THE
MEDLEY PROGRAM
[PHOTO]
SEMI-ANNUAL REPORT
TO PARTICIPANTS
JUNE 30, 1999
COMMITTED TO PROVIDING SUPERIOR
INVESTMENT, ADMINISTRATIVE AND
RECORDKEEPING SERVICES TO
INSTITUTIONAL CLIENTS.
[LOGO]
The Prudential Insurance Company of America
30 Scranton Office Park
Scranton, PA 18507-1789
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
===========================================================================================================================
SIX INCEPTION
VCA-10 CAPITAL GROWTH ACCOUNT MONTHS(6) ONE YEAR FIVE YEAR TEN YEAR DATE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Without Sales Charge(1) 10.39% -1.71% 18.07% 14.96% 8/82
With Maximum Sales Charge(2) 3.15% -7.96% 17.74% 14.89% 8/82
- ---------------------------------------------------------------------------------------------------------------------------
VCA-11 MONEY MARKET ACCOUNT(3)
- ---------------------------------------------------------------------------------------------------------------------------
Without Sales Charge(1) 2.06% 4.45% 4.74% 4.82% 8/82
With Maximum Sales Charge(2) -5.06% -1.66% 4.31% 4.74% 8/82
The current seven-day yield on June 30, 1999 was 4.11%
- ---------------------------------------------------------------------------------------------------------------------------
VCA-24(4)
- ---------------------------------------------------------------------------------------------------------------------------
WITHOUT SALES CHARGE(1)
Diversified Bond Account -2.01% 0.16% 6.92% 7.21% 5/83
Government Income Account -2.97% 1.45% 6.61% 6.72% 5/89
Conservative Balanced Account 3.59% 6.75% 11.20% 9.99% 5/83
Flexible Managed Account 6.19% 6.42% 14.04% 11.72% 5/83
Stock Index Account(5) 11.68% 21.63% 26.49% 17.41% 10/87
Equity Account 15.04% 11.42% 19.84% 15.86% 5/83
Global Account 9.32% 14.15% 14.00% 10.38% 9/88
WITH MAXIMUM SALES CHARGE(2)
Diversified Bond Account -9.03% -5.85% 6.60% 7.20% 5/83
Government Income Account -9.97% -4.56% 6.29% 6.72% 5/89
Conservative Balanced Account -3.45% 0.71% 10.91% 9.97% 5/83
Flexible Managed Account -0.86% 0.37% 13.77% 11.70% 5/83
Stock Index Account(5) 4.63% 15.57% 26.31% 17.40% 10/87
Equity Account 7.88% 5.26% 19.56% 15.82% 5/83
Global Account 2.32% 8.14% 13.76% 10.38% 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.
- --------------------------------------------------------------------------------
(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 NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THERE CAN BE
NO ASSURANCE THAT THE ACCOUNT WILL BE ABLE TO MAINTAIN A STABLE UNIT VALUE.
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE ACCOUNT.
(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>
TABLE OF CONTENTS
I Letter to Medley Participants 2
Market Commentary 4
Investment Advisor's Outlook 6
II VCA-10 CAPITAL GROWTH ACCOUNT 8
Financial Statements 10
III VCA-11 MONEY MARKET ACCOUNT 20
Financial Statements 22
IV VCA-24 VCA-24 30
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
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, 1999, please call the telephone number on the back of this report.
<PAGE>
PERIOD ENDED JUNE 30,1999
TO MEDLEY PARTICIPANTS
DEAR CONTRACT OWNER:
This Semiannual Report presents 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.
In the last couple of years, the recurring possibility of a global economic
crisis caused investors to focus on securities they thought to be safe. In the
equity market, they focused on the stocks of a handful of very large companies
that were perceived to be well-buffeted from an economic slowdown. These stocks
became very expensive--out of proportion to their earnings expectations. As a
result, there was a substantial disparity in value between large and small
companies and between growth and value stocks.
Since earlier this year, however, that gap has narrowed significantly amid news
of strong U.S. economic growth and faster-than-expected global stability. While
the long-term prospects of U.S. growth stocks are still very good, many of the
stocks of smaller and economically sensitive companies favored by our value
managers are now posting very attractive returns.
In the bond market, U.S. Treasuries and select European government bonds were
the major beneficiaries of the flight to quality that occurred last year. When
this trend reversed itself toward the end of 1998, other sectors of the bond
market rebounded. However, with a strong U.S. economy comes the threat of higher
inflation, which erodes the value of bonds' fixed interest payments. The recent
inflation concerns jolted the bond market toward the end of the reporting period
and helped send long-term interest rates to a 19-month high. Fortunately, the
Federal Reserve appears committed to keeping inflation from threatening the
economy's growth.
HOW DID OUR PORTFOLIOS PERFORM?
Reflecting investors' renewed interest in value stocks--which include cyclical
stocks that do well when the economy thrives--our value-oriented Equity
Portfolio generated the highest returns--up 15.47%--through the first half of
the year. Our large-cap growth portfolio--Stock Index Account--also continues to
post attractive returns. It was up 11.68% for the six-month
2
<PAGE>
[PHOTO]
JOHN R. STRANGFELD
CHAIRMAN
period ended June 30, 1999. We are also pleased with the performance of VCA-10,
which posted a very strong six-month return by historical standards. It was up
10.39% for the six-month period ended June 30, 1999.
DIVERSIFICATION: PROTECTION AGAINST MARKET TURBULENCE
The winds of change in the equity market and the recent turbulence in the bond
market not only highlight the value of professional portfolio management, they
illustrate why investors should have a well-diversified asset allocation
strategy. It is also a good practice to revisit your strategy regularly and,
when necessary, rebalance your holdings to keep your asset allocation consistent
with your long-term objectives and risk tolerance.
Since most people buy variable annuity products for long-term goals, our is to
achieve above-average investment performance over time. Therefore, when you
consider how to allocate either new or existing assets, we encourage you to
think about your time horizon and risk tolerance. As always, remember that past
performance is not indicative of future results. Please consult your prospectus
for complete details with regard to these products.
Your Prudential professional will be happy to help you review and structure a
program to meet your long-term financial needs. All of us at Prudential thank
you for your business and look forward to helping you plan for your future
financial security.
Sincerely,
/s/ John R. Strangfeld
John R. Strangfeld
Chairman
July 30, 1999
3
<PAGE>
1999
MARKET COMMENTARY
MARKET OVERVIEW
INVESTORS MOVE OUT INTO A SAFER WORLD
It started in the first quarter of the year, but investors were too risk averse
to believe it. By April, however, it could no longer be denied: the world was
becoming a safer place to invest. Japan was showing signs that its economy had
bottomed and was poised to start growing again; Germany was also hinting at
improved economic conditions, and cheaper currencies and lower interest rates
were helping to fuel several emerging market economies.
================================================================================
HOW THE MARKETS COMPARED(1)
RETURN OVER AVERAGE RETURN OVER
PAST 12 MONTHS PAST 20 YEARS(ANNUALIZED)
-------------- -------------------------
MONEY MARKETS 4.8% 6.4%
BONDS 2.7% 9.7%
FOREIGN STOCKS 15.7% 14.5%
U.S. STOCKS 22.8% 17.9%
- --------------------------------------------------------------------------------
THIS CHART COMPARES THE 12-MONTH RETURN AS OF 6/30/99 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, INC. FOR PURPOSES OF COMPARISON ONLY. U.S. MONEY MARKETS AS
MEASURED BY LIPPER MONEY MARKET AVERAGE (VA). 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 COMPOSITE STOCK PRICE INDEX.
This encouraging economic news prompted many equity investors to look beyond the
domestic large-capitalization growth stocks that have played such a big part in
driving the market's returns over the past several years. What they found in the
United States was stocks of small-cap companies that were ignored for so long
they had become bargain priced. Investors also found relatively inexpensive
value stocks among the large-cap companies. These stocks included many
cyclicals--stocks that typically do well when the economy thrives. Outside the
United States, investors found stocks in Asia and emerging markets that were
also bargain priced.
Many bond investors responded to a safer global economic environment by
pulling out of U.S. Treasury securities and taking advantage of attractive
opportunities in higher-yielding markets. Treasuries also fell out of favor
because investors expected the Federal Reserve to raise rates in an effort to
cool U.S. economic growth before it led to higher inflation. (Higher inflation
erodes the fixed value of bond interest payments.) The Federal Reserve finally
moved on June 30, when it raised its key short-term interest rate by a quarter
of a percentage point to 5%.
THE WORLD
WHAT'S CAUSING THE GLOBAL REBOUND?
Asia--the region that sparked a global financial crisis two years ago--could
actually be credited with helping the world economies get back on course.
Corporate restructuring in many parts of Asia, including Japan and Korea, has
accelerated sharply in the last several months. This has helped companies with
inexpensive valuations greatly improve their prospects for strong earnings
growth. The Asian recovery, in turn, has increased the global demand for
commodities, which has helped the commodity exporters in Russia and Latin
America. The corporate environment in many parts of Europe is also showing signs
of improvement after a disappointing first half of 1999. Company fundamentals
remain strong in Europe, and the weaker euro is helping the export sector.
THE VIEWS EXPRESSED ARE AS OF JULY 30, 1999 AND ARE SUBJECT TO CHANGE BASED ON
MARKET AND OTHER CONDITIONS.
<PAGE>
================================================================================
S&P 500 INDEX--TOTAL RETURN
BY SECTOR
YTD 1999
--------
Technology 24.8%
Basic Materials 22.2
Energy 19.4
Capital Goods 18.5
Communication Services 17.1
Financials 12.8
Consumer Cyclicals 12.3
Transportation 11.4
Utilities 1.2
Health Care -0.4
Consumer Staples -2.2
S&P 500 Index 12.4
- --------------------------------------------------------------------------------
SOURCE: STANDARD & POOR'S AS OF 6/30/99. THE S&P 500 COMPOSITE STOCK PRICE INDEX
IS AN UNMANAGED INDEX OF STOCKS THAT PROVIDE AN INDICATION OF STOCK PRICE
MOVEMENTS. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTORS
CANNOT INVEST DIRECTLY IN AN INDEX.
STOCK MARKET
NO LONGER NARROWLY FOCUSED
When the first half of 1999 drew to a close, it had become obvious that a
broader group of stocks was now benefiting from this accelerated global growth.
The Russell 2000 Index of small-company stocks outperformed the other major
stock indexes. The stock market had placed exceptionally high capitalizations
(the total price of a corporation's outstanding stock) on a few popular
companies.
These "mega-caps" had absorbed a lot of investors' funds, while smaller
companies were much lower priced. So, when investors sold some of their shares
of the mega-caps, enough money was released to have a very large impact on the
prices of small-company stocks. They surged. In many cases, merger and
acquisition activity was a catalyst for a bargain-priced company's gains.
BOND MARKET
CAUGHT OFF-GUARD BY STRONG GLOBAL ECONOMIC GROWTH
Treasury prices fell early in the second quarter as investors sold these
government securities to participate in both the wealth of corporate debt
offerings and in the strong stock market. Occasional economic reports that
hinted at inflation also caused temporary "hiccups" in the debt market that
started to become almost routine until mid-May. That's when April's
much-higher-than-expected Consumer Price Index report was released, which was
soon followed by the Federal Reserve's announcement that it was more inclined to
raise interest rates.
These events prompted a major sell-off in the bond market. The yield on the
benchmark 30-year Treasury bond--which moves in the opposite direction of its
price--rose from 5.63% on March 31 to a high of 6.19% on June 24, a level not
seen since November 1997.
As it turned out, this sharp sell-off was unwarranted in light of the fact that
the Federal Reserve increased short-term interest rates by only a quarter of a
percentage point.
In anticipation of an increase in short-term interest rates, investors drove
prices lower in almost all sectors of the U.S. fixed-income market during the
second half of the quarter and spreads (the difference in yield between
corporate bonds and Treasuries) also widened in both the high-grade and
high-yield (junk) bond markets.
Surprisingly, the spread between yields of Treasuries and some better-quality
corporates (A-rated and AA-rated) widened more than the spread between
Treasuries and lower-rated corporates. This is due, in part, to the large supply
of new investment-grade corporate issues, which came to market during this
period.
5
<PAGE>
1999
INVESTMENT OUTLOOK
ECONOMIC OUTLOOK
FED TO TREAD SLOWLY
Investors are expected to pay very close attention to world economies during the
second half of the year, and the United States economy will probably be the most
closely scrutinized of all. We expect to see strong U.S. growth coupled with a
moderate increase in inflation.
As we enter the second half of the year, we still think that Y2K preparations
(particularly inventory building), combined with the underlying healthy pace of
growth, will push overall economic readings back up to around the 4% level. With
oil and commodity prices now no longer declining and substantially smaller
declines being registered for other non-oil import prices, the Consumer Price
Index inflation rate should move slightly higher. When Alan Greenspan and the
Federal Reserve meet in August, these trends could prompt them to announce that
they are more inclined to raise interest rates. It usually takes six months for
interest rate moves to be felt in the economy. We think the Federal Reserve will
probably be reluctant to actually raise rates in August, because the move would
be felt early next year when the economy quite possibly may slow down anyway in
response to Y2K factors.
Just what those factors might be remains to be seen. Since Y2K is a unique event
the impact of which cannot be gauged by previous experience, all forecasts are
subject to greater risk than usual over the next three quarters.
STOCK MARKET OUTLOOK
RALLY TO CONTINUE TO BROADEN
As the U.S. economy continues to grow and it becomes more apparent that the
world is a safer place for investing, we expect investors to still be attracted
to U.S. small-company stocks and value stocks, both of which remain relatively
inexpensive compared to large-cap growth stocks.
However, the recent move out of growth stocks and into small-company and value
stocks happened so quickly it will not be surprising if this new trend pauses
from time to time to digest the value gains.
International markets are expected to become more attractive to investors as
well. Since stocks in Europe are not as expensive as those in the S&P 500--
international markets could perform better than the S&P 500 over the next 12 to
18 months. In Japan, corporate restructurings are helping to improve earnings
and should eventually bring about economic growth.
A word of caution, however: Asian and Latin American countries have rebounded so
quickly from such depressed levels that it wouldn't be unusual to see those
markets pause as some investors take their profits.
6
<PAGE>
SAFER WORLD HELPS COMMODITIES STAGE A COMEBACK
With global growth accelerating, the economies of many developing nations may
have the wind at their backs for the first time in a while. This could prove
beneficial to most of the world's commodity producers, since global inventories
of resources such as aluminum and nickel are low and there is little excess
production capacity.
The Asian economic and financial crisis caused large inventory liquidations of
many commodities from Far Eastern consumers. With the world beginning to
recover, not only will demand increase but depleted inventories will have to be
rebuilt.
While prices of commodity company stocks are up significantly in 1999, they have
considerable room to go higher. Long-term supply and demand trends are turning
very positive. Soon the strengths we see in oil will spill over into other
commodity markets.
BOND MARKET OUTLOOK
LOOKING FOR GOOD VALUE
Given expectations for strong U.S. economic growth, we have increased our range
for the yield on the 30-year Treasury bond from 5.25% to 6.25%. In the current
environment, high-yield corporate bonds represent good value.
HIGH EXPECTATIONS FOR HIGH-YIELD SECTOR
Because of their low correlation to other financial products, high-yield
corporate bonds (also known as "junk bonds") are an attractive way for suitable
investors to diversify a portfolio. While Treasuries performed poorly during the
first half of the year, high-yield corporates generated a positive return
despite a couple of rough months.
The Federal Reserve's decision to increase short-term rates only slightly and
remove its tightening bias is particularly encouraging to the high-yield sector.
Treasury yields have risen since the beginning of the year; therefore, spreads
(the difference in yield between high-yield bonds and Treasuries) are not as
wide as they were in January. However, they are still wide based on historical
levels.
Default rates, which rose during the first half of the year, shouldn't increase
dramatically from current levels, because economic growth continues to be
strong. Since interest rates are not expected to move significantly between now
and the end of the year, high-yield bonds should earn their coupons and even
realize a little capital appreciation.
7
<PAGE>
VCA-10 CAPITAL GROWTH ACCOUNT
PERFORMANCE SUMMARY.
A dramatic turn in market favor split this half year, with stocks that hurt our
performance in the first quarter contributing markedly superior gains in the
second. Over the full period, your Portfolio returned 10.39%, net of fees.
Although a very strong six-month return by historical standards, it trailed the
Lipper (VIP) Growth Fund Average primarily because our mid-size and smaller
companies didn't begin to shoot ahead until the second quarter.
Stocks of small and mid-size companies have been inexpensive relative to those
of the largest firms for some time. Because of their greater value, we have a
larger representation of them in our portfolio than their share of the S&P 500
Index. Although the price disparity began to close in 1999, our focus on these
stocks still hurt our return for the first half of the year. We were
correspondingly underrepresented in the popular (and high-priced) technology
sector. This also held back our return.
Whereas our financials trailed, our retailers, paper companies, and regional
banks had strong returns.
================================================================================
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1999
SIX ONE THREE FIVE TEN
MONTHS YEAR YEAR YEAR YEAR
- --------------------------------------------------------------------------------
CAPITAL GROWTH ACCOUNT(1) 10.39% -1.71% 17.04% 18.07% 14.96%
- --------------------------------------------------------------------------------
S&P 500(2) 12.38% 22.76% 29.11% 27.86% 18.76%
- --------------------------------------------------------------------------------
LIPPER (VIP) GROWTH AVG.(3) 12.62% 20.49% 24.12% 24.20% 17.56%
- --------------------------------------------------------------------------------
CAPITAL GROWTH ACCOUNT INCEPTION DATE: 8/82.
================================================================================
$10,000 INVESTED OVER TEN YEARS
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
- --------------------------------------------------------------------------------
(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. INVESTORS CANNOT INVEST
DIRECTLY IN AN INDEX.
(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.
Our strong return was particularly supported by our retailers, including the
Limited, Dillards, and Haverty Furniture, and our paper companies, notably
Georgia-Pacific. We have a focus on industrials, such as the paper companies.
Prospects of an economic recovery in Asia helped industrial stocks: in addition
to our papers, we benefited from specialty chemicals such as Cytec Industries
and from Alcoa. Our regional banks, such as Banc One, also benefited from the
improved economic prospects.
We didn't keep up with Lipper in part because of poor performance by our
insurance companies and healthcare companies, such as Tenet and Columbia HCA.
The latter were hurt by uncertainty regarding government regulation of the
industry. They are currently very inexpensive and we believe they represent an
exceptional growth opportunity.
Among our technology stocks, Compaq and Seagate had negative returns for the
period. On the other hand, we also owned Hewlett-Packard (up 48%) and National
Semiconductor (up 88%), both of which we had been able to buy at low prices and
which rose sharply in 1999.
8
<PAGE>
STRATEGY SESSION.
We continue to believe that large growth stocks are markedly more expensive than
the rest of the market, notably in the technology sector. We expect a
continuation of the rebound of value stocks (those selling for significantly
less than their earnings, cash flow, and book value would make a fair value) and
stocks of smaller companies.
We still prefer industrial stocks. Their superior performance in the second
quarter did little to reduce the huge difference in value between this group and
the overall market, especially given the potential impact of an Asian economic
recovery on their profits.
We also continue to like financial companies, particularly insurance companies.
We think that their prices are lower than is warranted by competitive conditions
in the property and casualty business. Moreover, we think the insurance industry
is ripe for consolidation.
We are underweighted in technology stocks because prices in this sector can only
be justified by ideal conditions. Many of these stocks are set up for major
disappointments if perfect conditions and performance are not forthcoming.
- --------------------------------------------------------------------------------
OUTLOOK
PORTFOLIO MANAGER
THOMAS R. JACKSON
"We believe that uncertainty about the global economy in 1998 prolonged the
underperformance of stocks of companies whose earnings are more sensitive to
economic performance, such as smaller companies, industrials, and certain
retailers. These stocks became increasingly undervalued compared to those of
companies with steadier growth. The value investing style had a long and deep
period of underperformance that was broken sharply in April and May of 1999,
when investors began to appreciate the robustness of the U.S. economy and to see
signs of recovery in Asia. On several measures of value, including price to
earnings and price to book value ratios, our portfolio is bargain-priced. We
expect that these bargains will be recognized when investors no longer are
willing to pay as much of a premium for what they believe to be the security of
the large growth companies in a time of turmoil."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
THOMAS R. JACKSON
================================================================================
PORTFOLIO COMPOSITION
6/30/99
-------
Consumer Growth 27.3%
Industrials 26.7%
Finance 22.9%
Consumer Cyclicals 7.6%
Technology 7.6%
Energy 4.8%
Utilities 3.1%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
================================================================================
TOP TEN HOLDINGS
6/30/99
-------
Banc One Corp. 2.7%
XL Capital Ltd. 2.2%
ALLTEL Corp. 2.1%
MediaOne Group, Inc. 2.1%
Eastman Kodak Co. 2.1%
CYTEC Industries, Inc. 2.1%
Reynolds & Reynolds Cl. A 1.9%
Well Point Health Networks 1.8%
Darden Restaurants Inc. 1.8%
Georgia Pacific Corp. (GP Group) 1.7%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
9
<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,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME $.0580 $.0956 $.0757 $.0657 $.0609 $.0563
EXPENSES
For investment management fee (.0086) (.0177) (.0154) (.0118) (.0094) (.0083)
For administrative expenses (.0256) (.0530) (.0461) (.0354) (.0282) (.0251)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME .0238 .0249 .0142 .0185 .0233 .0229
CAPITAL CHANGES
Net realized gain on investments .4125 .8002 1.2761 .5085 .3850 .1947
Net unrealized appreciation
(depreciation) on investments .2699 (1.0426) .3841 .5682 .4744 (.2148)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN UNIT
ACCUMULATION VALUE .7062 (0.2175) 1.6744 1.0952 .8827 .0028
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE
Beginning of period 6.7952 7.0127 5.3383 4.2431 3.3604 3.3576
- ---------------------------------------------------------------------------------------------------------------------------------
End of period $7.5014 $6.7952 $7.0127 $5.3383 $4.2431 $3.3604
- ---------------------------------------------------------------------------------------------------------------------------------
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** .68% .36% .24% .39% .61% .68%
- ---------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 39% 49% 47% 52% 45% 32%
- ---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF UNITS OUTSTANDING
for Participants at end of period
(000's omitted) 69,109 80,431 83,261 91,532 81,817 79,189
- ---------------------------------------------------------------------------------------------------------------------------------
</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
10
<PAGE>
FINANCIAL STATEMENTS FOR VCA-10
STATEMENT OF ASSETS AS OF JUNE 30, 1999
(UNAUDITED)
LONG-TERM VALUE
INVESTMENTS - 93.5% SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
COMMAN STOCKS - 93.5%
- --------------------------------------------------------------------------------
AEROSPACE/DEFENSE - 0.8%
Doncasters PLC - ADR +
(United Kingdom) 92,600 $1,620,500
Gen Corp. 51,200 1,292,800
Litton Industries, Inc.+ 14,300 1,026,024
----------
3,939,324
- --------------------------------------------------------------------------------
APPAREL - 0.9%
Kellwood Co. 20,100 545,212
Liz Claiborne, Inc. 25,000 912,500
Nautica Enterprises, Inc. 40,000 675,000
Phillips-Van Heusen 82,800 817,650
Reebok International Ltd.+ 90,400 1,683,700
----------
4,634,062
- --------------------------------------------------------------------------------
AUTOS & TRUCKS - 1.4%
Borg-Warner Automotive, Inc. 33,500 1,842,500
Borg-Warner Security Corp. 4,500 91,405
Dura Automotive Systems, Inc.+ 14,700 488,775
Midas, Inc. 10,100 286,587
Simpson Industries 17,000 174,250
Strattec Security Corp.+ 17,400 587,250
Tower Automotive, Inc.+ 154,800 3,937,725
----------
7,408,492
- --------------------------------------------------------------------------------
CASINO HOTELS - 1.1%
Aztar Corp.+ 72,300 664,255
Harrah's Entertainment, Inc.+ 44,000 968,000
Park Place Entertainment+ 300,000 2,906,250
Station Casinos, Inc.+ 68,500 1,395,687
----------
5,934,192
- --------------------------------------------------------------------------------
CHEMICALS - 5.1%
Agrium, Inc. 216,100 1,904,381
Arch Chemicals, Inc. 27,300 663,731
Cambrex Corp. 29,600 777,000
Crompton & Knowles Corp. 317,400 6,209,137
Cytec Industries, Inc.+ 338,000 10,773,750
Ferro Corp. 38,250 1,051,875
French Fragrances, Inc.+ 222,900 1,629,955
Hanna (M.A.) Co. 68,000 1,117,750
IMC Global, Inc. 23,900 421,237
Mississippi Chemical Corp. 193,086 1,894,656
----------
26,443,472
- --------------------------------------------------------------------------------
COMPUTER - 1.7%
Compaq Computer Corp. 113,000 2,676,688
Hewlett Packard Co. 62,700 6,301,350
----------
8,978,038
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
COMPUTER RELATED - 1.7%
BancTec, Inc.+ 32,900 $ 590,143
Electronic Data Systems Corp. 64,200 3,631,313
Seagate Technology, Inc.+ 174,200 4,463,875
-----------
8,685,331
- --------------------------------------------------------------------------------
CONSUMER SERVICES - 2.4%
Coinmach Laundry Corp.+ 59,900 759,981
Reynolds & Reynolds Co.
(Class "A" Stock) 430,900 10,045,356
Service Corp International 100,500 1,934,625
-----------
12,739,962
- --------------------------------------------------------------------------------
CONTAINERS AND PACKAGING - 0.9%
Alltrista Corp.+ 30,700 1,013,100
Crown Cork & Seal Co., Inc. 62,500 1,781,250
Shorewood Packaging Corp. 19,500 359,531
U.S. Can Corp.+ 69,800 1,553,050
-----------
4,706,931
- --------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING
OPERATIONS - 1.0%
ACX Technologies, Inc. 25,800 419,250
Clarcor, Inc. 18,900 362,644
Crane Co. 24,450 768,647
FMC Corp.+ 10,000 683,125
Griffon Corp. 31,600 246,875
Harsco Corp. 36,200 1,158,400
Lancaster Colony Corp. 16,300 562,350
U.S. Industries, Inc. 48,200 819,400
-----------
5,020,691
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.1%
Belden, Inc. 76,300 1,826,431
Emcor Group, Inc.+ 39,800 1,002,463
Hussmann International, Inc. 181,100 2,999,469
-----------
5,828,363
- --------------------------------------------------------------------------------
ELECTRONIC PARTS DISTRIBUTION - 0.4%
Arrow Electronics, Inc.+ 57,900 1,100,100
Avnet, Inc. 23,800 1,106,700
-----------
2,206,800
- --------------------------------------------------------------------------------
ELECTRONICS - 1.0%
Marshall Industries+ 1,600 57,500
National Semiconductor Corp.+ 112,280 2,842,088
Pioneer Standard Electronics 121,500 1,458,000
Varian Semiconductor
Equipment 47,800 812,600
-----------
5,170,188
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
FINANCIAL STATEMENTS FOR VCA-10
STATEMENT OF ASSETS AS OF JUNE 30, 1999
(UNAUDITED)
VALUE
DESCRIPTION SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION - 1.6%
Apogee Enterprises, Inc. 226,200 $ 3,039,562
Cameron Ashley Building
Products+ 120,000 1,252,500
Crossman Communities, Inc.+ 19,900 578,344
D.R. Horton, Inc. 42,600 708,225
Giant Cement Holding, Inc.+ 58,300 1,333,613
NVR, Inc.+ 18,600 970,687
Nortek, Inc.+ 14,600 457,163
-----------
8,340,094
- --------------------------------------------------------------------------------
EXPLORATION & PRODUCTION - 4.4%
Atlantic Richfield Co. 82,700 6,910,619
Cabot Oil & Gas Corp.
(Class "A" Stock) 41,300 769,213
Comstock Resources, Inc.+ 164,400 544,575
Devon Energy Corporation 40,800 1,458,600
Kerr McGee Corp. 85,537 4,292,888
Louis Dreyfus Natural Gas+ 30,900 666,281
Occidental Petroleum Corp. 164,400 3,472,950
St. Mary Land & Exploration Co. 22,300 458,544
Santa Fe Snyder Corp.+ 270,210 2,060,351
Vintage Petroleum, Inc. 207,400 2,229,550
-----------
22,863,571
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 5.0%
The CIT Group, Inc.
(Class "A" Stock) 197,300 5,697,037
Citigroup, Inc. 151,198 7,181,905
Federated Investors, Inc.
(Class "B" Stock) 48,100 862,794
Financial Security Assurance
Holdings Corp. 64,700 3,364,400
Heller Financial, Inc. 56,200 1,563,063
Morgan (JP) & Co., Inc. 32,600 4,580,300
The PMI Group, Inc. 15,400 967,312
Waddell & Reed Financial, Inc.
(Class "B" Stock) 56,255 1,518,885
-----------
25,735,696
- --------------------------------------------------------------------------------
FOODS - 3.6%
Fleming Companies, Inc. 39,700 461,513
Food Lion, Inc.
(Class "A" Stock) 392,700 4,663,313
(Class "B" Stock) 95,300 1,101,905
International Home Foods, Inc.+ 96,800 1,784,750
Interstate Bakeries Corp. 34,400 771,850
Richfood Holdings, Inc. 203,900 3,593,738
Sara Lee Corp. 137,700 3,124,069
VALUE
DESCRIPTION SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
Suiza Foods Corp.+ 71,400 $ 2,989,875
-----------
18,491,013
- --------------------------------------------------------------------------------
GAS DISTRIBUTION - 0.1%
Eastern Enterprises 11,300 449,175
- --------------------------------------------------------------------------------
HEALTHCARE - 9.5%
Beverly Enterprises, Inc.+ 191,700 1,545,581
Columbia/HCA Healthcare Corp. 299,300 6,827,781
Foundation Health Systems+
(Class "A" Stock) 100,600 1,509,000
Lifepoint Hospitals, Inc.+ 15,752 211,665
Mallinckrodt, Inc. 124,000 4,510,500
Pacificare Health Systems+ 58,300 4,197,600
Quorum Health Group, Inc.+ 181,700 2,282,606
Sierra Health Services+ 78,600 1,134,788
Tenet Healthcare Corp.+ 325,700 6,045,806
Triad Hospitals, Inc.+ 31,652 427,300
Trigon Healthcare, Inc.+ 41,400 1,505,925
United HealthCare Corp. 105,500 6,606,938
Universal Health Services+ 63,400 3,027,350
(Class "B" Stock)
Wellpoint Health Networks, Inc.+ 113,000 9,590,875
-----------
49,423,715
- --------------------------------------------------------------------------------
HOTELS & MOTELS - 2.4%
Hilton Hotels Corp. 277,700 3,939,869
Innkeepers USA Trust 334,600 3,346,000
Lodgian, Inc.+ 149,000 977,812
Prime Hospitality Corp.+ 58,000 696,000
RFS Hotel Investors, Inc. 252,800 3,175,800
Red Roof Inns, Inc.+ 18,900 339,019
-----------
12,474,500
- --------------------------------------------------------------------------------
HOUSING RELATED - 1.2%
Furniture Brands
International, Inc.+ 110,800 3,088,550
Premark International, Inc. 70,800 2,655,000
Stanley Furniture Co., Inc.+ 18,400 414,000
-----------
6,157,550
- --------------------------------------------------------------------------------
INSURANCE - 10.3%
ARM Financial Group, Inc.
(Class "A" Stock) 37,300 317,050
AmerUs Life Holdings, Inc.
(Class "A" Stock) 93,200 2,516,400
Berkley (W.R.) Corp. 275,500 6,887,500
CNA Surety Corp. 59,400 909,563
Capital Re Corp. 69,500 1,116,344
Enhance Financial Services
Group, Inc. 66,700 1,317,325
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
FINANCIAL STATEMENTS FOR VCA-10
STATEMENT OF ASSETS AS OF JUNE 30, 1999
(UNAUDITED)
VALUE
DESCRIPTION SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
INSURANCE (CONT'D)
Everest Reinsurance
Holdings, Inc. 50,700 $ 1,654,087
Harleysville Group, Inc. 36,900 756,450
Horace Mann Educators 21,600 587,250
Liberty Financial Companies 1,800 52,425
Loews Corp. 38,900 3,077,963
MMI Companies, Inc. 86,419 1,458,321
Old Republic International Corp. 224,550 3,887,522
Reinsurance Group of America, Inc. 20,375 718,219
Reliastar Financial Corp. 4,800 210,000
Torchmark Corp. 178,500 6,091,313
Travelers Property Casualty
(Class "A" Stock) 119,900 4,691,086
Trenwick Group, Inc. 249,850 6,160,364
XL Capital Ltd.
(Class "A" Stock) 197,915 11,182,169
-----------
53,591,351
- --------------------------------------------------------------------------------
LEISURE - 0.2%
Brunswick Corp. 45,300 1,262,738
- --------------------------------------------------------------------------------
MACHINERY - 4.0%
Applied Power Co.
(Class "A" Stock) 52,700 1,439,369
Case Corporation 14,000 673,750
Columbus McKinnon Corp. 177,200 4,252,800
Denison International PLC - ADR+
(United Kingdom) 154,800 2,380,050
Global Industrial
Technologies, Inc.+ 63,800 769,588
Graco, Inc. 15,300 449,438
Hardinge, Inc. 227,275 3,991,517
Idex Corp 32,900 1,081,588
Lincoln Electric Holdings 51,600 1,057,800
New Holland N.V 45,700 782,613
Omniquip International, Inc. 29,500 232,313
Regal Beloit Corp. 58,100 1,372,613
Robbins & Myers, Inc. 17,000 379,313
United Dominion
Industries Ltd. (Canada) 86,700 2,102,475
-----------
20,965,227
- --------------------------------------------------------------------------------
MEDIA - 2.6%
Belo (A.H.) Corp.
(Class "A" Stock) 76,100 1,498,219
Granite Broadcasting Corp.+ 28,700 224,219
MediaOne Group, Inc.+ 147,200 10,948,000
Young Broadcasting Corp.+
(Class "A" Stock) 21,500 915,093
-----------
13,585,531
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
METALS - 3.1%
Alcoa, Inc. 103,200 $6,385,500
The Carbide/Graphite Group+ 368,500 5,274,156
Cleveland - Cliffs, Inc. 103,400 3,347,575
UCAR International, Inc.+ 39,000 984,750
-----------
15,991,981
- --------------------------------------------------------------------------------
MISCELLANEOUS-INDUSTRIAL - 1.4%
Chase Industries, Inc.+ 20,600 173,812
Dexter Corp. 33,100 1,350,894
DT Industries 2,400 22,050
Hawk Corp.+
(Class "A" Stock) 36,800 324,300
Pentair, Inc. 42,500 1,944,375
Varian, Inc. 47,800 645,300
Varian Medical Systems, Inc. 74,300 1,876,075
Wolverine Tube, Inc.+ 38,600 969,825
X-Rite, Inc. 5,800 37,338
-----------
7,343,969
- --------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 1.4%
Harris Corporation 182,600 7,155,638
- --------------------------------------------------------------------------------
PAINT & RELATED PRODUCTS - 0.1%
Lilly Industries, Inc.
(Class "A" Stock) 21,400 397,238
- --------------------------------------------------------------------------------
PAPER PRODUCTS - 4.1%
Boise Cascade Corp. 100,100 4,304,300
Ennis Business Forms 234,100 2,004,481
Georgia Pacific Corp.
(GP Group) 189,300 8,968,088
Georgia Pacific Corp.
(Timber Group) 101,800 2,570,450
Mead Corp. 73,700 3,076,975
Schweitzer-Maudit
International, Inc. 27,100 406,500
-----------
21,330,794
- --------------------------------------------------------------------------------
PHOTOGRAPHY - 2.1%
Eastman Kodak Co. 160,600 10,880,650
- --------------------------------------------------------------------------------
PRINTING - 0.6%
World Color Press, Inc.+ 116,600 3,206,500
- --------------------------------------------------------------------------------
PUBLISHING - 0.6%
Big Flower Holdings, Inc.+ 54,700 1,743,563
Central Newspaper
(Class "A" Stock) 21,000 790,125
Pulitzer, Inc. 10,800 524,475
-----------
3,058,163
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
FINANCIAL STATEMENTS FOR VCA-10
STATEMENT OF ASSETS AS OF JUNE 30, 1999
(UNAUDITED)
VALUE
DESCRIPTION SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
RAILROADS - 1.1%
Burlington Northern
Santa Fe Corp. 175,200 $ 5,431,200
Wisconsin Central Transport+ 14,300 269,913
-----------
5,701,113
- --------------------------------------------------------------------------------
REGIONAL BANKS - 3.9%
Bank One Corp. 235,654 14,036,141
Community First
Bankshares, Inc. 20,600 491,825
PNC Bank Corp. 79,300 4,569,663
Peoples Heritage Financial
Group, Inc. 70,500 1,326,281
-----------
20,423,910
- --------------------------------------------------------------------------------
RESTAURANTS - 2.7%
Buffets, Inc.+ 22,100 254,150
CKE Restaurants, Inc. 191,300 3,108,625
Darden Restaurants, Inc. 433,800 9,462,262
Ryan's Family Steak House+ 66,900 777,713
Vicorp Restaurants, Inc.+ 25,000 434,375
-----------
14,037,125
- --------------------------------------------------------------------------------
RETAIL - 3.3%
Bon-Ton Stores, Inc.+ 14,000 90,125
Burlington Coat Factory
Warehouse Corp. 52,300 1,010,044
Cole National Corp.+
(Class "A" Stock) 27,900 221,456
Dillards, Inc.
(Class "A" Stock) 205,800 7,228,725
Dress Barn+ 34,700 555,200
Haverty Furniture, Inc. 31,400 1,106,850
Limited, Inc. 88,017 3,993,771
Payless Shoesource, Inc.+ 19,000 1,016,500
Pier 1 Imports, Inc. 42,900 482,625
Stage Stores, Inc.+ 87,400 568,100
Stein Mart, Inc.+ 54,800 513,750
World Fuel Services Corp. 35,000 516,250
-----------
17,303,396
- --------------------------------------------------------------------------------
SAVINGS & LOAN - 1.0%
Astoria Financial Corp. 65,900 2,895,481
Charter One Financial, Inc. 26,600 739,813
Commercial Federal Corp. 60,000 1,391,250
-----------
5,026,544
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - 2.1%
ALLTEL Corp. 153,178 10,952,227
- --------------------------------------------------------------------------------
TEXTILE - 0.1%
Dan River, Inc.+
(Class "A" Stock) 40,000 295,000
Guilford Mills, Inc. 23,600 244,850
-----------
539,850
- --------------------------------------------------------------------------------
VALUE
DESCRIPTION SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
TOBACCO - 0.8%
Philip Morris Co. 102,500 $4,119,219
- --------------------------------------------------------------------------------
UTILITY - ELECTRIC - 0.7%
BEC Energy 15,800 651,750
El Paso Electric Company+ 45,500 406,656
Niagara Mohawk Holdings, Inc.+ 44,900 721,206
Pinnacle West Capital Corp. 15,800 635,950
Sierra Pacific Resources 24,200 880,275
TNP Enterprises, Inc. 11,000 398,751
------------
3,694,588
- --------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS - 93.5%
(Cost: $412,823,538) $486,198,912
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT - 5.7% PRINCIPAL
AMOUNT
(000)
-----
REPURCHASE AGREEMENT
Warburg Dillon Read, Inc., 4.73%,
dated 6/30/99, due 7/01/99, Amount Due -
$29,831,919 (collateralized by
$30,391,839 U.S. Treasury Bond,
12.375%, Due 5/15/04)
(Cost $29,828,000) $29,828 29,828,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.2%
(Cost $442,651,538) $516,026,912
- --------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
Cash $153
Dividends and Interest Receivable 668,973
Receivable for Investments Sold 4,873,528
Payable for Pending Capital Transactions (74,404)
Payable for Securities Purchased (1,267,195)
- -------------------------------------------------------------------------------
TOTAL OTHER ASSETS
LESS LIABILITIES -- 0.8% 4,201,055
- -------------------------------------------------------------------------------
NET ASSETS--100% $520,227,967
- -------------------------------------------------------------------------------
Net Assets, representing:
Equity of Participants
69,109,232 Accumulation Units at an
Accumulation Unit Value of
$7.5014 518,416,327
Equity of Prudential Insurance
Company of America 1,811,640
------------
$520,227,967
- -------------------------------------------------------------------------------
The following abbreviations are used in portfolio descriptions:
ADR - American Depository Receipts
N.V. - Naamloze VennootSchap (Dutch Corporation)
PLC - Public Limited Company
+ Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
FINANCIAL STATEMENTS OF VCA-10
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME [NOTE 2B]
Dividends $3,522,321
Interest 757,192
- --------------------------------------------------------------------------------
TOTAL INCOME 4,279,513
- --------------------------------------------------------------------------------
EXPENSES [NOTE 3]
Fees Charged to Participants for Investment Management Fee 634,694
Fees Charged to Participants for Administrative Expenses 1,903,693
- --------------------------------------------------------------------------------
Total Expenses 2,538,387
- --------------------------------------------------------------------------------
INVESTMENT INCOME -- NET 1,741,126
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS -- NET [NOTE 2B]
Realized Gain on Investments -- Net 31,610,092
Increase in Unrealized Appreciation on Investments -- Net 16,270,854
- --------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 47,880,946
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $49,622,072
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Investment Income -- Net $1,741,126 $2,143,678
Realized Gain on Investments -- Net 31,610,092 67,764,851
Increase (Decrease) In Unrealized
Appreciation on Investments -- Net 16,270,854 (91,652,147)
- -----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 49,622,072 (21,743,618)
- -----------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Purchase Payments and Transfers In 34,763,613 118,653,634
Withdrawals and Transfers Out (112,220,956) (134,406,195)
Annual Account Charges Deducted from
Participants' Accounts [Note 3b] (11,513) (106,534)
- -----------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (77,468,856) (15,859,095)
- -----------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS [NOTE 6] (139,602) (1,425,180)
- -----------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (27,986,386) (39,027,893)
NET ASSETS
Beginning of Period 548,214,353 587,242,246
- -----------------------------------------------------------------------------------
End of Period $520,227,967 $548,214,353
===================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<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). The Account's 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 performance 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.
16
<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.
17
<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. For the six months ended June 30, 1999 and the year
ended December 31, 1998, Prudential has advised the Account that
they received deferred sales charges of $6,873 and $9,116,
respectively.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-10 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 4: PURCHASES AND SALES OF PORTFOLIO SECURITIES
For the six months ended June 30, 1999, the aggregate cost of
purchases and the proceeds from sales of securities, excluding
short-term investments, were $189,974,543 and $285,498,341,
respectively.
NOTE 5: UNIT TRANSACTIONS
The number of Accumulation Units issued and redeemed for the six
months ended June 30, 1999 and the year ended December 31, 1998 is as
follows:
1999 1998
----------------------------------------
Units issued 5,208,499 17,443,446
----------------------------------------
Units redeemed 16,530,523 20,273,521
----------------------------------------
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, 1999, Prudential Securities
Incorporated, an indirect, wholly owned subsidiary of Prudential,
earned $10,231 in brokerage commissions from portfolio transactions
executed on behalf of VCA-10. During the six months ended June 30,
1999, Prudential has advised the Account that it received $11,921 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, 1999, $1,191,026 in participant
loans were withdrawn from VCA-10 and $878,890 of principal and
interest was repaid to VCA-10. For the year ended December 31, 1998,
$2,651,758 in participant loans was withdrawn from VCA-10 and
$1,908,945 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.
19
<PAGE>
VCA-11 MONEY MARKET ACCOUNT
PERFORMANCE SUMMARY.
Money market participants spent much of the first half of 1999 agonizing over
whether increases in the Federal funds rate--the rate U.S. banks charge each
other for overnight loans--were imminent, or even warranted. On June 30, 1999,
the Federal Reserve raised the key rate to keep the U.S. economy from
overheating and pushing up inflation. In anticipation of this move, investors
repeatedly drove money market yields higher. The Account benefited from this
trend because we locked in attractive yields on one-year debt securities of
highly rated banks and corporations when we felt market sentiment was too
pessimistic. The Account returned 2.06% for the half year compared with 2.33% on
the Salomon Brothers Three-Month Treasury Bill Index. The Account's current
seven-day yield on June 30, 1999 was 4.11%.
================================================================================
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1999
SIX ONE THREE FIVE TEN
MONTHS YEAR YEAR YEAR YEAR
- --------------------------------------------------------------------------------
MONEY MARKET ACCOUNT(1) 2.06% 4.45% 4.68% 4.74% 4.82%
- --------------------------------------------------------------------------------
SALOMON BROTHERS T-BILLS(2) 2.23% 4.71% 5.07% 5.21% 5.22%
- --------------------------------------------------------------------------------
MONEY MARKET ACCOUNT INCEPTION DATE: 8/82.
================================================================================
MONEY MARKET ACCOUNT ONE-YEAR TOTAL RETURN FOR THE PAST TEN YEARS
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
- --------------------------------------------------------------------------------
(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.
FOR CURRENT YIELDS ON THE MONEY MARKET ACCOUNT, PLEASE CALL 1-800-458-6333.
AN INVESTMENT IN THE ACCOUNT IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THERE CAN BE
NO ASSURANCE THAT THE ACCOUNT WILL BE ABLE TO MAINTAIN A STABLE SHARE VALUE
OF $10.00. IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE ACCOUNT.
(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.
INFLATION FEARS REEMERGED. At the beginning of 1999, we believed the Federal
Reserve would be reluctant to raise the Federal funds rate because inflation
remained subdued in the U.S. and Brazil was in the midst of a financial crisis.
As a result of brisk U.S. economic growth that rekindled fears of higher
inflation, money market yields climbed in February and early March. During this
time, we enhanced the Account's return by purchasing attractively priced
securities maturing in 12 months. Additional purchases in May and June also
helped the Account's performance.
20
<PAGE>
STRATEGY SESSION.
RISING MONEY MARKET YIELDS CREATED BUYING OPPORTUNITIES
During the first half of 1999, the U.S. economy expanded rapidly, then slowed to
a still-respectable pace of growth. The powerful U.S. economy risked igniting
higher inflation, which could eventually hurt economic growth. As a result, many
investors expected the Federal Reserve would soon raise the Federal funds rate
to cool down the economy. Anticipating a rate increase, investors pushed up
money market yields beginning in early February. Because we did not believe a
change in U.S. monetary policy was imminent, we viewed this trend as a buying
opportunity and locked in yields on one-year debt securities of banks and
industrial companies.
Meanwhile, we had avoided purchasing debt securities maturing between
mid-April and early May of 1999 because an unusually large amount of U.S.
Treasury bills was scheduled to be retired. During that time, market
participants scurried about in search of alternative investments, which left
money market yields hovering at low levels. We anticipated this development and
did not have to reinvest significant amounts of cash with yields at such
unattractive levels.
LONG-AWAITED FEDERAL FUNDS RATE INCREASE OCCURRED
As the spring progressed, the continued strength of the U.S. economy, higher oil
prices, and news of a surprisingly large gain in a key inflation barometer
reawakened expectations of a Federal-funds-rate increase. Moreover, Federal
Reserve policy makers announced in mid-May they were leaning toward boosting
short-term rates due to the potential buildup of inflation. Money market yields
began to climb as many investors anticipated an aggressive program of rate
increases. We believed any upside move in rates would be limited, and that
market sentiment was overly pessimistic. Therefore, we purchased one-year bank
and corporate securities that pay fixed interest rates, along with
adjustable-rate securities whose rates reset either on a monthly or quarterly
basis. These securities provide the Account some protection since their rates
will reset to higher levels if yields continued to climb.
In hindsight, the Account's performance would have benefited even more had we
purchased fewer one-year securities in February and March and bought more of
them in June when money market yields peaked for the six-month period.
- --------------------------------------------------------------------------------
OUTLOOK
PORTFOLIO MANAGER
ROBERT BROWNE
FED MAY MOVE AGAIN IN 1999.
"We believe the Federal Reserve might raise the Federal funds rate a second time
this summer if the economy continues to grow at a brisk pace. However, we also
believe the likelihood of another rate increase later in the year dwindles due
to the U.S. central bank's concerns about the potential year 2000 computer
problem. We will look to extend the Fund's WAM only when we feel market
sentiment is overly pessimistic regarding the outlook for higher short-term
interest rates."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
ROBERT BROWNE
================================================================================
PORTFOLIO COMPOSITION
6/30/99
-------
Other Comm. Paper 31.0%
Other Corp. Oblg 23.1%
U.S. Bank Oblg 16.5%
Yankee Comm. Paper 11.0%
Foreign Bank Oblg 9.7%
Bank Holding Company Oblg 4.0%
Loan Participation 2.1%
Funding Agreements 2.1%
Government/Agencies 0.5%
- -------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
21
<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,
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income ................................... $ .0652 $ .1411 $ .1353 $ .1281 $ .1313 $ .0912
Expenses
For investment management fee .................... (.0032) (.0062) (.0059) (.0056) (.0054) (.0052)
For administrative expenses not covered
by the annual account charge .................. (.0095) (.0186) (.0178) (.0170) (.0160) (.0154)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase in Unit Value .......................... .0525 .1163 .1116 .1055 .1099 .0706
Unit Value
Beginning of period .............................. 2.5489 2.4326 2.3210 2.2155 2.1056 2.0350
- ------------------------------------------------------------------------------------------------------------------------------
End of period .................................... $ 2.6014 $2.5489 $2.4326 $2.3210 $2.2155 $2.1056
- ------------------------------------------------------------------------------------------------------------------------------
Ratio Of Expenses To Average Net Assets** ........... 1.00%+ .99% .98% .98% .99% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment Income To
Average Net Assets** ............................. 4.12%+ 4.78% 4.73% 4.57% 5.08% 3.42%
- ------------------------------------------------------------------------------------------------------------------------------
Number of Units Outstanding
For Participants at end of period (000s omitted).. 34,530 34,882 35,757 38,315 34,136 35,448
- ------------------------------------------------------------------------------------------------------------------------------
</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
22
<PAGE>
Financial Statements of VCA-11
Statement of Net Assets as of June 30, 1999
Short-Term Principal
Investments [Note 2] Amount Value
- ------------------------------------------------------------------------
Commercial Paper - 58.9%
Ameritech Cap Fund, 5.2%
Due 7/29/99 $4,606,000 $4,585,375
American General Finance,
5.19% Due 8/23/99 1,000,000 992,215
Bankamerica Corp., 4.93%
Due 8/16/99 100,000 97,658
Bankamerica Corp., 4.94%
Due 11/22/99 1,000,000 975,163
Caterpillar, Inc., 5.45%
Due 7/7/99 2,000,000 2,000,000
Centric Capital Corp., 5.23%
Due 8/30/99 2,985,000 2,958,547
Countrywide Home
Loan, Inc., 5.23%
Due 8/19/99 1,000,000 992,736
Eastman Kodak Co., 5.05%
Due 10/6/99 400,000 392,930
FPL Group Capital, Inc., 5.25%
Due 8/20/99 1,000,000 992,563
Falcon Asset
Securitization Corp., 5.25%
Due 8/12/99 2,407,000 2,391,204
Federal Home
Loan Bank, 5.57%
Due 8/3/99 500,000 500,185
Finova Capital Corp., 5.35%
Due 7/14/99 1,000,000 997,919
General Electric
Capital Corp., 5.06%
Due 8/2/99 1,600,000 1,591,004
General Electric
Capital Corp., 5.175%
Due 8/17/99 3,000,000 2,978,869
General Motors
Acceptance Corp., 5.07%
Due 8/16/99 2,100,000 2,084,030
Ing America Insurance
Holdings Inc., 5.85%
Due 7/1/99 3,000,000 2,999,513
Monte Rosa
Capital Corp., 5.05%
Due 7/22/99 1,700,000 1,692,607
Monte Rosa
Capital Corp., 5.08%
Due 7/19/99 1,100,000 1,095,809
Monte Rosa
Capital Corp., 5.1%
Due 8/6/99 $1,700,000 $1,689,403
Old Line Funding Corp., 5.1%
Due 7/23/99 1,449,000 1,442,842
Old Line Funding Corp., 5.25%
Due 7/8/99 322,000 321,390
PNC Funding Corp., 5.1%
Due 8/23/99 1,000,000 991,217
Paccar Financial
Corporation, 5.4%
Due 7/12/99 2,000,000 1,996,100
Panasonic Finance Corp., 5.8%
Due 7/1/99 3,582,000 3,581,423
Chrysler Financial Corp., 6.375%
Due 1/28/2000 750,000 755,549
Goldman Sachs
Group LP, 5.23625%
Due 6/4/2000 3,800,000 3,800,000
IBM Corp., 6.375%
Due 6/15/2000 352,000 354,103
Restructured
Asset Security, 4.93375%
Due 9/2/99 2,000,000 2,000,000
Restructured Asset
Security, 5.0525%
Due 1/21/2000 2,000,000 2,000,000
Strategic Money Market
Trust 1998A, 5.25%
Due 12/15/99 2,000,000 2,000,000
Strategic Money Market
Trust, 1999-B, 5.20375%#
Due 3/15/2000 1,000,000 1,000,000
Short Term Repackaged
Asset Trust 1998-E, 5.02%#
Due 8/18/99 1,000,000 1,000,000
----------
53,250,354
- ------------------------------------------------------------------------
Other Corporate Debt - U.S. - 10.7%
(Medium Term Notes, Corporate Bonds)
Associates Corp. of North America,
5.10% Medium Term Note
Due 6/29/2000 2,200,000 2,198,468
Bankamerica Corp., 5.40%
Medium Term Note
Due 11/1/99 1,700,000 1,702,218
See Notes to Financial Statements
23
<PAGE>
Financial Statements of VCA-11
Statement of Net Assets as of June 30, 1999
Short-Term Principal
Investments [Note 2] Amount Value
- ------------------------------------------------------------------------
CIT Group Holdings, 5.88%
Medium Term Note,
Due 12/9/99 $1,100,000 $1,103,238
Commercial Credit, 6.75%
Corporate Bond,
Due 5/15/2000 1,000,000 1,011,130
First Union Corp., 6.75%
Corporate Bond,
Due 6/15/2000 700,000 706,287
John Hancock Mutual Life Insurance,
5.08% Medium Term Note,
Due 2/13/2000 1,000,000 1,000,000
IBM Credit Corp., 6.17%
Medium Term Note,
Due 9/16/99 50,000 501,002
International Lease Finance Corp.,
5.46% Medium Term Note,
Due 3/10/2000 500,000 501,174
Security Life of Denver, 5.07%
Medium Term Note,
Due 4/12/2000 1,000,000 1,000,000
----------
9,723,517
- ------------------------------------------------------------------------
Other Bank Related Instruments - U.S. - 17.4%
(Bank Notes, Certificates of Deposit)
American Express Centurion Bank,
4.925% Bank Note,
Due 3/8/2000 1,000,000 1,000,000
American Express Centurion Bank,
5.00% Bank Note,
Due 7/12/99 500,000 499,998
Chase Manhattan Bank,
5.365%
Due 5/22/2000 2,000,000 1,998,841
Comerica Bank,
4.855% Bank Note,
Due 6/13/2000 1,000,000 999,389
FCC National Bank,
5.14% Bank Note,
Due 3/22/2000 1,000,000 999,756
First Union National Bank,
4.995% Bank Note,
Due 3/10/2000 1,000,000 1,000,000
First Union National Bank,
5.02% Bank Note,
Due 11/17/99 2,200,000 2,200,000
Keybank National Assoc.,
5.125% Bank Note,
Due 3/24/2000 $1,500,000 $1,498,895
Keybank National Assoc.,
5.035% Bank Note,
Due 6/14/2000 1,000,000 999,437
National City Bank of Cleveland,
5.14% Bank Note,
Due 6/8/2000 1,100,000 1,102,114
Northern Trust Co.,
5.10% Bank Note,
Due 2/22/2000 1,000,000 999,751
US Bank N.A.,
4.895% Bank Note,
Due 10/8/99 2,000,000 1,999,893
US Bank, N.A.,
4.985% Bank Note,
Due 8/18/99 400,000 399,966
----------
15,698,040
- ------------------------------------------------------------------------
Certificates of Deposit - Foreign - 5.5%
Royal Bank of Canada, 4.97%
Due 2/4/2000 2,000,000 1,999,539
Royal Bank of Canada, 4.8275%
Due 8/6/99 2,000,000 1,999,865
Toronto Dominion Bank, 5.02%
Due 2/4/2000 1,000,000 999,827
----------
4,999,231
- ------------------------------------------------------------------------
Commercial Paper - Yankee - 4.2%
Abbey National NL
North American, 5.22%
Due 8/9/99 1,150,000 1,143,163
Daimler-Benz
North America Co., 5.20%
Due 8/26/99 1,700,000 1,686,003
ABN - AMRO North
American Finance, Inc., 4.77%
Due 7/19/99 1,000,000 977,873
----------
3,807,039
- ------------------------------------------------------------------------
Certificate of Deposit - Yankee - 3.5%
Bishop's Gate Residential, 5.14%
Due 11/22/99 1,000,000 1,000,000
Deutsche Bank, 4.98%
Due 2/2/2000 1,000,000 999,829
See Notes to Financial Statements
24
<PAGE>
Financial Statements of VCA-11
Statement of Net Assets as of June 30, 1999
Short-Term Principal
Investments [Note 2] Amount Value
- ------------------------------------------------------------------------
National Westminster
Bank PLC, 5.0475%
Due 2/9/2000 $1,200,000 $1,199,735
----------
3,199,564
- ------------------------------------------------------------------------
Total Short-Term Investments - 100.2%
(Cost: $90,677,745) 90,677,745
- ------------------------------------------------------------------------
Liabilities, Less Other Assets
Cash 9,379
Interest Receivable 409,449
Payable for Pending Capital Transaction (616,544)
- ------------------------------------------------------------------------
Total Liabilities
Less Other Assets - (0.2)% (197,716)
- ------------------------------------------------------------------------
Net Assets - 100% $90,480,029
- ------------------------------------------------------------------------
Net Assets, representing:
Equity of Participants
34,530,138 Accumulation Units at an
Accumulation Unit Value of
$2.6014 89,826,561
Equity of Prudential Insurance
Company of America 653,468
------------
$90,480,029
========================================================================
# Indicates a Variable Rate Security. Rate shown is rate in effect at June 30,
1999.
See Notes to Financial Statements
25
<PAGE>
Financial Statements of VCA-11
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Six Months Ended June 30, 1999
- -----------------------------------------------------------------------------------------------
<S> <C>
Investment Income [Note 2]
Interest 2,330,453
- -----------------------------------------------------------------------------------------------
Expenses [Note 3]
Fees Charged to Participants for Investment Management Services 112,884
Fees Charged to Participants for Administrative Expenses 338,653
- -----------------------------------------------------------------------------------------------
Total Expenses 451,537
- -----------------------------------------------------------------------------------------------
Net Investment Income and Net Increase In Net Assets Resulting from Operations 1,878,916
===============================================================================================
</TABLE>
Statements of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
June 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Net Increase in Net Assets Resulting from Operations 1,878,916 $ 4,631,599
- --------------------------------------------------------------------------------------------
Capital Transactions
Purchase Payments and Transfers In [Note 6 and 7] 57,679,802 168,192,543
Withdrawals and Transfers Out [Note 6 and 7] (58,705,532) (170,842,905)
Annual Account Charges Deducted from
Participants' Accounts [Note 4] (4,499) (47,451)
- --------------------------------------------------------------------------------------------
Net Decrease In Net Assets
Resulting from Capital Transactions (1,030,229) (2,697,813)
- --------------------------------------------------------------------------------------------
Net Increase/Decrease In Net Assets
Resulting from Surplus Transfer 115,577 (1,588,734)
- --------------------------------------------------------------------------------------------
Total Increase in Net Assets 964,264 345,052
Net Assets
Beginning of Period 89,515,765 89,170,713
- --------------------------------------------------------------------------------------------
End of Period 90,480,029 $ 89,515,765
============================================================================================
</TABLE>
See Notes to Financial Statements
26
<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 performance 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.
27
<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. For the periods ended June 30, 1999 and
December 31, 1998, Prudential has advised the Account that they received
deferred sales charges of $1,670 and $2,389, respectively.
NOTE 6: Unit Transactions
The number of Units issued and redeemed for the six months ended June 30,
1999 and the year ended December 31, 1998 is as follows:
1999 1998
-----------------------------------------------------
Units issued 22,429,146 67,777,991
-----------------------------------------------------
Units redeemed 22,596,283 68,652,928
-----------------------------------------------------
28
<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 period ended June 30, 1999, $404,922 in participant loans were
withdrawn from VCA-11 and $150,824 of principal and interest was repaid to
VCA-11. For the period ended December 31, 1998, $850,931 in participant
loans were withdrawn from VCA-11 and $299,809 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 year ended December 31, 1998, Prudential has
advised the Account that it received $7,662 in loan origination fees. For
the period ended June 30, 1999, Prudential has advised the account that it
received $4,214 in loan origination fees.
29
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
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.
The Prudential Series Fund Diversified Bond Portfolio followed the bond market
with a softer first six months of 1999. This disappointing period was primarily
due to inflation fears, along with the resurgence of the global economy, sending
interest rates higher.
Anticipating that the Federal Reserve would have to raise the Federal funds rate
to slow the U.S. economy and quell inflation fears, investors drove yields of
many debt securities higher and their prices, which move in the opposite
direction, lower. Among the debt securities affected were U.S. Treasuries and
investment-grade corporate bonds. The Federal funds rate was indeed increased,
on June 30, 1999, by 25 basis points (0.25%).
By the end of the six-month period, the Portfolio's decline of 1.64% still
outperformed the 2.03% drop on the Lipper (VIP) Corporate Debt BBB Average.
================================================================================
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1999
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
- -------------------------------------------------------------------------------
DIVERSIFIED BOND PORTFOLIO(1) -1.64% 0.92% 6.65% 7.73% 8.03%
- -------------------------------------------------------------------------------
LIPPER (VIP) CORP. DEBT BBB AVG.(2) -2.03% 1.27% 7.02% 7.74% 7.89%
- -------------------------------------------------------------------------------
LEHMAN AGGREGATE BOND INDEX(3) -1.37% 3.15% 7.23% 7.83% 8.15%
- -------------------------------------------------------------------------------
DIVERSIFIED BOND PORTFOLIO INCEPTION DATE: 5/13/83.
================================================================================
$10,000 INVESTED OVER TEN YEARS
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
- --------------------------------------------------------------------------------
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 DEBT BBB AVERAGE IS
CALCULATED BY LIPPER, INC., AND REFLECTS THE INVESTMENT RETURNS OF CERTAIN
PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE RETURNS ARE
NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
(3) THE LEHMAN AGGREGATE BOND INDEX (LAI) IS COMPRISED OF MORE THAN 5,000
GOVERNMENT AND CORPORATE BONDS. THE LAI IS AN UNMANAGED INDEX THAT INCLUDES
THE REINVESTMENT OF ALL INTEREST BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE LAI MAY DIFFER SUBSTANTIALLY
FROM THE SECURITIES IN THE PORTFOLIO. THE LAI IS NOT THE ONLY INDEX THAT
MAY BE USED TO CHARACTERIZE PERFORMANCE OF INCOME FUNDS, AND OTHER INDEXES
MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
- -------------------------------
LOW RISK
FIXED INCOME
Balanced
High Yield Bond
Diversified Stock
Specialized
HIGH RISK
- -------------------------------
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.
A SHORTER DURATION WON.
The Portfolio's performance was affected by its fairly large exposure to
investment-grade corporate bonds, particularly early in the year, and the
sell-off in U.S. Treasuries.
The corporate bond market had supply problems during most of the first six
months of 1999 with its new issue calendar consistently being very high.
As a result, as we moved closer to June, the market became softer and prices of
long-term, investment-grade corporate bonds, which we mostly held, fell further
than those with a shorter duration stance.
The Lehman Government/Corporate Bond Index fell 2.28% overall in the last six
months, with only a 0.58% decline in intermediate-term securities but a 5.95%
drop in long-term securities.
32
<PAGE>
STRATEGY SESSION.
A TOUGH TIME FOR BONDS. The U.S. economy continued its strong growth cycle into
1999, and the global economy sustained its rebound throughout the first six
months of the year. Under this scenario, inflation fears grew, and investors
drove the yields on many fixed-income securities higher and their prices lower.
Lower-rated fixed-income securities that offer large incremental yield over U.S.
Treas-uries, such as high-yield corporate bonds and emerging market bonds, fared
somewhat better in this market environment. By contrast, the general safety of
investment-grade corporate bonds and U.S. Treasuries, which the Portfolio mostly
holds, was not sought after by investors, and these sectors performed poorly.
We began the year holding more corporate bonds than our competitive universe.
Furthermore, the corporate bonds we held had longer-than-average maturities than
that of the average bond portfolio. This helped performance in the first
quarter. As the year progressed, investors decided the world was now a safer
place to invest their money and sold out of U.S. Treasuries and investment-grade
corporate bonds. By doing this, they drove the prices of these securities lower
and their yields higher. The prices of securities that had a longer-than-average
duration fell substantially compared to those with a shorter duration. Duration
is a measure of sensitivity to interest rate changes. We did cut back on our
investment-grade corporate bond holdings in April, especially longer-maturity
issues, to realize spread profits (the outperformance of corporate securities
versus Treasuries) from purchases in late 1998. At the same time, we also moved
to pull the Portfolio's duration closer to a neutral stance.
After selling our longer-duration, investment-grade corporate bonds to cut our
duration stance and help performance, we bought U.S. Treasuries that mostly had
shorter-term maturities. We did this to position the Portfolio for an
anticipated interest rate hike by the Federal Reserve. The Fed did raise the
Federal funds rate (the rate that banks charge each other for overnight loans)
25 basis points, or 0.25%, on June 30, 1999. By using this strategy, we were
able to find good bargains in Treasuries since they were fairly cheap, and bring
more safety and liquidity into the Portfolio. Furthermore, the overall corporate
bond market, became soft due to the continued heavy new-issue calendar it had as
the year progressed.
Bolstered by Asia's continued economic turnaround, emerging market fixed-income
securities began to perform very well in February, as their countries' economic
fundamentals strengthened. Many of the countries in this sector (Malaysia,
Mexico, Bulgaria, and Brazil) had their bonds upgraded. Therefore, we were able
to add emerging market, dollar-denominated bonds to the Portfolio at cheap
levels. This brought our exposure to these bonds up and helped returns of the
Portfolio.
- --------------------------------------------------------------------------------
OUTLOOK
PORTFOLIO MANAGER
BARBARA KENWORTHY
TREASURY YIELDS SHOULD MODERATE.
"Although economic activity year-to-date is higher than expected, we still don't
expect to see significantly higher Treasury yields. We also believe the U.S.
economic expansion could moderate in the second half of the year. If the economy
behaves as expected, the 30-year Treasury bond yield should fluctuate in a range
of 5.25% to 6.25%."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
BARBARA KENWORTHY
================================================================================
PORTFOLIO COMPOSITION
AS OF 6/30/99
-------------
Corporate Bonds 74.9%
U.S. Treasuries 14.1%
Cash/Other 6.0%
U.S. Government Agencies 1.8%
Mortgages 1.7%
Asset-Backed 1.5%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
================================================================================
CREDIT QUALITY
AS OF 6/30/99
-------------
U.S. Government 15.9%
AAA 7.6%
AA 8.5%
A 19.0%
BBB 33.5%
BB 9.5%
Short-Term/Cash/Other 6.0%
Average Credit Quality A
Duration 5.40 years
Average Maturity 9.60 years
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
33
<PAGE>
PRUDENTIAL GOVERNMENT INCOME PORTFOLIO
PERFORMANCE SUMMARY.
The Prudential Series Fund Government Income Portfolio had a disappointing first
six months of 1999 as inflation fears sent interest rates higher. Anticipating
that the Federal Reserve would have to raise the Federal funds rate to slow the
U.S. economy and quell inflation fears, investors drove yields of many debt
securities higher and their prices, which move in the opposite direction, lower.
Among the debt securities affected were U.S. Treasuries and government agency
bonds. The Federal funds rate was indeed increased on June 30, 1999, by 25 basis
points (0.25%). By the end of the six-month period, the Portfolio declined
2.62%, trailing the 2.35% drop of the Lipper (VIP) General U.S. Government
Average.
THE GUARANTEE ON U.S. TREASURIES APPLIES ONLY TO THE UNDERLYING SECURITIES OF
THE PORTFOLIO AND NOT TO THE VALUE OF THE PORTFOLIO'S SHARES. MORTGAGE-BACKED
SECURITIES ENTAIL ADDITIONAL PREPAYMENT AND EXTENSION RISKS.
<TABLE>
<CAPTION>
=====================================================================================
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1999
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GOVERNMENT INCOME PORTFOLIO(1) -2.62% 2.20% 6.87% 7.41% 7.53%
- -------------------------------------------------------------------------------------
LIPPER (VIP) GEN. U.S. GOV'T. AVG.(2) -2.35% 2.26% 6.39% 6.94% 7.52%
- -------------------------------------------------------------------------------------
LEHMAN GOV'T. BOND INDEX(3) -2.27% 3.05% 7.18% 7.59% 7.96%
- -------------------------------------------------------------------------------------
</TABLE>
GOVERNMENT INCOME PORTFOLIO INCEPTION DATE: 5/1/89.
================================================================================
$10,000 INVESTED OVER TEN YEARS
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
- --------------------------------------------------------------------------------
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) GENERAL U.S. GOVERNMENT
AVERAGE IS CALCULATED BY LIPPER, INC., AND REFLECTS THE INVESTMENT RETURNS
OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(3) THE LEHMAN GOVERNMENT BOND INDEX (LGI) IS A WEIGHTED INDEX COMPRISED OF
SECURITIES ISSUED OR BACKED BY THE U.S. GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES WITH A REMAINING MATURITY OF ONE TO 30 YEARS. THE LGI IS
AN UNMANAGED INDEX THAT INCLUDES THE REINVESTMENT OF ALL INTEREST BUT DOES
NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED
WITH AN INVESTMENT IN THE PORTFOLIO. THE SECURITIES THAT COMPRISE THE LGI
MAY DIFFER SUBSTANTIALLY FROM THE SECURITIES IN THE PORTFOLIO. THE LGI IS
NOT THE ONLY INDEX THAT MAY BE USED TO CHARACTERIZE PERFORMANCE OF INCOME
FUNDS, AND OTHER INDEXES MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
- -------------------------------
LOW RISK
FIXED INCOME
Balanced
High Yield Bond
Diversified Stock
Specialized
HIGH RISK
- -------------------------------
INVESTMENT GOAL
High level of income over the long term consistent with the preservation of
capital.
TYPES OF INVESTMENTS
Primarily intermediate and longer-term U.S. government bonds, including U.S.
Treasuries and agencies and mortgage-backed securities such as GNMA, FNMA and
FHLMC bonds and foreign government securities.
INVESTMENT STYLE
The Portfolio seeks high current return by selecting bonds that offer an
attractive combination of current income and price appreciation. The Portfolio
Manager's goal is to select bonds believed to offer the best value in a given
market climate.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW.
A SHORTER DURATION WON.
The Portfolio's performance was hurt by its longer-than-average duration stance
in its holdings, especially U.S. Treasuries and U.S. government agencies. Prices
of long-term securities fell more than prices of short-or intermediate-term
securities during the first half of 1999. The Lehman U.S. Treasury Index fell
0.90% overall during the first six months of 1999, with a 0.18% decline for
intermediate-term securities and a 2.48% drop for long-term securities.
Furthermore, the Lehman Agency Bond Index has declined 0.67% in 1999 to date,
0.27% for intermediate-term securities and 2.63% for long-term securities.
34
<PAGE>
STRATEGY SESSION.
BONDS STRUGGLED DURING THE FIRST HALF OF THE YEAR. The U.S. economy continued
its strong growth cycle into 1999, and the global economy sustained its rebound
throughout the first six months of the year. Under this scenario, inflation
fears grew, and investors drove the yields on many fixed-income securities
higher and their prices lower.
Early in the year, mortgage-backed securities performed better than Treasuries
as investors had less fear of having their premium coupon holdings refinanced
early in a higher-rate environment. By contrast, the general safety of U.S.
Treasuries and government agency bonds--major components of this Portfolio was
not sought after by investors, and these sectors performed poorly.
We began the year holding more U.S. Treasuries in expectation that there could
be further problems in the emerging market arena. Furthermore, we did not
anticipate the big jump in global economic growth that we saw during the first
half of the year. We, therefore, did not cut back our duration stance as quickly
as our competitive universe, hurting relative performance. (Duration is a
measure of sensitivity to interest rate changes.)
We did cut back on our Treasury holdings in February and March, and also
lightened our exposure to government agency bonds, resulting in the Portfolio's
duration stance moving closer to neutral in relation to similar bond portfolios.
Although this move modestly helped performance, we should have trimmed our
duration stance earlier in the year, which would have benefited the Portfolio.
Moreover, the Portfolio would have benefited from holding inflation-index bonds,
which perform well in a sensitive inflationary environment as well as give the
Portfolio a shorter duration.
- --------------------------------------------------------------------------------
OUTLOOK
PORTFOLIO MANAGER
BARBARA KENWORTHY
TREASURY YIELDS SHOULD MODERATE.
"Although economic activity year-to-date is higher than expected, we still don't
expect to see significantly higher Treasury yields. We also believe the U.S.
economic expansion could moderate in the second half of the year. If the economy
behaves as expected, the 30-year Treasury bond yield should fluctuate in a range
of 5.25% to 6.25%."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
BARBARA KENWORTHY
================================================================================
PORTFOLIO COMPOSITION
AS OF 6/30/99
-------------
U.S. Government Agencies 43.8%
U.S. Treasuries 32.1%
Mortgages 17.2%
Asset-Backed 4.1%
Corporate Bonds 2.1%
Short-Term/Cash 0.7%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
================================================================================
CREDIT QUALITY
AS OF 6/30/99
-------------
U.S. Government 75.9%
AAA 20.8%
AA 2.6%
Short-Term/Cash 0.7%
Average Credit Quality AAA
Duration 5.63 years
Average Maturity 8.70 years
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
35
<PAGE>
PRUDENTIAL CONSERVATIVE BALANCED PORTFOLIO
PERFORMANCE SUMMARY.
The Prudential Series Fund Conservative Balanced Portfolio returned 4.04% for
the first half of 1999, between the market's 12.4% gain on U.S. stocks and the
2.28% loss on the Lehman Government/Corporate Bond Index. This Portfolio--which
invests in a conservative mix of stocks, bonds, and money market
securities--returned less than the average Balanced (VIP) Portfolio tracked by
Lipper, Inc., because the Portfolio's conservative mandate is consistent with
having a smaller proportion of stocks in the asset allocation. Unfortunately,
bond market participants interpreted signs of a strengthening economy as an
early warning of renewed inflation. These inflationary concerns caused bond
prices to slide.
<TABLE>
<CAPTION>
=====================================================================================
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1999
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSERVATIVE BALANCED PORTFOLIO(1) 4.04% 7.62% 12.24% 12.05% 10.83%
- -------------------------------------------------------------------------------------
LIPPER (VIP) BALANCED AVG.(2) 6.12% 10.86% 16.21% 15.63% 11.93%
- -------------------------------------------------------------------------------------
S&P 500 INDEX(3) 12.38% 22.76% 29.11% 27.86% 18.76%
- -------------------------------------------------------------------------------------
LEHMAN GOV'T./CORP. BOND INDEX(4) -2.28% 2.70% 7.19% 7.76% 8.12%
- -------------------------------------------------------------------------------------
</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.]
- --------------------------------------------------------------------------------
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, INC., AND REFLECTS THE INVESTMENT RETURN OF CERTAIN PORTFOLIOS
UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE RETURNS ARE NET OF
INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
(3) THE S&P 500 COMPOSITE STOCK PRICE INDEX IS A CAPITAL-WEIGHTED INDEX
REPRESENTING THE AGGREGATE MARKET VALUE OF THE COMMON EQUITY OF 500 STOCKS
PRIMARILY TRADED ON THE NEW YORK STOCK EXCHANGE. THE S&P 500 IS AN
UNMANAGED INDEX THAT INCLUDES THE REINVESTMENT OF ALL DIVIDENDS BUT DOES
NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED
WITH AN INVESTMENT IN THE PORTFOLIO. THE SECURITIES THAT COMPRISE THE S&P
500 MAY DIFFER SUBSTANTIALLY FROM THE SECURITIES IN THE PORTFOLIO.
(4) THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX IS COMPRISED OF GOVERNMENT AND
CORPORATE BONDS. THE INDEX IS AN UNMANAGED INDEX THAT INCLUDES THE
REINVESTMENT OF ALL INTEREST BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE INDEX MAY DIFFER SUBSTANTIALLY
FROM THE SECURITIES IN THE PORTFOLIO. THE LEHMAN GOV'T./CORP. BOND INDEX IS
NOT THE ONLY INDEX THAT MAY BE USED TO CHARACTERIZE PERFORMANCE OF INCOME
FUNDS, AND OTHER INDEXES MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL.]
- -------------------------------
LOW RISK
Fixed Income
BALANCED
High Yield Bond
Diversified Stock
Specialized
HIGH RISK
- -------------------------------
- --------------------------------------------------------------------------------
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, 65%
debt obligations and money market securities.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW.
VALUE STOCKS MOVE AHEAD.
Solid stock returns led our performance. Approximately 20% of our stocks are
invested using a value style, which returned to favor in the second quarter of
1999. The sharp rise in these stocks helped support the Portfolio's gains for
the half year. The rest of the stock allocation is invested to mirror the return
of the S&P 500 Index. Their gains continued the exceptional performance of the
S&P 500, well above the historical average return.
Bonds constituted most of the Portfolio's investments. As the U.S. economy
accelerated, interest rates rose and prices of existing bonds declined.
Asset allocation had a mixed impact on the Portfolio. We held about 40%
stocks--about 5% more than our norm. On the other hand, we held about one-third
of the assets in intermediate-term bonds instead of money-market instruments.
Although this strategy has historically added value, it hurt performance so far
this year.
36
<PAGE>
STRATEGY SESSION.
POISED TO CAPITALIZE WITH VALUE STOCKS. Approximately 20% of our equities are
managed using a strategy that emphasizes attractively priced stocks. That value
approach worked quite well as investors became more confident about economic
growth and began to search more broadly for inexpensive opportunities. We found
many among companies with market capitalizations (the total price of a company's
outstanding stock) smaller than those on the S&P 500.
A significant proportion of our value portfolio was invested in these small and
mid-sized companies (more than 40% of the portfolio has a market capitalization
below $3 billion, compared with less than 2% of the S&P 500). Most of the value
stock gains were in process-oriented industries including paper, forest
products, and aluminum. Value stocks had a substantial lead over the S&P 500
Index for the half year.
The remaining portion of the portfolio's stock allocation is invested in a
strategy that attempts to mirror the performance of the S&P 500 Index, which
also had an exceptional rise by historical standards. The performance of this
index-based component is less sensitive to changes in investors' style
preference but typically will lag the average equity fund whenever smaller
stocks outperform their larger counterparts.
GOOD CORPORATE BOND BUYING OPPORTUNITY ANTICIPATED. Our bond holdings had a
focus on corporate bonds, because the additional yield they commanded over
Treasury bonds was attractive. We benefited when that premium shrank and began
to scale back this focus in April. Because many companies are issuing debt now
to avoid the need to come to the market near the year 2000, we expect the supply
of corporate bonds to be high during the summer and early fall, providing a good
buying opportunity.
- --------------------------------------------------------------------------------
OUTLOOK
PORTFOLIO MANAGER
MARK STUMPP
EXPENSIVE AND RISING?
"We believe that, after an unprecedented stretch of rapidly rising stock prices,
the average stock is quite expensive even if earnings should continue to grow at
moderate rates. Nonetheless, we are not inclined to reduce our allocation to
stocks substantially because it already is at quite conservative levels. We also
intend to continue to hold intermediate-term bonds instead of money market
instruments, because we think the long-term prospects for bonds are better than
those for shorter-maturity instruments."
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
[PHOTO]
MARK STUMPP
[PHOTO] [PHOTO]
WARREN E. SPITZ JOHN W. MOSCHBERGER
================================================================================
PORTFOLIO COMPOSITION
(LONG-TERM)
AS OF 6/30/99
-------------
Bonds 57.2%
Stocks 42.8%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
================================================================================
SECTOR BREAKDOWN - STOCK
AS OF 6/30/99
-------------
Consumer Growth & Staples 22.7%
Technology 18.5%
Financial Services 16.3%
Industrial 16.0%
Consumer Cyclicals 9.9%
Utilities 8.9%
Energy 6.9%
Miscellaneous 0.8%
SECTOR BREAKDOWN - BOND
AS OF 6/30/99
-------------
Corporate Bonds 76.2%
U.S. Treasuries 14.0%
Asset-Backed 7.4%
Miscellaneous 2.4%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
37
<PAGE>
PRUDENTIAL FLEXIBLE MANAGED PORTFOLIO
PERFORMANCE SUMMARY.
The Prudential Series Fund Flexible Managed Portfolio returned 6.55% for the
first half of 1999, between the market's 12.4% gain on U.S. stocks and the 2.28%
loss on the Lehman Government/Corporate Bond Index. This Portfolio outperformed
the average Flexible (VIP) Portfolio tracked by Lipper, Inc., because of its
strong stock returns.
Approximately one-half of our stocks are managed with a focus on shares trading
at attractive values; these beat the S&P 500 19 Index due to the strong second
quarter for small and mid-sized companies. The value style benefited when
investors interest moved from expensive investments toward more attractively
priced stocks. Unfortunately, bond market participants interpreted signs of a
strengthening economy as an early warning of renewed inflation. These
inflationary concerns caused bond prices to slide over the half year.
================================================================================
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1999
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------
FLEXIBLE MANAGED PORTFOLIO(1) 6.55% 7.19% 14.42% 14.89% 12.56%
- --------------------------------------------------------------------------------
LIPPER (VIP) FLEXIBLE AVG.(2) 5.89% 9.34% 15.70% 15.96% 13.19%
- --------------------------------------------------------------------------------
S&P 500 INDEX(3) 12.38% 22.76% 29.11% 27.86% 18.76%
- --------------------------------------------------------------------------------
LEHMAN GOV'T./CORP. BOND INDEX(4) -2.28% 2.70% 7.19% 7.76% 8.12%
- --------------------------------------------------------------------------------
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.]
- --------------------------------------------------------------------------------
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, INC., AND REFLECTS THE INVESTMENT RETURN OF CERTAIN PORTFOLIOS
UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE RETURNS ARE NET OF
INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
(3) THE S&P 500 COMPOSITE STOCK PRICE INDEX IS A CAPITAL-WEIGHTED INDEX
REPRESENTING THE AGGREGATE MARKET VALUE OF THE COMMON EQUITY OF 500 STOCKS
PRIMARILY TRADED ON THE NEW YORK STOCK EXCHANGE. THE S&P 500 IS AN
UNMANAGED INDEX THAT INCLUDES THE REINVESTMENT OF ALL DIVIDENDS BUT DOES
NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED
WITH AN INVESTMENT IN THE PORTFOLIO. THE SECURITIES THAT COMPRISE THE S&P
500 MAY DIFFER SUBSTANTIALLY FROM THE SECURITIES IN THE PORTFOLIO.
(4) THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX IS COMPRISED OF GOVERNMENT AND
CORPORATE BONDS. THE INDEX IS AN UNMANAGED INDEX THAT INCLUDES THE
REINVESTMENT OF ALL INTEREST BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE INDEX MAY DIFFER SUBSTANTIALLY
FROM THE SECURITIES IN THE PORTFOLIO. THE LEHMAN GOV'T./CORP. BOND INDEX IS
NOT THE ONLY INDEX THAT MAY BE USED TO CHARACTERIZE PERFORMANCE OF INCOME
FUNDS, AND OTHER INDEXES MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
- -------------------------------
LOW RISK
Fixed Income
BALANCED
High Yield Bond
DS
Specialized
HIGH RISK
- -------------------------------
- --------------------------------------------------------------------------------
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.
VALUE STOCKS MOVE AHEAD. Solid stock returns led our performance. Approximately
half of our stocks are invested using a value style, which returned to favor in
the second quarter of 1999. The sharp rise in these stocks helped support the
Portfolio's gains for the half year. The rest of the stock allocation is
invested to mirror the return of the S&P 500 Index. Their 12.4% gain continued
the exceptional performance of S&P 500 stocks, well above the historical average
return.
On the other hand, we held our stock exposure below normal as stock prices rose
through most of the half. Our models suggested that stocks were poorer values
than bonds. We ended the quarter with slightly more than 60% invested in stocks.
We held about one-third of the Portfolio's assets in intermediate-term bonds
instead of money market instruments. Although this strategy has historically
added value, it has hurt performance so far this year.
38
<PAGE>
STRATEGY SESSION.
POISED TO CAPITALIZE WITH VALUE STOCKS. Approximately half of our equities are
managed using a strategy that emphasizes attractively priced stocks. That value
approach worked quite well as investors became more confident about economic
growth and began to search more broadly for inexpensive opportunities. We found
many among companies with market capitalizations (the total price of a company's
outstanding stock) smaller than those on the S&P 500.
A significant proportion of our value portfolio was invested in these small and
mid-sized companies (more than 40% of the portfolio has a market capitalization
below $3 billion, compared with less than 2% of the S&P 500). Most of the value
stock gains were in process-oriented industries including paper, forest products
and aluminum. Value stocks had a substantial lead over the S&P 500 Index for the
half year.
The remaining portion of the portfolio's stock allocation is invested in a
strategy that attempts to mirror the performance of the S&P 500 Index, which
also had an exceptional rise by historical standards. The performance of this
index-based component is less sensitive to changes in investors' style
preference but typically will lag the average equity fund whenever smaller
stocks outperform their larger counterparts.
GOOD CORPORATE BOND BUYING OPPORTUNITY ANTICIPATED. Our bond holdings had a
focus on corporate bonds, because the additional yield they commanded over
Treasury bonds was attractive. We benefited when that premium shrank and began
to scale back this focus in April. Because many companies are issuing debt now
to avoid the need to come to the market near the year 2000, we expect the supply
of corporate bonds to grow rapidly during the summer and early fall, providing a
good buying opportunity.
- --------------------------------------------------------------------------------
OUTLOOK
PORTFOLIO MANAGER
MARK STUMPP
EXPENSIVE AND RISING?
"We believe that, after an unprecedented stretch of rapidly rising stock prices,
the average stock is quite expensive even if earnings should continue to grow at
moderate rates. Nonetheless, we are not inclined to reduce our allocation to
stocks substantially more because we already are below our norm. We also intend
to continue to hold intermediate-term bonds instead of money market instruments
because we think the long-term prospects for bonds are better than those for
shorter-maturity instruments".
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
[PHOTO]
MARK STUMPP
[PHOTO] [PHOTO]
WARREN E. SPITZ JOHN W. MOSCHBERGER
================================================================================
PORTFOLIO COMPOSITION
(LONG-TERM)
AS OF 6/30/99
-------------
Stocks 62.4%
Bonds 37.6%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
================================================================================
SECTOR BREAKDOWN - STOCK
AS OF 6/30/99
-------------
Industrial 22.5%
Consumer Growth & Staples 19.3%
Financial Services 17.4%
Consumer Cyclicals 13.2%
Technology 13.0%
Energy 7.5%
Utilities 6.6%
Miscellaneous 0.5%
SECTOR BREAKDOWN - BOND
AS OF 6/30/99
-------------
Corporate Bonds 77.2%
U.S. Treasuries 17.4%
Miscellaneous 4.1%
Asset-Backed 1.1%
U.S. Government Agencies 0.2%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
39
<PAGE>
PRUDENTIAL STOCK INDEX PORTFOLIO
PERFORMANCE SUMMARY.
In a continuation of the remarkable rise in the S&P 500 Index in recent years,
the Prudential Series Fund Stock Index Portfolio returned 12.09% for the six
months ended June 30, 1999--in line with the 12.38% return for the index.
Investor confidence was fueled by low inflation, a very strong U.S. economy,
signs of recovery in Asia and surprisingly limited fallout in Latin America from
a financial crisis in Brazil.
This period was distinguished by signs of change in market leadership. While
technology issues topped the performance list again, their volatility continued:
were it not for a significant rally in June, they would have been eclipsed by
stocks in a number of sectors that have lagged until recently, including energy
and basic materials.
THE STANDARD & POOR'S 500 INDEX IS AN UNMANAGED INDEX. STANDARD & POOR'S NEITHER
SPONSORS NOR ENDORSES THE STOCK INDEX PORTFOLIO. INVESTORS CANNOT DIRECTLY
INVEST IN ANY INDEX, INCLUDING THE S&P 500 INDEX.
================================================================================
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1999
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------
Stock Index Portfolio(1) 12.09% 22.54% 28.70% 27.46% 18.31%
- --------------------------------------------------------------------------------
Lipper (VIP) S&P 500 Index Avg.(2) 12.10% 22.48% 28.66% 27.37% 18.27%
- --------------------------------------------------------------------------------
S&P 500 Index(3) 12.38% 22.76% 29.11% 27.86% 18.76%
- --------------------------------------------------------------------------------
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.]
- --------------------------------------------------------------------------------
(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, INC., AND REFLECTS THE INVESTMENT RETURN OF CERTAIN
PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE RETURNS ARE
NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
(3) THE S&P 500 COMPOSITE STOCK PRICE INDEX IS A CAPITAL-WEIGHTED INDEX
REPRESENTING THE AGGREGATE MARKET VALUE OF THE COMMON EQUITY OF 500 STOCKS
PRIMARILY TRADED ON THE NEW YORK STOCK EXCHANGE. THE S&P 500 IS AN
UNMANAGED INDEX THAT INCLUDES THE REINVESTMENT OF ALL DIVIDENDS BUT DOES
NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED
WITH AN INVESTMENT IN THE PORTFOLIO.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
- -------------------------------
LOW RISK
Fixed Income
BALANCED
High Yield Bond
Diversified Stock
Specialized
HIGH RISK
- -------------------------------
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Seeks results that correspond to the price and yield performance of the S&P 500
Index.(3)
TYPES OF INVESTMENTS
Primarily stocks in the S&P 500 Index.
INVESTMENT STYLE
The Portfolio attempts to hold the same stocks as the S&P 500 Index, in
approximately the same proportions. The Portfolio thus tends to reflect the
general trends of the overall U.S. equity market.
- --------------------------------------------------------------------------------
================================================================================
S&P 500 INDEX--TOTAL RETURN
BY SECTOR
YTD 1999
--------
Technology 24.8%
Basic Materials 22.2%
Energy 19.4%
Capital Goods 18.5%
Communication Services 17.1%
Financials 12.8%
Consumer Cyclicals 12.3%
Transportation 11.4%
Utilities 1.2%
Health Care -0.4%
Consumer Staples -2.2%
S&P 500 Index 12.4%
- --------------------------------------------------------------------------------
SOURCE: STANDARD & POOR'S.
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.
A RETURN TO BASICS. In recent periods basic materials, capital goods, and energy
stocks have done poorly as sectors such as technology and communications
commanded investor attention. The latter issues continued to do well as good
news about inflation and modest action by the Federal Reserve encouraged
investors in Internet and other technology-related stocks late in the period.
This helped technology remain the best-performing sector, gaining nearly 25% in
the period. Communications Services posted a 17% gain, driven up by merger
activity aimed at "bundling" new services with more traditional offerings. The
good economic news, however, was joined by evidence of growing commodities
demand and cuts in oil production. Energy stocks rose 19%, primarily because
OPEC nations announced production cutbacks just as signs appeared of a pickup in
Asian demand.
Basic materials stocks grew 22%, driven by a 29% gain by DuPont, which
represents one-fifth of the entire sector. The sector was helped by a 66% rise
in ALCOA, a dominant aluminum company, and by consolidation and improved
earnings in paper industries. Capital goods stocks moved ahead over 18%,
supported by a healthy 11% gain in industry giant General Electric and boosted
by 40% gains or better in Allied Signal, Honeywell, Corning, and other
companies.
QUESTIONING EARLIER LEADERS. Health Care stocks, whose prices increased 44% last
year, lost 0.4% in this period as investors began to reconsider the outlook for
earnings growth at major drug manufacturers. Although the technology sector as a
whole advanced impressively, some earlier stars "fell closer to earth." By June
30, America Online--whose stock has contributed much of the gain in the S&P 500
in the past year--had dropped by more than a third from its high in April.
- --------------------------------------------------------------------------------
OUTLOOK
PORTFOLIO MANAGER
JOHN W. MOSCHBERGER
MANAGING EXPECTATION AND DIVERSIFICATION.
"Once again, technology stocks provided the best overall returns in the first
half of 1999. While investors have begun to reward a broader spectrum of stocks,
they have apparently not lost their appetite for companies whose ultimate profit
potential remains unknown.
"By maintaining their exposure to all sectors of the large-cap universe,
investors in the Stock Index Portfolio can be less concerned about shifts in
market leadership. Whether the improvement in other sectors spells the beginning
of a significant market change, however, or merely indicates a pause in the
superior performance of technology stocks, it remains clear that share prices
for many stocks continue to outpace earnings expectations. We still believe this
trend cannot continue indefinitely."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
JOHN W. MOSCHBERGER
================================================================================
S&P 500 INDEX COMPOSITION
AS OF 6/30/99
-------------
Technology 21.6%
Financials 15.8%
Consumer Staples 12.7%
Health Care 10.7%
Consumer Cyclicals 9.2%
Capital Goods 8.5%
Communication Services 8.4%
Energy 6.0%
Basic Materials 3.3%
Utilities 2.8%
Transportation 1.0%
- --------------------------------------------------------------------------------
SOURCE: STANDARD & POOR'S. HOLDINGS ARE SUBJECT TO CHANGE.
================================================================================
TOP TEN HOLDINGS
AS OF 6/30/99
-------------
Microsoft Corp. 4.0%
General Electric Co. 3.2%
IBM 2.0%
Wal-Mart Stores 1.9%
Cisco Systems, Inc. 1.8%
Lucent Technologies, Inc. 1.8%
Intel Corp. 1.7%
Exxon Corp. 1.6%
AT&T Corp. 1.5%
Merck & Co. 1.5%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
41
<PAGE>
PRUDENTIAL EQUITY PORTFOLIO
PERFORMANCE SUMMARY.
The Prudential Series Fund Equity Portfolio returned 15.47% in the first half of
1999, beating the Lipper (VIP) Growth Fund Average of 12.62% for the period and
the S&P 500 Index of 12.38%.
Investors finally feeling more confident about economic growth, turned away from
overpriced stocks toward value stocks. Although cyclical stocks (companies that
do well in a business expansion), both consumer and industrial, made
particularly substantial contributions to our return, value stocks in many
sectors had excellent returns.
The value advantage showed up mostly in the second quarter, after the global
financial markets digested a Brazilian currency devaluation with barely a
hiccup. This increased investor confidence in the stability of world
markets.
================================================================================
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1999
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------
Equity Portfolio(1) 15.47% 12.26% 20.24% 20.75% 16.74%
- --------------------------------------------------------------------------------
Lipper (VIP) Growth Fund Avg.(2) 12.62% 20.49% 24.12% 24.20% 17.56%
- --------------------------------------------------------------------------------
S&P 500 Index(3) 12.38% 22.76% 29.11% 27.86% 18.76%
- --------------------------------------------------------------------------------
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.]
- --------------------------------------------------------------------------------
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 FUND AVERAGE IS
CALCULATED BY LIPPER, INC., AND REFLECTS THE INVESTMENT RETURN OF CERTAIN
PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE RETURNS ARE
NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
(3) THE S&P 500 COMPOSITE STOCK PRICE INDEX IS A CAPITAL-WEIGHTED INDEX
REPRESENTING THE AGGREGATE MARKET VALUE OF THE COMMON EQUITY OF 500 STOCKS
PRIMARILY TRADED ON THE NEW YORK STOCK EXCHANGE. THE S&P 500 IS AN
UNMANAGED INDEX THAT INCLUDES THE REINVESTMENT OF ALL DIVIDENDS BUT DOES
NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED
WITH AN INVESTMENT IN THE PORTFOLIO. THE SECURITIES THAT COMPRISE THE S&P
500 MAY DIFFER SUBSTANTIALLY FROM THE SECURITIES IN THE PORTFOLIO.
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
- -------------------------------
LOW RISK
Fixed Income
Balanced
High Yield Bond
DIVERSIFIED STOCK
Specialized
HIGH RISK
- -------------------------------
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Capital appreciation.
TYPES OF INVESTMENTS
Primarily stocks of major, established companies.
INVESTMENT STYLE
The Portfolio uses a "deep value" investment approach to invest in stocks
believed to be temporarily undervalued relative to the companies' sales,
earnings, book value and cash flow.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW.
Value stocks move ahead. Industries that traditionally do well in the early
stages of an economic expansion had very good returns as investors became
convinced that the global economy was sound.
Among our retailers, particularly strong contributions came from Tandy and Nine
West, which was acquired by Jones Apparel Group. Among industrials, we had
substantial contributions from ALCOA (up 67%), our paper companies (particularly
Georgia Pacific and Mead) and our energy companies.
We had mixed results in our relatively small technology holdings: Hewlett
Packard bounced back from a lethargic period in which it was undervalued, but
Compaq and Seagate both declined over the half year because of poor earnings.
Although our hospital management companies averaged a negative return, two of
our health maintenance organizations (HMOs), United Healthcare and Foundation
Healthcare, had large gains.
42
<PAGE>
STRATEGY SESSION.
THE WORLD IS A SAFER PLACE. We have a large commitment to cyclicals--companies
that do best in an expanding economy. These stocks became quite inexpensive
because we have had several years of economic anxiety, heightened by financial
crises in Asia, Russia, and Brazil. Now, there are signs that Asia's economy has
bottomed, Latin America has survived Brazil's crisis and should benefit from
Asia's recovery, and the U.S. economy continues to grow. Investors are moving to
the cyclicals, which still are bargain priced.
Among industrial cyclicals, paper companies are our largest commitment. Asia
used to be a major importer of forest products, and we expect demand to rebound.
The continued strength of the U.S. market provides a high base line. Moreover,
this industry is restructuring, separating land ownership from processing. These
all bode well for earnings.
FINANCIALS ALSO BENEFIT FROM A GROWING ECONOMY. Our focus on financial
companies, including insurance companies, banks and financial service companies,
is benefiting from the strong stock market, low interest rates, low inflation
and economic growth that is not too fast to continue for a long time.
- --------------------------------------------------------------------------------
OUTLOOK
PORTFOLIO MANAGER
THOMAS R. JACKSON
A SHIFT IN THE WIND.
"Growth and value investing styles tend to perform well in different
environments. Three factors make the greatest difference in which will perform
better, and now all three favor our value investing style:
1. THE DIFFERENCE IN PRICE BETWEEN VALUE STOCKS AND GROWTH STOCKS WITH SIMILAR
EARNINGS. Value stocks have been trailing for an exceptionally long period and
are now as inexpensive, compared with growth stocks, as at any time in the last
quarter century.
2. INTEREST RATES. Falling interest rates favor growth stocks because capital
for expansion is less expensive and because investors are willing to wait longer
to see earnings increase when interest rates are low. Whereas the Federal
Reserve dropped interest rates in 1998 because of the economic uncertainty, they
raised rates in June 1999. This favors value stocks.
3. CORPORATE PROFIT GROWTH. When profits are uncertain, investors are willing to
pay much more for the few companies with consistent earnings growth, even if
their stocks become quite expensive. This was the climate in 1998. But because
recent earnings reports are very strong across a wide range of companies,
investors have no need to pay as large a premium for the most popular. This also
favors value stocks.
The investing climate has been difficult for value investors, such as myself,
for quite a while, but it appears to be changing. Certainly, our return for the
first half of 1999 looks better. We are looking forward to the rest of the
year".
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
THOMAS R. JACKSON
================================================================================
PORTFOLIO COMPOSITION
AS OF 6/30/99
-------------
Consumer Growth & Staples 22.4%
Financials 20.3%
Industrial 19.1%
Consumer Cyclicals 12.8%
Technology 8.6%
Energy 5.8%
Utilities 5.7%
Cash 5.3%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
================================================================================
TOP TEN HOLDINGS
AS OF 6/30/99
-------------
Tandy Corp. 4.1%
Eastman Kodak Co. 3.0%
Wellpoint Health 2.8%
Elf Aquitaine ADR 2.7%
Darden Restaurants 2.6%
Georgia Pacific Corp. 2.4%
Chubb Corp. 2.3%
Loews Corp. 2.1%
Columbia HCA Healthcare 2.0%
Bank of America Corp. 2.0%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
43
<PAGE>
Prudential Global Portfolio
PERFORMANCE SUMMARY.
A Brazilian currency devaluation hung over the global markets early in 1999,
dampening investors' enthusiasm. Global stocks, generally, including this
Portfolio, got off to a sluggish start, but both accelerated as it became clear
that the impact of Brazil's crisis would be localized. The Prudential Series
Fund Global Portfolio returned a strong 9.74% over the first six months, 7.44%
in the second quarter alone.
Although we trailed the Lipper (VIP) Global Average for the half year, we were
ahead of the MSCI World Index (a commonly used unmanaged benchmark of stocks).
Over the past 12 months we performed in line with the MSCI Index and almost
three percentage points ahead of the Lipper (VIP) Global Average.
THE PORTFOLIO MAY INVEST IN FOREIGN SECURITIES. FOREIGN INVESTMENTS ARE SUBJECT
TO THE RISKS OF CURRENCY FLUCTUATION, POLITICAL AND SOCIAL RISKS AND
ILLIQUIDITY.
================================================================================
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1999
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------
Global Portfolio(1) 9.74% 15.02% 16.82% 15.05% 11.41%
- --------------------------------------------------------------------------------
Lipper (VIP) Global Avg.(2) 11.47% 12.26% 15.07% 14.84% 11.28%
- --------------------------------------------------------------------------------
Morgan Stanley World Index(3) 8.51% 15.67% 18.29% 16.75% 11.48%
- --------------------------------------------------------------------------------
GLOBAL PORTFOLIO INCEPTION DATE: 9/19/88.
================================================================================
$10,000 INVESTED OVER TEN YEARS
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
- --------------------------------------------------------------------------------
(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, INC., AND REFLECTS THE INVESTMENT RETURN OF CERTAIN PORTFOLIOS
UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE RETURNS ARE NET OF
INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
(3) THE MORGAN STANLEY WORLD INDEX IS A WEIGHTED INDEX COMPRISED OF
APPROXIMATELY 1,500 COMPANIES LISTED ON THE STOCK EXCHANGES OF THE 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
Specialized
HIGH RISK
- -------------------------------
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Long-term growth of capital.
TYPES OF INVESTMENTS
Primarily common stock and common stock equivalents of U.S. and foreign
corporations.
INVESTMENT STYLE
The Portfolio uses a "growth" investment approach, coupled with a theme-oriented
view of the markets, to identify companies that seem best positioned to take
advantage of global changes.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW.
IN JAPAN, EXCELLENT STOCK SELECTION. The pace of the Japanese recovery surprised
us. Although we were slightly below our benchmark weighting, all but one of our
Japanese stocks had returns well above the high Japan average. Our Japanese
stocks have done very well, but we would have benefited had we held more of
them.
TELECOMMUNICATIONS ARE A GLOBAL GROWTH INDUSTRY. In addition to the
Japanese stocks, we had strong gains on the Finnish firm Nokia, which is the
global leader in mobile phone equipment, and the U.K. firm Vodafone.
OUR FINANCIALS WERE WEAK. Our European consumer banks, including Unicredito
Italiano and Bank of Ireland, had relatively poor performance. Confidence had
not yet returned to the European markets and these banks suffered from the
reduced interest in investing.
44
<PAGE>
STRATEGY SESSION.
Japan may be awakening. The pace of economic activity in the Pacific is
quickening. In Japan, we are now seeing increasing signs of corporate
restructuring, consumers becoming less pessimistic and Internet-related
commerce. We increased our holdings of companies that should benefit from the
Pacific recovery by adding Singapore Air, Qantas (the Australian airline) and
Broken Hill Proprietary (a mining and mineral commodities company). We have been
cautious in increasing our exposure in the Pacific, but we are looking for
investment opportunities.
WE'RE OUT OF DRUGS, FOR NOW. We were underweighted in the poor-performing health
and personal care companies compared with our benchmark. We did own shares of
Glaxo Wellcome and Pfizer, which had a negative impact on our performance. We
sold both, and continue to be cautious, because we believe they are undermined
by uncertainties about government regulation of drug prices. With the prospect
that an even larger share of global drug consumption will be paid for by
governments, the future of drug companies will not be clear until the pricing
system is settled.
WE CONTINUE TO FAVOR SECTORS WITH LONG-TERM GROWTH. The long-term prospects of
growth companies are still very good--particularly the telecommunications,
outsourcing, consumer banks and technology companies we have favored. Our
holdings include Mannesmann, a German company that has moved strongly into
telecommunications. Its return for the period reflected that strength.
We also did well with Hays, which we bought as a paradigm of our outsourcing
theme. It offers an array of business services in the U.K. and on the European
continent, including the delivery of industrial products and the provision of
both permanent and temporary technical staff.
The U.S. technology firms PMC-Sierra and Texas Instruments each had very large
gains for the half year. We took some profits on each, but they are still among
our largest holdings. Solectron, the largest contract manufacturer for the
electronics industry, also was a strong performer for us.
- --------------------------------------------------------------------------------
OUTLOOK
PORTFOLIO MANAGERS
DANIEL J. DUANE, INGRID HOLM, MICHELLE PICKER
LONG-TERM U.S. GROWTH PROSPECTS LOOK SOLID.
"After several years of superior performance, some growth stocks had become too
expensive, but 1999's reversal between cyclical and growth stocks may now create
good buying opportunities. We are trimming our exposure to the very largest U.S.
companies in favor of slightly smaller companies with more room for earnings
growth and more reasonable share prices. The long-term prospects of U.S. growth
companies are still very good, particularly the telecommunications, outsourcing
and technology companies we have favored".
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
[PHOTO]
DANIEL J. DUANE
[PHOTO] [PHOTO]
INGRID HOLM MICHELLE PICKER
================================================================================
GEOGRAPHIC ALLOCATION
AS OF 6/30/99
-------------
United States 41.5%
Continental Europe 25.9%
United Kingdom 9.8%
Japan 8.8%
Cash 7.1%
Australia 5.8%
Pacific Basin 1.1%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
================================================================================
TOP TEN HOLDINGS
AS OF 6/30/99
-------------
Time Warner, Inc. 3.0%
PMC-Sierra, Inc. 2.9%
Vodafone AirTouch PLC 2.7%
Nokia Corp. 2.5%
Solectron Corp. 2.4%
Texas Instruments, Inc. 2.2%
Hennes & Mauritz 2.1%
Microsoft Corp. 2.1%
Qantas Airways Ltd. 2.0%
MCI Worldcom, Inc. 1.9%
- --------------------------------------------------------------------------------
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, 1999
<S> <C>
ASSETS
Investments, at value (cost:
$1,271,896,943).......................... $1,244,599,784
Cash....................................... 22,392
Receivable for investments sold............ 19,267,742
Interest receivable........................ 18,239,272
Receivable for capital stock sold.......... 1,231,884
--------------
Total Assets............................. 1,283,361,074
--------------
LIABILITIES
Payable for investments purchased.......... 38,845,679
Payable to investment adviser.............. 1,219,062
Accrued expenses and other liabilities..... 103,767
Due to broker -- variation margin.......... 74,531
Payable for capital stock repurchased...... 484,505
--------------
Total Liabilities........................ 40,727,544
--------------
NET ASSETS................................... $1,242,633,530
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,145,658
Paid-in capital, in excess of par........ 1,249,092,217
--------------
1,250,237,875
Undistributed net investment income........ 36,259,340
Accumulated net realized loss on
investments.............................. (15,753,635)
Net unrealized depreciation on
investments.............................. (28,110,050)
--------------
Net assets, June 30, 1999.................. $1,242,633,530
--------------
--------------
Net asset value and redemption price per
share, 114,565,789 outstanding shares of
common stock (authorized 170,000,000
shares).................................. $ 10.85
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1999
<S> <C>
INVESTMENT INCOME
Interest................................... $ 38,736,021
---------------
EXPENSES
Investment advisory fee.................... 2,356,444
Shareholders' reports...................... 63,000
Accounting fees............................ 38,000
Custodian expense.......................... 32,000
Audit fees and expenses.................... 6,000
Transfer agent's fees and expenses......... 4,000
Directors' fees............................ 1,500
Legal fees................................. 1,000
Miscellaneous expenses..................... 2,234
---------------
Total expenses........................... 2,504,178
Less: custodian fee credit................. (27,497)
---------------
Net expenses............................. 2,476,681
---------------
NET INVESTMENT INCOME........................ 36,259,340
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. (15,060,936)
Futures.................................. 1,282,883
---------------
(13,778,053)
---------------
Net change in unrealized depreciation on:
Investments.............................. (41,718,270)
Futures.................................. (812,890)
---------------
(42,531,160)
---------------
NET LOSS ON INVESTMENTS...................... (56,309,213)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (20,049,873)
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 36,259,340 $ 60,710,670
Net realized gain (loss) on investments................................................ (13,778,053) 1,484,118
Net change in unrealized appreciation (depreciation) on investments.................... (42,531,160) 2,237,978
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (20,049,873) 64,432,766
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income................................................... -- (60,939,829)
Distributions from net realized capital gains.......................................... (3,302,269) (3,466,261)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (3,302,269) (64,406,090)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [19,458,708 and 29,994,210 shares, respectively].................... 213,869,979 334,707,738
Capital stock issued in reinvestment of dividends and distributions 298,578 and
5,809,428 shares, respectively]....................................................... 3,302,269 64,406,090
Capital stock repurchased [(6,732,821) and (8,361,173) shares, respectively]........... (73,760,279) (93,273,532)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 143,411,969 305,840,296
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 120,059,827 305,866,972
NET ASSETS:
Beginning of period.................................................................... 1,122,573,703 816,706,731
------------------ -------------------
End of period(a)....................................................................... $ 1,242,633,530 $ 1,122,573,703
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 36,259,340 $ --
------------------ -------------------
</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, 1999
<S> <C>
ASSETS
Investments, at value (cost:
$415,178,066)............................ $ 409,717,011
Cash....................................... 861
Interest receivable........................ 5,306,569
Receivable for capital stock sold.......... 4,292
Receivable for securities lending, net..... 54
--------------
Total Assets............................. 415,028,787
--------------
LIABILITIES
Payable for investments purchased.......... 29,932,559
Payable for capital stock repurchased...... 462,009
Payable to investment adviser.............. 399,185
Accrued expenses........................... 62,465
Due to broker -- variation margin.......... 33,125
--------------
Total Liabilities........................ 30,889,343
--------------
NET ASSETS................................... $ 384,139,444
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 332,196
Paid-in capital, in excess of par........ 375,958,644
--------------
376,290,840
Undistributed net investment income........ 11,485,320
Accumulated net realized gain on
investments.............................. 2,018,246
Net unrealized depreciation on
investments.............................. (5,654,962)
--------------
Net assets, June 30, 1999.................. $ 384,139,444
--------------
--------------
Net asset value and redemption price per
share, 33,219,641 outstanding shares of
common stock (authorized 65,000,000
shares).................................. $ 11.56
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1999
<S> <C>
INVESTMENT INCOME
Interest................................... $ 12,391,232
Income from securities loaned, net......... 3,347
---------------
12,394,579
---------------
EXPENSES
Investment advisory fee.................... 822,802
Accounting fees............................ 38,000
Shareholders' reports...................... 25,000
Custodian expense.......................... 17,000
Audit fees and expenses.................... 3,000
Transfer agent's fees and expenses......... 2,600
Directors' fees............................ 1,500
Legal fees................................. 500
Miscellaneous expenses..................... 455
---------------
Total expenses........................... 910,857
Less: custodian fee credit................. (1,598)
---------------
Net expenses............................. 909,259
---------------
NET INVESTMENT INCOME........................ 11,485,320
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments.............................. 1,745,103
Futures.................................. 330,664
---------------
2,075,767
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. (24,050,221)
Futures.................................. (193,907)
---------------
(24,244,128)
---------------
NET LOSS ON INVESTMENTS...................... (22,168,361)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (10,683,041)
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 11,485,320 $ 24,850,570
Net realized gain on investments....................................................... 2,075,767 7,136,992
Net change in unrealized appreciation (depreciation) on investments.................... (24,244,128) 5,393,840
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (10,683,041) 37,381,402
------------------ -------------------
DIVIDENDS
Dividends from net investment income................................................... -- (24,927,823)
Distributions in excess of net investment income....................................... -- (64,303)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... -- (24,992,126)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [1,012,598 and 3,555,442 shares, respectively]...................... 11,857,650 42,216,640
Capital stock issued in reinvestment of dividends and distributions [-0- and 2,122,659
shares, respectively]................................................................. 0 24,992,126
Capital stock repurchased [(5,147,118) and (5,610,053) shares, respectively]........... (60,247,119) (66,029,147)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (48,389,469) 1,179,619
------------------ -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. (59,072,510) 13,568,895
NET ASSETS:
Beginning of period.................................................................... 443,211,954 429,643,059
------------------ -------------------
End of period(a)....................................................................... $ 384,139,444 $ 443,211,954
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 11,485,320 $ --
------------------ -------------------
</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, 1999
<S> <C>
ASSETS
Investments, at value (cost:
$4,767,897,708).......................... $5,114,815,929
Interest and dividends receivable.......... 40,660,377
Receivable for investments sold............ 39,664,609
Receivable for securities lending, net..... 1,156,016
Due from broker -- variation margin........ 1,088,075
Receivable for capital stock sold.......... 7,898
--------------
Total Assets............................. 5,197,392,904
--------------
LIABILITIES
Bank overdraft............................. 45,825
Collateral for securities on loan.......... 500,998,202
Payable for investments purchased.......... 43,839,552
Payable to investment adviser.............. 6,443,716
Payable for capital stock repurchased...... 3,061,124
Securities lending rebate payable.......... 2,359,240
Accrued expenses and other liabilities..... 347,746
--------------
Total Liabilities........................ 557,095,405
--------------
NET ASSETS................................... $4,640,297,499
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,999,597
Paid-in capital, in excess of par........ 4,230,768,766
--------------
4,233,768,363
Undistributed net investment income........ 47,567,932
Accumulated net realized gain on
investments.............................. 12,720,477
Net unrealized appreciation on
investments.............................. 346,240,727
--------------
Net assets, June 30, 1999.................. $4,640,297,499
--------------
--------------
Net asset value and redemption price per
share, 299,959,725 outstanding shares of
common stock (authorized 370,000,000
shares).................................. $ 15.47
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1999
<S> <C>
INVESTMENT INCOME
Dividends (net of $236,012 foreign
withholding tax)......................... $ 14,402,988
Interest................................... 92,320,057
Income from securities loaned, net......... 1,030,240
---------------
107,753,285
---------------
EXPENSES
Investment advisory fee.................... 12,917,161
Shareholders' reports...................... 267,000
Custodian expense.......................... 119,000
Accounting fees............................ 75,000
Audit fees and expenses.................... 28,000
Legal fees................................. 3,000
Transfer agent's fees and expenses......... 3,500
Directors' fees............................ 1,500
Miscellaneous expenses..................... 16,451
---------------
Total expenses........................... 13,430,612
Less: custodian fee credit................. (64,064)
---------------
Net expenses............................. 13,366,548
---------------
NET INVESTMENT INCOME........................ 94,386,737
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments.............................. 15,896,485
Futures.................................. 951,307
---------------
16,847,792
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 80,501,883
Futures.................................. (3,157,207)
---------------
77,344,676
---------------
NET GAIN ON INVESTMENTS...................... 94,192,468
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 188,579,205
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED DECEMBER
JUNE 30, 1999 31, 1998
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 94,386,737 $ 200,201,254
Net realized gain on investments....................................................... 16,847,792 263,079,117
Net change in unrealized appreciation on investments................................... 77,344,676 66,472,901
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 188,579,205 529,753,272
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income................................................... (46,818,805) (201,150,300)
Distributions from net realized capital gains.......................................... (20,089,244) (284,059,981)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (66,908,049) (485,210,281)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [2,248,155 and 4,155,780 shares, respectively]...................... 34,303,551 64,306,807
Capital stock issued in reinvestment of dividends and distributions [4,355,993 and
32,017,520 shares, respectively]...................................................... 66,908,049 485,210,281
Capital stock repurchased [(24,748,737) and (34,980,138) shares, respectively]......... (378,545,027) (542,332,348)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... (277,333,427) 7,184,740
------------------ -------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............................................................................ (155,662,271) 51,727,731
NET ASSETS:
Beginning of period.................................................................... 4,795,959,770 4,744,232,039
------------------ -------------------
End of period(a)....................................................................... $ 4,640,297,499 $ 4,795,959,770
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 47,567,932 $ --
------------------ -------------------
</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, 1999
<S> <C>
ASSETS
Investments, at value (cost:
$5,375,155,909).......................... $5,814,648,192
Cash....................................... 84,577
Receivable for investments sold............ 42,422,053
Interest and dividends receivable.......... 30,364,381
Due from Broker-Variation Margin........... 3,223,625
Receivable for securities lending, net..... 1,197,085
Receivable for capital stock sold.......... 107,304
--------------
Total Assets............................. 5,892,047,217
--------------
LIABILITIES
Collateral for securities on loan.......... 443,760,222
Payable for investments purchased.......... 50,246,584
Payable to investment advisor.............. 8,123,005
Securities lending rebate payable.......... 2,262,792
Payable for capital stock repurchased...... 1,950,175
Accrued expenses........................... 530,379
--------------
Total Liabilities........................ 506,873,157
--------------
NET ASSETS................................... $5,385,174,060
--------------
--------------
Net assets were comprised of:
Common stock, at $.01 par value.......... $ 3,085,491
Paid-in capital, in excess of par........ 4,802,034,302
--------------
4,805,119,793
Undistributed net investment income........ 83,838,361
Accumulated net realized gain on
investments.............................. 60,414,368
Net unrealized appreciation on
investments.............................. 435,801,538
--------------
Net assets at June 30, 1999................ $5,385,174,060
--------------
--------------
Net asset value and redemption price per
308,549,113 shares outstanding common
stock (authorized 370,000,000 shares).... $ 17.45
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1999
<S> <C>
INVESTMENT INCOME
Interest................................... $ 75,435,897
Dividends (net of $495,226 foreign
withholding)............................. 24,361,214
Income from securities loaned, net......... 729,817
---------------
100,526,928
---------------
EXPENSES
Investment advisory fee.................... 16,091,896
Shareholder's reports...................... 299,000
Custodian expense.......................... 144,000
Accounting expense......................... 67,000
Audit expense.............................. 31,000
Transfer agent's fees and expenses......... 3,500
Directors' fees............................ 1,500
Miscellaneous expenses..................... 20,392
---------------
Total expenses........................... 16,658,288
Less: custodian fee credit................. (38,171)
---------------
Net expenses............................... 16,620,117
---------------
NET INVESTMENT INCOME........................ 83,906,811
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 59,114,365
Futures contracts........................ 18,244,372
---------------
77,358,737
---------------
Net change in unrealized appreciation:
Investments.............................. 172,656,432
Futures contracts........................ 11,431,193
---------------
184,087,625
---------------
NET GAIN ON INVESTMENTS...................... 261,446,362
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 345,353,173
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 83,906,811 $ 177,588,088
Net realized gain on investments....................................................... 77,358,737 513,883,914
Net change in unrealized appreciation on investments................................... 184,087,625 (167,145,159)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 345,353,173 524,326,843
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income................................................... (239,006) (178,186,396)
Distributions from net realized capital gains.......................................... (60,930,102) (552,345,875)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (61,169,108) (730,532,271)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [1,827,460 and 4,188,120 shares, respectively]...................... 29,615,192 74,668,669
Capital stock issued in reinvestment of dividends and distributions [3,554,343 and
43,615,212 shares, respectively]...................................................... 62,545,734 730,532,271
Capital stock repurchased [(23,550,870) and (38,796,213) shares, respectively]......... (401,152,319) (679,156,218)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (308,991,393) 126,044,722
------------------ -------------------
TOTAL DECREASE IN NET ASSETS............................................................. (24,807,328) (80,160,706)
NET ASSETS:
Beginning of period.................................................................... 5,409,981,388 5,490,142,094
------------------ -------------------
End of period (a)...................................................................... $ 5,385,174,060 $ 5,409,981,388
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 83,838,361 $ 170,556
------------------ -------------------
</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, 1999
<S> <C>
ASSETS
Investments, at value (cost:
$2,229,082,674).......................... $4,242,837,210
Cash....................................... 359
Receivable for investments sold............ 16,458,432
Interest and dividends receivable.......... 3,596,928
Due from broker -- variation margin........ 2,047,036
Receivable for capital stock sold.......... 1,689,299
--------------
Total Assets............................. 4,266,629,264
--------------
LIABILITIES
Payable for investments purchased.......... 10,182,377
Payable to investment adviser.............. 3,548,089
Payable for capital stock repurchased...... 568,964
Accrued expenses........................... 241,270
--------------
Total Liabilities........................ 14,540,700
--------------
NET ASSETS................................... $4,252,088,564
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,011,482
Paid-in capital, in excess of par........ 2,189,214,150
--------------
2,190,225,632
Undistributed net investment income........ 12,901,573
Accumulated net realized gain on
investments.............................. 31,022,709
Net unrealized appreciation on
investments.............................. 2,017,938,650
--------------
Net assets, June 30, 1999.................. $4,252,088,564
--------------
--------------
Net asset value and redemption price per
share, 101,143,876 outstanding shares of
common stock (authorized 170,000,000
shares).................................. $ 42.04
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1999
<S> <C>
INVESTMENT INCOME
Dividends (net of $464,334 foreign
withholding tax)......................... $ 26,843,666
Interest................................... 2,540,941
---------------
29,384,607
---------------
EXPENSES
Investment advisory fee.................... 6,748,571
Shareholders' reports...................... 188,000
Custodian expense.......................... 67,000
Accounting fees............................ 38,000
Audit fees and expenses.................... 20,000
Transfer agent's fees and expenses......... 3,500
Legal fees................................. 2,500
Directors' fees............................ 1,500
Miscellaneous expenses..................... 11,417
---------------
Total expenses........................... 7,080,488
Less: custodian fee credit................. (2,407)
---------------
Net expenses............................. 7,078,081
---------------
NET INVESTMENT INCOME........................ 22,306,526
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments.............................. 26,871,847
Futures.................................. 9,385,898
---------------
36,257,745
---------------
Net change in unrealized appreciation/
depreciation on:
Investments.............................. 388,212,107
Futures.................................. (421,262)
---------------
387,790,845
---------------
NET GAIN ON INVESTMENTS...................... 424,048,590
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 446,355,116
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................. $ 22,306,526 $ 36,771,654
Net realized gain on investments....................................................... 36,257,745 57,465,213
Net change in unrealized appreciation on investments................................... 387,790,845 644,696,671
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 446,355,116 738,928,538
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income................................................... (9,404,953) (37,075,916)
Distributions from net realized capital gains.......................................... (15,008,166) (53,566,202)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (24,413,119) (90,642,118)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [11,815,445 and 21,945,962 shares, respectively].................... 467,777,125 739,810,425
Capital stock issued in reinvestment of dividends and distributions [605,634 and
2,541,175 shares, respectively]....................................................... 24,413,119 90,642,118
Capital stock repurchased [(5,294,474) and (11,483,263) shares, respectively].......... (210,132,667) (378,841,199)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 282,057,577 451,611,344
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 703,999,574 1,099,897,764
NET ASSETS:
Beginning of period.................................................................... 3,548,088,990 2,448,191,226
------------------ -------------------
End of period (a)...................................................................... $ 4,252,088,564 $ 3,548,088,990
------------------ -------------------
------------------ -------------------
(a) Included undistributed net investment income of:................................... $ 12,901,573 $ --
------------------ -------------------
</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, 1999
<S> <C>
ASSETS
Investments, at value (cost:
$4,733,436,921).......................... $6,718,263,298
Cash....................................... 291
Interest and dividends receivable.......... 13,325,615
Receivable for capital stock sold.......... 556,177
--------------
Total Assets............................. 6,732,145,381
--------------
LIABILITIES
Payable for investments purchased.......... 24,784,488
Payable to investment adviser.............. 7,369,672
Payable for capital stock repurchased...... 2,934,957
Accrued expenses........................... 529,148
Distribution fee payable................... 40
--------------
Total Liabilities........................ 35,618,305
--------------
NET ASSETS................................... $6,696,527,076
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,998,735
Paid-in capital, in excess of par........ 4,312,825,738
--------------
4,314,824,473
Undistributed net investment income........ 42,316,308
Accumulated net realized gain on
investments.............................. 354,567,145
Net unrealized appreciation on investments
and foreign currencies................... 1,984,819,150
--------------
Net assets, June 30, 1999.................. $6,696,527,076
--------------
--------------
Class I:
Net asset value and redemption price per
share, 199,869,488 outstanding shares of
common stock (authorized 295,000,000
shares).................................. $ 33.50
--------------
--------------
Class II:
Net asset value and redemption price per
share, 4,025 outstanding shares of common
stock (authorized 5,000,000 shares)...... $ 33.48
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1999
<S> <C>
INVESTMENT INCOME
Dividends (net of $632,511 foreign
withholding tax)......................... $ 67,929,273
Interest................................... 10,903,973
---------------
78,833,246
---------------
EXPENSES
Investment advisory fee.................... 14,220,624
Distribution Fee -- Class II............... 40
Shareholders' reports...................... 341,000
Custodian expense.......................... 124,000
Accounting fees............................ 38,000
Audit fees and expenses.................... 36,000
Transfer agent's fees and expenses......... 4,000
Legal fees................................. 2,000
Directors' fees............................ 1,500
Miscellaneous expenses..................... 19,746
---------------
Total expenses........................... 14,786,910
Less: custodian fee credit................. (20,024)
---------------
Net expenses............................. 14,766,886
---------------
NET INVESTMENT INCOME........................ 64,066,360
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on investments........... 354,677,097
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 502,107,101
Foreign currencies....................... (7,096)
---------------
502,100,005
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 856,777,102
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 920,843,462
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 64,066,360 $ 114,479,882
Net realized gain on investments and foreign currencies................................ 354,677,097 766,481,591
Net change in unrealized appreciation (depreciation) on investments and foreign
currencies............................................................................ 502,100,005 (344,074,909)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 920,843,462 536,886,564
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -- Class I........................................ (21,860,004) (115,394,083)
Distributions from net realized capital gains -- Class I............................... (112,755,332) (684,800,016)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (134,615,336) (800,194,099)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [4,447,001 and 12,676,785 shares, respectively]..................... 136,432,318 418,548,498
Capital stock issued in reinvestment of dividends and distributions [4,320,133 and
27,106,415 shares, respectively]...................................................... 134,615,336 800,194,099
Capital stock repurchased [(19,680,149) and (22,886,073) shares, respectively]......... (607,795,338) (732,368,459)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS........ (336,747,684) 486,374,138
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 449,480,442 223,066,603
NET ASSETS:
Beginning of period.................................................................... 6,247,046,634 6,023,980,031
------------------ -------------------
End of period (a)...................................................................... $ 6,696,527,076 $ 6,247,046,634
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 42,316,308 $ 109,952
------------------ -------------------
</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, 1999
<S> <C>
ASSETS
Investments, at value (cost:
$667,036,511)............................ $ 927,413,748
Foreign currency, at value (cost:
$22,686,755)............................. 22,466,243
Cash....................................... 506
Receivable for investments sold............ 12,093,209
Dividends and interest receivable.......... 1,920,003
Receivable for capital stock sold.......... 454,028
Forward currency contracts -- amount
receivable from counterparties........... 260,902
--------------
Total Assets............................. 964,608,639
--------------
LIABILITIES
Payable to investment adviser.............. 1,734,714
Accrued expenses and other liabilities..... 728,479
Payable for capital stock repurchased...... 184,380
--------------
Total Liabilities........................ 2,647,573
--------------
NET ASSETS................................... $ 961,961,066
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 419,685
Paid-in capital, in excess of par........ 652,980,419
--------------
653,400,104
Distributions in excess of net investment
income................................... (14,767,665)
Accumulated net realized gain on
investments.............................. 62,961,220
Net unrealized appreciation on investments
and foreign currencies................... 260,367,407
--------------
Net assets, June 30, 1999.................. $ 961,961,066
--------------
--------------
Net asset value and redemption price per
share of 41,968,514 outstanding shares of
common stock (authorized 70,000,000
shares).................................. $ 22.92
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1999
<S> <C>
INVESTMENT INCOME
Dividends (net of $502,132 foreign
withholding tax)......................... $ 4,903,658
Interest................................... 676,854
---------------
5,580,512
---------------
EXPENSES
Investment advisory fee.................... 3,329,436
Custodian expense.......................... 240,000
Accounting fees............................ 148,000
Shareholders' reports...................... 45,000
Audit fees and expenses.................... 5,000
Transfer agent's fees and expenses......... 4,000
Directors' fees............................ 1,500
Miscellaneous expenses..................... 3,068
---------------
Total expenses........................... 3,776,004
Less: custodian fee credit................. (2,562)
---------------
Net expenses............................. 3,773,442
---------------
NET INVESTMENT INCOME........................ 1,807,070
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on:
Investments.............................. 65,011,205
Foreign currencies....................... (3,790,338)
---------------
61,220,867
---------------
Net change in unrealized appreciation on:
Investments.............................. 18,946,200
Foreign currencies....................... 3,944,625
---------------
22,890,825
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 84,111,692
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 85,918,762
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 1,807,070 $ 2,043,217
Net realized gain on investments and foreign currencies................................ 61,220,867 41,097,089
Net change in unrealized appreciation on investments and foreign currencies............ 22,890,825 121,145,340
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 85,918,762 164,285,646
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... -- (5,559,015)
Distributions in excess of net investment income....................................... (4,140,269) (4,481,373)
Distributions from net realized capital gains.......................................... (7,259,626) (35,181,433)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (11,399,895) (45,221,821)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [6,837,364 and 9,626,530 shares, respectively]...................... 147,170,773 191,039,953
Capital stock issued in reinvestment of dividends and distributions [520,780 and
2,231,010 shares, respectively]....................................................... 11,399,895 45,221,821
Capital stock repurchased [(5,304,497) and (7,562,638) shares, respectively]........... (115,670,428) (149,184,992)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 42,900,240 87,076,782
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 117,419,107 206,140,607
NET ASSETS:
Beginning of period.................................................................... 844,541,959 638,401,352
------------------ -------------------
End of period.......................................................................... $ 961,961,066 $ 844,541,959
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A7
<PAGE>
DIVERSIFIED BOND PORTFOLIO
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 94.5% PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS -- 93.9% RATING RATE DATE (000) (NOTE 2)
------------ ------ ------------------ --------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 1.8%
Boeing Co....................................... Aa3 8.75% 08/15/21 $ 6,250 $ 7,258,562
Raytheon Co..................................... Baa1 5.95% 03/15/01 6,500 6,478,485
Raytheon Co..................................... Baa1 6.45% 08/15/02 5,000 5,010,950
Raytheon Co..................................... Baa1 6.50% 07/15/05 4,200 4,150,986
--------------
22,898,983
--------------
AIRLINES -- 2.6%
Continental Airlines, Inc....................... Ba2 8.00% 12/15/05 6,910 6,595,871
Continental Airlines, Inc....................... Aa3 7.46% 04/01/15 5,228 5,298,060
Delta Air Lines, Inc............................ Ba1 9.875% 05/15/00 6,000 6,170,400
United Airlines, Inc............................ Baa3 10.67% 05/01/04 7,000 7,905,730
United Airlines, Inc............................ Baa3 11.21% 05/01/14 5,000 6,400,300
--------------
32,370,361
--------------
ASSET-BACKED SECURITIES -- 1.5%
Advanta Mortgage Loan Trust, Series 1994-3...... Aaa 8.49% 01/25/26 8,500 8,657,686
California Infrastructure PG&E, Series 1997-1... NR 6.32% 09/25/05 4,000 3,986,250
Chase Manhattan Credit Master Trust, Series
1996-3........................................ Aaa 7.04% 02/15/05 6,000 6,080,580
--------------
18,724,516
--------------
AUTO-CARS & TRUCKS -- 2.9%
Ford Motor Co................................... A1 6.375% 02/01/29 10,000 8,680,900
Lear Corp....................................... Ba1 7.96% 05/15/05 10,000 9,675,000
Navistar International Corp..................... Ba1 7.00% 02/01/03 3,500 3,412,500
Navistar International Corp..................... Ba3 8.00% 02/01/08 4,500 4,410,000
TRW, Inc........................................ Baa1 6.45% 06/15/01 9,200 9,208,625
--------------
35,387,025
--------------
BANKS AND SAVINGS & LOANS -- 4.6%
Banco de Commercio Exterior de Columbia, SA,
M.T.N., (Colombia)............................ NR 8.625% 06/02/00 2,000 1,977,500
Banco Ganadero, SA, M.T.N., (Colombia).......... NR 9.75% 08/26/99 4,100 4,099,319
Bayerische Landesbank Girozentrale, (Germany)... Aaa 5.875% 12/01/08 10,000 9,279,100
Capital One Bank................................ Baa3 7.08% 10/30/01 5,000 5,043,950
Citigroup....................................... NR 6.10% 05/15/08 12,500 12,238,750
Deutsche Bank................................... A1 7.872% 12/29/49 2,400 2,323,488
HSBC Holding PLC................................ A2 7.50% 07/15/09 5,700 5,758,881
International Bank for Reconstruction &
Development, (Supranational).................. Aaa 12.375% 10/15/02 750 894,007
Kansallis-Osake Pankki, (Finland)............... Baa1 8.65% 01/01/49 5,000 5,011,500
Kansallis-Osake Pankki, (Finland)............... Baa1 10.00% 05/01/02 5,000 5,418,600
National Australia Bank, (Australia)............ A1 6.40% 12/10/07 3,700 3,676,764
--------------
55,721,859
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.7%
British Sky Broadcasting, Inc................... Baa2 6.875% 02/23/09 7,800 7,116,018
Cable & Wire Communications PLC (United
Kingdom)...................................... Baa1 6.75% 12/01/08 1,650 1,588,306
CSC Holdings, Inc............................... Ba2 7.25% 07/15/08 3,400 3,239,180
CSC Holdings, Inc............................... Ba2 7.875% 12/15/07 2,800 2,779,392
Rogers Cablesystems, Inc., (Canada)............. Ba3 10.00% 03/15/05 4,000 4,280,000
Tele-Communications, Inc........................ Ba1 6.34% 02/01/02 3,500 3,510,115
Tele-Communications, Inc........................ Ba1 6.375% 09/15/99 2,750 2,755,912
Tele-Communications, Inc........................ Baa3 10.125% 04/15/22 6,300 8,204,553
--------------
33,473,476
--------------
CHEMICALS -- 1.2%
ICI Wilmington Inc.............................. Baa1 9.50% 11/15/00 3,500 3,644,865
Lyondell Chemical Co............................ Ba3 9.625% 05/01/07 2,800 2,863,000
Rohm & Haas Co.................................. A3 7.85% 07/15/29 3,900 3,897,153
Rohm & Haas Co.................................. A3 6.95% 07/15/04 4,700 4,694,308
--------------
15,099,326
--------------
COMPUTERS -- 0.2%
International Business Machine Corp............. A1 5.625% 04/12/04 3,000 2,883,000
--------------
DIVERSIFIED CONSUMER PRODUCT -- 0.4%
Owens-Illinois, Inc............................. Ba1 7.50% 05/15/10 5,000 4,755,650
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B1
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 1999 (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>
DIVERSIFIED OPERATIONS -- 2.3%
Cox Enterprises, Inc............................ Baa1 6.625% 06/14/02 $ 3,200 $ 3,197,856
Hanson Overseas B.V............................. A3 7.375% 01/15/03 2,600 2,642,692
Seagram (J.) & Sons............................. Baa3 5.79% 04/15/01 11,500 11,351,650
Tyco International Ltd.......................... Baa1 6.875% 01/15/29 2,200 2,022,878
Xerox Cap Europe PLC............................ A2 5.75% 05/15/02 10,000 9,835,000
--------------
29,050,076
--------------
DRUGS & MEDICAL SUPPLIES -- 0.3%
Mallinckrodt, Inc............................... Baa2 6.30% 03/15/11 3,500 3,438,750
--------------
FINANCIAL SERVICES -- 11.3%
Advanta Corp., M.T.N............................ Ba2 7.25% 08/16/99 10,000 10,003,081
Aristar, Inc.................................... Baa1 7.50% 07/01/99 2,000 1,999,992
Arkwright Corp.................................. Baa3 9.625% 08/15/26 5,000 5,376,250
Calair Capital Corp............................. Ba2 8.125% 04/01/08 3,000 2,793,750
Capital One Financial Corp...................... Ba1 7.25% 05/01/06 4,200 4,068,750
Chrysler Financial Corp......................... A1 5.25% 10/22/01 10,400 10,166,624
Comdisco Inc.................................... Baa1 6.32% 11/27/00 10,000 10,009,300
Conseco, Inc.................................... Ba2 8.70% 11/15/26 120 107,536
Conseco, Inc.................................... Ba2 8.77% 04/01/27 4,950 4,479,255
Conseco, Inc.................................... Ba1 7.60% 06/21/01 1,500 1,504,215
Dresdner Funding Trust.......................... Aa2 8.15% 06/30/31 13,100 12,616,872
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa3 8.75% 12/15/99 3,000 3,033,000
FMR Corp........................................ Aa3 7.57% 06/15/29 335 333,794
Ford Motor Credit Co............................ A1 5.75% 01/25/01 4,000 3,972,240
General Motors Acceptance Corp.................. A2 5.75% 11/10/03 10,000 9,675,400
General Motors Acceptance Corp.................. Baa1 8.40% 10/15/99 3,700 3,728,564
Heller Financial, Inc........................... A3 6.00% 03/19/04 2,900 2,807,229
International Lease Finance Corp................ A1 5.90% 03/12/03 16,000 15,632,960
Marsh & Mclennan Cos., Inc...................... A2 6.625% 06/15/04 3,420 3,424,685
MBNA Corp....................................... Aaa 5.90% 08/15/11 17,900 16,881,427
Nationwide CSN Trust............................ Aa3 9.875% 02/15/25 5,000 5,442,187
Reliastar Financial Corp........................ A3 6.625% 09/15/03 5,000 4,946,000
The CIT Group, Inc.............................. Aa3 5.50% 10/15/01 8,045 7,924,325
--------------
140,927,436
--------------
FOOD & BEVERAGE -- 0.5%
Archer-Daniels Midland Co....................... Aa3 6.625% 05/01/29 4,700 4,302,333
Coca-Cola Bottling Co........................... Baa2 6.375% 05/01/09 2,200 2,065,030
--------------
6,367,363
--------------
FOREST PRODUCTS -- 1.6%
Fort James Corp................................. Baa3 6.234% 03/15/01 5,000 4,954,750
Scotia Pacific Co............................... NR 7.71% 01/20/14 12,200 8,845,000
Westvaco Corp................................... A1 9.75% 06/15/20 5,000 6,277,100
--------------
20,076,850
--------------
HOUSING RELATED -- 0.4%
Owens Corning................................... Baa3 7.50% 05/01/05 5,000 4,942,188
--------------
INDUSTRIAL -- 0.5%
Burlington Industries, Inc...................... Baa3 7.25% 09/15/05 4,750 4,251,250
Compania Sud Americana de Vapores, SA,
(Chile)....................................... BBB 7.375% 12/08/03 2,000 1,898,840
--------------
6,150,090
--------------
INVESTMENT BANKERS -- 5.6%
Goldman Sachs Group, Inc........................ A1 5.56% 01/11/01 4,750 4,714,375
Lehman Brothers Holdings, Inc................... Baa1 6.625% 04/01/04-02/05/06 17,830 17,366,899
Merrill Lynch, Pierce, Fenner & Smith, Inc...... Aa3 5.339% 06/24/03 15,000 14,906,250
Morgan Stanley, Dean Witter Discover & Co.,
M.T.N......................................... A1 6.09% 03/09/11 6,500 6,474,260
Morgan Stanley, Dean Witter Discover & Co.,
M.T.N......................................... Aa3 5.625% 04/12/02 5,450 5,324,759
Salomon, Inc.................................... Baa1 6.25% 10/01/99 8,000 8,014,000
Salomon, Inc.................................... NR 6.65% 07/15/01 7,000 7,055,440
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B2
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 1999 (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>
INVESTMENT BANKERS (CONT'D.)
Salomon, Inc., M.T.N............................ Baa1 6.59% 02/21/01 $ 3,500 $ 3,522,435
Salomon, Inc.................................... Baa1 7.25% 05/01/01 2,250 2,290,500
--------------
69,668,918
--------------
LEISURE & TOURISM -- 1.9%
Royal Caribbean Cruises Ltd..................... Baa3 7.00% 10/15/07 8,000 7,743,120
Royal Caribbean Cruises Ltd..................... Baa3 7.25% 08/15/06 5,000 4,939,800
ITT Corp........................................ Baa2 6.25% 11/15/00 4,250 4,155,778
ITT Corp........................................ Baa2 6.75% 11/15/03 7,000 6,565,160
--------------
23,403,858
--------------
MEDIA -- 3.9%
Liberty Media Group............................. Baa3 7.875% 07/15/09 1,600 1,590,464
Liberty Media Group............................. Baa3 8.50% 07/15/29 2,800 2,792,356
News America Holding, Inc....................... Baa3 6.703% 05/21/34 22,000 21,600,700
Paramount Communications, Inc................... Ba2 7.50% 01/15/02 5,000 5,109,650
Turner Broadcasting System, Inc................. Ba1 7.40% 02/01/04 13,500 13,893,795
United News & Media PLC......................... Baa2 7.25% 07/01/04 3,000 2,972,700
--------------
47,959,665
--------------
OIL & GAS -- 0.7%
Atlantic Richfield Co........................... A2 5.55% 04/15/03 3,700 3,620,080
B.J. Services Co................................ Ba1 7.00% 02/01/06 5,000 4,920,100
--------------
8,540,180
--------------
OIL & GAS SERVICES -- 1.2%
K N Energy, Inc................................. Baa2 6.30% 03/01/21 15,000 14,948,400
--------------
RAILROADS -- 1.2%
Burlington Northern Santa Fe Corp............... Baa2 6.05% 03/15/01 8,000 7,977,600
Norfolk Southern Corp........................... Baa1 6.875% 05/01/01 7,000 7,069,020
--------------
15,046,620
--------------
REAL ESTATE INVESTMENT TRUST -- 2.6%
Camden Property Trust........................... Baa2 7.23% 10/30/00 5,000 5,005,500
Equity Residential.............................. A3 6.15% 09/15/00 15,000 14,902,500
ERP Operating, L.P.............................. A3 6.63% 04/13/05 3,900 3,762,954
ERP Operating L.P............................... A3 7.10% 06/23/04 1,500 1,501,065
Felcor Suite Hotels, Inc........................ Ba1 7.625% 10/01/07 7,900 7,149,500
--------------
32,321,519
--------------
RETAIL -- 4.1%
Dayton-Hudson Corp.............................. A3 6.40% 02/15/03 8,250 8,211,638
Federated Department Stores, Inc................ Ba1 8.125% 10/15/02 5,250 5,491,290
Federated Department Stores, Inc................ Ba1 8.50% 06/15/03 10,200 10,798,638
Kmart Corp...................................... Ba2 9.78% 01/05/20 3,850 3,946,250
Kroger Co., (The)............................... Baa3 6.34% 06/01/01 6,500 6,445,156
Kroger Co., (The)............................... Baa3 7.25% 06/01/09 3,800 3,783,375
Kroger Co., (The)............................... Baa3 7.70% 06/01/29 2,200 2,178,000
Kroger Co., (The)............................... Baa3 6.375% 03/01/08 6,600 6,148,560
Rite Aid Corp................................... A3 6.70% 12/15/01 4,000 3,986,840
--------------
50,989,747
--------------
TELECOMMUNICATIONS -- 6.5%
Electric Lightwave, Inc......................... A2 6.05% 05/15/04 3,300 3,190,572
GTE Corp........................................ Baa1 9.375% 12/01/00 6,250 6,532,250
LCI International, Inc.......................... Ba1 7.25% 06/15/07 10,125 9,941,839
Lucent Technologies, Inc........................ A2 6.45% 03/15/29 10,500 9,498,405
Qwest Communications International Inc.......... Ba1 7.50% 11/01/08 4,000 3,880,000
Sprint Corp..................................... Baa1 5.70% 11/15/03 17,000 16,292,290
Sprint Corp..................................... Baa1 6.875% 11/15/28 2,500 2,266,550
Telecom De Puerto Rico.......................... Baa2 6.65% 05/15/06 6,800 6,603,276
Telecom De Puerto Rico.......................... Baa2 6.80% 05/15/09 5,700 5,475,591
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B3
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 1999 (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>
TELECOMMUNICATIONS (CONT'D.)
Worldcom Inc.................................... Baa2 6.125% 08/15/01 $ 8,300 $ 8,273,772
Worldcom Inc.................................... Baa2 6.95% 08/15/28 9,900 9,384,705
--------------
81,339,250
--------------
UTILITIES -- 8.9%
AES Corp........................................ Ba1 9.50% 06/01/09 2,800 2,877,000
Arkla, Inc., M.T.N.............................. Ba2 9.32% 12/18/00 2,000 2,077,560
Calenergy Co., Inc.............................. Ba1 6.96% 09/15/03 8,000 7,930,400
Calenergy Co., Inc.............................. Ba1 7.23% 09/15/05 5,000 4,964,900
CMS Energy Corp................................. Ba3 6.75% 01/15/04 6,500 6,110,000
CMS Energy Corp................................. Ba3 8.00% 07/01/01 4,500 4,488,750
Cogentrix Energy, Inc........................... Ba1 8.75% 10/15/08 10,000 9,850,000
Commonwealth Edison Co.......................... Baa3 7.625% 01/15/07 7,525 7,754,437
Connecticut Light & Power Company............... Ba2 7.75% 06/01/02 5,685 5,818,256
Edison Mission Energy........................... A3 7.73% 06/15/09 3,200 3,233,152
El Paso Electric Company........................ Ba2 7.75% 05/01/01 5,850 5,934,533
El Paso Electric Company........................ Ba3 9.40% 05/01/11 4,000 4,429,720
Illinois Power Co............................... Aaa 5.38% 06/25/07 15,000 14,273,400
Niagara Mohawk Power............................ Ba3 6.875% 04/01/03 4,000 4,045,040
Niagara Mohawk Power............................ Ba2 7.375% 08/01/03 8,000 8,195,760
Niagara Mohawk Power............................ Baa2 8.00% 06/01/04 5,000 5,209,000
Pennsylvania Electric Co........................ A2 5.75% 04/01/04 2,200 2,133,032
Pennsylvania Power & Light Co................... A2 9.375% 07/01/21 1,150 1,256,237
Texas Utilities................................. Baa3 5.94% 10/15/01 10,000 9,896,100
--------------
110,477,277
--------------
WASTE MANAGEMENT -- 0.6%
USA Waste Service............................... Baa3 6.125% 07/15/01 7,000 6,958,070
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 15.8%
Federal Farm Credit Bank........................ 8.65% 10/01/99 150 151,149
Resolution Funding Corp......................... Zero 10/15/15 17,100 5,966,190
Resolution Funding Corp......................... 8.125% 10/15/19 700 830,158
Resolution Funding Corp......................... 8.625% 01/15/21 200 248,188
Small Business Administration Participation
Certicates.................................... 6.00% 09/01/18 14,745 14,652,581
United States Treasury Bond..................... 5.25% 11/15/28 58,555 51,903,738
United States Treasury Bond (b)................. 7.25% 08/15/22 21,000 23,513,490
United States Treasury Bond..................... 7.50% 11/15/24 2,550 2,964,375
United States Treasury Bond..................... 8.125% 08/15/21 36,700 44,745,374
United States Treasury Note..................... 4.75% 11/15/08 11,200 10,284,736
United States Treasury Note..................... 5.25% 05/15/04 1,280 1,257,805
United States Treasury Note..................... 5.50% 05/15/09 35,145 34,332,096
United States Treasury Note..................... Zero 05/15/20 22,000 5,883,240
--------------
196,733,120
--------------
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES -- 0.4%
Federal National Mortgage Association........... 9.00% 10/01/16-09/01/21 296 310,957
Government National Mortgage Association........ 7.50% 10/15/25-01/15/26 4,729 4,779,239
--------------
5,090,196
--------------
U.S. GOVERNMENT MORTGAGE PASS-THROUGHS -- 1.3%
Federal National Mortgage Association........... 6.50% 07/01/29 15,000 14,470,350
Government National Mortgage Association........ 7.50% 05/20/02-02/15/26 1,160 1,171,797
--------------
15,642,147
--------------
FOREIGN GOVERNMENT BONDS -- 4.4%
Quebec Province, (Canada)....................... A1 7.50% 07/15/23 8,400 8,539,944
Republic Of Columbia, (Columbia)................ Baa3 9.75% 04/23/09 2,700 2,227,500
Republic of Mexico, (Mexico).................... Ba2 5.87% 12/31/19 5,900 4,970,750
Republic of Mexico, (Mexico).................... Ba2 5.875% 12/31/19 4,200 3,538,500
Republic of Mexico, (Mexico).................... Ba2 5.875% 12/31/19 2,100 1,769,250
Republic of Panama, (Panama).................... NR 7.875% 02/13/02 8,000 7,810,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B4
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S INTEREST MATURITY AMOUNT VALUE
RATING RATE DATE (000) (NOTE 2)
------------ ------ ------------------ --------- --------------
<S> <C> <C> <C> <C> <C>
FOREIGN GOVERNMENT BONDS (CONT'D.)
Republic of Panama, (Panama).................... Ba1 4.00% 07/17/14 $ 6,600 $ 4,958,250
Republic Of Philippines, (Philippines).......... Ba1 8.875% 04/15/08 3,200 3,113,728
Republic of Poland, (Poland).................... Baa3 4.00% 10/27/24 7,500 4,837,500
United Mexican States, (Mexico)................. NR 10.375% 02/17/09 13,300 13,339,900
--------------
55,105,322
--------------
TOTAL LONG-TERM BONDS
(cost $1,194,221,808)................................................................................. 1,166,491,238
--------------
SHARES
-------------
PREFERRED STOCK -- 0.6%
Centaur Funding (cost $7,664,135)............... 52,000 8,097,544
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,201,885,943).......................................... 1,174,588,782
--------------
UNITS
-------------
SHORT-TERM INVESTMENTS -- 5.6%
WARRANT (A)
Mexico VRR Debenture............................ 18,766,000 2
--------------
PRINCIPAL
AMOUNT
(000)
---------
REPURCHASE AGREEMENT -- 5.6%
Joint Repurchase Agreement Account (Note 5)..... 4.775% 07/01/99 $ 70,011 70,011,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $70,011,000)........................................................................... 70,011,002
--------------
TOTAL INVESTMENTS -- 100.1%
(cost $1,271,896,943; Note 6)................................................................ 1,244,599,784
VARIATION MARGIN ON OPEN FUTURES CONTRACTS -- (C).............................................. (74,531)
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.1)% (1,891,723)
--------------
NET ASSETS -- 100.0%........................................................................... $1,242,633,530
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anomima (Spanish Corporation) or Societe Anonyme (French
Corp.)
NR Note Rated by Moody's or Standards & Poors
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
(c) Open futures contracts as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1999 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
210 U.S. Treasury
Bond Sep 99 $24,862,031 $24,340,312 $(521,719)
Short Position:
285 U.S. Treasury
Notes Sep 99 31,397,266 31,688,437 (291,171)
-----------
$(812,890)
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B5
<PAGE>
GOVERNMENT INCOME PORTFOLIO
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
LONG-TERM INVESTMENTS -- 96.0% RATE DATE (000) (NOTE 2)
------ ------------------ ------------- --------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 2.6%
Team Fleet Financing Corp....................... 7.350% 05/15/03 $ 10,000 $ 10,042,188
--------------
COLLATERALIZED MORTGAGE OBLIGATION -- 1.4%
Westpac Securitisation Trust, Ser. 1998-1G
(Australia)................................... 5.140% 07/19/29 5,504(a) 5,487,809
--------------
CORPORATE -- 2.1%
Merck & Co., Inc................................ 5.760% 05/03/37 8,000 8,040,000
--------------
MORTGAGE PASS-THROUGHS -- 28.9%
Federal Home Loan Mortgage Association.......... 5.875% 04/23/04 6,500 6,361,875
Federal Home Loan Mortgage Corp................. 5.750% 10/15/07 15,000 14,896,875
Federal Home Loan Mortgage Corp................. 7.360% 06/05/07 15,000 15,229,650
Federal National Mortgage Association........... 5.125% 02/13/04 8,300 7,957,625
Federal National Mortgage Association........... 7.000% 07/01/29 19,000 18,744,640
Federal National Mortgage Association........... 7.500% 02/01/02-08/01/29 24,001 24,319,035
Federal National Mortgage Association........... 8.000% 03/01/22-03/01/25 816 838,652
Federal National Mortgage Association........... 9.000% 02/01/25-04/01/25 4,374 4,617,443
Government National Mortgage Association........ 7.500% 12/15/25-02/15/26 12,132 12,264,062
Government National Mortgage Association........ 8.000% 09/15/23-02/15/24 5,489 5,655,157
--------------
110,885,014
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 61.0%
Federal Farm Credit Bank........................ 5.900% 01/10/05 5,000 4,896,100
Federal Home Loan Mortgage Association.......... Zero 02/15/06 15,364 10,181,108
Federal Home Loan Mortgage Association.......... Zero 06/01/17 40,000 12,331,200
Federal National Mortgage Association........... 6.060% 05/21/03 30,000 29,601,600
Israel AID...................................... Zero 08/15/09 20,000 11,006,250
Resolution Funding Corp......................... 8.125% 10/15/19 4,200 4,980,948
Small Business Administration Participation
Certicates.................................... 6.000% 09/01/18 7,864 7,814,710
Small Business Administration Participation
Certificates.................................. 6.850% 07/01/17 4,702 4,602,371
Small Business Administration Participation
Certificates.................................. 7.150% 01/01/17 17,407 17,458,763
Small Business Administration Participation
Certificates.................................. 7.200% 10/01/16 17,995 18,085,240
United States Treasury Bonds.................... 7.250% 08/15/22 4,000 4,478,760
United States Treasury Bonds.................... 8.125% 08/15/19 50,000 60,390,500
United States Treasury Bonds.................... 11.750% 02/15/10 16,450 20,837,544
United States Treasury Notes.................... 7.875% 11/15/04 3,000 3,281,250
United States Treasury Notes.................... 10.000% 05/15/10 20,600 24,539,750
--------------
234,486,094
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $374,521,151)......................................................................... 368,941,105
--------------
SHORT-TERM INVESTMENTS -- 10.6%
COMMERCIAL PAPER -- 3.9%
Blue Ridge Asset Funding........................ 5.050% 07/14/99 3,800 3,793,070
Dover Corp...................................... 5.020% 07/14/99 3,800 3,793,112
Thunder Bay Funding, Inc........................ 5.050% 07/14/99 3,800 3,793,070
Triple-A One Funding Corp....................... 5.050% 07/06/99 2,227 2,225,438
Triple-A One Funding Corp....................... 5.050% 07/12/99 1,221 1,219,116
--------------
14,823,806
--------------
REPURCHASE AGREEMENT -- 4.1%
Joint Repurchase Agreement Account (Note 5)..... 4.775% 07/01/99 15,824 15,824,000
--------------
U. S. GOVERNMENT SECURITIES -- 2.6%
United States Treasury Notes.................... 7.750% 12/31/99 10,000 10,128,100
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $40,656,915).......................................................................... 40,775,906
--------------
TOTAL INVESTMENTS -- 106.6%
(cost $415,178,066; Note 6)................................................................. 409,717,011
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS.................................................... (33,125)
LIABILITIES IN EXCESS OF OTHER ASSETS -- (6.6%)............................................... (25,544,442)
--------------
NET ASSETS -- 100.0%.......................................................................... $ 384,139,444
--------------
--------------
</TABLE>
The following abbreviation is used in portfolio descriptions:
AID Agency for International Development
(a) US$ Denominated Foreign Bonds
SEE NOTES TO FINANCIAL STATEMENTS.
B6
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO
June 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 92.4% PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS -- 52.9% RATING (000) (NOTE 2)
------------ ------------- --------------
<S> <C> <C> <C>
AEROSPACE -- 0.8%
Lockheed Martin Corp.,
6.85%, 05/15/01............................... A3 $ 1,900 $ 1,919,741
Raytheon Co.,
5.95%, 03/15/01............................... Baa1 34,900 34,784,481
--------------
36,704,222
--------------
AIRLINES -- 2.9%
Continental Airlines, Inc.,
7.461%, 04/01/15.............................. Aa3 11,691 11,848,390
8.00%, 12/15/05............................... Ba2 4,270 4,075,886
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 14,000 16,608,480
10.375%, 02/01/11............................. Ba1 22,905 27,689,396
United Airlines, Inc.,
10.67%, 05/01/04.............................. Baa3 46,865 52,928,862
11.21%, 05/01/14.............................. Baa3 18,433 23,595,346
--------------
136,746,360
--------------
ASSET-BACKED SECURITIES -- 3.9%
California Infrastructure SCE-1, Ser. 1997-1,
6.14%, 03/25/02............................... Aaa 3,356 3,361,061
6.17%, 03/25/03............................... Aaa 6,000 6,011,220
6.28%, 09/25/05............................... Aaa 7,000 6,964,720
Chase Manhattan Credit Master Trust, Ser.
1996-3,
7.04%, 02/15/05............................... Aaa 15,000 15,201,450
Citibank Credit Card Master Trust I, (c)
6.10%, 05/15/08............................... Aaa 56,500 55,319,150
MBNA Master Card Trust, Ser. 1999-B,
5.90%, 08/15/11............................... Aaa 41,400 39,044,193
Peco Energy Transition Trust, Ser. 1999-A,
5.63%, 03/01/05............................... Aaa 28,000 27,445,320
5.80%, 03/01/07............................... Aaa 14,500 13,963,065
Standard Credit Card Master Trust, Ser. 1993-2,
5.95%, 10/07/04............................... Aaa 4,650 4,555,512
Team Fleet Financing Corp., Ser. 1997-1,
7.35%, 05/15/03............................... Aa2 11,000 11,046,406
--------------
182,912,097
--------------
AUTO-CARS & TRUCKS -- 1.7%
Ford Motor Co.,
6.375%, 02/01/29.............................. A1 16,000 13,889,440
Lear Corp.,
7.96%, 05/15/05............................... Ba1 15,000 14,512,500
TRW, Inc.,
6.45%, 06/15/01............................... Baa1 50,300 50,347,156
--------------
78,749,096
--------------
BANKS AND SAVINGS & LOANS -- 3.4%
Bank of Nova Scotia, (Canada),
6.50%, 07/15/07............................... A1 7,200 7,150,500
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ ------------- --------------
<S> <C> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
Bayerische Landesbank Girozentrale, (Germany),
(c)
5.875%, 12/01/08.............................. Aaa $ 22,000 $ 20,414,020
Capital One Bank,
6.97%, 02/04/02............................... Baa3 25,000 25,130,750
7.08%, 10/30/01............................... Baa3 19,000 19,167,010
Deutsche Bank,
7.872%, 12/29/49.............................. A1 3,300 3,194,796
HSBC Holding PLC,
7.50%, 07/15/09............................... A2 12,100 12,224,993
Kansallis-Osake-Pankki, (Finland),
8.65%, 01/01/49............................... Baa1 10,000 10,023,000
Key Bank,
5.80%, 04/01/04............................... Aa3 30,000 29,025,600
National Australia Bank, (Australia),
6.40%, 12/10/07............................... A1 14,000 13,912,080
Okobank, (Finland),
6.561%, 09/27/49.............................. A3 6,250 6,231,250
7.325%, 10/29/49.............................. NR 9,000 9,000,000
7.70%, 10/29/49............................... NR 3,500 3,500,000
--------------
158,973,999
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.6%
British Sky Broadcasting, Inc.,
6.875%, 02/23/09.............................. Baa2 17,200 15,691,732
Cable & Wire Communications PLC, (United
Kingdom),
6.75%, 12/01/08............................... Baa1 4,200 4,042,962
CSC Holdings, Inc.,
7.25%, 07/15/08............................... Ba2 7,600 7,240,520
7.875%, 12/15/07.............................. Ba2 6,200 6,154,368
Tele-Communications, Inc.,
6.34%, 02/01/02............................... Ba1 12,000 12,034,680
8.25%, 01/15/03............................... Baa3 2,000 2,118,920
9.25%, 04/15/02............................... Baa3 9,500 10,221,810
9.875%, 06/15/22.............................. Baa3 12,900 16,454,853
--------------
73,959,845
--------------
CHEMICALS -- 0.6%
ICI Wilmington Inc.,
9.50%, 11/15/00............................... Baa1 8,000 8,331,120
Lyondell Chemical Co.,
9.625%, 05/01/07.............................. Ba3 6,200 6,339,500
Rohm & Haas Co.,
6.95%, 07/15/04............................... A3 4,000 3,999,040
6.95%, 07/15/04............................... A3 6,100 6,088,593
7.85%, 07/15/29............................... A3 5,200 5,196,204
--------------
29,954,457
--------------
COMPUTERS -- 0.1%
International Business Machine Corp.,
5.625%, 04/12/04.............................. A1 6,000 5,766,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B7
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ ------------- --------------
<S> <C> <C> <C>
CONSULTING -- 1.1%
Comdisco, Inc., M.T.N.,
6.00%, 01/30/02............................... Baa1 $ 30,000 $ 29,579,400
6.375%, 11/30/01.............................. Baa1 21,500 21,443,025
--------------
51,022,425
--------------
CONTAINERS -- 0.6%
Owens-Illinois, Inc.,
7.15%, 05/15/05............................... Ba1 26,000 24,995,880
7.50%, 05/15/10............................... Ba1 800 760,904
--------------
25,756,784
--------------
DIVERSIFIED OPERATIONS -- 1.1%
Cox Enterprises, Inc., (c)
6.625%, 06/14/02.............................. Baa1 7,200 7,195,176
Seagram (J.) & Sons,
5.79%, 04/15/01............................... Baa3 22,800 22,505,880
Tyco International Group, SA,
6.125%, 06/15/01.............................. Baa1 17,725 17,631,235
6.875%, 01/15/29.............................. Baa1 3,000 2,758,470
--------------
50,090,761
--------------
DRUGS & MEDICAL SUPPLIES -- 0.4%
Mallinckrodt, Inc.,
6.30%, 03/15/11 (a)........................... Baa2 16,780 16,486,350
--------------
FINANCIAL SERVICES -- 11.4%
Advanta Corp., M.T.N.,
7.50%, 08/28/00............................... Ba2 35,000 34,438,250
Arkwright Corp.,
9.625%, 08/15/26.............................. Baa3 8,000 8,602,000
BCH Financial Services,
5.496%, 04/28/05.............................. A3 10,000 9,982,100
Bear Stearns & Co.,
6.50%, 07/05/00............................... A2 20,000 20,045,000
Capital One Financial Corp.,
7.25%, 05/01/06............................... Ba1 9,300 9,009,375
CIT Group Inc.,
5.80%, 03/26/02............................... Aa3 16,000 15,754,720
CoMed Transitional Funding Trust,
5.44%, 03/25/07............................... Aaa 24,820 23,718,488
Conseco, Inc.,
7.60%, 06/21/01............................... Ba1 7,000 7,019,670
8.70%, 11/15/26............................... Ba2 2,422 2,170,427
8.796%, 04/01/27.............................. Ba2 4,170 3,773,433
Donaldson Lufkin, & Jenrette Inc.,
5.625%, 02/15/16.............................. Baa1 5,480 5,423,392
Dresdner Funding Trust,
8.15%, 06/30/31............................... Aa2 18,200 17,528,784
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa3 9,000 8,953,200
6.95%, 03/01/04............................... Baa2 17,500 17,253,250
7.50%, 06/15/03............................... Baa3 5,000 5,021,500
Finova Capital Corp.,
6.125%, 03/15/04.............................. Baa1 21,000 20,501,250
First Industrial, L.P.,
6.50%, 04/05/11............................... Baa2 9,000 8,826,210
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ ------------- --------------
<S> <C> <C> <C>
FINANCIAL SERVICES (CONT'D.)
FMR Corp.,
7.57%, 06/15/29............................... Aa3 $ 450 $ 448,380
General Motors Acceptance Corp.,
5.95%, 03/14/03............................... A2 47,000 45,895,030
Goldman Sachs Group, L.P.,
5.56%, 01/11/01............................... A1 6,800 6,749,000
7.80%, 07/15/02............................... A1 15,985 16,528,330
Heller Financial, Inc., (c)
6.00%, 03/19/04............................... A3 6,900 6,679,269
International Lease Finance Corp.,
5.90%, 03/12/03............................... A1 37,500 36,639,750
Lehman Brothers Holdings, Inc.,
6.625%, 04/01/04.............................. Baa1 26,890 26,194,625
6.625%, 02/05/06.............................. Baa1 10,645 10,365,037
Marsh & McLennan Cos., Inc., (c)
6.625%, 06/15/04.............................. A2 6,830 6,839,357
MCN Investment Corp.,
6.30%, 04/02/11............................... Baa2 8,250 8,094,075
Morgan Stanley Dean Witter & Co., M.T.N.,
6.09%, 03/09/11............................... A1 59,915 59,677,737
6.875%, 03/01/03.............................. Aa3 3,000 3,040,500
PaineWebber Group, Inc.,
7.015%, 02/10/04.............................. Baa1 6,000 5,966,160
7.625%, 10/15/08.............................. Baa1 5,000 5,057,350
Salomon, Inc., M.T.N.,
6.59%, 02/21/01............................... Baa1 9,750 9,812,498
6.75%, 02/15/03............................... Baa1 5,000 5,021,050
7.25%, 05/01/01............................... Baa1 8,625 8,780,250
Sears Roebuck Acceptance Corp.,
6.38%, 10/07/02............................... A2 30,650 30,484,490
Textron Financial Corp.,
6.05%, 03/16/09............................... Aaa 17,346 17,295,626
--------------
527,589,563
--------------
FOOD & BEVERAGE -- 0.2%
Archer-Daniels Midland Co.,
6.625%, 05/01/29.............................. Aa3 8,100 7,414,659
Coca-Cola Bottling Co.,
6.375%, 05/01/09.............................. Baa2 3,000 2,815,950
--------------
10,230,609
--------------
FOREST PRODUCTS -- 0.4%
Fort James Corp.,
6.234%, 03/15/11.............................. Baa3 17,500 17,341,625
--------------
INDUSTRIAL -- 0.5%
Compania Sud Americana de Vapores, SA, (Chile),
7.375%, 12/08/03.............................. Baa 4,600 4,367,332
Scotia Pacific Co.,
7.71%, 01/20/14............................... Baa2 23,800 17,255,000
--------------
21,622,332
--------------
LEISURE & TOURISM -- 0.6%
Carnival Corp.,
5.65%, 10/15/00............................... A2 5,000 4,968,700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B8
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ ------------- --------------
<S> <C> <C> <C>
LEISURE & TOURISM (CONT'D.)
ITT Corp.,
6.25%, 11/15/00............................... Baa2 $ 5,253 $ 5,136,541
6.75%, 11/15/03............................... Baa2 21,500 20,164,420
--------------
30,269,661
--------------
MEDIA -- 0.5%
Liberty Media Group,
7.875%, 07/15/09.............................. Baa3 3,200 3,180,928
8.50%, 07/15/29............................... Baa3 3,600 3,590,172
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 6,425 6,565,900
Time Warner, Inc.,
8.11%, 08/15/06............................... Ba1 1,500 1,572,240
United News & Media PLC,
7.25%, 07/01/04............................... Baa2 6,950 6,886,755
--------------
21,795,995
--------------
OIL & GAS -- 0.5%
Atlantic Richfield Co.,
5.55%, 04/15/03............................... A2 11,300 11,055,920
B.J. Services Co.,
7.00%, 02/01/06............................... Ba1 4,000 3,936,080
Conoco Inc.,
5.90%, 04/15/04............................... A3 6,500 6,342,570
--------------
21,334,570
--------------
OIL & GAS SERVICES -- 1.0%
KN Energy Inc.,
6.30%, 03/01/21............................... Baa2 27,550 27,455,228
6.45%, 11/30/01............................... Baa2 11,950 11,969,120
6.45%, 03/01/03............................... Baa2 6,050 5,951,385
--------------
45,375,733
--------------
RAILROADS -- 0.3%
Norfolk Southern Corp.,
6.875%, 05/01/01.............................. Baa1 16,000 16,157,760
--------------
REAL ESTATE INVESTMENT TRUST -- 3.2%
Camden Property Trust,
7.23%, 10/30/00............................... Baa2 22,000 22,024,200
Duke Realty L.P.,
7.30%, 06/30/03............................... Baa2 6,250 6,295,000
EOP Operating, L.P.,
6.375%, 01/15/02.............................. Baa1 7,000 6,910,260
6.50%, 06/15/04............................... Baa1 6,000 5,760,600
6.625%, 02/15/05.............................. Baa 17,938 17,302,636
ERP Operating, L.P.,
6.15%, 09/15/00............................... A3 45,000 44,707,500
6.63%, 04/13/15............................... A3 13,400 12,929,124
7.10%, 06/23/04............................... A3 3,250 3,252,308
Felcor Suite Hotels, Inc.,
7.625%, 10/01/07.............................. Ba1 8,000 7,240,000
Hanson Overseas B.V.,
7.375%, 01/15/03.............................. A3 5,400 5,488,668
Simon Debartolo Group, Inc.,
6.75%, 06/15/05............................... Baa1 17,500 16,804,375
--------------
148,714,671
--------------
RETAIL -- 2.3%
Dayton-Hudson Corp.,
6.40%, 02/15/03............................... A3 8,250 8,211,638
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ ------------- --------------
<S> <C> <C> <C>
RETAIL (CONT'D.)
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. Ba1 $ 25,850 $ 27,038,066
8.50%, 06/15/03............................... Ba1 22,400 23,714,656
Kroger Co.,
6.34%, 06/01/01............................... Baa3 13,950 13,832,297
7.25%, 06/01/09............................... Baa3 8,200 8,164,125
7.70%, 06/01/29 (b)........................... Baa3 2,950 2,920,500
Rite Aid Corp.,
6.70%, 12/15/01............................... A3 5,000 4,983,550
Safeway Stores Inc.,
5.75%, 11/15/00............................... Baa2 6,000 5,966,280
6.05%, 11/15/03............................... Baa2 12,000 11,742,600
--------------
106,573,712
--------------
TELECOMMUNICATIONS -- 3.7%
360 Communication Co.,
7.125%, 03/01/03.............................. Ba2 22,550 22,876,750
7.60%, 04/01/09............................... Ba1 7,000 7,267,050
Airtouch Communications, Inc.,
7.00%, 10/01/03............................... Baa2 8,200 8,350,962
Cox Communications, Inc.,
6.94%, 10/01/01............................... Baa2 4,000 4,030,840
Electric Lightwave, Inc.,
6.05%, 05/15/04............................... A2 4,700 4,544,148
Lucent Technologies, Inc.,
6.45%, 03/15/29............................... A2 15,500 14,021,455
MCI Worldcom Inc.,
6.125%, 04/15/12.............................. Baa2 10,800 10,728,288
7.55%, 04/01/04............................... Ba1 9,535 9,868,820
Sprint Capital Corp.,
5.70%, 11/15/03............................... Baa1 11,000 10,542,070
6.125%, 11/15/08.............................. Baa1 25,000 23,072,250
Telecom De Puerto Rico,
6.65%, 05/15/06............................... Baa2 15,000 14,566,050
6.80%, 05/15/09............................... Baa2 12,500 12,007,875
Worldcom Inc.,
6.125%, 08/15/01.............................. Baa2 14,200 14,155,128
6.95%, 08/15/28............................... Baa2 16,000 15,167,200
--------------
171,198,886
--------------
UTILITIES -- 1.0%
CINergy Corp.,
6.125%, 04/15/04.............................. Baa2 10,000 9,673,500
Commonwealth Edison Co.,
7.375%, 01/15/04.............................. Baa3 14,000 14,358,260
Edison Mission Energy,
7.73%, 06/15/09............................... A3 6,900 6,971,484
Niagara Mohawk Power,
7.375%, 08/01/03.............................. Ba2 10,000 10,244,700
Pennsylvania Electric Co.,
5.75%, 04/01/04............................... A2 5,100 4,944,756
--------------
46,192,700
--------------
WASTE MANAGEMENT -- 0.4%
USA Waste Service,
6.125%, 07/15/01.............................. Baa3 18,000 17,892,180
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B9
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ ------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 7.4%
United States Treasury Bonds,
5.25%, 11/15/28............................... $ 157,395 $ 139,516,502
8.125%, 05/15/21.............................. 64,400 78,426,964
United States Treasury Notes,
4.75%, 02/15/04............................... 3,600 3,462,732
4.75%, 11/15/08............................... 55,500 50,964,540
5.25%, 05/15/04............................... 2,120 2,083,239
5.50%, 05/15/09............................... 40,320 39,387,398
5.875%, 11/15/05 (b).......................... 1,800 1,800,000
6.50%, 05/15/05............................... 4,700 4,843,914
7.50%, 02/15/05............................... 21,700 23,361,352
--------------
343,846,641
--------------
FOREIGN GOVERNMENT BONDS -- 1.3%
Quebec Province, (Canada),
7.50%, 07/15/23............................... A1 8,700 8,844,942
Republic Of Columbia, (Columbia),
9.75%, 04/23/09............................... Baa3 6,200 5,115,000
Republic of Panama, (Panama),
4.00%, 07/17/14............................... Ba1 12,500 9,390,625
Republic Of Philippines, (Philippines),
8.875%, 04/15/08.............................. Ba1 7,600 7,395,104
Republic of Poland, (Poland),
4.00%, 10/27/24............................... Baa3 8,500 5,482,500
United Mexican States, (Mexico),
10.375%, 02/17/09............................. NR 25,400 25,476,200
--------------
61,704,371
--------------
TOTAL LONG-TERM BONDS
(cost $2,496,469,893)........................................................ 2,454,963,405
--------------
VALUE
COMMON STOCKS -- 38.7% SHARES (NOTE 2)
------------- --------------
AEROSPACE -- 0.7%
AlliedSignal, Inc............................................. 72,300 4,554,900
Boeing Co..................................................... 122,100 5,395,294
GenCorp, Inc.................................................. 98,400 2,484,600
General Dynamics Corp......................................... 17,300 1,185,050
Goodrich (B.F.) Co............................................ 8,300 352,750
Litton Industries, Inc. (b)................................... 77,600 5,567,800
Lockheed Martin Corp.......................................... 52,700 1,963,075
Northrop Grumman Corp......................................... 8,000 530,500
Parker-Hannifin Corp.......................................... 56,825 2,599,744
Raytheon Co. (Class "B" Stock)................................ 42,900 3,019,087
United Technologies Corp...................................... 60,200 4,315,587
--------------
31,968,387
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AIRLINES -- 0.4%
AMR Corp. (b)................................................. 177,400 $ 12,107,550
Delta Air Lines, Inc.......................................... 17,500 1,008,437
Southwest Airlines Co......................................... 42,700 1,329,037
US Airways Group, Inc. (b).................................... 124,500 5,423,531
--------------
19,868,555
--------------
APPAREL -- 0.1%
Fruit Of The Loom, Inc. (Class "A" Stock) (b)................. 84,100 819,975
Nike, Inc. (Class "B" Stock).................................. 36,800 2,329,900
Reebok International Ltd...................................... 8,800 163,900
--------------
3,313,775
--------------
AUTOS - CARS & TRUCKS -- 0.7%
Cummins Engine Co., Inc....................................... 6,000 342,750
Dana Corp..................................................... 21,900 1,008,769
Delphi Automotive Systems Corp. (b)........................... 132,252 2,454,928
Ford Motor Co................................................. 214,500 12,105,844
General Motors Corp........................................... 183,500 12,111,000
Genuine Parts Co.............................................. 23,200 812,000
MascoTech, Inc................................................ 94,400 1,598,900
Midas, Inc.................................................... 22,100 627,087
Navistar International Corp. (b).............................. 7,200 360,000
PACCAR, Inc................................................... 9,400 501,725
Titan International, Inc...................................... 101,250 1,202,344
TRW, Inc...................................................... 16,300 894,462
--------------
34,019,809
--------------
BANKS AND SAVINGS & LOANS -- 2.1%
AmSouth Bancorporation........................................ 24,000 556,500
Banc One Corp................................................. 153,072 9,117,351
Bank of New York Co., Inc..................................... 97,800 3,588,037
BankAmerica Corp.............................................. 225,261 16,514,447
BankBoston Corp............................................... 39,000 1,993,875
BB&T Corp..................................................... 40,600 1,489,512
Chase Manhattan Corp.......................................... 110,100 9,537,412
Comerica, Inc................................................. 20,000 1,188,750
First Union Corp.............................................. 129,000 6,063,000
Firstar Corp.................................................. 90,000 2,520,000
Fleet Financial Group, Inc.................................... 74,000 3,283,750
Golden West Financial Corp.................................... 7,300 715,400
Huntington Bancshares, Inc.................................... 28,600 1,001,000
KeyCorp....................................................... 59,400 1,908,225
Mellon Bank Corp.............................................. 66,800 2,429,850
Mercantile Bancorporation, Inc................................ 20,200 1,153,925
Morgan (J.P.) & Co., Inc...................................... 22,800 3,203,400
National City Corp............................................ 41,900 2,744,450
Northern Trust Corp........................................... 14,300 1,387,100
PNC Bank Corp................................................. 39,200 2,258,900
Providian Financial Corp...................................... 18,950 1,771,825
Regions Financial Corp........................................ 30,000 1,153,125
Republic New York Corp........................................ 14,000 954,625
SouthTrust Corp............................................... 20,000 767,500
Summit Bancorp................................................ 23,800 995,137
Suntrust Banks, Inc........................................... 40,900 2,839,994
Synovus Financial Corp........................................ 35,250 700,594
U.S. Bancorp.................................................. 94,900 3,226,600
Union Planters Corp........................................... 17,000 759,687
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B10
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
Wachovia Corp................................................. 25,700 $ 2,198,956
Wells Fargo & Co.............................................. 214,000 9,148,500
--------------
97,171,427
--------------
BUSINESS SERVICES -- 0.1%
Equifax, Inc.................................................. 19,600 699,475
Omnicom Group, Inc............................................ 21,400 1,712,000
--------------
2,411,475
--------------
CHEMICALS -- 0.8%
Air Products & Chemicals, Inc................................. 28,800 1,159,200
Dow Chemical Co............................................... 29,300 3,717,437
Du Pont (E.I.) de Nemours & Co................................ 146,500 10,007,781
Eastman Chemical Co........................................... 9,300 481,275
Engelhard Corp................................................ 22,600 511,325
Ferro Corp.................................................... 134,900 3,709,750
FMC Corp. (b)................................................. 4,900 334,731
Grace (W.R.) & Co............................................. 11,600 213,150
Great Lakes Chemical Corp..................................... 6,400 294,800
Hercules, Inc................................................. 15,100 593,619
Lyondell Chemical Co.......................................... 81,700 1,685,062
Millennium Chemicals, Inc. (b)................................ 146,527 3,452,542
Monsanto Co................................................... 80,300 3,166,831
Nalco Chemical Co............................................. 10,400 539,500
OM Group, Inc................................................. 63,300 2,183,850
Praxair, Inc.................................................. 20,700 1,013,006
Raychem Corp.................................................. 11,300 418,100
Rohm & Haas Co................................................ 29,511 1,265,286
Sigma-Aldrich Corp............................................ 12,700 437,356
Union Carbide Corp............................................ 16,700 814,125
--------------
35,998,726
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp. (b)............................................. 96,500 1,978,250
Deluxe Corp................................................... 8,600 334,862
--------------
2,313,112
--------------
COMPUTER SERVICES -- 3.0%
3Com Corp. (b)................................................ 48,500 1,294,344
Adobe Systems, Inc............................................ 7,300 599,741
America Online, Inc. (b)...................................... 138,700 15,326,350
Autodesk, Inc................................................. 7,300 215,806
Automatic Data Processing, Inc................................ 80,000 3,520,000
BMC Software, Inc. (b)........................................ 30,700 1,657,800
Cabletron Systems, Inc. (b)................................... 24,800 322,400
Ceridian Corp. (b)............................................ 20,600 673,362
Cisco Systems, Inc. (b)....................................... 411,000 26,509,500
Computer Associates International, Inc........................ 70,500 3,877,500
Computer Sciences Corp. (b)................................... 20,000 1,383,750
Compuware Corp. (a)........................................... 48,000 1,527,000
Electronic Data Systems Corp.................................. 64,900 3,670,906
EMC Corp. (b)................................................. 130,600 7,183,000
First Data Corp............................................... 56,200 2,750,287
Microsoft Corp. (b)........................................... 660,900 59,604,919
Novell, Inc. (b).............................................. 41,900 1,110,350
Oracle Corp. (b).............................................. 187,400 6,957,225
Parametric Technology Corp. (b)............................... 40,200 557,775
Peoplesoft, Inc............................................... 30,000 517,500
Silicon Graphics, Inc. (b).................................... 20,600 337,325
Unisys Corp................................................... 34,400 1,339,450
--------------
140,936,290
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
COMPUTERS -- 1.5%
Apple Computer, Inc. (b)...................................... 17,800 $ 824,362
Compaq Computer Corp.......................................... 219,589 5,201,514
Data General Corp. (b)........................................ 7,600 110,675
Dell Computer Corp. (b)....................................... 331,200 12,254,400
Gateway 2000, Inc. (b)........................................ 20,600 1,215,400
Hewlett-Packard Co............................................ 132,100 13,276,050
International Business Machines Corp.......................... 238,200 30,787,350
Networking Appliance, Inc. (b)................................ 2,000 111,750
Seagate Technology, Inc. (b).................................. 33,200 850,750
Sun Microsystems, Inc. (b).................................... 100,300 6,908,162
--------------
71,540,413
--------------
CONSTRUCTION -- 0.2%
Centex Corp................................................... 9,300 349,331
Fluor Corp.................................................... 9,400 380,700
Foster Wheeler Corp........................................... 6,400 90,400
Giant Cement Holdings, Inc. (b)............................... 58,100 1,329,037
Oakwood Homes Corp............................................ 139,300 1,828,312
Pulte Corp.................................................... 6,600 152,212
Standard Pacific Corp......................................... 154,000 1,992,375
Webb (Del E.) Corp............................................ 140,300 3,349,662
--------------
9,472,029
--------------
CONTAINERS -- 0.1%
Ball Corp..................................................... 4,700 198,575
Bemis Co., Inc................................................ 8,300 329,925
Crown Cork & Seal Co., Inc.................................... 15,100 430,350
Owens-Illinois, Inc. (b)...................................... 76,600 2,503,862
Sealed Air Corp............................................... 10,100 655,237
--------------
4,117,949
--------------
COSMETICS & SOAPS -- 0.6%
Alberto Culver Co. (Class "B" Stock).......................... 5,900 157,087
Avon Products, Inc............................................ 34,700 1,925,850
Colgate-Palmolive Co.......................................... 38,900 3,841,375
Gillette Co................................................... 144,400 5,920,400
International Flavors & Fragrances, Inc....................... 13,600 603,500
Procter & Gamble Co........................................... 172,800 15,422,400
--------------
27,870,612
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.5%
Eastman Kodak Co.............................................. 78,100 5,291,275
Philip Morris Co., Inc........................................ 424,400 17,055,575
--------------
22,346,850
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.2%
Avery Dennison Corp........................................... 14,700 887,512
Pitney Bowes, Inc............................................. 37,000 2,377,250
Xerox Corp.................................................... 85,400 5,043,937
--------------
8,308,699
--------------
DIVERSIFIED OPERATIONS -- 1.1%
ConAgra, Inc.................................................. 65,000 1,730,625
Fortune Brands, Inc........................................... 22,300 922,662
General Electric Capital Corp................................. 425,600 48,092,800
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B11
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
DIVERSIFIED OPERATIONS (CONT'D.)
Kansas City Southern Industries, Inc.......................... 13,300 $ 848,706
Tomkins PLC, ADR, (United Kingdom)............................ 83,300 1,520,225
--------------
53,115,018
--------------
DRUGS AND MEDICAL SUPPLIES -- 3.3%
Abbott Laboratories........................................... 197,500 8,986,250
Allergan, Inc................................................. 8,500 943,500
ALZA Corp. (b)................................................ 11,500 585,062
American Home Products Corp................................... 171,600 9,867,000
Amgen, Inc. (b)............................................... 66,300 4,036,012
Bard (C.R.), Inc.............................................. 5,700 272,531
Bausch & Lomb, Inc............................................ 7,400 566,100
Baxter International, Inc..................................... 36,900 2,237,062
Becton, Dickinson & Co........................................ 33,800 1,014,000
Biomet, Inc................................................... 13,700 544,575
Boston Scientific Corp. (b)................................... 51,300 2,253,994
Bristol-Myers Squibb Co....................................... 258,700 18,222,181
Cardinal Health, Inc.......................................... 36,700 2,353,387
Guidant Corp.................................................. 39,800 2,047,212
Johnson & Johnson............................................. 175,000 17,150,000
Lilly (Eli) & Co.............................................. 143,100 10,249,537
Mallinckrodt, Inc............................................. 11,400 414,675
Medtronic, Inc................................................ 76,000 5,918,500
Merck & Co., Inc.............................................. 308,600 22,836,400
Pfizer, Inc................................................... 168,900 18,536,775
Pharmacia & Upjohn, Inc....................................... 68,000 3,863,250
Schering-Plough Corp.......................................... 191,300 10,138,900
St. Jude Medical, Inc. (b).................................... 9,400 334,875
Warner-Lambert Co............................................. 106,900 7,416,187
Watson Pharmaceuticals, Inc. (b).............................. 11,000 385,687
--------------
151,173,652
--------------
ELECTRONICS -- 0.5%
Applied Materials, Inc. (b)................................... 48,000 3,546,000
Belden, Inc................................................... 67,100 1,606,206
EG&G, Inc..................................................... 7,100 252,937
Emerson Electric Co........................................... 56,300 3,539,862
Grainger (W.W.), Inc.......................................... 12,300 661,894
Harris Corp................................................... 8,900 348,769
Honeywell, Inc................................................ 15,900 1,842,412
Motorola, Inc................................................. 78,100 7,399,975
Rockwell International Corp................................... 25,100 1,524,825
Solectron Corp................................................ 33,600 2,240,700
Tektronix, Inc................................................ 7,900 238,481
Thomas & Betts Corp........................................... 8,600 406,350
--------------
23,608,411
--------------
FINANCIAL SERVICES -- 2.4%
American Express Co........................................... 58,900 7,664,362
Associates First Capital Corp................................. 97,144 4,304,693
Bear Stearns Companies, Inc................................... 13,825 646,319
Block (H.R.), Inc............................................. 13,300 665,000
Capital One Financial Corp.................................... 25,200 1,403,325
Citigroup, Inc................................................ 516,150 24,517,125
Countrywide Credit Industries, Inc............................ 14,600 624,150
Dun & Bradstreet Corp......................................... 22,600 800,887
Federal Home Loan Mortgage Corp............................... 88,300 5,121,400
Federal National Mortgage Association......................... 135,000 9,230,625
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES (CONT'D.)
Fifth Third Bancorp........................................... 35,200 $ 2,343,000
Franklin Resource, Inc........................................ 32,900 1,336,562
Goldman Sachs Group, Inc. (b)................................. 13,200 953,700
Household International, Inc.................................. 61,952 2,934,976
Lehman Brothers Holdings, Inc................................. 185,900 11,572,275
MBNA Corp..................................................... 105,750 3,238,594
Merrill Lynch & Co., Inc...................................... 103,900 8,305,506
Morgan Stanley Dean Witter & Co............................... 129,190 13,241,975
PaineWebber Group, Inc........................................ 13,000 607,750
Paychex, Inc.................................................. 34,500 1,099,687
Schwab (Charles) Corp. (b).................................... 52,200 5,735,475
SLM Holding Corp.............................................. 21,400 980,387
State Street Corp............................................. 21,400 1,827,025
Transamerica Corp............................................. 15,600 1,170,000
Washington Mutual, Inc........................................ 77,178 2,730,172
--------------
113,054,970
--------------
FOOD & BEVERAGES -- 1.4%
Anheuser-Busch Companies, Inc................................. 62,200 4,412,312
Archer-Daniels-Midland Co..................................... 75,275 1,162,058
Bestfoods..................................................... 36,400 1,801,800
Brown-Forman Corp. (Class "B" Stock).......................... 8,700 567,131
Campbell Soup Co.............................................. 57,500 2,666,562
Coca Cola Enterprises, Inc.................................... 53,800 1,600,550
Coca-Cola Co.................................................. 320,900 20,056,250
Coors (Adolph) Co. (Class "B" Stock).......................... 4,800 237,600
General Mills, Inc............................................ 21,100 1,695,912
Heinz (H.J.) & Co............................................. 46,500 2,330,812
Hershey Foods Corp............................................ 18,300 1,086,562
Kellogg Co.................................................... 52,000 1,716,000
Nabisco Group Holdings Corp................................... 324,400 6,346,075
PepsiCo, Inc.................................................. 191,000 7,389,312
Pioneer Hi-Bred International, Inc............................ 32,200 1,253,787
Quaker Oats Co................................................ 17,600 1,168,200
Ralston-Ralston Purina Group.................................. 43,400 1,320,987
Sara Lee Corp................................................. 118,700 2,693,006
Seagram Co., Ltd.............................................. 52,800 2,659,800
Sysco Corp.................................................... 41,900 1,249,144
Whitman Corp.................................................. 132,800 2,390,400
Wrigley (William) Jr. Co...................................... 15,000 1,350,000
--------------
67,154,260
--------------
FOREST PRODUCTS -- 0.7%
Boise Cascade Corp............................................ 152,000 6,517,000
Champion International Corp................................... 106,400 5,093,900
Fort James Corp............................................... 28,200 1,068,075
Georgia-Pacific Corp.......................................... 57,400 2,719,325
International Paper Co........................................ 54,121 2,733,110
Louisiana-Pacific Corp........................................ 188,700 4,481,625
Mead Corp..................................................... 107,900 4,504,825
Potlatch Corp................................................. 4,500 197,719
Temple-Inland, Inc............................................ 6,600 450,450
Westvaco Corp................................................. 13,000 377,000
Weyerhaeuser Co............................................... 26,500 1,821,875
Willamette Industries, Inc.................................... 82,700 3,809,369
--------------
33,774,273
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group......................................... 10,300 645,681
Consolidated Natural Gas Co................................... 12,500 759,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B12
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
GAS PIPELINES (CONT'D.)
Peoples Energy Corp........................................... 5,500 $ 207,281
Sempra Energy................................................. 33,699 762,440
Sonat, Inc.................................................... 13,100 433,937
Williams Companies, Inc....................................... 54,400 2,315,400
--------------
5,124,114
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.5%
Columbia/HCA Healthcare Corp.................................. 284,100 6,481,031
HEALTHSOUTH Corp. (b)......................................... 51,600 770,775
Humana, Inc. (b).............................................. 197,200 2,551,275
IMS Health, Inc............................................... 42,700 1,334,375
LifePoint Hospitals, Inc. (b)................................. 10,552 141,792
Manor Care, Inc............................................... 13,000 314,437
McKesson HBOC, Inc............................................ 35,530 1,141,401
Service Corp. International................................... 39,400 758,450
Shared Medical Systems Corp................................... 4,100 267,525
Smith (A.O.) Corp............................................. 105,450 2,952,600
Tenet Healthcare Corp. (b).................................... 230,200 4,273,088
Triad Hospitals, Inc. (b)..................................... 10,552 142,452
Wellpoint Health Networks Inc................................. 6,000 509,250
--------------
21,638,451
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.2%
Clorox Co..................................................... 14,900 1,591,506
Kimberly-Clark Corp........................................... 70,100 3,995,700
Leggett & Platt, Inc.......................................... 114,700 3,190,094
--------------
8,777,300
--------------
HOUSING RELATED -- 0.6%
Armstrong World Industries, Inc............................... 4,100 237,031
Fleetwood Enterprises, Inc.................................... 3,400 89,888
Hanson, PLC, ADR, (United Kingdom)............................ 309,562 13,736,814
Kaufman & Broad Home Corp..................................... 6,100 151,738
Lowe's Companies, Inc......................................... 48,200 2,732,338
Masco Corp.................................................... 42,900 1,238,738
Maytag Corp................................................... 12,400 864,125
Newell Rubbermaid Inc......................................... 36,814 1,711,851
Owens Corning................................................. 106,900 3,674,688
Stanley Works................................................. 11,000 354,063
Tupperware Corp............................................... 9,600 244,800
Whirlpool Corp................................................ 9,500 703,000
--------------
25,739,074
--------------
INSTRUMENTS - CONTROLS
Johnson Controls, Inc......................................... 10,900 755,506
PE Corp-PE Biosystems Group................................... 6,100 699,975
--------------
1,455,481
--------------
INSURANCE -- 1.6%
Aetna, Inc.................................................... 19,400 1,735,088
AFLAC Inc..................................................... 30,000 1,436,250
Allstate Corp................................................. 106,300 3,813,513
American General Corp......................................... 33,500 2,525,063
American International Group, Inc............................. 159,863 18,713,962
Aon Corp...................................................... 32,500 1,340,625
Berkley (W.R.) Corp........................................... 42,400 1,060,000
Chubb Corp.................................................... 76,000 5,282,000
CIGNA Corp.................................................... 27,400 2,438,600
Cincinnati Financial Corp..................................... 21,800 818,863
Conseco, Inc.................................................. 41,821 1,272,927
Financial Security Assurance Holdings Ltd..................... 34,000 1,768,000
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
INSURANCE (CONT'D.)
Hartford Financial Services Group, Inc........................ 31,500 $ 1,836,844
Jefferson-Pilot Corp.......................................... 14,500 959,719
Lincoln National Corp......................................... 25,800 1,349,663
Loews Corp.................................................... 43,700 3,457,763
Marsh & McLennan Companies, Inc............................... 33,100 2,499,050
MBIA, Inc..................................................... 13,000 841,750
MGIC Investment Corp.......................................... 13,900 675,888
Progressive Corp.............................................. 10,100 1,464,500
Provident Companies, Inc...................................... 17,000 680,000
Reinsurance Group of America, Inc............................. 173,325 6,109,706
SAFECO Corp................................................... 102,900 4,540,463
St. Paul Companies, Inc....................................... 31,900 1,014,819
Torchmark Corp................................................ 118,400 4,040,400
Trenwick Group, Inc........................................... 64,850 1,598,958
United Healthcare Corp........................................ 23,700 1,484,213
UNUM Corp..................................................... 18,500 1,012,875
--------------
75,771,502
--------------
LEISURE -- 0.3%
Brunswick Corp................................................ 9,000 250,875
Carnival Corp. (Class "A" Stock).............................. 82,500 4,001,250
Disney (Walt) Co.............................................. 267,600 8,245,425
Harrah's Entertainment, Inc. (b).............................. 15,800 347,600
Hilton Hotels Corp............................................ 30,300 429,881
King World Productions, Inc................................... 11,500 400,344
Marriott International, Inc. (Class "A" Stock)................ 31,600 1,181,050
Mirage Resorts, Inc. (b)...................................... 23,600 395,300
--------------
15,251,725
--------------
MACHINERY -- 0.4%
Briggs & Stratton Corp........................................ 3,900 225,225
Case Corp..................................................... 96,800 4,658,500
Caterpillar, Inc.............................................. 46,000 2,760,000
Commercial Intertech Corp..................................... 28,300 451,031
Cooper Industries, Inc........................................ 12,800 665,600
Deere & Co.................................................... 30,700 1,216,488
Dover Corp.................................................... 27,900 976,500
DT Industries, Inc............................................ 35,800 328,913
Eaton Corp.................................................... 9,200 846,400
Flowserve Corp................................................ 39,486 747,766
Global Industrial Technologies, Inc. (b)...................... 61,400 740,638
Ingersoll-Rand Co............................................. 21,400 1,382,975
Milacron, Inc................................................. 6,300 116,550
Paxar Corp.................................................... 229,925 2,069,325
Snap-On, Inc.................................................. 9,500 343,781
Timken Co..................................................... 9,900 193,050
--------------
17,722,742
--------------
MANUFACTURING -- 0.3%
Hussmann International, Inc................................... 66,400 1,099,750
Illinois Tool Works, Inc...................................... 32,000 2,624,000
Tyco International Ltd........................................ 106,222 10,064,535
--------------
13,788,285
--------------
MEDIA -- 1.2%
CBS Corp. (b)................................................. 156,700 6,806,656
Central Newspapers, Inc. (Class "A" Stock).................... 100,000 3,762,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B13
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MEDIA (CONT'D.)
Clear Channel Communications, Inc. (b)........................ 42,300 $ 2,916,056
Comcast Corp. (Special Class "A" Stock)....................... 96,300 3,701,531
Donnelley (R.R.) & Sons Co.................................... 18,600 689,363
Dow Jones & Co., Inc.......................................... 12,000 636,750
Gannett Co., Inc.............................................. 35,800 2,555,225
Houghton Mifflin Co........................................... 58,700 2,762,569
Interpublic Group of Companies, Inc........................... 17,800 1,541,925
Knight-Ridder, Inc............................................ 67,800 3,724,763
Lee Enterprises, Inc.......................................... 50,900 1,552,450
McGraw-Hill, Inc.............................................. 25,600 1,380,800
Mediaone Group, Inc........................................... 79,000 5,875,625
Meredith Corp................................................. 8,300 287,388
New York Times Co. (Class "A" Stock).......................... 25,500 938,719
Time Warner, Inc.............................................. 156,700 11,517,450
Times Mirror Co. (Class "A" Stock)............................ 8,900 527,325
Tribune Co.................................................... 15,000 1,306,875
Viacom, Inc. (Class "B" Stock) (b)............................ 89,800 3,951,200
--------------
56,435,170
--------------
METALS - FERROUS -- 0.3%
AK Steel Holding Corp......................................... 146,900 3,305,250
Allegheny Teledyne, Inc....................................... 24,400 552,050
Bethlehem Steel Corp. (b)..................................... 241,500 1,856,531
LTV Corp...................................................... 204,900 1,370,269
Material Sciences Corp. (b)................................... 96,900 1,453,500
National Steel Corp. (Class "B" Stock) (b).................... 36,000 301,500
Nucor Corp.................................................... 10,500 498,094
USX-U.S. Steel Group, Inc..................................... 87,600 2,365,200
Worthington Industries, Inc................................... 9,200 151,225
--------------
11,853,619
--------------
METALS - NON FERROUS -- 0.5%
Alcan Aluminum Ltd............................................ 29,500 942,156
Alcoa, Inc.................................................... 327,900 20,288,813
Cyprus Amax Minerals Co....................................... 14,600 221,738
Inco Ltd...................................................... 26,200 471,600
Reynolds Metals Co............................................ 8,200 483,800
--------------
22,408,107
--------------
MINERAL RESOURCES
ASARCO, Inc................................................... 6,300 118,519
Burlington Resources, Inc..................................... 23,300 1,007,725
Homestake Mining Co........................................... 33,100 271,006
Phelps Dodge Corp............................................. 7,000 433,563
--------------
1,830,813
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.4%
AES Corp...................................................... 24,000 1,395,000
Coltec Industries, Inc........................................ 43,700 947,744
Crane Co...................................................... 10,800 339,525
Danaher Corp.................................................. 17,400 1,011,375
Donaldson Co., Inc............................................ 109,200 2,675,400
Ecolab, Inc................................................... 16,700 728,538
IDEX Corp..................................................... 60,100 1,975,788
ITT Industries, Inc........................................... 10,700 407,938
Laidlaw, Inc.................................................. 51,500 379,813
Mark IV Industries, Inc....................................... 86,542 1,828,200
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MISCELLANEOUS - BASIC INDUSTRY (CONT'D.)
Millipore Corp................................................ 6,800 $ 275,825
NACCO Industries, Inc. (Class "A" Stock)...................... 1,300 95,550
Pall Corp..................................................... 18,500 410,469
PPG Industries, Inc........................................... 22,800 1,346,625
Textron, Inc.................................................. 20,400 1,679,175
Thermo Electron Corp. (b)..................................... 20,900 419,306
Trinity Industries, Inc....................................... 52,200 1,748,700
Wolverine Tube, Inc. (b)...................................... 37,000 929,625
York International Corp....................................... 27,000 1,155,938
--------------
19,750,534
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.3%
American Greetings Corp. (Class "A" Stock).................... 11,400 343,425
Black & Decker Corp........................................... 12,100 763,813
Corning, Inc.................................................. 30,200 2,117,775
Jostens, Inc.................................................. 6,100 128,481
Minnesota Mining & Manufacturing Co........................... 52,200 4,538,138
Polaroid Corp................................................. 7,000 193,375
Unilever N.V., ADR, (United Kingdom).......................... 74,418 5,190,645
--------------
13,275,652
--------------
MISCELLANEOUS - INDUSTRIAL
Tenneco, Inc.................................................. 22,000 525,250
--------------
OIL & GAS -- 1.9%
Amerada Hess Corp............................................. 11,100 660,450
Anadarko Petroleum Corp....................................... 15,100 555,869
Ashland, Inc.................................................. 11,800 473,475
Atlantic Richfield Co......................................... 42,400 3,543,050
Basin Exploration, Inc. (b)................................... 17,400 349,088
Cabot Oil & Gas Corp. (Class "A" Stock)....................... 88,600 1,650,175
Chevron Corp.................................................. 84,900 8,081,419
Coastal Corp.................................................. 28,600 1,144,000
Eastern Enterprises........................................... 3,200 127,200
Enron Oil & Gas Co............................................ 48,400 980,100
Exxon Corp.................................................... 316,500 24,410,063
Kerr-McGee Corp............................................... 10,525 528,223
Mobil Corp.................................................... 101,500 10,048,500
Murphy Oil Corp............................................... 27,600 1,347,225
NICOR, Inc.................................................... 7,600 289,275
Noble Affiliates, Inc......................................... 50,900 1,434,744
Ocean Energy Inc.............................................. 63,700 613,113
Phillips Petroleum Co......................................... 34,500 1,735,781
Pioneer Natural Resources Co.................................. 334,644 3,681,084
Royal Dutch Petroleum Co...................................... 279,100 16,815,775
Sunoco, Inc................................................... 10,100 304,894
Texaco, Inc................................................... 69,500 4,343,750
Union Pacific Resources Group, Inc............................ 29,700 484,481
Unocal Corp................................................... 33,300 1,319,513
USX-Marathon Group............................................ 39,900 1,299,244
Western Gas Resources, Inc.................................... 103,000 1,648,000
--------------
87,868,491
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.2%
Elf Aquitaine SA, ADR, (France)............................... 124,800 9,180,600
Occidental Petroleum Corp..................................... 46,000 971,750
--------------
10,152,350
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B14
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS SERVICES -- 0.5%
Apache Corp................................................... 15,000 $ 585,000
Baker Hughes, Inc............................................. 43,050 1,442,175
Enron Corp.................................................... 45,700 3,735,975
Halliburton Co................................................ 55,500 2,511,375
Helmerich & Payne, Inc........................................ 7,900 188,119
McDermott International, Inc.................................. 403,600 11,401,700
ONEOK, Inc.................................................... 4,900 155,575
Rowan Companies, Inc. (b)..................................... 13,600 250,750
Schlumberger Ltd.............................................. 70,800 4,509,075
--------------
24,779,744
--------------
PRECIOUS METALS -- 0.1%
Apex Silver Mines Ltd......................................... 82,200 1,017,225
Barrick Gold Corp............................................. 50,600 980,375
Battle Mountain Gold Co....................................... 36,000 87,750
Freeport-McMoRan Copper & Gold, Inc. (Class "B" Stock)........ 21,300 382,069
Newmont Mining Corp........................................... 24,500 486,938
Placer Dome, Inc.............................................. 32,700 386,269
Stillwater Mining Co. (b)..................................... 75,000 2,451,563
--------------
5,792,189
--------------
RAILROADS -- 0.1%
Burlington Northern Santa Fe Corp............................. 60,700 1,881,700
CSX Corp...................................................... 27,600 1,250,625
Norfolk Southern Corp......................................... 50,200 1,512,275
Union Pacific Corp............................................ 32,500 1,895,156
--------------
6,539,756
--------------
REAL ESTATE INVESTMENT TRUST -- 0.3%
Crescent Real Estate Equities Co.............................. 336,700 7,996,625
Equity Residential Properties Trust........................... 37,700 1,698,856
Vornado Realty Trust (b)...................................... 185,200 6,539,875
--------------
16,235,356
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc....................................... 18,200 396,988
McDonald's Corp............................................... 176,100 7,275,131
Tricon Global Restaurants, Inc. (b)........................... 19,000 1,028,375
Wendy's International, Inc.................................... 15,500 438,844
--------------
9,139,338
--------------
RETAIL -- 2.6%
Albertson's, Inc.............................................. 56,466 2,911,528
AutoZone, Inc. (b)............................................ 19,800 596,475
Best Buy Co., Inc. (b)........................................ 10,000 675,000
Charming Shoppes, Inc. (b).................................... 811,300 4,943,859
Circuit City Stores, Inc...................................... 12,900 1,199,700
Consolidated Stores Corp...................................... 12,400 334,800
Costco Companies, Inc. (b).................................... 29,400 2,353,838
CVS Corp...................................................... 50,400 2,557,800
Dayton-Hudson Corp............................................ 56,600 3,679,000
Dillard's, Inc................................................ 43,700 1,534,963
Dollar General Corporation.................................... 28,125 815,625
Federated Department Stores, Inc. (b)......................... 26,400 1,397,550
Great Atlantic & Pacific Tea Co., Inc......................... 6,000 202,875
Harcourt General, Inc......................................... 8,000 412,500
Home Depot, Inc............................................... 191,900 12,365,556
IKON Office Solutions, Inc.................................... 21,100 316,500
J.C. Penney Co., Inc.......................................... 35,300 1,714,256
Kmart Corp. (b)............................................... 644,400 10,592,325
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
RETAIL (CONT'D.)
Kohl's Corp. (b).............................................. 20,300 $ 1,566,906
Kroger Co. (b)................................................ 111,246 3,107,935
Liz Claiborne, Inc............................................ 10,500 383,250
Longs Drug Stores, Inc........................................ 6,100 210,831
May Department Stores Co...................................... 44,300 1,810,763
Nordstrom, Inc................................................ 20,300 680,050
Office Depot, Inc............................................. 22,500 496,406
Pep Boys - Manny, Moe & Jack.................................. 8,927 193,046
Rite Aid Corp................................................. 31,400 773,225
Safeway, Inc. (b)............................................. 62,900 3,113,550
Sears, Roebuck & Co........................................... 51,000 2,272,688
Sherwin-Williams Co........................................... 21,800 604,950
Staples, Inc. (b)............................................. 59,500 1,840,781
Supervalu, Inc................................................ 13,000 333,938
Tandy Corp.................................................... 27,200 1,329,400
The Gap, Inc.................................................. 111,300 5,606,738
The Limited, Inc.............................................. 222,253 10,084,730
TJX Companies, Inc............................................ 40,600 1,352,488
Toys 'R' Us, Inc. (b)......................................... 121,600 2,515,600
Wal-Mart Stores, Inc.......................................... 578,800 27,927,100
Walgreen Co................................................... 127,700 3,751,188
Winn-Dixie Stores, Inc........................................ 20,100 742,444
--------------
119,302,157
--------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co....................................... 12,300 290,588
Goodyear Tire & Rubber Co..................................... 59,400 3,493,463
--------------
3,784,051
--------------
SEMICONDUCTORS -- 0.8%
Advanced Micro Devices, Inc. (b).............................. 22,200 400,987
Intel Corp.................................................... 434,000 25,823,000
KLA-Tencor Corp. (b).......................................... 10,300 668,212
LSI Logic Corp. (b)........................................... 17,000 784,125
Micron Technology, Inc........................................ 33,100 1,334,344
National Semiconductor Corp. (b).............................. 19,100 483,469
Texas Instruments, Inc........................................ 50,500 7,322,500
--------------
36,816,637
--------------
TELECOMMUNICATIONS -- 3.6%
Alcatel Alsthom, ADR, (France)................................ 124,900 3,544,038
Alltel Corp................................................... 35,800 2,559,700
Ameritech Corp................................................ 143,100 10,517,850
Andrew Corp. (b).............................................. 13,900 263,231
AT&T Corp..................................................... 409,648 22,863,479
Bell Atlantic Corp............................................ 202,100 13,212,288
BellSouth Corp................................................ 250,800 11,756,250
CenturyTel, Inc............................................... 18,000 715,500
Frontier Corp................................................. 23,500 1,386,500
General Instrument Corp....................................... 23,200 986,000
GTE Corp...................................................... 125,600 9,514,200
Lucent Technologies, Inc...................................... 391,455 26,398,747
MCI WorldCom, Inc............................................. 239,614 20,666,708
Nextel Communications, Inc. (Class "A" Stock) (b)............. 37,300 1,871,994
Nortel Networks Corp.......................................... 86,340 7,495,391
SBC Communications, Inc....................................... 254,600 14,766,800
Scientific-Atlanta, Inc....................................... 8,400 302,400
Sprint Corp................................................... 115,200 6,084,000
Sprint Corp. (PCS Group)...................................... 57,250 3,270,406
Telecomunicacoes Brasileiras SA, ADR, (Brazil)................ 55,900 3,494
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B15
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TELECOMMUNICATIONS (CONT'D.)
Tellabs, Inc. (b)............................................. 50,600 $ 3,418,663
US West, Inc.................................................. 66,960 3,933,900
Vodafone Group, PLC, ADR, (United Kingdom).................... 9,750 1,920,750
--------------
167,452,289
--------------
TEXTILES
National Service Industries, Inc.............................. 6,700 241,200
Pillowtex Corp. (b)........................................... 18,530 302,271
Russell Corp.................................................. 5,700 111,150
Springs Industries, Inc....................................... 3,200 139,600
VF Corp....................................................... 15,600 666,900
--------------
1,461,121
--------------
TOBACCO -- 0.1%
RJR Nabisco Holdings, Inc..................................... 94,067 2,963,121
UST, Inc...................................................... 22,700 663,975
--------------
3,627,096
--------------
TOYS
Hasbro, Inc................................................... 25,500 712,406
Mattel, Inc................................................... 47,151 1,246,555
--------------
1,958,961
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (b)..................................... 38,500 2,088,625
Ryder System, Inc............................................. 9,000 234,000
Yellow Corp. (b).............................................. 43,600 773,900
--------------
3,096,525
--------------
UTILITIES - ELECTRICAL & GAS -- 0.6%
Ameren Corp................................................... 17,700 679,238
American Electric Power Co., Inc.............................. 26,200 984,138
Carolina Power & Light Co..................................... 20,000 856,250
Central & South West Corp..................................... 27,600 645,150
CINergy Corp.................................................. 19,600 627,200
CMS Energy Corp............................................... 13,000 544,375
Consolidated Edison, Inc...................................... 30,400 1,375,600
Constellation Energy Group.................................... 18,400 545,100
Dominion Resources, Inc....................................... 26,600 1,152,113
DTE Energy Co................................................. 19,200 768,000
Duke Energy Corp.............................................. 46,200 2,512,125
Edison International.......................................... 45,700 1,222,475
Entergy Corp.................................................. 33,100 1,034,375
FirstEnergy Corp. (b)......................................... 31,300 970,300
Florida Progress Corp......................................... 7,000 289,188
FPL Group, Inc................................................ 23,200 1,267,300
GPU, Inc...................................................... 16,400 691,875
New Century Energies, Inc..................................... 15,000 582,188
Niagara Mohawk Holdings Inc. (b).............................. 22,600 363,013
Northern States Power Co...................................... 17,700 428,119
Pacific Gas & Electric Co..................................... 50,300 1,634,750
PacifiCorp.................................................... 38,600 709,275
PECO Energy Co................................................ 25,600 1,072,000
PP&L Resources, Inc........................................... 20,200 621,150
Public Service Enterprise Group, Inc.......................... 28,800 1,177,200
Reliant Energy, Inc........................................... 39,100 1,080,138
Southern Co................................................... 89,400 2,369,100
Texas Utilities Co............................................ 38,300 1,579,875
Unicom Corp................................................... 29,800 1,149,163
--------------
28,930,773
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
WASTE MANAGEMENT -- 0.2%
Browning-Ferris Industries, Inc............................... 20,300 $ 872,900
Waste Management, Inc......................................... 118,902 6,390,983
--------------
7,263,883
--------------
TOTAL COMMON STOCKS
(cost $1,397,682,780)........................................................ 1,799,087,228
--------------
PREFERRED STOCKS -- 0.8%
FINANCIAL SERVICES -- 0.7%
Central Hispano Capital Corp.,................................ 1,225,900 31,264,588
--------------
TELECOMMUNICATIONS -- 0.1%
Telecomunicacoes Brasileiras SA, ADR, (Brazil)................ 55,900 5,041,481
--------------
TOTAL PREFERRED STOCKS
(cost $36,871,416)........................................................... 36,306,069
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $3,931,024,089)........................................................ 4,290,356,702
--------------
PRINCIPAL
MOODY'S AMOUNT
SHORT-TERM INVESTMENTS -- 17.8% RATING (000)
------------ -------------
COMMERCIAL PAPER -- 8.3%
Abbey National Treasury Services, PLC,
5.85%, 07/01/99............................... NR $ 2,400 2,400,000
BBL North America, Inc.
5.83%, 07/11/99 (e)........................... P1 45,000 45,000,000
Bishop's Gate Residential
5.80%, 07/11/99 (e)........................... P1 33,300 33,300,000
Caterpillar Financial Services,
5.30%, 07/09/99............................... P1 2,442 2,439,124
Conoco, Inc.
5.22%, 07/14/99 (e)........................... P1 44,000 43,917,060
CXC, Inc.
5.15%, 08/20/99 (e)........................... P1 15,000 14,892,708
Eastman Kodak Co.,
5.06%, 07/08/99............................... P1 2,800 2,797,245
Edison Asset Securitization LLC
4.92%, 07/14/99 (e)........................... P1 56,572 56,471,490
Enterprise Funding Corp.
5.18%, 08/13/99 (e)........................... P1 25,000 24,845,319
5.35%, 07/14/99............................... NR 2,300 2,295,557
Federated Department Stores, Inc.
5.05%, 07/12/99 (e)........................... P1 10,000 9,984,569
Ford Motor Credit Co.
5.02%, 08/20/99 (e)........................... P1 3,676 3,650,370
Fortune Brands Inc.,
5.80%, 07/01/99............................... NR 950 950,000
Gateway Fuel Co.,
5.80%, 07/01/99............................... P1 2,400 2,400,000
General Electric Capital Corp.,
5.06%, 07/22/99............................... NR 1,200 1,196,458
General Mills Corp,
5.12%, 07/12/99............................... P3 1,975 1,971,910
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B16
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ ------------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONT'D.)
General Motors Acceptance Corp.
5.04%, 08/23/99 (e)........................... P1 $ 40,000 $ 39,703,200
Heller Financial Inc.
5.35%, 07/08/99 (e)........................... P1 12,500 12,486,997
ING American Insurance Holdings, Inc.,
5.80%, 07/01/99............................... NR 2,400 2,400,000
International Lease Finance,
5.25%, 07/14/99............................... A1 1,500 1,497,156
Merrill Lynch & Co. Inc,
5.27%, 07/12/99............................... P1 1,349 1,346,828
Morgan (J.P.) & Co., Inc.,
5.25%, 07/13/99............................... P3 1,400 1,397,550
Old Line Funding Corp.,
5.12%, 07/01/99............................... NR 2,500 2,500,000
Potomac Electrical Power Co.,
5.30%, 07/07/99............................... NR 2,600 2,597,704
Raytheon Co.
5.25%, 07/23/99 (e)........................... P1 38,000 37,878,083
Rohm & Haas Co.
6.30%, 07/01/99 (e)........................... P1 21,000 21,000,000
Ryder System, Inc.
5.08%, 07/02/99 (e)........................... P1 4,500 4,499,365
Sonoco Products,
5.80%, 07/01/99............................... P1 1,100 1,100,000
Southern California Edison Co.,
5.25%, 07/12/99............................... P3 2,600 2,595,829
Triple-A One Plus Funding Corp.,
5.36%, 07/13/99............................... NR 2,500 2,495,533
Wells Fargo & Company,
6.00%, 07/01/99............................... P3 1,829 1,829,000
--------------
383,839,055
--------------
OTHER CORPORATE OBLIGATIONS -- 5.5%
Advanta Corp., M.T.N.,
6.99%, 10/18/99............................... Ba3 15,000 14,913,300
7.25%, 08/16/99............................... Ba2 3,000 3,000,924
Capital One Bank,
7.35%, 06/20/00............................... Baa3 8,100 8,172,900
Comdisco, Inc.,
5.94%, 04/13/00............................... Baa1 12,500 12,539,000
Deutsche Bank AG
5.125%, 07/01/99 (e).......................... NR 47,485 47,485,000
Enterprise Rent-A-Car USA Finance Co.,
8.75%, 12/15/99............................... Baa3 5,000 5,055,000
General Electric Capital International Funding
5.07%, 08/09/99 (e)........................... NR 42,000 41,769,315
MCI WorldCom Inc.
5.05%, 07/07/99 (e)........................... NR 10,632 10,623,051
5.05%, 07/09/99 (e)........................... NR 22,000 21,975,311
Salomon Smith Barney Holdings, Inc.
5.05%, 08/04/99............................... NR 33,100 32,942,131
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 9,000 9,015,210
Tele-Communications, Inc.,
6.375%, 09/15/99.............................. Ba1 8,000 8,017,200
7.375%, 02/15/00.............................. Ba1 40,700 41,102,930
--------------
256,611,272
--------------
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ ------------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 3.9%
Joint Repurchase Agreement Account,
4.775%, 07/01/99 (Note 5)..................... $ 171,632 $ 171,632,000
Merrill Lynch Triparty Repurchase Agreement,
5.10%, 07/02/99 (cost $10,000,000) (d)........ P3 10,000 10,000,000
--------------
181,632,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
United States Treasury Bill,
4.545%, 09/16/99 (a).......................... 2,400 2,376,900
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $836,873,619).......................................................... 824,459,227
--------------
TOTAL INVESTMENTS -- 110.2%
(cost $4,767,897,708; Note 6)................................................ 5,114,815,929
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (F).................................
1,088,075
LIABILITIES IN EXCESS OF OTHER ASSETS -- 10.2%.................................
(475,606,505)
--------------
TOTAL NET ASSETS -- 100.0%..................................................... $4,640,297,499
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
NR Not Rated by Moody's or Standard & Poor's
N.V. Naamloze Vennootsohap (Dutch Corporation)
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Security segregated as collateral for futures contracts.
(b) Non-income producing security.
(c) Portion of securities on loan with an aggregate market value of
$495,243,585, cash collateral of $500,998,202 was received with which the
portfolio purchased securities.
(d) Merrill Lynch Triparty Repurchase Agreement, repurchase price $10,002,833,
due 7/2/99. The value of the collateral including accrued interest was
$10,201,949.
(e) Represents securities purchased with cash collateral received for
securities on loan.
(f) Open futures contracts as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1999 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
26 S&P 500 Index Sep 99 $ 8,737,450 $ 8,981,050 $ 243,600
1,179 U.S. Treasury 5 yr Sep 99 $ 129,432,094 $ 128,511,000 $ (921,094)
-------------
$ (677,494)
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B17
<PAGE>
FLEXIBLE MANAGED PORTFOLIO
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 87.2%
VALUE
COMMON STOCKS -- 53.6% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.2%
AlliedSignal, Inc............................... 76,900 $ 4,844,700
Boeing Co....................................... 131,100 5,792,981
GenCorp, Inc.................................... 403,900 10,198,475
General Dynamics Corp........................... 16,200 1,109,700
Goodrich (B.F.) Co.............................. 8,200 348,500
Litton Industries, Inc. (a)..................... 306,000 21,955,500
Lockheed Martin Corp............................ 51,600 1,922,100
Northrop Grumman Corp........................... 8,500 563,656
Parker-Hannifin Corp............................ 191,600 8,765,700
Raytheon Co. (Class "B" Stock).................. 45,500 3,202,062
United Technologies Corp........................ 61,600 4,415,950
--------------
63,119,324
--------------
AIRLINES -- 1.2%
AMR Corp. (a)................................... 640,900 43,741,425
Delta Air Lines, Inc............................ 18,800 1,083,350
Southwest Airlines Co........................... 44,400 1,381,950
US Airways Group, Inc. (a)...................... 476,100 20,740,107
--------------
66,946,832
--------------
APPAREL -- 0.2%
Fruit Of The Loom, Inc. (Class "A" Stock) (a)... 310,300 3,025,425
Nike, Inc. (Class "B" Stock).................... 39,800 2,519,837
Reebok International Ltd........................ 9,100 169,487
Titan International, Inc........................ 415,700 4,936,437
--------------
10,651,186
--------------
AUTOS - CARS & TRUCKS -- 1.3%
Cummins Engine Co., Inc......................... 4,800 274,200
Dana Corp....................................... 23,650 1,089,378
Ford Motor Co................................... 377,300 21,293,869
General Motors Corp............................. 491,400 32,432,400
Genuine Parts Co. (b)........................... 24,400 854,000
Johnson Controls, Inc........................... 11,600 804,025
MascoTech, Inc.................................. 388,000 6,571,750
Midas, Inc...................................... 90,866 2,578,323
Navistar International Corp. (a)................ 6,100 305,000
PACCAR, Inc. (b)................................ 10,000 533,750
TRW, Inc........................................ 12,800 702,400
--------------
67,439,095
--------------
BANKS AND SAVINGS & LOANS -- 1.9%
AmSouth Bancorporation.......................... 16,500 382,594
Banc One Corp................................... 159,764 9,515,943
Bank of New York Co., Inc. (b).................. 105,500 3,870,531
BankAmerica Corp................................ 231,241 16,952,856
BankBoston Corp................................. 37,700 1,927,412
BB&T Corp....................................... 42,400 1,555,550
Chase Manhattan Corp............................ 114,900 9,953,212
Comerica, Inc................................... 20,700 1,230,356
First Union Corp. (b)........................... 132,000 6,204,000
Firstar Corp.................................... 91,900 2,573,200
Fleet Financial Group, Inc...................... 75,300 3,341,437
Golden West Financial Corp...................... 7,500 735,000
Huntington Bancshares, Inc...................... 29,520 1,033,200
KeyCorp......................................... 61,200 1,966,050
Mellon Bank Corp................................ 69,800 2,538,975
Mercantile Bancorporation, Inc.................. 21,300 1,216,762
Morgan (J.P.) & Co., Inc........................ 24,300 3,414,150
National City Corp.............................. 44,500 2,914,750
Northern Trust Corp............................. 14,600 1,416,200
PNC Bank Corp. (b).............................. 38,600 2,224,325
Providian Financial Corp........................ 17,900 1,673,650
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
Regions Financial Corp.......................... 28,100 $ 1,080,094
Republic New York Corp.......................... 15,000 1,022,812
SouthTrust Corp................................. 19,000 729,125
Summit Bancorp (b).............................. 21,100 882,244
Suntrust Banks, Inc............................. 41,900 2,909,431
Synovus Financial Corp.......................... 35,100 697,612
U.S. Bancorp.................................... 97,600 3,318,400
Union Planters Corp............................. 18,000 804,375
Wachovia Corp................................... 26,500 2,267,406
Wells Fargo & Co................................ 223,400 9,550,350
--------------
99,902,002
--------------
BUSINESS SERVICES
Equifax, Inc.................................... 20,000 713,750
Omnicom Group, Inc.............................. 22,700 1,816,000
--------------
2,529,750
--------------
CHEMICALS -- 1.3%
Air Products & Chemicals, Inc................... 31,400 1,263,850
Dow Chemical Co................................. 30,400 3,857,000
Du Pont (E.I.) de Nemours & Co.................. 153,200 10,465,475
Eastman Chemical Co............................. 9,800 507,150
Engelhard Corp.................................. 15,600 352,950
Ferro Corp...................................... 553,650 15,225,375
FMC Corp. (a)................................... 3,500 239,094
Grace (W.R.) & Co............................... 8,000 147,000
Great Lakes Chemical Corp....................... 7,700 354,681
Hercules, Inc................................... 11,900 467,819
Lyondell Chemical Co............................ 329,000 6,785,625
Millennium Chemicals, Inc. (a).................. 601,600 14,175,200
Monsanto Co..................................... 86,700 3,419,231
Nalco Chemical Co............................... 6,600 342,375
OM Group, Inc................................... 260,300 8,980,350
Praxair, Inc.................................... 19,800 968,962
Raychem Corp.................................... 7,900 292,300
Rohm & Haas Co.................................. 27,158 1,164,399
Sigma-Aldrich Corp.............................. 11,600 399,475
Union Carbide Corp.............................. 17,700 862,875
--------------
70,271,186
--------------
COMMERCIAL SERVICES
Cendant Corp. (a)............................... 109,600 2,246,800
Deluxe Corp..................................... 9,000 350,437
--------------
2,597,237
--------------
COMPUTER SERVICES -- 2.7%
3Com Corp. (a).................................. 45,500 1,214,281
Adobe Systems, Inc.............................. 6,600 542,231
America Online, Inc. (a)........................ 142,300 15,724,150
Autodesk, Inc................................... 7,600 224,675
Automatic Data Processing, Inc.................. 83,000 3,652,000
BMC Software, Inc. (a).......................... 29,200 1,576,800
Cabletron Systems, Inc. (a)..................... 25,600 332,800
Ceridian Corp. (a).............................. 18,600 607,987
Cisco Systems, Inc. (a)......................... 422,000 27,219,000
Computer Associates International, Inc.......... 73,000 4,015,000
Computer Sciences Corp. (a)..................... 20,000 1,383,750
Compuware Corp. (a)............................. 48,000 1,527,000
Electronic Data Systems Corp.................... 66,300 3,750,094
EMC Corp. (a)(b)................................ 135,600 7,458,000
First Data Corp................................. 58,800 2,877,525
Microsoft Corp. (a)............................. 678,400 61,183,200
Novell, Inc. (a)................................ 43,500 1,152,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B18
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
COMPUTER SERVICES (CONT'D.)
Oracle Corp. (a)................................ 196,950 $ 7,311,769
Parametric Technology Corp. (a)................. 31,500 437,062
Peoplesoft, Inc. (b)............................ 30,000 517,500
Silicon Graphics, Inc. (a)...................... 23,400 383,175
Unisys Corp..................................... 31,400 1,222,637
--------------
144,313,386
--------------
COMPUTERS -- 1.4%
Apple Computer, Inc. (a)(b)..................... 21,300 986,456
Compaq Computer Corp............................ 225,461 5,340,607
Data General Corp. (a).......................... 7,900 115,044
Dell Computer Corp. (a)......................... 340,000 12,580,000
Gateway 2000, Inc. (a).......................... 20,200 1,191,800
Hewlett-Packard Co.............................. 138,300 13,899,150
International Business Machines Corp............ 242,600 31,356,050
Networking Appliance, Inc. (a).................. 2,000 111,750
Seagate Technology, Inc. (a).................... 28,900 740,562
Sun Microsystems, Inc. (a)...................... 104,000 7,163,000
--------------
73,484,419
--------------
CONSTRUCTION -- 0.6%
Centex Corp..................................... 9,600 360,600
Fluor Corp...................................... 9,800 396,900
Foster Wheeler Corp............................. 6,600 93,225
Oakwook Homes Corp.............................. 572,000 7,507,500
Pulte Corp...................................... 6,900 159,131
Standard Pacific Corp........................... 632,400 8,181,675
Webb (Del E.) Corp.............................. 576,500 13,763,937
--------------
30,462,968
--------------
CONTAINERS -- 0.2%
Ball Corp....................................... 4,900 207,025
Bemis Co., Inc.................................. 6,600 262,350
Crown Cork & Seal Co., Inc...................... 15,600 444,600
Owens-Illinois, Inc. (a)........................ 255,700 8,358,194
Sealed Air Corp................................. 10,900 707,137
--------------
9,979,306
--------------
COSMETICS & SOAPS -- 0.5%
Alberto Culver Co. (Class 'B' Stock)............ 6,200 165,075
Avon Products, Inc.............................. 33,300 1,848,150
Colgate-Palmolive Co............................ 39,700 3,920,375
Gillette Co..................................... 150,100 6,154,100
International Flavors & Fragrances, Inc......... 14,100 625,687
Procter & Gamble Co............................. 177,400 15,832,950
--------------
28,546,337
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.8%
Eastman Kodak Co................................ 187,300 12,689,575
Philip Morris Co., Inc.......................... 774,200 31,113,163
--------------
43,802,738
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.2%
Avery Dennison Corp............................. 15,000 905,625
Pitney Bowes, Inc............................... 35,100 2,255,175
Xerox Corp...................................... 92,500 5,463,281
--------------
8,624,081
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
DIVERSIFIED OPERATIONS -- 1.1%
Fortune Brands, Inc............................. 24,200 $ 1,001,275
General Electric Co............................. 437,900 49,482,700
Tomkins PLC, ADR (b)............................ 391,400 7,143,050
--------------
57,627,025
--------------
DRUGS AND MEDICAL SUPPLIES -- 2.9%
Abbott Laboratories............................. 206,300 9,386,650
Allergan, Inc................................... 8,800 976,800
ALZA Corp. (a).................................. 9,900 503,662
American Home Products Corp..................... 179,400 10,315,500
Amgen, Inc. (a)................................. 70,500 4,291,687
Bard (C.R.), Inc................................ 5,900 282,094
Bausch & Lomb, Inc.............................. 7,100 543,150
Baxter International, Inc....................... 38,400 2,328,000
Becton, Dickinson & Co.......................... 31,500 945,000
Biomet, Inc..................................... 14,500 576,375
Boston Scientific Corp. (a)..................... 51,800 2,275,962
Bristol-Myers Squibb Co......................... 265,500 18,701,156
Cardinal Health, Inc. (b)....................... 34,450 2,209,106
Guidant Corp.................................... 37,700 1,939,194
Johnson & Johnson............................... 179,700 17,610,600
Lilly (Eli) & Co................................ 149,800 10,729,425
Mallinckrodt, Inc............................... 7,500 272,812
Medtronic, Inc.................................. 79,200 6,167,700
Merck & Co., Inc................................ 318,300 23,554,200
Pfizer, Inc..................................... 173,400 19,030,650
Pharmacia & Upjohn, Inc......................... 67,800 3,851,887
Schering-Plough Corp............................ 199,700 10,584,100
St. Jude Medical, Inc. (a)...................... 8,900 317,062
Warner-Lambert Co............................... 111,100 7,707,562
Watson Pharmaceuticals, Inc. (a)................ 9,000 315,562
--------------
155,415,896
--------------
ELECTRONICS -- 1.2%
Advanced Micro Devices, Inc. (a)................ 17,000 307,062
Applied Materials, Inc. (a)..................... 50,700 3,745,462
Belden, Inc..................................... 275,600 6,597,175
EG&G, Inc....................................... 7,300 260,062
Emerson Electric Co............................. 60,200 3,785,075
Grainger (W.W.), Inc............................ 13,000 699,562
Harris Corp..................................... 9,000 352,687
Honeywell, Inc.................................. 15,900 1,842,412
Intel Corp...................................... 445,500 26,507,250
KLA-Tencor Corp. (a)............................ 10,900 707,137
LSI Logic Corp. (a)............................. 18,600 857,925
Micron Technology, Inc.......................... 34,300 1,382,719
Motorola, Inc................................... 80,200 7,598,950
National Semiconductor Corp. (a)................ 19,000 480,937
Rockwell International Corp..................... 24,300 1,476,225
Solectron Corp.................................. 32,900 2,194,019
Tektronix, Inc.................................. 8,200 247,537
Texas Instruments, Inc.......................... 52,500 7,612,500
Thomas & Betts Corp............................. 9,000 425,250
--------------
67,079,946
--------------
ENGINEERING & CONSTRUCTION -- 0.1%
Giant Cement Holdings, Inc. (a)................. 244,900 5,602,087
--------------
ENVIRONMENTAL SERVICES
Browning-Ferris Industries, Inc................. 21,800 937,400
--------------
EXPLORATION & PRODUCTION -- 0.1%
Apex Silver Mines Ltd........................... 340,400 4,212,450
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B19
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES -- 3.6%
American Express Co............................. 61,200 $ 7,963,650
Associates First Capital Corp................... 100,990 4,475,119
Bear Stearns Companies, Inc..................... 14,675 686,056
Block (H.R.), Inc............................... 13,400 670,000
Capital One Financial Corp...................... 24,900 1,386,619
Citigroup, Inc.................................. 775,876 36,854,110
Countrywide Credit Industries, Inc.............. 14,000 598,500
Dun & Bradstreet Corp........................... 23,000 815,062
Federal Home Loan Mortgage Corp................. 91,300 5,295,400
Federal National Mortgage Association........... 140,900 9,634,037
Fifth Third Bancorp............................. 34,800 2,316,375
Franklin Resource, Inc. (b)..................... 33,000 1,340,625
Goldman Sachs Group, Inc. (a)................... 53,100 3,836,475
Household International, Inc.................... 64,592 3,060,046
Lehman Brothers Holdings, Inc................... 719,100 44,763,975
MBNA Corp....................................... 104,600 3,203,375
Merrill Lynch & Co., Inc........................ 286,300 22,886,106
Morgan Stanley Dean Witter & Co................. 299,995 30,749,488
PaineWebber Group, Inc.......................... 14,000 654,500
Paychex, Inc.................................... 29,850 951,469
Schwab (Charles) Corp. (a)...................... 53,600 5,889,300
SLM Holding Corp................................ 19,000 870,437
State Street Corp............................... 20,600 1,758,725
Transamerica Corp............................... 16,000 1,200,000
Washington Mutual, Inc.......................... 80,836 2,859,573
--------------
194,719,022
--------------
FOOD & BEVERAGES -- 1.9%
Anheuser-Busch Companies, Inc................... 65,000 4,610,936
Archer-Daniels-Midland Co....................... 77,915 1,202,813
Bestfoods....................................... 37,800 1,871,100
Brown-Forman Corp. (Class "B" Stock)............ 6,700 436,756
Campbell Soup Co................................ 59,600 2,763,950
Coca-Cola Co. (b)............................... 329,400 20,587,500
Coca-Cola Enterprises, Inc...................... 54,500 1,621,375
ConAgra, Inc.................................... 64,600 1,719,975
Coors (Adolph) Co. (Class "B" Stock)............ 2,900 143,550
General Mills, Inc.............................. 21,400 1,720,025
Heinz (H.J.) & Co............................... 47,400 2,375,925
Hershey Foods Corp.............................. 20,300 1,205,312
Kellogg Co...................................... 54,000 1,782,000
Nabisco Group Holdings Corp..................... 1,226,900 24,001,231
PepsiCo, Inc.................................... 198,400 7,675,600
Pioneer Hi-Bred International, Inc.............. 31,100 1,210,956
Quaker Oats Co.................................. 17,600 1,168,200
Ralston-Ralston Purina Group.................... 42,200 1,284,462
Sara Lee Corp................................... 123,800 2,808,712
Seagram Co., Ltd................................ 52,600 2,649,725
Sysco Corp...................................... 44,200 1,317,712
Unilever NV..................................... 75,842 5,289,979
Whitman Corp.................................... 545,200 9,813,600
Wrigley (William) Jr. Co........................ 15,200 1,368,000
--------------
100,629,394
--------------
FOREST PRODUCTS -- 2.0%
Boise Cascade Corp.............................. 665,800 28,546,175
Champion International Corp..................... 401,600 19,226,600
Fort James Corp................................. 27,100 1,026,412
Georgia-Pacific Corp............................ 157,800 7,475,775
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOREST PRODUCTS (CONT'D.)
International Paper Co.......................... 54,582 $ 2,756,391
Louisiana-Pacific Corp.......................... 699,700 16,617,875
Mead Corp....................................... 403,000 16,825,250
Potlatch Corp................................... 4,700 206,506
Temple-Inland, Inc.............................. 7,100 484,575
Westvaco Corp................................... 11,900 345,100
Weyerhaeuser Co................................. 27,000 1,856,250
Willamette Industries, Inc...................... 299,200 13,781,900
--------------
109,148,809
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group........................... 10,500 658,219
Consolidated Natural Gas Co..................... 12,900 783,675
Peoples Energy Corp............................. 5,700 214,819
Sempra Energy................................... 30,253 684,474
Sonat, Inc...................................... 13,500 447,187
Williams Companies, Inc......................... 57,200 2,434,575
--------------
5,222,949
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 1.2%
Columbia/HCA Healthcare Corp.................... 892,800 20,367,000
Healthsouth Corp. (a)........................... 55,000 821,562
Humana, Inc. (a)................................ 735,100 9,510,375
IMS Health, Inc................................. 40,900 1,278,125
LifePoint Hospitals, Inc. (a)................... 42,447 570,382
Manor Care, Inc................................. 13,300 321,694
McKesson HBOC Inc............................... 34,381 1,104,490
Service Corp. International..................... 40,800 785,400
Shared Medical Systems Corp..................... 4,200 274,050
Smith (A.O.) Corp............................... 433,350 12,133,800
Tenet Healthcare Corp. (a)...................... 799,600 14,842,575
Triad Hospitals, Inc. (a)....................... 42,447 573,034
Wellpoint Health Networks Inc................... 6,000 509,250
--------------
63,091,737
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.4%
Clorox Co....................................... 15,200 1,623,550
Kimberly-Clark Corp............................. 73,000 4,161,000
Leggett & Platt, Inc............................ 470,800 13,094,125
--------------
18,878,675
--------------
HOUSING RELATED -- 1.4%
Armstrong World Industries, Inc................. 6,500 375,781
Fleetwood Enterprises, Inc...................... 6,100 161,269
Hanson, PLC, ADR, (United Kingdom).............. 1,221,100 54,186,312
Kaufman & Broad Home Corp....................... 6,400 159,200
Lowe's Companies, Inc........................... 48,600 2,755,012
Masco Corp...................................... 44,000 1,270,500
Maytag Corp..................................... 10,700 745,656
Newell Rubbermaid Inc........................... 38,355 1,783,507
Owens Corning................................... 413,400 14,210,626
Stanley Works................................... 9,900 318,656
Tupperware Corp................................. 9,900 252,450
Whirlpool Corp.................................. 9,900 732,600
--------------
76,951,569
--------------
INSTRUMENT - CONTROLS
PE Corp-PE Biosystems Group..................... 6,500 745,875
--------------
INSURANCE -- 2.8%
Aetna, Inc...................................... 18,900 1,690,368
Aflac Inc....................................... 31,000 1,484,125
Allstate Corp................................... 115,100 4,129,212
American General Corp........................... 32,400 2,442,150
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B20
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
INSURANCE (CONT'D.)
American International Group, Inc............... 164,103 $ 19,210,306
Aon Corp........................................ 33,450 1,379,812
Berkley (W.R.) Corp............................. 175,850 4,396,250
Chubb Corp...................................... 237,900 16,534,050
CIGNA Corp...................................... 27,100 2,411,900
Cincinnati Financial Corp....................... 22,900 860,180
Conseco, Inc.................................... 41,587 1,265,804
Financial Security Assurance Holdings Ltd....... 140,100 7,285,200
Hartford Financial Services Group, Inc.......... 30,600 1,784,362
Jefferson-Pilot Corp............................ 14,900 986,194
Lincoln National Corp........................... 26,800 1,401,975
Loews Corp...................................... 178,300 14,107,988
Marsh & McLennan Companies, Inc................. 34,900 2,634,950
MBIA, Inc....................................... 13,700 887,075
MGIC Investment Corp............................ 15,100 734,237
Progressive Corp................................ 9,400 1,363,000
Provident Companies, Inc........................ 19,000 760,000
Reinsurance Group of America, Inc............... 711,900 25,094,475
SAFECO Corp..................................... 358,700 15,827,637
St. Paul Companies, Inc......................... 32,500 1,033,906
Torchmark Corp.................................. 425,000 14,503,125
Trenwick Group, Inc............................. 273,300 6,738,553
United Healthcare Corp.......................... 24,400 1,528,050
UNUM Corp....................................... 17,100 936,225
--------------
153,411,109
--------------
LEISURE -- 0.3%
Brunswick Corp.................................. 11,200 312,200
Carnival Corp. (Class "A" Stock)................ 81,700 3,962,450
Disney (Walt) Co................................ 278,500 8,581,281
Harrah's Entertainment, Inc. (a)................ 16,400 360,800
Hilton Hotels Corp.............................. 30,800 436,974
King World Productions, Inc..................... 8,900 309,831
Marriott International, Inc. (Class "A"
Stock)........................................ 33,700 1,259,538
Mirage Resorts, Inc. (a)........................ 22,500 376,875
--------------
15,599,949
--------------
MACHINERY -- 1.0%
Briggs & Stratton Corp.......................... 4,000 231,000
Case Corp....................................... 365,300 17,580,063
Caterpillar, Inc................................ 46,800 2,808,000
Commercial Intertech Corp....................... 115,300 1,837,594
Cooper Industries, Inc.......................... 12,900 670,800
Deere & Co...................................... 32,200 1,275,925
Delphi Automotive Systems Corp.................. 347,454 6,449,615
Dover Corp...................................... 28,000 980,000
DT Industries, Inc.............................. 146,800 1,348,725
Eaton Corp...................................... 9,800 901,600
Flowserve Corp.................................. 161,991 3,067,705
Global Industrial Technologies, Inc. (a)........ 258,100 3,113,331
Ingersoll-Rand Co............................... 22,300 1,441,138
Milacron, Inc................................... 6,400 118,400
Paxar Corp...................................... 954,575 8,591,175
Snap-On, Inc.................................... 9,900 358,256
Timken Co....................................... 10,200 198,900
--------------
50,972,227
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MANUFACTURING -- 0.3%
Hussmann International, Inc..................... 272,600 $ 4,514,938
Illinois Tool Works, Inc........................ 34,400 2,820,800
Tyco International Ltd.......................... 110,956 10,513,081
--------------
17,848,819
--------------
MEDIA -- 1.9%
CBS Corp. (a)................................... 359,800 15,628,813
Central Newspapers, Inc.(Class "A" Stock)....... 410,600 15,448,824
Clear Channel Communications, Inc. (a)(b)....... 42,200 2,909,163
Comcast Corp. (Special Class "A" Stock)......... 99,300 3,816,844
Donnelley (R.R.) & Sons Co...................... 15,000 555,938
Dow Jones & Co., Inc............................ 12,600 668,588
Gannett Co., Inc................................ 36,900 2,633,738
Houghton Mifflin Co............................. 240,700 11,327,944
Interpublic Group of Companies, Inc............. 17,300 1,498,612
Knight-Ridder, Inc. (b)......................... 248,600 13,657,462
Lee Enterprises, Inc............................ 208,900 6,371,450
McGraw-Hill, Inc................................ 26,600 1,434,738
Mediaone Group, Inc. (b)........................ 81,800 6,083,875
Meredith Corp................................... 4,600 159,275
New York Times Co. (Class "A" Stock)............ 22,200 817,238
Time Warner, Inc................................ 163,300 12,002,550
Times Mirror Co. (Class "A" Stock) (b).......... 8,600 509,550
Tribune Co...................................... 16,000 1,394,000
Viacom, Inc. (Class "B" Stock) (a).............. 95,200 4,188,800
--------------
101,107,402
--------------
METALS-FERROUS -- 0.8%
AK Steel Holding Corp........................... 606,100 13,637,250
Allegheny Teledyne, Inc......................... 25,300 572,413
Bethlehem Steel Corp. (a)....................... 924,400 7,106,325
LTV Corp........................................ 841,400 5,626,863
Material Sciences Corp. (a)..................... 397,900 5,968,500
National Steel Corp. (Class "B" Stock) (a)...... 147,300 1,233,637
Nucor Corp...................................... 11,500 545,531
USX-U.S. Steel Group, Inc....................... 318,800 8,607,600
Worthington Industries, Inc..................... 9,700 159,444
--------------
43,457,563
--------------
METALS-NON FERROUS -- 1.4%
Alcan Aluminum Ltd.............................. 32,000 1,022,000
Alcoa, Inc...................................... 1,203,500 74,466,563
Cyprus Amax Minerals Co......................... 15,100 229,331
Inco Ltd........................................ 27,000 486,000
Reynolds Metals Co.............................. 8,900 525,100
--------------
76,728,994
--------------
MINERAL RESOURCES
ASARCO, Inc..................................... 6,500 122,281
Burlington Resources, Inc....................... 21,800 942,850
Homestake Mining Co............................. 34,300 280,831
Phelps Dodge Corp............................... 7,200 445,950
--------------
1,791,912
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 1.0%
AES Corp........................................ 25,000 1,453,125
Coltec Industries, Inc.......................... 179,200 3,886,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B21
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MISCELLANEOUS - BASIC INDUSTRY (CONT'D.)
Crane Co........................................ 11,100 $ 348,956
Danaher Corp. (b)............................... 16,000 930,000
Donaldson Co., Inc.............................. 448,600 10,990,700
Ecolab, Inc..................................... 17,300 754,713
IDEX Corp. (b).................................. 246,700 8,110,263
ITT Industries, Inc............................. 11,100 423,188
Laidlaw, Inc.................................... 41,300 304,588
Mark IV Industries, Inc......................... 355,500 7,509,938
Millipore Corp.................................. 7,000 283,938
NACCO Industries, Inc. (Class "A" Stock)........ 1,300 95,550
Pall Corp....................................... 20,200 448,188
PPG Industries, Inc............................. 22,200 1,311,188
Textron, Inc.................................... 21,300 1,753,256
Thermo Electron Corp. (a)....................... 17,500 351,093
Trinity Industries, Inc......................... 214,100 7,172,350
Wolverine Tube, Inc. (a)........................ 155,300 3,901,913
York International Corp......................... 110,600 4,735,063
--------------
54,764,410
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.2%
American Greetings Corp. (Class "A" Stock)...... 11,800 355,475
Black & Decker Corp............................. 12,500 789,063
Corning, Inc.................................... 31,900 2,236,988
Jostens, Inc.................................... 6,300 132,693
Minnesota Mining & Manufacturing Co............. 53,900 4,685,931
Polaroid Corp................................... 7,300 201,663
--------------
8,401,813
--------------
MISCELLANEOUS - INDUSTRIAL
Tenneco, Inc.................................... 21,500 513,313
--------------
OIL & GAS -- 2.4%
Amerada Hess Corp............................... 12,100 719,950
Anadarko Petroleum Corp......................... 15,300 563,231
Ashland, Inc.................................... 8,700 349,087
Atlantic Richfield Co........................... 44,500 3,718,531
Basin Exploration, Inc. (a)..................... 71,400 1,432,463
Cabot Oil & Gas Corp. (Class "A" Stock)......... 363,800 6,775,775
Chevron Corp.................................... 86,800 8,262,275
Coastal Corp.................................... 30,500 1,220,000
Eastern Enterprises............................. 3,300 131,175
Enron Oil & Gas Co.............................. 198,700 4,023,675
Exxon Corp...................................... 324,900 25,057,913
Kerr-McGee Corp................................. 10,609 532,439
Mobil Corp...................................... 104,700 10,365,300
Murphy Oil Corp................................. 114,000 5,564,625
NICOR, Inc...................................... 7,800 296,888
Noble Affiliates, Inc........................... 208,900 5,888,369
Ocean Energy, Inc............................... 245,500 2,362,938
Phillips Petroleum Co........................... 35,600 1,791,124
Pioneer Natural Resources Co.................... 1,488,431 16,372,744
Royal Dutch Petroleum Co........................ 286,500 17,261,625
Sunoco, Inc..................................... 10,800 326,025
Texaco, Inc..................................... 72,100 4,506,250
Union Pacific Resources Group, Inc.............. 32,200 525,263
Unocal Corp..................................... 30,800 1,220,450
USX-Marathon Group.............................. 41,800 1,361,113
Western Gas Resources, Inc...................... 423,100 6,769,600
--------------
127,398,828
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS EXPLORATION/PRODUCTION -- 0.7%
Elf Aquitaine SA, ADR, (France)................. 513,400 $ 37,766,988
Occidental Petroleum Corp....................... 49,100 1,037,238
--------------
38,804,226
--------------
OIL & GAS SERVICES -- 1.1%
Apache Corp..................................... 10,900 425,100
Baker Hughes, Inc............................... 41,740 1,398,290
Enron Corp...................................... 46,800 3,825,900
Halliburton Co.................................. 59,900 2,710,475
Helmerich & Payne, Inc.......................... 8,200 195,263
McDermott International, Inc.................... 1,629,400 46,030,550
ONEOK, Inc...................................... 5,000 158,750
Rowan Companies, Inc. (a)....................... 14,100 259,969
Schlumberger Ltd................................ 75,800 4,827,513
--------------
59,831,810
--------------
PRECIOUS METALS -- 0.2%
Barrick Gold Corp............................... 52,400 1,015,250
Battle Mountain Gold Co......................... 37,200 90,674
Freeport-McMoRan Copper & Gold, Inc. (Class 'B'
Stock)........................................ 22,100 396,419
Newmont Mining Corp............................. 25,400 504,825
Placer Dome, Inc................................ 28,000 330,750
Stillwater Mining Co. (a)....................... 301,800 9,865,088
--------------
12,203,006
--------------
RAILROADS -- 0.1%
Burlington Northern Santa Fe Corp............... 67,000 2,077,000
CSX Corp........................................ 29,300 1,327,656
Kansas City Southern Industries, Inc............ 11,000 701,937
Norfolk Southern Corp........................... 52,400 1,578,550
Union Pacific Corp.............................. 35,300 2,058,431
--------------
7,743,574
--------------
REAL ESTATE DEVELOPMENT -- 1.2%
Crescent Real Estate Equities Co................ 1,377,600 32,718,000
Equity Residential Properties Trust............. 150,900 6,799,931
Vornado Realty Trust (a)........................ 745,100 26,311,344
--------------
65,829,275
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc......................... 19,000 414,438
McDonald's Corp................................. 184,700 7,630,419
Tricon Global Restaurants, Inc. (a)............. 22,000 1,190,750
Wendy's International, Inc...................... 15,700 444,506
--------------
9,680,113
--------------
RETAIL -- 3.7%
Albertson's, Inc. (b)........................... 55,761 2,875,177
AutoZone, Inc. (a).............................. 19,700 593,463
Best Buy Co., Inc. (a).......................... 10,000 675,000
Charming Shoppes, Inc. (a)...................... 3,332,400 20,306,812
Circuit City Stores, Inc........................ 13,600 1,264,800
Consolidated Stores Corp........................ 13,100 353,700
Costco Companies, Inc. (a)...................... 28,900 2,313,806
CVS Corp........................................ 51,900 2,633,925
Dayton-Hudson Corp.............................. 61,100 3,971,500
Dillard's, Inc.................................. 143,100 5,026,388
Dollar General Corporation...................... 29,000 841,000
Federated Department Stores, Inc. (a)(b)........ 27,500 1,455,781
Great Atlantic & Pacific Tea Co., Inc........... 6,200 209,638
Harcourt General, Inc........................... 8,100 417,656
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B22
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
RETAIL (CONT'D.)
Home Depot, Inc................................. 200,900 $ 12,945,494
IKON Office Solutions, Inc...................... 21,800 327,000
J.C. Penney Co., Inc............................ 33,800 1,641,413
Kmart Corp. (a)(b).............................. 2,422,300 39,816,557
Kohl's Corp. (a)................................ 20,800 1,605,500
Kroger Co. (a).................................. 110,400 3,084,300
Liz Claiborne, Inc.............................. 10,900 397,850
Longs Drug Stores, Inc.......................... 6,300 217,744
May Department Stores Co........................ 45,750 1,870,031
Nordstrom, Inc. (b)............................. 20,200 676,700
Office Depot, Inc............................... 22,500 496,406
Pep Boys - Manny, Moe & Jack.................... 9,327 201,696
Rite Aid Corp................................... 36,000 886,500
Safeway, Inc. (a)............................... 66,000 3,267,000
Sears, Roebuck & Co............................. 50,500 2,250,406
Sherwin-Williams Co............................. 22,500 624,375
Staples, Inc. (a)............................... 59,200 1,831,500
Supervalu, Inc.................................. 15,300 393,019
Tandy Corp...................................... 25,600 1,251,200
The Gap, Inc.................................... 114,300 5,757,863
The Limited, Inc................................ 753,340 34,182,803
TJX Companies, Inc.............................. 42,000 1,399,125
Toys 'R' Us, Inc. (a)........................... 387,800 8,022,613
Wal-Mart Stores, Inc............................ 594,200 28,670,150
Walgreen Co..................................... 136,600 4,012,625
Winn-Dixie Stores, Inc.......................... 19,500 720,281
--------------
199,488,797
--------------
RUBBER -- 0.2%
Cooper Tire & Rubber Co......................... 12,800 302,400
Goodyear Tire & Rubber Co....................... 181,800 10,692,113
--------------
10,994,513
--------------
TELECOMMUNICATIONS -- 3.4%
Alcatel Alsthom, ADR, (France).................. 513,000 14,556,374
Alltel Corp..................................... 38,300 2,738,450
Ameritech Corp.................................. 147,100 10,811,850
Andrew Corp. (a)................................ 14,300 270,806
AT&T Corp. (b).................................. 420,572 23,473,175
Bell Atlantic Corp.............................. 208,900 13,656,838
BellSouth Corp.................................. 258,700 12,126,563
CenturyTel, Inc................................. 11,700 465,075
Frontier Corp................................... 21,200 1,250,800
General Instrument Corp......................... 24,000 1,020,000
GTE Corp........................................ 128,600 9,741,450
Lucent Technologies, Inc........................ 402,730 27,159,104
MCI Worldcom, Inc............................... 245,970 21,214,913
Nextel Communications, Inc. (Class "A" Stock)
(a)........................................... 38,400 1,927,200
Nortel Networks Corp............................ 88,700 7,700,269
SBC Communications, Inc......................... 264,100 15,317,800
Scientific-Atlanta, Inc......................... 8,200 295,200
Sprint Corp..................................... 120,400 6,358,625
Sprint Corp. (PCS Group)........................ 54,350 3,104,744
Tellabs, Inc. (a)............................... 53,000 3,580,813
US West, Inc.................................... 67,241 3,950,409
Vodafone Group, ADR, PLC (United Kingdom)....... 10,200 2,009,400
--------------
182,729,858
--------------
TEXTILES
National Service Industries, Inc................ 4,900 176,400
Pillowtex Corp. (a)............................. 73,932 1,206,016
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TEXTILES (CONT'D.)
Russell Corp.................................... 5,900 $ 115,050
Springs Industries, Inc......................... 3,300 143,963
VF Corp......................................... 16,700 713,925
--------------
2,355,354
--------------
TOBACCO -- 0.2%
RJR Nabisco Holdings, Inc....................... 395,333 12,453,011
UST, Inc........................................ 24,100 704,925
--------------
13,157,936
--------------
TOYS
Hasbro, Inc..................................... 27,500 768,281
Mattel, Inc. (b)................................ 44,300 1,171,181
--------------
1,939,462
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (a)(b).................... 38,200 2,072,350
Ryder System, Inc............................... 9,400 244,400
Yellow Corp. (a)................................ 178,700 3,171,925
--------------
5,488,675
--------------
UTILITY - ELECTRIC -- 0.6%
Ameren Corp..................................... 18,400 706,100
American Electric Power Co., Inc. (b)........... 26,800 1,006,675
Carolina Power & Light Co....................... 20,800 890,500
Central & South West Corp....................... 28,300 661,512
CINergy Corp.................................... 20,700 662,400
CMS Energy Corp................................. 11,000 460,625
Consolidated Edison, Inc. (b)................... 31,200 1,411,800
Constellation Energy Group...................... 18,800 556,950
Dominion Resources, Inc......................... 27,400 1,186,763
DTE Energy Co................................... 19,900 796,000
Duke Energy Corp................................ 49,700 2,702,437
Edison International............................ 46,700 1,249,225
Entergy Corp. (b)............................... 34,400 1,075,000
FirstEnergy Corp. (a)........................... 32,300 1,001,300
Florida Progress Corp........................... 7,000 289,187
FPL Group, Inc.................................. 24,000 1,311,000
GPU, Inc........................................ 16,900 712,969
New Century Energies, Inc....................... 15,000 582,187
Niagara Mohawk Holdings Inc. (a)................ 24,300 390,319
Northern States Power Co........................ 24,200 585,338
Pacific Gas & Electric Co....................... 51,700 1,680,250
PacifiCorp...................................... 39,300 722,137
PECO Energy Co.................................. 29,600 1,239,500
PP&L Resources, Inc............................. 20,900 642,675
Public Service Enterprise Group, Inc............ 29,600 1,209,900
Reliant Energy, Inc............................. 37,400 1,033,175
Southern Co..................................... 94,800 2,512,200
Texas Utilities Co.............................. 37,100 1,530,375
Unicom Corp..................................... 31,000 1,195,437
--------------
30,003,936
--------------
WASTE MANAGEMENT -- 0.3%
Waste Management, Inc........................... 251,062 13,494,582
--------------
TOTAL COMMON STOCKS
(cost $2,401,007,961).......................................... 2,888,674,137
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B23
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS -- 32.7% RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
CORPORATE BONDS -- 25.6%
AEROSPACE
Lockheed Martin Corp.,
6.85%, 05/15/01............................... A3 $ 400 $ 404,156
--------------
AIRLINES -- 1.9%
Continental Airlines, Inc.,
8.00%, 12/15/05............................... Ba2 12,820 12,237,203
7.461%, 04/01/15.............................. Aa3 8,459 8,573,225
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 14,335 17,005,897
10.375%, 02/01/11............................. Ba1 16,250 19,644,300
United Airlines, Inc.,
10.67%, 05/01/04.............................. Baa3 19,500 22,023,105
11.21%, 05/01/14.............................. Baa3 17,500 22,401,050
--------------
101,884,780
--------------
ASSET-BACKED SECURITIES -- 0.4%
California Infrastructure,
6.17%, 03/25/03............................... Aaa 4,000 4,007,480
Chase Manhattan Credit Master Trust, Series
1996-3,
7.04%, 02/15/05............................... Aaa 11,000 11,147,730
Standard Credit Card Master Trust,
5.95%, 10/07/04............................... Aaa 4,500 4,408,560
--------------
19,563,770
--------------
AUTO-CARS & TRUCKS -- 1.4%
Ford Motor Co.,
6.375%, 02/01/29 (b).......................... A1 17,500 15,191,575
Lear Corp.,
7.96%, 05/15/05............................... Ba1 15,500 14,996,250
Navistar International Corp.,
7.00%, 02/01/03............................... Ba1 11,500 11,212,500
TRW, Inc.,
6.45%, 06/15/01............................... Baa1 32,800 32,830,750
--------------
74,231,075
--------------
BANKS AND SAVINGS & LOANS -- 1.7%
Bank of Nova Scotia (Canada),
6.50%, 07/15/07............................... A1 5,400 5,362,875
Bayerische Landesbank Girozentrale, (Germany),
5.875%, 12/01/08.............................. Aaa 12,500 11,598,875
Central Hispano Leasing
5.496%, 04/28/05.............................. A3 5,000 4,991,050
Deutsche Bank,
7.872%, 12/29/49.............................. A1 3,700 3,582,044
HSBC Holding PLC,
7.50%, 07/15/09............................... A2 8,900 8,991,937
Kansallis-Osake-Pankki, (Finland),
8.65%, 01/01/49............................... Baa1 9,000 9,020,700
Key Bank NA,
5.80%, 04/01/04 (b)........................... Aa3 20,000 19,350,400
National Australia Bank, (Australia),
6.40%, 12/10/07 (b)........................... A1 8,700 8,645,364
6.60%, 12/10/07 (b)........................... A1 5,000 4,825,550
Okobank, (Finland),
6.561%, 09/27/49.............................. A3 16,250 16,201,250
--------------
92,570,045
--------------
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
CABLE & PAY TELEVISION SYSTEMS -- 0.9%
British Sky Broadcasting, Inc.,
6.875%, 02/23/09.............................. Baa2 $ 12,500 $ 11,403,875
Cable & Wire Communications PLC (United
Kingdom),
6.75%, 12/01/08............................... Baa1 3,050 2,935,961
CSC Holdings, Inc.,
7.875%, 12/15/07.............................. Ba2 4,400 4,367,616
7.25%, 07/15/08............................... Ba2 5,500 5,239,850
Rogers Cablesystems, Inc., Sr. Sec'd Notes
(Canada), (Canada),
10.00%, 03/15/05.............................. Ba3 2,000 2,140,000
Tele-Communications, Inc.,
6.34%, 02/01/02............................... Ba1 8,500 8,524,565
9.875%, 06/15/22.............................. Baa3 12,878 16,426,790
--------------
51,038,657
--------------
CHEMICALS -- 0.5%
ICI Wilmington Inc.,
9.50%, 11/15/00............................... Baa1 6,500 6,769,035
Lyondell Chemical Co.,
9.625%, 05/01/07.............................. Ba3 4,500 4,601,250
Rohm & Haas Co.,
6.95%, 07/15/04............................... A3 7,400 7,391,052
7.85%, 07/15/29............................... A3 6,100 6,095,547
--------------
24,856,884
--------------
COMPUTERS -- 0.1%
International Business Machine Corp.,
5.625%, 04/12/04.............................. A1 3,500 3,363,500
--------------
CONSULTING
Comdisco, Inc.
6.375%, 11/30/01.............................. Baa1 2,700 2,692,845
--------------
CONTAINERS -- 0.6%
Owens-Illinois, Inc.,
7.15%, 05/15/05............................... Ba1 34,000 32,686,920
--------------
DIVERSIFIED OPERATIONS -- 0.6%
Cox Enterprises, Inc.,
6.625%, 06/14/02.............................. Baa1 5,200 5,196,516
Seagram (J.) & Sons,
5.79%, 04/15/01............................... Baa3 20,000 19,742,000
Tyco International Group, SA,
6.125%, 06/15/01.............................. Baa1 5,000 4,973,550
6.895%, 1/15/29............................... Baa1 3,500 3,218,223
--------------
33,130,289
--------------
DRUGS & MEDICAL SUPPLIES -- 0.1%
Mallinckrodt, Inc.,
6.30%, 03/15/11............................... Baa2 8,000 7,860,000
--------------
FINANCIAL SERVICES -- 6.3%
Calair Capital Corp.,
8.125%, 04/01/08.............................. Ba2 6,000 5,587,500
Capital One Financial Corp.,
7.25%, 05/01/06............................... Ba1 6,800 6,587,500
Chrysler Financial Corp.,
5.25%, 10/22/01............................... A1 7,050 6,891,798
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B24
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FINANCIAL SERVICES (CONT'D.)
Citibank Credit Card Master Trust,
6.10%, 05/15/08............................... NR $ 44,000 $ 43,080,400
Comdisco Inc.,
6.32%, 11/27/00............................... Baa1 19,000 19,017,670
Conseco, Inc.,
7.60%, 06/21/01............................... Ba1 2,500 2,507,025
8.70%, 11/15/26............................... Ba2 2,408 2,157,881
8.70%, 04/01/27............................... Ba2 5,700 5,157,930
Donaldson Lufkin & Jenrette,
5.74%, 05/01/01............................... A3 10,000 9,881,500
Dresdner Funding Trust,
8.15%, 06/30/31............................... Aa2 20,800 20,032,896
Enterprise Rent-A-Car USA Finance Co.,
6.35%, 01/15/01............................... Baa3 21,000 20,890,800
6.95%, 03/01/04............................... Baa2 7,500 7,394,250
FMR Corp.,
7.57%, 06/15/29............................... Aa3 525 523,110
General Motors Acceptance Corp.,
5.95%, 03/14/03............................... A2 21,500 20,994,535
Heller Financial, Inc.,
6.00%, 03/19/04............................... A3 4,900 4,743,249
International Lease Finance Corp.,
6.00%, 05/15/02............................... A1 43,100 42,644,433
Marsh & Mclennan Cos., Inc.,
6.625%, 06/15/04.............................. A2 5,370 5,377,357
MBNA Corp.,
5.90%, 08/15/11............................... Aaa 29,800 28,104,274
MCN Investment Corp.,
6.30%, 04/02/11............................... Baa2 8,250 8,094,075
Morgan Stanley, Dean Witter Discover & Co.,
M.T.N.,
6.09%, 03/09/11............................... A1 15,000 14,940,600
Salomon, Inc., M.T.N.,
6.59%, 02/21/01............................... Baa1 8,250 8,302,883
7.25%, 05/01/01............................... Baa1 8,625 8,780,250
Textron Financial Corp.,
6.05%, 03/16/09............................... Aaa 11,625 11,591,396
Goldman Sachs Group, Inc.,
5.56%, 01/11/01............................... A1 4,200 4,168,500
Lehman Brothers Holdings, Inc.,
6.625%, 04/01/04 (b).......................... Baa1 21,910 21,343,407
6.625%, 02/05/06 (b).......................... Baa1 7,710 7,507,227
Salomon, Inc.,
6.75%, 08/15/03............................... Baa1 5,000 5,022,250
--------------
341,324,696
--------------
FOOD & BEVERAGE -- 0.2%
Archer-Daniels Midland Co.,
6.625%, 05/01/29.............................. Aa3 8,900 8,146,971
Coca-Cola Bottling Co.,
6.375%, 05/01/09.............................. Baa2 3,500 3,285,275
--------------
11,432,246
--------------
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FOREST PRODUCTS -- 0.6%
Fort James Corp.,
6.234%, 03/15/11.............................. Baa3 $ 11,000 $ 10,900,450
Scotia Pacific Co.,
7.71%, 01/20/14............................... NR 29,500 21,387,500
--------------
32,287,950
--------------
INDUSTRIAL -- 0.1%
Compania Sud Americana de Vapores, S.A.,
(Chile),
7.375%, 12/08/03.............................. Baa 3,650 3,465,383
--------------
LEISURE & TOURISM -- 0.4%
Carnival Corp.,
5.65%, 10/15/00............................... A2 5,000 4,968,700
ITT Corp.,
6.25%, 11/15/00............................... Baa2 5,183 5,068,093
6.75%, 11/15/03............................... Baa2 14,000 13,130,320
--------------
23,167,113
--------------
MEDIA -- 0.4%
Liberty Media Group,
7.875%, 07/15/09.............................. Baa3 2,400 2,385,696
8.50%, 07/15/29............................... Baa3 4,200 4,188,534
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 9,100 9,299,563
United News & Media PLC,
7.25%, 07/01/04 (b)........................... Baa2 4,780 4,736,502
--------------
20,610,295
--------------
OIL & GAS -- 0.5%
Atlantic Richfield Co.,
5.55%, 04/15/03............................... A2 22,500 22,014,000
B.J. Services Co.,
7.00%, 02/01/06............................... Ba1 4,000 3,936,080
--------------
25,950,080
--------------
OIL & GAS SERVICES -- 0.4%
KN Energy, Inc.,
6.30%, 03/01/21............................... Baa2 20,000 19,931,200
--------------
RAILROADS -- 0.2%
Norfolk Southern Corp.,
6.875%, 05/01/01.............................. Baa1 11,000 11,108,460
--------------
REAL ESTATE INVESTMENT TRUST -- 2.1%
Duke Realty L.P.,
7.30%, 06/30/03............................... Baa2 4,350 4,381,320
EOP Operating, L.P.,
6.375%, 01/15/02.............................. Baa1 5,000 4,935,900
6.50%, 06/15/04............................... Baa1 6,000 5,760,600
6.625%, 02/15/05.............................. Baa 18,187 17,542,816
Equity Residential Properties Trust,
6.15%, 09/15/00............................... A3 25,000 24,837,500
ERP Operating, L.P.,
7.10%, 06/23/04............................... A3 2,375 2,376,686
6.63%, 04/13/15............................... A3 9,200 8,876,712
Felcor Suites, L.P.,
7.375%, 10/01/04.............................. Ba1 25,000 23,125,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B25
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
REAL ESTATE INVESTMENT TRUST (CONT'D.)
Hanson Overseas B.V.,
7.375%, 01/15/03.............................. A3 $ 4,000 $ 4,065,680
Simon Debartolo Group, Inc.,
6.75%, 06/15/05............................... Baa1 17,500 16,804,375
--------------
112,706,589
--------------
RETAIL -- 1.1%
Federated Department Stores, Inc.,
8.50%, 06/15/03............................... Ba1 34,890 36,937,694
Kroger Co.,
6.34%, 06/01/01 (b)........................... Baa3 10,450 10,361,828
7.25%, 06/01/09 (b)........................... Baa3 6,000 5,973,750
7.70%, 06/01/29 (b)........................... Baa3 3,450 3,415,500
--------------
56,688,772
--------------
TELECOMMUNICATIONS -- 3.6%
360 Communication Co.,
7.125%, 03/01/03.............................. Ba2 23,776 24,120,514
7.60%, 04/01/09............................... Ba1 12,885 13,376,563
Airtouch Communications, Inc.,
7.00%, 10/01/03............................... Baa2 16,800 17,109,288
Cox Communications, Inc.,
6.94%, 10/01/01 (b)........................... Baa2 4,000 4,030,840
Electric Lightwave, Inc.,
6.05%, 05/15/04............................... A2 5,300 5,124,252
GTE Corp.,
9.375%, 12/01/00.............................. Baa1 11,000 11,496,760
Lucent Technologies, Inc.,
6.45%, 03/15/29 (b)........................... A2 17,500 15,830,675
Qwest Communications International Inc.,
7.50%, 11/01/08............................... Ba1 31,200 30,264,000
Sprint Corp.,
6.875%, 11/15/28.............................. Baa1 13,000 11,786,060
Telecom De Peurto Rico,
6.15%, 05/15/02............................... Baa2 10,500 10,385,865
6.65%, 05/15/06............................... Baa2 10,700 10,390,449
6.80%, 05/15/09............................... Baa2 9,000 8,645,670
Worldcom Inc.,
6.125%, 08/15/01.............................. Baa2 15,600 15,550,704
6.95%, 08/15/28............................... Baa2 17,700 16,778,715
--------------
194,890,355
--------------
TRANSPORTATION/TRUCKING/SHIPPING -- 0.1%
Ryder Systems, Inc.,
7.51%, 03/24/00............................... Baa1 3,000 3,031,080
--------------
UTILITIES -- 1.1%
AES Corp., Sr. Notes,
9.50%, 06/01/09 (b)........................... Ba1 4,500 4,623,750
Calenergy Co., Inc.,
6.96%, 09/15/03 (b)........................... Ba1 15,000 14,869,500
CMS Energy Corp.,
8.00%, 07/01/01 (b)........................... Ba3 7,200 7,182,000
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
UTILITIES (CONT'D.)
Edison Mission Energy,
7.73%, 06/15/09............................... A3 $ 5,000 $ 5,051,800
Niagara Mohawk Power,
7.00%, 10/01/00............................... Ba3 25,000 25,088,000
Pennsylvania Electric Co.,
5.75%, 04/01/04............................... A2 3,600 3,490,416
--------------
60,305,466
--------------
WASTE MANAGEMENT -- 0.3%
USA Waste Service,
6.125%, 07/15/01.............................. Baa3 15,695 15,600,987
--------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 5.8%
Federal National Mortgage Association,
Zero Coupon, 10/09/19......................... 11,800 3,141,750
United States Treasury Bonds,
7.50%, 11/15/24............................... 38,800 45,105,000
5.25%, 11/15/28............................... 221,355 196,211,286
United States Treasury Notes,
5.75%, 11/15/00 (b)........................... 11,700 11,749,374
5.25%, 05/15/04 (b)........................... 13,255 13,025,158
7.50%, 02/15/05 (b)........................... 18,450 19,862,532
6.50%, 05/15/05 (b)........................... 7,760 7,997,611
4.75%, 11/15/08 (b)........................... 15,000 13,774,200
--------------
310,866,911
--------------
FOREIGN GOVERNMENT BONDS -- 1.3%
Quebec Province, (Canada),
7.50%, 07/15/23 (b)........................... A1 9,300 9,454,938
Republic of Columbia, (Columbia),
9.75%, 04/23/09 (b)........................... Baa3 4,500 3,712,500
Republic of Mexico, (Mexico),
5.874%, 12/31/19.............................. Ba2 9,750 8,214,375
5.875%, 12/31/19.............................. Ba2 10,450 8,804,125
Republic of Panama, (Panama),
4.00%, 07/17/14............................... Ba1 10,600 7,963,250
Republic of Philippines, (Philippines),
8.875%, 04/15/08.............................. Ba1 5,400 5,254,416
Republic of Poland, (Poland),
4.00%, 10/27/24............................... Baa3 11,300 7,288,500
United Mexican States, (Mexico),
10.375%, 02/17/09............................. NR 21,500 21,564,500
--------------
72,256,604
--------------
TOTAL LONG-TERM BONDS
(cost $1,814,851,285).................................................... 1,759,907,108
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B26
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED VALUE
STOCKS -- 0.9% SHARES (NOTE 2)
------------- --------------
<S> <C> <C> <C>
FINANCIAL SERVICES -- 0.5%
Central Hispano Capital Corp.,.................. 1,000,000 $ 25,250,000
--------------
TELECOMMUNICATIONS -- 0.4%
Telecomunicacoes Brasileiras S.A., ADR.......... 223,400 20,147,888
--------------
TOTAL PREFERRED STOCKS
(cost $47,967,832)............................................. 45,397,888
--------------
WARRANTS UNITS
-------------
Telebras-Spons ADR (b).......................... 223,400 13,963
--------------
(cost $20,797)
TOTAL LONG-TERM INVESTMENTS
(cost $4,263,847,875).......................................... 4,699,055,146
--------------
PRINCIPAL
MOODY'S AMOUNT
SHORT-TERM INVESTMENTS -- 20.8% RATING (000)
------------ ---------
COMMERCIAL PAPER -- 5.6%
Abbey National Treasury,
5.85%, 07/01/99............................... P1 $ 1,700 1,700,000
Advanta Corp., M.T.N.,
6.99%, 10/18/99............................... P1 10,000 9,942,200
BellSouth Telecommunications,
5.18%, 07/14/99............................... P1 600 598,879
Caterpillar Financial,
5.30%, 07/09/99............................... P1 1,721 1,718,973
CXC, Inc.,
5.15%, 08/20/99 (c)........................... P1 44,678 44,678,125
Dayton Hudson Corp.,
5.18%, 07/12/99 (c)........................... P1 14,976 14,976,258
Eastman Kodak Co.,
5.40%, 07/08/99............................... P1 600 599,370
Enterprise Funding Corp.,
5.35%, 07/14/99............................... P1 1,700 1,696,716
Federated Department Stores,
5.05%, 07/12/99 (c)........................... P1 9,985 9,984,569
Fortune Brands,
5.80%, 07/01/99............................... P1 1,700 1,700,000
Gateway Fuel,
5.80%, 07/01/99............................... P1 1,700 1,700,000
General Motors Acceptance Corp.,
5.04%, 08/23/99 (c)........................... P1 15,435 15,434,619
Halliburton Co.,
5.40%, 07/13/99............................... P1 537 536,033
Heinz Co.,
5.35%, 07/07/99............................... P1 1,500 1,498,662
Heller Financial, Inc.,
5.35%, 07/08/99 (c)........................... P1 12,487 12,486,997
Ing American Insurance Holdings,
5.80%, 07/01/99............................... P1 1,700 1,700,000
Merrill Lynch & Co. Inc,
5.27%, 07/12/99............................... P1 1,701 1,698,263
Monte Rosa Capital Corp.,
4.92%, 07/15/99 (c)........................... P1 55,083 55,083,405
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONT'D.)
Proctor & Gamble,
5.20%, 07/13/99............................... P1 $ 400 $ 399,305
Public Services Company of Colorado
5.20%, 07/02/99 (c)........................... P1 17,248 17,247,508
Raytheon Co.
5.25%, 07/23/99 (c)........................... P1 49,840 49,839,583
Rohm & Haas Co.
5.75%, 07/06/99 (c)........................... P1 35,971 35,971,250
Ryder Systems, Inc.
5.08%, 07/02/99 (c)........................... P1 3,500 3,499,506
Sonoco Products,
5.80%, 07/01/99............................... P1 1,700 1,700,000
Southern California Edison,
5.25%, 07/12/99............................... P3 600 599,038
Tele-Communications, Inc.,
6.375%, 09/15/99.............................. P1 6,400 6,413,760
7.375%, 02/15/00.............................. P1 6,000 6,059,400
Triple-A ONE Plus,
5.35%, 07/06/99............................... P1 1,700 1,698,737
Wells Fargo & Company,
6.00%, 07/01/99............................... P3 1,700 1,700,000
Windmill Funding Corp.,
5.40%, 07/13/99............................... P1 600 598,920
--------------
303,460,076
--------------
OTHER CORPORATE OBLIGATIONS -- 4.5%
Banco de Commercio Exterior de Colombia, SA,
M.T.N., (Colombia),
8.625%, 06/02/00.............................. NR 5,500 5,438,125
Banco Ganadero, SA, M.T.N., (Colombia),
9.75%, 08/26/99............................... NR 9,600 9,595,839
Capital One Bank,
6.844%, 06/13/00.............................. Baa3 23,900 24,042,205
Comdisco, Inc.,
5.94%, 04/13/00............................... Baa1 12,500 12,539,000
Dayton Hudson Corp.,
5.95%, 06/15/00............................... A3 9,000 9,012,510
General Electric Capital International Funding,
5.07%, 08/09/99 (c)........................... NR 9,945 9,945,075
Conoco, Inc.,
5.20%, 07/06/99 (c)........................... Baa1 19,986 19,985,556
5.22%, 07/13/99 (c)........................... NR 24,957 24,956,500
5.22%, 07/14/99 (c)........................... NR 5,989 5,988,690
MCI Worldcom Inc.,
5.05%, 07/09/99 (c)........................... Baa2 9,989 9,988,778
5.20%, 07/09/99 (c)........................... Baa3 25,977 25,977,467
Okobank Sub NT,
7.225% 10/29/49 (d)........................... NR 9,000 9,000,000
7.900% 10/29/49 (d)........................... NR 3,500 3,500,000
Rider Systems, Inc.,
8.34%, 01/26/00............................... Baa1 5,000 5,062,050
Xerox Capital Corp.,
5.80%, 07/11/99 (c)........................... Baa1 67,300 67,300,000
--------------
240,033,460
--------------
TIME DEPOSIT -- 0.4%
Deutsche Bank AG,
5.125%, 07/11/99 (c).......................... NR 21,696 21,696,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B27
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 10.1%
Joint Repurchase Agreement Account,
4.775%, 07/01/99 (Note 5)..................... $ 536,057 $ 536,057,000
--------------
Merrill Lynch Triparty Repurchase Agreement
Account,
5.10%, 07/02/99 (e)........................... 10,000 10,000,000
--------------
U.S. GOVERNMENT OBLIGATIONS -- 0.2%
United States Treasury Bill,
4.545%, 9/16/99............................... 9,500 9,408,563
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,111,308,034).................................................... 1,120,655,099
--------------
TOTAL INVESTMENTS -- 108.0%
(cost $5,375,155,909; Note 6)............................................ 5,814,648,192
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (F).............................
3,223,625
LIABILITIES IN EXCESS OF OTHER ASSETS -- (8.0)%............................
(432,697,757)
--------------
TOTAL NET ASSETS -- 100.0%................................................. $5,385,174,060
--------------
--------------
</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)
(a) Non-income producing security.
(b) Portion of securities on loan with an aggregate market value of
$438,010,615; cash collateral of $443,760,219 was received with which the
portfolio purchased securities.
(c) Represents security purchased with cash collateral received for securities
on loan.
(d) Indicates a variable rate security. The maturity date presented for this
instrument 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, 1999.
(e) Merrill Lynch Triparty Repurchase Agreement, repurchase price $10,002,833,
due 7/2/99. The value of the collateral including accrued interest was
$10,202,408.
(f) Open Future Contracts as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE JUNE 30, 1999 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Positions:
24 S&P 500 Index Sep 99 $ 8,071,125 $ 8,290,200 $ 219,075
588 U.S. Treasury Bond Sep 99 $ 359,300,165 $ 354,789,032 $ (4,511,133)
527 U.S. Treasury Note Sep 99 $ 56,841,687 $ 57,443,000 $ 601,313
--------------
$ (3,690,745)
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B28
<PAGE>
STOCK INDEX PORTFOLIO
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 97.2%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.5%
AlliedSignal, Inc............................... 204,500 $ 12,883,500
Boeing Co....................................... 355,236 15,696,991
General Dynamics Corp........................... 47,200 3,233,200
Goodrich (B.F.) Co.............................. 25,600 1,088,000
Lockheed Martin Corp............................ 142,798 5,319,225
Northrop Grumman Corp........................... 24,200 1,604,762
Parker-Hannifin Corp............................ 38,225 1,748,794
Raytheon Co. (Class "B" Stock).................. 123,018 8,657,392
United Technologies Corp........................ 177,300 12,710,194
--------------
62,942,058
--------------
AIRLINES -- 0.3%
AMR Corp.(a).................................... 64,800 4,422,600
Delta Air Lines, Inc............................ 53,200 3,065,650
Southwest Airlines Co........................... 121,150 3,770,794
US Airways Group, Inc.(a)....................... 34,900 1,520,331
--------------
12,779,375
--------------
APPAREL -- 0.2%
Fruit Of The Loom, Inc.(a)...................... 25,200 245,700
Nike, Inc. (Class "B" Stock).................... 104,300 6,603,494
Reebok International Ltd........................ 19,000 353,875
--------------
7,203,069
--------------
AUTOS - CARS & TRUCKS -- 1.3%
Cummins Engine Co., Inc......................... 14,400 822,600
Dana Corp....................................... 63,594 2,929,299
Ford Motor Co................................... 444,100 25,063,894
General Motors Corp............................. 242,100 15,978,600
Genuine Parts Co................................ 65,925 2,307,375
Johnson Controls, Inc........................... 32,000 2,218,000
Navistar International Corp.(a)................. 23,900 1,195,000
PACCAR, Inc..................................... 29,160 1,556,415
TRW, Inc........................................ 46,300 2,540,712
--------------
54,611,895
--------------
BANKS AND SAVINGS & LOANS -- 6.5%
AmSouth Bancorporation.......................... 66,900 1,551,244
Banc One Corp................................... 433,945 25,846,849
Bank Of America Corp............................ 640,344 46,945,219
Bank of New York Co., Inc....................... 277,300 10,173,444
BankBoston Corp................................. 108,400 5,541,950
BB&T Corp....................................... 114,300 4,193,381
Chase Manhattan Corp............................ 311,994 27,026,480
Comerica, Inc................................... 58,450 3,474,122
First Union Corp................................ 362,978 17,059,966
Firstar Corp.................................... 251,700 7,047,600
Fleet Financial Group, Inc...................... 211,100 9,367,562
Golden West Financial Corp...................... 20,100 1,969,800
Huntington Bancshares, Inc...................... 77,500 2,712,500
KeyCorp......................................... 169,700 5,451,612
Mellon Bank Corp................................ 189,800 6,903,975
Mercantile Bancorporation, Inc.................. 56,400 3,221,850
Morgan (J.P.) & Co., Inc........................ 64,150 9,013,075
National City Corp.............................. 121,200 7,938,600
Northern Trust Corp............................. 41,000 3,977,000
PNC Bank Corp................................... 109,400 6,304,175
Providian Financial Corp........................ 52,550 4,913,425
Regions Financial Corp.......................... 83,100 3,194,156
Republic New York Corp.......................... 39,100 2,666,131
SouthTrust Corp................................. 59,400 2,279,475
Summit Bancorp.................................. 63,900 2,671,819
Suntrust Banks, Inc............................. 117,700 8,172,794
Synovus Financial Corp.......................... 97,500 1,937,812
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
U.S. Bancorp.................................... 268,926 $ 9,143,484
Union Planters Corp............................. 48,800 2,180,750
Wachovia Corp................................... 74,200 6,348,737
Wells Fargo & Co................................ 603,860 25,815,015
--------------
275,044,002
--------------
BUSINESS SERVICES -- 0.2%
Equifax, Inc.................................... 52,300 1,866,456
Omnicom Group, Inc.............................. 64,600 5,168,000
--------------
7,034,456
--------------
CHEMICALS -- 1.6%
Air Products & Chemicals, Inc................... 85,300 3,433,325
Dow Chemical Co................................. 80,700 10,238,812
Du Pont (E.I.) de Nemours & Co.................. 413,900 28,274,544
Eastman Chemical Co............................. 27,600 1,428,300
Engelhard Corp.................................. 49,875 1,128,422
FMC Corp.(a).................................... 12,300 840,244
Grace (W.R.) & Co............................... 24,400 448,350
Great Lakes Chemical Corp....................... 20,600 948,887
Hercules, Inc................................... 35,400 1,391,662
Monsanto Co..................................... 230,200 9,078,512
Nalco Chemical Co............................... 23,100 1,198,312
Praxair, Inc.................................... 59,100 2,892,206
Raychem Corp.................................... 30,200 1,117,400
Rohm & Haas Co.................................. 78,801 3,378,575
Sigma-Aldrich Corp.............................. 38,000 1,308,625
Union Carbide Corp.............................. 50,600 2,466,750
--------------
69,572,926
--------------
COMMERCIAL SERVICES -- 0.2%
Cendant Corp.(a)................................ 305,618 6,265,169
Deluxe Corp..................................... 29,000 1,129,187
--------------
7,394,356
--------------
COMPUTER SERVICES -- 9.4%
3Com Corp.(a)................................... 130,000 3,469,375
Adobe Systems, Inc.............................. 23,600 1,938,887
America Online, Inc.(a)......................... 399,200 44,111,600
Autodesk, Inc................................... 19,800 585,337
Automatic Data Processing, Inc.................. 228,100 10,036,400
BMC Software, Inc.(a)........................... 87,100 4,703,400
Cabletron Systems, Inc.(a)...................... 58,500 760,500
Ceridian Corp.(a)............................... 53,200 1,738,975
Cisco Systems, Inc.(a).......................... 1,172,200 75,606,900
Computer Associates International, Inc.......... 198,143 10,897,865
Computer Sciences Corp.(a)...................... 59,700 4,130,494
Compuware Corp.(a).............................. 133,600 4,250,150
Electronic Data Systems Corp.................... 178,900 10,119,031
EMC Corp.(a).................................... 370,700 20,388,500
First Data Corp................................. 160,900 7,874,044
Microsoft Corp.(a).............................. 1,877,500 169,327,031
Novell, Inc.(a)................................. 126,100 3,341,650
Oracle Corp.(a)................................. 528,830 19,632,814
Parametric Technology Corp.(a).................. 93,000 1,290,375
Peoplesoft, Inc................................. 86,000 1,483,500
Silicon Graphics, Inc.(a)....................... 67,800 1,110,225
Unisys Corp..................................... 96,900 3,773,044
--------------
400,570,097
--------------
COMPUTERS -- 4.8%
Apple Computer, Inc.(a)......................... 56,700 2,625,919
Compaq Computer Corp............................ 621,069 14,711,572
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B29
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
COMPUTERS (CONT'D.)
Data General Corp.(a)........................... 19,800 $ 288,337
Dell Computer Corp.(a).......................... 935,100 34,598,700
Gateway 2000, Inc.(a)........................... 57,400 3,386,600
Hewlett-Packard Co.............................. 374,100 37,597,050
International Business Machines Corp............ 669,700 86,558,725
Networking Appliance, Inc.(a)................... 8,000 447,000
Seagate Technology, Inc.(a)..................... 88,100 2,257,562
Sun Microsystems, Inc.(a)....................... 285,000 19,629,375
--------------
202,100,840
--------------
CONSTRUCTION -- 0.1%
Centex Corp..................................... 21,600 811,350
Fluor Corp...................................... 28,300 1,146,150
Foster Wheeler Corp............................. 18,300 258,487
Pulte Corp...................................... 14,500 334,406
--------------
2,550,393
--------------
CONTAINERS -- 0.1%
Ball Corp....................................... 10,900 460,525
Bemis Co., Inc.................................. 18,100 719,475
Crown Cork & Seal Co., Inc...................... 44,200 1,259,700
Owens-Illinois, Inc.(a)......................... 59,700 1,951,444
Sealed Air Corp................................. 29,510 1,914,461
--------------
6,305,605
--------------
COSMETICS & SOAPS -- 1.8%
Alberto Culver Co. (Class "B" Stock)............ 19,100 508,537
Avon Products, Inc.............................. 96,000 5,328,000
Colgate-Palmolive Co............................ 107,600 10,625,500
Gillette Co..................................... 408,100 16,732,100
International Flavors & Fragrances, Inc......... 39,400 1,748,375
Procter & Gamble Co............................. 488,104 43,563,282
--------------
78,505,794
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 1.0%
Eastman Kodak Co................................ 120,900 8,190,975
Philip Morris Co., Inc.......................... 895,600 35,991,925
--------------
44,182,900
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.6%
Avery Dennison Corp............................. 43,900 2,650,462
Pitney Bowes, Inc............................... 100,900 6,482,825
Xerox Corp...................................... 242,792 14,339,902
--------------
23,473,189
--------------
DIVERSIFIED OPERATIONS -- 3.3%
Fortune Brands, Inc............................. 64,300 2,660,412
General Electric Co............................. 1,202,900 135,927,700
--------------
138,588,112
--------------
DRUGS AND MEDICAL SUPPLIES -- 10.1%
Abbott Laboratories............................. 557,500 25,366,250
Allergan, Inc................................... 25,300 2,808,300
ALZA Corp.(a)................................... 35,700 1,816,237
American Home Products Corp..................... 483,700 27,812,750
Amgen, Inc.(a).................................. 188,000 11,444,500
Bard (C.R.), Inc................................ 19,000 908,437
Bausch & Lomb, Inc.............................. 20,100 1,537,650
Baxter International, Inc....................... 106,500 6,456,562
Becton, Dickinson & Co.......................... 93,100 2,793,000
Biomet, Inc..................................... 42,100 1,673,475
Boston Scientific Corp.(a)...................... 144,800 6,362,150
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
DRUGS AND MEDICAL SUPPLIES (CONT'D.)
Bristol-Myers Squibb Co......................... 731,060 $ 51,494,039
Cardinal Health, Inc............................ 100,450 6,441,356
Eli Lilly & Co.................................. 405,500 29,043,937
Guidant Corp.................................... 109,800 5,647,837
Johnson & Johnson............................... 494,000 48,412,000
Mallinckrodt, Inc............................... 25,800 938,475
Medtronic, Inc.................................. 215,500 16,782,062
Merck & Co., Inc................................ 874,000 64,676,000
PE Corp-PE Biosystems Corp...................... 19,100 2,191,725
Pfizer, Inc..................................... 477,600 52,416,600
Pharmacia & Upjohn, Inc......................... 185,225 10,523,095
Schering-Plough Corp............................ 538,900 28,561,700
St. Jude Medical, Inc.(a)....................... 30,300 1,079,437
Warner-Lambert Co............................... 304,000 21,090,000
Watson Pharmaceuticals, Inc.(a)................. 35,000 1,227,187
--------------
429,504,761
--------------
ELECTRONICS -- 3.9%
Advanced Micro Devices, Inc.(a)................. 51,100 922,994
Applied Materials, Inc.(a)...................... 137,500 10,157,812
EG&G, Inc....................................... 15,000 534,375
Emerson Electric Co............................. 161,400 10,148,025
Grainger (W.W.), Inc............................ 33,400 1,797,337
Harris Corp..................................... 27,100 1,061,981
Honeywell, Inc.................................. 46,600 5,399,775
Intel Corp...................................... 1,223,800 72,816,100
KLA-Tencor Corp.(a)............................. 33,700 2,186,287
LSI Logic Corp.(a).............................. 51,500 2,375,437
Micron Technology, Inc.......................... 89,200 3,595,875
Motorola, Inc................................... 220,200 20,863,950
National Semiconductor Corp.(a)................. 58,000 1,468,125
Rockwell International Corp..................... 68,500 4,161,375
Solectron Corp.................................. 94,100 6,275,294
Tektronix, Inc.................................. 17,500 528,281
Texas Instruments, Inc.......................... 143,100 20,749,500
Thomas & Betts Corp............................. 19,800 935,550
--------------
165,978,073
--------------
ENVIRONMENTAL SERVICES -- 0.1%
Browning-Ferris Industries, Inc................. 66,200 2,846,600
--------------
FINANCIAL SERVICES -- 5.8%
American Express Co............................. 165,800 21,574,725
Associates First Capital Corp................... 266,566 11,812,206
Bear Stearns Companies, Inc..................... 42,105 1,968,409
Block (H.R.), Inc............................... 36,700 1,835,000
Capital One Financial Corp...................... 74,400 4,143,150
Citigroup, Inc.................................. 1,244,213 59,100,117
Countrywide Credit Industries, Inc.............. 40,800 1,744,200
Dun & Bradstreet Corp........................... 62,360 2,209,882
Federal Home Loan Mortgage Corp................. 253,000 14,674,000
Federal National Mortgage Association........... 381,900 26,112,412
Fifth Third Bancorp............................. 97,600 6,496,500
Franklin Resource, Inc.......................... 92,400 3,753,750
Household International, Inc.................... 175,258 8,302,848
Lehman Brothers Holdings, Inc................... 43,700 2,720,325
MBNA Corp....................................... 292,768 8,966,020
Merrill Lynch & Co., Inc........................ 133,900 10,703,631
Morgan Stanley Dean Witter & Co................. 212,605 21,792,012
PaineWebber Group, Inc.......................... 54,000 2,524,500
Paychex, Inc.................................... 88,500 2,820,937
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B30
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES (CONT'D.)
Schwab (Charles) Corp.(a)....................... 149,100 $ 16,382,362
SLM Holding Corp................................ 59,600 2,730,425
State Street Corp............................... 58,800 5,020,050
Transamerica Corp............................... 47,000 3,525,000
Washington Mutual, Inc.......................... 216,348 7,653,310
--------------
248,565,771
--------------
FOOD & BEVERAGES -- 4.4%
Anheuser-Busch Companies, Inc................... 177,300 12,577,219
Archer-Daniels-Midland Co....................... 215,173 3,321,733
Bestfoods....................................... 104,800 5,187,600
Brown-Forman Corp. (Class "B" Stock)............ 27,600 1,799,175
Campbell Soup Co................................ 164,100 7,610,137
Coca-Cola Enterprises, Inc...................... 154,000 4,581,500
Coca-Cola Co.................................... 904,600 56,537,500
ConAgra, Inc.................................... 179,100 4,768,538
Coors (Adolph) Co. (Class "B" Stock)............ 12,800 633,600
General Mills, Inc.............................. 56,900 4,573,337
Heinz (H.J.) & Co............................... 132,350 6,634,044
Hershey Foods Corp.............................. 54,100 3,212,187
Kellogg Co...................................... 148,900 4,913,700
Nabisco Group Holdings Corp..................... 119,900 2,345,544
PepsiCo, Inc.................................... 535,800 20,728,762
Pioneer Hi-Bred International, Inc.............. 90,000 3,504,375
Quaker Oats Co.................................. 51,100 3,391,762
Ralston-Ralston Purina Group.................... 123,620 3,762,684
Sara Lee Corp................................... 332,400 7,541,325
Seagram Co., Ltd................................ 150,100 7,561,287
Sysco Corp...................................... 121,500 3,622,219
Unilever NV..................................... 210,132 14,656,707
Wrigley (William) Jr. Co........................ 42,600 3,834,000
--------------
187,298,935
--------------
FOREST PRODUCTS -- 0.7%
Boise Cascade Corp.............................. 19,886 852,612
Champion International Corp..................... 35,000 1,675,625
Fort James Corp................................. 81,000 3,067,875
Georgia-Pacific Corp............................ 66,800 3,164,650
International Paper Co.......................... 151,112 7,631,156
Louisiana-Pacific Corp.......................... 38,900 923,875
Mead Corp....................................... 37,400 1,561,450
Potlatch Corp................................... 10,000 439,375
Temple-Inland, Inc.............................. 20,000 1,365,000
Westvaco Corp................................... 35,700 1,035,300
Weyerhaeuser Co................................. 73,900 5,080,625
Willamette Industries, Inc...................... 40,100 1,847,106
--------------
28,644,649
--------------
GAS PIPELINES -- 0.3%
Columbia Energy Group........................... 30,250 1,896,297
Consolidated Natural Gas Co..................... 37,000 2,247,750
Peoples Energy Corp............................. 11,400 429,637
Sempra Energy................................... 89,104 2,015,978
Sonat, Inc...................................... 39,900 1,321,687
Williams Companies, Inc......................... 157,600 6,707,850
--------------
14,619,199
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.5%
Columbia/HCA Healthcare Corp.................... 234,298 5,344,923
Healthsouth Corp.(a)............................ 154,500 2,307,844
Humana, Inc.(a)................................. 58,100 751,669
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
HOSPITALS/ HOSPITAL MANAGEMENT (CONT'D.)
IMS Health, Inc................................. 115,120 $ 3,597,500
Manor Care, Inc................................. 40,850 988,059
McKesson HBOC Inc............................... 101,107 3,248,062
Service Corp. International..................... 101,500 1,953,875
Shared Medical Systems Corp..................... 9,000 587,250
Tenet Healthcare Corp.(a)....................... 111,100 2,062,294
Wellpoint Health Networks Inc................... 22,600 1,918,175
--------------
22,759,651
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.4%
Clorox Co....................................... 42,800 4,571,575
Kimberly-Clark Corp............................. 197,488 11,256,816
--------------
15,828,391
--------------
HOUSING RELATED -- 0.6%
Armstrong World Industries, Inc................. 14,700 849,844
Fleetwood Enterprises, Inc...................... 12,600 333,112
Kaufman & Broad Home Corp....................... 16,166 402,129
Lowe's Companies, Inc........................... 135,900 7,703,831
Masco Corp...................................... 124,200 3,586,275
Maytag Corp..................................... 32,700 2,278,781
Newell Rubbermaid Inc........................... 102,149 4,749,929
Owens Corning................................... 19,100 656,563
Stanley Works................................... 32,300 1,039,656
Tupperware Corp................................. 22,300 568,650
Whirlpool Corp.................................. 27,300 2,020,200
--------------
24,188,970
--------------
INSURANCE -- 3.5%
Aetna, Inc...................................... 53,312 4,768,092
Aflac Inc....................................... 97,400 4,663,025
Allstate Corp................................... 298,688 10,715,432
American General Corp........................... 92,286 6,956,057
American International Group, Inc............... 453,535 53,091,941
Aon Corp........................................ 94,125 3,882,656
Chubb Corp...................................... 58,400 4,058,800
CIGNA Corp...................................... 76,400 6,799,600
Cincinnati Financial Corp....................... 62,500 2,347,656
Conseco, Inc.................................... 114,259 3,477,758
Hartford Financial Services Group, Inc.......... 86,000 5,014,875
Jefferson-Pilot Corp............................ 39,912 2,641,676
Lincoln National Corp........................... 75,600 3,954,825
Loews Corp...................................... 43,000 3,402,375
Marsh & McLennan Companies, Inc................. 95,200 7,187,600
MBIA, Inc....................................... 36,300 2,350,425
MGIC Investment Corp............................ 40,200 1,954,725
Progressive Corp................................ 27,000 3,915,000
Provident Companies, Inc........................ 47,200 1,888,000
SAFECO Corp..................................... 48,300 2,131,238
St. Paul Companies, Inc......................... 86,410 2,748,918
Torchmark Corp.................................. 51,000 1,740,375
United Healthcare Corp.......................... 67,500 4,227,188
UNUM Corp....................................... 52,200 2,857,950
--------------
146,776,187
--------------
LEISURE -- 1.0%
Brunswick Corp.................................. 33,400 931,025
Carnival Corp. (Class "A" Stock)................ 225,400 10,931,900
Disney (Walt) Co................................ 757,601 23,343,581
Harrah's Entertainment, Inc.(a)................. 46,350 1,019,700
Hilton Hotels Corp.............................. 95,800 1,359,163
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B31
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
LEISURE (CONT'D.)
King World Productions, Inc..................... 25,600 $ 891,200
Marriott International, Inc. (Class "A"
Stock)........................................ 90,200 3,371,225
Mirage Resorts, Inc.(a)......................... 70,900 1,187,575
--------------
43,035,369
--------------
MACHINERY -- 0.7%
Briggs & Stratton Corp.......................... 7,800 450,450
Case Corp....................................... 25,400 1,222,375
Caterpillar, Inc................................ 130,900 7,854,000
Cooper Industries, Inc.......................... 42,600 2,215,200
Deere & Co...................................... 85,200 3,376,050
Delphi Automotive Systems Corp.(a).............. 201,044 3,731,879
Dover Corp...................................... 80,100 2,803,500
Eaton Corp...................................... 25,500 2,346,000
Ingersoll-Rand Co............................... 62,750 4,055,219
Milacron, Inc................................... 12,600 233,100
Snap-On, Inc.................................... 22,800 825,075
Timken Co....................................... 21,500 419,250
--------------
29,532,098
--------------
MANUFACTURING -- 0.8%
Illinois Tool Works, Inc........................ 91,300 7,486,600
Tyco International Ltd.......................... 300,372 28,460,247
--------------
35,946,847
--------------
MEDIA -- 2.8%
CBS Corp.(a).................................... 260,000 11,293,750
Clear Channel Communications, Inc.(a)........... 118,300 8,155,306
Comcast Corp. (Special Class "A" Stock)......... 269,400 10,355,063
Donnelley (R.R.) & Sons Co...................... 49,500 1,834,594
Dow Jones & Co., Inc............................ 36,000 1,910,250
Gannett Co., Inc................................ 103,500 7,387,313
Interpublic Group of Companies, Inc............. 51,300 4,443,863
Knight-Ridder, Inc.............................. 27,600 1,516,275
McGraw-Hill, Inc................................ 72,900 3,932,044
Mediaone Group, Inc............................. 223,500 16,622,813
Meredith Corp................................... 17,800 616,325
New York Times Co. (Class "A" Stock)............ 65,200 2,400,175
Time Warner, Inc................................ 445,680 32,757,480
Times Mirror Co. (Class "A" Stock).............. 30,600 1,813,050
Tribune Co...................................... 42,600 3,711,525
Viacom, Inc. (Class "B" Stock)(a)............... 255,034 11,221,496
--------------
119,971,322
--------------
METALS-FERROUS -- 0.1%
Allegheny Teledyne, Inc......................... 69,880 1,581,035
Bethlehem Steel Corp.(a)........................ 47,300 363,619
Nucor Corp...................................... 34,100 1,617,619
USX-U.S. Steel Group, Inc....................... 31,540 851,580
Worthington Industries, Inc..................... 34,000 558,875
--------------
4,972,728
--------------
METALS-NON FERROUS -- 0.3%
Alcan Aluminum Ltd.............................. 79,350 2,534,241
Alcoa, Inc...................................... 134,700 8,334,563
Cyprus Amax Minerals Co......................... 32,700 496,631
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
METALS-NON FERROUS (CONT'D.)
Inco Ltd........................................ 60,200 $ 1,083,600
Reynolds Metals Co.............................. 25,600 1,510,400
--------------
13,959,435
--------------
MINERAL RESOURCES -- 0.1%
ASARCO, Inc..................................... 16,500 310,406
Burlington Resources, Inc....................... 67,817 2,933,085
Homestake Mining Co............................. 93,700 767,169
Phelps Dodge Corp............................... 20,300 1,257,331
--------------
5,267,991
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.6%
AES Corp........................................ 71,400 4,150,125
Crane Co........................................ 25,625 805,586
Danaher Corp.................................... 48,000 2,790,000
Ecolab, Inc..................................... 46,000 2,006,750
ITT Industries, Inc............................. 41,900 1,597,438
Laidlaw, Inc.................................... 112,400 828,950
Millipore Corp.................................. 14,200 575,988
NACCO Industries, Inc. (Class "A" Stock)........ 3,300 242,550
Pall Corp....................................... 42,000 931,875
PPG Industries, Inc............................. 65,800 3,886,313
Textron, Inc.................................... 59,400 4,889,363
Thermo Electron Corp.(a)........................ 57,000 1,143,563
--------------
23,848,501
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.5%
American Greetings Corp. (Class "A" Stock)...... 24,800 747,100
Black & Decker Corp............................. 32,900 2,076,813
Corning, Inc.................................... 88,700 6,220,088
Jostens, Inc.................................... 12,400 261,175
Minnesota Mining & Manufacturing Co............. 149,000 12,953,688
Polaroid Corp................................... 15,400 425,425
--------------
22,684,289
--------------
MISCELLANEOUS - INDUSTRIAL
Tenneco, Inc.................................... 58,900 1,406,238
--------------
OIL & GAS -- 5.1%
Amerada Hess Corp............................... 32,500 1,933,750
Anadarko Petroleum Corp......................... 44,600 1,641,838
Ashland, Inc.................................... 26,600 1,067,325
Atlantic Richfield Co........................... 119,370 9,974,856
Chevron Corp.................................... 241,200 22,959,225
Coastal Corp.................................... 76,700 3,068,000
Eastern Enterprises............................. 9,500 377,625
Exxon Corp...................................... 894,100 68,957,463
Kerr-McGee Corp................................. 33,926 1,702,661
Mobil Corp...................................... 287,100 28,422,900
NICOR, Inc...................................... 16,200 616,613
Phillips Petroleum Co........................... 94,400 4,749,500
Royal Dutch Petroleum Co........................ 787,300 47,434,825
Sunoco, Inc..................................... 33,200 1,002,225
Texaco, Inc..................................... 198,582 12,411,375
Union Pacific Resources Group, Inc.............. 86,056 1,403,789
Unocal Corp..................................... 87,600 3,471,150
USX-Marathon Group.............................. 116,500 3,793,531
--------------
214,988,651
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Occidental Petroleum Corp....................... 128,000 2,704,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B32
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS SERVICES -- 0.9%
Apache Corp..................................... 40,100 $ 1,563,900
Baker Hughes, Inc............................... 118,130 3,957,355
Enron Corp...................................... 129,400 10,578,450
Halliburton Co.................................. 164,100 7,425,525
Helmerich & Payne, Inc.......................... 18,100 431,006
McDermott International, Inc.................... 20,700 584,775
ONEOK, Inc...................................... 13,000 412,750
Rowan Companies, Inc.(a)........................ 28,700 529,156
Schlumberger Ltd................................ 200,600 12,775,713
--------------
38,258,630
--------------
PRECIOUS METALS -- 0.2%
Barrick Gold Corp............................... 141,300 2,737,688
Battle Mountain Gold Co......................... 89,000 216,938
Freeport-McMoRan Copper & Gold, Inc. (Class
"B").......................................... 66,200 1,187,463
Newmont Mining Corp............................. 61,503 1,222,372
Placer Dome, Inc................................ 115,000 1,358,438
--------------
6,722,899
--------------
RAILROADS -- 0.5%
Burlington Northern Santa Fe Corp............... 171,626 5,320,406
CSX Corp........................................ 80,612 3,652,731
Kansas City Southern Industries, Inc............ 38,300 2,444,019
Norfolk Southern Corp........................... 141,300 4,256,663
Union Pacific Corp.............................. 92,100 5,370,581
--------------
21,044,400
--------------
RESTAURANTS -- 0.6%
Darden Restaurants, Inc......................... 50,300 1,097,169
McDonald's Corp................................. 495,300 20,462,081
Tricon Global Restaurants, Inc.(a).............. 56,650 3,066,181
Wendy's International, Inc...................... 44,800 1,268,400
--------------
25,893,831
--------------
RETAIL -- 6.2%
Albertson's, Inc................................ 152,744 7,875,863
AutoZone, Inc.(a)............................... 51,900 1,563,488
Best Buy Co., Inc.(a)........................... 30,000 2,025,000
Circuit City Stores, Inc........................ 37,600 3,496,800
Consolidated Stores Corp........................ 40,200 1,085,400
Costco Companies, Inc.(a)....................... 80,666 6,458,322
CVS Corp........................................ 141,600 7,186,200
Dayton-Hudson Corp.............................. 163,184 10,606,960
Dillard's, Inc.................................. 37,750 1,325,969
Dollar General Corporation...................... 79,843 2,315,447
Federated Department Stores, Inc.(a)............ 76,500 4,049,719
Great Atlantic & Pacific Tea Co., Inc........... 12,400 419,275
Harcourt General, Inc........................... 27,006 1,392,497
Home Depot, Inc................................. 543,046 34,992,527
IKON Office Solutions, Inc...................... 52,476 787,140
J.C. Penney Co., Inc............................ 95,300 4,628,006
Kmart Corp.(a).................................. 175,400 2,883,138
Kohl's Corp.(a)................................. 58,200 4,492,313
Kroger Co.(a)................................... 300,000 8,381,250
Liz Claiborne, Inc.............................. 23,400 854,100
Longs Drug Stores, Inc.......................... 13,700 473,506
May Department Stores Co........................ 127,200 5,199,300
Nordstrom, Inc.................................. 52,300 1,752,050
Office Depot, Inc............................... 72,000 1,588,500
Pep Boys - Manny, Moe & Jack.................... 19,656 425,061
Rite Aid Corp................................... 94,600 2,329,525
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
RETAIL (CONT'D.)
Safeway, Inc.(a)................................ 182,600 $ 9,038,700
Sears, Roebuck & Co............................. 140,200 6,247,663
Sherwin-Williams Co............................. 64,700 1,795,425
Staples, Inc.(a)................................ 171,200 5,296,500
Supervalu, Inc.................................. 40,800 1,048,050
Tandy Corp...................................... 74,860 3,658,783
The Gap, Inc.................................... 316,988 15,968,245
The Limited, Inc................................ 82,048 3,722,928
TJX Companies, Inc.............................. 116,400 3,877,575
Toys 'R' Us, Inc.(a)............................ 98,450 2,036,684
Wal-Mart Stores, Inc............................ 1,635,200 78,898,400
Walgreen Co..................................... 364,000 10,692,500
Winn-Dixie Stores, Inc.......................... 54,900 2,027,869
--------------
262,896,678
--------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co......................... 28,800 680,400
Goodyear Tire & Rubber Co....................... 58,000 3,411,125
--------------
4,091,525
--------------
TELECOMMUNICATIONS -- 10.9%
Alltel Corp..................................... 102,100 7,300,150
Ameritech Corp.................................. 404,300 29,716,050
Andrew Corp.(a)................................. 29,112 551,309
AT&T Corp....................................... 1,168,021 65,190,172
Bell Atlantic Corp.............................. 571,490 37,361,159
BellSouth Corp.................................. 708,100 33,192,188
CenturyTel, Inc................................. 51,200 2,035,200
Frontier Corp................................... 64,100 3,781,900
General Instrument Corp......................... 62,300 2,647,750
GTE Corp........................................ 354,120 26,824,590
Lucent Technologies, Inc........................ 1,117,305 75,348,256
MCI Worldcom, Inc............................... 681,872 58,811,460
Nextel Communications, Inc. (Class "A"
Stock)(a)..................................... 109,100 5,475,456
Nortel Networks Corp............................ 245,120 21,279,480
SBC Communications, Inc......................... 718,786 41,689,588
Scientific-Atlanta, Inc......................... 27,200 979,200
Sprint Corp..................................... 327,700 17,306,656
Sprint Corp. (PCS Group)........................ 159,950 9,137,144
Tellabs, Inc.(a)................................ 144,500 9,762,781
US West, Inc.................................... 183,222 10,764,293
Vodafone Group, ADR, PLC........................ 29,600 5,831,200
--------------
464,985,982
--------------
TEXTILES -- 0.1%
National Service Industries, Inc................ 14,700 529,200
Russell Corp.................................... 12,700 247,650
Springs Industries, Inc......................... 8,700 379,538
VF Corp......................................... 42,836 1,831,239
--------------
2,987,627
--------------
TOBACCO
R.J. Reynolds Tobacco Holdings, Inc............. 1 21
UST, Inc........................................ 66,100 1,933,425
--------------
1,933,446
--------------
TOYS -- 0.1%
Hasbro, Inc..................................... 73,550 2,054,803
Mattel, Inc..................................... 147,381 3,896,385
--------------
5,951,188
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B33
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp.(a)........................ 106,640 $ 5,785,220
Ryder System, Inc............................... 25,800 670,800
--------------
6,456,020
--------------
UTILITY - ELECTRIC -- 1.9%
Ameren Corp..................................... 53,900 2,068,413
American Electric Power Co., Inc................ 72,500 2,723,281
Carolina Power & Light Co....................... 55,000 2,354,688
Central & South West Corp....................... 77,400 1,809,225
CINergy Corp.................................... 55,739 1,783,648
CMS Energy Corp................................. 41,100 1,721,063
Consolidated Edison, Inc........................ 87,200 3,945,800
Constellation Energy Group...................... 53,550 1,586,419
Dominion Resources, Inc......................... 71,950 3,116,334
DTE Energy Co................................... 53,600 2,144,000
Duke Energy Corp................................ 132,731 7,217,248
Edison International............................ 129,800 3,472,150
Entergy Corp.................................... 90,300 2,821,875
First Energy Corp.(a)........................... 87,200 2,703,200
FPL Group, Inc.................................. 68,100 3,719,963
Florida Progress Corp........................... 28,000 1,156,750
GPU, Inc........................................ 46,200 1,949,063
New Century Energies, Inc....................... 40,900 1,587,431
Niagara Mohawk Holdings Inc.(a)................. 64,600 1,037,638
Northern States Power Co........................ 53,900 1,303,706
Pacific Gas & Electric Co....................... 140,000 4,550,000
PacifiCorp...................................... 110,300 2,026,763
PECO Energy Co.................................. 80,500 3,370,938
PP&L Resources, Inc............................. 55,000 1,691,250
Public Service Enterprise Group, Inc............ 80,400 3,286,350
Reliant Energy, Inc............................. 103,410 2,856,701
Southern Co..................................... 259,400 6,874,100
Texas Utilities Co.............................. 103,506 4,269,623
Unicom Corp..................................... 79,100 3,050,294
--------------
82,197,914
--------------
WASTE MANAGEMENT -- 0.3%
Waste Management, Inc........................... 224,230 12,052,363
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $2,119,905,344).......................................... 4,133,660,226
--------------
PRINCIPAL
SHORT-TERM AMOUNT VALUE
INVESTMENTS -- 2.6% (000) (NOTE 2)
------------- --------------
U.S. GOVERNMENT OBLIGATIONS -- 0.2%
United States Treasury Bills
4.545%, 09/16/99(b)........................... $ 6,100 $ 6,040,891
4.61%, 09/16/99(b)............................ 300 297,093
--------------
6,337,984
--------------
REPURCHASE AGREEMENT -- 2.4%
Joint Repurchase Agreement Account, (Note 5)
4.775%, 07/01/99.............................. 102,839 102,839,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $109,177,330)............................................ 109,176,984
--------------
TOTAL INVESTMENTS -- 99.8%
(cost $2,229,082,674; Note 6).................................. 4,242,837,210
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS(C)....................
2,047,036
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.2%....................
7,204,318
--------------
TOTAL NET ASSETS -- 100.0%....................................... $4,252,088,564
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
PLC Public Limited Company (British Corporation)
(a) Non-income producing security
(b) Security segregated as collateral for futures contracts.
(c) Open futures contracts as of June 30, 1999 are as follows:
<TABLE>
<C> <S> <C> <C> <C> <C>
VALUE AT
NUMBER OF EXPIRATION VALUE AT JUNE 30,
CONTRACTS TYPE DATE TRADE DATE 1999 APPRECIATION
S&P 500
328 Index Sep 99 $109,115,287 $113,299,401 $4,184,114
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B34
<PAGE>
EQUITY PORTFOLIO
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 94.7%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE
Raytheon Co..................................... 44,639 $ 3,074,511
--------------
APPAREL -- 0.4%
Jones Apparel Group, Inc........................ 716,973 24,601,136
--------------
AUTOS - CARS & TRUCKS -- 1.3%
Delphi Automotive Systems Corp. (a)............. 440,325 8,173,533
General Motors Corp............................. 630,000 41,580,000
Navistar International Corp..................... 395,200 19,760,000
PACCAR, Inc..................................... 279,400 14,912,975
--------------
84,426,508
--------------
BANKS AND SAVINGS & LOANS -- 6.1%
Bank of America Corp............................ 1,789,856 131,218,818
Bank of New York Co., Inc....................... 2,400,000 88,050,000
Chase Manhattan Corp............................ 816,200 70,703,325
Mellon Bank Corp................................ 540,200 19,649,775
Mercantile Bankshares Corp...................... 419,400 14,836,275
Morgan (J.P.) & Co., Inc........................ 327,900 46,069,950
National City Corp.............................. 61,560 4,032,180
Republic New York Corp.......................... 450,000 30,684,375
--------------
405,244,698
--------------
CHEMICALS -- 1.8%
BOC Group, PLC ADR
(United Kingdom).............................. 800,000 32,250,000
Eastman Chemical Co............................. 941,550 48,725,212
Potash Corp. of Saskatchewan Inc.,
(Canada)...................................... 380,000 19,665,000
Wellman, Inc.................................... 798,200 12,721,312
Witco Corp...................................... 268,800 5,376,000
--------------
118,737,524
--------------
COMPUTERS -- 4.2%
Compaq Computer Corp............................ 3,302,350 78,224,416
Gerber Scientific, Inc.......................... 419,800 9,261,837
Hewlett-Packard Co.............................. 1,100,000 110,550,000
NCR Corp........................................ 100,000 4,881,250
Seagate Technology, Inc. (a).................... 2,975,800 76,254,875
--------------
279,172,378
--------------
CONSTRUCTION & HOUSING -- 1.4%
American Standard Co., Inc...................... 1,050,000 50,400,000
Centex Corp..................................... 1,200,000 45,075,000
--------------
95,475,000
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 4.3%
Eastman Kodak Co................................ 2,969,300 201,170,075
Gibson Greeting, Inc. (a)....................... 750,000 4,757,812
Philip Morris Co., Inc.......................... 2,025,000 81,379,687
--------------
287,307,574
--------------
ELECTRONICS -- 3.6%
Arrow Electronics, Inc. (a)..................... 2,145,500 40,764,500
Avnet, Inc...................................... 887,600 41,273,400
Harris Corp..................................... 2,884,000 113,016,750
Hitachi Ltd. ADR................................ 515,000 48,635,312
--------------
243,689,962
--------------
FINANCIAL SERVICES -- 3.4%
American Express Co............................. 350,000 45,543,750
Citigroup, Inc.................................. 1,400,401 66,519,047
Lehman Brothers Holdings, Inc................... 849,800 52,900,050
Morgan Stanley Dean Witter & Co................. 634,800 65,067,000
--------------
230,029,847
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOOD & BEVERAGES -- 1.9%
Nabisco Group Holdings Corp..................... 3,710,000 $ 72,576,875
Sara Lee Corp................................... 2,497,500 56,662,031
--------------
129,238,906
--------------
FOREST PRODUCTS -- 11.2%
Fort James Corp................................. 664,000 25,149,000
Georgia-Pacific Corp............................ 3,406,300 161,373,463
Georgia-Pacific Timber Group.................... 1,158,000 29,239,500
International Paper Co.......................... 1,820,000 91,910,000
Mead Corp....................................... 2,306,000 96,275,500
Rayonier Inc.................................... 830,400 41,364,300
Temple-Inland, Inc.............................. 1,240,500 84,664,125
Weyerhaeuser Co................................. 1,522,500 104,671,875
Willamette Industries, Inc...................... 2,500,000 115,156,250
--------------
749,804,013
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 9.5%
Columbia/HCA Healthcare Corp.................... 5,790,100 132,086,656
Foundation Health Systems, Inc. (a)............. 4,724,610 70,869,150
LifePoint Hospitals, Inc. (a)................... 304,742 4,094,971
PacifiCare Health Systems, Inc. (a)............. 1,143,900 82,289,306
Service Corp. International..................... 1,961,200 37,753,100
Tenet Healthcare Corp. (a)...................... 6,478,632 120,259,607
Triad Hospitals, Inc. (a)....................... 304,742 4,114,017
Wellpoint Health Networks Inc................... 2,187,200 185,638,600
--------------
637,105,407
--------------
INSURANCE -- 12.7%
American Financial Group, Inc................... 552,700 18,826,344
American General Corp........................... 879,704 66,307,689
Chubb Corp...................................... 2,206,400 153,344,800
Equitable Companies, Inc........................ 1,161,900 77,847,300
Loews Corp...................................... 1,775,000 140,446,875
Old Republic International Corp................. 3,198,327 55,371,036
SAFECO Corp..................................... 2,855,800 126,012,175
St. Paul Companies, Inc......................... 1,653,800 52,611,513
Tokio Marine & Fire Insurance Co. Ltd. ADR
(Japan)....................................... 656,400 36,840,450
United Healthcare Corp.......................... 1,914,900 119,920,613
--------------
847,528,795
--------------
LEISURE -- 1.2%
Hilton Hotels Corp.............................. 3,470,600 49,239,138
Park Place Entertainment Corp................... 3,470,600 33,621,438
--------------
82,860,576
--------------
METALS -- FERROUS -- 0.1%
Birmingham Steel Corp........................... 1,492,400 6,156,150
Carpenter Technology Corp....................... 100,000 2,856,250
--------------
9,012,400
--------------
METALS-NON FERROUS -- 2.1%
Alcoa, Inc...................................... 1,882,000 116,448,750
Cyprus Amax Minerals Co......................... 1,396,000 21,201,750
Nord Resources Corp. (a)........................ 130,500 73,406
--------------
137,723,906
--------------
OIL & GAS -- 6.3%
Amerada Hess Corp............................... 325,000 19,337,500
Atlantic Richfield Co........................... 1,100,000 91,918,750
Elf Aquitaine SA, ADR, (France)................. 2,424,433 178,347,353
Kerr-McGee Corp................................. 590,400 29,630,700
KeySpan Corp.................................... 1,356,432 35,775,894
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B35
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS (CONT'D.)
Occidental Petroleum Corp....................... 1,100,000 $ 23,237,500
Total SA, ADR, (France)......................... 738,365 47,578,395
--------------
425,826,092
--------------
PRECIOUS METALS -- 2.0%
Freeport-McMoRan Copper & Gold, Inc. (Class
"A").......................................... 3,853,300 64,542,775
Freeport-McMoRan Copper & Gold, Inc. (Class
"B").......................................... 319,600 5,732,825
Kinross Gold Corp. (a).......................... 105,126 177,400
Newmont Mining Corp............................. 3,057,000 60,757,875
--------------
131,210,875
--------------
RESTAURANTS -- 3.0%
CKE Restaurants, Inc............................ 1,824,100 29,641,625
Darden Restaurants, Inc......................... 7,922,700 172,813,894
--------------
202,455,519
--------------
RETAIL -- 10.7%
Dillards, Inc................................... 3,649,000 128,171,125
HomeBase, Inc. (a).............................. 1,300,000 8,206,250
IKON Office Solutions, Inc...................... 5,193,000 77,895,000
Kmart Corp. (a)................................. 6,500,000 106,843,750
Pep Boys - Manny, Moe & Jack.................... 2,025,000 43,790,625
Sears, Roebuck and Co........................... 690,000 30,748,125
Tandy Corp...................................... 5,569,800 272,223,975
Toys 'R' Us, Inc. (a)........................... 2,350,000 48,615,625
--------------
716,494,475
--------------
SEMICONDUCTORS -- 0.7%
National Semiconductor Corp. (a)................ 1,905,600 48,235,500
--------------
TELECOMMUNICATIONS -- 3.6%
Alltel Corp..................................... 1,129,588 80,765,542
AT&T Corp....................................... 1,734,400 96,801,200
Loral Corp...................................... 2,600,000 46,800,000
Portugal Telecom SA, ADR, (Portugal)............ 409,900 16,882,756
--------------
241,249,498
--------------
TEXTILES
Worldtex, Inc. (a).............................. 107,199 254,598
--------------
TOBACCO -- 0.6%
R.J. Reynolds Tobacco Holdings, Inc............. 1,236,667 38,955,000
--------------
TRANSPORTATION -- 0.2%
Marine Transport Corp. (a)...................... 100,000 356,250
OMI Corp. (a)................................... 1,000,000 2,062,500
Overseas Shipholding Group, Inc................. 600,000 7,725,000
--------------
10,143,750
--------------
UTILITY - ELECTRIC -- 1.5%
American Electric Power, Inc.................... 180,000 6,761,250
GPU, Inc........................................ 500,000 21,093,750
Reliant Energy, Inc............................. 974,519 26,921,087
Unicom Corp..................................... 1,112,900 42,916,206
--------------
97,692,293
--------------
UTILITY - WATER -- 0.1%
American Water Works Co., Inc................... 270,000 8,302,500
--------------
WASTE MANAGEMENT -- 0.8%
Waste Management, Inc........................... 1,059,192 56,931,570
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,357,958,434).......................................... 6,342,784,811
--------------
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 5.6% RATING (000) (NOTE 2)
------------ --------- --------------
COMMERCIAL PAPER -- 4.6%
Cxc Inc.,
5.15%, 08/20/99............................... P1 $ 40,000 $ 39,713,889
Falcon Asset Securitization Corp.,
5.25%, 08/12/99............................... P1 25,322 25,166,903
Ford Motor Credit Co.,
5.02%, 08/20/99............................... P1 65,000 64,546,806
GE Capital Corp.,
5.06%, 08/02/99............................... P1 2,000 1,991,004
GE Capital Int'l Funding,
5.04%, 08/16/99............................... P1 65,000 64,581,400
GM Acceptance Corp.,
5.20%, 07/23/99............................... P1 8,217 8,190,888
Monte Rosa Capital Corp.,
5.07%, 07/19/99............................... P1 40,000 39,898,600
Preferred Receivables Funding Corp.
5.25%, 08/19/99............................... P1 22,000 21,842,792
Receivables Capital Corp.,
5.17%, 07/23/99............................... P1 33,134 33,029,315
Windmill Funding Corp,
4.90%, 07/23/99............................... P1 11,391 11,356,890
--------------
310,318,487
--------------
REPURCHASE AGREEMENT -- 1.0%
Joint Repurchase Agreement Account,
4.775%, 07/01/99 (Note 5)..................... 65,160 65,160,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $375,478,487)...................................................... 375,478,487
--------------
TOTAL INVESTMENTS -- 100.3%
(cost $4,733,436,921; Note 6)............................................ 6,718,263,298
--------------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.3%)............................
(21,736,222)
--------------
NET ASSETS -- 100.0%....................................................... $6,696,527,076
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt.
PLC Public Limited Company (British Corporation).
SA Societe Anonyme (French Corporation).
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
B36
<PAGE>
GLOBAL PORTFOLIO
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 92.9%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AUSTRALIA -- 5.8%
Brambles Industries, Ltd........................ 322,500 $ 8,481,055
Broken Hill Proprietary Co. Ltd................. 1,338,400 15,476,083
Commonwealth Bank of Australia.................. 810,000 12,871,738
Qantas Airways Ltd.............................. 5,845,500 19,273,443
--------------
56,102,319
--------------
FINLAND -- 2.5%
Nokia Corp. (a)................................. 276,124 24,187,556
--------------
FRANCE -- 7.5%
Aerospatiale Matra (a).......................... 59,600 1,372,754
Axa............................................. 78,000 9,509,294
Elf Aquitaine SA................................ 118,433 17,367,869
Lafarge SA...................................... 94,000 8,931,567
Legrand SA...................................... 60,361 12,279,268
Suez Lyonnaise des Eaux (a)..................... 67,968 12,250,765
Vivendi......................................... 125,700 10,175,374
--------------
71,886,891
--------------
FEDERAL REPUBLIC OF GERMANY -- 1.8%
Mannesmann AG................................... 115,159 17,193,933
--------------
HONG KONG -- 0.6%
New World Development Co. Ltd................... 2,050,000 6,143,104
--------------
IRELAND -- 1.4%
Bank of Ireland................................. 814,488 13,743,218
--------------
ITALY -- 3.2%
Telecom Italia SpA.............................. 1,445,298 15,013,669
Unicredito Italiano SpA......................... 3,511,992 15,418,141
--------------
30,431,810
--------------
JAPAN -- 8.8%
Fujitsu Limited................................. 810,000 16,288,971
Honda Motor Co., Ltd............................ 254,000 10,761,201
Nippon Telegraph & Telephone Corp. (a).......... 1,146 13,344,840
NTT Mobile Communication Network, Inc........... 1,130 15,155,634
Olympus Optical Co., Ltd........................ 951,000 14,050,783
Takefuji Corp. (a).............................. 141,800 14,650,188
--------------
84,251,617
--------------
NETHERLANDS -- 1.5%
ING Groep N.V................................... 261,634 14,155,408
--------------
SINGAPORE -- 0.5%
Development Bank of Singapore Limited........... 997,000 5,036,241
--------------
SPAIN -- 3.2%
Banco Santander SA.............................. 1,497,268 15,584,390
Telefonica SA................................... 303,915 14,667,132
--------------
30,251,522
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
SWEDEN -- 4.8%
Hennes & Mauritz AB............................. 821,292 $ 20,315,241
Nordbanken Holding AB........................... 2,244,679 13,140,616
Skanska AB (Class "B" Shares)................... 346,473 13,079,843
--------------
46,535,700
--------------
UNITED KINGDOM -- 9.8%
Bank Of Scotland................................ 1,120,063 14,980,265
Canary Wharf Group PLC.......................... 1,274,200 8,035,841
GKN PLC......................................... 952,461 16,259,263
Hays PLC (a).................................... 1,680,494 17,721,002
Siebe PLC (a)................................... 2,457,437 11,620,607
Vodafone AirTouch PLC........................... 1,325,163 26,068,082
--------------
94,685,060
--------------
UNITED STATES -- 41.5%
Alcoa Inc....................................... 92,000 5,692,500
AT&T Corp....................................... 182,200 10,169,037
Citigroup Inc................................... 326,250 15,496,875
Computer Sciences Corp. (a)..................... 213,000 14,736,937
Du Pont (E.I.) de Nemours & Co.................. 73,000 4,986,813
Electronic Arts, Inc. (a)....................... 316,400 17,164,700
Fox Entertainment Group, Inc. (Class "A" Stock)
(a)........................................... 449,200 12,100,325
Global TeleSystems Group, Inc. (a).............. 88,800 7,192,800
Hasbro, Inc..................................... 502,050 14,026,022
MCI WorldCom, Inc. (a).......................... 213,900 18,408,769
Mead Corp....................................... 284,000 11,857,000
Mediaone Group Inc. (a)......................... 85,600 6,366,500
Microsoft Corp. (a)............................. 224,100 20,211,019
Office Depot, Inc. (a).......................... 562,850 12,417,878
Omnicom Group Inc............................... 111,600 8,928,000
Oracle Systems Corp. (a)........................ 456,500 16,947,562
PMC-Sierra, Inc. (a)............................ 474,900 27,989,419
Priceline.com Incorporated (a).................. 30,000 3,466,875
Safeway Inc. (a)................................ 247,500 12,251,250
SCI Systems, Inc. (a)........................... 198,700 9,438,250
Seagate Technology, Inc. (a).................... 315,900 8,094,938
Solectron Corp. (a)............................. 348,800 23,260,600
Texas Instruments, Inc.......................... 143,000 20,735,000
The Williams Companies, Inc..................... 178,400 7,593,150
Time Warner, Inc................................ 394,000 28,959,000
USA Networks, Inc. (a).......................... 374,100 15,010,762
USX Corp.-U.S. Steel Group...................... 112,600 3,040,200
Waste Management, Inc........................... 322,500 17,334,375
Wells Fargo & Co................................ 401,300 17,155,575
Wendys International, Inc....................... 292,600 8,284,238
--------------
399,316,369
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $633,543,511)............................................ 893,920,748
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B37
<PAGE>
GLOBAL PORTFOLIO (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM AMOUNT VALUE
INVESTMENT -- 3.5% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT
UNITED STATES
Joint Repurchase Agreement Account,
4.775%, 07/01/99
(cost $33,493,000; Note 5).................... $ 33,493 $ 33,493,000
--------------
TOTAL INVESTMENTS -- 96.4%
(cost $667,036,511; Note 6).................................... 927,413,748
--------------
FORWARD CURRENCY CONTRACTS -- AMOUNT RECEIVABLE FROM
COUNTERPARTIES (B)............................................. 260,902
OTHER ASSETS IN EXCESS OF LIABILITIES -- 3.6%....................
34,286,416
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 961,961,066
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
AB Aktiebolag (Swedish Stock Company)
AG Aktiengesellschaft (German Stock Company)
N.V. Naamloze Vennootschap (Dutch Corporation)
PLC Public Limited Company (British Corporation)
SA Sociedad Anomia (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Outstanding forward currency contract as of June 30, 1999 was as follows:
<TABLE>
<CAPTION>
VALUE AT
FOREIGN CURRENCY SETTLEMENT CURRENT
CONTRACT DATE VALUE APPRECIATION
- ------------------------- --------- ---------- ------------
<S> <C> <C> <C>
Purchased:
Japanese Yen,
expiring 9/17/99 $6,671,169 $6,410,267 $ 260,902
</TABLE>
The industry classification of portfolio of holdings and other assets in excess
of liabilities shown as a percentage of net assets as of June 30, 1999 were as
follows:
<TABLE>
<S> <C>
Commercial Banks 15.8%
Telecommunications 15.0%
Computer Services 9.7%
Electronics 8.5%
Diversified Operations 7.0%
Media 6.5%
Retail 4.6%
Automobiles 2.8%
Oil & Gas Services 2.6%
Airlines 2.0%
Machinery 1.8%
Waste Management 1.8%
Photography Equipment & Supplies 1.5%
Real Estate-Development 1.5%
Toy Manufacturer 1.4%
Construction 1.4%
Electrical Equipment 1.3%
Food & Beverage 1.3%
Paper 1.2%
Insurance 1.0%
Advertising 0.9%
Building Materials 0.9%
Commercial Services 0.9%
Aluminum 0.6%
Chemicals 0.5%
Steel - Producers 0.3%
Aerospace/Defense 0.1%
Repurchase Agreement 3.5%
---------
96.4%
Other assets in excess of liabilities 3.6%
---------
100.0%
---------
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B38
<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 seventeen Portfolios ("Portfolio" or "Portfolios"),
each with a separate series of capital stock. The information presented in these
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.
NOTE 2: ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Series Fund and the Portfolios in preparation of its financial statements.
SECURITIES VALUATION: Equity securities traded on an exchange or NASDAQ
(whether domestic or foreign) are valued at the last reported sales price on the
primary exchange on which they are traded, or if there is not a sale, at the
mean of the last reported bid and asked prices or at the bid price on such day
in the absence of an asked price. Equity securities that are not sold on an
exchange or NASDAQ are valued by an independent pricing agent or a principal
market maker. Debt securities, in general, are valued using an independent
pricing service. Options on stock or stock indices are valued at the average of
the last reported bid and asked prices on the exchange on which they are traded.
Futures contracts and options on futures contracts are valued at the last
reported sale price, or if there is not a sale, at the mean between the last
reported bid and asked prices on the commodity exchange or the board of trade on
which they are traded. Any security for which a reliable market quotation is
unavailable is valued at fair value by The Prudential Insurance Company of
America ("The Prudential") under the direction of the Series Fund's Board of
Directors.
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.
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-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.
C1
<PAGE>
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at fiscal period end exchange rates are reflected as a component of
net unrealized appreciation (depreciation) on investments and foreign
currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
FORWARD CURRENCY CONTRACTS: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Certain portfolios of the Series Fund enter into forward currency
contracts in order to hedge their exposure to changes in foreign currency
exchange rates on their foreign portfolio holdings or on specific receivables
and payables denominated in a foreign currency. The contracts are valued daily
at current exchange rates and any unrealized gain or loss is included in net
unrealized appreciation or depreciation on investments and foreign currencies.
Gain or loss is realized on the settlement date of the contract equal to the
difference between the settlement value of the original and renegotiated forward
contracts. This gain or loss, if any, is included in net realized gain (loss) on
foreign currencies. Risks may arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
SHORT SALES: Certain portfolios of the Series Fund may sell a security it does
not own in anticipation of a decline in the market value of that security (short
sale). When 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
C2
<PAGE>
gain or loss is realized and is presented in the statement of operations as net
realized gain (loss) on financial futures contracts.
The Series Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series Fund intends to purchase,
against fluctuations in value. Under a variety of circumstances, the Series Fund
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts and the
underlying assets.
SECURITIES LENDING: The Series Fund (excluding the Money Market Portfolio) may
lend its portfolio securities to broker-dealers, qualified banks and certain
institutional investors. The loans are secured by collateral in an amount equal
to at least the market value at all times of the loaned securities plus any
accrued interest and dividends. During the time the securities are on loan, the
Series Fund will continue to receive the interest and dividends or amounts
equivalent thereto, on the loaned securities while receiving a fee from the
borrower or earning interest on the investment of the cash collateral. Loans are
subject to termination at the option of the borrower or the Series Fund. Upon
termination of the loan, the borrower will return to the lender securities
identical to the loaned securities. The Series Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities
and may share the interest earned on the collateral with the borrower. The
Series Fund bears the risk of delay in recovery of , or even loss of rights in,
the securities loaned should the borrower of the securities fail financially.
Prudential Securities Incorporated ("PSI") is the securities lending agent for
the Series Fund. PSI is an indirect, wholly owned subsidiary of The Prudential.
For the six months ended June 30, 1999, PSI has been compensated approximately
$543,000.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of four elements: stated
coupon, original issue discount, market discount and market premium is recorded
on the accrual basis. Certain portfolios own shares of real estate investment
trusts ("REITs") which report information on the source of their distributions
annually. A portion of distributions received from REITs during the year is
estimated to be a return of capital and is recorded as a reduction of their
costs. 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.
Net investment income, other than administration and distribution fees, and
unrealized and realized gains or losses are allocated daily to each class of
shares based upon the relative proportion of net assets of each class at the
beginning of the day.
CUSTODY FEE CREDITS: The Series Fund has an arrangement with its custodian
bank, whereby uninvested monies earn credits which reduce the fees charged by
the custodian. Such custody fee credits are presented as a reduction of gross
expenses in the accompanying statement of operations.
TAXES: For federal income tax purposes, each portfolio in the Series Fund is
treated as a separate taxpaying entity. It is the intent of each Portfolio of
the Series Fund to continue to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
net income to shareholders. Therefore, no federal income tax provision is
required.
Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.
DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the Fund.
The Conservative Balanced, Stock Index and Equity Portfolios will declare and
distribute dividends from net investment income, if any, quarterly and
distributions from net capital gains, if any, at least annually. The Diversified
Bond, Government Income, Flexible Managed and Global Portfolios will declare and
distribute dividends from net investment income and distributions from net
capital gains, if any, at least annually. Dividends and distributions are
recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital
C3
<PAGE>
Distributions by Investment Companies. As a result of this statement, the Series
Fund changed the classification of distributions to shareholders to disclose the
amounts of undistributed net investment income and accumulated net realized gain
(loss) on investments available for distributions determined in accordance with
income tax regulations. For the six months ended June 30, 1999, the application
of this statement increased (decreased) undistributed net investment income
("UNI") and accumulated net realized gains (losses) on investments ("G/L") by
the following amounts:
<TABLE>
<CAPTION>
UNI G/L
------------ -----------
<S> <C> <C>
Global Portfolio....................... $ (3,828,406) $ 3,828,406
</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.
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 Series Fund has a distribution agreement with Prudential Investment
Management Services LLC ("PIMS") which acts as the distributor of the Class I
and Class II shares of the Series Fund. The Series Fund compensates PIMS for
distributing and servicing the Series Fund's Class II shares pursuant to a plan
of distribution (the "Class II Plan"), regardless of expenses actually incurred
by PIMS. The distribution fees are accrued daily and payable quarterly. No
distribution or service fees are paid to PIMS as distributor for Class I shares
of the Series Fund. Pursuant to the Class II Plan, the Series Fund compensates
PIMS for distribution-related activities at an annual rate of .25% of the
average daily net assets of the Class II shares.
The Series Fund has an administration agreement with Prudential Investments Fund
Management LLC ("PIFM") which acts as the administrator of the Class II shares
of the Series Fund. The administration fee paid to PIFM is accrued daily and
payable quarterly, at the annual rate of .15% of the average daily net assets of
the Class II shares.
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, 1999.
PIC, PIMS and PIFM are indirect, wholly-owned subsidiaries of The Prudential.
As of March 11, 1999, the Series Fund, along with other affiliated registered
investment companies (the "Funds"), has a syndicated credit agreement ("SCA")
with an unaffiliated lender. The maximum commitment under the SCA is $1 billion.
The Funds pays a commitment fee at an annual rate of .065 of 1% on the unused
portion of the credit facility, which is accrued and paid on a pro rata basis by
the Funds. Interest on any such borrowings outstanding will be at market rates.
The SCA expires on March 9, 2000. Prior to March 11, 1999,
C4
<PAGE>
the Series Fund had a credit agreement with a maximum commitment of
$250,000,000. The commitment fee was .055 of 1% on the unused portion of the
facility. The Series Fund did not borrow any amounts pursuant to either
agreement during the six months ended June 30, 1999. The purpose of the
agreements is to serve as an alternative source of funding for capital share
redemptions.
NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
began serving as the Series Fund's transfer agent on March 14, 1999. Transfer
agent fees and expenses in the statements of operations include certain
out-of-pocket expense paid to nonaffiliates. During the period March 14, 1999
through June 30, 1999, the Series Fund incurred fees for the services of PMFS
and as of June 30, 1999 fees were due to PMFS as follows:
<TABLE>
<CAPTION>
Transfer
Transfer Agent's Agent
Fees Fees Payable
---------------- -------------
<S> <C> <C>
Diversified Bond Portfolio............. $ 3,200 $ 800
Government Income Portfolio............ 2,500 600
Conservative Balanced Portfolio........ 3,100 800
Flexible Managed Portfolio............. 3,200 800
Stock Index Portfolio.................. 3,300 800
Equity Portfolio....................... 3,400 800
Global Portfolio....................... 3,200 800
-------- -------------
$21,900 $5,400
</TABLE>
For the six months ended June 30, 1999, PSI earned $255,524 in brokerage
commissions from transactions executed on behalf of the following Portfolios:
<TABLE>
<CAPTION>
Fund Commission
- --------------------------------------- ----------
<S> <C>
Conservative Balanced Portfolio........ $ 1,742
Flexible Managed Portfolio............. 7,065
Equity Portfolio....................... 246,717
----------
$255,524
</TABLE>
NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT
The Series Fund may transfer uninvested cash balances into a single joint
repurchase agreement account, the daily aggregate balance of which is invested
in one or more repurchase agreements collateralized by U.S. Government
obligations. The Series Fund's undivided interest in the joint repurchase
agreement account represented $1,150,168,000 as of June 30, 1999. 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............. $ 70,011,000 6.09%
Government Income Portfolio............ 15,824,000 1.38
Conservative Balanced Portfolio........ 171,632,000 14.92
Flexible Managed Portfolio............. 536,057,000 46.61
Stock Index Portfolio.................. 102,839,000 8.94
Equity Portfolio....................... 65,160,000 5.66
Global Portfolio....................... 33,493,000 2.91
All other portfolios (currently not
available to VCA-24)................. 155,152,000 13.49
-------------- ----------
$1,150,168,000 100.00%
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Bear, Stearns & Co., Inc., 4.80%, in the principal amount of $150,000,000,
repurchase price $150,020,000, due 7/1/99. The value of the collateral including
accrued interest was $153,554,030.
C5
<PAGE>
Goldman, Sachs & Co., 4.82%, in the principal amount of $310,000,000, repurchase
price $310,041,505, due 7/1/99. The value of the collateral including accrued
interest was $317,349,453.
Morgan (J.P.) Securities, Inc., 4.65%, in the principal amount of $70,168,000,
repurchase price $70,177,063, due 7/1/99. The value of the collateral including
accrued interest was $71,625,963.
Morgan Stanley Dean Witter, 4.72%, in the principal amount of $310,000,000,
repurchase price $310,040,644, due 7/1/99. The value of the collateral including
accrued interest was $316,244,264.
Warburg Dillon Reed LLC, 4.80%, in the principal amount of $310,000,000,
repurchase price $310,041,333, due 7/1/99. The value of the collateral including
accrued interest was $316,876,844.
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchases and proceeds from sales of securities (excluding
short-term issues) for the six months ended June 30, 1999 were as follows:
Cost of Purchases:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX EQUITY
------------ ------------ -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Government Securities.................. $618,741,194 $221,030,269 $1,648,483,500 $1,198,041,677 0 0
Non-Government Securities.............. $801,166,313 0 $1,981,320,228 $1,355,784,779 $317,527,836 $389,928,708
<CAPTION>
GLOBAL
------------
<S> <C>
Government Securities.................. $ 74,089,245
Non-Government Securities.............. $342,593,729
</TABLE>
Proceeds from Sales:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX EQUITY
------------ ------------ -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Government Securities.................. $558,169,588 $243,561,018 $1,532,452,466 $1,034,349,485 0 0
Non-Government Securities.............. $703,515,708 0 $2,402,210,961 $1,785,115,056 $ 50,766,384 $647,652,174
<CAPTION>
GLOBAL
------------
<S> <C>
Government Securities.................. $ 74,099,000
Non-Government Securities.............. $318,776,519
</TABLE>
The federal income tax basis and unrealized appreciation (depreciation) of the
Series Funds' investments as of June 30, 1999 were as follows:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX
-------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Gross Unrealized Appreciation.......... $ 8,015,242 $ 2,706,493 $ 480,008,589 $ 678,008,589 $2,049,197,782
Gross Unrealized Depreciation.......... 35,963,417 8,361,455 145,565,684 240,666,406 36,072,555
Total Net Unrealized................... (27,948,175) (5,654,962) 334,442,905 437,342,183 2,013,125,227
Tax Basis.............................. 1,272,547,958 415,178,066 4,276,071,049 5,377,306,009 2,229,712,337
<CAPTION>
EQUITY GLOBAL
-------------- ------------
<S> <C> <C>
Gross Unrealized Appreciation.......... $2,174,645,031 $272,577,582
Gross Unrealized Depreciation.......... 189,818,654 13,108,052
Total Net Unrealized................... 1,984,826,377 259,469,530
Tax Basis.............................. 4,733,436,921 667,944,218
</TABLE>
For federal income tax purposes, the following Portfolio had a capital loss
carryforward as of December 31, 1998. 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 Loss
Carryforward
Available Expiration Year
------------ ----------------
<S> <C> <C>
Government Income Portfolio............ $57,521 2003
</TABLE>
NOTE 7: CAPITAL
The Series Fund offers Class I and Class II shares. Both Class I and Class II
shares of a Portfolio are not subject to any sales charge or redemption charge
and are sold at the net asset value of the Portfolio. Class I shares are sold
only to certain separate accounts of The Prudential to fund benefits under
certain variable life insurance and variable annuity contracts ("contracts").
Class II shares are sold only to separate accounts of non-Prudential insurance
companies as investment options under certain contracts. The accounts invest in
shares of the Series Fund through subaccounts that correspond to the portfolios.
The accounts will redeem shares of the Series Fund to the extent necessary to
provide benefits under the contracts or for such other purposes as may be
consistent with the contracts. Currently, only the Equity Portfolio has Class II
shares outstanding.
C6
<PAGE>
Trasnactions in shares of comon stock of the Equity Portfolio for the six months
ended June 30, 1999 were as follows:
<TABLE>
<CAPTION>
Class I Shares Amount
- --------------------------------------- ----------- -------------
<S> <C> <C>
Six months ended June 30, 1999:
Capital stock sold..................... 4,442,133 $ 136,269,651
Capital stock issued in reinvestment of
dividends and distributions.......... 4,320,133 134,615,336
Capital stock repurchased.............. (19,679,306) (607,767,177)
----------- -------------
Net decrease in shares outstanding..... (10,917,040) $(336,882,190)
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class II Shares Amount
- --------------------------------------- ------------ --------------
<S> <C> <C>
May 3, 1999(a) through June 30, 1999:
Capital stock sold..................... 4,868 $ 162,667
Capital stock repurchased.............. (843) (28,161)
------------ --------------
Net increase in shares outstanding..... 4,025 $ 134,506
------------ --------------
------------ --------------
</TABLE>
(a) Commencement of offering of Class II shares.
C7
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
DIVERSIFIED BOND
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------------
1999 1998 1997 1996 1995(a) 1994(a)
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 11.06 $ 11.02 $ 11.07 $ 11.31 $ 10.04 $ 11.10
----------- ------------ ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.32 0.69 0.80 0.76 0.76 0.68
Net realized and unrealized gains
(losses) on investments.............. (0.50) 0.08 0.11 (0.27) 1.29 (1.04)
----------- ------------ ----------- ----------- ----------- -----------
Total from investment operations... (0.18) 0.77 0.91 0.49 2.05 (0.36)
----------- ------------ ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.69) (0.83) (0.73) (0.75) (0.68)
Distributions from net realized
gains................................ (0.03) (0.04) (0.13) -- (0.03) (0.02)
----------- ------------ ----------- ----------- ----------- -----------
Total distributions................ (0.03) (0.73) (0.96) (0.73) (0.78) (0.70)
----------- ------------ ----------- ----------- ----------- -----------
Net Asset Value, end of period......... $ 10.85 $ 11.06 $ 11.02 $ 11.07 $ 11.31 $ 10.04
----------- ------------ ----------- ----------- ----------- -----------
----------- ------------ ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN:(b)............ (1.64)% 7.15% 8.57% 4.40% 20.73% (3.23)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $1,242.6 $1,122.6 $816.7 $720.2 $655.8 $541.6
Ratios to average net assets:
Expenses............................. 0.42%(d) 0.42% 0.43% 0.45% 0.44% 0.45%
Net investment income................ 6.15%(d) 6.40% 7.18% 6.89% 7.00% 6.41%
Portfolio turnover rate................ 113% 199% 224% 210% 199% 32%
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT INCOME
-----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------
1999 1998 1997 1996 1995(a) 1994(a)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 11.87 $ 11.52 $ 11.22 $ 11.72 $ 10.46 $ 11.78
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.34 0.67 0.75 0.75 0.74 0.70
Net realized and unrealized gains
(losses) on investments.............. (0.65) 0.36 0.30 (0.51) 1.28 (1.31)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations... (0.31) 1.03 1.05 0.24 2.02 (0.61)
----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.68) (0.75) (0.74) (0.76) (0.71)
Dividends in excess of net investment
income............................... -- --(c) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total distributions................ -- (0.68) (0.75) (0.74) (0.76) (0.71)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, end of period......... $ 11.56 $ 11.87 $ 11.52 $ 11.22 $ 11.72 $ 10.46
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN:(b)............ (2.62)% 9.09% 9.67% 2.22% 19.48% (5.16)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $384.1 $443.2 $429.6 $482.0 $501.8 $487.6
Ratios to average net assets:
Expenses............................. 0.44%(d) 0.43% 0.44% 0.46% 0.45% 0.45%
Net investment income................ 5.59%(d) 5.71% 6.40% 6.38% 6.55% 6.30%
Portfolio turnover rate................ 55% 109% 88% 95% 195% 34%
</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) Less than $0.005 per share.
(d) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
D1
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
-----------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------
1999 1998 1997 1996 1995(a) 1994(a)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 15.08 $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.31 0.66 0.76 0.66 0.63 0.53
Net realized and unrealized gains
(losses) on investments.............. 0.30 1.05 1.26 1.24 1.78 (0.68)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations... 0.61 1.71 2.02 1.90 2.41 (0.15)
----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.15) (0.66) (0.76) (0.66) (0.64) (0.51)
Distributions from net realized
gains................................ (0.07) (0.94) (1.81) (1.03) (0.56) (0.15)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions................ (0.22) (1.60) (2.57) (1.69) (1.20) (0.66)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, end of period......... $ 15.47 $ 15.08 $ 14.97 $ 15.52 $ 15.31 $ 14.10
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN:(b)............ 4.04% 11.47% 13.45% 12.63% 17.27% (0.97)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $4,640.3 $4,796.0 $4,744.2 $4,478.8 $3,940.8 $3,501.1
Ratios to average net assets:
Expenses............................. 0.57%(c) 0.57% 0.56% 0.59% 0.58% 0.61%
Net investment income................ 4.02%(c) 4.19% 4.48% 4.13% 4.19% 3.61%
Portfolio turnover rate................ 82% 167% 295% 295% 201% 125%
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE MANAGED
-----------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------
1999 1998 1997 1996 1995(a) 1994(a)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 16.56 $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.27 0.58 0.59 0.57 0.56 0.47
Net realized and unrealized gains
(losses) on investments.............. 0.81 1.14 2.52 1.79 3.15 (1.02)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations... 1.08 1.72 3.11 2.36 3.71 (0.55)
----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.59) (0.58) (0.58) (0.56) (0.45)
Distributions from net realized
gains................................ (.19) (1.85) (3.04) (1.85) (0.79) (0.46)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions................ (.19) (2.44) (3.62) (2.43) (1.35) (0.91)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, end of period......... $ 17.45 $ 16.56 $ 17.28 $ 17.79 $ 17.86 $ 15.50
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN:(b)............ 6.55% 10.24% 17.96% 13.64% 24.13% (3.16)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $5,385.2 $5,410.0 $5,490.1 $4,896.9 $4,261.2 $3,481.5
Ratios to average net assets:
Expenses............................. 0.62%(c) 0.61% 0.62% 0.64% 0.63% 0.66%
Net investment income................ 3.13%(c) 3.21% 3.02% 3.07% 3.30% 2.90%
Portfolio turnover rate................ 53% 138% 227% 233% 173% 124%
</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
----------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------
1999 1998 1997 1996 1995(a) 1994(a)
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of Period... $ 37.74 $ 30.22 $ 23.74 $ 19.96 $ 14.96 $ 15.20
----------- ----------- ----------- ----------- ----------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.22 0.42 0.43 0.40 0.40 0.38
Net realized and unrealized gains
(losses) on investments.............. 4.33 8.11 7.34 4.06 5.13 (0.23)
----------- ----------- ----------- ----------- ----------- ----------
Total from investment operations... 4.55 8.53 7.77 4.46 5.53 0.15
----------- ----------- ----------- ----------- ----------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.10) (0.42) (0.42) (0.40) (0.38) (0.37)
Distributions from net realized
gains................................ (0.15) (0.59) (0.87) (0.28) (0.15) (0.02)
----------- ----------- ----------- ----------- ----------- ----------
Total distributions................ (0.25) (1.01) (1.29) (0.68) (0.53) (0.39)
----------- ----------- ----------- ----------- ----------- ----------
Net Asset Value, end of Period......... $ 42.04 $ 37.74 $ 30.22 $ 23.74 $ 19.96 $ 14.96
----------- ----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------- ----------
TOTAL INVESTMENT RETURN:(b)............ 12.07% 28.42% 32.83% 22.57% 37.06% 1.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,252.1 $3,548.1 $2,448.2 $1,581.4 $1,031.3 $664.5
Ratios to average net assets:
Expenses............................. 0.37%(c) 0.37% 0.37% 0.40% 0.38% 0.42%
Net investment income................ 1.16%(c) 1.25% 1.55% 1.95% 2.27% 2.50%
Portfolio turnover rate................ 1% 3% 5% 1% 1% 2%
</TABLE>
<TABLE>
<CAPTION>
EQUITY
EQUITY CLASS I CLASS II
----------------------------------------------------------------------------- -----------
MAY 3,
SIX MONTHS YEAR ENDED 1999(d)
ENDED DECEMBER 31, THROUGH
JUNE 30, --------------------------------------------------------------- JUNE 30,
1999 1998 1997 1996 1995(a) 1994(a) 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
period........................... $ 29.64 $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 21.49 $ 32.79
----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............. 0.32 0.60 0.69 0.71 0.55 0.51 0.13
Net realized and unrealized gains
on investments................... 4.21 2.21 5.88 3.88 5.89 0.05 0.56
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations................... 4.53 2.81 6.57 4.59 6.44 0.56 0.69
----------- ----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.11) (0.60) (0.70) (0.67) (0.52) (0.49) --
Distributions from net realized
gains............................ (0.56) (3.64) (1.76) (2.60) (0.94) (0.90) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions............ (0.67) (4.24) (2.46) (3.27) (1.46) (1.39) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, end of period..... $ 33.50 $ 29.64 $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 33.48
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN:(b)........ 15.47% 9.34% 24.66% 18.52% 31.29% 2.78% 2.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)........................ $6,696.4 $6,247.0 $6,024.0 $4,814.0 $3,813.8 $2,617.8 $1.3(e)
Ratios to average net assets:
Expenses......................... 0.47%(c) 0.47% 0.46% 0.50% 0.48% 0.55% .97%(c)
Net investment income............ 2.03%(c) 1.81% 2.27% 2.54% 2.28% 2.39% 3.45%(c)
Portfolio turnover rate............ 7% 25% 13% 20% 18% 7% 7%
</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 offering of Class II shares.
(e) Figure is rounded to the nearest thousand.
SEE NOTES TO FINANCIAL STATEMENTS.
D3
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL
-----------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------
1999 1998 1997 1996 1995(a) 1994(a)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 21.16 $ 17.92 $ 17.85 $ 15.53 $ 13.88 $ 14.64
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.05 0.07 0.09 0.11 0.06 0.02
Net realized and unrealized gains
(losses) on investments.............. 1.99 4.38 1.11 2.94 2.14 (0.74)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations... 2.04 4.45 1.20 3.05 2.20 (0.72)
----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.16) (0.13) (0.11) (0.24) (0.02)
Dividends in excess of net investment
income............................... (0.10) (0.12) (0.10) -- -- --
Distributions from net realized
gains................................ (0.18) (0.93) (0.90) (0.62) (0.31) (0.02)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions................ (0.28) (1.21) (1.13) (0.73) (0.55) (0.04)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, end of period......... $ 22.92 $ 21.16 $ 17.92 $ 17.85 $ 15.53 $ 13.88
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN(b)............. 9.74% 25.08% 6.98% 19.97% 15.88% (4.89)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $962.0 $844.8 $638.4 $580.6 $400.1 $345.7
Ratios to average net assets:
Expenses............................. 0.85%(c) 0.86% 0.85% 0.92% 1.06% 1.23%
Net investment income................ 0.41%(c) 0.29% 0.47% 0.64% 0.44% 0.20%
Portfolio turnover rate................ 47% 73% 70% 41% 59% 37%
</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.
D4
<PAGE>
BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.
<TABLE>
<S> <C> <C>
JOHN R. STRANGFELD W. SCOTT McDONALD, JR., PhD. E. MICHAEL CAULFIELD
CHAIRMAN, VICE PRESIDENT, EXECUTIVE VICE PRESIDENT,
THE PRUDENTIAL SERIES FUND, INC. KALUDIS CONSULTING GROUP PRUDENTIAL FINANCIAL MANAGEMENT
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
</TABLE>
<TABLE>
<S> <C>
SAUL K. FENSTER, PhD. JOSEPH WEBER, PhD.
PRESIDENT, VICE PRESIDENT,
NEW JERSEY INSTITUTE OF TECHNOLOGY INTERCLASS (INTERNATIONAL CORPORATE LEARNING)
</TABLE>
<PAGE>
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<PAGE>
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<PAGE>
================================================================================
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
--------------
PRSRT.STD.
U.S. POSTAGE
PAID
SUMMIT, NJ
Address Service Requested Permit No. 657
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on recycled paper. INST-19990825-A001522
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