuilding, Inc.
8.625% due 12/01/06................... 147,750
125,000 Toll Corp.
7.75% due 09/15/07.................... 111,875
100,000 Toll Corp.
8.75% due 11/15/06.................... 95,750
-----------
893,250
-----------
CONSUMER DURABLES -- 1.8%
200,000 Federal-Mogul Corp.
7.375% due 01/15/06................... 145,451
500,000 Federal-Mogul Corp.
7.50% due 01/15/09.................... 342,928
75,000 Hayes Lemmerz International, Inc.
8.25% due 12/15/08.................... 63,375
325,000 HMH Properties, Inc.
8.45% due 12/01/08.................... 301,031
200,000 Owens-Illinois, Inc.
7.80% due 05/15/18.................... 162,582
-----------
1,015,367
-----------
CONSUMER NON-DURABLES -- 2.4%
700,000 American Standard Co., Inc.
7.375% due 02/01/08................... 633,500
710,000 Polaroid Corp.
11.50% due 02/15/06................... 738,400
-----------
1,371,900
-----------
CONSUMER SERVICES -- 1.2%
200,000 Service Corp. International
6.50% due 03/15/08.................... 102,000
400,000 Service Corp. International
7.875% due 02/01/13................... 200,000
125,000 Simmons Co.
10.25% due 03/15/09................... 110,938
250,000 Six Flags Entertainment Corp.
8.875% due 04/01/06................... 238,750
-----------
651,688
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-41 ____________________________________
<PAGE>
HARTFORD HIGH YIELD HLS FUND
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
DRUGS -- 1.3%
$ 800,000 Watson Pharmaceuticals, Inc.
7.125% due 05/15/08................... $ 714,395
-----------
ELECTRONICS -- 0.5%
-550,000 Condor Systems, Inc.
11.875% due 05/01/09.................. 265,375
-----------
ENERGY & SERVICES -- 10.6%
200,000 Belco Oil & Gas Corp.
8.875% due 09/15/07................... 185,000
100,000 Clark Refining & Marketing, Inc.
8.375% due 11/15/07................... 78,500
125,000 Clark Refining & Marketing, Inc.
8.625% due 08/15/08................... 98,124
200,000 CODA Energy, Inc.
10.50% due 04/01/06................... 201,250
75,000 Cross Timbers Oil Co.
8.75% due 11/01/09.................... 71,250
50,000 Gulf Canada Resources Ltd.
8.375% due 11/15/05................... 49,500
100,000 Gulf Canada Resources Ltd.
9.625% due 07/01/05................... 101,750
100,000 Newpark Resources, Inc.
8.625% due 12/15/07................... 87,250
103,000 Nuevo Energy Co.
9.50% due 06/01/08.................... 101,713
550,000 Pioneer Natural Resources Co.
6.50% due 01/15/08.................... 473,805
-550,000 Plains Resources, Inc.
10.25% due 03/15/06................... 554,125
850,000 Pogo Producing Co.
10.375% due 02/15/09.................. 871,250
150,000 R&B Falcon Corp.
6.50% due 04/15/03.................... 138,750
100,000 R&B Falcon Corp.
7.375% due 04/15/18................... 81,000
550,000 R&B Falcon Corp.
11.375% due 03/15/09.................. 596,750
525,000 Seagull Energy Corp.
7.50% due 09/15/27.................... 435,638
300,000 Snyder Oil Corp.
8.75% due 06/15/07.................... 301,500
675,000 Tesoro Petroleum Corp.
9.00% due 07/01/08.................... 641,250
400,000 Tuboscope, Inc.
7.50% due 02/15/08.................... 352,000
300,000 Valero Energy Corp.
8.75% due 06/15/30.................... 310,709
100,000 Vintage Petroleum, Inc.
9.00% due 12/15/05.................... 99,500
125,000 Vintage Petroleum, Inc.
9.75% due 06/30/09.................... 127,188
-----------
5,957,802
-----------
FINANCIAL SERVICES -- 2.5%
-600,000 Dresdner Bank Funding Trust
8.151% due 06/30/31................... 522,437
250,000 Golden State Holdings, Inc.
6.75% due 08/01/01.................... 242,871
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
</TABLE>
FINANCIAL SERVICES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
$ 150,000 Golden State Holdings, Inc.
7.125% due 08/01/05................... $ 133,874
150,000 Interpool, Inc.
7.35% due 08/01/07.................... 122,258
150,000 Rogers Cantel, Inc.
9.375% due 06/01/08................... 154,500
50,000 Rogers Cantel, Inc.
9.75% due 06/01/16.................... 53,875
200,000 Sumitomo Bank International Finance N.V.
8.50% due 06/15/09.................... 202,201
-----------
1,432,016
-----------
FOOD, BEVERAGE & TOBACCO -- 1.0%
600,000 Canandaigua Brands, Inc.
8.50% due 03/01/09.................... 546,000
-----------
FOREST & PAPER PRODUCTS -- 2.5%
500,000 Boise Cascade Corp.
7.35% due 02/01/16.................... 423,967
175,000 Container Corp. of America
11.25% due 05/01/04................... 176,750
300,000 Domtar, Inc.
8.75% due 08/01/06.................... 309,750
150,000 Stone Container Corp.
10.75% due 10/01/02................... 152,063
125,000 Stone Container Corp.
12.58% due 08/01/16................... 128,750
250,000 Tembec Industries, Inc.
8.625% due 06/30/09................... 240,000
-----------
1,431,280
-----------
HEALTH SERVICES -- 10.5%
200,000 Columbia/HCA Healthcare Corp.
6.91% due 06/15/05.................... 182,701
400,000 Columbia/HCA Healthcare Corp.
7.05% due 12/01/27.................... 294,456
150,000 Columbia/HCA Healthcare Corp.
9.00% due 12/15/14.................... 143,279
700,000 HEALTHSOUTH Corp.
6.875% due 06/15/05................... 599,894
460,000 HEALTHSOUTH Corp.
7.00% due 06/15/08.................... 371,965
1,000,000 IASIS Healthcare Corp.
13.00% due 10/15/09................... 995,000
700,000 Manor Care, Inc.
7.50% due 06/15/06.................... 569,932
550,000 Owens & Minor, Inc.
10.875% due 06/01/06.................. 563,750
960,000 Quorum Health Group, Inc.
8.75% due 11/01/05.................... 912,000
200,000 Tenet Healthcare Corp.
7.625% due 06/01/08................... 183,250
505,000 Tenet Healthcare Corp.
8.00% due 01/15/05.................... 484,800
100,000 Tenet Healthcare Corp.
8.625% due 12/01/03................... 98,942
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-42 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
HEALTH SERVICES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
$ 500,000 Universal Health Services, Inc.
8.75% due 08/15/05.................... $ 494,903
-----------
5,894,872
-----------
HOTELS & GAMING -- 1.5%
200,000 MGM Grand, Inc.
6.875% due 02/06/08................... 179,461
400,000 Park Place Entertainment
9.375% due 02/15/07................... 400,000
50,000 Starwood Hotels & Resorts
Worldwide, Inc.
6.75% due 11/15/05.................... 45,226
272,000 Starwood Hotels & Resorts
Worldwide, Inc.
7.375% due 11/15/15................... 229,183
-----------
853,870
-----------
MACHINERY -- 0.1%
955,000 Grove Holdings LLC
0.00% due 05/01/09.................... 70,431
-----------
MEDIA & ENTERTAINMENT -- 14.1%
325,000 Adelphia Business Solutions, Inc.
12.00% due 11/01/07................... 305,500
300,000 Adelphia Communications Corp.
8.375% due 02/01/08................... 265,124
400,000 Adelphia Communications Corp.
8.875% due 01/15/07................... 368,000
200,000 Cablevision Systems Corp.
8.125% due 08/15/09................... 194,580
800,000 Charter Communications Holdings LLC
8.625% due 04/01/09................... 703,000
300,000 Comcast Corp.
10.25% due 10/15/01................... 309,146
350,000 CSC Holdings, Inc.
7.625% due 07/15/18................... 313,915
400,000 CSC Holdings, Inc.
8.125% due 07/15/09................... 389,268
25,000 CSC Holdings, Inc.
9.25% due 11/01/05.................... 25,156
1,000,000 Echostar DBS Corp.
9.375% due 02/01/09................... 960,000
500,000 Fox Kids Worldwide, Inc.
9.25% due 11/01/07.................... 450,000
475,000 Hollinger International
Publishing, Inc.
9.25% due 02/01/06.................... 468,469
550,000 Liberty Media Group
8.25% due 02/01/30.................... 505,045
225,000 News America Holdings
8.25% due 10/17/96.................... 200,520
350,000 PRIMEDIA, Inc.
7.625% due 04/01/08................... 311,500
250,000 PRIMEDIA, Inc.
10.25% due 06/01/04................... 250,000
200,000 Rogers Cablesystems, Inc.
10.00% due 12/01/07................... 204,500
243,000 Rogers Cablesystems, Inc.
10.125% due 09/01/12.................. 248,468
360,000 Telewest Communications PLC
0.00% 10/01/07........................ 341,424
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
</TABLE>
MEDIA & ENTERTAINMENT -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
$ 950,000 Telewest Communications PLC
11.25% due 11/01/08................... $ 950,000
25,000 World Color Press, Inc.
7.75% due 02/15/09.................... 208,309
-----------
7,971,924
-----------
MEDICAL INSTRUMENTS &
SUPPLIES -- 1.2%
138,000 Fisher Scientific International, Inc.
9.00% due 02/01/08.................... 126,270
575,000 Fisher Scientific International, Inc.
9.00% due 02/01/08.................... 526,125
-----------
652,395
-----------
METALS, MINERALS & MINING -- 3.9%
350,000 AK Steel Corp.
7.875% due 02/15/09................... 310,625
300,000 Bethlehem Steel Corp.
7.625% due 08/01/04................... 271,577
900,000 Inco Ltd.
9.60% due 06/15/22.................... 882,304
600,000 LTV Corp.
11.75% due 11/15/09................... 504,000
100,000 Placer Dome, Inc.
7.125% due 06/15/07................... 91,519
180,000 WHX Corp.
10.50% due 04/15/05................... 140,400
-----------
2,200,425
-----------
REAL ESTATE -- 0.5%
187,000 Crescent Real Estate Equities Ltd.
7.00% due 09/15/02.................... 172,197
100,000 Trizec Finance Ltd.
10.875% due 10/15/05.................. 100,500
-----------
272,697
-----------
RESEARCH & TESTING FACILITIES -- 0.6%
375,000 Sequa Corp.
9.00% due 08/01/09.................... 360,000
-----------
RETAIL -- 0.5%
325,000 Duane Reade, Inc.
9.25% due 02/15/08.................... 287,625
-----------
TRANSPORTATION -- 1.4%
750,000 Teekay Shipping Corp.
8.32% due 02/01/08.................... 690,000
100,000 United Air Lines, Inc.
9.125% due 01/15/12................... 95,540
-----------
785,540
-----------
UTILITIES -- 5.6%
660,000 AES Corp. (The)
9.50% due 06/01/09.................... 646,800
100,000 AES Corp. (The)
10.25% due 07/15/06................... 99,750
360,000 Allied Waste North American, Inc.
10.00% due 08/01/09................... 300,600
375,000 Browning-Ferris Industries, Inc.
7.40% due 09/15/35.................... 261,205
</TABLE>
_____________________________________ MF-43 ____________________________________
<PAGE>
HARTFORD HIGH YIELD HLS FUND
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
UTILITIES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
$ 100,000 Calpine Corp.
10.50% due 05/15/06................... $ 104,000
300,000 CMS Energy Corp.
6.75% due 01/15/04.................... 277,736
100,000 CMS Energy Corp.
7.50% due 01/15/09.................... 89,454
250,000 CMS Energy Corp.
7.625% due 11/15/04................... 236,198
500,000 Cogentrix Energy, Inc.
8.75% due 10/15/08.................... 478,125
125,000 El Paso Electric Co.
9.40% due 05/01/11.................... 131,244
250,000 Waste Management, Inc.
6.875% due 05/15/09................... 220,330
400,000 Waste Management, Inc.
7.375% due 05/15/29................... 323,572
-----------
3,169,014
-----------
Total corporate notes................... $46,302,940
===========
FOREIGN/YANKEE BONDS & NOTES -- 5.7%
FOREIGN CORPORATIONS -- 4.2%
600,000 British Sky Broadcasting Group PLC
8.20% due 07/15/09.................... $ 562,778
585,000 Kappa Beheer BV
10.625% due 07/15/09.................. 573,392
675,000 Petroleos Mexicanos
9.50% due 09/15/27.................... 681,750
550,000 United Mexican States
9.875% due 02/01/10................... 569,250
-----------
2,387,170
-----------
FOREIGN GOVERNMENTS -- 1.5%
500,000 Republic of Brazil
12.75% due 01/15/20................... 476,300
250,000 Republic of Colombia
8.375% due 02/15/27................... 158,750
500,000 Republic of Ecuador
6.75% due 02/28/25.................... 195,000
-----------
830,050
-----------
Total foreign/yankee bonds & notes...... $ 3,217,220
===========
<CAPTION>
SHARES
----------
<C> <S> <C>
PREFERRED STOCKS -- 2.2%
ENERGY & SERVICES -- 1.3%
32,000 Coastal Finance Corp.................... $ 726,000
-----------
METALS, MINERALS & MINING -- 0.9%
29,000 Rio Algom, Ltd.......................... 514,750
-----------
Total preferred stocks.................. $ 1,240,750
===========
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
<C> <S> <C>
U.S. TREASURIES & FEDERAL AGENCIES -- 0.2%
FEDERAL HOME LOAN MORTGAGE ASSOCIATION
-- 0.2%
$ 145,000 7.60% due 12/15/03.................... $ 138,915
-----------
Total U.S. treasuries & federal
agencies................................ $ 138,915
===========
SHORT-TERM SECURITIES -- 6.8%
REPURCHASE AGREEMENT -- 6.8%
3,859,000 Interest in $320,669,000 joint $ 3,859,000
repurchase agreement dated 06/30/00 with
State Street Bank, 6.436% due 07/03/00;
maturity amount $3,861,070
(Collateralized by $151,504,351 U.S.
Treasury Bonds 8.125% due 05/15/21,
$171,295,551 U.S. Treasury
Inflation-Indexed Securities 3.625% due
05/15/02)...............................
-----------
Total short-term securities............. $ 3,859,000
===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total collateralized mortgage obligations
(cost $141,006)............................ 0.2% $ 133,081
Total corporate notes (cost $48,246,335).... 82.2 46,302,940
Total foreign/yankee bonds & notes
(cost $3,386,437).......................... 5.7 3,217,220
Total preferred stocks (cost $1,260,000).... 2.2 1,240,750
Total U.S. treasuries & federal agencies.... 0.2 138,915
Total short-term securities
(cost $3,859,000).......................... 6.8 3,859,000
----- ----------
Total investment in securities (total
cost $56,896,778).......................... 97.3 54,891,906
Cash, receivables and other assets.......... 3.6 2,004,020
Securities lending collateral............... 9.3 5,247,140
Payable for securities purchased............ (0.8) (452,947)
Securities lending collateral payable to
brokers.................................... (9.3) (5,247,140)
Other liabilities........................... (0.1) (59,691)
----- ----------
Net assets.................................. 100.0% $56,383,288
===== ==========
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.001 per share;
800,000,000 shares authorized; 56,257,365 shares
outstanding........................................ $ 56,257
Capital surplus..................................... 57,887,062
Accumulated undistributed net investment income..... 2,262,827
Accumulated net realized loss on investments........ (1,811,860)
Unrealized depreciation of investments.............. (2,011,039)
Unrealized appreciation of other assets and
liabilities in foreign currencies.................. 41
----------
Net assets.......................................... $56,383,288
==========
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($55,810,566 DIVIDED BY
55,685,252
shares outstanding) (600,000,000 shares authorized)...... $1.00
====
Class IB
Net asset value per share ($572,722 DIVIDED BY 572,113
shares outstanding) (200,000,000 shares authorized)...... $1.00
====
</TABLE>
* Non-income producing during the period.
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
2000, the market value of these securities amounted to $3,178,973 or 5.6%
of net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-44 ____________________________________
<PAGE>
HARTFORD BOND HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 4.4%
$ 2,565,136 California Infrastructure,
Series 1997-1, Class A3
6.17% due 03/25/03.................... $ 2,550,746
11,000,000 California Infrastructure,
Series 1997-1, Class A6
6.38% due 09/25/08.................... 10,662,520
4,394,817 Capital Lease Funding Securitization,
Series 1997-CTL1, Class A1
7.421% due 06/22/24................... 4,388,465
11,400,000 Chemical Master Credit Card Trust,
Series 1996-1, Class A
5.55% due 09/15/03.................... 11,308,230
7,600,000 Comed Transitional Funding Trust,
Series 1998-1, Class A5
5.44% due 03/25/07.................... 7,130,016
5,175,000 DLJ Commercial Mortgage Corp.,
Series 1998-CF1, Class B2
7.33% due 01/15/10.................... 4,591,301
2,232,001 NorthWest Airlines Trust,
Series 1994-2, Class C
11.30% due 06/21/14................... 2,628,583
128,496 Premier Auto Trust, Series 1998-5,
Class A2
5.07% due 04/09/01.................... 128,445
------------
Total collateralized mortgage
obligations............................. $ 43,388,306
============
CORPORATE NOTES -- 36.4%
CHEMICALS -- 0.6%
5,700,000 du Pont (E.I.) de Nemours & Co.
6.75% due 09/01/07.................... $ 5,533,503
------------
COMMUNICATIONS -- 1.9%
9,500,000 AT&T Corp.
6.50% due 03/15/29.................... 7,956,336
1,000,000 Lucent Technologies, Inc.
5.50% due 11/15/08.................... 891,093
5,000,000 US West Capital Funding, Inc.
6.875% due 08/15/01................... 4,975,865
5,000,000 Williams Communications Group, Inc.
10.875% due 10/01/09.................. 4,887,500
------------
18,710,794
------------
CONSUMER DURABLES -- 0.6%
1,150,000 Federal-Mogul Corp.
7.375% due 01/15/06................... 836,346
1,000,000 Owens-Illinois, Inc.
8.10% due 05/15/07.................... 923,828
4,500,000 TRW, Inc.
8.75% due 05/15/06.................... 4,584,231
------------
6,344,405
------------
CONSUMER NON-DURABLES -- 0.1%
1,000,000 Tosco Corp.
8.125% due 02/15/30................... 1,008,229
------------
CONSUMER SERVICES -- 0.2%
4,000,000 Service Corp. International
7.875% due 02/01/13................... 2,000,000
------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
EDUCATION -- 1.1%
$ 7,700,000 Massachusetts Institute of Technology
7.25% due 11/02/2096.................. $ 7,277,439
3,500,000 Yale University
7.375% due 04/15/2096................. 3,207,638
------------
10,485,077
------------
ENERGY & SERVICES -- 8.4%
8,250,000 Amoco Co.
6.00% due 06/09/08.................... 7,502,054
1,500,000 Chesapeake & Potomac Telephone Co.
8.30% due 08/01/31.................... 1,540,160
3,600,000 CMS Panhandle Holding Co.
6.125% due 03/15/04................... 3,371,850
6,500,000 Enterprise Oil PLC
6.50% due 05/01/05.................... 6,135,435
8,000,000 Enterprise Oil PLC
6.70% due 09/15/07.................... 7,510,032
1,000,000 Gulf Canada Resources Ltd.
8.25% due 03/15/17.................... 920,000
1,200,000 Gulf Canada Resources Ltd.
8.375% due 11/15/05................... 1,188,000
6,500,000 Noble Drilling Corp.
7.50% due 03/15/19.................... 6,148,422
6,800,000 Occidental Petroleum Corp.
7.375% due 11/15/08................... 6,575,770
3,500,000 Ocean Energy, Inc.
7.625% due 07/01/05................... 3,325,000
4,400,000 Phillips Petroleum Co.
9.00% due 06/01/01.................... 4,447,278
1,000,000 Pioneer Natural Resources Co.
6.50% due 01/15/08.................... 861,464
5,650,000 Pioneer Natural Resources Co.
7.20% due 01/15/28.................... 4,399,988
1,975,000 R&B Falcon Corp.
6.75% due 04/15/05.................... 1,777,500
2,000,000 R&B Falcon Corp.
7.375% due 04/15/18................... 1,620,000
2,500,000 R&B Falcon Corp.
11.375% due 03/15/09.................. 2,712,500
9,511,000 Seagull Energy Corp.
7.50% due 09/15/27.................... 7,892,095
4,500,000 Sonat, Inc.
9.00% due 05/01/01.................... 4,552,821
1,000,000 Tesoro Petroleum Corp.
9.00% due 07/01/08.................... 950,000
2,850,000 Tuboscope, Inc.
7.50% due 02/15/08.................... 2,508,000
2,500,000 Union Oil Co. of California
9.375% due 02/15/11................... 2,762,820
4,500,000 Vaster Resources, Inc.
6.50% due 04/01/09.................... 4,280,391
------------
82,981,580
------------
FINANCIAL SERVICES -- 7.8%
7,650,000 Allstate Corp. (The)
7.875% due 05/01/05................... 7,712,019
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-45 ____________________________________
<PAGE>
HARTFORD BOND HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
$ 7,000,000 Bayerische Landesbank Girozentrale (NY)
6.20% due 02/09/06.................... $ 6,580,728
4,500,000 CIT Group, Inc. (The)
7.125% due 06/17/02................... 4,461,336
5,000,000 Ford Motor Credit Co.
5.75% due 02/23/04.................... 4,701,100
5,000,000 Ford Motor Credit Co.
7.375% due 10/28/09................... 4,837,600
13,000,000 Ford Motor Credit Co.
7.75% due 11/15/02.................... 13,084,136
3,800,000 General Motors Acceptance Corp.
6.19% due 08/18/03.................... 3,783,459
4,850,000 Golden State Holdings, Inc.
6.75% due 08/01/01.................... 4,711,702
7,900,000 Inter-American Development Bank
8.875% due 06/01/09................... 8,740,955
500,000 Interpool, Inc.
7.20% due 08/01/07.................... 403,850
4,300,000 Trenwick Group, Inc.
6.70% due 04/01/03.................... 4,170,819
15,000,000 TXU Eastern Funding Co.
6.15% due 05/15/02.................... 14,512,785
------------
77,700,489
------------
FOREST & PAPER PRODUCTS -- 0.9%
2,550,000 Domtar, Inc.
9.50% due 08/01/16.................... 2,655,187
6,300,000 Weyerhaeuser Co.
7.25% due 07/01/13.................... 5,983,249
------------
8,638,436
------------
HEALTH SERVICES -- 2.2%
2,250,000 Columbia/HCA Healthcare Corp.
7.05% due 12/01/27.................... 1,656,315
2,250,000 Columbia/HCA Healthcare Corp.
7.50% due 11/15/95.................... 1,693,062
1,675,000 Columbia/HCA Healthcare Corp.
7.50% due 12/15/23.................... 1,368,631
4,670,000 HEALTHSOUTH Corp.
6.875% due 06/15/05................... 4,002,153
3,870,000 HEALTHSOUTH Corp.
7.00% due 06/15/08.................... 3,129,359
5,640,000 Manor Care, Inc.
7.50% due 06/15/06.................... 4,592,020
6,000,000 Tenet Healthcare Corp.
8.00% due 01/15/05.................... 5,760,000
------------
22,201,540
------------
HOTELS & GAMING -- 0.0%
62,000 Harrah's Operating Co., Inc.
7.875% due 12/15/05................... 58,280
------------
MEDIA & ENTERTAINMENT -- 3.3%
1,000,000 Continental Cablevision, Inc.
9.50% due 08/01/13.................... 1,083,111
1,750,000 CSC Holdings, Inc.
7.25% due 07/15/08.................... 1,623,727
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
</TABLE>
MEDIA & ENTERTAINMENT -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
$ -12,000,000 Hughes Electronics Corp.
7.472% due 10/23/00................... $ 11,995,382
5,000,000 Liberty Media Group
8.25% due 02/01/30.................... 4,591,315
1,230,000 Rogers Cablesystems, Inc.
10.125% due 09/01/12.................. 1,257,675
3,660,000 Shaw Communications, Inc.
8.25% due 04/11/10.................... 3,701,464
10,000,000 Time Warner, Inc.
6.625% due 05/15/29................... 8,409,460
------------
32,662,134
------------
METALS, MINERALS & MINING -- 1.0%
3,600,000 Placer Dome, Inc.
7.125% due 05/15/03................... 3,485,826
7,300,000 Placer Dome, Inc.
7.125% due 06/15/07................... 6,680,894
------------
10,166,720
------------
REAL ESTATE -- 0.5%
5,000,000 Duke Realty LP
7.25% due 09/22/02.................... 4,945,195
------------
RETAIL -- 1.3%
5,000,000 Kmart Corp.
8.96% due 12/10/19.................... 4,522,180
8,585,000 Stop & Shop Cos., Inc. (The)
9.75% due 02/01/02.................... 8,799,874
------------
13,322,054
------------
SOFTWARE & SERVICES -- 0.5%
5,500,000 Gartner Group, Inc., Class A
6.52% due 10/08/23 5,423,863...
------------
TRANSPORTATION -- 1.6%
10,000,000 DaimlerChrysler North America Holding
Corp.
7.75% due 06/15/05.................... 10,085,970
1,500,000 Norfolk Southern Corp.
6.875% due 05/01/01................... 1,495,130
4,512,067 US Airways Group, Inc.
6.76% due 04/15/08.................... 4,028,734
------------
15,609,834
------------
UTILITIES -- 4.4%
5,750,000 Browning-Ferris Industries, Inc.
7.40% due 09/15/35.................... 4,005,162
1,750,000 Cleveland Electric Illuminating Co.
7.13% due 07/01/07.................... 1,645,341
2,225,000 CMS Energy Corp.
6.75% due 01/15/04.................... 2,059,876
800,000 CMS Energy Corp.
7.50% due 01/15/09.................... 715,630
1,341,000 El Paso Electric Co.
9.40% due 05/01/11.................... 1,407,982
-10,000,000 Entergy Gulf States, Inc.
8.04% due 06/02/03.................... 9,997,930
7,250,000 Illinois Power Co.
6.25% due 07/15/02.................... 7,086,099
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-46 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
UTILITIES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
$ 4,725,000 Niagara Mohawk Power Corp.
6.875% due 03/01/01................... $ 4,699,036
5,179,270 Niagara Mohawk Power Corp.
7.25% due 10/01/02.................... 5,109,645
3,100,000 PacifiCorp
6.12% due 01/15/06.................... 2,874,999
4,000,000 Public Service Electric & Gas Co.
7.00% due 09/01/24.................... 3,551,968
475,000 Waste Management, Inc.
6.875% due 05/15/09................... 418,626
------------
43,572,294
------------
Total corporate notes................... $361,364,427
============
FOREIGN/YANKEE BONDS & NOTES -- 8.3%
FOREIGN CORPORATIONS -- 2.5%
17,000,000 Deutsche Telekom International
Finance AG
7.75% due 06/15/05.................... $ 17,116,025
1,800,000 Hydro-Quebec
8.40% due 01/15/22.................... 1,902,778
5,500,000 KFW International Finance, Inc.
9.50% due 12/15/00.................... 5,556,799
------------
24,575,602
------------
FOREIGN GOVERNMENTS -- 5.8%
49,500,000 Bundesobligation
5.125% due 11/21/00................... 47,530,821
8,850,000 Province of Quebec
5.75% due 02/15/09.................... 7,917,572
2,200,000 Province of Quebec
7.50% due 09/15/29.................... 2,157,294
------------
57,605,687
------------
Total foreign/yankee bonds & notes...... $ 82,181,289
============
<CAPTION>
SHARES
---------------
<C> <S> <C>
PREFERRED STOCKS -- 0.2%
ENERGY & SERVICES - 0.2%
98,966 Coastal Finance Corp.................... $ 2,245,291
------------
Total preferred stocks.................. $ 2,245,291
============
<CAPTION>
PRINCIPAL
AMOUNT
---------------
<C> <S> <C>
U.S. TREASURIES & FEDERAL AGENCIES -- 42.5%
FEDERAL NATIONAL MORTGAGE ASSOCIATION --
7.9%
$ 61,944,088 6.00% due 07/01/12 - 08/01/14........... $ 58,679,652
5,119,961 6.50% due 10/01/12 - 09/01/28........... 4,906,076
12,534,062 7.50% due 08/01/29 - 05/01/30........... 12,353,584
2,855,872 FNMA Multifamily DUS
6.48% due 12/01/05.................... 2,747,663
------------
78,686,976
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
-- 15.5%
166,877,949 6.00% due 01/15/29 - 10/15/29........... 153,513,920
------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
</TABLE>
U.S. TREASURIES & FEDERAL AGENCIES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<C> <S> <C>
U.S. TREASURY BONDS -- 12.9%
$ 4,400,000 6.375% due 08/15/27..................... $ 4,525,127
24,970,000 6.875% due 08/15/25..................... 27,147,084
2,150,000 7.625% due 02/15/25..................... 2,535,656
26,770,000 8.75% due 05/15/20 - 08/15/20........... 34,313,998
16,595,000 8.75% due 08/15/17...................... 21,106,766
7,300,000 10.375% due 11/15/09.................... 8,365,347
10,000,000 10.625% due 08/15/15.................... 14,218,750
5,830,000 11.875% due 11/15/03.................... 6,790,131
6,460,000 13.875% due 05/15/11.................... 8,777,525
------------
127,780,385
------------
U.S. TREASURY INFLATION-INDEXED
SECURITIES -- 3.8%
6,537,691 3.375% due 01/15/07..................... 6,274,143
27,235,318 3.625% due 01/15/08..................... 26,409,761
5,088,000 4.25% due 01/15/10...................... 5,162,733
------------
37,846,637
------------
U.S. TREASURY NOTES -- 2.4%
23,700,000 6.125 due 12/31/01...................... 23,566,688
------------
Total U.S. treasuries & federal
agencies................................ $421,394,605
============
SHORT-TERM SECURITIES -- 9.2%
REPURCHASE AGREEMENT -- 9.2%
90,912,000 Interest in $320,669,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.436% due 07/03/00;
maturity amount $90,960,761
(Collateralized by $151,504,351 U.S.
Treasury Bonds 8.125% due 05/15/21,
$171,295,551 U.S. Treasury Inflation-
Indexed Securities 3.625% due
05/15/02)............................... $ 90,912,000
------------
Total short-term securities............. $ 90,912,000
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total collateralized mortgage
obligations (cost $44,391,242)......... 4.4% $ 43,388,306
Total corporate notes (cost
$374,162,065).......................... 36.4 361,364,427
Total foreign/yankee bonds & notes (cost
$79,524,563)........................... 8.3 82,181,289
Total preferred stocks (cost
$2,214,364)............................ 0.2 2,245,291
Total U.S. treasuries & federal agencies
(cost $417,963,322).................... 42.5 421,394,605
Total short-term securities (cost
$90,912,000)........................... 9.2 90,912,000
----- --------------
Total investment in securities (total
cost $1,009,167,556)................... 101.0 1,001,485,918
Cash, receivables and other assets...... 1.9 17,861,035
Securities lending collateral........... 4.0 39,882,246
Payable for securities purchased........ (2.8) (27,273,735)
Payable for fund shares redeemed........ (0.1) (1,285,013)
Securities lending collateral payable to
brokers................................ (4.0) (39,882,246)
Other liabilities....................... (0.0) (7,152)
----- --------------
Net assets.............................. 100.0% $ 990,781,053
===== ==============
</TABLE>
_____________________________________ MF-47 ____________________________________
<PAGE>
HARTFORD BOND HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
2,000,000,000 shares authorized; 955,479,538 shares
outstanding........................................ $95,547,954
Capital surplus..................................... 904,108,458
Accumulated undistributed net investment income..... 31,000,048
Accumulated net realized loss on investments........ (31,138,530)
Unrealized depreciation of investments.............. (9,062,226)
Unrealized appreciation of futures
contracts Section.................................. 240,518
Unrealized appreciation of other assets and
liabilities in foreign currencies.................. 84,831
-----------
Net assets.......................................... $990,781,053
===========
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($970,072,971
DIVIDED BY 935,504,589 shares outstanding)
(1,600,000,000 shares authorized)................ $1.04
====
Class IB
Net asset value per share ($20,708,082
DIVIDED BY 19,974,949 shares outstanding)
(400,000,000 shares authorized).................. $1.04
====
</TABLE>
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
2000, the market value of these securities amounted to $21,993,312 or 2.2%
of net assets.
Section The Fund had 298 10 year U.S. Treasury Notes September 2000 Index
Futures z]contracts open as of June 30, 2000. These contracts had a value
of $29,348,344 as of June 30, 2000 and were collateralized by Entergy Gulf
States, Inc., 8.04% 06/02/03 and Hughes Electronics Corp., 7.472% 10/23/00
Corporate Notes.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-48 ____________________________________
<PAGE>
HARTFORD MORTGAGE SECURITIES HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 1.4%
$ 3,000,000 Chase Manhattan RV Owner Trust,
Series 1997-A, Class A9
6.32% due 12/15/08.................... $ 2,902,680
1,338,315 Corestates Home Equity Trust,
Series 1994-1, Class A
6.65% due 05/15/09.................... 1,325,654
-------------
Total asset-backed securities........... $ 4,228,334
=============
COLLATERALIZED MORTGAGE OBLIGATIONS -- 19.2%
2,812,183 BA Mortgage Securities, Inc.,
Series 1997-1, Class A10
7.10% due 07/25/26.................... $ 2,795,281
2,146,124 BA Mortgage Securities, Inc.,
Series 1997-2, Class 2A1
7.25% due 10/25/27.................... 2,136,653
7,490,913 Citicorp Mortgage Securities, Inc.,
Series 1994-8, Class A6
6.25% due 05/25/24.................... 7,025,607
5,083,657 Citicorp Mortgage Securities, Inc.,
Series 1998-8, Class A3
6.75% due 09/25/28.................... 4,735,781
3,342,560 Countrywide Home Loans., Series 1998-6,
Class A
6.50% due 06/25/13.................... 3,210,495
-430,167 DLJ Mortgage Acceptance Corp.,
Series 1996-I, Class B1
7.25% due 09/25/11.................... 407,979
-143,389 DLJ Mortgage Acceptance Corp.,
Series 1996-I, Class B2
7.25% due 09/25/11.................... 134,694
2,413,000 GE Capital Mortgage Services, Inc.,
Series 1993-10, Class A3
6.50% due 09/25/23.................... 2,302,050
2,102,664 GE Capital Mortgage Services, Inc.,
Series 1994-19, Class A6
7.50% due 06/25/24.................... 2,099,361
3,621,982 GE Capital Mortgage Services, Inc.,
Series 1994-26, Class A
6.902% due 07/25/09................... 3,548,202
497,830 GE Capital Mortgage Services, Inc.,
Series 1996-1, Class B2
6.75% due 02/25/11.................... 465,884
1,491,904 GE Capital Mortgage Services, Inc.,
Series 1996-1, Class M
6.75% due 02/25/11.................... 1,438,135
507,418 GE Capital Mortgage Services, Inc.,
Series 1996-10, Class B1
6.75% due 06/25/11.................... 484,432
507,418 GE Capital Mortgage Services, Inc.,
Series 1996-10, Class B2
6.75% due 06/25/11.................... 473,158
3,111,629 GE Capital Mortgage Services, Inc.,
Series 1998-7, Class A
6.50% due 04/25/13.................... 2,988,907
6,016,641 GE Capital Mortgage Services, Inc.,
Series 1999-16, Class A
6.50% due 07/25/14.................... 5,745,471
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<C> <S> <C>
</TABLE>
COLLATERALIZED MORTGAGE OBLIGATIONS -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<C> <S> <C>
$ 1,841,528 Housing Securities, Inc.,
Series 1993-E, Class E15
10.00% due 09/25/08................... $ 1,940,599
4,622,899 Norwest Asset Securities Corp.,
Series 1999-22, Class A1
6.50% due 09/25/14.................... 4,412,881
486,854 PNC Mortgage Securities Corp.,
Series 1996-2, Class B1
6.60% due 02/25/11.................... 466,338
162,285 PNC Mortgage Securities Corp.,
Series 1996-2, Class B2
6.60% due 02/25/11.................... 155,446
259,655 PNC Mortgage Securities Corp.,
Series 1996-2, Class B3
6.60% due 02/25/11.................... 244,037
4,200,000 Prudential Home Mortgage Securities Co.
Inc., Series 1994-8, Class A3
6.75% due 03/25/24.................... 4,008,606
1,001,224 Prudential Home Mortgage Securities Co.
Inc., Series 96-3, Class B1
6.75% due 03/25/11.................... 935,804
500,211 Prudential Home Mortgage Securities Co.
Inc., Series 96-3, Class B2
6.75% due 03/25/11.................... 467,528
604,022 Residential Funding Mortgage Securities
I, Inc., Series 1995-S18, Class M3
7.00% due 11/25/10.................... 570,094
232,369 Residential Funding Mortgage Securities
I, Inc., Series 1996-S11, Class M3
7.00% due 04/25/11.................... 218,875
441,120 Residential Funding Mortgage Securities
I, Inc., Series 1996-S19, Class M3
7.50% due 09/25/11.................... 422,192
476,917 Residential Funding Mortgage Securities
I, Inc., Series 1996-S5, Class M3
6.75% due 02/25/11.................... 443,251
2,034,596 Residential Funding Mortgage Securities
I, Inc., Series 1998-S22, Class A1
6.50% due 09/25/13.................... 1,950,913
2,875,682 Residential Funding Mortgage Securities
I, Inc., Series 1999-S22, Class A2
7.00% due 10/25/14.................... 2,800,569
-------------
Total collateralized mortgage
obligations............................. $ 59,029,223
=============
U.S. TREASURIES & FEDERAL AGENCIES -- 78.9%
FEDERAL HOME LOAN MORTGAGE ASSOCIATION
-- 27.9%
7,850,473 FHLMC Strip, Series 192, Class IO
6.50% due 02/01/28.................... $ 2,447,777
19,134,819 7.00% due 10/01/26 - 11/01/29......... 18,495,031
58,556,487 7.50% due 01/01/24 - 07/01/30......... 57,739,469
1,932,930 8.00% due 02/01/13 - 11/01/24......... 1,949,299
1,172,743 8.50% due 07/01/01 - 05/01/25......... 1,193,360
1,117,503 9.00% due 07/01/02 - 10/01/06......... 1,133,463
1,496,803 9.50% due 11/01/08.................... 1,540,468
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-49 ____________________________________
<PAGE>
HARTFORD MORTGAGE SECURITIES HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<C> <S> <C>
</TABLE>
U.S. TREASURIES & FEDERAL AGENCIES -- (CONTINUED)
FEDERAL HOME LOAN MORTGAGE ASSOCIATION -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<C> <S> <C>
$ 894,711 10.00% due 09/01/05 - 11/01/20........ $ 950,663
-------------
85,449,530
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION --
19.0%
38,470,133 6.50% due 09/01/25 - 07/01/30......... 36,246,866
11,988,291 7.00% due 02/01/30 - 05/01/30......... 11,570,271
3,750,000 7.25% due 01/15/10.................... 3,780,615
3,000,000 Fannie Mae, Series 1997-28, Class PD
7.50% due 07/18/23.................... 2,992,815
1,564,687 9.00% due 05/01/21 - 09/01/21......... 1,634,767
1,706,584 Fannie Mae, Series 1998-12, Class AM
9.00% due 03/18/28.................... 1,725,250
424,553 Fannie Mae Strip, Series D, Class 2
11.00% due 04/01/09................... 453,078
-------------
58,403,662
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
-- 24.4%
23,867,758 7.50% due 04/15/22 - 04/20/30......... 23,658,550
33,913,448 8.00% due 02/15/01 - 07/01/30......... 34,268,088
14,717,929 9.00% due 06/15/17 - 12/15/25......... 15,080,180
1,713,940 9.50% due 10/15/09 - 11/15/09......... 1,785,792
54,946 10.00% due 05/15/13................... 57,819
2,531 11.25% due 01/15/01................... 2,579
74,682 12.50% due 05/15/15 - 08/15/15........ 82,879
-------------
74,935,887
-------------
U.S. TREASURY BONDS -- 4.8%
10,000,000 6.50% due 02/15/10.................... 10,340,630
4,000,000 6.75% due 08/15/26.................... 4,298,752
-------------
14,639,382
-------------
U.S. TREASURY INFLATION-INDEXED
SECURITIES -- 2.8%
8,510,640 3.625% due 07/15/02................... 8,495,961
-------------
Total U.S. treasuries & federal
agencies................................ $ 241,924,422
=============
SHORT-TERM SECURITIES -- 41.2%
COMMERCIAL PAPER -- 32.8%
10,000,000 Associated Corp.
6.520% due 07/18/00................... $ 9,972,832
10,000,000 AT&T Corp.
6.50% due 07/17/00.................... 9,974,722
10,000,000 Fleet Boston Financial Corp.
6.55% due 07/17/00.................... 9,974,528
10,000,000 Ford Motor Credit Co.
6.53% due 07/17/00.................... 9,974,606
10,750,000 Gillette Co. (The)
6.90% due 07/05/00.................... 10,745,879
10,000,000 Goldman Sachs Group, Inc. (The)
6.54% due 07/17/00.................... 9,974,567
10,000,000 IBM Credit Corp.
6.49% due 07/17/00.................... 9,974,761
10,000,000 Salomon Smith Barney Holdings, Inc.
6.53% due 07/17/00.................... 9,974,606
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<C> <S> <C>
</TABLE>
SHORT-TERM SECURITIES -- (CONTINUED)
COMMERCIAL PAPER -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<C> <S> <C>
$10,000,000 Toyota Motor Credit Corp.
6.51% due 07/18/00.................... $ 9,972,875
10,000,000 Wood Street Funding Corp.
6.55% due 07/17/00.................... 9,974,528
-------------
Total commercial paper.................. $ 100,513,904
-------------
REPURCHASE AGREEMENT -- 8.4%
25,703,000 Interest in $320,669,000 joint
repurchase agreement dated 06/30/00 with
State Street Bank, 6.436% due 07/03/00;
maturity amount $25,716,762
(Collateralized by $151,504,351 U.S.
Treasury Bonds 8.125% due 05/15/21,
$171,295,551 U.S. Treasury Inflation-
Indexed Securities 3.625% due
05/15/02)............................... 25,703,000
-------------
Total short-term securities............. $ 126,216,904
=============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total asset-backed securities (cost
$4,344,689)................................ 1.4% $ 4,228,334
Total collateralized mortgage obligations
(cost $60,314,342)......................... 19.2 59,029,223
Total U.S. treasuries & federal agencies
(cost $240,966,070)........................ 78.9 241,924,422
Total short-term securities
(cost $126,216,904)........................ 41.2 126,216,904
----- ------------
Total investment in securities (total
cost $431,842,005)......................... 140.7 431,398,883
Cash, receivables and other assets.......... 0.8 2,315,582
Payable for securities purchased............ (37.8) (115,752,205)
Payable for fund shares redeemed............ (0.2) (501,206)
Other liabilities........................... (3.5) (10,813,829)
----- ------------
Net assets.................................. 100.0% $306,647,225
===== ============
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
800,000,000 shares authorized; 287,472,257 shares
outstanding........................................ $ 28,747,226
Capital surplus..................................... 286,394,392
Accumulated undistributed net investment income..... 10,025,835
Accumulated net realized loss on investments........ (18,077,108)
Unrealized depreciation of investments.............. (443,120)
------------
Net assets.......................................... $306,647,225
============
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($306,413,341 DIVIDED BY
287,252,790
shares outstanding) (600,000,000 shares authorized)...... $1.07
====
Class IB
Net asset value per share ($233,884 DIVIDED BY 219,467
shares outstanding) (200,000,000 shares authorized)...... $1.07
====
</TABLE>
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 2000,
the market value of these securities amounted to $542,673 or 0.2% of net
assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-50 ____________________________________
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------- --------------
<C> <S> <C>
COMMERCIAL PAPER -- 71.0%
$ 20,000,000 Abbey National North America PLC
6.58% due 09/12/00.................... $ 19,740,457
11,000,000 American Honda Finance Corp.
6.19% due 07/12/00.................... 10,982,978
12,110,000 American Honda Finance Corp.
6.19% due 07/24/00.................... 12,066,273
10,000,000 ANZ (Delaware), Inc.
6.02% due 08/25/00.................... 9,911,372
15,000,000 Associated Corp.
6.56% due 07/11/00.................... 14,978,133
-20,000,000 AT&T Corp.
6.78% due 06/14/01.................... 20,000,000
10,000,000 Bradford & Bingley Building Society
6.15% due 07/21/00.................... 9,969,250
20,000,000 Bradford & Bingley Building Society
6.56% due 07/10/00.................... 19,974,489
20,000,000 CAFCO
6.55% due 08/07/00.................... 19,872,639
20,000,000 CAFCO
6.62% due 08/01/00.................... 19,893,344
20,000,000 CIESCO L.P.
6.14% due 07/18/00.................... 19,948,833
10,000,000 CIESCO L.P.
6.55% due 08/02/00.................... 9,945,417
10,000,000 CIESCO L.P.
6.59% due 08/02/00.................... 9,945,083
10,000,000 Coca-Cola Co. (The)
6.10% due 07/03/00.................... 10,000,000
20,000,000 Coca-Cola Co. (The)
6.52% due 08/14/00.................... 19,847,867
35,000,000 Countrywide Home Loan
7.13% due 07/05/00.................... 34,986,136
30,000,000 DaimlerChrysler North America Holding
Corp.
6.15% due 07/25/00.................... 29,887,250
15,000,000 du Pont (E.I.) de Nemours & Co.
6.09% due 07/07/00.................... 14,989,850
17,800,000 Emerson Electric Co.
6.46% due 07/06/00.................... 17,790,418
20,000,000 Ford Motor Credit Co.
6.59% due 08/03/00.................... 19,886,506
20,000,000 General Electric Capital Corp.
5.98% due 07/10/00.................... 19,976,744
10,000,000 General Electric Capital Corp.
6.00% due 08/21/00.................... 9,918,333
10,000,000 General Electric Capital Corp.
6.59% due 09/18/00.................... 9,859,047
10,000,000 General Motors Acceptance Corp.
6.00% due 08/14/00.................... 9,930,000
35,000,000 Gillette Co. (The)
6.90% due 07/05/00.................... 34,986,583
10,000,000 Goldman Sachs Group, Inc. (The)
6.03% due 08/14/00.................... 9,929,650
10,000,000 Goldman Sachs Group, Inc. (The)
6.63% due 10/24/00.................... 9,791,892
10,000,000 Market Street Funding Corp.
6.60% due 07/24/00.................... 9,961,500
20,000,000 Market Street Funding Corp.
6.63% due 09/11/00.................... 19,742,167
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------- --------------
<C> <S> <C>
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------- --------------
<C> <S> <C>
$ 20,000,000 Merita Bank North America, Inc.
6.14% due 12/04/00.................... $ 19,474,689
10,000,000 Merrill Lynch & Co., Inc.
6.03% due 08/21/00.................... 9,917,925
10,000,000 Merrill Lynch & Co., Inc.
6.14% due 07/17/00.................... 9,976,122
10,000,000 Merrill Lynch & Co., Inc.
6.54% due 08/07/00.................... 9,936,417
10,000,000 Morgan (J.P.) & Co.
6.12% due 11/15/00.................... 9,770,500
20,000,000 Morgan Stanley Dean Witter & Co.
6.00% due 07/05/00.................... 19,993,333
20,000,000 Morgan Stanley Dean Witter & Co.
6.55% due 09/18/00.................... 19,719,806
20,000,000 Motorola, Inc.
6.57% due 07/26/00.................... 19,916,050
15,000,000 Motorola, Inc.
6.60% due 09/27/00.................... 14,763,500
20,000,000 National Rural Utilities Cooperative
Finance Corp.
6.14% due 11/06/00.................... 19,570,200
20,000,000 Nationwide Building Society
6.59% due 10/18/00.................... 19,608,261
10,000,000 Old Line Funding Corp.
6.56% due 07/20/00.................... 9,969,022
18,435,000 Pfizer, Inc.
6.58% due 08/07/00.................... 18,317,067
10,000,000 Salomon Smith Barney Holdings, Inc.
6.60% due 09/18/00.................... 9,858,833
10,000,000 Salomon Smith Barney Holdings, Inc.
6.61% due 09/18/00.................... 9,858,619
20,000,000 Sara Lee Corp.
6.49% due 07/06/00.................... 19,989,183
10,000,000 SwedBank
5.97% due 07/10/00.................... 9,988,392
10,000,000 SwedBank
6.19% due 11/28/00.................... 9,745,522
10,000,000 SwedBank
6.19% due 12/05/00.................... 9,733,486
30,000,000 Toronto-Dominion Holdings
6.24% due 10/23/00.................... 29,417,600
20,000,000 Triple A One Funding Corp.
6.60% due 07/24/00.................... 19,923,000
10,000,000 Wood Street Funding Corp.
6.55% due 07/14/00.................... 9,979,986
--------------
Total commercial paper.................. $ 808,139,724
==============
CORPORATE NOTES -- 15.9%
10,000,000 Citigroup, Inc.
5.625% due 02/15/01................... $ 9,934,274
10,000,000 First Union National Bank
6.80% due 02/22/01.................... 10,000,000
20,000,000 Fleet Financial Group, Inc.
6.707% due 03/13/01................... 19,989,949
10,000,000 Fleet National Bank
6.91% due 03/27/01.................... 10,008,797
20,000,000 General Mills, Inc.
6.161% due 07/17/00................... 19,999,254
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-51 ____________________________________
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------- --------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------------- --------------
<C> <S> <C>
$ 10,000,000 General Mills, Inc.
6.68% due 02/09/01.................... $ 9,997,283
-18,000,000 Goldman Sachs Group, Inc. (The)
6.713% due 01/16/01................... 18,038,751
20,000,000 Key Bank N.A.
6.76% due 05/25/01.................... 19,993,562
13,000,000 Nationsbank Corp.
5.75% due 03/15/01.................... 12,911,082
30,000,000 Toyota Motor Credit Corp.
6.181% due 01/09/01................... 29,989,225
20,000,000 Wachovia Bank
6.82% due 09/14/00.................... 19,999,225
--------------
Total corporate notes................... $ 180,861,402
==============
REPURCHASE AGREEMENT -- 14.9%
169,259,000 Interest in $320,669,000 joint
repurchase agreement dated 06/30/00
with State Street Bank, 6.436% due
07/03/00; maturity amount $169,349,783
(Collateralized by $151,504,351 U.S.
Treasury Bonds 8.125% due 05/15/21,
$171,295,551 U.S. Treasury Inflation-
Indexed Securities 3.625% due
05/15/02)............................. $ 169,259,000
--------------
Total repurchase agreement.............. $ 169,259,000
==============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<CAPTION>
DIVERSIFICATION OF NET ASSETS:
<S> <C> <C>
Total commercial paper
(cost $808,139,724).................... 71.0% $ 808,139,724
Total corporate notes
(cost $108,861,402).................... 15.9 180,861,402
Total repurchase agreement
(cost $169,259,000).................... 14.9 169,259,000
----- -------------
Total investment in securities
(total cost $1,158,260,126)............ 101.8 1,158,260,126
Cash, receivables and other assets...... 0.9 10,107,975
Payable for fund shares redeemed........ (2.2) (24,245,388)
Dividends payable....................... (0.5) (5,932,814)
Other liabilities....................... (0.0) (289,974)
----- -------------
Net assets.............................. 100.0% $1,137,899,925
===== =============
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
3,000,000,000 shares authorized; 1,137,899,924
shares outstanding............................... $ 113,789,993
Capital surplus................................... 1,024,109,932
-------------
Net assets........................................ $1,137,899,925
=============
Class IA
Shares of benefical interest outstanding, $0.10
par value 2,475,000,000 shares authorized (Net
assets $1,122,864,964)........................... 1,122,864,964
=============
</TABLE>
<TABLE>
<S> <C>
Net asset value................................... $1.00
====
</TABLE>
<TABLE>
<S> <C>
Class IB
Shares of benefical interest outstanding, $0.10
par value 525,000,000 shares authorized (Net
assets $15,034,961).............................. 15,034,961
============
</TABLE>
<TABLE>
<S> <C>
Net asset value................................... $1.00
====
</TABLE>
- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 2000,
the market value of these securities amounted to $38,038,751 or 3.3% of net
assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-52 ____________________________________
<PAGE>
[This page intentionally left blank]
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
HARTFORD HARTFORD
GLOBAL GLOBAL
HEALTH TECHNOLOGY
HLS FUND* HLS FUND*
----------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 19,307 $ 1,878
Interest............... 22,025 24,159
Securities lending..... 1,868 123
Less foreign tax
withheld.............. (889) --
---------- ----------
Total investment
income, net......... 42,311 26,160
---------- ----------
EXPENSES:
Investment advisory
fees.................. 16,745 21,340
Administrative services
fees.................. 5,152 6,566
Accounting services.... 382 488
Custodian fees gross... 6,334 9,274
Custodian fees expense
offset................ (443) (1,740)
Board of Directors
fees.................. 3 4
Distribution fees --
Class IB.............. 521 628
Other expenses......... 96 113
---------- ----------
Total expenses,
(before waivers).... 28,790 36,673
Distribution fees --
Class IB waived....... (146) (176)
---------- ----------
Total expenses,
net................. 28,644 36,497
---------- ----------
Net investment income
(loss)................ 13,667 (10,337)
---------- ----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on
securities
transactions.......... 397,001 272,239
Net realized gain on
futures contracts..... -- --
Net realized (loss)
gain on forward
foreign currency
contracts............. (7,968) --
Net realized gain
(loss) on foreign
currency
transactions.......... 4,785 --
Net unrealized
appreciation
(depreciation) of
investments........... 2,534,944 1,338,314
Net unrealized
(depreciation)
appreciation of
futures contracts..... -- --
Net unrealized
appreciation
(depreciation) of
forward foreign
currency contracts.... 171 --
Net unrealized
appreciation
(depreciation) on
translation of other
assets and liabilities
in foreign
currencies............ 535 --
---------- ----------
Net realized and
unrealized gain (loss)
on investments........ 2,929,468 1,610,553
---------- ----------
Net increase (decrease)
in net assets
resulting from
operations............ $2,943,135 $1,600,216
========== ==========
</TABLE>
* From inception May 1, 2000 to June 30, 2000.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-54 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
HARTFORD HARTFORD HARTFORD
SMALL CAPITAL HARTFORD INTERNATIONAL HARTFORD HARTFORD
COMPANY APPRECIATION MIDCAP OPPORTUNITIES GLOBAL LEADERS STOCK
HLS FUND, INC. HLS FUND, INC. HLS FUND, INC. HLS FUND, INC. HLS FUND HLS FUND, INC.
-------------- --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 602,444 $ 39,415,449 $ 1,940,915 $ 14,237,320 $ 2,428,258 $ 42,624,938
Interest............... 1,961,587 19,044,897 733,093 3,581,627 1,016,339 11,476,898
Securities lending..... 20,674 103,914 56,681 113,325 40,029 38,495
Less foreign tax
withheld.............. -- (1,248,687) (35,558) (1,884,559) (226,823) (336,046)
------------ -------------- ------------ ------------- ----------- -------------
Total investment
income, net......... 2,584,705 57,315,573 2,695,131 16,047,713 3,257,803 53,804,285
------------ -------------- ------------ ------------- ----------- -------------
EXPENSES:
Investment advisory
fees.................. 2,509,852 19,479,789 2,601,180 3,857,193 1,008,699 11,985,452
Administrative services
fees.................. 980,718 8,959,915 1,026,234 1,608,104 361,108 9,412,373
Accounting services.... 73,554 671,994 76,968 120,608 27,083 705,928
Custodian fees gross... 12,018 184,293 19,284 425,505 32,546 22,323
Custodian fees expense
offset................ (8,309) (73,365) (4,110) (28,394) (6,554) (2,768)
Board of Directors
fees.................. 1,501 9,656 1,143 1,890 482 9,609
Distribution fees --
Class IB.............. 22,314 45,901 3,668 8,033 2,399 74,796
Other expenses......... 28,903 230,854 19,193 42,239 9,509 305,780
------------ -------------- ------------ ------------- ----------- -------------
Total expenses,
(before waivers).... 3,620,551 29,509,037 3,743,560 6,035,178 1,435,272 22,513,493
Distribution fees --
Class IB waived....... (6,248) (12,852) (1,027) (2,249) (672) (20,943)
------------ -------------- ------------ ------------- ----------- -------------
Total expenses,
net................. 3,614,303 29,496,185 3,742,533 6,032,929 1,434,600 22,492,550
------------ -------------- ------------ ------------- ----------- -------------
Net investment income
(loss)................ (1,029,598) 27,819,388 (1,047,402) 10,014,784 1,823,203 31,311,735
------------ -------------- ------------ ------------- ----------- -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on
securities
transactions.......... 90,249,152 1,516,935,742 119,140,580 143,346,294 10,514,401 275,733,865
Net realized gain on
futures contracts..... -- -- -- 110,369 -- --
Net realized (loss)
gain on forward
foreign currency
contracts............. 3,505 6,180,549 -- (1,392,592) (341,815) 928
Net realized gain
(loss) on foreign
currency
transactions.......... (319) (5,630,570) 977 (893,655) 59,489 9,134
Net unrealized
appreciation
(depreciation) of
investments........... (67,807,033) (511,603,284) 52,161,771 (226,349,654) (5,131,260) (395,863,520)
Net unrealized
(depreciation)
appreciation of
futures contracts..... (9) 1,165 -- (103,692) -- --
Net unrealized
appreciation
(depreciation) of
forward foreign
currency contracts.... 17,873 975,589 -- (317,887) 64,440 --
Net unrealized
appreciation
(depreciation) on
translation of other
assets and liabilities
in foreign
currencies............ (14,254) (150,003) -- 176,077 (55,738) --
------------ -------------- ------------ ------------- ----------- -------------
Net realized and
unrealized gain (loss)
on investments........ 22,448,915 1,006,709,188 171,303,328 (85,424,740) 5,109,517 (120,119,593)
------------ -------------- ------------ ------------- ----------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ $ 21,419,317 $1,034,528,576 $170,255,926 $ (75,409,956) $ 6,932,720 $ (88,807,858)
============ ============== ============ ============= =========== =============
<CAPTION>
HARTFORD
GROWTH AND
INCOME
HLS FUND
-----------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $ 1,365,532
Interest............... 355,968
Securities lending..... --
Less foreign tax
withheld.............. (245)
-----------
Total investment
income, net......... 1,721,255
-----------
EXPENSES:
Investment advisory
fees.................. 803,529
Administrative services
fees.................. 282,906
Accounting services.... 21,218
Custodian fees gross... 6,119
Custodian fees expense
offset................ (865)
Board of Directors
fees.................. 374
Distribution fees --
Class IB.............. 810
Other expenses......... 11,598
-----------
Total expenses,
(before waivers).... 1,125,689
Distribution fees --
Class IB waived....... (227)
-----------
Total expenses,
net................. 1,125,462
-----------
Net investment income
(loss)................ 595,793
-----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on
securities
transactions.......... 11,639,925
Net realized gain on
futures contracts..... 760,797
Net realized (loss)
gain on forward
foreign currency
contracts............. --
Net realized gain
(loss) on foreign
currency
transactions.......... --
Net unrealized
appreciation
(depreciation) of
investments........... (4,897,473)
Net unrealized
(depreciation)
appreciation of
futures contracts..... (66,690)
Net unrealized
appreciation
(depreciation) of
forward foreign
currency contracts.... --
Net unrealized
appreciation
(depreciation) on
translation of other
assets and liabilities
in foreign
currencies............ --
-----------
Net realized and
unrealized gain (loss)
on investments........ 7,436,559
-----------
Net increase (decrease)
in net assets
resulting from
operations............ $ 8,032,352
===========
</TABLE>
_____________________________________ MF-55 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE PERIOD ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
HARTFORD
DIVIDEND AND HARTFORD
GROWTH INDEX
HLS FUND, INC. HLS FUND, INC.
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 33,062,547 $ 14,483,757
Interest............... 1,927,815 778,246
Securities lending..... 20,677 18,078
Less foreign tax
withheld.............. (214,952) (77,299)
------------- ------------
Total investment
income, net......... 34,796,087 15,202,782
------------- ------------
EXPENSES:
Investment advisory
fees.................. 6,878,180 2,573,343
Administrative services
fees.................. 3,029,746 2,573,343
Accounting services.... 227,231 193,001
Custodian fees gross... 12,654 12,548
Custodian fees expense
offset................ (4,883) (920)
Board of Directors
fees.................. 3,072 2,882
Distribution fees --
Class IB.............. 20,646 2,118
Other expenses......... 101,456 94,337
------------- ------------
Total expenses,
(before waivers).... 10,268,102 5,450,652
Distribution fees --
Class IB waived....... (5,781) (593)
------------- ------------
Total expenses,
net................. 10,262,321 5,450,059
------------- ------------
Net investment
income................ 24,533,766 9,752,723
------------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on securities
transactions.......... 159,541,345 (2,940,322)
Net realized gain
(loss) on futures
contracts............. -- 196,818
Net realized gain
(loss) on forward
foreign currency
contracts............. 136,770 --
Net realized gain on
option contracts...... 28,665 --
Net realized (loss)
gain on foreign
currency
transactions.......... (157,391) (62)
Net unrealized
(depreciation)
appreciation of
investments........... (238,039,071) (22,643,114)
Net unrealized
(depreciation)
appreciation of
futures contracts..... -- (267,893)
Net unrealized
(depreciation) of
forward foreign
currency contracts.... -- --
Net unrealized
(depreciation)
appreciation on
translation of other
assets and liabilities
in foreign
currencies............ (8,948) --
------------- ------------
Net realized and
unrealized (loss) gain
on investments........ (78,498,630) (25,654,573)
------------- ------------
Net (decrease) increase
in net assets
resulting from
operations............ $ (53,964,864) $(15,901,850)
============= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-56 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
HARTFORD HARTFORD
INTERNATIONAL HARTFORD HARTFORD HARTFORD MORTGAGE HARTFORD
ADVISERS ADVISERS HIGH YIELD BOND SECURITIES MONEY MARKET
HLS FUND, INC. HLS FUND, INC. HLS FUND HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
-------------- -------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 2,084,717 $ 40,196,470 $ 33,500 $ 103,605 $ -- $ --
Interest............... 5,404,850 180,965,848 2,450,485 33,464,352 10,794,579 35,250,992
Securities lending..... 14,211 67,353 1,387 5,741 -- --
Less foreign tax
withheld.............. (289,446) (305,934) -- -- -- --
------------ ------------- ----------- ------------ ----------- -----------
Total investment
income, net......... 7,214,332 220,923,737 2,485,372 33,573,698 10,794,579 35,250,992
------------ ------------- ----------- ------------ ----------- -----------
EXPENSES:
Investment advisory
fees.................. 1,135,244 30,134,618 146,333 1,451,414 399,043 1,430,921
Administrative services
fees.................. 408,530 13,973,950 50,898 987,006 319,234 1,144,737
Accounting services.... 30,640 1,048,046 3,817 74,025 23,942 85,855
Custodian fees gross... 93,081 41,337 4,144 23,359 9,234 4,285
Custodian fees expense
offset................ (6,752) (13,438) (181) (3,069) (837) (908)
Board of Directors
fees.................. 4,914 16,737 65 1,298 1,278 4,214
Distribution fees --
Class IB.............. 617 194,957 206 22,342 49 11,839
Other expenses......... 11,284 458,810 3,207 23,531 16,815 35,621
------------ ------------- ----------- ------------ ----------- -----------
Total expenses,
(before waivers).... 1,677,558 45,855,017 208,489 2,579,906 768,758 2,716,564
Distribution fees --
Class IB waived....... (173) (54,588) (58) (6,256) (14) (3,315)
------------ ------------- ----------- ------------ ----------- -----------
Total expenses,
net................. 1,677,385 45,800,429 208,431 2,573,650 768,744 2,713,249
------------ ------------- ----------- ------------ ----------- -----------
Net investment
income................ 5,536,947 175,123,308 2,276,941 31,000,048 10,025,835 32,537,743
------------ ------------- ----------- ------------ ----------- -----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on securities
transactions.......... 17,397,479 249,570,124 (1,599,240) (11,801,915) (4,387,210) (35,716)
Net realized gain
(loss) on futures
contracts............. 261,778 -- -- (174,572) -- --
Net realized gain
(loss) on forward
foreign currency
contracts............. 7,315,101 928 (11,025) 1,360,919 -- --
Net realized gain on
option contracts...... -- -- -- -- -- --
Net realized (loss)
gain on foreign
currency
transactions.......... (39,611) 8,183 9,826 (1,030,323) -- --
Net unrealized
(depreciation)
appreciation of
investments........... (31,286,900) (357,178,395) (663,149) 26,157,650 4,491,447 --
Net unrealized
(depreciation)
appreciation of
futures contracts..... (1,254,738) -- -- 471,924 -- --
Net unrealized
(depreciation) of
forward foreign
currency contracts.... (4,194,086) -- -- -- -- --
Net unrealized
(depreciation)
appreciation on
translation of other
assets and liabilities
in foreign
currencies............ 207,878 -- 631 84,831 -- --
------------ ------------- ----------- ------------ ----------- -----------
Net realized and
unrealized (loss) gain
on investments........ (11,593,099) (107,599,160) (2,262,957) 15,068,514 104,237 (35,716)
------------ ------------- ----------- ------------ ----------- -----------
Net (decrease) increase
in net assets
resulting from
operations............ $ (6,056,152) $ 67,524,148 $ 13,984 $ 46,068,562 $10,130,072 $32,502,027
============ ============= =========== ============ =========== ===========
</TABLE>
_____________________________________ MF-57 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
HARTFORD HARTFORD
GLOBAL GLOBAL
HEALTH TECHNOLOGY
HLS FUND* HLS FUND*
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)..................... $ 13,667 $ (10,337)
Net realized gain on
investments................ 393,818 272,239
Net unrealized appreciation
(depreciation) of
investments................ 2,535,650 1,338,314
----------- -----------
Net increase (decrease) in
net assets resulting from
operations................. 2,943,135 1,600,216
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class IA.................. -- --
Class IB.................. -- --
From realized gain on
investments
Class IA.................. -- --
Class IB.................. -- --
----------- -----------
Total distributions....... -- --
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Class IA.................. 19,008,094 28,004,765
Class IB.................. 1,301,309 2,197,525
----------- -----------
Net increase from
capital share
transactions........... 20,309,403 30,202,290
----------- -----------
Net increase in net
assets................. 23,252,538 31,802,506
NET ASSETS:
Beginning of period......... -- --
----------- -----------
End of period............... $23,252,538 $31,802,506
=========== ===========
Accumulated undistributed
net investment income
(loss)..................... $ 13,666 $ (10,338)
=========== ===========
</TABLE>
* From inception May 1, 2000 to June 30, 2000.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-58 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
HARTFORD HARTFORD HARTFORD
SMALL CAPITAL HARTFORD INTERNATIONAL HARTFORD
COMPANY APPRECIATION MIDCAP OPPORTUNITIES GLOBAL LEADERS
HLS FUND, INC. HLS FUND, INC. HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
--------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)..................... $ (1,029,598) $ 27,819,388 $ (1,047,402) $ 10,014,784 $ 1,823,203
Net realized gain on
investments................ 90,252,338 1,517,485,721 119,141,557 141,170,416 10,232,075
Net unrealized appreciation
(depreciation) of
investments................ (67,803,423) (510,776,533) 52,161,771 (226,595,156) (5,122,558)
-------------- --------------- -------------- -------------- ------------
Net increase (decrease) in
net assets resulting from
operations................. 21,419,317 1,034,528,576 170,255,926 (75,409,956) 6,932,720
-------------- --------------- -------------- -------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class IA.................. -- (3,805,460) -- (10,708,194) (20,051)
Class IB.................. -- (22,902) -- (76,325) (291)
From realized gain on
investments
Class IA.................. (117,754,046) (1,257,339,181) (52,224,942) (171,516,585) (2,622,287)
Class IB.................. (3,079,849) (7,712,912) (412,501) (1,223,514) (38,228)
-------------- --------------- -------------- -------------- ------------
Total distributions....... (120,833,895) (1,268,880,455) (52,637,443) (183,524,618) (2,680,857)
-------------- --------------- -------------- -------------- ------------
CAPITAL SHARE TRANSACTIONS:
Class IA.................. 412,727,319 1,638,386,046 534,961,884 249,825,858 294,031,644
Class IB.................. 20,049,442 39,473,394 10,495,924 9,806,041 7,046,570
-------------- --------------- -------------- -------------- ------------
Net increase from
capital share
transactions........... 432,776,761 1,677,859,440 545,457,808 259,631,899 301,078,214
-------------- --------------- -------------- -------------- ------------
Net increase in net
assets................. 333,362,183 1,443,507,561 663,076,291 697,325 305,330,077
NET ASSETS:
Beginning of period......... 767,502,233 7,985,996,377 672,713,807 1,578,038,808 179,743,919
-------------- --------------- -------------- -------------- ------------
End of period............... $1,100,864,416 $9,429,503,938 $1,335,790,098 $1,578,736,133 $485,073,996
============== =============== ============== ============== ============
Accumulated undistributed
net investment income
(loss)..................... $ (1,029,598) $ 28,097,122 $ (1,047,402) $ 6,140,661 $ 1,794,497
============== =============== ============== ============== ============
<CAPTION>
HARTFORD
HARTFORD GROWTH AND
STOCK INCOME
HLS FUND, INC. HLS FUND
--------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)..................... $ 31,311,735 $ 595,793
Net realized gain on
investments................ 275,743,927 12,400,722
Net unrealized appreciation
(depreciation) of
investments................ (395,863,520) (4,964,163)
--------------- ------------
Net increase (decrease) in
net assets resulting from
operations................. (88,807,858) 8,032,352
--------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class IA.................. (2,419,284) (16,018)
Class IB.................. (19,101) (140)
From realized gain on
investments
Class IA.................. (999,115,721) (3,335,223)
Class IB.................. (8,268,704) (29,168)
--------------- ------------
Total distributions....... (1,009,822,810) (3,380,549)
--------------- ------------
CAPITAL SHARE TRANSACTIONS:
Class IA.................. 1,136,680,629 139,171,726
Class IB.................. 40,256,537 3,259,830
--------------- ------------
Net increase from
capital share
transactions........... 1,176,937,166 142,431,556
--------------- ------------
Net increase in net
assets................. 78,306,498 147,083,359
NET ASSETS:
Beginning of period......... 9,447,823,496 201,871,836
--------------- ------------
End of period............... $9,526,129,994 $348,955,195
=============== ============
Accumulated undistributed
net investment income
(loss)..................... $ 31,316,736 $ 595,793
=============== ============
</TABLE>
_____________________________________ MF-59 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE PERIOD ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
HARTFORD
DIVIDEND AND HARTFORD
GROWTH INDEX
HLS FUND, INC. HLS FUND, INC.
--------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income....... $ 24,533,766 $ 9,752,723
Net realized gain (loss) on
investments................ 159,549,389 (2,743,566)
Net unrealized
(depreciation) appreciation
of investments............. (238,048,019) (22,911,007)
-------------- --------------
Net (decrease) increase in
net assets resulting from
operations................. (53,964,864) (15,901,850)
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class IA.................. (2,426,419) (264,144)
Class IB.................. (15,305) (393)
From realized gain on
investments
Class IA.................. (266,487,174) (24,783,748)
Class IB.................. (1,715,211) (36,848)
-------------- --------------
Total distributions....... (270,644,109) (25,085,133)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Class IA.................. 29,669,469 82,006,135
Class IB.................. 4,817,195 3,996,698
-------------- --------------
Net increase
(decrease) from capital
share transactions..... 34,486,664 86,002,833
-------------- --------------
Net (decrease)
increase in net
assets................. (290,122,309) 45,015,850
NET ASSETS:
Beginning of period......... 3,223,819,460 2,581,446,661
-------------- --------------
End of period............... $2,933,697,151 $2,626,462,511
============== ==============
Accumulated undistributed
net investment income
(loss)..................... $ 23,091,974 $ 9,767,523
============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-60 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
HARTFORD HARTFORD
INTERNATIONAL HARTFORD HARTFORD HARTFORD MORTGAGE HARTFORD
ADVISERS ADVISERS HIGH YIELD BOND SECURITIES MONEY MARKET
HLS FUND, INC. HLS FUND, INC. HLS FUND HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
-------------- ---------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income....... $ 5,536,947 $ 175,123,308 $ 2,276,941 $ 31,000,048 $ 10,025,835 $ 32,537,743
Net realized gain (loss) on
investments................ 24,934,747 249,579,235 (1,600,439) (11,645,891) (4,387,210) (35,716)
Net unrealized
(depreciation) appreciation
of investments............. (36,527,846) (357,178,395) (662,518) 26,714,405 4,491,447 --
------------ --------------- ----------- ------------ ------------ --------------
Net (decrease) increase in
net assets resulting from
operations................. (6,056,152) 67,524,148 13,984 46,068,562 10,130,072 32,502,027
------------ --------------- ----------- ------------ ------------ --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class IA.................. (4,961,334) (29,849,092) (61,191) (4,426,549) (2,172,319) (32,239,227)
Class IB.................. (18,042) (389,528) (621) (93,698) (1,623) (262,798)
From realized gain on
investments
Class IA.................. (26,882,615) (1,188,034,853) -- -- -- --
Class IB.................. (97,763) (15,622,606) -- -- -- --
------------ --------------- ----------- ------------ ------------ --------------
Total distributions....... (31,959,754) (1,233,896,079) (61,812) (4,520,247) (2,173,942) (32,502,025)
------------ --------------- ----------- ------------ ------------ --------------
CAPITAL SHARE TRANSACTIONS:
Class IA.................. 56,247,852 827,867,303 3,131,858 (49,574,084) (41,308,984) (134,570,848)
Class IB.................. 1,641,421 60,330,059 465,887 4,128,454 223,265 6,231,037
------------ --------------- ----------- ------------ ------------ --------------
Net increase
(decrease) from capital
share transactions..... 57,889,273 888,197,362 3,597,745 (45,445,630) (41,085,719) (128,339,811)
------------ --------------- ----------- ------------ ------------ --------------
Net (decrease)
increase in net
assets................. 19,873,367 (278,174,569) 3,549,917 (3,897,315) (33,129,589) (128,339,809)
NET ASSETS:
Beginning of period......... 396,158,206 14,220,213,254 52,833,371 994,678,368 339,776,814 1,266,239,734
------------ --------------- ----------- ------------ ------------ --------------
End of period............... $416,031,573 $13,942,038,685 $56,383,288 $990,781,053 $306,647,225 $1,137,899,925
============ =============== =========== ============ ============ ==============
Accumulated undistributed
net investment income
(loss)..................... $ 4,010,344 $ 175,123,306 $ 2,262,827 $ 31,000,048 $ 10,025,835 $ --
============ =============== =========== ============ ============ ==============
</TABLE>
_____________________________________ MF-61 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HARTFORD HARTFORD
SMALL CAPITAL
COMPANY APPRECIATION
HLS FUND, INC. HLS FUND, INC.
-------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment
income................ $ (1,976,601) $ 29,590,553
Net realized (loss)
gain.................. 147,233,369 1,275,672,031
Net unrealized
(depreciation)
appreciation of
investments........... 121,502,066 843,016,317
------------ --------------
Net (decrease) increase
in net assets
resulting from
operations............ 266,758,834 2,148,278,901
------------ --------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income
Class IA............. -- (24,013,346)
Class IB............. -- (47,938)
From realized gain on
investments
Class IA............. (986,389) (373,170,325)
Class IB............. (13,611) (2,166,173)
------------ --------------
Total
distributions....... (1,000,000) (399,397,782)
------------ --------------
CAPITAL SHARE
TRANSACTIONS:
Class IA............. 143,679,160 409,058,426
Class IB............. 6,634,327 14,635,220
------------ --------------
Net increase
(decrease) from
capital share
transactions...... 150,313,487 423,693,646
------------ --------------
Net increase
(decrease) in net
assets............ 416,072,321 2,172,574,765
NET ASSETS:
Beginning of year...... 351,429,912 5,813,421,612
------------ --------------
End of year............ $767,502,233 $7,985,996,377
============ ==============
Accumulated
undistributed net
investment income..... $ -- $ 4,106,096
============ ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-62 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
HARTFORD HARTFORD HARTFORD
HARTFORD INTERNATIONAL HARTFORD HARTFORD GROWTH AND DIVIDEND AND
MIDCAP OPPORTUNITIES GLOBAL LEADERS STOCK INCOME GROWTH
HLS FUND, INC. HLS FUND, INC. HLS FUND HLS FUND, INC. HLS FUND HLS FUND, INC.
-------------- -------------- -------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income................ $ (453,470) $ 15,471,910 $ 293,806 $ 65,458,296 $ 556,158 $ 50,807,217
Net realized (loss)
gain.................. 74,256,853 200,445,808 2,920,899 1,025,416,628 4,442,200 275,965,619
Net unrealized
(depreciation)
appreciation of
investments........... 87,291,822 249,333,414 33,754,415 408,912,415 17,368,897 (162,877,806)
------------ -------------- ------------ -------------- ------------ --------------
Net (decrease) increase
in net assets
resulting from
operations............ 161,095,205 465,251,132 36,969,120 1,499,787,339 22,367,255 163,895,030
------------ -------------- ------------ -------------- ------------ --------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income
Class IA............. -- (15,254,141) (230,000) (64,230,258) (540,261) (51,584,635)
Class IB............. -- (26,724) -- (285,493) (17) (240,626)
From realized gain on
investments
Class IA............. (27,865,705) -- (835,856) (619,031,959) (1,243,909) (120,723,195)
Class IB............. (445) -- (435) (6,820,829) (91) (820,318)
------------ -------------- ------------ -------------- ------------ --------------
Total
distributions....... (27,866,150) (15,280,865) (1,066,291) (690,368,539) (1,784,278) (173,368,774)
------------ -------------- ------------ -------------- ------------ --------------
CAPITAL SHARE
TRANSACTIONS:
Class IA............. 395,957,351 (71,217,452) 138,030,655 1,405,976,600 155,965,699 185,464,195
Class IB............. 33,758 1,929,411 10,990 39,214,926 35 7,935,212
------------ -------------- ------------ -------------- ------------ --------------
Net increase
(decrease) from
capital share
transactions...... 395,991,109 (69,288,041) 138,041,645 1,445,191,526 155,965,734 193,399,407
------------ -------------- ------------ -------------- ------------ --------------
Net increase
(decrease) in net
assets............ 529,220,164 380,682,226 173,944,474 2,254,610,326 176,548,711 183,925,663
NET ASSETS:
Beginning of year...... 143,493,643 1,197,356,582 5,799,445 7,193,213,170 25,323,125 3,039,893,797
------------ -------------- ------------ -------------- ------------ --------------
End of year............ $672,713,807 $1,578,038,808 $179,743,919 $9,447,823,496 $201,871,836 $3,223,819,460
============ ============== ============ ============== ============ ==============
Accumulated
undistributed net
investment income..... $ -- $ 6,910,396 $ (8,364) $ 2,443,386 $ 16,158 $ 999,932
============ ============== ============ ============== ============ ==============
</TABLE>
_____________________________________ MF-63 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HARTFORD
HARTFORD INTERNATIONAL
INDEX ADVISERS
HLS FUND, INC. HLS FUND, INC.
--------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 20,579,345 $ 8,380,352
Net realized gain
(loss)................ 26,366,138 28,196,505
Net unrealized
(depreciation)
appreciation of
investments........... 369,300,044 34,812,206
-------------- ------------
Net increase in net
assets resulting from
operations............ 416,245,527 71,389,063
-------------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income
Class IA............. (23,997,823) (6,999,809)
Class IB............. (82) (191)
From realized gain on
investments
Class IA............. (32,133,595) --
Class IB............. (9) --
-------------- ------------
Total
distributions....... (56,131,509) (7,000,000)
-------------- ------------
CAPITAL SHARE
TRANSACTIONS:
Class IA............. 375,205,423 45,906,614
Class IB............. 10,000 10,000
-------------- ------------
Net increase from
capital share
transactions...... 375,215,423 45,916,614
-------------- ------------
Net increase in
net assets........ 735,329,441 110,305,677
NET ASSETS:
Beginning of year...... 1,846,117,220 285,852,529
-------------- ------------
End of year............ $2,581,446,661 $396,158,206
============== ============
Accumulated
undistributed net
investment income..... $ 279,337 $ 3,452,773
============== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-64 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
HARTFORD
HARTFORD HARTFORD HARTFORD MORTGAGE HARTFORD
ADVISERS HIGH YIELD BOND SECURITIES MONEY MARKET
HLS FUND, INC. HLS FUND HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
---------------- ----------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 320,121,537 $ 3,010,849 $ 58,520,227 $ 21,173,942 $ 51,797,629
Net realized gain
(loss)................ 1,204,132,542 (207,453) (18,936,883) (6,343,967) 22,249
Net unrealized
(depreciation)
appreciation of
investments........... (201,833,722) (1,512,476) (58,549,134) (9,624,058) --
--------------- ----------- ---------------- ------------ --------------
Net increase in net
assets resulting from
operations............ 1,322,420,357 1,290,920 (18,965,790) 5,205,917 51,819,878
--------------- ----------- ---------------- ------------ --------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income
Class IA............. (294,114,825) (2,960,585) (53,765,163) (18,999,447) (51,531,940)
Class IB............. (2,712,215) (5,858) (835,869) (553) (265,689)
From realized gain on
investments
Class IA............. (985,224,028) (6,008) (6,264,409) -- (22,169)
Class IB............. (10,509,514) (28) (48,164) -- (80)
--------------- ----------- ---------------- ------------ --------------
Total
distributions....... (1,292,560,582) (2,972,479) (60,913,605) (19,000,000) (51,819,878)
--------------- ----------- ---------------- ------------ --------------
CAPITAL SHARE
TRANSACTIONS:
Class IA............. 2,243,273,127 39,928,946 155,218,570 (3,273,436) 384,949,803
Class IB............. 106,955,218 1,851 11,573,774 10,000 6,624,881
--------------- ----------- ---------------- ------------ --------------
Net increase from
capital share
transactions...... 2,350,228,345 39,930,797 166,792,344 (3,263,436) 391,574,684
--------------- ----------- ---------------- ------------ --------------
Net increase in
net assets........ 2,380,088,120 38,249,238 86,912,949 (17,057,519) 391,574,684
NET ASSETS:
Beginning of year...... 11,840,125,134 14,584,133 907,765,419 356,834,333 874,665,050
--------------- ----------- ---------------- ------------ --------------
End of year............ $14,220,213,254 $52,833,371 $ 994,678,368 $339,776,814 $1,266,239,734
=============== =========== ================ ============ ==============
Accumulated
undistributed net
investment income..... $ 30,238,618 $ 47,698 $ 4,520,247 $ 2,173,942 $ --
=============== =========== ================ ============ ==============
</TABLE>
_____________________________________ MF-65 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
1. ORGANIZATION:
Hartford Global Health HLS Fund, Hartford Global Technology HLS Fund,
Hartford Small Company HLS Fund, Inc., Hartford Capital Appreciation HLS
Fund, Inc., Hartford MidCap HLS Fund, Inc., Hartford International
Opportunities HLS Fund, Inc., Hartford Global Leaders HLS Fund, Hartford
Stock HLS Fund, Inc., Hartford Growth and Income HLS Fund, Hartford Dividend
and Growth HLS Fund, Inc., Hartford Index HLS Fund, Inc., Hartford
International Advisers HLS Fund, Inc., Hartford Advisers Fund HLS
Fund, Inc., Hartford High Yield HLS Fund, Hartford Bond HLS Fund, Inc.,
Hartford Mortgage Securities HLS Fund, Inc., and Hartford Money Market HLS
Fund, Inc. (each a "Fund" or together the "Funds") are organized under the
laws of the state of Maryland and are registered with the Securities and
Exchange Commission (SEC) under the Investment Company Act of 1940, as
amended, as diversified open-end management investment companies, except for
Hartford Global Health HLS Fund and Hartford Global Technology HLS Fund
which are non-diversified.
The Funds serve as the underlying investment vehicles for certain variable
annuity and variable life insurance separate accounts and group pension
contracts of Hartford Life Insurance Company and Hartford Life and Annuity
Insurance Company (collectively, The Hartford Life Insurance Companies). The
Hartford Life Insurance Companies are affiliates of the Funds. The Funds,
which have different investment goals and policies, are described below.
<TABLE>
<S> <C>
Hartford Global Health HLS Fund Seeks long-term capital appreciation by investing
at least 80% of its total assets in the equity
securities of health care companies worldwide.
Hartford Global Technology HLS Fund Seeks long-term capital appreciation by investing
at least 80% of its total assets in the equity
securities of technology companies worldwide.
Hartford Small Company HLS Fund, Inc. Seeks maximum capital appreciation by investing at
least 65% of its total assets in common stocks of
companies with a market capitalization within the
range represented by the Russell 2000 Index.
Hartford Capital Appreciation HLS Fund, Inc Seeks growth of capital through investment in
equity securities of companies with high growth
potential, including small, medium and large
companies.
Hartford MidCap HLS Fund, Inc. Seeks long-term capital growth through capital
appreciation by investing primarily in equity
securities with market capitalizations within the
range represented by the S&P's MidCap 400 Index.
Hartford International Opportunities HLS Seeks growth of capital through investing
Fund, Inc. primarily in foreign equity securities issues.
Hartford Global Leaders HLS Fund Seeks growth of capital by investing primarily in
equity securities, issued by U.S. and non-U.S.
companies.
Hartford Stock HLS Fund, Inc. Seeks long-term capital growth through investment
in a diversified portfolio of equity securities.
Hartford Growth and Income HLS Fund Seeks growth of capital and current income by
investing primarily in equity securities with
earnings growth potential and steady or rising
dividends.
Hartford Dividend and Growth HLS Fund, Inc. Seeks a high level of current income consistent
with growth of capital and moderate investment
risk. Primary investments are equity securities
and securities convertible into equity securities
that typically have above average yield.
Hartford Index HLS Fund, Inc. Seeks to approximate the price and yield
performance represented by the Standard & Poor's
500 Composite Stock Price Index through
investments in common stocks.
Hartford International Advisers HLS Fund, Inc. Seeks a long-term total rate of return consistent
with moderate risk. Investments include a mix of
debt, equity and money market instruments
primarily with foreign issuers.
Hartford Advisers HLS Fund, Inc. Seeks maximum long-term total rate of return
(capital growth and current income) through
investment in a varying mix of stocks, bonds and
money market instruments.
Hartford High Yield HLS Fund Seeks high current income by investing in high
yield, below investment grade securities. Growth
of capital is a secondary objective.
</TABLE>
_____________________________________ MF-66 ____________________________________
<PAGE>
<TABLE>
<S> <C>
Hartford Bond HLS Fund, Inc. Seeks maximum current income consistent with
preservation of capital through investing
primarily in debt securities.
Hartford Mortgage Securities HLS Fund, Inc. Seeks a high level of current income by investing
primarily in mortgage-related securities,
including securities issued by the Government
National Mortgage Association.
Hartford Money Market HLS Fund, Inc. Seeks a high level of current income consistent
with liquidity and preservation of capital through
investment in money-market securities.
</TABLE>
Each Fund is divided into Class IA and IB shares. Each class is offered at
net asset value without a sales charge and is subject to the same expenses
except that the Class IB shares are subject to distribution fees charged
pursuant to a Rule 12-b1 plan. Distribution and Service Plans have been
adopted in accordance with rule 12b-1 of the Investment Company Act of 1940,
as amended.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the Funds,
which are in accordance with generally accepted accounting principles in the
investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (the day the order to buy or sell is executed). Security gains and
losses are determined on the basis of identified cost.
b) SECURITY VALUATION--Equity securities are valued at the last sales price
reported on principal securities exchanges on which such securities are
traded (domestic or foreign) or on the principal over-the-counter market
on which such securities are traded as of the close of business on the day
the securities are being valued. If no sale occurred on a particular day
and in the case of certain equity securities traded over-the-counter, then
such securities are valued at the mean between the bid and asked prices.
Securities quoted in foreign currencies are translated into U.S. dollars
at the prevailing exchange rates at the end of each business day. Options
are valued at the last sales price; if no sale took place on such day,
then options are valued at the mean between the bid and asked prices.
Securities for which market quotations are not readily available and all
other assets are valued in good faith at their fair values under the
direction of the Funds' Board of Directors.
Debt securities (other than short-term obligations) are valued on the
basis of valuations furnished by an unaffiliated pricing service, which
determines valuations for normal institutional size trading units of debt
securities. Mortgage securities are valued at the bid price. Short-term
securities held in Hartford Money Market HLS Fund, Inc., are valued at
amortized cost or original cost plus accrued interest receivable, both of
which approximate market value. In the remaining Funds, short-term
investments purchased with a maturity of 60 days or less are valued at
amortized cost, which approximates market value. Short-term investments
purchased with a maturity of more than 60 days are valued based on market
quotations until the remaining days to maturity become less than 61 days.
From such time until maturity, the investments are valued at amortized
cost.
c) FOREIGN CURRENCY TRANSACTIONS--The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities initially expressed
in foreign currencies are converted into U.S. dollars at the prevailing
exchange rates. Purchases and sales of investment securities, dividend and
interest income and certain expenses are translated at the rates of
exchange prevailing on the respective dates of such transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in the foreign exchange rates on investments from
the fluctuations arising from changes in the market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign
currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the
amounts actually received or paid. Net unrealized foreign exchange gains
or losses arise from changes in the value of other assets and liabilities
at the end of the reporting period, resulting from changes in the exchange
rates.
d) REPURCHASE AGREEMENTS--A repurchase agreement is an agreement by which the
seller of a security agrees to repurchase the security sold at a mutually
agreed upon time and price. At the time the Funds enter into a repurchase
agreement, the value of the underlying collateral security(ies), including
accrued interest, will be equal to or exceed the value of the repurchase
agreement and, in the case of repurchase agreements exceeding one day, the
value of the underlying security(ies), including accrued interest, is
required during the term of the agreement to be equal to or
_____________________________________ MF-67 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
exceed the value of the repurchase agreement. Securities which serve to
collateralize the repurchase agreement are held by each Fund's custodian in book
entry or physical form in the custodial account of the Fund. Repurchase
agreements are valued at cost plus accrued interest receivable. All
repurchase agreements are handled through the Fund's custodian, State
Street Bank.
e) JOINT TRADING ACCOUNT--Pursuant to an exemptive order issued by the SEC,
the Funds may transfer uninvested cash balances into a joint trading
account managed by The Hartford Investment Management Company (HIMCO) or
Wellington Management Company, LLP (Wellington). These balances may be
invested in one or more repurchase agreements and/or short-term money
market instruments.
f) FUTURES, OPTIONS ON FUTURES AND OPTIONS TRANSACTIONS--The Funds enter into
futures contracts to retain their cash balance and yet be exposed to the
market, thereby providing the liquidity necessary to accommodate
redemptions while at the same time providing shareholders with the
investment return of a fully invested portfolio. A futures contract is an
agreement between two parties to buy and sell a security at a set price on
a future date. When the Funds enter into such contracts, they are required
to deposit with their custodian an amount of "initial margin" of cash or
U.S. Treasury bills. Subsequent payments, called maintenance margin, to
and from the broker-dealer, are made on a daily basis as the price of the
underlying debt security fluctuates, making the long and short positions
in the futures contract more or less valuable (i.e., mark-to-market),
which results in an unrealized gain or loss to the Funds. The market value
of a traded futures contract is the last sale price. In the absence of a
last sale price, the last offering price is used. In the absence of either
of these prices, fair value is determined according to procedures
established by the Funds' Board of Directors. The variation margin on
futures contracts is included in excess of cash, receivables and other
assets over liabilities, or excess of liabilities over cash, receivables
and other assets, as applicable, in each Funds' Statement of Net Assets.
At any time prior to the expiration of the futures contract, the Funds may
close the position by taking an opposite position which would operate to
terminate the position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by
or released to the Funds and the Funds realize a gain or loss.
The premium paid by the Fund for the purchase of a call or put option is
included in the Funds' Statement of Net Assets as excess of cash,
receivables and other assets over liabilities or excess of liabilities
over cash, receivables and other assets and subsequently
"marked-to-market" to reflect the current market value of the option
purchased as of the end of the reporting period. If an option, which a
Fund has purchased, expires on its stipulated expiration date, the Fund
realizes a loss in the amount of the cost of the option. If the Fund
enters into a closing transaction, it realizes a gain or loss, depending
on whether the proceeds from the sale are greater or less than the cost of
the option. If the Fund exercises a put option, it realizes a gain or loss
from the sale of the underlying security and the proceeds from such sale
will be decreased by the premium originally paid. If the Fund exercises a
call option, the cost of the security which the Fund purchases upon
exercise will be increased by the premium originally paid to buy the call.
The Funds may write covered options. "Covered" means that so long as the
Fund is obligated as the writer of an option, it will own either the
underlying securities or currency or an option to purchase or sell the
same underlying securities or currency having an expiration date of the
covered option at an exercise price equal to or less than the exercise
price of the covered option, or will establish or maintain with its
custodian for the term of the option a "segregated account" consisting of
cash or other liquid securities having a value equal to the fluctuating
market value of the option securities or currencies. The Fund receives a
premium from writing a call or put option, which increases the Fund's
return if the option expires unexercised or is closed out at a net profit.
The Funds' option activity was as follows as of June 30, 2000:
_____________________________________ MF-68 ____________________________________
<PAGE>
HARTFORD DIVIDEND AND GROWTH HLS FUND, INC.
<TABLE>
<CAPTION>
<S> <C> <C>
OPTIONS CONTRACTS
WRITTEN
DURING THE PERIOD
--------------------
NUMBER OF DOLLAR
WRITTEN CALLS CONTRACTS AMOUNTS
---------------------------------------- --------- ---------
Beginning of Period..................... -- $ --
During the Period....................... 1,022 116,328
Expired during the period............... -- --
Closed during the period................ (1,022) (116,328)
Exercised during the period............. -- --
-------- ---------
Balanced at the end of period........... -- $ --
======== =========
</TABLE>
g) FORWARD FOREIGN CURRENCY CONTRACTS--As of June 30, 2000, Hartford Global
Health HLS Fund, Hartford Small Company HLS Fund, Inc., Hartford Capital
Appreciation HLS Fund, Inc., Hartford International Opportunities HLS
Fund, Inc., Hartford Global Leaders HLS Fund and Hartford International
Advisers HLS Fund, Inc., had entered into forward foreign currency
exchange contracts that obligate the funds to repurchase/replace or sell
currencies at specified future dates. The Funds enter into forward foreign
currency contracts to hedge against adverse fluctuations in exchange rates
between currencies. The forward foreign currency contracts' costs are
included in excess of cash, receivables and other assets over liabilities
or excess of liabilities over cash, receivables and other assets, as
applicable, in the Funds' Statement of Net Assets.
Forward foreign currency contracts involve elements of markets risk in
excess of the amount reflected in the Statement of Net Assets. In
addition, risk may arise upon entering into these contracts from the
potential inability of the counter-parties to meet the terms of the
contracts and from unanticipated movements in the value of the foreign
currencies relative to the U.S. dollar.
h) SECURITIES LENDING--Hartford Global Health HLS Fund, Hartford Global
Technology HLS Fund, Hartford Small Company HLS Fund, Inc., Hartford
Capital Appreciation HLS Fund, Inc., Hartford MidCap HLS Fund, Inc.,
Hartford International Opportunities HLS Fund, Inc., Hartford Global
Leaders HLS Fund, Hartford Stock HLS Fund, Inc., Hartford Growth and
Income HLS Fund, Hartford Dividend and Growth HLS Fund, Inc., Hartford
Index HLS Fund, Inc., Hartford International Advisers HLS Fund, Inc.,
Hartford Advisers HLS Fund, Inc., Hartford High Yield HLS Fund and
Hartford Bond HLS Fund, Inc. may lend their securities to certain
qualified brokers who pay these Funds negotiated lender fees. 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, these Funds may bear the risk of delay of
the loaned securities in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. As of June 30,
2000, the market value of the securities loaned and the market value of
the collateral were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
VALUE OF SECURITIES LOANED VALUE OF COLLATERAL
------------ ------------
Hartford Global Health HLS Fund......... $ 5,043,418 $ 5,219,902
Hartford Global Technology HLS Fund..... 4,516,306 4,646,169
Hartford Small Company HLS
Fund, Inc.............................. 192,767,904 199,894,731
Hartford Capital Appreciation HLS
Fund, Inc.............................. 765,019,281 790,421,193
Hartford MidCap HLS Fund, Inc........... 327,411,335 338,262,039
Hartford International Opportunities HLS
Fund, Inc.............................. 138,837,303 144,256,076
Hartford Global Leaders HLS Fund........ 39,432,530 40,600,358
Hartford Stock HLS Fund, Inc............ 173,984,150 178,727,476
Hartford Dividend and Growth HLS
Fund, Inc.............................. 153,491,362 158,547,001
Hartford Index HLS Fund, Inc............ 52,771,639 54,357,458
Hartford International Advisers HLS
Fund, Inc.............................. 10,730,644 11,048,701
Hartford Advisers HLS Fund, Inc......... 634,102,602 647,144,941
Hartford High Yield HLS Fund............ 5,123,476 5,247,140
Hartford Bond HLS Fund, Inc............. 39,059,323 39,882,246
</TABLE>
i) FEDERAL INCOME TAXES--For federal income tax purposes, the Funds intend to
continue to qualify as regulated investment companies under Subchapter M
of the Internal Revenue Code by distributing substantially all of their
taxable net investment income and net realized capital gains to their
shareholders or otherwise complying with the
_____________________________________ MF-69 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
requirements of regulated investment companies. Accordingly, no provision
for federal income taxes has been made in the accompanying financial statements.
j) FUND SHARE VALUATION AND DISTRIBUTIONS TO SHAREHOLDERS--Orders for the
Funds' shares are executed in accordance with the investment instructions
of the contract holders. Dividend income is accrued as of the ex-dividend
date, except that certain dividends for foreign securities where the
ex-dividend date may have passed are recorded as soon as the fund is
informed of the dividend data in the exercise of due diligence. Interest
income and expenses are accrued on a daily basis. The net asset value of
each Fund's shares is determined as of the close of each business day of
the New York Stock Exchange (the Exchange). Orders for the purchase of a
Fund's shares received prior to the close of the Exchange on any day on
which the Fund is open for business are priced at the per-share net asset
value determined as of the close of the Exchange. Orders received after
the close of the Exchange, or on a day on which the Exchange and/ or the
Fund is not open for business, are priced at the next determined per-share
net asset value.
Dividends are declared by the Funds' Board of Directors based upon the
investment performance of the respective Funds. The policy of all funds,
except the Hartford Money Market HLS Fund, Inc., is to pay dividends from
net investment income and distribute realized capital gains, if any, at
least once a year.
Hartford Money Market HLS Fund, Inc. seeks to maintain a stable net asset
value per share of $1.00 by declaring a daily dividend from net investment
income, including net short-term capital gains and losses, and by valuing
its investments using the amortized cost method. Dividends are distributed
monthly.
Distributions from net investment income, realized capital gains and
capital are determined in accordance with federal income tax regulations,
which may differ from generally accepted accounting principles. These
differences include the treatment of non-taxable dividends, expiring
capital loss carryforwards, foreign currency gains and losses,
partnerships, losses deferred due to wash sales and excise tax
regulations. Permanent book and tax basis differences relating to
shareholder distributions result in reclassifications to capital accounts.
k) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as
_____________________________________ MF-70 ____________________________________
<PAGE>
of the date of the financial statements and the reported amounts of income
and expenses during the period. Operating results in the future could vary
from the amounts derived from management's estimates.
l) RESTRICTED SECURITIES--Each Fund is permitted to invest up to 15% of its
net assets in illiquid securities, except for Money Market HLS
Fund, Inc., which may invest up to 10% in such securities. "Illiquid
Securities" are those that may not be sold or disposed of in the ordinary
course of business, at approximately the price used to determine a Fund's
net asset value per share. Each Fund may also purchase certain restricted
securities, commonly known as Rule 144A securities, that can be resold to
institutions and which may be determined to be liquid pursuant to policies
and guidelines established by the Funds' Board of Directors. As of
June 30, 2000 the Funds did not hold any restricted securities (excluding
144A issues).
3. EXPENSES:
a) INVESTMENT MANAGEMENT AND ADVISORY AGREEMENTS--HL Investment Advisors, LLC
(HL Advisors) an indirect wholly-owned subsidiary of The Hartford
Financial Services Group, Inc. (The Hartford), serves as investment
manager to the Funds pursuant to Investment Management Agreements approved
by each Fund's Board of Directors and shareholders.
The schedule below reflects the rates of compensation paid to HL Advisors
for services rendered:
HARTFORD INDEX HLS FUND, INC.
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ -----------
<S> <C>
All Assets 0.200%
</TABLE>
HARTFORD MORTGAGE SECURITIES HLS FUND, INC.
AND HARTFORD MONEY MARKET HLS FUND, INC.
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ -----------
<S> <C>
All Assets 0.250%
</TABLE>
HARTFORD STOCK HLS FUND, INC.
AND HARTFORD BOND HLS FUND, INC.
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ -----------
<S> <C>
On first $250 million 0.325%
On next $250 million 0.300
On next $500 million 0.275
Over $1 billion 0.250
</TABLE>
HARTFORD SMALL COMPANY HLS FUND, INC.,
HARTFORD CAPITAL APPRECIATION HLS FUND, INC.,
HARTFORD MIDCAP HLS FUND, INC.,
HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND, INC.,
HARTFORD GLOBAL LEADERS HLS FUND
HARTFORD GROWTH AND INCOME HLS FUND,
HARTFORD DIVIDEND AND GROWTH HLS FUND, INC.,
HARTFORD INTERNATIONAL ADVISERS HLS FUND, INC.,
HARTFORD ADVISERS HLS FUND, INC. AND
HARTFORD HIGH YIELD HLS FUND
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ -----------
<S> <C>
On first $250 million 0.575%
On next $250 million 0.525
On next $500 million 0.475
Over $1 billion 0.425
</TABLE>
_____________________________________ MF-71 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
HARTFORD GLOBAL HEALTH HLS FUND
AND HARTFORD GLOBAL TECHNOLOGY HLS FUND
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
------------------------ -----------
<S> <C>
On first $250 million 0.650%
On next $250 million 0.600
Over $500 million 0.550
</TABLE>
Pursuant to investment services agreements between HL Advisors and HIMCO,
HIMCO provides the day-to-day investment management services to the
Hartford Index HLS Fund, Inc., Hartford High Yield HLS Fund, Hartford Bond
HLS Fund, Inc., Hartford Mortgage Securities HLS Fund, Inc., and Hartford
Money Market HLS Fund, Inc. HIMCO is a wholly-owned subsidiary of The
Hartford.
Pursuant to sub-advisory agreements between HL Advisors and Wellington,
Wellington provides the day-to-day investment management services to the
Hartford Global Health HLS Fund, Hartford Global Technology HLS Fund,
Hartford Small Company HLS Fund, Inc., Hartford Capital Appreciation HLS
Fund, Inc., Hartford MidCap HLS Fund, Inc., Hartford International
Opportunities HLS Fund, Inc., Hartford Global Leaders HLS Fund, Hartford
Stock HLS Fund, Inc., Hartford Growth and Income HLS Fund, Hartford
Dividend and Growth HLS Fund, Inc., Hartford International Advisers HLS
Fund, Inc. and Hartford Advisers HLS Fund, Inc.
Wellington and HIMCO determine the purchase and sale of portfolio
securities and place such orders for execution in the name of the
respective Fund. In conjunction with their investment activity, Wellington
and HIMCO regularly furnish reports to the Funds' Board of Directors
concerning economic forecasts, investment strategy, portfolio activity and
performance of the Funds.
b) ADMINISTRATIVE SERVICES AGREEMENT--Under the Administrative Services
Agreement between Hartford Life Insurance Company (HL) and each of the
Funds, HL provides administrative services to the Funds and receives
monthly compensation at the annual rate of 0.20% of each Fund's average
daily net assets. The Funds assume and pay certain other expenses
(including, but not limited to, accounting, custody, state taxes and
directors' fees). Directors' fees represent remuneration paid or accrued
to directors not affiliated with HL or any other related company.
c) OPERATING EXPENSES--Allocable expenses of the Funds are charged to each
Fund based on the ratio of the net assets of each fund to the combined net
assets of the Funds. Non-allocable expenses are charged to each fund based
on specific identification.
d) EXPENSE OFFSET--The Funds have entered into certain expense offset
arrangements with the Custodian Bank. The amount of the Funds' expense
reductions is shown on the accompanying Statement of Operations as
Custodian fees expense offset.
e) DISTRIBUTION PLAN FOR CLASS IB SHARES--Each Fund has adopted a
Distribution Plan pursuant to Rule 12b-1 under the 1940 Act for the
Class IB shares. Pursuant to the Distribution Plan, each Fund compensates
the Distributor from assets attributable to the Class IB shares for
services rendered and expenses borne in connection with activities
primarily intended to result in the sale of the Class IB shares.
Although the Distribution Plan provides that each Fund may pay annually up
to 0.25% of the average daily net assets of a Fund attributable to its
Class IB shares for activities primarily intended to result in the sale of
Class IB shares, the Distributor has voluntarily agreed to waive 0.07% of
the fee. This waiver may be withdrawn at any time after notice to
shareholders. Under the terms of the Distribution Plan and the principal
underwriting agreement, each Fund is authorized to make payments monthly
to the Distributor which may be used to pay or reimburse entities
providing distribution and shareholder servicing with respect to the
Class IB shares for such entities' fees or expenses incurred or paid in
that regard.
_____________________________________ MF-72 ____________________________________
<PAGE>
4. TAX COST AND UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS:
As of June 30, 2000, the aggregate gross unrealized appreciation and
depreciation of all investments, based on cost for federal income tax
purposes, was as follows:
<TABLE>
<CAPTION>
AGGREGATE GROSS AGGREGATE GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND TAX COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
---- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Hartford Small Company HLS
Fund, Inc........................ 979,723,736 176,891,514 (66,980,610) 109,630,905
Hartford Capital Appreciation HLS
Fund, Inc........................ 7,681,495,566 2,631,843,107 (1,001,710,643) 1,630,132,464
Hartford MidCap HLS Fund, Inc...... 1,212,324,501 207,988,526 (63,186,658) 144,801,867
Hartford International
Opportunities HLS Fund, Inc...... 1,428,837,746 231,444,589 (70,061,301) 161,383,288
Hartford Global Leaders HLS Fund... 479,381,795 37,819,542 (13,805,542) 24,014,000
Hartford Stock HLS Fund, Inc....... 6,999,139,369 3,076,663,436 (572,696,314) 2,503,987,121
Hartford Growth and Income HLS
Fund............................. 339,385,691 40,848,341 (25,778,323) 15,070,018
Hartford Dividend and Growth HLS
Fund, Inc........................ 2,749,226,589 487,891,888 (297,261,700) 190,630,188
Hartford Index HLS Fund, Inc....... 1,675,468,269 1,142,540,138 (182,664,078) 959,876,060
Hartford International Advisers HLS
Fund, Inc........................ 402,695,861 34,615,096 (13,522,584) 21,092,512
Hartford Advisers HLS
Fund, Inc........................ 11,443,904,150 3,113,872,532 (708,596,941) 2,405,275,591
Hartford High Yield HLS Fund....... 56,903,588 481,321 (2,499,170) (2,017,849)
Hartford Bond HLS Fund, Inc........ 1,009,617,530 10,292,490 (19,804,690) (9,512,200)
Hartford Mortgage Securities HLS
Fund, Inc........................ 431,842,005 1,799,859 (2,242,980) (443,120)
</TABLE>
5. AFFILIATE HOLDINGS:
a) As of June 30, 2000, HL Investment Advisers, LLC held direct interests
in shares as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERCENT PERCENT
FUND CLASS IA OF SHARES CLASS IB OF SHARES
------------------------------ ---------- --------- ---------- ---------
Hartford Global Health HLS
Fund......................... 9,000,000 49.28% 1,000,000 78.21%
Hartford Global Technology HLS
Fund......................... 9,000,000 31.89% 1,000,000 45.42%
Hartford Growth and Income HLS
Fund......................... -- -- 10,031 0.44%
Hartford High Yield HLS
Fund......................... -- -- 101,821 17.80%
Hartford Mortgage Securities
HLS Fund, Inc................ -- -- 9,030 4.11%
</TABLE>
_____________________________________ MF-73 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
b) As of June 30, 2000, certain HL group pension contracts held direct
interests in shares as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
PERCENT OF
FUND SHARES TOTAL SHARES
---------------------------------------- ----------- ------------
Hartford Global Health HLS Fund......... 10,000,000 51.17%
Hartford Global Technology HLS Fund..... 10,000,000 32.87%
Hartford Small Company HLS
Fund, Inc.............................. 13,934,755 2.55%
Hartford Capital Appreciation HLS
Fund, Inc.............................. 60,396,260 3.81%
Hartford MidCap HLS Fund, Inc........... 2,860,381 0.51%
Hartford International Opportunities HLS
Fund, Inc.............................. 17,758,736 1.76%
Hartford Global Leaders HLS Fund........ 913,432 0.37%
Hartford Stock HLS Fund, Inc............ 61,396,110 4.08%
Hartford Growth and Income HLS Fund..... 728,317 0.30%
Hartford Dividend and Growth HLS
Fund, Inc.............................. 12,905,815 0.85%
Hartford Index HLS Fund, Inc............ 46,482,154 7.29%
Hartford International Advisers HLS
Fund, Inc.............................. 3,475,592 1.06%
Hartford Advisers HLS Fund, Inc......... 110,556,823 2.15%
Hartford High Yield HLS Fund............ 198,657 0.35%
Hartford Bond HLS Fund, Inc............. 41,490,053 4.34%
Hartford Mortgage Securities HLS
Fund, Inc.............................. 14,272,477 4.96%
Hartford Money Market HLS Fund, Inc..... 14,263,447 1.25%
</TABLE>
6. INVESTMENT TRANSACTIONS:
As of June 30, 2000, aggregate purchases and sales of investment securities
(excludes short-term investments) were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
FUND COST OF PURCHASE PROCEEDS FROM SALES
---------------------------------------- ----------------- -------------------
Hartford Global Health HLS Fund......... $ 21,597,242 $ 2,200,976
Hartford Global Technology HLS Fund..... 33,308,430 4,232,787
Hartford Small Company HLS
Fund, Inc.............................. 1,118,998,637 831,403,171
Hartford Capital Appreciation HLS
Fund, Inc.............................. 4,323,654,820 4,116,689,919
Hartford MidCap HLS Fund, Inc........... 1,279,314,773 774,157,944
Hartford International Opportunities HLS
Fund, Inc.............................. 1,227,065,118 1,176,320,843
Hartford Global Leaders HLS Fund........ 1,011,790,518 726,129,489
Hartford Stock HLS Fund, Inc............ 2,125,663,609 1,629,891,882
Hartford Growth and Income HLS Fund..... 239,464,572 103,506,989
Hartford Dividend and Growth HLS
Fund, Inc.............................. 957,348,093 1,116,224,104
Hartford Index HLS Fund, Inc............ 133,967,906 53,404,988
Hartford International Advisers HLS
Fund, Inc.............................. 363,788,224 316,166,175
Hartford Advisers HLS Fund, Inc......... 2,538,265,743 2,238,611,724
Hartford High Yield HLS Fund............ 18,911,605 18,721,176
Hartford Bond HLS Fund, Inc............. 848,279,072 889,541,199
Hartford Mortgage Securities HLS
Fund, Inc.............................. 732,595,334 646,628,954
</TABLE>
7. CAPITAL LOSS CARRY FORWARD:
At December 31, 1999 (tax year-end), the following Funds had capital loss
carry forwards for U.S. federal tax purposes of approximately:
<TABLE>
<CAPTION>
<S> <C> <C>
FUND AMOUNT YEAR OF EXPIRATION
---------------------------------------- ----------- ------------------
Hartford Bond HLS Fund, Inc............. $12,947,896 2007
Hartford Mortgage Securities HLS Fund,
Inc.................................... 7,251,161 2002
Hartford Mortgage Securities HLS Fund,
Inc.................................... 6,080,766 2007
Hartford High Yield HLS Fund............ 145,594 2007
</TABLE>
_____________________________________ MF-74 ____________________________________
<PAGE>
8. CAPITAL SHARE TRANSACTIONS:
The following information is as of June 30, 2000:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD SMALL
COMPANY
HARTFORD GLOBAL TECHNOLOGY HLS
HARTFORD GLOBAL HEALTH HLS FUND HLS FUND FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IA
Shares sold.............. 18,743,746 $ 19,509,569 29,539,986 $ 29,379,687 369,963,055
Shares issued on
reinvestment of
distributions........... -- -- -- -- 59,606,427
Shares redeemed.......... (480,688) (501,475) (1,320,127) (1,374,922) (242,072,625)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 18,263,058 $ 19,008,094 28,219,859 $ 28,004,765 187,496,857
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IA
Shares sold.............. $ 846,191,291
Shares issued on
reinvestment of
distributions........... 117,754,047
Shares redeemed.......... (551,218,019)
---------------
Net Increase............. $ 412,727,319
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD
INTERNATIONAL
OPPORTUNITIES
HARTFORD CAPITAL APPRECIATION HLS
HLS FUND, INC. HARTFORD MIDCAP HLS FUND, INC. FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IA
Shares sold.............. 127,529,830 $ 846,343,960 316,968,749 $ 733,932,178 1,366,792,263
Shares issued on
reinvestment of
distributions........... 213,399,917 1,261,144,642 22,210,677 52,224,943 116,800,049
Shares redeemed.......... (70,155,520) (469,102,556) (108,985,306) (251,195,237) (1,321,292,231)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 270,774,227 $ 1,638,386,046 230,194,120 $ 534,961,884 162,300,081
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IA
Shares sold.............. $ 2,443,209,487
Shares issued on
reinvestment of
distributions........... 182,224,778
Shares redeemed.......... (2,375,608,407)
---------------
Net Increase............. $ 249,825,858
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD
GROWTH AND
HARTFORD GLOBAL LEADERS HLS INCOME
FUND HARTFORD STOCK HLS FUND, INC. HLS FUND
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IA
Shares sold.............. 171,128,571 $ 336,220,323 67,772,880 $ 473,573,095 129,241,637
Shares issued on
reinvestment of
distributions........... 1,355,445 2,642,338 159,171,259 1,001,535,005 2,329,162
Shares redeemed.......... (22,555,047) (44,831,017) (48,406,251) (338,427,471) (32,796,564)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 149,928,969 $ 294,031,644 178,537,888 $ 1,136,680,629 98,774,235
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
HARTFORD GROWTH
AND INCOME
---------------
AMOUNT
---------------
CLASS IA
Shares sold.............. $ 182,300,369
Shares issued on
reinvestment of
distributions........... 3,351,241
Shares redeemed.......... (46,479,884)
---------------
Net Increase............. $ 139,171,726
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD
INTERNATIONAL
ADVISERS
HARTFORD DIVIDEND AND GROWTH HLS
HLS FUND, INC. HARTFORD INDEX HLS FUND, INC. FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IA
Shares sold.............. 93,122,239 $ 198,227,923 61,499,120 $ 252,327,061 58,808,200
Shares issued on
reinvestment of
distributions........... 138,736,184 268,913,593 6,076,554 25,047,892 25,147,279
Shares redeemed.......... (208,780,407) (437,472,047) (47,526,515) (195,368,818) (41,122,876)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 23,078,016 $ 29,669,469 20,049,159 $ 82,006,135 42,832,603
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IA
Shares sold.............. $ 81,015,428
Shares issued on
reinvestment of
distributions........... 31,843,949
Shares redeemed.......... (56,611,525)
---------------
Net Increase............. $ 56,247,852
===============
</TABLE>
_____________________________________ MF-75 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD ADVISERS HARTFORD BOND
HLS FUND, INC. HARTFORD HIGH YIELD HLS FUND HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IA
Shares sold.............. 109,084,495 $ 321,265,771 10,018,446 $ 9,887,028 85,859,198
Shares issued on
reinvestment of
distributions........... 450,784,634 1,217,883,945 61,120 61,191 4,294,267
Shares redeemed.......... (242,441,932) (711,282,413) (6,869,717) (6,816,361) (139,554,833)
-------------- --------------- -------------- --------------- --------------
Net Increase
(Decrease).............. 317,427,197 $ 827,867,303 3,209,849 $ 3,131,858 (49,401,368)
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IA
Shares sold.............. $ 86,137,889
Shares issued on
reinvestment of
distributions........... 4,426,547
Shares redeemed.......... (140,138,520)
---------------
Net Increase
(Decrease).............. $ (49,574,084)
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
HARTFORD MORTGAGE SECURITIES HARTFORD MONEY MARKET
HLS FUND, INC. HLS FUND, INC.
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
CLASS IA
Shares sold................... 34,652,010 $ 36,151,826 4,054,050,337 $ 4,054,050,337
Shares issued on reinvestment
of distributions............. 2,045,966 2,172,319 32,239,220 32,239,220
Shares redeemed............... (76,304,250) (79,633,129) (4,220,860,405) (4,220,860,405)
-------------- --------------- -------------- ---------------
Net (Decrease)................ (39,606,274) $ (41,308,984) (134,570,848) $ (134,570,848)
============== =============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD SMALL
HARTFORD GLOBAL HEALTH HARTFORD GLOBAL TECHNOLOGY COMPANY
HLS FUND HLS FUND HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IB
Shares sold.............. 1,279,010 $ 1,301,823 2,213,199 $ 2,209,370 8,381,764
Shares issued on
reinvestment of
distributions........... -- -- -- -- 1,561,431
Shares redeemed.......... (477) (514) (11,595) (11,845) (752,437)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 1,278,533 $ 1,301,309 2,201,604 $ 2,197,525 9,190,758
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IB
Shares sold.............. $ 18,557,198
Shares issued on
reinvestment of
distributions........... 3,079,848
Shares redeemed.......... (1,587,604)
---------------
Net Increase............. $ 20,049,442
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD
INTERNATIONAL
HARTFORD CAPITAL APPRECIATION HARTFORD MIDCAP OPPORTUNITIES
HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IB
Shares sold.............. 4,918,653 $ 32,529,240 4,733,443 $ 11,015,997 5,453,812
Shares issued on
reinvestment of
distributions........... 1,309,591 7,735,814 175,633 412,501 833,696
Shares redeemed.......... (116,794) (791,660) (390,049) (932,574) (688,297)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 6,111,450 $ 39,473,394 4,519,027 $ 10,495,924 5,599,211
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IB
Shares sold.............. $ 9,728,256
Shares issued on
reinvestment of
distributions........... 1,299,839
Shares redeemed.......... (1,222,054)
---------------
Net Increase............. $ 9,806,041
===============
</TABLE>
_____________________________________ MF-76 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD
GROWTH AND
HARTFORD GLOBAL LEADERS INCOME
HLS FUND HARTFORD STOCK HLS FUND, INC. HLS FUND
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IB
Shares sold.............. 3,668,345 $ 7,133,398 4,734,785 $ 33,016,147 2,334,678
Shares issued on
reinvestment of
distributions........... 19,782 38,519 1,317,685 8,287,805 20,315
Shares redeemed.......... (64,218) (125,347) (147,893) (1,047,415) (67,831)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 3,623,909 $ 7,046,570 5,904,577 $ 40,256,537 2,287,162
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
HARTFORD GROWTH
AND INCOME
---------------
AMOUNT
---------------
CLASS IB
Shares sold.............. $ 3,328,230
Shares issued on
reinvestment of
distributions........... 29,166
Shares redeemed.......... (97,566)
---------------
Net Increase............. $ 3,259,830
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD
INTERNATIONAL
HARTFORD DIVIDEND AND GROWTH ADVISERS
HLS FUND, INC. HARTFORD INDEX HLS FUND, INC. HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IB
Shares sold.............. 2,291,043 $ 4,896,578 1,101,041 $ 4,502,383 1,509,101
Shares issued on
reinvestment of
distributions........... 892,705 1,730,516 9,043 37,240 91,540
Shares redeemed.......... (870,977) (1,809,899) (130,875) (542,925) (390,361)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 2,312,771 $ 4,817,195 979,209 $ 3,996,698 1,210,280
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IB
Shares sold.............. $ 2,062,486
Shares issued on
reinvestment of
distributions........... 115,805
Shares redeemed.......... (536,870)
---------------
Net Increase............. $ 1,641,421
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD ADVISERS HARTFORD BOND
HLS FUND, INC. HARTFORD HIGH YIELD FUND FUND, INC
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IB
Shares sold.............. 15,816,181 $ 46,321,799 470,108 $ 465,700 5,075,024
Shares issued on
reinvestment of
distributions........... 5,928,589 16,012,134 509 509 90,918
Shares redeemed.......... (682,911) (2,003,874) (324) (322) (1,096,224)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 21,061,859 $ 60,330,059 470,293 $ 465,887 4,069,718
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IB
Shares sold.............. $ 5,143,856
Shares issued on
reinvestment of
distributions........... 93,698
Shares redeemed.......... (1,109,100)
---------------
Net Increase............. $ 4,128,454
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
HARTFORD MORTGAGE SECURITIES HARTFORD MONEY MARKET
HLS FUND, INC. HLS FUND, INC.
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
CLASS IB
Shares sold................... 209,124 $ 221,873 18,564,291 $ 18,564,291
Shares issued on reinvestment
of distributions............. 1,466 1,555 262,798 262,798
Shares redeemed............... (153) (163) (12,596,052) (12,596,052)
-------------- --------------- -------------- ---------------
Net Increase.................. 210,437 $ 223,265 6,231,037 $ 6,231,037
============== =============== ============== ===============
</TABLE>
_____________________________________ MF-77 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
The following information is for the year ended December 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD
HARTFORD SMALL COMPANY HARTFORD CAPITAL APPRECIATION MIDCAP
HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IA
Shares sold.............. 449,380,629 $ 730,073,657 271,404,748 $ 1,126,019,680 332,613,613
Shares issued on
reinvestment of
distributions........... 465,522 986,389 87,389,279 397,183,670 14,798,773
Shares redeemed.......... (369,178,185) (587,380,886) (218,690,362) (1,114,144,924) (119,536,017)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 80,667,966 $ 143,679,160 86,103,665 $ 409,058,426 227,876,369
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IA
Shares sold.............. $ 574,935,141
Shares issued on
reinvestment of
distributions........... 27,768,034
Shares redeemed.......... (206,745,824)
---------------
Net Increase............. $ 395,957,351
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD INTERNATIONAL HARTFORD GLOBAL LEADERS HARTFORD STOCK
OPPORTUNITIES HLS FUND, INC. HLS FUND HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IA
Shares sold.............. 1,187,527,101 $ 1,833,047,660 93,678,716 $ 143,929,047 235,050,891
Shares issued on
reinvestment of
distributions........... 8,503,477 15,254,141 552,543 1,016,174 110,768,543
Shares redeemed.......... (1,239,798,936) (1,919,519,253) (4,785,794) (6,914,566) (125,298,498)
-------------- --------------- -------------- --------------- --------------
Net (Decrease)
Increase................ (43,768,358) $ (71,217,452) 89,445,465 $ 138,030,655 220,520,936
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IA
Shares sold.............. $ 1,558,714,874
Shares issued on
reinvestment of
distributions........... 683,262,216
Shares redeemed.......... (836,000,490)
---------------
Net (Decrease)
Increase................ 1,405,976,600
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD GROWTH AND INCOME HARTFORD DIVIDEND AND GROWTH HARTFORD INDEX
HLS FUND HLS FUND, INC. HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IA
Shares sold.............. 124,785,805 $ 162,231,545 180,202,994 $ 388,544,304 168,042,345
Shares issued on
reinvestment of
distributions........... 1,261,977 1,784,141 83,476,813 172,307,830 14,933,404
Shares redeemed.......... (6,393,685) (8,049,987) (173,958,180) (375,387,939) (83,755,947)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 119,654,097 $ 155,965,699 89,721,627 $ 185,464,195 99,219,802
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IA
Shares sold.............. $ 636,888,276
Shares issued on
reinvestment of
distributions........... 56,131,418
Shares redeemed.......... (317,814,271)
---------------
Net Increase............. $ 375,205,423
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD HIGH
HARTFORD INTERNATIONAL ADVISERS HARTFORD ADVISERS YIELD
HLS FUND, INC. HLS FUND, INC. HLS FUND
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IA
Shares sold.............. 76,211,389 $ 96,821,259 614,913,572 $ 1,778,189,829 44,459,567
Shares issued on
reinvestment of
distributions........... 5,069,911 6,999,809 460,621,368 1,279,338,852 2,365,811
Shares redeemed.......... (45,206,504) (57,914,454) (280,036,788) (814,255,554) (8,593,897)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 36,074,796 $ 45,906,614 795,498,152 $ 2,243,273,127 38,231,481
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IA
Shares sold.............. $ 46,499,472
Shares issued on
reinvestment of
distributions........... 2,375,999
Shares redeemed.......... (8,946,525)
---------------
Net Increase............. $ 39,928,946
===============
</TABLE>
_____________________________________ MF-78 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD MONEY
HARTFORD MORTGAGE SECURITIES MARKET
HARTFORD BOND HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IA
Shares sold.............. 277,049,634 $ 292,698,172 57,420,210 $ 62,723,439 3,906,482,986
Shares issued on
reinvestment of
distributions........... 60,010,055 60,029,553 18,281,971 18,999,447 51,555,581
Shares redeemed.......... (187,269,736) (197,509,155) (77,858,092) (84,996,322) (3,573,088,764)
-------------- --------------- -------------- --------------- --------------
Net Increase
(Decrease).............. 149,789,953 $ 155,218,570 (2,155,911) $ (3,273,436) 384,949,803
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IA
Shares sold.............. $ 3,906,482,986
Shares issued on
reinvestment of
distributions........... 51,555,581
Shares redeemed.......... (3,573,088,764)
---------------
Net Increase
(Decrease).............. $ 384,949,803
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD
HARTFORD SMALL COMPANY HARTFORD CAPITAL APPRECIATION MIDCAP
HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IB
Shares sold.............. 4,416,848 $ 7,085,792 2,434,908 $ 12,891,538 17,655
Shares issued on
reinvestment of
distributions........... 6,427 13,611 492,766 2,214,111 --
Shares redeemed.......... (284,642) (465,076) (80,356) (470,429) (1)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 4,138,633 $ 6,634,327 2,847,318 $ 14,635,220 17,654
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IB
Shares sold.............. $ 33,761
Shares issued on
reinvestment of
distributions........... --
Shares redeemed.......... (3)
---------------
Net Increase............. $ 33,758
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD INTERNATIONAL HARTFORD GLOBAL LEADERS HARTFORD STOCK
OPPORTUNITIES HLS FUND, INC. HLS FUND HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IB
Shares sold.............. 1,364,850 $ 2,144,186 5,350 $ 10,000 4,730,353
Shares issued on
reinvestment of
distributions........... 14,727 26,724 744 992 1,162,222
Shares redeemed.......... (160,935) (241,499) (1) (2) (114,277)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 1,218,642 $ 1,929,411 6,093 $ 10,990 5,778,298
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IB
Shares sold.............. $ 33,043,242
Shares issued on
reinvestment of
distributions........... 7,106,322
Shares redeemed.......... (934,638)
---------------
Net Increase............. $ 39,214,926
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD GROWTH AND INCOME HARTFORD DIVIDEND AND GROWTH HARTFORD INDEX
HLS FUND HLS FUND, INC. HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IB
Shares sold.............. -- $ -- 3,660,327 $ 7,937,438 2,550
Shares issued on
reinvestment of
distributions........... 31 35 515,604 1,060,945 --
Shares redeemed.......... -- -- (491,624) (1,063,171) --
-------------- --------------- -------------- --------------- --------------
Net Increase............. 31 $ 35 3,684,307 $ 7,935,212 2,550
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IB
Shares sold.............. $ 10,000
Shares issued on
reinvestment of
distributions........... --
Shares redeemed.......... --
---------------
Net Increase............. $ 10,000
===============
</TABLE>
_____________________________________ MF-79 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD HIGH
HARTFORD INTERNATIONAL ADVISERS HARTFORD ADVISERS YIELD
HLS FUND, INC. HLS FUND, INC. HLS FUND
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IB
Shares sold.............. 7,691 $ 10,000 31,941,537 $ 94,086,190 --
Shares issued on
reinvestment of
distributions........... -- -- 4,764,781 13,221,729 1,821
Shares redeemed.......... -- -- (120,576) (352,701) --
-------------- --------------- -------------- --------------- --------------
Net Increase............. 7,691 $ 10,000 36,585,742 $ 106,955,218 1,821
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IB
Shares sold.............. $ --
Shares issued on
reinvestment of
distributions........... 1,851
Shares redeemed.......... --
---------------
Net Increase............. $ 1,851
===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HARTFORD MONEY
HARTFORD MORTGAGE SECURITIES MARKET
HARTFORD BOND HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
------------------------------- ------------------------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES
-------------- --------------- -------------- --------------- --------------
CLASS IB
Shares sold.............. 12,086,492 $ 12,742,994 9,030 $ 10,000 13,572,465
Shares issued on
reinvestment of
distributions........... 885,821 884,032 -- -- 265,771
Shares redeemed.......... (1,947,721) (2,053,252) -- -- (7,213,355)
-------------- --------------- -------------- --------------- --------------
Net Increase............. 11,024,592 $ 11,573,774 9,030 $ 10,000 6,624,881
============== =============== ============== =============== ==============
<CAPTION>
<S> <C>
---------------
AMOUNT
---------------
CLASS IB
Shares sold.............. $ 13,572,465
Shares issued on
reinvestment of
distributions........... 265,771
Shares redeemed.......... (7,213,355)
---------------
Net Increase............. $ 6,624,881
===============
</TABLE>
11. LINE OF CREDIT:
The funds participate in a $500,000,000 committed revolving line of credit
facility. The facility is to be used for temporary or emergency purposes.
Under the arrangement, the funds are required to own securities having a
market value in excess of 300% of the total bank borrowings. The interest
rate on borrowings varies depending on the nature of the loan. The facility
also requires a fee to be paid based on the amount of the commitment, which
has not been utilized. During the six months ended June 30, 2000, the Funds
did not have any borrowings under this facility.
12. REVERSE STOCK SPLIT FOR CLASS B:
On September 17, 1999, a reverse stock split was declared for the Class B
shares of certain Funds, using the following reverse split percentages:
<TABLE>
<CAPTION>
REVERSE SPLIT
PERCENTAGE
-------------
<S> <C>
Hartford Small Company HLS Fund, Inc.............. 74.613827%
Hartford Capital Appreciation HLS Fund, Inc....... 15.418052%
Hartford International Opportunities
HLS Fund, Inc.................................... 71.625006%
Hartford Stock HLS Fund, Inc...................... 9.265642%
Hartford Dividend and Growth HLS Fund, Inc........ 44.378756%
Hartford Advisers HLS Fund, Inc................... 29.667722%
Hartford Bond HLS Fund, Inc....................... 93.065183%
</TABLE>
_____________________________________ MF-80 ____________________________________
<PAGE>
HARTFORD HLS MUTUAL FUNDS
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA(4) --
----------------------------------------------------------------------------
NET REALIZED
AND
NET ASSET UNREALIZED DIVIDENDS DIVIDENDS
VALUE AT NET GAIN TOTAL FROM FROM NET IN EXCESS OF
BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT NET INVESTMENT
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME
--------- ---------- ------------ ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD GLOBAL HEALTH
HLS FUND
From inception May 1,
2000 through June 30,
2000 (Unaudited)
Class IA............... $1.000 $ 0.001 $ 0.189 $ 0.190 $ -- $ --
Class IB............... 1.000 0.001 0.189 0.190 -- --
HARTFORD GLOBAL
TECHNOLOGY HLS FUND
From inception May 1,
2000 through June 30,
2000 (Unaudited)
Class IA............... 1.000 -- 0.045 0.045 -- --
Class IB............... 1.000 -- 0.045 0.045 -- --
HARTFORD SMALL COMPANY
HLS FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 2.188 0.001 0.072 0.073 -- --
Class IB............... 2.187 0.001 0.070 0.071 -- --
For the Year Ended
December 31, 1999
Class IA............... 1.321 (0.005) 0.875 0.870 -- --
Class IB............... 1.323(6) (0.004)(6) 0.871(6) 0.867(6) --(6) --(6)
For the Year Ended
December 31, 1998
Class IA............... 1.202 (0.002) 0.141 0.139 -- --
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 1.340(6) (0.002)(6) (0.015)(6) (0.017)(6) --(6) --(6)
For the Year Ended
December 31
1997................... 1.069 0.001 0.195 0.196 (0.001) --
From inception,
August 9, 1996 through
December 31, 1996..... 1.000 0.002 0.069 0.071 (0.002) --
HARTFORD CAPITAL
APPRECIATION HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 6.095 0.010 0.762 0.772 (0.003) --
Class IB............... 6.098 (0.068) 0.834 0.766 (0.003) --
For the Year Ended
December 31, 1999
Class IA............... 4.759 0.023 1.643 1.666 (0.018) --
Class IB............... 6.437(6) 0.150(6) 1.503(6) 1.653(6) (0.013)(6) --(6)
For the Year Ended
December 31, 1998
Class IA............... 4.410 0.025 0.525 0.550 (0.026) --
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 6.486(6) 0.013(6) 0.094(6) 0.107(6) (0.156)(6) --(6)
For the Year Ended
December 31
1997................... 3.914 0.020 0.794 0.814 (0.022) --
1996................... 3.490 0.022 0.655 0.677 (0.025) --
1995................... 2.860 0.030 0.785 0.815 (0.030) --
HARTFORD MIDCAP HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 2.053 (0.001) 0.422 0.421 -- --
Class IB............... 2.053 (0.001) 0.419 0.418 -- --
For the Year Ended
December 31, 1999
Class IA............... 1.439 -- 0.725 0.725 -- --
From inception
November 9, 1999,
through December 31,
1999
Class IB............... 1.758 -- 0.373 0.373 -- --
For the Year Ended
December 31
1998................... 1.137 (0.001) 0.303 0.302 (0.000) --
From inception,
July 15, 1997 through
December 31, 1997..... 1.000 0.001 0.137 0.138 (0.001) --
HARTFORD INTERNATIONAL
OPPORTUNITIES HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 1.876 0.010 (0.116) (0.106) (0.012) --
Class IB............... 1.876 0.018 (0.126) (0.108) (0.012) --
For the Year Ended
December 31, 1999
Class IA............... 1.355 0.019 0.520 0.539 (0.018) --
Class IB............... 1.357(6) 0.017(6) 0.519(6) 0.536(6) (0.017)(6) --(6)
For the Year Ended
December 31, 1998
Class IA............... 1.294 0.021 0.147 0.168 (0.019) --
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 1.396(6) 0.004(6) (0.021)(6) 0.017(6) (0.022)(6) --(6)
For the Year Ended
December 31
1997................... 1.407 0.022 (0.019) 0.003 (0.012) --
1996................... 1.306 0.023 0.140 0.163 (0.025) --
1995................... 1.176 0.020 0.141 0.161 (0.020) --
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Management fees were waived until assets (excluding assets contributed by
companies affiliated with The Hartford) reached $20 million. The ratio of
expenses to average net assets would have been higher if management fees
were not waived. The ratio of net investment income to average net assets
would have been lower if management fees were not waived.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
(5) Excluding mortgage dollar rolls.
(6) Per share amounts for Class IB have been restated to reflect a reverse
stock split effective September 17, 1999 (see note 12).
(7) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-80 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA --
--------------------------------------------------------------------------
DISTRIBUTIONS
FROM NET NET ASSET
REALIZED NET INCREASE VALUE AT
GAINS ON DISTRIBUTIONS TOTAL (DECREASE) IN END TOTAL
INVESTMENTS FROM CAPITAL DISTRIBUTIONS NET ASSET VALUE OF PERIOD RETURN
-------------- ------------- ------------- ----------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD GLOBAL HEALTH
HLS FUND
From inception May 1,
2000 through June 30,
2000 (Unaudited)
Class IA............... $ -- $ -- $-- $ 0.190 $1.190 19.08
Class IB............... -- -- -- 0.190 1.190 19.05
HARTFORD GLOBAL
TECHNOLOGY HLS FUND
From inception May 1,
2000 through June 30,
2000 (Unaudited)
Class IA............... -- -- -- 0.045 1.045 2.78
Class IB............... -- -- -- 0.045 1.045 2.75
HARTFORD SMALL COMPANY
HLS FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... (0.250) -- (0.250) (0.177) 2.011 3.63%
Class IB............... (0.250) -- (0.250) (0.179) 2.008 3.54
For the Year Ended
December 31, 1999
Class IA............... (0.003) -- (0.003) 0.867 2.188 65.83
Class IB............... (0.003)(6) --(6) (0.003)(6) 0.864(6) 2.187(6) 65.54
For the Year Ended
December 31, 1998
Class IA............... (0.020) -- (0.020) 0.119 1.321 11.62
From inception
April 1, 1998, through
December 31, 1998
Class IB............... --(6) --(6) --(6) (0.017)(6) 1.323(6) (1.30)(2)
For the Year Ended
December 31
1997................... (0.062) -- (0.063) 0.133 1.202 18.38
From inception,
August 9, 1996 through
December 31, 1996..... -- -- (0.002) 0.069 1.069 7.15(2)
HARTFORD CAPITAL
APPRECIATION HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... (0.922) -- (0.925) (0.153) 5.942 12.73
Class IB............... (0.922) -- (0.925) (0.159) 5.939 12.63
For the Year Ended
December 31, 1999
Class IA............... (0.312) -- (0.330) 1.336 6.095 37.46
Class IB............... (1.979)(6) --(6) (1.992)(6) (0.339)(6) 6.098(6) 37.21
For the Year Ended
December 31, 1998
Class IA............... (0.175) -- (0.201) 0.349 4.759 15.48(2)
From inception
April 1, 1998, through
December 31, 1998
Class IB............... --(6) --(6) (0.156)(6) (0.049)(6) 6.437(6) 1.65(2)
For the Year Ended
December 31
1997................... (0.296) -- (0.318) 0.496 4.410 22.34
1996................... (0.228) -- (0.253) 0.424 3.914 20.70
1995................... (0.155) -- (0.185) 0.630 3.490 30.25
HARTFORD MIDCAP HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... (0.098) -- (0.098) 0.323 2.376 20.51
Class IB............... (0.098) -- (0.098) 0.320 2.373 20.40
For the Year Ended
December 31, 1999
Class IA............... (0.111) -- (0.111) 0.614 2.053 51.81
From inception
November 9, 1999,
through December 31,
1999
Class IB............... (0.078) -- (0.078) 0.295 2.053 21.39(2)
For the Year Ended
December 31
1998................... -- -- (0.000) 0.302 1.439 26.57
From inception,
July 15, 1997 through
December 31, 1997..... -- -- (0.001) 0.137 1.137 13.81(2)
HARTFORD INTERNATIONAL
OPPORTUNITIES HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... (0.193) -- (0.205) (0.311) 1.565 (5.66)
Class IB............... (0.193) -- (0.205) (0.313) 1.563 (5.74)
For the Year Ended
December 31, 1999
Class IA............... -- -- (0.018) 0.521 1.876 39.86
Class IB............... --(6) --(6) (0.017)(6) 0.519(6) 1.876(6) 39.61
For the Year Ended
December 31, 1998
Class IA............... (0.088) -- (0.107) 0.061 1.355 13.16
From inception
April 1, 1998, through
December 31, 1998
Class IB............... --(6) --(6) (0.022)(6) (0.039)(6) 1.357(6) (1.13)(2)
For the Year Ended
December 31
1997................... (0.104) -- (0.116) (0.113) 1.294 0.34
1996................... (0.037) -- (0.062) 0.101 1.407 12.93
1995................... (0.011) -- (0.031) 0.130 1.306 13.93
<CAPTION>
-- RATIOS AND SUPPLEMENTAL DATA --
------------------------------------------------------------------------
RATIO OF RATIO OF RATIO OF
EXPENSES EXPENSES NET
NET ASSETS TO AVERAGE TO AVERAGE INVESTMENT
AT END OF NET ASSETS NET ASSETS INCOME PORTFOLIO
PERIOD AFTER BEFORE TO AVERAGE TURNOVER
(IN THOUSANDS) WAIVERS WAIVERS NET ASSETS RATE(7)
-------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD GLOBAL HEALTH
HLS FUND
From inception May 1,
2000 through June 30,
2000 (Unaudited)
Class IA............... $ 21,732 0.60%(1) 0.60%(1) 0.29%(1) 18.51%
Class IB............... 1,521 0.70(1) 0.74(1) 0.20(1) --
HARTFORD GLOBAL
TECHNOLOGY HLS FUND
From inception May 1,
2000 through June 30,
2000 (Unaudited)
Class IA............... 29,502 0.64(1) 0.64(1) (0.17) 27.27
Class IB............... 2,301 0.74(1) 0.77(1) (0.27) --
HARTFORD SMALL COMPANY
HLS FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 1,073,048 0.74(1) 0.74(1) (0.21) 92.12
Class IB............... 27,817 0.92(1) 0.99(1) (0.39) --
For the Year Ended
December 31, 1999
Class IA............... 757,302 0.78 0.78 (0.45) 181.34
Class IB............... 10,200 0.96 1.03 (0.63) --
For the Year Ended
December 31, 1998
Class IA............... 350,734 0.77 -- (0.24) 235.72
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 696 0.95(1) -- (0.46)(1) --
For the Year Ended
December 31
1997................... 210,769 0.77 -- 0.08 222.20
From inception,
August 9, 1996 through
December 31, 1996..... 42,812 0.72(1) 0.88(1) 0.31(1)(3) 31.80
HARTFORD CAPITAL
APPRECIATION HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 9,370,819 0.66(1) 0.66(1) 0.62(1) 50.45
Class IB............... 58,685 0.84(1) 0.91(1) 0.44(1) --
For the Year Ended
December 31, 1999
Class IA............... 7,963,003 0.66 0.66 0.46 66.36
Class IB............... 22,993 0.84 0.91 0.28 --
For the Year Ended
December 31, 1998
Class IA............... 5,807,480 0.64 -- 0.59 51.15
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 5,942 0.82(1) -- 0.30(1) --
For the Year Ended
December 31
1997................... 4,802,992 0.64 -- 0.44 57.60
1996................... 3,386,670 0.65 -- 0.60 85.40
1995................... 2,157,892 0.68 -- 0.95 78.60
HARTFORD MIDCAP HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 1,325,025 0.73(1) 0.73(1) (0.20)(1) 76.62
Class IB............... 10,765 0.91(1) 0.98(1) (0.38)(1) --
For the Year Ended
December 31, 1999
Class IA............... 672,678 0.79 0.79 (0.15) 120.71
From inception
November 9, 1999,
through December 31,
1999
Class IB............... 36 0.97(1) 1.04(1) (0.32)(1) --
For the Year Ended
December 31
1998................... 143,494 0.79 -- (0.15) 134.07
From inception,
July 15, 1997 through
December 31, 1997..... 27,589 0.46(1) 0.86(1) 0.45(1)(3) 46.10
HARTFORD INTERNATIONAL
OPPORTUNITIES HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 1,567,313 0.76(1) 0.76(1) 1.25(1) 79.39
Class IB............... 11,423 0.94(1) 1.01(1) 1.07(1) --
For the Year Ended
December 31, 1999
Class IA............... 1,574,836 0.78 0.78 1.20 133.20
Class IB............... 3,203 0.96 1.03 1.02 --
For the Year Ended
December 31, 1998
Class IA............... 1,196,694 0.77 -- 1.51 157.39
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 663 0.94(1) -- 0.71(1) --
For the Year Ended
December 31
1997................... 1,092,946 0.77 -- 1.48 72.70
1996................... 996,543 0.79 -- 1.74 70.00
1995................... 686,475 0.86 -- 1.60 55.60
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Management fees were waived until assets (excluding assets contributed by
companies affiliated with The Hartford) reached $20 million. The ratio of
expenses to average net assets would have been higher if management fees
were not waived. The ratio of net investment income to average net assets
would have been lower if management fees were not waived.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
(5) Excluding mortgage dollar rolls.
(6) Per share amounts for Class IB have been restated to reflect a reverse
stock split effective September 17, 1999 (see note 12).
(7) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
_____________________________________ MF-81 ____________________________________
<PAGE>
HARTFORD MUTUAL FUNDS
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA(4) --
---------------------------------------------------------------------------
NET REALIZED
AND
NET ASSET UNREALIZED DIVIDENDS DIVIDENDS
VALUE AT NET GAIN TOTAL FROM FROM NET IN EXCESS OF
BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT NET INVESTMENT
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME
--------- ---------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD GLOBAL LEADERS
HLS FUND
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $ 1.913 $ 0.007 $ 0.051 $ 0.058 $ -- $ --
Class IB............... 1.912 (0.005) 0.061 0.056 -- --
For the Year Ended
December 31, 1999
Class IA............... 1.285 0.003 0.642 0.645 (0.003) --
Class IB............... 1.285 0.007 0.634 0.641 -- --
From inception,
September 30, 1998
through December 31,
1998
Class IA............... 1.000 0.001 0.318 0.319 (0.002) --
Class IB............... 1.000 0.002 0.316 0.318 (0.001) --
HARTFORD STOCK HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 7.147 0.021 (0.094) (0.073) (0.002) --
Class IB............... 7.151 0.049 (0.128) (0.079) (0.002) --
For the Year Ended
December 31, 1999
Class IA............... 6.562 0.050 1.143 1.193 (0.049) --
Class IB............... 11.884(6) 0.021(6) 1.200(6) (10.687)(6) (0.056)(6) --(6)
For the Year Ended
December 31, 1998
Class IA............... 5.123 0.051 1.622 1.673 (0.050) --
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 10.793(6) 0.043(6) 1.565(6) 1.608(6) (0.517)(6) --(6)
For the Year Ended
December 31
1997................... 4.143 0.050 1.196 1.246 (0.049) --
1996................... 3.527 0.060 0.763 0.823 (0.059) --
1995................... 2.801 0.070 0.840 0.910 (0.070) --
HARTFORD GROWTH AND
INCOME HLS FUND
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 1.432 0.002 0.022 0.024 -- --
Class IB............... 1.430 (0.009) 0.031 0.022 -- --
For the Year Ended
December 31, 1999
Class IA............... 1.186 0.004 0.255 0.259 (0.004) --
Class IB............... 1.185 0.006 0.250 0.256 (0.002) --
From inception,
May 31, 1998 through
December 31, 1998
Class IA............... 1.000 0.005 0.185 0.190 (0.004) --
Class IB............... 1.000 0.009 0.179 0.188 (0.003) --
HARTFORD DIVIDEND AND
GROWTH HLS FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 2.149 0.016 (0.047) (0.031) (0.002) --
Class IB............... 2.151 0.020 (0.053) (0.033) (0.002) --
For the Year Ended
December 31, 1999
Class IA............... 2.160 0.034 0.075 0.109 (0.035) --
Class IB............... 2.267(6) 0.024(6) 0.077(6) 0.101(6) (0.034)(6) --(6)
For the Year Ended
December 31, 1998
Class IA............... 1.952 0.033 0.280 0.313 (0.035) --
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 2.253(6) 0.016(6) 0.068(6) 0.084(6) (0.070)(6) --(6)
For the Year Ended
December 31
1997................... 1.547 0.035 0.445 0.480 (0.031) --
1996................... 1.317 0.034 0.258 0.292 (0.034) --
1995................... 0.994 0.033 0.323 0.356 (0.033) --
HARTFORD INDEX HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 4.189 0.015 (0.044) (0.029) -- --
Class IB............... 4.189 0.033 (0.066) (0.033) -- --
For the Year Ended
December 31, 1999
Class IA............... 3.570 0.034 0.685 0.719 (0.040) --
From inception
November 9, 1999,
through December 31,
1999,
Class IB............... 3.922 0.004 0.298 0.302 (0.032) --
For the Year Ended
December 31
1998................... 2.878 0.032 0.759 0.791 (0.027) --
1997................... 2.382 0.035 0.692 0.727 (0.035) --
1996................... 2.028 0.044 0.393 0.437 (0.044) --
1995................... 1.522 0.044 0.507 0.551 (0.044) --
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Management fees were waived until assets (excluding assets contributed by
companies affiliated with The Hartford Investment Management Company)
reached $20 million. The ratio of expenses to average net assets would have
been higher if management fees were not waived. The ratio of net investment
income to average net assets would have been lower if management fees were
not waived.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
(5) Excluding mortgage dollar rolls.
(6) Per share amounts have been restated to reflect a reverse stock split for
Class B shares effective September 17, 1999 (see note 12).
(7) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-82 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA --
---------------------------------------------------------------------------
DISTRIBUTIONS
FROM NET NET ASSET
REALIZED NET INCREASE VALUE AT
GAINS ON DISTRIBUTIONS TOTAL (DECREASE) IN END TOTAL
INVESTMENTS FROM CAPITAL DISTRIBUTIONS NET ASSETS VALUE OF PERIOD RETURN
-------------- ------------- ------------- ------------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD GLOBAL LEADERS
HLS FUND
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $ (0.011) $ -- $(0.011) $ 0.047 $1.960 3.03%
Class IB............... (0.011) -- (0.011) 0.045 1.957 2.93
For the Year Ended
December 31, 1999
Class IA............... (0.014) -- (0.017) 0.628 1.913 50.37
Class IB............... (0.014) -- (0.014) 0.627 1.912 50.11
From inception,
September 30, 1998
through December 31,
1998
Class IA............... (0.032) -- (0.034) 0.285 1.285 31.88(2)
Class IB............... (0.032) -- (0.033) 0.285 1.285 31.82(2)
HARTFORD STOCK HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... (0.748) -- (0.750) (0.823) 6.324 (0.97)
Class IB............... (0.748) -- (0.750) (0.829) 6.322 (1.06)
For the Year Ended
December 31, 1999
Class IA............... (0.559) -- (0.608) 0.585 7.147 19.78
Class IB............... (5.898)(6) --(6) 5.954(6) (4.733)(6) 7.151(6) 19.57
For the Year Ended
December 31, 1998
Class IA............... (0.184) -- (0.234) 1.439 6.562 33.47(2)
From inception
April 1, 1998, through
December 31, 1998
Class IB............... --(6) --(6) (0.517)(6) 1.092(6) 11.884(6) 14.91(2)
For the Year Ended
December 31
1997................... (0.217) -- (0.266) 0.980 5.123 31.38
1996................... (0.148) -- (0.207) 0.616 4.143 24.37
1995................... (0.114) -- (0.184) 0.726 3.527 34.10
HARTFORD GROWTH AND
INCOME HLS FUND
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... (0.014) -- (0.014) 0.010 1.442 1.69
Class IB............... (0.014) -- (0.014) 0.008 1.438 1.60
For the Year Ended
December 31, 1999
Class IA............... (0.009) -- (0.013) 0.246 1.432 21.82
Class IB............... (0.009) -- (0.011) 0.245 1.430 21.61
From inception,
May 31, 1998 through
December 31, 1998
Class IA............... -- -- (0.004) 0.186 1.186 19.05(2)
Class IB............... -- -- (0.003) 0.185 1.185 18.82(2)
HARTFORD DIVIDEND AND
GROWTH HLS FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... (0.193) -- (0.195) (0.226) 1.923 (1.51)
Class IB............... (0.193) -- (0.195) (0.228) 1.923 (1.60)
For the Year Ended
December 31, 1999
Class IA............... (0.085) -- (0.120) (0.011) 2.149 5.31
Class IB............... (0.183)(6) --(6) (0.217)(6) (0.116)(6) 2.151(6) 5.12
For the Year Ended
December 31, 1998
Class IA............... (0.070) -- (0.105) 0.208 2.160 16.42(2)
From inception
April 1, 1998, through
December 31, 1998
Class IB............... --(6) --(6) (0.070)(6) 0.014(6) 2.267(6) 3.67(2)
For the Year Ended
December 31
1997................... (0.044) -- (0.075) 0.405 1.952 31.89
1996................... (0.028) -- (0.062) 0.230 1.547 22.91
1995................... -- -- (0.033) 0.323 1.317 36.37
HARTFORD INDEX HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... (0.039) -- (0.039) (0.068) 4.121 (0.66)
Class IB............... (0.039) -- (0.039) (0.072) 4.117 (0.75)
For the Year Ended
December 31, 1999
Class IA............... (0.060) -- (0.100) 0.619 4.189 20.49
From inception
November 9, 1999,
through December 31,
1999,
Class IB............... (0.003) -- 0.035 0.267 4.189 7.73(2)
For the Year Ended
December 31
1998................... (0.072) -- (0.099) 0.692 3.570 28.06
1997................... (0.196) -- (0.231) 0.496 2.878 32.61
1996................... (0.039) -- (0.083) 0.354 2.382 22.09
1995................... (0.001) -- (0.045) 0.506 2.028 36.55
<CAPTION>
-- RATIOS AND SUPPLEMENTAL DATA --
------------------------------------------------------------------------
RATIO OF RATIO OF RATIO OF
EXPENSES EXPENSES NET
NET ASSETS TO AVERAGE TO AVERAGE INVESTMENT
AT END OF NET ASSETS NET ASSETS INCOME PORTFOLIO
PERIOD AFTER BEFORE TO AVERAGE TURNOVER
(IN THOUSANDS) WAIVERS WAIVERS NET ASSETS RATE(7)
-------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD GLOBAL LEADERS
HLS FUND
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $ 477,910 0.80%(1) 0.80%(1) 1.01%(1) 221.44%
Class IB............... 7,164 0.98(1) 1.05(1) 0.83(1) --
For the Year Ended
December 31, 1999
Class IA............... 179,675 0.86 0.91 0.54 207.43
Class IB............... 69 1.04 1.16 0.36(3) --
From inception,
September 30, 1998
through December 31,
1998
Class IA............... 5,761 0.89(1) 1.46(1) 0.63(1)(3) 47.89
Class IB............... 39 0.98(1) 1.55(1) 0.59(1)(3) --
HARTFORD STOCK HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 9,446,868 0.48(1) 0.48(1) 0.67(1) 18.14
Class IB............... 79,262 0.66(1) 0.73(1) 0.49(1) --
For the Year Ended
December 31, 1999
Class IA............... 9,400,385 0.48 0.48 0.80 38.54
Class IB............... 47,439 0.66 0.73 0.62 --
For the Year Ended
December 31, 1998
Class IA............... 7,183,046 0.46 -- 0.95 27.13
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 10,167 0.65(1) -- 0.73(1) --
For the Year Ended
December 31
1997................... 4,713,322 0.45 -- 1.11 31.60
1996................... 2,994,209 0.46 -- 1.59 42.30
1995................... 1,876,884 0.48 -- 2.23 52.90
HARTFORD GROWTH AND
INCOME HLS FUND
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 414,487 0.80(1) 0.80(1) 0.42(1) 38.45
Class IB............... 1,545 0.98(1) 1.05(1) 0.24(1) --
For the Year Ended
December 31, 1999
Class IA............... 201,857 0.82 0.82 0.63 53.75
Class IB............... 14 1.00 1.07 0.45 --
From inception,
May 31, 1998 through
December 31, 1998
Class IA............... 25,312 0.28(1) 0.84(1) 1.42(1)(3) 29.58
Class IB............... 11 0.44(1) 1.00(1) 1.34(1)(3) --
HARTFORD DIVIDEND AND
GROWTH HLS FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 2,914,867 0.68(1) 0.68(1) 1.63(1) 32.51
Class IB............... 18,830 0.86(1) 0.93(1) 1.45(1) --
For the Year Ended
December 31, 1999
Class IA............... 3,207,733 0.68 0.68 1.60 55.93
Class IB............... 16,087 0.86 0.93 1.42 --
For the Year Ended
December 31, 1998
Class IA............... 3,031,293 0.66 -- 1.81 48.21
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 8,600 0.85(1) -- 1.57(1) --
For the Year Ended
December 31
1997................... 1,994,653 0.68 -- 2.21 34.20
1996................... 879,980 0.73 -- 2.52 56.90
1995................... 265,070 0.77 -- 2.91 41.40
HARTFORD INDEX HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 2,622,420 0.43(1) 0.43(1) 0.76(1) 2.10
Class IB............... 4,042 0.61(1) 0.68(1) 0.58(1) --
For the Year Ended
December 31, 1999
Class IA............... 2,581,436 0.43 0.43 0.95 2.83
From inception
November 9, 1999,
through December 31,
1999,
Class IB............... 11 0.61(1) 0.68(1) 0.77(1) --
For the Year Ended
December 31
1998................... 1,846,117 0.40 -- 1.21 4.50
1997................... 1,123,455 0.39 -- 1.52 5.70
1996................... 621,065 0.39 -- 2.07 19.30
1995................... 318,253 0.39 -- 2.46 1.50
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Management fees were waived until assets (excluding assets contributed by
companies affiliated with The Hartford Investment Management Company)
reached $20 million. The ratio of expenses to average net assets would have
been higher if management fees were not waived. The ratio of net investment
income to average net assets would have been lower if management fees were
not waived.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
(5) Excluding mortgage dollar rolls.
(6) Per share amounts have been restated to reflect a reverse stock split for
Class B shares effective September 17, 1999 (see note 12).
(7) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
_____________________________________ MF-83 ____________________________________
<PAGE>
HARTFORD MUTUAL FUNDS
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA(4) --
---------------------------------------------------------------------------
NET REALIZED
AND
NET ASSET UNREALIZED DIVIDENDS DIVIDENDS
VALUE AT NET GAIN TOTAL FROM FROM NET IN EXCESS OF
BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT NET INVESTMENT
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME
--------- ---------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD INTERNATIONAL
ADVISERS HLS FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $1.397 $ 0.026 $(0.048) $(0.022) $(0.016) $ --
Class IB............... 1.397 0.028 (0.052) (0.024) (0.016) --
For the Year Ended
December 31, 1999
Class IA............... 1.155 0.040 0.227 0.267 (0.025) --
From inception
November 9, 1999,
through December 31,
1999,
Class IB............... 1.300 0.004 0.118 0.122 (0.025) --
For the Year Ended
December 31
1998................... 1.175 0.064 0.082 0.146 (0.039) (0.006)
1997................... 1.167 0.056 0.006 0.062 (0.050) --
1996................... 1.109 0.040 0.093 0.133 (0.051) --
From inception,
March 1, 1995, through
December 31, 1995..... 1.000 0.030 0.126 0.156 (0.030) --
HARTFORD ADVISERS HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 2.965 0.034 (0.021) 0.013 (0.006) --
Class IB............... 2.966 0.043 (0.032) 0.011 (0.006) --
For the Year Ended
December 31, 1999
Class IA............... 2.985 0.068 0.221 0.289 (0.063) --
Class IB............... 3.577(6) 0.061(6) 0.221(6) 0.282(6) (0.064)(6) --(6)
For the Year Ended
December 31, 1998
Class IA............... 2.527 0.061 0.546 0.607 (0.060) --
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 3.371(6) 0.034(6) 0.367(6) 0.401(6) (0.195)(6) --(6)
For the Year Ended
December 31
1997................... 2.169 0.056 0.455 0.511 (0.055) --
1996................... 1.958 0.059 0.255 0.314 (0.059) --
1995................... 1.600 0.064 0.377 0.441 (0.064) --
HARTFORD HIGH YIELD HLS
FUND
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 1.005 0.041 (0.043) (0.002) (0.001) --
Class IB............... 1.005 (0.013) 0.010 (0.003) (0.001) --
For the Year Ended
December 31, 1999
Class IA............... 1.017 0.060 (0.013) 0.047 (0.059) --
Class IB............... 1.017 0.085 (0.039) 0.046 (0.058) --
From inception,
September 21, 1998
through December 31,
1998
Class IA............... 1.000 0.019 0.017 0.036 (0.019) --
Class IB............... 1.000 0.022 0.014 0.036 (0.019) --
HARTFORD BOND HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 0.994 0.033 0.015 0.048 (0.005) --
Class IB............... 0.995 0.033 0.014 0.047 (0.005) --
For the Year Ended
December 31, 1999
Class IA............... 1.081 0.062 (0.084) (0.022) (0.058) --
Class IB............... 1.083(6) 0.061(6) (0.084)(6) (0.023)(6) (0.057)(6) (0.008)(6)
For the Year Ended
December 31, 1998
Class IA............... 1.050 0.053 0.032 0.085 (0.054) --
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 1.075(6) 0.023(6) 0.040(6) 0.063(6) (0.055)(6) --(6)
For the Year Ended
December 31
1997................... 1.000 0.063 0.047 0.110 (0.060) --
1996................... 1.028 0.064 (0.029) 0.035 (0.063) --
1995................... 0.926 0.064 0.102 0.166 (0.064) --
HARTFORD MORTGAGE
SECURITIES HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 1.039 0.037 (0.001) 0.036 (0.008) --
Class IB............... 1.039 0.056 (0.021) 0.035 (0.008) --
For the Year Ended
December 31, 1999
Class IA............... 1.085 0.068 (0.052) 0.016 (0.062) --
From inception
November 9, 1999,
through December 31,
1999
Class IB............... 1.107 0.009 (0.016) 0.007 (0.061) --
For the Year Ended
December 31
1998................... 1.084 0.067 0.006 0.073 (0.067) (0.003)
1997................... 1.056 0.071 0.022 0.093 (0.065) --
1996................... 1.071 0.069 (0.018) 0.051 (0.066) --
1995................... 0.984 0.068 0.087 0.155 (0.068) --
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Management fees were waived until assets (excluding assets contributed by
companies affiliated with The Hartford Investment Management Company)
reached $20 million. The ratio of expenses to average net assets would have
been higher if management fees were not waived. The ratio of net investment
income to average net assets would have been lower if management fees were
not waived.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
(5) Excluding mortgage dollar rolls.
(6) Per share amounts have been restated to reflect a reverse stock split for
Class B shares effective September 17, 1999 (see note 12).
(7) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-84 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA --
---------------------------------------------------------------------------
DISTRIBUTIONS
FROM NET NET ASSET
REALIZED NET INCREASE VALUE AT
GAINS ON DISTRIBUTIONS TOTAL (DECREASE) IN END TOTAL
INVESTMENTS FROM CAPITAL DISTRIBUTIONS NET ASSETS VALUE OF PERIOD RETURN
-------------- ------------- ------------- ------------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD INTERNATIONAL
ADVISERS HLS FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $ (0.089) $ -- $(0.105) $(0.127) $1.270 (1.55)%
Class IB............... (0.089) -- (0.105) (0.129) 1.268 (1.64)
For the Year Ended
December 31, 1999
Class IA............... -- -- (0.025) 0.242 1.397 23.16
From inception
November 9, 1999,
through December 31,
1999,
Class IB............... -- -- (0.025) 0.097 1.397 9.35(2)
For the Year Ended
December 31
1998................... (0.032) (0.089) (0.166) (0.020) 1.155 13.35
1997................... (0.004) -- (0.054) 0.008 1.175 5.52
1996................... (0.024) -- (0.075) 0.058 1.167 12.25
From inception,
March 1, 1995, through
December 31, 1995..... (0.017) -- (0.047) 0.109 1.109 13.24(2)
HARTFORD ADVISERS HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... (0.257) -- (0.263) (0.250) 2.715 0.51
Class IB............... (0.257) -- (0.263) (0.252) 2.714 0.42
For the Year Ended
December 31, 1999
Class IA............... (0.246) -- (0.309) (0.020) 2.965 10.59
Class IB............... (0.829)(6) --(6) (0.893)(6) (0.611)(6) 2.966(6) 10.39
For the Year Ended
December 31, 1998
Class IA............... (0.089) -- (0.149) 0.458 2.985 24.66(2)
From inception
April 1, 1998, through
December 31, 1998
Class IB............... --(6) --(6) (0.195)(6) 0.206(6) 3.577(6) 11.96(2)
For the Year Ended
December 31
1997................... (0.098) -- (0.153) 0.358 2.527 24.51
1996................... (0.044) -- (0.103) 0.211 2.169 16.59
1995................... (0.019) -- (0.083) 0.358 1.958 28.34
HARTFORD HIGH YIELD HLS
FUND
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... -- -- (0.001) (0.003) 1.002 (0.15)
Class IB............... -- -- (0.001) (0.004) 1.001 (0.24)
For the Year Ended
December 31, 1999
Class IA............... -- -- (0.059) (0.012) 1.005 4.70
Class IB............... -- -- (0.058) (0.012) 1.005 4.49
From inception,
September 21, 1998
through December 31,
1998
Class IA............... -- -- (0.019) 0.017 1.017 3.59(2)
Class IB............... -- -- (0.019) 0.017 1.017 3.53(2)
HARTFORD BOND HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... -- -- (0.005) 0.043 1.037 4.82
Class IB............... -- -- (0.005) 0.042 1.037 2.14
For the Year Ended
December 31, 1999
Class IA............... (0.007) -- (0.065) (0.087) 0.994 (2.02)
Class IB............... --(6) (0.065)(6) (0.088)(6) 0.995(6) (2.19) 15,818
For the Year Ended
December 31, 1998
Class IA............... -- -- (0.054) 0.031 1.081 8.15(2)
From inception
April 1, 1998, through
December 31, 1998
Class IB............... --(6) --(6) (0.055)(6) 0.008(6) 1.083(6) 5.89(2)
For the Year Ended
December 31
1997................... -- -- (0.060) 0.050 1.050 11.35
1996................... -- -- (0.063) (0.028) 1.000 3.52
1995................... -- -- (0.064) 0.102 1.028 18.49
HARTFORD MORTGAGE
SECURITIES HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... -- -- (0.008) 0.028 1.067 3.35
Class IB............... -- -- (0.008) 0.027 1.066 3.26
For the Year Ended
December 31, 1999
Class IA............... -- -- (0.062) (0.046) 1.039 1.52
From inception
November 9, 1999,
through December 31,
1999
Class IB............... -- -- (0.061) (0.068) 1.039 0.60(2)
For the Year Ended
December 31
1998................... -- (0.002) (0.072) 0.001 1.085 6.72
1997................... -- -- (0.065) 0.028 1.084 9.01
1996................... -- -- (0.066) (0.015) 1.056 5.07
1995................... -- -- (0.068) 0.087 1.071 16.17
<CAPTION>
-- RATIOS AND SUPPLEMENTAL DATA --
------------------------------------------------------------------------
RATIO OF RATIO OF RATIO OF
EXPENSES EXPENSES NET
NET ASSETS TO AVERAGE TO AVERAGE INVESTMENT
AT END OF NET ASSETS NET ASSETS INCOME PORTFOLIO
PERIOD AFTER BEFORE TO AVERAGE TURNOVER
(IN THOUSANDS) WAIVERS WAIVERS NET ASSETS RATE(7)
-------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD INTERNATIONAL
ADVISERS HLS FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $ 414,487 0.83%(1) 0.83%(1) 2.72%(1) 94.84%
Class IB............... 1,545 1.01(1) 1.08(1) 2.54(1) --
For the Year Ended
December 31, 1999
Class IA............... 396,147 0.85 0.85 2.59 141.50
From inception
November 9, 1999,
through December 31,
1999,
Class IB............... 11 1.03(1) 1.10(1) 2.42(1) --
For the Year Ended
December 31
1998................... 285,853 0.86 -- 2.77 161.06
1997................... 207,582 0.87 -- 3.08 162.50
1996................... 104,486 0.96 -- 3.24 95.20
From inception,
March 1, 1995, through
December 31, 1995..... 31,264 0.65(1) 1.23(1) 3.36(1)(3) 47.20
HARTFORD ADVISERS HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 13,759,228 0.66(1) 0.66(1) 2.52(1) 16.86
Class IB............... 182,811 0.84(1) 0.91(1) 2.34(1) --
For the Year Ended
December 31, 1999
Class IA............... 14,082,895 0.65 0.66 2.46 38.38
Class IB............... 137,318 0.83 0.91 2.28 --
For the Year Ended
December 31, 1998
Class IA............... 11,805,411 0.63 -- 2.40 36.67
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 34,714 0.83(1) -- 2.22(1) --
For the Year Ended
December 31
1997................... 8,283,912 0.63 -- 2.44 36.10
1996................... 5,879,529 0.63 -- 2.92 53.80
1995................... 4,262,769 0.65 -- 3.57 63.50
HARTFORD HIGH YIELD HLS
FUND
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 55,811 0.83(1) 0.83(1) 9.02(1) 39.47
Class IB............... 573 1.01(1) 1.08(1) 8.84(1) --
For the Year Ended
December 31, 1999
Class IA............... 52,731 0.72 0.84 8.36(3) 46.94
Class IB............... 102 0.90 1.09 8.18 --
From inception,
September 21, 1998
through December 31,
1998
Class IA............... 14,482 0.35(1) 0.92(1) 8.04(1)(3) 15.40
Class IB............... 102 0.53(1) 1.10(1) 7.77(1)(3) --
HARTFORD BOND HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 970,073 0.54(1) 0.54(1) 6.31(1) 94.56
Class IB............... 20,708 0.72(1) 0.79(1) --
For the Year Ended
December 31, 1999
Class IA............... 978,861 0.52 0.52 6.09 110.70
Class IB............... 0.70 0.77 5.91 --
For the Year Ended
December 31, 1998
Class IA............... 902,480 0.50 -- 5.86 122.33
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 5,285 0.69(1) -- 5.54(1) --
For the Year Ended
December 31
1997................... 552,870 0.51 -- 6.58 112.90(5)
1996................... 402,548 0.52 -- 6.37 212.00
1995................... 342,495 0.53 -- 6.51 215.00
HARTFORD MORTGAGE
SECURITIES HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... 306,413 0.49(1) 0.48(1) 6.32(1) 207.78
Class IB............... 234 0.67(1) 0.74(1) 6.13(1) --
For the Year Ended
December 31, 1999
Class IA............... 339,767 0.48 0.48 5.98 472.00
From inception
November 9, 1999,
through December 31,
1999
Class IB............... 9 0.66(1) 0.73(1) 5.80(1) --
For the Year Ended
December 31
1998................... 356,834 0.46 -- 6.18 207.80
1997................... 325,702 0.45 -- 6.60 46.50(5)
1996................... 325,495 0.45 -- 6.67 201.00
1995................... 327,565 0.47 -- 6.50 489.40
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Management fees were waived until assets (excluding assets contributed by
companies affiliated with The Hartford Investment Management Company)
reached $20 million. The ratio of expenses to average net assets would have
been higher if management fees were not waived. The ratio of net investment
income to average net assets would have been lower if management fees were
not waived.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
(5) Excluding mortgage dollar rolls.
(6) Per share amounts have been restated to reflect a reverse stock split for
Class B shares effective September 17, 1999 (see note 12).
(7) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
_____________________________________ MF-85 ____________________________________
<PAGE>
HARTFORD MUTUAL FUNDS
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA(4) --
---------------------------------------------------------------------------
NET REALIZED
AND
NET ASSET UNREALIZED DIVIDENDS DIVIDENDS
VALUE AT NET GAIN TOTAL FROM FROM NET IN EXCESS OF
BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT NET INVESTMENT
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME
--------- ---------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD MONEY MARKET HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $1.000 $0.034 $-- $ 0.034 $(0.034) $--
Class IB............... 1.000 0.033 -- 0.033 (0.033) --
For the Year Ended
December 31, 1999
Class IA............... 1.000 0.070 -- 0.070 (0.070) --
Class IB............... 1.000 0.068 -- 0.068 (0.068) --
For the Year Ended
December 31, 1998
Class IA............... 1.000 0.051 -- 0.051 (0.051) --
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 1.000 0.037 -- 0.037 (0.037) --
For the Year Ended
December 31
1997................... 1.000 0.049 -- 0.049 (0.049) --
1996................... 1.000 0.050 -- 0.050 (0.050) --
1995................... 1.000 0.056 -- 0.056 (0.056) --
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Management fees were waived until assets (excluding assets contributed by
companies affiliated with The Hartford Investment Management Company)
reached $20 million. The ratio of expenses to average net assets would have
been higher if management fees were not waived. The ratio of net investment
income to average net assets would have been lower if management fees were
not waived.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
(5) Excluding mortgage dollar rolls.
(6) Per share amounts have been restated to reflect a reverse stock split for
Class B shares effective September 17, 1999 (see note 12).
(7) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
_____________________________________ MF-86 ____________________________________
<PAGE>
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA --
---------------------------------------------------------------------------
DISTRIBUTIONS
FROM NET NET ASSET
REALIZED NET INCREASE VALUE AT
GAINS ON DISTRIBUTIONS TOTAL (DECREASE) IN END TOTAL
INVESTMENTS FROM CAPITAL DISTRIBUTIONS NET ASSETS VALUE OF PERIOD RETURN
-------------- ------------- ------------- ------------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD MONEY MARKET HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $-- $-- $(0.034) -$- $1.000 2.86%
Class IB............... -- -- (0.033) -- 1.000 2.76
For the Year Ended
December 31, 1999
Class IA............... -- -- (0.070) -- 1.000 4.89
Class IB............... -- -- (0.068) -- 1.000 4.71
For the Year Ended
December 31, 1998
Class IA............... -- -- (0.051) -- 1.000 5.25(2)
From inception
April 1, 1998, through
December 31, 1998
Class IB............... -- -- (0.037) -- 1.000 3.76(2)
For the Year Ended
December 31
1997................... -- -- (0.049) -- 1.000 5.31
1996................... -- -- (0.050) -- 1.000 5.18
1995................... -- -- (0.056) -- 1.000 5.74
<CAPTION>
-- RATIOS AND SUPPLEMENTAL DATA --
------------------------------------------------------------------------
RATIO OF RATIO OF RATIO OF
EXPENSES EXPENSES NET
NET ASSETS TO AVERAGE TO AVERAGE INVESTMENT
AT END OF NET ASSETS NET ASSETS INCOME PORTFOLIO
PERIOD AFTER BEFORE TO AVERAGE TURNOVER
(IN THOUSANDS) WAIVERS WAIVERS NET ASSETS RATE(7)
-------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD MONEY MARKET HLS
FUND, INC.
For the Six Months
Ended June 30, 2000
(Unaudited)
Class IA............... $ 1,122,865 0.48%(1) 0.48%(1) 5.72%(1) N/A
Class IB............... 15,035 0.66(1) 1.36(1) 5.54(1) --
For the Year Ended
December 31, 1999
Class IA............... 1,257,436 0.47 0.47 4.81 N/A
Class IB............... 8,804 0.65 0.72 4.63 --
For the Year Ended
December 31, 1998
Class IA............... 872,486 0.45 -- 5.12 N/A
From inception
April 1, 1998, through
December 31, 1998
Class IB............... 2,179 0.64(1) -- 4.81(1) --
For the Year Ended
December 31
1997................... 612,480 0.44 -- 5.21 N/A
1996................... 542,586 0.44 -- 5.04 N/A
1995................... 339,709 0.45 -- 5.57 N/A
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Management fees were waived until assets (excluding assets contributed by
companies affiliated with The Hartford Investment Management Company)
reached $20 million. The ratio of expenses to average net assets would have
been higher if management fees were not waived. The ratio of net investment
income to average net assets would have been lower if management fees were
not waived.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
(5) Excluding mortgage dollar rolls.
(6) Per share amounts have been restated to reflect a reverse stock split for
Class B shares effective September 17, 1999 (see note 12).
(7) Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
_____________________________________ MF-87 ____________________________________
<PAGE>
AMSOUTH EQUITY INCOME FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------------------- ---------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS & SECURITIES
CONVERTIBLE TO COMMON STOCKS (99.5%):
BASIC MATERIALS (1.8%):
5,900 E.I. du Pont de Nemours................. $ 529,375
12,500 Sealed Air Corp., 4.00%, CVT. PFD.,
4/1/18................................ 632,813
-----------
1,162,188
-----------
CAPITAL GOODS/DIVERSIFIED (9.2%):
3,000 Corning Glass Works, Inc................ 809,625
32,150 General Electric Co..................... 1,703,950
$ 250,000 Oak Industries/Corning, 4.88%, CVT. BD.,
3/1/08................................ 1,423,750
$ 600,000 Sanmina Corp., 4.25%, CVT. BD.,
5/1/04................................ 1,197,000
$ 950,000 Solectron, 0.00%, CVT. BD., 1/27/19..... 640,063
-----------
5,774,388
-----------
COMMUNICATION SERVICES (6.9%):
31,900 Intermedia Communications, 7.00%,
Series E, CVT. PFD., 10/18/00......... 825,413
379 Intermedia Communications............... 11,275
$1,285,000 Level 3 Communications, Inc., 6.00%,
CVT. BD., 3/15/10..................... 1,156,500
$1,150,000 Nextel Communications, Inc., 5.25%, CVT.
BD., 1/15/10.......................... 1,162,000
30,200 Vodafone/Mediaone Group, 7.00%, CVT.
PFD., 11/5/02......................... 1,223,100
-----------
4,378,288
-----------
CONSUMER CYCLICAL/TRANSPORTATION (7.6%):
$1,885,000 Costco Co., 0.00%, CVT. BD., 8/19/02.... 1,552,768
28,700 Ford Motor Co........................... 1,234,100
$ 380,000 Omnicom Group, 4.25%, CVT. BD.,......... 1,065,425
16,900 Wal-Mart Stores, Inc.................... 973,863
-----------
4,826,156
-----------
ENERGY (5.5%):
39,700 EOG Resources., 7.00%, CVT. PFD.,
7/31/02............................... 1,225,738
21,105 Exxon Mobil Corp........................ 1,656,742
12,250 Shell Transport & Trading PLC (ADR)..... 611,734
-----------
3,494,214
-----------
FINANCE (12.9%):
9,800 American International Group, Inc....... 1,151,500
22,050 Chase Manhattan Corp.................... 1,015,678
28,400 Citigroup, Inc.......................... 1,711,099
7,050 J.P. Morgan & Co., Inc.................. 776,381
13,000 Lehman Brothers Holdings, Inc., 5.00%,
Series B, CVT. PFD., 12/31/49......... 464,750
7,100 Lehman Brothers Holdings, Inc........... 671,394
8,100 Merrill Lynch & Co., Inc................ 931,500
20,500 Metlife Capital Trust I, 8.00%, CVT.
PFD., 5/15/03......................... 1,418,344
-----------
8,140,646
-----------
HEALTH CARE (10.1%):
22,400 Abbott Laboratories..................... 998,200
13,100 Bausch & Lomb, Inc...................... 1,013,613
18,700 Bristol-Myers Squibb Co................. 1,089,275
$1,030,000 Centocor/Johnson & Johnson, Inc., 4.75%,
CVT. BD., 2/15/05..................... 1,389,212
25,750 Monsanto (ACES), 6.50%, CVT. PFD.,
11/30/01.............................. 1,165,188
$ 830,000 Roche Holding, Inc., 0.00%, CVT. BD.,
1/19/15 (b)........................... 744,925
-----------
6,400,413
-----------
STAPLES (10.4%):
$1,050,000 Clear Channel Communication, 2.63%, CVT.
BD., 4/1/03........................... 1,353,188
14,400 Coca-Cola Co............................ 827,100
19,000 Cox Communications, Inc., 7.00%, CVT.
PFD., 8/16/02......................... 1,167,313
</TABLE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------------------- ---------------------------------------- -----------
<C> <S> <C>
STAPLES -- (CONTINUED)
14,000 Estee Lauder, 6.25%, CVT. PFD.,
2/23/02............................... $ 1,253,000
26,000 Quaker Oats Co.......................... 1,953,249
-----------
6,553,850
-----------
TECHNOLOGY (32.1%):
35,000 Amdocs Ltd., 6.75%, CVT. PFD.,
9/11/02............................... 2,209,400
$1,000,000 American Tower Corp., 5.00%, CVT. BD.,
2/15/10............................... 1,012,500
26,000 Automatic Data Processing, Inc.......... 1,392,625
$1,030,000 Burr-Brown Corp., 4.25%, CVT. BD.,
2/15/07 (b)........................... 1,732,974
22,200 Computer Associates
International, Inc.................... 1,136,363
$ 770,000 Conexant Systems, 4.25%, CVT. BD.,
5/1/06................................ 1,677,638
$1,200,000 Juniper Networks, Inc., 4.75%, CVT. BD.,
3/15/07............................... 1,306,500
$ 770,000 Lattice Semiconductor Corp., 4.75%, CVT.
BD., 11/1/06.......................... 1,382,150
$ 400,000 Level One Communications, 4.00%, CVT.
BD., 9/1/04........................... 1,693,000
$1,320,000 LSI Logic Corp., 4.00%, CVT. BD.,
2/15/05............................... 1,397,550
21,300 Lucent Technologies, Inc................ 1,262,025
36,100 Motorola, Inc........................... 1,049,156
$ 950,000 Rational Software, 5.00%, CVT. BD.,
2/1/07 (b)............................ 1,411,938
$ 13,100 Tribune Co., 2.00%, CVT. BD., 5/15/29... 1,509,775
-----------
20,173,594
-----------
UTILITIES (3.0%):
26,000 Calpine Capital Trust II, 5.50%, CVT.
PFD., 2/1/05 (b)...................... 1,878,500
-----------
Total Common Stocks & Securities
Convertible to Common Stocks............ 62,782,237
-----------
INVESTMENT COMPANIES (2.7%):
1,709,408 Firstar Stellar Treasury Fund........... 1,709,408
-----------
Total Investment Companies.............. 1,709,408
-----------
TOTAL (Cost $58,868,866) (102.2%) (a)... $64,491,645
===========
------------------------------
</TABLE>
<TABLE>
<C> <S>
Percentages indicated are based on net assets of $63,118,457.
(a) Represents cost for federal income tax and financial
reporting purposes and differs from value by net unrealized
appreciation of securities as follows:
</TABLE>
<TABLE>
<S> <C>
Unrealized appreciation.............. $8,163,198
Unrealized depreciation.............. (2,540,419)
----------
Net unrealized appreciation.......... $5,622,779
==========
</TABLE>
<TABLE>
<C> <S>
(b) Represents a restricted security, purchased under
Rule 144A, which is exempt from registration under the
Security Act of 1933, as amended. These securities have been
deemed liquid under guidelines established by the Board of
Trustees.
</TABLE>
<TABLE>
<C> <S>
ACES -- Adjustable Conversion-Rate Equity Securities
ADR -- American Depository Receipt
CVT. BD. -- Convertible Bond
CVT. PFD. -- Convertible Preferred
PLC -- Public Limited Co.
</TABLE>
<TABLE>
<CAPTION>
BREAKDOWN OF SECTORS
--------------------
<S> <C>
Common Stocks 38.0%
Convertible Preferred Stocks 20.9%
Convertible Bonds 38.5%
Investment Companies 2.6%
------
TOTAL 100.00%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
MF-88
<PAGE>
AMSOUTH SELECT EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
--------------------- ----------------------------------------- ----------
<C> <S> <C>
COMMON STOCKS (98.5%):
BATTERIES/BATTERY SYSTEMS (1.3%):
2,500 Energizer Holdings, Inc. (b)............. $ 45,625
----------
CONSUMER GOODS (3.0%):
5,500 American Greetings Corp., Class A........ 104,500
----------
DATA PROCESSING & REPRODUCTION (6.6%):
4,300 Automatic Data Processing, Inc........... 230,319
----------
ELECTRICAL EQUIPMENT (4.2%):
5,800 Hubbell Harvey, Inc., Class B............ 147,900
----------
ELECTRONIC COMPONENTS/INSTRUMENTS (8.3%):
4,800 Emerson Electric Co...................... 289,800
----------
FINANCIAL SERVICES (10.9%):
7,500 Dun & Bradstreet Corp.................... 214,687
5,100 H & R Block, Inc......................... 165,113
----------
379,800
----------
FOOD DISTRIBUTORS & WHOLESALERS (13.4%):
8,500 Ralston Purina Group..................... 169,469
3,900 Smuckers Co., Class A.................... 75,075
5,300 SYSCO Corp............................... 223,262
----------
467,806...
----------
FOOD PRODUCTS, PROCESSING &
PACKAGING (15.5%):
6,700 General Mills, Inc....................... 256,274
2,900 Hershey Foods Corp....................... 141,194
4,600 International Flavors & 138,863
Fragrances, Inc..........................
----------
536,331...
----------
HEALTH CARE SERVICES (2.7%):
5,300 IMS Health, Inc.......................... 95,400
----------
MACHINERY & EQUIPMENT (6.7%):
3,100 Briggs & Stratton Corp................... 106,175
4,800 Snap-On, Inc............................. 127,800
----------
233,975
----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
--------------------- ----------------------------------------- ----------
<C> <S> <C>
NEWSPAPERS (10.7%):
3,600 Gannett Co., Inc......................... $ 215,325
2,600 Lee Enterprises.......................... 60,613
200 Washington Post, Class B................. 95,600
----------
371,538
----------
OFFICE EQUIPMENT & SERVICES (4.5%):
3,900 Pitney Bowes, Inc........................ 156,000
----------
PHARMACEUTICALS (4.9%):
2,900 Bristol-Myers Squibb Co.................. 168,925
----------
POLLUTION CONTROL SERVICES &
EQUIPMENT (5.8%):
10,700 Waste Management, Inc.................... 203,300
----------
Total Common Stocks...................... 3,431,219
----------
INVESTMENT COMPANIES (1.4%):
47,011 Bony Hamilton Prime Money Market......... 47,011
----------
Total Investment Companies............... 47,011
----------
TOTAL (Cost $3,890,325) (99.9%) (a)...... $3,478,230
==========
------------------------------
</TABLE>
<TABLE>
<C> <S>
Percentages indicated are based on net assets of $3,481,052.
(a) Represents cost for federal income tax and financial
reporting purposes and differs from value by net unrealized
depreciation of securities as follows:
</TABLE>
<TABLE>
<S> <C>
Unrealized appreciation............... $ 134,894
Unrealized depreciation............... (546,989)
---------
Net unrealized depreciation........... $(412,095)
=========
</TABLE>
<TABLE>
<C> <S>
(b) Represents non-income producing security.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
MF-89
<PAGE>
AMSOUTH VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INCOME SELECT EQUITY
FUND FUND
------------- -------------
<S> <C> <C>
ASSETS:
Investments, at value (Cost $58,868,866 and $3,890,325)... $64,491,645 $3,478,230
Cash...................................................... -- 721
Interest and dividends receivable......................... 235,056 6,200
Receivable for investments sold........................... 548,115 --
Reimbursement receivable.................................. -- 5,097
Prepaid expenses and other................................ 6,387 383
----------- ----------
Total assets............................................ 65,281,203 3,490,631
----------- ----------
LIABILITIES:
Payable for investments purchased......................... 2,130,054 --
Accrued expenses and other payables:
Investment advisory fees................................ 11,129 755
Administration fees..................................... 684 --
Distribution fees....................................... 12,273 719
Transfer agent fees..................................... 51 3
Custody fees............................................ 295 17
Other................................................... 8,260 8,085
----------- ----------
Total liabilities..................................... 2,162,746 9,579
----------- ----------
NET ASSETS:
Capital................................................. 53,898,256 4,018,560
Undistributed (distributions in excess of) net
investment income...................................... 8,799 603
Net unrealized appreciation (depreciation) on
investments............................................ 5,622,779 (412,095)
Undistributed net realized gains (losses) on investment
transactions and option contracts...................... 3,588,623 (126,016)
----------- ----------
Net Assets............................................ $63,118,457 $3,481,052
=========== ==========
Outstanding units of beneficial interest (shares)......... 4,336,414 447,033
=========== ==========
Net asset value -- offering and redemption price per
share.................................................... $ 14.56 $ 7.79
=========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
MF-90
<PAGE>
AMSOUTH VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INCOME SELECT EQUITY
FUND FUND
------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
Interest income........................................... $ 418,353 $ --
Dividend income........................................... 257,238 37,650
---------- ---------
Total income............................................ 675,591 37,650
---------- ---------
EXPENSES:
Investment advisory fees................................ 143,271 12,373
Administration fees..................................... 47,757 3,093
Distribution fees....................................... 59,696 3,866
Custodian fees.......................................... 1,433 93
Accounting fees......................................... 9,163 1,310
Legal fees.............................................. 9,126 9,077
Audit fees.............................................. 5,534 4,989
Trustees' fees and expenses............................. 3,831 200
Transfer agent fees..................................... 5,000 5,000
Other................................................... 5,384 195
---------- ---------
Total expenses........................................ 290,195 40,196
Expenses waived......................................... (10,715) (9,562)
Expenses voluntarily reimbursed......................... -- (11,306)
---------- ---------
Net expenses............................................ 279,480 19,328
---------- ---------
Net investment income..................................... 396,111 18,322
---------- ---------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) from investment
transactions............................................. 2,802,564 (130,187)
Net realized gains (losses) from option contracts......... 26,159 --
Net change in unrealized appreciation (depreciation) from
investments.............................................. (854,285) (128,577)
---------- ---------
Net realized/unrealized gains (losses) on investments... 1,974,438 (258,764)
---------- ---------
Change in net assets resulting from operations.......... $2,370,549 $(240,442)
========== =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
MF-91
<PAGE>
AMSOUTH VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INCOME SELECT EQUITY
FUND FUND
---------------------------- ----------------------------
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2000 1999 2000 1999(A)
----------- ------------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................... $ 396,111 $ 352,317 $ 18,322 $ 8,407
Net realized gains (losses) from investment
transactions............................................. 2,802,564 2,044,397 (130,187) 4,171
Net realized gains (losses) from options transactions..... 26,159 -- -- --
Net change in unrealized appreciation/depreciation from
investments.............................................. (854,285) 4,178,324 (128,577) (283,518)
----------- ----------- ---------- ----------
Change in net assets resulting from operations............ 2,370,549 6,575,038 (240,442) (270,940)
----------- ----------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................ (380,098) (352,317) (17,905) (8,221)
In excess of net investment income........................ -- (1,802) -- --
----------- ----------- ---------- ----------
Change in net assets resulting from shareholder
distributions............................................ (380,098) (354,119) (17,905) (8,221)
----------- ----------- ---------- ----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................... 25,404,387 10,079,377 1,571,448 3,284,776
Dividends reinvested...................................... 379,779 354,119 17,906 8,221
Cost of shares redeemed................................... (210,527) (3,642,784) (731,069) (132,722)
----------- ----------- ---------- ----------
Change in net assets from capital transactions............ 25,573,639 6,790,712 858,285 3,160,275
----------- ----------- ---------- ----------
Change in net assets...................................... 27,564,090 13,011,631 599,938 2,881,114
NET ASSETS:
Beginning of period....................................... 35,554,367 22,542,736 2,881,114 --
----------- ----------- ---------- ----------
End of period............................................. $63,118,457 $35,554,367 $3,481,052 $2,881,114
=========== =========== ========== ==========
SHARE TRANSACTIONS:
Issued.................................................... 1,765,070 833,355 201,404 353,116
Reinvested................................................ 26,253 29,478 2,326 937
Redeemed.................................................. (14,903) (304,781) (95,312) (15,438)
----------- ----------- ---------- ----------
Change in shares.......................................... 1,776,420 558,052 108,418 338,615
=========== =========== ========== ==========
</TABLE>
<TABLE>
<C> <S>
(a) For the period from May 3, 1999 (commencement of operations)
through December 31, 1999.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
MF-92
<PAGE>
AMSOUTH VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. ORGANIZATION:
The Variable Insurance Funds (the "Trust") was organized on July 20, 1994,
and is registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, open-end management investment company established
as a Massachusetts business trust.
The Trust is authorized to issue an unlimited number of shares without par
value. The Trust currently offers shares of the AmSouth Equity Income Fund
("Equity Income") and the AmSouth Select Equity Fund ("Select Equity")
(collectively, "the Funds" and individually "a Fund"). Shares of the Funds
are offered to a separate account of Hartford Life Insurance Company, as
well as other eligible purchasers.
The Equity Income Fund seeks to provide above average income and capital
appreciation. It seeks this objective by investing, under normal market
conditions, at least 65% of its total assets in income-producing equity
securities, including common stock, preferred stock, and securities that are
convertible into common stocks, such as convertible bonds and convertible
preferred stocks. The Select Equity Fund seeks to provide long-term growth
of capital by investing, under normal market conditions, at least 65% of its
total assets in common stocks and securities convertible into common stocks,
such as convertible bonds and convertible preferred stocks, of companies
with market capitalization that are greater than $2 billion at the time of
purchase.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements 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 income
and expenses for the period. Actual results could differ from those
estimates.
SECURITIES VALUATION--Exchange-listed securities are valued at the closing
price on the exchange on the day of computation, or, if there have been no
sales during such day, at the latest bid quotation. Unlisted securities are
valued at their latest bid quotation in their principal market. If no such
bid is available, then such securities are valued in good faith at their
respective fair market values using methods determined by or under the
supervision of the Trust's Board of Trustees. Portfolio securities with a
remaining maturity of 60 days or less are valued either at amortized cost or
original cost plus accrued interest, which approximates current value.
SECURITIES TRANSACTIONS AND RELATED INCOME--Securities transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis and includes, where
applicable, the pro rata amortization of premium or discount. Dividend
income is recorded on the ex-dividend date. Gains or losses realized on
sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds.
REPURCHASE AGREEMENTS--The Funds may enter into repurchase agreements with
member banks of the Federal Deposit Insurance Corporation and from
registered broker/dealers that AmSouth Bank ("AmSouth") deems creditworthy
under guidelines approved by the Trust's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Funds plus interest negotiated on the basis of current short-term rates,
which may be more or less than the rate on the underlying collateral. The
seller, under a repurchase agreement, is required to maintain the value of
collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest).
FINANCIAL INSTRUMENTS--The Equity Income Fund may write call options only on
securities that are owned by the Fund ("covered calls"). A written call
option gives a specified counter-party the right to require the writer of
the option to deliver the agreed upon securities, at the agreed upon price,
up until the expiration date specified in the contract. For this right, a
premium is paid to the writer of the option. The premium received by the
Fund for writing the option is booked as realized gains to the Fund.
The risks associated with writing a covered call option are diminished
compared to writing an uncovered call. The Fund does not bear the risk of
having to purchase the securities in the open market at a price greater than
the call price should the call option be exercised. Since the Fund owns the
securities on which the call
MF-93
<PAGE>
AMSOUTH VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
has been written, the Fund bears the risk of not receiving the fair market
value of a security if the option is exercised. They would be required to
sell the securities at the agreed upon price, which would presumably be
lower than the fair market value of the securities if the option is
exercised.
The table below reflects the Equity Income Fund's activity in covered calls,
all of which were for purposes of earning additional income, during the six
months ended June 30, 2000. The Premiums column represents the premiums paid
by the option counterparties to the Fund in connection with entering into
the covered calls.
Option activities for the six months ended June 30, 2000:
<TABLE>
<CAPTION>
COVERED CALL
OPTIONS
----------------------
NUMBER OF
OPTIONS PREMIUMS
CONTRACTS RECEIVED
---------- ---------
<S> <C> <C>
Contracts outstanding at January 1, 2000 -- --
Options written 30 $ 26,159
Options expired (30) (26,159)
Options closed -- --
Options exercised -- --
-------- --------
Contracts outstanding at June 30, 2000 -- --
======== ========
</TABLE>
DIVIDENDS TO SHAREHOLDERS--Dividends from net investment income, if any, are
declared and paid monthly for the Funds. Distributable net realized gains,
if any are declared and distributed at least annually.
Dividends from net investment income and net realized capital gains are
determined in accordance with income tax regulations, which may differ from
GAAP. These differences are primarily due to differing treatments of
deferrals of certain losses.
These "book/tax" differences are considered to be either temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the composition of net assets
based on their federal tax-basis treatment; temporary differences do not
require reclassifications. Dividends and distributions to shareholders which
exceed net investment income and net realized gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized gains. To the
extent they exceed net investment income and net realized gains for tax
purposes, they are reported as distribution of capital.
FEDERAL INCOME TAXES--It is the intention of the Funds to continue to
qualify as a regulated investment company by complying with the provisions
available to certain investment companies, as defined in applicable sections
of the Internal Revenue Code, and to make distributions of net investment
income and net realized capital gains sufficient to relieve it from all, or
substantially all, federal income taxes.
OTHER--Expenses that are directly related to a Fund are charged directly to
that Fund, while general Trust expenses are allocated between the Funds
based on their relative net assets or another appropriate method.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of portfolio securities (excluding short-term
securities) for the period from January 1, 2000 through June 30, 2000 were
as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Equity Income Fund................... $60,221,663 $34,793,801
Select Equity Fund................... $ 1,205,956 $ 357,775
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Funds by AmSouth. Under the
terms of the investment advisory agreement, AmSouth is entitled to receive
fees based on a percentage of the average daily net assets of the Funds.
Sub-advisory services are provided to the Equity Income Fund by Rockhaven
Asset Management, LLC ("Rockhaven"). Under the terms of the sub-advisory
agreement, Rockhaven is entitled to receive fees, payable by AmSouth, based
on a percentage of the average daily net assets of the Fund, provided that
if AmSouth waives a portion of its investment advisory fee, Rockhaven has
agreed that its sub-advisory fee shall not exceed 60% of AmSouth's net
investment advisory fee.
Sub-advisory services are provided to the Select Equity Fund by Oakbrook
Investments, LLC ("Oakbrook"). Under the terms of the sub-advisory
agreement, Oakbrook is entitled to receive fees, payable by AmSouth, based
on a percentage of the average daily net assets of the Fund, provided that
if AmSouth waives a portion of its investment advisory fee, Oakbrook has
agreed that its sub-advisory fee shall not exceed 70% of AmSouth's net
investment advisory fee.
MF-94
<PAGE>
AMSOUTH VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
AmSouth also serves as custodian for the Funds. Pursuant to the Custodian
Agreement with the Trust, AmSouth receives compensation from the Funds for
such services in an amount equal to an asset-based fee plus fixed fees
charged for certain portfolio transactions and out-of-pocket expenses.
BISYS Fund Services Ohio, Inc. (BISYS Ohio) with which certain officers and
trustees of the Trust are affiliated, serves the Trust as Administrator.
Such officers and trustees are paid no fees directly by the Trust for
serving as officers and trustees of the Trust. Under the terms of the
Management and Administration Agreement between BISYS Ohio and the Trust,
BISYS Ohio's fees are computed daily as a percentage of the average net
assets of the Funds. BISYS Fund Services Limited Partnership ("BISYS")
serves, without compensation, as Distributor of the Fund's. BISYS Ohio also
serves the Funds as Transfer Agent and Fund Accountant. BISYS, an Ohio
limited partnership, and BISYS Ohio are subsidiaries of The BISYS
Group, Inc.
Shares of the Trust are subject to a Variable Contract Owner Servicing Plan
(the "Servicing Plan") permitting payment of compensation to financial
institutions that agree to provide certain administrative support services
for their customers or account holders. The Funds have entered into a
specific arrangement with AmSouth Investment Services, Inc. ("AIS") for the
provision of such services and reimburses AIS for its cost of providing
these services, subject to a maximum annual rate equal to 0.25% of the
average daily net assets of the Funds. AIS has subcontracted all of the
services to Hartford Life Insurance Company.
Fees may be voluntarily reduced or reimbursed to assist the Funds in
maintaining competitive expense ratios. Information regarding these
transactions is as follows for the six-month period ended June 30, 2000:
<TABLE>
<CAPTION>
EQUITY SELECT
INCOME EQUITY
-------- --------
<S> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average daily net assets)......... 0.60% 0.80%
Voluntary fee reductions.......................... $9,297 $ 1,237
ADMINISTRATION FEES:
Voluntary fee reductions.......................... $-- $ 3,093
Voluntary fee reimbursements...................... $-- $11,306
VARIABLE CONTRACT OWNER SERVICING FEES:
Annual fee (percentage of average daily net
assets).......................................... 0.25% 0.25%
TRANSFER AGENT FEES:
Voluntary fee reductions.......................... $1,418 $ 4,768
FUND ACCOUNTING FEES:
Voluntary fee reductions.......................... $-- $ 464
</TABLE>
MF-95
<PAGE>
AMSOUTH VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INCOME SELECT EQUITY
-------------------------------------------------------------- ----------------------------
SIX MONTHS FOR THE FOR THE OCTOBER 23, SIX MONTHS MAY 3,
ENDED YEAR ENDED YEAR ENDED 1997 TO ENDED 1999 TO
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31,
2000 1999 1998 1997(A) 2000 1999(A)
----------- ------------- ------------- ------------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $ 13.89 $ 11.26 $ 10.23 $ 10.00 $ 8.51 $ 10.00
-------- -------- -------- ------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income........ 0.12(d) 0.15 0.22 0.03 0.05(d) 0.04
Net realized and unrealized
gains....................... 0.66 2.64 1.03 0.23 (0.73) (1.49)
-------- -------- -------- ------- ------- -------
Total investment
activities.................. 0.78 2.79 1.25 0.26 (0.68) (1.45)
-------- -------- -------- ------- ------- -------
DISTRIBUTIONS:
From net investment income... (0.11) (0.16) (0.22) (0.03) (0.04) (0.04)
-------- -------- -------- ------- ------- -------
Total distributions.......... (0.11) (0.16) (0.22) (0.03) (0.04) (0.04)
-------- -------- -------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD........................ $ 14.56 $ 13.89 $ 11.26 $ 10.23 $ 7.79 $ 8.51
======== ======== ======== ======= ======= =======
Total return................. 5.56%(b) 25.00% 12.36% 2.27%(b) (7.94%)(b) (14.51%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, at end of period
(000)....................... $ 63,118 $ 35,554 $ 22,543 $ 2,387 $ 3,481 $ 2,881
Ratio of expenses to average
net assets.................. 1.17%(c) 1.22% 1.14% 1.22%(c) 1.25%(c) 1.23%(c)
Ratio of net investment
income to average net
assets...................... 1.60%(c) 1.31% 2.13% 2.39%(c) 1.18%(c) 0.69%(c)
Ratio of expenses to average
net assets*................. 1.21%(c) 1.37% 1.53% 7.26%(c) 2.60%(c) 3.50%(c)
Portfolio turnover rate...... 72.68% 110.31% 120.83% 4.00% 11.61% 18.21%
------------------------
</TABLE>
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Net investment income is based on average shares outstanding during the
period.
* During the period certain fees were reimbursed and voluntarily reduced. If
such reimbursements and voluntary fee reductions had not occurred, the ratios
would have been as indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
MF-96
<PAGE>
VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
BB&T GROWTH AND INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
--------------------- ---------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS -- 97.8%
AEROSPACE/DEFENSE -- 2.1%
14,900 Parker Hannifin Corp.................... $ 510,325
27,000 Raytheon Co.-Class A.................... 524,813
5,000 Raytheon Co.-Class B.................... 96,250
-----------
1,131,388
-----------
APPAREL -- 0.7%
16,600 V F Corp................................ 397,363
-----------
AUTOMOBILES & TRUCKS -- 0.7%
9,000 Ford Motor Co........................... 387,000
-----------
AUTOMOTIVE -- 0.0%
1,178 Visteon Corp............................ 14,288
-----------
BANKING -- 8.3%
20,000 Bank Of America Corp.................... 860,000
20,000 Bank One Corp........................... 531,250
12,600 Central Carolina Bank Financial Corp.... 466,200
16,000 Citigroup, Inc.......................... 963,999
5,700 J.P. Morgan & Co........................ 627,713
19,000 Pacific Century Financial Corp.......... 277,875
20,000 U.S. Bancorp............................ 385,000
7,200 Wachovia Corp........................... 390,600
-----------
4,502,637
-----------
BUSINESS EQUIPMENT & SERVICES -- 2.6%
17,200 Harris Corp............................. 563,300
21,000 Pitney Bowes, Inc....................... 840,000
-----------
1,403,300
-----------
CHEMICALS -- 1.5%
26,000 Air Products & Chemicals, Inc........... 801,125
-----------
COMPUTER - PERIPHERALS -- 2.3%
9,600 Adobe Systems, Inc...................... 1,248,000
-----------
COMPUTER SOFTWARE -- 1.0%
11,000 Computer Associates 563,063
International, Inc......................
-----------
COMPUTERS - MAIN & MINI -- 5.8%
8,000 Electronic Data Systems Corp............ 330,000
11,600 Hewlett-Packard Co...................... 1,448,549
10,800 IBM Corp................................ 1,183,275
7,000 Xerox Corp.............................. 145,250
-----------
3,107,074
-----------
CONTAINERS -- 0.7%
18,800 Sonoco Products Co...................... 386,575
-----------
COSMETICS/PERSONAL CARE -- 2.4%
23,000 Kimberly-Clark Corp..................... 1,319,625
-----------
DIVERSIFIED PRODUCTS -- 0.7%
9,000 E.I. duPont de Nemours Co............... 393,750
-----------
ELECTRICAL EQUIPMENT -- 4.3%
23,500 Emerson Electric Co..................... 1,418,813
30,000 TXU Corp................................ 885,000
-----------
2,303,813
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
--------------------- ---------------------------------------- -----------
<C> <S> <C>
ELECTRONIC COMPONENTS -- 3.6%
12,700 Avnet, Inc.............................. 752,475
9,000 Intel Corp.............................. $ 1,203,188
-----------
1,955,663
-----------
ELECTRONIC INSTRUMENTS -- 2.3%
4,424 Agilent Technologies, Inc............... 326,270
12,150 Tektronix, Inc.......................... 899,100
-----------
1,225,370
-----------
ENGINEERING -- 0.7%
12,400 Fluor Corp.............................. 392,150
-----------
FINANCIAL SERVICES -- 2.5%
19,000 Fannie Mae.............................. 991,562
12,500 Franklin Resources, Inc................. 379,688
-----------
1,371,250
-----------
FOOD & RELATED -- 3.7%
19,300 Bob Evans Farms......................... 288,294
11,000 Dole Food Co., Inc...................... 154,000
55,800 SUPERVALU, Inc.......................... 1,063,687
26,000 Universal Foods Corp.................... 481,000
-----------
1,986,981
-----------
FOREST & PAPER PRODUCTS -- 1.2%
15,000 Weyerhaeuser Co......................... 645,000
-----------
HEALTH CARE - DRUGS -- 2.2%
27,200 Abbott Laboratories..................... 1,212,100
-----------
HOUSEHOLD - GENERAL PRODUCTS -- 3.5%
28,000 American Greetings Corp................. 532,000
2,000 Corning, Inc............................ 539,750
18,785 Unilever N.V............................ 807,755
-----------
1,879,505
-----------
HOUSEHOLD - MAJOR APPLIANCES -- 1.0%
11,100 Whirlpool Corp.......................... 517,538
-----------
INSURANCE -- 6.8%
16,000 Aetna Services, Inc..................... 1,026,999
19,500 AON Corp................................ 605,719
27,200 Lincoln National Corp................... 982,600
23,800 SAFECO Corp............................. 473,025
17,600 Saint Paul Companies, Inc............... 600,600
-----------
3,688,943
-----------
LEISURE TIME INDUSTRIES -- 1.0%
34,300 Hasbro, Inc............................. 516,644
-----------
MEDIA -- 1.4%
10,000 Banta Corp.............................. 189,375
11,100 Media General, Inc...................... 539,044
-----------
728,419
-----------
MEDICAL EQUIPMENT & SUPPLIES -- 4.7%
15,700 Johnson & Johnson....................... 1,599,437
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MF-97
<PAGE>
VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
BB&T GROWTH AND INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
MEDICAL EQUIPMENT & SUPPLIES --
(CONTINUED)
21,600 Mallinckrodt, Inc....................... 938,250
-----------
2,537,687
-----------
METAL FABRICATION -- 0.5%
14,100 Trinity Industries, Inc................. $ 260,850
-----------
OIL & GAS -- 1.2%
13,100 National Fuel Gas....................... 638,625
-----------
PETROLEUM - DOMESTIC -- 5.4%
20,100 Ashland, Inc............................ 704,756
15,316 Exxon Mobil Corp........................ 1,202,305
19,700 Phillips Petroleum Co................... 998,544
-----------
2,905,605
-----------
PETROLEUM - INTERNATIONAL -- 2.3%
7,900 Chevron Corp............................ 670,019
9,500 Royal Dutch Petroleum Co. - NY Shares... 584,844
-----------
1,254,863
-----------
PHARMACEUTICALS -- 2.8%
7,600 Bristol-Myers Squibb Co................. 442,700
14,000 Merck & Co., Inc........................ 1,072,750
-----------
1,515,450
-----------
PHOTOGRAPHIC EQUIPMENT -- 1.0%
9,000 Eastman Kodak Co........................ 535,500
-----------
RAILROAD -- 0.9%
33,200 Norfolk Southern Corp................... 493,850
-----------
RETAIL - FOOD STORES -- 1.3%
20,400 Albertson's, Inc........................ 678,300
-----------
RETAIL - GENERAL MERCHANDISE -- 0.9%
19,400 May Department Stores Co................ 465,600
-----------
SECURITY & COMMISSION BROKERS -- 1.2%
17,150 A.G. Edwards, Inc....................... 668,850
-----------
TELECOMMUNICATION - EQUIPMENT -- 1.5%
11,563 Nortel Networks Corp.................... 789,175
-----------
</TABLE>
<TABLE>
<C> <S> <C>
TELECOMMUNICATIONS -- 0.8%
18,000 BCE, Inc................................ 428,625
-----------
TOBACCO -- 1.0%
20,000 Philip Morris Companies, Inc............ $ 531,250
-----------
UTILITIES - ELECTRIC -- 1.9%
32,200 New Century Energies, Inc............... 966,000
2,000 Texas Utilities Co...................... 67,500
-----------
1,033,500
-----------
UTILITIES - GAS & PIPELINE -- 0.5%
7,900 Nicor, Inc.............................. 257,738
-----------
UTILITIES - TELEPHONE -- 6.6%
40,150 AT&T Corp............................... 1,269,743
25,800 BellSouth Corp.......................... 1,099,725
27,400 SBC Communications, Inc................. 1,185,050
-----------
3,554,518
-----------
WIRELESS EQUIPMENT -- 0.3%
5,000 Motorola, Inc........................... 145,313
-----------
Total Common Stocks (Cost 52,773,863
$52,228,873)............................
===========
MONEY MARKET -- 3.7%
1,996,085 Dreyfus Government Cash Management...... 1,996,085
-----------
Total Money Market (Cost $1,996,085).... 1,996,085
===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Total Investments (Cost $54,224,958) (a) --
101.5%............................................. 54,769,948
Liabilities in excess of other assets -- (1.5)%..... (826,338)
-----------
TOTAL NET ASSETS -- 100.0%.......................... $53,943,610
===========
-------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(a) Represents cost for federal income tax purposes and differs
from value by net unrealized appreciation (depreciation) of
securities as follows:
</TABLE>
<TABLE>
<S> <C>
Unrealized appreciation.............. $ 8,313,550
Unrealized depreciation.............. (7,768,560)
-----------
Net unrealized appreciation.......... $ 544,990
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MF-98
<PAGE>
VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $54,224,958).................. $54,769,948
Receivable for investment securities sold................. 312,977
Interest and dividends receivable......................... 116,637
Prepaid expenses and other assets......................... 5,016
-----------
Total Assets.......................................... 55,204,578
-----------
LIABILITIES:
Dividends payable......................................... 602,514
Payable for investment securities purchased............... 612,555
Accrued expenses and other payables:
Investment advisory fees................................ 27,751
Administration fees..................................... 456
Other................................................... 17,692
-----------
Total Liabilities..................................... 1,260,968
-----------
NET ASSETS:
Capital................................................... 51,628,453
Undistributed net investment income....................... 360,501
Net unrealized appreciation (depreciation) from
investments.............................................. 1,409,666
Accumulated undistributed net realized gains (losses) from
investment transactions.................................. 544,990
-----------
Net Assets............................................ $53,943,610
===========
Outstanding units of beneficial interest (shares)........... 4,407,648
===========
Net asset value -- offering and redemption price per
share...................................................... $ 12.24
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MF-99
<PAGE>
VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income........................................... $ 11,858
Dividend income........................................... 1,434,610
-----------
Total Income.......................................... 1,446,468
-----------
EXPENSES:
Investment advisory fees.................................. 195,678
Administration fees....................................... 54,061
Custodian fees............................................ 6,346
Accounting fees........................................... 14,312
Legal fees................................................ 13,979
Audit fees................................................ 4,260
Trustees' fees and expenses............................... 3,606
Transfer agent fees....................................... 4,341
Printing costs............................................ 1,311
Insurance................................................. 3,850
Other..................................................... 1,137
-----------
Total expenses before voluntary reductions................ 302,881
Expenses voluntarily reduced.............................. (74,371)
-----------
Net expenses............................................ 228,510
-----------
Net Investment Income..................................... 1,217,958
-----------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized gains (losses) from investment
transactions............................................. 984,023
Net change in unrealized appreciation (depreciation) from
investments.............................................. (2,089,645)
-----------
Net realized/unrealized gains (losses) from
investments............................................ (1,105,622)
-----------
Change in net assets resulting from operations.......... $ 112,336
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MF-100
<PAGE>
VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEAR
ENDED ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................... $ 1,217,958 $ 727,741
Net realized gains (losses) from investment
transactions............................................. 984,023 1,227,474
Net change in unrealized appreciation (depreciation) from
investments.............................................. (2,089,645) (4,036,397)
----------- -----------
Change in net assets resulting from operations............ 112,336 (2,081,182)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................ (989,254) (594,896)
Net realized gains from investment transactions........... -- (741,928)
----------- -----------
Change in net assets from shareholder distributions....... (989,254) (1,336,824)
----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................... 3,961,338 6,717,001
Dividends reinvested...................................... 426,778 1,440,251
Cost of shares redeemed................................... (2,092,458) (1,275,983)
----------- -----------
Change in net assets from capital transactions............ 2,295,658 6,881,269
----------- -----------
Change in net assets...................................... 1,418,740 3,463,263
NET ASSETS:
Beginning of period....................................... 52,524,870 49,061,607
----------- -----------
End of period............................................. $53,943,610 $52,524,870
=========== ===========
SHARE TRANSACTIONS:
Issued.................................................... 328,665 513,205
Reinvested................................................ 34,327 112,776
Redeemed.................................................. (169,550) (100,033)
----------- -----------
Change in shares.......................................... 193,442 525,948
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
______________________________________ 101 _____________________________________
<PAGE>
VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
1. ORGANIZATION:
The Variable Insurance Funds (the "Trust") was organized on July 20, 1994,
and is registered under the Investment Company Act of 1940, as amended (the
"Act"), as an open-end investment company established as a Massachusetts
business trust. Between the date of organization and the dates of
commencement of operations (June 3, 1997), the Trust had no operations other
than incurring organizational expenses and the sale of initial units of
beneficial interest ("shares").
The Trust is authorized to issue an unlimited number of shares of beneficial
interest without par value. The Trust presently offers shares of the BB&T
Growth & Income Fund (The "Fund"). Shares of the Fund are offered to a
separate account of Hartford Life Insurance Company, as well as other
eligible purchasers.
The investment objective of the Fund is to seek to provide capital growth,
current income or both. Under normal market conditions, it seeks this
objective by investing at least 65% of its total assets in stocks, which for
this purpose may include common stock, preferred stock, warrants, or debt
instruments that are, convertible into common stock.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements 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 income and
expenses for the period. Actual results could differ from those estimates.
SECURITIES VALUATION--Exchange listed securities are valued at the closing
sales price on the exchange on the day of computation, or, if there have
been no sales during such day, at the latest bid quotation. Unlisted
securities are valued at their latest bid quotation in their principal
market. If no such bid price is available, then such securities are valued
in good faith at their respective fair market values using methods
determined by or under the supervision of the Board of Trustees. Portfolio
securities with a remaining maturity of 60 days or less are valued either at
amortized cost or original cost plus accrued interest, which approximates
current value.
All other assets and securities, including securities for which market
quotations are not readily available, are valued at their fair market value
as determined in good faith under the general supervision of the Board of
Trustees.
SECURITIES TRANSACTIONS AND RELATED INCOME--Securities transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis and includes, where
applicable, the pro rata amortization of premium or discount. Dividend
income is recorded on the ex-dividend date. Gains or losses realized on
sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds.
REPURCHASE AGREEMENTS--The Fund may acquire repurchase agreements from
member banks of the Federal Deposit Insurance Corporation and from
registered broker/dealers that Branch Banking and Trust Company ("BB&T")
deems creditworthy under guidelines approved by the Board of Trustees,
subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price generally equals
the price paid by the Funds plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
collateral. The seller under a repurchase agreement is required to maintain
the value of collateral held pursuant to the agreement at not less than the
repurchase price, including accrued interest. Securities subject to
repurchase agreements are held by the Fund's custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry system.
DIVIDENDS AND DISTRIBUTIONS--Dividends from net investment income are
declared and paid quarterly for the Fund. Distributable net realized gains,
if any are declared and distributed at least annually.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the composition of net assets based on their
federal tax-basis treatment; temporary differences do not require
reclassification.
MF-102
<PAGE>
VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
Dividends and distributions to shareholders which exceed net investment
income and net realized capital gains for financial reporting purposes but
not for tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized gains. To the extent they
exceed net investment income and net realized gains for tax purposes, they
are reported as distributions of capital.
FEDERAL INCOME TAXES--It is the Funds's policy to continue to comply with
the requirement of the Internal Revenue Code applicable to regulated
investment companies and to distribute timely, all of its net investment
company taxable and net capital gains to shareholders. Therefore, no federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital gains
earned on foreign investments at various rates. Where available, the Fund
will file for claims on foreign taxes withheld.
ORGANIZATION COSTS--Costs incurred by the Fund in connection with its
organization and registration of shares have been deferred and are amortized
using the straight-line method over a period of two years from June 3, 1997,
the commencement of the public offering of shares of the Fund. In the event
that any of the initial shares of the Fund are redeemed during the
amortization period by any holder thereof, the redemption proceeds may be
reduced by any unamortized organizational expenses of the Fund in the same
proportion as the number of said shares the Fund being redeemed bears to the
number of initial shares of the Fund of that fund that are outstanding at
the time of redemption.
OTHER--Expenses that are directly related to the Fund are charged directly
to the Fund.
3. PURCHASES AND SALES OF SECURITIES:
Cost of purchases and proceeds from sales of portfolio securities, excluding
short-term securities, were $10,641,932 and $7,699,736, respectively, for
the six months ended June 30, 2000.
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Fund by BB&T. Under the
terms of the investment advisory agreement, BB&T is entitled to receive fees
based on a percentage of the average daily net assets of the Fund.
BISYS Fund Services Ohio, Inc. d/b/a BISYS Fund Services ("BISYS Ohio"),
with whom certain officers and trustees of the Trust are affiliated, serves
the Trust as Administrator. Such officers and trustees are paid no fees
directly by the Trust for serving as officers and trustees of the Trust.
Under the terms of the Management and Administration Agreement between BISYS
Ohio and the Trust, BISYS Ohio's fees are computed daily as a percentage of
the average net assets of the Fund. BISYS Fund Services Limited Partnership
("BISYS") serves, without compensation, as Distributor of the Fund. BISYS
Fund Services Ohio, Inc. ("BISYS Ohio") also serves the Fund as Transfer
Agent and Mutual fund accountant. BISYS LP, an Ohio Limited Partnership and
BISYS Ohio are subsidiaries of The BISYS Group, Inc.
Shares of the Trust are subject to a Variable Contract Owner Servicing Plan
(the "Servicing Plan") permitting payment of the compensation to financial
institutions that agree to provide certain administrative support services
for their customers or account holders. The Fund has entered into a specific
arrangement with BISYS for the provision of such services and reimburses
BISYS for its cost of providing these services, subject to a maximum annual
rate equal to 0.25% of the average daily net assets of the Fund.
Fees may be voluntarily reduced or reimbursed to assist the Fund in
maintaining competitive expense ratios. Information regarding these
transactions is as follows for the six months ended June 30, 2000:
<TABLE>
<S> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of average
net assets)....................... 0.74%
Voluntary fee reductions............ $37,019
ADMINISTRATION FEES:
Annual fee before voluntary fee
reductions (percentage of average
net assets)....................... 0.20%
Voluntary fee reductions............ $37,352
</TABLE>
MF-103
<PAGE>
VARIABLE INSURANCE FUNDS
--------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEAR FOR THE YEAR JUNE 3, 1997
ENDED ENDED ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998 1997(A)
-------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET ASSETS VALUE, BEGINNING OF PERIOD....................... $ 12.46 $ 13.30 $ 11.88 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.27 0.18 0.16 0.10
Net realized and unrealized gain.......................... (0.27) (0.69) 1.42 1.89
------- ------- ------- -------
Total investment activities............................... -- (0.51) 1.58 1.99
------- ------- ------- -------
DISTRIBUTIONS:
Net investment income..................................... (0.22) (0.15) (0.16) (0.10)
In excess of net investment income........................ -- -- -- (0.01)
Net realized gains........................................ -- (0.18) -- --
------- ------- ------- -------
Total distributions....................................... (0.22) (0.33) (0.16) (0.11)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD............................ $ 12.24 $ 12.46 $ 13.30 $ 11.88
======= ======= ======= =======
Total Return.............................................. 0.04%(b) (3.85)% 13.36% 19.96%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, at end of period (000)........................ $53,944 $52,525 $49,062 $28,829
Ratio of expenses to average net assets................... 0.86%(c) 0.87% 0.91% 0.91%(c)
Ratio of net investment income to average net assets...... 4.89%(c) 1.43% 1.37% 1.68%(c)
Ratio of expenses to average net assets*.................. 1.14%(c) 1.16% 1.24% 2.31%(c)
Ratio of net investment income to average net assets*..... 4.61%(c) 1.14% 1.04% 0.28%(c)
Portfolio turnover rate................................... 14.95% 11.98% 2.77% 7.75%
------------------------
</TABLE>
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
* During the period certain fees were reimbursed and voluntarily reduced. If
such reimbursements and voluntary fee reductions had not occurred, the ratios
would have been as indicated.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MF-104
<PAGE>
HUNTINGTON VA INCOME EQUITY FUND
--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (000)
--------------------- --------
<C> <S> <C>
COMMON STOCK -- 78.2%
AUTO/TRUCK PARTS & EQUIPMENT -- 7.6%
3,500 Dana........................................... $ 74
1,700 Ford Motor..................................... 73
3,000 Genuine Parts.................................. 60
223 Visteon*....................................... 3
------
210
------
BANKS -- 13.4%
1,800 Bank One....................................... 48
1,625 Chase Manhattan................................ 75
2,900 First Union.................................... 72
1,800 Fleet Boston Financial......................... 61
3,450 National City.................................. 59
2,000 Washington Mutual.............................. 58
------
373
------
BEAUTY PRODUCTS -- 1.5%
1,400 International Flavors & Fragrances............. 42
------
CHEMICALS -- 3.0%
950 E.I. duPont de Nemours......................... 42
4,700 M.A. Hanna..................................... 42
------
84
------
DRUGS & HEALTH CARE -- 8.9%
1,700 Abbott Laboratories............................ 76
1,900 American Home Products......................... 112
1,050 Bristol-Myers Squibb........................... 61
------
249
------
ELECTRICAL UTILITIES -- 4.9%
2,750 Ipalco Enterprises............................. 55
900 LG&E Energy.................................... 21
3,200 NiSource....................................... 60
------
136
------
FOOD & BEVERAGE -- 6.5%
4,500 Conagra........................................ 86
4,800 Flowers Industries............................. 96
------
182
------
GAS & NATURAL GAS -- 1.4%
1,200 Peoples Energy................................. 39
------
HOUSEHOLD PRODUCTS -- 5.1%
1,550 Clorox......................................... 69
1,350 General Electric............................... 72
------
141
------
MACHINERY -- 1.9%
1,550 Caterpillar.................................... 52
------
MISCELLANEOUS BUSINESS SERVICES -- 0.9%
1,000 Deluxe......................................... 24
------
PETROLEUM REFINING -- 7.9%
1,200 Conoco......................................... 29
800 Exxon Mobil.................................... 63
1,000 Royal Dutch Petroleum, ADR..................... 62
1,250 Texaco......................................... 67
------
221
------
<CAPTION>
MARKET
VALUE
SHARES (000)
--------------------- --------
<C> <S> <C>
COMMON STOCK -- (CONTINUED)
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 1.5%
2,050 Xerox.......................................... $ 42
------
REAL ESTATE INVESTMENT TRUSTS -- 4.6%
1,350 Mack-Cali Realty............................... 35
5,800 Nationwide Health Properties................... 81
600 Simon Property Group........................... 13
------
129
------
STEEL & STEEL WORKS -- 3.0%
7,950 Worthington Industries......................... 83
------
TELEPHONE & TELECOMMUNICATION -- 6.1%
600 Alltel......................................... 37
850 Bell Atlantic.................................. 43
1,950 Cable & Wireless, ADR.......................... 42
550 GTE............................................ 34
300 SBC Communications............................. 13
------
169
------
Total Common Stock (Cost $2,276)............... $2,176
======
<CAPTION>
PAR
(000)
---------------------
<C> <S> <C>
CORPORATE BONDS -- 7.1%
$ 50 Bank One
8.000% due 04/29/2027.......................... $ 48
50 Deere
8.100% due 05/15/2030.......................... 50
50 New Jersey Bell
7.850% due 11/13/2029.......................... 49
50 Province of Quebec
7.500% due 09/15/2029.......................... 49
------
Total Corporate Bonds (Cost $199).............. $ 196
======
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 7.2%
100 FNMA
6.400% due 07/05/2000.......................... $ 100
100 FNMA
6.400% due 07/11/2000.......................... 100
------
Total U.S. Government Agency Obligations
(Cost $200).................................... $ 200
======
U.S. TREASURY OBLIGATION -- 4.3%
120 U.S. Treasury Bonds
6.125% due 08/15/2029.......................... $ 121
------
Total U.S. Treasury Obligation (Cost $120)..... $ 121
======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS
Total Common Stock (Cost $2,276).................. 78.2% $2,176
Total Corporate Bonds (Cost $199)................. 7.1 196
Total U.S. Government Agency
Obligations (Cost $200).......................... 7.2 200
Total U.S. Treasury Obligation (Cost $120)........ 4.3 121
----- ------
Total investments in securities (total cost
$2,795).......................................... 96.8 2,693
Cash, receivable and other assets net of
liabilities...................................... 3.2 89
----- ------
Net assets........................................ 100% $2,782
===== ======
</TABLE>
* Non-income producing securities.
ADR - American Depository Receipt
FNMA - Federal National Mortgage Association
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MF-105
<PAGE>
HUNTINGTON VA INCOME EQUITY FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000 (UNAUDITED)
(ALL NUMBERS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (total cost $2,795) --
see accompanying portfolio............................... $2,693
Receivable for Fund shares sold........................... 6
Receivable for dividends and interest..................... 12
Receivable from Adviser (see note 3)...................... 36
Cash and other assets..................................... 66
------
Total assets.......................................... 2,813
------
LIABILITIES:
Accrued expenses payable.................................. 31
------
Total liabilities..................................... 31
------
Net Assets............................................ $2,782
======
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.001 per share; unlimited
shares authorized; 292,681 shares outstanding......... $2,880
Undistributed net investment income................... 4
Unrealized depreciation of investments................ (102)
------
Net assets............................................ $2,782
======
</TABLE>
<TABLE>
<S> <C>
Net asset value, offering and redemption price per share.... $9.51
=====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MF-106
<PAGE>
HUNTINGTON VA INCOME EQUITY FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000 (UNAUDITED)
(ALL NUMBERS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ 36
Interest.................................................. 13
-----
Total investment income................................. 49
-----
EXPENSES:
Investment advisory fees.................................. 7
Administrative services fees.............................. 2
Transfer agent fees....................................... 3
Professional fees......................................... 18
Directors fees............................................ 6
Printing fees............................................. 14
Other expenses............................................ 2
-----
Total expenses............................................ 52
Less: investment advisory fees waived..................... (7)
Reimbursement from Adviser................................ (36)
-----
Net expenses............................................ 9
-----
Net investment income..................................... 40
-----
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized and unrealized (loss) on investments......... (86)
-----
Net decrease in net assets resulting from operations...... $ (46)
=====
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(ALL NUMBERS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED
JUNE 30, 2000 FOR THE PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1999*
----------------- --------------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 40 $ 9
Net unrealized depreciation of investments................ (86) (16)
------ -------
Net decrease in net assets resulting from operations...... (46) (7)
------ -------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................ (36) (9)
Return of capital......................................... -- (6)
------ -------
Total Distributions....................................... (36) (15)
------ -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............................... 663 2,228
Reinvestment of distributions............................. 35 15
Cost of share redeemed.................................... (55) --
------ -------
Net increase from capital share transactions............ 643 2,243
------ -------
Net increase in net assets................................ 561 2,221
NET ASSETS:
Beginning of period....................................... 2,221 --
------ -------
End of period............................................. $2,782 $ 2,221
====== =======
SHARES ISSUED AND REDEEMED:
Shares issued............................................. 69 225
Reinvestments of distributions............................ 4 1
Share redeemed............................................ (6) --
------ -------
Total Share Transactions.................................. 67 226
====== =======
</TABLE>
<TABLE>
<C> <S>
* Fund commenced operations on October 20, 1999
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MF-107
<PAGE>
HUNTINGTON VA INCOME EQUITY FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED
JUNE 30, 2000 FOR THE PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1999*
----------------- --------------------
<S> <C> <C>
SELECTED PER-SHARE DATA
Net Asset Value at Beginning of Period.................... $ 9.84 $10.00
------- ------
Net Investment Income..................................... 0.15 0.06
Net Realized and Unrealized Gain (Loss) on Investments.... (0.34) (0.13)
------- ------
Total from Investment Operations.......................... (0.19) (0.07)
------- ------
Dividends from Net Investment Income...................... (0.14) (0.05)
Return of Capital......................................... -- (0.04)
------- ------
Total Distributions....................................... (0.14) (0.09)
------- ------
Net Increase (Decrease) in Net Assets Value............... (0.33) (0.16)
------- ------
Net Asset Value at End of Period.......................... $ 9.51 $ 9.84
------- ------
Total Return(1)........................................... (1.97)% (0.72)%
RATIOS AND SUPPLEMENTAL DATA
Net Assets at End of Period (in thousands)................ $ 2,782 $2,221
Ratio of Expenses to Average Net Assets After
Waivers(2)............................................... 0.77% 0.77%
Ratio of Expenses to Average Net Assets Before
Waivers(2)............................................... 4.49% 10.85%
Ratio of Net Investment Income to Average Net Assets(2)... 3.25% 4.30%
Portfolio Turnover Rate................................... 1% 0%
</TABLE>
<TABLE>
<C> <S>
* Fund commenced operations on October 20, 1999
1. Not Annualized
2. Annualized
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MF-108
<PAGE>
HUNTINGTON VA FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
(1) ORGANIZATION
Huntington VA Funds (the "Trust") are registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. Huntington VA Funds are a series of mutual funds
established exclusively for the purpose of providing an investment vehicle
for variable annuity contracts and variable life insurance policies offered
by the separate accounts of participating Insurance Companies. Currently,
Hartford Life Insurance Company is the only participant. As of
December 31, 1999, the Trust consisted of two diversified portfolios
(individually referred to as a "Fund", or collectively as the "Funds") as
follows:
Huntington VA Income Equity Fund
Huntington VA Growth Fund*
*Fund has yet to commence operations as of June 30, 2000
The assets of each Fund are segregated, and a shareholder's interest is
limited to the Fund and to the class in which shares are held. Currently,
there is only one class of shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by each Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP"). The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the Statements. The actual results
could differ from those estimates.
INVESTMENT VALUATIONS--Each Fund values its securities in calculating
net asset values as follows. Securities traded on a national
securities exchange or quoted on the NASDAQ National Market System are
valued at their last-reported sale price on the principal exchange or
reported by NASDAQ or, if there is no reported sale, and in the case
of over-the-counter securities not included in the NASDAQ National
Market System, at a bid price estimated by a pricing service using
methodology approved and authorized by the Board of Trustees (an
"Authorized Pricing Service"). Debt securities traded on a national
securities exchange or in the over-the-counter market are valued at
their last-reported sale price, or, if there is no reported sale, at a
bid price estimated by an Authorized Pricing Service. For the other
debt securities, including zero-coupon securities, and foreign
securities, an Authorized Pricing Service will be used.
Short-term investments with remaining maturities of 60 days or less at
the time of purchase may be valued at amortized cost. Investments in
other open-end investment companies are valued at net asset value.
For securities, which cannot be priced by an Authorized Pricing
Service, the Board of Trustees has authorized the Trust's recordkeeper
to seek a good faith fair value determination from a broker-dealer or
other financial intermediary. In certain circumstances, in accordance
with the Trust's Security Valuation Policy, the record-keeper may seek
a good faith value determination where an Authorized Pricing Service
has provided a price. The Trust's Security Valuation Policy has also
established a Pricing Committee, which will price a security in the
event that no price can be obtained from an Authorized Pricing
Service, a broker-dealer or other financial intermediary.
REPURCHASE AGREEMENTS--It is the policy of the Funds to require the
custodian to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian banks' vault, all securities held as collateral under
repurchase agreement transactions. Additionally, it is the policy of
the Trust to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of
collateral at least equals the repurchase price to be paid under the
repurchase agreement transaction.
The Funds will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which
are deemed by the Funds' adviser to be creditworthy pursuant to the
guidelines established by the Trustees. Risks may arise from the
potential inability of counterparties to honor the terms of these
agreements. Accordingly, the Funds could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSE AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and
discount, if applicable, are
MF-109
<PAGE>
HUNTINGTON VA FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000
--------------------------------------------------------------------------------
amortized, as required by the Internal Revenue Code, as amended (the
"Code") which does not differ materially from GAAP.
FEDERAL TAXES--It is the Trust's policy to comply with the provisions
of the Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of their
income. Accordingly, no provisions for federal tax are necessary.
OTHER--Investment transactions are accounted for on the trade date.
Gains or losses realized from the sale of securities are determined by
comparing the identified cost of the security sold with the net sales
proceeds.
(3) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--The Huntington National Bank, the Trust's
investment adviser ("Huntington" or the "Adviser"), receives for its
service an annual investment advisory fee for each of the Funds at an
annual rate of 0.60% of the Fund's average daily net assets. The Adviser
has contractually agreed through April 30, 2001 to waive all or a portion
of its fees and to reimburse expenses in order to limit the total operating
expenses for the VA Income Equity Fund (as a percentage of daily net assets
on an annualized basis) to not more than 0.77%.
ADMINISTRATION AND FUND ACCOUNTING FEES--Huntington also serves as
administrator to the Trust and is entitled to receive an annual fee of
0.11% for administrative services and 0.03% for accounting services of each
Fund's average net assets, paid monthly, for services performed under the
Trust's Administration Agreement. Huntington pays monthly to SEI
Investments Mutual Funds Services ("SIMFS"), under a Sub-Administration
Agreement, an annual fee of 0.08% of each Fund's average net assets for
services performed.
DISTRIBUTION AGREEMENT--SEI Investments Distribution Co. ("SIDCO") acts as
the Trust's distributor pursuant to a Distribution Agreement. SEI
Investments Management Corporation, a wholly owned subsidiary of SEI
Investment Company, is the owner of all beneficial interests in SIMFS.
SIDCO is a wholly owned subsidiary of SEI Investments Company.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND CUSTODIAN FEES--State
Street Bank and Trust Company ("State Street") serves as the Trust's
transfer agent and dividend disbursing agent. The fees payable to State
Street for transfer agent and dividend disbursing services are based on the
size, type and number of accounts and transactions made by shareholders.
Huntington also receives a fee for its services as the custodian of the
Funds' investments and other assets. For the six-month period ended
June 30, 2000, Huntington received fees of $456.
OTHER AFFILIATE RELATIONSHIPS--For the six months ended June 30, 2000,
certain Officers of the Trust were Officers of SIMFS and SIDCO. Such
Officers receive no compensation from the Trust.
(4) INVESTMENT TRANSACTIONS
Purchase and sales of investments, excluding short-term securities for the
six-month period ended June 30, 2000, were as follows (all numbers in
thousands):
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
PURCHASES SALES
--------- --------
<S> <C> <C>
VA Income Equity $1,588 $26
</TABLE>
At June 30, 2000, the total cost of securities and the net realized gains
or losses on securities sold for federal income tax purposes was not
materially different from amounts reported for financial reporting
purposes. Based on cost for federal income tax purposes, the aggregate
gross unrealized gain on securities, the aggregate gross unrealized loss on
securities and the net unrealized gain/(loss) at June 30, 2000 is as
follows (all numbers in thousands):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE NET
UNREALIZED UNREALIZED UNREALIZED
GAIN LOSS LOSS
---------- ---------- ----------
<S> <C> <C> <C>
VA Income Equity $133 $(235) $(102)
</TABLE>
MF-110
<PAGE>
Notes
<PAGE>
EVERGREEN
VARIABLE ANNUITY TRUST
SEMIANNUAL REPORT
JUNE 30, 2000
[LOGO]
EVERGREEN FUNDS-SM-
S I N C E 1932
[LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders .................................................... E-1
EVERGREEN VA CAPITAL GROWTH FUND
Fund at a Glance & Portfolio Manager Interview ..................... E-2
Financial Highlights ............................................... E-5
Schedule of Investments & Financial Statements ...................... E-6
EVERGREEN VA FOUNDATION FUND
Fund at a Glance & Portfolio Manager Interview ..................... E-12
Financial Highlights ............................................... E-15
Schedule of Investments & Financial Statements ...................... E-16
EVERGREEN VA GROWTH FUND
Fund at a Glance & Portfolio Manager Interview ..................... E-25
Financial Highlights ............................................... E-28
Schedule of Investments & Financial Statements ...................... E-29
EVERGREEN VA OMEGA FUND
Fund at a Glance & Portfolio Manager Interview ..................... E-38
Financial Highlights ............................................... E-42
Schedule of Investments & Financial Statements ...................... E-43
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
Fund at a Glance & Portfolio Manager Interview ..................... E-50
Financial Highlights ............................................... E-54
Schedule of Investments & Financial Statements ...................... E-55
EVERGREEN VA SPECIAL EQUITY FUND
Fund at a Glance & Portfolio Manager Interview ..................... E-67
Financial Highlights ............................................... E-70
Schedule of Investments & Financial Statements ...................... E-71
COMBINED NOTES TO SCHEDULES OF INVESTMENTS ................................ E-81
COMBINED NOTES TO FINANCIAL STATEMENTS .................................... E-82
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
----------------------
AUGUST 2000
[PHOTO]
William M. Ennis
President and CEO
Dear Evergreen Shareholders,
We are pleased to provide the Evergreen Variable Annuity Trust semiannual
report, which covers the six-month period ended June 30, 2000.
INTEREST RATE UNCERTAINTY INFLUENCES THE MARKETS
During the past six months, the U.S. markets have experienced significant ups
and down. Technology, communications and biotechnology stocks reigned supreme
during the first half of the period only to undergo a volatile environment
during the latter half of the period. While these sectors experienced sharp
corrections late in the period, they remain favored sectors.
During the six-month period the Federal Reserve Board raised short-term interest
rates three times. One key question for investors is whether the Federal Reserve
Board will be able to negotiate a so-called "soft landing" by increasing
interest rates just enough to cool inflation and promote moderate economic
growth or whether there will be a more destructive outcome, with a recession and
bear market. We continue to lean toward the optimistic view. A pickup in
productivity is what typically allows the U.S. economy to expand without
inflation, accompanied with strong corporate earnings and rising real wages.
Because technology spending remains so strong, we believe that U.S. productivity
will continue to grow rapidly.
Despite the recent volatility and the potential effects of interest rate
increases in the U.S., we believe investors remain generally positive about the
markets and their long-term potential. At Evergreen, we believe these economies
are still fundamentally strong and remain cautiously optimistic about continued
growth in the markets.
WEBSITE ENHANCEMENTS
Please visit our enhanced website, evergreen-funds.com, for more information
about Evergreen Funds. The site offers an array of helpful information including
an investment education center, interactive calculators to assist your
investment planning and general information about Evergreen Funds.
We believe that sound investing is about taking steps to meet your long-term
financial needs and goals. We remind you to take advantage of your financial
advisor's expertise to develop and refine a financial plan that will enable you
to meet your objectives. Evergreen Funds offers a broad mix of stock, bond and
money market funds that should assist you in choosing the most appropriate for
your portfolio.
Thank you for your continued investment in Evergreen Funds.
Sincerely,
/s/ William M. Ennis
--------------------------------------
William M. Ennis
President and CEO
Evergreen Investment Company, Inc.
E-1
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA CAPITAL GROWTH FUND
FUND AT A GLANCE AS OF JUNE 30, 2000
"WE EMPLOYED THE FUND'S ONGOING STRATEGY OF INVESTING IN LARGE, FUNDAMENTALLY
STABLE COMPANIES WITH REASONABLE STOCK VALUATIONS, AND IT HELD UP WELL."
PORTFOLIO MANAGEMENT
-----------------------------------------
[PHOTO] [PHOTO]
JOHN DAVENPORT, RICHARD
CFA SKEPPSTROM
TENURE: MARCH 1998 TENURE: MARCH 1998
[PHOTO] [PHOTO]
STEVE CERTO CRAIG DAUER
TENURE: MARCH 1998 TENURE: MARCH 1998
[PHOTO]
JAY JORDAN,CFA
TENURE: MARCH 1998
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
PERFORMANCE & RETURNS(1)
-------------------------------------------------------------------------------
<S> <C>
PORTFOLIO INCEPTION DATE: 3/3/1998
-------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
-------------------------------------------------------------------------------
6-month 4.30%
-------------------------------------------------------------------------------
1 year 1.50%
-------------------------------------------------------------------------------
Since Portfolio Inception 8.41%
-------------------------------------------------------------------------------
6-month income dividends per share $ 0.01
-------------------------------------------------------------------------------
6-month capital gain distributions per share $ 0.45
-------------------------------------------------------------------------------
</TABLE>
LONG TERM GROWTH
-------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VA CAPITAL GROWTH FUND S&P 500 RUSSELL 1000 VALUE CPI
---------------------- ------- ------------------ ---
<S> <C> <C> <C> <C>
3/98 $10,000 $10,000 $10,000 $10,000
6/00 $12,066 $14,298 $11,298 $10,582
</TABLE>
Comparison of a $10,000 investment in Evergreen VA Capital Growth Fund(1)
versus a similar investment in the Standard & Poor's 500 Index (S&P 500), the
Russell 1000 Value, and the Consumer Price Index (CPI).
The S&P 500 and the RUSSELL 1000 VALUE are unmanaged market indices which do not
include transaction costs associated with buying and selling securities or any
mutual fund expenses. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
(1)Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Performance includes the
reinvestment of income dividends and capital gains distributions.
The Fund's investment objective is non-fundamental and may be changed without
the vote of shareholders.
Foreign investments may contain more risk due to the inherent risks associated
with changing political climates, foreign market instability and foreign
currency fluctuations.
All data is as of June 30, 2000 and subject to change.
E-2
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA CAPITAL GROWTH FUND
PORTFOLIO MANAGER INTERVIEW
HOW DID THE FUND PERFORM?
Evergreen VA Capital Growth Fund returned 4.30% for the six-month period ended
June 30, 2000, surpassing its benchmark, the S&P 500 Index, which returned
-0.42% for the same period. For the same period, the Russell 1000 Value Index
returned -4.23%. We attribute the strong relative performance to the Fund's
conservative investment philosophy, its bias toward quality and lower exposure
to the technology sector particularly during March 2000 through May 2000 when
the technology sector experienced a sharp correction.
<TABLE>
<CAPTION>
PORTFOLIO
CHARACTERISTICS
-------------------
(AS OF 6/30/2000)
<S> <C>
Total Net Assets $29,951,035
----------------------------------------------------------
Number of Holdings 39
----------------------------------------------------------
P/E Ratio 28.0X
----------------------------------------------------------
</TABLE>
WHAT WAS THE INVESTMENT ENVIRONMENT LIKE FOR THE PERIOD?
The stock market was filled with emotion and volatility in the first half of
2000. As the year opened, investor speculation that began in 1999 sent stock
prices soaring and many valuations to unprecedented levels. The ensuing "wealth
effect" of the stock market's rise had fueled both unsustainably strong economic
growth and concerns about future inflation. Interest rates were rising; and
investors believed the Federal Reserve Board--which began pushing interest rates
higher in June 1999--would continue the trend until inflationary pressures were
sufficiently cooled.
The roller coaster ride intensified, mid-way through the Fund's fiscal period.
Concerns that higher interest rates and slower economic growth would dampen
corporate earnings replaced the euphoria that had driven valuations to elevated
levels. Investors began to unwind many speculative trades, causing some stock
prices to plummet. Technology issues, in particular, corrected sharply. As the
period closed, market sentiment had once again reversed course. Signs of slower
economic growth caused investors to be optimistic that the Fed might end its
string of interest rate hikes and adopt a more neutral monetary policy. With new
and growing confidence, the market regained an emotionally charged, highly
speculative nature; and technology stocks--with their continued high
valuations--resumed market leadership.
<TABLE>
<CAPTION>
TOP 5 SECTORS
-------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<S> <C>
Industrials 26.6%
----------------------------------------------------------
Consumer Staples 15.2%
----------------------------------------------------------
Health Care 13.9%
----------------------------------------------------------
Financials 13.1%
----------------------------------------------------------
Information Technology 10.8%
----------------------------------------------------------
</TABLE>
HOW DID THIS ENVIRONMENT AFFECT THE FUND'S INVESTMENT STRATEGIES?
We employed the Fund's ongoing strategy of investing in large, fundamentally
stable companies with reasonable stock valuations, and it held up well. Several
companies, in particular, turned in impressive performances. Tyco International,
the Fund's largest position, climbed 22% during the period. The stock rebounded
from a slump in the fourth quarter of 1999, which stemmed from an acquisition
accounting
E-3
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA CAPITAL GROWTH FUND
PORTFOLIO MANAGER INTERVIEW
controversy. Tyco, itself, requested that the Securities and Exchange Commission
(SEC) look into the matter, and the SEC cleared the company of using any
marginal practices. Another holding, Intel Corporation, rose 62% since the
beginning of the year. Intel, which was the Fund's only significant position in
the so-called high-flying stocks, was one of the market's best-performing larger
technology stocks. Further, it carried a reasonable valuation. When other
technology stocks were trading at 100 times earnings, Intel was valued at
approximately 30 times earnings.
We believed it was a high quality company with strong growth prospects. The
health care sector also contributed to the Fund's performance. On the
flipside, the Fund was slightly over-weighted in the financial sector, which
detracted from performance. Other holdings, such as Masco Corporation and
Illinois Tool Works, also limited returns.
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
---------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<S> <C>
Tyco International Ltd. 5.3%
----------------------------------------------------
First Data Corp. 4.5%
----------------------------------------------------
SYSCO Corp. 4.5%
----------------------------------------------------
Automatic Data Processing, Inc. 4.3%
----------------------------------------------------
Philip Morris Co., Inc. 4.2%
----------------------------------------------------
Intel Corp. 4.2%
----------------------------------------------------
Tenet Healthcare Corp. 4.1%
----------------------------------------------------
WorldCom, Inc. 3.6%
----------------------------------------------------
Kimberly-Clarke Corp. 3.3%
----------------------------------------------------
Sherwin Williams Co. 3.2%
----------------------------------------------------
</TABLE>
WHAT IS YOUR OUTLOOK?
We think the environment will be similar to that of the last six months, a lot
of volatility with little net change. In our opinion, the Federal Reserve Board
is in a "catch-22" position. Clearly, the economy's growth is directly tied to
the level of the stock market. We expect stocks to move higher again when
investors are convinced the Federal Reserve Board is done raising rates.
However, if stocks surge, the Federal Reserve Board will be forced to tighten
policy further, which could bring prices down.
Also, investors are anticipating the annual earnings of S&P 500 companies to
continue to grow in the 15% to 20% range like they have during the past several
quarters. Expectations are exceptionally high for technology companies. We think
these expectations are too aggressive and believe earnings could come in lower,
especially if the economy slows. That leaves considerable downside risk for some
stocks, since many valuations still range from 80 to 100 times earnings. In our
opinion, the situation underscores the importance of selecting companies with
sound financial fundamentals and reasonable valuations--we think the Fund's more
conservative investment strategy will continue to serve its investors well.
E-4
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 2000 -------------------------------
(Unaudited) (a) 1999 (a) 1998 (a)(b)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.42 $13.58 $12.50
====== ====== ======
-------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------------------------------------------------------------------------
Net investment income 0.05 0.01 0.03
-------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on securities 0.55 0.87 1.05
------ ------
-------------------------------------------------------------------------------------------------------
Total from investment operations 0.60 0.88 1.08
------ ------ ------
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
-------------------------------------------------------------------------------------------------------
Net investment income (0.01) (0.02) 0
-------------------------------------------------------------------------------------------------------
Net realized gains (0.45) (0.02) 0
------ ------ ------
-------------------------------------------------------------------------------------------------------
Total distributions (0.46) (0.04) 0
------ ------ ------
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.56 $14.42 $13.58
====== ====== ======
-------------------------------------------------------------------------------------------------------
TOTAL RETURN* 4.30% 6.50% 8.64%
-------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------
Net assets, end of period (thousands) $29,951 $28,377 $20,142
-------------------------------------------------------------------------------------------------------
Ratios to average net assets
Expenses** 1.00%+ 1.18% 1.05%+
-------------------------------------------------------------------------------------------------------
Net investment income 0.73%+ 0.06% 0.50%+
-------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 87% 54%
-------------------------------------------------------------------------------------------------------
</TABLE>
(a) Effective February 1, 2000, shareholders of Mentor VIP Capital Growth
Portfolio became owners of that number of full and fractional shares of
Evergreen VA Capital Growth Fund. As Mentor VIP Capital Growth Portfolio
contributed the majority of assets and shareholders to the Evergreen VA
Capital Growth Fund, its accounting and performance history is carried
forward.
(b) For the period from March 3, 1998 (commencement of operations) to
December 31, 1998.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets
includes fee waivers and excludes expense reductions.
+ Annualized.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-5
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA CAPITAL GROWTH FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS - 94.5%
CONSUMER DISCRETIONARY - 6.8%
HOUSEHOLD DURABLES - 2.9%
<S> <C> <C>
Newell Rubbermaid, Inc.................................. 34,000 $875,500
------------
MEDIA - 3.0%
Interpublic Group of Companies, Inc..................... 20,820 895,260
------------
MULTI-LINE RETAIL - 0.9%
May Department Stores Co................................ 10,900 261,600
------------
CONSUMER STAPLES - 15.2%
FOOD & DRUG RETAILING - 7.7%
Albertsons, Inc......................................... 17,430 579,547
Kroger Co. * ........................................... 17,000 375,063
SYSCO Corp.............................................. 31,790 1,339,154
------------
2,293,764
------------
PERSONAL PRODUCTS - 3.3%
Kimberly-Clark Corp..................................... 17,200 986,850
------------
TOBACCO - 4.2%
Philip Morris Cos., Inc................................. 47,350 1,257,734
------------
FINANCIALS - 13.1%
BANKS - 7.3%
SouthTrust Corp......................................... 23,250 526,031
Wachovia Corp........................................... 6,600 358,050
Washington Mutual, Inc.................................. 21,948 633,749
Wells Fargo Co.......................................... 17,680 685,100
------------
2,202,930
------------
DIVERSIFIED FINANCIALS - 5.8%
American Express Co..................................... 17,610 917,921
Federal Home Loan Mortgage Assn......................... 7,000 283,500
Federal National Mortgage Assn.......................... 10,110 527,616
------------
1,729,037
------------
HEALTH CARE - 13.9%
HEALTH CARE EQUIPMENT & SUPPLIES - 2.0%
Baxter International, Inc............................... 4,500 316,406
Boston Scientific Corp. * ............................. 13,200 289,575
------------
605,981
------------
HEALTH CARE PROVIDERS & SERVICES - 4.1%
Tenet Healthcare Corp. * ............................. 45,410 1,226,070
------------
PHARMACEUTICALS - 7.8%
American Home Products Corp............................. 7,900 464,125
Bristol-Myers Squibb Co. ............................. 8,500 495,125
Johnson & Johnson ...................................... 6,130 624,494
</TABLE>
E-6
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA CAPITAL GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS - CONTINUED
HEALTH CARE - CONTINUED
PHARMACEUTICALS - CONTINUED
<S> <C> <C>
Pfizer, Inc........................................................................... 7,600 $ 364,800
Schering-Plough Corp.................................................................. 7,500 378,750
------------
2,327,294
------------
INDUSTRIALS - 26.6%
AEROSPACE & DEFENSE - 1.8%
United Technologies Corp.............................................................. 9,000 529,875
------------
BUILDING PRODUCTS - 1.9%
Masco Corp............................................................................ 30,900 558,131
------------
COMMERCIAL SERVICES & SUPPLIES - 11.9%
Automatic Data Processing, Inc........................................................ 24,100 1,290,856
Computer Sciences Corp. * ............................................................ 12,320 920,150
First Data Corp....................................................................... 27,250 1,352,281
------------
3,563,287
------------
INDUSTRIAL CONGLOMERATES - 7.8%
Danaher Corp.......................................................................... 15,400 761,338
Tyco International, Ltd............................................................... 33,480 1,586,115
------------
2,347,453
------------
MACHINERY - 3.1%
Illinois Tool Works, Inc.............................................................. 16,530 942,210
------------
ROAD & RAIL - 0.1%
Werner Enterprises, Inc............................................................... 2,950 34,109
------------
INFORMATION TECHNOLOGY - 10.8%
COMPUTERS & PERIPHERALS - 2.6%
International Business Machines Corp.................................................. 7,100 777,894
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.2%
Solectron Corp. * .................................................................... 9,000 376,875
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 4.2%
Intel Corp............................................................................ 9,350 1,249,978
------------
SOFTWARE - 2.8%
Computer Associates International, Inc................................................ 16,250 831,797
------------
MATERIALS - 3.2%
CHEMICALS - 3.2%
Sherwin Williams Co................................................................... 45,400 961,912
------------
TELECOMMUNICATION SERVICES - 3.6%
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.6%
WorldCom, Inc......................................................................... 23,635 1,084,256
------------
</TABLE>
E-7
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA CAPITAL GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS - CONTINUED
UTILITIES - 1.3%
ELECTRIC UTILITIES - 1.3%
<S> <C> <C>
Duke Energy Corp................................................................ 6,850 $ 386,169
------------
TOTAL COMMON STOCKS (COST $25,182,600) .................................. 28,305,966
------------
SHORT-TERM INVESTMENTS - 3.6%
MUTUAL FUND SHARES - 3.6%
Evergreen Select Money Market Fund
(Cost $1,068,806) 0 .......................................................... 1,068,806 1,068,806
------------
TOTAL INVESTMENTS - (COST $26,251,406) - 98.1% ..................................... 29,374,772
OTHER ASSETS AND LIABILITIES - 1.9% ................................................ 576,263
------------
NET ASSETS - 100.0% ................................................................ $29,951,035
------------
</TABLE>
E-8
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA CAPITAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
ASSETS
Identified cost of securities ................................ $26,251,406
Net unrealized gains on securities ........................... 3,123,366
--------------------------------------------------------------------------------
Market value of securities ................................... 29,374,772
Receivable for securities sold................................ 575,593
Dividends and interest receivable ............................ 49,435
Deferred organization expenses ............................... 8,958
Receivable from investment advisor ........................... 21,821
Prepaid expenses and other assets ............................ 8,957
--------------------------------------------------------------------------------
Total assets................................................ 30,039,536
--------------------------------------------------------------------------------
LIABILITIES
Due to custodian bank ........................................ 78,310
Due to other related parties ................................. 246
Accrued expenses and other liabilities........................ 9,945
--------------------------------------------------------------------------------
Total liabilities .......................................... 88,501
--------------------------------------------------------------------------------
NET ASSETS ..................................................... $29,951,035
================================================================================
NET ASSETS REPRESENTED BY
Paid-in capital .............................................. $26,390,875
Undistributed net investment income .......................... 103,225
Accumulated net realized gains on securities ................. 333,569
Net unrealized gains on securities ........................... 3,123,366
--------------------------------------------------------------------------------
TOTAL NET ASSETS ............................................... $29,951,035
================================================================================
SHARES OUTSTANDING ............................................. 2,057,615
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ...................................... $ 14.56
================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-9
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA CAPITAL GROWTH FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends .................................................... $ 205,411
Interest ..................................................... 40,288
--------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME ........................................ 245,699
--------------------------------------------------------------------------------
EXPENSES
Advisory fee ................................................. 113,340
Administrative services fees ................................. 14,168
Transfer agent fee ........................................... 235
Trustees' fees and expenses .................................. 338
Printing and postage expenses ................................ 13,593
Custodian fee ................................................ 4,377
Professional fees ............................................ 5,515
Organization expenses ........................................ 1,761
Other ........................................................ 9,724
--------------------------------------------------------------------------------
Total expenses ............................................. 163,051
Less: Expense reductions ................................... (663)
Fee waivers............................................... (20,914)
--------------------------------------------------------------------------------
Net expenses ............................................... 141,474
--------------------------------------------------------------------------------
NET INVESTMENT INCOME ........................................ 104,225
================================================================================
NET REALIZED AND UNREALIZED GAINS ON SECURITIES
Net realized gains on securities ............................. 584,345
--------------------------------------------------------------------------------
Net change in unrealized gains on securities ................. 506,701
--------------------------------------------------------------------------------
Net realized and unrealized gains on securities .............. 1,091,046
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $1,195,271
================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-10
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA CAPITAL GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income ...................................................... $ 104,225 $ 13,671
Net realized gains on securities ........................................... 584,345 680,856
Net change in unrealized gains on securities ............................... 506,701 835,607
-----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ....................... 1,195,271 1,530,134
-----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income ...................................................... (13,710) (35,194)
Net realized gains ......................................................... (879,433) (40,752)
-----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ...................................... (893,143) (75,946)
-----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold................................................... 2,817,573 10,355,763
Payment for shares redeemed ................................................ (2,438,459) (3,651,247)
Net asset value of shares issued in reinvestment of distributions .......... 893,143 75,941
-----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from capital share transactions ..... 1,272,257 6,780,457
-----------------------------------------------------------------------------------------------------------------------
Total increase in net assets........................................... 1,574,385 8,234,645
NET ASSETS
Beginning of period ........................................................ 28,376,650 20,142,005
-----------------------------------------------------------------------------------------------------------------------
END OF PERIOD ................................................................ $29,951,035 $28,376,650
=======================================================================================================================
Undistributed net investment income .......................................... $ 103,225 $ 12,710
=======================================================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-11
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
FUND AT A GLANCE AS OF JUNE 30, 2000
"IN OUR STOCK-SELECTION PROCESS, WE LOOK FOR
MARKET SECTORS WHERE EARNINGS AND REVENUE GROWTH
RATES ARE IMPROVING."
PORTFOLIO
MANAGEMENT
---------------------------
[PHOTO]
JEAN C. LEDFORD,CFA
TENURE: AUGUST 1999
[PHOTO]
RICHARD S. WELSH,CFA
TENURE: AUGUST 1999
(1) Past performance is no guarantee of future results. The investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Performance
includes the reinvestment of income dividends and capital gains distributions.
The Fund's investment objective is non-fundamental and may be changed without
the vote of shareholders.
U.S. government guarantee apply only to the underlying securities of the
Fund's portfolio and not to the Fund's shares.
Foreign investments may contain more risk due to the inherent risks associated
with changing political climates, foreign market instability and foreign
currency fluctuations. Risks of international investing are magnified in
emerging or developing markets.
All data is as of June 30, 2000 and subject to change.
---------------------------------------------------------
PERFORMANCE & RETURNS(1)
---------------------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO INCEPTION DATE: 3/1/1996
---------------------------------------------------------
AVERAGE ANNUAL RETURNS
---------------------------------------------------------
6-month -0.99%
---------------------------------------------------------
1 year 4.08%
---------------------------------------------------------
Since Portfolio Inception 14.32%
---------------------------------------------------------
6-month capital gain distributions per share $0.09
---------------------------------------------------------
</TABLE>
---------------------------------------------------------
LONG TERM GROWTH
---------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VA FOUNDATION FUND LBGCBI S&P 500 CPI
------------------ ------ ------- -----
<S> <C> <C> <C> <C>
3/96 $10,000 $10,000 $10,000 $10,000
6/00 $17,855 $12,796 $24,351 $11,060
</TABLE>
Comparison of a $10,000 investment in Evergreen VA Foundation Fund(1) versus
a similar investment in the Standard & Poor's 500 Index (S&P 500), the Lehman
Brothers Government/Corporate Bond Index (LBGCBI) and the Consumer Price
Index (CPI).
The S&P 500 and the LBGCBI are unmanaged market indices which do not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
E-12
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
PORTFOLIO MANAGER INTERVIEW
HOW DID THE FUND PERFORM?
Evergreen Foundation Fund had a total return of -0.99% for the six-month period
ended June 30, 2000. For the same period, the S&P 500, returned -0.42% and the
Lehman Brothers Government/Corporate Bond Index returned 4.18%.
PORTFOLIO
CHARACTERISTICS
---------------
(AS OF 6/30/2000)
<TABLE>
<S> <C>
Total Net Assets $176,320,583
-------------------------------------
Number of Holdings 125
-------------------------------------
P/E Ratio 39.0x
-------------------------------------
</TABLE>
WHAT WERE THE FACTORS THAT MOST INFLUENCED
PERFORMANCE?
In the equity portion of the portfolio, holdings in technology, health care and
energy were the largest positive contributors. In technology, where we had a
slight over-weighting relative to the S&P 500, we continued to take advantage of
increased spending on infrastructure development. Many of our larger technology
holdings are global leaders in these areas, and were major contributors to
performance.
The Fund's equity weighting in health care was about even with that of the
benchmark S&P 500. Our health care investments did very well. One of our top
contributors was Pfizer, the result of the merger of two powerful
pharmaceutical companies, Warner Lambert and Pfizer. This combined company is
benefiting both from strong revenue and earnings growth from an excellent
flow of new products into the market. The Fund's health care weighting at the
end of the fiscal period totaled 9.0% of net assets. We substantially
increased our investments in energy during the six-month period, and these
holdings were strong contributors to performance. This sector benefited from
increasing economic growth rates throughout the world and rising oil prices.
Our investments in oil service companies such as Schlumberger, Halliburton
and Baker Hughes all performed well, as did Exxon Mobil, the world's largest
integrated energy company and a top holding of the Fund throughout the
period. During the six-month period, our emphasis on energy went from an
under-weighted position to a significant overweighted position relative to
the S&P 500. On June 30, 2000 energy accounted for 6.8% of total net assets.
Lastly, the fixed income portion of the portfolio tended to increase the
stability of the overall fund, as we concentrated on those areas of the
market where we could find relatively attractive yields without taking undue
price risk.
TOP 5 SECTORS
--------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<TABLE>
<S> <C>
Information Services & Technology 19.3%
---------------------------------------------
Health Care 9.0%
---------------------------------------------
Consumer Discretionary 7.7%
---------------------------------------------
Industrials 6.9%
---------------------------------------------
Energy 6.8%
---------------------------------------------
</TABLE>
WHAT WERE YOUR PRINCIPAL STRATEGIES DURING THE SIX-MONTH PERIOD?
We remained consistent in our asset allocation, with between 70% and 75% of
assets in equities and between 25% and 30% of Fund assets in fixed income.
Within the fixed income portion of the portfolio, we concentrated on the high
quality portion of the spectrum, emphasizing Treasury securities and
AAA-rated corporate bonds from blue chip, industry leaders. In a period of
volatility in the fixed income markets,
E-13
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
PORTFOLIO MANAGER INTERVIEW
we tended to invest in bonds where attractive yields compensated for price
fluctuations, such as 10-year Treasuries. Duration, or the portfolio's
sensitivity to changes in interest rates, remained fairly consistent at about
6 years.
Among the major positions in the equity portfolio, we also remained
consistent, with few changes in our top 10 positions, which tended to be
established, large-cap industry leaders.
In our stock-selection process, we look for market sectors where earnings and
revenue growth rates are improving. We tend to emphasize larger companies
with good earnings records, strong managements, and catalysts--such as new
product introductions or changes in market opportunities--that give them new
growth opportunities. As we entered the period, we were witnessing strong
economic growth in the United States and accelerating growth throughout the
world. This led us to overweight those areas with the greatest growth from
this economic expansion, including technology, energy, capital goods and
basic materials. While we had a positive outlook on all these industries, the
stock market didn't have confidence in the sustainability of the growth rates
in capital goods and basic materials.
In technology, we had our greatest concentrations in global leaders,
particularly infrastructure stocks providing the backbones for the internet,
networking and communications systems. Major holdings that did well included
Nortel Networks, Intel, and Oracle.
TOP 10 HOLDINGS
---------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<TABLE>
<S> <C>
General Electric Co. 3.9%
-------------------------------
Intel Corp. 3.4%
-------------------------------
Cisco Systems, Inc. 2.4%
-------------------------------
Exxon Mobil Corp. 2.1%
-------------------------------
Pfizer, Inc. 2.1%
-------------------------------
Nortel Networks Corp. 1.8%
-------------------------------
Wal-Mart Stores, Inc. 1.7%
-------------------------------
Johnson & Johnson 1.6%
-------------------------------
Sun Microsystems, Inc. 1.3%
-------------------------------
Time Warner, Inc. 1.3%
-------------------------------
</TABLE>
WHAT IS YOUR OUTLOOK?
We intend to remain consistent in our approach to managing this balanced fund.
In the equity portion of the portfolio, we plan to concentrate on large-cap
companies with growth, or the potential for growth, in both revenues and
earnings. In the fixed income portion of the portfolio, we intend to maintain an
emphasis on capital preservation and income through high quality investments.
We expect a continuation of the more recent trends that have favored the
technology, health care and energy industries. Each of these areas has
surpassed even the most optimistic forecasts of a year ago, as they have
shown remarkable resilience in their earnings as the U.S. economy has shown
continued strength and the foreign markets have accelerated in growth.
In the second half of the year, market opportunities will depend upon
corporate profitability and the level of interest rates. We believe we are
experiencing a long-term, secular increase in economic productivity,
corporate profitability and improving returns on financial assets.
Investments in companies with sustainable underlying earnings and revenue
growth should continue to be rewarded.
E-14
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 2000 ---------------------------------------
(Unaudited) 1999 1998 # 1997 # 1996 (a) #
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.70 $ 14.47 $ 13.54 $ 11.31 $ 10.00
======= ======= ====== ====== ======
-----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------------
Net investment income 0.11 0.28 0.35 0.26 0.16
-----------------------------------------------------------------------------------------------
Net realized and unrealized gains or
losses on securities (0.26) 1.27 1.07 2.86 1.37
------- ------- ------ ------ ------
-----------------------------------------------------------------------------------------------
Total from investment operations (0.15) 1.55 1.42 3.12 1.53
------- ------- ------ ------ ------
-----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income 0 (0.28) (0.26) (0.24) (0.16)
-----------------------------------------------------------------------------------------------
Net realized gains (0.09) (0.04) (0.23) (0.65) (0.06)
------- ------- ------ ------ ------
-----------------------------------------------------------------------------------------------
Total distributions (0.09) (0.32) (0.49) (0.89) (0.22)
------- ------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 15.46 $ 15.70 $ 14.47 $ 13.54 $ 11.31
======= ======= ====== ====== ======
-----------------------------------------------------------------------------------------------
TOTAL RETURN* (0.99%) 10.64% 10.56% 27.80% 15.30%
RATIOS AND SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------
Net assets, end of period (thousands) $176,321 $145,566 $78,371 $31,840 $15,812
-----------------------------------------------------------------------------------------------
Ratios to average net assets
-----------------------------------------------------------------------------------------------
Expenses** 0.95%+ 0.95% 1.00% 1.01% 1.00%+
-----------------------------------------------------------------------------------------------
Net investment income 1.57%+ 2.29% 2.44% 2.15% 2.70%+
-----------------------------------------------------------------------------------------------
Portfolio turnover rate 47% 77% 10% 26% 12%
-----------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from March 1, 1996 (commencement of operations) to
December 31, 1996.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-15
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 64.9%
CONSUMER DISCRETIONARY - 7.1%
HOTELS, RESTAURANTS & LEISURE - 0.7%
McDonald's Corp........................................................... 39,420 $1,298,396
----------
MEDIA - 3.9%
Clear Channel Communications, Inc. * ..................................... 8,400 630,000
Disney (Walt) Co.......................................................... 42,200 1,637,887
Echostar Communications Corp., Class A ................................... 11,500 380,758
Seagram Co., Ltd.......................................................... 9,800 568,400
Time Warner, Inc.......................................................... 29,300 2,226,800
Viacom, Inc., Class B..................................................... 22,090 1,506,262
----------
6,950,107
----------
MULTI-LINE RETAIL - 2.1%
Kohl's Corp. * ........................................................... 12,800 712,000
Wal-Mart Stores, Inc...................................................... 50,830 2,929,079
----------
3,641,079
----------
SPECIALTY RETAIL - 0.4%
Home Depot, Inc........................................................... 14,285 713,357
----------
CONSUMER STAPLES - 5.2%
BEVERAGES - 2.0%
Anheuser Busch Cos., Inc.................................................. 15,600 1,165,125
Coca Cola Co.............................................................. 11,300 649,044
Pepsico, Inc.............................................................. 37,140 1,650,408
----------
3,464,577
----------
FOOD & DRUG RETAILING - 1.5%
Albertsons, Inc........................................................... 14,500 482,125
CVS Corp.................................................................. 13,600 544,000
Kroger Co. * ............................................................. 22,800 503,025
Safeway, Inc. * .......................................................... 10,200 460,275
Walgreen Co............................................................... 20,700 666,281
----------
2,655,706
----------
FOOD PRODUCTS - 0.3%
Quaker Oats Co............................................................ 8,300 623,538
----------
PERSONAL PRODUCTS - 1.2%
Avon Products, Inc........................................................ 18,500 823,250
Clorox Co................................................................. 8,600 385,388
Kimberly-Clark Corp....................................................... 11,800 677,025
The Estee Lauder Cos., Inc., Class A ..................................... 5,100 252,131
----------
2,137,794
----------
TOBACCO - 0.2%
Philip Morris Cos., Inc..................................................... 12,300 326,719
----------
</TABLE>
E-16
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
ENERGY - 6.8%
ENERGY EQUIPMENT & SERVICES - 1.5%
Baker Hughes, Inc......................................................... 26,700 $ 854,400
Diamond Offshore Drilling, Inc............................................ 6,200 217,775
Halliburton Co............................................................ 6,200 292,563
Schlumberger, Ltd......................................................... 13,200 985,050
Transocean Sedco Forex, Inc............................................... 6,400 342,000
----------
2,691,788
----------
OIL & GAS - 5.3%
Anadarko Petroleum Corp................................................... 10,000 493,125
Apache Corp............................................................... 6,800 399,925
Burlington Resources, Inc................................................. 15,000 573,750
Chevron Corp.............................................................. 12,580 1,066,941
Conoco, Inc., Class B..................................................... 27,800 682,838
Exxon Mobil Corp.......................................................... 47,941 3,763,368
Royal Dutch Petroleum Co.................................................. 22,300 1,372,844
Texaco, Inc............................................................... 12,200 649,650
Unocal Corp............................................................... 10,600 351,125
----------
9,353,566
----------
FINANCIALS - 5.2%
BANKS - 1.4%
Bank of America Corp...................................................... 22,540 969,220
FleetBoston Financial Corp................................................ 18,900 642,600
PNC Financial Services Group ............................................. 6,500 304,687
State Street Corp......................................................... 2,800 296,975
The Bank of New York Co., Inc............................................. 7,100 330,150
----------
2,543,632
----------
DIVERSIFIED FINANCIALS - 2.1%
American Express Co....................................................... 11,580 603,607
Citigroup, Inc............................................................ 36,300 2,187,075
Federal National Mortgage Assn............................................ 10,500 547,969
Schwab (Charles) & Co., Inc............................................... 8,100 272,363
----------
3,611,014
----------
INSURANCE - 1.7%
Allstate Corp............................................................. 10,100 224,725
American International Group, Inc......................................... 18,850 2,214,875
Chubb Corp................................................................ 4,600 282,900
Progressive Corp.......................................................... 4,000 296,000
----------
3,018,500
----------
HEALTH CARE - 9.0%
BIOTECHNOLOGY - 0.4%
Amgen, Inc. * .............................................................. 10,200 716,550
----------
</TABLE>
E-17
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
HEALTH CARE - CONTINUED
HEALTH CARE EQUIPMENT & SUPPLIES - 1.7%
Baxter International, Inc................................................. 8,400 $ 590,625
Biomet, Inc............................................................... 8,900 342,094
Guidant Corp. * .......................................................... 17,000 841,500
Medtronic, Inc............................................................ 23,830 1,187,032
----------
2,961,251
----------
HEALTH CARE PROVIDERS & SERVICES - 0.5%
HCA-The Healthcare Corp................................................... 16,900 513,337
Tenet Healthcare Corp. * ................................................. 14,000 378,000
----------
891,337
----------
PHARMACEUTICALS - 6.4%
Abbott Laboratories ...................................................... 27,300 1,216,556
American Home Products Corp............................................... 25,600 1,504,000
Bristol-Myers Squibb Co................................................... 10,800 629,100
Johnson & Johnson ........................................................ 26,800 2,730,250
Pfizer, Inc............................................................... 75,450 3,621,600
Pharmacia Corp............................................................ 13,386 691,889
Schering-Plough Corp...................................................... 17,600 888,800
----------
11,282,195
----------
INDUSTRIALS - 6.9%
AEROSPACE & DEFENSE - 0.7%
General Motors Corp., Class H *........................................... 5,800 508,950
United Technologies Corp.................................................. 10,400 612,300
----------
1,121,250
----------
COMMERCIAL SERVICES & SUPPLIES - 0.5%
Automatic Data Processing, Inc............................................ 12,000 642,750
Pitney Bowes, Inc......................................................... 6,500 260,000
----------
902,750
----------
INDUSTRIAL CONGLOMERATES - 5.3%
General Electric Co....................................................... 129,400 6,858,200
Honeywell International, Inc.............................................. 17,650 594,584
Minnesota Mining & Manufacturing Co....................................... 9,000 742,500
Tyco International, Ltd................................................... 23,900 1,132,263
----------
9,327,547
----------
MACHINERY - 0.4%
Illinois Tool Works, Inc.................................................... 6,600 376,200
Ingersoll Rand Co........................................................... 9,300 374,325
----------
750,525
----------
</TABLE>
E-18
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Value
---------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
INFORMATION TECHNOLOGY - 19.2%
COMMUNICATIONS EQUIPMENT - 6.2%
Cisco Systems, Inc.* . . . . . . . . . . . . . . 66,950 $ 4,255,509
Corning, Inc. . . . . . . . . . . . . . . . . . 3,200 863,600
Lucent Technologies, Inc. . . . . . . . . . . . 31,400 1,860,450
Nokia Corp., ADR . . . . . . . . . . . . . . . 17,040 850,935
Nortel Networks Corp. . . . . . . . . . . . . . 46,000 3,139,500
------------
10,969,994
------------
COMPUTERS & PERIPHERALS - 3.9%
EMC Corp.* . . . . . . . . . . . . . . . . . . . 25,000 1,923,437
Hewlett-Packard Co. . . . . . . . . . . . . . . 8,900 1,111,388
International Business Machines Corp. . . . . . 14,000 1,533,875
Sun Microsystems, Inc.* . . . . . . . . . . . . 24,620 2,238,881
------------
6,807,581
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.1%
Agilent Technologies, Inc. . . . . . . . . . . 3,737 275,604
------------
INTERNET SOFTWARE & SERVICES - 0.9%
America Online, Inc.* . . . . . . . . . . . . . 23,340 1,231,185
Yahoo!, Inc.* . . . . . . . . . . . . . . . . . 2,900 359,238
------------
1,590,423
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 5.8%
Applied Materials, Inc.* . . . . . . . . . . . . 11,680 1,058,500
Intel Corp. . . . . . . . . . . . . . . . . . . 44,600 5,962,462
LSI Logic Corp.* . . . . . . . . . . . . . . . . 5,800 313,925
Micron Technology, Inc. . . . . . . . . . . . . 11,300 995,106
Teradyne, Inc. * . . . . . . . . . . . . . . . . 7,200 529,200
Texas Instruments, Inc. . . . . . . . . . . . . 19,800 1,360,013
------------
10,219,206
------------
SOFTWARE - 2.3%
Computer Associates International, Inc. . . . . 7,600 389,025
Microsoft Corp. *. . . . . . . . . . . . . . . . 17,300 1,384,000
Oracle Systems Corp. * . . . . . . . . . . . . . 26,400 2,219,250
------------
3,992,275
------------
MATERIALS - 1.0%
CHEMICALS - 0.8%
Dow Chemical Co. . . . . . . . . . . . . . . . . 9,600 289,800
DuPont (E.I.) De Nemours & Co. . . . . . . . . . 13,790 603,313
PPG Industries, Inc. . . . . . . . . . . . . . . 8,900 394,381
Union Carbide Corp. . . . . . . . . . . . . . . 3,600 178,200
------------
1,465,694
------------
PAPER & FOREST PRODUCTS - 0.2%
Bowater, Inc. . . . . . . . . . . . . . . . . . 5,400 238,275
------------
</TABLE>
E-19
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Value
---------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
TELECOMMUNICATION SERVICES - 3.5%
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.0%
Bell Atlantic Corp. . . . . . . . . . . . . . . 15,500 $ 787,594
GTE Corp. . . . . . . . . . . . . . . . . . . . 12,400 771,900
SBC Communications, Inc. . . . . . . . . . . . . 16,800 726,600
Sprint Corp. . . . . . . . . . . . . . . . . . . 30,000 1,530,000
U.S. West, Inc. . . . . . . . . . . . . . . . . 6,900 591,675
WorldCom, Inc. . . . . . . . . . . . . . . . . . 16,600 761,525
------------
5,169,294
------------
WIRELESS TELECOMMUNICATIONS SERVICES - 0.5%
Nextel Communications, Inc., Class A* . . . . . 6,800 416,075
Sprint Corp. (PCS Group), Ser. 1* . . . . . . . 8,600 511,700
------------
927,775
------------
UTILITIES - 1.0%
ELECTRIC UTILITIES - 0.4%
Duke Energy Corp. . . . . . . . . . . . . . . . 4,400 248,050
Southern Co. . . . . . . . . . . . . . . . . . . 21,300 496,556
------------
744,606
------------
GAS UTILITIES - 0.6%
Enron Corp. . . . . . . . . . . . . . . . . . . 14,800 954,600
------------
TOTAL COMMON STOCKS (COST $98,490,592). . . . 114,338,505
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS - 0.7%
CONSUMER DISCRETIONARY - 0.6%
MULTI-LINE RETAIL - 0.6%
Wal-Mart Stores, Inc., 6.875%, 08/10/2009 . . . . . $1,000,000 980,360
------------
INFORMATION TECHNOLOGY - 0.1%
COMMUNICATIONS EQUIPMENT - 0.1%
Lucent Technologies, Inc., 6.90%, 07/15/2001 . . . . 250,000 250,586
------------
TOTAL CORPORATE BONDS (COST $1,248,362) . . . 1,230,946
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 1.6%
FNMA, 5.125%, 02/13/2004 (cost $2,837,843) . . . . . 3,000,000 2,820,762
------------
U.S. TREASURY OBLIGATIONS - 26.7%
U.S. Treasury Bonds:
6.00%, 02/15/2026 . . . . . . . . . . . . . . . . 3,000,000 2,933,439
7.125%, 02/15/2023 . . . . . . . . . . . . . . . 3,000,000 3,329,064
7.25%, 05/15/2016 . . . . . . . . . . . . . . . . 6,300,000 6,933,938
U.S. Treasury Notes:
5.50%, 05/15/2009 . . . . . . . . . . . . . . . . 6,000,000 5,739,378
5.875%, 09/30/2002 - 11/15/2005 . . . . . . . . . 8,500,000 8,367,813
</TABLE>
E-20
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS - CONTINUED
U.S. TREASURY OBLIGATIONS - CONTINUED
U.S. Treasury Notes - continued
6.125%, 08/15/2007 . . . . . . . . . . . . . . . $ 6,000,000 $ 5,966,250
6.50%, 08/15/2005 - 02/15/2010 . . . . . . . . . 13,500,000 13,800,003
------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $46,694,686) . . . . . . . . . . . . 47,069,885
------------
<CAPTION>
Shares
---------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 5.4%
MUTUAL FUND SHARES - 5.4%
Evergreen Select Money Market Fund
(cost $9,557,598) 0 . . . . . . . . . . . . . . 9,557,598 9,557,598
------------
TOTAL INVESTMENTS - (COST $158,829,081) - 99.3% . . . 175,017,696
OTHER ASSETS AND LIABILITIES - 0.7% . . . . . . . . . 1,302,887
------------
NET ASSETS - 100.0% . . . . . . . . . . . . . . . . . $176,320,583
------------
</TABLE>
SEE COMBINED NOTES TO SCHEDULES OF INVESTMENTS.
E-21
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
<S> <C>
ASSETS
Identified cost of securities. . . . . . . . . . . . . . . . . . . . $158,829,081
Net unrealized gains on securities . . . . . . . . . . . . . . . . . 16,188,615
---------------------------------------------------------------------------------------
Market value of securities . . . . . . . . . . . . . . . . . . . . . 175,017,696
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,931
Receivable for securities sold . . . . . . . . . . . . . . . . . . . 564,455
Receivable for fund shares sold . . . . . . . . . . . . . . . . . . 234,871
Dividends and interest receivable . . . . . . . . . . . . . . . . . 975,172
Deferred organization expenses . . . . . . . . . . . . . . . . . . . 2,854
---------------------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 176,913,979
---------------------------------------------------------------------------------------
LIABILITIES
Payable for securities purchased . . . . . . . . . . . . . . . . . . 528,479
Advisory fee payable . . . . . . . . . . . . . . . . . . . . . . . . 10,670
Due to other related parties . . . . . . . . . . . . . . . . . . . . 1,440
Accrued expenses and other liabilities . . . . . . . . . . . . . . . 52,807
---------------------------------------------------------------------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 593,396
---------------------------------------------------------------------------------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $176,320,583
=======================================================================================
NET ASSETS REPRESENTED BY
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . $160,416,407
Undistributed net investment income . . . . . . . . . . . . . . . . 1,201,431
Accumulated net realized losses on securities . . . . . . . . . . . (1,485,870)
Net unrealized gains on securities . . . . . . . . . . . . . . . . . 16,188,615
---------------------------------------------------------------------------------------
TOTAL NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $176,320,583
=======================================================================================
SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . 11,406,477
---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE . . . . . . . . . . . . . . . . . . . . . . . $ 15.46
=======================================================================================
</TABLE>
SEE COMBINED NOTES TO SCHEDULES OF INVESTMENTS.
E-22
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
STATEMENT OF OPERATIONS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $3,714) . . . . . . . $ 452,450
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,472,431
---------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . . . 1,924,881
---------------------------------------------------------------------------------------
EXPENSES
Advisory fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 582,877
Administrative services fees . . . . . . . . . . . . . . . . . . . . 77,536
Transfer agent fee . . . . . . . . . . . . . . . . . . . . . . . . . 191
Trustees' fees and expenses . . . . . . . . . . . . . . . . . . . . 1,534
Printing and postage expenses . . . . . . . . . . . . . . . . . . . 10,282
Custodian fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,923
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . 13,142
Organization expenses . . . . . . . . . . . . . . . . . . . . . . . 2,184
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,568
---------------------------------------------------------------------------------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . 735,237
Less: Expense reductions . . . . . . . . . . . . . . . . . . . . (18,385)
---------------------------------------------------------------------------------------
Net expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 716,852
---------------------------------------------------------------------------------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . . 1,208,029
=======================================================================================
NET REALIZED AND UNREALIZED LOSSES ON SECURITIES
Net realized losses on securities . . . . . . . . . . . . . . . . . (1,473,127)
---------------------------------------------------------------------------------------
Net change in unrealized losses on securities . . . . . . . . . . . (1,134,834)
---------------------------------------------------------------------------------------
Net realized and unrealized losses on securities . . . . . . . . . . (2,607,961)
---------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . $(1,399,932)
=======================================================================================
</TABLE>
SEE COMBINED NOTES TO SCHEDULES OF INVESTMENTS.
E-23
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA FOUNDATION FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income . . . . . . . . . . . . . . . . $ 1,208,029 $ 2,545,865
Net realized gains or losses on securities . . . . . (1,473,127) 806,824
Net change in unrealized gains or losses on
securities . . . . . . . . . . . . . . . . . . . . (1,134,834) 9,352,295
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . (1,399,932) 12,704,984
--------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income . . . . . . . . . . . . . . . . 0 (2,526,366)
Net realized gains . . . . . . . . . . . . . . . . . (886,673) (227,108)
--------------------------------------------------------------------------------------------------
Total distributions to shareholders . . . . . . . (886,673) (2,753,474)
--------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold . . . . . . . . . . . . . . 34,375,963 57,697,868
Payment for shares redeemed . . . . . . . . . . . . . (2,221,823) (3,207,434)
Net asset value of shares issued in reinvestment
of distributions . . . . . . . . . . . . . . . . . 886,673 2,753,474
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
capital share transactions . . . . . . . . . . 33,040,813 57,243,908
--------------------------------------------------------------------------------------------------
Total increase in net assets . . . . . . . . . 30,754,208 67,195,418
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . 145,566,375 78,370,957
--------------------------------------------------------------------------------------------------
END OF PERIOD . . . . . . . . . . . . . . . . . . . . $176,320,583 $145,566,375
==================================================================================================
Undistributed (overdistributed) net investment
income . . . . . . . . . . . . . . . . . . . . . . . $ 1,201,431 $ (6,598)
==================================================================================================
</TABLE>
SEE COMBINED NOTES TO SCHEDULES OF INVESTMENTS.
E-24
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
FUND AT A GLANCE AS OF JUNE 30, 2000
"WE ARE WATCHING THE FINANCIAL SECTOR CLOSELY. FINANCIAL STOCKS HAVE BEEN
SIGNIFICANTLY OUT OF FAVOR, AND THE FUND HAS BEEN SUBSTANTIALLY UNDER-WEIGHTED
THERE."
PORTFOLIO MANAGEMENT
-------------------------------------------------
[PHOTO] [PHOTO]
TED PRICE,CFA LINDA ZIGLER,CFA
TENURE: MARCH 1998 TENURE: MARCH 1998
[PHOTO]
JEFF DRUMMOND,CFA
TENURE: MARCH 1998
(1)Past performance is no guarantee of future results. The investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Performance
includes the reinvestment of income dividends and capital gains
distributions.
Small capitalization stock investing may offer the potential for greater
long-term results, however, it is also generally associated with greater
price volatility due to the higher risk of failure.
The Fund's investment objective is non-fundamental and may be changed without
the vote of shareholders.
<TABLE>
<CAPTION>
--------------------------------------------
PERFORMANCE & RETURNS(1)
--------------------------------------------
<S> <C>
PORTFOLIO INCEPTION DATE 3/3/1998
--------------------------------------------
AVERAGE ANNUAL RETURNS
--------------------------------------------
6-month 25.45%
--------------------------------------------
1 year 60.91%
--------------------------------------------
Since Portfolio Inception 15.35%
--------------------------------------------
</TABLE>
--------------------------------------------
LONG TERM GROWTH
--------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
3/98 6/00
<S> <C> <C>
VA Growth Fund $10,000 $13,941
Russell 2000 $10,000 $11,519
CPI $10,000 $10,582
</TABLE>
Comparison of a $10,000 investment in Evergreen VA Growth Fund(1) versus a
similar investment in the Russell 2000 Index (Russell 2000) and the Consumer
Price Index (CPI).
The RUSSELL 2000 is an unmanaged market index which does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
Investment return and net asset value will fluctuate so an investor's shares
when redeemed may be worth more or less than the original cost. Some of the
returns shown reflect a period of unusually favorable market conditions,
which may be difficult to repeat. A portion of the returns may be due to
investments in IPO's, private placements and/or leveraging investments
techniques.
All data is as of June 30, 2000 and subject to change.
E-25
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
PORTFOLIO MANAGER INTERVIEW
HOW DID THE FUND PERFORM?
For the six-month period ended June 30, 2000, Evergreen VA Growth Fund had a
return of 25.45%, outperforming its benchmark, the Russell 2000 Index, which
returned 3.04% for the same period.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
-------------------------
(AS OF 6/30/2000)
<S> <C>
Total Net Assets $21,605,927
---------------------------------------------------------------------
Number of Holdings 148
---------------------------------------------------------------------
P/E Ratio 29.5x
---------------------------------------------------------------------
</TABLE>
WHAT WAS THE INVESTMENT ENVIRONMENT LIKE DURING THE SIX-MONTH PERIOD?
Unlike 1999, when momentum drove the market, the first half of 2000 has been
more of a stock-pickers market. The Fund advanced very strongly in the first
quarter, surpassing the Russell 2000, and declined less than its benchmark in
the second quarter. Aiding our performance were good picks in technology,
especially telecommunications equipment, and also in health care.
After the first quarter strength in technology stocks, we trimmed our
position fairly substantially. At the highest point, 48% of the portfolio was
invested in technology, including telecommunications. We cut back that
percentage to the high-30% level. This action worked to the Fund's benefit as
the sector subsequently collapsed. We used that opportunity to increase
technology holdings. At the end of the second quarter, technology stocks had
accelerated, and we reduced the Fund's total return performance. Several
concerns have arisen in the technology sector. The business-to-business
industry has largely collapsed, and there has been a significant slowing in
the rate in the growth of cellular handsets. These factors likely point to
the importance of careful stock selection in the months ahead.
Among the top holdings in the fund which have been good performers was
Benchmark Electronics. Benchmark is a technology outsourcer that provides
manufacturing services to original equipment manufacturers in the
telecommunications, computer and peripheral business, as well as high-end
audiovisual businesses; and Parlax Corp., which manufactures custom
electronic components including flexible printed circuits. Sales and earnings
have accelerated rapidly for both companies, and rising backlog point to
potentially continuing rapid gains.
There were no fundamental changes in the health care industry from 1999, when
the Fund's holdings detracted from performance. We are roughly equally
weighted in health care to the Russell 2000 Growth Index, and within that
broad category, are overweighted in pharmaceuticals and health care services.
However, we are under-weighted in biotechnology relative to the Russell 2000
because it is difficult to find good companies that meet our criteria.
Including Affymetrix and Alkermes, we do own about ten biotechnology
companies.
The portfolio is also over-weighted in capital goods companies. This sector
includes telecommunications equipment companies that install the services. On
the energy side, these firms produce parts for offshore rigs and natural gas
turbine and lease and service HP compression engines.
E-26
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
PORTFOLIO MANAGER INTERVIEW
<TABLE>
<CAPTION>
TOP 5 SECTORS
---------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<S> <C>
Information Technology 31.2%
-------------------------------------------------------------------
Industrials 22.4%
-------------------------------------------------------------------
Health Care 14.5%
-------------------------------------------------------------------
Consumer Discretionary 10.6%
-------------------------------------------------------------------
Energy 8.4%
-------------------------------------------------------------------
</TABLE>
DESCRIBE THE STRATEGY OF THE FUND?
The portfolio contains about 150 stocks, and we maintain individual stock
weightings below 2% of total assets. We have learned over many years not to
take big positions, but rather to spread them out. Our team of five portfolio
managers has worked together since 1990: One of the key selling points for
the Fund.
We believe the outlook for energy equities is favorable. The fundamentals of
the industry indicate that energy supplies will stay very tight for this year
and probably next; natural gas, in particular, will be in very short supply.
Hence, we continue to be overweighted in energy. Two of our larger holdings
in this area are Hanover Compressor, one of the largest lessors and servicers
of high-pressure gas compression equipment, principally for the oil and
natural gas industry, and Shaw Group, a manufacturer of piping for turbines.
Shaw's sales, earnings, and backlog are benefiting from the huge demand for
natural gas-fired utility plants.
We also have focused on sectors of the transportation industry that are not
affected by the cost of fuel, which we predict will remain high. The Fund
owns regional airlines such as Atlantic Coast and Skywest, which are largely
contract airlines: i.e., they are paid to fly. We have purchased freight
forwarders because they are non-asset based shipping companies. Thus, they do
not own the ships, planes, or trucks, and are not impacted by the cost of
fuel.
We are watching the financial sector closely. Financial stocks have been out
of favor over the past several years, and the Fund has been substantially
under-weighted in this sector. Two small banks and one insurance company are
in the portfolio, but there is no exposure to financial services. However,
once the Federal Reserve Board drops interest rates, this could be an area
that appreciates rapidly.
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
---------------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<S> <C>
Benchmark Electronics, Inc. 1.8%
---------------------------------------------------------------------
Hanover Compressor Co. 1.8%
---------------------------------------------------------------------
Parlex Corp. 1.6%
---------------------------------------------------------------------
C & D Technologies 1.6%
---------------------------------------------------------------------
Shaw Group, Inc. 1.5%
---------------------------------------------------------------------
Sipex Corp. 1.5%
---------------------------------------------------------------------
CSG Systems International, Inc. 1.4%
---------------------------------------------------------------------
Kent Electronics Corp. 1.3%
---------------------------------------------------------------------
Dendrite International, Inc. 1.3%
---------------------------------------------------------------------
Core Laboratories, NV 1.3%
---------------------------------------------------------------------
</TABLE>
WHAT IS YOUR OUTLOOK?
It appears that the Federal Reserve Board has been successful in slowing the
economy. We do not expect a slowdown to impact our holdings too much, because
they are growing due to demand for unique products. We are staying in close
touch with managements to monitor growth prospects.
E-27
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000 Year Ended December 31,
------------------------------
(Unaudited) (a) 1999 (a) 1998 (a) (b)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.87 $ 11.46 $ 12.50
======= ======= =======
-----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------------
Net investment income (loss) (0.01) (0.07) 0.02
-----------------------------------------------------------------------------------------------
Net realized and unrealized gains or
losses on securities 3.54 2.50 (1.06)
-----------------------------------------------------------------------------------------------
Total from investment operations 3.53 2.43 (1.04)
-----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME 0 (0.02) 0
-----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.40 $ 13.87 $ 11.46
======= ======= =======
-----------------------------------------------------------------------------------------------
TOTAL RETURN* 25.45% 21.21% (8.32)%
-----------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------
Net assets, end of period (thousands) $21,606 $15,888 $11,064
-----------------------------------------------------------------------------------------------
Ratios to average net assets
-----------------------------------------------------------------------------------------------
Expenses** 0.54%+ 1.33% 0.97%+
-----------------------------------------------------------------------------------------------
Net investment income (loss) (0.01%)+ (0.67%) 0.44%+
-----------------------------------------------------------------------------------------------
Portfolio turnover rate 80% 143% 62%
-----------------------------------------------------------------------------------------------
</TABLE>
(a) Effective February 1, 2000, shareholders of Mentor VIP Growth Portfolio
became owners of that number of full and fractional shares of
Evergreen VA Growth Fund. As Mentor VIP Growth Portfolio contributed
the majority of assets and shareholders to the Evergreen VA Growth Fund,
its accounting and performance history is carried forward.
(b) For the period from March 3, 1998 (commencement of operations) to December
31, 1998.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-28
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 94.4%
CONSUMER DISCRETIONARY - 10.6%
DISTRIBUTORS - 3.3%
Black Box Corp. * ........................................................ 1,650 $ 130,633
Kent Electronics Corp. * ................................................. 9,350 278,747
Metron Tech * ............................................................ 11,500 145,008
SCP Pool Corp. * ......................................................... 7,050 165,675
-----------
720,063
-----------
HOTELS, RESTAURANTS & LEISURE - 1.3%
Applebee's International, Inc. ........................................... 3,700 112,156
Ruby Tuesday, Inc. ....................................................... 13,200 165,825
-----------
277,981
-----------
INTERNET & CATALOG RETAIL - 0.3%
Polymedica Corp. * ....................................................... 1,250 54,063
-----------
LEISURE EQUIPMENT & PRODUCTS - 0.4%
Jakks Pacific, Inc. * .................................................... 5,725 84,444
-----------
MEDIA - 2.2%
Cox Radio, Inc. Class A * ................................................ 4,800 134,400
Imax Corp. * ............................................................. 6,150 139,912
Radio One, Inc., Class A * ............................................... 1,600 47,300
Radio One, Inc., Non-Voting Class D * .................................... 3,350 73,909
World Wrestling Federation Entertainment, Inc. * ......................... 3,650 75,966
-----------
471,487
-----------
MULTI-LINE RETAIL - 1.1%
Dollar Tree Stores, Inc. * ............................................... 2,925 115,720
Family Dollar Stores, Inc. ............................................... 6,650 130,091
-----------
245,811
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 1.0%
Actel Corp. * ............................................................ 4,900 223,563
-----------
SPECIALTY RETAIL - 1.0%
Linens 'n Things, Inc. * ................................................. 3,300 89,512
Men's Wearhouse, Inc. * .................................................. 6,050 134,991
-----------
224,503
-----------
CONSUMER STAPLES - 0.1%
FOOD PRODUCTS - 0.1%
NBTY, Inc. * ............................................................. 4,050 25,819
-----------
ENERGY - 8 .4%
ENERGY EQUIPMENT & SERVICES - 7.3%
Core Laboratories NV * ................................................... 9,500 275,500
Global Industries, Ltd. * ................................................ 10,650 201,019
Gulf Islands Fabrication, Inc. * ......................................... 10,650 181,050
Hanover Compressor Co. * ................................................. 10,000 380,000
E-29
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Shares Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
ENERGY - CONTINUED
ENERGY EQUIPMENT & SERVICES - CONTINUED
Precision Drilling Corp. * .............................................. 5,100 $ 196,988
Pride International, Inc. * ............................................. 9,850 243,787
Varco International, Inc. * ............................................. 3,900 90,675
-----------
1,569,019
-----------
OIL & GAS - 1.1%
Louis Dreyfus Natural Gas Corp. * ....................................... 3,950 123,684
St. Mary Land & Exploration Co. * ....................................... 2,900 121,981
-----------
245,665
-----------
FINANCIALS - 2.8%
BANKS - 1.1%
Commerce Bancorp, Inc. .................................................. 2,855 131,330
National Commerce Bancorp ............................................... 6,500 104,406
-----------
235,736
-----------
DIVERSIFIED FINANCIALS - 1.1%
RentWay, Inc. * ......................................................... 7,050 205,772
Vyyo Inc. * ............................................................. 1,150 31,050
-----------
236,822
-----------
INSURANCE - 0.6%
Markel Corp. * .......................................................... 900 127,462
-----------
HEALTH CARE - 14.5%
BIOTECHNOLOGY - 2.3%
Affymetrix, Inc. * ...................................................... 300 49,537
Alkermes, Inc. * ........................................................ 1,500 70,687
Cephalon, Inc. * ........................................................ 850 50,894
Enzon, Inc. * ........................................................... 1,200 51,000
Genome Therapeutics Corp. * ............................................. 800 24,350
Human Genome Sciences, Inc. * ........................................... 650 86,694
Incyte Pharmacuticals, Inc. * ........................................... 500 41,094
Millennium Pharmaceuticals, Inc. * ...................................... 1,050 117,469
-----------
491,725
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.9%
Cytyc Corp. * ........................................................... 1,050 56,044
Endocare, Inc. * ........................................................ 3,900 78,975
Molecular Devices Corp. * ............................................... 900 62,269
Physiometrix, Inc. * .................................................... 2,600 57,525
ResMed Inc. * ........................................................... 1,150 30,762
The Cooper Companies, Inc. .............................................. 2,700 98,212
Zoll Medical Corp. * .................................................... 350 17,150
-----------
400,937
-----------
E-30
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Shares Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
HEALTH CARE - CONTINUED
HEALTH CARE PROVIDERS & SERVICES - 6.1%
Accredo Health, Inc. * .................................................. 5,300 $ 183,181
Bindley Western Industries, Inc. ........................................ 8,316 219,854
Brookdale Living Communities, Inc. * .................................... 7,000 101,500
Hooper Holmes, Inc. .................................................... 7,850 62,800
Orthodontic Centers of America, Inc. * ................................. 5,200 117,650
Priority Healthcare Corp., Class B * .................................... 940 69,854
Province Healthcare Co. * ............................................... 3,700 133,663
Rare Hospitality International, Inc. * .................................. 4,200 118,650
Renal Care Group, Inc. * ................................................ 6,700 163,836
Universal Health Services, Inc., Class B * .............................. 2,200 144,100
-----------
1,315,088
-----------
PHARMACEUTICALS - 4.2%
Barr Laboratories, Inc. * ............................................... 4,200 188,212
Biotech Holders Trust ................................................... 1,000 178,000
Cubist Pharmaceuticals, Inc. * .......................................... 1,350 66,488
King Pharmaceuticals, Inc. * ........................................... 4,988 218,827
Medicis Pharmaceutical Corp., Class A * ................................. 4,700 267,900
-----------
919,427
-----------
INDUSTRIALS - 22.4%
AIR FREIGHT & COURIERS - 1.7%
CH Robinson Worldwide ................................................... 2,200 108,900
Circle International Group, Inc. ........................................ 3,650 91,706
EGL, Inc. * ............................................................. 4,100 126,075
Expeditors International of Washington, Inc. ............................ 900 42,750
-----------
369,431
-----------
AIRLINES - 1.3%
Atlantic Coast Airlines Holdings * ...................................... 4,850 153,987
Mesaba Holdings, Inc. * ................................................. 3,975 38,011
Skywest, Inc. ........................................................... 2,300 85,244
-----------
277,242
-----------
COMMERCIAL SERVICES & SUPPLIES - 12.3%
Acxiom Corp. * .......................................................... 5,400 147,150
Concord EFS, Inc. * ..................................................... 4,287 111,462
Copart, Inc. * .......................................................... 13,400 214,400
CSG Systems International, Inc. * ....................................... 5,400 302,738
CTC Communications Group, Inc. * ........................................ 2,725 98,100
Dendrite International, Inc. * .......................................... 8,350 278,159
Hall, Kinion & Associates, Inc. * ....................................... 6,900 229,856
Heidrick & Struggles International, Inc. * .............................. 4,050 255,656
iXL Enterprises, Inc. * ................................................. 7,650 110,925
Management Network Group, Inc. * ........................................ 4,450 155,750
E-31
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Shares Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
INDUSTRIALS - CONTINUED
COMMERCIAL SERVICES & SUPPLIES - CONTINUED
Manhattan Assoc. Inc. * ................................................. 3,650 $ 91,250
META Group, Inc. * ...................................................... 7,350 141,488
Newgen Results Corp. * .................................................. 9,950 164,175
Nova Corp. * ............................................................ 2,966 82,863
ProsoftTraining.com. * .................................................. 4,550 76,497
Teletech Holdings, Inc. * ............................................... 3,750 116,484
The Intercept Group, Inc. * ............................................. 4,150 70,550
-----------
2,647,503
-----------
CONSTRUCTION & ENGINEERING - 0.8%
Dycom Industries, Inc. * ................................................ 3,600 165,600
-----------
ELECTRICAL EQUIPMENT - 2.5%
Advanced Lighting Technologies, Inc. * .................................. 2,650 49,025
AstroPower, Inc. * ...................................................... 2,450 66,456
C&D Technologies ........................................................ 6,100 344,650
Power One, Inc. * ....................................................... 625 71,211
-----------
531,342
-----------
MACHINERY - 2.4%
Maverick Tube Corp. * ................................................... 6,800 198,050
Shaw Group, Inc. * ...................................................... 6,800 320,450
-----------
518,500
-----------
ROAD & RAIL - 1.2%
Forward Air Corp. * ..................................................... 6,750 270,000
-----------
TRANSPORTATION INFRASTRUCTURE - 0.2%
Carey International, Inc. * ............................................. 3,900 54,113
-----------
INFORMATION TECHNOLOGY - 31.2%
COMMUNICATIONS EQUIPMENT - 8.1%
Adtran, Inc. * .......................................................... 2,150 128,731
Advanced Fibre Communications, Inc. * ................................... 5,400 244,688
Alteon Websystems, Inc. * ............................................... 2,200 220,138
Brocade Communications Systems, Inc. * .................................. 500 91,742
Commscope, Inc. * ....................................................... 6,000 246,000
Digital Microwave Corp. * ............................................... 6,600 251,625
Extreme Networks, Inc. * ................................................ 1,750 184,625
Polycom, Inc. * ......................................................... 2,850 268,167
Powerwave Technologies, Inc. * .......................................... 2,450 107,800
-----------
1,743,516
-----------
E-32
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Shares Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
INFORMATION TECHNOLOGY - CONTINUED
COMPUTERS & PERIPHERALS - 2.1%
Corsair Communications, Inc. * .......................................... 8,650 $ 248,687
Network Appliance, Inc. * ............................................... 1,400 112,700
QLogic Corp. * .......................................................... 1,400 92,488
-----------
453,875
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 8.5%
Artesyn Technologies, Inc. * ............................................ 1,350 37,547
Benchmark Electronics, Inc. * ........................................... 10,550 385,734
Burr-Brown Corp. * ...................................................... 1,475 127,864
Methode Electronics, Inc. ............................................... 3,000 115,875
Mettler Toledo International, Inc. * .................................... 2,100 84,000
Oak Technology, Inc. * .................................................. 6,600 142,312
Parlex Corp. * .......................................................... 8,350 351,744
Sandisk Corp. * ......................................................... 1,600 97,900
Sensormatic Electronics Corp. * ......................................... 11,750 185,797
Sipex Corp. * ........................................................... 11,450 317,022
-----------
1,845,795
-----------
INTERNET SOFTWARE & SERVICES - 0.9%
Accrue Software, Inc. * ................................................. 2,900 102,950
Digex, Inc. * ........................................................... 1,350 91,716
-----------
194,666
-----------
OFFICE ELECTRONICS - 0.2%
Manugistics Group, Inc. * ............................................... 850 39,737
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 7.9%
Alliance Semiconductor Corp. * .......................................... 4,750 116,672
Alpha Industries, Inc. * ................................................ 2,500 110,156
Atmel Corp. * ........................................................... 2,250 82,969
ATMI, Inc. * ............................................................ 3,600 167,400
Cerprobe Corp. * ........................................................ 10,550 147,700
Cypress Semiconductor Corp. * ........................................... 1,900 80,275
Elantec Semiconductor, Inc. * ........................................... 2,600 181,025
Exar Corp. * ............................................................ 1,600 139,500
hi/fn, Inc. * ........................................................... 1,050 46,594
International Rectifier Corp. * ......................................... 4,750 266,000
Micrel, Inc. * .......................................................... 2,100 91,219
MKS Instruments, Inc. * ................................................. 1,950 76,294
PRI Automation, Inc. * .................................................. 2,400 156,937
Therma-Wave, Inc. * ..................................................... 2,400 53,550
-----------
1,716,291
-----------
E-33
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Shares Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
INFORMATION TECHNOLOGY - CONTINUED
SOFTWARE - 3.2%
Answerthink Consulting Group * .......................................... 2,400 $ 39,900
Moldflow Corp. * ........................................................ 5,300 85,794
Network Associates, Inc. * .............................................. 8,650 176,244
New Era of Networks, Inc. * ............................................. 3,100 131,750
Remedy Corp. * .......................................................... 3,150 175,612
Verity, Inc. * .......................................................... 2,300 87,400
-----------
696,700
-----------
IT CONSULTING & SERVICES - 0.3%
Braun Consulting, Inc. * ................................................ 2,500 52,812
-----------
MATERIALS - 0.3%
CHEMICALS - 0.3%
Evercel, Inc. * ......................................................... 4,800 66,000
-----------
TELECOMMUNICATION SERVICES - 4.1%
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.1%
Choice One Communications, Inc. * ....................................... 2,850 116,316
Efficient Networks, Inc. * .............................................. 2,400 176,550
ITC DeltaCom, Inc. * .................................................... 7,400 165,112
Powertel, Inc. * ........................................................ 2,150 152,516
Primus Telecomm Group, Inc. * ........................................... 1,300 32,338
Time Warner Telecom, Inc. ............................................... 3,700 238,187
-----------
881,019
-----------
TOTAL COMMON STOCKS (COST $14,818,929) ............................ 20,393,757
-----------
<CAPTION>
Principal
Amount Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 5.5%
REPURCHASE AGREEMENTS - 5.5%
State Street Bank & Trust Co. 6.30%, dated 6/30/2000, maturing,
7/3/2000, maturity value $1,187,336, (cost $1,186,721) (1) ............... $1,186,721 1,186,721
-----------
TOTAL INVESTMENTS - (COST $16,005,650) - 99.9% ...................................................... 21,580,478
OTHER ASSETS AND LIABILITIES - 0.1% ................................................................. 25,449
-----------
NET ASSETS - 100.0% ................................................................................. $21,605,927
-----------
</TABLE>
SEE COMBINED NOTES TO SCHEDULES OF INVESTMENTS.
E-34
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<TABLE>
-----------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Identified cost of securities ............................................... $14,818,929
Repurchase agreements, at amortized cost .................................... 1,186,721
-----------------------------------------------------------------------------------------------
Total identified cost of investments ........................................ 16,005,650
Net unrealized gains on securities .......................................... 5,574,828
-----------------------------------------------------------------------------------------------
Market value of securities .................................................. 21,580,478
Receivable for securities sold .............................................. 253,615
Dividends and interest receivable ........................................... 2,101
Deferred organization expenses .............................................. 5,099
Receivable from investment advisor .......................................... 11,660
-----------------------------------------------------------------------------------------------
Total assets .............................................................. 21,852,953
-----------------------------------------------------------------------------------------------
LIABILITIES
Payable for securities purchased ............................................ 239,013
Due to custodian bank ....................................................... 274
Due to other related parties ................................................ 176
Accrued expenses and other liabilities ...................................... 7,563
-----------------------------------------------------------------------------------------------
Total liabilities ......................................................... 247,026
-----------------------------------------------------------------------------------------------
NET ASSETS .................................................................... $21,605,927
===============================================================================================
NET ASSETS REPRESENTED BY
Paid-in capital ............................................................. $13,744,052
Undistributed net investment loss ........................................... (7,258)
Accumulated net realized gains on securities ................................ 2,294,305
Net unrealized gains on securities .......................................... 5,574,828
-----------------------------------------------------------------------------------------------
TOTAL NET ASSETS .............................................................. $21,605,927
===============================================================================================
SHARES OUTSTANDING ............................................................ 1,241,661
-----------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ..................................................... $ 17.40
===============================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-35
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
----------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends ................................................................... $ 6,065
Interest .................................................................... 36,638
----------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME ....................................................... 42,703
----------------------------------------------------------------------------------------------
EXPENSES
Advisory fee ................................................................ 66,218
Administrative services fees ................................................ 9,460
Transfer agent fee .......................................................... 166
Trustees' fees and expenses ................................................. 184
Printing and postage expenses ............................................... 7,036
Custodian fee ............................................................... 1,916
Professional fees ........................................................... 5,870
Organization expenses ....................................................... 957
Other ....................................................................... 3,026
----------------------------------------------------------------------------------------------
Total expenses ............................................................ 94,833
Less: Expense reductions .................................................. (658)
Fee waivers ......................................................... (44,214)
----------------------------------------------------------------------------------------------
Net expenses .............................................................. 49,961
----------------------------------------------------------------------------------------------
NET INVESTMENT LOSS ......................................................... (7,258)
==============================================================================================
NET REALIZED AND UNREALIZED GAINS ON SECURITIES
Net realized gains on securities ............................................ 2,569,939
----------------------------------------------------------------------------------------------
Net change in unrealized gains on securities ................................ 1,669,047
----------------------------------------------------------------------------------------------
Net realized and unrealized gains on securities ............................. 4,238,986
----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................... $4,231,728
==============================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-36
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment loss ............................................................... $ (7,258) $ (75,300)
Net realized gains on securities .................................................. 2,569,939 274,592
Net change in unrealized gains on securities ...................................... 1,669,047 2,704,797
-----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ........................... 4,231,728 2,904,089
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income ............................................................. 0 (17,317)
-----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ............................................ 0 (17,317)
-----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ......................................................... 2,540,872 4,282,662
Payment for shares redeemed ....................................................... (1,054,873) (2,362,779)
Net asset value of shares issued in reinvestment of distributions ................. 0 17,317
-----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from capital share transactions ............ 1,485,999 1,937,200
-----------------------------------------------------------------------------------------------------------------------------
Total increase in net assets .................................................. 5,717,727 4,823,972
NET ASSETS
Beginning of period ............................................................... 15,888,200 11,064,228
-----------------------------------------------------------------------------------------------------------------------------
END OF PERIOD ..................................................................... $21,605,927 $15,888,200
=============================================================================================================================
Undistributed net investment loss ................................................... $ (7,258) $ 0
=============================================================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-37
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
FUND AT A GLANCE AS OF JUNE 30, 2000
"WE THINK THE MARKET WILL BECOME INCREASINGLY FOCUSED ON CORPORATE EARNINGS
DURING THE NEXT SIX MONTHS, IN CONTRAST TO THE PAST SIX MONTHS WHICH WAS
DOMINATED BY CONCERN ABOUT INTEREST RATES."
PORTFOLIO
MANAGEMENT
-------------------
[PHOTO]
MAUREEN E. CULLINANE,
CFA
TENURE: APRIL 1999
(1)Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Performance includes the
reinvestment of income dividends and capital gains distributions.
The Fund's investment objective is non-fundamental and may be changed without
the vote of shareholders.
Foreign investments may contain more risk due to the inherent
risks associated with changing political climates, foreign market instability
and foreign currency fluctuations.
Small capitalization stock investing may offer the potential for greater
long-term results, however, it is also generally associated with greater
price volatility due to the higher risk of failure.
Investment return and net asset value will fluctuate so an investor's shares
when redeemed may be worth more or less than the original cost. Some of the
returns shown reflect a period of unusually favorable market conditions, which
may be difficult to repeat. A portion of the returns may be due to investments
in IPO's, private placements and/or leveraging investments techniques.
All data is as of June 30, 2000 and subject to change.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
PERFORMANCE & RETURNS(1)
---------------------------------------------------------------------------------
<S> <C>
PORTFOLIO INCEPTION DATE: 3/6/1997
---------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
---------------------------------------------------------------------------------
6-month 15.37%
---------------------------------------------------------------------------------
1 year 50.56%
---------------------------------------------------------------------------------
Since Portfolio Inception 28.62%
---------------------------------------------------------------------------------
6-month capital gain distributions per share $0.74
---------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
LONG TERM GROWTH
-------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VA OMEGA FUND S&P 500 RUSSELL 1000 CPI
------------- ------- ------------ ---
<S> <C> <C> <C> <C>
2/97 $10,000 $10,000 $10,000 $10,000
6/00 $23,050 $19,302 $23,631 $10,734
</TABLE>
COMPARISON OF A $10,000 INVESTMENT IN EVERGREEN VA OMEGA FUND(1) VERSUS A
SIMILAR INVESTMENT IN THE STANDARD & POOR'S 500 INDEX (S&P 500), RUSSELL 1000
GROWTH (RUSSELL 1000 GROWTH) AND THE CONSUMER PRICE INDEX (CPI).
The S&P 500 and the RUSSELL 1000 GROWTH are unmanaged market indices which do
not include transaction costs associated with buying and selling securities
or any mutual fund expenses. The CPI is a commonly used measure of inflation
and does not represent an investment return. It is not possible to invest
directly in an index.
E-38
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
PORTFOLIO MANAGER INTERVIEW
HOW DID THE FUND PERFORM?
The Evergreen VA Omega Fund performed very well. For the six-month period
ended June 30, 2000, the Fund had a return of 15.37%. During the same period,
the Russell 1000 Growth Index and the S&P 500 returned 4.23% and -0.42%,
respectively. Fund performance benefited both from a high technology
weighting early in the period and a decision to reduce that weighting later
in the period and invest in energy stocks.
PORTFOLIO
CHARACTERISTICS
---------------
(AS OF 6/30/2000)
<TABLE>
<S> <C>
Total Net Assets $73,231,640
---------------------------------------------------------
Number of Holdings 73
---------------------------------------------------------
P/E Ratio 39.9x
---------------------------------------------------------
</TABLE>
WHAT WAS THE ENVIRONMENT LIKE FOR INVESTING DURING THE FIRST SIX MONTHS OF
2000?
For most of the period, stock market investors appeared to be fixated on
interest rates and the policies of the U.S. Federal Reserve Board, which was
raising short-term rates to slow the economy's rapid growth. The market was
volatile as investors rotated from sector to sector. Technology stocks led
the market in performance early in the period, but suffered a sharp
correction in April and May when the market became concerned about high
valuations in technology stocks as well as the effects of rising interest
rates. During that time, rising energy prices encouraged investments in oil
services and natural gas companies, and the energy sector performed well.
Pharmaceutical stocks also advanced after having disappointed investors for
much of 1999. By June, we began to see signs of more moderate economic
growth, which led investors to believe the end of the interest rate increases
might be at hand. This perception seemed to stabilize the market.
TOP 5 SECTORS
-------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<TABLE>
<S> <C>
Information Technology 43.3%
-------------------------------------------------------
Health Care 17.3%
-------------------------------------------------------
Energy 10.8%
-------------------------------------------------------
Consumer Discretionary 9.7%
-------------------------------------------------------
Financials 8.0%
-------------------------------------------------------
</TABLE>
WHAT WERE YOUR PRINCIPAL STRATEGIES DURING THE PERIOD?
We continued to follow two broad, secular themes that have influenced our
investment thinking: First, the enhanced productivity of corporations
throughout the world because of technological advances. Second, the "graying
of America" which has led to increased opportunities in health care in
general, and the pharmaceutical industry in particular as the baby boomer
generation advances in age and medical breakthroughs extend life expectancy.
We also were influenced by a more recent, cyclical theme, which may be
shorter in duration: the effects of rising oil and gas prices on the energy
industry.
We began the six-month period with a heavy weighting in technology. However,
after technology stocks continued their spectacular rally during the first two
months of the fiscal period, we began to reduce
E-39
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
PORTFOLIO MANAGER INTERVIEW
our holdings because we were concerned that stock valuations had become
extended to unrealistically high levels. While we thought these valuations
were particularly excessive in some internet-related stocks, we expected that
a correction would affect the entire technology sector. We pared back the
entire technology sector, concentrating on those stocks with the most
extended valuations. We reduced or sold our holdings of: Applied Materials, a
semi-conductor manufacturer; Sandisk, which produces memory chips for
hand-held computing and communications devices; Veritas Software, which has
developed data protection software for internet applications; and Citrix,
which hosts websites for other companies. These investments had done
extremely well for the portfolio, but were reduced because of our concern
about their valuations. Other technology companies that we cut back included
Solectron, I2 Technologies, and F5 Networks.
In the health care industry, we had investments in diversified pharmaceutical
companies with what we believe were reasonable stock valuations, such as
Schering Plough, American Home Products, and Lilly, as well as some medical
equipment and biotechnology companies. This group included Medarex, Immunex
and Millenium Pharmaceuticals. At the end of the fiscal period, our health
care weighting was about 16% of net assets.
The energy stocks grew to 12% of net assets by the end of the fiscal period,
a very large over-weighting when compared to the 0.4% energy weight in the
Russell 1000 Growth Index. We believed that as the major energy corporations
became increasingly confident that energy prices would be firm and that the
OPEC nations would continue to show discipline in restraining production,
investments in exploration and production operations would increase
substantially. As a result, we invested in a number of oil services
companies. Firm energy prices also encouraged us to invest in natural gas
companies such as Apache and Anadarko.
We also held an over-weighted position in finance stocks, at about 8% of net
assets. We focused primarily on global leaders such as American Express,
Citigroup, American International Group, and Morgan Stanley-Dean Witter.
TOP 10 HOLDINGS
---------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<TABLE>
<S> <C>
Micron Technology 4.2%
-------------------------------------------------------------------
American Home Products Corp. 3.9%
-------------------------------------------------------------------
Schering-Plough Corp. 3.6%
-------------------------------------------------------------------
Intel Corp. 3.1%
-------------------------------------------------------------------
Cisco Systems, Inc. 3.0%
-------------------------------------------------------------------
Viacom, Inc., Class B 2.4%
-------------------------------------------------------------------
NVIDA 2.3%
-------------------------------------------------------------------
Microsoft Corp. 2.2%
-------------------------------------------------------------------
Citigroup, Inc. 2.2%
-------------------------------------------------------------------
Tyco International, Ltd. 2.0%
-------------------------------------------------------------------
</TABLE>
WHAT IS YOUR OUTLOOK?
We think the market will become increasingly focused on corporate earnings
during the next six months, in contrast to the past six months which was
dominated by concern about interest rates. If the Federal Reserve Board is
successful in slowing economic growth to an annual rate of 3.5% of Gross
Domestic Product (GDP), a natural outgrowth would be a slowing of corporate
earnings growth. With slower earnings growth as a backdrop, it would not be
surprising to see greater volatility in the market as investors react to
announcements about disappointing earnings by
E-40
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
PORTFOLIO MANAGER INTERVIEW
corporations. Slower economic growth, high interest rates, and moderately
higher prices will pressure corporate earnings. While the remainder of 2000
might be relatively stable, market volatility could increase in early 2001
because of concerns about the effects of the new president's economic
policies as well as worries about corporate earnings.
In this environment, we will look for companies with continued growth
potential. We expect this will continue to lead to technology because of the
need of corporations in general to use new tools to enhance their
productivity. We also believe pharmaceutical companies should have a
continued flow of new products to generate sustained earnings growth.
While we do not think the economy will fall into a recession, we expect
investors will become increasingly selective. While the past several months
have presented a challenging environment in the stock market, we don't think
the challenges will become any easier in the coming months.
E-41
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 2000 ------------------------------------
(Unaudited) (a) 1999 # 1998 # 1997 (b) #
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.98 $13.57 $11.10 $10.00
====== ====== ====== ======
-----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
-----------------------------------------------------------------------------------------------------------------------------------
Net investment loss 0.01 (0.06) (0.04) (0.06)
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities 3.13 6.47 2.51 1.16
------ ------ ------ ------
-----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.14 6.41 2.47 1.10
------ ------ ------ ------
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS (0.74) 0 0 0
------ ------ ------ ------
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $22.38 $19.98 $13.57 $11.10
====== ====== ====== ======
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 15.37% 47.24% 22.25% 11.00%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (thousands) $73,232 $24,176 $4,039 $1,868
-----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
Expenses** 0.69%+ 0.96% 1.02% 1.06%+
-----------------------------------------------------------------------------------------------------------------------------------
Net investment loss 0.08%+ (0.35)% (0.33)% (0.74)%+
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 66% 120% 49% 39%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The net realized and unrealized gains or losses per share amount may not
agree with the net realized and unrealized gains or losses for the period due
to the timing of sales and redemptions of Fund shares in relation to
fluctuating market values for the portfolio.
(b) For the period from March 6, 1997 (commencement of operations) to
December 31, 1997.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-42
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
Shares Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <S> <C>
COMMON STOCKS - 97.1%
CONSUMER DISCRETIONARY - 9.7%
AUTOMOBILES - 0.9%
Harley-Davidson, Inc.............................................................. 17,700 $ 681,450
-----------
HOUSEHOLD DURABLES - 0.5%
Ethan Allen Interiors, Inc........................................................ 15,400 369,600
-----------
MEDIA - 5.5%
Clear Channel Communications, Inc. *.............................................. 12,000 900,000
Infinity Broadcasting Corp. ...................................................... 16,900 615,794
Univision Communications, Inc., Class A *......................................... 7,000 724,500
Viacom, Inc., Class B............................................................. 25,856 1,763,056
-----------
4,003,350
-----------
MULTI-LINE RETAIL - 1.2%
Wal-Mart Stores, Inc.............................................................. 15,600 898,950
-----------
SPECIALTY RETAIL - 1.6%
Best Buy Co., Inc. * ............................................................. 11,000 695,750
Tweeter Home Entertainment Group, Inc............................................. 14,500 440,437
-----------
1,136,187
-----------
ENERGY - 10.8%
ENERGY EQUIPMENT & SERVICES - 5.8%
Diamond Offshore Drilling, Inc.................................................... 13,500 474,188
ENSCO International, Inc.......................................................... 20,000 716,250
Nabors Industries, Inc. *......................................................... 20,000 831,250
R&B Falcon Corp................................................................... 27,500 647,969
Santa Fe International Corp....................................................... 25,000 873,437
Weatherford International, Inc. * ................................................ 17,000 676,812
-----------
4,219,906
-----------
OIL & GAS - 5.0%
Anadarko Petroleum Corp........................................................... 15,000 739,688
Apache Corp....................................................................... 19,500 1,146,844
Devon Energy Corp................................................................. 16,000 899,000
Kerr-McGee Corp................................................................... 15,000 884,062
-----------
3,669,594
-----------
FINANCIALS - 8.0%
BANKS - 1.7%
Fifth Third Bancorp............................................................... 10,000 632,500
The Bank of New York Co., Inc..................................................... 12,500 581,250
----------
1,213,750
----------
DIVERSIFIED FINANCIALS - 4.9%
American Express Co............................................................... 23,000 1,198,875
Citigroup, Inc.................................................................... 26,300 1,584,575
E-43
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
Shares Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
FINANCIALS - CONTINUED
DIVERSIFIED FINANCIALS - CONTINUED
Morgan Stanley, Dean Witter & Co........................................................ 9,600 $ 799,200
-----------
3,582,650
-----------
INSURANCE - 1.4%
American International Group, Inc....................................................... 8,862 1,041,285
-----------
HEALTH CARE - 17.3%
BIOTECHNOLOGY - 0.6%
Millennium Pharmaceuticals, Inc......................................................... 3,900 436,313
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.8%
Becton Dickinson & Co................................................................... 26,000 745,875
Medtronic, Inc.......................................................................... 9,600 478,200
Stryker Corp............................................................................ 2,500 109,375
-----------
1,333,450
-----------
PHARMACEUTICALS - 14.9%
Alpharma, Inc., Class A ................................................................ 17,900 1,114,275
American Home Products Corp............................................................. 49,000 2,878,750
ICN Pharmaceuticals, Inc................................................................ 30,000 834,375
Lilly (Eli) & Co........................................................................ 12,500 1,248,437
Pfizer, Inc............................................................................. 15,000 720,000
Pharmacia Corp.......................................................................... 27,777 1,435,724
Schering-Plough Corp.................................................................... 52,500 2,651,250
------------
10,882,811
------------
INDUSTRIALS - 6.6%
COMMERCIAL SERVICES & SUPPLIES - 2.0%
Apollo Group, Inc. *.................................................................... 14,900 417,200
Paychex, Inc............................................................................ 25,000 1,050,000
------------
1,467,200
------------
INDUSTRIAL CONGLOMERATES - 3.9%
General Electric Co..................................................................... 26,000 1,378,000
Tyco International, L td................................................................ 31,200 1,478,100
------------
2,856,100
------------
MARINE - 0.7%
Tidewater, Inc.......................................................................... 15,000 540,000
------------
INFORMATION TECHNOLOGY - 43.3%
COMMUNICATIONS EQUIPMENT - 7.5%
Ancor Communications, Inc............................................................... 25,000 894,141
Cisco Systems, Inc. *................................................................... 34,400 2,186,550
Copper Mountain Networks, Inc........................................................... 7,000 616,875
Nokia Corp., ADR........................................................................ 22,000 1,098,625
</TABLE>
E-44
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY FUND
EVERGREEN VA OMEGA FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED
Shares Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
INFORMATION TECHNOLOGY - CONTINUED
COMMUNICATIONS EQUIPMENT - CONTINUED
Plantronics, Inc........................................................................ 800 $ 92,400
RF Micro Devices, Inc. *................................................................ 7,000 613,375
----------
5,501,966
----------
COMPUTERS & PERIPHERALS - 5.9%
EMC Corp. *............................................................................. 15,400 1,184,838
Maxtor Corp. *.......................................................................... 62,500 660,156
NVIDIA Corp............................................................................. 27,000 1,716,187
Sun Microsystems, Inc. *................................................................ 8,000 727,500
----------
4,288,681
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 5.5%
Cree Research, Inc. *................................................................... 7,000 934,500
JDS Uniphase Corp. *.................................................................... 8,500 1,018,938
Sandisk Corp............................................................................ 17,800 1,089,137
Sanmina Corp. *......................................................................... 12,000 1,026,000
----------
4,068,575
----------
INTERNET SOFTWARE & SERVICES - 1.7%
America Online, Inc. *.................................................................. 23,000 1,213,250
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 13.2%
Broadcom Corp. *........................................................................ 3,100 78,706
Intel Corp.............................................................................. 17,000 2,272,687
Lam Research Corp. *.................................................................... 16,200 607,500
Microchip Technology, Inc............................................................... 16,650 970,123
Micron Technology, Inc.................................................................. 35,300 3,108,606
National Semiconductor Corp. * ......................................................... 11,700 663,975
Teradyne, Inc. *........................................................................ 5,800 426,300
Vitesse Semiconductor Corp. *........................................................... 12,600 926,888
----------
9,654,785
----------
SOFTWARE - 9.5%
Entrust Technologies, Inc. *............................................................ 16,000 1,324,000
Mercury Interactive Corp. *............................................................. 7,800 754,650
Microsoft Corp. *....................................................................... 20,200 1,616,000
Oracle Systems Corp. *.................................................................. 9,000 756,562
Rational Software Corp. *............................................................... 6,500 604,094
Siebel Systems, Inc. *.................................................................. 5,500 899,594
Veritas Software Corp. *................................................................ 9,175 1,036,918
----------
6,991,818
----------
MATERIALS - 1.4%
CHEMICALS - 0.4%
Sherwin W illiams Co.................................................................... 15,000 317,813
----------
E-45
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
Shares Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - CONTINUED
MATERIALS - CONTINUED
CONTAINERS & PACKAGING - 1.0%
Sealed Air Corp. *........................................................................ 14,000 $ 733,250
-----------
TOTAL COMMON STOCKS (COST $60,777,381)............................................... 71,102,734
-----------
SHORT-TERM INVESTMENTS - 5.3%
MUTUAL FUND SHARES - 5.3%
Evergreen Select Money Market Fund
(cost $3,871,934),...................................................................... 3,871,934 3,871,934
-----------
TOTAL INVESTMENTS - (COST $64,649,315) - 102.4%............................................. 74,974,668
OTHER ASSETS AND LIABILITIES - (2.4%)....................................................... (1,743,028)
-----------
NET ASSETS - 100.0%......................................................................... $73,231,640
-----------
</TABLE>
SEE COMBINED NOTES TO SCHEDULES OF INVESTMENTS.
E-46
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
STATEMENT OF ASSETS AND LIABILITIES
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Identified cost of securities................................................................ $64,649,315
Net unrealized gains on securities 10,325,353
-----------------------------------------------------------------------------------------------------------------------------------
Market value of securities................................................................... 74,974,668
Cash......................................................................................... 25,015
Receivable for securities sold............................................................... 737,519
Receivable for Fund shares sold.............................................................. 461,615
Dividends and interest receivable............................................................ 16,737
Deferred organization expense................................................................ 3,412
-----------------------------------------------------------------------------------------------------------------------------------
Total assets.............................................................................. 76,218,966
-----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for securities purchased............................................................. 2,967,363
Advisory fee payable......................................................................... 3,069
Due to other related parties................................................................. 590
Accrued expenses and other liabilities....................................................... 16,304
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities......................................................................... 2,987,326
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS..................................................................................... $73,231,640
===================================================================================================================================
NET ASSETS REPRESENTED BY
Paid-in capital.............................................................................. $63,777,996
Undistributed net investment income.......................................................... 19,251
Accumulated net realized losses on securities................................................ (890,960)
Net unrealized gains on securities........................................................... 10,325,353
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................................................... $73,231,640
===================================================================================================================================
SHARES OUTSTANDING............................................................................. 3,271,534
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE...................................................................... $ 22.38
===================================================================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-47
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends................................................................................... $73,924
Interest.................................................................................... 108,802
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME....................................................................... 182,726
-----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Advisory fee................................................................................ 124,649
Administrative services fees................................................................ 23,850
Transfer agent fee.......................................................................... 135
Trustees' fees and expenses................................................................. 464
Printing and postage expenses............................................................... 2,697
Custodian fee............................................................................... 4,830
Professional fees........................................................................... 7,500
Organization expenses....................................................................... 1,019
Other....................................................................................... 278
-----------------------------------------------------------------------------------------------------------------------------------
Total expenses............................................................................. 165,422
Less: Expense reductions................................................................... (2,200)
-----------------------------------------------------------------------------------------------------------------------------------
Net expenses............................................................................... 163,222
-----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME...................................................................... 19,504
===================================================================================================================================
NET REALIZED AND UNREALIZED GAINS OR LOSSES ON SECURITIES
Net realized losses on securities........................................................... (816,489)
-----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gains on securities................................................ 5,914,669
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on securities............................................. 5,098,180
-----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................ $5,117,684
===================================================================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-48
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA OMEGA FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income (loss) ................................................. $ 19,504 $ (32,393)
Net realized gains or losses on securities ................................... (816,489) 1,643,233
Net change in unrealized gains on securities. ................................ 5,914,669 3,434,126
-----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations . ..................... 5,117,684 5,044,966
-----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gains ........................................................... (1,525,368) 0
-----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ........................................ (1,525,368) 0
-----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................................................... 44,129,573 15,509,072
Payment for shares redeemed .................................................. (191,206) (417,288)
Net asset value of shares issued in reinvestment of distributions ............ 1,525,369 0
-----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from capital share transactions. ...... 45,463,736 15,091,784
-----------------------------------------------------------------------------------------------------------------------
Total increase in net assets ............................................. 49,056,052 20,136,750
NET ASSETS
Beginning of period .......................................................... 24,175,588 4,038,838
-----------------------------------------------------------------------------------------------------------------------
END OF PERIOD ................................................................ $73,231,640 $24,175,588
=======================================================================================================================
Undistributed (overdistributed) net investment income .......................... $ 19,251 $ (253)
=======================================================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-49
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
FUND AT A GLANCE AS OF JUNE 30, 2000
"AN IMPORTANT THEME FOR THE FUND CONTINUES TO BE THE RAPID EXPANSION OF WIRELESS
TELEPHONY."
PORTFOLIO
MANAGEMENT
--------------------------------------------
KATHRYN LANGRIDGE SCOTT
TENURE: MARCH 1998 MCGLASHAN
TENURE: MARCH 1998
MARGARET RODDAN ROBERT YERBURY
TENURE: MARCH 1998 TENURE: MARCH 1998
STEPHEN PAUL CHESSON
WHITTAKER, CFA TENURE: JANUARY 2000
TENURE: MARCH 1998
<TABLE>
<CAPTION>
----------------------------------------------------------------
PERFORMANCE & RETURNS(1)
----------------------------------------------------------------
PORTFOLIO INCEPTION DATE: 3/3/1998
----------------------------------------------------------------
AVERAGE ANNUAL RETURNS
----------------------------------------------------------------
<S> <C>
6-month 0.46%
----------------------------------------------------------------
1 year 25.89%
----------------------------------------------------------------
Since Portfolio Inception 21.60%
----------------------------------------------------------------
6-month capital gain distributions per share $1.58
----------------------------------------------------------------
</TABLE>
----------------------------------------------------------------
LONG TERM GROWTH
----------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VA Perpetual International Fund MSCI EAFE CPI
------------------------------- --------- ---
<S> <C> <C> <C>
2/98 $10,000 $10,000 $10,000
6/00 $15,761 $13,215 $10,582
</TABLE>
COMPARISON OF A $10,000 INVESTMENT IN EVERGREEN VA PERPETUAL INTERNATIONAL
FUND(1) VERSUS A SIMILAR INVESTMENT IN THE MORGAN STANLEY CAPITAL
INTERNATIONAL EUROPE, AUSTRALASIA, AND FAR EAST INDEX (MSCI EAFE) AND THE
CONSUMER PRICE INDEX (CPI).
The MSCI EAFE is an unmanaged market index which does not include transaction
costs associated with buying and selling securities or any mutual fund expenses.
The CPI is a commonly used measure of inflation and does not represent an
investment return. It is not possible to invest directly in an index.
(1)Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Performance includes the
reinvestment of income dividends and capital gains distributions.
The Fund's investment objective is non-fundamental and may be changed without
the vote of shareholders.
Foreign investments may contain more risk due to the inherent risks associated
with changing political climates, foreign market instability and foreign
currency fluctuations. Risks of international investing are magnified in
emerging or developing markets.
Small capitalization stock investing may offer the potential for greater
long-term results, however, it is also generally associated with greater price
volatility due to the higher risk of failure
All data is as of June 30, 2000 and subject to change.
E-50
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
PORTFOLIO MANAGER INTERVIEW
HOW DID THE FUND PERFORM?
For the six-month period ended June 30, 2000, the Fund returned 0.46%, and the
Fund's benchmark, the MSCI EAFE Index, returned 3.95%. It was a turbulent time
for international investors, as most overseas markets experienced broad-based
declines.
<TABLE>
<CAPTION>
PORTFOLIO
CHARACTERISTICS
---------------
(AS OF 6/30/2000)
<S> <C>
Total Net Assets $29,249,395
---------------------------------------------------------------------
Number of Holdings 226
---------------------------------------------------------------------
</TABLE>
HOW DID INTERNATIONAL MARKETS PERFORM DURING THE PERIOD?
There were remarkable similarities in the performance of the world's financial
markets. Early in the period, investors favored technology, media and
telecommunications stocks at the expense of virtually everything else. In
mid-March, however, a number of factors combined to trigger declines in most
financial markets. Not only were investors growing uneasy about the relatively
high valuations of technology stocks, but concerns about higher U.S. interest
rates and a potential decline in U.S. economic growth and corporate profits had
a negative effect on the markets. In most markets, sell-offs occurred first in
technology stocks and then expanded to the broader market. As the period drew to
a close, volatility was the order of the day, and most overseas markets finished
the six-month period in negative territory.
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
We adjusted the Fund's asset allocation, and we raised its cash position, which
at the end of the period was 9%. The Fund's cash position reflects our strategy
of seeking stocks with reasonable prices. In the coming months, this cash is
likely to be invested in Continental Europe and Japan.
WERE THERE AREAS THAT BENEFITED THE FUND DESPITE THE TURBULENT ENVIRONMENT?
Investments in the United Kingdom (UK) and Europe were the best performers. We
raised the Fund's target weightings in the UK to 17% and in Europe to 43%, for a
total of 60% up from 56% at the beginning of the period.
<TABLE>
<CAPTION>
TOP 10 COUNTRIES
----------------------------------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<S> <C>
Japan 22.9%
-------------------------------------------------------------------
United Kingdom 15.7%
-------------------------------------------------------------------
Netherlands 8.8%
-------------------------------------------------------------------
United States 7.0%
-------------------------------------------------------------------
Germany 6.2%
-------------------------------------------------------------------
France 6.1%
-------------------------------------------------------------------
Spain 5.7%
-------------------------------------------------------------------
Hong Kong 4.4%
-------------------------------------------------------------------
Sweden 4.0%
-------------------------------------------------------------------
Finland 3.7%
-------------------------------------------------------------------
</TABLE>
E-51
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
PORTFOLIO MANAGER INTERVIEW
WHAT ACCOUNTED FOR YOUR ENTHUSIASM ABOUT THE UK AND EUROPE?
There are strong economic indicators from core countries--France, Germany and
Italy--suggesting that the raising of interest rates by the European Central
Bank was necessary to keep inflation under control. Inflation remains at 2% for
most of Europe. An important theme for the Fund continues to be the rapid
expansion of wireless telephony. We are particularly interested in the
beneficiaries of the so-called 3G (Third Generation) cellular telephone system,
which is expected to be rolled out in Scandinavia and the UK, ahead of the
United States, over the next two years. 3G will provide rapid e-mail and
internet access by cellular telephone and will spawn a new wave of applications.
The implications of the extraordinarily high prices paid by telecommunication
companies for 3G licenses, particularly in the UK, are still being digested by
the markets. We believe that massive infrastructure investment will be needed
and that there will be a complete handset re-equipment cycle. These developments
will favor the large, technologically advanced equipment and component providers
such as Nokia, Ericsson, Siemens and Epcos, all of which are holdings in the
Fund.
<TABLE>
<CAPTION>
TOP 5 SECTORS
-----------------------------------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<S> <C>
Information Technology 20.0%
-------------------------------------------------------------------
Financials 18.6%
-------------------------------------------------------------------
Industrials 13.4%
-------------------------------------------------------------------
Consumer Discretionary 12.8%
-------------------------------------------------------------------
Telecommunication Services 8.5%
-------------------------------------------------------------------
</TABLE>
HOW DID YOU MANAGE INVESTMENTS IN ASIA?
In Japan, sentiment about the timing and pace of economic recovery is still
cautious, but we are optimistic. The Organization for Economic Cooperation and
Development (OECD) has raised its forecast for economic growth in 2000 to 1.7%,
and there has been recovery in consumer spending, falling unemployment, rising
production and declining inventories. These positive indicators should lead to a
strong profit recovery, which we believe is not reflected in the market. The
Fund has holdings in telecommunication and technology stocks such as Rohm and
Kyocera, bluechip growth stocks such as Canon and cyclical consumer stocks such
as Honda. We plan to continue covering half of the Fund's yen exposure back into
the U.S. dollar, because we expect the Bank of Japan will allow the yen to
weaken as signs of economic recovery continue.
Other Asian markets have a strong link to the U.S. economy, because much of
their success depends on exports of consumer products and electronic components
to the U.S. Therefore, the sensitivity of these markets to the unfolding drama
of the U.S. 'soft landing' is greater than in others. However, the valuations of
some world-class manufacturers in Korea and Taiwan are considerably more
attractive than their U.S. counterparts. Most of the Fund's Asian investments
are in Hong Kong holdings in China Telecom, Cheung Kong and Hutchison Whampoa.
These investments provide exposure to a broad range of telecommunication,
trading and real estate interests in the region.
E-52
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
PORTFOLIO MANAGER INTERVIEW
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
----------------------------------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<S> <C>
Ericsson LM Telephone, Ser B. 3.5%
-------------------------------------------------------------------
Nokia Oyj 2.8%
-------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics NV 1.8%
-------------------------------------------------------------------
Rohm Co., Ltd. 1.8%
-------------------------------------------------------------------
Honda Motor Co., Ltd. 1.7%
-------------------------------------------------------------------
NEC Corp. 1.7%
-------------------------------------------------------------------
Canon, Inc. 1.5%
-------------------------------------------------------------------
Hitachi, Ltd. 1.5%
-------------------------------------------------------------------
TDK Corp. 1.5%
-------------------------------------------------------------------
Nippon Telegraph & Telephone Corp. 1.5%
-------------------------------------------------------------------
</TABLE>
WHAT IS YOUR OUTLOOK?
While the U.S. market tries to reconcile the prospect of rising interest rises,
international markets will be influenced by factors in their own economies. The
United States is in the late stages of an economic cycle. Europe is in
mid-cycle, with monetary policy and inflation under control, and Japan is early
in its economic recovery, with no inflation and interest rates at zero. Similar
events affect the various economies differently. For example, growth in consumer
demand and higher interest rates in Japan during the next three months would
probably be viewed as a sign of confidence in the economy. The same developments
in the United States might not be as well received. We believe being exposed to
world markets and economies at different stages of their economic cycle has
particular value; such a strategy not only provides shareholders with wider
opportunities, it also helps to moderate risk.
E-53
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 2000 -----------------------
(Unaudited)(a) 1999(a) 1998(a)(b)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $19.60 $14.01 $12.50
====== ====== ======
---------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
---------------------------------------------------------------------------------------------------------
Net investment income 0.03 0.02 0.02
---------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on
securities and foreign currency related transactions 0.13 5.58 1.49
---------------------------------------------------------------------------------------------------------
Total from investment operations 0.16 5.60 1.51
---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS (1.58) (0.01) 0
---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.18 $19.60 $14.01
====== ====== ======
---------------------------------------------------------------------------------------------------------
TOTAL RETURN* 0.46% 39.99% 12.08%
---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------
Net assets, end of period (thousands) $29,249 $24,816 $11,821
---------------------------------------------------------------------------------------------------------
Ratios to average net assets
Expenses** 1.34%+ 1.96% 1.60%+
---------------------------------------------------------------------------------------------------------
Net investment income 0.35%+ 0.13% 0.34%+
---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 68% 113% 95%
---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Effective February 1, 2000, shareholders of Mentor VIP Perpetual
International Portfolio became owners of that number of full and fractional
shares of Evergreen VA Perpetual International Fund. As Mentor VIP Perpetual
International Portfolio contributed the majority of assets and shareholders
to the Evergreen VA Perpetual International Fund, its accounting and
performance history is carried forward.
(b) For the period from March 3, 1998 (commencement of operations) to December
31, 1998.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-54
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Country Shares Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - 91.6%
CONSUMER DISCRETIONARY - 11.9%
Auto Components - 0.2%
BBA Group Plc ........................................ United Kingdom 8,241 $ 53,993
---------
AUTOMOBILES - 1.8%
Honda Motor Co., Ltd. ................................ Japan 15,000 510,344
Mahindra & Mahindra, Ltd. GDR ........................ India 4,000 18,000
---------
528,344
---------
DISTRIBUTORS - 0.9%
Li & Fung ............................................ Hong Kong 17,000 85,049
Synnex Technology International Corp., GDR ........... Taiwan 7,200 153,000
Wolseley Plc. ........................................ United Kingdom 7,707 41,398
---------
279,447
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.2%
Tf1 Tv Francaise. .................................... France 1,030 71,784
---------
HOTELS, RESTAURANTS & LEISURE - 0.7%
Cafe De Coral Holdings, Ltd. ......................... Hong Kong 60,000 21,551
Corp Interamericana Entretenimiento SA. .............. Mexico 8,000 31,282
First Choice Holidays Plc ............................ United Kingdom 9,000 19,746
Granada Group Plc .................................... United Kingdom 8,000 79,891
Hilton Group Plc ..................................... United Kingdom 17,132 60,140
---------
212,610
---------
HOUSEHOLD DURABLES - 3.4%
Fairview Holdings Plc ................................ United Kingdom 18,400 40,370
Koninklijke (Royal) Philips Electronics NV ........... Netherlands 11,208 528,594
Matsushita-Kotobuki Electronics Industries Ltd. ...... Japan 19,000 424,391
Taylor Woodrow ....................................... United Kingdom 9,000 20,835
Wimpey (George) ...................................... United Kingdom 10,000 17,514
---------
1,031,704
---------
LEISURE EQUIPMENT & PRODUCTS - 0.5%
e-New Media Co., Ltd. ................................ Hong Kong 150,000 19,627
Infogrames Entertainment SA .......................... France 4,931 125,693
---------
145,320
---------
MEDIA - 2.3%
ABS-CBN Broadcasting Corp. ........................... Philippines 23,000 28,451
Bec World............................................. Thailand 4,000 24,301
Daily Mail & General Trust, Class A. ................. United Kingdom 3,660 63,409
Globo Cabo SA, ADR ................................... Brazil 500 6,937
Grupo Televisa SA, ADR ............................... Mexico 900 62,044
Gruppo Editoriale L'Espresso ......................... Italy 1,251 14,810
Rank Group ........................................... United Kingdom 7,450 17,247
Reed Intl. ........................................... United Kingdom 6,000 52,202
</TABLE>
E-55
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Country Shares Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - CONTINUED
CONSUMER DISCRETIONARY - CONTINUED
MEDIA - CONTINUED
Shaw Brothers (Hong Kong), Ltd. ...................... Hong Kong 43,000 $ 44,680
Singapore Press Holdings, Ltd. ....................... Singapore 2,000 31,268
Trinity Mirror Plc ................................... United Kingdom 6,300 56,528
VNU NV ............................................... Netherlands 5,595 288,978
---------
690,855
---------
METALS & MINING - 0.4%
Giordano International, Ltd. ......................... Hong Kong 70,000 106,408
---------
MULTI-LINE RETAIL - 0.4%
Debenhams Retail Plc ................................. United Kingdom 10,000 32,759
Next Plc ............................................. United Kingdom 6,928 60,590
Selfridges Plc. ...................................... United Kingdom 9,000 39,219
---------
132,568
---------
SPECIALTY RETAIL - 0.4%
D.F.S. Furniture Co. Plc ............................. United Kingdom 3,900 20,772
Mfi Furniture Group .................................. United Kingdom 26,250 25,321
Signet Group Plc ..................................... United Kingdom 68,925 57,620
---------
103,713
---------
TEXTILES & APPAREL - 0.7%
Gucci Group NV ....................................... Netherlands 2,150 202,284
---------
CONSUMER STAPLES - 6.5%
BEVERAGES - 1.7%
Al-Ahram Beverage Co. SA, GDR ........................ Egypt 18,000 309,150
Bass Plc ............................................. United Kingdom 9,677 108,792
Coca-Cola Femsa SA, ADR .............................. Mexico 2,580 48,698
Diageo Plc ........................................... United Kingdom 5,400 48,452
---------
515,092
---------
DISTRIBUTORS - 0.7%
Buhrmann NV. ......................................... Netherlands 7,620 217,881
---------
FOOD & DRUG RETAILING - 0.7%
Boots Co. Plc. ....................................... United Kingdom 4,000 30,444
Iceland Group Plc. . ................................. United Kingdom 16,355 68,982
Safeway Plc. ......................................... United Kingdom 8,000 31,109
Tesco Plc ............................................ United Kingdom 23,200 72,138
---------
202,673
---------
</TABLE>
E-56
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Country Shares Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - CONTINUED
CONSUMER STAPLES - CONTINUED
FOOD PRODUCTS - 0.2%
Express Dairies Plc .................................. United Kingdom 27,000 $ 34,726
Northern Foods Plc ................................... United Kingdom 8,900 16,025
Tate & Lyle Plc ...................................... United Kingdom 3,610 18,025
---------
68,776
---------
PAPER & FOREST PRODUCTS - 0.8%
Sappi Ltd. ........................................... United States 32,500 239,687
---------
PERSONAL PRODUCTS - 1.1%
Body Shop International Plc .......................... United Kingdom 15,500 28,144
L'Oreal .............................................. France 296 256,310
Reckitt Benckiser Plc ................................ United Kingdom 2,700 30,232
---------
314,686
---------
TOBACCO - 1.3%
British America Tobacco Inds. Plc .................... United Kingdom 12,175 81,241
PT HM Sampoerna ...................................... Indonesia 22,000 31,922
Tabacalera, Ser. A ................................... Spain 17,056 262,000
---------
375,163
---------
ENERGY - 2.3%
ENERGY EQUIPMENT & SERVICES - 1.2%
IHC Caland NV ........................................ Netherlands 2,730 132,923
Petroleum Geo-Services ............................... Norway 12,890 220,079
---------
353,002
---------
OIL & GAS - 1.1%
Enterprise Oil Plc ................................... United Kingdom 6,960 58,026
Petroleo Brasileiro SA, ADR ( "Petrobras") ........... Brazil 1,640 49,547
Shell Transportation & Trading Co. Plc ............... United Kingdom 29,250 244,084
---------
351,657
---------
FINANCIALS - 18.2%
BANKS - 5.3%
Abbey Natl. Bank Plc ................................. United Kingdom 9,825 117,443
Akbank Turk Anonim Sirket. ........................... Turkey 26,000,000 201,156
Banco Popular Espanol SA ............................. Spain 8,310 257,047
Bank of Scotland. .................................... United Kingdom 12,000 114,118
Barclays Bank Plc .................................... United Kingdom 3,449 85,743
Dah Sing Financial Group. ............................ Hong Kong 16,031 64,572
Hypo Vereinsbank AG .................................. Germany 610 39,403
Lloyds TSB Group Plc. ................................ United Kingdom 14,500 136,905
Overseas Union Bank, Ltd. ............................ Singapore 16,000 62,073
Public Bank Bhd ...................................... Malaysia 50,000 50,000
Royal Bank of Scotland Group Plc ..................... United Kingdom 4,840 80,997
</TABLE>
E-57
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Country Shares Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - CONTINUED
FINANCIALS - CONTINUED
BANKS - CONTINUED
Standard Chartered Bank .............................. United Kingdom 5,700 $ 70,981
Turkiye Garanti Bankasi SA ........................... Turkey 17,000,000 205,508
Uniao de Bancos Brasileiros SA, GDR ("Unibanco") ..... Brazil 1,400 40,250
United Overseas Bank ................................. Singapore 8,448 55,276
---------
1,581,472
---------
DIVERSIFIED FINANCIALS - 9.8%
Aeon Credit Service Co., Ltd. ........................ Hong Kong 148,400 49,971
Aiful Corp. .......................................... Japan 3,450 317,996
Cattles Plc .......................................... United Kingdom 12,000 44,485
Dexia Ex Dexia Bel ................................... Belgium 841 128,464
Fortis (B) ........................................... Belgium 4,383 127,542
Fortis (NL) NV ....................................... Netherlands 3,480 101,299
HSBC Holdings Plc .................................... Hong Kong 6,375 72,987
Hutchison Whampoa, Ltd. .............................. Hong Kong 14,000 175,999
ING Groep NV ......................................... Netherlands 3,973 268,546
Irish Life & Permanent Plc ........................... Ireland 13,210 111,797
Kokusai Securities Co., Ltd. ......................... Japan 14,000 193,827
Lonrho Plc ........................................... United Kingdom 6,000 66,546
Orix Corp. ........................................... Japan 2,800 412,987
Public Finance Bhd ................................... Malaysia 32,000 33,853
Sulzer AG. ........................................... Switzerland 105 69,837
Taiwan Opportunities Fund ............................ Taiwan 2,000 29,500
Tele Atlas NV ........................................ Netherlands 7,450 108,822
Veba AG .............................................. Germany 4,235 204,179
Vivendi SA ........................................... France 4,673 412,449
---------
2,931,086
---------
INSURANCE - 2.0%
Aegon NV ............................................. Netherlands 5,671 201,784
Britannic Assurance Plc .............................. United Kingdom 2,550 38,102
Legal & General Group Plc ............................ United Kingdom 5,000 11,689
Munchener Ruckvers ................................... Germany 980 307,814
Prudential Corp. Plc ................................. United Kingdom 3,510 51,410
---------
610,799
---------
REAL ESTATE - 1.1%
Amoy Properties, Ltd. ................................ Hong Kong 50,000 33,353
Burford Holdings Plc ................................. United Kingdom 27,000 39,730
Chelsfield Plc ....................................... United Kingdom 4,000 19,489
Cheung Kong Holdings, Ltd. ........................... Hong Kong 17,000 186,999
Land Securities Plc .................................. United Kingdom 4,100 49,009
---------
328,580
---------
</TABLE>
E-58
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
Country Shares Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - CONTINUED
HEALTH CARE - 3.3%
BIOTECHNOLOGY - 0.4%
Cambridge Antibody Technology Group, Plc .................................... United Kingdom 600 $ 26,873
Celltech Group Plc, Class F . ............................................... United Kingdom 4,300 83,281
-----------
110,154
-----------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.3%
Nycomed Amersham Plc ........................................................ United Kingdom 10,200 101,244
-----------
MACHINERY - 0.3%
Coflexip SA ................................................................. France 775 93,966
-----------
PHARMACEUTICALS - 2.3%
British Biotech ............................................................. United Kingdom 50,000 15,131
Elan Corp. Plc, ADR ......................................................... Ireland 7,007 339,401
Sankyo Co. .................................................................. Japan 11,000 248,292
Scotia Holdings Plc ......................................................... United Kingdom 6,960 13,533
Zeneca Group. ............................................................... United Kingdom 1,500 70,019
-----------
686,376
-----------
INDUSTRIALS - 13.1%
AEROSPACE & DEFENSE - 0.7%
British Aerospace Plc ....................................................... United Kingdom 9,500 59,223
Meggitt Plc ................................................................. United Kingdom 14,122 37,821
Rolls-Royce Plc ............................................................. United Kingdom 20,820 73,874
Singapore Tech Eng .......................................................... Singapore 20,000 29,415
-----------
200,333
-----------
AIR FREIGHT & COURIERS - 1.0%
TNT Post Group NV ........................................................... Netherlands 11,290 304,494
-----------
AIRLINES - 0.5%
British Airways Plc ......................................................... United Kingdom 8,400 48,298
Lufthansa AG. ............................................................... Germany 3,796 87,738
-----------
136,036
-----------
AUTOMOBILES - 0.2%
Brilliance China Automotive ................................................. United States 4,000 69,500
-----------
BUILDING PRODUCTS - 0.5%
Geberit International AG .................................................... Switzerland 481 160,697
-----------
COMMERCIAL SERVICES & SUPPLIES - 5.5%
Amadeus Global Travel ....................................................... Spain 12,835 146,430
Atos SA ..................................................................... France 1,232 115,267
Canon, Inc. ................................................................. Japan 9,000 447,858
Cap Gemini NV ............................................................... France 864 152,187
ITG Group Plc. .............................................................. Ireland 10,055 105,307
Ricoh Co., Ltd. ............................................................. Japan 7,000 148,108
</TABLE>
E-59
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
Country Shares Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - CONTINUED
INDUSTRIALS - CONTINUED
COMMERCIAL SERVICES & SUPPLIES - CONTINUED
Securicor Plc ............................................................... United Kingdom 20,115 $ 41,545
Telegate SA ................................................................. Germany 1,270 130,947
Toppan Printing Co., Ltd. ................................................... Japan 33,000 348,956
-----------
1,636,605
-----------
CONSTRUCTION & ENGINEERING - 0.0%
Mitsui Engineering & Shipbuilding ........................................... Japan 3,000 2,856
-----------
ELECTRICAL EQUIPMENT - 0.7%
Elexis AG. .................................................................. Germany 10,700 69,464
Entrelec Groupe SA .......................................................... France 2,570 131,880
-----------
201,344
-----------
HOUSEHOLD PRODUCTS - 0.1%
Grupo Carso SA de CV, ADR ................................................... Mexico 3,500 24,535
-----------
INDUSTRIAL CONGLOMERATES - 1.6%
Johnson Electric Holdings, Ltd. ............................................. Hong Kong 7,000 66,449
NatSteel Electronics, Ltd. .................................................. Singapore 7,000 21,482
Siemens AG .................................................................. Germany 1,870 282,076
Smiths Industries Plc ....................................................... United Kingdom 2,728 35,499
Swire Pacific Ltd. .......................................................... Hong Kong 15,000 87,935
-----------
493,441
-----------
MACHINERY - 1.3%
Bodycote Intl. .............................................................. United Kingdom 17,000 55,947
Fuji Machine Manufacturing Co., Ltd. ........................................ Japan 2,300 120,739
Konecranes Intl. ............................................................ Finland 5,250 175,426
Larsen & Toubro, Ltd., GDR .................................................. India 1,100 11,935
TI Group Plc. ............................................................... United Kingdom 5,240 28,543
-----------
392,590
-----------
MARINE - 0.3%
Associated British Ports Holdings Plc ....................................... United Kingdom 9,005 44,351
Smith (H.W.) Group Plc ...................................................... United Kingdom 6,260 37,888
-----------
82,239
-----------
ROAD & RAIL - 0.2%
Railtrack Group Plc ......................................................... United Kingdom 4,000 62,128
-----------
TRANSPORTATION INFRASTRUCTURE - 0.5%
Autopistas Cesa ............................................................. Spain 13,300 5,714
Autopistas del Mare Nostrum SA .............................................. Spain 1,551 20,730
Autopistas, Concesionaria Espanola SA ....................................... Spain 13,300 115,674
Stagecoach Holdings Plc ..................................................... United Kingdom 7,000 7,732
-----------
149,850
-----------
</TABLE>
E-60
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
Country Shares Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - CONTINUED
INFORMATION TECHNOLOGY - 19.5%
COMMUNICATIONS EQUIPMENT - 6.8%
Datacraft Asia, Ltd. ........................................................ Singapore 4,160 $ 36,608
Enea Date Ab ................................................................ Sweden 1,800 12,245
Enea Date Ab ................................................................ Sweden 18,200 123,809
Ericsson LM Telephone ....................................................... Sweden 52,149 1,031,746
Nokia Oyj ................................................................... Finland 16,068 819,930
-----------
2,024,338
-----------
COMPUTERS & PERIPHERALS - 2.5%
Compal Electronic, GDR ...................................................... Taiwan 10,351 126,800
Computer & Technologies Holdings, Ltd. ...................................... Hong Kong 30,000 30,595
Hon Hai Precision Industry Co., Ltd., GDR ................................... Taiwan 1,000 25,000
NEC Corp. ................................................................... Japan 16,000 502,144
Ritek Corp., GDR ............................................................ Taiwan 2,393 19,020
Systex Corp. ................................................................ United States 3,000 31,950
-----------
735,509
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 6.6%
Cookson Group Plc ........................................................... United Kingdom 42,000 140,128
ELMOS Semiconductor AG ...................................................... Germany 5,067 256,386
Epcos AG. ................................................................... Germany 1,743 173,876
Hirose Elec. ................................................................ Japan 200 31,120
Hitachi, Ltd. ............................................................... Japan 30,000 432,590
Kyocera Corp. ............................................................... Japan 2,500 423,873
Stonesoft Oyj ............................................................... Finland 6,020 95,405
TDK Corp. ................................................................... Japan 3,000 430,894
-----------
1,984,272
-----------
INTERNET SOFTWARE & SERVICES - 0.3%
Himalaya .................................................................... France 3,600 99,671
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 3.1%
Be Semiconductor I. ......................................................... Netherlands 6,000 93,656
Mirae Corp., ADR . .......................................................... Korea 3,000 23,250
Rohm Co., Ltd. .............................................................. Japan 1,800 525,894
Samsung Electronics, Ltd., GDR, 144A ........................................ Korea 180 35,190
Samsung Electronics, Ltd., GDR, 144A non-voting shares ...................... Korea 1,125 102,797
Winbond Electronics Corp., GDR .............................................. Taiwan 5,550 159,563
-----------
940,350
-----------
SOFTWARE - 0.2%
Singapore Computer .......................................................... Singapore 30,000 64,968
-----------
</TABLE>
E-61
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
Country Shares Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - CONTINUED
MATERIALS - 5.2%
CHEMICALS - 1.7%
Asahi Chemical Industry Co., Ltd. ........................................... Japan 12,000 $ 84,822
Imperial Chemical Inds. Plc. ................................................ United Kingdom 10,000 79,362
Shin Etsu Chemical Co., Ltd. ................................................ Japan 7,000 354,931
-----------
519,115
-----------
CONSTRUCTION MATERIALS - 1.4%
CRH Plc. .................................................................... Ireland 11,891 214,559
Imerys SA ................................................................... France 1,660 192,712
-----------
407,271
-----------
CONTAINERS & PACKAGING - 0.9%
Ifco Sys. ................................................................... Netherlands 5,060 134,779
Pechiney SA ................................................................. France 3,013 125,704
-----------
260,483
-----------
METALS & MINING - 0.9%
Corus Group ................................................................. United Kingdom 40,000 58,405
Johnson Matthey Plc ......................................................... United Kingdom 2,000 28,144
Pohang Iron & Steel, Ltd., ADR .............................................. Korea 3,700 88,800
Rio Tinto Plc ............................................................... United Kingdom 5,625 91,921
-----------
267,270
-----------
PAPER & FOREST PRODUCTS - 0.3%
Empresa Nacional de Celulosas SA. ........................................... Spain 5,720 93,381
-----------
TELECOMMUNICATION SERVICES - 8.3%
DIVERSIFIED TELECOMMUNICATION SERVICES - 6.1%
Asia Satellite Telecommunications Holdings, Ltd. ............................ Hong Kong 24,000 82,048
British Telecommunications Plc .............................................. United Kingdom 5,500 71,070
Cable & Wireless Plc ........................................................ United Kingdom 7,500 126,987
Global TeleSystems Group, Inc. .............................................. Germany 5,760 69,480
Indosat, ADR ................................................................ Indonesia 30,000 35,304
Kingston Communication (Hull) Plc. .......................................... United Kingdom 1,480 14,556
Korea Telecom Corp. ......................................................... Korea 1,000 48,375
Mahanagar Telep Ni, GDR ..................................................... India 2,000 20,000
Nexus Telecommunication ..................................................... Israel 100,000 256,250
Nippon Telegraph & Telephone Corp. .......................................... Japan 32 425,239
Tele Norte Leste Participacoes SA, ADR ...................................... Brazil 2,683 63,386
Telecel-Comunicacoes Pessoais, SA ........................................... Portugal 11,765 178,590
Telefonica SA ............................................................... Spain 15,765 338,644
Telefonos de Mexico SA, ADR ("Telmex") ...................................... Mexico 1,640 93,685
-----------
1,823,614
-----------
</TABLE>
E-62
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
Country Shares Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS - CONTINUED
TELECOMMUNICATION SERVICES - CONTINUED
WIRELESS TELECOMMUNICATIONS SERVICES - 2.2%
China Telecom (Hong Kong), Ltd. ............................................. Hong Kong 17,000 $ 149,926
Grupo Iusacell SA de CV New ................................................. United States 3,900 60,937
Smartone Telecom ............................................................ Bermuda 10,055 22,250
Tele Celular Sul Participacoes .............................................. United States 600 27,150
Telemig Celular Participacoes SA, ADR ....................................... Brazil 200 14,300
Telesp Celular Participacoes SA ............................................. Brazil 500 22,438
Vodafone Airtouch Plc ....................................................... United Kingdom 89,163 360,216
-----------
657,217
-----------
UTILITIES - 3.3%
ELECTRIC UTILITIES - 2.3%
Companhia Brasileira de Distr, ADR .......................................... Brazil 1,200 38,550
Endesa SA ................................................................... Spain 9,160 177,437
National Power Plc .......................................................... United Kingdom 8,000 50,961
Powergen Plc ................................................................ United Kingdom 3,500 29,922
Scot & Southern Energy Plc .................................................. United Kingdom 5,500 50,432
The Tokyo Elec. Pwr. Co., Inc. .............................................. Japan 13,000 316,715
United Utilities Plc. ....................................................... United Kingdom 2,976 29,449
-----------
693,466
-----------
GAS UTILITIES - 1.0%
BG Group Plc ................................................................ United Kingdom 8,888 57,425
Gas Natural Sdg ............................................................. Spain 14,000 251,277
-----------
308,702
-----------
TOTAL COMMON STOCKS (COST $25,060,560) .................................. 27,437,599
-----------
PREFERRED STOCKS - 0.6%
CONSUMER DISCRETIONARY - 0.6%
AUTOMOBILES - 0.6%
Porsche AG (cost $146,158) .................................................. Germany 70 190,463
-----------
<CAPTION>
Principal
Amount
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS - 3.4%
REPURCHASE AGREEMENTS - 3.4%
State Street Bank & Trust Co. 6.30%, dated
06/30/2000, maturing, 07/03/2000, maturity value
$1,005,150 (cost $1,004,630)(2) ............................................ United States 1,004,630 1,004,630
-----------
TOTAL INVESTMENTS - (COST $26,211,348) - 95.6% ..................................................................... 28,632,692
OTHER ASSETS AND LIABILITIES - 4.4% ................................................................................ 1,316,703
-----------
NET ASSETS - 100.0% ................................................................................................ $29,949,395
-----------
</TABLE>
SEE COMBINED NOTES TO SCHEDULES OF INVESTMENTS.
E-63
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
<S> <C>
------------------------------------------------------------------------------------------------------------------------------
ASSETS
Identified cost of securities ............................................................................. $25,206,718
Repurchase agreements, at amortized cost .................................................................. 1,004,630
------------------------------------------------------------------------------------------------------------------------------
Total identified cost of investments ...................................................................... 26,211,348
Net unrealized gains on securities ........................................................................ 2,421,344
------------------------------------------------------------------------------------------------------------------------------
Market value of securities ................................................................................ 28,632,692
Cash. ..................................................................................................... 26,382
Foreign currency, at value (cost $62,887) ................................................................. 62,129
Receivable for securities sold ............................................................................ 470,056
Dividends and interest receivable ......................................................................... 51,565
Unrealized gains on forward foreign currency exchange contracts. .......................................... 75,306
Deferred organization expenses ............................................................................ 6,135
------------------------------------------------------------------------------------------------------------------------------
Total assets ............................................................................................ 29,324,265
------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for securities purchased .......................................................................... 51,625
Advisory fee payable ...................................................................................... 2,373
Due to other related parties .............................................................................. 237
Accrued expenses and other liabilities .................................................................... 20,635
------------------------------------------------------------------------------------------------------------------------------
Total liabilities ....................................................................................... 74,870
------------------------------------------------------------------------------------------------------------------------------
NET ASSETS .................................................................................................. $29,249,395
==============================================================================================================================
NET ASSETS REPRESENTED BY
Paid-in capital ........................................................................................... $24,311,160
Undistributed net investment income. ...................................................................... 47,167
Accumulated net realized gains on securities and foreign currency related transactions .................... 2,395,741
Net unrealized gains on securities and foreign currency related transactions .............................. 2,495,327
------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS ............................................................................................ $29,249,395
==============================================================================================================================
SHARES OUTSTANDING .......................................................................................... 1,608,875
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ................................................................................... $ 18.18
==============================================================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-64
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<S> <C>
------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $30,483) ................................................... $ 197,561
Interest .................................................................................................. 32,938
------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME ..................................................................................... 230,499
==============================================================================================================================
EXPENSES
Advisory fee .............................................................................................. 138,313
Administrative services fees .............................................................................. 13,831
Transfer agent fee ........................................................................................ 128
Trustees' fees and expenses. .............................................................................. 280
Printing and postage expenses ............................................................................. 6,752
Custodian fee ............................................................................................. 17,624
Professional fees ......................................................................................... 6,799
Organization expenses ..................................................................................... 1,162
Other ..................................................................................................... 436
------------------------------------------------------------------------------------------------------------------------------
Total expenses .......................................................................................... 185,325
Less: Expense reductions ................................................................................ (1,993)
------------------------------------------------------------------------------------------------------------------------------
Net expenses ............................................................................................ 183,332
------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ..................................................................................... 47,167
==============================================================================================================================
NET REALIZED AND UNREALIZED GAINS OR LOSSES ON SECURITIES AND FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gains or losses on:
Securities .............................................................................................. 2,540,625
Foreign currency related transactions ................................................................... (74,661)
------------------------------------------------------------------------------------------------------------------------------
Net realized gains on securities and foreign currency related transactions ................................ 2,465,964
------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized losses on securities and foreign currency related transactions ................... (2,430,629)
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on securities and foreign currency related transactions ................. 35,335
------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................................................... $ 82,502
==============================================================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-65
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA PERPETUAL INTERNATIONAL FUND
STATEMENT OF CHANGES IN NET ASSETS
Six Months
Ended
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income .................................................................. $ 47,167 $ 22,312
Net realized gains on securities and foreign currency related transactions ............. 2,465,964 2,172,701
Net change in unrealized gains or losses on securities and foreign currency related
transactions .......................................................................... (2,430,629) 4,273,273
---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ................................. 82,502 6,468,286
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gains ..................................................................... (2,238,337) (11,368)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders .................................................. (2,238,337) (11,368)
---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold. ............................................................. 4,771,400 7,703,706
Payment for shares redeemed ............................................................ (420,394) (1,177,344)
Net asset value of shares issued in reinvestment of distributions ...................... 2,238,334 11,368
---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from capital share transactions ................. 6,589,340 6,537,730
---------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ....................................................... 4,433,505 12,994,648
NET ASSETS
Beginning of period .................................................................... 24,815,890 11,821,242
---------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD .......................................................................... $29,249,395 $24,815,890
=================================================================================================================================
Undistributed net investment income ...................................................... $ 47,167 $ 0
=================================================================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-66
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
FUND AT A GLANCE AS OF JUNE 30, 2000
"WE THINK TECHNOLOGY STOCKS COULD CONTINUE TO ACHIEVE EXCEPTIONAL EARNINGS
GROWTH, DESPITE THEIR HIGH VALUATIONS."
PORTFOLIO MANAGEMENT
---------------------------
[PHOTO] [PHOTO]
TIM STEVENSON, CFA ERIC M.TEAL, CFA
TENURE: OCTOBER 1999 TENURE: OCTOBER 1999
[PHOTO]
JAY ZELKO
TENURE: OCTOBER 1999
(1) Past performance is no guarantee of future results. The investment return
and principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than original cost. Performance includes the
reinvestment of income dividends and capital gains distributions.
The Fund's investment objective is non-fundamental and may be changed without
the vote of shareholders.
Foreign investments may contain more risk due to the inherent risks associated
with changing political climates, foreign market instability and foreign
currency fluctuations.
Small capitalization stock investing may offer the potential for greater
long-term results, however, it is also generally associated with greater price
volatility due to the higher risk of failure.
<TABLE>
--------------------------------
PERFORMANCE & RETURNS (1)
--------------------------------
<S> <C>
PORTFOLIO INCEPTION DATE: 9/29/1999
-----------------------------------------------------------------------------
CUMULATIVE RETURNS
-----------------------------------------------------------------------------
6-month 4.36%
-----------------------------------------------------------------------------
Since Portfolio Inception 23.95%
-----------------------------------------------------------------------------
6-month capital gain distributions per share $0.31
-----------------------------------------------------------------------------
</TABLE>
[GRAPH]
<TABLE>
--------------------------------
LONG TERM GROWTH
--------------------------------
VA SPECIAL EQUITY FUND RUSSELL 2000 CPI
---------------------- ------------ ---
<S> <C> <C> <C>
9/99 $10,000 $10,000 $10,000
6/00 $12,203 $12,395 $10,204
</TABLE>
COMPARISON OF A $10,000 INVESTMENT IN EVERGREEN VA SPECIAL EQUITY FUND(1)
VERSUS A SIMILAR INVESTMENT IN THE RUSSELL 2000 INDEX (RUSSELL 2000) AND THE
CONSUMER PRICE INDEX (CPI).
The RUSSELL 2000 is an unmanaged market index which does not include transaction
costs associated with buying and selling securities or any mutual fund expenses.
The CPI is a commonly used measure of inflation and does not represent an
investment return. It is not possible to invest directly in an index.
Performance results are extremely short-term, and may not provide an adequate
basis for evaluating a fund's performance potential over varying market
conditions or economic cycles. Unusual investment returns may be a result of a
fund's recent inception, existing market and economic conditions and the
increased potential of a small number of stocks affecting fund performance due
to the smaller asset size. Most mutual funds are intended to be long-term
investments.
All data is as of June 30, 2000 and subject to change.
E-67
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
PORTFOLIO MANAGER INTERVIEW
HOW DID THE FUND PERFORM?
Evergreen VA Special Equity Fund returned 4.36% for the six-month period ended
June 30, 2000, outperforming the Russell 2000 Index, which returned 3.04%. We
attribute the Fund's strong relative performance to its holdings in the
technology and brokerage services sectors.
PORTFOLIO CHARACTERISTICS
-------------------------
(AS OF 6/30/2000)
<TABLE>
<S> <C>
Total Net Assets $14,393,209
---------------------------------------------------------------------
Number of Holdings 152
---------------------------------------------------------------------
P/E Ratio 19.1x
---------------------------------------------------------------------
</TABLE>
WHY DID SMALL CAPITALIZATION STOCKS EXPERIENCE SUCH CONSIDERABLE PRICE SWINGS
DURING THE PERIOD?
Expectations of strong earnings growth and increasing opportunities within
certain industries drove prices higher, while investors' concerns that a tighter
Federal Reserve Board policy would interrupt the quarterly progression of
positive earnings surprises--particularly in light of some extraordinarily high
stock valuations--pushed prices lower. Many of the big winners over the past
several quarters were the big losers in the market's retreat. "New Economy"
stocks such as internet and software companies provided much of the fireworks.
Biotechnology stocks also captured headlines, as investor optimism soared over
the prospects for human gene mapping. Some of the "Old Economy" stocks were not
immune to the market's gyrations, either, as some industries experienced
spectacular rallies in response to strong earnings growth. The energy sector, in
particular, stood out as steadily rising oil and gas prices drove many of these
stocks to new highs before succumbing to concerns about a slowdown in global
demand in response to expectations of higher interest rates.
<TABLE>
TOP 5 SECTORS
-------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<S> <C>
Information Technology 29.3%
-------------------------------------------------------------------
Consumer Discretionary 15.3%
-------------------------------------------------------------------
Financials 13.0%
-------------------------------------------------------------------
Industrials 12.2%
-------------------------------------------------------------------
Health Care 11.7%
-------------------------------------------------------------------
</TABLE>
WHAT STOCKS MOST AFFECTED THE FUND'S PERFORMANCE?
Holdings in the technology, industrial and energy sectors all contributed to the
Fund's returns. Brokerage services stocks also added to the Fund's performance,
although some of the stocks in that sector experienced higher-than-average
volatility. Our slight under-weighting in technology issues was offset by the
Fund's stock selection discipline, which identified exceptional performers like
Integrated Device Technology (IDTI) and Trimble Navigation (TRMB). During the
period, IDTI rose 106% and TRMB rose 126%, versus the 1.1% gain produced by the
technology stocks in the Russell 2000 Index. In contrast, the Fund was
over-weighted in the industrial and energy sectors, with positions in Hanover
Compressor (HC), Mark IV industries (IV), Stone Energy (SGY) and Western Gas
Resources (WGR). Dain Rauscher (DRC) was our most prominent holding in brokerage
services. Detracting from performance were stocks in the drugs and health care
sectors and the telephone industry. Some of these stocks included Supergen
(SUPG) and Nextlink Communications (NXLK).
E-68
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
PORTFOLIO MANAGER INTERVIEW
TOP 10 HOLDINGS
---------------------------------------
(AS A PERCENTAGE OF 6/30/2000 NET ASSETS)
<TABLE>
<S> <C>
Pegrine Systems, Inc. 1.9%
-------------------------------------------------------------------
Hanover Compressor Co. 1.7%
-------------------------------------------------------------------
Dain Rauscher Corp. 1.7%
-------------------------------------------------------------------
American Capital Strategies, Ltd. 1.7%
-------------------------------------------------------------------
Nabors Industries, Inc. 1.6%
-------------------------------------------------------------------
Imperial Bancorp 1.5%
-------------------------------------------------------------------
Newfield Exploration Co. 1.5%
-------------------------------------------------------------------
Mercury Interactive Corp. 1.4%
-------------------------------------------------------------------
Michaels Stores, Inc. 1.3%
-------------------------------------------------------------------
Circle International Group, Inc. 1.2%
-------------------------------------------------------------------
</TABLE>
WHAT ARE YOUR EXPECTATIONS FOR SMALL CAPITALIZATION STOCKS OVER THE NEXT SIX
MONTHS?
We think an improved earnings outlook and the ongoing boom in information
technology will drive prices higher. We do not anticipate a significant economic
slowdown in the third quarter of 2000--therefore, we do not believe investors
will redirect their assets to larger, more liquid stocks.
We think technology stocks could continue to achieve exceptional earnings
growth, despite their high valuations. The productivity enhancing benefits of
today's technology products compel many businesses to invest heavily in
technology in order to remain competitive in the global marketplace. We expect
demand for faster and better technology to remain solid. Other sectors also are
poised for success, in our opinion. Many smaller companies have carved out
profitable niches within their industries that may ultimately translate into
higher stock prices. We expect a number of these companies to benefit from
merger and acquisition activity as larger competitors view smaller companies as
important sources of future earnings growth.
E-69
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000 Period Ended
(Unaudited) December 31, 1999(a)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.84 $10.00
====== ======
----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0 0
----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities 0.55 1.88
------ ------
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.55 1.88
------ ------
----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS (0.31) (0.04)
------ ------
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.08 $11.84
====== =======
----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 4.27% 18.87%
----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (thousands) $14,393 $3,059
----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
Expenses** 1.02%+ 1.03%+
----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.10%)+ (0.07%)+
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 262% 104%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from September 29, 1999 (commencement of operations) to
December 31, 1999.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-70
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCKS - 98.6%
CONSUMER DISCRETIONARY - 14.4%
AUTO COMPONENTS - 1.2%
Superior Industries International, Inc...................... 4,982 $128,286
Tenneco Automotive, Inc.. .................................. 9,459 49,660
-------
177,946
-------
DISTRIBUTORS - 1.2%
Kent Electronics Corp. ..................................... 1,948 58,075
SCP Pool Corp. . ........................................... 4,777 112,247
-------
170,322
-------
HOTELS, RESTAURANTS & LEISURE - 2.6%
Applebee's International, Inc. ............................. 5,522 167,386
CEC Entertainment, Inc. *. ................................. 6,343 162,539
Pinnacle Entertainment, Inc. ............................... 2,197 42,704
-------
372,629
-------
HOUSEHOLD DURABLES - 0.3%
Applica, Inc. .............................................. 3,805 43,044
-------
INTERNET & CATALOG RETAIL - 0.5%
Coldwater Creek, Inc. * . .................................. 2,342 70,553
-------
MEDIA - 4.0%
Chris Craft Industries., Inc. .............................. 1,624 107,285
Emmis Broadcasting Corp., Class A * ........................ 1,672 69,179
Interpublic Group of Companies, Inc......................... 1,645 70,735
SBS Broadcasting SA * .. ................................... 1,527 83,222
True North Communications, Inc. ............................ 3,265 143,660
VDI Media * . .............................................. 13,660 95,620
-------
569,701
-------
SPECIALTY RETAIL - 2.4%
Michaels Stores, Inc. *. ................................... 3,956 181,235
Pacific Sunwear of California * ............................ 5,523 103,556
Whitehall Jewellers, Inc. .................................. 3,434 63,958
-------
348,749
-------
TEXTILES & APPAREL - 1 .4%
Guess?, Inc. * ............................................. 4,227 59,178
Kenneth Cole Productions, Inc., Class A *................... 1,579 63,160
Wellman, Inc. .............................................. 5,140 83,204
-------
205,542
-------
REAL ESTATE - 0.8%
Choice Hotels, Inc., REIT * ................................ 11,351 112,801
-------
CONSUMER STAPLES - 0.7%
FOOD & DRUG RETAILING - 0.3%
Fleming Cos., Inc. ........................................ 3,345 43,694
-------
E-71
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCKS - CONTINUED
CONSUMER STAPLES - CONTINUED
HOUSEHOLD PRODUCTS - 0.4%
Sola International, Inc. * ........................... 11,857 $ 57,803
---------
ENERGY - 6.8%
ENERGY EQUIPMENT & SERVICES - 3.7%
Cal Dive International, Inc. * ....................... 1,576 85,400
Hanover Compressor Co. ............................... 6,180 234,840
Nabors Industries, Inc. * ............................ 5,163 214,587
---------
534,827
---------
OIL & GAS - 3.1%
Newfield Exploration Co. * ........................... 5,096 199,381
St. Mary Land & Exploration Co. ...................... 2,524 106,166
Stone Energy Corp. * ................................. 2,395 143,101
---------
448,648
---------
FINANCIALS - 12.2%
BANKS - 3.7%
Imperial Bancorp * .................................. 13,291 206,841
Roslyn Bancorp, Inc. ................................. 9,795 162,689
Silicon Valley Bancshares ............................ 2,052 87,466
Staten Islands Bancorp, Inc. ......................... 4,129 72,774
---------
529,770
---------
DIVERSIFIED FINANCIALS - 7.3%
Allied Capital Corp. ................................. 3,048 51,816
American Capital Strategies, Ltd. .................... 9,459 225,834
Dain Rauscher Corp. .................................. 3,423 225,918
Eaton Vance Corp. .................................... 1,818 84,083
Lancaster Colony Corp. ............................... 3,410 65,429
Southwest Securities Group, Inc. ..................... 2,480 92,380
Triarc Cos, Inc. * ................................... 7,843 160,781
WFS Financial, Inc. .................................. 8,614 148,591
---------
1,054,832
---------
INSURANCE - 0.4%
Scpie Holdings, Inc. ................................. 3,030 62,115
---------
REAL ESTATE - 0.8%
LNR Property Corp., REIT ............................. 5,653 110,234
---------
HEALTH CARE - 11.0%
BIOTECHNOLOGY - 5.4%
Affymetrix, Inc. ..................................... 502 82,893
Corixa Corp. * ....................................... 1,828 78,490
CuraGen Corp. ........................................ 1,574 59,910
Guilford Pharmaceuticals, Inc. * ..................... 3,735 56,258
E-72
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCKS - CONTINUED
HEALTH CARE - CONTINUED
BIOTECHNOLOGY - CONTINUED
Human Genome Sciences, Inc. .......................... 1,069 $ 142,578
ImClone Systems, Inc. ................................ 590 45,098
Millennium Pharmaceuticals, Inc. ..................... 1,058 118,364
Myriad Genetics, Inc. * .............................. 316 46,793
SuperGen, Inc. * .................................... 1,942 70,397
Transkaryotic Therapies, Inc. * ...................... 2,161 79,417
----------
780,198
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.7%
Novoste Corp. * ...................................... 1,567 95,587
---------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.7%
ArthroCare Corp. * .................................. 1,160 61,770
Computer Motion, Inc. * .............................. 7,859 64,837
Cytyc Corp. .......................................... 1,072 57,218
Haemonetics Corp. .................................... 2,872 60,312
---------
244,137
---------
HEALTH CARE PROVIDERS & SERVICES - 1.5%
First Health Group Corp. * .......................... 3,105 101,883
Hooper Holmes, Inc. .................................. 13,873 110,984
---------
212,867
---------
PHARMACEUTICALS - 1.7%
Dura Pharmaceuticals, Inc. * ......................... 6,522 93,754
Jones Pharma, Inc. ................................... 2,284 91,217
Medicis Pharmaceutical Corp., Class A ................ 1,005 57,285
---------
242,256
---------
INDUSTRIALS - 11.5%
AEROSPACE & DEFENSE - 1.5%
PerkinElmer, Inc. .................................... 2,272 150,236
Titan Corp. .......................................... 1,593 71,287
---------
221,523
---------
AIR FREIGHT & COURIERS - 1.2%
Circle International Group, Inc. ..................... 6,665 167,458
---------
BUILDING PRODUCTS - 0.5%
Aaon, Inc. * ......................................... 3,139 76,905
---------
COMMERCIAL SERVICES & SUPPLIES - 1.2%
Insurance Auto Auctions, Inc. * ...................... 3,047 64,368
Startek, Inc. * ...................................... 874 44,028
United Stationers, Inc. .............................. 2,038 65,980
---------
174,376
---------
E-73
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCKS - CONTINUED
INDUSTRIALS - CONTINUED
ELECTRICAL EQUIPMENT - 1.0%
American Superconductor Corp. ........................ 1,853 $ 89,407
Cable Design Technologies Corp. * .................... 1,627 54,505
---------
143,912
---------
INDUSTRIAL CONGLOMERATES - 0.6%
Pentair, Inc. ........................................ 2,255 80,052
---------
MACHINERY - 1.7%
AGCO Corp. ........................................... 4,708 57,673
Maverick Tube Corp. .................................. 2,028 59,066
Shaw Group, Inc. ..................................... 2,571 121,158
---------
237,897
---------
MARINE - 0.3%
Overseas Shipholding Group, Inc. ..................... 1,908 46,985
---------
ROAD & RAIL - 3.5%
American Freightways Corp. * ......................... 3,681 53,375
Arkansas Best Corp. * ................................ 13,561 134,762
Forward Air Corp. .................................... 2,394 95,760
Genesee & Wyoming, Inc. * ............................ 5,707 95,592
Roadway Express, Inc. ................................ 5,335 125,039
---------
504,528
---------
INFORMATION TECHNOLOGY - 27.5%
COMMUNICATIONS EQUIPMENT - 3.7%
Advanced Fibre Communications, Inc. .................. 1,865 84,508
Allen Telecom, Inc. .................................. 3,911 69,176
C-COR.net Corp. * ................................... 3,669 99,063
Emulex Corp. ......................................... 1,133 74,424
Harmonic Lightwaves, Inc. * .......................... 456 11,286
Natural Microsystems Corp. * ......................... 982 110,413
Netro Corp. .......................................... 1,475 84,628
---------
533,498
---------
COMPUTERS & PERIPHERALS - 1.3%
Pinnacle Systems, Inc. * ............................. 4,185 94,097
Radisys Corp. * ...................................... 1,715 97,326
---------
191,423
---------
ELECTRICAL EQUIPMENT - 1.1%
Anaren Microwave, Inc. * ............................ 1,237 162,337
---------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 4.5%
Amkor Technology, Inc. ............................... 1,649 58,230
Amphenol Corp. ....................................... 1,342 88,824
Cree Research, Inc. * ................................ 500 66,750
E-74
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCKS - CONTINUED
INFORMATION TECHNOLOGY - CONTINUED
ELECTRONIC EQUIPMENT & INSTRUMENTS - CONTINUED
II-VI, Inc. * ....................................... 1,913 $ 92,541
Kemet Corp. * ........................................ 2,301 57,669
Kopin Corp. * ........................................ 828 57,339
Macrovision Corp. .................................... 1,044 66,734
Mettler Toledo International, Inc. ................... 1,878 75,120
Three-Five Systems, Inc. * .......................... 1,388 81,892
---------
645,099
---------
INTERNET SOFTWARE & SERVICES - 1.1%
Broadvision, Inc. * .................................. 1,963 99,745
Digital Islands, Inc. ................................ 1,046 50,862
---------
150,607
---------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 10.5%
ANADIGICS, Inc. * .................................... 1,925 65,570
Applied Science & Tech, Inc. * ...................... 2,770 71,674
Credence Systems Corp. ............................... 1,066 58,830
Cypress Semiconductor Corp. .......................... 3,162 133,594
Elantec Semiconductor, Inc. .......................... 1,114 77,562
Gasonics International Corp. * ....................... 2,740 108,059
Helix Technology Corp. ............................... 3,565 139,035
Integrated Device Technology ......................... 2,524 151,124
International Rectifier Corp. ........................ 1,774 99,344
Lam Research Corp. * ................................. 2,669 100,088
LTX Corp. * .......................................... 3,783 132,169
Mattson Technology, Inc. * .......................... 2,921 94,933
Photon Dynamics, Inc. * .............................. 930 69,459
S3, Inc. * .......................................... 4,116 60,711
Semtech Corp. ........................................ 1,082 82,756
Triquint Semiconductor, Inc. ......................... 714 68,321
---------
1,513,229
---------
SOFTWARE - 5.3%
Aspect Communications, Inc. .......................... 1,456 57,239
Documentum, Inc. * ................................... 876 78,293
I2 Technologies, Inc. * .............................. 739 77,052
Mercury Interactive Corp. * ......................... 1,975 191,081
Pegrine Systems, Inc. * .............................. 7,526 261,058
Tecnomatix Technologies, Ltd. * ...................... 3,490 47,551
Wind River Systems, Inc. * .......................... 1,461 55,336
---------
767,610
---------
MATERIALS - 7.6%
CHEMICALS - 3.2%
Chirex, Inc. * ....................................... 2,577 51,540
Georgia Gulf Corp. ................................... 3,331 69,326
E-75
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCKS - CONTINUED
MATERIALS - CONTINUED
CHEMICALS - CONTINUED
Lubrizol Corp. ....................................... 5,197 $ 109,137
Material Sciences Corp. * ............................ 4,875 48,750
Olin Corp. ........................................... 7,302 120,483
Spartech Corp. ....................................... 2,268 61,236
----------
460,472
----------
CONSTRUCTION MATERIALS - 1.0%
Elcor Chemical Corp. ................................. 2,503 57,569
Texas Industries, Inc. ............................... 2,828 81,659
----------
139,228
----------
METALS & MINING - 2.3%
Commercial Metals Co. ................................ 4,769 131,147
Freeport McMoran Copper & Gold, Inc., Class B * ...... 7,510 69,468
Lone Star Technologies, Inc. * ....................... 2,827 130,749
----------
331,364
----------
PAPER & FOREST PRODUCTS - 1.1%
Glatfelter P. H. Co. .................................. 6,173 62,887
Pope & Talbot, Inc. ................................... 6,314 101,024
----------
163,911
----------
TELECOMMUNICATION SERVICES - 1.6%
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.6%
NEXTLINK Communications, Inc., Class A * ............. 2,366 89,760
Powertel, Inc. ....................................... 1,035 73,420
US LEC Corp., Class A * ............................. 3,955 67,235
----------
230,415
----------
UTILITIES - 5.3%
ELECTRIC UTILITIES - 1.6%
Bangor Hydro Electric Co. ............................ 3,709 86,930
CMP Group, Inc. ...................................... 2,333 68,386
El Paso Electric Co. ................................. 6,763 75,661
----------
230,977
----------
GAS UTILITIES - 3.3%
CTG Resources, Inc. .................................. 1,410 51,729
Equitable Resources, Inc. ............................ 1,763 85,065
MCN Energy Group, Inc. ............................... 5,053 108,008
New Jersey Resources Corp. ........................... 3,591 136,682
Western Gas Resources, Inc. .......................... 4,474 93,954
----------
475,438
----------
WATER UTILITIES - 0.4%
Etown Corp. .......................................... 814 54,080
----------
TOTAL COMMON STOCKS (COST $13,306,328) ........... 14,191,579
----------
E-76
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<CAPTION>
Principal
Amount Value
------ -----
<S> <C> <C>
SHORT-TERM INVESTMENTS - 1.4%
REPURCHASE AGREEMENTS - 1.4%
Dresdner Bank AG
6.40%, dated 6/30/2000, due 7/3/2000,
maturity value $199,335 (cost $199,229) (3) ........ $ 199,229 $ 199,229
----------
TOTAL INVESTMENTS - (COST $13,505,557) - 100.0% .................... 14,390,808
OTHER ASSETS AND LIABILITIES - 0.0% ................................. 2,401
----------
NET ASSETS - 100.0% ................................................. $14,393,209
-----------
</TABLE>
SEE COMBINED NOTES TO SCHEDULES OF INVESTMENTS.
E-77
<PAGE>
<TABLE>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<S> <C>
ASSETS
Identified cost of securities ............................. $ 13,306,328
Repurchase agreements, at amortized cost .................. 199,229
--------------------------------------------------------------------------------
Total identified cost of investments ...................... 13,505,557
Net unrealized gains on securities ........................ 885,251
--------------------------------------------------------------------------------
Market value of securities ................................ 14,390,808
Receivable for securities sold ............................ 7,488
Receivable for Fund shares sold ........................... 139,875
Dividends and interest receivable ......................... 3,255
Prepaid expenses and other assets ......................... 595
--------------------------------------------------------------------------------
Total assets ............................................ 14,542,021
--------------------------------------------------------------------------------
LIABILITIES
Payable for securities purchased .......................... 137,857
Advisory fee payable ...................................... 7,359
Due to other related parties .............................. 116
Accrued expenses and other liabilities .................... 3,480
--------------------------------------------------------------------------------
Total liabilities ....................................... 148,812
--------------------------------------------------------------------------------
NET ASSETS .................................................. $ 14,393,209
================================================================================
NET ASSETS REPRESENTED BY
Paid-in capital ........................................... $ 14,122,983
Undistributed net investment loss ......................... (4,688)
Accumulated net realized losses on securities ............. (610,337)
Net unrealized gains on securities ........................ 885,251
--------------------------------------------------------------------------------
TOTAL NET ASSETS ............................................ $ 14,393,209
================================================================================
SHARES OUTSTANDING .......................................... 1,191,262
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ................................... $ 12.08
================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-78
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends......................................................................................................... $ 20,513
Interest.......................................................................................................... 19,530
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME.............................................................................................. 40,043
--------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Advisory fee...................................................................................................... 41,165
Administrative services fees...................................................................................... 4,459
Transfer agent fee................................................................................................ 159
Trustees' fees and expenses....................................................................................... 89
Printing and postage expenses..................................................................................... 1,546
Custodian fee..................................................................................................... 1,001
Professional fees................................................................................................. 5,185
Other............................................................................................................. 38
--------------------------------------------------------------------------------------------------------------------------------
Total expenses.................................................................................................. 53,642
Less: Expense reductions........................................................................................ (1,001)
Fee waivers............................................................................................... (7,910)
--------------------------------------------------------------------------------------------------------------------------------
Net expenses.................................................................................................... 44,731
--------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS............................................................................................... (4,688)
================================================================================================================================
NET REALIZED AND UNREALIZED GAINS OR LOSSES ON SECURITIES
Net realized losses on securities................................................................................. (580,886)
--------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gains on securities...................................................................... 673,839
--------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on securities................................................................... 92,953
--------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................................. $ 88,265
================================================================================================================================
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-79
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN VARIABLE ANNUITY TRUST
EVERGREEN VA SPECIAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended
June 30, 2000 Year Ended
(Unaudited) December 31, 1999 (a)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment loss............................................................ $ (4,688) $ (381)
Net realized gains or losses on securities..................................... (580,886) 189,212
Net change in unrealized gains on securities................................... 673,839 211,412
--------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations......................... 88,265 400,243
--------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gains............................................................. (210,459) (7,823)
--------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders.......................................... (210,459) (7,823)
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold...................................................... 34,233,683 2,725,653
Payment for shares redeemed (22,956,522) (63,713)
Net asset value of shares issued in reinvestment of distributions.............. 179,559 4,323
--------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from capital share transactions......... 11,456,720 2,666,263
--------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets............................................... 11,334,526 3,058,683
NET ASSETS
Beginning of period............................................................ 3,058,683 0
--------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD.................................................................. $ 14,393,209 $3,058,683
================================================================================================================================
Undistributed net investment loss................................................. $ (4,688) $ 0
================================================================================================================================
</TABLE>
(a) For the period from September 29, 1999 (commencement of operations) to
December 31, 1999.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-80
<PAGE>
<TABLE>
<CAPTION>
COMBINED NOTES TO SCHEDULES OF INVESTMENTS
SYMBOL DESCRIPTION
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
* Non incoming producing.
144A Security that may be resold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. This
security has been determined to be liquid under guidelines established by the Board of Trustees.
0 The advisor of the Fund and the advisor of the money market fund are each a subsidiary of First Union.
(1) The repurchase agreement is fully collateralized by $1,215,000 FNMA, 6.25% 11/20/2001; value
including accrued interest is $1,214,104.
(2) The repurchase agreement is fully collateralized by $1,024,850 FHLMC, 6.70% 01/03/2002; value
including accrued interest is $1,025,377.
(3) The repurchase agreement is fully collateralized by $200,000 U.S. Treasury Notes, 7.50% 11/15/2001;
value including accrued interest is $204,437.
SUMMARY OF ABBREVIATIONS
ADR American Depository Receipts
FNMA Federal National Mortgage Association
GDR Global Depository Receipts
REIT Real Estate Investment Trust
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
E-81
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION
The Evergreen Variable Annuity Trust (the "Trust") consists of Evergreen VA
Capital Growth Fund ("Capital Growth Fund"), (formerly Mentor VIP Capital
Growth Portfolio), Evergreen VA Foundation Fund ("Foundation Fund"),
Evergreen VA Growth Fund ("Growth Fund"), (formerly Mentor VIP Growth
Portfolio), Evergreen VA Omega Fund ("Omega Fund"), Evergreen VA Perpetual
International Fund ("Perpetual International Fund"), (formerly Mentor VIP
Perpetual International Portfolio) and Evergreen VA Special Equity Fund
("Special Equity Fund"), (collectively, the "Funds"). Each Fund is a
diversified series of the Trust, a Delaware business trust originated on
December 23, 1997. The Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended ("the 1940
Act"). Shares of each Fund may only be purchased by insurance companies for
the purpose of funding variable annuity contracts or variable life insurance
policies.
Effective February 1, 2000, shares of funds in the Trust were substituted for
shares of funds in the Mentor Variable Investment Portfolio. The Mentor
Variable Investment Portfolio consisted of the following diversified series:
Mentor VIP Capital Growth Portfolio, Mentor VIP Growth Portfolio and Mentor
VIP Perpetual International Portfolio (collectively, the "Mentor Portfolios").
As a result of the substitution, shareholders of the Mentor Portfolios became
owners of that number of full and fractional shares of the respective fund in
the Trust having a net asset value equal to the net asset value of their
shares immediately prior to the substitution of shares as follows:
<TABLE>
<CAPTION>
Shares owned Shares received
---------------------------------------------------------------------------------------------------
<S> <C>
Mentor VIP Capital Growth Portfolio Evergreen VA Capital Growth Fund
Mentor VIP Growth Portfolio Evergreen VA Growth Fund
Mentor VIP Perpetual International Portfolio Evergreen VA Perpetual International Fund
</TABLE>
Since the Mentor Portfolios had substantially similar investment objectives
and policies of the respective funds in the Trust and the Mentor Portfolios
contributed the majority of the net assets and shareholders, the basis of
accounting for assets and liabilities and the operating results of the Mentor
Portfolios and their performance are being carried forward.
2.SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles,
which require management to make estimates and assumptions that affect
amounts reported herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
Securities traded on a national securities exchange or included on the Nasdaq
National Market System ("NMS") and other securities traded in the
over-the-counter market are valued at the last reported sales price on the
exchange where primarily traded. For international securities, the Funds
value investments traded on an established exchange on the basis of the last
sales price on the exchange where primarily traded. Securities traded on an
exchange or NMS and other securities traded in the over-the-counter market
for which there has been no sale are valued at the mean between the last
reported bid and asked price.
Corporate bonds, U.S. government obligations and other fixed income
securities, and mortgage and other asset-backed securities are valued at
prices provided by an independent pricing service. In determining a price for
normal institutional-size transactions, the pricing service uses methods
based on market transactions for comparable securities and analysis of
various relationships between similar securities which are generally
recognized by institutional traders. Securities for which valuations are not
available from an independent pricing service may be valued by brokers which
use prices provided by market makers or estimates of market value obtained
from yield data relating to investments or securities with similar
characteristics.
Securities for which valuations are not available (including restricted
securities) are valued at fair value as determined in good faith according to
procedures established by the Board of Trustees.
E-82
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
Mutual fund shares held in a fund are valued at the net asset value of each
mutual fund.
Short-term investments with remaining maturities of 60 days or less are
carried at amortized cost, which approximates market value.
B. REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements. Securities pledged as
collateral for repurchase agreements are held by the custodian on the Fund's
behalf. Each Fund monitors the adequacy of the collateral daily and will
require the seller to provide additional collateral in the event the market
value of the securities pledged falls below the carrying value of the
repurchase agreement, including accrued interest. Each Fund will only enter
into repurchase agreements with banks and other financial institutions, which
are deemed by the investment advisor to be creditworthy pursuant to
guidelines established by the Board of Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Funds may transfer uninvested cash balances into a joint
trading account. These balances are invested in one or more repurchase
agreements that are fully collateralized by U.S. Treasury and or federal
agency obligations.
C.FOREIGN CURRENCY
The books and records of the Funds are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into U.S. dollars as
follows: market value of investment securities, other assets and liabilities
at the daily rate of exchange; purchases and sales of investment securities
and income and expenses at the rate of exchange prevailing on the respective
dates of such transactions. Net unrealized foreign exchange gains or losses
resulting from changes in foreign currency exchange rates are a component of
net unrealized gains or losses on securities and foreign currency related
transactions. Net realized foreign currency gains or losses on foreign
currency related transactions include: foreign currency gains or losses
between trade date and settlement date on investment securities transactions,
foreign currency related transactions and the difference between the amounts
of interest and dividends recorded on the books of the Funds and the amounts
that are actually received. The portion of foreign currency gains or losses
related to fluctuations in exchange rates between the initial purchase trade
date and subsequent sale trade date is included in realized gains or losses
on securities.
D. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values,
the Funds may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts ("variation
margin") as the value of the contract changes. Such changes are recorded as
unrealized gains or losses. Realized gains or losses are recognized on closing
the contract.
Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other party
will not fulfill their obligations under the contract. Futures contracts also
involve elements of market risk in excess of the amount reflected in the
Statements of Assets and Liabilities.
E. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets or
liabilities. Forward contracts are recorded at the forward rate and
marked-to-market daily. Realized gains and losses arising from such
transactions are included in net realized gains or losses on foreign currency
related transactions. The Fund bears the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract and is subject
to the credit risk that the other party will not fulfill their obligations
under the contract. Forward contracts involve elements of market risk in
excess of the amount reflected in the Statements of Assets and Liabilities.
E-83
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
F. SECURITIES LENDING
In order to generate income and to offset expenses, the Funds may lend
portfolio securities to brokers, dealers and other qualified financial
organizations. The Funds' investment adviser(s) will monitor the
creditworthiness of such borrowers. Loans of securities may not exceed 33 1/3%
of a Fund's total assets and will be collateralized by cash, letters of
credit or U.S. Government securities that are maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities, including accrued interest. The Fund monitors the adequacy of the
collateral daily and will require the borrower to provide additional
collateral in the event the value of the collateral falls below 100% of the
market value of the securities on loan. While such securities are on loan,
the borrower will pay a Fund any income accruing thereon, and the Fund may
invest any cash collateral received in portfolio securities, thereby
increasing its return. A Fund will have the right to call any such loan and
obtain the securities loaned at any time on five days' notice. Any gain or
loss in the market price of the loaned securities, which occurs during the
term of the loan, would affect a Fund and its investors. A Fund may pay fees
in connection with such loans.
G. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date, or in the case of some foreign securities, on the date
thereafter when the Fund is made aware of the dividend. Foreign income and
capital gains realized on some foreign securities may be subject to foreign
taxes, which are accrued as applicable.
H. FEDERAL TAXES
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability
since they are expected to distribute all of their net investment company
taxable income and net capital gains, if any, to their shareholders. The
Funds also intend to avoid excise tax liability by making the required
distributions under the Code. Accordingly, no provision for federal taxes is
required. To the extent that realized capital gains can be offset by capital
loss carryforwards, it is each Fund's policy not to distribute such gains.
I. DISTRIBUTIONS
Distributions from net investment income and net realized capital gains for
the Funds, if any, are declared and paid at least annually. Distributions to
shareholders are recorded at the close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
J. ORGANIZATION EXPENSES
For Capital Growth Fund, Foundation Fund, Growth Fund, Omega Fund and
Perpetual International Fund, organization expenses are amortized to
operations over a five-year period on a straight-line basis. In the event any
of the initial shares of the Funds are redeemed by any holder during the
five-year amortization period, redemption proceeds will be reduced by any
unamortized organization expenses in the same proportion as the number of
initial shares being redeemed bears to the number of initial shares
outstanding at the time of the redemption.
Expenses relating to the organization of Special Equity Fund have been
reflected, in their entirety, in the Fund's operating results in the first
twelve months after the commencement of operations.
E-84
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
3. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Mentor Investment Advisors, LLC ("Mentor Advisors"), a subsidiary of First
Union Corp. ("First Union"), is the investment advisor for Capital Growth
Fund and is paid a management fee that is computed and paid daily at a rate
of 0.80% of the average daily net assets of the Fund.
Evergreen Asset Management Corporation ("EAMC"), an indirect wholly owned
subsidiary of First Union National Bank ("FUNB"), is the investment advisor
for Foundation Fund and is paid a management fee that is computed and paid
daily at an annual rate of 0.745% of the Fund's average daily net assets.
Prior to January 3, 2000, the management fee was computed daily at an annual
rate of 0.825% of the Fund's average daily net assets. Lieber & Company, an
affiliate of First Union, is investment sub-advisor to Foundation Fund.
Lieber & Company provides such services at no additional cost to the Fund.
Mentor Advisors is the investment advisor for Growth Fund and is paid a
management fee that is computed and paid daily at a rate of 0.70% of its
average daily net assets.
Evergreen Investment Management Company ("EIMC"), an indirect wholly owned
subsidiary of FUNB, is the investment advisor for Omega Fund and is paid an
advisory fee that is calculated and paid daily at an annual rate of 0.52% of
its average daily net assets. Prior to January 3, 2000, the management fee
was computed daily at an annual rate of 0.60% of the Fund's average daily net
assets.
Mentor Perpetual Advisors, LLC ("Mentor Perpetual"), an advisory firm
organized in 1995, is owned equally by Perpetual Plc and Mentor Advisors.
Mentor Perpetual serves as the investment advisor to the Perpetual
International Fund and is paid a management fee that is computed and paid
daily at a rate of 1.00% of its average daily net assets.
Meridian Investment Company ("MIC"), an indirect, wholly owned subsidiary of
FUNB, is the investment advisor for Special Equity Fund and is paid an
advisory fee that is calculated and paid daily at an annual rate of 0.92% of
its average daily net assets. Prior to January 3, 2000, the management fee
was computed at an annual rate of 1.00% of the Fund's average daily net
assets.
Lieber & Company also provides brokerage services for Foundation Fund with
respect to substantially all security transactions executed on the New York or
American Stock Exchanges. For transactions executed during the six months
ended June 30, 2000, Foundation Fund incurred brokerage commissions of $12,355
with Lieber & Company.
For the six months ended June 30, 2000, the investment advisors voluntarily
waived and/or reimbursed the following amounts:
<TABLE>
<CAPTION>
Waived Reimbursed
--------------------------
<S> <C> <C>
Capital Growth Fund............................... $20,914 $0
Growth Fund....................................... 44,214 0
Special Equity Fund............................... 7,910 0
</TABLE>
Evergreen Investment Services ("EIS"), an indirect, wholly owned subsidiary
of FUNB, is the administrator to the Funds. For its services, the Funds pay
the administrator a fee at the annual rate of 0.10% of each Fund's average
daily net assets. As administrator, EIS provides the Funds with facilities,
equipment and personnel. Prior to May 1, 2000, The BISYS Group, Inc.
("BISYS") served as the sub-administrator to the Funds and provided the
officers of the Funds. Officers of the Funds and affiliated Trustees receive
no compensation directly from the Funds.
The administrator and sub-administrator for the Funds were entitled to an
annual fee based on the average daily net assets of the funds administered by
EIS for which First Union or its investment advisory subsidiaries are also
the investment advisors. The administration fee was calculated by applying
percentage rates, which started at 0.05% and declined to 0.01% per annum as
net assets increased, to the average daily net assets of each Fund. The
sub-administration fee was calculated by applying percentage rates, which
started at 0.01% and declined to 0.004% per annum as net assets increased, to
the average daily net assets of each Fund.
E-85
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
During the six months ended June 30, 2000, the Funds paid or accrued the
following amounts to EIS for administration fees and sub-administration fees:
<TABLE>
<CAPTION>
Administration Sub-administration
Fee Fee
-------------------------------------
<S> <C> <C>
Capital Growth Fund..................... $14,168 $ 0
Foundation Fund......................... 43,714 33,822
Growth Fund............................. 9,460 0
Omega Fund.............................. 15,500 8,350
Perpetual International Fund............ 13,831 0
Special Equity Fund..................... 4,395 64
</TABLE>
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of
First Union, is the transfer and dividend disbursing agent for the Funds.
4. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with a
$0.001 par value authorized. Transactions in shares of the Funds were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL GROWTH FUND
--------------------------------------------------------------------------------------------------------------------------------
Shares sold........................................................................... 201,039 744,068
Shares redeemed....................................................................... (175,427) (265,656)
Shares issued in reinvestment of distributions........................................ 64,486 5,444
--------------------------------------------------------------------------------------------------------------------------------
Net increase.......................................................................... 90,098 483,856
================================================================================================================================
FOUNDATION FUND
--------------------------------------------------------------------------------------------------------------------------------
Shares sold........................................................................... 2,225,418 3,888,229
Shares redeemed....................................................................... (143,201) (210,326)
Shares issued in reinvestment of distributions........................................ 54,065 177,859
--------------------------------------------------------------------------------------------------------------------------------
Net increase.......................................................................... 2,136,282 3,855,762
================================================================================================================================
GROWTH FUND
--------------------------------------------------------------------------------------------------------------------------------
Shares sold........................................................................... 164,043 400,486
Shares redeemed....................................................................... (68,037) (221,726)
Shares issued in reinvestment of distributions........................................ 0 1,634
--------------------------------------------------------------------------------------------------------------------------------
Net increase.......................................................................... 96,006 180,394
================================================================================================================================
OMEGA FUND
--------------------------------------------------------------------------------------------------------------------------------
Shares sold........................................................................... 2,009,078 939,320
Shares redeemed....................................................................... (8,896) (27,094)
Shares issued in reinvestment of distributions........................................ 61,507 0
--------------------------------------------------------------------------------------------------------------------------------
Net increase.......................................................................... 2,061,689 912,226
================================================================================================================================
PERPETUAL INTERNATIONAL FUND
--------------------------------------------------------------------------------------------------------------------------------
Shares sold........................................................................... 248,086 497,308
Shares redeemed....................................................................... (23,192) (75,708)
Shares issued in reinvestment of distributions........................................ 117,621 694
--------------------------------------------------------------------------------------------------------------------------------
Net increase.......................................................................... 342,515 422,294
================================================================================================================================
SPECIAL EQUITY FUND (a)
--------------------------------------------------------------------------------------------------------------------------------
Shares sold........................................................................... 2,716,887 263,419
Shares redeemed....................................................................... (1,797,164) (5,564)
Shares issued in reinvestment of distributions........................................ 13,301 383
--------------------------------------------------------------------------------------------------------------------------------
Net increase.......................................................................... 933,024 258,238
================================================================================================================================
</TABLE>
(a) For the period from September 29, 1999 (commencement of operations) to
December 31, 1999.
E-86
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the six months ended June 30, 2000:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
--------------------------------------------------------------------------
U.S. Non-U.S. U.S. Non-U.S.
Government Government Government Government
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund................................. $ 426,165 $10,215,516 $ 457,728 $ 9,898,042
Foundation Fund..................................... 19,873,078 76,998,958 5,925,710 64,168,967
Growth Fund......................................... 0 14,041,183 0 12,367,577
Omega Fund.......................................... 0 73,154,237 0 30,154,615
Perpetual International Fund........................ 0 22,025,281 0 17,809,285
Special Equity Fund................................. 0 31,958,035 0 20,637,598
</TABLE>
At June 30, 2000, the Perpetual International Fund had forward foreign exchange
contracts outstanding as follows:
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts to Sell:
Exchange Contracts to U.S. Value In exchange Unrealized
Date Deliver at June 30, 2000 For U.S. $ Gain
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1/29/2001 Japanese Yen $1,947,514 $2,000,000 $52,486
1/29/2001 Japanese Yen 1,377,180 1,400,000 22,820
-------
$75,306
=======
</TABLE>
6. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into expense offset arrangements with ESC and their
custodian whereby credits realized as a result of uninvested cash balances
were used to reduce a portion of each Fund's related expenses. The assets
deposited with ESC and the custodian under these expense offset arrangements
could have been invested in income-producing assets. The Funds have also
entered into brokerage/service arrangements with specific brokers who paid a
portion of the Funds' expenses. The amount of expense reductions received by
each Fund and the impact on each Fund's expense ratio represented as a
percentage of its average daily net assets were as follows:
<TABLE>
<CAPTION>
% of
Expense Total Average
Offset Brokerage Expense Net
Arrangements Transactions Reductions Assets
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund....................................... 663 0 663 0.00%
Foundation Fund........................................... 8,485 9,900 18,385 0.02%
Growth Fund............................................... 658 0 658 0.01%
Omega Fund................................................ 1,368 832 2,200 0.01%
Perpetual International Fund.............................. 1,993 0 1,993 0.01%
Special Equity Fund....................................... 1,001 0 1,001 0.02%
</TABLE>
7. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation
related to performance of their duties as Trustees. The Trustees' deferred
balances are allocated to deferral accounts, which are included in the
accrued expenses for the Funds. The investment performance of the deferral
accounts are based on the investment performance of certain Evergreen Funds.
Any gains earned or losses incurred in the deferral accounts are reported in
the Fund's Trustees' fees and expenses. At the election of the Trustees, the
deferral account will be paid either in one lump sum or in quarterly
installments for up to ten years.
E-87
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONTINUED)
8. FINANCING AGREEMENT
On July 27, 1999, all of the Evergreen Funds and a group of banks (the
"Lenders") entered into a credit agreement. Each series of the Trust is a
party to this agreement. Under this agreement, the Lenders provided an
unsecured revolving credit commitment in the aggregate amount of $1.050
billion. The credit facility is allocated, under the terms of the financing
agreement, among the Lenders. The credit facility is accessed by the Funds
for temporary of emergency purposes to fund the redemption of their shares or
a general working capital as permitted by each Fund's borrowing restrictions.
Borrowings under this facility bear interest at 0.75% per annum above the
Federal Funds rate (1.50% per annum above the Federal Funds rate during the
period from and including December 1, 1999 through and including January 31,
2000). A commitment fee of 0.10% per annum is incurred on the average daily
unused portion of the revolving credit commitment. The commitment fee is
allocated to all funds. For its assistance in arranging this financing
agreement, First Union Capital Markets Corp. is paid a one-time arrangement
fee of $250,000. State Street served as paying agent for the funds and as
paying agent is entitled to a fee of $20,000 per annum which is allocated to
all the funds.
During the six months ended June 30, 2000, the Funds had no borrowings
pursuant to this line of credit.
9. CONCENTRATION OF RISK
The Funds may invest a substantial portion of its assets in an industry or
sector and, therefore, may be more affected by changes in that industry or
sector than would be a comparable mutual fund that is not heavily weighed in
any industry or sector.
E-88
<PAGE>
Variable Annuities
------------------------------------
NOT May lose value
FDIC
INSURED No bank guarantee
------------------------------------
Evergreen Investment Services, Inc.
58913 547189 8/00
<PAGE>
FIRST AMERICAN INSURANCE
------------------------
SEMIANNUAL REPORT
2000
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES June 30, 2000 (unaudited), in thousands
<TABLE>
<CAPTION>
LARGE CAP INTERNATIONAL TECHNOLOGY
GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS :
Investments in securities at market value (cost $994,431,
$2,864,192, and $982,138) (note 2) $1,025,920 $2,623,957 $1,119,316
Foreign currency, at market value (cost $100,410) (note 2) -- 100,625 --
Cash -- -- 3,815
Receivable for investment securities sold -- 16,029 13,821
Interest and dividends receivable 354 547 167
Receivable for translation of assets and liabilities in foreign currencies -- 104 --
Prepaid and other assets 21,581 20,541 21,422
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,047,855 2,761,803 1,158,541
-----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Cash overdrafts 27 -- --
Payable for investment securities purchased -- -- 9,847
Management fees 582 2,865 617
Administration fees 4,098 4,098 4,098
Transfer agent fees 3,235 3,235 3,235
Other 51 1,364 52
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 7,993 11,562 17,849
===================================================================================================================================
NET ASSETS $1,039,862 $2,750,241 $1,140,692
===================================================================================================================================
NET ASSETS:
Capital $1,010,237 $3,020,527 1,022,250
Undistributed net investment income (loss) (423) 1,870 (1,055)
Accumulated undistributed net realized losses from investments (1,441) (11,276) (17,681)
Accumulated undistributed net realized losses from foreign currencies -- (20,963) --
Net unrealized appreciation (depreciation) from investments 31,489 (240,236) 137,178
Net unrealized appreciation from foreign currencies -- 319 --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,039,862 $2,750,241 $1,140,692
===================================================================================================================================
Net assets $1,039,862 $2,750,241 $1,140,692
Shares outstanding (unlimited number of shares authorized) 101,009 302,199 102,065
Net asset value and offeringprice per share $ 10.29 $ 9.10 $ 11.18
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
FA-1 FIRST AMERICAN INSURANCE SEMIANNUAL REPORT 2000
<PAGE>
STATEMENTS OF OPERATIONS for the period from April 14, 2000 to June 30, 2000(a)
(unaudited), in thousands
<TABLE>
<CAPTION>
LARGE CAP INTERNATIONAL TECHNOLOGY
GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 175 $ 4,443 $ 6
Dividend income 760 4,449 492
Less foreign tax withholding -- (523) --
---------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 935 8,369 498
=================================================================================================================================
EXPENSES:
Investment management fees 1,188 6,017 1,208
Administration fees 8,743 8,743 8,743
Custodian fees 51 1,356 52
Professional fees 1,576 1,576 1,838
Directors' fees and expenses 122 122 122
Transfer agent fees 3,235 3,235 3,235
Shareholders' reports 34 96 35
Other 17 48 17
---------------------------------------------------------------------------------------------------------------------------------
Total expenses before waived or reimbursed expenses 14,966 21,193 15,250
Expenses waived or reimbursed (13,608) (14,694) (13,697)
---------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 1,358 6,499 1,553
=================================================================================================================================
NET INVESTMENT INCOME (LOSS) (423) 1,870 (1,055)
=================================================================================================================================
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized losses from investments (1,441) (11,276) (17,681)
Net realized losses from foreign currencies -- (20,963) --
Net change in unrealized appreciation (depreciation) from investments 31,489 (240,236) 137,178
Net change in unrealized appreciation from foreign currencies -- 319 --
---------------------------------------------------------------------------------------------------------------------------------
Net realized/unrealized gains (losses) from investments and foreign
currencies 30,048 (272,156) 119,497
---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 29,625 $(270,286) $118,442
=================================================================================================================================
(a) Period from commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FIRST AMERICAN INSURANCE SEMIANNUAL REPORT 2000 FA-2
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS in thousands(a)
<TABLE>
<CAPTION>
LARGE CAP INTERNATIONAL TECHNOLOGY
GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
4/14/00 4/14/00 4/14/00
to to to
6/30/00 6/30/00 6/30/00
-----------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (423) $ 1,870 $ (1,055)
Net realized losses from investment (1,441) (11,276) (17,681)
Net realized losses from foreign currencies -- (20,963) --
Net change in unrealized appreciation (depreciation)
from investments 31,489 (240,236) 137,178
Net change in unrealized appreciation from foreign currencies -- 319 --
-----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 29,625 (270,286) 118,442
===================================================================================================================================
CAPITAL TRANSACTIONS:
Proceeds from shares issued 1,010,237 3,020,527 1,022,250
Dividends reinvested -- -- --
Cost of shares redeemed -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 1,010,237 3,020,527 1,022,250
===================================================================================================================================
CHANGE IN NET ASSETS 1,039,862 2,750,241 1,140,692
===================================================================================================================================
NET ASSETS:
Beginning of period -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $1,039,862 $2,750,241 $1,140,692
===================================================================================================================================
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) $ (423) $ 1,870 $ (1,055)
===================================================================================================================================
SHARE TRANSACTIONS:
Sold 101,009 302,199 102,065
Reinvested -- -- --
Redeemed -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN SHARES 101,009 302,199 102,065
===================================================================================================================================
(a) Period from commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FA-3 FIRST AMERICAN INSURANCE SEMIANNUAL REPORT 2000
<PAGE>
FINANCIAL HIGHLIGHTS For the period from April 14, 2000 to June 30, 2000(a)
(unaudited)
<TABLE>
<CAPTION>
LARGE CAP INTERNATIONAL TECHNOLOGY
GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00 $10.00
==================================================================================================================================
INVESTMENT OPERATIONS:
Net investment income (loss) -- 0.01 (0.01)
Net realized and unrealized gain 0.29 (0.91) 1.19
----------------------------------------------------------------------------------------------------------------------------------
Total investment operations 0.29 (0.90) 1.18
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.29 $ 9.10 $11.18
===================================================================================================================================
Total return 2.90% (9.00)% 11.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, at end of period (000) $1,040 $2,750 $1,141
Ratio of expenses to average net assets 0.80%(b) 1.35%(b) 0.90%(b)
Ratio of net investment income (loss) to average net assets (0.25)%(b) 0.39%(b) (0.62)%(b)
Ratio of expenses to average net assets, excluding waivers
and reimbursements 8.82%(b) 4.40%(b) 8.84%(b)
Ratio of net investment loss to average net assets,
excluding waivers and reimbursements (8.27)%(b) (2.66)%(b) (8.55)%(b)
Portfolio turnover rate 7.82% 13.32% 13.07%
===================================================================================================================================
(a) Period from commencement of operations.
(b) Annualized.
</TABLE>
FIRST AMERICAN INSURANCE SEMIANNUAL REPORT 2000 FA-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (unaudited)
1 > ORGANIZATION
First American Insurance Portfolios, Inc. ("FAIP") was incorporated in the
State of Minnesota on August 27, 1999. FAIP is organized as a series
investment company and currently issues its shares in three series
(individually "Portfolio," collectively "Portfolios"). Each series
represents a separate investment portfolio with its own investment
objectives and policies. The Large Cap Growth Portfolio and International
Portfolio are each diversified open-end management investment companies.
The Technology Portfolio is a non-diversified open-end management
investment company. The Portfolios commenced operations on April 14, 2000.
Shares of the Portfolios are only made available through separate
investment accounts of participating insurance companies as an underlying
investment for variable annuity contracts or variable life insurance
policies. The Portfolios' prospectus provides additional descriptions of
each Portfolio's investment objectives, policies and strategies.
2 > SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION -- Security valuations for FAIP portfolio
investments are furnished by independent pricing services that have
been approved by the Board of Directors. Investments in equity
securities that are traded on a national securities exchange (or
reported on the NASDAQ national market system) are stated at the
last quoted sales price if readily available for such securities on
each business day. Other equity securities traded in the
over-the-counter market and listed equity securities for which no
sale was reported on that date are stated at the last quoted bid
price. Debt obligations exceeding sixty days to maturity are valued
by an independent pricing service. The pricing service may employ
methodologies that utilize actual market transactions,
broker-dealer supplied valuations, or other electronic data
processing techniques. These techniques generally consider such
factors as yields or prices of bonds of comparable quality, type of
issue, coupon, maturity, ratings and general market conditions.
Securities for which prices are not available from an independent
pricing service but where an active market exists are valued using
market quotations obtained from one or more dealers that make
markets in the securities or from a widely-used quotation system.
When market quotations are not readily available, securities are
valued at fair value as determined in good faith by procedures
established and approved by the Board of Directors. Debt
obligations with sixty days or less remaining until maturity may be
valued at their amortized cost. Foreign securities are valued at
the closing prices on the principal exchange on which they trade.
The prices for foreign securities are reported in local currency
and converted to U.S. dollars using currency exchange rates.
Exchange rates are provided daily by recognized independent pricing
agents.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- The Portfolios
record security transactions on the trade date of the security
purchase or sale. Dividend income is recorded on the ex-dividend
date. Interest income, including amortization of bond
premium and discount, is recorded on an accrual basis. Security
gains and losses are determined on the basis of identified
cost, which is the same basis used for federal income tax purposes.
FEDERAL INCOME TAXES -- Each Portfolio is treated as a separate
taxable entity. Each Portfolio intends to fulfill the
requirements of Subchapter M and to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all taxable
income, if any, to its shareholders. If so qualified, each
Portfolio will not be liable for federal income taxes to the
extent it distributes its taxable income. Therefore no federal
income tax provision is required. Dividends and distributions to
shareholders are determined in accordance with federal income tax
regulations, which may differ from generally accepted
accounting principles.
Because shares of the Portfolios may be purchased only through
insurance company separate accounts for variable annuity
contracts and variable life insurance policies, dividends paid
by the Portfolios from net investment income and distributions, if
any, of net realized capital gains will be taxable to the participating
insurance company.
DIVIDENDS TO SHAREHOLDERS -- Dividends from the Portfolios' net investment
income and distributions from the Portfolios' net realized capital gains,
if any, are declared and distributed at least annually.
EXPENSES -- Expenses that are directly related to one of the Portfolios are
charged directly to that Portfolio. Other operating expenses are allocated
to the Portfolios on the basis of relative net assets or some other
appropriate basis.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
FA-5 FIRST AMERICAN INSURANCE SEMIANNUAL REPORT 2000
<PAGE>
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (unaudited)
date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those
estimates.
FOREIGN CURRENCY TRANSLATION - The books and records of the International
Portfolio are maintained in U.S. dollars on the following bases:
o market value of investment securities, assets and liabilities at the
current rate of exchange; and
o purchases and sales of investment securities, income and expenses at the
relevant rates of exchange prevailing on the respective dates of such
transactions.
The International Portfolio does not isolate the portion of gains and
losses on investments in equity securities that is due to changes in the
foreign exchange rates from that which is due to change in market prices of
equity securities.
The International Portfolio reports certain foreign currency related
transactions as components of realized gains for financial reporting
purposes, whereas such components are treated as ordinary income for
Federal income tax purposes.
FORWARD FOREIGN CURRENCY CONTRACTS -- The International Portfolio enters
into forward foreign currency contracts as hedges against either
specific transactions or fund positions. The aggregate principal amount
of the contracts is not recorded as the International Portfolio intends
to settle the contracts prior to delivery. All commitments are
"marked-to-market" daily at the applicable foreign exchange rate and any
resulting unrealized gains or losses are recorded currently. The
International Portfolio realizes gains or losses at the time the forward
contracts are extinguished. Unrealized gains or losses on outstanding
positions in forward foreign currency contracts held at the close of
the year are recognized as ordinary income or loss for Federal income
tax purposes.
SECURITIES LENDING -- To generate additional income, the
Portfolios may lend securities in which each Portfolio is
invested, pursuant to agreements requiring that the loan be
continuously secured by collateral equal at all times to at least
100% of the market value plus accrued interest on the
securities lent. Collateral may include cash, U.S. Government
or U.S. Government Agency securities, shares of an investment
trust or mutual fund, letters of credit or any combination of
such collateral. The Portfolios receive payments from
borrowers equivalent to the dividends and interest that would have
been earned on securities lent while simultaneously seeking to
earn interest on the investment of cash collateral. Collateral
is marked to market daily to provide a level of collateral at least
equal to the market value plus accrued interest of securities lent.
There may be risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the
securities fail financially. However, loans will be made only to
borrowers deemed by the Advisor to be of good standing and
creditworthy under guidelines established by the Board of Directors
and when, in the judgment of the Advisor, the consideration which
can be earned currently from such securities loans justifies the
attendant risk. Loans are subject to termination by the Portfolios
or the borrower at any time, and are, therefore, not considered to
be illiquid investments. As of June 30, 2000, the following
Portfolios had securities with the following market values on loan
and generated the following income:
<TABLE>
<CAPTION>
INCOME RECEIVED
MARKET VALUE MARKET VALUE OF FROM SECURITIES
OF COLLATERAL LOANED SECURITIES LENDING
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Large Cap Growth Portfolio $306,021 $297,919 $63
International Portfolio -- -- --
Technology Portfolio 314,608 306,299 97
----------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bank acts as the securities lending agent in transactions involving
the lending of portfolio securities on behalf of the Portfolios.
For these services, U.S. bank received $1,250,274 in aggregate
securities lending fees for the period ended June 30, 2000. Fees
generated from the Portfolios for securities lending were as
follows:
<TABLE>
<CAPTION>
SECURITIES
LENDING FEES
---------------------------------------------------------------------------
<S> <C>
Large Cap Growth Portfolio $41
International Portfolio --
Technology Portfolio 64
---------------------------------------------------------------------------
</TABLE>
3 > FORWARD FOREIGN CURRENCY CONTRACTS
The International Portfolio may enter into forward foreign currency
portfolio's contracts as hedges against portfolio positions and in
connection with portfolio purchases and sales of securities denominated in
a foreign currency. Such contracts, which protect the value of the
portfolio's investment securities against a decline in the value of the
hedged currency, do not eliminate fluctuations in the underlying prices of
the securities. They simply establish an exchange rate at a future date.
Although such contracts tend to minimize the risk of loss due to a decline
in the value of a hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such foreign
currency increase.
Open foreign currency exchange contracts obligate the Portfolio to deliver
and receive currencies at specified future
FIRST AMERICAN INSURANCE SEMIANNUAL REPORT 2000 FA-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (unaudited)
dates. The unrealized appreciation (depreciation), if any, on these
contracts is included in the accompanying financial statements. On June 30,
2000, the International Portfolio had no open foreign currency exchange
contracts.
4 > TRANSACTIONS WITH AFFILIATES
Under the terms of the Investment Advisory Agreement, U.S. Bank National
Association (U.S. Bank), acting through its First American Asset Management
division, is the Portfolios' investment advisor (the "Advisor"). First
American Asset Management manages the Portfolios' business and investment
activities, subject to the authority of the Board of Directors. Under the
terms of the investment advisory agreement, each Portfolio pays the
investment advisor a monthly fee for providing investment advisory service,
at the annual rate of the average daily net assets set forth in the
following table:
<TABLE>
<CAPTION>
PORTFOLIO ADVISORY FEE
---------------------------------------------------------------
<S> <C>
Large Cap Growth Portfolio 0.70%
International Portfolio 1.25%
Technology Portfolio 0.70%
---------------------------------------------------------------
</TABLE>
Marvin & Palmer Associates, Inc. serves as Sub-Advisor to the International
Portfolio, pursuant to a Sub-Advisory Agreement with the Advisor, and is
responsible for the investment and reinvestment of the Portfolio's assets.
For its services to the International Portfolio, Marvin & Palmer is paid a
monthly fee by the Advisor at the annual rate of the average daily net
assets as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS SUB-ADVISORY FEE
----------------------------------------------------------------
<S> <C>
On the first $100 million 0.75%
$100 million up to $300 million 0.50%
$300 million up to $500 million 0.45%
In excess of $500 million 0.40%
----------------------------------------------------------------
</TABLE>
The Advisor may, at its option, waive any or all of its fees, or
reimburse expenses, with respect to any Portfolio from time to time. Any
such waiver or reimbursement is voluntary and may be discontinued at any
time. The Advisor also may absorb or reimburse expenses of the Portfolios
from time to time, in its discretion, while retaining the ability to be
reimbursed by the Portfolios for such amounts prior to the end of the
fiscal year.
Under the terms of an Administration Agreement, U.S. Bank also serves as
the administrator (the "Administrator"). The Administrator is
compensated to provide, or compensate other entities to provide, services
to the Portfolios. These services include, but are not limited to the
following: various legal, oversight and administration services, accounting
services, transfer agency and dividend disbursing services and shareholder
services. The Portfolios pay the Administrator at an annual rate,
calculated daily and paid monthly based on the aggregate average daily
assets of all open-end mutual funds in the First American Fund family,
equal to each Portfolio's pro rata share of amount equal to 0.07% of the
average daily net assets up to $8 billion, and 0.05% of average daily net
assets over $8 billion. In addition, the Portfolios pay to the
Administrator annual fees of $18,500 per CUSIP, shareholder account fees of
$15 per account and closed account fees of $3.50 per account for transfer
agent services
U.S. Bank also acts as the custodian (the "Custodian"). All cash and all of
the investments of the Portfolios are held by the Custodian or, for the
International Portfolio, by a sub-custodian. As compensation for its
services to the Portfolios, the Custodian is paid a monthly fee calculated
on an annual basis equal to 0.03% (0.10% in the case of the International
Portfolio) of such Portfolio's average daily net assets. From such fees
the Custodian pays any sub-custodian fees. The Custodian is also reimbursed
for its out-of-pocket expenses incurred while providing it services to the
Portfolios.
5 > INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding government obligations,
short-term securities and forward currency exchange contracts) and
government obligations for the period ended June 30, 2000 are summarized as
follows:
<TABLE>
<CAPTION>
LONG-TERM SECURITIES GOVERNMENT OBLIGATIONS
PURCHASES SALES PURCHASES SALES
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Cap Growth Portfolio $1,050,314 $ 75,665 $ -- $ --
International Portfolio 3,193,580 341,366 -- --
Technology Portfolio 1,125,100 126,278 -- --
-----------------------------------------------------------------------------------------------------------
</TABLE>
Included in net unrealized appreciation (depreciation) at June 30, 2000, are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Large Cap Growth Portfolio $ 66,132 $ (34,643) $ 31,489
International Portfolio 42,861 (282,778) (239,917)
Technology Portfolio 195,876 (58,698) 137,178
----------------------------------------------------------------------------------------------------------
</TABLE>
FA-7 FIRST AMERICAN INSURANCE SEMIANNUAL REPORT 2000
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2000 (unaudited)
Large Cap Growth Portfolio
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
--------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 96.6%
BASIC MATERIALS - 1.3%
350 Ecolab, Inc. $ 13,672
----------
CAPITAL GOODS - 2.3%
450 General Electric Co. 23,850
----------
COMMUNICATION SERVICES - 7.8%
300 AT & T Wireless Group * 8,363
500 Nextel Communications, Inc. Class A* (A) 30,593
360 NEXTLINK Communications, Inc. Class A * 13,658
200 Vodafone Group PLC ADR (A) 8,288
450 Worldcom, Inc.* 20,643
----------
81,545
----------
CONSUMER CYCLICALS - 6.8%
300 Best Buy Co.* 18,975
250 Home Depot, Inc. 12,484
100 Kohl's Corp.* (A) 5,563
150 Omnicom Group, Inc. (A) 13,359
350 Wal-Mart Stores, Inc. 20,169
----------
70,550
----------
CONSUMER STAPLES - 4.7%
500 Cox Communications, Inc. Class A* (A) 22,781
800 Walgreen Co. (A) 25,750
---------
48,531
---------
ENERGY - 4.5%
150 Exxon Mobil Corp. 11,775
250 Schlumberger Ltd. (A) 18,656
310 Transocean Sedco Forex, Inc. (A) 16,566
---------
46,997
---------
FINANCIAL SERVICES - 6.4%
270 American Express Co. 14,073
90 American International Group, Inc. 10,575
220 Bank of New York Co., Inc. 10,230
150 Citigroup, Inc. 9,038
150 Morgan Stanley Dean Witter & Co. 12,487
300 Schwab (Charles) Corp. 10,088
---------
66,491
---------
HEALTH CARE - 13.6%
150 Amgen, Inc.* 10,538
150 Bristol-Myers Squibb Co. 8,738
80 Genentech, Inc.* (A) 13,760
350 Guidant Corp.* 17,325
200 Johnson & Johnson, Inc. 20,375
400 Medtronic, Inc. 19,925
230 Merck & Company, Inc. 17,624
80 PE Corp.-- PE Biosystems Group 5,270
580 Pfizer, Inc. 27,839
---------
141,394
---------
TECHNOLOGY - 42.2%
300 America Online, Inc.* (A) 15,825
100 Applied Materials, Inc.* 9,630
200 Automatic Data Processing, Inc. 10,713
100 Broadcom Corp.* (A) 21,894
100 Brocade Communications Systems, Inc. 18,348
650 Cisco Systems, Inc.* 41,315
250 Dell Computer Corp.* 12,328
100 Ebay, Inc.* (A) 5,431
400 EMC Corp.* 30,775
250 Intel Corp. 33,422
100 Internet Capital Group, Inc.* (A) 3,702
150 JDS Uniphase Corp.* (A) 17,981
200 Lucent Technologies, Inc. (A) 11,850
400 Microsoft Corp.* 32,000
300 Motorola, Inc. (A) 8,719
750 Nokia Corp. ADR (A) 37,452
170 Nortel Networks Corp. ADR 11,603
450 Oracle Corp.* (A) 37,827
50 PMC-Sierra, Inc.* 8,884
200 Sun Microsystems, Inc.* 18,188
240 Texas Instruments, Inc. 16,485
100 Verisign, Inc.* 17,650
100 VERITAS Software Corp.* (A) 11,302
50 Yahoo, Inc.* 6,194
---------
438,951
---------
TRANSPORTATION - 2.1%
550 Southwest Airlines Co. 10,416
200 LD United Parcel Service, Inc. Class B 11,800
---------
22,216
---------
UTILITIES - 4.9%
400 AES Corp.* (A) 18,250
500 Enron Corp. 32,250
---------
50,500
---------
TOTAL COMMON STOCKS
(Cost $973,208) 1,004,697
---------
RELATED PARTY - MONEY MARKET FUND - 2.0%
First American Prime Obligations Fund (B)
(Cost $21,223) 21,223
---------
TOTAL
(Cost $994,431) $1,025,920
----------
</TABLE>
Percentages indicated are based on net assets of $1,039,862.
(A)All or part of this security was loaned as of June 30, 2000. Cash was
pledged as collateral.
(B)This money market fund is advised by U.S. Bank who also serves as
advisor for this fund.
*Non-income producing
The abbreviations in the above statement stand for the following:
ADR American Depositary Receipt
PLC Public Limited Corp. (British)
See notes to financial statements.
FIRST AMERICAN INSURANCE SEMIANNUAL REPORT 2000 FA-8
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2000 (unaudited)
International Portfolio
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCK - 94.6%
FINLAND - 4.3%
Electrical & Electronics - 4.3%
2,300 Nokia Oyj* $ 117,092
----------
FRANCE - 15.9%
Electronic Components/Instruments - 4.6%
2,000 STMicroelectronics NV 125,726
----------
Energy Sources - 4.4%
800 Total Fina Elf SA 122,374
----------
Health & Personal Care - 2.3%
900 Aventis SA* 65,535
----------
Insurance - 4.6%
800 Axa 125,726
----------
439,361
----------
GERMANY - 13.2%
Electronic Components/Instruments - 5.8%
1,000 Epcos AG* 99,524
400 Siemens AG* 60,006
----------
159,530
----------
Health & Personal Care - 1.6%
800 Schering AG* 44,195
----------
Insurance - 5.8%
350 Allianz AG* 126,678
100 Muenchener Rueckversicherungs-Gesellschaft AG* 31,670
158,348
----------
362,073
----------
HONG KONG - 4 .9%
Broadcasting & Publishing- 4.9%
20,000 Television Broadcasts Ltd.* 133,409
----------
JAPAN - 32.9%
Data Processing & Reproduction - 5.2%
1,000 Murata Mfg. Co. Ltd.* 143,558
----------
Electronic Components/Instruments - 7.1%
200 Rohm Co. Ltd.* 58,480
1,000 Tokyo Electron Ltd.* 136,955
----------
195,435
----------
Financial Services - 8.7%
12,000 Nikko Securities Co. Ltd.* 118,845
5,000 Nomura Securities Co. Ltd.* 122,382
----------
241,227
----------
Health & Personal Care - 4.8%
2,000 Takeda Chemical Industries Ltd.* 131,296
----------
Telecommunications - 7.1%
2 Japan Telecom Co. Ltd.* 86,776
4 NTT DoCoMo, Inc.* 108,282
----------
195,058
----------
906,574
----------
NETHERLANDS - 12.8%
Beverages & Tobacco - 5.1%
2,300 Heineken NV* 139,656
----------
Electronic Components/Instruments - 4.5%
2,900 ASM Lithography Holding NV* 124,353
----------
Energy Sources - 3.2%
1,400 Royal Dutch Petroleum Co.* 86,808
----------
350,817
----------
SWEDEN - 4.2%
Electrical & Electronics - 4.2%
5,800 Telefonaktiebolaget LM Ericsson AB* 116,000
----------
SWITZERLAND - 1.4%
Food & Household Products - 1.4%
19 Nestle SA* 37,984
----------
UNITED KINGDOM - 5.0%
Health & Personal Care - 5.0%
4,700 Glaxo Wellcome PLC* 137,392
----------
TOTAL FOREIGN COMMON STOCK
(Cost $2,804,937) 2,600,702
----------
RELATED PARTY - MONEY MARKET FUND - 0.8%
First American Prime Obligations Fund (A)
(Cost $23,255) 23,255
----------
TOTAL
(Cost $2,864,192) $2,623,957
----------
</TABLE>
Percentages indicated are based on net assets of $2,750,241.
(A) This money market fund is advised by U.S. Bank who also serves as advisor
for this fund.
*Non-income producing
The abbreviations in the above statement stand for the following:
AB Aktiebolag (Swedish Co.)
AG Aktiegesellschaft (German Corp.)
NV Naamloze Vennootschap (Dutch or French Corp.)
OYJ Limited (Finnish)
PLC Public Limited Corp. (British)
SA Sociedad Anonyme (French or Swiss Corp.)
See notes to financial statements.
FA-9 FIRST AMERICAN INSURANCE SEMIANNUAL REPORT 2000
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2000 (unaudited)
Technology Portfolio
<TABLE>
<CAPTION>
MARKET
SHARES SECURITY DESCRIPTION VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 98.0%
BROADCAST MEDIA/CABLE TELEVISION - 0.6%
200 TV Guide, Inc.* $ 6,850
----------
COMMUNICATIONS EQUIPMENT - 9.9%
129 ADC Telecommunications, Inc.* 10,820
100 Comverse Technology, Inc.*(A) 9,300
100 Efficient Networks, Inc.* (A) 7,356
50 Natural Microsystems Corp.* 5,622
700 Nokia Corp. ADR (A) 34,956
100 Sonicwall, Inc.* (A) 8,806
100 Sycamore Networks, Inc.* (A) 11,038
150 Turnstone Systems, Inc.* (A) 24,851
----------
112,749
----------
COMPUTER SOFTWARE/SERVICES - 39.1%
100 Active Software, Inc.* 7,769
400 America Online, Inc.* (A) 21,099
200 Art Technology Group, Inc.* 20,187
200 Ask Jeeves, Inc.* (A) 3,613
100 Bea Systems, Inc.* 4,944
500 Broadbase Software, Inc.* 15,313
200 Clarent Corp.* 14,300
150 Digex, Inc.* 10,191
400 Ebay, Inc.* (A) 21,724
300 Egain Communications Corp.* (A) 3,638
300 Exodus Communications, Inc.* 13,819
200 Foundry Networks, Inc.* 22,099
400 Genuity, Inc.* 3,663
300 Internap Network Services Corp.* 12,455
200 Interwoven, Inc.* (A) 21,996
300 Kana Communications, Inc.* (A) 18,562
188 Netiq Corp.* (A) 11,210
400 Netobjects, Inc.* 3,650
200 Ondisplay, Inc.* (A) 16,288
400 Oracle Corp.* 33,624
300 Portal Software, Inc.* 19,162
200 Primus Knowledge Solutions, Inc.* (A) 9,000
100 PURCHASEPRO.COM, Inc.* (A) 4,100
300 Razorfish, Inc.* 4,819
200 Selectica, Inc.* 14,013
200 Serena Software, Inc.* 9,081
200 Siebel Systems, Inc.* (A) 32,712
100 Verisign, Inc.* 17,650
100 VERITAS Software Corp.* (A) 11,302
100 Vignette Corp.* 5,202
200 Visual Networks, Inc.* 5,700
300 Vitria Technology, Inc.* 18,337
200 Watchguard Technologies, Inc.* 10,988
200 Websense, Inc.* 5,025
----------
447,235
----------
COMPUTERS (HARDWARE) - 8.6%
150 Brocade Communications Systems, Inc. 27,523
200 Copper Mountain Networks, Inc.* 17,625
600 Dell Computer Corp.* 29,588
100 Juniper Networks, Inc.* 14,556
500 Tricord Systems, Inc.* 9,031
----------
98,323
----------
COMPUTERS (NETWORKING) - 5.0%
300 3Com Corp.* 17,288
600 Cisco Systems, Inc.* 38,137
----------
55,425
----------
ELECTRIC AND ELECTRONIC EQUIPMENT - 0.5%
150 Vishay Intertechnology, Inc.* 5,691
----------
ELECTRONICS (DEFENSE) - 0.4%
100 Aeroflex, Inc.* 4,969
----------
ELECTRONICS (SEMICONDUCTORS) - 17.1%
200 Chartered Semiconductor Manufacturing Ltd. ADR* (A) 17,999
100 Cypress Semiconductor Corp.* 4,225
100 E-TEK Dynamics, Inc.* 26,380
200 Intel Corp. 26,737
200 JDS Uniphase Corp.* (A) 23,974
200 Maxim Integrated Products, Inc.* 13,588
100 PMC-Sierra, Inc.* 17,769
100 Qlogic Corp.* 6,606
100 RF Micro Devices, Inc.* 8,763
100 Stratos Lightwave, Inc.* 2,788
384 Taiwan Semiconductor Manufacturing Co. Ltd. ADR* 14,880
200 Vitesse Semiconductor* 14,713
200 Xilinx, Inc.* (A) 16,513
----------
194,935
----------
ENTERTAINMENT - 0.7%
500 Internet Pictures Corp.* 7,563
----------
EQUIPMENT (SEMICONDUCTORS) - 11.3%
300 Applied Materials, Inc.* 27,187
400 Asm Lithography Holding NV* 17,650
100 Broadcom Corp.* (A) 21,894
400 Fsi International, Inc.* 8,675
200 KLA-Tencor Corp.* 11,713
300 Lam Research Corp.* (A) 11,250
400 Taiwan Semiconductor Manufacturing Co. Ltd. ADR* 15,525
200 Teradyne, Inc.* 14,700
----------
128,594
----------
SERVICES (ADVERTISING/MARKETING) - 0.5%
200 Lifeminders, Inc.* 5,913
----------
SERVICES (COMMERCIAL AND CONSUMER) - 1.2%
300 China.Com Corp.* (A) 6,131
100 Click Commerce, Inc.* 2,263
200 ST Assembly Test Services Ltd. ADR (Singapore)* (A) 5,150
----------
13,544
----------
TELEPHONE LONG DISTANCE - 3.2%
100 Allegiance Telecom, Inc.* 6,400
100 ITXC Corp.* 3,541
400 NEXTLINK Communications, Inc. Class A * (A) 15,174
200 Primus Telecommunications Group, Inc. 4,975
100 Time Warner Telecom, Inc.* 6,438
----------
36,528
----------
TOTAL COMMON STOCKS
(Cost $981,141) 1,118,319
----------
RELATED PARTY - MONEY MARKET FUND - 0.1%
First American Prime Obligations Fund (B)
(Cost $997) 997
----------
TOTAL
(Cost $982,138) $1,119,316
----------
</TABLE>
Percentages indicated are based on net assets of $1,140,692.
(A) All or part of this security was loaned as of June 30, 2000. Cash was
pledged as collateral.
(B) This money market fund is advised by U.S. Bank who also serves as advisor
for this fund.
*Non-income producing
The abbreviations in the above statement stand for the following:
ADR American Depositary Receipt
NV Naamloze Vennootschap (Dutch Corp.)
See notes to financial statements.
FIRST AMERICAN INSURANCE SEMIANNUAL REPORT 2000 FA-10
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND OF MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2000
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Semi-Annual Report
June 30, 2000
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
We are pleased to provide you with this semi-annual report for the Mercury V.I.
US Large Cap Fund. The Fund's main goal is long-term capital growth through
investments primarily in a diversified portfolio of equity securities of large
cap companies located in the United States, which are undervalued or have good
prospects for earnings growth. In this report, we provide information on the
Fund's performance, discuss our investment strategies and highlight some of the
Fund's holdings.
INVESTMENT ENVIRONMENT
The strong growth in the US equity markets witnessed in 1999 slowed in the six
months ended June 30, 2000, with the broader unmanaged Standard & Poor's 500
(S&P 500) Index ending down 1.0% for the six-month period, compared to 7.0% for
the previous six months. The market continued its bullish run through the end of
1999 and into the first two months of 2000, but faltered as the first quarter of
2000 drew to a close. This happened because of the prospect of further interest
rate increases, spurred on by Federal Reserve Board Chairman Alan Greenspan's
comments on economic overheating and further monetary tightening in the face of
continued robust gross domestic product performance. As a result, high-growth
stocks, and the implicitly high valuations that accompanied them, came under
close scrutiny. Stocks with short trading histories and prospects of
profitability were severely pressured, owing to harsher-than-anticipated
valuation compression. Consequently, there was a severe and rapid move from "new
economy" stocks into old economy names, which caught Wall Street by surprise.
The highly rated business-to-business companies such as TIBCO Software Inc. and
Commerce One, Inc. exhibited particular weakness and even the larger sector
stalwarts such as Cisco Systems, Inc. and EMC Corporation were also subjected to
investor apathy.
The Procter & Gamble Company was also negatively affected by the increasing
evidence of a harsh commercial environment, issuing its second profits warning
of the year. Dial Corporation, another consumer staple company, also suffered
slowing sales growth. We believe this is symptomatic of the general malaise in
the broader retail market. Moreover, Microsoft Corporation suffered a poor
quarter of performance, caught in the throes of its ongoing battle with the US
Department of Justice over alleged anti-competitive practices.
The onset of the earnings season during the period highlighted value as the
corporate bottom line resurfaced for scrutiny. The season started with
disappointing results from technology heavyweights such as Motorola Inc., which
failed to impress global analysts in relation to its Scandinavian peers Nokia
Oyj and Telefonaktiebolaget LM Ericsson. However, Oracle Corporation and Sun
Microsystems, Inc. both beat consensus earnings estimates by comfortable margins
of $0.3 in each case. What these results show is that large-capitalization
technology companies have possessed a substantial ability to deliver on growth
promises while adding real value and real profit.
PORTFOLIO ACTIVITIES
During the six months ended June 30, 2000, the Fund's Class A Shares had a total
return of _3.91%, underperforming the S&P 500 Index by _0.42%. Since the Fund
commenced operations on April 30, 1999, we have seen a steady inflow of cash,
and the Fund had net assets of more than $44.7 million at June 30, 2000, with
the Fund fully invested with common stocks comprising 97.1% of the Fund's net
assets.
There were two distinct periods of very different market psychology during the
six months ended June 30, 2000. The Fund's overweighted position in
telecommunications and technology, which began as solid performers in the new
millennium, suffered during the NASDAQ correction in March and April. The style
shift toward old economy stocks and out of technology was pronounced during
these months and caused the Fund to underperform, primarily during April and
May. Although we retain a bias toward the quality growth companies in technology
and telecommunications that we had favored throughout 1999 (such as EMC
Corporation, Nortel Networks Corporation and Texas Instruments Incorporated), we
moved the portfolio into a slightly more defensive mode during April and May. In
ML-1
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Semi-Annual Report
June 30, 2000 (Concluded)
--------------------------------------------------------------------------------
addition, we added some old economy stocks (Anheuser-Busch Companies, Inc.,
Schlumberger Limited, Halliburton Company and Boeing Company) to provide
diversification to the portfolio at a time when markets are experiencing
unprecedented volatility. This portfolio theme is likely to persist until we
believe that the market gains a clearer direction and we are more comfortable
with the performance of the US economy under the current phase of monetary
policy tightening.
IN CONCLUSION
We thank you for your investment in Mercury V.I. U.S. Large Cap Fund, and we
look forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Jeffrey Peek
Jeffrey Peek
President
/s/ Michael Morony
Michael Morony
Portfolio Manager
August 8, 2000
ML-2
<PAGE>
--------------------------------------------------------------------------------
MERCURY INTERNATIONAL V.I. U.S. LARGE CAP FUND
Performance Information as of June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------------------------------------------
CLASS A SHARES % RETURN
--------------------------------------------------------------------------------
<S> <C>
Year Ended 6/30/00 +10.37%
--------------------------------------------------------------------------------
Inception (4/30/99) to 6/30/00 +13.74%
--------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------------------------------------
RECENT PERFORMANCE RESULTS*
----------------------------------------------------------------------------------
6 MONTH 12 MONTH SINCE INCEPTION
AS OF JUNE 30, 2000 TOTAL RETURN TOTAL RETURN TOTAL RETURN
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares -3.91% +10.37% +16.22%
----------------------------------------------------------------------------------
</TABLE>
* Total investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. Insurance-related
fees and expenses are not reflected in these returns. The Fund commenced
operations on April 30, 1999.
Past results shown should not be considered a representation of future
performance.
ML-3
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Schedule of Investments as of June 30, 2000
-----------------------------------------------------------------------------------------------------------------------------
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AEROSPACE & DEFENSE 10,530 The Boeing Company $ 440,286 1.0%
19,080 United Technologies Corporation 1,123,335 2.5
------------ -----
1,563,621 3.5
-----------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES 10,680 Ford Motor Company 459,240 1.0
1,342 +Visteon Corporation 16,272 0.0
------------ -----
475,512 1.0
-----------------------------------------------------------------------------------------------------------------------------
BANKS 14,650 The Chase Manhattan Corporation 674,816 1.5
14,700 FleetBoston Financial Corporation 499,800 1.1
------------ -----
1,174,616 2.6
-----------------------------------------------------------------------------------------------------------------------------
BEVERAGES 5,940 Anheuser-Busch Companies, Inc. 443,644 1.0
3,570 The Coca-Cola Company 205,052 0.5
30,640 PepsiCo, Inc. 1,361,565 3.0
------------ -----
2,010,261 4.5
-----------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY 6,460 +Amgen Inc. 453,815 1.0
-----------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS 23,660 +Cisco Systems, Inc. 1,503,889 3.4
EQUIPMENT 2,810 +Efficient Networks, Inc. 206,711 0.5
5,000 +JDS Uniphase Corporation 599,063 1.3
15,630 Nortel Networks Corporation 1,066,747 2.4
3,330 +VeriSign, Inc. 587,121 1.3
------------ -----
3,963,531 8.9
-----------------------------------------------------------------------------------------------------------------------------
COMPUTERS & 14,800 +Dell Computer Corporation 729,825 1.6
PERIPHERALS 9,900 +EMC Corporation 761,681 1.7
7,190 +Sun Microsystems, Inc. 653,841 1.5
------------ -----
2,145,347 4.8
-----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 14,010 American Express Company 730,271 1.6
FINANCIALS 20,400 Citigroup Inc. 1,229,100 2.7
------------ -----
1,959,371 4.3
-----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED 11,250 AT&T Corp. 355,781 0.8
TELECOMMUNICATION 3,900 +Amdocs Limited 299,325 0.7
SERVICES 20,950 Bell Atlantic Corporation 1,064,522 2.4
5,520 +Level 3 Communications, Inc. 485,415 1.1
8,810 SBC Communications Inc. 381,032 0.9
7,920 Sprint Corp. (FON Group) 403,920 0.9
------------ -----
2,989,995 6.8
-----------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & 10,700 Halliburton Company 504,906 1.1
SERVICE 6,360 Schlumberger Limited 474,615 1.1
------------ -----
979,521 2.2
-----------------------------------------------------------------------------------------------------------------------------
FOOD & DRUG 6,620 +Safeway Inc. 298,727 0.7
RETAILING 32,720 Walgreen Co. 1,053,175 2.4
------------ -----
1,351,902 3.1
-----------------------------------------------------------------------------------------------------------------------------
HEALTH CARE 15,110 Medtronic, Inc. 752,667 1.7
EQUIPMENT & SUPPLIES
-----------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS 5,840 The Procter & Gamble Company 334,340 0.7
-----------------------------------------------------------------------------------------------------------------------------
IT CONSULTING & 6,300 Electronic Data Systems Corporation 259,875 0.6
SERVICES
-----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL 53,000 General Electric Company 2,809,000 6.3
CONGLOMERATES
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE 12,300 American International Group, Inc. 1,445,250 3.2
-----------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & 16,050 +America Online, Inc. 846,638 1.9
SERVICES 6,150 +Commerce One, Inc. 280,209 0.6
3,100 +TIBCO Software Inc. 332,475 0.7
------------ -----
1,459,322 3.2
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
ML-4
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Schedule of Investments as of June 30, 2000 (Concluded)
-----------------------------------------------------------------------------------------------------------------------------
SHARES PERCENT OF
INDUSTRY HELD COMMON STOCKS VALUE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MULTILINE RETAIL 12,300 +Kohl's Corporation $ 684,187 1.5%
20,850 Wal-Mart Stores, Inc. 1,201,481 2.7
------------ -----
1,885,668 4.2
-----------------------------------------------------------------------------------------------------------------------------
OIL & GAS 8,230 Chevron Corporation 698,007 1.6
21,456 Exxon Mobil Corporation 1,684,296 3.8
12,510 Texaco Inc. 666,158 1.5
------------ -----
3,048,461 6.9
-----------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST 12,300 International Paper Company 366,694 0.8
PRODUCTS 11,470 Weyerhaeuser Company 493,210 1.1
------------ -----
859,904 1.9
-----------------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS 8,960 The Estee Lauder Companies Inc. (Class A) 442,960 1.0
-----------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 16,620 Bristol-Myers Squibb Company 968,115 2.2
10,530 Merck & Co., Inc. 806,861 1.8
36,418 Pfizer Inc. 1,748,040 3.9
10,965 Pharmacia Corporation 566,753 1.3
------------ -----
4,089,769 9.2
-----------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR 3,230 +Applied Materials, Inc. 292,719 0.7
EQUIPMENT & PRODUCTS 11,620 Intel Corporation 1,552,723 3.5
13,440 Texas Instruments Incorporated 923,160 2.1
------------ -----
2,768,602 6.3
-----------------------------------------------------------------------------------------------------------------------------
SOFTWARE 7,510 +Citrix Systems, Inc. 142,221 0.3
21,260 +Microsoft Corporation 1,699,471 3.8
7,710 +Oracle Corporation 647,640 1.4
------------ -----
2,489,332 5.5
-----------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL 6,435 The Home Depot, Inc. 321,348 0.7
-----------------------------------------------------------------------------------------------------------------------------
WIRELESS 10,530 +Nextel Communications, Inc. (Class A) 644,304 1.4
TELECOMMUNICATION 12,090 +Sprint Corp. (PCS Group) 719,355 1.6
SERVICES ------------ -----
1,363,659 3.0
-----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST--$41,584,875) 43,397,649 97.1
-----------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SHORT-TERM SECURITIES
-----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER* $1,070,000 General Motors Acceptance Corp.,
7.13% due 7/03/2000 1,069,576 2.4
-----------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES (COST--$1,069,576) 1,069,576 2.4
-----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$42,654,451)....... 44,467,225 99.5
TIME DEPOSITS**............................. 2,000,000 4.5
LIABILITIES IN EXCESS OF OTHER ASSETS....... (1,762,777) (4.0)
------------ -----
NET ASSETS.................................. $ 44,704,448 100.0%
============ ======
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Non-income producing security.
* Commercial Paper is traded on a discount basis; the interest rate shown
reflects the discount rate paid at the time of purchase by the Fund.
** Time deposits bear interest at 6.937% and mature on July 3, 2000.
See Notes to Financial Statements.
ML-5
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Statement of Assets and Liabilities as of June 30, 2000
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (identified cost -- $42,654,451) ................................... $ 44,467,225
Time deposits ............................................................................ 2,000,000
Receivables:
Capital shares sold .................................................................... $ 96,507
Dividends .............................................................................. 13,350
Interest ............................................................................... 385 110,242
------------
Prepaid expense .......................................................................... 63,587
------------
Total assets ........................................................................... 46,641,054
------------
LIABILITIES:
Payables:
Securities purchased ................................................................... 1,830,769
Investment adviser ..................................................................... 18,446
Capital shares redeemed ................................................................ 127 1,849,342
------------
Accrued expenses and other liabilities ................................................... 87,264
------------
Total liabilities ...................................................................... 1,936,606
------------
NET ASSETS:
Net assets ............................................................................... $ 44,704,448
============
NET ASSETS CONSIST OF:
Class A Shares of Common Stock, $.0001 par value, 200,000,000 shares authorized+ ......... $ 387
Paid-in capital in excess of par ......................................................... 42,721,319
Accumulated investment loss on investments -- net ........................................ (13,723)
Undistributed realized capital gain on investments -- net ................................ 183,691
Unrealized appreciation on investments -- net ............................................ 1,812,774
------------
NET ASSETS ............................................................................... $ 44,704,448
============
NET ASSET VALUE:
Class A -- Based on net assets of $44,704,448 and 3,866,591 shares outstanding ........... $ 11.56
============
</TABLE>
+ The Fund is also authorized to issue 200,000,000 Class B Shares.
See Notes to Financial Statements.
ML-6
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Statement of Operations for the Six Months Ended June 30, 2000
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................................................ $ 146,892
Interest and discount earned ............................................................. 52,100
------------
Total income ............................................................................. 198,992
------------
EXPENSES:
Investment advisory fees ................................................................. $ 110,612
Accounting services ...................................................................... 39,246
Custodian fees ........................................................................... 28,186
Professional fees ........................................................................ 26,333
Offering costs ........................................................................... 19,173
Printing and shareholder reports ......................................................... 14,755
Director's fees and expenses ............................................................. 13,574
Transfer agent fees ...................................................................... 4,802
Registration fees ........................................................................ 3,026
Pricing fees ............................................................................. 300
Other .................................................................................... 2,011
------------
Total expenses before reimbursement ...................................................... 262,018
Reimbursement of expenses ................................................................ (49,303)
------------
Total expenses after reimbursement ....................................................... 212,715
------------
Investment loss -- net ................................................................... (13,723)
------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET:
Realized gain from investments -- net .................................................... 284,188
Change in unrealized appreciation on investments -- net .................................. (1,322,958)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................................... $(1,052,493)
============
</TABLE>
See Notes to Financial Statements.
ML-7
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Statements of Changes in Net Assets
------------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED APRIL 30, 1999+
INCREASE (DECREASE) IN NET ASSETS: JUNE 30, 2000 TO DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment loss -- net ....................................................................... $ (13,723) $ (5,446)
Realized gain (loss) on investments -- net ................................................... 284,188 (47,005)
Change in unrealized appreciation on investments -- net ...................................... (1,322,958) 3,135,732
----------- -----------
Net increase (decrease) in net assets resulting from operations .............................. (1,052,493) 3,083,281
----------- -----------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS:
In excess of investment income -- net:
Class A .................................................................................... -- (69,125)
In excess of realized gain on investments -- net:
Class A .................................................................................... -- (53,492)
----------- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders ............................................................................ -- (122,617)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Increase in net assets derived from net capital share transactions ........................... 21,743,094 21,053,083
----------- -----------
NET ASSETS:
Total increase in net assets ................................................................. 20,690,601 24,013,747
Beginning of period .......................................................................... 24,013,847 100
----------- -----------
End of period ................................................................................ $44,704,448 $24,013,847
=========== ===========
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
ML-8
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING RATIOS HAVE BEEN DERIVED FROM INFORMATION CLASS A
PROVIDED IN THE FINANCIAL STATEMENTS. ------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED APRIL 30, 1999+
INCREASE (DECREASE) IN NET VALUE: JUNE 30, 2000 TO DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......................................................... $ 12.03 $ 10.00
----------- -----------
Investment loss -- net ....................................................................... --++ --++
Realized and unrealized gain (loss) on investments -- net .................................... (.47) 2.10
----------- -----------
Total from investment operations ............................................................. (.47) 2.10
----------- -----------
Less dividends and distributions:
In excess of investment income -- net ...................................................... -- (.04)
In excess of realized gain on investments -- net ........................................... -- (.03)
----------- -----------
Total dividends and distributions ............................................................ -- (.07)
----------- -----------
Net asset value, end of period ............................................................... $ 11.56 $ 12.03
=========== ===========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share ........................................................... (3.91%)@ 20.94%@
=========== ===========
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement ............................................................... 1.25%* 1.25%*
=========== ===========
Expenses ..................................................................................... 1.54%* 2.83%*
=========== ===========
Investment loss -- net ....................................................................... (.08%)* (.07%)*
=========== ===========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ..................................................... $ 44,704 $ 24,014
=========== ===========
Portfolio turnover ........................................................................... 35.03% 37.25%
=========== ===========
</TABLE>
* Annualized.
** Total investment returns exclude insurance-related fees and expenses. The
Fund's Investment Adviser voluntarily waived a portion of its management
fee. Without such waiver, the Fund's performance would have been lower.
+ Commencement of operations.
++ Amount is less than $.01 per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
ML-9
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Notes to Financial Statements
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Mercury V.I. U.S Large Cap Fund ( the "Fund") is a series of Mercury Asset
Management V.I. Funds, Inc. (the "Corporation"). The Fund is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America, which may require the use of management accruals and estimates. These
unaudited financial statements reflect all adjustments, which are, in the
opinion of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal, recurring
nature. The Fund offers two classes of shares. Class A and Class B Shares have
equal voting, dividend, liquidation and other rights, except that only shares of
the respective classes are entitled to vote on matters concerning only that
class and Class B Shares bear certain expenses related to the distribution of
such shares. The following is a summary of significant accounting policies
followed by the Fund.
(a) VALUATION OF INVESTMENTS -- Portfolio securities that are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued or, lacking any sales, at the last available
bid price for long positions and the last available ask price for short
positions. Securities traded in the over-the-counter market are valued at the
last available bid price in the over-the-counter market prior to the time of
valuation. Securities traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market.
Short positions in securities traded in the over-the-counter market are valued
at the last available ask price prior to the time of valuation. Options written
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair market value, as
determined in good faith by or under the direction of the Fund's Board of
Directors.
(b) DERIVATIVE FINANCIAL INSTRUMENTS -- The Fund may engage in various portfolio
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
- FINANCIAL FUTURES CONTRACTS-- The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities. Upon
entering into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
- OPTIONS-- The Fund is authorized to purchase and write call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected 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. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option
ML-10
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
to the extent of the premiums received or paid (or a gain or loss to the extent
that the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
- FORWARD FOREIGN EXCHANGE CONTRACTS-- The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or Fund positions. Such contracts are not entered on the Fund's
records. However, the effect on operations is recorded from the date the Fund
enters into such contracts.
(c) FOREIGN CURRENCY TRANSACTIONS -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) 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 its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Dividend income is recorded on the ex-dividend dates. Dividends from
foreign securities where the ex-dividend date may have passed are subsequently
recorded when the Fund has determined the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(f) DIVIDENDS AND DISTRIBUTIONS -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates. Distributions in excess of net investment
income and net realized capital gains are due primarily to post-October losses.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with Mercury Asset
Management International Limited ("Mercury International"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co.").
Mercury International is responsible for the management of the Fund's
investments and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of .65% of the average
daily value of the Fund's net assets. Mercury International has entered into a
Sub-Advisory Agreement with Fund Asset Management, L.P. ("FAM"), another
indirect wholly-owned subsidiary of ML & Co. with respect to the Fund, pursuant
to which FAM provides investment advisory services with respect to the Fund's
daily cash assets. Mercury International has agreed to pay FAM a fee in an
amount to be determined from time to time by both parties but in no event in
excess of the amount that Mercury International actually receives for providing
services to the Corporation pursuant to the Investment Advisory Agreement.
Mercury International has agreed to limit the annual operating expenses of the
Fund to 1.25% and 1.40% of the Fund's average net assets with respect to the
Class A Shares and Class B Shares, respectively.
ML-11
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Notes to Financial Statements (Concluded)
--------------------------------------------------------------------------------
For the six months ended June 30, 2000, Mercury International earned fees of
$110,612, of which $49,303 were voluntarily waived.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Corporation are officers and/or
directors of Mercury International, FAM, PSI, and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2000 were $32,936,464 and $11,606,613, respectively.
Net realized gains for the six months ended June 30, 2000 and net unrealized
gains as of June 30, 2000 were as follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
GAINS GAINS
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long-term investments .......................................................................... $ 284,188 $ 1,812,774
----------- -----------
Total investments .............................................................................. $ 284,188 $ 1,812,774
=========== ===========
</TABLE>
As of June 30, 2000, net unrealized appreciation for Federal income tax purposes
aggregated $1,812,774, of which $4,649,880 related to appreciated securities and
$2,837,106 related to depreciated securities. At June 30, 2000, the aggregate
cost of investments for Federal income tax purposes was $42,654,451.
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares for each class were as follows:
<TABLE>
<CAPTION>
DOLLAR
CLASS A SHARES FOR THE SIX MONTHS ENDED JUNE 30, 2000 SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold .................................................................................... 2,038,813 $23,701,088
Shares redeemed ................................................................................ (168,231) (1,957,994)
----------- -----------
Net increase ................................................................................... 1,870,582 $21,743,094
=========== ===========
<CAPTION>
DOLLAR
CLASS A SHARES FOR THE PERIOD APRIL 30, 1999+ TO DECEMBER 30, 1999 SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold .................................................................................... 2,113,257 $22,372,710
Shares issued to shareholders in reinvestment of dividends and distributions ................... 10,561 122,618
----------- -----------
Total issued ................................................................................... 2,123,818 22,495,328
Shares redeemed ................................................................................ (127,819) (1,442,245)
----------- -----------
Net increase ................................................................................... 1,995,999 $21,053,083
=========== ===========
</TABLE>
+ Prior to April 30, 1999 (commencement of operations), the Fund issued 10
shares to Mercury International for $100.
ML-12
<PAGE>
--------------------------------------------------------------------------------
MERCURY V.I. U.S. LARGE CAP FUND
Officers and Directors
--------------------------------------------------------------------------------
JEFFREY M. PEEK-Director and President
DAVID O. BEIM-Director
JAMES T. FLYNN-Director
W. CARL KESTER-Director
KAREN P. ROBARDS-Director
TERRY K. GLENN-Director and Executive Vice President
DONALD C. BURKE-Vice President and Treasurer
ALLAN J. OSTER-Secretary
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
TRANSFER AGENT
Financial Data Services, Inc.
P.O. Box 44062
Jacksonville, Florida 32232-4062
(888) 763-2260
ML-13
<PAGE>
This report is authorized for distribution only to current shareholders of the
Fund. Past performance results shown in this report should not be considered a
representation of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. Statements and other information herein are as dated
and are subject to change.
Mercury V.I. U.S. Large Cap Fund of
Mercury Asset Management V.I. Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
[GRAPHIC] Printed on post-consumer recycled paper MERCVI1--6/00
<PAGE>
--------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE
----------------------
SERIES FUNDS, INC.
------------------
INVESTMENT PORTFOLIOS
AVAILABLE WITH HARTFORD LIFE INSURANCE COMPANY
-Global Growth Focus Fund
Semi-Annual Report
June 30, 2000
<PAGE>
--------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
JUNE 30, 2000--SEMI-ANNUAL REPORT
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
Economic slowing has finally arrived in the United States. As a result,
significant increases in inflation and interest rates appear less likely,
which is usually good news for financial assets. On the other hand, profit
growth is likely to decelerate from unsustainably high levels.
Investor sentiment changed significantly during the first half of 2000. In
general, concerns centered on economic growth being too strong. A recent
inflection could indicate healthy, but slower economic and profit growth in the
second half of the year. Following potential uncertainty during the adjustment
period, the sustainability of the economic expansion could buoy investor
expectations.
During the first half of the year, equity investors switched gears from an
excessive focus on momentum, which was prevalent during most of 1999. This
transition to a more balanced focus on both valuation and earnings growth, which
began in March, can provide a healthier investment backdrop. However, this
change has caused deterioration in many extremely highly valued securities with
speculative fundamentals and improvement in previously neglected, solidly
performing companies.
In the coming months, we believe investors are likely to focus on continuing
cyclical economic developments as well as the presidential election campaign.
Cyclical concerns remain, increasing labor costs as well as volatile, but
rising, commodity prices. Federal budget policy, social security funding options
and trade policy are likely to shape investor interest in the outcome of the
election. Generally, financial markets have tended to do better under divided
governments, preferring legislative gridlock. In part, US markets historically
have done well as a result of fiscal policy restraint and could react poorly to
any significant reversal of that trend.
Despite near-term uncertainties surrounding economic slowdown, earnings
growth and valuation levels, long-term forces supporting US economic and
financial market leadership seem to remain in place. Chief among these are
continued heavy investments in technology, telecommunications and other
efficiency-enhancing projects, thus potentially enabling productivity-led
growth.
PORTFOLIO MATTERS
For the six-month period ended June 30, 2000, Global Growth Focus Fund's
Class A Shares had a total return of -1.19%, as compared to -2.56% (in US
dollars) for the unmanaged Morgan Stanley Capital International (MSCI) World
Stock Index. For the 12 months ended June 30, 2000, Global Growth Focus Fund's
Class A Shares returned +29.64% and the MSCI World Stock Index returned
+12.19% (in US dollars). For the six months ended June 30, 2000, the
actively managed portfolios in the Lipper Analytical Services Global Funds
Average returned -1.20%.
The primary reason for the Fund's comparative investment performance is our
continued focus on the investment strategy that we implemented early in the
September 1999 quarter. During the third calendar quarter of 1999, we shifted
company investments in banking and financial, financial services, insurance,
health care, food and household product industries into technology organizations
where the focus was providing systems for the new Internet communication
infrastructure.
We have continued to focus the company investments on the leading technology
organizations in the communications systems and components areas, such as Cisco
Systems, Inc., Nortel Networks Corporation, Texas Instruments Incorporated,
STMicroelectronics NV, JDS Uniphase Corporation and Nokia Oyj. Secondarily, we
have emphasized company investments in large global energy and oil service
organizations, such as Enron Corp. and Schlumberger Limited. Also, we continued
to invest positive cash inflows during the months of April and May 2000 as the
overall declines took place in the global stock markets.
IN CONCLUSION
We appreciate your investment in Global Growth Focus Fund of
Merrill Lynch Variable Series Funds, Inc., and we look forward to
ML-14
<PAGE>
--------------------------------------------------------------------------------
sharing our investment outlook and strategies with you in our next
report to shareholders.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Lawrence R. Fuller
Lawrence R. Fuller
Senior Vice President and Portfolio Manager
July 26, 2000
ML-15
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
AVERAGE ANNUAL TOTAL RETURN--CLASS A SHARES
--------------------------------------------------------------------------------
PERIOD COVERED % RETURN
--------------------------------------------------------------------------------
<S> <C>
Year Ended 6/30/00 +29.64%
--------------------------------------------------------------------------------
Inception (6/05/98) to 6/30/00 +20.98
--------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
RECENT PERFORMANCE RESULTS*
--------------------------------------------------------------------------------
6 MONTH 12 MONTH
TOTAL RETURN TOTAL RETURN
--------------------------------------------------------------------------------
<S> <C> <C>
Class A Shares -1.19% +29.64%
--------------------------------------------------------------------------------
</TABLE>
* Total investment returns are based on changes in net asset value for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. Insurance-related
fees and expenses are not reflected in these returns.
Past results shown should not be considered a representation of future
performance.
ML-16
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (IN US DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
NORTH SHARES PERCENT OF
AMERICA INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CANADA COMMUNICATIONS 160,000 Nortel Networks Corporation.................. $ 11,089,964 4.1%
EQUIPMENT
-----------------------------------------------------------------------------------------------------------------------------------
WIRELINE 28,328 +AT&T Canada Inc. ............................ 936,594 0.4
COMMUNICATIONS 100,000 +Rogers Communications,
Inc. 'B'.................................. 2,831,207 1.0
------------ ------
3,767,801 1.4
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN CANADA 14,857,765 5.5
-----------------------------------------------------------------------------------------------------------------------------------
UNITED STATES ADVERTISING 11,863 The Interpublic Group of Companies, Inc. .... 510,109 0.2
---------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY 5,000 +Affymetrix, Inc. ............................ 825,312 0.3
73,000 +Immunex Corporation ......................... 3,608,937 1.3
------------ ------
4,434,249 1.6
---------------------------------------------------------------------------------------------------------------
BROADCASTING 10,056 +AMFM Inc. ................................... 693,864 0.2
13,150 +Infinity Broadcasting Corporation (Class A).. 479,153 0.2
------------ ------
1,173,017 0.4
---------------------------------------------------------------------------------------------------------------
BROADCASTING--RADIO 8,665 +Viacom, Inc. (Class B)....................... 590,845 0.2
& TELEVISION
---------------------------------------------------------------------------------------------------------------
COMMUNICATIONS 57,643 +3Com Corporation............................. 3,318,075 1.2
EQUIPMENT 210,200 +Cisco Systems, Inc. ......................... 13,360,837 5.0
46,000 +JDS Uniphase Corporation..................... 5,511,375 2.0
------------ ------
22,190,287 8.2
---------------------------------------------------------------------------------------------------------------
COMPUTERS 84,000 +EMC Corporation.............................. 6,462,750 2.4
100,000 +Sun Microsystems, Inc. ...................... 9,093,750 3.4
------------ ------
15,556,500 5.8
---------------------------------------------------------------------------------------------------------------
ELECTRICAL 115,000 General Electric Company..................... 6,095,000 2.3
EQUIPMENT
---------------------------------------------------------------------------------------------------------------
ELECTRONICS 24,000 +Broadcom Corporation (Class A)............... 5,254,500 2.0
24,000 +LSI Logic Corporation ....................... 1,299,000 0.5
40,000 Texas Instruments Incorporated............... 2,747,500 1.0
21,000 +Xilinx, Inc. ................................ 1,733,813 0.6
------------ ------
11,034,813 4.1
---------------------------------------------------------------------------------------------------------------
ENERGY 21,968 El Paso Energy Corporation................... 1,118,995 0.4
68,685 Enron Corp. ................................. 4,430,182 1.6
------------ ------
5,549,177 2.0
---------------------------------------------------------------------------------------------------------------
ENTERTAINMENT 19,816 The Walt Disney Company...................... 769,109 0.3
---------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES 52,016 T. Rowe Price Associates, Inc. .............. 2,210,680 0.8
---------------------------------------------------------------------------------------------------------------
INFORMATION 45,000 +America Online, Inc. ........................ 2,373,750 0.9
PROCESSING 132,000 +Exodus Communications, Inc. ................. 6,080,250 2.3
11,000 +Palm, Inc. .................................. 367,125 0.1
------------ ------
8,821,125 3.3
---------------------------------------------------------------------------------------------------------------
OIL SERVICES 64,497 Baker Hughes Incorporated.................... 2,063,904 0.8
2,725 Diamond Offshore Drilling, Inc. .............. 95,716 0.0
24,000 Halliburton Company.......................... 1,132,500 0.4
51,555 Schlumberger Limited......................... 3,847,292 1.4
------------ ------
7,139,412 2.6
---------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 15,000 Merck & Co., Inc. ........................... 1,149,375 0.4
45,486 Pfizer Inc. ................................. 2,183,328 0.8
------------ ------
3,332,703 1.2
---------------------------------------------------------------------------------------------------------------
RESTAURANTS 14,273 McDonald's Corporation....................... 470,117 0.2
---------------------------------------------------------------------------------------------------------------
RETAIL 44,000 +Amazon.com, Inc. ............................ 1,597,750 0.6
42,000 +eBay Inc. ................................... 2,278,500 0.8
------------ ------
3,876,250 1.4
---------------------------------------------------------------------------------------------------------------
</TABLE>
ML-17
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (CONTINUED) (IN US DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
NORTH
AMERICA SHARES PERCENT OF
(CONCLUDED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNITED STATES SEMICONDUCTORS 42,000 +Applied Materials, Inc. ................... $ 3,806,250 1.4%
(CONCLUDED) ---------------------------------------------------------------------------------------------------------------
SOFTWARE--COMPUTER 152,000 +BEA Systems, Inc. ......................... 7,505,000 2.8
84,000 +Commerce One, Inc. ........................ 3,827,250 1.4
10,000 +Rational Software Corporation.............. 928,750 0.3
------------ ------
12,261,000 4.5
---------------------------------------------------------------------------------------------------------------
SPECIALTY RETAILING 13,000 +Staples, Inc. ............................. 199,875 0.1
---------------------------------------------------------------------------------------------------------------
WIRELESS 2,198 +Sprint Corp. (PCS Group)................... 130,781 0.1
COMMUNICATIONS 25,000 +Western Wireless Corporation (Class A)..... 1,360,937 0.5
------------ ------
1,491,718 0.6
---------------------------------------------------------------------------------------------------------------
WIRELINE 27,312 AT&T Corp. ................................ 863,742 0.3
COMMUNICATIONS 3,100 +Infonet Services Corporation (Class B)..... 37,006 0.0
64,000 +NorthPoint Communications Group, Inc. ..... 712,000 0.3
78,420 +WorldCom, Inc. ............................ 3,597,517 1.3
------------ ------
5,210,265 1.9
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
UNITED STATES 116,722,501 43.1
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NORTH AMERICA
(COST--$111,850,637) 131,580,266 48.6
-----------------------------------------------------------------------------------------------------------------------------------
PACIFIC
BASIN
-----------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA WIRELESS 275,000 +Cable & Wireless Optus
COMMUNICATIONS Limited................................ 822,248 0.3
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN AUSTRALIA............. 822,248 0.3
-----------------------------------------------------------------------------------------------------------------------------------
CHINA INFORMATION 40,000 +China.Com Corporation 'A'.................. 815,000 0.3
PROCESSING
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN CHINA 815,000 0.3
-----------------------------------------------------------------------------------------------------------------------------------
JAPAN AUTOMOBILES 2,000 Honda Motor Co., Ltd. ..................... 68,239 0.0
60,000 Toyota Motor Corporation................... 2,739,001 1.0
------------ ------
2,807,240 1.0
---------------------------------------------------------------------------------------------------------------
COMPUTERS 75,000 Fujitsu Limited............................ 2,601,484 1.0
---------------------------------------------------------------------------------------------------------------
LEISURE 28,600 Sony Corporation........................... 2,676,055 1.0
---------------------------------------------------------------------------------------------------------------
PHOTOGRAPHY 1,000 Fuji Photo Film............................ 41,019 0.0
---------------------------------------------------------------------------------------------------------------
RETAIL STORES 67,000 Ito-Yokado Co., Ltd. ...................... 4,040,074 1.5
---------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS 4,000 Tokyo Electron Limited..................... 548,934 0.2
---------------------------------------------------------------------------------------------------------------
TRANSPORT SERVICES 500 East Japan Railway Company................. 2,911,016 1.1
---------------------------------------------------------------------------------------------------------------
WIRELESS 290 NTT Mobile Communications
COMMUNICATIONS Network, Inc. ............................. 7,866,358 2.9
---------------------------------------------------------------------------------------------------------------
WIRELINE 280 Nippon Telegraph & Telephone
COMMUNICATIONS Corporation (NTT)........................ 3,731,393 1.4
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN JAPAN 27,223,573 10.1
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PACIFIC BASIN (COST--$29,723,948) 28,860,821 10.7
-----------------------------------------------------------------------------------------------------------------------------------
WESTERN
EUROPE
-----------------------------------------------------------------------------------------------------------------------------------
DENMARK WIRELINE 20,880 Tele Danmark A/S........................... 1,411,246 0.5
COMMUNICATIONS
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN DENMARK 1,411,246 0.5
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ML-18
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (CONTINUED) (IN US DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
WESTERN
EUROPE SHARES PERCENT OF
(CONTINUED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINLAND COMMUNICATIONS 200,160 Nokia Oyj.................................. $ 10,255,632 3.8%
EQUIPMENT
---------------------------------------------------------------------------------------------------------------
WIRELESS 14,000 Sonera Oyj................................. 640,824 0.2
COMMUNICATIONS
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FINLAND 10,896,456 4.0
-----------------------------------------------------------------------------------------------------------------------------------
FRANCE BANKING & FINANCIAL 8,900 Credit Lyonnais............................ 424,871 0.1
---------------------------------------------------------------------------------------------------------------
BROADCASTING & 25,740 Societe Television
PUBLISHING Francaise 1.............................. 1,801,229 0.7
---------------------------------------------------------------------------------------------------------------
CHEMICALS 21,717 Aventis SA................................. 1,563,426 0.6
---------------------------------------------------------------------------------------------------------------
COSMETICS 130 +L'Oreal SA................................. 113,029 0.0
---------------------------------------------------------------------------------------------------------------
ELECTRICAL 20,000 Alstom..................................... 542,759 0.2
EQUIPMENT
---------------------------------------------------------------------------------------------------------------
ELECTRONICS 111,000 STMicroelectronics NV...................... 7,022,704 2.6
---------------------------------------------------------------------------------------------------------------
FOOD 2,296 Groupe Danone.............................. 305,931 0.1
---------------------------------------------------------------------------------------------------------------
INSURANCE 2,946 Axa........................................ 465,966 0.2
---------------------------------------------------------------------------------------------------------------
OIL/INTEGRATED-- 15,000 Total Fina SA 'B'.......................... 2,309,267 0.8
INTERNATIONAL
---------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 3,060 Aventis SA................................. 224,252 0.1
---------------------------------------------------------------------------------------------------------------
RETAIL STORES 6,648 Carrefour SA............................... 456,291 0.2
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FRANCE 15,229,725 5.6
-----------------------------------------------------------------------------------------------------------------------------------
GERMANY AUTOMOBILES 17,529 DaimlerChrysler AG ........................ 923,341 0.3
---------------------------------------------------------------------------------------------------------------
CHEMICALS 7,187 BASF AG.................................... 292,458 0.1
17,155 Bayer AG................................... 670,947 0.3
1,588 Celanese AG................................ 30,902 0.0
------------ ------
994,307 0.4
---------------------------------------------------------------------------------------------------------------
ELECTRONICS 26,000 Siemens AG................................. 3,925,467 1.5
---------------------------------------------------------------------------------------------------------------
INSURANCE 1,646 Allianz AG (Registered Shares)............. 599,585 0.2
---------------------------------------------------------------------------------------------------------------
RETAIL STORES 55,000 Metro AG................................... 1,940,206 0.7
---------------------------------------------------------------------------------------------------------------
SOFTWARE--COMPUTER 2,800 +Brokat Infosystems AG...................... 218,753 0.1
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN GERMANY 8,601,659 3.2
-----------------------------------------------------------------------------------------------------------------------------------
ITALY BANKING & 120,000 +Banca di Roma SpA.......................... 147,931 0.1
FINANCIAL 54,750 Unicredito Italiano SpA.................... 262,942 0.1
------------ ------
410,873 0.2
---------------------------------------------------------------------------------------------------------------
INSURANCE 7,500 Assicurazioni Generali..................... 258,103 0.1
228,725 Istituto Nazionale delle Assicurazioni (INA)
SpA...................................... 565,680 0.2
------------ ------
823,783 0.3
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN ITALY 1,234,656 0.5
-----------------------------------------------------------------------------------------------------------------------------------
NETHERLANDS CHEMICALS 18,000 Akzo Nobel NV.............................. 767,839 0.3
36,000 DSM NV..................................... 1,159,523 0.4
------------ ------
1,927,362 0.7
---------------------------------------------------------------------------------------------------------------
ENERGY 55,000 Royal Dutch Petroleum Company.............. 3,432,267 1.3
---------------------------------------------------------------------------------------------------------------
INSURANCE 8,784 Aegon NV................................... 313,826 0.1
16,282 ING Groep NV............................... 1,105,041 0.4
------------ ------
1,418,867 0.5
---------------------------------------------------------------------------------------------------------------
</TABLE>
ML-19
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (CONTINUED) (IN US DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
WESTERN
EUROPE SHARES PERCENT OF
(CONCLUDED) INDUSTRY HELD INVESTMENTS VALUE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NETHERLANDS LEISURE 31,584 Koninklijke (Royal) Philips
(CONCLUDED) Electronics NV.......................... $ 1,495,655 0.6%
---------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS 75,000 +ASM Lithography Holding NV................ 3,236,713 1.2
21,000 +ASM Lithography Holding NV (ADR)(a) ...... 925,313 0.3
------------ ------
4,162,026 1.5
---------------------------------------------------------------------------------------------------------------
WIRELINE 33,195 +Equant.................................... 1,354,290 0.5
COMMUNICATIONS
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE NETHERLANDS 13,790,467 5.1
-----------------------------------------------------------------------------------------------------------------------------------
PORTUGAL WIRELINE 93,500 Portugal Telecom SA (Registered Shares)... 1,054,038 0.4
COMMUNICATIONS
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PORTUGAL 1,054,038 0.4
-----------------------------------------------------------------------------------------------------------------------------------
SPAIN BANKING & FINANCIAL 16,929 +Banco Bilbao Vizcaya, SA ................. 253,970 0.1
55,530 Banco Santander Central Hispano, SA....... 588,203 0.2
------------- ------
842,173 0.3
---------------------------------------------------------------------------------------------------------------
INFORMATION 132,000 Telefonica Publicidad e
PROCESSING Informacion, SA......................... 1,251,433 0.5
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SPAIN 2,093,606 0.8
-----------------------------------------------------------------------------------------------------------------------------------
SWEDEN COMMUNICATIONS 183,060 Telefonaktiebolaget LM Ericsson AB 'B'.... 3,641,999 1.3
EQUIPMENT
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWEDEN............... 3,641,999 1.3
-----------------------------------------------------------------------------------------------------------------------------------
SWITZERLAND FOOD 300 Nestle SA (Registered Shares)............. 602,361 0.2
---------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 520 Novartis AG (Registered Shares)........... 826,321 0.3
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWITZERLAND 1,428,682 0.5
-----------------------------------------------------------------------------------------------------------------------------------
UNITED BANKING & FINANCIAL 20,655 HSBC Holdings PLC......................... 236,242 0.1
KINGDOM ---------------------------------------------------------------------------------------------------------------
ENERGY 400,000 BP Amoco PLC.............................. 3,839,250 1.4
---------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS 18,892 Unilever PLC.............................. 114,402 0.0
---------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS 8,500 AstraZeneca Group PLC..................... 396,982 0.1
23,550 Glaxo Wellcome PLC........................ 687,021 0.3
43,776 SmithKline Beecham PLC.................... 573,257 0.2
------------ ------
1,657,260 0.6
---------------------------------------------------------------------------------------------------------------
PUBLISHING 20,000 EMAP PLC.................................. 321,855 0.2
11,160 Pearson PLC............................... 354,798 0.1
------------ ------
676,653 0.3
---------------------------------------------------------------------------------------------------------------
WIRELESS 1,813,433 Vodafone AirTouch PLC..................... 7,330,101 2.7
COMMUNICATIONS
---------------------------------------------------------------------------------------------------------------
WIRELINE 185,071 +COLT Telecom Group PLC..................... 6,163,938 2.3
COMMUNICATIONS 81,000 +Energis PLC................................ 3,038,670 1.1
------------ ------
9,202,608 3.4
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
UNITED KINGDOM 23,056,516 8.5
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN WESTERN EUROPE
(COST--$70,529,008)........................ 82,439,050 30.4
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ML-20
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2000 (CONCLUDED) (IN US DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM FACE PERCENT OF
SECURITIES AMOUNT ISSUE VALUE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL $ 8,511,000 General Motors Acceptance Corp., 7.13% due
PAPER* 7/03/2000............................................. $ 8,505,943 3.1%
10,000,000 Goldman Sachs Group, Inc., 6.75% due
7/06/2000............................................. 9,988,750 3.7
------------ ------
18,494,693 6.8
-----------------------------------------------------------------------------------------------------------------------------------
US GOVERNMENT Federal Home Loan Mortgage Corporation:
AGENCY OBLIGATIONS* 3,180,000 6.48% due 7/14/2000.................................. 3,171,986 1.2
6,030,000 6.46% due 7/18/2000.................................. 6,010,523 2.2
------------ ------
9,182,509 3.4
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM SECURITIES
(COST--$27,677,202).................................... 27,677,202 10.2
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$239,780,795)................. 270,557,339 99.9
OTHER ASSETS LESS LIABILITIES.......................... 249,425 0.1
------------ ------
NET ASSETS............................................. $270,806,764 100.0%
============ ======
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commercial Paper and certain US Government Agency Obligations are traded on
a discount basis; the interest rates shown reflect the discount rates paid
at the time of purchase by the Fund.
+ Non-income producing security.
(a) American Depositary Receipts (ADR).
See Notes to Financial Statements.
ML-21
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 2000
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (identified cost--$239,780,795)......................................... $270,557,339
Cash.......................................................................................... 111,300
Receivables:
Capital shares sold......................................................................... $ 529,170
Securities sold............................................................................. 388,951
Dividends................................................................................... 129,702 1,047,823
----------
Prepaid expenses and other assets............................................................. 1,156,349
-----------
Total assets.................................................................................. 272,872,811
-----------
----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Custodian bank.............................................................................. 1,107,461
Securities purchased........................................................................ 628,484
Investment adviser.......................................................................... 155,114
Capital shares redeemed..................................................................... 105,791 1,996,850
----------
Accrued expenses and other liabilities........................................................ 69,197
------------
Total liabilities............................................................................. 2,066,047
-----------
----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................................................... $270,806,764
============
----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized+................ $ 1,862,681
Paid-in capital in excess of par.............................................................. 229,931,078
Undistributed investment income--net.......................................................... 173,633
Undistributed realized capital gains on investments and foreign currency transactions--net.... 8,058,592
Unrealized appreciation on investments and foreign currency transactions--net................. 30,780,780
------------
NET ASSETS.................................................................................... $270,806,764
============
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class A--Based on net assets of $270,806,764 and 18,626,806 shares outstanding................. $ 14.54
============
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ THE FUND IS ALSO AUTHORIZED TO ISSUE 100,000,000 CLASS B SHARES.
See Notes to Financial Statements.
ML-22
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest and discount earned....................................................................... $ 592,995
Dividends (net of $69,098 foreign withholding tax) ................................................ 589,068
------------
Total income....................................................................................... 1,182,063
------------
-----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees........................................................................... $ 896,636
Custodian fees..................................................................................... 38,897
Accounting services................................................................................ 20,074
Registration fees.................................................................................. 19,797
Professional fees.................................................................................. 13,343
Printing and shareholder reports................................................................... 9,276
Transfer agent fees................................................................................ 2,007
Directors' fees and expenses....................................................................... 1,753
Pricing services................................................................................... 927
Other.............................................................................................. 1,618
-----------
Total expenses..................................................................................... 1,004,328
------------
Investment income--net............................................................................. 177,735
------------
-----------------------------------------------------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN CURRENCY
TRANSACTIONS--NET:
Realized gain (loss) from:
Investments--Net................................................................................. 8,151,397
Foreign currency transactions--net.............................................................. (57,092) 8,094,305
-----------
Change in unrealized appreciation/depreciation on:
Investments--net................................................................................ (16,043,032)
Foreign currency transactions--net.............................................................. 7,743 (16,035,289)
----------- -------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ (7,763,249)
=============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
ML-23
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------------------------------------------------------------------------------------------------
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: JUNE 30, 2000 DECEMBER 31, 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Investment income--net......................................................... $ 177,735 $ 1,268,598
Realized gain on investments and foreign currency transactions--net............ 8,094,305 2,090,153
Change in unrealized appreciation on investments and foreign currency
transactions--net........................................................... (16,035,289) 45,178,580
------------ ------------
Net increase (decrease) in net assets resulting from operations................ (7,763,249) 48,537,331
------------ ------------
----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net:
Class A .................................................................... (4,102) (1,171,390)
Realized gain on investments--net:
Class A .................................................................... (1,153,439) (1,105,991)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders................................................................ (1,157,541) (2,277,381)
------------ ------------
----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets derived from capital share transactions............. 99,319,780 114,490,492
------------ ------------
----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Total increase in net assets................................................... 90,398,990 160,750,442
Beginning of period............................................................ 180,407,774 19,657,332
------------ ------------
End of period*................................................................. $270,806,764 $180,407,774
============ ============
----------------------------------------------------------------------------------------------------------------------------
*UNDISTRIBUTED INVESTMENT INCOME--NET.......................................... $ 173,633 $ --
============ ============
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
ML-24
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN
DERIVED FROM INFORMATION PROVIDED IN THE FINANCIAL CLASS A++
STATEMENTS. -----------------------------------------------------------------
FOR THE SIX FOR THE FOR THE PERIOD
MONTHS ENDED YEAR ENDED JUNE 5, 1998+
INCREASE (DECREASE) IN NET ASSET VALUE: JUNE 30, 2000 DECEMBER 31, 1999 TO DECEMBER 31, 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....................... $ 14.78 $ 10.82 $ 10.00
-------- -------- --------
Investment income--net..................................... .01 .11 .03
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net....................... (.18) 4.06 .79
-------- -------- --------
Total from investment operations........................... (.17) 4.17 .82
-------- -------- --------
Less dividends and distributions:
Investment income--net................................... --ff (.12) --
Realized gain on investments--net........................ (.07) (.09) --
-------- -------- --------
Total dividends and distributions.......................... (.07) (.21) --
-------- -------- --------
Net asset value, end of period............................. $ 14.54 $ 14.78 $ 10.82
======== ======== ========
----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:**
Based on net asset value per share......................... (1.19%)f 38.69% 8.20%f
======== ======== ========
----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................... .84%* .87% 1.03%*
======== ======== ========
Investment income--net..................................... .15%* .97% .63%*
======== ======== ========
----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................... $270,807 $180,408 $ 19,657
======== ======== ========
Portfolio turnover......................................... 24.34% 99.09% 15.25%
======== ======== ========
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* ANNUALIZED.
** TOTAL INVESTMENT RETURNS EXCLUDE INSURANCE-RELATED FEES AND EXPENSES.
+ COMMENCEMENT OF OPERATIONS.
++ BASED ON AVERAGE SHARES OUTSTANDING.
f AGGREGATE TOTAL INVESTMENT RETURN.
ff AMOUNT IS LESS THAN $.01 PER SHARE.
See Notes to Financial Statements.
ML-25
<PAGE>
--------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.--GLOBAL GROWTH FOCUS FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Variable Series Funds, Inc. (the "Company") is an open-end
management investment company that as of June 30, 2000 was comprised of 19
separate funds. Each fund offers two classes of shares to the Merrill Lynch Life
Insurance Company, ML Life Insurance Company of New York (indirect wholly-owned
subsidiaries of Merrill Lynch & Co., Inc. ("ML & Co.")), and other insurance
companies, that are not affiliated with ML & Co., for their separate accounts to
fund benefits under certain variable annuity and variable life insurance
contracts. Class A and Class B Shares have equal voting, dividend, liquidation
and other rights, except that only shares of the respective classes are entitled
to vote on matters concerning only that class and Class B Shares bear certain
expenses related to the distribution of such shares. Global Growth Focus Fund
(the "Fund") is classified as "diversified," as defined in the Investment
Company Act of 1940. The Fund's Financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America,
which may require the use of management accruals and estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal, recurring nature. The following
is a summary of significant accounting policies followed by the Fund.
(a) VALUATION OF INVESTMENTS--Portfolio securities that are traded on stock
exchanges are valued at the last sale price as of the close of business on the
day the securities are being valued, or lacking any sales, at the closing bid
price. Securities traded in the over-the-counter market are valued at the last
available bid price prior to the time of valuation. Portfolio securities that
are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market, and it is
expected that for debt securities this ordinarily will be the over-the-counter
market. Options written or purchased are valued at the last sale price in the
case of exchange-traded options. In the case of options traded in the
over-the-counter market, valuation is the last asked price (options written) or
the last bid price (options purchased). Short-term securities are valued at
amortized cost, which approximates market value. Futures contracts are valued at
the settlement price at the close of the applicable exchange. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Company.
(b) DERIVATIVE FINANCIAL INSTRUMENTS--The Fund may engage in various
portfolio investment strategies to increase or decrease the level of risk to
which the Fund is exposed more quickly and efficiently than transactions in
other types of instruments. Losses may arise due to changes in the value of
the contract or if the counterparty does not perform under the contract.
-- FORWARD FOREIGN EXCHANGE CONTRACTS--The Fund is authorized to enter
into forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Fund's records. However, the effect on operations is recorded from the date
the Fund enters into such contracts.
-- OPTIONS--The Fund may write and purchase call and put options. When
the Fund writes an option, an amount equal to the premium received by the
Fund is reflected 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. When a security is purchased or sold through an
exercise of an option, the related premium paid or received is added to (or
deducted from) the basis of the security acquired or deducted from (or added
to) the proceeds of the security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a gain or loss on the
option to the extent of the premiums received or paid (or gain or loss to the
extent the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
-- FINANCIAL FUTURES CONTRACTS--The fund may purchase or sell financial
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from or pay to
the broker an
ML-26
<PAGE>
--------------------------------------------------------------------------------
amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it was
closed.
-- FOREIGN CURRENCY OPTIONS AND FUTURES--The Fund may also purchase or
sell listed or over-the-counter foreign currency options, foreign currency
futures and related options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-US dollar
denominated securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund.
(c) FOREIGN CURRENCY TRANSACTIONS--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized.
Assets and liabilities denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency transactions are the
result of settling (realized) or valuing (unrealized) assets and liabilities
expressed in foreign currencies into US dollars. Realized and unrealized
gains or losses from investments include the effects of foreign exchange
rates on investments.
(d) 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 its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(e) SECURITY TRANSACTIONS AND INVESTMENT INCOME--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined the ex-dividend date. Interest income (including
amortization of premium and discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(f) DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(g) CUSTODIAN BANK--The Fund recorded an amount payable to the Custodian
Bank reflecting an overnight overdraft which resulted from a failed trade
which settled the next day.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Company has entered into an Investment Advisory Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general partner
of MLIM is Princeton Services, Inc. ("PSI"), an indirect,
wholly-owned subsidiary of ML & Co., which is the limited partner.
MLIM is responsible for the management of the Company's funds and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the funds. For such services, the Fund pays a
monthly fee at the annual rate of .75% of the average daily value of the Fund's
net assets.
MLIM and Merrill Lynch Life Agency, Inc. ("MLLA") have entered into an
agreement which limits the operating expenses paid by the Fund, exclusive of any
distribution fees imposed on Class B Shares, to 1.25% of its average daily net
assets. Any such expenses in excess of 1.25% of average daily net assets will be
reimbursed to the Fund by MLIM which, in turn, will be reimbursed by MLLA.
For the six months ended June 30, 2000, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a subsidiary of ML & Co., earned $25,501 in commissions on the
execution of portfolio security transactions.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co.,
is the Company's transfer agent.
FAM Distributors, Inc. ("FAMD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc., is the Fund's Distributor.
Accounting services are provided to the Fund by MLIM at cost.
Certain officers and/or directors of the Company are officers and/or
directors of MLIM, PSI, FDS, FAMD, and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2000 were $133,822,384 and $52,760,365, respectively.
ML-27
<PAGE>
--------------------------------------------------------------------------------
Net realized gains (losses) for the six months ended June 30, 2000 and net
unrealized gains as of June 30, 2000 were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
--------------------------------------------------------------------------------
<S> <C> <C>
Long-term investments.......................... $8,151,464 $30,776,544
Short-term investments......................... (67) --
Foreign currency transactions.................. (57,092) 4,236
---------- -----------
Total.......................................... $8,094,305 $30,780,780
========== ===========
--------------------------------------------------------------------------------
</TABLE>
At June 30, 2000, net unrealized appreciation for Federal income tax purposes
aggregated $30,776,544, of which $54,194,075 related to appreciated securities
and $23,417,531 related to depreciated securities. At June 30, 2000, the
aggregate cost of investments for Federal income tax purposes was $239,780,795.
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Class A for the Six Months Ended Dollar
June 30, 2000 Shares Amount
--------------------------------------------------------------------------------
<S> <C> <C>
Shares sold.................................... 6,765,461 $104,423,985
Shares issued to shareholders in
reinvestment of dividends and
distributions................................ 69,522 1,157,541
---------- ------------
Total issued................................... 6,834,983 105,581,526
Shares redeemed................................ (415,822) (6,261,746)
---------- ------------
Net increase................................... 6,419,161 $ 99,319,780
========== ============
--------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------
Class A for the Year Ended Dollar
December 31, 1999 Shares Amount
--------------------------------------------------------------------------------
<S> <C> <C>
Shares sold.................................... 15,332,216 $170,032,328
Shares issued to shareholders in
reinvestment of dividends and
distributions................................ 159,398 2,277,381
---------- ------------
Total issued................................... 15,491,614 172,309,709
---------- ------------
Shares redeemed................................ (5,100,726) (57,819,217)
---------- ------------
Net increase................................... 10,390,888 $114,490,492
========== ============
--------------------------------------------------------------------------------
</TABLE>
5. COMMITMENTS:
At June 30, 2000, the Fund had entered into foreign exchange contracts, under
which it had agreed to purchase and sell various foreign currencies with
approximate values of $113,000 and $394,000, respectively.
ML-28
<PAGE>
--------------------------------------------------------------------------------
This report is only for distribution to shareholders of one of the Funds of
Merrill Lynch Variable Series Funds, Inc. Past performance results shown in this
report should not be considered a representation of future performance.
Investment return and principal value of non-money market fund shares will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost. Statements and other information herein are as dated and are
subject to change.
Merrill Lynch Variable Series Funds, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MITCHELL
HUTCHINS SERIES
TRUST
GROWTH AND
INCOME PORTFOLIO
SEMIANNUAL REPORT
-C-2000 PaineWebber Incorporated
All rights reserved. JUNE 30 , 2000
Member SIPC
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30 , 2000 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<S> <C>
COMMON STOCKS--75.86%
AIRLINES--0.65%
3,500 Delta Air Lines,Inc. ......................... $ 176,969
------------
BANKS--3.79%
9,216 Chase Manhattan Corp. ........................ 424,512
10,000 Citigroup,Inc. ............................... 602,500
------------
1,027,012
------------
BROADCASTING & PUBLISHING--0.35%
1,600 NTL Inc.* .................................... 95,800
------------
CHEMICALS--1.40%
12,600 Dow Chemical Co. ............................. 380,363
------------
COMPUTER HARDWARE--7.37%
6,000 Apple Computer,Inc.* ......................... 314,250
18,200 Cisco Systems Inc.* .......................... 1,156,837
10,700 Dell Computer Corp.* ......................... 527,644
------------
1,998,731
------------
COMPUTER SOFTWARE--4.73%
3,100 BMC Software,Inc.* ........................... 113,102
4,700 IBM Corp. .................................... 514,944
5,600 Microsoft Corp.* ............................. 448,000
14,200 Unisys Corp.* ................................ 206,787
------------
1,282,833
------------
CONSUMER DURABLES--1.46%
8,500 Whirlpool Corp. .............................. 396,313
------------
DEFENSE & AEROSPACE--1.55%
6,400 Boeing Co. ................................... 267,600
3,500 TRW Inc. ..................................... 151,812
------------
419,412
------------
DIVERSIFIED RETAIL--2.37%
7,000 Federated Department Stores,Inc.* ............ 236,250
7,000 Target Corp. ................................. 406,000
------------
642,250
------------
DRUGS & MEDICINE--3.16%
7,150 Pfizer,Inc. .................................. 343,200
10,200 Schering-Plough Corp. ........................ 515,100
------------
858,300
------------
ELECTRIC UTILITIES--1.97%
5,200 Duke Energy Corp. ............................ 293,150
6,000 Energy East Corp. ............................ 114,375
3,300 Unicom Corp. ................................. 127,669
------------
535,194
------------
ELECTRICAL EQUIPMENT--3.74%
3,075 Honeywell,Inc. ............................... 103,589
9,400 Jabil Circuit Inc.* .......................... 466,475
ELECTRICAL EQUIPMENT--(CONCLUDED)
2,400 Johnson Controls Inc. ........................ 123,150
11,100 Motorola,Inc. ................................ 322,594
------------
1,015,808
------------
ELECTRICAL POWER--0.62%
2,800 Emerson Electric Co. ......................... 169,050
------------
ENERGY RESERVES & PRODUCTION--7.53%
6,700 Chevron Corp. ................................ 568,244
6,400 El Paso Energy Corp. ......................... 326,000
6,708 Exxon Mobil Corp. ............................ 526,578
3,900 Phillips Petroleum Co. ....................... 197,681
6,900 Royal Dutch Petroleum Co.,ADR ................ 424,781
------------
2,043,284
------------
ENTERTAINMENT--1.33%
5,300 Viacom,Inc.,Class B* ......................... 361,394
------------
FINANCIAL SERVICES--2.64%
4,500 Federal Home Loan Mortgage Corp. ............. 182,250
5,400 General Electric Co. ......................... 286,200
5,800 MBNA Corp. ................................... 157,325
1,000 Providian Financial Corp. .................... 90,000
------------
715,775
------------
FOREST PRODUCTS, PAPER--2.01%
6,871 Georgia-Pacific Corp. ........................ 180,364
3,700 International Paper Co. ...................... 110,306
5,900 Weyerhaeuser Co. ............................. 253,700
------------
544,370
------------
INDUSTRIAL PARTS--3.31%
2,900 Ingersoll Rand Co. ........................... 116,729
7,600 Mettler-Toledo International Inc.* ........... 304,000
8,100 United Technologies Corp. .................... 476,887
------------
897,616
------------
INDUSTRIAL SERVICES & SUPPLIES--0.80%
4,600 Tyco International Ltd., ADR ................. 217,925
------------
INFORMATION & COMPUTER SERVICES--1.09%
5,600 America Online Inc.* ......................... 295,400
------------
LONG DISTANCE & PHONE COMPANIES--1.72%
10,150 MCI Worldcom Inc.* ........................... 465,631
------------
MEDIA--0.60%
4,000 Comcast Corp.,Class A* ....................... 162,000
------------
MEDICAL PRODUCTS--1.04%
4,000 Baxter International,Inc. .................... 281,250
------------
MINING & METALS--0.94%
8,800 Alcoa,Inc. ................................... 255,200
------------
</TABLE>
MH-1
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<S> <C>
COMMON STOCKS--(CONCLUDED)
MOTOR VEHICLES--2.20%
2,800 Borg Warner Automotive,Inc. .................. $ 98,350
8,047 Delphi Automotive Systems Corp. .............. 117,184
8,900 Ford Motor Co. ............................... 382,700
------------
598,234
------------
OIL REFINING--0.90%
5,000 Conoco,Inc. .................................. 122,812
4,300 Tosco Corp. .................................. 121,744
------------
244,556
------------
OIL SERVICES--2.14%
9,600 Halliburton Co. .............................. 453,000
2,400 Transocean Sedco Forex,Inc. .................. 128,250
------------
581,250
------------
OTHER INSURANCE--1.30%
4,150 AMBAC Financial Group Inc. ................... 227,472
6,000 Metlife Inc* ................................. 126,375
------------
353,847
------------
PUBLISHING--1.66%
5,700 Knight Ridder,Inc. ........................... 303,169
3,700 New York Times Co., Class A .................. 146,150
------------
449,319
------------
SECURITIES & ASSET MANAGEMENT--3.01%
7,400 AXA Financial Inc. ........................... 251,600
6,800 Morgan Stanley Dean Witter & Co. ............. 566,100
------------
817,700
------------
SEMICONDUCTOR--7.44%
5,400 Applied Materials,Inc.* ...................... 489,375
7,400 Atmel Corp.* ................................. 272,875
3,500 Intel Corp. .................................. 467,906
5,600 JDS Uniphase Corp.* .......................... 671,300
1,600 Vitesse Semiconductor Corp.* ................. 117,700
------------
2,019,156
------------
SPECIALTY RETAIL--1.04%
4,300 Circuit City Stores,Inc. ..................... 142,706
9,000 Staples,Inc.* ................................ 138,375
------------
281,081
------------
Total Common Stocks (cost--$16,150,541) .................. 20,583,023
------------
PREFERRED STOCK--0.90%
WIRELESS TELECOMMUNICATIONS--0.90%
4,000 Nextel Communications,Inc.*
(cost--$158,500) ............................. 244,750
------------
</TABLE>
MH-2
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
--------- ----------------- ----------------- ------------
<S> <C> <C> <C>
CONVERTIBLE BONDS--4.08%
FINANCIAL SERVICES--4.08%
$ 900 Bell Atlantic Financial Services Inc.+(cost--$900,000) ..... 09/15/05 4.250% $ 1,107,000
------------
SHORT-TERM U.S.AGENCY OBLIGATION--20.45%
5,549 Federal Farm Credit Bank Discount Notes(cost--$5,546,975) .. 07/03/00 6.570@ 5,546,975
------------
Total Investments (cost--$22,756,016)--101.29% ......................... 27,481,748
Liabilities in excess of other assets--(1.29)% ......................... (349,431)
------------
Net Assets--100.00% .................................................... $ 27,132,317
============
</TABLE>
------------------
* Non-income producing security
+ Security exempt from registration under Rule144A of the Securities Act of
1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
ADR American Depositary Receipt
@ Interest rate shown is discount rate at date of purchase.
See accompanying notes to financial statements MH-3
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2000 (unaudited)
<S> <C>
ASSETS
Investments in securities,at value (cost--$22,756,016) ......................... $27,481,748
Cash ........................................................................... 3,926
Receivable for investments sold ................................................ 16,121
Dividends and interest receivable .............................................. 19,414
Other assets ................................................................... 1,255
-----------
Total assets ................................................................... 27,522,464
-----------
LIABILITIES
Payable for investments purchased .............................................. 299,814
Payable to affiliates .......................................................... 22,242
Accrued expenses and other liabilities ......................................... 68,091
-----------
Total liabilities .............................................................. 390,147
-----------
NET ASSETS
Beneficial interest--$0.001 par value (unlimited amount authorized) ............ 19,900,845
Undistributed net investment income ............................................ 92,455
Accumulated net realized gains from investment transactions .................... 2,413,285
Net unrealized appreciation of investments ..................................... 4,725,732
-----------
Net assets ..................................................................... $27,132,317
===========
CLASS H:
Net assets ..................................................................... $19,773,155
-----------
Shares outstanding ............................................................. 1,327,811
-----------
Net asset value,offering price and redemption value per share .................. $14.89
======
CLASS I:
Net assets ..................................................................... $7,359,162
-----------
Shares outstanding ............................................................. 494,371
-----------
Net asset value,offering price and redemption value per share .................. $14.89
======
</TABLE>
MH-4 See accompanying notes to financial statements
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- GROWTH AND INCOME PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
-----------------
<S> <C>
INVESTMENT INCOME:
Interest ....................................................................... $ 141,568
Dividends (net of foreign withholding taxes of $803) ........................... 126,633
-----------
268,201
-----------
EXPENSES:
Investment advisory and administration ......................................... 97,407
Legal and audit ................................................................ 28,970
Reports and notices to shareholders ............................................ 12,070
Custody and accounting ......................................................... 9,420
Distribution fee--Class I ...................................................... 8,546
Trustees' fees ................................................................. 3,750
Transfer agency fees and related service expenses .............................. 1,630
Other expenses ................................................................. 16,379
-----------
178,172
Less:Fee waiver from adviser ................................................... (2,561)
-----------
Net expenses ................................................................... 175,611
-----------
Net investment income .......................................................... 92,590
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains from investments ............................................ 2,413,821
Net change in unrealized appreciation/depreciation of investments .............. (3,156,380)
-----------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES .................. (742,559)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................... $ (649,969)
===========
</TABLE>
See accompanying notes to financial statements
MH-5
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- GROWTH AND INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30,2000 DECEMBER 31,
(UNAUDITED) 1999
----------- -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income .......................................................... $ 92,590 $ 91,533
Net realized gains from investments ............................................ 2,413,821 1,821,542
Net change in unrealized appreciation/depreciation of investments .............. (3,156,380) 788,421
----------- -----------
Net increase (decrease) in net assets resulting from operations ................ (649,969) 2,701,496
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class H ................................................. (69,395) (296)
Net investment income--Class I ................................................. (22,273) (47)
Net realized gains from investments--Class H ................................... (1,376,246) --
Net realized gains from investments--Class I ................................... (441,711) --
----------- -----------
Total dividends and distributions to shareholders .............................. (1,909,625) (343)
----------- -----------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ........................................... 5,483,545 13,898,885
Cost of shares repurchased. .................................................... (6,359,414) (14,267,919)
Proceeds from dividends reinvested ............................................. 1,909,625 1,829,366
----------- -----------
Net increase in net assets from beneficial interest transactions ............... 1,033,756 1,460,332
----------- -----------
Net increase (decrease)in net assets ........................................... (1,525,838) 4,161,485
NET ASSETS:
Beginning of period ............................................................ 28,658,155 24,496,670
----------- -----------
End of period (including undistributed net investment income of $92,455
and $91,533, respectively) ..................................................... $27,132,317 $28,658,155
=========== ===========
</TABLE>
See accompanying notes to financial statements
MH-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins Series Trust--Growth and Income Portfolio (the "Portfolio")
is a diversified Portfolio of Mitchell Hutchins Series Trust (the "Fund"), which
is organized under Massachusetts law by a Declaration of Trust dated November
21, 1986 and is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund operates as a series company currently offering thirteen
Portfolios. Shares of the Portfolio are offered to insurance company separate
accounts which fund certain variable contracts.
Currently, the Portfolio offers Class H and Class I shares. Each class
represents interests in the same assets of the Portfolio, and the classes are
identical except for differences in their distribution charges. Both classes
have equal voting privileges except that Class I has exclusive voting rights
with respect to its distribution plan. Class H has no distribution plan.
The Fund accounts separately for the assets, liabilities, and operations for
each Portfolio. Expenses directly attributable to each Portfolio are charged to
that Portfolio's operations; expenses which are applicable to all Portfolios are
allocated among them on a pro rata basis.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires the Fund's
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
VALUATION OF INVESTMENTS--The Portfolio calculates its net asset value based
on the current market value for its portfolio securities. The Portfolio normally
obtains market values for its securities from independent pricing sources.
Independent pricing sources may use reported last sale prices, current market
quotations or valuations from computerized "matrix" systems that derive values
based on comparable securities. Securities traded in the over-the-counter
("OTC") market and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally
are valued at the last sale price on Nasdaq prior to valuation. Other OTC
securities are valued at the last bid price available prior to valuation.
Securities which are listed on U.S. and foreign stock exchanges normally are
valued at the last sale price on the day the securities are valued or, lacking
any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated as the primary market by Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber Incorporated ("PaineWebber"), and investment adviser
and administrator of the Portfolio. If a market value is not available from an
independent pricing source for a particular security, that security is valued at
fair value as determined in good faith by or under the direction of the Fund's
board of trustees (the "board"). The amortized cost method of valuation, which
approximates market value, generally is used to value short-term debt
instruments with sixty days or less remaining to maturity, unless the board
determines that this does not represent fair value.
REPURCHASE AGREEMENTS--The Portfolio's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Portfolio has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement,
MH-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
realization and/or retention of the collateral may be subject to legal
proceedings. The Portfolio may participate in joint repurchase agreement
transactions with other funds managed by Mitchell Hutchins.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost basis. Dividend income is
recorded on the ex-dividend date ("ex-date"). Interest income is recorded on an
accrual basis. Premiums are amortized and discounts are accreted as adjustments
to interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the applicable class
of shares.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
INVESTMENT ADVISER AND ADMINISTRATOR
The board has approved an investment advisory and administration contract
with Mitchell Hutchins, under which Mitchell Hutchins serves as investment
adviser and administrator of the Portfolio. In accordance with the Advisory
Contract, the Portfolio pays Mitchell Hutchins an investment advisory and
administration fee, which is computed daily and payable monthly, at the annual
rate of 0.70% of the Portfolio's average daily net assets. At June 30, 2000, the
Portfolio owed Mitchell Hutchins $16,256 in investment advisory and
administration fees. Mitchell Hutchins waived a portion of its investment
advisory and administration fees in connection with the Portfolio's investment
of cash collateral from securities lending transactions in the Mitchell Hutchins
Private Money Market Fund LLC. For the six months ended June 30, 2000, Mitchell
Hutchins waived $2.
For the six months ended June 30, 2000, the Portfolio paid $16,578 in
brokerage commissions to PaineWebber for transactions executed on behalf of the
Portfolio.
DISTRIBUTION PLAN
Class I shares are offered to insurance company separate accounts where
the related insurance companies receive payments for their services in
connection with the distribution of the Portfolio's Class I shares. Under the
plan of distribution, the Portfolio pays Mitchell Hutchins a monthly
distribution fee at the annual rate of 0.25% of the average daily net assets
of Class I shares. Mitchell Hutchins pays the entire distribution fee to the
insurance companies. For the period January 1, 2000 to February 29,
2000, Mitchell Hutchins voluntarily agreed to waive $2,559 of the distribution
fees on Class I shares. At June 30, 2000, the Portfolio owed Mitchell
Hutchins $5,986 in distribution fees.
BANK LINE OF CREDIT
The Portfolio may participate with other funds managed by Mitchell Hutchins
in a $200 million committed credit facility ("Facility") to be utilized for
temporary financing until the settlement of sales or purchases of portfolio
securities, the repurchase or redemption of shares of the Portfolio at the
request of the shareholders and other
MH-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
temporary or emergency purposes. In connection therewith, the Portfolio has
agreed to pay commitment fees, pro rata, based on the relative asset size of the
funds in the Facility. Interest is charged to the Portfolio at a rate based on
prevailing market rates in effect at the time of borrowings. For the six months
ended June 30, 2000, the Portfolio did not borrow under the Facility.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at June 30,
2000 was substantially the same as the cost of securities for financial
statement purposes.
At June 30, 2000, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investment having an excess of value over cost) ............ $ 6,047,313
Gross depreciation (investment having an excess of cost over value) ............ (1,321,581)
------------
Net unrealized appreciation of investments ..................................... $ 4,725,732
============
</TABLE>
For the six months ended June 30, 2000, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $7,164,624 and
$10,885,080, respectively.
SECURITIES LENDING
The Portfolio may lend securities up to 33 1/3% of its total assets to
qualified institutions. The loans are secured at all times by cash or U.S.
government securities in an amount at least equal to the market value of the
securities loaned, plus accrued interest and dividends, determined on a daily
basis and adjusted accordingly. The Portfolio will regain record ownership of
loaned securities to exercise certain beneficial rights; however, the Portfolio
may bear the risk of delay in recovery of, or even loss of rights in, the
securities loaned should the borrower fail financially. The Portfolio receives
compensation, which is included in interest income, for lending its securities
from interest earned on the cash or U.S. government securities held as
collateral, net of fee rebates paid to the borrower plus reasonable
administrative and custody fees. PaineWebber, the Portfolio's lending agent,
received compensation of $6 from the Portfolio for the six months ended June
30, 2000.
For the six months ended June 30, 2000, the Portfolio earned $20 net of fees,
rebates and expenses, for securities lending transactions. At June 30, 2000,
there were no securities out on loan.
FEDERAL TAX STATUS
The Portfolio intends to distribute all of its taxable income and to comply
with the requirements of the Internal Revenue Code applicable to regulated
investment companies. Accordingly, no provision for federal income taxes is
required.
MH-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
SHARES OF BENEFICIAL INTEREST
There are an unlimited amount of $0.001 par value shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
CLASS H CLASS I
--------------------------------------------------- ----------------------------------------------
FOR THE PERIOD
FOR THE FOR THE FOR THE JANUARY 5,1999+
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED THROUGH
JUNE 30,2000 DECEMBER 31,1999 JUNE 30,2000 DECEMBER 31,1999
----------------------- ------------------------ -------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- ----------- ------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold .............. 224,828 $ 3,460,845 475,891 $ 7,077,528 129,752 $2,022,700 457,242 $ 6,821,357
Shares repurchased ....... (363,529) (5,660,749) (879,980) (13,103,459) (44,420) (698,665) (77,853) (1,164,460)
Dividends reinvested ..... 92,432 1,445,642 124,442 1,829,319 29,647 463,983 3 47
-------- ----------- -------- ----------- ------- ---------- ------- -----------
Net increase (decrease) .. (46,269) $ (754,262) (279,647) $ (4,196,612) 114,979 $1,788,018 379,392 $ 5,656,944
======== =========== ======== =========== ======= ========== ======= ===========
</TABLE>
-------------------
+ Commencement of issuance of shares.
MH-10
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS H CLASS I
---------------------------------------------------------------- -----------------------------
FOR THE SIX FOR THE YEARS ENDED DECEMBER 31, FOR THE SIX FOR THE PERIOD
MONTHS ENDED -------------------------------------------------- MONTHS ENDED JANUARY 5,1999+
JUNE 30,2000 JUNE 30,2000 THROUGH
(UNAUDITED) 1999 1998 1997 1996 1995 (UNAUDITED) DECEMBER 31,1999
------------ ------- ------- ------- ------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period. $ 16.34 $ 14.81 $ 13.69 $ 12.27 $ 11.83 $ 9.16 $16.35 $ 14.70
------- ------- ------- ------- ------- ------- ------ -------
Net investment income ............... 0.06 0.05@ 0.07 0.10 0.06 0.10 0.04 0.04@
Net realized and unrealized
gains (losses) from investments ... (0.41) 1.48@ 2.16 3.88 2.53 2.70 (0.40) 1.61@
------- ------- ------- ------- ------- ------- ------ -------
Net increase (decrease)from investment
operations ........................ (0.35) 1.53 2.23 3.98 2.59 2.80 (0.36) 1.65
------- ------- ------- ------- ------- ------- ------ -------
Dividends from net investment income. (0.05) (0.00)# (0.07) (0.10) (0.06) (0.10) (0.05) (0.00)#
Distributions from net realized
gains from investments ............ (1.05) -- (1.04) (2.46) (2.09) (0.03) (1.05) --
------- ------- ------- ------- ------- ------- ------ -------
Total dividends and other
distributions ..................... (1.10) (0.00)# (1.11) (2.56) (2.15) (0.13) (1.10) (0.00)#
------- ------- ------- ------- ------- ------- ------ -------
Net asset value, end of period ...... $ 14.89 $ 16.34 $ 14.81 $ 13.69 $ 12.27 $ 11.83 $14.89 $ 16.35
======= ======= ======= ======= ======= ======= ====== =======
Total investment return(1) .......... (2.44)% 10.33% 16.32% 32.45% 22.12% 30.52% (2.50)% 11.23%
======= ======= ======= ======= ======= ======= ====== =======
Ratios/Supplemental Data:
Net assets, end of period (000's) ... $19,773 $22,457 $24,497 $18,493 $14,520 $14,797 $7,359 $ 6,201
Expenses to average net assets,
before waiver from adviser ........ 1.22%* 1.23% 1.04% 1.04% 1.58% 1.37% 1.46%* 1.48%*
Expenses to average net assets,
after waiver from adviser ......... 1.22%* 1.23% 1.04% 1.04% 1.58% 1.37% 1.38%* 1.23%*
Net investment income to
average net assets, before
waiver from adviser ............... 0.70%* 0.36% 0.46% 0.71% 0.49% 0.94% 0.48%* 0.04%*
Net investment income to
average net assets, after
waiver from adviser ............... 0.70%* 0.36% 0.46% 0.71% 0.49% 0.94% 0.56%* 0.29%*
Portfolio turnover rate ............. 30% 65% 69% 92% 99% 134% 30% 65%
</TABLE>
---------------
+ Commencement of issuance of shares.
* Annualized
@ Calculated using the average monthly shares outstanding for the period.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and other
distributions, if any, at net asset value on the payable dates and a sale at
net asset value on the last day of each period reported. The figures do not
include additional contract level charges; results would be lower if such
charges were included. Total investment return for periods of less than one
year has not been annualized.
# Amount is less than $0.005.
MH-11
<PAGE>
MITCHELL
HUTCHINS SERIES
TRUST
STRATEGIC
INCOME
PORTFOLIO
SEMIANNUAL REPORT
JUNE 30, 2000
(C)2000 PaineWebber Incorporated
All rights reserved.
Member SIPC
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- STRATEGIC INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- -----
<S> <C> <C> <C>
U.S. GOVERNMENT AND INVESTMENT GRADE OBLIGATIONS--45.73%
U.S. GOVERNMENT OBLIGATIONS--12.25%
$ 240 U.S.Treasury Bonds ............................... 08/15/21 8.125% $ 292,650
1,400 U.S.Treasury Notes ............................... 05/31/02 to 02/15/10 6.500 to 6.625 1,422,529
---------------
Total U.S.Government Obligations (cost--$1,706,848)............ 1,715,179
---------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES--6.73%
975 FHLMC 30 Year TBA (cost--$935,391) ............... TBA 7.000 941,484
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--22.62%
2,015 FNMA ............................................. 08/15/04 to 04/29/09 5.250 to 6.500 1,904,937
1,360 FNMA 30 Year TBA ................................. TBA 6.000 to 7.000 1,261,663
---------------
Total Federal National Mortgage Association
Certificates (cost--$3,247,510).............................. 3,166,600
---------------
CORPORATE OBLIGATIONS--4.13%
BANKS--1.31%
200 BCI US Funding Trust One** ....................... 07/15/08(b) 8.010 182,723
---------------
INSURANCE--1.40%
200 Principal Financial Group** ...................... 08/15/09 8.200 196,529
---------------
TELECOMMUNICATIONS--1.42%
200 Centaur Funding** ................................ 04/21/20 9.080 198,562
---------------
Total Corporate Obligations (cost--$580,012)................... 577,814
---------------
Total U.S.Government and Investment
Grade Obligations (cost--$6,469,761).......................... 6,401,077
---------------
GLOBAL DEBT SECURITIES--10.77%
BRAZIL--1.33%
226 Federal Republic of Brazil ....................... 01/15/20 to 05/15/27 10.125 to 12.750 188,300
---------------
CANADA--2.11%
415* Government of Canada ............................. 12/01/06 7.000 295,884
---------------
GERMANY--1.66%
230* Federal Republic of Germany ...................... 07/15/04 6.750 232,207
---------------
MALAYSIA--0.64%
104 Petroliam Nasional Berhad ........................ 10/15/26 7.625 89,367
---------------
PANAMA--0.38%
55 Republic of Panama ............................... 04/01/29 9.375 52,800
---------------
POLAND--0.58%
425* Republic of Poland ............................... 06/12/04 10.000 81,693
---------------
QATAR--0.99%
140 State of Qatar ................................... 06/15/30 9.750 138,040
---------------
</TABLE>
MH-12
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- -----
<S> <C> <C> <C>
GLOBAL DEBT SECURITIES--(CONCLUDED)
TRINIDAD AND TOBAGO--1.36%
$ 100 Republic of Trinidad & Tobago .................... 10/01/09 9.875% $ 102,500
90 Republic ofTrinidad & Tobago++ ................... 07/01/20 9.750 87,885
---------------
190,385
---------------
TURKEY--0.45%
60 Republic of Turkey ............................... 11/05/04 11.875 62,370
---------------
UNITED KINGDOM--1.27%
115* United Kingdom Gilt .............................. 12/07/03 6.500 177,243
---------------
Total Global Debt Securities (cost--$1,591,648) 1,508,289
---------------
HIGH YIELD SECURITIES--34.02%
CORPORATE BONDS--34.02%
AUTOMOTIVE--1.84%
150 J.L.French Automotive Castings ................... 06/01/09 11.500 139,500
125 Lear Corporation ................................. 05/15/05 7.960 117,497
---------------
256,997
---------------
CABLE--3.25%
200 Knology Holdings Incorporated .................... 10/15/07 11.875+ 106,000
250 UIH Australia Pacific Incorporated ............... 05/15/06 14.000+ 227,500
250 United Pan Europe Communications N.V.** .......... 11/01/09 13.375+ 120,625
---------------
454,125
---------------
CHEMICALS--3.54%
125 Avecia Group PLC ................................. 07/01/09 11.000 122,500
125 Huntsman ICI Chemicals LLC ....................... 07/01/09 10.125 125,937
250 Lyondell Chemical Company ........................ 05/01/07 9.875 247,500
---------------
495,937
---------------
COMMUNICATIONS - FIXED--8.60%
125 Allegiance Telecom Incorporated .................. 05/15/08 12.875 135,312
125 Global Crossing Holdings Limited ................. 11/15/09 9.500 120,625
250 GlobeNet Communications Group .................... 07/15/07 13.000 252,500
250 KMC Telecom Holdings Incorporated ................ 05/15/09 13.500 210,000
250 Metromedia Fiber Network Incorporated ............ 11/15/08 10.000 246,875
125 NorthEast Optic Network Incorporated ............. 08/15/08 12.750 116,250
125 Williams Communications Group .................... 10/01/09 10.875 122,500
---------------
1,204,062
---------------
COMMUNICATIONS - MOBILE--3.02%
125 Nextel Communications Incorporated ............... 02/15/08 9.950+ 92,188
125 Spectrasite Holdings Incorporated ................ 04/15/09 11.250+ 72,500
250 Voicestream Wireless Corporation ................. 11/15/09 10.375 257,500
---------------
422,188
---------------
</TABLE>
MH-13
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- -----
<S> <C> <C> <C>
HIGH YIELD SECURITIES--(CONCLUDED)
CORPORATE BONDS--(CONCLUDED)
ENERGY--1.77%
$ 125 Pioneer Natural Resources Company ................ 04/01/10 9.625% $ 128,750
125 Tesoro Petroleum Corporation ..................... 07/01/08 9.000 119,062
---------------
247,812
---------------
FINANCE--0.71%
123 Airplanes Pass-Through Trust ..................... 03/15/19 10.875 99,387
---------------
GAMING--2.65%
250 MGM Grand Incorporated ........................... 06/01/07 9.750 253,750
125 Park Place Entertainment Corporation ............. 12/15/05 7.875 117,500
---------------
371,250
---------------
HEALTHCARE--0.65%
100 Tenet Healthcare Corporation ..................... 12/01/08 8.125 91,250
---------------
HOTELS & LODGING--0.84%
125 Host Marriott L.P. ............................... 02/15/06 8.375 117,500
---------------
PAPER & PACKAGING--0.86%
125 Tembec Industry Incorporated ..................... 06/30/09 8.625 120,000
---------------
REAL ESTATE--0.77%
125 D.R.Horton Incorporated .......................... 02/01/09 8.000 107,500
---------------
RETAIL--1.17%
200 Advance Stores Company Incorporated .............. 04/15/08 10.250 164,000
---------------
SERVICE--0.75%
125 Allied Waste North America Incorporated .......... 08/01/09 10.000 105,625
---------------
TECHNOLOGY--1.64%
125 Fairchild Semiconductor Corporation .............. 03/15/07 10.125 125,938
125 Globix Corporation ............................... 02/01/10 12.500 103,750
---------------
229,688
---------------
TRANSPORTATION--1.09%
175 Stena AB ......................................... 06/15/07 8.750 152,250
---------------
UTILITY-ELECTRIC--0.87%
125 AES Corporation .................................. 06/01/09 9.500 122,500
---------------
Total High Yield Securities (cost--$4,917,393) 4,762,071
---------------
</TABLE>
MH-14
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- -------- -----
<S> <C> <C> <C>
SHORT-TERM U.S.AGENCY [email protected]%
$ 342 Federal Farm Credit Bank Discount Notes .......... 07/03/00 6.570% $ 341,875
3,000 Federal Home Loan Bank Discount Notes ............ 07/21/00 6.440 2,989,267
---------------
Total Short-Term U.S.Agency Obligations (cost--$3,331,142)..... 3,331,142
---------------
Total Investments (cost--$16,309,944)--114.31%................. 16,002,579
Liabilities in excess of other assets--(14.31)%................ (2,003,692)
---------------
Net Assets--100.00%............................................ $13,998,887
===============
</TABLE>
-------------------
* Stated in local currency.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
+ Denotes a step-up bond or a zero coupon bond that converts to the noted
fixed rate at a designated future date.
++ Illiquid security representing 0.63% of net assets.
(b) Maturity date shown is the callable date for perpetual rewriting security.
TBA (To Be Assigned) Securities are purchased on a forward commitment basis
with an approximate principal amount (generally +/-1.0%) and generally
stated maturity date. The actual principal amount and maturity date will
be determined upon settlement when the specific mortgage pools are
assigned.
@ Interest rate shown is discount rate at date of purchase.
MH-15
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- STRATEGIC INCOME PORTFOLIO
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT TO MATURITY APPRECIATION
DELIVER IN EXCHANGE FOR DATES (DEPRECIATION)
----------- ---------------- -------- --------------
<S> <C> <C> <C> <C> <C>
British Pounds ......................... 110,000 US$ 163,082 08/30/00 $ (3,548)
Euro ................................... 329,000 US$ 310,214 08/01/00 (4,542)
Polish Zloties ......................... 300,000 US$ 68,120 07/10/00 (548)
U.S. Dollars ............................ 506,669 EUR 530,000 07/14/00 (196)
U.S. Dollars ............................ 994,833 EUR 1,071,000 08/01/00 29,797
U.S .Dollars ............................ 67,626 GBP 45,000 08/30/00 541
----------
$ 21,504
==========
</TABLE>
---------------------
CURRENCY TYPE ABBREVIATION:
EUR--Euro
GBP--British Pounds
US$--United States Dollars
See accompanying notes to financial statements
MH-16
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- STRATEGIC INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2000 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities,at value (cost--$16,309,944) .............................................. $ 16,002,579
Interest receivable ................................................................................. 208,759
Cash ................................................................................................ 960
Unrealized appreciation on forward foreign currency contracts ....................................... 30,338
Other assets ........................................................................................ 69
------------
Total assets ........................................................................................ 16,242,705
------------
LIABILITIES
Payable for investments purchased ................................................................... 2,189,403
Payable to investment adviser and administrator ..................................................... 10,024
Unrealized depreciation on forward foreign currency contracts ....................................... 8,834
Accrued expenses and other liabilities .............................................................. 35,557
------------
Total liabilities ................................................................................... 2,243,818
------------
NET ASSETS
Beneficial interest--$0.001 par value (unlimited amount authorized) ................................. 14,351,634
Undistributed net investment income ................................................................. 401,398
Accumulated net realized losses from investments, futures contracts and foreign
currency transactions............................................................................. (467,316)
Net unrealized depreciation of investments,other assets,liabilities and forward contracts
denominated in foreign currencies ................................................................ (286,829)
------------
Net assets .......................................................................................... $ 13,998,887
============
CLASS H:
Net assets .......................................................................................... $ 11,900,213
------------
Shares outstanding .................................................................................. 1,016,034
------------
Net asset value,offering price and redemption value per share ....................................... $ 11.71
============
CLASS I:
Net assets .......................................................................................... $ 2,098,674
------------
Shares outstanding .................................................................................. 179,303
------------
Net asset value,offering price and redemption value per share ....................................... $11.70
============
</TABLE>
See accompanying notes to financial statements
MH-17
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--STRATEGIC INCOME PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,2000
(UNAUDITED)
-------------
<S> <C>
INVESTMENT INCOME:
Interest ............................................................................................ $ 552,519
-------------
EXPENSES:
Investment advisory and administration .............................................................. 49,245
Legal and audit ..................................................................................... 18,960
Reports and notices to shareholders ................................................................. 11,482
Custody and accounting .............................................................................. 3,939
Trustees' fees ...................................................................................... 3,750
Distribution fee--Class I ........................................................................... 2,172
Transfer agency fees and related service expenses ................................................... 1,500
Other expenses ...................................................................................... 23,484
-------------
114,532
Less: Fee waiver from adviser ........................................................................ (618)
-------------
Net expenses ........................................................................................ 113,914
-------------
Net investment income ............................................................................... 438,605
-------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains (losses) from:
Investments ....................................................................................... (202,913)
Futures contracts ................................................................................. 27,790
Foreign currency transactions ..................................................................... (152,295)
Net change in unrealized appreciation/depreciation of:
Investments ....................................................................................... (164,524)
Futures contracts ................................................................................. 5,156
Other assets,liabilities and forward contracts denominated in foreign currencies .................. 38,769
-------------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES ....................................... (448,017)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................................ $ (9,412)
=============
</TABLE>
See accompanying notes to financial statements
MH-18
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--STRATEGIC INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31,1999
------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income .................................................................. $ 438,605 $ 720,417
Net realized losses from investments,futures contracts
and foreign currency transactions .................................................... (327,418) (189,554)
Net change in unrealized appreciation/depreciation of investments,
futures contracts,other assets, liabilities and forward contracts
denominated in foreign currencies .................................................... (120,599) (334,397)
------------- ------------
Net increase (decrease)in net assets resulting from operations ......................... (9,412) 196,466
------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class H ......................................................... -- (625,615)
Net investment income--Class I ......................................................... -- (72,408)
From paid in capital--Class H .......................................................... -- (10,406)
From paid in capital--Class I .......................................................... -- (1,204)
------------- ------------
Total dividends and distributions to shareholders ...................................... -- (709,633)
------------- ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ................................................... 1,551,896 2,263,661
Cost of shares repurchased ............................................................. (302,316) (157,516)
Proceeds from dividends reinvested ..................................................... -- 837,742
Net increase in net assets from beneficial interest transactions ....................... 1,249,580 2,943,887
------------- ------------
Net increase in net assets ............................................................. 1,240,168 2,430,720
NET ASSETS:
Beginning of period .................................................................... 12,758,719 10,327,999
------------- ------------
End of period(including undistributed net investment income of $401,398 at
June 30, 2000) ......................................................................... $13,998,887 $12,758,719
============= ===========
</TABLE>
-------------------
See accompanying notes to financial statements
MH-19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins Series Trust--Strategic Income Portfolio (the
"Portfolio") is a diversified Portfolio of Mitchell Hutchins Series Trust
(the "Fund"), which is organized under Massachusetts law by a Declaration of
Trust dated November 21, 1986 and is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The Fund operates as a series
company currently offering thirteen Portfolios. Shares of the Portfolio are
offered to insurance company separate accounts which fund certain variable
contracts.
Currently, the Portfolio offers Class H and Class I shares. Each class
represents interests in the same assets of the Portfolio, and the classes are
identical except for differences in their distribution charges. Both classes
have equal voting privileges except that Class I has exclusive voting rights
with respect to its distribution plan. Class H has no distribution plan.
The Fund accounts separately for the assets, liabilities and operations
for each Portfolio. Expenses directly attributable to each Portfolio are
charged to that Portfolio's operations; expenses which are applicable to all
Portfolios are allocated among them on a pro rata basis.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires the Fund's
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of significant accounting
policies:
VALUATION OF INVESTMENTS--The Portfolio calculates its net asset value
based on the current market value for its portfolio securities. The Portfolio
normally obtains market values for its securities from independent pricing
sources. Independent pricing sources may use reported last sale prices,
current market quotations or valuations from computerized "matrix" systems
that derive values based on comparable securities. Securities traded in the
over-the-counter ("OTC") market and listed on The Nasdaq Stock Market, Inc.
("Nasdaq") normally are valued at the last sale price on Nasdaq prior to
valuation. Other OTC securities are valued at the last bid price available
prior to valuation. Securities which are listed on U.S. and foreign stock
exchanges normally are valued at the last sale price on the day the
securities are valued or, lacking any sales on such day, at the last
available bid price. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a
wholly owned asset management subsidiary of PaineWebber Incorporated
("PaineWebber") and investment adviser and administrator of the Portfolio. If
a market value is not available from an independent pricing source for a
particular security, that security is valued at fair value as determined in
good faith by or under the direction of the Fund's board of trustees (the
"board"). The amortized cost method of valuation, which approximates market
value, generally is used to value short-term debt instruments with sixty days
or less remaining to maturity, unless the board determines that this does not
represent fair value. All investments quoted in foreign currencies will be
valued daily in U.S. dollars on the basis of the foreign currency exchange
rates prevailing at the time such valuation is determined by the Portfolio's
custodian.
Foreign currency exchange rates are generally determined prior to the
close of the New York Stock Exchange ("NYSE"). Occasionally, events affecting
the value of foreign investments and such exchange rates occur between the
time at which they are determined and the close of the NYSE, which will not
be reflected in the computation of the
MH-20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Portfolio's net asset value. If events materially affecting the value of such
securities or currency exchange rates occur during such time periods, the
securities will be valued at their fair value as determined in good faith by or
under the direction of the Fund's board.
REPURCHASE AGREEMENTS--The Portfolio's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the
value, including accrued interest, is at least equal to the repurchase price.
In the event of default of the obligation to repurchase, the Portfolio has
the right to liquidate the collateral and apply the proceeds in satisfaction
of the obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or retention
of the collateral may be subject to legal proceedings. The Portfolio may
participate in joint repurchase agreement transactions with other funds
managed by Mitchell Hutchins.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost basis. Dividend income
and other distributions are recorded on the ex-dividend date ("ex-date").
Interest income is recorded on an accrual basis. Premiums are amortized and
discounts are accreted as adjustments to interest income and the identified
cost of investments.
Income, expenses (excluding class-specific expenses) and
realized/unrealized gains/losses are allocated proportionately to each class
of shares based upon the relative net asset value of outstanding shares (or
the value of dividend-eligible shares, as appropriate) of each class at the
beginning of the day (after adjusting for current capital share activity of
the respective classes). Class-specific expenses are charged directly to the
applicable class of shares.
FOREIGN CURRENCY TRANSLATION--The books and records of the Portfolio is
maintained in U.S. dollars as follows: (1) the foreign currency market value
of investment securities and other assets and liabilities stated in foreign
currencies are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
rate of exchange prevailing on the respective dates of such transactions. The
resulting exchange gains and losses are included in the Statement of
Operations.
Although the net assets and the market values of the Portfolio's
securities are presented at the foreign exchange rates at the end of the
period, the Portfolio does not generally isolate the effect of fluctuations
in foreign exchange rates from the effects of fluctuations in the market
price of securities. However, the Portfolio does isolate the effect of
fluctuations in foreign exchange rates when determining the realized gain or
loss upon the sale or maturity of foreign currency denominated debt
obligations pursuant to federal income tax regulations. Certain foreign
exchange gains and losses included in realized and unrealized gains and
losses are included in or are a reduction of ordinary income for income tax
reporting purposes. Net realized foreign currency gain (loss) is treated as
ordinary income for income tax reporting purposes. Gains/losses from
translating foreign currency-denominated assets and liabilities at the
year-end exchange rates are included in the change in unrealized
appreciation/depreciation of other assets and liabilities denominated in
foreign currencies.
FORWARD FOREIGN CURRENCY CONTRACTS--The Portfolio may enter into forward
foreign currency exchange contracts ("forward contracts") in connection with
planned purchases or sales of securities or to hedge the U.S. dollar value of
portfolio securities denominated in a particular currency. The Portfolio may
also engage in cross-hedging by using
MH-21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
forward contracts in one currency to hedge fluctuations in the value of
securities denominated in a different currency if Mitchell Hutchins
anticipates that there is a correlation between the two currencies. Forward
contracts may also be used to shift the Portfolio's exposure to foreign
currency fluctuations from one country to another.
The Portfolio has no specific limitation on the percentage of assets which
may be committed to such contracts; however, the value of all forward
contracts will not exceed the total market value of the Portfolio's total
assets. The Portfolio may enter into forward contracts or maintain a net
exposure to forward contracts only if (1) the consummation of the contracts
would not obligate the Portfolio to deliver an amount of foreign currency in
excess of the value of the positions being hedged by such contracts or (2)
the Portfolio maintains cash or liquid securities in a segregated account in
an amount not less than the value of the Portfolio's total assets committed
to the consummation of the forward contracts and not covered as provided in
(1) above, as marked to market daily.
Risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Fluctuations in the value of forward contracts are recorded for financial
reporting purposes as unrealized gains or losses by the Portfolio. Realized
gains and losses include net gains or losses recognized by the Portfolio on
contracts which have matured.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders
are recorded on the ex-date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification.
CONCENTRATION OF RISK
Investing in securities of foreign issuers and currency transactions may
involve certain considerations and risks not typically associated with
investments in the United States. These risks include revaluation of currencies,
adverse fluctuations in foreign currency values and possible adverse political,
social and economic developments, including those particular to a specific
industry, country or region, which could cause the securities and their markets
to be less liquid and prices more volatile than those of comparable U.S.
companies and U.S. government securities. These risks are greater with respect
to securities of issuers located in emerging market countries in which the
Portfolio is authorized to invest. The ability of the issuers of debt securities
held by the Portfolio to meet their obligations may be affected by economic and
political developments particular to a specific industry, country or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The board has approved an investment advisory and administration contract
with Mitchell Hutchins, under which Mitchell Hutchins serves as investment
adviser and administrator of the Portfolio. In accordance with the Advisory
Contract, the Portfolio pays Mitchell Hutchins an investment advisory and
administration fee, which is computed daily and payable monthly, at the
annual rate of 0.75% of the Portfolio's average daily net assets. At June
30, 2000, the Portfolio owed Mitchell Hutchins $8,467 in investment advisory
and administration fees.
MH-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DISTRIBUTION PLAN
Class I shares are offered to insurance company separate accounts where
the related insurance companies receive payments for their services in
connection with the distribution of the Portfolio's Class I shares. Under the
plan of distribution, the Portfolio pays Mitchell Hutchins a monthly
distribution fee at the annual rate of 0.25% of the average daily net assets
of Class I shares. Mitchell Hutchins pays the entire distribution fee to the
insurance companies. For the period January 1, 2000 to February 29, 2000,
Mitchell Hutchins voluntarily agreed to waive $618 of the distribution fees
on Class I shares. At June 30, 2000, the Portfolio owed Mitchell Hutchins
$1,557 in distribution fees.
BANK LINE OF CREDIT
The Portfolio may participate with other funds managed by Mitchell
Hutchins in a $200 million committed credit facility ("Facility") to be
utilized for temporary financing until the settlement of sales or purchases
of portfolio securities, the repurchase or redemption of shares of the
Portfolio at the request of the shareholders and other temporary or emergency
purposes. In connection therewith, the Portfolio has agreed to pay commitment
fees, pro rata, based on the relative asset size of the funds in the
Facility. Interest is charged to the Portfolio at rates based on prevailing
market rates in effect at the time of borrowings. For the six months ended
June 30, 2000, the Portfolio did not borrow under the Facility.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at June 30,
2000 was substantially the same as the cost of securities for financial
statement purposes.
At June 30, 2000, the components of net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost) ..................... $ 165,944
Gross depreciation (investments having an excess of cost over value) ..................... (473,309)
---------
Net unrealized depreciation of investments ............................................... $(307,365)
==========
</TABLE>
For the six months ended June 30, 2000, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $19,339,963 and
$18,187,350, respectively.
SECURITIES LENDING
The Portfolio may lend securities up to 33 1/3% of its total assets to
qualified institutions. The loans are secured at all times by cash or U.S.
government securities in an amount at least equal to the market value of the
securities loaned, plus accrued interest and dividends, determined on a daily
basis and adjusted accordingly. The Portfolio will regain record ownership of
loaned securities to exercise certain beneficial rights; however, the
Portfolio may bear the risk of delay in recovery of, or eve loss of rights
in, the securities loaned should the borrower fail financially. The Portfolio
receives compensation, which is included in interest income, for lending its
securities from interest earned on the cash or U.S. government securities
held as collateral, net of fee rebates paid to the borrower plus reasonable
administrative and custody fees. PaineWebber is the Portfolio's lending
agent. For the six months ended June 30,2000, the Portfolio had no securities
lending activity.
MH-23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEDERAL TAX STATUS
The Portfolio intends to distribute all of its taxable income and to
comply with the requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required.
At December 31, 1999, the portfolio had a net capital loss carryforward of
$123,581, which will expire by December 31, 2007. To the extent such losses
are used, as provided in the regulations, to offset future net realized
capital gains, it is probable these gains will not be distributed.
SHARES OF BENEFICIAL INTEREST
There are an unlimited amount of $0.001 par value shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
CLASS H CLASS I
--------------------------------------------- ---------------------------------------------
FOR THE PERIOD
FOR THE FOR THE FOR THE JANUARY 5,1999++
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED THROUGH
JUNE 30,2000 DECEMBER 31,1999 JUNE 30,2000 DECEMBER 31,1999
-------------------- --------------------- -------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ---------- -------- ---------- -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold .................. 53,792 $ 624,745 66,416 $ 823,999 79,797 $ 927,151 115,823 $1,439,662
Shares repurchased ........... (11,697) (135,985) (4,419) (54,836) (14,328) (166,331) (8,243) (102,680)
-------- ---------- -------- ---------- -------- ----------- -------- -----------
Reinvestment of dividends .... -- -- 64,659 764,130 -- -- 6,254 73,612
-------- ---------- -------- ---------- -------- --------- ------- ----------
Net increase ................. 42,095 $ 488,760 126,656 $1,533,293 65,469 $ 760,820 113,834 $1,410,594
======== ========== ======== ========== ======== ========= ======= ==========
</TABLE>
-----------
++ Commencement of issuance of shares.
MH-24
<PAGE>
MITCHELL HUTCHINS SERIES TRUST--STRATEGIC INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS H CLASS I
--------------------------------------------- --------------------------------
FOR THE FOR THE FOR THE PERIOD FOR THE FOR THE PERIOD
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 28, SIX MONTHS ENDED JANUARY 5,1999++
JUNE 30, 2000 DECEMBER 31, 1998+ THROUGH JUNE 30,2000 THROUGH
(UNAUDITED) 1999 DECEMBER 31,1998 (UNAUDITED) DECEMBER 31,1999
---------------- ----------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 11.73 $ 12.19 $12.00 $ 11.73 $ 12.22
------- ------- ------ ------- --------
Net investment income ................................. 0.39@ 0.77@ 0.14 0.36@ 0.76@
Net realized and unrealized gains (losses) from
investments, foreign currency and futures contracts ... (0.40)@ (0.54)@ 0.20 (0.39)@ (0.56)@
-------- ------ ------ -------- --------
Net increase (decrease) from investment operations .... (0.02) 0.23 0.34 (0.03) 0.20
-------- ------ ------ -------- --------
Dividends from net investment income .................. -- (0.68) (0.14) -- (0.68)
Distributions from net realized gains from investments -- -- (0.01) -- --
Distributions from paid in capital .................... -- (0.01) -- -- (0,01)
-------- -------- ------- ------- --------
Total dividends and distributions to shareholders ..... -- (0.69) (0.15) -- (0.69)
-------- -------- ------- ------- --------
Net asset value, end of period ........................ $ 11.71 $ 11.73 $ 12.19 $ 11.70 $ 11.73
======== ======== ======= ======= ========
Total investment return(1) ............................ (0.17)% 1.89% 2.84% (0.26)% 1.63%
======== ======== ======= ======= ========
Ratios/Supplemental data:
Net assets, end of period (000's) ..................... $11,900 $11,423 $10,328 $ 2,099 $ 1,335
Expenses to average net assets,
before waiver from adviser .......................... 1.71%* 1.62% 1.44%* 1.96%* 1.87%*
Expenses to average net assets,
after waiver from adviser ........................... 1.71%* 1.62% 1.44%* 1.89%* 1.62%*
Net investment income to average net assets,
before waiver from adviser .......................... 6.70%* 6.20% 5.09%* 6.46%* 5.75%*
Net investment income to average net assets,
after waiver from adviser ........................... 6.70%* 6.20% 5.09%* 6.53%* 6.00%*
Portfolio turnover rate ............................... 155% 403% 81% 155% 403%
</TABLE>
+ Commencement of operations.
++ Commencement of issuance of shares.
* Annualized
@ Calculated using the average daily shares outstanding for the period.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale
at net asset value on the last day of each period reported. The figures do
not include additional contract level charges; results would be lower if
such charges were included. Total investment return for periods of less
than one year has not been annualized.
MH-25
<PAGE>
MITCHELL
HUTCHINS SERIES
TRUST
TACTICAL
ALLOCATION
PORTFOLIO
SEMIANNUAL REPORT
JUNE 30 , 2000
-C- 2000 PaineWebber Incorporated
All rights reserved.
Member SIPC
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS JUNE 30 , 2000 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- -----------
<S> <C>
COMMON STOCKS--49.95%+
AGRICULTURE, FOOD & BEVERAGE--1.56%
2,800 Archer-Daniels-Midland Co. ....................... $ 27,475
1,200 Bestfoods Co. .................................... 83,100
1,900 Campbell Soup Co. ................................ 55,337
11,000 Coca-Cola Co. .................................... 631,812
1,900 Coca-Cola Enterprises, Inc. ...................... 30,994
2,200 Conagra, Inc. .................................... 41,938
1,300 General Mills, Inc. .............................. 49,725
1,600 Heinz, H.J. and Co. .............................. 70,000
600 Hershey Foods Corp. .............................. 29,100
1,800 Kellogg Co. ...................................... 53,550
6,400 Pepsico, Inc. .................................... 284,400
600 Quaker Oats Co. .................................. 45,075
1,500 RJR Nabisco Group Holdings Corp. ................. 38,906
3,900 Sara Lee Corp. ................................... 75,319
600 Supervalue, Inc. ................................. 11,438
1,500 Sysco Corp. ...................................... 63,187
2,500 Unilever N.V. .................................... 107,500
500 Wrigley, Wm. Jr. Co. ............................. 40,094
----------
1,738,950
----------
AIRLINES--0.09%
700 AMR Corp.* ....................................... 18,506
500 Delta Air Lines, Inc. ............................ 25,281
2,200 Southwest Airlines Co. ........................... 41,663
300 US Airways Group, Inc.* .......................... 11,700
----------
97,150
----------
ALCOHOL--0.26%
2,000 Anheuser-Busch Companies, Inc. ................... 149,375
300 Brown Forman Corp., Class B ...................... 16,125
200 Coors Adolph Co. ................................. 12,100
1,900 Seagram Company Ltd. ............................. 110,200
----------
287,800
----------
APPAREL, RETAIL--0.18%
3,800 Gap, Inc. ........................................ 118,750
1,900 Limited, Inc. .................................... 41,088
600 Nordstrom, Inc. .................................. 14,475
1,400 TJX Companies, Inc. .............................. 26,250
----------
200,563
----------
APPAREL, TEXTILES--0.06%
300 Liz Claiborne, Inc. .............................. 10,575
1,200 Nike, Inc. ....................................... 47,775
600 V.F. Corp. ....................................... 14,288
----------
72,638
----------
BANKS--2.97%
1,800 AmSouth Bancorporation ........................... 28,350
3,300 Bank of New York Company Inc. .................... 153,450
5,100 Bank One Corp. ................................... 135,469
7,300 BankAmerica Corp. ................................ 313,900
1,600 BB & T Corp. ..................................... 38,200
1,000 Charter One Financial Inc. ....................... 23,000
5,500 Chase Manhattan Corp. ............................ 253,344
15,000 Citigroup, Inc. .................................. 903,750
700 Comerica, Inc. ................................... 31,412
1,400 Fifth Third Bancorp .............................. 88,550
4,400 First Union Corp. ................................ 109,175
4,300 Firstar Corp. .................................... 90,569
4,000 FleetBoston Financial Corp. ...................... 136,000
1,000 Huntington Bancshares, Inc. ...................... 15,813
700 J.P. Morgan & Company, Inc. ...................... 77,087
2,000 KeyCorp. ......................................... 35,250
2,200 Mellon Financial Corp. ........................... 80,162
2,700 National City Corp. .............................. 46,069
1,000 Northern Trust Corp. ............................. 65,062
630 Old Kent Financial Corp. ......................... 16,853
1,300 PNC Bank Corp. ................................... 60,937
1,000 Regions Financial Corp. .......................... 19,875
800 SouthTrust Corp. ................................. 18,100
700 State Street Corp. ............................... 74,244
800 Summit Bancorp, Inc. ............................. 19,700
1,300 Suntrust Banks, Inc. ............................. 59,394
1,300 Synovus Financial Corp. .......................... 22,912
600 Union Planters Corp. ............................. 16,763
3,300 US Bancorp, Inc. ................................. 63,525
900 Wachovia Corp. ................................... 48,825
7,100 Wells Fargo and Co. .............................. 275,125
----------
3,320,865
----------
CHEMICALS--1.07%
1,000 Air Products & Chemicals, Inc. ................... 30,813
400 Ashland, Inc. .................................... 14,025
500 Avery Dennison Corp. ............................. 33,562
3,000 Dow Chemical Co. ................................. 90,562
4,700 DuPont (E.I.) de Nemours & Co. ................... 205,625
400 Eastman Chemical Co. ............................. 19,100
600 Ecolab, Inc. ..................................... 23,438
600 Engelhard Corp. .................................. 10,238
200 FMC Corp.* ....................................... 11,600
700 Goodyear Tire & Rubber Co. ....................... 14,000
300 Great Lakes Chemical Corp. ....................... 9,450
500 Hercules, Inc. ................................... 7,031
1,400 Illinois Tool Works, Inc. ........................ 79,800
400 Kerr-McGee Corp. ................................. 23,575
1,800 Minnesota Mining &
Manufacturing Co. ............................... 148,500
5,600 Pharmacia Corp. .................................. 289,450
800 PPG Industries, Inc. ............................. 35,450
MH-26
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C>
COMMON STOCKS--(CONTINUED)
CHEMICALS--(CONCLUDED)
700 Praxair, Inc. .................................... $ 26,206
1,000 Rohm & Haas Co. .................................. 34,500
400 Sealed Air Corp.* ................................ 20,950
800 Sherwin-Williams Co. ............................. 16,950
600 Union Carbide Corp. .............................. 29,700
500 Vulcan Materials Co. ............................. 21,344
----------
1,195,869
----------
COMPUTER HARDWARE--4.89%
1,600 3Com Corp.* ...................................... 92,200
500 Adaptec Inc.* .................................... 11,375
1,500 Apple Computer, Inc.* ............................ 78,563
1,000 Broadcom Corp. ................................... 218,813
800 Cabletron Systems, Inc.* ......................... 20,200
30,900 Cisco Systems Inc.* .............................. 1,964,081
7,600 Compaq Computer Corp. ............................ 194,275
11,400 Dell Computer Corp.* ............................. 562,162
9,600 EMC Corp.* ....................................... 738,600
1,400 Gateway, Inc.* ................................... 79,450
4,400 Hewlett-Packard Co. .............................. 549,450
600 Lexmark International Group, Inc.* ............... 40,350
1,400 Network Appliance, Inc.* ......................... 112,700
1,200 Pitney Bowes, Inc. ............................... 48,000
1,000 Seagate Technology, Inc.* ........................ 55,000
7,000 Sun Microsystems, Inc.* .......................... 636,562
3,000 Xerox Corp. ...................................... 62,250
----------
5,464,031
----------
COMPUTER SOFTWARE--4.11%
500 Adobe Systems, Inc. .............................. 65,000
300 Autodesk, Inc. ................................... 10,406
1,100 BMC Software, Inc.* .............................. 40,133
800 Citrix Systems, Inc.* ............................ 15,150
2,600 Computer Associates
International, Inc. ............................. 133,087
1,600 Compuware Corp.* ................................. 16,600
7,900 International Business
Machines Corp. .................................. 865,544
400 Mercury Interactive Corp.* ....................... 38,708
23,400 Microsoft Corp.* ................................. 1,872,000
400 NCR Corp.* ....................................... 15,575
1,500 Novell, Inc.* .................................... 13,875
12,600 Oracle Systems Corp.* ............................ 1,059,187
1,200 Parametric Technology Corp.* ..................... 13,200
1,200 Peoplesoft, Inc.* ................................ 20,100
600 Sabre Holdings Corp.* ............................ 17,100
300 Sapient Corp.* ................................... 32,081
900 Siebel Systems Inc.* ............................. 147,206
1,400 Unisys Corp.* .................................... 20,388
1,700 Veritas Software Co.* ............................ 192,127
----------
4,587,467
----------
CONSTRUCTION--0.05%
300 Centex Corp. ..................................... 7,050
400 Fluor Corp. ...................................... 12,650
2,100 Masco Corp. ...................................... 37,931
----------
57,631
----------
CONSUMER DURABLES--0.06%
400 Black & Decker Corp. ............................. 15,725
400 Grainger, W.W., Inc. ............................. 12,325
900 Leggett & Platt, Inc. ............................ 14,850
400 Maytag Corp. ..................................... 14,750
300 Whirlpool Corp. .................................. 13,988
----------
71,638
----------
DEFENSE & AEROSPACE--0.32%
4,000 Boeing Co. ....................................... 167,250
900 General Dynamics Corp. ........................... 47,025
500 Goodrich, B.F., Co. .............................. 17,031
1,800 Lockheed Martin Corp. ............................ 44,663
300 Northrop Grumman Corp. ........................... 19,875
1,600 Raytheon Co., Class B. ........................... 30,800
600 TRW, Inc. ......................................... 26,025
----------
352,669
----------
DIVERSIFIED RETAIL--1.40%
2,000 Costco Wholesale Corp.* .......................... 66,000
1,000 Federated Department Stores, Inc.* ............... 33,750
1,200 J.C. Penney, Inc. ................................ 22,125
2,300 K Mart Corp.* .................................... 15,669
1,500 Kohls Corp.* ..................................... 83,437
1,500 May Department Stores Co. ........................ 36,000
1,600 Sears Roebuck & Co. .............................. 52,200
2,000 Target Corp. ..................................... 116,000
19,800 Wal Mart Stores, Inc. ............................ 1,140,975
----------
1,566,156
----------
DRUGS & MEDICINE--3.97%
600 Allergan, Inc. ................................... 44,700
5,800 American Home Products Corp. ..................... 340,750
4,600 Amgen, Inc.* ..................................... 323,150
700 Biogen Inc.* ..................................... 45,150
8,800 Bristol-Myers Squibb Co. ......................... 512,600
1,200 Cardinal Health, Inc. ............................ 88,800
5,000 Lilly, Eli & Co. ................................. 499,375
1,300 McKesson HBOC, Inc. .............................. 27,219
900 Medimmune Inc. ................................... 66,600
10,200 Merck & Co., Inc. ................................ 781,575
28,000 Pfizer, Inc. ..................................... 1,344,000
MH-27
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ----------
<S> <C>
COMMON STOCKS--(CONTINUED)
DRUGS & MEDICINE--(CONCLUDED)
6,500 Schering-Plough Corp. ............................ $ 328,250
400 Sigma-Aldrich Corp. .............................. 11,700
400 Watson Pharmaceuticals, Inc.* .................... 21,500
----------
4,435,369
----------
ELECTRIC UTILITIES--0.79%
1,900 AES Corp.* ....................................... 86,687
600 Ameren Corp. ..................................... 20,250
1,400 American Electric Power, Inc. .................... 41,475
700 Cinergy Corp. .................................... 17,806
500 CMS Energy Corp. ................................. 11,063
900 Consolidated Edison, Inc. ........................ 26,663
700 Constellation Energy Group, Inc. ................. 22,794
700 CP & L Energy, Inc. .............................. 22,356
700 DTE Energy Co. ................................... 21,394
1,600 Duke Energy Corp. ................................ 90,200
1,500 Edison International, Inc. ....................... 30,750
1,000 Entergy Corp. .................................... 27,187
1,100 FirstEnergy Corp. ................................ 25,713
400 Florida Progress Corp. ........................... 18,750
800 FPL Group, Inc. .................................. 39,600
600 GPU Inc. ......................................... 16,238
500 New Century Energies Inc. ........................ 15,000
800 Niagara Mohawk Holdings, Inc.* ................... 11,150
700 Northern States Power Co. ........................ 14,131
700 PECO Energy Co. .................................. 28,219
1,700 PG&E Corp. ....................................... 41,862
400 Pinnacle West Capital Corp. ...................... 13,550
700 PPL Corp. ........................................ 15,356
1,000 Public Service Enterprise Group, Inc. ............ 34,625
1,300 Reliant Energy, Inc. ............................. 38,431
900 Sempra Energy .................................... 15,300
2,900 Southern Co. ..................................... 67,606
1,200 Texas Utilities Co. .............................. 35,400
800 Unicom Corp. ..................................... 30,950
----------
880,506
----------
ELECTRICAL EQUIPMENT--3.36%
1,500 ADC Telecommunications Inc.* ..................... 125,812
2,000 Agilent Technologies, Inc. ....................... 147,500
400 Andrew Corp.* .................................... 13,425
700 Comverse Technology, Inc.* ....................... 65,100
1,200 Corning, Inc. .................................... 323,850
600 Danaher Corp. .................................... 29,663
900 Dover Corp. ...................................... 36,506
300 Eaton Corp. ...................................... 20,100
3,500 Honeywell, Inc. .................................. 117,906
400 Johnson Controls, Inc. ........................... 20,525
800 KLA-Tencor Corp.* ................................ 46,850
14,500 Lucent Technologies, Inc. ........................ 859,125
200 Millipore Corp. .................................. 15,075
900 Molex Inc. ....................................... 43,313
9,600 Motorola, Inc. ................................... 279,000
13,400 Nortel Networks Corp(1) .......................... 914,550
900 PE Corp. ......................................... 59,288
3,300 Qualcomm, Inc.* .................................. 198,000
700 Sanmina Corp.* ................................... 59,850
700 Scientific-Atlanta, Inc. ......................... 52,150
2,700 Solectron Corp.* ................................. 113,062
200 Tektronix, Inc. .................................. 14,800
1,800 Tellabs, Inc.* ................................... 123,187
800 Teradyne, Inc.* .................................. 58,800
700 Thermo Electron Corp.* ........................... 14,744
----------
3,752,181
----------
ELECTRICAL POWER--0.17%
900 American Power Conversion Corp.* ................. 36,731
500 Cooper Industries, Inc. .......................... 16,281
1,900 Emerson Electric Co. ............................. 114,713
900 Rockwell International Corp. ..................... 28,350
----------
196,075
----------
ENERGY RESERVES & PRODUCTION--2.09%
400 Amerada Hess Corp. ............................... 24,700
600 Anadarko Petroleum Corp. ......................... 29,588
500 Apache Corp. ..................................... 29,406
1,000 Burlington Resources, Inc. ....................... 38,250
2,900 Chevron Corp. .................................... 245,956
15,400 Exxon Mobil Corp. ................................ 1,208,900
1,700 Occidental Petroleum Corp. ....................... 35,806
1,100 Phillips Petroleum Co. ........................... 55,756
9,500 Royal Dutch Petroleum Co., ADR ................... 584,844
700 Tosco Corp. ...................................... 19,819
1,100 Union Pacific Resources Group, Inc. .............. 24,200
1,100 Unocal Corp. ..................................... 36,437
----------
2,333,662
----------
ENTERTAINMENT--0.46%
2,700 Carnival Corp. ................................... 52,650
6,800 Viacom, Inc., Class B* ........................... 463,675
----------
516,325
----------
ENVIRONMENTAL SERVICES--0.06%
900 Allied Waste Industries Inc.* .................... 9,000
2,800 Waste Management, Inc. ........................... 53,200
----------
62,200
----------
FINANCIAL SERVICES--3.26%
5,900 American Express Co. ............................. 307,537
1,100 AON Corp. ........................................ 34,169
3,200 Associates First Capital Corp. ................... 71,400
MH-28
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
<CAPTION>
NUMBER OF
SHARES VALUE
---------- ------
<S> <C>
COMMON STOCKS--(CONTINUED)
FINANCIAL SERVICES--(CONCLUDED)
900 Capital One Financial Corp. ...................... $ 40,163
3,200 Cendant Corp.* ................................... 44,800
700 Convergys Corp. .................................. 36,313
500 Countrywide Credit Industries, Inc. .............. 15,156
3,100 Federal Home Loan Mortgage Corp. ................. 125,550
4,500 Federal National Mortgage
Association .................................... 234,844
43,900 General Electric Co. ............................. 2,326,700
400 H&R Block, Inc. .................................. 12,950
2,100 Household International, Inc. .................... 87,281
1,200 Marsh & McLennan Companies, Inc. ................. 125,325
3,600 MBNA Corp. ....................................... 97,650
600 Providian Financial Corp. ........................ 54,000
700 SLM Holding Corp. ................................ 26,206
----------
3,640,044
----------
FOOD RETAIL--0.23%
1,900 Albertson's, Inc. ................................ 63,175
3,700 Kroger Co.* ...................................... 81,631
2,200 Safeway, Inc.* ................................... 99,275
700 Winn Dixie Stores, Inc. .......................... 10,019
----------
254,100
----------
FOREST PRODUCTS, PAPER--0.33%
300 Bemis, Inc. ...................................... 10,088
300 Boise Cascade Corp. .............................. 7,763
900 Fort James Corp. ................................. 20,813
800 Georgia-Pacific Corp. ............................ 21,000
2,200 International Paper Co. .......................... 65,587
2,500 Kimberly Clark Corp. ............................. 143,437
500 Mead Corp. ....................................... 12,625
300 Temple-Inland, Inc. .............................. 12,600
500 Westvaco Corp. ................................... 12,406
1,100 Weyerhaeuser Co. ................................. 47,300
500 Willamette Industries, Inc. ...................... 13,625
----------
367,244
----------
FREIGHT, AIR, SEA & LAND--0.04%
1,300 FedEx Corp.* ..................................... 49,400
----------
GAS UTILITY--0.08%
400 Columbia Energy Group ............................ 26,250
100 Eastern Enterprises .............................. 6,300
1,000 El Paso Energy Corp. ............................. 50,938
200 NICOR, Inc. ...................................... 6,525
----------
90,013
----------
HEAVY MACHINERY--0.04%
1,100 Deere & Co. ...................................... 40,700
----------
HOTELS--0.06%
600 Harrah's Entertainment, Inc.* .................... 12,563
1,700 Hilton Hotels Corp. .............................. 15,937
1,100 Marriott International, Inc. ..................... 39,669
----------
68,169
----------
HOUSEHOLD PRODUCTS--0.76%
300 Alberto Culver Co. ............................... 9,169
1,100 Avon Products, Inc. .............................. 48,950
1,100 Clorox Co. ....................................... 49,294
2,600 Colgate-Palmolive Co. ............................ 155,675
700 Fortune Brands, Inc. ............................. 16,144
4,600 Gillette Co. ..................................... 160,712
500 International Flavors and Fragrances ............. 15,094
1,200 Newell Rubbermaid, Inc. .......................... 30,900
5,800 Procter & Gamble Co. ............................. 332,050
1,400 Ralston Purina Co. ............................... 27,912
----------
845,900
----------
INDUSTRIAL PARTS--0.29%
1,600 Caterpillar, Inc. ................................ 54,200
300 Crane Co. ........................................ 7,294
900 Genuine Parts Co. ................................ 18,000
700 Ingersoll Rand Co. ............................... 28,175
400 ITT Industries, Inc. ............................. 12,150
600 Pall Corp. ....................................... 11,100
500 Parker-Hannifin Corp. ............................ 17,125
300 Snap-On, Inc. .................................... 7,988
400 Stanley Works .................................... 9,500
700 Textron, Inc. .................................... 38,019
2,100 United Technologies Corp. ........................ 123,637
----------
327,188
----------
INFORMATION & COMPUTER SERVICES--1.35%
10,200 America Online Inc.* ............................. 538,050
2,800 Automatic Data Processing, Inc. .................. 149,975
700 Ceridian Corp.* .................................. 16,844
700 Computer Sciences Corp.* ......................... 52,281
700 Dun & Bradstreet Corp. ............................ 20,037
2,100 Electronic Data Systems Corp. .................... 86,625
600 Equifax, Inc. .................................... 15,750
1,800 First Data Corp. ................................. 89,325
1,300 IMS Health, Inc. ................................. 23,400
1,300 Interpublic Group Companies, Inc. ................ 55,900
800 Omnicom Group, Inc. .............................. 71,250
1,600 Paychex, Inc. .................................... 67,200
500 Quintiles Transnational Corp.* ................... 7,063
2,400 Yahoo, Inc.* ..................................... 297,300
300 Young & Rubicam Inc.* ............................ 17,156
----------
1,508,156
----------
MH-29
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
<CAPTION>
NUMBER OF
SHARES VALUE
--------- --------
<S> <C>
COMMON STOCKS--(CONTINUED)
LEISURE--0.20%
500 Brunswick Corp. .................................. $ 8,281
1,000 Dominion Resources Inc. .......................... 42,875
1,400 Eastman Kodak Co. ................................ 83,300
1,400 Harley Davidson Inc. ............................. 53,900
800 Hasbro, Inc. ..................................... 12,050
1,900 Mattel, Inc. ..................................... 25,057
----------
225,463
----------
LIFE INSURANCE--0.28%
600 Aetna Life & Casualty Co. ........................ 38,512
1,200 AFLAC, Inc. ...................................... 55,125
1,100 American General Corp. ........................... 67,100
700 CIGNA Corp. ...................................... 65,450
1,500 Conseco, Inc. .................................... 14,625
900 Lincoln National Corp. ........................... 32,512
600 Torchmark, Inc. .................................. 14,813
1,100 UNUM Provident Corp. ............................. 22,069
----------
310,206
----------
LONG DISTANCE & PHONE COMPANIES--2.91%
16,700 AT&T Corp. ....................................... 528,137
6,900 Bell Atlantic Corp. .............................. 350,606
8,300 BellSouth Corp. .................................. 353,788
600 CenturyTel, Inc. ................................. 17,250
3,900 Global Crossing Ltd.* ............................ 102,619
4,300 GTE Corp. ........................................ 267,675
12,700 MCI Worldcom Inc.* ............................... 582,612
15,100 SBC Communications, Inc. ......................... 653,075
3,900 Sprint Corp. ..................................... 198,900
2,300 U.S. West, Inc. .................................. 197,225
----------
3,251,887
----------
MEDIA--1.01%
1,500 Clear Channel Communications* .................... 112,500
4,000 Comcast Corp., Class A* .......................... 162,000
9,200 Disney, Walt Co. ................................. 357,075
200 Meredith Corp. ................................... 6,750
5,800 Time Warner, Inc. ................................ 440,800
1,400 Tribune Co. ...................................... 49,000
----------
1,128,125
----------
MEDICAL PRODUCTS--1.70%
6,900 Abbott Laboratories .............................. 307,481
500 Alza Corp.* ...................................... 29,563
200 Bard, C.R., Inc. ................................. 9,625
200 Bausch & Lomb, Inc. .............................. 15,475
1,300 Baxter International, Inc. ....................... 91,406
1,100 Becton, Dickinson & Co. .......................... 31,556
500 Biomet, Inc. ..................................... 19,219
1,800 Boston Scientific Corp.* ......................... 39,488
1,400 Guidant Corp.* ................................... 69,300
6,200 Johnson & Johnson ................................ 631,625
300 Mallinckrodt Group, Inc. ......................... 13,031
5,300 Medtronic, Inc. .................................. 264,006
400 St. Jude Medical, Inc.* .......................... 18,350
7,500 Tyco International, Ltd. ......................... 355,312
----------
1,895,437
----------
MEDICAL PROVIDERS--0.19%
2,500 Columbia/HCA Healthcare Corp ..................... 75,937
1,800 HEALTHSOUTH Corp.* ............................... 12,938
1,400 Tenet Healthcare Corp.* .......................... 37,800
700 United Healthcare Corp. .......................... 60,025
300 Wellpoint Health Networks, Inc.* ................. 21,731
----------
208,431
----------
MINING & METALS--0.20%
1,000 Alcan Aluminum, Ltd. ............................. 31,000
3,900 Alcoa, Inc. ...................................... 113,100
400 Allegheny Technologies, Inc. ..................... 7,200
700 Crown Cork & Seal, Inc. .......................... 10,500
900 Inco Ltd.* ....................................... 13,838
400 Nucor Corp. ...................................... 13,275
700 Owens Illinois, Inc.* ............................ 8,181
400 Phelps Dodge Corp.* .............................. 14,875
500 USX-U.S. Steel Group, Inc. ....................... 9,281
----------
221,250
----------
MOTOR VEHICLES--0.41%
700 DANA Corp. ....................................... 14,831
2,600 Delphi Automotive Systems Corp. .................. 37,863
5,400 Ford Motor Co. ................................... 232,200
2,400 General Motors Corp. ............................. 139,350
300 Navistar International Corp.* .................... 9,319
400 PACCAR, Inc. ..................................... 15,875
607 Visteon Corp. .................................... 7,360
----------
456,798
----------
OIL REFINING--0.54%
1,000 Coastal Corp. .................................... 60,875
2,800 Conoco, Inc. ..................................... 68,775
3,200 Enron Corp. ...................................... 206,400
400 Sunoco, Inc. ..................................... 11,775
2,500 Texaco, Inc. ..................................... 133,125
1,400 USX-Marathon Group ............................... 35,087
2,000 Williams Companies, Inc. ......................... 83,375
----------
599,412
----------
MH-30
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -------
<S> <C>
COMMON STOCKS--(CONTINUED)
OIL SERVICES--0.35%
1,500 Baker Hughes, Inc. ............................... $ 48,000
2,000 Halliburton Co. .................................. 94,375
400 Rowan Companies, Inc.* ........................... 12,150
2,500 Schlumberger, Ltd. ............................... 186,562
900 Transocean Sedco Forex, Inc. ..................... 48,094
----------
389,181
----------
OTHER INSURANCE--1.05%
3,300 Allstate Corp. ................................... 73,425
6,800 American International Group, Inc. ............... 799,000
800 Chubb Corp. ...................................... 49,200
700 Cincinnati Financial Corp. ....................... 22,006
1,000 Hartford Financial Services Group, Inc. .......... 55,937
500 Jefferson-Pilot Corp. ............................ 28,219
500 Loews Corp. ...................................... 30,000
400 MBIA, Inc. ....................................... 19,275
500 MGIC Investment Corp. ............................ 22,750
300 Progressive Corp. ................................ 22,200
600 SAFECO Corp. ..................................... 11,925
1,000 St. Paul Companies, Inc. ......................... 34,125
----------
1,168,062
----------
PRECIOUS METALS--0.07%
1,800 Barrick Gold Corp. ............................... 32,738
1,400 Homestake Mining Co. ............................. 9,625
800 Newmont Mining Corp. ............................. 17,300
1,600 Placer Dome, Inc. ................................ 15,300
----------
74,963
----------
PUBLISHING--0.22%
400 Deluxe Corp. ..................................... 9,425
600 Donnelley, R.R. & Sons Co. ....................... 13,538
400 Dow Jones & Co., Inc. ............................ 29,300
1,200 Gannett, Inc. .................................... 71,775
300 Harcourt General, Inc. ........................... 16,312
400 Knight Ridder, Inc. .............................. 21,275
900 McGraw-Hill Companies, Inc. ...................... 48,600
800 New York Times Co., Class A ...................... 31,600
----------
241,825
----------
RAILROADS--0.16%
1,900 Burlington Northern Santa Fe, Inc. ............... 43,581
1,000 CSX Corp. ........................................ 21,188
500 Kansas City Southern Industries, Inc. ............ 44,344
1,700 Norfolk Southern Corp. ........................... 25,287
1,100 Union Pacific Corp. .............................. 40,906
----------
175,306
----------
RESTAURANTS--0.24%
600 Darden Restaurants, Inc. ......................... 9,750
5,900 McDonalds Corp. .................................. 194,332
800 Starbucks Corp.* ................................. 30,550
700 Tricon Global Restaurants, Inc.* ................. 19,775
500 Wendy's International, Inc. ...................... 8,906
----------
263,313
----------
SECURITIES & ASSET MANAGEMENT--0.86%
600 Bear Stearns Company, Inc. ....................... 24,975
6,100 Charles Schwab Corp. ............................. 205,112
1,100 Franklin Resources, Inc. ......................... 33,413
600 Lehman Brothers Holdings, Inc. ................... 56,737
1,700 Merrill Lynch & Co., Inc. ........................ 195,500
5,100 Morgan Stanley Dean Witter & Co. ................. 424,575
600 T.Rowe Price & Associates, Inc. .................. 25,500
----------
965,812
----------
SEMICONDUCTOR--3.42%
700 Advanced Micro Devices, Inc.* .................... 54,075
900 Altera Corp.* .................................... 91,744
1,600 Analog Devices, Inc.* ............................ 121,600
3,600 Applied Materials, Inc.* ......................... 326,250
1,000 Conexant Systems, Inc.* .......................... 48,625
14,900 Intel Corp. ...................................... 1,991,944
1,400 Linear Technology Corp. .......................... 89,512
1,400 LSI Logic Corp.* ................................. 75,775
1,300 Maxim Integrated Productions Inc.* ............... 88,319
2,500 Micron Technology, Inc.* ......................... 220,156
800 National Semiconductor Corp.* .................... 45,400
600 Novellus Systems Inc.* ........................... 33,938
200 Perkinelmer, Inc. ................................ 13,225
7,300 Texas Instruments, Inc. .......................... 501,419
1,400 Xilinx, Inc.* .................................... 115,587
----------
3,817,569
----------
SPECIALTY RETAIL--0.96%
600 Autozone, Inc.* .................................. 13,200
600 Bed, Bath & Beyond, Inc.* ........................ 21,750
900 Best Buy Company, Inc.* .......................... 56,925
900 Circuit City Stores, Inc. ........................ 29,869
1,700 CVS Corp. ........................................ 68,000
1,500 Dollar General Corp. ............................. 29,250
10,300 Home Depot, Inc. ................................. 514,356
1,700 Lowe's Companies, Inc. ........................... 69,806
1,500 Office Depot, Inc.* .............................. 9,375
800 Radioshack Corp. ................................. 37,900
1,200 Rite Aid Corp. ................................... 7,875
2,200 Staples, Inc.* ................................... 33,825
300 Tiffany & Co. .................................... 20,256
1,000 Toys R Us, Inc.* ................................. 14,562
MH-31
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
<CAPTION>
NUMBER OF
SHARES VALUE
---------- -------
COMMON STOCKS--(CONCLUDED)
<S> <C>
SPECIALTY RETAIL--(CONCLUDED)
4,500 Walgreen Co ...................................... $ 144,844
----------
1,071,793
----------
THRIFT--0.09%
700 Golden West Financial Corp ....................... 28,569
2,500 Washington Mutual, Inc. .......................... 72,187
----------
100,756
----------
TOBACCO--0.25%
10,200 Philip Morris Companies, Inc. .................... 270,938
800 UST, Inc. ........................................ 11,750
----------
282,688
----------
WIRELESS TELECOMMUNICATIONS--0.48%
1,400 Alltel Corp. ..................................... 86,713
3,400 Nextel Communications, Inc.* ..................... 208,037
4,100 Sprint Corp.* .................................... 243,950
----------
538,700
----------
Total Common Stocks (cost--$52,774,968) ..................... 55,767,636
----------
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES
----------- ---------------- ---------------
<S> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT ANDAGENCY [email protected]%
$ 1,874 Federal Farm Credit Bank Discount Notes ............................ 07/03/00 6.570% 1,873,316
54,024 U.S. Treasury Bills(1) ............................................. 07/06/00 4.380 53,991,136
------------
Total Short-Term U.S. Government and Agency Obligations (cost--$55,864,452) ... 55,864,452
------------
Total Investments (cost--$108,639,420)--99.99% ................................ 111,632,088
Other assets in excess of liabilities--0.01% .................................. 10,018
------------
Net Assets--100.00% ........................................................... $111,642,106
============
</TABLE>
--------------------------
@ Yield to maturity on discounted securities
* Non-income producing security.
(1) Security, or a portion thereof, was on loan at June 30, 2000.
ADR American Depositary Receipt.
+ The common stock portion of the portfolio is allocated in proportion to the
S&P 500 Index. Since the Fund has allocated only 50% of the portfolio to
common stocks, it represents half the weighting of the S&P 500 Index.
See accompanying notes to financial statements.
MH-32
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES JUNE 30 , 2000 (unaudited)
<S> <C>
ASSETS
Investments in securities, at value (cost--$108,639,420) ...................................................... $111,632,088
Investments of cash collateral received for securities loaned, at value (cost--$26,169,250) ................... 26,169,250
Cash .......................................................................................................... 1,933
Receivable for investments sold ............................................................................... 445,407
Dividends and interest receivable ............................................................................. 58,968
Other assets .................................................................................................. 1,567
------------
Total assets .................................................................................................. 138,309,213
------------
LIABILITIES
Payable for cash collateral for securities loaned ............................................................. 26,169,250
Payable for investments purchased ............................................................................. 365,782
Payable to affiliates ......................................................................................... 102,374
Accrued expenses and other liabilities ........................................................................ 29,701
------------
Total liabilities ............................................................................................. 26,667,107
------------
NET ASSETS
Beneficial interest--$0 001 par value (unlimited amount authorized) ........................................... 106,700,166
Undistributed net investment income ........................................................................... 1,299,317
Accumulated net realized gains from investment transactions ................................................... 649,955
Net unrealized appreciation of investments .................................................................... 2,992,668
------------
Net assets .................................................................................................... $111,642,106
============
CLASS H:
Net assets .................................................................................................... $ 38,514,954
------------
Shares outstanding ............................................................................................ 2,372,005
------------
Net asset value, offering price and redemption value per share ................................................ $16.24
======
CLASS I:
Net assets .................................................................................................... $ 73,127,152
------------
Shares outstanding ............................................................................................ 4,510,805
------------
Net asset value, offering price and redemption value per share ................................................ $16.21
======
</TABLE>
See accompanying notes to financial statements
MH-33
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
-------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $1,550) ......................................................... $ 286,898
Interest ....................................................................................................... 1,432,077
----------
1,718,975
----------
EXPENSES:
Investment advisory and administration ......................................................................... 253,965
Distribution fees--Class I ..................................................................................... 79,485
Legal and audit ................................................................................................ 34,085
Custody and accounting ......................................................................................... 31,706
Reports and notices to shareholders ............................................................................ 29,682
Trustees' fees ................................................................................................. 3,750
Transfer agency fees and related service expenses .............................................................. 3,889
Other expenses ................................................................................................. 10,387
----------
446,949
Less: Fee waiver from adviser .................................................................................. (27,693)
----------
Net expenses ................................................................................................... 419,256
----------
Net investment income .......................................................................................... 1,299,719
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions ................................................................ 2,282,594
Net change in unrealized appreciation/depreciation of investments .............................................. (2,774,790)
----------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES .................................................. (492,196)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................................... $ 807,523
==========
</TABLE>
See accompanying notes to fiancial statements
MH-34
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30,2000 YEAR ENDED
(UNAUDITED) DECEMBER 31,1999
------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ........................................................................... $ 1,299,719 $ 332,626
Net realized gains from investment transactions ................................................. 2,282,594 6,095,928
Net change in unrealized appreciation/depreciation of investments ............................... (2,774,790) 2,759,506
-------------- -------------
Net increase in net assets resulting from operations ............................................ 807,523 9,188,060
-------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class H .................................................................. (12,379) (121,887)
Net investment income--Class I .................................................................. (20,565) (178,197)
Net realized gains from investments--Class H .................................................... (799,723) (2,297,887)
Net realized gains from investments--Class I .................................................... (1,328,551) (3,350,550)
-------------- -------------
Total dividends and distributions to shareholders ............................................... (2,161,218) (5,948,521)
-------------- -------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares ............................................................ 28,216,884 87,368,412
Cost of shares repurchased ...................................................................... (8,509,455) (28,070,328)
Proceeds from dividends reinvested .............................................................. 2,161,268 6,095,944
-------------- -------------
Net increase in net assets from beneficial interest transactions ................................ 21,868,697 65,394,028
-------------- -------------
Net increase in net assets ...................................................................... 20,515,002 68,633,567
NET ASSETS:
Beginning of period ............................................................................. 91,127,104 22,493,537
-------------- -------------
End of period (including undistributed net investment income of $1,299,317 and
$32,542, respectively) .......................................................................... $ 111,642,106 $ 91,127,104
============== =============
</TABLE>
See accompanying notes to financial statements
MH-35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins Series Trust--Tactical Allocation Portfolio (the
"Portfolio") is a diversified Portfolio of Mitchell Hutchins Series Trust (the
"Fund"), which is organized under Massachusetts law by a Declaration of Trust
dated November 21, 1986 and is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund operates as a series company currently
offering thirteen Portfolios. Shares of the Portfolio are offered to insurance
company separate accounts which fund certain variable contracts.
Currently, the Portfolio offers Class H and Class I shares. Each class
represents interests in the same assets of the Portfolio, and the classes are
identical except for differences in their distribution charges. Both classes
have equal voting privileges except that Class I has exclusive voting rights
with respect to its distribution plan. Class H has no distribution plan.
The Fund accounts separately for the assets, liabilities and operations for
each Portfolio. Expenses directly attributable to each Portfolio are charged to
that Portfolio's operations; expenses which are applicable to all Portfolios are
allocated among them on a pro rata basis.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires the Fund's
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
VALUATION OF INVESTMENTS--The Portfolio calculates its net asset value based
on the current market value for its portfolio securities. The Portfolio normally
obtains market values for its securities from independent pricing sources.
Independent pricing sources may use reported last sale prices, current market
quotations or valuations from computerized "matrix" systems that derive values
based on comparable securities. Securities traded in the over-the-counter
("OTC") market and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally
are valued at the last sale price on Nasdaq prior to valuation. Other OTC
securities are valued at the last bid price available prior to valuation.
Securities which are listed on U.S. and foreign stock exchanges normally are
valued at the last sale price on the day the securities are valued or, lacking
any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated as the primary market by Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser
and administrator of the Portfolio. If a market value is not available from an
independent pricing source for a particular security, that security is valued
at fair value as determined in good faith by or under the direction of the
Fund's board of trustees (the "board"). The amortized cost method of
valuation, which approximates market value, generally is used to value
short-term debt-instruments with sixty days or less remaining to maturity,
unless the board determines that this does not represent fair value.
MH-36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
REPURCHASE AGREEMENTS--The Portfolio's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Portfolio has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. The Portfolio may participate in
joint repurchase agreement transactions with other funds managed by Mitchell
Hutchins.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost basis. Dividend income is
recorded on the ex-dividend date ("ex-date"). Interest income is recorded on an
accrual basis. Premiums are amortized and discounts are accreted as adjustments
to interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the applicable class
of shares.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
INVESTMENT ADVISER AND ADMINISTRATOR
The board has approved an investment advisory and administration contract
with Mitchell Hutchins, under which Mitchell Hutchins serves as investment
adviser and administrator of the Portfolio. In accordance with the Advisory
Contract, the Portfolio pays Mitchell Hutchins an investment advisory and
administration fee, which is computed daily and payable monthly, at an annual
rate of 0.50% of the Portfolio's average daily net assets. At June 30, 2000, the
Portfolio owed Mitchell Hutchins $45,338 in investment advisory and
administration fees. Mitchell Hutchins waived a portion of its investment
advisory and administration fees in connection with the Portfolio's investment
of cash collateral from securities lending transactions in the Mitchell Hutchins
Private Money Market Fund LLC. For the six months ended June 30, 2000, Mitchell
Hutchins waived $4,238.
For the six months ended June 30, 2000, the Fund paid no brokerage
commissions to PaineWebber for transactions executed on behalf of the Fund.
DISTRIBUTION PLAN
Class I shares are offered to insurance company separate accounts where the
related insurance companies receive payments for their services in connection
with the distribution of the Portfolio's Class I shares. Under the plan of
distribution, the Portfolio pays Mitchell Hutchins a monthly distribution fee at
the annual rate of 0.25% of the average daily net assets of Class I shares.
Mitchell Hutchins pays the entire distribution fee to the insurance companies.
For the period January 1,2000 to February 29,2000, Mitchell Hutchins voluntarily
agreed to waive $23,455 of the distribution fees on Class I Shares. At June 30,
2000, the Portfolio owed Mitchell Hutchins $56,030 in distribution fees.
MH-37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
SECURITY LENDING
The Portfolio may lend securities up to 33 1/3% of its total assets to
qualified institutions. The loans are secured at all times by cash or U.S.
government securities in an amount at least equal to the market value of the
securities loaned, plus accrued interest, determined on a daily basis and
adjusted accordingly. The Portfolio will regain record ownership of loaned
securities to exercise certain beneficial rights; however, the Portfolio may
bear the risk of delay in recovery of, or even loss of rights in, the securities
loaned should the borrower fail financially. The Portfolio receives
compensation, which is included in interest income, for lending its securities
from interest earned on the cash or U.S. government securities held as
collateral, net of fee rebates paid to the borrower plus reasonable
administrative and custody fees. For the six months ended June 30, 2000, the
Portfolio earned $31,212 for lending its securities and PaineWebber earned
$10,856 in compensation as the Portfolio's lending agent. At June 30, 2000, the
Portfolio owed PaineWebber $1,006 in compensation.
As of June 30, 2000, the Portfolio held cash and/or cash equivalents having
an aggregate value of $26,169,250 as collateral for portfolio securities loaned
having a market value of $25,728,725. The cash collateral was invested in the
following money market funds:
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- ------
<S> <C>
4,921,650 AIM Liquid Assets Portfolio ............................................................... $ 4,921,650
1,613,442 AIM Prime Portfolio ....................................................................... 1,613,442
19,634,158 Mitchell Hutchins Private Money Market Fund LLC ........................................... 19,634,158
-----------
Total investments of cash collateral received for securities loaned (cost--$26,169,250) ............... $26,169,250
===========
</TABLE>
BANK LINE OF CREDIT
The Portfolio may participate with other funds managed by Mitchell Hutchins
in a $200 million committed credit facility ("Facility") to be utilized for
temporary financing until the settlement of sales or purchases of portfolio
securities, the repurchase or redemption of shares of the Portfolio at the
request of the shareholders and other temporary or emergency purposes. In
connection therewith, the Portfolio has agreed to pay commitment fees, pro rata,
based on the relative asset size of the funds in the Facility. Interest is
charged to the Portfolio at a rate based on prevailing market rates in effect at
the time of borrowings. For the six months ended June 30, 2000, the Portfolio
did not borrow under the Facility.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at June 30,
2000, was substantially the same as the cost of securities for financial
statement purposes.
At June 30, 2000, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross appreciation (investments having an excess of value over cost) ................................ $7,229,690
Gross depreciation (investments having an excess of cost over value) ................................ (4,237,022)
-----------
Net unrealized appreciation of investments .......................................................... $2,992,668
===========
</TABLE>
For the six months ended June 30, 2000, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $62,503,270 and
$75,455,834, respectively.
MH-38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
FEDERAL TAX STATUS
The Portfolio intends to distribute all of its taxable income and to comply
with the requirements of the Internal Revenue Code applicable to regulated
investment companies. Accordingly, no provision for federal income taxes is
required.
SHARES OF BENEFICIAL INTEREST
There are an unlimited number of $0.001 par value shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
CLASS H CLASS I
----------------------------------------------- -----------------------------------------------
FOR THE PERIOD
FOR THE FOR THE FOR THE JANUARY 5,1999++
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED THROUGH
JUNE 30,2000 DECEMBER 31,1999 JUNE 30,2000 DECEMBER 31,1999
----------------------------------------------- -----------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ...................... 363,870 $5,881,876 2,060,203 $33,179,597 1,383,334 $22,335,008 3,333,610 $54,188,815
Shares repurchased ............... (268,675) (4,335,867) (1,499,667) (24,078,224) (258,690) (4,173,588) (245,923) (3,992,104)
Reinvestment of dividends ........ 50,347 812,152 157,007 2,567,197 83,692 1,349,116 214,782 3,528,747
-------- ---------- --------- ----------- --------- ----------- --------- -----------
Net increase ..................... 145,542 $2,358,161 717,543 $11,668,570 1,208,336 $19,510,536 3,302,469 $53,725,458
======== ========== ========= =========== ========= =========== ========= ===========
</TABLE>
--------------------------
++ Commencement of issuance of shares.
MH-39
<PAGE>
MITCHELL HUTCHINS SERIES TRUST -- TACTICAL ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
CLASS H CLASS I
--------------------------------------------------- --------------------------------
FOR THE SIX FOR THE PERIOD FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE SEPTEMBER 28, 1998+ MONTHS ENDED JANUARY 5, 1999++
JUNE 30, 2000 YEAR ENDED THROUGH JUNE 30, 2000 THROUGH
(UNAUDITED) DECEMBER 31, 1999 DECEMBER 31,1998 (UNAUDITED) DECEMBER
--------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 16.49 $ 14.91 $ 12.00 $ 16.48 $ 14.89
----------- ---------- ----------- ----------- ----------
Net investment income .......................... 0.21@ 0.11@ 0.02 0.20@ 0.11@
Net realized and unrealized gains (losses)
from investments ............................ (0.11)@ 2.64@ 2.99 (0.12)@ 2.65@
----------- ---------- ----------- ----------- ----------
Net increase from investment operations ........ 0.10 2.75 3.01 0.08 2.76
----------- ---------- ----------- ----------- ----------
Dividends from net investment income ........... (0.01) (0.06) (0.02) (0.01) (0.06)
Distributions from net realized gains from
investments ................................. (0.34) (1.11) (0.08) (0.34) (1.11)
----------- ---------- ----------- ----------- ----------
Total dividends and distributions to
shareholders ................................ (0.35) (1.17) (0.10) (0.35) (1.17)
----------- ---------- ----------- ----------- ----------
Net asset value, end of period ................. $ 16.24 $ 16.49 $ 14.91 $ 16.21 $ 16.48
=========== ========== =========== =========== ==========
Total investment return(1) ..................... 0.61% 18.43% 24.98% 0.48% 18.52%
=========== ========== =========== =========== ==========
Ratios/Supplemental data:
Net assets, end of period (000's) .............. $ 38,515 $ 36,714 $ 22,494 $ 73,127 $ 54,413
Expenses to average net assets,
before waiver from adviser .................. 0.72%* 0.74% 0.95%* 0.97%* 0.99%*
Expenses to average net assets,
after waiver from adviser ................... 0.71%* 0.74% 0.95%* 0.89%* 0.74%*
Net investment income to average net assets,
before waiver from adviser .................. 2.66%* 0.71% 0.77%* 2.41%* 0.56%*
Net investment income to average net assets,
after waiver from adviser ................... 2.67%* 0.71% 0.77%* 2.49%* 0.81%*
Portfolio turnover rate ........................ 104% 110% 6% 104% 110%
</TABLE>
--------------------------
+ Commencement of operations.
++ Commencement of issuance of shares.
* Annualized.
@ Calculated using the average monthly shares outstanding for the period.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the payable dates and a sale at
net asset value on the last day of each period reported. The figures do not
include additional contract level charges; results would be lower if such
charges were included. Total investment return for periods of less than one
year has not been annualized.
MH-40
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
----------------------------------------------
PRUDENTIAL JENNISON PORTFOLIO
----------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 2000
<TABLE>
<S> <C>
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 DIVIDED BY 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 DIVIDED BY 83,915 outstanding shares of common
stock (authorized 5,000,000 shares)..................................................... $ 33.08
==============
</TABLE>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 2000
<TABLE>
<S> <C>
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.
A
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
----------------------------------------------
PRUDENTIAL JENNISON PORTFOLIO
----------------------------------------------
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS--95.9%
VALUE
COMMON STOCKS SHARES (NOTE 2)
--------- -------------
<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
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
SHORT-TERM AMOUNT VALUE
INVESTMENTS--4.2% (000) (NOTE 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>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
PLC Public Limited Company (British Corporation)
NV Naamloze Vennootschap (Dutch Corporation)
(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.
B
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL JENNISON PORTFOLIO
(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 one Portfolio: Prudential Jennison
Portfolio. The Portfolio's investment objective is long-term growth of
capital by investing primarily in common stocks of established
companies with above-average growth prospects.
NOTE 2: ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Series Fund and the Portfolio in preparation of its 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.
Short-term securities 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.
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.
C1
<PAGE>
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.
SECURITIES LENDING: The Series Fund 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
$175,958 for these services.
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.
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 statement 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 Series Fund's
understanding of the applicable country's tax rules and
regulations.
DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each
Portfolio are declared in cash and automatically reinvested in
additional shares of the same Portfolio. The 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.
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 subadvisory agreement with Jennison
Associates LLC ("Jennison"), under which Jennison furnishes
investment advisory services in connection with the management of
the Portfolio. The Prudential pays for the services of 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.
C2
<PAGE>
The investment advisory fee paid to The Prudential is computed
daily and payable quarterly, at the annual rate of 0.60% of the
value of the Portfolio's average daily net assets.
The Prudential compensates Jennison for its services at the
annual rate of 0.75% on the first $10 million of the value of the
Portfolio's average daily net assets, 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 and 0.20% thereafter. The
fees are computed daily and paid quarterly.
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 compensates 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 the 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.
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.
During the six months ended June 30, 2000, the Portfolio incurred
fees of approximately $5,100 for the services of PMFS and as of
June 30, 2000, $900 of such fees were due to PMFS. Transfer agent
fees and expenses in the statement of operations include certain
out-of-pocket expense paid to nonaffiliates.
For the six months ended June 30, 2000, PSI earned $138,270 in
brokerage commissions from transactions executed on behalf of the
Portfolio.
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 obligations. The Portfolio had
a 23.05% undivided interest in the joint repurchase agreement
account which represented $145,588,000 in principal amount as of
June 30, 2000.
As of such date, each repurchase agreement in the joint account
and the collateral therefor were as follows:
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.
C3
<PAGE>
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 $1,842,685,398 and $1,266,685,655, respectively, for the
Portfolio.
The federal income tax basis of the Portfolio's investments was
$2,724,954,392 and, accordingly, net unrealized appreciation for
federal income tax purposes was $753,284,694 (gross unrealized
appreciation - $852,783,794; gross unrealized depreciation -
$99,499,100).
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.
Transactions in shares of common stock of the Portfolio
were as follows:
<TABLE>
<CAPTION>
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
========== ==============
<CAPTION>
Class II Shares Amount
-------- ---------- --------------
<S> <C> <C>
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
========== ==============
</TABLE>
(b) Commencement of offering of Prudential Jennison Portfolio Class II shares.
C4
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
PRUDENTIAL JENNISON PORTFOLIO
-----------------------------------------------------------------------------
CLASS I
-----------------------------------------------------------------------------
SIX MONTHS YEAR ENDED APRIL 25, 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....... $ 32.39 $ 23.91 $ 17.73 $14.32 $12.55 $10.00
-------- -------- -------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.01 0.05 0.04 0.04 0.02 0.02
Net realized and unrealized gains
(losses) on investments.................. 1.23 9.88 6.56 4.48 1.78 2.54
-------- -------- -------- ------ ------ ------
Total from investment operations...... 1.24 9.93 6.60 4.52 1.80 2.56
-------- -------- -------- ------ ------ ------
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) -- --
-------- -------- -------- ------ ------ ------
Total distributions................... (0.50) (1.45) (0.42) (1.11) (0.03) (0.01)
-------- -------- -------- ------ ------ ------
Net Asset Value, end of period............. $ 33.13 $ 32.39 $ 23.91 $17.73 $14.32 $12.55
======== ======== ======== ====== ====== ======
TOTAL INVESTMENT RETURN(a)................. 3.98% 41.76% 37.46% 31.71% 14.41% 24.20%
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
Ratios to average net assets:
Expenses................................. 0.62%(b) 0.63% 0.63% 0.64% 0.66% 0.79%(b)
Net investment income.................... 0.06%(b) 0.17% 0.20% 0.25% 0.20% 0.15%(b)
Portfolio turnover rate.................... 41% 58% 54% 60% 46% 37%
<CAPTION>
PRUDENTIAL JENNISON
PORTFOLIO
-------------------
CLASS II
-------------------
FEBRUARY 10,
2000(e)
THROUGH
JUNE 30,
2000
-------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period....... $ 34.25
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... --(f)
Net realized and unrealized gains
(losses) on investments.................. (0.67)
--------
Total from investment operations..... (0.67)
--------
LESS DISTRIBUTIONS:
Dividends from net investment income....... --
Distributions from net realized gains...... (0.50)
--------
Total distributions.................. (0.50)
--------
Net Asset Value, end of period............. $ 33.08
TOTAL INVESTMENT RETURN(a)................. (1.81)
========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions).... $2,775.9
Ratios to average net assets:
Expenses................................. 1.02%(b)
Net investment income.................... (0.34)%(b)
Portfolio turnover rate.................... 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).
D
<PAGE>
S E M I -
SALOMON BROTHERS A N N U A L
VARIABLE SERIES FUNDS INC R E P O R T
2 0 0 0
JUNE 30, 2000
[GRAPHIC] - CAPITAL FUND
<PAGE>
[GRAPHIC]
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
OUR MESSAGE TO YOU
DEAR SHAREHOLDER:
We are pleased to provide you with the semi-annual report for the Salomon
Brothers Variable Capital Fund ("Fund") for the period ended June 30, 2000.
This letter discusses general economic and market conditions as well as Fund
highlights during the reporting period. A detailed summary of performance and
current Fund holdings can be found in the appropriate sections that follow.
We hope you find this report useful and informative.
INVESTMENT STRATEGY AND PERFORMANCE UPDATE
The Fund seeks capital appreciation through investments primarily in common
stocks or securities convertible into common stocks. The Fund seeks to
achieve its investment objective through investments in securities that are
believed to have above-average price appreciation potential. The Fund invests
primarily in stocks of U.S. companies. These companies may range in size from
established large capitalization companies (over $5 billion in market
capitalization) to small capitalization companies (i.e., less than $1 billion
in market capitalization) at the beginning of their life cycles. Such
investments may also involve above-average risk. The Fund may invest in
seasoned, established companies, relatively small new companies, as well as
new issues.
The Fund's shares returned 16.47% for the six-month period ended June 30,
2000. In comparison, the Russell 3000 Index returned 0.95% and the Standard
and Poor's 500 Index ("S&P 500") declined 0.43% for the same time period.
(The S&P 500 is a market capitalization-weighted measure of 500 widely held
common stocks. The Russell 3000 Index measures the performance of the 3,000
largest U.S. companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.)
The Fund's investment strategy is known as a broad market strategy. We
attempt to find the best opportunities across the market, wherever they may
be. It is an "all cap" or "multicap" strategy in that we invest in large-,
small- and mid-size companies. Our strategy can also be characterized as a
"style neutral" or "blend" portfolio in that we purchase both growth and
value stocks. (Value investing consists of identifying securities of
companies that are believed to be undervalued in the market. Growth investing
focuses on the stocks of corporations that are exhibiting or are expected to
exhibit faster-than-average growth within their industry.) In fact, one of
our primary goals is to find out of favor value stocks that blossom into
growth stocks. These can sometimes include some of our best performers
because we buy them when they are inexpensive and hold them through the
entire period of appreciation as the market recognizes their true potential.
S-1
<PAGE>
Because the Fund owns some stocks from most categories, the Fund has the
opportunity to own some promising securities under most market conditions and
our strategy can result in a unique, diversified portfolio of stocks. We
think that these are two key advantages to our investment strategy.(1)
Our core investment style is a bottom-up stock picking strategy. (Bottom-up
investing is an asset management style that focuses on the analysis of
individual stocks instead of basing decisions on economic or market trends.)
We focus on understanding a company's business, its strategy, its competitive
position and its industry. We also determine if management is credible and
has the right team to lead the company. Our financial analysis focuses on the
company's resources to meet its goals, the consistency of the numbers to
determine their quality (for instance, are receivables growing much faster
than sales?, a sign that current sales may overstate the long term trend) and
is used as a framework for valuation and risk assessment. These and other
factors are what drive our stock selection process. If we think that the risk
and reward trade-off for a particular company's stock is favorable, we will
generally invest.
As portfolio managers, we have a role in addition to stock picking; we need
to put all the individual security selections into a portfolio that meets a
set of investment objectives. We use tools such as diversification and
position weighting to determine exactly how much of each security to own in
the portfolio. For instance, in the Fund, our best ideas generally get very
high weightings, as much as 5% of the portfolio on occasion. This strategy,
known as high position concentration, can generate above-market return
potential if executed properly. (Of course, past performance is not
indicative of future results.)
At the same time, we always factor in excess risk. A good idea that has a
very high-risk profile tends to get lower weighting, such as 1% of the
portfolio, in order to diversify risk and dampen portfolio volatility. And
while no guarantees can be made, this way we can take individual risks on
behalf of our shareholders without creating an overly risky portfolio.
------------------
(1) OF COURSE, INVESTORS CAN ALSO LOSE MONEY IN THE SUB-ACCOUNT IF OUR
JUDGEMENT ABOUT THE ATTRACTIVENESS, RELATIVE VALUE OR POTENTIAL
APPRECIATION OF A PARTICULAR SECTOR OR SECURITY PROVES TO BE INCORRECT.
S-2
<PAGE>
MARKET OVERVIEW AND OUTLOOK
Even though it made no headway, the stock market offered something for
everyone during the first half of 2000. Initially the speculative momentum
market of 1999 helped the market rally continue, peaking during the second
week of March. The Federal Reserve Board's ("Fed") continued increases in
interest rates then started to be felt, leading to a violent sell-off,
particularly in the volatile NASDAQ market, through May. At the same time,
many oversold "Old Economy" stocks rallied as money rotated from the Internet
and biotech stocks into areas such as consumer staples. By the end of the
half, most of the market losses were recovered so that most broad indices
were down modestly.
One way to describe what happened is that "investment gravity" finally took hold
of stocks that previously seemed to continually float skyward. The catalyst was
the seemingly unrelated comments by U.S. President Bill Clinton and British
Prime Minister Tony Blair that genomics companies would not reap all of the
benefits of the public research money devoted to their field of science. The
sell-off in biotech stocks spread like contagion to all high-priced growth
stocks. For a relatively brief time, earnings counted and stories were
discounted. By the end of June, the market was once again awarding future
potential a premium to proven ability.
The Fund's investment strategy worked exceptionally well throughout the
six-month period. When the market was rising our broad, diversified equity
exposure allowed us to participate even though much of what we liked was out
of favor. The declines in less speculative stocks provided us with
opportunities as well. For the first time in over two years, we were given an
attractive opportunity to start building positions in drug stocks, a sector
that we think should exhibit above-average growth well into the future due to
favorable demographic and technological trends.
Later in the half, during the NASDAQ-led market decline, the Fund actually
appreciated as money flowed to companies that could be more easily valued,
most of which had been materially oversold in the previous few months. The
rotation favored drug stocks as well as companies we previously owned such as
Safeway, Nabisco Group Holdings and Devon Energy while giving us the
opportunity to add to undervalued technology stocks like 3Com and Seagate.
Going forward, we expect to continue to hold many of these stocks although
there have been tender offers announced for Nabisco and Seagate.
S-3
<PAGE>
We continue to see the growth of the Internet as one of the driving forces of
the economy going forward. If you closely examine the Fund's portfolio, you
will see that relatively little of your money is invested in traditional
Internet companies (i.e., the "dot.coms"). We think the long-term risk and
reward proposition in most of these companies to be unattractive, a view we
think the market is starting to embrace. We also think most of these
companies do not have sustainable business models (translation: in our
opinion they will always lose money), while others have valuations that
assume they will be the only survivors in the eventual shakeout. However, you
will see a lot of your money invested in companies that benefit from or build
the Internet. In the Fund we own companies such as ...
- 3COM (a company that split into two pieces in July; Palm Pilot, the
leading PDA which will offer wireless internet access, and the remaining
3Com networking business helping individuals access the Internet);
- FEDERATED DEPARTMENT STORES (a leader in the "clicks and mortar"
e-commerce strategy and owner of several valuable Internet businesses);
and
- VERIZON (formed from the merger of Bell Atlantic and GTE, Verizon is the
leading U.S. wireless company also offering telecom services such as
local, long distance and high-speed Internet access).
It is our strong belief that over time the leading established companies that
embrace today's new technologies should emerge as the dominant and most
profitable companies in the economy. Their stocks should recognize this over
time. On the other hand, we believe the stock market will continue to lose
patience with those traditional Internet companies that cannot transform
themselves into growth companies with enough profits to support their stock
price.
We expect the Fund to consistently apply its investment strategy in the future.
We will invest in both users and manufacturers of technology when we believe
their risk reward ratios are favorable. Most of all, we will look for the best
opportunities that we can find, regardless of the part of the market they
currently reside in.
S-4
<PAGE>
Thank you for your investment in the Salomon Brothers Variable Capital
Fund. We look forward to helping you pursue your financial goals in the
new century.
Sincerely,
Heath B. McLendon Ross S. Margolies
Chairman and President Executive Vice President
JULY 25, 2000
S-5
<PAGE>
--------------------------------------------------------------------------------
HISTORICAL PERFORMANCE (UNAUDITED)
SALOMON BROTHERS VARIABLE CAPITAL FUND
COMPARISON OF $10,000 INVESTMENT IN THE FUND WITH THE RUSSELL 3000 INDEX
--------------------------------------------------------------------------------
[GRAPH]
<TABLE>
CAPITAL FUND RUSSELL 3000 INDEX
------------ ------------------
<S> <C> <C>
2/17/98 $10,000 $10,000
6/30/00 $16,794 $14,382
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE GRAPH DOES NOT
REFLECT EXPENSES ASSOCIATED WITH THE SEPARATE ACCOUNT SUCH AS ADMINISTRATIVE
FEES, ACCOUNT CHARGES AND SURRENDER CHANGES WHICH, IF REFLECTED, WOULD REDUCE
THE PERFORMANCE SHOWN.
THE FOLLOWING GRAPH DEPICTS THE PERFORMANCE OF THE CAPITAL FUND VERSUS THE
RUSSELL 3000 INDEX. IT IS IMPORTANT TO NOTE THAT THE FUND IS A PROFESSIONALLY
MANAGED MUTUAL FUND WHILE THE INDEX IS NOT AVAILABLE FOR INVESTMENT AND IS
UNMANAGED. THE COMPARISON IS SHOWN FOR ILLUSTRATIVE PURPOSES ONLY.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
HISTORICAL PERFORMANCE
------------------------------------------------------------------------------------------------------
NET ASSET VALUE
-----------------
BEGINNING END INCOME CAPITAL GAIN TOTAL
PERIOD ENDED OF PERIOD OF PERIOD DIVIDEND DISTRIBUTION RETURNS+
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/30/00 $13.67 $15.69 $0.00 $0.23 16.47%++
12/31/99 11.57 13.67 0.07 0.39 22.08
Inception*--12/31/98 10.00 11.57 0.09 0.15 18.12 ++
------------------------------------------------------------------------------------------------------
$0.16 $0.77
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS+
------------------------------------------------------------------------------------------------------
<S> <C>
Six Months Ended 6/30/00++ 16.47%
Year Ended 6/30/00 25.58
Inception* through 6/30/00 24.49
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN+
------------------------------------------------------------------------------------------------------
<S> <C>
Inception* through 6/30/00 67.94%
------------------------------------------------------------------------------------------------------
</TABLE>
+ ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
AT NET ASSET VALUE. TOTAL RETURNS DO NOT REFLECT EXPENSES ASSOCIATED WITH
THE SEPARATE ACCOUNT SUCH AS ADMINISTRATIVE FEES, ACCOUNT CHARGES AND
SURRENDER CHARGES WHICH, IF REFLECTED, WOULD REDUCE THE TOTAL RETURNS FOR
ALL PERIODS SHOWN. TOTAL RETURNS MAY ALSO REFLECT A VOLUNTARY EXPENSE CAP
IMPOSED BY SALOMON BROTHERS ASSET MANAGEMENT INC TO LIMIT TOTAL FUND
OPERATING EXPENSES. ABSENT THIS EXPENSE CAP, TOTAL RETURNS FOR THE FUND
WOULD BE LOWER. EXPENSE CAPS MAY BE REVISED OR TERMINATED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
TOTAL RETURN FOR THE YEAR.
* INCEPTION DATE IS FEBRUARY 17,1998.
S-6
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Shares Security Value
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK -- 91.5%
BASIC INDUSTRIES -- 6.1%
33,500 AK Steel Holding Corp. .......................................... $ 268,000
21,200 Crown Cork & Seal Co., Inc. ..................................... 318,000
24,600 The Geon Co. .................................................... 455,100
14,500 International Paper Co. ......................................... 432,281
63,000 LTV Corp. ....................................................... 181,125
3,800 Olin Corp. ...................................................... 62,700
16,400 OM Group, Inc. .................................................. 721,600
---------------
2,438,806
---------------
CAPITAL GOODS -- 1.1%
78,800 Harnischfeger Industries, Inc.(a) ............................... 26,792
10,400 Ingersoll-Rand Co ............................................... 418,600
---------------
445,392
---------------
COMMUNICATIONS -- 12.2%
10,400 Bell Atlantic Corp.(b) .......................................... 528,450
20,700 Dobson Communications Corp., Class A Shares (a) ................. 398,475
20,300 Genuity Inc.(a) ................................................. 185,872
10,200 GTE Corp.(b) .................................................... 634,950
21,100 ICG Communications, Inc.(a) ..................................... 465,519
2,600 NTL Inc.(a) ..................................................... 155,675
16,500 Rogers Cantel Mobile Communications Inc., Class B Shares (a) .... 554,812
9,900 SBC Communications Inc. ......................................... 428,175
47,500 Sinclair Broadcast Group, Inc., Class A Shares (a) .............. 522,500
8,300 UnitedGlobalCom Inc., Class A Shares (a) ........................ 388,025
12,500 WorldCom, Inc.(a) ............................................... 573,437
---------------
4,835,890
---------------
CONSUMER CYCLICALS -- 10.8%
33,900 Abercrombie & Fitch Co., Class A Shares (a) ..................... 413,156
36,800 Costco Wholesale Corp.(a) ....................................... 1,214,400
36,600 Federated Department Stores, Inc.(a) ............................ 1,235,250
10,971 Fine Host Corp.(a)(c) ........................................... 102,892
22,600 PRIMEDIA Inc.(a) ................................................ 514,150
16,500 Sun International Hotels Ltd.(a) ................................ 330,000
28,700 Wendy's International, Inc. ..................................... 511,219
---------------
4,321,067
---------------
CONSUMER NON-CYCLICALS -- 25.6%
13,000 AT&T Corp.-Liberty Media, Class A Shares (a) .................... 315,250
33,000 Delhaize America, Inc., Class B Shares .......................... 507,375
16,400 The Gillette Co. ................................................ 572,975
5,200 Hannaford Bros. Co. ............................................. 373,750
14,700 Hearst-Argyle Television, Inc., Class A Shares (a) .............. 286,650
65,400 Hormel Foods Corp. .............................................. 1,099,537
23,200 John B. San Filippo & Son, Inc.(a) .............................. 68,150
25,300 Michael Foods, Inc. ............................................. 619,850
62,100 Nabisco Group Holdings Corp. .................................... 1,610,719
12,400 The News Corp. Ltd. ADR ......................................... 589,000
37,000 The Pepsi Bottling Group, Inc. .................................. 1,079,937
14,500 PepsiCo, Inc. ................................................... 644,344
16,600 Philip Morris Cos. Inc. ......................................... 440,937
36,800 Safeway Inc.(a) ................................................. 1,660,600
37,500 Tyson Foods, Inc., Class A Shares ............................... 328,125
---------------
10,197,199
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-7
<PAGE>
SCHEDULE OF INVESTMENTS
June 30,2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Shares Security Value
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY -- 8.4%
32,500 3TEC Energy Corp.(a) ............................................ $ 325,000
8,900 Caminus Corp.(a) ................................................ 218,050
16,800 Conoco Inc., Class B Shares ..................................... 412,650
12,300 Devon Energy Corp. .............................................. 691,106
21,600 Paradigm Geophysical Ltd.(a) .................................... 129,600
11,600 R&B Falcon Corp.(a) ............................................. 273,325
21,100 Suncor Energy, Inc. ............................................. 491,894
78,200 Tesoro Petroleum Corp.(a) ....................................... 791,775
---------------
3,333,400
---------------
FINANCIAL SERVICES -- 6.9%
16,500 The Bank of New York Co., Inc. .................................. 767,250
20,700 Banknorth Group, Inc. ........................................... 316,969
8,400 Comerica Inc. ................................................... 376,950
12,300 FleetBoston Financial Corp. ..................................... 418,200
18,600 Mercantile Bankshares Corp. ..................................... 554,512
12,200 Protective Life Corp. ........................................... 324,825
---------------
2,758,706
---------------
HEALTH CARE -- 6.0%
16,600 Health Management Associates, Inc., Class A Shares (a) .......... 216,838
12,300 Merck & Co., Inc. ............................................... 942,488
14,900 Novartis AG, ADR (a) ............................................ 596,000
4,300 Nycomed Amersham PLC, Sponsored ADR ............................. 210,700
8,200 Schering-Plough Corp. ........................................... 414,100
---------------
2,380,126
---------------
TECHNOLOGY -- 14.4%
18,700 3Com Corp.(a) ................................................... 1,077,588
8,300 Advanced Micro Devices, Inc.(a) ................................. 641,175
14,300 ASM International N.V.(a) ....................................... 378,950
16,600 Compaq Computer Corp. ........................................... 424,338
5,000 Comverse Technology, Inc.(a) .................................... 465,000
13,500 Cypress Semiconductor Corp.(a) .................................. 570,375
16,400 Digital Microwave Corp.(a) ...................................... 625,250
200 Exfo Electro-Optical Engineering Inc.(a) ........................ 8,775
3,700 International Business Machines Corp. ........................... 405,381
13,100 Latitude Communications, Inc.(a) ................................ 146,556
600 Marvell Technology Group Ltd.(a) ................................ 34,200
100 Netease.com, Inc., ADR (a) ...................................... 1,213
14,600 Organic, Inc.(a) ................................................ 142,350
900 Plantronics Inc.(a) ............................................. 103,950
6,200 Seagate Technology, Inc.(a) ..................................... 341,000
20,500 SpeedFam-IPEC, Inc.(a) .......................................... 372,844
---------------
5,738,945
---------------
TOTAL COMMON STOCK
(Cost--$32,880,308) ............................................. 36,449,531
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-8
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Security Value
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE CORPORATE BONDS --1.8%
CONSUMER CYCLICALS -- 1.1%
Sunbeam Corp., Sr. Sub. Debentures:
$ 1,000,000 Zero coupon due 3/25/18 (d) ..................................... $ 162,500
1,750,000 Zero coupon due 3/25/18 ......................................... 284,375
---------------
446,875
---------------
ENERGY -- 0.7%
455,000 Friede Goldman Halter Inc., 4.500% due 9/15/04 .................. 275,844
---------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $732,508) .............................................. 722,719
---------------
CORPORATE BONDS -- 1.4%
CAPITAL GOODS -- 1.3%
Harnischfeger Industries, Inc., Debentures:
160,000 8.900% due 3/1/22 (a)(e) ........................................ 61,600
175,000 8.700% due 6/15/22 (a)(e) ....................................... 67,375
950,000 7.250% due 12/15/25 (a)(e) ...................................... 365,750
40,000 6.875% due 2/15/27 (a)(e) ....................................... 15,400
---------------
510,125
---------------
CONSUMER CYCLICALS -- 0.0%
15,000 Breed Technologies Inc., Sr. Sub. Notes, 9.250% due 4/15/08 (d) . 169
---------------
FINANCIAL SERVICES -- 0.1%
Contifinancial Corp., Sr. Notes:
125,000 7.500% due 3/15/02 (a)(e) ....................................... 15,625
195,000 8.125% due 4/1/08 (a)(e) ........................................ 24,375
---------------
40,000
---------------
TOTAL CORPORATE BONDS
(Cost -- $649,341) 550,294
---------------
<CAPTION>
<S> <C> <C> <C>
CONTRACTS
----------
PURCHASED OPTIONS (A) -- 0.2%
99 DoubleClick Inc., Put @ 35, Expire 7/22/00 ...................... 22,584
20 Interactive Index, Put @ 450, Expire 7/22/00 .................... 16,750
4 Interactive Index, Put @ 480, Expire 7/22/00 .................... 6,700
8 Interactive Index, Put @ 400, Expire 8/19/00 .................... 7,000
8 S&P 500 Index, Put @ 1400, Expire 7/22/00 ....................... 5,300
8 S&P 500 Index, Put @ 1420, Expire 7/22/00 ....................... 9,700
---------------
TOTAL PURCHASED OPTIONS
(Cost -- $103,067) .............................................. 68,034
---------------
<CAPTION>
Face
Amount
-------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 5.1%
$2,026,000 SBC Warburg Dillon Read Inc., 6.550% due 7/3/00;
Proceeds at maturity -- $2,027,106;
(Fully collateralized by U.S.Treasury Bonds, 8.875%
due 8/15/17; Market value -- $2,067,158)
(Cost -- $2,026,000) ........................................... 2,026,000
---------------
TOTAL INVESTMENTS -- 100%
(Cost -- $36,391,224*) ......................................... $39,816,578
===============
</TABLE>
---------------------
(a) Non-income producing security.
(b) On July 3,2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
(c) Fair valued at June 30, 2000.
(d) Security is exempt from registration under Rule 144A of the Securities
Act of 1933. This security may be resold in transactions that are exempt
from registration, normally to qualified institutional buyers.
(e) Security is currently in default.
* Aggregate cost for Federal income tax purposes is substantially the same.
ABBREVIATION USED IN THIS SCHEDULE:
ADR -- American Depository Receipt.
SEE NOTES TO FINANCIAL STATEMENTS.
S-9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $36,391,224) .................................... $ 39,816,578
Cash ........................................................................... 175
Receivable for securities sold ................................................. 74,071
Dividend and interest receivable ............................................... 36,698
Deferred organization costs .................................................... 16,450
------------
TOTAL ASSETS.................................................................... 39,943,972
------------
LIABILITIES:
Payable for securities purchased ............................................... 305,844
Management fees payable ........................................................ 22,740
Administration fees payable .................................................... 1,560
Accrued expenses ............................................................... 16,097
------------
TOTAL LIABILITIES .............................................................. 346,241
------------
TOTAL NET ASSETS ............................................................... $ 39,597,731
============
NET ASSETS:
Par value of capital shares .................................................... $ 2,523
Capital paid in excess of par value ............................................ 34,048,703
Undistributed net investment income ............................................ 113,353
Accumulated net realized gain from security transactions and options ........... 2,007,798
Net unrealized appreciation on investments ..................................... 3,425,354
------------
TOTAL NET ASSETS ................................................................. $ 39,597,731
============
SHARES OUTSTANDING ............................................................... 2,523,025
------------
NET ASSET VALUE, PER SHARE ....................................................... $15.69
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-10
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends .................................................................... $ 159,461
Interest ..................................................................... 90,121
Less: Foreign withholding tax ................................................ (532)
-----------
TOTAL INVESTMENT INCOME ...................................................... 249,050
-----------
EXPENSES:
Management fees (Note 2) ..................................................... 115,342
Audit and legal .............................................................. 10,865
Shareholder communications ................................................... 10,443
Custody ...................................................................... 8,918
Administration fees (Note 2) ................................................. 6,785
Shareholder and system servicing fees ........................................ 3,671
Amortization of deferred organization costs .................................. 3,114
Directors' fees .............................................................. 2,366
Registration fees ............................................................ 1,238
Other ........................................................................ 1,647
-----------
TOTAL EXPENSES ............................................................... 164,389
Less: Management fee waiver (Note 2) ......................................... (28,692)
-----------
NET EXPENSES ................................................................. 135,697
-----------
NET INVESTMENT INCOME ........................................................... 113,353
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND OPTIONS (NOTES 3 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) .................... 2,105,203
Options purchased .......................................................... (46,253)
Options written ............................................................ 31,264
-----------
NET REALIZED GAIN ............................................................ 2,090,214
-----------
Change in Net Unrealized Appreciation of Investments:
Beginning of period ........................................................ 1,347,506
End of period .............................................................. 3,425,354
-----------
INCREASE IN NET UNREALIZED APPRECIATION ...................................... 2,077,848
-----------
NET GAIN ON INVESTMENTS AND OPTIONS ............................................. 4,168,062
-----------
INCREASE IN NET ASSETS FROM OPERATIONS .......................................... $ 4,281,415
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-11
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income .............................................. $ 113,353 $ 71,981
Net realized gains ................................................. 2,090,214 853,176
Increase in net unrealized appreciation ............................ 2,077,848 866,650
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS ............................. 4,281,415 1,791,807
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................................. -- (71,981)
Net realized gains ................................................. (495,032) (438,071)
------------ ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS .......... (495,032) (510,052)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares ................................... 21,116,577 13,806,423
Net asset value of shares issued for reinvestment of dividends ..... 495,032 510,052
Cost of shares reacquired .......................................... (1,989,628) (3,698,746)
------------ ------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS .................. 19,621,981 10,617,729
------------ ------------
INCREASE IN NET ASSETS ............................................... 23,408,364 11,899,484
NET ASSETS:
Beginning of period ................................................ 16,189,367 4,289,883
------------ ------------
END OF PERIOD* ..................................................... $ 39,597,731 $ 16,189,367
============ ============
*Includes undistributed net investment income of: .................... $ 113,353 --
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers Variable Capital Fund ("Fund")is a separate non-diversied
investment portfolio of the Salomon Brothers Variable Series Funds Inc
("Series") whose primary investment objective is to seek capital appreciation.
The Series, a Maryland corporation, is registered under the Investment Company
Act of 1940, as amended ("1940 Act"), as an open-end management investment
company and consists of this Fund and seven other investment portfolios: Salomon
Brothers Variable Small Cap Growth Fund, Salomon Brothers Variable Total Return
Fund, Salomon Brothers Variable High Yield Bond Fund, Salomon Brothers Variable
Investors Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon Brothers
Variable U.S. Government Income Fund and Salomon Brothers Variable Asia Growth
Fund. The U.S. Government Income Fund and Asia Growth Fund have not yet
commenced operations. The financial statements and financial highlights for the
other investment portfolios are presented in separate shareholder reports. The
Fund and each other investment portfolio of the Series is offered exclusively
for use with certain variable annuity and variable life insurance contracts
offered through the separate accounts of various life insurance companies and
qualified pension and retirement plans.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on such markets;
securities traded in the over-the-counter market and securities for which no
sales price was reported are valued at the mean of the current bid and asked
prices; debt securities are valued using either prices or estimates of market
values provided by market makers or independent pricing services; securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Fund; (c) securities maturing within 60 days are valued at cost
plus accreted discount, or minus amortized premium, which approximates market
value; (d) dividend income is recorded on the ex-dividend date; (e) interest
income, adjusted for accretion of original issue or market discount, is recorded
on the accrual basis; (f) gains or losses on the sale of securities are
calculated by using the specific identification method; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) the
accounting records are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, and income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are recorded as currency gains or losses (i) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles; (j) the Fund intends to comply with the applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to regulated investment
companies and to make distributions of taxable income sufficient to relieve the
Fund from substantially all Federal income and excise taxes; and (k) estimates
and assumptions are required to be made regarding assets, liabilities and
changes in net assets resulting from operations when financial statements are
prepared. Changes in the economic environment, financial markets and any other
parameters used in determining these estimates could cause actual results to
differ.
Organization costs amounting to $31,250 were incurred with the organization
of the Fund. These costs are being amortized ratably over a five-year period
from commencement of operations.
2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
Salomon Brothers Asset Management Inc ("SBAM"), a wholly owned subsidiary of
Salomon Brothers Holding Company Inc., which, in turn, is wholly owned by
Salomon Smith Barney Holdings, Inc. ("SSBH"), acts as investment manager to the
Fund. Under the investment management agreement, the Fund pays an investment
management fee calculated at the annual rate of 0.85% of its average daily net
assets. This fee is calculated daily and paid monthly.
For the six months ended June 30, 2000, SBAM waived a portion of the management
fees payable by the Fund amounting to $28,692.
S-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)(continued)
SBAM also acts as administrator to the Fund. As compensation for its services
the Fund pays SBAM a fee calculated at an annual rate of 0.05% of its average
daily net assets. This fee is calculated daily and paid monthly. SBAM has
delegated its responsibilities as administrator to SSB Citi Fund Management LLC
("SSBC"), an affiliate of SBAM, pursuant to a Sub-Administration Agreement
between SBAM and SSBC.
CFBDS, Inc. acts as the Fund's distributor. For the six months ended June 30,
2000, Salomon Smith Barney Inc.("SSB"), another subsidiary of SSBH, received
brokerage commissions of $54 from the Fund.
3. INVESTMENTS
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<S> <C>
Purchases ........................................................ $31,174,788
===========
Sales ............................................................ $11,587,530
===========
</TABLE>
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation .................................... $5,682,675
Gross unrealized depreciation .................................... (2,257,321)
----------
Net unrealized appreciation ...................................... $3,425,354
==========
</TABLE>
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the seller at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires maintenance of the
market value of the collateral in amounts at least equal to the repurchase
price.
5. OPTIONS CONTRACTS
The Fund may from time to time enter into options contracts. Premiums paid
when put or call options are purchased by the Fund, represent investments,
which are marked-to-market daily. When a purchased option expires, the Fund
will realize a loss in the amount of the premium paid. When the Fund enters
into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are
greater or less than the premium paid for the option. When the Fund exercises
a put option, it will realize a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the premium
originally paid. When the Fund exercises a call option, the cost of the
security which the Fund purchases upon exercise will be increased by the
premium originally paid.
At June 30, 2000, the Fund had purchased put options with a total cost of
$103,067.
S-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)(continued)
When the Fund writes a call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received, without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised the proceeds of the security sold will
be increased by the premium originally received. When a written put option is
exercised, the amount of the premium originally received will reduce the cost of
the security which the Fund purchased upon exercise. When written index options
are exercised, settlement is made in cash.
The Fund enters into options for hedging purposes. The risk associated with
purchasing options is limited to the premium originally paid. The risk in
writing a covered call option is that the Fund gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option s that the Fund is exposed to
the risk of loss if the market price of the underlying security declines.
The following written put option transactions occurred during the six months
ended June 30, 2000:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- --------
<S> <C> <C>
Options written, outstanding at December 31, 1999 .................................. -- $ 0
Options written during the six months ended June 30, 2000 .......................... 14 55,956
Options canceled in closing purchase transactions .................................. (14) (55,956)
--- -------
Options written, outstanding at June 30, 2000 ...................................... -- $ 0
=== =======
</TABLE>
6. SECURITIES TRADED ON A WHEN ISSUED BASIS
The Fund may from time to time purchase securities on a when-issued basis. In a
when-issued transaction, the Fund commits to purchasing securities which have
not yet been issued by the issuer. Securities purchased on a when-issued basis,
are not settled until they are delivered to the Fund. Beginning on the date the
Fund enters into the when-issued transaction, cash and other liquid securities
are segregated to cover the amount of the purchase price of the when-issued
security. These transactions are subject to market fluctuations and their
current value is determined in the same manner as for other securities.
At June 30, 2000 the Fund did not hold any when-issued securities.
7. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Fund may trade securities on a to-be-announced ("TBA") basis. In a TBA
transaction, the Fund commits to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in Government National Mortgage Association
("GNMA") transactions. Securities purchased on a TBA basis are not settled until
they are delivered to the Fund, normally 15 to 45 days later. Beginning on the
date the Fund enters into a TBA transaction, cash or other liquid securities are
segregated to cover the amount of the TBA transaction. These transactions are
subject to market fluctuations and their current value is determined in the same
manner as for other securities.
At June 30, 2000, the Fund did not hold any TBA securities.
S-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)(continued)
8. LENDING OF SECURITIES
The Fund may lend its securities to brokers, dealers and other financial
organizations. The Fund has an agreement with its custodian whereby the
custodian may lend securities owned by the Fund to brokers, dealers and other
financial organizations. Fees earned by the Fund on securities lending are
recorded in interest income. Loans of securities by the Fund are collateralized
by cash and other liquid securities that are maintained at all times in an
amount at least equal to the current market value of the loaned securities, plus
a margin which may vary depending on the type of securities loaned. The
custodian establishes and maintains the collateral in a segregated account. The
Fund maintains exposure for the risk of any losses in the investment of amounts
received as collateral.
At June 30, 2000 the Fund did not have any securities on loan.
9. CAPITAL STOCK
At June 30, 2000 the Series had 10,000,000,000 shares of capital stock
authorized with a par value of $0.001 per share. Each share represents an equal
proportionate interest and has an equal entitlement to any dividends and
distributions made by the Fund.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
Shares sold .......................................................... 1,444,504 1,068,547
Shares issued on reinvestment of dividends .............................. 31,835 37,504
Shares reacquired .................................................... (137,696) (292,353)
--------- ---------
Net Increase ......................................................... 1,338,643 813,698
========= =========
</TABLE>
S-16
<PAGE>
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year ended December 31,
except where noted:
<TABLE>
<CAPTION>
2000(1) 1999 1998(2)
---------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 13.67 $ 11.57 $ 10.00
---------- ---------- ----------
INCOME FROM OPERATIONS:
Net investment income (3) ...................... 0.04 0.07 0.09
Net realized and unrealized gains .............. 2.21 2.49 1.72
---------- ---------- ----------
Total Income From Operations ................... 2.25 2.56 1.81
---------- ---------- ----------
LESS DISTRIBUTIONS FROM:
Net investment income .......................... (0.07) (0.09)
Net realized gains ............................. (0.23) (0.39) (0.15)
---------- ---------- ----------
Total Distributions ............................ (0.23) (0.46) (0.24)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ................... $ 15.69 $ 13.67 $ 11. 57
========== ========== ==========
TOTAL RETURN (4) ................................. 16.47%++ 22.08% 18.12%++
NET ASSETS, END OF PERIOD (000S) ................. $ 39,598 $ 16,189 $ 4,290
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)(5) ................................ 1.00%+ 1.00% 1.00%+
Net investment income .......................... 0.84%+ 0.99% 1.35%+
PORTFOLIO TURNOVER RATE .......................... 45% 119% 116%
</TABLE>
--------------------------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from February 17, 1998 (commencement of operations)through
December 31, 1998.
(3) SBAM has waived all or a part of its management fees for the six months
ended June 30, 2000, the year ended December 31, 1999 and the period
ended December 31, 1998. In addition, SBAM has reimbursed the Fund for
$13,177 and $33,776 in expenses for the year ended December 31, 1999
and the period ended December 31, 1998, respectively. If such fees were
not waived or expenses not reimbursed, the per share decrease in net
investment income and the actual expense ratio would have been as
follows:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME EXPENSE RATIOS WITHOUT FEE
PER SHARE DECREASES WAIVERS AND REIMBURSEMENT
--------------------- --------------------------
<S> <C> <C>
2000 .......................... $0.01 1.21%+
1999 .......................... 0.06 1.99
1998 .......................... 0.15 3.26+
</TABLE>
(4) Total returns do not reflect expenses associated with the separate
account such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the total returns for all
periods shown. Total returns may also reflect a voluntary expense cap
imposed by Salomon Brothers Asset Management Inc to limit total Fund
operating expenses. Absent this expense cap, total returns for the Fund
would be lower. Expense caps may be revised or terminated.
(5) As a result of a voluntary expense limitation, expense ratios will not
exceed 1.00%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
S-17
<PAGE>
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
<TABLE>
<S> <C>
INVESTMENT MANAGER OFFICERS
Salomon Brothers Asset Management Inc HEATH B. MCLENDON
7 World Trade Center CHAIRMAN AND PRESIDENT
New York, New York 10048 LEWIS E. DAIDONE
EXECUTIVE VICE PRESIDENT AND TREASURER
CUSTODIAN ROSS S. MARGOLIES
PFPC Trust Company EXECUTIVE VICE PRESIDENT
17th and Chestnut Streets BETH A. SEMMEL
Philadelphia, Pennsylvania 19103 VICE PRESIDENT
PETER J. WILBY
LEGAL COUNSEL EXECUTIVE VICE PRESIDENT
Simpson Thacher & Bartlett GEORGE J. WILLIAMSON
425 Lexington Avenue EXECUTIVE VICE PRESIDENT
New York, New York 10017 JOHN B. CUNNINGHAM
VICE PRESIDENT
INDEPENDENT ACCOUNTANTS ANTHONY PACE
PricewaterhouseCoopers LLC CONTROLLER
1177 Avenue of the Americas CHRISTINA T. SYDOR
New York, New York 10036 SECRETARY
</TABLE>
DIRECTORS
CHARLES F. BARBER
Consultant; formerly Chairman; ASARCO Incorporated
CAROL L. COLMAN
Consultant, Colman Consulting
DANIEL P. CRONIN
Vice President-General Counsel,
Pfizer International Inc.
HEATH B. MCLENDON
Chairman and President;
Managing Director, Salomon Smith Barney Inc.
President and Director, SSB Citi Fund Management LLC
and Travelers Investment Advisers, Inc.
<PAGE>
SALOMON BROTHERS S E M I -
A N N U A L
VARIABLE SERIES FUNDS INC R E P O R T
2 0 0 0
JUNE 30, 2000
- HIGH YIELD BOND FUND
[GRAPHIC]
<PAGE>
[GRAPHIC]
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
OUR MESSAGE TO YOU
DEAR SHAREHOLDER:
We are pleased to provide you with the semi-annual report for the Salomon
Brothers Variable High Yield Bond Fund ("Fund") for the period ended June 30,
2000. This letter will briefly discuss general economic and market conditions
as well as Fund developments during the reporting period.(1) A detailed
summary of performance and current Fund holdings can be found in the
appropriate sections that follow. We hope you find this report useful and
informative.
INVESTMENT STRATEGY AND PORTFOLIO UPDATE
The Fund's primary objective is to maximize current income, with capital
appreciation as a secondary objective. The Fund seeks to achieve its
objectives by investing primarily in a diversified portfolio of high-yield
fixed-income securities rated in the medium or lower rating categories or
those securities determined by the manager to be of comparable quality. For
the six months ended June 30, 2000, the Fund returned a negative 0.54% versus
a negative 1.42% return for the Salomon Smith Barney High Yield Market
Index(2) over the same period.
MARKET OVERVIEW
For the six months ended June 30, 2000, the high-yield bond market returned
negative 1.42% as reported by the Salomon Smith Barney High Yield Market Index.
Interest rate and inflation concerns were serious issues for the high-yield bond
market throughout the period.
As the Federal Reserve Board ("Fed") hiked interest rates by 25 basis
points(3) in February and the tech-laden Nasdaq Composite Index(4) turned in a
relatively strong performance early in calendar year 2000, a string of mutual
fund outflows ensued as investors fled the interest rate-sensitive bond
markets for the strong stock markets. As the U.S. stock markets became more
volatile in March and April and the Fed announced a 50 basis point interest
rate increase with a tightening bias on May 16, 2000, mutual fund outflows
intensified as investors focused on the potential for further interest rate
increases. Investors also increasingly considered the possibility of a
cyclical downturn in the near term, which would exacerbate already high
default rates.
-------------------------
(1)THE INFORMATION PROVIDED REPRESENTS THE OPINION OF THE MANAGER AND IS NOT
INTENDED TO BE A FORECAST OF FUTURE RESULTS. FURTHER, THERE IS NO ASSURANCE
THAT CERTAIN SECURITIES WILL REMAIN IN OR OUT OF THE PORTFOLIO.
(2)THE SALOMON SMITH BARNEY HIGH YIELD MARKET INDEX COVERS A SIGNIFICANT PORTION
OF THE BELOW-INVESTMENT-GRADE U.S. CORPORATE BOND MARKET. AN INVESTOR CANNOT
INVEST DIRECTLY IN AN INDEX.
(3)A BASIS POINT IS 0.01% OR ONE ONE-HUNDREDTH OF A PERCENT.
(4)THE NASDAQ COMPOSITE INDEX IS A MARKET VALUE-WEIGHTED INDEX THAT MEASURES ALL
DOMESTIC AND NON-U.S. BASED SECURITIES LISTED ON THE NASDAQ STOCK MARKET. AN
INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
S-18
<PAGE>
As a result, mutual fund outflows for the period totaled about $5.9 billion. In
June, however, benign economic data and a more passive Fed mitigated interest
rate concerns while the high absolute yields available in the high-yield bond
market attracted investors from the volatile equity markets. As a result, the
high-yield bond market saw in June its first month of positive mutual fund flows
in 2000 and returned 2.25% for the month, according to the Salomon Smith Barney
High Yield Market Index.
For the six months ended June 30, 2000, the top performing sectors in the
high-yield market included telecommunications, energy, technology, utilities and
gaming. Telecommunications performance was driven by explosive industry growth,
continued mergers and acquisitions and stock investment activity. High product
prices supported positive performance in energy. Technology's performance
benefited from good fourth quarter 1999 results and the popularity of the sector
in the stock markets early in the period. Utilities and gaming, which are
generally composed of higher rated issuers, benefited from investors' preference
for higher-quality issues.
The most significant underperforming sectors consisted of automotive,
steel/metals, capital goods, leisure/lodging, supermarkets/drugstores and
services/other. Automotive was adversely affected by weakness in the parts
aftermarket. Steel/metal's performance was hurt by product price weakness.
Additionally, automotive, steel/metals and capital goods were negatively
impacted by increased cyclical concerns. Leisure/lodging was adversely affected
by operating difficulties at several issuers resulting from overcapacity in the
theatre operator sector. Supermarkets/drugstores performance was adversely
affected by difficulties at Rite Aid and Pathmark.
In terms of credit quality, BB issues outperformed B issues, which in turn
outperformed CCC issues as investors continued to favor the greater liquidity
and higher credit quality offered by BB issues. BB, B and CCC issues returned
0.28%, negative 2.01% and negative 3.92%, respectively.
The Fund benefited from overweightings in energy and gaming. It was also helped
by an underweighting in supermarkets/drugstores. Performance was hurt, however,
by overweightings in steel/metals and capital goods and under-weightings in
telecommunications, technology and utilities. During the course of the period,
the Fund responded to market conditions by increasing its positions in energy
and gaming and reducing its positions in steel/metals and leisure/lodging.
S-19
<PAGE>
On June 30, 2000, the high-yield bond market, as measured by the Salomon Smith
Barney High Yield Market Index, yielded 12.52%, up from 11.41% at year-end 1999.
The excess yield over Treasuries was 6.40%, up from 5.00% at 1999 year-end. We
believe that these levels represent attractive long-term value. (Please note
that pastperformance is not indicative of future results. Additionally, index
returns are not representative of the Fund's yield.)
Going forward, we expect the high-yield market to continue to experience
volatility over the course of the year primarily as a result of several
technical factors, including:
- mutual fund flows;
- decreased Collateralized Bond Obligations ("CBO") demand;
- reduced secondary market liquidity; and
- continuing cyclical concerns.
In light of these conditions, we are pursuing a conservative investment strategy
geared to overweighting BB credits and aggressively pursuing selective
opportunities in undervalued B and CCC credits.
Thank you for your investment in the Salomon Brothers Variable High Yield Bond
Fund. We look forward to helping you pursue your financial goals in the new
century.
Cordially,
/s/ Heath B. McLendon /s/ Peter J. Wilby
Heath B. McLendon Peter J. Wilby
Chairman and President Executive Vice President
JULY 15, 2000
S-20
<PAGE>
THE FOLLOWING GRAPH DEPICTS THE PERFORMANCE OF THE HIGH YIELD BOND FUND VERSUS
THE SALOMON SMITH BARNEY HIGH YIELD MARKET INDEX. IT IS IMPORTANT TO NOTE THAT
THE FUND IS A PROFESSIONALLY MANAGED MUTUAL FUND WHILE THE INDEX IS NOT
AVAILABLE FOR INVESTMENT AND IS UNMANAGED. THE COMPARISON IS SHOWN FOR
ILLUSTRATIVE PURPOSES ONLY.
-------------------------------------------------------------------------------
HISTORICAL PERFORMANCE (UNAUDITED)
SALOMON BROTHERS VARIABLE HIGH YIELD BOND FUND
COMPARISON OF $10,000 INVESTMENT IN THE FUND WITH
SALOMON SMITH BARNEY HIGH YIELD MARKET INDEX
-------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND SALOMON SMITH BARNEY HIGH YIELD MARKET INDEX
-------------------- --------------------------------------------
<S> <C> <C>
5/1/98 $10,000 $10,509
6/30/00 $10,000 $9,637
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE GRAPH DOES NOT
REFLECT EXPENSES ASSOCIATED WITH THE SEPARATE ACCOUNT SUCH AS ADMINISTRATIVE
FEES, ACCOUNT CHARGES AND SURRENDER CHARGES WHICH, IF REFLECTED, WOULD REDUCE
THE PERFORMANCE SHOWN.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
-----------------------
BEGINNING END INCOME CAPITAL GAIN RETURN TOTAL
PERIOD ENDED OF PERIOD OF PERIOD DIVIDEND DISTRIBUTION OF CAPITAL RETURNS+
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6/30/00 $9.22 $9.17 $0.00 $0.00 $0.00 (0.54)%++
12/31/99 9.58 9.22 0.88 0.00 0.01 5.56
Inception*-- 12/31/98 10.00 9.58 0.43 0.00 0.00 0.14++
-----------------------------------------------------------------------------------------------------------------------------
$1.31 $0.00 $0.01
-----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS+
-----------------------------------------------------------------------------------------------------------------------------
Six Months Ended 6/30/00++ (0.54)%
Year Ended 6/30/00 1.66
Inception* through 6/30/00 2.32
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN+
-----------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/00 5.09%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS AT
NET ASSET VALUE. TOTAL RETURNS DO NOT REFLECT EXPENSES ASSOCIATED WITH THE
SEPARATE ACCOUNT SUCH AS ADMINISTRATIVE FEES, ACCOUNT CHARGES AND SURRENDER
CHARGES WHICH, IF REFLECTED, WOULD REDUCE THE TOTAL RETURNS FOR ALL PERIODS
SHOWN. TOTAL RETURNS MAY ALSO REFLECT A VOLUNTARY EXPENSE CAP IMPOSED BY
SALOMON BROTHERS ASSET MANAGEMENT INC TO LIMIT TOTAL FUND OPERATING EXPENSES.
ABSENT THIS EXPENSE CAP, TOTAL RETURNS FOR THE FUND WOULD BE LOWER. EXPENSE
CAPS MAY BE REVISED OR TERMINATED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
* INCEPTION DATE IS MAY 1, 1998.
S-21
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS -- 63.7%
BASIC INDUSTRIES -- 5.2%
$ 40,000 AK Steel Corp., Company Guaranteed, 7.875% due 2/15/09 .......................................... $ 35,700
125,000 Glencore Nickel Property Ltd., Company Guaranteed, 9.000% due 12/1/14 ........................... 104,375
125,000 Lyondell Chemical Co., Series B, Secured Notes, 9.875% due 5/1/07 ............................... 123,750
50,000 Owens-Illinois Inc., Debentures, 7.500% due 5/15/10 ............................................. 42,938
25,000 P&L Coal Holdings Corp., Series B, Sr. Sub. Notes, 9.625% due 5/15/08 ........................... 23,313
25,000 Radnor Holdings Inc., Sr. Notes, 10.000% due 12/1/03 ............................................ 22,500
50,000 Tembec Industries Inc., Company Guaranteed, 8.625% due 6/30/09 ................................. 48,250
50,000 ZSC Specialty Chemicals PLC, Company Guaranteed., 11.000% due 7/1/09 ........................... 49,250
----------
450,076
----------
CONSUMER CYCLICALS -- 3.9%
25,000 Cole National Group, Inc., Sr. Sub. Notes, 8.625% due 8/15/07 ................................... 16,625
125,000 HMH Properties Inc., Series B, Sr. Notes, 7.875% due 8/1/08 ..................................... 112,813
125,000 Leslie's Poolmart, Sr. Notes, 10.375% due 7/15/04 ............................................... 93,750
25,000 Levi Strauss & Co., 7.000% due 11/1/06 .......................................................... 19,125
75,000 Pillowtex Corp., Series B, Sr. Sub. Notes, 9.000% due 12/15/07 .................................. 26,250
50,000 Tenet Healthcare Corp., Sr. Notes, 8.000% due 1/15/05 .......................................... 48,250
50,000 Vlasic Foods International Inc., Series B, Sr. Sub. Notes, 10.250% due 7/1/09 ................... 17,750
----------
334,563
----------
CONSUMER NON-CYCLICALS -- 11.7%
50,000 American Safety Razor Corp., Series B, Sr. Notes, 9.875% due 8/1/05 ............................. 48,250
50,000 Columbia Healthcare Co., 6.910% due 6/15/05 ..................................................... 45,750
125,000 Delta Beverage Group, Sr. Notes, 9.750% due 12/15/03 ............................................ 118,594
50,000 Derby Cycle Corp., Sr. Notes, 10.000% due 5/15/08 ............................................... 20,250
50,000 French Fragrance Inc., Series D, Company Guaranteed, 10.375% due 5/15/07 ........................ 47,250
50,000 Fresenius Medical Care Capital Trust II, Company Guaranteed, 7.875% due 2/1/08 .................. 44,625
50,000 Harrah's Operating Co., Inc., Company Guaranteed, 7.875% due 12/15/05 ........................... 47,125
50,000 Home Interiors & Gifts Inc., Company Guaranteed, 10.125% due 6/1/08 ............................. 28,750
125,000 Horseshoe Gaming LLC, Series B, Sr. Sub. Notes, 9.375% due 6/15/07 ............................. 123,750
125,000 Imperial Holly Corp., Sr. Sub. Notes, 9.750% due 12/15/07 ...................................... 24,531
50,000 MGM Grand Inc., Company Guaranteed, 9.750% due 6/1/07 ........................................... 51,125
50,000 Mohegan Tribal Gaming, Sr. Sub. Notes, 8.750% due 1/1/09 ........................................ 47,750
50,000 North Atlantic Trading Co., Series B, Company Guaranteed, 11.000% due 6/15/04 ................... 45,375
125,000 Park Place Entertainment Corp., Sr. Sub. Notes, 7.875% due 12/15/05 ............................. 117,813
Revlon Consumer Products Corp.:
25,000 Sr. Notes, 9.000% due 11/1/06 ................................................................ 18,125
10,000 Sr. Sub. Notes, 8.625% due 2/1/08 ............................................................. 5,100
50,000 Station Casinos Inc., Sr. Sub. Notes, 9.875% due 7/1/10 (a) .................................... 50,375
90,000 Sun International Hotels Ltd., Sub. Debentures, 9.000% due 3/15/07 .............................. 83,700
50,000 WestPoint Stevens, Inc., Sr. Notes, 7.875% due 6/15/05 ......................................... 42,000
----------
1,010,238
----------
ENERGY -- 5.7%
50,000 Belco Oil & Gas Corp., Series B, Sr. Sub. Notes, 8.875% due 9/15/07 ............................. 46,500
100,000 Canadian Forest Oil Ltd., Sr. Sub. Notes, 8.750% due 9/15/07 ................................... 94,500
100,000 Clark R&M Inc., Sr. Sub. Notes, 8.875% due 11/15/07 ............................................. 64,500
50,000 Gulf Canada Resources Ltd., Sub. Debentures, 9.625% due 7/1/05 ................................. 51,125
50,000 Key Energy Services Inc., Series B, Sr. Sub. Notes, 14.000% due 1/15/09 ......................... 56,500
50,000 Ocean Energy Inc., Series B, Sr. Sub Notes, 8.875% due 7/15/07 .................................. 50,000
25,000 Pioneer Natural Resources N.L., Company Guaranteed, 9.625% due 4/1/10 ........................... 25,844
50,000 Plains Resources Inc., Company Guaranteed, 10.250% due 3/15/06 (a) .............................. 50,625
50,000 Vintage Petroleum, Inc., Sr. Sub. Notes, 9.750% due 6/30/09 ..................................... 51,125
----------
490,719
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-22
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES -- 1.9%
$123,463 Airplanes Pass Through Trust, Class D, Company Guaranteed, 10.875% due 3/15/19 .................. $ 100,300
ContiFinancial Corp., Sr. Notes:
50,000 7.500% due 3/15/02 (b) ........................................................................ 6,250
75,000 8.125% due 4/1/08 (b) ......................................................................... 9,375
50,000 Forest City Enterprises, Sr. Notes, 8.500% due 3/15/08 .......................................... 45,500
----------
161,425
----------
HOUSING RELATED -- 1.4%
125,000 American Standard Inc., Company Guaranteed, 7.375% due 4/15/05 .................................. 117,656
----------
MANUFACTURING-- 9.6%
50,000 Anchor Advanced Products, Inc., Sr. Notes, 11.750% due 4/1/04 .................................. 33,750
100,000 Breed Technologies, Inc., Sr. Sub. Notes, 9.250% due 4/15/08 (b)(c) ............................. 1,125
250,000 Federal-Mogul Corp., Company Guaranteed, 7.500% due 1/15/09 .................................... 171,563
50,000 Hexcel Corp., Sr. Sub. Notes, 9.750% due 1/15/09 ................................................ 44,750
75,000 High Voltage Engineering Corp., Sr. Notes, 10.500% due 8/15/04 ................................. 52,125
125,000 Hines Horticulture Inc., Series B, Sr. Sub. Notes, 11.750% due 10/15/05 ......................... 125,625
125,000 Indesco International Inc., Sr. Sub. Notes, 9.750% due 4/15/08 .................................. 46,875
50,000 Jordan Industries, Inc., Series D, Sr. Notes, 10.375% due 8/1/07 ................................ 46,000
125,000 Motors & Gears, Inc., Series D, Sr. Notes, 10.750% due 11/15/06 ................................ 120,938
50,000 Polymer Group, Inc., Series B, Sr. Sub. Notes, 8.750% due 3/1/08 ............................... 41,750
125,000 Sequa Corp., Sr. Notes, 9.000% due 8/1/09 ....................................................... 120,625
25,000 Tenneco Automotive Inc., Series B, Company Guaranteed, 11.625% due 10/15/09 ..................... 22,375
----------
827,501
----------
MEDIA & TELECOMMUNICATIONS -- 17.0%
50,000 Adelphia Communications Corp., Series B, Sr. Notes, 9.875% due 3/1/07 .......................... 48,000
20,000 Centennial Cellular Operations Co., Sr. Sub. Notes, 10.750% due 12/15/08 ....................... 19,525
75,000 Century Communications Corp., Series B, Sr. Discount Notes, zero coupon due 1/15/08 ............ 31,125
100,000 Charter Communications Holdings LLC., Sr. Notes, 8.625% due 4/1/09 ............................. 88,375
125,000 CSC Holdings Inc., Sr. Debentures, 7.625% due 7/15/18 .......................................... 112,344
50,000 Global Crossing Holding Ltd., Company Guaranteed, 9.125% due 11/15/06 .......................... 48,125
125,000 Hollinger International Publishing, Sr. Sub. Notes, 9.250% due 2/1/06 ........................... 123,906
50,000 ICG Holdings Inc., Company Guaranteed, 12.500% due 5/1/06 ....................................... 41,625
50,000 Intermedia Communications Inc., Series B, Sr. Notes, 8.600% due 6/1/08 ......................... 46,500
50,000 Level 3 Communications Inc., Sr. Notes, 9.125% due 5/1/08 ....................................... 45,125
200,000 Nextel Communications, Inc., Sr. Serial Redeemable Discount Notes, zero coupon until 2/15/03,
9.950% thereafter, due 2/15/08 ............................................................... 147,500
50,000 NEXTLINK Communications, Inc., Sr. Notes, 10.750% due 6/1/09 .................................... 49,500
150,000 NTL Inc., Series B, Sr. Notes, zero coupon until 4/1/03, 9.750% thereafter, due 4/1/08 .......... 94,125
15,000 PSINet Inc., Sr. Notes, 11.000% due 8/1/09 ...................................................... 13,950
50,000 Price Communications Wireless, Inc., Series B, Company Guaranteed, 9.125% due 12/15/06 .......... 50,750
50,000 Rogers Cantel, Inc., Debentures, 9.375% due 6/1/08 .............................................. 51,750
125,000 Rogers Communications Inc., Sr. Notes, 8.875% due 7/15/07 ....................................... 123,125
125,000 Telewest Communication PLC, Sr. Discount Notes, zero coupon until 4/15/04, 9.250% thereafter,
due 4/15/09 ................................................................................... 67,813
200,000 United International Holdings Inc., Series B, Sr. Secured Discount Notes, zero coupon
until 2/15/03, 10.750% thereafter, due 2/15/08 ................................................ 141,000
125,000 World Color Press Inc., Sr. Sub. Notes, 8.375% due 11/15/08 ..................................... 120,937
----------
1,465,100
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-23
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES/OTHER -- 3.7%
$ 50,000 Allied Waste Industries North America Inc., Sr. Sub. Notes, 10.000% due 8/1/09 ................. $ 42,000
25,000 Aqua Chemical Inc., Sr. Sub. Notes, 11.250% due 7/1/08 ........................................ 14,187
125,000 Avis Rent A Car, Inc., Sr. Sub. Notes, 11.000% due 5/1/09 ...................................... 130,938
25,000 Crown Castle International Corp., Sr. Notes, 10.750% due 8/1/11 ................................ 25,469
50,000 Insight Midwest, Sr. Notes, 9.750% due 10/1/09 ................................................. 49,250
50,000 Iron Mountain Inc., Sr. Sub. Notes, 8.750% due 9/30/09 ......................................... 46,250
125,000 Safety-Kleen Corp., Sr. Sub. Notes, 9.250% due 6/1/08 ......................................... 10,625
-----------
318,719
-----------
TECHNOLOGY -- 0.6%
50,000 Polaroid Corp., Sr. Notes, 11.500% due 2/15/06 ................................................. 52,250
-----------
TRANSPORTATION -- 1.9%
125,000 Enterprise Shipholding Inc., Sr. Notes, 8.875% due 5/1/08 ...................................... 70,625
50,000 Northwest Airlines Inc., Company Guaranteed, 7.625% due 3/15/05. ............................... 44,250
50,000 Stena AB, Sr. Notes, 8.750% due 6/15/07 ........................................................ 43,875
-----------
158,750
-----------
UTILITIES -- 1.1%
50,000 Azurix Corp., Sr. Notes, 10.750% due 2/15/10 (a) ............................................... 48,375
50,000 Calpine Corp., Sr. Notes, 7.750% due 4/15/09 ................................................... 47,375
-----------
95,750
-----------
TOTAL CORPORATE BONDS
(Cost-- $6,475,914) ............................................................................ 5,482,747
-----------
SOVEREIGN BONDS -- 26.9%
ARGENTINA -- 4.7%
Republic of Argentina:
125,000 11.750% due 4/7/09 .......................................................................... 116,469
35,000 11.375% due 3/15/10 .......................................................................... 31,937
149,000 11.750% due 6/15/15 .......................................................................... 135,217
85,000 12.125% due 2/25/19 .......................................................................... 80,325
40,000 12.000% due 2/1/20 .......................................................................... 36,700
-----------
400,648
-----------
BRAZIL -- 5.6%
Federal Republic of Brazil:
176,000 14.500% due 10/15/09 ........................................................................ 186,428
30,000 12.250% due 3/6/30 .......................................................................... 27,450
54,182 C Bonds, 8.000% due 4/15/14 .................................................................. 39,316
140,000 DCB, Series L, 7.000% due 4/15/12 (d) ........................................................ 103,425
85,000 Discount Bonds, Series Z-L, 6.937% due 4/15/24 (d) .......................................... 67,256
75,000 FLIRB, 7.375% due 4/15/09 (d) ............................................................... 58,125
-----------
482,000
-----------
BULGARIA -- 1.1%
125,000 Republic of Bulgaria, Discount Bonds, Series A, 7.0625% due 7/28/24 (d) ........................ 98,750
-----------
COLUMBIA -- 1.1%
Republic of Columbia:
95,000 9.750% due 4/23/09 .......................................................................... 74,812
15,000 8.375% due 2/15/27 .......................................................................... 9,562
20,000 FRN, 8.700% due 2/15/16 (d) .................................................................. 13,100
-----------
97,474
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-24
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CROATIA-- 0.5%
$ 42,955 Republic of Croatia, FRB, Series A, 7.0625% due 7/31/10 (d) .................................. $ 39,303
------------
ECUADOR -- 0.4%
110,000 Republic of Ecuador, Par Bonds, due 2/28/25 (b) .............................................. 37,400
------------
IVORY COAST -- 0.2%
125,000 Republic of Ivory Coast, FLIRB, due 3/29/18 (b) .............................................. 20,000
------------
MEXICO -- 2.7%
200,000 United Mexican States, 11.375% due 9/15/16 ................................................... 229,200
------------
PANAMA -- 1.5%
Republic of Panama:
75,000 8.875% due 9/30/27 ........................................................................ 63,281
83,167 PDI Bonds, 7.0625% due 7/17/16 (d)(e) ...................................................... 68,717
------------
131,998
------------
PERU -- 0.5%
75,000 Republic of Peru, FLIRB 3.750% due 3/7/17 (d) ................................................ 45,422
------------
PHILLIPINES -- 0.6%
60,000 Republic of the Philippines, 9.875% due 1/15/19 .............................................. 49,200
------------
POLAND -- 0.4%
50,000 Republic of Poland, RSTA Bonds, 4.000% due 10/27/24 (d) ...................................... 30,094
------------
RUSSIA -- 3.8%
Russian Government:
30,000 11.750% due 6/10/03 ......................................................................... 27,881
160,000 12.750% due 6/24/28 ......................................................................... 139,000
525,000 IAN due 12/15/15 (b)(c) ..................................................................... 163,078
------------
329,959
------------
VENEZUELA -- 3.8%
Republic of Venezuela:
125,000 13.625% due 8/15/18 ......................................................................... 116,250
115,000 9.250% due 9/15/27 ......................................................................... 75,871
166,665 FLIRB Series A, 7.4375% due 3/31/07 (d) ..................................................... 136,665
------------
328,786
------------
TOTAL SOVEREIGN BONDS
(Cost-- $2,172,300) ......................................................................... 2,320,234
------------
LOAN PARTICIPATIONS -- 2.8%
ALGERIA -- 1.2%
125,000 The People's Democratic Republic of Algeria, Tranche 1, 7.875% due 9/4/06
(Chase Manhattan) (d)(f) .................................................................. 102,969
------------
MOROCCO -- 1.0%
90,000 Kingdom of Morocco, Tranche A, 7.750% due 1/1/09 (Chase Manhattan) (b)(c)(f) ................ 81,000
------------
RUSSIA -- 0.6%
175,000 Russian Government, Principal Loan due 12/15/20 (J.P. Morgan) (b)(c) ........................ 53,812
------------
TOTAL LOAN PARTICIPATIONS
(Cost-- $171,107) ............................................................................ 237,781
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-25
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
SHARE SECURITY VALUE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (c) -- 0.0%
TCR Holding Corp.:
219 Class B Shares .............................................................................. $ 2
121 Class C Shares .............................................................................. 1
318 Class D Shares .............................................................................. 3
658 Class E Shares .............................................................................. 7
----------
TOTAL PREFERRED STOCK
(Cost -- $78) ................................................................................. 13
----------
FACE
AMOUNT
--------
REPURCHASE AGREEMENT -- 6.6%
$571,000 SBC Warburg Dillon Read Inc., 6.550% due 7/3/00; Proceeds at maturity -- $571,312;
(Fully collateralized by U.S. Treasury Bonds, 5.500% due 8/15/28;
Market value -- $582,964) (Cost -- $571,000) ............................................... 571,000
----------
TOTAL INVESTMENTS -- 100%
(Cost -- $9,390,399*) ......................................................................... $8,611,775
==========
</TABLE>
-------------------
(a) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(b) Security is currently in default.
(c) Non-income producing securities.
(d) Rate shown reflects rate in effect at June 30, 2000 on instrument with
variable rates or step coupon rates.
(e) Payment-in-kind security for which all or part of the interest earned is
capitalized as additional principal.
(f) Participation interests were acquired through the financial institutions
indicated parenthetically.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
------------------------------------
DCB -- Debt Conversion Bonds.
FLIRB -- Front-Loaded Interest Reduction Bonds.
FRB -- Floating Rate Bonds.
FRN -- Floating Rate Notes.
IAN -- Interest Arrears Notes.
PDI -- Past-Due Interest.
RSTA -- Revolving Short Term Agreement.
SEE NOTES TO FINANCIAL STATEMENTS.
S-26
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (unaudited)
<S> <C>
ASSETS:
Investments, at value (Cost -- $9,390,399) .......................... $ 8,611,775
Cash ................................................................ 239
Interest receivable ................................................. 228,494
-----------
TOTAL ASSETS ........................................................ 8,840,508
-----------
LIABILITIES:
Payable for securities purchased .................................... 49,803
Administration fees payable ......................................... 351
Advisory fees payable ............................................... 1,272
Accrued expenses .................................................... 24,961
-----------
TOTAL LIABILITIES ................................................... 76,387
-----------
TOTAL NET ASSETS ...................................................... $ 8,764,121
===========
NET ASSETS:
Par value of capital shares.......................................... $ 955
Capital paid in excess of par value ................................. 9,431,678
Undistributed net investment income ................................. 387,370
Accumulated net realized loss from security transactions............. (277,258)
Net unrealized depreciation of investments .......................... (778,624)
-----------
TOTAL NET ASSETS ...................................................... $ 8,764,121
===========
SHARES OUTSTANDING .................................................... 955,288
-----------
NET ASSET VALUE, PER SHARE ............................................ $9.17
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-27
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000 (unaudited)
<S> <C>
INVESTMENT INCOME:
Interest.......................................................................... $ 427,777
---------
EXPENSES:
Management fees (Note 2) ......................................................... 30,305
Audit and legal .................................................................. 10,938
Shareholder communications ....................................................... 9,601
Shareholder and system servicing fees ............................................ 6,401
Directors' fees .................................................................. 2,366
Administration fees (Note 2) ..................................................... 2,020
Custody........................................................................... 1,192
Registration fees ................................................................ 994
Other............................................................................. 1,728
---------
TOTAL EXPENSES ................................................................... 65,545
Less: Management fee waiver (Note 2) ............................................. (25,138)
---------
NET EXPENSES ..................................................................... 40,407
---------
NET INVESTMENT INCOME .............................................................. 387,370
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND OPTIONS (NOTES 3 AND 6):
Net Realized Gain (Loss) From:
Security transactions (excluding short-term securities)......................... 31,700
Options purchased .............................................................. (20,856)
---------
NET REALIZED GAIN ................................................................ 10,844
---------
Increase in Net Unrealized Depreciation of Investments:
Beginning of period ............................................................ (339,440)
End of period .................................................................. (778,624)
---------
INCREASE IN NET UNREALIZED DEPRECIATION .......................................... (439,184)
---------
NET LOSS ON INVESTMENTS AND OPTIONS ................................................ (428,340)
---------
DECREASE IN NET ASSETS FROM OPERATIONS ............................................. $ (40,970)
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-28
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
OPERATIONS: 2000 1999
------------ -----------
<S> <C> <C>
Net investment income .............................................. $ 387,370 $ 703,830
Net realized gain (loss) ........................................... 10,844 (227,303)
Increase in net unrealized depreciation ............................ (439,184) (63,876)
------------ -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .................. (40,970) 412,651
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................................. -- (703,830)
Capital ............................................................ -- (6,198)
------------ -----------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS .......... -- (710,028)
------------ -----------
FUND SHARE TRANSACTIONS (NOTE 12):
Net proceeds from sale of shares ................................... 3,083,944 4,847,107
Net asset value of shares issued for reinvestment of dividends ..... -- 572,293
Cost of shares reacquired .......................................... (2,218,753) (4,131,224)
------------ -----------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS ................ 865,191 1,288,176
------------ -----------
INCREASE IN NET ASSETS ............................................... 824,221 990,799
NET ASSETS:
Beginning of period ................................................ 7,939,900 6,949,101
------------ -----------
END OF PERIOD* ..................................................... $ 8,764,121 $ 7,939,900
============ ===========
----------------------
* Includes undistributed net investment income of: ................... $ 387,370 --
============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers Variable High Yield Bond Fund ("Fund") is a separate
diversified investment portfolio of the Salomon Brothers Variable Series Funds
Inc ("Series") whose primary investment objective is to maximize current income
and secondarily to seek capital appreciation. The Series, a Maryland
corporation, is registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company and consists of this
Fund and seven other investment portfolios: Salomon Brothers Variable Capital
Fund, Salomon Brothers Variable Small Cap Growth Fund, Salomon Brothers Variable
Total Return Fund, Salomon Brothers Variable Investors Fund, Salomon Brothers
Variable Strategic Bond Fund, Salomon Brothers Variable U.S. Government Income
Fund and Salomon Brothers Variable Asia Growth Fund. The U.S. Government Income
Fund and Asia Growth Fund have not yet commenced operations. The financial
statements and financial highlights for the other investment portfolios are
presented in separate shareholder reports. The Fund and each other investment
portfolio of the Series is offered exclusively for use with certain variable
annuity and variable life insurance contracts offered through the separate
accounts of various life insurance companies and qualified pension and
retirement plans.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on such markets;
securities traded in the over-the-counter market and securities for which no
sales price was reported are valued at the mean of the current bid and asked
prices; debt securities are valued using either prices or estimates of market
values provided by market makers or independent pricing services; securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Fund; (c) securities maturing within 60 days are valued at cost
plus accreted discount, or minus amortized premium, which approximates market
value; (d) dividend income is recorded on the ex-dividend date; (e) interest
income, adjusted for accretion of original issue or market discount, is recorded
on the accrual basis; (f) gains or losses on the sale of securities are
calculated by using the specific identification method; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) the
accounting records are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, and income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are recorded as currency gains or losses; (i) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles; (j) the Fund intends to comply with the applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to regulated investment
companies and to make distributions of taxable income sufficient to relieve the
Fund from substantially all Federal income and excise taxes; and (k) estimates
and assumptions are required to be made regarding assets, liabilities and
changes in net assets resulting from operations when financial statements are
prepared. Changes in the economic environment, financial markets and any other
parameters used in determining these estimates could cause actual results to
differ.
2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
Salomon Brothers Asset Management Inc ("SBAM"), a wholly owned subsidiary of
Salomon Brothers Holding Company Inc., which, in turn, is wholly owned by
Salomon Smith Barney Holdings, Inc. ("SSBH"), acts as investment manager to the
Fund. Under the investment management agreement, the Fund pays an investment
management fee calculated at the annual rate of 0.75% of its average daily net
assets. This fee is calculated daily and paid monthly.
For the six months ended June 30, 2000, SBAM waived a portion of the management
fees amounting to $25,138.
S-30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
SBAM also acts as administrator to the Fund. As compensation for its services
the Fund pays SBAM a fee calculated at an annual rate of 0.05% of its average
daily net assets. This fee is calculated daily and paid monthly. SBAM has
delegated its responsibilities as administrator to SSB Citi Fund Management LLC
("SSBC"), an affiliate of SBAM, pursuant to a Sub-Administration Agreement
between SBAM and SSBC.
CFBDS, Inc. acts as the Fund's distributor. For the six months ended June 30,
2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary of SSBH, received no
brokerage commissions from the Fund.
3. INVESTMENTS
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<S> <C>
Purchases....................................................... $3,907,307
==========
Sales........................................................... $2,805,926
==========
</TABLE>
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation .................................. $ 306,248
Gross unrealized depreciation .................................. (1,084,872)
----------
Net unrealized depreciation .................................... $ (778,624)
==========
</TABLE>
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the seller at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires maintenance of the
market value of the collateral in amounts at least equal to the repurchase
price.
5. REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. A reverse repurchase
agreement involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase the same securities at an agreed upon price
and date. A reverse repurchase agreement involves risk that the market value of
the securities sold by the Fund may decline below the repurchase price of the
securities. The Fund will establish a segregated account with its custodian, in
which the Fund will maintain cash or other liquid securities with respect to the
reverse repurchase agreements.
During the six months ended June 30, 2000, the Fund did not enter into any
reverse repurchase agreements.
S-31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
6. OPTIONS CONTRACTS
The Fund may from time to time enter into options contracts. Premiums paid
when put or call options are purchased by the Fund, represent investments,
which are marked-to-market daily. When a purchased option expires, the Fund
will realize a loss in the amount of the premium paid. When the Fund enters
into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are
greater or less than the premium paid for the option. When the Fund exercises
a put option, it will realize a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the premium
originally paid. When the Fund exercises a call option, the cost of the
security which the Fund purchases upon exercise will be increased by the
premium originally paid.
At June 30, 2000, the Fund did not hold any purchased call or put options.
When the Fund writes a call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received, without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised the proceeds of the security sold will
be increased by the premium originally received. When a written put option is
exercised, the amount of the premium originally received will reduce the cost of
the security which the Fund purchased upon exercise. When written index options
are exercised, settlement is made in cash.
The Fund enters into options for hedging purposes. The risk associated with
purchasing options is limited to the premium originally paid. The risk in
writing a covered call option is that the Fund gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Fund is exposed to
the risk of loss if the market price of the underlying security declines.
During the six months ended June 30, 2000, the Fund did not write any call or
put option contracts.
7. SECURITIES TRADED ON A WHEN ISSUED BASIS
The Fund may from time to time purchase securities on a when-issued basis.
In a when-issued transaction, the Fund commits to purchasing securities which
have not yet been issued by the issuer. Securities purchased on a when-issued
basis, are not settled until they are delivered to the Fund. Beginning on the
date the Fund enters into the when-issued transaction, cash or other liquid
securities are segregated to cover the amount of the purchase price of the
when-issued security. These transactions are subject to market fluctuations and
their current value is determined in the same manner as for other securities.
At June 30, 2000, the Fund did not hold any when-issued securities.
8. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Fund may trade securities on a to-be-announced ("TBA") basis. In a TBA
transaction, the Fund commits to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in Government National Mortgage Association
("GNMA") transactions. Securities purchased on a TBA basis are not settled until
they are delivered to the Fund, normally 15 to 45 days later. Beginning on the
date the Fund enters into a TBA transaction, cash or other liquid securities are
segregated in the amount of the TBA transaction. These transactions are subject
to market fluctuations and their current value is determined in the same manner
as for other securities.
At June 30, 2000, the Fund did not hold any TBA securities.
S-32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
9. LENDING OF SECURITIES
The Fund may lend its securities to brokers, dealers and other financial
organizations. The Fund has an agreement with its custodian whereby the
custodian may lend securities owned by the Fund to brokers, dealers and other
financial organizations. Fees earned by the Fund on securities lending are
recorded in interest income. Loans of securities by the Fund are collateralized
by cash or other liquid securities that are maintained at all times in an amount
at least equal to the current market value of the loaned securities, plus a
margin which may vary depending on the type of securities loaned. The custodian
establishes and maintains the collateral in a segregated account. The Fund
maintains exposure for the risk of any losses in the investment of amounts
received as collateral.
At June 30, 2000, the Fund did not have any securities on loan.
10. LOAN PARTICIPATIONS
The Fund may invest in loans arranged through private negotiation between one or
more financial institutions. The Fund's investment in any such loan may be in
the form of a participation in or an assignment of the loan.
In connection with purchasing participations, the Fund generally will have no
right to enforce compliance by the borrower with the terms of the loan agreement
relating to the loan, nor any rights of set-off against the borrower, and the
Fund may not benefit directly from any collateral supporting the loan in which
it has purchased the participation. As a result, the Fund will assume the credit
risk of both the borrower and the lender that is selling the participation. In
the event of the insolvency of the lender selling the participation, the Fund
may be treated as a general creditor of the lender and may not benefit from any
set-off between the lender and the borrower.
At June 30, 2000, the Fund held loan participations with a total cost of
$171,107.
11. CAPITAL LOSS CARRYFORWARD
At December 31, 1999, the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $227,000, available to offset future capital
gains. To the extent that these carryforward losses can be used to offset net
realized capital gains, such gains, if any, will not be distributed. Expiration
occurs on December 31 of the year indicated:
<TABLE>
<CAPTION>
2006 2007 Total
------- -------- --------
<S> <C> <C> <C>
Carryforward Amounts ................ $61,000 $166,000 $227,000
======= ======== ========
</TABLE>
S-33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
12. CAPITAL STOCK
At June 30, 2000, the Series had 10,000,000,000 shares of capital stock
authorized with a par value of $0.001 per share. Each share represents an equal
proportionate interest and has an equal entitlement to any dividends and
distributions made by the Fund.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
Shares sold ....................................... 337,916 493,131
Shares issued on reinvestment of dividends ........ -- 62,274
Shares reacquired ................................. (243,704) (419,906)
-------- --------
Net Increase ...................................... 94,212 135,499
======== ========
</TABLE>
S-34
<PAGE>
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding for the year ended December 31, except
where noted:
<TABLE>
<CAPTION>
2000(1) 1999 1998(2)
------- ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................. $ 9.22 $ 9.58 $10.00
------ ------ ------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (3). .......................... 0.41 0.88 0.43
Net realized and unrealized loss .................... (0.46) (0.35) (0.42)
------ ------ ------
Total Income (Loss) From Operations ................. (0.05) 0.53 0.01
------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ............................... -- (0.88) (0.43)
Capital ............................................. -- (0.01) (0.00)*
------ ------ ------
Total Distributions . ............................... -- (0.89) (0.43)
------ ------ ------
NET ASSET VALUE, END OF PERIOD . ...................... $ 9.17 $ 9.22 $ 9.58
====== ====== ======
TOTAL RETURN (4) ...................................... (0.54)%++ 5.56% 0.14%++
NET ASSETS, END OF PERIOD (000S) ...................... $8,764 $7,940 $6,949
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)(5). .................................... 1.00%+ 1.00% 1.00%+
Net investment income ............................... 9.59%+ 9.56% 7.25%+
PORTFOLIO TURNOVER RATE. .............................. 37% 58% 37%
</TABLE>
--------------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from May 1, 1998 (commencement of operations) through
December 31, 1998.
(3) SBAM has waived all or a portion of its management fees for the six months
ended June 30, 2000, the year ended December 31, 1999 and the period ended
December 31, 1998. In addition, SBAM has reimbursed the Fund for expenses of
$3,963 and $11,942 for year ended December 31, 1999 and the period ended
December 31, 1998, respectively. If such fees were not waived and expenses
not reimbursed, the per share decrease in net investment income and the
actual expense ratio would have been as follows:
<TABLE>
<CAPTION>
EXPENSE RATIOS
NET INVESTMENT INCOME WITHOUT FEE WAIVERS
PER SHARE DECREASES AND REIMBURSEMENT
--------------------- -------------------
<S> <C> <C>
2000 $0.03 1.62%+
1999 0.07 1.80
1998 0.06 2.04+
</TABLE>
(4) Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Total
returns may also reflect a voluntary expense cap imposed by Salomon Brothers
Asset Management Inc to limit total Fund operating expenses. Absent this
expense cap, total returns for the Fund would be lower. Expense caps may be
revised or terminated.
(5) As a result of a voluntary expense limitation, expense ratios will not
exceed 1.00%.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
S-35
<PAGE>
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
PFPC Trust Company
8800 Tinicom Blvd., Suite 200
Philadelphia, Pennsylvania 19153
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
DIRECTORS
CHARLES F.BARBER
Consultant; formerly Chairman; ASARCO Inc.
CAROL L. COLMAN
Consultant, Colman Consulting
DANIEL P.CRONIN
Vice President-General Counsel,
Pfizer International Inc.
HEATH B. MCLENDON
Chairman and President;
Managing Director, Salomon Smith Barney Inc.
President and Director, SSB Citi Fund Management LLC
and Travelers Investment Advisers, Inc.
OFFICERS
HEATH B. MCLENDON
CHAIRMAN AND PRESIDENT
LEWIS E. DAIDONE
EXECUTIVE VICE PRESIDENT AND TREASURER
ROSS S. MARGOLIES
EXECUTIVE VICE PRESIDENT
BETH A. SEMMEL
EXECUTIVE VICE PRESIDENT
PETER J. WILBY
EXECUTIVE VICE PRESIDENT
GEORGE J. WILLIAMSON
EXECUTIVE VICE PRESIDENT
JOHN B. CUNNINGHAM
VICE PRESIDENT
ANTHONY PACE
CONTROLLER
CHRISTINA T. SYDOR
SECRETARY
<PAGE>
----------------
SALOMON BROTHERS
----------------
ASSET MANAGEMENT
SEVEN WORLD TRADE CENTER - NEW YORK, NEW YORK 10048
<PAGE>
S E M I -
SALOMON BROTHERS A N N U A L
VARIABLE SERIES FUNDS INC R E P O R T
2 0 0 0
JUNE 30, 2000
- INVESTORS FUND
[GRAPHIC]
<PAGE>
[GRAPHIC]
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
OUR MESSAGE TO YOU
DEAR SHAREHOLDER:
We are pleased to provide you with the semi-annual report for the Salomon
Brothers Variable Investors Fund ("Fund") for the period ended June 30, 2000.
This letter discusses general economic and market conditions as well as major
Fund developments during the reporting period. A detailed summary of performance
and current Fund holdings can be found in the appropriate sections that follow.
We hope you find this report to be useful and informative.
INVESTMENT STRATEGY(1)
The Fund continues to focus on stocks with attractive valuations and favorable
earnings growth prospects. And while no guarantees can be made, we are confident
that our value strategy should continue to reward shareholders over time.
PERFORMANCE UPDATE
The Fund's shares returned 9.16% for the six-month period ended June 30, 2000.
In comparison, the Standard & Poor's 500 Index ("S&P 500") returned a negative
0.43% and the Lipper Inc.'s peer group of large cap value funds returned a
negative 1.65% for the same period.(2)
MARKET REVIEW
In the first half of this year, the stock markets experienced increased
volatility. Technology stocks continued to drive the market through early March.
The momentum behind technology stocks came at the expense of most other sectors
of the market, including consumer staples, financials and pharmaceuticals.
During this period, the Fund added to these out-of-favor sectors. In mid-March,
investors took profits in technology stocks and rotated into undervalued
sectors. Specifically, defensive sectors such as consumer staples, healthcare
and energy all performed well as investors continued to worry about the Federal
Reserve Board's ("Fed") reaction to inflationary pressures. The Fund benefited
from the increase in market breadth.
For the six-month period, the significant decline in a number of
large-capitalization stocks held back the performance of the S&P 500.
Microsoft, which represented 4.9% of the S&P 500 at year-end, declined 31.5%,
which alone penalized the S&P 500 by 1.5 percentage points. Other notable
decliners included Lucent, America Online, AT&T, Home Depot, Procter & Gamble
and Qualcomm, all of which fell more than 20%. Including Microsoft, these
eight stocks accounted for about 13% of the S&P 500 at year-end.
-----------
(1) THE INFORMATION PROVIDED REPRESENTS THE OPINION OF THE MANAGER AND IS NOT
INTENDED TO BE A FORECAST OF FUTURE EVENTS. THERE IS NO ASSURANCE THAT
CERTAIN SECURITIES WILL REMAIN IN OR OUT OF THE FUND.
(2) THE STANDARD & POOR'S 500 INDEX ("S&P 500") IS A MARKET
CAPITALIZATION-WEIGHTED MEASURE OF 500 WIDELY HELD COMMON STOCKS. LIPPER,
INC. IS A NATIONALLY RECOGNIZED ORGANIZATION THAT REPORTS ON TOTAL RETURN
PERFORMANCE AND CALCULATES RANKINGS BASED ON TOTAL RETURNS. TOTAL RETURNS
ARE CALCULATED BASED ON CHANGES IN NAV INCLUDING THE REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
RESULTS. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
S-36
<PAGE>
HIGHLIGHTS
The Fund performed quite well in the first six months, significantly outpacing
both its large-cap value peer group and the S&P 500. During the first quarter,
we continued to trim most of our technology holdings due to valuation concerns.
We redeployed those proceeds into other sectors of the market that offered much
more attractive valuations. In particular, we added consumer staples, financials
and pharmaceuticals, all of which rebounded as investors rotated out of
technology. Since the correction in technology in mid-March, we have been adding
to selected tech stocks on weakness in the sector. We plan to continue
increasing our weighting in technology as we see opportunities to do so.
Our overweight position in consumer staples contributed to the Fund's
outperformance during the period. In particular, Nabisco Group Holdings, Pepsi
Bottling Group, Safeway and Kimberly Clark all were strong performers. Nabisco
Group Holdings was the Fund's top contributor during the period as a result of
the planned sale of the company.
In other sectors, leading contributors included News Corporation, Intel, Eli
Lilly and Coastal Corp., among others. Laggards included International Paper,
Compuware, Tyson Foods, Federated Department Stores and UnumProvident. The Fund
no longer owns Compuware and UnumProvident.
OUTLOOK
Recent economic data suggest that the economy may be slowing; however,
inflationary concerns are likely to keep the Fed on guard. We expect recent
stock market volatility to persist. Uncertainty over economic growth and
prospective Federal Reserve actions will continue to result in market swings.
Fortunately, market breadth remains favorable.
Currently, the Fund has overweight positions versus the S&P 500 in consumer
staples, communications, energy and financials. As a result of the merger
between Bell Atlantic and GTE, the Fund's top position is now Verizon
Communications, the newly combined entity. The Fund is underweight in
technology, capital goods and consumer cyclicals. As mentioned above, we
continue to look for opportunities to add to technology stocks. Overall, we
believe that the Fund is well positioned for the current market environment in
which individual stock selection plays a more important role than sector
momentum.
We appreciate your investment with the Salomon Brothers Variable Investors Fund
and we look forward to serving your financial needs in the new century.
Cordially,
/s/ Heath B. McLendon /s/ John B. Cunnignham
Heath B. McLendon John B. Cunningham
Chairman and President Vice President
JULY 27, 2000
S-37
<PAGE>
THE GRAPH TO THE RIGHT DEPICTS THE PERFORMANCE OF THE INVESTORS FUND VERSUS THE
STANDARD & POOR'S 500 STOCK INDEX. IT IS IMPORTANT TO NOTE THAT THE FUND IS A
PROFESSIONALLY MANAGED MUTUAL FUND WHILE THE INDEX IS NOT AVAILABLE FOR
INVESTMENT AND IS UNMANAGED. THE COMPARISON IS SHOWN FOR ILLUSTRATIVE PURPOSES
ONLY.
-------------------------------------------------------------------------------
HISTORICAL PERFORMANCE (UNAUDITED)
SALOMON BROTHERS VARIABLE INVESTORS FUND
COMPARISON OF $10,000 INVESTMENT IN THE
FUND WITH STANDARD & POOR'S 500 STOCK INDEX
-------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
INVESTORS FUND STANDARD & POOR'S 500 STOCK INDEX
-------------- ---------------------------------
<S> <C> <C>
2/17/98 $10,000 $10,000
6/30/00 $13,473 $14,675
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF THEUGRAPH DOES NOT REFLECT EXPENSES
ASSOCIATED WITH THE PERFORMANCE. SEPARATE ACCOUNT SUCH AS ADMINISTRATIVE FEES,
ACCOUNT CHARGES AND SURRENDER CHARGES WHICH, IF REFLECTED, WOULD REDUCE THE
PERFORMANCE SHOWN.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
HISTORICAL PERFORMANCE
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
--------------------------
BEGINNING END INCOME CAPITAL GAIN TOTAL
PERIOD ENDED OF PERIOD OF PERIOD DIVIDEND DISTRIBUTION RETURNS+
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/30/00 $12.23 $13.35 $0.00 $0.00 9.16%++
------------------------------------------------------------------------------------------------------------
12/31/99 11.01 12.23 0.06 0.00 11.65
------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/98 10.00 11.01 0.05 0.00 10.55++
------------------------------------------------------------------------------------------------------------
$0.11 $0.00
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS+
------------------------------------------------------------------------------------------------------------
<S> <C>
Six Months Ended 6/30/00++ 9.16%
------------------------------------------------------------------------------------------------------------
Year Ended 6/30/00 5.66
------------------------------------------------------------------------------------------------------------
Inception* through 6/30/00 13.42
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN+
------------------------------------------------------------------------------------------------------------
Inception* through 6/30/00 34.73%
------------------------------------------------------------------------------------------------------------
</TABLE>
+ ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
AT NET ASSET VALUE. TOTAL RETURNS DO NOT REFLECT EXPENSES ASSOCIATED WITH
THE SEPARATE ACCOUNT SUCH AS ADMINISTRATIVE FEES, ACCOUNT CHARGES AND
SURRENDER CHARGES WHICH, IF REFLECTED, WOULD REDUCE THE TOTAL RETURNS FOR
ALL PERIODS SHOWN. TOTAL RETURNS MAY ALSO REFLECT A VOLUNTARY EXPENSE CAP
IMPOSED BY SALOMON BROTHERS ASSET MANAGEMENT INC. TO LIMIT TOTAL FUND
OPERATING EXPENSES. ABSENT THIS EXPENSE CAP, TOTAL RETURNS FOR THE FUND
WOULD BE LOWER. EXPENSE CAPS MAY BE REVISED OR TERMINATED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
TOTAL RETURN FOR THE YEAR.
* INCEPTION DATE IS FEBRUARY 17, 1998.
S-38
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-----------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 15.5% (CONTINUED)
<S> <C> <C>
35,300 Associates First Capital Corp.................................. $ 787,631
38,200 The Bank of New York Co., Inc.................................. 1,776,300
27,600 The Chase Manhattan Corp....................................... 1,271,325
17,400 Comerica Inc. ................................................. 780,825
32,100 FleetBoston Financial Group.................................... 1,091,400
17,400 Freddie Mac. .................................................. 704,700
37,200 Household International, Inc................................... 1,546,125
37,700 MBNA Corp. .................................................... 1,022,613
14,500 Morgan Stanley Dean Witter & Co ............................... 1,207,125
17,600 U.S. Bancorp. ................................................. 338,800
39,200 Washington Mutual, Inc. ....................................... 1,131,900
-------------
13,060,381
-------------
HEALTH CARE -- 8.7%
21,300 Abbott Laboratories, Inc. ..................................... 949,181
17,900 American Home Products Corp.................................... 1,051,625
7,400 Eli Lilly & Co. ............................................... 739,075
19,300 Merck & Co., Inc. ............................................. 1,478,863
21,800 Novartis A.G. ADR (a).......................................... 872,000
33,300 Pharmacia Corp ................................................ 1,721,194
10,600 Schering-Plough Corp .......................................... 535,300
-------------
7,347,238
-------------
REAL ESTATE INVESTMENT TRUST -- 0.5%
14,500 Equity Office Properties Trust................................. 399,656
-------------
TECHNOLOGY -- 17.9%
30,100 3Com Corp. (a) ................................................ 1,734,513
12,600 Alcatel S.A. ADR. ............................................. 837,900
8,700 Applied Materials, Inc. (a) ................................... 788,437
59,000 Compaq Computer Corp. ......................................... 1,508,187
17,900 Computer Associates International, Inc ........................ 916,256
1,700 Corning Inc. .................................................. 458,787
8,700 Hewlett-Packard Co. ........................................... 1,086,412
7,300 Intel Corp .................................................... 975,919
16,400 International Business Machines Corp........................... 1,796,825
10,600 Micron Technology, Inc. (a).................................... 933,463
14,300 Motorola, Inc. ................................................ 415,594
32,400 National Semiconductor Corp. (a)............................... 1,838,700
16,000 Seagate Technology, Inc. (a)................................... 880,000
12,600 Tellabs, Inc. (a) ............................................. 862,313
-------------
15,033,306
-------------
TRANSPORTATION -- 1.8%
27,100 Canadian National Railway Co. ................................. 790,981
26,100 Canadian Pacific Ltd. ......................................... 683,494
-------------
1,474,475
-------------
UTILITIES -- 2.1%
12,400 The Coastal Corp. ............................................. 754,850
25,100 The Williams Cos., Inc......................................... 1,046,356
-------------
1,801,206
-------------
TOTAL COMMON STOCK
(Cost -- $69,206,233) .......................................... 76,939,913
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-39
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-----------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 0.4%
COMMUNICATIONS -- 0.4%
NTL Inc.:
<S> <C>
$ 75,000 7.000% due 12/15/08 .................................................................................... $ 122,531
225,000 5.750% due 12/15/09 (c)................................................................................. 179,719
-----------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $302,044) ....................................................................................... 302,250
-----------
REPURCHASE AGREEMENT -- 8.2%
6,905,000 SBC Warburg Dillon Read Inc., 6.550% due 7/3/00; Proceeds at maturity -- $6,908,769; (Fully
collateralized by U.S. Treasury Bonds, 7.875% due 2/15/21;
Market value-- $7,043,156) (Cost-- $6,905,000) ......................................................... 6,905,000
-----------
TOTAL INVESTMENTS -- 100%
(Cost-- $76,413,277). .................................................................................... $84,147,163
===========
</TABLE>
------------------------------
(a) Non-income producing security.
(b) On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
-----------------------------------
ADR - American Depository Receipt.
SEE NOTES TO FINANCIAL STATEMENTS.
S-40
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (Cost -- $76,413,277) ............................... $ 84,147,163
Cash.. .................................................................... 788
Interest and dividends receivable.......................................... 163,121
Deferred organization costs ............................................... 16,450
--------------
TOTAL ASSETS............................................................... 84,327,522
--------------
LIABILITIES:
Payable for securities purchased .......................................... 3,243,976
Management fees payable ................................................... 46,084
Administration fees payable................................................ 3,292
Accrued expenses .......................................................... 25,123
--------------
TOTAL LIABILITIES.......................................................... 3,318,475
--------------
TOTAL NET ASSETS............................................................. $ 81,009,047
==============
NET ASSETS:
Par value of capital shares ............................................... $ 6,069
Capital paid in excess of par value........................................ 71,016,175
Undistributed net investment income ....................................... 376,266
Accumulated net realized gain on investments and options................... 1,876,651
Net unrealized appreciation of investments ................................ 7,733,886
--------------
TOTAL NET ASSETS........................................................... $ 81,009,047
==============
SHARES OUTSTANDING ........................................................ 6,068,483
--------------
NET ASSET VALUE, PER SHARE................................................. $13.35
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-41
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest ................................................................................. $ 158,491
Dividends ................................................................................ 517,714
Less: Foreign withholding tax ............................................................ (5,245)
--------------
TOTAL INVESTMENT INCOME .................................................................. 670,960
--------------
EXPENSES:
Management fees (Note 2).. ............................................................... 229,196
Administration fees (Note 2) ............................................................. 16,371
Shareholder communications. .............................................................. 13,426
Audit and legal .......................................................................... 10,938
Custody fees. ............................................................................ 8,354
Registration fees.. ...................................................................... 4,723
Shareholder and system servicing fees .................................................... 3,970
Amortization of deferred organization costs .............................................. 3,114
Directors' fees. ......................................................................... 2,366
Other. ................................................................................... 2,236
--------------
TOTAL EXPENSES ........................................................................... 294,694
--------------
NET INVESTMENT INCOME.. .................................................................... 376,266
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND OPTIONS (NOTES 3 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short term securities)................................. 2,135,421
Options purchased....................................................................... (22,282)
Options written ........................................................................ 68,165
--------------
NET REALIZED GAIN......................................................................... 2,181,304
--------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period..................................................................... 3,812,813
End of period .......................................................................... 7,733,886
--------------
INCREASE IN NET UNREALIZED APPRECIATION .................................................. 3,921,073
--------------
NET GAIN ON INVESTMENTS AND OPTIONS ........................................................ 6,102,377
--------------
INCREASE IN NET ASSETS FROM OPERATIONS...................................................... $6,478,643
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-42
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
2000 1999
-------------- ---------------
OPERATIONS:
<S> <C> <C>
Net investment income...................................................... $ 376,266 $ 254,537
Net realized gain (loss)................................................... 2,181,304 (17,460)
Increase in net unrealized appreciation.................................... 3,921,073 2,451,587
-------------- ---------------
INCREASE IN NET ASSETS FROM OPERATIONS..................................... 6,478,643 2,688,664
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................................... -- (265,202)
Capital.................................................................... -- --
-------------- ---------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS.................. -- (265,202)
-------------- ---------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares........................................... 29,608,665 42,532,124
Net asset value of shares issued for reinvestment of dividends............. -- 265,202
Cost of shares reacquired.................................................. (7,620,194) (5,716,552)
-------------- ---------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS........................ 21,988,471 37,080,774
-------------- ---------------
INCREASE IN NET ASSETS....................................................... 28,467,114 39,504,236
NET ASSETS:
Beginning of period....................................................... 52,541,933 13,037,697
-------------- ---------------
END OF PERIOD*............................................................ $ 81,009,047 $52,541,933
============== ===============
* Includes undistributed net investment income of:.......................... $ 376,266 --
============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers Variable Investors Fund ("Fund") is a separate diversified
investment portfolio of the Salomon Brothers Variable Series Funds Inc
("Series") whose primary investment objective is to seek long-term growth of
capital and secondarily current income. The Series, a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
an open-end management investment company and consists of this Fund and seven
other investment portfolios: Salomon Brothers Variable Capital Fund, Salomon
Brothers Variable Total Return Fund, Salomon Brothers Variable High Yield Bond
Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon Brothers Variable
Small Cap Growth Fund, Salomon Brothers Variable U.S. Government Income Fund and
Salomon Brothers Variable Asia Growth Fund. The U.S. Government Income Fund and
Asia Growth Fund have not yet commenced operations. The financial statements and
financial highlights for the other investment portfolios are presented in
separate shareholder reports. The Fund and each other investment portfolio of
the Series is offered exclusively for use with certain variable annuity and
variable life insurance contracts offered through the separate accounts of
various life insurance companies and qualified pension and retirement plans.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on such markets;
securities traded in the over-the-counter market and securities for which no
sales price was reported are valued at the mean of the current bid and asked
prices; debt securities are valued using either prices or estimates of market
values provided by market makers or independent pricing services; securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Fund; (c) securities maturing within 60 days are valued at cost
plus accreted discount, or minus amortized premium, which approximates market
value; (d) dividend income is recorded on the ex-dividend date; foreign dividend
income is recorded on the ex-dividend date or as soon as practical after the
Fund determines the existence of a dividend declaration after exercising
reasonable due diligence; (e) interest income, adjusted for accretion of
original issue or market discount, is recorded on the accrual basis; (f) gains
or losses on the sale of securities are calculated by using the specific
identification method; (g) dividends and distributions to shareholders are
recorded on the ex-dividend date; (h) the accounting records are maintained in
U.S. dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars based on the rate of exchange of such currencies
against U.S. dollars on the date of valuation. Purchases and sales of
securities, and income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are recorded
as currency gains or losses; (i) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At December 31, 1999,
reclassifications were made to the capital accounts of the Fund to reflect
permanent book/tax differences and income and gains available for distributions
under income tax regulations. Accordingly, a portion of overdistributed net
investment income amounting to $12,084 was reclassified to paid-in capital. Net
investment income, net realized gains and net assets were not affected by this
change; (j) the Fund intends to comply with the applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to regulated investment
companies and to make distributions of taxable income sufficient to relieve the
Fund from substantially all Federal income and excise taxes; and (k) estimates
and assumptions are required to be made regarding assets, liabilities and
changes in net assets resulting from operations when financial statements are
prepared. Changes in the economic environment, financial markets and any other
parameters used in determining these estimates could cause actual results to
differ.
Organization costs amounting to $31,250 were incurred with the organization of
the Fund. These costs are being amortized ratably over a five year period from
commencement of operations.
2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
Salomon Brothers Asset Management Inc ("SBAM"), a wholly owned subsidiary of
Salomon Brothers Holding Co. Inc., which, in turn, is wholly owned by Salomon
Smith Barney Holdings, Inc. ("SSBH"), acts as investment manager to the Fund.
Under the investment management agreement, the Fund pays an investment
management fee calculated at the annual rate of 0.70% of its average daily net
assets. This fee is calculated daily and paid monthly.
S-44
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
SBAM also acts as administrator to the Fund. As compensation for its services
the Fund pays SBAM a fee calculated at an annual rate of 0.05% of its average
daily net assets. This fee is calculated daily and paid monthly. SBAM has
delegated its responsibilities as administrator to SSB Citi Fund Management LLC
("SSBC"), formerly known as SSBC Fund Management Inc., an affiliate of SBAM,
pursuant to a Sub-Administration Agreement between SBAM and SSBC.
CFBDS, Inc. acts as the Fund's distributor. For the six months ended June 30,
2000, Salomon Smith Barney Inc., another subsidiary of SSBH, and its affiliates
received brokerage commissions of $276.
3. INVESTMENTS
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
<TABLE>
<S> <C>
Purchases..................................... $42,080,479
===========
Sales......................................... $18,995,522
===========
</TABLE>
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation........................ $11,637,403
Gross unrealized depreciation........................ (3,903,517)
------------
Net unrealized appreciation.......................... $ 7,733,886
============
</TABLE>
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the seller at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires maintenance of the
market value of the collateral in amounts at least equal to the repurchase
price.
5. OPTIONS CONTRACTS
The Fund may from time to time enter into options contracts. Premiums paid when
put or call options are purchased by the Fund, represent investments, which are
marked-to-market daily. When a purchased option expires, the Fund will realize a
loss in the amount of the premium paid. When the Fund enters into a closing
sales transaction, the Fund will realize a gain or loss depending on whether the
proceeds from the closing sales transaction are greater or less than the premium
paid for the option. When the Fund exercises a put option, it will realize a
gain or loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. When the Fund exercises a
call option, the cost of the security which the Fund purchases upon exercise
will be increased by the premium originally paid.
At June 30, 2000, the Fund did not hold any purchased options.
S-45
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
When the Fund writes a call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to- market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received, without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised the proceeds of the security sold will
be increased by the premium originally received. When a written put option is
exercised, the amount of the premium originally received will reduce the cost of
the security which the Fund purchased upon exercise. When written index options
are exercised, settlement is made in cash.
The Fund enters into options for hedging purposes. The risk associated with
purchasing options is limited to the premium originally paid. The risk in
writing a covered call option is that the Fund gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Fund is exposed to
the risk of loss if the market price of the underlying security declines.
The following written call option transactions occurred during the six months
ended June 30, 2000:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
----------- ----------
<S> <C> <C>
Options written, outstanding at December 31, 1999.. ............. 220 $117,925
Options exercised................................................ (52) (43,061)
Options canceled in closing purchase transactions ............... (168) (74,864)
------- ---------
Options written, outstanding at June 30, 2000 ................... 0 $ 0
======= =========
</TABLE>
6. SECURITIES TRADED ON A WHEN ISSUED BASIS
The Fund may from time to time purchase securities on a when-issued basis. In a
when-issued transaction, the Fund commits to purchasing securities which have
not yet been issued by the issuer. Securities purchased on a when-issued basis,
are not settled until they are delivered to the Fund. Beginning on the date the
Fund enters into the when-issued transaction, cash or other liquid securities
are segregated to cover the amount of the purchase price of the when-issued
security. These transactions are subject to market fluctuations and their
current value is determined in the same manner as for other securities.
At June 30, 2000, the Fund did not hold any when-issued securities.
7. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Fund may trade securities on a to-be-announced ("TBA") basis. In a TBA
transaction, the Fund commits to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in Government National Mortgage Association
("GNMA") transactions. Securities purchased on a TBA basis are not settled until
they are delivered to the Fund, normally 15 to 45 days later. Beginning on the
date the Fund enters into a TBA transaction, cash or other liquid securities are
segregated in the amount of the TBA transaction. These transactions are subject
to market fluctuations and their current value is determined in the same manner
as for other securities.
At June 30, 2000, the Fund did not hold any TBA securities.
S-46
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
8. LENDING OF SECURITIES
The Fund may lend its securities to brokers, dealers and other financial
organizations. The Fund has an agreement with its custodian whereby the
custodian may lend securities owned by the Fund to brokers, dealers and other
financial organizations. Fees earned by the Fund on securities lending are
recorded in interest income. Loans of securities by the Fund are collateralized
by cash or other liquid securities that are maintained at all times in an amount
at least equal to the current market value of the loaned securities, plus a
margin which may vary depending on the type of securities loaned. The custodian
establishes and maintains the collateral in a segregated account. The Fund
maintains exposure for the risk of any losses in the investment of amounts
received as collateral.
At June 30, 2000, the Fund did not have any securities on loan.
9. CAPITAL LOSS CARRYFORWARD
At December 31, 1999, the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $97,000, available to offset future capital
gains through December 31, 2007. To the extent that these carryforward losses
can be used to offset net realized capital gains, such gains, if any, will not
be distributed.
10. CAPITAL STOCK
At June 30, 2000, the Series had 10,000,000,000 shares of capital stock
authorized with a par value of $0.001 per share. Each share represents an
equal proportionate interest and has an equal entitlement to any dividends
and distributions made by the Fund.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
--------------- -----------------
<S> <C> <C>
Shares sold.............................................................. 2,384,383 3,579,315
Shares issued on reinvestment of dividends............................... -- 21,756
Shares reacquired ....................................................... (611,119) (489,624)
--------- ---------
Net Increase............................................................. 1,773,264 3,111,447
========= =========
</TABLE>
S-47
<PAGE>
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding for the year ended December 31, except
where noted:
<TABLE>
<CAPTION>
2000(1) 1999 1998(2)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD. $ 12.23 $ 11.01 $ 10.00
------- ------- -------
INCOME FROM OPERATIONS:
Net investment income (3)............................ 0.06 0.06 0.05
Net realized and unrealized gain..................... 1.06 1.22 1.01
------- ------- -------
Total Income From Operations ........................ 1.12 1.28 1.06
------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income ............................... -- (0.06) (0.05)
Capital ............................................. -- -- (0.00)*
------- ------- -------
Total Distributions ................................. -- (0.06) (0.05)
------- ------- -------
NET ASSET VALUE, END OF PERIOD ........................ $ 13.35 $ 12.23 $ 11.01
======= ======= ========
TOTAL RETURN (4).. .................................... 9.16%++ 11.65% 10.55%++
NET ASSETS, END OF PERIOD (000S) ...................... $81,009 $52,542 $13,038
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)(5).. ................................... 0.90%+ 0.98% 1.00%+
Net investment income ............................... 1.15+ 0.91 1.14+
PORTFOLIO TURNOVER RATE. .............................. 31% 51% 62%
</TABLE>
-----------------------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from February 17, 1998 (commencement of operations) through
December 31, 1998.
(3) SBAM has waived all or part of its management fees for the year ended
December 31, 1999 and the period ended December 31, 1998. In addition, SBAM
has reimbursed the Fund for $17,030 in expenses for the period ended
December 31, 1998. If such fees were not waived or expenses not reimbursed,
the per share decrease in net investment income and the actual expense
ratio would have been as follows:
<TABLE>
<CAPTION>
EXPENSE RATIOS WITHOUT
NET INVESTMENT INCOME FEE WAIVERS AND/OR
PER SHARE DECREASES EXPENSE REIMBURSEMENTS
--------------------- -----------------------
<S> <C> <C>
1999............... $0.01 1.15%
1998............... 0.04 2.07+
</TABLE>
(4) Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which,
reflected, would reduce the total returns for all periods shown. Total
returns may also reflect a voluntary expense cap imposed by Salomon
Brothers Asset Management Inc to limit total Fund operating expenses.
Absent this expense cap, total returns for the Fund would be lower. Expense
caps may revised or terminated.
(5) As a result of a voluntary expense limitation, expense ratios will not
exceed 1.00%.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
S-48
<PAGE>
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
PFPC Trust Company
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
DIRECTORS
CHARLES F.BARBER
Consultant; formerly Chairman; ASARCO Incorporated
CAROL L. COLMAN
Consultant, Colman Consulting
DANIEL P.CRONIN
Vice President-General Counsel,
Pfizer International Inc.
HEATH B. MCLENDON
Chairman and President;
Managing Director, Salomon Smith Barney Inc.
President and Director, SSB Citi Fund Management LLC
and Travelers Investment Advisers, Inc.
OFFICERS
HEATH B. MCLENDON
CHAIRMAN AND PRESIDENT
LEWIS E. DAIDONE
EXECUTIVE VICE PRESIDENT AND TREASURER
ROSS S. MARGOLIES
EXECUTIVE VICE PRESIDENT
BETH A. SEMMEL
EXECUTIVE VICE PRESIDENT
PETER J. WILBY
EXECUTIVE VICE PRESIDENT
GEORGE J. WILLIAMSON
EXECUTIVE VICE PRESIDENT
JOHN B. CUNNINGHAM
VICE PRESIDENT
ANTHONY PACE
CONTROLLER
CHRISTINA T. SYDOR
SECRETARY
<PAGE>
----------------------
SALOMON BROTHERS
---------------------
ASSET MANAGEMENT
SEVEN WORLD TRADE CENTER - NEW YORK, NEW YORK 10048
<PAGE>
S E M I -
A N N U A L
R E P O R T
2 0 0 0
JUNE 30, 2000
- TOTAL RETURN FUND
SALOMON BROTHERS
VARIABLE SERIES FUNDS INC
[GRAPHIC]
<PAGE>
[GRAPHIC]
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
OUR MESSAGE TO YOU
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for the Salomon Brothers
Variable Total Return Fund ("Fund") for the period ended June 30, 2000. This
letter discusses general economic and market conditions as well as major Fund
developments during the reporting period. A detailed summary of performance
and current Fund holdings can be found in the appropriate sections that
follow. We hope you find this report to be useful and informative.
INVESTMENT STRATEGY AND PERFORMANCE UPDATE
The Fund seeks to obtain above-average income compared to a portfolio that
invests only in stocks. The Fund's secondary objective is to take advantage
of opportunities for growth of capital and income by investing in a variety
of asset classes including stocks, bonds and short-term obligations. For the
six months ended June 30, 2000, the Fund generated a return of 3.13%. In
comparison, the Standard & Poor's 500 Index ("S&P 500")(1) returned a
negative 0.43% for the period. In addition, a return for a hypothetical Index
consisting of a 50% weighting of the Salomon Smith Barney Broad Investment
Grade ("BIG") Bond Index(2) and 50% weighting of the S&P 500(3) returned 1.87%
for the same time period. (Please note that an investor cannot invest
directly in an index.)
MARKET UPDATE AND OUTLOOK
In the first half of 2000, the common stock sector continued to emphasize
high quality companies in growth industries including communications,
pharmaceutical, energy, consumer brands and technology. The fixed-income
segment represents approximately 50% of the portfolio in order to reduce
overall risk and provide added income potential.
As the Federal Reserve Board ("Fed") moves to slow the economy, we
anticipate moderate growth in the U.S. and continuing improvement in most
of the major overseas countries. Earnings for U.S. companies should be
restrained somewhat during the coming year.
--------
(1) THE S&P 500 IS A MARKET CAPITALIZATION-WEIGHTED MEASURE OF 500 WIDELY HELD
COMMON STOCKS.
(2) THE SALOMON SMITH BARNEY BIG BOND INDEX INCLUDES INSTITUTIONALLY TRADED U.S.
TREASURY BONDS, GOVERNMENT-SPONSORED BONDS (U.S. AGENCY AND SUPRANATIONAL),
MORTGAGE-BACKED SECURITIES AND CORPORATE SECURITIES.
(3) THE 50% SALOMON SMITH BARNEY BIG BOND INDEX AND 50% S&P 500 CONSISTS OF
DOMESTIC CORPORATE, GOVERNMENT AND AGENCY SECURITIES AND 500 WIDELY HELD
COMMON STOCKS.
S-50
<PAGE>
In a period of economic growth, the common stock portfolio is being
positioned in companies with financial strength and in areas where we believe
product demand will be firm. As of June 30, 2000, the largest holdings of
common stock, in order of size were IBM, Pfizer, Coca-Cola, Anheuser-Busch,
Merck, McDonald's, Johnson & Johnson and General Electric. Please keep in
mind, portfolio holdings are subject to change.
Thank you for your investment in the Salomon Brothers Variable Total Return
Fund. We look forward to helping you pursue your financial goals in the new
century.
Sincerely,
/s/ Heath B. McLendon /s/ George J. Williamson
Heath B. McLendon George J. Williamson
Chairman and President Executive Vice President
JULY 25, 2000
S-51
<PAGE>
THE FOLLOWING GRAPH DEPICTS THE PERFORMANCE OF THE TOTAL RETURN FUND VERSUS THE
SALOMON SMITH BARNEY BROAD INVESTMENT GRADE BOND INDEX, THE STANDARD & POOR'S
500 STOCK INDEX AND THE 50% SALOMON SMITH BARNEY BROAD INVESTMENT GRADE BOND AND
50% STANDARD & POOR'S 500 STOCK INDEX. IT IS IMPORTANT TO NOTE THAT THE FUND IS
A PROFESSIONALLY MANAGED MUTUAL FUND WHILE THE INDEXES ARE NOT AVAILABLE FOR
INVESTMENT AND ARE UNMANAGED. THE COMPARISON IS SHOWN FOR ILLUSTRATIVE PURPOSES
ONLY.
-------------------------------------------------------------------------------
HISTORICAL PERFORMANCE (UNAUDITED)
SALOMON BROTHERS VARIABLE TOTAL RETURN FUND
COMPARISON OF $10,000 INVESTMENT IN THE FUND WITH SALOMON SMITH BARNEY BROAD
INVESTMENT GRADE BOND INDEX, STANDARD & POOR'S 500 STOCK INDEX, AND 50%
SALOMON SMITH BARNEY BROAD INVESTMENT GRADE BOND AND 50% STANDARD & POOR'S
500 STOCK INDEX.
-------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
2/17/98 6/30/00
<S> <C> <C>
TOTAL RETURN $10,000 $10,999
FUND
SSB BROAD $10,000 $11,069
INVESTMENT
GRADE BOND INDEX
S&P 500 STOCK $10,000 $14,668
INDEX
50% SSB BROAD $10,000 $12,868
INVESTMENT GRADE
BOND AND 50% S&P
500 STOCK INDEX
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE GRAPH DOES NOT
REFLECT EXPENSES ASSOCIATED WITH THE SEPARATE ACCOUNT SUCH AS ADMINISTRATIVE
FEES, ACCOUNT CHARGES AND SURRENDER CHARGES WHICH, IF REFLECTED, WOULD REDUCE
THE PERFORMANCE SHOWN.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
HISTORICAL PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
-------------------------
BEGINNING END INCOME CAPITAL GAIN RETURN TOTAL
PERIOD ENDED OF PERIOD OF PERIOD DIVIDENDS DISTRIBUTIONS OF CAPITAL RETURNS+
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6/30/00 $10.23 $10.55 $0.00 $0.00 $0.00 3.13%++
----------------------------------------------------------------------------------------------------------------------------
12/31/99 10.40 10.23 0.24 0.00 0.01 0.78
----------------------------------------------------------------------------------------------------------------------------
Inception*-- 12/31/98 10.00 10.40 0.15 0.03 0.00 5.83++
----------------------------------------------------------------------------------------------------------------------------
$0.39 $0.03 $0.01
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS+
--------------------------------------------------------------------------------------------------------------------------------
Six Months Ended 6/30/00++ 3.13%
--------------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/00 (0.83)
--------------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/00 4.11
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN+
--------------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/00 9.99%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS AT
NET ASSET VALUE. TOTAL RETURNS DO NOT REFLECT EXPENSES ASSOCIATED WITH THE
SEPARATE ACCOUNT SUCH AS ADMINISTRATIVE FEES, ACCOUNT CHARGES AND SURRENDER
CHARGES WHICH, IF REFLECTED, WOULD REDUCE THE TOTAL RETURNS FOR ALL PERIODS
SHOWN. TOTAL RETURNS MAY ALSO REFLECT A VOLUNTARY EXPENSE CAP IMPOSED BY
SALOMON BROTHERS ASSET MANAGEMENT INC TO LIMIT TOTAL FUND OPERATING
EXPENSES. ABSENT THIS EXPENSE CAP, TOTAL RETURNS FOR THE FUND WOULD BE
LOWER. EXPENSE CAPS MAY BE REVISED OR TERMINATED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
* INCEPTION DATE IS FEBRUARY 17, 1998.
S-52
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 47.9%
BASIC INDUSTRIES -- 0.1%
5,900 USEC Inc. .......................................................... $ 27,288
------------
CAPITAL GOODS -- 1.7%
1,300 Cooper Industries, Inc. ............................................ 42,330
4,800 General Electric Co. ............................................... 254,400
2,000 Honeywell International Inc. ....................................... 67,375
------------
364,105
------------
COMMUNICATIONS -- 4.6%
4,650 AT&T Corp. ......................................................... 147,055
1,800 BCE Inc. ........................................................... 42,862
2,600 Bell Atlantic Corp. (a) ............................................ 150,412
2,826 Nortel Networks Corp. .............................................. 192,875
2,600 Qwest Communications International Inc. ............................ 222,950
2,300 SBC Communications Inc. ............................................ 99,475
2,650 WorldCom, Inc. (b) ................................................. 121,568
------------
977,197
------------
CONSUMER CYCLICALS -- 2.8%
4,100 Costco Wholesale Corp. ............................................. 135,300
1,174 DaimlerChrysler AG ................................................. 61,121
2,300 Eastman Kodak Co. .................................................. 136,850
5,000 Kmart Corp. ........................................................ 34,063
2,100 Sears, Roebuck & Co ................................................ 68,513
2,800 Wal-Mart Stores, Inc. .............................................. 161,350
------------
597,197
------------
CONSUMER NON-CYCLICALS -- 11.6%
4,300 Anheuser-Busch Companies, Inc. ..................................... 321,156
4,100 Avon Products, Inc. ................................................ 182,450
5,700 The Coca-Cola Co. .................................................. 327,394
1,966 Delhaize America, Inc., Class B Shares ............................. 30,227
5,000 The Gillette Co. ................................................... 174,688
3,600 H.J. Heinz Co. ..................................................... 157,500
5,600 Hormel Foods Corp. ................................................. 94,150
1,800 Kimberly-Clark Corp. ............................................... 103,275
7,900 McDonald's Corp. ................................................... 260,206
2,400 The News Corp. Ltd., ADR (b) ....................................... 114,000
5,100 PepsiCo, Inc. ...................................................... 226,631
3,700 The Procter & Gamble Co. ........................................... 211,825
2,100 Ralston-Ralston Purina Group ....................................... 41,869
3,200 Safeway Inc. (b) ................................................... 144,400
4,600 Sara Lee Corp. ..................................................... 88,838
------------
2,478,609
------------
ENERGY -- 2.8%
1,400 Amerada Hess Corp ................................................... 86,450
1,794 BP Amoco PLC, ADR. .................................................. 101,473
1,600 Exxon Mobil Corp. .................................................. 125,600
1,700 Royal Dutch Petroleum Co. ........................................... 104,656
2,500 Schlumberger Ltd. ................................................... 186,563
------------
604,742
------------
FINANCIAL SERVICES -- 6.4%
8,200 The Allstate Corp. .................................................. 182,450
1,255 American International Group, Inc. .................................. 147,463
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-53
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES -- 6.4% (CONTINUED)
3,500 Associates First Capital Corp. ...................................... $ 78,094
2,778 Bank of America Corp. ............................................... 119,454
96 Berkshire Hathaway Inc., Class B Shares (b) ......................... 168,960
3,000 Chase Manhattan Corp ................................................ 138,188
1,800 The Chubb Corp ...................................................... 110,700
1,600 CIGNA Corp. ......................................................... 149,600
3,000 First Union Corp. ................................................... 74,438
2,200 FleetBoston Financial Corp. ......................................... 74,800
4,700 Horace Mann Educators Corp. ......................................... 70,500
1,900 Mercantile Bankshares Corp. ......................................... 56,644
------------
1,371,291
------------
HEALTH CARE -- 8.6%
4,600 Abbott Laboratories ................................................. 204,988
3,300 American Home Products Corp. ........................................ 193,875
2,300 Bausch & Lomb Inc. .................................................. 177,963
2,400 Bristol-Myers Squibb Co. ............................................ 139,800
2,500 Johnson & Johnson ................................................... 254,688
3,600 Merck & Co., Inc. .................................................. 275,850
8,600 Pfizer Inc. ......................................................... 412,800
3,570 Pharmacia Corp. ..................................................... 184,524
------------
1,844,488
------------
TECHNOLOGY -- 7.6%
3,500 Alcatel SA, ADR ..................................................... 232,750
5,600 Compaq Computer Corp. ............................................... 143,150
700 Energizer Holdings, Inc. (b) ........................................ 12,775
700 Intel Corp. ......................................................... 93,581
6,300 International Business Machines Corp. ............................... 690,244
3,500 Lucent Technologies Inc. ............................................ 207,375
6,500 The Reynolds & Reynolds Co., Class A Shares ......................... 118,625
6,100 Xerox Corp. ......................................................... 126,575
------------
1,625,075
------------
TRANSPORTATION -- 0.9%
2,700 Canadian National Railway Co. ....................................... 78,806
1,800 Union Pacific Corp. ................................................. 66,938
600 United Parcel Services, Inc., Class B Shares ........................ 35,400
------------
181,144
------------
UTILITIES -- 0.8%
2,300 American Electric Power Co., Inc. ................................... 68,137
2,800 Edison International ................................................ 57,400
1,200 Reliant Energy, Inc. ................................................ 35,475
------------
161,012
------------
TOTAL COMMON STOCK
(Cost -- $10,169,298) .......................................... 10,232,148
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-54
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 17.9%
U.S. Treasury Notes:
$ 290,000 6.000% due 8/15/04 (c) ....................................... $ 287,370
250,000 6.000% due 8/15/09 (c) ....................................... 248,045
U.S. Treasury Bonds:
500,000 6.125% due 8/15/29 (c) ....................................... 505,750
200,000 6.250% due 5/15/30 ........................................... 210,000
275,000 Federal Home Loan Mortgage Corp. (FHLMC), 6.250% due 7/15/04 ... 267,781
Federal National Mortgage Association (FNMA):
440,025 6.500% due 7/1/28 ................................................ 414,997
206,228 7.000% due 2/1/29 ................................................ 199,138
100,000 7.000% due 15 years (d)(e) ....................................... 98,093
465,000 6.000% due 30 years (d)(e) ....................................... 425,326
360,000 7.000% due 30 years (d)(e) ....................................... 347,400
300,000 7.500% due 30 years (d)(e) ....................................... 295,779
525,000 8.000% due 30 years (d)(e) ....................................... 527,131
------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(Cost -- $3,893,504) ............................................... 3,826,810
------------
CORPORATE BONDS & NOTES -- 10.1%
BASIC INDUSTRIES -- 0.7%
50,000 Raytheon Co., Notes, 6.150% due 11/1/08 ............................ 44,437
100,000 USX Corp., Notes, 7.200% due 2/15/04 ............................... 98,375
------------
142,812
------------
CAPITAL GOODS -- 0.3%
75,000 Tyco International Group, 6.125% due 1/15/09 ....................... 66,938
------------
CONSUMER CYCLICALS -- 1.2%
150,000 DaimlerChrysler N.A. Holding Corp., Medium-Term Notes,
Company Guaranteed, 7.750% due 5/27/03 ............................ 151,125
100,000 Wal-Mart Stores, Inc., Notes, 7.550% due 2/15/30 .................. 102,500
------------
253,625
------------
ENERGY -- 1.0%
150,000 Duke Energy Corp., Sr. Notes, 7.375% due 3/1/10 .................. 147,750
75,000 Union Oil Co., 7.350% due 6/15/09 ................................ 72,938
------------
220,688
------------
FINANCIAL/LEASING -- 4.7%
300,000 Bank of America Corp., Sr. Notes, 7.875% due 5/16/05 .............. 303,750
50,000 Countrywide Home Loan, Co., Medium-Term Notes, 6.250% due 4/15/09 . 43,812
100,000 Fremont General Corp., Series B, Sr. Notes, 7.700% due 3/17/04 .... 42,500
175,000 Lehman Brothers Holdings Inc., Sr. Sub. Notes, 7.250% due 4/15/03 . 172,813
150,000 Morgan Stanley Dean Witter & Co., Notes, 7.750% due 6/15/05 ....... 150,938
150,000 Paine Webber Group Inc., 7.625% due 12/1/09 ....................... 141,938
150,000 Sears Roebuck Acceptance Corp., 7.000% due 6/15/07 ................ 141,750
------------
997,501
------------
MEDIA & TELECOMMUNICATIONS -- 1.1%
90,000 A.H. Belo Corp., Sr. Debentures, 7.250% due 9/15/27 (c) ............ 74,025
75,000 GTE Corp., Debentures, 6.940% due 4/15/28 (c) ...................... 66,468
100,000 Sprint Capital Corp., 5.700% due 11/15/03 .......................... 94,875
------------
235,368
------------
REAL ESTATE INVESTMENT TRUST -- 0.5%
100,000 Spieker Properties, Inc. LP, 7.250% due 5/1/09 ..................... 93,250
------------
SERVICES & OTHER -- 0.6%
140,000 Cendant Corp., 7.750% due 12/1/03 (c) ............................. 135,275
------------
TOTAL CORPORATE BONDS & NOTES
(Cost -- $2,261,683) ............................................... 2,145,457
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-55
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 2.7%
$ 141,266 Contimortgage Home Equity Loan Trust, Series 1998-2, Class A3, 6.130% due 3/15/13 .... $ 140,552
250,000 NationsBank Credit Card Master Trust, Series 1995-1, Class A, 6.450% due 4/15/03 ..... 249,865
175,000 Soundview Home Equity Loan Trust, Series 2000-1, Class A1F, 8.640% due 5/25/30 ....... 176,536
TOTAL ASSET-BACKED SECURITIES
-----------
(Cost -- $567,102) ...................................................................... 566,953
-----------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.9%
75,000 Commercial Mortgage Asset Trust, Series 1999-C1, Class C, 7.350% due 8/17/13 ......... 70,710
125,000 LB Commercial Conduit Mortgage Trust, Series 1999-C1, Class A2, 6.780% due 4/15/09 ... 119,718
-----------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(Cost -- $195,333) ................................................................... 190,428
-----------
SUB-TOTAL INVESTMENTS
(Cost -- $17,086,920) ................................................................ 16,961,796
-----------
REPURCHASE AGREEMENT -- 20.5%
4,375,000 SBC Warburg Dillon Read Inc., 6.550% due 7/3/00; Proceeds at maturity-- $4,377,388;
(Fully collateralized by U.S. Treasury Bonds, 13.875% due 5/15/01;
Market value -- $4,463,250) (Cost -- $4,375,000) (c) .................................. 4,375,000
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $21,461,920*) ............................................................... $21,336,796
===========
</TABLE>
-------------
(a) On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
(b) Non-income producing security.
(c) All or part of the security is segregated as collateral for mortgage
dollar rolls/TBAs.
(d) Mortgage Dollar Roll (See Note 9).
(e) Security is issued on a to-be-announced ("TBA") basis (See Note 8).
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
-----------------------------------
ADR -- American Depository Receipt.
SEE NOTES TO FINANCIAL STATEMENTS.
S-56
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $17,086,920) ........................................ $16,961,796
Repurchase agreement, at value (Cost -- $4,375,000) ................................ 4,375,000
Cash ................................................................................ 194
Dividends and interest receivable ................................................... 93,328
Deferred organization costs ........................................................ 16,450
-----------
TOTAL ASSETS ........................................................................ 21,446,768
-----------
LIABILITIES:
Payable for securities purchased .................................................... 1,689,185
Management fees payable ............................................................ 8,300
Administration fees payable ........................................................ 799
Accrued expenses ................................................................... 26,768
-----------
TOTAL LIABILITIES .................................................................. 1,725,052
-----------
TOTAL NET ASSETS .................................................................. $19,721,716
===========
NET ASSETS:
Par value of capital shares ......................................................... $ 1,870
Capital paid in excess of par value ................................................. 19,529,808
Undistributed net investment income ................................................. 439,005
Accumulated net realized loss from security transactions ............................ (123,843)
Net unrealized depreciation of investments .......................................... (125,124)
-----------
TOTAL NET ASSETS .................................................................... $19,721,716
===========
SHARES OUTSTANDING .................................................................... 1,870,079
-----------
NET ASSET VALUE, PER SHARE ........................................................... $10.55
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-57
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest ........................................................................... $ 285,744
Dividends ........................................................................... 244,673
Less: Foreign withholding tax ....................................................... (1,144)
----------
TOTAL INVESTMENT INCOME ............................................................. 529,273
----------
EXPENSES:
Management fees (Note 2) ............................................................ 72,215
Shareholder communications .......................................................... 12,431
Audit and legal ..................................................................... 10,938
Shareholder and system servicing fees ............................................... 6,618
Administration fees (Note 2) ........................................................ 4,513
Amortization of deferred organization costs ......................................... 3,114
Custody ............................................................................. 2,393
Directors' fees ..................................................................... 2,366
Registration fees ................................................................... 1,745
Other .............................................................................. 2,100
----------
TOTAL EXPENSES ...................................................................... 118,433
Less: Management fee waiver (Note 2) ................................................ (28,165)
----------
NET EXPENSES ........................................................................ 90,268
----------
NET INVESTMENT INCOME ................................................................. 439,005
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Net Realized Gain From Security Transactions (excluding short-term securities):
Proceeds from sales ................................................................. 3,730,626
Cost of securities sold ............................................................. 3,728,504
----------
NET REALIZED GAIN ..................................................................... 2,122
----------
Change in Net Unrealized Depreciation of Investments:
Beginning of period ................................................................. (259,441)
End of period ....................................................................... (125,124)
----------
DECREASE IN NET UNREALIZED DEPRECIATION ............................................... 134,317
----------
NET GAIN ON INVESTMENTS .................................................................. 136,439
----------
INCREASE IN NET ASSETS FROM OPERATIONS ................................................... $ 575,444
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-58
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income ............................................................... $ 439,005 $ 412,045
Net realized gain (loss) ............................................................. 2,122 (127,687)
(Increase) decrease in net unrealized depreciation ................................... 134,317 (388,274)
------------ -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .................................... 575,444 (103,916)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................................ -- (411,266)
Net realized gains ................................................................... -- (296)
Capital .............................................................................. -- (13,504)
------------ -----------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS ............................ -- (425,066)
------------ -----------
FUND SHARE TRANSACTIONS (NOTE 13):
Net proceeds from sale of shares ..................................................... 5,624,298 15,352,257
Net asset value of shares issued for reinvestment of dividends ....................... -- 422,553
Cost of shares reacquired ............................................................ (4,061,839) (3,632,987)
------------ -----------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS .................................. 1,562,459 12,141,823
------------ -----------
INCREASE IN NET ASSETS ................................................................. 2,137,903 11,612,841
NET ASSETS:
Beginning of period .................................................................. 17,583,813 5,970,972
------------ -----------
END OF PERIOD* ....................................................................... $ 19,721,716 $17,583,813
============ ===========
* Includes undistributed net investment income of: ................................... $439,005 --
============ ===========
</TABLE>
STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<S> <C>
CASH FLOWS USED BY OPERATING ACTIVITIES:
Purchases of long-term portfolio investments ............................................................ $ (4,509,782)
Proceeds from disposition of long-term portfolio investments and principal paydowns ..................... 3,857,261
Net purchases of short-term portfolio investments ....................................................... (1,248,000)
-------------
(1,900,521)
Net investment income ................................................................................... 439,005
Amortization of net premium/discount on investments ..................................................... (2,579)
Amortization of organization expenses ................................................................... 3,114
Net change in receivables/payables related to operations ................................................ 12,928
-------------
NET CASH FLOWS USED BY OPERATING ACTIVITIES ............................................................. (1,448,053)
-------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from sale of shares ............................................................................ 5,624,298
Cost of shares reacquired................................................................................ (4,145,610)
Decrease in dollar roll transactions..................................................................... (31,390)
-------------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES ......................................................... 1,447,298
-------------
NET DECREASE IN CASH ......................................................................................... (755)
Cash, Beginning of Period .................................................................................... 949
-------------
CASH, END OF PERIOD .......................................................................................... $ 194
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
S-59
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers Variable Total Return Fund ("Fund") is a separate diversified
investment portfolio of the Salomon Brothers Variable Series Funds Inc
("Series") whose primary investment objective is to obtain above-average income
(as compared to a portfolio entirely invested in equity securities). The Series,
a Maryland corporation, is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end management investment company and
consists of this Fund and seven other investment portfolios: Salomon Brothers
Variable Capital Fund, Salomon Brothers Variable High Yield Bond Fund, Salomon
Brothers Variable Investors Fund, Salomon Brothers Variable Strategic Bond Fund,
Salomon Brothers Variable Small Cap Growth Fund, Salomon Brothers Variable U.S.
Government Income Fund and Salomon Brothers Variable Asia Growth Fund. The U.S.
Government Income Fund and Asia Growth Fund have not yet commenced operations.
The financial statements and financial highlights for the other investment
portfolios are presented in separate shareholder reports. The Fund and each
other investment portfolio of the Series is offered exclusively for use with
certain variable annuity and variable life insurance contracts offered through
the separate accounts of various life insurance companies and qualified pension
and retirement plans.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on such markets;
securities traded in the over-the-counter market and securities for which no
sales price was reported are valued at the mean of the bid and asked prices;
debt securities are valued using either prices or estimates of market values
provided by market markers or independent pricing services; securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Fund; (c) securities maturing within 60 days are valued at cost
plus accreted discount, or minus amortized premium, which approximates market
value; (d) dividend income is recorded on the ex-dividend date; (e) interest
income, adjusted for accretion of original issue and market discount, is
recorded on the accrual basis; (f) gains or losses on the sale of securities are
calculated by using the specific identification method; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) the
accounting records are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, and income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are recorded as currency gains or losses; (i) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. At December 31, 1999, reclassifications were made to the capital
accounts of the Fund to reflect permanent book/tax differences and income and
gains available for distributions under income tax regulations. Net investment
income, net realized gains and net assets were not affected by this change; (j)
the Fund intends to comply with the applicable provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment companies
and to make distributions of taxable income sufficient to relieve the Fund from
substantially all Federal income and excise taxes; and (k) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
Organization costs amounting to $31,250 were incurred with the organization of
the Fund. These costs are being amortized ratably over a five year period from
commencement of operations.
2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
Salomon Brothers Asset Management Inc ("SBAM"), a wholly owned subsidiary of
Salomon Brothers Holding Company Inc., which in turn is wholly owned by Salomon
Smith Barney Holdings, Inc. ("SSBH"), acts as investment manager to the Fund.
Under the investment management agreement, the Fund pays an investment
management fee calculated at the annual rate of 0.80% of its average daily net
assets. This fee is calculated daily and paid monthly.
For the six months ended June 30, 2000, SBAM waived a portion of its management
fees amounting to $28,165.
S-60
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
SBAM also acts as administrator to the Fund. As compensation for its services
the Fund pays SBAM a fee calculated at an annual rate of 0.05% of its average
daily net assets. This fee is calculated daily and paid monthly. SBAM has
delegated its responsibilities as administrator to SSB Citi Fund Management LLC
("SSBC"), an affiliate of SBAM, pursuant to a Sub-Administration Agreement
between SBAM and SSBC.
CFBDS, Inc. acts as the Fund's distributor. For the six months ended June 30,
2000, Salomon Smith Barney Inc., another subsidiary of SSBH, did not receive any
brokerage commissions from the Fund.
3. INVESTMENTS
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases:
U.S. government agencies & obligations ................. $ 476,712
Other investment securities ........................... 3,431,077
-----------
$ 3,907,789
===========
Sales:
U.S. government agencies & obligations ................ $ 178,488
Other investment securities ........................... 3,552,138
-----------
$ 3,730,626
===========
</TABLE>
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation ......................... $ 1,166,375
Gross unrealized depreciation ......................... (1,291,499)
-----------
Net unrealized depreciation .......................... $ (125,124)
===========
</TABLE>
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the seller at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires maintenance of the
market value of the collateral in amounts at least equal to the repurchase
price.
5. REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. A reverse repurchase
agreement involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase the same securities at an agreed upon price
and date. A reverse repurchase agreement involves risk that the market value of
the securities sold by the Fund may decline below the repurchase price of the
securities. The Fund will segregate cash or other liquid securities with respect
to the reverse repurchase agreements.
During the six months ended June 30, 2000, the Fund did not enter into any
reverse repurchase agreements.
S-61
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
6. OPTIONS CONTRACTS
The Fund may from time to time enter into options contracts. Premiums paid when
put or call options are purchased by the Fund, represent investments, which are
marked-to-market daily. When a purchased option expires, the Fund will realize a
loss in the amount of the premium paid. When the Fund enters into a closing
sales transaction, the Fund will realize a gain or loss depending on whether the
proceeds from the closing sales transaction are greater or less than the premium
paid for the option. When the Fund exercises a put option, it will realize a
gain or loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. When the Fund exercises a
call option, the cost of the security which the Fund purchases upon exercise
will be increased by the premium originally paid.
At June 30, 2000, the Fund did not have any open purchased call or put option
contracts.
When the Fund writes a call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received, without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised the proceeds of the security sold will
be increased by the premium originally received. When a written put option is
exercised, the amount of the premium originally received will reduce the cost of
the security which the Fund purchased upon exercise. When written index options
are exercised, settlement is made in cash.
The Fund enters into options for hedging purposes. The risk associated with
purchasing options is limited to the premium originally paid. The risk in
writing a covered call option is that the Fund gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Fund is exposed to
the risk of loss if the market price of the underlying security declines.
During the six months ended June 30, 2000, the Fund did not write any call or
put option contracts.
7. SECURITIES TRADED ON A WHEN-ISSUED BASIS
The Fund may from time to time purchase securities on a when-issued basis. In a
when-issued transaction, the Fund commits to purchasing securities which have
not yet been issued by the issuer. Securities purchased on a when-issued basis,
are not settled until they are delivered to the Fund. Beginning on the date the
Fund enters into the when-issued transaction, cash or other liquid securities
are segregated to cover the amount of the purchase price of the when-issued
security. These transactions are subject to market fluctuations and their
current value is determined in the same manner as for other securities.
At June 30, 2000, the Fund did not hold any when-issued securities.
8. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS
The Fund may trade securities on a to-be-announced ("TBA") basis. In a TBA
transaction, the Fund commits to purchasing or selling securities which have not
yet been issued by the issuer, particularly the face amount and maturity date in
Government National Mortgage Association ("GNMA") transactions. Securities
purchased on a TBA basis are not settled until they are delivered to the Fund,
normally 15 to 45 days later. Beginning on the date the Fund enters into a TBA
transaction, cash or other liquid securities are segregated to cover the amount
of the TBA transaction. These transactions are subject to market fluctuations
and their current value is determined in the same manner as for other
securities.
At June 30, 2000, the Fund held TBA securities with a total cost of $1,713,049.
S-62
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
9. MORTGAGE DOLLAR ROLL TRANSACTIONS
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
mortgage-backed securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and maturity)
securities on a specific future date. The Fund is compensated by a fee paid by
the counterparty. Dollar rolls are accounted for as financing arrangements; the
fee is accrued into interest income ratably over the term of the dollar roll
and any gain or loss on the roll is deferred until disposition of the rolled
security. The average daily balance of dollar rolls outstanding during the six
months ended June 30, 2000 was approximately $1,804,000.
10. LENDING OF SECURITIES
The Fund may lend its securities to brokers, dealers and other financial
organizations. The Fund has an agreement with its custodian whereby the
custodian may lend securities owned by the Fund to brokers, dealers and other
financial organizations. Fees earned by the Fund on securities lending are
recorded in interest income. Loans of securities by the Fund are collateralized
by cash or other liquid securities that are maintained at all times in an
amount at least equal to the current market value of the loaned securities,
plus a margin which may vary depending on the type of securities loaned. The
custodian establishes and maintains the collateral in a segregated account. The
Fund maintains exposure for the risk of any losses in the investment of amounts
received as collateral.
At June 30, 2000, the Fund did not have any securities on loan.
11. LOAN PARTICIPATIONS
The Fund may invest in loans arranged through private negotiation between one
or more financial institutions. The Fund's investment in any such loan may be
in the form of a participation in or an assignment of the loan.
In connection with purchasing participations, the Fund generally will have no
right to enforce compliance by the borrower with the terms of the loan
agreement relating to the loan, nor any rights of set-off against the borrower,
and the Fund may not benefit directly from any collateral supporting the loan
in which it has purchased the participation. As a result, the Fund will assume
the credit risk of both the borrower and the lender that is selling the
participation. In the event of the insolvency of the lender selling the
participation, the Fund may be treated as a general creditor of the lender and
may not benefit from any set-off between the lender and the borrower.
At June 30, 2000, the Fund did not have any investments in loan participations.
12. CAPITAL LOSS CARRYFORWARD
At December 31, 1999, the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $12,300, available to offset future capital
gains through December 31, 2007. To the extent that these carryforward losses
are used to offset capital gains, it is probable that the gains so offset will
not be distributed.
S-63
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited) (continued)
13. CAPITAL STOCK
At June 30, 2000, the Series had 10,000,000,000 shares of capital stock
authorized with a par value of $0.001 per share. Each share represents an equal
proportionate interest and has an equal entitlement to any dividends and
distributions made by the Fund.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
Shares sold ......................................... 548,712 1,449,515
Shares issued on reinvestment of dividends .......... -- 41,305
Shares reacquired ................................... (398,262) (345,070)
---------------- -----------------
Net Increase ........................................ 150,450 1,145,750
================ =================
</TABLE>
S-64
<PAGE>
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
2000(1) 1999 1998(2)
--------- ------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................. $ 10.23 $ 10.40 $10.00
--------- ------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (3) ......................... 0.23 0.24 0.15
Net realized and unrealized gain (loss) ........... 0.09 (0.16) 0.43
--------- ------- --------
Total Income From Operations ...................... 0.32 0.08 0.58
--------- ------- --------
LESS DISTRIBUTIONS FROM:
Net investment income ............................. -- (0.24) (0.15)
Net realized gains ................................ -- (0.00)* (0.03)
Capital ............................................ -- (0.01) --
--------- ------- --------
Total Distributions ............................... -- (0.25) (0.18)
--------- ------- --------
NET ASSET VALUE, END OF PERIOD ...................... $ 10.55 $ 10.23 $10.40
========= ======= ========
TOTAL RETURN (4) .................................... 3.13%++ 0.78% 5.83%++
NET ASSETS, END OF PERIOD (000s) .................... $19,722 $17,584 $5,971
RATIOS TO AVERAGE NET ASSETS:
Expenses (3)(5) ................................... 1.00%+ 1.00% 1.00%+
Net investment income ............................. 4.86%+ 3.50% 3.57%+
PORTFOLIO TURNOVER RATE ............................ 22% 63% 56%
</TABLE>
-----------------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from February 17, 1998 (commencement of operations)
through December 31, 1998.
(3) SBAM has waived all or a part of its management fees for the six months
ended June 30, 2000, the year ended December 31, 1999 and the period ended
December 31, 1998. In addition, SBAM has reimbursed the Fund for $26,591 of
expenses for the period ended December 31, 1998. If such fees were not
waived or expenses not reimbursed, the per share decrease in net investment
income and the actual expense ratio would have been as follows:
<TABLE>
<CAPTION>
EXPENSE RATIO WITHOUT
NET INVESTMENT INCOME FEE WAIVER AND/OR
PER SHARE DECREASES EXPENSE REIMBURSEMENT
--------------------- ---------------------
<S> <C> <C>
2000 .......... $0.01 1.31%+
1999 .......... 0.05 1.65
1998 .......... 0.08 2.90+
</TABLE>
(4) Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown. Total
returns may also reflect a voluntary expense cap imposed by Salomon Brothers
Asset Management Inc to limit total Fund operating expenses. Absent this
expense cap, total returns for the Fund would be lower. Expense caps may
be revised or terminated.
(5) As a result of a voluntary expense limitation, expense ratios
will not exceed 1.00%.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of
the total return for the year.
+ Annualized.
S-65
<PAGE>
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
PFPC Trust Company
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
DIRECTORS
CHARLES F. BARBER
Consultant; formerly Chairman;
ASARCO Incorporated
CAROL L. COLMAN
Consultant, Colman Consulting
DANIEL P.CRONIN
Vice President-General Counsel,
Pfizer International Inc.
HEATH B. MCLENDON
Chairman and President;
Managing Director, Salomon Smith Barney Inc.
President and Director, SSB Citi Fund Management LLC
and Travelers Investment Advisers, Inc.
OFFICERS
HEATH B. MCLENDON
CHAIRMAN AND PRESIDENT
LEWIS E. DAIDONE
EXECUTIVE VICE PRESIDENT AND TREASURER
ROSS S. MARGOLIES
EXECUTIVE VICE PRESIDENT
BETH A. SEMMEL
EXECUTIVE VICE PRESIDENT
PETER J. WILBY
EXECUTIVE VICE PRESIDENT
GEORGE J. WILLIAMSON
EXECUTIVE VICE PRESIDENT
JOHN B. CUNNINGHAM
VICE PRESIDENT
ANTHONY PACE
CONTROLLER
CHRISTINA T. SYDOR
SECRETARY
<PAGE>
----------------------------
SALOMON BROTHERS
---------------------------
ASSET MANAGEMENT
SEVEN WORLD TRADE CENTER - NEW YORK, NEW YORK 10048
<PAGE>
Hartford Life Insurance Companies
P.O. Box 2999
Hartford, CT 06104-2999
--------------
PRSRT STD
U.S. POSTAGE
PAID
LEOMINSTER, MA
PERMIT NO. 17
--------------
HV-2233-4
Printed in U.S.A. -Registered Trademark- 2000 The Hartford, Hartford, CT 06115
