The
MEDLEY Program
[PHOTO]
Semi-Annual Report
and Prospectus
Supplement to Participants
June 30, 1998
[LOGO] Prudential
The Prudential Insurance Company of America
30 Scranton Office Park
Scranton, PA 18507-1789
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Committed to providing superior
investment, administrative and
recordkeeping services to
institutional clients.
<PAGE>
Average Annual Total Returns
for Periods Ended June 30, 1998.
<TABLE>
<CAPTION>
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Ten Year
Six or Since Inception
VCA-10 Capital Growth Account Months(6) One Year Five Year Inception Date
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<S> <C> <C> <C> <C> <C>
Without Sales Charge(1) 8.83% 25.02% 19.91% 16.95% 8/82
With Maximum Sales Charge(2) 1.59% 18.77% 19.60% 16.89% 8/82
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VCA-11 Money Market Account(3)
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Without Sales Charge(1) 2.38% 4.86% 4.37% 5.19% 8/82
With Maximum Sales Charge(2) -4.73% -1.26% 3.93% 5.12% 8/82
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VCA-24(4)
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Without Sales Charge(1)
Diversified Bond Account 4.05% 8.10% 6.46% 8.35% 5/83
Government Income Account 3.56% 10.24% 5.59% 7.98%* 5/89
Conservative Balanced Account 7.62% 12.84% 9.94% 10.30% 5/83
Flexible Managed Account 9.18% 16.51% 12.53% 12.43% 5/83
Stock Index Account(5) 17.04% 28.73% 21.72% 17.19% 10/87
Equity Account 12.06% 22.86% 18.49% 16.16% 5/83
Global Account 18.44% 11.77% 15.17% 10.52%* 9/88
With Maximum Sales Charge(2)
Diversified Bond Account -2.96% 2.09% 6.14% 8.34% 5/83
Government Income Account -3.44% 4.24% 5.26% 7.98%* 5/89
Conservative Balanced Account 0.58% 6.79% 9.64% 10.28% 5/83
Flexible Managed Account 2.13% 10.45% 12.25% 12.41% 5/83
Stock Index Account(5) 9.99% 22.67% 21.51% 17.18% 10/87
Equity Account 4.90% 16.70% 18.20% 16.17% 5/83
Global Account 11.43% 5.76% 14.94% 10.52%* 9/88
</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 inception date as indicated:
Global Account September 19, 1988
Government Income Account May 1, 1989
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(1) The results shown are after the deduction of all expenses and contract
charges including investment management and administrative fees, but do not
include the effect of any deferred sales charges. All total returns are for
the periods indicated and are calculated based on changes in unit values.
Past performance cannot guarantee comparable future results.
Source:Prudential
(2) The results shown are calculated in the same manner as those shown above
and in addition reflect the deduction of the following maximum deferred
sales charges: "1 Year", 6%; "5 Year", 2%; and "10 Year or Since
Inception", 0%. The performance results also reflect the impact of the $30
annual contract fee under The MEDLEY Program. Past performance cannot
guarantee comparable future results.
(3) For current yields on the Money Market Account, please call 1-800-458-6333.
An investment in the Account is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Account will be able to
maintain a stable unit value.
(4) The 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.
(5) Standard & 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
Account is not sponsored, endorsed, sold or promoted by S&P and S&P makes
no representation regarding the advisability of investing in the Account.
(6) Six-Month returns are not annualized.
<PAGE>
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Table of Contents
I Letter to Medley Participants 2
Market Review 4
Investment Advisor's Outlook 8
II VCA-10 Capital Growth Account 10
Financial Statements 12
III VCA-11 Money Market Account 21
Financial Statements 23
IV VCA-24 VCA-24 31
V The Prudential Series Fund, Inc.
Diversified Bond Portfolio 32
Government Income Portfolio 34
Conservative Balanced Portfolio 36
Flexible Managed Portfolio 38
Stock Index Portfolio 40
Equity Portfolio 42
Global Portfolio 44
VI The Prudential Series Fund, Inc.
Financial Statements A1
Schedule of Investments B1
Notes to Financial Statements C1
Financial Highlights D1
VII Prospectus Supplement E1
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus for The MEDLEY program.
The 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. VCA-10, VCA-11 and VCA-24 are distributed by Prudential
Investment Management Services LLC, a subsidiary 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.
This Report includes the financial statements of the VCA-10, Capital Growth
Account; VCA-11, Money Market Account; and The Prudential Series Fund, Inc.
This report does not include separate account financials for the VCA-24
Subaccounts. If you would like separate account financial statements as of June
30, 1998, please call the telephone number on the back of this report.
<PAGE>
Six Months Ended June 30, 1998
Letter
To Medley Participants
Dear MEDLEY Participant:
We are pleased to provide our Semiannual Report to you on the investment
performance of The MEDLEY Program which includes VCA-10, Capital Growth Account,
VCA-11 Money Market Account and VCA-24, which offers seven portfolios of The
Prudential Series Fund, Inc.
The past six months were a time of solid growth. U.S. Gross Domestic Product,
which measures the country's total output of goods and services, grew at an
annualized rate of 3.5% for the six months ended June 30, according to
Prudential economists.
Given this environment, stock prices continued to gain, with the Dow Jones
Industrial Average rising 13.2% during the six-month period, while the Standard
& Poor's 500 Composite Stock Price Index climbed 17.7%. But, not all stocks were
equal. Large capitalization growth stocks with predictable earnings were the
market's favorites. Indeed, as reported by Morningstar, the average large
capitalization growth fund returned 20.3%, while the average small
capitalization value fund returned 4.7% over the prior six month period. Bonds
also provided dependable total returns of 3.9% for the period, according to the
Lehman Brothers Aggregate Index.
How Did Our Portfolios Perform?
You will be pleased to learn that The MEDLEY program investment options
delivered returns similar to those of the broader markets and consistent with
the strategies around which they were designed. Nearly all of our U.S. stock
portfolios continued to post double-digit returns, while our bond portfolios
finished with very healthy results.
Consistent with the market, our stock index portfolio -- Prudential Stock Index
Portfolio -- posted returns in line with the S&P 500 with a 6-month return of
17.4%. On the other hand, our value-oriented Equity Portfolio, returned over 12%
in the six-month period, lagging the growth-oriented fund average. Once again,
the market reminded us of the critical nature of diversification.
Four of Prudential Series Fund portfolios finished the reporting period ahead of
the average variable annuity contracts in their respective categories. These
were the Diversified Bond, Government Income, Stock Index, and Global
Portfolios.
2
<PAGE>
[PHOTO] Mendel A. Melzer, CFA
Chairman
Fifteen Years And Growing.
The Prudential Series Fund is celebrating 15 years of providing you with the
opportunity to maximize the results of your variable annuity contract cash
values, subject to the risks associated with these kinds of investments. As of
June 30, 1998, we had assets of $28 billion under management. We have worked
through the years to meet the changing needs of our clients by increasing from
five to 15 the number of investment choices that we believe offer Participants
diversification and the benefits of professional management.
(Not all investment options are available in all contracts.)
Staying the Course for the Long Term.
As we reached the midpoint of another year, the financial news was decidedly
upbeat. However, there were times during the reporting period when price
volatility affected the stock and bond markets. These market swings illustrate
the importance of MEDLEY Participants "staying the course" for the long term.
Of course, this does not mean you should ignore change. Indeed, with record
valuations in the U.S. stock market at a time when U.S. corporate earnings are
slowing, now may be a good time to review your asset allocation. While stocks
continue to be the investment of choice for many seeking long-term wealth
accumulation, you may wish to consider diversifying a portion of your holdings
to help lessen the effects of market uncertainty. Your Prudential professional
would be happy to assist you in reviewing and structuring a program to meet your
needs.
All of us at Prudential thank you for your business and look forward to helping
you plan for your future financial security.
/s/Mendel A. Melzer
Mendel A. Melzer, CFA
Chairman
3
<PAGE>
1998
Market Review
The U.S. Market Only Pauses for Breath.
It was a "flight to quality," but what a flight! The flow of money into the
stock market continued to be strong, bolstered by the record $29 billion influx
from foreign investors in the first quarter. U.S. stocks rose 17.7% year-to-date
as measured by the Standard & Poor's 500 Index (S&P 500), an unmanaged index
considered to be generally representative of the U.S. stock market. It was a
blistering pace.
The economic slowdown in Asia, as well as the release of some disappointing
earnings announcements, gave investors pause from mid-March to mid-June, when
the bull market resumed.
In general, investors preferred growth stocks of large, well-established
companies during the reporting period. Small-company stocks trailed
large-company stocks, while growth stocks dramatically outperformed value
stocks. The differences were substantial.
The market rise has been very focused. Today, the 20 largest growth stocks
represent nearly 30% of the S&P 500, close to the market concentration peak in
1974. The average P/E of these 20 stocks is 36.4, compared to a P/E of 21.3 on
the other 480 stocks in the S&P 500.
Consumer Cyclicals Led.
The best-performing sector in the S&P 500 was consumer cyclicals. These are
companies whose sales to consumers increase when the economy grows. This sector
was led by apparel retailers (up 56%), automobile companies (up 51%) and general
retailers (up 51%) such as Wal-Mart and Kmart. Consumer confidence was high,
interest rates were low and home building got a quick start because of a mild
winter. Home builders (up 31%) also had good returns, although not quite at the
pace of the market leader.
Technology Stocks Were Investors' Favorites.
Manufacturers of communications equipment were the single best-performing group
(up 62%) in the S&P 500. Lucent Technologies' stock more than doubled in price
during the half-year. Computer software companies, such as Microsoft, Computer
Associates, Oracle and Unisys (whose stock also more than doubled in the
period), had the fifth highest average return -- 45%.
================================================================================
How the Markets Compared(1)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Average Return Over
Return Over Past 20 Years
Past 12 Months (Annualized)
-------------- -------------------
Money Market 5.0% 7.7%
Bonds 11.3% 10.0%
Foreign Stocks 17.5% 15.4%
U.S. Stocks 30.2% 17.4%
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This chart compares the 12-month return as of 6/30/98 for various categories of
investments with the average annual total return over 20 years for the same
investment. As you can see, stock and bond market returns can vary considerably
from year to year. Unlike stocks, bonds generally offer a fixed rate of return
and principal if held to maturity. An investment's past performance should never
be used to predict future results. There are different risks associated with
each investment sector, which should be carefully considered before investing.
(1) Source: Lipper Analytical Services, Inc. For purposes of comparison only.
U.S. money markets as measured by Lipper Money Market Average. Bonds as
measured by the Lehman Brothers Gov't. Corp. Index. Foreign stocks as
measured by the Morgan Stanley Capital International World Index. U.S.
stocks as measured by the S&P 500 Index.
4
<PAGE>
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Consumer Cyclicals Led
the Market.
YTD 1998
--------
Consumer Cyclicals 35.2%
Technology 28.2%
Consumer Growth 17.3%
Finance 16.5%
Industrials 12.0%
Utilities 10.9%
Energy 4.5%
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Source: Prudential Investments.
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Large Growth Stocks
Outperformed Small
Value Stocks.
YTD 1998
--------
Large Growth 20.3%
Small Value 4.7%
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Source: Morningstar, Inc. For purposes of comparison only.
Consumer Growth Was Strong.
The consumer growth and staples category includes companies whose sales to
consumers tend to grow at a relatively consistent pace. It was led by restaurant
companies (up 37%), such as McDonald's and TRICON Global Restaurants. Cosmetics
and health-care companies also had a good half-year, but tobacco companies were
the second worst-performing group, losing ground over the period.
Industrials Lagged.
Industrials suffered, because the Asian economic slowdown reduced the demand for
commodities. Railroads (down 11%), specialty chemicals, metals (particularly
aluminum and nonferrous metals) and gold all fell in price.
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The Dow in the Past Twelve Months
[GRAPHIC OMITTED]
July 16, 1997
The Dow passes 8,000-point mark.
Oct. 28, 1997
The Dow surged 337 points, its largest point
gain ever.
April 6, 1998
The Dow tops the 9,000-point mark.
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Daily close of the Dow Jones Industrial Average for the past twelve months.
Energy Demand Lagged.
The economic slowdown in Asia and the mild North American winter, together with
supplies that had been increasing for some time, combined to keep energy firms
at the bottom of the list. Oil and gas drillers was the worst-performing
industry group in the S&P 500.
5
<PAGE>
1998
Market Review
continued
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30-Year U.S. Treasury Yields
[GRAPHIC OMITTED]
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Weekly closing yields for the past six months. Source: Bloomberg, as of 6/26/98.
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High Yield Bonds Top
YTD 1998
--------
High Yield Bonds 4.5%
Government Bonds 4.2%
Corporate Bonds 4.2%
Aggregate Index 3.9%
Mortgage Bonds 3.4%
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Source: Lehman Brothers, as of 6/30/98.
U.S. Bonds: The Leader of the Pack.
Contrasting economic conditions between the U.S. and Asian countries enhanced
the appeal of U.S. bonds. As a result, the high yield, corporate and government
sectors of the domestic debt market provided the highest returns in the taxable
fixed-income universe over the past six months.
In the U.S., a nearly ideal economic climate prevailed, pushing bond prices
higher and yields lower. Inflation, the archenemy of bondholders, remained
subdued. Economic growth began slowing from the robust 5.4% annualized pace of
the first quarter, indicating that inflationary pressures will likely remain in
check.
Across the Pacific, however, the Japanese economy fell into recession. Skittish
overseas investors shifted money from emerging markets and Asia into U.S.
government securities for their relative safety, causing further declines in
interest rates.
Bonds returned 3.9% for the six-month period ended June 30, 1998, as measured by
the Lehman Brothers Aggregate Index. High yield bonds returned 4.5% for the same
period; U.S. government securities, 4.2%; and investment-grade corporate bonds,
4.2%.
The top performance by corporate high yield (or junk) bonds masked the fact that
the sector fared better in the first quarter than the second quarter. Initially,
strong investor demand easily absorbed the flood of new high-yielding bonds. But
as corporate default rates edged higher and earnings growth slowed, investors
demanded a larger reward for purchasing below investment-grade debt. This
attitude caused the difference between yields on high yield bonds and comparable
Treasuries to increase during the spring.
Investment-grade corporate bonds followed a similar path. Favorable domestic
economic conditions buoyed the market earlier in the year, but continued heavy
new issuance and growing concern about corporate earnings crimped the rally in
late spring.
Among U.S. government securities, longer-term bonds gained most. The yield on
the 30-year Treasury bond fell in June to its lowest level since regular sales
of the securities began in 1977. Tax-exempt municipal bond issuance soared as
state and local governments rushed to take advantage of rock-bottom interest
rates.
6
<PAGE>
The World: Europe Takes Off.
Europe, where stock markets took off a year ago, hit the afterburners in
1998, returning nearly 27% during the first half of the year in U.S. dollars, as
measured by the Morgan Stanley Capital International (MSCI) Europe Index. This
was more than the MSCI Europe Index's return for all of 1997. The combination of
low interest rates, economic acceleration, the potential productivity gains from
monetary union and increasing participation in stock ownership pushed share
prices up sharply.
France and Germany, the large central economies with the greatest inertia, have
built up steam, turning in returns of 39% and 37%, respectively, for the first
half of 1998. They outpaced the 33% return of Italy, but Spain's stock market
returns continued to lead the larger economies, with a 45% performance. Only
Norway, among the European countries, didn't participate in the bull market,
declining 4% during the past six-months.
Asian and Emerging Markets Faltered.
The Asian financial crisis showed no signs of recovery during the second
quarter. As economic activity slowed, governments wrestled with the structural
changes necessary to restore confidence. Japan, which has the economic heft to
initiate a significant positive change in the region, failed to take any
effective action. Instead, its own economy began to shrink rapidly; its stock
market declined 3% in U.S. dollars through the second quarter. Singapore and
Hong Kong saw greater market erosion, losing 34% and 26%, respectively, during
the same period.
Stock markets at the epicenter of the Asian crisis reflected investors' complete
loss of confidence: Thailand's market fell 56%, Malaysia's 59% and Indonesia's
37%, for the year-to-date period ended June 30, 1998.
The aversion to emerging markets also spread beyond Asia. Taiwan's much sounder
economy had a stock market decline of 24%. Even Latin American countries were
affected, with Mexico down 14%, Brazil down 15% and Argentina down 16%.
Investment capital moved from areas with uncertain economic prospects to what
appeared to be more secure havens as exchange rate adjustments made Latin
America less competitive compared with Asia.
================================================================================
Foreign Markets
YTD 1998
--------
MSCI Europe Index 26.7%
MSCI World Index 16.9%
MSCI EAFE Index 16.1%
MSCI Japan Index -2.5%
MSCI Pacific Index -5.8%
S&P 500 Index 17.7%
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Source: Lipper Analytical Services, Inc.
The Morgan Stanley Capital International (MSCI) World Index is a weighted,
unmanaged index of the performance of 1,472 securities listed on the stock
exchanges of the U.S., Europe, Canada, Australia, New Zealand and the Far East.
Investors cannot invest directly in an index.
Morgan Stanley country indexes [Europe, Asia, Far East (EAFE), Pacific and
Japan] are unmanaged indexes that include stocks making up the largest
two-thirds of each country's total stock market capitalization. This chart is
for illustrative purposes only and is not indicative of the past, present or
future performance of any specific investment. Investors cannot invest directly
in stock indexes.
The Standard & Poor's 500 is a weighted, unmanaged index comprised of 500
stocks, which provides a broad indicator of stock price movements.
7
<PAGE>
1998
Investment Advisor's Outlook
Market Outlook: Expect Slower Growth.
o Prudential's economists note that the sharp economic acceleration in the
first quarter of 1998 was due to a buildup of inventories. They expect a
sharp slowdown in economic activity over the second half of the year as
inventories are drawn down, net imports increase and greater unused
industrial capacity slows business investment.
o Inflation has been subdued and should remain so. Although profits have been
declining in many industries, they believe profits will be squeezed further
rather than lead to price increases, because businesses face tremendous
pressure to maintain prices.
o With recent renewed uncertainty in emerging markets and the U.S.
manufacturing sector now feeling the negative impact of the strong dollar
and the downturn in Asia, the Federal Reserve is likely to continue to keep
policy on hold for the next several months. By the fourth quarter of this
year, they expect the slowdown in the U.S. economy will prompt the Federal
Reserve to ease monetary policy.
U.S. Stocks: Prices Remain High.
Profit margins are at record levels, and investors are paying record multiples
of these earnings for stocks. However, corporate earnings growth has slowed and,
in many industries, reversed, while the prices of large-company stocks have
continued to rise. Most investors appear to be buying a growth trend, rather
than foreseeable earnings. For some time we have not expected share price gains
to continue at the rate they have. Investors showed some concern during much of
the second quarter about future earnings. We expect them to react to the slowing
U.S. economy by continuing to focus on companies with more predictable earnings.
We see no reason for the market's focus to broaden before prices peak.
We believe that small-company stocks represent better value. Their earnings
growth has been holding up, while their share prices have not kept pace with the
market leaders. This has resulted in price to earnings ratios that are lower for
small-company stocks than for large companies, a very unusual relationship.
Ordinarily, we would expect investors to discover the greater investment values
that small-company stocks now represent and for small caps to catch up. However,
the greater proportion of new investors in the market and the recent flow of
foreign capital to U.S. markets suggest that many current investors may feel
uncomfortable with any but the most familiar stocks. Moreover, small companies
are more vulnerable to a market downturn. In the current market environment, we
are unable to find a catalyst to unlock the superior value offered by
small-company stocks.
8
<PAGE>
Foreign Stocks: Asian Fallout Continues.
The impact of the Asian economic slowdown is gradually being felt throughout the
world. In the U.S. and Europe, it appears to have kept inflation in check. But
it is also making life more difficult for emerging economies.
Although prices in these markets are getting very cheap, we believe it is still
necessary to be very cautious in any of these stock markets. The Japanese
economy is undergoing a sharp contraction. We don't believe that the
government's current actions (a fiscal stimulus package and moderate tax cuts)
will be sufficient to reverse their economic slide or prevent a further decline
in the yen.
Continental Europe is seeing both an economic and a stock market resurgence.
Although share prices have become high by historical standards, prospects for
earnings growth are excellent and better than anywhere else. We expect current
trends to continue.
U.S. Bonds: Treasuries Still Look Good.
We believe the rally in Treasury securities has not run out of steam. Signs of
slower U.S. economic growth have emerged, most notably in the manufacturing
sector.
Separately, the Treasury Department announced plans to meet the government's
reduced borrowing needs by eliminating sales of its three-year notes and cutting
the frequency of five-year note auctions to quarterly from monthly. Taken
together, the Asian financial crisis, moderating U.S. economic growth and the
dwindling supply of Treasury issues will likely lead to higher bond prices and
lower yields.
We will proceed with caution when purchasing bonds during the remainder of the
year. While junk bonds, municipal securities, investment-grade U.S. corporate
debt, global bonds, emerging market bonds, and mortgage-backed and asset-backed
securities still offer solid value, prudence demands we emphasize larger bond
issues that can be easily bought and sold even if prices turn lower.
Additionally, we will even be more reliant upon thorough market research, which
is key to ensuring the overall credit quality dynamic in the portfolios.
================================================================================
A Reality Check.
Stock prices in general have doubled in the last three and a half years. We're
quite pleased with the unusually high returns that stocks have provided for our
Contract Owners over the past few years and we are certain that you are too.
Those types of returns bring you closer to your goals of financial security
faster than you might have expected.
Since 1927, the U.S. stock market's average return has been 10.7%, as measured
by the S&P 500. Yet in recent years returns have been much higher, as the chart
below shows.
================================================================================
Returns of the U.S. Stock
Market.
Average
Annual
Return
------
Last 70 Years
1927-1997 10.7%
- --------------------------------------------------------------------------------
Source: Ibbotson Associates.
Last Three and a Half Years
1995 37.5%
1996 23.0%
1997 33.4%
1998 (YTD) 17.7%
- --------------------------------------------------------------------------------
Source: Lipper Analytical Services, Inc.
With the highest valuation levels in history at a time when corporate profits
are slowing, we believe it is prudent to remember that recent rates of return
are unlikely to continue.
9
<PAGE>
VCA-10 Capital Growth Account
Performance Summary.
The Account returned 8.83% for the six months ended June 30, 1998, compared to
16.23% for the Lipper Variable Insurance Products Growth Average. During this
period, a select number of the largest, highest quality stocks -- typically
growth stocks -- performed better than large stocks and much better than
mid-size and smaller company stocks. For example, for the six months the Russell
2000, an index of small company stock performance, rose 4.93%. The Account held
few of these largest, highest quality stocks because their valuations were
unattractive relative to our value style of management.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Year Year Year
- --------------------------------------------------------------------------------
Capital Growth Account(1) 8.83 25.02% 26.45% 19.91% 16.95%
- --------------------------------------------------------------------------------
S&P 500(2) 17.72 30.17% 30.23% 23.06% 18.54%
- --------------------------------------------------------------------------------
Lipper (VIP) Growth Avg.(3) 16.23 28.06% 25.44% 20.07% 16.76%
- --------------------------------------------------------------------------------
Capital Growth Account inception date: 8/82.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
(1) The Account performance results are after the deduction of all expenses and
contract charges including investment management and administrative fees,
but do not include the effect of any sales charges. All total returns are
for the periods indicated and are calculated based on changes in unit
values. Past performance cannot guarantee comparable future results.
Source: Prudential.
Investment return and principal value of the Account will fluctuate
resulting in a value which may at any time, including the time of the
withdrawal of the cash value, be more or less than the total principal
investment made.
(2) 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
Account. The securities that comprise the S&P 500 may differ substantially
from the securities in the Account. The S&P 500 is not the only index that
may be used to characterize performance of this Account, and other indices
may portray different comparative performance.
(3) 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.
================================================================================
Investment Goal
Long term growth of capital.
Types of Investments
Primarily stocks of a diversified group of major established companies in a
variety of industries.
Investment Style
The Account uses a "value" investment approach to companies that are
attractively priced relative to book value, earnings, discretionary cash flow,
sales and other measures of value.
Performance Review.
What Went Well. During the reporting period, Account performance was lifted by
our good stock selection in the consumer growth and staples sector. We placed
less emphasis on the utility sector, which turned out to be a good decision
since utilities turned in poor performance.
And Not So Well. Account performance was affected by our significant exposure to
the poor performing industrial group as Asian crisis concerns escalated with the
abundance of disappointing earnings forecasts. Our limited exposure to
technology, which was the second-best performing sector during the reporting
period, also restrained performance. We were also hurt by some of our selections
in the consumer cyclical, energy and finance sectors.
We Took Profits. A large part of our sales were from companies which had
performed well and therefore profit-taking appeared to be in order, including
Lincoln National, Sonic Corporation, Harcourt General, Time Warner and Haverty
Furniture. Other sales were of companies where we believed slowing economic
activity, especially in Asia, would have a negative affect including Olin
Corporation, American Standard, and Dallas Semiconductor.
10
<PAGE>
Strategy Session.
We focused on value. During the past six months the Account increased its
financial stock exposure by buying two mortgage guarantee companies (Old
Republic and PMI Group) as well as insurers: Torchmark Corporation, Travelers
Property & Casualty and W. R. Berkeley. Other areas of purchase emphasis were:
semiconductor companies, negatively affected by the Asian crisis but whose
valuations looked attractive, specialty chemical companies and business forms
companies.
We like industrials. We have confidence in industrial stocks. While we have
concerns that the Asian situation will slow economic growth, we believe that
this impact has been reflected in these companies' relative valuations.
Financials look good, too. We like financial companies, in particular, insurance
companies, which have not yet participated in the current bull market to the
extent of banks and financial services companies. In addition, we think the
insurance industry is ripe for consolidation.
Small and mid-caps are attractive. We continue to hold stock of some
small/mid-size companies. We believe that after another quarter of severe
underperformance their valuations are significantly more attractive than the
typical large company.
Outlook
PORTFOLIO MANAGER
Roger Ford
Modest Market Gains Forecast.
"Our forecast for the rest of 1998 is that the economy will grow very moderately
and inflation will remain under control. The Asian situation will continue to
negatively affect all the world's economies. Within this environment, we believe
corporate profits will be okay, but not great. Current equity market levels seem
to more than adequately reflect this subdued environment. Therefore, we think
stock market gains will be modest at best. Our exposure to industrial and
insurance stocks reflects their attractive valuations relative to most other
sectors. In addition, we continue to favor companies outside the universe of
very large, high quality companies that have led this market. It is our belief
that the rest of the market, including small and mid-cap companies, will close
the inordinate valuation differential that currently exists."
[PHOTO]
PORTFOLIO MANAGER
Roger Ford
================================================================================
Portfolio Composition
6/30/98
-------
Industrials 43.3%
Finance 19.9%
Consumer Growth 16.4%
Technology 7.5%
Consumer Cyclicals 7.3%
Energy 4.7%
Utilities 0.8%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Ten Holdings
6/30/98
-------
Medianone Group Inc. 1.9%
Century Commun Cl A 1.9%
NAC RE Corp. 1.8%
Berkley WR Corp. 1.7%
Wolverine Tube Inc. 1.6%
Trenwick Group Inc. 1.5%
Telecom Inc. Liberty Media 1.5%
United Dominion Inds 1.5%
Giant Cement Holding Inc. 1.5%
Carbide/Graphite Group 1.4%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
11
<PAGE>
Financial Highlights for VCA-10
Income and Capital Changes Per Accumulation Unit*
(For an Accumulation Unit outstanding throughout the year)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income $ .0461 $ .0757 $ .0657 $ .0609 $ .0563 $ .0855
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses
For investment management fee .0094 .0154 .0118 .0094 .0083 .0077
For administrative expenses .0280 .0461 .0354 .0282 .0251 .0230
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income .0087 .0142 .0185 .0233 .0229 .0548
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Changes
Net realized gain on investments .5167 1.2761 .5085 .3850 .1947 .2763
Net unrealized appreciation (depreciation)
of investments .0939 .3841 .5682 .4744 (.2148) .2599
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Unit Accumulation Value .6193 1.6744 1.0952 .8827 .0028 .5910
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value
Beginning of period 7.0127 5.3383 4.2431 3.3604 3.3576 2.7666
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $7.6320 $7.0127 $5.3383 $4.2431 $3.3604 $3.3576
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses To
Average Net Assets** 1.00%+ 1.00% 1.00% 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income To
Average Net Assets** .23%+ .24% .39% .61% .68% 1.78%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 21% 47% 52% 45% 32% 45%
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Units Outstanding
for Participants at end of period
(000's omitted) 85,214 83,261 91,532 81,817 79,189 73,569
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Calculated by accumulating the actual per unit amounts daily.
** These calculations exclude Prudential's equity in VCA-10.
+ Annualized.
The above table does not reflect the annual administration charge, which does
not affect the Accumulation Unit Value. This charge is made by reducing
Participants' Accumulation Accounts by a number of Accumulation Units equal in
value to the charge.
See Notes to Financial Statements
12
<PAGE>
Financial Statements of VCA-10
Statement of Net Assets as of June 30, 1998
(Unaudited)
Common Stock Value
Investments Shares [Note 2A]
- --------------------------------------------------------------------------------
Aerospace/Defense -- 2.6%
Doncasters PLC - ADR+
(United Kingdom) 146,900 $ 4,085,656
Gen Corp. 296,500 7,486,625
Litton Industries, Inc.+ 89,300 5,268,700
-------------
16,840,981
- --------------------------------------------------------------------------------
Autos & Trucks -- 2.2%
Borg-Warner Automotive, Inc. 177,600 8,535,900
Lear Corp.+ 56,900 2,919,681
Tower Automotive, Inc.+ 63,100 2,705,412
-------------
14,160,993
- --------------------------------------------------------------------------------
Chemicals -- 5.7%
Agrium, Inc. 488,900 6,172,363
BOC Group PLC - ADR
(United Kingdom) 137,300 3,724,262
Chemfirst, Inc.+ 203,000 5,125,750
Cytec Industries, Inc.+ 105,600 4,672,800
Dow Chemical 52,100 5,037,419
Mississippi Chemical Corp. 325,886 5,356,751
Solutia, Inc. 114,800 3,293,325
Union Carbide 78,600 4,195,275
-------------
37,577,945
- --------------------------------------------------------------------------------
Computer Related -- 0.4%
Bay Networks, Inc. + 77,500 2,499,375
- --------------------------------------------------------------------------------
Consumer Services-- 5.4%
Darden Restaurants 441,200 7,004,050
Hilton Hotels Corp.+ 121,400 3,459,900
Innkeepers USA Trust 241,900 3,053,988
MGM Grand, Inc.+ 77,800 2,455,563
Ogden Corp. 118,200 3,272,662
Reynolds & Reynolds
(Class A Stock) 236,700 4,304,981
RFS Hotel Investors, Inc.+ 226,200 4,297,800
Seagram Co., Ltd. 65,300 2,673,219
360 Communications Co.+ 144,700 4,630,400
-------------
35,152,563
- --------------------------------------------------------------------------------
Containers and Packaging -- 1.7%
Alltrista Corp.+ 196,300 5,017,919
Aptargroup, Inc. 51,400 3,196,437
U.S. Can Corp.+ 207,000 3,040,312
-------------
11,254,668
- --------------------------------------------------------------------------------
Electrical Equipment -- 1.4%
Belden, Inc. 84,200 2,578,625
Emcor Group, Inc.+ 187,000 3,576,375
Hussmann International, Inc. 171,900 3,190,894
-------------
9,345,894
- --------------------------------------------------------------------------------
Electronics -- 2.9%
Dallas Semiconductor Corp. 22,400 694,400
Marshall Industries+ 162,700 4,433,575
Methode Electronics, Inc. 122,000 1,891,000
National Semiconductor Corp.+ 198,800 2,621,675
Pioneer Standard Electronics 390,800 3,761,450
VLSI Technology, Inc.+ 317,600 5,329,741
-------------
18,731,841
- --------------------------------------------------------------------------------
Engineering & Construction -- 3.9%
Apogee Enterprises, Inc. 230,600 3,531,062
Cameron Ashley Building Products+ 127,400 2,149,875
Giant Cement Holding, Inc.+ 338,200 9,680,975
Gradall Industries, Inc.+ 307,700 4,500,112
Texas Industries, Inc. 103,800 5,501,400
-------------
25,363,424
- --------------------------------------------------------------------------------
Exploration & Production -- 4.2%
Cabot Oil & Gas Corp. 150,800 3,016,000
Chesapeake Energy Corp. 359,600 1,438,400
Comstock Resources, Inc.+ 317,000 2,357,687
Occidental Petroleum Corp. 166,900 4,506,300
Oryx Energy Co.+ 241,100 5,334,337
Pioneer Natural Resources Co. 277,000 6,613,375
Vintage Petroleum, Inc. 216,000 4,077,000
-------------
27,343,099
- --------------------------------------------------------------------------------
Financial Services -- 5.1%
Beneficial Corp. 36,100 5,530,069
Financial Security Assurance
Holdings Corp. 134,900 7,925,375
Heller Financial, Inc.+ 200,000 6,000,000
The PMI Group, Inc. 78,400 5,752,600
Travelers Group, Inc. 130,899 7,935,752
-------------
33,143,796
- --------------------------------------------------------------------------------
Healthcare -- 1.7%
Columbia HCA Healthcare Corp. 143,400 4,176,525
Mallinckrodt, Inc. 75,700 2,247,344
Tenet Healthcare+ 152,300 4,759,375
-------------
11,183,244
- --------------------------------------------------------------------------------
See Notes to Financial Statements
13
<PAGE>
Financial Statements of VCA-10
Statement of Net Assets as of June 30, 1998
(Unaudited)
Common Stock Value
Investments Shares [Note 2A]
- --------------------------------------------------------------------------------
Housing Related -- 2.2%
Furniture Brands International, Inc.+ 162,400 $ 4,557,350
Owens Corning Fiberglass Corp. 89,300 3,644,556
Triangle Pacific Corp.+ 111,400 6,127,000
-------------
14,328,906
- --------------------------------------------------------------------------------
Insurance -- 10.6%
Allied Group, Inc. 102,850 4,814,666
MMI Companies, Inc. 318,719 7,370,377
NAC Re Corp. 219,900 11,737,137
Old Republic International Corp. 213,150 6,247,959
Torchmark Corp. 155,800 7,127,850
Travelers Property Casualty
(Class "A" Stock) 121,800 5,222,175
Reinsurance Group of America 121,950 7,210,294
Trenwick Group, Inc. 257,650 10,008,105
W.R. Berkley Corp. 313,800 9,715,156
-------------
69,453,719
- --------------------------------------------------------------------------------
Leisure -- 0.7%
Servico, Inc.+ 313,800 4,707,000
- --------------------------------------------------------------------------------
Machinery -- 6.0%
Allied Products Corp. 247,500 5,243,906
Applied Power Co.
(Class "A" Stock) 133,800 4,599,375
Columbus McKinnon Corp. 180,000 4,680,000
Denison International PLC - ADR+
(United Kingdom) 166,200 3,282,450
Hardinge, Inc. 222,250 5,417,344
Harnischfeger Industries 243,200 6,885,600
Ingersoll - Rand Co. 114,500 5,045,156
New Holland N.V 194,700 3,820,988
-------------
38,974,819
- --------------------------------------------------------------------------------
Media -- 9.4%
Century Communications Corp.
(Class "A" Stock) 645,200 12,097,500
Comcast Corp.
(Class "A" Stock) 128,000 5,088,000
Comcast Corp.
(Class "A" Stock) Special 205,995 8,362,120
Cox Communication, Inc.
(Class "A" Stock)+ 89,413 4,330,942
Mediaone Group, Inc.+ 284,700 12,509,006
Tele-Communications, Inc.
Liberty Media Group (Series A)+ 252,750 9,809,859
Time Warner, Inc. 45,900 3,921,581
U.S. West Media Group+ 7,775 365,433
Viacom, Inc.
(Class "B" Stock)+ 89,800 5,230,850
-------------
61,715,291
- --------------------------------------------------------------------------------
Metals -- 3.5%
The Carbide/Graphite Group+ 334,200 9,294,937
Cleveland - Cliffs, Inc. 105,000 5,630,625
Reliance Steel & Aluminum 126,000 4,866,750
Ucar International, Inc.+ 116,100 3,388,699
-------------
23,181,011
-------------
- --------------------------------------------------------------------------------
Miscellaneous-Industrial -- 12.1%
Clarcor, Inc. 136,650 2,869,650
Coltec Industries, Inc.+ 256,500 5,097,938
Crane Co. 118,700 5,764,369
Dexter Corp. 158,500 5,042,281
Flowserve Corp. 150,891 3,715,691
Global Industrial
Technologies, Inc.+ 353,300 5,078,687
Harsco Corp. 150,200 6,881,037
Idex Corp. 77,400 2,670,300
Mark IV Industries, Inc. 215,110 4,651,754
Pentair, Inc. 80,800 3,434,000
PPG Industries, Inc. 83,800 5,829,337
Regal Beloit Corp. 128,700 3,667,950
United Dominion Industries 292,600 9,765,525
Varian Associates, Inc. 109,500 4,270,500
Wolverine Tube, Inc.+ 280,100 10,643,800
-------------
79,382,819
- --------------------------------------------------------------------------------
Paper Products -- 2.7%
Boise Cascade Corp. 101,800 3,333,950
Ennis Business Forms 288,800 3,357,300
Georgia Pacific Corp. (GP Group)+ 62,800 3,701,275
Georgia Pacific Corp.
(Timber Group)+ 73,700 1,699,706
International Paper Co. 76,000 3,268,000
Mead Corp. 76,700 2,435,225
Standard Register Co. 1,900 67,213
-------------
17,862,669
- --------------------------------------------------------------------------------
Railroads -- 2.6%
Burlington Northern Santa Fe 63,500 6,234,906
CSX Corp. 65,000 2,957,500
Greenbrier Companies, Inc. 143,200 2,470,200
Varlen Corp. 151,578 5,229,441
-------------
16,892,047
- --------------------------------------------------------------------------------
See Notes to Financial Statements
14
<PAGE>
Financial Statements of VCA-10
Statement of Net Assets as of June 30, 1997
(Unaudited)
Common Stock Value
Investments Shares [Note 2A]
- -------------------------------------------------------------------------------
Regional Banks -- 2.9%
Banc One Corp. 56,650 $ 3,161,778
First Chicago NBD Corp. 62,772 5,563,169
Norwest Corp. 148,900 5,565,137
PNC Bank Corp. 80,800 4,348,050
-------------
18,638,134
- -------------------------------------------------------------------------------
Retail -- 2.9%
BJ's Wholesale Club, Inc.+ 81,600 3,315,000
Food Lion, Inc.
(Class "A" Stock) 291,300 3,095,062
Food Lion, Inc.
(Class "B" Stock) 97,300 979,081
Haverty Furniture, Inc. 305,800 6,765,825
Limited, Inc. 155,700 5,157,562
-------------
19,312,530
- -------------------------------------------------------------------------------
Specialty Chemicals -- 3.7%
Cambrex Corp. 186,200 4,887,750
Engelhard Corp. 184,900 3,744,225
Ferro Corp. 180,450 4,567,641
French Fragrances, Inc.+ 284,800 4,450,000
ICN Pharmaceuticals, Inc. 355 16,219
IMC Global, Inc. 116,900 3,521,613
OM Group, Inc. 75,800 3,126,750
-------------
24,314,198
- -------------------------------------------------------------------------------
Trucking/Shipping -- 0.4%
Interpool, Inc. 183,800 2,653,612
- -------------------------------------------------------------------------------
Total Common Stocks Investments -- 96.9%
(Cost: $477,389,101) $634,014,578
- -------------------------------------------------------------------------------
Preferred Stocks Investment -- 0.4%
Chesapeake Energy Corp.
(Cost: $3,332,119) $67,200 2,864,400
- -------------------------------------------------------------------------------
Total Long-Term Investments -- 97.3%
(Cost: $480,721,220) $636,878,978
- -------------------------------------------------------------------------------
Short-Term Investment -- 2.3% Principal
Amount
(000)
Repurchase Agreement
Goldman, Sachs & Co., 5.00%
6/30/98 - 07/01/98, Amount Due -
$14,973,079 (collateralized by
$15,304,831 U.S. Treasury Bonds,
11.75%, Due 11/15/03)
(Cost $14,971,000) 14,971 14,971,000
- -------------------------------------------------------------------------------
Total Investments -- 99.6%
(Cost: $495,692,220) $ 651,849,978
- -------------------------------------------------------------------------------
Other Assets, Less Liabilities
Cash 754
Dividends and Interest Receivable 795,558
Receivable for Investments Sold 17,035,418
Payable for Pending Capital Transaction (154,004)
Payable for Investments Purchased (14,971,000)
- -------------------------------------------------------------------------------
Total Other Assets
Less Liabilities-- 0.4% 2,706,726
- -------------------------------------------------------------------------------
Net Assets-- 100% $ 654,556,704
- -------------------------------------------------------------------------------
Net Assets, representing:
Equity of Participants
85,213,598 Accumulation Units at an
Accumulation Unit Value of $7.6320 650,348,216
Equity of Prudential Insurance
Company of America 4,208,488
-------------
$ 654,556,704
===============================================================================
The following abbreviations are used in portfolio descriptions:
ADR -- American Depository Receipts
PLC -- Public Limited Company
+ Non-income producing
See Notes to Financial Statements
15
<PAGE>
Financial Statements of VCA-10
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1998
- --------------------------------------------------------------------------------
Investment Income [Note 2B]
Dividends $ 3,371,693
Interest 549,122
- --------------------------------------------------------------------------------
Total Income 3,920,815
- --------------------------------------------------------------------------------
Expenses [Note 3]
Fees Charged to Participants for Investment Management Fee 793,807
Fees Charged to Participants for Administrative Expenses 2,381,177
- --------------------------------------------------------------------------------
Total Expenses 3,174,984
- --------------------------------------------------------------------------------
Investment Income - Net 745,831
- --------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments - Net [Note 2B]
Realized Gain on Investments - Net 43,911,557
Increase in Unrealized Appreciation on Investments - Net 7,401,091
- --------------------------------------------------------------------------------
Net Gain on Investments 51,312,648
- --------------------------------------------------------------------------------
Net Increase In Net Assets Resulting from Operations $52,058,479
================================================================================
Statements of Changes in Net Assets (Unaudited)
- --------------------------------------------------------------------------------
Six months ended Year ended
June 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------
Operations
Investment Income - Net $ 745,831 $ 1,287,837
Realized Gain on Investments - Net 43,911,557 112,053,314
Increase In Unrealized
Appreciation on Investments - Net 7,401,091 33,896,685
- --------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 52,058,479 147,237,836
- --------------------------------------------------------------------------------
Capital Transactions
Purchase Payments and Transfers In 60,996,557 130,555,810
Withdrawals and Transfers Out (45,657,230) (181,876,818)
Annual Account Charges Deducted from
Participants' Accounts [Note 3b] (73,376) (125,689)
Deferred Sales Charge [Note 3c] (4,965) (18,599)
- --------------------------------------------------------------------------------
Net Increase (Decrease) In Net Assets
Resulting from Capital Transactions 15,260,986 (51,465,296)
- --------------------------------------------------------------------------------
Net Decrease In Net Assets
Resulting from Surplus Transfers [Note 6] (5,007) (32,895)
- --------------------------------------------------------------------------------
Total Increase in Net Assets 67,314,458 95,739,645
Net Assets
Beginning of Period 587,242,246 491,502,601
- --------------------------------------------------------------------------------
End of Period $ 654,556,704 $ 587,242,246
================================================================================
See Notes to Financial Statements
16
<PAGE>
Notes to Financial Statements of VCA-10 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1: General
The Prudential Variable Contract Account-10 (VCA-10 or the Account)
was established on March 1, 1982 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
connection with retirement arrangements made available to 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 as of the
close of the NYSE (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.
17
<PAGE>
Notes to Financial Statements of VCA-10 (Unaudited)
- --------------------------------------------------------------------------------
B. Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Realized gains
and losses on sales of securities are calculated on the identified
cost basis. Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. Income and realized
and unrealized gains and losses are allocated to the Participants and
Prudential on a daily basis in proportion to their respective
ownership in VCA-10. Expenses are recorded on the accrual basis which
may require the use of certain estimates by management.
C. 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's custodian 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.
D. 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.
18
<PAGE>
Notes to Financial Statements of VCA-10 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 3: Charges
A. Prudential acts as investment manager for VCA-10 under an agreement
for Investment Management Services. 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 provided by the annual
account charge, and one quarter (0.25%) is for investment management
services.
B. An annual account charge of not more than $30 is deducted from the
account of each Participant, if applicable, at the time of withdrawal
of the value of all of the Participant's accounts or at the end of the
accounting year by canceling 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 nonqualified 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.
C. 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 year of participation.
After the first year of participation, the maximum deferred sales
charge declines by 1% in each subsequent year until it reaches 0%
after seven years. No deferred sales charge is imposed upon
contributions withdrawn for any reason after seven 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 nonqualified 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.
19
<PAGE>
Notes to Financial Statements of VCA-10 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 4: Purchases and Sales of Portfolio Securities
For the six months ended June 30, 1998, the aggregate cost of
purchases and the proceeds from sales of securities, excluding
short-term investments, were $160,679,077 and $135,499,406,
respectively.
NOTE 5: Unit Transactions
The number of Accumulation Units issued and redeemed for the six
months ended June 30, 1998 and the year ended December 31, 1997 is as
follows:
1998 1997
Units issued 8,284,922 22,249,667
Units redeemed 6,332,655 30,520,771
NOTE 6: 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.
NOTE 7: Related Party Transactions
For the six months ended June 30, 1998, Prudential Securities
Incorporated, an indirect, wholly owned subsidiary of Prudential,
earned $1,692 in brokerage commissions from portfolio transactions
executed on behalf of VCA-10. During the six months ended June 30,
1998, Prudential has advised the Account that it received $8,004 in
loan origination fees.
NOTE 8: 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.
For the six months ended June 30, 1998, $1,419,884 in participant
loans were withdrawn from VCA-10 and $922,321 of principal and
interest was repaid to VCA-10. For the year ended December 31, 1997,
$2,202,462 in participant loans was withdrawn from VCA-10 and
$1,507,302 of principal and interest was 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.
20
<PAGE>
VCA-11 Money Market Account
Performance Summary.
The account returned 2.38% for the six months ended June 30, 1998, compared to
4.71% for the current seven-day yield. Economic troubles in Asia combined with a
tighter supply of U.S. Treasury securities kept short-term interest rates in
check during the reporting period. The Account was able to take advantage of
several yield enhancing opportunities, however. For example, a large inflow of
assets in mid-June allowed the Account to take full advantage of a buying
opportunity that emerged when quarter-end funding pressures drove short-term
rates higher. These purchases lengthened the VCA-11 weighted average maturity
(WAM), which is a measure of a fund's sensitivity to interest rate changes.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Year Year Year
- --------------------------------------------------------------------------------
Money Market Account(1) 2.38% 4.86% 4.85% 4.37% 5.19%
- --------------------------------------------------------------------------------
Salomon Brothers T-Bills(2) 2.57% 5.30% 5.36% 4.93% 5.63%
- --------------------------------------------------------------------------------
Money Market Account inception date: 8/82.
================================================================================
Money Market Account One-Year Total Return For The Past Ten Years
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
(1) The Account performance results are after the deduction of all expenses and
contract charges including investment management and administrative fees,
but do not include the effect of any sales charges. All total returns are
for the periods indicated and are calculated based on changes in unit
values. Past performance cannot guarantee comparable future results.
Source: Prudential.
Investment return and principal value of the Account will fluctuate
resulting in a value which may at any time, including the time of the
withdrawal of the cash value, be more or less than the total principal
investment made.
An investment in the Account is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Account will be able to
maintain a stable share value of $10.00.
(2) The Salomon Brothers 3-Month Treasury Bill Index is an index whereby equal
dollar amounts of three-month Treasury bills are purchased at the beginning
of each of three consecutive months. As each bill matures, all proceeds are
rolled over or reinvested in a new three-month bill. The income used to
calculate the monthly return is derived by subtracting the original amount
invested from the maturity value.
================================================================================
Investment Goal
Current income consistent with preservation of capital and liquidity.
Types of Investments
Short-term money market securities that generally mature in 13 months or less.
These securities primarily consist of Certificates of Deposit (CDs); Commercial
Paper and Bankers' Acceptances, U.S. Treasury bills (T-bills) and other
instruments issued by or guaranteed by the U.S. government or its agencies.
Performance Review.
A Flight To Quality. Asian economic woes continued to deepen during the
reporting period. Japan's economy entered into a recession, dragging down other
financial markets from Hong Kong to Taiwan.
Skittish investors took their money from these troubled markets and reinvested
in U.S. securities and Treasuries. This flight to quality saw the U.S. dollar
trade higher against the Japanese yen.
The full effects of the Asian slowdown remain to be seen in the U.S. where signs
of economic activity remain mixed. Consumer sentiment appears to remain
resilient and companies continue to produce goods and raise inventories.
Some economists believe that the build up of inventories early this year will
lead to slower economic growth in the months ahead. Others believe that
continued growth in employment may help alleviate the inventory log jam.
21
<PAGE>
Strategy Session.
A Challenging Environment.
Short-term interest rates hovered at low levels throughout much of the reporting
period. The Federal Reserve left the target federal funds rate (rate banks
charge each other for overnight loans) unchanged at 5.5%. Factors restraining
higher interest rates included the Asian economic slowdown and a shrinking
supply of U.S. Treasuries as the federal government's borrowing needs fell.
Given this challenging environment, our strategy was to take advantage of
attractive buying opportunities whenever overdone swings in investor sentiment
created them.
For example, investor expectation on further moves by the Federal Reserve Board
pushed short-term yields lower in January. Investors believed that the deepening
Asian economic crisis would slow the U.S. economy sufficiently enough to force
the central bank to ease monetary policy to stimulate growth. However, the
continued strength of the American economy plus some "balanced" comments by
Federal Reserve Board Chairman Alan Greenspan, abruptly dispelled the notion
that the Fed would lower short-term interest rates any time soon. By February,
investor sentiment had changed and money market rates moved higher. These are
the times when we see opportunity. The key is to be properly positioned to take
advantage of them -- and we were. Late in the fourth quarter of 1997 we made
term purchases that gave us the flexibility to "sit out" the January market
rally and avoid purchases of lower yielding securities. We were also properly
positioned in February to take advantage of changing investor sentiment by
purchasing one-year term securities at attractive prices and higher yields.
Outlook
PORTFOLIO MANAGER
Robert Browne
Positioning Is Key.
"In the coming months, the U.S. economy will likely slow down due to the
problems in Asia and the fallout from the General Motors strike this summer.
These developments will probably keep the Federal Reserve from acting on
interest rates into the foreseeable future. Unfortunately, a prolonged period of
stable short-term rates will limit portfolio opportunities. As a result, the
gross yields on all general purpose money funds will most likely continue to
flatten -- and opportunities to outperform will become fewer. The Account will
continue to selectively position itself when opportunities exist to lock in
higher long-term rates."
[PHOTO]
PORTFOLIO MANAGER
Robert Browne
================================================================================
Portfolio Composition
6/30/98
-------
Comm. Paper 35.2%
Floating/Adj. Rate 23.1%
Foreign Bank Oblg. 13.6%
Yankee Comm. Paper 13.5%
Loan Participation 5.1%
Other Corp. Oblg. 4.5%
Bank Hold Co. CP 2.8%
U.S. Bank Oblg. 2.2%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
22
<PAGE>
Financial Highlights for VCA-11
Income and Capital Changes Accumulation Per Unit*
(For an Accumulation Unit outstanding throughout the period)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income $ .0700 $ .1353 $ .1281 $ .1313 $ .0912 $.0682
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses
For investment management fee .0030 .0059 .0056 .0054 .0052 .0050
For administrative expenses not covered
by the annual account charge .0091 .0178 .0170 .0160 .0154 .0150
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Unit Value .0579 .1116 .1055 .1099 .0706 .0482
- ------------------------------------------------------------------------------------------------------------------------------------
Unit Value
Beginning of period 2.4326 2.3210 2.2155 2.1056 2.0350 1.9868
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $ 2.4905 $2.4326 $2.3210 $2.2155 $2.1056 $2.0350
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Of Expenses To Average Net Assets** .99%+ .98% .98% .99% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment Income To
Average Net Assets** 4.71%+ 4.73% 4.57% 5.08% 3.42% 2.40%
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Units Outstanding
For Participants at end of period
(000s omitted) 53,218 35,757 38,315 34,136 35,448 29,421
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Calculated by accumulating the actual per unit amounts daily.
** These calculations exclude Prudential's equity in VCA-11.
+ Annualized.
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.
See Notes to Financial Statements
23
<PAGE>
Financial Statements of VCA-11
Statement of Net Assets as of June 30, 1998
(Unaudited)
Short-Term Principal
Investments [Note 2] Amount Value
- --------------------------------------------------------------------------------
Commercial Paper -- 54.6%
American Express
Credit Corp., 5.50%
Due 9/30/98 1,000,000 $ 984,111
Associates First
Capital Corp., 5.52%
Due 8/18/98 1,000,000 989,267
Barton Capital Corp., 5.60%
Due 7/20/98 300,000 297,527
Due 8/18/98 2,509,000 2,489,876
CIT Group Holdings, 5.56%
Due 8/5/98 1,000,000 993,513
Caterpillar Inc., 6.00%
Due 7/6/98 6,800,000 6,800,000
Centric Capital Corp.
Due 8/21/98, 5.57% 1,000,000 991,181
Due 9/29/98, 5.55% 2,000,000 1,971,942
Corestates Capital Corp., 5.61%
Due 8/28/98 1,000,000 1,000,000
Countrywide Home
Loan, Inc., 5.60%
Due 8/3/98 1,000,000 993,622
Du Pont De Nemours &
Co., Inc., 5.60%
Due 8/13/98 1,000,000 993,000
Eastman Kodak Co., 5.60%
Due 8/27/98 2,032,000 2,012,402
First Chicago
Financial Corp., 5.52%
Due 8/18/98 1,000,000 989,113
First Data Corp., 5.52%
Due 9/15/98 3,000,000 2,959,060
Ford Motor Credit Co.
Due 3/16/99, 8.15% 150,000 152,262
Due 7/13/98, 5.60% 4,000,000 3,991,289
Due 7/16/98, 5.63% 1,100,000 1,097,076
General Electric
Capital Corp., 5.53%
Due 9/11/98 2,100,000 2,071,935
Due 9/3/98 2,800,000 2,766,451
General Motors
Acceptance Corp., 5.56%
Due 8/18/98 2,000,000 1,983,011
General Motors Corp., 5.58%
Due 7/23/98 1,300,000 1,294,157
Goldman Sachs
Group LP., 5.75%#
Due 6/4/01 3,800,000 3,800,000
J.P. Morgan and Co., 5.52%
Due 9/10/98 1,800,000 1,776,540
Liquid Asset Backed
Securites Trust Series, 5.67%#
Due 12/22/98 950,213 950,213
Due 2/26/99 852,938 852,938
Martin Marietta
Material, 5.58%
Due 8/6/98 6,000,000 5,959,390
Mont Blanc
Capital Corp., 5.60%
Due 8/27/98 1,000,000 990,356
Monte Rosa Capital Corp., 5.6%
Due 8/25/98 1,000,000 990,667
Norwest Corp., 5.57%
Due 7/23/98 2,000,000 1,991,336
Old Line Funding Corp., 5.60%
Due 8/6/98 1,000,000 993,311
Restructuring
Asset Security, 5.69%
Due 3/31/99 1,000,000 1,000,000
Salomon Smith Barney
Due 8/24/98, 5.55% 2,000,000 1,980,575
Due 9/17/98, 5.53% 1,000,000 986,943
Short Term Repackaged
Asset Trust, 5.68%#
Due 12/15/98 1,000,000 1,000,000
SMM Trust Notes, 5.66%#
Due 12/14/98 2,000,000 2,000,000
Special Purpose Account
Receivable Coop Corp.
Due 8/27/98, 5.66%# 1,000,000 990,881
Strategic Money
Market Trust
Due 12/16/98, 5.69%# 1,000,000 1,000,000
Due 3/5/99, 5.66%# 1,000,000 1,000,000
Thunder Bay Funding, 5.70%
Due 7/9/98 531,000 529,571
UBS Finance Delaware, 5.53%
Due 8/10/98 2,000,000 1,983,410
Windmill Funding Corp., 5.60%
Due 7/27/98 1,679,000 1,670,642
See Notes to Financial Statements
24
<PAGE>
Financial Statements of VCA-11
Statement of Net Assets as of June 30, 1998
(Unaudited)
Short-Term Principal
Investments [Note 2] Amount Value
- --------------------------------------------------------------------------------
Wood Street Funding Corp.
Due 8/28/98, 5.60% $ 1,473,000 $ 1,459,481
Morgan Stanley
Dean Witter Discover, 5.86%
Due 11/16/98 2,000,000 2,000,000
-------------
73,727,049
- --------------------------------------------------------------------------------
Other Corporate Debt -- U.S. -- 9.8%
(Medium Term Notes, Corporate Bonds)
Associates Corp. of North America,
8.35% Medium Term Note,
Due 12/22/98 1,000,000 1,012,118
Associates Corp. of North America,
8.80% Corporate Bond,
Due 8/1/98 470,000 471,075
Chase Manhattan Corp.,
5.67% Medium Term Note,
Due 10/15/98 1,000,000 1,000,114
Ford Motor Credit,
5.63% Corporate Bond,
Due 7/15/98 473,000 471,816
Due 1/15/99 1,000,000 999,890
General Electric Capital Corp.
8.13% Medium Term Note,
Due 2/1/99 1,400,000 1,420,058
International Lease
Finance Corp.
7.50% Corporate Bond,
Due 3/1/99 500,000 505,631
International Lease
Finance Corp.
5.99% Medium Term Note,
Due 1/15/99 1,500,000 1,503,012
Merrill Lynch & Co., Inc.
5.61% Medium Term Note,
Due 10/8/98 3,000,000 2,999,920
UBS Finance Delaware,
6.20% Medium Term Note,
Due 10/1/98 2,800,000 2,802,439
-------------
13,186,073
- --------------------------------------------------------------------------------
Other Bank Related Instruments -- U.S. -- 7.7%
(Bank Notes, Certificates of Deposit)
American Express
Centurion Bank
5.71% Bank Note,
Due 8/21/98 1,500,000 1,500,207
Bank of New York,
5.75% Bank Note,
Due 5/14/99 2,000,000 2,000,479
FCC National Bank,
5.54% Bank Note,
Due 7/2/98 975,000 974,998
First USA Bank,
5.99% Bank Note,
Due 9/9/98 2,000,000 2,001,397
KeyBank
National Association,
5.65% Bank Note,
Due 1/13/99 1,000,000 1,000,300
Morgan Guaranty
Trust Co., 5.80%
Due 7/28/98 1,000,000 999,932
US Bank, N.A.,
5.55% Bank Note,
Due 12/4/98 2,000,000 1,999,579
-------------
10,476,892
- --------------------------------------------------------------------------------
Certificate of Deposit -- Foreign -- 2.6%
Canadian Imperial
Bank of Commerce
Due 10/6/98, 5.79% 2,500,000 2,498,935
Due 2/10/99, 5.55% 1,000,000 999,706
-------------
3,498,641
- --------------------------------------------------------------------------------
Commercial Paper -- Yankee -- 11.9%
American Honda
Finance Corp.
Due 9/11/98, 5.55% 2,500,000 2,469,167
Due 7/16/98, 5.90% 4,000,000 3,988,856
Bradford & Bingley
Building Society, 5.52%
Due 4/3/98 2,000,000 1,971,480
BBL North America Inc., 5.53%
Due 8/25/98 1,700,000 1,681,720
Commerzbank U.S.
Finance Inc., 5.53%
Due 8/26/98 1,000,000 989,401
Ing America Insurance
Holdings Inc., 5.54%
Due 8/12/98 2,000,000 1,972,608
Nordbanken North
America Inc., 5.52%
Due 8/4/98 1,000,000 991,260
See Notes to Financial Statements
25
<PAGE>
Financial Statements of VCA-11
Statement of Net Assets as of June 30, 1998
(Unaudited)
Short-Term Principal
Investments [Note 2] Amount Value
- -------------------------------------------------------------------------------
Nordbanken North
America Inc., 5.52%
Due 9/18/98 $ 1,000,000 $ 985,740
Svenska Hande Ibanken Inc.
Due 8/10/98, 5.53% 1,000,000 990,937
-------------
16,041,169
- -------------------------------------------------------------------------------
Certificate of Deposit -- Yankee -- 12.6%
Abbey National
Treasury Services, 5.95%
Due 10/21/98 4,000,000 3,999,906
Barclays Bank PLC., 5.52%
Due 6/2/99 2,000,000 1,998,545
Bayerische Hypotheken, 5.59%
Due 9/8/98 2,000,000 1,999,964
Credit Agricole Indosuez, 5.95%
Due 10/21/98 1,000,000 999,853
Deutsche Bank
Due 3/3/99, 5.66% 1,000,000 999,678
Due 2/26/99, 5.63% 2,000,000 1,998,866
Societe Generale, 5.78%
Due 9/11/98 1,000,000 999,914
Bayerische Landesbank
Girozentrale, 5.55%
Due 6/30/99 2,000,000 1,998,404
Swiss Bank Corp, 5.74%
Due 6/11/99 2,000,000 1,998,914
-------------
16,994,044
- --------------------------------------------------------------------------------
Total Short-Term Investments -- 99.2%
(Cost: $133,923,868) 133,923,868
- -------------------------------------------------------------------------------
Other Assets, Less Liabilities
Cash 968
Payable for Pending Capital Transaction (580,962)
Interest Receivable 791,623
Payable for Investments Purchased (8,910,580)
Receivable for Securities Sold 9,828,947)
- -------------------------------------------------------------------------------
Total Other Assets Less Liabilities-- 0.8% 1,129,996
- -------------------------------------------------------------------------------
Net Assets-- 100% 135,053,864
- -------------------------------------------------------------------------------
Net Assets, representing:
Equity of Participants
53,217,753 Accumulation Units at an
Accumulation Unit Value of $2.4905 132,538,122
Equity of Prudential Insurance
Company of America 2,515,742
-------------
$ 135,053,864
================================================================================
#Indicates a variable rate security. Rate shown is rate in effect at June 30,
1998.
See Notes to Financial Statements
26
<PAGE>
Financial Statements of VCA-11
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Six Months Ended June 30, 1998
- -------------------------------------------------------------------------------------------
<S> <C>
Investment Income [Note 2]
Interest $2,744,368
- -------------------------------------------------------------------------------------------
Expenses [Note 3]
Fees Charged to Participants for Investment Management Services 116,409
Fees Charged to Participants for Administrative Expenses 349,226
- -------------------------------------------------------------------------------------------
Total Expenses 465,635
- -------------------------------------------------------------------------------------------
Net Investment Income and Net Increase In Net Assets Resulting from Operations $2,278,733
===========================================================================================
</TABLE>
Statements of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Six months ended Year ended
June 30, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net Increase in Net Assets Resulting from Operations $ 2,278,733 $ 4,315,890
- -----------------------------------------------------------------------------------------------
Capital Transactions
Purchase Payments and Transfers In [Note 6 and 7] 114,849,644 151,277,326
Withdrawals and Transfers Out [Note 6 and 7] (71,241,559) (157,195,054)
Annual Account Charges Deducted from
Participants' Accounts [Note 4] (1,953) (58,601)
Deferred Sales Charge [Note 5] (1,714) (8,370)
- -----------------------------------------------------------------------------------------------
Net Increase/(Decrease) In Net Assets
Resulting from Capital Transactions 43,604,418 (5,984,699)
- -----------------------------------------------------------------------------------------------
Total Increase/(Decrease) in 45,883,151 (1,668,809)
Net Assets
Beginning of Period 89,170,713 90,839,522
- -----------------------------------------------------------------------------------------------
End of Period $ 135,053,864 $ 89,170,713
===============================================================================================
</TABLE>
See Notes to Financial Statements
27
<PAGE>
Notes to Financial Statements of VCA-11 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1: General
The Prudential Variable Contract Account-11 (VCA-11 or the Account)
was established on March 1, 1982 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 (the "Contracts") 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. Valuation of Short-Term Investments
Pursuant to an exemptive order from the Securities and Exchange
Commission, securities having a remaining maturity of one year 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 accretion 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. Expenses are recorded on the accrual basis which
may require the use of certain estimates by management.
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
Prudential acts as investment manager for VCA-11 under an agreement
for Investment Management Services. A daily charge, at an effective
annual rate of 1.00% of the current value of the Participants' equity
in VCA-11, is paid to Prudential. Three quarters of this charge
(0.75%) is for administrative expenses not provided by the annual
account charge, and one quarter (0.25%) is for investment management
services.
28
<PAGE>
Notes to Financial Statements of VCA-11 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 4: Annual Account Charge
An annual account charge of not more than $30 annually is deducted
from the account of each Participant, if applicable, at the time of
withdrawal of the value of all of the Participant's accounts or at the
end of the accounting year by canceling 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 nonqualified
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.
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 year of participation.
After the first year of participation, the maximum deferred sales
charge declines by 1% in each subsequent year until it reaches 0%
after seven years. No deferred sales charge is imposed upon
contributions withdrawn for any reason after seven 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 nonqualified 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, 1998 and the year ended December 31, 1997 is as follows:
1998 1997
----------------------------------------------------------------------
Units issued 46,404,440 63,669,685
----------------------------------------------------------------------
Units redeemed 28,943,601 66,228,235
----------------------------------------------------------------------
29
<PAGE>
Notes to Financial Statements of VCA-11 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 7: Participant Loans
Loans are considered to be withdrawals from the Account from which the
loan amount was deducted, though they 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, 1998, $314,563 in participant loans
was withdrawn from VCA-11 and $125,383 of principal and interest was
repaid to VCA-11. For the year ended December 31, 1997, $553,894 in
participant loans were withdrawn from VCA-11 and $330,318 of principal
and interest was repaid. 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. During the six months
ended June 30, 1998, Prudential has advised the Account that it
received $3,618 in loan origination fees. For the year ended December
31,1997, Prudential has advised the account that it received $5,456 in
loan origination fees.
30
<PAGE>
The Prudential Series Fund, Inc.
The following pages represent information on The Prudential Series Fund, Inc.
Portfolios. Returns are at the Portfolio level, not at the Subaccount level.
VCA-24 Subaccount returns are located on the inside front cover of this report.
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 MEDLEY Program. The
Diversified Bond Subaccount invests in the Diversified Bond Portfolio, the
Government Income Subaccount in the Government Income Portfolio, the
Conservative Balanced Subaccount in the Conservative Balanced Portfolio, the
Flexible Managed Subaccount in the Flexible Managed Portfolio, the Stock Index
Subaccount in the Stock Index Portfolio, the Equity Subaccount invests in the
Equity Portfolio, and the Global Subaccount in the Global Portfolio.
There is no assurance that the investment objective of the portfolios 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 each account may fluctuate daily and is
subject to the risks of both changing economic conditions and the selection of
investments necessary to meet the Subaccounts' or Portfolios' objectives.
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 portfolio expenses, but not product charges. They
reflect the reinvestment of dividend and capital gains 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 and when redeemed, may be worth more or less than original cost.
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 and increase the dollar amount of any net losses.
31
<PAGE>
Prudential
Diversified Bond Portfolio
Performance Summary.
Investors fleeing deteriorating economic conditions in Asia purchased U.S.
Treasuries, which are considered to be among the world's safest investments. We
increased your Portfolio's exposure to Treasuries and cut back on long-term
bonds of domestic companies and emerging market governments and corporations. As
a result, the Portfolio's six-month return of 4.44% was greater than the 4.15%
gain of the Lipper (VIP) Corporate Debt Average.
Besides the larger allocation to Treasuries, the surge in mergers and
acquisitions in the U.S. also boosted Portfolio returns. Several of our bonds
rallied after the announcement of key acquisitions in the cable television and
technology sectors.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Diversified Bond Portfolio (1) 4.44% 8.91% 8.43% 7.27% 9.18%
- --------------------------------------------------------------------------------
Lipper (VIP) Corp. BBB Avg.(2) 4.15% 11.14% 8.25% 7.13% 8.96%
- --------------------------------------------------------------------------------
Lehman Aggregate Index(3) 3.93% 10.54% 7.88% 6.88% 9.07%
- --------------------------------------------------------------------------------
Diversified Bond Portfolio inception date: 5/13/83.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<<PLOT POINTS TO COME>>
- --------------------------------------------------------------------------------
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.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Corporate BBB Average is
calculated by Lipper Analytical Services, Inc., and reflects the investment
returns of certain portfolios underlying variable life and annuity
products. These returns are net of investment fees and fund expenses but
not product charges.
(3) The Lehman Aggregate 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 indexes
may portray different comparative performance.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Low Risk FIXED INCOME
Balanced
High Yield Bond
Diversified Stock
High Risk Specialized
Investment Goal
High level of income over the long term while providing reasonable safety of
capital.
Types of Investments
U.S. government securities, mortgage backed bonds, both investment-grade and
high yield ("junk bond") corporate debt, and foreign securities (dollar and
non-dollar denominated).
Investment Style
This Portfolio seeks the highest yield while maintaining safety of capital, by
strategically allocating Portfolio assets among the above classes of bonds.
Performance Review.
Spotlight on Asia. Unsettled economic conditions in Asia dominated the
fixed-income markets during the past six months.
The failure of Hong Kong's largest investment bank and a tumbling Japanese yen
were two of the developments that bolstered the appeal of U.S. government
securities. Therefore, increasing the Portfolio's holdings of Treasuries worked
well.
We own debt securities from the cities of Moscow and St. Petersburg in Russia.
Mounting economic problems in Russia pressured the nation's currency, stocks and
bonds. However, the short-term maturities of our Russian assets limited their
price declines.
32
<PAGE>
Strategy Session.
No Quick Fix for Asia. Some investors hoped for an early resolution to the Asian
economic crisis. Confidence was so high that $4 billion of South Korean
government bonds sold in April met with strong investor demand and Asian debt
rallied. We took advantage of this trend to reduce the Portfolio's emerging
markets bond holdings.
Investors eventually realized there would be no quick fix for the Asian crisis.
The Japanese economy is in recession, casting doubt on regional prospects for
recovery anytime soon. In June, the Japanese yen tumbled to an eight-year low
against the U.S. dollar, boosting demand for dollar-denominated assets. Not
surprisingly, Treasuries maturing in 20 years or more gained 6.72% over the past
half-year, as reported by Lehman Brothers. Treasuries climbed to about 21% of
our total investments as of June 30 from 2.0% on December 31, 1997.
Demand Drives Down Yields. Surging demand drove 30-year Treasury bond prices
higher, while the yield fell in June to its lowest level since 1977. With yields
hovering near rock bottom, investment-grade corporate bond issuance soared to
$155.9 billion over the past six months, according to Lehman Brothers. This
flood of debt met with tepid demand in late spring, particularly for longer-term
bonds. Fortunately, we had shifted away from this sector toward short- and
intermediate-term corporate bonds. Our Tele-Communications Inc. bonds rallied
after AT&T announced plans to buy the company, and we sold Digital Equipment
bonds at a profit to Compaq Computer, which acquired Digital.
Outlook
PORTFOLIO MANAGER
Barbara Kenworthy
Caution Is a Virtue.
"We plan to stick with a more cautious approach to investing for the remainder
of the year. We now hold fewer higher-risk assets such as junk bonds and
emerging markets debt. Our shift toward short- and intermediate-term corporate
bonds is yet another example of protecting the Portfolio, since prices of
longer-term bonds would suffer the largest declines if fixed-income markets
turned lower.
"We are keeping a close watch on issuance of junk bonds and investment-grade
corporate bonds, which are on track to break new records in 1998. On the one
hand, this big supply will likely provide great buying opportunities. On the
other hand, the difference between yields on Treasuries and comparable high
yield or junk bonds and investment-grade corporate bonds could increase
significantly if investors balk at purchasing new bonds in the second half of
the year. Treasuries could probably perform better than both junk bonds and
investment-grade corporates in a bond market rally."
PORTFOLIO MANAGER
[PHOTO]
Barbara Kenworthy
================================================================================
Portfolio Composition
as of 6/30/98
-------------
U.S. Corporates 63.9%
U.S. Treasuries 20.6%
Foreign (U.S. $) 7.5%
Asset-backed 1.4%
Mortgages 1.0%
U.S. Government Agencies 0.8%
Cash 4.8%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Credit Quality
as of 6/30/98
-------------
U.S. Government 21.7%
AAA 2.5%
AA 3.1%
A 16.9%
BBB 37.8%
BB 13.0%
B 1.5%
Cash 3.5%
Average Credit Quality A
Duration 5.7 years
Average Maturity 10.8 years
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
33
<PAGE>
Prudential
Government Income Portfolio
Performance Summary.
Worsening economic conditions in Asia enhanced the safe-haven appeal of U.S.
government securities, which rallied during the past six months and consequently
enhanced your Portfolio's performance.
For the six-month reporting period, your Portfolio returned 3.94%, which was
greater than the 3.68% posted by similar portfolios measured by the Lipper (VIP)
General U.S. Government Average. The Portfolio's attractive performance was a
result of a combination of U.S. Treasuries and federal government agency
securities.
The guarantee on U.S. government securities applies only to the underlying
securities of the Portfolio and not to the value of the Portfolio's shares.
Mortgage-backed bonds entail additional prepayment and extension risk.
================================================================================
Average Annual Returns Through June 30, 1998
<TABLE>
<CAPTION>
Six One Three Five Since
Months Year Years Years Inception*
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Government Income Portfolio(1) 3.94% 11.07% 7.53% 6.38% 8.81%
- ---------------------------------------------------------------------------------------
Lipper (VIP) Gen. U.S. Gov't. Avg.(2) 3.68% 9.76% 6.99% 6.01% 8.63%
- ---------------------------------------------------------------------------------------
Lehman Gov't. Index(3) 4.18% 11.25% 7.68% 6.66% 9.03%
- ---------------------------------------------------------------------------------------
</TABLE>
Government Income Portfolio inception date: 5/1/89.
================================================================================
$10,000 Invested Since Inception*
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<<PLOT POINTS TO COME>>
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
* Lipper provides data on a monthly basis, so for comparative purposes the
Lipper Average and Index since inception returns reflect the Portfolio's
closest calendar month-end performance of 4/30/89.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) General U.S. Government
Average is calculated by Lipper Analytical Services, Inc., and reflects the
investment returns of certain portfolios underlying variable life and
annuity products. These returns are net of investment fees and fund
expenses but not product charges.
(3) The Lehman Government Index (LGI) is a weighted index comprised of
securities issued or backed by the U.S. government, its agencies and
instrumentalities with a remaining maturity of one to 30 years. The LGI is
an unmanaged index that includes the reinvestment of all interest, but does
not reflect the payment of transaction costs and advisory fees associated
with an investment in the Portfolio. The securities that comprise the LGI
may differ substantially from the securities in the Portfolio. The LGI is
not the only index that may be used to characterize performance of income
funds, and other indexes may portray different comparative performance.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Low Risk FIXED INCOME
Balanced
High Yield Bond
Diversified Stock
High Risk Specialized
Investment Goal
High level of income over the long term consistent with the preservation of
capital.
Types of Investments
Primarily intermediate and longer-term U.S. government bonds, including U.S.
Treasuries and agencies and mortgage-backed securities such as GNMA, FNMA and
FHLMC bonds and foreign government securities.
Investment Style
This Portfolio seeks high current return by selecting bonds that offer an
attractive combination of current income and price appreciation. The Portfolio
Manager's goal is to select bonds believed to offer the best value in a given
market climate.
Performance Review.
Spotlight on Asia. Economic developments in Asia dominated fixed-income markets
during the past six months. The Japanese economy was in recession. Hong Kong's
largest investment bank failed. The Japanese yen continued to tumble and
prospects for a turnaround anytime soon appeared remote.
Because of these developments and others, skittish investors fled Asian
financial markets and sought a financial "safe haven" in U.S. government
securities. Therefore, emphasizing U.S. government securities in the Portfolio
at the expense of other sectors of the bond market, such as mortgage-backed and
asset-backed securities, seemed to be a wise choice to us.
34
<PAGE>
Strategy Session.
Flight to Quality. Investors who had hoped for an early resolution to the
deepening Asian economic crisis were disappointed as matters worsened with the
Japanese recession. Meanwhile, the U.S. economy enjoyed solid economic growth
and tame inflation. This contrast between Asia and the U.S. heightened interest
in Treasuries as a safe-haven investment. When the Japanese yen slumped and
Asian financial markets tumbled in June, Treasuries rallied, sending the 30-year
bond yield to its lowest level since 1977. We lengthened the Portfolio's
duration (a measure of sensitivity to interest rate fluctuations) by selling
shorter-term Treasuries for longer-term Treasuries. This strategy allowed the
Portfolio's net asset value to increase more rapidly. Treasuries comprised as
much as 41% of its total investments during the period.
The flight-to-quality buying also buoyed federal government agency securities.
We increased agency securities to 37% of total investments as of June 30, 1998,
from 28% on December 31, 1997, because they provide incremental yield over
Treasuries. Then too, both Treasuries and agency securities are not subject to
prepayments, which plagued the mortgage-backed market. Prepayments occurred when
mortgage-backed securities were retired early because falling interest rates
caused homeowners to refinance the underlying mortgages. As a result, investors
in mortgage-backed securities were forced to reinvest their money at lower
interest rates. With this in mind, investors were reluctant to bid up prices of
mortgage-backed securities. Fortunately, we cut this sector to 14% of total
investments as of June 30 from 25% on December 31.
Outlook
PORTFOLIO MANAGER
Barbara Kenworthy
Monetary Policy Seen on Hold.
"We expect the Federal Reserve to leave monetary policy unchanged for the
remainder of the year. Concerns about mounting wage pressures and potentially
higher commodity prices are offset by the fact that economic growth is bound to
slow in the U.S. because of the crisis in Asia. Furthermore, a federal funds
rate increase would probably prove devastating for Asian financial markets as
money shifted to the U.S. from Asia.
"If monetary policy remains unchanged and the U.S. Treasury continues to pay off
debt as the federal budget deficit shrinks, we believe Treasuries could rally
even further, particularly if the U.S. dollar strengthens versus the Japanese
yen. After all, it is by no means certain that Japanese leaders will enact the
necessary banking sector reforms or cut taxes enough to inspire confidence in
the nation's currency. We see the 30-year Treasury bond yield hovering in a
trading range of 5.00% to 6.00%."
PORTFOLIO MANAGER
[PHOTO]
Barbara Kenworthy
================================================================================
Portfolio Composition
as of 6/30/98
-------------
U.S. Treasuries 38.8%
U.S. Government Agencies 37.3%
Mortgages 14.3%
Asset-backed 4.1%
CMOs 2.4%
U.S. Corporates 1.9%
Cash 1.2%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Credit Quality
as of 6/30/98
-------------
U.S. Government Agencies 76.1%
AAA 20.2%
AA 2.5%
Cash 1.2%
Average Credit Quality AAA
Duration 5.6 years
Average Maturity 8.7 years
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
35
<PAGE>
Prudential
Conservative Balanced Portfolio
Performance Summary.
Your Portfolio returned 8.02% for the first half of 1998, between the 17.72%
return on U.S. stocks and the 4.17% returned by Gov't./Corp. bonds.
Your Portfolio -- which invests in a conservative mix of stocks, bonds and money
market securities -- returned less than the average Flexible (VIP) Portfolio
tracked by Lipper Analytical Services, because the Portfolio's conservative
mandate requires a smaller proportion of equities in the asset allocation.
================================================================================
Average Annual Returns Through June 30, 1998
<TABLE>
<CAPTION>
Six One Three Five Ten
Months Year Years Years Years
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Conservative Balanced Portfolio(1) 8.02% 13.69% 13.80% 10.77% 11.14%
- -----------------------------------------------------------------------------------
Lipper (VIP) Balanced Avg.(2) 9.61% 18.20% 17.15% 13.38% 12.14%
- -----------------------------------------------------------------------------------
S&P 500(3) 17.72% 30.17% 30.23% 23.06% 18.54%
- -----------------------------------------------------------------------------------
Lehman Gov't./Corp. Bond Index(4) 4.17% 11.28% 7.86% 6.88% 9.10%
- -----------------------------------------------------------------------------------
</TABLE>
Conservative Balanced Portfolio inception date: 5/13/83.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<<PLOT POINTS TO COME>>
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Balanced 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 that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indexes may portray different comparative performance.
(4) The Lehman Government/Corporate Bond Index is comprised of government and
corporate bonds. The index is an unmanaged index that includes the
reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the index may differ substantially
from the securities in the Portfolio. The Lehman Gov't./Corp. Bond Index is
not the only index that may be used to characterize performance of income
funds, and other indexes may portray different comparative performance.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Low Risk Fixed Income
BALANCED
High Yield Bond
Diversified Stock
High Risk Specialized
Investment Goal
Favorable total return consistent with a more conservatively managed diversified
portfolio.
Types of Investments
Money market instruments, bonds and common stocks of both established and
smaller companies.
Investment Style
The Portfolio management team holds a baseline allocation of 35% stocks, 35%
bonds and 30% money market instruments.
Performance Review.
Defensive Positioning. We began the year with part of our stock
allocation in growth stocks, which moved up sharply through the second quarter,
contributing to a strong overall stock contribution. However, we reduced our
exposure to these growth stocks with the aim of improving the stability of our
return over the long run. Our gains slowed with the overall slowing of the
market. Our value stocks, which included some mid-size and smaller firms, were
generally out of favor through the half-year. The inexpensive industrials that
were one focus of our value holdings remained unpopular, although the consumer
stocks that were another focus did provide a strong return.
The Portfolio's bond holdings outpaced the broader bond market, aided by good
credit selection and a rebound in the value of depressed bonds in emerging
markets.
36
<PAGE>
Strategy Session.
We Increased Stocks. Although we viewed the equity market as somewhat
overvalued, we believed our stock selection sufficiently conservative that we
allowed our equity allocation to hover near, or slightly above, our normal
level. Our stock holdings are currently close to 40% of our assets.
Aided by a sizable exposure to outperforming growth stocks, the Portfolio's
stock holdings performed better than the S&P 500. In the second quarter, we
invested a sizable portion of the Portfolio's stock holdings into a portfolio
designed to mimic the performance and risk characteristics of the S&P 500 Index.
We expect that this change should bring greater stability to overall Portfolio
performance.
The remaining portion is invested in stocks we believe to be less expensive than
the average stock in relation to their potential earnings. Historically, such
value stocks have had less room to decline in falling stock markets.
We began the period with a focus on corporate and foreign bonds, which enhanced
the return of our bond portfolio early in the period. We had
substantially reduced our holdings when the market turned against them in June.
Looking forward, our bond holdings modestly overrepresent corporate bonds.
Outlook
PORTFOLIO MANAGER
Mark Stumpp
Why Employ a Passively Managed Core Equity Portfolio?
"We believe that investors expect a balanced fund to provide a broad exposure to
investments in several asset classes. With that in mind, we have invested about
one-half of our stock allocation in a core holding that is designed to closely
track the performance of the S&P 500. In our opinion, this should increase the
diversification of the overall equity portfolio and offer an opportunity to
reduce the overall volatility of Portfolio return. By combining a broadly
diversified core holding with an actively managed portfolio, investors should
expect to participate in the overall stock market, and yet will retain the
ability to outperform through active management."
PORTFOLIO MANAGERS
[PHOTO]
Mark Stumpp
[PHOTO] [PHOTO]
Warren E. Spitz Tony Rodriguez
================================================================================
Portfolio Composition
as of 6/30/98
-------------
Bonds 57.4%
Stocks 36.3%
Money Market 6.3%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Sectors - Stocks
as of 6/30/98
-------------
Drugs & Medical Supplies 3.2%
Telecommunications 2.7%
Banks and Savings & Loans 2.5%
Oil & Gas 2.2%
Retail 2.2%
Top Sectors - Bonds
as of 6/30/98
-------------
Financial 15.6%
U.S. Treasuries 10.4%
Banks and Savings & Loans 4.7%
Airlines 3.6%
Retail 3.6%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
37
<PAGE>
Prudential
Flexible Managed Portfolio
Performance Summary.
The stock market had a strong, although uncertain, half-year. Your Portfolio --
which invests in a mix of stocks, bonds and money market securities -- returned
9.58% for the first half of 1998, between the 17.72% return on U.S. stocks and
the 4.17% returned by Gov't./Corp. bonds. Its returns were about the average of
Flexible (VIP) Portfolios tracked by Lipper Analytical Services.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Flexible Managed Portfolio(1) 9.58% 17.38% 17.58% 13.38% 13.28%
- --------------------------------------------------------------------------------
Lipper (VIP) Flexible Avg.(2) 9.73% 18.12% 17.81% 13.91% 13.26%
- --------------------------------------------------------------------------------
S&P 500(3) 17.72% 30.17% 30.23% 23.06% 18.54%
- --------------------------------------------------------------------------------
Lehman Gov't./Corp. Bond Index(4) 4.17% 11.28% 7.86% 6.88% 9.10%
- --------------------------------------------------------------------------------
Flexible Managed Portfolio inception date: 5/13/83.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<<PLOT POINTS TO COME>>
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Flexible 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 that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indexes may portray different comparative performance.
(4) The Lehman Government/Corporate Bond Index is comprised of government and
corporate bonds. The index is an unmanaged index that includes the
reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the index may differ substantially
from the securities in the Portfolio. The Lehman Gov't./Corp. Bond Index is
not the only index that may be used to characterize performance of income
funds, and other indexes may portray different comparative performance.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Low Risk Fixed Income
BALANCED
High Yield Bond
Diversified Stock
High Risk Specialized
Investment Goal
High total return consistent with a more aggressively managed diversified
portfolio.
Types of Investments
Money market instruments, bonds and common stocks of both established and
smaller companies.
Investment Style
The Portfolio management team holds a baseline allocation of 60% stocks and 40%
bonds.
Performance Review.
Not Joining the Chase. Our bond holdings and our core stock holdings performed
well over the half-year. Aided by an exposure to growth stocks in the first
quarter, the Portfolio's stock holdings performed better than the S&P 500.
However, the contribution of our stocks was constrained by the
generally weak performance of any but large-company growth stocks and by our
holdings of industrial companies. The return of the overall stock market was
concentrated in a few very large companies. As investors focused on these
stocks, their prices rose to unusual levels in comparison with their earnings.
Throughout the six months, we had a substantial portion of our stock allocation
invested in a price-sensitive manner that avoided such companies.
38
<PAGE>
Strategy Session.
Seeking Greater Stability. In the second quarter, we invested a sizable portion
of the Portfolio's stock holdings into a portfolio designed to mimic the
performance and risk characteristics of the S&P 500 Index. We expect that this
change should bring greater stability to overall Portfolio performance.
The remaining portion is invested in stocks we believe to be less expensive than
the average stock in relation to their potential earnings. Historically, such
value stocks have had less room to decline in falling stock markets.
Although we have maintained a slight underweighting in stocks, we have been
buying on market dips and selling into strength. We remain concerned about the
prospects for U.S. corporate profits as the Southeast Asian financial crisis
begins to hit export-oriented business. Stock analysts have significantly
reduced estimates for 1998 corporate earnings and, if current trends persist,
corporations will end the year with earnings only slightly ahead of last year's
levels.
We began the period with a focus on corporate and foreign bonds, which enhanced
the return of our bond portfolio early in the period. We had substantially
reduced our holdings when the market turned against them in June. Looking
forward, our bond holdings modestly overrepresent corporate bonds.
Outlook
PORTFOLIO MANAGER
Mark Stumpp
Why Index?
"We believe that investors turn to a balanced fund primarily for consistency of
returns. With that in mind, we have invested part of our stock allocation in a
core holding that is designed to mimic the performance of the S&P 500. Although
growth stocks have had a strong half-year, their performance has been
concentrated in the gains of a few market leaders. Should the earnings of these
companies stumble, a growth portfolio would be vulnerable. We expect the S&P 500
as a whole to offer more consistent growth in the long run. We believe that
taking that as a target for our core holdings is a conservative strategy well
suited to balanced fund investors."
PORTFOLIO MANAGERS
[PHOTO]
Mark Stumpp
[PHOTO] [PHOTO]
Warren E. Spitz Tony Rodriguez
================================================================================
Portfolio Composition
as of 6/30/98
-------------
Stocks 51.8%
Bonds 42.3%
Money Market 5.9%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Sectors - Stocks
as of 6/30/98
-------------
Retail 3.5%
Financial Services 3.4%
Telecommunications 3.0%
Oil & Gas 2.9%
Drugs & Medical Supplies 2.9%
Top Sectors - Bonds
as of 6/30/98
-------------
U.S. Gov't 7.9%
Financial 4.7%
Investment Banking 3.9%
Banks and Savings & Loans 3.8%
Airlines 2.4%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
39
<PAGE>
Prudential
Stock Index Portfolio
Performance Summary.
Your Portfolio finished the first half of 1998 with a return of 17.48%. The
market began to rise rapidly the second week in January and continued into
March. Renewed concerns about the impact of the Asian economic slowdown
suspended the climb until the last two weeks in June, after companies that were
going to announce lower second-quarter earnings were likely to have done so.
The U.S. economy rose briskly in the first quarter, but borrowed some of that
growth from the second quarter in the form of higher inventory levels. As we go
to press, there are indications that the economy slowed in the second quarter.
Stock market advances were concentrated among the 50 largest companies.
Standard & Poor's neither sponsors nor endorses the Stock Index Portfolio.
Investors cannot directly invest in any index, including the S&P 500.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Stock Index Portfolio(1) 17.48% 29.70% 29.76% 22.65% 18.08%
- --------------------------------------------------------------------------------
Lipper (VIP) S&P 500 Index Avg.(2) 17.42% 29.59% 29.69% 22.52% 17.93%
- --------------------------------------------------------------------------------
S&P 500(3) 17.72% 30.17% 30.23% 23.06% 18.54%
- --------------------------------------------------------------------------------
Stock Index Portfolio inception date: 10/19/87.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<<PLOT POINTS TO COME>>
- --------------------------------------------------------------------------------
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(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 that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The S&P 500 is not the only index that may be used to
characterize performance of this Portfolio, and other indexes may portray
different comparative performance.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Low Risk Fixed Income
Balanced
High Yield Bond
DIVERSIFIED STOCK
High Risk Specialized
Investment Goal
Seeks results that correspond to the price and yield performance of the S&P 500
Index.(3)
Types of Investments Primarily stocks in the S&P 500 Index.
Investment Style
This Portfolio attempts to hold the same stocks as the S&P 500 Index, in
approximately the same proportions. This Portfolio thus tends to reflect the
general trends of the overall U.S. equity market.
================================================================================
S&P 500 Index--Total Return by Sector
YTD 1998
--------
Consumer Cyclicals 35.2%
Technology 28.2%
Consumer Growth 17.3%
Finance 16.5%
Industrials 12.0%
Utilities 10.9%
Energy 4.5%
S&P 500 Index 17.7%
- --------------------------------------------------------------------------------
Source: Prudential Investments.
40
<PAGE>
Performance Review.
The Stock Index Portfolio attempts to hold all 500 stocks included in the S&P
500 Index and to duplicate its performance. Portfolio manager John W.
Moschberger manages the Portfolio by investing funds received while trying to
minimize commissions and transaction costs.
Consumer Cyclicals Led the Way. The market was led by the stocks of companies
selling products that consumers buy more of when the economy is growing. These
consumer cyclicals, notably auto manufacturers and retailers, gained 35% in the
half-year. Technology stocks rose 28%, marking the second highest return.
Computer software companies and communications equipment manufacturers performed
particularly well, while the stocks of Dell, Apple, Lucent and Unisys led the
market, more than doubling in six months.
Consumer Growth Stocks Were Impressive. The sectors in the middle of the pack
also showed impressive returns. Consumer growth and staples stocks, such as
restaurants, cosmetics and pharmaceuticals, averaged a 17% return, while
financials turned in a 16% gain. Whereas companies selling to consumers had
strong stock performance, the industrial companies --particularly railroads,
metals, specialty chemicals and forest products -- had a very weak second
quarter, actually declining in price on average. Nonetheless, the sector
produced a 12% gain for the half-year, because the market rose rapidly when it
was rising. The utilities sector, which also had a negative second quarter,
recorded an 11% gain for the half-year, an excellent return compared with
historical averages.
Energy Stocks Were Weak. The energy sector brought up the rear for the first six
months of 1998, with almost a 5% gain. Weakened demand because of the Asian
economic slowdown and a warm North American winter combined with growing
supplies to provide a very poor environment for energy companies.
Outlook
PORTFOLIO MANAGER
John W. Moschberger
Keep Your Expectations Realistic.
"In economic uncertainty, investors from around the world find relative
stability in the U.S. S&P 500. Although earnings of these companies have been
growing over the past few years, demand for their stocks has driven share prices
up even faster. Our Stock Index Portfolio is one way to own a cross-section of
U.S. industries, but we do not believe that stock prices can outpace earnings
growth indefinitely. Moreover, earnings growth has slowed and earnings even have
declined in some industries. Despite recent history, investors should not expect
double-digit half-years for stock price growth as a matter of course."
PORTFOLIO MANAGER
[PHOTO]
John W. Moschberger
================================================================================
S&P 500 Index Composition
as of 6/30/98
-------------
Financial 17.8%
Consumer Staples 15.0%
Technology 15.0%
Health Care 11.7%
Consumer Cyclicals 9.6%
Capital Goods 8.5%
Energy 7.3%
Communications Services 6.8%
Basic Materials 4.1%
Utilities 3.1%
Transportation 1.1%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Ten Holdings
as of 6/30/98
-------------
General Electric Capital Corp. 3.2%
Microsoft Corp. 2.9%
Coca-Cola 2.3%
Exxon Corp. 1.9%
Merck & Co. 1.7%
Pfizer, Inc. 1.5%
Wal-Mart Stores 1.5%
Intel Corp. 1.3%
Procter & Gamble Co. 1.3%
Royal Dutch Petroleum 1.3%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
41
<PAGE>
Prudential
Equity Portfolio
Performance Summary.
Your Portfolio returned 12.47% in the first half of 1998, trailing the Lipper
(VIP) Growth Fund Average of 16.23% for the period.
Stock market performance for some time now has been concentrated in the stocks
of a few very large growth companies. These stocks have been too expensive for
our value style of investing.
While our large weighting in financial services and HMOs helped performance, our
holdings of industrials, smaller electronics companies and tobacco companies
have hurt it. Our large cash position has also reduced performance as stocks
continued to produce returns well above historic averages.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Equity Portfolio(1) 12.47% 23.78% 23.23% 19.39% 17.04%
- --------------------------------------------------------------------------------
Lipper (VIP) Growth Avg.(2) 16.23% 28.06% 25.44% 20.07% 16.76%
- --------------------------------------------------------------------------------
S&P 500(3) 17.72% 30.17% 30.23% 23.06% 18.54%
- --------------------------------------------------------------------------------
Equity Portfolio inception date: 5/13/83.
================================================================================
$10,000 Invested Over Ten Years
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<<PLOT POINTS TO COME>>
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(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 that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio. The S&P 500 is not the
only index that may be used to characterize performance of this Portfolio,
and other indexes may portray different comparative performance.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Low Risk Fixed Income
Balanced
High Yield Bond
DIVERSIFIED STOCK
High Risk Specialized
Investment Goal
Capital appreciation.
Types of Investments
Primarily stocks of major, established companies.
Investment Style
This Portfolio uses a "deep value" investment approach to invest in stocks
believed to be temporarily undervalued relative to the companies' sales,
earnings, book value and cash flow.
Performance Review.
Cash Constrains Performance.
Our substantial cash holdings remained a constraint on our return as the market
continued to rise rapidly. Nonetheless, our cash is down from its peak because
we found some opportunities when investors became anxious about the impact of
the Asian slowdown. Our time-tested investment discipline tells us not to buy
when prices are high.
We Value Consumer Cyclicals.
We have a focus on consumer cyclicals. This was the best-performing sector of
the market. We did particularly well with Chrysler, Kmart and Tandy.
We also had a focus on financial stocks, such as insurance companies and
financial services. On average, these also had good returns.
42
<PAGE>
Strategy Session.
A Hostile Climate for Our Investment Style. Value investing seems to work best
if any of the following conditions exist: The "cheap" stocks are very
inexpensive compared to the average stock; earnings for many businesses are
growing rapidly (earnings growth is abundant, so why pay high prices for it); or
interest rates are high or rising. We've had none of these conditions for some
time now. Investors have picked through the market pretty well and value
differentials are generally small. Profits are slowing -- shrinking, in many
cases, and the Asian economic slowdown has made it difficult for the Federal
Reserve to raise interest rates. As a result, investors have favored the large
companies that generate predictable earnings. So, although our value style is
producing good absolute returns by historical standards, it is trailing the
overall market.
Fear Brings Opportunity. Cyclicals are now among the best value stocks in the
market. We are invested in several cyclical industries: About 7% of our assets
are in paper and forest products companies. Overcapacity in the industry killed
off profits and drove the stocks to historic lows (compared to the overall stock
market). Since then, some capacity has been closed and the industry has begun to
consolidate. We believe the earnings of paper companies have bottomed. The Asian
crisis set back these stocks, because Asia accounts for a third of world paper
demand. However, Asia also accounted for the greatest growth of capacity, which
will slow considerably. The supply/ demand situation should improve and we
expect the stocks to rebound.
Our auto companies and retailers, which lost value in the fourth quarter of
1997, recovered in the first half of 1998. Our autos rose 26%, on average, and
retailers were up 23%. Chrysler (up 63%) and Kmart (up 67%) led the way.
Outlook
PORTFOLIO MANAGER
Thomas R. Jackson
Discipline Counts.
"Research shows that it has been wise to stick to an investment style.
Disciplined investors do better in the long run, whatever their style. It is
tough to be a disciplined value investor when other investors are concentrating
almost exclusively on companies that are too expensive for your value style.
However, history demonstrates that economic conditions change and investment
styles come in and out of favor. Meanwhile, as long as the market focuses solely
on this small group of large growth companies, even though a rapidly rising
market may give us a good return, we will lag our more aggressive growth
competitors. Our return relative to other funds shines most when uncertainty
about the economic future leads investors to leave some bargains on the table.
With this in mind, we are sticking to our discipline."
PORTFOLIO MANAGER
[PHOTO]
Thomas R. Jackson
================================================================================
Portfolio Composition
as of 6/30/98
-------------
Finance 24.3%
Industrial 13.4%
Consumer Cyclicals 13.0%
Consumer Growth & Staples 12.6%
Utilities 6.0%
Energy 5.8%
Technology 5.6%
Cash 19.3%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Ten Holdings
as of 6/30/98
-------------
Chubb Corp. 2.6%
Elf Aquitaine ADR 2.6%
Morgan Stanley, Dean Witter,
Discover & Co. 2.3%
Loews Corp. 2.3%
Dillard's Inc. 2.0%
SAFECO Corp. 1.9%
Darden Restaurants 1.9%
Kmart Corp. 1.9%
Columbia/HCA Health 1.8%
Wellpoint Health 1.7%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
43
<PAGE>
Prudential
Global Portfolio
Performance Summary.
Your Portfolio began 1998 very strongly, returning 19.34% over the first six
months and outperforming the Lipper (VIP) Global Average by a significant margin
over that period.
Our second-quarter return was 3.71%. We had a strong focus on the top-performing
Continental European market, and our stock selection within that market improved
our return. We also largely avoided the very poor stock markets in Asia and
emerging markets.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
================================================================================
Average Annual Returns Through June 30, 1998
Six One Three Five Since
Months Year Years Years Inception*
- --------------------------------------------------------------------------------
Global Portfolio(1) 19.34% 13.49% 17.39% 16.22% 11.56%
- --------------------------------------------------------------------------------
Lipper (VIP) Global Avg.(2) 15.44% 16.47% 18.64% 15.09% 11.97%
- --------------------------------------------------------------------------------
Morgan Stanley World Index(3) 16.85% 17.46% 19.73% 16.16% 12.00%
- --------------------------------------------------------------------------------
Global Portfolio inception date: 9/19/88.
================================================================================
$10,000 Invested Since Inception*
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<<PLOT POINTS TO COME>>
- --------------------------------------------------------------------------------
* Lipper provides data on a monthly basis, so for comparative purposes the
Lipper Average and Index since inception returns reflect the Portfolio's
closest calendar month-end performance of 9/30/88.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
(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
1,500 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 that includes the
reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the World Index may differ
substantially from the securities in the Portfolio. The World Index is not
the only index that may be used to characterize performance of global
funds, and other indexes may portray different comparative performance.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Low Risk Fixed Income
Balanced
High Yield Bond
DIVERSIFIED STOCK
High Risk Specialized
Investment Goal
Long-term growth of capital.
Types of Investments
Primarily common stock and common stock equivalents of U.S. and foreign
corporations.
Investment Style
This Portfolio uses a "growth" investment approach, coupled with a
theme-oriented view of the markets, to identify companies that seem best
positioned to take advantage of global changes.
Performance Review.
In the Right Place at the Right Time. Several different kinds of judgment
contributed to our above-average, six-month performance.
We were in the right places, primarily Continental Europe, and not much in Asia
or emerg- ing markets. We were in the right industries. Our software and
telecommunications stocks had strong returns. Our financial companies in Europe
are riding a wave of industry consolidation, productivity improvements and new
revenue streams from managing investments.
We also picked the right stocks. For example, our Japanese holdings, although a
small part of our Portfolio, performed better than the average Japanese stock.
44
<PAGE>
Strategy Session.
Continental Europe Is the Place to Be. In Continental Europe, economic recovery,
together with many beneficial changes associated with European monetary union,
is creating strong earnings growth. We increased our holdings there, adding to
our financial companies.
Financial firms are benefiting from the expanding economy, the low interest
rates that were a prerequisite for monetary union and a restructuring of
European financial services. They are offering popular new products -- such as
bank-managed mutual funds -- and the industry is likely to consolidate.
Communications Are Happening. We're emphasizing communications across the globe,
broadening our reach from the U.S. We are adding to our television exposure in
anticipation of the introduction of digital broadcasting in the U.K. We're also
adding U.S. media companies.
Asia Is Uncertain. We are cautious and continue to underweight Asia, whose
problems are being compounded by political inaction in Japan. We focused our
Japanese holdings more narrowly on export-oriented industrials and hedged almost
all our exposure to changes in the value of the yen.
Outlook
PORTFOLIO MANAGER
Daniel J. Duane
Europe Is the Place to Be.
"Right now, Europe is the epicenter of world economic growth. Even France and
Germany, which have been overregulated sluggish giants, are beginning to stir.
In the U.S. today, we like the software firms that are benefiting from
productivity trends, the health-care firms that are pioneering the restructuring
of the industry in the U.S., and retailers -- primarily because they benefit
from the long economic expansion and are buffered from the impact of events in
Asia.
"We would have liked to see countries in the Pacific follow the U.S. economic
model: openness to investment and credit decision-making, allowing free markets
to decide how capital is allocated. There is movement in that direction, but
Japan is unfortunately resisting the large-scale restructuring that these
changes would require. The decline of Southeast Asian labor costs and currency
values are creating uncertainties for other emerging markets. We will be very
cautious in investing in the Pacific and in emerging markets until the situation
clarifies."
PORTFOLIO MANAGERS
[PHOTO]
Daniel J. Duane
[PHOTO] [PHOTO]
Ingrid Holm Michelle Picker
================================================================================
Geographic Allocation
as of 6/30/98
-------------
Continental Europe 40.6%
United States 39.0%
United Kingdom 10.3%
Japan 4.4%
Australia 1.3%
Cash 4.4%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
Top Ten Holdings
as of 6/30/98
-------------
Vodafone Group 3.0%
Credito Italiano Ord 2.7%
Banco Central
Hispanoamericano 2.6%
Nokia Corp. 2.5%
SAP AG 2.3%
Microsoft Corp. 2.3%
Cisco Systems, Inc. 2.2%
Telefonica De Espana 2.1%
Bank of Ireland 2.0%
Safeway Inc. 2.0%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
45
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
DIVERSIFIED BOND PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$902,461,737)............................ $ 925,924,467
Cash....................................... 560
Receivable for capital stock sold.......... 722,800
Interest receivable........................ 13,610,682
Receivable for investments sold............ 5,877,330
--------------
Total Assets............................. 946,135,839
--------------
LIABILITIES
Payable for investments purchased.......... 4,312,541
Payable to investment adviser.............. 899,352
Payable for capital stock repurchased...... 602,000
Accrued expenses........................... 150,836
--------------
Total Liabilities........................ 5,964,729
--------------
NET ASSETS................................... $ 940,171,110
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 833,021
Paid-in capital, in excess of par........ 902,721,012
--------------
903,554,033
Undistributed net investment income........ 14,748,327
Accumulated net realized loss on
investments.............................. (1,593,980)
Net unrealized appreciation on
investments.............................. 23,462,730
--------------
Net assets, June 30, 1998.................. $ 940,171,110
--------------
--------------
Net asset value and redemption price per
share, 83,302,103 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 11.29
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
<S> <C>
INVESTMENT INCOME
Interest................................... $ 30,725,344
---------------
EXPENSES
Investment advisory fee.................... 1,722,772
Custodian expense.......................... 53,000
Accounting fees............................ 50,000
Shareholders' reports...................... 44,000
Audit fees................................. 5,000
Directors' fees............................ 1,000
Legal fees................................. 500
Miscellaneous expenses..................... 2,977
Total Expenses........................... 1,879,249
Less: custodian fee credit................. (6,212)
---------------
Net Expenses............................. 1,873,037
---------------
NET INVESTMENT INCOME........................ 28,852,307
---------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Net realized loss on:
Investments.............................. (663,625)
Futures contracts........................ (1,344,416)
---------------
(2,008,041)
---------------
Net change in unrealized appreciation on:
Investments.............................. 10,816,129
Futures contracts........................ 463,469
---------------
11,279,598
---------------
NET GAIN ON INVESTMENTS...................... 9,271,557
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 38,123,864
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 28,852,307 $ 53,531,495
Net realized gain (loss) on investments................................................ (2,008,041) 9,194,921
Net change in unrealized appreciation (depreciation) on investments.................... 11,279,598 (2,230,780)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 38,123,864 60,495,636
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (14,333,139) (55,359,529)
Distributions from net realized capital gains.......................................... (2,894,769) (9,016,752)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (17,227,908) (64,376,281)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [12,140,679 and 11,468,488 shares, respectively].................... 135,508,016 127,691,138
Capital stock issued in reinvestment of dividends and distributions [1,553,549 and
5,812,573 shares, respectively]....................................................... 17,227,908 64,376,281
Capital stock repurchased [(4,490,984) and (8,269,292) shares, respectively]........... (50,167,501) (91,696,624)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 102,568,423 100,370,795
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 123,464,379 96,490,150
NET ASSETS:
Beginning of period.................................................................... 816,706,731 720,216,581
------------------ -------------------
End of period (a)...................................................................... $ 940,171,110 $ 816,706,731
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 14,748,327 $ 229,159
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A1
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GOVERNMENT INCOME PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$409,415,059)............................ $ 422,163,866
Cash....................................... 284
Interest receivable........................ 6,852,592
Receivable for capital stock sold.......... 17,604
--------------
Total Assets............................. 429,034,346
--------------
LIABILITIES
Payable to investment adviser.............. 423,438
Accrued expenses........................... 130,517
--------------
Total Liabilities........................ 553,955
--------------
NET ASSETS................................... $ 428,480,391
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 363,239
Paid-in capital, in excess of par........ 411,966,116
--------------
412,329,355
Undistributed net investment income........ 6,186,586
Accumulated net realized loss on
investments.............................. (2,784,357)
Net unrealized appreciation on
investments.............................. 12,748,807
--------------
Net assets, June 30, 1998.................. $ 428,480,391
--------------
--------------
Net asset value and redemption price per
share, 36,323,880 outstanding shares of
common stock (authorized 70,000,000
shares).................................. $ 11.80
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
<S> <C>
INVESTMENT INCOME
Interest................................... $ 13,526,001
---------------
EXPENSES
Investment advisory fee.................... 843,547
Accounting fees............................ 49,000
Custodian expense.......................... 38,000
Shareholders' reports...................... 23,000
Audit fees................................. 3,000
Directors' fees............................ 1,000
Miscellaneous expenses..................... 1,991
---------------
959,538
---------------
NET INVESTMENT INCOME........................ 12,566,463
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 4,706,627
Futures.................................. (296,471)
---------------
4,410,156
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. (519,551)
Futures contracts........................ 73,032
---------------
(446,519)
---------------
NET GAIN ON INVESTMENTS...................... 3,963,637
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 16,530,100
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 12,566,463 $ 28,142,312
Net realized gain on investments....................................................... 4,410,156 722,778
Net change in unrealized appreciation (depreciation) on investments.................... (446,519) 10,843,416
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 16,530,100 39,708,506
------------------ -------------------
DIVIDENDS:
Dividends from net investment income................................................... (6,457,130) (28,098,226)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [996,196 and 550,602 shares, respectively].......................... 11,586,756 6,261,175
Capital stock issued in reinvestment of dividends and distributions 558,373 and
2,484,757 shares, respectively]....................................................... 6,457,130 28,098,226
Capital stock repurchased [(2,516,802) and (8,707,219) shares, respectively]........... (29,279,524) (98,362,062)
------------------ -------------------
NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... (11,235,638) (64,002,661)
------------------ -------------------
TOTAL DECREASE IN NET ASSETS............................................................. (1,162,668) (52,392,381)
NET ASSETS:
Beginning of period.................................................................... 429,643,059 482,035,440
------------------ -------------------
End of period (a)...................................................................... $ 428,480,391 $ 429,643,059
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of.................................... $ 6,186,586 $ 77,253
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$4,583,320,291).......................... $4,832,107,546
Cash....................................... 3,202,046
Interest and dividends receivable.......... 46,760,098
Receivable for investments sold............ 6,926,846
Receivable for capital stock sold.......... 5,445,317
Due from broker -- variation margin........ 117,141
--------------
Total Assets............................. 4,894,558,994
--------------
LIABILITIES
Payable for investments purchased.......... 13,590,557
Payable to investment adviser.............. 6,704,966
Payable for capital stock repurchased...... 5,396,000
Accrued expenses........................... 638,774
--------------
Total Liabilities........................ 26,330,297
--------------
NET ASSETS................................... $4,868,228,697
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 3,067,123
Paid-in capital, in excess of par........ 4,341,599,463
--------------
4,344,666,586
Undistributed net investment income........ 51,098,196
Accumulated net realized gains on
investments.............................. 223,156,007
Net unrealized appreciation on
investments.............................. 249,307,908
--------------
Net assets, June 30, 1998.................. $4,868,228,697
--------------
--------------
Net asset value and redemption price per
share, 306,712,286 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 15.87
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $138,143 foreign
withholding tax)......................... $ 11,211,663
Interest................................... 104,700,485
---------------
115,912,148
---------------
EXPENSES
Investment advisory fee.................... 13,180,769
Custodian expense.......................... 276,000
Shareholders' reports...................... 257,000
Accounting fees............................ 84,000
Audit fees................................. 32,000
Directors' fees............................ 1,500
Legal fees................................. 1,000
Miscellaneous expenses..................... 1,727
Total expenses........................... 13,833,996
Less: Custodian fee credit................. (26,737)
---------------
Net Expenses............................. 13,807,259
---------------
NET INVESTMENT INCOME........................ 102,104,889
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 227,916,295
Futures contracts........................ (2,292,852)
---------------
225,623,443
---------------
Net change in unrealized appreciation on:
Investments.............................. 44,588,880
Futures contracts........................ 2,295,878
---------------
46,884,758
---------------
NET GAIN ON INVESTMENTS...................... 272,508,201
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 374,613,090
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 102,104,889 $ 209,904,550
Net realized gain on investments....................................................... 225,623,443 525,175,186
Net change in unrealized appreciation (depreciation) on investments.................... 46,884,758 (148,830,270)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 374,613,090 586,249,466
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (51,955,739) (209,004,256)
Distributions from net realized capital gains.......................................... (39,410,229) (518,358,296)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (91,365,968) (727,362,552)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [2,390,587 and 4,585,160 shares, respectively]...................... 37,094,487 74,015,405
Capital stock issued in reinvestment of dividends and distributions [5,824,772 and
47,801,252 shares, respectively]...................................................... 91,365,968 727,362,552
Capital stock repurchased [(18,414,233) and (24,112,955) shares, respectively]......... (287,710,919) (394,841,365)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (159,250,464) 406,536,592
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 123,996,658 265,423,506
NET ASSETS:
Beginning of period.................................................................... 4,744,232,039 4,478,808,533
------------------ -------------------
End of period (a)...................................................................... $ 4,868,228,697 $ 4,744,232,039
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 51,098,196 $ 949,046
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A3
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$5,369,850,955).......................... $5,769,431,184
Cash....................................... 143,061
Interest and dividends receivable.......... 38,120,969
Receivable for investments sold............ 7,994,902
Receivable for capital stock sold.......... 4,136,837
--------------
Total Assets............................. 5,819,826,953
--------------
LIABILITIES
Payable for investments purchased.......... 17,318,973
Payable to investment adviser.............. 8,678,720
Payable for capital stock repurchased...... 4,088,061
Due to broker -- variation margin.......... 1,626,609
Accrued expenses and other liabilities..... 695,465
--------------
Total Liabilities........................ 32,407,828
--------------
NET ASSETS................................... $5,787,419,125
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 3,123,731
Paid-in capital, in excess of par........ 4,889,030,923
--------------
4,892,154,654
Undistributed net investment income........ 47,300,836
Accumulated net realized gains on
investments.............................. 442,215,145
Net unrealized appreciation on
investments.............................. 405,748,490
--------------
Net assets, June 30, 1998.................. $5,787,419,125
--------------
--------------
Net asset value and redemption price per
share, 312,373,121 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 18.53
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $460,257 foreign
withholding tax)......................... $ 19,946,557
Interest................................... 85,706,492
---------------
105,653,049
---------------
EXPENSES
Investment advisory fee.................... 16,885,730
Shareholders' reports...................... 297,000
Custodian expense.......................... 277,000
Accounting fees............................ 80,000
Audit fees................................. 36,000
Legal fees................................. 2,000
Miscellaneous expenses..................... 1,901
Directors' fees............................ 1,000
Total expenses........................... 17,580,631
Less: custodian fee credit................. (45,667)
---------------
Net Expenses............................. 17,534,964
---------------
NET INVESTMENT INCOME........................ 88,118,085
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments.............................. 443,417,766
Futures.................................. 1,427,954
Short Sales.............................. 479,595
---------------
445,325,315
---------------
Net change in unrealized appreciation on:
Investments.............................. (20,841,265)
Futures.................................. 7,730,683
---------------
(13,110,582)
---------------
NET GAIN ON INVESTMENTS...................... 432,214,733
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 520,332,818
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 88,118,085 $ 160,063,955
Net realized gain on investments....................................................... 445,325,315 867,691,914
Net change in unrealized appreciation (depreciation) on investments.................... (13,110,582) (163,603,096)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 520,332,818 864,152,773
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (41,586,113) (159,343,911)
Distributions from net realized capital gains.......................................... (85,557,864) (823,214,223)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (127,143,977) (982,558,134)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [2,016,527 and 4,859,580 shares, respectively]...................... 40,527,340 92,765,042
Capital stock issued in reinvestment of dividends and distributions [6,883,851 and
56,453,647 shares, respectively]...................................................... 127,143,977 982,558,134
Capital stock repurchased [(14,238,318) and (18,791,325) shares, respectively]......... (263,583,127) (363,698,408)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (95,911,810) 711,624,768
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 297,277,031 593,219,407
NET ASSETS:
Beginning of period.................................................................... 5,490,142,094 4,896,922,687
------------------ -------------------
End of period (a)...................................................................... $ 5,787,419,125 $ 5,490,142,094
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 47,300,836 $ 768,864
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
STOCK INDEX PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$1,731,387,405).......................... $3,102,668,054
Cash....................................... 859
Interest and dividends receivable.......... 3,014,617
Receivable for capital stock sold.......... 1,436,882
--------------
Total Assets............................. 3,107,120,412
--------------
LIABILITIES
Payable for investments purchased.......... 3,184,189
Payable to investment adviser.............. 2,579,964
Payable for capital stock repurchased...... 1,224,000
Due to broker -- variation margin.......... 832,375
Accrued expenses........................... 150,201
--------------
Total Liabilities........................ 7,970,729
--------------
NET ASSETS................................... $3,099,149,683
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 877,639
Paid-in capital, in excess of par........ 1,684,581,375
--------------
1,685,459,014
Undistributed net investment income........ 9,429,015
Accumulated net realized gains on
investments.............................. 29,502,806
Net unrealized appreciation on
investments.............................. 1,374,758,848
--------------
Net assets, June 30, 1998.................. $3,099,149,683
--------------
--------------
Net asset value and redemption price per
share, 87,763,950 outstanding shares of
common stock (authorized 125,000,000
shares).................................. $ 35.31
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $138,801 foreign
withholding tax)......................... $ 19,876,043
Interest................................... 2,827,009
---------------
22,703,052
---------------
EXPENSES
Investment advisory fee.................... 4,795,947
Shareholders' reports...................... 133,000
Accounting fees............................ 56,000
Custodian expense.......................... 37,000
Audit fees................................. 16,000
Legal fees................................. 1,000
Directors' fees............................ 1,000
Miscellaneous expenses..................... 2,231
Total expenses........................... 5,042,178
Less: custodian fee credit................. (888)
---------------
Net Expenses............................. 5,041,290
---------------
NET INVESTMENT INCOME........................ 17,661,762
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 20,681,744
Futures.................................. 9,821,940
---------------
30,503,684
---------------
Net change in unrealized appreciation on:
Investments.............................. 386,332,864
Futures.................................. 2,969,850
---------------
389,302,714
---------------
NET GAIN ON INVESTMENTS...................... 419,806,398
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 437,468,160
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 17,661,762 $ 31,459,576
Net realized gain on investments....................................................... 30,503,684 74,021,385
Net change in unrealized appreciation on investments................................... 389,302,714 451,562,975
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 437,468,160 557,043,936
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (8,537,009) (31,155,314)
Distributions from net realized capital gains.......................................... (6,874,997) (67,389,823)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (15,412,006) (98,545,137)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [9,794,048 and 17,248,797 shares, respectively]..................... 327,909,302 484,303,403
Capital stock issued in reinvestment of dividends and distributions [447,618 and
3,309,920 shares, respectively]....................................................... 15,412,006 98,545,137
Capital stock repurchased [(3,491,113) and (6,144,732) shares, respectively]........... (114,419,005) (174,536,420)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 228,902,303 408,312,120
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 650,958,457 866,810,919
NET ASSETS:
Beginning of period.................................................................... 2,448,191,226 1,581,380,307
------------------ -------------------
End of period (a)...................................................................... $ 3,099,149,683 $ 2,448,191,226
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 9,429,015 $ 304,262
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A5
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$4,800,586,453).......................... $6,736,998,832
Cash....................................... 291
Foreign currency, at value (cost:
$27,183)................................. 27,858
Interest and dividends receivable.......... 16,895,204
Receivable for investments sold............ 5,350,565
Receivable for capital stock sold.......... 1,589,766
--------------
Total Assets............................. 6,760,862,516
--------------
LIABILITIES
Payable for investments purchased.......... 44,822,290
Payable to investment adviser.............. 7,609,259
Accrued expenses........................... 394,613
Payable for capital stock repurchased...... 1,222,000
--------------
Total Liabilities........................ 54,048,162
--------------
NET ASSETS................................... $6,706,814,354
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,935,359
Paid-in capital, in excess of par........ 4,154,079,517
--------------
4,156,014,876
Undistributed net investment income........ 36,640,590
Accumulated net realized gains on
investments.............................. 577,729,083
Net unrealized appreciation on investments
and foreign currencies................... 1,936,429,805
--------------
Net assets, June 30, 1998.................. $6,706,814,354
--------------
--------------
Net asset value and redemption price per
share, 193,535,856 outstanding shares of
common stock (authorized 250,000,000
shares).................................. $ 34.65
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $1,109,410 foreign
withholding tax)......................... $ 47,424,764
Interest................................... 29,490,346
---------------
76,915,110
---------------
EXPENSES
Investment advisory fee.................... 14,492,613
Shareholders' reports...................... 326,000
Custodian expense.......................... 99,000
Accounting fees............................ 42,000
Audit fees................................. 40,000
Legal fees................................. 2,000
Directors' fees............................ 1,400
Miscellaneous expenses..................... 703
Total expenses........................... 15,003,716
Less: custodian fee credit................. (15,202)
---------------
Net Expenses............................. 14,988,514
---------------
NET INVESTMENT INCOME........................ 61,926,596
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on:
Investments.............................. 577,977,000
Foreign currencies....................... 132,673
---------------
578,109,673
---------------
Net change in unrealized appreciation on:
Investments.............................. 109,604,307
Foreign currencies....................... 31,444
---------------
109,635,751
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 687,745,424
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 749,672,020
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 61,926,596 $ 125,326,195
Net realized gain on investments and foreign currencies................................ 578,109,673 320,958,795
Net change in unrealized appreciation on investments and foreign currencies............ 109,635,751 744,788,889
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 749,672,020 1,191,073,879
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (26,337,681) (127,895,464)
Distributions from net realized capital gains.......................................... (31,316,873) (322,171,256)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (57,654,554) (450,066,720)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [6,995,716 and 12,471,611 shares, respectively]..................... 236,724,871 381,942,219
Capital stock issued in reinvestment of dividends and distributions [1,613,635 and
14,665,432 shares, respectively]...................................................... 57,654,554 450,066,720
Capital stock repurchased [(8,962,896) and (11,774,942) shares, respectively].......... (303,562,568) (363,005,143)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (9,183,143) 469,003,796
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 682,834,323 1,210,010,955
NET ASSETS:
Beginning of period.................................................................... 6,023,980,031 4,813,969,076
------------------ -------------------
End of period (a)...................................................................... $ 6,706,814,354 $ 6,023,980,031
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 36,640,590 $ 919,002
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A6
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GLOBAL PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$504,561,933)............................ $ 703,390,521
Cash....................................... 149,736
Foreign currency, at value (cost:
$23,071,925)............................. 23,124,672
Receivable for investments sold............ 2,221,131
Dividends and interest receivable.......... 1,436,085
Forward currency contracts -- amount
receivable from counterparties........... 1,348,569
Receivable for capital stock sold.......... 54,194
--------------
Total Assets............................. 731,724,908
--------------
LIABILITIES
Payable for investments purchased.......... 2,461,557
Payable to investment adviser.............. 1,342,709
Accrued expenses and other liabilities..... 312,513
--------------
Total Liabilities........................ 4,116,779
--------------
NET ASSETS................................... $ 727,608,129
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 341,531
Paid-in capital, in excess of par........ 494,849,539
--------------
495,191,070
Undistributed net investment income........ 2,191,194
Accumulated net realized gains on
investments.............................. 29,901,202
Net unrealized appreciation on investments
and foreign currencies................... 200,324,663
--------------
Net assets, June 30, 1998.................. $ 727,608,129
--------------
--------------
Net asset value and redemption price per
share, 34,153,123 outstanding shares of
common stock (authorized 75,000,000
shares).................................. $ 21.30
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $403,863 foreign
withholding tax)......................... $ 4,771,536
Interest................................... 411,693
---------------
5,183,229
---------------
EXPENSES
Investment advisory fee.................... 2,566,167
Custodian expense.......................... 297,000
Accounting fees............................ 118,000
Shareholders' reports...................... 35,000
Audit fees................................. 4,000
Directors' fees............................ 1,000
Miscellaneous expenses..................... 1,491
---------------
3,022,658
---------------
NET INVESTMENT INCOME........................ 2,160,571
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on:...............
Investments.............................. 34,871,734
Foreign currencies....................... (700,159)
---------------
34,171,575
---------------
Net change in unrealized appreciation on:
Investments.............................. 82,702,869
Foreign currencies....................... 1,290,552
---------------
83,993,421
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 118,164,996
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 120,325,567
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 2,160,571 $ 3,060,617
Net realized gain on investments and foreign currencies................................ 34,171,575 31,027,057
Net change in unrealized appreciation on investments and foreign currencies............ 83,993,421 5,107,643
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 120,325,567 39,195,317
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (2,231,228) (4,377,947)
Distributions in excess of net investment income....................................... -- (3,434,778)
Distributions from net realized capital gains.......................................... (655,550) (30,337,530)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (2,886,778) (38,150,255)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [1,072,294 and 5,853,862 shares, respectively]...................... 21,991,306 111,692,563
Capital stock issued in reinvestment of dividends and distributions [137,167 and
2,115,902 shares, respectively]....................................................... 2,886,778 38,150,255
Capital stock repurchased [(2,676,303) and (4,869,453) shares, respectively]........... (53,110,096) (93,116,567)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (28,232,012) 56,726,251
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 89,206,777 57,771,313
NET ASSETS:
Beginning of period.................................................................... 638,401,352 580,630,039
------------------ -------------------
End of period (a)...................................................................... $ 727,608,129 $ 638,401,352
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 2,191,194 $ 3,515,798
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A7
<PAGE>
DIVERSIFIED BOND PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 95.2% PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 1.5%
Boeing Co....................................... Aa3 8.75% 08/15/21 $ 6,250 $ 7,940,812
Raytheon Co..................................... Baa1 5.95% 03/15/01 6,500 6,474,000
--------------
14,414,812
--------------
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp....................................... Ba1 8.50% 03/15/06 600 612,900
--------------
AIRLINES -- 2.9%
Delta Air Lines, Inc., M.T.N.................... Baa3 7.79% 12/01/98 1,000 1,007,730
Delta Air Lines, Inc............................ Baa3 9.875% 05/15/00 6,000 6,395,160
United Airlines, Inc............................ Baa3 9.75% 08/15/21 3,500 4,556,475
United Airlines, Inc............................ Baa3 10.67% 05/01/04 7,000 8,363,320
United Airlines, Inc............................ Baa3 11.21% 05/01/14 5,000 6,945,900
--------------
27,268,585
--------------
ASSET-BACKED SECURITIES -- 1.4%
Advanta Mortgage Loan Trust, Series 1994-3...... Aaa 8.49% 01/25/26 8,500 8,901,094
California Infrastructure PG&E, Series 1997-1... Aaa 6.32% 09/25/05 4,000 4,059,375
--------------
12,960,469
--------------
AUTO - CARS & TRUCKS -- 0.9%
Navistar International Corp..................... Ba1 7.00% 02/01/03 3,500 3,508,750
Navistar International Corp..................... Ba3 8.00% 02/01/08 4,500 4,522,500
--------------
8,031,250
--------------
BANKS AND SAVINGS & LOANS -- 5.0%
Banco de Commercio Exterior de Columbia, SA,
M.T.N., (Colombia)............................ Baa3 8.625% 06/02/00 2,000 2,030,000
Banco Ganadero, SA, M.T.N., (Colombia).......... Baa3 9.75% 08/26/99 4,100 4,161,500
Capital One Bank................................ Baa3 7.08% 10/30/01 5,000 5,107,700
Chase Manhattan Corp............................ A1 8.00% 06/15/99 2,000 2,039,180
Chemical Bank................................... Aa3 6.625% 08/15/05 2,000 2,030,820
Compass Trust Bank.............................. A3 8.23% 01/15/27 4,500 4,837,500
Kansallis-Osake Pankki, (Finland)............... A3 8.65% 01/01/49 5,000 5,127,200
Kansallis-Osake Pankki, (Finland)............... A3 10.00% 05/01/02 5,000 5,637,450
National Australia Bank, (Australia)............ A1 6.40% 12/10/07 3,700 3,813,701
Skandinaviska Enskilda Bank, (Sweden)........... Baa1 7.50% 03/29/49 5,000 5,175,000
Svenska Handelsbank, (Sweden)................... A1 7.125% 03/29/49 3,500 3,570,000
Union Planters Corp............................. Baa1 8.20% 12/15/26 2,900 3,122,227
--------------
46,652,278
--------------
CABLE & PAY TELEVISION SYSTEMS -- 3.5%
Cable & Wireless Communications PLC (United
Kingdom)...................................... Baa1 6.375% 03/06/03 3,900 3,909,750
Cable & Wireless Communications PLC (United
Kingdom)...................................... Baa1 6.625% 03/06/05 2,100 2,113,125
Rogers Cablesystems, Inc., (Canada)............. Ba3 10.00% 03/15/05 4,000 4,440,000
Tele-Communications, Inc........................ Baa3 6.34% 02/01/02 3,500 3,487,085
Tele-Communications, Inc........................ Baa3 6.375% 09/15/99 2,750 2,762,622
Tele-Communications, Inc........................ Baa3 10.125% 04/15/22 6,300 8,725,248
Videotron Holdings, PLC, Zero Coupon (until
7/1/99) (United Kingdom)...................... Baa3 11.125% 07/01/04 8,000 7,860,160
--------------
33,297,990
--------------
COMPUTER SOFTWARE & SERVICES -- 1.2%
Computer Associates International, Inc.......... Baa1 6.375% 04/15/05 11,000 10,890,000
--------------
CONTAINERS -- 1.8%
Owens-Illinois, Inc............................. Ba1 7.80% 05/15/18 12,000 12,307,320
Owens-Illinois, Inc............................. Ba1 7.50% 05/15/10 5,000 5,069,850
--------------
17,377,170
--------------
DIVERSIFIED CONSUMER PRODUCT -- 1.1%
Philip Morris Cos., Inc......................... A2 6.15% 03/15/10 10,000 9,987,500
--------------
DRUGS & MEDICAL SUPPLIES -- 0.4%
Mallinckrodt, Inc............................... Baa2 6.30% 03/15/11 3,500 3,495,625
--------------
FINANCIAL SERVICES -- 11.9%
Advanta Corp., M.T.N............................ B2 7.25% 08/16/99 10,000 9,880,700
Aristar, Inc.................................... A3 5.75% 07/15/98 2,000 1,996,080
Aristar, Inc.................................... Baa1 7.50% 07/01/99 2,000 2,029,340
Arkwright Corp.................................. Baa3 9.625% 08/15/26 5,000 5,831,250
Calair Capital Corp............................. Ba2 8.125% 04/01/08 3,000 2,992,500
Chrysler Financial Corp......................... A2 9.50% 12/15/99 5,000 5,240,600
Conseco, Inc.................................... Baa3 6.40% 06/15/01 10,000 9,975,000
Conseco, Inc.................................... Ba2 8.70% 11/15/26 1,600 1,798,752
Conseco, Inc.................................... Ba2 8.796% 04/01/27 10,500 11,896,290
ContiFinancial Corp............................. Ba1 7.50% 03/15/02 14,000 13,993,280
ContiFinancial Corp............................. Ba1 8.125% 04/01/08 3,300 3,340,293
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa2 7.00% 06/15/00 9,000 9,135,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B1
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa2 8.75% 12/15/99 $ 3,000 $ 3,120,000
Ford Motor Credit Co............................ A1 5.75% 01/25/01 4,000 3,973,920
General Motors Acceptance Corp.................. A2 8.40% 10/15/99 3,700 3,807,633
Nationwide CSN Trust............................ A1 9.875% 02/15/25 5,000 6,087,500
PT Alatief Freeport Financial Co.,
(Netherlands)................................. B3 9.75% 04/15/01 5,750 5,117,500
Reliastar Financial Corp........................ A3 6.625% 09/15/03 5,000 5,057,500
US West Capital Funding Inc..................... A3 6.875% 07/15/28 6,500 6,503,250
--------------
111,776,388
--------------
FOOD & BEVERAGE -- 0.3%
Whitman Corp.................................... Baa2 7.50% 08/15/01 3,000 3,098,610
--------------
FOREST PRODUCTS -- 1.2%
Fort James Corp................................. Baa3 6.234% 03/15/11 5,000 4,993,750
Westvaco Corp................................... A1 9.75% 06/15/20 5,000 6,756,250
--------------
11,750,000
--------------
HOUSING RELATED -- 1.1%
American Standard Cos. Inc...................... Ba3 7.375% 04/15/05 5,000 4,968,750
Owens Corning................................... Baa3 7.50% 05/01/05 5,000 5,100,000
--------------
10,068,750
--------------
INDUSTRIAL -- 0.3%
Compania Sud Americana de Vapores, SA,
(Chile)....................................... NR 7.375% 12/08/03 3,000 2,887,500
--------------
INVESTMENT BANKERS -- 8.1%
Lehman Brothers Holdings, Inc., M.T.N........... Baa1 6.40% 08/30/00 23,250 23,380,897
Merrill Lynch, Pierce, Fenner & Smith, Inc...... Aa3 5.838% 06/24/03 15,000 14,985,000
Morgan Stanley, Dean Witter, Discover & Co...... A1 6.09% 03/09/11 6,500 6,508,450
Salomon Inc..................................... A2 6.25% 10/01/99 8,000 8,027,280
Salomon Inc..................................... A2 6.65% 07/15/01 7,000 7,091,140
Salomon, Inc.................................... A2 6.50% 03/01/00 10,000 10,076,000
Salomon, Inc., M.T.N............................ A2 6.59% 02/21/01 3,500 3,548,510
Salomon, Inc.................................... A2 7.25% 05/01/01 2,250 2,313,833
--------------
75,931,110
--------------
LEISURE & TOURISM -- 1.4%
Royal Caribbean Cruises Ltd..................... Baa3 7.00% 10/15/07 8,000 8,192,480
Royal Caribbean Cruises Ltd..................... Baa3 7.25% 08/15/06 5,000 5,202,900
--------------
13,395,380
--------------
LODGING -- 1.4%
ITT Corp........................................ Ba1 6.25% 11/15/00 7,000 6,822,200
ITT Corp........................................ Baa2 6.75% 11/15/03 7,000 6,769,700
--------------
13,591,900
--------------
MEDIA -- 8.2%
CBS Corp........................................ Ba1 7.15% 05/20/05 9,400 9,400,000
News America Holding, Inc....................... Baa3 6.703% 05/21/34 36,000 36,315,000
Paramount Communications, Inc................... Ba2 7.50% 01/15/02 5,000 5,135,050
Time Warner, Inc................................ Baa3 8.11% 08/15/06 7,800 8,598,408
Turner Broadcasting System, Inc................. Baa3 7.40% 02/01/04 13,500 14,111,280
Viacom, Inc..................................... Ba2 7.75% 06/01/05 3,050 3,249,623
--------------
76,809,361
--------------
OIL & GAS -- 1.9%
B.J. Services Co................................ Baa2 7.00% 02/01/06 5,000 5,145,000
Occidental Petroleum Corp....................... Baa2 10.125% 11/15/01 5,000 5,568,900
Occidental Petroleum Corp....................... Baa2 11.125% 08/01/10 5,000 6,787,700
--------------
17,501,600
--------------
OIL & GAS SERVICES -- 3.5%
K N Energy, Inc................................. Baa2 6.30% 03/01/21 15,000 15,024,900
R&B Falcon Corp................................. Ba1 6.50% 04/15/03 6,500 6,432,400
R&B Falcon Corp................................. Ba1 6.75% 04/15/05 6,100 6,031,253
R&B Falcon Corp................................. Ba1 7.375% 04/15/18 5,750 5,799,393
--------------
33,287,946
--------------
RAILROADS -- 0.6%
Norfolk Southern Corp........................... Baa1 7.80% 05/15/27 5,000 5,725,000
--------------
REAL ESTATE INVESTMENT TRUST -- 1.5%
ERP Operating L.P............................... A3 6.63% 04/13/15 6,500 6,532,500
Felcor Suite Hotels, Inc........................ Ba1 7.625% 10/01/07 7,900 7,861,843
--------------
14,394,343
--------------
RESTAURANTS -- 1.1%
Darden Restaurants, Inc......................... Baa1 7.125% 02/01/16 10,000 10,051,300
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B2
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
RETAIL -- 3.9%
Federated Department Stores, Inc................ Baa2 8.125% 10/15/02 $ 5,250 $ 5,608,050
Federated Department Stores, Inc................ Baa2 8.50% 06/15/03 10,200 11,118,000
Federated Department Stores, Inc................ Baa2 10.00% 02/15/01 3,000 3,267,000
Kroger Co., (The)............................... Baa3 6.375% 03/01/08 6,600 6,554,724
Meyer, (Fred) Inc............................... Ba2 7.15% 03/01/03 1,500 1,507,395
Meyer, (Fred) Inc............................... Ba2 7.375% 03/01/05 5,000 5,012,250
Rite Aid Corp................................... Baa1 6.70% 12/15/01 4,000 4,060,000
--------------
37,127,419
--------------
SUPRANATIONAL -- 0.1%
International Bank for Reconstruction and
Development................................... Aaa 12.375% 10/15/02 750 932,760
--------------
TELECOMMUNICATIONS -- 0.8%
Qwest Communications International Inc.......... Ba1 Zero 10/15/07 10,500 7,875,000
--------------
UTILITIES -- 3.6%
Arkla, Inc., M.T.N.............................. Baa1 9.32% 12/18/00 2,000 2,132,360
Commonwealth Edison Co.......................... Baa3 7.625% 01/15/07 7,525 7,999,301
El Paso Electric Company........................ Ba2 9.40% 05/01/11 4,000 4,554,360
Niagara Mohawk Power............................ Ba1 6.875% 04/01/03 4,000 4,070,360
Niagara Mohawk Power............................ Ba1 7.375% 08/01/03 8,000 8,340,480
Niagara Mohawk Power............................ Ba1 8.00% 06/01/04 5,000 5,351,500
Pennsylvania Power & Light Co................... A3 9.375% 07/01/21 1,150 1,276,282
--------------
33,724,643
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 21.4%
Federal Farm Credit Bank........................ 8.65% 10/01/99 150 155,274
Resolution Funding Corp......................... 8.125% 10/15/19 700 893,921
Resolution Funding Corp......................... Zero 10/15/15 17,100 6,252,273
Resolution Funding Corp......................... 8.625% 01/15/21 200 267,250
United States Treasury Bond..................... 8.125% 08/15/19 15,300 19,746,486
United States Treasury Bond..................... 5.50% 05/31/00 20,000 19,996,800
United States Treasury Note..................... 5.50% 02/29/00 6,100 6,098,109
United States Treasury Note..................... 5.50% 02/15/08 25 24,984
United States Treasury Note..................... 5.625% 05/15/08 31,600 32,029,444
United States Treasury Note..................... 6.125% 11/15/27 87,725 94,002,601
United States Treasury Note..................... 6.50% 05/15/05 5,600 5,910,632
United States Treasury Note..................... 7.25% 05/15/04 2,200 2,387,000
United States Treasury Note..................... 7.125% 09/30/99 3,500 3,566,710
United States Treasury Note..................... 7.50% 02/15/05 4,100 4,538,167
United States Treasury Strip.................... Zero 02/15/19 17,000 5,254,190
--------------
201,123,841
--------------
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES -- 1.0%
10/01/16
-
Federal National Mortgage Association........... 9.00% 09/01/21 450 477,767
05/20/02
-
Government National Mortgage Association........ 7.50% 02/15/26 8,953 9,204,270
--------------
9,682,037
--------------
FOREIGN GOVERNMENT BONDS -- 2.1%
City Of Moscow, (Russia)........................ Ba2 9.50% 05/31/00 2,000 1,680,000
City Of Moscow, (Russia)........................ Ba2 9.50% 05/31/00 1,000 840,000
City of St. Petersburg, (Russia)................ NR 9.50% 06/18/02 5,200 4,160,000
Republic of Panama, (Panama).................... Ba1 7.875% 02/13/02 8,000 7,840,000
Rio De Janeiro, (Brazil)........................ B1 10.375% 07/12/99 5,000 5,000,000
--------------
19,520,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $871,780,737)......................................................................... 895,243,467
--------------
SHORT-TERM INVESTMENT -- 3.3%
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account
(cost $30,681,000; Note 5).................... 5.715% 07/01/98 30,681 30,681,000
--------------
TOTAL INVESTMENTS -- 98.5%
(cost $902,461,737; Note 6)................................................................. 925,924,467
--------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.5%................................................. 14,246,643
--------------
NET ASSETS -- 100.0%.......................................................................... $ 940,171,110
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
M.T.N. Medium Term Note
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
SEE NOTES TO FINANCIAL STATEMENTS.
B3
<PAGE>
GOVERNMENT INCOME PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 95.4% PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 2.4%
Equicon Home Equity............................. 7.850% 03/18/14 $ 173 $ 173,366
Team Financing Corp............................. 7.350% 05/15/03 10,000 10,353,100
--------------
10,526,466
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.7%
Westpac Securitisation Trust, Ser. 1998-1G...... 5.805% 07/19/29 7,000 6,995,625
--------------
CORPORATE -- 1.9%
Merck & Co., Inc................................ 5.760% 05/03/37 8,000 8,293,440
--------------
MORTGAGE PASS-THROUGHS -- 32.8%
Federal Home Loan Mortgage Corp., ARM........... 7.707% 06/01/25 5,449 5,545,580
04/08/07
-
Federal National Mortgage Association........... Zero 10/08/09 43,480 24,134,346
Federal National Mortgage Association........... 6.060% 05/21/03 30,000 30,075,000
Federal National Mortgage Association........... 6.560% 08/27/04 25,000 25,386,750
02/01/02
-
Federal National Mortgage Association........... 7.500% 10/01/12 19,357 19,863,472
03/01/22
-
Federal National Mortgage Association........... 8.000% 05/01/26 1,484 1,537,340
02/01/25
-
Federal National Mortgage Association........... 9.000% 04/01/25 7,813 8,265,567
12/15/25
-
Government National Mortgage Association........ 7.500% 02/15/26 16,861 17,342,202
09/15/23
-
Government National Mortgage Association........ 8.000% 12/15/24 7,952 8,242,669
--------------
140,392,926
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 56.6%
Federal Farm Credit Bank........................ 5.900% 01/10/05 5,000 5,032,800
Israel AID...................................... Zero 03/15/06 18,272 11,827,100
Israel AID...................................... Zero 08/15/09 20,000 10,550,000
Resolution Funding Corp......................... 8.125% 10/15/19 4,200 5,363,526
Small Business Administration Participation
Certificates.................................. 7.200% 10/01/16 18,841 19,849,308
Small Business Administration Participation
Certificates.................................. 6.850% 07/01/17 4,897 5,075,946
Small Business Administration Participation
Certificates.................................. 7.150% 01/01/17 18,754 19,672,987
United States Treasury Bonds.................... 8.125% 08/15/19 61,100 78,856,882
United States Treasury Bonds.................... 8.125% 08/15/21 4,000 5,213,760
United States Treasury Bonds.................... 11.750% 02/15/10 37,000 49,360,220
United States Treasury Notes.................... 7.750% 12/31/99 25,000 25,789,000
United States Treasury Notes.................... 5.500% 02/15/08 3,000 2,998,110
United States Treasury Notes.................... 5.625% 05/15/08 3,000 3,040,770
--------------
242,630,409
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $396,090,105)........................................................... 408,838,866
--------------
SHORT-TERM INVESTMENTS -- 3.1%
REPURCHASE AGREEMENT -- 0.8%
Joint Repurchase Agreement Account (Note 5)..... 5.715% 07/01/98 3,325 3,325,000
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.3%
Main Place Funding.............................. 5.858% 07/17/98 10,000 10,000,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $13,324,954)............................................................ 13,325,000
--------------
TOTAL INVESTMENTS -- 98.5%
(cost $409,415,059; Note 6)................................................... 422,163,866
--------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.5%................................... 6,316,525
--------------
NET ASSETS -- 100.0%............................................................ $ 428,480,391
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B4
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 94.4% PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS -- 57.4% RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
AEROSPACE -- 0.4%
Raytheon Co.,
5.95%, 03/15/01............................... Baa1 $ 21,400 $ 21,314,400
--------------
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba1 2,875 2,936,813
--------------
AIRLINES -- 3.6%
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 20,000 25,743,800
10.375%, 02/01/11 (c)......................... Baa3 37,905 50,018,680
United Airlines, Inc.,
5.908%, 03/02/04.............................. Aa2 7,812 7,780,721
9.75%, 08/15/21............................... Baa3 8,125 10,577,531
10.67%, 05/01/04.............................. Baa3 46,665 55,753,475
11.21%, 05/01/14.............................. Baa3 18,433 25,606,755
--------------
175,480,962
--------------
ASSET-BACKED SECURITIES -- 0.7%
California Infrastructure,
6.14%, 03/25/02............................... Aaa 5,500 5,521,450
6.17%, 03/25/03............................... Aaa 6,000 6,041,280
6.28%, 09/25/05............................... Aaa 7,000 7,101,920
Standard Credit Card Master
Trust, 5.95%, 10/07/04 (c).................... Aaa 4,650 4,639,816
Team Financing Corp.,
7.35%, 05/15/03............................... Aa2 11,000 11,388,410
--------------
34,692,876
--------------
BANKS AND SAVINGS & LOANS -- 4.3%
Bank of Nova Scotia,
6.50%, 07/15/07............................... A1 7,200 7,308,000
Bankers Trust New York Corp.,
5.754%, 08/06/00.............................. A2 7,500 7,473,750
Capital One Bank,
6.97%, 02/04/02............................... Baa3 25,000 25,478,250
7.08%, 10/30/01............................... Baa3 35,100 35,856,054
7.35%, 06/20/00............................... Baa3 8,100 8,267,751
8.125%, 03/01/00.............................. Baa3 13,150 13,534,637
Chemical Banking,
5.891%, 02/28/00.............................. Aa3 4,000 4,017,600
Citicorp,
5.748%, 08/13/01.............................. Aa3 3,000 3,005,400
First Chicago NBD Corp.,
5.788%, 09/23/02.............................. A1 8,000 7,964,000
Kansallis-Osake-Pankki, (Finland),
8.65%, 01/01/49 (c)........................... A3 10,000 10,254,400
Merita Bank Ltd.,
7.50%, 12/29/49............................... NR 15,000 15,561,600
National Australia Bank, (Australia),
6.40%, 12/10/07............................... A1 8,400 8,658,132
Nationsbank Corp.,
5.858%, 06/19/02.............................. A1 5,000 5,028,300
Okobank, (Finland),
7.238%, 09/29/49 (c).......................... A3 18,750 18,328,125
7.325%, 10/29/49.............................. A3 9,000 9,081,000
7.70%, 10/29/49............................... A3 3,500 3,531,500
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Royal Bank of Canada, (Canada),
6.75%, 10/24/11 (c)........................... Aa3 $ 17,400 $ 17,740,342
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49.............................. A1 10,000 10,200,000
--------------
211,288,841
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.3%
Cable & Wire Communications, Inc.,
6.375%, 03/06/03.............................. Baa1 8,400 8,421,000
6.625%, 03/06/05.............................. Baa1 4,600 4,628,750
Continental Cablevision,
Inc., 8.50%, 09/15/01......................... Ba2 5,545 5,889,455
Tele-Communications, Inc.,
6.34%, 02/01/02............................... Baa3 12,000 11,955,720
6.375%, 09/15/99.............................. Baa3 8,000 8,036,720
7.375%, 02/15/00.............................. Ba1 40,700 41,556,735
8.25%, 01/15/03............................... Baa3 2,000 2,160,360
9.25%, 04/15/02............................... Baa3 9,500 10,472,040
9.875%, 06/15/22.............................. Baa3 12,900 17,504,010
--------------
110,624,790
--------------
COMPUTERS SOFTWARE & SERVICES -- 0.7%
Computer Associates International, Inc.,
6.375%, 04/15/05.............................. Baa1 23,000 22,770,000
6.50%, 04/15/08............................... Baa1 11,700 11,551,878
--------------
34,321,878
--------------
CONSULTING -- 1.0%
Comdisco, Inc., M.T.N.,
5.94%, 04/13/00............................... Baa1 12,500 12,468,750
6.11%, 08/04/99............................... Baa1 12,500 12,533,375
6.375%, 11/30/01.............................. Baa1 21,500 21,591,160
--------------
46,593,285
--------------
CONSUMER SERVICES
Service Corp. International,
7.00%, 06/01/15............................... A3 2,500 2,700,650
--------------
CONTAINERS -- 0.9%
Owens-Illinois, Inc.,
7.15%, 05/15/05............................... Ba1 30,000 30,291,000
7.50%, 05/15/10............................... Ba1 800 811,176
7.80%, 05/15/18............................... Ba1 12,000 12,307,320
--------------
43,409,496
--------------
DIVERSIFIED CONSUMER PRODUCT -- 0.1%
National Australia,
6.40%, 12/10/07............................... 5,600 5,772,088
--------------
DRUGS & MEDICAL SUPPLIES -- 0.2%
Mallinckrodt, Inc.,
6.30%, 03/15/01............................... Baa2 11,500 11,485,625
--------------
FINANCIAL SERVICES -- 14.3%
Advanta Corp., M.T.N.,
6.99%, 10/18/99............................... Ba3 10,000 14,561,700
7.25%, 08/16/99............................... B2 3,000 2,964,210
7.50%, 08/28/00............................... Ba2 35,000 33,813,150
Arkwright Corp.,,
9.625%, 08/15/26.............................. Baa3 8,000 9,330,000
AT&T Capital Corp., M.T.N.,
6.25%, 05/15/01............................... Baa3 35,500 35,587,330
Avco Financial Services,
5.739%, 11/17/99.............................. A2 3,500 3,496,150
Bear Stearns & Co,
6.50%, 07/05/00............................... A2 20,000 20,180,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B5
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Central Hispano Financial Services,
6.219%, 04/28/05.............................. A3 $ 10,000 $ 10,040,000
Conseco, Inc.,
6.80%, 06/15/05 (c)........................... Baa3 13,000 12,951,250
8.70%, 11/15/26............................... Ba2 29,813 33,515,809
8.796%, 04/01/27.............................. Ba2 9,400 10,650,012
ContiFinancial Corp.,
7.50%, 03/15/02............................... Ba1 34,000 33,983,680
8.375%, 08/15/03.............................. Ba1 16,085 16,657,465
Donaldson Lufkin, & Jenrette Inc.,
5.625%, 02/15/16.............................. Baa1 5,480 5,424,707
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa3 11,200 11,256,000
6.95%, 03/01/04............................... Baa2 17,500 17,740,625
7.00%, 06/15/00............................... Baa2 23,000 23,345,000
7.50%, 06/15/03............................... Baa3 5,000 5,297,500
8.75%, 12/15/99............................... Baa2 5,000 5,200,000
Ford Motor Credit Co.,
5.813%, 02/13/03.............................. A1 4,000 3,999,040
General Motors Acceptance Corp., M.T.N.,
5.95%, 04/20/01............................... A2 30,300 30,224,250
Lehman Brothers Holdings, Inc.,
5.988%, 09/03/02.............................. Baa1 4,000 3,992,360
6.33%, 08/01/00............................... Baa1 30,000 30,166,200
6.40%, 08/30/00............................... Baa1 79,000 79,444,770
6.71%, 10/12/99............................... Baa1 6,000 6,056,940
6.89%, 10/10/00............................... Baa1 10,545 10,729,221
7.125%, 07/15/02.............................. Baa1 16,000 16,516,320
MCN Investment Corp.,
6.30%, 04/02/11............................... Baa2 8,250 8,224,425
Merrill Lynch, Pierce, Fenner & Smith, Inc.,
5.838%, 06/24/03.............................. Aa3 4,000 3,996,000
Morgan Stanley Dean Witter & Co., M.T.N.,
5.89%, 03/20/00............................... A1 20,000 19,986,000
5.941%, 02/13/01.............................. A1 2,000 2,000,000
6.09%, 03/09/01............................... A1 21,000 21,027,300
PaineWebber Group, Inc.,
7.015%, 02/10/04.............................. Baa1 6,000 6,250,080
7.625%, 10/15/08.............................. Baa1 5,000 5,418,400
PT Alatief Freeport Financial Co., Sr. Notes
(Netherlands),
9.75%, 04/15/01............................... B3 8,950 7,965,500
Salomon, Inc.,
6.50%, 03/01/00 (c)........................... A2 38,500 38,792,600
6.59%, 02/21/01............................... A2 9,750 9,885,135
6.75%, 02/15/03............................... Baa1 5,000 5,100,350
7.25%, 05/01/01............................... A2 8,625 8,869,691
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 9,000 9,016,200
Textron Financial Corp.,
6.05%, 03/16/09............................... Aaa 36,454 36,444,440
Union Planters Corp.,
8.20%, 12/15/26............................... Baa1 12,000 12,919,560
US West Capital Corp.,
6.875%, 07/15/28.............................. A3 12,700 12,706,350
--------------
695,726,120
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FOREST PRODUCTS -- 0.4%
Fort James Corp.,
6.234%, 03/15/11.............................. Baa3 $ 17,500 $ 17,478,125
--------------
INDUSTRIAL -- 1.8%
Compania Sud Americana de Vapores, S.A.,
(Chile),
7.375%, 12/08/03.............................. NR 7,600 7,315,000
Security Capital Group,
6.95%, 06/15/05............................... Baa1 4,500 4,494,375
7.70%, 06/15/28............................... Baa1 5,000 5,052,700
U.S. Filter Corp.,
6.375%, 05/15/01.............................. Ba1 50,000 49,941,500
6.50%, 05/15/03............................... Baa1 20,000 19,955,400
--------------
86,758,975
--------------
LODGING -- 0.9%
ITT Corp.,
6.25%, 11/15/00............................... Ba1 23,703 23,100,944
6.75%, 11/15/03............................... Baa2 21,500 20,792,650
--------------
43,893,594
--------------
MEDIA -- 1.5%
CBS Corp.,
7.15%, 05/20/05............................... Ba1 9,100 9,100,000
Paramount Communications, Inc., Sr. Notes,
7.50%, 01/15/02............................... Ba2 6,425 6,598,539
Time Warner, Inc.,
6.10%, 12/30/01............................... Ba1 27,650 27,564,285
8.11%, 08/15/06............................... Baa3 1,500 1,653,540
Viacom, Inc.,
7.75%, 06/01/05............................... Ba2 27,975 29,805,964
--------------
74,722,328
--------------
MISCELLANEOUS -- 0.3%
Loewen Group, Inc.,
7.20%, 06/01/03............................... Ba1 10,000 9,961,600
7.60%, 06/01/08............................... Ba1 6,100 6,072,977
--------------
16,034,577
--------------
OIL & GAS SERVICES -- 3.5%
B.J. Services Co.,
7.00%, 02/01/06............................... Baa2 4,000 4,116,000
KN Energy, Inc.,
6.30%, 03/01/01............................... Baa2 27,550 27,595,733
R&B Falcon Corp.,
6.50%, 04/15/03............................... Ba1 37,050 36,664,680
6.75%, 04/15/05............................... Ba1 34,000 33,616,820
Vastar Resources,
6.00%, 04/20/10............................... Baa1 10,000 9,996,000
Williams Companies, Inc.,
5.95%, 02/15/00............................... Baa2 37,000 36,863,100
5.95%, 02/15/10............................... 22,000 21,918,600
--------------
170,770,933
--------------
REAL ESTATE INVESTMENT TRUST -- 2.3%
ERP Operating, L.P.,
6.50%, 06/15/04............................... Baa1 6,000 5,988,000
6.625%, 02/15/05.............................. Bbb1 17,938 17,950,557
6.63%, 04/13/15............................... A3 22,400 22,512,000
Felcor Suite Hotels, Inc.,
7.625%, 10/01/07.............................. Ba1 8,000 7,961,360
First Industrial, L.P.,
6.50%, 04/05/11............................... Baa2 9,000 9,011,250
Gables Realty Trust,
6.80%, 03/15/05............................... Baa2 7,500 7,443,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B6
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Simon Debartolo Group, Inc.,
6.75%, 07/15/04............................... Baa1 $ 8,000 $ 7,990,640
6.75%, 06/15/05............................... Baa1 17,500 17,390,625
6.875%, 10/27/05.............................. Baa1 14,858 14,827,987
--------------
111,076,169
--------------
RETAIL -- 3.6%
Federated Department Stores, Inc.,
8.125%, 10/15/02 (c).......................... Baa2 41,030 43,828,246
8.50%, 06/15/03............................... Baa2 32,400 35,316,000
10.00%, 02/15/01.............................. Baa2 54,037 58,846,293
Fred Meyer, Inc.,
7.15%, 03/01/03............................... Ba2 30,000 30,147,900
Rite Aid Corp.,
6.70%, 12/15/01............................... Baa1 5,000 5,075,000
--------------
173,213,439
--------------
TELECOMMUNICATIONS -- 1.2%
360 Communication Co.,
7.125%, 03/01/03.............................. Baa1 22,550 23,389,537
7.50%, 03/01/06............................... Baa1 25,000 26,649,500
7.60%, 04/01/09............................... Baa1 6,250 6,762,313
--------------
56,801,350
--------------
TOBACCO -- 1.3%
Philip Morris Cos., Inc.,
6.15%, 03/15/10............................... A2 40,000 39,950,000
RJR Nabisco, Inc.,
8.75%, 08/15/05............................... Baa3 6,900 7,195,804
9.25%, 08/15/13............................... Baa3 13,571 14,638,495
--------------
61,784,299
--------------
TRANSPORTATION/TRUCKING/SHIPPING
Federal Express Corp., M.T.N.,
10.05%, 06/15/99.............................. Baa3 500 517,860
--------------
UTILITIES -- 1.1%
Commonwealth Edison Co.,
7.375%, 01/15/04.............................. Baa3 14,000 14,537,880
7.625%, 01/15/07.............................. Baa3 16,000 17,008,480
Hyder PLC, (United Kingdom),
6.75%, 12/15/04............................... Baa1 4,000 4,074,840
6.875%, 12/15/07.............................. Baa1 4,550 4,671,986
Hydro-Quebec, (Canada),
5.813%, 09/29/49.............................. A+ 4,000 3,540,000
Niagara Mohawk Power,
7.375%, 08/01/03.............................. Ba1 10,000 10,425,600
--------------
54,258,786
--------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 10.4%
United States Treasury Bonds,
5.50%, 05/31/03............................... 11,100 11,101,776
8.00%, 11/15/21............................... 97,700 125,941,162
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
United States Treasury Notes,
5.375%, 02/15/01.............................. $ 11,200 $ 11,161,472
5.50%, 01/31/03............................... 14,000 13,989,080
5.50%, 02/15/08............................... 6,600 6,595,842
5.625%, 05/15/08.............................. 55,125 55,874,149
5.75%, 04/30/03............................... 27,680 27,871,584
5.875%, 02/15/04.............................. 20,200 20,572,488
6.125%, 11/15/27.............................. 153,350 164,323,726
6.50%, 05/31/01............................... 43,400 44,511,908
6.50%, 05/15/05............................... 15,900 16,781,973
7.875%, 11/15/04.............................. 6,500 7,300,280
--------------
506,025,440
--------------
FOREIGN GOVERNMENT BONDS -- 0.5%
City of Moscow, (Russia),
9.50%, 05/31/00............................... Ba2 16,500 13,860,000
City of St. Petersburg, (Russia),
9.50%, 06/18/02............................... NR 9,000 7,200,000
Republic of Panama,
6.75%, 05/14/02............................... Ba1 923 900,023
United Mexican States,
7.002%, 06/27/02.............................. Ba2 1,000 976,000
--------------
22,936,023
--------------
TOTAL LONG-TERM BONDS
(cost $2,749,284,969).................................................... 2,792,619,722
--------------
COMMON STOCKS -- 36.3% SHARES
-------------
AEROSPACE -- 0.7%
Aeroquip-Vickers, Inc........................... 4,400 256,850
AlliedSignal, Inc............................... 88,300 3,918,312
Boeing Co....................................... 156,500 6,974,031
GenCorp, Inc.................................... 100,000 2,525,000
General Dynamics Corp........................... 19,700 916,050
Goodrich (B.F.) Co.............................. 11,300 560,762
Litton Industries, Inc. (c)..................... 78,900 4,655,100
Lockheed Martin Corp............................ 30,400 3,218,600
Northrop Grumman Corp........................... 10,500 1,082,812
Parker-Hannifin Corp............................ 43,925 1,674,641
Raytheon Co. (Class "B" Stock).................. 38,300 2,264,487
United Technologies Corp........................ 36,500 3,376,250
--------------
31,422,895
--------------
AIRLINES -- 0.6%
AMR Corp. (a)................................... 186,200 15,501,150
Delta Air Lines, Inc............................ 11,700 1,512,225
Southwest Airlines Co........................... 34,600 1,025,025
US Airways Group, Inc. (a)...................... 129,200 10,239,100
--------------
28,277,500
--------------
APPAREL -- 0.1%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 73,800 2,449,237
Nike, Inc. (Class "B" Stock).................... 45,500 2,215,281
Phillips-Van Heusen Corp........................ 96,300 1,420,425
Reebok International Ltd. (a)................... 8,800 243,650
--------------
6,328,593
--------------
AUTOS - CARS & TRUCKS -- 1.1%
Chrysler Corp................................... 249,400 14,059,925
Cummins Engine Co., Inc......................... 6,000 307,500
Dana Corp....................................... 16,400 877,400
Echlin, Inc..................................... 9,900 485,719
Ford Motor Co................................... 283,500 16,726,500
General Motors Corp............................. 221,800 14,819,012
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B7
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Genuine Parts Co................................ 28,000 $ 967,750
Johnson Controls, Inc........................... 13,200 754,875
Mascotech, Inc.................................. 96,000 2,304,000
Midas, Inc...................................... 22,500 452,812
Navistar International Corp. (a)................ 11,300 326,287
PACCAR, Inc..................................... 12,200 637,450
Titan International, Inc........................ 102,950 1,750,150
TRW, Inc........................................ 19,300 1,054,262
--------------
55,523,642
--------------
BANKS AND SAVINGS & LOANS -- 2.5%
Ahmanson (H.F.) & Co............................ 17,100 1,214,100
Banc One Corp................................... 109,900 6,133,794
Bank of New York Co., Inc....................... 59,000 3,580,562
BankAmerica Corp................................ 108,600 9,387,112
BankBoston Corp................................. 45,600 2,536,500
Bankers Trust Corp.............................. 15,300 1,775,756
BB&T Corp....................................... 22,300 1,508,037
Chase Manhattan Corp............................ 132,000 9,966,000
Citicorp........................................ 71,500 10,671,375
Comerica, Inc................................... 24,700 1,636,375
First Chicago NBD Corp.......................... 45,600 4,041,300
First Union Corp................................ 151,500 8,824,875
Fleet Financial Group, Inc...................... 42,700 3,565,450
Golden West Financial Corp...................... 8,900 946,181
Huntington Bancshares, Inc...................... 30,000 1,005,000
KeyCorp......................................... 68,800 2,451,000
Mellon Bank Corp................................ 39,900 2,778,037
Mercantile Bancorporation, Inc.................. 20,500 1,032,687
Morgan (J.P.) & Co., Inc........................ 27,800 3,256,075
National City Corp.............................. 51,400 3,649,400
NationsBank Corp................................ 147,275 11,266,537
Northern Trust Corp............................. 17,500 1,334,375
Norwest Corp.................................... 118,300 4,421,462
PNC Bank Corp................................... 47,800 2,572,237
Providian Financial Corp........................ 14,900 1,170,581
Republic New York Corp.......................... 17,100 1,076,231
Summit Bancorp.................................. 27,600 1,311,000
Suntrust Banks, Inc............................. 33,000 2,683,312
Synovus Financial Corp.......................... 41,150 977,312
U.S. Bancorp.................................... 115,300 4,957,900
Wachovia Corp................................... 32,300 2,729,350
Wells Fargo & Co................................ 13,600 5,018,400
--------------
119,478,313
--------------
BUSINESS SERVICES
Equifax, Inc.................................... 23,500 853,344
Omnicom Group, Inc.............................. 25,400 1,266,825
--------------
2,120,169
--------------
CHEMICALS -- 0.9%
Air Products & Chemicals, Inc................... 36,900 1,476,000
Dow Chemical Co................................. 35,500 3,432,406
Du Pont (E.I.) de Nemours & Co.................. 177,200 13,223,550
Eastman Chemical Co............................. 12,300 765,675
Ferro Corp...................................... 137,100 3,470,344
FMC Corp. (a)................................... 5,400 368,212
Hercules, Inc................................... 15,100 620,987
Millennium Chemicals, Inc....................... 148,927 5,044,902
Monsanto Co..................................... 92,900 5,190,787
Engelhard Corp.................................. 22,600 457,650
Grace (W.R.) & Co............................... 11,600 197,925
Great Lakes Chemical Corp....................... 9,400 370,712
Morton International, Inc....................... 20,400 510,000
Praxair, Inc.................................... 24,700 1,156,269
Raychem Corp.................................... 13,300 393,181
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Nalco Chemical Co............................... 10,400 $ 365,300
OM Group, Inc................................... 64,400 2,656,500
Rohm & Haas Co.................................. 9,600 997,800
Sigma-Aldrich Corp.............................. 15,700 551,462
Union Carbide Corp.............................. 19,300 1,030,137
--------------
42,279,799
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp. (a)............................... 126,900 2,649,037
Deluxe Corp..................................... 12,700 454,819
Moore Corp. Ltd................................. 13,900 184,175
--------------
3,288,031
--------------
COMPUTER SERVICES -- 1.4%
3Com Corp. (a).................................. 55,500 1,703,156
Adobe Systems, Inc.............................. 10,800 458,325
Autodesk, Inc................................... 7,300 281,962
Automatic Data Processing, Inc.................. 46,800 3,410,550
Bay Networks, Inc. (a).......................... 34,400 1,109,400
Cabletron Systems, Inc. (a)..................... 24,800 333,250
Ceridian Corp. (a).............................. 11,300 663,875
Computer Associates International, Inc.......... 85,500 4,750,594
Computer Sciences Corp. (a)..................... 24,400 1,561,600
EMC Corp. (a)................................... 77,700 3,481,931
First Data Corp................................. 67,000 2,231,937
Microsoft Corp. (a)............................. 381,300 41,323,387
Novell, Inc. (a)................................ 55,000 701,250
Oracle Corp. (a)................................ 154,100 3,785,081
Parametric Technology Corp. (a)................. 40,200 1,090,425
Silicon Graphics, Inc. (a)...................... 29,400 356,475
--------------
67,243,198
--------------
COMPUTERS -- 1.3%
Apple Computer, Inc. (a)........................ 20,800 596,700
Cisco Systems, Inc. (a)......................... 159,400 14,674,762
Compaq Computer Corp............................ 258,789 7,343,138
Data General Corp. (a).......................... 7,600 113,525
Dell Computer Corp. (a)......................... 102,200 9,485,437
Gateway 2000, Inc. (a).......................... 24,300 1,230,187
Hewlett-Packard Co.............................. 162,900 9,753,637
International Business Machines Corp............ 152,300 17,485,944
Seagate Technology, Inc. (a).................... 37,900 902,494
Sun Microsystems, Inc. (a)...................... 59,100 2,567,156
--------------
64,152,980
--------------
CONSTRUCTION -- 0.3%
Centex Corp..................................... 9,300 351,075
Fluor Corp...................................... 13,100 668,100
Foster Wheeler Corp............................. 6,400 137,200
Oakwood Homes Corp.............................. 141,600 4,248,000
Owens Corning................................... 8,400 342,825
Pulte Corp...................................... 6,600 197,175
Standard Pacific Corp........................... 156,600 3,229,875
Webb (Del E.) Corp.............................. 142,600 3,698,687
--------------
12,872,937
--------------
CONTAINERS -- 0.1%
Ball Corp....................................... 4,700 188,881
Bemis Co., Inc.................................. 8,300 339,262
Crown Cork & Seal Co., Inc...................... 20,100 954,750
Owens-Illinois, Inc. (a)........................ 82,500 3,691,875
Sealed Air Corp. (a)............................ 12,900 474,075
Stone Container Corp. (a)....................... 15,600 243,750
--------------
5,892,593
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B8
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
COSMETICS & SOAPS -- 0.7%
Alberto Culver Co. (Class "B" Stock)............ 8,900 $ 258,100
Avon Products, Inc.............................. 20,700 1,604,250
Colgate-Palmolive Co............................ 46,300 4,074,400
Gillette Co..................................... 175,400 9,942,987
International Flavors & Fragrances, Inc......... 17,100 742,781
Procter & Gamble Co............................. 210,200 19,141,337
--------------
35,763,855
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.2%
Avery Dennison Corp............................. 16,100 865,375
Pitney Bowes, Inc............................... 42,800 2,059,750
Unisys Corp. (a)................................ 39,100 1,104,575
Xerox Corp...................................... 51,000 5,182,875
--------------
9,212,575
--------------
DIVERSIFIED OPERATIONS -- 1.0%
Cognizant Corp.................................. 25,400 1,600,200
Fortune Brands, Inc............................. 26,900 1,033,969
General Electric Capital Corp................... 512,500 46,637,500
--------------
49,271,669
--------------
DRUGS AND MEDICAL SUPPLIES -- 3.2%
Abbott Laboratories............................. 239,600 9,793,650
Allergan, Inc................................... 10,200 473,025
ALZA Corp. (a).................................. 13,400 579,550
American Home Products Corp..................... 203,500 10,531,125
Amgen, Inc. (a)................................. 41,200 2,693,450
Bard (C.R.), Inc................................ 8,900 338,756
Bausch & Lomb, Inc.............................. 8,700 436,087
Baxter International, Inc....................... 43,900 2,362,369
Becton, Dickinson & Co.......................... 19,100 1,482,637
Biomet, Inc..................................... 17,500 578,594
Boston Scientific Corp. (a)..................... 30,500 2,184,562
Bristol-Myers Squibb Co......................... 155,700 17,895,769
Cardinal Health, Inc............................ 17,200 1,612,500
Guidant Corp.................................... 23,600 1,682,975
Johnson & Johnson............................... 210,600 15,531,750
Lilly (Eli) & Co................................ 173,700 11,475,056
Mallinckrodt, Inc............................... 11,400 338,437
Medtronic, Inc.................................. 73,400 4,679,250
Merck & Co., Inc................................ 187,700 25,104,875
Pfizer, Inc..................................... 202,500 22,009,219
Pharmacia & Upjohn, Inc......................... 79,500 3,666,937
Schering-Plough Corp............................ 114,700 10,509,387
St. Jude Medical, Inc. (a)...................... 14,400 530,100
United States Surgical Corp..................... 11,900 542,937
Warner-Lambert Co............................... 127,900 8,873,062
--------------
155,906,059
--------------
ELECTRONICS -- 0.9%
Advanced Micro Devices, Inc. (a)................ 22,200 378,787
AMP Inc......................................... 34,500 1,185,937
Applied Materials, Inc. (a)..................... 57,300 1,690,350
Belden, Inc..................................... 68,200 2,088,625
EG&G, Inc....................................... 7,100 213,000
Emerson Electric Co............................. 69,400 4,190,025
Grainger (W.W.), Inc............................ 15,600 777,075
Harris Corp..................................... 12,500 558,594
Honeywell, Inc.................................. 19,900 1,662,894
Intel Corp...................................... 256,200 18,990,825
KLA-Tencor Corp. (a)............................ 13,200 365,475
LSI Logic Corp. (a)............................. 22,200 511,987
Micron Technology, Inc. (a)..................... 33,100 821,294
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Motorola, Inc................................... 93,500 $ 4,914,594
Perkin-Elmer Corp............................... 7,600 472,625
Rockwell International Corp..................... 31,500 1,513,969
Tektronix, Inc.................................. 7,900 279,462
Texas Instruments, Inc.......................... 61,100 3,562,894
Thomas & Betts Corp............................. 8,600 423,550
--------------
44,601,962
--------------
ENGINEERING & CONSTRUCTION
Giant Cement Holdings, Inc. (a)................. 59,100 1,691,737
--------------
ENVIRONMENTAL SERVICES
Browning-Ferris Industries, Inc................. 28,800 1,000,800
--------------
FINANCIAL SERVICES -- 2.1%
American Express Co............................. 72,800 8,299,200
Associates First Capital Corp................... 79,327 6,098,263
Beneficial Corp................................. 8,300 1,271,456
Block (H.R.), Inc............................... 16,400 690,850
Countrywide Credit Industries, Inc.............. 17,000 862,750
Federal Home Loan Mortgage Corp................. 108,800 5,120,400
Federal National Mortgage Association........... 166,200 10,096,650
Fifth Third Bancorp............................. 36,500 2,299,500
Franklin Resource, Inc.......................... 39,600 2,138,400
Green Tree Financial Corp....................... 21,300 911,906
Household International, Inc.................... 50,300 2,502,425
Lehman Brothers Holdings, Inc................... 190,000 14,736,875
MBNA Corp....................................... 78,500 2,590,500
Merrill Lynch & Co., Inc........................ 111,400 10,276,650
Morgan Stanley Dean Witter & Co................. 147,690 13,495,174
Schwab (Charles) Corp........................... 41,600 1,352,000
State Street Corp............................... 25,200 1,751,400
Sunamerica, Inc................................. 30,600 1,757,587
Transamerica Corp............................... 9,800 1,128,225
Travelers Group, Inc............................ 230,550 13,977,094
Washington Mutual, Inc.......................... 60,450 2,625,797
--------------
103,983,102
--------------
FOOD & BEVERAGES -- 1.7%
Anheuser-Busch Companies, Inc................... 76,700 3,619,281
Archer-Daniels-Midland Co....................... 89,500 1,734,062
Bestfoods....................................... 45,100 2,618,619
Brown-Forman Corp. (Class "B" Stock)............ 10,800 693,900
Campbell Soup Co................................ 71,500 3,798,437
Coca-Cola Co.................................... 387,300 33,114,150
ConAgra, Inc.................................... 74,500 2,360,719
Coors (Adolph) Co. (Class "B" Stock)............ 5,800 197,200
General Mills, Inc.............................. 24,800 1,695,700
Giant Food, Inc. (Class "A" Stock).............. 9,400 404,787
Heinz (H.J.) & Co............................... 57,200 3,210,350
Hershey Foods Corp.............................. 22,400 1,545,600
Kellogg Co...................................... 64,400 2,419,025
PepsiCo, Inc.................................... 237,600 9,786,150
Pioneer Hi-Bred International, Inc.............. 38,300 1,584,662
Quaker Oats Co.................................. 21,700 1,192,144
Ralston-Ralston Purina Group.................... 16,800 1,962,450
Sara Lee Corp................................... 74,100 4,144,969
Seagram Co., Ltd................................ 55,800 2,284,312
Sysco Corp...................................... 53,300 1,365,812
Whitman Corp.................................... 135,000 3,096,562
Wrigley (William) Jr. Co........................ 18,200 1,783,600
--------------
84,612,491
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B9
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOREST PRODUCTS -- 0.5%
Boise Cascade Corp.............................. 145,600 $ 4,768,400
Champion International Corp..................... 96,200 4,731,837
Fort James Corp................................. 32,700 1,455,150
Georgia-Pacific Corp............................ 14,500 854,594
International Paper Co.......................... 47,300 2,033,900
Louisiana-Pacific Corp.......................... 175,400 3,201,050
Mead Corp....................................... 96,500 3,063,875
Potlatch Corp................................... 4,500 189,000
Temple-Inland, Inc.............................. 8,900 479,487
Union Camp Corp................................. 10,900 540,912
Westvaco Corp................................... 16,000 452,000
Weyerhaeuser Co................................. 31,300 1,445,669
Willamette Industries, Inc...................... 70,300 2,249,600
--------------
25,465,474
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group........................... 13,000 723,125
Consolidated Natural Gas Co..................... 15,000 883,125
Peoples Energy Corp............................. 5,500 212,437
Sempra Energy (a)............................... 19,699 546,668
Sonat, Inc...................................... 17,200 664,350
Williams Companies, Inc......................... 64,400 2,173,500
--------------
5,203,205
--------------
HEALTHCARE -- 0.1%
Smith (A.O.) Corp............................... 71,500 3,695,656
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 0.3%
Columbia/HCA Healthcare Corp.................... 305,200 8,888,950
Healthsouth Corp. (a)........................... 61,600 1,643,950
Humana, Inc. (a)................................ 25,700 801,519
Manor Care, Inc................................. 10,000 384,375
Service Corp. International..................... 39,400 1,689,275
Shared Medical Systems Corp..................... 4,100 301,094
Tenet Healthcare Corp. (a)...................... 48,000 1,500,000
--------------
15,209,163
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.2%
Clorox Co....................................... 16,200 1,545,075
Kimberly-Clark Corp............................. 87,000 3,991,125
Leggett & Platt, Inc............................ 116,600 2,915,000
--------------
8,451,200
--------------
HOUSING RELATED -- 0.4%
Armstrong World Industries, Inc................. 6,400 431,200
Fleetwood Enterprises, Inc...................... 5,700 228,000
Hanson, PLC, ADR, (United Kingdom).............. 305,362 9,256,286
Kaufman & Broad Home Corp....................... 6,100 193,675
Lowe's Companies, Inc........................... 54,800 2,222,825
Masco Corp...................................... 25,900 1,566,950
Maytag Corp..................................... 14,900 735,687
Owens Corning................................... 100,100 4,085,331
Stanley Works................................... 14,000 581,875
Tupperware Corp................................. 9,600 270,000
Whirlpool Corp.................................. 11,700 804,375
--------------
20,376,204
--------------
INSURANCE -- 1.6%
Aetna, Inc...................................... 23,300 1,773,712
Allstate Corp................................... 67,200 6,153,000
American General Corp........................... 39,700 2,826,144
American International Group, Inc............... 109,900 16,045,400
Aon Corp........................................ 26,300 1,847,575
Berkley (W.R.) Corp............................. 43,100 1,726,694
Chubb Corp...................................... 26,700 2,146,012
CIGNA Corp...................................... 34,800 2,401,200
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Cincinnati Financial Corp....................... 25,800 $ 990,075
Conseco, Inc.................................... 29,500 1,379,125
Financial Security Assurance Holdings Ltd....... 34,600 2,032,750
General Re Corp................................. 12,300 3,118,050
Hartford Financial Services Group, Inc.......... 18,500 2,115,937
Jefferson-Pilot Corp............................ 16,600 961,762
Lincoln National Corp........................... 16,000 1,462,000
Loews Corp...................................... 47,500 4,138,437
Marsh & McLennan Companies, Inc................. 39,900 2,411,456
MBIA, Inc....................................... 15,300 1,145,587
MGIC Investment Corp............................ 17,900 1,021,419
PennCorp Financial Group, Inc................... 81,600 1,672,800
Progressive Corp................................ 11,300 1,593,300
Provident Companies, Inc........................ 54,300 1,873,350
Reinsurance Group of America, Inc............... 117,450 6,944,231
SAFECO Corp..................................... 22,100 1,004,169
St. Paul Companies, Inc......................... 36,200 1,522,662
TIG Holdings, Inc............................... 86,900 1,998,700
Torchmark Corp.................................. 21,900 1,001,925
Trenwick Group, Inc............................. 65,950 2,561,745
United Healthcare Corp.......................... 29,500 1,873,250
UNUM Corp....................................... 21,700 1,204,350
--------------
78,946,817
--------------
INTRUMENTS - CONTROLS
Flowserve Corp.................................. 40,186 989,580
Parker Hannifin Corp............................ 17,400 663,375
--------------
1,652,955
--------------
LEISURE -- 0.3%
Brunswick Corp.................................. 15,600 386,100
Disney (Walt) Co................................ 105,700 11,105,106
Harrah's Entertainment, Inc. (a)................ 15,800 367,350
King World Productions, Inc. (a)................ 11,500 293,250
Mirage Resorts, Inc. (a)........................ 28,100 598,881
--------------
12,750,687
--------------
LODGING
Hilton Hotels Corp.............................. 39,200 1,117,200
Marriott International, Inc. (Class "A"
Stock)........................................ 40,000 1,295,000
--------------
2,412,200
--------------
MACHINERY -- 0.4%
Briggs & Stratton Corp.......................... 3,900 146,006
Case Corp....................................... 100,200 4,834,650
Caterpillar, Inc................................ 58,300 3,082,612
Cincinnati Milacron, Inc........................ 6,300 153,169
Cooper Industries, Inc.......................... 19,000 1,043,812
Deere & Co...................................... 39,100 2,067,412
Dover Corp...................................... 34,800 1,191,900
DT Industries, Inc.............................. 36,400 882,700
Eaton Corp...................................... 11,200 870,800
Global Industrial Technologies, Inc. (a)........ 62,400 897,000
Harnischfeger Industries, Inc................... 7,500 212,344
Ingersoll-Rand Co............................... 25,900 1,141,219
McDermott International, Inc.................... 9,500 327,156
Paxar Corp...................................... 233,725 2,687,837
Snap-On, Inc.................................... 9,500 344,375
Timken Co....................................... 9,900 305,044
--------------
20,188,036
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B10
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MANUFACTURING -- 0.2%
Hussmann International, Inc..................... 67,500 $ 1,252,969
Illinois Tool Works, Inc........................ 39,100 2,607,481
Tyco International Ltd.......................... 89,600 5,644,800
--------------
9,505,250
--------------
MEDIA -- 1.3%
CBS Corp........................................ 307,200 9,753,600
Central Newspapers, Inc. (Class "A" Stock)...... 50,800 3,543,300
Clear Channel Communications, Inc. (a).......... 19,300 2,106,113
Comcast Corp. (Special Class "A" Stock)......... 54,700 2,220,478
Donnelley (R.R.) & Sons Co...................... 22,800 1,043,100
Dow Jones & Co., Inc............................ 15,100 841,825
Dun & Bradstreet Corp........................... 26,700 964,538
Eastman Kodak Co................................ 50,900 3,718,881
Gannett Co., Inc................................ 44,400 3,155,175
HBO & Co........................................ 66,000 2,326,500
Houghton Mifflin Co............................. 59,700 1,895,475
Interpublic Group of Companies, Inc............. 19,700 1,195,544
Knight Ridder, Inc.............................. 71,600 3,942,475
Lee Enterprises, Inc............................ 51,700 1,583,313
McGraw-Hill, Inc................................ 15,500 1,264,219
Mediaone Group, Inc............................. 95,100 4,178,456
Meredith Corp................................... 8,300 389,581
New York Times Co. (Class "A" Stock)............ 15,000 1,188,750
Tele-Communications, Inc. (Series "A"
Stock) (a).................................... 79,400 3,051,938
Time Warner, Inc................................ 90,600 7,740,638
Times Mirror Co. (Class "A" Stock).............. 13,900 873,963
Tribune Co...................................... 19,300 1,328,081
Viacom, Inc. (Class "B" Stock) (a).............. 55,300 3,221,225
--------------
61,527,168
--------------
METALS - FERROUS -- 0.2%
Allegheny Teledyne, Inc......................... 30,700 702,263
Armco, Inc. (a)................................. 16,900 107,738
Bethlehem Steel Corp.(a)........................ 225,200 2,800,925
Inland Steel Industries, Inc.................... 7,700 217,044
LTV Corp........................................ 208,300 1,991,869
Material Sciences Corp. (a)..................... 98,500 1,145,063
National Steel Corp. (Class "B" Stock) (a)...... 42,900 509,438
Nucor Corp...................................... 13,800 634,800
USX-U.S. Steel Group, Inc....................... 68,500 2,260,500
Worthington Industries, Inc..................... 15,200 228,950
--------------
10,598,590
--------------
METALS - NON FERROUS -- 0.3%
Alcan Aluminum Ltd.............................. 35,600 983,450
Aluminum Company of America..................... 186,900 12,323,719
Cyprus Amax Minerals Co......................... 14,600 193,450
Inco Ltd........................................ 26,200 356,975
Reynolds Metals Co.............................. 11,600 648,875
--------------
14,506,469
--------------
MINERAL RESOURCES
ASARCO, Inc..................................... 6,300 140,175
Burlington Resources, Inc....................... 27,600 1,188,525
Homestake Mining Co............................. 33,100 343,413
Phelps Dodge Corp............................... 9,200 526,125
--------------
2,198,238
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MISCELLANEOUS - BASIC INDUSTRY -- 0.4%
Coltec Industries, Inc.......................... 44,400 $ 882,450
Crane Co........................................ 7,200 349,650
Donaldson Co., Inc.............................. 111,000 2,622,375
Ecolab, Inc..................................... 20,200 626,200
General Signal Corp............................. 6,800 244,800
IDEX Corp....................................... 61,100 2,107,950
ITT Industries, Inc............................. 18,500 691,438
Laidlaw, Inc.................................... 51,500 627,656
Mark IV Industries, Inc......................... 87,942 1,901,746
Millipore Corp.................................. 6,800 185,300
NACCO Industries, Inc. (Class "A" Stock)........ 1,300 168,025
Pall Corp....................................... 19,500 399,750
PPG Industries, Inc............................. 27,900 1,940,794
Textron, Inc.................................... 25,700 1,842,369
Thermo Electron Corp. (a)....................... 24,900 851,269
Trinity Industries, Inc......................... 53,100 2,203,650
Wolverine Tube, Inc. (a)........................ 37,600 1,428,800
York International Corp......................... 27,400 1,193,613
--------------
20,267,835
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.4%
American Greetings Corp. (Class "A" Stock)...... 11,400 580,688
Black & Decker Corp............................. 14,900 908,900
Corning, Inc.................................... 36,200 1,257,950
Eastman Kodak Co................................ 36,500 2,666,781
Jostens, Inc.................................... 6,100 147,163
Minnesota Mining & Manufacturing Co............. 64,000 5,260,000
Polaroid Corp................................... 7,000 248,938
Rubbermaid, Inc................................. 23,500 779,906
Unilever N.V., ADR, (United Kingdom)............ 100,300 7,917,431
--------------
19,767,757
--------------
MISCELLANEOUS - INDUSTRIAL
Tenneco, Inc.................................... 26,700 1,016,269
--------------
OIL & GAS -- 2.2%
Amerada Hess Corp............................... 14,400 782,100
Amoco Corp...................................... 152,500 6,347,813
Anadarko Petroleum Corp......................... 9,400 631,563
Ashland, Inc.................................... 11,800 609,175
Atlantic Richfield Co........................... 50,200 3,921,875
Basin Exploration, Inc. (a)..................... 17,700 311,963
Cabot Oil & Gas Corp. (Class "A" Stock)......... 90,100 1,802,000
Chevron Corp.................................... 102,900 8,547,131
Coastal Corp.................................... 16,600 1,158,888
Eastern Enterprises............................. 3,200 137,200
Enron Oil & Gas Co.............................. 49,200 996,300
Exxon Corp...................................... 386,200 27,540,888
Kerr-McGee Corp................................. 7,500 434,063
Mobil Corp...................................... 122,800 9,409,550
Murphy Oil Corp................................. 28,100 1,424,319
NICOR, Inc...................................... 7,600 304,950
Noble Affiliates, Inc........................... 51,700 1,964,600
Pennzoil Co..................................... 7,400 374,625
Phillips Petroleum Co........................... 41,200 1,985,325
Pioneer Natural Resources Co.................... 340,244 8,123,326
Royal Dutch Petroleum Co........................ 335,800 18,406,038
Seagull Energy Corp. (a)........................ 63,700 1,055,031
Sun Co., Inc.................................... 14,800 574,425
Texaco, Inc..................................... 85,800 5,121,188
Union Pacific Resources Group, Inc.............. 39,800 698,988
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B11
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Unocal Corp..................................... 38,600 $ 1,379,950
USX-Marathon Group.............................. 45,200 1,550,925
Western Gas Resources, Inc...................... 104,700 1,531,238
--------------
107,125,437
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.3%
Elf Aquitaine SA, ADR, (France)................. 126,900 9,009,900
Occidental Petroleum Corp....................... 53,100 1,433,700
Oryx Energy Co. (a)............................. 142,100 3,143,963
--------------
13,587,563
--------------
OIL & GAS SERVICES -- 0.6%
Apache Corp..................................... 15,000 472,500
Baker Hughes, Inc............................... 26,500 915,906
Dresser Industries, Inc......................... 27,500 1,211,719
Enron Corp...................................... 51,400 2,778,813
Halliburton Co.................................. 41,000 1,827,063
Helmerich & Payne, Inc.......................... 7,900 175,775
J. Ray McDermott, SA (a)........................ 166,500 6,909,750
McDermott International, Inc.................... 299,200 10,303,700
ONEOK, Inc...................................... 4,900 195,388
Rowan Companies, Inc. (a)....................... 13,600 264,350
Schlumberger Ltd................................ 78,000 5,328,375
Western Atlas, Inc. (a)......................... 8,500 721,438
--------------
31,104,777
--------------
PAPER PRODUCTS -- 0.1%
Boise Cascade Corp.............................. 8,800 288,200
Champion International Corp. Co................. 15,100 742,731
Louisiana-Pacific Corp.......................... 17,200 313,900
Mead Corp....................................... 16,400 520,700
Willamette Industries........................... 17,400 556,800
--------------
2,422,331
--------------
PRECIOUS METALS -- 0.1%
Apex Silver Mines Ltd. (a)...................... 83,600 809,875
Barrick Gold Corp............................... 58,500 1,122,469
Battle Mountain Gold Co......................... 36,000 213,750
Freeport-McMoRan Copper & Gold, Inc............. 30,300 460,181
Newmont Mining Corp............................. 24,500 578,813
Placer Dome, Inc................................ 38,700 454,725
--------------
3,639,813
--------------
RAILROADS -- 0.2%
Burlington Northern Santa Fe Corp............... 24,500 2,405,594
CSX Corp........................................ 34,200 1,556,100
Norfolk Southern Corp........................... 59,100 1,761,919
Union Pacific Corp.............................. 38,700 1,707,638
--------------
7,431,251
--------------
REAL ESTATE DEVELOPMENT -- 0.3%
Crescent Operating, Inc. (a).................... 17,360 295,120
Crescent Real Estate Equities Co................ 271,300 9,122,463
Equity Residential Properties Trust............. 14,600 692,588
Vornado Realty Trust............................ 94,300 3,742,531
--------------
13,852,702
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc......................... 1,200 19,050
McDonald's Corp................................. 107,900 7,445,100
Tricon Global Restaurants, Inc. (a)............. 23,800 754,163
Wendy's International, Inc...................... 20,700 486,450
--------------
8,704,763
--------------
RETAIL -- 2.2%
Albertson's, Inc................................ 38,500 1,994,781
American Stores Co.............................. 42,800 1,035,225
AutoZone, Inc. (a).............................. 23,800 760,113
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Bombay Company, Inc. (a)........................ 141,500 $ 672,125
Charming Shoppes, Inc. (a)...................... 824,800 3,917,800
Circuit City Stores, Inc........................ 15,500 726,563
Consolidated Stores Corp. (a)................... 16,900 612,625
Costco Companies, Inc. (a)...................... 33,600 2,118,900
CVS Corp........................................ 59,800 2,328,463
Dayton-Hudson Corp.............................. 68,500 3,322,250
Designs, Inc. (a)............................... 52,800 82,500
Dillard's, Inc.................................. 49,600 2,055,301
Federated Department Stores, Inc. (a)........... 32,900 1,770,431
Fruit of the Loom, Inc. (a)..................... 11,500 381,656
Great Atlantic & Pacific Tea Co., Inc........... 6,000 198,375
Harcourt General, Inc........................... 11,100 660,450
Home Depot, Inc................................. 114,550 9,514,809
IKON Office Solutions, Inc...................... 21,100 307,269
Jan Bell Marketing, Inc. (a).................... 153,800 999,700
Kmart Corp. (a)................................. 696,000 13,398,000
Kroger Co. (a).................................. 39,923 1,711,699
Liz Claiborne, Inc.............................. 10,500 548,625
Longs Drug Stores, Inc.......................... 6,100 176,138
May Department Stores Co........................ 36,200 2,371,100
Mercantile Stores Co., Inc...................... 5,600 442,050
Newell Co....................................... 24,900 1,240,331
Nordstrom, Inc.................................. 12,100 934,725
Penney (J.C.) Co., Inc.......................... 39,100 2,827,419
Pep Boys - Manny, Moe & Jack.................... 9,900 187,481
Rite Aid Corp................................... 40,400 1,517,525
Sears, Roebuck & Co............................. 61,400 3,749,238
Sherwin-Williams Co............................. 27,100 897,688
Supervalu, Inc.................................. 9,400 417,125
Tandy Corp...................................... 16,200 859,613
The Gap, Inc.................................... 62,000 3,820,750
The Limited, Inc................................ 250,600 8,301,126
TJX Companies, Inc.............................. 50,600 1,220,725
Toys 'R' Us, Inc. (a)........................... 133,200 3,138,525
Venator Group, Inc. (a)......................... 21,100 403,538
Wal-Mart Stores, Inc............................ 351,700 21,365,775
Walgreen Co..................................... 77,600 3,205,850
Winn-Dixie Stores, Inc.......................... 23,300 1,192,669
--------------
107,387,051
--------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co......................... 12,300 253,688
Goodyear Tire & Rubber Co....................... 24,500 1,578,719
Goodyear Tire & Rubber Co....................... 39,800 2,564,613
--------------
4,397,020
--------------
SEMICONDUCTORS
National Semiconductor Corp. (a)................ 25,700 338,919
--------------
STEEL
AK Steel Holding Corp........................... 47,300 845,488
Bethlehem Steel Corp. (a)....................... 20,000 248,750
USX U.S. Steel Group Inc........................ 13,500 445,500
--------------
1,539,738
--------------
TELECOMMUNICATIONS -- 2.7%
Airtouch Communications, Inc. (a)............... 88,400 5,165,875
Alcatel Alsthom, ADR, (France).................. 127,000 5,167,313
Alltel Corp..................................... 28,800 1,339,200
Ameritech Corp.................................. 171,400 7,691,575
Andrew Corp. (a)................................ 13,900 251,069
Ascend Communications, Inc. (a)................. 30,200 1,496,788
AT&T Corp....................................... 254,400 14,532,600
Bell Atlantic Corp.............................. 243,200 11,096,000
BellSouth Corp.................................. 155,300 10,424,513
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B12
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Deutsche Telekom AG, ADR, (Germany)............. 45,800 $ 1,259,500
DSC Communications Corp.(a)..................... 18,500 555,000
Frontier Corp................................... 25,700 809,550
General Instrument Corp. (a).................... 23,200 630,750
GTE Corp........................................ 150,000 8,343,750
Lucent Technologies, Inc........................ 203,800 16,953,613
MCI Communications Corp......................... 109,100 6,341,438
Nextel Communications, Inc. (Class "A"
Stock) (a).................................... 41,100 1,022,363
Northern Telecom Ltd............................ 81,500 4,625,125
SBC Communications, Inc......................... 287,100 11,484,000
Scientific-Atlanta, Inc......................... 12,400 314,650
Sprint Corp..................................... 67,300 4,744,650
Telecomunicacoes Brasileiras, S.A., ADR,
(Brazil)...................................... 42,000 4,585,875
Tellabs, Inc. (a)............................... 28,400 2,034,150
US West, Inc.................................... 77,860 3,659,430
WorldCom, Inc. (a).............................. 158,600 7,682,188
--------------
132,210,965
--------------
TEXTILES -- 0.1%
National Service Industries, Inc................ 6,700 340,863
Pillowtex Corp.................................. 18,830 755,554
Russell Corp.................................... 5,700 172,069
Springs Industries, Inc......................... 3,200 147,600
Tultex Corp. (a)(b)............................. 89,800 218,888
VF Corp......................................... 19,100 983,650
--------------
2,618,624
--------------
TOBACCO -- 0.6%
B.A.T. Industries, PLC, ADR, (United Kingdom)... 107,100 2,162,081
Philip Morris Co., Inc.......................... 452,100 17,801,438
RJR Nabisco Holdings Corp....................... 260,800 6,194,000
UST, Inc........................................ 28,900 780,300
--------------
26,937,819
--------------
TOYS -- 0.1%
Hasbro, Inc..................................... 20,800 817,700
Mattel, Inc..................................... 45,551 1,927,377
--------------
2,745,077
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (a)....................... 23,000 1,443,250
Ryder System, Inc............................... 12,000 378,750
Yellow Corp. (b)................................ 44,300 822,319
--------------
2,644,319
--------------
UTILITY - ELECTRIC -- 0.7%
Ameren Corp..................................... 21,500 854,625
American Electric Power Co., Inc................ 29,700 1,347,638
Baltimore Gas & Electric Co..................... 23,100 717,544
Carolina Power & Light Co....................... 23,500 1,019,313
Central & South West Corp....................... 33,200 892,250
CINergy Corp.................................... 24,700 864,500
Consolidated Edison, Inc........................ 36,800 1,695,100
Dominion Resources, Inc......................... 30,300 1,234,725
DTE Energy Co................................... 22,700 916,513
Duke Energy Corp................................ 56,400 3,341,700
Edison International............................ 59,700 1,764,881
Entergy Corp.................................... 38,200 1,098,250
FirstEnergy Corp. (a)........................... 36,100 1,110,075
FPL Group, Inc.................................. 28,500 1,795,500
GPU, Inc........................................ 19,900 752,469
Houston Industries, Inc......................... 44,300 1,367,763
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Niagara Mohawk Power Corp. (a).................. 22,600 $ 337,588
Northern States Power Co........................ 23,300 666,963
Pacific Gas & Electric Co....................... 59,700 1,884,281
PacifiCorp...................................... 46,400 1,049,800
PECO Energy Co.................................. 34,900 1,018,644
PP&L Resources, Inc............................. 26,000 589,875
Public Service Enterprise Group, Inc............ 36,300 1,250,081
Southern Co..................................... 108,100 2,993,019
Texas Utilities Co.............................. 38,600 1,606,725
Unicom Corp..................................... 33,900 1,188,619
--------------
33,358,441
--------------
WASTE MANAGEMENT -- 0.1%
Waste Management, Inc........................... 188,900 6,611,500
--------------
TOTAL COMMON STOCKS
(cost $1,562,658,362).......................................... 1,767,322,183
--------------
PREFERRED STOCKS -- 0.7%
FINANCIAL SERVICES
Central Hispano Capital Corp.,
(cost $31,236,595).............................. 1,225,900 31,803,437
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,343,179,926).......................................... 4,591,745,342
--------------
PRINCIPAL
MOODY'S AMOUNT
SHORT-TERM INVESTMENTS -- 4.9% RATING (000)
------------ ---------
ASSET-BACKED SECURITIES -- 0.1%
Restructured Asset Securities Enhanced
Return, 5.623%, 08/28/98 (b)........ NR $ 4,000 4,000,000
Strategic Money Market Trust 1997-A,
5.906%, 12/16/98 (b)................ NR 2,000 2,000,000
--------------
6,000,000
--------------
BANK NOTES -- 0.1%
American Express Centurion
Bank, 5.616%, 07/22/98 (b).......... NR 5,000 5,000,000
US-Bank, N.A.,
5.526%, 7/21/98 (b)................. NR 1,000 999,754
--------------
5,999,754
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 0.2%
Barclays American Corp.,
5.521%, 07/02/98 (b)................ P3 3,000 2,997,817
Dresdner U.S. Finance,
5.95%, 10/20/98..................... P3 7,000 6,999,329
Westdeutsche Landesbank Girozentrale,
5.83%, 08/03/98..................... P1 2,000 1,999,869
--------------
11,997,015
--------------
COMMERCIAL PAPER -- 1.7%
AT&T Capital Corp., M.T.N.,
6.65%, 04/30/99..................... Baa3 32,000 32,140,800
Baltimore Gas & Electric,
5.886%, 03/15/99.................... A2 3,500 3,501,120
Bank of Boston N.A.,
5.848%, 01/25/99.................... A2 2,500 2,503,925
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B13
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Baxter International,
5.95%, 07/07/98..................... P2 $ 3,300 $ 3,296,727
BBL North America,
5.53%, 08/25/98..................... NR 1,300 1,289,017
6.66%, 08/17/98..................... Baa3 5,050 5,053,131
Centric Capital Corp.,
5.55%, 09/29/98..................... NR 1,000 986,125
Du Pont (E.I.) de Nemours &
Co., 5.54%, 08/10/98................ P3 3,300 3,279,687
Enterprise Funding Corp,
5.55%, 08/11/98..................... NR 4,046 4,020,426
First Data Corp.,
5.52%, 09/15/98..................... NR 4,658 4,603,719
First Union Corp,
9.45%, 06/15/99..................... A3 4,000 4,125,200
Fortune Brands,
5.53%, 07/14/98..................... NR 447 446,107
General Electric Capital
Corp., 5.53%, 09/03/98.............. NR 3,500 3,465,591
General Motors Acceptance
Corp., 5.875%, 11/06/98 (b)......... P1 1,000 1,000,438
Old Line Funding Corp.,
5.70%, 08/04/98..................... NR 3,222 3,204,655
Societe Generale,
5.555%, 09/11/98.................... P1 3,000 2,999,744
Medium Term Notes --
6.29%, 10/22/98..................... Baa1 5,000 5,004,450
--------------
80,920,862
--------------
OTHER CORPORATE OBLIGATIONS -- 0.7%
Abbey National Treasury Services PLC,
(United Kingdom)
5.50%, 02/05/99..................... P1 7,000 6,996,741
5.625%, 03/08/99.................... Aa2 5,500 5,497,800
General Motors Acceptance
Corp., 5.60%, 09/21/98.............. P1 3,000 2,999,237
Kansallis-Osake-Pankki, (Finland),
9.75%, 12/15/98 (a)................ Baa1 16,950 17,217,301
Province of Quebec, (Canada),
5.988%, 06/15/99.................... A2 3,000 2,999,812
--------------
35,710,891
--------------
TIME DEPOSIT -- 0.1%
Deutsche Bank,
6.25%, 07/01/98..................... P3 3,300 3,300,000
--------------
U. S. GOVERNMENT OBLIGATION
United States Treasury Bill,
5.05%, 09/17/98..................... 1,400 1,384,682
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM AMOUNT VALUE
INVESTMENTS (CONT'D) (000) (NOTE 2)
------------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 2.0%
Joint Repurchase Agreement Account,
5.715%, 07/01/98 (Note 5)..................... $ 95,049 $ 95,049,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $240,188,499)............................................ 240,362,204
--------------
TOTAL INVESTMENTS -- 99.3%
(cost $4,583,368,425; Note 6).................................. 4,832,107,546
--------------
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (D).................................................. 117,141
OTHER ASSETS IN EXCESS OF LIABILITIES --
0.7%........................................................... 36,004,010
--------------
NET ASSETS -- 100.0%............................................. $4,868,228,697
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
PLC Public Limited Company (British Corporation)
(a) Non-income producing security
(b) Indicates a variable rate security. The maturity date presented for these
instruments is the later of the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
The interest rate shown reflects the rate in effect at June 30, 1998.
(c) Security segregated as collateral for futures contracts.
(d) Open futures contracts as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1998 APPRECIATION
<S> <C> <C> <C> <C> <C>
Long Positions:
501 U.S. Treasury 5 yr. Sep 98 $ 54,792,961 $ 54,953,438 $ 160,477
166 U.S. T-Bond Sep 98 $ 20,154,734 $ 20,516,562 $ 360,176
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B14
<PAGE>
FLEXIBLE MANAGED PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 94.5%
VALUE
COMMON STOCKS -- 51.8% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 0.9%
Aeroquip-Vickers, Inc........................... 4,700 $ 274,362
AlliedSignal, Inc............................... 95,000 4,215,625
Boeing Co....................................... 168,400 7,504,325
GenCorp, Inc.................................... 403,900 10,198,475
General Dynamics Corp........................... 21,200 985,800
Goodrich (B.F.) Co.............................. 12,100 600,462
Litton Industries, Inc.......................... 306,000 18,054,000
Lockheed Martin Corp............................ 32,700 3,462,112
Northrop Grumman Corp........................... 11,200 1,155,000
Raytheon Co. (Class "B" Stock).................. 57,100 3,376,037
United Technologies Corp........................ 39,200 3,626,000
--------------
53,452,198
--------------
AIRLINES -- 1.6%
AMR Corp. (a)................................... 647,500 53,904,375
Delta Air Lines, Inc............................ 12,600 1,628,550
Southwest Airlines Co........................... 37,200 1,102,050
US Airways Group, Inc. (a)...................... 479,200 37,976,600
--------------
94,611,575
--------------
APPAREL -- 0.2%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 310,800 10,314,675
Nike, Inc. (Class 'B' Stock).................... 49,000 2,385,687
Reebok International Ltd. (a)................... 9,500 263,031
--------------
12,963,393
--------------
AUTOS - CARS & TRUCKS -- 2.3%
Chrysler Corp................................... 706,000 39,800,750
Cummins Engine Co., Inc......................... 6,400 328,000
Dana Corp....................................... 17,700 946,950
Echlin, Inc..................................... 10,600 520,062
Ford Motor Co................................... 486,300 28,691,700
General Motors Corp............................. 566,600 37,855,963
Genuine Parts Co................................ 30,100 1,040,331
Johnson Controls, Inc........................... 14,200 812,062
MascoTech, Inc.................................. 388,000 9,312,000
Midas, Inc...................................... 90,866 1,828,678
Navistar International Corp. (a)................ 12,200 352,275
PACCAR, Inc..................................... 13,100 684,475
Titan International, Inc........................ 415,700 7,066,900
TRW, Inc........................................ 20,700 1,130,737
--------------
130,370,883
--------------
BANKS AND SAVINGS & LOANS -- 2.2%
Ahmanson (H.F.) & Co............................ 18,400 1,306,400
Banc One Corp................................... 118,200 6,597,037
Bank of New York Co., Inc....................... 63,400 3,847,587
BankAmerica Corp................................ 116,800 10,095,900
BankBoston Corp................................. 49,000 2,725,625
Bankers Trust Corp.............................. 16,500 1,915,031
BB&T Corp....................................... 24,000 1,623,000
Chase Manhattan Corp............................ 142,000 10,721,000
Citicorp........................................ 77,000 11,492,250
Comerica, Inc................................... 26,500 1,755,625
First Chicago NBD Corp.......................... 49,000 4,342,625
First Union Corp................................ 162,900 9,488,925
Fleet Financial Group, Inc...................... 45,900 3,832,650
Golden West Financial Corp...................... 9,600 1,020,600
Huntington Bancshares, Inc...................... 32,200 1,078,700
KeyCorp......................................... 74,000 2,636,250
Mellon Bank Corp................................ 42,900 2,986,912
Mercantile Bancorporation, Inc.................. 22,100 1,113,287
Morgan (J.P.) & Co., Inc........................ 29,900 3,502,037
National City Corp.............................. 55,300 3,926,300
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
NationsBank Corp................................ 158,368 12,115,152
Northern Trust Corp............................. 18,800 $ 1,433,500
Norwest Corp.................................... 127,200 4,754,100
PNC Bank Corp................................... 51,400 2,765,962
Providian Financial Corp........................ 16,000 1,257,000
Republic New York Corp.......................... 18,400 1,158,050
Summit Bancorp.................................. 29,600 1,406,000
Suntrust Banks, Inc............................. 35,500 2,886,594
Synovus Financial Corp.......................... 44,200 1,049,750
U.S. Bancorp.................................... 124,000 5,332,000
Wachovia Corp................................... 34,700 2,932,150
Wells Fargo & Co................................ 14,600 5,387,400
--------------
128,485,399
--------------
BUSINESS SERVICES
Equifax, Inc.................................... 25,300 918,706
Omnicom Group, Inc.............................. 27,300 1,361,587
--------------
2,280,293
--------------
CHEMICALS -- 1.3%
Air Products & Chemicals, Inc................... 39,600 1,584,000
Dow Chemical Co................................. 38,200 3,693,462
Du Pont (E.I.) de Nemours & Co.................. 190,600 14,223,525
Eastman Chemical Co............................. 13,200 821,700
Ferro Corp...................................... 553,650 14,014,266
FMC Corp. (a)................................... 5,800 395,487
Hercules, Inc................................... 16,300 670,337
Millennium Chemicals, Inc....................... 601,600 20,379,200
Monsanto Co..................................... 99,900 5,581,912
Nalco Chemical Co............................... 11,200 393,400
OM Group, Inc................................... 260,300 10,737,375
Rohm & Haas Co.................................. 10,300 1,070,556
Sigma-Aldrich Corp.............................. 16,900 593,612
Union Carbide Corp.............................. 20,800 1,110,200
--------------
75,269,032
--------------
CHEMICAL - SPECIALTY -- 0.1%
Engelhard Corp.................................. 24,300 492,075
Grace (W.R.) & Co............................... 12,500 213,281
Great Lakes Chemical Corp....................... 10,100 398,319
Morton International, Inc....................... 22,000 550,000
Praxair, Inc.................................... 26,600 1,245,212
Raychem Corp.................................... 14,300 422,744
--------------
3,321,631
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp. (a)............................... 136,500 2,849,437
Deluxe Corp..................................... 13,700 490,631
Moore Corp., Ltd................................ 14,900 197,425
--------------
3,537,493
--------------
COMPUTER SERVICES -- 1.5%
3Com Corp. (a).................................. 59,700 1,832,044
Adobe Systems, Inc.............................. 11,600 492,275
Autodesk, Inc................................... 7,900 305,137
Automatic Data Processing, Inc.................. 50,400 3,672,900
Bay Networks, Inc. (a).......................... 37,000 1,193,250
Cabletron Systems, Inc. (a)..................... 26,600 357,437
Ceridian Corp. (a).............................. 12,200 716,750
Cisco Systems, Inc. (a)......................... 171,400 15,779,512
Computer Associates International, Inc.......... 92,000 5,111,750
Computer Sciences Corp. (a)..................... 26,300 1,683,200
EMC Corp. (a)................................... 83,500 3,741,844
First Data Corp................................. 72,100 2,401,831
Microsoft Corp. (a)............................. 410,100 44,444,587
Novell, Inc. (a)................................ 59,100 753,525
Oracle Corp. (a)................................ 165,700 4,070,006
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B15
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Parametric Technology Corp. (a)................. 43,200 $ 1,171,800
Silicon Graphics, Inc. (a)...................... 31,600 383,150
--------------
88,110,998
--------------
COMPUTERS -- 0.9%
Apple Computer, Inc. (a)........................ 22,400 642,600
Compaq Computer Corp............................ 278,362 7,898,508
Data General Corp. (a).......................... 8,200 122,487
Dell Computer Corp. (a)......................... 110,000 10,209,375
Gateway 2000, Inc. (a).......................... 26,100 1,321,312
Hewlett-Packard Co.............................. 175,200 10,490,100
International Business Machines Corp............ 163,800 18,806,287
Seagate Technology, Inc. (a).................... 40,800 971,550
Sun Microsystems, Inc. (a)...................... 63,600 2,762,625
--------------
53,224,844
--------------
CONSTRUCTION -- 0.8%
Centex Corp..................................... 10,000 377,500
Fluor Corp...................................... 14,100 719,100
Foster Wheeler Corp............................. 6,900 147,919
Oakwood Homes Corp.............................. 572,000 17,160,000
Pulte Corp...................................... 7,200 215,100
Standard Pacific Corp........................... 632,400 13,043,250
Webb (Del E.) Corp.............................. 576,500 14,952,969
--------------
46,615,838
--------------
CONTAINERS -- 0.3%
Ball Corp....................................... 5,100 204,956
Bemis Co., Inc.................................. 8,900 363,787
Crown Cork & Seal Co., Inc...................... 21,600 1,026,000
Owens-Illinois, Inc. (a)........................ 261,800 11,715,550
Sealed Air Corp. (a)............................ 13,900 510,825
Stone Container Corp. (a)....................... 16,700 260,937
--------------
14,082,055
--------------
COSMETICS & SOAPS -- 0.7%
Alberto Culver Co. (Class "B" Stock)............ 9,600 278,400
Avon Products, Inc.............................. 22,200 1,720,500
Colgate-Palmolive Co............................ 49,800 4,382,400
Gillette Co..................................... 188,700 10,696,931
International Flavors & Fragrances, Inc......... 18,400 799,250
Procter & Gamble Co............................. 226,100 20,589,231
--------------
38,466,712
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.3%
Loews Corp...................................... 184,500 16,074,562
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.2%
Avery Dennison Corp............................. 17,300 929,875
Pitney Bowes, Inc............................... 46,100 2,218,562
Unisys Corp. (a)................................ 42,000 1,186,500
Xerox Corp...................................... 54,900 5,579,212
--------------
9,914,149
--------------
DIVERSIFIED OPERATIONS -- 0.9%
Cognizant Corp.................................. 27,300 1,719,900
Fortune Brands, Inc............................. 28,900 1,110,844
General Electric Capital Corp................... 551,300 50,168,300
--------------
52,999,044
--------------
DRUGS AND MEDICAL SUPPLIES -- 2.9%
Abbott Laboratories............................. 257,700 10,533,487
Allergan, Inc................................... 11,000 510,125
ALZA Corp. (a).................................. 14,400 622,800
American Home Products Corp..................... 218,900 11,328,075
Amgen, Inc. (a)................................. 44,300 2,896,112
Bard (C.R.), Inc................................ 9,600 365,400
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Bausch & Lomb, Inc.............................. 9,300 $ 466,162
Baxter International, Inc....................... 47,200 2,539,950
Becton, Dickinson & Co.......................... 20,600 1,599,075
Biomet, Inc..................................... 18,800 621,575
Boston Scientific Corp. (a)..................... 32,800 2,349,300
Bristol-Myers Squibb Co......................... 167,500 19,252,031
Cardinal Health, Inc............................ 18,500 1,734,375
Guidant Corp.................................... 25,400 1,811,337
Johnson & Johnson............................... 226,500 16,704,375
Lilly (Eli) & Co................................ 186,900 12,347,081
Mallinckrodt, Inc............................... 12,300 365,156
Medtronic, Inc.................................. 78,900 5,029,875
Merck & Co., Inc................................ 201,800 26,990,750
Pfizer, Inc..................................... 217,800 23,672,137
Pharmacia & Upjohn, Inc......................... 85,500 3,943,687
Schering-Plough Corp............................ 123,300 11,297,362
St. Jude Medical, Inc. (a)...................... 15,500 570,594
United States Surgical Corp..................... 12,800 584,000
Warner-Lambert Co............................... 137,600 9,546,000
--------------
167,680,821
--------------
ELECTRONICS -- 0.9%
Advanced Micro Devices, Inc. (a)................ 23,900 407,794
AMP Inc......................................... 37,100 1,275,312
Applied Materials, Inc. (a)..................... 61,700 1,820,150
Belden, Inc..................................... 275,600 8,440,250
EG&G, Inc....................................... 7,600 228,000
Emerson Electric Co............................. 74,700 4,510,012
Grainger (W.W.), Inc............................ 16,700 831,869
Harris Corp..................................... 13,500 603,281
Honeywell, Inc.................................. 21,400 1,788,237
Intel Corp...................................... 275,600 20,428,850
KLA-Tencor Corp. (a)............................ 14,200 393,162
LSI Logic Corp. (a)............................. 23,900 551,194
Micron Technology, Inc. (a)..................... 35,600 883,325
Motorola, Inc................................... 100,600 5,287,787
Perkin-Elmer Corp............................... 8,200 509,937
Rockwell International Corp..................... 33,800 1,624,512
Tektronix, Inc.................................. 8,500 300,687
Texas Instruments, Inc.......................... 65,700 3,831,131
Thomas & Betts Corp............................. 9,300 458,025
--------------
54,173,515
--------------
ENGINEERING & CONSTRUCTION -- 0.1%
Giant Cement Holdings, Inc. (a)................. 244,900 7,010,262
--------------
ENVIRONMENTAL SERVICES -- 0.4%
Browning-Ferris Industries, Inc................. 31,000 1,077,250
Waste Management, Inc........................... 540,500 18,917,500
--------------
19,994,750
--------------
FINANCIAL SERVICES -- 3.4%
American Express Co............................. 78,300 8,926,200
Associates First Capital Corp................... 132,879 10,215,073
Beneficial Corp................................. 8,900 1,363,369
Block (H.R.), Inc............................... 17,700 745,612
Countrywide Credit Industries, Inc.............. 18,300 928,725
Federal Home Loan Mortgage Corp................. 117,100 5,511,019
Federal National Mortgage Association........... 178,700 10,856,025
Fifth Third Bancorp............................. 39,200 2,469,600
Franklin Resource, Inc.......................... 42,600 2,300,400
Green Tree Financial Corp....................... 22,900 980,406
Household International, Inc.................... 54,100 2,691,475
Lehman Brothers Holdings, Inc................... 722,900 56,069,931
MBNA Corp....................................... 84,400 2,785,200
Merrill Lynch & Co., Inc........................ 294,900 27,204,525
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B16
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Morgan Stanley Dean Witter & Co................. 321,495 $ 29,376,606
Schwab (Charles) Corp........................... 44,700 1,452,750
State Street Corp............................... 27,100 1,883,450
Sunamerica, Inc................................. 32,900 1,889,694
Transamerica Corp............................... 10,600 1,220,325
Travelers Group, Inc............................ 408,651 24,774,467
Washington Mutual, Inc.......................... 65,000 2,823,437
--------------
196,468,289
--------------
FOOD & BEVERAGES -- 2.2%
Anheuser-Busch Companies, Inc................... 82,500 3,892,969
Archer-Daniels-Midland Co....................... 96,300 1,865,812
Bestfoods....................................... 48,500 2,816,031
Brown-Forman Corp. (Class "B" Stock)............ 11,600 745,300
Campbell Soup Co................................ 76,900 4,085,312
Coca-Cola Co.................................... 416,600 35,619,300
ConAgra, Inc.................................... 80,100 2,538,169
Coors (Adolph) Co. (Class "B" Stock)............ 6,200 210,800
General Mills, Inc.............................. 26,700 1,825,612
Giant Food, Inc. (Class "A" Stock).............. 10,100 434,931
Heinz (H.J.) & Co............................... 61,600 3,457,300
Hershey Foods Corp.............................. 24,100 1,662,900
Kellogg Co...................................... 69,200 2,599,325
PepsiCo, Inc.................................... 255,500 10,523,406
Pioneer Hi-Bred International, Inc.............. 41,100 1,700,512
Quaker Oats Co.................................. 23,300 1,280,044
Ralston-Ralston Purina Group.................... 18,000 2,102,625
RJR Nabisco Holdings Corp....................... 1,078,200 25,607,250
Sara Lee Corp................................... 79,700 4,458,219
Seagram Co., Ltd................................ 60,000 2,456,250
Sysco Corp...................................... 57,300 1,468,312
Whitman Corp.................................... 545,200 12,505,525
Wrigley (William) Jr. Co........................ 19,500 1,911,000
--------------
125,766,904
--------------
FOREST PRODUCTS -- 1.5%
Boise Cascade Corp.............................. 669,800 21,935,950
Champion International Corp..................... 405,000 19,920,937
Fort James Corp................................. 35,200 1,566,400
Georgia-Pacific Corp............................ 15,600 919,425
International Paper Co.......................... 50,900 2,188,700
Louisiana-Pacific Corp.......................... 707,300 12,908,225
Mead Corp....................................... 407,500 12,938,125
Potlatch Corp................................... 4,900 205,800
Temple-Inland, Inc.............................. 9,500 511,812
Union Camp Corp................................. 11,700 580,612
Westvaco Corp................................... 17,200 485,900
Weyerhaeuser Co................................. 33,600 1,551,900
Willamette Industries, Inc...................... 303,200 9,702,400
--------------
85,416,186
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group........................... 14,000 778,750
Consolidated Natural Gas Co..................... 16,100 947,887
Peoples Energy Corp............................. 5,900 227,887
Sempra Energy (a)............................... 21,053 584,226
Sonat, Inc...................................... 18,500 714,562
Williams Companies, Inc......................... 69,200 2,335,500
--------------
5,588,812
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.6%
Columbia/HCA Healthcare Corp.................... 915,600 26,666,850
Healthsouth Corp. (a)........................... 66,300 1,769,381
Humana, Inc. (a)................................ 27,600 860,775
Manor Care, Inc................................. 10,700 411,281
Service Corp. International..................... 42,400 1,817,900
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Shared Medical Systems Corp..................... 4,400 $ 323,125
Tenet Healthcare Corp. (a)...................... 51,600 1,612,500
--------------
33,461,812
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.3%
Clorox Co....................................... 17,400 1,659,525
Kimberly-Clark Corp............................. 93,600 4,293,900
Leggett & Platt, Inc............................ 470,800 11,770,000
--------------
17,723,425
--------------
HOUSING RELATED -- 1.0%
Armstrong World Industries, Inc................. 6,800 458,150
Fleetwood Enterprises, Inc...................... 6,100 244,000
Hanson, PLC, ADR, (United Kingdom).............. 1,184,500 35,905,156
Kaufman & Broad Home Corp....................... 6,600 209,550
Lowe's Companies, Inc........................... 59,000 2,393,187
Masco Corp...................................... 27,800 1,681,900
Maytag Corp..................................... 16,000 790,000
Owens Corning................................... 413,700 16,884,131
Stanley Works................................... 15,000 623,437
Tupperware Corp................................. 10,300 289,687
Whirlpool Corp.................................. 12,600 866,250
--------------
60,345,448
--------------
INSURANCE -- 2.4%
Aetna, Inc...................................... 25,000 1,903,125
Allstate Corp................................... 72,200 6,610,812
American General Corp........................... 42,700 3,039,706
American International Group, Inc............... 118,200 17,257,200
Aon Corp........................................ 28,200 1,981,050
Berkley (W.R.) Corp............................. 175,850 7,044,991
Chubb Corp...................................... 28,700 2,306,762
CIGNA Corp...................................... 37,400 2,580,600
Cincinnati Financial Corp....................... 27,700 1,062,987
Conseco, Inc.................................... 31,700 1,481,975
Financial Security Assurance Holdings Ltd....... 140,100 8,230,875
General Re Corp................................. 13,200 3,346,200
Hartford Financial Services Group, Inc.......... 19,900 2,276,063
Jefferson-Pilot Corp............................ 17,900 1,037,081
Lincoln National Corp........................... 17,200 1,571,650
Marsh & McLennan Companies, Inc................. 42,900 2,592,769
MBIA, Inc....................................... 16,500 1,235,438
MGIC Investment Corp............................ 19,200 1,095,600
PennCorp Financial Group, Inc................... 329,800 6,760,900
Progressive Corp................................ 12,200 1,720,200
Provident Companies, Inc........................ 219,400 7,569,300
Reinsurance Group of America, Inc............... 474,600 28,060,725
SAFECO Corp..................................... 23,800 1,081,413
St. Paul Companies, Inc......................... 38,900 1,636,231
TIG Holdings, Inc............................... 351,200 8,077,600
Torchmark Corp.................................. 23,600 1,079,700
Trenwick Group, Inc............................. 273,300 10,615,997
United Healthcare Corp.......................... 31,700 2,012,950
UNUM Corp....................................... 23,400 1,298,700
--------------
136,568,600
--------------
INSTRUMENTS - CONTROLS -- 0.2%
Flowserve Corp.................................. 161,991 3,989,028
Parker-Hannifin Corp............................ 195,600 7,457,250
--------------
11,446,278
--------------
LEISURE -- 0.2%
Brunswick Corp.................................. 16,800 415,800
Disney (Walt) Co................................ 113,700 11,945,606
Harrah's Entertainment, Inc. (a)................ 17,000 395,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B17
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
King World Productions, Inc. (a)................ 12,400 $ 316,200
Mirage Resorts, Inc. (a)........................ 30,200 643,638
--------------
13,716,494
--------------
LODGING -- 0.1%
Hilton Hotels Corp.............................. 42,200 1,202,700
Marriott International, Inc. (Class "A"
Stock)........................................ 43,000 1,392,125
--------------
2,594,825
--------------
MACHINERY -- 0.8%
Briggs & Stratton Corp.......................... 4,200 157,238
Case Corp....................................... 369,700 17,838,025
Caterpillar, Inc................................ 62,700 3,315,263
Cincinnati Milacron, Inc........................ 6,700 162,894
Cooper Industries, Inc.......................... 20,400 1,120,725
Deere & Co...................................... 42,100 2,226,038
Dover Corp...................................... 37,500 1,284,375
DT Industries, Inc.............................. 146,800 3,559,900
Eaton Corp...................................... 12,100 940,775
Global Industrial Technologies, Inc. (a)........ 258,100 3,710,188
Harnischfeger Industries, Inc................... 8,100 229,331
Ingersoll-Rand Co............................... 27,900 1,229,344
Paxar Corp...................................... 954,575 10,977,613
Snap-On, Inc.................................... 10,300 373,375
Timken Co....................................... 10,600 326,613
--------------
47,451,697
--------------
MANUFACTURING -- 0.5%
Hussmann International, Inc..................... 272,600 5,060,138
Illinois Tool Works, Inc........................ 42,000 2,800,875
Smith (A.O.) Corp............................... 288,900 14,932,519
Tyco International Ltd.......................... 96,402 6,073,326
--------------
28,866,858
--------------
MEDIA -- 1.9%
CBS Corp........................................ 914,500 29,035,375
Central Newspapers, Inc. (Class "A" Stock)...... 205,300 14,319,675
Clear Channel Communications, Inc. (a).......... 20,800 2,269,800
Comcast Corp. (Special Class "A" Stock)......... 58,800 2,386,913
Donnelley (R.R.) & Sons Co...................... 24,600 1,125,450
Dow Jones & Co., Inc............................ 16,200 903,150
Dun & Bradstreet Corp........................... 28,700 1,036,788
Gannett Co., Inc................................ 47,800 3,396,788
HBO & Co........................................ 71,000 2,502,750
Houghton Mifflin Co............................. 240,700 7,642,225
Interpublic Group of Companies, Inc............. 21,200 1,286,575
Knight-Ridder, Inc.............................. 252,100 13,881,256
Lee Enterprises, Inc............................ 208,900 6,397,563
McGraw-Hill, Inc................................ 16,700 1,362,094
Mediaone Group, Inc. (a)........................ 102,300 4,494,806
Meredith Corp................................... 8,900 417,744
New York Times Co. (Class "A" Stock)............ 16,200 1,283,850
Tele-Communications, Inc. (Series "A"
Stock) (a).................................... 85,468 3,285,176
Time Warner, Inc................................ 97,400 8,321,613
Times Mirror Co. (Class "A" Stock).............. 14,900 936,838
Tribune Co...................................... 20,700 1,424,419
Viacom, Inc. (Class "B" Stock) (a).............. 59,500 3,465,875
--------------
111,176,723
--------------
METALS - FERROUS -- 0.7%
AK Steel Holding Corp........................... 191,800 3,428,425
Allegheny Teledyne, Inc......................... 33,000 754,875
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Armco, Inc. (a)................................. 18,200 $ 116,025
Bethlehem Steel Corp. (a)....................... 925,200 11,507,175
Inland Steel Industries, Inc.................... 8,200 231,138
LTV Corp........................................ 841,400 8,045,888
Material Sciences Corp. (a)..................... 397,900 4,625,588
National Steel Corp. (Class "B"
Stock) (a).................................... 172,800 2,052,000
Nucor Corp...................................... 14,800 680,800
USX-U.S. Steel Group, Inc....................... 291,600 9,622,800
Worthington Industries, Inc..................... 16,300 245,519
--------------
41,310,233
--------------
METALS - NON FERROUS -- 0.8%
Alcan Aluminum Ltd.............................. 38,300 1,058,038
Aluminum Company of America..................... 677,200 44,652,875
Cyprus Amax Minerals Co......................... 15,700 208,025
Inco Ltd........................................ 28,100 382,863
Reynolds Metals Co.............................. 12,400 693,625
--------------
46,995,426
--------------
MINERAL RESOURCES
ASARCO, Inc..................................... 6,800 151,300
Burlington Resources, Inc....................... 29,700 1,278,956
Homestake Mining Co............................. 35,600 369,350
Phelps Dodge Corp............................... 9,900 566,156
--------------
2,365,762
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 1.0%
Coltec Industries, Inc.......................... 179,200 3,561,600
Crane Co........................................ 7,700 373,931
Donaldson Co., Inc.............................. 448,600 10,598,175
Ecolab, Inc..................................... 21,700 672,700
General Signal Corp............................. 7,300 262,800
IDEX Corp....................................... 246,700 8,511,150
ITT Industries, Inc............................. 20,000 747,500
Laidlaw, Inc.................................... 55,400 675,188
Mark IV Industries, Inc......................... 355,500 7,687,688
Millipore Corp.................................. 7,300 198,925
NACCO Industries, Inc. (Class "A" Stock)........ 1,400 180,950
Pall Corp....................................... 21,000 430,500
PPG Industries, Inc............................. 30,000 2,086,875
Textron, Inc.................................... 27,700 1,985,744
Thermo Electron Corp. (a)....................... 26,800 916,225
Trinity Industries, Inc......................... 214,100 8,885,150
Wolverine Tube, Inc. (a)........................ 155,300 5,901,400
York International Corp......................... 110,600 4,818,013
--------------
58,494,514
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.6%
American Greetings Corp. (Class "A" Stock)...... 12,300 626,531
Black & Decker Corp............................. 16,000 976,000
Corning, Inc.................................... 38,900 1,351,775
Eastman Kodak Co................................ 197,400 14,422,538
Jostens, Inc.................................... 6,500 156,813
Minnesota Mining & Manufacturing Co............. 68,800 5,654,500
Polaroid Corp................................... 7,600 270,275
Rubbermaid, Inc................................. 25,200 836,325
Unilever N.V., ADR, (United Kingdom)............ 107,800 8,509,463
--------------
32,804,220
--------------
MISCELLANEOUS - INDUSTRIAL
Tenneco, Inc.................................... 28,700 1,092,394
--------------
OIL & GAS -- 2.9%
Amerada Hess Corp............................... 15,400 836,413
Amoco Corp...................................... 164,000 6,826,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B18
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Anadarko Petroleum Corp......................... 10,100 $ 678,594
Ashland, Inc.................................... 12,700 655,638
Atlantic Richfield Co........................... 54,000 4,218,750
Basin Exploration, Inc. (a)..................... 71,400 1,258,425
Cabot Oil & Gas Corp. (Class "A" Stock)......... 363,800 7,276,000
Chevron Corp.................................... 110,600 9,186,713
Coastal Corp.................................... 17,900 1,249,644
Eastern Enterprises............................. 3,400 145,775
Enron Oil & Gas Co.............................. 198,700 4,023,675
Exxon Corp...................................... 415,400 29,623,213
Kerr-McGee Corp................................. 8,000 463,000
Mobil Corp...................................... 132,100 10,122,163
Murphy Oil Corp................................. 114,000 5,778,375
NICOR, Inc...................................... 8,100 325,013
Noble Affiliates, Inc........................... 208,900 7,938,200
Pennzoil Co..................................... 8,000 405,000
Phillips Petroleum Co........................... 44,300 2,134,706
Pioneer Natural Resources Co.................... 1,488,431 35,536,290
Royal Dutch Petroleum Co........................ 361,200 19,798,275
Seagull Energy Corp. (a)........................ 245,500 4,066,094
Sun Co., Inc.................................... 15,900 617,119
Texaco, Inc..................................... 92,300 5,509,156
Union Pacific Resources Group, Inc.............. 42,800 751,675
Unocal Corp..................................... 41,500 1,483,625
USX-Marathon Group.............................. 48,600 1,667,588
Western Gas Resources, Inc...................... 423,100 6,187,838
--------------
168,763,457
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.9%
Elf Aquitaine SA, ADR, (France)................. 513,400 36,451,400
Occidental Petroleum Corp....................... 57,100 1,541,700
Oryx Energy Co. (a)............................. 524,800 11,611,200
--------------
49,604,300
--------------
OIL & GAS SERVICES -- 1.5%
Apache Corp..................................... 16,100 507,150
Baker Hughes, Inc............................... 28,500 985,031
Dresser Industries, Inc......................... 29,600 1,304,250
Enron Corp...................................... 55,300 2,989,656
Halliburton Co.................................. 44,100 1,965,206
Helmerich & Payne, Inc.......................... 8,500 189,125
J. Ray McDermott, SA............................ 672,900 27,925,350
McDermott International, Inc.................... 1,243,400 42,819,588
ONEOK, Inc...................................... 5,200 207,350
Rowan Companies, Inc. (a)....................... 14,600 283,788
Schlumberger Ltd................................ 83,800 5,724,588
Western Atlas, Inc. (a)......................... 9,200 780,850
--------------
85,681,932
--------------
PRECIOUS METALS -- 0.1%
Apex Silver Mines Ltd. (a)...................... 340,400 3,297,625
Barrick Gold Corp............................... 62,800 1,204,975
Battle Mountain Gold Co......................... 38,700 229,781
Freeport-McMoRan Copper & Gold, Inc............. 32,600 495,113
Newmont Mining Corp............................. 26,400 623,700
Placer Dome, Inc................................ 41,600 488,800
--------------
6,339,994
--------------
RAILROADS -- 0.1%
Burlington Northern Santa Fe Corp............... 26,300 2,582,331
CSX Corp........................................ 36,800 1,674,400
Norfolk Southern Corp........................... 63,500 1,893,094
Union Pacific Corp.............................. 41,600 1,835,600
--------------
7,985,425
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
REAL ESTATE DEVELOPMENT -- 1.0%
Crescent Operating, Inc. (a).................... 67,240 $ 1,143,080
Crescent Real Estate Equities Co................ 1,092,000 36,718,500
Equity Residential Properties Trust............. 150,900 7,158,319
Vornado Realty Trust............................ 377,600 14,986,000
--------------
60,005,899
--------------
RESTAURANTS -- 0.2%
McDonald's Corp................................. 116,000 8,004,000
Tricon Global Restaurants, Inc. (a)............. 25,600 811,200
Wendy's International, Inc...................... 22,300 524,050
--------------
9,339,250
--------------
RETAIL -- 3.5%
Albertson's, Inc................................ 41,400 2,145,038
American Stores Co.............................. 46,000 1,112,625
AutoZone, Inc. (a).............................. 25,600 817,600
Bombay Company, Inc. (a)........................ 571,600 2,715,100
Charming Shoppes, Inc. (a)...................... 3,332,400 15,828,900
Circuit City Stores, Inc........................ 16,600 778,125
Consolidated Stores Corp. (a)................... 18,100 656,125
Costco Companies, Inc. (a)...................... 36,100 2,276,556
CVS Corp........................................ 64,400 2,507,575
Dayton-Hudson Corp.............................. 73,600 3,569,600
Designs, Inc.................................... 203,900 318,594
Dillard's, Inc.................................. 149,000 6,174,188
Federated Department Stores, Inc. (a)........... 35,300 1,899,581
Great Atlantic & Pacific Tea Co., Inc........... 6,400 211,600
Harcourt General, Inc........................... 11,900 708,050
Home Depot, Inc................................. 123,200 10,233,300
IKON Office Solutions, Inc...................... 22,700 330,569
Jan Bell Marketing, Inc......................... 621,400 4,039,100
Kmart Corp. (a)................................. 2,579,100 49,647,675
Kroger Co. (a).................................. 42,900 1,839,338
Liz Claiborne, Inc.............................. 11,300 590,425
Longs Drug Stores, Inc.......................... 6,500 187,688
May Department Stores Co........................ 39,000 2,554,500
Mercantile Stores Co., Inc...................... 6,200 489,413
Newell Co....................................... 26,800 1,334,975
Nordstrom, Inc.................................. 13,000 1,004,250
Penney (J.C.) Co., Inc.......................... 42,100 3,044,356
Pep Boys - Manny, Moe & Jack.................... 10,700 202,631
Phillips-Van Heusen Corp........................ 389,200 5,740,700
Rite Aid Corp................................... 43,400 1,630,213
Sears, Roebuck & Co............................. 66,000 4,030,125
Sherwin-Williams Co............................. 29,100 963,938
Supervalu, Inc.................................. 10,100 448,188
Tandy Corp...................................... 17,400 923,288
The Gap, Inc.................................... 66,700 4,110,388
The Limited, Inc................................ 827,900 27,424,188
TJX Companies, Inc.............................. 54,400 1,312,400
Toys 'R' Us, Inc. (a)........................... 405,900 9,564,019
Venator Group, Inc. (a)......................... 22,700 434,138
Wal-Mart Stores, Inc............................ 378,300 22,981,725
Walgreen Co..................................... 83,400 3,445,463
Winn-Dixie Stores, Inc.......................... 25,000 1,279,688
--------------
201,505,938
--------------
RUBBER -- 0.2%
Cooper Tire & Rubber Co......................... 13,300 274,313
Goodyear Tire & Rubber Co....................... 187,400 12,075,588
--------------
12,349,901
--------------
SEMICONDUCTORS
National Semiconductor Corp. (a)................ 27,700 365,294
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B19
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TELECOMMUNICATIONS -- 3.0%
Airtouch Communications, Inc. (a)............... 95,000 $ 5,551,563
Alcatel Alsthom, ADR, (France).................. 513,000 20,872,688
Alltel Corp..................................... 31,000 1,441,500
Ameritech Corp.................................. 184,400 8,274,950
Andrew Corp. (a)................................ 14,900 269,131
Ascend Communications, Inc. (a)................. 32,500 1,610,781
AT&T Corp....................................... 273,600 15,629,400
Bell Atlantic Corp.............................. 261,600 11,935,500
BellSouth Corp.................................. 167,000 11,209,875
Deutsche Telekom AG, ADR, (Germany)............. 185,000 5,087,500
DSC Communications Corp. (a).................... 19,900 597,000
Frontier Corp................................... 27,700 872,550
General Instrument Corp. (a).................... 24,900 676,969
GTE Corp........................................ 161,300 8,972,313
Lucent Technologies, Inc........................ 219,200 18,234,700
MCI Communications Corp......................... 117,300 6,818,063
Nextel Communications, Inc. (Class "A"
Stock) (a).................................... 44,200 1,099,475
Northern Telecom Ltd............................ 87,700 4,976,975
SBC Communications, Inc......................... 308,800 12,352,000
Scientific-Atlanta, Inc......................... 13,300 337,488
Sprint Corp..................................... 72,400 5,104,200
Telecomunicacoes Brasileiras, S.A., ADR,
(Brazil)...................................... 168,000 18,343,500
Tellabs, Inc. (a)............................... 30,600 2,191,725
US West, Inc.................................... 83,541 3,926,432
WorldCom, Inc. (a).............................. 170,600 8,263,438
--------------
174,649,716
--------------
TEXTILES -- 0.1%
National Service Industries, Inc................ 7,200 366,300
Pillowtex Corp.................................. 73,932 2,966,522
Russell Corp.................................... 6,100 184,144
Springs Industries, Inc......................... 3,400 156,825
Tultex Corp. (a)................................ 362,600 883,838
VF Corp......................................... 20,600 1,060,900
--------------
5,618,529
--------------
TOBACCO -- 0.6%
B.A.T. Industries, PLC, ADR, (United Kingdom)... 432,600 8,733,113
Philip Morris Co., Inc.......................... 699,700 27,550,688
UST, Inc........................................ 31,000 837,000
--------------
37,120,801
--------------
TOYS -- 0.1%
Hasbro, Inc..................................... 22,400 880,600
Mattel, Inc..................................... 49,000 2,073,313
--------------
2,953,913
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (a)....................... 24,700 1,549,925
Ryder System, Inc............................... 12,900 407,156
Yellow Corp. (b)................................ 178,700 3,317,119
--------------
5,274,200
--------------
UTILITY - ELECTRIC -- 0.6%
Ameren Corp..................................... 23,100 918,225
American Electric Power Co., Inc................ 31,900 1,447,463
Baltimore Gas & Electric Co..................... 24,900 773,456
Carolina Power & Light Co....................... 25,300 1,097,388
Central & South West Corp....................... 35,700 959,438
CINergy Corp.................................... 26,600 931,000
Consolidated Edison, Inc........................ 39,600 1,824,075
Dominion Resources, Inc......................... 32,600 1,328,450
DTE Energy Co................................... 24,400 985,150
Duke Energy Corp................................ 60,600 3,590,550
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Edison International............................ 64,300 $ 1,900,869
Entergy Corp.................................... 41,100 1,181,625
FirstEnergy Corp................................ 38,800 1,193,100
FPL Group, Inc.................................. 30,600 1,927,800
GPU, Inc........................................ 21,400 809,188
Houston Industries, Inc......................... 47,600 1,469,650
Niagara Mohawk Power Corp. (a).................. 24,300 362,981
Northern States Power Co........................ 25,100 718,488
Pacific Gas & Electric Co....................... 64,200 2,026,313
PacifiCorp...................................... 50,000 1,131,250
PECO Energy Co.................................. 37,500 1,094,531
PP&L Resources, Inc............................. 27,900 632,981
Public Service Enterprise Group, Inc............ 39,100 1,346,506
Southern Co..................................... 116,200 3,217,288
Texas Utilities Co.............................. 41,500 1,727,438
Unicom Corp..................................... 36,500 1,279,781
--------------
35,874,984
--------------
TOTAL COMMON STOCKS
(cost $2,637,225,219).......................................... 2,995,727,880
--------------
PREFERRED STOCKS -- 0.4%
FINANCIAL SERVICES
Central Hispano Capital Corp.,.................. 1,000,000 25,450,000
--------------
(cost $25,440,000)
PRINCIPAL
MOODY'S AMOUNT
LONG-TERM BONDS -- 42.3% RATING (000)
------------ ---------
AEROSPACE -- 0.2%
Raytheon Co.,
5.95%, 03/15/01..................... Baa1 $ 14,000 13,944,000
--------------
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp.,
8.50%, 03/15/06..................... Ba1 2,875 2,936,812
--------------
AIRLINES -- 2.4%
Calair Capital Corp.,
8.125%, 04/01/08.................... Ba2 6,000 5,985,000
Delta Airlines, Inc.,
10.125%, 05/15/10................... Baa3 19,335 24,887,819
10.375%, 02/01/11(c)................ Baa3 31,250 41,236,875
United Airlines, Inc.,
5.908%, 03/02/04.................... Aa2 7,812 7,780,721
9.75%, 08/15/21..................... Baa3 8,125 10,577,531
10.67%, 05/01/04.................... Baa3 19,500 23,297,820
11.21%, 05/01/14.................... Baa3 17,500 24,310,650
--------------
138,076,416
--------------
ASSET-BACKED SECURITIES -- 0.3%
California Infrastructure,
6.17%, 03/25/03..................... Aaa 4,000 4,027,520
MBNA Master Credit Card Trust,
5.695%, 11/15/02.................... NR 1,000 1,000,620
Premier Auto Trust,
5.82%, 12/08/00..................... Aaa 3,000 3,000,469
SMS Student Loan Trust 1998-A,
5.739%, 10/26/28.................... Aaa 3,150 3,150,984
Standard Credit Card Master Trust,
5.95%, 10/07/04(b).................. Aaa 4,500 4,490,145
--------------
15,669,738
--------------
AUTO - CARS & TRUCKS -- 0.2%
Navistar International Corp.,
7.00%, 02/01/03..................... Ba1 11,500 11,528,750
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B20
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
BANKS AND SAVINGS & LOANS -- 3.8%
Banc One Corp.,
5.658%, 09/30/99.................... Aa3 $ 5,000 $ 5,017,300
Banco Ganadero, SA, M.T.N.,
(Colombia),
9.75%, 08/26/99..................... Baa3 7,300 7,409,500
Bank of Nova Scotia,
6.50%, 07/15/07..................... A1 5,400 5,481,000
BankAmerica Corp.,
5.788%, 09/26/01.................... Aa3 8,900 8,922,250
Bankers Trust New York Corp.,
5.754%, 08/06/00.................... A2 2,500 2,491,250
BT Securities Corp.,
5.949%, 02/24/00.................... A3 5,000 4,957,000
Capital One Bank,
6.844%, 06/13/00.................... Baa3 23,900 24,186,322
Central Hispano Financial Services,
(Portugal),
6.219%, 04/28/05.................... A3 5,000 5,020,000
Chase Manhattan Corp.,
5.838%, 02/13/03.................... A2 3,000 3,000,000
Chemical Banking,
5.891%, 02/28/00.................... Aa3 6,000 6,026,400
Citicorp, M.T.N.,
5.861%, 05/15/00.................... Aa3 10,000 10,045,600
First Chicago NBD Corp.,
5.768%, 06/10/02.................... A1 10,000 9,990,300
Huntington National Bank,
5.788%, 12/02/01.................... A1 5,000 5,000,000
Kansallis-Osake-Pankki, (Finland),
8.65%, 01/01/49(b).................. A3 9,000 9,228,960
Key Bank N.A.,
5.688%, 08/29/00.................... Aa3 7,000 6,978,370
MBNA America Bank N.A.,
5.888%, 07/18/01.................... Baa1 5,000 4,986,500
MBNA Corp.,
6.038%, 09/08/00.................... Baa2 3,000 2,997,000
Merita Bank Ltd.,
7.50%, 12/29/49(b).................. NR 12,000 12,449,280
National Australia Bank, (Australia),
6.40%, 12/10/07..................... A1 8,700 8,967,351
6.60%, 12/10/07..................... A1 5,000 5,043,000
National Bank of Hungary,
7.191%, 08/29/99.................... Baa2 5,000 5,062,500
Nationsbank Corp.,
5.858%, 06/19/02.................... A1 5,000 5,028,300
Norwest Corp.,
5.738%, 11/13/01.................... Aa3 8,450 8,446,620
Okobank, (Finland),
7.238%, 09/27/49(b)................. A3 18,750 18,328,125
7.325%, 10/29/49.................... A3 9,000 9,081,000
7.70%, 10/29/49(b).................. A3 3,500 3,531,500
Royal Bank of Canada, (Canada),
6.75%, 10/24/11(b).................. AA3 5,000 5,097,800
Suntrust Bank, Inc.,
5.768%, 04/22/02.................... A1 10,000 10,005,500
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49(b)................. A1 5,000 5,100,000
--------------
217,878,728
--------------
CABLE & PAY TELEVISION SYSTEMS -- 0.8%
Rogers Cablesystems, Inc., (Canada),
10.00%, 03/15/05.................... Ba3 2,000 2,220,000
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Tele-Communications, Inc.,
6.328%, 04/03/02.................... Baa3 $ 2,000 $ 2,030,300
6.34%, 02/01/02..................... Baa3 8,500 8,468,635
6.375%, 09/15/99.................... Baa3 6,400 6,429,376
6.438%, 12/20/00.................... Ba1 5,000 5,059,900
7.375%, 02/15/00.................... Ba1 6,000 6,126,300
9.875%, 06/15/22.................... Baa3 12,878 17,474,158
--------------
47,808,669
--------------
COMPUTERS SOFTWARE & SERVICES -- 0.8%
Computer Associates International,
Inc.,
6.375%, 04/15/05.................... Baa1 28,250 27,967,500
6.50%, 04/15/08..................... Baa1 20,000 19,746,800
--------------
47,714,300
--------------
CONSULTING -- 0.5%
Comdisco, Inc.,
5.94%, 04/13/00..................... Baa1 12,500 12,468,750
6.11%, 08/04/99..................... Baa1 12,500 12,533,375
6.375%, 11/30/01.................... Baa1 2,700 2,711,448
--------------
27,713,573
--------------
CONSUMER SERVICES -- 0.9%
Loewen Group, Inc.,
7.20%, 06/01/03..................... Ba1 20,000 19,923,200
7.60%, 06/01/08..................... Ba1 28,200 28,075,074
Service Corp. International,
7.00%, 06/01/15..................... A3 2,500 2,700,650
--------------
50,698,924
--------------
CONTAINERS -- 1.0%
Owens-Illinois, Inc.,
7.15%, 05/15/05..................... Ba1 40,000 40,388,000
7.80%, 05/15/18..................... Ba1 15,000 15,384,150
--------------
55,772,150
--------------
DRUGS & HEALTHCARE -- 0.8%
Mallinckrodt, Inc.,
6.30%, 03/15/11..................... Baa2 8,000 7,990,000
Tenet Healthcare Corp.,
7.875%, 01/15/03.................... Ba1 25,275 25,717,312
8.625%, 12/01/03.................... Ba1 10,000 10,500,000
--------------
44,207,312
--------------
ENERGY -- 0.1%
MCN Investment Corp.,
6.30%, 04/02/11..................... Baa2 8,250 8,224,425
--------------
FINANCIAL SERVICES -- 4.7%
AIC Corp.,
5.861%, 10/02/02.................... A1 8,000 7,962,400
AT&T Capital Corp., M.T.N.,
6.25%, 05/15/01..................... Baa3 16,500 16,540,590
Avco Financial Services,
5.739%, 11/17/99.................... A2 3,500 3,505,390
Caterpillar Financial Services,
5.718%, 10/12/00.................... A2 3,000 3,004,560
5.774%, 04/10/00.................... A2 5,000 5,019,600
Conseco, Inc.,
6.40%, 06/15/01..................... Baa3 25,000 24,937,500
6.80%, 06/15/05..................... Baa3 2,000 1,992,500
8.70%, 11/15/26(c).................. Ba2 30,038 33,768,758
8.796%, 04/01/27.................... Ba2 12,800 14,502,144
ContiFinancial Corp.,
7.50%, 03/15/02..................... Ba1 8,340 8,335,997
8.125%, 04/01/08.................... Ba1 10,700 10,830,647
8.375%, 08/15/03.................... Ba1 5,000 5,177,950
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B21
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Ford Motor Credit Co.,
5.813%, 02/13/03.................... A1 $ 10,000 $ 9,997,600
General Motors Acceptance Corp.,
M.T.N.,
5.719%, 10/30/00.................... A3 10,000 9,988,900
5.95%, 04/20/01..................... A2 14,700 14,663,250
Household Finance Corp.,
5.819%, 05/04/01.................... A2 8,000 7,991,200
International Lease Finance Corp.,
6.00%, 05/15/02..................... A1 43,100 42,936,220
PT Alatief Freeport Co.,
(Netherlands),
9.75%, 04/15/01..................... B3 7,600 6,764,000
Santander International,
5.699%, 08/14/02.................... Aa3 6,500 6,485,511
Textron Financial Corp.,
6.05%, 03/16/09..................... Aaa 24,431 24,424,783
Union Planters Corp.,
8.20%, 12/15/26..................... Baa1 12,000 12,919,560
--------------
271,749,060
--------------
FOREST PRODUCTS -- 0.2%
Fort James Corp.,
6.234%, 03/15/11.................... Baa3 11,000 10,986,250
--------------
INDUSTRIAL -- 1.7%
Blount Inc.,
7.00%, 06/15/05..................... BA1 20,000 19,719,400
Compania Sud Americana de Vapores,
S.A., (Chile),
7.375%, 12/08/03.................... NR 5,650 5,438,125
Security Capital Group,
6.95%, 06/15/05..................... Baa1 4,500 4,494,375
7.70%, 06/15/28..................... Baa1 5,000 5,052,700
U.S. Filter Corp.,
6.375%, 05/15/01.................... Ba1 20,000 19,976,600
6.50%, 05/15/03..................... Ba1 42,000 41,906,340
--------------
96,587,540
--------------
INVESTMENT BANKING -- 3.9%
Bear Stearns & Co.,
5.724%, 10/10/00.................... A2 5,000 4,993,500
Dean Witter, Discover & Co.
5.941%, 02/13/01.................... A1 4,500 4,500,000
Donaldson, Lufkin & Jenrette, Inc.,
5.938%, 09/18/02.................... A3 7,500 7,488,750
Goldman, Sachs Group,
5.999%, 01/30/02.................... A1 10,000 10,000,000
Lehman Brothers Holdings, Inc.,
5.988%, 09/03/02.................... Baa1 10,000 9,980,900
6.40%, 08/30/00(c).................. Baa1 93,250 93,774,997
Merrill Lynch, Pierce, Fenner & Smith,
Inc.,
5.838%, 06/24/03.................... Aa3 10,000 9,990,000
Morgan Stanley Group, Inc.,
5.838%, 12/19/01.................... A1 5,000 5,024,500
Morgan Stanley Dean Witter Discover &
Co., M.T.N.,
5.89%, 03/20/00..................... A1 15,000 14,989,500
6.09%, 03/09/01..................... A1 15,000 15,019,500
PaineWebber Group, Inc.,
6.238%, 10/03/02.................... Baa1 5,000 5,006,950
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Salomon, Inc.,
6.238%, 09/18/01.................... A2 $ 5,000 $ 5,061,500
6.50%, 03/01/00..................... A2 19,000 19,144,400
6.59%, 02/21/01..................... A2 8,250 8,364,345
6.75%, 08/15/03..................... A2 5,000 5,123,350
7.25%, 05/01/01..................... A2 8,625 8,869,691
--------------
227,331,883
--------------
LODGING -- 0.9%
ITT Corp.,
6.25%, 11/15/00..................... Ba1 41,983 40,916,632
6.75%, 11/15/03..................... Baa2 12,000 11,605,200
--------------
52,521,832
--------------
MEDIA -- 1.2%
CBS Corp.,
7.15%, 05/20/05..................... Ba1 23,500 23,500,000
Paramount Communications, Inc.,
7.50%, 01/15/02..................... Ba2 9,100 9,345,791
Viacom, Inc.,
7.75%, 06/01/05..................... Ba2 34,350 36,598,208
--------------
69,443,999
--------------
MISCELLANEOUS -- 0.2%
Excelsior Master Trust,
5.868%, 03/15/04.................... Aaa 5,000 5,000,000
New York City,
6.023%, 08/01/02.................... A3 5,000 4,997,500
6.023%, 08/08/02.................... A3 1,500 1,498,500
--------------
11,496,000
--------------
OIL & GAS -- 0.1%
B.J. Services Co.,
7.00%, 02/01/06..................... Baa2 4,000 4,116,000
--------------
OIL & GAS SERVICES -- 1.7%
KN Energy, Inc.,
6.30%, 03/01/01..................... Baa2 20,000 20,033,200
R&B Falcon Corp.,
6.50%, 04/15/03..................... Ba1 4,000 3,958,400
6.75%, 04/15/05..................... Ba1 35,750 35,347,098
Williams Companies, Inc.,
5.95%, 02/15/00..................... Baa2 41,000 40,848,300
--------------
100,186,998
--------------
REAL ESTATE INVESTMENT TRUST -- 1.5%
EOP Operating, L.P.,
6.50%, 06/15/04..................... Baa1 6,000 5,988,000
6.625%, 02/15/05.................... Baa1 18,187 18,199,731
ERP Operating, L.P.,
6.63%, 04/13/15..................... A3 15,300 15,376,500
Felcor Suites, L.P.,
7.375%, 10/01/04.................... Ba1 25,000 24,688,500
Gables Realty Trust,
6.80%, 03/15/05..................... Baa2 7,500 7,443,750
Simon Debartolo Group, Inc.,
6.75%, 06/15/05..................... Baa1 17,500 17,390,625
--------------
89,087,106
--------------
RETAIL -- 2.0%
Dayton Hudson,
5.95%, 06/15/00..................... A3 9,000 8,992,710
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B22
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Federated Department Stores, Inc.,
8.125%, 10/15/02.................... Baa2 $ 3,600 $ 3,845,520
8.50%, 06/15/03(b).................. Baa2 54,890 59,830,100
10.00%, 02/15/01.................... Baa2 11,000 11,979,000
Meyer (Fred), Inc.,
7.15%, 03/01/03..................... Ba2 32,545 32,705,447
--------------
117,352,777
--------------
TELECOMMUNICATIONS -- 1.8%
360 Communication Co.,
7.125%, 03/01/03.................... Baa1 23,776 24,661,180
7.50%, 03/01/06..................... Baa1 35,000 37,309,300
7.60%, 04/01/09..................... Baa1 6,250 6,762,313
AT&T Universal Card Master Trust,
5.789%, 04/19/04.................... Aaa 4,000 4,005,000
Cable & Wire Communications, Inc.,
(United Kingdom),
6.375%, 03/06/03.................... Baa1 9,300 9,323,250
6.625%, 03/06/05.................... Baa1 5,000 5,031,250
US West Capital Corp.,
6.875%, 07/15/28.................... A3 15,800 15,807,900
--------------
102,900,193
--------------
TOBACCO -- 0.5%
Philip Morris Cos., Inc.,
6.15%, 03/15/10..................... A2 20,000 19,975,000
RJR Nabisco, Inc.,
8.75%, 08/15/05..................... Baa3 4,600 4,797,202
9.25%, 08/15/13..................... Baa3 7,000 7,550,620
--------------
32,322,822
--------------
TRANSPORTATION/TRUCKING/SHIPPING -- 0.9%
Enterprise Rent-A-Car USA Finance Co.,
6.35%, 01/15/01..................... Baa3 21,000 21,105,000
6.95%, 03/01/04..................... Baa2 7,500 7,603,125
7.00%, 06/15/00..................... Baa2 13,500 13,702,500
Ryder System, Inc.,
7.51%, 03/24/00..................... Baa1 3,000 3,077,550
8.34%, 01/26/00..................... Baa1 5,000 5,179,650
--------------
50,667,825
--------------
UTILITIES -- 0.8%
Consolidated Edison,
5.748%, 06/15/02.................... A1 7,000 7,010,710
5.788%, 12/15/01.................... A1 3,000 3,007,410
Hyder PLC, (United Kingdom),
6.75%, 12/15/04..................... Baa1 1,000 1,018,710
6.875%, 12/15/07.................... Baa1 4,550 4,671,986
Hydro-Quebec, (Canada),
5.813%, 09/29/49.................... A+ 6,250 5,531,250
Niagara Mohawk Power,
7.00%, 10/01/00..................... Ba3 25,000 25,031,250
--------------
46,271,316
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 7.9%
Federal National Mortgage Association,
Zero Coupon, 10/09/19(b)............ 11,800 3,394,388
United States Treasury Bonds,
8.00%, 11/15/21..................... 131,300 169,253,578
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
United States Treasury Notes,
5.375%, 02/15/01.................... $ 32,300 $ 32,188,888
5.50%, 02/29/00..................... 4,900 4,898,481
5.50%, 01/31/03..................... 10,200 10,192,044
5.625%, 05/15/08.................... 8,875 8,995,611
5.75%, 04/30/03..................... 4,700 4,746,248
6.125%, 11/15/27.................... 180,950 193,898,782
6.50%, 05/15/05..................... 1,200 1,266,564
6.625%, 03/31/02.................... 19,100 19,783,398
7.25%, 05/15/04..................... 8,900 9,656,500
--------------
458,274,482
--------------
FOREIGN GOVERNMENT BONDS -- 0.4%
Banco de Commercio Exterior de
Colombia, SA, M.T.N.,
8.625%, 06/02/00.................... Baa3 5,500 5,582,500
City of St. Petersburg, (Russia),
9.50%, 06/18/02..................... NR 14,600 11,680,000
Republic of Argentina,
6.625%, 03/31/05.................... B1 1,929 1,699,973
Republic of Panama,
6.75%, 05/14/02..................... Ba1 1,846 1,800,045
United Mexican States,
7.002%, 06/27/02.................... Ba2 2,000 1,952,000
--------------
22,714,518
--------------
TOTAL LONG-TERM BONDS
(cost $2,404,801,952).......................................... 2,446,184,398
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $5,067,467,171).......................................... 5,467,362,278
--------------
SHORT-TERM INVESTMENTS -- 5.2%
ASSET-BACKED SECURITIES -- 0.1%
Restructured Asset Securities Enhanced
Return (d),
5.646%, 07/28/98.................... NR 4,000 4,000,000
Strategic Money Market Trust 1997-A
(d),
5.688%, 09/23/98.................... NR 5,000 5,000,000
--------------
9,000,000
--------------
BANK NOTES -- 0.1%
American Express Centurion
Bank, (d) 5.616%, 07/22/98.......... NR 5,000 5,000,000
US-Bank, N.A., (d)
5.522%, 07/15/98.................... NR 3,000 2,999,261
--------------
7,999,261
--------------
CERTIFICATES OF DEPOSIT - DOMESTIC -- 0.2%
Bank of New York,
5.75%, 05/14/99..................... P1 3,000 3,000,718
CoreStates Bank, N.A., (d)
5.606%, 07/21/98.................... NR 1,000 1,000,000
Taubman Realty Group,
6.519%, 07/27/98.................... NR 5,500 5,476,405
--------------
9,477,123
--------------
CERTIFICATES OF DEPOSIT - YANKEE -- 0.4%
Abbey National Treasury Services, PLC,
(United Kingdom),
5.50%, 02/05/99..................... NR 6,000 5,997,207
Barclays American Corp., (d)
5.521%, 07/02/98.................... P3 3,000 2,997,817
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B23
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Credit Agricole Indosuez,
5.75%, 04/16/99..................... NR $ 3,000 $ 3,000,807
Dresdner U.S. Finance,
5.95%, 10/20/98..................... P3 5,000 4,999,521
Westdeutsche Landesbank Girozentral,
(Germany),
5.82%, 08/03/98..................... P1 2,000 1,999,860
5.83%, 08/03/98..................... P1 3,000 2,999,803
--------------
21,995,015
--------------
COMMERCIAL PAPER -- 0.6%
Baxter International,
5.95%, 07/07/98..................... P2 4,300 4,295,736
Centric Capital Corp.,
5.55%, 09/28/98..................... NR 2,000 1,972,558
Commercial Credit Co.,
5.58%, 07/28/98..................... P1 4,300 4,282,005
Du Pont (E.I.) de Nemours &
Co., 5.54%, 08/10/98................ P3 4,300 4,273,531
First Data Corp.,
5.52%, 09/15/98..................... NR 2,000 1,976,693
General Electric Capital Corp.,
5.53%, 09/03/98..................... NR 5,300 5,247,895
International Lease Finance Corp.,
5.75%, 07/01/98..................... A1 2,300 2,300,000
Merck & Co., Inc.,
6.10%, 07/01/98..................... NR 4,094 4,094,000
Old Line Funding Corp.,
5.70%, 08/04/98..................... NR 4,359 4,335,534
Wood Street Funding Corp.,
6.00%, 07/07/98..................... NR 2,000 1,998,000
--------------
34,775,952
--------------
FOREIGN GOVERNMENT OBLIGATIONS
Province of Quebec, (Canada),
5.988%, 06/15/99.................... A2 2,000 1,999,875
--------------
OTHER CORPORATE OBLIGATIONS -- 1.1%
Abbey National Treasury, (United
Kingdom),
5.625%, 03/08/99.................... Aa2 5,500 5,497,800
Advanta Corp., M.T.N.,
6.99%, 10/18/99..................... Ba3 10,000 9,707,800
AT&T Capital Corp., M.T.N.,
5.934%, 01/14/99.................... Baa3 10,000 10,000,000
6.65%, 04/30/99..................... Baa3 24,500 24,607,800
Baltimore Gas & Electric,
5.668%, 03/15/99.................... A2 4,000 4,001,280
Bank of Boston N.A.,
5.848%, 01/25/99.................... A2 2,500 2,503,925
General Motors Acceptance Corp., (d)
5.568%, 09/21/98.................... P1 3,500 3,499,110
6.00%, 07/13/98..................... P1 1,000 1,000,025
--------------
60,817,740
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
TIME DEPOSIT - EURODOLLAR -- 0.1%
Deutsche Bank,
6.25%, 07/01/98..................... P3 $ 4,300 $ 4,300,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.2%
United States Treasury Bills,
5.015%, 09/17/98.................... 5,700 5,638,065
5.035%, 09/17/98.................... 2,200 2,176,000
5.05%, 09/17/98..................... 3,850 3,807,875
--------------
11,621,940
--------------
REPURCHASE AGREEMENT -- 2.4%
Joint Repurchase Agreement Account,
5.715%, 07/01/98 (Note 5)........... 140,082 140,082,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $302,383,784)............................................ 302,068,906
--------------
TOTAL INVESTMENTS -- 99.7%
(cost $5,369,850,955; Note 6).................................. 5,769,431,184
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (E)...................
(1,626,609)
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES -- 0.3%..............
19,614,550
--------------
NET ASSETS -- 100.0%............................................. $5,787,419,125
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
(c) Portion of security segregated as collateral for futures contracts.
Aggregate value of segregated securities-$91,318,472.
(d) Indicates a variable rate security. The maturity date presented for these
instruments is the later of the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
The interest rate shown reflects the rate in effect at June 30, 1998.
(e) Open futures contracts as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1998 APPRECIATION
<C> <S> <C> <C> <C> <C>
Long Positions:
659 U.S. T-Note Sep 98 $ 72,072,977 $ 72,284,063 $ 211,086
810 S&P 500 Index Sep 98 $ 255,506,450 $ 231,457,500 $ 5,951,050
7 U.S. T-Bond Sep 98 $ 859,031 $ 865,156 $ 6,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B24
<PAGE>
STOCK INDEX PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.2%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.7%
Aeroquip-Vickers, Inc........................... 9,500 $ 554,562
AlliedSignal, Inc............................... 188,200 8,351,375
B.F. Goodrich Co................................ 23,700 1,176,112
Boeing Co....................................... 332,436 14,814,179
General Dynamics Corp........................... 42,100 1,957,650
Lockheed Martin Corp............................ 64,749 6,855,300
Northrop Grumman Corp........................... 21,900 2,258,437
Parker-Hannifin Corp............................ 37,525 1,430,641
Raytheon Co. (Class "B" Stock).................. 113,018 6,682,189
United Technologies Corp........................ 77,300 7,150,250
--------------
51,230,695
--------------
AIRLINES -- 0.4%
AMR Corp. (a)................................... 60,600 5,044,950
Delta Air Lines, Inc............................ 25,100 3,244,175
Southwest Airlines Co........................... 72,900 2,159,662
US Airways Group, Inc. (a)...................... 30,800 2,440,900
--------------
12,889,687
--------------
APPAREL -- 0.2%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 24,700 819,731
Nike, Inc. (Class "B" Stock).................... 97,400 4,742,162
Reebok International Ltd. (a)................... 18,600 514,987
--------------
6,076,880
--------------
AUTOS - CARS & TRUCKS -- 2.0%
Chrysler Corp................................... 216,100 12,182,637
Cummins Engine Co., Inc......................... 12,200 625,250
Dana Corp....................................... 34,600 1,851,100
Echlin, Inc..................................... 21,300 1,045,031
Ford Motor Co................................... 401,300 23,676,700
General Motors Corp............................. 227,300 15,186,481
Genuine Parts Co................................ 58,625 2,026,227
Johnson Controls, Inc........................... 27,500 1,572,656
Navistar International Corp. (a)................ 23,400 675,675
PACCAR, Inc..................................... 26,660 1,392,985
TRW, Inc........................................ 41,200 2,250,550
--------------
62,485,292
--------------
BANKS AND SAVINGS & LOANS -- 8.2%
Ahmanson (H.F.) & Co............................ 36,100 2,563,100
Banc One Corp................................... 232,483 12,975,457
Bank of New York Co., Inc....................... 124,900 7,579,869
BankAmerica Corp................................ 230,696 19,940,785
BankBoston Corp................................. 97,200 5,406,750
Bankers Trust Corp.............................. 32,600 3,783,637
BB&T Corp....................................... 47,300 3,198,662
Chase Manhattan Corp............................ 282,794 21,350,947
Citicorp........................................ 152,200 22,715,850
Comerica, Inc................................... 51,950 3,441,687
First Chicago NBD Corp.......................... 97,115 8,606,817
First Union Corp................................ 321,478 18,726,093
Fleet Financial Group, Inc...................... 92,800 7,748,800
Golden West Financial Corp...................... 18,900 2,009,306
Huntington Bancshares, Inc...................... 63,000 2,110,500
KeyCorp......................................... 145,600 5,187,000
Mellon Bank Corp................................ 85,100 5,925,087
Mercantile Bancorporation, Inc.................. 43,600 2,196,350
Morgan (J.P.) & Co., Inc........................ 58,850 6,892,806
National City Corp.............................. 109,600 7,781,600
NationsBank Corp................................ 317,476 24,286,914
Northern Trust Corp............................. 37,600 2,867,000
Norwest Corp.................................... 250,400 9,358,700
PNC Bank Corp................................... 101,200 5,445,825
Providian Financial Corp........................ 31,900 2,506,144
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Republic New York Corp.......................... 36,400 $ 2,290,925
Summit Bancorp.................................. 58,100 2,759,750
Suntrust Banks, Inc............................. 70,300 5,716,269
Synovus Financial Corp.......................... 86,100 2,044,875
U.S. Bancorp.................................... 245,626 10,561,918
Wachovia Corp................................... 68,100 5,754,450
Wells Fargo & Co................................ 28,866 10,651,554
--------------
254,385,427
--------------
BUSINESS SERVICES -- 0.1%
Equifax, Inc.................................... 49,500 1,797,469
Omnicom Group, Inc.............................. 54,300 2,708,212
--------------
4,505,681
--------------
CHEMICALS -- 1.9%
Air Products & Chemicals, Inc................... 77,600 3,104,000
Dow Chemical Co................................. 75,700 7,319,244
Du Pont (E.I.) de Nemours & Co.................. 376,500 28,096,312
Eastman Chemical Co............................. 25,900 1,612,275
FMC Corp. (a)................................... 12,100 825,069
Hercules, Inc................................... 31,800 1,307,775
Monsanto Co..................................... 196,900 11,001,787
Nalco Chemical Co............................... 22,700 797,337
Rohm & Haas Co.................................. 20,200 2,099,537
Sigma-Aldrich Corp.............................. 33,400 1,173,175
Union Carbide Corp.............................. 41,600 2,220,400
--------------
59,556,911
--------------
CHEMICALS - SPECIALTY -- 0.2%
Engelhard Corp.................................. 46,975 951,244
Great Lakes Chemical Corp....................... 20,200 796,637
Morton International, Inc....................... 42,400 1,060,000
Octel Corp...................................... 4,750 94,406
Praxair, Inc.................................... 52,600 2,462,337
Raychem Corp.................................... 27,400 810,012
W.R. Grace & Co................................. 23,900 407,794
--------------
6,582,430
--------------
COMMERCIAL SERVICES -- 0.2%
Cendant Corp. (a)............................... 276,718 5,776,488
Deluxe Corp..................................... 26,500 949,031
Moore Corp. Ltd................................. 27,900 369,675
--------------
7,095,194
--------------
COMPUTER SERVICES -- 4.6%
3Com Corp. (a).................................. 117,100 3,593,506
Adobe Systems, Inc.............................. 23,200 984,550
Autodesk, Inc................................... 15,500 598,687
Automatic Data Processing, Inc.................. 99,000 7,214,625
Bay Networks, Inc. (a).......................... 72,000 2,322,000
Cabletron Systems, Inc. (a)..................... 52,500 705,469
Ceridian Corp. (a).............................. 24,100 1,415,875
Computer Associates International, Inc.......... 181,443 10,081,427
Computer Sciences Corp. (a)..................... 51,300 3,283,200
EMC Corp. (a)................................... 164,700 7,380,619
First Data Corp................................. 142,700 4,753,694
Microsoft Corp. (a)............................. 816,600 88,499,025
Novell, Inc. (a)................................ 114,900 1,464,975
Oracle Corp. (a)................................ 324,887 7,980,037
Parametric Technology Corp. (a)................. 84,400 2,289,350
Silicon Graphics, Inc. (a)...................... 60,600 734,775
--------------
143,301,814
--------------
COMPUTERS -- 4.4%
Apple Computer, Inc. (a)........................ 44,900 1,288,069
Cisco Systems, Inc. (a)......................... 338,100 31,126,331
Compaq Computer Corp............................ 547,670 15,540,122
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B25
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Data General Corp. (a).......................... 15,500 $ 231,531
Dell Computer Corp. (a)......................... 216,700 20,112,469
Gateway 2000, Inc. (a).......................... 51,900 2,627,437
Hewlett-Packard Co.............................. 346,700 20,758,662
International Business Machines Corp............ 317,100 36,407,044
Seagate Technology, Inc. (a).................... 79,600 1,895,475
Sun Microsystems, Inc. (a)...................... 125,800 5,464,437
--------------
135,451,577
--------------
CONSTRUCTION -- 0.1%
Centex Corp..................................... 19,400 732,350
Fluor Corp...................................... 27,800 1,417,800
Foster Wheeler Corp............................. 13,000 278,687
Pulte Corp...................................... 14,200 424,225
--------------
2,853,062
--------------
CONTAINERS -- 0.2%
Ball Corp....................................... 9,700 389,819
Bemis Co., Inc.................................. 17,800 727,575
Crown Cork & Seal Co., Inc...................... 43,400 2,061,500
Owens-Illinois, Inc. (a)........................ 51,700 2,313,575
Sealed Air Corp. (a)............................ 27,010 992,617
Stone Container Corp. (a)....................... 33,266 519,781
--------------
7,004,867
--------------
COSMETICS & SOAPS -- 1.8%
Alberto Culver Co. (Class "B" Stock)............ 18,700 542,300
Avon Products, Inc.............................. 44,000 3,410,000
Colgate-Palmolive Co............................ 98,300 8,650,400
International Flavors & Fragrances, Inc......... 35,700 1,550,719
Procter & Gamble Co............................. 446,904 40,696,195
--------------
54,849,614
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 1.1%
Loews Corp...................................... 38,400 3,345,600
Phillip Morris Co., Inc......................... 807,900 31,811,062
--------------
35,156,662
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.6%
Avery Dennison Corp............................. 36,800 1,978,000
Pitney Bowes, Inc............................... 96,400 4,639,250
Unisys Corp. (a)................................ 82,300 2,324,975
Xerox Corp...................................... 108,346 11,010,662
--------------
19,952,887
--------------
DIVERSIFIED OPERATIONS -- 3.4%
Cognizant Corp.................................. 54,360 3,424,680
Fortune Brands, Inc............................. 57,800 2,221,687
General Electric Capital Corp................... 1,088,800 99,080,800
--------------
104,727,167
--------------
DRUGS AND MEDICAL SUPPLIES -- 10.7%
Abbott Laboratories............................. 508,500 20,784,937
Allergan, Inc................................... 21,700 1,006,337
ALZA Corp. (a).................................. 28,400 1,228,300
American Home Products Corp..................... 432,700 22,392,225
Amgen, Inc. (a)................................. 87,100 5,694,162
Bard (C.R.), Inc................................ 18,600 707,962
Bausch & Lomb, Inc.............................. 18,100 907,262
Baxter International, Inc....................... 93,200 5,015,325
Becton, Dickinson & Co.......................... 40,900 3,174,862
Biomet, Inc..................................... 36,000 1,190,250
Boston Scientific Corp. (a)..................... 65,100 4,662,787
Bristol-Myers Squibb Co......................... 331,080 38,053,507
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Cardinal Health, Inc............................ 36,200 $ 3,393,750
Eli Lilly & Co.................................. 369,200 24,390,275
Guidant Corp.................................... 50,100 3,572,756
Johnson & Johnson............................... 447,600 33,010,500
Mallinckrodt, Inc............................... 23,300 691,719
Medtronic, Inc.................................. 155,900 9,938,625
Merck & Co., Inc................................ 398,950 53,359,562
Pfizer, Inc..................................... 433,200 47,083,425
Pharmacia & Upjohn, Inc......................... 169,325 7,810,116
Schering-Plough Corp............................ 243,600 22,319,850
St. Jude Medical, Inc. (a)...................... 29,700 1,093,331
United States Surgical Corp..................... 24,600 1,122,375
Warner-Lambert Co............................... 272,000 18,870,000
--------------
331,474,200
--------------
ELECTRONICS -- 3.0%
Advanced Micro Devices, Inc. (a)................ 47,200 805,350
AMP Inc......................................... 72,944 2,507,450
Applied Materials, Inc. (a)..................... 122,600 3,616,700
EG&G, Inc....................................... 14,700 441,000
Emerson Electric Co............................. 148,000 8,935,500
Grainger (W.W.), Inc............................ 32,800 1,633,850
Harris Corp..................................... 26,600 1,188,687
Honeywell, Inc.................................. 42,200 3,526,337
Intel Corp...................................... 557,700 41,339,512
KLA-Tencor Corp. (a)............................ 27,300 755,869
LSI Logic Corp. (a)............................. 46,600 1,074,712
Micron Technology, Inc. (a)..................... 70,000 1,736,875
Motorola, Inc................................... 198,100 10,412,631
Perkin-Elmer Corp............................... 15,700 976,344
Rockwell International Corp..................... 67,200 3,229,800
Tektronix, Inc.................................. 17,200 608,450
Texas Instruments, Inc.......................... 129,700 7,563,131
Thomas & Betts Corp............................. 17,600 866,800
--------------
91,218,998
--------------
ENVIRONMENTAL SERVICES -- 0.1%
Browning-Ferris Industries, Inc................. 65,000 2,258,750
--------------
FINANCIAL SERVICES -- 5.3%
American Express Co............................. 154,400 17,601,600
Associates First Capital Corp................... 115,633 8,889,287
Bear Stearns Companies, Inc..................... 24,000 1,365,000
Beneficial Corp................................. 17,400 2,665,462
Capital One Financial Corp...................... 14,000 1,738,625
Countrywide Credit Industries, Inc.............. 36,400 1,847,300
Federal Home Loan Mortgage Corp................. 231,700 10,904,381
Federal National Mortgage Association........... 352,600 21,420,450
Fifth Third Bancorp............................. 80,000 5,040,000
Franklin Resource, Inc.......................... 84,300 4,552,200
Green Tree Financial Corp....................... 46,000 1,969,375
H & R Block, Inc................................ 34,300 1,444,887
Household International, Inc.................... 106,200 5,283,450
Lehman Brothers Holdings, Inc................... 37,400 2,900,837
MBNA Corp....................................... 166,612 5,498,196
Merrill Lynch & Co., Inc........................ 113,200 10,442,700
Morgan Stanley, Dean Witter, Discover & Co...... 197,405 18,037,882
Schwab (Charles) Corp........................... 87,200 2,834,000
SLM Holding Corp................................ 38,000 1,862,000
State Street Corp............................... 53,500 3,718,250
Sunamerica, Inc................................. 65,300 3,750,669
Transamerica Corp............................... 20,600 2,371,575
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B26
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Travelers Group, Inc............................ 381,409 $ 23,122,921
Washington Mutual, Inc.......................... 128,280 5,572,162
--------------
164,833,209
--------------
FOOD & BEVERAGES -- 5.6%
Anheuser-Busch Companies, Inc................... 163,000 7,691,562
Archer-Daniels-Midland Co....................... 188,737 3,656,779
Bestfoods....................................... 96,000 5,574,000
Brown-Forman Corp. (Class "B" Stock)............ 23,000 1,477,750
Campbell Soup Co................................ 152,400 8,096,250
Coca-Cola Co.................................... 822,600 70,332,300
ConAgra, Inc.................................... 157,300 4,984,444
Coors (Adolph) Co. (Class "B" Stock)............ 12,600 428,400
General Mills, Inc.............................. 52,400 3,582,850
Giant Food, Inc. (Class "A" Stock).............. 20,600 887,087
Heinz (H.J.) & Co............................... 121,250 6,805,156
Hershey Foods Corp.............................. 47,900 3,305,100
Kellogg Co...................................... 137,100 5,149,819
PepsiCo, Inc.................................... 504,300 20,770,856
Pioneer Hi-Bred International, Inc.............. 81,300 3,363,787
Quaker Oats Co.................................. 46,100 2,532,619
Ralston-Ralston Purina Group.................... 35,740 4,174,879
Sara Lee Corp................................... 157,500 8,810,156
Seagram Co., Ltd................................ 119,100 4,875,656
Sysco Corp...................................... 113,400 2,905,875
Wrigley (William) Jr. Co........................ 38,400 3,763,200
--------------
173,168,525
--------------
FOREST PRODUCTS -- 0.7%
Boise Cascade Corp.............................. 18,486 605,416
Champion International Corp..................... 32,400 1,593,675
Fort James Corp................................. 70,300 3,128,350
Georgia-Pacific Corp............................ 30,800 1,815,275
International Paper Co.......................... 100,534 4,322,962
Louisiana-Pacific Corp.......................... 36,200 660,650
Mead Corp....................................... 34,700 1,101,725
Potlatch Corp................................... 9,800 411,600
Temple-Inland, Inc.............................. 18,600 1,002,075
Union Camp Corp................................. 22,800 1,131,450
Westvaco Corp................................... 35,100 991,575
Weyerhaeuser Co................................. 65,900 3,043,756
Willamette Industries, Inc...................... 36,600 1,171,200
--------------
20,979,709
--------------
GAS PIPELINES -- 0.5%
Columbia Energy Group........................... 27,750 1,543,594
Consolidated Natural Gas Co..................... 31,700 1,866,337
Enron Corp...................................... 109,200 5,903,625
Peoples Energy Corp............................. 11,200 432,600
Sempra Energy (a)............................... 41,505 1,151,760
Sonat, Inc...................................... 36,200 1,398,225
Williams Companies, Inc......................... 135,800 4,583,250
--------------
16,879,391
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.6%
Columbia/HCA Healthcare Corp.................... 215,998 6,290,942
Healthsouth Corp. (a)........................... 129,700 3,461,369
Humana, Inc. (a)................................ 54,100 1,687,244
Manor Care, Inc................................. 21,450 824,484
Service Corp. International..................... 83,600 3,584,350
Shared Medical Systems Corp..................... 8,800 646,250
Tenet Healthcare Corp. (a)...................... 102,800 3,212,500
--------------
19,707,139
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 1.1%
Clorox Co....................................... 34,600 $ 3,299,975
Gillette Co..................................... 372,200 21,099,087
Kimberly-Clark Corp............................. 185,188 8,495,499
--------------
32,894,561
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc................. 13,400 902,825
Fleetwood Enterprises, Inc...................... 11,600 464,000
Kaufman & Broad Home Corp....................... 12,966 411,670
Lowe's Companies, Inc........................... 115,200 4,672,800
Masco Corp...................................... 54,800 3,315,400
Maytag Corp..................................... 32,100 1,584,938
Owens Corning................................... 18,800 767,275
Stanley Works................................... 29,100 1,209,469
Tupperware Corp................................. 19,900 559,688
Whirlpool Corp.................................. 25,400 1,746,250
--------------
15,634,315
--------------
INSURANCE -- 3.8%
Aetna, Inc...................................... 49,012 3,731,039
Allstate Corp................................... 142,694 13,065,419
American General Corp........................... 84,786 6,035,703
American International Group, Inc............... 233,455 34,084,430
Aon Corp........................................ 55,950 3,930,488
Chubb Corp...................................... 56,300 4,525,113
CIGNA Corp...................................... 73,900 5,099,100
Cincinnati Financial Corp....................... 55,500 2,129,813
Conseco, Inc.................................... 61,800 2,889,150
General Re Corp................................. 26,150 6,629,025
Hartford Financial Services Group, Inc.......... 39,200 4,483,500
Jefferson-Pilot Corp............................ 35,212 2,040,095
Lincoln National Corp........................... 33,800 3,088,475
Marsh & McLennan Companies, Inc................. 84,300 5,094,881
MBIA, Inc....................................... 32,400 2,425,950
MGIC Investment Corp............................ 37,800 2,156,963
Progressive Corp................................ 24,000 3,384,000
SAFECO Corp..................................... 47,400 2,153,738
St. Paul Companies, Inc......................... 76,910 3,235,027
Torchmark Corp.................................. 47,100 2,154,825
United Healthcare Corp.......................... 62,200 3,949,700
UNUM Corp....................................... 46,200 2,564,100
--------------
118,850,534
--------------
LEISURE -- 0.9%
Brunswick Corp.................................. 32,800 811,800
Harrah's Entertainment, Inc. (a)................ 34,750 807,938
King World Productions, Inc. (a)................ 25,100 640,050
Mirage Resorts, Inc. (a)........................ 58,800 1,253,175
Walt Disney Co.................................. 225,867 23,730,152
--------------
27,243,115
--------------
LODGING -- 0.2%
Hilton Hotels Corp.............................. 82,700 2,356,950
Marriott International, Inc. (Class "A"
Stock)........................................ 86,000 2,784,250
--------------
5,141,200
--------------
MACHINERY -- 0.8%
Briggs & Stratton Corp.......................... 7,600 284,525
Case Corp....................................... 24,900 1,201,425
Caterpillar, Inc................................ 123,900 6,551,213
Cincinnati Milacron, Inc........................ 12,300 299,044
Cooper Industries, Inc.......................... 40,300 2,213,981
Deere & Co...................................... 83,600 4,420,350
Dover Corp...................................... 74,100 2,537,925
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B27
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Eaton Corp...................................... 25,000 $ 1,943,750
Harnischfeger Industries, Inc................... 15,800 447,338
Ingersoll-Rand Co............................... 54,750 2,412,422
Snap-On, Inc.................................... 20,400 739,500
Timken Co....................................... 21,100 650,144
--------------
23,701,617
--------------
MANUFACTURING -- 0.6%
Illinois Tool Works, Inc........................ 82,900 5,528,394
Tyco International, Ltd......................... 192,500 12,127,500
--------------
17,655,894
--------------
MEDIA -- 2.8%
CBS Corp........................................ 236,000 7,493,000
Clear Channel Communications, Inc. (a).......... 40,900 4,463,213
Comcast Corp. (Special Class "A" Stock)......... 118,400 4,806,300
Donnelley (R.R.) & Sons Co...................... 48,600 2,223,450
Dow Jones & Co., Inc............................ 31,600 1,761,700
Dun & Bradstreet Corp........................... 57,260 2,068,518
Gannett Co., Inc................................ 94,200 6,694,088
HBO & Co........................................ 141,300 4,980,825
Interpublic Group of Companies, Inc............. 41,700 2,530,669
Knight-Ridder, Inc.............................. 27,100 1,492,194
McGraw-Hill, Inc................................ 33,200 2,707,875
Mediaone Group, Inc............................. 202,200 8,884,163
Meredith Corp................................... 17,500 821,406
New York Times Co. (Class "A" Stock)............ 32,000 2,536,000
Tele-Communications, Inc. (Series "A"
Stock) (a).................................... 169,500 6,515,156
Time Warner, Inc................................ 194,140 16,586,836
Times Mirror Co. (Class "A" Stock).............. 30,000 1,886,250
Tribune Co...................................... 40,700 2,800,669
Viacom, Inc. (Class "B" Stock) (a).............. 117,667 6,854,103
--------------
88,106,415
--------------
METALS - FERROUS -- 0.2%
Allegheny Teledyne, Inc......................... 65,680 1,502,430
Armco, Inc. (a)................................. 26,700 170,213
Bethlehem Steel Corp. (a)....................... 43,500 541,031
Inland Steel Industries, Inc.................... 16,700 470,731
Nucor Corp...................................... 30,200 1,389,200
USX-U.S. Steel Group, Inc....................... 28,540 941,820
Worthington Industries, Inc..................... 33,400 503,088
--------------
5,518,513
--------------
METALS - NON FERROUS -- 0.3%
Alcan Aluminum, Ltd............................. 75,950 2,098,119
Aluminum Company of America..................... 57,500 3,791,406
Cyprus Amax Minerals Co......................... 30,100 398,825
Inco Ltd........................................ 55,100 750,738
Reynolds Metals Co.............................. 25,100 1,404,031
--------------
8,443,119
--------------
MINERAL RESOURCES -- 0.2%
ASARCO, Inc..................................... 14,200 315,950
Burlington Resources, Inc....................... 59,817 2,575,870
Homestake Mining Co............................. 71,400 740,775
Phelps Dodge Corp............................... 19,900 1,138,031
--------------
4,770,626
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.5%
Crane Co........................................ 15,450 750,291
Ecolab, Inc..................................... 42,800 1,326,800
General Signal Corp............................. 16,962 610,632
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ITT Industries, Inc............................. 39,100 $ 1,461,363
Laidlaw, Inc.................................... 106,500 1,297,969
Millipore Corp.................................. 13,900 378,775
NACCO Industries, Inc. (Class "A" Stock)........ 2,700 348,975
Pall Corp....................................... 41,200 844,600
PPG Industries, Inc............................. 58,700 4,083,319
Textron, Inc.................................... 55,100 3,949,981
Thermo Electron Corp. (a)....................... 53,000 1,811,938
--------------
16,864,643
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.4%
American Greetings Corp. (Class "A" Stock)...... 24,300 1,237,781
Black & Decker Corp............................. 32,300 1,970,300
Corning, Inc.................................... 77,400 2,689,650
Eastman Kodak Co................................ 108,700 7,941,894
Jostens, Inc.................................... 12,200 294,325
Minnesota Mining & Manufacturing Co............. 135,700 11,152,844
Polaroid Corp................................... 15,100 536,994
Rubbermaid, Inc................................. 51,300 1,702,519
Unilever N.V. (N.Y. Shares), ADR, (United
Kingdom)...................................... 212,500 16,774,219
--------------
44,300,526
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.1%
Tenneco, Inc.................................... 55,800 2,123,888
--------------
OIL & GAS -- 6.2%
Amerada Hess Corp............................... 30,700 1,667,394
Amoco Corp...................................... 324,060 13,488,998
Anadarko Petroleum Corp......................... 20,400 1,370,625
Ashland, Inc.................................... 24,700 1,275,138
Atlantic Richfield Co........................... 106,670 8,333,594
Chevron Corp.................................... 218,100 18,115,931
Coastal Corp.................................... 34,600 2,415,513
Eastern Enterprises............................. 6,400 274,400
Exxon Corp...................................... 820,700 58,526,169
Kerr-McGee Corp................................. 15,900 920,213
Mobil Corp...................................... 260,700 19,976,138
NICOR, Inc...................................... 15,900 637,988
Pennzoil Co..................................... 16,000 810,000
Phillips Petroleum Co........................... 87,200 4,201,950
Royal Dutch Petroleum Co........................ 713,600 39,114,200
Sun Co., Inc.................................... 32,600 1,265,288
Texaco, Inc..................................... 181,582 10,838,176
Union Pacific Resources Group, Inc.............. 84,456 1,483,259
Unocal Corp..................................... 83,000 2,967,250
USX-Marathon Group.............................. 96,100 3,297,431
--------------
190,979,655
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Occidental Petroleum Corp....................... 116,800 3,153,600
Oryx Energy Co. (a)............................. 34,500 763,313
--------------
3,916,913
--------------
OIL & GAS SERVICES -- 0.8%
Apache Corp..................................... 32,200 1,014,300
Baker Hughes, Inc............................... 55,700 1,925,131
Dresser Industries, Inc......................... 58,500 2,577,656
Halliburton Co.................................. 87,200 3,885,850
Helmerich & Payne, Inc.......................... 15,800 351,550
McDermott International, Inc.................... 20,300 699,081
ONEOK, Inc...................................... 9,800 390,775
Rowan Companies, Inc. (a)....................... 28,200 548,138
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B28
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Schlumberger Ltd................................ 165,300 $ 11,292,056
Western Atlas, Inc. (a)......................... 17,900 1,519,263
--------------
24,203,800
--------------
PRECIOUS METALS -- 0.2%
Barrick Gold Corp............................... 123,200 2,363,900
Battle Mountain Gold Co......................... 75,500 448,281
Freeport-McMoRan Copper & Gold, Inc. (Class
"B").......................................... 65,000 987,188
Newmont Mining Corp............................. 51,503 1,216,758
Placer Dome, Inc................................ 84,400 991,700
--------------
6,007,827
--------------
RAILROADS -- 0.5%
Burlington Northern Santa Fe Corp............... 52,042 5,109,874
CSX Corp........................................ 73,512 3,344,796
Norfolk Southern Corp........................... 125,100 3,729,544
Union Pacific Corp.............................. 81,800 3,609,425
--------------
15,793,639
--------------
RESTAURANTS -- 0.6%
Darden Restaurants, Inc......................... 50,300 798,513
McDonald's Corp................................. 229,500 15,835,500
Tricon Global Restaurants, Inc. (a)............. 51,050 1,617,647
Wendy's International, Inc...................... 44,000 1,034,000
--------------
19,285,660
--------------
RETAIL -- 5.4%
Abercrombie & Fitch Co.(Class "A" Stock)........ 1,212 53,328
Albertson's, Inc................................ 81,700 4,233,081
American Stores Co.............................. 91,800 2,220,413
AutoZone, Inc. (a).............................. 50,900 1,625,619
Circuit City Stores, Inc........................ 33,200 1,556,250
Consolidated Stores Corp. (a)................... 34,600 1,254,250
Costco Companies, Inc. (a)...................... 70,666 4,456,375
CVS Corp........................................ 126,000 4,906,125
Dayton-Hudson Corp.............................. 144,584 7,012,324
Dillard's, Inc.................................. 37,050 1,535,259
Federated Department Stores, Inc. (a)........... 69,300 3,729,206
Great Atlantic & Pacific Tea Co., Inc........... 12,200 403,363
Harcourt General, Inc........................... 23,206 1,380,757
Home Depot, Inc................................. 243,423 20,219,323
IKON Office Solutions, Inc...................... 45,576 663,701
J.C. Penney Co., Inc............................ 82,700 5,980,244
Kmart Corp. (a)................................. 160,300 3,085,775
Kroger Co. (a).................................. 84,200 3,610,075
Liz Claiborne, Inc.............................. 23,000 1,201,750
Longs Drug Stores, Inc.......................... 11,700 337,838
May Department Stores Co........................ 76,700 5,023,850
Mercantile Stores Co., Inc...................... 12,100 955,144
Newell Co....................................... 52,500 2,615,156
Nordstrom, Inc.................................. 25,600 1,977,600
Pep Boys - Manny, Moe & Jack.................... 21,300 403,369
Rite Aid Corp................................... 87,200 3,275,450
Sears, Roebuck & Co............................. 129,900 7,932,019
Sherwin-Williams Co............................. 58,600 1,941,125
Supervalu, Inc.................................. 20,000 887,500
Tandy Corp...................................... 33,830 1,795,104
The Gap, Inc.................................... 131,950 8,131,419
The Limited, Inc................................ 88,648 2,936,465
TJX Companies, Inc.............................. 107,400 2,591,025
Toys 'R' Us, Inc. (a)........................... 92,750 2,185,422
Venator Group, Inc. (a)......................... 44,400 849,150
Wal-Mart Stores, Inc............................ 747,500 45,410,625
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Walgreen Co..................................... 163,500 $ 6,754,594
Winn-Dixie Stores, Inc.......................... 49,200 2,518,425
--------------
167,648,498
--------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co......................... 26,300 542,438
Goodyear Tire & Rubber Co....................... 52,100 3,357,194
--------------
3,899,632
--------------
SEMICONDUCTORS
National Semiconductor Corp. (a)................ 53,000 698,938
--------------
TELECOMMUNICATIONS -- 8.3%
Airtouch Communications, Inc. (a)............... 187,800 10,974,563
Alltel Corp..................................... 61,600 2,864,400
Ameritech Corp.................................. 364,900 16,374,888
Andrew Corp. (a)................................ 28,512 514,998
Ascend Communications, Inc. (a)................. 62,000 3,072,875
AT&T Corp....................................... 539,973 30,845,958
Bell Atlantic Corp.............................. 516,390 23,560,294
BellSouth Corp.................................. 330,400 22,178,100
DSC Communications Corp. (a).................... 38,100 1,143,000
Frontier Corp................................... 54,300 1,710,450
General Instrument Corp. (a).................... 47,700 1,296,844
GTE Corp........................................ 318,720 17,728,800
Lucent Technologies, Inc........................ 434,720 36,163,270
MCI Communications Corp......................... 237,600 13,810,500
Nextel Communications, Inc. (Class "A"
Stock) (a).................................... 88,700 2,206,413
Northern Telecom, Ltd........................... 172,600 9,795,050
SBC Communications, Inc......................... 610,286 24,411,440
Scientific-Atlanta, Inc......................... 26,700 677,513
Sprint Corp..................................... 142,500 10,046,250
Tellabs, Inc. (a)............................... 60,400 4,326,150
US West, Inc.................................... 168,822 7,934,638
WorldCom, Inc. (a).............................. 340,000 16,468,750
--------------
258,105,144
--------------
TEXTILES -- 0.1%
National Service Industries, Inc................ 14,400 732,600
Russell Corp.................................... 11,500 347,156
Springs Industries, Inc......................... 6,600 304,425
VF Corp......................................... 40,236 2,072,154
--------------
3,456,335
--------------
TOBACCO -- 0.1%
UST, Inc........................................ 60,700 1,638,900
--------------
TOYS -- 0.2%
Hasbro, Inc..................................... 44,900 1,765,131
Mattel, Inc..................................... 96,881 4,099,277
--------------
5,864,408
--------------
TRUCKING/SHIPPING -- 0.1%
FDX Corp........................................ 48,820 3,063,455
Ryder System, Inc............................... 25,300 798,531
--------------
3,861,986
--------------
UTILITY - ELECTRIC -- 2.3%
Ameren Corp..................................... 44,400 1,764,900
American Electric Power Co., Inc................ 62,200 2,822,325
Baltimore Gas & Electric Co..................... 49,650 1,542,253
Carolina Power & Light Co....................... 49,300 2,138,388
Central & South West Corp....................... 69,600 1,870,500
CINergy Corp.................................... 52,739 1,845,865
Consolidated Edison, Inc........................ 77,300 3,560,631
Dominion Resources, Inc......................... 63,350 2,581,513
DTE Energy Co................................... 47,200 1,905,700
Duke Energy Corp................................ 119,431 7,076,287
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B29
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Edison International............................ 125,400 $ 3,707,138
Entergy Corp.................................... 79,800 2,294,250
FirstEnergy Corp. (a)........................... 76,100 2,340,075
FPL Group, Inc.................................. 59,900 3,773,700
GPU, Inc........................................ 41,700 1,576,781
Houston Industries, Inc......................... 96,210 2,970,484
Niagara Mohawk Power Corp. (a).................. 45,300 676,669
Northern States Power Co........................ 50,000 1,431,250
Pacific Gas & Electric Co....................... 143,200 4,519,750
PacifiCorp...................................... 97,400 2,203,675
PECO Energy Co.................................. 72,600 2,119,013
PP&L Resources, Inc............................. 55,000 1,247,813
Public Service Enterprise Group, Inc............ 76,000 2,617,250
Southern Co..................................... 229,700 6,359,819
Texas Utilities Co.............................. 81,706 3,401,012
Unicom Corp..................................... 71,800 2,517,488
--------------
70,864,529
--------------
WASTE MANAGEMENT -- 0.2%
Waste Management, Inc........................... 154,600 5,411,000
--------------
TOTAL COMMON STOCKS
(cost $1,610,232,614).......................................... 2,981,511,598
--------------
PREFERRED STOCKS
MISCELLANEOUS - INDUSTRIAL
Sealed Air Corp. (Series A)..................... 1 21
--------------
(cost $19)
TOTAL LONG-TERM INVESTMENTS
(cost $1,610,232,633).......................................... 2,981,511,619
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 3.9% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 3.8%
Joint Repurchase
Agreement Account,
5.715%, 07/01/98.............................. $ 116,704 $ 116,704,000
--------------
U. S. GOVERNMENT OBLIGATION -- 0.1%
United States Treasury Bill,
5.05%, 09/17/98 (b)........................... 4,500 4,452,435
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $121,154,772)............................................ 121,156,435
--------------
TOTAL INVESTMENTS -- 100.1%
(cost $1,731,387,405; Note 6).................................. 3,102,668,054
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (C)...................
(832,375)
OTHER LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.1%)............
(2,685,996)
--------------
NET ASSETS -- 100.0%............................................. $3,099,149,683
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
(c) Open futures contracts as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1998 APPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
397 S&P 500 Index Sep 98 $ 3,114,176 $ 6,592,375 $ 3,478,199
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B30
<PAGE>
EQUITY PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 80.6%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE
Raytheon Co..................................... 44,639 $ 2,572,322
--------------
AUTOS - CARS & TRUCKS -- 3.0%
Chrysler Corp................................... 981,720 55,344,465
General Motors Corp............................. 700,000 46,768,750
LucasVarity PLC (United Kingdom)................ 19,150,084 76,068,347
Navistar International Corp. (a)................ 395,200 11,411,400
PACCAR, Inc..................................... 279,400 14,598,650
--------------
204,191,612
--------------
BANKS AND SAVINGS & LOANS -- 5.8%
Bank of New York Co., Inc....................... 1,200,000 72,825,000
BankAmerica Corp................................ 698,000 60,333,375
Chase Manhattan Corp............................ 977,800 73,823,900
Mellon Bank Corp................................ 270,100 18,805,712
Mercantile Bankshares Corp...................... 419,400 14,600,362
Morgan (J.P.) & Co., Inc........................ 327,900 38,405,287
National City Corp.............................. 61,560 4,370,760
NationsBank Corp................................ 1,000,000 76,500,000
Republic New York Corp.......................... 450,000 28,321,875
--------------
387,986,271
--------------
CHEMICALS -- 2.8%
BOC Group, PLC ADR (United Kingdom)............. 800,000 21,700,000
Dow Chemical Co................................. 556,300 53,787,256
Eastman Chemical Co............................. 941,550 58,611,487
Potash Corp. of Saskatchewan Inc., (Canada)..... 380,000 28,713,750
Wellman, Inc.................................... 798,200 18,109,162
Witco Corp...................................... 268,800 7,862,400
--------------
188,784,055
--------------
COMPUTERS -- 2.8%
Compaq Computer Corp............................ 2,882,250 81,783,844
International Business Machines Corp............ 600,000 68,887,500
NCR Corp........................................ 100,000 3,250,000
Seagate Technology, Inc. (a).................... 1,426,500 33,968,531
--------------
187,889,875
--------------
CONSTRUCTION & HOUSING -- 1.4%
American Standard Co., Inc. (a)................. 1,050,000 46,921,875
Centex Corp..................................... 1,200,000 45,300,000
--------------
92,221,875
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 5.1%
Gibson Greeting, Inc. (a)....................... 750,000 18,750,000
Loews Corp...................................... 1,775,000 154,646,875
Phillip Morris Co., Inc......................... 2,025,000 79,734,375
RJR Nabisco Holdings Corp....................... 3,710,000 88,112,500
--------------
341,243,750
--------------
ELECTRONICS -- 2.5%
AMP Inc......................................... 1,885,000 64,796,875
Arrow Electronics, Inc. (a)..................... 1,442,200 31,367,850
Avnet, Inc...................................... 197,900 10,822,656
Gerber Scientific, Inc.......................... 419,800 9,550,450
Harris Corp..................................... 600,000 26,812,500
Hitachi Ltd. ADR................................ 399,500 25,767,750
--------------
169,118,081
--------------
FINANCIAL SERVICES -- 5.5%
American Express Co............................. 350,000 39,900,000
Lehman Brothers Holdings, Inc................... 849,800 65,912,612
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Morgan Stanley, Dean Witter, Discover & Co...... 1,712,000 $ 156,434,000
Travelers Group, Inc............................ 1,698,361 102,963,136
--------------
365,209,748
--------------
FOREST PRODUCTS -- 7.4%
Fort James Corp................................. 664,000 29,548,000
Georgia-Pacific Corp............................ 1,258,000 74,143,375
Georgia-Pacific Timber Group.................... 1,158,000 26,706,375
International Paper Co.......................... 1,638,000 70,434,000
Mead Corp....................................... 1,800,000 57,150,000
Rayonier Inc.................................... 830,400 38,198,400
Temple-Inland, Inc.............................. 892,500 48,083,437
Weyerhaeuser Co................................. 1,522,500 70,320,469
Willamette Industries, Inc...................... 2,500,000 80,000,000
--------------
494,584,056
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 6.9%
Columbia/HCA Healthcare Corp.................... 4,074,100 118,658,162
Foundation Health Systems, Inc. (a)............. 3,303,810 87,137,989
PacifiCare Health Systems, Inc. (a)............. 547,100 48,349,962
Tenet Healthcare Corp. (a)...................... 3,103,832 96,994,750
Wellpoint Health Networks Inc................... 1,544,300 114,278,200
--------------
465,419,063
--------------
INSURANCE -- 10.7%
American Financial Group, Inc................... 552,700 23,938,819
American General Corp........................... 1,528,504 108,810,378
Chubb Corp...................................... 2,206,400 177,339,400
Citizens Corp................................... 700,000 21,918,750
Equitable Companies, Inc........................ 1,100,000 82,431,250
Old Republic International Corp................. 2,926,327 85,777,960
SAFECO Corp..................................... 2,855,800 129,760,412
St. Paul Companies, Inc......................... 1,653,800 69,562,963
Tokio Marine & Fire Insurance Co. Ltd. ADR
(Japan)....................................... 404,400 20,573,850
--------------
720,113,782
--------------
METALS - FERROUS -- 0.4%
Birmingham Steel Corp........................... 1,492,400 18,468,450
Carpenter Technology Corp....................... 100,000 5,025,000
--------------
23,493,450
--------------
METALS - NON FERROUS -- 0.9%
Aluminum Company of America..................... 600,000 39,562,500
Cyprus Amax Minerals Co......................... 1,490,400 19,747,800
Nord Resources Corp. (a)........................ 130,500 252,844
--------------
59,563,144
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 1.0%
Eastman Kodak Co................................ 889,800 65,011,013
--------------
OIL & GAS -- 2.3%
Amerada Hess Corp............................... 325,000 17,651,563
Atlantic Richfield Co........................... 1,100,000 85,937,500
Total SA, ADR, (France)......................... 738,365 48,270,612
--------------
151,859,675
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 4.1%
Elf Aquitaine SA, ADR, (France)................. 2,424,433 172,134,743
MarketSpan Corp. (a)............................ 1,356,432 40,608,183
Occidental Petroleum Corp....................... 1,100,000 29,700,000
Oryx Energy Co. (a)............................. 1,600,000 35,400,000
--------------
277,842,926
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B31
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
PRECIOUS METALS -- 0.8%
Freeport-McMoRan Copper & Gold, Inc. (Class
"A").......................................... 1,748,800 $ 24,920,400
Freeport-McMoRan Copper & Gold, Inc. (Class
"B").......................................... 319,600 4,853,925
Kinross Gold Corp. (a).......................... 105,126 341,660
Newmont Mining Corp............................. 994,100 23,485,613
--------------
53,601,598
--------------
RESTAURANTS -- 1.9%
Darden Restaurants, Inc......................... 7,922,700 125,772,863
--------------
RETAIL -- 8.5%
BJ's Wholesale Club, Inc. (a)................... 250,900 10,192,813
Dillard's, Inc.................................. 3,300,000 136,743,750
HomeBase, Inc. (a).............................. 1,300,000 10,318,750
IKON Office Solutions, Inc...................... 1,101,500 16,040,594
Kmart Corp. (a)................................. 6,500,000 125,125,000
Nine West Group Inc. (a)........................ 910,000 24,399,375
Pep Boys - Manny, Moe & Jack.................... 2,025,000 38,348,438
Petrie Stores Corp. (a)......................... 540,000 1,549,800
Sears, Roebuck and Co........................... 690,000 42,133,125
Tandy Corp...................................... 2,115,800 112,269,638
Toys 'R' Us, Inc. (a)........................... 2,350,000 55,371,875
--------------
572,493,158
--------------
SEMICONDUCTORS -- 0.3%
National Semiconductor Corp. (a)................ 1,360,000 17,935,000
--------------
TELECOMMUNICATIONS -- 3.9%
360 Communication Co. (a)....................... 1,696,066 54,274,112
AT&T Corp....................................... 1,100,000 62,837,500
Loral Corp...................................... 1,800,000 50,850,000
Portugal Telecom SA, ADR, (Portugal)............ 823,400 43,588,738
Telefonica de Espana, SA, ADR, (Spain).......... 336,300 46,766,719
--------------
258,317,069
--------------
TEXTILES
Worldtex, Inc. (a).............................. 107,199 623,094
--------------
TRANSPORTATION -- 0.3%
Marine Transport Corp. (a)...................... 100,000 406,250
OMI Corp. (a)................................... 1,000,000 8,000,000
Overseas Shipholding Group, Inc................. 600,000 12,225,000
--------------
20,631,250
--------------
UTILITY - ELECTRIC -- 1.4%
American Electric Power Co., Inc................ 180,000 8,167,500
GPU, Inc........................................ 500,000 18,906,250
Houston Industries, Inc......................... 974,519 30,088,274
Unicom Corp..................................... 1,112,900 39,021,056
--------------
96,183,080
--------------
UTILITY - WATER -- 0.1%
American Water Works Co., Inc................... 270,000 8,370,000
--------------
WASTE MANAGEMENT -- 0.9%
Waste Management, Inc........................... 1,623,300 56,815,500
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $3,471,468,003).......................................... 5,407,847,310
--------------
PRINCIPAL
MOODY'S AMOUNT
SHORT-TERM INVESTMENTS -- 19.8% RATING (000)
------------ ---------
COMMERCIAL PAPER -- 7.2%
American General Finance,
5.53%, 07/14/98..................... P1 $ 12,000 11,976,037
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Aon Corp.,
5.55%, 07/14/98..................... P2 $ 4,000 $ 3,991,983
Associates Corp. of North America,
5.52%, 08/10/98..................... P1 26,000 25,840,533
Bank of New York Co., Inc.,
5.53%, 07/28/98..................... P1 50,000 49,792,625
Bell Atlantic Financial,
5.58%, 07/22/98..................... P1 3,000 2,990,235
Caterpillar Inc.,
6.00%, 07/06/98..................... P1 15,000 15,000,000
Commercial Credit Co.,
5.57%, 08/11/98..................... P1 14,000 13,911,189
Cregem North America,
5.70%, 07/20/98..................... P1 6,000 5,981,950
Eastman Kodak Co.,
5.57%, 08/26/98..................... P1 5,000 4,956,678
Ford Motor Credit Corp.,
5.54%, 07/02/98..................... P1 8,000 7,998,769
General Electric Capital Corp.,
5.53%, 08/14/98..................... P1 57,000 56,614,743
5.60%, 07/22/98..................... P1 6,000 5,980,400
General Reinsurance Corp.,
5.57%, 08/07/98..................... P1 5,035 5,006,176
GTE Finance Corp.,
5.60%, 07/23/98..................... P3 11,000 10,962,356
Heinz (H.J.) Co.,
5.55%, 07/16/98..................... P1 6,990 6,973,836
5.55%, 08/28/98..................... P1 20,000 19,821,167
Morgan (J.P.) & Co., Inc.,
5.54%, 08/24/98..................... P1 62,000 61,484,780
Nordbanken N.A.,
5.52%, 07/10/98..................... P1 18,000 17,975,160
Nordbanken North America, Inc.,
5.52%, 08/04/98..................... P1 10,000 9,947,867
Norwest Corp.,
5.57%, 07/23/98..................... P1 17,000 16,942,134
Svenska Handelsbanken,
5.53%, 08/10/98..................... P1 14,000 13,913,978
UBS Finance (Delaware),
5.52%, 08/07/98..................... P1 35,000 34,801,433
5.53%, 08/07/98..................... P1 16,000 15,909,062
Xerox Corp.,
5.52%, 07/14/98..................... P1 47,000 46,906,313
Xerox Credit Corp.,
5.56%, 08/10/98..................... P1 20,035 19,911,228
--------------
485,590,632
--------------
LOAN PARTICIPATIONS -- 0.2%
Countrywide Home Loan, Inc.,
5.60%, 07/28/98..................... P1 11,000 10,953,800
--------------
REPURCHASE AGREEMENT -- 9.9%
Joint Repurchase Agreement Account,
5.715%, 07/01/98 (Note 5)........... 661,589 661,589,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.7%
Federal National Mortgage Association,
4.94%, 02/23/99..................... 5,000 4,980,450
5.63%, 08/14/98..................... 8,000 7,998,160
5.71%, 09/09/98..................... 15,000 15,014,100
United States Treasury Note,
6.125%, 08/31/98.................... 18,000 18,025,380
--------------
46,018,090
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B32
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT - DOMESTIC -- 0.8%
Chase Manhattan Bank,
5.57%, 08/14/98..................... P1 $ 55,000 $ 55,000,000
--------------
TIME DEPOSIT - EURODOLLAR -- 1.0%
Westdeutsche Landesbank,
5.55%, 07/08/98..................... P1 67,000 67,000,000
--------------
CERTIFICATES OF DEPOSIT - YANKEE
Credit Commerce De Belgium,
5.58%, 08/13/98..................... P1 3,000 3,000,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,329,118,450).......................................... 1,329,151,522
--------------
TOTAL INVESTMENTS -- 100.4%
(cost $4,800,586,453; Note 6).................................. 6,736,998,832
--------------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.4%)..................
(30,184,478)
--------------
NET ASSETS -- 100.0%............................................. $6,706,814,354
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt.
PLC Public Limited Company (British Corporation).
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation).
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
B33
<PAGE>
GLOBAL PORTFOLIO
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 95.6%
VALUE
COMMON STOCKS -- 94.2% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AUSTRALIA -- 1.3%
AMP Limited..................................... 326,000 $ 3,814,215
Brambles Industries, Ltd........................ 298,600 5,857,844
FXF Trust....................................... 224,600 31,284
--------------
9,703,343
--------------
FEDERAL REPUBLIC OF GERMANY -- 5.6%
Dresdner Bank, AG............................... 84,012 4,531,768
Mannesmann, AG.................................. 65,153 6,686,518
SAP, AG......................................... 28,222 17,097,145
Volkswagen, AG.................................. 12,978 12,514,885
--------------
40,830,316
--------------
FINLAND -- 2.5%
Nokia Corp. (Class "A" Stock)................... 246,376 18,098,831
--------------
FRANCE -- 9.1%
Casino Guichard Perrachon, SA................... 71,392 5,684,000
Elf Aquitaine, SA............................... 86,520 12,127,539
Legrand, SA..................................... 44,084 11,631,566
Pinault Printemps Redoute, SA................... 7,869 6,566,097
Thomson CSF..................................... 259,500 9,842,432
Total, SA (Class "B" Stock)..................... 66,023 8,557,660
Valeo, SA....................................... 117,817 12,006,977
--------------
66,416,271
--------------
IRELAND -- 2.0%
Bank Of Ireland................................. 724,461 14,848,060
--------------
ITALY -- 5.0%
Credito Italiano................................ 3,777,422 19,739,276
Fiat SpA........................................ 1,703,723 7,443,855
Telecom Italia SpA.............................. 1,242,489 9,130,312
--------------
36,313,443
--------------
JAPAN -- 4.4%
Daibiru Corp.................................... 161,000 1,039,986
Honda Motor Co.................................. 134,000 4,782,948
Nippon Telephone and Telegraph Corp............. 922 7,661,127
Olympus Optical Co., Ltd........................ 935,000 8,147,471
Takefuji Corp................................... 112,000 5,179,191
Toyota Motor Corp............................... 186,000 4,824,711
--------------
31,635,434
--------------
NETHERLANDS -- 2.6%
ING Groep, N.V.................................. 191,168 12,496,326
Koninklijke Numico, N.V......................... 215,476 6,735,987
--------------
19,232,313
--------------
SINGAPORE
Sembawang Maritime, Ltd......................... 276,500 146,996
--------------
SPAIN -- 4.8%
Banco Central Hispanoamericano, SA.............. 607,778 19,093,377
Telefonica De Espana............................ 335,742 15,514,674
--------------
34,608,051
--------------
SWEDEN -- 4.7%
Hennes & Mauritz, AB............................ 228,145 14,533,794
Nordbanken Holdings, AB......................... 1,730,900 12,672,962
Skanska, AB (Class "B" Shares).................. 154,500 6,922,481
--------------
34,129,237
--------------
</TABLE>
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
SWITZERLAND -- 2.9%
Novartis, AG.................................... 6,180 $ 10,278,620
UBS, AG......................................... 29,765 11,062,212
--------------
21,340,832
--------------
UNITED KINGDOM -- 10.3%
Guest, Kean & Nettlefolds, PLC.................. 695,950 8,868,362
Hays, PLC....................................... 613,983 10,298,613
Johnson Matthey, PLC............................ 760,037 6,824,539
Royal & Sun Alliance Insurance Group, PLC....... 777,959 8,043,672
Siebe, PLC...................................... 448,915 8,968,392
Unilever, PLC................................... 922,674 9,824,836
Vodafone Group, PLC............................. 1,717,216 21,796,185
--------------
74,624,599
--------------
UNITED STATES -- 39.0%
Abercrombie & Fitch Co. (Class "A" Stock)....... 1 29
Adobe Systems, Inc.............................. 214,400 9,098,600
Belo (A.H.) Corp. (Class "A" Stock)............. 86,100 2,098,687
Cendant Corp. (a)............................... 274,400 5,728,100
Cisco Systems, Inc. (a)......................... 170,400 15,687,450
Computer Sciences Corp. (a)..................... 140,100 8,966,400
Consolidated Stores Corp........................ 297,200 10,773,500
Electronic Arts, Inc. (a)....................... 229,100 12,371,400
Electronics For Imaging, Inc.................... 301,800 6,375,525
Healthsouth Corp. (a)........................... 392,800 10,482,850
Household International , Inc................... 200,800 9,989,800
Jefferson Smurfit Corp.......................... 236,200 3,712,769
Microsoft Corp. (a)............................. 155,900 16,895,662
Mobil Corp...................................... 144,600 11,079,975
PMC-Sierra, Inc................................. 315,000 14,765,625
Proffitt's, Inc. (a)............................ 258,500 10,436,937
Progressive Corp................................ 55,300 7,797,300
Quorum Health Group, Inc........................ 251,900 6,675,350
Safeway, Inc. (a)............................... 363,600 14,793,975
Tenet Healthcare Corp. (a)...................... 265,100 8,284,375
Teradyne, Inc................................... 279,900 7,487,325
Texas Instruments, Inc.......................... 211,700 12,344,756
The Limited, Inc................................ 417,500 13,829,687
Time Warner, Inc................................ 166,300 14,208,256
Transocean Offshore, Inc........................ 203,100 9,037,950
U.S.A. Waste Services, Inc. (a)................. 233,500 11,529,062
USA Networks, Inc............................... 136,100 3,419,512
Walt Disney Co.................................. 85,500 8,982,844
Wells Fargo & Co................................ 29,100 10,737,900
WorldCom, Inc. (a).............................. 128,200 6,209,688
--------------
283,801,289
--------------
TOTAL COMMON STOCKS
(cost $490,167,887)............................................ 685,729,015
--------------
PREFERRED STOCKS -- 1.4%
FEDERAL REPUBLIC OF GERMANY
Wella, A G
(cost $6,747,046)............................. 8,961 10,014,506
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $496,914,933)............................................ 695,743,521
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B34
<PAGE>
GLOBAL PORTFOLIO (CONTINUED)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT -- 1.1% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT
UNITED STATES
Bear, Stearns & Co. Inc.,
5.83%, 07/01/98
(Cost $7,647,000) (b)....................... $ 7,647 $ 7,647,000
--------------
TOTAL INVESTMENTS -- 96.7%
(cost $504,561,933; Note 6).................................... 703,390,521
--------------
FORWARD CURRENCY CONTRACTS -- AMOUNT RECEIVABLE FROM
COUNTERPARTIES -- 0.2%......................................... 1,348,569
OTHER ASSETS IN EXCESS OF LIABILITIES -- 3.1%....................
22,869,039
--------------
NET ASSETS -- 100.0%............................................. $ 727,608,129
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
AB Aktiebolag (Swedish Stock Company)
AG Aktiengesellschaft (German Stock Company)
N.V. Naamloze Vennootschop (Dutch Corporation)
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Bear, Stearns & Co. Inc., repurchase price $7,648,238 due 7/1/98. The value
of the collateral was $7,825,248.
(c) Outstanding foreign currency contracts at June 30, 1998 were as follows:
<TABLE>
<CAPTION>
VALUE AT
FOREIGN CURRENCY SETTLEMENT CURRENT
CONTRACTS DATE VALUE APPRECIATION
- --------------------------------------- ----------------- -------------- ------------------
<S> <C> <C> <C>
Sale:
Japanese Yen,
expiring 10/01/98 $ 19,314,002 $ 18,226,481 $ 1,087,521
expiring 12/23/98 $ 4,750,000 $ 4,619,652 $ 130,348
expiring 12/24/98 $ 4,750,000 $ 4,619,300 $ 130,700
</TABLE>
JUNE 30, 1998 (UNAUDITED)
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of June 30, 1998 were as
follows:
<TABLE>
<S> <C>
Commercial Banks....................... 16.4%
Computer Services...................... 11.9%
Telecommunications..................... 10.8%
Retail................................. 10.5%
Electronics............................ 7.2%
Automobiles............................ 6.9%
Oil & Gas Services..................... 4.0%
Hospitals.............................. 3.5%
Media.................................. 2.8%
Insurance.............................. 2.7%
Commercial Services.................... 2.2%
Machinery.............................. 2.2%
Chemicals.............................. 1.7%
Electrical Equipment................... 1.6%
Environmental Services................. 1.6%
Consumer Services...................... 1.4%
Cosmetics & Soaps...................... 1.4%
Drugs & Medical Supplies............... 1.4%
Leisure................................ 1.2%
Construction........................... 1.0%
Precious Metals........................ 0.9%
Food & Beverage........................ 0.9%
Diversified Operations................. 0.8%
Paper and Related Products............. 0.5%
Real Estate Development................ 0.1%
Trucking & Shipping.................... 0.0%
Repurchase Agreement................... 1.1%
------
96.7%
------
Forward currency contracts............. 0.2%
Other assets in excess of
liabilities.......................... 3.1%
------
100.0%
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B35
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
CERTAIN PORTFOLIOS OF THE PRUDENTIAL SERIES FUND, INC.
(UNAUDITED)
NOTE 1: GENERAL
The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of fifteen Portfolios ("Portfolio" or "Portfolios"),
each with a separate series of capital stock. The information presented in thse
financial statements pertains to only the seven Portfolios available for
investment by VCA-24: Diversified Bond Portfolio, Government Income Portfolio,
Conservative Balanced Portfolio, Flexible Managed Portfolio, Stock Index
Portfolio, Equity Portfolio and Global Portfolio. Shares in the Series Fund are
currently sold only to certain 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 ("contracts") issued by the Companies. The accounts invest in shares
of the Series Fund through subaccounts that correspond to the Portfolios. The
accounts will redeem shares of the Series Fund to the extent necessary to
provide benefits under the contracts or for such other purposes as may be
consistent with the contracts.
NOTE 2: ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Series Fund in preparation of its financial statements.
SECURITIES VALUATION: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices
or at the bid price on such day in the absence of an asked price. 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 determine prices by analysis of quality, coupon, maturity
and other factors. Any security for which a reliable market 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.
Conservative Balanced and Flexible Managed Portfolios use amortized cost to
value short-term securities. Short-term securities that are held in the other
Portfolios which mature in more than 60 days are valued at current market
quotations and those short-term securities which mature in 60 days or less are
valued at amortized cost.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements
with U.S. financial institutions, it is the Series Fund's policy that its
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, take possession of the underlying collateral securities,
the value of which exceeds the principal amount of the repurchase transaction
including accrued interest. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Series Fund may
by delayed or limited. (See Note 5).
FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investments securities, other assets and liabilities - at
the current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses - at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal period, the Series Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from changes
in the market prices of securities held at the end of the fiscal period.
Similarly, the Series Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of long-
C1
<PAGE>
term portfolio securities sold during the fiscal period. Accordingly, these
realized and unrealized foreign currency gains (losses) are included in the
reported net realized gains (losses) on investment transactions.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at fiscal period end exchange rates are reflected as a component of
net unrealized appreciation (depreciation) on investments and foreign
currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
SHORT SALES: Certain portfolios of the Series Fund may sell a security it does
not own in anticipation of a decline in the market value of that security (short
sale). When the Portfolio makes a short sale, it must borrow the security sold
short and deliver it to the buyer. The proceeds of the short sale will be
retained by the broker-dealer through which it made the short sale as collateral
for its obligation to deliver the security upon conclusion of the sale. The
Portfolio may have to pay a fee to borrow the particular security and may be
obligated to remit any interest or dividends received on such borrowed
securities. A gain, limited to the price at which the Portfolio sold the
security short, or a loss, unlimited in magnitude, will be recognized upon the
termination of a short sale if the market price at termination is less than or
greater than, respectively, the proceeds originally received.
OPTIONS: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sales or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.
The Series Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Series Fund bears the market risk of an unfavorable change in the price of the
security underlying the written option. The Series Fund, as purchaser of an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.
FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the "initial margin". Subsequent payments, known as "variation
margin", are made or received by the Series Fund each day, depending on the
daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.
The Series Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series Fund intends to purchase,
against fluctuations in value. Under a variety of circumstances, the Series Fund
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts and the
underlying assets.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of four elements: stated
coupon,
C2
<PAGE>
original issue discount, market discount and market premium is recorded on the
accrual basis. Certain portfolios own shares of real estate investment trusts
("REITs") which report information on the source of their distributions
annually. A portion of distributions received from REITs during the period is
estimated to be a return of capital and is recorded as a reduction of their
costs. During the six months ended June 30, 1998, certain Portfolios purchased
securities from and sold securities to other Portfolios of the Series Fund or
other funds or accounts managed by The Prudential or its affiliates in
accordance with the provisions of Rule 17a-7 of the Investment Company Act of
1940. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management. The Series Fund expenses are allocated to the
respective Portfolios on the basis of relative net assets except for expenses
that are charged directly at a Portfolio level.
CUSTODY FEE CREDITS: The Series Fund, exclusive of the Global Portfolio, has an
arrangement with its custodian bank, whereby uninvested monies earn credits
which reduce the fees charged by the custodian. Such custody fee credits are
presented as a reduction of gross expenses in the accompanying Statement of
Operations.
TAXES: For federal income tax purposes, each portfolio in the Series Fund is
treated as a separate taxpaying entity. It is the intent of the Series Fund to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.
DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the Fund.
Each Portfolio will declare and distribute dividends from net investment income,
if any, quarterly and net capital gains, if any, at least annually. Dividends
and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. For the six months
ended June 30, 1998, the application of this statement increased (decreased)
undistributed net investment income ("UNI") and accumulated net realized gains
(losses) on investments ("GL") by the following amounts:
<TABLE>
<CAPTION>
UNI G/L
------------ -----------
<S> <C> <C>
Equity Portfolio....................... $ 132,673 $ (132,673)
Global Portfolio....................... (1,253,947) 1,253,947
</TABLE>
Net investment income, net realized gains and net assets were not affected by
these reclassifications.
NOTE 3: AGREEMENTS
The Series Fund has an investment advisory agreement with The Prudential.
Pursuant to this agreement The Prudential has responsibility for all investment
advisory services and supervises the subadvisers' performance of such services.
The Prudential has entered into a service agreement with The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under the investment advisory agreement with the
Series Fund. The Prudential pays for the cost of PIC's services, compensation of
officers of the Series Fund, occupancy and certain clerical and administrative
expenses of the Series Fund. The Series Fund bears all other costs and expenses.
C3
<PAGE>
The investment advisory fee paid The Prudential is computed daily and payable
quarterly, at the annual rates specified below of the value of each of the
Portfolio's average daily net assets:
<TABLE>
<CAPTION>
Fund Investment Advisory Fee
- --------------------------------------- ------------------------
<S> <C>
Diversified Bond Portfolio............. 0.40%
Government Income Portfolio............ 0.40
Conservative Balanced Portfolio........ 0.55
Flexible Managed Portfolio............. 0.60
Stock Index Portfolio.................. 0.35
Equity Portfolio....................... 0.45
Global Portfolio....................... 0.75
</TABLE>
The Prudential has agreed to refund to a Portfolio (other than the Global
Portfolio), the portion of the investment advisory fee for that Portfolio equal
to the amount that the aggregate annual ordinary operating expenses (excluding
interest, taxes and brokerage commissions) exceeds 0.75% of the Portfolio's
average daily net assets. No refund was required for the six months ended June
30, 1998.
PIC is an indirect, wholly-owned subsidiaries of The Prudential.
The Series Fund has a credit agreement (the "Agreement") with an unaffiliated
lender. The maximum commitment under the Agreement is $250,000,000. The
Agreement expires on December 18, 1998. Interest on any such borrowings
outstanding will be at market rates. The purpose of the Agreement is to serve as
an alternative source of funding for capital share redemptions. The Series Fund
did not borrow any amounts pursuant to the Agreement during the six months ended
June 30, 1998. The Series Fund pays a commitment fee at an annual rate of .055
of 1% on the unused portion of the credit facility. The commitment fee is
accrued and paid quarterly by the Series Fund.
NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended June 30, 1998, Prudential Securities Incorporated, an
indirect, wholly-owned subsidiary of The Prudential, earned $193,112 in
brokerage commissions from transactions executed on behalf of the following
Portfolios:
<TABLE>
<CAPTION>
Fund Commission
- --------------------------------------- -----------
<S> <C>
Conservative Balanced Portfolio........ $ 19,607
Flexible Managed Portfolio............. 50,927
Equity Portfolio....................... 108,331
Global Portfolio....................... 14,247
-----------
$ 193,112
</TABLE>
NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT
The Portfolios of the Series Fund (excluding Global Portfolio) may transfer
uninvested cash balances into a single joint repurchase agreement account, the
daily aggregate balance of which is invested in one or more repurchase
agreements collateralized by U.S. Government obligations. The Series Fund's
undivided interest in the joint repurchase agreement account represented
$1,189,382,000 as of June 30, 1998. The Portfolios of the Series Fund with cash
invested in the joint accounts had the following principal amounts and
percentage participation in the account:
<TABLE>
<CAPTION>
Principal Percentage
Amount Interest
--------------- ----------
<S> <C> <C>
Diversified Bond Portfolio............. $ 30,681,000 2.58%
Government Income Portfolio............ 3,325,000 0.28
Conservative Balanced Portfolio........ 95,049,000 7.99
Flexible Managed Portfolio............. 140,082,000 11.78
Stock Index Portfolio.................. 116,704,000 9.81
Equity Portfolio....................... 661,589,000 55.63
All other portfolios (currently not
available to VCA-24)................. 141,952,000 11.93
--------------- ----------
$ 1,189,382,000 100.00%
</TABLE>
C4
<PAGE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Bear, Stearns & Co., Inc., 5.85%, in the principal amount of $340,000,000,
repurchase price $340,055,250, due 7/1/98. The value of the collateral including
accrued interest was $347,935,730.
Goldman Sachs & Co., Inc., 5.10%, in the principal amount of $169,382,000,
repurchase price $169,405,996, due 7/1/98. The value of the collateral including
accrued interest was $173,452,415.
Salomon Smith Barney Inc., 5.70%, in the principal amount of $340,000,000,
repurchase price $340,053,833, due 7/1/98. The value of the collateral including
accrued interest was $347,279,047.
SBC Warburg Dillon Reed Inc., 5.90%, in the principal amount of $340,000,000,
repurchase price $340,055,722, due 7/1/98. The value of the collateral including
accrued interest was $347,517,223.
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchases and the proceeds from the sales of securities
(excluding short-term issues) for the six months ended
June 30, 1998 were as follows:
Cost of Purchases:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Government Securities.................. $483,904,842 $270,976,639 $1,744,981,475 $1,546,388,249 0
Non-Government Securities.............. $515,117,787 0 $3,272,179,753 $3,590,683,873 $267,686,221
<CAPTION>
EQUITY GLOBAL
------------- -------------
<S> <C> <C>
Government Securities.................. 0 0
Non-Government Securities.............. $726,500,817 $258,075,348
</TABLE>
Proceeds from Sales:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX
------------- ------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Government Securities.................. $309,707,021 $248,701,375 $1,387,898,008 $1,145,182,330 0
Non-Government Securities.............. $561,436,949 0 $3,704,451,747 $4,047,305,994 $43,589,341
<CAPTION>
EQUITY GLOBAL
-------------- -------------
<S> <C> <C>
Government Securities.................. 0 0
Non-Government Securities.............. $1,026,419,816 $274,480,277
</TABLE>
The federal income tax basis and unrealized appreciation (depreciation) of the
Series Funds' investments as of June 30, 1998 were as follows:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX
------------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Gross Unrealized Appreciation.......... $ 25,938,972 $ 12,802,244 $ 247,053,821 $ 524,221,445 $1,391,996,532
Gross Unrealized Depreciation.......... 2,876,703 53,437 91,383 126,889,506 21,316,928
Total Net Unrealized................... 23,062,269 12,748,807 246,962,438 397,331,939 1,370,679,604
Tax Basis.............................. 902,862,198 409,415,059 4,585,145,108 5,372,097,545 1,731,988,450
<CAPTION>
EQUITY GLOBAL
--------------- -------------
<S> <C> <C>
Gross Unrealized Appreciation.......... $2,043,459,258 $207,400,426
Gross Unrealized Depreciation.......... 107,046,879 8,598,136
Total Net Unrealized................... 1,936,412,379 198,802,290
Tax Basis.............................. 4,800,586,453 504,588,231
</TABLE>
For federal income tax purposes, the following Portfolio had a capital loss
carryforward as of December 31, 1997. Accordingly, no capital gain distributions
are expected to be paid to shareholders until net gains have been realized in
excess of such amount:
<TABLE>
<CAPTION>
CAPITAL LOSSES CAPITAL LOSSES
POST OCTOBER CARRYFORWARDS CARRYFORWARDS
LOSSES DEFERRED UTILIZED IN 1997 AVAILABLE EXPIRATION DATE
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Government Income Portfolio............ -- -- $ 7,267,545 12/31/2003
</TABLE>
C5
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
DIVERSIFIED BOND PORTFOLIO
------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
--------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 11.02 $ 11.07 $ 11.31 $ 10.04 $ 11.10 $ 10.83
--------------- ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.36 0.80 0.76 0.76 0.68 0.68
Net realized and unrealized gains
(losses) on investments.............. 0.13 0.11 (0.27) 1.29 (1.04) 0.40
--------------- ------------ ------------ ------------ ------------ ------------
Total from investment operations..... 0.49 0.91 0.49 2.05 (0.36) 1.08
--------------- ------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.18) (0.83) (0.73) (0.75) (0.68) (0.66)
Distributions from net realized
gains................................ (0.04) (0.13) -- (0.03) (0.02) (0.15)
--------------- ------------ ------------ ------------ ------------ ------------
Total distributions.................. (0.22) (0.96) (0.73) (0.78) (0.70) (0.81)
--------------- ------------ ------------ ------------ ------------ ------------
Net Asset Value, end of period......... $ 11.29 $ 11.02 $ 11.07 $ 11.31 $ 10.04 $ 11.10
--------------- ------------ ------------ ------------ ------------ ------------
--------------- ------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN:(b)............ 4.44% 8.57% 4.40% 20.73% (3.23)% 10.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $940.2 $816.7 $720.2 $655.8 $541.6 $576.2
Ratios to average net assets:
Expenses............................. 0.43%(c) 0.43% 0.45% 0.44% 0.45% 0.46%
Net investment income................ 6.66%(c) 7.18% 6.89% 7.00% 6.41% 6.05%
Portfolio turnover rate................ 108% 224% 210% 199% 32% 41%
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT INCOME PORTFOLIO
---------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 11.52 $ 11.22 $ 11.72 $ 10.46 $ 11.78 $ 11.09
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.52 0.75 0.75 0.74 0.70 0.70
Net realized and unrealized gains
(losses) on investments.............. 0.11 0.30 (0.51) 1.28 (1.31) 0.68
------------ ------------ ------------ ------------ ------------ ------------
Total from investment operations... 0.63 1.05 0.24 2.02 (0.61) 1.38
------------ ------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.35) (0.75) (0.74) (0.76) (0.71) (0.64)
Distributions from net realized
gains................................ -- -- -- -- -- (0.05)
------------ ------------ ------------ ------------ ------------ ------------
Total distributions................ (0.35) (0.75) (0.74) (0.76) (0.71) (0.69)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value, end of period......... $ 11.80 $ 11.52 $ 11.22 $ 11.72 $ 10.46 $ 11.78
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INVESTMENT RETURN:(b)............ 3.94% 9.67% 2.22% 19.48% (5.16)% 12.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $428.5 $429.6 $482.0 $501.8 $487.6 $540.1
Ratios to average net assets:
Expenses............................. 0.45%(c) 0.44% 0.46% 0.45% 0.45% 0.46%
Net investment income................ 5.92%(c) 6.40% 6.38% 6.55% 6.30% 5.91%
Portfolio turnover rate................ 61% 88% 95% 195% 34% 19%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for less than a
full year are not annualized.
(c) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
D1
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED PORTFOLIO
----------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24
-------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.33 0.76 0.66 0.63 0.53 0.49
Net realized and unrealized gains
(losses) on investments.............. 0.87 1.26 1.24 1.78 (0.68) 1.23
-------------- --------- --------- --------- --------- ---------
Total from investment operations... 1.20 2.02 1.90 2.41 (0.15) 1.72
-------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.17) (0.76) (0.66) (0.64) (0.51) (0.47)
Distributions from net realized
gains................................ (0.13) (1.81) (1.03) (0.56) (0.15) (0.58)
-------------- --------- --------- --------- --------- ---------
Total distributions................ (0.30) (2.57) (1.69) (1.20) (0.66) (1.05)
-------------- --------- --------- --------- --------- ---------
Net Asset Value, end of period......... $ 15.87 $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91
-------------- --------- --------- --------- --------- ---------
-------------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 8.02% 13.45% 12.63% 17.27% (0.97)% 12.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $4,868.2 $4,744.2 $4,478.8 $3,940.8 $3,501.1 $3,103.2
Ratios to average net assets:
Expenses............................. 0.58%(c) 0.56% 0.59% 0.58% 0.61% 0.60%
Net investment income................ 4.24%(c) 4.48% 4.13% 4.19% 3.61% 3.22%
Portfolio turnover rate................ 110% 295% 295% 201% 125% 79%
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE MANAGED PORTFOLIO
-----------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
--------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01
--------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.28 0.59 0.57 0.56 0.47 0.57
Net realized and unrealized gains
(losses) on investments.............. 1.38 2.52 1.79 3.15 (1.02) 1.88
--------------- --------- --------- --------- --------- ---------
Total from investment operations... 1.66 3.11 2.36 3.71 (0.55) 2.45
--------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.13) (0.58) (0.58) (0.56) (0.45) (0.57)
Distributions from net realized
gains................................ (0.28) (3.04) (1.85) (0.79) (0.46) (0.93)
--------------- --------- --------- --------- --------- ---------
Total distributions................ (0.41) (3.62) (2.43) (1.35) (0.91) (1.50)
--------------- --------- --------- --------- --------- ---------
Net Asset Value, end of period......... $ 18.53 $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96
--------------- --------- --------- --------- --------- ---------
--------------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 9.58% 17.96% 13.64% 24.13% (3.16)% 15.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $5,787.4 $5,490.1 $4,896.9 $4,261.2 $3,481.5 $3,292.2
Ratios to average net assets:
Expenses............................. 0.62%(c) 0.62% 0.64% 0.63% 0.66% 0.66%
Net investment income................ 3.11%(c) 3.02% 3.07% 3.30% 2.90% 3.30%
Portfolio turnover rate................ 97% 227% 233% 173% 124% 63%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
D2
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
STOCK INDEX PORTFOLIO
--------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 30.22 $ 23.74 $ 19.96 $ 14.96 $ 15.20 $ 14.22
-------------- --------- --------- --------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.21 0.43 0.40 0.40 0.38 0.36
Net realized and unrealized gains
(losses) on investments.............. 5.06 7.34 4.06 5.13 (0.23) 1.00
-------------- --------- --------- --------- -------- --------
Total from investment operations... 5.27 7.77 4.46 5.53 0.15 1.36
-------------- --------- --------- --------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.10) (0.42) (0.40) (0.38) (0.37) (0.35)
Dividends in excess of net investment
income............................... -- (0.87) -- -- -- --
Distributions from net realized
gains................................ (0.08) -- (0.28) (0.15) (0.02) (0.03)
-------------- --------- --------- --------- -------- --------
Total distributions................ (0.18) (1.29) (0.68) (0.53) (0.39) (0.38)
-------------- --------- --------- --------- -------- --------
Net Asset Value, end of period......... $ 35.31 $ 30.22 $ 23.74 $ 19.96 $ 14.96 $ 15.20
-------------- --------- --------- --------- -------- --------
-------------- --------- --------- --------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 17.48% 32.83% 22.57% 37.06% 1.01% 9.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $3,099.1 $2,448.2 $1,581.4 $1,031.3 $664.5 $615.1
Ratios to average net assets:
Expenses............................. 0.37%(c) 0.37% 0.40% 0.38% 0.42% 0.42%
Net investment income................ 1.28%(c) 1.55% 1.95% 2.27% 2.50% 2.43%
Portfolio turnover rate................ 2% 5% 1% 1% 2% 1%
</TABLE>
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
----------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 21.49 $ 18.90
-------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.32 0.69 0.71 0.55 0.51 0.42
Net realized and unrealized gains on
investments.......................... 3.56 5.88 3.88 5.89 0.05 3.67
-------------- --------- --------- --------- --------- ---------
Total from investment operations... 3.88 6.57 4.59 6.44 0.56 4.09
-------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.14) (0.70) (0.67) (0.52) (0.49) (0.40)
Distributions from net realized
gains................................ (0.16) (1.76) (2.60) (0.94) (0.90) (1.10)
-------------- --------- --------- --------- --------- ---------
Total distributions................ (0.30) (2.46) (3.27) (1.46) (1.39) (1.50)
-------------- --------- --------- --------- --------- ---------
Net Asset Value, end of period......... $ 34.65 $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 21.49
-------------- --------- --------- --------- --------- ---------
-------------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 12.47% 24.66% 18.52% 31.29% 2.78% 21.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $6,706.8 $6,024.0 $4,814.0 $3,813.8 $2,617.8 $2,186.5
Ratios to average net assets:
Expenses............................. 0.46%(c) 0.46% 0.50% 0.48% 0.55% 0.53%
Net investment income................ 1.91%(c) 2.27% 2.54% 2.28% 2.39% 1.99%
Portfolio turnover rate................ 13% 13% 20% 18% 7% 13%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
D3
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL PORTFOLIO
-----------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
1998 1997 1996 1995(a) 1994(a) 1993(a)
-------------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 17.92 $ 17.85 $ 15.53 $ 13.88 $ 14.64 $ 10.37
-------------- -------- -------- -------- -------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.07 0.09 0.11 0.06 0.02 0.02
Net realized and unrealized gains
(losses) on investments.............. 3.40 1.11 2.94 2.14 (0.74) 4.44
-------------- -------- -------- -------- -------- ------------
Total from investment operations... 3.47 1.20 3.05 2.20 (0.72) 4.46
-------------- -------- -------- -------- -------- ------------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.07) (0.13) (0.11) (0.24) (0.02) (0.08)
Dividends in excess of net investment
income............................... -- (0.10) -- -- -- --
Distributions from net realized
gains................................ (0.02) (0.90) (0.62) (0.31) (0.02) (0.11)
-------------- -------- -------- -------- -------- ------------
Total distributions................ (0.09) (1.13) (0.73) (0.55) (0.04) (0.19)
-------------- -------- -------- -------- -------- ------------
Net Asset Value, end of period......... $ 21.30 $ 17.92 $ 17.85 $ 15.53 $ 13.88 $ 14.64
-------------- -------- -------- -------- -------- ------------
-------------- -------- -------- -------- -------- ------------
TOTAL INVESTMENT RETURN:(b)............ 19.34% 6.98% 19.97% 15.88% (4.89)% 43.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $727.6 $638.4 $580.6 $400.1 $345.7 $129.1
Ratios to average net assets:
Expenses............................. 0.88%(c) 0.85% 0.92% 1.06% 1.23% 1.44%
Net investment income................ 0.63%(c) 0.47% 0.64% 0.44% 0.20% 0.18%
Portfolio turnover rate................ 40% 70% 41% 59% 37% 55%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized.
(d) Commencement of Operations.
SEE NOTES TO FINANCIAL STATEMENTS.
D4
<PAGE>
BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.
MENDEL A. MELZER, CFA W. SCOTT McDONALD, JR., E. MICHAEL CAULFIELD
CHAIRMAN, Ph.D. CEO,
THE PRUDENTIAL SERIES VICE PRESIDENT PRUDENTIAL INVESTMENTS
FUND, INC. KALUDIS CONSULTING
GROUP
SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)
<PAGE>
The Prudential Variable
Contract Account 10 & 11
Committee Members
MENDEL A. MELZER, CFA
Chairman,
The Prudential Variable
Contract Accounts 10 & 11
W. SCOTT McDONALD, JR., Ph.D.
Vice President,
Kaludis Consulting Group
JONATHAN M. GREENE
President,
The Prudential Variable
Contract Accounts 10 & 11
SAUL K. FENSTER, Ph.D.
President, New Jersey
Institute of Technology
JOSEPH WEBER, Ph.D.
Vice President,
Interclass (international corporate learning)
<PAGE>
(This page interntioanlly left blank)
<PAGE>
[LOGO]
================================================================================
Whether providing insurance protection for home, family and business, or
arranging to cover future education and retirement expenses, Prudential people
have always been able to deliver something more: personal service, quality,
attention to detail and the financial strength of The Rock(R). Since 1875,
Prudential has been helping individuals and families meet their financial needs.
The Prudential Insurance Company of America
30 Scranton Office Park
Scranton, PA 18507-1789
(800) 458-6333
Address Service Requested
Bulk Rate
U.S. Postage
PAID
Summit, NJ
Permit No. 657
[PHOTO]
PI-RS-0898-M797
Printed in the U.S.A. MRA-1998-A031027
on recycled paper. MD.RS.003.0898
