THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
THE
MEDLEY
PROGRAM
COMMITTED TO PROVIDING
SUPERIOR INVESTMENT,
ADMINISTRATIVE AND
RECORDKEEPING SERVICES
TO INSTITUTIONAL CLIENTS
[LOGO] Prudential
JUNE 30, 1996 REPORT TO PARTICIPANTS
<PAGE>
[THIS PAGE INTENTIALLY LEFT BLANK]
<PAGE>
Table of Contents
VCA-10 Capital Growth Account 3
VCA-11 Money Market Account 14
VCA-24 Investment Performance 23
Financial Statements 25
The Prudential Series Fund, Inc. 31
This report is for the information of persons participating in The Prudential
Variable Contract Account-10 (VCA-10), The Prudential Variable Contract
Account-11 (VCA-11), and The Prudential Variable Contract Account-24 (VCA-24)
(The MEDLEY Program). The report is not authorized for distribution to
prospective investors unless preceded or accompanied by a current prospectus for
The MEDLEY Program. VCA-10, VCA-11 and VCA-24 are distributed by Prudential
Retirement Services, Inc., an affiliate of The Prudential Insurance Company of
America. VCA-10, VCA-11 and VCA-24 are group annuity insurance products issued
by The Prudential Insurance Company of America, Newark, NJ.
GP-4401
<PAGE>
INVESTMENT OBJECTIVES OF THE ACCOUNTS
The investment objective of VCA-10 is the long-term appreciation of the assets
held in the Account. Since no federal income tax will be payable upon dividend
income or realized capital gains, consideration will be given to both potential
income and capital gains opportunities in selecting investments. Investments
will be made primarily in established corporations according to the standards of
a prudent investor concerned primarily with preserving the real value of capital
by achieving a rate of growth in the value of investments commensurate with the
rate of growth in the economy and the prevailing rate of inflation.
The investment objective of VCA-11 is to seek as high a level of current income
as is consistent with the preservation of capital and liquidity.
Each Subaccount of VCA-24 will invest in the corresponding portfolio of The
Prudential Series Fund, Inc. (the "Fund"). Of the portfolios comprising the
Fund, seven portfolios are presently available to the Participants of VCA-24.
The Equity Subaccount invests in the Equity Portfolio, the Diversified Bond
Subaccount in the Diversified Bond Portfolio, the Flexible Managed Subaccount in
the Flexible Managed Portfolio, the Conservative Balanced Subaccount in the
Conservative Balanced Portfolio, the Stock Index Subaccount in the Stock Index
Portfolio, the Global Subaccount in the Global Portfolio, and the Government
Income Subaccount in the Government Income Portfolio. Additional Subaccounts and
Fund portfolios may be available in the future. The investment objectives of the
seven Fund portfolios available for investment through VCA-24 are:
EQUITY PORTFOLIO (formerly Common Stock Portfolio)--Capital appreciation
through investment primarily in common stocks of companies, including major
established corporations as well as smaller capitalization companies, that
appear to offer attractive prospects of price appreciation that is superior
to broadly-based stock indices. Current income, if any, is incidental.
DIVERSIFIED BOND PORTFOLIO (formerly Bond Portfolio)--A high level of
income over the longer term while providing reasonable safety of capital
through investment primarily in readily marketable intermediate and
long-term fixed income securities that provide attractive yields but do not
involve substantial risk of loss of capital through default.
FLEXIBLE MANAGED PORTFOLIO (formerly Aggressively Managed Flexible
Portfolio)--Achievement of a high total return consistent with a portfolio
having an aggressively managed mix of money market instruments, fixed
income securities, and common stocks, in proportions believed by the
investment manager to be appropriate for an investor desiring
diversification of investment who is willing to accept a relatively high
risk of loss in an effort to achieve greater appreciation.
CONSERVATIVE BALANCED PORTFOLIO (formerly Conservatively Managed Flexible
Portfolio)--Achievement of a favorable total investment return consistent
with a portfolio having a conservatively managed mix of money market
instruments, fixed income securities, and common stocks of established
companies, in proportions believed by the investment manager to be
appropriate for an investor desiring diversification of investment who
prefers a relatively lower risk of loss than that associated with the
Flexible Managed Portfolio while recognizing that this reduces the chances
of greater appreciation.
STOCK INDEX PORTFOLIO--Achievement of investment results that correspond to
the price and yield performance of publicly traded common stocks in the
aggregate by following a policy of attempting to duplicate the price and
yield performance of the Standard & Poor's 500 Composite Stock Price Index.
GLOBAL PORTFOLIO (formerly Global Equity Portfolio)--Long-term growth of
capital through investment primarily in common stock and common stock
equivalents of foreign and domestic issuers. Current income, if any, is
incidental.
GOVERNMENT INCOME PORTFOLIO (formerly Government Securities Portfolio)--A
high level of income over the longer term consistent with the preservation
of capital through investment primarily in U.S. Government securities,
including intermediate and long-term U.S. Treasury securities and debt
obligations issued by agencies of or instrumentalities established,
sponsored or guaranteed by the U.S. Government. At least 65% of the total
assets of the Portfolio will be invested in U.S. Government securities.
There is no assurance that the investment objective of VCA-10, VCA-11, or any
Fund portfolio will be attained. Nor is there any guarantee that the amount
available to a Participant will equal or exceed the total contributions made on
that Participant's behalf. The value of the investments held in VCA-10, VCA-11,
and in each Fund portfolio may fluctuate daily and is subject to the risks of
both changing economic conditions and the selection of investments necessary to
meet the Accounts' or portfolios' objectives.
2
<PAGE>
VCA-10
INVESTMENT ENVIRONMENT
In the first half of 1996, the S&P 500 built upon last year's upward surge
returning 10.1%. Much like last year, the market was helped by good corporate
earnings, subdued inflation and favorably viewed corporate restructurings.
Unlike last year, however, interest rates rose as a result of several
stronger-than-expected economic reports. Most noteworthy was the surprisingly
strong employment report for February, which instantly changed investor
psychology from fear of a slowdown, to fear of accelerating growth. Large growth
stocks outperformed large value stocks for the period with the Russell 1000
Growth Index returning 12.1% vs. 7.5% for the Russell 1000 Value Index.
The Consumer Cyclical sector was the best performing sector, up 16.3%. Within
the sector, the retail and textile/apparel industries produced superior
performance, as consumers continued to spend in these areas, while the auto and
housing related industries produced slightly below market returns. Technology
was the second best performing sector, up 14.5%. Within the sector, returns were
disparate with the superior returns of a handful of large "elite" companies such
as Microsoft and Intel skewing the performance of a largely lackluster sector.
The Utility sector, up 0.4% for the period, was by far the worst performer. It
was hurt by rising interest rates and the passage of the Telecommunication
Deregulation Act of 1996, which created a lot of uncertainty as investors tried
to sort out the winners and losers.
INVESTMENT PERFORMANCE
STOCK MARKET RETURNS
with dividends reinvested
PERIODS ENDED JUNE 30, 1996
SIX MONTHS ONE YEAR
S&P 500 10.10% 26.00%
Returns by Economic Sector:
Energy 10.50 26.12
Utility 0.36 22.99
Technology 14.48 17.51
Finance 10.29 33.51
Industrial 11.72 22.85
Consumer Cyclical 16.26 17.79
Consumer Growth 10.71 32.42
Year-to-date, the VCA-10 account rose 10.3%, outperforming the S&P 500 which was
up 10.1%.
VCA-10 was helped by an overweighting in Industrial, as well as an
underweighting in Utilities, the poorest performing sector. These positives were
offset to some degree by poor relative performance in Technology and Finance
holdings, the latter due to a lack of money center banks and poor performing
insurance positions.
3
<PAGE>
INVESTMENT ACTIVITY
During the second quarter and year-to-date VCA-10 reduced its weighting slightly
in the Consumer Growth & Stable sector, and commensurately increased the
Technology weighting taking advantage of weakness there. In Consumer Growth &
Stable, sales were made in drug stocks as their values became less compelling
and in Community Health Systems, a hospital management company that received a
buyout bid. Offsetting these sales slightly were purchases of drug retailers
Eckerd and Thrifty Payless. Within Technology, purchases included IBM, Seagate
and several electronic equipment distributors.
Overall VCA-10 continues to be overweighted in Industrial and Financial stocks,
the former because of a projected continuation of moderate economic growth and
the latter because of valuations that are considered attractive, especially in
insurance stocks where the majority of the overweighting is located.
INVESTMENT OUTLOOK
The original forecast for 1996 was that the economy would grow, albeit
moderately, and inflation would remain under control. Within this environment it
was believed corporate profits would be solid, but not great, as the slow
economy weighted on earnings. In such an environment stock market gains were
anticipated to be modest.
The market started out the year strongly but recently has given up a lot of
those gains as interest rates have trended up and European weakness has been
added to U.S. sluggishness. This has led to extreme volatility in the market
overall and particular weakness in financial, technology and cyclically
sensitive stocks as some investors fear a recession. The opinion regarding a
slow growth environment with inflation and interest rates remaining relatively
stable has not changed, hence financial and industrial stocks, where the fund is
overweighted, should do better as concerns abate.
VCA-10
AVERAGE ANNUAL RETURNS
FOR PERIODS ENDED JUNE 30, 1996
YTD ONE YEAR FIVE YEARS TEN YEARS
Unit Value1 10.26% 24.04% 15.78% 11.17%
With Max. Sales Charge2 3.18% 16.95% 15.06% 10.98%
These returns represent past performance. Past performance cannot guarantee
comparable future results. Investment return and principal value will fluctuate
so that units, upon redemption, may be worth more or less than their original
cost.
1Unit Value performance is calculated based on the change in the accumulation
unit value and does not take into account the payment of a deferred sales charge
at the time of withdrawal.
2With Maximum Sales Charge performance is based on the change in accumulation
unit value and reflects the deduction of the following maximum deferred sales
charges: "1 year", 7%; "5 years", 6%; and "10 years", 4%. The performance
results also reflect the impact of the $20 annual contract fee charged in
connection with participation in The Medley Program.
4
<PAGE>
CONDENSED FINANCIAL INFORMATION FOR VCA-10
INCOME AND CAPITAL CHANGES PER UNIT
(For a Unit outstanding throughout the period)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME ............................................ $ .0326 $ .0609
- ---------------------------------------------------------------------------------------------------
EXPENSES
For investment management fee .............................. .0057 .0094
For administrative expenses not covered
by the annual account charge ............................. .0170 .0282
- ---------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME ........................................ .0099 .0233
- ---------------------------------------------------------------------------------------------------
CAPITAL CHANGES
Net realized gain on investments ........................... .2157 .3850
Net unrealized appreciation of investments ................. .2099 .4744
- ---------------------------------------------------------------------------------------------------
NET INCREASE IN UNIT VALUE ................................... .4355 .8827
- ---------------------------------------------------------------------------------------------------
UNIT VALUE
Beginning of period ........................................ 4.2431 3.3604
End of period .............................................. $4.6786 $4.2431
- ---------------------------------------------------------------------------------------------------
SUM OF AVERAGE RATIOS for the period of (a) charge
for investment management fee to net assets*, and
(b) charge for administrative expenses not covered
by the annual account charge to net assets* ................ .4975% .9901%
- ---------------------------------------------------------------------------------------------------
AVERAGE RATIO for the period of net investment
income to net assets ....................................... .2177% .6133%
- ---------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE ...................................... 17.63% 44.77%
- ---------------------------------------------------------------------------------------------------
NUMBER OF UNITS OUTSTANDING
for Participants at end of period (000 omitted) ............ 87,857 81,817
- ---------------------------------------------------------------------------------------------------
</TABLE>
*These calculations exclude Prudential's equity in VCA-10.
The above table does not reflect the annual account charge, which does not
affect the Unit Value of VCA-10. This charge is made by reducing Participants'
accounts by a number of Units equal in value to the charge.
While both income and capital changes are shown above, the distinction between
these sources of change in VCA-10 is not particularly significant to
Participants. There is no distinction between income and realized and unrealized
gains and losses on investments in determining the amount of the Participant's
benefits and the taxes payable by the Participant on them.
5
<PAGE>
FINANCIAL STATEMENTS OF VCA-10
STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996
Common Stock Market
Investments [Note 2] Shares Value
- ------------------------------------------------------------------------------
AEROSPACE/DEFENSE (1.8%)
Gen Corp. 137,700 $ 2,082,713
General Motors Corp.
(Class 'H' Stock) 29,600 1,779,700
Litton Industries, Inc.+ 81,200 3,532,200
-----------
7,394,613
- ------------------------------------------------------------------------------
AUTOS & TRUCKS (2.4%)
A.O. Smith Corp. 214,900 5,372,500
Custom Chrome+ 86,400 2,322,000
Lear Corp.+ 67,000 2,361,750
-----------
10,056,250
- ------------------------------------------------------------------------------
CHEMICALS (5.8%)
Cytec Industries, Inc.+ 74,600 6,378,300
E.I. Dupont De Nemours & Co. 50,300 3,979,988
Imperial Chemical Industries
(ADRs) 38,300 1,881,487
Mississippi Chemical Corp. 185,200 3,704,000
Olin Corp. 44,400 3,962,700
Uniroyal Chemical Corp.+ 84,600 1,258,425
W.R. Grace & Co. 42,000 2,976,750
-----------
24,141,650
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT (0.7%)
Oak Industries, Inc.+ 104,300 3,089,887
- ------------------------------------------------------------------------------
COMPUTER HARDWARE (2.1%)
International Business Machines 27,000 2,673,000
Lexmark International Group
(Class 'A' Stock)+ 97,200 1,956,150
Seagate Technology, Inc.+ 91,000 4,095,000
-----------
8,724,150
- ------------------------------------------------------------------------------
CONSUMER SERVICES (1.9%)
Pittston Brinks Group 83,500 2,431,937
Whitman Corp. 231,500 5,584,938
-----------
8,016,875
- ------------------------------------------------------------------------------
CONTAINERS AND PACKAGING (2.3%)
ACX Technologies, Inc.+ 105,000 2,086,875
Alltrista Corp.+ 169,400 4,023,250
U.S. Can Corp.+ 201,000 3,266,250
-----------
9,376,375
- ------------------------------------------------------------------------------
COSMETICS & SOAPS (0.3%)
Bush Boake Allen, Inc.+ 49,400 1,074,450
- --------------------------------------------------------------------------------
Drugs & Medical Supplies (3.3%)
Ciba-Geigy Ag-Spons (ADRs) 65,000 3,960,937
Gelman Sciences, Inc.+ 130,000 2,941,250
Rhone Poulenc Rorer 41,900 2,812,538
Zeneca Group PLC (ADRs) 57,600 3,873,600
-----------
13,588,325
- ------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT (1.2%)
Belden, Inc. 108,800 $ 3,264,000
Littelfuse, Inc.+ 50,100 1,878,750
-----------
5,142,750
- ------------------------------------------------------------------------------
ELECTRONICS (5.4%)
Anixter International+ 200,000 2,975,000
Marshall Industries+ 125,000 3,500,000
Methode Electronics, Inc. 357,500 6,077,500
Pioneer Standard Electronics 195,900 2,595,675
SGS-Thomson Microelec+ 81,000 2,905,875
Sterling Electronics+ 250,000 3,375,000
Wyle Electronics 27,500 910,937
-----------
22,339,987
- ------------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION (0.8%)
Giant Cement Holding, Inc.+ 259,900 3,281,238
- --------------------------------------------------------------------------------
Exploration & Production (5.0%)
Cabot Oil & Gas Corp. 133,000 2,310,875
Enron Oil & Gas 95,000 2,648,125
Occidental Petroleum Corp. 120,500 2,982,375
Oryx Energy Co.+ 270,000 4,387,500
Parker & Parsley Petroleum
Co. 100,000 2,775,000
Santa Fe Energy Resources+ 163,300 1,939,187
Seagull Energy Corp.+ 59,200 1,480,000
Vintage Petroleum, Inc. 80,300 2,047,650
-----------
20,570,712
- ------------------------------------------------------------------------------
FINANCIAL SERVICES (5.2%)
American States Financial+ 138,700 2,982,050
Associates First Capital Co.+ 20,700 778,837
Beneficial Corp. 43,000 2,413,375
Dean Witter Discover & Co. 104,100 5,959,725
Financial Security Assurance
Holdings 107,000 2,929,125
Finova Group, Inc. 64,600 3,149,250
Travelers Group, Inc. 69,300 3,161,813
21,374,175
- ------------------------------------------------------------------------------
FOOD/DRUG RETAIL (2.0%)
Eckerd Corp.+ 193,000 4,366,625
Thrifty Payless Holdings
(Class `B' Stock)+ 234,200 4,039,950
------- ---------
8,406,575
- ------------------------------------------------------------------------------
FOODS (0.3%)
Interstate Bakeries, Inc. 43,500 1,163,625
- ------------------------------------------------------------------------------
HOSPITAL MANAGEMENT (1.4%)
Tenet Healthcare+ 264,500 5,653,688
- ------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.6%)
Premark International, Inc. 138,400 2,560,400
- ------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
FINANCIAL STATEMENTS OF VCA-10
STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996
Common Stock Market
Investments [Note 2] Shares Value
- -------------------------------------------------------------------------------
HOUSING RELATED (2.8%)
Furniture Brands International,
Inc.+ 290,500 $ 3,195,500
Mueller Industries, Inc.+ 100,000 4,150,000
Owens Corning Fiberglass
Corp. 100,000 4,300,000
-----------
11,645,500
- -------------------------------------------------------------------------------
INSURANCE (8.6%)
Allied Group, Inc. 52,600 2,288,100
Allmerica Financial Corp. 67,800 2,017,050
Equitable of Iowa Companies 114,600 4,068,300
ITT Hartford Group, Inc. 34,500 1,837,125
NAC Re Corp. 95,000 3,182,500
National Re Corp. 93,300 3,522,075
Reinsurance Group
of America 150,000 5,662,500
TIG Holdings, Inc. 114,000 3,306,000
Trenwick Group, Inc. 62,900 3,145,000
Unionamerica Holdings, PLC 225,000 3,403,125
W.R. Berkley Corp. 71,700 2,993,475
-----------
35,425,250
- -------------------------------------------------------------------------------
MACHINERY (4.3%)
Allied Products 140,400 3,983,850
Applied Power Co.
(Class 'A' Stock) 225,800 6,322,400
Cincinnati Milacron, Inc. 55,200 1,324,800
Hardinge, Inc. 80,800 2,565,400
Harnischfeger Industries 113,100 3,760,575
-----------
17,957,025
- -------------------------------------------------------------------------------
Common Stock Market
Investments [Note 2] Shares Value
- -------------------------------------------------------------------------------
MEDIA (9.0%)
Century Communications
(Class 'A' Stock)+ 218,000 $ 1,853,000
Comcast Corp.
(Class 'A' Stock) 130,000 2,388,750
Comcast Corp. Special
(Class 'A' Stock) 37,500 693,750
Cox Communication
(Class `A' Stock)+ 113,213 2,448,231
E.W. Scripps Co.
(Class 'A' Stock) 60,000 2,797,500
Harcourt General, Inc. 93,000 4,650,000
Hollinger International
(Class 'A' Stock) 150,300 1,709,662
Knight Ridder, Inc. 53,700 3,893,250
Lee Enterprises 85,000 2,008,125
Pulitzer Publishing Co. 31,000 1,836,750
Tele-Communications, Inc.
TCI Group (Series A)+ 170,000 3,081,250
Tele-Communications, Inc.
Liberty Media Group
(Series A)+ 42,500 1,126,250
Time Warner, Inc. 115,000 4,513,750
Times Mirror Co.
(Class 'A' Stock) 56,300 2,449,050
United International Holdings
(Class 'A' Stock)+ 113,100 1,555,125
-----------
37,004,443
- -------------------------------------------------------------------------------
MISCELLANEOUS-INDUSTRIAL (13.4%)
Allied Signal, Inc. 30,400 1,736,600
Ametek, Inc. 100,000 2,175,000
Coltec Industries, Inc.+ 111,900 1,594,575
Crane Co. 66,400 2,722,400
Danaher Corp. 70,800 3,079,800
Donaldson, Inc. 100,000 2,575,000
Figgie International, Inc.
(Class 'A' Stock)+ 250,000 3,781,250
Global Industrial
Technologies+ 281,500 4,504,000
Greenfields Industries, Inc. 129,000 4,257,000
Hanson PLC (ADRs) 227,500 3,241,875
Idex Corp. 85,000 3,230,000
Jason, Inc.+ 160,600 1,345,025
Lydall, Inc.+ 113,600 2,499,200
Mark IV Industries, Inc. 154,943 3,505,585
Pentair, Inc. 138,800 4,164,000
Regal Beloit Corp. 142,000 2,804,500
United Dominion Industries 150,000 3,450,000
Wolverine Tube, Inc.+ 135,600 4,746,000
-----------
55,411,810
- -------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
FINANCIAL STATEMENTS OF VCA-10
STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996
Common Stock Market
Investments [Note 2] Shares Value
- ------------------------------------------------------------------------------
NON-FERROUS METALS (1.7%)
The Carbide/Graphite Group+ 249,600 $ 4,680,000
Ucar International, Inc.+ 52,600 2,189,475
------------
6,869,475
- ------------------------------------------------------------------------------
RAILROADS (3.5%)
Canadian Pacific Ltd. 89,300 1,964,600
Greenbrier Companies, Inc. 247,500 3,434,063
Illinois Central Corp. 110,400 3,132,600
Union Pacific Corp. 52,000 3,633,500
Varlen Corp. 105,023 2,205,472
------------
14,370,235
- ------------------------------------------------------------------------------
REGIONAL BANKS (4.9%)
Bank of Boston Corp. 85,500 4,232,250
Cullen Frost Bankers, Inc. 150,000 4,162,500
First Bank System, Inc. 56,300 3,265,400
First Chicago NBD Corp. 70,272 2,749,392
Norwest Corp. 171,800 5,991,525
------------
20,401,067
- ------------------------------------------------------------------------------
RETAIL (0.6%)
Haverty Furniture, Inc. 236,100 2,420,025
- ------------------------------------------------------------------------------
SAVINGS & LOANS (0.2%)
Washington Mutual, Inc. 22,000 657,250
- --------------------------------------------------------------------------------
Specialty Chemicals (1.9%)
Cambrex Corp. 10,400 531,700
Ferro Corp. 134,800 3,572,200
Lilly Industries, Inc. 74,000 1,258,000
OM Group, Inc. 69,000 2,708,250
------------
8,070,150
- ------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (3.6%)
AT&T Corp. 72,100 4,470,200
Century Telephone Enterprises,
Inc. 58,000 1,848,750
Frontier Corporation 170,600 5,224,625
MCI Communications Corp. 126,000 3,228,750
------------
14,772,325
- ------------------------------------------------------------------------------
TEXTILES/APPAREL (0.6%)
Fieldcrest Cannon, Inc.+ 118,800 $ 2,331,450
- ------------------------------------------------------------------------------
TRUCKING/SHIPPING (0.5%)
Pittston Burlington Group 94,900 2,052,213
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS (98.1%)
(Cost: $322,936,134) $405,343,943
- ------------------------------------------------------------------------------
Short-Term Principal
Investments [Note 2] Amount Value
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Goldman Sachs, 5.35%
06/28/96--07/01/96, Amount Due--
$5,849,607 (collateralized by
$6,010,133 U.S. Treasury Bonds,
8.875%, Due 02/15/19) $5,847,000 $ 5,849,607
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (1.4%)
(Cost: $5,847,000) 5,849,607
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.5%)
(Cost: $328,783,134) $411,193,550
- ------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
Bank Overdraft (658,172)
Dividends Receivable 414,162
Receivable for Investments Sold 3,115,247
Payable for Investments Purchased (815,199)
Pending Transfers (177,753)
- ------------------------------------------------------------------------------
TOTAL OTHER ASSETS, LESS LIABILITIES (0.5%) 1,878,285
- ------------------------------------------------------------------------------
NET ASSETS (100%) $413,071,835
- --------------------------------------------------------------------------------
Net Assets, representing:
Equity of Participants
87,857,212 Accumulation Units at an
Accumulation Unit Value of
$4.6786 (rounded) $411,051,528
Equity of The Prudential Insurance
Company of America 2,020,307
- ------------------------------------------------------------------------------
$413,071,835
==============================================================================
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipts
PLC Public Limited Company
+ Non-income producing securities
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
FINANCIAL STATEMENTS OF VCA-10
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------
Six Months Ended June 30 1996
- -------------------------------------------------------------------------------
INVESTMENT INCOME [NOTE 2]
Dividends $ 2,287,319
Interest 479,859
- -------------------------------------------------------------------------------
2,767,178
EXPENSES [NOTE 3]
Fees Charged to Participants for Investment Management Services 484,123
Fees Charged to Participants for Administrative Expenses 1,452,371
- -------------------------------------------------------------------------------
Investment Income--Net 830,684
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS--NET
Realized Gain on Investments--Net 16,838,972
Unrealized Increase in Value of Investments--Net 18,800,875
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 35,639,847
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $36,470,531
===============================================================================
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
<CAPTION>
- -------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Investment Income--Net $ 830,684 $ 1,824,418
Realized Gain on Investments--Net [Note 2B] 16,838,972 30,814,449
Unrealized Increase
In Value of Investments--Net [Note 2B] 18,800,875 37,773,296
- -------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 36,470,531 70,412,163
- -------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Purchase Payments and Transfers In [Note 9] 56,708,518 57,125,760
Withdrawals and Transfers Out [Note 9] (28,335,708) (45,844,459)
Annual Account Charges Deducted from
Participants' Accounts [Note 4] (3,085) (78,996)
Deferred Sales Charge [Note 5] 122,807 (146,870)
- -------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 28,492,532 11,055,435
- -------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS [NOTE 10] (980,047) 0
- -------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 63,983,016 81,467,598
NET ASSETS
Beginning of Period 349,088,819 267,621,221
- -------------------------------------------------------------------------------------------------
End of Period $413,071,835 $349,088,819
=================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-10 (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND YEAR ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------------------
NOTE 1: GENERAL
The Prudential Variable Contract Account-10 (VCA-10 or the Account)
was established by The Prudential Insurance Company of America
(Prudential) under the laws of the State of New Jersey and is
registered as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended. VCA-10 has been
designed for use by employers (Contract-holders) in making retirement
arrangements on behalf of their employees (Participants). Its
investments are composed primarily of common stocks. All contractual
and other obligations arising under contracts participating in VCA-10
are general corporate obligations of Prudential, although
Participants' payments from the Account will depend upon the
investment experience of the Account.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. SECURITIES VALUATION
EQUITY SECURITIES
Securities for which the primary market is on an exchange are
generally valued at the last sale price on such exchanges of the close
of the New York Stock Exchange (which is currently 4:00 p.m. Eastern
time) or, in the absence of recorded sales, at the mean between the
most recently quoted bid and asked prices. NASDAQ National Market
System equity securities are valued at the last sale price or, if
there was no sale on such day, at the mean between the most recently
quoted bid and asked prices. Other over-the-counter equity securities
are valued at the mean between the most recently quoted bid and asked
prices. Portfolio securities for which market quotations are not
readily available will be valued at fair value as determined in good
faith under the direction of the Account's Committee.
FIXED INCOME SECURITIES
Fixed income securities will be valued utilizing an independent
pricing service to determine valuations for normal institutional size
trading units of securities. The pricing service considers such
factors as security prices, yields, maturities, call features, ratings
and developments relating to specific securities in arriving at
securities valuations. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for
which the primary market is believed to be over-the-counter, are
valued at the mean between the most recently quoted bid and asked
prices provided by an independent pricing service.
SHORT-TERM INVESTMENTS
Short-term investments having maturities of sixty days or less are
valued at amortized cost, which approximates market value. Amortized
cost is computed using the cost on the date of purchase, adjusted for
constant accrual of discount or amortization of premium to maturity.
REPURCHASE AGREEMENTS
Repurchase agreements may be considered loans of money to the seller
of the underlying security. VCA-10 will not enter into repurchase
agreements unless the agreement is fully collateralized, i.e., the
value of the underlying collateral securities is, and during the
entire term of the agreement remains, at least equal to the amount of
the `loan' including accrued interest. VCA-10 will take possession of
the collateral and will value it daily to assure that this condition
is met. In the event that a seller defaults on a repurchase agreement,
VCA-10 may incur a loss in the market value of the collateral as well
as disposition costs; and, if a party with whom VCA-10 had entered
into a repurchase agreement becomes insolvent, VCA-10's ability to
realize on the collateral may be limited or delayed and a loss may be
incurred if the collateral securing the repurchase agreement declines
in value during the insolvency proceedings.
OPTIONS
Options on stock and stock indices traded on national securities
exchanges are valued at the mean of the bid and asked prices as of the
close of the respective exchange (which is currently 4:10 p.m. Eastern
time). Futures contracts and options thereon are valued at the last
sale price at the close of the applicable commodities exchange or
board of trade (which is currently 4:15 p.m. Eastern time).
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-10 (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
B. Income Recognition
Income and realized and unrealized gains and losses on investments are
allocated to the Participants and Prudential on a daily basis in
proportion to their respective equities in VCA-10. Realized gains and
losses from equity transactions and convertible bond transactions are
determined and accounted for on the basis of identified cost. Dividend
income is recorded on the ex-dividend date at declared value. Interest
income is accrued daily. Equity, long-term bond and option
transactions are recorded on the first business day following the
trade date, except that transactions on the last business day of the
year are recorded on that date. Short-term security transactions are
recorded on trade date.
Effective January 1, 1996, VCA-10 changed its method of accounting for
realized gains and losses on investments from an average cost basis to
an identified cost basis. The net cumulative effect of this accounting
change for fiscal year 1995 is as follows:
----------------------------------------------------------------------
Year ended December 31, 1995, as reported:
Realized Gain on Investments--
Net Before Cumulative Effect due to accounting
change to identified cost: $30,814,449
Unrealized Increase in Value of Investments--
Net Before Cumulative Effect due to accounting
change to identified cost: 37,773,296
----------------------------------------------------------------------
$68,587,745
======================================================================
Year ended December 31, 1995, after cumulative
effect of change:
Realized Gain on Investments--
Net After Cumulative Effect due to accounting change
to identified cost: $29,129,273
Unrealized Increase in Value of Investments--
Net After Cumulative Effect due to accounting change
to identified cost: 39,458,472
----------------------------------------------------------------------
$68,587,745
======================================================================
C. TAXES
The operations of VCA-10 are part of, and are taxed with, the
operations of Prudential. Under the current provisions of the Internal
Revenue Code, Prudential does not expect to incur federal income taxes
on earnings of VCA-10 to the extent the earnings are credited under
the Contracts. As a result, the Unit Value of VCA-10 has not been
reduced by federal income taxes.
NOTE 3: EXPENSES
A daily charge, at an effective annual rate of 1.00% of the current
value of the Participant's equity in VCA-10, is paid to Prudential.
Three quarters of this charge (0.75%) is for administrative expenses
not covered by the annual account charge, and one quarter (0.25%) is
for investment management services.
NOTE 4: ANNUAL ACCOUNT CHARGE
An annual account charge is deducted from the account of each
Participant at the time of withdrawal of the value of all of the
Participant's accounts or at the end of the accounting year by
cancelling Units. The charge will first be made against a
Participant's account under a fixed dollar annuity companion contract
or fixed rate option of the non-qualified combination contract. If the
Participant has no account under a companion contract or the fixed
rate option, or if the amount under the companion contract or the
fixed rate option is too small to pay the charge, the charge will be
made against the Participant's account in VCA-11. If the Participant
has no VCA-11 account, or if the amount under that account is too
small to pay the charge, the charge will then be made against the
Participant's VCA-10 account. If the Participant has no VCA-10
account, or if it is too small to pay the charge, the charge will then
be made against any one or more of the Participant's accounts in
VCA-24. The annual account charge will not be greater than $20 and is
paid to Prudential.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-10 (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
NOTE 5: DEFERRED SALES CHARGE
A deferred sales charge is imposed upon that portion of certain
withdrawals which represents a return of contributions. The charge is
designed to compensate Prudential for sales and other marketing
expenses. The maximum deferred sales charge is 7% on contributions
withdrawn from an account during the first two years of participation,
6% on contributions withdrawn during the third through fifth years, 4%
on contributions withdrawn during the sixth through tenth years, and
3% on contributions withdrawn during the eleventh through fifteenth
years. No deferred sales charge is imposed upon contributions
withdrawn for any reason after fifteen years of participation in the
Program. In addition, no deferred sales charge is imposed upon
contributions withdrawn to purchase an annuity under a Contract, to
provide a death benefit, pursuant to a systematic withdrawal plan, to
provide a minimum distribution payment, or in cases of financial
hardship or disability retirement as determined pursuant to provisions
of the employer's retirement arrangement. Further, for all plans other
than IRAs, no deferred sales charge is imposed upon contributions
withdrawn due to resignation or retirement by the Participant or
termination of the Participant by the Contract-holder. Contributions
transferred among VCA-10, VCA-11, the Subaccounts of VCA-24, a
companion contract, and the fixed rate option of the non-qualified
combination contract are considered to be withdrawals from the Account
or Subaccount from which the transfer is made, but no deferred sales
charge is imposed upon them. They will however, be considered as
contributions to the receiving Account or Subaccount for purposes of
calculating any deferred sales charge imposed upon their subsequent
withdrawal from it.
NOTE 6: PURCHASES AND SALES OF PORTFOLIO SECURITIES
For the six months ended June 30, 1996, excluding short-term
investments and U.S. government securities, the aggregate cost of
purchases and the proceeds from sales of securities were $103,331,146
and $65,488,039 respectively.
NOTE 7: UNIT TRANSACTIONS
The number of Units issued and redeemed for the six months ended June
30, 1996 and the year ended December 31, 1995 is as follows:
1996 1995
--------------------------------------------------
Units issued 11,503,768 15,057,016
--------------------------------------------------
Units redeemed 5,463,506 12,428,790
--------------------------------------------------
NOTE 8: RELATED PARTY TRANSACTIONS
For the six months ended June 30, 1996, Prudential Securities
Incorporated, an indirect, wholly-owned subsidiary of Prudential,
earned $5,010 in brokerage commissions from portfolio transactions
executed on behalf of VCA-10.
NOTE 9: PARTICIPANT LOANS
Loans are considered to be withdrawals from the Account from which the
loan amount was deducted, however no deferred sales charge is imposed
upon them. The principal portion of any loan repayment, however, will
be treated as a contribution to the receiving Account for purposes of
calculating any deferred sales charge imposed upon any subsequent
withdrawal. If the Participant defaults on the loan, for example by
failing to make required payments, the outstanding balance of the loan
will be treated as a withdrawal for purposes of the deferred sales
charge. The deferred sales charge will be withdrawn from the same
Accumulation Accounts, and in the same proportions, as the loan amount
was withdrawn. If sufficient funds do not remain in those Accumulation
Accounts, the deferred sales charge will be withdrawn from the
Participant's other Accumulation Accounts as well.
Withdrawals, transfers and loans from VCA-10 are considered to be
withdrawals of contributions until all of the Participant's
contributions to the Account have been withdrawn, transferred or
borrowed. No deferred sales charge is imposed upon withdrawals of any
amount in excess of contributions.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-10 (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, $750,062 in participant loans
has been withdrawn from VCA-10 and $222,089 of principal has been
repaid to VCA-10. For the year ended December 31, 1995, $1,171,098 in
participant loans had been withdrawn from VCA-10 and $327,958 of
principal had been repaid to VCA-10. Loan repayments are invested in
Participant's account(s) as chosen by the Participant, which may not
necessarily be VCA-10. The initial loan proceeds which are being
repaid may not necessarily have originated solely from VCA-10.
NOTE 10: NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The decrease in net assets resulting from surplus transfers represents
the net withdrawals from the Equity of Prudential from VCA-10.
13
<PAGE>
VCA-11
INVESTMENT ENVIRONMENT
Economic weakness, reflected in statistics released early in the year, prompted
the Federal reserve to lower the target federal funds rate (the interbank
overnight lending rate) by 25 basis points on January 31, 1996, from 5.50% to
5.25%. This new target rate was maintained throughout the spring and into the
summer months despite significant change in economic sentiment. Shortly after
the rate reduction, an unusually strong employment report sparked fear in the
market. Record employment had been reflected prompting market participants to
become concerned that the Fed had acted too hastily in its rate reduction.
Thoughts that the economy was stronger than expected began to arise, leading to
speculation of ensuing increases in interest rates. This change in expectations
was exhibited in the market as interest rates rose significantly towards the
latter part of the period.
INVESTMENT PERFORMANCE
VCA-11 returned 2.4% for the six months ended June 30, 1996. The 3 month
Treasury Bill Index returned 2.9% over the same period. Total return for VCA-11
reflects the deduction of expenses and management fees. The index does not have
expenses or fees as it is a broad market gauge and not an actively managed
portfolio.
INVESTMENT OUTLOOK
Currently, many market participants expect an increase in the Fed target rate by
year end, perhaps as early as August. Economists are busy trying to determine
how the Federal Reserve will react in the face of a potentially very strong
economy. Many believe interest rates will undoubtedly be raised in the
near-term, while others anticipate a benign inflation scenario allowing the Fed
Funds target to remain stable at 5.25%.
VCA-11's portfolio manager believes the trend continues to be for higher
interest rates. However, expectation is for the Federal Reserve to wait for
signs of unmanageable economic strength before it increases the Fed Funds target
rate. Until then, the target Fed Funds rate will remain at 5.25%.
INVESTMENT ACTIVITY
The portfolio manager was able to take advantage of the decline in yields early
in the period by maintaining a selection of somewhat longer securities. These
contributed to a greater weighted average maturity for the VCA-11 portfolio
versus competing funds. The weighted average maturity was moved to more neutral
versus competing funds as signs of economic strength appeared.
14
<PAGE>
VCA-11
AVERAGE ANNUAL RETURNS
for Periods ended June 30, 1996
YTD ONE YEAR FIVE YEARS TEN YEARS
Unit Value1 2.36% 4.96% 3.84% 5.42%
With Max. Sales Charge2 (4.71%) (2.11%) 2.74% 5.13%
These returns represent past performance. Past performance cannot guarantee
comparable future results. An investment in VCA-11 is neither insured nor
guaranteed by the U.S. Government. There can be no assurance that VCA-11 will
maintain a stable unit value.
1Unit Value performance is calculated based on the change in the accumulation
unit value and does not take into account the payment of a deferred sales charge
at the time of withdrawal.
2With Maximum Sales Charge performance is based on the change in accumulation
unit value and reflects the deduction of the following maximum deferred sales
charges: "1 year", 7%; "5 years", 6%; and "10 Years", 4%. The performance
results also reflect the impact of the $20 annual contract fee charged in
connection with participation in The Medley Program.
15
<PAGE>
CONDENSED FINANCIAL INFORMATION FOR VCA-11
INCOME AND CAPITAL CHANGES PER UNIT
(For a Unit outstanding throughout the period)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME .................................................... $ .0633 $ .1313
- -------------------------------------------------------------------------------------------------------------
EXPENSES
For investment management fee ...................................... .0028 .0054
For administrative expenses not covered
by the annual account charge ..................................... .0083 .0160
- --------------------------------------------------------------------------------------------------------------
NET INCREASE IN UNIT VALUE ........................................... .0522 .1099
- --------------------------------------------------------------------------------------------------------------
UNIT VALUE
Beginning of period ................................................ 2.2155 2.1056
End of period ...................................................... $2.2677 $2.2155
- --------------------------------------------------------------------------------------------------------------
SUM OF AVERAGE RATIOS for the period of (a) charge for
investment management fee to net assets*, and (b)
charge for administrative expenses not covered by
the annual account charge to net assets* ........................... .4970% .9912%
- --------------------------------------------------------------------------------------------------------------
AVERAGE RATIO for the period of net investment income to net assets .. 2.3274% 5.0835%
- --------------------------------------------------------------------------------------------------------------
NUMBER OF UNITS OUTSTANDING for
Participants at end of period (000 omitted) ........................ 35,536 34,136
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*These calculations exclude Prudential's equity in VCA-11.
The above table does not reflect the annual account charge, which does not
affect the Unit Value of VCA-11. This charge is made by reducing Participants'
accounts by a number of Units equal in value to the charge.
16
<PAGE>
FINANCIAL STATEMENTS OF VCA-11
STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996
SHORT-TERM PRINCIPAL
INVESTMENTS [NOTE 2] AMOUNT VALUE
- --------------------------------------------------------------
COMMERCIAL PAPER--U.S. (37.9%)
Allied-Signal, Inc.,
5.430% Notes,
Due 07/19/96 $ 4,000,000 $ 3,989,180
American Home Products
Corp., 5.418%
Notes, Due 07/10/96 500,000 499,325
Aristar, Inc., 5.452%
Notes, Due 07/09/96 2,000,000 1,997,600
Aristar, Inc., 5.418%
Notes, Due 07/02/96 1,215,000 1,214,818
Beckman Instruments,
5.508% Notes, Due
07/08/96 2,000,000 1,997,861
Eiger Capital Corp.,
5.412% Notes,
Due 07/10/96 821,000 819,892
Enterprise Funding Corp.,
5.425% Notes,
Due 07/25/96 3,000,000 2,989,220
Enterprise Funding Corp.,
5.440% Notes,
Due 07/19/96 1,000,000 997,290
Finova Capital Corp.,
5.482% Notes,
Due 07/12/96 260,000 259,567
First Data Corp., 5.393%
Notes, Due 07/08/96 1,380,000 1,378,562
First Data Corp., 5.494%
Notes, Due 07/30/96 650,000 647,146
First Data Corp., 5.412%
Notes, Due 07/08/96 2,000,000 1,997,912
General Signal Corp.,
5.376% Notes,
Due 07/08/96 2,703,000 2,700,188
Household International,
Inc., 5.444% Notes,
Due 07/15/96 4,040,000 4,031,563
Lehman Brothers Holdings,
Inc., 5.803% Notes,
Due 07/01/96 370,000 370,000
Sherwood Medical
Company, 5.403%
Notes, Due 07/29/96 2,300,000 2,290,412
USL Capital Corp.,
5.366% Notes,
Due 07/02/96 255,000 254,962
Whirlpool Financial Corp.,
5.414% Notes,
Due 07/09/96 2,750,000 2,746,706
----------- -----------
31,244,000 31,182,204
- --------------------------------------------------------------
SHORT-TERM PRINCIPAL
INVESTMENTS [NOTE 2] AMOUNT VALUE
- --------------------------------------------------------------
OTHER CORPORATE DEBT--U.S. (36.1%)
(MEDIUM TERM NOTES, CORPORATE BONDS)
Associates Corp. of North
America, 5.862%
Medium Term Note,
Due 11/04/96 $ 200,000 $ 199,180
Avco Financial Services, Inc.,
5.668% Corporate Bond,
Due 11/15/96 1,250,000 1,258,321
Beneficial Corp., 5.882%
Medium Term Note,
Due 06/09/97 100,000 101,230
Caterpillar Financial Services,
5.287% Medium Term Note,
Due 11/29/96# 450,000 450,334
Caterpillar Financial Services,
5.472% Medium Term
Note, Due 07/25/96# 315,000 314,988
Chrysler Financial Corp.,
5.922% Medium Term
Note, Due 12/17/96 2,000,000 1,993,134
Countrywide Funding Corp.,
5.654% Medium Term
Note, Due 07/31/96 1,050,000 1,050,362
Ford Motor Credit Corp.,
6.041% Corporate Bond,
Due 08/01/96 600,000 601,399
Ford Motor Credit Corp.,
5.337% Medium Term
Note, Due 05/05/97# 910,000 912,806
Ford Motor Credit Corp.,
5.736% Corporate Bond,
Due 03/03/97 285,000 284,785
Ford Motor Credit Corp.,
5.909% Medium Term
Note, Due 02/18/97# 450,000 450,319
General Electric Capital
Corp., 5.847% Medium
Term Note, Due 04/15/97 250,000 250,524
General Motors Acceptance
Corp., 5.936% Medium
Term Note, Due 12/10/96 150,000 151,174
General Motors Acceptance
Corp., 5.982% Medium
Term Note, Due 02/21/97# 300,000 299,975
General Motors Acceptance
Corp., 5.899% Medium
Term Note, Due 03/18/97# 450,000 450,351
General Motors Acceptance
Corp., 5.815% Medium
Term Note, Due 01/14/97 490,000 494,069
17
<PAGE>
FINANCIAL STATEMENTS OF VCA-11
STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996
SHORT-TERM PRINCIPAL
INVESTMENTS [NOTE 2] AMOUNT VALUE
- --------------------------------------------------------------
General Motors Acceptance
Corp., 5.717%
Medium Term Note,
Due 05/15/97# $ 2,670,000 $ 2,670,000
Goldman Sachs Group L.P.,
5.613% Medium Term
Note, Due 06/27/97# 3,800,000 3,800,000
Household Finance Corp.,
5.890% Corporate Bond,
Due 11/01/96 1,150,000 1,157,047
John Deere Capital Corp.,
6.241% Medium Term
Note, Due 07/22/96# 2,000,000 2,000,266
Morgan Stanley Group, Inc.,
3.592% Corporate Bond,
Due 06/16/97# 1,000,000 1,000,000
Morgan Stanley Group, Inc.,
3.530% Corporate Bond,
Due 06/16/97# 1,000,000 1,000,000
Norwest Financial, Inc.,
5.860% Medium Term
Note, Due 11/15/96 700,000 697,675
PHH Corporation, 5.288%
Medium Term Note,
Due 01/01/97 3,620,000 3,667,610
Pepsico Inc., 5.744%
Corporate Bond,
Due 11/15/96 130,000 130,589
Sears Discover Credit
Corp., 6.006%
Medium Term Note,
Due 03/18/97 3,600,000 3,644,505
Sears Roebuck Acceptance
Corp., 5.303% Medium
Term Note, Due 02/19/97 310,000 314,118
Sears Roebuck & Co., 6.001%
Medium Term Note,
Due 05/20/97 150,000 150,841
Transamerica Financial Corp.,
6.010% Corporate Bond,
Due 07/15/96 250,000 249,984
------------ ----------
29,630,000 29,745,586
- --------------------------------------------------------------
SHORT-TERM PRINCIPAL
INVESTMENTS [NOTE 2] AMOUNT VALUE
- --------------------------------------------------------------
OTHER BANK RELATED INSTRUMENTS--U.S. (23.7%)
(BANK NOTES, LOAN PARTICIPATIONS)
American Express
Centurion Bank,
5.466% Bank Note,
Due 10/16/96# $ 2,600,000 $ 2,599,851
American Express
Centurion Bank, 5.440%
Bank Note, Due 11/22/96# 130,000 130,000
Bank One Columbus,
5.811% Bank Note,
Due 09/12/96# 2,900,000 2,899,576
Bank One Milwaukee,
N.A., 5.853% Bank
Note, Due 09/05/96# 1,000,000 999,894
Engelhard Corp., 5.428%
Loan Participation,
Due 07/08/96 3,450,000 3,450,000
Fleet National Bank,
5.550% Bank Note,
Due 10/30/96# 1,700,000 1,700,197
Key Bank of New York,
N.A., 5.791% Bank
Note, Due 09/06/96# 2,700,000 2,699,588
PNC Bank, N.A.,
5.416% Bank
Note, Due 07/29/96# 3,500,000 3,499,840
PNC Bank, N.A.,
5.472% Bank Note,
Due 02/20/97# 320,000 319,788
Society National Bank
Cleveland, 5.399%
Bank Note, Due
05/14/97# 1,200,000 1,198,989
----------- -----------
19,500,000 19,497,723
- --------------------------------------------------------------
OTHER CORPORATE DEBT--FOREIGN (0.9%)
(CORPORATE BONDS)
Grand Metropolitan
Investment Corp.,
5.552% Corporate
Bond, Due 08/15/96 745,000 747,317
- --------------------------------------------------------------
18
<PAGE>
FINANCIAL STATEMENTS OF VCA-11
STATEMENT OF NET ASSETS (UNAUDITED) JUNE 30, 1996
SHORT-TERM PRINCIPAL
INVESTMENTS [NOTE 2] AMOUNT VALUE
- ------------------------------------------------------
CERTIFICATES OF DEPOSIT--FOREIGN (1.2%)
Societe Generale, 5.800%
Certificate of Deposit,
Due 04/11/97 $ 1,000,000 $ 999,498
- ------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (99.8%)
(Cost: $82,172,328) 82,172,328
- ------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
Cash 282
Interest Receivable 571,310
Pending Transfers (421,219)
- ------------------------------------------------------
TOTAL OTHER ASSETS, LESS LIABILITIES (0.2%) 150,373
- ------------------------------------------------------
NET ASSETS (100%) $ 82,322,701
- ------------------------------------------------------
NET ASSETS, REPRESENTING:
Equity of Participants
35,536,364 Units at a Unit Value of
$2.2677 (rounded) $ 80,585,648
Equity of The Prudential Insurance
Company of America 1,737,053
- ------------------------------------------------------
$ 82,322,701
======================================================
# Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
FINANCIAL STATEMENTS OF VCA-11
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30 1996
- --------------------------------------------------------------------------------
INVESTMENT INCOME [NOTE 2]
Interest $2,218,157
- --------------------------------------------------------------------------------
EXPENSES [NOTE 3]
Fees Charged to Participants for Investment
Management Services 96,840
Fees Charged to Participants for Administrative Expenses 290,518
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,830,799
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 1,830,799 $ 3,907,691
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Purchase Payments and Transfers
In [Note 7] 42,420,554 64,383,901
Withdrawals and Transfers Out [Note 7] (39,555,679) (67,160,389)
Annual Account Charges Deducted from
Participants' Accounts [Note 4] (5,940) (40,200)
Deferred Sales Charge [Note 5] 6,240 (17,399)
- --------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 2,865,175 (2,834,087)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM SURPLUS TRANSFERS [NOTE 8] 89,828 0
- --------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 4,785,802 1,073,604
NET ASSETS
Beginning of Period 77,536,899 76,463,295
- --------------------------------------------------------------------------------
End of Period $82,322,701 $77,536,899
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-11 (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
NOTE 1: GENERAL
The Prudential Variable Contract Account-11 (VCA-11 or the Account)
was established by The Prudential Insurance Company of America
(Prudential) under the laws of the State of New Jersey and is
registered as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended. VCA-11 has been
designed for use by employers (Contract-holders) in making retirement
arrangements on behalf of their employees (Participants). Its
investments are primarily composed of short-term securities. All
contractual and other obligations arising under contracts
participating in VCA-11 are general corporate obligations of
Prudential, although Participants' payments from the Account will
depend upon the investment experience of the Account.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. SHORT-TERM INVESTMENTS
Pursuant to an exemptive order from the Securities and Exchange
Commission, securities having a remaining maturity of 397 days or less
are valued at amortized cost which approximates market value.
Amortized cost is computed using the cost on the date of purchase
adjusted for constant accrual of discount or amortization of premium
to maturity. The rate displayed is the effective yield from the date
of purchase to the date of maturity.
B. INCOME RECOGNITION
Security transactions are recorded on trade date. Interest income is
accrued daily. Income on investments is allocated to the Participants
and Prudential on a daily basis in proportion to their respective
equities in VCA-11.
C. TAXES
The operations of VCA-11 are part of, and are taxed with, the
operations of Prudential. Under the current provisions of the Internal
Revenue Code, Prudential does not expect to incur federal income taxes
on earnings of VCA-11 to the extent the earnings are credited under
the contracts. As a result, the Unit Value of VCA-11 has not been
reduced by federal income taxes.
NOTE 3: EXPENSES
A daily charge, at an effective annual rate of 1.00% of the current
value of the Participant's equity in VCA-11, is paid to Prudential.
Three quarters of this charge (0.75%) is for administrative expenses
not covered by the annual account charge, and one quarter (0.25%) is
for investment management services.
NOTE 4: ANNUAL ACCOUNT CHARGE
An annual account charge is deducted from the account of each
Participant at the time of withdrawal of the value of all of the
Participant's accounts or at the end of the accounting year by
cancelling Units. The charge will first be made against a
Participant's account under a fixed dollar annuity companion contract
or fixed rate option of the non-qualified combination contract. If the
Participant has no account under a companion contract or the fixed
rate option, or if the amount under the companion contract or the
fixed rate option is too small to pay the charge, the charge will be
made against the Participant's account in VCA-11. If the Participant
has no VCA-11 account, or if the amount under that account is too
small to pay the charge, the charge will then be made against the
Participant's VCA-10 account. If the Participant has no VCA-10
account, or if it is too small to pay the charge, the charge will then
be made against any one or more of the Participant's accounts in
VCA-24. The annual account charge will not be greater than $20 and is
paid to Prudential.
NOTE 5: DEFERRED SALES CHARGE
A deferred sales charge is imposed upon that portion of certain
withdrawals which represents a return of contributions. The charge is
designed to compensate Prudential for sales and other marketing
expenses. The maximum deferred sales charge is 7% on contributions
withdrawn from an account during the first two years of participation,
6% on contributions withdrawn during the third through fifth years, 4%
on contributions withdrawn during the sixth through tenth years, and
3% on contributions withdrawn during the eleventh through fifteenth
years. No deferred sales charge is imposed upon contributions
withdrawn for any reason after fifteen years of participation in the
Program. In addition, no deferred sales charge is imposed upon
contributions withdrawn to purchase an annuity under a Contract, to
provide a death benefit, pursuant to a systematic withdrawal plan, to
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-11 (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
provide a minimum distribution payment, or in cases of financial
hardship or disability retirement as determined pursuant to provisions
of the employer's retirement arrangement. Further, for all plans other
than IRAs, no deferred sales charge is imposed upon contributions
withdrawn due to resignation or retirement by the Participant or
termination of the Participant by the Contract-holder. Contributions
transferred among VCA-10, VCA-11, the Subaccounts of VCA-24, a
companion contract, and the fixed rate option of the non-qualified
combination contract are considered to be withdrawals from the Account
or Subaccount from which the transfer is made, but no deferred sales
charge is imposed upon them. They will, however, be considered as
contributions to the receiving Account or Subaccount for purposes of
calculating any deferred sales charge imposed upon their subsequent
withdrawal from it.
NOTE 6: UNIT TRANSACTIONS
The number of Units issued and redeemed for the six months ended June
30, 1996 and the year ended December 31, 1995 is as follows:
1996 1995
--------------------------------------------
Units issued 18,366,441 29,949,209
--------------------------------------------
Units redeemed 16,966,013 31,261,514
--------------------------------------------
NOTE 7: PARTICIPANT LOANS
Loans are considered to be withdrawals from the Account from which the
loan amount was deducted though are not considered a withdrawal from
the Program. Therefore, no deferred sales charge is imposed upon them.
The principal portion of any loan repayment, however, will be treated
as a contribution to the receiving Account for purposes of calculating
any deferred sales charge imposed upon any subsequent withdrawal. If
the Participant defaults on the loan, for example by failing to make
required payments, the outstanding balance of the loan will be treated
as a withdrawal for purposes of the deferred sales charge. The
deferred sales charge will be withdrawn from the same Accumulation
Accounts, and in the same proportions, as the loan amount was
withdrawn. If sufficient funds do not remain in those Accumulation
Accounts, the deferred sales charge will be withdrawn from the
Participant's other Accumulation Accounts as well.
Withdrawals, transfers and loans from VCA-11 are considered to be
withdrawals of contributions until all of the Participant's
contributions to the Account have been withdrawn, transferred or
borrowed. No deferred sales charge is imposed upon withdrawals of any
amount in excess of contributions.
For the six months ended June 30, 1996, $336,657 in participant loans
has been withdrawn from VCA-11 and $78,334 of principal has been
repaid to VCA-11. For the year ended December 31, 1995, $578,756 in
participant loans had been withdrawn from VCA-11 and $105,290 of
principal had been repaid to VCA-11. Loan repayments are invested in
Participant's account(s) as chosen by the Participant, which may not
necessarily be VCA-11. The initial loan proceeds which are being
repaid may not necessarily have originated solely from VCA-11.
NOTE 8: NET INCREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The increase in net assets from surplus transfers represents the net
contributions to the Equity of Prudential to VCA-11.
22
<PAGE>
INVESTMENT PERFORMANCE
Each of the subaccounts of VCA-24 invest in a corresponding Portfolio of The
Prudential Series Fund, Inc. A portfolio review, discussion of factors affecting
performance and the financial statement for each of these Portfolios is
presented on the pages following the VCA-24 financial statements. The rates of
return presented for the Portfolios include the deduction of investment
management fees and other expenses charged to each portfolio, but do not include
the administrative fee deducted in calculating the VCA-24 Contract unit value.
The total return results for each VCA-24 Subaccount, including the deduction of
the administrative fee, is shown below:
VCA-241
AVERAGE ANNUAL RETURNS
FOR PERIODS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
TEN YEARS OR
SINCE EFFECTIVE
YTD ONE YEAR FIVE YEARS DATE
<S> <C> <C> <C> <C>
Unit Value2
Diversified Bond Account -1.91% 5.26% 7.83% 7.34%
Government Income Account3 -2.80% 3.33% 7.58% 7.85%*
Conservative Balanced Account 4.65% 11.32% 9.24% 8.41%
Flexible Managed Account 4.71% 15.46% 11.80% 9.41%
Stock Index Account5 9.53% 24.68% 14.48% 15.10%*
Equity Account 6.91% 19.95% 15.19% 12.76%
Global Account6 9.83% 15.85% 11.55% 9.06%*
With Max. Sales Charge4
Diversified Bond Account -8.92% -1.75% 6.92% 7.13%
Government Income Account -9.80% -3.68% 6.67% 7.49%*
Conservative Balanced Account -2.38% 4.29% 8.37% 8.20%
Flexible Managed Account -2.31% 8.43% 11.01% 9.22%
Stock Index Account5 2.52% 17.66% 13.76% 14.94%*
Equity Account -0.17% 12.87% 14.46% 12.59%
Global Account6 2.83% 8.85% 10.77% 8.77%*
</TABLE>
These returns represent past performance. Investment return and principal value
will fluctuate so that units, upon redemption, may be worth more or less than
their original cost.
*Performance is from the effective date as indicated:
Government Income Account May 1, 1989
Stock Index Account October 19, 1987
Global Account September 19, 1988
1The Prudential Variable Contract Account-24 (VCA-24) was first offered on May
1, 1987 (Stock Index Account on May 2, 1988, Government Income and Global
Accounts on May 1, 1991). However, the underlying investment portfolios existed
under other Prudential programs before they became part of The MEDLEY Program.
For purposes of comparison, the returns have been recalculated to reflect a
hypothetical return as if they were part of The MEDLEY Program from each
portfolio's inception, using charges applicable to The MEDLEY Program.
2Unit Value performance is calculated based on the change in the accumulation
unit value and does not take into account the payment of a deferred sales
charge.
3Shares of this portfolio are not insured or guaranteed by the U.S. Government.
4With Maximum Sales Charge performance is based on the change in accumulation
unit value and reflects the deduction of the following maximum deferred sales
charges: "1 year", 7%; "5 years", 6%; and "10 Years or Since Effective Date",
4%. The performance results also reflect the impact of the $20 annual contract
fee in connection with participation in The Medley Program.
5Standard & Poor's, S&P, Standard & Poor's 500, and 500 are trademarks of
McGraw-Hill, Inc. and have been licensed for use by The Prudential Insurance
Company of America and its affiliates and subsidiaries. The Fund is not
sponsored, endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in the Fund.
6Investing in non-U.S. markets and non-U.S. issuers involves risks that are
different from, and in addition to, those present in U.S. investments. Foreign
securities are subject to certain risks, such as political or economic
instability of the countries in which their issuers reside and foreign currency
fluctuations. They may be less liquid than U.S. securities.
23
<PAGE>
<TABLE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUE INFORMATION PER VCA-24 UNIT
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------
EQUITY DIVERSIFIED BOND
------------------------ ------------------------
01/01/96 01/01/95 01/01/96 01/01/95
to to to to
06/30/96 12/31/95 06/30/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Beginning of period (rounded) .................... $2.6769 $2.0541 $2.0065 $1.6746
End of period (rounded) .......................... $2.8618 $2.6769 $1.9683 $2.0065
Accumulation Units
Outstanding at end of period
(000 omitted) .................................. 128,338 118,394 19,189 16,898
<CAPTION>
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
------------------------ ------------------------
01/01/96 01/01/95 01/01/96 01/01/95
to to to to
06/30/96 12/31/95 06/30/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Beginning of period (rounded) .................... $2.2038 $1.7886 $1.9993 $1.7175
End of period (rounded) .......................... $2.3077 $2.2038 $2.0922 $1.9993
Accumulation Units
Outstanding at end of period
(000 omitted) .................................. 50,276 51,419 48,748 46,873
<CAPTION>
STOCK
INDEX GLOBAL
------------------------ ------------------------
01/01/96 01/01/95 01/01/96 01/01/95
to to to to
06/30/96 12/31/95 06/30/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Beginning of period (rounded) .................... $2.7378 $2.0123 $1.4975 $1.3020
End of period (rounded) .......................... $2.9988 $2.7378 $1.6448 $1.4975
Accumulation Units
Outstanding at end of period
(000 omitted) .................................. 69,351 51,701 30,082 24,439
<CAPTION>
GOVERNMENT
INCOME
-------------------------
01/01/96 01/01/95
to to
06/30/96 12/31/95
-------- --------
<S> <C> <C>
Beginning of period (rounded) .................... $1.4730 $1.2421
End of period (rounded) .......................... $1.4318 $1.4730
Accumulation Units
Outstanding at end of period
(000 omitted) .................................. 17,676 17,289
</TABLE>
24
<PAGE>
FINANCIAL STATEMENTS OF VCA-24
<TABLE>
STATEMENTS OF NET
ASSETS (UNAUDITED)
JUNE 30, 1996
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------------------------
DIVERSIFIED FLEXIBLE CONSERVATIVE GOVERNMENT
EQUITY BOND MANAGED BALANCED STOCK INDEX GLOBAL INCOME
------------ ----------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment in Shares of
The Prudential Series Fund,
Inc. Portfolios at Net
Asset Value [Note 2] ........ $367,234,596 $37,911,207 $129,907,528 $102,284,749 $207,477,606 $49,063,273 $25,519,001
Pending Transfers ........... 543,388 140,278 283,348 73,885 758,883 550,783 91,722
------------ ----------- ------------ ------------ ------------ ----------- -----------
Net Assets ................... 367,777,984 38,051,485 130,190,876 102,358,634 208,236,489 49,614,056 25,610,723
Net Assets, representing:
Equity of Participants 367,282,617 37,768,838 129,865,236 101,989,680 207,967,525 49,479,906 25,309,621
Equity of The Prudential
Insurance Company
of America ................. 495,367 282,647 325,640 368,954 268,964 134,150 301,102
------------ ----------- ------------ ------------ ------------ ----------- -----------
$367,777,984 $38,051,485 $130,190,876 $102,358,634 $208,236,489 $49,614,056 $25,610,723
============ =========== ============ ============ ============ =========== ===========
<CAPTION>
STATEMENTS OF
OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
SUBACCOUNTS
---------------------------------------------------------------------------------------------
DIVERSIFIED FLEXIBLE CONSERVATIVE GOVERNMENT
EQUITY BOND MANAGED BALANCED STOCK INDEX GLOBAL INCOME
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income
Dividend Distribution
Received .......................... $ 3,413,638 $ 1,057,937 $ 1,575,220 $ 1,621,031 $ 1,578,346 $ 1,308,678 $ 674,114
Expenses [Note 3]
Fees Charged to Participants
for Administrative Expenses ...... 1,304,308 133,547 459,894 368,978 661,049 166,887 95,531
------------ ------------ ------------ ------------ ------------ ------------ ------------
Investment Income--Net ............. 2,109,330 924,390 1,115,326 1,252,053 917,297 1,141,791 578,583
Realized and Unrealized Gain/
(Loss) on Investments--Net
Realized Gain/(Loss) on
Investments--Net .................. 132,626 (31,817) (31,883) (5,165) (54,091) 70,846 (42,922)
Unrealized Increase/(Decrease)
in Value of Investments--Net ...... 20,204,337 (1,572,334) 4,499,186 3,165,800 14,321,234 2,781,029 (1,265,866)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net Gain/(Loss) On Investments ..... 20,336,963 (1,604,151) 4,467,303 3,160,635 14,267,143 2,851,875 (1,308,788)
Net Increase/(Decrease) In
Net Assets Resulting From
Operations ........................ $ 22,446,293 $ (679,761) $ 5,582,629 $ 4,412,688 $ 15,184,440 $ 3,993,666 $ (730,205)
============ ============ ============ ============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
25
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF VCA-24
STATEMENTS OF CHANGES IN
NET ASSETS (UNAUDITED)
<CAPTION>
Subaccounts
-----------------------------------------------------------------------------------------------------------
Diversified Flexible Conservative
Equity Bond Managed Balanced
-------------------------- ------------------------ -------------------------- -------------------------
January 1 January 1 January 1 January 1 January 1 January 1 January 1 January 1
to June 30, to Dec. 31, to June 30, to Dec. 31, to June 30, to Dec. 31, to June 30, to Dec. 31,
1996 1995 1996 1995 1996 1995 1996 1995
------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase/(Decrease)
In Net Assets Resulting
from Operations ...... $ 22,446,293 $ 67,319,729 $ (679,761) $ 5,204,462 $ 5,582,629 $ 19,889,315 $ 4,412,688 $12,618,099
Accumulation Unit
Transactions
Purchase Payments
and Transfers In
[Note 8] ............ 55,791,610 78,369,879 9,585,457 10,872,319 18,359,239 25,939,820 12,624,237 19,428,383
Withdrawal and
Transfers Out
[Note 8] ............ (27,676,811) (32,625,019) (4,971,721) (6,557,977) (7,390,394) (12,409,926) (8,804,318) (13,140,949)
Annual Account
Charges Deducted
from Participants'
Accumulation
Accounts [Note 4] ... (14,306) (70,848) (822) (8,556) (1,900) (22,989) (3,411) (26,993)
Deferred Sales
Charge [Note 5] ..... 21,827 (68,298) 3,041 (11,081) 11,000 (19,532) 6,886 (22,291)
------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
Increase In Net Assets
Resulting From
Accumulation
Unit Transactions .... 28,122,320 45,605,714 4,615,955 4,294,705 10,977,945 13,487,373 3,823,394 6,238,150
------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
Increase/(Decrease) In
Net Assets Resulting
From Surplus Transfers
[Note 9] ............. (313,825) 0 (5,538) 0 (51,086) 0 75,882 0
------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
Total Increase
In Net Assets ........ 50,254,788 112,925,443 3,930,656 9,499,167 16,509,488 33,376,688 8,311,964 18,856,249
Net Assets
Beginning of Period .. 317,523,196 204,597,753 34,120,829 24,621,662 113,681,388 80,304,700 94,046,670 75,190,421
------------ ------------ ----------- ----------- ------------ ------------ ------------ -----------
End of Period ........ $367,777,984 $317,523,196 $38,051,485 $34,120,829 $130,190,876 $113,681,388 $102,358,634 $94,046,670
============ ============ =========== =========== ============ ============ ============ ===========
</TABLE>
See Notes to Financial Statements
26
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF VCA-24
STATEMENTS OF CHANGES IN
NET ASSETS (UNAUDITED) (CONTINUED)
<CAPTION>
Subaccounts
----------------------------------------------------------------------------------------
Stock Government
Index Global Income
---------------------------- -------------------------- --------------------------
January 1 January 1 January 1 January 1 January 1 January 1
to June 30, to Dec. 31, to June 30, to Dec. 31, to June 30, to Dec. 31,
1996 1995 1996 1995 1996 1995
------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Increase/(Decrease) In
Net Assets Resulting from
Operations ............................ $ 15,184,440 $ 32,601,394 $ 3,993,666 $ 4,359,966 $ (730,205) $ 3,805,656
Accumulation Unit Transactions
Purchase Payments and
Transfers In [Note 8] ................ 64,347,479 41,360,803 17,828,041 21,219,027 3,718,735 5,878,622
Withdrawal and Transfers
Out [Note 8] ......................... (13,425,622) (14,006,587) (9,101,135) (17,369,898) (3,165,605) (4,231,878)
Annual Account Charges
Deducted from Participants'
Accumulation Accounts
[Note 4] ............................. (3,180) (13,183) (809) (2,527) (1,440) (2,617)
Deferred Sales Charge
[Note 5] ............................. (2,922) (14,549) (3,727) (7,245) (1,210) (8,151)
------------ ------------ ----------- ----------- ----------- -----------
Increase In Net Assets
Resulting From Accumulation
Unit Transactions ..................... 50,915,755 27,326,484 8,722,370 3,839,357 550,480 1,635,976
------------ ------------ ----------- ----------- ----------- -----------
Increase In Net Assets
Resulting From Surplus
Transfers [Note 9] .................... 297,511 0 253,118 0 88,075 0
------------ ------------ ----------- ----------- ----------- -----------
Total Increase/(Decrease)
In Net Assets ......................... 66,397,706 59,927,878 12,969,154 8,199,323 (91,650) 5,441,632
Net Assets
Beginning of Period ................... 141,838,783 81,910,905 36,644,902 28,445,579 25,702,373 20,260,741
------------ ------------ ----------- ----------- ----------- -----------
End of Period ......................... $208,236,489 $141,838,783 $49,614,056 $36,644,902 $25,610,723 $25,702,373
============ ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
27
<PAGE>
Notes to Financial Statements of VCA-24 (Unaudited)
Six Months Ended June 30, 1996 and Year Ended December 31, 1995
- --------------------------------------------------------------------------------
NOTE 1: General
The Prudential Variable Contract Account-24 (VCA-24 or the Account)
was established by The Prudential Insurance Company of America
(Prudential) under the laws of the State of New Jersey and is
registered as a unit investment trust under the Investment Company Act
of 1940, as amended. VCA-24 has been designed for use by employers
(Contract-holders) in making retirement arrangements on behalf of
their employees (Participants).
The Account is comprised of seven Subaccounts. Each of the Subaccounts
invests in a corresponding portfolio of The Prudential Series Fund,
Inc. (the Fund). The Equity Subaccount invests in the Equity
Portfolio, the Diversified Bond Subaccount in the Diversified Bond
Portfolio, the Flexible Managed Subaccount in the Flexible Managed
Portfolio, the Conservative Balanced Subaccount in the Conservative
Balanced Portfolio, the Stock Index Subaccount in the Stock Index
Portfolio, the Global Subaccount in the Global Portfolio, and the
Government Income Subaccount in the Government Income Portfolio. All
contractual and other obligations arising under contracts
participating in VCA-24 are general corporate obligations of
Prudential, although Participants' payments from the Account will
depend upon the investment experience of the Account.
NOTE 2: Investment Information
The number of shares of each portfolio of the Fund, the Net Asset
Value (NAV) per share for each portfolio held by the Subaccounts of
VCA-24, and the aggregate cost of investments in such shares as of
June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Diversified Flexible Conservative Stock Government
Equity Bond Managed Balanced Index Global Income
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of
Shares 13,471,778 3,502,355 7,006,931 6,464,243 9,529,850 2,943,888 2,293,224
--------------------------------------------------------------------------------------------------------------------
NAV per Share $ 27.2596 $ 10.8245 $ 18.5399 $ 15.8232 $ 21.7713 $ 16.6662 $ 11.1280
--------------------------------------------------------------------------------------------------------------------
Cost at 6-30-96 $283,719,053 $37,728,668 $114,384,760 $93,368,223 $157,817,288 $41,165,979 $25,514,921
--------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 3: Expenses
A daily charge at an effective annual rate of 0.75% of the Net Asset
Value of each Subaccount of VCA-24 is paid to Prudential for
administrative expenses not covered by the annual account charge.
NOTE 4: Annual Account Charge
An annual account charge is deducted from the account of each
Participant at the time of withdrawal of the value of all of the
Participant's accounts or at the end of the accounting year by
cancelling Units. The charge will first be made against a
Participant's account under a fixed dollar annuity companion contract
or fixed rate option of the non-qualified combination contract. If the
Participant has no account under a fixed contract, or if the amount
under a fixed contract is too small to pay the charge, the charge will
be made against the Participant's account in VCA-11. If the
Participant has no VCA-11 account or if the amount under that account
is too small to pay the charge, the charge will then be made against
the Participant's VCA-10 account. If the Participant has no VCA-10
account, or if it is too small to pay the charge, the charge will then
be made against any one or more of the Participant's accounts in
VCA-24. The annual account charge will not exceed $20 and is paid to
Prudential.
NOTE 5: Deferred Sales Charge
A deferred sales charge is imposed upon the withdrawal of certain
purchase payments to compensate Prudential for sales and other
marketing expenses. The maximum deferred sales charge is 7% on
contributions withdrawn during the first two years of participation,
6% on contributions withdrawn during the third through fifth years, 4%
on contributions withdrawn during the sixth through tenth years, and
3% on contributions withdrawn during the eleventh through fifteenth
years. No deferred sales charge is imposed upon contributions
withdrawn for any reason after fifteen years of participation in a
Program. In addition, no deferred sales charge is imposed upon
contributions withdrawn to purchase an annuity under a Contract, to
provide a death benefit, pursuant to a systematic withdrawal plan, to
provide a minimum distribution payment, or in cases of financial
hardship or disability retirement as determined pursuant to provisions
of the employer's retirement arrangement. Further, for all plans other
than IRAs, no deferred sales charge is imposed upon contributions
withdrawn due to resignation or retirement by the Participant or
termination of the Participant by the Contract-holder. Contributions
transferred
28
<PAGE>
Notes to Financial Statements of VCA-24 (Unaudited)
Six Months Ended June 30, 1996 and Year Ended December 31, 1995
- --------------------------------------------------------------------------------
among VCA-10, VCA-11, the Subaccounts of VCA-24, the companion
contract, and the fixed rate option of the non-qualified combination
contract are considered to be withdrawals from the Account or
Subaccount from which the transfer is made, but no deferred sales
charge is imposed upon them. They will, however, be considered as
contributions to the receiving Account or Subaccount for purposes of
calculating any deferred sales charge imposed upon their subsequent
withdrawal from it.
NOTE 6: Taxes
The operations of VCA-24 are part of, and are taxed with, the
operations of Prudential. Under the current provisions of the Internal
Revenue Code, Prudential does not expect to incur federal income taxes
on earnings of VCA-24 to the extent the earnings are credited under
the Contract. As a result, the Unit Value of VCA-24 has not been
reduced by federal income taxes.
NOTE 7: Unit Transactions
The number of units issued and redeemed during the six months ended
June 30, 1996 is as follows:
<TABLE>
<CAPTION>
Diversified Flexible Conservative Stock Government
Equity Bond Managed Balanced Index Global Income
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Units issued 20,085,298 4,968,324 8,410,316 6,239,498 22,387,870 11,519,214 2,607,231
-------------------------------------------------------------------------------------------------------------------
Units redeemed 10,141,884 2,677,388 3,553,838 4,363,968 4,737,286 5,876,359 2,220,011
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The number of units issued and redeemed during the year ended December
31, 1995 is as follows:
<TABLE>
<CAPTION>
Diversified Flexible Conservative Stock Government
Equity Bond Managed Balanced Index Global Income
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Units issued 32,947,670 5,949,077 13,134,875 10,521,644 17,141,772 15,333,041 4,320,684
-------------------------------------------------------------------------------------------------------------------
Units redeemed 13,876,916 3,626,392 6,444,519 7,242,876 5,962,523 12,632,811 3,171,341
-------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8: Participant Loans
Loans are considered to be withdrawals from the Subaccount from which
the loan amount was deducted, however, no deferred sales charge is
imposed upon them. The principal portion of any loan repayment,
however, will be treated as a contribution to the receiving Subaccount
for purposes of calculating any deferred sales charge imposed upon any
subsequent withdrawal. If the Participant defaults on the loan by, for
example failing to make required payments, the outstanding balance of
the loan will be treated as a withdrawal for purposes of the deferred
sales charge. The deferred sales charge will be withdrawn from the
same Accumulation Accounts, and in the same proportions, as the loan
amount was withdrawn. If sufficient funds do not remain in those
Accumulation Accounts, the deferred sales charge will be withdrawn
from the Participant's other Accumulation Accounts as well.
Withdrawals, transfers and loans from each Subaccount of VCA-24 are
considered to be withdrawals of contributions until all of the
Participant's contributions to the Subaccount have been withdrawn,
transferred or borrowed. No deferred sales charge is imposed upon
withdrawals of any amount in excess of contributions.
For the six months ended June 30, 1996, the amount of participant
loans that has been withdrawn from the Subaccounts and the amount of
principal that has been repaid to the Subaccounts is as follows:
<TABLE>
<CAPTION>
Diversified Flexible Conservative Stock Government
Equity Bond Managed Balanced Index Global Income
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans $762,655 $111,378 $461,291 $261,255 $430,797 $163,657 $64,608
-------------------------------------------------------------------------------------------------------------------
Repayments $355,019 $ 31,756 $152,221 $ 64,582 $132,988 $ 56,176 $16,896
-------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Notes to Financial Statements of VCA-24 (Unaudited)
Six Months Ended June 30, 1996 and Year Ended December 31, 1995
- --------------------------------------------------------------------------------
For the year ended December 31, 1995, the amount of participant loans
that was withdrawn from the Subaccounts and the amount of principal
that was repaid to the Subaccounts was as follows:
<TABLE>
<CAPTION>
Diversified Flexible Conservative Stock Government
Equity Bond Managed Balanced Index Global Income
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans $1,164,299 $183,629 $657,487 $392,252 $557,493 $223,882 $138,935
-------------------------------------------------------------------------------------------------------------------
Repayments $ 279,845 $ 41,590 $145,416 $174,803 $145,250 $ 90,455 $ 13,393
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Loan repayments are invested in Participant's account(s) as chosen by
the Participant, which may not necessarily be the Subaccount from
which the loan amount was deducted. The initial loan proceeds which
are being repaid may not necessarily have originated solely from the
Subaccounts of VCA-24.
NOTE 9: Net Increase/(Decrease) In Net Assets Resulting From Surplus Transfers
The increase in net assets resulting from surplus transfers represents
the net contributions to the Equity of Prudential to VCA-24. The
decrease in net assets resulting from surplus transfers represents the
net withdrawals from the Equity of Prudential from VCA-24.
30
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SIX MONTHS ENDED JUNE 30, 1996
- --------------------------------------------------------------------------------
Dear Medley Participant:
We are pleased to report to you on the investment performance of the seven
portfolios of The Prudential Series Fund, Inc., which are available to you in
your Medley Program.
During the first half of 1996, strong economic growth and record inflows to U.S.
equity funds powered the U.S. stock market to new highs. This same healthy U.S.
economy pushed interest rates sharply higher and bond prices lower. As a result,
the stock market recorded strong gains, while the bond market disappointed
investors
The Prudential Series Fund Portfolios followed the same pattern. But, our bond
portfolios showed losses. The absolute returns on our equity portfolios were
good, though many of our portfolios finished slightly below peer averages during
the six-month period
As we entered 1996, high stock prices prompted some of our value-oriented
managers to maintain a defensive position in our stock portfolios. At the same
time, stable interest rates meant our bond managers were holding longer-maturity
bonds. Our Global Portfolio also experienced high returns, benefiting from
falling European interest rates.
Your Medley Program is a long-term holding. Six months, on the other hand, is
only a small slice of a lifetime. Throughout this report, therefore, we try to
keep the long term in focus, while updating you on the portfolios' recent
performance. Over three- and five-year periods, you'll find that many of our
portfolios have delivered excellent absolute and relative performance. When you
consider the allocation of your assets among these portfolios and the
performance expectations you hold, please keep the long term in mind.
ONLY THE NAMES HAVE CHANGED.
As you read this report, you'll notice that the names of some of the portfolios
have changed. Their investment objectives, risks and potential rewards remain
the same.
We believe that the new names are more reflective of the portfolios' investments
and management style and are also easier to remember.
Here's how the names have changed:
NEW NAME FORMER NAME
Diversified Bond Bond
Government Income* Government Securities
Conservative Balanced Conservatively Managed Flexible
Flexible Managed Aggressively Managed Flexible
Equity Common Stock
Global Global Equity
*The term "income" in this portfolio refers to the income generated by the
interest or dividend earnings from the portfolio's investments. All earnings are
automatically reinvested in your contract and are reflected in the daily unit
value; they are not available as a source of direct income for the participant.
If you have any questions about these changes or about your Medley Program,
please contact your Prudential/Pruco Securities Representative.
All of us at Prudential thank you for your business and look forward to helping
you make a plan for your future financial security.
IMPORTANT NOTE:
This information supplements the financial statements and other information
included in this Report to Participants in The MEDLEY Program. It highlights the
investment performance of the seven portfolios of The Prudential Series Fund,
Inc., which are available through the Prudential Variable Contract Account-24.
The rates of return quoted on the following pages reflect deduction of
investment management fees and fund expenses but not product charges. They
reflect the reinvestment of dividends and capital gain distributions. They are
not an estimate or a guarantee of future performance. Contract unit values
increase or decrease based on the performance of the portfolio. Changes in
contract values depend not only on the investment performance of the portfolio
but also on the insurance administrative charges and applicable sales charges,
if any, under a contract. These contract charges effectively reduce the dollar
amount of any net gains or increase the dollar amount of any net losses.
31
<PAGE>
MARKET REVIEW
U.S. STOCKS
UP, UP & AWAY.
U.S. stocks surged higher in the first half of 1996, powered by a growing
economy and record inflows of investments into stock mutual funds. Employment,
consumer spending and housing starts all surged in the first half of the year.
In fact, some economists predicted that economic growth in the second quarter
would be as high as 5% -- the highest since 1988's 5.2% gain in the fourth
quarter.
Small company stocks led the way, just as they did last year.These companies,
generally defined as those whose outstanding stock is valued at less than $1
billion, typically perform well late in the economic cycle -- about where we are
right now.
Some analysts were concerned that stocks continued to rise while bonds were
falling: higher interest rates should theoretically make bonds more attractive
than stocks. But investors shrugged off such warnings, bidding most stocks
higher during the last six months.
o COMMODITY-RELATED STOCKS performed the best. Gold hit $415 an ounce in January
for the first time in six years.
Crude oil for future delivery topped $24 a barrel in March, the highest since
the 1990 Gulf War, and gasoline hit $2 a gallon in California and New York by
May. World grain inventories hit a 48-year low in May. Companies that owned
stockpiles of these commodities profited nicely as prices rose.
o CONSUMER CYCLICAL STOCKS (companies that produce things that people buy more
of when the economy is good -- like cars) advanced smartly when the economy
revived dramatically in the first quarter. Retailers rebounded after fears of
poor holiday sales proved unfounded, and airlines soared as price cutting in
that industry ended.
o TECHNOLOGY STOCKS tumbled, then rebounded, finishing the first half of 1996 up
14.5%. Semiconductor stocks had sunk amid fear of rising supply and declining
demand last year. But these shares rebounded this year on signs of renewed
economic growth.
o INDUSTRIAL STOCKS, including producers of heavy machinery and transportation
equipment, also surged, on hopes that the economic upturn would endure.
U.S. BONDS
INTEREST RATES: BACK OVER 7%.
After one of the best years on record in 1995, bonds stumbled in 1996. Economic
reports showed new-found strength in the economy, and investors feared that
faster economic growth would lead to higher inflation. (Inflation erodes the
value of the fixed income that bonds pay.) Prices of the 30-year U.S. Treasury
bond fell enough so that yields rose dramatically, until they reached 6.88% by
June 30, 1996, up by nearly a full percentage point from December 31, 1995.
What happened? When we last wrote to you in December, it seemed that the economy
might slide into recession. In the ensuing months, though, the economy instead
bounced back smartly. And then commodity prices skyrocketed, so investors
started to worry about inflation.
o LONG-TERM U.S. TREASURY BONDS lost the most, with those maturing in more than
20 years losing 7.6%, as measured by the 20+ Year Lehman Treasury Index.
o HIGHER YIELDING BONDS fared much better. High yield corporates performed the
best, advancing 3.5%, according to the Lehman High Yield Index.
o ASSET BACKED and MORTGAGE BACKED securities performed better than U.S.
government bonds, but not as well as high yield corporate "junk bonds". The
higher coupons of these bonds offered some price protection as interest rates
rose.
GLOBAL STOCKS
TRAILING THE U.S.
Stock markets around the world performed well in the first half of 1996, but
continued to trail the U.S., just as they did in 1995.
In the 1990s, economies have been generally growing faster overseas
(particularly in the Pacific Rim countries) than in the U.S., helping corporate
profits and stock prices to rise faster there. But last year and again this
year, the U.S. has been a leader in economic growth. Rising corporate profits
here have pushed stock prices higher than in most other major industrialized
countries around the world.
- --------------------------------------------------------------------------------
TURNAROUND IN JAPAN.
- --------------------------------------------------------------------------------
o JAPAN: The Japanese economy grew by an astounding 13% in the first quarter,
the fastest since 1973, energized by the falling Japanese yen. The recovery
lifted Japanese stocks to their highest levels in four years. But the strong
U.S. dollar left U.S. investors in Japanese stocks just slightly ahead, as the
greenback hit a 28-month high against the yen in June. (A strengthening dollar
works against U.S. investors who sell foreign investments, because the proceeds
will buy less when exchanged back into dollars.)
- --------------------------------------------------------------------------------
IN EUROPE, RATES FELL.
WILL THE ECONOMY NOW GROW?
- --------------------------------------------------------------------------------
o EUROPE: Europe's short-lived economic recovery ended last fall. Unemployment
in Europe is now twice that in the U.S., and several countries teetered on the
verge of recession this spring. Despite the gloomy economy, however, stocks rose
in Europe this spring as investors bet that interest rate reductions would spur
economic growth later in 1996.
32
<PAGE>
DIVERSIFIED BOND PORTFOLIO
(FORMERLY THE BOND PORTFOLIO)
The Diversified Bond Portfolio fell 1.5% in the first half of 1996 as interest
rates rose sharply. The Portfolio performed in line with the average.
As its name implies, the Diversified Bond Portfolio can invest in a broad mix of
different types of bonds, including U.S. government securities, mortgage backed
securities, corporate bonds and foreign (mainly government) securities. The
Portfolio's manager, Barbara Kenworthy, is a value investor. She looks for bonds
that offer competitive yields and appear to be priced lower than their inherent
worth would suggest.
As interest rates rose in the first six months of the year, this Portfolio lost
less than the average bond fund, by following a two-pronged strategy. First, we
reduced duration, a measure of sensitivity to interest rates, to 5.3 years from
5.7 years. Second, we held substantial assets in Yankee (U.S. dollar-denominated
foreign) bonds, which offered higher yields than U.S.Treasurys.
- --------------------------------------------------------------------------------
VALUE OF $10,000 INVESTED IN THE DIVERSIFIED BOND PORTFOLIO VS. LIPPER (VIP)
CORP. BBB AVERAGE AND LEHMAN AGGREGATE INDEX OVER 10 YEARS.
[LINE CHART HERE]
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
Six One Three Five Ten
Mos. Year Rank Years Rank Years Rank Years Rank
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified Bond Portfolio(1) -1.5% 6.1% 5/33 5.7% 11/31 8.6% 9/25 8.4% 5/11
Lipper (VIP) Corp. BBB Avg.(2) -1.9 4.7 5.2 8.4 8.2
Lehman Aggregate Index(3) -1.2 5.0 5.3 8.3 8.6
</TABLE>
Inception date: 5/1/83
(1) Past performance is not predictive of future performance. Portfolio
performance does not reflect Separate Account expenses or other product
charges. The Portfolio may invest in foreign securities. Foreign
investments are subject to the risks of currency fluctuation and the impact
of social, political and economic change.
(2) The Lipper Variable Insurance Products (VIP) Corporate BBB Average is
calculated by Lipper Analytical Services, Inc., and reflects the investment
return of certain portfolios underlying variable life and annuity products.
These returns are net of investment fees and fund expenses but not product
charges.
(3) The Lehman Aggregate Index (LAI) is comprised of over 5,000 government and
corporate bonds. The LAI is an unmanaged index and includes the
reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the LAI may differ substantially
from the securities in the Portfolio. The LAI is not the only index that
may be used to characterize performance of income funds, and other indices
may portray different comparative performance.
- ----------------- DATA BANK
PHOTO
- -----------------
PORTFOLIO MANAGER
BARBARA KENWORTHY
- --------------------------------------------------------------------------------
THE PORTFOLIO CHANGES
AS WE FIND OPPORTUNITIES.*
[PIE CHART]
WHAT WAS IN IT 6 MONTHS AGO?*
[PIE CHART]
CORPORATE:
Bonds issued by major U.S. corporations.
FOREIGN:
Dollar-denominated bonds issued by foreign companies or governments.
TREASURY:
Backed by the full faith and credit of the U.S. government.
AGENCY:
Issued by U.S. government agencies, with implied U.S. government guarantee.
MORTGAGE:
Bonds backed by pools of home mortgages.
ASSET-BACKED:
Backed by pools of collateralized loan receivables, such as credit
card and auto loans.
- --------------------------------------------------------------------------------
THE PORTFOLIO IS HIGH QUALITY.*
6/30/96 12/31/95
U.S. Gov't 17% 20%
AAA 6 5
AA 5 4
A 19 24
BBB 34 35
BB 11 11
B 1 0
Cash 7 1
*Source: Prudential
33
<PAGE>
GOVERNMENT INCOME PORTFOLIO
(FORMERLY THE GOVERNMENT SECURITIES PORTFOLIO)
The Government Income Portfolio lost 2.4% for the six months ended June 30. It
trailed the average because it had a longer than average maturity as interest
rates rose.
The Portfolio invests in intermediate- and long-term bonds issued by
the U.S. government and its agencies, including mortgage backed securities.
(Neither the market value of U.S. government securities nor the Portfolio's
shares are guaranteed by the U.S. government.)
During the last six months, we shortened the duration of the fund to 4.4 years
from 5.3 years. When interest rates are rising, the prices of bonds with shorter
maturities will generally fall less than comparably rated bonds with longer
maturities.
In addition, we also increased our holdings in mortgage backed securities. Since
these offered higher yields than U.S. Treasurys, they performed better over the
last six months as interest rates rose.
- --------------------------------------------------------------------------------
VALUE OF $10,000 INVESTED IN THE GOVERNMENT INCOME PORTFOLIO VS. LIPPER (VIP)
U.S. GOVERNMENT AVERAGE AND LEHMAN GOVERNMENT INDEX SINCE INCEPTION.
line chart
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
Six One Three Five Since
Mos. Year Rank Years Rank Years Rank Inception*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gov't Income Portfolio(1) -2.4% 4.1% 13/30 4.5% 9/21 8.4% 2/13 8.4%
Lipper (VIP) U.S. Gov't Avg.(2) -1.9 3.9 4.2 7.8 8.3
Lehman Gov't Index(3) -1.8 4.5 4.9 8.2 8.7
</TABLE>
*Inception date: 5/1/89
* Lipper provides data on a monthly basis, so for comparative purposes the
Lipper Average and Index since inception returns reflect the Portfolio's first
full calendar month of performance.
Some U.S. government securities are guaranteed as to timely payment of principal
and interest. The underlying securities in the Portfolio carry this guarantee,
but not the Portfolio itself. Mortgage backed securities entail additional
prepayment and extension risk.
(1) Past performance is not predictive of future performance. Portfolio
performance does not reflect Separate Account expenses or other product
charges.
(2) The Lipper Variable Insurance Products (VIP) U.S. Government Average is
calculated by Lipper Analytical Services, Inc., and reflects the investment
return of certain portfolios underlying variable life and annuity products.
These returns are net of investment fees and fund expenses but not product
charges.
(3) The Lehman Government Index (LGI) is a weighted index comprised of
securities issued or backed by the U.S. government, its agencies and
instrumentalities with a remaining maturity of one to 30 years. The LGI is
an unmanaged index and includes the reinvestment of all interest, but does
not reflect the payment of transaction costs and advisory fees associated
with an investment in the Portfolio. The securities that comprise the LGI
may differ substantially from the securities in the Portfolio. The LGI is
not the only index that may be used to characterize performance of income
funds, and other indices may portray different comparative performance.
- ----------------- Q&A
PHOTO
- -----------------
PORTFOLIO MANAGER
BARBARA KENWORTHY
- --------------------------------------------------------------------------------
Q. BARBARA, IT'S BEEN A DIFFICULT SIX MONTHS IN THE BOND MARKET. WHAT
HAPPENED?
A. Economic growth was a lot stronger than investors expected. Commodities
prices -- especially gold -- rose quite a bit, so investors started to
worry once again that inflation might be coming back.
Q. DOES THAT MEAN THAT INTEREST RATES COULD GO STILL HIGHER?
A. Inflation at the moment seems to be contained. But if economic activity
continues to intensify, the Federal Reserve may take a preemptive strike
against inflation by raising short-term interest rates.
Q. WHAT DO YOU WATCH FOR WHEN DETERMINING WHAT INTEREST RATES WILL DO?
A. I watch the number of new jobs created by the economy each month. There
were 348,000 new jobs created in May, clearly worrying investors. I also
monitor commodities prices closely. Although gold and oil prices rose
earlier this year, they fell by midyear, and that's good news for bond
holders. The U.S. dollar is also important, because so many buyers of our
U.S. government bonds are actually citizens of other countries. They like
to see a strong dollar.
Q. THIS IS AN ELECTION YEAR. HOW WILL THE ELECTION AFFECT THE MARKET?
A. In most election years, government spending goes up, so those who are
running for re-election can point to lots of new initiatives and get
re-elected. That really hasn't happened so far this year. In fact, the
budget deficit is falling. That's generally good news for bond prices. But
it's early yet.
34
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO
(FORMERLY CONSERVATIVELY MANAGED FLEXIBLE PORTFOLIO)
The Conservative Balanced Portfolio rose 5.0% in the six months ended June 30.
The Portfolio performed slightly below the average.
Both the Conservative Balanced and the Flexible Managed Portfolios (see next
page) hold a combination of stocks, bonds and money market securities. The
Conservative Balanced Portfolio holds less in stocks -- about 36% of assets,
which generally makes it less volatile and may also reduce returns when stock
prices are rising.
The sharp increase in interest rates this year has reduced the prices of bonds
and raised their yields, making them more attractive to buy. As a result, we
sold some of our stocks at a profit and purchased bonds, because we believe they
offer lower risk and higher potential rewards.
- --------------------------------------------------------------------------------
VALUE OF $10,000 INVESTED IN THE CONSERVATIVE BALANCED PORTFOLIO VS. LIPPER
(VIP) FLEX. AVERAGE, S&P 500 AND LEHMAN AGGREGATE INDEX OVER TEN YEARS.
Line Chart
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
Six One Three Five Ten
Mos. Year Rank Years Rank Years Rank Years Rank
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Conservative Balanced 5.0% 12.2% 54/67 8.3% 50/56 10.0% 45/51 9.3% 13/15
Lipper (VIP) Flex. Avg.(2) 5.4 15.2 10.6 12.0 10.4
S&P 500(3) 10.1 26.0 17.2 15.7 13.8
Lehman Aggregate Index(4) -1.2 5.0 5.3 8.3 8.6
</TABLE>
Inception date: 5/1/83
(1) Past performance is not predictive of future performance. Portfolio
performance does not reflect Separate Account expenses or other product
charges. The Portfolio may invest in foreign securities. Foreign
investments are subject to the risks of currency fluctuation and the impact
of social, political and economic change.
(2) The Lipper Variable Insurance Products (VIP) Flex Average is calculated by
Lipper Analytical Services, Inc., and reflects the investment return of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses but not product
charges.
(3) The S&P 500 is a capital-weighted index, representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index and includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indices may portray different comparative performance.
(4) The Lehman Aggregate Index (LAI) is comprised of approximately 5,000
government and corporate bonds. The LAI is an unmanaged index and includes
the reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the LAI may differ substantially
from the securities in the Portfolio. The LAI is not the only index that
may be used to characterize performance of income funds, and other indices
may portray different comparative performance.
- ----------------- DATA BANK
PHOTO
- -----------------
PORTFOLIO MANAGER
MARK STUMPP
- --------------------------------------------------------------------------------
WHAT'S IN THE PORTFOLIO?*
[Pie Chart]
WHAT WAS IN IT 6 MONTHS AGO?*
[Pie Chart]
- --------------------------------------------------------------------------------
FIVE LARGEST INDUSTRIES--STOCKS.*
6/30/96
Insurance 3.0%
Oil Services 3.0
Misc. Industrial 2.9
Retail 2.4
Autos/Trucks 2.4
- --------------------------------------------------------------------------------
FIVE LARGEST SECTORS--BONDS.*
6/30/96
Financial 13.9%
Industrial 10.6
U.S. Treasury 9.9
Foreign ($ Denominated) 8.8
Agency 0.4
*Source: Prudential
35
<PAGE>
FLEXIBLE MANAGED PORTFOLIO
(FORMERLY AGGRESSIVELY MANAGED FLEXIBLE PORTFOLIO)
The Flexible Managed Portfolio appreciated 5.1% during the six months ending
June 30. The Portfolio performed slightly below the average.
Both the Flexible Managed and the Conservative Balanced Portfolios hold a
combination of stocks, bonds and money market securities. They differ in the
proportion of assets held in each portfolio, with the Flexible Managed Portfolio
holding more in stocks -- about 60% of assets, which makes it generally more
volatile but raises the possibility of higher returns when stock prices are
rising.
The sharp increase in interest rates this year has reduced the prices of bonds
and raised their yields, making them more attractive to buy. As a result, we
sold some of our stocks at a profit and purchased bonds, because we believe they
offer lower risk and higher potential rewards.
- --------------------------------------------------------------------------------
VALUE OF $10,000 INVESTED IN THE FLEXIBLE MANAGED PORTFOLIO VS. LIPPER (VIP)
FLEX. AVERAGE, S&P 500, AND LEHMAN AGGREGATE INDEX OVER TEN YEARS.
Line Chart
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
Six One Three Five Ten
Mos. Year Rank Years Rank Years Rank Years Rank
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Flexible Managed 5.1% 16.3% 22/67 10.3% 31/56 12.6% 15/51 10.3% 7/15
Lipper (VIP) Flex. Avg.(2) 5.4 15.2 10.6 12.0 10.4
S&P 500(3) 10.1 26.0 17.2 15.7 13.8
Lehman Aggregate Index(4) -1.2 5.0 5.3 8.3 8.6
Inception date: 5/1/83
</TABLE>
(1) Past performance is not predictive of future performance. Portfolio
performance does not reflect Separate Account expenses or other product
charges. The Portfolio may invest in foreign securities. Foreign
investments are subject to the risks of currency fluctuation and the impact
of social, political and economic change.
(2) The Lipper Variable Insurance Products (VIP) Flex Average is calculated by
Lipper Analytical Services, Inc., and reflects the investment return of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses but not product
charges.
(3) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index and includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indices may portray different comparative performance.
(4) The Lehman Aggregate Index (LAI) is comprised of approximately 5,000
government and corporate bonds. The LAI is an unmanaged index and includes
the reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the LAI may differ substantially
from the securities in the Portfolio. The LAI is not the only index that
may be used to characterize performance of income funds, and other indices
may portray different comparative performance.
- ----------------- DATA BANK
PHOTO
- -----------------
PORTFOLIO MANAGER
MARK STUMPP
- --------------------------------------------------------------------------------
WHAT'S IN THE PORTFOLIO?*
[Pie Chart]
WHAT WAS IN IT 6 MONTHS AGO?*
[Pie Chart]
- --------------------------------------------------------------------------------
FIVE LARGEST INDUSTRIES--STOCKS.*
6/30/96
Drug & Medical Supplies 7.1%
Misc. Industrial 4.9
Computer Software 4.2
Insurance 2.6
Computer Hardware 2.5
- --------------------------------------------------------------------------------
FIVE LARGEST SECTORS--BONDS.*
6/30/96
Industrial 10.1%
Financial 9.2
Foreign ($ Denominated) 7.7
U.S. Treasury 5.7
Asset-Backed 0.5
*Source: Prudential
36
<PAGE>
STOCK INDEX PORTFOLIO
The Stock Index Portfolio gained 10.0% in the first six months of the year, in
line with the 10.1% gain of the S&P 500, the unmanaged stock market index this
Portfolio is designed to track. (Source: Prudential).
This Portfolio holds all 500 stocks included in the S&P 500 Index and attempts
to duplicate its performance. Portfolio Manager John Moschberger manages the
Portfolio by investing funds received daily while trying to minimize commissions
and transaction costs.
The S&P 500 continued to set new records in the first six months of 1996,
following record-breaking performance last year. Although enjoyable while they
last, they aren't the kind of returns that we think investors should come to
expect. The long-term historical average annual returns of the S&P 500 are
approximately 10.5%. (Source: Prudential).
Among the leading sectors in the S&P 500 in the first half of the year were
consumer cyclical stocks (those whose prices rise with economic growth, such as
autos), technology and industrial stocks.
Standard & Poor's neither sponsors nor endorses the Stock Index Portfolio.
Investors cannot directly invest in the S&P 500 Index.
- --------------------------------------------------------------------------------
VALUE OF $10,000 INVESTED IN THE STOCK INDEX PORTFOLIO VS. S&P 500 AND LIPPER
(VIP) S&P 500 INDEX AVERAGE SINCE INCEPTION.
[chart]
- --------------------------------------------------------------------------------
Average Annual Returns Through June 30, 1996
Six One Three Five Since
Mos. Year Years Years Inception*
Stock Index Portfolio(1) 10.0% 25.6% 16.8% 15.3% 14.9%
Lipper (VIP) S&P 500 Index Avg.(2) 9.9 25.5 16.7 15.2 14.9
S&P 500(3) 10.1 26.0 17.2 15.7 15.5
*Inception date: 10/19/87
* Lipper provides data on a monthly basis, so for comparative purposes the
Lipper Average and Index since inception returns reflect the Portfolio's
first full calendar month of performance.
(1) Past performance is not predictive of future performance. Portfolio
performance does not reflect Separate Account expenses or other product
charges.
(2) The Lipper Variable Insurance Products (VIP) S&P 500 Index Average is
calculated by Lipper Analytical Services, Inc., and reflects the investment
return of certain portfolios underlying variable life and annuity products.
These returns are net of investment fees and fund expenses but not product
charges.
(3) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index and includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The S&P 500 is not the only index that may be used to
characterize performance of this Portfolio, and other indices may portray
different comparative performance.
- ----------------- DATA BANK
[Photo]
- -----------------
PORTFOLIO MANAGER
JOHN MOSCHBERGER
- ----------------------------------------------
THE S&P 500: WHAT'S IN IT?*
[Pie Chart]
WHAT WAS IN IT 6 MONTHS AGO?*
[Pie Chart]
- ----------------------------------------------
S&P 500--TOTAL RETURNS BY SECTOR.*
YTD
6/30/96 1995 1994
Consumer Cyclical 16.3% 13.3% -12.2%
Technology 14.5 42.7 20.4
Industrial 11.7 30.2 -0.7
Consumer Growth 10.7 42.9 7.5
Energy 10.5 30.9 3.9
Financial 10.3 53.5 -3.2
Utility 0.4 38.9 -7.6
S&P 500 10.1 37.6% 10.1%
*Source: Prudential
37
<PAGE>
EQUITY PORTFOLIO
(FORMERLY THE COMMON STOCK PORTFOLIO)
The Equity Portfolio rose 7.3% over the six months ended June 30. It trailed the
average because of its high concentration of cash.
This Portfolio is managed with a value investment style: we look for inexpensive
stocks. With the stock market setting new all time highs in the last six months,
we didn't find many stocks that fit our "inexpensive" criteria. As a result, we
defensively held about 30% of assets in cash as of June 30, the highest the
Portfolio has had in six years - and we did not perform as well as the average
portfolio, because we held so much cash. While we'd prefer not to have so much
of the Portfolio in cash, we are reluctant to compromise on our strategy. We
don't want to buy a stock for more than we think it's worth.
Our largest investment in the first half of this year was in financial services
stocks, where we primarily owned stocks of banks, insurance companies, credit
card companies and stock brokerages. Rising interest rates have not helped these
stocks, but we expect they'll improve later this year. We also had substantial
assets in retail stocks, which helped the Portfolio's performance significantly
this year. This year, we began acquiring paper and forest products stocks,
because they were good bargains.
VALUE OF $10,000 INVESTED IN THE EQUITY PORTFOLIO VS. S&P 500 AND LIPPER (VIP)
GROWTH AVERAGE OVER TEN YEARS.
- --------------------------------------------------------------------------------
[chart]
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
Six One Three Five Ten
Mos. Year Rank Years Rank Years Rank Years Rank
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Portfolio(1) 7.3% 20.9% 61/98 16.1% 31/65 16.1% 21/45 13.7% 7/27
Lipper (VIP) Growth Avg.(2) 10.6 24.0 15.9 15.6 12.6
S&P 500(3) 10.1 26.0 17.2 15.7 13.8
</TABLE>
Inception date: 5/1/83
(1) Past performance is not predictive of future performance. Portfolio
performance does not reflect Separate Account expenses or other product
charges. The Portfolio may invest in foreign securities. Foreign
investments are subject to the risks of currency fluctuation and the impact
of social, political and economic change.
(2) The Lipper Variable Insurance Products (VIP) Growth Average is calculated
by Lipper Analytical Services, Inc., and reflects the investment return of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses but not product
charges.
(3) The S&P 500 is a capital-weighted index representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index and includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indices may portray different comparative performance.
- ----------------- Q & A
[Photo]
- -----------------
PORTFOLIO MANAGER
TOM JACKSON
- --------------------------------------------------------------------------------
Q. TOM, WHY ARE YOU HOLDING SO MUCH CASH?
A. I'm a value investor. I buy stocks that are very cheap compared to other
stocks in the market. Right now I just can't find very many. I had a lot of cash
both in 1990 and 1994. In the first instance, thanks to the market, I had
opportunities to put it to work in the fall of 1990. In 1994 I also had a lot of
cash, and that's when I bought the financial stocks that now are the largest
segment of the portfolio.
- ----------------------------------------------
WHAT'S IN THE PORTFOLIO?*
[Pie Chart]
WHAT WAS IN IT 6 MONTHS AGO?*
[Pie Chart]
- ----------------------------------------------
FIVE LARGEST HOLDINGS.*
6/30/96
Chrysler 2.9%
Digital Equipment 2.6
Loews 2.2
American Express 2.2
Dean Witter Discover 2.1
*Source: Prudential
38
<PAGE>
GLOBAL PORTFOLIO
(FORMERLY THE GLOBAL EQUITY PORTFOLIO)
The Global Portfolio rose 10.3%, during the six months ended June 30. Our
performance was below average because of generally poor performance of some of
our Pacific Basin stocks.
This Portfolio invests primarily in stocks of foreign and U.S. corporations (see
table at lower right for current allocations). Our performance during the past
six months stemmed from two strategic decisions:
First, we decided to invest heavily in European stocks -- our largest region at
25% of total net assets on 6/30/96. These stocks performed quite well in the
first half of 1996;
Second, we held fewer assets in Japan (17% of total net assets on 6/30/96),
where a strong U.S. dollar consumed virtually all profits that U.S.-based
investors would have made there. That was a wise decision.
We held 14% in the Pacific Basin, excluding Japan. We remain optimistic that our
Pacific Basin stocks will do well in the second half of the year, because of the
region's strong economic growth. Some stock markets there (Singapore and Hong
Kong, especially) were among the best performers in the world during the first
half of the year.
- --------------------------------------------------------------------------------
VALUE OF $10,000 INVESTED IN THE GLOBAL PORTFOLIO VS. MORGAN STANLEY INDEX AND
LIPPER (VIP) GLOBAL AVERAGE SINCE INCEPTION.
[chart]
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
Six One Three Five Since
Mos. Year Rank Years Rank Years Rank Inception*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Portfolio(1) 10.3% 16.7% 23/35 15.2% 5/21 12.4% 7/13 10.0%
Lipper (VIP) Global Avg.(2) 11.3 21.5 13.0 12.2 10.8
Morgan Stanley Index(3) 7.3 19.0 13.6 12.5 10.0
</TABLE>
*Inception date: 9/19/88
* Lipper provides data on a monthly basis, so for comparative purposes the
Lipper Average and Index since inception returns reflect the Portfolio's
first calendar month of performance.
(1) Past performance is not predictive of future performance. Portfolio
performance does not reflect Separate Account expenses or other product
charges. Foreign investments are subject to the risks of currency
fluctuation and the impact of social, political and economic change.
(2) The Lipper Variable Insurance Products (VIP) Global Average is calculated
by Lipper Analytical Services, Inc., and reflects the investment return of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses but not product
charges.
(3) The Morgan Stanley Index is a weighted index comprised of approximately
1500 companies listed on the stock exchanges of the U.S.A., Europe, Canada,
Australia, New Zealand and the Far East. The combined market capitalization
of these companies represents approximately 60% of the aggregate market
value of the stock exchanges in the countries comprising the World Index.
The World Index is an unmanaged index and includes the reinvestment of all
dividends but does not reflect the payment of transaction costs and
advisory fees associated with an investment in the Portfolio. The
securities that comprise the World Index may differ substantially from the
securities in the Portfolio. The World Index is not the only index that may
be used to characterize performance of global funds, and other indices may
portray different comparative performance.
- ----------------- Q & A
[Photo]
- -----------------
PORTFOLIO MANAGER
DAN DUANE
Q. DAN, YOUR PORTFOLIO PERFORMED BETTER THAN MANY U.S. STOCK PORTFOLIOS THIS
YEAR. WHY?
A. I'm a growth-oriented investor -- I look for consistent earnings growth. I'm
especially interested in stocks that should benefit as the economy improves.
Since the U.S. led world economic growth, we had 20% of our assets there, mainly
in technology stocks, which rose nicely. Plus, as interest rates fell in Europe
this spring, the Portfolio's stocks there advanced smartly.
Q. WHAT'S HAPPENING IN EUROPE?
A. I'm seeing surprisingly strong earnings from European companies, some as a
result of corporate restructuring. And unlike the U.S., interest rates were
falling in Europe in the first half of 1996, creating a hospitable environment
for stocks.
Q. WHAT DO YOU LIKE NOW?
A. The U.S. economy and the U.S. stock market have been strong this year. But in
the next year or two, economic growth should increase faster outside the U.S.
Asian stocks could do well. I expect very fast economic growth there, as the
Japanese economy recovers further and China lowers its trade barriers.
- ---------------------------------------------
INVESTMENTS BY COUNTRY.*
6/30/96 12/31/95
Continental Europe 25% 23%
United States 20 21
Japan 17 17
Pacific Basin 14 17
United Kingdom 10 10
Cash 6 6
Australia 5 5
Mexico 2 1
Argentina 1 0
- ---------------------------------------------
FIVE LARGEST HOLDINGS.*
6/30/96
Microsoft Corp. 2.0%
Sony Corp. 1.9
Carrefour Supermarch 1.9
GKN PLC Guest Keen 1.9
Oracle Corp. 1.9
* Source: Prudential
39
<PAGE>
INVESTMENT ADVISOR'S OUTLOOK
TREES DON'T GROW TO THE SKY.
U.S. stocks rose 10.1% in the first half of 1996, confounding many analysts who
had expected a pullback by now.
While we're quite pleased with the unusually high returns that stocks have
provided for our participants, we realistically know this tremendous performance
can not continue. It's simply the law of averages.
Since 1926, when records started being kept, the U.S. stock market's average
return has been 10.5% a year, as measured by the S&P 500. Yet, in recent years,
returns have been much higher. (See chart below.)
Last 70 Years Recent Bull Market Last Year
1926 - 1995 1982 - 1995 1995
------------- ------------------ ---------
10.5% 16.4% 37.4%
(5.9% over average) (26.9% over average)
When the final results are in, we expect 1996's performance may be closer to
average than to 1995's.
Source: Prudential
U.S. STOCKS
We're at a bit of a crossroads here. Many analysts now are wary of the U.S.
stock market. It rose at a record pace last year, and this year's advance to
date has been quite handsome. Is there no end in sight?
Should interest rates continue to rise in the second half as they did in the
first half, investors may be tempted to sell stocks to buy bonds. And if the
Federal Reserve feels compelled to raise short-term interest rates, both stocks
and bonds could be vulnerable.
That said, some groups of stocks may offer more opportunity than others.
o Some analysts think cyclical stocks (those that benefit from an improving
economy), including technology stocks, may benefit in the months to come.
o Some analysts also like retailers. Retail stocks have been marked down for
several years now, and are finally recovering after a holiday season that
was not nearly as bad as predicted.
U.S. BONDS
The first half of this year has been a rough one for bond investors, but we
think the worst may soon be over. We expect today's higher long-term interest
rates will slow the U.S. economy down a bit, and that's always good for bond
investors. We do worry about commodity prices, the possibility of wage
inflation, and more frequent talk about tax cuts -- all warning signals of
increasing inflation. But with stocks at these price levels, we think bonds
provide a strong alternative.
GLOBAL STOCKS
Economic growth overseas has been a lot stronger than in the U.S. in recent
years. And since stronger growth usually means higher corporate profits, which
means higher stock prices, we like non-U.S. stocks. We expect they may perform
better than U.S. stocks during the second half of 1996, considering how far the
U.S. stock market has risen to date.
o We expect economic growth in Asia will be the strongest in the world.
Japan's economy grew explosively in the first quarter, heralding the end to
a long downturn. Plus China has been encouraging its citizens to buy
imported goods.
o In Europe, we expect stock prices to rebound as the economy there recovers.
Many European stocks are undervalued by U.S. standards.
- --------------------------------------------------------------------------------
Please keep in mind that the financial markets could be just as volatile in the
second half of 1996 as they were in the first half of 1996. There could be some
major moves -- both up and down. It's always a good idea to talk things over
with your Prudential/Pruco Securities Representative. He or she can help you
decide how your needs have changed and how we can help you meet them.
- --------------------------------------------------------------------------------
SHORT TAKES
TOM JACKSON
EQUITY PORTFOLIO
"I'm a contrarian. I buy stocks that are very cheap compared to the market. With
the market just off record highs, I see very few inexpensive stocks. So I have
more cash than I would like to have. But I'm also an optimist. The market
usually gives me an opportunity to put cash to work."
DAN DUANE
GLOBAL PORTFOLIO
"Foreign markets should do better than the U.S. during the second half of the
year, because their stocks are less expensive than U.S. stocks and investors are
starting to get more interested in them. I expect the most growth in Asia,
followed by Europe and the U.S."
BARBARA KENWORTHY
DIVERSIFIED BOND PORTFOLIO
"It should be an exciting second half of the year. We'll be watching the
economic statistics coming out of Washington very closely over the next several
months for signs of faster than expected growth. If growth continues to surge,
the Federal Reserve could step in and increase short-term interest rates."
S96-0391
40
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
DIVERSIFIED BOND PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$669,714,649)............................ $ 672,507,539
Cash....................................... 580
Interest receivable........................ 11,708,825
Receivable for securities sold............. 5,130,840
--------------
Total Assets............................. 689,347,784
--------------
LIABILITIES
Accrued expenses........................... 73,436
Payable for securities purchased........... 15,536,442
Payable to investment adviser.............. 655,860
Payable for portfolio shares redeemed...... 30,171
--------------
Total Liabilities........................ 16,295,909
--------------
NET ASSETS................................... $ 673,051,875
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 621,786
Paid-in capital, in excess of par........ 675,603,024
--------------
676,224,810
Undistributed net investment income........ 4,290,451
Accumulated net realized losses............ (10,256,276)
Net unrealized appreciation................ 2,792,890
--------------
Net assets, June 30, 1996.................. $ 673,051,875
--------------
--------------
Net asset value per share of 62,178,622
outstanding shares of common stock
(authorized 200,000,000 shares).......... $ 10.8245
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1996
<S> <C>
INVESTMENT INCOME
Interest................................... $ 23,777,853
---------------
EXPENSES
Investment management fee.................. 1,302,685
Shareholders' reports...................... 69,075
Accounting fees............................ 37,628
Custodian expense.......................... 36,200
Professional fees.......................... 4,736
Directors' expense......................... 1,414
---------------
1,451,738
---------------
NET INVESTMENT INCOME........................ 22,326,115
---------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Net realized loss on investments........... (1,967,514)
Net unrealized loss on investments......... (30,470,050)
---------------
NET LOSS ON INVESTMENTS...................... (32,437,564)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 10,111,449)
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 22,326,115 $ 41,106,435
Net realized gain (loss) on investments................................................ (1,967,514) 3,945,376
Net unrealized gain (loss) on investments.............................................. (30,470,050) 65,195,088
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (10,111,449) 110,246,899
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (18,750,062) (40,773,047)
Net realized gain from investment transactions......................................... (0) (1,426,845)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (18,750,062) (42,199,892)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [3,683,452 and 3,596,587 shares, respectively]...................... 29,383,573 39,971,262
Reinvestment of dividend distributions [1,756,937 and 3,793,654 shares,
respectively]......................................................................... 18,750,062 42,199,892
Capital stock repurchased [(1,233,092) and (3,376,822) shares, respectively]........... (2,056,675) (36,030,334)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 46,076,960 46,140,820
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 17,215,449 114,187,827
NET ASSETS:
Beginning of period.................................................................... 655,836,426 541,648,599
------------------ -------------------
End of period.......................................................................... $ 673,051,875 $ 655,836,426
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
41
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GOVERNMENT INCOME PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$485,564,233)............................ $ 483,916,488
Cash....................................... 769
Interest receivable........................ 7,285,848
--------------
Total Assets............................. 491,203,105
--------------
LIABILITIES
Payable to investment adviser.............. 483,822
Accrued expenses and other liabilities..... 17,139
Payable for portfolio shares redeemed...... 16,374
--------------
Total Liabilities........................ 517,335
--------------
NET ASSETS................................... $ 490,685,770
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 440,947
Paid-in capital, in excess of par........ 500,492,515
--------------
500,933,462
Undistributed net investment income........ 3,668,899
Accumulated net realized losses............ (12,268,846)
Net unrealized depreciation................ (1,647,745)
--------------
Net assets, June 30, 1996.................. $ 490,685,770
--------------
--------------
Net asset value per share of 44,094,707
outstanding shares of common stock
(authorized 100,000,000 shares).......... $ 11.1280
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1996
<S> <C>
INVESTMENT INCOME
Interest................................... $ 16,478,267
---------------
EXPENSES
Investment management fee.................. 973,228
Shareholders' reports...................... 56,631
Accounting fees............................ 37,533
Custodian expense.......................... 18,100
Professional fees.......................... 7,113
Directors' expense......................... 1,378
---------------
1,093,983
---------------
NET INVESTMENT INCOME........................ 15,384,284
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 11,474,571
Net unrealized loss on investments......... (39,068,372)
---------------
NET LOSS ON INVESTMENTS...................... (27,593,801)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... ($ 12,209,517)
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 15,384,284 $ 31,463,453
Net realized gain (loss) on investments................................................ 11,474,571 (12,819,604)
Net unrealized gain (loss) on investments.............................................. (39,068,372) 66,364,196
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (12,209,517) 85,008,045
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (12,976,474) (31,133,859)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [569,543 and 863,496 shares, respectively].......................... 6,563,524 9,888,081
Reinvestment of dividend distributions [1,180,667 and 2,693,392 shares,
respectively]......................................................................... 12,976,474 31,133,859
Capital stock repurchased [(473,085) and (7,346,525) shares, respectively]............. (5,443,542) (80,695,126)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. 14,096,456 (39,673,186)
------------------ -------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............................................................................ (11,089,535) 14,201,000
NET ASSETS:
Beginning of period.................................................................... 501,775,305 487,574,305
------------------ -------------------
End of period.......................................................................... $ 490,685,770 $ 501,775,305
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
42
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$3,902,670,743).......................... $4,175,165,104
Interest and dividends receivable.......... 37,927,708
Receivable for securities sold............. 45,999,404
--------------
Total Assets............................. 4,259,092,216
--------------
LIABILITIES
Bank overdraft............................. 480,081
Accrued expenses and other liabilities..... 307,097
Payable for securities purchased........... 53,823,548
Payable to investment adviser.............. 5,700,984
Payable for portfolio shares redeemed...... 24,177
--------------
Total Liabilities........................ 60,335,887
--------------
NET ASSETS................................... $4,198,756,329
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,653,551
Paid-in capital, in excess of par........ 3,754,657,953
--------------
3,757,311,504
Undistributed net investment income........ 13,448,311
Accumulated net realized gains............. 155,502,153
Net unrealized appreciation................ 272,494,361
--------------
Net assets, June 30, 1996.................. $4,198,756,329
--------------
--------------
Net asset value per share of 265,355,100
outstanding shares of common stock
(authorized 300,000,000 shares).......... $ 15.8232
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1996
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $387,002 foreign
withholding tax)......................... $ 11,827,753
Interest................................... 82,232,889
---------------
94,060,642
---------------
EXPENSES
Investment management fee.................. 11,142,227
Shareholders' reports...................... 436,236
Custodian expense.......................... 109,688
Accounting fees............................ 63,482
Professional fees.......................... 11,559
Directors' expense......................... 2,516
---------------
Total Expenses........................... 11,765,708
Less: Custodian fee credit................. (37,208)
---------------
Net Expenses............................. 11,728,500
NET INVESTMENT INCOME........................ 82,332,142
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 134,431,601
Net unrealized loss on investments......... (17,355,738)
---------------
NET GAIN ON INVESTMENTS...................... 117,075,863
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 199,408,005
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 82,332,142 $ 155,293,990
Net realized gain on investments....................................................... 134,431,601 167,342,297
Net unrealized gain (loss) on investments.............................................. (17,355,738) 264,773,974
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 199,408,005 587,410,261
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (66,596,974) (154,987,434)
Net realized gain from investment transactions......................................... 0 (133,660,168)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (66,596,974) (288,647,602)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [6,900,567 and 5,345,143 shares, respectively]...................... 61,743,531 81,026,772
Reinvestment of dividend distributions [4,247,406 and 19,023,739 shares,
respectively]......................................................................... 66,596,974 288,647,602
Capital stock repurchased [(3,212,460) and (15,343,313) shares, respectively].......... (3,169,472) (228,767,054)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 125,171,033 140,907,320
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 257,982,064 439,669,979
NET ASSETS:
Beginning of period.................................................................... 3,940,774,265 3,501,104,286
------------------ -------------------
End of period.......................................................................... $ 4,198,756,329 $ 3,940,774,265
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
43
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$4,171,361,917).......................... $4,534,558,702
Cash....................................... 3,242,910
Interest and dividends receivable.......... 30,608,157
Receivable for securities sold............. 57,978,331
--------------
Total Assets............................. 4,626,388,100
--------------
LIABILITIES
Accrued expenses and other liabilities..... 361,169
Payable for securities purchased........... 79,103,914
Payable to investment adviser.............. 6,650,119
Payable for portfolio shares redeemed...... 78,099
--------------
Total Liabilities........................ 86,193,301
--------------
NET ASSETS................................... $4,540,194,799
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,448,883
Paid-in capital, in excess of par........ 3,773,098,454
--------------
3,775,547,337
Undistributed net investment income........ 6,347,631
Accumulated net realized gains............. 395,103,046
Net unrealized appreciation................ 363,196,785
--------------
Net assets, June 30, 1996.................. $4,540,194,799
--------------
--------------
Net asset value per share of 244,888,364
outstanding shares of common stock
(authorized 300,000,000 shares).......... $ 18.5399
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1996
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of $305,599 foreign
withholding tax)......................... $ 20,178,105
Interest................................... 60,742,218
---------------
80,920,323
---------------
EXPENSES
Investment management fee.................. 13,077,649
Shareholders' reports...................... 449,618
Custodian expense.......................... 155,543
Accounting fees............................ 63,578
Professional fees.......................... 11,658
Directors' expense......................... 2,356
Miscellaneous expenses..................... 160
---------------
Total Expenses........................... 13,760,562
Less: Custodian fee credit................. (28,843)
---------------
Net Expenses............................. 13,731,719
NET INVESTMENT INCOME........................ 67,188,604
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on investments and
foreign currencies--
Securities transactions.................. 329,017,502
Foreign currency transactions............ (69,542)
---------------
Net realized gain on investments and
foreign currencies....................... 328,947,960
---------------
Net unrealized loss on investments and
foreign currencies--
Securities............................... (177,534,657)
Foreign currency translations............ (1,903)
---------------
Net unrealized loss on investments and
foreign currencies....................... (177,536,560)
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 151,411,400
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 218,600,004
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 67,188,604 $ 126,640,661
Net realized gain on investments and foreign currency transactions..................... 328,947,960 292,267,835
Net unrealized gain (loss) on investments and foreign currency translations............ (177,536,560) 410,041,102
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 218,600,004 828,949,598
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (55,089,785) (124,621,227)
Net realized gain from investment transactions......................................... 0 (176,844,671)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (55,089,785) (301,465,898)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [5,585,954 and 8,486,525 shares, respectively]...................... 102,930,223 146,641,074
Reinvestment of dividend distributions [3,016,416 and 17,050,711 shares,
respectively]......................................................................... 55,089,785 301,465,898
Capital stock repurchased [(2,312,429) and (11,612,102) shares, respectively].......... (42,540,265) (195,926,134)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 115,479,743 252,180,838
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 278,989,962 779,664,538
NET ASSETS:
Beginning of period.................................................................... 4,261,204,837 3,481,540,299
------------------ -------------------
End of period.......................................................................... $ 4,540,194,799 $ 4,261,204,837
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
44
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
STOCK INDEX PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$908,450,837)............................ $1,305,441,879
Interest and dividends receivable.......... 2,209,231
Receivable for securities sold............. 431,036
Receivable for portfolio shares sold....... 44,178
Receivable for daily variation margin on
open futures contracts (see Note 2)...... 296,250
--------------
Total Assets............................. 1,308,422,574
--------------
LIABILITIES
Bank overdraft............................. 320,702
Payable for securities purchased........... 12,986,778
Payable to investment adviser.............. 1,066,391
Accrued expenses and other liabilities..... 24,391
--------------
Total Liabilities........................ 14,398,262
--------------
NET ASSETS................................... $1,294,024,312
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 594,370
Paid-in capital, in excess of par........ 884,640,435
--------------
885,234,805
Undistributed net investment income........ 1,372,594
Accumulated net realized gains............. 10,069,971
Net unrealized appreciation
Securities............................... 396,991,042
Futures contracts........................ 355,900
--------------
Net assets, June 30, 1996.................. $1,294,024,312
--------------
--------------
Net asset value per share of 59,437,042
outstanding shares of common stock
(authorized 100,000,000 shares).......... $ 21.7713
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1996
<S> <C>
INVESTMENT INCOME
Dividends (net of $77,230 foreign
withholding tax)......................... $ 12,360,704
Interest................................... 1,291,654
---------------
13,652,358
---------------
EXPENSES
Investment management fee.................. 2,010,481
Shareholders' reports...................... 97,562
Accounting fees............................ 33,192
Custodian expense.......................... 14,480
Professional fees.......................... 8,693
Directors' expense......................... 1,499
---------------
2,165,907
---------------
NET INVESTMENT INCOME........................ 11,486,451
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments --
Securities transactions.................. 4,225,951
Futures contracts........................ 2,281,500
---------------
Net realized gain on investments........... 6,507,451
---------------
Net unrealized gain on investments --
Securities............................... 89,273,070
Futures contracts........................ 703,550
---------------
Net unrealized gain on investments......... 89,976,620
---------------
NET GAIN ON INVESTMENTS...................... 96,484,071
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 107,970,522
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 11,486,451 $ 18,865,378
Net realized gain on investments....................................................... 6,507,451 12,159,728
Net unrealized gain on investments..................................................... 89,976,620 225,882,882
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 107,970,522 256,907,988
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (9,796,702) (18,734,051)
Net realized gain from investment transactions......................................... 0 (7,293,493)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (9,796,702) (26,027,544)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [7,719,770 and 7,147,197 shares, respectively]...................... 163,386,005 130,752,103
Reinvestment of dividend distributions [455,937 and 1,331,092 shares, respectively].... 9,796,702 26,027,544
Capital stock repurchased [(416,074) and (1,230,332) shares, respectively]............. (8,610,283) (20,916,230)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 164,572,424 135,863,417
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 262,746,244 366,743,861
NET ASSETS:
Beginning of period.................................................................... 1,031,278,068 664,534,207
------------------ -------------------
End of period.......................................................................... $ 1,294,024,312 $ 1,031,278,068
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
45
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$3,551,124,146).......................... $4,278,610,400
Interest and dividends receivable.......... 13,195,181
--------------
Total Assets............................. 4,291,805,581
--------------
LIABILITIES
Bank overdraft............................. 696,463
Payable to investment adviser.............. 4,738,607
Payable for portfolio shares redeemed...... 274,158
Accrued expenses........................... 141,201
--------------
Total Liabilities........................ 5,850,429
--------------
NET ASSETS................................... $4,285,955,152
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,572,277
Paid-in capital, in excess of par........ 3,140,589,506
--------------
3,142,161,783
Undistributed net investment income........ 10,971,098
Accumulated net realized gain.............. 405,336,017
Net unrealized appreciation on
investments.............................. 727,486,254
--------------
Net assets, June 30, 1996.................. $4,285,955,152
--------------
--------------
Net asset value per share of 157,227,682
outstanding shares of common stock
(authorized 200,000,000 shares).......... $ 27.2595
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1996
<S> <C>
INVESTMENT INCOME
Dividends (net of $920,498 foreign
withholding tax)......................... $ 37,177,656
Interest................................... 26,595,382
---------------
63,773,038
---------------
EXPENSES
Investment management fee.................. 9,126,965
Shareholders' reports...................... 377,463
Accounting fees............................ 35,228
Custodian expense.......................... 12,670
Professional fees.......................... 7,113
Directors' expense......................... 2,346
Miscellaneous expenses..................... 1,964
---------------
9,563,749
---------------
NET INVESTMENT INCOME........................ 54,209,289
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on investments and foreign currency transactions:
Securities transactions.................. 299,665,469
Foreign currency transactions............ (16,774)
---------------
Net realized gain on investments and
foreign currency transactions:........... 299,648,695
---------------
Net unrealized gain (loss) on investments and foreign currencies:
Securities............................... (72,114,608)
Foreign currency......................... 6,569
---------------
Net unrealized loss on investments and
foreign currency transactions............ (72,108,039)
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 227,540,656
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 281,749,945
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 54,209,289 $ 73,682,361
Net realized gain on investments and foreign currency transactions..................... 299,648,695 234,571,951
Net unrealized gain (loss) on investments and foreign currencies....................... (72,108,039) 553,122,748
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 281,749,945 861,377,060
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (39,745,221) (71,456,482)
Net realized gain from investment transactions......................................... -- (132,219,093)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (39,745,221) (203,675,575)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [8,170,836 and 15,687,254 shares, respectively]..................... 221,033,197 374,478,697
Reinvestment of dividend distributions [1,453,897 and 8,038,373 shares,
respectively]......................................................................... 39,745,220 203,675,575
Capital stock repurchased [(1,142,226) and (1,673,110) shares, respectively]........... (30,632,116) (39,823,647)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 230,146,301 538,330,625
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 472,151,025 1,196,032,110
NET ASSETS:
Beginning of period.................................................................... 3,813,804,127 2,617,772,017
------------------ -------------------
End of period.......................................................................... $ 4,285,955,152 $ 3,813,804,127
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
46
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GLOBAL PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1996
<S> <C>
ASSETS
Investments, at value (cost:
$431,468,668)............................ $ 497,608,414
Foreign currency, at value (cost:
$1,917,853).............................. 1,915,194
Cash....................................... 68
Dividends and interest receivable.......... 685,254
Receivable for securities sold............. 29,651,173
Receivable for portfolio shares sold....... 1,174,003
Other assets............................... 370,136
--------------
Total Assets............................. 531,404,242
--------------
LIABILITIES
Accrued expenses........................... 1,470,783
Payable for securities purchased........... 28,511,947
Payable to investment adviser.............. 894,365
Payable for portfolio shares redeemed...... 563,600
--------------
Total Liabilities........................ 31,440,695
--------------
NET ASSETS................................... $ 499,963,547
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 299,987
Paid-in capital, in excess of par........ 423,439,696
--------------
423,739,683
Distributions in excess of net investment
income................................... (4,668,585)
Accumulated net realized gains............. 14,763,278
Net unrealized appreciation on securities
and foreign currency translations........ 66,129,171
--------------
Net assets, June 30, 1996.................. $ 499,963,547
--------------
--------------
Net asset value per share of 29,998,744
outstanding shares of common stock
(authorized 100,000,000 shares).......... $ 16.6661
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1996
<S> <C>
INVESTMENT INCOME
Dividends (net of $316,784 foreign
withholding tax)......................... $ 3,504,157
Interest................................... 259,289
---------------
3,763,446
---------------
EXPENSES
Investment management fee.................. 1,683,904
Custodian expense.......................... 567,141
Accounting fees............................ 82,233
Shareholders' reports...................... 3,785
Miscellaneous expenses..................... 1,649
Directors' expense......................... 1,005
Professional fees.......................... 870
---------------
2,340,587
---------------
NET INVESTMENT INCOME........................ 1,422,859
---------------
NET REALIZED AND UNREALIZED GAIN ON
SECURITIES AND FOREIGN CURRENCIES
Net realized gain on investments and
foreign currency transactions............ 21,253,391
Net unrealized gain on investments and
foreign currency translations............ 20,207,018
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 41,460,409
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 42,883,268
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 1,422,859 $ 1,620,950
Net realized gain on investments and foreign currency transactions..................... 21,253,391 13,763,168
Net unrealized gain on investments and foreign currency translations................... 20,207,018 39,034,318
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ 42,883,268 54,418,436
------------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................................................. (1,422,859) (5,982,859)
Net realized gain from investment transactions......................................... (11,839,285) (7,583,630)
------------------ -------------------
TOTAL DIVIDENDS TO SHAREHOLDERS........................................................ (13,262,144) (13,566,489)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [4,172,834 and 2,817,622 shares, respectively]...................... 69,061,810 42,294,857
Reinvestment of dividend distributions [799,358 and 872,571 shares, respectively]...... 13,262,144 13,566,489
Capital stock repurchased [(695,066) and (2,794,423) shares, respectively]............. (11,506,065) (41,558,737)
Initial capitalization repurchased [(36,088) and (48,679) shares, respectively]........ (575,000) (789,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 70,242,889 13,513,609
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 99,864,013 54,365,556
NET ASSETS:
Beginning of period.................................................................... 400,099,534 345,733,978
------------------ -------------------
End of period.......................................................................... $ 499,963,547 $ 400,099,534
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
47
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
DIVERSIFIED BOND PORTFOLIO
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS -- 92.7% VALUE VALUE
------------- --------------
<S> <C> <C>
FINANCIAL -- 18.0%
Advanta Mortgage Loan Trust, Series 1994-3
8.490%, 01/25/26.............................. $ 8,500,000 $ 8,705,859
Advanta National Bank, C.D.,
6.260%, 09/01/97.............................. 5,000,000 4,992,500
Aristar, Inc.,
5.750%, 07/15/98.............................. 2,000,000 1,969,640
7.500%, 07/01/99.............................. 2,000,000 2,041,940
Associates Corp. of North America,
8.375%, 01/15/98.............................. 500,000 514,245
BankAmerica Corp.,
5.984%, 05/17/99.............................. 10,000,000 10,082,000
Chase Manhattan Corp.,
8.000%, 06/15/99.............................. 2,000,000 2,066,800
Chemical Bank,
6.625%, 08/15/05.............................. 2,000,000 1,902,380
Chrysler Financial Corp.,
9.500%, 12/15/99.............................. 5,000,000 5,411,250
Citicorp, M.T.N.,
8.500%, 02/24/97, Tranche #TR00128............ 3,000,000 3,044,130
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
**7.875%, 03/15/98, Tranche #TR00003.......... 5,000,000 5,123,300
**8.750%, 12/15/99, Tranche #TR00001.......... 3,000,000 3,174,180
Erac USA Finance Co.,
7.000%, 06/15/00, Tranche #TR00001............ 9,000,000 8,997,187
Ford Motor Credit Co.,
5.750%, 01/25/01.............................. 4,000,000 3,818,160
6.250%, 02/26/98.............................. 3,000,000 2,994,150
General Motors Acceptance Corp.,
8.400%, 10/15/99.............................. 3,700,000 3,883,557
General Motors Acceptance Corp., M.T.N.,
7.500%, 11/04/97, Tranche #TR00598............ 2,000,000 2,034,480
Mellon Financial Co.,
6.500%, 12/01/97.............................. 2,000,000 2,002,940
NationsBank Corp.,
7.000%, 05/15/03.............................. 5,000,000 4,972,350
**Nationwide CSN Trust,
9.875%, 02/15/25.............................. 5,000,000 5,464,100
**Potomac Capital Investment Corp., M.T.N.,
6.190%, 04/28/97, Series B.................... 3,500,000 3,500,612
**Principal Mutual Life Insurance,
7.875%, 03/01/24.............................. 5,000,000 4,750,200
RHG Finance Corp.,
8.875%, 10/01/05.............................. 2,000,000 2,065,000
Salomon, Inc.,
7.000%, 05/15/99.............................. 10,000,000 10,005,100
Salomon, Inc., M.T.N.,
5.980%, 02/02/98, Tranche #TR00027............ 10,000,000 9,890,400
7.250%, 05/01/01.............................. 2,250,000 2,244,420
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Santander Financial Issuances, Inc.,
7.875%, 04/15/05.............................. $ 2,500,000 $ 2,572,350
Sears Roebuck Acceptance Corp., M.T.N.,
6.340%, 10/12/00, Tranche #TR00038............ 3,000,000 2,945,130
--------------
121,168,360
--------------
FOREIGN -- 15.6%
African Development Bank,
6.875%, 10/15/15.............................. 5,000,000 4,699,750
Australia & New Zealand Banking Group, Ltd.,
6.250%, 02/01/04.............................. 3,000,000 2,812,620
Banco de Commercio Exterior de Columbia, SA,
M.T.N.,
8.625%, 06/02/00, Tranche #TR00001............ 2,000,000 2,035,000
**Banco Ganadero, SA, M.T.N.,
9.750%, 08/26/99, Tranche #TR00001............ 4,100,000 4,258,875
Central Puerto, SA,
10.750%, 11/02/97............................. 3,000,000 3,090,000
**Compania Sud Americana de Vapores, SA,
7.375%, 12/08/03.............................. 3,000,000 2,842,500
Hydro-Quebec,
8.050%, 07/07/24.............................. 4,500,000 4,770,180
Kansallis-Osake Pankki, N.Y.,
**%8.650%, 01/01/49........................... 5,000,000 5,184,450
10.000%, 05/01/02............................. 5,000,000 5,640,350
National Australia Bank, Ltd.,
9.700%, 10/15/98.............................. 1,700,000 1,812,710
**National Bank of Romania,
9.750%, 06/25/99.............................. 5,000,000 5,027,500
Nippon Telegraph & Telephone Corp.,
9.500%, 07/27/98.............................. 1,800,000 1,901,250
Nova Scotia, Province of Canada,
8.875%, 07/01/19.............................. 3,000,000 3,366,750
Ontario, Province of Canada,
15.750%, 03/15/12............................. 3,475,000 3,883,174
Polysindo International Finance Co.,
11.375%, 06/15/06............................. 5,000,000 5,087,500
Quebec, Province of Canada,
6.500%, 01/17/06.............................. 8,500,000 7,967,305
Republic of Argentina,
9.250%, 02/23/01.............................. 1,900,000 1,828,750
Republic of Columbia,
7.250%, 02/15/03-02/23/04..................... 7,500,000 6,991,450
**8.000%, 06/14/01, Tranche #TR00001.......... 12,000,000 11,889,960
8.750%, 10/06/99.............................. 3,500,000 3,574,375
Republic of Italy,
6.875%, 09/27/23.............................. 13,900,000 12,533,908
Saskatchewan, Province of Canada,
8.000%, 07/15/04.............................. 4,000,000 4,188,040
--------------
105,386,397
--------------
</TABLE>
48
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
INDUSTRIAL -- 36.6%
**Agco Corp.,
8.500%, 03/15/06.............................. $ 5,000,000 $ 4,900,000
Arkla, Inc., M.T.N.,
9.320%, 12/18/00, Tranche #TR00043............ 2,000,000 2,128,640
Auburn Hills Trust,
12.000%, 05/01/20............................. 10,000,000 14,444,000
B.J. Services Co.,
7.000%, 02/01/06.............................. 5,000,000 4,557,500
Ballys Grand, Inc.,
10.375%, 12/15/03............................. 3,000,000 3,292,500
Boise Cascade Corp.,
9.875%, 02/15/01.............................. 1,000,000 1,063,380
Buckeye Cellulose Corp.,
9.250%, 09/15/08.............................. 2,000,000 2,000,000
Canadian Pacific Forest Products Ltd.,
10.250%, 01/15/03............................. 4,000,000 4,393,400
Columbia Gas Systems, Inc.,
7.620%, 11/28/25.............................. 6,500,000 6,111,105
Crane Co.,
7.250%, 06/15/99.............................. 3,000,000 3,006,540
Darden Restaurants, Inc.,
7.125%, 02/01/16.............................. 10,000,000 9,017,300
Delta Air Lines, Inc.,
9.875%, 05/15/00.............................. 6,000,000 6,555,540
Delta Air Lines, Inc., M.T.N.,
7.790%, 12/01/98.............................. 1,000,000 1,017,700
8.380%, 06/12/98, Tranche #TR00017............ 2,000,000 2,058,220
Digital Equipment Corp.,
7.125%, 10/15/02.............................. 4,000,000 3,880,400
7.750%, 04/01/23.............................. 6,000,000 5,424,480
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. 5,000,000 4,900,000
8.500%, 06/15/03.............................. 5,000,000 4,950,000
10.000%, 02/15/01............................. 5,000,000 5,262,500
J.C. Penney Co., Inc.,
9.750%, 06/15/21.............................. 6,000,000 6,721,260
**Lumbermens Mutual Casualty Co.,
9.150%, 07/01/26.............................. 5,000,000 5,173,000
MFS Communications Co., Inc.,
*Zero Coupon, 01/15/06........................ 9,000,000 5,445,000
News America Holdings, Inc.,
7.500%, 03/01/00.............................. 6,000,000 6,083,220
7.750%, 12/01/45.............................. 7,000,000 6,263,320
Noble Drilling Corp.,
9.125%, 07/01/06.............................. 3,000,000 3,007,500
Noram Energy Corp.,
7.500%, 08/01/00.............................. 5,000,000 5,067,400
Occidental Petroleum Corp.,
10.125%, 11/15/01............................. 5,000,000 5,682,200
11.125%, 08/01/10............................. 5,000,000 6,414,900
Paramount Communications, Inc.,
7.500%, 01/15/02.............................. 5,000,000 4,932,200
Parker & Parsley Petroleum Co.,
8.250%, 08/15/07.............................. 4,000,000 4,171,520
PT Alatief Freeport Financial Co.,
9.750%, 04/15/01.............................. 5,750,000 6,045,550
RJR Nabisco, Inc.,
6.700%, 06/15/02.............................. 5,000,000 4,877,050
Rodamco NV,
7.300%, 05/15/05.............................. 5,000,000 4,977,500
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Rogers Cablesystems Ltd.,
10.000%, 03/15/05, Series B................... $ 4,000,000 $ 3,940,000
Royal Caribbean Cruises Ltd.,
11.375%, 05/15/02............................. 5,000,000 5,375,000
Ryerson Tull Inc.,
8.500%, 07/15/01.............................. 6,000,000 6,010,905
9.125%, 07/15/06.............................. 2,000,000 2,002,650
Tenet Healthcare Corp.,
8.625%, 12/01/03.............................. 6,500,000 6,589,375
9.625%, 09/01/02.............................. 1,500,000 1,593,750
Time Warner Entertainment Co., L.P.,
8.375%, 03/15/23.............................. 9,000,000 8,762,580
Time Warner, Inc.,
7.750%, 06/15/05.............................. 9,800,000 9,566,956
Transco Energy Co.,
9.125%, 05/01/98.............................. 3,000,000 3,117,570
9.375%, 08/15/01.............................. 6,000,000 6,593,940
USX Corp.,
9.800%, 07/01/01.............................. 4,900,000 5,376,280
Viacom, Inc.,
7.750%, 06/01/05.............................. 10,550,000 10,286,461
Weatherford Enterra, Inc.,
7.250%, 05/15/06.............................. 4,000,000 3,958,840
Westvaco Corp.,
9.750%, 06/15/20.............................. 5,000,000 6,082,050
Whitman Corp.,
7.500%, 08/15/01.............................. 3,000,000 3,045,510
--------------
246,126,692
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 21.1%
Federal Farm Credit Bank,
8.650%, 10/01/99, Series A.................... 150,000 159,117
Federal National Mortgage Association,
9.000%, 10/01/16-09/01/21..................... 660,567 694,538
Government National Mortgage Association,
7.500%, 05/20/02-02/15/26..................... 28,669,171 28,770,260
International Bank for Reconstruction and
Development,
12.375%, 10/15/02............................. 750,000 957,960
Resolution Funding Corp.,
Zero Coupon, 10/15/15......................... 17,100,000 4,249,179
8.125%, 10/15/19, Principle Only.............. 700,000 771,533
8.625%, 01/15/21.............................. 200,000 232,312
United States Treasury Bonds,
11.250%, 02/15/15............................. 18,000,000 25,976,160
12.000%, 08/15/13............................. 22,000,000 31,013,180
United States Treasury Notes,
6.375%, 03/31/01.............................. 2,900,000 2,887,298
6.875%, 05/15/06-08/15/25..................... 24,886,000 24,722,408
7.250%, 02/15/98.............................. 5,000,000 5,088,300
7.500%, 05/15/02.............................. 2,000,000 2,093,740
7.750%, 12/31/99.............................. 4,750,000 4,948,883
7.875%, 07/31/96.............................. 7,000,000 7,015,330
12.500%, 08/15/14............................. 1,500,000 2,206,635
--------------
141,786,833
--------------
UTILITIES -- 1.4%
El Paso Electric Company,
9.400%, 05/01/11.............................. 4,000,000 3,960,000
Pennsylvania Power & Light Co.,
9.375%, 07/01/21.............................. 1,150,000 1,282,457
</TABLE>
49
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Texas Utilities Electric Co.,
5.875%, 04/01/98.............................. $ 4,000,000 $ 3,961,800
--------------
9,204,257
--------------
TOTAL LONG-TERM BONDS
(Cost $620,879,649)............................................ 623,672,539
--------------
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 7.2% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Joint Repurchase Agreement Account,
5.443%, 07/01/96 (see Note 4)................. 48,835,000 48,835,000
--------------
OTHER ASSETS -- 0.1%
(net of liabilities)........................................... 544,336
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 673,051,875
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
C.D. Certificate of Deposit
L.P. Limited Partnership
M.T.N. Medium Term Note
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)
*Denotes deferred interest security that accrues no interest until a
predetermined date at which time a specified coupon rate becomes effective.
**Indicates a restricted security; the aggregate cost of the restricted
securities is $59,997,941. The aggregate value, $61,288,670 is
approximately 9.1% of net assets. (See Note 2)
%Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
50
<PAGE>
GOVERNMENT INCOME PORTFOLIO
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS -- 87.8% VALUE VALUE
------------- --------------
<S> <C> <C>
FINANCIAL -- 3.2%
Chase Manhattan Credit Card Master Trust,
%5.626%, 08/15/01, Series 1995-2.............. $ 12,500,000 $ 12,507,750
Equicon Home Equity Loan Trust, CMO,
7.850%, 03/18/14, Series 1995-2............... 3,000,000 3,065,625
--------------
15,573,375
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 84.6%
Federal Home Loan Bank,
6.780%, 07/24/02.............................. 10,000,000 9,826,600
Federal Home Loan Mortgage Corp.,
6.710%, 06/11/02.............................. 5,000,000 4,939,050
%6.875%, 06/01/25............................. 13,663,608 13,752,934
Federal National Mortgage Association,
8.000%, 03/01/22-05/01/26..................... 26,247,298 26,447,445
8.500%, 05/01/24-04/01/25..................... 32,993,948 33,890,724
9.000%, 02/01/25-04/01/25..................... 14,453,196 15,089,426
Federal National Mortgage Association
Debentures,
6.550%, 08/10/00.............................. 6,000,000 5,957,820
Government National Mortgage Association,
7.500%, 12/15/25-02/15/26..................... 20,042,209 19,772,040
8.000%, 09/15/23-10/15/25..................... 23,138,738 23,385,708
Main Place Funding,
%5.674%, 07/17/98............................. 10,000,000 10,007,812
Resolution Funding Corp.,
Zero Coupon, 04/15/09......................... 45,000,000 18,278,100
8.125%, 10/15/19, Principal Only Class A...... 4,200,000 4,629,198
Student Loan Market Association,
5.880%, 02/06/01.............................. 19,290,000 18,629,896
7.500%, 03/08/00.............................. 12,000,000 12,361,920
United States Treasury Bonds,
8.125%, 08/15/19.............................. 40,000,000 44,900,000
United States Treasury Bonds, Stripped,
Zero Coupon, 02/15/08......................... 25,000,000 11,280,500
United States Treasury Notes,
6.250%, 04/30/01.............................. 15,000,000 14,857,050
6.875%, 03/31/00.............................. 30,000,000 30,435,900
7.750%, 12/31/99.............................. 57,000,000 59,386,590
7.875%, 11/15/04.............................. 35,000,000 37,619,400
--------------
415,448,113
--------------
TOTAL LONG-TERM BONDS
(Cost $432,669,233)............................................ 431,021,488
--------------
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 10.8% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Joint Repurchase Agreement Account,
5.443%, 07/01/96 (see Note 4)................. $ 52,895,000 $ 52,895,000
--------------
OTHER ASSETS -- 1.4%
(net of liabilities)........................................... 6,769,282
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 490,685,770
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
CMO Collateralized Mortgage Obligations
%Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
51
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 35.6% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 0.4%
+Coltec Industries, Inc......................... 311,000 $ 4,431,750
GenCorp, Inc.................................... 676,800 10,236,600
+UNC, Inc....................................... 289,100 2,421,212
--------------
17,089,562
--------------
AIRLINES -- 0.8%
+AMR Corp....................................... 200,000 18,200,000
+USAir Group, Inc............................... 835,000 15,030,000
--------------
33,230,000
--------------
ALUMINUM -- 0.6%
Aluminum Co. of America......................... 400,000 22,950,000
--------------
AUTOS - CARS & TRUCKS -- 2.3%
A.O. Smith Corp................................. 466,800 11,670,000
Chrysler Corp................................... 500,000 31,000,000
Ford Motor Co................................... 318,300 10,304,962
General Motors Corp............................. 500,000 26,187,500
General Motors Corp. (Class 'H' Stock).......... 107,600 6,469,450
Titan Wheel International, Inc.................. 748,350 11,973,600
--------------
97,605,512
--------------
CHEMICALS -- 0.7%
Imperial Chemical Industries, PLC, ADR.......... 371,300 18,240,112
OM Group, Inc................................... 308,400 12,104,700
--------------
30,344,812
--------------
CHEMICALS - SPECIALTY -- 0.8%
Ferro Corp...................................... 655,200 17,362,800
M.A. Hanna Co................................... 734,550 15,333,731
--------------
32,696,531
--------------
COMPUTER SERVICES -- 0.9%
+Amdahl Corp.................................... 900,000 9,675,000
National Data Corp.............................. 320,100 10,963,425
+Paxar Corp..................................... 1,022,928 17,901,240
--------------
38,539,665
--------------
CONSTRUCTION -- 1.0%
J. Ray McDermott, SA............................ 511,600 12,790,000
Owens Corning................................... 662,800 28,500,400
--------------
41,290,400
--------------
CONTAINERS -- 0.2%
+Sealed Air Corp................................ 290,400 9,764,700
--------------
DIVERSIFIED GAS -- 0.7%
+Basin Exploration, Inc......................... 148,000 962,000
Sonat Offshore Drilling, Inc.................... 173,100 8,741,550
Tidewater, Inc.................................. 204,224 8,960,328
+Weatherford Enterra, Inc....................... 321,353 9,640,590
Western Gas Resources, Inc...................... 162,100 2,634,125
--------------
30,938,593
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.3%
International Business Machines Corp............ 134,000 13,266,000
--------------
DRUGS AND HOSPITAL SUPPLIES -- 0.3%
United States Surgical Corp..................... 365,500 11,330,500
--------------
ELECTRICAL EQUIPMENT -- 1.0%
+Anixter International, Inc..................... 337,400 5,018,825
Belden, Inc..................................... 492,300 14,769,000
Westinghouse Electric Corp...................... 1,200,000 22,500,000
--------------
42,287,825
--------------
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
ELECTRONICS -- 1.1%
+ADT Ltd........................................ 620,000 $ 11,702,500
+Digital Equipment Corp......................... 262,000 11,790,000
+IMO Industries, Inc............................ 596,900 3,432,175
Texas Instruments, Inc.......................... 400,000 19,950,000
--------------
46,874,675
--------------
FINANCIAL SERVICES -- 1.2%
American Express Co............................. 159,000 7,095,375
Lehman Brothers Holdings, Inc................... 400,000 9,900,000
Reinsurance Group of America, Inc............... 487,800 18,414,450
Salomon, Inc.................................... 300,000 13,200,000
--------------
48,609,825
--------------
FOODS -- 0.2%
Philip Morris Companies, Inc.................... 94,000 9,776,000
--------------
FOREST PRODUCTS -- 0.8%
Louisiana-Pacific Corp.......................... 700,000 15,487,500
Mead Corp....................................... 350,800 18,197,750
--------------
33,685,250
--------------
FURNITURE -- 0.2%
Leggett & Platt, Inc............................ 380,200 10,550,550
--------------
GAS PIPELINES -- 0.7%
Enron Oil & Gas Co.............................. 332,700 9,274,012
+Global Marine, Inc............................. 615,800 8,544,225
+Seagull Energy Corp............................ 387,200 9,680,000
--------------
27,498,237
--------------
HOLDINGS -- 0.2%
Hanson, PLC, ADR................................ 700,000 9,975,000
--------------
HOUSING RELATED -- 0.1%
+Giant Cement Holdings, Inc..................... 415,200 5,241,900
--------------
INSURANCE -- 2.7%
Allstate Corp................................... 129,599 5,912,954
Equitable of Iowa Companies..................... 372,700 13,230,850
Financial Security Assurance Holdings, Ltd...... 226,200 6,192,225
National Re Corp................................ 207,600 7,836,900
PennCorp Financial Group, Inc................... 544,200 17,278,350
Provident Companies, Inc........................ 177,200 6,556,400
TIG Holdings, Inc............................... 588,300 17,060,700
Trenwick Group, Inc............................. 276,200 13,810,000
W.R. Berkley Corp............................... 192,800 8,049,400
Western National Corp........................... 900,000 16,537,500
--------------
112,465,279
--------------
MACHINERY -- 1.2%
Case Corp....................................... 642,800 30,854,400
DT Industries, Inc.............................. 234,500 4,279,625
+Global Industrial Technologies, Inc............ 390,700 6,251,200
Parker-Hannifin Corp............................ 204,750 8,676,281
--------------
50,061,506
--------------
MEDIA -- 1.8%
Central Newspapers, Inc. (Class 'A' Stock)...... 331,700 12,438,750
Comcast Corp. (Special Class 'A' Stock)......... 9,600 177,600
Gannett Co., Inc................................ 200,000 14,150,000
Hollinger International, Inc.................... 161,400 1,835,925
Knight-Ridder, Inc.............................. 200,000 14,500,000
Lee Enterprises, Inc............................ 337,400 7,971,075
McGraw-Hill, Inc................................ 192,400 8,802,300
</TABLE>
52
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Media General, Inc. (Class 'A' Stock)........... 123,600 $ 4,604,100
Times Mirror Co. (Class 'A' Stock).............. 280,276 12,192,006
--------------
76,671,756
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 2.9%
BW/IP, Inc. (Class 'A' Stock)................... 379,200 7,204,800
Danaher Corp.................................... 455,600 19,818,600
Donaldson Company, Inc.......................... 400,400 10,310,300
+IDEX Corp...................................... 285,600 10,852,800
+Jan Bell Marketing, Inc........................ 1,000,000 2,625,000
+Litton Industries, Inc......................... 259,700 11,296,950
Mark IV Industries, Inc......................... 601,193 13,601,992
Mascotech, Inc.................................. 650,000 9,587,500
+SPS Transaction Services, Inc.................. 192,800 3,470,400
Trinity Industries, Inc......................... 385,500 13,107,000
+Wolverine Tube, Inc............................ 279,500 9,782,500
York International Corp......................... 199,000 10,298,250
--------------
121,956,092
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.0%
Eastman Kodak Co................................ 138,600 10,776,150
Houghton Mifflin Co............................. 200,000 9,950,000
Whitman Corp.................................... 913,400 22,035,775
--------------
42,761,925
--------------
PETROLEUM -- 1.7%
Amerada Hess Corp............................... 100,000 5,362,500
Cabot Oil & Gas Corp. (Class 'A' Stock)......... 594,400 10,327,700
Elf Aquitaine, ADR.............................. 1,290,100 47,411,175
Parker & Parsley Petroleum Co................... 257,800 7,153,950
--------------
70,255,325
--------------
PETROLEUM SERVICES -- 3.1%
Baker Hughes, Inc............................... 300,000 9,862,500
Coflexip, ADR................................... 700,000 12,162,500
+ENSCO International, Inc....................... 600,000 19,500,000
ICO, Inc........................................ 500,000 2,812,500
+Marine Drilling Co., Inc....................... 1,000,000 10,125,000
+Mesa, Inc...................................... 1,008,400 5,546,200
Murphy Oil Corp................................. 190,800 8,657,550
Noble Affiliates, Inc........................... 400,000 15,100,000
+Noble Drilling Corp............................ 800,000 11,100,000
+Oryx Energy Co................................. 849,400 13,802,750
+Pride Petroleum Services, Inc.................. 360,100 5,131,425
+Western Atlas, Inc............................. 300,000 17,475,000
--------------
131,275,425
--------------
RAILROADS -- 0.5%
Burlington Northern, Inc........................ 246,800 19,959,950
--------------
RETAIL -- 2.6%
+Best Products Company, Inc..................... 1,094,500 1,812,766
+Bombay Company, Inc............................ 923,300 5,770,625
+Burlington Coat Factory Warehouse.............. 244,600 2,568,300
Charming Shoppes, Inc........................... 2,435,000 17,197,188
Dillard Department Stores, Inc. (Class 'A'
Stock)........................................ 227,900 8,318,350
+Filene's Basement Corp......................... 160,000 780,000
K mart Corp..................................... 2,058,700 25,476,413
Rite Aid Corp................................... 6,000 178,500
TJX Companies, Inc.............................. 464,900 15,690,375
+Toys 'R' Us, Inc............................... 600,000 17,100,000
Woolworth Corp.................................. 600,000 13,500,000
--------------
108,392,517
--------------
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
RUBBER -- 0.3%
Goodyear Tire & Rubber Co....................... 269,800 $ 13,017,850
--------------
STEEL -- 1.4%
+Bethlehem Steel Corp........................... 1,000,000 11,875,000
LTV Corp........................................ 1,515,000 17,233,125
+Material Sciences Corp......................... 675,000 11,643,750
+National Steel Corp. (Class 'B' Stock)......... 300,000 3,262,500
USX-U.S. Steel Group............................ 450,000 12,768,750
--------------
56,783,125
--------------
TELECOMMUNICATIONS -- 0.4%
Century Telephone Enterprises, Inc.............. 227,300 7,245,188
Frontier Corp................................... 297,700 9,117,063
--------------
16,362,251
--------------
TEXTILES -- 1.2%
+Farah, Inc..................................... 258,500 1,906,438
+Fieldcrest Cannon, Inc......................... 460,000 9,027,500
+Fruit of the Loom, Inc. (Class 'A' Stock)...... 500,000 12,750,000
+Owens-Illinois, Inc............................ 552,700 8,843,200
Phillips-Van Heusen Corp........................ 600,000 7,650,000
+Tultex Corp.................................... 579,000 2,750,250
V.F. Corp....................................... 154,600 9,218,025
--------------
52,145,413
--------------
TOBACCO -- 0.1%
RJR Nabisco Holdings Corp....................... 144,000 4,464,000
--------------
TRUCKING/SHIPPING -- 0.2%
Yellow Corp..................................... 500,000 6,625,000
--------------
TOTAL COMMON STOCKS
(Cost $1,219,180,944).......................................... 1,496,742,951
--------------
<CAPTION>
MARKET
PREFERRED STOCKS -- 0.3% SHARES VALUE
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES -- 0.2%
Salomon Inc..................................... 400,000 10,050,000
--------------
MEDIA -- 0.1%
Times Mirror Co. (Cum. Conv.), Series B......... 119,724 3,217,582
--------------
TOTAL PREFERRED STOCKS
(Cost $12,725,059)............................................. 13,267,582
--------------
<CAPTION>
PAR MARKET
LONG-TERM BONDS -- 38.9% VALUE VALUE
------------- --------------
<S> <C> <C>
FINANCIAL -- 13.8%
Advanta National Bank, C.D.,
6.260%, 09/01/97.............................. $ 10,500,000 10,484,250
Associates Corp. of North America,
6.625%, 05/15/01.............................. 44,500,000 43,983,800
8.375%, 01/15/98.............................. 1,100,000 1,131,339
Banc One Credit Card Master Trust,
7.750%, 12/15/99.............................. 5,100,000 5,192,412
BCH Cayman Islands, Ltd.,
6.500%, 02/15/06.............................. 6,100,000 5,624,688
</TABLE>
53
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Capital One Bank, M.T.N.
6.660%, 08/17/98, Tranche #TR00055............ $ 10,050,000 $ 10,029,800
6.730%, 06/04/98, Tranche #TR00001............ 16,000,000 15,976,000
6.900%, 04/15/99, Tranche #TR00064............ 22,250,000 22,250,000
CIGNA Mortgage Securities, Inc.,
9.400%, 01/15/02.............................. 1,219,404 1,208,277
CIT Group Holdings, M.T.N.,
5.850%, 03/16/98, Tranche #SR00010............ 25,000,000 24,847,500
6.200%, 04/15/98, Tranche #SR00011............ 10,000,000 9,983,600
Discover Credit Corp., M.T.N.,
9.000%, 04/01/98.............................. 16,000,000 16,595,840
Erac USA Finance Co.,
6.350%, 01/15/01, Tranche #TR00005............ 6,500,000 6,262,344
7.000%, 06/15/00.............................. 25,000,000 24,992,187
Federal Express Corp., M.T.N.,
10.010%, 06/01/98, Tranche #SR00067........... 3,000,000 3,161,520
10.050%, 06/15/99, Tranche #SR00068........... 500,000 536,710
First Union Corp.,
9.450%, 06/15/99.............................. 4,000,000 4,288,600
First USA Bank,
8.200%, 02/15/98.............................. 14,575,000 14,916,929
Ford Motor Credit Co., M.T.N.,
5.668%, 10/04/99, Tranche #TR00537............ 23,750,000 23,733,137
7.060%, 06/06/01, Tranche #TR00675............ 37,000,000 37,092,500
General Motors Acceptance Corp.,
7.125%, 05/01/03.............................. 38,700,000 38,681,424
General Motors Acceptance Corp., M.T.N.,
5.395%, 02/02/99, Tranche #TR00100............ 2,000,000 1,999,782
6.300%, 09/10/97.............................. 5,000,000 5,012,600
7.375%, 07/20/98, Tranche #TR00067............ 4,650,000 4,732,723
Mellon Financial Co.,
6.500%, 12/01/97.............................. 1,650,000 1,652,425
NationsBank Corp.,
7.000%, 05/15/03.............................. 24,500,000 24,364,515
Norwest Corp., M.T.N.,
6.250%, 03/15/01.............................. 16,800,000 16,359,840
Okobank,
%6.968%, 09/27/49............................. 18,750,000 19,125,000
**%7.387%, 10/29/49........................... 12,500,000 12,806,250
RHG Finance Corp.,
8.875%, 10/01/05.............................. 8,000,000 8,260,000
Salomon, Inc.,
7.000%, 05/15/99.............................. 42,000,000 42,021,420
Salomon, Inc., M.T.N.,
5.980%, 02/02/98, Tranche #SR00027............ 35,000,000 34,616,400
7.250%, 05/01/01.............................. 8,625,000 8,603,610
Santander Financial Issuances, Inc.,
7.875%, 04/15/05.............................. 3,250,000 3,344,055
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Sears Roebuck Acceptance Corp., M.T.N.,
6.380%, 02/16/99.............................. $ 70,000,000 $ 69,688,500
Standard Credit Card Master Trust,
5.950%, 09/07/03.............................. 4,650,000 4,365,187
Wells Fargo & Co,
6.875%, 04/01/06.............................. 500,000 481,670
--------------
578,406,834
--------------
FOREIGN -- 6.7%
Banco de Commercio Exterior de Columbia, SA,
M.T.N.,
**8.625%, 06/02/00, Tranche #TR00001.......... 5,500,000 5,596,250
Banco Ganadero, SA, M.T.N.,
9.750%, 08/26/99, Tranche #TR00001............ 7,300,000 7,582,875
Compania Sud Americana de Vapores, SA,
**7.375%, 12/08/03............................ 7,600,000 7,201,000
Controladora Commercial Mexicana, SA,
8.750%, 04/21/98.............................. 5,190,000 5,073,225
Empresa Columbia de Petroleos,
7.250%, 07/08/98.............................. 8,250,000 8,229,375
Fomento Economico Mexicano, SA,
9.500%, 07/22/97.............................. 5,150,000 5,227,250
Grupo Embotellador Mexicana,
**10.750%, 11/19/97........................... 8,015,000 8,255,450
Grupo Televisa, SA,
10.000%, 11/09/97............................. 7,250,000 7,512,812
Kansallis-Osake Pankki, N.Y.,
**%8.650%, 01/01/49........................... 10,000,000 10,368,900
9.750%, 12/15/98.............................. 16,950,000 18,097,176
Kansallis-Osake Pankki, N.Y., C.D.,
6.125%, 05/15/98.............................. 6,160,000 6,120,453
Quebec, Province of Canada,
7.125%, 02/09/24.............................. 22,155,000 20,244,574
7.500%, 07/15/23.............................. 31,250,000 29,908,125
Republic of Argentina,
9.250%, 02/23/01.............................. 4,300,000 4,138,750
Republic of Columbia,
7.125%, 05/11/98.............................. 2,775,000 2,761,125
7.250%, 02/15/03-02/23/04..................... 27,900,000 26,021,510
8.000%, 06/14/01, Tranche #TR00001............ 20,750,000 20,559,723
8.750%, 10/06/99.............................. 12,325,000 12,586,906
Republic of Italy,
6.875%, 09/27/23.............................. 69,150,000 62,353,938
Telekom Malaysia,
**7.875%, 08/01/25............................ 14,150,000 14,207,449
--------------
282,046,866
--------------
INDUSTRIAL -- 8.8%
Agco Corp.,
8.500%, 03/15/06.............................. 6,500,000 6,370,000
Arkla, Inc., M.T.N.,
9.250%, 12/18/97, Tranche #TR00027............ 3,000,000 3,108,390
Auburn Hills Trust,
12.000%, 05/01/20............................. 10,150,000 14,660,660
B.J. Services Co.,
7.000%, 02/01/06.............................. 4,000,000 3,646,000
Coca-Cola Enterprises, Inc.,
6.500%, 11/15/97.............................. 3,750,000 3,758,625
</TABLE>
54
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Digital Equipment Corp.,
7.125%, 10/15/02.............................. $ 10,000,000 $ 9,701,000
7.750%, 04/01/23.............................. 5,000,000 4,520,400
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. 3,500,000 3,430,000
8.500%, 06/15/03.............................. 18,000,000 17,820,000
10.000%, 02/15/01............................. 2,500,000 2,631,250
Lockheed Martin,
7.700%, 06/15/08.............................. 25,500,000 25,912,463
Lumbermens Mutual Casualty Co.,
9.150%, 07/01/26.............................. 21,500,000 22,243,900
News America Holdings, Inc.,
7.750%, 12/01/45.............................. 73,500,000 65,764,860
9.250%, 02/01/13.............................. 10,000,000 10,868,900
Noble Drilling Corp.,
9.125%, 07/01/06.............................. 3,500,000 3,508,750
Norcen Energy Resources,
7.375%, 05/15/06.............................. 8,000,000 7,898,400
Paramount Communications, Inc.,
7.500%, 01/15/02.............................. 5,425,000 5,351,437
Parker & Parsley Petroleum Co.,
8.250%, 08/15/07.............................. 3,000,000 3,128,640
PT Alatief Freeport Financial Co.,
9.750%, 04/15/01.............................. 8,950,000 9,410,030
RJR Nabisco, Inc.,
8.750%, 08/15/05.............................. 4,000,000 3,958,000
Service Corp. International,
7.000%, 06/01/15.............................. 2,500,000 2,498,050
Time Warner Entertainment Co., L.P.,
8.375%, 03/15/23-07/15/33..................... 44,040,000 42,350,384
Time Warner, Inc.,
7.750%, 06/15/05.............................. 10,000,000 9,762,200
9.125%, 01/15/13.............................. 12,930,000 13,503,833
9.150%, 02/01/23.............................. 8,000,000 8,271,520
Viacom, Inc.,
6.750%, 01/15/03.............................. 19,345,000 18,252,201
7.750%, 06/01/05.............................. 44,675,000 43,559,019
Weatherford Enterra, Inc.,
7.250%, 05/15/06.............................. 4,000,000 3,958,840
--------------
369,847,752
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 9.6%
Federal National Mortgage Association,
9.050%, 04/10/00.............................. 14,000,000 15,139,740
United States Treasury Notes,
5.000%, 02/15/99.............................. 17,000,000 16,492,720
5.125%, 02/28/98.............................. 12,800,000 12,611,968
5.625%, 11/30/00.............................. 59,800,000 57,921,682
5.875%, 04/30/98.............................. 8,000,000 7,968,720
6.125%, 07/31/00-09/30/00..................... 10,350,000 10,230,809
6.250%, 04/30/01.............................. 14,200,000 14,064,674
6.500%, 04/30/97-05/31/01..................... 19,500,000 19,587,845
6.750%, 04/30/00.............................. 8,000,000 8,083,760
6.875%, 05/15/06-08/15/25..................... 240,200,000 240,708,006
--------------
402,809,924
--------------
TOTAL LONG-TERM BONDS
(Cost $1,638,721,545).......................................... 1,633,111,376
--------------
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 24.6% AMOUNT VALUE
------------- --------------
<S> <C> <C>
BANK-RELATED INSTRUMENTS -- 6.8%
Abn-Amro Bank North America,, C.D.,
5.030%, 08/20/96.............................. $ 28,000,000 $ 28,000,353
Advanta Corp.,
5.125%, 11/15/96.............................. 12,535,000 12,491,504
Advanta National Bank, C.D.,
5.800%, 03/19/97, Tranche #SR00009............ 25,000,000 25,071,875
5.840%, 03/14/97, Tranche #SR00007............ 21,500,000 21,373,150
Banque Nationale De Paris, C.D.,
5.400%, 07/11/96.............................. 11,000,000 11,000,092
Barnett Banks, Inc., C.D.,
5.390%, 07/08/96.............................. 19,058,000 19,057,729
Bayerische Hypotheken, C.D.,
5.340%, 09/18/96.............................. 4,000,000 3,999,460
Bayerische Landesbank, C.D.,
5.100%, 07/05/96.............................. 3,000,000 2,999,885
Bayerische Vereinsbank,
5.410%, 10/02/96.............................. 3,000,000 3,000,069
Canadian Imperial Bank, C.D.,
5.520%, 09/09/96.............................. 25,000,000 25,000,000
Capital One Bank,
8.625%, 01/15/97, Tranche #TR00005............ 32,425,000 32,837,770
Commerzbank,
5.310%, 09/23/96.............................. 7,000,000 6,997,074
Commonwealth Bank of Australia,
5.320%, 08/12/96-08/14/96..................... 5,500,000 5,465,272
Deutsche Bank, C.D.,
5.090%, 08/23/96.............................. 23,000,000 23,000,000
Dresdner U.S. Finance, C.D.,
5.690%, 07/16/96.............................. 2,000,000 2,000,076
Engelhard Corp.,
5.428%, 07/08/96.............................. 5,000,000 5,000,000
Lowes Co.,
5.650%, 07/01/96.............................. 920,000 920,000
Marine Midland Bank N.A.,
5.687%, 09/27/96.............................. 6,500,000 6,483,750
NBD Bank, N.A.,
5.050%, 08/01/96, Tranche #TR00280............ 5,000,000 4,998,338
Rabobank Nederland C.D.,
5.020%, 08/22/96.............................. 5,000,000 5,000,000
Societe Generale Bank,
5.400%, 07/12/96.............................. 27,000,000 27,000,133
Societe Generale Bank C.D.,
5.340%, 07/02/96.............................. 5,000,000 5,000,002
Union Bank of Switzerland C.D.,
5.050%, 07/08/96.............................. 2,000,000 1,999,846
United States National Bank of Oregon,
5.320%, 07/30/96, Tranche #TR00029............ 5,000,000 4,999,791
--------------
283,696,169
--------------
COMMERCIAL PAPER -- 10.8%
Allied-Signal Corp.,
5.400%, 07/12/96.............................. 7,850,000 7,837,047
American Honda Finance Corp.,
5.400%, 07/11/96.............................. 7,115,000 7,104,327
5.480%, 08/26/96.............................. 2,000,000 1,982,951
5.500%, 07/09/96.............................. 2,000,000 1,997,556
</TABLE>
55
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Associates Corp. of North America,
5.400%, 07/29/96.............................. $ 15,502,000 $ 15,436,892
Bank of New York Co.,
5.320%, 07/02/96.............................. 3,000,000 2,999,557
Barnett Banks, Inc.,
5.420%, 07/09/96.............................. 2,000,000 1,997,591
5.500%, 07/01/96.............................. 12,600,000 12,600,000
Bell Atlantic Network,
5.400%, 07/10/96.............................. 6,250,000 6,241,562
Beneficial Corp.,
5.380%, 08/21/96.............................. 9,000,000 8,931,405
Bradford & Bingley Building Society,
5.350%, 07/12/96.............................. 2,000,000 1,996,731
Caterpillar Financial Services Corp.,
5.250%, 09/19/96.............................. 2,000,000 1,976,667
Ciesco, L.P.,
5.350%, 07/26/96.............................. 5,000,000 4,981,424
5.380%, 08/08/96.............................. 2,000,000 1,988,642
CIT Group Holdings, Inc.,
5.330%, 08/12/96-08/13/96..................... 19,000,000 18,880,075
Coca Cola Enterprises, Inc.,
5.400%, 07/16/96.............................. 2,179,000 2,174,097
5.450%, 08/19/96.............................. 3,000,000 2,977,746
Cooper Industries, Inc.,
5.600%, 07/01/96.............................. 15,328,000 15,328,000
Corporate Receivables Corp.,
5.400%, 07/23/96-08/12/96..................... 3,711,000 3,690,621
Countrywide Home Loan,
5.400%, 07/15/96.............................. 3,000,000 2,993,700
5.420%, 07/22/96.............................. 2,000,000 1,993,677
5.430%, 08/20/96-08/22/96..................... 6,000,000 5,953,845
Duracell Inc.,
5.400%, 07/09/96-07/22/96..................... 6,575,000 6,559,310
Enterprise Funding Corp,
5.400%, 07/24/96-08/01/96..................... 7,029,000 6,998,412
5.410%, 08/12/96.............................. 3,821,000 3,796,883
Financiera Energetica Nacional,
6.625%, 12/13/96.............................. 5,000,000 5,001,250
Finova Capital Corp.,
5.420%, 07/11/96.............................. 3,000,000 2,995,483
5.460%, 08/12/96.............................. 11,000,000 10,929,930
First Data Corp.,
5.450%, 07/23/96-07/30/96..................... 13,231,000 13,178,211
Ford Motor Credit Co.,
5.370%, 07/10/96.............................. 22,000,000 21,970,465
General Electric Capital Corp.,
5.330%, 08/12/96.............................. 10,000,000 9,937,817
General Motors Acceptance Corp.,
6.700%, 04/30/97, Tranche #TR00319............ 11,000,000 11,048,290
7.850%, 03/05/97, Tranche #TR00187............ 3,300,000 3,338,280
General Signal Corp.,
5.400%, 07/10/96.............................. 5,200,000 5,192,980
GTE Corp.,
5.430%, 07/22/96.............................. 8,000,000 7,974,660
Honeywell Inc.,
5.400%, 07/02/96.............................. 20,000,000 19,997,000
Household Finance Corp.,
5.380%, 08/20/96.............................. 5,000,000 4,962,639
Lehman Brothers Holdings, Inc.,
5.550%, 07/08/96.............................. 21,678,000 21,654,606
Merrill Lynch & Co. Inc,
5.400%, 07/12/96.............................. 12,000,000 11,980,200
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Mitsubishi Intl. Corp.,
5.330%, 07/08/96.............................. $ 7,512,000 $ 7,504,215
Morgan Stanley Group, Inc.,
5.600%, 07/01/96.............................. 7,000,000 7,000,000
Nomura Holdings America, Inc.,
5.670%, 07/01/96.............................. 9,000,000 9,000,000
NYNEX Corporation,
5.340%, 07/22/96.............................. 2,000,000 1,993,770
5.420%, 08/16/96.............................. 3,000,000 2,979,223
PHH Corporation,
5.450%, 07/11/96.............................. 4,000,000 3,993,944
Philip Morris Companies, Inc.,
5.300%, 07/19/96.............................. 2,000,000 1,994,700
5.390%, 07/25/96.............................. 10,000,000 9,964,067
PNC Funding Corp.,
5.430%, 07/08/96.............................. 5,000,000 4,994,721
Preferred Receivables Funding Corp.,
5.330%, 07/17/96.............................. 4,000,000 3,990,524
5.370%, 07/24/96.............................. 17,625,000 17,564,532
Rank Xerox Capital,
5.300%, 07/18/96.............................. 13,700,000 13,665,712
Sears Roebuck Acceptance Corp.,
5.400%, 07/25/96.............................. 2,000,000 1,992,800
Smith Barney Inc.,
5.360%, 07/02/96.............................. 2,000,000 1,999,702
5.380%, 07/18/96.............................. 5,000,000 4,987,297
Special Purpose A/R Cooperative Corp.,
5.430%, 07/08/96.............................. 3,000,000 2,996,832
Transamerica Corp.,
5.310%, 10/15/96.............................. 10,130,000 9,971,617
Union Electric Company,
5.350%, 07/01/96.............................. 4,000,000 4,000,000
United States West Commerce, Inc.,
5.450%, 07/15/96.............................. 2,000,000 1,995,761
USL Capital Corp.,
5.400%, 07/01/96.............................. 12,000,000 12,000,000
5.420%, 07/01/96.............................. 5,000,000 5,000,000
WCP Funding, Inc.,
5.400%, 07/25/96.............................. 5,000,000 4,982,000
Westpac Capital Corp.,
5.350%, 07/02/96.............................. 5,000,000 4,999,257
Whirlpool Financial Corp.,
5.400%, 07/25/96.............................. 7,000,000 6,974,800
Xerox Corp.,
5.320%, 07/08/96.............................. 8,000,000 7,991,724
--------------
454,117,727
--------------
MEDIUM TERM NOTES -- 3.8%
Advanta Corp Mid,
8.180%, 02/09/97, Tranche #TR00028............ 10,000,000 10,175,000
American General Financial Credit,
7.750%, 01/15/97.............................. 3,700,000 3,739,748
Associates Corp. of North America,
4.750%, 08/01/96.............................. 2,000,000 1,998,614
7.730%, 10/31/96.............................. 2,000,000 2,013,938
Beneficial Corp.,
9.350%, 02/03/97, Tranche #TR00156............ 3,500,000 3,573,420
Chrysler Financial Corp.,
5.390%, 08/27/96, Tranche #TR00041............ 7,300,000 7,295,620
</TABLE>
56
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
First National Bank of Chicago,
5.500%, 10/03/96, Tranche #TR00217............ $ 7,000,000 $ 7,000,000
General Electric Capital,
7.780%, 12/30/96.............................. 2,000,000 2,021,660
General Motors Acceptance Corp.,
6.260%, 10/21/97, Tranche #TR00065............ 8,000,000 7,997,409
7.600%, 02/10/97, Tranche #TR00137............ 2,000,000 2,026,675
8.250%, 08/01/96, Tranche #TR00674............ 7,000,000 7,003,992
8.750%, 08/01/96.............................. 1,000,000 1,002,547
Grupo Condumex, SA,
**6.250%, 07/27/96............................ 4,300,000 4,300,000
Huntington National Bank,
4.480%, 10/14/96.............................. 1,000,000 996,289
Mellon Bank N.A.,
6.200%, 11/01/95, Tranche #TR00029............ 10,000,000 10,005,716
Merrill Lynch & Co., Inc.,
%5.875%, 09/13/96, Tranche #TR00197........... 27,000,000 26,998,411
NationsBank of Texas N.A.,
6.820%, 07/10/96, Tranche #TR00112............ 6,000,000 6,000,038
Norwest Corp.,
7.875%, 01/30/97, Tranche #TR00188............ 2,000,000 2,023,808
Sears Roebuck Acceptance Corp.,
9.000%, 09/15/96.............................. 2,000,000 2,012,300
SMM Trust,
5.313%, 12/16/96.............................. 15,790,000 15,789,256
%5.938%, 12/16/96............................. 27,000,000 26,998,823
Student Loan Marketing Association,
%5.600%, 08/09/96............................. 7,650,000 7,648,445
--------------
158,621,709
--------------
PROMISSORY NOTE -- 0.1%
Philip Morris Companies, Inc.,
8.875%, 07/01/96.............................. 4,600,000 4,600,000
--------------
REPURCHASE AGREEMENT -- 2.1%
Joint Repurchase Agreement Account,
5.443%, 07/01/96 (see Note 4)................. 90,569,000 90,569,000
--------------
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 1.0%
United States Treasury Note,
7.500%, 01/31/97.............................. $ 22,000,000 $ 22,290,550
US Treasury Bill,
5.611%, 05/01/97.............................. 19,000,000 18,148,040
--------------
40,438,590
--------------
TOTAL SHORT-TERM INVESTMENTS..................................... 1,032,043,195
--------------
OTHER ASSETS -- 0.6%
(net of liabilities)........................................... 23,591,225
--------------
TOTAL NET ASSETS -- 100.0%....................................... $4,198,756,329
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
C.D. Certificates of Deposit
L.P. Limited Partnership
M.T.N. Medium Term Note
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)
**Indicates a restricted security; the aggregate cost of the restricted
securities is $62,386,210.90. The aggregate value, $62,735,299 is
approximately 1.5% of net assets. (See Note 2)
+No dividend was paid on this security during the 12 months ending June 30,
1996.
%Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
57
<PAGE>
FLEXIBLE MANAGED PORTFOLIO
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 58.0% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 2.7%
Boeing Co....................................... 582,600 $ 50,759,025
Lockheed Martin Corp............................ 350,000 29,400,000
United Technologies Corp........................ 375,000 43,125,000
--------------
123,284,025
--------------
AIRLINES -- 0.6%
+AMR Corp....................................... 300,000 27,300,000
--------------
AUTOS - CARS & TRUCKS -- 0.9%
Chrysler Corp................................... 650,000 40,300,000
--------------
BANKS AND SAVINGS & LOANS -- 2.7%
Banc One Corp................................... 750,000 25,500,000
BankAmerica Corp................................ 300,000 22,725,000
Chase Manhattan Corp............................ 279,248 19,721,890
Citicorp........................................ 335,000 27,679,375
State Street Boston Corp........................ 500,000 25,500,000
--------------
121,126,265
--------------
BEVERAGES -- 0.4%
Anheuser-Busch Companies, Inc................... 250,000 18,750,000
--------------
CHEMICALS -- 1.1%
Agrium, Inc..................................... 400,000 5,243,750
E.I. du Pont de Nemours & Co.................... 400,000 31,650,000
W.R. Grace & Co................................. 200,000 14,175,000
--------------
51,068,750
--------------
CHEMICALS - SPECIALTY -- 0.4%
Praxair, Inc.................................... 413,900 17,487,275
--------------
COMMERCIAL SERVICES -- 0.4%
+CUC International, Inc......................... 500,000 17,750,000
--------------
COMPUTER SERVICES -- 6.6%
3Com Corp....................................... 600,000 27,450,000
+America Online, Inc............................ 600,000 26,250,000
+Bay Networks, Inc.............................. 525,000 13,518,750
+Cisco Systems, Inc............................. 1,000,000 56,625,000
Computer Associates International, Inc.......... 500,000 35,625,000
+Computer Sciences Corp......................... 225,000 16,818,750
Electronic Data Systems Corp.................... 542,400 29,154,000
First Data Corp................................. 422,500 33,641,562
+Gateway 2000, Inc.............................. 392,700 13,351,800
HBO & Co........................................ 300,000 20,325,000
+Microsoft Corp................................. 125,000 15,015,625
+Sun Microsystems, Inc.......................... 215,000 12,658,125
--------------
300,433,612
--------------
CONSTRUCTION -- 0.4%
Fluor Corp...................................... 250,000 16,343,750
--------------
COSMETICS & SOAPS -- 0.8%
Procter & Gamble Co............................. 400,000 36,250,000
--------------
DIVERSIFIED GAS -- 0.4%
Cross Timbers Oil Co............................ 700,000 17,325,000
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.7%
Alco Standard Corp.............................. 300,000 13,575,000
International Business Machines Corp............ 200,000 19,800,000
--------------
33,375,000
--------------
DRUGS AND HOSPITAL SUPPLIES -- 6.5%
American Home Products Corp..................... 800,000 48,100,000
Becton, Dickinson & Co.......................... 400,000 32,100,000
+Boston Scientific Corp......................... 600,000 27,000,000
Ciba-Geigy AG, ADR.............................. 750,000 45,703,125
Genzyme Corp.................................... 100,000 5,025,000
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Johnson & Johnson............................... 450,000 $ 22,275,000
Pfizer, Inc..................................... 700,000 49,962,500
Pharmacia & Upjohn, Inc......................... 1,500,000 66,562,500
--------------
296,728,125
--------------
ELECTRICAL EQUIPMENT -- 1.9%
+Applied Materials, Inc......................... 725,000 22,112,500
Baldor Electric Co.............................. 1 22
Belden, Inc..................................... 510,000 15,300,000
+FORE Systems, Inc.............................. 400,000 14,450,000
Westinghouse Electric Corp...................... 1,900,000 35,625,000
--------------
87,487,522
--------------
ELECTRONICS -- 2.4%
+ADT Ltd........................................ 1,200,000 22,650,000
Hewlett-Packard Co.............................. 225,000 22,415,625
Intel Corp...................................... 500,000 36,718,750
+Maxim Integrated Products, Inc................. 900,000 24,581,250
--------------
106,365,625
--------------
FINANCIAL SERVICES -- 1.5%
MBNA Corp....................................... 1,300,000 37,050,000
Morgan Stanley Group, Inc....................... 600,000 29,475,000
--------------
66,525,000
--------------
FOODS -- 0.8%
Nabisco Holdings Corporation (Class 'A'
Stock)........................................ 1,080,000 38,205,000
--------------
FOREST PRODUCTS -- 1.3%
Kimberly-Clark Corp............................. 400,000 30,900,000
Willamette Industries, Inc...................... 480,000 28,560,000
--------------
59,460,000
--------------
HOSPITAL MANAGEMENT -- 1.2%
Columbia/HCA Healthcare Corp.................... 500,000 26,687,500
Guidant Corp.................................... 250,000 12,312,500
+Tenet Healthcare Corp.......................... 800,000 17,100,000
--------------
56,100,000
--------------
INSURANCE -- 3.7%
Aetna Life & Casualty Co........................ 650,000 46,475,000
Allstate Corp................................... 568,000 25,915,000
American International Group, Inc............... 250,000 24,656,250
CIGNA Corp...................................... 250,000 29,468,750
Travelers Group, Inc............................ 847,500 38,667,188
W.R. Berkley Corp............................... 48,300 2,016,525
--------------
167,198,713
--------------
LEISURE -- 1.5%
+Bally Entertainment Corporation................ 700,000 19,250,000
Carnival Corp. (Class 'A' Stock)................ 1,100,000 31,762,500
+Mirage Resorts, Inc............................ 350,000 18,900,000
--------------
69,912,500
--------------
MACHINERY -- 0.6%
Case Corp....................................... 600,000 28,800,000
--------------
MEDIA -- 1.3%
Comcast Corp. (Class 'A' Stock)................. 1,000,000 18,375,000
+Tele-Communications, Inc. (Series 'A' Stock)... 1,500,000 27,187,500
Tele-Communications, Inc. (Series 'A' Stock).... 431,900 11,445,350
--------------
57,007,850
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 3.7%
General Electric Co............................. 700,000 60,550,000
Illinois Tool Works, Inc........................ 450,000 30,431,250
</TABLE>
58
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Pentair, Inc.................................... 400,000 $ 12,000,000
Tyco International, Ltd......................... 1,000,000 40,750,000
York International Corp......................... 500,000 25,875,000
--------------
169,606,250
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.3%
+DeVRY, Inc..................................... 292,300 13,153,500
--------------
PETROLEUM -- 1.9%
Mobil Corp...................................... 375,000 42,046,875
Royal Dutch Petroleum Co., ADR.................. 300,000 46,125,000
--------------
88,171,875
--------------
PETROLEUM SERVICES -- 1.9%
Baker Hughes, Inc............................... 581,700 19,123,388
Halliburton Co.................................. 700,000 38,850,000
Total SA, ADR................................... 700,000 25,987,500
--------------
83,960,888
--------------
RESTAURANTS -- 0.3%
+Outback Steakhouse, Inc........................ 400,000 13,793,750
--------------
RETAIL -- 4.6%
+Federated Department Stores, Inc............... 1,250,000 42,656,250
+General Nutrition Companies, Inc............... 500,000 8,750,000
Home Depot, Inc................................. 400,000 21,600,000
Nike, Inc. (Class 'B' Stock).................... 275,000 28,256,250
Nine West Group................................. 600,000 30,675,000
Office Depot, Inc............................... 900,000 18,337,500
+Price/Costco, Inc.............................. 780,000 16,867,500
+Safeway, Inc................................... 680,000 22,440,000
+Staples, Inc................................... 1,051,500 20,504,250
--------------
210,086,750
--------------
TELECOMMUNICATIONS -- 3.6%
AT&T Corp....................................... 800,000 49,600,000
Frontier Corp................................... 800,000 24,500,000
+Glenayre Technologies, Inc..................... 300,000 15,000,000
Lucent Technologies, Inc........................ 500,000 18,937,500
MCI Communications Corp......................... 1,000,000 25,625,000
+Newbridge Networks Corp........................ 450,000 29,475,000
--------------
163,137,500
--------------
TOBACCO -- 0.9%
RJR Nabisco Holdings Corp....................... 1,250,000 38,750,000
--------------
TOTAL COMMON STOCKS
(Cost $2,271,775,720).......................................... 2,635,244,525
--------------
<CAPTION>
MARKET
PREFERRED STOCKS -- 0.6% SHARES VALUE
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES -- 0.2%
Salomon, Inc.................................... 400,000 10,050,000
--------------
LEISURE -- 0.4%
Bally Entertainment Corporation (Conv.)......... 600,000 15,675,000
--------------
TOTAL PREFERRED STOCKS
(Cost $22,630,000)............................................. 25,725,000
--------------
<CAPTION>
PAR MARKET
CONVERTIBLE BONDS -- 0.2% VALUE VALUE
------------- --------------
<S> <C> <C>
RESTAURANTS -- 0.0%
+Boston Chicken, Inc.,
Zero Coupon, 06/01/15......................... $ 2,500,000 734,375
--------------
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
CONVERTIBLE BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
RETAIL -- 0.2%
+Federated Department Stores, Inc.,
5.000%, 10/01/03.............................. $ 8,000,000 $ 9,120,000
--------------
TOTAL CONVERTIBLE BONDS
(Cost $9,774,598).............................................. 9,854,375
--------------
<CAPTION>
PAR MARKET
LONG-TERM BONDS -- 31.2% VALUE VALUE
------------- --------------
<S> <C> <C>
FINANCIAL -- 11.1%
Associates Corp. of North America,
6.625%, 05/15/01.............................. 15,500,000 15,320,200
Banc One Credit Card Master Trust,
7.750%, 12/15/99, Series 1994-B, Class B...... 5,000,000 5,090,600
BCH Cayman Islands, Ltd.,
6.500%, 02/15/06.............................. 6,000,000 5,532,480
Capital One Bank,
6.730%, 06/04/98, Tranche #TR00001............ 26,000,000 25,961,000
Capital One Bank, M.T.N.
6.660%, 08/17/98, Tranche #TR00055............ 11,175,000 11,152,538
6.900%, 04/15/99, Tranche #TR00064............ 22,250,000 22,250,000
Chase Manhattan Credit Card Master Trust,
7.400%, 05/15/00, Series 1992-1............... 5,000,000 5,039,050
CIT Group Holdings, M.T.N.,
5.850%, 03/16/98, Tranche #SR00010............ 25,000,000 24,847,500
6.200%, 04/15/98, Tranche #SR00011............ 19,100,000 19,068,676
Discover Credit Corp., M.T.N.,
9.000%, 04/01/98.............................. 10,000,000 10,372,400
Erac USA Finance Co., M.T.N.,
6.350%, 01/15/01.............................. 3,500,000 3,372,031
7.000%, 06/15/00, Tranche #TR00005............ 13,500,000 13,495,781
First USA Bank,
8.200%, 02/15/98.............................. 13,000,000 13,304,980
First USA Bank, M.T.N.,
6.238%, 10/16/97.............................. 20,000,000 20,000,000
Ford Motor Credit Corp., M.T.N.,
5.668%, 10/04/99, Tranche #TR00537............ 6,250,000 6,245,562
7.060%, 06/06/01, Tranche #TR00675............ 13,000,000 13,032,500
General Motors Acceptance Corp.,
7.125%, 05/01/03.............................. 22,300,000 22,289,296
General Motors Acceptance Corp., M.T.N.,
7.375%, 07/20/98, Tranche #TR00667............ 4,500,000 4,580,055
7.875%, 03/15/00.............................. 5,000,000 5,180,550
Lumbermens Mutual Casualty Co.,
**9.150%, 07/01/26............................ 19,500,000 20,174,700
MBNA Master Credit Card Trust,
%5.745%, 01/15/02, Series 1994-1, Class A..... 7,500,000 7,516,350
NationsBank Corp.,
7.000%, 05/15/03.............................. 22,000,000 21,878,340
Norwest Corp., M.T.N.,
6.250%, 03/15/01.............................. 16,000,000 15,580,800
</TABLE>
59
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
Okobank,
%6.968%, 09/27/49............................. $ 18,750,000 $ 19,125,000
**%7.387%, 10/29/49........................... 3,500,000 3,539,375
%7.387%, 10/29/49............................. 9,000,000 9,101,250
PT Alatief Freeport Financial Co.,
9.750%, 04/15/01.............................. 7,600,000 7,990,640
RHG Finance Corp.,
8.875%, 10/01/05.............................. 7,000,000 7,227,500
Salomon, Inc.,
7.000%, 05/15/99.............................. 34,600,000 34,617,646
7.250%, 05/01/01.............................. 8,625,000 8,603,610
Salomon, Inc., M.T.N.,
5.980%, 02/02/98, Tranche #SR00027............ 23,500,000 23,242,440
Santander Financial Issuances, Inc.,
7.875%, 04/15/05.............................. 3,000,000 3,086,820
Sears Roebuck Acceptance Corp., M.T.N.,
6.380%, 02/16/99.............................. 72,000,000 71,679,600
Standard Credit Card Master Trust,
5.950%, 09/07/03, Series 1993-2A.............. 4,500,000 4,224,375
Wells Fargo & Co,
6.875%, 04/01/06.............................. 500,000 481,670
--------------
504,370,940
--------------
FOREIGN -- 6.1%
Banco de Commercio Exterior de Columbia, SA,
M.T.N.,
**8.625%, 06/02/00, Tranche #TR00001.......... 5,500,000 5,596,250
Banco Ganadero, SA, M.T.N.,
9.750%, 08/26/99, Tranche #TR00001............ 2,300,000 2,389,125
**9.750%, 08/26/99............................ 5,000,000 5,193,750
Compania Sud Americana de Vapores, SA,
**7.375%, 12/08/03............................ 5,650,000 5,353,375
Controladora Commercial Mexicana, SA,
8.750%, 04/21/98.............................. 15,100,000 14,760,250
Empresa Columbia de Petroleos,
7.250%, 07/08/98.............................. 8,250,000 8,229,375
Empresas La Moderna, SA,
10.250%, 11/12/97............................. 2,000,000 2,045,000
Fomento Economico Mexicano, SA,
9.500%, 07/22/97.............................. 6,300,000 6,394,500
Grupo Embotellador Mexicana,
**10.750%, 11/19/97........................... 8,020,000 8,260,600
Grupo Televisa, SA, M.T.N.,
10.000%, 11/09/97............................. 4,000,000 4,145,000
Kansallis-Osake Pankki, N.Y.,
**%8.650%, 01/01/49........................... 9,000,000 9,332,010
9.750%, 12/15/98.............................. 16,760,000 17,894,317
National Bank of Romania,
**9.750%, 06/25/99............................ 9,000,000 9,049,500
Quebec, Province of Canada,
7.125%, 02/09/24.............................. 22,150,000 20,240,005
7.500%, 07/15/23.............................. 31,250,000 29,908,125
Republic of Argentina,
9.250%, 02/23/01.............................. 5,200,000 5,005,000
Republic of Columbia,
7.125%, 05/11/98.............................. 2,700,000 2,686,500
7.250%, 02/15/03-02/23/04..................... 23,300,000 21,675,718
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
**8.000%, 06/14/01, M.T.N., Tranche
#TR00001.................................... $ 16,500,000 $ 16,348,695
8.750%, 10/06/99.............................. 12,300,000 12,561,375
Republic of Italy,
6.875%, 09/27/23.............................. 66,850,000 60,279,982
Rogers Cablesystems Ltd.,
10.000%, 03/15/05, Series B................... 2,000,000 1,970,000
Telekom Malaysia,
**7.875%, 08/01/25............................ 8,370,000 8,403,982
--------------
277,722,434
--------------
INDUSTRIAL -- 8.8%
Agco Corp.,
**8.500%, 03/15/06............................ 6,500,000 6,370,000
Auburn Hills Trust,
12.000%, 05/01/20............................. 9,650,000 13,938,460
B.J. Services Co.,
7.000%, 02/01/06.............................. 4,000,000 3,646,000
Bally's Grand, Inc.,
10.375%, 12/15/03............................. 5,000,000 5,487,500
Comdisco, Inc.,
7.250%, 04/15/98.............................. 10,000,000 10,120,500
Delta Air Lines, Inc.,
9.875%, 01/01/98.............................. 6,000,000 6,271,080
Digital Equipment Corp.,
7.125%, 10/15/02.............................. 10,300,000 9,992,030
7.750%, 04/01/23.............................. 30,380,000 27,465,950
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. 6,600,000 6,468,000
8.500%, 06/15/03.............................. 66,000,000 65,340,000
10.000%, 02/15/01............................. 2,500,000 2,631,250
Lockheed Martin,
7.700%, 06/15/08.............................. 18,500,000 18,799,238
News America Holdings, Inc.,
7.750%, 12/01/45.............................. 60,500,000 54,132,980
9.250%, 02/01/13.............................. 10,000,000 10,868,900
Noble Drilling Corp.,
9.125%, 07/01/06.............................. 3,500,000 3,508,750
Norcen Energy Resources,
7.375%, 05/15/06.............................. 10,750,000 10,613,475
Paramount Communications, Inc.,
7.500%, 01/15/02.............................. 5,400,000 5,326,776
Parker & Parsley Petroleum Co.,
8.250%, 08/15/07.............................. 3,000,000 3,128,640
RJR Nabisco, Inc.,
8.750%, 08/15/05.............................. 3,000,000 2,968,500
Service Corp. International,
7.000%, 06/01/15.............................. 2,500,000 2,498,050
Time Warner Entertainment Co., L.P.,
8.375%, 03/15/23-07/15/33..................... 38,250,000 36,771,996
Time Warner, Inc.,
7.750%, 06/15/05.............................. 10,000,000 9,762,200
9.125%, 01/15/13.............................. 8,790,000 9,180,100
9.150%, 02/01/23.............................. 8,000,000 8,271,520
Transco Energy Co.,
9.125%, 05/01/98.............................. 14,000,000 14,548,660
Viacom, Inc.,
6.750%, 01/15/03.............................. 13,750,000 12,973,263
7.750%, 06/01/05.............................. 40,175,000 39,171,429
--------------
400,255,247
--------------
</TABLE>
60
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PAR MARKET
LONG-TERM BONDS (CONTINUED) VALUE VALUE
------------- --------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 5.2%
Federal National Mortgage Association,
Zero Coupon, 10/09/19......................... $ 11,800,000 $ 2,142,408
United States Treasury Notes,
5.125%, 02/28/98, Series 1998................. 39,100,000 38,525,621
6.250%, 04/30/01.............................. 5,850,000 5,794,250
6.500%, 05/31/01.............................. 3,200,000 3,201,504
6.875%, 05/15/06-08/15/25..................... 173,250,000 173,202,530
7.500%, 05/15/02, Series 2002................. 4,000,000 4,187,480
7.750%, 12/31/99, Series 1999................. 6,750,000 7,032,623
--------------
234,086,416
--------------
TOTAL LONG-TERM BONDS
(Cost $1,420,442,225).......................................... 1,416,435,037
--------------
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 9.9% AMOUNT VALUE
------------- --------------
<S> <C> <C>
BANK/FINANCES INSTRUMENTS -- 2.0%
Abn-Amro Bank North America, C.D.,
5.030%, 08/20/96.............................. 5,000,000 5,000,063
Advanta Corp.,
5.125%, 11/15/96.............................. 9,000,000 8,968,770
Advanta National Bank, C.D.,
6.140%, 02/28/97.............................. 17,000,000 17,128,138
American Express Centurian Bank,
%5.470%, 11/29/96, Tranche #TR000128.......... 573,000 572,919
Associates Corp. of North America,
4.625%, 11/30/96.............................. 1,000,000 995,984
Banque Nationale de Paris,
5.350%, 08/05/96.............................. 1,000,000 999,964
5.420%, 07/11/96, C.D......................... 4,000,000 4,000,054
Barnett Banks, Inc., C.D.,
5.390%, 07/08/96.............................. 3,242,000 3,241,954
Canadian Imperial Bank, C.D.,
5.520%, 09/09/96.............................. 3,000,000 3,000,000
Capital One Bank, M.T.N.
8.625%, 01/15/97, Tranche #TR00005............ 19,000,000 19,241,870
Comerica Bank of Detroit,, M.T.N.,
%5.418%, 02/14/97, Tranche #TR00006........... 569,000 568,725
Commerzbank, C.D.,
5.310%, 09/23/96.............................. 1,000,000 999,582
Deutsche Bank, C.D.,
5.000%, 08/12/96.............................. 1,000,000 999,434
Engelhard Corp.,
5.428%, 07/08/96.............................. 1,000,000 1,000,000
Ford Motor Credit Corp.,
8.000%, 10/01/96.............................. 1,000,000 1,005,648
General Electric Capital Corp.,
8.000%, 02/01/97.............................. 1,500,000 1,522,125
General Motors Acceptance Corp.,
8.000%, 10/01/96.............................. 500,000 502,765
8.250%, 08/01/96.............................. 1,000,000 1,002,070
7.750%, 04/15/97.............................. 575,000 582,779
Gillette Co.,
4.750%, 08/15/96.............................. 600,000 599,358
Household Finance Corp.,
7.625%, 12/15/96.............................. 1,500,000 1,512,586
International Lease Finance Corp.,
6.375%, 11/01/96.............................. 2,000,000 2,004,580
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Marine Midland Bank N.A.,
%5.687%, 09/27/96............................. $ 6,500,000 $ 6,483,750
Societe Generale NA, C.D.,
5.340%, 07/02/96.............................. 1,000,000 1,000,001
5.400%, 07/12/96.............................. 5,000,000 5,000,027
Suntrust Banks, Inc.,
5.350%, 08/12/96.............................. 1,000,000 993,758
U.S. National Bank of Oregon,
5.320%, 07/30/96, Tranche #TR00029............ 1,000,000 999,958
--------------
89,926,862
--------------
COMMERCIAL PAPER -- 1.8%
American Express Credit Corp.,
4.900%, 08/16/96.............................. 2,000,000 1,987,478
American Honda Finance Corp.,
5.400%, 07/25/96.............................. 1,000,000 996,400
5.480%, 08/26/96.............................. 1,000,000 991,476
5.500%, 07/09/96.............................. 1,000,000 998,778
Associates Corp. of North America,
5.400%, 07/29/96.............................. 4,631,000 4,611,550
Bank of New York,
5.320%, 07/02/96.............................. 1,000,000 999,852
Bell Atlantic Financial Services, Inc.
5.380%, 07/16/96.............................. 1,900,000 1,895,741
Beneficial Corp.,
5.380%, 08/21/96.............................. 2,000,000 1,984,757
Chubb Capital Corp.,
5.330%, 07/11/96.............................. 1,000,000 998,519
Ciesco, L.P.,
5.300%, 07/12/96.............................. 1,000,000 998,381
CIT Group Holdings, Inc.,
5.330%, 08/13/96.............................. 4,000,000 3,974,534
Commonwealth Bank of Australia,
5.320%, 08/14/96.............................. 1,000,000 993,498
Cooper Industries, Inc.,
5.600%, 07/01/96.............................. 1,642,000 1,642,000
Countrywide Funding Corp.,
5.400%, 07/23/96.............................. 1,000,000 996,700
5.430%, 08/22/96.............................. 1,000,000 992,157
Deutsche Bank
5.090%, 08/23/96.............................. 2,000,000 2,000,000
Enterprise Funding Corp,
5.400%, 07/24/96.............................. 1,000,000 996,550
Financiera Energetica Nacional,
6.625%, 12/13/96.............................. 5,100,000 5,101,275
Finova Capital Corp.,
5.450%, 07/16/96.............................. 1,400,000 1,396,821
5.470%, 07/22/96.............................. 1,000,000 996,809
First Data Corp.,
5.450%, 07/23/96.............................. 2,571,000 2,562,437
Ford Motor Credit Corp.,
5.370%, 07/10/96.............................. 1,000,000 998,658
General Signal Corp,
5.400%, 07/09/96.............................. 800,000 799,040
GTE Corp.,
5.430%, 07/30/96.............................. 1,000,000 995,626
Honeywell Inc.,
5.400%, 07/02/96.............................. 2,866,000 2,865,570
IBM Credit Corp.,
5.370%, 07/23/96.............................. 1,500,000 1,495,078
Lehman Brothers Holdings, Inc.,
5.550%, 07/08/96.............................. 4,220,000 4,215,446
Merrill Lynch & Co., Inc.,
5.400%, 07/12/96.............................. 3,000,000 2,995,050
</TABLE>
61
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Morgan Stanley Group, Inc.,
5.290%, 07/09/96.............................. $ 1,137,000 $ 1,135,663
5.330%, 07/10/96.............................. 2,000,000 1,997,335
Nomura Holdings America, Inc.,
5.670%, 07/01/96.............................. 2,000,000 2,000,000
NYNEX Corp.,
5.420%, 07/22/96.............................. 1,000,000 996,838
Philip Morris Companies, Inc.,
5.390%, 07/25/96.............................. 5,000,000 4,982,033
PNC Funding Corp.,
5.430%, 07/08/96.............................. 1,000,000 998,944
Preferred Receivables Funding Corp.,
5.300%, 08/22/96.............................. 2,000,000 1,984,689
5.370%, 07/15/96.............................. 2,000,000 1,995,823
Rank Xerox Capital,
5.300%, 07/18/96.............................. 2,000,000 1,994,994
Signal Capital Corp.,
5.400%, 07/10/96.............................. 2,000,000 1,997,300
Smith Barney, Inc.,
5.380%, 07/18/96.............................. 1,000,000 997,460
Transamerica Corp.,
5.310%, 10/15/96.............................. 2,741,000 2,698,145
USL Capital Corp.,
5.400%, 07/01/96.............................. 2,000,000 2,000,000
Westpac Capital Corp.,
5.350%, 07/02/96.............................. 1,000,000 999,851
Whirlpool Financial Corp.,
5.400%, 07/25/96.............................. 1,500,000 1,494,600
Xerox Corp.,
5.320%, 07/08/96.............................. 2,200,000 2,197,724
--------------
82,951,580
--------------
TERM NOTES -- 1.0%
American Express Centurian Bank,
%5.484%, 01/13/97, Tranche #TR00099........... 1,000,000 1,000,023
Associates Corp. of North America,
7.730%, 10/31/96, Tranche #SR00324............ 1,000,000 1,006,969
Ford Motor Credit Corp,
5.750%, 11/04/96, Tranche #TR00095............ 1,000,000 1,000,864
7.950%, 03/27/97.............................. 465,000 472,243
General Motors Acceptance Corp.,
5.300%, 07/12/96, Tranche #TR00760............ 1,500,000 1,499,739
%5.440%, 10/21/96, Tranche #TR00065........... 1,000,000 999,676
7.000%, 06/02/97, Tranche #TR00476............ 6,000,000 6,042,000
**7.750%, 02/20/97, Tranche #TR00162.......... 250,000 253,065
7.850%, 03/05/97, Tranche #TR00187............ 4,350,000 4,403,205
7.900%, 03/13/97, Tranche #TR00205............ 500,000 506,402
**7.000%, 05/19/97, Tranche #TR00041.......... 10,000,000 10,070,204
Merrill Lynch & Co., Inc.,
%5.875%, 09/13/96, Tranche #TR00197........... 4,000,000 3,999,765
National Australia Bank, Ltd.,
5.750%, 10/02/96, Tranche #TR00003............ 2,000,000 2,000,034
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Nationsbank Corp.,
%5.500%, 11/18/96, Tranche #TR00026........... $ 500,000 $ 500,115
NBD Bank, N.A.,
5.320%, 07/29/96, Tranche #TR00287............ 2,000,000 1,999,914
Rabobank Nederland,
4.800%, 12/26/96, Tranche #TR00203............ 1,600,000 1,594,828
SMM Trust,
%5.938%, 12/16/96............................. 6,375,000 6,374,722
Wells Fargo & Company,
%5.438%, 08/16/96, Tranche #TR00201........... 175,000 174,999
--------------
43,898,763
--------------
PROMISSORY NOTES -- 0.0%
Philip Morris Companies, Inc.,
8.875%, 07/01/96.............................. 1,000,000 1,000,000
--------------
REPURCHASE AGREEMENTS -- 5.0%
Joint Repurchase Agreement Account,
5.443%, 07/01/96 (see Note 4)................. 226,483,000 226,483,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
United States Treasury Notes,
7.500%, 01/31/97.............................. 3,000,000 3,039,560
--------------
TOTAL SHORT-TERM INVESTMENTS..................................... 447,299,765
--------------
OTHER ASSETS -- 0.1%
(net of liabilities)........................................... 5,636,097
--------------
TOTAL NET ASSETS -- 100.0%....................................... $4,540,194,799
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
C.D. Certificates of Deposit
M.T.N. Medium Term Note
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)
**Indicates a restricted security; the aggregate cost of the restricted
securities is $91,448,870. The aggregate value, $92,512,735 is
approximately 2.0% of net assets. (See Note 2)
+No dividend was paid on this security during the 12 months ending June 30,
1996.
%Indicates a variable rate security.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
62
<PAGE>
STOCK INDEX PORTFOLIO
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 95.9% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 2.3%
AlliedSignal, Inc............................... 69,400 $ 3,964,475
Boeing Co....................................... 83,850 7,305,431
General Dynamics Corp........................... 15,400 954,800
Lockheed Martin Corp............................ 48,749 4,094,916
McDonnell Douglas Corp.......................... 54,800 2,657,800
Northrop Grumman Corp........................... 13,500 919,687
Raytheon Co..................................... 58,900 3,040,712
Rockwell International Corp..................... 53,100 3,039,975
United Technologies Corp........................ 30,100 3,461,500
--------------
29,439,296
--------------
AIRLINES -- 0.4%
+AMR Corp....................................... 22,200 2,020,200
Delta Air Lines, Inc............................ 15,000 1,245,000
Southwest Airlines Co........................... 34,400 1,001,900
+USAir Group, Inc............................... 16,100 289,800
--------------
4,556,900
--------------
ALUMINUM -- 0.4%
Alcan Aluminum, Ltd............................. 55,850 1,703,425
Aluminum Co. of America......................... 43,400 2,490,075
Reynolds Metals Co.............................. 15,100 787,087
--------------
4,980,587
--------------
AUTOS - CARS & TRUCKS -- 2.2%
Chrysler Corp................................... 92,300 5,722,600
Cummins Engine Co., Inc......................... 9,600 387,600
Dana Corp....................................... 24,700 765,700
Echlin, Inc..................................... 14,500 549,187
Ford Motor Co................................... 284,900 9,223,637
General Motors Corp............................. 183,200 9,595,100
Genuine Parts Co................................ 30,050 1,374,787
Johnson Controls, Inc........................... 10,200 708,900
+Navistar International Corp.................... 17,500 172,812
Safety Kleen Corp............................... 13,050 228,375
--------------
28,728,698
--------------
BANKS AND SAVINGS & LOANS -- 6.5%
Banc One Corp................................... 110,094 3,743,196
Bank of Boston Corp............................. 27,300 1,351,350
Bank of New York Company, Inc................... 48,300 2,475,375
BankAmerica Corp................................ 89,448 6,775,686
Bankers Trust NY Corp........................... 19,600 1,447,950
Barnett Banks, Inc.............................. 22,600 1,378,600
Boatmen's Bancshares, Inc....................... 39,400 1,580,925
Chase Manhattan Corp............................ 107,447 7,588,444
Citicorp........................................ 119,500 9,873,687
Comerica, Inc................................... 28,300 1,262,887
CoreStates Financial Corp....................... 54,300 2,090,550
First Bank System, Inc.......................... 35,600 2,064,800
First Chicago NBD Corp.......................... 77,115 3,017,124
First Union Corp................................ 69,925 4,256,684
Fleet Financial Group, Inc...................... 64,000 2,784,000
Golden West Financial Corp...................... 14,000 784,000
Great Western Financial Corp.................... 34,700 828,462
H.F. Ahmanson & Co.............................. 29,400 793,800
J.P. Morgan & Co., Inc.......................... 46,450 3,930,831
KeyCorp......................................... 56,700 2,197,125
Mellon Bank Corp................................ 33,450 1,906,650
NationsBank Corp................................ 72,539 5,993,535
Norwest Corp.................................... 88,600 3,089,925
PNC Bank Corp................................... 83,100 2,472,225
Suntrust Banks, Inc............................. 56,400 2,086,800
U.S. Bancorp.................................... 38,700 1,398,037
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Wachovia Corp................................... 41,100 $ 1,798,125
Wells Fargo & Co................................ 23,866 5,700,991
--------------
84,671,764
--------------
BEVERAGES -- 4.0%
Adolph Coors Co. (Class 'B' Stock).............. 9,500 169,812
Anheuser-Busch Companies, Inc................... 61,900 4,642,500
Brown-Forman Corp. (Class 'B' Stock)............ 16,700 668,000
Coca-Cola Co.................................... 613,200 29,970,150
PepsiCo, Inc.................................... 385,000 13,619,375
Seagram Co., Ltd................................ 92,900 3,123,762
--------------
52,193,599
--------------
CHEMICALS -- 2.4%
Air Products & Chemicals, Inc................... 26,800 1,547,700
Dow Chemical Co................................. 63,500 4,826,000
E.I. du Pont de Nemours & Co.................... 135,800 10,745,175
Eastman Chemical Co............................. 19,500 1,187,062
+FMC Corp....................................... 8,700 567,675
Hercules, Inc................................... 26,900 1,486,225
Mallinckrodt Group, Inc......................... 17,300 672,537
Monsanto Co..................................... 142,700 4,637,750
Nalco Chemical Co............................... 15,600 491,400
Rohm & Haas Co.................................. 16,100 1,010,275
Sigma-Aldrich Corp.............................. 12,500 668,750
Union Carbide Corp.............................. 33,000 1,311,750
W.R. Grace & Co................................. 23,300 1,651,387
--------------
30,803,686
--------------
CHEMICALS - SPECIALTY -- 0.4%
Engelhard Corp.................................. 36,575 841,225
Great Lakes Chemical Corp....................... 16,100 1,002,225
Morton International, Inc....................... 35,000 1,303,750
Praxair, Inc.................................... 37,500 1,584,375
Raychem Corp.................................... 11,000 790,625
--------------
5,522,200
--------------
COMMERCIAL SERVICES -- 0.4%
+CUC International, Inc......................... 46,150 1,638,325
Deluxe Corp..................................... 19,400 688,700
Dun & Bradstreet Corp........................... 42,160 2,635,000
John H. Harland Co.............................. 8,200 201,925
Moore Corp., Ltd................................ 22,800 430,350
Ogden Corp...................................... 11,000 199,375
--------------
5,793,675
--------------
COMPUTER SERVICES -- 4.6%
3Com Corp....................................... 40,800 1,866,600
+Amdahl Corp.................................... 27,300 293,475
Autodesk, Inc................................... 11,100 331,612
Automatic Data Processing, Inc.................. 71,000 2,742,375
+Bay Networks, Inc.............................. 45,700 1,176,775
+Cabletron Systems, Inc......................... 17,400 1,194,075
+Ceridian Corp.................................. 16,500 833,250
+Cisco Systems, Inc............................. 137,800 7,802,925
+COMPAQ Computer Corp........................... 65,600 3,230,800
Computer Associates International, Inc.......... 59,175 4,216,219
+Computer Sciences Corp......................... 14,000 1,046,500
+EMC Corp....................................... 55,200 1,028,100
First Data Corp................................. 54,500 4,339,562
+Intergraph Corp................................ 11,300 137,012
+Microsoft Corp................................. 145,900 17,526,237
+Novell, Inc.................................... 88,500 1,227,937
+Oracle Corp.................................... 161,425 6,366,198
</TABLE>
63
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
+Silicon Graphics, Inc.......................... 40,000 $ 960,000
+Sun Microsystems, Inc.......................... 45,000 2,649,375
+Tandem Computers, Inc.......................... 26,900 332,887
--------------
59,301,914
--------------
CONSTRUCTION -- 0.2%
Fluor Corp...................................... 20,800 1,359,800
Foster Wheeler Corp............................. 10,400 466,700
Kaufman & Broad Home Corp....................... 8,366 121,307
Owens Corning................................... 13,200 567,600
Pulte Corp...................................... 5,900 157,825
--------------
2,673,232
--------------
CONTAINERS -- 0.2%
Ball Corp....................................... 8,100 232,875
Bemis Co., Inc.................................. 13,200 462,000
+Crown Cork & Seal Co., Inc..................... 31,000 1,395,000
--------------
2,089,875
--------------
COSMETICS & SOAPS -- 2.3%
Alberto Culver Co. (Class 'B' Stock)............ 7,000 324,625
Avon Products, Inc.............................. 33,700 1,520,712
Clorox Co....................................... 12,700 1,125,537
Colgate Palmolive Co............................ 36,000 3,051,000
Gillette Co..................................... 107,800 6,724,025
International Flavors & Fragrances, Inc......... 27,200 1,295,400
Procter & Gamble Co............................. 167,752 15,202,525
--------------
29,243,824
--------------
DIVERSIFIED GAS -- 0.2%
Ashland, Inc.................................... 16,300 645,887
Coastal Corp.................................... 26,500 1,106,375
Eastern Enterprises............................. 5,100 169,575
ENSERCH Corp.................................... 17,000 369,750
NICOR, Inc...................................... 12,100 343,337
ONEOK, Inc...................................... 6,400 160,000
--------------
2,794,924
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 1.8%
Alco Standard Corp.............................. 31,976 1,446,914
Avery Dennison Corp............................. 12,500 685,937
Honeywell, Inc.................................. 30,800 1,678,600
International Business Machines Corp............ 135,500 13,414,500
Pitney Bowes, Inc............................... 37,000 1,766,750
+Unisys Corp.................................... 41,100 292,837
Xerox Corp...................................... 79,246 4,239,661
--------------
23,525,199
--------------
DRUGS AND HOSPITAL SUPPLIES -- 9.0%
Abbott Laboratories............................. 192,200 8,360,700
Allergan, Inc................................... 16,400 643,700
+ALZA Corp...................................... 20,900 572,137
American Home Products Corp..................... 153,300 9,217,162
+Amgen, Inc..................................... 65,400 3,531,600
Bausch & Lomb, Inc.............................. 13,700 582,250
Baxter International, Inc....................... 66,500 3,142,125
Becton, Dickinson & Co.......................... 15,200 1,219,800
+Biomet, Inc.................................... 26,100 375,187
+Boston Scientific Corp......................... 43,800 1,971,000
Bristol-Myers Squibb Co......................... 123,540 11,118,600
C.R. Bard, Inc.................................. 14,400 489,600
Eli Lilly & Co.................................. 135,500 8,807,500
Johnson & Johnson............................... 326,400 16,156,800
Medtronic, Inc.................................. 57,100 3,197,600
Merck & Co., Inc................................ 301,550 19,487,669
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Pfizer, Inc..................................... 156,500 $ 11,170,187
+Pharmacia & Upjohn, Inc........................ 123,425 5,476,984
Schering-Plough Corp............................ 89,600 5,622,400
St. Jude Medical, Inc........................... 19,200 643,200
United States Surgical Corp..................... 15,700 486,700
Warner-Lambert Co............................... 66,900 3,679,500
--------------
115,952,401
--------------
ELECTRICAL EQUIPMENT -- 0.3%
+Applied Materials, Inc......................... 43,200 1,317,600
W.W. Grainger, Inc.............................. 12,800 992,000
Westinghouse Electric Corp...................... 102,500 1,921,875
--------------
4,231,475
--------------
ELECTRONICS -- 4.2%
+Advanced Micro Devices, Inc.................... 33,300 453,712
AMP, Inc........................................ 53,844 2,160,490
Apple Computer, Inc............................. 30,100 632,100
+Data General Corp.............................. 9,000 117,000
+Digital Equipment Corp......................... 38,000 1,710,000
EG&G, Inc....................................... 11,800 252,225
Emerson Electric Co............................. 54,800 4,952,550
Harris Corp..................................... 9,800 597,800
Hewlett-Packard Co.............................. 125,200 12,473,050
Intel Corp...................................... 201,700 14,812,344
+LSI Logic Corp................................. 30,600 795,600
Micron Technology, Inc.......................... 51,200 1,324,800
Motorola, Inc................................... 145,600 9,154,600
+National Semiconductor Corp.................... 33,800 523,900
Perkin-Elmer Corp............................... 10,300 496,975
Tandy Corp...................................... 14,965 708,967
Tektronix, Inc.................................. 8,600 384,850
Texas Instruments, Inc.......................... 46,400 2,314,200
Thomas & Betts Corp............................. 9,200 345,000
--------------
54,210,163
--------------
ENVIRONMENTAL SERVICES -- 0.1%
Laidlaw, Inc. (Class 'B' Stock)................. 70,000 708,750
--------------
FINANCIAL SERVICES -- 2.9%
American Express Co............................. 118,000 5,265,750
Beneficial Corp................................. 13,300 746,462
Dean Witter Discover & Co....................... 41,245 2,361,276
Federal Home Loan Mortgage Corp................. 43,650 3,732,075
Federal National Mortgage Association........... 268,800 9,004,800
Fifth Third Bancorp............................. 25,100 1,355,400
Green Tree Financial Corp....................... 33,300 1,040,625
H & R Block, Inc................................ 25,800 841,725
Household International , Inc................... 23,700 1,801,200
MBNA Corp....................................... 55,450 1,580,325
Merrill Lynch & Co., Inc........................ 42,600 2,774,325
Morgan Stanley Group, Inc....................... 37,300 1,832,362
National City Corp.............................. 55,000 1,931,875
Republic New York Corp.......................... 14,100 877,725
Salomon, Inc.................................... 25,400 1,117,600
Transamerica Corp............................... 16,900 1,368,900
--------------
37,632,425
--------------
FOODS -- 4.2%
Archer-Daniels-Midland Co....................... 127,522 2,438,858
Campbell Soup Co................................ 61,100 4,307,550
ConAgra, Inc.................................... 59,800 2,713,425
CPC International, Inc.......................... 35,800 2,577,600
Fleming Companies, Inc.......................... 9,400 135,125
General Mills, Inc.............................. 38,700 2,109,150
Giant Food, Inc. (Class 'A' Stock).............. 13,800 495,075
</TABLE>
64
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
H.J. Heinz & Co................................. 89,850 $ 2,729,194
Hershey Foods Corp.............................. 19,100 1,401,462
Kellogg Co...................................... 52,800 3,867,600
Philip Morris Companies, Inc.................... 203,800 21,195,200
Pioneer Hi-Bred International, Inc.............. 20,300 1,073,362
Quaker Oats Co.................................. 33,200 1,132,950
Ralston-Ralston Purina Group.................... 26,440 1,695,465
Sara Lee Corp................................... 118,900 3,849,387
Sysco Corp...................................... 43,900 1,503,575
W. M. Wrigley, Jr. Co........................... 28,800 1,454,400
--------------
54,679,378
--------------
FOREST PRODUCTS -- 1.4%
Boise Cascade Corp.............................. 11,186 409,687
Champion International Corp..................... 23,600 985,300
Georgia-Pacific Corp............................ 22,800 1,618,800
International Paper Co.......................... 72,834 2,685,754
James River Corp. of Virginia................... 20,600 543,325
Kimberly-Clark Corp............................. 68,694 5,306,611
Louisiana-Pacific Corp.......................... 27,800 615,075
Mead Corp....................................... 12,700 658,812
Potlatch Corp................................... 7,000 273,875
Stone Container Corp............................ 23,566 324,032
Temple Inland, Inc.............................. 13,200 617,100
Union Camp Corp................................. 17,400 848,250
Westvaco Corp................................... 24,900 743,887
Weyerhaeuser Co................................. 48,200 2,048,500
Willamette Industries, Inc...................... 13,900 827,050
--------------
18,506,058
--------------
GAS PIPELINES -- 0.5%
+Columbia Gas System, Inc....................... 13,100 682,837
Consolidated Natural Gas Co..................... 23,400 1,222,650
Enron Corp...................................... 61,100 2,497,462
NorAm Energy Corp............................... 29,700 322,987
Peoples Energy Corp............................. 7,900 264,650
Williams Companies, Inc......................... 25,600 1,267,200
--------------
6,257,786
--------------
HOSPITAL MANAGEMENT -- 0.8%
+Beverly Enterprises, Inc....................... 22,200 266,400
Columbia/HCA Healthcare Corp.................... 108,832 5,808,908
Community Psychiatric Centers................... 7,900 75,050
+Humana, Inc.................................... 38,300 684,612
Manor Care, Inc................................. 15,850 624,094
Service Corp. International..................... 28,800 1,656,000
Shared Medical Systems Corp..................... 5,600 359,800
+Tenet Healthcare Corp.......................... 51,300 1,096,537
--------------
10,571,401
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc................. 8,600 495,575
Centex Corp..................................... 7,000 217,875
Fleetwood Enterprises, Inc...................... 11,800 365,800
Lowe's Companies, Inc........................... 39,800 1,437,775
Masco Corp...................................... 39,700 1,200,925
Maytag Corp..................................... 25,600 534,400
Stanley Works................................... 22,900 681,275
Tupperware Corporation.......................... 15,000 633,750
Whirlpool Corp.................................. 18,200 903,175
--------------
6,470,550
--------------
INSURANCE -- 3.9%
Aetna Life & Casualty Co........................ 28,100 2,009,150
Alexander & Alexander Services, Inc............. 10,400 205,400
Allstate Corp................................... 109,494 4,995,664
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
American General Corp........................... 51,700 $ 1,880,587
American International Group, Inc............... 116,237 11,463,874
Aon Corp........................................ 26,300 1,334,725
Chubb Corp...................................... 43,600 2,174,550
CIGNA Corp...................................... 18,500 2,180,687
General Re Corp................................. 19,950 3,037,387
+ITT Hartford Group, Inc........................ 29,200 1,554,900
Jefferson-Pilot Corp............................ 17,375 896,984
Lincoln National Corp........................... 26,200 1,211,750
Marsh & McLennan Companies, Inc................. 17,700 1,708,050
Providian Corp.................................. 22,900 981,838
SAFECO Corp..................................... 31,600 1,117,850
St. Paul Companies, Inc......................... 20,300 1,086,050
Torchmark Corp.................................. 17,300 756,875
Travelers Group, Inc............................ 116,596 5,319,693
U.S. Healthcare, Inc............................ 37,900 2,084,500
United Healthcare Corp.......................... 44,100 2,227,050
UNUM Corp....................................... 18,000 1,120,500
USF&G Corp...................................... 27,400 448,675
USLIFE Corp..................................... 8,500 279,438
--------------
50,076,177
--------------
LEISURE -- 1.2%
+Bally Entertainment Corporation................ 11,200 308,000
Brunswick Corp.................................. 25,200 504,000
+Harrah's Entertainment, Inc.................... 24,450 690,713
Hasbro, Inc..................................... 22,000 786,500
+King World Productions, Inc.................... 8,750 318,281
Mattel, Inc..................................... 67,381 1,928,781
Outboard Marine Corp............................ 3,900 70,688
Walt Disney Co.................................. 166,667 10,479,188
--------------
15,086,151
--------------
LODGING -- 0.4%
Hilton Hotels Corp.............................. 12,100 1,361,250
Loews Corp...................................... 28,400 2,240,050
Marriott International, Inc..................... 31,600 1,698,500
--------------
5,299,800
--------------
MACHINERY -- 1.2%
Briggs & Stratton Corp.......................... 7,700 316,663
Case Corp....................................... 17,400 835,200
Caterpillar, Inc................................ 48,000 3,252,000
Cincinnati Milacron, Inc........................ 9,000 216,000
Cooper Industries, Inc.......................... 27,000 1,120,500
Deere & Co...................................... 64,400 2,576,000
Dover Corp...................................... 28,200 1,300,725
Eaton Corp...................................... 19,200 1,125,600
Giddings & Lewis, Inc........................... 6,900 112,125
Harnischfeger Industries, Inc................... 11,100 369,075
Ingersoll-Rand Co............................... 26,900 1,176,875
PACCAR, Inc..................................... 9,730 476,770
Parker-Hannifin Corp............................ 17,550 743,681
Snap-On, Inc.................................... 10,200 483,225
Timken Co....................................... 7,500 290,625
+Varity Corp.................................... 10,010 481,731
--------------
14,876,795
--------------
MEDIA -- 1.9%
Comcast Corp. (Special Class 'A' Stock)......... 58,900 1,089,650
Dow Jones & Co., Inc............................ 24,400 1,018,700
Gannett Co., Inc................................ 34,500 2,440,875
Interpublic Group of Companies, Inc............. 19,900 932,813
Knight-Ridder, Inc.............................. 12,000 870,000
McGraw-Hill, Inc................................ 24,200 1,107,150
</TABLE>
65
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Meredith Corp................................... 7,000 $ 292,250
New York Times Co. (Class 'A' Stock)............ 23,000 750,375
R. R. Donnelley & Sons Co....................... 37,300 1,300,838
+Tele-Communications, Inc. (Series 'A' Stock)... 159,900 2,898,188
Time Warner, Inc................................ 95,040 3,730,320
Times Mirror Co. (Class 'A' Stock).............. 26,800 1,165,800
Tribune Co...................................... 15,300 1,111,163
+US West Media Group............................ 116,000 2,117,000
+Viacom, Inc. (Class 'B' Stock)................. 90,367 3,513,017
--------------
24,338,139
--------------
MINERAL RESOURCES -- 0.9%
ASARCO, Inc..................................... 10,200 281,775
Barrick Gold Corporation........................ 86,500 2,346,313
Burlington Resources, Inc....................... 30,800 1,324,400
Cyprus Amax Minerals Co......................... 22,900 518,113
Echo Bay Mines, Ltd............................. 30,200 324,650
Freeport-McMoRan Copper & Gold, Inc. (Class 'B'
Stock)........................................ 49,700 1,584,188
Homestake Mining Co............................. 34,600 592,525
Inco, Ltd....................................... 28,900 932,025
Newmont Mining Corp............................. 23,400 1,155,375
Phelps Dodge Corp............................... 16,700 1,041,663
Placer Dome, Inc................................ 58,500 1,396,688
Sante Fe Pacific Gold Corp...................... 34,916 493,189
--------------
11,990,904
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 4.4%
Browning-Ferris Industries, Inc................. 51,800 1,502,200
Crane Co........................................ 7,900 323,900
Ecolab, Inc..................................... 15,100 498,300
General Electric Co............................. 408,400 35,326,600
+General Instrument Corp........................ 30,300 874,913
General Signal Corp............................. 12,262 464,423
Illinois Tool Works, Inc........................ 29,200 1,974,650
+ITT Corp....................................... 28,600 1,894,750
ITT Industries, Inc............................. 29,000 728,625
Millipore Corp.................................. 11,000 460,625
NACCO Industries, Inc. (Class 'A' Stock)........ 2,500 138,438
Pall Corp....................................... 27,100 653,788
PPG Industries Inc.............................. 46,500 2,266,875
Teledyne, Inc................................... 13,600 491,300
Textron, Inc.................................... 20,600 1,645,425
Trinova Corp.................................... 7,200 240,300
TRW, Inc........................................ 16,100 1,446,988
Tyco International, Ltd......................... 37,600 1,532,200
WMX Technologies, Inc........................... 119,800 3,923,450
--------------
56,387,750
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 2.0%
American Greetings Corp. (Class 'A' Stock)...... 18,300 500,963
Black & Decker Corp............................. 21,900 845,888
Corning, Inc.................................... 56,000 2,149,000
Dial Corp....................................... 22,900 655,513
Eastman Kodak Co................................ 83,800 6,515,450
Jostens, Inc.................................... 9,900 195,525
Minnesota Mining & Manufacturing Co............. 102,400 7,065,600
Polaroid Corp................................... 11,800 538,375
Rubbermaid, Inc................................. 38,900 1,060,025
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Unilever N.V., ADR.............................. 39,200 $ 5,688,900
Whitman Corp.................................... 26,300 634,488
--------------
25,849,727
--------------
PETROLEUM -- 7.8%
Amerada Hess Corp............................... 22,800 1,222,650
Amoco Corp...................................... 122,130 8,839,159
Atlantic Richfield Co........................... 39,785 4,714,523
Chevron Corp.................................... 160,500 9,469,500
Exxon Corp...................................... 304,300 26,436,063
Kerr-McGee Corp................................. 12,200 742,675
Louisiana Land & Exploration Co................. 8,700 501,338
Mobil Corp...................................... 96,800 10,853,700
Occidental Petroleum Corp....................... 79,500 1,967,625
PanEnergy Corp.................................. 36,790 1,209,471
Pennzoil Co..................................... 11,300 522,625
Phillips Petroleum Co........................... 64,100 2,684,188
Royal Dutch Petroleum Co., ADR.................. 131,800 20,264,250
+Santa Fe Energy Resources, Inc................. 20,970 249,019
Sun Co., Inc.................................... 19,000 577,125
Tenneco, Inc.................................... 43,100 2,203,488
Texaco, Inc..................................... 64,500 5,409,938
Unocal Corp..................................... 60,300 2,035,125
USX-Marathon Group.............................. 69,100 1,390,638
--------------
101,293,100
--------------
PETROLEUM SERVICES -- 0.9%
Baker Hughes, Inc............................... 34,000 1,117,750
Dresser Industries, Inc......................... 43,600 1,286,200
Halliburton Co.................................. 27,800 1,542,900
Helmerich & Payne, Inc.......................... 6,600 241,725
McDermott International, Inc.................... 13,700 285,988
+Oryx Energy Co................................. 25,500 414,375
+Rowan Companies, Inc........................... 20,200 297,950
Schlumberger, Ltd............................... 59,400 5,004,450
Sonat, Inc...................................... 21,100 949,500
+Western Atlas, Inc............................. 13,200 768,900
--------------
11,909,738
--------------
RAILROADS -- 1.0%
Burlington Northern, Inc........................ 36,842 2,979,597
Conrail Inc..................................... 19,200 1,274,400
CSX Corp........................................ 51,912 2,504,754
Norfolk Southern Corp........................... 31,600 2,678,100
Union Pacific Corp.............................. 50,000 3,493,750
--------------
12,930,601
--------------
RESTAURANTS -- 0.7%
Darden Restaurants, Inc......................... 37,000 397,750
Luby's Cafeterias, Inc.......................... 5,550 130,425
McDonald's Corp................................. 169,700 7,933,475
+Ryan's Family Steak Houses, Inc................ 10,500 97,125
+Shoney's, Inc.................................. 7,900 85,913
Wendy's International, Inc...................... 31,700 590,413
--------------
9,235,101
--------------
RETAIL -- 5.2%
Albertson's, Inc................................ 61,700 2,552,838
American Stores Co.............................. 36,800 1,518,000
Brown Group, Inc................................ 3,000 52,125
Charming Shoppes, Inc........................... 23,300 164,556
Circuit City Stores, Inc........................ 23,100 834,488
Dayton-Hudson Corp.............................. 17,514 1,806,131
Dillard Department Stores, Inc. (Class 'A'
Stock)........................................ 27,850 1,016,525
+Federated Department Stores, Inc............... 50,500 1,723,313
</TABLE>
66
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Great Atlantic & Pacific Tea Co., Inc........... 9,100 $ 299,163
Harcourt General, Inc........................... 17,906 895,300
Home Depot, Inc................................. 116,149 6,272,046
J.C. Penney Co., Inc............................ 55,500 2,913,750
K mart Corp..................................... 113,100 1,399,613
+Kroger Co...................................... 30,900 1,220,550
Liz Claiborne, Inc.............................. 17,500 605,938
Longs Drug Stores, Inc.......................... 4,600 205,275
May Department Stores Co........................ 61,200 2,677,500
Melville Corp................................... 25,500 1,032,750
Mercantile Stores Co., Inc...................... 8,900 521,763
Newell Co....................................... 40,000 1,225,000
Nike, Inc. (Class 'B' Stock).................... 35,400 3,637,350
Nordstrom, Inc.................................. 19,600 872,200
Pep Boys-Manny, Moe & Jack...................... 14,900 506,600
+Price/Costco, Inc.............................. 48,466 1,048,078
Reebok International, Ltd....................... 18,600 625,425
Rite Aid Corp................................... 20,400 606,900
Sears, Roebuck & Co............................. 95,400 4,638,825
Sherwin-Williams Co............................. 20,700 962,550
Stride Rite Corp................................ 9,400 77,550
Supervalu, Inc.................................. 16,800 529,200
The Gap, Inc.................................... 70,300 2,258,388
The Limited, Inc................................ 72,448 1,557,632
TJX Companies, Inc.............................. 16,700 563,625
+Toys 'R' Us, Inc............................... 65,850 1,876,725
Wal-Mart Stores, Inc............................ 564,200 14,316,575
Walgreen Co..................................... 60,400 2,023,400
Winn Dixie Stores, Inc.......................... 37,200 1,315,950
Woolworth Corp.................................. 32,000 720,000
--------------
67,073,597
--------------
RUBBER -- 0.2%
B.F. Goodrich Co................................ 12,200 455,975
Cooper Tire & Rubber Co......................... 21,600 480,600
Goodyear Tire & Rubber Co....................... 37,500 1,809,375
--------------
2,745,950
--------------
STEEL -- 0.2%
+Armco, Inc..................................... 26,700 133,500
+Bethlehem Steel Corp........................... 27,600 327,750
Inland Steel Industries, Inc.................... 12,000 235,500
Nucor Corp...................................... 21,200 1,073,250
USX-U.S. Steel Group............................ 21,340 605,523
Worthington Industries, Inc..................... 21,600 450,900
--------------
2,826,423
--------------
TELECOMMUNICATIONS -- 4.8%
+Airtouch Communications, Inc................... 121,800 3,440,850
Alltel Corp..................................... 46,800 1,439,100
Ameritech Corp.................................. 135,700 8,057,188
+Andrew Corp.................................... 14,675 788,781
AT&T Corp....................................... 391,873 24,296,126
+DSC Communications Corp........................ 29,000 873,625
MCI Communications Corp......................... 167,500 4,292,188
Northern Telecom, Ltd........................... 62,300 3,387,563
SBC Communications, Inc......................... 148,900 7,333,325
Scientific-Atlanta, Inc......................... 19,500 302,250
Sprint Corp..................................... 106,900 4,489,800
+Tellabs, Inc................................... 21,700 1,451,188
Worldcom Inc.................................... 47,000 2,602,625
--------------
62,754,609
--------------
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
TEXTILES -- 0.2%
+Fruit of the Loom, Inc. (Class 'A' Stock)...... 18,000 $ 459,000
National Service Industries, Inc................ 12,500 489,063
Russell Corp.................................... 10,600 292,825
Springs Industries, Inc......................... 5,000 252,500
V.F. Corp....................................... 15,818 943,148
--------------
2,436,536
--------------
TOBACCO -- 0.3%
American Brands, Inc............................ 43,700 1,982,888
UST, Inc........................................ 48,900 1,674,825
--------------
3,657,713
--------------
TRUCKING/SHIPPING -- 0.2%
Caliber System Inc.............................. 9,600 326,400
Consolidated Freightways, Inc................... 11,400 240,825
+Federal Express Corp........................... 14,100 1,156,200
Ryder System, Inc............................... 19,600 551,250
Yellow Corp..................................... 6,000 79,500
--------------
2,354,175
--------------
UTILITY - COMMUNICATIONS -- 3.1%
Bell Atlantic Corp.............................. 107,000 6,821,250
BellSouth Corp.................................. 244,500 10,360,688
GTE Corp........................................ 237,720 10,637,970
NYNEX Corp...................................... 105,800 5,025,500
Pacific Telesis Group........................... 104,700 3,533,625
U S West Communications, Inc.................... 115,000 3,665,625
--------------
40,044,658
--------------
UTILITY - ELECTRIC -- 3.2%
American Electric Power Co., Inc................ 46,100 1,965,013
Baltimore Gas & Electric Co..................... 36,650 1,039,944
Carolina Power & Light Co....................... 37,600 1,428,800
Central & South West Corp....................... 50,800 1,473,200
CINergy Corp.................................... 39,339 1,258,848
Consolidated Edison Co. of NY, Inc.............. 57,000 1,667,250
Dominion Resources, Inc......................... 43,850 1,754,000
Dte Energy Company.............................. 36,100 1,114,588
Duke Power Co................................... 50,700 2,598,375
Edison International............................ 107,600 1,896,450
Entergy Corp.................................... 56,300 1,597,513
FPL Group, Inc.................................. 44,900 2,065,400
General Public Utilities Corp................... 29,600 1,043,400
Houston Industries, Inc......................... 65,300 1,608,013
Niagara Mohawk Power Corp....................... 31,700 245,675
Northern States Power Co........................ 16,800 829,500
Ohio Edison Co.................................. 36,100 789,688
P P & L Resources, Inc.......................... 38,200 902,475
Pacific Enterprises............................. 21,300 631,013
Pacific Gas & Electric Co....................... 102,700 2,387,775
PacifiCorp...................................... 70,800 1,575,300
PECO Energy Co.................................. 55,100 1,432,600
Public Service Enterprise Group, Inc............ 61,000 1,669,875
Southern Co..................................... 165,600 4,077,900
Texas Utilities Co.............................. 55,329 2,365,315
Unicom Corp..................................... 52,400 1,460,650
Union Electric Company.......................... 24,400 982,100
--------------
41,860,660
--------------
TOTAL COMMON STOCKS
(Cost $843,576,557)............................................ 1,240,568,064
--------------
</TABLE>
67
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
PREFERRED STOCKS -- 0.0% SHARES VALUE
------------- --------------
<S> <C> <C>
MISCELLANEOUS - BASIC INDUSTRY
Teledyne, Inc. (Cum.), Series E................. 560 $ 8,610
--------------
(Cost $8,400)
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 5.0% AMOUNT VALUE
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 4.8%
Joint Repurchase Agreement Account,
5.443%, 07/01/96 (see Note 4)................. $ 62,592,000 62,592,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.2%
U.S. Treasury Bills,
5.110%, 09/19/96.............................. 2,200,000 2,174,370
5.120%, 09/19/96.............................. 100,000 98,835
--------------
2,273,205
--------------
TOTAL SHORT-TERM INVESTMENTS..................................... 64,865,205
--------------
##
VARIATION MARGIN ON OPEN FUTURES CONTRACTS -- 0.0%...............
296,250
--------------
LIABILITIES -- (0.9%)
(net of other assets).......................................... (11,713,817)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $1,294,024,312
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
+No dividend was paid on this security during the 12 months ending June 30,
1996.
##Open futures contracts as of June 30, 1996 are as follows:
PAR VALUE
COVERED BY CONTRACT TYPE EXPIRATION DATE VALUE OF CONTRACTS
S&P 500 Index Futures
(158 contracts)
$53,111,300 Sept 96 $53,467,200
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
68
<PAGE>
EQUITY PORTFOLIO
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 68.9% SHARES VALUE
------------- --------------
<S> <C> <C>
AEROSPACE -- 0.3%
AAR Corp........................................ 650,000 $ 13,243,750
--------------
ALUMINUM -- 0.8%
Aluminum Co. of America......................... 600,000 34,425,000
--------------
AUTOS - CARS & TRUCKS -- 4.0%
Chrysler Corp................................... 1,963,910 121,762,420
General Motors Corp............................. 700,000 36,662,500
+Navistar International Corp.................... 395,200 3,902,600
PACCAR, Inc..................................... 139,700 6,845,300
--------------
169,172,820
--------------
BANKS AND SAVINGS & LOANS -- 6.6%
Bank of New York Company, Inc................... 900,000 46,125,000
BankAmerica Corp................................ 550,000 41,662,500
Chase Manhattan Corp............................ 624,000 44,070,000
First of America Bank Corp...................... 187,000 8,368,250
Great Western Financial Corp.................... 1,000,000 23,875,000
J.P. Morgan & Co., Inc.......................... 395,400 33,460,725
Mellon Bank Corp................................ 276,398 15,754,686
Mercantile Bankshares Corp...................... 279,600 7,129,800
NationsBank Corp................................ 600,000 49,575,000
Republic New York Corp.......................... 225,000 14,006,250
--------------
284,027,211
--------------
CHEMICALS - SPECIALTY -- 0.9%
Eastman Chemical Co............................. 466,550 28,401,231
Witco Corp...................................... 268,800 9,240,000
--------------
37,641,231
--------------
COMMERCIAL SERVICES -- 0.4%
Wellman, Inc.................................... 798,200 18,657,925
--------------
COMPUTER SERVICES -- 0.8%
Comdisco, Inc................................... 1,350,000 35,943,750
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 2.2%
Loews Corp...................................... 1,200,000 94,650,000
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 4.5%
+Amdahl Corp.................................... 4,000,000 43,000,000
+Digital Equipment Corp......................... 2,500,000 112,500,000
Gerber Scientific, Inc.......................... 419,800 6,769,275
International Business Machines Corp............ 300,000 29,700,000
--------------
191,969,275
--------------
ELECTRICAL EQUIPMENT
+Rexel, Inc..................................... 107,199 1,514,186
--------------
ELECTRONICS -- 0.4%
Harris Corp..................................... 300,000 18,300,000
--------------
FINANCIAL SERVICES -- 5.8%
American Express Co............................. 2,100,000 93,712,500
+Associates First Capital Corp.................. 211,600 7,961,450
Dean Witter Discover & Co....................... 1,600,000 91,600,000
Lehman Brothers Holdings, Inc................... 900,000 22,275,000
Salomon, Inc.................................... 700,000 30,800,000
--------------
246,348,950
--------------
FOREST PRODUCTS -- 8.4%
Georgia-Pacific Corp............................ 900,000 63,900,000
International Paper Co.......................... 1,350,000 49,781,250
James River Corp. of Virginia................... 560,000 14,770,000
Kimberly-Clark Corp............................. 574,200 44,356,950
Mead Corp....................................... 725,000 37,609,375
Rayonier, Inc................................... 125,000 4,750,000
Temple Inland, Inc.............................. 850,000 39,737,500
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Weyerhaeuser Co................................. 900,000 $ 38,250,000
Willamette Industries, Inc...................... 1,100,000 65,450,000
--------------
358,605,075
--------------
GAS PIPELINES -- 0.3%
NorAm Energy Corp............................... 1,300,000 14,137,500
--------------
HEALTHCARE -- 1.1%
+Foundation Health Corp......................... 1,330,700 47,738,862
--------------
HOSPITAL MANAGEMENT -- 1.6%
+Tenet Healthcare Corp.......................... 3,237,832 69,208,659
--------------
HOUSING RELATED -- 0.4%
Centex Corp..................................... 600,000 18,675,000
--------------
INSURANCE -- 10.7%
Alexander & Alexander Services, Inc............. 1,050,000 20,737,500
American Financial Group, Inc................... 303,700 9,148,962
American General Corp........................... 1,000,000 36,375,000
Chubb Corp...................................... 1,400,000 69,825,000
Citizens Corp................................... 700,000 13,125,000
Equitable Cos., Inc............................. 1,800,000 44,775,000
First Colony Corp............................... 1,253,600 38,861,600
Old Republic International Corp................. 1,500,885 32,269,027
Providian Corp.................................. 340,500 14,598,937
SAFECO Corp..................................... 1,600,000 56,600,000
St. Paul Companies, Inc......................... 476,900 25,514,150
Travelers Group, Inc............................ 1,350,000 61,593,750
Western National Corp........................... 1,624,300 29,846,513
--------------
453,270,439
--------------
MACHINERY -- 0.5%
+American Standard Co., Inc..................... 700,000 23,100,000
--------------
MINERAL RESOURCES -- 0.8%
+Amax Gold, Inc................................. 131,342 722,381
Cyprus Amax Minerals Co......................... 1,533,200 34,688,650
+Nord Resources Corp............................ 130,500 603,563
--------------
36,014,594
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.7%
TRW, Inc........................................ 347,200 31,204,600
+Worldtex, Inc.................................. 107,199 643,194
--------------
31,847,794
--------------
MISCELLANEOUS - CONSUMER -- 0.2%
+Gibson Greetings, Inc.......................... 750,000 10,312,500
--------------
PETROLEUM SERVICES -- 5.3%
Amerada Hess Corp............................... 325,000 17,428,125
Atlantic Richfield Co........................... 400,000 47,400,000
Occidental Petroleum Corp....................... 1,100,000 27,225,000
+Oryx Energy Co................................. 1,600,000 26,000,000
Societe Nationale Elf Aquitaine, (ADR)
(France)...................................... 1,924,433 70,722,913
Total SA, (ADR)................................. 738,365 27,411,801
Union Texas Petroleum Holdings, Inc............. 504,500 9,837,750
--------------
226,025,589
--------------
RETAIL -- 6.7%
Dayton-Hudson Corp.............................. 119,600 12,333,750
Dillard Department Stores, Inc. (Class 'A'
Stock)........................................ 2,300,000 83,950,000
K-Mart Corp..................................... 6,000,000 74,250,000
Petrie Stores Corp.............................. 540,000 1,518,750
Tandy Corp...................................... 1,218,000 57,702,750
</TABLE>
69
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
+Toys 'R' Us, Inc............................... 854,000 $ 24,339,000
+Waban, Inc..................................... 1,300,000 31,037,500
--------------
285,131,750
--------------
STEEL -- 0.8%
+Bethlehem Steel Corp........................... 500,000 5,937,500
Birmingham Steel Corp........................... 1,468,400 24,045,050
Carpenter Technology Corp....................... 100,000 3,200,000
--------------
33,182,550
--------------
TELECOMMUNICATIONS -- 2.3%
360 Communication Co............................ 96,066 2,305,584
Loral Space & Communications Corp............... 1,800,000 24,525,000
Telefonica de Espana, SA, (ADR) (Spain),........ 1,300,000 71,662,500
--------------
98,493,084
--------------
TOBACCO -- 1.2%
RJR Nabisco Holdings Corp....................... 1,600,000 49,600,000
--------------
TRUCKING/SHIPPING -- 0.5%
+OMI Corp....................................... 1,000,000 8,625,000
Overseas Shipholding Group, Inc................. 600,000 10,875,000
--------------
19,500,000
--------------
UTILITIES -- 0.7%
American Electric Power Co., Inc................ 180,000 7,672,500
American Water Works Co., Inc................... 135,000 5,433,750
General Public Utilities Corp................... 500,000 17,625,000
--------------
30,731,250
--------------
TOTAL COMMON STOCKS
(Cost $2,223,973,280).......................................... 2,951,468,744
--------------
<CAPTION>
MARKET
PREFERRED STOCKS -- 0.6% SHARES VALUE
------------- --------------
<S> <C> <C>
TOBACCO -- 0.6%
RJR Nabisco Holdings Corp., Ser. C (Conv.) (Cost
$25,999,610).................................. 4,000,000 26,000,000
--------------
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 30.3% AMOUNT VALUE
------------- --------------
<S> <C> <C>
BANK NOTES -- 0.2%
First National Bank of Chicago,
5.320%, 07/22/96.............................. $ 4,000,000 3,999,862
United States National Bank of Oregon,
5.320%, 07/30/96.............................. 7,000,000 6,999,707
--------------
10,999,569
--------------
CERTIFICATES OF DEPOSIT -- YANKEE -- 0.7%
Bank of Nova Scotia,
5.500%, 07/01/96.............................. 21,575,000 21,575,000
Mitsubishi International Ltd.,
5.460%, 07/24/96.............................. 6,500,000 6,477,326
--------------
28,052,326
--------------
COMMERCIAL PAPER -- 16.2%
American Honda Finance Corp.,
5.400%, 07/25/96.............................. 12,000,000 11,956,800
Associates Corp. of North America,
5.600%, 07/01/96.............................. 42,000,000 42,000,000
AT&T Corp.,
5.320%, 07/12/96.............................. 3,710,000 3,703,969
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Barnett Banks, Inc.,
5.500%, 07/01/96.............................. $ 42,000,000 $ 42,000,000
Canadian Imperial Bank,
5.500%, 07/01/96.............................. 42,713,000 42,713,000
Ciesco, L.P.,
5.300%, 07/12/96.............................. 5,000,000 4,991,903
5.320%, 07/19/96-08/02/96..................... 31,000,000 30,884,438
Cooper Industries, Inc.,
5.600%, 07/01/96.............................. 42,713,000 42,713,000
Corporate Asset Funding Co., Inc.,
5.290%, 07/18/96.............................. 21,783,000 21,728,585
Countrywide Funding Corp.,
5.400%, 07/23/96.............................. 9,000,000 8,970,300
5.420%, 07/25/96.............................. 4,000,000 3,985,547
5.430%, 08/20/96.............................. 6,000,000 5,954,750
Duracell Inc.,
5.400%, 07/22/96.............................. 17,000,000 16,946,450
Finova Capital Corp.,
5.420%, 07/11/96-07/15/96..................... 16,000,000 15,968,082
5.450%, 07/17/96.............................. 1,000,000 997,578
5.470%, 08/09/96.............................. 7,700,000 7,654,371
First Data Corp.,
5.450%, 07/30/96.............................. 19,200,000 19,115,707
Ford Motor Credit Corp.,
5.380%, 08/20/96.............................. 42,000,000 41,686,167
GTE Corp.,
5.390%, 07/15/96.............................. 4,000,000 3,991,616
5.420%, 07/26/96.............................. 4,000,000 3,984,944
5.430%, 07/22/96.............................. 9,000,000 8,971,492
5.450%, 07/12/96.............................. 8,215,000 8,201,320
Heller Financial Services Inc.,
5.440%, 07/22/96.............................. 1,000,000 996,827
5.450%, 07/16/96.............................. 1,000,000 997,717
5.460%, 07/08/96.............................. 2,000,000 1,997,877
International Business Machines Credit Corp.,
5.290%, 07/10/96.............................. 9,000,000 8,988,097
Lowes Co.,
5.650%, 07/01/96.............................. 12,000,000 12,000,000
Merrill Lynch & Co. Inc,
5.400%, 07/12/96.............................. 42,000,000 41,930,700
Morgan Stanley Group, Inc.,
5.600%, 07/01/96.............................. 12,000,000 12,000,000
Nomura Holdings America, Inc.,
5.670%, 07/01/96.............................. 15,000,000 15,000,000
Norwest Corp.,
5.350%, 07/10/96.............................. 3,000,000 2,995,987
NYNEX Corp.,
5.420%, 07/22/96-08/16/96..................... 10,000,000 9,938,272
PHH Corp.,
5.320%, 07/17/96.............................. 13,250,000 13,218,671
5.340%, 07/08/96.............................. 5,300,000 5,294,497
5.600%, 07/01/96.............................. 12,190,000 12,190,000
Philip Morris Cos., Inc.,
5.390%, 07/25/96.............................. 10,000,000 9,964,067
Pitney-Bowes Credit Corp.,
5.450%, 07/12/96.............................. 7,390,000 7,377,694
PNC Funding Corp.,
5.400%, 07/11/96.............................. 6,000,000 5,991,000
5.430%, 07/08/96.............................. 1,000,000 998,944
Prefco,
5.370%, 07/22/96.............................. 8,000,000 7,974,940
</TABLE>
70
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS (CONTINUED) AMOUNT VALUE
------------- --------------
<S> <C> <C>
Preferred Receivables Funding Corp.,
5.300%, 07/11/96.............................. $ 5,252,000 $ 5,244,268
5.370%, 07/17/96.............................. 22,000,000 21,947,493
Riverwoods Funding Corp.,
5.300%, 07/02/96.............................. 9,000,000 8,998,675
Rockwell International Corp.,
5.450%, 07/16/96.............................. 19,822,000 19,776,987
Sears Roebuck Acceptance Corp.,
5.400%, 07/25/96.............................. 4,000,000 3,985,600
Smith Barney Inc.,
5.360%, 07/02/96.............................. 4,000,000 3,999,404
5.370%, 07/09/96.............................. 6,000,000 5,992,840
5.380%, 07/11/96.............................. 19,000,000 18,971,606
Transamerica Corp.,
5.340%, 07/09/96.............................. 19,000,000 18,977,453
United States West Commerce, Inc.,
5.450%, 07/15/96.............................. 6,625,000 6,610,959
Whirlpool Financial Corp.,
5.400%, 07/22/96-07/25/96..................... 21,777,000 21,701,202
--------------
695,181,796
--------------
LOAN PARTICIPATIONS -- 1.0%
Cargill Financial Services Corp.,
5.500%, 07/03/96.............................. 2,713,000 2,713,000
Cargill Inc.,
5.500%, 07/03/96.............................. 40,000,000 40,000,000
--------------
42,713,000
--------------
U.S. GOVERNMENT, AGENCY & INSTRUMENTALITY OBLIGATIONS -- DISCOUNT
-- 1.0%
Federal National Mortgage Assoc.,
5.260%, 09/09/96.............................. 21,200,000 20,974,644
5.270%, 09/03/96.............................. 20,985,000 20,787,321
--------------
41,761,965
--------------
REPURCHASE AGREEMENTS -- 11.2%
Joint Repurchase Agreement Account,
5.443%, 07/01/96.............................. 482,433,000 482,433,000
--------------
TOTAL SHORT-TERM INVESTMENTS..................................... 1,301,141,656
--------------
OTHER ASSETS -- 0.2%
(net of liabilities)........................................... 7,344,752
--------------
TOTAL NET ASSETS -- 100.0%....................................... $4,285,955,152
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
+No dividend was paid on this security during the 12 months ended June 30, 1996.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
71
<PAGE>
GLOBAL PORTFOLIO
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS -- 93.8% SHARES VALUE
------------- --------------
<S> <C> <C>
ARGENTINA -- 1.3%
Banco Frances Del Rio De La Plata
(Banks and Savings & Loans)................... 341,200 $ 3,242,616
Basil De Distrub., ADR
(Retail)...................................... 190,000 3,135,000
--------------
6,377,616
--------------
AUSTRALIA -- 4.4% Brambles Industries, Ltd.
(Miscellaneous - Basic Industry).............. 478,400 6,655,265
Broken Hill Proprietary Co., Ltd.
(Metals - Diversified)........................ 449,731 6,217,511
Coca-Cola Amatil, Ltd.
(Foods)....................................... 772,632 8,590,270
Publishing and Broadcasting, Ltd.
(Media)....................................... 185,200 816,058
--------------
22,279,104
--------------
BELGIUM -- 0.9%
Bekaert, SA
(Miscellaneous - Basic Industry).............. 5,700 4,589,346
--------------
FEDERAL REPUBLIC OF GERMANY -- 3.5%
Hoechst, AG
(Chemicals)................................... 154,000 5,215,029
Linde, AG
(Machinery)................................... 9,740 6,328,203
Siemens, AG
(Electrical Equipment)........................ 109,000 5,815,718
--------------
17,358,950
--------------
FINLAND -- 0.7%
Nokia Corp. (Class 'A' Stock)
(Telecommunications).......................... 89,300 3,290,601
--------------
FRANCE -- 6.1%
Carrefour Supermarche, SA
(Retail)...................................... 17,100 9,578,790
Imetal
(Mineral Resources)........................... 21,836 3,096,102
**Lafarge, SA
(Construction)................................ 1,210 73,209
Lafarge, SA
(Construction)................................ 75,991 4,597,688
Legrand, SA
(Electrical Equipment)........................ 32,700 5,843,255
Plastic Omnium
(Autos - Cars & Trucks)....................... 7,265 632,169
Sgs Thomson Microelectronics
(Electronics)................................. 4,400 154,686
Valeo, SA
(Autos - Cars & Trucks)....................... 122,485 6,554,262
--------------
30,530,161
--------------
HONG KONG -- 6.7% CDL Hotels International, Ltd.
(Real Estate Development)..................... 6,016,145 3,303,140
Citic Pacific, Ltd.
(Miscellaneous - Basic Industry).............. 2,272,000 9,186,973
Guoco Group, Ltd.
(Financial Services).......................... 1,851,000 8,823,737
Hung Hing Printing Group, Ltd.
(Miscellaneous - Basic Industry).............. 3,452,000 914,207
Hutchison Whampoa, Ltd.
(Miscellaneous - Basic Industry).............. 749,000 4,712,274
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
New World Development Co., Ltd.
(Real Estate Development)..................... 1,452,000 $ 6,734,120
--------------
33,674,451
--------------
ITALY -- 1.4%
Telecom Italia Mobile SpA
(Telecommunications).......................... 3,281,800 7,321,733
--------------
JAPAN -- 17.4% Daibiru Corp.
(Real Estate Development)..................... 189,000 2,517,701
Eisai Co., Ltd.
(Drugs and Hospital Supplies)................. 262,000 4,948,358
Honda Motor Co.
(Autos - Cars & Trucks)....................... 335,000 8,680,657
Jgc Corp.
(Construction)................................ 159,000 2,089,051
Keyence Corp.
(Electrical Equipment)........................ 34,800 4,731,022
Mitsui Fudosan
(Real Estate Development)..................... 486,000 6,562,774
Nichiei Co., Ltd.
(Financial Services).......................... 94,000 6,260,949
Nichirei Corp.
(Foods)....................................... 640,000 4,583,942
Nippon Television Network
(Media)....................................... 21,700 6,731,752
Nissan Chemicals Inds.
(Chemicals)................................... 663,000 4,821,268
Nissan Motor Co.
(Autos - Cars & Trucks)....................... 577,000 5,122,454
Onward Kashiyama Co., Ltd.
(Textiles).................................... 480,000 7,839,416
Sony Corp.
(Electronics)................................. 146,000 9,604,562
Sony Music Entertainment, Inc.
(Leisure)..................................... 91,800 4,271,715
Toyota Motor Corp.
(Autos - Cars & Trucks)....................... 320,000 8,000,000
--------------
86,765,621
--------------
MALAYSIA -- 2.6%
I.J.M. Corp. Berhad
(Construction)................................ 3,180,000 5,508,260
Renong Berhad
(Miscellaneous - Basic Industry).............. 1,559,000 2,487,899
Resorts World Berhad
(Leisure)..................................... 880,000 5,045,710
--------------
13,041,869
--------------
MEXICO -- 1.6%
Apasco, SA de CV
(Miscellaneous - Basic Industry).............. 571,100 3,157,741
Cifra, SA de CV (Class 'B' Stock)
(Retail)...................................... 1,687,200 2,438,844
Fomento Economico Mexicano, SA de CV (Class 'B'
Stock)
(Miscellaneous - Basic Industry).............. 809,400 2,322,923
--------------
7,919,508
--------------
NETHERLANDS -- 3.0% Heineken, N.V.
(Beverages)................................... 41,625 9,290,340
Royal Dutch Petroleum
(Petroleum)................................... 35,800 5,522,365
--------------
14,812,705
--------------
</TABLE>
72
<PAGE>
GLOBAL PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
NEW ZEALAND -- 0.1%
Fletcher Challenge Forestry Division
(Forest Products)............................. 293,204 $ 364,352
--------------
SINGAPORE -- 3.4%
Overseas Chinese Banking Corp., Ltd.
(Banks and Savings & Loans)................... 440,000 5,144,558
Overseas Union Bank, Ltd.
(Banks and Savings & Loans)................... 1,030,000 7,079,790
Sembawang Maritime, Ltd.
(Trucking/Shipping)........................... 883,500 2,391,560
Wing Tai Holdings, Ltd.
(Miscellaneous - Basic Industry).............. 1,180,250 2,509,035
--------------
17,124,943
--------------
SPAIN -- 2.3%
Acerinox, SA
(Steel)....................................... 33,300 3,475,766
Banco Popular Espanol, SA
(Banks and Savings & Loans)................... 27,500 4,896,148
Centros Commerciales Pryca, SA
(Retail)...................................... 128,662 3,209,416
--------------
11,581,330
--------------
SWEDEN -- 4.2%
Astra, AB (Series 'B' Free)
(Drugs and Hospital Supplies)................. 140,180 6,100,046
Hennes & Mauritz (Series 'B' Free)
(Retail)...................................... 74,500 6,898,912
Mo Och Domsjo, AB (Series 'B' Free)
(Forest Products)............................. 135,800 3,476,145
Skandinaviska Enskilda Bank (Series A)
(Financial Services).......................... 567,200 4,526,487
--------------
21,001,590
--------------
THAILAND -- 0.5%
Thai Telephone & Telecom
(Telecommunications).......................... 1,130,000 2,425,275
--------------
UNITED KINGDOM -- 11.3%
Bank Of Ireland
(Banks and Savings & Loans)................... 850,800 5,816,096
British Sky Broadcasting Group, PLC
(Media)....................................... 855,300 5,830,276
Dixons Group, PLC
(Retail)...................................... 689,000 5,631,728
Guest Kean & Nettlefolds, PLC
(Autos - Cars & Trucks)....................... 623,270 9,550,915
**Guest Kean & Nettlefolds, PLC
(Autos - Cars & Trucks)....................... 22,870 350,457
Hays, PLC
(Commercial Services)......................... 450,000 3,168,693
Reed International, PLC
(Miscellaneous - Basic Industry).............. 258,000 4,307,701
Siebe, PLC
(Machinery)................................... 657,440 9,330,158
Standard Chartered, PLC
(Financial Services).......................... 502,200 4,992,827
</TABLE>
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
------------- --------------
<S> <C> <C>
Vodafone Group, PLC
(Telecommunications).......................... 2,072,900 $ 7,700,088
--------------
56,678,939
--------------
UNITED STATES -- 22.4% Case Corp.
(Machinery)................................... 100,000 4,800,000
+Cisco Systems, Inc.
(Computer Services)........................... 147,400 8,346,525
Gucci Group
(Textiles).................................... 129,900 8,378,550
Mattel, Inc.
(Leisure)..................................... 322,658 9,236,085
MCI Communications Corp.
(Telecommunications).......................... 306,100 7,843,812
+Microsoft Corp.
(Computer Services)........................... 81,300 9,766,162
+Mirage Resorts, Inc.
(Leisure)..................................... 100,700 5,437,800
Mobil Corp.
(Petroleum)................................... 77,400 8,678,475
Motorola, Inc.
(Electronics)................................. 59,600 3,747,350
+Oracle Corp.
(Computer Services)........................... 240,600 9,488,662
SGS Thomson Microelectronics, N.V.
(Electronics)................................. 88,000 3,157,000
+Silicon Graphics, Inc.
(Computer Services)........................... 291,700 7,000,800
Texas Instruments, Inc.
(Electronics)................................. 101,800 5,077,275
Tiffany & Co.
(Retail)...................................... 47,600 3,474,800
Time Warner, Inc.
(Media)....................................... 165,100 6,480,175
+Viacom, Inc. (Class 'A' Stock)
(Media)....................................... 139,600 5,322,250
Walt Disney Co.
(Leisure)..................................... 88,100 5,539,288
--------------
111,775,009
--------------
TOTAL COMMON STOCKS
(Cost $402,389,660)............................................ 468,913,103
--------------
<CAPTION>
MARKET
WARRANTS -- 0.5% SHARES VALUE
------------- --------------
<S> <C> <C>
MALAYSIA
Renong Berhad, Expire 11/21/00,
(Miscellaneous - Basic Industry).............. 185,625 84,104
--------------
SINGAPORE -- 0.5%
United Overseas Bank Ltd., Expire 06/17/96
(Banks and Savings & Loans)................... 566,800 2,249,207
--------------
TOTAL WARRANTS
(Cost $2,717,008).............................................. 2,333,311
--------------
</TABLE>
73
<PAGE>
GLOBAL PORTFOLIO (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 5.2% AMOUNT VALUE
------------- --------------
<S> <C> <C>
UNITED STATES
)Smith Barney Triparty Repurchase Agreement,
5.500%, 07/01/96.............................. $ 26,362,000 $ 26,362,000
--------------
OTHER ASSETS -- 0.5%
(net of liabilities)........................................... 2,355,133
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 499,963,547
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
AB Akiteboiag (Swedish Stock Company)
ADR American Depository Receipt
AG Aktiengesellschaft (West German Stock Company)
N.V. Naamloze Vennootschap (Dutch Corporation)
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French Corporation)
**Indicates a restricted security; the aggregate cost of the restricted
securities is $216,115. The aggregate value, $423,666 is approximately
0.1% of net assets. (See Note 2)
+No dividend was paid on this security during the 12 months ending June 30,
1996.
)Smith Barney Triparty Repurchase Agreement, repurchase price $26,374,083,
due 7/01/96. The value of the collateral was $26,889,731.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 75 THROUGH 82.
74
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF THE DIVERSIFIED BOND, EQUITY,
FLEXIBLE MANAGED, CONSERVATIVE BALANCED,
STOCK INDEX, GLOBAL AND GOVERNMENT INCOME PORTFOLIOS OF
THE PRUDENTIAL SERIES FUND, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (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 fifteen Portfolios, each with a separate series of
capital stock. The Diversified Bond, Equity, Flexible Managed, Conservative
Balanced, Stock Index, Global, and Government Income portfolios presented herein
are available only for investment by VCA-24 and other various separate accounts
of The Prudential Insurance Company of America ("The Prudential"), Pruco Life
Insurance Company and Pruco Life Insurance Company of New Jersey (together
referred to as the "Companies") to fund benefits under certain variable life
insurance and variable annuity contracts issued by the Companies.
The shareholders of Pruco Life Series Fund, Inc. ("Pruco Fund") and the Series
Fund approved the merger of the Pruco Fund into the Series Fund as of November
1, 1986. The merger combined five portfolios with identical investment
strategies (Money Market, Diversified Bond, Equity, Flexible Managed and
Conservative Balanced) of the Pruco Fund with their counterpart in the Series
Fund. The merger was effected by converting the net assets of the Pruco Fund at
the merger date into shares of the Series Fund at the share price of that day
and was accounted for as a pooling of interest.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES VALUATION: Equity securities are valued at market. Securities traded
on a national securities exchange are valued at the last sales price on such
exchange as of the close of the New York Stock Exchange or, in the absence of
recorded sales, at the mean between the most recently quoted bid and asked
prices. For any securities not traded on a national securities exchange but
traded in the over-the-counter market, the securities are valued at the mean
between the most recently quoted bid and asked prices, except that securities
for which quotations are furnished through a nationwide automated quotation
system approved by the National Association of Securities Dealers, Inc.
("NASDAQ") are valued at the last sales price or if there was no sale on such
day, at the mean between the most recently quoted bid and asked prices.
Convertible debt securities are valued at the mean between the most recently
quoted bid and asked prices provided by principal market makers. High yield
bonds are valued either by quotes received from principal market makers or by an
independent pricing service which determines prices by analysis of quality,
coupon, maturity and other adjustment factors. Long-term bonds are valued at
market, based on valuation prices by an independent pricing service which
determines prices by analysis of quality, coupon, maturity and other adjustment
factors. Short-term investments are valued at amortized cost, which with accrued
interest approximates market value. Amortized cost is computed using the cost on
the date of purchase adjusted for constant amortization of discount or premium
to maturity. The interest rates shown for Commercial Paper, Promissory Notes,
and certain U.S. Government Agency Obligations on the Schedules of Investments
are the discount rates paid at the time of purchase. Any security for which a
quotation is unavailable is valued at fair value as determined in good faith by
or under the direction of the Series Fund's Board of Directors.
The ability of issuers of debt securities held by specific Portfolios of the
Series Fund to meet their obligations may be affected by economic developments
in a specific country or industry.
The portfolios of the Fund may invest up to 15% of their total assets in
securities which are subject to legal or contractual restrictions on resale or
for which no readily available market exists ("restricted securities").
Restricted securities are valued pursuant to the valuation procedures noted
above.
ACCOUNTING 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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
75
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS: The Series Fund may engage in various
portfolio strategies to seek increased returns by hedging the portfolios against
adverse movements in the equity, debt, and currency markets. Losses may arise
due to changes in the value of the contract or if the counterparty does not
perform under the contract.
OPTION WRITING: When the Series Fund sells an option, an amount equal to the
premium received is recorded as a liability and is subsequently adjusted to the
current market value of the option written. Premiums received from writing
options which expire unexercised are treated on the expiration date as gains
from the sale of securities. As to options which are closed, the difference
between the premium and the amount paid on effecting a closing purchase
transaction, including brokerage commissions, is also treated as a gain, or if
the premium received is less than the amount paid for the closing purchase
transaction, as a loss. If a call option is exercised, the premium is added to
the proceeds from the sale in determining whether a gain or loss has been
realized.
The Series Fund's use of written options involves, to varying degrees, elements
of market risk in excess of the amount recognized in the statement of assets and
liabilities. The contract or notional amounts reflect the extent of the Series
Fund's involvement in these financial instruments. Risks arise from the possible
movements in foreign exchange rates and securities values underlying these
instruments.
STOCK INDEX FUTURES: Portfolios of the Fund may attempt to reduce the risk of
investment in equity securities by hedging a portion of their equity portfolios
through the use of stock index futures traded on a commodities exchange or board
of trade. A stock index futures contract is an agreement in which the seller of
the contract agrees to deliver to the buyer an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement was made. Upon entering into a futures contract, a
Portfolio is required to pledge to the broker liquid assets equal to the minimum
"initial margin," approximately 5% of the contract amount. The Portfolio further
agrees to receive or pay to the broker an amount of cash equal to the futures
contract's daily fluctuation in value. These receipts or payments are known as
the "variation margin" and are recorded as unrealized gains or losses. When a
futures contract is closed, the Portfolio 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 TRANSACTIONS: 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
mid daily rate of exchange as reported by a major New York City bank;
(ii) purchases and sales of investment securities, income and expenses at the
rate of exchange prevailing on the respective dates of such transactions.
Since the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal period, it is not practical
to isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from change
in the market prices of securities held at the end of the fiscal period.
Similarly, it is not practical to isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of equities sold during the fiscal year.
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 government supervision and regulation of foreign security markets.
The Global Portfolio may invest up to 100% of its total assets in common stock
and convertible securities denominated in a foreign currency and issued by
foreign or domestic issuers. The Diversified Bond Portfolio may invest up to 20%
of its assets in United States currency denominated debt securities issued
outside the United States by foreign or domestic issuers. In addition, the bond
components of the Conservative Balanced and Flexible Managed Portfolios may each
invest up to 20% of their assets in such securities. Further, the Flexible
Managed Portfolio may invest up to 30% of its total assets in debt and equity
securities denominated in a foreign currency and issued by foreign or domestic
issuers. In addition, the Equity Portfolio may invest up to 30% of its total
assets in non-United States currency denominated common stock and fixed-income
securities convertible into common stock of foreign and U.S. issuers.
76
<PAGE>
Net realized gains and losses on foreign currency transactions represent net
foreign exchange gains and losses from holding of foreign currencies; currency
gains or losses realized between the trade and settlement dates on security
transactions; and the difference between the amounts of the dividends and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net currency gains and losses from valuing
foreign currency denominated assets and liabilities at fiscal period end
exchange rates are reflected as a component of unrealized loss on foreign
currencies.
FORWARD FOREIGN EXCHANGE CONTRACTS: The Series 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
Series Fund's records. However, the effect on operations is recorded from the
date the Series Fund enters into such contracts. Premium or discount is
amortized over the life of the contracts.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Dividend income is recorded on
the ex-dividend date. Interest income is accrued daily on both long-term bonds,
and short-term investments. Interest income also includes net amortization from
the purchase of fixed-income securities. Long-term security and option
transactions are recorded on the first business day following the trade date,
except that transactions on the last business day of the reporting cycle are
recorded on that date. Short-term security and futures transactions are recorded
on trade date. Realized gains and losses from security transactions are
determined and accounted for on the basis of identified cost.
DISTRIBUTIONS AND TAXES: The Portfolios of the Series Fund intend to continue to
qualify for and elect the special tax treatment afforded regulated investment
companies under Subchapter M of the Internal Revenue Code, thereby relieving the
Series Fund of Federal income taxes. To so qualify, the Series Fund intends to
distribute substantially all of its net investment income and net realized
capital gains, if any, less any available capital loss carry forward. As of
December 31, 1995, (based on an October 31 measurement period) the Government
Portfolio had a net capital loss carry forward of $22,539,392 ($6,229,349
expiring in 2002, $16,310,043 expiring in 2003). These amounts will be available
to offset any future taxable gains.
EXPENSES: Each Portfolio pays for certain expenses incurred in its individual
operation, and also pays a portion of the Series Fund's general administrative
expenses allocated on the basis of the asset size of the respective Portfolios.
The Series Fund has an arrangement with Chemical Banking Corporation, a
custodian bank. On a daily basis, cash funds which are not invested earn a
credit which is used to offset custody charges on a Portfolio basis, exclusive
of the Global Portfolio, for which Brown Brothers Harriman & Co. is the
custodian bank.
NOTE 3: INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
INVESTMENT MANAGEMENT AND ACCOUNTING FEES: Pursuant to an investment advisory
agreement (the "Agreement"), The Prudential receives an investment management
fee, calculated daily, at an effective annual rate of 0.35% of the average daily
net assets of the Stock Index Portfolio: 0.40% of the average daily net assets
of the Diversified Bond and Government Income Portfolios; 0.45% of average daily
net assets of the Equity Portfolio; 0.55% of the average daily net assets of the
Conservative Balanced Portfolio; 0.60% of the average daily net assets of the
Flexible Managed Portfolio; and 0.75% of the average daily net assets of the
Global Portfolio. Under the Agreement, The Prudential has agreed to refund to a
portfolio (other than the Global Portfolio), the portion of the management 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.
DIRECTORS' EXPENSES: The Series Fund pays for the fees and expenses of those
members of the Series Fund's Board of Directors who are not officers or
employees of The Prudential or its affiliates.
BROKERAGE COMMISSIONS: For the six months ended June 30, 1996, Prudential
Securities Inc., an indirect, wholly-owned subsidiary of The Prudential, earned
$109,165 in brokerage commissions from Portfolio transactions executed on behalf
of the Series Fund.
77
<PAGE>
NOTE 4: JOINT REPURCHASE AGREEMENT ACCOUNT
The Portfolios of the Series Fund (excluding Global Portfolio) transfer
uninvested cash balances into a single joint repurchase account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Government obligations. The Series Fund's undivided
investment in the joint repurchase agreement account represented, in principal,
$1,065,000,000 as of June 30, 1996. The Portfolios of the Series Fund with cash
invested in the joint account had the following percentage participation in the
account:
<TABLE>
<S> <C>
Equity Portfolio.............................................. 45.30%
Flexible Managed Portfolio.................................... 21.27%
Conservative Balanced Portfolio............................... 8.50%
Stock Index Portfolio......................................... 5.88%
Government Income Portfolio................................... 4.97%
Diversified Bond Portfolio.................................... 4.58%
All other portfolios (currently not available to VCA-24)...... 9.50%
----------
100.00%
</TABLE>
Bear Stearns Repurchase Agreement, 5.40%, in the principal amount of
$205,000,000, repurchase price $205,092,250, due 7/1/96. The value of the
collateral including accrued interest was $208,116,237.
J.P. Morgan Securities Repurchase Agreement, 5.45%, in the principal amount of
$350,000,000, repurchase price $350,158,958, due 7/1/96. The value of the
collateral including accrued interest was $357,218,750.
SBC Warburg Repurchase Agreement, 5.45%, in the principal amount of
$250,000,000, repurchase price $250,113,542, due 7/1/96. The value of the
collateral including accrued interest was $253,951,870.
UBS Securities Repurchase Agreement, 5.46%, in the principal amount of
$260,000,000, repurchase price $260,118,300, due 7/1/96. The value of the
collateral including accrued interest was $265,281,250.
NOTE 5: PURCHASE AND SALE OF SECURITIES
The aggregate cost of purchase and the proceeds from the sales of securities
(excluding short-term issues) for the six months ended June 30, 1996 were as
follows:
Cost of Purchases:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX EQUITY GLOBAL
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt Securities.......... $597,479,906 $262,236,071 5$,029,271,853 4$,110,547,138 $ 0 $ 0 $ 0
Equity Securities........ $ 0 $ 0 $192,122,829 1$,586,427,147 $162,838,872 $266,606,992 $179,154,305
</TABLE>
Proceeds From Sales:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX EQUITY GLOBAL
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt Securities.......... $562,496,816 $261,617,402 4$,551,462,546 3$,669,119,487 $ 0 $ 0 $ 0
Equity Securities........ $ 0 $ 0 $281,380,348 1$,737,698,635 $ 7,045,384 $253,264,625 $126,935,429
</TABLE>
The federal income tax basis and unrealized appreciation/depreciation of the
Fund's investments as of June 30, 1996 were as follows:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX EQUITY GLOBAL
----------- ----------- ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Unrealized Appreciation... $9,376,413 $ 5,806,290 $347,292,563 $425,312,892 4$07,469,144 $777,223,075 8$1,112,725
Gross Unrealized Depreciation... 6,583,523 7,454,035 74,798,202 62,116,107 10,478,102 49,736,821 14,972,979
Total Net Unrealized............ 2,792,890 (1,647,745) 272,494,361 363,196,785 396,991,042 727,486,254 66,139,746
Tax Basis....................... 6$69,714,649 $485,564,233 $3,902,670,743 $4,171,361,918 9$08,450,837 $3,551,124,146 4$31,468,668
</TABLE>
78
<PAGE>
NOTE 6: FINANCIAL HIGHLIGHTS
The following average per share data, ratios and supplemental information by
Portfolio have been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
DIVERSIFIED BOND
-------------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87
TO TO TO TO TO TO TO TO TO TO
06/30/96 12/31/95+ 12/31/94+ 12/31/93+ 12/31/92+ 12/31/91+ 12/31/90+ 12/31/89+ 12/31/88+ 12/31/87+
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $11.313 $10.038 $11.103 $10.829 $11.002 $10.332 $10.321 $ 9.942 $ 10.038 $ 11.048
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Income From Investment
Operations:
Net investment income.... 0.367 0.763 0.682 0.686 0.761 0.797 0.825 0.886 0.875 0.859
Net realized gains
(losses) and unrealized
appreciation
(depreciation) on
investments............ (0.545) 1.293 (1.040) 0.398 0.013 0.842 (0.004) 0.424 (0.069) (0.821)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... (0.178) 2.056 (0.358) 1.084 0.774 1.639 0.821 1.310 0.806 0.038
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.310) (0.755) (0.683) (0.657) (0.728) (0.779) (0.810) (0.854) (0.902) (0.990)
Distributions from net
realized gains......... 0.000 (0.026) (0.024) (0.153) (0.219) (0.190) 0.000 (0.077) 0.000 (0.058)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (0.310) (0.781) (0.707) (0.810) (0.947) (0.969) (0.810) (0.931) (0.902) (1.048)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net increase (decrease)
in Net Asset Value..... (0.488) 1.275 (1.065) 0.274 (0.173) 0.670 0.011 0.379 (0.096) (1.010)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value at end of
period................. $10.825 $11.313 $10.038 $11.103 $10.829 $11.002 $10.332 $10.321 $ 9.942 $ 10.038
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total Investment Rate of
Return:*............... (1.54 %) 20.73 % (3.23 %) 10.13 % 7.19 % 16.44 % 8.32 % 13.49 % 8.19 % 0.29 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $673.1 $655.8 $541.6 $576.2 $428.8 $318.7 $227.7 $191.1 $148.8 $139.5
Ratio of expenses net of
reimbursement to
average net assets..... 0.44 %** 0.44 % 0.45 % 0.46 % 0.47 % 0.49 % 0.47 % 0.53 % 0.53 % 0.53 %
Ratio of net investment
income to average net
assets................. 6.81 %** 7.00 % 6.41 % 6.05 % 6.89 % 7.43 % 8.06 % 8.56 % 8.52 % 8.15 %
Portfolio turnover
rate................... 90.55 % 199.09 % 31.57 % 41.12 % 60.53 % 131.01 % 42.10 % 272.85 % 222.20 % 238.41 %
Number of shares
outstanding at end of
period (in millions)... 62.1 58.0 54.0 51.9 39.6 29.0 22.0 18.5 15.0 13.9
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT INCOME
----------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 05/01/89
TO TO TO TO TO TO TO TO
06/30/96 12/31/95+ 12/31/94+ 12/31/93+ 12/31/92+ 12/31/91+ 12/31/90+ 12/31/89+
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $11.719 $10.461 $11.784 $11.094 $11.133 $10.146 $10.324 $10.017
-------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income.... 0.356 0.741 0.703 0.700 0.731 0.736 0.791 0.545
Net realized gains
(losses) and unrealized
appreciation
(depreciation) on
investments............ (0.645) 1.275 (1.311) 0.678 (0.092) 0.847 (0.177) 0.613
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... (0.289) 2.016 (0.608) 1.378 0.639 1.583 0.614 1.158
-------- -------- -------- -------- -------- -------- -------- --------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.302) (0.758) (0.723) (0.642) (0.593) (0.596) (0.769) (0.489)
Distributions from net
realized gains......... 0.000 0.000 0.008 (0.046) (0.085) 0.000 (0.023) (0.362)
-------- -------- -------- -------- -------- -------- -------- --------
Total
distributions........ (0.302) (0.758) (0.715) (0.688) (0.678) (0.596) (0.792) (0.851)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in Net Asset Value..... (0.591) 1.258 (1.323) 0.690 (0.039) 0.987 (0.178) 0.307
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value at end of
period................. $11.128 $11.719 $10.461 $11.784 $11.094 $11.133 $10.146 $10.324
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Total Investment Rate of
Return:*............... (2.43 %) 19.48 % (5.16 %) 12.56 % 5.85 % 16.11 % 6.34 % 11.60 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $490.7 $501.8 $487.6 $540.1 $315.5 $95.0 $23.7 $17.0
Ratio of expenses net of
reimbursement to
average net assets..... 0.45 %** 0.45 % 0.45 % 0.46 % 0.53 % 0.58 % 0.74 % 0.50 %
Ratio of net investment
income to average net
assets................. 6.28 %** 6.55 % 6.30 % 5.91 % 6.58 % 6.97 % 7.86 % 5.06 %
Portfolio turnover
rate................... 57.36 % 195.49 % 34.19 % 18.59 % 80.71 % 127.18 % 379.45 % 208.86 %
Number of shares
outstanding at end of
period (in millions)... 44.1 42.8 46.6 45.8 28.3 8.5 2.3 1.6
</TABLE>
+Calculations are based on average month-end shares outstanding, where
applicable.
*Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns. Total investment returns for
periods of less than one full year are not annualized.
**Annualized.
79
<PAGE>
NOTE 6: FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
-----------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87
TO TO TO TO TO TO TO TO TO TO
06/30/96 12/31/95+ 12/31/94+ 12/31/93+ 12/31/92+ 12/31/91+ 12/31/90+ 12/31/89+ 12/31/88+ 12/31/87+
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $15.309 $14.095 $14.905 $14.243 $14.318 $13.060 $13.361 $12.295 $ 11.889 $ 12.571
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Income From Investment
Operations:
Net investment income.... 0.315 0.635 0.528 0.486 0.558 0.687 0.821 0.891 0.773 0.656
Net realized gains
(losses) and unrealized
appreciation
(depreciation) on
investments............ 0.454 1.775 (0.679) 1.229 0.410 1.738 (0.143) 1.155 0.424 (0.399)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... 0.769 2.410 (0.151) 1.715 0.968 2.425 0.678 2.046 1.197 0.257
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.255) (0.643) (0.505) (0.468) (0.533) (0.668) (0.812) (0.887) (0.791) (0.709)
Distributions from net
realized gains......... 0.000 (0.553) (0.154) (0.585) (0.510) (0.499) (0.167) (0.093) 0.000 (0.230)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (0.255) (1.196) (0.659) (1.053) (1.043) (1.167) (0.979) (0.980) (0.791) (0.939)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net increase (decrease)
in Net Asset Value..... 0.514 1.214 (0.810) 0.662 (0.075) 1.258 (0.301) 1.066 0.406 (0.682)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value at end of
period................. $15.823 $15.309 $14.095 $14.905 $14.243 $14.318 $13.060 $13.361 $ 12.295 $ 11.889
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total Investment Rate of
Return:*............... 5.04 % 17.27 % (0.97 %) 12.20 % 6.95 % 19.07 % 5.27 % 16.99 % 10.19 % 1.54 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $4,198.8 $3,940.8 $3,501.1 $3,103.2 $2,114.0 $1,500.0 $1,100.2 $976.0 $815.6 $803.9
Ratio of expenses net of
reimbursement to
average net assets..... 0.58 %** 0.58 % 0.61 % 0.60 % 0.62 % 0.63 % 0.65 % 0.64 % 0.65 % 0.66 %
Ratio of net investment
income to average net
assets................. 4.04 %** 4.19 % 3.61 % 3.22 % 3.88 % 4.89 % 6.21 % 6.81 % 6.22 % 5.05 %
Portfolio turnover
rate................... 160.94 % 200.68 % 125.18 % 79.46 % 62.07 % 115.35 % 44.04 % 153.92 % 110.67 % 140.69 %
Number of shares
outstanding at end of
period (in millions)... 265.4 257.4 248.4 208.2 148.4 104.8 84.2 73.0 66.3 67.6
Average commission rate
paid per share......... $0.0598 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE MANAGED
-----------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87
TO TO TO TO TO TO TO TO TO TO
06/30/96 12/31/95+ 12/31/94+ 12/31/93+ 12/31/92+ 12/31/91+ 12/31/90+ 12/31/89+ 12/31/88+ 12/31/87+
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $17.859 $15.496 $16.957 $16.005 $16.288 $13.996 $14.446 $13.123 $ 12.326 $ 13.555
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Income From Investment
Operations:
Net investment income.... 0.279 0.564 0.473 0.566 0.583 0.650 0.715 0.813 0.724 0.577
Net realized gains
(losses) and unrealized
appreciation
(depreciation) on
investments............ 0.630 3.149 (1.021) 1.882 0.607 2.809 (0.466) 1.989 0.840 (0.753)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... 0.909 3.713 (0.548) 2.448 1.190 3.459 0.249 2.802 1.564 (0.176)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.228) (0.560) (0.451) (0.567) (0.559) (0.654) (0.699) (0.813) (0.767) (0.673)
Distributions from net
realized gains......... 0.000 (0.790) (0.462) (0.929) (0.914) (0.513) 0.000 (0.666) 0.000 (0.380)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (0.228) (1.350) (0.913) (1.496) (1.473) (1.167) (0.699) (1.479) (0.767) (1.053)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net increase (decrease)
in Net Asset Value..... 0.681 2.363 (1.461) 0.952 (0.283) 2.292 (0.450) 1.323 0.797 (1.229)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value at end of
period................. $18.540 $17.859 $15.496 $16.957 $16.005 $16.288 $13.996 $14.446 $ 13.123 $ 12.326
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total Investment Rate of
Return:*............... 5.11 % 24.13 % (3.16 %) 15.58 % 7.61 % 25.43 % 1.91 % 21.77 % 12.83 % (1.83 %)
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $4,540.2 $4,261.2 $3,481.5 $3,292.2 $2,435.6 $1,990.7 $1,507.8 $1,386.5 $1,103.9 $1,062.4
Ratio of expenses net of
reimbursement to
average net assets..... 0.63 %** 0.63 % 0.66 % 0.66 % 0.67 % 0.67 % 0.69 % 0.69 % 0.70 % 0.71 %
Ratio of net investment
income to average net
assets................. 3.06 %** 3.30 % 2.90 % 3.30 % 3.63 % 4.23 % 5.13 % 5.66 % 5.52 % 4.09 %
Portfolio turnover
rate................... 136.33 % 173.30 % 123.63 % 62.99 % 59.03 % 93.13 % 51.87 % 141.04 % 128.45 % 123.83 %
Number of shares
outstanding at end of
period (in millions)... 244.9 238.6 224.7 194.1 152.2 122.2 107.7 96.0 84.1 86.2
Average commission rate
paid per share......... $0.0564 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
+Calculations are based on average month-end shares outstanding, where
applicable.
*Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns. Total investment return for
periods of less than a full year are not annualized.
**Annualized.
80
<PAGE>
NOTE 6: FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
STOCK INDEX
-----------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 10/19/87
TO TO TO TO TO TO TO TO TO TO
06/30/96 12/31/95+ 12/31/94+ 12/31/93+ 12/31/92+ 12/31/91+ 12/31/90+ 12/31/89+ 12/31/88+ 12/31/87+
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $19.956 $14.957 $15.202 $14.218 $13.605 $10.760 $11.732 $ 9.454 $ 8.531 $ 8.071
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
Income From Investment
Operations:
Net investment income.... 0.197 0.403 0.377 0.361 0.350 0.351 0.357 0.326 0.357 0.047
Net realized gains
(losses) and unrealized
appreciation
(depreciation) on
investments............ 1.785 5.126 (0.231) 1.002 0.600 2.814 (0.792) 2.570 0.951 0.548
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
Total from investment
operations........... 1.982 5.529 0.146 1.363 0.950 3.165 (0.435) 2.896 1.308 0.595
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.167) (0.384) (0.368) (0.346) (0.329) (0.307) (0.309) (0.354) (0.385) (0.135)
Distributions from net
realized gains......... 0.000 (0.146) (0.023) (0.033) (0.008) (0.013) (0.228) (0.264) 0.000 0.000
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
Total
distributions........ (0.167) (0.530) (0.391) (0.379) (0.337) (0.320) (0.537) (0.618) (0.385) (0.135)
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
Net increase (decrease)
in Net Asset Value..... 1.815 4.999 (0.245) 0.984 0.613 2.845 (0.972) 2.278 0.923 0.460
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
Net Asset Value at end of
period................. $21.771 $19.956 $14.957 $15.202 $14.218 $13.605 $10.760 $11.732 $ 9.454 $ 8.531
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
Total Investment Rate of
Return:*............... 9.95 % 37.06 % 1.01 % 9.66 % 7.13 % 29.72 % (3.63 %) 30.93 % 15.44 % 7.35 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $1,294.0 $1,031.3 $664.5 $615.1 $433.5 $236.9 $104.5 $53.8 $36.0 $24.5
Ratio of expenses net of
reimbursement to
average net assets..... 0.37 %** 0.38 % 0.42 % 0.42 % 0.46 % 0.47 % 0.60 % 0.69 % 0.78 % 0.45 %
Ratio of net investment
income to average net
assets................. 1.98 %** 2.27 % 2.50 % 2.43 % 2.56 % 2.82 % 3.23 % 2.95 % 3.87 % 0.53 %
Portfolio turnover
rate................... 0.63 % 1.16 % 1.74 % 0.60 % 0.43 % 1.10 % 17.80 % 14.54 % 15.62 % 0.47 %
Number of shares
outstanding at end of
period (in millions)... 59.4 51.7 44.4 40.5 30.5 17.4 9.7 4.6 3.8 2.9
Average commission rate
paid per share......... $0.0250 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
EQUITY
-----------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87
TO TO TO TO TO TO TO TO TO TO
06/30/96 12/31/95+ 12/31/94+ 12/31/93+ 12/31/92+ 12/31/91+ 12/31/90+ 12/31/89+ 12/31/88+ 12/31/87+
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period.... $25.640 $20.662 $21.487 $18.903 $17.905 $15.449 $18.539 $15.463 $ 13.620 $ 14.815
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Income From Investment
Operations:
Net investment income.... 0.349 0.546 0.512 0.417 0.444 0.482 0.577 0.474 0.402 0.393
Net realized gains
(losses) and unrealized
appreciation
(depreciation) on
investments............ 1.527 5.891 0.054 3.666 2.050 3.414 (1.573) 4.064 1.909 (0.065)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total from investment
operations........... 1.876 6.437 0.566 4.083 2.494 3.896 (0.996) 4.538 2.311 0.328
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.256) (0.515) (0.487) (0.404) (0.439) (0.478) (0.563) (0.503) (0.468) (0.496)
Distributions from net
realized gains......... -- (0.944) (0.904) (1.095) (1.057) (0.962) (1.531) (0.959) 0.000 (1.027)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total
distributions........ (0.256) (1.459) (1.391) (1.499) (1.496) (1.440) (2.094) (1.462) (0.468) (1.523)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net increase (decrease)
in Net Asset Value..... 1.620 4.978 (0.825) 2.584 0.998 2.456 (3.090) 3.076 1.843 (1.195)
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net Asset Value at end of
period................. $27.260 $25.640 $20.662 $21.487 $18.903 $17.905 $15.449 $18.539 $ 15.463 $ 13.620
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Total Investment Rate of
Return:*............... 7.31 % 31.29 % 2.78 % 21.87 % 14.17 % 26.01 % (5.21 %) 29.73 % 17.05 % 1.67 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $4,286.0 $3,813.8 $2,617.8 $2,186.5 $1,416.6 $1,032.8 $700.5 $675.5 $500.1 $451.0
Ratio of expenses net of
reimbursement to
average net assets..... 0.47 %** 0.48 % 0.55 % 0.53 % 0.53 % 0.51 % 0.56 % 0.56 % 0.57 % 0.51 %
Ratio of net investment
income to average net
assets................. 2.66 %** 2.28 % 2.39 % 1.99 % 2.33 % 2.66 % 3.37 % 2.66 % 2.67 % 2.34 %
Portfolio turnover
rate................... 8.63 % 17.65 % 6.90 % 12.95 % 15.70 % 20.85 % 84.84 % 73.54 % 62.35 % 79.91 %
Number of shares
outstanding at end of
period (in millions)... 157.2 148.7 126.7 101.8 74.9 57.7 45.3 36.4 32.3 33.1
Average commission rate
paid per share......... $0.0543 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
+Calculations are based on average month-end shares outstanding, where
applicable.
*Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns. Total investment return for
periods of less than a full year are not annualized.
**Annualized.
81
<PAGE>
NOTE 6: FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
GLOBAL
-------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 09/19/88
TO TO TO TO TO TO TO TO TO
06/30/96 12/31/95+ 12/31/94+ 12/31/93+ 12/31/92+ 12/31/91+ 12/31/90+ 12/31/89+ 12/31/88+
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
beginning of period $15.533 $13.879 $14.639 $10.368 $10.792 $ 9.866 $11.547 $10.508 $ 9.818
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment income.... 0.049 0.065 0.028 0.023 0.051 0.096 0.203 0.079 0.052
Net realized gains
(losses) and unrealized
appreciation
(depreciation) on
investments............ 1.541 2.138 (0.744) 4.433 (0.419) 1.020 (1.802) 1.806 0.787
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... 1.590 2.203 (0.716) 4.456 (0.368) 1.116 (1.599) 1.885 0.839
-------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions to
Shareholders:
Distributions from net
investment income...... (0.049) (0.242) (0.019) (0.079) (0.056) (0.100) (0.067) (0.073) (0.149)
Distributions from net
realized gains......... (0.408) (0.307) (0.025) (0.106) 0.000 (0.090) (0.015) (0.773) 0.000
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions........ (0.457) (0.549) (0.044) (0.185) (0.056) (0.190) (0.082) (0.846) (0.149)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in Net Asset Value..... 1.133 1.654 (0.760) 4.271 (0.424) 0.926 (1.681) 1.039 0.690
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value at end of
period................. $16.666 $15.533 $13.879 $14.639 $10.368 $10.792 $ 9.866 $11.547 $10.508
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Investment Rate of
Return:*............... 10.25 % 15.88 % (4.89 %) 43.14 % (3.42 %) 11.39 % (12.91 %) 18.82 % 8.57 %
Ratios/Supplemental Data:
Net assets at end of
period (in millions)... $500.0 $400.1 $345.7 $129.1 $34.0 $34.3 $26.2 $29.4 $26.9
Ratio of expenses net of
reimbursement to
average net assets..... 1.03 %** 1.06 % 1.23 % 1.44 % 1.87 % 1.62 % 1.67 % 1.47 % 0.42 %
Ratio of net investment
income to average net
assets................. 0.63 %** 0.44 % 0.20 % 0.18 % 0.49 % 0.92 % 1.92 % 0.70 % 0.51 %
Portfolio turnover
rate................... 29.21 % 58.52 % 37.46 % 54.54 % 78.16 % 136.21 % 43.12 % 47.95 % 6.40 %
Number of shares
outstanding at end of
period (in millions)... 30.0 25.7 24.9 8.8 3.3 3.2 2.7 2.5 2.6
Average commission rate
paid per share......... $0.0290 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
+Calculations are based on average month-end shares outstanding, where
applicable.
*Total investment returns are at the portfolio level and exclude contract
specific charges which would reduce returns. Total investment return for
periods of less than a full year are not annualized.
**Annualized.
82
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
The Prudential Insurance Company of America BULK RATE
30 Scranton Office Park U.S. POSTAGE
Moosic, Pennsylvania 18507-1789 PAID
(800) 458-6333 PERMIT No. 2145
Newark, N.J.
ADDRESS CORRECTION REQUESTED
FORWARDING AND
RETURN POSTAGE GUARANTEED
[LOGO] Prudential
96092--8/96
