<PAGE>
THE
PRUDENTIAL
SERIES FUND, INC.
[GRAPHIC]
ANNUAL REPORT TO
CONTRACT OWNERS AND
PROSPECTUS SUPPLEMENT
Pruco Life's PRUvider(SM)
Pruco Life of New Jersey's PRUvider(SM)
DECEMBER 31, 1998
IFS-19990208-A037407
[LOGO] PRUDENTIAL
The Prudential Insurance
Company of America
751 Broad Street
Newark, NJ 07102-3777
<PAGE>
================================================================================
THE PRUDENTIAL SERIES FUND, INC.
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 19981
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Six One Three Five Ten Since Inception
Months Year Years Years Years Inception Date
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced Portfolios
Conservative Balanced 3.44% 11.74% 12.61% 10.65% 11.31% 10.86% 5/83
Flexible Managed 0.59 10.24 13.90 12.19 13.15 12.06 5/83
</TABLE>
1 "Average Annual Total Return" is an average rate of return based on growth or
decline in the amounts invested plus the reinvestment of all dividends over the
periods ended 12/31/98. Source: Prudential. Six-month returns not annualized.
The rates of return quoted above and 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.
Variable life insurance and variable annuities are offered by Pruco Securities
Corporation and Prudential Securities Incorporated, both subsidiaries of
Prudential. The principal business address of Pruco Securities is 751 Broad
Street, Newark, NJ 07102-3777. Prudential Securities is located at One Seaport
Plaza, New York, NY 10292.
<PAGE>
================================================================================
TABLE OF CONTENTS
I. LETTER TO CONTRACT OWNERS 2
1. Market Review 4
2. Investment 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
5. Report of Independent Accounts E1
6. Prospectus Supplement F1
<PAGE>
YEAR ENDED DECEMBER 31, 1998
LETTER TO CONTRACT OWNERS
[PHOTO]
MENDEL A. MELZER, CFA
CHAIRMAN
================================================================================
"We continue to believe that diversification and a long-term perspective are the
keys to a successful investment strategy and can help you receive more
consistent returns over time."
DEAR CONTRACT OWNER:
We are pleased to provide to you our Annual Report 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.
Last year, the stock market registered double-digit returns for an unprecedented
fourth consecutive year. However, the global financial crisis drove many
investors to focus on only the largest and most marketable securities. As a
result, companies with the most predictable earnings and largest market
capitalization generated most of the stock market gains while small-company and
value stocks lagged dramatically. This "flight to quality" also drove the yield
on the 30-year Treasury bond down to 4.71%, its lowest level since April 1967.
The turning point for the financial markets came in the fall when a round of
interest rate cuts by central banks around the world, including the U.S. Federal
Reserve, fueled investor confidence and prompted investors to move money back
into riskier investments with higher potential total returns. (Total return is
interest or dividends plus capital appreciation.) Forecasts that there would be
a huge rise in on-line business also helped the bull market regain its footing
by sparking a fourth quarter rally in technology stocks.
HOW DID OUR PORTFOLIOS PERFORM?
The Prudential Series Fund Conservative Balanced and Flexible Managed Portfolios
delivered double-digit returns for the year, although they underperformed their
benchmarks.
Both the Conservative Balanced and Flexible Managed Portfolios hold a
combination of stocks, bonds and money market securities. The Conservative
Balanced Portfolio holds more in bonds and money market securities, which
generally makes it less volatile but may also reduce returns when stock prices
are rising. This was the case in 1998. The Portfolio had a one-year return of
11.74%, compared with the 14.79% return for the Lipper (VIP) Balanced Average.
While the Flexible Managed Portfolio holds more in stocks--increasing the
possibility of higher returns when stocks are rising in price--the stock
allocation holds mostly value stocks, which were largely out of favor last year.
It returned 10.24% for the year, compared with the 13.50% return for the Lipper
(VIP) Flexible Average. As always, remember that past performance is no
guarantee of future results.
2
<PAGE>
KEEP THE MARKETS IN PERSPECTIVE.
As we begin the new year, the U.S. stock market is at historic highs in terms of
the price placed on companies' earning powers. We expect markets eventually to
bring prices in line with earnings performance. We have already begun to see
fixed-income investors shift money back into investment-grade and high-yield
corporate bonds, as well as into emerging market, mortgage-backed and
asset-backed securities. Furthermore, growth and value styles of investing tend
to alternate in superior performance, making it often unwise to chase last
year's market winners.
We continue to believe that diversification and a long-term perspective are the
keys to a successful investment strategy and can help you receive more
consistent returns over time. It is also a good practice to rebalance your
holdings when necessary, to keep your asset allocation consistent with your
objectives and risk tolerance.
Your Prudential professional will be happy to help you review and structure a
program to meet your long-term financial goals. All of us at Prudential thank
you for your business and look forward to helping you plan for your future.
/s/ Mendel Melzer
Mendel A. Melzer, CFA
Chairman,
The Prudential Series Fund, Inc.
January 22, 1999
================================================================================
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.
3
<PAGE>
1998 MARKET COMMENTARY
MARKET OVERVIEW
o The Asian economic and financial crises, which culminated in the Russian
default, drove down the price of stocks throughout that region and then
throughout the world in the third quarter.
o Despite this volatility, most stock markets around the world posted
double-digit gains for the year. Interest rate cuts by the U.S. Federal
Reserve in September, October and November restored investor-confidence in
the markets.
o However, the performance of the average stock was below historical levels.
In the U.S., most of the gains were driven by the largest stocks with the
strongest franchises. Substantial performance disparities developed
between large-capitalization companies and small-capitalization companies
and between value and growth stocks.
o The prospect that the Internet will transform society led to an almost
unbelievable speculation in Internet-related stocks.
o Investor uncertainty also manifested itself in the bond markets. Pursuit
of the safest government bonds resulted in a significant rise in the
yields of riskier bonds.
U.S. STOCKS
DIVERGING MARKETS
Normally, the way to make money is to buy low and sell high. But looking at last
year's performance of stocks and bonds, it appears that the strategy that worked
best in 1998 was "momentum investing"--buying more of the most popular, most
expensive securities. Companies with the most predictable earnings and largest
market capitalization, which already were expensive at the beginning of 1998,
generated most of the year's stock market gains while small-company and value
stocks lagged dramatically.
Why did investors decide to buy high? The trouble began when the government of
Thailand devalued the baht in 1997. The currencies of several neighboring
countries also weakened and investors grew increasingly concerned about the
impact of an Asian economic slowdown.
This prompted many investors to focus on a few large, well-known companies,
which were expected to have more predictable earnings and marketable stocks.
When the Russian turmoil erupted last August, the focus on security intensified.
Since investors were willing to pay a premium for these well-known companies,
they boosted the return of these few firms above all others. Conversely,
small-company stocks, which generally are more vulnerable to negative financial
and economic news than large-company stocks, had a sharp price-drop in 1998.
The views expressed are as of 1/22/99 and are subject to change based on market
and other conditions.
================================================================================
HOW THE MARKETS COMPARED/1/
[GRAPHIC]
Average Return Over Past 20 Years
1998 (Annualized)
Money Markets 4.8% 7.6%
Bonds 9.5% 10.2%
Foreign Stocks 24.8% 15.3%
U.S. Stocks 28.6% 17.8%
This chart compares the 12-month return as of 12/31/98 for various categories of
investments with the average annual total return over 20 years for the same
investment. As you can see, stock and bond market returns can vary considerably
from year to year. Unlike stocks, bonds generally offer a fixed rate of return
and principal if held to maturity. An investment's past performance should never
be used to predict future results. There are different risks associated with
each investment sector, which should be carefully considered before investing.
/1/ Source: Lipper Analytical Services, Inc. For purposes of comparison only.
U.S. money markets as measured by Lipper Money Market Average. Bonds as measured
by the Lehman Brothers Gov't. Corp. Index. Foreign stocks as measured by the
Morgan Stanley Capital International World Index. U.S. stocks as measured by the
S&P 500 Composite Stock Price Index.
4
<PAGE>
In addition, value stocks--those that are inexpensive in terms of price-to-cash
flow, earnings and book value--also lagged large growth stocks dramatically.
This divergence in the market is reflected in the year-end returns of the major
equity indexes.
The Standard & Poor's 500 Composite Stock Price Index (the S&P 500 Index), which
represents the broad market to many investors, plunged in the third quarterbut
ended 1998 with a total return of 28.6%. The stocks of companies with the
largest capitalization, measured by the Russell Top 200 Index (published by the
Frank Russell Company), gained a substantial 33.4% over the year.
However, the small-cap Russell 2000 Index actually fell by 2.6%. (Market
capitalization, frequently referred to as market cap or market value, is the
price that the stock market puts on an entire enterprise. It is calculated by
multiplying the current market price by the number of shares outstanding.)
As for the performances of growth and value stocks in the S&P 500, the S&P/Barra
Growth Index returned 42.1% for the year, versus the S&P/Barra Value Index, up
only 14.7%--an unusually wide 27-percentage-point difference.
In many cases, however, the earnings of the most popular companies did not rise
as much as their share prices. Investors paid more and more for each dollar of
these firms' profits in 1998. Many of the market leaders' stocks reached prices
60 to 70 times their annual earnings, compared with historical average
price-to-earnings (P/E) ratios of less than 20 times earnings.
1998 WINNERS AND LOSERS
TECHNOLOGY STOCKS BIG WINNERS IN 1998
The Technology sector, driven by new low-cost computers and the prospect that
Internet commerce will transform the way we do business, led the market in 1998
with a 67.4% growth. Dell Computer was a large contributor to the sector's
performance, up 249%. Software giants Microsoft and Apple were other major
contributors, rising 118% and 212%, respectively. The return of co-founder Steve
Jobs and the introduction of new low-priced iMac computers helped Apple come
back after languishing among the worst performers on the S&P 500 Index just one
year ago. It was the second-best performing stock in the Index. EMC Corp., the
world's largest maker of data-storage devices, claimed the #3 spot on the "S&P
500 Index Top 10" list, up 210% for the year. Inspired by expectations more than
by current earnings, the prices of companies of Internet-related stocks shot up
to unprecedented levels.
CONSUMER CYCLICALS FINISHED SECOND
The Consumer Cyclicals sector came in a distant second for the year, but still
averaged an impressive 45.0% gain. Gap Inc. was the best name in the sector by
far, up 138%. Gap was the 10th best-performing company in the S&P 500 Index in
1998 as its line of khaki pants and casual clothes rode the trend toward less
formal work attire. Lowes Corp., up 115%, Home Depot, up 108%, and Wal-Mart, up
108%, were the other companies in the sector that doubled their prices for the
year.
================================================================================
TECHNOLOGY LED THE MARKET IN 1998
[GRAPHIC]
Tech. 67.4%
Cons. Cycl. 45.0%
Utilties 39.7%
Cons. Growth 27.4%
Indust. 12.6%
Finance 11.4%
Energy 0.94%
- --------------------------------------------------------------------------------
Source: Standard & Poor's as of 12/31/98. Past performance is not indicative of
future results.
5
<PAGE>
1998 MARKET COMMENTARY continued
INDUSTRIALS LAGGED
In our view, the Industrial sector of the U.S. economy suffered a brief
recession in mid 1998, due to the consequences of Asia's economic contraction.
The Far East is a major user of industrial products, such as machinery and
metals. Overbuilding and the declining cost of production in that region were
largely responsible for the sector's poor showing in the stock market. Within
the industrial sector of the S&P 500, machinery and nonferrous metals companies
were among the worst performers, losing 20% and 28%, respectively. Stronger
performances by office equipment and supplies companies and commercial services
helped the sector as a whole return just under 13%.
ENERGY DEMAND WAS LOW
The Energy sector, plagued by low demand throughout 1998 and a steep decline in
oil prices toward the end of the year, eked out a return of only 0.9%. Rowan,
down 68%, was among the worst performers in the sector. This oil service company
suffered as major oil producers reduced exploration and drilling operations and
crude oil prices plunged to 12-year lows. Baker Hughes, the fourth-largest U.S.
oil field services and equipment company, was down 59% for the year. It has
announced plans to eliminate 2,000 jobs.
THE WORLD
A TUMULTUOUS TWELVE MONTHS
In 1998, the European stock markets took investors on a tumultuous
roller-coaster ride. They staged an incredible rally in the first half of the
year, returning 27%, as measured by the Morgan Stanley Capital International
(MSCI) Europe Index in U.S. dollars. But investor anxiety hit Europe hard in
August. Double-digit declines were almost universal and many of the stock
markets gave up almost half of the gains made earlier in the year.
The decline was partly in reaction to the falling U.S. market, but it also
reflected fears of exposure to economic turmoil in Russia. Then in the last
quarter of the year, as central banks around the world lowered interest rates
and enthusiasm built in Europe for the year-end monetary union, the MSCI Europe
Index regained momentum and recouped what it had lost over the summer to end the
year up 29%.
Finland's stock market alone returned 123% in 1998, thanks in part to its strong
telecommunications and electronics industries. The worst market in Europe was
Norway. Hammered by sagging oil prices, the Oslo Stock Exchange fell 30%.
Asian returns were dominated by the contraction of the region's economy.
Japanese stocks had a positive return to U.S. investors only because the yen
appreciated against the dollar.
The weakening dollar, aided by signs of economic stabilization, also pushed
Thai-land into positive territory. Only the Australian, Korean and Philippine
markets rose in their own currencies.
================================================================================
GLOBAL STOCK MARKET PERFORMANCE1 (U.S. $) IN 1998
[GRAPHIC]
28.9% 24.8% 20.3% 5.3% -5.1%
MSCI MSCI MSCI MSCI MSCI
Europe World EAFE Japan Pacific
Index Free Free Index (Ex-Japan)
Index Index Free Index
- --------------------------------------------------------------------------------
/1/ Source: Morgan Stanley Capital International as of 12/31/98.
The Morgan Stanley Capital International (MSCI) World Free Index is a weighted,
unmanaged index of the performance of 1,472 securities listed on the stock
exchanges of the U.S., Europe, Canada, Australia, New Zealand and the Far East.
Morgan Stanley country indexes [Europe, Asia, Far East (EAFE), Pacific and
Japan] are unmanaged indexes that include stocks making up the largest
two-thirds of each country's total stock market capitalization. This chart is
for illustrative purposes only and is not indicative of the past, present or
future performance of any specific investment. Investors cannot invest directly
in indexes.
6
<PAGE>
BONDS
FLIGHT-TO-QUALITY INVESTING BREEDS ILLIQUIDITY
What did fixed-income investors want most in 1998? In two words, Quality and
Liquidity. During the volatile market conditions that characterized much of the
year, they fled to the highest-quality government securities--U.S.
Treasuries--even if it meant paying more and receiving lower returns.
The U.S. Treasury is the world's largest issuer of debt. Moreover, that debt is
backed by the full faith and credit of the federal government. Treasuries were
therefore an ideal "safe haven" investment. Major European government bond
markets were another safe port amid last year's global financial storm.
As a result of this "flight to quality," bond markets in late summer and early
October were plagued by illiquidity, or difficulty buying and selling all but
the most sought-after Treasuries. Growing demand for Treasuries fueled such a
strong rally that the yield on the 30-year Treasury bond fell to 4.71% on
October 5, its lowest level since April 1967. (Bond yields move in the opposite
direction of prices.) Yields on Treasury notes and bills also sank as a huge
inflow of cash into money market funds prompted portfolio managers to buy
short-term government securities.
These sharp drops meant that the spread, or difference in yield, between
Treasuries and other debt securities, such as investment-grade corporate bonds,
widened significantly, indicating investors were less willing to take a chance
on the relatively more risky bonds.
An even more dramatic indication of illiquidity was investors' strong preference
for "on the run," or the most recently auctioned, Treasuries versus "off the
run," or older, less-frequently traded issues. Both offer the same credit
quality. Yet the spread between yields of "on the run" and "off the run"
Treasuries, which might normally be a few basis points, rose to as much as 40
basis points in some cases. (A basis point is 1/100th of a percentage point.)
This wide gap reflected investors' willingness to pay more and accept lower
returns for greater liquidity.
This stampede away from both risky and safe bonds was one of the major factors
that spurred the Federal Reserve to action. Had the trend been allowed to
continue, it might have threatened the U.S. economic expansion. The Federal
Reserve cut the Federal funds rate (what banks charge each other to borrow
overnight) by a quarter percentage point on September 29, October 15 and
November 17. The reductions left the key short-term rate at 4.75%. The
mid-October move did the most to restore liquidity to the bond markets, as this
marked the first time in four and a half years that monetary policy was changed
between the central bank's regularly scheduled meetings. The unusual timing of
this move encouraged investors and spurred lenders to provide businesses with
money and should help foster U.S. economic growth in the future.
By the end of the year, the battered bond markets had staged a respectable
recovery. Investors had begun to shift money out of Treasuries back into
investment-grade and high yield corporate bonds as well as emerging market,
mortgage-backed and asset-backed securities.
================================================================================
GLOBAL BONDS DELIVER ATTRACTIVE RETURNS IN 1998
Global (U.S. dollar) 15.3%
U.S. Treasuries 10.0%
Aggregate Index 8.7%
Corporates 8.6%
Mortgages 7.0%
High Yield 1.6%
Emerging Markets -11.6%
- --------------------------------------------------------------------------------
Source: Lehman Brothers, as of 12/31/98. Past performance is not indicative of
future results.
7
<PAGE>
1999 INVESTMENT OUTLOOK
ECONOMIC OUTLOOK
SLOW GROWTH AND TAME INFLATION
Our economists at Prudential expect the economy to slow to a 2% pace in the
first half of 1999, but they do not expect the deceleration to be sharp. First,
the U.S. economy has more momentum than expected. This growth has come from
solid sources such as consumer expenditures, not from short- term factors such
as fluctuations in inventories. Second, a sharp increase in bank lending,
narrowing credit spreads and a rebound in the stock market have for the most
part silenced talk of a severe credit crunch. Lastly, recent employment reports
and vehicle sales indicate that above-trend growth still continues. Our
economists are also calling for growth to increase to 3% in the second half of
the year as businesses stock up on inventories in anticipation of Year 2000
computer problems.
We believe inflation will remain tame in 1999. Inflation, as measured by the
Consumer Price Index, is expected to level out at 2.25%. The Consumer Price
Index, which climbed 2% in the second half of 1998, is expected to rise by 2.4%
in the first half of 1999 and settle at 2.2% in the latter half. Oil prices
remain the biggest wild card in our inflation forecast. According to our
economists and most Wall Street firms, as Asia recovers and more seasonable
colder weather descends upon the United States and Japan, oil prices should
rise.
These projections imply that the Federal Reserve is not likely to tinker with
U.S. monetary policy in 1999 through further cuts in interest rates.
STOCK MARKET OUTLOOK
RECONSIDER EXPECTATIONS
Markets generally bring prices in line with earnings performance sooner or
later. Although the market may rise in 1999, the likelihood that it will match
the phenomenal gains of the last four years is not very high. Since the stock
market leaders have become very expensive relative to their earnings prospects,
investors may want to consider directing some assets to the underpriced sectors
of the market.
TIME TO REBALANCE
The disparity in returns (and valuations) among market sectors, investment
styles and capitalization groupings reminds us of the importance of
diversification and a long-term view. Rarely does the top-performing sector of
the market remain the same over time.
Investors interested in rebalancing should consider value stocks, which in
general are selling at significant discounts to the market, as well as small-
and mid-cap growth stocks. Many of these companies have strong pricing power. In
addition, given their strong performance in the fourth quarter of last year,
emerging markets and Asia may be starting their recovery at very inexpensive
levels. One place we believe investors should stay put is Europe, where the bull
market has yet to run its course. The advent of the new currency, the Euro, is
expected to lead to a large-scale restructuring of investment portfolios, which
may favor the larger, more familiar European companies.
================================================================================
A REALITY CHECK
Since 1925, the U.S. stock market's average return has been 11.2% as measured by
the S&P 500 Index. Yet in recent years, returns have been much higher, as the
chart below shows.
================================================================================
RETURNS OF THE U.S. STOCK MARKET
AVERAGE
ANNUAL
RETURN
----------
1925-1998 11.2%
- --------------------------------------------------------------------------------
Source: Ibbotson Associates.
LAST FOUR YEARS
1995 37.5%
1996 23.0%
1997 33.4%
1998 28.6%
- --------------------------------------------------------------------------------
Source: Lipper Analytical Services, Inc.
With the highest valuation levels in history at a time when corporate profits
are slowing, we believe it is prudent to remember that recent rates of return
are unlikely to continue.
8
<PAGE>
U.S. BOND MARKETS
GUARDED OPTIMISM
While last summer's wariness will not easily be forgotten, many investors are
once again embracing fixed-income markets with guarded optimism. Much will
depend on how the U.S. economy fares. The manufacturing arm is coming out of a
recession and service-sector growth could continue at a brisk, if somewhat
slower, pace than last year. Some Asian economies have begun to improve,
pointing toward stronger demand for American-made machinery and other industrial
goods.
These and other signs indicate that the U.S. economy is on course to make a soft
landing in 1999. In other words, the economy should grow at a slower pace but
avoid sliding into a recession. The three Federal funds rate cuts enacted late
last year could act as a safety net, encouraging economic growth through lower
borrowing costs. But it usually takes between nine months and a year for an
interest rate cut to work its way through the economy. This leaves plenty of
time for the economy to lose steam.
By some measures, the average spread, or difference in yield, between junk bonds
and Treasuries was just over 600 basis points at year-end (according to the
Chase High Yield Index). Although this spread is down from the more than 700
basis points of last summer, it is still much higher than the 400 to 500 basis
points that would be expected with the junk bond default rate currently at its
historical average of 3.0%. In short, we believe junk bonds are somewhat
undervalued right now considering the level of risk involved.
If the economy behaves as expected, the yield on the 30-year U.S. Treasury bond
should fluctuate in a fairly narrow range between 4.75% and 5.75% this year.
Investment-grade and high yield corporate bonds should perform better than
federal government securities as investors seek securities that provide
incremental yield over Treasuries. In fact, demand for junk bonds and
investment-grade corporate bonds has already increased in the new year because
they are viewed as beneficial additions to a portfolio in the low-rate
environment.
Prices of investment-grade corporate bonds have recovered roughly half of their
losses from last year, depending on which sector of the market is considered.
For example, financial services bonds bounced back solidly, but energy bonds
have gained only modestly amid continued concern about the impact of low oil
prices. Overall, corporate balance sheets are still in good shape as debt as a
percentage of equity is still at manageable levels.
Bargain hunters should also look to the municipal bond market, where the average
insured, triple-A-rated bond maturing in 30 years was yielding approximately 95%
as much as comparable Treasuries at year-end. Historically, these bonds have
yielded roughly 87% of what Treasuries yield, because their interest income is
exempt from federal income taxes and, in some cases, state and local taxes as
well.
9
<PAGE>
PRUDENTIAL CONSERVATIVE BALANCED PORTFOLIO
PERFORMANCE SUMMARY.
Your Portfolio--which invests in a conservative mix of bonds, stocks and money
market securities--returned 11.74%, for the year ended December 31, 1998, well
above the average bond return. However, it trailed the 14.79% return of the
Lipper (VIP) Balanced Fund Average because the Portfolio's conservative mandate
requires a smaller proportion of stocks in the asset allocation than the typical
balanced portfolio. Active management of our asset allocation added to the
Port-folio's performance, but both our bonds and the portion of our stocks that
are actively managed trailed their benchmarks.
================================================================================
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSERVATIVE BALANCED PORTFOLIO/1/ 3.44% 11.74% 12.61% 10.65% 11.31%
- ---------------------------------------------------------------------------------------------
LIPPER (VIP) BALANCED AVG./2/ 4.66% 14.79% 15.40% 13.73% 12.21%
- ---------------------------------------------------------------------------------------------
S&P 500 INDEX/3/ 9.24% 28.60% 28.23% 24.05% 19.19%
- ---------------------------------------------------------------------------------------------
LEHMAN GOV'T./CORP. BOND INDEX/4/ 5.09% 9.47% 7.33% 7.30% 9.33%
- ---------------------------------------------------------------------------------------------
</TABLE>
Conservative Balanced Portfolio inception date: 5/13/83.
================================================================================
$10,000 INVESTED OVER TEN YEARS
[GRAPHIC]
$57,864 S&P 500 INDEX/3/
$31,739 LIPPER (VIP) BALANCED AVG./2/
$29,177 CONSERVATIVE BALANCED PORTFOLIO/1/
$24,409 LEHMAN GOV'T./CORP. BOND INDEX/4/
Conservative Lipper (VIP) Lehman Gov't.
Balanced Balanced /Corp. Bond S&P 500
Portfolio/1/ Avg./2/ Index/4/ Index/3/
88 10000 10000 10000 10000
10856 11075.6 10923 11652.2
89 11698.6 11767.1 11423.4 13163.1
12091.7 11983.6 11699.4 13568.4
90 12315 11891.2 12369.8 12754
13320.4 12887.2 12895.1 14568.6
91 14663.9 14420.5 14364.5 16631.2
14795.5 14567.8 14722 16519.4
92 15683.6 15592 15453.5 17896.5
16911 16618.8 16657.5 18767.1
93 17596.7 17427.3 17158.2 19696.3
17186.5 16747 16414.3 19029.9
94 17426.5 17014.5 16556.2 19955.1
19140.8 19289 18509.1 23983.2
95 20436.4 21002.2 19742 27445
21466.8 21872.9 19370.8 30213.9
96 23016.7 23575.6 20315.1 33742.2
24810.9 25884 20872.7 40692.2
97 26113.3 27935 22297.4 44995.6
28207.7 30588.4 23227.5 52969.7
98 29177.7 31739.3 24409.7 57864
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) Balanced Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment return of certain portfolios underlying variable life and
annuity products. These returns are net of investment fees and fund
expenses but not product charges.
3 The S&P 500 Index is a capital-weighted index representing the aggregate
market value of the common equity of 500 stocks primarily traded on the
New York Stock Exchange. The S&P 500 is an unmanaged index that includes
the reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio.
4 The Lehman Government/Corporate Bond Index is comprised of government and
corporate bonds. The index is an unmanaged index that includes the
reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the index may differ substantially
from the securities in the Portfolio. The Lehman Gov't./Corp. Bond Index
is not the only index that may be used to characterize performance of
income funds, and other indexes may portray different comparative
performance.
================================================================================
[GRAPHIC]
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.
We Added Value with Active Asset Allocation. We kept our money market allocation
considerably below our benchmark, shifting the allocation to intermediate-term
bonds. By year's end, we also held nearly 40% of the Portfolio's assets in
stocks. We invested 80% of the stocks in a strategy designed to match the risk
and return characteristics of the S&P 500 Index. That strategy paid off in 1998,
as the S&P 500 Index outpaced most active equity managers.
A Poor Year for Value Stocks. The actively managed portion of our stock
allocation favors companies trading at attractive prices for their earning
potentials. These stocks did not participate in the stock market rally.
Bond Markets Became Very Focused. After Russia defaulted on some debt, bond
investors focused on U.S. Treasury bonds. Although we had reduced our exposure
to corporate and foreign issuers early in the year, a few remaining holdings
performed poorly.
10
<PAGE>
STRATEGY SESSION.
ACTIVE ASSET ALLOCATION. We use a mathematical model to compare the expected
return on the entire stock market (determined primarily by prices and estimated
earnings) to long-term interest rates. We try to increase the proportion of the
asset class (e.g., stocks, bonds or money market instruments) that offers the
best value at any time. We believe asset class has a greater impact on returns
over the long term than selection of individual securities. Therefore, these
shifts in allocation may affect your return significantly. However, because of
the Portfolio's conservative mandate, active asset allocation plays a smaller
role than it does in the Flexible Managed Portfolio. Your equity allocation is
shared between a portion managed to mirror the behavior of the S&P 500 Index and
a portion actively managed in a value style.
VALUE INVESTING. Research has shown that a value style has beaten growth over
the long run, particularly because it holds up better in falling markets. This
wasn't true over the past 12 months, because investors behaved in an unusual way
this year. They tended to favor stocks that already were expensive, instead of
emphasizing better values. We believe this was a panic reaction, not typical of
normal investor behavior. In addition, our value style has led us away from
stocks of the largest firms. The market-leading stocks reached record levels of
price-to-earnings ratios--60 to 70 times annual earnings per share and more. We
don't believe those ratios, many times higher than historical levels, can be
sustained over the long term.
MID-SIZED AND SMALL COMPANIES. Historically, stocks of firms with small market
capitalization (the total value of all outstanding stock) have tended to
outperform stocks of their larger counterparts. Unfortunately, the opposite
occurred in 1998, with small-company stocks trailing larger by the widest margin
since 1929. While the reason for this underperformance remains elusive, lower
earnings growth, low inflation and the global financial crisis probably all
contributed to the underperformance. Over the long term, we believe these
smaller stocks should outpace larger and more expensive stocks.
BOND MARKETS CALMER. In mid-1998, a Russian default led bond investors to focus
on only the very safest securities. The bonds of even the strongest corporations
became much less expensive than Treasury bonds of similar maturity.
Fort-unately, we had reduced our exposure to these bonds before the bond market
fell in late summer. We believe the price differences between corporate and
Treasury bonds should narrow somewhat in 1999 and are maintaining our emphasis
on corporate bonds.
Outlook
PORTFOLIO MANAGER
MARK STUMPP
FINDING MISVALUATIONS.
"We expect a better investing environment in 1999. The continued volatility in
stock and bond markets can make opportunities for our portfolio managers by
creating misvaluations between stock and bond prices that our active asset
allocation may exploit. Nineteen ninety-eight was the fifth consecutive year of
underperformance by both mid-sized company and value-oriented stocks. We do not
expect this performance discrepancy to persist. If the past is any guide, these
stocks may go through a period of superior performance in the near future."
PORTFOLIO MANAGERS
[PHOTO]
MARK STUMPP
[PHOTO]
JOHN W. MOSCHBERGER
[PHOTO]
WARREN E. SPITZ
[PHOTO]
TONY RODRIGUEZ
================================================================================
PORTFOLIO COMPOSITION
AS OF 12/31/98
--------------
Bonds 55.2%
Stocks 39.4%
Money Market 5.4%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
TOP SECTORS - STOCK
12/31/98
----------
Consumer Growth & Staples 11.6%
Technology 6.8%
Finance 6.2%
Industrials 5.2%
Utilities 3.4%
Energy 2.9%
Consumer Cyclicals 2.8%
TOP SECTORS - BOND
12/31/98
----------
Industrial 22.4%
Financial 19.4%
Other 5.1%
Utility 4.9%
U.S. Treasuries 3.4%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
11
<PAGE>
PRUDENTIAL FLEXIBLE MANAGED PORTFOLIO
PERFORMANCE SUMMARY.
Your Portfolio--which invests in an actively managed mix of stocks, bonds and
money market securities had a disappointing year in 1998. Although the overall
return of 10.24% was good, it could have been better in a year that saw the
Lipper (VIP) Flexible Fund Average rise by 13.50%. The portion of your stocks
that is actively managed in a value style substantially trailed the S&P 500
Index.
================================================================================
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1998
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------
FLEXIBLE MANAGED PORTFOLIO/1/ 0.59% 10.24% 13.90% 12.19% 13.15%
- --------------------------------------------------------------------------------
LIPPER (VIP) FLEXIBLE AVG./2/ 3.43% 13.50% 15.49% 13.64% 14.00%
- --------------------------------------------------------------------------------
S&P 500 INDEX/3/ 9.24% 28.60% 28.23% 24.05% 19.19%
- --------------------------------------------------------------------------------
LEHMAN GOV'T./CORP. BOND INDEX/4/ 5.09% 9.47% 7.33% 7.30% 9.33%
- --------------------------------------------------------------------------------
Flexible Managed Portfolio inception date: 5/13/83.
================================================================================
$10,000 INVESTED OVER TEN YEARS
[GRAPHIC]
$57,864 S&P 500 INDEX/3/
$38,003 LIPPER (VIP) FLEXIBLE AVG./2/
$34,387 FLEXIBLE MANAGED PORTFOLIO/1/
$24,410 LEHMAN GOV'T./CORP. BOND INDEX/4/
FLEXIBLE LIPPER (VIP) LEHMAN GOV'T.
MANAGED FLEXIBLE /CORP. BOND S&P 500
PORTFOLIO/1/ AVG./2/ INDEX/4/ INDEX/3/
88 10000 10000 10000 10000
11223.8 11085.4 10923 11652.2
89 12176.8 12092 11423.4 13163.1
12417.7 12455 11699.4 13568.4
90 12409.7 12249 12369.8 12754
13489.1 13673.7 12895.1 14568.6
91 15565.4 15541 14364.5 16631.2
15229.2 15507 14722 16519.4
92 16750 16806.2 15453.5 17896.5
18242.8 17887.7 16657.5 18767.1
93 19359.5 18888.5 17158.2 19696.3
18304 18098.5 16414.3 19029.9
94 18746.9 18554.6 16556.2 19955.1
21026.6 21291.2 18509.1 23983.2
95 23177.3 23472.7 19742 27445
24459.2 24917.2 19370.8 30213.9
96 26444 27121.3 20315.1 33742.2
29122.6 30103.2 20872.7 40692.2
97 31194.2 32553.7 22297.4 44995.6
34183.9 36041 23227.5 52969.7
98 34387.2 38003.3 24409.7 57864.8
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) Flexible Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment return of certain portfolios underlying variable life and
annuity products. These returns are net of investment fees and fund
expenses but not product charges.
3 The S&P 500 Index is a capital-weighted index representing the aggregate
market value of the common equity of 500 stocks primarily traded on the
New York Stock Exchange. The S&P 500 is an unmanaged index that includes
the reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the S&P 500 may differ
substantially from the securities in the Portfolio.
4 The Lehman Government/Corporate Bond Index is comprised of government and
corporate bonds. The index is an unmanaged index that includes the
reinvestment of all interest but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the
Portfolio. The securities that comprise the index may differ substantially
from the securities in the Portfolio. The Lehman Gov't./Corp. Bond Index
is not the only index that may be used to characterize performance of
income funds, and other indexes may portray different comparative
performance.
[GRAPHIC]
INVESTMENT GOAL
High total return consistent with a more aggressively managed diversified
portfolio.
TYPES OF INVESTMENTS
Money market instruments, bonds and common stocks of both established and
smaller companies.
INVESTMENT STYLE
The Portfolio management team holds a baseline allocation of 60% stocks and 40%
bonds.
PERFORMANCE REVIEW.
A Good Year for Indexing. Early in the year we invested about one-half of the
Portfolio's stocks in a style designed to mirror the risk and return of the S&P
500 Index.
The overall stock market was dominated by the performance of a few stocks
contained in the Index. These few stocks rose so much that the Index
outperformed most active stock managers.
We Added Value with Active Asset Allocation. We kept cash levels to a minimum
and over the year we actively shifted assets between stocks and bonds.
A Poor Year for Value Stocks. Half of our stocks are managed with an active
style that has a significant exposure to stocks of mid-sized companies with
strong earning potential trading at attractive values. These stocks did not
participate in the stock market rally.
12
<PAGE>
STRATEGY SESSION.
ACTIVE ASSET ALLOCATION. We use a mathematical model to compare the expected
return on the entire stock market (determined primarily by prices and estimated
earnings) to long-term interest rates. We try to increase the proportion of the
asset class (e.g., stocks or bonds) that offers the best value at any time. We
believe asset class has a greater impact on returns over the long term than
selection of individual securities. Therefore, these shifts in allocation may
affect your return significantly. Your equity allocation is shared between a
portion managed to mirror the behavior of the S&P 500 Index and a portion
actively managed in a value style.
VALUE INVESTING. Research has shown that a value style has beaten growth over
the long run, particularly because it holds up better in falling markets. This
wasn't true over the past 12 months, because investors behaved in an unusual way
this year. They tended to favor stocks that already were expensive, instead of
emphasizing better values. We believe this was a panic reaction, not typical of
normal investor behavior. In addition, our value style has led us away from
stocks of the largest firms. The market-leading stocks reached record levels of
price-to-earnings ratios--60 to 70 times annual earnings per share and more. We
don't believe those ratios, many times higher than historical levels, can be
sustained over the long term.
MID-SIZED AND SMALL COMPANIES. Historically, stocks of firms with small market
capitalization (the total value of all outstanding stock) have tended to
outperform stocks of their larger counterparts. Unfortunately, the opposite
occurred in 1998, with small-company stocks trailing larger by the widest
mar-gin since 1929. While the reason for this underperformance remains elusive,
lower earnings growth, low inflation and the global financial crisis probably
all contributed to the underperformance. Over the long term, we believe these
smaller stocks should outpace larger and more expensive stocks.
BOND MARKETS CALMER. In mid-1998, a Russian default led bond investors to focus
on only the very safest securities. The bonds of even the strongest corporations
became much less expensive than Treasury bonds of similar maturity. Fortunately,
we had reduced our exposure to these bonds before the bond market fell in late
summer. We believe the price differences between corporate and Treasury bonds
should narrow somewhat in 1999 and are maintaining our emphasis on corporate
bonds.
OUTLOOK
PORTFOLIO MANAGER
MARK STUMPP
FINDING MISVALUATIONS.
"We expect a better investing environment in 1999. The continued volatility in
stock and bond markets can make opportunities for our portfolio managers by
creating misvaluations between stock and bond prices that our active asset
allocation may exploit. Nineteen ninety-eight was the fifth consecutive year of
underperformance by both mid-sized company and value-oriented stocks. We do not
expect this performance discrepancy to persist. If the past is any guide, these
stocks may go through a period of superior performance in the near future."
PORTFOLIO MANAGERS
[PHOTO]
MARK STUMPP
[PHOTO]
JOHN W. MOSCHBERGER
[PHOTO]
WARREN E. SPITZ
[PHOTO]
TONY RODRIGUEZ
================================================================================
PORTFOLIO COMPOSITION
AS OF 12/31/98
--------------
Stocks 53.6%
Bonds 35.2%
Money Market 11.2%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
================================================================================
TOP SECTORS - STOCK
12/31/98
----------
Consumer Growth & Staples 13.0%
Industrials 10.2%
Finance 8.8%
Technology 6.8%
Consumer Cyclicals 6.6%
Energy 4.4%
Utilities 3.5%
TOP SECTORS - BOND
12/31/98
----------
Industrial 15.3%
Financial 9.3%
Utility 4.4%
Other 3.3%
U.S. Treasuries 2.9%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
13
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
CONSERVATIVE BALANCED PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$4,496,058,447).......................... $4,762,474,785
Cash....................................... 845,314
Interest and dividends receivable.......... 42,070,945
Receivable for investments sold............ 324,115
Due from broker -- variation margin........ 85,990
Receivable for capital stock sold.......... 263,037
--------------
Total Assets............................. 4,806,064,186
--------------
LIABILITIES
Payable to investment adviser.............. 6,472,779
Payable for capital stock repurchased...... 1,730,453
Payable for investments purchased.......... 1,518,060
Accrued expenses........................... 383,124
--------------
Total Liabilities........................ 10,104,416
--------------
NET ASSETS................................... $4,795,959,770
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 3,181,043
Paid-in capital, in excess of par........ 4,507,920,747
--------------
4,511,101,790
Accumulated net realized gains on
investments.............................. 15,961,929
Net unrealized appreciation on
investments.............................. 268,896,051
--------------
Net assets, December 31, 1998.............. $4,795,959,770
--------------
--------------
Net asset value and redemption price per
share, 318,104,322 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 15.08
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $227,089 foreign
withholding tax)......................... $ 24,862,659
Interest................................... 202,415,229
---------------
227,277,888
---------------
EXPENSES
Investment advisory fee.................... 26,224,569
Shareholders' reports...................... 335,000
Accounting fees............................ 270,000
Custodian expense.......................... 210,000
Audit fees................................. 45,000
Legal fees................................. 4,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 22,800
---------------
Total expenses........................... 27,114,369
Less: Custodian fee credit................. (37,735)
---------------
Net expenses............................. 27,076,634
---------------
NET INVESTMENT INCOME........................ 200,201,254
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 252,074,816
Futures contracts........................ 11,004,301
---------------
263,079,117
---------------
Net change in unrealized appreciation on:
Investments.............................. 62,217,963
Futures contracts........................ 4,254,938
---------------
66,472,901
---------------
NET GAIN ON INVESTMENTS...................... 329,552,018
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 529,753,272
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 200,201,254 $ 209,904,550
Net realized gain on investments....................................................... 263,079,117 525,175,186
Net change in unrealized appreciation (depreciation) on investments.................... 66,472,901 (148,830,270)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 529,753,272 586,249,466
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (201,150,300) (209,004,256)
Distributions from net realized capital gains.......................................... (284,059,981) (518,358,296)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (485,210,281) (727,362,552)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [4,155,780 and 4,585,160 shares, respectively]...................... 64,306,807 74,015,405
Capital stock issued in reinvestment of dividends and distributions [32,017,520 and
47,801,252 shares, respectively]...................................................... 485,210,281 727,362,552
Capital stock repurchased [(34,980,138) and (24,112,955) shares, respectively]......... (542,332,348) (394,841,365)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 7,184,740 406,536,592
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 51,727,731 265,423,506
NET ASSETS:
Beginning of year...................................................................... 4,744,232,039 4,478,808,533
------------------ -------------------
End of year (a)........................................................................ $ 4,795,959,770 $ 4,744,232,039
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ -- $ 949,046
------------------ -------------------
</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
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$5,149,958,034).......................... $5,386,550,009
Cash....................................... 1,341
Interest and dividends receivable.......... 33,290,998
Due from broker -- variation margin........ 809,059
Receivable for investments sold............ 619,824
Receivable for capital stock sold.......... 232,095
--------------
Total Assets............................. 5,421,503,326
--------------
LIABILITIES
Payable to investment adviser.............. 7,882,895
Payable for capital stock repurchased...... 1,607,590
Payable for investments purchased.......... 1,595,867
Accrued expenses........................... 435,586
--------------
Total Liabilities........................ 11,521,938
--------------
NET ASSETS................................... $5,409,981,388
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 3,267,182
Paid-in capital, in excess of par........ 5,110,844,004
--------------
5,114,111,186
Undistributed net investment income........ 170,556
Accumulated net realized gains on
investments.............................. 43,985,733
Net unrealized appreciation on
investments.............................. 251,713,913
--------------
Net assets, December 31, 1998.............. $5,409,981,388
--------------
--------------
Net asset value and redemption price per
share, 326,718,180 outstanding shares of
common stock (authorized 350,000,000
shares).................................. $ 16.56
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $614,599 foreign
withholding tax)......................... $ 41,517,034
Interest................................... 170,024,349
---------------
211,541,383
---------------
EXPENSES
Investment advisory fee.................... 33,049,940
Shareholders' reports...................... 415,000
Accounting fees............................ 242,000
Custodian expense.......................... 234,000
Audit fees and expenses.................... 57,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 26,800
---------------
Total expenses........................... 34,027,740
Less: custodian fee credit................. (74,445)
---------------
Net expenses............................. 33,953,295
---------------
NET INVESTMENT INCOME........................ 177,588,088
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on:
Investments.............................. 471,749,472
Futures contracts........................ 42,134,442
---------------
513,883,914
---------------
Net change in unrealized appreciation on:
Investments.............................. (183,829,519)
Futures contracts........................ 16,684,360
---------------
(167,145,159)
---------------
NET GAIN ON INVESTMENTS...................... 346,738,755
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 524,326,843
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income.................................................................. $ 177,588,088 $ 160,063,955
Net realized gain on investments....................................................... 513,883,914 867,691,914
Net change in unrealized appreciation on investments................................... (167,145,159) (163,603,096)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 524,326,843 864,152,773
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (178,186,396) (159,343,911)
Distributions from net realized capital gains.......................................... (552,345,875) (823,214,223)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (730,532,271) (982,558,134)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [4,188,120 and 4,859,580 shares, respectively]...................... 74,668,669 92,765,042
Capital stock issued in reinvestment of dividends and distributions [43,615,212 and
56,453,647 shares, respectively]...................................................... 730,532,271 982,558,134
Capital stock repurchased [(38,796,213) and (18,791,325) shares, respectively]......... (679,156,218) (363,698,408)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 126,044,722 711,624,768
------------------ -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. (80,160,706) 593,219,407
NET ASSETS:
Beginning of year...................................................................... 5,490,142,094 4,896,922,687
------------------ -------------------
End of year (a)........................................................................ $ 5,409,981,388 $ 5,490,142,094
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 170,556 $ 768,864
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
A2
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 94.3%
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS -- 54.9% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
AEROSPACE -- 1.3%
Raytheon Co.,
5.95%, 03/15/01............................... Baa1 $ 16,400 $ 16,543,992
6.00%, 12/15/10............................... Baa1 20,000 20,000,000
6.40%, 12/15/18............................... Baa1 25,000 24,812,500
--------------
61,356,492
--------------
AIRLINES -- 3.3%
Continental Airlines, Inc.,
8.00%, 12/15/05............................... Ba2 5,000 4,940,500
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 20,000 25,019,000
10.375%, 02/01/11............................. Ba1 37,905 48,392,555
United Airlines, Inc.,
10.67%, 05/01/04.............................. Baa3 46,865 55,450,668
11.21%, 05/01/14.............................. Baa3 18,433 24,206,216
--------------
158,008,939
--------------
ASSET-BACKED SECURITIES -- 0.7%
California Infrastructure,
6.14%, 03/25/02............................... Aaa 5,500 5,517,930
6.17%, 03/25/03............................... Aaa 6,000 6,073,560
6.28%, 09/25/05............................... Aaa 7,000 7,167,160
Standard Credit Card Master Trust,
5.95%, 10/07/04............................... Aaa 4,650 4,718,262
Team Financing Corp.,
7.35%, 05/15/03............................... Aa2 11,000 11,304,219
--------------
34,781,131
--------------
BANKS AND SAVINGS & LOANS -- 3.3%
Bank of Nova Scotia,
6.50%, 07/15/07............................... A1 7,200 7,250,256
Bayerische Landesbank Girozentrale,
5.875%, 12/01/08.............................. Aaa 22,000 22,492,800
Capital One Bank,
6.97%, 02/04/02............................... Baa3 25,000 25,007,250
7.08%, 10/30/01............................... Baa3 35,100 35,295,507
7.35%, 06/20/00............................... Baa3 8,100 8,162,208
8.125%, 03/01/00.............................. Baa3 13,150 13,341,069
Citigroup,
6.375%, 11/15/08.............................. A1 17,500 18,094,475
Kansallis-Osake-Pankki, (Finland),
8.65%, 01/01/49............................... Baa1 10,000 10,147,200
National Australia Bank, (Australia),
6.40%, 12/10/07............................... A1 14,000 14,280,000
Okobank, (Finland),
6.75%, 09/27/49............................... A3 6,250 6,243,750
--------------
160,314,515
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.3%
Cable & Wire Communications, Inc.,
6.75%, 12/01/08............................... Baa1 17,000 17,329,800
Continental Cablevision, Inc.,
8.50%, 09/15/01............................... Ba2 5,545 5,881,914
<CAPTION>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
CABLE & PAY TELEVISION SYSTEMS (CONT'D.)
<S> <C> <C> <C>
Tele-Communications, Inc.,
6.34%, 02/01/02............................... Ba1 $ 12,000 $ 12,291,000
7.375%, 02/15/00.............................. Ba1 40,700 41,585,225
8.25%, 01/15/03............................... Baa3 2,000 2,194,800
9.25%, 04/15/02............................... Baa3 9,500 10,563,525
9.875%, 06/15/22.............................. Baa3 12,900 18,288,975
--------------
108,135,239
--------------
COMMERCIAL SERVICES -- 0.8%
Cendant Corp.,
7.75%, 12/01/03............................... Baa1 39,000 39,416,130
--------------
COMPUTERS SOFTWARE & SERVICES -- 0.6%
Computer Associates International, Inc.,
6.375%, 04/15/05.............................. Baa1 14,300 14,151,852
Qwest Comm,
7.25%, 11/01/08............................... Ba1 8,000 8,180,000
Worldcom Inc,
6.125%, 08/15/01.............................. Baa2 6,700 6,807,066
--------------
29,138,918
--------------
CONSULTING -- 2.6%
Comdisco Inc., M.T.N.,
5.94%, 04/13/00............................... Baa1 12,500 12,468,750
6.32%, 11/27/00............................... Baa1 37,750 37,925,915
6.375%, 11/30/01.............................. Baa1 21,500 21,593,095
6.65%, 11/13/01............................... Baa1 50,000 50,385,000
--------------
122,372,760
--------------
CONSUMER SERVICES -- 0.3%
Loewen Group, Inc.,
7.20%, 06/01/03............................... Ba3 10,000 8,400,000
7.60%, 06/01/08............................... Ba3 3,400 2,686,000
Service Corp. International,
7.00%, 06/01/15............................... Baa1 2,500 2,588,375
--------------
13,674,375
--------------
CONTAINERS -- 0.6%
Owens-Illinois, Inc.,
7.15%, 05/15/05............................... Ba1 30,000 30,066,300
7.50%, 05/15/10............................... Ba1 800 815,216
--------------
30,881,516
--------------
DRUGS & MEDICAL SUPPLIES -- 0.5%
Mallinckrodt, Inc.,
6.30%, 03/15/11(a)............................ Baa2 16,780 16,520,958
Merck & Co Inc.,
5.95%, 12/01/28............................... Aaa 10,000 9,982,500
--------------
26,503,458
--------------
ELECTRICAL -- 0.3%
Enersis Sa,
6.90%, 12/01/06............................... Baa1 10,000 9,182,000
7.40%, 12/01/16............................... Baa1 6,400 5,267,200
--------------
14,449,200
--------------
FINANCIAL SERVICES -- 13.2%
Advanta Corp., M.T.N.,
7.50%, 08/28/00............................... Ba2 35,000 32,866,400
Arkwright Corp.,
9.625%, 08/15/26.............................. Baa3 8,000 9,568,800
Associates Corp.,
6.25%, 11/01/08............................... Aa3 21,000 21,745,920
6.95%, 11/01/18............................... Aa3 24,000 25,573,920
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B1
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
FINANCIAL SERVICES (CONT'D.)
<S> <C> <C> <C>
AT&T Capital Corp, M.T.N.,
6.25%, 05/15/01............................... Baa3 $ 35,500 $ 35,016,845
7.50%, 11/15/00............................... Baa3 47,000 47,575,280
BCH Financial Services
5.72%, 04/28/05............................... A3 10,000 9,933,200
Bear Stearns & Co,
6.50%, 07/05/00............................... A2 20,000 20,203,400
Conseco Inc.,
6.80%, 06/15/05............................... Baa3 13,000 11,801,400
8.70%, 11/15/26............................... Ba2 29,813 27,237,594
8.796%, 04/01/27.............................. Ba2 7,500 6,857,250
ContiFinancial Corp.,
7.50%, 03/15/02............................... Ba1 31,300 21,910,000
8.375%, 08/15/03.............................. Ba1 16,085 11,259,500
Donaldson Lufkin, & Jenrette Inc.,
5.625%, 02/15/16.............................. Baa1 5,480 5,415,117
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
6.35%, 01/15/01............................... Baa3 11,200 11,226,992
6.95%, 03/01/04............................... Baa2 17,500 17,663,100
7.00%, 06/15/00............................... Baa3 23,000 23,098,210
7.50%, 06/15/03............................... Baa3 5,000 5,158,900
First Industrial, L.P.,
6.50%, 04/05/11............................... Baa2 9,000 8,864,730
General Motors Acceptance Corp., M.T.N.,
5.95%, 04/20/01............................... A2 30,300 30,542,400
Household Finance Corp.,
6.50%, 11/15/08............................... A2 72,000 74,520,000
Lehman Brothers Holdings, Inc.,
6.33%, 08/01/00............................... Baa1 17,200 17,317,476
6.40%, 08/30/00............................... Baa1 21,700 21,705,425
MCN Investment Corp.,
6.30%, 04/02/11............................... Baa2 8,250 8,194,725
Merrill Lynch, Pierce, Fenner & Smith, Inc.,
6.875%, 11/15/18.............................. Aa3 16,900 17,519,385
Morgan Stanley Dean Witter & Co., M.T.N.,
5.89%, 03/20/00............................... A1 20,000 20,140,800
6.09%, 03/09/11............................... A1 21,000 21,280,350
PaineWebber Group, Inc.,
7.015%, 02/10/04.............................. Baa1 6,000 6,288,840
7.625%, 10/15/08.............................. Baa1 5,000 5,387,250
PT Alatief Freeport Financial Co., Sr. Notes,
(Netherlands),
9.75%, 04/15/01 (b)/(c)....................... Ba2 8,950 6,444,000
Salomon, Inc.,
6.59%, 02/21/01............................... Baa1 9,750 9,937,200
6.75%, 02/15/03............................... Baa1 5,000 5,137,450
7.25%, 05/01/01............................... Baa1 8,625 8,933,430
Textron Financial Corp.,
6.05%, 03/16/09............................... Aaa 26,319 26,369,655
--------------
632,694,944
--------------
<CAPTION>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
FOREST PRODUCTS -- 0.4%
Fort James Corp.,
6.234%, 03/15/11.............................. Baa3 $ 17,500 $ 17,664,675
--------------
INDUSTRIAL -- 2.5%
Compania Sud Americana de Vapores, S.A.,
(Chile),
7.375%, 12/08/03.............................. Baa 7,600 6,821,000
Scotia Pacific Co.,
7.11%, 01/20/14............................... A3 7,900 7,518,904
7.71%, 01/20/14............................... Baa2 23,800 21,321,944
Security Capital Group,
6.95%, 06/15/05............................... Baa1 4,500 4,297,500
U.S. Filter Corp.,
6.375%, 05/15/01.............................. Ba1 60,090 59,445,835
6.50%, 05/15/03............................... Ba1 20,000 19,481,800
--------------
118,886,983
--------------
LODGING -- 0.9%
ITT Corp.,
6.25%, 11/15/00............................... Ba1 23,703 22,867,232
6.75%, 11/15/03............................... Baa2 21,500 19,797,845
--------------
42,665,077
--------------
MEDIA -- 1.1%
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 6,425 6,704,680
Time Warner, Inc.,
6.10%, 12/30/01............................... Ba1 27,650 27,926,500
8.11%, 08/15/06............................... Ba1 1,500 1,710,075
Viacom, Inc.,
7.75%, 06/01/05............................... Ba2 13,775 14,943,533
--------------
51,284,788
--------------
MISCELLANEOUS -- 0.1%
Tokai Pfd Capital,
9.98%, 12/29/49............................... A3 4,700 3,948,000
--------------
OIL & GAS -- 0.3%
B.J. Services Co.,
7.00%, 02/01/06............................... Ba1 4,000 4,139,880
Petro Canada,
7.00%, 11/15/28............................... A3 10,000 9,861,200
--------------
14,001,080
--------------
OIL & GAS SERVICES -- 3.7%
KN Energy, Inc.,
6.30%, 03/01/21............................... Baa2 27,550 27,627,416
6.45%, 11/30/01............................... Baa2 18,000 18,009,000
R&B Falcon Corp.
6.50%, 04/15/03............................... Ba1 44,350 40,283,992
6.75%, 04/15/05............................... Ba1 28,750 24,725,000
Seagull Energy Co.,
7.50%, 09/15/27............................... Ba1 8,000 7,165,360
Williams Companies, Inc.,
5.95%, 02/15/10............................... Baa2 59,000 59,064,900
--------------
176,875,668
--------------
REAL ESTATE INVESTMENT TRUST -- 3.5%
Camden Prop Trst,
7.23%, 10/30/00............................... Baa2 22,000 22,052,800
Colonial Realty,
7.00%, 07/14/07............................... Baa3 4,250 4,075,368
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B2
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
REAL ESTATE INVESTMENT TRUST (CONT'D.)
<S> <C> <C> <C>
EOP Operating, L.P.,
6.50%, 06/15/04............................... Baa1 $ 6,000 $ 5,900,400
6.625%, 02/15/05.............................. Baa 17,938 17,583,366
Equity Residential,
6.15%, 09/15/00............................... A3 45,000 44,703,000
ERP Operating, L.P.,
6.63%, 04/13/15............................... A3 22,400 22,103,424
Felcor Suite Hotels, Inc.,
7.625%, 10/01/07.............................. Ba1 8,000 7,620,000
Gables Realty Trust,
6.80%, 03/15/05............................... Baa2 7,500 7,157,175
Simon Debartolo Group, Inc.,
6.75%, 06/15/05............................... Baa1 17,500 16,969,750
6.75%, 07/15/04............................... Baa1 8,000 7,897,520
6.875%, 10/27/05.............................. Baa1 14,858 14,539,296
--------------
170,602,099
--------------
RETAIL -- 4.3%
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. Ba1 41,030 44,227,468
8.50%, 06/15/03............................... Ba1 32,400 35,736,552
Fred Meyer, Inc.,
7.15%, 03/01/03............................... Ba2 12,400 12,900,712
Rite Aid Corp.,
6.70%, 12/15/01............................... A3 5,000 5,128,000
Safeway Stores Inc.,
5.75%, 11/15/00............................... Baa2 6,000 6,012,000
6.05%, 11/15/03............................... Baa2 12,000 12,082,320
Saks Inc.,
7.25%, 12/01/04............................... Baa3 20,900 20,974,195
7.50%, 12/01/10............................... Baa3 22,500 22,498,425
8.25%, 11/15/08............................... Baa3 30,900 32,754,000
Sears Roebuk & Co.,
6.50%, 12/01/28............................... A2 16,000 15,704,480
--------------
208,018,152
--------------
TECHNOLOGY -- 0.7%
Time Warner Inc,
6.625%, 05/15/29.............................. Baa3 33,000 33,576,180
--------------
TELECOMMUNICATIONS -- 2.0%
360 Communication Co.,
7.125%, 03/01/03.............................. Ba2 22,550 23,863,538
7.60%, 04/01/09............................... Ba1 7,000 7,932,750
Sprint Cap Corp.,
5.70%, 11/15/03............................... Baa1 11,000 11,039,270
6.125%, 11/15/08.............................. Baa1 25,000 25,545,750
6.875%, 11/15/28.............................. Baa1 24,500 25,462,850
--------------
93,844,158
--------------
TOBACCO -- 1.3%
Philip Morris Cos., Inc.,
6.15%, 03/15/10............................... A2 40,000 40,332,000
RJR Nabisco, Inc.,
8.75%, 08/15/05............................... Baa3 6,900 6,962,584
9.25%, 08/15/13............................... Baa3 13,571 13,953,159
--------------
61,247,743
--------------
<CAPTION>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
UTILITIES -- 0.5%
Commonwealth Edison Co.,
7.375%, 01/15/04.............................. Baa3 $ 14,000 $ 14,930,300
Niagara Mohawk Power,
7.375%, 08/01/03.............................. Ba2 10,000 10,569,100
--------------
25,499,400
--------------
WASTE MANAGEMENT -- 0.2%
USA Waste Service,
6.125%, 07/15/01.............................. Baa3 10,000 10,062,000
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 3.6%
United States Treasury Bond,
8.00%, 11/15/21............................... 55,300 73,937,759
United States Treasury Notes,
4.75%, 11/15/08............................... 8,600 8,667,166
5.50%, 08/15/28............................... 36,075 37,760,424
5.75%, 08/15/03............................... 3,900 4,072,458
5.875%, 11/15/05.............................. 2,200 2,346,784
6.375%, 08/15/27.............................. 27,000 31,032,990
7.50%, 02/15/05............................... 900 1,030,500
7.875%, 11/15/04.............................. 3,000 3,475,770
United States Treasury Strip,
6.50%, 05/15/05............................... 10,150 11,123,791
--------------
173,447,642
--------------
TOTAL LONG-TERM BONDS
(COST $2,694,909,653).................................................... 2,633,351,262
--------------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS -- 38.7% SHARES
-------------
<S> <C> <C>
AEROSPACE -- 0.6%
Aeroquip-Vickers, Inc..................................... 4,400 131,725
AlliedSignal, Inc......................................... 88,300 3,912,794
Boeing Co................................................. 156,500 5,105,812
GenCorp, Inc.............................................. 98,400 2,453,850
General Dynamics Corp..................................... 19,700 1,154,912
Goodrich (B.F.) Co........................................ 11,300 405,387
Litton Industries, Inc.(b)................................ 77,600 5,063,400
Lockheed Martin Corp...................................... 30,400 2,576,400
Northrop Grumman Corp..................................... 10,500 767,812
Parker-Hannifin Corp...................................... 60,625 1,985,469
Raytheon Co. (Class "B" Stock)............................ 52,900 2,816,925
United Technologies Corp.................................. 36,500 3,969,375
--------------
30,343,861
--------------
AIRLINES -- 0.4%
AMR Corp.(b).............................................. 183,600 10,901,250
Delta Air Lines, Inc...................................... 23,400 1,216,800
Southwest Airlines Co..................................... 51,900 1,164,506
US Airways Group, Inc.(b)................................. 128,200 6,666,400
--------------
19,948,956
--------------
APPAREL -- 0.1%
Fruit of the Loom, Inc. (Class "A" Stock)(b).............. 84,100 1,161,631
Nike, Inc. (Class "B" Stock).............................. 45,500 1,845,594
Phillips-Van Heusen Corp.................................. 94,700 680,656
Reebok International Ltd.................................. 8,800 130,900
--------------
3,818,781
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B3
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
AUTOS - CARS & TRUCKS -- 1.0%
<S> <C> <C>
Cummins Engine Co., Inc................................... 6,000 $ 213,000
DaimlerChrysler AG........................................ 80,071 7,691,820
Dana Corp................................................. 25,600 1,046,400
Ford Motor Co............................................. 281,900 16,544,006
General Motors Corp....................................... 213,000 15,242,813
Genuine Parts Co.......................................... 28,000 936,250
Johnson Controls, Inc..................................... 13,200 778,800
MascoTech, Inc............................................ 94,400 1,616,600
Midas, Inc................................................ 22,100 687,862
Navistar International Corp.(b)........................... 11,300 322,050
PACCAR, Inc............................................... 12,200 501,725
Titan International, Inc.................................. 101,250 961,875
TRW, Inc.................................................. 19,300 1,084,419
--------------
47,627,620
--------------
BANKS AND SAVINGS & LOANS -- 2.2%
Banc One Corp............................................. 183,772 9,383,858
Bank of New York Co., Inc................................. 118,000 4,749,500
BankAmerica Corp.......................................... 271,761 16,339,630
BankBoston Corp........................................... 45,600 1,775,550
Bankers Trust Corp........................................ 15,300 1,307,194
BB&T Corp................................................. 44,600 1,797,937
Chase Manhattan Corp...................................... 133,600 9,093,150
Comerica, Inc............................................. 24,700 1,684,231
First Union Corp.......................................... 151,500 9,213,094
Fleet Financial Group, Inc................................ 87,000 3,887,812
Golden West Financial Corp................................ 8,900 816,019
Huntington Bancshares, Inc................................ 33,000 992,062
KeyCorp................................................... 68,800 2,201,600
Mellon Bank Corp.......................................... 39,900 2,743,125
Mercantile Bancorporation, Inc............................ 22,700 1,047,037
Morgan (J.P.) & Co., Inc.................................. 27,800 2,920,737
National City Corp........................................ 51,400 3,726,500
Northern Trust Corp....................................... 17,500 1,527,969
PNC Bank Corp............................................. 47,800 2,587,175
Providian Financial Corp.................................. 22,350 1,676,250
Regions Financial Corp.................................... 30,000 1,209,375
Republic New York Corp.................................... 17,100 779,119
Summit Bancorp............................................ 27,600 1,205,775
Suntrust Banks, Inc....................................... 33,000 2,524,500
Synovus Financial Corp.................................... 41,150 1,003,031
U.S. Bancorp.............................................. 115,300 4,093,150
Union Planters Corp....................................... 17,000 770,312
Wachovia Corp............................................. 32,300 2,824,231
Wells Fargo & Co.......................................... 251,300 10,036,294
--------------
103,916,217
--------------
BUSINESS SERVICES -- 0.1%
Equifax, Inc.............................................. 23,500 803,406
Omnicom Group, Inc........................................ 25,400 1,473,200
--------------
2,276,606
--------------
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
CHEMICALS -- 0.7%
Air Products & Chemicals, Inc............................. 36,900 $ 1,476,000
Dow Chemical Co........................................... 35,500 3,228,281
Du Pont (E.I.) de Nemours & Co............................ 177,200 9,402,675
Eastman Chemical Co....................................... 12,300 550,425
Engelhard Corp............................................ 22,600 440,700
Ferro Corp................................................ 134,900 3,507,400
FMC Corp.(b).............................................. 5,400 302,400
Grace (W.R.) & Co......................................... 11,600 181,975
Great Lakes Chemical Corp................................. 9,400 376,000
Hercules, Inc............................................. 15,100 413,362
Millennium Chemicals, Inc.(b)............................. 146,527 2,912,224
Monsanto Co............................................... 92,900 4,412,750
Morton International, Inc................................. 20,400 499,800
Nalco Chemical Co......................................... 10,400 322,400
OM Group, Inc............................................. 63,300 2,310,450
Praxair, Inc.............................................. 24,700 870,675
Raychem Corp.............................................. 13,300 429,756
Rohm & Haas Co............................................ 28,800 867,600
Sigma-Aldrich Corp........................................ 15,700 461,187
Union Carbide Corp........................................ 19,300 820,250
--------------
33,786,310
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp.(b).......................................... 129,900 2,476,219
Deluxe Corp............................................... 12,700 464,344
Moore Corp. Ltd........................................... 13,900 152,900
--------------
3,093,463
--------------
COMPUTER SERVICES -- 2.4%
3Com Corp.(b)............................................. 55,500 2,487,094
Adobe Systems, Inc........................................ 10,800 504,900
America Online, Inc.(b)................................... 10,500 1,680,000
Autodesk, Inc............................................. 7,300 311,619
Automatic Data Processing, Inc............................ 46,800 3,752,775
BMC Software, Inc.(b)..................................... 31,000 1,381,437
Cabletron Systems, Inc.(b)................................ 24,800 207,700
Ceridian Corp.(b)......................................... 11,300 788,881
Cisco Systems, Inc.(b).................................... 241,100 22,377,094
Computer Associates International, Inc.................... 85,500 3,644,437
Computer Sciences Corp.(b)................................ 24,400 1,572,275
Electronic Data Systems Corp.............................. 76,000 3,819,000
EMC Corp.(b).............................................. 77,700 6,604,500
First Data Corp........................................... 67,000 2,123,062
Microsoft Corp.(b)........................................ 383,300 53,158,919
Novell, Inc.(b)........................................... 55,000 996,875
Oracle Corp.(b)........................................... 154,100 6,645,562
Parametric Technology Corp.(b)............................ 40,200 658,275
Peoplesoft, Inc........................................... 30,000 568,125
Silicon Graphics, Inc.(b)................................. 29,400 378,525
Unisys Corp............................................... 39,100 1,346,506
--------------
115,007,561
--------------
COMPUTERS -- 1.5%
Apple Computer, Inc.(b)................................... 20,800 851,500
Compaq Computer Corp...................................... 258,789 10,852,964
Data General Corp.(b)..................................... 7,600 124,925
Dell Computer Corp.(b).................................... 196,300 14,366,706
Gateway 2000, Inc.(b)..................................... 24,300 1,243,856
Hewlett-Packard Co........................................ 162,900 11,128,106
International Business Machines Corp...................... 144,700 26,733,325
Seagate Technology, Inc.(b)............................... 37,900 1,146,475
Sun Microsystems, Inc.(b)................................. 59,100 5,060,437
--------------
71,508,294
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B4
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
CONSTRUCTION -- 0.2%
<S> <C> <C>
Centex Corp............................................... 9,300 $ 419,081
Fluor Corp................................................ 13,100 557,569
Foster Wheeler Corp....................................... 6,400 84,400
Oakwood Homes Corp........................................ 139,300 2,115,619
Pulte Corp................................................ 6,600 183,562
Standard Pacific Corp..................................... 154,000 2,175,250
Webb (Del E.) Corp........................................ 140,300 3,867,019
--------------
9,402,500
--------------
CONTAINERS -- 0.1%
Ball Corp................................................. 4,700 215,025
Bemis Co., Inc............................................ 8,300 314,881
Crown Cork & Seal Co., Inc................................ 20,100 619,331
Owens-Illinois, Inc.(b)................................... 81,500 2,495,937
Sealed Air Corp........................................... 12,900 658,706
--------------
4,303,880
--------------
COSMETICS & SOAPS -- 0.7%
Alberto Culver Co. (Class "B" Stock)...................... 8,900 237,519
Avon Products, Inc........................................ 41,400 1,831,950
Colgate-Palmolive Co...................................... 46,300 4,300,112
Gillette Co............................................... 175,400 8,474,012
International Flavors & Fragrances, Inc................... 17,100 755,606
Procter & Gamble Co....................................... 210,200 19,193,887
--------------
34,793,086
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 0.1%
Eastman Kodak Co.......................................... 86,800 6,249,600
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.2%
Avery Dennison Corp....................................... 17,300 779,581
Pitney Bowes, Inc......................................... 42,800 2,827,475
Xerox Corp................................................ 51,000 6,018,000
--------------
9,625,056
--------------
DIVERSIFIED OPERATIONS -- 1.1%
Fortune Brands, Inc....................................... 26,900 850,712
General Electric Capital Corp............................. 504,700 51,510,944
--------------
52,361,656
--------------
DRUGS AND MEDICAL SUPPLIES -- 3.8%
Abbott Laboratories....................................... 239,600 11,740,400
Allergan, Inc............................................. 10,200 660,450
ALZA Corp.(b)............................................. 13,400 700,150
American Home Products Corp............................... 203,500 11,459,594
Amgen, Inc.(b)............................................ 41,200 4,307,975
Bard (C.R.), Inc.......................................... 8,900 440,550
Bausch & Lomb, Inc........................................ 8,700 522,000
Baxter International, Inc................................. 43,900 2,823,319
Becton, Dickinson & Co.................................... 38,200 1,630,662
Biomet, Inc............................................... 17,500 704,375
Boston Scientific Corp.(b)................................ 61,000 1,635,562
Bristol-Myers Squibb Co................................... 154,300 20,647,269
Cardinal Health, Inc...................................... 29,700 2,253,487
Guidant Corp.............................................. 23,600 2,601,900
Johnson & Johnson......................................... 210,600 17,664,075
Lilly (Eli) & Co.......................................... 171,700 15,259,837
Mallinckrodt, Inc......................................... 11,400 351,262
Medtronic, Inc............................................ 73,400 5,449,950
Merck & Co., Inc.......................................... 184,800 27,292,650
Pfizer, Inc.,............................................. 204,200 25,614,337
Pharmacia & Upjohn, Inc................................... 79,500 4,501,687
Schering-Plough Corp...................................... 229,400 12,674,350
St. Jude Medical, Inc.(b)................................. 14,400 398,700
Warner-Lambert Co......................................... 127,900 9,616,481
--------------
180,951,022
--------------
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
ELECTRONICS -- 1.3%
Advanced Micro Devices, Inc.(b)........................... 22,200 $ 642,412
AMP Inc................................................... 34,500 1,796,156
Applied Materials, Inc.(b)................................ 57,300 2,445,994
Belden, Inc............................................... 67,100 1,421,681
EG&G, Inc................................................. 7,100 197,469
Emerson Electric Co....................................... 69,400 4,341,837
Grainger (W.W.), Inc...................................... 15,600 649,350
Harris Corp............................................... 12,500 457,812
Honeywell, Inc............................................ 19,900 1,498,719
Intel Corp................................................ 260,600 30,897,387
KLA-Tencor Corp.(b)....................................... 13,200 572,550
LSI Logic Corp.(b)........................................ 22,200 357,975
Micron Technology, Inc.................................... 33,100 1,673,619
Motorola, Inc............................................. 93,500 5,709,344
Perkin-Elmer Corp......................................... 7,600 741,475
Rockwell International Corp............................... 31,500 1,529,719
Solectron Corp............................................ 5,000 464,687
Tektronix, Inc............................................ 7,900 237,494
Texas Instruments, Inc.................................... 61,100 5,227,869
Thomas & Betts Corp....................................... 8,600 372,487
--------------
61,236,036
--------------
ENGINEERING & CONSTRUCTION
Giant Cement Holdings, Inc.(b)............................ 58,100 1,437,975
--------------
ENVIRONMENTAL SERVICES
Browning-Ferris Industries, Inc........................... 28,800 819,000
--------------
EXPLORATION & PRODUCTION
Apex Silver Mines Ltd..................................... 82,200 678,150
--------------
FINANCIAL SERVICES -- 2.2%
American Express Co....................................... 70,800 7,239,300
Associates First Capital Corp............................. 108,544 4,599,552
Bear Stearns Companies, Inc............................... 16,500 616,687
Block (H.R.), Inc......................................... 16,400 738,000
Capital One Financial Corp................................ 9,600 1,104,000
Citigroup, Inc............................................ 407,500 20,171,250
Countrywide Credit Industries, Inc........................ 17,000 853,187
Dun & Bradstreet Corp..................................... 26,700 842,719
Federal Home Loan Mortgage Corp........................... 105,700 6,811,044
Federal National Mortgage Assoc........................... 161,900 11,980,600
Fifth Third Bancorp....................................... 39,500 2,816,844
Franklin Resource, Inc.................................... 39,600 1,267,200
Household International, Inc.............................. 75,752 3,001,673
Lehman Brothers Holdings, Inc............................. 189,600 8,354,250
MBNA Corp................................................. 117,750 2,936,391
Merrill Lynch & Co., Inc.................................. 112,300 7,496,025
Morgan Stanley Dean Witter & Co........................... 146,790 10,422,090
Paychex, Inc.............................................. 23,000 1,183,062
Schwab (Charles) Corp.(b)................................. 62,400 3,506,100
SLM Holding Corp.......................................... 25,000 1,200,000
State Street Corp......................................... 25,200 1,752,975
Sunamerica, Inc........................................... 30,600 2,482,425
Transamerica Corp......................................... 9,800 1,131,900
Washington Mutual, Inc.................................... 89,178 3,405,485
--------------
105,912,759
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B5
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
FOOD & BEVERAGES -- 1.7%
<S> <C> <C>
Anheuser-Busch Companies, Inc............................. 76,700 $ 5,033,437
Archer-Daniels-Midland Co................................. 93,975 1,615,195
Bestfoods................................................. 45,100 2,401,575
Brown-Forman Corp. (Class "B" Stock)...................... 10,800 817,425
Campbell Soup Co.......................................... 71,500 3,932,500
Coca Cola Enterprises, Inc................................ 60,000 2,145,000
Coca-Cola Co.............................................. 383,500 25,646,562
ConAgra, Inc.............................................. 74,500 2,346,750
Coors (Adolph) Co. (Class "B" Stock)...................... 5,800 327,337
General Mills, Inc........................................ 24,800 1,928,200
Heinz (H.J.) & Co......................................... 57,200 3,238,950
Hershey Foods Corp........................................ 22,400 1,393,000
Kellogg Co................................................ 64,400 2,197,650
PepsiCo, Inc.............................................. 235,600 9,644,875
Pioneer Hi-Bred International, Inc........................ 38,300 1,034,100
Quaker Oats Co............................................ 21,700 1,291,150
Ralston-Ralston Purina Group.............................. 50,400 1,631,700
Sara Lee Corp............................................. 148,200 4,177,388
Seagram Co., Ltd.......................................... 55,800 2,120,400
Sysco Corp................................................ 53,300 1,462,419
Whitman Corp.............................................. 132,800 3,369,800
Wrigley (William) Jr. Co.................................. 18,200 1,630,037
--------------
79,385,450
--------------
FOREST PRODUCTS -- 0.6%
Boise Cascade Corp........................................ 152,000 4,712,000
Champion International Corp............................... 109,700 4,442,850
Fort James Corp........................................... 32,700 1,308,000
Georgia-Pacific Corp...................................... 14,500 849,156
International Paper Co.................................... 47,300 2,119,631
Louisiana-Pacific Corp.................................... 189,700 3,473,881
Mead Corp................................................. 111,300 3,262,481
Potlatch Corp............................................. 4,500 165,937
Temple-Inland, Inc........................................ 8,900 527,881
Union Camp Corp........................................... 10,900 735,750
Westvaco Corp............................................. 16,000 429,000
Weyerhaeuser Co........................................... 31,300 1,590,431
Willamette Industries, Inc................................ 86,500 2,897,750
--------------
26,514,748
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group..................................... 13,000 750,750
Consolidated Natural Gas Co............................... 15,000 810,000
Peoples Energy Corp....................................... 5,500 219,312
Sempra Energy............................................. 33,699 855,112
Sonat, Inc................................................ 17,200 465,475
Williams Companies, Inc................................... 64,400 2,008,475
--------------
5,109,124
--------------
HOSPITALS/ HEALTHCARE -- 0.3%
Columbia/HCA Healthcare Corp.............................. 301,900 7,472,025
HBO & Co.................................................. 69,000 1,979,437
Healthsouth Corp.(b)...................................... 63,600 981,825
Humana, Inc.(b)........................................... 25,700 457,781
IMS Health, Inc........................................... 25,400 1,916,112
Manor Care, Inc........................................... 12,000 352,500
Service Corp. International............................... 39,400 1,499,662
Shared Medical Systems Corp............................... 4,100 204,487
Tenet Healthcare Corp.(b)................................. 48,000 1,260,000
--------------
16,123,829
--------------
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.2%
Clorox Co................................................. 16,200 $ 1,892,362
Kimberly-Clark Corp....................................... 87,000 4,741,500
Leggett & Platt, Inc...................................... 114,700 2,523,400
--------------
9,157,262
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc........................... 6,400 386,000
Fleetwood Enterprises, Inc................................ 5,700 198,075
Hanson, PLC, ADR, (United Kingdom)........................ 309,562 12,072,918
Kaufman & Broad Home Corp................................. 6,100 175,375
Lowe's Companies, Inc..................................... 54,800 2,805,075
Masco Corp................................................ 51,800 1,489,250
Maytag Corp............................................... 14,900 927,525
Owens Corning............................................. 106,900 3,788,269
Stanley Works............................................. 14,000 388,500
Tupperware Corp........................................... 9,600 157,800
Whirlpool Corp............................................ 11,700 647,887
--------------
23,036,674
--------------
INSURANCE -- 1.5%
Aetna, Inc................................................ 23,300 1,831,962
Allstate Corp............................................. 131,300 5,071,462
American General Corp..................................... 39,700 3,096,600
American International Group, Inc......................... 163,500 15,798,187
Aon Corp.................................................. 26,300 1,456,362
Berkley (W.R.) Corp....................................... 42,400 1,444,250
Berkshire Hathaway, Inc. (Class "B" Stock)................ 452 1,061,025
Chubb Corp................................................ 26,700 1,732,162
CIGNA Corp................................................ 34,800 2,690,475
Cincinnati Financial Corp................................. 25,800 944,925
Conseco, Inc.............................................. 49,021 1,498,204
Financial Security Assurance Holdings Ltd................. 34,000 1,844,500
Hartford Financial Services Group, Inc.................... 37,000 2,030,375
Jefferson-Pilot Corp...................................... 16,600 1,245,000
Lincoln National Corp..................................... 16,000 1,309,000
Loews Corp................................................ 47,000 4,617,750
Marsh & McLennan Companies, Inc........................... 39,900 2,331,656
MBIA, Inc................................................. 15,300 1,003,106
MGIC Investment Corp...................................... 17,900 712,644
Progressive Corp.......................................... 11,300 1,913,938
Provident Companies, Inc.................................. 70,400 2,921,600
Reinsurance Group of America, Inc......................... 115,550 8,088,500
SAFECO Corp............................................... 22,100 948,919
St. Paul Companies, Inc................................... 36,200 1,257,950
TIG Holdings, Inc......................................... 85,500 1,330,594
Torchmark Corp............................................ 21,900 773,329
Trenwick Group, Inc....................................... 64,850 2,115,731
United Healthcare Corp.................................... 29,500 1,270,344
UNUM Corp................................................. 21,700 1,266,737
--------------
73,607,287
--------------
INTRUMENTS-CONTROLS
Flowserve Corp............................................ 39,486 653,987
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B6
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
LEISURE -- 0.3%
<S> <C> <C>
Brunswick Corp............................................ 15,600 $ 386,100
Carnival Corp. (Class "A" Stock).......................... 78,500 3,768,000
Disney (Walt) Co.......................................... 317,100 9,513,000
Harrah's Entertainment, Inc.(b)........................... 15,800 247,862
Hilton Hotels Corp........................................ 39,200 749,700
King World Productions, Inc............................... 11,500 338,531
Marriott International, Inc. (Class "A" Stock)............ 40,000 1,160,000
Mirage Resorts, Inc.(b)................................... 28,100 419,744
--------------
16,582,937
--------------
MACHINERY -- 0.3%
Briggs & Stratton Corp.................................... 3,900 194,513
Case Corp................................................. 98,800 2,155,075
Caterpillar, Inc.......................................... 58,300 2,681,800
Cooper Industries, Inc.................................... 19,000 906,063
Deere & Co................................................ 39,100 1,295,188
Dover Corp................................................ 34,800 1,274,550
DT Industries, Inc........................................ 35,800 563,850
Eaton Corp................................................ 11,200 791,700
Global Industrial Technologies, Inc.(b)................... 61,400 656,213
Harnischfeger Industries, Inc............................. 7,500 76,406
Ingersoll-Rand Co......................................... 25,900 1,215,681
Milacron, Inc............................................. 6,300 121,275
Paxar Corp................................................ 229,925 2,054,955
Snap-On, Inc.............................................. 9,500 330,719
Timken Co................................................. 9,900 186,863
--------------
14,504,851
--------------
MANUFACTURING -- 0.3%
Hussmann International, Inc............................... 66,400 1,286,500
Illinois Tool Works, Inc.................................. 39,100 2,267,800
Smith (A.O.) Corp.,....................................... 105,450 2,590,116
Tyco International Ltd.................................... 98,651 7,441,985
--------------
13,586,401
--------------
MEDIA -- 1.3%
CBS Corp.(b).............................................. 304,000 9,956,000
Central Newspapers, Inc.(Class "A" Stock)................. 50,000 3,571,875
Clear Channel Communications, Inc.(b)..................... 38,600 2,103,700
Comcast Corp. (Special Class "A" Stock)................... 56,700 3,327,581
Donnelley (R.R.) & Sons Co................................ 22,800 998,925
Dow Jones & Co., Inc...................................... 15,100 726,688
Gannett Co., Inc.......................................... 44,400 2,938,725
Houghton Mifflin Co....................................... 58,700 2,773,576
Interpublic Group of Companies, Inc....................... 19,700 1,571,075
Knight-Ridder, Inc........................................ 70,600 3,609,425
Lee Enterprises, Inc...................................... 50,900 1,603,350
McGraw-Hill, Inc.......................................... 15,500 1,579,063
Mediaone Group, Inc....................................... 95,100 4,469,700
Meredith Corp............................................. 8,300 314,363
New York Times Co. (Class "A" Stock)...................... 30,000 1,040,625
Tele-Communications, Inc. (Series "A" Stock)(b)........... 79,400 4,391,813
Time Warner, Inc.......................................... 183,000 11,357,438
Times Mirror Co. (Class "A" Stock)........................ 13,900 778,400
Tribune Co................................................ 19,300 1,273,800
Viacom, Inc. (Class "B" Stock)(b)......................... 55,300 4,092,200
--------------
62,478,322
--------------
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
METALS-FERROUS -- 0.3%
AK Steel Holding Corp..................................... 213,400 $ 5,014,900
Allegheny Teledyne, Inc................................... 30,700 627,431
Bethlehem Steel Corp.(b).................................. 241,500 2,022,563
LTV Corp.................................................. 204,900 1,190,981
Material Sciences Corp.(b)................................ 96,900 823,650
National Steel Corp. (Class "B" Stock)(b)................. 42,200 300,675
Nucor Corp................................................ 13,800 596,850
USX-U.S. Steel Group, Inc................................. 80,900 1,860,700
Worthington Industries, Inc............................... 15,200 190,000
--------------
12,627,750
--------------
METALS-NON FERROUS -- 0.3%
Alcan Aluminum Ltd........................................ 35,600 963,425
Aluminum Company of America............................... 184,300 13,741,869
Cyprus Amax Minerals Co................................... 14,600 146,000
Inco Ltd.................................................. 26,200 276,738
Reynolds Metals Co........................................ 11,600 611,175
--------------
15,739,207
--------------
MINERAL RESOURCES
ASARCO, Inc............................................... 6,300 94,894
Burlington Resources, Inc................................. 27,600 988,425
Homestake Mining Co....................................... 33,100 304,106
Phelps Dodge Corp......................................... 9,200 468,050
--------------
1,855,475
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.4%
AES Corp.................................................. 24,000 1,137,000
Coltec Industries, Inc.................................... 43,700 852,150
Crane Co.................................................. 10,800 326,025
Danaher Corp.............................................. 14,000 760,375
Donaldson Co., Inc........................................ 109,200 2,265,900
Ecolab, Inc............................................... 20,200 730,988
IDEX Corp................................................. 60,100 1,472,450
ITT Industries, Inc....................................... 18,500 735,375
Laidlaw, Inc.............................................. 51,500 518,219
Mark IV Industries, Inc................................... 86,542 1,125,046
Millipore Corp............................................ 6,800 193,375
NACCO Industries, Inc. (Class "A" Stock).................. 1,300 119,600
Pall Corp................................................. 19,500 493,594
PPG Industries, Inc....................................... 27,900 1,625,175
Textron, Inc.............................................. 25,700 1,951,594
Thermo Electron Corp.(b).................................. 24,900 421,744
Trinity Industries, Inc................................... 52,200 2,009,700
York International Corp................................... 27,000 1,101,938
--------------
17,840,248
--------------
MISCELLANEOUS - CONSUMER GROWTH/STAPLE -- 0.4%
American Greetings Corp. (Class "A" Stock)................ 11,400 468,113
Black & Decker Corp....................................... 14,900 835,331
Corning, Inc.............................................. 36,200 1,629,000
Jostens, Inc.............................................. 6,100 159,744
Minnesota Mining & Manufacturing Co....................... 64,000 4,552,000
Polaroid Corp............................................. 7,000 130,813
Rubbermaid, Inc........................................... 23,500 738,781
Unilever N.V., ADR, (United Kingdom)...................... 100,300 8,318,631
--------------
16,832,413
--------------
MISCELLANEOUS - INDUSTRIAL
Tenneco, Inc.............................................. 26,700 909,469
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B7
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
OIL & GAS -- 2.0%
<S> <C> <C>
Amerada Hess Corp......................................... 14,400 $ 716,400
Amoco Corp................................................ 149,000 8,995,875
Anadarko Petroleum Corp................................... 18,800 580,450
Ashland, Inc.............................................. 11,800 570,825
Atlantic Richfield Co..................................... 50,200 3,275,550
Basin Exploration, Inc.(b)................................ 17,400 218,588
Cabot Oil & Gas Corp. (Class "A" Stock)................... 88,600 1,329,000
Chevron Corp.............................................. 102,900 8,534,269
Coastal Corp.............................................. 33,200 1,159,925
Eastern Enterprises....................................... 3,200 140,000
Enron Oil & Gas Co........................................ 48,400 834,900
Exxon Corp................................................ 380,300 27,809,438
Kerr-McGee Corp........................................... 7,500 286,875
Mobil Corp................................................ 122,800 10,698,950
Murphy Oil Corp........................................... 27,600 1,138,500
NICOR, Inc................................................ 7,600 321,100
Noble Affiliates, Inc..................................... 50,900 1,253,413
Phillips Petroleum Co..................................... 41,200 1,756,150
Pioneer Natural Resources Co.............................. 334,644 2,928,135
Royal Dutch Petroleum Co.................................. 335,800 16,076,426
Seagull Energy Corp.(b)................................... 63,700 402,106
Sunoco, Inc............................................... 14,800 533,725
Texaco, Inc............................................... 85,800 4,536,675
Union Pacific Resources Group, Inc........................ 39,800 360,688
Unocal Corp............................................... 38,600 1,126,638
USX-Marathon Group........................................ 45,200 1,361,650
Western Gas Resources, Inc................................ 103,000 592,250
--------------
97,538,501
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.2%
Elf Aquitaine SA, ADR, (France)........................... 124,800 7,066,800
Occidental Petroleum Corp................................. 53,100 896,063
Oryx Energy Co.(b)........................................ 140,000 1,881,250
--------------
9,844,113
--------------
OIL & GAS SERVICES -- 0.5%
Apache Corp............................................... 15,000 379,688
Baker Hughes, Inc......................................... 49,450 874,647
Enron Corp................................................ 51,400 2,933,013
Halliburton Co............................................ 68,500 2,029,313
Helmerich & Payne, Inc.................................... 7,900 153,063
J. Ray McDermott, SA...................................... 163,800 4,002,864
McDermott International, Inc.............................. 431,600 10,655,125
ONEOK, Inc................................................ 4,900 177,013
Rowan Companies, Inc.(b).................................. 13,600 136,000
Schlumberger Ltd.......................................... 83,000 3,828,375
Wolverine Tube, Inc.(b)................................... 37,000 777,000
--------------
25,946,101
--------------
PRECIOUS METALS -- 0.1%
Barrick Gold Corp......................................... 58,500 1,140,750
Battle Mountain Gold Co................................... 36,000 148,500
Freeport-McMoRan Copper & Gold, Inc. (Class "B").......... 30,300 316,256
Newmont Mining Corp....................................... 24,500 442,531
Placer Dome, Inc.......................................... 38,700 445,050
--------------
2,493,087
--------------
RAILROADS -- 0.2%
Burlington Northern Santa Fe Corp......................... 73,500 2,480,625
CSX Corp.................................................. 34,200 1,419,300
Norfolk Southern Corp..................................... 59,100 1,872,731
Union Pacific Corp........................................ 38,700 1,743,919
--------------
7,516,575
--------------
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
REAL ESTATE DEVELOPMENT -- 0.3%
Crescent Operating, Inc................................... 17,060 $ 81,035
Crescent Real Estate Equities Co.......................... 336,700 7,744,100
Equity Residential Properties Trust....................... 14,400 582,300
Vornado Operating, Inc.(b)................................ 4,920 39,668
Vornado Realty Trust(b)................................... 185,200 6,250,500
--------------
14,697,603
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc................................... 18,200 327,600
McDonald's Corp........................................... 107,900 8,267,838
Tricon Global Restaurants, Inc.(b)........................ 23,800 1,192,975
Wendy's International, Inc................................ 20,700 451,519
--------------
10,239,932
--------------
RETAIL -- 2.6%
Albertson's, Inc.......................................... 38,500 2,451,969
American Stores Co........................................ 42,800 1,580,925
AutoZone, Inc.(b)......................................... 23,800 783,913
Bombay Company, Inc.(b)................................... 139,200 774,300
Charming Shoppes, Inc.(b)................................. 811,300 3,498,731
Circuit City Stores, Inc.................................. 15,500 774,031
Consolidated Stores Corp.................................. 16,900 341,169
Costco Companies, Inc.(b)................................. 33,600 2,425,500
CVS Corp.................................................. 59,800 3,289,000
Dayton-Hudson Corp........................................ 68,500 3,716,125
Designs, Inc.(b).......................................... 51,900 100,556
Dillard's, Inc............................................ 49,100 1,393,213
Dollar General Corporation................................ 22,500 531,563
Federated Department Stores, Inc.(b)...................... 32,900 1,433,206
Fred Meyer, Inc........................................... 21,000 1,265,250
Great Atlantic & Pacific Tea Co., Inc..................... 6,000 177,750
Harcourt General, Inc..................................... 11,100 590,381
Home Depot, Inc........................................... 229,100 14,018,056
IKON Office Solutions, Inc................................ 21,100 180,669
J.C. Penney Co., Inc...................................... 39,100 1,832,813
Jan Bell Marketing, Inc.(b)............................... 73,200 471,225
Kmart Corp.(b)............................................ 685,800 10,501,313
Kohl's Corp.(b)........................................... 22,600 1,388,488
Kroger Co.(b)............................................. 39,923 2,415,342
Liz Claiborne, Inc........................................ 10,500 331,406
Longs Drug Stores, Inc.................................... 6,100 228,750
May Department Stores Co.................................. 36,200 2,185,575
Newell Co................................................. 24,900 1,027,125
Nordstrom, Inc............................................ 28,200 978,188
Pep Boys - Manny, Moe & Jack.............................. 9,900 155,306
Rite Aid Corp............................................. 40,400 2,002,325
Safeway, Inc.,(b)......................................... 71,000 4,326,563
Sears, Roebuck & Co....................................... 61,400 2,609,500
Sherwin-Williams Co....................................... 27,100 796,063
Staples, Inc.(b).......................................... 43,000 1,878,563
Supervalu, Inc............................................ 18,800 526,400
Tandy Corp................................................ 16,200 667,238
The Gap, Inc.............................................. 93,000 5,231,250
The Limited, Inc.......................................... 247,100 7,196,788
TJX Companies, Inc........................................ 50,600 1,467,400
Toys 'R' Us, Inc.(b)...................................... 131,700 2,222,439
Wal-Mart Stores, Inc...................................... 347,700 28,315,819
Walgreen Co............................................... 77,600 4,544,450
Winn-Dixie Stores, Inc.................................... 23,300 1,045,588
--------------
123,672,224
--------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co................................... 12,300 251,381
Goodyear Tire & Rubber Co................................. 63,600 3,207,825
--------------
3,459,206
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B8
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
SEMICONDUCTORS
<S> <C> <C>
National Semiconductor Corp.(b)........................... 25,700 $ 346,950
--------------
TELECOMMUNICATIONS -- 3.5%
Airtouch Communications, Inc.(b).......................... 88,400 6,375,850
Alcatel Alsthom, ADR, (France)............................ 124,900 3,052,244
Alltel Corp............................................... 42,800 2,559,975
Ameritech Corp............................................ 171,400 10,862,476
Andrew Corp.(b)........................................... 13,900 229,350
Ascend Communications, Inc.(b)............................ 30,200 1,985,650
AT&T Corp................................................. 280,600 21,115,150
Bell Atlantic Corp........................................ 243,200 13,816,800
BellSouth Corp............................................ 305,200 15,221,850
Deutsche Telekom AG, ADR, (Germany)....................... 45,000 1,473,750
Frontier Corp............................................. 25,700 873,800
General Instrument Corp................................... 23,200 787,350
GTE Corp.................................................. 150,000 10,115,625
Lucent Technologies, Inc.................................. 205,400 22,594,000
MCI Worldcom, Inc......................................... 280,414 20,119,705
Nextel Communications, Inc. (Class "A" Stock)(b).......... 41,100 970,988
Northern Telecom Ltd...................................... 102,140 5,119,768
SBC Communications, Inc................................... 302,100 16,200,113
Scientific-Atlanta, Inc................................... 12,400 282,875
Sprint Corp............................................... 112,950 6,717,269
Tellabs, Inc.(b).......................................... 28,400 1,947,175
US West, Inc.............................................. 77,860 5,031,703
--------------
167,453,466
--------------
TEXTILES
National Service Industries, Inc.......................... 6,700 254,600
Pillowtex Corp.(b)........................................ 18,530 495,678
Russell Corp.............................................. 5,700 115,781
Springs Industries, Inc................................... 3,200 132,600
Tultex Corp.(b)........................................... 88,300 77,263
VF Corp................................................... 19,100 895,313
--------------
1,971,235
--------------
TOBACCO -- 0.7%
Philip Morris Co., Inc.................................... 479,600 25,658,600
RJR Nabisco Holdings Corp................................. 303,500 9,010,157
UST, Inc.................................................. 28,900 1,007,888
--------------
35,676,645
--------------
TOYS
Hasbro, Inc............................................... 20,800 751,400
Mattel, Inc............................................... 45,551 1,039,132
--------------
1,790,532
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp...................................... 23,000 2,047,000
Ryder System, Inc......................................... 12,000 312,000
Yellow Corp.(b)........................................... 43,600 833,850
--------------
3,192,850
--------------
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
UTILITY - ELECTRIC -- 0.8%
Ameren Corp............................................... 21,500 $ 917,781
American Electric Power Co., Inc.......................... 29,700 1,397,757
Baltimore Gas & Electric Co............................... 23,100 713,213
Carolina Power & Light Co................................. 23,500 1,105,969
Central & South West Corp................................. 33,200 910,925
CINergy Corp.............................................. 24,700 849,063
Consolidated Edison, Inc.................................. 36,800 1,945,800
Dominion Resources, Inc................................... 30,300 1,416,525
DTE Energy Co............................................. 22,700 973,263
Duke Energy Corp.......................................... 56,400 3,613,125
Edison International...................................... 56,700 1,580,513
Entergy Corp.............................................. 38,200 1,188,975
FirstEnergy Corp.(b)...................................... 36,100 1,175,506
FPL Group, Inc............................................ 28,500 1,756,313
GPU, Inc.................................................. 19,900 879,331
Houston Industries, Inc................................... 44,300 1,423,138
New Century Energies, Inc................................. 15,000 731,250
Niagara Mohawk Power Corp.(b)............................. 22,600 364,425
Northern States Power Co.................................. 23,300 646,575
Pacific Gas & Electric Co................................. 59,700 1,880,550
PacifiCorp................................................ 46,400 977,300
PECO Energy Co............................................ 34,900 1,452,713
PP&L Resources, Inc....................................... 26,000 724,750
Public Service Enterprise Group, Inc...................... 36,300 1,452,000
Southern Co............................................... 108,100 3,141,656
Texas Utilities Co........................................ 41,600 1,942,200
Unicom Corp............................................... 33,900 1,307,269
--------------
36,467,885
--------------
WASTE MANAGEMENT -- 0.1%
Waste Management, Inc..................................... 127,902 5,963,431
--------------
TOTAL COMMON STOCKS
(COST $1,566,786,221).................................................... 1,853,914,159
--------------
<CAPTION>
PREFERRED STOCKS -- 0.7%
<S> <C> <C>
FINANCIAL SERVICES -- 0.6%
Central Hispano Capital Corp.............................. 1,225,900 31,289,903
--------------
TELECOMMUNICATIONS -- 0.1%
Telecomunicacoes Brasileiras S.A., ADR.................... 55,900 4,063,231
--------------
TOTAL PREFERRED STOCKS
(COST $36,876,618)....................................................... 35,353,134
--------------
TOTAL LONG-TERM INVESTMENTS
(COST $4,298,572,492).................................................... 4,522,618,555
--------------
</TABLE>
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
SHORT-TERM RATING AMOUNT
INVESTMENTS -- 5.0% (UNAUDITED) (000)
------------ ---------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT-YANKEE
Alltel Corp.,
5.75%, 01/04/99............................... NR $ 1,200 1,200,000
Avery Dennison,
5.00%, 01/04/99............................... NR 1,174 1,174,000
--------------
2,374,000
--------------
COMMERCIAL PAPER -- 0.3%
Barton Capital Corp,
5.35%, 01/04/99............................... P1 1,200 1,199,465
Campbell Soup Company,
4.80%, 01/04/99............................... P1 1,270 1,269,492
Countrywide Home Loan,
5.40%, 01/04/99............................... P1 1,200 1,199,460
CXC Inc.,
5.30%, 01/04/99............................... P1 1,200 1,199,470
Dover,
5.30%, 01/04/99............................... P1 1,200 1,199,470
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B9
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHORT-TERM MOODY'S PRINCIPAL
INVESTMENTS RATING AMOUNT VALUE
(CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
COMMERCIAL PAPER (CONT'D.)
<S> <C> <C> <C>
Duke Capital Corp,
5.05%, 01/04/99............................... P1 $ 1,200 $ 1,199,495
John Hancock Cap. Corp.,
5.25%, 01/07/99............................... P1 1,200 1,198,950
Novartis Finance Corp.,
5.25%, 01/04/99............................... P1 912 911,601
Pitney Bowes Credit Corp,
5.10%, 01/04/99............................... P1 1,206 1,205,488
Reed Elsevier, Inc.,
5.05%, 01/04/99............................... P1 1,200 1,199,495
SBC Communications,
5.00%, 01/04/99............................... P1 1,200 1,199,500
Sonoco Products,
5.35%, 01/04/99............................... P1 1,000 999,554
Triple-A One Plus Funding,,
5.30%, 01/04/99............................... P1 728 727,678
Xerox Capital Corp,
5.30%, 01/04/99............................... P1 1,200 1,199,470
--------------
15,908,588
--------------
OTHER CORPORATE OBLIGATIONS -- 2.3%
Advanta Corp., M.T.N.,
6.99%, 10/18/99............................... Ba3 15,000 14,448,000
7.25%, 08/16/99............................... Ba2 3,000 2,976,150
AT&T Capital Corp., M.T.N.,
6.65%, 04/30/99............................... Baa3 32,000 32,104,319
Comdisco, Inc.,
6.11%, 08/04/99............................... Baa1 12,500 12,541,375
Enterprise Rent-A-Car USA Finance Co., M.T.N.,
8.75%, 12/15/99............................... Baa3 5,000 5,120,350
Federal Express Corp.,
10.05%, 06/15/99.............................. Baa3 500 510,090
First Union Corp.,
9.45%, 06/15/99............................... A3 4,000 4,071,961
Lehman Brothers Holdings, Inc.,
6.71%, 10/12/99............................... Baa1 6,000 6,049,020
Okobank, (Finland),
6.793%, 1/14/99............................... A3 12,500 12,500,000
SunAmerica, Inc.,
6.20%, 10/31/99............................... Baa1 9,000 9,068,850
Tele-Communications, Inc.,
6.375%, 09/15/99.............................. Ba1 8,000 8,056,240
--------------
107,446,355
--------------
<CAPTION>
SHORT-TERM MOODY'S PRINCIPAL
INVESTMENTS RATING AMOUNT VALUE
(CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 2.3%
Joint Repurchase Agreement Account,
4.693%, 01/04/99 (Note 5)..................... $ 109,421 $ 109,421,000
--------------
U. S. GOVERNMENT OBLIGATION -- 0.1%
United States Treasury Bills,
4.32%, 03/18/99 (a)........................... 100 99,088
4.36%, 03/18/99 (a)........................... 4,650 4,607,199
--------------
4,706,287
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $197,485,955)...................................................... 239,856,230
--------------
TOTAL INVESTMENTS -- 99.3%
(cost $4,496,058,447; Note 6)............................................ 4,762,474,785
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (d)............................................................ 85,990
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.7%.............................. 33,398,995
--------------
TOTAL NET ASSETS -- 100.0%................................................. $4,795,959,770
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
AG Aktiengesellschaft (German Stock Company)
ADR American Depository Receipt
L.P. Limited Partnership
M.T.N. Medium Term Note
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Security segregated as collateral for futures contracts.
(b) Non-income producing security.
(c) Issue in default.
(d) Open futures contracts as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31, APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE 1998 DEPRECIATION
<C> <S> <C> <C> <C> <C>
Long Position:
307 U.S. T-Bond Mar 99 $39,190,000 $ 39,228,844 $ 38,844
148 S&P 500 Index Mar 99 $43,681,225 $ 46,083,500 $ 2,402,275
110 U.S. Treasury 5yr Mar 99 $12,429,218 $ 12,467,812 $ 38,594
-------------
$ 2,479,713
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B10
<PAGE>
FLEXIBLE MANAGED PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 88.7%
VALUE
COMMON STOCKS -- 52.8% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.0%
Aeroquip-Vickers, Inc..................................... 4,500 $ 134,719
AlliedSignal, Inc......................................... 91,400 4,050,162
Boeing Co................................................. 162,100 5,288,512
GenCorp, Inc.............................................. 403,900 10,072,256
General Dynamics Corp..................................... 20,400 1,195,950
Goodrich (B.F.) Co........................................ 11,600 416,150
Litton Industries, Inc. (a)............................... 306,000 19,966,500
Lockheed Martin Corp...................................... 31,500 2,669,625
Northrop Grumman Corp..................................... 10,800 789,750
Raytheon Co. (Class "B" Stock)............................ 55,000 2,928,750
United Technologies Corp.................................. 37,700 4,099,875
--------------
51,612,249
--------------
AIRLINES -- 1.2%
AMR Corp. (a)............................................. 646,300 38,374,062
Delta Air Lines, Inc...................................... 24,200 1,258,400
Southwest Airlines Co..................................... 53,700 1,204,894
US Airways Group, Inc. (a)................................ 479,200 24,918,400
--------------
65,755,756
--------------
APPAREL -- 0.1%
Fruit of the Loom, Inc. (Class "A" Stock) (a)............. 310,300 4,286,018
Nike, Inc. (Class "B" Stock).............................. 47,200 1,914,550
Reebok International Ltd.................................. 9,100 135,362
--------------
6,335,930
--------------
AUTOS - CARS & TRUCKS -- 2.2%
Cummins Engine Co., Inc................................... 6,200 220,100
DaimlerChrysler AG........................................ 327,975 31,506,098
Dana Corp................................................. 26,550 1,085,231
Ford Motor Co............................................. 478,700 28,093,707
General Motors Corp....................................... 553,900 39,638,469
Genuine Parts Co.......................................... 29,000 969,687
Johnson Controls, Inc..................................... 13,700 808,300
MascoTech, Inc............................................ 388,000 6,644,500
Midas, Inc................................................ 90,866 2,828,204
Navistar International Corp. (a).......................... 11,700 333,450
PACCAR, Inc............................................... 12,600 518,175
Titan International, Inc.................................. 415,700 3,949,150
TRW, Inc.................................................. 19,900 1,118,131
--------------
117,713,202
--------------
BANKS AND SAVINGS & LOANS -- 2.0%
Banc One Corp............................................. 190,264 9,715,355
Bank of New York Co., Inc................................. 122,000 4,910,500
BankAmerica Corp.......................................... 281,141 16,903,603
BankBoston Corp........................................... 47,200 1,837,850
Bankers Trust Corp........................................ 15,900 1,358,456
BB&T Corp................................................. 46,200 1,862,437
Chase Manhattan Corp...................................... 136,700 9,304,144
Comerica, Inc............................................. 25,500 1,738,781
First Union Corp.......................................... 156,800 9,535,400
Fleet Financial Group, Inc................................ 90,000 4,021,875
Golden West Financial Corp................................ 9,200 843,525
Huntington Bancshares, Inc................................ 34,120 1,025,732
KeyCorp................................................... 71,200 2,278,400
Mellon Bank Corp.......................................... 41,300 2,839,375
Mercantile Bancorporation, Inc............................ 23,800 1,097,775
Morgan (J.P.) & Co., Inc.................................. 28,800 3,025,800
National City Corp........................................ 53,200 3,857,000
Northern Trust Corp....................................... 18,100 1,580,356
PNC Bank Corp............................................. 49,500 2,679,187
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
Providian Financial Corp.................................. 23,100 $ 1,732,500
Regions Financial Corp.................................... 32,000 1,290,000
Republic New York Corp.................................... 17,700 806,456
Summit Bancorp............................................ 28,500 1,245,094
Suntrust Banks, Inc....................................... 34,200 2,616,300
Synovus Financial Corp.................................... 42,500 1,035,937
U.S. Bancorp.............................................. 119,400 4,238,700
Union Planters Corp....................................... 18,000 815,625
Wachovia Corp............................................. 33,400 2,920,412
Wells Fargo & Co.......................................... 259,400 10,359,787
--------------
107,476,362
--------------
BUSINESS SERVICES
Equifax, Inc.............................................. 24,400 834,175
Omnicom Group, Inc........................................ 27,300 1,583,400
--------------
2,417,575
--------------
CHEMICALS -- 1.1%
Air Products & Chemicals, Inc............................. 38,100 1,524,000
Dow Chemical Co........................................... 36,800 3,346,500
Du Pont (E.I.) de Nemours & Co............................ 183,500 9,736,969
Eastman Chemical Co....................................... 12,700 568,325
Engelhard Corp............................................ 23,400 456,300
Ferro Corp................................................ 553,650 14,394,900
FMC Corp. (a)............................................. 5,600 313,600
Grace (W.R.) & Co......................................... 12,000 188,250
Great Lakes Chemical Corp................................. 9,700 388,000
Hercules, Inc............................................. 15,700 429,787
Millennium Chemicals, Inc. (a)............................ 601,600 11,956,800
Monsanto Co............................................... 96,200 4,569,500
Morton International, Inc................................. 21,200 519,400
Nalco Chemical Co......................................... 10,800 334,800
OM Group, Inc............................................. 260,300 9,500,950
Praxair, Inc.............................................. 25,600 902,400
Raychem Corp.............................................. 13,800 445,912
Rohm & Haas Co............................................ 29,700 894,712
Sigma-Aldrich Corp........................................ 16,300 478,812
Union Carbide Corp........................................ 20,800 884,000
--------------
61,833,917
--------------
COMMERCIAL SERVICES -- 0.1%
Cendant Corp. (a)......................................... 136,500 2,602,031
Deluxe Corp............................................... 13,200 482,625
Moore Corp. Ltd........................................... 14,300 157,300
--------------
3,241,956
--------------
COMPUTER SERVICES -- 2.2%
3Com Corp. (a)............................................ 57,500 2,576,719
Adobe Systems, Inc........................................ 11,200 523,600
America Online, Inc. (a).................................. 10,900 1,744,000
Autodesk, Inc............................................. 7,600 324,425
Automatic Data Processing, Inc............................ 48,500 3,889,094
BMC Software, Inc. (a).................................... 32,600 1,452,737
Cabletron Systems, Inc. (a)............................... 25,600 214,400
Ceridian Corp. (a)........................................ 11,700 816,806
Cisco Systems, Inc. (a)................................... 248,500 23,063,906
Computer Associates International, Inc.................... 88,600 3,776,575
Computer Sciences Corp. (a)............................... 25,300 1,630,269
Electronic Data Systems Corp.............................. 78,000 3,919,500
EMC Corp. (a)............................................. 80,400 6,834,000
First Data Corp........................................... 69,400 2,199,112
Microsoft Corp. (a)....................................... 396,700 55,017,331
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B11
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
COMPUTER SERVICES (CONT'D.)
Novell, Inc. (a).......................................... 56,900 $ 1,031,312
Oracle Corp. (a).......................................... 159,500 6,878,437
Parametric Technology Corp. (a)........................... 43,200 707,400
Peoplesoft, Inc........................................... 30,000 568,125
Silicon Graphics, Inc. (a)................................ 30,400 391,400
Unisys Corp............................................... 40,400 1,391,275
--------------
118,950,423
--------------
COMPUTERS -- 1.4%
Apple Computer, Inc. (a).................................. 21,600 884,250
Compaq Computer Corp...................................... 267,961 11,237,614
Data General Corp. (a).................................... 7,900 129,856
Dell Computer Corp. (a)................................... 203,200 14,871,700
Gateway 2000, Inc. (a).................................... 25,100 1,284,806
Hewlett-Packard Co........................................ 168,600 11,517,487
International Business Machines Corp...................... 149,800 27,675,550
Seagate Technology, Inc. (a).............................. 39,300 1,188,825
Sun Microsystems, Inc. (a)................................ 61,200 5,240,250
--------------
74,030,338
--------------
CONSTRUCTION -- 0.6%
Centex Corp............................................... 9,600 432,600
Fluor Corp................................................ 13,600 578,850
Foster Wheeler Corp....................................... 6,600 87,037
Oakwood Homes Corp........................................ 572,000 8,687,250
Pulte Corp................................................ 6,900 191,906
Standard Pacific Corp..................................... 632,400 8,932,650
Webb (Del E.) Corp........................................ 576,500 15,889,781
--------------
34,800,074
--------------
CONTAINERS -- 0.2%
Ball Corp................................................. 4,900 224,175
Bemis Co., Inc............................................ 8,600 326,262
Crown Cork & Seal Co., Inc................................ 20,800 640,900
Owens-Illinois, Inc. (a).................................. 260,800 7,987,000
Sealed Air Corp........................................... 13,400 684,237
--------------
9,862,574
--------------
COSMETICS & SOAPS -- 0.7%
Alberto Culver Co. (Class "B" Stock)...................... 9,200 245,525
Avon Products, Inc........................................ 42,800 1,893,900
Colgate-Palmolive Co...................................... 47,900 4,448,712
Gillette Co............................................... 181,600 8,773,550
International Flavors & Fragrances, Inc................... 17,700 782,119
Procter & Gamble Co....................................... 216,700 19,787,419
--------------
35,931,225
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.2%
Avery Dennison Corp....................................... 17,300 779,581
Pitney Bowes, Inc......................................... 44,400 2,933,175
Xerox Corp................................................ 52,800 6,230,400
--------------
9,943,156
--------------
DIVERSIFIED OPERATIONS -- 1.3%
Fortune Brands, Inc....................................... 27,800 879,175
General Electric Corp..................................... 522,400 53,317,450
Loews Corp................................................ 183,800 18,058,350
--------------
72,254,975
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
DRUGS AND MEDICAL SUPPLIES -- 3.5%
Abbott Laboratories....................................... 248,000 $ 12,152,000
Allergan, Inc............................................. 10,600 686,350
ALZA Corp. (a)............................................ 13,900 726,275
American Home Products Corp............................... 210,700 11,865,044
Amgen, Inc. (a)........................................... 41,700 4,360,256
Bard (C.R.), Inc.......................................... 9,200 455,400
Bausch & Lomb, Inc........................................ 9,000 540,000
Baxter International, Inc................................. 45,400 2,919,787
Becton, Dickinson & Co.................................... 39,700 1,694,694
Biomet, Inc............................................... 18,100 728,525
Boston Scientific Corp. (a)............................... 63,200 1,694,550
Bristol-Myers Squibb Co................................... 159,700 21,369,856
Cardinal Health, Inc...................................... 32,250 2,446,969
Guidant Corp.............................................. 24,400 2,690,100
Johnson & Johnson......................................... 217,200 18,217,650
Lilly (Eli) & Co.......................................... 176,900 15,721,987
Mallinckrodt, Inc......................................... 11,800 363,587
Medtronic, Inc............................................ 75,900 5,635,575
Merck & Co., Inc.......................................... 191,200 28,237,850
Pfizer, Inc............................................... 210,500 26,404,594
Pharmacia & Upjohn, Inc................................... 82,300 4,660,237
Schering-Plough Corp...................................... 237,400 13,116,350
St. Jude Medical, Inc. (a)................................ 14,900 412,544
Warner-Lambert Co......................................... 132,400 9,954,825
--------------
187,055,005
--------------
ELECTRONICS -- 1.3%
Advanced Micro Devices, Inc. (a).......................... 23,000 665,562
AMP Inc................................................... 35,700 1,858,631
Applied Materials, Inc. (a)............................... 59,400 2,535,637
Belden, Inc............................................... 275,600 5,839,275
EG&G, Inc................................................. 7,300 203,031
Emerson Electric Co....................................... 71,900 4,498,244
Grainger (W.W.), Inc...................................... 16,100 670,162
Harris Corp............................................... 13,000 476,125
Honeywell, Inc............................................ 20,600 1,551,437
Intel Corp................................................ 269,700 31,976,306
KLA-Tencor Corp. (a)...................................... 13,700 594,237
LSI Logic Corp. (a)....................................... 23,000 370,875
Micron Technology, Inc.................................... 34,300 1,734,294
Motorola, Inc............................................. 96,800 5,910,850
National Semiconductor Corp. (a).......................... 26,700 360,450
Perkin-Elmer Corp......................................... 7,900 770,744
Rockwell International Corp............................... 32,500 1,578,281
Solectron Corp............................................ 5,200 483,275
Tektronix, Inc............................................ 8,200 246,512
Texas Instruments, Inc.................................... 63,200 5,407,550
Thomas & Betts Corp....................................... 9,000 389,812
--------------
68,121,290
--------------
ENGINEERING & CONSTRUCTION -- 0.1%
Giant Cement Holding, Inc. (a)............................ 244,900 6,061,275
--------------
ENVIRONMENTAL SERVICES -- 0.2%
Browning-Ferris Industries, Inc........................... 29,800 847,437
Waste Management, Inc..................................... 256,562 11,962,203
--------------
12,809,640
--------------
FINANCIAL SERVICES -- 3.0%
American Express Co....................................... 73,300 7,494,925
Associates First Capital Corp............................. 112,390 4,762,526
Bear Stearns Companies, Inc............................... 17,500 654,062
Block (H.R.), Inc......................................... 17,000 765,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B12
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FINANCIAL SERVICES (CONT'D.)
Capital One Financial Corp................................ 10,200 $ 1,173,000
Citigroup, Inc............................................ 584,451 28,930,324
Countrywide Credit Industries, Inc........................ 17,600 883,300
Dun & Bradstreet Corp..................................... 27,600 871,125
Federal Home Loan Mortgage Corp........................... 109,600 7,062,350
Federal National Mortgage Association..................... 167,500 12,395,000
Fifth Third Bancorp....................................... 41,100 2,930,944
Franklin Resources, Inc................................... 41,000 1,312,000
Household International, Inc.............................. 78,392 3,106,283
Lehman Brothers Holdings, Inc............................. 724,900 31,940,906
MBNA Corp................................................. 121,800 3,037,387
Merrill Lynch & Co., Inc.................................. 294,000 19,624,500
Morgan Stanley Dean Witter & Co........................... 317,795 22,563,445
Paychex, Inc.............................................. 23,000 1,183,062
Schwab (Charles) Corp. (a)................................ 64,500 3,624,094
SLM Holding Corp.......................................... 26,000 1,248,000
State Street Corp......................................... 26,100 1,815,581
SunAmerica, Inc........................................... 31,700 2,571,662
Transamerica Corp......................................... 10,200 1,178,100
Washington Mutual, Inc.................................... 92,336 3,526,081
--------------
164,653,657
--------------
FOOD & BEVERAGES -- 2.3%
Anheuser-Busch Companies, Inc............................. 79,400 5,210,625
Archer-Daniels-Midland Co................................. 101,115 1,737,914
Bestfoods................................................. 46,700 2,486,775
Brown-Forman Corp. (Class "B" Stock)...................... 11,200 847,700
Campbell Soup Co.......................................... 74,000 4,070,000
Coca-Cola Co.............................................. 395,900 26,475,812
Coca-Cola Enterprises, Inc................................ 62,000 2,216,500
ConAgra, Inc.............................................. 77,100 2,428,650
Coors (Adolph) Co. (Class "B" Stock)...................... 6,000 338,625
General Mills, Inc........................................ 25,700 1,998,175
Heinz (H.J.) & Co......................................... 59,300 3,357,862
Hershey Foods Corp........................................ 23,200 1,442,750
Kellogg Co................................................ 66,600 2,272,725
PepsiCo, Inc.............................................. 240,300 9,837,281
Pioneer Hi-Bred International, Inc........................ 39,600 1,069,200
Quaker Oats Co............................................ 22,400 1,332,800
Ralston-Ralston Purina Group.............................. 52,000 1,683,500
RJR Nabisco Holdings Corp................................. 1,124,200 33,374,688
Sara Lee Corp............................................. 149,600 4,216,850
Seagram Co., Ltd.......................................... 57,800 2,196,400
Sysco Corp................................................ 55,200 1,514,550
Whitman Corp.............................................. 545,200 13,834,450
Wrigley (William) Jr. Co.................................. 18,800 1,683,775
--------------
125,627,607
--------------
FOREST PRODUCTS -- 1.5%
Boise Cascade Corp........................................ 669,400 20,751,400
Champion International Corp............................... 404,400 16,378,200
Fort James Corp........................................... 35,200 1,408,000
Georgia-Pacific Corp...................................... 15,000 878,437
International Paper Co.................................... 49,000 2,195,812
Louisiana-Pacific Corp.................................... 706,600 12,939,612
Mead Corp................................................. 406,800 11,924,325
Potlatch Corp............................................. 4,700 173,312
Temple-Inland, Inc........................................ 9,100 539,744
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOREST PRODUCTS (CONT'D.)
Union Camp Corp........................................... 11,300 $ 762,750
Westvaco Corp............................................. 16,600 445,087
Weyerhaeuser Co........................................... 32,300 1,641,244
Willamette Industries, Inc................................ 302,500 10,133,750
--------------
80,171,673
--------------
GAS PIPELINES -- 0.1%
Columbia Energy Group..................................... 13,500 779,625
Consolidated Natural Gas Co............................... 15,500 837,000
Peoples Energy Corp....................................... 5,700 227,287
Sempra Energy............................................. 37,053 940,220
Sonat, Inc................................................ 17,800 481,712
Williams Companies, Inc................................... 66,600 2,077,087
--------------
5,342,931
--------------
HOSPITALS/HOSPITAL MANAGEMENT -- 0.6%
Columbia/HCA Healthcare Corp.............................. 911,500 22,559,625
HBO & Co.................................................. 71,300 2,045,419
Healthsouth Corp. (a)..................................... 65,700 1,014,244
Humana, Inc. (a).......................................... 26,600 473,812
IMS Health, Inc........................................... 26,300 1,984,006
Manor Care, Inc........................................... 13,300 390,687
Service Corp. International............................... 40,800 1,552,950
Shared Medical Systems Corp............................... 4,200 209,475
Tenet Healthcare Corp. (a)................................ 49,700 1,304,625
--------------
31,534,843
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.3%
Clorox Co................................................. 16,700 1,950,769
Kimberly-Clark Corp....................................... 90,100 4,910,450
Leggett & Platt, Inc...................................... 470,800 10,357,600
--------------
17,218,819
--------------
HOUSING RELATED -- 1.3%
Armstrong World Industries, Inc........................... 6,500 392,031
Fleetwood Enterprises, Inc................................ 6,100 211,975
Hanson, PLC, ADR, (United Kingdom)........................ 1,221,100 47,622,900
Kaufman & Broad Home Corp................................. 6,400 184,000
Lowe's Companies, Inc..................................... 56,800 2,907,450
Masco Corp................................................ 53,500 1,538,125
Maytag Corp............................................... 15,400 958,650
Owens Corning............................................. 413,400 14,649,862
Stanley Works............................................. 14,400 399,600
Tupperware Corp........................................... 9,900 162,731
Whirlpool Corp............................................ 12,100 670,037
--------------
69,697,361
--------------
INSURANCE -- 2.3%
Aetna, Inc................................................ 24,100 1,894,862
Allstate Corp............................................. 135,800 5,245,275
American General Corp..................................... 41,100 3,205,800
American International Group, Inc......................... 169,200 16,348,950
Aon Corp.................................................. 27,100 1,500,662
Berkley (W.R.) Corp....................................... 175,850 5,989,891
Berkshire Hathaway, Inc. (Class "B" Stock)................ 494 1,159,725
Chubb Corp................................................ 27,600 1,790,550
CIGNA Corp................................................ 36,000 2,783,250
Cincinnati Financial Corp................................. 26,700 977,887
Conseco, Inc.............................................. 50,687 1,549,121
Financial Security Assurance Holdings Ltd................. 140,100 7,600,425
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B13
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
INSURANCE (CONT'D.)
Hartford Financial Services Group, Inc.................... 38,300 $ 2,101,712
Jefferson-Pilot Corp...................................... 17,200 1,290,000
Lincoln National Corp..................................... 16,600 1,358,087
Marsh & McLennan Companies, Inc........................... 41,300 2,413,469
MBIA, Inc................................................. 15,900 1,042,444
Magic Investment Corp..................................... 18,500 736,531
Progressive Corp.......................................... 11,700 1,981,687
Provident Companies, Inc.................................. 238,400 9,893,600
Reinsurance Group of America, Inc......................... 474,600 33,222,000
SAFECO Corp............................................... 22,900 983,269
St. Paul Companies, Inc................................... 37,400 1,299,650
TIG Holdings, Inc......................................... 351,200 5,465,550
Torchmark Corp............................................ 22,700 801,594
Trenwick Group, Inc....................................... 273,300 8,916,413
United Healthcare Corp.................................... 30,500 1,313,406
UNUM Corp................................................. 22,500 1,313,438
--------------
124,179,248
--------------
INTRUMENTS - CONTROLS -- 0.1%
Parker-Hannifin Corp...................................... 194,900 6,382,975
--------------
LEISURE -- 0.3%
Brunswick Corp............................................ 16,200 400,950
Carnival Corp. (Class "A" Stock).......................... 78,500 3,768,000
Disney (Walt) Co.......................................... 328,300 9,849,000
Harrah's Entertainment, Inc. (a).......................... 16,400 257,275
Hilton Hotels Corp........................................ 40,600 776,475
King World Productions, Inc............................... 11,900 350,306
Marriott International, Inc. (Class "A" Stock)............ 41,400 1,200,600
Mirage Resorts, Inc. (a).................................. 29,100 434,681
--------------
17,037,287
--------------
MACHINERY -- 0.6%
Briggs & Stratton Corp.................................... 4,000 199,500
Case Corp................................................. 369,200 8,053,175
Caterpillar, Inc.......................................... 60,400 2,778,400
Cooper Industries, Inc.................................... 19,600 934,675
Deere & Co................................................ 40,500 1,341,563
Dover Corp................................................ 36,100 1,322,163
DT Industries, Inc........................................ 146,800 2,312,100
Eaton Corp................................................ 11,600 819,975
Global Industrial Technologies, Inc. (a).................. 258,100 2,758,444
Harnischfeger Industries, Inc............................. 7,800 79,463
Ingersoll-Rand Co......................................... 26,900 1,262,619
Milacron, Inc............................................. 6,400 123,200
Paxar Corp................................................ 954,575 8,531,514
Snap-On, Inc.............................................. 9,900 344,644
Timken Co................................................. 10,200 192,525
--------------
31,053,960
--------------
MANUFACTURING -- 0.5%
Flowserve Corp............................................ 161,991 2,682,976
Hussmann International, Inc............................... 272,600 5,281,625
Illinois Tool Works, Inc.................................. 40,400 2,343,200
Smith (A.O.) Corp......................................... 433,350 10,644,159
Tyco International Ltd.................................... 102,157 7,706,469
--------------
28,658,429
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MEDIA -- 2.2%
CBS Corp. (a)............................................. 910,000 $ 29,802,500
Central Newspapers, Inc.(Class "A" Stock)................. 205,300 14,666,119
Clear Channel Communications, Inc. (a).................... 40,000 2,180,000
Comcast Corp. (Special Class "A" Stock)................... 57,600 3,380,400
Donnelley (R.R.) & Sons Co................................ 23,700 1,038,356
Dow Jones & Co., Inc...................................... 15,600 750,750
Gannett Co., Inc.......................................... 46,000 3,044,625
Houghton Mifflin Co....................................... 240,700 11,373,075
Interpublic Group of Companies, Inc....................... 21,200 1,690,700
Knight-Ridder, Inc........................................ 251,600 12,863,051
Lee Enterprises, Inc...................................... 208,900 6,580,350
McGraw-Hill, Inc.......................................... 16,100 1,640,188
Mediaone Group, Inc....................................... 98,500 4,629,500
Meredith Corp............................................. 8,600 325,725
New York Times Co. (Class "A" Stock)...................... 31,200 1,082,250
Tele-Communications, Inc. (Class "A" Stock) (a)........... 82,268 4,550,449
Time Warner, Inc.......................................... 189,400 11,754,638
Times Mirror Co. (Class "A" Stock)........................ 14,300 800,800
Tribune Co................................................ 19,900 1,313,400
Viacom, Inc. (Class "B" Stock) (a)........................ 57,300 4,240,200
--------------
117,707,076
--------------
METALS-FERROUS -- 0.8%
AK Steel Holding Corp..................................... 880,000 20,680,000
Allegheny Teledyne, Inc................................... 31,800 649,913
Bethlehem Steel Corp. (a)................................. 924,400 7,741,851
LTV Corp.................................................. 841,400 4,890,638
Material Sciences Corp. (a)............................... 397,900 3,382,150
National Steel Corp. (Class "B" Stock) (a)................ 172,800 1,231,200
Nucor Corp................................................ 14,200 614,150
USX-U.S. Steel Group, Inc................................. 291,100 6,695,300
Worthington Industries, Inc............................... 15,700 196,250
--------------
46,081,452
--------------
METALS-NON FERROUS -- 1.0%
Alcan Aluminum Ltd........................................ 36,900 998,606
Aluminum Company of America............................... 678,200 50,568,287
Cyprus Amax Minerals Co................................... 15,100 151,000
Inco Ltd.................................................. 27,000 285,188
Reynolds Metals Co........................................ 11,900 626,981
--------------
52,630,062
--------------
MINERAL RESOURCES
ASARCO, Inc............................................... 6,500 97,906
Burlington Resources, Inc................................. 28,600 1,024,237
Homestake Mining Co....................................... 34,300 315,131
Phelps Dodge Corp......................................... 9,500 483,313
--------------
1,920,587
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.9%
AES Corp.................................................. 25,000 1,184,375
Coltec Industries, Inc.................................... 179,200 3,494,400
Crane Co.................................................. 11,100 335,081
Danaher Corp.............................................. 14,000 760,375
Donaldson Co., Inc........................................ 448,600 9,308,450
Ecolab, Inc............................................... 20,900 756,319
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B14
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MISCELLANEOUS - BASIC INDUSTRY (CONT'D.)
IDEX Corp................................................. 246,700 $ 6,044,150
ITT Industries, Inc....................................... 19,300 767,175
Laidlaw, Inc.............................................. 53,300 536,331
Mark IV Industries, Inc................................... 355,500 4,621,500
Millipore Corp............................................ 7,000 199,063
NACCO Industries, Inc. (Class "A" Stock).................. 1,300 119,600
Pall Corp................................................. 20,200 511,313
PPG Industries, Inc....................................... 28,900 1,683,425
Textron, Inc.............................................. 26,700 2,027,531
Thermo Electron Corp. (a)................................. 25,800 436,988
Trinity Industries, Inc................................... 214,100 8,242,850
Wolverine Tube, Inc. (a).................................. 155,300 3,261,300
York International Corp................................... 110,600 4,513,863
--------------
48,804,089
--------------
MISCELLANEOUS - CONSUMER GROWTH/STAPLE -- 0.6%
American Greetings Corp. (Class "A" Stock)................ 11,800 484,538
Black & Decker Corp....................................... 15,400 863,362
Corning, Inc.............................................. 37,400 1,683,000
Eastman Kodak Co.......................................... 195,400 14,068,800
Jostens, Inc.............................................. 6,300 164,981
Minnesota Mining & Manufacturing Co....................... 66,200 4,708,475
Polaroid Corp............................................. 7,300 136,419
Rubbermaid, Inc........................................... 24,300 763,931
Unilever N.V., ADR, (United Kingdom)...................... 103,800 8,608,913
--------------
31,482,419
--------------
MISCELLANEOUS - INDUSTRIAL
Tenneco, Inc.............................................. 27,600 940,125
--------------
OIL & GAS -- 2.4%
Amerada Hess Corp......................................... 14,800 736,300
Amoco Corp................................................ 154,200 9,309,825
Anadarko Petroleum Corp................................... 19,400 598,975
Ashland, Inc.............................................. 12,200 590,175
Atlantic Richfield Co..................................... 52,000 3,393,000
Basin Exploration, Inc. (a)............................... 71,400 896,963
Cabot Oil & Gas Corp. (Class "A" Stock)................... 363,800 5,457,000
Chevron Corp.............................................. 106,500 8,832,844
Coastal Corp.............................................. 34,500 1,205,344
Eastern Enterprises....................................... 3,300 144,375
Enron Oil & Gas Co........................................ 198,700 3,427,575
Exxon Corp................................................ 393,100 28,745,438
Kerr-McGee Corp........................................... 7,700 294,525
Mobil Corp................................................ 125,500 10,934,188
Murphy Oil Corp........................................... 114,000 4,702,500
NICOR, Inc................................................ 7,800 329,550
Noble Affiliates, Inc..................................... 208,900 5,144,163
Phillips Petroleum Co..................................... 42,600 1,815,825
Pioneer Natural Resources Co.............................. 1,488,431 13,023,771
Royal Dutch Petroleum Co.................................. 345,700 16,550,388
Seagull Energy Corp. (a).................................. 245,500 1,549,719
Sunoco, Inc............................................... 15,300 551,756
Texaco, Inc............................................... 87,700 4,637,138
Union Pacific Resources Group, Inc........................ 41,200 373,375
Unocal Corp............................................... 39,900 1,164,581
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS (CONT'D.)
USX-Marathon Group........................................ 46,800 $ 1,409,850
Western Gas Resources, Inc................................ 423,100 2,432,825
--------------
128,251,968
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.7%
Elf Aquitaine SA, ADR, (France)........................... 513,400 29,071,275
Occidental Petroleum Corp................................. 57,100 963,563
Oryx Energy Co. (a)....................................... 524,100 7,042,594
--------------
37,077,432
--------------
OIL & GAS SERVICES -- 1.3%
Apache Corp............................................... 15,500 392,344
Baker Hughes, Inc......................................... 51,340 908,076
Enron Corp................................................ 53,200 3,035,725
Halliburton Co............................................ 70,900 2,100,413
Helmerich & Payne, Inc.................................... 8,200 158,875
J. Ray McDermott, SA...................................... 672,900 16,443,994
McDermott International, Inc.............................. 1,745,600 43,094,501
ONEOK, Inc................................................ 5,000 180,625
Rowan Companies, Inc. (a)................................. 14,100 141,000
Schlumberger Ltd.......................................... 85,800 3,957,525
--------------
70,413,078
--------------
PRECIOUS METALS -- 0.1%
Apex Silver Mines Ltd..................................... 340,400 2,808,300
Barrick Gold Corp......................................... 60,400 1,177,800
Battle Mountain Gold Co................................... 37,200 153,450
Freeport-McMoRan Copper & Gold, Inc. (Class "B" Stock).... 31,400 327,738
Newmont Mining Corp....................................... 25,400 458,788
Placer Dome, Inc.......................................... 40,000 460,000
--------------
5,386,076
--------------
RAILROADS -- 0.1%
Burlington Northern Santa Fe Corp......................... 75,900 2,561,625
CSX Corp.................................................. 35,400 1,469,100
Norfolk Southern Corp..................................... 61,100 1,936,106
Union Pacific Corp........................................ 40,000 1,802,500
--------------
7,769,331
--------------
REAL ESTATE DEVELOPMENT -- 1.2%
Crescent Operating, Inc................................... 67,240 319,390
Crescent Real Estate Equities Co.......................... 1,377,600 31,684,800
Equity Residential Properties Trust....................... 150,900 6,102,019
Vornado Operating, Inc. (a)............................... 20,000 161,250
Vornado Realty Trust (a).................................. 745,100 25,147,125
--------------
63,414,584
--------------
RESTAURANTS -- 0.2%
Darden Restaurants, Inc................................... 19,000 342,000
McDonald's Corp........................................... 111,700 8,559,013
Tricon Global Restaurants, Inc. (a)....................... 24,600 1,233,075
Wendy's International, Inc................................ 21,500 468,969
--------------
10,603,057
--------------
RETAIL -- 3.7%
Albertson's, Inc.......................................... 39,800 2,534,763
American Stores Co........................................ 44,300 1,636,331
AutoZone, Inc. (a)........................................ 24,600 810,263
Bombay Co., Inc. (a)...................................... 571,600 3,179,525
Charming Shoppes, Inc. (a)................................ 3,332,400 14,370,975
Circuit City Stores, Inc.................................. 16,000 799,000
Consolidated Stores Corp.................................. 17,400 351,263
Costco Companies, Inc. (a)................................ 34,700 2,504,906
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B15
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
RETAIL (CONT'D.)
CVS Corp.................................................. 62,000 $ 3,410,000
Dayton-Hudson Corp........................................ 70,800 3,840,900
Designs, Inc. (a)......................................... 203,900 395,056
Dillard's, Inc............................................ 148,300 4,208,013
Dollar General Corp....................................... 27,500 649,688
Federated Department Stores, Inc. (a)..................... 34,000 1,481,125
Fred Meyer, Inc........................................... 23,000 1,385,750
Great Atlantic & Pacific Tea Co., Inc..................... 6,200 183,675
Harcourt General, Inc..................................... 11,500 611,656
Home Depot, Inc........................................... 237,200 14,513,675
IKON Office Solutions, Inc................................ 21,800 186,663
J.C. Penney Co., Inc...................................... 40,500 1,898,438
Jan Bell Marketing, Inc. (a).............................. 295,700 1,903,569
Kmart Corp. (a)........................................... 2,576,000 39,445,000
Kohl's Corp. (a).......................................... 25,200 1,548,225
Kroger Co. (a)............................................ 41,300 2,498,650
Liz Claiborne, Inc........................................ 10,900 344,031
Longs Drug Stores, Inc.................................... 6,300 236,250
May Department Stores Co.................................. 37,500 2,264,063
Newell Co................................................. 25,800 1,064,250
Nordstrom, Inc............................................ 28,900 1,002,469
Pep Boys - Manny, Moe & Jack.............................. 10,300 161,581
Phillips-Van Heusen Corp.................................. 389,200 2,797,375
Rite Aid Corp............................................. 41,800 2,071,713
Safeway, Inc. (a)......................................... 72,000 4,387,500
Sears, Roebuck & Co....................................... 63,500 2,698,750
Sherwin-Williams Co....................................... 28,000 822,500
Staples, Inc. (a)......................................... 43,000 1,878,563
Supervalu, Inc............................................ 19,400 543,200
Tandy Corp................................................ 16,700 687,831
The Gap, Inc.............................................. 96,300 5,416,875
The Limited, Inc.......................................... 826,500 24,071,813
TJX Companies, Inc........................................ 52,400 1,519,600
Toys 'R' Us, Inc. (a)..................................... 404,100 6,819,188
Wal-Mart Stores, Inc...................................... 360,200 29,333,788
Walgreen Co............................................... 80,300 4,702,569
Winn-Dixie Stores, Inc.................................... 24,100 1,081,488
--------------
198,252,506
--------------
RUBBER -- 0.2%
Cooper Tire & Rubber Co................................... 12,800 261,600
Goodyear Tire & Rubber Co................................. 186,400 9,401,550
--------------
9,663,150
--------------
TELECOMMUNICATIONS -- 3.4%
Airtouch Communications, Inc. (a)......................... 91,400 6,592,225
Alcatel Alsthom, ADR, (France)............................ 513,000 12,536,438
Alltel Corp............................................... 43,000 2,571,938
Ameritech Corp............................................ 177,500 11,249,063
Andrew Corp. (a).......................................... 14,300 235,950
Ascend Communications, Inc. (a)........................... 31,300 2,057,975
AT&T Corp................................................. 290,800 21,882,700
Bell Atlantic Corp........................................ 251,800 14,305,388
BellSouth Corp............................................ 316,000 15,760,500
Deutsche Telekom AG, ADR, (Germany)....................... 185,000 6,058,750
Frontier Corp............................................. 26,700 907,800
General Instrument Corp................................... 24,000 814,500
GTE Corp.................................................. 155,300 10,473,044
Lucent Technologies, Inc.................................. 211,000 23,210,000
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TELECOMMUNICATIONS (CONT'D.)
MCI WorldCom, Inc......................................... 287,270 $ 20,611,623
Nextel Communications, Inc. (Class "A" Stock) (a)......... 42,500 1,004,063
Northern Telecom Ltd...................................... 105,800 5,303,225
SBC Communications, Inc................................... 313,200 16,795,350
Scientific-Atlanta, Inc................................... 12,800 292,000
Sprint Corp............................................... 69,700 5,863,513
Sprint Corp. (PCS Group).................................. 46,850 1,083,406
Tellabs, Inc. (a)......................................... 30,600 2,098,013
US West, Inc.............................................. 80,441 5,198,500
--------------
186,905,964
--------------
TEXTILES -- 0.1%
National Service Industries, Inc.......................... 6,900 262,200
Pillowtex Corp. (a)....................................... 73,932 1,977,681
Russell Corp.............................................. 5,900 119,844
Springs Industries, Inc................................... 3,300 136,744
Tultex Corp. (a).......................................... 362,600 317,275
VF Corp................................................... 19,800 928,125
--------------
3,741,869
--------------
TOBACCO -- 0.8%
Philip Morris Co., Inc.................................... 801,400 42,874,900
UST, Inc.................................................. 29,800 1,039,275
--------------
43,914,175
--------------
TOYS
Hasbro, Inc............................................... 21,600 780,300
Mattel, Inc............................................... 47,200 1,076,750
--------------
1,857,050
--------------
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (a)................................. 23,800 2,118,200
Ryder System, Inc......................................... 12,400 322,400
Yellow Corp. (a).......................................... 178,700 3,417,638
--------------
5,858,238
--------------
UTILITY - ELECTRIC -- 0.7%
Ameren Corp............................................... 22,200 947,663
American Electric Power Co., Inc.......................... 30,700 1,444,819
Baltimore Gas & Electric Co............................... 24,000 741,000
Carolina Power & Light Co................................. 24,400 1,148,325
Central & South West Corp................................. 34,400 943,850
CINergy Corp.............................................. 25,600 880,000
Consolidated Edison, Inc.................................. 38,100 2,014,538
Dominion Resources, Inc................................... 31,400 1,467,950
DTE Energy Co............................................. 23,500 1,007,563
Duke Energy Corp.......................................... 58,300 3,734,844
Edison International...................................... 58,900 1,641,838
Entergy Corp.............................................. 39,600 1,232,550
FirstEnergy Corp. (a)..................................... 37,300 1,214,581
FPL Group, Inc............................................ 29,500 1,817,938
GPU, Inc.................................................. 20,600 910,263
Houston Industries, Inc................................... 47,600 1,529,150
New Century Energies, Inc................................. 15,000 731,250
Niagara Mohawk Power Corp. (a)............................ 24,300 391,838
Northern States Power Co.................................. 24,200 671,550
Pacific Gas & Electric Co................................. 61,800 1,946,700
PacifiCorp................................................ 48,100 1,013,106
PECO Energy Co............................................ 36,100 1,502,663
PP&L Resources, Inc....................................... 26,900 749,838
Public Service Enterprise Group, Inc...................... 37,600 1,504,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B16
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
UTILITY - ELECTRIC (CONT'D.)
Southern Co............................................... 111,800 $ 3,249,188
Texas Utilities Co........................................ 44,500 2,077,594
Unicom Corp............................................... 35,100 1,353,544
--------------
37,868,143
--------------
TOTAL COMMON STOCKS
(cost $2,611,554,092).................................................... 2,858,308,143
--------------
PREFERRED STOCKS -- 0.8%
FINANCIAL SERVICES -- 0.5%
Central Hispano Capital Corp. (Portugal).................. 1,000,000 25,000,000
--------------
TELECOMMUNICATIONS -- 0.3%
Telecomunicacoes Brasileiras S.A., ADR (Brazil)........... 223,400 16,238,388
--------------
TOTAL PREFERRED STOCKS
(cost $47,988,630)....................................................... 41,238,388
--------------
MOODY'S PRINCIPAL
RATING AMOUNT
LONG-TERM BONDS -- 35.1% (UNAUDITED) (000)
------------ ---------
AEROSPACE -- 0.7%
Raytheon Co.,
5.95%, 03/15/01............................... Baa1 $ 14,000 14,122,920
6.40%, 12/15/18............................... Baa1 25,000 24,812,500
--------------
38,935,420
--------------
AIRLINES -- 2.3%
Continental Airlines, Inc.,
8.00%, 12/15/05............................... Ba2 15,000 14,821,500
Delta Airlines, Inc.,
10.125%, 05/15/10............................. Baa3 19,335 24,187,118
10.375%, 02/01/11............................. Ba1 31,250 39,896,250
United Airlines, Inc.,
10.67%, 05/01/04.............................. Baa3 19,500 23,072,400
11.21%, 05/01/14.............................. Baa3 17,500 22,981,000
--------------
124,958,268
--------------
ASSET-BACKED SECURITIES -- 0.2%
California Infrastructure,
1997-1 6.17%, 03/25/03........................ A3 4,000 4,049,040
Standard Credit Card Master Trust, 1993-2A
5.95%, 10/07/04............................... Aaa 4,500 4,566,060
--------------
8,615,100
--------------
AUTO - CARS & TRUCKS -- 0.2%
Navistar International Corp.,
7.00%, 02/01/03............................... Ba1 11,500 11,501,797
--------------
BANKS AND SAVINGS & LOANS -- 1.9%
Banco de Commercio Exterior de Columbia, SA,
M.T.N. (Colombia),
8.625%, 06/02/00.............................. NR 5,500 5,390,000
Bank of Nova Scotia (Canada),
6.50%, 07/15/07............................... A1 5,400 5,437,692
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
Bayerische Landesbank Girozentrale (Germany),
5.875%, 12/01/08.............................. Aaa $ 12,500 $ 12,780,000
Capital One Bank,
6.844%, 06/13/00.............................. Baa3 23,900 24,081,401
Central Hispano Financial Services (Portugal),
6.188%, 04/28/05.............................. A3 5,000 4,966,600
Citicorp, M.T.N.,
6.375%, 11/15/08.............................. A1 12,500 12,924,625
Kansallis-Osake-Pankki (Finland),
8.65%, 01/01/49............................... Baa1 9,000 9,132,480
National Australia Bank (Australia),
6.40%, 12/10/07............................... A1 8,700 8,874,000
6.60%, 12/10/07............................... A1 5,000 5,182,500
Okobank (Finland),
6.75%, 09/27/49............................... A3 16,250 16,233,750
--------------
105,003,048
--------------
CABLE & PAY TELEVISION SYSTEMS -- 1.0%
Cable & Wire Communications PLC (United
Kingdom),
6.75%, 12/01/08............................... Baa1 12,100 12,334,740
Continental Cablevision, Inc.,
8.50%, 09/15/01............................... Ba2 5,100 5,409,876
Rogers Cablesystems, Inc. (Canada),
10.00%, 03/15/05.............................. Ba3 2,000 2,240,000
Tele-Communications, Inc.,
6.34%, 02/01/02............................... Ba1 8,500 8,706,125
7.375%, 02/15/00.............................. Ba1 6,000 6,130,500
9.875%, 06/15/22.............................. Baa3 12,878 18,257,784
--------------
53,079,025
--------------
COMPUTERS SOFTWARE & SERVICES -- 0.3%
Computer Associates International, Inc.,
6.375%, 04/15/05.............................. Baa1 13,750 13,607,550
--------------
CONSULTING -- 0.6%
Comdisco, Inc.,
5.94%, 04/13/00............................... Baa1 12,500 12,468,750
6.32%, 11/27/00............................... Baa1 19,000 19,088,540
6.375%, 11/30/01.............................. Baa1 2,700 2,711,691
--------------
34,268,981
--------------
CONSUMER SERVICES -- 0.6%
Loewen Group, Inc.,
7.20%, 06/01/03............................... Ba3 20,000 16,800,000
7.60%, 06/01/08............................... Ba3 16,200 12,798,000
Service Corp. International,
7.00%, 06/01/15............................... A3 2,500 2,588,375
--------------
32,186,375
--------------
CONTAINERS -- 0.7%
Owens-Illinois, Inc.,
7.15%, 05/15/05............................... Ba1 40,000 40,088,400
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B17
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
DRUGS & MEDICAL SUPPLIES -- 0.1%
Mallinckrodt, Inc.,
6.30%, 03/15/11 (b)........................... Baa2 $ 8,000 $ 7,876,500
--------------
FINANCIAL SERVICES -- 7.7%
Advanta Corp., M.T.N.,
6.99%, 10/18/99............................... Ba3 10,000 9,632,000
Associates Corp.,
6.95%, 11/01/18............................... Aa3 29,000 30,901,820
AT&T Capital Corp,
7.50%, 11/15/00............................... Baa3 40,000 40,489,600
AT&T Capital Corp., M.T.N.,
6.25%, 05/15/01............................... Baa3 16,500 16,275,435
Calair Capital Corp.,
8.125%, 04/01/08.............................. Ba2 6,000 5,867,700
Conseco, Inc.,
6.40%, 06/15/11............................... Baa2 25,000 23,972,500
6.80%, 06/15/05............................... Baa3 2,000 1,815,600
8.70%, 11/15/26............................... Ba2 30,038 27,443,161
8.796%, 04/01/27.............................. Ba2 10,200 9,325,860
ContiFinancial Corp.,
7.50%, 03/15/02............................... Ba1 7,740 5,418,000
8.125%, 04/01/08.............................. Ba1 10,700 7,276,000
8.375%, 08/15/03.............................. Ba1 8,000 5,600,000
Enterprise Rent-A-Car USA Finance Co.,
6.35%, 01/15/01............................... Baa3 21,000 21,050,610
6.95%, 03/01/04............................... Baa2 7,500 7,569,900
7.00%, 06/15/00............................... Baa3 13,500 13,557,645
General Motors Acceptance Corp., M.T.N.,
5.95%, 04/20/01............................... A3 14,700 14,817,600
International Lease Finance Corp.,
6.00%, 05/15/02............................... A1 43,100 43,502,123
Lehman Brothers Holdings, Inc.,
6.40%, 08/30/00............................... Baa1 25,650 25,656,413
MCN Investment Corp.,
6.30%, 04/02/11............................... Baa2 8,250 8,194,725
Merrill Lynch, Pierce, Fenner & Smith, Inc.,
6.875%, 11/15/18.............................. Aa3 18,500 19,178,025
Morgan Stanley Dean Witter & Co., M.T.N.,
5.89%, 03/20/00............................... A1 15,000 15,105,600
6.09%, 03/09/11............................... A1 15,000 15,200,250
PT Alatief Freeport Co. (Netherlands),
9.75%, 04/15/01(a)/(c)........................ Ba2 7,600 5,472,000
Salomon, Inc., M.T.N.,
6.59%, 02/21/01............................... Baa1 8,250 8,408,400
6.75%, 08/15/03............................... Baa1 5,000 5,162,200
7.25%, 05/01/01............................... Baa1 8,625 8,933,430
Textron Financial Corp.,
6.05%, 03/16/09 1997-A........................ Aaa 17,639 17,672,740
--------------
413,499,337
--------------
FOREST PRODUCTS -- 0.2%
Fort James Corp.,
6.234%, 03/15/11 1997-A....................... Baa3 11,000 11,103,510
--------------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
INDUSTRIAL -- 2.0%
Compania Sud Americana de Vapores, S.A. (Chile),
7.375%, 12/08/03.............................. NR $ 5,650 $ 5,070,875
Scotia Pacific Co.,
7.71%, 01/20/14............................... NR 9,800 9,327,248
7.71%, 01/20/14............................... NR 29,500 26,428,460
Security Capital Group,
6.95%, 06/15/05............................... Baa1 4,500 4,297,500
U.S. Filter Corp.,
6.375%, 05/15/01.............................. Ba1 20,000 19,785,600
6.50%, 05/15/03............................... Ba1 42,000 40,911,780
--------------
105,821,463
--------------
LODGING -- 1.0%
ITT Corp.,
6.25%, 11/15/00............................... Baa2 41,983 40,502,679
6.75%, 11/15/03............................... Baa2 14,000 12,891,620
--------------
53,394,299
--------------
MEDIA -- 1.2%
Paramount Communications, Inc.,
7.50%, 01/15/02............................... Ba2 9,100 9,496,123
Time Warner Inc.,
6.625%, 05/15/29.............................. Baa3 36,000 36,628,560
Viacom, Inc.,
7.75%, 06/01/05............................... Ba2 16,850 18,279,386
--------------
64,404,069
--------------
MISCELLANEOUS -- 0.1%
Tokai Preferred Capital,
9.98%, 12/29/49............................... A3 6,000 5,040,000
--------------
OIL & GAS -- 0.1%
B.J. Services Co.,
7.00%, 02/01/06............................... Ba1 4,000 4,139,880
--------------
OIL & GAS SERVICES -- 2.0%
KN Energy, Inc.,
6.30%, 03/01/21............................... Baa2 20,000 20,056,200
R&B Falcon Corp.,
6.50%, 04/15/03............................... Ba1 15,375 13,965,420
6.75%, 04/15/05............................... Ba1 30,000 25,800,000
Seagull Energy Co.,
7.50%, 09/15/27............................... Ba1 8,225 7,366,886
Williams Companies, Inc.,
5.95%, 02/15/10............................... Baa2 41,000 41,045,100
--------------
108,233,606
--------------
REAL ESTATE INVESTMENT TRUST -- 2.1%
Colonial Realty,
7.00%, 07/14/07............................... Baa3 3,350 3,212,349
EOP Operating, L.P.,
6.50%, 06/15/04............................... Baa1 6,000 5,900,400
6.625%, 02/15/05.............................. Bbb 18,187 17,827,443
Equity Residential Properties Trust,
6.15%, 09/15/00............................... A3 25,000 24,835,000
6.63%, 04/13/15............................... A3 15,300 15,097,428
Felcor Suites, L.P.,
7.375%, 10/01/04.............................. Ba1 25,000 23,812,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B18
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
REAL ESTATE INVESTMENT TRUST (CONT'D.)
Gables Realty Trust,
6.80%, 03/15/05............................... Baa2 $ 7,500 $ 7,157,175
Simon DeBartolo Group, Inc.,
6.75%, 06/15/05............................... Baa1 17,500 16,969,750
--------------
114,812,045
--------------
RETAIL -- 2.8%
Dayton Hudson,
5.95%, 06/15/00............................... A3 9,000 9,072,270
Federated Department Stores, Inc.,
8.125%, 10/15/02.............................. Ba1 3,600 3,880,548
8.50%, 06/15/03............................... Ba1 54,890 60,542,572
Meyer (Fred), Inc.,
7.15%, 03/01/03............................... Ba2 12,445 12,947,529
Saks, Inc.,
7.50%, 12/01/10............................... Baa3 29,000 28,997,970
8.25%, 11/15/08............................... Baa3 19,700 20,882,000
Sears Roebuck & Co.,
6.50%, 12/01/28............................... A2 17,000 16,686,010
--------------
153,008,899
--------------
TELECOMMUNICATIONS -- 2.1%
360 Communication Co.,
7.125%, 03/01/03.............................. Ba2 23,776 25,160,952
7.60%, 04/01/09............................... Ba1 12,885 14,601,926
Qwest Communications International Inc.,
7.50%, 11/01/08............................... Ba1 39,000 40,560,000
Sprint Corp.,
6.875%, 11/15/28.............................. Baa1 26,000 27,021,800
Worldcom Inc,
6.125%, 08/15/01.............................. Baa2 7,600 7,721,448
--------------
115,066,126
--------------
TOBACCO -- 0.6%
Philip Morris Companies, Inc.,
6.15%, 03/15/10............................... A2 20,000 20,166,000
RJR Nabisco, Inc.,
8.75%, 08/15/05............................... Baa3 4,600 4,641,722
9.25%, 08/15/13............................... Baa3 7,000 7,197,120
--------------
32,004,842
--------------
TRANSPORTATION/TRUCKING/SHIPPING -- 0.2%
Ryder System, Inc.,
7.51%, 03/24/00............................... Baa1 3,000 3,076,080
8.34%, 01/26/00............................... Baa1 5,000 5,152,750
--------------
8,228,830
--------------
UTILITIES -- 1.3%
Calenergy Co., Inc.,
6.96%, 09/15/03............................... Ba1 15,000 15,267,450
8.48%, 09/15/28............................... Ba1 23,000 25,427,190
Enersis SA, (Chile)
7.40%, 12/01/16............................... Baa1 6,400 5,267,200
Niagara Mohawk Power,
7.00%, 10/01/00............................... Ba3 25,000 25,250,000
--------------
71,211,840
--------------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
LONG-TERM BONDS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 3.1%
Federal National Mortgage Association,
Zero Coupon, 10/09/19......................... $ 11,800 $ 3,521,592
U.S. Treasury Bond,
6.25%, 08/15/23............................... 10,000 11,176,600
U.S. Treasury Note,
4.75%, 11/15/08 (b)........................... 3,700 3,728,897
5.50%, 08/15/28............................... 2,475 2,590,632
6.50%, 05/15/05............................... 9,600 10,521,024
7.50%, 02/15/05............................... 3,100 3,549,500
6.75%, 08/15/26............................... 109,900 131,656,903
--------------
166,745,148
--------------
TOTAL LONG-TERM BONDS
(cost $1,900,228,227).................................................... 1,896,834,358
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,559,770,949).................................................... 4,796,380,889
--------------
SHORT-TERM INVESTMENTS -- 10.9%
COMMERCIAL PAPER -- 0.4%
Barton Capital Corp,
5.35%, 01/04/99............................... P1 1,700 1,699,242
Campbell Soup Co.
4.80%, 01/04/99............................... P1 1,198 1,197,521
Countrywide Home Loan,
5.40%, 01/04/99............................... P2 1,700 1,699,235
CXC Inc.,
5.30%, 01/04/99............................... P1 1,700 1,699,249
Dover,
5.30%, 01/04/99............................... NR 1,700 1,699,249
Hershey,
5.00%, 01/04/99............................... P1 1,427 1,426,405
John Hancock Capital Corp.,
5.25%, 01/07/99............................... P1 1,700 1,698,513
Novartis Finance Corp.,
5.25%, 01/04/99............................... P1 1,500 1,499,344
Reed Elsevier, Inc.,
5.05%, 01/04/99............................... P1 1,700 1,699,285
SBC Communications,
5.00%, 01/04/99............................... P1 1,700 1,699,291
Sonoco Products,
5.35%, 01/04/99............................... P1 1,000 999,554
Triple-A One Plus Funding,
5.30%, 01/04/99............................... P1 1,500 1,499,338
Xerox Capital Corp,
5.30%, 01/04/99............................... P1 1,700 1,699,249
--------------
20,215,475
--------------
LOAN PARTICIPATIONS
Alltel Corp.,
5.75%, 01/04/99............................... P1 1,700 1,700,000
--------------
OTHER CORPORATE OBLIGATIONS -- 1.2%
AT&T Capital Corp., M.T.N.,
6.65%, 04/30/99............................... Baa3 24,500 24,579,870
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B19
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS (CONT'D) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
OTHER CORPORATE OBLIGATIONS (CONT'D.)
Banco Ganadero, SA, M.T.N., (Colombia),
9.75%, 08/26/99............................... NR $ 7,300 $ 7,263,500
Comdisco, Inc.,
6.11%, 08/04/99............................... Baa1 12,500 12,541,375
Okobank (Finland)
6.793%, 1/14/99 (d)........................... NR 12,500 12,500,000
Tele-Communications, Inc.
6.375%, 09/15/99.............................. Ba1 6,400 6,444,992
--------------
63,329,737
--------------
U. S. GOVERNMENT OBLIGATION -- 0.4%
U.S. Treasury Bill,
4.32%, 03/18/99 (b)......................................... 100 99,088
4.36%, 03/18/99 (b)......................................... 22,400 22,193,820
--------------
22,292,908
--------------
REPURCHASE AGREEMENT -- 8.9%
Joint Repurchase Agreement Account
4.693%, 01/04/99 (Note 5)................................... 482,631 482,631,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $590,187,085)...................................................... 590,169,120
--------------
TOTAL INVESTMENTS -- 99.6%................................................. 5,386,550,009
(cost $5,149,958,034; Note 6)
VARIATION MARGIN ON OPEN FUTURES
CONTRACTS (e)............................................................ 809,059
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.4%...................................................... 22,622,320
--------------
TOTAL NET ASSETS -- 100.0%................................................. $5,409,981,388
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
AG Aktiengesellschaft (German Stock Company)
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
(c) Issue in default.
(d) Indicates a variable rate security. The maturity date presented for this
instrument is the later of the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
The interest rate shown reflects the rate in effect at December 31, 1998.
(e) Open futures contracts as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION VALUE AT VALUE AT APPRECIATION/
CONTRACTS TYPE DATE TRADE DATE DECEMBER 31, 1998 DEPRECIATION
<S> <C> <C> <C> <C> <C>
Long positions:
1,241 U.S. Treasury Bond Mar 99 $159,480,156 $158,576,531 $ (903,625)
1,134 S&P 500 Index Mar 99 337,073,687 353,099,250 16,025,563
---------------
$15,121,938
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
B20
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE CONSERVATIVE BALANCED PORTFOLIO AND THE FLEXIBLE MANAGED PORTFOLIO OF
THE PRUDENTIAL SERIES FUND, INC.
NOTE 1: GENERAL
The Prudential Series Fund, Inc. ("Series Fund"), a Maryland corporation,
organized on November 15, 1982, is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Series Fund is composed of 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.
SECURITIES VALUATION: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices
or at the bid price on such day in the absence of an asked price. Convertible
debt securities are valued at the mean between the most recently quoted bid and
asked prices provided by principal market makers. High yield bonds are valued
either by quotes received from principal market makers or by an independent
pricing service which determine prices by analysis of quality, coupon, maturity
and other factors. Any security for which a reliable market quotation is
unavailable is valued at fair value as determined in good faith by or under the
direction of the Series Fund's Board of Directors. 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 year, the Series Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from changes
in the market prices of securities held at the end of the fiscal year.
Similarly, the Series Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of long-term portfolio securities sold during the fiscal year. Accordingly,
these realized and unrealized foreign currency gains (losses) are included in
the reported net realized gains (losses) on investment transactions.
C1
<PAGE>
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at fiscal year end exchange rates are reflected as a component of
net unrealized appreciation (depreciation) on investments and foreign
currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
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 buyer. The proceeds of the
short sale will be retained by the broker-dealer through which it made the short
sale as collateral for its obligation to deliver the security upon conclusion of
the sale. The Portfolio may have to pay a fee to borrow the particular security
and may be obligated to remit any interest or dividends received on such
borrowed securities. A gain, limited to the price at which the Portfolio sold
the security short, or a loss, unlimited in magnitude, will be recognized upon
the termination of a short sale if the market price at termination is less than
or greater than, respectively, the proceeds originally received.
OPTIONS: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sales or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.
The Series Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Series Fund bears the market risk of an unfavorable change in the price of the
security underlying the written option. The Series Fund, as purchaser of an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.
FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the "initial margin." Subsequent payments, known as "variation
margin," are made or received by the Series Fund each day, depending on the
daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts.
The Series Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series Fund intends to purchase,
against fluctuations in value. Under a variety of circumstances, the Series Fund
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts and the
underlying assets.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of four elements: stated
coupon, original issue discount, market discount and market premium is recorded
on the accrual basis. Certain
C2
<PAGE>
portfolios own shares of real estate investment trusts ("REITs") which report
information on the source of their distributions annually. A portion of
distributions received from REITs during the year is estimated to be a return of
capital and is recorded as a reduction of their costs. Expenses are recorded on
the accrual basis which may require the use of certain estimates by management.
The Series Fund expenses are allocated to the respective Portfolios on the basis
of relative net assets except for expenses that are charged directly at a
Portfolio level.
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 fiscal year ended December 31, 1998.
PIC is an indirect, wholly-owned subsidiary of The Prudential.
The Series Fund has a credit agreement (the "Agreement") with an unaffiliated
lender. The maximum commitment under the Agreement is $250,000,000. The
Agreement expired on December 18, 1998 and has been extended through February
28, 1999 under the same terms. Interest on any such borrowings outstanding will
be at market rates. The purpose of the Agreement is to serve as an alternative
source of funding for capital share redemptions. The Series Fund did not borrow
any amounts pursuant to the Agreement during the year ended December 31, 1998.
The Series Fund pays a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly by the Series Fund.
C3
<PAGE>
NOTE 4: OTHER TRANSACTIONS WITH AFFILIATES
For the fiscal year ended December 31, 1998, Prudential Securities Incorporated,
an indirect, wholly-owned subsidiary of The Prudential, earned $135,511 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........ $ 32,490
Flexible Managed Portfolio............. 103,021
-----------
$ 135,511
</TABLE>
NOTE 5: JOINT REPURCHASE AGREEMENT ACCOUNT
The Portfolios of the Series Fund (excluding Global Portfolio) may transfer
uninvested cash balances into a single joint repurchase agreement account, the
daily aggregate balance of which is invested in one or more repurchase
agreements collateralized by U.S. Government obligations. The Series Fund's
undivided interest in the joint repurchase agreement account represented
$932,710,000 as of December 31, 1998. The Portfolios of the Series Fund with
cash invested in the joint accounts had the following principal amounts and
percentage participation in the account:
<TABLE>
<CAPTION>
Principal Percentage
Amount Interest
------------- ----------
<S> <C> <C>
Conservative Balanced Portfolio........ $ 109,421,000 11.73%
Flexible Managed Portfolio............. 482,631,000 51.75
All other portfolios (currently not
available to PRUvider)............... 340,658,000 36.52
------------- ----------
$ 932,710,000 100.00%
</TABLE>
As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Bear, Stearns & Co., Inc., 4.75%, in the principal amount of $255,000,000,
repurchase price $255,134,583, due 1/4/99. The value of the collateral including
accrued interest was $260,454,041.
Credit Suisse First Boston Corp., 4.88%, in the principal amount of $50,000,000,
repurchase price $50,027,111, due 1/4/99. The value of the collateral including
accrued interest was $52,533,163.
CIBC Oppenheimer, 4.75%, in the principal amount of $255,000,000, repurchase
price $255,134,583, due 1/4/99. The value of the collateral including accrued
interest was $260,553,672.
SBC Warburg Dillon Reed Inc., 4.70%, in the principal amount of $255,000,000,
repurchase price $255,133,167, due 1/4/99. The value of the collateral including
accrued interest was $261,037,802.
Morgan (JP) Securities, Inc., 4.35%, in the principal amount of $117,710,000,
repurchase price $117,766,893, due 1/4/99. The value of the collateral including
accrued interest was $120,272,486.
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchases and the proceeds from the sales of securities
(excluding short-term issues) for the fiscal year ended December 31, 1998 were
as follows:
Cost of Purchases:
<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
--------------- ---------------
<S> <C> <C>
Government Securities.................. $ 2,907,392,972 $ 2,497,336,303
Non-Government Securities.............. $ 4,664,947,720 $ 4,533,514,880
</TABLE>
Proceeds from Sales:
<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
--------------- ---------------
<S> <C> <C>
Government Securities.................. $ 2,956,094,381 $ 2,461,697,036
Non-Government Securities.............. $ 4,778,976,239 $ 5,139,626,859
</TABLE>
C4
<PAGE>
The federal income tax basis and unrealized appreciation (depreciation) of the
Fund's investments as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CONSERVATIVE FLEXIBLE
BALANCED MANAGED
--------------- ---------------
<S> <C> <C>
Gross Unrealized Appreciation.......... $ 429,047,409 $ 555,358,703
Gross Unrealized Depreciation.......... 164,278,673 320,658,740
Total Net Unrealized................... 264,768,736 234,699,963
Tax Basis.............................. 4,497,706,049 5,151,850,046
</TABLE>
C5
<PAGE>
[Intentionally Left Blank]
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 14.97 $ 15.52 $ 15.31 $ 14.10 $ 14.91
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.66 0.76 0.66 0.63 0.53
Net realized and unrealized gains
(losses) on investments.............. 1.05 1.26 1.24 1.78 (0.68)
--------- --------- --------- --------- ---------
Total from investment operations... 1.71 2.02 1.90 2.41 (0.15)
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.66) (0.76) (0.66) (0.64) (0.51)
Distributions from net realized
gains................................ (0.94) (1.81) (1.03) (0.56) (0.15)
--------- --------- --------- --------- ---------
Total distributions................ (1.60) (2.57) (1.69) (1.20) (0.66)
--------- --------- --------- --------- ---------
Net Asset Value, end of year........... $ 15.08 $ 14.97 $ 15.52 $ 15.31 $ 14.10
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 11.74% 13.45% 12.63% 17.27% (0.97)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,796.0 $4,744.2 $4,478.8 $3,940.8 $3,501.1
Ratios to average net assets:
Expenses............................. 0.57% 0.56% 0.59% 0.58% 0.61%
Net investment income................ 4.19% 4.48% 4.13% 4.19% 3.61%
Portfolio turnover rate................ 167% 295% 295% 201% 125%
FINANCIAL HIGHLIGHTS
</TABLE>
<TABLE>
<CAPTION>
FLEXIBLE MANAGED
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995(a) 1994(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 17.28 $ 17.79 $ 17.86 $ 15.50 $ 16.96
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.58 0.59 0.57 0.56 0.47
Net realized and unrealized gains
(losses) on investments.............. 1.14 2.52 1.79 3.15 (1.02)
--------- --------- --------- --------- ---------
Total from investment operations... 1.72 3.11 2.36 3.71 (0.55)
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.59) (0.58) (0.58) (0.56) (0.45)
Distributions from net realized
gains................................ (1.85) (3.04) (1.85) (0.79) (0.46)
--------- --------- --------- --------- ---------
Total distributions................ (2.44) (3.62) (2.43) (1.35) (0.91)
--------- --------- --------- --------- ---------
Net Asset Value, end of year........... $ 16.56 $ 17.28 $ 17.79 $ 17.86 $ 15.50
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN:(b)............ 10.24% 17.96% 13.64% 24.13% (3.16)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $5,410.0 $5,490.1 $4,896.9 $4,261.2 $3,481.5
Ratios to average net assets:
Expenses............................. 0.61% 0.62% 0.64% 0.63% 0.66%
Net investment income................ 3.21% 3.02% 3.07% 3.30% 2.90%
Portfolio turnover rate................ 138% 227% 233% 173% 124%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
SEE NOTES TO FINANCIAL STATEMENTS.
D1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PRUDENTIAL SERIES FUND, INC.:
In our opinion, the accompanying statements of assets and liabilities, including
the Portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Conservative Balanced and
Flexible Managed Portfolios (the "Portfolios"), two of the fifteen portfolios
that comprise The Prudential Series Fund, Inc. at December 31, 1998, the results
of each of their operations for the year then ended, the changes in each of
their net assets for each of the two years in the period then ended and the
financial highlights for each of the three years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolios' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above. The accompanying financial
highlights for each of the two years in the period ended December 31, 1995 for
each of the Portfolios were audited by other independent accountants, whose
opinion dated February 15, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
February 12, 1999
TAX INFORMATION (UNAUDITED)
Although we understand that the vast majority, if not all, of the
shareholders/contract holders of the Series Fund currently maintain a tax
deferred status, we are nevertheless required by the Internal Revenue Code to
advise you within 60 days of the Series Fund's fiscal year end (December 31,
1998) as to the federal tax status of dividends paid by the Series Fund during
such fiscal year. Accordingly, we are advising you that in 1998, the Series Fund
paid dividends as follows:
<TABLE>
<CAPTION>
ORDINARY DIVIDENDS
----------------------------
SHORT-TERM LONG-TERM TOTAL
INCOME CAPITAL GAINS CAPITAL GAINS DIVIDENDS
----------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Conservative Balanced Portfolio $ 0.664 $ 0.898 $ 0.044 $ 1.606
Flexible Managed Portfolio 0.586 0.949 0.901 2.436
</TABLE>
E1
<PAGE>
The Prudential Series Fund, Inc.
Supplement dated February 26, 1999 to
Prospectus dated May 1, 1998
The following disclosure replaces in its entirety the fourth paragraph under the
heading, "Investment Objectives and Policies of the Portfolios - Balanced
Portfolios - Flexible Managed Portfolio" in the Prospectus:
The bond portion of this portfolio will primarily be invested in
securities that have a rating at the time of purchase within the four
highest grades determined by Moody's, S&P, or a similar nationally-
recognized rating service. A description of corporate bond ratings is
contained in the Appendix to the statement of additional information.
However, up to 25% of the bond component of this portfolio may be
invested in securities having ratings at the time of purchase of "BB,"
"Ba" or lower, or if not rated, of comparable quality in the opinion of
the portfolio manager. These securities are considered speculative and
high risk. The risks of medium to lower rated securities, are described
in the Prospectus in connection with the High Yield Bond Portfolio. Up
to 20% of the bond portion of this portfolio may be invested in United
States currency denominated debt securities issued outside the United
States by foreign or domestic issuers. The established company common
stock component of this portfolio will consist of the equity securities
of major corporations that are believed to be in sound financial
condition. In selecting stocks of smaller capitalization companies, the
portfolio manager may invest in companies that show above average
profitability (measured by return-on-equity, earnings, and dividend
growth rates) with modest price/earnings ratios or alternatively, in
companies whose stock is undervalued relative to other stocks in the
market. The individual equity selections for this portfolio may have
more volatile market values than the equity securities selected for the
Equity Portfolio or the Conservative Balanced Portfolio. The portfolio
may also invest in preferred stock, including below investment grade
preferred stock, and other equity-related securities. The money market
portion of the portfolio will hold high quality money market instruments
of the kind held by the Money Market Portfolio. Moreover, when
conditions dictate a temporary defensive strategy or during temporary
periods of portfolio structuring and restructuring, the Flexible Managed
Portfolio may invest, without limit, in high quality money market
instruments of the kind held by the Money Market Portfolio.
F1
<PAGE>
The following disclosure replaces in its entirety the seventh paragraph under
the heading, "Investment Objectives and Policies of the Portfolios - Balanced
Portfolios - Flexible Managed Portfolio" in the Prospectus:
The facts that this portfolio will invest in a mix of common stocks
regarded as having higher risks than the mix of common stocks that will
be purchased by the Conservative Balanced Portfolio; that the bond
portion of its portfolio will include a higher percentage of bonds
having ratings at the time of purchase of "BB," "Ba" or lower (or if
unrated, of comparable quality); and that the "normal" mix for this
portfolio will include a higher percentage of stocks all combine to mean
that the risk of investing in this portfolio is relatively higher - to
the extent that each of these factors results in greater risks - than
the risk of investing in the Conservative Balanced Portfolio.
F2
<PAGE>
[Intentionally Left Blank]
<PAGE>
BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC.
<TABLE>
<S> <C> <C>
MENDEL A. MELZER, CFA W. SCOTT McDONALD, JR., Ph.D. E. MICHAEL CAULFIELD
CHAIRMAN, VICE PRESIDENT, EXECUTIVE VICE PRESIDENT,
THE PRUDENTIAL SERIES FUND, INC. KALUDIS CONSULTING GROUP PRUDENTIAL FINANCIAL MANAGEMENT
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
</TABLE>
<TABLE>
<S> <C>
SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
PRESIDENT, VICE PRESIDENT,
NEW JERSEY INSTITUTE OF TECHNOLOGY INTERCLASS (INTERNATIONAL CORPORATE LEARNING)
</TABLE>
<PAGE>
================================================================================
The toll-free number shown below can be used to make transfers and
reallocations, review how your premiums are being allocated and receive current
investment option values in your contract. Unit values for each investment
option are available to all Contract Owners from the toll-free number. The phone
lines are open each business day during the hours shown. Please be sure to have
your contract number available when you call.
[GRAPHIC]
1-800-778-2255
8 a.m. - 9 p.m.
================================================================================
In the past, Contract Owners who held several variable contracts 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 attempt to mail only one copy of this report, based on our current
records for Contract Owners with the same last name and same address. No action
on your part is necessary. Upon request, we will furnish you with additional
reports. The above toll-free number should be used to request any additional
copies of the Pruco Life's PRUvider(SM) Annual Report. 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(R). 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
--------------
[RECYCLE LOGO]
PRUvider AR 12/98 Printed in the U.S.A.
VAL-DR-105 on recycled paper.
