<PAGE>
THE
PRUDENTIAL
SERIES FUND, INC.
[PHOTO]
SEMIANNUAL REPORT
TO CONTRACT OWNERS
PRUCO LIFE'S PRUVIDER-SM-
PRUCO LIFE OF NEW JERSEY'S PRUVIDER-SM-
JUNE 30, 1997
[Logo] PRUDENTIAL
The Prudential Insurance Company of America
751 Broad Street
Newark, NJ 07102-3777
<PAGE>
[LOGO]
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Please note: This Semiannual Report includes the financial statements of The
Prudential Series Fund, Inc. It does not include the financial statements for
the separate account that corresponds to your product. If you would like
separate account financial statements as of June 30, 1997, please call the
appropriate number shown on the inside back cover of this report.
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This report may be used with the public only when preceded or accompanied by
current prospectuses for The Prudential Series Fund, Inc., the applicable
variable life or variable annuity product and the current Performance Data
Update for the applicable product. The Performance Data Update shows
historical investment performance after the deduction of investment
management fees, investment-related expenses and the product's Mortality and
Expense Risk Charge. For the variable life insurance products, additional
contract charges include the cost of insurance, administrative, sales and any
applicable withdrawal or surrender charges. These charges will reduce the
rates of return shown on the Performance Data Update. For the variable
annuity products, the Performance Data Update provides returns that are net
of all contract charges, including applicable surrender or withdrawal
charges. The prospectuses contain complete information concerning charges and
expenses, including hypothetical performance illustrations that show the
effects of performance on various assumptions, and should be read carefully
before you invest or send money.
Variable life and variable annuity products are offered by Pruco Securities
Corp., a subsidiary of The Prudential Insurance Company of America. The
principal business address of Pruco Securities is 213 Washington Street,
Newark, NJ 07102-2992.
<PAGE>
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TABLE OF CONTENTS
I. LETTER TO CONTRACT OWNERS 2
1. Market Review 4
2. Investment Advisor's Outlook 8
3. Individual Portfolios
Conservative Balanced Portfolio 10
Flexible Managed Portfolio 12
II. THE PRUDENTIAL SERIES FUND, INC.
1. Financial Statements A1
2. Schedule of Investments B1
3. Notes to Financial Statements C1
4. Financial Highlights D1
III. APPENDIX
1. Board of Directors i
<PAGE>
SIX-MONTHS ENDED JUNE 30, 1997
LETTER TO CONTRACT OWNERS
[PHOTO]
E. MICHAEL CAULFIELD
PRESIDENT
DEAR CONTRACT OWNER:
We are pleased to report to you on the investment performance of the two
portfolios of The Prudential Series Fund, Inc., which are available to you in
your PRUvider-SM- variable life insurance contract.
Once again, the news is outstanding. In the first half of this year, stock
prices surged nearly 21%, two times their rise in an average full year. In
fact, the Dow Jones Industrial Average broke through 8000 on July 16, two
weeks after the end of the first half. This certainly was not what most Wall
Street experts had predicted.
Bonds, too, performed favorably in the first half of 1997. Bonds returned
3.1% over the last six months, as measured by the Lehman Brothers Aggregate
Index. Corporate high yield bonds in general were the strongest, returning
5.8% for the period.
What led to such excellent performance? Conditions were idyllic for most
investors in the first half -- economic growth was strong and interest rates
were relatively stable, so corporate profits rose. Unemployment fell to a
23-year low and consumer confidence hit a 28-year high.
HOW DID OUR PORTFOLIOS PERFORM?
You'll be pleased to know The Prudential Series Fund Conservative Balanced
and the Flexible Managed Portfolios delivered returns consistent with the
strategies around which they are designed. Both the Conservative Balanced and
the Flexible Managed Portfolios hold a combination of stocks, bonds and money
market securities.
The Conservative Balanced Portfolio holds less in stocks, which generally
makes it less volatile, and may also reduce returns when stock prices are
rising. The Flexible Managed Portfolio holds more in stocks, which makes it
generally more volatile but raises the possibility of higher returns when
stocks are rising in price.
IT'S LONG-TERM PERFORMANCE THAT COUNTS.
Although in this report we're focusing primarily on performance for the first
half of this year, remember that it's long-term performance that counts.
Review your portfolio's performance so far in 1997, but also be sure to note
its longer-term record as well. You'll note that over the past three, five
and 10 years our portfolios have delivered excellent performance, both on an
absolute basis and in comparison with funds having similar objectives.
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"Conditions were idyllic for most investors in the first half -- economic
growth was strong and interest rates were relatively stable, so corporate
profits rose."
2
<PAGE>
Our goal is to achieve this kind of above-average investment performance over
time. Such consistency is important, because most people buy variable life
and variable annuity products to finance long-term goals. So when you
consider how to allocate either new or existing assets among these
portfolios, please look closely at their performance over five and 10 years
as well.
COULD THE THIRD TIME BE A CHARM?
When the U.S. stock market rose 37% in 1995, we doubted it would be repeated
any time soon. Then stocks advanced 23% in 1996. Again, we suggested that
this kind of performance was unlikely to be duplicated again. And now,
through the first half of 1997, stocks are already up nearly 21%.
It's clear that we -- and, we venture, most other investors -- cannot predict
the stock market. Nevertheless, it's even more important now to repeat what
we wrote six months ago -- that the U.S. stock market now sits at valuations
beyond all historic boundaries.
Now, more than ever, we believe it is worth reminding you that it is
important to understand the objectives, strategies and risks associated with
these portfolios and set realistic expectations going forward.
With this in mind, your Prudential Representative/Pruco Securities Registered
Representative stands ready to discuss these issues and to assist you in any
way he or she can. We believe that your personal financial representative --
one who understands you and your long-term investment needs -- is a valuable
resource given today's often volatile markets.
All of us at Prudential thank you for your business and look forward to
helping you plan for your future financial security.
/s/ E. Michael Caulfield /s/ Mendel Melzer
E. Michael Caulfield Mendel A. Melzer, CFA
President Chairman
July 23, 1997
[PHOTO]
MENDEL A. MELZER, CFA
CHAIRMAN
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IMPORTANT NOTE
The rates of return quoted on the following pages reflect the deduction of
investment management fees and investment-related 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 their original
cost. Changes in contract values depend not only on the investment
performance of the Portfolio but also on the insurance and administrative
charges, applicable sales charges, and the mortality and expense risk charge
applicable under the contract. These contract charges effectively reduce the
dollar amount of any net gains and increase the dollar amount of any net
losses.
Your Prudential Representative/Pruco Securities Registered Representative can
provide you with actual rates of return for your type of variable life
insurance or annuity contract and show you a personalized illustration of how
insurance charges affect the returns you experience.
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3
<PAGE>
1997 MARKET REVIEW
U.S. STOCKS
THE DOW: 6600, 6800, 7000, 7200, 7400, 7600 . . .
After rising 37% in 1995 and 23% in 1996, stock prices rose another 21% in
the first six months of 1997. This stunning performance prompted analysts and
economists alike to reach for superlatives.
The wonder was the economy. The current U.S. economic expansion is now in its
seventh year, the third longest in history. Unemployment is at its lowest
since 1973. Inflation seems like a distant memory. All of this means higher
corporate revenues and stable corporate borrowing costs -- and as a result,
higher corporate profits. It's a nearly idyllic investment environment.
To be sure, the stock market did not rocket straight up in the first half of
the year. Stocks actually fell nearly 10% in the spring, amid short-lived
fears of higher interest rates. Back in March, the Federal Reserve increased
short-term interest rates (by a quarter of a percentage point), for the first
time in two years. The nation's central bankers feared that first-quarter
economic growth would set off a new round of inflation. Stocks recovered in
April amid evidence the growth rate was moderating.
LARGE STOCKS WERE THE LEADERS, AGAIN.
In the first half of the year, the biggest stocks were the best performers.
The five biggest companies in the S&P 500 gained 34% in the first half of the
year, while the top 25 companies gained 28%. Of the largest companies, the
drug stocks seemed to do the best as a group, with Warner Lambert up 67%, Eli
Lilly rising 51%, Bristol-Myers Squibb climbing 49% and Pfizer advancing 45%
during the period.
Small company stocks trailed larger companies, as they have for several years
now, rising 10% in the first half of 1997 as measured by the Russell 2000*.
(These companies are generally defined as those whose outstanding stock is
valued at less than $1 billion.) Still, performance of these stocks has been
improving in recent months. Consumer growth stocks (powered by the
pharmaceutical companies) led the market, followed by financial and consumer
cyclical stocks (auto, retail and housing stocks whose fortunes tend to
mirror the ups and downs of the economy).
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HOW THE MARKETS COMPARED.(1)
[GRAPH]
AVERAGE RETURN OVER
YEAR-TO-DATE 1997 PAST 20 YEARS (ANNUALIZED)
MONEY MARKET 2.5% 7.7%
BONDS 3.1% 9.5%
FOREIGN STOCKS 15.6% 15.1%
U.S. STOCKS 20.6% 15.9%
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THIS CHART COMPARES THE 6-MONTH RETURN AS OF 6/30/97 FOR VARIOUS CATEGORIES
OF INVESTMENTS WITH THE AVERAGE ANNUAL TOTAL RETURN OVER 20 YEARS FOR THE
SAME INVESTMENT. AS YOU CAN SEE, STOCK AND BOND MARKET RETURNS CAN VARY
CONSIDERABLY FROM YEAR TO YEAR. UNLIKE STOCKS, BONDS GENERALLY OFFER A FIXED
RATE OF RETURN AND PRINCIPAL IF HELD TO MATURITY. AN INVESTMENT'S PAST
PERFORMANCE SHOULD NEVER BE USED TO PREDICT FUTURE RESULTS. THERE ARE
DIFFERENT RISKS ASSOCIATED WITH EACH INVESTMENT SECTOR, WHICH SHOULD BE
CAREFULLY CONSIDERED BEFORE INVESTING.
(1) SOURCE: PRUDENTIAL. FOR PURPOSES OF COMPARISON ONLY. U.S. MONEY MARKETS AS
MEASURED BY LIPPER MONEY MARKET AVERAGE. BONDS AS MEASURED BY THE LEHMAN
BROTHERS AGGREGATE INDEX. FOREIGN STOCKS AS MEASURED BY THE MORGAN STANLEY
CAPITAL INTERNATIONAL WORLD INDEX. U.S. STOCKS AS MEASURED BY THE S&P 500
INDEX.
4
<PAGE>
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U.S. STOCKS: CONSUMER GROWTH TOPS.
Y-T-D
6/30/97
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Consumer Growth 24.5%
Finance 23.6%
Consumer Cyclical 21.1%
Technology 21.0%
Industrials 19.4%
Energy 18.6%
Utilities 7.8%
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SOURCE: PRUDENTIAL.
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LARGE STOCKS OUTPERFORMED SMALL STOCKS.
Y-T-D 20-Year
6/30/97 Average
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S&P 500* 20.6% 15.9%
NASDAQ* 11.7% 14.3%
Russell 2000* 10.2% 15.7%
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* THE STANDARD & POOR'S 500, NASDAQ, AND RUSSELL 2000 ARE UNMANAGED INDICES THAT
ARE CONSIDERED TO BE GENERALLY REPRESENTATIVE OF U.S. STOCK MARKETS. INVESTORS
CANNOT INVEST DIRECTLY IN INDICES OR MARKET AVERAGES. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
CONSUMER GROWTH stocks rose almost 25% during the first half of 1997, powered
primarily by drug companies, beverages and household products. As stock
prices rose higher and higher, investors seemed to favor the very largest
companies that produce the most steadily predictable earnings and therefore
stocks that can be traded most easily. Widely owned Coca-Cola rose 30%.
Another household name, Gillette, rose 22%. Drug companies also did well, as
previously mentioned.
FINANCIAL stocks climbed nearly 24% for the period. Mergers and acquisitions
among financial companies continued to dominate (such as Morgan Stanley and
Dean Witter), helping to fuel interest in this area. A feeling that the
Federal Reserve would not raise short-term interest rates any further helped
power bank stocks higher.
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THE DOW IN THE PAST TWELVE MONTHS.
[GRAPH]
The Dow marched from 5500 to 7000 in 8 months.
In March and April, fears of higher interest rates shook the market.
The Dow rose 20% in 11 weeks, closing at 7688.
Jul 5473.06
5679.83
5681.31x
5689.45x
5722.74
Aug 5616.21
5659.86
5838.52
5888.46
Sep 5872.92
5992.86
5969.38
6094.23
Oct 6007.02
6021.93
6219.82
6348.03
6471.76
Nov 6521.7
6381.94
6304.87
6484.4
Dec 6560.91
6544.09
6703.79
6833.1
6696.48
Jan 6813.09
6855.8
6988.96
6931.62
Feb 6877.74
7000.89
6935.46
6804.79
Mar 6740.59
6526.07
6391.69
6703.55
Apr 6738.87
7071.2
7169.53
7194.67
7345.91
May 7331.04
7435.78
7782.04
7796.51
Jun 7687.72
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WEEKLY CLOSE OF THE DOWN JONES INDUSTRIAL AVERAGE FOR THE PAST TWELVE MONTHS.
CONSUMER CYCLICAL stocks ranked third, rising 21% during the period, as the
U.S. economy grew at 4.9% in the first quarter, and unemployment was at its
lowest since 1973. Retailers led, powered by major gainers Nordstrom, up 39%;
Home Depot, advancing 38%; and Dayton Hudson, climbing 37%.
5
<PAGE>
1997 MARKET REVIEW CONTINUED
U.S. BONDS
INTEREST RATES: SOMEWHAT STABLE.
Long-term interest rates rose, then fell, in the first half of the year,
ending slightly higher at midyear. The Federal Reserve raised short-term
interest rates for the first time in two years, lifting the overnight bank
lending rate by a quarter of a percentage point in March to 5.5% as a
precaution against too-strong economic growth. In response, long-term
interest rates at first rose. Rates later eased as inflation worries
subsided, along with concerns of further action by the Federal Reserve.
Bonds returned 3.1% over the first six months of 1997 as measured by the
Lehman Brothers Aggregate Index. The yield on the bellwether 30-year U.S.
Treasury bond rose to 6.78% on June 30, 1997, from 6.64% on December 31,
1996. Short-term rates, as measured by the three-month U.S. Treasury bill,
actually fell slightly, to 5.17% on June 30, 1997.
Corporate high yield bonds in general were the strongest, returning 5.8% for
the period. High yield corporate bonds fared well on solid economic growth,
rising corporate profits, minimal defaults and powerful demand as a
broadening base of institutional investors seeking higher yields became
interested in this sector. A large number of new issues were sold in the
first half -- $55 billion -- only $8 billion less than in all of last year.
Better-rated high yield securities, as a group, outperformed those with
poorer credit ratings.
Solid economic growth, stable inflation and steady governments also helped
emerging markets bonds to a strong first half. Argentina led all of Latin
America, rising 11% as financial stability in the region improved generally.
Brazil, Mexico and Venezuela followed, as reported by Morgan Stanley.
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[GRAPH]
30-YEAR U.S. TREASURY YIELDS.
Yields bottomed at 6.35% on Nov. 29.
Inflation fears drove yields up to 7.17% on April 14.
Slower economic growth pushed yields down to 6.78% on June 30.
Jul 6.97
Aug 7.12
Sep 6.92
Oct 6.64
Nov 6.35
Dec 6.64
Jan 6.79
Feb 6.8
Mar 7.1
Apr 6.96
May 6.91
Jun 6.78
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MONTHLY CLOSING YIELDS FOR THE PAST TWELVE MONTHS. SOURCE: LEHMAN BROTHERS,
AS OF 6/30/97.
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HIGH YIELD BONDS PERFORMED BEST.
High Yield Bonds 5.8%
Mortgage Bonds 3.9%
AGGREGATE INDEX 3.1%
Corporate Bonds 3.1%
Government Bonds 2.6%
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SOURCE: LEHMAN BROTHERS, AS OF 6/30/97.
6
<PAGE>
FOREIGN STOCKS
EUROPE STRONG; JAPAN AND PACIFIC REGION REBOUND.
Although stock markets in Europe and the Pacific couldn't match the torrid
performance of the U.S. market in the first half of 1997, European stocks
were strong and Pacific stock markets -- especially Japan, which represents
two-thirds of the region -- came alive in the second quarter.
In the Pacific, returns for the full first six months of the year were
comparatively subdued: Pacific stocks rose 7% and Japanese stocks climbed 9%.
But these returns masked a 24% gain by Japanese stocks for U.S. investors in
the second quarter, because the yen strengthened significantly against the
U.S. dollar.
LET'S DO EUROPE.
Europe was the best region outside the United States in the first six months
(as measured in dollars), as stocks of many more-efficient export-oriented
companies led markets higher. European stocks in general have benefited from
the movement toward monetary unity in 1999, which has forced governments to
economize, reducing interest rates. Export-oriented companies fared best,
rising in the second quarter.
JAPAN RISES.
A strengthening yen powered Japanese stocks to their highest levels since
December, igniting gains throughout the Pacific region. The U.S. dollar lost
12% against the yen in just five weeks in May and June. This helped Japanese
stocks rise 24% for U.S. investors in the second quarter. But because
Japanese stocks had lost ground in the first quarter of 1997, they were ahead
only 9% in U.S. dollars for the first half of the year.
Hong Kong stocks also performed well, as investors overcame their fear of
turning over the British colony to China after more than 150 years.
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U.S. TOPS FOREIGN MARKETS.
Y-T-D
6/30/97
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MSCI World Index 15.6%
MSCI Europe Index 14.5%
MSCI EAFE Index 11.4%
MSCI Japan Index 9.2%
MSCI Pacific Index 7.3%
S&P 500 INDEX 20.6%
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SOURCE: MORGAN STANLEY CAPITAL INTERNATIONAL.
THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX IS A WEIGHTED,
UNMANAGED INDEX OF PERFORMANCE OF 1,472 SECURITIES LISTED ON THE STOCK
EXCHANGES OF THE U.S., EUROPE, CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR
EAST. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX.
MORGAN STANLEY COUNTRY INDICES [EUROPE, ASIA, FAR EAST (EAFE), PACIFIC AND
JAPAN] ARE UNMANAGED INDICES THAT INCLUDE THOSE STOCKS MAKING UP THE LARGEST
TWO-THIRDS OF EACH COUNTRY'S TOTAL STOCK MARKET CAPITALIZATION. THIS CHART IS
FOR ILLUSTRATIVE PURPOSES ONLY AND IS NOT INDICATIVE OF THE PAST, PRESENT OR
FUTURE PERFORMANCE OF ANY SPECIFIC INVESTMENT. INVESTORS CANNOT INVEST DIRECTLY
IN STOCK INDICES.
THE STANDARD & POOR'S 500 IS A WEIGHTED, UNMANAGED INDEX COMPRISED OF 500
STOCKS, WHICH PROVIDES A BROAD INDICATOR OF STOCK PRICE MOVEMENTS.
7
<PAGE>
1997 INVESTMENT ADVISOR'S OUTLOOK
THE ECONOMY.
Our economists at Prudential suspect that growth will remain relatively
subdued for the rest of the year. Economic growth slowed sharply in the
second quarter.
They also expect inflation will remain benign, below 3%. As a result, the
Federal Reserve will likely refrain from raising short-term interest rates
any further this year, and the central bankers may ultimately lower rates by
early next year, our economists predict.
U.S. STOCKS: WHAT'S AFTER 8000?
Now that the Dow Jones Industrial Average has hurdled 8000, with some
analysts now predicting a Dow of 10,000, it's only natural to wonder how long
all this good news can continue. After all, stock prices have doubled in the
last two and a half years.
At these high price levels, stock selection is even more crucial. So, too, is
understanding the objective, strategy and risks of the portfolio in which
your contract values are invested. Some stocks now sell at very high prices
- --particularly those of large, well-known companies. But other stocks remain
attractive. Some of our managers like industrial companies, real estate
investment trusts and securities brokerages, because they believe they have
room to appreciate. Others like insurance, paper and retailing, thinking they
are undervalued. Our growth stock managers who have done very well with the
pharmaceuticals, also think that technology is due for an upswing after
hitting what seemed like a bottom in April.
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ECONOMIC OUTLOOK.
Est.
1997
--------
GDP 2.7%
Inflation 2.2%
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SOURCE: PRUDENTIAL ECONOMICS.
8
<PAGE>
BONDS: WE'RE SEARCHING FOR YIELD.
We suspect that prices in the bond market will remain relatively stable
through the rest of the year, depending on the relative weakness or strength
that investors see in the economy.
We are focusing now on finding bonds that provide more yield than U.S.
Treasurys while offering comparatively little additional risk.
We are particularly interested in crossover bonds -- those with split ratings
of investment grade (BBB) by one rating agency and just below investment
grade (BB) by another. Frequently, we can buy these bonds at more attractive
prices than bonds rated below investment grade (high yield bonds), because of
the uncertainty over their credit strength.
We are also interested in emerging markets. Relative stability in
governments, economic growth and low inflation made emerging markets bonds
the best-performing bonds in the world in the first half of the year. We've
added Russian, South African, Panamanian and Polish bonds, among others, to
our portfolios.
FOREIGN STOCKS: LOOK FOR THE JAPANESE SURPRISE.
The Japanese stock market may be a pleasant surprise this year. We've
purchased stocks of domestically oriented Japanese companies that sell their
products and services within the country; they are more attractively priced
than export-oriented multinational companies.
In Europe, we see the opposite. We are invested in multinational stocks,
particularly those that are restructuring to increase efficiency. We believe
that the movement toward a common European currency will continue to
constrain economic growth rates within Europe, so we are most interested in
companies listed on European stock exchanges but that derive most of their
revenues from outside Europe.
In Hong Kong, we suspect that the new Chinese control will limit the
escalation of real estate prices. Since property-related stocks are about a
third of the market index, prices in general will have to struggle to move
higher.
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A REALITY CHECK.
Stock prices in general have nearly doubled in the last two and a half years.
We're quite pleased with the unusually high returns that stocks have provided
for our Contract Owners over the past few years, and we are certain that you
are, too. Those types of returns bring you closer to your goals of financial
security faster than you might have expected.
Since 1926, the U.S. stock market's average return has been 10.7%, as
measured by the S&P 500. Yet, in recent years, returns have been much higher,
as the chart below shows.
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RETURNS OF THE U.S. STOCK MARKET.
Average
Annual
Return
-------
LAST 70 YEARS
1926-1996 10.7%
LAST TWO YEARS
1995 37.4%
1996 23.0%
LAST SIX MONTHS
1997 20.6%
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SOURCE: PRUDENTIAL.
As much as we would like this tremendous performance to continue year after
year, we know it cannot. It's simply the law of averages.
9
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO
PERFORMANCE SUMMARY.
Your Portfolio produced a solid return of 7.80% for the first half of 1997,
between the 20.6% return of the S&P 500 and the 3.09% return of the Lehman
Aggregate Index. Your Portfolio -- which invests in a conservative mix of
stocks, bonds and money market securities -- returned less than the average
Balanced Portfolio tracked by Lipper Analytical Services. Your Portfolio's
conservative mandate requires a smaller proportion of stocks in its asset
allocation, and since the U.S. stock market rose so strongly, your Portfolio,
with fewer assets in stocks, trailed.
Returns were enhanced by a significantly larger proportion of
intermediate-term bonds than usual. Moreover, in a period when the stock
market made two significant changes of direction, we anticipated both with
modest asset allocation adjustments that contributed to performance.
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risks of currency fluctuation and the impact of social,
political and economic change.
<TABLE>
<CAPTION>
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AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1997
Six One Three Five Ten
Months Year Years Years Years
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Conservative Balanced Portfolio(1) 7.80% 15.58% 13.02% 10.89% 9.78%
- -------------------------------------------------------------------------------------------
Lipper (VIP) Balanced Avg.(2) 10.19% 18.94% 15.67% 12.18% 10.47%
- -------------------------------------------------------------------------------------------
S&P 500(3) 20.60% 34.68% 28.83% 19.76% 14.63%
- -------------------------------------------------------------------------------------------
Lehman Aggregate Index(4) 3.09% 8.15% 8.53% 7.12% 8.82%
- -------------------------------------------------------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO INCEPTION DATE: 5/13/83.
- -------------------------------------------------------------------------------------------
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</TABLE>
$10,000 INVESTED OVER TEN YEARS
[GRAPH]
<TABLE>
<CAPTION>
$25,418 Conservative $27,098 Lipper (VIP) $23,284 Lehman
Balanced Portfolio(1) Balanced Avg.(2) Aggregate Index(4) $39,172 S&P 500(3)
<S> <C> <C> <C> <C>
87 10,000 10,000 10,000 10,000
9,297.91 9,227.35 10,292.7 8,258.57
88 10,050.8 10,239.6 10,805.3 9,307.13
10,245.1 10,501.7 11,104.3 9,626.4
89 11,122.3 11,658.6 12,125.4 11,216.8
11,984.8 12,406.7 12,717.8 12,671.4
90 12,388 12,645.1 13,077.6 13,061.5
12,616.5 12,647.5 13,857.3 12,277.4
91 13,646.6 13,523.6 14,476.9 14,024.3
15,023.6 15,054.9 16,074.9 16,009.8
92 15,157.5 15,167.8 16,509.7 15,902.2
16,068.1 16,248.8 17,264.7 17,227.9
93 17,325.3 17,093.7 18,455.1 18,065.9
18,027.4 18,022.3 18,947.9 18,960.4
94 17,607.4 17,350 18,215 18,318.9
17,853.3 17,718.8 18,395.3 19,209.5
95 19,609.6 20,130.1 20,500.5 23,087.1
20,936.9 21,847.7 21,793.7 26,419.5
96 21,992.6 22,880.2 21,528.9 29,085
23,580.4 24,632.2 22,584.9 32,481.5
97 25,418.4 27,097.8 23,283.5 39,171.8
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</TABLE>
(1) PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PORTFOLIO
PERFORMANCE IS NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(2) THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) BALANCED AVERAGE IS CALCULATED
BY LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT RETURN OF
CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(3) THE S&P 500 IS A CAPITAL-WEIGHTED INDEX, REPRESENTING THE AGGREGATE MARKET
VALUE OF THE COMMON EQUITY OF 500 STOCKS PRIMARILY TRADED ON THE NEW YORK
STOCK EXCHANGE. THE S&P 500 IS AN UNMANAGED INDEX AND INCLUDES THE
REINVESTMENT OF ALL DIVIDENDS BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE S&P 500 MAY DIFFER
SUBSTANTIALLY FROM THE SECURITIES IN THE PORTFOLIO. THE S&P 500 IS NOT THE
ONLY INDEX THAT MAY BE USED TO CHARACTERIZE PERFORMANCE OF THIS PORTFOLIO,
AND OTHER INDICES MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
(4) THE LEHMAN AGGREGATE INDEX (LAI) IS COMPRISED OF OVER 5,000 GOVERNMENT AND
CORPORATE BONDS. THE LAI IS AN UNMANAGED INDEX AND INCLUDES THE
REINVESTMENT OF ALL INTEREST BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE LAI MAY DIFFER SUBSTANTIALLY
FROM THE SECURITIES IN THE PORTFOLIO. THE LAI IS NOT THE ONLY INDEX THAT
MAY BE USED TO CHARACTERIZE PERFORMANCE OF INCOME FUNDS, AND OTHER INDICES
MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CHART COMPARING RELATIVE RISKS OF INVESTMENT TYPES]
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Favorable total return consistent with a more conservatively managed
diversified portfolio.
TYPES OF INVESTMENTS
Money market instruments, bonds and common stocks of both established and
smaller companies.
INVESTMENT STYLE
The Portfolio management team holds a baseline allocation of 35% stocks, 35%
bonds and 30% money market instruments.
PERFORMANCE REVIEW.
GOOD ALLOCATION MOVES, BETTER BOND AND STOCK SELECTION. The bond portion of
the Portfolio contributed significantly to overall return. We began the year
with 53% of assets invested in bonds, higher than our usual 35%. We
emphasized intermediate maturity corporate obligations, which had higher
yields than U.S. Treasurys with little additional risk in a period of
exceptionally high corporate earnings.
We began the period near our normal allocation of 35% of assets in stocks,
but we modestly reduced that proportion before the market fell at the end of
the first quarter. As the market neared its bottom, we bought stocks,
returning our allocation to normal. We took gains in our stock portion of the
Portfolio throughout the second quarter.
10
<PAGE>
STRATEGY SESSION.
Our asset allocation changes correctly anticipated market movements over the
last six months. We finished the period once again reducing our allocations
of stocks to about 33%. We believed that the stock market was about 5-10%
overvalued as of June 30. The cost of buying a dollar of expected company
earnings is near historic highs, which is not surprising considering that
estimates of earnings growth are higher than at any point since the early
1980s. If these estimates prove overly optimistic, though, the market may
pull back. If prices rise much from current levels, we will cut our stock
allocation further; we will increase the proportion of stocks again only if
interest rates decline or prospective earnings rise.
The stock market run in this half was led by consumer growth stocks,
high-priced companies with optimistic earnings projections, as investors
counted on continued earnings growth in that sector. Our stock portion, on
the other hand, emphasized value stocks, which are less expensive and thereby
better protected should their stock prices decline. These did not perform as
well as growth stocks in this period. Investors tended to favor large
companies during the first half of 1997, while we emphasized the mid-sized
stocks that we believe currently offer much better value.
With corporate earnings generally looking good and economic growth continuing
through the half year, we took advantage of the higher yields of corporate
bonds over U.S. Treasurys. Should the environment change, we will adjust this
strategy.
At the end of the period, we added a fourth portfolio manager, Patricia
Bannan. Her growth investment style favors large company stocks. This change
is intended to reduce the variability of returns when the stock market swings
between investment styles.
OUTLOOK
PORTFOLIO MANAGER
MARK STUMPP
VALUE AND GROWTH.
"There are two basic stock investment styles, value and growth. Value
investors look for stocks that are inexpensive in relation to current
earnings, whereas growth investors are willing to pay more for a company
whose potential for long-term earnings is thought to be exceptional. Research
has shown that each strategy enjoys varying periods where it will outperform
the other for periods of time that may last a few years. While it may seem
tempting for a portfolio manager to switch between investment styles,
individual portfolio managers do best when they stick to one preferred
investment discipline.
"Economists consider diversification to be the only free lunch available to
investors -- that is, a benefit without cost or risk. By splitting your
Portfolio between managers with different investment styles, we increase the
likelihood of consistent returns. Whichever style has the advantage at any
given time will be represented in your Portfolio. Our second manager adds
diversification. Whereas Warren Spitz prefers mid-sized companies, Patricia
Bannan prefers large company stocks. This added diversification may also
improve the consistency of returns."
PORTFOLIO MANAGERS
[PHOTO]
MARK STUMPP
[PHOTO] [PHOTO]
WARREN E. SPITZ PATRICIA A. BANNAN
[PHOTO]
TONY RODRIGUEZ
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
6/30/97 12/31/96
------- --------
Bonds 60% 53%
Stocks 33% 37%
Money Market 7% 10%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOP SECTORS - STOCKS
6/30/97
-------
Consumer Growth 10.6%
Industrial 6.7%
Technology 4.9%
Finance 4.7%
Energy 2.8%
Consumer Cyclical 2.7%
Utility 0.5%
TOP SECTORS - BONDS
6/30/97
-------
Industrial 25.7%
Foreign (US$) 13.2%
Financial 13.0%
Other 5.0%
U.S. Treasurys 3.1%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
11
<PAGE>
FLEXIBLE MANAGED PORTFOLIO
PERFORMANCE SUMMARY.
Your Portfolio returned 10.13% over the past six months, between the 20.6%
return of the S&P 500 and the 3.09% return of the Lehman Aggregate Index.
Such a return is well above that for asset allocation portfolios that invest
in stocks, bonds and money market instruments. In fact, such a return would
have been good even for a portfolio composed solely of stocks.
Your Portfolio performed in line with the average Flexible Portfolio tracked
by Lipper Analytical Services, which returned 10.35%. In a period when the
stock market changed direction twice, our ability to switch assets among
stocks, bonds and money market instruments proved helpful.
The Portfolio may invest in foreign securities. Foreign investments are
subject to the risks of currency fluctuation, and the impact of social,
political and economic change.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1997
Six One Three Five Ten
Months Year Years Years Years
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Flexible Managed Portfolio(1) 10.13% 19.07% 16.74% 13.85% 11.09%
- ----------------------------------------------------------------------------------------------
Lipper (VIP) Flexible Avg.(2) 10.35% 19.40% 16.98% 13.07% 11.10%
- ----------------------------------------------------------------------------------------------
S&P 500(3) 20.60% 34.68% 28.83% 19.76% 14.63%
- ----------------------------------------------------------------------------------------------
Lehman Aggregate Index(4) 3.09% 8.15% 8.53% 7.12% 8.82%
- ----------------------------------------------------------------------------------------------
FLEXIBLE MANAGED PORTFOLIO INCEPTION DATE: 5/13/83.
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
$10,000 INVESTED OVER TEN YEARS
[GRAPH]
<TABLE>
<CAPTION>
$28,634 Flexible $28,911 Lipper (VIP) $23,284 Lehman
Managed Portfolio(1) Flexible Avg.(2) Aggregate Index(4) $39,172 S&P 500(3)
<S> <C> <C> <C> <C>
87 10,000 10,000 10,000 10,000
8,714.83 9,178.15 10,292.7 8,258.57
88 9,659.78 9,951.25 10,805.3 9,307.13
9,832.41 10,168.6 11,104.3 9,626.4
89 11,035.7 11,262.6 12,125.4 11,216.8
11,972.6 12,206.4 12,717.8 12,671.4
90 12,209.4 12,547.1 13,077.6 13,061.5
12,201.5 12,384.2 13,857.3 12,277.4
91 13,263.3 13,651.4 14,476.9 14,024.3
15,304.8 15,481.8 16,074.9 16,009.8
92 14,973.6 15,431.7 16,509.7 15,902.2
16,469.2 16,583.5 17,264.7 17,227.9
93 17,937.3 17,705.5 18,455.1 18,065.9
19,034.9 18,688.3 18,947.9 18,960.4
94 17,997.1 17,890.8 18,215 18,318.9
18,432.6 18,350.3 18,395.3 19,209.5
95 20,674.1 20,791 20,500.5 23,087.1
22,880.7 22,829.6 21,793.7 26,419.5
96 24,049.2 24,116.3 21,528.9 29,085
26,000.7 26,204.8 22,584.9 32,481.5
97 28,634.3 28,911.5 23,283.5 39,171.8
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. PORTFOLIO
PERFORMANCE IS NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(2) THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) FLEXIBLE AVERAGE IS CALCULATED
BY LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT RETURN OF
CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THESE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
(3) THE S&P 500 IS A CAPITAL-WEIGHTED INDEX REPRESENTING THE AGGREGATE MARKET
VALUE OF THE COMMON EQUITY OF 500 STOCKS PRIMARILY TRADED ON THE NEW YORK
STOCK EXCHANGE. THE S&P 500 IS AN UNMANAGED INDEX AND INCLUDES THE
REINVESTMENT OF ALL DIVIDENDS BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE S&P 500 MAY DIFFER
SUBSTANTIALLY FROM THE SECURITIES IN THE PORTFOLIO. THE S&P 500 IS NOT THE
ONLY INDEX THAT MAY BE USED TO CHARACTERIZE PERFORMANCE OF THIS PORTFOLIO,
AND OTHER INDICES MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
(4) THE LEHMAN AGGREGATE INDEX (LAI) IS COMPRISED OF OVER 5,000 GOVERNMENT AND
CORPORATE BONDS. THE LAI IS AN UNMANAGED INDEX AND INCLUDES THE
REINVESTMENT OF ALL INTEREST BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE SECURITIES THAT COMPRISE THE LAI MAY DIFFER SUBSTANTIALLY
FROM THE SECURITIES IN THE PORTFOLIO. THE LAI IS NOT THE ONLY INDEX THAT
MAY BE USED TO CHARACTERIZE PERFORMANCE OF INCOME FUNDS, AND OTHER INDICES
MAY PORTRAY DIFFERENT COMPARATIVE PERFORMANCE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CHART COMPARING RELATIVE RISKS OF INVESTMENT TYPES]
- --------------------------------------------------------------------------------
INVESTMENT GOAL
Favorable 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, 35%
bonds and 5% money market instruments.
PERFORMANCE REVIEW.
GOOD ALLOCATION MOVES, BETTER STOCK AND BOND SELECTION. We modestly reduced
our stock allocation before the market fell at the end of the first quarter,
and as the market neared its bottom we bought back stocks, returning our
allocation to close to its normal 60%.
Our choice of individual stocks and bonds contributed significantly to our
overall Portfolio return. We emphasized large growth stocks, which tended to
perform better than the market overall.
We also emphasized corporate bonds, which had higher yields than U.S.
Treasury bonds with little additional risk in a period of exceptionally high
corporate earnings.
12
<PAGE>
STRATEGY SESSION.
Our asset allocation changes correctly anticipated market movements over the
last six months. We finished the period once again reducing our allocations
of stocks to about 57%. We believed that the stock market was about 5-10%
overvalued as of June 30. The cost of buying a dollar of expected company
earnings is near historic highs, which is not surprising considering that
estimates of earnings growth are higher than at any point since the early
1980s. If these estimates prove overly optimistic, though, the market may
pull back. If prices rise much from current levels, we will cut our stock
allocation further; we will increase the proportion of stocks again only if
interest rates decline or prospective earnings rise.
The stock market run in this half was led by consumer growth stocks,
high-priced companies with optimistic earnings projections, as investors
counted on continued earnings growth in that sector. Our stock portion
emphasized growth stocks and large company stocks. This focus paid off well
this period, as investors also tended to favor large companies during the
first half of 1997.
With corporate earnings generally looking good and economic growth continuing
through the half year, we took advantage of the higher yields of corporate
bonds over U.S. Treasurys. Should the environment change, we will adjust this
strategy.
At the end of the period, we added a fourth portfolio manager, Warren Spitz.
His value investment style favors mid-sized company stocks. This change is
intended to reduce the variability of your returns when the stock market
swings between investment styles.
OUTLOOK
PORTFOLIO MANAGER
MARK STUMPP
VALUE AND GROWTH.
"There are two basic stock investment styles, value and growth. Value
investors look for stocks that are inexpensive in relation to current
earnings, whereas growth investors are willing to pay more for a company
whose potential for long-term earnings is thought to be exceptional. Research
has shown that each strategy enjoys varying periods where it will outperform
the other for periods of time that may last a few years. While it may seem
tempting for a portfolio manager to switch between investment styles,
individual portfolio managers do best when they stick to one preferred
investment discipline.
"Economists consider diversification to be the only free lunch available to
investors -- that is, a benefit without cost or risk. By splitting your
Portfolio between managers with different investment styles, we increase the
likelihood of consistent returns. Whichever style has the advantage at any
given time will be represented in your Portfolio. Our second manager adds
diversification. Whereas Patricia Bannan prefers large-caps, Warren Spitz
prefers mid-sized companies. This added diversification may also improve the
consistency of returns."
PORTFOLIO MANAGERS
[PHOTO]
MARK STUMPP
[PHOTO] [PHOTO]
PATRICIA A. BANNAN WARREN E. SPITZ
[PHOTO]
TONY RODRIGUEZ
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
6/30/97 12/31/96
------- --------
Stocks 57% 62%
Bonds 37% 34%
Money Market 6% 4%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOP SECTORS - STOCKS
6/30/97
-------
Consumer Growth 15.2%
Industrial 13.5%
Technology 8.6%
Finance 7.1%
Energy 6.0%
Consumer Cyclical 5.9%
Utility 0.8%
TOP SECTORS - BONDS
6/30/97
-------
Foreign (US$) 14.2%
Industrial 13.8%
Financial 6.2%
Utility 1.6%
Other 1.2%
- --------------------------------------------------------------------------------
SOURCE: PRUDENTIAL. HOLDINGS ARE SUBJECT TO CHANGE.
13
<PAGE>
[INTENTIONALLY LEFT BLANK]
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$4,505,243,603).......................... $4,658,500,606
Receivable for investments sold............ 84,334,561
Interest and dividends receivable.......... 60,688,590
Receivable for investments sold short (Note
2)....................................... 14,574,078
Due from broker -- variation margin........ 2,594,875
--------------
Total Assets............................. 4,820,692,710
--------------
LIABILITIES
Payable for investments purchased.......... 91,060,104
Investments sold short, at value (proceeds
$14,574,078 including accrued interest)
(Note 2)................................. 14,554,648
Payable to investment adviser.............. 6,259,161
Accrued expenses and other liabilities..... 1,021,050
Bank overdraft............................. 455,644
Payable for capital stock repurchased...... 51,335
--------------
Total Liabilities........................ 113,401,942
--------------
NET ASSETS................................... $4,707,290,768
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,869,657
Paid-in capital, in excess of par........ 4,066,004,126
--------------
4,068,873,783
Undistributed net investment income........ 53,738,618
Accumulated net realized gains on
investments.............................. 441,588,232
Net unrealized appreciation on
investments.............................. 143,090,135
--------------
Net assets, June 30, 1997.................. $4,707,290,768
--------------
--------------
Net asset value and redemption price per
share, 286,965,697 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 16.40
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1997
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 105,301,477
Dividends (net of $128,721 foreign
withholding tax)......................... 10,818,797
---------------
116,120,274
---------------
EXPENSES
Investment advisory fee.................... 12,320,204
Shareholders' reports...................... 363,000
Custodian expense.......................... 127,000
Accounting fees............................ 57,000
Audit fees................................. 40,000
Legal fees................................. 2,000
Directors' fees............................ 1,000
Miscellaneous expenses..................... 392
---------------
Total expenses........................... 12,910,596
Less: custodian fee credit................. (67,226)
---------------
Net expenses............................... 12,843,370
---------------
NET INVESTMENT INCOME........................ 103,276,904
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments.............................. 437,081,265
Futures.................................. 8,167,821
---------------
445,249,086
---------------
Net change in unrealized appreciation on:
Investments.............................. (196,672,499)
Futures.................................. (10,370,656)
Short sales.............................. (1,120,130)
---------------
(208,163,285)
---------------
NET GAIN ON INVESTMENTS...................... 237,085,801
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 340,362,705
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 103,276,904 $ 173,283,574
Net realized gain on investments....................................................... 445,249,086 270,107,246
Net change in unrealized appreciation (depreciation) on investments.................... (208,163,285) 61,403,321
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 340,362,705 504,794,141
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (49,538,286) (174,034,704)
Distributions from net realized capital gains.......................................... (33,869,018) (273,593,225)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (83,407,304) (447,627,929)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [2,746,170 and 10,561,256 shares, respectively]..................... 43,446,276 167,668,924
Capital stock issued in reinvestment of dividends and distributions [5,385,619 and
29,086,855 shares, respectively]...................................................... 83,407,304 447,627,929
Capital stock repurchased [(9,803,795) and (8,429,995) shares, respectively]........... (155,326,746) (134,428,797)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. (28,473,166) 480,868,056
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 228,482,235 538,034,268
NET ASSETS:
Beginning of period.................................................................... 4,478,808,533 3,940,774,265
------------------ -------------------
End of period.......................................................................... $ 4,707,290,768 $ 4,478,808,533
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A1
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
FLEXIBLE MANAGED PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
June 30, 1997
<S> <C>
ASSETS
Investments, at value (cost:
$4,908,586,669).......................... $5,293,779,835
Cash....................................... 30,644,779
Receivable for investments sold............ 74,257,831
Interest and dividends receivable.......... 41,116,672
Receivable for investments sold short (Note
2)....................................... 36,863,906
Due from broker -- variation margin........ 1,386,563
--------------
Total Assets............................. 5,478,049,586
--------------
LIABILITIES
Payable for investments purchased.......... 138,814,151
Investments sold short, at value (proceeds
$36,863,906 including accrued interest)
(Note 2)................................. 36,851,320
Payable to investment adviser.............. 7,559,217
Accrued expenses and other liabilities..... 1,154,567
Payable for capital stock repurchased...... 31,911
--------------
Total Liabilities........................ 184,411,166
--------------
NET ASSETS................................... $5,293,638,420
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,747,266
Paid-in capital, in excess of par........ 4,262,982,239
--------------
4,265,729,505
Undistributed net investment income........ 40,488,776
Accumulated net realized gains on
investments.............................. 607,829,856
Net unrealized appreciation on
investments.............................. 379,590,283
--------------
Net assets, June 30, 1997.................. $5,293,638,420
--------------
--------------
Net asset value and redemption price per
share of 274,726,588 outstanding shares
of common stock (authorized 350,000,000
shares).................................. $ 19.27
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, 1997
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 73,606,290
Dividends (net of $494,476 foreign
withholding tax)......................... 19,341,725
---------------
92,948,015
---------------
EXPENSES
Investment advisory fee.................... 14,909,611
Shareholders' reports...................... 407,000
Custodian expense.......................... 204,000
Accounting fees............................ 55,000
Audit fees................................. 43,000
Legal fees................................. 2,000
Directors' fees............................ 1,000
Miscellaneous expenses..................... 185
---------------
Total expenses........................... 15,621,796
Less: custodian fee credit................. (87,672)
---------------
Net expenses............................. 15,534,124
---------------
NET INVESTMENT INCOME........................ 77,413,891
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments.............................. 604,731,125
Futures.................................. 6,570,528
Short sales.............................. 2,635,423
---------------
613,937,076
---------------
Net change in unrealized appreciation on:
Investments.............................. (196,100,431)
Futures.................................. (5,615,469)
Short sales.............................. (1,155,985)
---------------
(202,871,885)
---------------
NET GAIN ON INVESTMENTS...................... 411,065,191
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 488,479,082
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 77,413,891 $ 139,211,865
Net realized gain on investments....................................................... 613,937,076 408,046,131
Net change in unrealized appreciation (depreciation) on investments.................... (202,871,885) 41,728,823
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 488,479,082 588,986,819
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (36,348,186) (142,089,785)
Distributions from net realized capital gains.......................................... (44,702,972) (458,909,559)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (81,051,158) (600,999,344)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [2,496,113 and 8,998,637 shares, respectively]...................... 45,671,248 166,455,957
Capital stock issued in reinvestment of dividends and distributions [4,526,896 and
34,012,173 shares, respectively]...................................................... 81,051,158 600,999,344
Capital stock repurchased [(7,485,580) and (6,420,074) shares, respectively]........... (137,434,597) (119,724,926)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. (10,712,191) 647,730,375
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 396,715,733 635,717,850
NET ASSETS:
Beginning of period.................................................................... 4,896,922,687 4,261,204,837
------------------ -------------------
End of period.......................................................................... $ 5,293,638,420 $ 4,896,922,687
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A2
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
CONSERVATIVE BALANCED PORTFOLIO
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.8%
VALUE
COMMON STOCKS -- 32.8% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.2%
AlliedSignal, Inc............................... 233,600 $ 19,622,400
Boeing Co....................................... 239,600 12,713,775
GenCorp, Inc.................................... 105,000 2,428,125
Litton Industries, Inc. (a)..................... 40,300 1,946,994
Parker-Hannifin Corp............................ 30,650 1,860,072
UNC, Inc. (a)................................... 46,500 680,062
United Technologies Corp........................ 193,600 16,068,800
--------------
55,320,228
--------------
AIRLINES -- 0.3%
AMR Corp. (a)................................... 114,600 10,600,500
USAir Group, Inc. (a)........................... 120,600 4,221,000
--------------
14,821,500
--------------
AUTOS - CARS & TRUCKS -- 0.4%
Chrysler Corp................................... 155,100 5,089,219
Ford Motor Co................................... 49,400 1,864,850
General Motors Corp............................. 77,500 4,315,781
Mascotech, Inc.................................. 100,800 2,104,200
Smith (A.O.) Corp............................... 75,000 2,667,187
Titan International, Inc........................ 108,050 1,904,381
--------------
17,945,618
--------------
BANKS AND SAVINGS & LOANS -- 1.2%
BankAmerica Corp................................ 94,700 6,114,069
Chase Manhattan Corp............................ 199,700 19,383,381
First Union Corp.,.............................. 179,800 16,631,500
PNC Bank Corp.,................................. 299,500 12,466,687
--------------
54,595,637
--------------
CHEMICALS -- 0.8%
E.I. du Pont de Nemours & Co.................... 231,600 14,561,850
Ferro Corp...................................... 95,900 3,554,294
IMC Global, Inc................................. 249,600 8,736,000
M.A. Hanna Co................................... 109,950 3,167,934
Millennium Chemicals, Inc. (a).................. 156,327 3,556,439
OM Group, Inc................................... 67,600 2,239,250
--------------
35,815,767
--------------
CHEMICALS - SPECIALTY -- 0.6%
Morton International, Inc....................... 419,300 12,657,619
Praxair, Inc.................................... 289,500 16,212,000
--------------
28,869,619
--------------
COMMERCIAL SERVICES -- 0.0%
BW/IP, Inc. (Class 'A' Stock)................... 60,400 1,226,875
IMO Industries, Inc. (a)........................ 100,100 588,087
--------------
1,814,962
--------------
COMPUTER SERVICES -- 1.4%
Cabletron Systems, Inc. (a)..................... 39,500 1,118,344
Cadence Design Systems, Inc. (a)................ 509,200 17,058,200
Ceridian Corp. (a).............................. 389,400 16,452,150
Computer Associates International, Inc.......... 229,600 12,785,850
Computer Sciences Corp. (a)..................... 64,500 4,652,062
Oracle Corp. (a)................................ 242,300 12,205,862
--------------
64,272,468
--------------
COMPUTERS -- 1.3%
Compaq Computer Corp. (a)....................... 162,100 16,088,425
Digital Equipment Corp. (a)..................... 98,000 3,472,875
International Business Machines Corp.,.......... 203,300 18,335,118
Sun Microsystems, Inc. (a)...................... 609,000 22,666,219
--------------
60,562,637
--------------
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
CONSTRUCTION -- 0.2%
Halter Marine Group,............................ 19,343 $ 464,232
Oakwood Homes Corp.............................. 148,600 3,566,400
Standard Pacific Corp........................... 164,400 1,685,100
Webb Corp....................................... 149,800 2,434,250
--------------
8,149,982
--------------
CONSUMER SERVICES -- 0.1%
ADT Ltd. (a).................................... 96,100 3,171,300
SPS Transaction Services, Inc. (a).............. 31,200 577,200
--------------
3,748,500
--------------
CONTAINERS & PACKAGING -- 0.0%
Sealed Air Corp. (a)............................ 9,300 441,750
--------------
COSMETICS & SOAPS -- 0.3%
Procter & Gamble Co............................. 99,800 14,096,750
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.1%
RJR Nabisco Holdings Corp....................... 132,000 4,356,000
--------------
DIVERSIFIED OPERATIONS -- 1.0%
Cognizant Corp.................................. 319,300 12,931,650
Energy Group, PLC, ADR, (United Kingdom)........ 53,662 2,273,927
General Electric Co............................. 459,200 30,020,200
Whitman Corp.................................... 141,700 3,586,781
--------------
48,812,558
--------------
DRUGS AND MEDICAL SUPPLIES -- 3.8%
Amgen, Inc. (a)................................. 383,900 22,314,187
Baxter International, Inc....................... 279,500 14,603,875
Biogen, Inc. (a)................................ 586,600 19,871,075
Guidant Corp.................................... 186,000 15,810,000
Johnson & Johnson............................... 109,800 7,068,375
Medtronic, Inc.................................. 207,600 16,815,600
Merck & Co., Inc................................ 198,200 20,513,700
Novartis Corp., AG ADR (Switzerland)............ 179,700 14,376,000
Pfizer, Inc.,................................... 109,000 13,025,500
Smithkline Beecham, PLC, ADR (United Kingdom)... 229,600 21,037,100
United States Surgical Corp..................... 56,700 2,112,075
Warner-Lambert Co............................... 79,900 9,927,575
--------------
177,475,062
--------------
ELECTRICAL EQUIPMENT -- 0.2%
Belden, Inc..................................... 71,600 2,438,875
Westinghouse Electric Corp...................... 248,200 5,739,625
--------------
8,178,500
--------------
ELECTRONICS -- 0.6%
Honeywell, Inc.................................. 259,500 19,689,562
Maxim Integrated Products, Inc. (a)............. 109,800 6,244,875
--------------
25,934,437
--------------
ENGINEERING & CONSTRUCTION -- 0.0%
Giant Cement Holdings, Inc. (a)................. 63,600 1,192,500
--------------
ENVIRONMENTAL SERVICES -- 0.5%
U.S.A. Waste Services, Inc. (a)................. 573,800 22,163,025
--------------
FINANCIAL SERVICES -- 1.8%
Federal National Mortgage Association........... 359,400 15,678,825
Lehman Brothers Holdings, Inc.,................. 266,500 10,793,250
Merrill Lynch & Co., Inc.,...................... 62,100 3,702,712
Morgan Stanley, Dean Witter, Discover & Co...... 365,290 15,730,301
Salomon, Inc.................................... 108,500 6,035,312
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B1
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Schwab (Charles) Corp.,......................... 306,700 $ 12,478,856
Signet Banking, Corp............................ 294,600 10,605,600
State Street Boston Corp........................ 159,700 7,386,125
--------------
82,410,981
--------------
FOOD & BEVERAGES -- 0.5%
Anheuser-Busch Companies, Inc................... 309,500 12,979,656
Quaker Oats Co.................................. 279,500 12,542,562
--------------
25,522,218
--------------
FOREST PRODUCTS -- 0.3%
Champion International Corp.,................... 101,000 5,580,250
Louisiana-Pacific Corp.,........................ 101,000 2,133,625
Mead Corp....................................... 50,600 3,149,850
Willamette Industries, Inc...................... 36,900 2,583,000
--------------
13,446,725
--------------
HOSPITAL MANAGEMENT -- 0.5%
Healthsouth Corp., (a).......................... 858,500 21,408,844
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.2%
Gillette Co..................................... 71,600 6,784,100
Leggett & Platt, Inc............................ 61,200 2,631,600
--------------
9,415,700
--------------
HOUSING RELATED -- 0.1%
Hanson, PLC ADR (United Kingdom)................ 54,662 1,366,550
Owens Corning................................... 105,200 4,536,750
--------------
5,903,300
--------------
INSURANCE -- 2.5%
Aetna, Inc...................................... 199,700 20,444,287
Allstate Corp................................... 229,600 16,760,800
Berkley (WR) Corp............................... 30,100 1,772,137
Chubb Corp...................................... 239,600 16,023,250
CIGNA Corp...................................... 39,900 7,082,250
Equitable of Iowa Companies..................... 57,800 3,236,800
Financial Security Assurance Holdings, Ltd...... 36,400 1,417,325
PennCorp Financial Group, Inc................... 85,700 3,299,450
Provident Companies, Inc........................ 28,500 1,524,750
Reinsurance Group of America, Inc............... 82,200 4,726,500
TIG Holdings, Inc............................... 91,300 2,853,125
Travelers Group Inc............................. 233,600 14,731,400
Trenwick Group, Inc............................. 70,950 2,660,625
United Healthcare Corp.......................... 319,500 16,614,000
Western National Corp........................... 141,200 3,785,925
--------------
116,932,624
--------------
LEISURE -- 0.5%
Carnival Corp. (Class 'A' Stock)................ 439,300 18,121,125
Hilton Hotels Corp.............................. 263,800 7,007,187
--------------
25,128,312
--------------
MACHINERY -- 0.6%
Case Corp.,..................................... 312,400 21,516,550
DT Industries, Inc.............................. 38,200 1,365,650
Global Industrial Technologies, Inc. (a)........ 67,100 1,375,550
Paxar Corp...................................... 196,260 3,704,407
--------------
27,962,157
--------------
MANUFACTURING -- 0.7%
Illinois Tool Works, Inc........................ 199,700 9,972,519
Tyco International, Ltd......................... 326,100 22,684,331
--------------
32,656,850
--------------
MEDIA -- 0.3%
Central Newspapers, Inc.
(Class 'A' Stock)............................. 53,400 3,824,775
Gannett Co., Inc................................ 30,700 3,031,625
Houghton Mifflin Co............................. 31,300 2,089,275
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Knight-Ridder, Inc.............................. 62,100 $ 3,046,781
Lee Enterprises, Inc............................ 54,300 1,432,163
--------------
13,424,619
--------------
METALS - FERROUS -- 0.2%
Bethlehem Steel Corp. (a)....................... 144,300 1,506,131
LTV Corp........................................ 218,700 3,116,475
Material Sciences Corp., (a).................... 103,400 1,596,238
National Steel Corp. (Class 'B' Stock) (a)...... 45,000 756,563
USX-U.S. Steel Group............................ 64,900 2,275,556
--------------
9,250,963
--------------
METALS - NON FERROUS -- 0.3%
Aluminum Company of America..................... 124,400 9,376,650
Potash Corp. of Saskatchewan, Inc. (Canada)..... 87,800 6,590,488
--------------
15,967,138
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.2%
Coltec Industries, Inc.......................... 46,600 908,700
Donaldson, Co................................... 58,200 2,211,600
IDEX Corp....................................... 64,200 2,118,600
Mark IV Industries, Inc......................... 92,342 2,216,208
Trinity Industries, Inc......................... 55,700 1,768,475
Wolverine Tube, Inc. (a)........................ 40,400 1,126,150
York International Corp......................... 28,700 1,320,200
--------------
11,669,933
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.4%
Unilever N.V., ADR, (United Kingdom)............ 83,900 18,290,200
--------------
OIL & GAS -- 1.2%
Basin Exploration, Inc. (a)..................... 18,500 143,375
Cabot Oil & Gas Corp. (Class 'A' Stock)......... 94,500 1,665,563
Cross Timbers Oil Co............................ 317,500 6,111,875
Elf Aquitaine SA, ADR (France).................. 133,300 7,256,519
Enron Oil & Gas Co.............................. 51,600 935,250
Mesa, Inc., (a)................................. 467,100 2,685,825
Murphy Oil Corp................................. 29,600 1,443,000
Noble Affiliates Inc.,.......................... 214,000 8,279,125
Seagull Energy Corp. (a)........................ 65,600 1,148,000
Total SA, (Class 'B' Stock), (France)........... 139,700 7,072,313
Unocal Corp..................................... 429,300 16,662,206
Western Gas Resources, Inc.,.................... 110,000 2,145,000
--------------
55,548,051
--------------
OIL & GAS SERVICES -- 1.6%
Apache Corporation,............................. 549,100 17,845,750
Coflexip, ADR, (France)......................... 111,300 3,352,913
Halliburton Co.................................. 339,400 26,897,450
ICO, Inc........................................ 82,100 425,894
J. Ray McDermott, SA............................ 174,800 4,719,600
McDermott International, Inc.................... 331,100 9,663,981
Oryx Energy Co. (a)............................. 131,700 2,782,163
Parker & Parsley Petroleum Co................... 252,800 8,942,800
Weatherford Enterra, Inc. (a)................... 49,753 1,915,491
--------------
76,546,042
--------------
REAL ESTATE DEVELOPMENT -- 0.1%
Crescent Operating, Inc......................... 17,460 209,520
Crescent Real Estate Equities, Inc.............. 174,600 5,543,550
--------------
5,753,070
--------------
RETAIL -- 3.7%
American Stores Co.............................. 479,200 23,660,500
Bombay Company, Inc. (a)........................ 148,500 742,500
Charming Shoppes, Inc. (a)...................... 865,900 4,518,916
Costco Companies, Inc........................... 429,300 14,113,238
CVS Corp........................................ 259,500 13,299,375
Dillards, Inc. (Class 'A' Stock)................ 33,900 1,173,788
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B2
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Federated Department Stores, Inc. (a)........... 387,400 $ 13,462,150
Home Depot, Inc................................. 259,500 17,889,281
Jan Bell Marketing, Inc. (a).................... 161,500 393,656
K mart Corp. (a)................................ 319,300 3,911,425
Kroger Co. (a).................................. 559,100 16,213,900
Liz Claiborne, Inc.............................. 309,500 14,430,438
Rite Aid Corp................................... 199,700 9,960,038
Safeway, Inc. (a)............................... 449,200 20,719,350
Sears, Roebuck & Co............................. 299,500 16,098,125
Tandy Corp...................................... 25,000 1,400,000
Toys 'R' Us, Inc. (a)........................... 93,100 3,258,500
--------------
175,245,180
--------------
RUBBER -- 0.1%
Goodyear Tire & Rubber Co....................... 41,800 2,646,463
--------------
SOFTWARE -- 0.3%
Microsoft Corp., (a)............................ 99,800 12,612,225
--------------
TELECOMMUNICATIONS -- 1.5%
Alcatel Alsthom, ADR, (France).................. 133,400 3,368,350
Ascend Communications, Inc. (a)................. 287,500 11,320,313
Deutsche Telekom, ADR, (Germany)................ 48,100 1,160,413
Qualcomm Inc.................................... 329,400 16,758,225
Tellabs, Inc. (a)............................... 329,400 18,405,225
Worldcom Inc.................................... 638,900 20,444,800
--------------
71,457,326
--------------
TEXTILES -- 0.2%
Fieldcrest Cannon, Inc. (a)..................... 71,300 1,354,700
Fruit of the Loom, Inc. (Class 'A' Stock) (a)... 77,500 2,402,500
Owens-Illinois, Inc. (a)........................ 61,300 1,900,300
Phillips-Van Heusen Corp........................ 101,100 1,516,500
Tultex Corp. (a)................................ 94,200 576,975
--------------
7,750,975
--------------
TOBACCO -- 0.5%
Bat Industries, PLC, ADR, (United Kingdom)...... 112,500 2,060,156
Phillip Morris Co. Inc.,........................ 488,200 21,659,438
UST, Inc........................................ 38,600 1,071,150
--------------
24,790,744
--------------
TOYS -- 0.5%
Hasbro Inc...................................... 399,300 11,330,138
Mattel Inc...................................... 400,551 13,568,665
--------------
24,898,803
--------------
TRUCKING/SHIPPING -- 0.0%
Yellow Corp..................................... 76,800 1,718,400
--------------
TOTAL COMMON STOCKS
(cost $1,411,014,017).......................................... 1,536,925,343
--------------
PREFERRED STOCKS -- 0.9%
FINANCIAL SERVICES -- 0.7%
Central Hispano Corp............................ 225,900 6,099,300
Central Hispano Financial Services.............. 1,000,000 25,700,000
--------------
31,799,300
--------------
LEISURE -- 0.2%
Hilton Hotels (Conv.)........................... 427,800 10,801,950
--------------
OIL & GAS -- 0.0%
Mesa, Inc....................................... 169,210 1,131,592
--------------
TOTAL PREFERRED STOCKS
(cost $42,991,696)............................................. 43,732,842
--------------
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS -- 60.1% RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba1 $ 4,875 $ 5,000,239
--------------
AIRLINES -- 3.2%
Delta Air Lines, Inc.,
10.125%, 05/15/10............................. Baa3 20,000 24,441,400
10.375%, 02/01/11............................. Baa3 28,405 35,521,021
United Air Lines, Inc.,
9.75%, 08/15/21............................... Baa3 10,125 12,089,047
10.67%, 05/01/04.............................. Baa3 46,665 54,780,977
11.21%, 05/01/14.............................. Baa3 18,433 24,132,299
--------------
150,964,744
--------------
ASSET-BACKED SECURITIES -- 0.2%
Banc One Credit Card Master Trust,
7.75%, 12/15/99............................... A2 5,100 5,138,250
Standard Credit Card Master Trust,
5.95%, 10/07/04............................... Aaa 4,650 4,450,887
--------------
9,589,137
--------------
BANKS AND SAVINGS & LOANS -- 3.8%
Banco de Commercio Exterior de Colombia, SA,
M.T.N., (Columbia),
8.625%, 06/02/00.............................. Baa3 5,500 5,678,750
Banco Ganadero, S.A., M.T.N., (Colombia),
9.75%, 08/26/99............................... Baa3 7,300 7,646,750
Bangkok Bank, (Thailand),
7.25%, 09/15/05............................... A3 10,000 9,531,300
8.25%, 03/15/16............................... A3 7,500 7,182,188
8.375%, 01/15/27.............................. A3 40,000 38,180,000
Kansallis-Osake Pankki, N.Y., (Finland),
6.125%, 05/15/98.............................. A3 6,160 6,153,840
8.65%, 01/01/49............................... A3 10,000 10,375,000
9.75%, 12/15/98............................... A3 16,950 17,716,988
Okobank, (Finland),
7.27%, 10/29/49............................... A3 9,000 9,180,000
7.375%, 09/27/49.............................. A3 18,750 19,078,125
7.387%, 10/29/49.............................. A3 3,500 3,570,000
Siam Commercila, (Thailand),
7.50%, 03/15/06............................... A3 14,500 13,898,613
Svenska Handelsbank, (Sweden),
7.125%, 03/29/49.............................. A1 10,000 9,810,000
Thai Farmers Bank, (Thailand),
8.25%, 08/21/16............................... A3 20,000 19,090,500
--------------
177,092,054
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.9%
Comcast Corp.,
8.375%, 05/01/07.............................. Ba1 5,000 5,193,750
Continental Cablevision, Inc.,
8.50%, 09/15/01............................... Baa2 5,545 5,856,740
TCI-Communications, Inc.,
6.875%, 02/15/06.............................. Ba1 10,000 9,458,300
8.25%, 01/15/03............................... Ba1 2,000 2,069,660
8.75%, 08/01/15............................... Ba1 15,450 16,193,145
9.80%, 02/01/12............................... Ba1 29,750 34,051,552
9.875%, 06/15/22.............................. Ba1 12,900 14,751,537
--------------
87,574,684
--------------
CONSULTING -- 1.3%
Comdisco, Inc., M.T.N.,
5.54%, 01/26/98............................... Baa1 12,500 12,459,500
6.09%, 11/09/98............................... Baa1 34,000 33,963,960
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B3
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
6.29%, 10/22/98............................... Baa1 $ 5,000 $ 5,008,600
6.689%, 05/22/98.............................. Baa1 9,000 9,038,880
--------------
60,470,940
--------------
CONSUMER PRODUCTS -- 0.4%
James River Corp.,
7.75%, 11/15/23............................... Baa3 17,800 17,011,282
--------------
CONSUMER SERVICES -- 0.2%
Digital Equipment Corp.,
7.125%, 10/15/02.............................. Ba1 6,700 6,560,707
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,497,300
--------------
9,058,007
--------------
ENERGY -- 0.2%
Gulf Canada Resources, (Canada),
8.25%, 03/15/17............................... Ba1 7,500 7,687,500
--------------
FINANCIAL SERVICES -- 15.9%
American General
Finance, Inc.,
7.57%, 12/01/45............................... A1 22,200 20,956,800
8.125%, 03/15/46.............................. A1 50,000 50,323,500
Aon Corp.,
8.205%, 01/01/27.............................. A3 29,200 29,965,622
Arkwright Corp.,
9.625%, 08/15/26.............................. Baa3 8,000 8,791,200
Bear Stearns & Co.,
6.50%, 07/05/00............................... A2 20,000 19,946,200
Capital One Bank,
6.66%, 08/17/98............................... Baa3 10,050 10,096,029
Central Hispano Financial Services (Portugal)
6.125%, 04/28/05.............................. A3 10,000 10,009,000
Conseco, Inc.,
8.70%, 11/15/26............................... Ba2 37,513 38,393,669
8.796%, 04/01/27.............................. Ba2 20,000 20,371,600
Cullen Frost Capital Inc.,
8.42%, 02/01/27............................... NR 33,450 33,533,625
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa2 11,500 11,329,455
6.95%, 03/01/04............................... Baa2 27,500 27,242,187
7.00%, 06/15/00............................... Baa3 30,000 30,210,300
7.50%, 06/15/03............................... Baa2 5,000 5,098,650
7.875%, 03/15/98.............................. Baa2 9,925 10,037,053
8.75%, 12/15/99............................... Baa2 5,000 5,239,050
First Tennessee National Corp., B.A.,
8.07%, 01/06/27............................... A3 11,150 10,859,821
First Union Corp.,
9.45%, 06/15/99............................... A3 4,000 4,218,160
First USA Bank,
5.763%, 01/13/98.............................. Aa2 20,000 20,014,200
8.20%, 02/15/98............................... Aa2 11,500 11,628,800
Great Western Financial,
8.206%, 02/01/27.............................. Baa2 19,300 19,246,346
GreenPoint Financial Corp.,
9.10%, 06/01/27............................... Ba1 12,500 12,588,750
Lehman Brothers Holdings, Inc.,
6.71%, 10/12/99 (b)........................... Baa1 6,000 6,014,700
6.84%, 09/25/98 (b)........................... Baa1 30,000 30,217,500
6.89%, 10/10/00 (b)........................... Baa1 10,545 10,574,421
7.125%, 07/15/02 (b).......................... Baa1 16,000 15,949,440
Long Island Savings Bank,
7.00%, 06/13/02............................... Baa3 15,000 14,998,800
Lumbermens Mutual Casualty Co.,
9.15%, 07/01/26............................... Baa1 37,625 41,131,838
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Merita Bank, Ltd.,
7.50%, 12/29/49............................... A3 $ 15,000 $ 15,017,100
PT Alatief Freeport Financial Co.,
(Netherlands),
9.75%, 04/15/01............................... Ba1 8,950 9,712,182
Riggs National Corp.,
8.875%, 03/15/27.............................. Baa3 14,650 14,869,750
Salomon, Inc.,
6.50%, 03/01/00............................... Baa1 38,500 38,305,960
6.59%, 02/21/01............................... Baa1 42,500 42,006,575
6.75%, 02/15/03............................... Baa1 5,000 4,894,250
7.00%, 03/04/02............................... Baa1 32,000 31,851,200
7.25%, 05/01/01............................... Baa1 8,625 8,725,050
Sears Roebuck Acceptance Corp., M.T.N.,
6.38%, 02/16/99............................... A2 25,000 25,053,500
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 9,000 8,928,720
Union Planters Corp.,
8.20%, 12/15/26............................... Baa1 20,750 20,306,365
--------------
748,657,368
--------------
FOOD & BEVERAGE -- 0.4%
Coca-Cola Enterprises, Inc.,
6.50%, 11/15/97............................... A3 3,750 3,757,162
RJR Nabisco, Inc.,
8.125%, 09/27/05.............................. Baa3 5,000 4,983,350
8.50%, 07/01/07............................... Baa3 6,000 5,980,020
8.75%, 08/15/05............................... Baa3 4,000 4,059,800
--------------
18,780,332
--------------
INDUSTRIAL -- 0.9%
Compania Sud Americana de Vapores, S.A. (Chile),
7.375%, 12/08/03.............................. NR 7,600 7,448,000
Reliance Industries Ltd.,
8.125%, 09/27/05.............................. Baa3 15,000 15,037,500
8.25%, 01/15/27............................... Baa3 19,000 19,047,500
--------------
41,533,000
--------------
MEDIA -- 7.9%
News America Holdings, Inc.,
7.375%, 10/17/08.............................. Baa3 28,000 27,718,600
7.75%, 12/01/45............................... Baa3 19,000 17,784,190
8.15%, 10/17/36............................... Baa3 21,500 21,196,205
9.25%, 02/01/13............................... Baa3 25,550 28,487,483
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 6,425 6,436,822
Time Warner, Inc.,
7.75%, 06/15/05............................... Ba1 15,000 15,243,750
8.11%, 08/15/06............................... Ba1 23,250 24,142,568
8.18%, 08/15/07............................... Ba1 38,415 39,994,241
8.375%, 07/15/33.............................. Baa1 37,450 38,240,570
9.125%, 01/15/13.............................. Ba1 14,270 15,778,624
Turner Broadcasting Co.,
8.375%, 07/01/13.............................. Baa1 5,325 5,522,824
Viacom, Inc.,
6.75%, 01/15/03............................... Baa1 71,325 68,586,120
7.75%, 06/01/05............................... Ba2 62,025 61,555,471
--------------
370,687,468
--------------
OFFICE EQUIPMENT -- 1.0%
Xerox Corp.,
8.00%, 02/01/27............................... A2 48,450 48,450,000
--------------
OIL & GAS -- 0.8%
B.J. Services Co.,
7.00%, 02/01/06............................... Baa3 4,000 3,924,000
Empresa Colombia de Petroleos, (Colombia),
7.25%, 07/08/98............................... NR 8,250 8,250,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B4
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Parker & Parsley
Petroleum Co.,
8.25%, 08/15/07............................... Baa3 $ 3,000 $ 3,144,450
Petroliam Nasional, (Malaysia),
6.625%, 10/18/01.............................. NR 22,000 21,805,080
--------------
37,123,530
--------------
PAPER & FOREST -- 0.4%
Fort Howard Corp.,
8.25%, 02/01/02............................... Baa3 7,000 7,315,000
9.25%, 03/15/01............................... Baa3 11,300 12,034,500
--------------
19,349,500
--------------
RAILROADS -- 0.5%
Norfolk Southern Corp. BD,
7.05%, 05/01/37............................... Baa1 25,000 25,375,000
--------------
RETAIL -- 2.6%
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. Baa2 60,530 63,188,478
8.50%, 06/15/03............................... Baa2 36,600 38,833,332
10.00%, 02/15/01.............................. Baa2 15,350 16,839,717
Rite Aid Corp.,
6.70%, 12/15/01............................... A3 5,000 4,935,625
--------------
123,797,152
--------------
TECHNOLOGY -- 0.4%
Comdisco, Inc., M.T.N.,
6.375%, 11/30/01.............................. Baa1 21,500 21,046,135
--------------
TELECOMMUNICATIONS -- 2.9%
Southern New England Telephone Co.,
7.25%, 12/15/33............................... Aa2 35,000 33,075,000
Tele-Communications, Inc.,
7.875%, 08/01/13.............................. Ba1 9,350 9,128,872
8.25%, 01/15/03............................... Ba1 20,000 20,696,600
9.25%, 04/15/02............................... Ba1 9,500 10,193,690
9.80%, 02/01/12............................... Ba1 21,500 24,608,685
Total Access Communications, (Thailand),
8.375%, 11/04/06.............................. Ba1 33,000 32,276,310
Worldcom, Inc.,
7.75%, 04/01/27............................... Ba1 4,500 4,709,430
--------------
134,688,587
--------------
TOBACCO -- 1.0%
Phillip Morris Co. Inc.,
6.375%, 02/01/06.............................. A2 17,675 16,713,126
7.20%, 02/01/07............................... A2 31,915 31,637,978
--------------
48,351,104
--------------
TRANSPORTATION/TRUCKING/SHIPPING -- 0.1%
Federal Express Corp., M.T.N.,
10.00%, 06/01/98.............................. Baa2 3,000 3,096,000
10.05%, 06/15/99.............................. Baa2 500 530,995
--------------
3,626,995
--------------
UTILITIES -- 2.6%
Arkla, Inc., M.T.N.,
9.25%, 12/18/97............................... Baa3 3,000 3,033,960
Clevland Electric Illuminating Company,
7.19%, 07/01/00............................... Ba2 19,000 19,067,260
Commonwealth Edison Co.,
7.375%, 01/15/04.............................. Baa3 41,000 40,942,190
7.375%, 01/15/07.............................. Baa 5,000 5,012,700
7.625%, 01/15/07.............................. Baa 16,000 16,040,640
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Quezon Power, (Philippines),
8.86%, 06/15/17............................... Ba1 $ 5,000 $ 5,000,000
Southern California, Edison Co.,
7.125%, 07/15/25.............................. A1 35,000 32,850,650
--------------
121,947,400
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 4.1%
Federal National Mortgage Association,
7.17%, 06/26/07............................... 15,000 14,920,350
Fleet Financial Group, Inc.,
7.35%, 05/15/03............................... 11,000 11,165,000
United States Treasury Notes,
5.875%, 01/31/99.............................. 35,000 34,928,950
5.875%, 02/15/04.............................. 25 24,223
6.25%, 07/31/98............................... 17,500 17,571,050
6.25%, 06/30/02............................... 17,400 17,296,644
6.25%, 02/15/03............................... 2,450 2,430,865
6.50%, 04/30/99............................... 11,000 11,082,500
6.50%, 10/15/06............................... 3,200 3,186,496
6.50%, 11/15/26............................... 37,600 36,060,656
7.125%, 09/30/99.............................. 38,000 38,777,860
7.25%, 05/15/04............................... 3,000 3,127,020
--------------
190,571,614
--------------
FOREIGN GOVERNMENT BONDS -- 7.3%
City of St. Petersburg, (Russia),
9.50%, 06/18/02............................... NR 10,000 10,000,000
Republic of Argentina,
6.75%, 03/31/05 (b)........................... B1 21,340 20,059,600
Republic of Colombia,
7.125%, 05/11/98.............................. Baa3 2,775 2,795,813
7.625%, 02/15/07.............................. Baa3 45,000 43,848,000
8.00%, 06/14/01............................... Baa3 2,250 2,287,170
8.75%, 10/06/99............................... Baa3 12,325 12,890,348
Republic of Panama,
3.50%, 07/17/14............................... Ba1 25,000 19,281,250
Republic of Poland,
4.00%, 10/27/14............................... Baa3 155,500 132,758,125
Republic of South Africa,
8.50%, 06/23/17............................... Baa3 31,000 30,845,000
Republic of Venezuela,
6.75%, 12/18/07............................... Ba2 36,000 33,390,000
Royal Bank of Canada,
6.75%, 10/24/11............................... Aa3 17,400 16,860,600
Russian Ministry of Finance,
10.00%, 06/26/07.............................. Ba2 17,000 16,940,500
--------------
341,956,406
--------------
TOTAL LONG-TERM BONDS
(cost $2,793,785,647).................................................... 2,820,390,178
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,247,791,360).................................................... 4,401,048,363
--------------
SHORT-TERM INVESTMENTS -- 5.5%
BANK-RELATED INSTRUMENTS
Avco Financial Services, Inc.,
5.46%, 11/17/97............................... P1 2,000 1,999,891
--------------
BANK NOTES -- 0.2%
American Express Centurian Bank,
5.408%, 12/09/97.............................. NR 4,000 4,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B5
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
First Bank National Association,
5.28%, 10/24/97............................... P3 $ 2,000 $ 1,999,564
5.585%, 11/19/97.............................. P3 2,000 2,000,000
Key Bank, N.A.,
5.608%, 08/21/97.............................. NR 1,000 999,970
--------------
8,999,534
--------------
CERTIFICATES OF DEPOSIT - EURO -- 0.1%
Abbey National, Plc,
5.50%, 11/21/97............................... P1 1,000 999,184
Australia - New Zealand,
5.52%, 06/16/97............................... P3 2,000 2,000,067
--------------
2,999,251
--------------
CERTIFICATES OF DEPOSIT - YANKEE -- 0.9%
Banque Nationale De Paris, (France)
5.58%, 04/02/97............................... NR 3,000 2,999,993
5.74%, 08/20/97............................... NR 1,000 1,000,000
Berliner Handels, (Germany),
5.62%, 08/11/97............................... P3 3,000 3,000,034
Canadian Imperial Bank, (Canada),
5.60%, 08/25/97............................... P3 10,000 10,000,000
5.68%, 08/19/97............................... P3 1,000 1,000,000
Corestates Financial Corp.,
5.533%, 01/23/98.............................. NR 1,000 1,000,000
5.626%, 12/19/97.............................. P3 1,000 1,000,000
Creditanstalt, (Germany)
5.43%, 04/07/97............................... NR 5,000 5,000,013
Deutsche Bank (Germany),
5.69%, 10/28/97............................... P3 13,000 12,999,937
Royal Bank of Canada,
5.91%, 06/17/98............................... P3 3,000 2,998,345
Societe Generale, (France)
5.75%, 12/22/97............................... P1 2,000 2,000,346
--------------
42,998,668
--------------
COMMERCIAL PAPER -- 3.3%
Acquisition Holding Company,
5.60%, 07/16/97............................... NR 1,000 997,667
Aetna Services, Inc.,
5.57%, 07/15/97............................... NR 1,000 997,834
American General Financial Corp.,
5.55%, 07/07/97............................... P1 1,000 999,075
9.50%, 08/01/97............................... P1 1,500 1,504,345
American Honda Finance Corp.,
5.60%, 07/30/97............................... P1 8,800 8,760,302
Aristar, Inc.,
5.70%, 07/24/97............................... P2 1,000 996,358
Asset Securitization Corp.,
5.56%, 08/18/97............................... NR 1,000 992,587
Associates Corp. of North America,
5.55%, 07/03/97............................... P1 2,000 1,999,383
Bear, Stearns & Co.,
5.58%, 07/08/97............................... P1 1,000 998,915
BP America, M.T.N.,
8.875%, 12/01/97.............................. P3 1,000 1,011,106
Ciesco Corp.,
5.60%, 08/14/97............................... P1 1,000 993,156
Coca Cola Enterprises, Inc.,
5.58%, 07/14/97............................... NR 1,000 997,985
5.66%, 08/13/97............................... NR 4,131 4,103,072
Commerzbank AG,
5.67%, 08/21/97............................... P3 1,000 991,968
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Corporate Asset Funding Corp.,
5.62%, 08/07/97............................... P1 $ 4,000 $ 3,976,896
Corporate Receivables Corp.,
5.55%, 07/10/97............................... NR 1,000 998,613
5.625%, 08/20/97.............................. NR 2,000 1,984,375
Countrywide Home Loans,
5.60%, 08/07/97............................... NR 5,000 4,971,222
CXC, Inc.,
5.65%, 08/05/97............................... NR 4,138 4,115,270
Dillard Investment Corp.,
5.55%, 07/23/97............................... P3 9,300 9,268,458
Enterprise Funding Corp.,
5.55%, 07/03/97............................... NR 2,000 1,999,383
Falcon Asset Securitization,
5.55%, 07/08/97............................... P1 3,927 3,922,762
Finova Capital Corp.,
5.60%, 07/09/97............................... NR 1,000 998,756
5.71%, 07/15/97............................... NR 1,000 997,779
First Chicago Corp.,
5.56%, 08/19/97............................... P3 1,000 992,432
First Data Corp.,
5.68%, 08/19/97............................... NR 1,000 992,269
Ford Motor Credit,
5.55%, 07/09/97............................... P1 8,200 8,189,887
General Electric Capital Services, Inc.,
5.70%, 11/05/97............................... P1 5,000 4,899,458
5.70%, 01/12/98............................... P1 5,000 4,845,625
General Motors Acceptance Corp.,
5.59%, 07/07/97............................... P1 5,000 4,995,342
General Signal Corp.,
5.58%, 07/08/97............................... NR 1,693 1,691,163
5.58%, 07/18/97............................... NR 2,585 2,578,189
Indosuez N. A., Inc,
5.66%, 07/07/97............................... NR 1,270 1,268,802
John Deere Capital Corp.,
5.54%, 07/09/97............................... P1 1,000 998,769
Johnson Controls Inc.,
5.60%, 07/07/97............................... P2 9,525 9,516,110
Lehman Brothers Holdings, Inc.,
5.75%, 07/02/97............................... NR 3,000 2,999,521
MCI Communications Corp.,
5.45%, 07/07/97............................... NR 1,000 999,092
5.54%, 07/07/97............................... NR 3,000 2,997,230
Mitsubishi International Corp.,
6.00%, 07/08/97............................... P1 780 779,090
National Australia Bank,
5.80%, 10/03/97............................... NR 4,000 4,000,588
National Bank of Canada,
5.41%, 07/07/97............................... P3 3,000 2,997,295
Newell Co.,
5.60%, 08/20/97............................... NR 1,000 992,222
NYNEX Corp.,
5.65%, 07/14/97............................... P3 3,000 2,993,879
Potomac Electric Power Co.,
5.52%, 07/28/97............................... P1 6,000 5,975,160
Rank Xerox Capital PLC.,
5.56%, 08/20/97............................... NR 1,000 992,278
Rubbermaid, Inc.,
5.57%, 08/05/97............................... NR 1,362 1,354,624
Short Term Repack Asset,
6.00%, 12/15/97............................... NR 4,000 3,999,608
Smith Barney,
5.55%, 07/07/97............................... NR 2,415 2,412,766
Societe Generale,
5.70%, 12/19/97............................... P1 7,900 7,898,452
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B6
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Sonoco Products,
6.30%, 07/01/97............................... P1 $ 1,360 $ 1,360,000
Svenska Handelsbanken,
5.62%, 08/14/97............................... NR 9,000 8,938,180
Triple-A One Plus Funding,
5.70%, 07/07/97............................... NR 4,000 3,996,200
--------------
156,231,498
--------------
OTHER CORPORATE OBLIGATIONS -- 0.1%
Barton Capital Corp.,
5.70%, 08/15/97............................... NR 1,968 1,953,978
Capital Equipment Receivable Trust,
5.60%, 10/15/97............................... NR 944 944,395
Credit Agricole Indosue,
5.63%, 08/11/97............................... NR 1,000 1,000,028
--------------
3,898,401
--------------
REPURCHASE AGREEMENTS -- 0.9%
Joint Repurchase Agreement Account,
5.88%, 07/01/97 (cost $40,325,000; Note 5).... 40,325 40,325,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $257,452,243)...................................................... 257,452,243
--------------
TOTAL INVESTMENTS BEFORE SHORT SALE -- 99.3%
(cost $4,505,243,603; Note 6)............................................ 4,658,500,606
--------------
PRINCIPAL
AMOUNT VALUE
INVESTMENTS SOLD SHORT -- (0.3%) (000) (NOTE 2)
------------- --------------
United States Treasury Notes,
6.25%, 06/30/02............................... 4,600 (4,572,676)
6.625%, 05/15/07.............................. 9,900 (9,981,972)
--------------
TOTAL INVESTMENTS SOLD SHORT
(proceeds $14,574,078; Note 2)................................. (14,554,648)
--------------
TOTAL INVESTMENTS, NET OF SHORT SALES -- 99.0%...................
4,643,945,958
--------------
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (C) -- 0.1%...........
2,594,875
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.0%....................
60,749,935
--------------
TOTAL NET ASSETS -- 100.0%....................................... $4,707,290,768
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
M.T.N. Medium Term Note
ADR American Depository Receipt
PLC Public Limited Company
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Indicates a variable rate security.
(c) Open futures contracts as of June 30, 1997 are as follows:.
<TABLE>
<C> <S> <C> <C> <C> <C>
VALUE AT
NUMBER OF EXPIRATION VALUE AT JUNE 30,
CONTRACTS TYPE DATE TRADE DATE 1997 APPRECIATION
Long
Positions:
U.S. Long
3,716 Bond Sep 97 $404,381,438 $412,708,250 $8,326,812
U.S. 10 Yr
1,468 TNote Sep 97 $156,316,656 $158,360,500 $2,043,844
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B7
<PAGE>
FLEXIBLE MANAGED PORTFOLIO
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 94.2%
VALUE
COMMON STOCKS -- 56.7% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.8%
AlliedSignal, Inc............................... 325,700 $ 27,358,800
Boeing Co....................................... 334,000 17,722,875
GenCorp, Inc.................................... 428,200 9,902,125
Litton Industries, Inc. (a)..................... 164,400 7,942,575
Parker-Hannifin Corp............................ 125,000 7,585,937
UNC, Inc. (a)................................... 189,800 2,775,825
United Technologies Corp........................ 270,100 22,418,300
--------------
95,706,437
--------------
AIRLINES -- 1.1%
AMR Corp. (a)................................... 466,000 43,105,000
USAir Group, Inc. (a)........................... 491,700 17,209,500
--------------
60,314,500
--------------
APPAREL MANUFACTURING -- 0.5%
Liz Claiborne, Inc.............................. 431,400 20,114,025
Phillips-Van Heusen Corp........................ 412,600 6,189,000
--------------
26,303,025
--------------
AUTOS - CARS & TRUCKS -- 1.4%
Chrysler Corp................................... 632,700 20,760,469
Ford Motor Co................................... 201,300 7,599,075
General Motors Corp............................. 316,400 17,619,525
Mascotech, Inc.................................. 411,300 8,585,887
Smith (A.O.) Corp............................... 306,300 10,892,794
Titan International, Inc........................ 440,700 7,767,337
--------------
73,225,087
--------------
BANKS AND SAVINGS & LOANS -- 1.7%
BankAmerica Corp................................ 132,600 8,560,987
Chase Manhattan Corp............................ 278,400 27,022,200
First Union Corp................................ 250,600 23,180,500
PNC Bank Corp................................... 417,600 17,382,600
Signet Banking, Corp............................ 411,400 14,810,400
--------------
90,956,687
--------------
CHEMICALS -- 1.6%
E.I. du Pont de Nemours & Co.................... 323,000 20,308,625
Ferro Corp...................................... 391,300 14,502,556
IMC Global, Inc................................. 348,000 12,180,000
M.A. Hanna Co................................... 448,200 12,913,762
Millennium Chemicals, Inc. (a).................. 637,700 14,507,675
OM Group, Inc................................... 275,900 9,139,187
--------------
83,551,805
--------------
CHEMICALS - SPECIALTY -- 0.7%
Morton International, Inc....................... 584,600 17,647,612
Praxair, Inc.................................... 403,700 22,607,200
--------------
40,254,812
--------------
COMMERCIAL SERVICES -- 0.1%
BW/IP, Inc. (Class 'A' Stock)................... 246,400 5,005,000
IMO Industries, Inc. (a)........................ 408,500 2,399,937
--------------
7,404,937
--------------
COMPUTER SERVICES -- 2.0%
Cabletron Systems, Inc. (a)..................... 62,700 1,775,194
Cadence Design Systems, Inc. (a)................ 709,800 23,778,300
Ceridian Corp. (a).............................. 542,800 22,933,300
Computer Associates International, Inc.......... 320,100 17,825,569
Computer Sciences Corp. (a)..................... 90,000 6,491,250
Microsoft Corp. (a)............................. 139,200 17,591,400
Oracle Corp. (a)................................ 368,800 18,578,300
--------------
108,973,313
--------------
COMPUTERS -- 2.2%
Compaq Computer Corp. (a)....................... 226,100 22,440,425
Digital Equipment Corp. (a)..................... 399,700 14,164,369
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
International Business Machines Corp............ 507,700 $ 45,788,194
Sun Microsystems, Inc. (a)...................... 849,000 31,598,719
--------------
113,991,707
--------------
CONSUMER SERVICES -- 0.3%
ADT Ltd. (a).................................... 392,300 12,945,900
SPS Transaction Services, Inc. (a).............. 127,100 2,351,350
--------------
15,297,250
--------------
CONSTRUCTION -- 0.6%
Halter Marine Group............................. 79,100 1,898,400
Oakwood Homes Corp.............................. 606,400 14,553,600
Standard Pacific Corp........................... 670,400 6,871,600
Webb Corp....................................... 611,100 9,930,375
--------------
33,253,975
--------------
CONTAINERS & PACKAGING -- 0.2%
Owens-Illinois, Inc. (a)........................ 250,000 7,750,000
Sealed Air Corp. (a)............................ 37,800 1,795,500
--------------
9,545,500
--------------
COSMETICS & SOAPS -- 0.4%
Procter & Gamble Co............................. 139,200 19,662,000
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.3%
RJR Nabisco Holdings Corp....................... 538,700 17,777,100
--------------
DIVERSIFIED OPERATIONS -- 1.6%
Cognizant Corp.................................. 445,700 18,050,850
Energy Group, PLC, ADR, (United Kingdom)........ 218,900 9,275,887
General Electric Co............................. 640,300 41,859,612
Whitman Corp.................................... 578,000 14,630,625
--------------
83,816,974
--------------
DRUGS AND MEDICAL SUPPLIES -- 4.8%
Amgen, Inc. (a)................................. 535,400 31,120,125
Baxter International, Inc....................... 389,700 20,361,825
Biogen, Inc. (a)................................ 817,800 27,702,975
Guidant Corp.................................... 258,600 21,981,000
Johnson & Johnson............................... 153,100 9,855,812
Medtronic, Inc.................................. 289,600 23,457,600
Merck & Co., Inc................................ 277,500 28,721,250
Novartis Corp., AG, ADR (Switzerland)........... 250,600 20,048,000
Pfizer, Inc..................................... 152,000 18,164,000
Smithkline Beecham, PLC, ADR (United Kingdom)... 320,100 29,329,162
United States Surgical Corp..................... 231,300 8,615,925
Warner-Lambert Co............................... 111,400 13,841,450
--------------
253,199,124
--------------
ELECTRICAL EQUIPMENT -- 0.6%
Baldor Electric Co.............................. 1 30
Belden, Inc..................................... 292,200 9,953,062
Westinghouse Electric Corp...................... 1,012,600 23,416,375
--------------
33,369,467
--------------
ELECTRONICS -- 0.7%
Honeywell, Inc.................................. 362,000 27,466,750
Maxim Integrated Products, Inc. (a)............. 153,100 8,707,562
--------------
36,174,312
--------------
ENGINEERING & CONSTRUCTION -- 0.1%
Giant Cement Holdings, Inc. (a)................. 259,600 4,867,500
--------------
ENVIRONMENTAL SERVICES -- 0.6%
U.S.A. Waste Services, Inc. (a)................. 800,200 30,907,725
--------------
FINANCIAL SERVICES -- 3.1%
Federal National Mortgage Association........... 501,100 21,860,487
Lehman Brothers Holdings, Inc................... 1,087,300 44,035,650
Merrill Lynch & Co., Inc........................ 253,100 15,091,087
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B8
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Morgan Stanley Group, Inc....................... 234,995 $ 10,119,472
Morgan Stanley, Dean Witter Discover & Co....... 431,800 18,594,387
Salomon, Inc.................................... 442,900 24,636,312
Schwab (Charles) Corp........................... 427,500 17,393,906
State Street Boston Corp........................ 222,700 10,299,875
--------------
162,031,176
--------------
FOOD & BEVERAGES -- 0.7%
Anheuser-Busch Companies, Inc................... 431,400 18,091,837
Quaker Oats Co.................................. 389,700 17,487,787
--------------
35,579,624
--------------
FOREST PRODUCTS -- 1.0%
Champion International Corp.,................... 412,200 22,774,050
Louisiana-Pacific Corp.......................... 412,200 8,707,725
Mead Corp....................................... 206,600 12,860,850
Willamette Industries, Inc...................... 150,800 10,556,000
--------------
54,898,625
--------------
HOSPITAL MANAGEMENT -- 0.6%
Healthsouth Corp. (a)........................... 1,197,100 29,852,681
--------------
HOUSEHOLD PRODUCTS -- 0.4%
Gillette Co..................................... 100,000 9,475,000
Leggett & Platt, Inc............................ 249,500 10,728,500
--------------
20,203,500
--------------
HOUSING RELATED -- 0.4%
Hanson, PLC, ADR (United Kingdom)............... 223,100 5,577,500
Owens Corning................................... 429,000 18,500,625
--------------
24,078,125
--------------
INSURANCE -- 4.4%
Aetna, Inc...................................... 278,400 28,501,200
Allstate Corp................................... 320,100 23,367,300
Berkley (WR) Corp............................... 124,300 7,318,162
Chubb Corp...................................... 334,000 22,336,250
CIGNA Corp...................................... 55,600 9,869,000
Equitable of Iowa Companies..................... 235,800 13,204,800
Financial Security Assurance Holdings, Ltd...... 148,500 5,782,219
PennCorp Financial Group, Inc................... 349,600 13,459,600
Provident Companies, Inc........................ 116,300 6,222,050
Reinsurance Group of America, Inc............... 335,400 19,285,500
TIG Holdings, Inc............................... 372,300 11,634,375
Travelers Group Inc............................. 325,701 20,539,519
Trenwick Group, Inc............................. 289,700 10,863,750
United Healthcare Corp.......................... 445,400 23,160,800
Western National Corp........................... 575,900 15,441,319
--------------
230,985,844
--------------
LEISURE -- 0.7%
Carnival Corp. (Class 'A' Stock)................ 612,400 25,261,500
Hilton Hotels Corp.............................. 369,100 9,804,219
--------------
35,065,719
--------------
MACHINERY -- 1.4%
Case Corp....................................... 684,700 47,158,712
DT Industries, Inc.............................. 155,600 5,562,700
Global Industrial Technologies, Inc. (a)........ 273,600 5,608,800
Paxar Corp...................................... 809,500 15,279,313
--------------
73,609,525
--------------
MANUFACTURING -- 0.9%
Illinois Tool Works, Inc........................ 278,400 13,902,600
Tyco International, Ltd......................... 454,601 31,623,182
--------------
45,525,782
--------------
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MEDIA -- 1.0%
Central Newspapers, Inc. (Class 'A' Stock)...... 217,600 $ 15,585,600
Gannett Co., Inc................................ 125,300 12,373,375
Houghton Mifflin Co............................. 127,600 8,517,300
Knight-Ridder, Inc.............................. 253,000 12,412,813
Lee Enterprises, Inc............................ 221,400 5,839,425
--------------
54,728,513
--------------
METALS-FERROUS -- 0.7%
Bethlehem Steel Corp. (a)....................... 588,900 6,146,644
LTV Corp........................................ 892,000 12,711,000
Material Sciences Corp. (a)..................... 421,800 6,511,538
National Steel Corp. (Class 'B' Stock) (a)...... 183,200 3,080,050
USX-U.S. Steel Group............................ 265,100 9,295,069
--------------
37,744,301
--------------
METALS-NON FERROUS -- 0.9%
Aluminum Company of America..................... 507,400 38,245,275
Potash Corp. of Saskatchewan, Inc. (Canada)..... 122,500 9,195,156
--------------
47,440,431
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.9%
Coltec Industries, Inc.......................... 190,000 3,705,000
Donaldson, Co................................... 237,800 9,036,400
IDEX Corp....................................... 261,500 8,629,500
Mark IV Industries, Inc......................... 376,900 9,045,600
Trinity Industries, Inc......................... 227,000 7,207,250
Wolverine Tube, Inc. (a)........................ 164,600 4,588,225
York International Corp......................... 117,200 5,391,200
--------------
47,603,175
--------------
MISCELLANEOUS - CONSUMER GROWTH/STABLE -- 0.5%
Unilever N.V., ADR (United Kingdom)............. 116,800 25,462,400
--------------
OIL & GAS -- 3.0%
Basin Exploration, Inc. (a)..................... 75,700 586,675
Cabot Oil & Gas Corp. (Class 'A' Stock)......... 385,700 6,797,963
Cross Timbers Oil Co............................ 442,600 8,520,050
Enron Oil & Gas Co.............................. 210,600 3,817,125
J. Ray McDermott, SA............................ 713,300 19,259,100
McDermott International, Inc.................... 1,345,700 39,277,619
Mesa, Inc., (a)................................. 1,905,400 10,956,050
Murphy Oil Corp................................. 120,900 5,893,875
Noble Affiliates, Inc........................... 444,100 17,181,119
Seagull Energy Corp. (a)........................ 260,200 4,553,500
Total SA (Class'B' Stock) (France).............. 194,700 9,856,688
Unocal Corp..................................... 598,400 23,225,400
Western Gas Resources, Inc.,.................... 448,500 8,745,750
--------------
158,670,914
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.6%
Elf Aquitaine SA, ADR (France).................. 544,200 29,624,888
--------------
OIL & GAS SERVICES -- 2.5%
Apache Corporation.............................. 765,500 24,878,750
Coflexip, ADR (France).......................... 454,300 13,685,788
Halliburton Co.................................. 473,200 37,501,100
ICO, Inc........................................ 335,100 1,738,331
Oryx Energy Co. (a)............................. 537,500 11,354,688
Parker & Parsley Petroleum Co................... 1,031,300 36,482,238
Weatherford Enterra, Inc. (a)................... 203,300 7,827,050
--------------
133,467,945
--------------
REAL ESTATE DEVELOPMENT -- 0.4%
Crescent Operating, Inc......................... 71,240 854,880
Crescent Real Estate Equities, Inc.............. 712,400 22,618,700
--------------
23,473,580
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B9
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
RETAIL -- 5.0%
American Stores Co.............................. 668,100 $ 32,987,438
Bombay Company, Inc. (a)........................ 605,900 3,029,500
Charming Shoppes, Inc. (a)...................... 3,532,600 18,435,756
Costco Companies, Inc........................... 598,400 19,672,400
CVS Corp........................................ 362,000 18,552,500
Dillards, Inc. (Class 'A' Stock)................ 138,100 4,781,713
Federated Department Stores, Inc. (a)........... 540,000 18,765,000
Home Depot, Inc................................. 362,000 24,955,375
Jan Bell Marketing, Inc. (a).................... 658,700 1,605,581
K mart Corp. (a)................................ 1,302,600 15,956,850
Kroger Co. (a).................................. 779,500 22,605,500
Rite Aid Corp................................... 278,400 13,885,200
Safeway, Inc. (a)............................... 626,400 28,892,700
Sears, Roebuck & Co............................. 417,600 22,446,000
Tandy Corp...................................... 101,900 5,706,400
Toys 'R' Us, Inc. (a)........................... 379,600 13,286,000
--------------
265,563,913
--------------
RUBBER -- 0.2%
Goodyear Tire & Rubber Co....................... 170,800 10,813,775
--------------
TELECOMMUNICATIONS -- 2.1%
Alcatel Alsthom, ADR (France)................... 543,800 13,730,950
Ascend Communications, Inc. (a)................. 400,800 15,781,500
Deutsche Telekom, ADR (Germany)................. 196,100 4,730,913
Qualcomm Inc.................................... 459,300 23,366,888
Tellabs, Inc. (a)............................... 459,300 25,663,388
Worldcom Inc.................................... 890,700 28,502,400
--------------
111,776,039
--------------
TEXTILES -- 0.3%
Fieldcrest Cannon, Inc. (a)..................... 291,200 5,532,800
Fruit of the Loom, Inc. (Class 'A' Stock) (a)... 316,400 9,808,400
Tultex Corp. (a)................................ 384,400 2,354,450
--------------
17,695,650
--------------
TOBACCO -- 0.9%
Bat Industries, PLC, ADR (United Kingdom)....... 458,600 8,398,113
Philip Morris Companies, Inc.................... 799,100 35,460,063
UST, Inc........................................ 107,500 2,983,125
--------------
46,841,301
--------------
TOYS -- 0.7%
Hasbro Inc...................................... 556,700 15,796,363
Mattel Inc...................................... 558,500 18,919,188
--------------
34,715,551
--------------
TRUCKING/SHIPPING -- 0.1%
Yellow Corp. (b)................................ 313,300 7,010,088
--------------
TOTAL COMMON STOCKS
(cost $2,641,205,395).......................................... 3,003,016,302
--------------
PREFERRED STOCKS -- 0.9%
FINANCIAL SERVICES -- 0.5%
Central Hispano Financial Services.............. 1,000,000 25,700,000
--------------
OIL & GAS -- 0.1%
Mesa, Inc....................................... 690,098 4,615,030
--------------
LEISURE -- 0.3%
Hilton Hotels (Conv.)........................... 611,400 15,437,850
--------------
TOTAL PREFERRED STOCKS
(cost $44,602,115)............................................. 45,752,880
--------------
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS -- 36.6% RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
AGRICULTURAL PRODUCTS & SERVICES -- 0.1%
Agco Corp.,
8.50%, 03/15/06............................... Ba1 $ 4,875 $ 5,000,239
--------------
AIRLINES -- 2.1%
Delta Air Lines, Inc.,
10.125%, 05/15/10............................. Baa3 19,335 23,628,723
10.375%, 02/01/11............................. Baa3 25,750 32,200,890
United Air Lines, Inc.,
9.75%, 08/15/21............................... Baa3 10,125 12,089,047
10.67%, 05/01/04.............................. Baa3 19,500 22,891,440
11.21%, 05/01/14.............................. Baa3 17,500 22,910,825
--------------
113,720,925
--------------
ASSET-BACKED SECURITIES -- 0.1%
Standard Credit Card Master Trust,
5.95%, 10/07/04............................... Aaa 4,500 4,307,310
--------------
BANKS AND SAVINGS & LOANS -- 2.8%
Banco de Commercio Exterior de Colombia, SA,
M.T.N. (Colombia)
8.625%, 06/02/00.............................. Baa3 5,500 5,678,750
Banco Ganadero, S.A., M.T.N. (Colombia)
9.75%, 08/26/99 (c)........................... Baa3 7,300 7,646,750
Bangkok Bank (Thailand),
7.25%, 09/15/05............................... A3 10,000 9,531,300
8.25%, 03/15/16............................... A3 7,500 7,182,187
8.375%, 01/15/27.............................. A3 43,000 41,043,500
Kansallis-Osake Pankki, (Finland),
8.65%, 01/01/49(b)............................ A3 9,000 9,337,500
Okobank (Finland),
7.27%, 10/29/49(b)............................ A3 9,000 9,180,000
7.375%, 09/27/49.............................. A3 18,750 19,078,125
7.387%, 10/29/49(b)........................... A3 3,500 3,570,000
Siam Commercila (Thailand)
7.50%, 03/15/06............................... A3 14,500 13,898,612
Svenska Handelsbank (Sweden),
7.125%, 03/29/49.............................. A1 5,000 4,905,000
Thai Farmers Bank (Thailand),
8.25%, 08/21/16............................... A3 20,000 19,090,500
--------------
150,142,224
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.4%
Comcast Corp.,
8.375%, 05/01/07.............................. Ba1 5,000 5,193,750
Rogers Cablesystems, Inc., Sr. Sec'd. Notes
(Canada),
10.00%, 03/15/05.............................. Ba3 2,000 2,160,000
TCI-Communications, Inc.,
8.25%, 01/15/03............................... Ba1 8,000 8,278,640
8.75%, 08/01/15............................... Ba1 17,950 18,813,395
9.80%, 02/01/12............................... Ba1 20,750 23,750,242
9.875%, 06/15/22.............................. Ba1 12,878 14,726,379
--------------
72,922,406
--------------
CHEMICALS -- 0.6%
Reliance Industries Ltd. (India),
9.375%, 06/24/26.............................. Baa3 12,000 13,125,000
10.25%, 01/15/2097............................ Baa3 15,000 16,260,000
--------------
29,385,000
--------------
CONSUMER PRODUCTS -- 0.1%
James River Corp.,
7.75%, 11/15/23............................... Baa3 5,000 4,778,450
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B10
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
CONSUMER SERVICES -- 0.2%
Digital Equipment Corp.,
7.125%, 10/15/02.............................. Ba1 $ 9,800 $ 9,596,258
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,497,300
--------------
12,093,558
--------------
ENERGY -- 0.5%
Gulf Canada Resources (Canada),
8.25%, 03/15/17............................... Ba1 24,890 25,512,250
--------------
FINANCIAL SERVICES -- 7.3%
American General Finance, Inc.,
7.57%, 12/01/45............................... A1 20,050 18,927,200
8.25%, 03/15/46............................... A1 60,000 60,388,200
Central Hispano Financial Services (Portugal),
6.352%, 04/28/05.............................. NR 5,000 5,004,500
Conseco, Inc.,
8.70%, 11/15/26............................... Ba2 37,538 38,419,256
8.796%, 04/01/27.............................. Ba2 25,000 25,464,500
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa2 20,700 20,393,019
6.95%, 03/01/04............................... Baa2 7,500 7,429,688
7.00%, 06/15/00............................... Baa3 13,500 13,594,635
First Tennessee National Corp., B.A.,
8.07%, 01/06/27............................... A3 11,150 10,859,821
Great Western Financial,
8.206%, 02/01/27.............................. Baa2 14,200 14,160,524
GreenPoint Financial Corp.,
9.10%, 06/01/27............................... Ba1 12,500 12,588,750
Lumbermens Mutual Casualty Co.,
9.15%, 07/01/26............................... Baa1 20,975 22,929,975
Merita Bank, Ltd.,
7.50%, 12/29/49............................... A3 12,000 12,013,680
PT Alatief Freeport Financial Co.,
(Netherlands),
9.75%, 04/15/01............................... Ba1 7,600 8,247,216
Riggs National Corp.,
8.875%, 03/15/27.............................. Baa3 14,650 14,869,750
Salomon, Inc.,
6.50%, 03/01/00............................... Baa1 19,000 18,904,240
6.59%, 02/21/01............................... Baa1 35,000 34,593,650
6.75%, 08/15/03............................... Baa1 5,000 4,885,800
7.00%, 03/04/02............................... Baa1 18,000 17,916,300
7.25%, 05/01/01............................... Baa1 8,625 8,725,050
Union Planters Corp.,
8.20%, 12/15/26............................... Baa1 20,750 20,306,365
--------------
390,622,119
--------------
FOOD & BEVERAGE -- 0.2%
RJR Nabisco, Inc.,
8.50%, 07/01/07............................... Baa3 6,750 6,727,523
8.75%, 08/15/05............................... Baa3 3,000 3,044,850
--------------
9,772,373
--------------
INDUSTRIAL -- 0.1%
Compania Sud Americana de Vapores, S.A. (Chile),
7.375%, 12/08/03.............................. NR 5,650 5,537,000
--------------
MEDIA -- 4.8%
News America Holdings, Inc.,
7.375%, 10/17/08.............................. Baa3 2,000 1,979,900
7.75%, 12/01/45............................... Baa3 10,000 9,360,100
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
8.15%, 10/17/36............................... Baa3 $ 8,500 $ 8,379,895
9.25%, 02/01/13............................... Baa3 33,700 37,574,489
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 9,100 9,116,744
Time Warner, Inc.,
8.11%, 08/15/06............................... Ba1 28,250 29,334,518
8.18%, 08/15/07............................... Ba1 13,000 13,534,430
8.375%, 07/15/33.............................. Baa1 32,800 33,492,408
9.125%, 01/15/13.............................. Ba1 12,040 13,312,869
Turner Broadcasting Co.,
8.375%, 07/01/13.............................. BA 5,300 5,496,895
Viacom, Inc.,
6.75%, 01/15/03............................... Baa1 23,350 22,453,360
7.75%, 06/01/05............................... Ba2 68,800 68,279,184
--------------
252,314,792
--------------
OFFICE EQUIPMENT -- 0.8%
Xerox Corp.,
8.00%, 02/01/27............................... A2 40,500 40,500,000
--------------
OIL & GAS -- 0.3%
B.J. Services Co.,
7.00%, 02/01/06............................... Baa3 4,000 3,924,000
Empresa Colombia de Petroleos (Colombia),
7.25%, 07/08/98............................... NR 8,250 8,250,000
Parker & Parsley Petroleum Co.,
8.25%, 08/15/07............................... Baa3 3,000 3,144,450
--------------
15,318,450
--------------
PAPER & FOREST -- 0.3%
Fort Howard Corp.,
9.25%, 03/15/01............................... Baa3 13,700 14,590,500
--------------
RETAIL -- 1.5%
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. Baa2 4,600 4,802,032
8.50%, 06/15/03............................... Baa2 63,290 67,151,956
10.00%, 02/15/01.............................. Baa2 8,000 8,776,400
--------------
80,730,388
--------------
TECHNOLOGY -- 0.1%
Comdisco, Inc., M.T.N.,
6.375%, 11/30/01.............................. Baa1 2,700 2,643,003
--------------
TELECOMMUNICATIONS -- 0.8%
Tele-Communications, Inc.,
7.875%, 08/01/13.............................. Ba1 32,150 31,389,653
Total Access Communications (Thailand),
8.375%, 11/04/06.............................. Ba1 4,000 3,912,280
Worldcom, Inc.,
7.75%, 04/01/27............................... Ba1 6,000 6,279,240
--------------
41,581,173
--------------
TOBACCO -- 1.1%
Phillip Morris Co., Inc.,
7.20%, 02/01/07............................... A2 10,000 9,913,200
7.50%, 04/01/04............................... A2 50,000 50,804,000
--------------
60,717,200
--------------
UTILITIES -- 1.2%
Cleveland Electric Illuminating Company,
7.19%, 07/01/00............................... Ba2 7,000 7,024,780
7.67%, 07/01/04............................... Ba2 54,000 54,202,500
Quezon Power, (Philippines),
8.86%, 06/15/17............................... Ba1 5,000 5,000,000
--------------
66,227,280
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B11
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.3%
Federal National Mortgage Association,
Zero Coupon, 10/09/19......................... Aaa $ 11,800 $ 2,463,250
United States Treasury Notes,
6.25%, 02/15/03(c)............................ Aaa 3,000 2,976,570
6.50%, 11/15/26............................... Aaa 5,200 4,987,112
6.625%, 05/15/07(c)........................... Aa 1,875 1,890,525
6.75%, 08/15/26(c)............................ Aaa 3,000 2,969,070
--------------
15,286,527
--------------
FOREIGN GOVERNMENT BONDS -- 9.9%
City of St. Petersburg (Russia),
9.50%, 06/18/02............................... NR 35,000 35,000,000
Republic of Argentina (Argentina),
6.75%, 03/31/05............................... B1 77,600 72,944,000
Republic of Colombia (Colombia),
7.125%, 05/11/98.............................. Baa3 2,700 2,720,250
7.625%, 02/15/07.............................. Baa3 25,000 24,360,000
8.00%, 06/14/01............................... Baa3 2,150 2,185,518
8.75%, 10/06/99............................... Baa3 12,300 12,864,201
Republic of Panama (Panama),
3.50%, 07/17/14............................... Ba1 101,000 77,896,250
Republic of the Philippines (The Philippines),
8.60%, 06/15/27............................... Ba1 80,000 78,681,600
Republic of Poland (Poland),
3.00%, 10/27/24............................... Baa3 25,000 14,437,500
4.00%, 10/27/14............................... Baa3 53,000 45,248,750
Republic of South Africa (South Africa),
8.50%, 06/23/17............................... Baa3 31,000 30,845,000
Republic of Venezuela (Venezuela),
6.75%, 12/18/07............................... Ba2 79,250 73,504,375
Royal Bank of Canada (Canada),
6.75%, 10/24/11............................... Aa3 5,000 4,845,000
Russian Ministry of Finance (Russia),
10.00%, 06/26/07.............................. Ba2 19,975 19,905,088
United Mexican States, (Mexico),
11.50%, 05/15/26.............................. Ba2 25,000 28,550,000
--------------
523,987,532
--------------
TOTAL LONG-TERM BONDS
(cost $1,915,479,790).................................................... 1,937,690,699
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,601,287,300).................................................... 4,986,459,881
--------------
VALUE
SHORT-TERM INVESTMENTS -- 5.8% (NOTE 2)
--------------
BANK NOTES -- 0.2%
American Express Centurian Bank,
5.408%, 12/09/97.............................. P1 2,000 2,000,000
CoreStates Bank, N.A.,
5.626%, 12/19/97.............................. NR 1,000 1,000,000
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
First Bank N.A.,
5.585%, 10/15/97.............................. P3 $ 2,000 $ 2,000,000
Key Bank, N.A.,
5.608%, 08/21/97.............................. NR 2,000 1,999,941
--------------
6,999,941
--------------
CERTIFICATES OF DEPOSIT-EURODOLLAR
Berliner Handels (Germany),
5.72%, 07/21/97............................... P3 1,000 1,000,006
Royal Bank of Canada, (Canada),
5.50%, 08/06/97............................... P3 1,000 999,624
--------------
1,999,630
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 0.6%
Berliner Handels (Germany),
5.62%, 08/11/97............................... P3 1,000 1,000,011
Canadian Imperial Bank (Canada),
5.60%, 08/25/97............................... P3 8,000 8,000,000
5.68%, 08/19/97............................... P3 3,000 3,000,000
Credit Agricole Indosuez (France),
5.63%, 08/11/97............................... NR 3,000 3,000,084
Creditanstalt (Germany),
5.43%, 04/07/97............................... NR 5,000 5,000,013
Deutsche Bank (Germany),
5.69%, 10/28/97............................... P3 1,000 999,902
Landesbank Hessen-Thuringen (Germany),
6.13%, 04/01/98............................... NR 1,000 999,581
Royal Bank of Canada (Germany),
5.91%, 06/17/98............................... P3 3,000 2,998,345
Societe Generale (France),
5.75%, 12/22/97............................... P1 2,100 2,099,589
6.19%, 05/06/98............................... P1 4,000 3,997,993
--------------
31,095,518
--------------
COMMERCIAL PAPER -- 3.6%
Abbey National Treasury Services, PLC (United
Kingdom),
5.45%, 07/11/97............................... P1 4,400 4,393,339
Acquisition Holding Company,
5.60%, 07/16/97............................... NR 1,000 997,667
Aetna Services, Inc.,
5.57%, 07/15/97............................... NR 2,000 1,995,668
American General Financial Corp.,
5.55%, 07/07/97............................... P1 3,000 2,997,225
American Honda Finance Corp.,
5.60%, 07/30/97............................... P1 8,800 8,760,302
Aristar, Inc.,
5.70%, 07/24/97............................... P2 1,000 996,358
Asset Securitization Corp.,
5.56%, 08/18/97............................... NR 4,000 3,970,347
Associates Corp. of North America,
5.55%, 07/03/97............................... P1 1,000 999,692
6.625%, 11/15/97.............................. P1 600 602,097
Avco Financial Services Corp.,
5.46%, 11/17/97............................... P1 1,000 999,945
B. B. V. Finance Deleware, Inc.,
5.45%, 09/04/97............................... NR 2,000 1,980,319
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B12
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
Banque Nationale De Paris (France),
5.74%, 08/20/97............................... NR $ 4,000 $ 4,000,000
Barton Capital Corp.,
5.59%, 07/31/97............................... NR 3,279 3,263,725
5.65%, 07/25/97............................... NR 1,905 1,897,824
Bear, Stearns & Co.,
5.57%, 07/07/97............................... P1 2,000 1,998,143
5.58%, 07/08/97............................... P1 1,000 998,915
Beneficial Corp.,
5.571%, 08/05/97.............................. P1 1,000 1,000,061
Ciesco Corp.,
5.60%, 08/14/97............................... P1 1,000 993,156
Coca Cola Enterprises, Inc.,
5.58%, 07/14/97............................... NR 1,000 997,985
5.70%, 08/18/97............................... NR 1,000 992,400
Commerzbank AG (Germany),
5.67%, 08/21/97............................... P3 2,000 1,983,935
Corporate Asset Funding Corp.,
5.62%, 08/07/97............................... P1 6,000 5,965,343
Corporate Receivables Corp.,
5.62%, 08/20/97............................... NR 2,000 1,984,375
Countrywide Home Loan, Inc.,
5.58%, 07/09/97............................... NR 5,335 5,328,385
CXC, Inc.,
5.65%, 08/05/97............................... NR 2,345 2,332,119
Dillard Investment Corp.,
5.55%, 07/23/97............................... P3 9,300 9,268,457
Falcon Asset Security Corp.,
5.57%, 07/07/97............................... P1 1,770 1,768,357
Finova Capital Corp.,
5.60%, 07/09/97............................... NR 1,000 998,756
5.71%, 07/15/97............................... NR 2,000 1,995,559
First Chicago Corp.,
5.56%, 08/19/97............................... P3 1,000 992,432
First Data Corp.,
5.68%, 08/19/97............................... NR 1,000 992,269
Ford Motor Credit,
5.55%, 07/09/97............................... P1 8,275 8,264,794
General Electric Capital Services, Inc.,
5.55%, 10/06/97............................... P3 1,000 985,046
5.70%, 11/05/97............................... P1 5,000 4,899,458
5.70%, 01/12/98............................... P1 5,000 4,845,625
General Motors Acceptance Corp.,
5.59%, 07/07/97............................... P1 3,000 2,997,205
5.82%, 11/07/97............................... P1 5,000 4,895,725
7.00%, 08/19/97............................... P1 1,000 1,001,286
General Signal Corp.,
5.58%, 07/18/97............................... NR 2,415 2,408,636
5.58%, 07/18/97............................... NR 2,000 1,994,730
GTE Corp.,
5.57%, 07/15/97............................... P2 405 404,123
5.61%, 07/22/97............................... P2 2,000 1,993,455
GTE Finance Corp.,
5.58%, 07/17/97............................... P3 1,563 1,559,124
5.60%, 07/24/97............................... P3 4,000 3,985,689
Household Finance Corp.,
5.709%, 08/11/97.............................. P2 475 475,092
Indosuez N. A., Inc (France)
5.66%, 07/07/97............................... NR 2,000 1,998,113
</TABLE>
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
International Lease Finance Corp.,
5.35%, 07/30/97............................... A1 $ 2,662 $ 2,650,528
John Deere Capital Corp.,
5.54%, 07/09/97............................... P1 1,000 998,769
Johnson Controls Inc.,
5.60%, 07/07/97............................... P2 10,475 10,465,223
Johnson Controls, Inc.,
5.57%, 07/11/97............................... P2 1,000 998,453
Lehman Brothers Holdings, Inc.,
5.75%, 07/02/97............................... NR 3,000 2,999,521
MCI Communications Corp.,
5.45%, 07/07/97............................... NR 1,000 999,092
5.54%, 07/07/97............................... NR 1,000 999,077
Merrill Lynch & Co., Inc.,
5.468%, 10/16/97.............................. P3 1,000 1,000,090
Mitsubishi International Corp.,
5.75%, 07/08/97............................... P1 3,000 2,996,646
National Bank of Canada (Canada),
5.41%, 07/07/97............................... P3 1,000 999,098
Newell Co.,
5.60%, 08/20/97............................... NR 1,000 992,222
Norwest Corp.,
7.70%, 11/15/97............................... P1 500 503,639
NYNEX Corp.,
5.60%, 07/21/97............................... P3 927 924,116
Potomac Electric Power Co.,
5.52%, 07/28/97............................... P1 6,021 5,996,073
Prefco,
5.55%, 07/02/97............................... P1 1,000 999,846
Rank Xerox Capital PLC (United Kingdom),
5.56%, 08/20/97............................... NR 1,000 992,278
Rubbermaid, Inc.,
5.57%, 08/05/97............................... NR 1,000 994,585
6.30%, 07/01/97............................... NR 5,700 5,700,000
Shell Oil Co.,
6.15%, 07/01/97............................... NR 3,000 3,000,000
Short Term Repack Asset,
6.006%, 12/15/97.............................. NR 1,000 999,902
Smith Barney, Inc.,
5.55%, 07/07/97............................... NR 1,585 1,583,534
Sonoco Products,
6.30%, 07/01/97............................... P1 3,976 3,976,000
Svenska Handelsbanken (Sweden),
5.62%, 08/14/97............................... NR 11,000 10,924,442
Triple-A One Plus Funding,
5.70%, 07/07/97............................... NR 4,327 4,322,889
WCP Funding, Inc.,
5.65%, 08/04/97............................... NR 2,000 1,989,328
--------------
190,158,607
--------------
OTHER CORPORATE OBLIGATIONS
Capital Equipment Receivable Trust,
5.60%, 10/15/97............................... NR 378 377,758
Empersa La Moderna, SA (Mexico)
10.25%, 11/12/97.............................. NR 2,000 2,022,500
--------------
2,400,258
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B13
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MOODY'S AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) RATING (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 1.4%
Joint Repurchase Agreement Account,
5.88%, 07/01/97............................... $ 74,666 $ 74,666,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $307,299,369)...................................................... 307,319,954
--------------
TOTAL INVESTMENTS BEFORE SHORT SALE -- 100.0%
(cost $4,908,586,669; Note 6)............................................ 5,293,779,835
--------------
INVESTMENTS SOLD SHORT -- (0.7%)
United States Treasury Bonds,
6.25% 6/30/02............................................... 31,810 (31,809,920)
6.63% 5/15/07............................................... 5,041 (5,041,400)
--------------
TOTAL INVESTMENTS SOLD SHORT
(proceeds $36,863,906; Note 2).............................. (36,851,320)
--------------
TOTAL INVESTMENTS, NET OF SHORT SALES -- 99.3%.............................
5,256,928,515
VARIATION MARGIN ON OPEN FUTURES CONTRACTS (D).............................
1,386,563
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.7%..............................
(35,323,342)
--------------
TOTAL NET ASSETS -- 100.0%................................................. $5,293,638,420
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
AG Aktiegesellschaft (German Stock Company)
B.A. Bankers' Acceptances
C.D. Certificates of Deposit
M.T.N. Medium Term Note
NR Not Rated
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Indicates a variable rate security.
(c) Security segregated as collateral for future contracts.
(d) Open futures contracts as of June 30, 1997 are as follows:.
<TABLE>
<C> <S> <C> <C> <C> <C>
VALUE AT
NUMBER OF EXPIRATION VALUE AT JUNE 30,
CONTRACTS TYPE DATE TRADE DATE 1997 DEPRECIATION
Short
Position:
U.S.
2,465 T-Bond Sep 97 $268,153,594 $273,769,063 ($5,615,469)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B14
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE CONSERVATIVE BALANCED PORTFOLIO AND FLEXIBLE MANAGED PORTFOLIO OF
THE PRUDENTIAL SERIES FUND, INC.
(UNAUDITED)
NOTE 1: GENERAL
The Prudential Series Fund, Inc. ('Series Fund'), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of fifteen Portfolios ('Portfolio' or 'Portfolios'),
each with a separate series of capital stock. The information presented in these
financial statements pertains to only two Portfolios: Conservative Balanced
Portfolio and Flexible Managed Portfolio. Shares in the Series Fund are
currently sold only to certain separate accounts of The Prudential Insurance
Company of America ('The Prudential'), Pruco Life Insurance Company and Pruco
Life Insurance Company of New Jersey (together referred to as the 'Companies')
to fund benefits under certain variable life insurance and variable annuity
contracts ('contracts') issued by the Companies. The accounts invest in shares
of the Series Fund through subaccounts that correspond to the portfolios. The
accounts will redeem shares of the Series Fund to the extent necessary to
provide benefits under the contracts or for such other purposes as may be
consistent with the contracts.
NOTE 2: ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Series Fund in preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
SECURITIES VALUATION: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
Convertible debt securities are valued at the mean between the most recently
quoted bid and asked prices provided by principal market makers. High yield
bonds are valued either by quotes received from principal market makers or by an
independent pricing service which determine prices by analysis of quality,
coupon, maturity and other factors. Any security for which a reliable market
quotation is unavailable is valued at fair value as determined in good faith by
or under the direction of the Series Fund's Board of Directors.
Short-term securities are valued at amortized cost.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements
with U.S. financial institutions, it is the Series Fund's policy that its
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, take possession of the underlying collateral securities,
the value of which exceeds the principal amount of the repurchase transaction
including accrued interest. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Series Fund may
by delayed or limited. (See Note 5).
FOREIGN CURRENCY TRANSLATION: The books and records of the Series Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investments securities, other assets and liabilities - at
the current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses -at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal period, the Series Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from changes
in the market prices of securities held at the end of the period. Similarly, the
Series Fund does not isolate the effect of changes in foreign exchange rates
from the fluctuations arising from changes in the market prices of long-term
portfolio securities sold during the period. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains (losses)
on investment transactions.
C1
<PAGE>
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at period end exchange rates are reflected as a component of net
unrealized appreciation (depreciation) on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
SHORT SALES: Conservative Balanced Portfolio and Flexible Managed Portfolio 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 broker-dealer through which
it made the short sale as collateral for its obligation to deliver the security
upon conclusion of the sale. The Portfolio may have to pay a fee to borrow the
particular security and may be obligated to remit any interest or dividends
received on such borrowed securities. A gain, limited to the price at which the
Portfolio sold the security short, or a loss, unlimited in magnitude, will be
recognized upon the termination of a short sale if the market price at
termination is less than or greater than, respectively, the proceeds originally
received.
OPTIONS: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sales or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.
The Series Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Series Fund bears the market risk of an unfavorable change in the price of the
security underlying the written option. The Series Fund, as purchaser of an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.
FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the 'initial margin'. Subsequent payments, known as 'variation
margin', are made or received by the Series Fund each day, depending on the
daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.
The Series Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series Fund intends to purchase,
against fluctuations in value. Under a variety of circumstances, the Series Fund
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts and the
underlying assets.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of three elements: stated
coupon, original issue discount and market discount, is recorded on the accrual
basis. Certain portfolios own shares of
C2
<PAGE>
real estate investment trusts ('REITs') which report information on the source
of their distributions annually. A portion of distributions received from REITs
during the period is estimated to be a return of capital and is recorded as a
reduction of their costs. 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.
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 the Series Fund to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.
DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the
Portfolio. Each Portfolio will declare and distribute dividends from net
investment income, if any, quarterly and net capital gains, if any, at least
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
NOTE 3: AGREEMENTS
The Series Fund has an investment advisory agreement with The Prudential.
Pursuant to this agreement The Prudential has responsibility for all investment
advisory services and supervises the subadvisers' performance of such services.
The Prudential has entered into a service agreement with The Prudential
Investment Corporation ('PIC'), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under the investment advisory agreement with the
Series Fund. The Prudential pays for the cost of PIC's services, compensation of
officers of the Series Fund, occupancy and certain clerical and administrative
expenses of the Series Fund. The Series Fund bears all other costs and expenses.
The investment advisory fee paid The Prudential is computed daily and payable
quarterly, at the annual rates specified below of the value of each of the
Portfolio's average daily net assets.
<TABLE>
<CAPTION>
Fund Investment Advisory Fee
- --------------------------------------- ------------------------
<S> <C>
Conservative Balanced Portfolio........ 0.55%
Flexible Managed Portfolio............. 0.60
</TABLE>
The Prudential has agreed to refund to a Portfolio, the portion of the
investment advisory fee for that Portfolio equal to the amount that the
aggregate annual ordinary operating expenses (excluding interest, taxes and
brokerage commissions) exceeds 0.75% of the Portfolio's average daily net
assets. No refund was required for the six months ended June 30, 1997.
PIC is an indirect, wholly-owned subsidiary of The Prudential.
NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended June 30, 1997, Prudential Securities Incorporated, an
indirect, wholly-owned subsidiary of The Prudential, earned $223,683 in
brokerage commissions from transactions executed on behalf of the Conservative
Balanced Portfolio and the Flexible Managed Portfolio as follows:
<TABLE>
<CAPTION>
Fund Commission
- --------------------------------------- -----------
<S> <C>
Conservative Balanced Portfolio........ $ 81,663
Flexible Managed Portfolio............. 142,020
-----------
$ 223,683
</TABLE>
C3
<PAGE>
NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT
The Portfolios of the Series Fund (excluding Global Portfolio) may transfer
uninvested cash balances into a single joint repurchase agreement account, the
daily aggregate balance of which is invested in one or more repurchase
agreements collateralized by U.S. Government obligations. The Series Fund's
undivided interest in the joint repurchase agreement account represented
$695,194,000 as of June 30, 1997. 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>
Conservative Balanced Portfolio........ $ 40,325,000 5.80%
Flexible Managed Portfolio............. 74,666,000 10.74
All other portfolios (currently not
available to PRUvider)............... 580,203,000 83.46
------------- ----------
$ 695,194,000 100.00%
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Chase Securities, Inc., 5.80%, in the principal amount of $230,000,000,
repurchase price $230,037,056, due
7/1/97. The value of the collateral including accrued interest was $234,039,088.
J. P. Morgan Securities, Inc., 5.95%, in the principal amount of $230,000,000,
repurchase price $230,038,014, due 7/1/97. The value of the collateral including
accrued interest was $236,789,590.
SBC Warburg, Ltd., 5.85%, in the principal amount of $5,194,000, repurchase
price $5,194,844, due 7/1/97. The value of the collateral including accrued
interest was $5,308,986.
UBS Securities Corp., 5.90%, in the principal amount of $230,000,000, repurchase
price $230,037,694, due
7/1/97. The value of the collateral including accrued interest was $234,671,875.
The weighted average interest rate of these repurchase agreements was 5.88%.
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchase and the proceeds from the sales of securities
(excluding short-term issues) for the six months ended June 30, 1997 were as
follows:
Cost of Purchases:
<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
------------ ------------
<S> <C> <C>
Debt Securities........................ $6,547,909,550 $4,370,837,860
Equity Securities...................... $1,633,768,724 $1,566,032,657
</TABLE>
Proceeds from Sales:
<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
------------ ------------
<S> <C> <C>
Debt Securities........................ $6,250,287,364 $4,156,009,378
Equity Securities...................... $1,955,092,923 $1,599,802,199
</TABLE>
The federal income tax basis and unrealized appreciation/depreciation of the
Portfolio's investments as of June 30, 1997 were as follows:
<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
------------ ------------
<S> <C> <C>
Gross Unrealized Appreciation.......... $184,952,186 $421,745,655
Gross Unrealized Depreciation.......... 35,438,318 39,569,961
Total Net Unrealized................... 149,513,868 382,175,694
Tax Basis.............................. 4,508,986,738 4,911,604,141
</TABLE>
C4
<PAGE>
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
--------------------------------------------------------------------
SIX MONTHS Year ended
ENDED December 31,
JUNE 30, -----------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a)
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24 $ 14.32
------------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.36 0.66 0.63 0.53 0.49 0.56
Net realized and unrealized gains
(losses) on investments.............. 0.81 1.24 1.78 (0.68) 1.23 0.41
------------- --------- --------- --------- --------- ---------
Total from investment operations... 1.17 1.90 2.41 (0.15) 1.72 0.97
------------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income... (0.17) (0.66) (0.64) (0.51) (0.47) (0.54)
Distributions from net realized
gains................................ (0.12) (1.03) (0.56) (0.15) (0.58) (0.51)
------------- --------- --------- --------- --------- ---------
Total distributions................ (0.29) (1.69) (1.20) (0.66) (1.05) (1.05)
------------- --------- --------- --------- --------- ---------
Net Asset Value, end of period......... $ 16.40 $ 15.52 $ 15.31 $ 14.10 $ 14.91 $ 14.24
------------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN(b)............. 7.80% 12.63% 17.27% (0.97)% 12.20% 6.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $4,707.2 $4,478.8 $3,940.8 $3,501.1 $3,103.2 $2,114.0
Ratios to average net assets:
Expenses............................. 0.57%(c) 0.59% 0.58% 0.61% 0.60% 0.62%
Net investment income................ 4.58%(c) 4.13% 4.19% 3.61% 3.22% 3.88%
Portfolio turnover rate................ 192% 295% 201% 125% 79% 62%
Average commission rate paid per
share................................ $0.0497 $0.0554 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE MANAGED
-----------------------------------------------------------------------------
SIX MONTHS Year ended
ENDED December 31,
JUNE 30, ---------------------------------------------------------------
1997 1996 1995(a) 1994(a) 1993(a) 1992(a)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01 $ 16.29
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.28 0.57 0.56 0.47 0.57 0.58
Net realized and unrealized gains
(losses) on investments.............. 1.49 1.79 3.15 (1.02) 1.88 0.61
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations... 1.77 2.36 3.71 (0.55) 2.45 1.19
----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS
Dividends from net investment income... (0.13) (0.58) (0.56) (0.45) (0.57) (0.56)
Distributions from net realized
gains................................ (0.16) (1.85) (0.79) (0.46) (0.93) (0.91)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions................ (0.29) (2.43) (1.35) (0.91) (1.50) (1.47)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, end of period......... $ 19.27 $ 17.79 $ 17.86 $ 15.50 $ 16.96 $ 16.01
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN(b)............. 10.13% 13.64% 24.13% (3.16)% 15.58% 7.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $5,293.6 $4,896.9 $4,261.2 $3,481.5 $3,292.2 $2,435.6
Ratios to average net assets:
Expenses............................. 0.62%(c) 0.64% 0.63% 0.66% 0.66% 0.67%
Net investment income................ 3.09%(c) 3.07% 3.30% 2.90% 3.30% 3.63%
Portfolio turnover rate................ 120% 233% 173% 124% 63% 59%
Average commission rate paid per
share................................ $0.0571 $0.0563 N/A N/A N/A N/A
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
D1
<PAGE>
BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.
MENDEL A. MELZER W. SCOTT McDONALD, JR., E. MICHAEL CAULFIELD
CHAIRMAN, PhD. CEO,
THE PRUDENTIAL SERIES VICE PRESIDENT, PRUDENTIAL INVESTMENTS
FUND, INC. KALUDIS CONSULTING PRESIDENT, THE
GROUP PRUDENTIAL SERIES FUND,
INC.
SAUL K. FENSTER, PhD. JOSEPH WEBER, PhD.
PRESIDENT, NEW JERSEY VICE PRESIDENT,
INSTITUTE OF TECHNOLOGY INTERCLASS
(INTERNATIONAL
CORPORATE LEARNING)
I
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The toll-free numbers shown below can be used to make transfers and
reallocations. Unit values for each investment option are available to all
Contract Owners from the 800 number. However, you must be enrolled to
allocate premiums, transfer funds or get the following information by
telephone:
- How your premiums are being allocated.
- Current investment option values in your contract.
The phone lines are open each business day during the hours shown. Please be
sure to have your contract number available when you call.
[MAP]
1-800-634-7879
8am - 4pm Central Time
1-800-356-4050
8am - 4pm Eastern Time
1-800-635-9587
8am - 4pm Eastern Time
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In the past, Contract Owners who held several contracts of the same type, at
the same address, received multiple copies of Annual Reports and Semiannual
Reports. In an effort to lessen waste and reduce your fund's expenses of
postage and printing, we will now mail only one copy of each Contract Owner
report for your related contracts at the same address. No action on your part
is necessary. Upon request, we will furnish you with additional reports. The
above toll-free numbers should be used to request any additional copies.
Proxy material and tax information will continue to be sent to each account
of record.
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Whether providing insurance protection for home, family and business or
arranging to cover future education and retirement expenses, Prudential
people have always been able to deliver something more: personal service,
quality, attention to detail and the financial strength of The
Rock-Registered Trademark-. Since 1875, Prudential has been helping
individuals and families meet their financial needs.
----------------
P.O. Box 197 BULK RATE
Minneapolis, MN 55440-0197 U.S. Postage
PAID
Address Service Requested Prudential
----------------
[LOGO]
PRUvider SAR 6/97 Printed in the U.S.A. PI-MV-0897-1247
CAT#646778F on recycled paper. MRA-1997-A017452
