The
Prudential
Medley Program
[PHOTO OMITTED]
Annual Report to
Participants
December 31, 1999
[LOGO] Prudential
The Prudential Insurance
Company of America
751 Broad Street
Newark, NJ 07102-3777
Pruco Life Insurance Company
213 Washington Street
Newark, NJ 07102-2992
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THE PRUDENTIAL MEDLEY PROGRAM
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
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<CAPTION>
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One Five Ten Inception
Year Years Years Date
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<S> <C> <C> <C> <C>
VCA-10 CAPITAL GROWTH ACCOUNT
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Without Sales Charge(1) 0.40% 15.21% 12.96% 8/82
With Maximum Sales Charge(2) -5.85% 14.84% 12.88% 8/82
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VCA-11 MONEY MARKET ACCOUNT(3)
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Without Sales Charge(1) 4.39% 4.79% 4.62% 8/82
With Maximum Sales Charge(2) -1.73% 4.36% 4.54% 8/82
The current seven-day yield on December 31, 1999 was 5.04%
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VCA-24(4)
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WITHOUT SALES CHARGE(1)
Diversified Bond Account -1.49% 6.99% 6.88% 5/83
Government Income Account -3.42% 6.49% 6.28% 5/89
Conservative Balanced Account 5.84% 11.45% 9.39% 5/83
Flexible Managed Account 7.00% 13.75% 10.87% 5/83
Stock Index Account(5) 19.65% 27.17% 16.66% 10/87
Equity Account 11.61% 18.09% 14.06% 5/83
Global Account 47.14% 21.32% 12.23% 9/88
WITH MAXIMUM SALES CHARGE(2)
Diversified Bond Account -7.50% 6.67% 6.87% 5/83
Government Income Account -9.43% 6.17% 6.28% 5/89
Conservative Balanced Account -0.21% 11.16% 9.37% 5/83
Flexible Managed Account 0.95% 13.48% 10.85% 5/83
Stock Index Account(5) 13.59% 26.99% 16.65% 10/87
Equity Account 5.45% 17.80% 14.02% 5/83
Global Account 41.13% 21.13% 12.32% 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.
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.
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Table of Contents
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I Letter to Medley Participants...........................................3
Market Commentary.......................................................4
II VCA-10 Capital Growth Account...........................................8
Financial Statements...................................................10
III VCA-11 Money Market Account............................................20
Financial Statements...................................................22
IV VCA-24 Prudential Variable Contract Account-24.........................AA
V The Prudential Series Fund, Inc.
Diversified Bond Portfolio.............................................30
Government Income Portfolio............................................32
Conservative Balanced Portfolio........................................34
Flexible Managed Portfolio.............................................36
Stock Index Portfolio..................................................38
Equity Portfolio.......................................................40
Global Portfolio.......................................................42
VI The Prudential Series Fund, Inc.
Financial Statements...................................................A1
Schedule of Investments................................................B1
Notes to Financial Statements..........................................C1
Financial Highlights...................................................D1
Report of Independent Accountants......................................E1
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus for The MEDLEY Program.
The report is for the information of persons participating in The Prudential
Variable Contract Account-10 (VCA-10), The Prudential Variable Contract
Account-11 (VCA-11), and The Prudential Variable Contract Account-24 (VCA-24),
The MEDLEY Program. VCA-10, VCA-11 and VCA-24 are distributed by Prudential
Investment Management Services LLC, a subsidiary of The Prudential Insurance
Company of America. VCA-10, VCA-11 and VCA-24 are group annuity insurance
products issued by The Prudential Insurance Company of America, Newark, NJ.
This report includes the financial statements of the VCA-10, Capital Growth
Account; VCA-11, Money Market Account; and The Prudential Series Fund, Inc.
This report does not include separate account financials for the VCA-24
Subaccounts. If you would like separate account financial statements as of
December 31, 1999, please call the telephone number on the back of this report.
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2
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LETTER TO CONTRACT OWNERS
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Year Ended December 31, 1999
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[PHOTO OMITTED]
CHAIRMAN
JOHN R. STRANGFELD
"People differ in their level of comfort when the value of their investments
fluctuates. Moreover, they may prefer less volatility as they approach
retirement. We recommend that you consider your variable life insurance or
variable annuity contract in the context of your entire portfolio of
investments."
DEAR CONTRACT OWNER:
This Annual Report reviews the investment strategies and performance of the
portfolios available in your Prudential variable life insurance or variable
annuity contract.
A LOOK BACK AT 1999
Last year, technology growth stocks far outperformed most other investments.
Around the world, the spread of computers, the Internet, and wireless
telecommunications is transforming the way people live. This resulted in
increases in the valuation of many companies in that sector. Emerging market
securities also had particularly strong returns, as the economic recovery of
Asia restored investor confidence in these countries. Meanwhile, most bond
investments did not perform well, nor did small-cap value stocks.
2000: A FIRST GLANCE
The new year began with a wave of profit taking, offset by good news on
inflation, only to be driven lower by renewed concerns about inflation. The
result has been significant daily market moves, both positive and negative.
These daily, monthly, and even yearly developments in the market are important,
and can be very interesting. It's equally important, however, to keep in mind
the fundamentals of investing: asset allocation, diversification, and a
systematic plan to reach long-term goals.
KNOW YOUR OWN COMFORT LEVEL
People differ in their level of comfort when the value of their investments
fluctuates. Moreover, they may prefer less volatility as they approach
retirement. We recommend that you consider your variable life insurance or
variable annuity contract in the context of your entire portfolio of
investments.
REBALANCING YOUR PORTFOLIO
After a divergent market such as the past year's, when returns were concentrated
in a narrow group of securities, you may find that the balance among your
holdings has changed. You may have a larger proportion in stocks than you are
comfortable with, or a larger proportion in growth stocks. It may be a good idea
to rebalance your holdings to restore the allocation that you had chosen to meet
your needs.
THE VALUE OF PROFESSIONAL GUIDANCE
Your financial professional can help you determine if adjustments should be
made, whether in light of today's dynamic marketplace, or if your needs have
changed. The important point is for you to be comfortable with a plan to help
reach your personal goals, rather than allowing your assets to drift with market
activity.
Sincerely,
/s/ John R. Strangfeld
John R. Strangfeld
Chairman
The Prudential Medley Program January 26, 2000
3
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EQUITY COMMENTARY
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December 31, 1999
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Global economic recovery and tech take off
Economies around the world began to recover in 1999 as a global financial crisis
that had roiled financial markets in 1997 and 1998 subsided. A flight of capital
away from emerging market countries had resulted in economic recessions and
weakened currencies in many of these nations. But in 1999 the weaker currencies
helped boost their exports and revive their economies. Because the world economy
was more stable, investors poured money into stocks and bonds of developing
markets and stocks in Latin America, eastern Europe and Asia rose dramatically.
Japanese stocks also rallied as that nation attacked its structural, financial
and business problems.
The pickup in global economic demand boosted commodity prices. The United States
saw strong advances for industrial cyclical stocks such as basic materials and
capital goods. Booming economies, however, often lead to higher interest rates,
so investors were cautious about rising rates throughout the year.
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PERFORMANCE OF KEY STOCK MARKET INDEXES
THROUGH DECEMBER 31, 1999
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[The following table was depicted as a bar chart in the printed material.]
SIX MONTHS 1999
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S&P 500 7.7% 21.0%
S&P/BARRA VALUE -1.1% 12.7%
S&P/BARRA GROWTH 15.6% 28.3%
RUSSELL 2000 VALUE -6.4% -1.5%
RUSSELL 2000 GROWTH 26.8% 43.1%
MSCI WORLD INDEX FREE* 15.1% 24.8%
MSCI EUROPE INDEX* 18.8% 15.9%
MSCI JAPAN INDEX* 33.8% 61.5%
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*In U.S. currency.
Sources: Morgan Stanley Capital International (MSCI), Standard & Poor's, Frank
Russell Company and Prudential as of December 31, 1999. S&P 500 Composite,
Russell 2000, and Morgan Stanley Capital International indexes are unmanaged
indexes 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. Please refer to inside back cover for benchmark
definitions.
The views expressed are as of January 26, 2000, and are subject to change based
on market and other conditions.
Growth stocks are normally interest rate sensitive, because rising rates reduce
the value of future earnings. In addition, growth companies looking to expand
may borrow from banks or issue bonds. This year, however, a surging tech sector
provided an environment in which companies could raise funds relatively easily
by issuing stock. The tech-heavy Nasdaq Composite closed at a record 4,069--an
86% gain for the year. Small and mid-cap U.S. growth stocks also had strong
performances. The Russell Midcap Growth Index gained 51%; the Russell 2000
Smallcap Growth Index rose 43%.
In contrast, both small-cap value and mid-cap value stocks declined during 1999.
At the beginning of 1999, value stocks were already much cheaper than growth
stocks, and the sharp difference in performance over the course of the year
increased these disparities in relative value.
Geographically broad-based stock gains
The improved commodities markets and lower production costs due to currency
devaluations made an excellent environment for the stocks of many developing
countries. In Latin America, Mexico benefited from the increased linkage of its
economy to the developed countries to its north; its stocks soared 82% (in U.S.
dollars). Brazil also had a strong year. Both were rebounding from severe
declines in 1998.
Among developed markets, the telecommunications sector saw considerable
jockeying for position, with merger and takeover offers common. Telecom giant
Nokia led the Nordic region to an 88% return. Developed Europe, as a whole,
trailed the global markets but picked up toward the end of the year. The
Japanese stock market rose 62% (in U.S. dollars) in part from the rise of the
yen with respect to the U.S. dollar.
Within the United States, gains were narrow
Increases in prices of U.S. stocks were concentrated. Many technology stocks had
extraordinary returns, whether they were giant companies like Cisco Systems and
Intel or initial public offerings (IPOs) of Internet companies with no earnings.
Although some inexpensive sectors of the U.S. stock market--capital goods, basic
materials, consumer cyclicals and energy--had good returns in 1999, value stocks
overall trailed growth by a very broad margin. In the Russell 3000, which
reflects all market capitalization sectors, growth stocks returned 34% while
value stocks gained 7%.
4
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EQUITY OUTLOOK 2000
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December 31, 1999
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How long can it continue?
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The key uncertainty is whether the intense speculation in technology, Internet
and communications stocks that accelerated late in 1999 will continue this year,
or will investors turn to inexpensive industrial cyclical stocks such as capital
goods and basic materials?
Although commodity prices and basic materials shares rose about 15% to 30% in
1999, they started from a very low base and are still relatively cheap.
Commodity inventories are low, so accelerating global economic activity could
push up prices and attract more investors to basic materials stocks. Because
rising commodity prices also typically drive interest rates higher, this could
trigger a market rotation away from the techs to industrials. Many industrial
stocks have become quite inexpensive, while consolidation and restraint in
investing in new capacity have prepared them to leverage the benefits of
improving demand.
We expect continued earnings growth from many technology leaders as Internet use
and wireless telecommunications spread to relatively undeveloped markets.
Business-to-business Internet services are also growing rapidly. Despite the
tremendous average gain of technology stocks in 1999, stock selection was and
will continue to be important: When investors lost confidence in companies'
prospects, the stocks fell, whether it was Amazon.com or a start-up.
U.S. stocks are generally expensive
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Our valuation models suggest the U.S. stock market (as represented by the S&P
500) is 15% to 20% overvalued. Market valuations are at a historic extreme--the
dividend yield on the S&P 500 dropped to 1.16% and the price/earnings ratio
reached 32.0. However, earnings estimates and revisions of estimates are still
positive, which could provide the market with continued momentum.
Investors are paying more attention to earnings and trends than to valuations.
When companies have missed estimates, even by small amounts, their shares have
been punished. A broad decline in profit growth would be a danger signal.
Normally, rising interest rates pose a threat to highly valued growth companies.
In this earnings-focused market, however, it is not clear how investors will
react should both interest rates and earnings continue to rise.
Given the uncertainty, the prudent course is to be exposed to the current trend
and to alternatives--that is, to technology-intensive funds and to funds with a
heavy exposure to commodity cyclicals. Although U.S. stocks are generally
overvalued, there are still companies in many sectors that have good
fundamentals, and whose shares are relatively inexpensive.
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Performance of U.S. Market Sectors Through December 31, 1999
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[The following table was represented as a bar chart in the printed material.]
Six Months 1999
Technology 40.4% 75.1%
Energy - 0.3% 19.0%
Capital Goods 8.7% 28.9%
Utilities - 9.9% - 8.9%
Communication Services 1.7% 19.1%
Basic Materials 3.4% 26.4%
Consumer Cyclicals 8.9% 22.3%
Healthcare - 7.9% - 8.2%
Consumer Staples - 4.2% - 6.3%
Financials - 7.9% 4.0%
Transportation -18.9% - 9.7%
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Source: Standard & Poor's as of December 31, 1999. The S&P 500 Index is an
unmanaged index of stocks that provides an indication of stock price movements.
Past performance is not indicative of future results. Investors cannot invest
directly in an index.
5
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BOND COMMENTARY
December 31, 1999
A challenging year for U.S. bonds
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This year proved to be the worst in the history of the 30-year U.S. Treasury
bond. An investor who purchased this Treasury bond at a 5.10% yield at the
beginning of 1999 lost more than 14% by the end of the year. Many investors sold
Treasuries, believing they no longer needed these conservative securities
because the global financial crisis had begun to fade in the first quarter of
1999. Later in the year, Treasuries sold off amid fear that inflation was
building in the domestic and global economies. Rising inflation hurts bonds by
eroding the value of their fixed interest payments.
Concerns about mounting inflation were well founded. Crude oil prices more than
doubled in 1999, albeit from their lowest level in more than a decade.
Furthermore, the lowest U.S. unemployment rate in 30 years fueled fears of
growing wage pressures. Consumers and businesses spent vigorously, threatening
to boost the prices of goods and services. With the U.S. economy growing
rapidly, the Federal Reserve was bound to increase short-term interest rates to
slow economic growth and prevent spiraling inflation. To compensate for the risk
of rising short-term rates, investors drove prices of Treasuries lower, which
caused their yields to climb. The Treasury market was down 2.56% in 1999, as
measured by the Lehman Brothers U.S. Treasury Index.
The first short-term rate hike occurred in June 1999, when the Fed raised the
federal funds rate (the rate U.S. banks charge each other for overnight loans)
by a quarter of a percentage point to 5.00%. Two more of the same magnitude
followed in August and November 1999, which left the federal funds rate at
5.50%.
In this rising interest-rate environment, other fixed-income markets in the
United States also sold off. Their prices, however, did not decline as much as
the prices of Treasuries, because investors worried less about credit risks in
1999 than during the global financial crisis of 1997 and 1998. As a result,
spreads--or the differences between the yields of other U.S. bond markets and
Treasuries--generally declined in 1999, albeit with a fair amount of volatility
Among the U.S. bond market sectors that performed better than Treasuries in 1999
were investment-grade corporate bonds, federal government agency securities,
high-yield (junk) bonds, asset-backed securities and mortgage-backed securities.
. . . but global growth aided emerging market bonds
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Although stronger-than-expected economic growth hurt bond markets in the United
States, emerging market bonds benefited from the resurgence in the global
economy.
They returned 23.07% for the year, beating all other fixed-income markets, as
measured by the Lehman Brothers Emerging Market Index. As Asian and Latin
American economies rebounded in 1999 from the global financial crisis, investors
sought the bonds of nations such as South Korea and Brazil for their higher
yields. Investors felt more confident about owning these riskier debt
securities. Indeed, Moody's Investors Service upgraded the credit ratings of
certain South Korean and Brazilian bonds.
Performance of Fixed-Income Market Indexes Through December 31, 1999
Graphical Representation Presented
Source: Lehman Brothers as of December 31, 1999. The Lehman Brothers indexes are
unmanaged indexes of bonds that provide an indication of bond price movements.
Past performance is not indicative of future results. Investors cannot invest
directly in an index.
6
IFS-20001-A050472
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BOND OUTLOOK 2000
December 31,1999
U.S. bonds still haunted by rate-hike fears
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Uncertainty about whether the Federal Reserve will leave short-term interest
rates unchanged or increase them by a quarter or half percentage point should
heighten volatility in U.S. bond markets early in 2000.
After their most recent meeting in late December 1999, the Fed voted to hold
monetary policy steady. But the central bank issued a statement which warned
that if strong demand for goods and services continues to outstrip the potential
supply, inflation could build in the U.S. economy, despite the growth in
productivity. In other words, the Fed might need to hike short-term rates again
to cool off the economy and keep inflation in check. The U.S. central bank's
next meeting is scheduled for February 2000.
Prudential economists expect U.S. economic growth to slow substantially in the
first half of 2000. But if signs of moderating economic growth do not emerge
quickly enough, the belief that another increase in the federal funds rate is
necessary should prompt investors to push bond yields higher (and their prices
lower) early in the year. We expect the yield on the 30-year U.S. Treasury bond
to climb early in 2000 toward the upper end of our expected trading range, which
is 6.00% to 7.00%. The benchmark yield could then drift lower as it becomes
clear that the U.S. economy is losing steam. Indeed, we expect the 30-year
Treasury bond yield to end the year closer to 6.OO%. Despite the uncertainty
facing the bond market early in 2000, we expect returns on U.S.
investment-grade bonds to exceed their rather dismal performance of 1999.
There is also upward pressure on European bond yields, because many economists
expect the European Central Bank (ECB) eventually to increase its 3.00%
refinancing rate (what it charges commercial banks for short-term loans) in the
first half of 2000. European economic growth has accelerated amid growing demand
for European exports, which became very competitive because of the euro's 14%
decline against the U.S. dollar in 1999.
U.S. corporate bonds expected to outperform Treasuries
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We expect both U.S. investment-grade and high-yield (junk) corporate bonds to
continue to perform better than comparable Treasuries, albeit to a lesser extent
than in 1999. We believe many investors will remain comfortable owning the debt
securities of corporations if economic growth in the United States stabilizes at
a 3.5% annualized pace this year, as expected by Prudential economists. Junk
bonds appear to he attractive in light of their higher-than-normal yields. The
average yield of the Lehman Brothers High Yield Index stood at 11.50% at the end
of 1999--its highest level in more than seven years.
Rally in emerging market bonds seen on track
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This growing appetite for higher-yielding assets should also continue to benefit
emerging market bonds. We expect crossover buyers--such as those that normally
purchase investment-grade bonds--to turn to emerging market bonds in Asia, Latin
America and eastern Europe to enhance yields on their portfolios. For example,
such investors might be attracted to Brazilian bonds because of that nation's
improving economic fundamentals, consolidating fiscal reform, increasing levels
of foreign direct investment, and better climate for Brazilian exports created
by the global economic recovery. All things considered, we anticipate further
improvement in emerging market bonds, even though we do not expect them to
replicate the hefty returns of 1999.
7
IFS-20001-A050472
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VCA-10 CAPITAL GROWTH ACCOUNT
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December 31, 1999
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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
This 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.
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$10,000 Invested Over Ten Years
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[LINE CHART OMITTED]
[PLOT POINTS TO COME]
(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: Lipper.
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.
Performance Summary
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<TABLE>
<CAPTION>
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Average Annual Returns Through December 31, 1999 1-Year 3-Year 5-Year 10-Year
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<S> <C> <C> <C> <C>
Capital Growth Account(1) 0.40% 8.52% 15.21% 12.96%
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S&P 500(2) 21.03% 27.56% 28.54% 18.19%
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Lipper Multi-Cap Value Funds Average 7.75% 13.60% 18.45% 13.27%
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</TABLE>
VCA-10 Capital Growth Account inception date: 8/82.
Your account returned 0.40% in 1999, while the Lipper Multi-Cap Value Fund
Average gained 7.75%. Although value stocks moved up sharply in the second
quarter of the year 2000, stock market performance over the full year was
tightly focused in technology growth stocks. Your account's strict value
orientation through most of the year hurt its return, as the Account had
substantially less invested in technology stocks than its benchmark. Moreover,
the inexpensive technology stocks it did own didn't keep up with the sector
average. Its consumer cyclicals, industrials, and financials also
underperformed, while it benefited from the superior performance of its holdings
in the consumer growth, energy, and utility sectors.
Performance Review
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A SPLIT MARKET. Technology stocks make up 30% of the S&P 500 Index, and their
75% gain for the year drove the Index return, while several other sectors,
including health care and utilities, had negative average returns. The narrow
market focus on technology and telecommunications rewarded growth investors,
while punishing strict value managers. Although the Account substantially
increased its technology holdings in the fourth quarter, its return for the year
trailed.
INDUSTRIALS AND FINANCIALS. Two of the Account's largest focuses over the year
were industrials and financials, but in the fourth quarter we reduced the
emphasis on industrials. Overall, our holdings in these sectors did not perform
well.
CONSUMER GROWTH. Our consumer growth stocks had superior performance,
particularly MediaOne, our largest holding at year-end. The third largest cable
operator in the United States, it is being acquired by AT&T.
ENERGY. Our energy holdings benefited from rising oil prices and strong demand
driven by global economic growth. Our shares in Kerr McGee, an oil exploration
company, made a particularly substantial contribution to our return.
8
<PAGE>
Strategy Session
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WE ARE GIVING GREATER WEIGHT TO GROWTH POTENTIAL. During the fourth quarter, a
new team of portfolio managers, Phil Schettewi and David Kiefer, took over
management of the Account. They will continue to manage it in a value style, but
they will give greater consideration to a company's capacity for long-term
earnings growth. Nonetheless, they expect the Account to benefit from a rebound
in value stocks when today's huge disparities in measures of relative value move
toward their historical averages.
BASIC MATERIALS HAVE FURTHER TO GO. Our largest focus currently is on basic
materials stocks. Despite recent gains, they still are attractively priced,
while the strongly growing world economy is increasing demand for industrial
commodities. We will be looking to take profits as these stocks move up.
ENERGY SUPPLY/DEMAND IMBALANCE. While OPEC has a new-found production
discipline, demand for energy commodities is rising as Asian, European, and
Latin American countries join the United States in strong economic growth.
Outlook
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PORTFOLIO MANAGERS DAVID A. KIEFER AND PHILLIP J. SCHETTEWI
[PHOTO OMITTED][PHOTO OMITTED]
"We are changing the management style of the Account somewhat. It will still be
a value style, which has an excellent long-term history, but it will not be so
tightly focused on the price of a share. We will take into account a company's
historical earnings growth rate and its potential for further growth as well. As
the market swings from favoring one investment style to another, these changes
should reduce the volatility of the Account's return. The recent advantage of
growth investing produced unprecedented differences in value. Whereas we do not
believe such disparities can be sustained, we are reducing our dependence upon
their being corrected in the short term."
Portfolio Composition
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Consumer Growth & Stable 24.3%
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Finance 19.1%
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Industrial 17.7%
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Technology 17.6%
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Utility 10.9%
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Consumer Cyclical 6.8%
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Energy 3.6%
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Source: Prudential. Holdings are subject to change.
Top Ten Holdings
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Mediaone Group Inc. 2.6%
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Eastman Kodak Co. 2.5%
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XL Capital Limited 2.4%
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Alltel Corp. 2.4%
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Tenet Healthcare 2.3%
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Georgia Pacific Corp. 2.2%
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Loral Space & Communication 2.2%
- ----------------------------------
Columbia HCA Healthcare Corp. 2.0%
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Citigroup Inc. 1.9%
- ----------------------------------
Seagate Tech & Inc. 1.9%
- ----------------------------------
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)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME $ .1232 $ .0956 $ .0757 $ .0657 $ .0609
EXPENSES
For investment management fee (.0172) (.0177) (.0154) (.0118) (.0094)
For administrative expenses (.0513) (.0530) (.0461) (.0354) (.0282)
- ----------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME .0547 .0249 .0142 .0185 .0233
CAPITAL CHANGES
Change in net realized gain on investments .2537 .8002 1.2761 .5085 .3850
Net change in unrealized appreciation
(depreciation) on investments (.2814) (1.0426) .3841 .5682 .4744
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Unit
Accumulation Value .027 (0.2175) 1.6744 1.0952 .8827
Accumulation Unit Value
Beginning of year 6.7952 7.0127 5.3383 4.2431 3.3604
- ----------------------------------------------------------------------------------------------------------------
End of year $ 6.8222 $ 6.7952 $ 7.0127 $ 5.3383 $ 4.2431
- ----------------------------------------------------------------------------------------------------------------
RATIO OF EXPENSES TO
AVERAGE NET ASSETS** 1.00% 1.00% 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** .79% .36% .24% .39% .61%
- ----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 82% 49% 47% 52% 45%
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF UNITS OUTSTANDING
for Participants at end of period
(000's omitted) 63,330 80,431 83,261 91,532 81,817
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*Calculated by accumulating the actual per unit amounts daily.
**These calculations exclude Prudential's equity in VCA-10.
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 OF VCA-10
STATEMENT OF NET ASSETS AS OF DECEMBER 31,1999
COMMON STOCK VALUE
INVESTMENTS SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
AEROSPACE/DEFENSE - 3.9%
Lockheed Martin Corp. 346,900 7,588,438
Loral Space and
Communications Ltd. 384,900 9,357,881
------------
16,946,319
- --------------------------------------------------------------------------------
APPAREL - 0.2%
Liz Claiborne, Inc. 22,200 835,275
- --------------------------------------------------------------------------------
AUTOS & TRUCKS - 2.1%
General Motors Corp. 90,900 6,607,294
Tower Automotive, Inc. (a) 154,800 2,389,725
------------
8,997,019
- --------------------------------------------------------------------------------
CHEMICALS - 4.8%
Agrium, Inc. 188,000 1,480,500
CK Witco Corp. 317,400 4,245,225
Cytec Industries, Inc. (a) 338,000 7,816,250
French Fragrances, Inc. (a) 58,700 377,881
Praxair, Inc. 134,700 6,777,094
------------
20,696,950
- --------------------------------------------------------------------------------
COMPUTER - 3.4%
Compaq Computer Corp. 279,500 7,563,969
Hewlett Packard Co. 62,700 7,143,881
------------
14,707,850
- --------------------------------------------------------------------------------
COMPUTER RELATED - 4.5%
Computer Association
International 99,700 6,972,769
Electronic Data Systems Corp. 64,200 4,297,388
Seagate Technology, Inc. (a) 174,200 8,111,186
------------
19,381,343
- --------------------------------------------------------------------------------
CONSUMER SERVICES - 4.8%
Convergys Corp. 239,800 7,373,850
Reynolds & Reynolds Co.
(Class 'A' Stock) 290,000 6,525,000
Service Corp. International 100,500 697,219
Unisys Corp. (a) 190,700 6,090,481
------------
20,686,550
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.0%
Belden, Inc. 75,200 1,579,200
Hussmann International, Inc. 181,100 2,727,819
------------
4,307,019
- --------------------------------------------------------------------------------
ELECTRONIC PARTS DISTRIBUTION - 0.7%
Arrow Electronics, Inc. (a) 55,200 1,400,700
Avnet, Inc. 23,300 1,409,650
------------
2,810,350
- --------------------------------------------------------------------------------
ELECTRONICS - 4.5%
Micron Technology 51,900 4,035,225
National Semiconductor Corp. (a) 112,280 4,806,988
Peco Energy Co. 192,100 6,675,475
SCI System, Inc. 48,800 4,010,750
------------
19,528,438
- --------------------------------------------------------------------------------
EXPLORATION & PRODUCTION - 5.1%
Coastal Corp. 185,900 6,587,831
Devon Energy Corp. 115,700 3,803,638
Kerr McGee Corp. 82,037 5,086,294
Royal Dutch Petroleum Co. 106,500 6,436,594
------------
21,914,357
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 5.4%
Citigroup, Inc. 151,198 8,400,937
Financial Security Assurance
Holdings Corp. 64,300 3,351,638
Household International 162,300 6,045,675
Washington Mutual 221,800 5,766,800
------------
23,565,050
- --------------------------------------------------------------------------------
FOODS/BEVERAGES - 2.8%
Delhaize America, Inc. 1 14
Diageo PLC SA ADR 172,000 5,504,000
Sara Lee Corp. 137,700 3,038,006
Suiza Foods Corp. (a) 88,600 3,510,775
------------
12,052,795
- --------------------------------------------------------------------------------
HEALTHCARE - 9.2%
Columbia/HCA Healthcare Corp. 299,300 8,773,231
Foundation Health Systems (a)
(Class 'A' Stock) 100,600 999,713
Mallinckrodt, Inc. 124,000 3,944,750
Pacificare Health Systems (a) 58,300 3,089,900
Tenet Healthcare Corp. (a) 432,200 10,156,698
United HealthCare Corp. 105,500 5,604,688
Wellpoint Health Networks,
Inc. (a) 113,000 7,450,938
------------
40,019,918
- --------------------------------------------------------------------------------
HOTELS & MOTELS - 0.7%
Hilton Hotels Corp. 277,700 2,672,861
RFS Hotel Investors, Inc. 30,200 315,213
------------
2,988,074
- --------------------------------------------------------------------------------
INSURANCE - 12.1%
Ace Ltd. 45,175 753,858
Berkley (W.R.) Corp. 275,500 5,751,063
Conseco, Inc. 302,200 5,401,825
Loews Corp. 86,500 5,249,469
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
FINANCIAL STATEMENTS OF VCA-10
STATEMENT OF NET ASSETS AS OF DECEMBER 31,1999
COMMON STOCK VALUE
INVESTMENTS SHARES [NOTE 2A]
- --------------------------------------------------------------------------------
INSURANCE (CONT'D)
Old Republic International Corp. $224,550 $ 3,059,494
3COM Corp. 137,200 6,448,400
Torchmark Corp. 250,000 7,265,625
Travelers Property Casualty
(Class 'A' Stock) 119,900 4,106,575
Trenwick Group, Inc. 249,850 4,231,834
XL Capital Ltd.
(Class 'A' Stock) 197,914 10,266,789
------------
52,534,932
- --------------------------------------------------------------------------------
LEISURE - 0.1%
Brunswick Corp. 26,400 587,400
- --------------------------------------------------------------------------------
MACHINERY - 1.1%
Applied Power Co.
(Class 'A' Stock) 67,800 2,491,650
Columbus McKinnon Corp. 13,300 134,663
Hardinge, Inc. 178,775 2,335,248
------------
4,961,561
- --------------------------------------------------------------------------------
MEDIA - 3.0%
Belo (A.H.) Corp.
(Class 'A' Stock) 95,000 1,810,938
MediaOne Group, Inc. (a) 147,200 11,306,800
Young Broadcasting Corp. (a)
(Class 'A' Stock) 1,000 51,000
------------
13,168,738
- --------------------------------------------------------------------------------
METALS - 3.3%
Alcoa, Inc. 92,500 7,677,500
Broken Hill Proprietary
Company Ltd. ADR 162,700 4,321,719
The Carbide/Graphite Group (a) 368,500 2,395,250
------------
14,394,469
- --------------------------------------------------------------------------------
MISCELLANEOUS-INDUSTRIAL - 0.5%
Varian Medical Systems, Inc. 74,300 2,215,069
- --------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 2.4%
Harris Corp. 182,400 4,867,800
Xerox Corp. 249,300 5,655,994
------------
10,523,794
- --------------------------------------------------------------------------------
PAPER PRODUCTS - 3.5%
Georgia Pacific Corp.
(GP Group) 189,300 9,606,975
Georgia Pacific Corp.
(Timber Group) 101,800 2,506,825
Mead Corp. 73,700 3,201,344
------------
15,315,144
- --------------------------------------------------------------------------------
PHOTOGRAPHY - 2.5%
Eastman Kodak Co. 160,600 10,639,750
- --------------------------------------------------------------------------------
RAILROADS - 0.8%
Burlington Northern Santa Fe Corp. 150,700 3,654,475
- --------------------------------------------------------------------------------
REGIONAL BANKS - 2.6%
Bank One Corp. 235,654 7,555,656
PNC Bank Corp. 79,300 3,528,850
------------
11,084,506
- --------------------------------------------------------------------------------
RESTAURANTS - 2.0%
CKE Restaurants, Inc. 170,100 999,338
Darden Restaurants, Inc. 433,800 7,862,625
------------
8,861,963
- --------------------------------------------------------------------------------
RETAIL - 4.4%
Dillards, Inc.
(Class 'A' Stock) 203,100 4,100,081
Federated Department Stores 131,200 6,633,800
Limited, Inc. 88,017 3,812,236
Payless Shoesource (a) 25,800 1,212,600
Toys R Us, Inc. 242,200 3,466,488
------------
19,225,205
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - 4.9%
ALLTEL Corp. 123,778 10,234,893
GTE Corp. 90,200 6,364,738
SBC Communications, Inc. 93,400 4,553,250
------------
21,152,881
- --------------------------------------------------------------------------------
TOBACCO 1.0%
Philip Morris Co. 189,900 4,403,306
- --------------------------------------------------------------------------------
UTILITY - ELECTRIC 0.5%
Niagara Mohawk Holdings, Inc. (a) 17,100 238,331
NSTAR 51,500 2,085,750
------------
2,324,081
- --------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS - 97.8%
(Cost: $390,550,889) $424,484,581
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
FINANCIAL STATEMENTS OF VCA-10
STATEMENT OF NET ASSETS AS OF DECEMBER 31,1999
PRINCIPAL
AMOUNT VALUE
(OOO) [NOTE 2A]
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT - 2.5%
REPURCHASE AGREEMENT
Bear, Stearns & Co., Inc., 2.73%,
dated 12/31/99, due 1/3/00 in the
amount of $10,744,443 (cost
$10,742,000), value of the
collateral including accrued
interest - $10,962,946
$ 10,742 $ 10,742,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.3%
(Cost $401,292,889) $ 435,226,581
- --------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
Dividends and Interest Receivable 704,021
Receivable for Investments Sold 5,529,003
Payable to bank (4,832)
Payable for Pending Capital Transactions (448,939)
Payable for Investments Purchased (7,228,655)
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS - 0.3% (1,449,402)
- --------------------------------------------------------------------------------
NET ASSETS - 100% $ 433,777,179
- --------------------------------------------------------------------------------
Net Assets, representing:
Equity of Participants
63,329,581 Accumulation Units at an
Accumulation Unit Value of $6.8222 432,044,474
Equity of Prudential Insurance
Company of America 1,732,705
-------------
$ 433,777,179
- --------------------------------------------------------------------------------
The following abbreviations are used in portfolio descriptions:
ADR - American Depository Receipt
PLC - Public Limited Company
SA - Sociedad Anomie (Spanish Corporation)
(a) Non-income producing security.
See Notes to Financial Statements
13
<PAGE>
FINANCIAL STATEMENTS OF VCA-10
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME [NOTE 2B]
Dividends (net of $3,907 foreign withholding tax) $ 6,937,797
Interest 1,660,592
- --------------------------------------------------------------------------------
TOTAL INCOME 8,598,389
- --------------------------------------------------------------------------------
EXPENSES [NOTE 3]
Fees Charged to Participants for Investment Management Fee 1,196,014
Fees Charged to Participants for Administrative Expenses 3,587,214
- --------------------------------------------------------------------------------
Total Expenses 4,783,228
- --------------------------------------------------------------------------------
INVESTMENT INCOME -- NET 3,815,161
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS -- NET [NOTE 2B]
Realized Gain on Investments -- Net 21,727,366
Decrease in Unrealized Appreciation on Investments -- Net (23,170,828)
- --------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (1,443,462)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,371,699
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Investment Income -- Net $ 3,815,161 $ 2,143,678
Realized Gain on Investments -- Net 21,727,366 67,764,851
Decrease In Unrealized Appreciation on Investments -- Net (23,170,828) (91,652,147)
- -------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 2,371,699 (21,743,618)
- -------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Purchase Payments and Transfers In 57,561,612 118,653,634
Withdrawals and Transfers Out (174,198,348) (134,406,195)
Annual Account Charges Deducted from
Participants' Accounts [Note 3b] (89,020) (106,534)
- -------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (116,725,756) (15,859,095)
- -------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS [NOTE 6] (83,117) (1,425,180)
- -------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (114,437,174) (39,027,893)
NET ASSETS
Beginning of Year 548,214,353 587,242,246
- -------------------------------------------------------------------------------------------------
End of Year $ 433,777,179 $ 548,214,353
=================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-10
- --------------------------------------------------------------------------------
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 investment objective is long-term growth of capital. The
Account's investment objective is long-term growth of capital. The
Account's investments are composed primarily of common stocks. Although
variable annuity payments differ according to the investment performance
of the Account, they are not affected by mortality or expense experience
because Prudential assumes the expense risk and the mortality risk under
the contracts.
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 exchange 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.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-10
- --------------------------------------------------------------------------------
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.
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.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-10
- --------------------------------------------------------------------------------
C. For the year ended December 31, 1999 and the year ended December 31,
1998, Prudential has advised the Account that they received deferred
sales charges of $10,420 and $9,116, respectively.
NOTE 4: PURCHASES AND SALES OF PORTFOLIO SECURITIES
For the year ended December 31, 1999, the aggregate cost of purchases and
the proceeds from sales of securities, excluding short-term investments,
were $367,726,205 and $475,639,924, respectively.
NOTE 5: UNIT TRANSACTIONS
The number of Accumulation Units issued and redeemed for the years ended
December 31, 1999 and 1998 is as follows:
1999 1998
----------------------------------------
Units issued 8,372,387 17,443,446
----------------------------------------
Units redeemed 26,439,756 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 year ended December 31, 1999, Prudential Securities Incorporated,
an indirect, wholly owned subsidiary of Prudential, earned $17,046 in
brokerage commissions from portfolio transactions executed on behalf of
VCA-10. During the year ended December 31, 1999, Prudential has advised
the Account that it received $24,016 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 year ended December 31, 1999, $2,395,948 in participant loans were
withdrawn from VCA-10 and $1,733,215 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.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Committee and Participants
of The Prudential Variable Contract Account - 10
of The Prudential Insurance Company of America
In our opinion, the accompanying statement of net assets, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Prudential Variable Contract Account - 10 of The Prudential Insurance
Company of America (the "Account") at December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the four years in the period then ended, in conformity with accounting
principles generally accepted in the United States.These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Account's management; our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation.We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.The accompanying finanicial
highlights for the year ended December 31, 1995 were audited by other
independent accountants, whose opinion dated February 15, 1996 was unqualified.
PricewaterhouseCoopers LLP
New York, New York
February 23, 2000
<PAGE>
VCA-11 MONEY MARKET ACCOUNT
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
- --------------------------------------------------------------------------------
[LINE CHART OMITTED]
[PLOT POINTS TO COME]
(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: Lipper.
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.
Performance Summary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1999 1-Year 3-Year 5-Year 10-Year
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Account(1) 4.39% 4.66% 4.79% 4.62%
- ------------------------------------------------------------------------------------
Salomon Brothers T-Bills(2) 4.73% 5.01% 5.21% 5.06%
- ------------------------------------------------------------------------------------
</TABLE>
Money Market Account inception date: 8/82.
Participants in the money markets nursed a major concern throughout 1999: the
Federal Reserve would have to increase a key short-term interest rate to slow
U.S. economic growth and prevent the sort of economic imbalances that can lead
to higher inflation. As it turned out, the Fed hiked the federal funds rate
(what U.S. banks charge each other for overnight loans) three times, and
investors drove money market yields higher both before and after the changes in
U.S. monetary policy. The Account took advantage of this trend by locking in
attractive yields on money market securities of various maturities. The Account
returned 4.39% for the year, compared with 4.73% on the Salomon Brothers
Three-Month Treasury Bill Index. Its current seven-day yield was 5.04% on
December 31, 1999.
Performance Review
- --------------------------------------------------------------------------------
ACCOUNT ADVANTAGEOUSLY POSITIONED HEADING INTO 2000. We expect the Account to
benefit in 2000 from its higher-than-normal exposure to adjustable-rate money
market securities that were purchased at attractive levels in 1999.
Strategy Session
- --------------------------------------------------------------------------------
WE MOVED QUICKLY TO LOCK IN HIGHER YIELDS.
In the first quarter of 1999, the risk of higher inflation led many money market
participants to believe the Fed would soon increase the federal funds rate to
cool off the U.S. economy. A rate increase can curb economic growth by pushing
borrowing costs higher for consumers and businesses. In anticipation of this
change in monetary policy, investors demanded higher yields on money market
securities. We did not believe a short-term rate hike was imminent, nor did we
believe the Fed would move as aggressively as indicated by the rise in yields.
Therefore, we took advantage of this trend by locking in attractive yields on
one-year securities of banks and industrial companies in the first quarter of
1999.
20
<PAGE>
The U.S. central bank did not act until June 30, 1999, when it increased the
federal funds rate by a quarter of a percentage point to 5.00%. That move was
followed by another of the same magnitude that raised the key rate to 5.25% on
August 24, 1999. As money market yields continued to rise, we purchased
securtiies of banks and corporations maturing in 13 months that provided solid
yields.
YEAR 2000 COMPUTER ANXIETIES CREATED BUYING OPPORTUNITIES.
Repeated changes in U.S. monetary policy were just one of the concerns that
affected money markets in the second half of 1999. Corporate treasurers, among
others, wanted to minimize any risk that computers might malfunction at the end
of the year when they tried to switch their internal dates from 1999 to 2000.
Accordingly, some banks and corporations rushed to complete their year-end
borrowing early. For example, in the summer of 1999, they began to issue an
unusually large amount of money market securities with interest rates that
adjusted periodically, based on London Interbank Offered Rates. (LIBORs are
widely quoted money market yields.) These securities provided unusually
attractive yield spreads in order to appeal to investors. We took advantage of
this buying opportunity, increasing adjustable-rate securities to nearly 37% of
the Account's total investments as of December 31, 1999--up from roughly 29% a
year earlier. These inexpensively priced adjustable-rate securities should help
the Account to be advantgeously positioned heading into 2000.
WE JUMPED THE GUN.
We also prepared the Account to accommodate normal year-end shareholder
liquidity needs and any additional withdrawals that might have occurred due to
potential year 2000 computer difficulties. In Octoboer, we purchased securities
that matured at the end of 1999 so the Account could have enough cash on hand at
that potentially volatile time of year. In hindsight, we should have waited
until early December. The Fed had hiked the federal funds rate by another
quarter of a percentage point to 5.50% in mid-November. As a result, money
market yields were much higher in early December than in october, and securities
maturing at the end of the year were priced more attractively. Nevertheless, in
December 1999, we were able to buy attractively priced securities maturing in
February and March 2000. These purchases enhanced the Account's yield and
allowed us to avoid having to invest during the lower-interest-rate environment
that typically occurs in early January.
OUTLOOK
PORTFOLIO MANAGER ROBERT BROWNE
WE EXPECT MORE SHORT-TERM RATE HIKES.
"Continued heavy spending by consumers and a strong domestic labor
[PHOTO] market have heightened the risk of rising inflation in the U.S.
economy. Therefore, we expect the Fed to tighten monetary policy on
more than one occasion in 2000."
PORTFOLIO COMPOSITION
Other Corp. Oblg. 33.2%
Other Commercial Paper 22.6%
U.S. Bank Oblg. 15.4%
Yankee Commercial Paper 12.1%
Foreign Bank Oblg. 7.9%
Bank Holding Company Oblg. 7.7%
Funding Agreements 1.1%
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 YEAR)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME ........................................ $ .1378 $ .1411 $ .1353 $ .1281 $ .1313
EXPENSES
For investment management tee ............................ (.0065) (.0062) (.0059) (.0056) (.0054)
For administrative expenses not covered
by the annual account charge ........................ (.0194) (.0186) (.0178) (.0170) (.0160)
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN UNIT VALUE ............................... .1119 .1163 .1116 .1055 .1099
UNIT VALUE
Beginning of year ..................................... 2.5489 2.4326 2.3210 2.2155 2.1056
- ----------------------------------------------------------------------------------------------------------------------------
End of year ........................................... $2.6608 $2.5489 $2.4326 $2.3210 $2.2155
- ----------------------------------------------------------------------------------------------------------------------------
RATIO OF EXPENSES TO AVERAGE NET ASSETS** ................ .99% .99% .98% .98% .99%
- ----------------------------------------------------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** .................................... 4.29% 4.78% 4.73% 4.57% 5.08%
- ----------------------------------------------------------------------------------------------------------------------------
NUMBER OF UNITS OUTSTANDING
For Participants at end of year (000s omitted) .......... 34,100 34,882 35,757 38,315 34,136
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Calculated by accumulating the actual per unit amounts daily.
**These calculations exclude Prudential's equity in VCA-11.
The above table does not reflect the annual account charge, which does not
affect the Unit Value of VCA-11. This charge is made by reducing Participants'
accounts by a number of Units equal in value to the charge.
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
FINANCIAL STATEMENTS OF VCA-11
STATEMENT OF NET ASSETS AS AT DECEMBER 31,1999
SHORT-TERM PRINCIPAL
INVESTMENTS (NOTE 2] AMOUNT VALUE
- -------------------------------------------------------------------------------
OTHER CORPORATE DEBT - U.S. - 31.8%
(MEDIUM TERM NOTES, CORPORATE BONDS,
CORPORATE NOTES, FUNDING AGREEMENTS)
Associates Corp. of North America,
6.41025%# Medium Term Note
Due 6/29/2000 $2,200,000 $2,199,243
Bank One Corp.,
6.15375%# Medium Term Note
Due 8/21/2000 1,000,000 1,000,000
Bank One Corp.,
6.13%# Medium Term Note
Due 11/17/2000 2,000,000 2,000,473
Chrysler Financial Co. LLC,
6.375% Corporate Note
Due 1/28/2000 750,000 750,710
Citicorp. 6.5125%#
Medium Term Note
Due 8/2/2000 1,000,000 999,986
Citicorp, 5.943750%#
Medium Term Note
Due 8/1 0/2000 1,235,000 1,234,302
Commercial Credit Co.,
6.75% Corporate Bond
Due 5/15/2000 1,000,000 1,004,710
Conseco Finance Vehicle Trust,
6.62125%# Note
Due 1/5/2001 1,000,000 1,000,000
First Union Corp.,
6.60% Corporate Bond
Due 6/15/2000 700,000 702,981
Ford Motor Credit Co.,
6.0375%# Medium Term Note
Due 8/18/2000 2,000,000 1,998,982
Goldman Sachs Group L.P.,
6.00875%# Medium Term Note
Due 12/21/2000 3,800,000 3,800,000
IBM Corp., 6.375%
Corporate Note
Due 6/15/2000 352,000 352,997
International Lease Finance,
5.46% Medium Term Note
Due 3/10/2000 500,000 500,000
International Lease Finance,
6.625% Corporate Bond
Due 8/15/2000 500,000 502,273
Paccar Financial Corp.,
6.08% Medium Term Note
Due 7/12/2000 1,000,000 1,001,687
Restructured Asset Security
Enhanced Return, 6.56875%# Note
Due 1/21/2000 2,000,000 2,000,000
Restructured Asset Security
Enhanced Return, 6.55875%# Note
Due 9/6/2000 1,000,000 1,000,000
Security Life of Denver,
6.24625%# Funding Agreement
Due 4/12/2000 1,000,000 1,000,000
Short Term Repackaged Asset
Trust, 1998-E, 6.56125%# Note
Due 8/18/2000 1,000,000 1,000,000
Strategic Money Market Trust,
1999-B, 6.18125%# Note
Due 3/15/2000 1,000,000 1,000,000
U.S. Bancorp, 6.5325%#
Medium Term Note
Due 9/20/2000 4,000,000 3,998,584
----------
29,047,248
- -------------------------------------------------------------------------------
COMMERCIAL PAPER - 26.4%
Associates First Capital Corp.,
6.25% Due 1/11/2000 $1,125,000 $ 1,122,461
Barton Capital Corp., 6.20%
Due 1/20/2000 2,100,000 2,084,087
Barton Capital Corp., 6.07%
Due 2/1/2000 2,346,000 2,322,266
Clipper Receivables Corp.,
6.10% Due 2/7/2000 985,000 974,986
Falcon Asset Securitization
Corp., 6.10%
Due 2/1 0/2000 475,000 466,951
Finova Capital Corp., 6.25%
Due 3/10/2000 2,000,000 1,970,139
Forrestal Funding Master
Trust 1999-A, 6.13%
Due 2/7/2000 1,090,000 1,079,049
General Electric Capital
Corp., 6.00%
Due 2/17/2000 1,400,000 1,384,600
General Electric Capital
Corp., 5.95%
Due 3/8/2000 3,000,000 2,935,046
General Motors Acceptance
Corp., 5.88%
Due 2/10/2000 4,000,000 3,938,587
PNC Funding Corp., 5.93%
Due 2/18/2000 1,000,000 983,857
PNC Funding Corp., 5.91%
Due 2/22/2000 3,000,000 2,955,182
Thunder Bay Funding, Inc.,
6.20% Due 1/18/2000 845,000 838,888
Triple-A One Funding Corp.,
6.44% Due 1/13/2000 1,056,000 1,050,522
----------
24,106,621
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
FINANCIAL STATEMENTS OF VCA-11
STATEMENT OF NET ASSETS AS AT DECEMBER 31,1999
SHORT-TERM PRINCIPAL
INVESTMENTS (NOTE 2] AMOUNT VALUE
- -------------------------------------------------------------------------------
OTHER BANK RELATED INSTRUMENTS - U.S. - 15.2%
(BANK NOTES, CERTIFICATES OF DEPOSIT)
American Express Centurion Bank,
6.43875%# Bank Note
Due 3/8/2000 $1,000,000 $ 1,000,000
Chase Manhattan Bank,
5.365% Certificate of Deposit
Due 5/22/2000 2,000,000 1,998,841
Comerica Bank, N.A.,
6.36125%# Bank Note
Due 6/13/2000 1,000,000 999,712
FCC National Bank,
5.14% Bank Note
Due 3/22/2000 1,000,000 999,925
First Union National Bank,
6.015%# Bank Note
Due 3/10/2000 1,000,000 1,000,000
First Union National Bank,
6.27%# Bank Note
Due 11/13/2000 2,800,000 2,803,360
Key Bank, N.A.,
5.125% Bank Note
Due 3/24/2000 1,500,000 1,499,657
Key Bank, N.A., 6.03125%#
Bank Note
Due 6/14/2000 1,000,000 999,734
Morgan Guaranty Trust Co.,
5.70% Certificate of Deposit
Due 7/19/2000 500,000 498,312
National City Bank of Cleveland,
6.65625%# Bank Note
Due 6/8/2000 1,100,000 1,100,980
Northern Trust Go.,
5.10% Bank Note
Due 2/22/2000 1,000,000 999,945
----------
13,900,466
- -------------------------------------------------------------------------------
COMMERCIAL PAPER - YANKEE - 11.8%
Alliance & Leicester PLC, 5.87%
Due 2/28/2000 3,000,000 2,954,018
ANZ (Delaware), Inc., 6.15%
Due 2/22/2000 1,000,000 988,042
Baus Funding LLC, 6.20%
Due 1/31/2000 2,500,000 2,477,437
Bradford & Bingley
Building Society, 6.03%
Due 2/7/2000 1,200,000 1,188,744
Nationwide Building Society,
6.00% Due 2/4/2000 2,400,000 2,374,000
Unifunding, Inc., 5.50%
Due 1/7/2000 861,000 860,079
----------
10,842,320
- -------------------------------------------------------------------------------
OTHER CORPORATE DEBT - YANKEE - 5.5%
(MEDIUM TERM NOTES, CORPORATE BONDS)
Abbey National Treasury Services
PLC., 4.95% Medium Term Note
Due 2/3/2000 3,000,000 2,996,149
DaimlerChrysler North
America Holdings Corp.,
6.35675%# Medium Term Note
Due 7/6/2000 2,000,000 1,998,668
----------
4,994,817
- -------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - YANKEE - 4.6%
Credit Communal De Belgique,
6.06% Due 1/31/2000 2,000,000 2,000,000
Deutsche Bank A.G., 4.98%
Due 2/2/2000 1,000,000 999,975
National Westminster
Bank PLC, 5.0475%
Due 2/9/2000 1,200,000 1,199,954
----------
4,199,929
- -------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - FOREIGN - 3.3%
Royal Bank of Canada, 4.97%
Due 2/4/2000 2,000,000 1,999,928
Toronto Dominion Bank, 5.02%
Due 2/4/2000 1,000,000 999,973
----------
2,999,901
- -------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS - 98.6%
(Cost: $90,091,302) 90,091,302
- -------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES
Cash 95
Interest Receivable 1,139,382
Receivable for Pending Capital Transactions 153,928
- -------------------------------------------------------------------------------
TOTAL OTHER ASSETS, LESS LIABILITIES - 1.4% 1,293,405
- -------------------------------------------------------------------------------
NET ASSETS - 100% $91,384,707
- -------------------------------------------------------------------------------
NET ASSETS, REPRESENTING:
Equity of Participants
34,099,542 Accumulation Units at an
Accumulation Unit Value of $2.6608 90,731,697
Equity of The Prudential Insurance Company
of America 653,010
-----------
$91,384,707
- -------------------------------------------------------------------------------
# Indicates a Variable Rate Security. Rate shown is rate in
effect at December 31,1999.
AG -- Aktiengesellschaft (German Stock Co.)
LLC -- Limited Liability Corporation
PLC -- Public Limited Company
See NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
FINANCIAL STATEMENTS OF VCA-11
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,1999
- -------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME [NOTE 2]
Interest $4,818,027
Realized Gain on Investment Transactions 602
- -------------------------------------------------------------------------------------------------
Total INCOME 4,818,629
- -------------------------------------------------------------------------------------------------
EXPENSES [NOTE 3]
Fees Charged to Participants for Investment Management Services 225,178
Fees Charged to Participants for Administrative Expenses 675,534
- -------------------------------------------------------------------------------------------------
TOTAL EXPENSES 900,712
- -------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME AND NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,917,917
=================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 DECEMBER 31,1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,917,917 $ 4,631,599
- -------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS
Purchase Payments and Transfers In [Note 6 and 7] 109,601,188 168,192,543
Withdrawals and Transfers Out [Note 6 and 7] (111,670,643) (170,842,905)
Annual Account Charges Deducted from
Participants' Accounts [Note 4] (47,735) (47,451)
- -------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (2,117,190) (2,697,813)
- -------------------------------------------------------------------------------------------------
NET INCREASE/DECREASE IN NET ASSETS
RESULTING FROM SURPLUS TRANSFER [NOTE 8] 68,215 (1,588,734)
- -------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 1,868,942 345,052
NET ASSETS
Beginning of Year 89,515,765 89,170,713
- -------------------------------------------------------------------------------------------------
End of Year $ 91 ,384,707 $ 89,515,765
=================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-1 I
- -------------------------------------------------------------------------------
NOTE 1: GENERAL
The Prudential Variable Contract Account-1l (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-1l
has been designed for use by employers (Contract-holders) in making
retirement arrangements on behalf of their employees (Participants).
The investment objective of the Account is to realize a high level of
current income as is consistent with the preservation of capital and
liquidity. Its investments are primarily composed of short-term
securities. The ability of the issuers of the securities held by the
Account to meet their obligations may be affected by economic
developments in a specific state, industry or region. Although
variable annuity payments differ according to the investment
performance of the Account, they are not affected by mortality or
expense experience because Prudential assumes the expense risk and the
mortality risk under the contracts.
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
ownership or investment 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-1l, 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 (O.25%) is for investment management
services.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-11
- -------------------------------------------------------------------------------
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 fiscal 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-1O 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 VGA-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 70/c 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 00/o
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-1l, 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 years ended
December 31, 1999 and 1998, Prudential has advised the Account that
they received deferred sales charges of $2,716 and $2,389,
respectively.
NOTE 6: UNIT TRANSACTIONS
The number of Units issued and redeemed for the years ended December
31, 1999 and 1998 is as follows:
1999 1998
---------------------------------------------------
Units issued 42,139,173 67,777,991
---------------------------------------------------
Units redeemed 42,927,959 68,652,928
---------------------------------------------------
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF VCA-11
- -------------------------------------------------------------------------------
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 MEDLEY 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 year ended December 31, 1999, $727,717 in participant loans
were withdrawn from VCA-11 and $295,519 of principal and interest was
repaid to VCA-11. For the year ended December 31, 1998, $850,931 in
participant loans were withdrawn from VCA-l1 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. 1999, Prudential has advised the Account that it received
$8,695 in loan origination fees.
NOTE 8: NET DECREASE IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The decrease in net assets from surplus for the year ended December
31,1999 represents the net withdrawals from the Equity of Prudential
to VCA-11.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Committee and Participants
of The Prudential Variable Contract Account - 11
of The Prudential Insurance Company of America
In our opinion, the accompanying statement of net assets, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Prudential Variable Contract Account - 11 of The Prudential Insurance
Company of America (the "Account") at December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the four years in the period then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Account's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian, proVIDE A REASONABLE BASIS FOR
THE OPINION EXPRESSED ABOVE. THE financial highlights for the year ended
December 31, 1995 were audited by other independent accountants whose report
thereon dated February 15,1996 expressed an unqualified opinion on those
financial highlights.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 23, 2000
29
<PAGE>
THIS PAGE INTENTIOINALLY LEFT BLANK.
<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 necessry to meet the Subaccount's 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.
<PAGE>
PRUDENTIAL MEDLEY PROGRAM
DIVERSIFIED BOND PORTFOLIO
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT GOAL
High level of income over the long term while providing reasonable safety of
capital.
TYPES OF INVESTMENTS
U.S. government securities, mortgage-backed bonds, both investment-grade and
high-yield ("junk bond") corporate debt and foreign securities (dollar and
non-dollar denominated).
INVESTMENT STYLE
This Portfolio seeks the highest yield while maintaining safety of capital, by
strategically allocating Portfolio assets among the above classes of bonds.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
- --------------------------------------------------------------------------------
[LINE CHART OMITTED]
[PLOT POINTS TO COME]
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risk of currency fluctuation and the impact of social,
political and economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns are not annualized.
(2) The Lipper Variable Insurance Products (VIP) Corporate Debt BBB Average is
calculated by Lipper, Inc., and reflects the investment returns of certain
portfolios underlying variable life and annuity products. These returns
are net of investment fees and fund expenses, but not product charges.
(3) The Lehman Aggregate Bond Index (LAI) is comprised of more than 5,000
government and corporate bonds. The LAI is an unmanaged index that
includes the reinvestment of all interest, but does not reflect the
payment of transaction costs and advisory fees associated with an
investment in the Portfolio. The securities that comprise the LAI may
differ substantially from the securities in the Portfolio. The LAI is not
the only index that may be used to characterize performance of income
funds, and other indexes may portray different comparative performance.
Performance Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
- --------------------------------------------------------------------------------
Diversified Bond Portfolio(1) 0.92% -0.74% 4.91% 7.80% 7.69%
- --------------------------------------------------------------------------------
Lipper (VIP) Corp. Debt BBB Avg.(2) 0.23% -1.62% 5.15% 7.83% 7.62%
- --------------------------------------------------------------------------------
Lehman Aggregate Bond Index(3) 0.56% -0.82% 5.73% 7.73% 7.70%
- --------------------------------------------------------------------------------
Diversified Bond Portfolio inception date: 5/13/83.
For 1999, the Prudential Series Fund Diversified Bond Portfolio's decline of
0.74% still outperformed the 1.62% drop on the Lipper (VIP) Corporate Debt BBB
Average.
The Portfolio had a disappointing year in 1999, as did the bond market as a
whole, primarily because of 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,
as well as on August 24, 1999, and November 16, 1999. Each increase was 25 basis
points (one quarter of 1 percent).
Performance Review
- --------------------------------------------------------------------------------
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 still performed better than U.S. Treasuries in 1999 as
corporate bond spreads recovered from their 1998 wide levels. As the year
progressed, the market became soft, and prices of long-term, investment-grade
corporate bonds, which we mostly held, fell further than those with a shorter
duration stance. The Lehman Brothers Government/Corporate Bond Index fell 2.15%
overall in 1999, with a 0.39% gain in intermediate-term securities, but a 7.65%
drop in long-term securities.
30
<PAGE>
Strategy Session
- --------------------------------------------------------------------------------
A TOUGH TIME FOR BONDS. The U.S. economy continued its strong growth cycle in
1999, and the global economy sustained its rebound throughout 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 a large incremental yield over U.S. Treasuries, such as
high-yield corporate bonds and emerging market bonds, fared 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 1999 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. 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. Additionally, 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 the spring, especially longer-maturity issues, to realize spread
profits from prior purchases. We moved to pull the Portfolio's duration closer
to a neutral stance throughout the year, which stabilized its performance.
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 the
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 because they were fairly cheap, and
bring some safety and liquidity back into the Portfolio. Furthermore, the
corporate bond market, overall, became soft reflecting the continued heavy
new-issue calendar it had.
Bolstered by Asia's continued economic turnaround, emerging market fixed-income
securities began to perform nicely, and their countries' economic fundamentals
strengthened as well. 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
greatly increased our exposure to these bonds and benefited the Portfolio's
performance.
Outlook
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER STEVEN KELLNER
[PHOTO OMITTED]
U.S. ECONOMIC EXPANSION COULD MODERATE.
"Although economic activity in 1999 was stronger than expected, we still may not
see significantly higher Treasury yields than where they are currently
positioned. We also believe the U.S. economic expansion could moderate in 2000.
If the economy behaves as expected, the 30-year Treasury bond yield could
fluctuate in a range of 6% to 7%."
Portfolio Composition
AS OF 12/31/99
--------------
- --------------------------------------------
Corporate Bonds 80.4%
- --------------------------------------------
U.S. Treasuries 9.8%
- --------------------------------------------
Asset-Backed 5.3%
- --------------------------------------------
Mortgages 2.0%
- --------------------------------------------
Cash/Other 2.0%
- --------------------------------------------
U.S. Government Agencies 0.5%
- --------------------------------------------
Source: Prudential. Holdings are subject to change.
Credit Quality
AS OF 12/31/99
--------------
- --------------------------------------------
U.S. Government Agencies 10.3%
- --------------------------------------------
AAA 7.6%
- --------------------------------------------
AA 6.6%
- --------------------------------------------
A 24.0%
- --------------------------------------------
BBB 38.7%
- --------------------------------------------
BB 11.2%
- --------------------------------------------
Short-Term/Cash 1.6%
- --------------------------------------------
- --------------------------------------------
Average Credit Quality A
- --------------------------------------------
Duration 5.30 years
- --------------------------------------------
Average Maturity 9.42 years
- --------------------------------------------
Source: Prudential. Holdings are subject to change.
31
<PAGE>
PRUDENTIAL MEDLEY PROGRAM
GOVERNMENT INCOME PORTFOLIO
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT GOAL
High level of income over the long term consistent with the preservation of
capital.
TYPES OF INVESTMENTS
Primarily intermediate and longer-term U.S. government bonds, including U.S.
Treasuries and agencies and mortgage-backed securities such as GNMA, FNMA and
FHLMC bonds and foreign government securities.
INVESTMENT STYLE
The Portfolio seeks high current return by selecting bonds that offer an
attractive combination of current income and price appreciation. The Portfolio
Manager's goal is to select bonds believed to offer the best value in a given
market climate.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
- --------------------------------------------------------------------------------
[LINE CHART OMITTED]
[PLOT POINTS TO COME]
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risk of currency fluctuation and the impact of social,
political and economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) 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.
Performance Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
- --------------------------------------------------------------------------------
Government Income Portfolio(1) -0.09% -2.70% 5.19% 7.29% 7.09%
- --------------------------------------------------------------------------------
Lipper (VIP) General U.S. Gov't. Avg.(2) 0.06% -2.13% 5.07% 6.94% 7.11%
- --------------------------------------------------------------------------------
Lehman Gov't. Bond Index(3) 0.04% -2.23% 5.58% 7.44% 7.48%
- --------------------------------------------------------------------------------
Government Income Portfolio inception date: 5/1/89.
The Prudential Series Fund Government Income Portfolio had a disappointing 1999
as inflation fears, along with the resurgence of the global economy, 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, investors
drove yields of many debt securities higher and their prices, which move in the
opposite direction, lower.
Among the fixed-income securities affected were U.S. Treasuries and government
agency bonds. The federal funds rate was indeed increased on June 30, 1999,
August 24, 1999, and November 16, 1999, by 25 basis points (one quarter of 1
percent) each time. By the end of 1999, the Portfolio declined 2.70%, trailing
the 2.13% drop on 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.
Performance Review
- --------------------------------------------------------------------------------
A SHORTER DURATION WAS THE BETTER CHOICE. The Portfolio's performance was hurt
by its longer-than-average duration, caused by its exposure to longer-term U.S.
Treasuries and agencies. (Duration is a measure of sensitivity to interest-rate
changes.) Prices of long-term securities fell more than prices of short- or
intermediate-term securities during the first half of 1999.
The Lehman Brothers U.S. Treasury Index fell 2.56% overall during 1999, with a
0.41% gain for intermediate-term securities and an 8.74% drop for long-term
securities. Furthermore, the Lehman Brothers Agency Bond Index declined 0.94% in
1999, with a 0.74% gain for intermediate-term securities and an 8.65% drop for
long-term securities.
32
<PAGE>
Strategy Session
- --------------------------------------------------------------------------------
BONDS STRUGGLED. The U.S. economy continued its strong growth cycle in 1999, and
the global economy sustained its rebound throughout 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 U.S.
Treasuries as investors had fewer fears of having their premium coupon holdings
refinanced early in a higher interest-rate environment. By contrast, the general
safety of U.S. Treasuries and government agency bonds--major components of our
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 year.
We, therefore, did not cut back our duration stance as quickly as happened in
our competitive universe, hurting relative performance. We did cut back on our
U.S. Treasury holdings during the course of 1999, 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, by year
end.
Although this move modestly helped performance, we should have trimmed our
duration stance earlier in the year. Moreover, the Portfolio would have
benefited from holding inflation-index bonds, which perform well in a sensitive
inflationary environment, as well as giving the Portfolio a shorter duration.
Outlook
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER MICHAEL LILLARD
[PHOTO OMITTED]
LONG-TERM INTEREST COULD STABILIZE.
"Economic growth in the United States and abroad continues to be impressive. As
we enter the new year, the increased level of interest rates combined with Y2K
inventory depletion should help contain accelerating GDP growth. We look for
long-term interest rates to end their climb and stabilize at current levels."
Portfolio Composition
AS OF 12/31/99
--------------
- ---------------------------------------------
U.S. Government Agencies 42.0%
- ---------------------------------------------
U.S. Treasuries 31.4%
- ---------------------------------------------
Mortgages 18.4%
- ---------------------------------------------
Asset-Backed 4.4%
- ---------------------------------------------
Corporate Bonds 2.4%
- ---------------------------------------------
Short-Term/Cash 1.4%
- ---------------------------------------------
Source: Prudential. Holdings are subject to change.
Credit Quality
AS OF 12/31/99
--------------
- ----------------------------------------------
U.S. Government Agencies 91.8%
- ----------------------------------------------
AAA 3.8%
- ----------------------------------------------
AA 3.0%
- ----------------------------------------------
Short-Term/Cash 1.4%
- ----------------------------------------------
Average Credit Quality AAA
- ----------------------------------------------
Duration 5.91 years
- ----------------------------------------------
Average Maturity 8.90 years
- ----------------------------------------------
Source: Prudential. Holdings are subject to change.
33
<PAGE>
PRUDENTIAL MEDLEY PROGRAM
CONSERVATIVE BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Favorable total return consistent with a more conservatively managed diversified
portfolio.
TYPES OF INVESTMENTS
Money market instruments, bonds and common stocks of both established and
smaller companies.
INVESTMENT STYLE
The Portfolio management team holds a baseline allocation of 35% stocks and 65%
debt obligations and money market securities.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
- --------------------------------------------------------------------------------
[LINE CHART OMITTED]
[PLOT POINTS TO COME]
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risk of currency fluctuation and the impact of social,
political and economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Balanced Funds Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns
are net of investment fees and fund expenses, but not product charges.
(3) The S&P 500 Composite Stock Price Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The S&P 500 is an
unmanaged index that includes the reinvestment of all dividends, but does
not reflect the payment of transaction costs and advisory fees associated
with an investment in the Portfolio. The securities that comprise the S&P
500 may differ substantially from the securities in the Portfolio.
(4) The Lehman Government/Corporate Bond Index is comprised of government and
corporate bonds. The Index is an unmanaged index that includes the
reinvestment of all interest, but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the index may differ substantially
from the securities in the Portfolio. The Lehman Gov't./Corp. Bond Index
is not the only index that may be used to characterize performance of
income funds, and other indexes may portray different comparative
performance.
Performance Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
- --------------------------------------------------------------------------------
Conservative Balanced Portfolio(1) 2.55% 6.69% 10.59% 12.30% 10.28%
- --------------------------------------------------------------------------------
Lipper (VIP) Balanced Funds Avg.(2) 2.48% 8.58% 14.28% 15.99% 11.65%
- --------------------------------------------------------------------------------
S&P 500 Index(3) 7.70% 21.03% 27.56% 28.54% 18.19%
- --------------------------------------------------------------------------------
Lehman Gov't./Corp. Bond Index(4) 0.04% -2.23% 5.58% 7.44% 7.71%
- --------------------------------------------------------------------------------
Conservative Balanced Portfolio inception date: 5/13/83.
The Prudential Series Fund Conservative Balanced Portfolio--which invests in a
conservative mix of bonds, stocks and money market securities--returned 6.69% in
1999, well above the average bond return, because this was a strong year for
stocks and a very poor one for bonds. It trailed the 8.58% return of the Lipper
(VIP) Balanced Fund Average because the Portfolio's conservative mandate
requires a smaller proportion of equities in the asset allocation than the
typical balanced portfolio.
In 1999, stock allocations were kept somewhat above the Portfolio's normal 35%,
adding to the benefit of the strong stock market performance. However, the
portion of our stocks that were actively managed in a value style substantially
trailed the S&P 500, because the index return was boosted by the exceptionally
high returns of technology growth stocks. Moreover, the benefit of the larger
stock allocation was offset by the impact of shifting most of the normal money
market allocation into intermediate bonds. Although the Portfolio's bonds
outperformed their intermediate-bond benchmark, 1999 was a very poor year for
bonds.
Performance Review
- --------------------------------------------------------------------------------
The normal allocation of the Conservative Balanced Portfolio is approximately
equal holdings of stocks, bonds and money market instruments. This balance is
intended to provide better performance than a portfolio consisting only of
bonds, but with less annual volatility. For the past several years, we shifted
most of the money market allocation to intermediate-term bonds to improve the
Portfolio's return. Although that strategy was rewarded in preceding years, 1999
was a particularly poor year for bonds. Our long-term bonds faced only the
second year of negative performance for the bond market (as measured by the
Lehman Brothers U.S. Aggregate Index) since the index began in 1976. The
intermediate-term bonds, though they turned in a positive performance,
contributed less than in previous years.
ANOTHER POOR YEAR FOR VALUE STOCKS. A portion of our stocks is managed with an
active style that has a significant exposure to stocks of mid-sized companies
trading at attractive values. These stocks did not participate in the technology
stock market rally. Consumer cyclical stocks, such as that of housing-related
Owens Corning (insulation and glass), performed poorly. The insurance industry
also had a weak year, which hurt the financial holdings, but brokerages and
integrated financial service companies, such as Lehman Brothers, Morgan Stanley
Dean Witter, and Citigroup, made a substantial contribution to the Portfolio's
return.
34
<PAGE>
Strategy Session
- --------------------------------------------------------------------------------
ACTIVE ASSET ALLOCATION. We use a mathematical model to compare the expected
return on the entire stock market (determined primarily by prices and estimated
earnings) to interest rates on bonds. We try to increase the proportion of the
asset class (e.g., stocks or bonds) that offers the best value at any given
time.
Because asset class has a greater impact on returns over the long term than
selection of individual securities, these shifts in allocation may affect
returns significantly. However, such shifts are made less frequently than in the
Flexible Managed Portfolio. The equity allocation is shared between a portion
managed to mirror the behavior of the S&P 500 Index and a part actively managed
in a value style. We continue to invest much of the money market allocation in
intermediate bonds.
BOND STRATEGY: NO CHANGE. As the global economy speeds up with the recovery of
Asia and the acceleration of Europe, the outlook for corporate profit growth is
good. The higher yields of corporate bonds over government issues make them more
attractive, and we have thus overweighted them.
VALUE INVESTING. Industrials are our largest focus. Alcoa, the aluminum company,
made a substantial contribution to our return. Demand is high, and Alcoa owns a
large part of the world's supply of alumina, the ore from which aluminum comes.
Paper companies, such as Boise Cascade, Champion International, Mead, and
Georgia Pacific, are benefiting from a slowdown in new capacity.
Outlook
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER MARK STUMPP
[PHOTO OMITTED]
ON AVERAGE, STOCKS ARE EXPENSIVE.
"Our asset allocation technology does not attempt to predict the future, but
rather attempts to react to pricing variations as they occur in the market. At
the beginning of the year 2000, our models suggest that stocks are still
somewhat expensive, because today's higher interest rates reduce the value
implicit in strongly rising earnings. Although we believe our models may
somewhat undervalue the growth stocks that have become a larger share of the
stock market, we think, nonetheless, that the risks associated with stocks at
these prices are greater than the potential rewards. We will wait for either a
break in interest rates or falling stock prices before significantly
overweighting stocks compared with our normal levels."
Portfolio Composition (Long Term)
AS OF 12/31/99
--------------
- ------------------------------------------
Bonds 56.2%
- ------------------------------------------
Stocks 42.4%
- ------------------------------------------
Money Market 1.4%
- ------------------------------------------
Source: Prudential. Holdings subject to change.
Sector Breakdown--Stock
AS OF 12/31/99
--------------
- ------------------------------------------
Technology 25.3%
- ------------------------------------------
Consumer Growth & Staples 21.0%
- ------------------------------------------
Industrials 14.9%
- ------------------------------------------
Financials 14.6%
- ------------------------------------------
Consumer Cyclicals 9.4%
- ------------------------------------------
Utilities 8.6%
- ------------------------------------------
Energy 5.8%
- ------------------------------------------
Miscellaneous 0.4%
- ------------------------------------------
Sector Breakdown--Bond
AS OF 12/31/99
--------------
- ------------------------------------------
Corporate Bonds 87.6%
- ------------------------------------------
U.S. Treasuries 5.1%
- ------------------------------------------
Asset-Backed 4.1%
- ------------------------------------------
Short-Term/Cash 1.9%
- ------------------------------------------
Equity Securities 1.1%
- ------------------------------------------
Miscellaneous 0.2%
- ------------------------------------------
Source: Prudential. Holdings subject to change.
35
<PAGE>
PRUDENTIAL MEDLEY PROGRAM
FLEXIBLE MANAGED PORTFOLIO
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT GOAL
High total return consistent with a more aggressively managed diversified
portfolio.
TYPES OF INVESTMENTS
Money market instruments, bonds and common stocks of both established and
smaller companies.
INVESTMENT STYLE
The Portfolio management team holds a baseline allocation of 60% stocks and 40%
bonds.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
- --------------------------------------------------------------------------------
[LINE CHART OMITTED]
[PLOT POINTS TO COME]
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risk of currency fluctuation and the impact of social,
political and economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Flexible Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns
are net of investment fees and fund expenses, but not product charges.
(3) The S&P 500 Composite Stock Price Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The S&P 500 is an
unmanaged index that includes the reinvestment of all dividends, but does
not reflect the payment of transaction costs and advisory fees associated
with an investment in the Portfolio. The securities that comprise the S&P
500 may differ substantially from the securities in the Portfolio. 4 The
Lehman Government/Corporate Bond Index is comprised of government and
corporate bonds. The Index is an unmanaged index that includes the
reinvestment of all interest, but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the index may differ substantially
from the securities in the Portfolio. The Lehman Gov't./Corp. Bond Index
is not the only index that may be used to characterize performance of
income funds, and other indexes may portray different comparative
performance.
Performance Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
- --------------------------------------------------------------------------------
Flexible Managed Portfolio(1) 1.15% 7.78% 11.91% 14.60% 11.77%
- --------------------------------------------------------------------------------
Lipper (VIP) Flexible Avg.(2) 5.63% 12.07% 15.17% 17.11% 12.94%
- --------------------------------------------------------------------------------
S&P 500 Index(3) 7.70% 21.03% 27.56% 28.54% 18.19%
- --------------------------------------------------------------------------------
Lehman Gov't./Corp. Bond Index(4) 0.04% -2.23% 5.58% 7.44% 7.71%
- --------------------------------------------------------------------------------
Flexible Managed Portfolio inception date: 5/13/83.
The Prudential Series Fund Flexible Managed Portfolio--which invests in an
actively managed mix of stocks, bonds and money market securities--had an
overall return of 7.78%. The gain was a result of the strong performance of
stocks in 1999, while the bond market (as measured by the Lehman Brothers U.S.
Aggregate Index) had only the second year of negative performance since the
Index began in 1976. The Portfolio trailed the 12.07% Lipper (VIP) Flexible Fund
Average, primarily because the portion of our stocks that were actively managed
in a value style substantially trailed that of the S&P 500.
In addition, our models indicated that stocks were overvalued for much of the
year, so we were slightly below our 60% norm and did not participate as fully,
as we might have, when markets rose. Although the bond market lost ground
overall in 1999, our bond holdings held up considerably better than their
benchmark.
Performance Review
- --------------------------------------------------------------------------------
A TIGHTLY FOCUSED MARKET. Our asset pricing model compares the current price of
stocks and bonds, considering earnings, earnings growth, and interest rates. In
1999, stocks looked overvalued, but the threat of rising interest rates and a
strong enthusiasm for technology stocks pulled investors to the stock market
nonetheless. The portion of our portfolio allocated to the broad stock market
performed best. We had significant exposure to stocks throughout the period, but
had slightly underweighted them relative to our normal position. As a result,
the benefit from the rising market was somewhat less than it might have been.
Over the year, rising interest rates pushed down bond prices. Our bond portfolio
had a focus on corporate bonds instead of U.S. Treasuries, and the impact of
falling interest rates was mostly offset by the higher yields on corporates and
by the fact that their prices held up better than those of Treasuries. They
began the year being relatively inexpensive because during the financial crisis
of 1997-98, investors strongly preferred the greater safety of U.S. government
bonds. As the world appeared a safer place, the higher yields on corporates
attracted more investors.
ANOTHER POOR YEAR FOR VALUE STOCKS. Half of our stocks are managed with an
active style that has a significant exposure to stocks of mid-sized companies
trading at attractive values. These stocks did not participate in the technology
stock market rally. Consumer cyclical stocks, such as those of housing-related
Owens Corning (insulation and glass) and Oakwood (manufactured housing),
performed poorly. The insurance industry had a poor year, which hurt the
financial holdings, but brokerages and integrated financial service companies,
such as Lehman Brothers, Morgan Stanley Dean Witter, and Citigroup, made a
substantial contribution to the Portfolio's return.
36
<PAGE>
Strategy Session
- --------------------------------------------------------------------------------
ACTIVE ASSET ALLOCATION. We use a mathematical model to compare the expected
return on the entire stock market (determined primarily by prices and estimated
earnings) to interest rates on bonds. We try to increase the proportion of the
asset class (e.g., stocks or bonds) that offers the best value at any time.
Because asset class has a greater impact on returns over the long term than
selection of individual securities, these shifts in allocation may affect
returns significantly. Your equity allocation is shared between a portion
managed to mirror the behavior of the S&P 500 Index and a part actively managed
in a value style.
VALUE INVESTING. Industrials are our largest focus. Alcoa, the aluminum company,
made a substantial contribution to our return. Demand is high, and Alcoa owns a
large part of the world's supply of alumina, the ore from which aluminum comes.
Paper companies, such as Boise Cascade, Champion International, Mead, and
Georgia Pacific, are benefiting from a slowdown in new capacity.
BOND STRATEGY: NO CHANGE. As the global economy speeds up with the recovery of
Asia and the acceleration of Europe, the outlook for corporate profit growth is
good. The higher yields of corporate bonds over government issues make them more
attractive, and we have thus overweighted them.
Outlook
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER MARK STUMPP
[PHOTO OMITTED]
ON AVERAGE, STOCKS ARE EXPENSIVE.
"Our asset allocation technology does not attempt to predict the future, but
rather attempts to react to pricing variations as they occur in the market. At
the beginning of the year 2000, our models suggest that stocks are still
somewhat expensive, because today's higher interest rates reduce the value
implicit in strongly rising earnings. Although we believe our models may
somewhat undervalue the growth stocks that have become a larger share of the
stock market, we think, nonetheless, that the risks associated with stocks at
these prices are greater than the potential rewards. We will wait for either a
break in interest rates or falling stock prices before significantly
overweighting stocks compared with our normal levels."
Portfolio Composition (Long Term)
AS OF 12/31/99
--------------
- --------------------------------------------
Stocks 57.4%
- --------------------------------------------
Bonds 41.8%
- --------------------------------------------
Money Market 0.8%
- --------------------------------------------
Source: Prudential. Holdings subject to change.
Sector Breakdown--Stock
AS OF 12/31/99
--------------
- --------------------------------------------
Industrials 21.9%
- --------------------------------------------
Consumer Growth & Staples 18.6%
- --------------------------------------------
Technology 17.9%
- --------------------------------------------
Financials 17.0%
- --------------------------------------------
Consumer Cyclicals 11.9%
- --------------------------------------------
Utilities 6.5%
- --------------------------------------------
Energy 5.9%
- --------------------------------------------
Miscellaneous 0.3%
- --------------------------------------------
Sector Breakdown--Bond
AS OF 12/31/99
--------------
- --------------------------------------------
Corporate Bonds 78.5%
- --------------------------------------------
U.S. Treasuries 13.0%
- --------------------------------------------
Asset-Backed 5.3%
- --------------------------------------------
Short-Term/Cash 1.7%
- --------------------------------------------
Equity Securities 1.3%
- --------------------------------------------
U.S. Government Agencies 0.2%
- --------------------------------------------
Source: Prudential. Holdings subject to change.
37
<PAGE>
PRUDENTIAL MEDLEY PROGRAM
STOCK INDEX PORTFOLIO
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
- --------------------------------------------------------------------------------
[LINE CHART OMITTED]
[PLOT POINTS TO COME]
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) S&P 500 Index Average is
calculated by Lipper, 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.
Performance Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
- --------------------------------------------------------------------------------
Stock Index Portfolio(1) 7.54% 20.54% 27.16% 28.14% 17.75%
- --------------------------------------------------------------------------------
Lipper (VIP) S&P 500 Index Avg.(2) 7.48% 20.48% 27.07% 28.07% 17.74%
- --------------------------------------------------------------------------------
S&P 500 Index(3) 7.70% 21.03% 27.56% 28.54% 18.19%
- --------------------------------------------------------------------------------
Stock Index Portfolio inception date: 10/19/87.
The Prudential Series Fund Stock Index Portfolio returned 20.54%, a half
percentage point below the S&P 500 Index, reflecting the inclusion of
transaction costs and fees for the Portfolio.
The S&P 500 Index notched the fifth consecutive year of returns above 20% with a
21.03% performance. Most of the gains came in the technology sector, which
averaged a 75% return, led by electronic instruments and communication
equipment. However, consumer staples, health care, transportation, and utilities
all had negative annual returns.
The Standard & Poor's 500 Index is an unmanaged index. Standard & Poor's neither
sponsors nor endorses the Stock Index Portfolio. Investors cannot directly
invest in any index, including the S&P 500 Index.
Performance Review
- --------------------------------------------------------------------------------
The revival of Asian economies contributed to the rise of U.S. capital goods and
basic materials stocks, as these are the sectors to growing economies. Both
sectors had languished during the Asian recession, and so could bounce up from
low share prices. Aluminum, other metals, and oil and gas all were among the
best-performing groups.
However, this revival of cyclical stocks was dwarfed by the enthusiasm for
technology, including telecommunications equipment companies. The market leader
over the year was the remarkable 2,619% return on Qualcomm, a manufacturer of
cellular telephones. The technology sector had a 75% average return, compared to
29% for the second-highest performing capital goods sector.
The strong market focus on technology was reflected in disinterest in stocks in
other sectors, including utilities, health care, and consumer staples. All had
negative average returns.
38
<PAGE>
Strategy Session
- --------------------------------------------------------------------------------
The Stock Index Portfolio attempts to hold all 500 stocks included in the S&P
500 Index and to duplicate its performance. Portfolio Manager John W.
Moschberger manages the Portfolio by investing funds received while trying to
minimize commissions and transaction costs.
Outlook
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER JOHN W. MOSCHBERGER
[PHOTO OMITTED]
WILL MOMENTUM CONTINUE?
"Nineteen ninety-nine saw a strange mix of stock performances. Often, either
growth or value stocks do well, but not both. Last year, technology growth
stocks led the market by a large margin, but they were followed by value
sectors, capital goods and basic materials.
"Aluminum, which had been an inexpensive commodity industry, returned more than
90%. It was not a combination of returns likely to have been predicted, which is
why an index portfolio was a good place to be.
"Technology and telecommunications stocks have gotten very expensive compared
with both historical price/earnings ratios and the market averages. But, given
investors' apparent obliviousness to price over the past year, it would be
foolhardy to try to forecast when the market will correct. The Prudential Stock
Index Portfolio continues to include both the inexpensive commodity stocks and
the high-momentum technology stocks. Whether the market corrects or not, you'll
have a piece of the action."
S&P 500 Index--
Total Return by Sector
AS OF 12/31/99
--------------
- --------------------------------------------
Technology 75.1%
- --------------------------------------------
Capital Goods 28.9%
- --------------------------------------------
Basic Materials 26.4%
- --------------------------------------------
Consumer Cyclicals 22.3%
- --------------------------------------------
Communication Services 19.1%
- --------------------------------------------
Energy 19.0%
- --------------------------------------------
Financials 4.0%
- --------------------------------------------
Consumer Staples -6.3%
- --------------------------------------------
Health Care -8.2%
- --------------------------------------------
Utilities -8.9%
- --------------------------------------------
Transportation -9.7%
- --------------------------------------------
- --------------------------------------------
S&P 500 Index 21.0%
- --------------------------------------------
Source: Standard & Poor's.
S&P 500 Index Composition
AS OF 12/31/99
--------------
- --------------------------------------------
Technology 29.8%
- --------------------------------------------
Financials 13.1%
- --------------------------------------------
Consumer Staples 11.1%
- --------------------------------------------
Consumer Cyclicals 9.2%
- --------------------------------------------
Health Care 9.0%
- --------------------------------------------
Capital Goods 8.4%
- --------------------------------------------
Communication Services 7.6%
- --------------------------------------------
Energy 5.5%
- --------------------------------------------
Basic Materials 3.0%
- --------------------------------------------
Utilities 2.3%
- --------------------------------------------
Transportation 1.0%
- --------------------------------------------
Source: Standard & Poor's. Holdings are subject to change.
Top Ten Holdings (% of Portfolio)
AS OF 12/31/99
--------------
- --------------------------------------------
Microsoft Corp. 4.8%
- --------------------------------------------
General Electric Co. 4.1%
- --------------------------------------------
Cisco Systems, Inc. 2.8%
- --------------------------------------------
Wal-Mart Stores, Inc. 2.5%
- --------------------------------------------
Exxon Mobil Corp. 2.2%
- --------------------------------------------
Intel Corp. 2.2%
- --------------------------------------------
Lucent Technologies, Inc. 1.9%
- --------------------------------------------
IBM 1.6%
- --------------------------------------------
Citigroup, Inc. 1.5%
- --------------------------------------------
America Online, Inc. 1.4%
- --------------------------------------------
Source: Prudential. Holdings are subject to change.
39
<PAGE>
PRUDENTIAL MEDLEY PROGRAM
EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Capital appreciation.
TYPES OF INVESTMENTS
Primarily stocks of major, established companies.
INVESTMENT STYLE
The Portfolio uses a "deep value" investment approach to invest in stocks
believed to be temporarily undervalued relative to the companies' sales,
earnings, book value and cash flow.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
- --------------------------------------------------------------------------------
[LINE CHART OMITTED]
[PLOT POINTS TO COME]
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risk of currency fluctuation and the impact of social,
political and economic change.
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Growth Fund Average is
calculated by Lipper, Inc., and reflects the investment return of certain
portfolios underlying variable life and annuity products. These returns
are net of investment fees and fund expenses, but not product charges.
(3) The S&P 500 Composite Stock Price Index is a capital-weighted index
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The S&P 500 is an
unmanaged index that includes the reinvestment of all dividends, but does
not reflect the payment of transaction costs and advisory fees associated
with an investment in the Portfolio. The securities that comprise the S&P
500 may differ substantially from the securities in the Portfolio.
Performance Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
- --------------------------------------------------------------------------------
Equity Class 1 Portfolio(1) -2.58% 12.49% 15.31% 18.99% 15.08%
- --------------------------------------------------------------------------------
Lipper (VIP) Growth Fund Avg.(2) 16.27% 31.48% 26.38% 26.45% 17.79%
- --------------------------------------------------------------------------------
S&P 500 Index(3) 7.70% 21.03% 27.56% 28.54% 18.19%
- --------------------------------------------------------------------------------
Equity Portfolio inception date: 5/13/83.
The Prudential Series Fund Equity Portfolio returned 12.49% in 1999, trailing
the Lipper (VIP) Growth Fund Average of 31.48% for the period. Its value-style
focus on companies with good earnings growth at attractive prices trailed a
technology-euphoric market. Nonetheless, it had strong returns on its industrial
commodities and investment banks. Tandy, a large holding, also performed very
well. Its hospital management and tobacco companies performed poorly.
Performance Review
- --------------------------------------------------------------------------------
A TECHNOLOGY MARKET. The Portfolio's return was in line with the historical
average for the S&P 500, but it trailed this year's large-cap return, because it
had less technology than the overall market, and technology stocks were far and
away the best-performing sector. Its hospital management companies--such as
Tenet Healthcare--tobacco, and insurers performed poorly.
INDUSTRIAL COMMODITIES REVIVED. Industrial stocks often become value priced when
investors are fearful about the economy, and move up rapidly when investors
become more optimistic. That happened this year. The Portfolio's holdings in
Alcoa (aluminum), which also benefited from a tight alumina market and excellent
management, had very strong returns. The Portfolio's performance also was
enhanced by its paper companies--such as Georgia Pacific, Mead, Willamette, and
Weyerhauser--and its integrated oil companies--such as Elf Aquitaine, Atlantic
Richfield, and Kerr McGee.
TANDY: CLASSIC VALUE. Tandy Corporation, which owns the Radio Shack chain, was
believed to be undervalued when we bought it. It started as a supply shop for
electronic hobbyists. Now it is a retail location for the hot computer and
cellular telephone markets; its stock rose 140% in 1999.
STOCK MARKET ACTIVITY IS GOOD FOR BROKER/INVESTMENT BANKS. The high rate of
stock issuance and merger and acquisition activity, as well as strong investor
activity in the markets, benefited our shares in Morgan Stanley Dean Witter,
Citigroup, and Lehman Brothers.
40
<PAGE>
Strategy Session
- --------------------------------------------------------------------------------
TAKING PROFITS ON TANDY. Tandy, whose extraordinary return was driven by two
years of double-digit increases in same-store sales and by strong profit growth,
had a very good stock run. We bought Tandy when its price was depressed because
of unwise investments in new businesses in which it had no competitive
advantage. We thought its superb Radio Shack retail distribution system was
undervalued. Tandy management came around to our view, to the benefit of their
earnings and stock price. We have taken some profits.
PAPER: GOOD SUPPLY/DEMAND PROSPECTS. Our largest industry focus is paper
companies. Asia has been a major importer of forest products, and we expected
demand to rebound. Moreover, the additional Asian consumption will be building
on an already high level of demand from the continued strength of the U.S.
market. Moreover, worldwide growth in capacity has slowed, because company
managers are more reluctant than in the past to build without seeing a
respectable return on their investment. Another factor is the restructuring
under way in this industry, separating land ownership from processing. These all
bode well for earnings.
TAKING PROFITS ON FINANCIALS. Our diversified financial services and investment
banks had a good year and we took some profits. We sold our holdings in American
Express and reduced our holdings in Citigroup, Morgan Stanley Dean Witter and
Lehman Brothers. With rising interest rates and stocks at all-time highs, it
seemed reasonable to take some of your money off the table.
EASTMAN KODAK ADDED. Eastman Kodak was selling for very little compared with
broad market levels. It has been perceived as "old economy" when investors are
narrowly focused on new technology. But Kodak has a very strong franchise in
photography and is adding digital imaging to its product line while increasing
sales and earnings. It has been focused on becoming more cost-competitive. We
think the expanding market in the U.S. for digital photography and the expanding
global market for film, which is much cheaper, mean strong earnings growth for
this undervalued company.
Outlook
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER THOMAS R. JACKSON
[PHOTO OMITTED]
STYLE CONSISTENCY.
"In a cold winter during the American Revolution, Thomas Paine wrote, `These are
the times that try men's souls.' Well, these are times that try the souls of
value investors. Stocks that had been expensive have become even more expensive,
and still investors are buying them as if price were of no consequence. But we
have begun to see gains in inexpensive industrial stocks, a sign that at least
some investors are regaining interest in current earnings, visible sources of
growth, and low prices. Expanding economies and rising interest rates
historically have been associated with good performance for value stocks. In
1999, U.S. investors had a very narrow focus; we expect them to broaden their
interests. We're maintaining our discipline; in a generally expensive market,
our stocks are very inexpensive."
Portfolio Composition
AS OF 12/31/99
--------------
- --------------------------------------------
Consumer Growth & Staples 21.6%
- --------------------------------------------
Industrials 20.3%
- --------------------------------------------
Financials 17.8%
- --------------------------------------------
Cash & Equivalents 10.5%
- --------------------------------------------
Technology 10.2%
- --------------------------------------------
Consumer Cyclicals 8.7%
- --------------------------------------------
Utilities 5.8%
- --------------------------------------------
Energy 5.1%
- --------------------------------------------
Source: Prudential. Holdings are subject to change.
Top Ten Holdings (% of Portfolio)
AS OF 12/31/99
--------------
- --------------------------------------------
Eastman Kodak Co. 3.2%
- --------------------------------------------
Georgia Pacific Corp. 2.8%
- --------------------------------------------
Tenet Healthcare 2.8%
- --------------------------------------------
Columbia HCA Healthcare 2.7%
- --------------------------------------------
Well Point Health Networks 2.7%
- --------------------------------------------
Alcoa, Inc. 2.5%
- --------------------------------------------
Total Fina S.A. -Spon ADR 2.3%
- --------------------------------------------
Darden Restaurants 2.3%
- --------------------------------------------
Seagate Tech & Inc. 2.2%
- --------------------------------------------
Hewlett-Packard Co. 2.0%
- --------------------------------------------
Source: Prudential. Holdings are subject to change.
41
<PAGE>
PRUDENTIAL MEDLEY PROGRAM
GLOBAL PORTFOLIO
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Long-term growth of capital.
TYPES OF INVESTMENTS
Primarily common stock and common stock equivalents of U.S. and foreign
corporations.
INVESTMENT STYLE
The Portfolio uses a "growth" investment approach, coupled with a theme-oriented
view of the markets, to identify companies that seem best positioned to take
advantage of global changes.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
- --------------------------------------------------------------------------------
[LINE CHART OMITTED]
[PLOT POINTS TO COME]
(1) Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses, but not product
charges. Source: Prudential. Six-month returns not annualized.
(2) The Lipper Variable Insurance Products (VIP) Global Average is calculated
by Lipper, Inc., and reflects the investment return of certain portfolios
underlying variable life and annuity products. These returns are net of
investment fees and fund expenses, but not product charges.
(3) The Morgan Stanley World Index is a weighted index comprised of
approximately 1,500 companies listed on the stock exchanges of the United
States, Europe, Canada, Australia, New Zealand and the Far East. The
combined market capitalization of these companies represents approximately
60% of the aggregate market value of the stock exchanges in the countries
comprising the World Index. The World Index is an unmanaged index that
includes the reinvestment of all dividends, but does not reflect the
payment of transaction costs and advisory fees associated with an
investment in the Portfolio. The securities that comprise the World Index
may differ substantially from the securities in the Portfolio. The World
Index is not the only index that may be used to characterize performance
of global funds, and other indexes may portray different comparative
performance.
Performance Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six
Average Annual Returns Months 1-Year 3-Year 5-Year 10-Year
- --------------------------------------------------------------------------------
Global Portfolio(1) 35.11% 48.27% 25.65% 22.44% 13.38%
- --------------------------------------------------------------------------------
Lipper (VIP) Global Avg.(2) 27.82% 44.18% 22.67% 19.42% 11.73%
- --------------------------------------------------------------------------------
Morgan Stanley World Index(3) 15.14% 24.93% 21.61% 19.76% 11.42%
- --------------------------------------------------------------------------------
Global Portfolio inception date: 9/19/88.
The Prudential Series Fund Global Portfolio returned 48.27% in 1999, four
percentage points above the 44.18% gain of the Lipper (VIP) Global Average. The
Portfolio's strong global focus on telecommunications and technology helped its
return. Its holdings in Japan and the United States had particularly strong
performances.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation, political and social risks and
illiquidity.
Performance Review
- --------------------------------------------------------------------------------
TECHNOLOGY. We continue to maintain our largest industry focus in technology and
telecommunications services. In 1999, these sectors were the market favorites.
Some of the largest contributors to our return were technology stocks, including
Texas Instruments (semiconductors), PMC-Sierra (semiconductors), Oracle
(software), Microsoft (software), and Solectron (contract manufacturing).
Telecommunications equipment firms, such as Nokia, and mobile telecommunications
network operators, such as NTT Mobile Communications, Mannesmann, and Vodafone,
also were among our strong performers.
MEDIA. Stock investors have been increasingly aware of the value of content. Our
holdings in USA networks, prime manufacturer's of content, contributed to our
strong performance.
CONSUMER FOCUS PAYS OFF. We continue to benefit from Hennes & Mauritz, whose
emphasis on providing consumer value makes it a leader in the increasingly
competitive retail business. European economic integration has helped, but the
firm is also expanding to the United States.
HEALTH CARE HURT. Our drug and health care companies, including Glaxo Wellcome,
and Healthsouth, detracted somewhat from our return. The sector was out of
favor, as service companies struggled with their pricing, while drug stocks had
become relatively expensive and faced concerns about future government pricing
pressure should Medicare in the United States extend coverage to include drugs.
42
<PAGE>
Strategy Session
- --------------------------------------------------------------------------------
THE UNITED STATES IS THE INTERNET MODEL. We think the explosion of Internet
usage in the United States is a model for what can take place in the rest of the
world. We have positioned the Portfolio to benefit from greater Internet use,
focusing on companies that provide the hardware and software infrastructure.
Competition among Internet sites will be fierce, but leadership among the
infrastructure providers is already established. We own networking, database,
cable, and semiconductor companies.
MOBILE COMMUNICATIONS MODELS ARE FOUND ABROAD. The United States trails Europe
in cellular telephone usage. It is a market with enormous potential. So is
Japan. We have seen in Europe how mobile telephones can control automated
functions in the home, link to e-mail, and transform the way people communicate
with one another while Japanese companies are now leading in next-generation
technology. We own Nokia, the leading handset manufacturer, as well as service
providers based in Europe, Japan, and the United States.
Outlook
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS DANIEL J. DUANE, INGRID HOLM, AND MICHELLE PICKER
[PHOTO OMITTED] [PHOTO OMITTED] [PHOTO OMITTED]
ROOM FOR GROWTH.
"We think global investors may have under-estimated the impact and growth
potential of technology companies, despite their strong performance in 1999. The
application of new, life-style transforming technologies around the world in one
sweep is rare, if not unprecedented. Wireless telecommunications and Internet
communications (both personal and business to business) are rapidly penetrating
even the most distant markets. So the earnings growth potential of the leaders
in these technologies is enormous. That's what underlies the increasing share
prices. We believe they still have some way to go."
Geographic Allocation
AS OF 12/31/99
--------------
- ------------------------------------------------------
United States 39.1%
- ------------------------------------------------------
Continental Europe 33.2%
- ------------------------------------------------------
Japan 18.4%
- ------------------------------------------------------
Cash & Equivalents 4.1%
- ------------------------------------------------------
Pacific Basin 3.2%
- ------------------------------------------------------
Latin America 1.0%
- ------------------------------------------------------
Asia 1.0%
- ------------------------------------------------------
Source: Prudential. Holdings are subject to change.
Top Ten Holdings (% of Portfolio)
AS OF 12/31/99
--------------
- ------------------------------------------------------
PMC-Sierra, Inc. 4.2%
- ------------------------------------------------------
Oracle Systems Corp. 3.6%
- ------------------------------------------------------
Softbank Corp. 3.1%
- ------------------------------------------------------
Fujitsu Ltd. 3.0%
- ------------------------------------------------------
NTT Mobile Communications Network, Inc. 2.7%
- ------------------------------------------------------
Nokia Corp. 2.7%
- ------------------------------------------------------
Solectron Corp. 2.7%
- ------------------------------------------------------
CSK Corp. 2.5%
- ------------------------------------------------------
Time Warner, Inc. 2.3%
- ------------------------------------------------------
Texas Instruments, Inc. 2.2%
- ------------------------------------------------------
Source: Prudential. Holdings are subject to change.
43
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
--------------------------
DIVERSIFIED BOND PORTFOLIO
--------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments, at value (cost: $1,297,259,294) .......... $ 1,253,503,398
Cash .................................................. 857
Interest receivable ................................... 21,864,296
Receivable for capital stock sold ..................... 84,272
---------------
Total Assets ................................. 1,275,452,823
---------------
LIABILITIES
Payable for investments purchased ..................... 19,689,306
Payable to investment adviser ......................... 1,265,637
Payable for capital stock repurchased ................. 506,980
Accrued expenses ...................................... 83,825
Due to broker -- variation margin ..................... 75,125
---------------
Total Liabilities ............................ 21,620,873
---------------
NET ASSETS ................................................. $ 1,253,831,950
===============
Net assets were comprised of:
Common stock, at $0.01 par value ............. $ 1,145,550
Paid-in capital, in excess of par ............ 1,248,882,163
---------------
1,250,027,713
Undistributed net investment income ................... 76,304,703
Accumulated net realized loss on investments .......... (28,197,726)
Net unrealized depreciation on investments ............ (44,302,740)
---------------
Net assets, December 31, 1999 ......................... $ 1,253,831,950
===============
Net asset value and redemption price per
share, 114,554,992 outstanding shares of
common stock (authorized 170,000,000
shares) ...................................... $ 10.95
===============
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Interest .............................................. $ 81,500,023
------------
EXPENSES
Investment advisory fee ............................... 4,880,364
Shareholders' reports ................................. 140,000
Accounting fees ....................................... 110,000
Custodian's fees and expenses ......................... 50,000
Audit fee and expenses ................................ 15,000
Transfer agent's fees and expenses .................... 8,100
Legal fees and expenses ............................... 6,000
Directors' fees ....................................... 4,000
Miscellaneous ......................................... 23,769
------------
Total expenses .............................. 5,237,233
Less: custodian fee credit ............................ (41,913)
------------
Net expenses ................................ 5,195,320
------------
NET INVESTMENT INCOME ...................................... 76,304,703
------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investments ................................. (26,270,908)
Futures ..................................... 48,764
------------
(26,222,144)
------------
Net change in unrealized depreciation on:
Investments ................................. (58,177,006)
Futures ..................................... (546,844)
------------
(58,723,850)
------------
NET LOSS ON INVESTMENTS .................................... (84,945,994)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................................ $ (8,641,291)
============
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ....................................................... $ 76,304,703 $ 60,710,670
Net realized gain (loss) on investments ..................................... (26,222,144) 1,484,118
Net change in unrealized appreciation (depreciation) on investments ......... (58,723,850) 2,237,978
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............. (8,641,291) 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 [26,987,966 and 29,994,210 shares, respectively] ......... 296,061,460 334,707,738
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 [(14,272,876) and (8,361,173) shares, respectively] (156,161,922) (93,273,532)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS ......... 143,201,807 305,840,296
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ..................................................... 131,258,247 305,866,972
NET ASSETS:
Beginning of year ........................................................... 1,122,573,703 816,706,731
--------------- ---------------
End of year(a) .............................................................. $ 1,253,831,950 $ 1,122,573,703
=============== ===============
(a) Includes undistributed net investment income of: ........................ $ 76,304,703 $ --
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A1
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
---------------------------
GOVERNMENT INCOME PORTFOLIO
---------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments, at value (cost: $376,159,957) .............. $ 360,709,875
Cash .................................................... 631
Interest receivable ..................................... 4,957,010
Due from broker -- variation margin ..................... 64,531
Receivable for capital stock sold ....................... 11,818
Receivable for securities lending income ................ 30,220
-------------
Total Assets .................................... 365,774,085
-------------
LIABILITIES
Payable for investments purchased ....................... 29,528,375
Payable to investment adviser ........................... 348,979
Payable for capital stock repurchased ................... 342,218
Accrued expenses ........................................ 73,622
-------------
Total Liabilities ............................... 30,293,194
-------------
NET ASSETS ................................................... $ 335,480,891
=============
Net assets were comprised of:
Common stock, at $0.01 par value ................ $ 290,443
Paid-in capital, in excess of par ............... 327,696,346
-------------
327,986,789
Undistributed net investment income ..................... 22,098,715
Accumulated net realized gain on investments ............ 569,297
Net unrealized depreciation on investments .............. (15,173,910)
-------------
Net assets, December 31, 1999 ........................... $ 335,480,891
=============
Net asset value and redemption price per
share, 29,044,347 outstanding shares of
common stock (authorized 65,000,000 shares) ..... $ 11.55
=============
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Interest .................................................. $ 23,802,779
Income from securities loaned, net ........................ 2,510
------------
23,805,289
------------
EXPENSES
Investment advisory fee ................................... 1,545,837
Accounting fees ........................................... 105,000
Shareholders' reports ..................................... 31,000
Audit fee and expenses .................................... 10,000
Transfer agent's fees and expenses ........................ 6,100
Custodian's fees and expenses ............................. 4,000
Directors' fees ........................................... 4,000
Legal fees and expenses ................................... 2,000
Miscellaneous ............................................. 1,043
------------
Total expenses ..................................... 1,708,980
Less: custodian fee credit ................................ (2,406)
------------
Net expenses ....................................... 1,706,574
------------
NET INVESTMENT INCOME .......................................... 22,098,715
------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investments ........................................ 620,241
Futures ............................................ (30,871)
Short sales ........................................ 37,448
------------
626,818
------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................ (34,039,248)
Futures ............................................ 276,172
------------
(33,763,076)
------------
NET LOSS ON INVESTMENTS ........................................ (33,136,258)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................................ $(11,037,543)
============
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ........................................................................ $ 22,098,715 $ 24,850,570
Net realized gain on investments ............................................................. 626,818 7,136,992
Net change in unrealized appreciation (depreciation) on investments .......................... (33,763,076) 5,393,840
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .............................. (11,037,543) 37,381,402
------------- -------------
DIVIDENDS AND DISTRIBUTIONS
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 [1,551,024 and 3,555,442 shares, respectively] ............................ 18,087,112 42,216,640
Capital stock issued in reinvestment of dividends and distributions [-0- and 2,122,659 shares,
respectively] ......................................................................... -- 24,992,126
Capital stock repurchased [(9,860,838) and (5,610,053) shares, respectively] ................. (114,780,632) (66,029,147)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS .......................................................................... (96,693,520) 1,179,619
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........................................................... (107,731,063) 13,568,895
NET ASSETS:
Beginning of year ............................................................................ 443,211,954 429,643,059
------------- -------------
End of year(a) ............................................................................... $ 335,480,891 $ 443,211,954
============= =============
(a) Includes undistributed net investment income of: ......................................... $ 22,098,715 $ --
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
-------------------------------
CONSERVATIVE BALANCED PORTFOLIO
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments, at value (cost: $4,474,325,684) .......... $ 4,854,781,493
Cash .................................................. 1,422,807
Receivable for securities lending, income ............. 4,689,111
Interest and dividends receivable ..................... 42,739,444
Receivable for investments sold ....................... 166,868
Receivable for capital stock sold ..................... 39,860
---------------
Total Assets .................................... 4,903,839,583
---------------
LIABILITIES
Collateral for securities on loan ..................... 504,046,862
Payable to investment adviser ......................... 6,028,201
Securities lending rebate payable ..................... 2,965,737
Payable for investments purchased ..................... 2,020,467
Payable for capital stock repurchased ................. 1,222,854
Accrued expenses ...................................... 290,137
Due to broker -- variation margin ..................... 125,094
---------------
Total Liabilities ............................... 516,699,352
---------------
NET ASSETS ................................................. $ 4,387,140,231
===============
Net assets were comprised of:
Common stock, at $0.01 par value ................ $ 2,856,249
Paid-in capital, in excess of par ............... 4,013,577,042
---------------
4,016,433,291
Undistributed net investment income ................... 392,041
Distributions in excess of net realized gain on
investments ..................................... (9,619,315)
Net unrealized appreciation on investments ............ 379,934,214
---------------
Net assets, December 31, 1999 ......................... $ 4,387,140,231
===============
Net asset value and redemption price per
share, 285,624,853 outstanding shares of
common stock (authorized 370,000,000
shares) ......................................... $ 15.36
===============
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $286,950 foreign withholding
tax) ............................................... $ 27,413,849
Interest ................................................. 181,248,101
Income from securities loaned, net ....................... 1,820,729
-------------
210,482,679
-------------
EXPENSES
Investment advisory fee .................................. 25,195,056
Shareholders' reports .................................... 493,000
Accounting fees .......................................... 260,000
Custodian's fees and expenses ............................ 210,000
Audit fee and expenses ................................... 45,000
Legal fees and expenses .................................. 21,200
Transfer agent's fees and expenses ....................... 8,000
Directors' fees .......................................... 4,000
Miscellaneous ............................................ 94,076
-------------
Total expenses ..................................... 26,330,332
Less: custodian fee credit ............................... (80,190)
-------------
Net expenses ....................................... 26,250,142
-------------
NET INVESTMENT INCOME ......................................... 184,232,537
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS)ON INVESTMENTS
Net realized gain (loss) on:
Investments ........................................ 938,110
Futures ............................................ (493,916)
-------------
444,194
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................ 114,039,471
Futures ............................................ (3,001,308)
-------------
111,038,163
-------------
NET GAIN ON INVESTMENTS ....................................... 111,482,357
-------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................................... $ 295,714,894
=============
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ............................................................... $ 184,232,537 $ 200,201,254
Net realized gain on investments .................................................... 444,194 263,079,117
Net change in unrealized appreciation on investments ................................ 111,038,163 66,472,901
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................ 295,714,894 529,753,272
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ................................................ (183,840,496) (201,150,300)
Distributions from net realized capital gains ....................................... (16,406,123) (284,059,981)
Distributions in excess of net realized capital gains ............................... (9,619,315) --
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................................................... (209,865,934) (485,210,281)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [3,595,334 and 4,155,780 shares, respectively] ................... 54,694,876 64,306,807
Capital stock issued in reinvestment of dividends and distributions [13,845,674
and 32,017,520 shares, respectively] .......................................... 209,865,934 485,210,281
Capital stock repurchased [(49,920,477) and (34,980,138) shares, respectively] ...... (759,229,309) (542,332,348)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS .................................................................. (494,668,499) 7,184,740
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .................................................. (408,819,539) 51,727,731
NET ASSETS:
Beginning of year ................................................................... 4,795,959,770 4,744,232,039
--------------- ---------------
End of year (a) ..................................................................... $ 4,387,140,231 $ 4,795,959,770
=============== ===============
(a) Includes undistributed net investment income of ................................. $ 392,041 $ --
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A3
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
--------------------------
FLEXIBLE MANAGED PORTFOLIO
--------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments, at value (cost: $5,219,625,332) ............ $5,631,103,413
Cash .................................................... 2,947,562
Interest and dividends receivable ....................... 36,766,337
Receivable for securities lending income ................ 3,251,757
Receivable for investments sold ......................... 488,542
Receivable for capital stock sold ....................... 2,875
--------------
Total Assets ...................................... 5,674,560,486
--------------
LIABILITIES
Collateral for securities on loan ....................... 526,881,461
Payable to investment adviser ........................... 7,566,477
Payable for investments purchased ....................... 5,161,402
Payable from broker ..................................... 4,214,978
Securities lending rebate payable ....................... 2,877,006
Payable for capital stock repurchased ................... 1,500,619
Due from broker -- variation margin ..................... 598,738
Accrued expenses ........................................ 495,510
--------------
Total Liabilities ................................. 549,296,191
--------------
NET ASSETS ................................................... $5,125,264,295
==============
Net assets were comprised of:
Common stock, at $0.01 par value .................. $ 2,904,882
Paid-in capital, in excess of par ................. 4,494,235,963
--------------
4,497,140,845
Undistributed net investment income ..................... 168,078,194
Accumulated net realized gain on investments ............ 50,083,953
Net unrealized appreciation on investments .............. 409,961,303
--------------
Net assets .............................................. $5,125,264,295
==============
Net asset value and redemption price per
share, 290,488,231 outstanding shares of
common stock (authorized 370,000,000
shares) ........................................... $ 17.64
==============
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $611,104 foreign withholding
tax) ............................................... $ 43,655,429
Income from securities loaned, net ....................... 1,727,448
Interest ................................................. 155,468,167
-------------
200,851,044
-------------
EXPENSES
Investment advisory fee .................................. 31,532,667
Shareholders' reports .................................... 577,000
Accounting fees .......................................... 240,000
Custodian's fees and expenses ............................ 225,000
Audit fee and expenses ................................... 47,000
Legal fees and expenses .................................. 22,000
Transfer agent's fees and expenses ....................... 8,000
Directors' fees .......................................... 4,000
Miscellaneous ............................................ 105,969
-------------
Total expenses ..................................... 32,761,636
Less: custodian fee credit ............................... (58,367)
-------------
Net expenses ....................................... 32,703,269
-------------
NET INVESTMENT INCOME ......................................... 168,147,775
-------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments ........................................ 45,313,528
Futures ............................................ 21,714,794
-------------
67,028,322
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................ 174,886,106
Futures ............................................ (16,638,716)
-------------
158,247,390
-------------
NET GAIN ON INVESTMENTS ....................................... 225,275,712
-------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................................... $ 393,423,487
=============
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income .................................................................. $ 168,147,775 $ 177,588,088
Net realized gain on investments ....................................................... 67,028,322 513,883,914
Net change in unrealized appreciation on investments ................................... 158,247,390 (167,145,159)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................... 393,423,487 524,326,843
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ................................................... (240,137) (178,186,396)
Distributions from net realized capital gains .......................................... (60,930,102) (552,345,875)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ...................................................... (61,170,239) (730,532,271)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [3,138,333 and 4,188,120 shares, respectively] ...................... 53,348,688 74,668,669
Capital stock issued in reinvestment of dividends and distributions [3,554,343 and
43,615,212 shares, respectively] .................................................... 61,170,239 730,532,271
Capital stock repurchased [(42,922,625) and (38,796,213) shares, respectively] ......... (731,489,268) (679,156,218)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL STOCK
TRANSACTIONS ........................................................................ (616,970,341) 126,044,722
--------------- ---------------
TOTAL DECREASE IN NET ASSETS ................................................................ (284,717,093) (80,160,706)
NET ASSETS:
Beginning of year ...................................................................... 5,409,981,388 5,490,142,094
--------------- ---------------
End of year (a) ........................................................................ $ 5,125,264,295 $ 5,409,981,388
=============== ===============
(a) Includes undistributed net investment income of: ................................... $ 168,078,194 $ 170,558
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
---------------------
STOCK INDEX PORTFOLIO
---------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments, at value (cost: $2,345,486,363) .......... $4,656,162,855
Cash .................................................. 16,660
Interest and dividends receivable ..................... 4,103,786
Receivable for capital stock sold ..................... 1,023,504
Receivable for investments sold ....................... 583,564
Due from broker -- variation margin ................... 145,000
--------------
Total Assets ........................................ 4,662,035,369
--------------
LIABILITIES
Payable to investment adviser ......................... 3,371,376
Payable for investments purchased ..................... 2,251,707
Payable for capital stock repurchased ................. 1,099,090
Accrued expenses ...................................... 295,676
--------------
Total Liabilities ................................... 7,017,849
--------------
NET ASSETS ................................................. $4,655,017,520
==============
Net assets were comprised of:
Common stock, at $0.01 par value .................... $ 1,047,241
Paid-in capital, in excess of par ................... 2,338,932,384
--------------
2,339,979,625
Undistributed net investment income ................... 315,792
Accumulated net realized gain on investments .......... 1,621,348
Net unrealized appreciation on investments ............ 2,313,100,755
--------------
Net assets, December 31, 1999 ......................... $4,655,017,520
==============
Net asset value and redemption price per
share, 104,724,109 outstanding shares of
common stock (authorized 170,000,000
shares) ............................................. $ 44.45
==============
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $566,445 foreign withholding
tax) ................................................ $ 54,524,413
Interest .............................................. 5,110,430
-------------
59,634,843
-------------
EXPENSES
Investment advisory fee ............................... 14,259,131
Shareholders' reports ................................. 550,000
Custodian's fees and expenses ......................... 140,000
Accounting fees ....................................... 131,000
Audit fee and expenses ................................ 40,000
Legal fees and expenses ............................... 20,000
Transfer agent's fees and expenses .................... 8,500
Directors' fees ....................................... 4,000
Miscellaneous ......................................... 78,482
-------------
Total expenses ...................................... 15,231,113
Less: custodian fee credit ............................ (4,650)
-------------
Net expenses ........................................ 15,226,463
-------------
NET INVESTMENT INCOME ...................................... 44,408,380
-------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments ......................................... 32,943,947
Futures ............................................. 13,251,281
-------------
46,195,228
-------------
Net change in unrealized appreciation on:
Investments ......................................... 685,134,062
Futures ............................................. (2,181,112)
-------------
682,952,950
-------------
NET GAIN ON INVESTMENTS .................................... 729,148,178
-------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................................ $ 773,556,558
=============
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income .............................................. $ 44,408,380 $ 36,771,654
Net realized gain on investments ................................... 46,195,228 57,465,213
Net change in unrealized appreciation on investments ............... 682,952,950 644,691,671
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... 773,556,558 738,928,538
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income ............................... (44,092,588) (37,075,916)
Distributions from net realized capital gains ...................... (54,347,010) (53,566,202)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .................................. (98,439,598) (90,642,118)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [19,061,602 and 21,945,962 shares, respectively] 768,257,840 739,810,425
Capital stock issued in reinvestment of dividends and distributions
[2,357,499 and 2,541,175 shares, respectively] ................... 98,439,598 90,642,118
Capital stock repurchased [(10,712,263) and (11,483,263) shares,
respectively] .................................................... (434,885,868) (378,841,199)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS 431,811,570 451,611,344
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ............................................ 1,106,928,530 1,099,897,764
NET ASSETS:
Beginning of year .................................................. 3,548,088,990 2,448,191,226
--------------- ---------------
End of year (a) .................................................... $ 4,655,017,520 $ 3,548,088,990
=============== ===============
(a) Included undistributed net investment income of: ............... $ 315,792 $ --
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A5
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
----------------
EQUITY PORTFOLIO
----------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments, at value (cost: $4,885,331,050) ............. $6,235,357,940
Cash ..................................................... 58,953
Interest and dividends receivable ........................ 11,253,951
Receivable for capital stock sold ........................ 94,134
--------------
Total Assets ........................................... 6,246,764,978
--------------
LIABILITIES
Payable to investment adviser ............................ 6,736,764
Payable for capital stock repurchased .................... 2,845,468
Payable for investments purchased ........................ 1,326,576
Accrued expenses ......................................... 421,231
Forward currency contracts - amount payable
to counterparties ...................................... 138,418
Distribution fee payable ................................. 174
Administration fee payable ............................... 105
--------------
Total Liabilities ...................................... 11,468,736
--------------
NET ASSETS ................................................. $6,235,296,242
==============
Net assets were comprised of:
Common stock, at $0.01 par value ....................... $ 2,157,333
Paid-in capital, in excess of par ...................... 4,743,333,540
--------------
4,745,490,873
Undistributed net investment income ...................... 2,943,614
Accumulated net realized gain on investments ............. 136,974,864
Net unrealized appreciation on investments
and foreign currencies ................................. 1,349,886,891
--------------
Net assets, December 31, 1999 ............................ $6,235,296,242
==============
CLASS I:
Net asset value and redemption price per
share, $6,234,976,708/215,722,265
outstanding shares of common stock
(authorized 295,000,000 shares) ........................ $ 28.90
==============
CLASS II:
Net asset value and redemption price per share,
$319,534/11,050 outstanding shares of common
stock (authorized 5,000,000 shares) .................... $ 28.92
==============
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
INVESTMENT INCOME
Dividends (net of $844,442 foreign withholding
tax) ................................................... $ 112,553,009
Interest ................................................. 24,847,638
-------------
137,400,647
-------------
EXPENSES
Investment advisory fee .................................. 28,188,640
Distribution fee - Class II .............................. 358
Administration fee - Class II ............................ 215
Shareholders' reports .................................... 694,000
Custodian's fees and expenses ............................ 212,000
Accounting fees .......................................... 92,000
Audit fee and expenses ................................... 50,000
Legal fees and expenses .................................. 21,000
Transfer agent's fees and expenses ....................... 9,000
Directors' fees .......................................... 4,000
Miscellaneous ............................................ 122,035
-------------
Total expenses ......................................... 29,393,248
-------------
Less: custodian fee credit ............................... (23,473)
-------------
Net expenses ........................................... 29,369,775
-------------
NET INVESTMENT INCOME ......................................... 108,030,872
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES
Net realized gain (loss) on:
Investments ............................................ 762,125,712
Foreign currencies ..................................... (2,464)
-------------
762,123,248
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................ (132,692,386)
Foreign currencies ..................................... (139,868)
-------------
(132,832,254)
-------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES .................................................... 629,290,994
-------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................................... $ 737,321,866
=============
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ........................................................ $ 108,030,872 $ 114,479,882
Net realized gain on investments and foreign currencies ...................... 762,123,248 766,481,591
Net change in unrealized appreciation (depreciation) on
investments and foreign currencies ......................................... (132,832,254) (344,074,909)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... 737,321,866 536,886,564
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income ......................................... (105,056,328) (115,394,083)
Distributions from net realized capital gains ................................ (737,934,646) (684,800,016)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ............................................ (842,990,974) (800,194,099)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [8,685,422 and 12,676,785 shares, respectively] ........... 269,993,500 418,548,498
Capital stock issued in reinvestment of dividends and distributions
[29,304,589 and 27,106,415 shares, respectively] ........................... 842,990,974 800,194,099
Capital stock repurchased [(33,043,224) and (22,886,073) shares, respectively] (1,019,065,758) (732,368,459)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS ......... 93,918,716 486,374,138
--------------- ---------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS .................................................................... (11,750,392) 223,066,603
NET ASSETS:
Beginning of year ............................................................ 6,247,046,634 6,023,980,031
--------------- ---------------
End of year(a) ............................................................... $ 6,235,296,242 $ 6,247,046,634
=============== ===============
(a) Includes undistributed net investment income of: ......................... $ 2,943,614 $ 109,952
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A6
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
----------------
GLOBAL PORTFOLIO
----------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments, at value (cost: $724,163,895) ........... $ 1,275,662,478
Foreign currency, at value (cost: $36,813,796) ....... 36,614,585
Cash ................................................. 698
Unrealized appreciation on interest rate swap ........ 1,387,252
Dividends and interest receivable .................... 756,583
Receivable for capital stock sold .................... 405,725
---------------
Total Assets ....................................... 1,314,827,321
---------------
LIABILITIES
Payable to investment purchased ...................... 13,386,766
Payable for investments adviser ...................... 2,083,472
Payable for capital stock repurchased ................ 753,737
Accrued expenses and other liabilities ............... 289,258
---------------
Total Liabilities .................................. 16,513,233
---------------
NET ASSETS ................................................ $ 1,298,314,088
===============
Net assets were comprised of:
Common stock, at $0.01 par value ................... $ 419,131
Paid-in capital, in excess of par .................. 651,981,706
---------------
652,400,837
Distributions in excess of net investment
income ............................................. (31,563)
Accumulated net realized gain on investments ......... 93,212,412
Net unrealized appreciation on investments
and foreign currencies ............................. 552,732,402
---------------
Net assets, December 31, 1999 ........................ $ 1,298,314,088
===============
Net asset value and redemption price per
share of 41,913,089 outstanding shares of
common stock (authorized 70,000,000
shares) ............................................. $ 30.98
===============
STATEMENT OF OPERATIONS
December 31, 1999
INVESTMENT INCOME
Dividends (net of $656,976 foreign witholding
tax) ................................................ $ 8,629,752
Interest .............................................. 1,625,766
-------------
10,255,518
-------------
EXPENSES
Investment advisory fee ............................... 7,287,427
Custodian's fees and expenses ......................... 528,000
Accounting fees ....................................... 178,000
Shareholders' reports ................................. 99,000
Audit fee and expenses ................................ 26,000
Transfer agent's fees and expenses .................... 8,000
Directors' fees ....................................... 4,000
Miscellaneous ......................................... 3,240
-------------
Total expenses ...................................... 8,133,667
Less: custodian fee credit ............................ (3,727)
-------------
Net expenses ........................................ 8,129,940
-------------
NET INVESTMENT INCOME ...................................... 2,125,578
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES
Net realized gain (loss) on:
Investments ......................................... 107,213,072
Foreign currencies .................................. (2,319,994)
Interest rate swaps ................................. 996,575
-------------
105,889,653
-------------
Net change in unrealized appreciation on:
Investments ......................................... 310,067,546
Foreign currencies .................................. 5,188,274
-------------
315,255,820
-------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES ................................................. 421,145,473
-------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................................ $ 423,271,051
=============
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ....................................................... $ 2,125,578 $ 2,043,217
Net realized gain on investments and foreign currencies ..................... 105,889,653 41,097,089
Net change in unrealized appreciation on investments and foreign currencies . 315,255,820 121,145,340
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ 423,271,051 164,285,646
--------------- ---------------
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 [12,980,789 and 9,626,530 shares, respectively] .......... 303,934,195 191,039,953
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 [(11,503,347) and (7,562,638) shares, respectively] (273,433,117) (149,184,992)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS ........ 41,900,973 87,076,782
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ..................................................... 453,772,129 206,140,607
NET ASSETS:
Beginning of year ........................................................... 844,541,959 638,401,352
--------------- ---------------
End of year ................................................................. $ 1,298,314,088 $ 844,541,959
=============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A7
<PAGE>
--------------------------
DIVERSIFIED BOND PORTFOLIO
--------------------------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.8% MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS -- 96.5% (UNAUDITED) RATE DATE (000) (NOTE 2)
----------- -------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 3.2%
Boeing Co. .............................................. Aa3 8.75% 08/15/21 $ 6,250 $ 6,884,938
Litton Industries, Inc. ................................ Baa2 8.00% 10/15/09 4,220 4,202,276
Northrop-Grumman Corp. .................................. Baa3 7.875% 03/01/26 3,400 3,189,472
Raytheon Co. ........................................... Baa1 5.95% 03/15/01 6,500 6,394,245
Raytheon Co. ........................................... Baa1 6.45% 08/15/02 5,000 4,864,050
Raytheon Co. ........................................... Baa1 6.50% 07/15/05 4,200 3,977,232
Rockwell International Corp. ........................... A1 5.20% 01/15/98 6,500 4,151,030
United Technologies Corp. .............................. A2 7.50% 09/15/29 6,000 5,895,000
--------------
39,558,243
--------------
AIRLINES -- 2.6%
Continental Airlines, Inc. .............................. Aa3 7.461% 04/01/15 5,205 5,012,417
Continental Airlines, Inc. .............................. Ba2 8.00% 12/15/05 4,785 4,376,648
Delta Air Lines, Inc. .................................. Baa3 7.90% 12/15/09 3,500 3,407,985
Delta Air Lines, Inc. .................................. Ba1 9.875% 05/15/00 6,000 6,062,280
United Airlines, Inc. .................................. Baa3 10.67% 05/01/04 7,000 7,665,910
United Airlines, Inc. .................................. Baa3 11.21% 05/01/14 5,000 6,065,550
--------------
32,590,790
--------------
ASSET-BACKED SECURITIES -- 2.4%
Advanta Mortgage Loan Trust, Series 1994-3 ............ Aaa 8.49% 01/25/26 8,134 8,209,939
California Infrastructure PG&E, Series 1997-1 .......... NR 6.32% 09/25/05 4,000 3,955,000
Chase Manhattan Credit Master Trust, Series 1996-3 ..... Aaa 7.04% 02/15/05 6,000 6,013,080
Citibank Credit Card Master Trust, Series 1999-5 ........ NR 6.10% 05/15/08 12,500 11,768,250
--------------
29,946,269
--------------
AUTO-CARS & TRUCKS -- 1.5%
Ford Motor Co. .......................................... A1 6.375% 02/01/29 10,000 8,395,600
Ford Motor Co. .......................................... A1 7.45% 07/16/31 2,300 2,212,692
Navistar International Corp. ............................ Ba1 7.00% 02/01/03 3,500 3,351,250
Navistar International Corp. ............................ Ba3 8.00% 02/01/08 4,500 4,275,000
--------------
18,234,542
--------------
AUTOMOTIVE PARTS -- 1.5%
Cooper Tire & Rubber, Inc. .............................. A3 7.75% 12/15/09 2,000 1,958,400
Lear Corp. ............................................. Ba1 7.96% 05/15/05 7,590 7,362,300
TRW, Inc. .............................................. Baa1 6.45% 06/15/01 9,200 9,090,750
United Rentals, Inc. ................................... B1 8.80% 08/15/08 920 857,900
--------------
19,269,350
--------------
BANKS AND SAVINGS & LOANS -- 6.0%
Banco de Commercio Exterior de Columbia, SA,
M.T.N., (Colombia)..................................... Baa3 8.625% 06/02/00 2,000 1,980,000
Barclays Bank PLC, (United Kingdom) ..................... Aa3 7.40% 12/15/09 2,000 1,965,400
Bayerische Landesbank Girozentrale, (Germany) ........... Aaa 5.875% 12/01/08 7,800 6,994,728
Capital One Bank ....................................... Baa3 7.08% 10/30/01 5,000 4,951,150
Chase Manhattan Corp. .................................. A1 7.00% 11/15/09 5,000 4,810,750
Compass Bancshares, Inc. ................................ A1 8.10% 08/15/09 4,800 4,787,040
Dresdner Funding Trust ................................. Aa2 8.151% 06/30/31 13,100 12,489,540
Hypovereinsbank.......................................... Aa3 8.741% 06/30/31 1,500 1,498,050
International Bank for Reconstruction & Development,
(Supranational)........................................ Aaa 12.375% 10/15/02 750 855,772
Kansallis-Osake Pankki, (Finland) ..................... Baa1 10.00% 05/01/02 5,000 5,279,550
KBC Bank Funding ....................................... A1 9.86% 11/29/49 5,000 5,185,500
Keycorp Capital, Inc. .................................. A1 7.75% 07/15/29 2,800 2,604,000
National Australia Bank, (Australia) .................. A1 6.40% 12/10/07 3,700 3,687,790
Sanwa Finance Aruba A.E.C. ............................ A3 8.35% 07/15/09 4,640 4,675,264
Sovereign Bancorp ...................................... Ba3 10.25% 05/15/04 1,325 1,335,467
Sovereign Bancorp ...................................... Ba3 10.50% 11/15/06 2,295 2,340,900
Washington Mutual, Inc. ................................. A3 7.50% 08/15/06 10,000 9,892,500
--------------
75,333,401
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.8%
British Sky Broadcasting, Inc. ......................... Baa2 6.875% 02/23/09 7,800 6,852,300
Cable & Wire Communications PLC (United Kingdom) ........ Baa1 6.75% 12/01/08 1,650 1,624,029
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B1
<PAGE>
--------------------------------------
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
----------- -------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
CABLE & PAY TELEVISION SYSTEMS (CONT'D)
Cox Communications, Inc. ............................... Baa2 7.875% 08/15/09 $ 2,400 $ 2,432,880
Cox Enterprises, Inc. .................................. Baa1 6.625% 06/14/02 3,200 3,153,696
CSC Holdings, Inc. ..................................... Ba2 7.25% 07/15/08 3,400 3,206,064
CSC Holdings, Inc. ..................................... Ba2 7.875% 12/15/07 1,900 1,865,192
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 3,466,190
Tele-Communications, Inc. .............................. Baa3 10.125% 04/15/22 6,300 7,850,934
--------------
34,731,285
--------------
CHEMICALS -- 0.6%
ICI Wilmington, Inc. ................................... Baa1 9.50% 11/15/00 3,500 3,567,655
Lyondell Chemical ....................................... NR 9.625% 05/01/07 1,760 1,799,600
Rohm & Haas Co. ......................................... A3 6.95% 07/15/04 2,800 2,764,356
--------------
8,131,611
--------------
COMPUTERS -- 0.9%
International Business Machine Corp. .................. A1 5.50% 01/15/09 5,000 4,422,000
International Business Machine Corp. .................. A1 5.625% 04/12/04 3,000 2,834,340
Unisys Corp. ............................................ Ba1 12.00% 04/15/03 3,220 3,429,300
--------------
10,685,640
--------------
CONSUMER PRODUCTS -- 0.4%
Fortune Brands .......................................... A2 7.125% 11/01/04 5,000 4,930,450
--------------
DIVERSIFIED CONSUMER PRODUCT -- 0.3%
Owens-Illinois, Inc...................................... Ba1 7.50% 05/15/10 5,000 4,396,100
--------------
DIVERSIFIED OPERATIONS -- 1.1%
Tyco International Ltd. ................................ Baa1 6.875% 01/15/29 3,350 2,847,064
Tyco International Ltd. ................................ Baa1 7.00% 06/15/28 1,350 1,168,236
Xerox Cap Europe PLC .................................. A2 5.75% 05/15/02 10,000 9,655,000
--------------
13,670,300
--------------
DRUGS & MEDICAL SUPPLIES -- 0.3%
Mallinckrodt, Inc. ...................................... Baa2 6.30% 03/15/01 3,500 3,421,250
--------------
FINANCIAL SERVICES -- 8.4%
Arkwright Corp. ......................................... Baa3 9.625% 08/15/26 5,000 4,899,000
Bombardier Capital, Inc. M.T.N. ......................... A3 7.30% 12/15/02 5,000 4,980,000
Calair Capital Corp. .................................... Ba2 8.125% 04/01/08 3,000 2,640,000
Capital One Financial Corp. ............................ Ba1 7.25% 05/01/06 4,200 3,969,000
Chrysler Financial Corp. ................................ A1 5.25% 10/22/01 10,400 10,114,312
Comdisco, Inc. ......................................... Baa1 6.32% 11/27/00 10,000 9,932,000
Ford Motor Credit Co. .................................. A1 5.75% 01/25/01 4,000 3,955,480
Ford Motor Credit Co. .................................. A1 7.375% 10/28/09 1,600 1,584,000
Gatx Capital Corp. ...................................... Baa2 7.75% 12/01/06 5,000 4,955,350
General Motors Acceptance Corp. ......................... A2 5.75% 11/10/03 10,000 9,521,600
Heller Financial, Inc. ................................ A3 6.00% 03/19/04 2,900 2,753,637
HVB Funding Trust ..................................... Aa3 9.00% 10/22/31 6,000 6,153,000
International Lease Finance Corp. ...................... A1 5.90% 03/12/03 16,000 15,393,600
MBNA Corp. .............................................. Aaa 5.90% 08/15/11 17,900 16,226,028
RBF Finance Co. ......................................... Ba3 11.375% 03/15/09 450 483,750
The CIT Group, Inc. ..................................... Aa3 5.50% 10/15/01 8,045 7,865,275
--------------
105,426,032
--------------
FOOD & BEVERAGE -- 0.8%
Archer-Daniels Midland Co................................ Aa3 6.625% 05/01/29 4,700 3,998,431
Coca-Cola Bottling Co.................................... Baa2 6.375% 05/01/09 2,200 1,981,760
Coca-Cola Enterprises, Inc. ........................... A2 7.125% 09/30/09 3,300 3,237,300
Embotelladora Andina S.A., (Chile) ..................... Baa1 7.875% 10/01/97 1,250 961,131
--------------
10,178,622
--------------
FOREST PRODUCTS -- 1.8%
Abitibi-Consolidated, Inc. ............................. Baa3 8.50% 08/01/29 2,250 2,168,977
Fort James Corp. ...................................... Baa3 6.234% 03/15/11 5,000 4,948,200
Georgia-Pacific Corp. ................................... Baa2 7.75% 11/15/29 895 852,881
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B2
<PAGE>
--------------------------------------
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
----------- -------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
FOREST PRODUCTS (CONT'D.)
Scotia Pacific Co. .................................... NR 7.71% 01/20/14 $ 12,200 $ 9,150,000
Westvaco Corp............................................ A1 9.75% 06/15/20 5,000 5,855,500
--------------
22,975,558
--------------
HOSPITAL MANAGEMENT -- 0.3%
Columbia/HCA Healthcare Corp. ........................... Ba2 6.91% 06/15/05 2,435 2,228,025
Tenet Healthcare Corp.................................... Ba1 7.875% 01/15/03 1,825 1,770,250
--------------
3,998,275
--------------
INDUSTRIAL -- 0.2%
Compania Sud Americana de Vapores, SA, (Chile) ......... Baa 7.375% 12/08/03 2,000 1,905,140
--------------
INSURANCE -- 2.3%
Allstate Corp. ......................................... A1 7.20% 12/01/09 900 874,971
Conseco, Inc. .......................................... Ba1 8.50% 10/15/02 6,875 6,963,000
Conseco, Inc. .......................................... Ba2 8.796% 04/01/27 10,100 9,167,669
Nationwide CSN Trust ................................... Aa3 9.875% 02/15/25 5,000 5,094,650
Reliastar Financial Corp................................. A3 6.625% 09/15/03 5,000 4,855,000
Royal & Sun Alliance Insurance Group PLC ............... A1 8.95% 10/15/29 2,300 2,349,680
--------------
29,304,970
--------------
INVESTMENT BANKERS -- 5.3%
Bear Stearns & Co. ..................................... A2 7.625% 12/07/09 4,675 4,590,476
Goldman Sachs Group, Inc. .............................. A1 5.56% 01/11/01 4,750 4,693,760
Lehman Brothers Holdings, Inc. ........................ Baa1 6.375% 03/15/01 1,150 1,140,282
Lehman Brothers Holdings, Inc. ........................ Baa1 6.625% 04/01/04 13,245 12,821,690
Lehman Brothers Holdings, Inc. ........................ Baa1 6.625% 02/05/06 4,585 4,331,725
Merrill Lynch, Pierce, Fenner & Smith, Inc. ............ Aa3 5.665% 06/24/03 15,000 14,955,000
Morgan Stanley Dean Witter & Co. M.T.N. ............... Aa3 5.625% 04/12/02 5,450 5,276,690
Morgan Stanley Dean Witter & Co. ...................... Aa3 7.125% 01/15/03 2,830 2,827,764
PaineWebber Group, Inc. ................................ Baa1 6.45% 12/01/03 5,000 4,807,400
Salomon, Inc., M.T.N. ................................... Aa3 6.59% 02/21/01 3,500 3,485,790
Salomon, Inc. .......................................... Aa3 6.65% 07/15/01 7,000 6,961,360
Salomon, Inc., M.T.N. ................................... Aa3 7.25% 05/01/01 1,100 1,103,487
--------------
66,995,424
--------------
LEISURE -- 2.2%
Harrahs Operating Co., Inc. ........................... Ba2 7.875% 12/15/05 290 282,750
HMH Properties ........................................ Ba2 7.875% 08/01/05 1,970 1,817,325
ITT Corp. .............................................. Baa2 6.25% 11/15/00 4,250 4,167,252
ITT Corp. .............................................. Baa2 6.75% 11/15/03 7,000 6,511,610
Marriott International ................................ Baa1 7.875% 09/15/09 325 319,885
Park Place Entertainment ............................... Ba2 7.875% 12/15/05 2,265 2,163,075
Royal Caribbean Cruises Ltd. ........................... Baa3 7.00% 10/15/07 8,000 7,527,200
Royal Caribbean Cruises Ltd. ........................... Baa3 7.25% 08/15/06 5,000 4,820,450
--------------
27,609,547
--------------
MEDIA -- 4.9%
Liberty Media Group .................................... Baa3 7.875% 07/15/09 1,600 1,593,760
Liberty Media Group .................................... Baa3 8.50% 07/15/29 2,800 2,898,000
News America Holding, Inc. ............................. Baa3 6.703% 05/21/04 22,000 21,011,540
Paramount Communications, Inc. ........................ Ba2 7.50% 01/15/02 5,000 5,010,850
Seagram (J.) & Sons ..................................... Baa3 5.79% 04/15/01 11,500 11,249,300
Turner Broadcasting System, Inc. ...................... Ba1 7.40% 02/01/04 13,500 13,409,010
United News & Media PLC ................................. Baa2 7.25% 07/01/04 2,000 1,920,800
United News & Media PLC ................................. Baa2 7.75% 07/01/09 1,000 961,880
World Color Press, Inc. ............................... B1 7.75% 02/15/09 2,075 1,981,625
World Color Press, Inc. ............................... B1 8.375% 11/15/08 1,000 977,500
--------------
61,014,265
--------------
OIL & GAS -- 2.7%
Amerada Hess Corp. ..................................... Baa1 7.375% 10/01/09 600 585,546
Amerada Hess Corp. ..................................... Baa1 7.875% 10/01/29 1,600 1,560,480
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B3
<PAGE>
--------------------------------------
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
----------- -------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
OIL & GAS (CONT'D.)
Atlantic Richfield Co. ................................. A2 5.55% 04/15/03 $ 3,700 $ 3,547,116
Atlantic Richfield Co. ................................. A2 5.90% 04/15/09 6,770 6,143,030
B.J. Services Co. ....................................... Ba1 7.00% 02/01/06 5,000 4,731,700
EOTT Energy Partners, L.P. .............................. Ba2 11.00% 10/01/09 1,960 2,038,400
K N Energy, Inc., ....................................... Baa2 6.30% 03/01/21 15,000 14,844,000
--------------
33,450,272
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.4%
Parker & Parsley Petroleum Co. ........................ Ba2 8.875% 04/15/05 1,505 1,497,159
Seagull Energy Corp. .................................... Ba1 7.875% 08/01/03 1,830 1,788,825
Union Pacific Resources ................................. Baa3 7.95% 04/15/29 2,100 2,038,491
--------------
5,324,475
--------------
RAILROADS -- 1.2%
Burlington Northern Santa Fe Corp. ...................... Baa2 6.05% 03/15/01 8,000 7,906,160
Norfolk Southern Corp. ................................ Baa1 6.875% 05/01/01 4,500 4,488,570
Norfolk Southern Corp. ................................ Baa1 6.95% 05/01/02 1,650 1,642,872
Union Pacific Corp. .................................... Baa3 7.375% 09/15/09 1,700 1,663,637
--------------
15,701,239
--------------
REAL ESTATE INVESTMENT TRUST -- 2.4%
Camden Property Trust ................................. Baa2 7.23% 10/30/00 5,000 4,981,500
Equity Residential Properties Trust ..................... A3 6.15% 09/15/00 15,000 14,877,000
ERP Operating, L.P. ..................................... A3 6.63% 04/13/05 3,900 3,654,846
ERP Operating, L.P. ..................................... A3 7.10% 06/23/04 1,500 1,465,695
HRPT Properties Trust .................................. Baa2 7.426% 07/09/00 5,000 4,971,000
--------------
29,950,041
--------------
RETAIL -- 3.9%
Dayton-Hudson Corp. ................................... A3 6.40% 02/15/03 8,250 8,072,790
Federated Department Stores, Inc. ..................... Ba1 8.125% 10/15/02 5,250 5,334,315
Federated Department Stores, Inc. ..................... Ba1 8.50% 06/15/03 10,200 10,482,438
Kmart Corp. ............................................ Ba2 9.78% 01/05/20 3,850 3,951,063
Kroger Co., (The) ..................................... Baa3 6.34% 06/01/01 6,500 6,426,875
Kroger Co., (The) ..................................... Baa3 6.375% 03/01/08 6,600 6,009,960
Kroger Co., (The) ..................................... Baa3 7.25% 06/01/09 3,800 3,648,000
Kroger Co., (The) ..................................... Baa3 7.70% 06/01/29 960 907,200
Saks, Inc. .............................................. Baa3 8.25% 11/15/08 3,625 3,526,763
--------------
48,359,404
--------------
TELECOMMUNICATIONS -- 7.6%
AT&T Canada, Inc., (Canada) ............................ Baa3 7.65% 09/15/06 1,600 1,592,016
Electric Lightwave, Inc.................................. A2 6.05% 05/15/04 3,300 3,114,672
Global Crossing Holdings, Ltd. ......................... Ba2 9.125% 11/15/06 4,400 4,350,500
GTE Corp. .............................................. Baa1 9.375% 12/01/00 6,250 6,400,438
LCI International, Inc. ................................. Ba1 7.25% 06/15/07 10,125 9,734,884
Lucent Technologies, Inc. ............................... A2 6.45% 03/15/29 9,500 8,269,655
Qwest Communications International, Inc. .............. Ba1 7.50% 11/01/08 4,000 3,910,000
Rogers Cantel, Inc. .................................... Ba3 9.375% 06/01/08 2,350 2,444,000
Sprint Corp. ........................................... Baa1 5.70% 11/15/03 17,000 16,130,450
Sprint Corp. ........................................... Baa1 6.875% 11/15/28 2,500 2,221,775
Telecom De Puerto Rico .................................. Baa2 6.65% 05/15/06 6,800 6,451,772
Telecom De Puerto Rico .................................. Baa2 6.80% 05/15/09 5,700 5,198,001
US West, Inc. .......................................... Baa1 6.875% 08/15/01 5,000 4,979,000
Williams Communications Group, Inc. .................... B2 10.70% 10/01/07 2,000 2,100,000
Williams Communications Group, Inc. .................... B2 10.875% 10/01/09 680 711,450
Worldcom, Inc. ......................................... Baa2 6.125% 08/15/01 8,300 8,210,277
Worldcom, Inc. ......................................... Baa2 6.95% 08/15/28 9,900 8,988,804
--------------
94,807,694
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B4
<PAGE>
--------------------------------------
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
----------- -------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
UTILITIES -- 10.8%
AES Corp. .............................................. Ba1 9.50% 06/01/09 $ 4,905 $ 5,003,100
Arkla, Inc., M.T.N. ................................... Ba2 9.32% 12/18/00 2,000 2,040,320
Calenergy Co., Inc. .................................... Ba1 6.96% 09/15/03 8,000 7,819,200
Calenergy Co., Inc. .................................... Ba1 7.23% 09/15/05 5,000 4,872,150
Calpine Corp. .......................................... Ba1 10.50% 05/15/06 4,060 4,263,000
CMS Energy Corp. ...................................... Ba3 6.75% 01/15/04 4,500 4,218,750
CMS Energy Corp. ...................................... Ba3 8.00% 07/01/01 4,500 4,457,700
Cogentrix Energy, Inc. ................................. Ba1 8.75% 10/15/08 10,000 9,700,000
Commonwealth Edison Co. ............................... Baa3 7.625% 01/15/07 7,525 7,478,044
Connecticut Light & Power Company ....................... Ba2 7.75% 06/01/02 5,685 5,754,698
Edison Mission Energy.................................... A3 7.73% 06/15/09 3,200 3,187,104
El Paso Electric Company .............................. Ba2 7.75% 05/01/01 5,850 5,876,384
El Paso Electric Company .............................. Ba3 9.40% 05/01/11 4,000 4,275,040
El Paso Energy Corp. .................................. Baa2 6.625% 07/15/01 3,800 3,769,866
Hydro-Quebec .......................................... A2 7.50% 04/01/16 1,850 1,809,504
Illinois Power Co. .................................... Aaa 5.38% 06/25/07 15,000 14,015,550
Niagara Mohawk Power ................................... Ba3 6.875% 04/01/03 4,000 3,971,960
Niagara Mohawk Power ................................... Ba2 7.375% 08/01/03 8,000 8,000,800
Niagara Mohawk Power ................................... Baa2 8.00% 06/01/04 5,000 5,097,550
Osprey Trust ............................................ Baa3 8.31% 01/15/03 12,000 11,937,000
PSEG Energy Holdings, Inc. .............................. Ba1 10.00% 10/01/09 2,230 2,202,125
Sonat, Inc. ............................................ Baa1 7.625% 07/15/11 5,100 5,002,845
Texas Utilities ........................................ Baa3 5.94% 10/15/01 10,000 9,830,200
Utilicorp United, Inc. ................................ Baa3 7.00% 07/15/04 1,280 1,236,147
--------------
135,819,037
--------------
WASTE MANAGEMENT -- 0.6%
Allied Waste Industries, Inc. ......................... Ba2 7.625% 01/01/06 1,575 1,417,500
USA Waste Service ...................................... Baa3 6.125% 07/15/01 7,000 6,662,250
--------------
8,079,750
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 10.1%
Resolution Funding Corp. ................................ Zero 10/15/15 17,100 5,693,958
Resolution Funding Corp. ................................ 8.125% 10/15/19 700 776,559
Resolution Funding Corp. ................................ 8.625% 01/15/21 200 233,500
United States Treasury Bond.............................. 5.25% 02/15/29 1,000 826,870
United States Treasury Bond(b) .......................... 8.125% 08/15/21 66,700 76,496,229
United States Treasury Note ............................ Zero 05/15/20 36,500 9,177,925
United States Treasury Note ............................ 5.50% 01/31/03 2,500 2,442,575
United States Treasury Note ............................ 6.00% 08/15/09 12,187 11,806,156
United States Treasury Note.............................. 6.50% 05/15/05-10/15/06 9,965 9,952,734
United States Treasury Note ............................ 6.75% 08/15/26 9,800 9,845,962
--------------
127,252,468
--------------
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES -- 2.0%
Federal National Mortgage Association.................... 6.50% 01/01/15 20,000 19,400,000
Federal National Mortgage Association.................... 9.00% 10/01/16-09/01/21 267 275,901
Government National Mortgage Association ............... 7.50% 5/20/02-02/15/26 5,254 5,203,313
--------------
24,879,214
--------------
FOREIGN GOVERNMENT BONDS -- 5.0%
Junta De Andaluci, (Spain) .............................. Aa3 7.25% 10/01/29 540 514,728
Province of Saskatchewan, (Canada) ...................... A2 9.125% 02/15/21 3,000 3,456,720
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B5
<PAGE>
--------------------------------------
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
----------- -------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
FOREIGN GOVERNMENT BONDS (CONT'D.)
Quebec Province, (Canada) .............................. A1 7.50% 07/15/23 $6,825 $6,654,716
Quebec Province, (Canada) .............................. NR 7.50% 09/15/29 2,500 2,459,000
Republic Of Argentina, (Argentina) ...................... BBB Zero 10/15/01 5,000 4,187,500
Republic Of Columbia, (Columbia)......................... Baa3 9.75% 04/23/09 2,700 2,504,250
Republic of Mexico, (Mexico) .......................... Ba2 6.836% 12/31/19 5,900 5,538,625
Republic of Mexico, (Mexico) .......................... Ba2 6.933% 12/31/19 2,100 1,971,375
Republic of Mexico, (Mexico) .......................... Ba2 6.943% 12/31/19 4,200 3,942,750
Republic of Panama, (Panama) ............................ Ba1 4.25% 07/17/14 6,600 5,181,000
Republic of Panama, (Panama) ............................ NR 7.875% 02/13/02 8,000 7,720,000
Republic Of Philippines, (Philippines) .................. Ba1 8.875% 04/15/08 3,200 3,120,000
Republic of Poland, (Poland) .......................... Baa3 4.00% 10/27/24 7,500 4,950,000
United Mexican States, (Mexico) ........................ NR 10.375% 02/17/09 9,500 10,070,000
--------------
62,270,664
--------------
TOTAL LONG-TERM BONDS
(cost $1,253,556,114) ........................................................................................ 1,210,201,322
--------------
SHARES
-----------
PREFERRED STOCK -- 0.3%
Centaur Funding (cost $4,323,180) ............................................................... 27,000 3,922,074
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,257,879,294) ........................................................................................ 1,214,123,396
--------------
SHORT-TERM INVESTMENTS -- 3.1%
UNITS
-----------
WARRANT -- 0.0% (A)
Mexico Vrr Debenture, expiring 06/30/03
(cost $0) .................................................................................. 18,766,000 2
--------------
PRINCIPAL
AMOUNT
(000)
-----------
REPURCHASE AGREEMENT -- 3.1%
Joint Repurchase Agreement Account (Note 5) ......................... 2.875% 01/03/00 $ 39,380 39,380,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $39,380,000) ........................................................................................... 39,380,002
--------------
TOTAL INVESTMENTS -- 99.9%
(cost $1,297,259,294; Note 6) ................................................................................ 1,253,503,398
VARIATION MARGIN ON OPEN FUTURES CONTRACTS -- (C) ................................................................ (75,125)
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1% .................................................................... 403,677
--------------
NET ASSETS -- 100.0% ............................................................................................. $1,253,831,950
==============
</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 Anonime (Spanish Corporation) or Societe Anonyme (French Corp.)
NR Note Rated by Moody's or Standard & Poors
(a) Such represents less than 0.05%.
(b) Security, or a portion thereof, segregated as collateral for futures
contracts.
(c) Open futures contracts as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1999 DEPRECIATION
Long Position:
<S> <C> <C> <C> <C> <C>
186 U.S. Treasury Bond Mar 00 $17,565,375 $16,914,375 $(651,000)
Short Position:
44 U.S. Treasury Notes Mar 00 4,321,969 4,217,813 104,156
---------
$(546,844)
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B6
<PAGE>
---------------------------
GOVERNMENT INCOME PORTFOLIO
---------------------------
DECEMBER 31, 1999
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 97.8% PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS RATE DATE (000) (NOTE 2)
-------- ------------------- ---------- ------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 3.0%
Team Fleet Financing Corp.................................... 7.35% 05/15/03 $ 10,000 $ 9,965,000
------------
COLLATERALIZED MORTGAGE OBLIGATION -- 1.4%
Westpac Securitisation Trust, Ser. 1998-1G (Australia)....... 5.45% 07/19/29 4,709(a) 4,693,011
------------
CORPORATE -- 2.4%
Merck & Co., Inc............................................. 5.76% 05/03/37 8,000 8,023,750
------------
MORTGAGE PASS-THROUGHS -- 18.2%
Federal National Mortgage Association ....................... 7.50% 02/01/02 - 10/01/12 11,426 11,493,133
Federal National Mortgage Association ....................... 8.00% 03/01/22 - 05/01/26 702 709,356
Federal National Mortgage Association ....................... 9.00% 02/01/25 - 04/01/25 3,605 3,750,556
FNMA Pass Through............................................ 7.50% 01/01/30 11,000 10,876,250
FNMA Pass Through............................................ 7.00% 01/01/30 19,000 18,370,720
Government National Mortgage Association..................... 7.50% 12/15/25 - 02/15/26 11,230 11,120,741
Government National Mortgage Association..................... 8.00% 09/15/23 - 12/15/24 4,806 4,865,277
------------
61,186,033
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 72.8%
Federal Farm Credit Bank .................................... 5.90% 01/10/05 5,000 4,780,450
Federal Home Loan Bank ...................................... 5.75% 10/15/07 15,000 14,655,000
Federal National Mortgage Association ....................... Zero 02/15/06 - 06/01/17 55,364 21,733,030
Federal Home Loan Mortgage Corp. ........................... 7.36% 06/05/07 15,000 14,711,700
Federal National Mortgage Association ....................... 6.06% 05/21/03 30,000 29,146,800
Israel AID................................................... Zero 08/15/09 10,000 5,110,000
Resolution Funding Corp. .................................... 8.125% 10/15/19 4,200 4,659,354
Small Business Administration Participation Certficates...... 6.00% 09/01/18 7,709 7,090,398
Small Business Administration Participation Certificates..... 6.85% 07/01/17 4,511 4,342,543
Small Business Administration Participation Certificates..... 7.15% 01/01/17 16,669 16,339,578
Small Business Administration Participation Certificates..... 7.20% 10/01/16 17,468 17,154,195
United States Treasury Bonds(b) ............................. 8.125% 08/15/19 44,000 50,139,320
United States Treasury Bonds ................................ 10.00% 05/15/10 18,600 21,326,016
United States Treasury Bonds ................................ 11.75% 02/15/10 19,050 23,157,561
United States Treasury Bonds ................................ 12.50% 08/15/14 3,300 4,609,671
United States Treasury Strips ............................. Zero 11/15/09 9,900 5,106,222
------------
244,061,838
------------
TOTAL LONG-TERM INVESTMENTS
(cost $343,379,714) ....................................................................................... 327,929,632
------------
SHORT-TERM INVESTMENTS -- 9.7%
COMMERCIAL PAPER -- 5.9%
Blue Ridge Asset Funding..................................... 6.50% 01/19/00 3,400 3,388,950
Clipper Receivables Corp..................................... 6.40% 01/19/00 3,400 3,389,120
CXC Inc...................................................... 6.35% 01/19/00 3,400 3,389,205
Falcon Asset Securitization.................................. 6.50% 01/18/00 3,000 2,990,792
Thunder Bay Funding, Inc..................................... 6.40% 01/18/00 3,400 3,389,724
Variable Funding Cap......................................... 6.57% 01/18/00 3,400 3,389,452
------------
19,937,243
------------
REPURCHASE AGREEMENT -- 3.8%
Joint Repurchase Agreement Account (Note 5) ................. 2.875% 01/03/00 12,843 12,843,000
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $32,780,243) ........................................................................................ 32,780,243
------------
TOTAL INVESTMENTS -- 107.5%
(cost $376,159,957; Note 6) ............................................................................... 360,709,875
VARIATION MARGIN ON OPEN FUTURES CONTRACTS(C) ................................................................. 64,531
LIABILITIES IN EXCESS OF OTHER ASSETS -- (7.5%) ............................................................... (25,293,515)
------------
TOTAL NET ASSETS -- 100.0% .................................................................................... $335,480,891
============
</TABLE>
The following abbreviation is used in portfolio descriptions:
AID Agency for International Development
(a) US $ Denominated Foreign Bonds
(b) Security segregated as collateral for futures contracts.
(c) Open futures contracts as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1999 APPRECIATION
Short Position:
<C> <S> <C> <C> <C> <C>
47 U.S. T-Bond Mar 00 $4,382,750 $4,274,063 $108,687
25 U.S. Treasury 10yr Mar 00 $2,428,125 $2,396,484 $ 31,641
36 U.S. Treasury 10yr Mar 00 $3,536,156 $3,450,937 $ 85,219
40 U.S. Treasury 10yr Mar 00 $3,885,000 $3,834,375 $ 50,625
--------
$276,172
========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B7
<PAGE>
-------------------------------
CONSERVATIVE BALANCED PORTFOLIO
-------------------------------
DECEMBER 31, 1999
LONG-TERM INVESTMENTS -- 91.8%
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS -- 49.3% (UNAUDITED) (000) (000)
----------- --------- --------------
AEROSPACE -- 0.8%
Litton Industries, Inc.,
8.00%, 10/15/09............ Baa2 $ 3,300 $ 3,286,140
Lockheed Martin Corp.,
6.85%, 05/15/01............ A3 1,900 1,886,928
Northrop-Grumman Corp.,
7.875%, 03/01/26........... Baa3 4,500 4,221,360
Raytheon Co.,
5.95%, 03/15/01............ Baa1 26,900 26,462,337
--------------
35,856,765
--------------
AIRLINES -- 3.2%
Continental Airlines, Inc.,
7.461%, 04/01/15........... Aa3 11,641 11,209,589
8.00%, 12/15/05............ Ba2 4,530 4,143,410
Delta Air Lines, Inc.,
7.90%, 12/15/09(b)......... Baa3 47,300 46,056,483
8.30%, 12/15/29............ Baa3 4,000 3,849,320
United Airlines, Inc.,
10.67%, 05/01/04........... Baa3 46,865 51,323,267
11.21%, 05/01/14........... Baa3 18,433 22,361,257
--------------
138,943,326
--------------
ASSET-BACKED SECURITIES -- 2.1%
California Infrastructure,
6.14%, 03/25/02............ Aaa 1,091 1,080,166
6.17%, 03/25/03............ Aaa 2,000 1,989,840
6.28%, 09/25/05............ Aaa 7,000 6,861,960
Chase Manhattan Credit
Master Trust, Series 1996-
3,
7.04%, 02/15/05............ Aaa 15,000 15,032,700
Citibank Credit Card Master
Trust, Series 1999-5,
6.10%, 05/15/08............ NR 56,500 53,192,490
Standard Credit Card Master
Trust,
5.95%, 10/07/04............ Aaa 4,650 4,482,879
Team Fleet Financing Corp.,
7.35%, 05/15/03............ Aa2 11,000 10,961,500
--------------
93,601,535
--------------
AUTO-CARS & TRUCKS -- 1.5%
Ford Motor Co.,
6.375%, 02/01/29........... A1 16,000 13,432,960
7.45%, 07/16/31(b)......... A1 2,900 2,789,916
Lear Corp.,
7.96%, 05/15/05............ Ba1 10,325 10,015,250
8.25%, 02/01/02............ B2 4,710 4,615,800
TRW, Inc.,
6.45%, 06/15/01............ Baa1 35,300 34,880,812
United Rentals, Inc.,
8.80%, 08/15/08............ B1 1,435 1,338,137
--------------
67,072,875
--------------
BANKS AND SAVINGS & LOANS -- 4.0%
Bank of Nova Scotia
(Canada),
6.50%, 07/15/07............ A1 7,200 7,083,000
Barclays Bank PLC, (United
Kingdom),
7.40%, 12/15/09............ Aa3 2,500 2,456,750
Bayerische Landesbank
Girozentrale, (Germany),
5.875%, 12/01/08........... Aaa 7,800 6,994,728
Capital One Bank,
6.76%, 07/23/02............ Baa2 2,500 2,441,200
6.97%, 02/04/02............ Baa3 25,000 24,606,000
7.08%, 10/30/01............ Baa3 19,000 18,814,370
Chase Manhattan Corp.,
7.00%, 11/15/09(b)......... A1 2,500 2,405,375
Compass Bancshares, Inc.,
8.10%, 08/15/09............ A1 3,900 3,889,470
Dresdner Funding Trust,
8.151%, 06/30/31........... Aa2 18,200 17,351,880
Hypovereinsbank,
8.741%, 06/30/31(b)........ Aa3 1,800 1,797,660
Key Bank NA,
5.80%, 04/01/04............ Aa3 30,000 28,401,600
Keycorp Capital, Inc.,
7.75%, 07/15/29(b)......... A1 5,050 4,696,500
National Australia Bank,
6.40%, 12/10/07............ A1 14,000 13,953,800
Sanwa Finance Aruba
A.E.C.,
8.35%, 07/15/09............ A3 9,600 9,672,960
Sovereign Bancorp,
10.25%, 05/15/04........... Ba3 1,030 1,038,137
10.50%, 11/15/06........... Ba3 1,780 1,815,600
Sovereign Bancorp, Sr.
Notes,
6.625%, 03/15/01........... Ba3 4,000 3,870,000
Washington Mutual, Inc.,
8.25%, 10/01/02............ A3 7,800 7,944,066
Washington Mutual, Inc.,
7.50%, 08/15/06............ A3 12,000 11,871,000
--------------
171,104,096
--------------
BUILDING PRODUCTS -- 0.4%
Hanson Overseas B.V.,
7.375%, 01/15/03........... A3 16,751 16,801,085
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.6%
British Sky Broadcasting,
Inc.,
6.875%, 02/23/09........... Baa2 12,200 10,717,700
Cable & Wire
Communications PLC
(United Kingdom),
6.75%, 12/01/08............ Baa1 4,200 4,133,892
Cox Communications, Inc.,
6.94%, 10/01/01............ Baa2 4,000 3,982,960
7.875%, 08/15/09........... Baa2 5,000 5,068,500
CSC Holdings, Inc.,
7.25%, 07/15/08............ Ba2 7,600 7,166,496
7.875%, 12/15/07........... Ba2 4,240 4,162,323
Rogers Cablesystems Ltd.,
(Canada)
11.00%, 12/01/15........... B2 4,010 4,541,325
Tele-Communications, Inc.,
6.34%, 02/01/02............ Ba1 4,500 4,456,530
8.25%, 01/15/03............ Baa3 2,000 2,069,580
9.25%, 04/15/02............ Baa3 9,500 9,971,485
9.875%, 06/15/22........... Baa3 12,900 15,743,676
--------------
72,014,467
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B8
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (000)
----------- --------- --------------
CHEMICALS -- 0.1%
Lyondell Chemical,
9.625%, 05/01/07........... Ba2 $ 2,745 $ 2,806,762
Monsanto Co.,
6.85%, 12/01/28............ A2 1,500 1,322,355
--------------
4,129,117
--------------
CONSULTING -- 1.1%
Comdisco, Inc.,
6.00%, 01/30/02............ Baa1 30,000 29,046,600
6.375%, 11/30/01........... Baa1 21,500 21,083,545
--------------
50,130,145
--------------
CONTAINERS -- 0.3%
Owens-Illinois, Inc.,
7.15%, 05/15/05............ Ba1 13,000 12,019,670
7.50%, 05/15/10............ Ba1 800 703,376
--------------
12,723,046
--------------
DIVERSIFIED OPERATIONS -- 0.5%
Corning Inc,,
6.85%, 03/01/29............ A3 2,180 1,899,456
Tyco International Group, SA,
6.125%, 06/15/01........... Baa1 17,725 17,425,093
Tyco International Ltd.,
6.875%, 01/15/29(b)........ Baa1 2,800 2,379,636
7.00%, 06/15/28(b)......... Baa1 1,800 1,557,648
--------------
23,261,833
--------------
DRUGS & MEDICAL SUPPLIES -- 0.4%
Mallinckrodt, Inc.,
6.30%, 03/15/11............ Baa2 16,780 16,402,450
--------------
FINANCIAL SERVICES -- 7.5%
Arkwright Corp.,
9.625%, 08/15/26........... Baa3 8,000 7,838,400
AT&T Capital Corp.,
6.60%, 05/15/05............ A1 9,000 8,655,120
Bch Financial Ser,
5.813%, 04/28/05........... A3 10,000 9,999,000
Bombardier Capital, Inc.
M.T.N.,
7.30%, 12/15/02............ A3 10,000 9,960,000
Capital One Financial Corp.,
7.25%, 05/01/06............ Ba1 9,300 8,788,500
CIT Group Inc.,
5.80%, 03/26/02............ Aa3 16,000 15,592,640
CoMed Transitional Funding
Trust,
5.44%, 03/25/07............ Aaa 10,000 9,362,500
Enterprise Rent-A-Car USA
Finance Co., M.T.N.
6.35%, 01/15/01............ Baa3 9,000 8,908,200
6.95%, 03/01/04............ Baa2 17,500 16,990,750
7.50%, 06/15/03............ Baa3 5,000 4,958,000
Finova Capital Corp.,
6.125%, 03/15/04........... Baa1 21,000 19,918,500
Ford Motor Credit Corp.,
7.375%, 10/28/09(b)........ A1 3,265 3,232,350
Gatx Capital Corp.,
7.75%, 12/01/06............ Baa2 10,000 9,910,700
General Motors Acceptance
Corp.,
5.95%, 03/14/03............ A2 47,000 45,256,300
Heller Financial, Inc.,
6.00%, 03/19/04............ A3 2,500 2,373,825
HVB Funding Trust,
9.00%, 10/22/31............ Aa3 1,200 1,230,600
International Lease Finance
Corp.,
5.90%, 03/12/03............ A1 37,500 36,078,750
MBNA Corp.,
5.90%, 08/15/11............ Aaa 41,400 37,528,354
MCN Investment Corp.,
6.30%, 04/02/11............ Baa2 8,250 8,102,325
Osprey Trust,
8.31%, 01/15/03............ Baa3 26,000 25,863,500
Pemex Finance Ltd,
(Cayman Islands),
9.14%, 08/15/04............ Baa1 10,000 9,961,000
Sears Roebuck Acceptance
Corp.,
6.38%, 10/07/02............ A2 21,000 20,325,270
Textron Financial Corp.,
6.05%, 03/16/09............ Aaa 9,404 9,348,512
--------------
330,183,096
--------------
FOOD & BEVERAGE -- 0.3%
Archer-Daniels Midland Co.,
6.625%, 05/01/29........... Aa3 8,100 6,890,913
Coca-Cola Bottling Co.,
6.375%, 05/01/09........... Baa2 3,000 2,702,400
Coca-Cola Enterprises, Inc.,
7.125%, 09/30/09(b)........ A2 2,600 2,550,600
Embotelladora Andina S.A.,
7.875%, 10/01/97........... Baa1 1,250 961,131
--------------
13,105,044
--------------
FOREST PRODUCTS -- 0.7%
Fort James Corp.,
6.234%, 03/15/11........... Baa3 17,500 17,318,700
Georgia-Pacific Corp.,
7.75%, 11/15/29(b)......... Baa2 1,015 967,234
Scotia Pacific Co.,
7.71%, 01/20/14............ NR 18,800 14,100,000
--------------
32,385,934
--------------
INDUSTRIAL -- 0.1%
Cendant Corp.,
7.75%, 12/01/03............ Baa1 2,000 1,995,200
Compania Sud Americana
de Vapores, S.A., (Chile),
7.375%, 12/08/03........... Baa 4,600 4,381,822
--------------
6,377,022
--------------
INSURANCE -- 0.2%
Allstate Corp.,
7.20%, 12/01/09............ A1 1,700 1,652,723
Conseco, Inc.,
8.50%, 10/15/02............ Ba1 4,050 4,101,840
8.796%, 04/01/27........... Ba2 2,170 1,969,687
--------------
7,724,250
--------------
INVESTMENT BANKERS -- 2.5%
Bear Stearns & Co.,
7.625%, 12/07/09........... A2 1,300 1,276,496
SEE NOTES TO FINANCIAL STATEMENTS.
B9
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (000)
----------- --------- --------------
INVESTMENT BANKERS (CONT'D.)
Donaldson Lufkin, & Jenrette
Inc.,
5.625%, 02/15/16........... Baa1 $ 5,480 $ 5,359,385
Goldman Sachs Gp,,
6.25%, 02/01/03............ A1 4,000 3,882,760
Goldman Sachs Group, Inc.,
5.56%, 01/11/01............ A1 6,800 6,719,488
7.80%, 07/15/02............ A1 11,985 12,120,550
Lehman Brothers Holdings,
Inc.,
6.375%, 03/15/01........... Baa1 4,300 4,263,665
6.625%, 04/01/04........... Baa1 26,890 26,030,596
6.625%, 02/05/06........... Baa1 10,645 10,056,970
Morgan Stanley Dean Witter
& Co.,
6.875%, 03/01/03........... Aa3 3,000 2,969,940
7.125%, 01/15/03........... A1 17,080 17,066,507
PaineWebber Group, Inc.,
7.015%, 02/10/04........... Baa1 6,000 5,868,900
7.625%, 10/15/08........... Baa1 5,000 4,904,900
Salomon, Inc.,
7.25%, 05/01/01............ Baa1 2,165 2,171,863
Salomon, Inc.,
6.75%, 02/15/03............ Baa1 5,000 4,936,550
--------------
107,628,570
--------------
LEISURE -- 0.5%
ITT Corp.,
6.75%, 11/15/03............ Baa2 21,500 19,999,945
Marriott International,
7.875%, 09/15/09........... Baa1 250 246,065
--------------
20,246,010
--------------
MEDIA -- 1.1%
Cox Enterprises, Inc.,
6.625%, 06/14/02........... Baa1 7,200 7,095,816
Liberty Media Group,
7.875%, 07/15/09........... Baa3 3,200 3,187,520
8.50%, 07/15/29............ Baa3 3,600 3,726,000
Paramount Communications,
Inc.,
7.50%, 01/15/02............ Ba2 6,425 6,438,942
Seagram (J.) & Sons,
5.79%, 04/15/01............ Baa3 22,800 22,302,960
Time Warner, Inc.,
8.11%, 08/15/06............ Ba1 1,500 1,543,755
United News & Media PLC,
7.25%, 07/01/04............ Baa2 4,680 4,494,672
World Color Press, Inc.,
8.375%, 11/15/08........... B1 2,140 2,091,850
--------------
50,881,515
--------------
OIL & GAS -- 0.5%
Amerada Hess Corp.,
7.375%, 10/01/09........... Baa1 500 487,955
7.875%, 10/01/29........... Baa1 2,020 1,970,106
Atlantic Richfield Co.,
5.55%, 04/15/03............ A2 11,300 10,833,084
5.90%, 04/15/09............ A2 5,420 4,918,054
B.J. Services Co.,
7.00%, 02/01/06............ Ba1 4,000 3,785,360
--------------
21,994,559
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Parker & Parsley Petroleum
Co.,
8.875%, 04/15/05........... Ba2 $ 2,340 $ 2,327,809
Union Pacific Resources,
7.95%, 04/15/29(b)......... Baa3 3,400 3,300,414
--------------
5,628,223
--------------
OIL & GAS SERVICES -- 1.0%
KN Energy, Inc.,
6.30%, 03/01/21............ Baa2 27,550 27,263,480
6.45%, 11/30/01............ Baa2 11,950 11,740,875
6.45%, 03/01/03............ Baa2 6,050 5,881,024
--------------
44,885,379
--------------
RAILROADS -- 0.2%
Norfolk Southern Corp.,
6.875%, 05/01/01........... Baa1 4,000 3,989,840
6.95%, 05/01/02............ Baa1 1,300 1,294,384
Union Pacific Corp.,
7.375%, 09/15/09........... Baa3 1,400 1,370,054
--------------
6,654,278
--------------
REAL ESTATE INVESTMENT TRUST -- 1.8%
Duke Realty L.P.,
7.30%, 06/30/03............ Baa2 6,250 6,180,625
EOP Operating, L.P.,
6.375%, 01/15/02........... Baa1 7,000 6,843,200
6.50%, 06/15/04............ Baa1 6,000 5,698,200
6.625%, 02/15/05........... Baa 17,938 16,919,122
ERP Operating, L.P.,
6.63%, 04/13/15............ A3 13,400 12,557,676
7.10%, 06/23/04............ A3 3,250 3,175,672
First Industrial, L.P.,
6.50%, 04/05/11............ Baa2 9,000 8,804,340
HRPT Properties Trust,
7.426%, 07/09/07........... Baa2 1,500 1,491,300
Simon Debartolo Group, Inc.,
6.75%, 06/15/05(b)......... Baa1 17,500 16,306,500
--------------
77,976,635
--------------
RETAIL -- 2.2%
Dayton-Hudson Corp.,
6.40%, 02/15/03............ A3 8,250 8,072,790
Federated Department
Stores, Inc.,
8.125%, 10/15/02........... Ba1 25,850 26,265,151
8.50%, 06/15/03............ Ba1 22,400 23,020,256
Kroger Co., (The),
6.34%, 06/01/01............ Baa3 13,950 13,793,063
7.25%, 06/01/09............ Baa3 8,200 7,872,000
7.70%, 06/01/29............ Baa3 1,300 1,228,500
Safeway Stores Inc.,
6.05%, 11/15/03............ Baa2 12,000 11,436,480
Saks, Inc.,
8.25%, 11/15/08............ Baa3 5,000 4,864,500
--------------
96,552,740
--------------
TELECOMMUNICATIONS -- 3.6%
360 Communication Co.,
7.125%, 03/01/03(b)........ Ba2 22,550 22,425,524
7.60%, 04/01/09............ Ba1 7,000 7,003,780
Airtouch Communications,
Inc.,
7.00%, 10/01/03............ Baa2 8,200 8,192,210
SEE NOTES TO FINANCIAL STATEMENTS.
B10
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (000)
----------- --------- --------------
TELECOMMUNICATIONS (CONT'D.)
AT&T Canada, Inc.,
(Canada),
7.65%, 09/15/06............ Baa3 $ 3,250 $ 3,233,783
Electric Lightwave, Inc.,
6.05%, 05/15/04............ A2 4,700 4,436,048
Global Crossing Holdings,
Ltd.,
9.125%, 11/15/06........... Ba2 3,000 2,966,250
MCI Worldcom Inc.,
6.125%, 04/15/12........... Baa2 10,800 10,624,824
7.55%, 04/01/04(b)......... Ba1 9,535 9,646,941
Rogers Cantel Inc.,
9.375%, 06/01/08........... Ba3 1,805 1,877,200
Sprint Capital Corp.,
6.125%, 11/15/08........... Baa1 25,000 22,667,000
Sprint Corp.,
5.70%, 11/15/03............ Baa1 11,000 10,437,350
Telecom De Puerto Rico,
6.65%, 05/15/06............ Baa2 15,000 14,231,850
6.80%, 05/15/09............ Baa2 12,500 11,399,125
US West, Inc.,
6.875%, 08/15/01........... Baa1 19,000 18,920,200
Williams Communications
Group, Inc.,
10.875%, 10/01/09.......... B2 2,470 2,584,238
Worldcom Inc.,
6.125%, 08/15/01........... Baa2 8,700 8,605,953
--------------
159,252,276
--------------
UTILITIES -- 2.5%
CINergy Corp.,
6.125%, 04/15/04........... Baa2 10,000 9,431,300
Cogentrix Energy, Inc.,
8.75%, 10/15/08............ Ba1 5,000 4,850,000
Commonwealth Edison Co.,
7.375%, 01/15/04........... Baa3 14,000 14,064,540
Edison Mission Energy,
7.73%, 06/15/09............ A3 6,900 6,872,193
El Paso Energy Corp.,
6.625%, 07/15/01........... Baa2 8,200 8,134,974
Hydro-Quebec,
7.50%, 04/01/16............ A2 1,900 1,858,409
Niagara Mohawk Power,
7.375%, 08/01/03........... Ba2 10,000 10,001,000
Peco Energy Transition Trust,
5.63%, 03/01/05............ Aaa 28,000 27,149,360
5.80%, 03/01/07............ Aaa 14,500 13,703,950
PSEG Energy Holdings, Inc.,
10.00%, 10/01/09........... Ba1 3,465 3,421,688
Sonat, Inc.,
7.625%, 07/15/11(b)........ Baa1 9,200 9,024,740
--------------
108,512,154
--------------
WASTE MANAGEMENT -- 0.4%
Allied Waste Industries, Inc.,
7.625%, 01/01/06........... Ba2 755 679,500
USA Waste Service,
6.125%, 07/15/01........... Baa3 18,000 17,131,500
--------------
17,811,000
--------------
FOREIGN GOVERNMENT BONDS -- 1.4%
Junta De Andaluci, (Spain),
7.25%, 10/01/29............ Aa3 720 686,304
Province of Saskatchewan,
(Canada),
9.125%, 02/15/21........... A2 1,800 2,074,032
Quebec Province, (Canada),
7.50%, 07/15/23............ A1 7,075 6,898,479
7.50%, 09/15/29(b)......... A2 3,400 3,344,240
Republic Of Columbia,
9.75%, 04/23/09(b)......... Baa3 6,200 5,750,500
Republic of Panama,
4.25%, 07/17/14............ Ba1 12,500 9,812,500
Republic Of Philippines,
8.875%, 04/15/08........... Ba1 7,600 7,410,000
Republic of Poland,
4.00%, 10/27/24............ Baa3 8,500 5,610,000
United Mexican States,
10.375%, 02/17/09.......... Ba1 18,400 19,504,000
--------------
61,090,055
--------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 6.7%
United States Treasury Bond,
5.25%, 02/15/29(b)......... 57,660 47,677,324
6.375%, 08/15/27(b)........ 35,800 34,384,826
6.75%, 08/15/26(b)......... 31,450 31,597,501
8.125%, 05/15/21(b)........ 57,900 66,367,875
8.125%, 08/15/21(b)........ 28,800 33,029,856
United States Treasury
Notes,
5.875%, 11/15/04(b)........ 7,325 7,181,943
6.00%, 08/15/04............ 385 378,982
6.00%, 08/15/09(b)......... 55,099 53,377,156
6.50%, 05/15/05(b)(d)...... 1,120 1,120,347
6.50%, 10/15/06(b)......... 17,170 17,124,328
7.50%, 02/15/05(d)......... 185 192,949
--------------
292,433,087
--------------
TOTAL LONG-TERM BONDS
(cost $2,243,049,105)................................. 2,163,362,567
--------------
VALUE
COMMON STOCKS -- 41.6% SHARES (NOTE 2)
-------- --------------
AEROSPACE -- 0.6%
Boeing Co.................................. 122,100 5,074,781
GenCorp, Inc............................... 98,400 971,700
General Dynamics Corp...................... 21,800 1,149,950
Goodrich (B.F.) Co......................... 10,600 291,500
Honeywell International, Inc............... 98,912 5,705,986
Litton Industries, Inc.(a)................. 77,600 3,870,300
Lockheed Martin Corp....................... 50,000 1,093,750
Northrop Grumman Corp...................... 8,000 432,500
Parker-Hannifin Corp....................... 56,825 2,915,833
Raytheon Co. (Class "B" Stock)........... 42,900 1,139,531
United Technologies Corp................... 60,200 3,913,000
--------------
26,558,831
--------------
AIRLINES -- 0.4%
AMR Corp................................... 176,000 11,792,000
Delta Air Lines, Inc....................... 17,500 871,719
Southwest Airlines Co...................... 59,400 961,537
US Airways Group, Inc.(a).................. 122,300 3,921,244
--------------
17,546,500
--------------
APPAREL -- 0.0%
Nike, Inc. (Class "B" Stock)............. 36,800 1,823,900
Reebok International Ltd................... 8,800 72,050
--------------
1,895,950
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B11
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
-------- --------------
AUTOS - CARS & TRUCKS -- 0.7%
Cummins Engine Co., Inc.................... 4,200 $ 202,912
Dana Corp.................................. 19,700 589,769
Delphi Automotive Systems Corp............. 132,252 2,082,969
Ford Motor Co.............................. 196,400 10,495,125
General Motors Corp........................ 167,700 12,189,694
Genuine Parts Co.(b)....................... 20,400 506,175
MascoTech, Inc............................. 94,400 1,197,700
Midas, Inc................................. 22,100 483,437
Navistar International Corp.(a)............ 7,200 341,100
PACCAR, Inc................................ 9,400 416,537
Titan International, Inc................... 101,250 658,125
TRW, Inc................................... 14,500 753,094
--------------
29,916,637
--------------
BANKS AND SAVINGS & LOANS -- 1.6%
AmSouth Bancorporation..................... 36,400 702,975
Banc One Corp.............................. 148,172 4,750,765
Bank of New York Co., Inc.................. 92,500 3,700,000
BankAmerica Corp........................... 217,061 10,893,749
BB&T Corp.................................. 37,800 1,034,775
Chase Manhattan Corp....................... 104,800 8,141,650
Comerica, Inc.............................. 20,000 933,750
First Union Corp........................... 118,500 3,888,281
Firstar Corp............................... 123,938 2,618,190
Golden West Financial Corp................. 21,900 733,650
Hanvit Bank, GDR, (South Korea)............ 238,200 1,518,525
Huntington Bancshares, Inc................. 28,360 677,095
KeyCorp.................................... 56,300 1,245,637
Mellon Financial Corp...................... 64,000 2,180,000
Morgan (J.P.) & Co., Inc................... 22,100 2,798,412
National City Corp......................... 80,600 1,909,212
Northern Trust Corp........................ 27,200 1,441,600
Old Kent Financial Corp.................... 5,000 176,875
PNC Bank Corp.............................. 37,400 1,664,300
Providian Financial Corp................... 17,950 1,634,572
Regions Financial Corp..................... 27,300 685,912
Republic New York Corp..................... 12,500 900,000
SouthTrust Corp............................ 20,000 756,250
Summit Bancorp(b).......................... 21,300 652,312
SunTrust Banks, Inc........................ 39,400 2,711,212
Synovus Financial Corp..................... 35,250 700,594
U.S. Bancorp............................... 92,000 2,190,750
Union Planters Corp........................ 17,000 670,437
Wachovia Corp.............................. 25,700 1,747,600
Wells Fargo & Co........................... 209,400 8,467,612
--------------
72,126,692
--------------
BUSINESS SERVICES -- 0.1%
Equifax, Inc............................... 16,700 393,494
Lexmark International Group, Inc........... 12,833 1,161,386
Molex, Inc................................. 14,000 793,625
Omnicom Group, Inc.(b)..................... 21,400 2,140,000
--------------
4,488,505
--------------
CHEMICALS -- 0.7%
Air Products & Chemicals, Inc.............. 28,800 966,600
Dow Chemical Co............................ 27,600 3,688,050
Du Pont (E.I.) de Nemours & Co............. 132,420 8,723,167
Eastman Chemical Co........................ 9,300 443,494
Engelhard Corp............................. 18,000 339,750
Ferro Corp................................. 134,900 2,967,800
FMC Corp.(a)............................... 3,400 194,862
Grace (W.R.) & Co.......................... 8,600 119,325
Great Lakes Chemical Corp.................. 6,400 244,400
Hercules, Inc.............................. 12,500 348,437
Lyondell Chemical Co....................... 81,700 1,041,675
Millennium Chemicals, Inc.................. 146,527 2,893,908
Monsanto Co................................ 80,300 2,860,687
OM Group, Inc.............................. 63,300 2,179,894
Omnova Solutions, Inc...................... 98,400 762,600
Praxair, Inc............................... 18,700 940,844
Rohm & Haas Co............................. 27,311 1,111,216
Sigma-Aldrich Corp......................... 12,700 381,794
Union Carbide Corp......................... 16,700 1,114,725
--------------
31,323,228
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp.(a)........................... 96,500 2,563,281
Deluxe Corp................................ 8,600 235,962
Quintiles Transnational Corp............... 6,000 112,125
--------------
2,911,368
--------------
COMPUTER SERVICES -- 5.0%
3Com Corp.(a).............................. 44,700 2,100,900
Adaptec, Inc.(a)........................... 6,000 299,250
Adobe Systems, Inc......................... 14,600 981,850
America Online, Inc.(a).................... 275,800 20,805,662
Analog Devices, Inc........................ 18,000 1,674,000
Autodesk, Inc.............................. 7,300 246,375
Automatic Data Processing, Inc............. 77,700 4,186,087
BMC Software, Inc.(a)...................... 29,000 2,318,187
Cabletron Systems, Inc.(a)................. 20,800 540,800
Ceridian Corp.(a).......................... 17,300 373,031
Cisco Systems, Inc.(a)..................... 405,100 43,396,337
Citrix Systems, Inc........................ 8,800 1,082,400
Computer Associates International,
Inc................................... 68,700 4,804,706
Computer Sciences Corp.(a)................. 20,000 1,892,500
Compuware Corp.(a)......................... 44,900 1,672,525
Comverse Technology, Inc.(a)............... 7,300 1,056,675
Electronic Data Systems Corp............... 61,400 4,109,962
EMC Corp.(a)(b)............................ 125,975 13,762,769
First Data Corp............................ 54,200 2,672,737
Microsoft Corp.(a)......................... 635,100 74,147,925
Novell, Inc.(a)............................ 41,900 1,673,381
Oracle Corp.(a)(b)......................... 178,900 20,047,981
Parametric Technology Corp.(a)............. 35,200 952,600
Peoplesoft, Inc............................ 30,000 641,250
Silicon Graphics, Inc.(a).................. 20,600 202,137
Unisys Corp................................ 32,100 1,025,194
Yahoo!, Inc................................ 30,600 13,240,237
--------------
219,907,458
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B12
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
-------- --------------
COMPUTERS -- 1.9%
Apple Computer, Inc.(a)(b)................. 17,800 $ 1,830,062
Compaq Computer Corp....................... 215,789 5,839,790
Dell Computer Corp.(a)(b).................. 318,500 16,243,500
Gateway, Inc............................... 38,400 2,767,200
Hewlett-Packard Co......................... 127,500 14,527,031
International Business Machines
Corp.................................. 224,800 24,278,400
Networking Appliance, Inc.(a).............. 14,700 1,221,019
Seagate Technology, Inc.(a)................ 29,700 1,382,906
Sun Microsystems, Inc.(a).................. 192,400 14,898,975
--------------
82,988,883
--------------
CONSTRUCTION -- 0.1%
Centex Corp................................ 6,700 165,406
Fluor Corp................................. 9,400 431,225
Foster Wheeler Corp........................ 6,400 56,800
Pulte Corp................................. 6,600 148,500
Standard Pacific Corp...................... 154,000 1,694,000
Webb (Del E.) Corp......................... 140,300 3,498,731
Vulcan Materials Co........................ 9,000 359,438
--------------
6,354,100
--------------
CONTAINERS -- 0.1%
Ball Corp.................................. 4,700 185,062
Bemis Co., Inc............................. 5,700 198,787
Crown Cork & Seal Co., Inc................. 15,100 337,862
Owens-Illinois, Inc.(a).................... 76,600 1,919,787
Pactiv Corp.(a)............................ 22,000 233,750
Sealed Air Corp............................ 10,100 523,306
--------------
3,398,554
--------------
COSMETICS & SOAPS -- 0.7%
Alberto Culver Co. (Class "B"
Stock)................................ 5,900 152,294
Avon Products, Inc......................... 29,600 976,800
Colgate-Palmolive Co....................... 74,000 4,810,000
Gillette Co................................ 139,700 5,753,894
International Flavors & Fragrances,
Inc................................... 11,400 430,350
Procter & Gamble Co........................ 164,900 18,066,856
--------------
30,190,194
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.3%
Eastman Kodak Co........................... 76,700 5,081,375
Philip Morris Co., Inc..................... 408,700 9,476,731
--------------
14,558,106
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.1%
Avery Dennison Corp........................ 14,700 1,071,262
Pitney Bowes, Inc.......................... 35,600 1,719,925
Xerox Corp................................. 83,700 1,898,944
--------------
4,690,131
--------------
DIVERSIFIED OPERATIONS -- 1.5%
Fortune Brands, Inc........................ 22,300 737,294
General Electric Capital Corp.............. 407,200 63,014,200
Tomkins PLC, ADR........................... 131,600 1,932,875
--------------
65,684,369
--------------
DRUGS AND MEDICAL SUPPLIES -- 3.0%
Abbott Laboratories........................ 192,200 6,979,262
Allergan, Inc.............................. 17,000 845,750
ALZA Corp.(a).............................. 11,500 398,187
American Home Products Corp................ 162,300 6,400,706
Amgen, Inc.(a)............................. 127,300 7,645,956
Bard (C.R.), Inc........................... 5,700 302,100
Bausch & Lomb, Inc......................... 6,100 417,469
Baxter International, Inc.................. 35,700 2,242,406
Becton, Dickinson & Co..................... 30,400 813,200
Biomet, Inc................................ 13,700 548,000
Boston Scientific Corp.(a)................. 49,100 1,074,062
Bristol-Myers Squibb Co.................... 247,900 15,912,081
Cardinal Health, Inc.(b)................... 35,200 1,685,200
Guidant Corp............................... 37,900 1,781,300
Johnson & Johnson.......................... 167,800 15,626,375
Lilly (Eli) & Co........................... 136,700 9,090,550
Mallinckrodt, Inc.......................... 8,600 273,587
Medtronic, Inc............................. 146,600 5,341,737
Merck & Co., Inc........................... 291,500 19,548,719
Pfizer, Inc................................ 484,600 15,719,212
Pharmacia & Upjohn, Inc.................... 64,200 2,889,000
Schering-Plough Corp.(b)................... 182,600 7,703,437
St. Jude Medical, Inc.(a).................. 9,400 288,462
Warner-Lambert Co.......................... 106,900 8,759,119
Watson Pharmaceuticals, Inc.(a)............ 11,000 393,937
--------------
132,679,814
--------------
ELECTRONICS -- 1.5%
Advanced Micro Devices, Inc.(a)............ 16,400 474,575
Applied Materials, Inc.(a)................. 46,600 5,903,637
Belden, Inc................................ 67,100 1,409,100
Emerson Electric Co........................ 54,700 3,138,412
Grainger (W.W.), Inc....................... 12,300 588,094
Intel Corp.(b)............................. 411,100 33,838,669
KLA-Tencor Corp.(a)........................ 10,300 1,147,162
LSI Logic Corp.(a)......................... 17,000 1,147,500
Micron Technology, Inc..................... 31,100 2,418,025
National Semiconductor Corp.(a)............ 19,100 817,719
Rockwell International Corp................ 23,500 1,125,062
Solectron Corp............................. 33,200 3,158,150
Tektronix, Inc............................. 5,900 229,362
Teradyne, Inc.............................. 16,000 1,056,000
Texas Instruments, Inc..................... 99,600 9,648,750
Thomas & Betts Corp........................ 6,500 207,187
Xilinx Inc.(a)............................. 34,000 1,545,937
--------------
67,853,341
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B13
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
-------- --------------
FINANCIAL SERVICES -- 2.8%
American Express Co........................ 56,000 $ 9,310,000
Associates First Capital Corp.............. 91,444 2,508,995
Bear Stearns Companies, Inc................ 14,516 620,559
Block (H.R.), Inc.......................... 11,400 498,750
Capital One Financial Corp................. 25,200 1,214,325
Citigroup, Inc............................. 495,750 27,545,109
Countrywide Credit Industries, Inc......... 14,600 368,650
Dun & Bradstreet Corp...................... 19,800 584,100
Federal Home Loan Mortgage Corp............ 86,500 4,070,906
Federal National Mortgage Assoc............ 127,100 7,935,806
Fifth Third Bancorp........................ 33,700 2,472,738
Fleet Boston Financial Corp................ 115,522 4,021,610
Franklin Resource, Inc..................... 32,900 1,054,856
Goldman Sachs Group, Inc.(a)............... 13,200 1,243,275
Household International, Inc............... 59,852 2,229,487
Lehman Brothers Holdings, Inc.............. 185,900 15,743,406
MBNA Corp.................................. 98,450 2,682,763
Merrill Lynch & Co., Inc................... 103,900 8,675,650
Morgan Stanley Dean Witter & Co............ 124,590 17,785,223
PaineWebber Group, Inc..................... 15,300 593,831
Paychex, Inc............................... 31,300 1,252,000
Price (T. Rowe) Associates, Inc............ 8,000 295,500
Schwab (Charles) Corp.(a).................. 102,500 3,933,438
SLM Holding Corp........................... 21,400 904,150
State Street Corp.......................... 20,200 1,475,863
Washington Mutual, Inc..................... 74,278 1,931,228
--------------
120,952,218
--------------
FOOD & BEVERAGE -- 1.4%
Anheuser-Busch Companies, Inc.(b).......... 59,500 4,217,063
Archer-Daniels-Midland Co.................. 79,038 963,276
Bestfoods.................................. 34,300 1,802,894
Brown-Forman Corp. (Class "B"
Stock)................................ 8,700 498,075
Campbell Soup Co........................... 52,700 2,038,831
Coca Cola Enterprises, Inc.(b)............. 53,800 1,082,725
Coca-Cola Co............................... 308,200 17,952,650
ConAgra, Inc............................... 61,300 1,383,081
Coors (Adolph) Co. (Class "B" Stock)..... 4,000 210,000
General Mills, Inc......................... 36,900 1,319,175
Heinz (H.J.) & Co.......................... 44,400 1,767,675
Hershey Foods Corp......................... 16,600 788,500
Kellogg Co................................. 48,900 1,506,731
Nabisco Group Holdings Corp................ 319,400 3,393,625
PepsiCo, Inc............................... 185,500 6,538,875
Quaker Oats Co............................. 16,100 1,056,563
Ralston-Ralston Purina Group(b)............ 40,000 1,115,000
Sara Lee Corp.............................. 114,400 2,523,950
Seagram Co., Ltd........................... 52,800 2,372,700
Sysco Corp................................. 41,900 1,657,669
Unilever NV................................ 71,018 3,866,035
Whitman Corp............................... 132,800 1,784,500
Wrigley (William) Jr. Co................... 15,000 1,244,063
--------------
61,083,656
--------------
FOREST PRODUCTS -- 0.8%
Boise Cascade Corp......................... 149,900 6,070,950
Champion International Corp................ 106,400 6,590,150
Fort James Corp............................ 28,200 771,975
Georgia-Pacific Corp....................... 97,800 4,963,350
International Paper Co..................... 52,221 2,947,223
Louisiana-Pacific Corp..................... 184,400 2,627,700
Mead Corp.................................. 107,900 4,686,906
Potlatch Corp.............................. 3,500 156,187
Temple-Inland, Inc......................... 6,600 435,187
Westvaco Corp.............................. 13,000 424,125
Weyerhaeuser Co............................ 24,900 1,788,131
Willamette Industries, Inc................. 82,700 3,840,381
--------------
35,302,265
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group...................... 10,300 651,475
Consolidated Natural Gas Co................ 12,500 811,719
El Paso Energy Corp........................ 19,100 741,319
Peoples Energy Corp........................ 5,500 184,250
Sempra Energy.............................. 29,299 509,070
Williams Companies, Inc.................... 54,400 1,662,600
--------------
4,560,433
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.5%
Columbia/HCA Healthcare Corp............... 283,900 8,321,819
Healthsouth Corp.(a)....................... 51,600 277,350
Humana, Inc.(a)............................ 266,200 2,179,512
IMS Health, Inc............................ 39,400 1,071,187
LifePoint Hospitals, Inc.(a)............... 10,552 124,645
Manor Care, Inc............................ 13,000 208,000
McKesson HBOC Inc.......................... 32,430 731,702
Service Corp. International................ 33,800 234,487
Shared Medical Systems Corp................ 2,300 117,156
Smith (A.O.) Corp.......................... 105,450 2,306,719
Tenet Healthcare Corp.(a).................. 279,700 6,572,950
Triad Hospitals, Inc.(a)................... 10,552 159,599
Wellpoint Health Networks Inc.............. 6,000 395,625
--------------
22,700,751
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.2%
Clorox Co.(b).............................. 27,800 1,400,425
Kimberly-Clark Corp........................ 68,200 4,450,050
Leggett & Platt, Inc....................... 125,700 2,694,694
--------------
8,545,169
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc............ 4,100 136,838
Fleetwood Enterprises, Inc................. 3,400 70,125
Hanson, PLC, ADR, (United
Kingdom).............................. 309,562 12,517,913
Kaufman & Broad Home Corp.................. 6,100 147,544
Lowe's Companies, Inc...................... 46,500 2,778,375
Masco Corp................................. 46,900 1,190,088
Maytag Corp................................ 11,000 528,000
Newell Rubbermaid Inc.(b).................. 36,814 1,067,606
Owens Corning(b)........................... 106,900 2,064,506
Stanley Works.............................. 11,000 331,375
Tupperware Corp............................ 9,600 162,600
Whirlpool Corp............................. 9,500 618,094
--------------
21,613,064
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B14
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
-------- --------------
INSTRUMENT-CONTROLS -- 0.1%
Johnson Controls, Inc...................... 10,900 $ 619,937
PerkinElmer, Inc........................... 7,100 295,981
PE Corp-PE Biosystems Group................ 12,200 1,467,812
--------------
2,383,730
--------------
INSURANCE -- 1.5%
Aetna, Inc................................. 18,200 1,015,787
Allstate Corp.............................. 99,700 2,392,800
American General Corp...................... 30,700 2,329,362
American International Group, Inc.......... 193,553 20,927,918
Aon Corp.(b)............................... 32,500 1,300,000
Berkley (W.R.) Corp........................ 42,400 885,100
Chubb Corp................................. 74,500 4,195,281
CIGNA Corp................................. 25,000 2,014,062
Cincinnati Financial Corp.................. 19,100 595,681
Conseco, Inc............................... 38,621 690,350
Financial Security Assurance
Holdings Ltd.......................... 34,000 1,772,250
Hartford Financial Services Group,
Inc................................... 27,500 1,302,812
Jefferson-Pilot Corp....................... 13,100 894,075
Lincoln National Corp...................... 25,800 1,032,000
Loews Corp................................. 42,400 2,573,150
Marsh & McLennan Companies, Inc............ 33,100 3,167,256
MBIA, Inc.................................. 13,000 686,563
MGIC Investment Corp.(b)................... 13,900 836,606
Progressive Corp........................... 9,400 687,375
Reinsurance Group of America, Inc.......... 173,325 4,809,769
SAFECO Corp................................ 100,600 2,502,425
St. Paul Companies, Inc.................... 28,600 963,463
Torchmark Corp............................. 118,400 3,441,000
Trenwick Group, Inc........................ 64,850 1,098,397
United Healthcare Corp..................... 22,000 1,168,750
UnumProvident Corp.(b)..................... 29,110 933,339
--------------
64,215,571
--------------
LEISURE -- 0.3%
Brunswick Corp............................. 9,000 200,250
Carnival Corp. (Class "A" Stock)........... 80,500 3,848,906
Disney (Walt) Co........................... 260,300 7,613,775
Harrah's Entertainment, Inc.(a)............ 15,800 417,713
Hilton Hotels Corp......................... 30,300 291,638
Marriott International, Inc. (Class "A"
Stock)................................ 28,900 912,156
Mirage Resorts, Inc.(a).................... 23,600 361,375
--------------
13,645,813
--------------
MACHINERY -- 0.3%
Briggs & Stratton Corp..................... 2,200 117,975
Caterpillar, Inc........................... 44,300 2,084,869
Commercial Intertech Corp.................. 28,300 360,825
Cooper Industries, Inc..................... 12,800 517,600
Deere & Co................................. 28,000 1,214,500
Dover Corp................................. 25,700 1,166,138
Eaton Corp................................. 8,200 595,525
Flowserve Corp............................. 39,486 671,262
Ingersoll-Rand Co.......................... 21,400 1,178,338
Milacron, Inc.............................. 6,300 96,863
Paxar Corp................................. 229,925 1,939,992
Snap-On, Inc............................... 9,500 252,344
Timken Co.................................. 9,900 202,331
--------------
10,398,562
--------------
MANUFACTURING -- 0.3%
Hussmann International, Inc................ 122,100 1,839,131
Illinois Tool Works, Inc.(b)............... 32,000 2,162,000
Tyco International Ltd..................... 210,022 8,164,605
--------------
12,165,736
--------------
MEDIA -- 1.5%
CBS Corp.(a)............................... 161,547 10,328,911
Central Newspapers, Inc.(Class "A"
Stock)................................ 100,000 3,937,500
Clear Channel Communications,
Inc.(a)(b)............................ 40,900 3,650,325
Comcast Corp. (Special Class "A"
Stock)(b)............................. 93,800 4,713,450
Donnelley (R.R.) & Sons Co................. 15,700 389,556
Dow Jones & Co., Inc....................... 10,600 720,800
Gannett Co., Inc........................... 34,400 2,805,750
Houghton Mifflin Co........................ 58,700 2,476,406
Interpublic Group of Companies,
Inc................................... 35,600 2,053,675
Knight-Ridder, Inc.(b)..................... 67,800 4,034,100
Lee Enterprises, Inc....................... 50,900 1,625,619
McGraw-Hill, Inc........................... 23,700 1,460,513
Mediaone Group, Inc.(b).................... 77,700 5,968,331
Meredith Corp.............................. 5,500 229,281
New York Times Co. (Class "A"
Stock)(b)............................. 22,900 1,124,963
Time Warner, Inc........................... 157,800 11,430,638
Times Mirror Co. (Class "A" Stock)......... 8,900 596,300
Tribune Co................................. 30,000 1,651,875
Viacom, Inc. (Class "B" Stock)(a).......... 87,600 5,294,325
--------------
64,492,318
--------------
METALS-FERROUS -- 0.2%
AK Steel Holding Corp...................... 146,900 2,772,738
Allegheny Technologies, Inc................ 12,200 273,738
Bethlehem Steel Corp.(a)................... 241,500 2,022,563
Material Sciences Corp.(a)................. 96,900 987,169
National Steel Corp. (Class "B"
Stock)(a)............................. 36,000 267,750
Nucor Corp................................. 10,500 575,531
USX-U.S. Steel Group, Inc.................. 94,100 3,105,300
Worthington Industries, Inc................ 9,200 152,375
--------------
10,157,164
--------------
METALS-NON FERROUS -- 0.7%
Alcan Aluminum Ltd.(b)..................... 26,700 1,099,706
Alcoa, Inc................................. 326,300 27,082,900
Inco Ltd................................... 26,200 615,700
Reynolds Metals Co......................... 8,200 628,325
--------------
29,426,631
--------------
MINERAL RESOURCES -- 0.0%
Burlington Resources, Inc.(b).............. 23,300 770,356
Homestake Mining Co........................ 33,100 258,594
Phelps Dodge Corp.......................... 8,393 563,380
--------------
1,592,330
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B15
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
-------- --------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.4%
AES Corp................................... 24,000 $ 1,794,000
Crane Co................................... 10,800 214,650
Danaher Corp............................... 17,400 839,550
Donaldson Co., Inc......................... 109,200 2,627,625
Ecolab, Inc................................ 16,700 653,388
IDEX Corp.(b).............................. 60,100 1,825,538
ITT Industries, Inc........................ 10,700 357,781
Mark IV Industries, Inc.................... 86,542 1,530,712
Millipore Corp............................. 6,800 262,650
NACCO Industries, Inc. (Class "A"
Stock)................................ 1,300 72,231
Pall Corp.................................. 13,800 297,563
PPG Industries, Inc........................ 21,100 1,320,069
Textron, Inc............................... 19,300 1,480,069
Thermo Electron Corp.(a)................... 20,900 313,500
Trinity Industries, Inc.................... 52,200 1,484,438
Wolverine Tube, Inc.(a).................... 37,000 522,625
York International Corp.................... 59,100 1,621,556
--------------
17,217,945
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE-- 0.2%
American Greetings Corp. (Class "A"
Stock)................................ 8,200 193,725
Black & Decker Corp........................ 10,400 543,400
Corning, Inc............................... 30,200 3,893,913
Jostens, Inc............................... 6,100 148,306
Minnesota Mining & Manufacturing
Co.................................... 50,000 4,893,750
Polaroid Corp.............................. 7,000 131,688
--------------
9,804,782
--------------
OIL & GAS -- 1.9%
Amerada Hess Corp.......................... 11,100 629,925
Anadarko Petroleum Corp.................... 15,100 515,288
Ashland, Inc............................... 9,400 309,613
Atlantic Richfield Co...................... 41,300 3,572,450
Basin Exploration, Inc.(a)................. 17,400 306,675
Cabot Oil & Gas Corp. (Class "A"
Stock)................................ 88,600 1,423,138
Chevron Corp............................... 82,800 7,172,550
Coastal Corp............................... 26,100 924,919
Eastern Enterprises........................ 3,200 183,800
Exxon Mobil Corp........................... 430,270 34,663,627
Kerr-McGee Corp............................ 10,525 652,550
Murphy Oil Corp............................ 27,600 1,583,550
NICOR, Inc................................. 4,900 159,250
Noble Affiliates, Inc...................... 50,900 1,091,169
Ocean Energy Inc........................... 63,700 493,675
Phillips Petroleum Co...................... 32,600 1,532,200
Pioneer Natural Resources Co............... 435,944 3,896,250
Royal Dutch Petroleum Co................... 267,500 16,167,031
Sunoco, Inc................................ 10,100 237,350
Texaco, Inc................................ 68,000 3,693,250
Unocal Corp................................ 30,900 1,037,081
USX-Marathon Group......................... 36,900 910,969
Western Gas Resources, Inc................. 103,000 1,358,313
--------------
82,514,623
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Baker Hughes, Inc.......................... 40,150 845,659
Conoco, Inc (Class "B ").................. 68,394 1,701,301
EOG Resources, Inc......................... 48,400 850,025
Occidental Petroleum Corp.................. 41,300 893,113
Transocean Sedco Forex, Inc................ 13,397 451,315
Union Pacific Resources Group, Inc......... 29,700 378,675
--------------
5,120,088
--------------
OIL & GAS SERVICES -- 0.5%
Apache Corp................................ 15,000 554,063
Enron Corp................................. 89,000 3,949,375
Halliburton Co............................. 55,500 2,233,875
Helmerich & Payne, Inc..................... 7,900 172,319
McDermott International, Inc............... 401,600 3,639,500
ONEOK, Inc................................. 4,900 123,113
Rowan Companies, Inc.(a)................... 9,600 208,200
Schlumberger Ltd.(b)....................... 69,200 3,892,500
Tosco Corp................................. 9,000 244,688
Total SA (Class "B" Stock), (France)..... 79,933 5,535,360
--------------
20,552,993
--------------
PRECIOUS METALS -- 0.1%
Apex Silver Mines Ltd...................... 82,200 981,263
Barrick Gold Corp.......................... 50,600 894,988
Freeport-McMoRan Copper & Gold,
Inc. (Class "B" Stock).............. 21,300 449,963
Newmont Mining Corp........................ 24,500 600,250
Placer Dome, Inc........................... 32,700 351,525
Stillwater Mining Co.(a)................... 75,000 2,390,625
--------------
5,668,614
--------------
RAILROADS -- 0.1%
Burlington Northern Santa Fe Corp.......... 60,700 1,471,975
CSX Corp................................... 27,600 865,950
Kansas City Southern Industries,
Inc................................... 13,300 992,513
Norfolk Southern Corp...................... 46,800 959,400
Union Pacific Corp......................... 30,800 1,343,650
--------------
5,633,488
--------------
REAL ESTATE INVESTMENT TRUST -- 0.3%
Crescent Real Estate Equities Co........... 336,700 6,186,863
Equity Residential Properties Trust........ 37,700 1,609,319
Vornado Realty Trust....................... 185,200 6,019,000
--------------
13,815,182
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc.................... 18,200 329,875
McDonald's Corp............................ 171,500 6,913,594
Tricon Global Restaurants, Inc.(a)......... 19,000 733,875
Wendy's International, Inc................. 15,500 319,688
--------------
8,297,032
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B16
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
-------- --------------
RETAIL -- 2.8%
Albertson's, Inc........................... 54,566 $ 1,759,754
AutoZone, Inc.(a).......................... 19,800 639,788
Bed Bath & Beyond, Inc..................... 8,000 278,000
Best Buy Co., Inc.(a)...................... 22,000 1,104,125
Charming Shoppes, Inc.(a).................. 811,300 5,374,863
Circuit City Stores, Inc................... 25,800 1,162,613
Consolidated Stores Corp................... 12,400 201,500
Costco Wholesale Corp.(b).................. 28,200 2,573,250
CVS Corp................................... 48,400 1,932,975
Dayton-Hudson Corp......................... 55,200 4,053,750
Dillard's, Inc............................. 43,700 882,194
Dollar General Corporation................. 28,125 639,844
Federated Department Stores,
Inc.(a)............................... 26,400 1,334,850
Great Atlantic & Pacific Tea Co., Inc...... 6,000 167,250
Harcourt General, Inc...................... 8,000 322,000
Home Depot, Inc............................ 280,350 19,221,497
Huttig Building Products, Inc.............. 2,400 11,849
IKON Office Solutions, Inc................. 17,100 116,494
J.C. Penney Co., Inc....................... 33,100 659,931
Kmart Corp.(a)............................. 638,100 6,420,881
Kohl's Corp.(a)............................ 20,300 1,465,406
Kroger Co.(a).............................. 107,946 2,037,481
Liz Claiborne, Inc......................... 10,500 395,063
Longs Drug Stores, Inc..................... 6,100 157,456
May Department Stores Co................... 41,900 1,351,275
Nordstrom, Inc............................. 17,500 458,281
Office Depot, Inc.......................... 34,500 377,344
Pep Boys - Manny, Moe & Jack............... 6,927 63,209
Rite Aid Corp.............................. 31,400 351,288
Safeway, Inc.(a)........................... 62,900 2,236,881
Sears, Roebuck & Co........................ 48,900 1,488,394
Sherwin-Williams Co........................ 21,800 457,800
Staples, Inc.(a)........................... 59,500 1,234,625
Supervalu, Inc............................. 13,000 260,000
Tandy Corp................................. 25,400 1,249,363
The Gap, Inc............................... 109,300 5,027,800
The Limited, Inc........................... 198,053 8,578,171
TJX Companies, Inc......................... 40,600 829,763
Toys 'R' Us, Inc.(a)....................... 146,500 2,096,781
Wal-Mart Stores, Inc.(b)................... 553,100 38,233,038
Walgreen Co................................ 124,200 3,632,850
Winn-Dixie Stores, Inc..................... 17,500 418,906
--------------
121,258,583
--------------
RUBBER -- 0.0%
Cooper Tire & Rubber Co.................... 9,300 144,731
Goodyear Tire & Rubber Co.................. 59,400 1,674,338
--------------
1,819,069
--------------
TELECOMMUNICATIONS -- 4.7%
ADC Telecommunications, Inc.(a)............ 14,000 1,015,875
AFLAC Inc.................................. 30,000 1,415,625
Alcatel Alsthom, ADR, (France)(b).......... 124,900 5,620,500
Alltel Corp................................ 35,800 2,960,213
Andrew Corp.(a)............................ 9,900 187,481
AT&T Corp.(b).............................. 397,748 20,185,711
Bell Atlantic Corp......................... 194,900 11,998,531
BellSouth Corp............................. 235,600 11,029,025
CenturyTel, Inc............................ 15,400 729,575
General Instrument Corp.................... 21,000 1,785,000
Global Crossing Ltd.(a).................... 88,690 4,434,500
GTE Corp................................... 122,800 8,665,075
Lucent Technologies, Inc................... 383,755 28,709,671
MCI Worldcom, Inc.......................... 350,421 18,594,214
Motorola, Inc.............................. 77,100 11,352,975
Nextel Communications, Inc.
(Class "A" Stock)(a)(b)............. 42,300 4,362,188
Nortel Networks Corp.(b)................... 164,980 16,662,980
QUALCOMM, Inc.(b).......................... 79,600 14,029,500
SBC Communications, Inc.................... 426,308 20,782,515
Scientific-Atlanta, Inc.................... 8,400 467,250
Sprint Corp.(b)............................ 108,600 7,310,138
Sprint Corp. (PCS Group)................... 55,450 5,683,625
Tellabs, Inc.(a)........................... 49,100 3,151,606
US West, Inc............................... 63,660 4,583,520
--------------
205,717,293
--------------
TEXTILES -- 0.0%
National Service Industries, Inc........... 4,000 118,000
Russell Corp............................... 5,700 95,475
Springs Industries, Inc.................... 3,200 127,800
VF Corp.................................... 15,600 468,000
--------------
809,275
--------------
TOBACCO -- 0.1%
R.J. Reynolds Tobacco Holdings,
Inc................................... 94,066 1,657,913
UST, Inc................................... 22,700 571,756
--------------
2,229,669
--------------
TOYS -- 0.0%
Hasbro, Inc................................ 25,500 486,094
Mattel, Inc................................ 47,151 618,857
--------------
1,104,951
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp.(a)................... 36,400 1,490,125
Ryder System, Inc.......................... 9,000 219,938
Yellow Corp.(a)............................ 43,600 733,025
--------------
2,443,088
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B17
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
-------- --------------
UTILITIES - ELECTRICAL & GAS -- 0.5%
Ameren Corp.(b)............................ 17,700 $ 579,675
American Electric Power Co., Inc.(b)....... 23,500 754,938
Carolina Power & Light Co.................. 20,000 608,750
Central & South West Corp.(b).............. 27,600 552,000
CINergy Corp............................... 19,600 472,850
CMS Energy Corp............................ 13,000 405,438
Consolidated Edison, Inc.(b)............... 28,100 969,450
Constellation Energy Group................. 18,400 533,600
Dominion Resources, Inc.(b)................ 24,300 953,775
DTE Energy Co.............................. 19,200 602,400
Duke Energy Corp........................... 46,200 2,315,775
Edison International....................... 45,700 1,196,769
Entergy Corp............................... 29,800 767,350
FirstEnergy Corp.(a)....................... 31,300 710,119
Florida Progress Corp...................... 7,000 296,188
FPL Group, Inc............................. 23,200 993,250
GPU, Inc................................... 16,400 490,975
New Century Energies, Inc.................. 15,000 455,625
Niagara Mohawk Holdings Inc.(a)............ 22,600 314,988
Northern States Power Co................... 17,700 345,150
Pacific Gas & Electric, Co................. 47,200 967,600
PECO Energy Co............................. 23,200 806,200
Pinnacle West Capital Corp................. 3,000 91,688
PP&L Resources, Inc........................ 20,200 462,075
Public Service Enterprise Group, Inc....... 28,800 1,002,600
Reliant Energy, Inc........................ 39,100 894,413
Southern Co.(b)............................ 89,400 2,100,900
Texas Utilities Co......................... 35,800 1,273,138
Unicom Corp................................ 27,400 917,900
--------------
22,835,579
--------------
WASTE MANAGEMENT -- 0.0%
Allied Waste Industries, Inc............... 10,000 88,125
Waste Management, Inc...................... 77,142 1,325,878
--------------
1,414,003
--------------
TOTAL COMMON STOCKS
(cost $1,366,247,177)................................. 1,826,564,329
--------------
PREFERRED STOCKS -- 0.9%
FINANCIAL SERVICES -- 0.7%
Central Hispano Capital Corp.,............. 1,225,900 30,798,669
--------------
TELECOMMUNICATIONS -- 0.2%
Telecomunicacoes Brasileiras S.A.,
ADR(b)................................ 50,200 6,450,700
--------------
TOTAL PREFERRED STOCKS
(cost $36,227,123).................................... 37,249,369
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $3,645,523,405)................................. 4,027,176,265
--------------
MOODY'S
SHORT-TERM RATING PRINCIPAL
INVESTMENTS -- 18.9% (UNAUDITED) AMOUNT VALUE
----------- --------- --------------
(000) (000)
COMMERCIAL PAPER -- 11.5%
Baker Hughes, Inc.,
4.75%, 01/03/00............ P1 1,000 999,736
Barton Capital Corp,
5.94%, 01/21/00(c)......... P1 20,000 19,940,600
6.20%, 01/20/00............ P1 10,000 9,967,278
6.29%, 01/10/00............ P1 500 499,214
6.00%, 01/14/00(c)......... P1 5,430 5,420,045
Bayerische Landesbank,
5.98%, 02/23/00............ P1 570 564,982
Bell Atlantic Corp.,
5.20%, 01/07/00............ P1 1,016 1,015,120
BMW U.S. Capital,
5.00%, 01/04/00............ P1 1,000 999,583
Central & SouthWest Corp.,
7.20%, 01/21/00(c)......... P2 25,000 24,910,000
Clipper Receivables Corp.,
6.12%, 01/24/00............ P1 12,554 12,504,914
Coca Cola Enterprises,
5.25%, 01/03/00............ NR 1,000 999,708
Comdisco, Inc.,
6.45%, 01/28/00(c)......... P2 10,000 9,955,208
6.55%, 01/28/00(c)......... P2 15,000 14,931,771
Cox Enterprises, Inc.,
6.85%, 01/21/00(c)......... P2 26,000 25,910,950
Duke Energy Corp,
5.00%, 01/03/00............ P1 1,000 999,722
Falcon Asset Securitization
Corp.,
6.00%, 01/11/00(c)......... P1 40,000 39,946,667
Ford Motor Credit Corp,
5.40%, 01/04/00............ P1 1,000 999,550
GTE Funding, Inc.,
6.03%, 01/10/00(c)......... P1 25,000 24,970,688
Heller Financial, Inc.,
6.00%, 01/13/00(c)......... P2 12,500 12,479,167
6.05%, 01/14/00(c)......... P2 10,000 9,981,514
Kerr McGee Credit LLC,
6.45%, 01/14/00(c)......... P2 10,000 9,980,292
6.50%, 01/13/00(c)......... P2 33,000 32,940,417
Keyspan Corp.,
6.50%, 01/12/00(c)......... P2 43,000 42,930,125
Merrill Lynch & Co. Inc,
6.12%, 01/18/00............ P1 1,000 997,110
Morgan (J.P.) & Co., Inc.,
5.96%, 03/13/00............ P1 1,005 993,020
National Australia Fund,
5.00%, 01/04/00............ P1 1,000 999,583
Novartis Financial Corp.,
5.50%, 01/05/00............ P1 1,000 999,389
Old Line Funding Corp,
6.01%, 01/12/00(c)......... P1 22,990 22,955,458
6.33%, 01/12/00............ P1 8,500 8,483,560
Svenska Handelsbank, Inc.,
6.07%, 01/14/00(c)......... P1 50,000 50,000,000
Thunder Bay Funding,
6.27%, 01/13/00............ P1 1,100 1,097,701
Triple-A One Funding, Inc.,
6.01%, 01/12/00(c)......... NR 21,051 21,019,371
6.27%, 01/14/00............ NR 33,373 33,297,438
6.34%, 01/19/00............ NR 442 440,599
UBS Finance (Delaware),
4.50%, 01/04/00............ NR 1,000 999,625
Windmill Funding Corp.,
6.38%, 01/07/00(c)......... NR 58,000 57,958,884
--------------
504,088,989
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B18
<PAGE>
-------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
-------------------------------------------
DECEMBER 31, 1999
SHORT-TERM MOODY'S
INVESTMENTS RATING PRINCIPAL
(CONTINUED) (UNAUDITED) AMOUNT VALUE
----------- --------- --------------
(000) (000)
OTHER CORPORATE OBLIGATIONS -- 3.6%
Advanta Corp.,
7.50%, 08/28/00............ Ba2 $ 35,000 $ 34,638,100
Bear Stearns & Co.,
6.50%, 07/05/00............ A2 20,000 19,976,000
Camden Property Trust,
7.23%, 10/30/00............ Baa2 22,000 21,918,600
Carnival Corp.,
5.65%, 10/15/00............ A2 5,000 4,953,450
Comdisco, Inc.,
5.94%, 04/13/00............ Baa1 12,500 12,461,250
Equity Residential Properties
Trust,
6.15%, 09/15/00............ A3 45,000 44,631,000
ICI Wilmington Inc.,
9.50%, 11/15/00............ Baa1 8,000 8,154,640
ITT Corp.,
6.25%, 11/15/00............ Baa2 5,253 5,150,724
Safeway Stores Inc.,
5.75%, 11/15/00............ Baa2 6,000 5,946,960
--------------
157,830,724
--------------
REPURCHASE AGREEMENT -- 2.0%
Joint Repurchase Agreement Account,
2.875%, 01/03/00 (Note 5)............ 87,560 87,560,000
--------------
TIME DEPOSITS -- 1.7%
Abbey National Treasury
Services,
9.50%, 01/04/00(c)......... P1 50,000 50,000,000
Banque Nationale de Paris,
2.00%, 01/03/00(c)......... P1 3,345 3,345,000
Chase Manhattan Corp.,
5.50%, 01/03/00(c)......... P1 10,000 10,000,000
Deutsche Bank,
5.00%, 01/03/00(c)......... P1 13,000 13,000,000
--------------
76,345,000
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
United States Treasury Bill,
5.196%, 03/16/00(d).................. 1,800 1,780,515
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $828,802,279)................................... 827,605,228
--------------
TOTAL INVESTMENTS -- 110.7%
(cost $4,474,325,684: Note 6)......................... 4,854,781,493
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS(E).......................................... (125,094)
LIABILITIES IN EXCESS OF OTHER ASSETS -- 10.7% ........... (467,516,168)
--------------
TOTAL NET ASSETS -- 100%.................................. $4,387,140,231
==============
The following abbreviations are used in portfolio descriptions:
AG Aktiengesellschaft (German Stock Company)
ADR American Depository Receipt
GDR Global Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
SA Sociedad Aronime (Spanish Corporation) or Societe
Aronyme (French Corporation)
(a) Non-income producing security.
(b) Portion of securities on loan with an aggregate market value of
$481,860,900, cash collateral of $504,046,862 was received with which the
portfolio purchased securities.
(c) Represents securities purchased with cash collateral received for
securities on loan.
(d) Security segregated as collateral for futures contracts.
(e) Open futures contracts as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31, APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE 1999 DEPRECIATION
Long Position:
<C> <S> <C> <C> <C> <C>
88 U.S. T-Bond Mar 00 $ 8,310,500 $ 8,002,500 $(308,000)
93 U.S. Treasury 10yr Mar 00 9,129,680 8,914,922 (214,758)
20 S&P 500 Index Mar 00 7,175,150 7,421,000 245,850
193 U.S. Treasury 5yr Mar 00 19,161,703 18,917,016 (244,687)
---------
$(521,595)
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B19
<PAGE>
--------------------------
FLEXIBLE MANAGED PORTFOLIO
--------------------------
DECEMBER 31, 1999
LONG-TERM INVESTMENTS -- 89.3%
VALUE
COMMON STOCKS -- 54.2% SHARES (NOTE 2)
-------------- --------------
AEROSPACE -- 0.9%
Boeing Co. ........................... 123,500 $ 5,132,969
GenCorp, Inc. ........................ 403,900 3,988,512
General Dynamics Corp. ............... 22,200 1,171,050
Goodrich (B.F.) Co. .................. 10,600 291,500
Honeywell International, Inc. ........ 99,912 5,763,673
Litton Industries, Inc. (a) .......... 306,000 15,261,750
Lockheed Martin Corp. ................ 48,900 1,069,687
Northrop Grumman Corp. ............... 8,500 459,531
Parker-Hannifin Corp. ................ 189,500 9,723,719
Raytheon Co. (Class "B" Stock) ....... 44,100 1,171,406
United Technologies Corp. ............ 61,600 4,004,000
--------------
48,037,797
--------------
AIRLINES -- 1.2%
AMR Corp. ............................ 638,000 42,746,000
Delta Air Lines, Inc. ................ 17,800 886,662
Southwest Airlines Co. ............... 61,800 1,000,387
US Airways Group, Inc. (a) ........... 472,500 15,149,531
--------------
59,782,580
--------------
APPAREL -- 0.1%
Nike, Inc. (Class "B" Stock) ......... 37,900 1,878,419
Reebok International Ltd. ............ 9,100 74,506
Titan International, Inc. ............ 415,700 2,702,050
--------------
4,654,975
--------------
AUTOS - CARS & TRUCKS -- 1.1%
Cummins Engine Co., Inc. ............. 4,800 231,900
Dana Corp. ........................... 21,350 639,166
Ford Motor Co. ....................... 314,400 16,800,750
General Motors Corp. ................. 425,700 30,943,069
Genuine Parts Co. (b) ................ 21,500 533,469
Johnson Controls, Inc. ............... 11,600 659,750
MascoTech, Inc. ...................... 388,000 4,922,750
Midas, Inc. .......................... 90,866 1,987,694
Navistar International Corp. (a) ..... 6,100 288,987
PACCAR, Inc. ......................... 10,000 443,125
TRW, Inc. ............................ 12,800 664,800
--------------
58,115,460
--------------
BANKS AND SAVINGS & LOANS -- 1.6%
AmSouth Bancorporation ............... 34,500 666,281
Banc One Corp. ....................... 149,764 4,801,808
Bank of New York Co., Inc. ........... 97,400 3,896,000
BankAmerica Corp. .................... 219,241 11,003,158
BB&T Corp. ........................... 39,500 1,081,312
Chase Manhattan Corp. ................ 104,400 8,110,575
Comerica, Inc. ....................... 19,000 887,062
First Union Corp. .................... 122,700 4,026,094
Firstar Corp. ........................ 127,247 2,688,093
Fleet Boston Financial Corp. ......... 117,551 4,092,244
Golden West Financial Corp. .......... 19,200 643,200
Hanvit Bank-GDR ...................... 976,500 6,225,187
Huntington Bancshares, Inc. .......... 29,392 701,734
KeyCorp .............................. 54,900 1,214,662
Mellon Financial Corp. ............... 64,200 2,186,812
Morgan (J.P.) & Co., Inc. ............ 22,900 2,899,712
National City Corp. .................. 78,200 1,852,362
Northern Trust Corp. ................. 27,000 1,431,000
PNC Bank Corp. ....................... 38,600 1,717,700
Providian Financial Corp. ............ 17,900 1,630,019
Regions Financial Corp. .............. 28,100 706,012
Republic New York Corp. .............. 13,500 972,000
SouthTrust Corp. ..................... 19,000 718,437
Summit Bancorp (b) ................... 21,100 646,187
Suntrust Banks, Inc. ................. 40,400 2,780,025
Synovus Financial Corp. .............. 35,100 697,612
U.S. Bancorp ......................... 91,500 2,178,844
Union Planters Corp. ................. 18,000 709,875
Wachovia Corp. ....................... 25,200 1,713,600
Wells Fargo & Co. .................... 207,300 8,382,694
--------------
81,260,301
--------------
BUSINESS SERVICES
Equifax, Inc. ........................ 17,100 402,919
Omnicom Group, Inc. (b) .............. 22,700 2,270,000
--------------
2,672,919
--------------
CHEMICALS -- 1.2%
Air Products & Chemicals, Inc. ....... 28,900 969,956
Dow Chemical Co. ..................... 27,900 3,728,137
Du Pont (E.I.) de Nemours & Co. ...... 134,149 8,837,065
Eastman Chemical Co. ................. 9,800 467,337
Engelhard Corp. ...................... 15,600 294,450
Ferro Corp. .......................... 553,650 12,180,300
FMC Corp. (a) ........................ 3,500 200,594
Grace (W.R.) & Co .................... 8,000 111,000
Great Lakes Chemical Corp. ........... 6,500 248,219
Hercules, Inc. ....................... 11,900 331,712
Lyondell Chemical Co. ................ 329,000 4,194,750
Millennium Chemicals, Inc. ........... 601,600 11,881,600
Monsanto Co. ......................... 79,300 2,825,062
OM Group, Inc. ....................... 260,300 8,964,081
Omnova Solutions, Inc. ............... 403,900 3,130,225
Praxair, Inc. ........................ 19,800 996,187
Rohm & Haas Co. ...................... 27,158 1,104,991
Sigma-Aldrich Corp. .................. 11,600 348,725
Union Carbide Corp. .................. 15,600 1,041,300
--------------
61,855,691
--------------
CIRCUITS
Analog Devices, Inc. ................. 19,000 1,767,000
--------------
COMMERCIAL SERVICES
Cendant Corp. (a) .................... 94,000 2,496,875
Deluxe Corp. ......................... 9,000 246,937
Quintiles Transnational Corp. ........ 6,000 112,125
--------------
2,855,937
--------------
COMPUTER SERVICES -- 4.3%
3Com Corp. (a) ....................... 45,500 2,138,500
Adaptec, Inc. (a) .................... 7,000 349,125
Adobe Systems, Inc. .................. 13,200 887,700
America Online, Inc. (a)(b) .......... 275,600 20,790,575
Autodesk, Inc. ....................... 7,600 256,500
Automatic Data Processing, Inc. ...... 80,600 4,342,325
BMC Software, Inc. (a) ............... 29,200 2,334,175
Cabletron Systems, Inc. (a) .......... 25,600 665,600
Ceridian Corp. (a) ................... 18,600 401,062
Cisco Systems, Inc. (a) .............. 409,100 43,824,837
Citrix Systems, Inc. ................. 9,000 1,107,000
Computer Associates International,
Inc ............................. 69,400 4,853,662
Computer Sciences Corp. (a) .......... 20,000 1,892,500
Compuware Corp. (a) .................. 48,000 1,788,000
Comverse Technology, Inc. (a) ........ 7,300 1,056,675
Electronic Data Systems Corp. ........ 62,600 4,190,287
EMC Corp. (a)(b) ..................... 127,168 13,893,104
First Data Corp. ..................... 54,600 2,692,462
Lexmark International Group, Inc. .... 12,884 1,166,002
Microsoft Corp. (a) .................. 642,300 74,988,525
Novell, Inc. (a) ..................... 43,500 1,737,281
Oracle Corp. (a)(b) .................. 180,550 20,232,884
SEE NOTES TO FINANCIAL STATEMENTS.
B20
<PAGE>
--------------------------------------
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
COMPUTER SERVICES (CONT'D.)
Parametric Technology Corp. (a) ...... 31,500 $ 852,469
Peoplesoft, Inc. ..................... 30,000 641,250
Silicon Graphics, Inc. (a) ........... 23,400 229,612
Unisys Corp. ......................... 31,400 1,002,837
Yahoo!, Inc. (a) ..................... 31,000 13,413,312
--------------
221,728,261
--------------
COMPUTERS -- 1.6%
Apple Computer, Inc. (a)(b) .......... 19,400 1,994,562
Compaq Computer Corp. ................ 217,461 5,885,038
Dell Computer Corp. (a) .............. 321,600 16,401,600
Gateway, Inc. ........................ 40,400 2,911,325
Hewlett-Packard Co. .................. 127,800 14,561,212
International Business Machines
Corp. ........................... 227,000 24,516,000
Networking Appliance, Inc. (a) ....... 14,700 1,221,019
Seagate Technology, Inc. (a) ......... 28,900 1,345,656
Sun Microsystems, Inc. (a) ........... 194,900 15,092,569
--------------
83,928,981
--------------
CONSTRUCTION -- 0.4%
Centex Corp. ......................... 7,000 172,812
Fluor Corp. .......................... 9,800 449,575
Foster Wheeler Corp. ................. 6,600 58,575
Pulte Corp. .......................... 6,900 155,250
Standard Pacific Corp. ............... 632,400 6,956,400
Vulcan Materials Co. ................. 9,000 359,437
Webb (Del E.) Corp. .................. 576,500 14,376,469
--------------
22,528,518
--------------
CONTAINERS -- 0.2%
Ball Corp. ........................... 2,700 106,312
Bemis Co., Inc. ...................... 6,600 230,175
Crown Cork & Seal Co., Inc. .......... 15,600 349,050
Owens-Illinois, Inc. (a) ............. 255,700 6,408,481
Pactiv Corp. ......................... 21,500 228,437
Sealed Air Corp. ..................... 10,900 564,756
--------------
7,887,211
--------------
COSMETICS & SOAPS -- 0.6%
Alberto Culver Co. (Class "B"
Stock) .......................... 6,200 160,037
Avon Products, Inc. .................. 31,400 1,036,200
Colgate-Palmolive Co. ................ 75,100 4,881,500
Gillette Co. ......................... 136,100 5,605,619
International Flavors & Fragrances,
Inc. ............................ 13,100 494,525
Procter & Gamble Co. (b) ............. 166,600 18,253,112
--------------
30,430,993
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.6%
Eastman Kodak Co. .................... 184,400 12,216,500
Philip Morris Co., Inc. .............. 750,800 17,409,175
--------------
29,625,675
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.1%
Avery Dennison Corp. ................. 15,000 1,093,125
Pitney Bowes, Inc. ................... 33,600 1,623,300
Xerox Corp. .......................... 84,900 1,926,169
--------------
4,642,594
--------------
DIVERSIFIED OPERATIONS -- 1.4%
Fortune Brands, Inc. ................. 21,700 717,456
General Electric Capital Corp. ....... 410,900 63,586,775
Tomkins PLC, ADR (b) ................. 617,300 9,066,594
--------------
73,370,825
--------------
DRUGS & MEDICAL SUPPLIES -- 2.7%
Abbott Laboratories .................. 192,800 $ 7,001,050
Allergan, Inc. ....................... 17,600 875,600
ALZA Corp. (a) ....................... 9,900 342,787
American Home Products Corp. ......... 163,900 6,463,806
Amgen, Inc. (a) ...................... 127,400 7,651,962
Bard (C.R.), Inc. .................... 5,900 312,700
Bausch & Lomb, Inc. .................. 7,100 485,906
Baxter International, Inc. ........... 36,700 2,305,219
Becton, Dickinson & Co. .............. 31,500 842,625
Biomet, Inc. ......................... 14,500 580,000
Boston Scientific Corp. (a) .......... 51,800 1,133,125
Bristol-Myers Squibb Co. ............. 250,200 16,059,712
Cardinal Health, Inc. (b) ............ 34,450 1,649,294
Guidant Corp. ........................ 37,700 1,771,900
Johnson & Johnson .................... 170,500 15,877,812
Lilly (Eli) & Co. .................... 138,100 9,183,650
Mallinckrodt, Inc. ................... 7,500 238,594
Medtronic, Inc. ...................... 148,200 5,400,037
Merck & Co., Inc. .................... 294,300 19,736,494
Pfizer, Inc. ......................... 489,200 15,868,425
Pharmacia & Upjohn, Inc. ............. 65,800 2,961,000
Schering-Plough Corp. ................ 184,400 7,779,375
St. Jude Medical, Inc. (a) ........... 8,900 273,119
Warner-Lambert Co. ................... 108,300 8,873,831
Watson Pharmaceuticals, Inc. (a) ..... 9,000 322,312
--------------
133,990,335
--------------
ELECTRONICS -- 1.7%
Advanced Micro Devices, Inc. (a) .... 17,000 491,937
Applied Materials, Inc. (a) .......... 47,800 6,055,662
Belden, Inc. ......................... 275,600 5,787,600
Emerson Electric Co. ................. 55,000 3,155,625
Grainger (W.W.), Inc. ................ 11,200 535,500
Intel Corp. (b) ...................... 415,000 34,159,687
KLA-Tencor Corp. (a) ................. 10,900 1,213,987
LSI Logic Corp. (a) .................. 18,600 1,255,500
Micron Technology, Inc. .............. 31,900 2,480,225
Molex, Inc. .......................... 14,000 793,625
Motorola, Inc. ....................... 78,100 11,500,225
National Semiconductor Corp. (a) ..... 19,000 813,437
Rockwell International Corp. ......... 24,300 1,163,362
Solectron Corp. ...................... 33,500 3,186,687
Tektronix, Inc. ...................... 6,200 241,025
Teradyne, Inc., ...................... 16,000 1,056,000
Texas Instruments, Inc. .............. 98,600 9,551,875
Thomas & Betts Corp. ................. 5,800 184,875
Xilinx Inc. (a) ...................... 34,000 1,545,937
--------------
85,172,771
--------------
EXPLORATION & PRODUCTION
Apex Silver Mines Ltd. ............... 340,400 4,063,525
--------------
FINANCIAL SERVICES -- 4.4%
American Express Co. ................. 56,500 9,393,125
Associates First Capital Corp. ....... 92,290 2,532,207
Bear Stearns Companies, Inc. ......... 14,358 613,804
Block (H.R.), Inc. ................... 11,400 498,750
Capital One Financial Corp. .......... 24,900 1,199,869
Citigroup, Inc. ...................... 747,876 41,553,860
Countrywide Credit Industries, Inc. .. 14,000 353,500
Dun & Bradstreet Corp. ............... 20,100 592,950
Federal Home Loan Mortgage
Corp ............................ 87,400 4,113,262
Federal National Mortgage
Association ..................... 131,300 8,198,044
SEE NOTES TO FINANCIAL STATEMENTS.
B21
<PAGE>
--------------------------------------
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
FINANCIAL SERVICES (CONT'D.)
Fifth Third Bancorp .................. 34,300 $ 2,516,762
Franklin Resource, Inc. .............. 30,600 981,112
Goldman Sachs Group, Inc. ............ 53,100 5,001,356
Household International, Inc. ........ 62,492 2,327,827
Lehman Brothers Holdings, Inc. ....... 719,100 60,898,781
MBNA Corp. ........................... 101,300 2,760,425
Merrill Lynch & Co., Inc. ............ 285,000 23,797,500
Morgan Stanley Dean Witter & Co. ..... 293,695 41,924,961
Old Kent Financial Corp. ............. 7,000 247,625
PaineWebber Group, Inc. .............. 14,000 543,375
Paychex, Inc. ........................ 29,850 1,194,000
Schwab (Charles) Corp. (a) ........... 102,700 3,941,112
SLM Holding Corp. .................... 19,000 802,750
State Street Corp. ................... 20,600 1,505,087
T. Rowe Price & Associates ........... 8,000 295,500
Washington Mutual, Inc. .............. 74,136 1,927,536
--------------
219,715,080
--------------
FOOD & BEVERAGES -- 1.4%
Anheuser-Busch Companies, Inc. (b) ... 60,300 4,273,762
Archer-Daniels-Midland Co. ........... 76,560 933,075
Bestfoods ............................ 35,700 1,876,481
Brown-Forman Corp. (Class "B"
Stock) .......................... 6,700 383,575
Campbell Soup Co. .................... 54,800 2,120,075
Coca Cola Enterprises, Inc. (b) ...... 54,500 1,096,812
Coca-Cola Co. ........................ 311,200 18,127,400
ConAgra, Inc. ........................ 60,900 1,374,056
Coors (Adolph) Co. (Class "B"
Stock) .......................... 2,900 152,250
General Mills, Inc. .................. 37,800 1,351,350
Heinz (H.J.) & Co. ................... 45,200 1,799,525
Hershey Foods Corp. .................. 16,500 783,750
Kellogg Co. .......................... 50,900 1,568,356
Nabisco Group Holdings Corp. ......... 1,226,900 13,035,812
PepsiCo, Inc. ........................ 184,400 6,500,100
Quaker Oats Co. ...................... 16,000 1,050,000
Ralston-Ralston Purina Group (b) .... 42,200 1,176,325
Sara Lee Corp. ....................... 115,000 2,537,187
Seagram Co., Ltd. .................... 52,600 2,363,712
Sysco Corp. .......................... 40,900 1,618,106
Whitman Corp. ........................ 545,200 7,326,125
Wrigley (William) Jr. Co. ............ 15,200 1,260,650
--------------
72,708,484
--------------
FOREST PRODUCTS -- 2.3%
Boise Cascade Corp. .................. 665,800 26,964,900
Champion International Corp. ......... 401,600 24,874,100
Fort James Corp. ..................... 27,100 741,862
Georgia-Pacific Corp. ................ 327,000 16,595,250
International Paper Co. .............. 52,682 2,973,240
Louisiana-Pacific Corp. .............. 699,700 9,970,725
Mead Corp. ........................... 403,000 17,505,312
Potlatch Corp. ....................... 3,700 165,112
Temple-Inland, Inc. .................. 7,100 468,156
Westvaco Corp. ....................... 11,900 388,237
Weyerhaeuser Co. ..................... 25,400 1,824,037
Willamette Industries, Inc. .......... 299,200 13,894,100
--------------
116,365,031
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group ................ 10,500 664,125
Consolidated Natural Gas Co. ......... 12,900 837,694
El Paso Energy Co .................... 19,500 756,844
Peoples Energy Corp. ................. 5,700 190,950
Sempra Energy ........................ 30,253 525,646
Williams Companies, Inc. ............. 54,800 1,674,825
--------------
4,650,084
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 1.4%
Columbia/HCA Healthcare Corp. ........ 909,600 26,662,650
Healthsouth Corp. (a) ................ 55,000 295,625
Humana, Inc. (a) ..................... 1,011,100 8,278,381
IMS Health, Inc. ..................... 40,900 1,111,969
LifePoint Hospitals, Inc. (a) ........ 42,447 501,405
Manor Care, Inc. ..................... 13,300 212,800
McKesson HBOC, Inc. .................. 34,381 775,721
Service Corp. International .......... 35,100 243,506
Shared Medical Systems Corp. ......... 3,200 163,000
Smith (A.O.) Corp. ................... 433,350 9,479,531
Tenet Healthcare Corp. (a) ........... 1,015,800 23,871,300
Triad Hospitals, Inc. (a) ............ 42,447 642,011
Wellpoint Health Networks, Inc. ...... 6,000 395,625
--------------
72,633,524
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.3%
Clorox Co. ........................... 28,400 1,430,650
Kimberly-Clark Corp. ................. 71,100 4,639,275
Leggett & Platt, Inc. ................ 481,800 10,328,587
--------------
16,398,512
--------------
HOUSING RELATED -- 1.3%
Armstrong World Industries, Inc. ..... 5,800 193,575
Fleetwood Enterprises, Inc. .......... 4,100 84,563
Hanson, PLC, ADR, (United
Kingdom) ........................ 1,221,100 49,378,231
Kaufman & Broad Home Corp. ........... 6,400 154,800
Lowe's Companies, Inc. ............... 46,900 2,802,275
Masco Corp. .......................... 48,000 1,218,000
Maytag Corp. ......................... 10,700 513,600
Newell Rubbermaid, Inc. (b) .......... 36,155 1,048,495
Owens Corning ........................ 410,500 7,927,781
Stanley Works ........................ 9,900 298,238
Tupperware Corp. ..................... 9,900 167,681
Whirlpool Corp. ...................... 9,900 644,119
--------------
64,431,358
--------------
INSTRUMENT-CONTROLS
PE Corp-PE Biosystems Group .......... 13,000 1,564,063
Perkin Elmer, Inc. ................... 4,300 179,256
--------------
1,743,319
--------------
INSURANCE -- 2.4%
Aetna, Inc. .......................... 18,900 1,054,856
Allstate Corp. ....................... 99,100 2,378,400
American General Corp. ............... 30,900 2,344,538
American International Group, Inc. ... 195,478 21,136,059
Aon Corp. (b) ........................ 33,450 1,338,000
Berkley (W.R.) Corp. ................. 175,850 3,670,869
Chubb Corp. .......................... 237,900 13,396,744
CIGNA Corp. .......................... 24,700 1,989,894
Cincinnati Financial Corp. ........... 20,200 629,988
Conseco, Inc. ........................ 41,587 743,368
Financial Security Assurance
Holdings Ltd. ................... 140,100 7,302,713
Hartford Financial Services Group,
Inc ............................. 28,900 1,369,138
Jefferson-Pilot Corp. ................ 13,400 914,550
Lincoln National Corp. ............... 25,000 1,000,000
Loews Corp. .......................... 178,300 10,820,581
SEE NOTES TO FINANCIAL STATEMENTS.
B22
<PAGE>
--------------------------------------
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
INSURANCE (CONT'D.)
Marsh & McLennan Companies,
Inc. ............................ 33,600 $ 3,215,100
MBIA, Inc. ........................... 12,100 639,031
MGIC Investment Corp. (b) ............ 13,300 800,494
Progressive Corp. .................... 9,400 687,375
Reinsurance Group of America, Inc. ... 711,900 19,755,225
SAFECO Corp. ......................... 356,300 8,862,963
St. Paul Companies, Inc. ............. 29,100 980,306
Torchmark Corp. ...................... 421,600 12,252,750
Trenwick Group, Inc. ................. 273,300 4,629,019
United Healthcare Corp. .............. 22,400 1,190,000
UnumProvident Corp. (b) .............. 30,970 992,976
--------------
124,094,937
--------------
LEISURE -- 0.3%
Brunswick Corp. ...................... 11,200 249,200
Carnival Corp. (Class "A" Stock) ..... 79,600 3,805,875
Disney (Walt) Co. .................... 261,100 7,637,175
Harrah's Entertainment, Inc. (a) ..... 16,400 433,575
Hilton Hotels Corp. .................. 30,800 296,450
Marriott International, Inc. (Class "A"
Stock) .......................... 31,000 978,438
Mirage Resorts, Inc. (a) ............. 22,500 344,531
--------------
13,745,244
--------------
MACHINERY -- 0.5%
Briggs & Stratton Corp. .............. 3,300 176,963
Caterpillar, Inc. .................... 45,100 2,122,519
Commercial Intertech Corp. ........... 115,300 1,470,075
Cooper Industries, Inc. .............. 12,900 521,644
Deere & Co. .......................... 29,500 1,279,563
Delphi Automotive Systems Corp. ...... 347,454 5,472,401
Dover Corp. .......................... 25,800 1,170,675
Eaton Corp. .......................... 9,200 668,150
Flowserve Corp. ...................... 161,991 2,753,847
Ingersoll-Rand Co. ................... 20,600 1,134,288
Milacron, Inc. ....................... 6,400 98,400
Paxar Corp. .......................... 954,575 8,054,227
Snap-On, Inc. ........................ 7,100 188,594
Timken Co. ........................... 10,200 208,463
--------------
25,319,809
--------------
MANUFACTURING -- 0.4%
Hussmann International, Inc. ......... 491,500 7,403,219
Illinois Tool Works, Inc. (b) ........ 31,800 2,148,488
Tyco International Ltd. .............. 211,766 8,232,403
--------------
17,784,110
--------------
MEDIA -- 2.2%
CBS Corp. (a) ........................ 359,799 23,004,649
Central Newspapers, Inc. (Class "A"
Stock) .......................... 410,600 16,167,375
Clear Channel Communications,
Inc. (a)(b) ..................... 41,200 3,677,100
Comcast Corp. (Special Class "A"
Stock) (b) ...................... 96,800 4,864,200
Donnelley (R.R.) & Sons Co. .......... 15,000 372,188
Dow Jones & Co., Inc. ................ 10,700 727,600
Gannett Co., Inc. .................... 35,500 2,895,469
Houghton Mifflin Co. ................. 240,700 10,154,531
Interpublic Group of Companies,
Inc. ............................ 34,600 1,995,988
Knight-Ridder, Inc. (b) .............. 248,600 14,791,700
Lee Enterprises, Inc. ................ 208,900 6,671,744
McGraw-Hill, Inc. .................... 24,700 1,522,138
Mediaone Group, Inc. (b) ............. 77,900 5,983,694
Meredith Corp. ....................... 4,600 191,763
New York Times Co. (Class "A"
Stock) (b) ...................... 22,200 1,090,575
Time Warner, Inc. .................... 159,300 11,539,294
Times Mirror Co. (Class "A" Stock) ... 8,600 576,200
Tribune Co. .......................... 29,600 1,629,850
Viacom, Inc. (Class "B" Stock) (a) ... 88,700 5,360,806
--------------
113,216,864
--------------
METALS-FERROUS -- 0.7%
AK Steel Holding Corp. ............... 606,100 11,440,138
Allegheny Technologies, Inc. ......... 12,650 283,834
Bethlehem Steel Corp. (a) ............ 924,400 7,741,850
Material Sciences Corp. (a) .......... 397,900 4,053,606
National Steel Corp. (Class "B"
Stock) (a) ...................... 147,300 1,095,544
Nucor Corp. .......................... 11,500 630,344
USX-U.S. Steel Group, Inc. ........... 348,500 11,500,500
Worthington Industries, Inc. ......... 9,700 160,656
--------------
36,906,472
--------------
METALS-NON FERROUS -- 2.0%
Alcan Aluminum Ltd. (b) .............. 28,800 1,186,200
Alcoa, Inc. .......................... 1,200,500 99,641,500
Inco Ltd. ............................ 27,000 634,500
Reynolds Metals Co. .................. 8,900 681,963
--------------
102,144,163
--------------
MINERAL RESOURCES
Burlington Resources, Inc. (b) ....... 21,800 720,763
Homestake Mining Co. ................. 34,300 267,969
Phelps Dodge Corp. ................... 8,653 580,833
--------------
1,569,565
--------------
MISCELLANEOUS-BASIC INDUSTRY -- 0.9%
AES Corp. ............................ 25,000 1,868,750
Crane Co. ............................ 7,300 145,088
Danaher Corp. ........................ 16,000 772,000
Donaldson Co., Inc. .................. 448,600 10,794,438
Ecolab, Inc. ......................... 17,300 676,863
IDEX Corp. (b) ....................... 246,700 7,493,513
ITT Industries, Inc. ................. 11,100 371,156
Mark IV Industries, Inc. ............. 355,500 6,287,906
Millipore Corp. ...................... 7,000 270,375
NACCO Industries, Inc. (Class "A"
Stock) .......................... 1,300 72,231
Pall Corp. ........................... 17,200 370,875
PPG Industries, Inc. ................. 20,400 1,276,275
Textron, Inc. ........................ 20,200 1,549,088
Thermo Electron Corp. (a) ............ 17,500 262,500
Trinity Industries, Inc. ............. 214,100 6,088,469
Wolverine Tube, Inc. (a) ............. 155,300 2,193,613
York International Corp. ............. 238,800 6,552,075
--------------
47,045,215
--------------
MISCELLANEOUS-CONSUMER GROWTH/STABLE -- 0.3%
American Greetings Corp. .............
(Class "A" Stock) ............... 11,800 278,775
Black & Decker Corp. ................. 10,800 564,300
Corning, Inc. ........................ 30,500 3,932,594
Jostens, Inc. ........................ 6,300 153,169
Minnesota Mining & Manufacturing
Co. ............................. 51,600 5,050,350
SEE NOTES TO FINANCIAL STATEMENTS.
B23
<PAGE>
--------------------------------------
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
MISCELLANEOUS-CONSUMER GROWTH/STABLE (CONT'D)
Polaroid Corp. ....................... 5,700 $ 107,231
Unilever NV .......................... 70,942 3,861,905
--------------
13,948,324
--------------
OIL & GAS -- 2.7%
Amerada Hess Corp. ................... 10,500 595,875
Anadarko Petroleum Corp. ............. 15,300 522,113
Ashland, Inc. ........................ 8,700 286,556
Atlantic Richfield Co. ............... 42,200 3,650,300
Basin Exploration, Inc. (a) .......... 71,400 1,258,425
Cabot Oil & Gas Corp. (Class "A"
Stock) .......................... 363,800 5,843,538
Chevron Corp. ........................ 83,600 7,241,850
Coastal Corp. ........................ 27,900 988,706
Eastern Enterprises .................. 3,300 189,544
Exxon Mobil Corp. .................... 434,258 34,984,910
Kerr-McGee Corp. ..................... 10,609 657,758
Murphy Oil Corp. ..................... 114,000 6,540,750
NICOR, Inc. .......................... 5,000 162,500
Noble Affiliates, Inc. ............... 208,900 4,478,294
Ocean Energy, Inc. ................... 245,500 1,902,625
Phillips Petroleum Co. ............... 31,600 1,485,200
Pioneer Natural Resources Co. ........ 1,755,631 15,690,952
Royal Dutch Petroleum Co. ............ 270,100 16,324,169
Sunoco, Inc. ......................... 10,800 253,800
Texaco, Inc. ......................... 67,200 3,649,800
Total SA (Class "B" Stock), (France).. 327,959 22,711,161
Transocean Sedco ..................... 14,036 472,838
Union Pacific Resources Group, Inc. .. 32,200 410,550
Unocal Corp. ......................... 30,800 1,033,725
USX-Marathon Group ................... 38,700 955,406
Western Gas Resources, Inc. .......... 423,100 5,579,631
--------------
137,870,976
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Conoco, Inc (Class "B") .............. 69,624 1,731,897
Eog Resources, Inc. .................. 198,700 3,489,669
Occidental Petroleum Corp. ........... 44,400 960,150
--------------
6,181,716
--------------
OIL & GAS SERVICES -- 0.5%
Apache Corp. ......................... 10,900 402,619
Baker Hughes, Inc. ................... 41,740 879,149
Enron Corp. .......................... 91,200 4,047,000
Halliburton Co. ...................... 55,300 2,225,825
Helmerich & Payne, Inc. .............. 8,200 178,863
McDermott International, Inc. ........ 1,629,400 14,766,438
ONEOK, Inc. .......................... 5,000 125,625
Rowan Companies, Inc. (a) ............ 10,100 219,044
Schlumberger Ltd. (b) ................ 72,500 4,078,125
Tosco Corp ........................... 9,000 244,688
--------------
27,167,376
--------------
PRECIOUS METALS -- 0.2%
Barrick Gold Corp. ................... 52,400 926,825
Freeport-McMoRan Copper & Gold,
Inc. (Class "B" Stock) .......... 22,100 466,863
Newmont Mining Corp. ................. 25,400 622,300
Placer Dome, Inc. .................... 28,000 301,000
Stillwater Mining Co. (a) ............ 301,800 9,619,875
--------------
11,936,863
--------------
RAILROADS -- 0.1%
Burlington Northern Santa Fe Corp. ... 60,500 1,467,125
CSX Corp. ............................ 29,300 919,288
Kansas City Southern Industries, Inc. 11,000 820,875
Norfolk Southern Corp. ............... 48,900 1,002,450
Union Pacific Corp. .................. 31,800 1,387,275
--------------
5,597,013
--------------
REAL ESTATE DEVELOPMENT -- 1.1%
Crescent Real Estate Equities Co. .... 1,377,600 25,313,400
Equity Residential Properties Trust .. 150,900 6,441,544
Vornado Realty Trust ................. 745,100 24,215,750
--------------
55,970,694
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc. ............. 19,000 344,375
McDonald's Corp. ..................... 169,900 6,849,094
Tricon Global Restaurants, Inc. (a) .. 20,100 776,363
Wendy's International, Inc. .......... 15,700 323,813
--------------
8,293,645
--------------
RETAIL -- 3.6%
Albertson's, Inc. .................... 53,861 1,737,017
AutoZone, Inc. (a) ................... 19,700 636,556
Bed Bath & Beyond, Inc. .............. 8,000 278,000
Best Buy Co., Inc. (a) ............... 22,000 1,104,125
Charming Shoppes, Inc. (a) ........... 3,332,400 22,077,150
Circuit City Stores, Inc. ............ 25,200 1,135,575
Consolidated Stores Corp. ............ 13,100 212,875
Costco Wholesale Corp. (b) ........... 27,700 2,527,625
CVS Corp. ............................ 49,900 1,992,881
Dayton-Hudson Corp. .................. 56,600 4,156,563
Dillard's, Inc. ...................... 143,100 2,888,831
Dollar General Corporation ........... 29,000 659,750
Federated Department Stores,
Inc. (a) ........................ 25,700 1,299,456
Great Atlantic & Pacific Tea Co., Inc. 5,200 144,950
Harcourt General, Inc. ............... 8,100 326,025
Home Depot, Inc. ..................... 283,350 19,427,184
Huttig Building Products, Inc. ....... 1,622 8,009
IKON Office Solutions, Inc. .......... 21,800 148,513
J.C. Penney Co., Inc. ................ 33,800 673,888
Kmart Corp. (a) ...................... 2,422,300 24,374,394
Kohl's Corp. (a) ..................... 20,800 1,501,500
Kroger Co. (a) ....................... 103,500 1,953,563
Liz Claiborne, Inc. .................. 10,900 410,113
Longs Drug Stores, Inc. .............. 4,300 110,994
May Department Stores Co. ............ 43,350 1,398,038
Nordstrom, Inc. ...................... 17,400 455,663
Office Depot, Inc. ................... 36,500 399,219
Pep Boys - Manny, Moe & Jack ......... 6,327 57,734
Rite Aid Corp. ....................... 31,600 353,525
Safeway, Inc. (a) .................... 64,100 2,279,556
Sears, Roebuck & Co. ................. 48,300 1,470,131
Sherwin-Williams Co. ................. 22,500 472,500
Staples, Inc. (a) .................... 59,200 1,228,400
Supervalu, Inc. ...................... 15,300 306,000
Tandy Corp. .......................... 23,800 1,170,663
The Gap, Inc. ........................ 110,100 5,064,600
The Limited, Inc. .................... 720,240 31,195,395
TJX Companies, Inc. .................. 42,000 858,375
Toys "R" Us, Inc. (a) .............. 508,100 7,272,181
Wal-Mart Stores, Inc. (b) ............ 558,300 38,592,488
Walgreen Co. ......................... 129,400 3,784,950
Winn-Dixie Stores, Inc. .............. 19,500 466,781
--------------
186,611,736
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B24
<PAGE>
--------------------------------------
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co. ............. 8,600 $ 133,838
Goodyear Tire & Rubber Co. ........... 181,800 5,124,488
--------------
5,258,326
--------------
TELECOMMUNICATIONS -- 4.2%
ADC Telecommunications, Inc. (a) ..... 15,000 1,088,438
AFLAC Inc. ........................... 31,000 1,462,813
Alcatel Alsthom, ADR, (France) (b) ... 513,000 23,085,000
Alltel Corp. ......................... 37,200 3,075,975
Andrew Corp. (a) ..................... 11,600 219,675
AT&T Corp. ........................... 401,672 20,384,854
Bell Atlantic Corp. .................. 195,200 12,017,000
BellSouth Corp. ...................... 238,000 11,141,375
CenturyTel, Inc. ..................... 11,700 554,288
General Instrument Corp. ............. 21,800 1,853,000
Global Crossing Ltd. ................. 89,460 4,473,000
GTE Corp. ............................ 121,800 8,594,513
Lucent Technologies, Inc. ............ 387,430 28,984,607
MCI WorldCom, Inc. ................... 351,855 18,670,306
Nextel Communications, Inc. ..........
(Class "A" Stock) (a)(b) ........ 42,400 4,372,500
Nortel Networks Corp. (b) ............ 168,200 16,988,200
Qualcomm, Inc. (b) ................... 79,600 14,029,500
SBC Communications, Inc. ............. 430,550 20,989,313
Scientific-Atlanta, Inc. ............. 8,200 456,125
Sprint Corp. ......................... 111,900 7,532,269
Sprint Corp. (PCS Group) (b) ......... 54,350 5,570,875
Tellabs, Inc. (a) .................... 50,000 3,209,375
US West, Inc. ........................ 65,641 4,726,152
--------------
213,479,153
--------------
TEXTILES
National Service Industries, Inc. .... 4,900 144,550
Russell Corp. ........................ 5,900 98,825
Springs Industries, Inc. ............. 3,300 131,794
VF Corp. ............................. 16,700 501,000
--------------
876,169
--------------
TOBACCO -- 0.2%
R.J. Reynolds Tobacco Holdings,
Inc. ............................ 395,333 6,967,744
UST, Inc. ............................ 24,100 607,019
--------------
7,574,763
--------------
TOYS
Hasbro, Inc. ......................... 27,500 524,219
Mattel, Inc. ......................... 44,300 581,438
--------------
1,105,657
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (a)(b) ......... 36,100 1,477,844
Ryder System, Inc. ................... 9,400 229,713
Yellow Corp. (a) ..................... 178,700 3,004,394
--------------
4,711,951
--------------
UTILITY-ELECTRIC -- 0.5%
Ameren Corp. (b) ..................... 18,400 602,600
American Electric Power Co., Inc. (b) 24,000 771,000
Carolina Power & Light Co. ........... 18,400 560,050
Central & South West Corp. (b) ....... 28,300 566,000
Cinergy Corp. ........................ 20,700 499,388
CMS Energy Corp. ..................... 11,000 343,063
Consolidated Edison, Inc. ............ 28,900 997,050
Constellation Energy Group ........... 18,800 545,200
Dominion Resources, Inc. (b) ......... 25,000 981,250
DTE Energy Co. ....................... 19,900 624,363
Duke Energy Corp. .................... 46,000 2,305,750
Edison International ................. 42,800 1,120,825
Entergy Corp. ........................ 31,100 800,825
FirstEnergy Corp. (a) ................ 29,000 657,938
Florida Progress Corp. ............... 7,000 296,188
FPL Group, Inc. ...................... 22,100 946,156
GPU, Inc. ............................ 16,900 505,944
New Century Energies, Inc. ........... 15,000 455,625
Niagara Mohawk Holdings Inc. (a) ..... 24,300 338,681
Northern States Power Co. ............ 19,900 388,050
Pacific Gas & Electric, Co. .......... 48,600 996,300
PECO Energy Co. ...................... 24,700 858,325
Pinnacle West Capital Corp. .......... 3,000 91,688
PP&L Resources, Inc. ................. 20,900 478,088
Public Service Enterprise Group,
Inc. ............................ 27,100 943,419
Reliant Energy, Inc. ................. 37,400 855,525
Southern Co. (b) ..................... 87,000 2,044,500
Texas Utilities Co. .................. 37,100 1,319,369
Unicom Corp. ......................... 28,500 954,750
--------------
22,847,910
--------------
WASTE MANAGEMENT
Allied Waste Industries, Inc. ........ 10,000 88,125
Waste Management, Inc. ............... 77,635 1,334,352
--------------
1,422,477
--------------
TOTAL COMMON STOCKS
(cost $2,303,776,139) ................ 2,779,698,869
--------------
PREFERRED STOCKS -- 1.0%
FINANCIAL SERVICES -- 0.5%
BCH Eurocapital Limited .............. 1,000,000 25,250,000
--------------
TELECOMMUNICATIONS -- 0.5%
Telecomunicacoes Brasileiras S.A.,
ADR (b) ......................... 201,800 25,931,300
--------------
TOTAL PREFERRED STOCKS
(cost $45,526,299) ................... 51,181,300
--------------
WARRANTS UNITS
--------------
Mexico Debenture
(cost $0) ....................... 31,074 3
--------------
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT
BONDS -- 34.1% (UNAUDITED) (000)
----------- ---------
AEROSPACE
Lockheed Martin Corp.,
6.85%, 05/15/01 ........... A3 $ 400 397,248
Rockwell International Corp.,
5.20%, 01/15/98 ........... A1 2,000 1,277,240
--------------
1,674,488
--------------
AIRLINES -- 2.0%
Continental Airlines, Inc.,
8.00%, 12/15/05 ........... Ba2 9,970 9,119,160
7.461%, 04/01/15 .......... Aa3 8,423 8,111,002
Delta Airlines, Inc.,
7.90%, 12/15/09 ........... Baa3 38,800 37,779,948
8.30%, 12/15/29 ........... Baa3 4,000 3,849,320
SEE NOTES TO FINANCIAL STATEMENTS.
B25
<PAGE>
--------------------------------------
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
----------- -------------- --------------
AIRLINES (CONT'D)
United Airlines, Inc.,
10.67%, 05/01/04 .......... Baa3 $ 19,500 $ 21,355,035
11.21%, 05/01/14 .......... Baa3 17,500 21,229,425
--------------
101,443,890
--------------
ASSET-BACKED SECURITIES -- 0.4%
California Infrastructure,
6.17%, 03/25/03 ........... Aaa 4,000 3,979,680
Chase Manhattan Credit
Master Trust, Series 1996-3,
7.04%, 02/15/05 ........... Aaa 11,000 11,023,980
Standard Credit Card Master
Trust, 5.95%, 10/07/04 .... Aaa 4,500 4,338,270
--------------
19,341,930
--------------
AUTOMOTIVE PARTS
United Rentals, Inc.
8.80%, 08/15/08 ........... B1 1,785 1,664,513
--------------
AUTO - CARS & TRUCKS -- 1.4%
Ford Motor Co.,
6.38%, 02/01/29 (b) ....... A1 17,500 14,692,300
7.45%, 07/16/31 (b) ....... A1 3,500 3,367,140
Lear Corp.,
7.96%, 05/15/05 ........... Ba1 11,740 11,387,800
Navistar International Corp.,
7.00%, 02/01/03 ........... Ba1 11,500 11,011,250
TRW, Inc.,
6.45%, 06/15/01 ........... Baa1 32,800 32,410,500
--------------
72,868,990
--------------
BANKS & SAVINGS LOANS -- 1.3%
Bank of Nova Scotia,
(Canada),
6.50%, 07/15/07 ........... A1 5,400 5,312,250
Bayerische Landesbank
Girozentrale, (Germany),
5.88%, 12/01/08 ........... Aaa 9,700 8,698,572
Central Hispano Leasing,
6.71%, 04/28/05 ........... A3 5,000 4,999,500
Hypovereinsbank
8.74%, 06/30/31 (b) ....... Aa3 2,100 2,097,270
Key Bank NA,
5.80%, 04/01/04 ........... Aa3 20,000 18,934,400
Keycorp Capital, Inc.,
7.75%, 07/15/29 (b) ....... A1 4,400 4,092,000
National Australia Bank,
6.40%, 12/10/07 ........... A1 8,700 8,671,290
6.60%, 12/10/07 ........... A1 5,000 4,688,150
Sanwa Finance Aruba
8.35%, 07/15/09 ........... A3 7,120 7,174,112
Sovereign Bancorp,
10.50%, 11/15/06 .......... Ba3 4,675 4,768,500
10.25%, 05/15/04 .......... Ba3 2,670 2,691,093
--------------
72,127,137
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.1%
British Sky Broadcasting,
Inc., 6.88%, 02/23/09 ..... Baa2 12,500 10,981,250
Cable & Wire
Communications PLC
(United Kingdom),
6.75%, 12/01/08 ........... Baa1 3,050 3,001,993
Cox Communications, Inc.
6.94%, 10/01/01 ........... Baa2 4,000 3,982,960
7.88%, 08/15/09 (b) ....... Baa2 3,700 3,750,690
CSC Holdings, Inc.,
7.25%, 07/15/08 ........... Ba2 5,500 5,186,280
7.88%, 12/15/07 ........... Ba2 3,025 2,969,582
Rogers Cablesystems, Inc.,
(Canada),
10.00%, 03/15/05 .......... Ba3 2,000 2,140,000
Tele-Communications, Inc.,
6.34%, 02/01/02 ........... Ba1 8,500 8,417,890
9.88%, 06/15/22 ........... Baa3 12,878 15,716,826
--------------
56,147,471
--------------
CHEMICALS -- 0.2%
Lyondell Chemical,
9.63%, 05/01/07 ........... Ba3 3,625 3,706,563
Monsanto Corp.
6.85%, 12/01/28 ........... A2 500 440,785
Rohm & Haas Co,
6.95%, 07/15/04 ........... A3 4,400 4,343,988
--------------
8,491,336
--------------
COMPUTERS -- 0.2%
International Business
Machine Corp.,
5.63%, 04/12/04 ........... A1 3,500 3,306,730
Unisys Corp.,
12.00%, 04/15/03 .......... Ba1 6,615 7,044,975
--------------
10,351,705
--------------
CONSULTING
Comdisco, Inc.,
6.375%, 11/30/01 .......... Baa1 2,700 2,647,701
--------------
CONTAINERS -- 0.5%
Owens-Illinois,
Inc., 7.15%, 05/15/05 ..... Ba1 26,250 24,270,488
--------------
DIVERSIFIED OPERATIONS -- 0.8%
Corning, Inc.,
6.85%, 03/01/29 ........... A3 5,000 4,356,550
Cox Enterprises, Inc.,
6.625%, 06/14/02 .......... Baa1 5,200 5,124,756
Seagram (J.) & Sons,
5.79%, 04/15/01 ........... Baa3 20,000 19,564,000
Tyco International Group, Ltd.,
6.125%, 06/15/01 .......... Baa1 5,000 4,915,400
6.875%, 01/15/29 .......... Baa1 3,400 2,889,558
7.00%, 06/15/28 ........... Baa1 2,100 1,817,256
--------------
38,667,520
--------------
DRUGS & MEDICAL SUPPLIES -- 0.2%
Mallinckrodt, Inc.,
6.30%, 03/15/11 ........... Baa2 8,000 7,820,000
Tenet Healthcare Corp.,
7.875%, 01/15/03 .......... BA1 3,805 3,690,850
--------------
11,510,850
--------------
FINANCIAL SERVICES -- 6.9%
AT&T Cap Corp.,
6.60%, 05/15/05 ........... A1 16,000 15,386,880
Barclays Bank PLC, (United
Kingdom)
7.40%, 12/15/09 ........... Aa3 600 589,620
Bear Stearns & Co.,
7.625%, 12/07/09 .......... A2 1,035 1,016,287
Calair Capital Corp.,
8.125%, 04/01/08 .......... Ba2 6,000 5,280,000
SEE NOTES TO FINANCIAL STATEMENTS.
B26
<PAGE>
--------------------------------------
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
----------- --------- --------------
FINANCIAL SERVICES (CONT'D.)
Capital One Bank,
6.76%, 07/23/02 ........... Baa2 $ 7,500 $ 7,323,600
Capital One Financial Corp.,
7.25%, 05/01/06 ........... Ba1 6,800 6,426,000
Citibank Credit Card Master
Trust, 6.10%, 05/15/08 .... Ba2 44,000 41,424,240
Conseco, Inc.,
8.70%, 11/15/26 ........... Ba2 7,000 6,248,060
8.796%, 04/01/27 .......... Ba2 3,000 2,723,070
Donaldson Lufkin & Jenrette,
5.74%, 05/01/01 ........... A3 10,000 9,871,600
Dresdner Funding Trust,
8.151%, 06/30/31 .......... Aa2 20,800 19,830,720
Enterprise Rent-A-Car USA
Finance Co.,
6.35%, 01/15/01 ........... Baa3 21,000 20,785,800
6.95%, 03/01/04 ........... Baa2 7,500 7,281,750
Ford Motor Credit Corp.
6.70%, 07/16/04 (b) ....... A1 10,000 9,787,500
7.375%, 10/28/09 .......... A1 2,500 2,475,000
General Motors Acceptance
Corp., 5.95%, 03/14/03 .... A2 21,500 20,702,350
Goldman Sachs Group, Inc.,
5.56%, 01/11/01 ........... A1 4,200 4,150,272
Heller Financial, Inc.,
6.00%, 03/19/04 ........... A3 4,900 4,652,697
HVB Funding Trust,
9.00%, 10/22/31 ........... 00 1,400 1,435,700
International Lease Finance
Corp., 6.00%, 05/15/02 .... A1 43,100 42,121,630
Lehman Brothers Holdings, Inc.,
6.625%, 04/01/04 .......... Baa1 21,910 21,209,756
6.625%, 02/05/06 .......... Baa1 7,710 7,284,100
6.375%, 03/15/01 .......... Baa1 4,300 4,263,665
MBNA Corp.,
5.90%, 08/15/11 ........... Aaa 29,800 27,013,163
MCN Investment Corp.,
6.30%, 04/02/11 ........... Baa2 8,250 8,102,325
Morgan Stanley Dean Witter
& Co., 7.125%, 01/15/03 (b) A1 14,540 14,528,513
Osprey Trust,
8.31%, 01/15/03 ........... Baa3 20,000 19,895,000
RBF Finance Co.,
11.375%, 03/15/09 ......... Ba3 2,365 2,542,375
Salomon Smith Barney, Inc.,
7.25%, 05/01/01 ........... Baa1 2,160 2,166,847
6.75%, 08/15/03 ........... Baa1 5,000 4,918,350
Textron Financial Corp.,
6.05%, 03/16/09 ........... Aaa 6,302 6,265,300
Washington Mutual, Inc.
7.50%, 08/15/06 ........... A3 7,000 6,924,750
--------------
354,626,920
--------------
FOOD & BEVERAGE -- 0.3%
Archer-Daniels Midland Co.,
6.625%, 05/01/29 .......... Aa3 8,900 7,571,497
Coca-Cola Bottling Co.,
6.375%, 05/01/09 .......... Baa2 3,500 3,152,800
Coca-Cola Enterprises, Inc.,
7.125%, 09/30/09 (b) ...... A2 1,650 1,618,650
--------------
12,342,947
--------------
FOREST PRODUCTS -- 0.7%
Fort James Corp.,
6.234%, 03/15/11 .......... Baa3 11,000 10,886,040
Georgia-Pacific Corp.,
7.75%, 11/15/29 (b) ....... Baa2 1,200 1,143,528
Scotia Pacific Co.,
7.71%, 01/20/14 ........... Baa2 29,500 22,125,000
--------------
34,154,568
--------------
HOSPITAL MANAGEMENT -- 0.1%
Columbia/HCA Healthcare
Corp., 6.91%, 06/15/05 .... Baa2 4,990 4,565,850
--------------
INDUSTRIAL -- 0.2%
Allied Waste Industries, Inc.,
7.625%, 01/01/06 .......... Ba2 4,700 4,230,000
Cendant Corp.,
7.75%, 12/01/03 ........... Baa1 2,000 1,995,200
Compania Sud Americana
de Vapores, S.A., (Chile),
7.375%, 12/08/03 .......... Baa 3,650 3,476,880
--------------
9,702,080
--------------
INSURANCE -- 0.1%
Conseco, Inc.,
8.50%, 10/15/02 ........... Ba1 1,500 1,519,200
Royal & Sun Alliance
Insurance Group PLC,
8.95%, 10/15/29 ........... A1 3,500 3,575,600
--------------
5,094,800
--------------
LEISURE & TOURISM -- 0.3%
Harrahs Operating Co., Inc.
7.875%, 12/15/05 .......... Ba2 600 585,000
ITT Corp.,
6.75%, 11/15/03 ........... Baa2 14,000 13,023,220
Marriott International,
7.875%, 09/15/09 .......... Baa1 475 467,524
Park Place Entertainment,
7.875%, 12/15/05 .......... Ba2 5,030 4,803,650
--------------
18,879,394
--------------
MEDIA -- 0.5%
Liberty Media Group,
7.875%, 07/15/09 .......... Baa3 2,400 2,390,640
8.50%, 07/15/29 ........... Baa3 4,200 4,347,000
Paramount Communications,
Inc., 7.50%, 01/15/02 ..... Ba2 9,100 9,119,747
United News & Media PLC,
7.25%, 07/01/04 ........... Baa2 3,180 3,054,072
World Color Press, Inc.
7.75%, 02/15/09 ........... B1 4,960 4,736,800
8.375%, 11/15/08 .......... B1 1,500 1,466,250
--------------
25,114,509
--------------
OIL & GAS -- 0.6%
Atlantic Richfield Co.,
5.55%, 04/15/03 ........... A2 22,500 21,570,300
Amerada Hess Corp,
7.375%, 10/01/09 .......... Baa1 900 878,319
7.875%, 10/01/29 .......... Baa1 2,500 2,438,250
B.J. Services Co.,
7.00%, 02/01/06 ........... Ba1 4,000 3,785,360
Eott Energy Partnership
11.00%, 10/01/09 .......... Ba2 3,935 4,092,400
--------------
32,764,629
--------------
OIL & GAS SERVICES -- 0.5%
KN Energy, Inc.,
6.30%, 03/01/21 ........... Baa2 20,000 19,792,000
SEE NOTES TO FINANCIAL STATEMENTS.
B27
<PAGE>
--------------------------------------
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
----------- --------- --------------
OIL & GAS SERVICES (CONT'D.)
Northrop-Grumman Corp.,
7.875%, 03/01/26 .......... Ba1 $ 5,300 $ 4,971,824
Seagull Energy Co.,
7.875%, 08/01/03 .......... Ba1 3,750 3,665,625
--------------
28,429,449
--------------
OIL & GAS EXPLORATION/
PRODUCTION -- 0.1%
Parker & Parsley, Petroleum
Co., 8.875%, 04/15/05 ..... Ba2 3,100 3,083,849
Union Pacific Resources,
7.95%, 04/15/29 (b) ....... Baa3 3,700 3,591,627
--------------
6,675,476
--------------
RAILROADS -- 0.2%
Norfolk Southern Corp.,
6.875%, 05/01/01 .......... Baa1 7,200 7,181,712
6.95%, 05/01/02 ........... Baa1 2,500 2,489,200
Union Pacific Corp.,
7.375%, 09/15/09 .......... Baa3 550 538,236
--------------
10,209,148
--------------
REAL ESTATE INVESTMENT TRUST -- 2.2%
Duke Realty L.P.,
7.30%, 06/30/03 ........... Baa2 4,350 4,301,715
EOP Operating, L.P.,
6.375%, 01/15/02 .......... Baa1 5,000 4,888,000
6.50%, 06/15/04 ........... Baa1 6,000 5,698,200
6.625%, 02/15/05 .......... Baa 18,187 17,153,978
6.63%, 04/13/15 ........... A3 9,200 8,621,688
7.10%, 06/23/04 ........... A3 2,375 2,320,684
Felcor Suites, L.P.,
7.375%, 10/01/04 .......... Ba1 25,000 23,000,000
Hanson Overseas B.V.,
7.375%, 01/15/03 .......... A3 17,400 17,452,026
HMH Properties, Inc.
7.875%, 08/01/05 .......... Ba2 6,560 6,051,600
HRPT Properties Trust
7.426%, 07/09/07 .......... Baa2 2,000 1,988,400
Simon Debartolo Group, Inc.,
6.75%, 06/15/05 ........... Baa1 17,500 16,306,500
--------------
107,782,791
--------------
RETAIL-- 1.2%
Federated Department Stores,
Inc., 8.50%, 06/15/03 ..... Ba1 34,890 35,856,104
Kroger Co.
6.34%, 06/01/01 ........... Baa3 10,450 10,332,438
7.70%, 06/01/29 ........... Baa3 1,500 1,417,500
7.25%, 06/01/09 ........... Baa3 6,000 5,760,000
Saks Inc.,
8.25%, 11/15/08 ........... Baa3 3,000 2,918,700
--------------
56,284,742
--------------
TELECOMMUNICATIONS-- 3.7%
360 Communication Co.,
7.125%, 03/01/03 .......... Ba2 23,776 23,644,756
7.60%, 04/01/09 ........... Ba1 12,885 12,891,958
Airtouch Communications,
Inc., 7.00%, 10/01/03 ..... Baa2 16,800 16,784,040
AT&T Canada, Inc., (Canada),
7.65%, 09/15/06 ........... Baa3 2,400 2,388,024
Electric Lightwave, Inc.,
6.05%, 05/15/04 ........... A2 5,300 5,002,352
Global Crossing Holdings,
Ltd., 9.125%, 11/15/06 .... Ba2 9,035 8,933,356
Lucent Technologies, Inc.,
6.45%, 03/15/29 ........... A2 17,500 15,233,575
Qwest Communications
International Inc.,
7.50%, 11/01/08 ........... Ba1 31,200 30,498,000
Rogers Cantel, Inc.,
9.375%, 06/01/08 .......... Ba3 4,830 5,023,200
Sprint Corp.,
6.875%, 11/15/28 (b) ...... Baa1 13,000 11,553,230
Telecom De Puerto Rico,
6.15%, 05/15/02 ........... Baa2 10,500 10,181,325
6.65%, 05/15/06 ........... Baa2 10,700 10,152,053
6.80%, 05/15/09 ........... Baa2 9,000 8,207,370
US West, Inc.,
6.875%, 08/15/01 .......... Baa1 10,000 9,958,000
Williams Communications
Group, Inc.
10.70%, 10/01/07 .......... B2 4,100 4,305,000
10.875%, 10/01/09 ......... B2 1,400 1,464,750
Worldcom, Inc.,
6.95%, 08/15/28 (b) ....... Baa2 17,700 16,070,892
--------------
192,291,881
--------------
UTILITIES -- 1.5%
AES Corp.
9.50%, 06/01/09 ........... Ba1 10,000 10,200,000
Calenergy Co. Inc.,
6.96%, 09/15/03 ........... Ba1 15,000 14,661,000
Calpine Corp.,
10.50%, 05/15/06 .......... Ba1 8,330 8,746,500
CMS Energy Corp.,
8.00%, 07/01/11 ........... Ba3 7,200 7,132,320
Cogentrix Energy, Inc.,
8.10%, 03/15/04 ........... Ba1 5,775 5,542,499
Edison Mission Energy,
7.73%, 06/15/09 ........... A3 5,000 4,979,850
El Paso Energy,
6.625%, 07/15/01 .......... Baa2 6,000 5,952,420
Hydro-Quebec,
7.50%, 04/01/16 ........... A2 2,075 2,029,578
PSEG Energy Holdings, Inc.,
10.00%, 10/01/09 .......... Ba1 4,590 4,532,625
Sonat, Inc.
7.625%, 07/15/11 .......... Baa1 7,800 7,651,410
Utilicorp United, Inc.,
7.00%, 07/15/04 ........... Baa3 5,000 4,828,700
--------------
76,256,902
--------------
WASTE MANAGEMENT-- 0.3%
USA Waste Service,
6.125%, 07/15/01 .......... Baa3 15,695 14,937,716
--------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 5.0%
Federal National Mortgage
Association, Zero Coupon,
10/09/19(b) ............... 11,800 2,907,638
United States Treasury Note,
5.875%, 11/15/04(b) ....... 4,980 4,882,741
6.00%, 08/15/09(b) ........ 2,555 2,475,156
6.75%, 08/15/26(b) ........ 70,200 70,529,238
6.375%, 08/15/27(b) ....... 61,400 58,972,858
United States Treasury Bond,
7.50%, 11/15/24(b) ........ 38,800 42,358,736
8.125%, 08/15/21(b) ....... 45,000 51,609,150
5.25%, 02/15/29(b) ........ 18,320 15,148,258
6.125%, 08/15/29(b) ....... 5,000 4,766,400
--------------
253,650,175
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B28
<PAGE>
--------------------------------------
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
----------- --------- --------------
FOREIGN GOVERNMENT BONDS-- 1.6%
Junta De Andaluci, (Spain),
7.25%, 10/01/29 ........... Aa3 $ 840 $ 800,688
Province of Saskatchewan,
(Canada),
9.125%, 02/15/21 .......... A2 2,300 2,650,152
Quebec Province, (Canada),
7.50%, 09/15/29 (b) ....... A2 3,700 3,639,320
7.50%, 07/15/23 (b) ....... A1 7,500 7,312,875
Republic of Argentina
Zero Coupon, 10/15/01 ..... BBB 7,625 6,385,938
Republic of Columbia,
9.75%, 04/23/09 (b) ....... Baa3 4,500 4,173,750
Republic of Mexico,
6.836%, 12/31/19 .......... Ba2 9,750 9,152,810
6.932%, 12/31/19 .......... Ba2 3,550 3,332,563
6.942%, 12/31/19 .......... Ba2 6,900 6,477,375
Republic of Panama,
4.25%, 07/17/14 ........... Ba1 10,600 8,321,000
Republic of Philippines,
8.875%, 04/15/08 .......... Ba1 5,400 5,265,000
Republic of Poland,
4.00%, 10/27/24 ........... Baa3 11,300 7,458,000
United Mexican States,
10.375%, 02/17/09 ......... Ba1 15,500 16,430,000
--------------
81,399,471
--------------
TOTAL LONG-TERM BONDS
(cost $1,820,813,183) ..................................... 1,746,371,467
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,170,115,621) ..................................... 4,577,251,639
--------------
SHORT-TERM INVESTMENTS -- 20.6%
CERTIFICATE OF DEPOSIT -- 1.0%
Bank of Montreal
5.96%, 1/14/00 (c)(d) ..... P1 50,000 50,000,000
--------------
CERTIFICATE OF DEPOSIT-YANKEE -- 1.0%
Svenska Handels Bank
6.07%, 1/14/00 (c)(d) ..... P1 50,000 50,000,000
--------------
COMMERCIAL PAPER -- 11.2%
Baker Hughes,
4.75%, 01/03/00 ........... P1 1,000 999,736
Barton Capital Corp,
6.00%, 01/11/00 (c)(d) .... P1 12,391 12,374,479
6.06%, 02/02/00 ........... P1 7,138 7,099,550
6.10%, 02/03/00 ........... P1 3,700 3,679,311
6.20%, 01/20/00 ........... P1 30,000 29,901,833
6.56%, 02/11/00 (c)(d) .... P1 4,000 3,971,573
6.75%, 02/01/00 (c)(d) .... P1 6,275 6,240,880
Baus Funding LLC,
6.20%, 01/25/00 ........... P1 10,000 9,958,668
6.20%, 01/31/00 ........... P1 15,000 14,922,500
Bayerische Landesbank,
5.98%, 02/23/00 ........... P3 1,000 991,196
BCI Funding Corp,
6.33%, 01/11/00 ........... P1 1,500 1,497,363
Bell Atlantic Financial
Services,
5.20%, 01/07/00 ........... P3 1,012 1,011,123
Central & Southwest Corp.,
7.20%, 01/21/00 (c)(d) .... P1 25,000 24,910,000
Clipper Receivables Corp.,
6.12%, 01/24/00 ........... P1 37,446 37,299,586
Coastal Corp.,
6.50%, 01/14/00 (c)(d) .... P1 35,000 34,930,485
Coca Cola Enterprises,
5.25%, 01/03/00 ........... P1 1,000 999,709
Comdisco, Inc.,
6.45%, 01/31/00 (c)(d) .... P1 25,000 24,874,580
Cox Enterprises, Inc.,
6.57%, 01/19/00 (c)(d) .... P1 10,495 10,464,355
6.85%, 01/21/00 (c)(d) .... P1 26,000 25,910,950
Cregem North America,
5.97%, 03/01/00 ........... P1 949 939,557
CXC, Inc.,
6.00%, 01/21/00 ........... P1 1,700 1,694,333
Deutche Bank Financial, Inc.,
6.10%, 02/02/00 ........... P1 800 795,662
Duke Energy Corp.,
5.00%, 01/03/00 ........... P1 950 949,736
Enterprise Funding Corp.,
6.38%, 01/14/00 ........... P1 2,032 2,027,318
Falcon Asset Securitization,
6.24%, 01/21/00 ........... P1 6,850 6,826,253
Ford Motor Credit Co.,
6.00%, 01/21/00 ........... P1 1,153 1,149,157
General Electric Capital
Corp.,
6.33%, 01/26/00 ........... P1 650 647,143
General Motors Acceptance Corp.,
5.99%, 02/17/00 ........... P1 1,000 992,180
Heller Financial, Inc.,
6.00%, 01/13/00 (c)(d) .... P1 125,000 12,479,167
6.05%, 01/14/00 (c)(d) .... P1 40,000 39,926,056
Kerr Mcgee Credit,
6.50%, 01/13/00 (c)(d) .... P1 40,000 39,927,778
6.45%, 01/14/00 (c)(d) .... P1 9,300 9,281,671
Keyspan Corp.,
6.50%, 01/12/00 (c)(d) .... P1 49,000 48,920,375
Merrill Lynch & Co. Inc.,
6.12%, 01/18/00 ........... P1 1,388 1,383,989
Novartis Finance Corp.,
5.50%, 01/05/00 ........... P1 1,000 999,389
Old Line Funding Corp.,
6.30%, 01/19/00 ........... P1 2,269 2,261,853
6.33%, 01/12/00 ........... P1 8,500 8,483,560
PHH Corp.,
6.95%, 01/27/00 (c)(d) .... P1 25,000 24,884,167
Sonoco Products,
6.05%, 02/03/00 ........... P1 700 696,118
Thunder Bay Funding, Inc.,
6.06%, 02/04/00 ........... P1 13,680 13,601,705
6.20%, 01/19/00 ........... P1 14,827 14,781,036
Triple-A One Plus Funding,
6.20%, 01/20/00 ........... P1 6,019 5,999,304
6.27%, 01/14/00 ........... P1 46,000 45,895,849
SEE NOTES TO FINANCIAL STATEMENTS.
B29
<PAGE>
--------------------------------------
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
--------------------------------------
DECEMBER 31, 1999
MOODY'S PRINCIPAL
SHORT-TERM RATING AMOUNT VALUE
INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
----------- --------- --------------
COMMERCIAL PAPER (CONT'D.)
Variable Funding Corp.,
6.25%, 01/20/00 (c)(d) .... P1 $ 20,000 $ 19,940,972
Windmill Funding Corp.,
6.38%, 01/07/00 (c)(d) .... P1 17,000 16,987,949
--------------
574,510,154
--------------
EURO-TIME DEPOSIT -- 0.2%
Chase Manhattan Bank
5.50%, 01/03/00 (c)(d) .... P1 10,000 10,000,000
--------------
OTHER CORPORATE OBLIGATIONS -- 2.4%
Banco de Commercio
Exterior de Columbia, SA,
M.T.N., (Colombia),
8.625%, 06/02/00 .......... P1 5,500 5,445,000
Carnival Corp.,
5.65%, 10/15/00 ........... A2 5,000 4,953,450
Comdisco, Inc.,
5.94%, 04/13/00 ........... Baa1 12,500 12,461,250
6.32%, 11/27/00 ........... Baa1 19,000 18,870,800
Dayton Hudson Corp.,
5.95%, 06/15/00 ........... A3 9,000 8,987,310
Equity Residential Properties
Trust,
6.15%, 09/15/00 ........... A3 25,000 24,795,000
GTE Corp.,
9.375%, 12/01/00 .......... Baa1 11,000 11,264,770
ICI Wilmington, Inc.,
9.50%, 11/15/00 ........... Baa1 6,500 6,625,646
ITT Corp.,
6.25%, 11/15/00 ........... Baa2 5,183 5,082,088
Niagara Mohawk Power,
7.00%, 10/01/00 ........... Ba3 18,902 18,892,994
Ryder System, Inc.,
7.51%, 03/24/00 ........... Baa1 3,000 3,006,510
8.34%, 01/26/00 ........... Baa1 5,000 5,006,846
--------------
125,391,664
--------------
TIME DEPOSIT -- 1.3%
Abbey National Treasury
9.50%, 01/04/00 (c)(d) .... NR 50,000 50,000,000
Banque National
2.00%, 01/03/00 (c)(d) .... NR 2,071 2,071,000
Deutche Bank
5.00%, 01/03/00 (c)(d) .... NR 13,000 13,000,000
--------------
65,071,000
--------------
REPURCHASE AGREEMENT -- 3.2%
Joint Repurchase
Agreement Account,
2.875%, 01/03/00
(Note 5) ....................... $ 164,437 $ 164,437,000
--------------
U.S. GOVERNMENT OBLIGATIONS -- 0.3%
United States Treasury Bill
5.19%, 03/16/00 ................. 600 593,506
5.196%, 03/16/00 ................ 14,000 13,848,450
--------------
14,441,956
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,049,509,711) ................ 1,053,851,774
--------------
TOTAL INVESTMENTS -- 109.9%
(cost $5,219,625,332; Note 6) ........ 5,631,103,413
--------------
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS(E) ......................... (598,738)
--------------
LIABILITIES IN EXCESS OF OTHER ASSETS --
(9.9%) ............................... (505,240,380)
--------------
TOTAL NET ASSETS -- 100% ................. $5,125,264,295
==============
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
GDR Global Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-Income producing security.
(b) Portion of securities on loan with an aggregate market value of
$503,764,431; cash collateral of $526,881,461 was received with which the
portfolio purchased securities.
(c) Represents security purchased with cash collateral received for securities
on loan.
(d) Security segregated as collateral for future contracts.
(e) Open Future Contracts as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31, APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE 1999 DEPRECIATION
Long Position:
<S> <C> <C> <C> <C> <C>
763 U.S. 5 yr Treasury Note Mar 00 $1,812,125 $ 844,781 $ (967,344)
1,115 U.S. Treasury Bond Mar 00 6,695,155 3,073,281 (3,621,874)
232 S&P 500 Index Mar 00 1,437,163 4,509,603 3,072,440
------------
$ (1,516,778)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B30
<PAGE>
---------------------
STOCK INDEX PORTFOLIO
---------------------
DECEMBER 31, 1999
LONG-TERM INVESTMENTS -- 98.6%
VALUE
COMMON STOCKS SHARES (NOTE 2)
-------------- --------------
AEROSPACE -- 1.3%
Boeing Co. ........................... 360,036 $ 14,963,996
General Dynamics Corp. ............... 74,700 3,940,425
Goodrich (B.F.) Co. .................. 38,600 1,061,500
Honeywell International, Inc. ........ 295,250 17,032,234
Lockheed Martin Corp. ................ 148,298 3,244,019
Northrop Grumman Corp. ............... 24,200 1,308,312
Parker-Hannifin Corp. ................ 41,225 2,115,358
Raytheon Co. (Class "B" Stock) ....... 123,018 3,267,666
United Technologies Corp. ............ 177,300 11,524,500
--------------
58,458,010
--------------
AIRLINES -- 0.2%
AMR Corp. ............................ 64,800 4,341,600
Delta Air Lines, Inc. ................ 53,200 2,650,025
Southwest Airlines Co. ............... 181,725 2,941,673
US Airways Group, Inc.(a) ............ 34,900 1,118,981
--------------
11,052,279
--------------
APPAREL -- 0.1%
Nike, Inc. (Class "B" Stock) ......... 104,300 5,169,369
Reebok International Ltd. ............ 19,000 155,562
--------------
5,324,931
--------------
AUTOS - CARS & TRUCKS -- 1.1%
Cummins Engine Co., Inc. ............. 14,400 695,700
Dana Corp. ........................... 63,594 1,903,845
Ford Motor Co. ....................... 448,000 23,940,000
General Motors Corp. ................. 242,100 17,597,644
Genuine Parts Co. .................... 65,925 1,635,764
Johnson Controls, Inc. ............... 32,000 1,820,000
Navistar International Corp.(a) ...... 23,900 1,132,262
PACCAR, Inc. ......................... 29,160 1,292,152
TRW, Inc. ............................ 46,300 2,404,706
--------------
52,422,073
--------------
BANKS AND SAVINGS & LOANS -- 4.8%
AmSouth Bancorporation ............... 134,900 2,605,256
Banc One Corp. ....................... 437,445 14,025,580
Bank of New York Co., Inc. ........... 282,300 11,292,000
BankAmerica Corp. .................... 646,444 32,443,408
BB&T Corp. ........................... 114,300 3,128,962
Chase Manhattan Corp. ................ 314,494 24,432,253
Comerica, Inc. ....................... 58,450 2,728,884
First Union Corp. .................... 362,978 11,910,216
Firstar Corp. ........................ 377,160 7,967,505
Fleet Boston Financial Corp. ......... 339,488 11,818,426
Golden West Financial Corp. .......... 66,900 2,241,150
Huntington Bancshares, Inc. .......... 85,250 2,035,344
KeyCorp .............................. 169,700 3,754,612
Mellon Financial Corp. ............... 193,800 6,601,312
Morgan (J.P.) & Co., Inc. ............ 65,650 8,312,931
National City Corp. .................. 242,400 5,741,850
Northern Trust Corp. ................. 82,000 4,346,000
Old Kent Financial Corp. ............. 25,000 884,375
PNC Bank Corp. ....................... 113,300 5,041,850
Providian Financial Corp. ............ 52,550 4,785,334
Regions Financial Corp. .............. 83,100 2,087,887
Republic New York Corp. .............. 39,100 2,815,200
SouthTrust Corp. ..................... 59,400 2,246,062
Summit Bancorp ....................... 63,900 1,956,937
Suntrust Banks, Inc. ................. 120,800 8,312,550
Synovus Financial Corp. .............. 97,500 1,937,812
U.S. Bancorp ......................... 268,926 6,403,800
Union Planters Corp. ................. 53,200 2,098,075
Wachovia Corp. ....................... 74,200 5,045,600
Wells Fargo & Co. .................... 613,760 24,818,920
--------------
223,820,091
--------------
BUSINESS SERVICES -- 0.2%
Equifax, Inc. ........................ 52,300 1,232,319
Omnicom Group, Inc. .................. 67,400 6,740,000
--------------
7,972,319
--------------
CHEMICALS -- 1.4%
Air Products & Chemicals, Inc. ....... 85,300 2,862,881
Dow Chemical Co. ..................... 82,300 10,997,337
Du Pont (E.I.) de Nemours & Co. ...... 396,091 26,092,495
Eastman Chemical Co. ................. 27,600 1,316,175
Engelhard Corp. ...................... 49,875 941,391
FMC Corp.(a) ......................... 12,300 704,944
Grace (W.R.) & Co(a) ................. 24,400 338,550
Great Lakes Chemical Corp. ........... 20,600 786,662
Hercules, Inc. ....................... 37,400 1,042,525
Monsanto Co. ......................... 235,400 8,386,125
Praxair, Inc. ........................ 59,100 2,973,469
Rohm & Haas Co. ...................... 84,100 3,421,819
Sigma-Aldrich Corp. .................. 38,000 1,142,375
Union Carbide Corp. .................. 50,600 3,377,550
--------------
64,384,298
--------------
COMMERCIAL SERVICES -- 0.2%
Cendant Corp.(a) ..................... 287,618 7,639,853
Deluxe Corp. ......................... 29,000 795,687
Quintiles Transnational Corp.(a) ..... 25,000 467,187
--------------
8,902,727
--------------
COMPUTERS -- 5.4%
Apple Computer, Inc.(a) .............. 60,600 6,230,437
Compaq Computer Corp. ................ 629,069 17,024,180
Dell Computer Corp.(a) ............... 947,200 48,307,200
Gateway, Inc.(a) ..................... 114,800 8,272,775
Hewlett-Packard Co. .................. 378,000 43,068,375
International Business Machines
Corp ............................ 676,100 73,018,800
Networking Appliance, Inc.(a) ........ 53,800 4,468,762
Seagate Technology, Inc.(a) .......... 88,100 4,102,156
Sun Microsystems, Inc.(a) ............ 575,400 44,557,537
--------------
249,050,222
--------------
COMPUTER SERVICES -- 14.2%
3Com Corp. ........................... 137,900 6,481,300
Adaptec, Inc.(a) ..................... 33,000 1,645,875
Adobe Systems, Inc. .................. 47,200 3,174,200
America Online, Inc.(a) .............. 826,600 62,356,637
Autodesk, Inc. ....................... 19,800 668,250
Automatic Data Processing, Inc. ...... 232,900 12,547,487
BMC Software, Inc.(a) ................ 90,300 7,218,356
Cabletron Systems, Inc.(a) ........... 63,500 1,651,000
Ceridian Corp.(a) .................... 53,200 1,147,125
Cisco Systems, Inc.(a) ............... 1,212,800 129,921,200
Citrix Systems, Inc. ................. 29,000 3,567,000
Computer Associates International,
Inc ............................. 201,543 14,095,414
Computer Sciences Corp.(a) ........... 59,700 5,649,112
Compuware Corp.(a) ................... 133,600 4,976,600
Comverse Technology, Inc.(a) ......... 24,800 3,589,800
Electronic Data Systems Corp. ........ 182,400 12,209,400
EMC Corp.(a) ......................... 383,787 41,928,730
First Data Corp. ..................... 160,900 7,934,381
SEE NOTES TO FINANCIAL STATEMENTS.
B31
<PAGE>
---------------------------------
STOCK INDEX PORTFOLIO (CONTINUED)
---------------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
COMPUTER SERVICES (CONT'D.)
Microsoft Corp. ...................... 1,917,500 $ 223,868,125
Novell, Inc.(a) ...................... 126,100 5,036,119
Oracle Corp.(a) ...................... 535,830 60,046,449
Parametric Technology Corp.(a) ....... 97,000 2,625,062
Peoplesoft, Inc.(a) .................. 86,000 1,838,250
Silicon Graphics, Inc.(a) ............ 67,800 665,287
Unisys Corp.(a) ...................... 111,000 3,545,062
Yahoo!, Inc.(a) ...................... 96,200 41,624,537
--------------
660,010,758
--------------
CONSTRUCTION -- 0.1%
Centex Corp. ......................... 21,600 533,250
Fluor Corp. .......................... 28,300 1,298,263
Foster Wheeler Corp. ................. 18,300 162,413
Pulte Corp. .......................... 14,500 326,250
Vulcan Materials Co. ................. 40,800 1,629,450
--------------
3,949,626
--------------
CONTAINERS -- 0.1%
Ball Corp. ........................... 10,900 429,187
Bemis Co., Inc. ...................... 18,100 631,237
Crown Cork & Seal Co., Inc. .......... 44,200 988,975
Owens-Illinois, Inc.(a) .............. 59,700 1,496,231
Pactiv Corp.(a) ...................... 58,900 625,812
Sealed Air Corp.(a) .................. 32,910 1,705,149
--------------
5,876,591
--------------
COSMETICS & SOAPS -- 1.9%
Alberto Culver Co. (Class "B"
Stock) .......................... 19,100 493,019
Avon Products, Inc. .................. 96,000 3,168,000
Colgate-Palmolive Co. ................ 218,800 14,222,000
Gillette Co. ......................... 412,600 16,993,962
International Flavors & Fragrances,
Inc ............................. 39,400 1,487,350
Procter & Gamble Co. ................. 494,904 54,222,919
--------------
90,587,250
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.6%
Eastman Kodak Co. .................... 120,900 8,009,625
Philip Morris Co., Inc. .............. 895,600 20,766,725
--------------
28,776,350
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.4%
Avery Dennison Corp. ................. 43,900 3,199,212
Lexmark International Group, Inc.(a) 48,414 4,381,467
Pitney Bowes, Inc. ................... 100,900 4,874,731
Xerox Corp. .......................... 245,792 5,576,406
--------------
18,031,816
--------------
DIVERSIFIED OPERATIONS -- 4.1%
Fortune Brands, Inc. ................. 64,300 2,125,919
General Electric Capital Corp. ....... 1,222,200 189,135,450
--------------
191,261,369
--------------
DRUGS AND MEDICAL SUPPLIES -- 8.6%
Abbott Laboratories .................. 567,500 20,607,344
Allergan, Inc. ....................... 50,600 2,517,350
ALZA Corp.(a) ........................ 35,700 1,236,112
American Home Products Corp. ......... 488,600 19,269,162
Amgen, Inc.(a) ....................... 381,000 22,883,812
Bard (C.R.), Inc. .................... 19,000 1,007,000
Bausch & Lomb, Inc. .................. 20,100 1,375,594
Baxter International, Inc. ........... 109,500 6,877,969
Becton, Dickinson & Co. .............. 93,100 2,490,425
Biomet, Inc. ......................... 42,100 1,684,000
Boston Scientific Corp.(a) ........... 151,800 3,320,625
Bristol-Myers Squibb Co. ............. 742,560 47,663,070
Cardinal Health, Inc. ................ 100,450 4,809,044
Guidant Corp.(a) ..................... 113,100 5,315,700
Johnson & Johnson .................... 511,400 47,624,125
Lilly (Eli) & Co. .................... 408,500 27,165,250
Mallinckrodt, Inc. ................... 25,800 820,762
Medtronic, Inc. ...................... 436,000 15,886,750
Merck & Co., Inc. .................... 876,900 58,807,106
Pfizer, Inc. ......................... 1,444,000 46,839,750
Pharmacia & Upjohn, Inc. ............. 188,825 8,497,125
Schering-Plough Corp. ................ 546,800 23,068,125
St. Jude Medical, Inc. ............... 30,300 929,831
Warner-Lambert Co. ................... 318,600 26,105,287
Watson Pharmaceuticals, Inc.(a) ...... 35,000 1,253,437
--------------
398,054,755
--------------
ELECTRONICS -- 4.5%
Advanced Micro Devices, Inc.(a) ...... 54,100 1,565,519
Analog Devices, Inc.(a) .............. 62,800 5,840,400
Applied Materials, Inc.(a) ........... 139,800 17,710,912
Emerson Electric Co.(a) .............. 161,400 9,260,325
Grainger (W.W.), Inc. ................ 33,400 1,596,937
Intel Corp. .......................... 1,238,700 101,960,494
KLA-Tencor Corp.(a) .................. 33,700 3,753,337
LSI Logic Corp.(a) ................... 55,400 3,739,500
Micron Technology, Inc.(a) ........... 93,600 7,277,400
Molex, Inc. .......................... 48,000 2,721,000
National Semiconductor Corp.(a) ...... 62,000 2,654,375
Perkin Elmer, Inc. ................... 18,000 750,375
Rockwell International Corp. ......... 71,900 3,442,212
Solectron Corp.(a) ................... 101,900 9,693,237
Tektronix, Inc. ...................... 17,500 680,312
Teradyne, Inc., (United States)(a) ... 61,000 4,026,000
Texas Instruments, Inc. .............. 294,100 28,490,937
Thomas & Betts Corp. ................. 19,800 631,125
Xilinx Inc.(a) ....................... 110,600 5,028,844
--------------
210,823,241
--------------
FINANCIAL SERVICES -- 5.5%
American Express Co. ................. 167,300 27,813,625
Associates First Capital Corp. ....... 274,266 7,525,173
Bear Stearns Companies, Inc. ......... 44,210 1,889,978
Block (H.R.), Inc. ................... 36,700 1,605,625
Capital One Financial Corp. .......... 74,400 3,585,150
Citigroup, Inc. ...................... 1,262,113 70,126,154
Countrywide Credit Industries, Inc. .. 40,800 1,030,200
Dun & Bradstreet Corp. ............... 62,360 1,839,620
Federal Home Loan Mortgage
Corp ............................ 260,400 12,255,075
Federal National Mortgage
Association ..................... 381,900 23,844,881
Fifth Third Bancorp .................. 106,600 7,821,775
Franklin Resource, Inc. .............. 92,400 2,962,575
Household International, Inc. ........ 180,458 6,722,061
Lehman Brothers Holdings, Inc. ....... 43,700 3,700,844
MBNA Corp. ........................... 296,768 8,086,928
Merrill Lynch & Co., Inc. ............ 139,300 11,631,550
Morgan Stanley Dean Witter & Co. ..... 210,605 30,063,864
PaineWebber Group, Inc. .............. 54,000 2,095,875
Paychex, Inc. ........................ 91,500 3,660,000
Price (T. Rowe) Associates, Inc. ..... 36,000 1,329,750
SEE NOTES TO FINANCIAL STATEMENTS.
B32
<PAGE>
---------------------------------
STOCK INDEX PORTFOLIO (CONTINUED)
---------------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
FINANCIAL SERVICES (CONT'D.)
Schwab (Charles) Corp. ............... 307,900 $ 11,815,663
SLM Holding Corp. .................... 59,600 2,518,100
State Street Corp. ................... 58,800 4,296,075
Washington Mutual, Inc. .............. 220,348 5,729,048
--------------
253,949,589
--------------
FOOD & BEVERAGE -- 3.6%
Anheuser-Busch Companies, Inc. ....... 177,300 12,566,138
Archer-Daniels-Midland Co. ........... 225,931 2,753,534
Bestfoods ............................ 104,800 5,508,550
Brown-Forman Corp. (Class "B"
Stock) .......................... 27,600 1,580,100
Campbell Soup Co. .................... 164,100 6,348,619
Coca-Cola Co. ........................ 922,200 53,718,150
Coca Cola Enterprises, Inc. .......... 159,000 3,199,875
ConAgra, Inc. ........................ 179,100 4,040,944
Coors (Adolph) Co. (Class "B"
Stock) .......................... 12,800 672,000
General Mills, Inc. .................. 113,800 4,068,350
Heinz (H.J.) & Co. ................... 132,350 5,269,184
Hershey Foods Corp. .................. 54,100 2,569,750
Kellogg Co. .......................... 148,900 4,587,981
Nabisco Group Holdings Corp. ......... 119,900 1,273,938
PepsiCo, Inc. ........................ 549,000 19,352,250
Quaker Oats Co. ...................... 51,100 3,353,438
Ralston-Ralston Purina Group ......... 123,620 3,445,908
Sara Lee Corp. ....................... 337,400 7,443,888
Seagram Co., Ltd. .................... 158,000 7,100,125
Sysco Corp. .......................... 121,500 4,806,844
Unilever N.V., ADR, (United
Kingdom) ........................ 213,032 11,596,930
Wrigley (William) Jr. Co. ............ 42,600 3,533,138
--------------
168,789,634
--------------
FOREST PRODUCTS -- 0.7%
Boise Cascade Corp. .................. 19,886 805,383
Champion International Corp. ......... 35,000 2,167,812
Fort James Corp. ..................... 81,000 2,217,375
Georgia-Pacific Corp. ................ 66,800 3,390,100
International Paper Co. .............. 155,212 8,759,777
Louisiana-Pacific Corp. .............. 38,900 554,325
Mead Corp. ........................... 37,400 1,624,562
Potlatch Corp. ....................... 10,000 446,250
Temple-Inland, Inc. .................. 20,000 1,318,750
Westvaco Corp. ....................... 35,700 1,164,712
Weyerhaeuser Co. ..................... 87,100 6,254,869
Willamette Industries, Inc. .......... 44,200 2,052,537
--------------
30,756,452
--------------
GAS PIPELINES -- 0.2%
Columbia Energy Group ................ 30,250 1,913,312
Consolidated Natural Gas Co. ......... 37,000 2,402,687
Peoples Energy Corp. ................. 11,400 381,900
Sempra Energy ........................ 89,104 1,548,182
Williams Companies, Inc. ............. 162,300 4,960,294
--------------
11,206,375
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.4%
Columbia/HCA Healthcare Corp. ........ 229,298 6,721,298
HEALTHSOUTH Corp.(a) ................. 154,500 830,437
Humana, Inc.(a) ...................... 58,100 475,694
IMS Health, Inc. ..................... 119,120 3,238,575
Manor Care, Inc.(a) .................. 40,850 653,600
McKesson HBOC Inc. ................... 101,107 2,281,227
Service Corp. International .......... 101,500 704,156
Shared Medical Systems Corp. ......... 9,000 458,437
Tenet Healthcare Corp.(a) ............ 111,100 2,610,850
Wellpoint Health Networks Inc.(a) .... 25,100 1,655,031
--------------
19,629,305
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.4%
Clorox Co. ........................... 89,600 4,513,600
Kimberly-Clark Corp. ................. 200,788 13,101,417
Leggett & Platt, Inc. ................ 64,000 1,372,000
--------------
18,987,017
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc. ..... 14,700 490,613
Fleetwood Enterprises, Inc.(a) ....... 12,600 259,875
Huttig Building Products, Inc.(a) .... 5,694 28,114
Kaufman & Broad Home Corp. ........... 16,166 391,015
Lowe's Companies, Inc. ............... 143,000 8,544,250
Masco Corp. .......................... 161,200 4,090,450
Maytag Corp. ......................... 32,700 1,569,600
Newell Rubbermaid Inc. ............... 107,049 3,104,421
Owens Corning ........................ 21,100 407,494
Stanley Works ........................ 32,300 973,038
Tupperware Corp. ..................... 22,300 377,706
Whirlpool Corp. ...................... 27,300 1,776,206
--------------
22,012,782
--------------
INSTRUMENT-CONTROLS -- 0.1%
PE Corp-PE Biosystems Group .......... 38,200 4,595,937
--------------
INSURANCE -- 2.9%
Aetna, Inc. .......................... 53,312 2,975,476
Allstate Corp. ....................... 298,688 7,168,512
American General Corp. ............... 92,286 7,002,200
American International Group, Inc. ... 575,743 62,252,212
Aon Corp. ............................ 94,125 3,765,000
Chubb Corp. .......................... 64,600 3,637,787
CIGNA Corp. .......................... 76,400 6,154,975
Cincinnati Financial Corp. ........... 62,500 1,949,219
Conseco, Inc. ........................ 118,259 2,113,880
Hartford Financial Services Group,
Inc ............................. 86,000 4,074,250
Jefferson-Pilot Corp. ................ 39,912 2,723,994
Lincoln National Corp. ............... 75,600 3,024,000
Loews Corp. .......................... 43,000 2,609,562
Marsh & McLennan Companies,
Inc ............................. 98,000 9,377,375
MBIA, Inc. ........................... 36,300 1,917,094
MGIC Investment Corp. ................ 40,200 2,419,538
Progressive Corp. .................... 27,000 1,974,375
SAFECO Corp. ......................... 48,300 1,201,463
St. Paul Companies, Inc. ............. 86,410 2,910,937
Torchmark Corp. ...................... 51,000 1,482,188
United Healthcare Corp. .............. 67,500 3,585,938
UnumProvident Corp. .................. 86,656 2,778,408
--------------
137,098,383
--------------
LEISURE -- 0.9%
Brunswick Corp. ...................... 33,400 743,150
Carnival Corp. (Class "A" Stock) ..... 229,700 10,982,531
Disney (Walt) Co. .................... 765,601 22,393,829
Harrah's Entertainment, Inc.(a) ...... 46,350 1,225,378
Hilton Hotels Corp. .................. 95,800 922,075
SEE NOTES TO FINANCIAL STATEMENTS.
B33
<PAGE>
---------------------------------
STOCK INDEX PORTFOLIO (CONTINUED)
---------------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
LEISURE (CONT'D.)
Marriott International, Inc. (Class "A"
Stock) .......................... 93,200 $ 2,941,625
Mirage Resorts, Inc.(a) .............. 70,900 1,085,656
--------------
40,294,244
--------------
MACHINERY -- 0.6%
Briggs & Stratton Corp. .............. 7,800 418,275
Caterpillar, Inc. .................... 134,300 6,320,494
Cooper Industries, Inc. .............. 42,600 1,722,638
Deere & Co. .......................... 85,200 3,695,550
Delphi Automotive Systems Corp. ...... 206,044 3,245,193
Dover Corp. .......................... 80,100 3,634,538
Eaton Corp. .......................... 27,600 2,004,450
Ingersoll-Rand Co. ................... 62,750 3,455,172
Milacron, Inc. ....................... 12,600 193,725
Snap-On, Inc. ........................ 22,800 605,625
Timken Co. ........................... 21,500 439,406
--------------
25,735,066
--------------
MANUFACTURING -- 0.7%
Illinois Tool Works, Inc. ............ 106,900 7,222,431
Tyco International Ltd. .............. 623,114 24,223,557
--------------
31,445,988
--------------
MEDIA -- 3.2%
CBS Corp.(a) ......................... 285,236 18,237,277
Clear Channel Communications,
Inc.(a) ......................... 124,200 11,084,850
Comcast Corp. (Special Class "A"
Stock) .......................... 277,000 13,919,250
Donnelley (R.R.) & Sons Co. .......... 49,500 1,228,219
Dow Jones & Co., Inc. ................ 36,000 2,448,000
Gannett Co., Inc. .................... 103,500 8,441,719
Interpublic Group of Companies,
Inc. ............................ 107,900 6,224,481
Knight-Ridder, Inc. .................. 31,100 1,850,450
McGraw-Hill, Inc. .................... 72,900 4,492,463
Mediaone Group, Inc.(a) .............. 226,300 17,382,669
Meredith Corp. ....................... 17,800 742,038
New York Times Co. (Class "A"
Stock) .......................... 65,200 3,202,950
Time Warner, Inc. .................... 482,680 34,964,133
Times Mirror Co. (Class "A" Stock) ... 30,600 2,050,200
Tribune Co. .......................... 89,400 4,922,588
Viacom, Inc. (Class "B" Stock)(a) .... 259,634 15,691,630
--------------
146,882,917
--------------
METALS-FERROUS -- 0.1%
Allegheny Technologies, Inc. ......... 34,940 783,966
Bethlehem Steel Corp.(a) ............. 47,300 396,138
Nucor Corp. .......................... 34,100 1,869,106
USX-U.S. Steel Group, Inc. ........... 31,540 1,040,820
Worthington Industries, Inc. ......... 34,000 563,125
--------------
4,653,155
--------------
METALS-NON FERROUS -- 0.4%
Alcan Aluminum Ltd. .................. 83,350 3,432,978
Alcoa, Inc. .......................... 138,100 11,462,300
Inco Ltd.(a) ......................... 67,200 1,579,200
Reynolds Metals Co. .................. 25,600 1,961,600
--------------
18,436,078
--------------
MINERAL RESOURCES -- 0.1%
Burlington Resources, Inc. ........... 70,817 2,341,387
Homestake Mining Co. ................. 93,700 732,031
Phelps Dodge Corp. ................... 27,528 1,847,817
--------------
4,921,235
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.5%
AES Corp.(a) ......................... 75,200 5,621,200
Crane Co. ............................ 25,625 509,297
Danaher Corp. ........................ 51,400 2,480,050
Ecolab, Inc. ......................... 48,000 1,878,000
ITT Industries, Inc. ................. 41,900 1,401,031
Millipore Corp. ...................... 16,200 625,725
NACCO Industries, Inc. (Class "A"
Stock) .......................... 3,300 183,356
Pall Corp. ........................... 44,000 948,750
PPG Industries, Inc. ................. 65,800 4,116,613
Textron, Inc. ........................ 59,400 4,555,238
Thermo Electron Corp.(a) ............. 57,000 855,000
--------------
23,174,260
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.6%
American Greetings Corp. (Class
"A" Stock) ..................... 24,800 585,900
Black & Decker Corp. ................. 32,900 1,719,025
Corning, Inc. ........................ 88,700 11,436,756
Jostens, Inc. ........................ 12,400 301,475
Minnesota Mining & Manufacturing
Co. ............................. 151,100 14,788,913
Polaroid Corp. ....................... 15,400 289,713
--------------
29,121,782
--------------
OIL & GAS -- 4.7%
Amerada Hess Corp. ................... 35,800 2,031,650
Anadarko Petroleum Corp. ............. 47,600 1,624,350
Ashland, Inc. ........................ 26,600 876,138
Atlantic Richfield Co. ............... 119,370 10,325,505
Chevron Corp. ........................ 245,800 21,292,425
Coastal Corp. ........................ 81,500 2,888,156
Eastern Enterprises .................. 9,500 545,656
Exxon Mobil Corp. .................... 1,291,435 104,041,232
Kerr-McGee Corp. ..................... 33,926 2,103,412
NICOR, Inc. .......................... 16,200 526,500
Phillips Petroleum Co. ............... 94,400 4,436,800
Royal Dutch Petroleum Co. ............ 800,600 48,386,263
Sunoco, Inc. ......................... 33,200 780,200
Texaco, Inc. ......................... 204,982 11,133,085
Union Pacific Resources Group, Inc. .. 90,056 1,148,214
Unocal Corp. ......................... 90,600 3,040,763
USX-Marathon Group ................... 116,500 2,876,094
--------------
218,056,443
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Occidental Petroleum Corp. ........... 130,000 2,811,250
--------------
OIL - EXPLORATION & PRODUCTION -- 0.1%
Conoco, Inc (Class "B") .............. 233,957 5,819,680
--------------
OIL & GAS SERVICES -- 0.9%
Apache Corp. ......................... 42,100 1,555,069
Baker Hughes, Inc. ................... 122,130 2,572,363
El Paso Energy Corp. ................. 80,900 3,139,931
Enron Corp. .......................... 268,800 11,928,000
Halliburton Co. ...................... 164,100 6,605,025
Helmerich & Payne, Inc. .............. 18,100 394,806
McDermott International, Inc. ........ 20,700 187,594
SEE NOTES TO FINANCIAL STATEMENTS.
B34
<PAGE>
---------------------------------
STOCK INDEX PORTFOLIO (CONTINUED)
---------------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
OIL & GAS SERVICES (CONT'D.)
ONEOK, Inc. .......................... 13,000 $ 326,625
Rowan Companies, Inc.(a) ............. 28,700 622,431
Schlumberger Ltd. .................... 207,300 11,660,625
Tosco Corp. .......................... 52,000 1,413,750
Transocean Sedco Forex, Inc. ......... 40,133 1,351,990
--------------
41,758,209
--------------
PRECIOUS METALS -- 0.1%
Barrick Gold Corp. ................... 145,300 2,569,994
Freeport-McMoRan Copper & Gold,
Inc. (Class "B" Stock)(a) ....... 66,200 1,398,475
Newmont Mining Corp. ................. 61,503 1,506,824
Placer Dome, Inc. .................... 121,000 1,300,750
--------------
6,776,043
--------------
RAILROADS -- 0.4%
Burlington Northern Santa Fe Corp. ... 171,626 4,161,931
CSX Corp. ............................ 80,612 2,529,202
Kansas City Southern Industries,
Inc. ............................ 41,600 3,104,400
Norfolk Southern Corp. ............... 141,300 2,896,650
Union Pacific Corp. .................. 92,100 4,017,863
--------------
16,710,046
--------------
RESTAURANTS -- 0.5%
Darden Restaurants, Inc. ............. 50,300 911,688
McDonald's Corp. ..................... 507,100 20,442,469
Tricon Global Restaurants, Inc.(a) ... 56,650 2,188,106
Wendy's International, Inc. .......... 44,800 924,000
--------------
24,466,263
--------------
RETAIL -- 8.0%
Albertson's, Inc. .................... 156,644 5,051,769
AutoZone, Inc.(a) .................... 51,900 1,677,019
Bed Bath & Beyond, Inc.(a) ........... 49,000 1,702,750
Bell Atlantic Corp. .................. 581,390 35,791,822
BellSouth Corp. ...................... 708,100 33,147,931
Best Buy Co., Inc.(a) ................ 75,000 3,764,063
Circuit City Stores, Inc. ............ 75,200 3,388,700
Consolidated Stores Corp.(a) ......... 40,200 653,250
Costco Wholesale Corp.(a) ............ 83,266 7,598,023
CVS Corp. ............................ 145,800 5,822,888
Dayton-Hudson Corp. .................. 166,284 12,211,481
Dillard's, Inc. ...................... 37,750 762,078
Dollar General Corporation ........... 82,843 1,884,678
Federated Department Stores,
Inc.(a) ......................... 76,500 3,868,031
Great Atlantic & Pacific Tea Co., Inc. 12,400 345,650
Harcourt General, Inc. ............... 27,006 1,086,992
Home Depot, Inc. ..................... 848,619 58,183,440
IKON Office Solutions, Inc. .......... 52,476 357,493
J.C. Penney Co., Inc. ................ 100,500 2,003,719
Kmart Corp.(a) ....................... 181,400 1,825,338
Kohl's Corp.(a) ...................... 60,800 4,389,000
Kroger Co.(a) ........................ 308,000 5,813,500
Liz Claiborne, Inc. .................. 23,400 880,425
Longs Drug Stores, Inc. .............. 13,700 353,631
May Department Stores Co. ............ 127,200 4,102,200
Nordstrom, Inc. ...................... 52,300 1,369,606
Office Depot, Inc.(a) ................ 139,000 1,520,313
Pep Boys - Manny, Moe & Jack ......... 19,656 179,361
Rite Aid Corp. ....................... 94,600 1,058,338
Safeway, Inc.(a) ..................... 188,600 6,707,088
Sears, Roebuck & Co. ................. 140,200 4,267,338
Sherwin-Williams Co. ................. 64,700 1,358,700
Staples, Inc.(a) ..................... 171,200 3,552,400
Supervalu, Inc. ...................... 46,800 936,000
Tandy Corp. .......................... 74,860 3,682,176
The Gap, Inc. ........................ 316,987 14,581,402
The Limited, Inc. .................... 82,048 3,553,704
TJX Companies, Inc. .................. 116,400 2,378,925
Toys 'R' Us, Inc.(a) ................. 98,450 1,409,066
Wal-Mart Stores, Inc. ................ 1,661,200 114,830,450
Walgreen Co. ......................... 373,000 10,910,250
Winn-Dixie Stores, Inc. .............. 54,900 1,314,169
--------------
370,275,157
--------------
RUBBER -- 0.0%
Cooper Tire & Rubber Co. ............. 28,800 448,200
Goodyear Tire & Rubber Co. ........... 58,000 1,634,875
--------------
2,083,075
--------------
TELECOMMUNICATIONS -- 11.5%
ADC Telecommunications, Inc.(a) ..... 56,700 4,114,294
AFLAC Inc. ........................... 102,000 4,813,125
Alltel Corp. ......................... 114,000 9,426,375
Andrew Corp.(a) ...................... 29,112 551,309
AT&T Corp. ........................... 1,192,521 60,520,441
CenturyTel, Inc. ..................... 51,200 2,425,600
General Instrument Corp.(a) .......... 66,200 5,627,000
Global Crossing Ltd.(a) .............. 284,105 14,205,250
GTE Corp. ............................ 365,020 25,756,724
Lucent Technologies, Inc. ............ 1,159,805 86,767,912
MCI Worldcom, Inc.(a) ................ 1,049,958 55,713,396
Motorola, Inc. ....................... 226,800 33,396,300
Nextel Communications, Inc. (Class
"A" Stock)(a) ................... 132,300 13,643,438
Nortel Networks Corp. ................ 494,940 49,988,940
Qualcomm Inc(a) ...................... 242,400 42,723,000
SBC Communications, Inc. ............. 1,273,877 62,101,504
Scientific-Atlanta, Inc. ............. 27,200 1,513,000
Sprint Corp. ......................... 327,700 22,058,306
Sprint Corp. (PCS Group)(a) .......... 163,450 16,753,625
Tellabs, Inc.(a) ..................... 147,700 9,480,494
US West, Inc. ........................ 186,922 13,458,384
--------------
535,038,417
--------------
TEXTILES -- 0.0%
National Service Industries, Inc. .... 14,700 433,650
Russell Corp. ........................ 12,700 212,725
Springs Industries, Inc. ............. 8,700 347,456
VF Corp. ............................. 42,836 1,285,080
--------------
2,278,911
--------------
TOBACCO -- 0.0%
UST, Inc. ............................ 66,100 1,664,894
--------------
TOYS -- 0.1%
Hasbro, Inc. ......................... 73,550 1,402,047
Mattel, Inc. ......................... 152,381 2,000,001
--------------
3,402,048
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp.(a) ............. 106,640 4,365,575
Ryder System, Inc. ................... 25,800 630,488
--------------
4,996,063
--------------
UTILITIES - ELECTRICAL & GAS -- 0.0%
Florida Progress Corp. ............... 36,000 1,523,250
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B35
<PAGE>
---------------------------------
STOCK INDEX PORTFOLIO (CONTINUED)
---------------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
UTILITY - ELECTRIC -- 1.4%
Ameren Corp. ......................... 53,900 $ 1,765,225
American Electric Power Co., Inc. .... 72,500 2,329,063
Carolina Power & Light Co. ........... 59,900 1,823,206
Central & South West Corp. ........... 77,400 1,548,000
CINergy Corp. ........................ 58,739 1,417,078
CMS Energy Corp. ..................... 43,100 1,344,181
Consolidated Edison, Inc. ............ 87,200 3,008,400
Constellation Energy Group ........... 53,550 1,552,950
Dominion Resources, Inc. ............. 71,950 2,824,038
DTE Energy Co. ....................... 53,600 1,681,700
Duke Energy Corp. .................... 136,531 6,843,616
Edison International ................. 129,800 3,399,138
Entergy Corp. ........................ 90,300 2,325,225
FirstEnergy Corp.(a) ................. 87,200 1,978,350
FPL Group, Inc. ...................... 68,100 2,915,531
GPU, Inc. ............................ 46,200 1,383,113
New Century Energies, Inc. ........... 40,900 1,242,338
Niagara Mohawk Holdings Inc.(a) ...... 64,600 900,363
Northern States Power Co. ............ 53,900 1,051,050
Pacific Gas & Electric, Co. .......... 140,000 2,870,000
PECO Energy Co. ...................... 80,500 2,797,375
Pinnacle West Capital Corp. .......... 29,000 886,313
PP&L Resources, Inc. ................. 57,000 1,303,875
Public Service Enterprise Group,
Inc ............................. 80,400 2,798,925
Reliant Energy, Inc. ................. 107,410 2,457,004
Southern Co. ......................... 259,400 6,095,900
Texas Utilities Co. .................. 103,506 3,680,932
Unicom Corp. ......................... 79,100 2,649,850
--------------
66,872,739
--------------
WASTE MANAGEMENT -- 0.1%
Allied Waste Industries, Inc.(a) ..... 68,000 599,250
Waste Management, Inc. ............... 230,230 3,957,078
--------------
4,556,328
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $2,278,861,725) ................ 4,589,537,721
--------------
PRINCIPAL
SHORT-TERM AMOUNT VALUE
INVESTMENTS -- 1.4% (000) (NOTE 2)
------------- --------------
REPURCHASE AGREEMENT -- 1.3%
Joint Repurchase Agreement
Account,
2.875%, 01/03/00 (Note 5) ....... $ 60,195 $ 60,195,000
--------------
U.S. GOVERNMENT OBLIGATION -- .1%
United States Treasury Bill,
5.196%, 03/16/00(b) ............. 6,500 6,430,134
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $66,624,638) ................... 66,625,134
--------------
TOTAL INVESTMENTS -- 100.0%
(cost $2,345,486,363; Note 6) ........ 4,656,162,855
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS(C) ......................... 145,000
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.0%) ..................... (1,290,335)
--------------
TOTAL NET ASSETS -- 100.0% ............... $4,655,017,520
==============
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
(c) Open futures contracts as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1999 APPRECIATION
<S> <C> <C> <C> <C> <C>
171 S&P 500 Index Mar 00 $61,025,287 $63,449,550 $2,424,263
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B36
<PAGE>
----------------
EQUITY PORTFOLIO
----------------
DECEMBER 31, 1999
LONG-TERM INVESTMENTS -- 89.6%
VALUE
COMMON STOCKS SHARES (NOTE 2)
-------------- --------------
AEROSPACE
Raytheon Co. ......................... 44,639 $ 1,107,605
--------------
APPAREL -- 0.3%
Jones Apparel Group, Inc. ............ 716,973 19,447,893
--------------
AUTOS - CARS & TRUCKS -- 1.4%
Delphi Automotive Systems Corp. ...... 440,325 6,935,119
General Motors Corp. ................. 630,000 45,793,125
Navistar International Corp.(a) ...... 395,200 18,722,600
PACCAR Inc. .......................... 279,400 12,380,912
--------------
83,831,756
--------------
BANKS AND SAVINGS & LOANS -- 5.0%
Bank of New York Co., Inc. ........... 2,400,000 96,000,000
Bank of America Corp. ................ 1,789,856 89,828,398
Chase Manhattan Corp. ................ 376,900 29,280,419
Mellon Financial Corp. ............... 540,200 18,400,562
Mercantile Bankshares Corp. .......... 419,400 13,394,587
Morgan (J.P.) & Co., Inc. ............ 232,100 29,389,662
National City Corp. .................. 123,120 2,916,405
Republic New York Corp. .............. 450,000 32,400,000
--------------
311,610,033
--------------
CHEMICALS -- 1.3%
Eastman Chemical Co. ................. 941,550 44,900,166
Potash Corp. of Saskatchewan Inc.,
(Canada) ........................ 380,000 18,311,250
Wellman, Inc. ........................ 798,200 14,866,475
--------------
78,077,891
--------------
COMPUTER -- 5.9%
Compaq Computer Corp. ................ 3,302,350 89,369,847
Gerber Scientific, Inc. .............. 419,800 9,209,362
Hewlett-Packard Co. .................. 1,100,000 125,331,250
NCR Corp.(a) ......................... 100,000 3,787,500
Seagate Technology, Inc.(a) .......... 2,975,800 138,560,687
--------------
366,258,646
--------------
CONSTRUCTION & HOUSING -- 1.3%
American Standard Co., Inc.(a) ....... 1,050,000 48,168,750
Centex Corp. ......................... 1,200,000 29,625,000
--------------
77,793,750
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 4.0%
Eastman Kodak Co. .................... 2,969,300 196,716,125
Gibson Greeting, Inc.(a) ............. 750,000 6,726,562
Philip Morris Co., Inc. .............. 2,025,000 46,954,687
--------------
250,397,374
--------------
ELECTRONICS -- 4.5%
Arrow Electronics, Inc.(a) ........... 2,145,500 54,442,062
Avnet, Inc. .......................... 887,600 53,699,800
Harris Corp. ......................... 2,884,000 76,966,750
Hitachi Ltd. ADR, (Japan) ............ 515,000 83,365,625
Lanier Worldwide, Inc.(a) ............ 2,884,000 11,175,500
--------------
279,649,737
--------------
FINANCIAL SERVICES -- 3.3%
Citigroup, Inc. ...................... 1,400,401 77,809,781
Lehman Brothers Holdings, Inc. ....... 764,800 64,769,000
Morgan Stanley Dean Witter & Co. ..... 452,800 64,637,200
--------------
207,215,981
--------------
FOOD & BEVERAGE 1.5%
Nabisco Group Holdings Corp. ......... 3,710,000 39,418,750
Sara Lee Corp. ....................... 2,497,500 55,101,094
--------------
94,519,844
--------------
FOREST PRODUCTS -- 12.3%
Fort James Corp. ..................... 664,000 18,177,000
Georgia-Pacific Corp. ................ 3,406,300 172,869,725
Georgia-Pacific Timber Group ......... 1,158,000 28,515,750
International Paper Co. .............. 1,820,000 102,716,250
Mead Corp. ........................... 2,306,000 100,166,875
Rayonier Inc. ........................ 830,400 40,118,700
Temple-Inland, Inc. .................. 1,240,500 81,795,469
Weyerhaeuser Co. ..................... 1,522,500 109,334,531
Willamette Industries, Inc. .......... 2,500,000 116,093,750
--------------
769,788,050
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 10.9%
Columbia/HCA Healthcare Corp. ........ 5,790,100 169,722,306
Foundation Health Systems, Inc.(a) ... 4,724,610 46,950,812
HEALTHSOUTH Corp.(a) ................. 5,376,800 28,900,300
LifePoint Hospitals, Inc.(a) ......... 304,742 3,599,765
PacifiCare Health Systems, Inc.(a) ... 1,143,900 60,626,700
Service Corp. International(a) ....... 3,686,500 25,575,094
Tenet Healthcare Corp.(a) ............ 7,321,732 172,060,702
Triad Hospitals, Inc.(a) ............. 304,742 4,609,223
Wellpoint Health Networks Inc.(a) .... 2,570,900 169,518,719
--------------
681,563,621
--------------
INSURANCE -- 11.1%
American Financial Group, Inc. ....... 552,700 14,577,462
American General Corp. ............... 879,704 66,747,541
AXA Financial Inc. ................... 2,323,800 78,718,725
Chubb Corp. .......................... 2,206,400 124,247,900
Loews Corp. .......................... 1,775,000 107,720,312
Old Republic International Corp. ..... 3,198,327 43,577,205
SAFECO Corp. ......................... 2,855,800 71,038,025
St. Paul Companies, Inc. ............. 1,320,100 44,470,869
Tokio Marine & Fire Insurance Co. ....
Ltd. (The) ADR (Japan) .......... 656,400 38,809,650
United HealthCare Corp. .............. 1,914,900 101,729,063
--------------
691,636,752
--------------
LEISURE -- 0.8%
Hilton Hotels Corp. .................. 3,470,600 33,404,525
Park Place Entertainment Corp.(a) .... 1,078,300 13,478,750
--------------
46,883,275
--------------
METALS-FERROUS -- 0.2%
Birmingham Steel Corp.(a) ............ 1,492,400 7,928,375
Carpenter Technology Corp. ........... 100,000 2,743,750
--------------
10,672,125
--------------
METALS-NON FERROUS -- 2.5%
Alcoa, Inc. .......................... 1,882,000 156,206,000
--------------
MINERAL RESOURCES -- 0.5%
Phelps Dodge Corp. ................... 488,600 32,797,275
--------------
OIL & GAS -- 5.6%
Amerada Hess Corp. ................... 325,000 18,443,750
Atlantic Richfield Co. ............... 1,100,000 95,150,000
Kerr-McGee Corp. ..................... 590,400 36,604,800
KeySpan Corp. ........................ 1,356,432 31,452,267
Occidental Petroleum Corp. ........... 1,100,000 23,787,500
Total SA, ADR, (France) .............. 2,075,275 143,712,794
--------------
349,151,111
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B37
<PAGE>
----------------------------
EQUITY PORTFOLIO (CONTINUED)
----------------------------
DECEMBER 31, 1999
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
-------------- --------------
PRECIOUS METALS -- 2.5%
Freeport-McMoRan Copper & Gold,
Inc. (Class "A ")(a) ............ 3,853,300 $ 71,526,881
Freeport-McMoRan Copper & Gold,
Inc. (Class "B" Stock)(a) ....... 319,600 6,751,550
Kinross Gold Corp.(a) ................ 105,126 197,111
Newmont Mining Corp. ................. 3,057,000 74,896,500
--------------
153,372,042
--------------
RESTAURANTS -- 2.5%
CKE Restaurants, Inc. ................ 1,933,700 11,360,488
Darden Restaurants, Inc. ............. 7,922,700 143,598,938
--------------
154,959,426
--------------
RETAIL -- 6.1%
Consolidated Stores Corp.(a) ......... 2,023,800 32,886,750
Dillard's, Inc. ...................... 3,649,000 73,664,188
IKON Office Solutions, Inc. .......... 5,193,000 35,377,313
Kmart Corp.(a) ....................... 6,500,000 65,406,250
Pep Boys - Manny, Moe & Jack ......... 1,594,900 14,553,463
Sears, Roebuck and Co. ............... 690,000 21,001,875
Tandy Corp. .......................... 2,166,900 106,584,394
Toys 'R' Us, Inc.(a) ................. 2,350,000 33,634,375
--------------
383,108,608
--------------
TELECOMMUNICATIONS -- 3.9%
ALLTEL Corp. ......................... 1,129,588 93,402,808
AT&T Corp. ........................... 1,734,400 88,020,800
Loral Corp.(a) ....................... 2,600,000 63,212,500
--------------
244,636,108
--------------
TEXTILES
Worldtex, Inc.(a) .................... 107,199 167,498
--------------
TOBACCO -- 0.3%
R.J. Reynolds Tobacco Holdings,
Inc. ............................ 1,236,666 21,796,238
--------------
UTILITY - ELECTRIC -- 1.3%
American Electric Power Company,
Inc. ............................ 180,000 5,782,500
GPU, Inc. ............................ 500,000 14,968,750
Reliant Energy, Inc. ................. 974,519 22,292,122
Unicom Corp. ......................... 1,112,900 37,282,150
--------------
80,325,522
--------------
UTILITY - WATER -- 0.1%
American Water Works Co., Inc. ....... 270,000 5,737,500
--------------
WASTE MANAGEMENT -- 0.5%
Waste Management, Inc. ............... 1,882,292 32,351,894
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,235,036,665) ................ 5,585,063,555
--------------
MOODY'S PRINCIPAL
SHORT-TERM RATING AMOUNT
INVESTMENTS -- 10.4% (UNAUDITED) (000)
----------- --------------
COMMERCIAL PAPER -- 8.7%
Barton Capital Corp,
6.09%, 02/01/00 .......... P1 $ 20,844 20,734,691
6.18%, 02/03/00 .......... P1 12,000 11,932,900
Baus Funding LLC,
6.20%, 01/31/00 .......... P1 60,000 59,690,000
BBV Finance (Delaware) Inc,
6.27%, 01/10/00 .......... P1 25,000 24,960,812
BBL North America,
6.27%, 01/26/00........... P1 40,000 39,825,833
Blue Ridge Asset Fund,
6.70%, 01/18/00........... P1 19,000 18,939,886
Carolina Power & Light,
6.55%, 01/28/00........... P1 11,306 11,250,459
Corporate Asset Funding,
6.10%, 01/27/00........... P1 9,695 9,652,288
Edison Asset Securitization
LLC,
6.65%, 01/31/00........... P1 9,592 9,538,844
7.00%, 01/21/00........... P1 16,597 16,532,456
Enterprise Funding Corp.,
6.18%, 01/27/00........... P1 9,588 9,545,206
Falcon Asset Securitization
Corp.,
5.99%, 01/13/00........... P1 60,000 59,880,200
Fleet Funding Corp.,
6.10%, 02/04/00........... P1 7,773 7,728,219
Old Line Funding Corp.,
6.25%, 01/20/00........... P1 20,000 19,934,028
6.30%, 01/19/00........... P1 34,420 34,311,577
Salomon Smith Barney
Holding,
6.10%, 01/25/00........... P1 28,000 27,886,133
Thunder Bay Funding,
6.75%, 01/28/00........... P1 6,513 6,480,028
Triple-A One Plus Funding,
6.26%, 01/12/00........... P1 10,590 10,569,744
6.26%, 01/14/00........... P1 29,000 28,934,444
6.66%, 01/20/00........... P1 12,000 11,957,820
6.70%, 01/18/00........... P1 8,539 8,511,984
Unifunding Inc.,
6.50%, 01/25/00........... P1 35,000 34,848,333
Windmill Funding Corp.,
6.10%, 01/28/00........... P1 60,000 59,725,500
--------------
543,371,385
--------------
REPURCHASE AGREEMENT -- 1.7%
Joint Repurchase
Agreement Account,
2.875%, 01/03/00
(Note 5) ....................... 106,923 106,923,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $650,294,385) .................. 650,294,385
--------------
TOTAL INVESTMENTS -- 100.0%
(cost $4,885,331,050; Note 6) ........ 6,235,357,940
FORWARD CURRENCY CONTRACTS -- AMOUNT
PAYABLE TO COUNTERPARTIES (B) ........ (138,418)
--------------
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES 76,720
--------------
TOTAL NET ASSETS -- 100.0% ............... $6,235,296,242
==============
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt.
LLC Limited Liability Company.
SA Societe Anonyme (French Corporation).
(a) Non-income producing security.
(b) Outstanding forward currency contract as of December 31, 1999 was as
follows:
VALUE AT
FOREIGN CURRENCY SETTLEMENT CURRENT
CONTRACTS DATE VALUE DEPRECIATION
- ---------------- ---------- ------- ------------
Sold:
Japanese Yen,
expiring 3/30/00 $43,111,992 $42,973,574 $(138,418)
SEE NOTES TO FINANCIAL STATEMENTS.
B38
<PAGE>
----------------
GLOBAL PORTFOLIO
----------------
DECEMBER 31, 1999
LONG-TERM INVESTMENTS -- 94.6%
VALUE
COMMON STOCKS SHARES (NOTE 2)
-------------- --------------
AUSTRALIA -- 3.2%
Brambles Industries, Ltd. ............ 329,600 $ 9,121,618
Broken Hill Proprietary Co., Ltd. .... 1,367,850 17,982,536
Commonwealth Bank of Australia ....... 827,800 14,265,568
--------------
41,369,722
--------------
FINLAND -- 2.7%
Nokia Corp.(a) ....................... 190,700 34,583,439
--------------
FRANCE -- 6.6%
Carrefour SA ......................... 38,400 7,083,771
Havas Advertising SA ................. 4,400 1,875,159
Lafarge SA ........................... 98,231 11,440,668
Legrand SA ........................... 61,600 14,665,248
Publicis SA .......................... 4,984 1,883,017
Suez Lyonnaise des Eaux(a) ........... 69,500 11,140,379
Thomson Multimedia ................... 267,148 14,399,609
Total SA ............................. 173,090 23,106,429
--------------
85,594,280
--------------
FEDERAL REPUBLIC OF GERMANY -- 3.7%
Deutsche Telekom Ag .................. 187,550 13,359,231
Mannesmann Ag ........................ 99,400 23,984,843
Siemens Ag ........................... 80,800 10,281,576
--------------
47,625,650
--------------
IRELAND -- 0.3%
Bank of Ireland ...................... 582,200 4,633,875
--------------
ITALY -- 1.3%
Unicredito Italiano SpA .............. 3,589,200 17,646,658
--------------
JAPAN -- 18.3%
CSK Corporation ...................... 193,000 31,329,945
Fuji Bank ............................ 1,326,000 12,876,179
Fujitsu Limited ...................... 828,000 37,732,057
Honda Motor Co., Ltd. ................ 260,000 9,661,647
Nippon Telegraph & Telephone
Corp.(a) ........................ 1,204 20,604,343
NTT Data Corp ........................ 1,031 23,693,038
NTT Mobile Communication
Network, Inc. ................... 904 34,742,032
Softbank Corp. ....................... 42,000 40,168,201
Sony Corp. ........................... 66,600 19,733,817
Sony Corp., (ADR) .................... 27,100 7,716,725
--------------
238,257,984
--------------
MEXICO -- 1.1%
Telefonos de Mexico, SA (ADR)
(Class L Shares) ................ 128,100 14,411,250
--------------
NETHERLANDS -- 2.1%
ING Groep N.V ........................ 267,500 16,154,202
Vendex KBB N.V ....................... 410,600 10,921,137
--------------
27,075,339
--------------
SINGAPORE -- 0.7%
Development Bank of Singapore
Ltd ............................. 678,800 5,135,322
Singapore Airlines Ltd ............... 340,000 3,858,301
--------------
8,993,623
--------------
SPAIN -- 3.3%
Banco Santander SA ................... 1,530,100 17,327,309
Telefonica SA ........................ 969,408 24,221,624
Terra Networks SA .................... 26,800 1,464,804
--------------
43,013,737
--------------
SWEDEN -- 3.8%
Hennes & Mauritz AB .................. 839,400 28,111,850
Nordbanken Holding AB ................ 1,292,800 7,595,860
Skanska AB (Class "B" Shares) ........ 354,000 13,186,760
--------------
48,894,470
--------------
UNITED KINGDOM -- 9.7%
Alliance and Leicester PLC ........... 581,400 7,573,142
Bank of Scotland ..................... 1,144,600 13,316,431
Canary Wharf Group PLC ............... 1,302,200 8,112,293
GKN PLC .............................. 973,300 15,969,447
Glaxo Wellcome PLC ................... 503,900 14,301,420
Hays PLC(a) .......................... 1,717,500 27,457,367
Siebe PLC(a) ......................... 2,511,500 13,301,409
Vodafone AirTouch PLC ................ 5,209,000 26,010,063
--------------
126,041,572
--------------
UNITED STATES -- 37.8%
Agency.com Limited ................... 9,400 479,400
Alcoa Inc. ........................... 94,000 7,802,000
AT&T Corp. ........................... 186,200 9,449,650
Atmel Corp.(a) ....................... 719,800 21,279,087
Citigroup Inc. ....................... 388,200 21,569,362
Electronic Arts, Inc.(a) ............. 323,400 27,165,600
Fox Entertainment Group, Inc. ........
(Class "A" Stock)(a) ............ 459,400 11,456,288
Freemarkets, Inc. .................... 100 34,131
Intertrust Technologies Corp. ........ 34,000 3,999,250
MCI WorldCom, Inc.(a) ................ 327,900 17,399,194
Mead Corp. ........................... 290,200 12,605,562
Mediaone Group, Inc.(a) .............. 87,500 6,721,094
Microsoft Corp.(a) ................... 118,200 13,799,850
Omnicom Group, Inc. .................. 114,600 11,460,000
Ondisplay, Inc. ...................... 62,700 5,697,863
OpenTV Corp .......................... 17,200 1,380,300
Oracle Systems Corp.(a) .............. 405,200 45,407,725
PMC-Sierra, Inc.(a) .................. 336,900 54,009,281
Portal Software, Inc. ................ 84,300 8,672,363
Priceline.com Inc.(a) ................ 30,700 1,454,413
Quest Software Inc. .................. 36,400 3,712,800
Red Hat Inc. ......................... 38,900 8,217,625
SCI Systems, Inc.(a) ................. 198,700 16,330,656
Seagate Technology, Inc.(a) .......... 322,800 15,030,375
Solectron Corp.(a) ................... 356,500 33,912,062
Texas Instruments, Inc. .............. 292,200 28,306,875
The Williams Companies, Inc. ......... 135,900 4,153,444
Time Warner, Inc. .................... 402,700 29,170,581
United Parcel Service, Inc. (Class B) 124,500 8,590,500
UnitedGlobalCom, Inc. (Class A) ...... 96,900 6,843,563
USA Networks, Inc.(a) ................ 468,400 25,879,100
USWeb Corp. .......................... 125,500 5,576,906
Wells Fargo & Co. .................... 410,100 16,583,419
Wendys International, Inc. ........... 301,800 6,224,625
--------------
490,374,944
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $677,017,960) .................. 1,228,516,543
--------------
SEE NOTES TO FINANCIAL STATEMENTS.
B39
<PAGE>
----------------------------
GLOBAL PORTFOLIO (CONTINUED)
----------------------------
DECEMBER 31, 1999
PRINCIPAL
SHORT-TERM AMOUNT VALUE
INVESTMENTS -- 3.7% (000) (NOTE 2)
-------------- --------------
U. S. GOVERNMENT SECURITIES -- 1.3%
UNITED STATES TREASURY BILLS,
5.59%, 08/17/00 ................. $ 5,310 $ 5,122,028
5.61%, 08/17/00 ................. 11,800 11,378,907
--------------
16,500,935
--------------
TOTAL U. S. GOVERNMENT SECURITIES
(cost $16,500,935) ................... 16,500,935
--------------
REPURCHASE AGREEMENT -- 2.4%
Joint Repurchase Agreement
Account, 2.875%, 01/03/00
(cost $30,645,000; Note 5) ...... 30,645 30,645,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $47,145,935) ................... 47,145,935
--------------
TOTAL INVESTMENTS -- 98.3%
(cost $724,163,895; Note 6) .......... 1,275,662,478
ASSETS IN EXCESS OF OTHER
LIABILITIES -- 1.7% .................. 22,651,610
--------------
TOTAL NET ASSETS -- 100.0% ............... $1,298,314,088
==============
The following abbreviations are used in portfolio descriptions:
AB Aktiebolag (Swedish Stock Company)
ADR American Depository Receipt
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.
The industry classification of portfolio of holdings and other assets in excess
of liabilities shown as a percentage of net assets as of December 31, 1999 were
as follows:
Computer Software & Services 17.0%
Telecommunications 16.5%
Electronics 15.1%
Commercial Banking 10.0%
Media 6.1%
Diversified Operations 5.4%
Retail 4.2%
Oil & Gas Services 2.1%
Telephones 2.1%
Automobiles & Manufacturing 2.0%
Banks 1.9%
Machinery 1.9%
Advertising 1.1%
Electrical Equipment 1.1%
Pharmaceuticals 1.1%
Construction 1.0%
Paper 1.0%
Building Materials & Components 0.9%
Diversified Manufacturing 0.8%
Commercial Services 0.7%
Transportation 0.7%
Aluminum 0.6%
Real Estate-Development 0.6%
Professional Services 0.4%
Airlines 0.3%
Repurchase Agreement 2.4%
U.S. Government Securities 1.3%
-----
98.3%
Other assets in excess of liabilities 1.7%
-----
100.0%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
B40
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
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 or a principal market maker. Options on stock or
stock indices are valued at the average of the last reported bid and
asked prices on the exchange on which they are traded. Futures
contracts and options on futures contracts are valued at the last
reported sale price, or if there is not a sale, at the mean between
the last reported bid and asked prices on the commodity exchange or
the board of trade on which they are traded. Any security for which
a reliable market quotation is unavailable is valued at fair value
by The Prudential Insurance Company of America ("The Prudential")
under the direction of the Series Fund's Board of Directors.
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 investment securities, other assets and
liabilities - at the current rates of exchange.
(ii) purchases and sales of investment securities, income and
expenses - at the rate of exchange prevailing on the respective
dates of such transactions.
Although the net assets of the Series Fund are presented at the
foreign exchange rates and market values at the close of the fiscal
year, 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 year. 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 year. Accordingly, these realized and unrealized foreign
currency gains (losses) are included in the reported net realized
gains (losses) on investment transactions.
Net realized gains (losses) on foreign currency transactions
represent net foreign exchange gains or losses from holdings of
foreign currencies, currency gains or losses realized between the
trade and settlement dates on security transactions, and the
difference between the amounts of dividends, interest and foreign
taxes
C1
<PAGE>
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 year end exchange
rates are reflected as a component of net unrealized appreciation
(depreciation) on investments and foreign currencies.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of
domestic origin as a result of, among other factors, the possibility
of political and economic instability and the level of governmental
supervision and regulation of foreign securities markets.
Forward Currency Contracts: A forward currency contract is a
commitment to purchase or sell a foreign currency at a future date
at a negotiated forward rate. Certain portfolios of the Series Fund
may enter into forward currency contracts in order to hedge their
exposure to changes in foreign currency exchange rates on their
foreign portfolio holdings or on specific receivables and payables
denominated in a foreign currency. The contracts are valued daily at
current exchange rates and any unrealized gain or loss is included
in net unrealized appreciation or depreciation on investments and
foreign currencies. Gain or loss is realized on the settlement date
of the contract equal to the difference between the settlement value
of the original and renegotiated forward contracts. This gain or
loss, if any, is included in net realized gain (loss) on foreign
currencies. Risks may arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of
their contracts.
Short Sales: Certain portfolios of the Series Fund may sell a
security it does not own in anticipation of a decline in the market
value of that security (short sale). When a Portfolio makes a short
sale, it must borrow the security sold short and deliver it to the
buyer. The proceeds of the short sale will be retained by the
broker-dealer through which it made the short sale as collateral for
its obligation to deliver the security upon conclusion of the sale.
The Portfolio may have to pay a fee to borrow the particular
security and may be obligated to remit any interest or dividends
received on such borrowed securities. A gain, limited to the price
at which the Portfolio sold the security short, or a loss, unlimited
in magnitude, will be recognized upon the termination of a short
sale if the market price at termination is less than or greater
than, respectively, the proceeds originally received.
Options: The Series Fund may either purchase or write options in
order to hedge against adverse market movements or fluctuations in
value with respect to securities which the Series Fund currently
owns or intends to purchase. The Series Fund's principal reason for
writing options is to realize, through receipts of premiums, a
greater current return than would be realized on the underlying
security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an
investment. When the Series Fund writes an option, it receives a
premium and an amount equal to that premium is recorded as a
liability. The investment or liability is adjusted daily to reflect
the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent
of the premium received or paid. If an option is exercised, the
premium received or paid is an adjustment to the proceeds from the
sales or the cost of the purchase in determining whether the Series
Fund has realized a gain or loss. The difference between the premium
and the amount received or paid on effecting a closing purchase or
sale transaction is also treated as a realized gain or loss. Gain or
loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is
presented separately as net realized gain (loss) on written option
transactions.
The Series Fund, as writer of an option, may have no control over
whether the underlying securities may be sold (called) or purchased
(put). As a result, the Series Fund bears the market risk of an
unfavorable change in the price of the security underlying the
written option. The Series Fund, as purchaser of an option, bears
the risk of the potential inability of the counterparties to meet
the terms of their contracts.
Financial Futures Contracts: A financial futures contract is an
agreement to purchase (long) or sell (short) an agreed amount of
securities at a set price for delivery on a future date. Upon
entering into a financial futures contract, the Series Fund is
required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This
amount is known as the "initial margin". Subsequent payments, known
as "variation margin", are made or received by the Series Fund each
day, depending on the daily fluctuations in the value of the
underlying security. Such variation margin is recorded for financial
statement purposes on a daily basis as unrealized gain or loss. When
the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain
(loss) on financial futures contracts.
C2
<PAGE>
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 year ended December 31, 1999,
PSI has been compensated by the following amounts:
Government Income Portfolio ............................. $ 758
Conservative Balanced Portfolio ......................... 485,395
Flexible Managed Portfolio .............................. 468,004
--------
$954,157
Swaps: Certain portfolios of the Series Fund may enter into swap
agreements. A swap agreement is an agreement between two parties to
exchange a series of cash flows at specified intervals. Based on a
notional amount, each party pays an interest rate or the change in
the value of a security. Dividends and interest on the securities in
the swap are included in the value of the exchange. The swaps are
valued daily at current market value and any unrealized gain or loss
is included in net unrealized appreciation or depreciation on
investments. Gain or loss is realized on the termination date of the
swap and is equal to the difference between a Portfolio's basis in
the swap and the proceeds of the closing transaction, including any
fees. During the period that the swap agreement is open, the
Portfolio may be subject to risk from the potential inability of the
counterparty to meet the terms of the agreement.
Securities Transactions and Investment Income: Securities
transactions are recorded on the trade date. Realized gains and
losses on sales of securities are calculated on the identified cost
basis. Dividend income is recorded on the ex-dividend date; interest
income, which is comprised of four elements: stated coupon, original
issue discount, market discount and market premium is recorded on
the accrual basis. Certain portfolios own shares of real estate
investment trusts ("REITs") which report information on the source
of their distributions annually. A portion of distributions received
from REITs during the year is estimated to be a return of capital
and is recorded as a reduction of their costs. These estimates are
adjusted when the actual amounts are known. 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 Portfolio
specific expenses which are attributable directly at a Portfolio or
Class level.
For Portfolio's with multiple classes and shares, net investment
income, other than administration and distribution fees, and
unrealized and realized gains or losses are allocated daily to each
class of shares based upon the relative proportion of net assets of
each class at the beginning of the day.
Custody Fee Credits: The Series Fund has an arrangement with its
custodian bank, whereby uninvested monies earn credits which reduce
the fees charged by the custodian. Such custody fee credits are
presented as a reduction of gross expenses in the accompanying
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.
C3
<PAGE>
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
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 year ended December
31, 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:
UNI G/L
----------- ------------
Equity Portfolio(a) ............... $ (140,882) $ 140,882
Global Portfolio(a)(b) ............ 10,630,256 (10,630,256)
(a) Reclassification of net foreign currency gain (loss).
(b) Reclassification of passive foreign investment companies' gains.
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:
Fund Investment Advisory Fee
---- -----------------------
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
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 Class II shares of each Portfolio compensates PIMS for
distribution-related activities at an annual rate of .25% of the
average daily net assets of the Class II shares.
C4
<PAGE>
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 reimburse each Portfolio (other than
the Global Portfolio), the portion of the investment advisory fee
for that Portfolio equal to the amount that the aggregate annual
ordinary operating expenses (excluding interest, taxes and brokerage
commissions) exceeds 0.75% of the Portfolio's average daily net
assets. No reimbursement was required for the year ended December
31, 1999.
PIC, PIMS and PIFM are 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, 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 year ended December
31, 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 December
31, 1999, the Series Fund incurred fees for the services of PMFS and
as of December 31, 1999 fees were due to PMFS as follows:
Transfer Agent's Transfer Agent
Fees Fees Payable
---------------- --------------
Diversified Bond Portfolio ........... $ 8,100 $ 800
Government Income Portfolio .......... 6,100 600
Conservative Balanced Portfolio ...... 7,700 700
Flexible Managed Portfolio ........... 8,000 800
Stock Index Portfolio ................ 8,200 800
Equity Portfolio ..................... 8,400 800
Global Portfolio ..................... 7,800 800
------- ------
$54,300 $5,300
For the year ended December 31, 1999, PSI earned $332,081 in
brokerage commissions from transactions executed on behalf of the
following Portfolios:
Fund Commission
---- ----------
Conservative Balanced Portfolio .............. $ 2,600
Flexible Managed Portfolio ................... 10,257
Equity Portfolio ............................. 319,224
--------
$332,081
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
C5
<PAGE>
represented $744,612,000 as of December 31, 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 ............................. $ 39,380,000 5.29%
Government Income Portfolio ............................ 12,843,000 1.73
Conservative Balanced Portfolio ........................ 87,560,000 11.76
Flexible Managed Portfolio ............................. 164,437,000 22.08
Stock Index Portfolio .................................. 60,195,000 8.08
Equity Portfolio ....................................... 106,923,000 14.36
Global Portfolio ....................................... 30,645,000 4.12
All other portfolios (currently not available to VCA-24) 242,629,000 32.58
------------ ------
$744,612,000 100.00%
</TABLE>
As of such date, each repurchase agreement in the joint account and
the collateral therefor were as follows:
ABN AMRO Incorporated, 2.75%, in the principal amount of
$210,000,000, repurchase price $210,048,125, due 1/3/00. The value
of the collateral including accrued interest was $214,200,332.
Bear, Stearns & Co., Inc., 2.75%, in the principal amount of
$210,000,000, repurchase price $210,048,125, due 1/3/00. The value
of the collateral including accrued interest was $214,345,594.
Lehman Brothers, Inc., 2.50%, in the principal amount of
$100,000,000, repurchase price $100,020,833, due 1/3/00. The value
of the collateral including accrued interest was $101,984,334.
Morgan (J.P.) Securities, Inc., 4.50%, in the principal amount of
$114,612,000, repurchase price $114,654,980, due 1/3/00. The value
of the collateral including accrued interest was $117,037,615.
Salomon Smith Barney Inc., 2.00%, in the principal amount of
$110,000,000, repurchase price $110,018,333, due 1/3/00. The value
of the collateral including accrued interest was $112,554,452.
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchases and proceeds from sales of
securities (excluding short-term issues) for the year ended December
31, 1999 were as follows:
Cost of Purchases:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX EQUITY GLOBAL
-------------- ------------ -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Government Securities ... $1,032,602,727 $400,681,926 $2,149,354,256 $1,633,799,829 0 0 $ 74,089,245
Non-Government Securities $1,163,102,559 0 $2,569,102,770 $1,933,267,104 $503,214,225 $520,771,256 $644,610,288
</TABLE>
Proceeds from Sales:
<TABLE>
<CAPTION>
DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE STOCK
BOND INCOME BALANCED MANAGED INDEX EQUITY GLOBAL
-------------- ------------ -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Government Securities ... $1,023,069,086 $456,891,636 $2,058,784,264 $1,439,490,453 0 0 $ 74,099,000
Non-Government Securities $ 945,723,708 0 $3,179,565,912 $2,423,290,053 $ 75,111,780 $614,171,048 $623,485,896
</TABLE>
The Global Portfolio entered into 3 swap agreements with Merrill
Lynch International. The Portfolio receives the change in the market
value of shares of Taiwan Semiconductor including dividends and the
Portfolio pays 3 month LIBOR plus 0.75% based on the value of the
shares of Taiwan Semiconductor on the date the contract was entered
into. In addition, the Portfolio will pay a fee at termination of
the swap equal to the number of shares of Taiwan Semiconductor times
the market price on termination date times 0.0075. Details of the
swap agreements are as follows:
OPEN TERMINATION CURRENT CURRENT
DATE DATE SHARES VALUE BASIS APPRECIATION
- ----------- ----------- --------- ----------- ----------- ------------
8/16/99 ... 8/18/00 1,464,601 $ 7,652,912 $ 7,011,838 $ 641,074
11/16/99 .. 8/18/00 979,400 5,172,329 4,796,416 375,913
12/23/99 .. 8/18/00 1,068,669 5,680,268 5,310,003 370,265
----------- ----------- ----------
$18,505,509 $17,118,258 $1,387,252
C6
<PAGE>
The federal income tax basis and unrealized appreciation
(depreciation) of the Series Funds' investments as of December 31,
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 $ 4,539,643 $ 544,588 $ 618,254,006 $ 830,907,342 $ 2,409,423,762
Gross Unrealized Depreciation 48,433,942 15,994,670 240,643,859 422,071,306 99,360,670
Total Net Unrealized ........ (43,894,299) (15,450,082) 377,610,147 408,836,036 2,310,063,092
Tax Basis ................... 1,297,397,697 376,159,957 4,477,171,346 5,222,267,377 2,346,099,763
<CAPTION>
EQUITY GLOBAL
--------------- ---------------
<S> <C> <C>
Gross Unrealized Appreciation $ 1,820,600,926 $ 557,819,864
Gross Unrealized Depreciation 470,574,036 13,711,041
Total Net Unrealized ........ 1,350,026,890 544,108,823
Tax Basis ................... 4,885,331,050 731,553,655
</TABLE>
For federal income tax purposes, the following Portfolios had post
October losses deferred as of December 31, 1999:
POST OCTOBER POST OCTOBER
CURRENCY CAPITAL
LOSSES DEFERRED LOSSES DEFERRED
--------------- ---------------
Conservative Balanced Portfolio ............ -- $ 8,302,364
Flexible Managed Portfolio ................. -- 16,235,978
Global Portfolio ........................... $ 262,338 --
NOTE 7: CAPITAL
The Series Fund offers Class I and Class II shares. Both Class I and
Class II shares of a Portfolio are not subject to any sales charge
or redemption charge and are sold at the net asset value of the
Portfolio. Class I shares are sold only to certain separate accounts
of The Prudential to fund benefits under certain variable life
insurance and variable annuity contracts ("contracts"). Class II
shares are sold only to separate accounts of non-Prudential
insurance companies as investment options under certain contracts.
The accounts invest in shares of the Series Fund through subaccounts
that correspond to the portfolios. The accounts will redeem shares
of the Series Fund to the extent necessary to provide benefits under
the contracts or for such other purposes as may be consistent with
the contracts. As of December 31, 1999, only the Equity Portfolio
has Class II shares outstanding.
Transactions in shares of common stock of the Equity Portfolio for
the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Class I Shares Amount
------- ------ ------
Year ended December 31, 1999:
<S> <C> <C>
Capital stock sold ................................................ 8,671,360 $ 269,536,387
Capital stock issued in reinvestment of dividends and distributions 29,303,403 842,957,463
Capital stock repurchased ......................................... (33,039,026) (1,018,930,728)
----------- ---------------
Net decrease in shares outstanding ................................ 4,935,737 $ 93,563,122
=========== ===============
<CAPTION>
Class II
--------
May 3, 1999(a) through December 31, 1999:
<S> <C> <C>
Capital stock sold ................................................ 14,063 $ 457,113
Capital stock issued in reinvestment of dividends and distributions 1,186 33,511
Capital stock repurchased ......................................... (4,199) (135,030)
----------- ---------------
Net increase in shares outstanding ................................ 11,050 $ 355,594
=========== ===============
</TABLE>
(a) Commencement of offering of Class II shares
C7
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DIVERSIFIED BOND
------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year ... $ 11.06 $ 11.02 $ 11.07 $ 11.31 $ 10.04
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................ 0.67 0.69 0.80 0.76 0.76
Net realized and unrealized gains
(losses) on investments ............ (0.75) 0.08 0.11 (0.27) 1.29
--------- --------- --------- --------- ---------
Total from investment operations . (0.08) 0.77 0.91 0.49 2.05
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income . -- (0.69) (0.83) (0.73) (0.75)
Distributions from net realized gains. (0.03) (0.04) (0.13) -- (0.03)
--------- --------- --------- --------- ---------
Total distributions .............. (0.03) (0.73) (0.96) (0.73) (0.78)
--------- --------- --------- --------- ---------
Net Asset Value, end of year ......... $ 10.95 $ 11.06 $ 11.02 $ 11.07 $ 11.31
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:(B) .......... (0.74)% 7.15% 8.57% 4.40% 20.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in millions) $ 1,253.8 $ 1,122.6 $ 816.7 $ 720.2 $ 655.8
Ratios to average net assets:
Expenses ........................... 0.43% 0.42% 0.43% 0.45% 0.44%
Net investment income .............. 6.25% 6.40% 7.18% 6.89% 7.00%
Portfolio turnover rate .............. 171% 199% 224% 210% 199%
<CAPTION>
GOVERNMENT INCOME
------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year ... $ 11.87 $ 11.52 $ 11.22 $ 11.72 $ 10.46
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................ 0.76 0.67 0.75 0.75 0.74
Net realized and unrealized gains
(losses) on investments ............ (1.08) 0.36 0.30 (0.51) 1.28
------- ------- ------- ------- -------
Total from investment operations . (0.32) 1.03 1.05 0.24 2.02
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income . -- (0.68) (0.75) (0.74) (0.76)
Dividends in excess of net investment
income ............................. -- --(c) -- -- --
------- ------- ------- ------- -------
Total distributions .............. -- (0.68) (0.75) (0.74) (0.76)
------- ------- ------- ------- -------
Net Asset Value, end of year ......... $ 11.55 $ 11.87 $ 11.52 $ 11.22 $ 11.72
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:(B) .......... (2.70)% 9.09% 9.67% 2.22% 19.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in millions) $ 335.5 $ 443.2 $ 429.6 $ 482.0 $ 501.8
Ratios to average net assets:
Expenses ........................... 0.44% 0.43% 0.44% 0.46% 0.45%
Net investment income .............. 5.72% 5.71% 6.40% 6.38% 6.55%
Portfolio turnover rate .............. 106% 109% 88% 95% 195%
</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 year reported and includes
reinvestment of dividends and distributions.
(c) Less than $.005 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
D1
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year .... $ 15.08 $ 14.97 $ 15.52 $ 15.31 $ 14.10
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.62 0.66 0.76 0.66 0.63
Net realized and unrealized gains
(losses) on investments ............. 0.37 1.05 1.26 1.24 1.78
--------- --------- --------- --------- ---------
Total from investment operations .. 0.99 1.71 2.02 1.90 2.41
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .. (0.62) (0.66) (0.76) (0.66) (0.64)
Distributions from net realized gains . (0.06) (0.94) (1.81) (1.03) (0.56)
Distributions in excess of net
realized gains ...................... (0.03) -- -- -- --
--------- --------- --------- --------- ---------
Total distributions ............... (0.71) (1.60) (2.57) (1.69) (1.20)
--------- --------- --------- --------- ---------
Net Asset Value, end of year .......... $ 15.36 $ 15.08 $ 14.97 $ 15.52 $ 15.31
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:(B) ........... 6.69% 11.74% 13.45% 12.63% 17.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in millions) . $ 4,387.1 $ 4,796.0 $ 4,744.2 $ 4,478.8 $ 3,940.8
Ratios to average net assets:
Expenses ............................ 0.57% 0.57% 0.56% 0.59% 0.58%
Net investment income ............... 4.02% 4.19% 4.48% 4.13% 4.19%
Portfolio turnover rate ............... 109% 167% 295% 295% 201%
<CAPTION>
FLEXIBLE MANAGED PORTFOLIO
------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year ... $ 16.56 $ 17.28 $ 17.79 $ 17.86 $ 15.50
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................ 0.58 0.58 0.59 0.57 0.56
Net realized and unrealized gains on
investments ........................ 0.69 1.14 2.52 1.79 3.15
--------- --------- --------- --------- ---------
Total from investment operations . 1.27 1.72 3.11 2.36 3.17
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income . -- (0.59) (0.58) (0.58) (0.56)
Distributions from net realized gains (0.19) (1.85) (3.04) (1.85) (0.79)
--------- --------- --------- --------- ---------
Total distributions .............. (0.19) (2.44) (3.62) (2.43) (1.35)
--------- --------- --------- --------- ---------
Net Asset Value, end of year ......... $ 17.64 $ 16.56 $ 17.28 $ 17.79 $ 17.86
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:(B) .......... 7.78% 10.24% 17.96% 13.64% 24.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in millions) $ 5,125.3 $ 5,410.0 $ 5,490.1 $ 4,896.9 $ 4,261.2
Ratios to average net assets:
Expenses ........................... 0.62% 0.61% 0.62% 0.64% 0.63%
Net investment income .............. 3.20% 3.21% 3.02% 3.07% 3.30%
Portfolio turnover rate .............. 76% 138% 227% 233% 173%
</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.
SEE NOTES TO FINANCIAL STATEMENTS.
D2
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
STOCK INDEX
------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year .. $ 37.74 $ 30.22 $ 23.74 $ 19.96 $ 14.96
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............... 0.44 0.42 0.43 0.40 0.40
Net realized and unrealized gains
(losses) on investments ........... 7.23 8.11 7.34 4.06 5.13
--------- --------- --------- --------- ---------
Total from investment operations 7.67 8.53 7.77 4.46 5.53
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.43) (0.42) (0.42) (0.40) (0.38)
Distributions from net realized gains (0.53) (0.59) (0.87) (0.28) (0.15)
--------- --------- --------- --------- ---------
Total Distributions ............. (0.96) (1.01) (1.29) (0.68) (0.53)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year ........ $ 44.45 $ 37.74 $ 30.22 $ 23.74 $ 19.96
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:(B) ......... 20.54% 28.42% 32.83% 22.57% 37.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in millions) $ 4,655.0 $ 3,548.1 $ 2,448.2 $ 1,581.4 $ 1,031.3
Ratios to average net assets:
Expenses .......................... 0.39% 0.37% 0.37% 0.40% 0.38%
Net investment income ............. 1.09% 1.25% 1.55% 1.95% 2.27%
Portfolio turnover rate ............. 2% 3% 5% 1% 1%
</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.
<TABLE>
<CAPTION>
EQUITY CLASS I EQUITY CLASS II
------------------------------------------------------------------ -----------------
YEAR ENDED
DECEMBER 31, MAY 3, 1999(D)
------------------------------------------------------------------ THROUGH
1999 1998 1997 1996 1995(A) DECEMBER 31, 1999
--------- --------- --------- --------- --------- -----------------
<S> <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 $ 32.79
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.54 0.60 0.69 0.71 0.55 0.28
Net realized and unrealized gains on
investments ......................... 3.02 2.21 5.88 3.88 5.89 (0.60)
--------- --------- --------- --------- --------- ---------
Total from investment operations .. 3.56 2.81 6.57 4.59 6.44 (0.32)
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income .. (0.53) (0.60) (0.70) (0.67) (0.52) (0.34)
Distributions from net realized gains . (3.77) (3.64) (1.76) (2.60) (0.94) (3.21)
--------- --------- --------- --------- --------- ---------
Total distributions ............... (4.30) (4.24) (2.46) (3.27) (1.46) (3.55)
--------- --------- --------- --------- --------- ---------
Net Asset Value, end of period ........ $ 28.90 $ 29.64 $ 31.07 $ 26.96 $ 25.64 $ 28.92
========= ========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:(B) ........... 12.49% 9.34% 24.66% 18.52% 31.29% (0.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions) $ 6,235.0 $ 6,247.0 $ 6,024.0 $ 4,814.0 $ 3,813.8 $ 0.3
Ratios to average net assets:
Expenses ............................ 0.47% 0.47% 0.46% 0.50% 0.48% 0.87%(c)
Net investment income ............... 1.72% 1.81% 2.27% 2.54% 2.28% 1.33%(c)
Portfolio turnover rate ............... 9% 25% 13% 20% 18% 9%
</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.
SEE NOTES TO FINANCIAL STATEMENTS.
D3
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GLOBAL
------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year .. $ 21.16 $ 17.92 $ 17.85 $ 15.53 $ 13.88
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............... 0.06 0.07 0.09 0.11 0.06
Net realized and unrealized gains
(losses) on investments ........... 10.04 4.38 1.11 2.94 2.14
--------- --------- --------- --------- ---------
Total from investment operations 10.10 4.45 1.20 3.05 2.20
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income -- (0.16) (0.13) (0.11) (0.24)
Dividends in excess of net investment
income ............................ (0.10) (0.12) (0.10) -- --
Distributions from net realized gains (0.18) (0.93) (0.90) (0.62) (0.31)
--------- --------- --------- --------- ---------
Total distributions ............. (0.28) (1.21) (1.13) (0.73) (0.55)
--------- --------- --------- --------- ---------
Net Asset Value, end of year ........ $ 30.98 $ 21.16 $ 17.92 $ 17.85 $ 15.53
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:(B) 48.27% 25.08% 6.98% 19.97% 15.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in millions) $ 1,298.3 $ 844.5 $ 638.4 $ 580.6 $ 400.1
Ratios to average net assets:
Expenses .......................... 0.84% 0.86% 0.85% 0.92% 1.06%
Net investment income ............. 0.21% 0.29% 0.47% 0.64% 0.44%
Portfolio turnover rate ............. 76% 73% 70% 41% 59%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized
(d) Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
D4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PRUDENTIAL SERIES FUND, INC.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Diversified Bond Portfolio,
Government Income Portfolio, Conservative Balanced Portfolio, Flexible Managed
Portfolio, Stock Index Portfolio, Equity Portfolio and Global Portfolio (seven
of the seventeen portfolios that costitute The Prudential Series Fund, Inc.: the
"Portfolios") at December 31, 1999, the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and each of their financial highlights for the
four years in the period then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolios' management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above. The financial highlights of each
Portfolio fort he period ended December 31, 1995 were audited by other
independent accountants whose opinion dated February 15, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the America
New York, NY 10036
February 23, 2000
TAX INFORMATION (UNAUDITED)
Although we understand that the vast majority, if not all, of the
shareholders/contract holders of the Series Fund currently maintain a tax
deferred status, we are nevertheless required by the Internal Revenue Code to
advise you within 60 days of the Series Fund's fiscal year end (December 31,
1999) as to the federal tax status of dividends paid by the Series Fund during
such fiscal year. Accordingly, we are advising you that in 1999, the Series Fund
paid dividends as follows:
<TABLE>
<CAPTION>
ORDINARY DIVIDENDS
------------------
SHORT-TERM LONG-TERM TOTAL
INCOME CAPITAL GAINS CAPITAL GAINS DIVIDENDS
------ ------------- ------------- ---------
<S> <C> <C> <C> <C>
Diversified Bond Portfolio $0.029 $0.001 $0.030
Government Income Portfolio --
Conservative Balanced Portfolio $0.623 0.043 0.043 0.709
Flexible Managed Portfolio 0.001 0.100 0.093 0.194
Stock Index Portfolio 0.434 0.069 0.462 0.965
Equity Portfolio 0.530 0.260 3.511 4.301
Global Portfolio 0.100 0.018 0.157 0.275
</TABLE>
E1
<PAGE>
================================================================================
THE PRUDENTIAL MEDLEY PROGRAM
BOARD OF DIRECTORS
JOHN R. STRANGFELD W. SCOTT MCDONALD, JR., PH.D.
Chairman, Vice President,
The Prudential Series Fund, Inc. Kaludis Consulting Group
The Prudential Variable Contract
Accounts 10; 11
SAUL K. FENSTER, PH.D. JOSEPH WEBER, PH.D.
President, Vice President,
New Jersey Institute of Technology Interclass (international corporate
learning)
================================================================================
The toll-free numbers shown below can be used to make transfers and
reallocations, review how your premiums are being allocated and receive current
investment option values in your contract. Unit values for each investment
option are available to all Contract Owners from the toll-free numbers. The
phone lines are open each business day during the hours shown. Please be sure to
have your contract number available when you call.
If you own a VARIABLE LIFE INSURANCE CONTRACT, please call the following
telephone number:
[GRAPHIC OMITTED]
(800)778-2255
8 A.M. - MIDNIGHT EASTERN TIME
If you own a VARIABLE ANNUITY CONTRACT, please call the following telephone
number:
[GRAPHIC OMITTED]
(888)778-2888
8 A.M. - 9 P.M. EASTERN TIME
================================================================================
STANDARD & POOR'S 500 INDEX comprises 500 large, established, publicly traded
stocks. MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX comprises
approximately 620 European companies. SALOMON BROTHERS EXTENDED MARKET INDEX
defines the small capitalization stock universe or remaining 20% of the
available capital of each country and includes the remaining 75% of the BMI
issues. The BMI measures the performance of the entire universe of
institutionally investable securities. MORGAN STANLEY CAPITAL INTERNATIONAL
EUROPE, AUSTRALIA, FAR EAST INDEX is a weighted, unmanaged index of performance
that reflects stock price movements in Europe, Australasia, and the Far East.
S&P/BARRA VALUE INDEX contains companies within the S&P 500 with lower
price-to-book ratios. S&P/BARRA GROWTH INDEX contains companies within the S&P
500 with higher price-to-book ratios. RUSSELL 2000 VALUE INDEX measures the
performance of those Russell 2000 companies with lower price-to-book ratios.
RUSSELL 2000 GROWTH INDEX measures the performance of those Russell 2000
companies with higher price-to-book ratios. MORGAN STANLEY CAPITAL INTERNATIONAL
WORLD FREE INDEX contains those companies in the MCSI WORLD INDEX that reflect
actual buyable opportunities for the non-domestic investor by taking into
account local market restrictions on share ownership by foreigners. These
indexes are calculated in U.S. dollars, without dividends reinvested. MORGAN
STANLEY CAPITAL INTERNATIONAL JAPAN INDEX measures the performance of Japan's
stock market.
<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.
================================================================================
In the past, Contract Owners who held several variable contracts at the same
address received multiple copies of annual and semi-annual reports. In an effort
to lessen waste and reduce your fund's expenses of postage and printing, we will
attempt to mail only one copy of this report for the contracts listed on the
cover, based on our current records for Contract Owners with the same last name
and same address. No action on your part is necessary. Upon request, we will
furnish you with additional reports. The toll-free numbers listed on the inside
back cover of this report should be used to request any additional copies. Proxy
material and tax information will continue to be sent to each account of record.
The Prudential Insurance Company of America ------------
30 Scranton Office Park PRSRT.STD.
Scranton, PA 18507-1789 U.S. POSTAGE
(800) 458-6333 PAID
SUMMIT NJ
Address Service Requested Permit #657
------------
Printed in the U.S.A. MD.RA.006.0100
on recycled paper.
