<PAGE>
Pruco Life's
Variable Universal Life
[GRAPHIC]
Annual Report to
Contract Owners and
Prospectus Supplement
December 31, 1998
IFS-19990208-A037698
VARIABLE INVESTMENT OPTIONS
o The Prudential Series Fund, Inc.
Money Market Portfolio
Diversified Bond Portfolio
Conservative Balanced Portfolio
Flexible Managed Portfolio
High Yield Bond Portfolio
Stock Index Portfolio
Equity Income Portfolio
Equity Portfolio
Prudential Jennison Portfolio
Global Portfolio
o AIM Variable Insurance Funds, Inc.
AIM V.I. Value Fund
o American Century Variable Portfolios, Inc.
American Century VP Value Fund
o Janus Aspen Series
Growth Portfolio
o MFS Variable Investment Trust
Emerging Growth Series
o T. Rowe Price International Series, Inc.
International Stock Portfolio
[LOGO] Prudential
The Prudential Insurance
Company of America
751 Broad Street
Newark, NJ 07102-3777
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[LOGO]
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This Report may be used with the public only when preceded or accompanied by
current prospectuses for The Prudential Series Fund, Inc., the applicable
variable life product and the current Performance Data Update for the applicable
product. The Performance Data Update shows historical investment performance
after the deduction of investment management fees, investment-related expenses
and the product's Mortality and Expense Risk Charge.
For the variable life insurance products, additional contract charges include
the cost of insurance, administrative, sales and any applicable withdrawal or
surrender charges. These charges will reduce the rates of return shown on the
Performance Data Update. The prospectuses contain more information concerning
charges and expenses, including hypothetical performance illustrations that show
the effects of performance on various assumptions, and should be read carefully
before you invest or send money.
Variable life and variable annuity products are offered by Pruco Securities
Corp., a subsidiary of The Prudential Insurance Company of America. Both are
located at 751 Broad Street, Newark, NJ 07102-3777.
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Table of Contents
Letter to Contract Owners....................................................2
Market Commentary............................................................4
Investment Outlook...........................................................8
The Prudential Series Fund, Inc. Portfolios.................................10
Money Market Portfolio
Diversified Bond Portfolio
Conservative Balanced Portfolio
Flexible Managed Portfolio
High Yield Bond Portfolio
Stock Index Portfolio
Equity Income Portfolio
Equity Portfolio
Prudential Jennison Portfolio
Global Portfolio
Financial Statements
Schedule of Investments
Notes to Financial Statements
Financial Highlights
Prospectus Supplement
AIM Variable Insurance Funds, Inc..........................................103
AIM V.I. Value
American Century Variable Portfolios, Inc..................................117
American Century VP Value Fund
Janus Aspen Series.........................................................145
Janus Aspen Series-Growth Portfolio
MFS Variable Insurance Trust...............................................163
MFS Emerging Growth Series
T. Rowe Price International Series, Inc....................................187
T. Rowe Price International Stock Portfolio
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Year Ended December 31, 1998
Letter To Contract Owners
[PHOTO]
Mendel A. Melzer CFA
Chairman
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"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:
This Annual Report presents the investment performance of the portfolios that
underlie your Pruco Life Variable Universal 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 the lion's share 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 to
4.71%, its lowest level since April 1967, which made virtually all other debt
securities very unattractive.
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 the Portfolios Perform?
Consistent with the market, our large-capitalization growth stock
portfolio-Prudential Jennison-posted an unusually high return of 37.5% for the
year. On the other hand, our value-oriented Equity and Equity Income portfolios
lagged the growth-oriented average, with the mid-cap value-oriented Equity
Income actually down a disappointing 2.4% for the year. Many of our other
portfolios finished with solid results, including our Global portfolio.
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.
2
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It's Long-Term Performance That Counts.
Although this Report focuses primarily on one-year returns, remember that it's
long-term performance that counts. Review your Portfolio's 1998 performance, but
also examine its longer-term record as well. You'll note that over the past
three, five and 10 years, many of the Prudential Series Fund Portfolios have
delivered excellent returns, both on an absolute basis and in comparison with
funds having similar objectives as reported by Lipper, Inc.
Since most people buy variable life products to finance long-term goals, our
objective for these Portfolios is to achieve above-average investment
performance over time. Therefore, when you consider how to allocate either new
or existing assets among our available options, we encourage you to think about
your time horizon and risk tolerance. As always, remember that past performance
is not necessarily indicative of future results.
Your Prudential professional would be happy to help you review and structure a
program to meet your long-term financial needs.
All of us at Prudential thank you for your business and look forward to helping
you plan for your future financial security.
/s/ Mendel A. Melzer
Mendel A. Melzer, CFA
Chairman,
The Prudential Series Fund, Inc.
January 22, 1999
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Important Note
The rates of return quoted on the following pages reflect the deduction of
investment management fees and investment-related expenses, but not product
charges. They reflect the reinvestment of dividend and capital gains
distributions. They are not an estimate or a guarantee of future performance.
Contract unit values increase or decrease based on the performance of the
Portfolio and, when redeemed, may be worth more or less than their original
cost. Changes in contract values depend not only on the investment performance
of the Portfolio but also on the insurance and administrative charges,
applicable sales charges, and the mortality and expense risk charge applicable
under the contract. These contract charges effectively reduce the dollar amount
of any net gains and increase the dollar amount of any net losses.
Your Prudential Representative/Pruco Securities Registered Representative can
provide you with actual rates of return for your type of variable life insurance
or annuity contract and show you a personalized illustration of how insurance
charges affect the returns you experience.
3
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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.
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How the Markets Compared1
[GRAPHIC]
Average Return Over
Past 20 Years
1998 (Annualized)
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Money Markets 4.8% 7.6%
Bonds 9.5% 10.2%
Foreign Stock 24.8% 15.3%
U.S. Stocks 28.6% 17.8%
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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.
The views expressed are as of 1/22/99 and are subject to change based on market
and other conditions.
4
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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 quarter but
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%
Utilities 39.7%
Cons Growth 27.4%
Indust. 12.6%
Finance 11.4%
Energy 0.94%
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Source: Standard & Poor's as of 12/31/98. Past performance is not indicative of
future results.
5
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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
Thailand into positive territory. Only the Australian, Korean and Philippine
markets rose in their own currencies.
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Global Stock Market Performance1 (U.S. $) in 1998
[GRAPHIC]
MSCI Europe Index 28.9%
MSCI World Free Index 24.8%
MSCI EAFE Free Index 20.3%
MSCI Japan Index 5.3%
MSCI Pacific (Ex-Japan) Free Index -5.1%
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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
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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.
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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%
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Source: Lehman Brothers, as of 12/31/98. Past performance is not indicative of
future results.
7
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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.
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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.
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Returns of the U.S. Stock Market
Average
Annual
Return
------
1925 -1998 11.2%
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Source: Ibbotson Associates.
Last Four Years
1995 37.5%
1996 23.0%
1997 33.4%
1998 28.6%
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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
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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
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Prudential Money Market Portfolio
Performance Summary.
Your Portfolio returned 5.39% during 1998 and beat the 5.10% return on the
average money market fund as tracked by Lipper Analytical Services, Inc. On
December 29, 1998, the Portfolio's seven-day yield was 4.96%, down from 5.28% on
June 30, 1998.
Money market interest rates fluctuated in a narrow range, then declined sharply
in midsummer as the global financial crisis led the Federal Reserve to lower
short-term interest rates. Your Portfolio provided an above-average return by
investing in shorter- and longer-term money market securities that allowed it to
lock in higher yields in the first half of 1998 and to weather the period of
lower interest rates that occurred during the second half of 1998.
An investment in the Prudential Series Fund Money Market Portfolio is neither
insured nor guaranteed by the U.S. government. There is no guarantee that the
Portfolio will be able to maintain a stable share value of $10.
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Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
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Money Market Portfolio1 2.66% 5.39% 5.35% 5.18% 5.61%
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Lipper (VIP) Money Market Avg.2 2.49% 5.10% 5.08% 4.92% 5.32%
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Money Market Portfolio inception date: 5/13/83.
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Seven Day Current Net Yields During the Past 12 Months
[GRAPHIC]
Money Market Portfolio1 Average Money Market Fund2
"Jan '98" 5.44 4.99
5.37 4.99
5.35 4.96
5.33 4.95
"Feb" 5.36 4.95
5.36 4.96
5.32 4.94
5.31 4.92
5.3 4.92
"Mar" 5.32 4.93
5.32 4.92
5.3 4.92
5.29 4.92
"Apr" 5.28 4.9
5.28 4.91
5.26 4.91
5.27 4.92
"May" 5.26 4.91
5.25 4.92
5.25 4.91
5.26 4.92
5.26 4.91
"Jun" 5.28 4.94
5.31 4.92
5.3 4.91
5.31 4.91
"Jul" 5.28 4.92
5.28 4.92
5.28 4.91
5.28 4.92
"Aug" 5.26 4.91
5.27 4.93
5.26 4.9
5.26 4.92
5.26 4.9
"Sept" 5.24 4.88
5.18 4.84
5.18 4.76
5.1 4.71
"Oct" 5.02 4.64
4.99 4.67
4.95 4.63
4.95 4.63
"Nov" 4.94 4.55
4.92 4.57
4.94 4.54
4.94 4.55
4.95 4.54
"Dec" 4.96 4.53
Weekly seven day current net yields of the Money Market Portfolio and the IBC
Taxable General Purpose, First and Second Tier Money Market Fund.
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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 Source: IBC Financial Data, Inc. As of 12/29/98, based on 303 funds in the
IBC Taxable General Purpose, First and Second Tier Money Market Fund.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
Investment Goal
Current income, stability of capital and maintenance of liquidity.
Types of Investments
Short-term money market securities that generally mature in 13 months or less.
These securities primarily consist of Certificates of Deposit (CDs), Commercial
Paper and Bankers' Acceptances, U.S. Treasury bills (T-bills) and other
instruments issued by or guaranteed by the U.S. government or its agencies.
- --------------------------------------------------------------------------------
Performance Review.
Rates Tumbled. After holding fairly steady in the first half of 1998, interest
rates began to tumble in August as financial market turmoil spread from Asia to
Russia and Latin America.
Investors fled to the relative safety of U.S. Treasuries. As a result, the
difference in yield between Treasuries and other debt securities widened
significantly.
To protect the U.S. economy from the disarray in the financial markets, the
Federal funds rate (the rate banks charge each other for overnight loans) was
lowered three times in quarter-percentage-point increments to 4.75%.
The decline in the Portfolio's seven-day yield reflects these changes in
monetary policy.
10
<PAGE>
Strategy Session.
U.S. Economy Sent Mixed Signals
The outlook for U.S. monetary policy changed several times during 1998 as
investors revised their predictions about how much the Asian financial crisis
would hurt U.S. economic growth.
Grappling with signs of economic weakness and strength early in the year,
investors initially thought the economy would slow enough to require a cut in
the Federal funds rate to stimulate growth. Instead, the economy raced ahead in
early 1998, fueling speculation that a short-term rate increase was necessary to
curb the expansion. However, this view faded in the spring amid renewed fears
that Asian financial woes would sap U.S. economic vigor.
These concerns deepened in August as the financial crisis hit Russia and Latin
America. Investors sought refuge in U.S. Treasuries, causing them to become
overvalued relative to investment-grade and lower-quality debt securities. The
Federal Reserve responded by cutting the Federal funds rate a quarter
percentage point on September 29, October 15 and November 17, leaving the key
short-term rate at 4.75%.
The unusual timing of the second move, which occurred between the central bank's
regularly scheduled meetings, reassured investors that monetary policy would be
reduced as often as needed to soften a potential economic slowdown.
For the year, the best buying opportunities occurred at the end of the first,
second and fourth quarters, when seasonal borrowing needs of corporations
briefly boosted yields so that money market securities traded at "fire sale"
prices.
Once it became clear in late summer that the Federal funds rate was headed
lower, we advantageously positioned the Portfolio to beat the anticipated
decline in interest rates. The Portfolio ended the year positioned in a neutral
fashion versus its competition.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
Manolita Brasil
Federal Reserve Seen on Hold.
"We believe the Federal Reserve will hold monetary policy steady for now because
the U.S. economy remains quite strong and thus far, Brazilian economic woes have
inflicted far less damage on global financial markets than was originally
expected."
- --------------------------------------------------------------------------------
[PHOTO]
Portfolio Manager
Manolita Brasil
- --------------------------------------------------------------------------------
Portfolio Composition
as of 12/31/98
--------------
Other Commercial Paper 33.8%
Foreign Bank Obligations 21.5%
Other Corporate Obligations 18.9%
Yankee Commercial Paper 13.2%
U.S. Bank Obligations 9.4%
U.S. Government & Agencies 1.7%
Loan Participations 1.5%
- --------------------------------------------------------------------------------
Source: Prudential. 26% of the portfolio holdings are adjustable rate
securities. Holdings are subject to change.
11
<PAGE>
Prudential
Diversified Bond Portfolio
Performance Summary.
Corporate bonds performed better than U.S. Treasuries early in the year as U.S.
economic conditions remained favorable and financial turmoil in Asia appeared to
have eased. However, the Asian financial crisis deepened and spread to other
regions, prompting investors to buy Treasuries for their relative safety and
sell other debt securities. Treasuries therefore gained more than corporate
bonds and emerging market debt securities in 1998.
While your Portfolio's exposure to Treasuries increased, its corporate debt
holdings included energy sector bonds that declined in value as well as Conti
Financial Corp. bonds that hurt the Portfolio's relative performance. As a
result, the Portfolio's 7.15% annual return trailed the 7.44% return on the
Lipper (VIP) Corporate Debt BBB Average.
- --------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Diversified Bond Portfolio 2.60% 7.15% 6.70% 7.25% 9.14%
- --------------------------------------------------------------------------------
Lipper (VIP) Corp. Debt BBB Avg.2 3.26% 7.44% 7.11% 7.13% 8.97%
- --------------------------------------------------------------------------------
Lehman Aggregate Index3 4.58% 8.69% 7.29% 7.27% 9.26%
- --------------------------------------------------------------------------------
Diversified Bond Portfolio inception date: 5/13/83.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
[GRAPHIC]
$23,975 Diversified $23,672 Lipper (VIP) $24,240 Lehman
Bond Portfolio1 Corp. Debt BBB Avg.2 Aggregate Index3
"88" 10000 10000 10000
10896.5 10866.5 10919.5
"89" 11348.6 11187 11453
11598.3 11463.2 11777
"90" 12293 11898.2 12479.1
12845.4 12539.7 13037.1
"91" 14313.9 13916.9 14476.2
14701.3 14331.6 14867.8
"92" 15342.4 14973.1 15547.7
16452.1 16189 16619.8
"93" 16896.9 16744.3 17063.5
16252.8 15912.5 16403.5
"94" 16350.7 16025.2 16565.9
18326.2 18014.7 18461.7
"95" 19740.6 19271.3 19626.3
19437.5 18902.3 19387.9
"96" 20608.7 19929.1 20338.8
21455.2 20546.8 20968
"97" 22374.4 21944.2 22302.5
23367.1 22874.7 23178.4
"98" 23975.2 23671.6 24239.8
- --------------------------------------------------------------------------------
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation and the impact of social, political and
economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) Corporate Debt BBB Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment returns of certain portfolios underlying variable life and
annuity products. These returns are net of investment fees and fund
expenses but not product charges.
3 The Lehman Aggregate Index (LAI) is comprised of more than 5,000
government and corporate bonds. The LAI is an unmanaged index that
includes the reinvestment of all interest but does not reflect the payment
of transaction costs and advisory fees associated with an investment in
the Portfolio. The securities that comprise the LAI may differ
substantially from the securities in the Portfolio. The LAI is not the
only index that may be used to characterize performance of income funds,
and other indexes may portray different comparative performance.
================================================================================
[GRAPHIC]
- --------------------------------------------------------------------------------
Investment Goal
High level of income over the long term while providing reasonable safety of
capital.
Types of Investments
U.S. government securities, mortgage-backed bonds, both investment-grade and
high yield ("junk bond") corporate debt, and foreign securities (dollar and
non-dollar denominated).
Investment Style
This Portfolio seeks the highest yield while maintaining safety of capital, by
strategically allocating Portfolio assets among the above classes of bonds.
- --------------------------------------------------------------------------------
Performance Review.
What a Rally! The Portfolio's performance benefited as U.S. Treasuries comprised
roughly 30% of its total investments when the rally in Treasuries peaked in
early October.
At that time, prices of Treasuries soared so high that the 30-year Treasury bond
yield, which falls as prices rise, slid to its lowest level in more than 30
years.
Disappointment over a modest change in U.S. monetary policy on September 29 had
boosted demand for "safe haven" securities such as Treasuries relative to stocks
and corporate bonds.
This trend fueled strong gains in the prices of Treasuries during the first week
of October.
12
<PAGE>
Strategy Session.
A Confident Beginning. Early in the year, a nearly ideal combination of subdued
inflation, solid U.S. economic growth and low interest rates enhanced the appeal
of securities such as corporate bonds that offered incremental yield over U.S.
Treasuries. Belief that some Asian nations were making progress toward resolving
their financial difficulties also heightened investor confidence. Thus,
investment-grade corporate bonds performed better than Treasuries during the
first five months of the year, based on Lehman Brothers indexes.
This trend reversed as the Asian financial contagion deepened and infected
Russia and Latin America in August. To make matters worse, the Federal Reserve
had to arrange a rescue of hedge fund Long-Term Capital Management, which nearly
collapsed in September. Investors responded by purchasing Treasuries and dumping
assets that carried greater risk. We were in this camp, increasing Treasuries to
30% of the Portfolio's total investments as of September 30, 1998, up from 2.0%
from December 31, 1997.
The global financial crisis posed a potential threat to the U.S. economy because
many investors were reluctant to buy the stocks and bonds of corporations. The
Federal Reserve came to the rescue again, protecting the economy with a series
of three quarter-percentage-point cuts in the Federal funds rate (what banks
charge each other for overnight loans). The first reduction on September 29 left
the rate at 5.25%. Investors expressed their dissatisfaction with this modest
change by purchasing Treasuries, which pushed down the 30-year Treasury bond
yield to 4.71% in early October, its lowest level since April 1967.
The Federal funds rate was lowered again to 5.00% on October 15 and 4.75% on
November 17. The unusual timing of the second move, which occurred between the
Federal Reserve's regularly scheduled meetings, seemed to indicate that monetary
policy would be eased as often as needed to aid U.S. economic growth. Reassured,
investors began to reverse the "flight to quality" trend.
As prices of our U.S. dollar-denominated bonds of the cities of Moscow and St.
Petersburg, Russia, edged higher, we sold them at a loss on the view that
difficult economic and financial conditions would continue in Russia. The
Portfolio's performance was also hurt because its energy bonds sold off amid
concern that low oil prices would continue to hurt corporate balance sheets. In
addition, we owned Conti Financial Corp. bonds that performed poorly as major
U.S. credit rating agencies down-graded their ratings.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
Barbara Kenworthy
Economy Expected to Moderate.
"We believe the U.S. economic expansion could moderate in 1999. In other words,
the economy could grow at a slower pace but not slide into a recession. If the
economy behaves as expected, the 30-year Treasury bond yield could fluctuate
this year in a range of 4.75% to 5.75%. Therefore, debt securities that offer
incremental yield over Treasuries stand a good chance of performing better than
federal government securities in 1999."
- --------------------------------------------------------------------------------
[PHOTO]
Portfolio Manager
Barbara Kenworthy
- --------------------------------------------------------------------------------
Portfolio Composition
as of 12/31/98
--------------
Corporate Bonds 81.1%
U.S. Treasuries 12.0%
Other/Cash 4.1%
Asset-Backed 1.2%
U.S. Government & Agencies 0.9%
Mortgages 0.7%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Credit Quality
as of 12/31/98
--------------
U.S. Government 14.3%
AAA 2.9%
AA 6.0%
A 17.0%
BBB 41.6%
BB 14.0%
B 1.3%
Short-Term/Cash 2.9%
Average Credit Quality A
Duration 5.70 years
Average Maturity 10.56 years
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
13
<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
Six One Three Five Ten
Months Year Years Years Years
- -------------------------------------------------------------------------------
Conservative Balanced Portfolio1 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 Index3 9.24% 28.60% 28.23% 24.05% 19.19%
- --------------------------------------------------------------------------------
Lehman Gov't./Corp. Bond Index4 5.09% 9.47% 7.33% 7.30% 9.33%
- --------------------------------------------------------------------------------
Conservative Balanced Portfolio inception date: 5/13/83.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
[GRAPHIC]
<TABLE>
<CAPTION>
$29,177 Conservative $31,739 Lipper (VIP) $24,409 Lehman Gov't./ $57,864 S&P
Balanced Portfolio1 Balanced Avg.2 Corp. Bond Index4 500 Index3
<S> <C> <C> <C> <C>
"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
</TABLE>
- --------------------------------------------------------------------------------
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.
14
<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.
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] [PHOTO]
Mark Stumpp John W. Moschberger
[PHOTO] [PHOTO]
Warren E. Spitz 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.
15
<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 Portfolio1 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 Index3 9.24% 28.60% 28.23% 24.05% 19.19%
- --------------------------------------------------------------------------------
Lehman Gov't./Corp. Bond Index4 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]
<TABLE>
<CAPTION>
$34,387 Flexible $38,003 Lipper (VIP) $24,410 Lehman Gov't./ $57,864 S&P 500
Managed Portfolio1 Flexible Avg.2 Corp. Bond Index4 Index3
<S> <C> <C> <C> <C>
"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
</TABLE>
- --------------------------------------------------------------------------------
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.
16
<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.
- --------------------------------------------------------------------------------
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] [PHOTO]
Mark Stumpp John W. Moschberger
[PHOTO] [PHOTO]
Warren E. Spitz Tony Rodriguez
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Portfolio Composition
as of 12/31/98
--------------
Stocks 53.6%
Bonds 35.2%
Money Market 11.2%
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Source: Prudential. Holdings are subject to change.
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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%
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Source: Prudential. Holdings are subject to change.
17
<PAGE>
Prudential High Yield Bond Portfolio
Performance Summary.
High yield bonds (commonly referred to as junk bonds) went on a roller-coaster
ride in 1998. Prices climbed earlier in the year, only to tumble later on as
deepening turmoil in global financial markets prompted investors to purchase
U.S. Treasuries for their relative safety and sell assets that carried greater
risk. High yield bonds rallied again later in the year as the Federal Reserve
eased monetary policy three times to protect the U.S. economic expansion.
Your Portfolio returned -2.36% for the year and lagged the 0.10% gain on the
average high yield fund tracked by Lipper Analytical Services, Inc., because
some of its lower-rated bonds sold off more sharply than its higher-quality debt
securities.
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Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
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High Yield Bond Portfolio1 -7.18% -2.36% 7.37% 7.20% 9.07%
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Lipper (VIP) High Current Yield Avg.2 -4.31% 0.10% 8.79% 7.87% 9.92%
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Lehman High Yield Index3 -2.77% 1.60% 8.46% 8.52% 10.52%
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High Yield Bond Portfolio inception date: 2/23/87.
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$10,000 Invested Over Ten Years
$23,811 High Yield $25,861 Lipper (VIP) $27,226 Lehman High
Bond Portfolio1 High Current Yield Avg.2 Yield Index3
"88" 10000 10000 10000
10449.6 10549.3 10487.2
"89" 9794.83 10185.5 10083.3
9906.68 10349.2 10334.8
"90" 8634.73 9584.83 9116.51
10817.1 11540.7 11815.3
"91" 12001.6 12864.8 13326.7
13290 14167.1 14706.1
"92" 14105.9 14932.2 15426
15708.4 16628.8 17051.8
"93" 16823.6 17721.1 18066.4
16639 17289.1 17656.9
"94" 16365.8 17182.6 17880.4
17926.1 19048.8 20099.6
"95" 19240.2 20371.1 21308.8
20160.8 21308.8 22045.5
"96" 21431.6 23067.6 23727.6
22690.8 24418.3 25108
"97" 24385.7 26045.4 26756.1
25653.5 27144.7 27960.2
"98" 23811 25861.5 27225.6
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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) High Current Yield 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 Lehman High Yield Index (LHYI) is comprised of over 700
noninvestment-grade bonds. The LHYI 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 LHYI may differ substantially
from the securities in the Portfolio. The LHYI is not the only index that
may be used to characterize performance of income funds, and other indexes
may portray different comparative performance.
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[GRAPHIC]
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Investment Goal
High total return.
Types of Investments
Primarily noninvestment-grade bonds. These bonds have speculative
characteristics and are subject to greater credit and market risk than
higher-quality securities.
Investment Style
Concentrates primarily on junk bonds that appear to offer an attractive
combination of high current income and attractive total return.
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Performance Review.
A Bumpy Ride. In the first seven months of the year, high yield bonds led all
other sectors of the taxable bond markets, according to Lehman Brothers indexes.
However, that period was followed by one of the most difficult three
months in the history of junk bonds. Many investors shunned all types of risky
securities (including high yield bonds) after a financial crisis spread beyond
Asia to Russia and Latin America in August.
Your Portfolio's performance over the past year generally reflected these ups
and downs of the high yield market.
18
<PAGE>
Strategy Session.
A Strong Start. A resilient U.S. economy grew rapidly for most of the year,
despite a marked decline in manufacturing exports to Asia. Inflation remained
subdued as the economy expanded and long-term interest rates in the U.S.
lingered at low levels. These nearly ideal economic conditions spurred demand
for high yield bonds earlier in the year as investors wanted debt securities
that provided incremental yield over U.S. Treasuries. As a result, junk bonds
performed better than Treasuries during the first seven months of 1998.
However, demand for high yield bonds began to dry up in the eighth month. The
financial whirlwind that first struck Asia slammed into Russia and Latin America
in August, sending global financial markets reeling. Investors purchased
supersafe U.S. Treasuries and sold riskier assets such as high yield bonds.
Junk bonds had been the leading fixed-income asset class in July, but they
ranked second-lowest in August, based on Lehman Brothers indexes. The largest
declines occurred in lower quality junk bonds such as those rated single-B,
which accounted for approximately 50% of your Portfolio's total investments as
of August 31, 1998.
Financial markets deteriorated further in September as the Federal Reserve had
to arrange the rescue of Long-Term Capital Management. This giant hedge fund's
near-collapse, left some investors even more reluctant to buy nongovernment
bonds. Had this trend continued it could have endangered the U.S. economic
expansion because of a lack of willingness to provide businesses with money.
To protect the U.S. economy, the Federal Reserve cut the Federal funds rate
(what banks charge each other for overnight loans) by a quarter percentage point
on September 29, October 15 and November 17, leaving it at 4.75%.
Investors began to return to the junk bond market in earnest during November.
Bonds rated single-B rallied strongly, because they had been oversold. These
gains benefited your Portfolio, which returned 2.56% for the fourth quarter of
1998. However, the Portfolio's annual return was negative, because about 29% of
its total investments were in nonrated and Caa-rated bonds that only partially
recouped their earlier losses.
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Outlook
PORTFOLIO MANAGER
George W. Edwards, CFA
High Yield Market Shows Promise.
"The credit quality of the high yield bond market will likely remain
fundamentally sound as long as the U.S. economy continues to expand. Meanwhile,
the difference between yields of lower- to middle-quality junk bonds and
comparable U.S. Treasuries is at wide levels typically characteristic of a
weaker economy."
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[PHOTO]
PORTFOLIO MANAGER
George W. Edwards, CFA
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Top Industries
as of 12/31/98
--------------
Telecommunications 15.3%
Industrial 6.2%
Retail 5.6%
Broadcasting & Other Media 5.2%
Cable 5.2%
Top Issuers
as of 12/31/98
--------------
Allied Waste 1.3%
Adelphia Communications 1.0%
Maxxam Group 1.0%
New Sassco, Inc. 0.9%
Paxson Communications 0.6%
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Source: Prudential. Holdings are subject to change.
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Credit Quality
as of 12/31/98
--------------
Baa 1.2%
Ba 8.8%
B 48.6%
Caa 15.0%
Nonrated 14.2%
Equity 7.6%
Cash 4.6%
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Source: Prudential. Holdings are subject to change.
19
<PAGE>
Prudential Stock Index Portfolio
Performance Summary.
Your Portfolio returned 9.32% for the second half of 1998 and gained 28.42% over
the course of the year. Despite a 19% drop early in the second half, the
Portfolio rebounded sharply in the latter part of the year. Last year, we
reported that the three-year run of above 20% returns was unprecedented. Now we
have added a fourth year to the run.
The global financial crisis, triggered by events in Asia and Russia, led to the
initial drop in the market when investors became uneasy with the financial
situation in emerging markets. However, the growing U.S. economy and subsiding
fears of a global financial meltdown, led investors to feel more confident. In
turn, the S&P 500 Index's return was well above historical standards.
Standard & Poor's neither sponsors nor endorses the Stock Index Portfolio.
Investors cannot directly invest in any index, including the S&P 500 Index.
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Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
Stock Index Portfolio1 9.32% 28.42% 27.89% 23.70% 18.74%
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Lipper (VIP) S&P 500 Index Avg.2 9.24% 28.25% 27.81% 23.58% 18.62%
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S&P 500 Index3 9.24% 28.60% 28.23% 24.05% 19.19%
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Stock Index Portfolio inception date: 10/19/87.
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$10,000 Invested Over Ten Years
[GRAPHIC]
$55,665 Stock $55,145 Lipper (VIP) $57,864 S&P 500
Index Portfolio1 S&P 500 Index Avg.2 Index3
"88" 10000 10000 10000
11615.1 11541.6 11652.2
"89" 13093 12971.9 13163.1
13443 13253.6 13568.4
"90" 12617.3 12415.9 12753.9
14376.7 14257.5 14568.6
"91" 16367.4 16190.9 16631.1
16222.3 16038.7 16519.4
"92" 17535.2 17382.8 17896.5
18349.5 18309.1 18767
"93" 19229.8 19193.8 19696.3
18549.9 18523.4 19029.9
"94" 19423.7 19360 19955
23302.1 23209.7 23983.1
"95" 26623.6 26485.8 27444.9
29271.7 29106.4 30213.8
"96" 32631.3 32500.6 33742.1
39260.4 38993.2 40692.1
"97" 43344.8 43022.8 44995.4
50919.4 50518.9 52969.5
"98" 55664.8 55145.1 57927.6
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1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) S&P 500 Index Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment return of certain portfolios underlying variable life and
annuity products. These returns are net of investment fees and fund
expenses but not product charges.
3 The S&P 500 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.
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[GRAPHIC]
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Investment Goal
Seeks results that correspond to the price and yield performance of the S&P 500
Index.3
Types of Investments
Primarily stocks in the S&P 500 Index.
Investment Style
The Portfolio attempts to hold the same stocks as the S&P 500 Index, in
approximately the same proportions. The Portfolio thus tends to reflect the
general trends of the overall U.S. equity market.
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S&P 500 Index--Total Return by Sector
as of 12/31/98
--------------
Technology 72.9%
Communication Services 52.3%
Health Care 44.2%
Consumer Cyclicals 36.3%
Consumer Staples 22.2%
Utilities 14.7%
Capital Goods 14.1%
Financials 11.4%
Energy 0.5%
Transportation -1.9%
Basic Materials -6.1%
S&P 500 Index 28.6%
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Source: Standard & Poor's
20
<PAGE>
Performance Review.
The Stock Index Portfolio attempts to hold all 500 stocks included in the S&P
500 Index and to duplicate its performance. Portfolio manager John W.
Moschberger manages the Portfolio by investing funds received while trying to
minimize commissions and transaction costs.
Technology Led the Way. The Index was led by the technology sector, which
returned almost 73% for the year. Stock prices of companies on or associated
with the Internet rose to unparalleled highs in the latter half of 1998. The
demand for computer systems and software was strong, driving prices of these
stocks higher as well. Communications services, wireless, long distance and
local telephone service had the second-highest return for the year at about 52%.
The Internet explosion propelled returns in both the technology and
communications services sectors.
Health Care and Consumer Cyclicals Had a Strong Year. The S&P 500 Index's health
care stocks returned 44% for the year. Stocks of drug retailers and drug
companies were the best-performing areas of the health care sector. Consumer
cyclicals, companies that perform better when an economy is growing, produced a
36% return. Furthermore, consumer staple stocks, such as restaurants and
pharmaceuticals, achieved a 22% gain. Moreover, the Index's heavily weighted
financial sector, rebounding from investor fears about emerging markets,
returned 11%. The utility sector also bounced back from a slow end to the first
half of the year to post an overall 15% return.
Energy Stocks Were Weak Again. The energy sector, hurt by oil prices dropping to
a 12-year low, returned only 0.5%. However, this was not the Index's
worst-performing sector. Basic material stocks were pulled down by commodity
prices at a 10-year low--copper prices dropped to their lowest average of the
century. This sector was down more than 6% for the year.
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Outlook
PORTFOLIO MANAGER
John W. Moschberger
Keep Your Expectations Realistic.
"For the fourth successive year the S&P 500 Index exceeded a 20% return. Last
year, we warned that a third year was unprecedented. The year was very unusual
in another way: the Index did not reflect the performance of most stocks listed
on it. The S&P 500 Index is weighted by market capitalization--the largest
companies count for more. This year, the largest 10% of companies in the Index
accounted for much of its performance. An equally weighted index would have
gained only 11% instead of 29%. Typically, the gap is only a few percentage
points. It has not been this large in 40 years. Because of this, most
actively-managed mutual funds trailed our fund. These are unusual times, and it
is particularly important to keep in mind that past performance is no guarantee
of future behavior."
[PHOTO]
PORTFOLIO MANAGER
John W. Moschberger
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S&P 500 Index Composition
as of 12/31/98
--------------
Technology 18.5%
Financials 15.4%
Consumer Staples 14.9%
Health Care 12.1%
Consumer Cyclicals 9.2%
Communication Services 8.4%
Capital Goods 8.1%
Energy 6.2%
Basic Materials 3.2%
Utilities 3.1%
Transportation 0.9%
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Source: Standard & Poor's. Holdings are subject to change.
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Top Ten Holdings
as of 12/31/98
--------------
Microsoft Corp. 3.4%
General Electric Co. 3.2%
Intel Corp. 2.0%
Wal-Mart Stores, Inc. 1.8%
Exxon Corp. 1.7%
Merck & Co., Inc. 1.7%
International Business
Machines Corp. 1.7%
Coca-Cola Co. 1.6%
Pfizer, Inc. 1.6%
Lucent Technologies, Inc. 1.4%
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Source: Prudential. Holdings are subject to change.
21
<PAGE>
Prudential Equity Income Portfolio
Performance Summary.
Over the past year, your Portfolio returned -2.38%, while the Lipper (VIP)
Equity Income Average gained 16.21%.
Investors, afraid of the global consequences of the recession in Asia, showed a
strong preference for the stocks of a few large growth companies. Because the
Equity Income Portfolio adheres to a disciplined value investing style, we owned
smaller companies. In contrast with 1997, these smaller-company stocks performed
poorly, pulling our return slightly negative. In particular, we had substantial
holdings of Real Estate Investment Trusts (REITs), and the market became very
unfavorable to this sector.
Our financial stocks--particularly Lehman Brothers (an investment bank) and our
Real Estate Investment Trusts--contributed to both last year's strong
performance and this year's weak one.
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Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
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Equity Income Portfolio1 -11.17% -2.38% 17.54% 14.93% 15.06%
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Lipper (VIP) Equity Income Avg.2 4.67% 16.21% 20.63% 18.50% 15.23%
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S&P 500 Index3 9.24% 28.60% 28.23% 24.05% 19.19%
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Equity Income Portfolio inception date: 2/19/88.
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$10,000 Invested Over Ten Years
[GRAPHIC]
$40,638 Equity Income $41,490 Lipper (VIP) $57,864 S&P 500
Portfolio1 Equity Income Avg.2 Index3
"88" 10000 10000 10000
11449.1 11221.9 11652.2
"89" 12266.5 11861.1 13163.1
12188.5 11925.1 13568.4
"90" 11809.4 10942.4 12753.9
13430.2 12297.6 14568.6
"91" 15057.6 13801.2 16631.1
15257 13935.5 16519.4
"92" 16584.5 15185.4 17896.5
19169.5 16480.2 18767
"93" 20280 17440.6 19696.3
20071.6 16938.9 19029.9
"94" 20571.4 17493.6 19955
23474.7 20621.7 23983.1
"95" 25036.1 23040.7 27444.9
26801 24570 30213.8
"96" 30478.4 27444.8 33742.1
35803.3 32546.6 40692.1
"97" 41635.8 36200.4 44995.4
45756.2 40566.9 52969.5
"98" 40638.4 41489.6 57864
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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) Equity Income Average is
calculated by Lipper Analytical Services, Inc., and reflects the
investment return of certain portfolios underlying variable life and
annuity products. These returns and rankings 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.
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[GRAPHIC]
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Investment Goal
Current income and capital appreciation.
Types of Investments
Primarily stocks and convertible securities with prospects for income returns
above those of the S&P 500 Index.3
Investment Style
The Portfolio uses a "value" investment approach to companies that are
attractively priced relative to book value, earnings, discretionary cash flow,
sales and other measures of value.
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Performance Review.
Size Counted. Although the stock market rebounded, the largest 10% of the S&P
500 Index gained substantially more than smaller companies. We had avoided these
stocks because they have been expensive for some time. The less-expensive
mid-sized companies that we thought were better values lost favor.
Financials Suffered. These stocks have strong prospects for earnings-growth but
are undervalued, in our opinion.
Basic Industry Lagged. Our industrial and energy holdings generally lagged the
strong market, and Pioneer Natural Resources, an independent exploration and
production company, suffered because its production was below prior estimates.
With the current surplus of oil supply over demand, we don't consider that a
problem.
22
<PAGE>
Strategy Session.
We remain focused on industrials, financials, and consumer cyclicals. We believe
that today, Real Estate Investment Trusts (REIT) offer the best combination of
current dividend yield and long-term dividend growth, because further
securitization of real estate should allow substantial cash flow growth
potential.
Not only are there economies of scale in purchasing furnishings, materials,
etc., but the REIT mechanism provides the funding for superior managers to
leverage their abilities by acquiring additional property. Ease in buying and
selling (liquidity) also makes real estate investment trusts more attractive.
Although short-term fears pushed the price of REIT shares below the value of
their underlying properties, we think well-managed companies eventually will
trade at a premium because of the added value of the REIT structure.
Our industrials and our consumer cyclicals (such as autos, retailers and
housing-related companies) reflect our confidence that the U.S. economy will
continue to expand. Despite some Asia-induced slowing in 1998, the economy is
fundamentally strong.
However, companies that tend to do well in a growing economy--the industrial
issues in particular--were priced in 1998 as though a recession was imminent.
This makes them very inexpensive in terms of what we must pay for a dollar of
their earnings.
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Outlook
PORTFOLIO MANAGER
Warren E. Spitz
Value Investing for the Long-term.
"In 1997, several of our investment themes paid off strongly. We believe that
investors saw the value in several of our holdings, but their favorable opinions
were swamped this year in a widespread fear-driven movement to the stocks of a
very few large and well-known companies. Investors behaved in an unusual way
this year. They tended to move toward stocks that already were expensive,
instead of toward better value. We believe this was a panic reaction, not
typical of investor behavior. In recent years, my value style has led me 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. I don't believe those are conservative investments over the long term."
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[PHOTO]
PORTFOLIO MANAGER
Warren E. Spitz
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Portfolio Composition
as of 12/31/98
--------------
Industrials 27.9%
Financial Services 24.7%
Consumer Cyclicals 19.9%
Consumer Growth & Staples 11.7%
Energy 8.1%
Utilities 3.6%
Technology 1.0%
Cash 3.1%
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Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of 12/31/98
--------------
Dow Chemical Co. 4.4%
Aluminum Company
of America 4.2%
Hanson, PLC, ADR
(United Kingdom) 3.8%
RJR Nabisco Holdings Corp. 3.4%
Lehman Brothers
Holdings, Inc. 3.3%
McDermott International, Inc. 3.1%
DaimlerChrysler A.G 3.0%
Equity Residential
Properties Trust 3.0%
Reynolds Metals Co. 2.7%
AMR Corp. 2.6%
23
<PAGE>
Prudential Equity Portfolio
Performance Summary.
Your Portfolio returned 9.34% in 1998, trailing the Lipper (VIP) Growth Fund
Average of 24.94% for the period. In this fourth year of S&P 500 Index returns
above 20%, gains were particularly concentrated in a few large growth stocks
that had already become expensive when the year began. Our value discipline
steered us away from such stocks. Our return also was held back by poor returns
on our retailers, by our substantial cash holding over the year, and by our
relatively small participation in the high-performing technology sector.
Despite our defensive cash holdings and a market that was unfavorable to our
in-vestment style, our return was near the historical average for the S&P 500
Index.
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Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Equity Portfolio1 -2.78% 9.34% 17.35% 16.88% 16.74%
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Lipper (VIP) Growth Fund Avg.2 6.90% 24.94% 23.77% 20.25% 17.83%
- --------------------------------------------------------------------------------
S&P 500 Index3 9.24% 28.60% 28.23% 24.05% 19.19%
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Equity Portfolio inception date: 5/13/83.
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$10,000 Invested Over Ten Years
[GRAPHIC]
$47,000 Equity $52,463 Lipper (VIP) $57,864 S&P
Portfolio1 Growth Fund Avg.2 500 Index3
"88" 10000 10000 10000
11542.7 11675.6 11652.2
"89" 12973 12942.3 13163.1
13028.2 13470 13568.4
"90" 12296.8 12302.8 12754
14827.8 14188.6 14568.6
"91" 15495.2 16705.1 16631.2
16518.9 16124.5 16519.4
"92" 17691.5 18090.1 17896.5
19933.5 19133.2 18767.1
"93" 21560.3 20600.9 19696.3
21144.7 19316.9 19029.9
"94" 22159.3 20273 19955.1
25834.3 24099.6 23983.2
"95" 29093 27161.6 27445
31220.7 29873.8 30213.9
"96" 34480.9 32834.2 33742.2
39054.4 37895.9 40692.2
"97" 42983.2 41709.2 44995.6
48343.3 48636.4 52969.7
"98" 46999.8 52463.4 57864
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The Portfolio may invest in foreign securities. Foreign investments are subject
to the risk of currency fluctuation and the impact of social, political and
economic change.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) Growth Fund Average is
calculated by Lipper 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.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
Investment Goal
Capital appreciation.
Types of Investments
Primarily stocks of major, established companies.
Investment Style
The Portfolio uses a "deep value" investment approach to invest in stocks
believed to be temporarily undervalued relative to the companies' sales,
earnings, book value and cash flow.
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Performance Review.
Size Counted. Concerned about the impact of the Asian recession, investors
focused strongly on the largest growth companies. We avoided these stocks,
because they have been expensive for some time.
Retailers Were Mixed. In the retail industry, we held inexpensive stocks, such
as Dillards, Tandy and Toys R Us. They performed poorly, while popular stocks
such as Wal-Mart and Home Depot rose even farther.
Not Enough Tech. When Compaq bought Digital Equipment, we benefited both from
the sale and afterward from the return on the Compaq stock we acquired.
Nonetheless, our relatively small holdings in the technology sector constrained
our performance.
And Too Much Cash. Our average cash balance of about 14% held back our return.
However, we reduced our cash sharply over the year, acquiring some
bargain-priced stock after the market fell.
24
<PAGE>
Strategy Session.
We Are Disciplined Deep Value Investors. The S&P 500 Index has had an
unprecedented four successive years of gains above 20%. This year, these gains
were particularly concentrated in a few large growth stocks that had already
become expensive when the year began, but our value discipline steered us away
from such stocks--we avoid stocks that are priced well above the market average
for comparable earnings.
Over the long run, value stocks have performed quite well. However, there have
been other multi-year periods that favored growth stocks. The two investment
styles have alternated in superior performance, so we believe investors should
have exposure to both.
We Still Like Financial Companies. Morgan Stanley Dean Witter was among the
largest contributors to last year's return. We also liked financial firms that
were less favorably treated last year, as investors worried about emerging
market exposure and natural disaster damage claims. Loews, Chubb, Safeco and
Citi-group are among our larger holdings. Financial companies have been leaders
in applying technology to drive down costs and improve services while
consolidating to increase productivity.
Consumers Still Going Strong. Consumer spending has kept the U.S. economy strong
recently, when exports and investment flagged. Chrysler made a substantial
contribution to our 1998 return. We continue to have a focus on retailers and
housing-related firms.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
Thomas R. Jackson
Staying the Course.
"Value and growth investing styles historically have alternated in periods of
superior performance. The growth style has had the advantage for several years
now, bringing the differences in stock value to extraordinary levels. In 1998,
S&P 500 Index growth stocks rose more than 27 percentage points above the return
on S&P 500 value stocks. The entire Index, pulled up by large growth stocks,
returned 16 percentage points more than the average stock. That is the largest
discrepancy in 40 years. Chasing the strategy that worked last year is a
well-known investing fallacy. Portfolio managers do best over the long run when
they stick to one investment style. That's what we're doing--consistent value
investing so when the current imbalances correct themselves, we'll be there to
reap the rewards."
- --------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGER
Thomas R. Jackson
- --------------------------------------------------------------------------------
Portfolio Composition
as of 12/31/98
--------------
Financial Services 24.0%
Consumer Growth & Staples 18.0%
Industrial 16.4%
Consumer Cyclicals 11.5%
Technology 11.1%
Utilities 6.0%
Energy 4.8%
Cash 8.2%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of 12/31/98
--------------
Wellpoint Health 2.9%
Loews Corp. 2.8%
Morgan Stanley, Dean
Witter & Co. 2.7%
Compaq Computer 2.5%
Columbia HCA Healthcare 2.3%
Chubb Corp. 2.3%
Darden Restaurants 2.3%
Elf Aquitaine ADR 2.2%
Tenet Healthcare 2.1%
SAFECO Corp. 2.0%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
25
<PAGE>
Prudential
Prudential Jennison Portfolio
Performance Summary.
With the stock market rising strongly for the fourth straight year, your
Portfolio returned 37.46%, almost thirteen percentage points ahead of the 24.94%
Lipper (VIP) Growth Average and almost nine percentage points ahead of the
28.60% S&P 500 Index.
The largest contributors to your Portfolio's return in 1998 were technology,
financial services, pharmaceuticals and retail stocks. We had focused on these
sectors, which also were market favorites in 1998.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation and the impact of social, political and
economic change.
- --------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1998
Six One Three Since
Months Year Years Inception*
- --------------------------------------------------------------------------------
Prudential Jennison Portfolio1 13.84% 37.46% 27.48% 29.60%
- --------------------------------------------------------------------------------
Lipper (VIP) Growth Avg.2 6.90% 24.94% 23.77% 25.38%
- --------------------------------------------------------------------------------
S&P 500 Index3 9.24% 28.60% 28.23% 29.32%
- --------------------------------------------------------------------------------
Prudential Jennison Portfolio inception date: 4/25/95.
- --------------------------------------------------------------------------------
$10,000 Invested Since Inception*
[GRAPHIC]
$26,002 Prudential $23,199 Lipper
Jennison Portfolio1 $25,671 S&P 500 Index3 (VIP) Growth Avg.2
"5/95" 11275.7 10640.2 10782.2
12556.3 12176 12099.3
13494.4 13404.5 13363.1
"96" 14361.8 14969.8 14574.8
16801 18053.2 16697.9
"97" 18916.1 19962.4 18425.4
22840.8 23500.2 21538.6
"98" 26001.6 25671 23199.1
- --------------------------------------------------------------------------------
* Lipper provides data on a monthly basis, so for comparative purposes the
Lipper Average and Index since inception returns reflect the Portfolio's
closest calendar month-end performance of 4/30/95.
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six-month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) Growth Average is calculated
by Lipper Analytical Services, Inc., and reflects the investment return of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses but not product
charges.
3 The S&P 500 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.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
Investment Goal
Long-term growth of capital.
Types of Investments
Primarily common stocks of established companies with above-average growth
prospects.
Investment Style
The Portfolio uses a "growth" investment style to invest in the common stocks of
both mid-sized and large companies.
- --------------------------------------------------------------------------------
Performance Review.
Technology. Our technology stocks were the foundation of our strong performance,
led in large measure by the impact of the Internet on the demand for personal
computers, networking equipment and semiconductors.
Our fairly large positions in Cisco Systems, Microsoft and Oracle made strong
contributions.
Telecommunications services companies such as MCI WorldCom, Airtouch
Communications, and Qwest Communications were also helped by the explosion of
Internet traffic.
Financials. Financial companies were hurt in midyear by fears of exposure to
emerging markets, but our holdings bounced back, spurred by Federal Reserve cuts
in interest rates and the easing of the world financial crisis.
26
<PAGE>
Strategy Session.
Earnings Are Important. The pace of earnings growth for U.S. companies has been
dropping steadily over the past year. Investors have focused on companies that
continue to deliver rapid growth through the current difficulties.
If a wider range of companies resume rapid earnings growth, investor interest
may broaden and is likely then to favor stocks that are considerably less
expensive than today's market leaders.
We Have a Two-Pronged Strategy for This Environment. On the one-hand, we own
companies that are currently high-priced and rising, because of their strong
earnings: our drug companies, retail companies, some of our technology stocks
and telecommunications companies. We also own companies that are relatively
inexpensive now because they are in the early stages of what we believe will be
a profit recovery.
Our Largest Sectors. Technology, financial services, pharmaceuticals and
retailing remain our largest sectors. They should continue to benefit from lower
interest rates. Moreover, the health care and technology sectors are growing
strongly, while the retail sector is reducing its costs. The market's emphasis
on earnings should sustain its focus on these groups.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGER
David T. Poiesz
Price-sensitive Growth Investing.
"We buy the best growth companies we can find at prices that don't fully reflect
their future prospects. We aim at a portfolio that captures faster growth than
the market overall, but at an attractive price. We are watching the world
economic situation carefully with an eye on how it can affect the businesses of
specific companies. For example, we are trying to avoid excess exposure to banks
that may be affected by a Latin America slowdown."
- --------------------------------------------------------------------------------
[PHOTO]
Portfolio Manager
David T. Poiesz
- --------------------------------------------------------------------------------
Portfolio Composition
as of 12/31/98
--------------
Technology 33.4%
Financial Services 19.7%
Consumer Staples 18.7%
Health Care 12.0%
Intermediate Goods & Servs. 8.6%
Capital Spending 4.0%
Cash 3.6%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of 12/31/98
--------------
MCI WorldCom, Inc. 4.6%
Microsoft Corp. 3.2%
Home Depot, Inc. 3.0%
General Electric Co. 2.8%
Chase Manhattan Corp. 2.7%
Cisco Systems, Inc. 2.7%
Citigroup Inc. 2.5%
CBS Corp. 2.5%
Schering-Plough Corp. 2.4%
Oracle Corp. 2.4%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
27
<PAGE>
Prudential Global Portfolio
Performance Summary.
Your Portfolio returned 25.08% in 1998, almost nine percentage points above the
16.19% gain of the Lipper (VIP) Global Average. We had a substantial focus on
continental Europe, the best-performing region over our reporting period, and
our stocks there performed well.
We benefited from having very little invested in emerging markets, such as
eastern Europe, and relatively little in any Asian market. Our
large-capitalization U.S. growth stocks had above-average returns.
The Portfolio may invest in foreign securities. Foreign investments are subject
to the risks of currency fluctuation, political and social risks and
illiquidity.
- --------------------------------------------------------------------------------
Average Annual Returns Through December 31, 1998
Six One Three Five Ten
Months Year Years Years Years
- --------------------------------------------------------------------------------
Global Portfolio1 4.81% 25.08% 17.01% 12.04% 10.90%
- --------------------------------------------------------------------------------
Lipper (VIP) Global Avg.2 0.60% 16.19% 15.50% 12.31% 11.04%
- --------------------------------------------------------------------------------
Morgan Stanley World Index3 6.80% 24.80% 18.25% 16.19% 11.21%
- --------------------------------------------------------------------------------
Global Portfolio inception date: 9/19/88.
- --------------------------------------------------------------------------------
$10,000 Invested Over Ten Years
[GRAPHIC]
$28,940 Lipper (VIP) $28,938 Morgan Stanley
$28,128 Global Portfolio1 Global Avg.2 World Index3
"88" 10000 10000 10000
10478.3 10622.3 10104.9
"89" 11882.4 12090.2 11719.4
11445.2 12456.4 10878.6
"90" 10348.6 11366.6 9783.61
10790.9 11971.5 10409.6
"91" 11526.8 13278.2 11639.3
11516.6 13468.6 10912.1
"92" 11132.5 13332.5 11096.9
12655.6 15133.3 12813.2
"93" 15935.1 17602.9 13663.5
15316.6 17212 14193
"94" 15156.5 17410.6 14426.2
16589 18521.2 15785.3
"95" 17563 19959.5 17501.3
19363.1 21635.6 18784
"96" 21021.7 23233.7 19950.8
23646.1 26246.9 23067.9
"97" 22488.3 26045.6 23188.3
26837 29540.8 27096.5
"98" 28127.9 28939.7 28937.8
- --------------------------------------------------------------------------------
1 Past performance is not predictive of future performance. Portfolio
performance is net of investment fees and fund expenses but not product
charges. Source: Prudential. Six month returns not annualized.
2 The Lipper Variable Insurance Products (VIP) Global Average is calculated
by Lipper Analytical Services, Inc., and reflects the investment return of
certain portfolios underlying variable life and annuity products. These
returns are net of investment fees and fund expenses but not product
charges.
3 The Morgan Stanley World Index is a weighted index comprised of
approximately 1,500 companies listed on the stock exchanges of the U.S.A.,
Europe, Canada, Australia, New Zealand and the Far East. The combined
market capitalization of these companies represents approximately 60% of
the aggregate market value of the stock exchanges in the countries
comprising the World Index. The World Index is an unmanaged index that
includes the reinvestment of all dividends but does not reflect the
payment of transaction costs and advisory fees associated with an
investment in the Portfolio. The securities that comprise the World Index
may differ substantially from the securities in the Portfolio. The World
Index is not the only index that may be used to characterize performance
of global funds, and other indexes may portray different comparative
performance.
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
Investment Goal
Long-term growth of capital.
Types of Investments
Primarily common stock and common stock equivalents of U.S. and foreign
corporations.
Investment Style
The Portfolio uses a "growth" investment approach, coupled with a theme-oriented
view of the markets, to identify companies that seem best positioned to take
advantage of global changes.
- --------------------------------------------------------------------------------
Performance Review.
Europe and the U.S. We had a substantial focus on continental Europe, and this
region was the best-performing region in 1998. Except for about 7% of our assets
invested in Asia, our assets were invested in Europe and the United States,
where economies were growing the fastest.
Continental Banks. Our largest industry is banking. An Italian bank, Credito
Italiano, bounced back strongly and had an excellent annual return.
Technology. Our focus was on technology stocks, particularly telecommunications
services and equipment companies--such as Nokia, and Cisco Systems.
These companies served us well over the past year. Software companies, notably
the global giant Microsoft, also made large contributions to our strong annual
performance.
28
<PAGE>
Strategy Session.
Location: Europe. We have allocated almost half of our assets to Europe and more
than a third to the United States. We believe currency unification in Europe
will boost their markets. In addition to introducing a strong incentive to
improve productivity and growth, it should reduce trade and financing costs. It
also is improving consumer morale.
Europe is seeing many private companies restructure to improve their
productivity and governments selling businesses they own. Simultaneously, low
interest rates and new bank-managed mutual funds are attracting savings to the
stock market. As in the U.S. a decade ago, these trends are good for stock
prices.
The global economic picture is too uncertain to give us confidence in the growth
prospects of companies based in emerging markets. We are waiting for more
stability before we increase our investments there.
Industries: For some time, we have liked the telecommunications
industry--including Nokia and Vodafone--and the financial services industry in
Europe. European bank stocks were hurt during the summer panic about exposure to
the debt of emerging market countries, including Russia. Most of our bank
holdings had little or no exposure, but even these stocks declined. They bounced
back as investors recovered their perspective.
The United States. In recent years, our Portfolio has had significantly less
U.S. investment than the size of the U.S. stock market would warrant, because
large growth stocks in the U.S. stock market have been relatively expensive.
Since the economic crisis in emerging markets, however, we own more in the U.S.
than we usually would because economic growth is most secure at home. Our
domestic stocks include Safeway, Microsoft, Time Warner and PMC--Sierra, all of
which have been performing well.
- --------------------------------------------------------------------------------
Outlook
PORTFOLIO MANAGERS
Daniel J. Duane, Ingrid Holm, Michelle Picker
Still Cautious.
"Investors' reaction to Brazil's devaluation shows that they are still reacting
strongly to any threat to economic growth. Stocks whose earnings depend on
expanding economies (cyclicals) or to emerging markets tended to drop sharply.
We prefer companies that have great growth prospects within Europe or the United
States. Certain basic services, such as communications and banking, are changing
dramatically, whatever happens to the global economy. We try to benefit from
those trends."
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
[PHOTO]
Daniel J. Duane
[PHOTO] [PHOTO]
Ingrid Holm Michelle Picker
- --------------------------------------------------------------------------------
Geographic Allocation
as of 12/31/98
--------------
United States 39.0%
Continental Europe 37.2%
United Kingdom 10.4%
Japan 5.2%
Australia 1.4%
Cash 6.8%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
- --------------------------------------------------------------------------------
Top Ten Holdings
as of 12/31/98
--------------
Vodafone Group, PLC 3.5%
Nokia Corp. 3.4%
Safeway, Inc. 3.4%
Credito Italiano 3.4%
Time Warner, Inc. 3.1%
Bank of Ireland 2.4%
Telefonica de Espana 2.4%
Texas Instruments, Inc. 2.2%
Microsoft Corp. 2.2%
PMC--Sierra, Inc. 2.2%
- --------------------------------------------------------------------------------
Source: Prudential. Holdings are subject to change.
29
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments (amortized cost
$900,703,505)............................ $ 900,703,505
Cash....................................... 9,189
Receivable for capital stock sold.......... 13,716,886
Interest receivable........................ 7,056,910
--------------
Total Assets............................. 921,486,490
--------------
LIABILITIES
Payable to investment adviser.............. 912,487
Payable for capital stock repurchased...... 305,381
Accrued expenses........................... 76,634
--------------
Total Liabilities........................ 1,294,502
--------------
NET ASSETS................................... $ 920,191,988
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 920,192
Paid-in capital, in excess of par........ 919,271,796
--------------
Net assets, December 31, 1998.............. $ 920,191,988
--------------
--------------
Net asset value and redemption price per
share, 92,019,199 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 10.00
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Interest................................... $ 45,708,673
---------------
EXPENSES
Investment advisory fee.................... 3,246,494
Accounting fees............................ 55,000
Shareholders' reports...................... 50,000
Audit fees and expenses.................... 8,500
Custodian expense.......................... 4,000
Directors' fees............................ 3,000
Legal fees................................. 800
Miscellaneous expenses..................... 4,800
---------------
Total expenses........................... 3,372,594
Less: custodian fee credit................. (7,309)
---------------
Net expenses............................. 3,365,285
---------------
NET INVESTMENT INCOME...................... 42,343,388
NET REALIZED GAIN ON INVESTMENTS............. 16,489
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 42,359,877
---------------
---------------
</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.................................................................. $ 42,343,388 $ 35,214,538
Net realized gain on investments....................................................... 16,489 13,511
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 42,359,877 35,228,049
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (42,343,388) (35,214,538)
Distributions from net realized capital gains.......................................... (16,489) (13,511)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (42,359,877) (35,228,049)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [76,618,642 and 22,888,771 shares, respectively].................... 766,186,419 228,887,710
Capital stock issued in reinvestment of dividends and distributions [4,235,988 and
3,522,805 shares, respectively]....................................................... 42,359,877 35,228,049
Capital stock repurchased [(54,581,645) and (27,542,174) shares, respectively]......... (545,816,448) (275,421,740)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS.............. 262,729,848 (11,305,981)
------------------ -------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................................. 262,729,848 (11,305,981)
NET ASSETS:
Beginning of year...................................................................... 657,462,140 668,768,121
------------------ -------------------
End of year............................................................................ $ 920,191,988 $ 657,462,140
------------------ -------------------
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
DIVERSIFIED BOND PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$1,093,359,976).......................... $1,107,781,086
Cash....................................... 384
Interest receivable........................ 15,816,923
Receivable for capital stock sold.......... 556,662
--------------
Total Assets............................. 1,124,155,055
--------------
LIABILITIES
Payable to investment adviser.............. 1,074,849
Payable for capital stock sold............. 398,036
Accrued expenses........................... 108,467
--------------
Total Liabilities........................ 1,581,352
--------------
NET ASSETS................................... $1,122,573,703
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,015,413
Paid-in capital, in excess of par........ 1,105,810,493
--------------
1,106,825,906
Accumulated net realized gains on
investments.............................. 1,326,687
Net unrealized appreciation on
investments.............................. 14,421,110
--------------
Net assets, December 31, 1998.............. $1,122,573,703
--------------
--------------
Net asset value and redemption price per
share, 101,541,324 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 11.06
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Interest................................... $ 64,715,464
---------------
EXPENSES
Investment advisory fee.................... 3,782,116
Accounting fees............................ 86,000
Shareholders' reports...................... 85,000
Custodian expense.......................... 38,000
Audit fees................................. 12,000
Legal fees and expenses.................... 4,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 5,700
---------------
Total expenses........................... 4,015,816
Less custodian fee credit.................. (11,022)
---------------
Net expenses............................. 4,004,794
---------------
NET INVESTMENT INCOME........................ 60,710,670
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments.............................. 2,828,534
Futures.................................. (1,344,416)
---------------
1,484,118
---------------
Net change in unrealized appreciation on:
Investments.............................. 1,774,509
Futures contracts........................ 463,469
---------------
2,237,978
---------------
NET GAIN ON INVESTMENTS...................... 3,722,096
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 64,432,766
---------------
---------------
</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.................................................................. $ 60,710,670 $ 53,531,495
Net realized gain on investments....................................................... 1,484,118 9,194,921
Net change in unrealized appreciation (depreciation) on investments.................... 2,237,978 (2,230,780)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 64,432,766 60,495,636
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (60,939,829) (55,359,529)
Distributions from net realized capital gains.......................................... (3,466,261) (9,016,752)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (64,406,090) (64,376,281)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [29,994,210 and 11,468,488 shares, respectively].................... 334,707,738 127,691,138
Capital stock issued in investment of dividends and distributions [5,809,428 and
5,812,573 shares, respectively]....................................................... 64,406,090 64,376,281
Capital stock repurchased [(8,361,173) and (8,269,292) shares, respectively]........... (93,273,532) (91,696,624)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS..................... 305,840,296 100,370,795
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 305,866,972 96,490,150
NET ASSETS:
Beginning of year...................................................................... 816,706,731 720,216,581
------------------ -------------------
End of year(a)......................................................................... $ 1,122,573,703 $ 816,706,731
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ -- $ 229,159
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<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.
32
<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.
33
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
HIGH YIELD BOND PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$854,146,463)............................ $ 774,702,884
Cash....................................... 584
Interest and dividends receivable.......... 16,618,373
Receivable for investments sold............ 227,009
--------------
Total Assets............................. 791,548,850
--------------
LIABILITIES
Payable to investment adviser.............. 1,042,407
Payable for investments purchased.......... 814,187
Payable for capital stock repurchased...... 293,998
Accrued expenses........................... 77,287
--------------
Total Liabilities........................ 2,227,879
--------------
NET ASSETS................................... $ 789,320,971
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,095,439
Paid-in capital, in excess of par........ 873,911,034
--------------
875,006,473
Undistributed net investment income........ 2,179,668
Accumulated net realized loss on
investments.............................. (8,421,591)
Net unrealized depreciation on
investments.............................. (79,443,579)
--------------
Net assets, December 31, 1998.............. $ 789,320,971
--------------
--------------
Net asset value and redemption price per
share, 109,543,936 outstanding shares of
common stock (authorized 125,000,000
shares).................................. $ 7.21
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Interest................................... $ 69,885,220
Dividends.................................. 5,241,487
---------------
75,126,707
---------------
EXPENSES
Investment advisory fee.................... 3,782,134
Accounting fees............................ 145,000
Shareholders' reports...................... 70,000
Custodian expense.......................... 12,000
Audit fees................................. 9,000
Directors' fees............................ 3,000
Legal fees................................. 1,000
Miscellaneous expenses..................... 5,200
---------------
Total expenses........................... 4,027,334
Less: custodian fee credit................. (60,989)
---------------
Net expenses............................. 3,966,345
---------------
NET INVESTMENT INCOME........................ 71,160,362
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on investments........... (2,031,112)
Net change in unrealized depreciation on
investments.............................. (90,371,730)
---------------
NET LOSS ON INVESTMENTS...................... (92,402,842)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (21,242,480)
---------------
---------------
</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.................................................................. $ 71,160,362 $ 47,675,767
Net realized gain (loss) on investments................................................ (2,031,112) 15,354,840
Net change in unrealized depreciation on investments................................... (90,371,730) (144,633)
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (21,242,480) 62,885,974
------------------ -------------------
DIVIDENDS
Dividends from net investment income................................................... (69,715,948) (47,277,841)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [42,524,544 and 18,324,520 shares, respectively].................... 336,104,252 149,154,244
Capital stock issued in reinvestment of dividends and distributions [9,210,712 and
5,847,594 shares, respectively]....................................................... 69,715,948 47,277,841
Capital stock repurchased [(12,010,426) and (9,372,701) shares, respectively].......... (94,215,879) (76,232,015)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 311,604,321 120,200,070
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 220,645,893 135,808,203
NET ASSETS:
Beginning of year...................................................................... 568,675,078 432,866,875
------------------ -------------------
End of year (a)........................................................................ $ 789,320,971 $ 568,675,078
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 2,179,668 $ 735,254
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
STOCK INDEX PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$1,918,971,738).......................... $3,544,514,168
Cash....................................... 509
Receivable for capital stock sold.......... 6,715,386
Interest and dividends receivable.......... 3,677,152
Receivable for investments sold............ 551,105
Due from broker -- variation margin........ 246,890
--------------
Total Assets............................. 3,555,705,210
--------------
LIABILITIES
Payable for investments purchased.......... 3,914,541
Payable to investment adviser.............. 2,807,611
Payable for capital stock repurchased...... 630,555
Accrued expenses........................... 263,513
--------------
Total Liabilities........................ 7,616,220
--------------
NET ASSETS................................... $3,548,088,990
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 940,173
Paid-in capital, in excess of par........ 1,907,227,882
--------------
1,908,168,055
Accumulated net realized gain on
investments.............................. 9,773,130
Net unrealized appreciation on
investments.............................. 1,630,147,805
--------------
Net assets, December 31, 1998.............. $3,548,088,990
--------------
--------------
Net asset value and redemption price per
share, 94,017,271 outstanding shares of
common stock (authorized 125,000,000
shares).................................. $ 37.74
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $250,942 foreign
withholding tax)......................... $ 42,313,155
Interest................................... 5,376,488
---------------
47,689,643
---------------
EXPENSES
Investment advisory fee.................... 10,279,903
Shareholders' reports...................... 335,000
Custodian expense.......................... 142,000
Accounting fees............................ 107,000
Audit fees and expenses.................... 40,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 14,000
---------------
Total expenses........................... 10,920,903
Less: custodian fee credit................. (2,914)
---------------
Net expenses............................. 10,917,989
---------------
NET INVESTMENT INCOME........................ 36,771,654
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on:
Investments.............................. 52,786,455
Futures contracts........................ 4,678,758
---------------
57,465,213
---------------
Net change in unrealized appreciation on:
Investments.............................. 640,594,646
Futures contracts........................ 4,097,025
---------------
644,691,671
---------------
NET GAIN ON INVESTMENTS...................... 702,156,884
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 738,928,538
---------------
---------------
</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.................................................................. $ 36,771,654 $ 31,459,576
Net realized gain on investments....................................................... 57,465,213 74,021,385
Net change in unrealized appreciation on investments................................... 644,691,671 451,562,975
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 738,928,538 557,043,936
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (37,075,916) (31,155,314)
Distributions from net realized capital gains.......................................... (53,566,202) (67,389,823)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (90,642,118) (98,545,137)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [21,945,962 and 17,248,797 shares, respectively].................... 739,810,425 484,303,403
Capital stock issued in reinvestment of dividends and distributions [2,541,175 and
3,309,920 shares, respectively]....................................................... 90,642,118 98,545,137
Capital stock repurchased [(11,483,263) and (6,144,732) shares, respectively].......... (378,841,199) (174,536,420)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 451,611,344 408,312,120
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 1,099,897,764 866,810,919
NET ASSETS:
Beginning of year...................................................................... 2,448,191,226 1,581,380,307
------------------ -------------------
End of year (a)........................................................................ $ 3,548,088,990 $ 2,448,191,226
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ -- $ 304,262
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY INCOME PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$1,945,300,102).......................... $2,185,867,351
Cash....................................... 5,397
Interest and dividends receivable.......... 6,371,174
Receivable for investments sold............ 3,349,741
Receivable for capital stock sold.......... 162,523
Receivable for securities lending, net..... 5,590
--------------
Total Assets............................. 2,195,761,776
--------------
LIABILITIES
Collateral for securities on loan.......... 49,079,500
Payable to investment adviser.............. 2,120,498
Payable for capital stock repurchased...... 2,050,465
Accrued expenses........................... 190,498
--------------
Total Liabilities........................ 53,440,961
--------------
NET ASSETS................................... $2,142,320,815
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 1,069,398
Paid-in capital, in excess of par........ 1,863,673,204
--------------
1,864,742,602
Undistributed net investment income........ 1,987,561
Accumulated net realized gains on
investments.............................. 35,023,403
Net unrealized appreciation on
investments.............................. 240,567,249
--------------
Net assets, December 31, 1998.............. $2,142,320,815
--------------
--------------
Net asset value and redemption price per
share, 106,939,774 outstanding shares of
common stock (authorized 150,000,000
shares).................................. $ 20.03
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $907,584 foreign
withholding tax)......................... $ 60,602,958
Interest................................... 4,893,474
Income from securities loaned, net......... 14,493
---------------
65,510,925
---------------
EXPENSES
Investment advisory fee.................... 8,830,161
Shareholders' reports...................... 222,000
Custodian expense.......................... 110,000
Accounting fees............................ 100,000
Audit fees................................. 26,300
Directors' fees............................ 3,000
Legal fees................................. 100
Miscellaneous expenses..................... 11,800
---------------
Total expenses........................... 9,303,361
Less: custodian fee credit................. (4,923)
---------------
Net expenses............................. 9,298,438
---------------
NET INVESTMENT INCOME........................ 56,212,487
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 129,490,381
Net change in unrealized appreciation on
investments.............................. (258,928,963)
---------------
NET LOSS ON INVESTMENTS...................... (129,438,582)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ (73,226,095)
---------------
---------------
</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.................................................................. $ 56,212,487 $ 47,850,376
Net realized gain on investments....................................................... 129,490,381 209,283,667
Net change in unrealized appreciation on investments................................... (258,928,963) 251,369,014
------------------ -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ (73,226,095) 508,503,057
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (58,670,537) (43,537,704)
Distributions from net realized capital gains.......................................... (129,895,659) (179,961,221)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (188,566,196) (223,498,925)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [17,968,538 and 11,266,195 shares, respectively].................... 414,994,376 253,831,217
Capital stock issued in reinvestment of dividends and distributions [8,899,832 and
10,153,692 shares, respectively]...................................................... 188,566,196 223,498,925
Capital stock repurchased [(10,593,789) and (4,416,916) shares, respectively].......... (229,203,355) (96,053,000)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 374,357,217 381,277,142
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 112,564,926 666,281,274
NET ASSETS:
Beginning of year...................................................................... 2,029,755,889 1,363,474,615
------------------ -------------------
End of year (a)........................................................................ $ 2,142,320,815 $ 2,029,755,889
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 1,987,561 $ 4,445,611
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$4,767,976,521).......................... $6,250,695,797
Interest and dividends receivable.......... 12,414,416
Receivable for capital stock sold.......... 128,574
--------------
Total Assets............................. 6,263,238,787
--------------
LIABILITIES
Bank overdraft............................. 319
Payable for capital stock repurchased...... 8,881,940
Payable to investment adviser.............. 6,806,202
Accrued expenses........................... 503,692
--------------
Total Liabilities........................ 16,192,153
--------------
NET ASSETS................................... $6,247,046,634
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 2,107,865
Paid-in capital, in excess of par........ 4,649,464,292
--------------
4,651,572,157
Undistributed net investment income........ 109,952
Accumulated net realized gains on
investments.............................. 112,645,380
Net unrealized appreciation on investments
and foreign currencies................... 1,482,719,145
--------------
Net assets, December 31, 1998.............. $6,247,046,634
--------------
--------------
Net asset value and redemption price per
share, 210,786,528 outstanding shares of
common stock (authorized 250,000,000
shares).................................. $ 29.64
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $1,413,190 foreign
withholding tax)......................... $ 92,432,542
Interest................................... 51,526,104
---------------
143,958,646
---------------
EXPENSES
Investment advisory fee.................... 28,389,539
Shareholders' reports...................... 492,000
Custodian expense.......................... 380,000
Accounting fees............................ 122,000
Audit fees and expenses.................... 85,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 30,800
---------------
Total expenses........................... 29,502,339
Less: custodian fee credit................. (23,575)
---------------
Net expenses............................. 29,478,764
---------------
NET INVESTMENT INCOME........................ 114,479,882
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on:
Investments.............................. 766,376,440
Foreign currencies....................... 105,151
---------------
766,481,591
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. (344,088,795)
Foreign currencies....................... 13,886
---------------
(344,074,909)
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 422,406,682
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 536,886,564
---------------
---------------
</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.................................................................. $ 114,479,882 $ 125,326,195
Net realized gain on investments and foreign currencies................................ 766,481,591 320,958,795
Net change in unrealized appreciation (depreciation) on investments and foreign
currencies............................................................................ (344,074,909) 744,788,889
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 536,886,564 1,191,073,879
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (115,394,083) (127,895,464)
Distributions from net realized capital gains.......................................... (684,800,016) (322,171,256)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (800,194,099) (450,066,720)
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Capital stock sold [12,676,785 and 12,471,611 shares, respectively].................... 418,548,498 381,942,219
Capital stock issued in reinvestment of dividends and distributions [27,106,415 and
14,665,432 shares, respectively]...................................................... 800,194,099 450,066,720
Capital stock repurchased [(22,886,073) and (11,771,942) shares, respectively]......... (732,368,459) (363,005,143)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL STOCK TRANSACTIONS................... 486,374,138 469,003,796
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 223,066,603 1,210,010,955
NET ASSETS:
Beginning of year...................................................................... 6,023,980,031 4,813,969,076
------------------ -------------------
End of year (a)........................................................................ $ 6,247,046,634 $ 6,023,980,031
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ 109,952 $ 919,002
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL JENNISON PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$886,742,260)............................ $1,204,377,523
Receivable for capital stock sold.......... 2,113,426
Receivable for investments sold............ 1,677,844
Interest and dividends receivable.......... 517,449
--------------
Total Assets............................. 1,208,686,242
--------------
LIABILITIES
Payable for investments purchased.......... 1,812,726
Payable to investment adviser.............. 1,459,546
Accrued expenses........................... 96,554
Payable for capital stock repurchased...... 6,588,081
--------------
Total Liabilities........................ 9,956,907
--------------
NET ASSETS................................... $1,198,729,335
--------------
--------------
Net assets were comprised of:
Common stock, at $.01 par value.......... $ 501,398
Paid-in capital, in excess of par........ 870,373,753
--------------
870,875,151
Accumulated net realized gains on
investments.............................. 10,218,921
Net unrealized appreciation on
investments.............................. 317,635,263
--------------
Net assets, December 31, 1998.............. $1,198,729,335
--------------
--------------
Net asset value and redemption price per
share, 50,139,795 outstanding shares of
common stock (authorized 75,000,000
shares).................................. $ 23.91
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $38,690 foreign
withholding tax)......................... $ 5,032,093
Interest................................... 1,399,831
---------------
6,431,924
---------------
EXPENSES
Investment advisory fee.................... 4,662,187
Shareholders' reports...................... 125,000
Accounting fees............................ 81,000
Custodian expense.......................... 20,000
Audit fees and expenses.................... 14,000
Directors' fees............................ 3,000
Legal fees................................. 1,000
Miscellaneous expenses..................... 5,200
---------------
Total expenses........................... 4,911,387
Less: custodian fee credit................. (7,533)
---------------
Net expenses............................. 4,903,854
---------------
NET INVESTMENT INCOME........................ 1,528,070
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investments........... 24,429,896
Net change in unrealized appreciation on
investments.............................. 237,742,766
---------------
NET GAIN ON INVESTMENTS...................... 262,172,662
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 263,700,732
---------------
---------------
</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.................................................................. $ 1,528,070 $ 871,876
Net realized gain on investments....................................................... 24,429,896 33,000,406
Net change in unrealized appreciation on investments................................... 237,742,766 54,234,653
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 263,700,732 88,106,935
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (1,629,850) (832,883)
Distributions from net realized capital gains.......................................... (17,069,906) (27,048,964)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (18,699,756) (27,881,847)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [30,113,536 and 12,593,772 shares, respectively].................... 619,908,140 218,245,522
Capital stock issued in reinvestment of dividends and distributions [849,914 and
1,607,079 shares, respectively]....................................................... 18,699,756 27,881,847
Capital stock repurchased [(8,792,029) and (1,044,246) shares, respectively]........... (180,816,656) (17,547,320)
Initial capitalization repurchased [-0- and (1,004,760) shares, respectively].......... -- (19,411,166)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 457,791,240 209,168,883
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 702,792,216 269,393,971
NET ASSETS:
Beginning of year...................................................................... 495,937,119 226,543,148
------------------ -------------------
End of year(a)......................................................................... $ 1,198,729,335 $ 495,937,119
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ -- $ 101,780
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
GLOBAL PORTFOLIO
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<S> <C>
ASSETS
Investments, at value (cost:
$589,592,454)............................ $ 831,023,491
Foreign currency, at value (cost:
$17,499,873)............................. 17,371,833
Receivable for investments sold............ 4,254,046
Dividends and interest receivable.......... 552,684
Receivable for capital stock sold.......... 40,732
--------------
Total Assets............................. 853,242,786
--------------
LIABILITIES
Forward currency contracts -- amount
payable to counterparties................ 3,828,254
Payable for investments purchased.......... 2,897,332
Payable to investment adviser.............. 1,418,703
Payable for capital stock repurchased...... 327,774
Accrued expenses and other liabilities..... 226,668
Bank overdraft............................. 2,096
--------------
Total Liabilities........................ 8,700,827
--------------
NET ASSETS................................... $ 844,541,959
--------------
--------------
Net assets were comprised of:
Common stock, at $0.01 par value......... $ 399,149
Paid-in capital, in excess of par........ 610,100,715
--------------
610,499,864
Distributions in excess of net investment
income................................... (8,644,128)
Accumulated net realized gains on
investments.............................. 5,209,641
Net unrealized appreciation on investments
and foreign currencies................... 237,476,582
--------------
Net assets, December 31, 1998.............. $ 844,541,959
--------------
--------------
Net asset value and redemption price per
share of 39,914,867 outstanding shares of
common stock (authorized 75,000,000
shares).................................. $ 21.16
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
December 31, 1998
<S> <C>
INVESTMENT INCOME
Dividends (net of $541,282 foreign
withholding tax)......................... $ 6,673,826
Interest................................... 1,452,097
---------------
8,125,923
---------------
EXPENSES
Investment advisory fee.................... 5,342,945
Custodian expense.......................... 446,000
Accounting fees............................ 244,000
Shareholders' reports...................... 37,000
Audit fees and expenses.................... 6,000
Directors' fees............................ 3,000
Miscellaneous expenses..................... 3,761
---------------
Total expenses........................... 6,082,706
---------------
NET INVESTMENT INCOME........................ 2,043,217
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain on:......................
Investments.............................. 40,877,802
Foreign currencies....................... 219,287
---------------
41,097,089
---------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 125,305,318
Foreign currencies....................... (4,159,978)
---------------
121,145,340
---------------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCIES................................... 162,242,429
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... $ 164,285,646
---------------
---------------
</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.................................................................. $ 2,043,217 $ 3,060,617
Net realized gain on investments and foreign currencies................................ 41,097,089 31,027,057
Net change in unrealized appreciation on investments and foreign currencies............ 121,145,340 5,107,643
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................... 164,285,646 39,195,317
------------------ -------------------
DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income................................................... (5,559,015) (4,377,947)
Distributions in excess of net investment income....................................... (4,481,373) (3,434,778)
Distributions from net realized capital gains.......................................... (35,181,433) (30,337,530)
------------------ -------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................................... (45,221,821) (38,150,255)
------------------ -------------------
CAPITAL TRANSACTIONS:
Capital stock sold [9,626,530 and 5,853,862 shares, respectively]...................... 191,039,953 111,692,563
Capital stock issued in reinvestment of dividends and distributions [2,231,010 and
2,115,902 shares, respectively]....................................................... 45,221,821 38,150,255
Capital stock repurchased [(7,562,638) and (4,869,453) shares, respectively]........... (149,184,992) (93,116,567)
------------------ -------------------
NET INCREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS......................... 87,076,782 56,726,251
------------------ -------------------
TOTAL INCREASE IN NET ASSETS............................................................. 206,140,607 57,771,313
NET ASSETS:
Beginning of year...................................................................... 638,401,352 580,630,039
------------------ -------------------
End of year (a)........................................................................ $ 844,541,959 $ 638,401,352
------------------ -------------------
------------------ -------------------
(a) Includes undistributed net investment income of:................................... $ -- $ 3,515,798
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<S> <C> <C> <C> <C>
BANK NOTES -- 6.0%
FCC National Bank (a)........................... 5.19% 01/15/99 $ 5,000 $ 5,000,000
Key Bank, N.A. (a).............................. 5.33% 01/13/99 1,000 1,000,018
Key Bank, N.A. (a).............................. 4.67% 01/29/99 3,000 2,999,878
Key Bank, N.A. (a).............................. 4.65% 03/18/99 9,000 8,998,914
Nationsbank Corp. (a)........................... 5.05% 02/16/99 29,000 29,000,000
Nationsbank Corp. (a)........................... 5.27% 07/01/99 8,000 7,997,416
--------------
54,996,226
--------------
CERTIFICATE OF DEPOSIT-DOMESTIC -- 3.3%
Chase Manhattan Bank (U.S.A.) Delaware.......... 5.25% 02/08/99 30,000 30,000,000
--------------
30,000,000
--------------
CERTIFICATES OF DEPOSIT-YANKEE -- 21.0%
Abbey National Treasury Services, PLC........... 5.25% 01/20/99 25,000 25,000,000
Barclays Bank PLC............................... 5.56% 02/25/99 5,000 4,999,566
Barclays Bank PLC (a)........................... 5.49% 06/02/99 21,000 20,993,088
Bayerische Hypo Und Wechsel Bank................ 5.68% 03/03/99 3,000 2,999,784
Bayerische Landesbank Girozentrale (a).......... 5.09% 03/23/99 20,000 19,996,337
Bayerische Landesbank Girozentrale (a).......... 5.49% 06/30/99 20,000 19,992,110
Canadian Imperial Bank of Commerce.............. 5.55% 2/10/99 15,000 14,999,211
Canadian Imperial Bank of Commerce.............. 5.69% 3/10/99 7,000 6,999,066
Canadian Imperial Bank of Commerce.............. 5.71% 3/30/99 4,000 3,999,123
Commerzbank, AG................................. 5.67% 03/05/99 4,000 4,001,966
Credit Agricole Indosuez........................ 5.74% 04/26/99 3,000 2,999,457
Deutsche Bank................................... 5.55% 02/25/99 10,000 9,999,278
Deutsche Bank................................... 5.66% 03/03/99 5,000 4,999,600
Deutsche Bank................................... 5.64% 03/22/99 5,000 4,999,370
Rabobank Nederland.............................. 5.50% 02/09/99 13,000 12,998,934
Royal Bank of Canada (a)........................ 5.47% 08/06/99 14,000 13,994,339
Swiss Bank Corp................................. 5.74% 06/11/99 20,000 19,994,931
--------------
193,966,161
--------------
COMMERCIAL PAPER -- 45.5%
Aetna Services, Inc............................. 5.50% 01/15/99 4,000 3,991,444
American General Finance Corp................... 5.22% 02/17/99 6,000 5,959,110
American Honda Finance Corp..................... 5.25% 02/10/99 2,852 2,835,363
American Honda Finance Corp..................... 5.27% 02/11/99 27,366 27,201,751
Aon Corp........................................ 5.30% 02/23/99 3,000 2,976,592
Aon Corp........................................ 5.28% 02/26/99 16,000 15,868,587
Aristar, Inc.................................... 5.25% 02/05/99 7,194 7,157,281
Association Corp. of North America.............. 5.03% 02/02/99 24,020 23,912,604
Association Corp. of North America.............. 5.05% 02/10/99 12,955 12,882,308
Association Corp. of North America.............. 5.11% 03/09/99 5,000 4,952,449
Bank of Montreal................................ 5.12% 2/18/99 10,000 9,931,707
Bank of New York Co., Inc....................... 5.10% 01/14/99 3,000 2,994,475
BBL North America............................... 5.33% 01/29/99 15,000 14,937,817
Bradford & Bingley Building Society............. 5.20% 02/02/99 23,257 23,149,501
Centric Capital Corp............................ 5.35% 01/27/99 2,100 2,091,886
Centric Capital Corp............................ 5.20% 03/02/99 3,398 3,368,551
Chrysler Financial Corp......................... 5.09% 01/29/99 32,000 31,873,316
Cregem North America............................ 4.90% 03/29/99 15,000 14,822,375
Falcon Asset Securitization Corp................ 5.43% 02/17/99 4,000 3,971,643
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
MONEY MARKET PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
------ -------- --------- --------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONT'D.)
Ford Motor Credit Corp.......................... 5.40% 01/14/99 $ 10,000 $ 10,000,000
Ford Motor Credit Corp.......................... 5.20% 02/19/99 2,000 1,985,844
General Electric Capital Corp................... 5.10% 02/19/99 15,000 14,895,875
General Motors Acceptance Corp.................. 5.19% 01/26/99 5,000 4,981,979
General Motors Acceptance Corp.................. 5.06% 01/29/99 20,000 19,921,289
General Motors Acceptance Corp.................. 5.12% 03/19/99 9,000 8,901,440
Monte Rosa Capital Corp......................... 5.40% 01/29/99 2,531 2,520,370
Monte Rosa Capital Corp......................... 5.46% 02/19/99 19,000 18,858,798
Monte Rosa Capital Corp......................... 5.30% 02/22/99 6,530 6,480,009
Nationwide Building Society..................... 5.06% 03/01/99 3,000 2,975,122
Nationwide Building Society..................... 5.11% 03/09/99 2,000 1,980,979
Norwest Financial, Inc.......................... 5.23% 03/04/99 5,000 4,954,964
Old Line Funding Corp........................... 5.40% 01/14/99 10,000 9,980,500
Old Line Funding Corp........................... 5.37% 01/29/99 4,000 3,983,293
Old Line Funding Corp........................... 5.40% 02/25/99 6,000 5,950,500
Petrofina Delaware, Inc......................... 5.05% 01/29/99 8,220 8,187,714
PNC Funding Corp................................ 5.20% 02/22/99 1,000 992,489
Preferred Receivables Funding Corp.............. 5.40% 02/16/99 2,000 1,986,200
Salomon Smith Barney Holdings, Inc.............. 5.31% 02/16/99 17,048 16,932,329
Toronto Dominion Holdings....................... 4.90% 06/08/99 10,000 9,784,944
UBS Finance (Delaware).......................... 5.22% 01/15/99 10,000 9,979,704
UBS Finance (Delaware).......................... 5.07% 01/28/99 13,840 13,787,342
Unifunding, Inc................................. 5.23% 02/05/99 4,000 3,979,661
Windmill Funding Corp........................... 5.40% 01/28/99 10,000 9,959,500
Windmill Funding Corp........................... 5.75% 01/29/99 9,930 9,885,591
--------------
418,725,196
--------------
DISCOUNT NOTE -- 1.6%
Federal Home Loan Mortgage Association.......... 4.93% 03/26/99 15,152 14,977,701
--------------
14,977,701
--------------
LOAN PARTICIPATIONS -- 1.5%
Baker Hughes, Inc............................... 5.70% 01/29/99 8,000 8,000,000
Marsh & Mclennan Co............................. 5.38% 02/24/99 5,716 5,716,000
--------------
13,716,000
--------------
OTHER CORPORATE OBLIGATIONS -- 19.0%
Abbey National Treasury Services, PLC........... 5.50% 02/05/99 3,000 2,999,776
Abbey National Treasury Services, PLC........... 5.72% 06/11/99 14,000 13,995,269
Bishops Gate Residential Mortgage (a)........... 5.75% 11/22/99 6,000 6,000,000
Chrysler Financial Corp. (a).................... 5.53% 03/11/99 15,000 15,000,409
General Electric Capital Corp. (a).............. 5.50% 06/04/99 15,000 14,992,456
General Motors Acceptance Corp. (a)............. 5.20% 02/02/99 10,000 9,999,745
Goldman Sachs Group L.P. (a).................... 5.07% 06/04/01 30,000 30,000,000
Liquid Asset Backed Security Trust 1998-1 (a)... 5.63% 02/26/99 4,335 4,334,658
Morgan (J.P.) & Co., Inc. (a)................... 5.21% 04/05/99 1,000 999,908
Restructured Asset Securities Enhanced Return
(a)........................................... 5.63% 03/31/99 2,000 2,000,000
Restructured Asset Securities Enhanced Return
(a)........................................... 5.61% 09/02/99 19,000 19,000,000
Restructured Asset Securities Enhanced Return
(a)........................................... 5.68% 01/21/00 16,000 16,000,000
SMM Trust Notes 1995-Q (a)...................... 5.32% 12/15/99 27,000 27,000,000
Short Term Restructured Assets.................. 5.55% 08/18/99 12,000 12,000,000
--------------
174,322,221
--------------
TOTAL INVESTMENTS -- 97.9%
(amortized cost $900,703,505; (b))............................................ 900,703,505
--------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.1%................................... 19,488,483
--------------
TOTAL NET ASSETS -- 100.0%...................................................... $ 920,191,988
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
MONEY MARKET PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
The following abbreviations are used in portfolio descriptions:
AG Aktiengesellschaft (German Stock Company)
PLC Public Limited Company (British Corporation)
(a) Indicates a variable rate security. The maturity date presented for these
instruments is the later of the next date on which the security can be
redeemed at par or the next date on which the rate of interest is adjusted.
The interest rate shown reflects the rate in effect at December 31, 1998.
(b) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
The industry classification of portfolio holdings and other
assets in excess of liabilities shown as a percentage of net
assets as of December 31, 1998 was as follows:
Commercial Banks 48.0%
Motor Vehicle Parts 14.3%
Asset Backed Securities 10.5%
Personal Credit 6.4%
Security Brokers & Dealers 5.0%
Short-Term Business Credit 4.9%
Accidental/Health Insurance 2.5%
Bank Holding Company U.S. 2.0%
Federal Credit Agencies 1.5%
Crude Petroleum & Natural Gas 0.8%
Construction 0.9%
Insurance 0.6%
Surety Insurance 0.5%
---------
97.9%
Other assets in excess of liabilities 2.1%
---------
100.0%
---------
---------
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
DIVERSIFIED BOND PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 95.9% MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS -- 95.0% (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 2.5%
Boeing Co.,..................................... Aa3 8.75% 08/15/21 $ 6,250 $ 7,910,250
Raytheon Co.,................................... Baa1 5.95% 03/15/01 6,500 6,557,070
Raytheon Co.,................................... Baa1 6.40% 12/15/18 9,500 9,428,750
Raytheon Co.,................................... Baa1 7.00% 11/01/28 3,550 3,737,511
--------------
27,633,581
--------------
AIRLINES -- 2.6%
Continental Airlines, Inc.,..................... Ba2 8.00% 12/15/05 8,000 7,904,800
Delta Air Lines, Inc.,.......................... Ba1 9.875% 05/15/00 6,000 6,298,320
United Airlines, Inc.,.......................... Baa3 10.67% 05/01/04 7,000 8,282,400
United Airlines, Inc.,.......................... Baa3 11.21% 05/01/14 5,000 6,566,000
--------------
29,051,520
--------------
ASSET-BACKED SECURITIES -- 1.7%
Advanta Mortgage Loan Trust, Series 1994-3,..... Aaa 8.49% 01/25/26 8,500 8,728,091
Airplanes Pass Through Trust,................... Ba2 10.875% 03/15/19 6,000 6,300,000
California Infrastructure PG&E, Series
1997-1,....................................... NR 6.32% 09/25/05 4,000 4,117,500
--------------
19,145,591
--------------
AUTO-CARS & TRUCKS -- 0.7%
Navistar International Corp.,................... Ba1 7.00% 02/01/03 3,500 3,500,547
Navistar International Corp.,................... Ba3 8.00% 02/01/08 4,500 4,578,750
--------------
8,079,297
--------------
BANKS AND SAVINGS & LOANS -- 4.5%
Banco de Commercio Exterior de Columbia, SA,
M.T.N., (Colombia)............................ NR 8.625% 06/02/00 2,000 1,960,000
Banco Ganadero, SA, M.T.N., (Colombia).......... NR 9.75% 08/26/99 4,100 4,079,500
Bayerische Landesbank Girozentrale, (Germany)... Aaa 5.875% 12/01/08 10,000 10,224,000
Capital One Bank,............................... Baa3 7.08% 10/30/01 5,000 5,027,850
Chase Manhattan Corp.,.......................... A2 8.00% 06/15/99 2,000 2,023,940
Chase Manhattan Corp............................ A2 6.625% 08/15/05 2,000 2,083,040
Compass Trust Bank,............................. A3 8.23% 01/15/27 4,500 4,820,625
International Bank for Reconstruction and
Development, (Supranational).................. Aaa 12.375% 10/15/02 750 938,527
Kansallis-Osake Pankki, (Finland)............... Baa1 8.65% 01/01/49 5,000 5,073,600
Kansallis-Osake Pankki, (Finland)............... Baa1 10.00% 05/01/02 5,000 5,621,000
National Australia Bank, (Australia)............ A1 6.40% 12/10/07 3,700 3,774,000
Skandinaviska Enskilda Bank, (Sweden)........... Baa1 7.50% 03/29/49 5,000 4,941,400
--------------
50,567,482
--------------
CABLE & PAY TELEVISION SYSTEMS -- 2.4%
Cable & Wire Communications PLC (United
Kingdom)...................................... Baa1 6.75% 12/01/08 6,400 6,524,160
Rogers Cablesystems, Inc., (Canada)............. Ba3 10.00% 03/15/05 4,000 4,480,000
Tele-Communications, Inc.,...................... Ba1 6.34% 02/01/02 3,500 3,584,875
Tele-Communications, Inc.,...................... Ba1 6.375% 09/15/99 2,750 2,769,332
Tele-Communications, Inc.,...................... Baa3 10.125% 04/15/22 6,300 9,114,021
--------------
26,472,388
--------------
COMPUTER SOFTWARE & SERVICES -- 0.5%
Computer Associates International, Inc.,........ Baa1 6.375% 04/15/05 5,300 5,245,092
--------------
DIVERSIFIED CONSUMER PRODUCT -- 1.3%
Owens-Illinois, Inc.,........................... Ba1 7.50% 05/15/10 5,000 5,095,100
Philip Morris Cos., Inc.,....................... A2 6.15% 03/15/10 10,000 10,083,000
--------------
15,178,100
--------------
DRUGS & MEDICAL SUPPLIES -- 0.3%
Mallinckrodt, Inc............................... Baa2 6.30% 03/15/11 3,500 3,445,969
--------------
FINANCIAL SERVICES -- 14.3%
Advanta Corp., M.T.N............................ Ba2 7.25% 08/16/99 10,000 9,920,500
Aristar, Inc.,.................................. Baa1 7.50% 07/01/99 2,000 2,021,040
Arkwright Corp.,................................ Baa3 9.625% 08/15/26 5,000 5,980,500
Associates Corp.,............................... Aa3 6.95% 11/01/18 8,000 8,524,640
AT&T Capital Corp,.............................. Baa3 7.50% 11/15/00 10,000 10,122,400
Calair Capital Corp.,........................... Ba2 8.125% 04/01/08 3,000 2,933,850
Chrysler Financial Corp.,....................... A3 9.50% 12/15/99 5,000 5,196,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
FINANCIAL SERVICES (CONT'D.)
Comdisco Inc.,.................................. Baa1 6.32% 11/27/00 $ 10,000 $ $10,046,600
Conseco Inc.,................................... Baa2 6.40% 06/15/01 10,000 9,589,000
Conseco, Inc.,.................................. Ba2 8.70% 11/15/26 1,600 1,461,808
Conseco, Inc.,.................................. Ba2 8.796% 04/01/27 8,350 7,634,405
ContiFinancial Corp.,........................... Ba1 7.50% 03/15/02 12,900 9,030,000
ContiFinancial Corp.,........................... Ba1 8.125% 04/01/08 1,800 1,224,000
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa3 7.00% 06/15/00 9,000 9,038,430
Enterprise Rent-A-Car USA Finance Co., M.T.N.... Baa3 8.75% 12/15/99 3,000 3,072,210
Ford Motor Credit Co.,.......................... A1 5.75% 01/25/01 4,000 4,034,640
General Motors Acceptance Corp.,................ A2 5.75% 11/10/03 10,000 10,077,600
General Motors Acceptance Corp.,................ Baa1 8.40% 10/15/99 3,700 3,790,613
Household Finance,.............................. A2 6.50% 11/15/08 23,000 23,805,000
Interpool Capital Trust,........................ Ba2 9.875% 02/15/27 7,000 5,740,000
Nationwide CSN Trust,........................... Aa3 9.875% 02/15/25 5,000 6,267,200
PT Alatief Freeport Financial Co.,
(Netherlands)................................. Ba2 9.75% 04/15/01 5,750 4,140,000
Reliastar Financial Corp.,...................... A3 6.625% 09/15/03 5,000 5,031,000
Tokai Pfd Capital,.............................. Baa3 9.98% 12/29/49 2,300 1,932,000
--------------
160,613,536
--------------
FOOD & BEVERAGE -- 0.3%
Whitman Corp.,.................................. Baa2 7.50% 08/15/01 3,000 3,133,320
--------------
FOREST PRODUCTS -- 2.4%
Fort James Corp.,............................... Baa3 6.234% 03/15/01 5,000 5,047,050
Scotia Pacific Co.,............................. NR 7.11% 01/20/14 4,100 3,902,216
Scotia Pacific Co.,............................. NR 7.71% 01/20/14 12,200 10,929,736
Westvaco Corp.,................................. A1 9.75% 06/15/20 5,000 6,703,950
--------------
26,582,952
--------------
HOUSING RELATED -- 0.6%
American Standard Cos. Inc.,.................... Ba3 7.375% 04/15/05 2,100 2,069,319
Owens Corning,.................................. Baa3 7.50% 05/01/05 5,000 5,111,050
--------------
7,180,369
--------------
INDUSTRIAL -- 1.6%
Cendant Corp.,.................................. Baa1 7.75% 12/01/03 15,000 15,160,050
Compania Sud Americana de Vapores, SA,
(Chile)....................................... NR 7.375% 12/08/03 3,000 2,692,500
--------------
17,852,550
--------------
INVESTMENT BANKERS -- 5.3%
Lehman Brothers Holdings, Inc.,................. Baa1 6.40% 08/30/00 6,450 6,451,612
Merrill Lynch, Pierce, Fenner & Smith, Inc.,.... NR 5.40% 06/24/03 15,000 14,850,000
Merrill Lynch, Pierce, Fenner & Smith, Inc.,.... Aa3 6.875% 11/15/18 9,800 10,159,170
Morgan Stanley, Dean Witter Discover & Co.,
M.T.N......................................... A1 6.09% 03/09/11 6,500 6,586,775
Salomon, Inc.,.................................. Baa1 6.25% 10/01/99 8,000 8,054,320
Salomon, Inc.,.................................. NR 6.65% 07/15/01 7,000 7,166,320
Salomon, Inc., M.T.N............................ Baa1 6.59% 02/21/01 3,500 3,567,200
Salomon, Inc.,.................................. Baa1 7.25% 05/01/01 2,250 2,330,460
--------------
59,165,857
--------------
LEISURE & TOURISM -- 1.2%
Royal Caribbean Cruises Ltd.,................... Baa3 7.00% 10/15/07 8,000 8,011,120
Royal Caribbean Cruises Ltd.,................... Baa3 7.25% 08/15/06 5,000 5,081,900
--------------
13,093,020
--------------
LODGING -- 1.2%
ITT Corp.,...................................... Baa2 6.25% 11/15/00 7,000 6,753,180
ITT Corp.,...................................... Baa2 6.75% 11/15/03 7,000 6,445,810
--------------
13,198,990
--------------
MEDIA -- 7.7%
News America Holdings, Inc.,.................... Baa3 6.703% 05/21/04 36,000 36,697,320
Paramount Communications, Inc.,................. Ba2 7.50% 01/15/02 5,000 5,217,650
Time Warner, Inc.,.............................. Baa3 6.625% 05/15/29 19,000 19,331,740
Time Warner, Inc.,.............................. Ba1 8.11% 08/15/06 7,800 8,892,390
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
MEDIA (CONT'D.)
Turner Broadcasting System, Inc.,............... Ba1 7.40% 02/01/04 $ 13,500 $ $14,477,130
Viacom, Inc.,................................... Ba2 7.75% 06/01/05 1,450 1,573,004
--------------
86,189,234
--------------
OIL & GAS -- 1.5%
B.J. Services Co.,.............................. Ba1 7.00% 02/01/06 5,000 5,174,850
Occidental Petroleum Corp.,..................... Baa3 10.125% 11/15/01 5,000 5,466,800
Occidental Petroleum Corp.,..................... Baa3 11.125% 08/01/10 5,000 6,526,550
--------------
17,168,200
--------------
OIL & GAS SERVICES -- 3.0%
K N Energy, Inc.,............................... Baa2 6.30% 03/01/21 15,000 15,042,150
R&B Falcon Corp.,............................... Ba1 6.50% 04/15/03 8,600 7,811,552
R&B Falcon Corp.,............................... Ba1 6.75% 04/15/05 7,300 6,278,000
R&B Falcon Corp.,............................... Ba1 7.375% 04/15/18 5,750 4,435,493
--------------
33,567,195
--------------
REAL ESTATE INVESTMENT TRUST -- 3.1%
Camden Property Trust,.......................... Baa2 7.23% 10/30/00 5,000 5,012,000
Colonial Realty,................................ Baa3 7.00% 07/14/07 1,350 1,294,529
Equity Residentia,.............................. A3 6.15% 09/15/00 15,000 14,901,000
ERP Operating, L.P.,............................ A3 6.63% 04/13/05 6,500 6,413,940
Felcor Suite Hotels, Inc.,...................... Ba1 7.625% 10/01/07 7,900 7,524,750
--------------
35,146,219
--------------
RESTAURANTS -- 0.8%
Darden Restaurants, Inc.,....................... A3 7.125% 02/01/16 10,000 9,465,300
--------------
RETAIL -- 7.2%
Federated Department Stores, Inc.,.............. Ba1 8.125% 10/15/02 5,250 5,659,133
Federated Department Stores, Inc.,.............. Ba1 8.50% 06/15/03 10,200 11,250,396
Kmart Corp.,.................................... Ba2 9.35% 01/02/20 2,000 2,080,000
Kmart Corp.,.................................... Ba2 9.78% 01/05/20 3,850 4,210,476
Kroger Co., (The)............................... Baa3 6.375% 03/01/08 6,600 6,710,220
Meyer, (Fred) Inc.,............................. Ba2 7.15% 03/01/03 550 572,209
Meyer, (Fred) Inc.,............................. Ba2 7.375% 03/01/05 5,000 5,289,200
Rite Aid Corp.,................................. A3 6.70% 12/15/01 4,000 4,102,400
Saks Inc.,...................................... Baa3 7.25% 12/01/04 11,600 11,641,180
Saks Inc.,...................................... Baa3 7.50% 12/01/10 8,000 7,999,440
Saks Inc.,...................................... Baa3 8.25% 11/15/08 11,200 11,872,000
Sears Roebuk & Co.,............................. A2 6.50% 12/01/28 10,000 9,815,300
--------------
81,201,954
--------------
TELECOMMUNICATIONS -- 4.5%
LCI International, Inc.,........................ Ba1 7.25% 06/15/07 10,125 10,251,765
Qwest Communications International Inc.,........ Ba1 7.50% 11/01/08 5,000 5,200,000
Sprint Corp.,................................... Baa1 5.70% 11/15/03 17,000 17,060,690
Sprint Corp.,................................... Baa1 6.875% 11/15/28 14,000 14,550,200
Worldcom Inc,................................... Baa2 6.125% 08/15/01 3,300 3,352,734
--------------
50,415,389
--------------
UTILITIES -- 8.1%
Arkla, Inc., M.T.N.,............................ Ba2 9.32% 12/18/00 2,000 2,136,000
Calenergy Co., Inc.,............................ Ba1 6.96% 09/15/03 8,000 8,142,640
Calenergy Co., Inc.,............................ BA1 7.23% 09/15/05 5,000 5,151,300
Calenergy Co., Inc.,............................ Ba1 8.48% 09/15/28 10,000 11,055,300
Cogentrix Energy, Inc.,......................... Ba1 8.75% 10/15/08 10,000 10,625,000
Commonwealth Edison Co.,........................ Baa3 7.625% 01/15/07 7,525 8,313,846
Connecticut Light & Power Company,.............. Ba2 7.75% 06/01/02 5,685 5,897,164
El Paso Electric Company,....................... Ba2 7.75% 05/01/01 5,850 6,070,487
El Paso Electric Company,....................... Ba3 9.40% 05/01/11 4,000 4,588,240
Niagara Mohawk Power,........................... Ba3 6.875% 04/01/03 4,000 4,138,800
Niagara Mohawk Power,........................... Ba2 7.375% 08/01/03 8,000 8,455,280
Niagara Mohawk Power,........................... Baa2 8.00% 06/01/04 5,000 5,459,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
DIVERSIFIED BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
LONG-TERM BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
UTILITIES (CONT'D.)
Pennsylvania Power & Light Co.,................. A2 9.375% 07/01/21 $ 1,150 $ 1,286,781
Texas Utilities,................................ Baa3 5.94% 10/15/01 10,000 10,058,300
--------------
91,378,438
--------------
WASTE MANAGEMENT -- 0.2%
USA Waste Service,.............................. Baa3 6.125% 07/15/01 2,000 2,012,400
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 14.1%
Federal Farm Credit Bank,....................... 8.65% 10/01/99 150 154,008
Resolution Funding Corp.,....................... Zero 10/15/15 17,100 6,621,120
Resolution Funding Corp.,....................... 8.125% 10/15/19 700 914,263
Resolution Funding Corp.,....................... 8.625% 01/15/21 200 275,718
Small Business Administration Participation
Certicates,................................... 6.00% 09/01/18 15,000 15,305,550
United States Treasury Bond,.................... 5.375% 07/31/00 5,200 5,256,888
United States Treasury Note,.................... 4.75% 11/15/08 1,500 1,511,715
United States Treasury Note,.................... 5.375% 02/15/01 3,200 3,248,992
United States Treasury Note,.................... 5.50% 08/15/28 2,000 2,093,440
United States Treasury Note,.................... 5.75% 08/15/03 4,000 4,176,880
United States Treasury Note,.................... 5.875% 11/15/05 5,400 5,760,288
United States Treasury Note,.................... 6.00% 08/15/00 6,600 6,736,092
United States Treasury Note,.................... 6.50% 05/15/05 3,600 3,945,384
United States Treasury Note,.................... 6.50% 11/15/26 80,000 93,024,800
United States Treasury Note,.................... 6.625% 07/31/01 4,200 4,400,802
United States Treasury Note,.................... 7.125% 09/30/99 3,500 3,562,335
United States Treasury Note,.................... 7.50% 02/15/05 1,300 1,488,500
--------------
158,476,775
--------------
U.S. GOVERNMENT MORTGAGE- BACKED SECURITIES -- 0.7%
Federal National Mortgage Association,.......... 9.00% 10/01/16-09/01/21 388 410,024
Government National Mortgage Association,....... 7.50% 05/20/02-02/15/26 7,091 7,308,344
--------------
7,718,368
--------------
FOREIGN GOVERNMENT BONDS -- 0.7%
Republic of Panama, (Panama).................... NR 7.875% 02/13/02 8,000 7,720,000
--------------
TOTAL LONG-TERM BONDS (COST $1,052,032,111)............................................................ 1,066,099,086
--------------
<CAPTION>
SHARES
---------
<S> <C> <C> <C> <C> <C>
PREFERRED STOCK -- 0.9%
Centaur Funding (cost $10,022,865)........................................................ 75,000 10,377,000
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,062,054,976)................................................................................ 1,076,476,086
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 2.8% (000)
---------
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account
(cost $31,305,000; Note 5).................... 4.693% 01/04/99 31,305 31,305,000
--------------
TOTAL INVESTMENTS -- 98.7%
(cost $1,093,359,976; Note 6)........................................................................ 1,107,781,086
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.3%.......................................................... 14,792,617
--------------
NET ASSETS -- 100.0%................................................................................... $1,122,573,703
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
L.P. Limited Partnership
M.T.N. Medium Term Note
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Coporation) or Societe Anonyme (French
Corporation)
NR Not Rated by Moody's or Standard & Poors
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO
December 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 94.3%
<S> <C> <C> <C>
MOODY'S PRINCIPAL
LONG-TERM RATING AMOUNT VALUE
BONDS -- 54.9% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
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.
47
<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.
48
<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.
49
<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)
------------- --------------
BUSINESS SERVICES (CONT'D.)
<S> <C> <C>
(CONT'D.)
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.
50
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
COMPUTERS (CONT'D.)
<S> <C> <C>
(CONT'D.)
CONSTRUCTION -- 0.2%
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.
51
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
FINANCIAL SERVICES (CONT'D.)
<S> <C> <C>
(CONT'D.)
FOOD & BEVERAGES -- 1.7%
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)
------------- --------------
HOSPITALS/ HEALTHCARE (CONT'D.)
<S> <C> <C>
(CONT'D.)
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.
52
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
INTRUMENTS-CONTROLS (CONT'D.)
<S> <C> <C>
(CONT'D.)
LEISURE -- 0.3%
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)
------------- --------------
MEDIA (CONT'D.)
<S> <C> <C>
(CONT'D.)
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.
53
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
MISCELLANEOUS - INDUSTRIAL (CONT'D.)
<S> <C> <C>
(CONT'D.)
OIL & GAS -- 2.0%
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
--------------
(CONT'D.)
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
--------------
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
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.
54
<PAGE>
CONSERVATIVE BALANCED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
RUBBER (CONT'D.)
<S> <C> <C>
(CONT'D.)
SEMICONDUCTORS
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
--------------
(CONT'D.)
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
--------------
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
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
--------------
<CAPTION>
MOODY'S
SHORT-TERM RATING PRINCIPAL
INVESTMENTS -- 5.0% (UNAUDITED) AMOUNT (000)
------------- --------------
<S> <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.
55
<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>
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>
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.
56
<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>
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
Novell, Inc. (a)................................ 56,900 $ 1,031,312
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
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
--------------
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
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
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
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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
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
Union Camp Corp................................. 11,300 $ 762,750
Westvaco Corp................................... 16,600 445,087
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
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
Hartford Financial Services Group, Inc.......... 38,300 $ 2,101,712
Jefferson-Pilot Corp............................ 17,200 1,290,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
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
--------------
MEDIA -- 2.2%
CBS Corp. (a)................................... 910,000 $ 29,802,500
Central Newspapers, Inc.(Class "A" Stock)....... 205,300 14,666,119
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
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
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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
FLEXIBLE MANAGED PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
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
USX-Marathon Group.............................. 46,800 $ 1,409,850
Western Gas Resources, Inc...................... 423,100 2,432,825
--------------
128,251,968
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
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.
61
<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.
62
<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.
63
<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>
FOREST PRODUCTS (CONT'D.)
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.
64
<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.)
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>
UTILITIES (CONT'D.)
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.
65
<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:
U.S. Treasury
1,241 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.
66
<PAGE>
HIGH YIELD BOND PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.9% MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS -- 86.1% (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
AEROSPACE -- 0.8%
BE Aerospace, Sr. Sub. Notes.................... B1 9.50% 11/01/08 $ 1,000 $ 1,055,000
Compass Aerospace Corp., Sr. Sub. Notes......... Caa1 10.125% 04/15/05 1,500 1,447,500
Sequa Corp., Sr. Sub. Notes..................... B3 9.375% 12/15/03 2,000 2,070,000
Stellex Industries, Inc., Sr. Sub. Notes........ B3 9.50% 11/01/07 1,000 870,000
Transdigm, Inc., Sr. Sub. Notes................. B3 10.375% 12/01/08 1,000 1,002,500
--------------
6,445,000
--------------
AUTOMOTIVE PARTS -- 2.0%
AM General Corp., Sr. Notes..................... B3 12.875% 05/01/02 3,700 2,960,000
Hayes Wheels Int'l., Inc., Sr. Sub. Notes....... B2 9.125% 07/15/07 1,000 1,044,062
JPS Automotive Products Corp., L.P., Sr.
Notes......................................... B2 11.125% 06/15/01 4,000 4,200,000
Paragon Corp Holdings, Sr. Notes................ B3 9.625% 04/01/08 2,000 1,680,000
Stanadyne Automotive, Sr. Sub. Notes............ Caa 10.25% 12/15/07 3,000 3,000,000
Venture Holdings Trust, Sr. Notes............... NR 9.50% 07/01/05 2,700 2,686,500
--------------
15,570,562
--------------
BROADCASTING & OTHER MEDIA -- 5.6%
Ackerley Group, Sr. Sub. Notes.................. B2 9.00% 01/15/09 3,000 3,056,250
American Lawyer Media Holdings, Inc., Sr. Disc.
Notes, Zero Coupon
(until 12/15/02).............................. B3 12.25% 12/15/08 5,000 3,100,000
CD Radio, Inc., Sr. Disc. Notes, Zero Coupon
(until 12/01/02).............................. Caa 15.00% 12/01/07 4,245 2,589,450
Chancellor Media Corp., Sr. Sub. Notes.......... Ba3 9.00% 10/01/08 3,500 3,696,875
Globo Communicacoes E Particip., Sr. Notes
(Brazil)...................................... NR 10.50% 12/20/06 1,300 832,000
Grupo Televisa, Sr. Notes (Mexico).............. Ba2 13.25% 05/15/08 3,000 2,227,500
Liberty Group Publishing, Sr. Disc. Notes, Zero
Coupon (until 2/01/03)........................ Caa1 11.625% 02/01/09 550 302,500
Lin Holdings Corp., Sr. Disc. Notes, Zero Coupon
(until 3/01/03)............................... B3 10.00% 03/01/08 500 351,250
Mail-Well Corp, Sr. Sub. Notes.................. B1 8.75% 12/15/08 4,750 4,797,500
NTL, Inc., Sr. Notes, Zero Coupon (until
10/01/03)..................................... B3 12.375% 10/01/08 2,500 1,562,500
NTL, Inc., Sr. Notes, Zero Coupon (until
4/01/03)...................................... B3 9.75% 04/01/08 2,000 1,235,000
Paxson Communications Corp., Sr. Sub. Notes..... B3 11.625% 10/01/02 2,500 2,537,500
Radio Unica, Sr. Disc. Note, Zero Coupon (until
8/01/02)...................................... NR 11.75% 08/01/06 4,750 2,565,000
SFX Entertainment, Sr. Sub. Notes............... B3 9.125% 12/01/08 4,000 3,980,000
Shop At Home, Inc., Sr. Sec'd. Notes............ B1 11.00% 04/01/05 1,250 1,275,000
Transwestern Publishing, Sr. Disc. Notes, Zero
Coupon (until 11/15/02)....................... B3 11.875% 11/15/08 3,650 2,418,125
TV Azteca SA de CV, Sr. Notes (Mexico).......... NR 10.50% 02/15/07 2,850 2,322,750
TVN Enterainment Corp., Sr. Notes............... NR 14.00% 08/01/08 3,750 3,187,500
Von Hoffman, Sub. Debs.......................... NR 13.50% 05/15/09 609 626,897
World Color Press, Sr. Sub. Notes............... B1 8.375% 11/15/08 1,750 1,758,750
--------------
44,422,347
--------------
BUILDING & RELATED INDUSTRIES -- 2.7%
Ainsworth Lumber Co., Ltd., Bonds............... B3 12.50% 07/15/07 5,125 5,073,750
Engle Homes, Inc., Sr. Notes.................... B1 9.25% 02/01/08 4,400 4,400,000
Falcon Building Products, Inc., Sr. Sub. Disc.
Notes, Zero Coupon
(until 6/15/02)............................... NR 10.50% 06/15/07 1,900 1,092,500
New Millenium Homes, Sr. Notes, Zero Coupon
(until 6/01/99)............................... NR 13.00% 09/03/04 3,000 2,910,000
Presley Co., Sr. Sub. Notes..................... B2 12.50% 07/01/01 6,157 5,202,665
Webb (Del E.), Sr. Sub. Deb..................... B2 9.375% 05/01/09 1,000 960,000
Wickes Lumber Co., Sr. Notes.................... B3 11.625% 12/15/03 2,000 1,690,000
--------------
21,328,915
--------------
CABLE -- 4.5%
Adelphia Communications Corp., Sr. Notes........ B2 10.50% 07/15/04 500 547,500
Adelphia Communications Co., PIK, Sr. Notes..... B3 9.50% 02/15/04 250 265,625
Avalon Cable Holding, Sr. Disc. Notes........... Caa 11.875% 12/01/08 6,000 3,360,000
Avalon Cable Holding, Sr. Sub. Notes............ B3 9.375% 12/01/08 2,000 2,040,000
Diamond Cable Communications, Sr. Disc. Notes,
Zero Coupon (until 2/15/02) (United
Kingdom)...................................... NR 12.75% 02/15/07 4,000 2,840,000
Diva Systems Corp., Sr. Disc. Notes, Zero Coupon
(until 3/01/03)............................... NR 12.625% 03/01/08 1,000 372,000
Echostar Satellite, Sr. Disc. Notes, Zero Coupon
(until 3/15/00)............................... B3 13.125% 03/15/04 1,500 1,496,250
Falcon Holding Group, Sr. Disc. Deb., Zero
Coupon (until 4/15/03)........................ B2 9.285% 04/15/10 2,000 1,350,000
Intermedia Capital Partners, Sr. Notes.......... B2 11.25% 08/01/06 3,380 3,802,500
International Cabletel, Inc., Sr. Disc. Notes,
Zero Coupon (until 4/15/00)................... B3 12.75% 04/15/05 6,100 5,551,000
Renaissance Media, Sr. Disc. Notes, Zero Coupon
(until 4/15/03)............................... B3 10.00% 04/15/08 1,000 675,000
Rogers Cablesystems, Inc., Sr. Sec'd. Deb.,
(Canada)...................................... Ba3 10.00% 12/01/07 1,000 1,125,000
Rogers Cablesystems, Inc., Sr. Sec'd Notes,
(Canada)...................................... Ba3 10.00% 03/15/05 1,175 1,960,000
Scott Cable Communications, Jr. Sub. PIK........ NR 16.00% 07/18/02 108 21,600
Scott Cable Communications, Dep. Rec., PIK...... NR 15.00% 03/18/02 908 1,016,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
67
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Star Choice Communications, Inc., Sr. Notes,
(Canada)...................................... NR 13.00% 12/15/05 $ 3,000 $ 3,015,000
Telewest Communications PLC, Sr. Disc. Deb.,
Zero Coupon (until 10/01/00) (United
Kingdom)...................................... B1 11.00% 10/01/07 1,000 832,500
United International Holdings, Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B3 10.75% 02/15/08 9,750 5,216,250
--------------
35,486,975
--------------
CHEMICALS -- 0.8%
GNI Group, Inc., Sr. Notes...................... B2 10.875% 07/15/05 4,000 3,520,000
Sterling Chemical Holdings, Inc., Sr. Disc.
Notes, Zero Coupon (until 8/15/01)............ Caa 13.50% 08/15/08 4,060 1,542,800
Sterling Chemical Holdings, Inc., Sr. Sub.
Notes......................................... B3 11.75% 08/15/06 1,000 850,000
--------------
5,912,800
--------------
CONSUMER PRODUCTS -- 3.7%
CB Richard Ellis Services, Inc., Bonds.......... Ba3 8.875% 06/01/06 2,000 1,960,000
Coinstar Inc., Sr. Disc. Notes, Zero Coupon
(until 10/01/99).............................. NR 13.00% 10/01/06 5,025 4,271,250
Corning Consumer Products, Sr. Sub. Notes....... B3 9.625% 05/01/08 3,250 2,275,000
Edison Brothers Corp., Sr. Notes................ NR 11.00% 09/26/07 3,680 1,104,000
Electronic Retailing Systems, Sr. Disc. Notes,
Zero Coupon (until 2/01/00)................... NR 13.25% 02/01/04 2,000 700,000
Hedstrom Corp., Sr. Sub. Notes.................. B3 10.00% 06/01/07 900 765,000
Hedstrom Holding, Inc., Sr. Disc. Notes, Zero
Coupon (until 6/01/02)........................ Caa 12.00% 06/01/09 400 180,000
Icon Health & Fitness, Sr. Sub. Notes........... Caa 13.00% 07/15/02 3,000 1,800,000
IHF Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 11/15/99).............................. NR 15.00% 11/15/04 2,250 247,500
Interact Systems, Inc., Sr. Disc. Notes, Zero
Coupon (until 8/1/99)(b) (cost $4,070,320;
purchased 7/30/96)............................ NR 14.00% 08/01/03 4,400 1,760,000
La Petite Holding, Sr. Notes.................... B3 10.00% 05/15/08 750 742,500
Loewen Group, Inc., Sr. Gtd. Notes.............. Ba1 8.25% 10/15/03 3,000 2,542,500
Packaging Resources Group, Sr. Notes, PIK....... NR 13.00% 06/30/03 2,114 1,775,685
Revlon Consumer Prod. Corp., Sr. Notes, PIK..... B2 9.00% 11/01/06 2,250 2,227,500
Sealy Mattress Co., Sr. Sub. Disc. Notes, Zero
Coupon (until 12/15/02)....................... B3 10.875% 12/15/07 2,500 1,500,000
Syratech Corp., Sr. Notes....................... B1 11.00% 04/15/07 2,500 2,025,000
Waste System International, Sr. Sub. Notes...... Caa1 7.00% 05/13/05 2,000 1,930,000
Windmere-Durable Holdings, Inc., Sr. Notes...... B3 10.00% 07/31/08 2,000 1,870,000
--------------
29,675,935
--------------
CONTAINERS -- 0.7%
Ball Corp., Sr. Sub. Notes...................... B1 8.25% 08/01/08 250 261,250
Consumers Intl, Inc., Sr. Sec'd. Notes.......... Ba3 10.25% 04/01/05 3,850 4,042,500
Radnor Holdings, Sr. Notes...................... B2 10.00% 12/01/03 1,500 1,507,500
--------------
5,811,250
--------------
DRUGS & HEALTHCARE -- 4.7%
Abbey Healthcare Group, Inc., Bonds............. B1 9.50% 11/01/02 500 485,000
Dade International, Inc., Sr. Sub. Notes........ B3 11.125% 05/01/06 6,250 6,875,000
Fresenius Medical Co., Gtd. Notes............... Ba3 7.875% 02/01/08 2,100 2,079,000
Fresenius Med. Core Capital Trust, Gtd. Notes... Ba3 9.00% 12/01/06 1,500 1,569,375
Graham-Field Health Products, Inc., Sr. Sub.
Notes......................................... B3 9.75% 08/15/07 5,000 3,300,000
Harborside Healthcare, Zero Coupon (until
08/01/03)..................................... B3 11.00% 08/01/08 2,500 1,200,000
ICN Pharmaceuticals, Inc., Sr. Notes............ Ba3 8.75% 11/15/08 4,750 4,773,750
Integrated Health Services, Inc., Sr. Sub.
Notes......................................... B2 9.25% 01/15/08 3,250 3,055,000
Magellan Health Services, Bonds................. B3 9.00% 02/15/08 7,000 6,160,000
Mariner Post Acute Network, Inc., Sr. Sub. Disc.
Notes, Zero Coupon (until 11/ 01/02).......... B3 10.50% 11/01/07 3,000 1,455,000
Medaphis Corp., Sr. Notes....................... B2 9.50% 02/15/05 350 269,500
Mediq, Inc., Sr. Sub. Notes..................... B3 11.00% 06/01/08 1,000 960,000
Sun Healthcare, Sr. Notes....................... B2 9.50% 07/01/07 3,750 3,000,000
Vencor Inc., Sr. Sub. Notes..................... B3 9.875% 05/01/05 2,500 2,050,000
--------------
37,231,625
--------------
ENERGY -- 5.0%
Anker Coal Group Inc., Sr. Notes................ B3 9.75% 10/01/07 3,000 1,590,000
Bayard Drilling Technologies, Inc., Sr. Notes... B2 11.00% 06/30/05 1,500 1,650,000
Chesapeake Energy Corp., Sr. Notes.............. B1 9.625% 05/01/05 2,500 1,875,000
Chiles Offshore, Sr. Notes...................... B3 10.00% 05/01/08 1,000 800,000
Clark USA, Inc., Sr. Notes...................... B3 10.875% 12/01/05 1,250 1,162,500
Gothic Production Corp., Sr. Notes.............. B3 11.125% 05/01/05 1,250 975,000
Grant Geophysical, Inc., Sr. Notes.............. B3 9.75% 02/15/08 4,000 2,720,000
Great Lakes Carbon Corp., Sr. Sub. Notes........ B3 10.25% 05/15/08 2,000 2,015,000
Grey Wolf, Sr. Notes............................ B1 8.875% 07/01/07 2,000 1,450,000
Ocean Rig Norway Co., Gtd. Notes................ B3 10.25% 06/01/08 2,000 1,600,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
P & L Coal Holding, Sr. Notes................... NR 8.875% 05/15/08 $ 2,000 $ 2,040,000
P & L Coal Holding, Sr. Sub. Notes.............. NR 9.625% 05/15/08 3,750 3,815,625
Parker Drilling Corp., Sr. Notes................ B1 9.75% 11/15/06 850 760,750
Petroleum Mexicanos, Gtd. Notes (Mexico)........ Ba2 9.375% 12/02/08 1,500 1,477,500
Petroleum Heat & Power, Inc., Sub. Deb.(b) (cost
$2,779,064; purchased on various dates:
1/27/94 through 1/31/97)...................... B2 9.375% 02/01/06 3,000 2,730,000
Petroleum Heat & Power, Inc., Sub. Deb.(b) (cost
$832,534; purchased
3/16/95)...................................... B2 12.25% 02/01/05 813 796,740
R & B Falcon Corp., Sr. Notes................... Ba1 9.50% 12/15/08 3,000 3,000,000
Seven Seas Petroleum, Inc., Sr. Notes........... Caa1 12.50% 05/15/05 1,500 1,012,500
Tesoro Petroleum Corp., Sr. Sub. Notes.......... B1 9.00% 07/01/08 3,000 2,910,000
Transamerican Energy Corp., Sr. Disc. Notes..... NR 11.50% 06/15/02 900 261,000
Universal Compression Holdings, Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B2 9.875% 02/15/08 1,750 1,050,000
Universal Compression Holdings, Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B3 11.375% 02/15/09 700 399,000
York Power Funding, Sr. Sec'd. Notes (Cayman
Islands)...................................... Ba3 12.00% 10/30/07 3,000 2,940,000
--------------
39,030,615
--------------
FINANCIAL SERVICES -- 2.1%
AmeriCredit Corp., Sr. Notes.................... B1 9.25% 02/01/04 1,350 1,299,375
Amresco, Inc., Sr. Sub. Notes(b) (cost
$4,310,000; purchased 2/24/98 and
11/25/98)..................................... B2 9.875% 03/15/05 4,600 3,220,000
BF Saul Corp., Sr. Notes........................ B3 9.75% 04/01/08 1,750 1,610,000
Delta Financial Corp., Sr. Notes................ B1 9.50% 08/01/04 1,075 903,000
Fuji LLC, Bonds, Zero Coupon (until 06/30/08)... Baa2 9.87% 12/31/49 2,000 1,430,000
Korea Development Bank, Bonds (Korea)........... Ba1 7.90% 02/01/02 3,000 2,851,800
SB Treasury Co., Bonds, Zero Coupon (until
06/30/08)..................................... A2 9.40% 12/29/49 5,000 4,650,000
Nationwide Credit, Sr. Notes.................... B3 10.25% 01/15/08 850 688,500
--------------
16,652,675
--------------
FOOD & BEVERAGE -- 2.9%
Advantica Restaurant Group, Sr. Notes........... NR 11.25% 01/15/08 5,762 5,834,501
Carrols Corp., Sr. Sub. Notes................... B2 9.50% 12/01/08 2,500 2,518,750
Favorite Brands, Sr. Notes...................... B3 10.75% 05/15/06 550 451,000
Fresh Foods, Inc., Bonds........................ B3 10.75% 06/01/06 2,500 2,300,000
FRI-MRD Corp., Sr. Disc. Notes, Zero Coupon
(until 8/01/99)............................... NR 15.00% 01/24/02 3,000 2,711,250
Grupo Azucarero, Sr. Notes (Mexico)............. B3 11.50% 01/15/05 4,000 1,400,000
Packaged Ice, Inc., Sr. Notes................... B3 9.75% 02/01/05 4,000 4,000,000
Premium Standard Farms, Sr. Sec'd. Notes, PIK
(b) (cost $255,739; purchased 9/17/96 and
3/03/97)...................................... NR 11.00% 09/17/03 256 268,526
Specialty Foods Acquisition Corp., Sr. Notes,
PIK........................................... B2 10.25% 08/15/01 2,765 2,543,800
Specialty Foods Corp., Sr. Sub. Notes........... Caa 11.25% 08/15/03 1,850 795,500
--------------
22,823,327
--------------
GAMING -- 4.8%
Alliance Gaming Corp., Gtd. Notes............... B3 10.00% 08/01/07 1,000 915,000
Aztar Corp., Sr. Sub. Notes..................... B2 13.75% 10/01/04 1,500 1,665,000
Blue Chip Casino, Sr. Sub. Notes................ NR 9.50% 09/15/02 6,749 5,567,925
Casino America, Sr. Notes....................... B1 12.50% 08/01/03 2,000 2,210,000
Casino Magic Finance Corp., First Mtge. Bonds... B3 13.00% 08/15/03 3,750 4,237,500
Colorado Gaming & Entertainment, Sr. Notes,
PIK........................................... NR 12.00% 06/01/03 3,590 3,841,264
Fitzgeralds Gaming, Sr. Notes................... B3 12.25% 12/15/04 2,375 1,282,500
Grand Casinos, Inc., Sr. Notes.................. B2 9.00% 10/15/04 1,000 1,125,000
Isle of Capri Black Hawk, LLC, First Mtg.
Notes......................................... B3 13.00% 08/31/04 4,000 4,400,000
Lady Luck Gaming, First Mtge. Notes............. B3 11.875% 03/01/01 2,500 2,525,000
Louisiana Casino Cruises, Inc., Sr. Notes, Zero
Coupon (until 03/01/99)....................... NR 12.25% 12/01/01 4,000 4,000,000
Majestic Star Casino, Sr. Notes................. B2 12.75% 05/15/03 1,150 1,207,500
Santa Fe Hotel, Inc., Sr. Notes................. B2 11.00% 12/15/00 2,750 2,612,500
Trump Atlantic City Assoc., First Mtge. Notes... B1 11.25% 05/01/06 1,500 1,320,000
Trump Atlantic City Assoc., First Mtge. Notes... Caa 11.75% 11/15/03 2,100 1,680,000
--------------
38,589,189
--------------
INDUSTRIAL -- 6.2%
Allied Waste Industries, Inc. Sr. Disc. Notes... Ba2 7.625% 01/01/06 3,250 3,290,625
Allied Waste Industries, Inc. Sr. Disc. Notes... Ba2 7.875% 01/01/09 10,000 10,125,000
Clean Harbors, Inc., Sr. Notes.................. B2 12.50% 05/15/01 1,500 1,275,000
Continental Global Group, Sr. Notes............. B2 11.00% 04/01/07 4,120 3,522,600
Eagle-Picher Industries, Sr. Sub. Notes......... B3 9.375% 03/01/08 1,250 1,181,250
ICF Kaiser International, Inc., Sr. Sub.
Notes......................................... B3 13.00% 12/31/03 4,450 2,225,000
Interlake Corp., Sr. Sub. Notes................. B3 12.125% 03/01/02 1,500 1,515,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
69
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
International Wireless Group, Sr. Sub. Notes.... NR 11.75% 06/01/05 $ 3,000 $ 3,157,500
Kaiser Aluminum & Chemical Corp., Sr. Sub.
Notes......................................... B2 12.75% 02/01/03 4,000 3,920,000
Moll Industries, Sr. Sub. Notes................. B3 10.50% 07/01/08 1,000 970,000
Motors & Gears, Inc., Sr. Notes................. B3 10.75% 11/15/06 3,500 3,570,000
Neenah Corp., Sr. Sub. Notes.................... B3 11.125% 05/01/07 750 770,625
RBX Corp., Sr. Notes............................ B2 12.00% 01/15/03 3,650 2,956,500
Thermadyne Holdings, Deb., Zero Coupon (until
6/01/03)...................................... Caa1 12.50% 06/01/08 2,375 1,045,000
Thermadyne Manufacturing, Sr. Sub. Notes........ B3 9.875% 06/01/08 2,500 2,275,000
UCAR Global Enterprises, Sr. Sub. Notes......... B1 12.00% 01/15/05 3,000 3,150,000
Viasystems, Inc., Sr. Sub. Notes................ B3 9.75% 06/01/07 4,000 3,980,000
--------------
48,929,100
--------------
LEISURE & TOURISM -- 1.1%
Bally Health & Tennis Corp., Sr. Sub. Notes..... B3 9.875% 10/15/07 5,000 4,900,000
Loews Cineplex, Sr. Notes....................... B3 8.875% 08/01/08 500 516,250
Premier Cruises Ltd., Sr. Notes, PIK............ B3 11.00% 03/15/08 1,000 500,000
Outboard Marine Corp., Sr. Notes................ B3 10.75% 06/01/08 2,500 2,437,500
--------------
8,353,750
--------------
LODGING -- 1.0%
Hilton Hotels, Sr. Notes........................ Baa1 7.50% 12/15/17 1,000 956,250
HMH Properties, Inc., Sr. Notes................. Ba2 8.45% 12/01/08 4,250 4,250,000
--------------
5,206,250
--------------
OIL & GAS -- 0.8%
Empire Gas Corp., Sr. Notes, Zero Coupon (until
07/15/99)..................................... Caa 7.00% 07/15/04 5,300 4,147,250
Gulf Canada Resources, Ltd., Sr. Sub. Notes..... B2 9.25% 01/15/04 1,000 1,024,680
Gulf Canada Resources, Ltd., Sub. Deb........... Ba3 9.625% 07/01/05 1,000 1,045,000
--------------
6,216,930
--------------
PAPER/PACKAGING -- 5.1%
AMM Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 7/01/03)............................... Caa 13.50% 07/01/09 6,000 2,640,000
APP International Finance, Sr. Sec'd. Notes..... Ba3 11.75% 10/01/05 2,600 1,716,000
Envirodyne Industries, Inc., Sr. Disc. Notes.... B1 12.00% 06/15/00 721 722,802
Envirodyne Industries, Inc., Sr. Notes.......... B3 10.25% 12/01/01 2,325 1,860,000
Gaylord Container Corp., Sr. Notes.............. B 9.75% 06/15/07 2,100 1,806,000
Gaylord Container Corp., Sr. Sub. Notes......... Caa1 9.875% 02/15/08 1,300 949,000
Graham Packaging, Sr. Disc. Notes, Zero Coupon
(until 1/15/03)............................... Caa1 10.75% 01/15/09 1,100 759,000
Maxxam Group Holdings, Inc., Sr. Notes.......... NR 12.00% 08/01/03 7,550 7,757,625
Millar Western Forest, Sr. Notes................ B3 9.875% 05/15/08 2,250 1,687,500
Repap New Brunswick, Inc., Sr. Sec'd. Notes..... B3 10.625% 04/15/05 3,000 2,010,000
SD Warren Co., Sr. Sub. Notes................... B1 12.00% 12/15/04 3,000 3,255,000
Silgan Holdings, Inc., Sub. Debs................ NR 13.25% 07/15/06 3,149 3,463,900
Stone Container Corp., Sr. Sub. Deb............. B2 12.58% 08/01/16 250 264,375
Stone Container Corp., Sr. Sub. Notes........... B3 12.25% 04/01/02 6,150 6,150,000
Tekni-Plex Inc., Sr. Sub. Notes................. B3 11.25% 04/01/07 750 832,500
U.S. Timberlands Klamath Fall, LLC, Sr. Notes... B1 9.625% 11/15/07 2,250 2,261,250
United Stationer Supply Co., Sr. Sub. Notes..... B3 12.75% 05/01/05 2,200 2,453,000
--------------
40,587,952
--------------
PUBLISHING -- 0.6%
Sullivan Graphics, Inc., Sr. Sub. Notes......... Caa 12.75% 08/01/05 4,500 4,567,500
--------------
RETAIL -- 5.6%
County Seat Stores, Inc., Sr. Notes............. NR 12.75% 11/01/04 3,750 1,875,000
Duane Reade, Inc., Sr. Sub. Notes............... B3 9.25% 02/15/08 400 412,000
Frank's Nursery & Crafts, Sr. Sub. Notes........ B3 10.25% 03/01/08 2,100 2,079,000
French Fragrances, Inc.......................... B2 10.375% 05/15/07 470 462,950
Hechinger Co., Sr. Notes........................ B2 6.95% 10/15/03 5,025 3,115,500
Merisel Inc., Sr. Notes......................... Ca 12.50% 12/31/04 5,250 5,407,500
Musicland Stores, Sr. Sub. Notes................ B1 9.00% 06/15/03 4,600 4,393,000
New Sassco, Inc., Sr. Notes..................... NR 12.75% 03/31/04 7,171 7,099,290
Pamida, Inc., Sr. Notes......................... B3 11.75% 03/15/03 5,374 5,159,040
Phar-Mor, Inc., Sr. Notes....................... B3 11.72% 09/11/02 4,564 4,769,380
Phillips Van-Heusen, Corp., Sr. Notes........... B1 9.50% 05/01/08 1,250 1,250,000
Saks, Inc., Gtd. Sr. Sub. Notes................. Baa3 8.25% 11/15/08 2,500 2,650,000
Speedy Muffler King, Inc., Bonds................ B1 10.875% 10/01/06 4,500 4,635,000
US Office Products, Sr. Sub. Notes.............. B3 9.75% 06/15/08 1,250 787,500
--------------
44,095,160
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
70
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
STEEL & METAL -- 2.5%
AK Steel Corp., Sr. Notes....................... Ba2 9.125% 12/15/06 $ 500 $ 523,750
Doe Run Resources Corp., Sr. Notes.............. B3 11.25% 03/15/05 2,000 1,600,000
Northwestern Steel & Wire, Sr. Notes............ B3 9.50% 06/15/01 1,000 600,000
Pohang Iron & Steel, Notes...................... Ba1 7.125% 07/15/04 5,000 4,311,000
Pohang Iron & Steel, Sr. Notes.................. Ba1 6.625% 07/01/03 2,000 1,767,000
Renco Steel Holdings, Sr. Notes................. NR 10.875% 02/01/05 500 430,000
Sheffield Steel Corp., First Mtg. Notes......... NR 11.50% 12/01/05 3,500 2,975,000
WCI Steel, Inc., Sr. Notes...................... B2 10.00% 12/01/04 2,000 1,985,000
Wheeling-Pittsburgh Corp., Sr. Notes............ B2 9.25% 11/15/07 3,325 3,125,500
WHX Corp., Sr. Notes............................ B3 10.50% 04/15/05 2,350 2,138,500
--------------
19,455,750
--------------
SUPERMARKETS -- 1.5%
Homeland Stores, Inc., Notes.................... NR 10.00% 08/01/03 5,760 5,011,200
Pantry, Inc., Sr. Sub. Notes.................... B3 10.25% 10/15/07 3,500 3,657,500
Pathmark Stores, Sr. Sub. Notes................. B2 9.625% 05/01/03 3,500 3,430,000
--------------
12,098,700
--------------
TECHNOLOGY -- 2.2%
Ampex, Sr. Notes................................ NR 12.00% 03/15/03 5,000 5,200,000
Anacomp, Inc., Sr. Sub. Notes................... B3 10.875% 04/01/04 4,000 4,120,000
Decisionone Corp., Sr. Sub. Notes............... B3 9.75% 08/01/07 4,000 1,840,000
Details Holdings Corp., Sr. Disc. Notes, Zero
Coupon (until 11/15/02)....................... NR 12.50% 11/15/07 1,300 715,000
Details, Inc., Sr. Sub. Notes................... B3 10.00% 11/15/05 1,000 950,000
DII Group, Sr. Sub. Notes....................... B1 8.50% 09/15/07 2,000 1,980,000
Jordan Telecommunication Products, Inc., Sr.
Notes......................................... NR 9.875% 08/01/07 2,900 2,900,000
--------------
17,705,000
--------------
TELECOMMUNICATIONS -- 15.8%
21st Century Telecom Group, Inc., Sr. Disc.
Notes, Zero Coupon (until 2/15/03)............ NR 12.25% 02/15/08 1,500 630,000
Allegiance Telecommunications, Inc., Sr. Disc.
Notes, Zero Coupon
(until 2/15/03)............................... NR 11.75% 02/15/08 3,800 1,748,000
Allegiance Telecommunications, Inc., Sr.
Notes......................................... NR 12.875% 05/15/08 1,750 1,706,250
American Communication Lines, Bonds............. B1 10.25% 06/30/08 3,000 3,060,000
AMSC Acquisition Co., Inc., Sr. Notes........... NR 12.25% 04/01/08 2,100 1,302,000
Arch Communications, Inc., Sr. Notes............ Caa 12.75% 07/01/07 500 492,500
Bestel, SA, Sr. Disc. Notes, Zero Coupon (until
5/15/01)...................................... NR 12.75% 05/15/05 2,500 1,450,000
Birch Telecommunications, Inc., Sr. Notes....... NR 14.00% 06/15/08 2,500 2,300,000
Caprock Communications Sr. Notes................ Caa 12.00% 07/15/08 2,500 2,400,000
CCPR Services, Inc., Gtd. Notes................. B2 10.00% 02/01/07 1,500 1,485,000
Cellnet Data Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/01/02)(b) (cost
$177,691; purchased 6/9/98)................... NR 14.00% 10/01/07 6,000 1,320,000
Classic Communications, Inc. Sr. Disc. Notes,
Zero Coupon (until 08/01/03).................. Caa 13.250% 08/01/09 2,000 1,230,000
Coaxial Communications, Inc., Sr. Disc. Notes... B3 10.00% 08/15/06 1,250 1,287,500
Crown Castle International, Sr. Disc. Notes,
Zero Coupon (until 11/15/02).................. B3 10.625% 11/15/07 500 345,000
DTI Holdings, Inc., Sr. Disc. Notes, Zero Coupon
(until 3/01/03)............................... NR 12.50% 03/01/08 1,000 255,000
E. Spire Communication, Sr. Disc. Notes, Zero
Coupon (until 07/01/03)....................... NR 10.625% 07/01/08 2,850 1,140,000
Echostar Communication Sr. Disc. Notes, Zero
Coupon (until 06/01/99)....................... Caa 12.875% 06/01/04 1,000 1,025,000
Econophone, Inc., Sr. Disc. Notes, Zero Coupon
(until 2/15/03)............................... NR 11.00% 02/15/08 3,500 1,662,500
First World Communications, Inc., Sr. Disc.
Notes, Zero Coupon (until 4/15/03)............ NR 13.00% 04/15/08 3,000 915,000
Focal Communications Corp., Zero Coupon (until
2/15/03)...................................... NR 12.125% 02/15/08 2,850 1,510,500
Geotek Communication, Inc., Sr. Disc. Notes,
Zero Coupon (until 7/15/00)(d)................ Caa 15.00% 07/15/05 4,512 1,534,080
Global Telesystems, Sr. Notes................... Caa2 9.875% 02/15/05 1,200 1,140,000
Globix Corp., Sr. Notes......................... NR 13.00% 05/01/05 1,250 1,025,000
GST Telecommunications, Inc., Sr. Disc. Notes,
Zero Coupon
(until 12/15/00).............................. NR 13.875% 12/15/05 650 533,000
GST Telecommunications, Inc., Sr. Notes, Zero
Coupon (until 12/15/00)....................... NR 13.875% 12/15/05 5,950 4,254,250
GST Telecommunications, Inc., Sr. Disc. Notes,
Zero Coupon (until 5/01/03)................... NR 10.50% 05/01/08 1,250 575,000
Hyperion Telecommunications, Inc., Sr. Disc.
Notes, Zero Coupon
(until 04/15/01)(b) (cost $2,226,875;
purchased on various dates: 2/23/98 through
6/26/98)...................................... NR 13.00% 04/15/03 1,350 972,000
ICG Holdings Inc., Sr. Sub. Notes, Zero Coupon
(until 9/15/00)............................... NR 13.50% 09/15/05 2,000 1,660,000
ICG Services, Inc., Sr. Disc. Notes, Zero Coupon
(until 5/01/03)............................... NR 9.875% 05/01/08 2,000 1,030,000
ICO Global Communications Sr. Sub. Notes........ B3 15.00% 08/01/05 2,950 2,212,500
Impsat Corp., Sr. Notes......................... B2 12.375% 06/15/08 2,000 1,620,000
Impsat Corp., Gtd. Sr. Notes.................... B2 12.125% 07/15/03 3,150 2,772,000
IPC Information Systems, Inc., Sr. Disc. Notes,
Zero Coupon (until 5/01/01)................... B3 10.85% 05/01/08 2,250 1,406,250
Iridium, LLC, Gtd. Notes........................ B3 10.875% 07/15/05 1,000 855,000
Iridium, LLC, Gtd. Notes........................ B3 14.00% 07/15/05 2,500 2,375,000
Level 3 Communications, Sr. Disc. Notes, Zero
Coupon (until 12/01/03)....................... B3 10.50% 12/01/08 5,750 3,342,187
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
71
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
CORPORATE BONDS (CONTINUED) (UNAUDITED) RATE DATE (000) (NOTE 2)
------------ ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Level 3 Communications, Sr. Notes............... B3 9.125% 05/01/08 $ 1,250 $ 1,239,063
Long Distance International, Inc., Sr. Notes.... NR 12.25% 04/15/08 2,000 1,600,000
Mastec, Inc., Sr. Notes......................... Ba3 7.75% 02/01/08 1,000 965,000
McCaw Int'l. Ltd., Sr. Disc. Notes, Zero Coupon
(until 4/15/02)............................... NR 13.00% 04/15/07 2,000 1,090,000
Metronet Communications Corp., Zero Coupon
(until 6/15/03)............................... B3 9.95% 06/15/08 4,000 2,450,000
Netia Holdings, Sr. Disc. Notes, Zero Coupon
(until 11/01/01).............................. B3 11.25% 11/01/07 3,000 1,695,000
Netia Holdings, Sr. Notes....................... B 10.25% 11/01/07 850 726,750
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 09/15/02).................. B2 10.65% 09/15/07 600 385,500
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 2/15/03)................... B2 9.95% 02/15/08 5,900 3,540,000
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 8/15/99)................... B2 9.75% 08/15/04 2,500 2,425,000
Nextel Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 10/31/02).................. B3 9.75% 10/31/07 1,000 610,000
Northeast Optic, Sr. Notes...................... NR 12.75% 08/15/08 2,000 1,940,000
Omnipoint Corp., Sr. Notes, Series A............ B3 11.625% 08/15/06 5,875 4,112,500
Pagemart Nationwide, Inc., Sr. Disc. Notes,
Series H, Zero Coupon
(until 2/01/00)............................... NR 15.00% 02/01/05 7,500 6,600,000
Pagemart Wireless, Inc., Sr. Disc. Notes, Zero
Coupon (until 2/01/03)........................ NR 11.25% 02/01/08 2,500 1,150,000
Price Communications Wireless, Inc., Sr. Sub.
Notes......................................... NR 11.75% 07/15/07 5,000 5,275,000
PTC International Finance Corp., Gtd. Notes,
Zero Coupon (until 7/01/02)................... NR 10.75% 07/01/07 1,750 1,207,500
RCN Corp., Sr. Disc. Notes, Zero Coupon (until
10/15/02)..................................... B3 11.125% 10/15/07 1,250 725,000
Rogers Cantel, Inc., Sr. Sub. Notes, Zero Coupon
(until 11/30/02).............................. B2 8.80% 10/01/07 3,400 3,425,500
RSL Communications PLC, Sr. Sec'd Notes......... B3 12.00% 11/01/08 1,500 1,552,500
Splitrock Service, Inc., Sr. Notes.............. NR 11.75% 07/15/08 1,750 1,522,500
Telegroup, Inc., Sr. Disc. Notes, Zero Coupon
(until 11/01/01).............................. NR 10.50% 11/01/04 4,000 2,040,000
Time Warner Telecom LLC., Sr. Notes............. B2 9.75% 07/15/08 2,750 2,873,750
Unisite, Inc., Sr. Disc. Notes.................. NR 13.00% 12/15/04 4,000 4,562,800
US Xchange, LLC, Sr. Notes...................... NR 15.00% 07/01/08 2,250 2,295,000
USA Mobile Communications, Sr. Notes............ B2 9.50% 02/01/04 5,000 4,500,000
Versatel Telecommunications, Sr. Notes.......... NR 13.25% 05/15/08 2,000 1,980,000
Viatel, Inc., Sr. Disc. Notes, Zero Coupon
(until 4/15/03)............................... NR 12.50% 04/15/08 1,100 627,000
Viatel, Inc., Sr. Notes......................... Caa1 11.25% 04/15/08 1,500 1,507,500
WamNet, Inc., Sr. Disc. Notes, Zero Coupon
(until 3/01/02)............................... NR 13.25% 03/01/05 1,000 550,000
Winstar Communications, Sr. Notes............... Caa1 14.00% 10/15/05 1,500 1,085,625
Worldwide Fiber, Inc., Sr. Notes................ B3 12.50% 12/15/05 4,000 4,000,000
--------------
124,829,005
--------------
TEXTILES -- 1.2%
Cluett American Corp., Sr. Sub. Notes........... NR 10.125% 05/15/08 3,560 3,364,200
Foamex, L.P., Sr. Sub. Notes.................... B3 9.875% 06/15/07 2,950 3,186,000
Steel Heddle Manufacturing, Sr. Sub. Notes...... B3 10.625% 06/01/08 2,000 1,400,000
Worldtex, Inc., Gtd. Notes...................... B1 9.625% 12/15/07 2,000 1,780,000
--------------
9,730,200
--------------
TRANSPORTATION -- 2.2%
Aircraft Funding, Sr. Sub. Notes, PIK........... NR 12.00% 07/15/99 1,051 1,008,970
Airplanes Pass-through Trust, Sr. Notes......... Ba2 10.875% 3/15/19 1,000 1,050,000
Airtran Airlines, Inc., Gtd. Notes.............. NR 10.50% 04/15/01 3,000 2,580,000
Canadian Airlines, Sr. Notes.................... NR 12.25% 08/01/06 750 525,000
Continental Airlines, Inc., Sr. Notes........... Ba2 8.00% 12/15/05 3,000 2,964,300
Holt Group, Sr. Notes........................... Caa1 9.75% 01/15/06 800 552,000
Kitty Hawk, Inc., Sr. Notes..................... B1 9.95% 11/15/04 2,000 1,970,000
Stena Line AB, Sr. Notes........................ B1 10.625% 06/01/08 2,000 1,800,000
Trans World Airlines, Sr. Notes................. NR 11.50% 12/15/04 1,750 1,487,500
Trism, Inc., Bonds.............................. B2 10.75% 12/15/00 3,750 2,118,750
Valuejet, Inc., Sr. Notes....................... B3 10.25% 04/15/01 2,500 1,412,500
--------------
17,469,020
--------------
UTILITIES -- 0.1%
Korea Electric Power, Notes..................... Ba1 7.00% 10/01/02 1,185 1,066,382
--------------
TOTAL CORPORATE BONDS
(cost $749,262,856)......................................................................... 679,291,914
--------------
CONVERTIBLE BONDS -- 0.2%
OIL & GAS SERVICES -- 0.2%
Key Energy Group, Inc., Sub. Notes.............. NR 5.00% 09/15/04 4,000 1,800,000
--------------
TELECOMMUNICATIONS
Geotek Communications, Inc., Sr. Conv. Notes.... NR 12.00% 02/15/01 2,000 10,000
--------------
TOTAL CONVERTIBLE BONDS
(cost $4,969,713)........................................................................... 1,810,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (A) -- 0.5% SHARES (NOTE 2)
------------- --------------
<S> <C> <C> <C> <C> <C>
Cellnet Data Systems, Inc. (b) (cost $170;
purchased 6/23/97)............................ 34,000 $ 170,000
Coinstar, Inc................................... 6,300 67,725
Dr. Pepper Bottling Holdings, Inc., (Class 'B'
Stock)........................................ 5,807 185,824
Hedstrom Holding Co............................. 24,261 24,261
Intermedia Communications, PIK.................. 8,514 146,867
Loehmann's Holdings, Inc.(b) (cost $0; purchased
9/28/98)...................................... 4,403 8,393
Pagemart Nationwide, Inc........................ 13,125 73,828
Premium Standard Farms(b)(c) (cost $870,000;
purchased 1/8/98)............................. 22,025 356,149
Samuels Jewelers, Inc........................... 37,500 318,750
Scott Cable Communications, (Class 'C' Stock)... 875 0
Waste Systems International..................... 513,351 2,823,431
--------------
TOTAL COMMON STOCKS
(cost $2,885,749).............................................. 4,175,228
--------------
PREFERRED STOCKS -- 6.8%
21st Century Telecommunications Group, Inc.,
PIK........................................... 443 287,919
Adelphia Communications, Inc., PIK.............. 65,250 7,601,625
AmeriKing, Inc.................................. 22,716 579,258
California Federal Bancorp, Inc................. 100,000 2,531,250
Cendant Corp.................................... 91,100 3,040,462
Century Maintenance Supplies.................... 42,547 4,403,610
Chesapeake Energy Corp.(a)...................... 20,000 213,750
Clark USA, Inc., PIK............................ 531 424,693
Cluett American Corp............................ 37,805 3,542,623
Concentric Network Corp......................... 1,278 1,092,690
CSC Holdings, Inc., PIK......................... 327 3,644,545
Eagle-Picher Holdings, Inc. (a)................. 170 858,500
EchoStar Communications, Inc., PIK.............. 4,002 4,627,335
Fitzgerald Gaming, Inc. (a)..................... 50,000 500,000
Geneva Steel, Inc............................... 22,000 66,000
GPA Group PLC................................... 1,550,000 775,000
Harborside Healthcare Corp...................... 1,034 904,750
ICG Communications, Inc., PIK................... 1,273 1,247,059
Intermedia Communications, Inc., Series 144..... 90,000 1,338,750
Intermedia Communications, Inc., Series D....... 90,000 2,103,750
Intermedia Communications, Inc., PIK............ 3,151 3,175,053
International Utility Structures, Inc........... 16 14,240
Kelley Oil & Gas Corp........................... 38,400 345,600
Nextel Communications, Inc...................... 922 839,020
NEXTLINK Communications, Inc.................... 39,500 1,659,000
Paxson Communications, Inc...................... 5,511 5,015,181
Petroleum Heat & Power, Inc., Conv. Pfd. (a)(b)
(cost $49,022, purchased 9/9/98).............. 19,609 39,218
Petroleum Heat & Power, Inc., Series C (b) (cost
$2,000,000, purchased 2/12/97)................ 80,000 1,600,000
Rural Cellular Corp., PIK....................... 529 486,328
Viasystems, Inc. (a)............................ 43,297 649,459
Viatel Inc., Sr. Notes.......................... 1,363 149,944
--------------
TOTAL PREFERRED STOCKS
(cost $62,519,868)............................................. 53,756,612
--------------
EXPIRATION
WARRANTS (A) -- 0.2% DATE UNITS
------------- -------------
21st Century Telecom Group, Inc................. 02/15/10..... 400 12,000
Allegiance Telecommunications, Inc.............. 02/03/08..... 3,800 30,400
American Banknote Corp.......................... 12/01/02..... 2,500 312
American Mobile Satelite Corp................... 04/01/08..... 2,100 8,148
Ampex Corp...................................... 03/15/03..... 170,000 127,500
Bell Technology Group Ltd....................... 01/23/01..... 1,250 12
Bestel SA....................................... 01/01/04..... 2,500 5,000
Birch Telecomm, Inc............................. 06/15/00..... 2,500 0
Cellnet Data Systems, Inc....................... 01/01/49..... 7,010 42,060
Classic Communicatons, Inc...................... 08/01/09..... 6,000 0
Clearnet Communications, Inc.................... 09/15/05..... 26,202 131,010
Diva Systems Corp............................... 01/01/05..... 3,000 48,000
DTI Holdings, Inc............................... 01/01/04..... 5,000 250
Electronic Retailing Systems.................... 01/01/49..... 2,000 10,000
Ermis Maritime Holdings, Inc.................... 01/01/07..... 2,000 2,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
73
<PAGE>
HIGH YIELD BOND PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EXPIRATION VALUE
WARRANTS (A) (CONTINUED) DATE UNITS (NOTE 2)
------------- ------------- --------------
<S> <C> <C> <C>
First World Communications...................... 01/01/04..... 3,000 $ 0
Foamex - JPS Automotive LLC..................... 07/01/99..... 2,000 42,000
Globalstar Capital Co........................... 02/15/04..... 1,200 72,000
Hyperion Telecommunications Corp................ 04/15/01..... 4,250 318,623
ICG Communications, Inc......................... 09/15/05..... 20,790 270,270
ICO Global Communications....................... 08/01/05..... 2,950 0
Interact Systems, Inc........................... 08/01/03..... 4,400 550
Intermedia Communications of Florida, Inc....... 06/01/00..... 3,000 128,220
Long Distance Int'l., Inc....................... 05/01/05..... 2,000 20
McCaw Int'l. Ltd................................ 01/01/49..... 1,650 8,250
MGC Communications, Inc......................... 01/01/49..... 1,950 60,138
Nextel Communications, Inc...................... 01/01/49..... 2,250 0
Pagemart, Inc................................... 11/01/03..... 9,200 27,600
Powertel, Inc................................... 02/01/06..... 6,720 13,440
President Riverboat Casinos, Inc................ 09/30/99..... 22,075 0
Price Communications Cellular Holdings.......... 08/01/07..... 6,880 301,860
Primus Telecommunications Group................. 08/01/07..... 1,500 18,750
Splitrock Service, Inc.......................... 07/15/08..... 1,750 19,250
Star Choice Communications, Inc................. 12/15/05..... 69,480 26,805
Sterling Chemical Holdings, Inc................. 08/15/08..... 560 8,400
TVN Entertainment Corp.......................... 08/01/08..... 3,750 38
Unisite, Inc.................................... 12/15/04..... 1,943 0
USN Communications, Inc......................... 01/01/49..... 10,590 2,224
Versatel Telecommunications..................... 05/15/08..... 2,000 20,000
Wam!net, Inc.................................... 01/01/08..... 3,000 24,000
--------------
TOTAL WARRANTS
(cost $618,277)............................................................... 1,779,130
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $820,256,463)........................................................... 740,812,884
--------------
PRINCIPAL
INTEREST MATURITY AMOUNT
SHORT-TERM INVESTMENT -- 4.3% RATE DATE (000)
------------ -------- --------
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account.............. 4.693% 01/04/99 $33,890 33,890,000
---------
(cost $33,890,000 Note 5)
TOTAL INVESTMENTS -- 98.2%
(cost $854,146,463; Note 6)....................................................... 774,702,884
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.8%....................................... 14,618,087
---------
TOTAL NET ASSETS -- 100.0%.......................................................... $789,320,971
---------
---------
</TABLE>
The following abbreviations are used in portfolio descriptions:
LLC Limited Liability Company
LP Limited Partnership
NR Not Rated by Moody's or Standard & Poors
PIK Payment in Kind Securities
PLC Public Limited Company
(a) Non-income producing security.
(b) Indicates a restricted security; the aggregate cost of the restricted
securities is $13,501,095. The aggregate value, $13,241,026 is
approximately 1.7% of net assets.
(c) Indiciates a fair valued security.
(d) Represents issuer in default on interest payments, non-income producing
security.
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
STOCK INDEX PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 97.3%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.3%
Aeroquip-Vickers, Inc........................... 9,700 $ 290,394
AlliedSignal, Inc............................... 195,400 8,658,662
Boeing Co....................................... 343,536 11,207,862
General Dynamics Corp........................... 44,400 2,602,950
Goodrich (B.F.) Co.............................. 25,600 918,400
Lockheed Martin Corp............................ 68,049 5,767,153
Northrop Grumman Corp........................... 24,200 1,769,625
Parker-Hannifin Corp............................ 38,225 1,251,869
Raytheon Co. (Class "B" Stock).................. 118,018 6,284,458
United Technologies Corp........................ 79,700 8,667,375
--------------
47,418,748
--------------
AIRLINES -- 0.3%
AMR Corp. (a)................................... 63,900 3,794,062
Delta Air Lines, Inc............................ 53,200 2,766,400
Southwest Airlines Co........................... 117,150 2,628,553
US Airways Group, Inc. (a)...................... 34,900 1,814,800
--------------
11,003,815
--------------
APPAREL -- 0.1%
Fruit of the Loom, Inc. (Class "A" Stock) (a)... 25,200 348,075
Nike, Inc. (Class "B" Stock).................... 101,100 4,100,869
Reebok International Ltd........................ 19,000 282,625
--------------
4,731,569
--------------
AUTOS - CARS & TRUCKS -- 1.4%
Cummins Engine Co., Inc......................... 12,400 440,200
Dana Corp....................................... 57,094 2,333,717
Ford Motor Co................................... 420,500 24,678,094
General Motors Corp............................. 224,400 16,058,625
Genuine Parts Co................................ 61,925 2,070,617
Johnson Controls, Inc........................... 29,300 1,728,700
Navistar International Corp. (a)................ 23,900 681,150
PACCAR, Inc..................................... 27,160 1,116,955
TRW, Inc........................................ 42,000 2,359,875
--------------
51,467,933
--------------
BANKS AND SAVINGS & LOANS -- 6.5%
Banc One Corp................................... 404,445 20,651,973
Bank of New York Co., Inc....................... 261,100 10,509,275
BankAmerica Corp................................ 600,844 36,125,745
BankBoston Corp................................. 102,600 3,994,987
Bankers Trust Corp.............................. 34,200 2,921,962
BB&T Corp....................................... 98,700 3,978,844
Chase Manhattan Corp............................ 295,094 20,084,835
Comerica, Inc................................... 54,150 3,692,353
First Union Corp................................ 334,578 20,346,525
Fleet Financial Group, Inc...................... 198,400 8,866,000
Golden West Financial Corp...................... 20,100 1,842,919
Huntington Bancshares, Inc...................... 73,500 2,209,594
KeyCorp......................................... 152,900 4,892,800
Mellon Bank Corp................................ 91,200 6,270,000
Mercantile Bancorporation, Inc.................. 53,400 2,463,075
Morgan (J.P.) & Co., Inc........................ 61,950 6,508,622
National City Corp.............................. 114,700 8,315,750
Northern Trust Corp............................. 38,300 3,344,069
PNC Bank Corp................................... 104,600 5,661,475
Providian Financial Corp........................ 48,750 3,656,250
Regions Financial Corp.......................... 75,100 3,027,469
Republic New York Corp.......................... 37,100 1,690,369
Summit Bancorp.................................. 60,900 2,660,569
Suntrust Banks, Inc............................. 72,800 5,569,200
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS (CONT'D.)
Synovus Financial Corp.......................... 91,500 $ 2,230,312
U.S. Bancorp.................................... 259,426 9,209,623
Union Planters Corp............................. 43,800 1,984,687
Wachovia Corp................................... 71,900 6,286,756
Wells Fargo & Co................................ 565,260 22,575,071
--------------
231,571,109
--------------
BUSINESS SERVICES -- 0.1%
Equifax, Inc.................................... 52,300 1,788,006
Omnicom Group, Inc.............................. 58,400 3,387,200
--------------
5,175,206
--------------
CHEMICALS -- 1.6%
Air Products & Chemicals, Inc................... 81,100 3,244,000
Dow Chemical Co................................. 77,900 7,084,031
Du Pont (E.I.) de Nemours & Co.................. 394,400 20,927,850
Eastman Chemical Co............................. 27,600 1,235,100
Engelhard Corp.................................. 49,875 972,562
FMC Corp. (a)................................... 12,300 688,800
Grace (W.R.) & Co............................... 24,400 382,775
Great Lakes Chemical Corp....................... 20,600 824,000
Hercules, Inc................................... 32,400 886,950
Monsanto Co..................................... 209,300 9,941,750
Morton International, Inc....................... 46,100 1,129,450
Nalco Chemical Co............................... 23,100 716,100
Praxair, Inc.................................... 55,600 1,959,900
Raychem Corp.................................... 30,200 975,837
Rohm & Haas Co.................................. 61,800 1,861,725
Sigma-Aldrich Corp.............................. 34,000 998,750
Union Carbide Corp.............................. 47,000 1,997,500
--------------
55,827,080
--------------
COMMERCIAL SERVICES -- 0.2%
Cendant Corp. (a)............................... 299,618 5,711,468
Deluxe Corp..................................... 27,000 987,187
Moore Corp. Ltd................................. 28,500 313,500
--------------
7,012,155
--------------
COMPUTER SERVICES -- 7.2%
3Com Corp. (a).................................. 124,000 5,556,750
Adobe Systems, Inc.............................. 23,600 1,103,300
America Online, Inc. (a)........................ 24,000 3,840,000
Autodesk, Inc................................... 15,800 674,462
Automatic Data Processing, Inc.................. 104,700 8,395,631
BMC Software, Inc. (a).......................... 71,100 3,168,394
Cabletron Systems, Inc. (a)..................... 53,500 448,062
Ceridian Corp. (a).............................. 24,600 1,717,387
Cisco Systems, Inc. (a)......................... 537,450 49,882,078
Computer Associates International, Inc.......... 195,143 8,317,970
Computer Sciences Corp. (a)..................... 55,200 3,556,950
Electronic Data Systems Corp.................... 170,100 8,547,525
EMC Corp. (a)................................... 173,300 14,730,500
First Data Corp................................. 154,300 4,889,381
Microsoft Corp. (a)............................. 858,300 119,035,481
Novell, Inc. (a)................................ 120,100 2,176,812
Oracle Corp. (a)................................ 336,687 14,519,627
Parametric Technology Corp. (a)................. 93,000 1,522,875
Peoplesoft, Inc................................. 70,000 1,325,625
Silicon Graphics, Inc. (a)...................... 61,800 795,675
Unisys Corp..................................... 85,900 2,958,181
--------------
257,162,666
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
COMPUTERS -- 4.5%
Apple Computer, Inc. (a)........................ 45,700 $ 1,870,844
Compaq Computer Corp............................ 580,769 24,356,000
Data General Corp. (a).......................... 15,800 259,712
Dell Computer Corp. (a)......................... 440,200 32,217,137
Gateway 2000, Inc. (a).......................... 54,200 2,774,362
Hewlett-Packard Co.............................. 361,400 24,688,137
International Business Machines Corp............ 323,800 59,822,050
Seagate Technology, Inc. (a).................... 83,100 2,513,775
Sun Microsystems, Inc. (a)...................... 131,000 11,216,875
--------------
159,718,892
--------------
CONSTRUCTION -- 0.1%
Centex Corp..................................... 21,600 973,350
Fluor Corp...................................... 28,300 1,204,519
Foster Wheeler Corp............................. 13,300 175,394
Pulte Corp...................................... 14,500 403,281
--------------
2,756,544
--------------
CONTAINERS -- 0.2%
Ball Corp....................................... 10,900 498,675
Bemis Co., Inc.................................. 18,100 686,669
Crown Cork & Seal Co., Inc...................... 44,200 1,361,912
Owens-Illinois, Inc. (a)........................ 54,700 1,675,187
Sealed Air Corp................................. 29,510 1,506,854
--------------
5,729,297
--------------
COSMETICS & SOAPS -- 2.2%
Alberto Culver Co. (Class "B" Stock)............ 19,100 509,731
Avon Products, Inc.............................. 92,000 4,071,000
Colgate-Palmolive Co............................ 102,700 9,538,262
Gillette Co..................................... 391,700 18,924,006
International Flavors & Fragrances, Inc......... 36,400 1,608,425
Procter & Gamble Co............................. 463,504 42,323,709
--------------
76,975,133
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 0.6%
Avery Dennison Corp............................. 40,800 1,838,550
Pitney Bowes, Inc............................... 98,100 6,480,731
Xerox Corp...................................... 113,446 13,386,628
--------------
21,705,909
--------------
DIVERSIFIED OPERATIONS -- 3.3%
Fortune Brands, Inc............................. 61,300 1,938,612
General Electric Co............................. 1,124,600 114,779,487
--------------
116,718,099
--------------
DRUGS AND MEDICAL SUPPLIES -- 11.3%
Abbott Laboratories............................. 534,900 26,210,100
Allergan, Inc................................... 23,300 1,508,675
ALZA Corp. (a).................................. 30,600 1,598,850
American Home Products Corp..................... 457,400 25,757,337
Amgen, Inc. (a)................................. 88,700 9,274,694
Bard (C.R.), Inc................................ 19,000 940,500
Bausch & Lomb, Inc.............................. 20,100 1,206,000
Baxter International, Inc....................... 99,900 6,424,819
Becton, Dickinson & Co.......................... 86,600 3,696,737
Biomet, Inc..................................... 39,100 1,573,775
Boston Scientific Corp. (a)..................... 136,600 3,662,587
Bristol-Myers Squibb Co......................... 343,780 46,002,061
Cardinal Health, Inc............................ 69,450 5,269,519
Guidant Corp.................................... 52,900 5,832,225
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Johnson & Johnson............................... 464,800 $ 38,985,100
Lilly (Eli) & Co................................ 381,400 33,896,925
Mallinckrodt, Inc............................... 23,800 733,337
Medtronic, Inc.................................. 163,500 12,139,875
Merck & Co., Inc................................ 411,650 60,795,559
Pfizer, Inc..................................... 453,600 56,898,450
Pharmacia & Upjohn, Inc......................... 177,425 10,046,691
Schering-Plough Corp............................ 509,400 28,144,350
St. Jude Medical, Inc. (a)...................... 30,300 838,931
Warner-Lambert Co............................... 281,500 21,165,281
--------------
402,602,378
--------------
ELECTRONICS -- 3.8%
Advanced Micro Devices, Inc. (a)................ 48,100 1,391,894
AMP Inc......................................... 76,044 3,959,041
Applied Materials, Inc. (a)..................... 127,600 5,446,925
EG&G, Inc....................................... 15,000 417,187
Emerson Electric Co............................. 154,100 9,640,881
Grainger (W.W.), Inc............................ 33,400 1,390,275
Harris Corp..................................... 27,100 992,537
Honeywell, Inc.................................. 44,000 3,313,750
Intel Corp...................................... 582,500 69,062,656
KLA-Tencor Corp. (a)............................ 29,700 1,288,237
LSI Logic Corp. (a)............................. 47,500 765,937
Micron Technology, Inc.......................... 74,900 3,787,131
Motorola, Inc................................... 207,100 12,646,044
National Semiconductor Corp. (a)................ 58,000 783,000
Perkin-Elmer Corp............................... 17,200 1,678,075
Rockwell International Corp..................... 68,500 3,326,531
Solectron Corp.................................. 11,600 1,078,075
Tektronix, Inc.................................. 17,500 526,094
Texas Instruments, Inc.......................... 136,000 11,636,500
Thomas & Betts Corp............................. 19,800 857,587
--------------
133,988,357
--------------
ENVIRONMENTAL SERVICES -- 0.1%
Browning-Ferris Industries, Inc................. 66,200 1,882,562
--------------
FINANCIAL SERVICES -- 5.6%
American Express Co............................. 159,900 16,349,775
Associates First Capital Corp................... 240,066 10,172,797
Bear Stearns Companies, Inc..................... 40,100 1,498,737
Block (H.R.), Inc............................... 36,700 1,651,500
Capital One Financial Corp...................... 22,800 2,622,000
Citigroup, Inc.................................. 791,209 39,164,845
Countrywide Credit Industries, Inc.............. 38,800 1,947,275
Dun & Bradstreet Corp........................... 58,360 1,841,987
Federal Home Loan Mortgage Corp................. 233,000 15,013,937
Federal National Mortgage Association........... 360,100 26,647,400
Fifth Third Bancorp............................. 93,800 6,689,112
Franklin Resources, Inc......................... 88,400 2,828,800
Household International, Inc.................... 171,258 6,786,098
Lehman Brothers Holdings, Inc................... 40,200 1,771,312
MBNA Corp....................................... 258,768 6,453,027
Merrill Lynch & Co., Inc........................ 120,400 8,036,700
Morgan Stanley Dean Witter & Co................. 200,905 14,264,255
Paychex, Inc.................................... 52,000 2,674,750
Schwab (Charles) Corp........................... 139,200 7,821,300
SLM Holding Corp................................ 59,600 2,860,800
State Street Corp............................... 55,800 3,881,587
SunAmerica, Inc................................. 71,700 5,816,662
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Transamerica Corp............................... 21,600 $ 2,494,800
Washington Mutual, Inc.......................... 206,248 7,876,095
--------------
197,165,551
--------------
FOOD & BEVERAGES -- 4.7%
Anheuser-Busch Companies, Inc................... 168,500 11,057,812
Archer-Daniels-Midland Co....................... 206,173 3,543,598
Bestfoods....................................... 100,700 5,362,275
Brown-Forman Corp. (Class "B" Stock)............ 24,500 1,854,344
Campbell Soup Co................................ 152,400 8,382,000
Coca-Cola Co.................................... 852,900 57,037,687
Coca-Cola Enterprises, Inc...................... 139,000 4,969,250
ConAgra, Inc.................................... 169,100 5,326,650
Coors (Adolph) Co. (Class "B" Stock)............ 12,800 722,400
General Mills, Inc.............................. 54,400 4,229,600
Heinz (H.J.) & Co............................... 127,850 7,239,506
Hershey Foods Corp.............................. 49,800 3,096,937
Kellogg Co...................................... 141,700 4,835,512
PepsiCo, Inc.................................... 510,000 20,878,125
Pioneer Hi-Bred International, Inc.............. 84,900 2,292,300
Quaker Oats Co.................................. 48,200 2,867,900
Ralston-Ralston Purina Group.................... 109,220 3,535,997
Sara Lee Corp................................... 323,400 9,115,837
Seagram Co., Ltd................................ 130,200 4,947,600
Sysco Corp...................................... 117,500 3,223,906
Wrigley (William) Jr. Co........................ 39,900 3,573,544
--------------
168,092,780
--------------
FOREST PRODUCTS -- 0.6%
Boise Cascade Corp.............................. 18,886 585,466
Champion International Corp..................... 33,000 1,336,500
Fort James Corp................................. 76,000 3,040,000
Georgia-Pacific Corp............................ 31,400 1,838,862
International Paper Co.......................... 107,434 4,814,386
Louisiana-Pacific Corp.......................... 38,900 712,356
Mead Corp....................................... 35,400 1,037,662
Potlatch Corp................................... 10,000 368,750
Temple-Inland, Inc.............................. 19,000 1,126,937
Union Camp Corp................................. 25,100 1,694,250
Westvaco Corp................................... 35,700 957,206
Weyerhaeuser Co................................. 68,900 3,500,981
Willamette Industries, Inc...................... 40,100 1,343,350
--------------
22,356,706
--------------
GAS PIPELINES -- 0.3%
Columbia Energy Group........................... 28,250 1,631,437
Consolidated Natural Gas Co..................... 33,700 1,819,800
Peoples Energy Corp............................. 11,400 454,575
Sempra Energy................................... 84,104 2,134,139
Sonat, Inc...................................... 36,900 998,606
Williams Companies, Inc......................... 146,300 4,562,731
--------------
11,601,288
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 0.7%
Columbia/HCA Healthcare Corp.................... 226,298 5,600,875
HBO & Co........................................ 151,100 4,334,681
Healthsouth Corp. (a)........................... 146,500 2,261,594
Humana, Inc. (a)................................ 58,100 1,034,906
IMS Health, Inc................................. 57,560 4,342,183
Manor Care, Inc................................. 30,850 906,219
Service Corp. International..................... 89,500 3,406,594
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Shared Medical Systems Corp..................... 9,000 $ 448,875
Tenet Healthcare Corp. (a)...................... 107,100 2,811,375
--------------
25,147,302
--------------
HOUSEHOLD PRODUCTS & PERSONAL CARE -- 0.4%
Clorox Co....................................... 36,600 4,275,338
Kimberly-Clark Corp............................. 186,988 10,190,846
--------------
14,466,184
--------------
HOUSING RELATED -- 0.5%
Armstrong World Industries, Inc................. 13,700 826,281
Fleetwood Enterprises, Inc...................... 12,600 437,850
Kaufman & Broad Home Corp....................... 13,166 378,523
Lowe's Companies, Inc........................... 122,900 6,290,944
Masco Corp...................................... 118,200 3,398,250
Maytag Corp..................................... 32,700 2,035,575
Owens Corning................................... 19,100 676,856
Stanley Works................................... 32,300 896,325
Tupperware Corp................................. 22,300 366,556
Whirlpool Corp.................................. 27,300 1,511,738
--------------
16,818,898
--------------
INSURANCE -- 3.4%
Aetna, Inc...................................... 50,912 4,002,956
Allstate Corp................................... 283,988 10,969,037
American General Corp........................... 88,686 6,917,508
American International Group, Inc............... 363,532 35,126,280
Aon Corp........................................ 58,150 3,220,056
Berkshire Hathaway, Inc. (Class "B" Stock)...... 982 2,307,113
Chubb Corp...................................... 58,400 3,788,700
CIGNA Corp...................................... 71,100 5,496,919
Cincinnati Financial Corp....................... 58,500 2,142,563
Conseco, Inc.................................... 108,259 3,308,666
Hartford Financial Services Group, Inc.......... 81,300 4,461,338
Jefferson-Pilot Corp............................ 37,012 2,775,900
Lincoln National Corp........................... 35,100 2,871,619
Loews Corp...................................... 39,700 3,900,525
Marsh & McLennan Companies, Inc................. 88,400 5,165,875
MBIA, Inc....................................... 34,300 2,248,794
MGIC Investment Corp............................ 40,200 1,600,463
Progressive Corp................................ 25,100 4,251,313
Provident Companies, Inc........................ 47,200 1,958,800
SAFECO Corp..................................... 48,300 2,073,881
St. Paul Companies, Inc......................... 82,410 2,863,748
Torchmark Corp.................................. 48,000 1,695,000
United Healthcare Corp.......................... 67,500 2,906,719
UNUM Corp....................................... 48,500 2,831,188
--------------
118,884,961
--------------
LEISURE -- 1.1%
Brunswick Corp.................................. 33,400 826,650
Carnival Corp. (Class "A" Stock)................ 181,000 8,688,000
Disney (Walt) Co................................ 712,601 21,378,030
Harrah's Entertainment, Inc. (a)................ 35,350 554,553
Hilton Hotels Corp.............................. 87,800 1,679,175
King World Productions, Inc..................... 25,600 753,600
Marriott International, Inc. (Class "A"
Stock)........................................ 90,200 2,615,800
Mirage Resorts, Inc. (a)........................ 61,900 924,631
--------------
37,420,439
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
77
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
MACHINERY -- 0.6%
Briggs & Stratton Corp.......................... 7,800 $ 389,025
Case Corp....................................... 25,400 554,038
Caterpillar, Inc................................ 127,700 5,874,200
Cooper Industries, Inc.......................... 42,600 2,031,488
Deere & Co...................................... 85,200 2,822,250
Dover Corp...................................... 78,100 2,860,413
Eaton Corp...................................... 25,500 1,802,531
Harnischfeger Industries, Inc................... 16,100 164,019
Ingersoll-Rand Co............................... 57,550 2,701,253
Milacron, Inc................................... 12,600 242,550
Snap-On, Inc.................................... 20,800 724,100
Timken Co....................................... 21,500 405,813
--------------
20,571,680
--------------
MANUFACTURING -- 0.6%
Illinois Tool Works, Inc........................ 87,200 5,057,600
Tyco International Ltd.......................... 224,608 16,943,866
--------------
22,001,466
--------------
MEDIA -- 2.9%
CBS Corp........................................ 248,100 8,125,275
Clear Channel Communications, Inc. (a).......... 86,200 4,697,900
Comcast Corp. (Special Class "A" Stock)......... 128,200 7,523,738
Donnelley (R.R.) & Sons Co...................... 49,500 2,168,719
Dow Jones & Co., Inc............................ 32,200 1,549,625
Gannett Co., Inc................................ 99,400 6,579,038
Interpublic Group of Companies, Inc............. 47,900 3,820,025
Knight-Ridder, Inc.............................. 27,600 1,411,050
McGraw-Hill, Inc................................ 34,700 3,535,063
Mediaone Group, Inc............................. 212,200 9,973,400
Meredith Corp................................... 17,800 674,175
New York Times Co. (Class "A" Stock)............ 65,200 2,261,625
Tele-Communications, Inc. (Series "A"
Stock) (a).................................... 182,800 10,111,125
Time Warner, Inc................................ 411,080 25,512,653
Times Mirror Co. (Class "A" Stock).............. 30,600 1,713,600
Tribune Co...................................... 42,600 2,811,600
Viacom, Inc. (Class "B" Stock) (a).............. 125,367 9,277,158
--------------
101,745,769
--------------
METALS-FERROUS -- 0.1%
Allegheny Teledyne, Inc......................... 69,880 1,428,173
Bethlehem Steel Corp. (a)....................... 47,300 396,138
Nucor Corp...................................... 30,800 1,332,100
USX-U.S. Steel Group, Inc....................... 31,540 725,420
Worthington Industries, Inc..................... 34,000 425,000
--------------
4,306,831
--------------
METALS-NON FERROUS -- 0.3%
Alcan Aluminum Ltd.............................. 79,350 2,147,409
Aluminum Company of America..................... 65,500 4,883,844
Cyprus Amax Minerals Co......................... 32,700 327,000
Inco Ltd........................................ 56,200 593,613
Reynolds Metals Co.............................. 25,600 1,348,800
--------------
9,300,666
--------------
MINERAL RESOURCES -- 0.1%
ASARCO, Inc..................................... 14,500 218,406
Burlington Resources, Inc....................... 60,917 2,181,590
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Homestake Mining Co............................. 72,700 $ 667,931
Phelps Dodge Corp............................... 20,300 1,032,763
--------------
4,100,690
--------------
MISCELLANEOUS - BASIC INDUSTRY -- 0.6%
AES Corp........................................ 63,300 2,998,838
Crane Co........................................ 23,625 713,180
Danaher Corp.................................... 43,100 2,340,869
Ecolab, Inc..................................... 46,000 1,664,625
ITT Industries, Inc............................. 41,900 1,665,525
Laidlaw, Inc.................................... 112,400 1,131,025
Millipore Corp.................................. 14,200 403,813
NACCO Industries, Inc. (Class "A" Stock)........ 2,800 257,600
Pall Corp....................................... 42,000 1,063,125
PPG Industries, Inc............................. 62,200 3,623,150
Textron, Inc.................................... 57,200 4,343,625
Thermo Electron Corp. (a)....................... 57,000 965,438
--------------
21,170,813
--------------
MISCELLANEOUS - CONSUMER GROWTH/STAPLE -- 1.2%
American Greetings Corp. (Class "A" Stock)...... 24,800 1,018,350
Black & Decker Corp............................. 32,900 1,844,456
Corning, Inc.................................... 80,600 3,627,000
Eastman Kodak Co................................ 113,100 8,143,200
Jostens, Inc.................................... 12,400 324,725
Minnesota Mining & Manufacturing Co............. 137,300 9,765,463
Polaroid Corp................................... 15,400 287,788
Rubbermaid, Inc................................. 52,200 1,641,038
Unilever N.V., ADR, (United Kingdom)............ 221,700 18,387,244
--------------
45,039,264
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.1%
Tenneco, Inc.................................... 58,900 2,006,281
--------------
OIL & GAS -- 5.5%
Amerada Hess Corp............................... 32,500 1,616,875
Amoco Corp...................................... 327,260 19,758,323
Anadarko Petroleum Corp......................... 41,600 1,284,400
Ashland, Inc.................................... 26,600 1,286,775
Atlantic Richfield Co........................... 112,270 7,325,618
Chevron Corp.................................... 227,700 18,884,869
Coastal Corp.................................... 72,700 2,539,956
Eastern Enterprises............................. 6,500 284,375
Exxon Corp...................................... 843,600 61,688,250
Kerr-McGee Corp................................. 16,200 619,650
Mobil Corp...................................... 272,000 23,698,000
NICOR, Inc...................................... 16,200 684,450
Phillips Petroleum Co........................... 90,300 3,849,038
Royal Dutch Petroleum Co........................ 745,300 35,681,238
Sunoco, Inc..................................... 33,200 1,197,275
Texaco, Inc..................................... 183,782 9,717,473
Union Pacific Resources Group, Inc.............. 86,056 779,883
Unocal Corp..................................... 84,600 2,469,263
USX-Marathon Group.............................. 100,000 3,012,500
--------------
196,378,211
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 0.1%
Occidental Petroleum Corp....................... 128,000 2,160,000
Oryx Energy Co. (a)............................. 37,200 499,875
--------------
2,659,875
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
78
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
OIL & GAS SERVICES -- 0.7%
Apache Corp..................................... 34,100 $ 863,156
Baker Hughes, Inc............................... 112,130 1,983,299
Enron Corp...................................... 114,200 6,516,538
Halliburton Co.................................. 152,700 4,523,738
Helmerich & Payne, Inc.......................... 18,100 350,688
McDermott International, Inc.................... 20,700 511,031
ONEOK, Inc...................................... 10,000 361,250
Rowan Companies, Inc. (a)....................... 28,700 287,000
Schlumberger Ltd................................ 189,100 8,722,238
--------------
24,118,938
--------------
PRECIOUS METALS -- 0.2%
Barrick Gold Corp............................... 129,300 2,521,350
Battle Mountain Gold Co......................... 81,000 334,125
Freeport-McMoRan Copper & Gold, Inc. (Class "B"
Stock)........................................ 66,200 690,963
Newmont Mining Corp............................. 54,503 984,460
Placer Dome, Inc................................ 86,000 989,000
--------------
5,519,898
--------------
RAILROADS -- 0.5%
Burlington Northern Santa Fe Corp............... 163,626 5,522,378
CSX Corp........................................ 76,612 3,179,398
Norfolk Southern Corp........................... 132,300 4,192,256
Union Pacific Corp.............................. 86,800 3,911,425
--------------
16,805,457
--------------
RESTAURANTS -- 0.6%
Darden Restaurants, Inc......................... 50,300 905,400
McDonald's Corp................................. 238,800 18,298,050
Tricon Global Restaurants, Inc. (a)............. 53,850 2,699,231
Wendy's International, Inc...................... 44,800 977,200
--------------
22,879,881
--------------
RETAIL -- 6.4%
Albertson's, Inc................................ 85,800 5,464,388
American Stores Co.............................. 95,800 3,538,613
AutoZone, Inc. (a).............................. 51,900 1,709,456
Circuit City Stores, Inc........................ 33,800 1,687,888
Consolidated Stores Corp........................ 37,200 750,975
Costco Companies, Inc. (a)...................... 75,466 5,447,702
CVS Corp........................................ 134,800 7,414,000
Dayton-Hudson Corp.............................. 152,284 8,261,407
Dillard's, Inc.................................. 37,750 1,071,156
Dollar General Corporation...................... 63,875 1,509,047
Federated Department Stores, Inc. (a)........... 73,500 3,201,844
Fred Meyer, Inc................................. 54,100 3,259,525
Great Atlantic & Pacific Tea Co., Inc........... 12,400 367,350
Harcourt General, Inc........................... 25,006 1,330,007
Home Depot, Inc................................. 519,446 31,783,602
IKON Office Solutions, Inc...................... 46,476 397,951
J.C. Penney Co., Inc............................ 88,800 4,162,500
Kmart Corp. (a)................................. 168,400 2,578,625
Kohl's Corp. (a)................................ 55,600 3,415,925
Kroger Co. (a).................................. 88,700 5,366,350
Liz Claiborne, Inc.............................. 23,400 738,563
Longs Drug Stores, Inc.......................... 13,700 513,750
May Department Stores Co........................ 80,600 4,866,225
Newell Co....................................... 55,000 2,268,750
Nordstrom, Inc.................................. 52,300 1,814,156
Pep Boys-Manny, Moe & Jack...................... 21,700 340,419
Rite Aid Corp................................... 90,600 4,490,363
Safeway, Inc. (a)............................... 166,100 10,121,719
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Sears, Roebuck & Co............................. 130,400 $ 5,542,000
Sherwin-Williams Co............................. 59,700 1,753,688
Staples, Inc. (a)............................... 105,200 4,595,925
Supervalu, Inc.................................. 40,800 1,142,400
Tandy Corp...................................... 34,530 1,422,204
The Gap, Inc.................................... 201,525 11,335,781
The Limited, Inc................................ 82,048 2,389,648
TJX Companies, Inc.............................. 109,400 3,172,600
Toys 'R' Us, Inc. (a)........................... 98,450 1,661,344
Wal-Mart Stores, Inc............................ 774,000 63,032,625
Walgreen Co..................................... 172,900 10,125,456
Winn-Dixie Stores, Inc.......................... 51,900 2,329,013
--------------
226,374,940
--------------
RUBBER -- 0.1%
Cooper Tire & Rubber Co......................... 28,800 588,600
Goodyear Tire & Rubber Co....................... 54,300 2,738,756
--------------
3,327,356
--------------
TELECOMMUNICATIONS -- 10.3%
Airtouch Communications, Inc. (a)............... 198,900 14,345,663
Alltel Corp..................................... 94,700 5,664,244
Ameritech Corp.................................. 383,400 24,297,975
Andrew Corp. (a)................................ 29,112 480,348
Ascend Communications, Inc. (a)................. 74,800 4,918,100
AT&T Corp....................................... 624,473 46,991,593
Bell Atlantic Corp.............................. 538,390 30,587,282
BellSouth Corp.................................. 682,000 34,014,750
Frontier Corp................................... 60,400 2,053,600
General Instrument Corp......................... 51,300 1,740,994
GTE Corp........................................ 330,320 22,275,955
Lucent Technologies, Inc........................ 454,620 50,008,200
MCI WorldCom, Inc............................... 620,572 44,526,041
Nextel Communications, Inc. (Class "A"
Stock) (a).................................... 99,800 2,357,775
Northern Telecom Ltd............................ 226,720 11,364,340
SBC Communications, Inc......................... 675,286 36,212,212
Scientific-Atlanta, Inc......................... 27,200 620,500
Sprint Corp..................................... 149,700 12,593,513
Sprint Corp. (PCS Group)........................ 123,850 2,864,031
Tellabs, Inc. (a)............................... 67,600 4,634,825
US West, Inc.................................... 179,622 11,608,072
--------------
364,160,013
--------------
TEXTILES -- 0.1%
National Service Industries, Inc................ 14,700 558,600
Russell Corp.................................... 12,700 257,969
Springs Industries, Inc......................... 6,700 277,631
VF Corp......................................... 42,836 2,007,938
--------------
3,102,138
--------------
TOBACCO -- 1.4%
Philip Morris Co., Inc.......................... 843,000 45,100,500
RJR Nabisco Holdings Corp....................... 111,900 3,322,031
UST, Inc........................................ 66,100 2,305,238
--------------
50,727,769
--------------
TOYS -- 0.1%
Hasbro, Inc..................................... 45,700 1,650,913
Mattel, Inc..................................... 102,381 2,335,567
--------------
3,986,480
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
79
<PAGE>
STOCK INDEX PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS VALUE
(CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TRUCKING/SHIPPING -- 0.1%
Federal Express Corp. (a)....................... 50,620 $ 4,505,180
Ryder System, Inc............................... 25,800 670,800
--------------
5,175,980
--------------
UTILITY - ELECTRIC -- 2.3%
Ameren Corp..................................... 47,200 2,014,850
American Electric Power Co., Inc................ 66,500 3,129,656
Baltimore Gas & Electric Co..................... 50,550 1,560,731
Carolina Power & Light Co....................... 52,000 2,447,250
Central & South West Corp....................... 73,400 2,013,913
CINergy Corp.................................... 55,739 1,916,028
Consolidated Edison, Inc........................ 81,800 4,325,175
Dominion Resources, Inc......................... 67,950 3,176,663
DTE Energy Co................................... 50,600 2,169,475
Duke Energy Corp................................ 125,131 8,016,205
Edison International............................ 120,800 3,367,300
Entergy Corp.................................... 86,300 2,686,088
FirstEnergy Corp. (a)........................... 82,200 2,676,638
FPL Group, Inc.................................. 63,100 3,888,538
GPU, Inc........................................ 44,200 1,953,088
Houston Industries, Inc......................... 103,410 3,322,046
New Century Energies, Inc....................... 40,900 1,993,875
Niagara Mohawk Power Corp. (a).................. 64,600 1,041,675
Northern States Power Co........................ 50,900 1,412,475
Pacific Gas & Electric Co....................... 131,000 4,126,500
PacifiCorp...................................... 102,300 2,154,694
PECO Energy Co.................................. 77,500 3,225,938
PP&L Resources, Inc............................. 49,000 1,365,875
Public Service Enterprise Group, Inc............ 80,400 3,216,000
Southern Co..................................... 240,800 6,998,250
Texas Utilities Co.............................. 97,506 4,552,311
Unicom Corp..................................... 75,100 2,896,044
--------------
81,647,281
--------------
WASTE MANAGEMENT -- 0.3%
Waste Management, Inc........................... 199,530 9,303,086
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,826,272,044).......................................... 3,451,812,324
--------------
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 2.6% (000) (NOTE 2)
------------- --------------
REPURCHASE AGREEMENT -- 2.4%
Joint Repurchase Agreement Account,
4.693%, 01/04/99 (Note 5)..................... $ 86,854 $ 86,854,000
--------------
U. S. GOVERNMENT OBLIGATION -- 0.2%
United States Treasury Bill,
4.36%, 03/18/99 (b)........................... 5,900 5,847,844
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $92,699,694)............................................. 92,701,844
--------------
TOTAL INVESTMENTS -- 99.9%
(cost $1,918,971,738; Note 6) 3,544,514,168
VARIATION MARGIN ON OPEN FUTURES CONTRACTS(C)....................
246,890
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1%....................
3,327,932
--------------
TOTAL NET ASSETS -- 100.0%....................................... $3,548,088,990
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
(a) Non-income producing security
(b) Security segregated as collateral for futures contracts.
(c) Open futures contracts as of December 31, 1998 are as follows:
<TABLE>
<C> <S> <C> <C> <C> <C>
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31,
CONTRACTS TYPE DATE TRADE DATE 1998 APPRECIATION
Long Position:
S&P 500
288 Index Mar 99 $85,070,625 $89,676,000 $4,605,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
80
<PAGE>
EQUITY INCOME PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.9%
VALUE
COMMON STOCKS -- 91.4% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE
United Industrial Corp.......................... 32,300 $ 316,944
--------------
AIRLINES -- 3.1%
AMR Corp. (a)................................... 947,000 56,228,125
Trans World Airlines, Inc....................... 1,224,700(b) 5,893,869
US Airways Group, Inc........................... 63,600 3,307,200
--------------
65,429,194
--------------
AUTOS - CARS & TRUCKS -- 7.5%
DaimlerChrysler AG.............................. 673,986 64,744,780
Ford Motor Co................................... 762,600 44,755,087
General Motors Corp............................. 724,000 51,811,250
--------------
161,311,117
--------------
CHEMICALS -- 5.1%
Dow Chemical Co................................. 1,029,600 93,629,250
Millennium Chemicals, Inc....................... 841,498 16,724,773
--------------
110,354,023
--------------
CONSUMER SERVICES
Petroleum Heat and Power, Inc. (Class "A"
Stock)........................................ 48,200 36,150
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 1.1%
Eastman Kodak Co................................ 222,300 16,005,600
Gibson Greetings, Inc. (a)...................... 724,000 8,597,500
--------------
24,603,100
--------------
ELECTRICAL EQUIPMENT -- 1.0%
Kuhlman Corp.................................... 559,600 21,194,850
--------------
ELECTRONICS -- 0.9%
Esterline Technologies Corp. (a)................ 562,400 12,232,200
Instron Corp.................................... 157,900 2,723,775
Newport Corp.................................... 313,000 5,281,875
--------------
20,237,850
--------------
FINANCIAL SERVICES -- 7.8%
A.G. Edwards, Inc............................... 322,800 12,024,300
Bear Stearns Companies, Inc..................... 946,851 35,388,556
Lehman Brothers Holdings, Inc................... 1,596,100 70,328,156
PaineWebber Group, Inc.......................... 1,294,700 50,007,787
--------------
167,748,799
--------------
FOREST PRODUCTS -- 4.6%
Fletcher Challenge Ltd., ADR, (Canada).......... 63,600 198,750
Georgia-Pacific Corp............................ 392,500 22,985,781
Longview Fibre Co............................... 1,345,700 15,559,656
Louisiana-Pacific Corp.......................... 1,311,900 24,024,169
Potlatch Corp................................... 209,300 7,717,937
Rayonier, Inc................................... 404,600 18,586,312
Weyerhaeuser Co................................. 200,000 10,162,500
--------------
99,235,105
--------------
GAS DISTRIBUTION -- 0.7%
TransCanada Pipelines, Ltd...................... 970,944(b) 14,321,424
--------------
GAS PIPELINES -- 0.3%
Sonat, Inc...................................... 210,400 5,693,950
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 1.6%
Columbia/HCA Healthcare Corp.................... 800,000 19,800,000
PhyCor, Inc. (a)................................ 2,000,000 13,625,000
--------------
33,425,000
--------------
HOUSING RELATED -- 5.7%
Hanson, PLC, ADR, (United Kingdom).............. 2,089,150 81,476,850
Kaufman & Broad Home Corp....................... 701,500 20,168,125
Ryland Group, Inc............................... 732,300 21,145,162
--------------
122,790,137
--------------
INSURANCE -- 3.4%
Marsh & McLennan Companies, Inc................. 822,600 48,070,687
Ohio Casualty Corp.............................. 387,500(b) 15,935,937
Selective Insurance Group, Inc.................. 405,600 8,162,700
--------------
72,169,324
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
LEISURE -- 1.9%
Hilton Hotels Corp.............................. 1,045,600 $ 19,997,100
Prime Hospitality Corp. (a)..................... 354,900 3,748,631
Starwood Hotels & Resorts (a)................... 747,200 16,952,100
--------------
40,697,831
--------------
MEDIA -- 2.4%
CBS Corp........................................ 1,548,845 50,724,674
--------------
METALS-FERROUS -- 3.7%
AK Steel Holding Corp........................... 1,395,000 32,782,500
USX-U.S. Steel Group............................ 2,048,000 47,104,000
--------------
79,886,500
--------------
METALS-NON FERROUS -- 7.0%
Aluminum Company of America..................... 1,217,300 90,764,931
Kaiser Aluminum Corp. (a)....................... 271,872 1,325,376
Reynolds Metals Co.............................. 1,084,186 57,123,050
--------------
149,213,357
--------------
MISCELLANEOUS - INDUSTRIAL -- 0.4%
Tenneco, Inc.................................... 232,300 7,912,719
--------------
OIL & GAS -- 3.8%
Crestar Energy, Inc., ADR, (Canada) (a)......... 204,000 1,732,428
Elf Aquitaine SA, ADR, (France)................. 693,600 39,275,100
Occidental Petroleum Corp....................... 1,020,000 17,212,500
Pioneer Natural Resources Co.................... 1,866,717 16,333,774
USX-Marathon Group.............................. 235,200 7,085,400
--------------
81,639,202
--------------
OIL & GAS SERVICES -- 3.9%
McDermott International, Inc.................... 2,661,200 65,698,375
Pennzoil-Quaker State Co........................ 1,247,008 18,471,306
--------------
84,169,681
--------------
PRECIOUS METALS -- 0.4%
Ashanti Goldfields Co., Ltd..................... 715,131 6,704,353
Coeur d'Alene Mines Corp........................ 198,578(b) 918,423
Echo Bay Mines, Ltd............................. 304,499 532,873
--------------
8,155,649
--------------
REAL ESTATE DEVELOPMENT -- 12.4%
Amli Residential Properties Trust............... 212,500 4,728,125
Archstone Communities Trust..................... 32,200 652,050
Bradley Real Estate, Inc........................ 109,800 2,250,900
Capital Automotive.............................. 590,000 8,776,250
CCA Prison Realty Trust......................... 637,900(b) 13,076,950
Centertrust Retail Properties, Inc.............. 428,400 5,247,900
Crescent Operating, Inc. (a).................... 155,150 736,963
Crescent Real Estate Equities Co................ 2,300,200 52,904,600
Crown American Realty Trust..................... 1,129,000 8,749,750
Equity Inns, Inc................................ 22,300 214,638
Equity Office Properties Trust.................. 555,278 13,326,672
Equity Residential Properties Trust............. 1,604,200 64,869,838
Gables Residential Trust........................ 425,900 9,875,556
Glimcher Realty Trust........................... 522,700 8,199,856
JP Realty, Inc.................................. 85,700 1,681,863
Kimco Realty Corp............................... 57,350 2,276,078
Malan Realty Investors, Inc..................... 136,200 2,162,175
Manufactured Home Communities, Inc.............. 417,800 10,471,113
Pennsylvania Real Estate Investment Trust....... 51,100 993,256
Sunstone Hotel Investors, Inc................... 162,300 1,531,706
TriNet Corporate Realty Trust, Inc.............. 170,000 4,547,500
Vornado Operating, Inc.......................... 40,400 325,725
Vornado Realty Trust............................ 1,260,100 42,528,375
Walden Residential Properties, Inc.............. 362,100 7,400,419
--------------
267,528,258
--------------
RETAIL -- 3.9%
Heilig-Meyers Co................................ 1,396,300 9,337,756
J.C. Penney Co., Inc............................ 608,100 28,504,688
The Limited, Inc................................ 1,534,700 44,698,138
--------------
82,540,582
--------------
TELECOMMUNICATIONS -- 1.1%
Telefonos de Mexico SA, (Class "L" Stock), ADR,
(Mexico)...................................... 469,700(b) 22,868,519
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
81
<PAGE>
EQUITY INCOME PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
TEXTILES -- 0.6%
Garan, Inc...................................... 3,000 $ 84,375
Kellwood Co..................................... 529,300 13,232,500
--------------
13,316,875
--------------
TOBACCO -- 5.5%
Philip Morris Co., Inc.......................... 850,000 45,475,000
RJR Nabisco Holdings Corp....................... 2,452,880 72,819,875
--------------
118,294,875
--------------
TRUCKING/SHIPPING -- 0.5%
Yellow Corp. (a)................................ 561,000 10,729,125
--------------
UTILITY - ELECTRIC -- 0.4%
Cleco Corp...................................... 6,200 212,738
First Energy Corp. (a).......................... 24,965 812,923
Pacific Gas & Electric, Co...................... 244,800 7,711,200
--------------
8,736,861
--------------
WASTE MANAGEMENT -- 0.7%
Waste Management, Inc........................... 320,442 14,940,608
--------------
TOTAL COMMON STOCKS
(cost $1,702,255,422).......................................... 1,960,222,283
--------------
PREFERRED STOCKS -- 4.7%
INTEGRATED PRODUCERS -- 0.1%
Unocal Corp. (Conv.) Series 6.25%............... 35,072 1,709,760
--------------
METALS-FERROUS -- 0.8%
Bethlehem Steel Corp. (Cum. Conv.), $3.50....... 264,000 10,197,000
Rouge Steel, 7.25%.............................. 267,700 2,476,225
USX Capital Trust (Cum. Conv.), 6.75%........... 116,900 4,902,494
--------------
17,575,719
--------------
METALS-NON FERROUS -- 0.1%
Hecla Mining Co. (Cum. Conv.), 7.00%, Series
B............................................. 61,200 2,325,600
--------------
REAL ESTATE DEVELOPMENT -- 0.6%
Archstone Communities Trust, $1.75.............. 55,600 1,487,300
Union Pacific Capital Trust, 6.25%.............. 243,900 11,219,400
--------------
12,706,700
--------------
RETAIL -- 1.9%
Kmart Corp. (Cum. Conv.), 7.75%................. 685,300 39,704,569
--------------
TELECOMMUNICATIONS -- 1.2%
Telecomunicacoes Brasileiras S.A., ADR, Series
B, (Brazil)................................... 358,300 26,043,931
--------------
TOTAL PREFERRED STOCKS
(cost $116,629,674)............................................ 100,066,279
--------------
WARRANT(A) UNITS
-------------
CONSTRUCTION
Morrison Knudsen Corp.,
expiring 03/11/03............................. 5,689 17,778
--------------
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CONVERTIBLE BONDS -- 0.8% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
EXPLORATION & PRODUCTION -- 0.1%
Oryx Energy Co.,
7.50%, 05/15/14............................... B2 $ 1,800 $ 1,795,500
--------------
OIL & GAS SERVICES -- 0.2%
Baker Hughes, Inc.,
Zero Coupon, 05/05/08......................... A2 6,060 3,976,875
--------------
REAL ESTATE DEVELOPMENT -- 0.2%
Centertrust Retail Properties Inc.,
7.50%, 01/15/01............................... NR 1,020 963,900
7.50%, 01/15/01............................... B2 610 576,450
Malan Realty Investors, Inc.,
9.50%, 07/15/04............................... NR 3,000 2,895,000
--------------
4,435,350
--------------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
CONVERTIBLE BONDS (CONTINUED) (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
<S> <C> <C> <C>
RETAIL -- 0.3%
Charming Shoppes, Inc.,
7.50%, 07/15/06............................... B2 $ 8,160 $ 7,550,530
--------------
TOTAL CONVERTIBLE BONDS
(cost $18,612,250)....................................................... 17,758,255
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $1,837,497,346).................................................... 2,078,064,595
--------------
SHORT-TERM INVESTMENTS -- 5.0%
LOAN PARTICIPATION NOTE -- 1.6%
Alltel Corp.,
5.75%, 01/04/99............................... P1 35,000(c) 35,000,000
--------------
COMMERCIAL PAPER -- 0.7%
Countrywide Home Loan, Inc.,
6.75%, 01/04/99............................... P1 8,000(c) 7,995,500
5.40%, 01/04/99............................... P1 6,098(c) 6,095,256
--------------
14,090,756
--------------
REPURCHASE AGREEMENT -- 2.7%
Joint Repurchase Agreement Account,
4.693%, 01/04/99
(Note 5).................................... 58,712 58,712,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $107,802,756)...................................................... 107,802,756
--------------
TOTAL INVESTMENTS -- 101.9%
(cost $1,945,300,102; Note 6)............................................ 2,185,867,351
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.9%)............................
(43,546,536)
--------------
NET ASSETS -- 100.0%....................................................... $2,142,320,815
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt
NR Not Rated by Moody's or Standard & Poor's
AG Aktiengesellschaft (German Stock Company)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Portion of securities on loan with an aggregate market value of
$46,303,663; cash collateral of $49,079,500 was received with which the
portfolio purchased securities.
(c) Represents security purchased with cash collateral received for securities
on loan.
SEE NOTES TO FINANCIAL STATEMENTS.
82
<PAGE>
EQUITY PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 92.0%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE
Raytheon Co..................................... 44,639 $ 2,307,278
--------------
AUTOS - CARS & TRUCKS -- 2.8%
General Motors Corp............................. 700,000 50,093,750
LucasVarity PLC (United Kingdom)................ 29,951,922 99,787,075
Navistar International Corp. (a)................ 395,200 11,263,200
PACCAR, Inc..................................... 279,400 11,490,325
--------------
172,634,350
--------------
BANKS AND SAVINGS & LOANS -- 6.1%
Bank of New York Co., Inc....................... 2,400,000 96,600,000
BankAmerica Corp................................ 1,789,856 107,615,092
Chase Manhattan Corp............................ 1,216,800 82,818,450
Mellon Bank Corp................................ 270,100 18,569,375
Mercantile Bankshares Corp...................... 419,400 16,146,900
Morgan (J.P.) & Co., Inc........................ 327,900 34,449,994
National City Corp.............................. 61,560 4,463,100
Republic New York Corp.......................... 450,000 20,503,125
--------------
381,166,036
--------------
CHEMICALS -- 2.4%
BOC Group, PLC ADR (United Kingdom)............. 800,000 21,800,000
Dow Chemical Co................................. 556,300 50,588,531
Eastman Chemical Co............................. 941,550 42,134,362
Potash Corp. of Saskatchewan Inc., (Canada)..... 380,000 24,272,500
Wellman, Inc.................................... 798,200 8,131,662
Witco Corp...................................... 268,800 4,284,000
--------------
151,211,055
--------------
COMPUTERS -- 5.3%
Compaq Computer Corp............................ 3,669,250 153,879,172
Gerber Scientific, Inc.......................... 419,800 9,996,487
Hewlett-Packard Co.............................. 1,100,000 75,143,750
NCR Corp........................................ 100,000 4,175,000
Seagate Technology, Inc. (a).................... 2,975,800 90,017,950
--------------
333,212,359
--------------
CONSTRUCTION & HOUSING -- 1.5%
American Standard Co., Inc. (a)................. 1,050,000 37,734,375
Centex Corp..................................... 1,200,000 54,075,000
--------------
91,809,375
--------------
DIVERSIFIED CONSUMER PRODUCTS -- 1.2%
Eastman Kodak Co................................ 889,800 64,065,600
Gibson Greeting, Inc. (a)....................... 750,000 8,906,250
--------------
72,971,850
--------------
ELECTRONICS -- 5.3%
AMP Inc......................................... 1,644,191 85,600,694
Arrow Electronics, Inc. (a)..................... 2,145,500 57,258,031
Avnet, Inc...................................... 887,600 53,699,800
Harris Corp..................................... 2,884,000 105,626,500
Hitachi Ltd. ADR................................ 515,000 31,125,312
--------------
333,310,337
--------------
FINANCIAL SERVICES -- 5.4%
American Express Co............................. 350,000 35,787,500
Citigroup, Inc.................................. 1,941,601 96,109,249
Lehman Brothers Holdings, Inc................... 849,800 37,444,312
Morgan Stanley Dean Witter & Co................. 2,335,000 165,785,000
--------------
335,126,061
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
FOREST PRODUCTS -- 9.2%
Fort James Corp................................. 664,000 $ 26,560,000
Georgia-Pacific Corp............................ 1,724,000 100,961,750
Georgia-Pacific Timber Group.................... 1,158,000 27,574,875
International Paper Co.......................... 1,820,000 81,558,750
Mead Corp....................................... 2,306,000 67,594,625
Rayonier Inc.................................... 830,400 38,146,500
Temple-Inland, Inc.............................. 1,240,500 73,577,156
Weyerhaeuser Co................................. 1,522,500 77,362,031
Willamette Industries, Inc...................... 2,500,000 83,750,000
--------------
577,085,687
--------------
HOSPITALS/ HOSPITAL MANAGEMENT -- 9.4%
Columbia/HCA Healthcare Corp.................... 5,790,100 143,304,975
Foundation Health Systems, Inc. (a)............. 4,724,610 56,400,032
PacifiCare Health Systems, Inc. (a)............. 838,800 66,684,600
Tenet Healthcare Corp. (a)...................... 5,122,832 134,474,340
Wellpoint Health Networks Inc................... 2,120,300 184,466,100
--------------
585,330,047
--------------
INSURANCE -- 13.1%
American Financial Group, Inc................... 552,700 24,249,712
American General Corp........................... 879,704 68,616,912
Chubb Corp...................................... 2,206,400 143,140,200
Equitable Companies, Inc........................ 1,466,900 84,896,837
Loews Corp...................................... 1,775,000 174,393,750
Old Republic International Corp................. 2,926,327 65,842,358
SAFECO Corp..................................... 2,855,800 122,620,913
St. Paul Companies, Inc......................... 1,653,800 57,469,550
Tokio Marine & Fire Insurance Co. Ltd., ADR
(Japan)....................................... 656,400 39,876,300
United Healthcare Corp.......................... 928,000 39,962,000
--------------
821,068,532
--------------
LEISURE -- 1.1%
Hilton Hotels Corp.............................. 3,470,600 66,375,225
--------------
METALS-FERROUS -- 0.2%
Birmingham Steel Corp........................... 1,492,400 6,249,425
Carpenter Technology Corp....................... 100,000 3,393,750
--------------
9,643,175
--------------
METALS-NON FERROUS -- 1.4%
Aluminum Company of America..................... 941,000 70,163,313
Cyprus Amax Minerals Co......................... 1,490,400 14,904,000
Nord Resources Corp. (a)........................ 130,500 130,500
--------------
85,197,813
--------------
OIL & GAS -- 2.7%
Amerada Hess Corp............................... 325,000 16,168,750
Atlantic Richfield Co........................... 1,100,000 71,775,000
Keyspan Energy Co............................... 1,356,432 42,049,392
Total SA, ADR, (France)......................... 738,365 36,733,659
--------------
166,726,801
--------------
OIL & GAS EXPLORATION/PRODUCTION -- 2.8%
Elf Aquitaine SA, ADR, (France)................. 2,424,433 137,283,519
Occidental Petroleum Corp....................... 1,100,000 18,562,500
Oryx Energy Co. (a)............................. 1,600,000 21,500,000
--------------
177,346,019
--------------
PRECIOUS METALS -- 1.5%
Freeport-McMoRan Copper & Gold, Inc. (Class
"A").......................................... 3,853,300 37,328,844
Freeport-McMoRan Copper & Gold, Inc. (Class
"B").......................................... 319,600 3,335,825
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
83
<PAGE>
EQUITY PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
PRECIOUS METALS (CONT'D.)
Kinross Gold Corp. (a).......................... 105,126 $ 243,104
Newmont Mining Corp............................. 3,057,000 55,217,063
--------------
96,124,836
--------------
RESTAURANTS -- 2.3%
Darden Restaurants, Inc......................... 7,922,700 142,608,600
--------------
RETAIL -- 7.9%
Dillards, Inc................................... 3,649,000 103,540,375
HomeBase, Inc. (a).............................. 1,300,000 8,287,500
IKON Office Solutions, Inc...................... 5,193,000 44,465,063
Kmart Corp. (a)................................. 6,500,000 99,531,250
Nine West Group Inc. (a)........................ 1,430,800 22,266,825
Pep Boys - Manny, Moe & Jack.................... 2,025,000 31,767,188
Sears, Roebuck and Co........................... 690,000 29,325,000
Tandy Corp...................................... 2,784,900 114,703,069
Toys 'R' Us, Inc. (a)........................... 2,350,000 39,656,250
--------------
493,542,520
--------------
SEMICONDUCTORS -- 0.4%
National Semiconductor Corp. (a)................ 1,905,600 25,725,600
--------------
TELECOMMUNICATIONS -- 3.6%
Alltel Corp..................................... 1,255,088 75,069,951
AT&T Corp....................................... 1,100,000 82,775,000
Loral Corp...................................... 2,600,000 46,312,500
Portugal Telecom SA, ADR, (Portugal)............ 409,900 18,291,788
--------------
222,449,239
--------------
TEXTILES
Worldtex, Inc. (a).............................. 107,199 388,596
--------------
TOBACCO -- 3.5%
Philip Morris Co., Inc.......................... 2,025,000 108,337,500
RJR Nabisco Holdings Corp....................... 3,710,000 110,140,625
--------------
218,478,125
--------------
TRANSPORTATION -- 0.2%
Marine Transport Corp. (a)...................... 100,000 225,000
OMI Corp. (a)................................... 1,000,000 3,250,000
Overseas Shipholding Group, Inc................. 600,000 9,637,500
--------------
13,112,500
--------------
UTILITY - ELECTRIC -- 1.7%
American Electric Power, Inc.................... 180,000 8,471,250
GPU, Inc........................................ 500,000 22,093,750
Houston Industries, Inc......................... 974,519 31,306,423
Unicom Corp..................................... 1,112,900 42,916,206
--------------
104,787,629
--------------
UTILITY - WATER -- 0.1%
American Water Works Co., Inc................... 270,000 9,112,500
--------------
WASTE MANAGEMENT -- 0.9%
Waste Management, Inc........................... 1,176,892 54,872,590
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $4,261,005,459).......................................... 5,743,724,735
--------------
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
SHORT-TERM INVESTMENTS -- 8.1% (UNAUDITED) (000) (NOTE 2)
------------ --------- --------------
COMMERCIAL PAPER -- 7.0%
Barton Capital Corp.,
5.60%, 01/14/99............................... P1 $ 60,000 $ 59,878,667
Clipper Receivables Corp.,
5.42%, 01/22/99............................... P1 38,000 37,879,857
Countrywide Home Loan,
5.10%, 01/04/99............................... P1 33,850 33,835,614
Falcon Asset Securitization Corp.,
5.68%, 01/21/99............................... P1 21,332 21,264,686
Four Winds Funding Corp.,
5.70%, 01/29/99............................... P1 50,000 49,778,333
Old Line Funding Corp.,
5.40%, 01/27/99............................... P1 42,000 41,836,200
Thunder Bay Funding Inc.,
5.60%, 01/15/99............................... P1 27,447 27,387,226
5.70%, 01/20/99............................... P1 30,000 29,909,750
Triple-A One Funding Corp.,
5.55%, 01/19/99............................... P1 30,000 29,916,750
Wells Fargo & Co.,
5.70%, 01/22/99............................... P1 50,000 49,833,750
Windmill Funding Corp.,
5.57%, 01/22/99............................... P1 23,000 22,925,269
5.57%, 01/25/99............................... P1 37,000 36,862,606
--------------
441,308,708
--------------
REPURCHASE AGREEMENT -- 1.0%
Joint Repurchase Agreement Account,
4.693%, 01/04/99 (Note 5)..................... 60,667 60,667,000
--------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.1%
Federal National Mortgage Association,
4.94%, 02/23/99............................... 5,000 4,995,354
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $506,971,062)...................................................... 506,971,062
--------------
TOTAL INVESTMENTS -- 100.1%
(cost $4,767,976,521; Note 6)............................................ 6,250,695,797
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.1%)............................
(3,649,163)
--------------
NET ASSETS -- 100.0%....................................................... $6,247,046,634
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
ADR American Depository Receipt.
PLC Public Limited Company (British Corporation).
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation).
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
84
<PAGE>
PRUDENTIAL JENNISON PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 96.9%
VALUE
COMMON STOCKS SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AEROSPACE -- 1.2%
Raytheon Co. (Class "A" Stock).................. 118,400 $ 6,119,800
Raytheon Co. (Class "B" Stock).................. 156,100 8,312,325
--------------
14,432,125
--------------
BANKS AND SAVINGS & LOANS -- 2.7%
Chase Manhattan Corp............................ 477,500 32,499,844
--------------
BROADCASTING SERVICES -- 1.1%
Infinity Broadcasting Corp. (a)................. 462,300 12,655,462
--------------
BUSINESS SERVICES -- 1.4%
Omnicom Group, Inc.............................. 288,700 16,744,600
--------------
COMPUTER SERVICES -- 13.0%
3Com Corp. (a).................................. 275,700 12,354,806
Cadence Design Systems, Inc. (a)................ 529,400 15,749,650
Cisco Systems, Inc. (a)......................... 349,875 32,472,773
HBO & Co........................................ 551,500 15,821,156
Microsoft Corp. (a)............................. 281,500 39,040,531
Oracle Corp. (a)................................ 661,500 28,527,187
PLATINUM Technology, Inc. (a)................... 659,708 12,616,915
--------------
156,583,018
--------------
COMPUTERS -- 6.8%
Compaq Computer Corp............................ 495,600 20,784,225
Dell Computer Corp. (a)......................... 258,100 18,889,694
Hewlett-Packard Co.............................. 292,000 19,947,250
International Business Machines Corp............ 115,500 21,338,625
--------------
80,959,794
--------------
DIVERSIFIED OFFICE EQUIPMENT -- 1.5%
Xerox Corp...................................... 153,100 18,065,800
--------------
DIVERSIFIED OPERATIONS -- 2.8%
General Electric Co............................. 330,900 33,772,481
--------------
DRUGS AND MEDICAL SUPPLIES -- 12.1%
American Home Products Corp..................... 431,700 24,310,106
Eli Lilly & Co.................................. 169,200 15,037,650
Merck & Co., Inc................................ 154,400 22,802,950
Pfizer, Inc..................................... 181,300 22,741,819
Pharmacia & Upjohn, Inc......................... 213,000 12,061,125
Schering-Plough Corp............................ 517,800 28,608,450
Warner-Lambert Co............................... 257,000 19,323,188
--------------
144,885,288
--------------
ELECTRONICS -- 8.4%
Applied Materials, Inc. (a)..................... 320,500 13,681,344
Intel Corp...................................... 206,100 24,435,731
KLA-Tencor Corp. (a)............................ 350,600 15,207,275
Symbol Technologies, Inc........................ 368,125 23,536,992
Texas Instruments, Inc.......................... 281,500 24,085,844
--------------
100,947,186
--------------
FINANCIAL SERVICES -- 11.0%
Associates First Capital Corp................... 506,000 21,441,750
Citigroup, Inc.................................. 617,700 30,576,150
MBNA Corp....................................... 929,037 23,167,860
Morgan Stanley Dean Witter & Co................. 384,020 27,265,420
Schwab (Charles) Corp. (a)...................... 308,250 17,319,797
Washington Mutual, Inc.......................... 322,100 12,300,194
--------------
132,071,171
--------------
INSURANCE -- 6.1%
Ace Ltd......................................... 456,500 15,720,719
American International Group, Inc............... 216,800 20,948,300
Mutual Risk Management, Ltd..................... 383,332 14,997,865
<CAPTION>
COMMON VALUE
STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
Provident Companies, Inc........................ 252,400 10,474,600
UNUM Corp....................................... 178,200 10,402,425
--------------
72,543,909
--------------
INSURANCE (CONT'D.)
LEISURE -- 0.9%
Promus Hotel Corp. (a).......................... 334,700 $ 10,835,913
--------------
MEDIA -- 4.1%
CBS Corp. (a)................................... 901,600 29,527,400
Clear Channel Communications, Inc. (a).......... 362,100 19,734,450
--------------
49,261,850
--------------
RETAIL - RESTAURANTS -- 1.9%
McDonald's Corp................................. 299,900 22,979,838
--------------
RETAIL -- 10.3%
Home Depot, Inc................................. 585,300 35,813,044
Kohl's Corp. (a)................................ 371,500 22,824,031
Rite Aid Corp................................... 283,100 14,031,144
Staples, Inc. (a)............................... 483,900 21,140,381
The Gap, Inc.................................... 359,700 20,233,125
Wal-Mart Stores, Inc............................ 110,300 8,982,556
--------------
123,024,281
--------------
SOFTWARE -- 1.2%
Intuit, Inc. (a)................................ 203,000 14,717,500
--------------
TELECOMMUNICATIONS -- 10.4%
Airtouch Communications, Inc. (a)............... 307,200 22,156,800
Ascend Communications, Inc. (a)................. 202,000 13,281,500
MCI Wordcom, Inc. (a)........................... 778,200 55,835,850
Nokia AB Corp., (Japan), ADR.................... 147,000 17,704,313
Qwest Communications International (a).......... 302,700 15,135,000
--------------
124,113,463
--------------
TOTAL LONG-TERM INVESTMENTS
(cost $843,458,260)............................................ 1,161,093,523
--------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENT -- 3.6% (000)
-------------
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account,
4.693%, 01/04/99
(cost $43,284,000; Note 5).................. $ 43,284 43,284,000
--------------
TOTAL INVESTMENTS -- 100.5%
(cost $886,742,260; Note 5).................................... 1,204,377,523
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.5%)..................
(5,648,188)
--------------
TOTAL NET ASSETS -- 100.0%....................................... $1,198,729,335
--------------
--------------
</TABLE>
The following abbreviation is used in portfolio descriptions:
ADR American Depository Receipt
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
85
<PAGE>
GLOBAL PORTFOLIO
DECEMBER 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS -- 93.2%
VALUE
COMMON STOCKS -- 92.4% SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
AUSTRALIA -- 1.4%
AMP Limited..................................... 326,000 $ 4,120,529
Brambles Industries, Ltd........................ 298,600 7,256,327
FXF Trust....................................... 224,600 41,193
--------------
11,418,049
--------------
FEDERAL REPUBLIC OF GERMANY -- 1.8%
Mannesmann, AG.................................. 106,659 12,229,114
SAP, AG......................................... 6,580 2,843,954
--------------
15,073,068
--------------
FINLAND -- 3.4%
Nokia Corp. (Class "A" Stock)................... 236,662 28,974,152
--------------
FRANCE -- 9.7%
Casino Guichard Perrachon, SA................... 90,463 9,421,543
Elf Aquitaine, SA............................... 109,633 12,673,655
Legrand, SA..................................... 55,861 14,804,434
Pinault Printemps Redoute, SA................... 33,785 6,456,888
Suez Lyonnaise Des Eaux......................... 62,868 12,915,154
Thomson CSF..................................... 328,820 14,122,043
Valeo, SA....................................... 149,290 11,765,383
--------------
82,159,100
--------------
IRELAND -- 2.4%
Bank of Ireland................................. 917,988 20,058,961
--------------
ITALY -- 5.0%
Unicredito Italiano SpA......................... 4,786,492 28,426,851
Telecom Italia SpA.............................. 1,574,398 13,459,862
--------------
41,886,713
--------------
JAPAN -- 5.2%
Honda Motor Co.................................. 157,000 5,135,288
Nippon Telephone and Telegraph Corp............. 1,086 8,349,059
NTT Mobile Communication Network, Inc........... 216 8,855,191
Olympus Optical Co., Ltd........................ 1,070,000 12,254,177
Takefuji Corp................................... 131,700 9,579,237
--------------
44,172,952
--------------
NETHERLANDS -- 3.3%
ING Groep, N.V.................................. 242,234 14,776,328
Koninklijke Numico, N.V......................... 273,036 13,018,738
--------------
27,795,066
--------------
SPAIN -- 4.0%
Banco Central Hispanoamericano, SA.............. 1,155,224 13,735,794
Telefonica De Espana............................ 453,545 20,194,700
--------------
33,930,494
--------------
SWEDEN -- 4.3%
Drott, AB (Class "B" Shares).................... 182,794 1,681,558
Hennes & Mauritz, AB............................ 190,023 15,533,093
Nordbanken Holdings, AB......................... 2,193,279 14,082,865
Skanska, AB (Class "B" Shares).................. 195,773 5,439,126
--------------
36,736,642
--------------
SWITZERLAND -- 2.5%
Novartis, AG.................................... 7,831 15,388,428
UBS, AG......................................... 18,858 5,791,904
--------------
21,180,332
--------------
<CAPTION>
VALUE
COMMON STOCKS (CONTINUED) SHARES (NOTE 2)
------------- --------------
<S> <C> <C>
UNITED KINGDOM -- 10.4%
Bank of Scotland................................ 1,037,063 $ 12,388,630
Glaxo Wellcome PLC.............................. 351,881 12,114,335
Guest, Kean & Nettlefolds, PLC.................. 881,861 11,705,117
Hays, PLC....................................... 1,555,994 13,682,625
Siebe, PLC...................................... 2,275,337 8,928,172
Vodafone Group, PLC............................. 1,806,063 29,306,058
--------------
88,124,937
--------------
UNITED STATES -- 39.0%
Belo (A.H.) Corp. (Class "A" Stock)............. 514,900 10,265,819
Cisco Systems, Inc. (a)......................... 169,000 15,685,312
Citigroup, Inc.................................. 203,100 10,053,450
Computer Sciences Corp.......................... 199,000 12,823,062
Disney (Walt) Co................................ 300,600 9,018,000
Electronic Arts, Inc............................ 295,400 16,579,325
Fox Entertainment Group, Inc. (Class "A"
Stock)........................................ 418,600 10,543,487
Healthsouth Corp. (a)........................... 506,500 7,819,094
MCI WorldCom, Inc............................... 251,400 18,037,950
Microsoft Corp. (a)............................. 134,600 18,667,337
Office Depot, Inc............................... 304,700 11,254,856
Pfizer, Inc..................................... 48,100 6,033,544
PMC-Sierra, Inc................................. 289,900 18,299,938
Safeway, Inc. (a)............................... 468,800 28,567,500
SCI Systems, Inc. (a)........................... 189,200 10,926,300
Solectron Corp.................................. 129,200 12,007,525
Tenet Healthcare Corp. (a)...................... 341,800 8,972,250
Texas Instruments, Inc.......................... 218,400 18,686,850
The Limited, Inc................................ 175,800 5,120,175
Time Warner, Inc................................ 428,600 26,599,988
Transocean Offshore, Inc........................ 226,800 6,081,075
USA Networks, Inc............................... 404,300 13,392,438
Warner-Lambert Co............................... 66,800 5,022,525
Waste Management, Inc........................... 301,100 14,038,788
Wells Fargo & Co................................ 374,800 14,968,575
--------------
329,465,163
--------------
TOTAL COMMON STOCKS
(cost $539,856,453)............................................ 780,975,629
--------------
PREFERRED STOCKS -- 0.7%
FEDERAL REPUBLIC OF GERMANY
Wella, AG, 1.57%................................ 6,609 5,514,608
--------------
(cost $5,349,125)
RIGHTS(A) -- 0.1%
SPAIN
Telefonica, SA.................................. 453,545 403,254
--------------
(cost $256,876)
TOTAL LONG-TERM INVESTMENTS
(cost $545,462,454)............................................ 786,893,491
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
86
<PAGE>
GLOBAL PORTFOLIO (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENT -- 5.2% (000) (NOTE 2)
------------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT
UNITED STATES
Bear, Stearns & Co. Inc., 4.73%,
01/04/99 (cost $44,130,000)(b)................ $ 44,130 $ 44,130,000
--------------
TOTAL INVESTMENTS -- 98.4%
(cost $589,592,454; Note 6).................................... 831,023,491
--------------
FORWARD CURRENCY CONTRACTS -- AMOUNT PAYABLE TO COUNTERPARTIES
(C) -- (0.5%).................................................. (3,828,254)
OTHER ASSETS IN EXCESS OF OTHER LIABILITIES -- 2.1%..............
17,346,722
--------------
TOTAL NET ASSETS -- 100.0%....................................... $ 844,541,959
--------------
--------------
</TABLE>
The following abbreviations are used in portfolio descriptions:
AB Aktiebolag (Swedish Stock Company)
AG Aktiengesellschaft (German Stock Company)
N.V. Naamloze Vennootschap (Dutch Corporation)
PLC Public Limited Company (British Corporation)
SA Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation)
(a) Non-income producing security.
(b) Bear, Stearns & Co. Inc., repurchase price $44,153,193, due
1/4/99. The value of the collateral was $45,098,734
(c) Outstanding forward currency contracts at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
VALUE AT
FOREIGN CURRENCY SETTLEMENT CURRENT
CONTRACTS DATE VALUE DEPRECIATION
- -------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Sale:
Japanese Yen,
expiring 2/16/99 $ 2,200,000 $ 2,774,219 $ (574,219)
expiring 2/17/99 $ 2,450,000 $ 3,083,306 $ (633,306)
expiring 3/17/99 $ 1,775,000 $ 2,053,545 $ (278,545)
expiring 3/17/99 $ 5,925,000 $ 6,851,612 $ (926,612)
expiring 4/17/99 $ 6,259,542 $ 7,345,432 $(1,085,890)
expiring 6/24/99 $ 5,479,224 $ 5,632,213 $ (152,989)
expiring 6/28/99 $ 5,458,538 $ 5,635,231 $ (176,693)
-------------
$(3,828,254)
-------------
-------------
</TABLE>
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of December 31, 1998 were as
follows:
<TABLE>
<S> <C>
Commercial Banks 17.1%
Telecommunications 15.2%
Electronics 10.2%
Retail 9.0%
Computer Services 7.9%
Media 7.2%
Drugs & Medical Supplies 4.6%
Automobiles 3.4%
Machinery 2.5%
Construction 2.1%
Hospitals 2.0%
Electrical Equipment 1.7%
Environmental Services 1.7%
Commercial Services 1.6%
Chemicals 1.5%
Foods & Beverages 1.5%
Leisure 1.1%
Diversified Operations 0.9%
Oil & Gas Services 0.7%
Cosmetics & Soaps 0.6%
Insurance 0.5%
Real Estate Investment Trust 0.2%
Repurchase Agreement 5.2%
---------
98.4%
Forward currency contracts (0.5)%
Other assets in excess of liabilities 2.1%
---------
100.0%
---------
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
87
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
CERTAIN PORTFOLIOS 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 thse
financial statements pertains to only the ten Portfolios available for
investment by Variable Universal Life: Money Market Portfolio, Diversified Bond
Portfolio, Conservative Balance Portfolio, Flexible Managed Portfolio, High
Yield Bond Portfolio, Stock Index Portfolio, Equity Income Portfolio, Equity
Portfolio, Prudential Jennison Portfolio and Global Portfolio. Shares in the
Series Fund are currently sold only to certain separate accounts of The
Prudential Insurance Company of America ("The Prudential"), Pruco Life Insurance
Company and Pruco Life Insurance Company of New Jersey (together referred to as
the "Companies") to fund benefits under certain variable life insurance and
variable annuity contracts ("contracts") issued by the Companies. The accounts
invest in shares of the Series Fund through subaccounts that correspond to the
Portfolios. The accounts will redeem shares of the Series Fund to the extent
necessary to provide benefits under the contracts or for such other purposes as
may be consistent with the contracts. The ability of the issuers of the
securities held by the Money Market Portfolio to meet their obligations may be
affected by economic developments in a specific industry or region.
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.
The Money Market, Conservative Balanced and Flexible Managed Portfolios use
amortized cost to value short-term securities. Short-term securities that are
held in the other Portfolios which mature in more than 60 days are valued at
current market quotations and those short-term securities which mature in 60
days or less are valued at amortized cost.
The High Yield Bond Portfolio may hold up to 15% of its net assets in illiquid
securities, including those which are restricted as to disposition under
securities law ("restricted securities"). Certain issues of restricted
securities held by the High Yield Bond Portfolio at December 31, 1998 include
registration rights, some of which are currently under contract to be
registered. Restricted securities, sometimes referred to as private placements,
are valued pursuant to the valuation procedures noted above.
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.
88
<PAGE>
(ii) purchases and sales of investment securities, income and expenses - at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Series Fund are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Series Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from changes
in the market prices of securities held at the end of the fiscal year.
Similarly, the Series Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of long-term portfolio securities sold during the fiscal year. Accordingly,
these realized and unrealized foreign currency gains (losses) are included in
the reported net realized gains (losses) on investment transactions.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains or losses from holdings of foreign currencies, currency
gains or losses realized between the trade and settlement dates on security
transactions, and the difference between the amounts of dividends, interest and
foreign taxes recorded on the Series Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities (other than
investments) at fiscal year end exchange rates are reflected as a component of
net unrealized appreciation (depreciation) on investments and foreign
currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
FORWARD CURRENCY CONTRACTS: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Certain portfolios of the Series Fund enter into forward currency
contracts in order to hedge their exposure to changes in foreign currency
exchange rates on their foreign portfolio holdings or on specific receivables
and payables denominated in a foreign currency. The contracts are valued daily
at current exchange rates and any unrealized gain or loss is included in net
unrealized appreciation or depreciation on investments. Gain or loss is realized
on the settlement date of the contract equal to the difference between the
settlement value of the original and renegotiated forward contracts. This gain
or loss, if any, is included in net realized gain (loss) on foreign currencies.
Risks may arise upon entering into these contracts from the potential inability
of the counterparties to meet the terms of their contracts.
SHORT SALES: Certain portfolios of the Series Fund may sell a security it does
not own in anticipation of a decline in the market value of that security (short
sale). When the Portfolio makes a short sale, it must borrow the security sold
short and deliver it to the buyer. The proceeds of the short sale will be
retained by the broker-dealer through which it made the short sale as collateral
for its obligation to deliver the security upon conclusion of the sale. The
Portfolio may have to pay a fee to borrow the particular security and may be
obligated to remit any interest or dividends received on such borrowed
securities. A gain, limited to the price at which the Portfolio sold the
security short, or a loss, unlimited in magnitude, will be recognized upon the
termination of a short sale if the market price at termination is less than or
greater than, respectively, the proceeds originally received.
OPTIONS: The Series Fund may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value with respect to
securities which the Series Fund currently owns or intends to purchase. The
Series Fund's principal reason for writing options is to realize, through
receipts of premiums, a greater current return than would be realized on the
underlying security alone. When the Series Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Series Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Series Fund realizes a gain or loss to the extent of the
premium received or paid. If an option is exercised, the premium received or
paid is an adjustment to the proceeds from the sales or the cost of the purchase
in determining whether the Series Fund has realized a gain or loss. The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is also treated as a realized gain or loss.
Gain or loss on purchased options is included in net realized gain (loss) on
investment transactions. Gain or loss on written options is presented separately
as net realized gain (loss) on written option transactions.
The Series Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Series Fund bears the market risk of an unfavorable change in
89
<PAGE>
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 LENDING: The Series Fund (excluding the Money Market Portfolio) may
lend its portfolio securities to broker-dealers, qualified banks and certain
institutional investors. The loans are secured by collateral in an amount equal
to at least the market value at all times of the loaned securities plus any
accrued interest and dividends. During the time the securities are on loan, the
Series Fund will continue to receive the interest and dividends or amounts
equivalent thereto, on the loaned securities while receiving a fee from the
borrower or earning interest on the investment of the cash collateral. Loans are
subject to termination at the option of the borrower or the Series Fund. Upon
termination of the loan, the borrower will return to the lender securities
identical to the loaned securities. The Series Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities
and may share the interest earned on the collateral with the borrower. The
Series Fund bears the risk of delay in recovery of , or even loss of rights in,
the securities loaned should the borrower of the securities fail financially.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income, which is comprised of four elements: stated
coupon, original issue discount, market discount and market premium is recorded
on the accrual basis. Certain portfolios own shares of real estate investment
trusts ("REITs") which report information on the source of their distributions
annually. A portion of distributions received from REITs during the year is
estimated to be a return of capital and is recorded as a reduction of their
costs. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management. The Series Fund expenses are allocated to the
respective Portfolios on the basis of relative net assets except for expenses
that are charged directly at a Portfolio level.
CUSTODY FEE CREDITS: The Series Fund, exclusive of the Global Portfolio, has an
arrangement with its custodian bank, whereby uninvested monies earn credits
which reduce the fees charged by the custodian. Such custody fee credits are
presented as a reduction of gross expenses in the accompanying Statement of
Operations.
TAXES: For federal income tax purposes, each portfolio in the Series Fund is
treated as a separate taxpaying entity. It is the intent of the Series Fund to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends, interest and capital gains have been
provided for in accordance with the Series Fund's understanding of the
applicable country's tax rules and regulations.
DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions of each Portfolio are
declared in cash and automatically reinvested in additional shares of the Fund.
The Money Market Portfolio will declare and reinvest dividends from net
investment income and net realized capital gain (loss) daily. Each other
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.
90
<PAGE>
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Series Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. As a result of this
statement, the Series Fund changed the classification of distributions to
shareholders to disclose the amounts of undistributed net investment income and
accumulated net realized gain (loss) on investments available for distributions
determined in accordance with income tax regulations. For the year ended
December 31, 1998, the application of this statement increased (decreased)
undistributed net investment income ("UNI") and accumulated net realized gains
(losses) on investments ("GL") by the following amounts:
<TABLE>
<CAPTION>
UNI G/L
----------- -----------
<S> <C> <C>
Equity Portfolio....................... $ 105,151 $ (105,151)
Global Portfolio....................... (4,162,755) 4,162,755
</TABLE>
Net investment income, net realized gains and net assets were not affected by
these reclassifications.
NOTE 3: AGREEMENTS
The Series Fund has an investment advisory agreement with The Prudential.
Pursuant to this agreement The Prudential has responsibility for all investment
advisory services and supervises the subadvisers' performance of such services.
The Prudential has entered into a service agreement with The Prudential
Investment Corporation ("PIC"), which provides that PIC will furnish to The
Prudential such services as The Prudential may require in connection with the
performance of its obligations under the investment advisory agreement with the
Series Fund. In addition, The Prudential has entered into a subadvisory
agreement with Jennison Associates LLC ("Jennison"), under which Jennison
furnishes investment advisory services in connection with the management of the
Prudential Jennison Portfolio. The Prudential compensates Jennison for its
services as follows: 0.75% on the first $10 million of that Portfolio's average
daily net assets, 0.50% on the next $30 million, 0.35% on the next $25 million,
0.25% on the next $335 million, 0.22% on the next $600 million and 0.20%
thereafter. 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 to 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>
Money Market Porfolio.................. 0.40%
Diversified Bond Portfolio............. 0.40
Conservative Balanced Portfolio........ 0.55
Flexible Managed Portfolio............. 0.60
High Yield Bond Portfolio.............. 0.55
Stock Index Portfolio.................. 0.35
Equity Income Portfolio................ 0.40
Equity Portfolio....................... 0.45
Prudential Jennison Portfolio.......... 0.60
Global Portfolio....................... 0.75
</TABLE>
The Prudential has agreed to refund to a Portfolio (other than the Global
Portfolio), the portion of the investment advisory fee for that Portfolio equal
to the amount that the aggregate annual ordinary operating expenses (excluding
interest, taxes and brokerage commissions) exceeds 0.75% of the Portfolio's
average daily net assets. No refund was required for the year ended December 31,
1998.
PIC and Jennison are indirect, wholly-owned subsidiaries of The Prudential.
The Series Fund has a credit agreement (the "Agreement") with an unaffiliated
lender. The maximum commitment under the Agreement is $250,000,000. The
Agreement expired on December 18, 1998 and has
91
<PAGE>
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.
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 $662,219 in
brokerage commissions from transactions executed on behalf of the following
Portfolios:
<TABLE>
<CAPTION>
Fund Commission
- --------------------------------------- -----------
<S> <C>
Conservative Balanced Portfolio........ $ 32,490
Flexible Managed Portfolio............. 103,021
Equity Income Portfolio................ 160,840
Equity Portfolio....................... 294,641
Prudential Jennison Portfolio.......... 56,980
Global Portfolio....................... 14,247
-----------
$ 662,219
</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>
Diversified Bond Portfolio............. $ 31,305,000 3.36%
Conservative Balanced Portfolio........ 109,421,000 11.73
Flexible Managed Portfolio............. 482,631,000 51.75
High Yield Bond Portfolio.............. 33,890,000 3.63
Stock Index Portfolio.................. 86,854,000 9.31
Equity Income Portfolio................ 58,712,000 6.30
Equity Portfolio....................... 60,667,000 6.50
Prudential Jennison Portfolio.......... 43,284,000 4.64
All other portfolios (currently not
available to Variable Universal
Life)................................ 25,946,000 2.78
------------- ----------
$ 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.
92
<PAGE>
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 $120,272,486.
NOTE 6: PORTFOLIO SECURITIES
The aggregate cost of purchases and the proceeds from the sales of securities
(excluding short-term issues) for the fiscal year ended December 31, 1998 were
as follows:
Cost of Purchases:
<TABLE>
<CAPTION>
HIGH
DIVERSIFIED CONSERVATIVE FLEXIBLE YIELD STOCK EQUITY
BOND BALANCED MANAGED BOND INDEX INCOME
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Government Securities.................. 1$,084,548,820 2$,907,392,972 2$,497,336,303 0 0 0
Non-Government Securities.............. 1$,014,377,393 4$,664,947,720 4$,533,514,880 6$78,466,256 5$06,725,666 7$01,633,702
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL
EQUITY JENNISON GLOBAL
----------- ----------- -----------
<S> <C> <C> <C>
Government Securities.................. 0 0 0
Non-Government Securities.............. 1$,642,979,141 8$19,680,050 5$15,000,344
</TABLE>
Proceeds from Sales:
<TABLE>
<CAPTION>
HIGH
DIVERSIFIED CONSERVATIVE FLEXIBLE YIELD STOCK EQUITY
BOND BALANCED MANAGED BOND INDEX INCOME
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Government Securities.................. 9$81,769,931 2$,956,094,381 2$,461,697,036 0 0 0
Non-Government Securities.............. 8$00,302,342 4$,778,976,239 5$,139,626,859 4$13,571,009 $98,694,085 4$24,595,936
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL
EQUITY JENNISON GLOBAL
----------- ----------- -----------
<S> <C> <C> <C>
Government Securities.................. 0 0 0
Non-Government Securities.............. 1$,341,760,073 3$99,687,941 4$88,859,228
</TABLE>
The federal income tax basis and unrealized appreciation (depreciation) of the
Fund's investments as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
HIGH
DIVERSIFIED CONSERVATIVE FLEXIBLE YIELD STOCK EQUITY
BOND BALANCED MANAGED BOND INDEX INCOME
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross Unrealized Appreciation.......... $29,099,718 4$29,047,409 5$55,358,703 $14,026,170 1$,665,560,555 4$16,426,863
Gross Unrealized Depreciation.......... 16,654,189 164,278,673 320,658,740 93,507,623 40,647,788 175,859,614
Total Net Unrealized................... 12,445,529 264,768,736 234,699,963 (79,481,453) 1,624,912,767 240,567,249
Tax Basis.............................. 1,095,335,557 4,497,706,049 5,151,850,046 854,184,337 1,919,601,401 1,945,300,102
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL
EQUITY JENNISON GLOBAL
----------- ----------- -----------
<S> <C> <C> <C>
Gross Unrealized Appreciation.......... 1$,763,010,854 3$27,887,751 2$39,116,983
Gross Unrealized Depreciation.......... 280,291,578 10,960,715 12,753,049
Total Net Unrealized................... 1,482,719,276 316,927,036 226,363,934
Tax Basis.............................. 4,767,976,521 887,450,487 604,659,557
</TABLE>
For federal income tax purposes, the following Portfolios had capital loss
carryforwards as of December 31, 1998. Accordingly, no capital gain
distributions are expected to be paid to shareholders until net gains have been
realized in excess of such amounts:
<TABLE>
<CAPTION>
CAPITAL LOSSES CAPITAL LOSSES
POST OCTOBER CARRYFORWARDS CARRYFORWARDS
LOSSES DEFERRED UTILIZED IN 1998 AVAILABLE EXPIRATION DATE
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
High Yield Bond Portfolio.............. $ 5,542,044 $ 3,548,806 $ 2,841,673 12/31/2003
</TABLE>
93
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET
------------------------------------------------
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..... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income and realized and
unrealized gains..................... 0.52 0.54 0.51 0.56 0.40
Dividends and distributions............ (0.52) (0.54) (0.51) (0.56) (0.40)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 5.39% 5.41% 5.22% 5.80% 4.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $920.2 $657.5 $668.8 $613.3 $583.3
Ratios to average net assets:
Expenses............................. 0.41% 0.43% 0.44% 0.44% 0.47%
Net investment income................ 5.20% 5.28% 5.10% 5.64% 4.02%
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED BOND
-------------------------------------------------
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..... $ 11.02 $ 11.07 $ 11.31 $ 10.04 $ 11.10
--------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.69 0.80 0.76 0.76 0.68
Net realized and unrealized gains
(losses) on investments.............. 0.08 0.11 (0.27) 1.29 (1.04)
--------- -------- -------- -------- --------
Total from investment operations... 0.77 0.91 0.49 2.05 (0.36)
--------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.69) (0.83) (0.73) (0.75) (0.68)
Distributions from net realized
gains................................ (0.04) (0.13) -- (0.03) (0.02)
--------- -------- -------- -------- --------
Total distributions................ (0.73) (0.96) (0.73) (0.78) (0.70)
--------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 11.06 $ 11.02 $ 11.07 $ 11.31 $ 10.04
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 7.15% 8.57% 4.40% 20.73% (3.23)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,122.6 $816.7 $720.2 $655.8 $541.6
Ratios to average net assets:
Expenses............................. 0.42% 0.43% 0.45% 0.44% 0.45%
Net investment income................ 6.40% 7.18% 6.89% 7.00% 6.41%
Portfolio turnover rate................ 199% 224% 210% 199% 32%
</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.
94
<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%
</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.
95
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
HIGH YIELD BOND
------------------------------------------------
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..... $ 8.14 $ 7.87 $ 7.80 $ 7.37 $ 8.41
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.77 0.78 0.80 0.81 0.87
Net realized and unrealized gains
(losses) on investments.............. (0.94) 0.26 0.06 0.46 (1.10)
-------- -------- -------- -------- --------
Total from investment operations... (0.17) 1.04 0.86 1.27 (0.23)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.76) (0.77) (0.78) (0.84) (0.81)
Dividends in excess of net investment
income............................... -- -- (0.01) -- --
-------- -------- -------- -------- --------
Total distributions................ (0.76) (0.77) (0.79) (0.84) (0.81)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 7.21 $ 8.14 $ 7.87 $ 7.80 $ 7.37
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ (2.36)% 13.78% 11.39% 17.56% (2.72)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $789.3 $568.7 $432.9 $367.9 $306.2
Ratios to average net assets:
Expenses............................. 0.58% 0.57% 0.63% 0.61% 0.65%
Net investment income................ 10.31% 9.78% 9.89% 10.34% 9.88%
Portfolio turnover rate................ 63% 106% 88% 139% 69%
</TABLE>
<TABLE>
<CAPTION>
STOCK INDEX
----------------------------------------------------
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..... $ 30.22 $ 23.74 $ 19.96 $ 14.96 $ 15.20
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.42 0.43 0.40 0.40 0.38
Net realized and unrealized gains
(losses) on investments.............. 8.11 7.34 4.06 5.13 (0.23)
--------- --------- --------- --------- --------
Total from investment operations... 8.53 7.77 4.46 5.53 0.15
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.42) (0.42) (0.40) (0.38) (0.37)
Distributions from net realized
gains................................ (0.59) (0.87) (0.28) (0.15) (0.02)
--------- --------- --------- --------- --------
Total distributions................ (1.01) (1.29) (0.68) (0.53) (0.39)
--------- --------- --------- --------- --------
Net Asset Value, end of year........... $ 37.74 $ 30.22 $ 23.74 $ 19.96 $ 14.96
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
TOTAL INVESTMENT RETURN:(B)............ 28.42% 32.83% 22.57% 37.06% 1.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $3,548.1 $2,448.2 $1,581.4 $1,031.3 $664.5
Ratios to average net assets:
Expenses............................. 0.37% 0.37% 0.40% 0.38% 0.42%
Net investment income................ 1.25% 1.55% 1.95% 2.27% 2.50%
Portfolio turnover rate................ 3% 5% 1% 1% 2%
</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.
96
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EQUITY INCOME
----------------------------------------------------
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..... $ 22.39 $ 18.51 $ 16.27 $ 14.48 $ 15.66
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.56 0.61 0.58 0.64 0.66
Net realized and unrealized gains
(losses) on investments.............. (1.03) 6.06 2.88 2.50 (0.46)
--------- --------- --------- --------- --------
Total from investment operations... (0.47) 6.67 3.46 3.14 0.20
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.59) (0.57) (0.71) (0.62) (0.56)
Distributions from net realized
gains................................ (1.30) (2.22) (0.51) (0.73) (0.82)
--------- --------- --------- --------- --------
Total distributions................ (1.89) (2.79) (1.22) (1.35) (1.38)
--------- --------- --------- --------- --------
Net Asset Value, end of year........... $ 20.03 $ 22.39 $ 18.51 $ 16.27 $ 14.48
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
TOTAL INVESTMENT RETURN:(b)............ (2.38)% 36.61% 21.74% 21.70% 1.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $2,142.3 $2,029.8 $1,363.5 $1,110.0 $859.7
Ratios to average net assets:
Expenses............................. 0.42% 0.41% 0.45% 0.43% 0.52%
Net investment income................ 2.54% 2.90% 3.36% 4.00% 3.92%
Portfolio turnover rate................ 20% 38% 21% 64% 63%
</TABLE>
<TABLE>
<CAPTION>
EQUITY
------------------------------------------------
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..... $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 21.49
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.60 0.69 0.71 0.55 0.51
Net realized and unrealized gains on
investments.......................... 2.21 5.88 3.88 5.89 0.05
-------- -------- -------- -------- --------
Total from investment operations... 2.81 6.57 4.59 6.44 0.56
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.60) (0.70) (0.67) (0.52) (0.49)
Distributions from net realized
gains................................ (3.64) (1.76) (2.60) (0.94) (0.90)
-------- -------- -------- -------- --------
Total distributions................ (4.24) (2.46) (3.27) (1.46) (1.39)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 29.64 $ 31.07 $ 26.96 $ 25.64 $ 20.66
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 9.34% 24.66% 18.52% 31.29% 2.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $6,247.0 $6,024.0 $4,814.0 $3,813.8 $2,617.8
Ratios to average net assets:
Expenses............................. 0.47% 0.46% 0.50% 0.48% 0.55%
Net investment income................ 1.81% 2.27% 2.54% 2.28% 2.39%
Portfolio turnover rate................ 25% 13% 20% 18% 7%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
SEE NOTES TO FINANCIAL STATEMENTS.
97
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRUDENTIAL JENNISON
-----------------------------------------------
YEAR ENDED APRIL 25,
DECEMBER 31, 1995(d)(a)
---------------------------- TO
1998 1997 1996 DECEMBER 31, 1995
-------- -------- -------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 17.73 $ 14.32 $ 12.55 $ 10.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.04 0.04 0.02 0.02
Net realized and unrealized gains on
investments.......................... 6.56 4.48 1.78 2.54
-------- -------- -------- --------
Total from investment operations... 6.60 4.52 1.80 2.56
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.04) (0.04) (0.03) (0.01)
Distributions from net realized
gains................................ (0.38) (1.07) -- --
-------- -------- -------- --------
Total distributions................ (0.42) (1.11) (0.03) (0.01)
-------- -------- -------- --------
Net Asset Value, end of period......... $ 23.91 $ 17.73 $ 14.32 $ 12.55
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 37.46% 31.71% 14.41% 24.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $1,198.7 $495.9 $226.5 $63.1
Ratios to average net assets:
Expenses............................. 0.63% 0.64% 0.66% 0.79%(c)
Net investment income................ 0.20% 0.25% 0.20% 0.15%(c)
Portfolio turnover rate................ 54% 60% 46% 37%
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
------------------------------------------------
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..... $ 17.92 $ 17.85 $ 15.53 $ 13.88 $ 14.64
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.07 0.09 0.11 0.06 0.02
Net realized and unrealized gains
(losses) on investments.............. 4.38 1.11 2.94 2.14 (0.74)
-------- -------- -------- -------- --------
Total from investment operations... 4.45 1.20 3.05 2.20 (0.72)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.16) (0.13) (0.11) (0.24) (0.02)
Dividends in excess of net investment
income............................... (0.12) (0.10) -- -- --
Distributions from net realized
gains................................ (0.93) (0.90) (0.62) (0.31) (0.02)
-------- -------- -------- -------- --------
Total distributions................ (1.21) (1.13) (0.73) (0.55) (0.04)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 21.16 $ 17.92 $ 17.85 $ 15.53 $ 13.88
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN:(b)............ 25.08% 6.98% 19.97% 15.88% (4.89)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $844.5 $638.4 $580.6 $400.1 $345.7
Ratios to average net assets:
Expenses............................. 0.86% 0.85% 0.92% 1.06% 1.23%
Net investment income................ 0.29% 0.47% 0.64% 0.44% 0.20%
Portfolio turnover rate................ 73% 70% 41% 59% 37%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized
(d) Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS.
98
<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 Money Market, Diversified Bond,
Conservative Balanced, Flexible Managed, High Yield Bond, Stock Index, Equity
Income, Equity, Prudential Jennison and Global Portfolios (ten of the fifteen
portfolios that constitute The Prudential Series Fund, Inc.; the "Portfolios")
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 of the Prudential Jennison
Portfolio for the period April 25, 1995 through December 31, 1995 and the
financial highlights for each of the two years in the period ended December 31,
1995 for each of the other nine 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>
Money Market Porfolio $ 0.460 -- -- $ 0.460
Diversified Bond Portfolio 0.692 $ 0.041 -- 0.733
Conservative Balanced Portfolio 0.664 0.898 $ 0.044 1.606
Flexible Managed Portfolio 0.586 0.949 0.901 2.436
High Yield Bond Portfolio 0.761 -- -- 0.761
Stock Index Portfolio 0.420 0.029 0.559 1.008
Equity Income Portfolio 0.586 0.125 1.173 1.884
Equity Portfolio 0.606 0.094 3.544 4.244
Prudential Jennison Portfolio 0.044 -- 0.380 0.424
Global Portfolio 0.277 -- 0.928 1.205
</TABLE>
99
<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
</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>
100
<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 seventh 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 "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 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.
101
<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.
102
<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]
1-800-944-8786
7 a.m. - 6 p.m. CST
- --------------------------------------------------------------------------------
In the past, Contract Owners who held several variable contracts at the same
add-ress 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 Variable Universal Life Annual Report. Proxy material
and tax information will continue to be sent to each account of record.
<PAGE>
[GRAPHIC]
- --------------------------------------------------------------------------------
Whether providing insurance protection for home, family, and business, providing
for future education and retirement expenses, or offering innovations like
Critical Care Access, Prudential has 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 ------------
Minneapolis, MN 55440-0197 Bulk Rate
U.S. Postage
Address Service Requested PAID
Prudential
------------
VUL AR 12/98
[GRAPHIC]
Printed in the U.S.A.
on recycled paper.
